Lesson 7: Retirement Planning & Saving VS. Investing

$300, 4% interest, 3 years How much interest? (Example Of Compound Interest Equation

$300 x .04x = $12 // $300 + 12 $312 * 3 =

Types Of Pension Plans

- 401k & 403b - traditional & roth IRA - keogh plan (for business owners) - social security

Rule Of 72

- tells you how long it takes your money to double in value - divide 72 by the interest rate to determine number of years to double - divide 72 by years to determine rate needed to double your money in a given time period.

How Many Years Do People Spend Being Healthy/Active After Retirement?

20

401K VS. 403B

401K: what you earn working for a PRIVATE company 403B: what you earn working for a GOVERNMENT company

Roth IRA VS. Traditional IRA

Roth: grows tax free Traditional: does not grow tax free, but gains interest

Savings VS. Investments

Savings: - low risk - low return - high liquidity Investments: - high risk - high return - low liquidity

Compound Interest

interest which is calculated not only on the initial principal, but also the accumulated interest of prior periods

Other Sources Of Retirement Income

pension plans

Future Value

refers to the amount of money to which an investment will grow over a finite period of time at a given interest rate

Time Value Money

refers to the fact that a dollar in hand today is worth more than a dollar promised at some future time.

Basic Source Of Retirement Income

social security

Liquidity

the ability of an investment to be converted into cash quickly without loss of value.

Risk

the chance that the value of an investment will decrease

Risk VS Return

the higher the risk, the higher the return

Savings

the portion of current income not spent on consumption

Return

the profit or yield from an investment

Investments

the purchase of assets with the goal of increasing income