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  • 91RetirementIncomefromSavingsShortVersionperiod1.notebook

    1

    April25,2016

    Bellwork 4-25-16

    1. How can you save for your retirement?

    2. Do you have family members or friends who are currently retired? If so, how are they spending their retirement days?

    AwholegenerationofAmericanwillretireinpovertyinsteadofprosperity,becausetheysimplyarenotpreparingforretirementnow.ScottCook,AmericanBusinessman

  • 91RetirementIncomefromSavingsShortVersionperiod1.notebook

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    April25,2016

    91 RETIREMENTINCOMEFROMSAVINGS

    OBJECTIVES

    Calculatefuturevaluesofretirementinvestmentsthatarebothsingledepositandperiodic.Comparethetaxsavingsbymakingcontributionstopretaxretirementsavingsaccounts.Calculateanemployersmatchingcontributiontoaretirementaccount.

  • 91RetirementIncomefromSavingsShortVersionperiod1.notebook

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    April25,2016

    retirement

    semiretired

    pretaxdollars

    aftertaxinvestments

    individualretirementaccount(IRA)

    traditionalIRA

    taxdeferred

    RothIRA

    taxexempt

    401k

    Keoghplan

    403b

    Key Terms

    -a specific point in a person's life when he or she stops working

    -a person of retirement age who works only part-time

    -a deposit made to a retirement account that is deducted from wages before taxes, and therefore not taxed. A pre-tax investment lowers a person's taxable income.

    -money that is deducted from your income after taxes have been deducted for the person of investing

    -an account that is opened by an individual, rather than sponsored by an employer

    -a savings plan in which the income generated by the account is tax-deferred until it is withdrawn from that account

    -taxes are paid at the time the money is withdrawn from the account, not when the money is actually earned

    -deposits are taxable, but when the money is withdrawn after having been there for at least 5 years and the saver is at least 59.5 years old, the money and the income earned is tax-exempt, or free from all taxes

    -money that is not taxed

    -a retirement saving plan that is sponsored and set up by an employer for its employees there are strict rules as to when the money can be withdrawn without a penalty AND strict contribution limits which change from year to year

    -a savings plan for a self-employed professional or the owner of a small business pre-tax money invested is tax-deferred until it is withdrawn

    -a tax-deferred retirement plan for employees of educational institutions and some non-profit organizations

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    April25,2016

    Blytheis40yearsold.Sheisplanningonretiringin25years.ShehasopenedanIRAwithanAPRof3.8%compoundedmonthly.Ifshemakesmonthlydepositsof$500totheaccount,howmuchwillshehaveintheaccountwhensheisreadytoretire?

    Example1

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    April25,2016

    WhichwouldhaveagreatereffectonthefinalbalanceinBlythesaccounthalfthemonthlydepositorhalftheinterestrate?

    CHECKYOURUNDERSTANDING

  • 91RetirementIncomefromSavingsShortVersionperiod1.notebook

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    April25,2016

    Example2SupposethatBlythesannualcontributionwaspretax.Howmuchdidshesaveintaxesinoneyearifhertaxableincomeforthatyearwas$72,500?

  • 91RetirementIncomefromSavingsShortVersionperiod1.notebook

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    April25,2016

    EXAMPLE3Chelseais45yearsold.Sheplanstoopenaretirementaccount.Shewantstohave$300,000intheaccountwhensheretiresatage62.HowmuchmustshedepositeachmonthintoanaccountwithanAPRof2.25%toreachhergoal?

  • 91RetirementIncomefromSavingsShortVersionperiod1.notebook

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    EXAMPLE4Zanderisa50yearoldmarriedmanwhofilestaxesseparatelyfromhiswife.HehasbeenmakingmonthlycontributionsintohistraditionalIRAformanyyears.Lastyear,heenteredintoanewbusinesspartnershipanddecidedtowithdraw$50,000fromhisIRAtomaketheinitialinvestmentinthepartnership.Zanderstaxableincomefortheyear,excludingthe$50,000fromhisIRA,was$97,000.Howmuchextradidhepayinbothpenaltyandtaxesbecauseofthiswithdrawal?

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    April25,2016

    EXAMPLE5Leomakes$75,000peryear.Hiscompanyoffersa401kretirementplaninwhichtheymatch50%ofhiscontributionstothe401kupto6%ofhissalary.Thecompanyallowsemployeestomakecontributionstothe401ktoamaximumof15%oftheirsalary.Themaximumallowablecontributiontoany401kis$16,500.HowmuchshouldLeocontributepermonthinordertomaximizehisemployersmatchingcontribution?

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    April25,2016

    Homework: Page 444, #s 1-7

    Page 1: Apr 9-7:38 PMPage 2: Apr 9-6:37 PMPage 3: Apr 9-6:37 PMPage 4: Apr 9-6:37 PMPage 5: Apr 9-6:37 PMPage 6: Apr 9-6:37 PMPage 7: Apr 9-6:37 PMPage 8: Apr 9-6:37 PMPage 9: Apr 9-6:37 PMPage 10: Apr 9-8:01 PM

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