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Financial Independence

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by

G Wano

on 15 March 2015

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Transcript of Financial Independence

Pay Yourself FIRST!!
-Don't wait till the end of the month

- Start with savings goals
- 401(k), IRA, Vacation fund, etc.
- At least 20% of your take home pay
- You can't invest without capital

-Automate everything
- Loss aversion

Emergency Fund
- Job loss, medical expenses, etc.
- 3-6 months of expenses
- Helps avoid credit card debt
Strategy
- Lowest Fees
- Low cost idex funds

- Reduce Taxes

- Reduce Risk
- Globally diversified
- Stocks & Bonds
- Rebalance

- Buy and Hold
- Don't be your own worst enemy
1. Investment Accounts - 401(k)
TSP - Thrift Savings Plan
- Tax sheltered

- 2015 - $18,000

- Matching (2-6%)
- ALWAYS do this - FREE MONEY
- Possibly coming to the TSP

-Roth vs. Traditional
- Taxes now or later?
- Very low fees - 0.09%

- Limited investment options

- Deductes percentage per month
- No lump sum contribution

- Contribution year runs from Jan-Dec

- Can't combine Roth and Traditional

- Can be rolled over

2. Investment Accounts - IRA
- 2015 - $5500
- Freedom of choice
- Low Fees
- Better investment options

- Income Restrictions
Tip of the Iceberg
- Only as complicated as you want it to be
- Exciting new technology/companies
Knowledge is Power!!
- Stigma around talking money with co-workers & friends

- Open conversation is the key to education
Retirement!
Exit 55
Financial Independence
Savings Account
- Guaranteed gains
- Average 0.06%
- Pay taxes
- Highest income tax rate
- 25%+
Investment Account
- 2-5% gains
- Possible losses
- Tax write offs
- Capital gains tax rate
- 15%
TSP Details
Roth IRA
- Married - $181,000
- Single - $114,000
Traditional IRA
- Married & Covered - $96,000
- Single & Covered - $60,000
- 31% of American's have NO retirement savings

- Typical working family getting ready to retire, age 55 to 64, has only $104,000 saved.

- More than 25% of those who's income falls between the 50th-75th percentile will probably run short

- The average American saves 4.5% of their annual salary per year.
- That's 1 paycheck
Why!?!?
1. Inflation
- The silent killer

- The gradual rising of prices for goods and services

- Federal Reserve aims for 2-3% per year

- Average APY (annual percentage yield or interest) for savings accounts last year (2014) - 0.06%
2. Financial Advisors
- Aren't they supposed to help?
- Research done at Harvard and MIT showed that advisers mostly recommend investment strategies that fit their own financial interests

- Advise clients to chase returns and away from low cost investments

-Conflict of interest?
3. Fees
- Expense Ratio
- The cost to own that investment
- Active mutual funds - 1.12-2.27%
- Passive ETFs - 0.06-0.44%
Compounding Returns
"The most powerful force in the universe is compounding interest." ~Albert Einstein
Full transcript