The Dow Jones Industrial Average (the “Dow”) is

is the oldest and most famous index. It is an average of the stock prices of 30 of the largest companies, each hand-picked by the editors of the company (Dow Jones) that publishes The Wall Street Journal. These are McDonald’s, Disney, Microsoft, and other household names—big stocks like these are called blue chips. Since 30 stocks is only a small sample of the very biggest multi-billion-dollar companies, the Dow doesn’t always provide an especially accurate reading of where the entire market is going.

What Are the Dow, S&P, and NASDAQ?

There are about 15,000 U.S. stocks that change hands every day, but not even Wall Street professionals can keep constant track of them all. Instead, people talk about the performance of the “stock market” as a whole, and Wall Street has developed some gauges to give investors a clearer perspective on where “the market” is moving. These are the various averages or indices that people make such a big deal about when they talk about financial markets. Think of them as thermometers, except instead of measuring temperature, they tell you whether the stock market is heating up or cooling down.

How Do Stocks Make (and Lose) Money?

When you own stock, you don’t get interest like you would earn if you kept your money in a savings account, but certain companies do pay dividends to every shareholder. 

Dividends are the way companies distribute their profits to the investors who own them and are entitled to share in their success. The amount paid per share tends to change as the company’s profits rise and fall. This is one reason why investors watch those quarterly earnings reports so closely. Depending on the company, dividends can be paid every quarter, once a year, or whenever the board of directors decides to distribute the profits. Old or conservative companies like banks and utilities generally pay dividends because they no longer need to use their profits to grow or improve their operations—they’ve gotten about as big as they’re going to get, so they might as well share the profits. Younger companies in more innovative industries like computer technology or drug research tend to skip the dividend payment and plow those profits back into their research or marketing budgets. 

When these growth-dependent companies ruled the market back in the 1990s, dividends became an endangered species, but they’re making a comeback now as investors return to more triedand- true types of stocks. The other way to make money from stocks is to sell your shares for more than you paid for them. This is the old “buy low, sell high” approach that you’ve probably heard about. It sounds easy in theory, but it’s hard to achieve consistently because nobody really knows in advance the perfect time to buy or sell. Most advisors believe that the average person is better served by simply buying quality investments (of any type) at a reasonable price and then holding onto them until she needs the money to fund retirement or for some other purpose. Of course, what counts as a “reasonable” price depends on your investment goals and how much you’re willing to pay to achieve them. The ability of stocks to become more valuable is called capital appreciation, and your profit (or capital gain) from buying low and selling high is simply the difference between the two prices. 

Naturally, it’s possible that a stock will decline in value after you buy it, in which case you would be looking at a capital loss if and when you sell. Every company is different, and there’s no easy way to pick a winner.

What is the Difference between a Bull Market and a Bear Market?

When demand for stocks is generally rising (pushing prices higher as the number of would-be buyers climbs), we are in a bull market period. When demand for stocks falls and prices slump, we call it a bear market. Both bull and bear markets can last months, years, or even decades, but nobody has found a way to reliably predict when they will begin or end. (Sad, but true.)

Think of stock trading as organized haggling.

Someone who wants to buy a stock makes a bid of a certain amount of money per share and announces how many shares he or she wants. Meanwhile, investors who want to sell their shares are setting the asking price that would-be buyers will have to pay; this works a lot like an asking price when someone is selling a house. 

There are millions of people in the market and everyone is trying to get the best deal they can, so prices can move wildly in just a few minutes. 

Any number of factors can influence a company’s stock price, which is where the risk factor comes in. Sometimes a company or a whole industry simply becomes fashionable or falls out of favor, like Enron and many of the dot.com Internet companies did. Investors also tend to react strongly to new information (or even rumors) that lead them to believe that a stock price will move up or down. 

New information that indicates a company is doing better than expected tends to make its stock go up, while bad news can have the opposite effect as shareholders put their stock up for sale. Investors are especially sensitive to news that affects a company’s profits because a company that is making money (a profit) instead of losing money is obviously more likely to stay in business and even thrive. Every company that has publicly traded stock is required by law to report its financial performance every three months in a quarterly earnings report. This report includes an estimate of how much money the company made (or lost) per share. 

A good report can mean good news for the stock price. However, the reverse can happen as well, with stocks going down after a company reports good news (maybe it wasn’t good enough) or up after a bit of bad luck (maybe it was better than what most people expected)

Chapter Three: Understanding Stocks, Bonds, and Investing in Financial Markets

Even though there’s a pretty good chance you have some money invested in the stock market, the charts, ticker symbols, and jargon of the financial markets can leave many of us feeling like we’ve gone to another planet. TV reporters spend a lot of time talking about how well the Dow did or where Treasury yields are headed … but what does it mean? More importantly, what does it mean to you? 

This chapter can’t decode all the ins and outs of stocks and bonds, but it should help you with the fundamentals so you can make the right investment choices for your future. For many people, the stock market and discussions about bonds and mutual funds make them tune out. 

But with the decks stacked against women when it comes to preparing for their retirement, investing is one of the best ways to make your savings go a long way. Some people approach investing as if they were shopping for a car. Some are drawn to the flashy convertible. Some want the sedan with a few bells and whistles that will get them to and from work in comfort. 

And some want the sturdy old station wagon. No matter how you approach investing your retirement savings, the most important thing is to know the basics so that you can make sound financial decisions. Nobody can predict the stock and bond markets. Generally speaking, you have to accept some risk in order to have a chance to receive some reward. If anyone promises you a very high return with little or “no” risk, be skeptical. While relatively safe investments sometimes double or even triple in value in a short time, this is a matter of luck, not a sure thing. So the more knowledge you have, the better your chances are of having your retirement savings work for you for decades after you retire. 

Let’s begin with the basics facts about stocks and bonds. Stocks 101 A stock is a measure of ownership in a company. Stock is sold in units called shares, each of which represents a bit of the company. Most major companies have literally millions of shares divided up among different people and financial institutions, all of which are collectively called shareholders. 

Because investors are constantly buying and selling their shares, the price per share (the number you see quoted when you look up a stock or see a news story about it) changes every day and sometimes minute to minute, depending on how often the stock is traded.

It’s Your Tomorrow

Retirement isn’t all about calculators and special accounts. But if you spend some time setting things up ahead of time, your retirement can be so much richer. Maybe you have something luxurious in mind, like plenty of money for travel or a villa nestled in the hills. Maybe you want to spend your time on a favorite hobby, or strolling along the beach. Maybe you want to be able to help out your family. 

Or maybe you just want a paid-for house and plenty of time with the grandkids. No matter what the details, some up-front planning can help you create a retirement fund that will enable you to accomplish the most important objective: 

When the time comes, you can retire in comfort and dignity. This means having money to cover your basic needs, money for your health care, money to let you pay your own way. It can mean there will be no need to call on the charity of others, and no need to continue working longer than you are physically able. And, with a little luck, it means having money for your dreams.

How much can you save?

Do those numbers look big? They should! Once you begin to add to your savings, the effects of compound interest begin to kick in. Your savings produce interest, and that interest becomes more savings. After a while, the interest on your money is working harder than you are, pulling in interest and earning returns faster than you invest every month—all because you started saving a little at a time. Even if you don’t get it perfect—even if you don’t save the full 10 percent or you don’t set up your retirement account right away—saving something is always better than saving nothing. Every dollar you save is a dollar toward a brighter future.

Now, Create a Retirement Fund

You have paid down your debts. You have built an emergency fund. Now for the part that usually comes to mind when you hear the words “planning for retirement”: Create your retirement fund.
You know that you need to save for retirement, but it seems tough. There is some good news. The government gives tax breaks to help you save for retirement. Your employer wants to help you save for retirement. You have years for your retirement account to grow, which means that a little savings goes a long way. In other words, this is really easy. You just need to do it.
• Sign up for your retirement plan at work. You’ll get automatic tax breaks for every dollar you put in, so the government gives you an immediate boost. (You may have a plan that gives the tax break when you retire rather than with your contributions.) And your company may give you matching contributions, which really is like free money lying on the table. So be sure you reach over and pick it up.

• Create your own retirement plan: If your boss doesn’t offer a retirement plan, open an IRA (Individual Retirement Account) on your own. (If you are self-employed or if you run a small business, open a SEP-IRA or an individual 401(k), both of which offer higher savings limits and extra tax breaks to small business owners.) IRAs are easy to set up;  you can open one through your local bank or through an online financial institution.
Look for an IRA that has low fees and plenty of investment options. Once you’ve
opened your account, just start contributing. The government will help you fund your IRA by chopping down your taxes, so take advantage of it—it’s like walking around with a bucket when it’s raining money.
How much should you put in your retirement accounts? Roughly 10 percent of your take-home pay. If your employer contributes to a pension or savings plan, you can put in less; if you are over 35 and you are just getting started on saving for retirement, you should put in more.
Once you have put some money in your retirement fund, sit back for a minute and congratulate yourself. Half of all Americans never make it this far. If you have a retirement account and you are putting money in it, then you have just made it into the upper half (financially speaking) of all adults in the U.S. Congratulations!
So how do you build your retirement savings? A little at a time. Think of it this way. How do
you eat a huge meal? One bite at a time. How do you make a long trip? One mile at a time.
How do you build a big house? One brick at a time. You wouldn’t say, “I can’t possibly eat the
whole meal!” or “I’ll never get to Milwaukee!” You would just keep at it, one step at a time—
and not think much more about it.
Okay, you already know this. So here’s the next question: How do you get half a million dollars
in your retirement account? Here’s a hint: The answer is not “Win the lottery” or “Inherit a
bundle from a long lost uncle.” The answer is that you will get $500,000 by saving a little at a
time. Save, and keep on saving, and you’ll make it sooner than you think.
Still not persuaded that you can build that mansion one brick at a time? Maybe the math will
convince you. Suppose you earn $50,000 a year. Now suppose you stick with your retirement
plan, setting aside roughly 10 percent of every paycheck for your future and investing it sensibly.
In 15 years, you’ll have more than $130,000. And in 25 years, you’ll have nearly half a million
dollars.
Take a look at the table, which shows you how much your savings can grow if you put aside 10
percent of your paycheck.

Now that’s a smart financial move.

But what about the mortgage interest tax deduction? A tax deduction is no reason to prolong your mortgage payments! Think of it this way—if you were a professional gambler, your gambling losses would be tax deductible. But does that mean a gambler wants to lose money? No way! Still not convinced? Consider the math. Let’s say you are paying $1,000 a month towards your mortgage; $700 goes to interest and $300 goes to principle. You would save around $175 on your taxes. So you want to keep paying $1,000 to the bank so you can save $175? 

Of course not. Math like that will drive you to the poorhouse in a hurry. As a friend of ours once said, “The problem with tax deductions is that they are like paper towels. You have to spill your own milk (make the payments) before they help you sop up some of it.” But what if you plan to sell your house? If you sell your house, you walk away with the equity—and the equity increases for every dollar you pay down on the mortgage. 

When you sell the house, the cash is yours, whether you plough it into another home or just shove it in your pocket. But doesn’t it make sense to borrow against your home when interest rates are low? Whether you are borrowing to pay down your credit card balance, play the stock market, or travel to Tahiti, borrowing against your home is still borrowing—period. It is not saving, it is not smart, it is not savvy. A second mortgage or a home equity line of credit is dangerous, because it gives the mortgage lender the right to take your house away if you get behind on your payments. 

So just pay down your mortgage, and bask in the knowledge that one day you will be completely, contentedly debt-free. But what if you don’t own a home? Should you rush right out and buy one? Should you decide your future is hopelessly lost forever and crawl into your apartment bathtub and pull a mattress over you? No and no. If you don’t own a home, it may make sense to buy—or it may not. Buying a home is not the right choice for some people. 

And renting is perfectly fine—on one condition: Renters still need to keep saving. The money you would have used to pay down your mortgage should go into your savings. If you’re not a homeowner, you will need extra money when you retire so you’ll be sure to have enough to cover the cost of an apartment.

Fourth, Pay Off Your Home

Imagine a home of your own. Not just a house that you live in, but a home that is all yours. No mortgage payments, no rent checks. A home that is completely, 100 percent paid for, free and clear. Yours. Sixteen years ago, Stephen Acosta broke his back in a motorcycle accident. He was lucky to regain the use of his arms and legs, but his days climbing around on construction sites as a licensed electrician were over. Between the medical bills and the lost income, he was pretty much wiped out. He was just out of rehab when his house was posted for foreclosure. Stephen got a repair job in an electronics shop, and then took a second job working weekends as a security guard in a downtown office building. He cut his spending to the bone, and pretty soon he was caught up on the mortgage. “I kept picturing that orange sign on my front door, saying someone else was gonna take my house. 

And every time I thought about it, I got mad all over again, and I sent another hundred bucks to the mortgage company. I figured they could take my whole paycheck, but I’d never let them take my home.” Three months ago, Stephen threw a big party. He invited all his friends, and his mom came, too. After everyone arrived, he thumped his fist on the table, telling everyone to be quiet because he had an announcement. 

All eyes turned to a big green bowl with some papers in it. Stephen explained that this was his mortgage, he had paid it off and gotten it back from the bank, and he wanted everyone he loved to witness while he burned it. “Everyone cheered while I fired it up. Then my mom cried, and I even choked up a little. I pulled myself out of a hole and now this place was mine forever—no matter what.” Sound good? The fourth step in your lifetime money plan is to create a plan to pay off your home. Paying off your home is the double win in the savings world—a tremendously smart financial move that is also tremendously satisfying. After all, where else can you build substantial wealth and smile over your flower bed, all at one time? Paying off your home is a great part of your retirement plan. When it comes time to retire, you can live rent-free, which means that your Social Security and retirement savings will go a lot further. If you end up in a situation where you need a lot of cash, you can sell your house and move to something smaller. And if you stay in your home until your last days, the house will be a wonderful legacy to pass along to your children or to your favorite charity. Paying off your home also does something many financial planners neglect to mention: It gives you freedom. Once that mortgage is gone, just imagine all the freedom in your wallet. Freedom to spend more money on fun, freedom to give more to the people you love, freedom to work a little less and play a little more. Think of this as yet another form of sleep tight insurance. How do you pay off your home? A little at a time. Squeeze out some extra money from your monthly spending and put a second check in with your mortgage payment (about five percent of your take-home pay is a good target). Or if you get a Christmas bonus, put it toward paying off your mortgage. If your mom gives you money for your birthday, or if you get some unexpected overtime pay, put it towards your mortgage. There are lots of ways to do it, but the main thing is to begin. The goal is to chip away at your mortgage, so that you pay it off faster. If you keep making the extra payments, you can get your mortgage paid off years ahead of time—all while saving yourself tens of thousands of dollars.

Third, Build Your Emergency Savings

The third step in getting your financial house in order is to build your emergency savings. This is your safety cushion, the money that will stand between you and the things that can go wrong. You can call on your emergency savings if your car’s transmission goes on the fritz or if you get sick. It is there so you always have a cushion in your account, so you never, ever have to pay another bounced check fee. It is the ultimate “sleep tight” insurance, since it gives you the confidence that you can handle whatever life throws your way. 

Having money in emergency savings is the guarantee that you won’t have to slip back into debt. This is how you make sure that the little things that go wrong in life are just that—little. 

You can manage life’s bumps and bruises without raiding your retirement account or relying too much on your credit cards. The goal is to build a nice, comfortable bank balance—enough money so you can be really and truly confident about your money. Aim to save about three months pay. You don’t need anything fancy, just an ordinary savings account you can tap whenever you need it. This is the money that lets you rest easy, because you know you will be able to handle pretty much anything life throws your way.

Here are some common traps to watch out for:

If it seems like a long road to pay off all your debts, just remember this—you are not just paying off your debt, you are building a brighter future. Getting these debts paid off will change your whole outlook, making each step a little lighter—and your future a whole lot more secure.

Where do you get the money?

Here is where it pays to keep your must-have expenses in balance. If you are spending about half your money for the basics—mortgage, car payment, insurance, and the like—then you have roughly half your salary left over for everything else. This means you should have plenty of money to cover stuff you want (but don’t absolutely need), like new clothes and an occasional restaurant meal, and money to start getting caught up on your bills. A good guide is to earmark 20 percent of your paycheck to debt repayment and savings. When you balance your bills, you will have money left over to repay debts and begin saving. There are no short-cuts and no quick fixes. So beware of traps “to get out of debt quick” because they can end up costing you more money in the long run.

Second, Pay Off the Debt

The medical bills from last year’s visit to the emergency room. The money you borrowed from cousin Charlie that has been hanging out there for over a year. The credit card balance that has bounced around for more than a decade. You don’t need a scrapbook. Your bills tell your history. Every debt, every monthly payment, every dollar you owe is a claim against your future. Americans from all walks of life are carrying more debt. Kids still in college, married couples with kids, single men and women, rich people and poor people—debt is everywhere. And yet, when most people think about planning for retirement, debt is nowhere in the picture. (And when experts talk about retirement, many seem to assume that no one has any debt.) But the reality is that the over-50 crowd is carrying more debt than ever before in history. They have credit cards and car loans, and many are responsible for student loans they took on to help their

children through college. The average Social Security payment is about $12,000 a year—not even enough to live safely in many places, let alone comfortably—and certainly not enough to cover extra debt payments. And that debt is taking its toll: The elderly are now the fastest growing group in bankruptcy. Debt can be tough on anyone, but hitting your retirement years dragging along a pile of IOUs is a recipe for disaster. So how do you do it? Getting rid of your debt is a two-part process. The first part is to stop taking on new debt. This is the moment to look yourself in the mirror and say out loud: “No more debt.” If you are ready to get really serious, then it is time to give your credit cards a rest, and stop making new purchases for non-essential items. Once you have made the commitment not to take on any new debt, it is time to start tackling the old debt. We wish there were some magic secrets to quick and painless debt repayment, but there isn’t. Getting out of debt is basically just a matter of paying off your old bills, one at a time, until they’re gone. Start by adding up all your debts—the credit cards, doctor bills, past-due bills—everything down to the money you borrowed from your cousin. Include all your debts except your mortgage, student loans, and car loans. Write them down, whip out the calculator, and add them up. Then start paying them off, one at a time. Meanwhile, keep right on making your minimum monthly payments on the other debts. Once the first debt is paid off, pick another debt, and get that one paid off. Go through your debts one at a time until you are debt-free.

First, Balance Your Bills

To build your lifetime money plan, start with what’s most important—your basic necessities. These are the “must-have” bills—those you need to pay month in and month out, no matter what. This includes your rent or mortgage payment, utilities, insurance, car payment, regular medical bills, and any legal obligations (such as student loans). If you pay for daycare so that you can go to work, it goes with your must-have bills. The list also includes a basic food allowance (just the bare essentials—T-bone steaks and restaurant meals don’t qualify as “must-have” bills). Add all these regular expenses up, and call the list your “Monthly Must-Have Expenses.” Generally, you should be able to cover your monthly must-have expenses on 50 percent of your take-home income. 

That’s right—half your money can go to must-haves. If you keep your must-haves to 50 percent of your income, you will have plenty left over to spend for fun, and enough left over to save for your future. Keeping the must-have expenses in balance will give you a solid foundation for your lifetime money plan. What if you can't manage your bills on 50 percent of your income? Then this is a strong sign that it is time to cut back. Maybe you should send back the rent-to-own television. Maybe it is time to move to a smaller apartment or to trade in the car for something cheaper. Maybe you need to share expenses with a roommate or a family member. Do whatever you can to get your basic expenses down to half of your income. 

These can be tough choices, but in the long run you'll live happier and rest easier if you start to get your budget straight now. Take a closer look at your expenses with the help of a worksheet available at www.wiserwomen.org. What if you just can’t get it to 50 percent right now? Then get as close as you can. If you are spending 65 percent of your income on must-haves, maybe you can bring it down to 55 percent. It’s not perfect, but it would be a big step toward building a more secure future. And once you’ve done your best, set a goal for getting your must-haves into balance. Maybe it will be in a year, once you finish paying off your car. Maybe it will be in two years, once the youngest child starts kindergarten and your daycare bills go down. The point here is to keep your eye on the big picture—your long-term financial health. It may take a while until you get everything under control, but every step you take in this direction makes your life better today and tomorrow.

Preparing for Retirement: A Lifetime of Financial Good Health

The key to a secure retirement is to build a sound financial base today. Once you start to think about a lifetime money plan—a plan that covers all your financial needs—you can see your retirement in a new light. Retirement isn’t some special, distant, different time. Retirement is simply another phase of your life. You may not be working after you retire, but you will go on living. In the same way, you will have less income, but you will go right on paying your bills. And like Aunt Bee, if you learn good financial habits now, you’ll have plenty of time to laugh hard and enjoy time with your loved ones. You may be thinking, “Getting my financial house in order sounds hard!” We’re not going to fool you—if your idea of budgeting is to buy what you want and pray you have enough to cover it—then it may be hard.

 But we’ve broken it down into five simple steps: 1. Balance your basic bills. 

2. Pay off your debt. 

3. Build your emergency savings. 

4. Pay off your home. 

5. Build your retirement savings. 

These five steps will help you build a strong financial base that will see you through all of your tomorrows—before and after you retire.

Chapter Two: A Lifetime Money Plan

Our friend Michael was in his 40s when he decided he really wanted to live a long, long time. So he seized on vitamins as the answer. He read the latest studies, haunted the health food stores, and pestered his doctor about whether he got enough zinc. He was on the subscription list for a half dozen magazines that always had alarming headlines, and he took nearly a dozen oddsmelling pills every day. Of course, he still ate junk food and smoked a pack a day; and his idea of exercise was to give his thumb a workout on the remote control. Michael had his first heart attack at 52, a bypass at 54, and by 56 he had to quit work entirely. Our Aunt Bee had a different approach to life. She just wanted to live well. Sometimes she remembered to take a multivitamin, and sometimes she didn’t. But she walked every single day. On sunny afternoons, in steady rains, in nasty sleet, the neighbors would catch sight of Aunt Bee out for her walk. She ate moderately, she took care of her teeth, and she laughed hard. And right up until she fell ill at the age of 99, she spent her days helping out her neighbors, knitting coverlets for her nieces and nephews, and making exotic jell-o salads for every church gathering. Taking care of your retirement plan isn’t much different from taking care of your health. Just as you can spend all your time worrying about vitamin pills, you can spend every weekend reading about Roth IRAs and changes in the tax code. And, if you make some clever decisions, it may help some. But Aunt Bee had the real wisdom: The best way to get ready for the future is take care of yourself, each and every day. The surest path to a long and prosperous retirement is to give yourself a secure financial life, day in and day out, starting right now.

START PLANNING TODAY USING THIS RETIREMENT INCOME CHECKLIST

Like many of us, you may dream of the day when you can stop working and enjoy a comfortable

retirement. This checklist provides you with some important choices to consider in order to

make wiser decisions through your working years and your retirement years.

􀀹 How much will you need? Make an estimate of how much monthly or annual income you will need in retirement.

􀀹 What are your sources of retirement income? Think about what sources of retirement funds will be available and how much you will receive from each, including Social Security, employer retirement plans and your own personal savings.

􀀹 How long will you live? In planning for retirement, it is important to consider how long you might live. While on average people who reach 65 live into their 80s, a few live to 90 and beyond.

􀀹 What if your spouse dies first? If you are married, find out which benefits will continue

if you or your spouse should die first.

􀀹 How will the cost of living change in the future? When you estimate your retirement income needs, remember to include the impact of inflation. Costs are likely to rise each year, and the impact of these increases over time can be quite large.

􀀹 How will you pay for healthcare? Consider how you will pay your medical bills. Are you eligible for Medicare or other medical insurance?

􀀹 How do you handle the unexpected? Be sure to take into account how you would handle potential emergencies, such as home repairs, unexpected medical bills or family emergencies.

􀀹 What if you need assistance in your retirement? Consider how your retirement income would be affected if you needed long-term care, assistance at home or special housing.

􀀹 What will you do in your golden years? If you have specific plans for retirement, such as travel, consider how you plan to pay for it.

􀀹 How will you manage your retirement money? Consider how you will be able to manage your funds and what the right mix of investments is for your retirement needs. 

Investments include stocks, bonds, annuities, money market funds, your home, other real

estate and other savings.

􀀹 Have you thought about estate planning? Estate planning is an important part of your plan for retirement. Seeking expert advice in this area can greatly assist you.

10 Ways to Become Financially Wiser!

This checklist is drawn from the work of the Committee of Post-Retirement Needs and Risks of the Society of Actuaries and the content and recommendations in the report, “Public Misperceptions about Retirement Security,” published in 2005 by LIMRA International, Inc., the Society of Actuaries, and Mathew Greenwald & Associates, Inc. The Committee has identified the areas in which the public does not understand the realities of retirement planning and that serve as barriers to individuals creating a good solution in this era of individual responsibility. © Women’s Institute for a Secure Retirement April 2007

Today’s vs. Tomorrow’s Income Security

Times have changed since the “three-legged stool” was conceived. Over the last several decades, women’s labor force participation has increased dramatically. Today, the majority of women in every age group are in the labor force. Unfortunately, our retirement income system has not responded to the change in the composition of the workforce, and this is one of the primary reasons why the traditional three-legged stool of retirement is so wobbly for women. Even though women have worked in some capacity their entire adult lives―raising children, caring for an ill parent, as well as joining the paid labor force either full- or part-time, millions of women find themselves with few financial resources when they look toward the future, and many are vulnerable to the real possibility of poverty in their retirement years. It is clear that without significant changes, women’s work patterns and caregiving responsibilities will continue to place them at a disadvantage in our nation's retirement system. As long as women earn less, live longer, and experience more interruptions from paid work and work in the types of jobs that do not provide benefits, the bleak retirement picture will remain largely the same, and retirement security for millions of women retirees will remain elusive. While we can hope that public policymakers will adopt changes to prevent poverty in old age, there are things women can do to seize control of their own economic future and make the most of the existing system. Our goal at WISER through the distribution of this book is to educate as many women as we can reach, to provide them with the knowledge they need to take meaningful steps toward controlling their financial future.

Private pensions and retirement savings plans

such as 401(k) or 403(b) plans are the second leg of the retirement stool. They are a valuable part of a retirement income package, but they are not always available to women. Less than one-third of retired older women today receive pension income. And the situation is not improving. Less than half of working women have access to a private pension or retirement plan at their jobs. Additionally, women often leave jobs before vesting in a pension benefit, and because the dollar amounts they receive are smaller, they tend to spend all or part of any lump sum distribution they receive from 401(k)-type plans. The third leg of the retirement security stool is individual savings. Because of the changing nature of employer-provided pensions and savings plans, women must save on their own and save more than men—not only because they live longer, but also because they are more likely to have higher expenses for health care, long-term care and prescription drugs. Unfortunately, 9 women’s lower average earnings and more time out of the workforce for caregiving make it difficult for them to save the amounts needed for retirement.

Private pensions and retirement savings plans

such as 401(k) or 403(b) plans are the second leg of the retirement stool. They are a valuable part of a retirement income package, but they are not always available to women. Less than one-third of retired older women today receive pension income. And the situation is not improving. Less than half of working women have access to a private pension or retirement plan at their jobs. Additionally, women often leave jobs before vesting in a pension benefit, and because the dollar amounts they receive are smaller, they tend to spend all or part of any lump sum distribution they receive from 401(k)-type plans. The third leg of the retirement security stool is individual savings. Because of the changing nature of employer-provided pensions and savings plans, women must save on their own and save more than men—not only because they live longer, but also because they are more likely to have higher expenses for health care, long-term care and prescription drugs. Unfortunately, 9 women’s lower average earnings and more time out of the workforce for caregiving make it difficult for them to save the amounts needed for retirement.

The Three Legs of the Stool

Many older women rely on Social Security as their primary or only source of retirement income—it keeps almost 40 percent from falling into poverty. However, Social Security replaces only 40 percent of an average worker’s wages. That 40 percent is not enough alone, and the fact that they are without other sources of income such as pensions or savings is one of the major reasons why so many older women live at poverty’s door.

What Types of Index Funds Are Out There?

Just as there are several indices that track stock market activity, several varieties of index funds exist. You can buy shares of index funds that only invest in the 30 stocks of the Dow Jones Industrial Average, but while these companies are some of the biggest and most reliable blue chips in the world, a portfolio with only 30 stocks in it isn’t going to provide you with true diversification in case huge companies fall out of favor. Instead, most investors gravitate toward S&P 500 index funds, which include 500 stocks ranging from the global giants to somewhat smaller or more specialized companies. Some of the lowestpriced mutual funds in the market are S&P 500 index funds. If you’d like even better diversification, you can buy into index funds that invest in broader slices of the stock market, including a greater number of smaller companies in their portfolios. Some index funds reflect the Nasdaq Composite, while others track the Russell 3000 index and still others broaden their horizons to the entire Dow Wilshire 5000 equity index, which invests in practically every major publicly traded U.S. stock.

What Women Need to Know About Retirement

Chapter One: Women and Retirement Income: Some Facts to Get You Thinking Planning for the future can be a daunting task. The younger you are, the easier it is to put it off until next month or next year. The older you are, the harder it is to find the time and the energy. Both men and women need to plan for how they will pay the bills during their retirement years. But it is especially important for women, who live on average four years longer than men and as a result need more income. It’s important to understand the facts and learn how to plan for the future. Over the next two decades, nearly 40 million women will reach retirement age. Unfortunately, our nation’s retirement system was created at a time when men were the primary wage earners and women worked at home; the system has not kept up with the times. Some women today are fortunate enough to be able to rely on a stable retirement income based on three sources known as the three-legged stool: 1) Social Security benefits, 2) income from an employer-provided retirement plan, and 3) individual savings. In theory, these three legs stand strong and provide enough income to pay the bills, cover health care costs, weather unforeseen tragedies like illness or the death of a spouse and, in the case of Social Security, adjust fully to rising inflation. However, for most women, that three-legged retirement stool is wobbly at best. Many older women rely on Social Security as their only income source in retirement; they have no retirement plan and little savings. Many also took time out of the workforce to raise children or to take care of a family member who was ill, and often when they returned to work, it was to low-wage jobs with no benefits. Women take an average 13 years out of the workforce for family caregiving. Generally, financial experts suggest that people plan to replace between 70 and 90 percent of pre-retirement income if they want to maintain their current lifestyle during the estimated 20 to 30 years spent in retirement. But because of their longer lives, lower pay and lack of benefits, women need to replace even more than that—some experts suggest at least a 100 percent replacement rate. Why Women Are Falling Short: Some Basics To spend their retirement years in comfort and security, women must start planning early. The first step in this process is understanding why retirement security is so elusive by looking at some of the most basic and troublesome facts about women’s earnings, work status, life expectancy, marital status, and retirement income: Earnings • Two-thirds of working women earn less than $30,000 a year. • Nearly half of all women work in low-paying jobs without retirement plans or 401(k)s. • Women earn on average 77 cents for every dollar earned by men.

Opciones “In the money”, “At the money” y “Out of the money”

In the money: Cuando existe una diferencia favorable (para el titular) entre el precio de ejercicio y el precio del activo subyacente.
At the money:
Cuando coinciden el precio del activo subyacente y el precio de ejercicio.
Out of the money:
Cuando existe una diferencia desfavorable (para el titular) entre el precio de ejercicio y el precio del activo subyacente. Ejemplo: En el supuesto que el activo subyacente cotiza a 75 centavos;

Definición de un contrato de Opción

Contrato que otorga a su titular (comprador) el derecho (pero no la obligación) de comprar o de vender al emisor (lanzador) de la opción una determinada cantidad de una determinada mercancía (activo subyacente) a un precio preestablecido (precio de ejercicio) durante un determinado tiempo (plazo). Para obtener ese derecho (sin obligación) el comprador paga un precio el emisor (prima).

Resources for everyone - II

The Story of Banks, Federal Reserve Bank of New York
http://www.newyorkfed.org—Click “Publications Catalog” and “Comics.”
The Story of Checks and Electronic Payments, Federal Reserve Bank of New York
http://www.newyorkfed.org—Click “Publications Catalog” and “Comics.”
The Story of Money, Federal Reserve Bank of New York
http://www.newyorkfed.org—Click “Publications Catalog” and “Comics.”
What You Need to Know About Payment Cards, Federal Reserve Bank of Philadelphia
http://philadelphiafed.org—Click on “Publications” and “Consumer Booklets.”
What You Should Know About Internet Banking, Federal Reserve Bank of Chicago
http://www.chicagofed.org—Click on “Education Resources” and “Personal
Finance Information.”
What You Should Know About Your Checks, Board of Governors
http://www.federalreserve.gov/pubs/check21/shouldknow.htm
What Your Credit Report Says About You, Federal Reserve Bank of Philadelphia
http://www.philadelphiafed.org/consumers/creditreport.html
When is Your Check Not a Check?, Board of Governors
http://www.federalreserve.gov/pubs/checkconv/default.htm
Your Credit Rating, Federal Reserve Bank of Philadelphia
http://www.philadelphiafed.org/consumers/creditrating.html
Your Credit Report, Federal Reserve Bank of San Francisco
http://www.frbsf.org/publications/consumer/creditreport.html

Resources for everyone - I

You can request hard copies of many of these publications through the Federal Reserve’s online publications catalog: http://www.newyorkfed.org—Click “Publications Catalog.”

A Guide to Your First Bank Account, Federal Reserve Bank of Atlanta http://www.frbatlanta.org—Click “Publications” and “Books and Brochures.” A Penny Saved, Federal Reserve Bank of New York http://www.newyorkfed.org—Click “Publications Catalog” and “Comics.”

  Building Wealth, Federal Reserve Bank of Dallas http://www.dallasfed.org—Click “Publications & Resources.” Choosing a Credit Card, Board of Governors http://www.federalreserve.gov—Click “Publications and Education Resources” and “Consumer Information Brochures.” Consumer Guide to Check 21 and Substitute Checks, Board of Governors http://www.federalreserve.gov—Click “Publications and Education Resources” and “Consumer Information Brochures.” How to Establish, Use, and Protect Your Credit, Federal Reserve Bank of Philadelphia http://www.philadelphiafed.org—Click “Publications” and “Consumer Booklets.” In Plain English: Making Sense of the Federal Reserve, Federal Reserve Bank of St. Louis http://www.stlouisfed.org/publications—Click “In Plain English.” Paying for It: Checks, Cash, and Electronic Payments, Federal Reserve Bank of Atlanta http://www.frbatlanta.org—Click “Publications” and “Books and Brochures

How does the Federal Reserve fit into the U.S. banking system? - III

Does the Federal Reserve process all the checks Americans write?
No. The Federal Reserve Banks handle less than one-third of all U.S. checks. Private entities process the rest.
Is the Federal Reserve responsible for regulating and supervising the entire U.S. banking system? No. It shares this responsibility with other federal and state regulatory agencies. Does the Federal Reserve set interest rates? The Federal Reserve is responsible for U.S. monetary policy. This means it makes policies that influence how much money and credit will be available to the U.S. economy. Interest rates often go up or down in response to the Federal Reserve’s monetary policy decisions, but only the discount rate is set directly by the Federal Reserve. The discount rate is the rate banks pay when they borrow from the Federal Reserve.

How does the Federal Reserve fit into the U.S. banking system? - II

When was the Federal Reserve established?
Congress created the Federal Reserve System in 1913 to help make the U.S. banking system safer and more efficient. How many Federal Reserve Banks are there? There are twelve Federal Reserve Banks. Each of the twelve Reserve Banks serves its own Federal Reserve District.
Where is the headquarters for the Federal Reserve?
The System’s headquarters is in Washington, D.C. It is called the Board of Governors of the Federal Reserve System.
Does the Federal Reserve lend money to businesses and consumers?
No. The Federal Reserve does not lend money to private borrowers, but it sometimes lends money to banks when the need arises.
Does the Federal Reserve print U.S. paper money?
No. Although Federal Reserve Notes account for almost 100 percent of the U.S. paper money in circulation, the notes are actually printed by the Bureau of Engraving and Printing, which is part of the U.S. Treasury Department. The paper money is then shipped to the Federal Reserve Banks and their branches. When banks need cash for their customers’ needs, they order it from the Federal Reserve Bank in their District. Also, since money gradually wears out, the Federal Reserve Banks process cash in order to determine its fitness. Worn out bills are shredded; new bills are introduced into the system to replace the old ones.
Do all Federal Reserve Banks store gold bars in their vaults?
Only the Federal Reserve Bank of New York has a working gold vault, and almost all of the gold in its vault is foreign-owned. The U.S. government’s gold is held at Fort Knox, Kentucky, the U.S. Mints in Denver and Philadelphia, the San Francisco Assay Office of the U.S. Mint, and the U.S. Bullion Depository in West Point, New York.