Long Term Savings

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Long Term Savings


The longer you have for saving up, the less money you need to allocate each month toward your goal.


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.


The Power of Compound Interest: Cont....

• Increasing the monthly contribution to $200 would double that to about $893,000


• Because of the power of compound interest, it’s to your advantage to start your long term savings as early as possible!


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.


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!


Scholarships• Offered on an academic or athletic basis • Some cover the entire tuition but most only cover a

portion of the bill.• You don’t have to pay them back!

Tip: Take advantage of your college’s financial aid office!


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.


IRA’s

• 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 IRA’s


Traditional IRA’s • 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.


Roth IRA’s

• Not tax deductible • Fewer penalties for taking money out• Deposit limit: $5,000 per year($6,000 if you’re

over age 50)


Roth IRA’s

• If you have a Roth and Traditional IRA, the deposit limit applies to both accounts combined. o The limit is still $5000 or $6,000. It doesn’t double

just because you have two accounts.


401(K)

• Processed through your employer• Annual deposit limit: $16,500• Any contributions will not be taxed until you

withdraw the money


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• Earnings made from the 401(k) are tax deferred until the money is withdrawn.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


Retirement Funding in Canada

• Tax Free Savings Account• You can withdraw money at any time without tax

penalties.

Tip: While the deposits aren’t tax deductible, money made from that

account isn’t taxed.



• Registered Retirement Savings Plan• Much closer to USA’s Traditional IRA• The deposit limit is much higher than IRA’s in

the USA



Your Registered Retirement Savings Plan doubles as a 401(k), as employers can put money from your paycheck straight into the

account.


IRA’s 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.


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.


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?


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.

Long Term Savings

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