The document discusses different retirement savings options such as 401(k)s, IRAs, and pensions. It provides details on contribution limits, tax advantages, and investment growth over time for each option. The main message is that starting to save for retirement early, even in small amounts each week, can significantly increase the total savings one accumulates by retirement age.

2. Which would you rather have?
OR

3. Would you be willing to give
up this each week
To live in this?

4. If you invest $20 a week starting at age 20, you would
save up $45,000 by age 65.
If that same amount of money is invested at a 10
percent return rate, you will have over
$820,000
by age 65
Source: “The Under 40 Financial Planning Guide” by Cornelius P. McCarthy

5. Can’t afford $20 a week?
If you put $5 away every week from age 20 to 30 then
increase to $20 every week you will still retire with
about
$500,000
Source: “The Under 40 Financial Planning Guide” by Cornelius P. McCarthy

6. Presentation Outline
 What is retirement?
 Why should you save now
 Different Types of Retirement Plans
 Pension Plans
 401(k)
 IRA’s
 How should you start your retirements savings?

7. Why should you save now?
 Social Security not meant to be only source of
income when you retire
 Social Securities future is not certain
 You will need to save to support yourself for 20+
years if you plan to retire when your 65. Life
expectancy is increasing.
 Rule of thumb: During retirement you need 60-80%
of annual pre-retirement income to live comfortably.

8. Example
Using the rule of thumb:
You earn $65,000 a year before you retire
$52,000 (65,000 x 80%)
is needed yearly to support you in your retirement
If you retire at 65 and expect to reach age of 85, you
will need
$1,040,000 (20 x $52,000) for retirement
Source: www.careonecredit.com

9. What are my choices for
retirement?
There are several basic forms of Retirement Plans
Pension Plans
401(k)
IRA’s

10. Pension Plans
 Employer backed retirement plans.
 Employers contribute to plan
 Employers decide where money is invested
 Spells out in advance how much money you will
receive upon retirement
 Many younger adults are not being covered by these
plans (msn.com)
 Require long career with one employer and are
unrealistic for today’s employee

11. 401(k)
 Retirement plan offered by your employer
 Contributions are deducted straight from your
paycheck
 Employers also can contribute money or match your
investment
 You can decide where your money is invested
 Unlike pension plans, the money is yours even after
you leave the company

12. 401(k) Tax Advantages
Money you contribute to your 401 (k) comes straight
out of your paycheck before income taxes are
deducted.
This is an advantage because:
If you make $50,000 a year and contribute $3,000 into
your 401(k), your taxable income for the year is
$47,000.

13. 401 (k)
Why choose this over a savings account?
 You don’t pay taxes on your investment or earnings
until you withdraw money for retirement, when you
are at a lower tax bracket.
 It’s more difficult to withdraw the money so there is
less temptation to spend it. Money can be withdrawn
for emergency situations.

14. 401(k)
Requirements for enrolling in a 401(k)
 Most companies require you work for at least one
year before enrolling
 You’re at least 21 years old
 Can put aside 2-15% of your paycheck
 Maximum contribution amount per year: $15,500
(govt. regulation)

15. 401(k)
Why limit the amount you can invest?
The government puts a limit because they want to
keep the tax revenue flowing in. Remember, they
don’t receive taxes on the money you put into your
401(k) until you pull it out many years lat

16. 401(k)
401 K Participation
Avg. Median
Age Participate % of pay
balance balance
18-25
31.3% 5.6% $3,200 $1,280
(Gen Y)
26-41
63.1% 7.2% $31,240 $14,730
(Gen X)
42 and up
72.0% 8.3% $93,190 $44,330
(boomers)

17. IRA
Individual Retirement Account
Two Kinds:
Traditional IRA: Deductable and Nondeductable
Roth IRA: Taxfree Varieties
IRA is a personal savings plan that lets you put
money aside for retirement

18. Traditional IRA
What is needed to open up an IRA?
Must have earned income for the year
&
Under age 70 ½
Maximum contribution of $2,000 a year

19. Traditional IRA
Advantages
 Can deduct all or portion of IRA contributions from
gross income, depending if you are covered by an
employer-sponsored retirement plan.
 Money contributed to IRA is not taxed until you take
money out at retirement
 Don’t have to make contributions on a set basis

20. Roth IRA
 Different from traditional IRA which requires you to
start withdrawing from account when age 70 ½. Can
withdraw at any time after age 59 ½ , but not
required
 Can’t make contributions to Roth IRA if adjusted
gross income exceeds $160,000 married or
$110,000 single
 Contributions to Roth IRA are not tax deductable
 Contributions are made with after tax
money, therefore earnings are not taxed upon

21. Roth IRA
Investors don’t have to pay any taxes on withdrawals
at all as long as:
 Invested money in Roth IRA for at least 5 years
without taking and money out
 Over age 59 ½ when taking money out
OR
 Using money to help pay for first home purchase or
other special situation if under age 59 ½

22. 401(k) vs. IRA
401(k) Traditional IRA
Can you open an If your company offers a If you have earned
account? plan income and are younger
than 70 ½ years old
Maximum Contribution $10,000 (govt. limit) $2,000
Employer Match? Sometimes Never
Taxable? Taxed after withdrawal Contributions are taxed
when in lower tax before deposited and
bracket earnings are taxed upon
withdrawal
Contribution tax No Under certain
deductable? circumstances

23. 5 Retirement Tips for 20-
somethings
 “The earlier you start, the less you have to save
every month”
 Matching is Free Money
 Take it with You
Don’t Count on Social Security

 Take Personal Responsibility
Source: U.S. News & World Report

24. For more information
E*Trade
www.etrade.com
Charles Schwab
http://www.schwab.com/