Breaking down the Basics of Retirement


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This is a presentation I gave to my writing for the organization class. We were assigned to give an informative speech. I chose retirement because too many times its overly complicated and many young people cannot understand it.

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Breaking down the Basics of Retirement

  1. 1. Which would you rather have? OR
  2. 2. Would you be willing to give up this each week To live in this?
  3. 3. If you invest $20 a week starting at age 20, you would save up $45,000 by age 65. If that same amount of money is invested at a 10 percent return rate, you will have over $820,000 by age 65 Source: “The Under 40 Financial Planning Guide” by Cornelius P. McCarthy
  4. 4. Can’t afford $20 a week? If you put $5 away every week from age 20 to 30 then increase to $20 every week you will still retire with about $500,000 Source: “The Under 40 Financial Planning Guide” by Cornelius P. McCarthy
  5. 5. Presentation Outline  What is retirement?  Why should you save now  Different Types of Retirement Plans  Pension Plans  401(k)  IRA’s  How should you start your retirements savings?
  6. 6. Why should you save now?  Social Security not meant to be only source of income when you retire  Social Securities future is not certain  You will need to save to support yourself for 20+ years if you plan to retire when your 65. Life expectancy is increasing.  Rule of thumb: During retirement you need 60-80% of annual pre-retirement income to live comfortably.
  7. 7. Example Using the rule of thumb: You earn $65,000 a year before you retire $52,000 (65,000 x 80%) is needed yearly to support you in your retirement If you retire at 65 and expect to reach age of 85, you will need $1,040,000 (20 x $52,000) for retirement Source:
  8. 8. What are my choices for retirement? There are several basic forms of Retirement Plans Pension Plans 401(k) IRA’s
  9. 9. Pension Plans  Employer backed retirement plans.  Employers contribute to plan  Employers decide where money is invested  Spells out in advance how much money you will receive upon retirement  Many younger adults are not being covered by these plans (  Require long career with one employer and are unrealistic for today’s employee
  10. 10. 401(k)  Retirement plan offered by your employer  Contributions are deducted straight from your paycheck  Employers also can contribute money or match your investment  You can decide where your money is invested  Unlike pension plans, the money is yours even after you leave the company
  11. 11. 401(k) Tax Advantages Money you contribute to your 401 (k) comes straight out of your paycheck before income taxes are deducted. This is an advantage because: If you make $50,000 a year and contribute $3,000 into your 401(k), your taxable income for the year is $47,000.
  12. 12. 401 (k) Why choose this over a savings account?  You don’t pay taxes on your investment or earnings until you withdraw money for retirement, when you are at a lower tax bracket.  It’s more difficult to withdraw the money so there is less temptation to spend it. Money can be withdrawn for emergency situations.
  13. 13. 401(k) Requirements for enrolling in a 401(k)  Most companies require you work for at least one year before enrolling  You’re at least 21 years old  Can put aside 2-15% of your paycheck  Maximum contribution amount per year: $15,500 (govt. regulation)
  14. 14. 401(k) Why limit the amount you can invest? The government puts a limit because they want to keep the tax revenue flowing in. Remember, they don’t receive taxes on the money you put into your 401(k) until you pull it out many years lat
  15. 15. 401(k) 401 K Participation Avg. Median Age Participate % of pay balance balance 18-25 31.3% 5.6% $3,200 $1,280 (Gen Y) 26-41 63.1% 7.2% $31,240 $14,730 (Gen X) 42 and up 72.0% 8.3% $93,190 $44,330 (boomers)
  16. 16. IRA Individual Retirement Account Two Kinds: Traditional IRA: Deductable and Nondeductable Roth IRA: Taxfree Varieties IRA is a personal savings plan that lets you put money aside for retirement
  17. 17. Traditional IRA What is needed to open up an IRA? Must have earned income for the year & Under age 70 ½ Maximum contribution of $2,000 a year
  18. 18. Traditional IRA Advantages  Can deduct all or portion of IRA contributions from gross income, depending if you are covered by an employer-sponsored retirement plan.  Money contributed to IRA is not taxed until you take money out at retirement  Don’t have to make contributions on a set basis
  19. 19. Roth IRA  Different from traditional IRA which requires you to start withdrawing from account when age 70 ½. Can withdraw at any time after age 59 ½ , but not required  Can’t make contributions to Roth IRA if adjusted gross income exceeds $160,000 married or $110,000 single  Contributions to Roth IRA are not tax deductable  Contributions are made with after tax money, therefore earnings are not taxed upon
  20. 20. Roth IRA Investors don’t have to pay any taxes on withdrawals at all as long as:  Invested money in Roth IRA for at least 5 years without taking and money out  Over age 59 ½ when taking money out OR  Using money to help pay for first home purchase or other special situation if under age 59 ½
  21. 21. 401(k) vs. IRA 401(k) Traditional IRA Can you open an If your company offers a If you have earned account? plan income and are younger than 70 ½ years old Maximum Contribution $10,000 (govt. limit) $2,000 Employer Match? Sometimes Never Taxable? Taxed after withdrawal Contributions are taxed when in lower tax before deposited and bracket earnings are taxed upon withdrawal Contribution tax No Under certain deductable? circumstances
  22. 22. 5 Retirement Tips for 20- somethings  “The earlier you start, the less you have to save every month”  Matching is Free Money  Take it with You Don’t Count on Social Security   Take Personal Responsibility Source: U.S. News & World Report
  23. 23. For more information E*Trade Charles Schwab
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