Transcript

Putting the "Gold" In Your Golden Years

PUTTING THE GOLD" IN YOUR GOLDEN YEARS A SIMPLE HOW-TO GUIDE TO SAVING FOR RETIREMENT Start saving for retirement while you're in your 20s, and even relatively small monthly contributions to an IRA or 401(k) could produce a sizeable nest-egg by the time you hit retirement age. Start too late, however, and you may not be able to retire at all: the later in life you start saving, the more difficult it will be to reach your financial goals. WHERE SHOULD YOU INVEST? The most common retirement savings vehicles Americans use today are the IRA and the 401(k). Each provides tax benefits that, over the long term, help your retirement nest egg grow larger. Here is our guide. THE 401(K) & IRA 401(K) TRADITIONAL AND ROTH IRAS The 401(k) is an employer-sponsored retirement plan that may very well be the best investment vehicle for most of the working population. Not only are your contributions automatically deducted from your paycheck (which guarantees that you will not forget to make them), but most employers in fact match at least a portion of those contributions, offering an immediate return on your investment. Typically, you decide where to invest both yours and your employer's contributions, from a menu of mutual funds within your 401(k) plan. Taking advantage of this program is a simple and powerful way to grow your nest egg. The IRA, or Individual Retirement Account, is an investment vehicle that allows you to set aside money for retirement and grow it on a tax-deferred basis. There are two types of IRA accounts: Traditional and Roth. The main difference between the two is that your contributions to a Traditional IRA are tax-deductible, while those to a Roth are not. But while you will pay income tax on Traditional IRA withdrawals, Roth IRA withdrawals are completely tax-free, which means that with a Roth, you will not pay taxes on your earnings. MUTUAL FUNDS AUTOMATIC INVESTMENT PLAN Investing in mutual funds is an easy way to diversify your investments. They contain a basket of securities: stocks, bonds (or both), commodities, cash, and so forth. Because companies or other investments helps mitigate risk, they are typically safer to invest in than individual If you have an IRA, be sure to set up an Automatic Investment Plan (AIP), which will ensure that you invest each month before you spend all your disposable income - as is the case with your 401(k). diversification across multiple securities. WHEN SHOULD YOU START? As soon as you can. Thanks to a beautiful thing called interest compounding, you can reach your retirement goals considerably sooner (or save considerably more) if you start sooner, rather than later. ROTH IRA HOW TO RETIRE A MILLIONAIRE Here is an example of how to achieve millionaire status in only 30 years. Annual contributions- of $5,000 Compounded at 7% for 30 years 401(K) 24 Personal contributions EQUALS $494,867 of 6% of $40,000 Employer matches 50% of employee contribution Compounded monthly at 7% for 30 years EQUALS $505,365 *annual contributions assume a 3% annual raise Grand Total of $1,000,232 ASSUMING YOU RETIRE AT 67, AND YOU CONTRIBUTE THE SAME AMOUNT SHOWN ABOVE, HERE'S WHAT IT WOULD LOOK LIKE IF YOU STARTED INVESTING AT DIFFERENT AGES IN YOUR LIFE. STARTING AGE 25 30 35 40 45 50 55 $2,764,845 VALUE AT AGE 67 € $1,889,708 ANNUAL RETURN (compounded monthly) $1,276,028 7% $846,736 $547,344 $339,343 $195,538 THE POWER OF COMPOUNDING INTEREST "COMPOUNDING INTEREST IS THE MOST POWERFUL FORCE IN THE UNIVERSE"- ALBERT EINSTEIN WHAT IS IT? Compounding Interest is "the ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. In other words, compounding refers to generating earnings from previous earnings." - INVESTOPEDIA With an initial investment of just $30,000 and assuming an annual return of 7% and no additional contributions, after 25 years your investment will have grown FOR EXAMPLE: CHART: more than five-fold. 24 If you invest $30,000 $30,000 $32,100 And your investment gains 7% in the first year, 3 $34,347 4 $36,751 %24 It is now worth S32,100. $39,324 $42,077 In year two, it goes up an additional 7%, $45,022 $48,173 9. $51,546 so now your $32.100 10 $55,154 is worth $34,347. 11 $59,015 12 $63,146 So instead of gaining $2,100 like in the first year, 13 $67,566 14 $72,295 15 $77,356 You gained an extra $147, 16 $82,771 17 $88,565 Because your $2,100 gain 18 $94,764 19 $101,398 Also grew by /%. 20 $108,496 21 $116,091 Long-term, this can mean significant growth. 22 $124,217 23 $132,912 24 $142,216 25 $152,171 MOST AMERICANS ARE BEHIND IN SAVING FOR RETIREMENT Don't be like the majority of Americans. Start saving now to ensure your financial security in the future. 27% of workers have less than $1,000, up from In 2010, 43% of workers in the U.S. said they have Only 69% say they have saved for retirement, 20% in 2009. less than $10,000 in savings - up 4% from 2009. (excluding the value of primary homes and defined-benefit pension plans) down from 75% in 2009. Only 16% of workers are confident in their ability to save enough for a comfortable retirement. 27% 69% 43% 16% mint.com investopedia.com ebri.org

Putting the "Gold" In Your Golden Years

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When you’re in your 20s, saving for retirement is possibly the most boring subject on the planet. But it is one of the most important financial decisions you’ll ever make. This infographic maps ou...

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Ross Crooks

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Economy
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