Ch.9 Maximize retirement investing: Financially healthy for life Flashcards
What should a retirement plan mean to you?
investing with the goal of security
when do you know you reached the investing step?
you have no debt except for a house payment, and 3-6 months of expenses in savings
how much should you invest towards retirement?
invest 15% of before tax gross income annually towards retirement
What is compound interest?
is the interest you earn on interest. I.e. the earlier you invest in life the richer you’ll be later in life
when calculating 15% of your gross income what shouldn’t you include?
company matches and don’t use potential social security benefits
how much did the stock market average on returns on investment?
just below 12%
Are growth stock mutual funds good long term?
yes if they’re left 5 yrs or longer
what is a large cap growth stock mutual fund?
invests primarily in the stocks of large, established companies (top 70% of market capitalization) that are expected to experience above-average growth in earnings, revenue, and/or sales compared to their peers or the broader market.
what 4 funds should your retirement investing be spread across?
- growth and income (blue chip funds)
- growth funds (mid cap/ equity funds)
- international funds (foreign/ overseas funds)
- aggressive growth (small cap/ emerging market)
What should your 15% invested take advantage of?
take advantage of all matching and tax advantages available
what is a “match”?
refers to aligning expenses with the revenues they generate, ensuring that costs are recognized in the same period as the related income, providing a clearer picture of a company’s financial performance.
after you have/haven’t invested through a match what should you do?
fund roth IRA’s
how much does a Roth IRA allow you to invest per year?
$7000
what are the upsides to a Roth IRA?
tax-free growth, tax-free withdrawals, and no required minimum distributions.
what is a 401(k)?
an employer-sponsored retirement savings plan that allows employees to contribute a portion of their wages, often tax-deferred, to individual accounts, which can then be invested and grow tax-free until retirement.
whats good about a 401(k)?
allows employees to defer a percentage of their compensation up to annual limits set by the IRS
what’s bad about a 401(k)?
you will have to pay income tax on your contributions and the investment gains when you withdraw funds from the account
How will you know when you’re secure?
when you can live off of 8% per year (12% if you lose 4% due to inflation)
what is the Economic Growth and Tax Relief Reconciliation Act?
EGTRRA lowered federal income tax rates, reducing the top tax rate from 39.6 percent to 35 percent and reducing rates for several other tax brackets
