My Financial Lesson 101

I’m not involved with our retirement plan. My husband
takes care of most of it. But, I started to think that
I should know at least the basic of our financial plan.

Today’s lesson I learned is about compound interest.

Compound interest
Compound interest can earn money you invest,
and that is not all. In addition to the money you invest,
you can earn compound interest,
which means you can earn regular interest plus
daily, monthly or annually until you
reach your goals.

Usually, your goals should be a long- term,
for example, save one million dollars toward
retirement. Let’s say you should start when
you are 25 or 30 years old until you reach
65 years old.

If you start when you are 25 years old, and save until 65.


Say, you will receive 8-10% of interest for 40 years if you don’t
touch that money.

Here, I want to refer to a chart published in 1994 by USAA.
It says if you invest $250 a month, at an 8 percent
average annual investment return.

Then, at age of:

Age 25: You'll accumulate $878,570 by age 65
Age 35: You'll accumulate $375,073 by age 65
Age 45: You'll accumulate $148,236 by age 65
(The New York Times, by Ron Lieber, May 18, 2017)


(photo on Twitter by Ron Lieber)

My husband’s employer had a 401K plan. We used this plan
as soon as when he was hired by the scientific lab after
he graduated from the university.

A traditional 401(k) retirement plan allows an employee to
save money until retirement and receive tax deduction. The employers
can offer a matching fund, which changes by employers. The matching
fund can be 10% or sometimes 15% depending upon your employer.
If you pay $250 a month for your 401(K) retirement, your employee
might match the fund.

Most companies will contribute from 4.5% to 6% of your salary.

The benefit of this plan is a tax free if you don’t withdraw.
If you withdraw, you have to pay tax plus penalty.
Also, when you reach
70 years old, it’s required to withdraw at least minimum
required distribution and pay the tax for this amount.

I heard Warren Buffet recommends investing in low-cost
index funds, which allows you to invest a small pieces
of many different companies. The S&P has 500 larges companies in
the U.S. My favorite company, Apple is one of them.

Anyway, my son told me,

Albert Einstein called compound interest the “eighth wonder of the world”,
adding: “He who understands it earns it; he who doesn't pays it.”




No title

そうなんです。例えば、Warren Buffettが、社会情勢を評してこう言っていた、