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Edition of April 29, 2013

Planning for a Sustained Lifestyle: Why Use the Thrift Savings Plan (TSP)?. Edition of April 29, 2013. “Uncle Jon” Cook Survivor Outreach Services – Financial Counselor Financial Readiness Program Personal Financial Management (PFM) Specialist

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Edition of April 29, 2013

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  1. Planning for a Sustained Lifestyle:Why Use the Thrift Savings Plan (TSP)? Edition of April 29, 2013
  2. “Uncle Jon” Cook Survivor Outreach Services – Financial Counselor Financial Readiness Program Personal Financial Management (PFM) Specialist Accredited Financial Counselor (AFC) Army Emergency Relief (AER) Notary Public Employment Readiness Program Military Spouse Employment Program (MSEP) (Former) Professional in Human Resources (PHR) & (Former) Certified Workforce Development Professional (CWDP) (309) 782 - 0815 1 – 877 – 882 – 0523 jon.c.cook.civ @ mail. mil www. riamwr. com / acs /
  3. Cascade of Concepts Military Saves Campaign (of the America Saves Campaign, annually in February) Three types of money: this class is on Money Future Rule of 72: translate Annual Percentage Rate (APR) into Time “It’s not the money you make; it’s the money you get to keep!” Ric Edelmann Saving and Investing: “Loanership” and Ownership Pyramid of Risk: arranging types of savings and investing; applying Rule of 72 and diversification Realizing capital gains and losses (vice “paper” gains and losses) Dollar Cost Averaging - riding the market’s ups and downs: you are a buyer, then a seller Investing styles Beat the Market Be the Market: Index Investing and Diversification Thrift Savings Plan (TSP) Five Funds for Indexing L Funds for diversification Traditional and Roth 5% Match Your next steps Please do ask questions as we go through the session. This presentation is designed to give you quite a few “Scooby Doo” moments!
  4. Disclaimer This presentation is for the information and education of the participants. The information presented is neither an endorsement nor a guarantee. Past performance is no guarantee of future performance. Before making any financial commitment, consult with your Family Members and appropriate professional advisers.
  5. www. military saves. org I will help myself by saving money, reducing debt, and building wealth over time. I will help my family and my country by encouraging other Americans to “Build Wealth, Not Debt.”
  6. The Prosperous Retirement Wheel Mental PhysicalHealth Health Social Spiritual Exercise Diet Personal Intellectual Finances$ Stein, M. (1998). Prosperous Retirement. Boulder, CO: EMSTCO Press. p. 19.
  7. Why plan for retirement now? Retirement is way off in the future! “It’s not the money you make; it’s the money you get to keep!” Ric Edelmann
  8. Saving & Investing Saving:“loanership” interest 1099-INT Investing:“ownership” dividends 1099-DIV capital gains 1099-B (or losses)
  9. Hypothesis: There is a major up and down in the market every 5 to 7 years. Retrieved November 20, 2012 from: http://stockcharts.com/freecharts/historical/djia1900.html
  10. 14,226.20 March 4, 2013
  11. Life’s Events Bonds and Bond funds Stocks and Stock funds RetirementLong Term Care + 5 to 7 years College, major home maintenance - 5 to 7 years Long term CD’s,short term Bonds and Bond funds Emergencies, insurance deductibles, big vacations, car down payments, Medical co-pays Money Market from Mutual Funds CU & Bank short term CD’s & Money Funds Christmas, Birthdays, Anniversaries, Weddings, back-to-school, Car Services, Trips, taxes, “stuff” Savings Accounts
  12. Return on Investment (ROI) CUPS!& funnels Inflation Taxes Fees CUPS! At a minimum beat Inflation Taxes Fees Your “left-over’s” ROI If inflation is 2.5% … And a savings account is .5% - is it a cup or funnel? Tax Adverse - vice - Tax Aware If a mutual fund makes 5% … and its annual fee is 1% you made 4% - before taxes
  13. Pyramid of Risk Collectibles and venture capital Risk and Reward Stock Safety Preferred Stock Mutual Funds Bonds and CD’s Cash, Checking, Savings Financial Plans Insurance
  14. “Real” vice “Paper” Gains and Losses Buyers and Sellers “A capital gain is only ‘realized’ after you sell…” The Market price rises to $10 a share – How much have you made? The Market price rises to $25 a share and you sell – How much have you made now? Market Price The Market price drops to $2 a share – How much have you lost? You buy your shares at $5 per share Time Notional – not real
  15. When did you buy the least shares? Dollar Cost Averaging $100 at $10/share = 10 shares (=105) $100 at $10/share = 10 shares (=90) $100 at $5/share = 20 shares (=20) Sold 108 shares @ $30/share = $3,240 Market Price $100 at $33/share = 3 shares (=108) $700 investment yields $3,240 $100 at $10/share = 10 shares (=30) $100 at $20/share = 5 shares (=95) OK, Buyers? What is your tolerance for risk in a down market? $100 at $2/share = 50 shares (=80) Time When did you buy the most shares?
  16. Buyers and Sellers “What is the market’s next move? ? Market Price Time Notional – not real
  17. Your Wealth Building Task is to Buy Shares
  18. Retirement ? Adjusting Phase Managing Growth and Incomeduring retirement Accumulation Phase Buyer – Seller ? You’re asking me, during the accumulation phase, even when the market is falling, to keep buying shares? YES: Ignore the paper-losses; dollar cost averaging with a buy and hold strategy.
  19. Investing Styles Beat the Market: day trading; buy and hold; momentum; cyclical; income; growth; value; contrarian … “Be the Market”: buy a little of all of it – Index Investing Jack Bogle, founder of Vanguard Only 20% of the managed funds and accounts beat the market averages; which means 80% of them don’t! = You ought to be using the market averages (indexes). What do you know about the market?
  20. 1% automatically to C Fund unless you change it 1% to 3%draws and equal match Your 4% or 5% contribution draws a3.5% or 4% match Maxing out at 5% match
  21. www. tsp. govSponsored by the Office of Personnel Management (OPM)The Federal Government’s 401k Plan
  22. Which one (G,F,C,S,I) should you own? All of them! In what proportion?
  23. Lifecycle L-funds: proportions based on time Slight adjustments every fiscal quarter moving towards L-Income (dollar cost average your way out of the market) Set it and forget it TSP > Investment Funds > Fund Options > Lifecycle Funds
  24. Source: TSP Highlights for January / February 2012: Is Roth for You?
  25. Interest Vision Software (at ACS) Invest Monthly for 20 Years = 240 Months @ estimated 9% APR $300/month yields $200,366.06 You put in (principal) $72,000 Your growth (capital gains, dividends and interest) $128,366.06 Totals to $200,366.06
  26. When did you want to pay your taxes? Traditional (IRA, 401k, 403b, SEP) Your contributions are tax-deferred You pay at regular income rates as you withdraw the proceeds (principal + growth) Totals to $200,366.06 with taxes paid as you receive your distributions after you retire Your growth (capital gains, dividends and interest) $128,366.06 Tax Deferred You put in (principal) $72,000 Tax Deferred ROTH (Roth IRA, Roth 401k [TSP]) Your annual contributions (principal) are taxed Your distributions (principal + growth) are not taxed Totals to $200,366.06 with no further tax consequences You put in (principal) $72,000 and pay the income taxes annually Your growth (capital gains, dividends and interest) $128,366.06 Tax Free
  27. Interest Vision Software (at ACS) Invest Monthly for 20 Years = 240 Months @ estimated 9% APR $300/month yields $200,366.06 When did you want to pay your taxes? You put in (principal) $72,000 Your growth (capital gains, dividends and interest) $128,366.06 Totals to $200,366.06
  28. B1. Wages reduced by amount deferred Traditional Amount deferred “D” in Block 12 B1. Roth contributions are just part of your taxable wages Nothing in Block 12: Roth contributions’ taxes paid each year;nothing is deferred Roth
  29. Traditional – Roth – One/Both - Convert? There is no right answer – it depends … Age; years to retirement; what is already saved; best guess on future income tax rates …. It’s a personal decision based on many factors …. A financial & emotional decision based upon when you desire to pay your taxes …. Roth + Amount not matched + Young worker, not earning a lot, and not paying a lot of current taxes + Estimate that you will be in higher tax brackets during retirement + Smaller amounts already in traditional (deferred) accounts and willing to pay additional taxes to convert + You may desire the money after age 70 ½ or never (passed along in your estate) - Cannot touch a Roth for 5 years Traditional + Your agency match (up to 5%) has to be deposited in traditional + High income earner trying to shelter money from current taxes + Estimate that you will be in lower tax brackets during retirement + Large amounts already in traditional (deferred) accounts and don’t want to pay additional taxes to convert + You plan on receiving distributions before age 70 ½
  30. www.tsp.gov Contribution Comparison Calculator (as it applies to your paycheck)
  31.   Unchecked
  32. Roth Options https://www.ebis.army.mil
  33. Q: Why TSP as opposed to other planners, brokers or mutual funds? A1: Vastly reduced expenses.A2: Dollar cost averaging into index funds, and you can diversify (L funds).
  34. Index Investing, Allocation by Lifecycle, Dollar Cost Averaging, and Buy and HoldGot it!!! What could possibly go wrong?
  35. Lifecycle L-funds: proportions based on time Slight adjustments every fiscal quarter moving towards L-Income (dollar cost average your way out of the market) TSP > Investment Funds > Fund Options > Lifecycle Funds
  36. Money Magazine, September 2012, pp. 97-102 His bottom line – the last item in his article: Simple, cheap index-fund portfolio = TSP L-Fund
  37. Analysis framework for making Financial Objective Statements Purpose: Amount needed or desired: $________ Time or time frame: Tolerance for risk: Method(s):
  38. www. tsp. govSponsored by the Office of Personnel Management (OPM)The Federal Government’s 401k Plan
  39. Planning for a Sustained Lifestyle:Why Use the Thrift Savings Plan (TSP)? Edition of April 29, 2013
  40. www.irs.gov Retirement Contribution Limits Backup Slide 1A
  41. Backup Slide 1B
  42. Backup Slide 2A
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