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Financial Planning

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    • 1. Ann Doty Retirement Information Specialist for Iowa State University
    • 2.
      • Iowa Native.
      • Graduate of ISU and University of Iowa.
      • Masters Degree in Social Work.
      • 9 years experience as a Therapist.
      • 4 years experience as a Financial Advisor.
      • 4 cats, 2 - 50 gal. Aquariums
      • 1 husband
      • Live on 2 acres SW of Ames.
    • 3. There are really only 2 kinds of investments:
      • Lending money.
      • Because you lend money at only a little bit above the rate of inflation, you don’t make much money.
      • Using money to buy ownership in land or businesses/companies.
      • Only ownership allows you to growth your money.
    • 4. Retirement Investments
      • Start with the basics
        • What is a bond?
        • What is a stock?
    • 5. Bonds are making loans to a company.
      • You loan your money.
      • You get some interest paid to you.
      • You get back the money you loaned out sometime in the future.
      • The Risk is very low.
      • The Money you make is very little.
      • This is how CD’s work and you are the Bank.
    • 6. Stocks are buying parts of a company.
      • You become a silent part owner in a company.
      • If the company makes money (a profit) and you sell it then, your share is worth more.
      • If the company loses money (a loss) and you sell it then, your share is worth less.
      • The Risk is higher.
      • You have the opportunity to make more money.
    • 7. S eems like brain surgery?
      • Try a couple different examples…
        • Iowa Style
    • 8. Bonds (lending) are like owning Dairy Cows.
      • You always own the cows.
      • You make your money selling the milk.
      • The more milk (interest) the cow provides, the more money you make.
    • 9. Stocks (Ownership) are like owning Cattle.
      • What matters is how much you pay for them and
      • How much you can sell them for.
      • You might lose your money, but if the market is right you can make more than you can selling milk.
    • 10. Try another example…
      • For in-town folks
    • 11. Bonds (Loans) are like renting a house.
      • The risk is low, but you don’t have much to show for it when you leave.
      • If your time frame is short, it’s the only smart thing to do.
      For Rent
    • 12. Stocks (Ownership) are like buying your home.
      • You take all the risks- repairs, replacement, possible loss of investment.
      • You hope its value will go up so you make a profit when you sell it.
      • You need to hold on to for a long time to let it grow in value.
    • 13. Mutual Funds allow us to buy little bits of lots of companies.
      • If you own shares of stocks in lots of companies and
      • One or two go out of business,
      • Probably the rest will be ok and you won’t lose all your money.
      • If you own shares of stock in lots of companies and
      • One or two make incredible profits
      • Probably the rest won’t and you will make money -
    • 14.
      • Mutual funds are safer than owning shares (stocks) of individual companies because not all your eggs in one basket.
      • Mutual fund sub-accounts are what you invest in with most Company Retirement Plans.
    • 15. Two other types of investments
      • Real Estate
      • Inflation-linked bonds or bond funds
    • 16. Real Estate
        • Typically 4-8% returns and 7 – 10 year cycles
        • Not in cycle with stock market like bonds so those market ups and downs don’t affect the returns
        • Returns come from rents and leases paid by those using the properties & from the increase in value of the property when sold
    • 17. Inflation-linked Bonds
      • Issued by the U.S. Government
      • Assure you that the investment will hold it’s buying power regardless of inflation rates over time
      • Federal Deficit is $400 Billion and growing by the day
      • In previous high Federal Deficit periods (1980’s), inflation rates were as high as 10-12%
    • 18. Building your Portfolio with TIAA-CREF Booklet
      • This is your booklet, please write in it!
    • 19. TIAA Traditional Annuity & Real Estate Fund & CREF funds are conservatively invested.
      • all but one are only moderately risky.
        • Growth Fund has moderately high risk.
      • Risk means “Possibility for the fund to be down at any specific time.”
      • Risk does NOT mean all your money will be lost (page 3).
    • 20. The More Conservative You Are In Your Investments Choices, The More You Need to Save!
    • 21. What is Market Risk?
      • Most people think the risk is that they will lose all their money.
      • The real risk is that on any given day the market values will be lower that they were the day you put your money in.
      • That risk is lowered over time.
    • 22. The Handout
      • OVER THE LONG TERM, STOCK RETURNS MAY BE LESS VOLATILE.
      • STAYING INVESTED CAN INCREASE STOCK RETURNS
    • 23. TIAA Traditional Annuity
      • One of the highest fixed return investments in the country
      • It will always show an increase on your quarterly statement
        • If seeing account values go up and down makes you nervous, keep some of your dollars here
      • If you are putting all or most of your retirement savings here, you will need to save more than your 5% required contribution to live as well in retirement
    • 24. CREF Bond Market
      • Bonds often do well when stocks were down.
      • When interest rates go down or stay steady, this is a good investment.
      • Now is probably not a good time to be in bonds because of the $400 Billion Federal Deficit
    • 25. CREF Inflation-Linked Bond
      • These are very popular in Europe where inflation is high and has been for years.
      • These bonds are not locked in to a specific return like CREF Bond Fund, if inflation goes up their return goes up.
      • This is another way to diversify your portfolio.
      • If the deficit causes high inflation, this is a good fund to be in
    • 26. TIAA Real Estate
      • TIAA-CREF calls this fund TIAA Traditional Annuity’s Ugly Twin.
      • You can move in and out of this fund like you can CREF funds.
      • Real Estate does not react to the stock market so it is a good way to diversify your portfolio.
      • Unlike TIAA Traditional Annuity, Returns are not guaranteed.
    • 27. CREF Stock Account
      • This was the only stock fund offered by TIAA-CREF for many years.
      • This is a diversified stock fund - it has US and international funds - that is why the returns are different than in CREF Equity Index (which is just US company stocks).
    • 28. So what does that mean to me?
      • The younger you are, the more aggressively* you should be invested.
      • No matter how old you are, you should probably have some money in the stock market to deal with inflation.
      • * aggressive means the bigger the percentage of your money is in stocks
    • 29. So what does that mean to me?
      • If you are close to retirement (within 5 years), and have never put dollars into the market,
        • it probably would not hurt to put some in now.
        • You won’t see that much grow unless you can let grow past the day you retire.
    • 30. The Longer You Have Until Retirement, The Greater The Risk That Inflation Will Eat Away Your Returns!
    • 31. Effects of Inflation Over Time Given a modest 4% rate of inflation, look what $10,000 will be worth: $6,765 $4,564 $3,083 In 10 years In 20 years In 30 years
    • 32. Risk & Reward
      • Average Annual Total Returns (1926-1998)
      Inflation 3.2% US Treasury Bills 3.8% Long Term Gov Bonds 5.7% Long Term Corp Bonds 6.1% Common Stocks 13.2%
    • 33. Fear and Greed lead us to
      • The Market is Going UP – greed
        • Our stomach says “Every body is getting rich – Let’s buy some and get rich too!”
      • Buy high
      • The Market is Going DOWN – fear
        • Our stomach says “This is the end and things will never recover! Sell before we lose everything!”
      • Sell low
    • 34. This is the reverse of how to make money
      • When the market is down is the time to buy.
      • When the market is up is the time to sell.
      • This goes against our gut feelings.
      • If we are in the accumulation part of our retirement planning, a down market is the best time to buy.
    • 35. The Cat Food Story Or…. How to listen to your head, not your stomach, in a down market.
    • 36. The more information you have about your current situation…
      • the better you can plan and feel comfortable about your financial future.
    • 37. Additional ways to save for Retirement ROTH IRA Supplemental Retirement Annuity Traditional (Classic) IRA
    • 38. ROTH IRA
      • I have a bias for these.
        • Another level of cash reserves
      • After tax dollars go in
      • Grow tax-free and come out tax- and penalty-free at retirement
      • Can access contributions at any time (and earnings under certain circumstances) without penalty
    • 39. Contribution limits $3,000 annually if income
      • single - $95,000
      • couples - $150,000
    • 40. Take your Tax-Saving Calculator
      • Actual dollars that come out of your check is less than dollars going into your retirement account
      • On the other side it shows how a regular investment will grow over time at various rates of return
    • 41. Traditional (Classic) IRA
      • Pre-tax dollars so it lowers your year’s taxable income
      • Contribution limits $3,000 annually if income
        • single - $40,000
        • couples - $60,000
      • Can access your dollars under certain circumstances and only pay taxes on them (no penalties)
    • 42. “ Nonrefundable*” Credit for Low and Middle Income Savers
      • Cdt (%) Ind $$ AGI HOH $$AGI Jnt $$ AGI
      • 50% 0-$15,000 0-$22,000 0-$30,000
      • 20% 15,001-16,250 22,501-24,375 30,001-32,500
      • 10% 16,250-25,000 24,376-37,500 32,501-50,000
      • /
      • 50% = as much as $1,000
      • 20% = as much as $ 400
      • 10% = as much as $ 200
    • 43. * Nonrefundable means that the credit is available only if the taxpayer is required to pay income tax. ** The credit may be claimed for tax years 2002 to 2006.
    • 44. What does the Credit mean to you?
      • If you have a job in 2004 and make less than $15,000 annually and you owe $1,000 in taxes and you’ve put $1,000 into an IRA, you’ll only owe $500 in taxes.
      • You can give the money to the government, or to your retirement plan.
    • 45. This is the end of my presentation. I’d be glad to take any questions now.
    • 46. Thank you for your attendance today.
      • [email_address]
      • 515 294-4521 Ann