1. Investing 101 L. Gattis Monday 7PM-8:30PM March 18, 2013 103 Career Services Building

2. Agenda How much do I need in retirement? How much do I need to save today for retirement? How do I allocate funds among asset classes? How do I select securities? Take Aways

3. How Much Do I Need in the First Year of Retirement? Maybe 40% – 70% of final year income < Plug < Smooth

4. How Much Wealth do I Need at Retirement? Maybe 8-12 times final year income

5. How Much of My Income Do I Need to Save? Maybe 10-15% if you start at age 25 You may need to save over 17% if you start at age 35! Assumes long term average returns and Age in Bonds Rule Assumptions -$100K Salary -11% Savings Rate -Age in Bonds Allocation -6% Real Stock Returns -2% Real Bond Returns

6. How Do I Select Securities? Mutual Funds “Managed” – E.g., Fidelity Magellan Fund 0.53% Net Expense Ratio, 10-Year Return = 5.32% Index Funds – E.g., Fidelity Spartan 500 Index 0.10% Net Expense Ratio, 10-Year Return = 8.16% Target Retirement Date (Life Cycle) Funds – E.g., Vanguard Target Retirement 2045 63% U.S. Stock Index 27% Intl Stock Index 10% Total Bond Index

7. Personal Financial Risks Death/Disability/Unemployment of Working Spouse – Life and Disability Insurance, 6-month emergency fund College Debt (and other personal debt) – Need to save about $5,000 per year per child (starting at birth) to fully fund $25,000/year college Market crash near retirement – Life cycle investing (reducing risk over time) – Downsize or delay retirement Retirement Healthcare – LTC, Medi-gap insurance policies – Home equity Long Life – Long Life Insurance – Purchase Life Annuity at Retirement – Reverse Mortgage

8. Take Aways Need retirement wealth of 8-12 times final year income to smooth retirement transition Save 10-15% of your salary starting at age 25 – Save more than 15% if start at age 35 Reduce portfolio risk as you approach retirement – either by annual reallocations or life cycle funds Risk Mitigation: Emergency Fund, Insurance, Home Equity, Retirement Flexibility (downsize/delay)