1. It’s not just for grandparents any more!
Retirement Planning
Retirement Planning – It’s not just for grandparents anymore!
It’s not just for grandparents any more!

2. Assume their money is invested at 9% compounded interest
“I earned it. I should enjoy it NOW.”
“You never know what will happen in the future.”
Assume their money is invested at 9% compounded interest
Michelle and Michael make different savings decisions. Michelle is cautious, and she starts to save early. Her philosophy: "You never know what will happen in the future.“
Michael wants to enjoy life. His philosophy: "I earned it. I should enjoy it NOW."
Assume their money is invested at 9% compounded interest.
Michelle
Michael
Cautious
Saves early
Wants to enjoy life
Doesn’t save

3. Wow, I’m so glad I saved early!
Michelle vs. Michael
AGE WHEN SAVINGS BEGAN
RETIREMENT SAVINGS
Let’s see how their different decisions impact their lifetime savings
Interest
Contributions
Let’s see how their different decisions impact their lifetime savings. Since Michelle started to save early, she saved $2000 a year for only 10 years. Then she stopped, and never added another dime. Michael, on the other hand, waited 10 years to start saving, and then saved $2000 a year every year for the next 33 years.
Look at the difference starting to save early makes. Michelle ends up with a LOT more money. And imagine how much money she would have if she had continued to invest her whole life! (Close to $1,000,000!)
$2,000 for 33 years
$2,000 for 10 years
Wow, I’m so glad I saved early!
Bummer.

4. It’s not how much you save
The Best Way to Save
Michelle
Michael
Age
Years
Year End Value 25 1
$ 2,188
$ 0 30 6
$ 16,617 35 11
$ 37,021 40 16
$ 57,963 45 21
$ 90,752
$ 30,209 50 26
$ 142,089
$ 74,580 55 31
$ 222,466
$ 129,961 60 36
$348,311
$ 216,670 65 41
$ 545,344
$ 352,427
Value at Retirement
$ 649,612
$422,375
Total Contributions
$ 22,000
$ 66,000
Net Earnings
$ 629,000
$ 356,375
It’s how soon you start
It’s not how much you save
Most people think that unless you can save thousands of dollars at a time, it isn't worth bothering. But it's not how much you save, it's how soon you start. With compounded interest, you earn interest on top of interest. That means that even putting away a couple of hundred dollars a year, just a few dollars per paycheck, can significantly add up over the years.

5. Retirement SavingsPlans
Investments:
From Most to Least Risky
Commodities
Collectibles
Stocks
Mutual Funds
Treasury Bonds
Certificates of Deposit
Savings Bonds
Savings Accounts
Corporate Bonds
Michelle Leon
Blue chips least risky
Risk depends on investments fund
The more sound the company, the less risk
These CDs are not compact discs!
Backed by full faith and credit of the U.S. government
Insured by the FDIC up to $250,000
Retirement SavingsPlans
401k
403b
You can borrow from your 401k or 403b
Your money is earning a ROI you may not get at a bank!
Contribute more + Early start
= More money
I save for for-profit companies
Save on higher taxes now, pay lower tax rates later
I save for non-profit institutions
Employees can decide how much of their paycheck they want to contribute to their plan
Plans offer a variety of ways to invest
Employers match some part of the employee's contribution
Contributions are tax deferred
Employees can borrow from their 401(k) or 403(b) to purchase a home, pay for education, or cover medical expenses
A 401(k) is a retirement savings plan for for-profit companies and a 403(b) plan for government agencies that have, more or less, replaced the standard pension plan. Every 401(k) and 403(b) will have some unique features, but most of them have the following characteristics in common:
Employees can decide how much of their paycheck they want to contribute to their plan. Some employers often require that their employees contribute at least a nominal amount to encourage savings. As we saw with Michelle and Michael, the more you contribute, and the earlier you start, the more money you'll have saved.
Plans offer a variety of ways to invest from almost risk-free money market accounts to ultra-risky stock funds. The riskier the fund, the greater opportunity for a higher return and also a bigger chance of losing money.
Employers match some part of the employee's contribution. For example, if an employer has a 10% match, for every dollar that an employee puts into their account, the employer puts in 10 cents. That means, right off the top, your money is earning a 10% rate of return. You won't get that in a bank account!
Contributions are tax deferred. In your peak earning years, you will probably be in a higher tax bracket than when you retire. Putting money in your retirement plans means you can save on higher taxes now, and pay a lower tax rate on the withdrawals in the future.
Employees can borrow from their 401(k) or 403(b) to purchase a home, pay for education, or cover medical expenses. The money must be paid back into your account with interest, but you're paying YOURSELF the interest.
10¢

6. Investments:
From Most to Least Risky
Commodities
Collectibles
Michelle Leon
Never invest in a risky investment unless you can afford to lose your
entire investment!
Stocks
Mutual Funds
Corporate Bonds
Risk depends on investments fund
The more sound the company, the less risk
Blue chips least risky
Different types of investments have different amounts of risk. Riskier investments can earn you a lot of money, or they can cost you a lot of money. Never invest in a risky investment unless you can afford to lose your ENTIRE investment!
Treasury Bonds
Certificates of Deposit
Savings Bonds
Savings Accounts
Backed by full faith and credit of the U.S. government
These CDs are not compact discs!
Backed by full faith and credit of the U.S. government
Insured by the FDIC up to $250,000

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