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Retirement Funds

What Could Go Right or Wrong?. Retirement Funds. Factors. Unemployment Inflation Knowledge of Finance/Wealth Management. Illness/disability Family. Economic. Health and Family. Unemployment. Cannot retire without first working Firm’s ongoing attempt to cut costs

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Retirement Funds

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  1. What Could Go Right or Wrong? Retirement Funds

  2. Factors • Unemployment • Inflation • Knowledge of Finance/Wealth Management • Illness/disability • Family Economic Health and Family

  3. Unemployment • Cannot retire without first working • Firm’s ongoing attempt to cut costs • Increased use (and abuse) of public assistance • WIC: Women, Infants, and Children • HUD: Housing and Urban Development • CHIP: Children’s Health Insurance Program • Increase in government spending • Labor Force • Productivity • Capital Accumulation • Rent-seeking

  4. Firms Cut Costs • Saving on payroll- benefit in the short run, but may hurt in the long run • First in, first out- may be a better idea to cut some of the middle management instead? • Younger generation is the future of the firm • Mergers/Acquisitions- • You may quickly be replaced if your firm is bought by another

  5. Government Spending- Its effects • Labor Force • Reduces participation by creating disincentives to work • Makes labor markets more rigid by hampering efficient flow of workers from declining industries to expanding industries • Productivity • Inhibits innovation and capital accumulation • Resources are withdrawn from the private sector and placed in the unproductive public sector

  6. Government Spending- Its effects • Capital Accumulation • Increases interest rates which decrease private investment • Creates uncertainty that reduces the return of long-term investments • Rent-Seeking • Creates opportunities for rent-seekers to waste resources to curry political favor • Distorts economic markets, reduces economic growth, and destroys the free market ethic

  7. Public Assistance Example-WIC • Pregnant and breastfeeding women; women who recently had a baby; infants birth through 12 months; children 1 to 5 years; who are: • Present at the clinic appointment, and provide proof of identity; • Residents of the State of Ohio; • Determined by health professionals to be at medical/nutritional risk; and • Meets income guidelines - 185% of Federal Poverty Income Guidelines.

  8. Unemployment vs. Inflation • Phillips Curve: • Inverse relationship between unemployment and inflation • Tradeoff- we cannot have both low unemployment AND low inflation, we must choose one or the other • Why have we had both in recent years?

  9. Individuals’ Finances- saving and spending • Cost of living vs. Standard of living • Because the cost of living will likely increase, we must save in order to maintain our standard of living • What’s good for us now, won’t necessarily be good for us later • Save for retirement later, but ‘later’ comes too soon • 70% of families live paycheck to paycheck • Those entering the workforce now will likely make less and save more; probably for the rest of their lives

  10. Individuals’ Finances- Planning for retirement • Investing: diversification of risk • Options: • IRAs • Pensions • Annuities • 401(k) • Social Security? “Save 10% of your salary each year and you'll be fine!” -- Walter Updegrave , CNN Money

  11. Investing in stock: Apple • Buy low, sell high • Low: January 20, 2009 at $78.20 • Many shareholders decided to sell and invest in a safer option lost opportunity • Current: $338.04 (Apr 6, 6:25PM EDT ) • There was money to be made, provided we chose our investments more wisely

  12. Investing in stock: Apple

  13. Health and Family • Illness/disability • Benefits may decrease, premiums may increase • Leading cause for foreclosures • Normal time for being out of work • Average of 2.5 years • 1 out of 7 will be on disability for 5 years or more

  14. Health and Family • Life insurance • Leaving the family to pay the expenses • May acquire the expenses of another family member • Children • It now costs an average middle-income American family $222,360 to raise a child from birth to 18. • 22% higher than it was in 1960, adjusted for inflation

  15. How much to save? • The 25 year old starter invests $55,000 and ends up with $615,580 at retirement. • The 35 year old starter invests $130,000 and still has less at retirement: $431,754

  16. How much to save?

  17. Preparation • Many factors are beyond your control- plan for the worst case scenario • Begin saving early- compounding will give more benefit • Diversify your risk- never place all funds into a single asset or type of asset

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