Take Charge and Reach Your Goals

1. Take Charge and Reach Your Goals Risks, Rewards and Reality Presenter: www.picpa.org • (215) 496-9272 • info@picpa.org

2. Understanding Your Personal Risk Greater chance of disability than death • At age 22, 8 times more likely than death • At age 35 to 65, 25% chance of being disabled for more than a year AND a 5% chance of permanent disability • You have a 1 in 7 chance of being disabled for at least 5 years before you turn 65 • Fincalc.com – Estimates risk by age

3. Understanding Your Personal Risk • Social Security only pays for TOTAL disability • – after a 5 month waiting period – retroactive • to day 1. You must be expected to be disabled • for at least 1 year • Social Security disability benefits are unlikely • to replace your current earnings

4. What Would Happen If…. • Unless you have already saved enough money to replace the portion of your salary needed to pay your fixed expenses, (which is unlikely if you are under the age of 50) you would need some Disability Insurance

5. Disability Continued Employer - Short Term Disability •Normally pays for 50% to 65% of your weekly salary for 26 weeks. •Pays immediately if due to injury that did not happen at work (at work injuries are covered by workers compensation) •If due to illness, use up sick days first

6. Long Term Disability • Benefits are normally paid for a period of 2 to 5 years or until you reach age 65 • Replacing 60% to 80% of your after tax (net) pay is recommended. High income employees may only be able to get policies to cover 30% to 60% of their income • In addition to income lost – consider inability to fund future expenses such as your child’s education and rising health care costs

7. Long Term Disability • If you purchase coverage with after tax dollars – your benefits are tax free • If your employer pays for the coverage – your benefits are taxable

8. Policy Features • Non-cancellable – can only be cancelled due to nonpayment of premium • Guaranteed Renewable – Premiums cannot be increased unless raised for entire class of policyholders • Social Security rider – extra coverage if you don’t qualify for Social Security (85% are denied by SSA)

9. Policy Features • Cost of living adjustment • Residual Clause – reduced benefit for partial disability • Definition of disability • Limit of Liability

10. Death and Taxes • What would happen if you died tomorrow? • What debts are left behind • Does your surviving spouse earn enough income to pay for basic expenses? • Does someone close to you know how to find your records? (unrelated to insurance, but very important) • Save for the known, insure for the unknown

11. When Will I Die? • A baby born today is expected to live 77.9 years • The older you get, the longer you are expected to live - A man who is still living at age 65 is expected to live to age 81.8. A 65 year- old woman is expected to live to age 84.8 - 50% of both of these groups will live beyond their average life expectancy

12. Causes of Death • Heart Disease – same risk for men and women • Cancer – Higher proportion in men 1. Lung 2. Prostate 3. Colorectal - men 4. Breast 5. Colorectal – women • Stroke • Chronic Lower Respiratory Diseases • Accidents • Diabetes • Alzheimer’s Disease • Influenza/Pneumonia

13. What Kind of Life Insurance Do You Need? • Term Insurance •Most affordable – does not build a cash value - Premium will not change unless entire class of policyholders receives an increase •At end of term, death benefit is ZERO •Only available for periods up to 30 years

14. What Kind of Life Insurance Do You Need? •Purchase to cover known “terms” or periods of financial insecurity. Ex. - 30 year mortgage, funds needed until children are raised and educated etc. • Must be reevaluated as you get older as debts and cost of living increases, AND before you are too old to obtain affordable term insurance. (30 year term gets expensive if you are over the age of 45)

15. What Kind of Life Insurance Do You Need? • •May be in your best interest to renew or replace before the term ends.

16. Other Types of Insurance • Permanent Insurance – cannot be cancelled due to changes in health after issue • Whole life – level payments for life • Death benefit and cash value predetermined and guaranteed • Dividends earned by provide for additional paid up insurance.

17. Permanent Insurance • Universal Life – Pay premiums at any time, in any amount as long as cost of insurance coverage is met • Amount of insurance can be changed • Cash value will grow at a declared interest rate • More flexible than whole life – as whole life premiums can not be changed

18. Permanent Insurance • Variable Life • Level premium for life • Neither Death Benefit or Cash Value are guaranteed. • Policy contains subaccounts and the performance of the investments affect the cash value, premiums, and death benefit.

19. Permanent Insurance • Variable Universal Life – the most flexible permanent insurance • Flexible premium • Death benefit can be increased or decreased • Cash value can go up or down based on performance of subaccounts.

20. Permanent Insurance • If you are still insurable – all policies with a cash value can be transferred into a new policy that potentially provides a higher death benefit and meets your current needs vs. when the policy was issued. (This is a 1035 exchange)

21. Other Uses For Insurance •Loss of income for heirs •Repayment of Debts •Funeral expenses •Payment of inheritance and/or estate taxes, especially if your estate is illiquid. Ex. The family farm, can’t be easily and quickly sold, but there are deadlines to settle the estate •Leaving funding for heirs because you didn’t get the chance to save that nest egg

22. Other Uses For Insurance • Note that unless in an irrevocable life insurance trust, it is a part of your estate • Pension Maximization • Riders that allow life insurance policies to be used for long term care expenses • Planning to die with only income tax free assets (Second to die policies vs. first to die policies)

23. How Much Life Insurance Do You Need? • Amount of debts that can’t be paid for by survivors + • Cost of funeral + • Remaining lump sum large enough that if 6% of it was spent each year, it would replace the income you generated to help pay living expenses + • Any other goals you intended to save for before life was cut short

24. Playing the Odds • At some point we will all die – but what about the other types of insurance? • 1 in 88 – claims paid on homeowners policies • 1 in 47 – claims paid on auto policies • 1 in 2 – people who will need long term care as they age

25. Someone Close to You is Getting Older • If you or someone you know is 50 or older – time to evaluate the money needed to care for you as you age and live longer. • 63% of people needing long term care are over age 65 BUT 37% are under 65.

26. Someone Close to You is Getting Older • By 2050, the amount of people using long term care will double and the expense will triple • Excluding Alzheimers Disease – The average stay in a nursing home is 2.4 years, though in home care expenses precede the nursing home stay by 1.5 years

27. Long -Term Care: Longer Stays • Alzheimer’s Disease: • Odds of developing Alzheimer’s Disease DOUBLE every 5 years after age 65…. By age 85, the odds are 1 in 2 • The duration can last from 3 to 20 years • 7 out of 10 people with Alzheimer’s live at home

28. Long Term Care Insurance • Term and Permanent • Dual purpose policies – solving death and LTC. • Monthly and Daily Benefit Policies • $200 per day is just the beginning • Simple inflation and compound inflation • Individual vs. Shared Policies.

29. Cost vs Benefit • Medicaid only steps in after most resources are exhausted • Estate recovery to heirs from personal residence, life insurance, and other assets inherited. • Calculate the cost of the premium vs the value of the amount of assets protected. Ex. $4000 per year of premiums to protect $1 million dollar nest egg (less than one half of one percent)

30. But What About Living Happily Ever After? • Or how about just having enough money to feed yourself and your significant other • 2 people X 3 meals a day ($5 per meal) X 365 days x 30 years in retirement = $328,500 • This food budget only cost $94,715 thirty years ago.

31. But What About Living Happily Ever After? • The cost of keeping you alive – Health Care • The average couple over age 65 spends 22% of their income on health care • Fidelity Investments estimates that a couple will spend approx $200,000 on health care costs not covered by Medicare

32. What Will Retirement Cost? Experts agree you will probably need 80% of your pre-retirement income for each year in retirement.

33. What Will Retirement Cost? You contribute You invest Biweekly pay reduced pay Annual income tax savings 3% 6% 9% 12% $29 $58 $87 $115 $22 $43 $65 $87 $182 $390 $572 $728 Example of pretax savings for someone making $25,000 a year Results rounded to the nearest dollar assuming a 25% marginal federal tax rate and biweekly pay periods Neither Nationwide nor its representatives give legal or tax advice.

34. Growth Potential Without Current Taxation Totals shown reflect a $100 monthly investment with an 8% annual return, 4% annual wage inflation and a 25% federal tax rate. From the taxable investments, taxes are taken each month from deposits and annually upon gains. Taxes are taken on the tax-deferred investment’s end balance. This is a hypothetical compounding example and is not intended to predict or project investment results of any specific investment. Investment return is not guaranteed and will vary depending upon your investments and market experience. If fees were reflected, the return would be less.Assets withdrawn from a qualified plan may be subject to a 10% penalty tax if withdrawn prior to age 59 ½ distribution, and all may be subject to income tax. $200,000 Taxable Investment $158,981 Tax-deferred Investment $150,000 $115,555 $100,000 $57,581 $50,000 $46,960 $15,822 $11,356 $0 10 years 20 years 30 years Neither Nationwide nor its representatives give legal or tax advice.

35. What Are Your Priorities? Career Begins Retire Get married Changing jobs Living expenses Upgrade house Travel Drive car you deserve Expensive hobbies Pay off college Family vacation Care for aging parents Buy a house Start a family Child’s wedding Busy social calendar Save for child’s college Neither Nationwide nor its representatives give legal or tax advice.

36. Finding Money to Invest

37. How to Invest • Diversification does not help you make more money…..but it certainly can help you from losing less • This time it’s different….or is it?

38. How to Invest • Characteristics of Asset Classes • The risk of chasing performance • Confusing volatility with risk • Balancing fear of losing with the risk outliving your money

39. Questions?