Exploring Your Options For A Quality Retirement Redone


Published on

  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide
  • The greatest source of increasing future income in your retirement is “TIME”. The younger you start the greater opportunity you have to maximizing your nest egg. Not maximizing your 401K could be a huge mistake. Understand the more money you deposit into your qualified plan creates a dollar for dollar reduction of your taxable gross income. Further, if your employer provides a match upon your contributions, it’s even more reason to max out on this tax deferred opportunity.
  • Exploring Your Options For A Quality Retirement Redone

    1. 1. Exploring Your Options for a Quality Retirement The Society for Financial Awareness Securities offered through AIG Financial Advisors Inc., a registered broker-dealer, member NASD and SIPC.
    2. 2. Identify the Money Behavior That is Within You <ul><li>When you retire you’ll either have the money or reasons why you don’t. </li></ul><ul><li>It’s all about planning. Your behavior and attitude today will impact your cash results for tomorrow. </li></ul>
    3. 3. Different Types of People <ul><li>Spender – Every month there’s nothing left. Living paycheck to paycheck. No savings, little put away for retirement, no emergency fund year after habitual year. Keeping up with the Jones’. </li></ul><ul><li>Too Busy – who has time to plan for the future? Living day to day for the moment. Hectic, out of control. </li></ul><ul><li>Over Analytical - Analysis leading to Paralysis .  For whatever reason, too busy creating spread sheets and doing research as the years go ticking by. Can’t seem to “pull the trigger”. </li></ul><ul><li>Ready, Fire, Aim Investor – has money, wants shortcuts. Take a hot tip and buy. Very little due diligence; little if any research. Impulsive. </li></ul><ul><li>Concise, Precise, Focused, Act Together – has a plan, follows the proper steps. Has a budget. Has goals - focused, deliberate, “walks the talk”. </li></ul>
    4. 4. 4 Key “Eroders” to Building Your Nest Egg <ul><li>I. Debt - The Boa Constrictor of the financial plan. It sucks out the life of the investor. Valuable dollars going to payments of others versus to oneself. </li></ul><ul><li>Two Basic types of debt: </li></ul><ul><li>Non-deductible – ex: autos & credit cards. </li></ul><ul><li>Deductible: mortgage interest </li></ul>
    5. 5. 4 Key “Eroders” to Building Your Nest Egg <ul><li>Think about consolidating your non-deductible through a deductible plan with the use of a Home Equity line of Credit* . Let’s look at an example: </li></ul><ul><li> Item Payments Balance </li></ul><ul><li>Truck 380 14,500 </li></ul><ul><li>Van 265 11,000 </li></ul><ul><li>Visa 150 5,000 </li></ul><ul><li>Master Card 150 3,700 </li></ul><ul><li> $945 monthly $34,200 </li></ul><ul><li>$34,200 @ 6% = $ 2,052 per year </li></ul><ul><li>$2,052 / 12 mos = $171 per mo interest only.** </li></ul><ul><li>$945 old monthly payment </li></ul><ul><li>-171 new monthly payment </li></ul><ul><li>$774 freed up monthly cash flow </li></ul>*Usually the Heloc is a variable interest rate program. Your payment could increase or decrease over the length of time you possess your Heloc. The interest of the Heloc is usually tax deductible since it’s tied to your mortgage. **An interest only payment does not eliminate the principle of the debt. In this example, the debt is simply consolidated, not eliminated.
    6. 6. Where Could the Extra Cash Flow Go? <ul><li>What if we took the monthly savings of $774.00 and saved it in a shoebox for the next 5 years? </li></ul><ul><li>$774 X 60 months = $46,440 </li></ul><ul><li>For the next 10 years? </li></ul><ul><li>$774 x 120 months = $92,880 </li></ul><ul><li>The key is not the freeing up of the money; rather it’s the behavior modification of not falling into inescapable debt all over again! </li></ul>
    7. 7. 4 Key “Eroders” to Building Your Nest Egg <ul><li>II. Inflation </li></ul><ul><li>The cost of living has a historical trend of going up! </li></ul><ul><li>Looking at a 40 year inflation average of 4.7%*, the value of your money – or purchasing power – would be cut in half every 15.3 years! </li></ul><ul><ul><ul><li>Example: If a car today costs $25,000 to buy, in 15.3 years it could conceivably cost $50,000 to buy the same class and style of car! </li></ul></ul></ul>*Source: Bureau of Labor Statistics, Consumer Price Index (CPI-U). Data through year end 2006
    8. 8. 4 Key “Eroders” to Building Your Nest Egg <ul><li>Taxation on the distributions of your qualified/pre-tax retirement plans (ex. 401K’s, 403b’s, IRA’s Deferred Comp, SEP IRA’s etc.) </li></ul><ul><ul><li>When you withdraw the money out 100% is taxable to you as “ordinary income”, not long term capital gains. Do the calculations. Know ahead of time the projected erosion could amount to. </li></ul></ul><ul><ul><li>The key is to understand that by the time you retire your current deductions of </li></ul></ul><ul><ul><li>-Pension/qualified plan </li></ul></ul><ul><ul><li>-Mortgage Interest </li></ul></ul><ul><ul><li>-Children </li></ul></ul><ul><ul><li>probably will be gone and not available to you. This can potentially result in your post retirement tax bracket being similar to your pre-retirement tax bracket. The potential also exists of being in a lower tax bracket during retirement. </li></ul></ul>
    9. 9. 4 Key “Eroders” to Building Your Nest Egg <ul><li>Health Issues Associated with Aging </li></ul><ul><ul><li>Special assistance </li></ul></ul><ul><ul><li>Increased need for prescription medication </li></ul></ul><ul><ul><li>Costs associated with Long Term Care </li></ul></ul><ul><ul><ul><ul><ul><li>All these areas need to be appraised ahead of time so you have some idea of what the costs could entail. </li></ul></ul></ul></ul></ul>
    10. 10. Social Security VS. “Self” Security <ul><li>What’s it going to be? </li></ul><ul><li>It’s hard to imagine the public sector taking care of us </li></ul><ul><li>In most instances, it’s us that determines our financial well-being by what we have done over time! </li></ul><ul><li>Question: By the time we do retire, what percentage of your total monthly income will come to you by way of the Federal Government? </li></ul><ul><li>Question: At Retirement, what will be the “purchasing power” of tomorrow’s dollars vs. today’s? Better calculate it! </li></ul>
    11. 11. Inspect What You Expect <ul><li>Each year call Social Security </li></ul><ul><li>1-800-772-1213 or go to www.ssa.gov . </li></ul><ul><li>Request form SSA-7004 </li></ul><ul><li>Inspect what you expect & monitor it each year. </li></ul>
    12. 12. Different Income Streams <ul><li>On the day you retire, do you know where those “sources” of income will be? Before you retire, are you building them? </li></ul><ul><li>Stocks </li></ul><ul><li>Bonds </li></ul><ul><li>Pension/Qualified plans </li></ul><ul><li>Mutual Funds </li></ul><ul><li>IRA’s </li></ul><ul><li>Stock Options </li></ul><ul><li>Rental Income </li></ul><ul><li>Possible Inheritance </li></ul>
    13. 13. Qualified Plan Contribution <ul><li>There are obvious reason that participating in your 401k should be a “no brainer”: </li></ul><ul><ul><ul><li>Your deposits build up for retirement </li></ul></ul></ul><ul><ul><ul><li>Your contributions reduce your taxable income </li></ul></ul></ul><ul><ul><ul><li>You have the ability to re-allocate your portfolio without any taxable consequences </li></ul></ul></ul><ul><ul><ul><li>All growth of the entire portfolio is tax deferred (your deposits, employer match if applicable, and investment growth) </li></ul></ul></ul>
    14. 14. Qualified Vs. Non-Qualified <ul><li>Consider splitting up your retirement contributions between pre-tax and after-tax retirement plans.* </li></ul><ul><li>At distribution time, this strategy could be critical to your lifestyle during those golden years. </li></ul>*An insurance or annuity vehicle is not implied.
    15. 15. Qualified Vs. Non-Qualified <ul><li>Let’s examine a person’s 401K at age 65 of the tax consequences at distribution time: </li></ul><ul><li>100% is taxed at “Ordinary Income” </li></ul><ul><li>Mortgage interest probably gone or very little left </li></ul><ul><li>Kids have left the house </li></ul><ul><li>Can’t claim the 401K as a deduction since individual is retired </li></ul><ul><li>Individual probably left with only property taxes and charitable deductions </li></ul>
    16. 16. Qualified Accumulation <ul><li>If an investor in a 33.33% combined federal and state tax bracket saved $6,000/yr into a qualified retirement plan earning 8% compounded annually, here’s the picture: </li></ul>*Assumes variables are constant for 30 years. This example is for illustration only and is not a guarantee or representative of any investment or product. Fees and expenses inherit in investing would lessen the accumulated amount. $6,000 Gross Input ($2,000) Tax savings at 33.33% tax bracket $4,000 Net investment cost Over 30 years*, we would have $60,000 in tax savings (30 years X $2,000 per year) and an account value of $679,700 .
    17. 17. Qualified Distribution <ul><li>The other side of the story: </li></ul>$679,700 Nest Egg X 8% $54,376 Gross Income -18,123.52 Taxes due at 33.33% $36,252.48 Net Spendable Income* If we live 25 years in retirement the total amount of taxes we would pay under current assumptions is $453,088 . Further, it would take only 3.3 years to completely pay back the IRS all $60,000 in tax deductions they allowed us during our accumulation years. *Assumes distributions taken as income are only investment earnings of a hypothetical rate of return of 8% annually, therefore not depleting the principal balance.
    18. 18. A Little Food for Thought… <ul><li>You, not your employer; you, not the government, is responsible for your retirement. </li></ul><ul><li>When should you do your retirement planning? How about starting when you get your 1st paycheck! </li></ul><ul><li>Time is the greatest impact on the bottom line. </li></ul><ul><li>The “bottom line” is not the size of your nest egg but rather your net spend-able income . </li></ul><ul><li>Stay diversified- use asset allocation. </li></ul><ul><li>Create “balance” utilize pre-tax and after-tax strategies. </li></ul><ul><li>Inspect what you expect… monitor your results constantly. </li></ul><ul><li>Planning is the key. Being busy and not paying attention is a cop out… It’s always about you – stay on it! </li></ul>