Economics and Personal Finance/Retirement and Stock Market

Retirement Plan

Social Security

Some retirements may come from the government (social security):

Designed as a safety net to provide income for older people when they can no longer work
It's automatically deducted from your paycheck
Determined by the amount you've contributed and your age when claiming benefits
Include disability and survivor benefits
Payments are likely to be less than what your income was, so you must supplement through savings, investments and continued employment.
Retirement age is 67. You may start collecting benefits if you retire early at 62, but your checks will be smaller.

You contribute 6.2% of your income with your employer matching that contribution to 12.4% total. If you're self-employed, you contribute all of that 12.4%.

Retirement Options provided by you/your employer

IRA (Individual Retirement Account): Contributions are tax-deferred (meaning you don't pay taxes until you withdraw).
TSA (Tax-Sheltered Annuity): For employees of public schools and non-profits (ex. 403b).
Keoh Plan: For self-employed small business owners.
Employee retirement plan: Contributions deducted from your paycheck (ex. 401K).
Pension: Paid for entirely by the employer.

Considerations for choosing investment options

Consider the RISK (investment risk, inflation risk, industry risk, political risk)
Consider REWARD (benefit/return gained)
Consider CONVENIENCE (sense of relative ease and accessibility)
Consider LIQUIDITY (how quickly a financial instrument can be converted to cash)

Savings Account

HIGH liquidity
LOW risk
LOW return

Stocks

HIGH liquidity
HIGH risk
HIGH return

Real Estate

LOW liquidity
HIGH risk
HIGH return

Retirement	Problems
Govt. assistance	SS no longer a guarantee
Pension from employer	Fewer companies are offering pensions
Nest Egg

Stock Market

When you buy a stock, you buy partial ownership in a corporation. If a company is expected to do well, demand for its shares rises and prices rise. If a company's future looks bad, demand decreases and prices fall. Licensed to buy/sell stocks, brokers provide investment advice and they collect a commission on each purchase/sale. Profiting from stocks go two ways:

Dividends: Payments made by corporations to stockholders.
Capital Gains: Selling a stock for more than its original purchase price.

[SELLING PRICE - PURCHASE PRICE = CAPITAL GAIN/LOSS]

You can determine whether the stock market is performing or not based on a few tools: DOW (Dow Jones Industrial Average) lists the 30 leading industrial stocks, S and P 500 (Standard and Poor's 500 composite indexes) covers market activity for 500 companies and is more accurate than DOW because it evaluates a greater variety of stock and NASDAQ (National Association of Security Dealers Automated Quotations) monitors fast-moving tech companies; speculative stocks, show dramatic ups and downs.

"Ups and Downs" of a stock market

Bull Market - The market is doing well and investors are optimistic and people are purchasing stocks.
Bear Market - The market is doing poorly and people aren't purchasing stocks.

Stock Exchanges

New York Stock Exchange

The NYSE is the oldest and nationally-recognized "blue chip" of companies (began in 1792). The average stock price is $23. Although the benefits, the NYSE has strict requirements.

NASDAQ

The NASDAQ mostly never handle tech stocks; trades occur electronically; more volatile because companies are young and new; stock price: $1.

Stock Market Risks

Interest rate risk: If interest rates rise, stock raise will fall.
Inflation risk: Inflation = stock value will fall.
Business risk: Problems with the business (scandal, poor management, etc.) = stock value will fall.
Liquidity risk: You're unable to find a buyer when you're ready to sell.
Supply and demand risk: If fewer people demand the product = stock market will fall.