What Could Go Right or Wrong?
RETIREMENT FUNDS
Factors
Economic
Health and Family
Unemployment
 Inflation
 Knowledge of
Finance/Wealth
Management



Illness/disability
Family
Unemployment



Cannot retire without first working
Firm’s ongoing attempt to cut costs
Increased use (and abuse) of public assistance
 WIC: Women, Infants, and Children
 HUD: Housing and Urban Development
 CHIP: Children’s Health Insurance Program

Increase in government spending
 Labor Force
 Productivity
 Capital Accumulation
 Rent-seeking
Firms Cut Costs

Saving on payroll- benefit in the short run,
but may hurt in the long run
First in, first out- may be a better idea to cut
some of the middle management instead?
Younger generation is the future of the firm

Mergers/AcquisitionsYou may quickly be replaced if your firm is
bought by another
Government Spending- Its effects

Labor Force
 Reduces participation by creating disincentives to
work
 Makes labor markets more rigid by hampering
efficient flow of workers from declining industries
to expanding industries

Productivity
 Inhibits innovation and capital accumulation
 Resources are withdrawn from the private sector
and placed in the unproductive public sector
Government Spending- Its effects

Capital Accumulation
Increases interest rates which decrease private
investment
Creates uncertainty that reduces the return of
long-term investments

Rent-Seeking
Creates opportunities for rent-seekers to
waste resources to curry political favor
Distorts economic markets, reduces economic
growth, and destroys the free market ethic
Public Assistance
Example- WIC

Economic
Unit Size Annual
Monthly
Weekly

1
$20,147
$1,679
$388
2
27,214
2,268
524
3
34,281
2,857
660

4
41,348
3,446
796

5
48,415
4,035
932
6
55,482
4,624
1,067
7
62,549
5,213
1,203
8
69,616
5,802
1,339

Pregnant and breastfeeding
women; women who recently
had a baby; infants birth
through 12 months; children 1
to 5 years; who are:
Present at the clinic
appointment, and provide
proof of identity;
Residents of the State of Ohio;
Determined by health
professionals to be at
medical/nutritional risk; and
Meets income guidelines - 185%
of Federal Poverty Income
Guidelines.
Unemployment vs. Inflation

Phillips Curve:
 Inverse relationship
between
unemployment and
inflation
 Tradeoff- we cannot
have both low
unemployment AND
low inflation, we must
choose one or the
other
 Why have we had both
in recent years?
Individuals’ Finances- saving and
spending
Cost of living vs. Standard of living
 Because the cost of living will likely increase, we
must save in order to maintain our standard of
living
 What’s good for us now, won’t necessarily be
good for us later
Save for retirement later, but ‘later’ comes too
soon
 70% of families live paycheck to paycheck
 Those entering the workforce now will likely
make less and save more; probably for the rest
of their lives
Individuals’ Finances- Planning
for retirement
Investing: diversification of risk
 Options:

IRAs
Pensions
Annuities
401(k)
Social Security?
“Save 10% of your salary each year and you'll be
fine!” -- Walter Updegrave , CNN Money
Investing in stock: Apple
 Buy low, sell high
Low: January 20, 2009 at $78.20
Many shareholders decided to sell and
invest in a safer option lost opportunity
Current: $338.04 (Apr 6, 6:25PM EDT )
 There was money to be made, provided
we chose our investments more wisely
Investing in stock: Apple
Health and Family
 Illness/disability
Benefits may decrease, premiums may
increase
Leading cause for foreclosures
Normal time for being out of work
Average of 2.5 years
1 out of 7 will be on disability for 5 years or
more
Health and Family
 Life insurance
 Leaving the family to pay the expenses
 May acquire the expenses of another family
member
 Children
It now costs an average middle-income
American family $222,360 to raise a child
from birth to 18.
 22% higher than it was in 1960, adjusted for
inflation

How much to save?
The 25 year old starter invests $55,000 and
ends up with $615,580 at retirement.
 The 35 year old starter invests $130,000
and still has less at retirement: $431,754

How much to save?
Preparation
Many factors are beyond your controlplan for the worst case scenario
 Begin saving early- compounding will give
more benefit
 Diversify your risk- never place all funds
into a single asset or type of asset
