Securing Your Financial Future

SOURCE: Employee Benefit Research Institute Amount American Workers Have Saved for Retirement (65% are confident they will have enough money for retirement)

Christian Perspective  Ecclesiastes 5:10 Whoever loves money never has money enough; whoever loves wealth is never satisfied with his income. This too is meaningless.  Hebrews 13:5 Keep your lives free from the love of money and be content with what you have…  I Timothy 6:10 For the love of money is a root of all kinds of evil.

Christian Perspective  I Corinthians 16:2(Paul speaking) On the first day of each week, each one of you should set aside a sum of money in keeping with his income, saving it up, …  Proverbs 13:11 Dishonest money dwindles away, but he who gathers money little by little makes it grow.  Proverbs 13:22 A good man leaves an inheritance for his children's children, …

401K, 403B, 457, SEP Retirement Plans  Company sponsored retirement savings plans (supported by multiple types of mutual funds) –401K offered by “ for profit ” companies –403B offered by “ non profit ” companies –457 offered by government agencies –SEP available for self-employed individuals  In many cases, these retirement savings plans are replacing company sponsored pension plans

401K, 403B, 457, SEP Retirement Plans (cont’d)  Maximum contribution is 15% of earned income  Tax favored (tax advantaged) –Additions are made with “before- tax” dollars –All interest/dividends are tax deferred  Most companies will match the first 1-5% of each employee’s contribution  All balances must be rolled over to an IRA when you leave a job (to avoid taxes and 10% tax penalties)

Individual Retirement Accounts  Traditional IRA (very similar to a 401K or 403B plans) –All contributions are made with “before-tax” dollars –All mutual fund gains are tax differed –All future withdrawals are fully taxable –You must begin withdrawing money at age 70 ½ –Main use: Store (roll over) 401K/403B funds from previous jobs (and thus defer taxes)  Roth IRA (introduced in 1997) –All contributions are made with “after-tax” dollars –All mutual fund gains are tax free –All withdrawals are tax free (after age 59 ½ ) –You do not have to begin withdrawing money at 70 ½

Retirement Strategy  Begin investing 10% your first day at work –You will never miss what you never had –You will not have to make tough decisions later  Recommended Investment Strategy –First, invest in a 401K up to the matching percent –Second, invest in a Roth IRA up to the maximum amount allowed per year ($4,000 in 2005). –Third, go back and invest in your 401K up to the maximum allowed per year ($14,000 in 2005)

Retirement Savings Example  Your first job pays $30,000 per year and you get a raise of $3,000 per year thereafter.  You contribute 10% each month (payroll deduction)  Your employer matches the first 3% contribution  You contribute 10% for 45 years (ages 22–67)  Your final retirement “nest egg” will be: 401K + Roth IRA = Total $ 700,000 + $ 800,000 = $1,500,000 ( 5% - pessimistic ) $ 900,000 + $1,100,000 = $2,000,000 ( 6% - conservative ) $1,500,000 + $1,800,000 = $3,300,000 ( 8 % - avg. last 30 yrs ) $2,600,000 + $3,100,000 = $5,700,000 ( 10% - optimistic )

Summary  Every person is eligible to invest in their future  You will secure your financial future if you follow one simple rule…. Invest 10% beginning day one of your career  Don’t borrow from your 401K or 403B plan!  College is still the best option if you want: –More initial career options –Higher starting salary –More career advancement opportunities