Notes

unit 7 lesson 5
Keogh Plan - a savings plan for self-employed people to set aside up to 15% of income, but not more than $10,000 per year, tax-deferred.
•Asset Allocation - The process of dividing investments among different kinds of assets, such as stocks, bonds, real estate and cash, to limit risk and increase opportunities. This allocation is based on an individual's specific situation and goal.

•Full retirement benefits are paid at age 65, with reduced benefits available at age 62.
•Because of longer life expectancies, the "full retirement age" is increasing for people born after 1938. The age for full benefits will rise until it reaches age 67 for people born in 1960 and later.

•Financial advisors recommend having 70% of pre-retirement income in order to live comfortably.
•Social Security replaces about 42% of an average wage-earner's salary based on the amount of contributions made while working.
•Pension income from your employer may be a part of your retirement income.
•Savings and investments must provide the rest of the income you will need in retirement.

-401k Plan
It is a savings plan that allows you to contribute from your pre-tax earnings (gross income), which reduces the amount of income tax you will pay. This is known as a tax-deferred investment because it defers or delays taxes on a portion of your income. Up to 15% of your salary can be contributed each year. The best part is that most employers match your contributions up to a certain level.

-403b Plan
This is the same as a 401k plan, but for employees of non-profit organizations like hospitals and educational institutions. There is typically no employer match with this plan.

-Keogh Plan
This is a savings plan for self-employed people to set aside up to 15% of income, but not more than $10,000 per year, tax-deferred.

-Individual Retirement Account (IRA):
Individuals who have no retirement plan at work can contribute up to $4,000 of earnings per year, either in installments or as a lump sum, and deduct the full amount from their 2006 income taxes. Plus, any earnings on the account are tax-deferred.
•If you have a retirement plan at work, you may still qualify for a full deduction if your income is below $60,000 for a single person or $85,000 for a married couple.
•If you don't qualify for the tax deduction, you can still contribute the $4,000 and take advantage of your account growing tax-deferred.

-Roth IRA
Contributions up to $4,000 are allowed, but are not tax-deductible. However, the earnings on the account are tax-free after five years. That means you won't pay any taxes when you take your money out! You qualify for a Roth IRA as long as your adjusted gross income is less than $110,000 for a single person and $160,000 for married couples.
•Funds can be withdrawn for special circumstances like buying a home or funding your education.

Aggressive Investor - % of Portfolio
•45% in large-company stock fund
•30% in small-company stock fund
•25% in international stock fund

Conservative Investor - % of Portfolio
•70% in large-company stock fund
•15% in small-company stock fund
•15% in international stock fund

5 years until retirement
•45% in large-company stock fund
•10% in small-company stock fund
•45% in bonds/cash