Building Wealth: Saving

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Building Wealth Saving Investing
Presented by Great-West In partnership with
Colorado Jumptart
PRESENTER BRUCE POTTER, CFP(R)Potter Financial
Solutions, Inc.
January 26 - 28, 2012
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Potter Financial Solutions, Inc.An Independent,
fee-only, Financial Planning and Investment
Advisory Firm

• R. Bruce Potter, CFP
• Certified Financial Planner Professional
• Registered Investment Advisor
• Over 29 years experience
• Teacher of Marketing, Business, and Personal
  Finance
• for 23 years
• Member- Financial Planning Association of
  Colorado
• This presentation is for your education
  and entertainment only and should not be viewed
  as a financial planning or investment advisory
  engagement. It is not a solicitation to buy or
  sell any securities and all investments and
  investment strategies carry risk. Before making
  any investment decisions consult with an
  investment professional to determine if the
  strategies mentioned fit with your goals and
  objectives. Potter Financial Solutions, Inc.
  does not furnish actuarial, accounting, tax, or
  legal advice.
• www.PotterFinancialSolutions.com

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What is missing from education

• HELPING STUDENTS LEARN
• TO MANAGE THEIR MONEY, CAREER, AND LIVES TO
  ENSURE THEIR OWN FINANCIAL INDEPENDENCE

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PERSONAL FINANCIAL PLANNING

• 1. Understand the Financial Planning Process
• 2. Manage Your Household Finances
• 3. Manage Risk Insurance
• 4. Control Debt Credit
• 5. Open Investment Accounts
• 6. Choose Investments
• 7. Plan for Retirement
• 8. Own a Home
• 9. Plan Your Estate
• 10. Hire a Professional

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1. UNDERSTAND THE FINANCIAL PLANNING PROCESS

• Set Goals
• Analyze Information
• Create a Plan
• Implement the Plan
• Monitor and Modify the Plan

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2. MANAGE YOUR HOUSEHOLD

• It all starts with a Paycheck
• Understand pay, tax withholding/tax liability,
  Social Security, Medicare, PERA, Pre-tax
  benefits, After-tax benefits
• Develop a budget to live within your means
• PYF-Pay Yourself First (set up auto deposits)
• Save 10 to 20 of your income
• Pay Your Bills and Control Spending
• Professional Development/Continuing Education
  

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3. MANAGE RISK INSURANCE

• Establish an Emergency Fund
• If it sounds too good to be true, it probably is
• Understand risk tolerance
• INSURANCE
• Health
• Property
• Disability
• Life
• Long-Term Care
• Liability
• Professional Liability

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Establish an Emergency Fund What emergencies
could you face?

• Needs to be safe, liquid and accessible
• Savings account at your local bank/credit union
• Money market fund at mutual fund
• Money market fund in cash management account at
  brokerage
• Treasury bills
• Short-term bonds (principal fluctuates)

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4. CONTROL DEBT CREDIT

• Live within your means
• Think Charge Card not Credit Card
• Manage your Credit Score
• Protect your Identity
• Refinance mortgage if it makes sense
• Use low interest rate, tax advantaged debt when
  it makes sense

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5. OPEN SAVINGS INVESTMENT ACCOUNTS (banks,
brokerages, mutual funds, insurance co.)

• Short-term Emergency fund and other (taxable)
• Medium-term housing (taxable) college (may be
  tax-free)
• Long-term Retirement
• Roth IRA tax-free
• Traditional/Rollover IRA tax-deductible/deferred
• 401k ( matching) tax-deductible/deferred
• 403b (TSA) tax-deductible/deferred
• Annuity tax-deferred
• Self-employed plans tax-deferred/deferred

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Shelter your money from taxes while investing for
your future

• ROTH IRA-----Earnings never taxed!
• 5,000 maximum invest per year catch-up 1,000
• Invest after tax money, all earnings tax free
• Tax Deferred Account (401k or 403b)
• Automatic payroll deduction
• Tax deduction/tax deferred earnings
• Invest up to 17,000/yr. catch up 5,000
• Other company retirement accounts-Simple IRAs,
  SEP-IRAs, Profit Sharing plans
• Annuities-fixed and/or variable

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Understanding Your Paycheck Understanding Your Paycheck
Pay Period 7/1/11 to 7/16/11 Pay Period 7/1/11 to 7/16/11
Gross Pay 2,500.00
Less pre-tax deductions Less pre-tax deductions
Retirement Savings (401k,403b,457, PERA) Retirement Savings (401k,403b,457, PERA) Retirement Savings (401k,403b,457, PERA)
Medical Savings Account Medical Savings Account
Health Insurance
Taxable Income 2,500.00

less Federal Withholding tax less Federal Withholding tax 389.88

less State Withholding tax less State Withholding tax 106.00

less Social Security tax less Social Security tax 155.00
less Medicare tax 36.25

After Tax pay 1,812.87
Other deductions
Health insurance
Life insurance
Dental Insurance
Vision Insurance
Disability Insurance Long-term Disability Insurance Long-term
Disability Insurance Short-term Disability Insurance Short-term
Sick Leave
Union dues

Net Paycheck (take-home pay) Net Paycheck (take-home pay)
stop 3 years before retirement
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Understanding Your Paycheck Understanding Your Paycheck
Pay Period 7/1/11 to 7/16/11 Pay Period 7/1/11 to 7/16/11
Gross Pay 2,500.00 2,500.00
Less pre-tax deductions Less pre-tax deductions
Retirement Savings (401k,403b,457, PERA) Retirement Savings (401k,403b,457, PERA) Retirement Savings (401k,403b,457, PERA) 250.00
Medical Savings Account Medical Savings Account 100.00
Health Insurance
Taxable Income 2,500.00 2,150.00

less Federal Withholding tax less Federal Withholding tax 389.88 302.38

less State Withholding tax less State Withholding tax 106.00 80.00

less Social Security tax less Social Security tax 155.00 155.00
less Medicare tax 36.25 36.25

After Tax pay 1,812.87 1,576.37 236.50 113.50
Other deductions
Health insurance
Life insurance
Dental Insurance
Vision Insurance
Disability Insurance Long-term Disability Insurance Long-term
Disability Insurance Short-term Disability Insurance Short-term
Sick Leave
Union dues

Net Paycheck (take-home pay) Net Paycheck (take-home pay)
stop 3 years before ret .
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SAVING vs. INVESTING LOAN
vs. OWN CASH STOCKS, BONDS, REAL
ESTATE

• Earn interest
• Usually principal guaranteed
• Purchasing power risk
• Interest rate risk
• Taxable at ordinary income tax rates

• Can appreciate or depreciate in value capital
  gain/loss
• Earns Income interest dividends, rent
• Market Business risk
• May be taxable at lower capital gains and
  dividend rate

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RISK and RISK TOLERANCE What does it mean to
you?

• Loss of Value and/or Volatility
• Market
• Business
• Purchasing Power
• Interest Rate
• Economic
• Currency

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Effects of Taxes Inflation

• Principal
  10,000
• Interest rate
  X .03
• Interest earned
  300
• Less taxes (25)
  75
• Balance after taxes
  10,225
• Less Inflation
  .03
• Remaining Purchasing Power 9,918

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What do you need from your investments?

• Liquidity
• Income
• Growth
• Total Return
• Tax Advantages

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6. CHOOSE INVESTMENTS Use asset allocation to
diversify manage risk

• Choose asset classes
• Cash interest
• Fixed Income (Bonds) capital gain
  dividend
• Stocks capital
  gain dividend
• International Stocks capital gain
  dividend
• Real Estate capital
  gain rent
• R.E. Investment Trusts capital gain
  dividend
• Commodities capital gain
  (dividend)
• Individual or mutual funds
• Rebalance periodically

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Mutual Funds/Exchange Traded Funds An
investment vehicle made up of a pool of funds
collected from many investors for the purpose of
investing in securities such as stocks, bonds,
money markets, etc.

• Professional management
• Diversification
• Low minimum investment
• Daily marketability
• Convenience
• Reinvestment opportunity
• Costs

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Where to open your accounts

• Banks/Credit Unions
• Mutual Fund Companies
• Brokerage Firm-full service
• Brokerage Firm-discount
• Insurance Companies
• Financial Planning/Investment Advisory firms

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7. PLAN FOR RETIREMENT

• Savings Investments
• Social Security
• Pension Plan D.B.--- PERA
• Get a Job

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How Much Money Do You Need?

• To be reasonably sure your money will last for 30
  years, take out no more than 4 to 5 of your
  nest egg each year in retirement.
• Increase your initial withdrawal by a C.O.L.A.
  each year.
• You have an 80 chance of your money lasting 30
  years at a 4 withdrawal rate using a 60/40
  equity to bond allocation.
• Develop plan and manage withdrawals
  (declumulation)

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Rising Cost of Living at 4 inflation rate

• Monthly expenses today 5,000
• Same expenses in 5 years 6,083
• Same expenses in 10 years 7,401
• Same expenses in 15 years 9,004
• Same expenses in 20 years 10,955
• Same expenses in 25 years 13,329
• Same expenses in 30 years 16,216

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Manage Decumulation and Retirement Risks

• Longevity
• Money stages and priorities
• Taxes
• Inflation
• Healthcare Costs
• Investing
• Declining interest income
• Negative point-in-time

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8. OWN A HOME

• Remember the importance of Equity
• Manage the Mortgage
• Understand fixed vs. variable interest rates
• One of the last tax-deductions available
• Refinance if it makes sense
• Not necessarily an investment
• Should you pay off your mortgage?

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9. PLAN YOUR ESTATE

• Will
• Importance of Beneficiary Designations
• Durable Power of Attorney
• Living Will
• Health Care Durable Power of Attorney
• Trusts- Living and Testamentary
• Letter of Instruction

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10. HIRE A PROFESSIONAL Make sure you can
trust themMake sure they put your interests
firstMake sure you understand conflicts of
interest Make sure they explain how they are paid

• Fee-based advisor
• Fee-only advisor
• Sells Advice
• Fiduciary Rule

• Banker
• Insurance agent
• Registered Rep.
• Broker
• Sells Products Suitability Rule

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Reflection

• Reflect on what you have learned about saving and
  investing and what you wish you had known as a
  young adult. Be prepared to share your
  reflections in a wrap-up discussion.
• Think about
• As a young adult, what do you wish you had known
  about saving or investing then that you know now?
• How can you help your students develop
  fundamental knowledge and skills to plan for
  saving and investing?

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Application

• Evaluate your current assets using the personal
  inventory as your guide.
• Develop one saving goal and one investing goal
  that meet the SMART guidelines.
• List at least three things you can do to modify
  or start an investing plan.
• (or) If you already save and invest, then review
  your existing savings and investing goals. Do
  they meet the SMART criteria? Edit your goals to
  ensure they are "SMART" and adjust them based on
  your current situation.