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before taxes – thus reducing the employee’s current taxable income – and the funds grow tax free until they are withdrawn.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.