Long Term Savings

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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, its
  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 dont have to pay them back!

Tip Take advantage of your colleges 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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IRAs

• 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 IRAs

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Traditional IRAs

• 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 IRAs

• Not tax deductible
• Fewer penalties for taking money out
• Deposit limit 5,000 per year(6,000 if youre
  over age 50)

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Roth IRAs

• If you have a Roth and Traditional IRA, the
  deposit limit applies to both accounts combined.
• The limit is still 5000 or 6,000. It doesnt
  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 arent tax deductible,
money made from that account isnt taxed.
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Retirement Funding in Canada

• Registered Retirement Savings Plan
• Much closer to USAs Traditional IRA
• The deposit limit is much higher than IRAs 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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IRAs 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.

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