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Welcome. Workshop Objectives. Introduce Educate Illustrate. Our Commitment. Provide sound financial information Help you identify goals Offer complimentary consultation. Evaluation Form. About Your Workbook. Informative graphics Wide margins Helpful exercises. 4.
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Workshop Objectives • Introduce • Educate • Illustrate
Our Commitment • Provide sound financialinformation • Help you identify goals • Offer complimentaryconsultation
About Your Workbook • Informative graphics • Wide margins • Helpful exercises 4
Your Financial Future Lifetime Earnings $ 40,000 $ 70,000 $ 100,000 per year per year per year 10 years $ 480,244 $ 840,427 $ 1,200,611 20 years $ 1,191,123 $ 2,084,466 $ 2,977,808 30 years $ 2,243,398 $ 3,925,946 $ 5,608,494 Assumes a 4% annual salary increase
Your Financial Future • Overcome obstacles to success • Practice sound financial management
Debt e Credit Card \ kred’- t kärd \ n.: 1. A means for buying some- thing you don’t need, at a price you can’t afford, with money you don’t have.
The Rule of 72 72 Inflation Rate 6% Inflation 72 ÷ 6 = 12years 4% Inflation 72 ÷ 4 = 18 years 6
Taxes Tax Freedom Day The average person will work until late April to pay all federal, state, and local taxes. Source: Tax Foundation
Yield After Taxes and Inflation Investment $ 10,000 8% interest + 800 Taxes (27% tax bracket) – 216 Net interest $ 584 Total after taxes $ 10,584 Adjusted for inflation (4%) ¸ 1.04 Net after taxes and inflation $ 10,177 Net return = 1.77% 6
What Is Financial Management? N ESTATE PLANNING W E INVESTMENT PLANNING S RETIREMENT PLANNING TAX PLANNING RISK MANAGEMENT CASH MANAGEMENT
Cash Management CASH MANAGEMENT
Cash Flow Total Income $ ________ Total Expenses – $ ________ Net Cash Flow = $ ________ 8
Liquidity Fund Savings = Liquidity Ratio Monthly Expenses
Risk Management RISK MANAGEMENT
Risk Management • Life • Disability • Medical andlong-term care • Auto • Home • Liability
IncomeReplacement Calculator Mr. and Mrs. Harrick 1. Total income now $ 80,000 2. Total income available $ 40,000 3. Additional income needed $ 40,000 4. Capital required $ 500,000 5. Additional cash requirements $ 125,000 6. Life insurance needed $ 625,000
Investment Planning INVESTMENT PLANNING
Investment Objectives Safety Growth Income
The Investment Spectrum HIGHER RISKHIGHER POTENTIAL RETURN FIXEDINTEREST CASHEQUIVALENTS BONDS STOCKS LOWER RISKLOWER POTENTIAL RETURN
Diversification CASH FIXED PRINCIPAL DEBT EQUITY TANGIBLES
Diversification Example BILL JILL $50,000 $50,000
Diversification Example Bill and Jill after 20 years Bill 7% $ 193,485 Jill (loss) $ 0 5% $ 26,533 7% $ 38,697 10% $ 67,275 12% $ 96,463 Jill’s Total $ 228,968 Difference = $ 35,483 This is a hypothetical example. Actual results will vary.
College Planning Mr. and Mrs. Thompson • Combined income: $48,000 • One child: Robby, age 5 • College cost: $10,000
College SavingsCalculator Mr. and Mrs. Thompson • Estimated future collegecost: $107,000 for 4 years • Annual savings required:$5,671 a year for 13 years 12
Dollar Cost Averaging PRICE PER SHARES INVESTMENT SHARE PURCHASED MONTH 1 $ 200 $ 10.00 20 MONTH 2 $ 200 $ 8.00 25 MONTH 3 $ 200 $ 5.00 40 MONTH 4 $ 200 $ 8.00 25 MONTH 5 $ 200 $ 10.00 20 TOTAL $1,000 130 SHARES AVERAGE PRICE: $8.20 AVERAGE COST: $7.69 This is a hypothetical example. Actual results will vary.
Tax Planning TAX PLANNING
Tax Deferral Mr. Washington • 45 years old • $70,000 salary • $85,000 investment portfolioInterest income: $6,800 Taxes: $2,040
Tax Deferral Mr. Washington Taxable (30% tax bracket) Tax deferred Tax deferred after taxes $396,185 $85,000 initial portfolio8% annual rate of return $302,827 $269,637 $252,754 $192,476 $183,507 $145,574 $124,891 $111,619 5 years 10 years 15 years 20 years Mortality and expense charges, sales charges, and administrative fees are not taken into account and would reduce the performance shown if they were included.
Tax-Free Investments Calculating the Taxable Equivalent Yield EXAMPLE EXAMPLE YOU 1. Take the tax-exempt yield 7% 7% _____% 2. Your marginal federaltax rate 27% 35% _____% 3. Subtract your rate from100% (1.00 – line 2) 73% 65% _____% 4. Taxable equivalent yield 9.59% 10.77% _____%(line 1 ÷ line 3) 13
Retirement Planning RETIREMENT PLANNING
Sources ofRetirement Income Social Security Employer-sponsored plans Personal savings and investments
Other Retirement Planning Considerations Distribution options Tax considerations
Changing Jobs Ms. Martin Total distribution amount $ 40,000 20% withholding – $ 8,000 Early withdrawal penalty – $ 4,000 Additional income tax due – $ 2,800 After-tax distribution $ 25,200
Rollover Ms. Martin Tax-deferred growth @ 8% $402,506 $273,939 $186,438 $126,887 $86,357 $58,773 $40,000 START 5 10 15 20 25 30 YEARS
Retirement Distribution Mr. and Mrs. Tucker Annuity • Single-life annuity • Joint and survivor annuity
Increasing YourPension Mr. and Mrs. Tucker Surviving Spouse $1,000 $1,200 Death Benefit $200
RetirementDistribution Mr. and Mrs. Tucker Lump-sum distribution — $220,000 Tax alternatives Ordinary income tax $ 58,500 10-year averaging $ 42,100 Capital gains + 10-year averaging $ 38,300 Potential tax savings $ 20,200
Estate Planning ESTATE PLANNING
Estate PlanningConcerns • Distribution • Wills • Trusts • Gifting • Probate • Taxes and fees