UA CSM 204 - Chapter 18 (5 pages)

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Chapter 18

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Chapter 18


Starting Early: Retirement Planning

Lecture number:
Lecture Note
University of Alabama
Csm 204 - Intro Personl Finan Plan
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CSM 204 Chapter 18 Lecture Outline of Previous Lecture I Purpose of Life Insurance II Life Insurance Needs Over the Life Cycle III Estimating Life Insurance IV Types of Life Insurance Companies V Term Life Insurance Temporary Life Insurance VI Whole Life Insurance VII Other Types of Life Insurance VIII Life Insurance Contract Provisions IX Buying Life Insurance X Settlement Options XI Quiz 4 3 Outline of Current Lecture I II III IV V VI VII VIII IX Misconceptions About Retirement Planning Key Retirement Planning Advice The Importance of Starting Early Understanding Social Security Why Invest in Tax Sheltered Retirement Accounts Employer Sponsored Retirement Plans Personal Retirement Plans Avoiding the Big Mistakes Quiz 4 4 Current Lecture Chapter 18 Starting Early Retirement Planning Misconceptions About Retirement Planning My expenses will decrease My retirement will last 15 years My Social Security and pension are enough I will have adequate health coverage These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute There is plenty of time to start Saving just a little will not help Key Retirement Planning Advice Put your own money away for retirement With an employer sponsored plan contribute to maximize matching funds Start early Save a lot 12 15 in 20 s 20 25 if older Invest wisely Don t be too conservative Do not withdraw the funds until retirement Plan the distribution The Importance of Starting Early To take advantage of the time value of money People are spending more years in retirement Inflation will erode purchasing power Social Security is uncertain Pension plans are being terminated Understanding Social Security Becoming qualified Estimating benefits Full benefit age retirement Younger age retirement Later age retirement Spouse s benefit The full benefit for a spouse is one half of the retired worker s full benefit To qualify for disability benefits it takes 6 out of the last 13 quarters Why Invest in Tax Sheltered Retirement Accounts Contributions may be tax deductible Earnings are tax deferred You accumulate more money You have ownership and portability Withdrawals might be tax free Employer Sponsored Retirement Plans Defined Contribution Plan A plan profit sharing money purchase Keogh or 401 k that provides an individual account for each participant also called an individual account plan Defined Benefit Plan A plan that specifies the benefits the employee will receive at the normal retirement age Plan Portability and Protection Feature that enables you to carry earned benefits from one employer s pension plan to another s when you change jobs Personal Retirement Plans Individual Retirement Account IRA Traditional Lets your contribute up to 5 500 in 2013 6 500 if over 50 Roth Contributions are not tax deductible but earnings accumulate tax free Spousal Lets your contribute up to the amounts of a traditional on behalf of your nonworking spouse if you file a joint tax return Rollover A traditional IRA that accept rollovers of all or a portion of your taxable distribution from a retirement plan or from another IRA Education Grow tax free and can be invested any way you choose Can give 2 000 a year to each child SEP IRA An individual retirement account funded by the employer Keough Plan A plan in which tax deductible contributions fund the retirement of self employed people and their employees Annuities A contract that provides an income for life Deferred Income payments start at some future date Interest builds up on the money you deposit Single Premium Deferred Lump sum payment Avoiding the Big Mistakes Underestimating your savings goal Starting too late Not contributing Being too conservative Taking money out before retirement Underestimating life span Overestimating how much you can withdraw at retirement Quiz 4 4 1 False 2 Inflation will help increase your spending power 3 40 4 False 5 Overestimating your savings goal

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