Presenting A Life-Changing Seminar on  Money Management By G. Edward Reid, Stewardship Director
Planning Your Life for Success: Helping donors build a successful life and a lifetime of philanthropy G. Edward Reid, Pres...
Part 1 Planning Your Personal Finances Part II Managing Your Personal Finances Part III Making Your Purchasing Decisions P...
How Education Relates to Income As of the mid-1990s, estimated lifetime earnings were: <ul><li>Non-high school graduate </...
Service Industries Expected to Have the Greatest Employment Potential <ul><li>Computer technology. </li></ul><ul><li>Healt...
<ul><li>The way you manage your money has a  </li></ul><ul><li>great deal to do with: </li></ul><ul><ul><li>Your personal ...
<ul><li>It would  NOT  take a genius to figure out that the devil would like to see everyone of these areas of your life m...
<ul><li>Determine your investment needs and stage  </li></ul><ul><li>in life. </li></ul><ul><li>Laying the foundation – ru...
Dimensions of Stewardship Maturity <ul><li>Annual Giving </li></ul><ul><ul><ul><li>Regular giving </li></ul></ul></ul><ul>...
Dimensions of Stewardship Maturity <ul><li>Annual Giving </li></ul><ul><ul><ul><li>Regular giving </li></ul></ul></ul><ul>...
Dimensions of Stewardship Maturity <ul><li>Annual Giving </li></ul><ul><ul><ul><li>Regular giving </li></ul></ul></ul><ul>...
<ul><li>You must either live within your income or your creditors will eat you alive! </li></ul><ul><li>“ He who rides a t...
<ul><li>There was once a lady from Niger </li></ul><ul><li>Who smiled as she rode on a Tiger </li></ul><ul><li>They return...
<ul><li>Personal or family bankruptcy rate at an all-time high </li></ul><ul><li>In 2002 – 30,700 personal bankruptcies in...
<ul><li>3 main reasons why people have money problems  </li></ul><ul><li>and likely in the following order in frequency: <...
1. Ignorance  – many people/couples  are  financially illiterate.  They were simply never taught the Biblical principles o...
2.   Greed and Selfishness   – they live beyond their means.  They are not willing to live in, drive, or wear what they ca...
<ul><li>An Unfortunate Tragedy </li></ul><ul><li>- a serious illness without adequate  insurance </li></ul><ul><li>- being...
<ul><li>Enough about the problems! </li></ul><ul><li>What can   YOU   do to experience financial freedom? </li></ul>
7 Points to Success: <ul><li>Get organized – develop a budget – have a plan </li></ul><ul><li>Spend less than you earn – d...
7 Points to Success: <ul><li>Be a diligent worker.  ( Prov. 22:29) </li></ul><ul><li>Be faithful to God. He’s given us so ...
 
 
The Tyranny of Debt <ul><li>1.  What is debt?  </li></ul><ul><li>(Prov. 22:7) </li></ul><ul><li>2.   Bankruptcy--a Christi...
 
The 5 C’s of Credit Management 1.  Character  –  Your attitude toward  debt 2.  Capacity  –  Your ability to repay debt 3....
Debt Elimination   <ul><li>Basic premise: establish the tithe  </li></ul><ul><li>(See Prov. 3; Deut. 28; Mal. 3; Matt. 6; ...
 
Additional Assistance <ul><li>1. Establish a budget </li></ul><ul><li>2. Set goals for your family </li></ul><ul><li>3. De...
 
Four levels of financial fitness: The  first  level:  Getting debt free -  This is the only proper foundation. - Develop y...
“ Keep this truth in mind: No investment is as secure as a repaid debt . Putting your desire to invest ahead of repaying y...
The  second   level:  Saving for future needs. -  Develop an emergency savings fund. - Develop an accumulation fund for fu...
The  third  level of financial fitness: -  Investing your surplus - Learn about the various types of investments -lending ...
There are only two basic choices with investing: 1. The investments where you become a lender   –   savings accounts, CDs,...
<ul><li>The  fourth  level of financial fitness: </li></ul><ul><li>-Diversifying for safety. </li></ul><ul><li>-Understand...
<ul><li>Time is rapidly passing into eternity.  Let us not keep back from God that which is His own.   Let us not refuse h...
The love of money,  the desire for wealth,  is the golden chain  that binds them [people] to Satan. SC 44
<ul><li>No scheme of business or plan of life can be sound or complete that embraces only the brief years of this present ...
<ul><li>No one can serve two masters; for either he will hate the one and love the other, or else he will be loyal to the ...
Financial   Planning and Its Benefits <ul><li>Personal financial planning is the process of managing your money to achieve...
Financial Planning  and Its Benefits <ul><li>Increased effectiveness in obtaining, using, and protecting your financial re...
The Financial Planning Process <ul><li>Determine your current financial situation. </li></ul><ul><li>Develop financial goa...
Financial Planning Information Sources <ul><li>Printed materials. </li></ul><ul><li>Financial institutions. </li></ul><ul>...
Developing a Flexible Financial Plan A financial plan is a formalized report that.. -Summarizes your current financial  si...
Implementing Your Financial Plan Develop good financial habits. -   Use a well conceived spending plan to help you  stay w...
3 Major Money Management Activities 1. Store and maintain personal financial records and documents. 2. Create personal fin...
6 Reasons to Keep Financial Records 1.  To help in making spending decisions. 2.  To plan future spending. 3.  To pay bill...
What to Keep in Your Home File <ul><li>Items you refer to often: </li></ul><ul><li>Personal and employment records. </li><...
What to Keep in a Safe Deposit Box <ul><li>Safe deposit box:   For records/items that would be hard to replace. </li></ul>...
<ul><li>Automobile </li></ul><ul><ul><li>-Vehicle registration </li></ul></ul><ul><li>Lawyer </li></ul><ul><ul><li>-Origin...
Purpose of  Personal Financial Statements <ul><li>Report your current financial position in relation to the value of the i...
Components of a Balance Sheet  (net worth statement) <ul><li>Assets – what you own </li></ul><ul><ul><li>-Liquid assets </...
Components of a  Cash Flow Statement Shows inflow/outflow during a given time period. Record income. -Income from employme...
Creating and Implementing Budget <ul><li>Assessing your current situation . </li></ul><ul><ul><li>-Measure your current fi...
<ul><li>Implementing your budget. </li></ul><ul><ul><li>-Monitoring spending, saving and investment  patterns </li></ul></...
Saving to Achieve Financial Goals 1.   To set money aside for irregular and unexpected  expenses. 2.   To pay for replacem...
<ul><li>Successful Budgets Are… </li></ul><ul><li>Well planned. </li></ul><ul><li>Realistic. </li></ul><ul><li>Flexible. <...
What is Consumer Credit? <ul><li>Credit is an arrangement to receive cash, goods or service now, and paying for them in th...
Credit Considerations <ul><li>Before using credit for a major purchase, ask yourself these questions: </li></ul><ul><ul><l...
8 Advantages of Consumer Credit 1.   Current use of goods and services 2.   Permit purchase even when funds are low 3.   U...
5 Disadvantages of Consumer Credit 1.   Purchases are more expensive. 2.   Temptation to spend . 3.   Ties up future incom...
Types of Credit <ul><li>Closed-End Credit:   For specific purpose/amount </li></ul><ul><ul><li>- Mortgage loan </li></ul><...
Credit Cards <ul><li>Nearly eight out of ten American households  carry one or more credit cards. </li></ul><ul><li>One-th...
Credit Capacity Indicators Debt Payment-to-Income Ratio monthly payments* monthly after tax income *Not including housing
Credit Capacity Indicators Debt to Equity Ratio total liabilities = Should be < 1 net worth* *Excluding home value
Build and Maintain Your Credit Rating <ul><li>Limit your borrowing to your capacity to repay. </li></ul><ul><li>Pay all bi...
Complaining About Consumer Credit <ul><li>First try to solve the problem directly with the creditor. </li></ul><ul><li>If ...
Sources of Consumer Credit <ul><li>Inexpensive loans </li></ul><ul><ul><li>- Parents and family members </li></ul></ul><ul...
The Cost of Credit Finance charge includes interest and fees, such as service charges or credit-related insurance. The ann...
Trade-Offs of Financing Choices <ul><li>Term (length of loan) versus interest cost. </li></ul><ul><li>Lender risk versus i...
Choosing and Using a Credit Card <ul><li>Look for a low interest rate if you plan to carry a balance. </li></ul><ul><li>Th...
Evaluating Housing Alternatives Rent or Own <ul><li>Advantages of renting: </li></ul><ul><li>- Mobility </li></ul><ul><li>...
Advantages of Owning <ul><li>Pride of ownership </li></ul><ul><ul><li>- American dream/norm </li></ul></ul><ul><li>Reduced...
Disadvantages of Owning <ul><li>Financial uncertainty </li></ul><ul><ul><li>- Get down payment and financing </li></ul></u...
Assess Types of Housing  that Can Be Purchased <ul><li>Single-family dwelling </li></ul><ul><li>Multi-unit dwelling </li><...
Assess Types of Housing  that Can Be Purchased  cont. <ul><li>Manufactured homes </li></ul><ul><ul><li>- Fully or partiall...
Assess   Types of Housing  that Can Be Purchased  cont. <ul><li>If building a home, consider… </li></ul><ul><ul><li>- Does...
Home Buying Process Step 1: Determine Homeownership Needs <ul><li>Determine how much you can afford </li></ul><ul><ul><li>...
Home Buying Process Step 2: Finding and Evaluating a Property to Purchase <ul><li>Select a location </li></ul><ul><ul><li>...
Home Buying Process Step 3: Pricing and Property <ul><li>Determining the home price </li></ul><ul><li>Negotiating the purc...
Home Buying Process Step 4: Obtaining Financing <ul><li>Determine amount of the down payment </li></ul><ul><ul><li>- Mortg...
Types of Mortgages <ul><li>Conventional </li></ul><ul><ul><li>- Fixed rate, fixed payment, amortized </li></ul></ul><ul><u...
Types of Mortgages  cont. <ul><li>Graduated payment </li></ul><ul><ul><li>- Payments start lower and go up </li></ul></ul>...
<ul><li>Shared appreciation </li></ul><ul><ul><li>- Borrower agrees to share appreciated  value of the home with the lende...
Misconceptions About  Retirement Planning <ul><li>My expenses will drop when I retire. </li></ul><ul><li>My retirement wil...
<ul><li>Take advantage of the time value of money: </li></ul><ul><li>If from age 25 to 65 you invest $300 a month (9%) at ...
Why Think About  Retirement Planning Now? <ul><li>People are spending more years (16-20) in retirement. </li></ul><ul><li>...
Review Your Retirement Assets <ul><li>Housing </li></ul><ul><ul><li>- If owned, probably your biggest single asset </li></...
Estimating Retirement  Living Expenses <ul><li>Spending patterns and where and how you live  will probably change </li></u...
<ul><li>Other expenses may go down </li></ul><ul><ul><li>- Life and health insurance unless your  employer continues to pa...
How an “Average” Older (65+) Household Spends its Money 32.5%  Housing 16.3 % Transp. 15.4%  Food 11.3%  Medical 7.7  %  I...
Planning Your Retirement Housing <ul><li>Think about where you want to live </li></ul><ul><li>Consider the cost of living ...
Avoid Retirement Housing Traps <ul><li>If you plan to move when you retire: </li></ul><ul><ul><li>- Write the local Chambe...
Planning Your Retirement Income <ul><li>Social Security </li></ul><ul><ul><li>- Most widely used source of retirement  inc...
Planning Your Retirement Income  cont. <ul><li>Social Security </li></ul><ul><ul><li>- Up to 85% of your benefit may be su...
Planning Your Retirement Income   cont. <ul><li>Employer Pension Plans – Defined Contribution </li></ul><ul><ul><li>- Mone...
<ul><li>Employer Pension Plans – Defined Benefit </li></ul><ul><ul><li>Employer will pay you a certain amount per month wh...
Pension Plan  Portability and Vesting Portability   allows you to carry earned benefits from one employer’s pension plan t...
Individual Retirement Accounts (IRA) <ul><li>The most popular personal retirement plan </li></ul><ul><li>Regular or tradit...
Individual Retirement Accounts <ul><li>Roth IRAs </li></ul><ul><ul><li>- Contributions are not tax deductible, but earning...
Individual Retirement Accounts <ul><li>You decide where your money is invested. </li></ul><ul><li>Many people put IRA mone...
What is an Annuity? <ul><li>An  annuity  is a life insurance product to provide a guaranteed income. </li></ul><ul><ul><li...
Advantages of Tax-Deferred Annuities Contributions and interest earned are tax deferred. You pay taxes on the annuity doll...
Anticipated Sources of  Retirement Income 27% 9% 7% 7% 18% 7% 5% 8% 12% Home Equity Part-time work Savings Social Security...
Living on Your Retirement Income <ul><li>Estimate your income at retirement from pensions and Social Security. </li></ul><...
Living on Your Retirement Income <ul><li>Retirees get a variety of tax savings. </li></ul><ul><li>Fewer senior discounts a...
 
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Planning Your Life for Success

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Planning Your Life for Success

  1. 1. Presenting A Life-Changing Seminar on Money Management By G. Edward Reid, Stewardship Director
  2. 2. Planning Your Life for Success: Helping donors build a successful life and a lifetime of philanthropy G. Edward Reid, Presenter
  3. 3. Part 1 Planning Your Personal Finances Part II Managing Your Personal Finances Part III Making Your Purchasing Decisions Part IV Insuring Your Resources Part V Investing Your Financial Resources Part VI Controlling Your Financial Future Retirement and Estate Planning Obtaining Planning Saving Borrowing Spending Managing Risk Investing
  4. 4. How Education Relates to Income As of the mid-1990s, estimated lifetime earnings were: <ul><li>Non-high school graduate </li></ul><ul><li>High school graduate </li></ul><ul><li>Some college </li></ul><ul><li>College graduate </li></ul><ul><li>(bachelor’s degree) </li></ul><ul><li>Professional degree </li></ul>$608,810 $820,870 $992,890 $1,420,850 $3,012,530
  5. 5. Service Industries Expected to Have the Greatest Employment Potential <ul><li>Computer technology. </li></ul><ul><li>Health care. </li></ul><ul><li>Business services. </li></ul><ul><li>Social services. </li></ul><ul><li>Sales and Retailing. </li></ul><ul><li>Hospitality and food services. </li></ul><ul><li>Management and human resources. </li></ul><ul><li>Education. </li></ul><ul><li>Financial services. </li></ul>
  6. 6. <ul><li>The way you manage your money has a </li></ul><ul><li>great deal to do with: </li></ul><ul><ul><li>Your personal happiness. </li></ul></ul><ul><ul><li>Your stress level. </li></ul></ul><ul><ul><li>The quality of your family life. </li></ul></ul><ul><ul><li>The stability of your marriage. </li></ul></ul><ul><ul><li>And success in your career. </li></ul></ul>
  7. 7. <ul><li>It would NOT take a genius to figure out that the devil would like to see everyone of these areas of your life messed up. And in many cases he has been quite successful at this! </li></ul>
  8. 8. <ul><li>Determine your investment needs and stage </li></ul><ul><li>in life. </li></ul><ul><li>Laying the foundation – runs into the 40s. </li></ul><ul><li>Accumulating assets – your forties and 50s. </li></ul><ul><li>Preserving assets – your 60s and into 70s. </li></ul><ul><li>Distributing assets – age 75 and beyond. </li></ul><ul><li>Learning years - birth to 30 </li></ul><ul><li>Earning years - 30 to 60 </li></ul><ul><li>Returning years - 60 till laid to rest </li></ul>
  9. 9. Dimensions of Stewardship Maturity <ul><li>Annual Giving </li></ul><ul><ul><ul><li>Regular giving </li></ul></ul></ul><ul><ul><ul><li>Special offerings and projects </li></ul></ul></ul><ul><ul><ul><li>Budget development and communication </li></ul></ul></ul><ul><ul><ul><li>Stewardship education for all ages </li></ul></ul></ul><ul><ul><ul><li>Financial policies </li></ul></ul></ul>Basic Expression of Faithfulness: Your commitment of prayers, presence, gifts and service. Phases in a Life of Faithful Stewardship
  10. 10. Dimensions of Stewardship Maturity <ul><li>Annual Giving </li></ul><ul><ul><ul><li>Regular giving </li></ul></ul></ul><ul><ul><ul><li>Special offerings and projects </li></ul></ul></ul><ul><ul><ul><li>Budget development and communication </li></ul></ul></ul><ul><ul><ul><li>Stewardship education for all ages </li></ul></ul></ul><ul><ul><ul><li>Financial policies </li></ul></ul></ul>Basic Expression of Faithfulness: Your commitment of prayers, presence, gifts and service. Growing Expression of Faithfulness: Rearranging your priorities to give. <ul><li>Major Giving </li></ul><ul><li>Land purchase </li></ul><ul><li>New facilities </li></ul><ul><li>Renovation </li></ul><ul><li>Debt reduction </li></ul><ul><li>Mission opportunities </li></ul><ul><li>Cash for Endowment </li></ul>Phases in a Life of Faithful Stewardship
  11. 11. Dimensions of Stewardship Maturity <ul><li>Annual Giving </li></ul><ul><ul><ul><li>Regular giving </li></ul></ul></ul><ul><ul><ul><li>Special offerings and projects </li></ul></ul></ul><ul><ul><ul><li>Budget development and communication </li></ul></ul></ul><ul><ul><ul><li>Stewardship education for all ages </li></ul></ul></ul><ul><ul><ul><li>Financial policies </li></ul></ul></ul>Basic Expression of Faithfulness: Your commitment of prayers, presence, gifts and service. Growing Expression of Faithfulness: Rearranging your priorities to give . <ul><li>Major Giving </li></ul><ul><li>Land purchase </li></ul><ul><li>New facilities </li></ul><ul><li>Renovation </li></ul><ul><li>Debt reduction </li></ul><ul><li>Mission opportunities </li></ul><ul><li>Cash for Endowment </li></ul><ul><li>Estate or </li></ul><ul><li>Planned Giving </li></ul><ul><li>Bequests </li></ul><ul><li>Planned Gifts </li></ul>Ultimate Expression of a Life of Faithfulness: Your commitment to a legacy, a testimony that will endure. Phases in a Life of Faithful Stewardship
  12. 12. <ul><li>You must either live within your income or your creditors will eat you alive! </li></ul><ul><li>“ He who rides a tiger cannot dismount.” </li></ul><ul><li>From a financial perspective, that tiger is debt. Debt and its resulting bankruptcy have drastically changed the American financial picture. </li></ul>
  13. 13. <ul><li>There was once a lady from Niger </li></ul><ul><li>Who smiled as she rode on a Tiger </li></ul><ul><li>They returned from the ride with the lady inside </li></ul><ul><li>And the smile on the face of the Tiger. </li></ul>
  14. 14. <ul><li>Personal or family bankruptcy rate at an all-time high </li></ul><ul><li>In 2002 – 30,700 personal bankruptcies in the U.S. - every week! </li></ul><ul><li>1.6 million families went under – threw in the towel </li></ul>
  15. 15. <ul><li>3 main reasons why people have money problems </li></ul><ul><li>and likely in the following order in frequency: </li></ul>
  16. 16. 1. Ignorance – many people/couples are financially illiterate. They were simply never taught the Biblical principles of money management. There is hope for these people!!! But you don’t learn this at the Seminary.
  17. 17. 2. Greed and Selfishness – they live beyond their means. They are not willing to live in, drive, or wear what they can really afford. Many of these people also feel they are just too poor to tithe. Consequently, they live their lives without God’s promised wisdom and blessing. (Prov. 3:5-9)
  18. 18. <ul><li>An Unfortunate Tragedy </li></ul><ul><li>- a serious illness without adequate insurance </li></ul><ul><li>- being abandoned by a spendthrift marriage partner </li></ul><ul><li>- a natural disaster </li></ul><ul><li>- a major financial loss not of your own doing </li></ul>
  19. 19. <ul><li>Enough about the problems! </li></ul><ul><li>What can YOU do to experience financial freedom? </li></ul>
  20. 20. 7 Points to Success: <ul><li>Get organized – develop a budget – have a plan </li></ul><ul><li>Spend less than you earn – determine to live within your means </li></ul><ul><li>Save a little every pay period – start with only $50 (not just your retirement) </li></ul><ul><li>Avoid debt like AIDS. Interest is one expense you can live without. </li></ul>
  21. 21. 7 Points to Success: <ul><li>Be a diligent worker. ( Prov. 22:29) </li></ul><ul><li>Be faithful to God. He’s given us so many promises (Deut. 28:1-14) Your family cannot afford to live without God’s blessing. </li></ul><ul><li>Remember that this earth is not your home. Our management here determines our eternal destiny. (See Matt. 25) </li></ul>
  22. 24. The Tyranny of Debt <ul><li>1. What is debt? </li></ul><ul><li>(Prov. 22:7) </li></ul><ul><li>2. Bankruptcy--a Christian </li></ul><ul><li>alternative? (Deut. 15:1) </li></ul><ul><li>3. Surety (Prov. 6:1-5) </li></ul><ul><li>4. Personal surety </li></ul><ul><li>(6T 448; AH 393) </li></ul>
  23. 26. The 5 C’s of Credit Management 1. Character – Your attitude toward debt 2. Capacity – Your ability to repay debt 3. Capital – Asset or Net Worth 4. Collateral – Assets that can be pledged 5. Conditions – The current economy and your job security
  24. 27. Debt Elimination <ul><li>Basic premise: establish the tithe </li></ul><ul><li>(See Prov. 3; Deut. 28; Mal. 3; Matt. 6; Matt 25) </li></ul><ul><li>Step 1 - declare a moratorium on </li></ul><ul><li> additional debt </li></ul><ul><li>Step 2 - make a covenant with God </li></ul><ul><li>Step 3 - list your debts from largest to smallest </li></ul>
  25. 29. Additional Assistance <ul><li>1. Establish a budget </li></ul><ul><li>2. Set goals for your family </li></ul><ul><li>3. Destroy credit cards if-- </li></ul><ul><li>4. Purchase depreciating items with cash </li></ul><ul><li>5. Begin economy measures </li></ul><ul><li>6. Have a sale--inventory your possessions and sell off what you don’t absolutely need </li></ul>
  26. 31. Four levels of financial fitness: The first level: Getting debt free - This is the only proper foundation. - Develop your spending plan. - Use credit and credit cards properly. - Pay off your house.
  27. 32. “ Keep this truth in mind: No investment is as secure as a repaid debt . Putting your desire to invest ahead of repaying your debt obligations is usually a sign of immaturity, not financial sophistication.” Pryor, p. 36
  28. 33. The second level: Saving for future needs. - Develop an emergency savings fund. - Develop an accumulation fund for future purchases or expenditures (taxes). - Develop a plan for your children’s education.
  29. 34. The third level of financial fitness: - Investing your surplus - Learn about the various types of investments -lending investments -ownership investments Spend time learning about mutual funds - Understand the tax consequences
  30. 35. There are only two basic choices with investing: 1. The investments where you become a lender – savings accounts, CDs, corp. bonds, government bonds, state and local bonds, annuities – you get a fixed return. 2. The investments where you become an owner – stocks, mutual funds, real estate, precious metals, farmland– you make money if the value goes up or the company is successful.
  31. 36. <ul><li>The fourth level of financial fitness: </li></ul><ul><li>-Diversifying for safety. </li></ul><ul><li>-Understand investing, know what you want to accomplish; set goals. </li></ul><ul><li>-Spread out the risk. </li></ul>
  32. 37. <ul><li>Time is rapidly passing into eternity. Let us not keep back from God that which is His own. Let us not refuse him that which, though it cannot be given with merit, cannot be denied without ruin. He asks for a whole heart; give it to Him; it is His, both by creation and by redemption. He asks for your intellect; give it to Him; it is His. He asks for your money; give it to Him; it is His. “Ye are not your own, for ye are bought with a price.” 1Corinthians 6:19, 20. AA 566 </li></ul>
  33. 38. The love of money, the desire for wealth, is the golden chain that binds them [people] to Satan. SC 44
  34. 39. <ul><li>No scheme of business or plan of life can be sound or complete that embraces only the brief years of this present life and makes no provision for the unending future. Ed 145 </li></ul>
  35. 40. <ul><li>No one can serve two masters; for either he will hate the one and love the other, or else he will be loyal to the one and despise the other. You cannot serve God and mammon. </li></ul><ul><li>Matt. 6:24 </li></ul>
  36. 41. Financial Planning and Its Benefits <ul><li>Personal financial planning is the process of managing your money to achieve personal economic satisfaction. There are several advantages of personal financial planning. </li></ul>
  37. 42. Financial Planning and Its Benefits <ul><li>Increased effectiveness in obtaining, using, and protecting your financial resources. </li></ul><ul><li>Increased control of your financial affairs. </li></ul><ul><li>Improved personal relationships. </li></ul><ul><li>A sense of freedom from financial worries obtained by looking to the future. </li></ul>
  38. 43. The Financial Planning Process <ul><li>Determine your current financial situation. </li></ul><ul><li>Develop financial goals. </li></ul><ul><li>Identify alternative courses of action. </li></ul><ul><li>Evaluate alternatives. </li></ul><ul><li>Create and implement a financial action plan. </li></ul><ul><li>Reevaluate and revise your plan </li></ul>
  39. 44. Financial Planning Information Sources <ul><li>Printed materials. </li></ul><ul><li>Financial institutions. </li></ul><ul><li>School courses and educational seminars. </li></ul><ul><li>Computer software, World Wide Web, and on-line information sources. </li></ul><ul><li>Financial specialists. </li></ul>
  40. 45. Developing a Flexible Financial Plan A financial plan is a formalized report that.. -Summarizes your current financial situation. -Analyzes your financial needs. -Recommends future financial activities. Your financial plan can be created by you, done with assistance from a financial planner, or made using a money management software package.
  41. 46. Implementing Your Financial Plan Develop good financial habits. - Use a well conceived spending plan to help you stay within your income, while allowing you to save and invest for the future. - Have appropriate insurance protection to prevent financial disasters. - Become informed about tax and investment alternatives. Achieving your financial objectives requires… - A willingness to learn. - Appropriate information sources.
  42. 47. 3 Major Money Management Activities 1. Store and maintain personal financial records and documents. 2. Create personal financial statements of income and outflow (balance sheet and cash flow). 3. Create and implement a plan for spending (budgeting) and saving.
  43. 48. 6 Reasons to Keep Financial Records 1. To help in making spending decisions. 2. To plan future spending. 3. To pay bills on time. 4. To see changes in net worth. 5. To make good investment decisions. 6. To prepare your income tax forms.
  44. 49. What to Keep in Your Home File <ul><li>Items you refer to often: </li></ul><ul><li>Personal and employment records. </li></ul><ul><li>Tax records. </li></ul><ul><li>Financial services records. </li></ul><ul><li>Money management records </li></ul><ul><li>Credit records. </li></ul><ul><li>Consumer records. </li></ul><ul><li>Consumer purchase records. </li></ul><ul><li>Insurance records. </li></ul><ul><li>Investment records. </li></ul><ul><li>Housing and car records. </li></ul><ul><li>Estate planning and retirement records </li></ul>
  45. 50. What to Keep in a Safe Deposit Box <ul><li>Safe deposit box: For records/items that would be hard to replace. </li></ul><ul><li>Birth, marriage and death certificates. </li></ul><ul><li>Citizenship and military papers. </li></ul><ul><li>Adoption and custody papers. </li></ul><ul><li>Serial numbers and photos of valuables. </li></ul><ul><li>CDs and account numbers. </li></ul><ul><li>Mortgage papers and titles. </li></ul><ul><li>List of insurance policy numbers. </li></ul><ul><li>Stock and bond certificates. </li></ul><ul><li>Coins and collectibles. </li></ul><ul><li>Copy of will. </li></ul>
  46. 51. <ul><li>Automobile </li></ul><ul><ul><li>-Vehicle registration </li></ul></ul><ul><li>Lawyer </li></ul><ul><ul><li>-Original of your will and living will </li></ul></ul><ul><li>Doctor and hospital </li></ul><ul><ul><li>-Copy of your living will. </li></ul></ul><ul><li>Home computer </li></ul><ul><ul><li>-Current and past budgets </li></ul></ul><ul><ul><li>-Checking account records. </li></ul></ul><ul><ul><li>-Wills, estate plans, investments </li></ul></ul><ul><ul><li>-Past income tax returns </li></ul></ul>Other Places to Keep Records
  47. 52. Purpose of Personal Financial Statements <ul><li>Report your current financial position in relation to the value of the items you own and the amounts you owe. </li></ul><ul><li>Measure your progress toward your financial goals. </li></ul><ul><li>Maintain information on your financial activities. </li></ul><ul><li>Provide information you can use when preparing tax forms or applying for credit. </li></ul>
  48. 53. Components of a Balance Sheet (net worth statement) <ul><li>Assets – what you own </li></ul><ul><ul><li>-Liquid assets </li></ul></ul><ul><ul><li>-Real estate </li></ul></ul><ul><ul><li>-Personal possessions </li></ul></ul><ul><ul><li>-Investment assets </li></ul></ul><ul><li>Liabilities – what you owe </li></ul><ul><ul><li>-Current liabilities </li></ul></ul><ul><ul><li>-Long term liabilities </li></ul></ul><ul><li>Net Worth </li></ul><ul><ul><li>-Assets minus liabilities </li></ul></ul><ul><ul><li>-Insolvent means liabilities far exceed assets </li></ul></ul>
  49. 54. Components of a Cash Flow Statement Shows inflow/outflow during a given time period. Record income. -Income from employment -Savings and investment income -Other sources Record cash outflows. -Fixed and variable expenses -Net cash flow can be a surplus or a deficit Used as a basis for creating a spending, saving and investment plan.
  50. 55. Creating and Implementing Budget <ul><li>Assessing your current situation . </li></ul><ul><ul><li>-Measure your current financial position. </li></ul></ul><ul><ul><li>-Determine your needs, values and life situation. </li></ul></ul><ul><li>Planning your financial direction . </li></ul><ul><ul><li>-Setting financial goals. </li></ul></ul><ul><ul><li>-Creating budget allocations. </li></ul></ul><ul><ul><ul><li>-Budget amount for an emergency fund, periodic expenses and financial goals. </li></ul></ul></ul><ul><ul><ul><li>-Budget set amounts that you are obligated to pay. </li></ul></ul></ul><ul><ul><ul><li>-Budget estimated amounts to be spent for various household and living expenses </li></ul></ul></ul>
  51. 56. <ul><li>Implementing your budget. </li></ul><ul><ul><li>-Monitoring spending, saving and investment patterns </li></ul></ul><ul><ul><li>-Selecting a budget system. </li></ul></ul><ul><ul><li>-Budgeting systems include… </li></ul></ul><ul><ul><ul><li>-Mental budget, physical budget, written budget, and computerized budget. </li></ul></ul></ul><ul><li>Evaluating your budgeting program . </li></ul><ul><ul><li>-Reviewing your financial progress. </li></ul></ul><ul><ul><li>-Revising (as needed) your financial goals and your budget allocations. </li></ul></ul>Creating and Implementing Budget
  52. 57. Saving to Achieve Financial Goals 1. To set money aside for irregular and unexpected expenses. 2. To pay for replacement of expensive items such as appliances, cars or a down payment on a house. 5 common reasons for saving include: 3. Save to buy special items or pay for a vacation. 4. Put money aside for long-term expenses such as retirement or children’s education. 5. To earn income from the interest on savings for use in paying living expenses.
  53. 58. <ul><li>Successful Budgets Are… </li></ul><ul><li>Well planned. </li></ul><ul><li>Realistic. </li></ul><ul><li>Flexible. </li></ul><ul><li>Clearly Communicated. </li></ul>
  54. 59. What is Consumer Credit? <ul><li>Credit is an arrangement to receive cash, goods or service now, and paying for them in the future. </li></ul><ul><li>Consumer credit is the use of credit for personal needs except a home mortgage. It is a major force in the American economy. </li></ul><ul><li>Three ways consumers can finance current purchases: </li></ul><ul><ul><li>- Take money from savings </li></ul></ul><ul><ul><li>- Use present earnings </li></ul></ul><ul><ul><li>- Borrow against future income </li></ul></ul><ul><li>Trade-offs are involved in using credit. </li></ul>
  55. 60. Credit Considerations <ul><li>Before using credit for a major purchase, ask yourself these questions: </li></ul><ul><ul><li>- Could I pay cash or make a down payment? </li></ul></ul><ul><ul><li>- Do I want to use savings for this purchase? </li></ul></ul><ul><ul><li>- Does purchase fit with my goals and budget? </li></ul></ul><ul><ul><li>- Could I use the needed credit in some better way? </li></ul></ul><ul><ul><li>- Can I postpone this purchase? </li></ul></ul><ul><ul><li>- What are the opportunity costs of postponing this purchase? </li></ul></ul><ul><ul><li>- What are the dollar and psychological costs of using credit for this purchase? </li></ul></ul>
  56. 61. 8 Advantages of Consumer Credit 1. Current use of goods and services 2. Permit purchase even when funds are low 3. Use for financial emergencies 4. Convenient when shopping 5. Safer than cash 6. Can take advantage of float time 7. May get rebates, airline miles or other bonuses 8. Demonstrates financial stability
  57. 62. 5 Disadvantages of Consumer Credit 1. Purchases are more expensive. 2. Temptation to spend . 3. Ties up future income . 4. Possible financial difficulties . 5. Potential loss of merchandise due to late or non-payment.
  58. 63. Types of Credit <ul><li>Closed-End Credit: For specific purpose/amount </li></ul><ul><ul><li>- Mortgage loan </li></ul></ul><ul><ul><li>- Automobile loans </li></ul></ul><ul><ul><li>- Installment loans </li></ul></ul><ul><li>Open-End Credit </li></ul><ul><ul><li>- Use as needed until reaching line of credit </li></ul></ul><ul><ul><li>- You pay interest and finance charges if you do not pay the bill in full when due </li></ul></ul><ul><ul><li>- Revolving check credit – prearranged loan </li></ul></ul><ul><ul><li>- Home equity loan </li></ul></ul>
  59. 64. Credit Cards <ul><li>Nearly eight out of ten American households carry one or more credit cards. </li></ul><ul><li>One-third = convenience users. Balance paid in full each month. </li></ul><ul><li>Other two-thirds = borrowers. </li></ul><ul><li>Co-branding – linking a credit card with a business offering rebates on products and services. </li></ul><ul><li>Smart cards have imbedded computer chip. </li></ul><ul><li>Debit cards are NOT credit cards. </li></ul>
  60. 65. Credit Capacity Indicators Debt Payment-to-Income Ratio monthly payments* monthly after tax income *Not including housing
  61. 66. Credit Capacity Indicators Debt to Equity Ratio total liabilities = Should be < 1 net worth* *Excluding home value
  62. 67. Build and Maintain Your Credit Rating <ul><li>Limit your borrowing to your capacity to repay. </li></ul><ul><li>Pay all bills promptly. </li></ul><ul><li>Check to see what is in your credit report. </li></ul><ul><ul><li>-Credit bureaus collect information. </li></ul></ul><ul><ul><li>-Experian, Trans Union and Equifax. </li></ul></ul><ul><ul><li>-Mix-ups and errors in credit reports have improved recently. </li></ul></ul><ul><ul><li>-Bureaus get information from banks, finance and credit card companies, merchants and other creditors. </li></ul></ul>
  63. 68. Complaining About Consumer Credit <ul><li>First try to solve the problem directly with the creditor. </li></ul><ul><li>If that does not work, there are more formal complaint procedures. </li></ul><ul><li>There are a variety of consumer credit protection laws and federal agencies who administer and assist with complaint procedures. </li></ul>
  64. 69. Sources of Consumer Credit <ul><li>Inexpensive loans </li></ul><ul><ul><li>- Parents and family members </li></ul></ul><ul><ul><li>- Loans based on assets, such as a CD </li></ul></ul><ul><li>Medium-priced loans </li></ul><ul><ul><li>- Commercial banks, savings and loan associations, and credit unions </li></ul></ul><ul><li>Expensive loans </li></ul><ul><ul><li>- Finance companies </li></ul></ul><ul><ul><li>- Retailers such as car or appliance dealers </li></ul></ul><ul><ul><li>- Bank credit cards and cash advances </li></ul></ul>
  65. 70. The Cost of Credit Finance charge includes interest and fees, such as service charges or credit-related insurance. The annual percentage rate (APR) is the percentage cost of credit on a yearly basis. The APR provides the true rate of interest for comparison with other sources of credit. This rate lets you compare like with like when shopping for rates.
  66. 71. Trade-Offs of Financing Choices <ul><li>Term (length of loan) versus interest cost. </li></ul><ul><li>Lender risk versus interest rate. To reduce the lender’s risk you can… </li></ul><ul><ul><li>-Accept a variable interest rate. </li></ul></ul><ul><ul><li>-Provide collateral to secure the loan. </li></ul></ul><ul><ul><li>-Make a large down payment up front. </li></ul></ul><ul><ul><li>-Have a shorter loan term. </li></ul></ul>
  67. 72. Choosing and Using a Credit Card <ul><li>Look for a low interest rate if you plan to carry a balance. </li></ul><ul><li>The interest you pay on consumer credit is not tax deductible. </li></ul><ul><li>If you plan to pay each month in full look for a card with no annual fee. </li></ul><ul><li>Avoid the minimum monthly payment trap. </li></ul><ul><li>Early repayment: The Rule of 78s. </li></ul><ul><li>Credit insurance </li></ul><ul><ul><li>- Pay off loan if person dies or becomes disabled. </li></ul></ul>
  68. 73. Evaluating Housing Alternatives Rent or Own <ul><li>Advantages of renting: </li></ul><ul><li>- Mobility </li></ul><ul><li>- Fewer maintenance responsibilities </li></ul><ul><li>- Lower initial costs </li></ul><ul><li>Disadvantages of renting: </li></ul><ul><li>- Few Financial benefits </li></ul><ul><li>- Restricted lifestyle </li></ul><ul><li>- Legal concerns of a lease </li></ul><ul><li>- Costs including a security deposit, utilities and renter’s insurance </li></ul>
  69. 74. Advantages of Owning <ul><li>Pride of ownership </li></ul><ul><ul><li>- American dream/norm </li></ul></ul><ul><li>Reduced income taxes </li></ul><ul><ul><li>- Deduct property taxes </li></ul></ul><ul><ul><li>- Deduct mortgage interest </li></ul></ul><ul><li>Build equity by paying down the loan or by price appreciation </li></ul><ul><li>Builds your credit rating </li></ul><ul><li>Hedge against inflation </li></ul><ul><li>Lifestyle flexibility – express your individuality </li></ul>
  70. 75. Disadvantages of Owning <ul><li>Financial uncertainty </li></ul><ul><ul><li>- Get down payment and financing </li></ul></ul><ul><ul><li>- Home values could drop </li></ul></ul><ul><li>Limited mobility </li></ul><ul><ul><li>- Can take time to sell </li></ul></ul><ul><li>Higher living costs </li></ul><ul><ul><li>- Maintenance </li></ul></ul><ul><ul><li>- Repairs and improvements </li></ul></ul><ul><ul><li>- Real estate taxes </li></ul></ul>
  71. 76. Assess Types of Housing that Can Be Purchased <ul><li>Single-family dwelling </li></ul><ul><li>Multi-unit dwelling </li></ul><ul><ul><li>- Duplex </li></ul></ul><ul><ul><li>- Townhouse </li></ul></ul><ul><li>Condominium </li></ul><ul><ul><li>- You own your unit in a building of units </li></ul></ul><ul><ul><li>- It is not a type of structure but a form of ownership </li></ul></ul><ul><li>Cooperative housing </li></ul><ul><li>Members own shares in and rent a unit in a building with multiple units </li></ul>
  72. 77. Assess Types of Housing that Can Be Purchased cont. <ul><li>Manufactured homes </li></ul><ul><ul><li>- Fully or partially assembled in a factory and then moved to the housing site </li></ul></ul><ul><ul><li>- Prefabricated type has components built in the factory and assembled at the site </li></ul></ul><ul><ul><li>- Lower cost than site built homes </li></ul></ul><ul><li>Mobile homes </li></ul><ul><ul><li>- Type of manufactured home often less than 1,000 square feet </li></ul></ul><ul><ul><li>- Offer same features as a conventional house </li></ul></ul><ul><ul><li>- Safety is debated and they tend to depreciate </li></ul></ul>
  73. 78. Assess Types of Housing that Can Be Purchased cont. <ul><li>If building a home, consider… </li></ul><ul><ul><li>- Does contractor have needed experience? </li></ul></ul><ul><ul><li>- Does contractor have good working relationship with architect, suppliers, electricians, plumbers, carpenters and others? </li></ul></ul><ul><ul><li>- What assurance do you have about quality? </li></ul></ul><ul><ul><li>- What are payment arrangements? </li></ul></ul><ul><ul><li>- What delays will be considered legitimate? </li></ul></ul><ul><ul><li>- Is the contractor licensed and insured ? </li></ul></ul>
  74. 79. Home Buying Process Step 1: Determine Homeownership Needs <ul><li>Determine how much you can afford </li></ul><ul><ul><li>- Consider both price and quality </li></ul></ul><ul><li>Price and down payment </li></ul><ul><ul><li>- Available funds for a down payment </li></ul></ul><ul><ul><li>- Your income and living expenses </li></ul></ul><ul><ul><li>- Your ability to make the payments </li></ul></ul><ul><ul><li>- Get pre-qualified </li></ul></ul><ul><li>Size and quality </li></ul><ul><ul><li>- As you move to a second and third home you can include more of the features you want. </li></ul></ul><ul><ul><li>- Look at the condition of the home </li></ul></ul>
  75. 80. Home Buying Process Step 2: Finding and Evaluating a Property to Purchase <ul><li>Select a location </li></ul><ul><ul><li>- Be aware of zoning laws </li></ul></ul><ul><ul><li>- Assess the school system if you have children </li></ul></ul><ul><li>Using a real estate agent </li></ul><ul><ul><li>- They present your offer, negotiate the price, assist you in obtaining financing, and represent you at the closing </li></ul></ul><ul><li>Conduct a home inspection </li></ul><ul><li>Obtain an appraisal </li></ul>
  76. 81. Home Buying Process Step 3: Pricing and Property <ul><li>Determining the home price </li></ul><ul><li>Negotiating the purchase price </li></ul><ul><ul><li>- Buyer-agents </li></ul></ul><ul><ul><li>- Seller’s or buyer’s market </li></ul></ul><ul><ul><li>- Earnest money </li></ul></ul><ul><li>Contingency clauses </li></ul><ul><ul><li>- Buyer can obtain financing </li></ul></ul><ul><ul><li>- Sale contingent on the sale of the buyer’s home </li></ul></ul>
  77. 82. Home Buying Process Step 4: Obtaining Financing <ul><li>Determine amount of the down payment </li></ul><ul><ul><li>- Mortgage insurance if less than $20% </li></ul></ul><ul><li>Qualifying for a mortgage </li></ul><ul><ul><li>- Can be pre-qualified based on income, assets, debts, credit history, mortgage rate, and length of loan </li></ul></ul><ul><li>Evaluating points (prepaid interest) </li></ul><ul><li>Home loan application process </li></ul><ul><li>Fixed or adjustable rate mortgage </li></ul>
  78. 83. Types of Mortgages <ul><li>Conventional </li></ul><ul><ul><li>- Fixed rate, fixed payment, amortized </li></ul></ul><ul><ul><li>5%, 10% or 20% down </li></ul></ul><ul><ul><li>15, 20 or 30 years of fixed payments </li></ul></ul><ul><li>Government guaranteed financing programs </li></ul><ul><ul><li>- Veterans Administration </li></ul></ul><ul><ul><li>- Federal Housing Authority </li></ul></ul><ul><li>Adjustable rate mortgages </li></ul><ul><ul><li>- Interest rate varies with the prime rate but has a rate cap </li></ul></ul>
  79. 84. Types of Mortgages cont. <ul><li>Graduated payment </li></ul><ul><ul><li>- Payments start lower and go up </li></ul></ul><ul><ul><li>- For persons whose income will increase </li></ul></ul><ul><li>Balloon </li></ul><ul><ul><li>- Fixed monthly payments plus one large payment, usually after 3, 5 or 7 years </li></ul></ul><ul><li>Growing-equity </li></ul><ul><ul><li>- Payment increases to allow loan to be paid off more quickly </li></ul></ul>
  80. 85. <ul><li>Shared appreciation </li></ul><ul><ul><li>- Borrower agrees to share appreciated value of the home with the lender </li></ul></ul><ul><li>Second mortgage </li></ul><ul><ul><li>- Home is collateral and interest may be tax deductible </li></ul></ul><ul><ul><li>- Home equity loans (example) </li></ul></ul><ul><li>Reverse mortgages </li></ul><ul><ul><li>- Provides elderly with tax-free income based on the home equity </li></ul></ul><ul><li>Refinancing </li></ul>Types of Mortgages cont .
  81. 86. Misconceptions About Retirement Planning <ul><li>My expenses will drop when I retire. </li></ul><ul><li>My retirement will last only 15 years. </li></ul><ul><li>I can depend on Social Security and my company pension to pay for my basic living expenses. </li></ul><ul><li>My pension amount will keep pace with inflation. </li></ul><ul><li>There’s plenty of time for me to start saving for retirement. </li></ul><ul><li>Saving just a little bit won’t help. </li></ul>
  82. 87. <ul><li>Take advantage of the time value of money: </li></ul><ul><li>If from age 25 to 65 you invest $300 a month (9%) at age 65 you’ll have 1.4 million in your retirement fund. </li></ul><ul><li>Wait ten years until age 35 to start and you’ll have about $550,000. </li></ul><ul><li>Wait twenty year until age 45 and you’ll have only $201,000 at age 65. </li></ul>The Importance of Starting Early
  83. 88. Why Think About Retirement Planning Now? <ul><li>People are spending more years (16-20) in retirement. </li></ul><ul><li>A private pension and Social Security are most often insufficient to cover the cost of living. </li></ul><ul><li>Inflation may diminish the purchasing power of your retirement savings. </li></ul>
  84. 89. Review Your Retirement Assets <ul><li>Housing </li></ul><ul><ul><li>- If owned, probably your biggest single asset </li></ul></ul><ul><ul><li>- If large equity, reverse annuity mortgage </li></ul></ul><ul><li>Life insurance </li></ul><ul><ul><li>- Cash value can be converted into an annuity </li></ul></ul><ul><li>Other investments </li></ul><ul><ul><li>- Stocks and bonds </li></ul></ul><ul><li>Assets after divorce </li></ul><ul><ul><li>- Pension benefits are considered a marital asset to be divided </li></ul></ul>
  85. 90. Estimating Retirement Living Expenses <ul><li>Spending patterns and where and how you live will probably change </li></ul><ul><li>Some expenses may go down or stop </li></ul><ul><ul><li>- Work expenses – gas, lunches out </li></ul></ul><ul><ul><li>- Clothing expenses – fewer and more casual </li></ul></ul><ul><ul><li>- Housing expenses – house may be paid off, but taxes and insurance may go up </li></ul></ul><ul><ul><li>- Federal income taxes will probably be lower </li></ul></ul>
  86. 91. <ul><li>Other expenses may go down </li></ul><ul><ul><li>- Life and health insurance unless your employer continues to pay them </li></ul></ul><ul><ul><li>- Medical expenses increase with age </li></ul></ul><ul><ul><li>- Expenses for leisure activities </li></ul></ul><ul><ul><li>- Gifts and contributions </li></ul></ul><ul><li>Inflation will raise the amount you need to cover your expenses over your probable 16-20 years in retirement </li></ul>Estimating Retirement Living Expenses cont.
  87. 92. How an “Average” Older (65+) Household Spends its Money 32.5% Housing 16.3 % Transp. 15.4% Food 11.3% Medical 7.7 % Insurance/Other 6.2 % Clothing 5.7 % Contributions 4.9 % Entertainment 11.3% 15.4% 4.9% 16.3% 32.5% 7.7% 6.2% 5.7%
  88. 93. Planning Your Retirement Housing <ul><li>Think about where you want to live </li></ul><ul><li>Consider the cost of living and taxes </li></ul><ul><li>Type of housing as needs change </li></ul><ul><ul><li>- Staying in their present home is what most people prefer </li></ul></ul><ul><ul><li>- Universal design is a home built to allow for potential physical limitations </li></ul></ul><ul><ul><li>- If not built using universal design, home may need to be retrofitted </li></ul></ul><ul><ul><li>- Continuing care retirement community provide increasing levels of care </li></ul></ul>
  89. 94. Avoid Retirement Housing Traps <ul><li>If you plan to move when you retire: </li></ul><ul><ul><li>- Write the local Chamber of Commerce to learn about taxes and the economic profile </li></ul></ul><ul><ul><li>- Check on state income and sales taxes and taxes on pension income </li></ul></ul><ul><ul><li>- Subscribe to a local Sunday paper </li></ul></ul><ul><ul><li>- Estimate what your utility costs would be in the area </li></ul></ul><ul><ul><li>- Rent for awhile instead of buying immediately </li></ul></ul>
  90. 95. Planning Your Retirement Income <ul><li>Social Security </li></ul><ul><ul><li>- Most widely used source of retirement income, covering 97% of U.S. workers </li></ul></ul><ul><ul><li>- Meant to be part of your retirement income but not the sole source </li></ul></ul><ul><ul><li>- Check the Earnings & Benefit statement you receive each year </li></ul></ul><ul><ul><li>- Full retirement benefits at age 65 to age 67, depending on the year you were born </li></ul></ul>
  91. 96. Planning Your Retirement Income cont. <ul><li>Social Security </li></ul><ul><ul><li>- Up to 85% of your benefit may be subject to federal income tax depending on your other sources of income, such as interest income </li></ul></ul><ul><ul><li>- Cost of living adjustment (COLA) each year </li></ul></ul><ul><ul><li>- Spouse’s benefit = ½ worker’s benefit </li></ul></ul><ul><ul><li>- Workers’ confidence in Social Security paying them benefits when they retire is declining </li></ul></ul>
  92. 97. Planning Your Retirement Income cont. <ul><li>Employer Pension Plans – Defined Contribution </li></ul><ul><ul><li>- Money-purchase pension plans – Percent of your earnings are set aside </li></ul></ul><ul><ul><li>- Stock bonus plans – Employer’s contribution depends on the company’s profits </li></ul></ul><ul><ul><li>- Salary reduction or 401 (k); 403(b) plans… </li></ul></ul><ul><ul><ul><li>- Employer makes non-taxable contributions </li></ul></ul></ul><ul><ul><ul><li>- Employee contributions are tax- deferred </li></ul></ul></ul>
  93. 98. <ul><li>Employer Pension Plans – Defined Benefit </li></ul><ul><ul><li>Employer will pay you a certain amount per month when you retire based on your pre-retirement salary and number of years of service. </li></ul></ul><ul><ul><li>Employer makes the investment decisions for your and their contribution, but your benefit amount stays the same regardless of how the investments perform. </li></ul></ul>Planning Your Retirement Income cont.
  94. 99. Pension Plan Portability and Vesting Portability allows you to carry earned benefits from one employer’s pension plan to another’s when you change jobs. Vesting means you have worked for an employer long enough (3-5 years) to get a pension benefit, even if you take a position with another employer. When you leave a job, you can cash in your pension, have the employer keep the funds so you will get a future pension from them, or take the funds to invest in a pension with your new employer if your pension is portable.
  95. 100. Individual Retirement Accounts (IRA) <ul><li>The most popular personal retirement plan </li></ul><ul><li>Regular or traditional IRA </li></ul><ul><ul><li>- If you meet income guidelines, money invested is taken out of your paycheck before income and Social Security taxes are computed. </li></ul></ul><ul><ul><li>- You can contribute up to $2,000 per year. </li></ul></ul><ul><ul><li>- The interest accumulates tax free until you start taking it out. </li></ul></ul><ul><ul><li>- You pay taxes on the money as you with draw it once you are retired or by age 70½. </li></ul></ul>
  96. 101. Individual Retirement Accounts <ul><li>Roth IRAs </li></ul><ul><ul><li>- Contributions are not tax deductible, but earnings accumulate tax free. </li></ul></ul><ul><ul><li>- You can contribute up to $2,000 per year if you are single and have an AGI of $95,000 or less or $150,000 if you are filing jointly. </li></ul></ul><ul><ul><li>- After five years, up to $10,000 can be used as a down payment on a first-home purchase penalty-free and tax-free. </li></ul></ul><ul><li>Rollover IRAs allow you to transfer taxable distributions of a retirement plan into an IRA. </li></ul>
  97. 102. Individual Retirement Accounts <ul><li>You decide where your money is invested. </li></ul><ul><li>Many people put IRA money in a savings account or CD rather than thinking about their options to invest for growth. </li></ul><ul><li>Stocks, bonds and mutual funds are options for long-term growth. </li></ul><ul><li>A KEOGH is a pension plan developed for self-employed people, and the employees. </li></ul>
  98. 103. What is an Annuity? <ul><li>An annuity is a life insurance product to provide a guaranteed income. </li></ul><ul><ul><li>Annuity options include income for a set number of years, for as long as you live, or for as long as you and your partner lives if he or she outlives you. </li></ul></ul><ul><ul><li>The amount you get is based on which of the above options you pick, how much you have contributed, and how you have your annuity premiums invested. </li></ul></ul>
  99. 104. Advantages of Tax-Deferred Annuities Contributions and interest earned are tax deferred. You pay taxes on the annuity dollars and interest as you withdraw them after you retire. When you retire, you will likely be in a lower income tax bracket.
  100. 105. Anticipated Sources of Retirement Income 27% 9% 7% 7% 18% 7% 5% 8% 12% Home Equity Part-time work Savings Social Security Other 401(k) Spouse’s pension Pension IRA
  101. 106. Living on Your Retirement Income <ul><li>Estimate your income at retirement from pensions and Social Security. </li></ul><ul><li>Together, your pension and Social Security will cover about 60% of retirement income needs. </li></ul><ul><li>Determine how much you will need in investments to supply the other 40%. Develop a plan to accumulate this amount in assets. </li></ul><ul><li>Monitor your investments. </li></ul><ul><li>Take advantage of all tax savings retirees receive. </li></ul><ul><li>Develop a spending plan for retirement . </li></ul>
  102. 107. Living on Your Retirement Income <ul><li>Retirees get a variety of tax savings. </li></ul><ul><li>Fewer senior discounts as boomers retire. </li></ul><ul><li>Working during “retirement.” </li></ul><ul><li>Invest some of your retirement income for growth to allow for inflation and increased health care costs. </li></ul><ul><li>Consider 60% stocks and 40% bonds. </li></ul><ul><li>Dip into savings with caution, since you do not know how long you will live. </li></ul>

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