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Financial Planning

Financial Planning






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Financial Planning Financial Planning Presentation Transcript

  • Ann Doty Retirement Information Specialist for Iowa State University
    • 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.
  • 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.
  • Retirement Investments
    • Start with the basics
      • What is a bond?
      • What is a stock?
  • 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.
  • 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.
  • S eems like brain surgery?
    • Try a couple different examples…
      • Iowa Style
  • 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.
  • 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.
  • Try another example…
    • For in-town folks
  • 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
  • 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.
  • 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 -
    • 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.
  • Two other types of investments
    • Real Estate
    • Inflation-linked bonds or bond funds
  • 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
  • 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%
  • Building your Portfolio with TIAA-CREF Booklet
    • This is your booklet, please write in it!
  • 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).
  • The More Conservative You Are In Your Investments Choices, The More You Need to Save!
  • 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.
  • The Handout
  • 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
  • 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
  • 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
  • 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.
  • 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).
  • 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
  • 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.
  • The Longer You Have Until Retirement, The Greater The Risk That Inflation Will Eat Away Your Returns!
  • 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
  • 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%
  • 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
  • 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.
  • The Cat Food Story Or…. How to listen to your head, not your stomach, in a down market.
  • The more information you have about your current situation…
    • the better you can plan and feel comfortable about your financial future.
  • Additional ways to save for Retirement ROTH IRA Supplemental Retirement Annuity Traditional (Classic) 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
  • Contribution limits $3,000 annually if income
    • single - $95,000
    • couples - $150,000
  • 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
  • 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)
  • “ 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
  • * 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.
  • 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.
  • This is the end of my presentation. I’d be glad to take any questions now.
  • Thank you for your attendance today.
    • [email_address]
    • 515 294-4521 Ann