• Lecture 26 Annual Payment.XLS • Lecture 26 Monthly Payment.XLS • Lecture 26 Equity Growth.XLS • Lecture 26 Retirement Calculator.XLS • Sources of information – Dave Ramsey -- The Total Money Makeover: A Proven Plan for Financial Fitness. It is available at most book stores and on line Debt Management for Retirement Lecture 26
27
Embed
Lecture 26 Annual Payment.XLS Lecture 26 Monthly Payment.XLS Lecture 26 Equity Growth.XLS Lecture 26 Retirement Calculator.XLS Sources of information –Dave.
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
NW 5 Yr NW 10 Yr NW 15 Yr NW 20 Yr NW 25 Yr NW 30 Yr
• Do not change standard of living -- SAVE
• Save for what? – Retirement and fun– Children’s educ – #529 College Savings
Plan• Where do you invest your savings?
– Low load mutual funds – lots to choose from• Every investment house has several
– Make sure you can move money among the Funds in the Family without a cost
– Get a broker, but do not let them make trades for you – can lead to account churning
Once You Are Debt Free, What’s Next?
Example of Types of Mutual Funds
• When do I start? How much should I save? Is it to late? What about Social Security for your retirement?
• In the future, businesses will not provide retirement accounts
• You will be on your own to save through an IRA – Some businesses will provide
matching funds – Some will offer managed IRAs with
limited options
Retirement Savings
• Start saving the day you graduate or today
• Save as much as you can but at least save 15% of your gross salary annually
• Save 50% of each raise • Keep working and paying into Social
Security so I can collect it!– Do not depend on Social Security to cover
your retirement needs– Today Social Security will pay me 16% of
my current salary; after paying for 50 years
Retirement Savings
• Social Security has no store of money• Congress will be forced to CUT these
entitlements– Debt ceiling, sequestration, budget
reductions – All these add up to lower payments for
your generation to receive as Social Security payments
• Probable changes in Social Security– Extending retirement age– Means testing based on wealth or income– Reduced payment rates for everyone
Social Security and Medicare/Medicaid
• Tax DEFERRED savings– Traditional IRA - $5,000/year per person
unless over 60 then can save $6,000/year– If you are in a company retirement plan
can still use the max Traditional IRA – If you are self employed you can have a
• SEP IRA – 25% of business income up to $50,000 tax deferred or
• KEOGH plan – 25% of self-employed income up to $49,000 tax deferred
• Not tax deferred savings– You can save as MUCH as you want
IRS and Retirement Savings
• Variables to consider– Current age and amount you have saved– Current salary and expected raises– Age you want to retire– Consumption expenditures after you
retire– Annual rate of inflation pre & post
retirement– Returns you expect on savings until
retirement– Returns on savings after you retire– How long do you & spouse expect to live
• Which of these variables are stochastic?– Nearly all of them!
Retirement Saving is Risky
• I made a Monte Carlo simulation model to calculate retirement savings
• With lots of stochastic & input variables
Retirement Calculator
Output: Annual Value of Cash Reserves
Output: Probability of Positive Cash
• Enter your own values • Simulate using the KOV table starting
in row 183• What age do you have a zero wealth?• How much do you have to save to
give yourself a 95% chance of having wealth when you are 90 or 95 or even 100?
• Did you marry the right person ($’s)?• Remember divorce cuts your wealth in half so it
takes twice as longer to save for retirement
Open the Retirement Calculator
• Linear programming – what ought to be• Probabilistic forecasting – capabilities of
forecasting with multiple regression, exponential smoothing, seasonal analysis, and time series analysis
• Monte Carlo simulation – what could be ….– Frame your problem in a systems framework– Model design and development– Parameter estimation for stochastic variables
and deterministic component of a forecast – Validate simulated variables– Univariate and MV distributions
• Apply these tools for business and personal decision making using stochastic efficiency
Summary of AGEC 622
• Improved Excel skills• Applied econometrics• Ability to organize & build a business
model• Make any business model a risk analysis
tool• Rank risky alternatives• Deterministic and probabilistic forecasting• Simetar
– Available as long as you are a fulltime student– After you graduate, buy it at www.simetar.com
• If you do not have Simetar, you can use @Risk=NORM() same as =RISKNORMAL() =UNIFORM() same as =RISKUNIFORM()
• May 6 in this room • Open book, notes and computer programs• Please bring your own computers if you want• Two parts to the exam – Part A is short, do it first• Print each part as you finish it. • DO NOT wait until the end to print Part A!!!!• No talking, texting, tweeting, face booking or
other social interaction during the exam• Pizza will be provided at noon. Take a short break.• The type of problem for Part B will be familiar to
you• Practice advice: Redo all Labs on simulation and
old Lab Exams
What to Expect on Lab Exam
• Questions on all aspects of the material covered in class since the last exam
• Short answer essay questions– You should not need more space than what is
provided for a complete answer– DO NOT repeat the question as part of your
answer• It wastes time for you and ME
• A few calculator questions• NO Cheat Sheet is permitted