Building Wealth Mr. Sullivan Retirement Building Wealth Mr. Sullivan

Three Phases of Life 1. Education 2. Work Force 3. Retirement

Retirement Employer Sponsored Retirement Accounts (401k, 403b, Pensions) Individual Retirement Accounts Roth and Traditional Social Security

Employer Sponsored Retirement Funds 401(k) 403(B) Pensions

Defined Benefit vs. Defined Contribution Company A offers to give you 30% of your salary if you’ve worked with them for 25 years before you retire Defined Contribution Company B agrees to invest an amount equal to 5% of your salary in your retirement plan. They then give you various options to invest your money.

Defined Benefit You work for UPS for 30 years. Because of your years of service, UPS has decided to give you $25,000 every year after you retire.

Defined Contribution You work for Associated Bank. Every year they agree to invest 5% of your pay into an account. By the time you retire, this fund could reach as high as $1,000,000. You may withdraw money each year to meet your living requirements.

Defined Benefit vs. Defined Contribution Which one is riskier? In a defined benefit plan the employer bears the bulk of the risk. In a defined contribution plan the employee bears the bulk of the risk.

Pension Number of Years X .015 X Final Salary Pension

Pension Emilio works for Wells Fargo for 35 years. By the end of his time there, his salary is $90,000. How much will Emilio receive in a pension every year?

Pension 35 x .015 x $90,000= $47,250

10 years 20 Years 30 Years Pension $55,000 $8,250 $72,000 $10,800 Years on the Job Salary Pension 10 years $55,000 $8,250 $72,000 $10,800 20 Years $16,500 $21,600 30 Years $24,750 $32,400

COLA COLA stands for Cost of Living Adjustments. Every year pensions may increase their payout by 3% to keep up with inflation. Fewer than 10% of pensions do this; however, most government pensions adjust their payout annually to make up for the increased cost of living.

Defined Contribution Plan 401(k) Plans allow you to deposit a percentage of your salary in a tax-deferred account. The portion of money set aside in this account is not taxed.

401(k) Will works for Home Depot, which offers will a 401(k). Will makes $40,000 a year and elects to set aside 5% of his income to a 401(k). $40,000x.05= $2,000 is invested into his 401(k)

Will’s 401(k) Earnings $40,000 - 401(k) $2,000 Taxable $38,000 At 25%, Will pays $9,500 in taxes Earnings $40,000 -401(k) $0 Taxable $40,000 At 25%, Will pays $10,000 in taxes With 401(k) Without 401(k)

401(k) Will saved $500 in taxes this year because he decided to invest in his 401(k).

401(k) Many companies also decide to match 401(k) contributions. Some companies match 50%. Some even match 100%.

Will’s 401(k) In Will’s case, if the company matched 50% of his $2,000 contribution, they would give him $1,000 to invest. If the company matched 100% of his contributions, they would give him an extra $2,000 to invest.

401(k) This is one of the rare cases in life where you are offered FREE MONEY!!! If your company matches 401(k) contributions, take advantage of the FREE MONEY!!!

Will’s 401(k) $2,000 Will’s Contr. $1,000 Emp. Contr. $3,000 Total 50% Match 100% Match

Will’s Options Will may now invest this money in: Stocks Bonds Mutual Funds ETF’s

401(k) Will sets aside $2,000 every year. Home Depot contributes an extra $1,000. This $3,000 is invested every year and eventually grows to $750,000.

401(k) When Will reaches 59 and ½, he will be eligible to withdrawal this money. However, because he did not pay taxes on this money when he was working, he is now responsible to pay taxes on the money in retirement. This is what the term TAX DEFERRED means.

401(k) Every year Will withdrawals $30,000 of his $750,000 401(k) to help pay his bills. This money is added to Will’s taxable income.

401(k) Withdrawals If Will is in the 15% tax bracket, he will owe: $30,000 X 15% $4,500 If Will is in the 15% tax bracket, he will owe $4,500 in taxes.

401(k) Restrictions If Will chooses to withdrawal this money before the age of 59 and ½, he will get charges with a 10% penalty. $750,000 x 10% = $75,000 as a penalty! Ouch!!!

401(k) Rollovers After ten years of working for Home Depot, Will has built a balance of $100,000 in his 401(k). Will decides to leave Home Depot because he has received a job offer from Menards for more money.

401(k) Rollover Will has a four options regarding his 401(k): 1. Will may leave it at Home Depot. May charge him a fee to manage his money Don’t forget about it!!! 2. Will may roll it over into a Menard’s 401(k) His balance will still be $100k, and he can still add money every month through his Menard’s 401(k) 3. Cash out his 401(k) Will be charged a 10% penalty if he is under 59 and ½. $100k x 10%= $10,000 penalty! 4. Transfer it into an IRA

401(k) Conclusion Tax Deferred- Allowed to pay taxes at a later day. Employer Match- 50%-100% Free Money!!! Not common in today’s economy. Allowed to choose your own investments Stocks, Bonds, Mutual Funds, or ETF’s Do not cash out before you are at least 59 and ½.

Selecting 401(k) Funds

401(k) Activity Select the Best Investments Age 22 Single Age 35 Married with 2 kids Age 55 Empty Nest Age 65 Retiring

Stable Portoflio

Conservative Portfolio

Balanced Portfolio

Moderate Porfolio

Aggressive Portfolio

Hi sully! Love Kube & Madison