1. Your Retirement (!)
- The problem
• if you’re 20 now, you can expect to
live to 79 (76 for men, 81 for women)
- U.S. ranks 49th in the world
- not that much in the genes
• much longer is a possibility
• current average retirement age: 62
- many don’t choose their retirement
date due to illness or buyouts
2. • Social Security
- never designed for all retirement
needs; supposed to keep seniors
out of dire poverty
• pretty much has
• average benefit: $1,200/month
- Baby Boomers won’t “use it up” as
it is a largely a “pay as you go
system”
• some funds are set aside, but
will be gone by about 2033
• the “trust fund” is just a general
obligation of the federal
government
3. • Social Security (continued)
- thus, benefits will almost certainly
go down; you might expect
~$900/mo. (in today’s dollars)
starting at age 67 (likely later)
• Traditional employer pension plans
- “defined benefit”
• fading away
4. What To Do?
- “save early and often”
- illustration
• historical returns on stocks of 11%
(quite varied)
• assume 2% inflation
• save $300/month (which ↑ with
inflation)
age savings starts funds at age 63
43 $201,900
33 $553,400
23 $1,415,000
• why college students must know
5. What To Do? (continued)
- aren’t stocks risky?
ex: down 37% in 2008
ex: up 26% in 2009, 15% in 2010
ex: -0.04% in 2011
• certainly risky in the short run
• over decades in the past, they’ve
always had a significantly positive
return
8. How to Save?
- most employers offer “defined
contribution” plans
• 401(k), 403(b), & 457
• major tax benefits
• various investments “in” them,
such as mutual funds, which in
turn invest in stocks, bonds, and
other assets
- often employers match contributions
you make
• freest money you’ll likely ever get
- IRAs – you put funds away tax-free
• can also “roll over” funds from
employer plans when you leave
9. How to Save? (continued)
- with a “defined contribution” plan,
you’re in charge (“DIY”)
• in other words, you select how
much goes in
• in 401(k) plans, is often in company
stock, which is very undiversified
- instead, invest in mutual funds
that are in 401(k), 403(b), 457
plans (again, tax benefits)
• you also select the investments
among mutual funds or possibly
“exchange traded funds” (ETFs)
• low cost is key – higher fees get
you nothing but lower returns
ex: Vanguard
10. How to Save? (continued)
• best to be well diversified – say
broad stock and bond funds to be
well diversified
• easiest way
- select a “life cycle fund”
ex: Fidelity Freedom Funds
ex: Vanguard Target Ret. Funds
- put in 15% of your income into a
“life cycle fund” every pay
period starting with your first job
- never, ever take funds out until
retirement
• alternative – have lots of kids and
hope one will take care of you?
11. Live to retirement & have a long one:
• about
70% of cancer can be avoided by lifesty
• 80-90% of coronary artery disease
(i.e. “heart attacks”)
due to lifestyle & easily corrected facto
