Achieving Financial Security in the Times of New Normal Fahzy Abdul-Rahman, Ph.D., M.P.H., M.S.  New Mexico State Universi...
Presentation Topics <ul><li>“ New Normal” </li></ul><ul><li>Personal Finance </li></ul><ul><ul><li>Importance </li></ul></...
What is the “New Normal”?   <ul><li>A constellation of economic events coming together </li></ul><ul><li>Different trends ...
New Economic Reality?
Characteristics of the “New Normal” <ul><li>An extended period of:- </li></ul><ul><li>Slow U.S. economic growth: GDP growt...
Unemployment rate = 16.6%? <ul><li>Including  </li></ul><ul><ul><li>underemployed  </li></ul></ul><ul><ul><li>discouraged ...
Five Stages: How People Receive “Bad News” (Elizabeth Kubler-Ross Model)
The “Retirement Planning Grief Cycle” <ul><li>Denial:  “Not to Worry. This is just a blip and things will get back to norm...
Basics Personal Finance Foundation
Marshmallow <ul><li>1. Delayed Gratification </li></ul>
2. Wants and Needs <ul><li>NEEDS </li></ul><ul><li>Food for breakfast </li></ul><ul><li>Clothes for school </li></ul><ul><...
The Five-Step Financial Planning Process 3. Planning
SMART Goals? SMART  Goals S pecific…….. M easurable… T ime-Limited.. R ealistic……. A ttainable….. “ Pay for lodging, trans...
Activity <ul><li>What are your SMART financial goals? </li></ul><ul><li>Short- & long-terms </li></ul><ul><li>Remember to ...
The Five-Step Financial Planning Process
Financial Moves to Make at Age: 30 40 50 <ul><li>Develop good spending habits </li></ul><ul><li>Free yourself of credit ca...
Retirement & Savings
Retirement Reality <ul><li>Social Security </li></ul><ul><ul><li>2010: SS pays more benefits than it receives in payroll t...
“ Three-Legged Stool&quot; <ul><li>The old stool:  </li></ul><ul><ul><li>Pension </li></ul></ul><ul><ul><ul><li>Defined-be...
Retirement Plans <ul><ul><li>The Thrift Savings Plan  (VA’s 401(k)) </li></ul></ul><ul><ul><li>“ The Government automatica...
Investing <ul><li>Why? Let the money grow </li></ul><ul><li>How? Personally vs. broker companies </li></ul><ul><ul><li>Wat...
Risks and Returns  Higher risks, higher returns/loss Lower risks, lower returns/loss Penny Stock Commo- dities Collectible...
Where to Invest? The Other Interest ::: The One that You are Paying
Invest vs. Pay Debt? <ul><li>Interest %s </li></ul><ul><li>Emergency Fund </li></ul><ul><li>401(k) Match  </li></ul>
Invest vs. Pay Debt? <ul><li>Highest interest rates: </li></ul><ul><ul><li>Debts vs. Savings/Investing </li></ul></ul><ul>...
Key Investment Principle <ul><li>Time is money </li></ul><ul><li>More time </li></ul><ul><ul><li>Start early </li></ul></u...
Investing Early Who has the most at retirement? <ul><li>Interest = 7%  </li></ul><ul><li>You   </li></ul><ul><li>Invest $2...
Investment Mix <ul><li>Factors </li></ul><ul><li>Diversification:  Reduce risk </li></ul><ul><li>When do you expect/need t...
Resources <ul><li>Full control of your wealth </li></ul><ul><ul><li>Governmental sites:  investor.gov ,  consumerfinance.g...
Resources <ul><li>Hire professionals </li></ul><ul><ul><li>Certified Financial Planner® (CFP®) </li></ul></ul><ul><ul><li>...
Investment Knowledge <ul><li>At 90, after 30 years of retirement, Thiermann is back at work for $10 an hour </li></ul><ul>...
Achieving Financial Security in the Times of New Normal Fahzy Abdul-Rahman, Ph.D., M.P.H., M.S.  New Mexico State Universi...
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Achieving Financial Security In New Normal

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Retirement Planning at U.S. Department of Veterans Affairs, July 2011, Albuquerque

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Achieving Financial Security In New Normal

  1. 1. Achieving Financial Security in the Times of New Normal Fahzy Abdul-Rahman, Ph.D., M.P.H., M.S. New Mexico State University Extension [email_address]
  2. 2. Presentation Topics <ul><li>“ New Normal” </li></ul><ul><li>Personal Finance </li></ul><ul><ul><li>Importance </li></ul></ul><ul><ul><li>Basics </li></ul></ul><ul><li>Areas of Focus: Retirement, Investment, and Savings </li></ul>
  3. 3. What is the “New Normal”? <ul><li>A constellation of economic events coming together </li></ul><ul><li>Different trends than those experienced previously </li></ul><ul><li>Puts a “framework” on recent events </li></ul><ul><li>People like to identify patterns to make sense of them </li></ul><ul><li>Instructive but always subject to change </li></ul><ul><li>Dangerous to assume “New Normal” will last indefinitely </li></ul><ul><li>Some trends will have long-lasting impact (e.g., lower benefits) </li></ul>
  4. 4. New Economic Reality?
  5. 5. Characteristics of the “New Normal” <ul><li>An extended period of:- </li></ul><ul><li>Slow U.S. economic growth: GDP growth < 2% </li></ul><ul><li>Low single-digit average annual stock returns </li></ul><ul><li>Stubbornly high unemployment levels: 9.1% </li></ul><ul><ul><li>Precarious job security (public and private sector) </li></ul></ul><ul><ul><li>Youth, <25: 24% </li></ul></ul><ul><ul><ul><li>College debt --- Next financial crisis wave </li></ul></ul></ul><ul><li>Tightened credit standards </li></ul><ul><li>Declining asset values (e.g., housing) </li></ul><ul><li>Increased precautionary household savings and debt repayment </li></ul><ul><li>Decreased household spending </li></ul>
  6. 6. Unemployment rate = 16.6%? <ul><li>Including </li></ul><ul><ul><li>underemployed </li></ul></ul><ul><ul><li>discouraged </li></ul></ul><ul><li>Unemployment rate </li></ul><ul><ul><li>16.6% (U6) </li></ul></ul>
  7. 7. Five Stages: How People Receive “Bad News” (Elizabeth Kubler-Ross Model)
  8. 8. The “Retirement Planning Grief Cycle” <ul><li>Denial: “Not to Worry. This is just a blip and things will get back to normal soon” OR “I’ll be OK. I’ve had this job for 20 years” </li></ul><ul><li>Anger: “This isn’t fair. They’re taking away [X]” OR “I’m really mad. They’re cutting my retirement benefits” </li></ul><ul><li>Depression: “It’s hopeless. I’ll never be able to retire” OR “I’ll probably end up a bag lady when I’m older” </li></ul><ul><li>Bargaining: “If I adjust my spending or work a little longer, I could probably still retire comfortably” OR “I’ll do some work on the side to make up for what I lost from the pay freeze” </li></ul><ul><li>Acceptance: “I’m OK. I have a new financial plan for my retirement” OR “I’ve figured out a few good ways to live on less” </li></ul>
  9. 9. Basics Personal Finance Foundation
  10. 10. Marshmallow <ul><li>1. Delayed Gratification </li></ul>
  11. 11. 2. Wants and Needs <ul><li>NEEDS </li></ul><ul><li>Food for breakfast </li></ul><ul><li>Clothes for school </li></ul><ul><li>Transportation to school or work </li></ul><ul><li>WANTS </li></ul><ul><li>An iPad2 </li></ul><ul><li>Blue-Ray DVD Players </li></ul><ul><li>Brand New Car </li></ul>Don't Buy Stuff You Can’t …
  12. 12. The Five-Step Financial Planning Process 3. Planning
  13. 13. SMART Goals? SMART Goals S pecific…….. M easurable… T ime-Limited.. R ealistic……. A ttainable….. “ Pay for lodging, transportation, meals for a 5-day trip to Washington, D.C.” “ $300 through fundraising, $50 from birthday money, save $25 a week.” “ If I stick to my plan, I’ll have the money when I need it.” “ I still have enough money to live on while I work toward this goal.” “ I need to have all the money by 6 months from now.”
  14. 14. Activity <ul><li>What are your SMART financial goals? </li></ul><ul><li>Short- & long-terms </li></ul><ul><li>Remember to be specific </li></ul><ul><li>It can also involve less important things (wants) </li></ul>
  15. 15. The Five-Step Financial Planning Process
  16. 16. Financial Moves to Make at Age: 30 40 50 <ul><li>Develop good spending habits </li></ul><ul><li>Free yourself of credit card debt </li></ul><ul><li>Build an emergency fund </li></ul><ul><li>Start saving for retirement </li></ul><ul><li>When you’re ready to settle down, consider buying  a home </li></ul><ul><li>Write a net worth statement each year </li></ul><ul><li>Pay cash for (mostly) everything </li></ul><ul><li>Plan to have your mortgage paid off when you retire </li></ul><ul><li>Create multiple streams of income for retirement </li></ul><ul><li>Run a retirement calculator annually </li></ul><ul><li>Investigate LT care insurance </li></ul><ul><li>Consider converting term policies to permanent life insurance policies </li></ul><ul><li>Review your estate planning documents </li></ul><ul><li>Adjust your investment risk tolerance </li></ul><ul><li>Diversify out of company stock </li></ul>
  17. 17. Retirement & Savings
  18. 18. Retirement Reality <ul><li>Social Security </li></ul><ul><ul><li>2010: SS pays more benefits than it receives in payroll taxes </li></ul></ul><ul><ul><li>By 2036, SS is expected to be bankrupt </li></ul></ul><ul><li>Medicare too </li></ul><ul><ul><li>By 2024, SS is expected to be bankrupt </li></ul></ul><ul><ul><li>Living longer, living less healthy, high health cost, </li></ul></ul>
  19. 19. “ Three-Legged Stool&quot; <ul><li>The old stool: </li></ul><ul><ul><li>Pension </li></ul></ul><ul><ul><ul><li>Defined-benefit </li></ul></ul></ul><ul><ul><ul><li>Defined-contribution </li></ul></ul></ul><ul><ul><li>Social Security, and </li></ul></ul><ul><ul><li>Savings </li></ul></ul><ul><ul><ul><li>Including investments </li></ul></ul></ul>Within your control?
  20. 20. Retirement Plans <ul><ul><li>The Thrift Savings Plan (VA’s 401(k)) </li></ul></ul><ul><ul><li>“ The Government automatically contributes 1 percent of your salary with additional matching contributions up to a total of 5 percent.” </li></ul></ul><ul><ul><ul><li>Maximize the matching ( free money ) </li></ul></ul></ul><ul><ul><li>Consult VA’s HR personnel </li></ul></ul><ul><li>IRA or Roth IRA </li></ul><ul><ul><li>When your employer doesn’t offer a retirement plan </li></ul></ul>
  21. 21. Investing <ul><li>Why? Let the money grow </li></ul><ul><li>How? Personally vs. broker companies </li></ul><ul><ul><li>Watch out for those fees </li></ul></ul><ul><li>Risks involved </li></ul><ul><ul><li>Higher risks, higher returns/loss </li></ul></ul><ul><ul><li>Lower risks, lower returns/loss </li></ul></ul>
  22. 22. Risks and Returns Higher risks, higher returns/loss Lower risks, lower returns/loss Penny Stock Commo- dities Collectibles Speculative Stock / Bonds / Mutual Funds Real Estate Blue-Chip Common Stock Growth Mutual Funds High-Grade Convertible Bonds High-Grade Preferred Stock Balanced Mutual Funds High-Grade Corporate Bonds or Mutual Funds High-Grade Municipal Bonds or Mutual Funds Money Market Accounts or Mutual Funds Certificates of Deposit U.S. Savings Bonds Insured Savings / Checking Accounts Treasury Issues
  23. 23. Where to Invest? The Other Interest ::: The One that You are Paying
  24. 24. Invest vs. Pay Debt? <ul><li>Interest %s </li></ul><ul><li>Emergency Fund </li></ul><ul><li>401(k) Match </li></ul>
  25. 25. Invest vs. Pay Debt? <ul><li>Highest interest rates: </li></ul><ul><ul><li>Debts vs. Savings/Investing </li></ul></ul><ul><ul><ul><li>14% Credit Card interest rate, $4,000 balance vs. </li></ul></ul></ul><ul><ul><ul><li>Savings with 3% interest rate </li></ul></ul></ul><ul><li>Emergency funds: 3-6 months </li></ul><ul><li>Match in 401(k) </li></ul><ul><ul><li>Dollar-per-dollar matching is equivalent to 100% interest rate. </li></ul></ul>
  26. 26. Key Investment Principle <ul><li>Time is money </li></ul><ul><li>More time </li></ul><ul><ul><li>Start early </li></ul></ul><ul><ul><li>Marshmallow </li></ul></ul><ul><li>More money </li></ul><ul><li>More interest (risks?) </li></ul>
  27. 27. Investing Early Who has the most at retirement? <ul><li>Interest = 7% </li></ul><ul><li>You </li></ul><ul><li>Invest $2000 every year </li></ul><ul><ul><li>when you are 18 </li></ul></ul><ul><ul><li>for 10 years </li></ul></ul><ul><li>let the money sit for the next 38 years </li></ul><ul><li>Your sister </li></ul><ul><li>Invest $2000 every year </li></ul><ul><ul><li>when she is 31 </li></ul></ul><ul><ul><li>for 35 years </li></ul></ul><ul><li>Even though you sister invested more than twice as much as you did, you end up with $84,944 more. Why? You took advantage of time, by started to save earlier. </li></ul>
  28. 28. Investment Mix <ul><li>Factors </li></ul><ul><li>Diversification: Reduce risk </li></ul><ul><li>When do you expect/need the money </li></ul><ul><ul><li>Age </li></ul></ul><ul><ul><li>Short-Term Priorities: Buy a home in a few years </li></ul></ul><ul><ul><li>Obligations </li></ul></ul><ul><li>Examples </li></ul><ul><li>All children ’s health system </li></ul><ul><li>60% stocks and 40% bonds </li></ul><ul><ul><li>most of the stocks would be part of S&P's 500-stock index </li></ul></ul><ul><li>↘ stock allocation by 1% once tapping into retirement savings </li></ul><ul><ul><li>60% in stocks at age 65, then by age 80 you'd be down to 45% in stocks. </li></ul></ul>
  29. 29. Resources <ul><li>Full control of your wealth </li></ul><ul><ul><li>Governmental sites: investor.gov , consumerfinance.gov/ </li></ul></ul><ul><ul><li>Companies: mint.com , Morningstar , Investopedia , </li></ul></ul><ul><ul><li>Other: American Association of Individual Investors ( AAII ) </li></ul></ul>
  30. 30. Resources <ul><li>Hire professionals </li></ul><ul><ul><li>Certified Financial Planner® (CFP®) </li></ul></ul><ul><ul><li>Chartered Financial Analyst (CFA®) </li></ul></ul><ul><ul><li>Certified Fund Specialist (CFS) </li></ul></ul><ul><ul><li>Chartered Financial Consultant (ChFC) </li></ul></ul><ul><ul><li>Certified Investment Management Analyst (CIMA) </li></ul></ul><ul><ul><li>Certified Public Accountant and Personal Financial Specialist (CPA and PFS) </li></ul></ul><ul><li>Selecting Investment Professionals ( FINRA ) </li></ul>
  31. 31. Investment Knowledge <ul><li>At 90, after 30 years of retirement, Thiermann is back at work for $10 an hour </li></ul><ul><li>$700,000 in retirement money </li></ul><ul><li>Know the basics </li></ul>
  32. 32. Achieving Financial Security in the Times of New Normal Fahzy Abdul-Rahman, Ph.D., M.P.H., M.S. New Mexico State University Extension [email_address]

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