Download - Long Term Savings
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The longer you have for saving up, the less money you need to allocate each month toward your goal.
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The Power of Compound Interest
• if you begin saving $100 a month at age 21 and earned 8 percent interest, by 65 your account would be worth about $447,000.
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The Power of Compound Interest: Cont....
• Increasing the monthly contribution to $200 would double that to about $893,000
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• Because of the power of compound interest, it’s to your advantage to start your long term savings as early as possible!
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Saving for College – Strategies
• Start early – Begin an account for your child in their first year.
• Assemble a team – Try to get relatives involved. They can give college money as gifts for Christmas or birthdays.
Tip: Let your child pitch in as well.
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Saving for College - Strategies
• Seek security plus a higher interest rate.• Online banks tend to have higher interest rates.• Look into using mutual funds and other
investments.
Warning: As the interest rate rises, so does the risk!
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Scholarships• Offered on an academic or athletic basis • Some cover the entire tuition but most only cover a
portion of the bill.• You don’t have to pay them back!
Tip: Take advantage of your college’s financial aid office!
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Saving for Retirement
Consider investment options that provide a better rate of return on your funds than your checking or
savings account at your bank.
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IRA’s
• Retirement accounts you can open at your bank• They allow you to create a portfolio of stocks,
bonds, and mutual funds• Two types: Traditional and Roth IRA’s
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Traditional IRA’s • You can fund your IRA with cash or cash
equivalents. • You pay no income tax on the money you deposit
into your IRA.
Warning: Taking money out of an IRA before you hit age 70 will incur
penalties.
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Roth IRA’s
• Not tax deductible • Fewer penalties for taking money out• Deposit limit: $5,000 per year($6,000 if you’re
over age 50)
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Roth IRA’s
• If you have a Roth and Traditional IRA, the deposit limit applies to both accounts combined. o The limit is still $5000 or $6,000. It doesn’t double
just because you have two accounts.
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401(K)
• Processed through your employer• Annual deposit limit: $16,500• Any contributions will not be taxed until you
withdraw the money
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401(K)
• Earnings made from the 401(k) are tax deferred until the money is withdrawn.
• Withdrawing money before you reach the minimum age (60) will result in penalties.
• Some employers match a percentage of your contribution
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Retirement Funding in Canada
• Tax Free Savings Account• You can withdraw money at any time without tax
penalties.
Tip: While the deposits aren’t tax deductible, money made from that
account isn’t taxed.
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Retirement Funding in Canada
• Registered Retirement Savings Plan• Much closer to USA’s Traditional IRA• The deposit limit is much higher than IRA’s in
the USA
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Retirement Funding in Canada
Your Registered Retirement Savings Plan doubles as a 401(k), as employers can put money from your paycheck straight into the
account.
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IRA’s in the United Kingdom• Individual Savings Account (ISA)• Divided into two components – Cash and Stock
shares.• It's possible to transfer funds from the cash to the
stocks component, but not the other way around.
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Other Countries• The term 401(K) does not mean much in other
countries, since it refers to a US law.• However, other countries have similarly functioning
accounts.• The term has become common enough that these
accounts are sometimes referred to as 401(k)’s.
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Self-Reflection Questions:
• What financial goal is needed to retire comfortably?
• Does my employer match 401(k) contributions?• What type of retirement savings account best
suits my needs?
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Action Tips:
• Start saving now to allow earnings to compound and accumulate to a greater extent.
• If your employer matches 401(k) contributions, add the maximum percentage that your employer will match to ensure you get as much of a return as possible.
• If you put money into an IRA or 401(k), leave it there; taking it out results in penalties and fees.