1. Section 13.2 Retirement Planning p. 324 What should retirement look like? How do communities benefit from retirees?

2. Why can their generation retire? Born in 1939 & 1945. What was different about their working years? Lifestyle?

3. What are 2 key factors in building wealth? Hint: shown below…

4. Your generations retirement Goal: $2,000,000 13.2 Objectives: *Compare/contrast investment options designed for retirement planning. *What are some types of plans? *Explain need to take an active role in your retirement planning. **In a 2010 survey of 226 registered investment advisors commissioned by Scottrade Advisor Services,77% suggested a Retirement savings goal of at least $2 million for members of Generation Y, those ages 18 to 26. http://money.usnews.com/money/retirement/articles/2011/09/15/gen-ys-2-million-retirement-price-tag

5. U.S. Retirement Statistics Out of 100 people who start working at the age of 25, by the age 65: 1% are wealthy 4% have adequate capital stowed away for retirement 3% are still working 63% are dependent on Social Security, friends, relatives or charity. 2013- the average Social Security recipient received around $15,000 a year in retirement benefits, according to the Social Security Administration. 29% are deceased. Do you see any concerns with these statistics ? Tuesday, 11 January 2011 16:09 Written by Ted Fowler Read 3178 timesTed Fowler Published in Financial BlogFinancial Blog

6. Why is it especially important for women to take an active role in retirement planning?

8. 13.2 RETIREMENT PLANNING: Social Security Pension Plans: Personal Investing: Defined benefit plan: IRA Defined contribution plan: ROTH IRA * 401K *403B Keogh Plan *Profit Sharing Plans *Employee Stock Ownership Plan

9. How does Social Security work? Administered by Federal Government. WHO PAYS? Current workers pay into fund. That money is used to help pay for people already collecting Social Security. How is benefit calculated? – how long you work, – earned income, – age you begin collecting SS benefits. (Earlier collectors receive less monthly benefit) – Born 1960 or later full retirement age: 67 – https://www.ssa.gov/planners/retire/retirechart.html

10. Do you see any problems with this plan?? Baby Boomer Statistics: As of January 1st, 2011 every single DAY more than 10,000 Baby Boomers reach the age of 65. That is going to keep happening every single day until 2029.

11. Social Security: In 1950, each retiree's Social Security benefit was paid for by 16 U.S. workers. In 2010, each retiree's Social Security benefit is paid for by approximately 3.3 U.S. workers. By 2025, there will be approximately 2 U.S. workers for each retireethere will be approximately 2 U.S. workers

12. 35% of Americans over 65 are totally dependent on Social Security… Will there be any money left by 2041?? Even if fund is depleted, there will still be enough tax base to pay about $781 for every $1000 owed. http://www.ssa.gov/newsletter/ Statement%20Insert%2025+.pdf

13. Do you currently pay into Social Security?? Jan. 1, 2013: Payroll taxes, which pay for Social Security, returned to their normal rate of 6.2% of income. They had been at 4.2 %. Do you think this deduction will continue to increase??

14. RETIREMENT PLANNING: Social Security For an average worker, Social Security replaces about 40 % of annual pre- retirement earnings **for big earners it will be less. Pension Plans: Personal Investing: Defined benefit plan: IRA Defined contribution plan: ROTH IRA * 401K *403B Keogh Plan *Profit Sharing Plans *Employee Stock Ownership Plan

15. Pension Plans: Offered by some Employers. Defined-Benefit Plan: HOW DOES IT WORK? – Employer pays retirees a fixed amount each month based on income earned and years of employment. Ex: Union workers, state and local gov’t workers – EMPLOYER ASSUMES ALL RISK- Have to invest $ and be able to pay retirees for life. Becoming less common. – Too expensive for them to continue? http://bottomline.nbcnews.com/_news/2012/10/24/14646131-3-states-with-sinking-pension- funds?lite

16. RETIREMENT PLANNING: Social Security For an average worker, Social Security replaces about 40 % of annual pre- retirement earnings Pension Plans: Contributions and earnings are not taxed until collected. Defined benefit plan: Defined contribution plan: * Less common/underfunded ex: * 401K *403B

17. Defined Contribution Plans- ex:401K How does it work? Employee contributes to a plan invested on their behalf. – Employer may or may not contribute to plan. If they do, it is called a “company match” – Amount employee accumulates is determined by how much they contribute and how well the investment performs. – EMPLOYEE ASSUMES ALL RISK.

18. Defined contribution statistics: According to one recent survey, 36 % of Americans say that they don't contribute anything at all to retirement savings. that they don't contribute anything at all

19. 401K plans Choice of Investment Plans are selected by your employer. ( mutual funds/stocks/bonds, etc.) Employee Contributes % of pre tax (gross) income. – Payroll deduction Experts RECOMMEND 15-18% of pay to grow enough for retirement. *Employer may match your contribution up to certain percent. ex: 4% match You contribute 4% employer contributes 4% 0% 0% 10% 4%

20. If your employer offers a 6% match to your 401k: You contribute 6% What % of return are you getting? Always “Meet the Match”! Contribute whatever the match % is.

21. 401K Concerns: You decide how to allocate the funds. – More risk or less? – May change allocations over time. – Part of your contribution pays fees for administering the fund. Some may be high. ie: Brokers, fund managers. You are responsible for managing the fund. If you change jobs- may “rollover” investment to another investment to keep earning. IF you take $ out to spend before 59 ½ yrs. Will be penalized ex: 30%+ of withdraw owed in taxes. ($10,000 - $3000 = $7000)

22. Vested After a specified # years, you will be “100% vested” in the plan. You have 100% ownership of all funds in your account (company match funds+ your contributions) If you leave co. after fully vested, keep all $, may transfer to another investment account. If you leave co. before fully vested, lose some of match. **Pay taxes on the money when you withdraw after 59 ½ years of age.

23. CEO pensions vs. workers. From 1978 to 2011, CEO compensation increased more than 725 %, a rise substantially greater than stock market growth and the painfully slow 5.7 % growth in worker compensation over the same period. Look at how CEO’s pension compares to their average worker’s 401K. (back of notes sheet) http://www.nbcnews.com/business/boss-makes-how-much-study-shows-huge-pension-pay-gap-2D11591448

24. 10/19/2009 http://content.time.com/time/magazine/article/0, 9171,1929233,00.html http://content.time.com/time/magazine/article/0, 9171,1929233,00.html

25. Review questions: hard copy passed out in class. – 1)If you never save/invest for retirement what will happen? – 2) Why are defined contribution plans now more common than defined benefit plans? – 3) Why is this shift making it more challenging for Americans to retire? – 4) If your employer offers a 401K with a 3% match, what should you do? What does 100% vested mean? – 5) Why is it dangerous to take out money from retirement plans before 59 ½ years? – 6) What two factors help build your wealth?

26. What happened to Pensions? Frontline can you afford to retire? First segment. http://www.pbs.org/wgbh/pages/frontline/video/flv /generic.html?s=frol02p79&continuous=1 http://www.pbs.org/wgbh/pages/frontline/video/flv /generic.html?s=frol02p79&continuous=1 How pensions are changing for average Americans….United Airlines

27. Concerns about 401K The 401(k) plan was never designed to be a mainstream pension plan. a poor substitute for one. It’s a voluntary program that was intended to supplement retirement savings Employers don’t have to provide a 401K plan. Amateurs managing their own funds…risky. Limited choices offered by employer. Little/no guidance. Don’t contribute enough “Leakage”, changing jobs- change plans How/when to withdraw funds to maximize value & reduce taxes?

28. RETIREMENT PLANNING: Social Security Pension Plans: Personal Investing: Defined benefit plan: IRA Defined contribution plan: **ROTH IRA * 401K *403B Keogh Plan *Profit Sharing Plans *Employee Stock Ownership Plan

29. 403B Defined Contribution Plans Similar to a 401K but for non-profit organizations: – Ex:Teachers, librarians. – Anyone that works for a non-profit group may have a 403b plan to contribute with pretax (gross income). – Limited investment choices. – No “Match” from employer – Taxes paid when money is collected.

30. If your employer offers a 401K 1)What is the company match? Meet the match. 2) How long until 100% vested? so you can take all $ with you when if you change employers. 3)What type of funds are available to invest in? employer determines what funds are available to invest in…limited choices.

31. http://ameliagreenhall.com/pieces/cnn- 401k-fee-analysis

32. Other types of defined contribution plans: Profit Sharing incentive plans introduced by businesses that provide direct or indirect payments to employees that depend on company's profitability in addition to employees' regular salary and any bonuses. incentivebusinesses employees salarybonuses In publicly traded companies these plans typically amount to allocation of shares to employees.publicly traded companiesshares

33. ESOP- Employee Stock Ownership Plan Instead of profit sharing, employees give participants shares of company stock. Can not sell until employee leaves company or retires. Great If company stock value increases. Con’s: – Lacks diversity. – If company does not do well, neither will your stock. Worse case scenario- lose job and investment value – Can not be a sole source of retirement income.

34. ESOP- Employee Stock Ownership Plan http://www.nceo.org/main/article.php/id/11/ The Employee Ownership 100: America's Largest Majority Employee-Owned Companies

35. Personal Investment plans IRA: “Individual Retirement Account” Annual Contributions are limited by law. *Traditional IRA *Roth IRA *myra.gov starting Jan 2016

36. Traditional IRA contribution limits: YearAge 49 and BelowAge 50 and Above 2013–2014$5,500$6,500 Traditional IRA contributions are limited as follows: Reduces taxable income. Report contributions on your income tax to reduce taxes owed. Taxed at withdrawal… Most people expect to be in a lower tax bracket during retirement.

37. Personal Investment plans Traditional IRA: $ put in will not be taxed until withdrawn. must begin withdrawing by 70 ½ years. *tax penalty if withdrawn before 59 ½. yrs.

38. Homework that could change your life! Learn about your best investing option… Why you need a ROTH IRA…

39. Personal Investment plans Roth IRA: requires Pre-taxed $-- – Net pay contributions. (So you must be employed to start one) – If single and make over $127,000 can no longer contribute. – **TAX-FREE GROWTH** http://www.irs.gov/publications/p590/ch02.html#en_US_2011_publink1000230988

40. Most flexible plan Can make withdraws at any age with no penalty for the following: – Emergencies (contributions only) – Education (contributions only) – First time home purchase--- (after 5 years.) up to $10,000 If a couple each has $10,000 can take $20,000 out of Roth for purchase….Marry someone who also has a fully funded ROTH IRA.

41. http://www.bankrate.com/calculators/retirement/roth-ira-plan- calculator.aspx Does a ROTH IRA sound like a good idea?

42. Generally recommended to meet the match with a 401K plan and then put rest of your money into a ROTH IRA.

44. Myra.gov http://www.ksdk.com/story/news/2014/02/2 4/myra-retirement-accounts- information/5788505/ http://www.ksdk.com/story/news/2014/02/2 4/myra-retirement-accounts- information/5788505/

45. http://www.today.com/money/survey-third- americans-expect-work-until-they-drop- 8C11440612 http://www.today.com/money/survey-third- americans-expect-work-until-they-drop- 8C11440612