Investing 101 L Gattis Monday 7 PM8 30
- Slides: 8
Investing 101 L. Gattis Monday 7 PM-8: 30 PM March 18, 2013 103 Career Services Building
Agenda • How much do I need in retirement? • How much do I need to save today for retirement? • How do I allocate funds among asset classes? • How do I select securities? • Take Aways
How Much Do I Need in the First Year of Retirement? < Plug < Smooth • Maybe 40% – 70% of final year income
How Much Wealth do I Need at Retirement? • Maybe 8 -12 times final year income
How Much of My Income Do I Need to Save? • Assumes long term average returns and Age in Bonds Rule Assumptions - $100 K Salary - 11% Savings Rate - Age in Bonds Allocation - 6% Real Stock Returns - 2% Real Bond Returns • Maybe 10 -15% if you start at age 25 • You may need to save over 17% if you start at age 35!
How Do I Select Securities? • Mutual Funds “Managed” – E. g. , Fidelity Magellan Fund • 0. 53% Net Expense Ratio, 10 -Year Return = 5. 32% • Index Funds – E. g. , Fidelity Spartan 500 Index • 0. 10% Net Expense Ratio, 10 -Year Return = 8. 16% • Target Retirement Date (Life Cycle) Funds – E. g. , Vanguard Target Retirement 2045 • 63% U. S. Stock Index • 27% Intl Stock Index • 10% Total Bond Index
Personal Financial Risks • Death/Disability/Unemployment of Working Spouse – Life and Disability Insurance, 6 -month emergency fund • College Debt (and other personal debt) – Need to save about $5, 000 per year per child (starting at birth) to fully fund $25, 000/year college • Market crash near retirement – Life cycle investing (reducing risk over time) – Downsize or delay retirement • Retirement Healthcare – LTC, Medi-gap insurance policies – Home equity • Long Life – Long Life Insurance – Purchase Life Annuity at Retirement – Reverse Mortgage
Take Aways • Need retirement wealth of 8 -12 times final year income to smooth retirement transition • Save 10 -15% of your salary starting at age 25 – Save more than 15% if start at age 35 • Reduce portfolio risk as you approach retirement – either by annual reallocations or life cycle funds • Risk Mitigation: Emergency Fund, Insurance, Home Equity, Retirement Flexibility (downsize/delay)
