Accumulating Wealth – 2008 Financial Planning Seminar Oregon State University

1. Accumulating Wealth – 2008 Financial Planning Seminar Oregon State University

2. Phases of Financial Planning Phase I: Accumulation of your wealth and estate Phase II: Conservation of your estate - an ongoing process Phase III: Proper distribution of your estate - when needed or desired by you

3. Roadblocks to your Success Not setting realistic goals Not having a detailed plan Procrastination - Enemy #1 Not understanding the problems Not understanding inflation Not understanding financial instruments Taxes Depending on Social Security Wanting something for nothing Being overly influenced by others Speculating or playing the markets Wanting everything guaranteed Keeping too much in idle assets

4. Roadblocks to your Success Lack of discipline Not paying yourself first, and only saving what’s left over Lack of diversification No asset allocation - Lack of balance in financial instruments Expecting large inheritances or winning the lottery Improper or inadequate risk management Without proper goal setting, planning and action... If you continue to go in the direction you’re going, the roadblocks may force you to end up exactly where you’re headed

5. The Process Step 1: Define Your Financial Goals Step 2: Evaluate Your Financial Health Step 3: Develop a Plan of Action Flexibility, Liquidity, Protection, Minimization of Taxes Consider Your Goals Step 4: Implement Your Plan Step 5: Review Your Progress, Reevaluate, and Revise Your Plan

6. Apply the 80/20 rule Of all the things you can do, the following are the 20% that get you 80% of the results: Write down goals at least annually Pay yourself first, always Set priorities and goals vs budgeting Talk about money with your spouse/partner

7. Write down goals – Why? A well-known Harvard University study monitored graduates of an MBA program from 1979 to 1989. Researchers found that ten years after graduation, the three percent who had written goals were making 10 times as much money as the other 97 percent combined.

8. Write down goals Imagine, starting today, you are now retired… What would you immediately stop doing? Why? What would you continue doing — or start doing? Why? Between now and when I retire, what are the most important things I want to accomplish? Between when I retire and when I die, what are the most important things I want to accomplish?

9. Write down goals - Examples Examples I want $X of monthly income during retirement to begin in 2010. I want to retire from my teaching position at age X and devote my skills and energies to improving animals lives through support of the Humane Society, Dove Lewis, and similar organizations. I want to pay cash for my child’s four year college education at State University.

10. Achieving your Goals Live within your income and budget Reduce financial stress and arguments Realize personal goals Establish and maintain a good credit history Make saving a priority Evaluate your insurance coverage Prepare for retirement and future financial security

11. Growing Net Worth • Investments • Home Ownership • Foundation • Budgeting • Time Value • Tax Planning • Inflation • Big Picture • Planning • Personal • Profile • Goals • Psychology • Protection/Insurance • Life • Health & Disability • Property, Auto, Homeowner’s • Long Term Care • Estate Planning Develop Financial Plan to Reach Your Goals • Debt • Consumer • Mortgage

12. Planning for Retirement • People can now expect to live up to 1/3 of their lives in retirement* • Experts estimate that individuals will need 70-90% of their pre-retirement income to maintain their current lifestyle during retirement** • Rising inflation and cost of living • What are the tax rates? *U.S. Department of Health and Human Services, 1995. **U.S. Department of Labor, 1995.

13. Where will your Retirement Income come from? Company Sponsored Retirement Plans Social Security Personal Savings

17. Advantage Of Tax Deferred Saving Over Ordinary (Biased) Tax Treatment;Build-up Of $1,000 Saved per Year

18. Company Sponsored Retirement Plans Defined Benefit Defined Contribution

19. Defined Benefit Typically thought of as a traditional pension plan Benefits are a fixed amount (e.g., $1k/month for life) that is typically based on years of service and salary history Employer funds entire plan through minimum funding contributions, as well as quarterly payments. Employees receive benefits through vesting schedule Requires insurance payments to Pension Benefit Guaranty Corporation, in case of employer default of benefits For 2008, the limit to a defined-benefit qualified plan is the lesser of $185,000 or 100% of the employee's average compensation over a consecutive three-year period that spans his or her highest compensation.

20. Defined Benefit – Example

21. Defined Contribution Retirement plan that is funded by contributions from both employers (plan sponsor) and employees (plan participants) Qualifies as a tax-deferred retirement plan, if the plan is set up in accordance with ERISA standards. Among other requirements, the Employee Retirement Income Security Act (ERISA) of 1974 requires the plan sponsor to comply with certain reporting and disclosure requirements for the benefit of plan participants. Generally, a plan sponsor and plan participant can contribute up to the lesser combined amount of $46,000 or 100% of the participant's compensation in 2008.

22. Defined Contribution – Popular Options 401k Simplified Employee Pension (SEP) IRA Profit Sharing Plan/Money Purchase Pension Plan Simple IRA’s

23. Defined Contribution – Contribution Limits

24. Jill, a 46-year old business owner, has a net profit of $125,000 (and a modified net profit of $120,000). Jill wants to adopt a retirement plan for her business, and would prefer to adopt the plan that allows the highest contribution limit. The following table outlines the approximate maximum Jill would be able to contribute with each plan for 2007: Defined Contribution – Example

25. Roth IRA’s The Roth IRA was born on January 1, 1998 as a result of the Taxpayer Relief Act of 1997. It's named after former Senator William V. Roth, Jr. Unlike Traditional IRAs, contributions to a Roth IRA are nondeductible regardless of your income level or participation in a company-sponsored retirement plan There are rules on eligibility and the level of contributions A qualified distribution is generally, any payment or distribution made after the 5–taxable–year period beginning with the first year for which a contribution was made to a Roth IRA set up and; made on or after you reach age 59 ½ or that is made to buy, build, or rebuild a first home (lifetime limit is $10k) made for certain higher education expenses made to a beneficiary or to your estate after your death made because you are disabled

26. Roth IRA’s Any distribution that is not a qualified distribution may be taxable as ordinary income and subject to the additional 10% tax on early distributions You are not required to start taking minimum distributions from a Roth IRA after age 70 1/2, as you are with a Traditional IRA, and you can continue to contribute as long as you continue to have earned income. When retired, many individuals evaluate the merits of “converting” their Traditional IRA accounts to a Roth IRA (this strategy is not for everyone)

28. Rule of Thumb – Asset drawdown

29. Smart Ways to Save for College • 529 Plans • Consider child’s financial aid opportunity prior to investing in these plans • Parents or grandparents own the account instead of the child • Contributions can be made to both 529 plans and ESA in the same year • Possible state tax deductions available

30. Smart Ways to Save for College (continued) • Education Savings Accounts • Can be used for K-12 costs • Contributions by business • Parents gift to child and have them contribute to their ESAs • Distributions can be contributed into 529s • Roll over to another beneficiary if eligible for financial aid

31. Smart Ways to Save for College (continued) • Roth IRAs • Flexible • Cash flow friendly • Financial aid friendly