© 1991-2010 00391878cv macro asset perspective macro asset perspective ® a wealth accumulation...

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© 1991-2010 00391878CV Macro Asset Macro Asset Perspective Perspective ® A Wealth Accumulation Seminar A Wealth Accumulation Seminar

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  • Slide 1
  • 1991-2010 00391878CV Macro Asset Perspective Macro Asset Perspective A Wealth Accumulation Seminar
  • Slide 2
  • 1991-2010 00391878CV Presented by Vanessa Diego Agent, New York Life Insurance Company WA Lic# 745908 Seattle G.O, (Seattle West Campus) 500 Yale Ave. N Suite 400 Seattle, WA 98109 Presented for Presented for This seminar is for informational purposes only. Neither New York Life Insurance Company, its subsidiaries, nor any of its agents are in the business of offering tax, legal or accounting advice. You should consult with your own professional advisors for tax, legal or accounting advice.
  • Slide 3
  • 1991-2010 00391878CV Todays Agenda Charting Your Course with MAP Wonder of Tax Deductible Investing Annual Asset Reallocation A Financial EKG
  • Slide 4
  • 1991-2010 00391878CV A Financial EKG
  • Slide 5
  • 1991-2010 00391878CV Financial EKG Worksheet Current Age Desired Retirement Age Years to Accomplish Goal Current Income Anticipated Rate of Return Monthly Contribution Desired Retirement Income 5 More Years 5 Less Years 40 65 25 $80,000 8%/5% $1,367 $60,000 $882$2,185 $60K $30K $15K $120K $240K $1,200,000 572 ) 14 Income from working Income from assets Accumulation Phase Conservation Phase Hypothetical example for illustrative purposes only.
  • Slide 6
  • 1991-2010 00391878CV A Wealth Accumulation Strategy Macro Asset Perspective
  • Slide 7
  • 1991-2010 00391878CV MAP is designed to give you a visual picture of where assets can be placed and why.
  • Slide 8
  • 1991-2010 00391878CV The vertical arrangement of boxes represents the concept of vertical diversification. ss MM AA Paper Assets Real Wealth AA
  • Slide 9
  • 1991-2010 00391878CV Your personal diversification depends upon such factors as your age, risk tolerance and holding period. ss MM AA Paper Assets Real Wealth
  • Slide 10
  • 1991-2010 00391878CV A Wall Street Rule of Thumb suggests a percentage of assets equal to ones age below the line. ss MM AA Paper Assets Real Wealth
  • Slide 11
  • 1991-2010 00391878CV One of the primary objectives of vertical diversification over time is to convert paper assets into real wealth. ss MM AA Paper Assets Real Wealth Vertical diversification has been touted for decades.
  • Slide 12
  • 1991-2010 00391878CV Recently another issue has emerged.- The concept of horizontal diversification. That is, diversification between tax treatments. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax
  • Slide 13
  • 1991-2010 00391878CV For many years, it has been said that we should concentrate on the Pre-Tax side. But why has that been such a good idea? ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax
  • Slide 14
  • 1991-2010 00391878CV The top marginal tax bracket* in the eighties was 70 percent* *and there were 15 different brackets. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax $100,000 $80,000 25%-28% 70% * Your MTB or marginal tax rate is the rate (%) at which your last dollar (last increment) of income is taxed. **Source: Federal tax code 1981
  • Slide 15
  • 1991-2010 00391878CV Deferring taxes at 25 or 28 percent, to pay them later in a higher tax bracket would be a major mistake. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28%
  • Slide 16
  • 1991-2010 00391878CV Dont run out and cancel your 401(k) as some may be suggesting. The pre-tax side can still be a great place to accumulate wealth if used properly. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 %
  • Slide 17
  • 1991-2010 00391878CV When you defer taxes at one bracket to pay them later in a lower bracket you make the pre-tax side work as it was intended to. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Lets see how to accomplish this.
  • Slide 18
  • 1991-2010 00391878CV The advantages found below-the-line are not generally needed on the pre- tax side. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Safe Liquid Tax Advantage
  • Slide 19
  • 1991-2010 00391878CV Historically, assets that have kept pace with inflation, or exceeded it, have been found above- the-line. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Safe Liquid Tax Advantage
  • Slide 20
  • 1991-2010 00391878CV The first rule of accumulation is simple ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Safe Liquid Tax Advantage * Take the free money. Be sure to maximize any employer matching in pre-tax plans. Above-the-line is the key area on the Pre-Tax side.
  • Slide 21
  • 1991-2010 00391878CV The advantages that were of little value on the pre-tax side, have great value on the after-tax side. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Safe Liquid Tax Advantage * *
  • Slide 22
  • 1991-2010 00391878CV Use the after-tax side to get proper vertical diversification with a focus on tools that can provide tax-free future income. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Safe Liquid Tax Advantage * * Roth IRA Muni Bonds CV Life Ins. Annuities 529 Plans 4-5%
  • Slide 23
  • 1991-2010 00391878CV 4 or 5 percent, tax- free, may be the equivalent of 7 or 8 percent taxable, depending upon your tax bracket. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Safe Liquid Tax Advantage * * Roth IRA Muni Bonds CV Life Ins. Annuities 529 Plans 4-5% 7-8% T.E.
  • Slide 24
  • 1991-2010 00391878CV Dont compare expected rates of return for safe, conservative products to that of risky or aggressive ones. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Safe Liquid Tax Advantage * * Roth IRA Muni Bonds CV Life Ins. Annuities 529 Plans 4-5% 7-8% T.E.
  • Slide 25
  • 1991-2010 00391878CV The Roth IRA is an ideal tool above-the- line due to its long- term nature. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Safe Liquid Tax Advantage * * Roth IRA Muni Bonds CV Life Ins. Annuities 529 Plans 4-5% 7-8% T.E. Roth IRA
  • Slide 26
  • 1991-2010 00391878CV Aside from the Roth, we are not generally looking for tax-free income above-the- line, but potential growth with a secondary consideration for tax advantages such as long-term capital gains. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Safe Liquid Tax Advantage * * Roth IRA Muni Bonds CV Life Ins. Annuities 529 Plans 4-5% 7-8% T.E. Roth IRA Stock Mkt. Real Estate
  • Slide 27
  • 1991-2010 00391878CV Utilize a funnel approach to turn paper money gains into real wealth. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Safe Liquid Tax Advantage * * Roth IRA Muni Bonds CV Life Ins. Annuities 529 Plans 4-5% 7-8% T.E. Roth IRA Stock Mkt. Real Estate The systematic method known as annual asset reallocation may help you buy low and sell high.
  • Slide 28
  • 1991-2010 00391878CV Possibly the best tool for the funnel approach is an Employee Stock Purchase Plan (ESPP). ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Safe Liquid Tax Advantage * * Roth IRA Muni Bonds CV Life Ins. Annuities 529 Plans 4-5% 7-8% T.E. Roth IRA Stock Mkt. Real Estate ESPP An ESPP with a 15 percent discount provides a guaranteed minimum return-on-investment of 17.6 percent*. *15 divided by 85 equals 17.6%
  • Slide 29
  • 1991-2010 00391878CV Proper overall diversification, both vertical and horizontal, is the key to the MAP. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Safe Liquid Tax Advantage * * Roth IRA Muni Bonds CV Life Ins. Annuities 529 Plans 4-5% 7-8% T.E. Roth IRA Stock Mkt. Real Estate ESPP $ 50% 50/50 horizontal diversification is reasonable in most cases, but
  • Slide 30
  • 1991-2010 00391878CV Those desiring high retirement income may want to lean heavier toward the after-tax side to avoid paying taxes later at higher income tax rates. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Safe Liquid Tax Advantage * * Roth IRA Muni Bonds CV Life Ins. Annuities 529 Plans 4-5% 7-8% T.E. Roth IRA Stock Mkt. Real Estate ESPP $ 50% In most cases, the pre-tax side can be entirely above-the- line.
  • Slide 31
  • 1991-2010 00391878CV Use the after-tax side to maintain the desired overall vertical diversification percentages. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Safe Liquid Tax Advantage * * Roth IRA Muni Bonds CV Life Ins. Annuities 529 Plans 4-5% 7-8% T.E. Roth IRA Stock Mkt. Real Estate ESPP $ 50% 25-50% 0-25% 75% 25%
  • Slide 32
  • 1991-2010 00391878CV A Wealth Accumulation Strategy Macro Asset Perspective
  • Slide 33
  • 1991-2010 00391878CV The Wonder of Tax-Deductible Investing
  • Slide 34
  • 1991-2010 00391878CV Robert Tax-Deductible 401(k) Roberta Non-Deductible Roth IRA Annual Available Contribution Tax Paid Account Balance Day 1 If Accessed Day 2 Tax Paid Net Balance Day 2 Balance at Retirement If Liquidated at Retirement Tax Paid Net Retirement Balance Post Retirement Cash Flow Annual Withdrawal Tax Paid Net Retirement Cash Flow 0 4,000 1,000 3,000 1,000 3,000 0 3,000 400,000300,000 100,000 300,000 0 300,000 40,00030,000 10,000 30,000 0 30,000 6,000 34,000 15%14,00035% 26,000 $4,000 25% 10,000 30,000 25%
  • Slide 35
  • 1991-2010 00391878CV Cash Flow Comparison RobertRoberta $100,000Salary: 401(k) Contribution: $4,000 $96,000 Taxable Income: $24,000 Hypothetical Tax: $72,000 Net Spendable: $100,000Salary: Hypothetical Tax: $25,000 $75,000 After-Tax Income: $3,000 Roth Contribution: $72,000 Net Spendable:
  • Slide 36
  • 1991-2010 00391878CV Annual Asset Reallocation
  • Slide 37
  • 1991-2010 00391878CV ABC Buy High Sell Low Buy Low Sell High C C Annual Asset Reallocation Balance Re-Balance
  • Slide 38
  • 1991-2010 00391878CV ABC C C D D Company Stock Component
  • Slide 39
  • 1991-2010 00391878CV Macro Asset Perspective A Wealth Accumulation Seminar