Other Types of Investments
Focus Questions
1. What should you consider before investing in real estate?
2. What are some sources of retirement income in addition to
Social Security?
Real Estate and Collectibles
Real estate land and any houses or other buildings that are on it
Collectibles items that appeal to collectors and investors, including
stamps, works of art, antiques, and sports memorabilia
Questions to ask
What changes are occurring in this neighborhood or area? Are
there any pending changes in regulations, land – use policies, or
zoning?
Is this property equivalent in value to other properties in the area?
What is the main reason I am considering this property? Do I want
to live here, or is it solely for investment purposes?
What kind of mortgage will I need (interest rate and length of
term) to make this a profitable venture?
Will I be able to afford the mortgage if the interest rate moves
up?
Retirement and Estate Planning
• The process of taking steps to maximize your wealth and to
transfer it to others after your death is called estate planning.
• Your estate is everything that you own (and owe, if you have
debts) at the time of death.
• A trust is a legal arrangement in which one person manages money
and property for the benefit of another.
• Tax shelters a way of reducing taxes
• A will is a legal document that tells your survivors how you want
your money and property distributed after your death.
Sources of Retirement Income
• Social Security provides retirement, disability, survivorship, and
death benefits to people in the United States.
Company Sponsored Retirement Plans
• A pension is a company sponsored retirement plan that is funded
at least in part by the employer.
• Vested being eligible to receive a pension or other employer
contributed benefits, usually after working at a company for a
certain number of years.
• A profit sharing plan is an employer funded program that allows
employees to share in company’s profits.
• A stock bonus plan is a type of profit sharing plan in which the
employer rewards the employee with company stock instead of
cash.
• A 401(k) plan is funded by the employee.
• A 401(k) plan is a tax – deferred plan: Contributions are withheld
from the employee’s paycheck before taxes – thus reducing the
employee’s current taxable income – and the funds grow tax free
until they are withdrawn.
• A 403(b) plan is similar to a 401(k) but covers employees of public
schools and other tax – exempt organizations.
• A recent development in company sponsored 401(K) plans is called
the opt out provision.
• Individual retirement account (IRA) a personal retirement plan
that permits individuals to set aside money; with the contributions
and earnings not taxed until the funds are withdrawn
• Roth IRA a personal retirement plan in which the original
contributions are not tax deductible, but the earnings are tax free
• Simplified Employee Pension a tax deferred retirement plan for
small businesses and self employed people, in which the employer
makes contributions directly to employee IRA accounts
1. Investing in real estate often requires more than money. What
else might be required?
2. Name four sources of retirement income besides Social Security.
3. Besides retirement income, what kind of benefits does Social
Security provide?
4. What are FICA taxes?
5. Who can participate in SEP-IRA plans?
6. Are collectibles a good investments? Why or why not?
7. Your cousin says that the amount of money you receive from
Social Security will be equal to the amount you paid in, plus
interest. Is he right? Explain your answer.