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Navigating Retirement Funds: Factors, Risks, and Strategies

Understand the impact of unemployment, inflation, and government spending on your retirement funds. Learn about financial planning, health, and family implications. Explore investment options and tips to secure your future financially. Get insights on saving, spending, and preparing for retirement.

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Navigating Retirement Funds: Factors, Risks, and Strategies

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  1. What Could Go Right or Wrong? Retirement Funds

  2. Factors • Unemployment • Inflation • Knowledge of Finance/Wealth Management • Illness/disability • Family Economic Health and Family

  3. Unemployment • Cannot retire without first working • Firm’s ongoing attempt to cut costs • Increased use (and abuse) of public assistance • WIC: Women, Infants, and Children • HUD: Housing and Urban Development • CHIP: Children’s Health Insurance Program • Increase in government spending • Labor Force • Productivity • Capital Accumulation • Rent-seeking

  4. Firms Cut Costs • Saving on payroll- benefit in the short run, but may hurt in the long run • First in, first out- may be a better idea to cut some of the middle management instead? • Younger generation is the future of the firm • Mergers/Acquisitions- • You may quickly be replaced if your firm is bought by another

  5. Government Spending- Its effects • Labor Force • Reduces participation by creating disincentives to work • Makes labor markets more rigid by hampering efficient flow of workers from declining industries to expanding industries • Productivity • Inhibits innovation and capital accumulation • Resources are withdrawn from the private sector and placed in the unproductive public sector

  6. Government Spending- Its effects • Capital Accumulation • Increases interest rates which decrease private investment • Creates uncertainty that reduces the return of long-term investments • Rent-Seeking • Creates opportunities for rent-seekers to waste resources to curry political favor • Distorts economic markets, reduces economic growth, and destroys the free market ethic

  7. Public Assistance Example-WIC • Pregnant and breastfeeding women; women who recently had a baby; infants birth through 12 months; children 1 to 5 years; who are: • Present at the clinic appointment, and provide proof of identity; • Residents of the State of Ohio; • Determined by health professionals to be at medical/nutritional risk; and • Meets income guidelines - 185% of Federal Poverty Income Guidelines.

  8. Unemployment vs. Inflation • Phillips Curve: • Inverse relationship between unemployment and inflation • Tradeoff- we cannot have both low unemployment AND low inflation, we must choose one or the other • Why have we had both in recent years?

  9. Individuals’ Finances- saving and spending • Cost of living vs. Standard of living • Because the cost of living will likely increase, we must save in order to maintain our standard of living • What’s good for us now, won’t necessarily be good for us later • Save for retirement later, but ‘later’ comes too soon • 70% of families live paycheck to paycheck • Those entering the workforce now will likely make less and save more; probably for the rest of their lives

  10. Individuals’ Finances- Planning for retirement • Investing: diversification of risk • Options: • IRAs • Pensions • Annuities • 401(k) • Social Security? “Save 10% of your salary each year and you'll be fine!” -- Walter Updegrave , CNN Money

  11. Investing in stock: Apple • Buy low, sell high • Low: January 20, 2009 at $78.20 • Many shareholders decided to sell and invest in a safer option lost opportunity • Current: $338.04 (Apr 6, 6:25PM EDT ) • There was money to be made, provided we chose our investments more wisely

  12. Investing in stock: Apple

  13. Health and Family • Illness/disability • Benefits may decrease, premiums may increase • Leading cause for foreclosures • Normal time for being out of work • Average of 2.5 years • 1 out of 7 will be on disability for 5 years or more

  14. Health and Family • Life insurance • Leaving the family to pay the expenses • May acquire the expenses of another family member • Children • It now costs an average middle-income American family $222,360 to raise a child from birth to 18. • 22% higher than it was in 1960, adjusted for inflation

  15. How much to save? • The 25 year old starter invests $55,000 and ends up with $615,580 at retirement. • The 35 year old starter invests $130,000 and still has less at retirement: $431,754

  16. How much to save?

  17. Preparation • Many factors are beyond your control- plan for the worst case scenario • Begin saving early- compounding will give more benefit • Diversify your risk- never place all funds into a single asset or type of asset

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