ann doty

1. Ann Doty Retirement Information Specialist for Iowa State University

3. There are really only 2 kinds of investments: Lending money. Because you lend money at only a little bit above the rate of inflation, you don�t make much money. Using money to buy ownership in land or businesses/companies. Only ownership allows you to growth your money.

4. Retirement Investments Start with the basics What is a bond? What is a stock?

5. Bonds are making loans to a company. You loan your money. You get some interest paid to you. You get back the money you loaned out sometime in the future. The Risk is very low. The Money you make is very little. This is how CD�s work and you are the Bank.

6. Stocks are buying parts of a company. You become a silent part owner in a company. If the company makes money (a profit) and you sell it then, your share is worth more. If the company loses money (a loss) and you sell it then, your share is worth less. The Risk is higher. You have the opportunity to make more money.

7. Seems like brain surgery? Try a couple different examples� Iowa Style

8. Bonds (lending) are like owning Dairy Cows. You always own the cows. You make your money selling the milk. The more milk (interest) the cow provides, the more money you make.

9. Stocks (Ownership) are like owning Cattle. What matters is how much you pay for them and How much you can sell them for. You might lose your money, but if the market is right you can make more than you can selling milk.

10. Try another example�

11. Bonds (Loans) are like renting a house. The risk is low, but you don�t have much to show for it when you leave. If your time frame is short, it�s the only smart thing to do.

12. Stocks (Ownership) are like buying your home. You take all the risks- repairs, replacement, possible loss of investment. You hope its value will go up so you make a profit when you sell it. You need to hold on to for a long time to let it grow in value.

13. Mutual Funds allow us to buy little bits of lots of companies. If you own shares of stocks in lots of companies and One or two go out of business, Probably the rest will be ok and you won�t lose all your money. If you own shares of stock in lots of companies and One or two make incredible profits Probably the rest won�t and you will make money -

14. Mutual funds are safer than owning shares (stocks) of individual companies because not all your eggs in one basket. Mutual fund sub-accounts are what you invest in with most Company Retirement Plans.

15. Two other types of investments Real Estate Inflation-linked bonds or bond funds

16. Real Estate Typically 4-8% returns and 7 � 10 year cycles Not in cycle with stock market like bonds so those market ups and downs don�t affect the returns Returns come from rents and leases paid by those using the properties & from the increase in value of the property when sold

17. Inflation-linked Bonds Issued by the U.S. Government Assure you that the investment will hold it�s buying power regardless of inflation rates over time Federal Deficit is $400 Billion and growing by the day In previous high Federal Deficit periods (1980�s), inflation rates were as high as 10-12%

18. Building your Portfolio with TIAA-CREF Booklet This is your booklet, please write in it!

19. TIAA Traditional Annuity & Real Estate Fund & CREF funds are conservatively invested. all but one are only moderately risky. Growth Fund has moderately high risk. Risk means �Possibility for the fund to be down at any specific time.� Risk does NOT mean all your money will be lost (page 3).

20. The More Conservative You Are In Your Investments Choices, The More You Need to Save!

21. What is Market Risk? Most people think the risk is that they will lose all their money. The real risk is that on any given day the market values will be lower that they were the day you put your money in. That risk is lowered over time.

22. The Handout OVER THE LONG TERM, STOCK RETURNS MAY BE LESS VOLATILE. STAYING INVESTED CAN INCREASE STOCK RETURNS

23. TIAA Traditional Annuity One of the highest fixed return investments in the country It will always show an increase on your quarterly statement If seeing account values go up and down makes you nervous, keep some of your dollars here If you are putting all or most of your retirement savings here, you will need to save more than your 5% required contribution to live as well in retirement

24. CREF Bond Market Bonds often do well when stocks were down. When interest rates go down or stay steady, this is a good investment. Now is probably not a good time to be in bonds because of the $400 Billion Federal Deficit

25. CREF Inflation-Linked Bond These are very popular in Europe where inflation is high and has been for years. These bonds are not locked in to a specific return like CREF Bond Fund, if inflation goes up their return goes up. This is another way to diversify your portfolio. If the deficit causes high inflation, this is a good fund to be in

26. TIAA Real Estate TIAA-CREF calls this fund TIAA Traditional Annuity�s Ugly Twin. You can move in and out of this fund like you can CREF funds. Real Estate does not react to the stock market so it is a good way to diversify your portfolio. Unlike TIAA Traditional Annuity, Returns are not guaranteed.

27. CREF Stock Account This was the only stock fund offered by TIAA-CREF for many years. This is a diversified stock fund - it has US and international funds - that is why the returns are different than in CREF Equity Index (which is just US company stocks).

28. So what does that mean to me? The younger you are, the more aggressively* you should be invested. No matter how old you are, you should probably have some money in the stock market to deal with inflation. * aggressive means the bigger the percentage of your money is in stocks

29. So what does that mean to me? If you are close to retirement (within 5 years), and have never put dollars into the market, it probably would not hurt to put some in now. You won�t see that much grow unless you can let grow past the day you retire.

30. The Longer You Have Until Retirement, The Greater The Risk That Inflation Will Eat Away Your Returns!

31. Effects of Inflation Over Time

32. Risk & Reward Average Annual Total Returns (1926-1998)

33. Fear and Greed lead us to The Market is Going UP � greed Our stomach says �Every body is getting rich � Let�s buy some and get rich too!� Buy high The Market is Going DOWN � fear Our stomach says �This is the end and things will never recover! Sell before we lose everything!� Sell low

34. This is the reverse of how to make money When the market is down is the time to buy. When the market is up is the time to sell. This goes against our gut feelings. If we are in the accumulation part of our retirement planning, a down market is the best time to buy.

35. The Cat Food Story Or�. How to listen to your head, not your stomach, in a down market.

36. The more information you have about your current situation� the better you can plan and feel comfortable about your financial future.

37. Additional ways to save for Retirement ROTH IRA Supplemental Retirement Annuity Traditional (Classic) IRA

38. ROTH IRA I have a bias for these. Another level of cash reserves After tax dollars go in Grow tax-free and come out tax- and penalty-free at retirement Can access contributions at any time (and earnings under certain circumstances) without penalty

39. Contribution limits $3,000 annually if income single - $95,000 couples - $150,000

40. Take your Tax-Saving Calculator Actual dollars that come out of your check is less than dollars going into your retirement account On the other side it shows how a regular investment will grow over time at various rates of return

41. Traditional (Classic) IRA Pre-tax dollars so it lowers your year�s taxable income Contribution limits $3,000 annually if income single - $40,000 couples - $60,000 Can access your dollars under certain circumstances and only pay taxes on them (no penalties)

42. �Nonrefundable*� Credit for Low and Middle Income Savers Cdt (%) Ind $$ AGI HOH $$AGI Jnt $$ AGI 50% 0-$15,000 0-$22,000 0-$30,000 20% 15,001-16,250 22,501-24,375 30,001-32,500 10% 16,250-25,000 24,376-37,500 32,501-50,000 \/ 50% = as much as $1,000 20% = as much as $ 400 10% = as much as $ 200

43. * Nonrefundable means that the credit is available only if the taxpayer is required to pay income tax.

44. What does the Credit mean to you? If you have a job in 2004 and make less than $15,000 annually and you owe $1,000 in taxes and you�ve put $1,000 into an IRA, you�ll only owe $500 in taxes. You can give the money to the government, or to your retirement plan.

45. This is the end of my presentation. I�d be glad to take any questions now.

46. Thank you for your attendance today. pdoty@iastate.edu 515 294-4521 Ann