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Presenting A Life-Changing Seminar on Money Management. By G. Edward Reid, Stewardship Director. Planning Your Life for Success: Helping donors build a successful life and a lifetime of philanthropy. G. Edward Reid, Presenter. Part VI Controlling Your Financial Future.

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Presenting A Life-Changing Seminar on Money Management

By G. Edward Reid, Stewardship Director


Planning Your Life for Success:Helping donors build a successful life and a lifetime of philanthropy

G. Edward Reid,



Part VI

Controlling Your

Financial Future

Part 1

Planning Your

Personal Finances

Retirement and

Estate Planning

Part V

Investing Your

Financial Resources







Part IV

Insuring Your


Part II

Managing Your

Personal Finances



Part III

Making Your

Purchasing Decisions

how education relates to income as of the mid 1990s estimated lifetime earnings were
How Education Relates to IncomeAs of the mid-1990s, estimated lifetime earnings were:


Non-high school graduate

High school graduate

Some college

College graduate

(bachelor’s degree)

Professional degree





service industries expected to have the greatest employment potential
Service Industries Expected to Have the Greatest Employment Potential
  • Computer technology.
  • Health care.
  • Business services.
  • Social services.
  • Sales and Retailing.
  • Hospitality and food services.
  • Management and human resources.
  • Education.
  • Financial services.
The way you manage your money has a

great deal to do with:

  • Your personal happiness.
  • Your stress level.
  • The quality of your family life.
  • The stability of your marriage.
  • And success in your career.
It would NOT take a genius to figure out that the devil would like to see everyone of these areas of your life messed up. And in many cases he has been quite successful at this!

Determine your investment needs and stage

  • in life.
  • Laying the foundation – runs into the 40s.
  • Accumulating assets – your forties and 50s.
  • Preserving assets – your 60s and into 70s.
  • Distributing assets – age 75 and beyond.
  • Learning years - birth to 30
  • Earning years - 30 to 60
  • Returning years - 60 till laid to rest
dimensions of stewardship maturity

Phases in a Life of

Faithful Stewardship

Dimensions of Stewardship Maturity

  • Annual Giving
      • Regular giving
      • Special offerings and projects
      • Budget development and communication
      • Stewardship education for all ages
      • Financial policies

Basic Expression of Faithfulness:

Your commitment

of prayers,


gifts and service.

dimensions of stewardship maturity10

Phases in a Life of

Faithful Stewardship

  • Major Giving
  • Land purchase
  • New facilities
  • Renovation
  • Debt reduction
  • Mission opportunities
  • Cash for Endowment

Growing Expression of Faithfulness:

Rearranging your priorities to give.

Dimensions of Stewardship Maturity

  • Annual Giving
      • Regular giving
      • Special offerings and projects
      • Budget development and communication
      • Stewardship education for all ages
      • Financial policies

Basic Expression of Faithfulness:

Your commitment of prayers, presence,

gifts and service.

dimensions of stewardship maturity11

Phases in a Life of

Faithful Stewardship

  • Estate or
  • Planned Giving
  • Bequests
  • Planned Gifts

Ultimate Expression of a Life of Faithfulness: Your commitment to a legacy, a testimony that will endure.

  • Major Giving
  • Land purchase
  • New facilities
  • Renovation
  • Debt reduction
  • Mission opportunities
  • Cash for Endowment

Growing Expression of Faithfulness:

Rearranging your priorities to give.

Dimensions of Stewardship Maturity

Basic Expression of Faithfulness:

Your commitment

of prayers,


gifts and service.

  • Annual Giving
      • Regular giving
      • Special offerings and projects
      • Budget development and communication
      • Stewardship education for all ages
      • Financial policies
You must either live within your income or your creditors will eat you alive!

“He who rides a tiger cannot dismount.”

From a financial perspective, that tiger is debt. Debt and its resulting bankruptcy have drastically changed the American financial picture.

There was once a lady from Niger
  • Who smiled as she rode on a Tiger
  • They returned from the ride with the lady inside
  • And the smile on the face of the Tiger.
Personal or family bankruptcy rate at an all-time high

In 2002 – 30,700 personal bankruptcies in the U.S. - every week!

1.6 million families went under – threw in the towel

3 main reasons why people have money problems

and likely in the following order in frequency:


1. Ignorance – many people/couples are financially illiterate.

They were simply never taught the Biblical principles of money management.

There is hope for these people!!! But you don’t learn this at the Seminary.


2.Greed and Selfishness– they live beyond their means. They are not willing to live in, drive, or wear what they can really afford. Many of these people also feel they are just too poor to tithe. Consequently, they live their lives without God’s promised wisdom and blessing. (Prov. 3:5-9)


An Unfortunate Tragedy

  • -a serious illness without adequate insurance
  • -being abandoned by a spendthrift marriage partner
  • -a natural disaster
  • -a major financialloss not of your own doing
Enough about the problems!

What canYOUdo to experience financial freedom?

7 points to success
7 Points to Success:
  • Get organized – develop a budget – have a plan
  • Spend less than you earn – determine to live within your means
  • Save a little every pay period – start with only $50 (not just your retirement)
  • Avoid debt like AIDS. Interest is one expense you can live without.
7 points to success21
7 Points to Success:
  • Be a diligent worker. (Prov. 22:29)
  • Be faithful to God. He’s given us so many promises (Deut. 28:1-14) Your family cannot afford to live without God’s blessing.
  • Remember that this earth is not your home. Our management here determines our eternal destiny. (See Matt. 25)
the tyranny of debt
The Tyranny of Debt

1. What is debt?

(Prov. 22:7)

2. Bankruptcy--a Christian

alternative? (Deut. 15:1)

3. Surety (Prov. 6:1-5)

4. Personal surety

(6T 448; AH 393)

the 5 c s of credit management
The 5 C’s of Credit Management

1. Character – Your attitude toward debt

2. Capacity – Your ability to repay debt

3. Capital – Asset or Net Worth

4. Collateral – Assets that can be pledged

5. Conditions – The current economy and your job security

debt elimination
Debt Elimination

Basic premise: establish the tithe

(See Prov. 3; Deut. 28; Mal. 3; Matt. 6; Matt 25)

Step 1 -declare a moratorium on

additional debt

Step 2 -make a covenant with God

Step 3 -list your debts from largest to smallest

additional assistance
Additional Assistance

1.Establish a budget

2. Set goals for your family

3. Destroy credit cards if--

4. Purchase depreciating items with cash

5. Begin economy measures

6. Have a sale--inventory your possessions and sell off what you don’t absolutely need


Four levels of financial fitness:

The first level: Getting debt free

- This is the only proper foundation.

- Develop your spending plan.

- Use credit and credit cards properly.

- Pay off your house.


“Keep this truth in mind:

No investment is as secure as a repaid debt.

Putting your desire to invest ahead of repaying your debt obligations is usually a sign of immaturity, not financial sophistication.”

Pryor, p. 36


The secondlevel: Saving for future needs.

- Develop an emergency savings fund.

- Develop an accumulation fund for future purchases or expenditures (taxes).

- Develop a plan for your children’s education.


The third level of financial fitness:

- Investing your surplus

- Learn about the various types of investments

-lending investments

-ownership investments

Spend time learning about mutual funds

- Understand the tax consequences


There are only two basic choices with investing:

  • 1. The investments where you become a lender–savings accounts, CDs, corp. bonds, government bonds, state and local bonds, annuities – you get a fixed return.
  • 2. The investments where you become an owner– stocks, mutual funds, real estate, precious metals, farmland– you make money if the value goes up or the company is successful.
The fourth level of financial fitness:

-Diversifying for safety.

-Understand investing, know what you want to accomplish; set goals.

-Spread out the risk.

Time is rapidly passing into eternity. Let us not keep back from God that which is His own.Let us not refuse him that which, though it cannot be given with merit, cannot be denied without ruin.He asks for a whole heart; give it to Him; it is His, both by creation and by redemption. He asks for your intellect; give it to Him; it is His. He asks for your money; give it to Him; it is His. “Ye are not your own, for ye are bought with a price.” 1Corinthians 6:19, 20. AA 566
the love of money the desire for wealth is the golden chain that binds them people to satan sc 44
The love of money, the desire for wealth, is the golden chain that binds them [people] to Satan. SC 44
No scheme of business or plan of life can be sound or complete that embraces only the brief years of this present life and makes no provision for the unending future. Ed 145
No one can serve two masters; for either he will hate the one and love the other, or else he will be loyal to the one and despise the other. You cannot serve God and mammon.

Matt. 6:24

financial planning and its benefits
FinancialPlanning and Its Benefits

Personal financial planning is the process of managing your money to achieve personal economic satisfaction. There are several advantages of personal financial planning.


Financial Planning and Its Benefits

  • Increased effectiveness in obtaining, using, and protecting your financial resources.
  • Increased control of your financial affairs.
  • Improved personal relationships.
  • A sense of freedom from financial worries obtained by looking to the future.

The Financial Planning Process

  • Determine your current financial situation.
  • Develop financial goals.
  • Identify alternative courses of action.
  • Evaluate alternatives.
  • Create and implement a financial action plan.
  • Reevaluate and revise your plan

Financial Planning Information Sources

  • Printed materials.
  • Financial institutions.
  • School courses and educational seminars.
  • Computer software, World Wide Web, and on-line information sources.
  • Financial specialists.

Developing a Flexible Financial Plan

A financial plan is a formalized report that..

-Summarizes your current financial situation.

-Analyzes your financial needs.

-Recommends future financial activities.

Your financial plan can be created by you, done with assistance from a financial planner, or made using a money management software package.


Implementing Your Financial Plan

Develop good financial habits.

-Use a well conceived spending plan to help you stay within your income, while allowing you to save and invest for the future.

- Have appropriate insurance protection to prevent financial disasters.

- Become informed about tax and investment alternatives.

Achieving your financial objectives requires…

- A willingness to learn.

- Appropriate information sources.


3 Major Money Management Activities

1. Store and maintain personal financial records and documents.

2. Create personal financial statements of income and outflow (balance sheet and cash flow).

3. Create and implement a plan for spending (budgeting) and saving.


6 Reasons to Keep Financial Records

1. To help in making spending decisions.

2. To plan future spending.

3. To pay bills on time.

4. To see changes in net worth.

5. To make good investment decisions.

6. To prepare your income tax forms.


What to Keep in Your Home File

  • Items you refer to often:
  • Personal and employment records.
  • Tax records.
  • Financial services records.
  • Money management records
  • Credit records.
  • Consumer records.
  • Consumer purchase records.
  • Insurance records.
  • Investment records.
  • Housing and car records.
  • Estate planning and retirement records

What to Keep in a Safe Deposit Box

  • Safe deposit box:For records/items that would be hard to replace.
  • Birth, marriage and death certificates.
  • Citizenship and military papers.
  • Adoption and custody papers.
  • Serial numbers and photos of valuables.
  • CDs and account numbers.
  • Mortgage papers and titles.
  • List of insurance policy numbers.
  • Stock and bond certificates.
  • Coins and collectibles.
  • Copy of will.

Other Places to Keep Records

  • Automobile

-Vehicle registration

  • Lawyer

-Original of your will and living will

  • Doctor and hospital

-Copy of your living will.

  • Home computer
    • -Current and past budgets
    • -Checking account records.
    • -Wills, estate plans, investments
    • -Past income tax returns

Purpose of Personal Financial Statements

  • Report your current financial position in relation to the value of the items you own and the amounts you owe.
  • Measure your progress toward your financial goals.
  • Maintain information on your financial activities.
  • Provide information you can use when preparing tax forms or applying for credit.

Components of a Balance Sheet (net worth statement)

  • Assets – what you own
    • -Liquid assets
    • -Real estate
    • -Personal possessions
    • -Investment assets
  • Liabilities – what you owe
    • -Current liabilities
    • -Long term liabilities
  • Net Worth
    • -Assets minus liabilities
    • -Insolvent means liabilities far exceed assets

Components of a

Cash Flow Statement

Shows inflow/outflow during a given time period.

Record income.

-Income from employment

-Savings and investment income

-Other sources

Record cash outflows.

-Fixed and variable expenses

-Net cash flow can be a surplus or a deficit

Used as a basis for creating a spending, saving and investment plan.


Creating and Implementing Budget

  • Assessing your current situation.
    • -Measure your current financial position.
    • -Determine your needs, values and life situation.
  • Planning your financial direction.
    • -Setting financial goals.
    • -Creating budget allocations.
      • -Budget amount for an emergency fund, periodic expenses and financial goals.
      • -Budget set amounts that you are obligated to pay.
      • -Budget estimated amounts to be spent for various household and living expenses

Creating and Implementing Budget

  • Implementing your budget.
    • -Monitoring spending, saving and investment patterns
    • -Selecting a budget system.
    • -Budgeting systems include…
      • -Mental budget, physical budget, written budget, and computerized budget.
  • Evaluating your budgeting program.
    • -Reviewing your financial progress.
    • -Revising (as needed) your financial goals and your budget allocations.

Saving to Achieve Financial Goals

5 common reasons for saving include:

1. To set money aside for irregular and unexpected


2. To pay for replacement of expensive items such as appliances, cars or a down payment on a house.

3. Save to buy special items or pay for a vacation.

4. Put money aside for long-term expenses such as retirement or children’s education.

5. To earn income from the interest on savings for use in paying living expenses.


Successful Budgets Are…

  • Well planned.
  • Realistic.
  • Flexible.
  • Clearly Communicated.

What is Consumer Credit?

  • Credit is an arrangement to receive cash, goods or service now, and paying for them in the future.
  • Consumer credit is the use of credit for personal needs except a home mortgage. It is a major force in the American economy.
  • Three ways consumers can finance current purchases:

-Take money from savings

-Use present earnings

-Borrow against future income

  • Trade-offs are involved in using credit.

Credit Considerations

  • Before using credit for a major purchase, ask yourself these questions:
    • -Could I pay cash or make a down payment?
    • -Do I want to use savings for this purchase?
    • -Does purchase fit with my goals and budget?
    • -Could I use the needed credit in some better way?
    • -Can I postpone this purchase?
    • -What are the opportunity costs of postponing this purchase?
    • -What are the dollar and psychological costs of using credit for this purchase?

8 Advantages of Consumer Credit

1.Current use of goods and services

2.Permit purchase even when funds are low

3.Use for financial emergencies

4.Convenient when shopping

5.Safer than cash

6.Can take advantage of float time

7.May get rebates, airline miles or other bonuses

8.Demonstrates financial stability


5 Disadvantages of Consumer Credit

1.Purchases are more expensive.

2.Temptation to spend.

3.Ties up future income.

4.Possible financial difficulties.

5.Potential loss of merchandise due to late or non-payment.


Types of Credit

  • Closed-End Credit:For specific purpose/amount
    • -Mortgage loan
    • -Automobile loans
    • -Installment loans
  • Open-End Credit
    • -Use as needed until reaching line of credit
    • -You pay interest and finance charges if you do not pay the bill in full when due
    • -Revolving check credit – prearranged loan
    • -Home equity loan

Credit Cards

  • Nearly eight out of ten American households carry one or more credit cards.
  • One-third = convenience users. Balance paid in full each month.
  • Other two-thirds = borrowers.
  • Co-branding – linking a credit card with a business offering rebates on products and services.
  • Smart cards have imbedded computer chip.
  • Debit cards are NOT credit cards.

Credit Capacity Indicators

Debt Payment-to-Income Ratio

monthly payments*

monthly after tax income

*Not including housing


Credit Capacity Indicators

Debt to Equity Ratio

total liabilities

= Should be < 1

net worth*

*Excluding home value


Build and Maintain Your Credit Rating

  • Limit your borrowing to your capacity to repay.
  • Pay all bills promptly.
  • Check to see what is in your credit report.
    • -Credit bureaus collect information.
    • -Experian, Trans Union and Equifax.
    • -Mix-ups and errors in credit reports have improved recently.
    • -Bureaus get information from banks, finance and credit card companies, merchants and other creditors.

Complaining About Consumer Credit

  • First try to solve the problem directly with the creditor.
  • If that does not work, there are more formal complaint procedures.
  • There are a variety of consumer credit protection laws and federal agencies who administer and assist with complaint procedures.

Sources of Consumer Credit

  • Inexpensive loans
    • -Parents and family members
    • -Loans based on assets, such as a CD
  • Medium-priced loans
    • -Commercial banks, savings and loan associations, and credit unions
  • Expensive loans
    • -Finance companies
    • -Retailers such as car or appliance dealers
    • -Bank credit cards and cash advances

The Cost of Credit

Finance charge includes interest and fees, such as service charges or credit-related insurance.

The annual percentage rate (APR) is the percentage cost of credit on a yearly basis.

The APR provides the true rate of interest for comparison with other sources of credit. This rate lets you compare like with like when shopping for rates.


Trade-Offs of Financing Choices

  • Term (length of loan) versus interest cost.
  • Lender risk versus interest rate. To reduce the lender’s risk you can…
    • -Accept a variable interest rate.
    • -Provide collateral to secure the loan.
    • -Make a large down payment up front.
    • -Have a shorter loan term.

Choosing and Using a Credit Card

  • Look for a low interest rate if you plan to carry a balance.
  • The interest you pay on consumer credit is not tax deductible.
  • If you plan to pay each month in full look for a card with no annual fee.
  • Avoid the minimum monthly payment trap.
  • Early repayment: The Rule of 78s.
  • Credit insurance

-Pay off loan if person dies or becomes disabled.


Evaluating Housing Alternatives

Rent or Own

  • Advantages of renting:
  • -Mobility
  • -Fewer maintenance responsibilities
  • -Lower initial costs
  • Disadvantages of renting:
  • -Few Financial benefits
  • -Restricted lifestyle
  • -Legal concerns of a lease
  • -Costs including a security deposit, utilities and renter’s insurance

Advantages of Owning

  • Pride of ownership
    • -American dream/norm
  • Reduced income taxes
    • -Deduct property taxes
    • -Deduct mortgage interest
  • Build equity by paying down the loan or by price appreciation
  • Builds your credit rating
  • Hedge against inflation
  • Lifestyle flexibility – express your individuality

Disadvantages of Owning

  • Financial uncertainty
    • -Get down payment and financing
    • -Home values could drop
  • Limited mobility
    • -Can take time to sell
  • Higher living costs
    • -Maintenance
    • -Repairs and improvements
    • -Real estate taxes

Assess Types of Housing that Can Be Purchased

  • Single-family dwelling
  • Multi-unit dwelling
    • -Duplex
    • -Townhouse
  • Condominium
    • -You own your unit in a building of units
    • -It is not a type of structure but a form of ownership
  • Cooperative housing
  • Members own shares in and rent a unit in a building with multiple units

Assess Types of Housing that Can Be Purchased cont.

  • Manufactured homes
    • -Fully or partially assembled in a factory and then moved to the housing site
    • -Prefabricated type has components built in the factory and assembled at the site
    • -Lower cost than site built homes
  • Mobile homes
    • -Type of manufactured home often less than 1,000 square feet
    • -Offer same features as a conventional house
    • -Safety is debated and they tend to depreciate

AssessTypes of Housing that Can Be Purchased cont.

  • If building a home, consider…
    • -Does contractor have needed experience?
    • -Does contractor have good working relationship with architect, suppliers, electricians, plumbers, carpenters and others?
    • -What assurance do you have about quality?
    • -What are payment arrangements?
    • -What delays will be considered legitimate?
    • -Is the contractor licensed and insured?

Home Buying Process Step 1:Determine Homeownership Needs

  • Determine how much you can afford
    • -Consider both price and quality
  • Price and down payment
    • -Available funds for a down payment
    • -Your income and living expenses
    • -Your ability to make the payments
    • -Get pre-qualified
  • Size and quality
    • -As you move to a second and third home you can include more of the features you want.
    • -Look at the condition of the home

Home Buying Process Step 2:Finding and Evaluating a Property to Purchase

  • Select a location
    • -Be aware of zoning laws
    • -Assess the school system if you have children
  • Using a real estate agent
    • -They present your offer, negotiate the price, assist you in obtaining financing, and represent you at the closing
  • Conduct a home inspection
  • Obtain an appraisal

Home Buying Process Step 3:Pricing and Property

  • Determining the home price
  • Negotiating the purchase price
    • -Buyer-agents
    • -Seller’s or buyer’s market
    • -Earnest money
  • Contingency clauses
    • -Buyer can obtain financing
    • -Sale contingent on the sale of the buyer’s home

Home Buying Process Step 4:Obtaining Financing

  • Determine amount of the down payment
    • -Mortgage insurance if less than $20%
  • Qualifying for a mortgage
    • -Can be pre-qualified based on income, assets, debts, credit history, mortgage rate, and length of loan
  • Evaluating points (prepaid interest)
  • Home loan application process
  • Fixed or adjustable rate mortgage

Types of Mortgages

  • Conventional
    • -Fixed rate, fixed payment, amortized
    • 5%, 10% or 20% down
    • 15, 20 or 30 years of fixed payments
  • Government guaranteed financing programs
    • -Veterans Administration
    • -Federal Housing Authority
  • Adjustable rate mortgages
    • -Interest rate varies with the prime rate but has a rate cap

Types of Mortgages cont.

  • Graduated payment
    • -Payments start lower and go up
    • -For persons whose income will increase
  • Balloon
    • -Fixed monthly payments plus one large payment, usually after 3, 5 or 7 years
  • Growing-equity
    • -Payment increases to allow loan to be paid off more quickly

Types of Mortgagescont.

  • Shared appreciation
    • -Borrower agrees to share appreciated value of the home with the lender
  • Second mortgage
    • -Home is collateral and interest may be tax deductible
    • -Home equity loans (example)
  • Reverse mortgages
    • -Provides elderly with tax-free income based on the home equity
  • Refinancing

Misconceptions About Retirement Planning

  • My expenses will drop when I retire.
  • My retirement will last only 15 years.
  • I can depend on Social Security and my company pension to pay for my basic living expenses.
  • My pension amount will keep pace with inflation.
  • There’s plenty of time for me to start saving for retirement.
  • Saving just a little bit won’t help.

The Importance of Starting Early

  • Take advantage of the time value of money:
  • If from age 25 to 65 you invest $300 a month (9%) at age 65 you’ll have 1.4 million in your retirement fund.
  • Wait ten years until age 35 to start and you’ll have about $550,000.
  • Wait twenty year until age 45 and you’ll have only $201,000 at age 65.

Why Think About Retirement Planning Now?

  • People are spending more years (16-20) in retirement.
  • A private pension and Social Security are most often insufficient to cover the cost of living.
  • Inflation may diminish the purchasing power of your retirement savings.

Review Your Retirement Assets

  • Housing
    • -If owned, probably your biggest single asset
    • -If large equity, reverse annuity mortgage
  • Life insurance
    • -Cash value can be converted into an annuity
  • Other investments
    • -Stocks and bonds
  • Assets after divorce
    • -Pension benefits are considered a marital asset to be divided

Estimating Retirement

Living Expenses

  • Spending patterns and where and how you live will probably change
  • Some expenses may go down or stop
    • -Work expenses – gas, lunches out
    • -Clothing expenses – fewer and more casual
    • -Housing expenses – house may be paid off, but taxes and insurance may go up
    • -Federal income taxes will probably be lower

Estimating Retirement

Living Expenses cont.

  • Other expenses may go down
    • -Life and health insurance unless your employer continues to pay them
    • -Medical expenses increase with age
    • -Expenses for leisure activities
    • -Gifts and contributions
  • Inflation will raise the amount you need to cover your expenses over your probable 16-20 years in retirement
how an average older 65 household spends its money
How an “Average” Older (65+) Household Spends its Money

32.5% Housing

16.3 % Transp.

15.4% Food

11.3% Medical

7.7 % Insurance/Other

6.2 % Clothing

5.7 % Contributions

4.9 % Entertainment










Planning Your Retirement Housing

  • Think about where you want to live
  • Consider the cost of living and taxes
  • Type of housing as needs change
    • -Staying in their present home is what most people prefer
    • -Universal design is a home built to allow for potential physical limitations
    • -If not built using universal design, home may need to be retrofitted
    • -Continuing care retirement community provide increasing levels of care

Avoid Retirement Housing Traps

  • If you plan to move when you retire:
    • -Write the local Chamber of Commerce to learn about taxes and the economic profile
    • -Check on state income and sales taxes and taxes on pension income
    • -Subscribe to a local Sunday paper
    • -Estimate what your utility costs would be in the area
    • -Rent for awhile instead of buying immediately

Planning Your Retirement Income

  • Social Security
    • -Most widely used source of retirement income, covering 97% of U.S. workers
    • -Meant to be part of your retirement income but not the sole source
    • -Check the Earnings & Benefit statement you receive each year
    • -Full retirement benefits at age 65 to age 67, depending on the year you were born

Planning Your Retirement Income cont.

  • Social Security
    • -Up to 85% of your benefit may be subject to federal income tax depending on your other sources of income, such as interest income
    • -Cost of living adjustment (COLA) each year
    • -Spouse’s benefit = ½ worker’s benefit
    • -Workers’ confidence in Social Security paying them benefits when they retire is declining

Planning Your Retirement Incomecont.

  • Employer Pension Plans – Defined Contribution
    • -Money-purchase pension plans – Percent of your earnings are set aside
    • -Stock bonus plans – Employer’s contribution depends on the company’s profits
    • -Salary reduction or 401 (k); 403(b) plans…
      • -Employer makes non-taxable contributions
      • -Employee contributions are tax- deferred

Planning Your Retirement Income cont.

  • Employer Pension Plans – Defined Benefit
    • Employer will pay you a certain amount per month when you retire based on your pre-retirement salary and number of years of service.
    • Employer makes the investment decisions for your and their contribution, but your benefit amount stays the same regardless of how the investments perform.

Pension Plan

Portability and Vesting

Portabilityallows you to carry earned benefits from one employer’s pension plan to another’s when you change jobs.

Vestingmeans you have worked for an employer long enough (3-5 years) to get a pension benefit, even if you take a position with another employer.

When you leave a job, you can cash in your pension, have the employer keep the funds so you will get a future pension from them, or take the funds to invest in a pension with your new employer if your pension is portable.


Individual Retirement Accounts (IRA)

  • The most popular personal retirement plan
  • Regular or traditional IRA
    • -If you meet income guidelines, money invested is taken out of your paycheck before income and Social Security taxes are computed.
    • -You can contribute up to $2,000 per year.
    • -The interest accumulates tax free until you start taking it out.
    • -You pay taxes on the money as you with draw it once you are retired or by age 70½.

Individual Retirement Accounts

  • Roth IRAs
    • -Contributions are not tax deductible, but earnings accumulate tax free.
    • -You can contribute up to $2,000 per year if you are single and have an AGI of $95,000 or less or $150,000 if you are filing jointly.
    • -After five years, up to $10,000 can be used as a down payment on a first-home purchase penalty-free and tax-free.
  • Rollover IRAs allow you to transfer taxable distributions of a retirement plan into an IRA.

Individual Retirement Accounts

  • You decide where your money is invested.
  • Many people put IRA money in a savings account or CD rather than thinking about their options to invest for growth.
  • Stocks, bonds and mutual funds are options for long-term growth.
  • A KEOGH is a pension plan developed for self-employed people, andthe employees.

What is an Annuity?

  • An annuity is a life insurance product to provide a guaranteed income.
    • Annuity options include income for a set number of years, for as long as you live, or for as long as you and your partner lives if he or she outlives you.
    • The amount you get is based on which of the above options you pick, how much you have contributed, and how you have your annuity premiums invested.

Advantages of Tax-Deferred Annuities

Contributions and interest earned are tax deferred.

You pay taxes on the annuity dollars and interest as you withdraw them after you retire.

When you retire, you will likely be in a lower income tax bracket.

anticipated sources of retirement income
Anticipated Sources of Retirement Income

Social Security










Part-time work


Spouse’s pension



Home Equity




Living on Your Retirement Income

  • Estimate your income at retirement from pensions and Social Security.
  • Together, your pension and Social Security will cover about 60% of retirement income needs.
  • Determine how much you will need in investments to supply the other 40%. Develop a plan to accumulate this amount in assets.
  • Monitor your investments.
  • Take advantage of all tax savings retirees receive.
  • Develop a spending plan for retirement.

Living on Your Retirement Income

  • Retirees get a variety of tax savings.
  • Fewer senior discounts as boomers retire.
  • Working during “retirement.”
  • Invest some of your retirement income for growth to allow for inflation and increased health care costs.
  • Consider 60% stocks and 40% bonds.
  • Dip into savings with caution, since you do not know how long you will live.