financial planning investment management...save for retirement • start early • take advantage of...
TRANSCRIPT
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Presented By:Gerard J. Kassouf, CPA, PFS, CFP®Beth Vittitow, CPA, PFS, CFP®
Financial Planning & Investment Management
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What is Financial Planning?• Financial planning is a process:
• What do you want?• What will you have?• Will you have a shortfall?• What strategy will you employ?• What actions will you take?
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Develop your Financial Goals –What Do You Want?
• Identify your specific goals• Identify your time horizon• Quantify your saving goals• Prioritize your saving goals – need vs. want
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Identify Your Specific Saving Goals
• Pay down existing debt• Create an emergency fund• Save for retirement• Accumulate a down payment for a house• Build a college fund for your children’s education• Set aside money for a specific short term goal
(vacation, car, etc.)
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Assess Your Resources• What are your assets today?• What future income will you have?• What future earnings on investments will you have?• What expected future benefits from sources such as
your employer retirement plan or social security will you have?
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Examine Your Spending Habits• Keep a list of all spending for 3 months• Compare total spending to take‐home pay• Use a program to automate it‐ such as www.mint.com• Make and review goals• Focus on one area at a time• Identify a weakness and be creative
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“Good Debt” vs. “Bad Debt”• Good Debt: Debt borrowed to purchase an asset that
will increase in value (home, education)
• Bad Debt: Debt borrowed to purchase an item that will disappear (cup of coffee) or decline in value (car)
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Reducing Debt• Simple and Straightforward
• Stop adding to the current amount owed• Lower the interest rate and/or late fees• Pay as much as you can on the debt
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Credit• www.annualcreditreport.com• Credit Score
• 35% Payment History• 30% Available Credit• 15% Length of credit history• 10% Inquiries• 10% Type of Debt
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Saving vs. Investing• Savings is not spending money and needs to be done
in a regular, disciplined manner.• Investing is doing something with money to earn a
return and needs to be done carefully and with due consideration
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Create an Emergency Fund• Set aside 3‐6 months of living expenses• Use it for emergencies, not discretionary spending• Replace funds used
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Evaluate Your Alternatives• Consider pros and cons of each option• Consider the opportunity costs of what you will give
up to pursue your goal through each course of action
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Identify Alternative Courses of Action• Reallocate existing resources to increase savings• Generate new resources
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Insurance
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Property & Casualty• Homeowners Insurance
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Property & Casualty
• Homeowners InsuranceReplacement versus actual costPersonal property inventoryAutomatic value increases in comparison to value
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Property & Casualty• Personal Liability Insurance/ Umbrella Policy
Personal liability above and beyond coverage of auto and home policySold in increments of $1 million
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Disability• Employer and association coverages• Private coverage• Government coverage
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DisabilityItems to review• Occupational Definitions• Waiting Period/Elimination Period• Benefit Period
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Life
Term Insurance • Stated period of coverage at affordable cost• No value during or at end of term• Term Riders
• Guarantee Insurability• Convertibility
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Life
Permanent Insurance • Higher insurance cost with forced savings • Cash value can be borrowed or withdrawn for goals• Asset Protection
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Education Planning
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Education Planning
• 529 Plans• Educational IRAs
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Education Planning
529 Plans• Federally tax free withdrawals• Alabama resident/plan benefits• Investment Options• High Contribution limits• Control
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Education Planning
Alabama 529 Plan• State tax deduction for contributions and rollovers• State tax free withdrawals• Age based, static and individual funds • Low minimum contributions
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Education Planning
Educational IRA• Expansive education years• Income limits for contributions• Limited contributions• Little flexibility
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Investments
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Major Asset ClassesMajor Asset Class
Characteristics Goals
Cash Matures in less than 1 year
Capital preservationLiquidity
Bonds Fixed incomeVaried maturities
IncomeCapital preservation
Stocks Company ownership Possible dividend incomeCapital appreciation
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Avoid Market TimingAsset Class Returns (as of 12/31/16)
• You never know which market segments will outperform from year to year. • By holding a globally diversified portfolio, investors are well positioned to capture
returns wherever they occur.
Source: Morningstar Direct
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Importance of Time HorizonGrowth of a Dollar, 1926–2015(Compounded monthly)
$0
$1
$10
$100
$1,000
$10,000
$100,000
1926 1936 1946 1956 1966 1976 1986 1996 2006 2015
$16,743 US Small Cap Index
$5,386 US Large Cap Index
$135 Long-TermGovt. Bonds Index
$21 Treasury Bills
$13 Inflation (CPI)
In US dollars. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. US Small Cap Index is the Fama/French US Small Cap Index; US Large Cap Index is the Fama/French US Large Cap Index; Long-Term Government Bonds Index is 20-year US Government Bonds; Treasury Bills are One-Month US Treasury bills; Inflation is the Consumer Price Index. Fama/French Data provided by Fama/French. Eugene Fama and Ken French are members of the Board of Directors for and provide consulting services to Dimensional Fund Advisors LP. Bonds, T-bills, and inflation data © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield). Past performance is no guarantee of future results.
The financial markets have rewarded long-term investors. People expect a positive return on the capital they supply, and, historically, the equity and bond markets have provided growth of wealth that has more than offset inflation.
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Save for Retirement• Start early• Take advantage of employer matches• Tomorrow’s retirees will need to depend more on
their own savings to fund retirement• Discuss retirement plans with your spouse
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Retirement Savings AccountsTaxable Account
Employer Roth 401(k)
Pre‐TaxEmployer 401(k)
Salary $40,000 $40,000 $40,000
Pre‐tax $ $2,000 $2,000 $2,000
Tax at 25% $500 $500 N/A
After‐tax $ $1,500 $1,500 $2,000
Employee contribution $1,500 $1,500 $2,000
Employer match – assume 4%
N/A $1,500 $1,600
Total contribution $1,500 $3,000 $3,600
% of salary contributed 3.75% 7.50% 9.00%
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Retirement Savings Accounts
$118,587
$237,175
$284,604
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
Taxable Account Employer Roth401(k)
Pre‐Tax Employer401(k)
Account Balance in 30 Years
*Assume 6% annual rate of return
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Retirement Savings Accounts
$118,587
$237,175$213,453
$0
$50,000
$100,000
$150,000
$200,000
$250,000
Taxable Account Employer Roth401(k)
Pre‐Tax Employer401(k)
Available After‐Tax in 30 Years
*Assume 6% annual rate of return
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Social Security• What age to apply?• Spousal Benefits• Survivor Benefits
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Estate Planning
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Estate Planning• Last Will and Testament• Trusts• Power of Attorney• Advance Health Care Directive
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Estate PlanningAssets that pass by contract• Life Insurance• Retirement assets/IRAs• POD accounts• By ownership• Trust
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Estate PlanningLast Will and Testament• Personal Property Distribution• Remaining Asset Distribution• Trust for children• Executor• Guardian
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Estate PlanningPower of Attorney• Financial Decisions• Springing versus sprung
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Estate PlanningAdvance Health Care Directive• Living Will• Health Care Proxy
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What if I Die Without a Will?
If you are single
½ to mother ½ to father
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What if I Die Without a Will?
If you are married with no children
First $100,000 plus ½ of the balance to the spouse
½ of the balance to parents
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What if I Die Without a Will?
If you are married with children
First $50,000 plus ½ of the balance to the spouse
½ of the balance to children
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Beneficiary Designations• Check beneficiary designations on qualified accounts
and insurance policies
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Questions?