Chapter 6 Section 3

Special Savings Plans and Goals

Investing for Retirement

• Pension plans: company plans that provide retirement income for their workers.– A portion is withheld from your paycheck– Company matches contribution– No Federal tax until you withdraw funds

(tax deferred)– Maximum Contribution limit

Individual Pension Plans

• Keogh plan-retirement plan for self-employed individuals.– Can save up to 15%– Can deduct that amount from taxable

income– Maximum contribution limit

Individual Retirement Account

• Private retirement plan for individuals or married couples

• Tax-deferred contributions

• Tax-deferred interest income• Maximum contribution limit ($4,000 for people

making less than $30,000)

Roth IRA

• retirement plan for individuals or married couples

• Contributions taxed (disadv.)

• Interest income never taxed (adv.)• Maximum contribution limit ($4,000)

Real Estate

• Land & Buildings

• Income Property

• House (Usually safe)

• Undeveloped property (usually riskier)

• Not very liquid – what did liquid mean?– Can’t turn it into cash quickly

How much to save and invest?

• Involves a trade-off!

• Consider:– Risk Tolerance– Rate of Return (how much will you get

back?)– How Liquid is the investment– How much income do you make?– What are your values?

Spreading out your Investments

• Diversification-spreading of investments among several different types to lower overall risk

It is important to diversify your saving and investing, especially when looking toward retirement. In general, the greater the risk involved in any venture, the greater the potential return.