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Financial Planning 101Financial Planning 101
Todd JornsTodd Jorns
www.iccb.org/fp101www.iccb.org/fp101
Facts & StatsFacts & Stats
• A woman age 65 has a 19% chance of living to age 95.
• A man age 65 has a 11% chance of living to age 95.
• Only 60% of workers are currently saving for retirement.
• Over 50% felt they were behind in saving for retirement.
• 32% rated themselves as “a lot behind.”2005 Retirement Confidence Survey
Facts & StatsFacts & Stats
• 25% of all workers rely solely on Social Security when they retire.
• 66% rely primarily on Social Security.
• The average Social Security benefit is $959 a month ($11,508 a year).
• 31% of Americans would rather scrub a bathroom than plan for retirement!
2005 Retirement Confidence Survey
Facts & StatsFacts & Stats
2005 Retirement Confidence Survey
Retirement Savings All 25-34 35-44 45-54 55+
Less than $25,000 52% 70% 50% 41% 39%
$25,000 - $49000 13% 12% 15% 14% 12%
$50,000 - $99,000 11% 9% 14% 13% 7%
$100,000 - $249,000 12% 5% 10% 17% 23%
$250,000 or more 11% 4% 10% 16% 19%
ObjectivesObjectives
• Improve Awareness and Understanding of the term “saving versus investing.”
• Familiarize and Educate attendees on the various retirement options available to them.
• Inspire and Motivate attendees to be in charge of their retirement.
• Transform and Challenge attendees to share this knowledge with their children, family and friends.
Do’s & Don’tsDo’s & Don’ts
• Don’t get mad at me.
• Don’t get mad at yourself.
• Don’t blame anyone (but yourself).
• Do use the information positively.
• Do create a plan for yourself.
• Do stick to your plan.
• Do enjoy retirement.
WaiverWaiver
• I am not a certified financial planner or accountant.
• All information I share with you are things I have read about or seen on TV.
• I have a passion to share my financial knowledge with anyone who will listen.
• My goal is to help others find the path towards F3 (future financial freedom).
Investing versus SavingInvesting versus Saving
• How to Have a Net Worth of $1 Million at Age 55
• Interest Rates and Their Effect on Your Investments
• The Magic of Compound Interest
• Rule of 72 – Lump Sum Investment
How to Have a Net Worth of $1 How to Have a Net Worth of $1 Million at Age 55Million at Age 55
Monthly Savings Age
Return of 10%
Return of 8%
Return of 4%
Return of 2%
20 $264 $435 $1,094 $1,646
25 $442 $670 $1,440 $2,030
30 $754 $1,051 $1,945 $2,572
35 $1,317 $1,697 $2,726 $3,392
40 $2,413 $2,889 $4,063 $4,768
45 $4,882 $5,466 $6,791 $7,535
50 $12,914 $13,609 $15,083 $15,861
Bloomberg Personal, September 1994
Interest Rates and Their Effect on Interest Rates and Their Effect on Your InvestmentsYour Investments
5-yrs 10-yrs 20-yrs 30-yrs 40-yrs
0% $10,000 $10,000 $10,000 $10,000 $10,000
1% $10,512 $11,051 $12,213 $13,497 $14,916
2% $11,051 $12,212 $14,913 $18,212 $22,241
4% $12,210 $14,908 $22,226 $33,135 $49,399
6% $13,489 $18,194 $33102 $60,226 $109,575
8% $14,898 $22,196 $49,268 $109,357 $242,734
10% $16,453 $27,070 $73,281 $198,374 $537,007
12% $18,167 $33,004 $108,926 $359,496 $1,186,477
$10,000 Lump Sum
Interest Rates and Their Effect on Interest Rates and Their Effect on Your InvestmentsYour Investments
$100 Per Month
5-yrs 10-yrs 20-yrs 30-yrs 40-yrs
0% $6,000 $12,000 $24,000 $36,000 $48,000
1% $6,155 $12,625 $26,578 $41,998 $59,038
2% $6,315 $13,294 $29,529 $49,355 $73,566
4% $6,652 $14,774 $36,800 $69,636 $118,590
6% $7,012 $16,470 $46,435 $100,954 $200,145
8% $7,397 $18,417 $59,295 $150,030 $351,428
10% $7,808 $20,655 $76,570 $227,933 $637,678
12% $8,249 $23,234 $99,915 $352,991 $1,188,242
The Magic of Compound InterestThe Magic of Compound Interest
• Jimmie– Opens IRA at 12% interest at age 22.– Invests $2,000/year for 6 years = $12,000.– After 43 years IRA is worth $1,348,440.
• Joel– Spends $2,000/yr on himself for six years.– Opens IRA at 12% at age 28.– Invests $2,000/yr for 37 years = $74,000.– After 43 years, IRA is worth $1,363,780.
• Difference of $15,340 (start early!).
The Magic of Compound InterestThe Magic of Compound Interest
Jimmie JoelAge Payment Accumulation Payment Accumulation
22 $2,000 $2,240 $0 $0
23 $2,000 $4,749 $0 $0
24 $2,000 $7,559 $0 $0
25 $2,000 $10,706 $0 $0
26 $2,000 $14,230 $0 $0
27 $2,000 $18,178 $0 $0
28 $0 $20,359 $2,000 $ 2,240
29-64 $0 ↕ ↕ $2,000 ↕ ↕
65 $0 $1,348,440 $0 $1,363,780
The Magic of Compound InterestThe Magic of Compound Interest
Jimmie Joel JakeAge Payment Accumulation Payment Accumulation Payment Accumulation
22 $2,000 $2,240 $0 $0 $2,000 $2,240
23 $2,000 $4,749 $0 $0 $2,000 $4,749
24 $2,000 $7,559 $0 $0 $2,000 $7,559
25 $2,000 $10,706 $0 $0 $2,000 $10,706
26 $2,000 $14,230 $0 $0 $2,000 $14,230
27 $2,000 $18,178 $0 $0 $2,000 $18,178
28 $0 $20,359 $2,000 $ 2,240 $2,000 $ 22,599
29-64 $0 ↕ ↕ $2,000 ↕ ↕ $2,000 ↕ ↕
65 $0 $1,348,440 $0 $1,363,780 $0 $2,712,220
Rule of 72Rule of 72
• The rule of 72 says if you take the interest rate you are receiving and divide it into 72, it will give you the number of years it will take for your investment to double.
• Example, 72 divided by 4 (interest rate at a bank) = 18 years for your money to double.
• Another example, 72 ÷ 2 = 36 years.
Rule of 72Rule of 72
Interest Rate (Lump Sum Investment)
Year 2% 4% 6% 8% 10% 12%
72÷2=36
72÷4=18
72÷6=12
72÷8=9 72÷10=7.2
72÷12=6
0 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000
6 $1,130 $1,268 $1,432 $1,617 $1,813 $2,047
12 $1,277 $1,607 $2,051 $2,616 $3,288 $4,191
18 $1,443 $2,037 $2,937 $4,231 $5,962 $8,579
24 $1,631 $2,583 $4,206 $6,843 $10,811 $17,561
30 $1,843 $3,274 $6,023 $11,067 $19,603 $35,950
36 $2,083 $4,151 $8,625 $17,899 $35,545 $73,592
Guidelines & ResourcesGuidelines & Resources
• Retirement Options/Contributions
• Net Worth Projection – Calculator
• 12 Financial Principles
• 10 Ways to Mismanage a 401(k)
• Financial Web Resources
Retirement Options/VehiclesRetirement Options/Vehicles
• 401(k) (corporations)• 403(b) (not-for-profits-education/hospitals)• 457(b) (government)• Roth IRA• IRA• Annuities• U.S. Savings Bonds• CDs• Savings Accounts• Others
Retirement ContributionsRetirement Contributions
Vehicle2005 2006 - 2007 2008
Max Monthly Max Monthly Max Monthly
*IRAs $4,000 $333 $4,000 $333 $5,000 $416
*403(b) $14,000 $1,166 $15,000 $1,250 $15,000 $1,250
*457(b) $14,000 $1,166 $15,000 $1,250 $15,000 $1,250
Totals $32,000 $2,665 $34,000 $2,833 $35,000 $2,916
*Catch-up contributions: Workers age 50 and above are permitted to contribute an additional $1,000 to their IRAs and $5,000 to their 403b and 457b plans.
Net Worth Projection – CalculatorNet Worth Projection – Calculator
• Will help you plan for retirement.
• Allows you to make projections into the future.
• Adjustments made to the Interest Rate shows the impact on investments.
• You can download this calculator at www.iccb.org/fp101.
12 Financial Principles12 Financial Principles
1. Map your financial future
2. Pay yourself first
3. Start saving young
4. High returns equal high risks
5. Money doubles by the "Rule of 72"
6. Budget your money
www.aba.com/Consumer+Connection/12Principles.htm
12 Financial Principles12 Financial Principles
7. Know your take-home pay
8. Don't expect something for nothing
9. Your credit past is your credit future
10. Compare interest rates
11. Don't borrow what you can't repay
12. Stay insured
www.aba.com/Consumer+Connection/12Principles.htm
10 Ways to Mismanage a 401(k)10 Ways to Mismanage a 401(k)
1. Failure to participate at all.
2. Failure to contribute enough to receive the maximum employer match.
3. Using 401(k) plan as a piggy bank.
4. Trying to time the market.
5. Being too conservative.
Motley Fool Commentary, February 8, 2005
10 Ways to Mismanage a 401(k)10 Ways to Mismanage a 401(k)
6. Being too aggressive.
7. Holding too much company stock.
8. Failure to allocate or rebalance.
9. Keeping a default election.
10. Keeping the money during a job change.
Motley Fool Commentary, February 8, 2005
Financial Web ResourcesFinancial Web Resources
• www.tiaa-cref.com/• www.kiplinger.com/planning/• www.fool.com/• www.smartmoney.com/• www.morningstar.com/• www.yourmoneypage.com/index.shtml• www.bankrate.com/brm/popcalc2.asp• www.savingforcollege.com/• www.collegesavings.org/• www.iccb.org/fp101
Financial PrioritiesFinancial Priorities
• Pay down (eliminate) credit card debt ASAP.
• Create an emergency fund - enough to cover 3 – 6 months of monthly expenses.
• Make sure you have adequate life insurance (term is the cheapest).
• Maximize all your tax-deferred opportunities first (401k, 403b, 457b).
• Open Roth IRAs.
• Save for children’s college education.
Words to “Live” ByWords to “Live” By
• Pay yourself first.
• Start saving/investing now.
• Rule of 72.
• Compounding interest ($ work hard for you).
• Stick with your financial plan.
• Invest 50% of your annual raise in you.
• Work smart, invest hard, retire peacefully.
