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Long Term Savings

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Title: Long Term Savings


1
Long Term Savings
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2
The longer you have for saving up, the less money
you need to allocate each month toward your goal.
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3
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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4
The Power of Compound Interest Cont.... 
  • Increasing the monthly contribution to 200 would
    double that to about 893,000

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5
  • 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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6
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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7
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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8
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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9
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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10
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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11
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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12
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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13
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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14
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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15
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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16
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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17
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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18
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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19
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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20
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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21
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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22
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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