11/15/2023

Announcements Retirement-
•Assignment # 3 – Parts One and Two – due next Tuesday, 11/21/23 at
To start...
11:59 pm EST Many options available to you
•Next Tuesday’s class will be held on zoom (employer, personal etc.)
•All grades are now updated in D2L including MSUFCU extra credit Key take-a-way from this class:
❑Questions about Assignment grades- email Dr. Tobe
◦ You are building your foundation
❑Questions about MSUFCU extra credit- email Ibrahim
❑Questions about in-class assignments- email Hye-Jin ◦ New products will come and go in
the market
◦ Need to do your research and seek
advice appropriately
◦ Need to be proactive

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The Big Question... Why Women are Losing the

Retirement Battle? (Source: CNN Money)
Tools to Help!
How much will I need to Choose to Save –
“According to a Vanguard analysis of more than 1 million
401(k) savers, women are 10% more likely to enroll, if
retire? Ballpark Estimate
http://www.choosetosa available, in their workplace savings plan and save a bigger
ve.org/ballpark/index. chunk of their paychecks.
cfm?fa=interactive
Yet Vanguard's analysis found that female savers have an
Well, it’s not that easy... average balance of $78,000 -- far below the male average
balance of $121,000.”
What gives? Other thoughts…
•Women earn less than men
•Women receive less income than men from
Video: social security
http://www.youtube.com/watch?v=mhVh •Women live longer than men
ESLR5Bk&feature=related

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Planning for Saving Smart for Retirement:

Retirement: Start Early Even a Little Goes a Long Way
It’s never too late to start saving for retirement, but
the sooner you start, the better off you’ll be.
Myths about retirement: Use automatic deductions
Start Now. Don’t Start small, if
• You have plenty of time to start saving for from your payroll or
wait. Time is critical. necessary.
retirement. checking account.

• Saving just a little bit won’t help.

• You’ll spend less money when you retire.
If you change jobs, keep your
• Your retirement will only last about 15 years. retirement account money in
Be realistic about
• You can depend on Social Security and a Save regularly. your former employer’s plan
investment returns.
company pension to pay your basic living or roll it over into your new
employer’s plan or I R A.
expenses.
• Your pension benefits will increase to keep pace
with inflation.
Don’t dip into retirement
• Your employer’s health insurance plan and savings unless it is absolutely
Medicare will cover all your medical expenses necessary.
when you retire.

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What if I only work for a company for a

Starting Early: An Example year... It doesn’t matter does it? It’s only
$6,000...

EXAMPLE: Starting Early. Lindsey Jones is 27 years old, and she recently took a new job. Lindsey had
Consider this: If from age 25 to 65, accumulated $6000 in her previous employers 401k retirement plan, and
you invest $300 per month and she withdrew it to help pay for her wedding. How much less money will
earn an average of 9 percent return Lindsey have at retirement age 67 if she could have earned 8 percent on
a year, you’ll have $1.4 million in the $6,000?
your retirement fund by age 65.
Waiting just 10 years until age 35 to A) $6,000
begin your $300-a-month investing
will yield about $549,000, whereas B) $24,000
if you wait 20 years to begin this C) $96,000
investment, you will have only
about $200,000 at age 65. The D) $130,000
chart in Exhibit 14–2 shows how Video:
even a $2,000 annual investment How to Build a Retirement Fund
earning just 4 percent will grow. http://www.investopedia.com/video/play
/how-build-retirement-plan/

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What if I only work for a company for

a year... It doesn’t matter does it? It’s Estimating Retirement Living
only $6,000... Expenses
Lindsey Jones is 27 years old, and she recently took a new job. Lindsey had You can’t predict exactly how much money you’ll need when
accumulated $6000 in her previous employers 401k retirement plan, and you retire, but you can estimate basic needs.
she withdrew it to help pay for her wedding. How much less money will
Lindsey have at retirement age 67 if she could have earned 8 percent on
You will probably
the $6,000?
Where you live spend more on
A) $6,000 during retirement recreation, health You may spend less Your federal income
has significant insurance, and on transportation taxes may be lower
B) $24,000 impact on your medical care in and clothing. in retirement.
financial needs. retirement than you
C) $96,000 do now.
D) $130,000
Video: Some income from
various retirement Do not forget to
How to Build a Retirement Fund Remember to plan
plans may be taxed at a take inflation into
http://www.investopedia.com/video/play for emergencies.
account.
/how-build-retirement-plan/ lower rate or not at all.

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How “Average” Older (65 to 74 and Four major Employer pension plans are retirement
75+) Households Spend Their Money Your sources of plans that are funded, at least in part, by
Retirement retirement an employer.
income:
AGE 65 to 74
Average $
AGE 65 to 74
Precent
AGE 75 & OLDER
Average $
AGE 75 & OLDER
Percent Income: What
Pretax Annual Income
Amount
$ 52,366 100
Amount
$ 35,467 100
are your Public pension plans are provided by a

Annual Expenditures $ 48,855 100 $ 36,673 100 options? local, state, or federal government.

Housing $ 15,838 32.4 $ 13,375 36.5

Food $ 6,284 12.0 $ 4,349 11.9
Clothing $ 1,417 2.9 $ 683 1.9 Personal retirement plans are set up by
Transportation $ 8,338 17.1 $ 5,091 13.9 individuals and are especially important
Health Care $ 5,456 12.2 $ 5,708 15.6
Understand the to self-employed people and other
workers who are not covered by
Entertainment $ 2,988 6.1 $ 1,626 4.4 options of your employer pension plans.
Pensions and Social Security $ 2,788 5.7 $ 800 2.2
future employer… Annuities are contracts purchased from
Other* $ 6,074 11.6 $ 5,041 13.7
All employer an insurance company that provide for a
*Includes cash contributions, alcohol, tobacco, personal care products and services, reading, education, life and personal insurance, and sum of money to be paid to a person at
miscellaneous expenses.
Source: Ann C. Foster, “A Closer Look at Spending Patterns of Older Americans,” Beyond the Numbers: Prices and Spending, vol. 5, no. 4 (U.S.
retirement options regular intervals for a certain number of
years or for life.
Bureau of Labor Statistics, March 2016).
are not the
same!!!!
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Employer Cornerstone:
Employer Pension Plans Pensions and Defined Benefits
Defined-Benefit Plan (Pension)
Pensions
Defined-benefit plans specify the benefits ◦ Defined Benefit - based on a formula, years of service
you will receive at retirement age, based on ◦ Pays lifetime monthly payments to retirees
your total earnings and years on the job. ◦ Used to be the “standard”, now the “exception”

• Plan does not specify how much the employer must Example: Let’s say Fred worked for X Company for 30 years. Defined retirement
contribute each year, but rather the employer’s benefit may be set at 1.5% and Fred’s salary was $35,000.
contributions are based on how much money will be
needed in the fund as each participant in the plan retires.
• If the fund is inadequate, the employer will have to make
additional contributions.

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Employer Cornerstone: Employer Pension Plans

Defined Benefit Plans… Defined-Contribution Plan
Most employer plans are one of two basic types:
Advantages Disadvantages 1. Defined-contribution plans.

◼No risk to you ◼Employer needed to be 2. Defined-benefit plans.

◼Continuous monthly wise Defined-contribution plans consist of an individual account for each
employee to which the employee and/or employer contributes a specific
sum of money ◼Employer benefited on amount annually.
additional money • Does not guarantee any particular benefit.
◼Protected by the
Several types of defined-contribution plans exist:
Pension Benefit ◼Changing jobs
• With a money-purchase plan, your employer promises to set aside a certain amount of
Guaranty Corporation money for you each year.
• Under a stock bonus plan, your employer’s contribution is used to buy stock in the company
for you.
• In a profit-sharing plan, your employer’s contribution depends on the company’s profits.

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Examples:
• 401(k) – Private
Employer Cornerstone: Corporations Employer Plans
• 403 (b) – Non-
Defined Contribution Plans profits; Defined-Contribution Plan
educational
Voluntarily offered by an employer to provide retiree’s a institutions
lump sum of money at retirement • 457 – State and In a 401(k) plan (that is salary-reduction plan), you set aside a
local govts. portion of your salary from each paycheck to be deducted
Vehicle (holder) to accumulate assets and/or Investments
from your gross pay and placed in a special account.
Two Kinds of Plans
◦ Non-contributory (employer only) • Your employer will often match your contribution up to a specific
◦ Contributory (employer and employee OR employee dollar amount of percentage of your salary.
only) • Funds are invested in stocks, bonds, and mutual funds.
Other Attributes: • Money that accumulated is tax-deferred, meaning you do not
◼Tax Sheltered Plans have to pay taxes on it until you withdraw it.
◼Many offer Matching Contributions (up to matching amount!) - • Fees and expenses paid by your plan may substantially reduce the
Hint… Free Money growth in your account.
◼Limits on Contributions set each year • Referred to as Section 403(b) plan if employer is a tax-exempt
◼Vesting = Years you need to remain with the company institution, such as a hospital or nonprofit firm.

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Employer Pension Plans It Pays to Contribute to an

Defined-Contribution Plan Employer Sponsored Plan
Employee contributions to a pension plan belong to you, the Advantages Disadvantages
employee, regardless of the amount of time that you are with ◼You Decide ◼You need to make wise
a particular employer. decisions
◼You benefit from tax free growth
What happens to the contributions the employer has made ◼You lose from loss
to your account if you change jobs and move to another ◼Pre-tax money
◼You see growth and want to
company before you retire? ◼You keep money if you change use it
• Vesting is the right to receive the employer’s plan contributions jobs
that you’ve gained, even if you leave the company before retiring.
• After a certain number of years with the company, you will
become fully vested, or entitled to receive 100 percent of the
company’s contributions to the plan on your behalf.

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Remember... Choosing the Right Fund for a

Retirement Account
Assume you have just started a new job and your employer offers
Retirement accounts are just account you the opportunity to participate in the company’s 401(k) or 403(b)
holders/protectors for the investments that you plan.
fund them with! 1. Do you want to participate in the retirement account?
◦ You choose what you want to do with your money • Employer-sponsored retirement accounts provide a way to reduce the
amount of current income tax that is withheld from your paycheck.
◦ Provide tax shelter options up
• Many employers will match your contribution (up to a limit).
to the contribution limit
2. Which mutual funds do you want to invest in?
• Consider long-term goals and time value of money concepts.

3. What is your stage in life?

• Younger workers typically choose more risk-oriented funds, while older
workers choose more conservative funds.

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Employer Cornerstone:
Defined Contribution Plans
Retirement Investments Rule of Thumb…
can be… ◦ No more than 10% of
◦ Stocks your retirement
◦ Growth portfolio in company
◦ Bond stock – Why?
◦ Money Market
AND MANY OTHERS… Questions to Consider:
• Who is Eligible?
• Is there a Match? How much?
• 3 different plans – what does that mean? Minute

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Free Advice and Education

Rollover

Questions to Consider:
• How much can you contribute each year?
• Vesting Requirements?
• What are your investment options? Minute Anything else that is interesting?

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Employer Plans
Carrying Benefits from
One Plan to Another
Some plans allow portability, which
means that you can carry earned benefits
from one pension plan to another when
you change jobs.
Options:
•Leave it.
•Transfer it.
• To a new retirement account
Bottom Line:
• Not all plans are the same • To an IRA
• You need to read the fine print
• Not all companies disclose information like MSU does (you have to •Take it.
ask around!)

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Where do you go to research
employer sponsored plans? Public Pension Plans
Social Security
Check out the prospective company’s human resources Social Security is a public pension plan
website established by the U.S. government in 1935.
Ask in your interview (or in a second interview) or • Managed by the Social Security
colleagues within the company Administration.
• Covers 97% of all workers, and almost one out
For More Information: of every six Americans currently collects some
form of Social Security benefit.
http://www.dol.gov/ebsa/publications/wyskapr.html • Package of protection that provides benefits
to retirees, survivors, and disabled persons.
Try this out on your own: Google your favorite company HR
website? What do you find out about their retirement • Protects you and your family while you are
working and after you retire.
plans?
• Never intended to provide 100% of
retirement income.

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Public Pension Plans Public Pension Plans

Social Security (SS) Eligibility
Amount of retirement benefits you receive from Social Security is
based on earnings over the years.
• The more you work and the higher your earnings, the greater your
benefits, up to a certain maximum amount.
To quality for benefits, you must earn a certain number of credits.
• Credits are based on the length of time you work and pay into the
system through the SS tax, or contribution, on your earnings.
• You and your employer pay equal amounts of the S S tax.
• Credits are calculated on a quarterly basis.
• Fully ensured at 40 credits
Certain dependents of a worker may receive benefits.
Social Security (SS) Retirement Benefits
Most people can begin collecting SS benefits at age 62.
• Monthly amount at age 62 will be less than it would be if the
person waits until full retirement age.
• Reduction is permanent.
Full retirement age will be 67 for people born in 1960 and
later.
• If you postpone applying for benefits beyond your full retirement
age, your monthly payments will increase slightly for each year
you wait, but only up to age 70.
When you start receiving SS benefits, certain members of your
family may also qualify for benefits on your record.

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Visit D2L – Assessments –

Quizzes

In-Class
Activity:
Complete In-Class Activity
for 11/14/23 – 2 attempts –
can work together with your
classmates to complete

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