Financial Myths For Women Demystified


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Women have unique financial issues and needs. This presentation discusses 15 of the most common misconceptions women have about general financial strategies, retirement and estate planning, insurance, as well as money and relationships. It provides guidance on strategies to help women manage their finances.

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  • [Read slide.] The Education IRA, now known as the Coverdell Education Savings Account, limits you to an annual contribution of $2,000. If you didn’t start saving when your child was born, you may not have enough to pay for his or her college education. If you are a parent who wants to send your child to a very prestigious school, take a look at some of the country’s better-known universities and the 2009 expenses over four years for each. [Go over details of chart if desired.] There are ways to help you save for these costs — even for late starters. One of them is a qualified tuition program, often collectively referred to as a “529 Plan.” It’s a state-sponsored plan that allows your savings to grow tax-deferred, and withdrawals for qualified higher education expenses are tax-free. Here’s how it works: • Even though these plans are state-sponsored, you do not need to be a resident of the state to participate, but you may lose out on state tax benefits by participating in an out-of-state plan. • You can contribute up to the annual gift tax exclusion, currently $13,000 for 2009 and 2010 without a federal gift tax of $13,000 a year or allocate a large lump-sum contribution of a larger amount, e.g., $65,000 over a five year period. You can carry the gift forward under your annual gift tax exclusion. Remaining account balances can be transferred to another family member of the original beneficiary. • Withdrawals for qualified higher education expenses are federal income tax-free. • 529 Plans also offer the advantage of professional asset management, so by comparing various state plans, you’ll be able to choose from several professional management companies.  If you are investing in a 529 plan outside your state of residence, you may lose available state tax benefits. Make sure you understand your state tax laws to get the most from your plan. 529 plans are subject to enrollment, maintenance, administration/management fees and expenses. 529 plans are subject to fluctuation in value and market rise, including loss of principal. Investors should consider the investment objectives, risks, charges, and expenses of 529 plans carefully before purchasing. More information about 529 plans can be found in the issuer’s official statement which can be obtained from a financial professional. Please read the official statement carefully before investing.
  • Financial Myths For Women Demystified

    1. 1. financial myths for women… demystified
    2. 2. Please be advised that this document is not intended as legal or tax advice. It is based upon our general understanding of Federal tax rules at the time the material was prepared. Accordingly, any tax information provided in this document is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transaction(s) addressed and you should seek advice based on your particular circumstances from an independent tax advisor. Life insurance and annuity products are issued by AXA Equitable Life Insurance Company (NY, NY). Variable products are co-distributed by AXA Advisors, LLC and AXA Distributors, LLC. AXA Equitable, AXA Advisors, and AXA Distributors are affiliated companies and do not provide legal or tax advice. important notes <ul><li>Investments are: </li></ul><ul><li>Not a Deposit </li></ul><ul><li>Not FDIC Insured </li></ul><ul><li>Not Insured by Any Federal Government Agency </li></ul><ul><li>Not Guaranteed by the Bank (or Savings Association) </li></ul><ul><li>May Go Down in Value </li></ul>
    3. 3. today’s workshop objectives <ul><li>Dispel 15 common planning misconceptions: </li></ul><ul><ul><li>General planning </li></ul></ul><ul><ul><li>Money and Relationships </li></ul></ul><ul><ul><li>Insurance strategies </li></ul></ul><ul><ul><li>Investment strategies </li></ul></ul><ul><ul><li>Retirement planning </li></ul></ul><ul><ul><li>Estate planning </li></ul></ul><ul><li>Learn about some of your planning options. </li></ul><ul><li>Get information on what you can do to help enhance and protect your assets. </li></ul>
    4. 4. general planning/ preparing for the future
    5. 5. myth #1 <ul><li>I am still young. I can wait another few years before I start saving. </li></ul>
    6. 6. truth… Power of Time and the Magic of Compounding * Chart assumes 7% growth for illustrative purposes. These figures are not intended to indicate the performance of any specific investments. Taxes and fees were not taken into consideration. $500,000 $500,000 $500,000 $500,000 $500,000 $500,000 Total Value $217,701 $270,977 $315,905 $353,311 $384,070 $409,095 Growth * $282,299 $1,568 15 50 Hypothetical Example Age Years Until 65 Monthly Contribution Total Contribution 25 40 $189 $90,905 30 35 $276 $115,920 35 30 $407 $146,689 40 25 $614 $184,090 45 20 $954 $229,023
    7. 7. myth #2 <ul><li>I can easily pay for my child’s college tuition because I started an Education IRA. </li></ul>
    8. 8. truth… <ul><li>With a $2,000 annual limit, an Educational IRA may not be enough. </li></ul><ul><li>529 Plans are designed to help families save for future college costs and reap special tax benefits. 4 </li></ul>1. Tuition, fees and room and board. Does not include books and personal expenses. Individual college information provided by Costs, dates, policies and programs are subject to change. 2. For in state-students. 3. Assuming 6% annual inflation rate in each of the four years of college. 4. If you are investing in a 529 plan outside your state of residence, you may lose available state tax benefits. Make sure you understand your state tax laws to get the most from your plan. 529 plans are subject to enrollment, maintenance, administration/management fees and expenses. 529 plans are subject to fluctuation in value and market rise, including loss of principal. Investors should consider the investment objectives, risks, charges, and expenses of 529 plans carefully before purchasing. More information about 529 plans can be found in the issuer’s official statement which can be obtained from a financial professional. Please read the official statement carefully before investing. $51,939 $11,873 University of Florida $103,459 $23,650 University of Maryland Sampling of Colleges 2009 Expenses 1, 2 4-Year Total 3 Harvard University $48,684 $212,973 Duke University $49,895 $218,271 University of Notre Dame $48.845 $213,678 Wake Forest University $49,032 $214,496 Rice University $43,288 $189,368 University of California-Berkeley $23.633 $103,385 Howard University $24,041 $105,170
    9. 9. myth #3 <ul><li>The best gift I can give to charity is money. </li></ul>
    10. 10. truth… <ul><li>By giving cash to a charity, you are missing a chance to save on income taxes and give more money to the charity. </li></ul><ul><li>Give an appreciated capital asset instead: </li></ul><ul><ul><li>Deduct the value as a charitable gift without paying income tax on the appreciation. </li></ul></ul><ul><ul><li>Charity will acquire the full value of the contribution. </li></ul></ul><ul><ul><li>Charity can cash in stock for market value or invest it to make more money. </li></ul></ul>
    11. 11. truth… Cash or cash equivalents (cash, T-bills, CDs) You receive a $1,000 tax deduction Charitable organization receives $1,000 You gift cash Appreciable assets (stocks, bonds, mutual funds shares, other securities) You purchase $1,000 of an investment years ago Shares appreciate to current market value of $1,500 You gift shares Charitable organization receives $1,500 investment Assumes maximum annual limit on income tax deduction allowable for charitable contributions is not yet met. Typically, you get a $1,500 tax deduction (without paying income tax on the $500 appreciation). Can sell or reinvest. Not subject to capital gains tax.
    12. 12. giving with life insurance Charitable giving with life insurance Life Insurance Company Donor Insured by life insurance policy <ul><ul><li>Donor gives money or property to the charity and asks the Foundation to purchase life insurance on a donor’s life. </li></ul></ul><ul><ul><li>The charity is the owner and beneficiary of the policy. </li></ul></ul><ul><ul><li>Alternatively, life insurance currently owned by donor that is no longer needed can be gifted to the charity. </li></ul></ul>The Charity Owner and beneficiary of the life insurance policy Policy Premium Gifts
    13. 13. money and relationships/ strategies with your best interest in mind
    14. 14. myth #4 <ul><li>I have a family, yes, but I also have a thriving career. So I can save as much for retirement as my male colleagues can </li></ul>
    15. 15. truth… <ul><li>Women earn less money 1 , so their contributions may be less </li></ul><ul><li>Caregivers are predominately female and reports show they commonly take time off to provide care to their loved ones 2 </li></ul><ul><li>It may be appropriate to supplement your retirement funding with a variable annuity * </li></ul>* A variable annuity is a long-term financial product designed for retirement purposes. In essence, an annuity is a contractual agreement in which payment(s) are made to an insurance company, which agrees to pay out an income or a lump sum amount at a later date. Typically, variable annuities have mortality and expense charges, sales and withdrawal charges, account fees, investment management fees, administration fees and charges for optional benefits. Variable annuity account values will fluctuate and are subject to market risk, including the possibility of loss of principal. Guarantees are based on the claims-paying ability of the issuing insurance company. Please consider the charges, risks, expenses, and investment objectives carefully before purchasing a variable annuity. For a prospectus containing this and other information, please contact a financial professional. Read it carefully before you invest or send money. If you are purchasing an annuity contract a Individual Retirement Account (IRA) or Tax-Sheltered Annuity (TSA) to fund a qualified employer-sponsored retirement arrangement, you should do so for the variable annuity’s features and benefits other than tax deferral. For such cases, tax deferral is not an additional benefit of the variable annuity. You should consider the relative features, benefits and costs of annuities with any other investment that you may use in connection with your retirement plan or arrangement. Sources: 1) Institute for Women’s Policy Research, Fact Sheet , September 2009. 2) National Alliance for Caregiving in the U.S., Care giving in the U.S. Executive summart. November 2009
    16. 16. truth… <ul><li>Imagine you invested $2,000 a year in a currently taxable and tax-deferred account, earning a hypothetical 8% annual return, assuming a 28% tax bracket. </li></ul><ul><li>As the chart shows, even after you pay income tax on withdrawals, the tax-deferred account could leave you with more money in your pocket. </li></ul>The hypothetical example above is for illustrative purposes only. See next slide for note. BENEFITS OF TAX DEFERRAL $150,000 10 Years $100,000 $50,000 $0 $200,000 $250,000 30 Years 20 Years Tax-Deferred Account After-Tax Lump Sum Withdrawal Currently Taxable Account
    17. 17. The hypothetical example on the previous slide is for illustrative purposes only. The 8% return is not intended to reflect the actual performance of any product or investment. Neither investment reflects any withdrawal charges, administration charges or investment management fees. Variable annuities impose withdrawal charges based on a particular product’s surrender charge schedule. Annual administration and mortality and expense risk charges are generally applied to assets in a product’s investment options or sub-accounts. If these fees and charges would have been reflected in the chart above, the ending values would have been lower. Lower maximum tax rates on capital gains and dividends would make the taxable account returns more favorable compared to the tax deferred account, thereby reducing the difference in performance between the accounts. Changes in tax rates and tax treatments of investment earnings may impact the comparative results and investors should consider their personal time horizon and income tax bracket, both current and anticipated when making an investment decision as these may further impact the results of the comparison.
    18. 18. myth #5 <ul><li>My husband takes care of the finances so I don’t have to. </li></ul>
    19. 19. truth… <ul><li>It’s important for both the husband and wife to be involved in the finances </li></ul><ul><li>Know your debt, your assets and your expenses </li></ul><ul><li>At the very least, maintain an active interest </li></ul>
    20. 20. myth #6 <ul><li>In a divorce I should keep the home. </li></ul>
    21. 21. truth… <ul><li>The costs associated with the running and owning of your home might be more than you anticipated – or can afford </li></ul><ul><li>Selling the home may help your long-term financial situation </li></ul>
    22. 22. insurance strategies/ protecting yourself and your loved ones
    23. 23. myth #7 <ul><li>I have life and disability insurance through my job. I don’t need any more. </li></ul>
    24. 24. truth… <ul><li>In the U.S., a disabling injury occurs every second, a fatal injury occurs every 4 minutes. 1 </li></ul><ul><li>In many cases, group insurance may offer minimal or restrictive coverage and may not be there if you lose your job. </li></ul><ul><li>Social security qualifications are strict. </li></ul>1. U.S. Census Bureau Public Information Office, November 2008.
    25. 25. truth… <ul><li>Individual insurance can offer more: </li></ul><ul><ul><li>Many insurance policies provide you with the customized coverage. </li></ul></ul><ul><ul><li>Unlike group term life insurance, individual life insurance can also serve as a versatile tool to address other needs. </li></ul></ul><ul><li>It’s important to: </li></ul><ul><ul><li>Secure your family’s future in your absence. </li></ul></ul><ul><ul><li>Protect your assets, retirement saving and child’s college fund. </li></ul></ul>
    26. 26. myth #8 <ul><li>My medical insurance will cover any unexpected illnesses that come my come my way. </li></ul>
    27. 27. truth… <ul><li>70% of people over age 65 will need long-term care in their lifetime. 1 </li></ul><ul><li>Average annual cost for nursing home care is almost $68,000. 2 </li></ul><ul><li>Medical insurance, Medicare won’t cover costs. </li></ul><ul><li>Long-term care insurance: </li></ul><ul><ul><li>Helps to protect your assets. </li></ul></ul><ul><ul><li>Helps to preserve an estate for heirs. </li></ul></ul><ul><ul><li>Quality medical care. </li></ul></ul><ul><ul><li>Helps preserve your independence. </li></ul></ul><ul><li>Medicaid may offer certain benefits, but only if a person has limited income and assets or the person’s assets have been substantially depleted. The exact income eligibility vary by state. </li></ul><ul><li>1. Administration on Aging,2008 </li></ul><ul><li>2. Genworth Cost of Care Survey, 2009 </li></ul>
    28. 28. investment strategies/ smart choices, smart investors
    29. 29. <ul><li>I’m not a risk taker, so I’m hesitant to invest in stocks. </li></ul>myth #9
    30. 30. <ul><li>There is always a risk to investing </li></ul><ul><li>Consider the greater risk of not investing </li></ul><ul><li>Diversification is the key to asset allocation and can help you: </li></ul><ul><ul><li>Lower your overall investment risk </li></ul></ul><ul><ul><li>Increase chances of meeting investment objectives </li></ul></ul><ul><li>Consider time frame, goals and risk tolerance </li></ul>Diversification and asset allocation do not assure a profit or protection against a loss. truth…
    31. 31. <ul><li>Growth </li></ul><ul><li>Little need for current income </li></ul><ul><li>Focus on growth </li></ul><ul><li>High tolerance for risk </li></ul><ul><li>Intermediate/ long investment horizon </li></ul><ul><li>Growth with Income </li></ul><ul><li>Equal focus on growth and current income </li></ul><ul><li>Moderate tolerance for risk </li></ul><ul><li>Intermediate investment horizon </li></ul>Younger Investors (Aggressive) Nearing or In Retirement (Low Risk) <ul><li>Income with Moderate Growth </li></ul><ul><li>Need for current income </li></ul><ul><li>Moderate focus on growth </li></ul><ul><li>Low tolerance for risk </li></ul><ul><li>Intermediate investment horizon </li></ul><ul><li>Income with Capital Preservation </li></ul><ul><li>Need for capital preservation and current income </li></ul><ul><li>No focus on growth </li></ul><ul><li>Lowest tolerance for risk </li></ul><ul><li>Shortest investment horizon </li></ul><ul><li>Aggressive Growth </li></ul><ul><li>No need for current income </li></ul><ul><li>Focus on aggressive growth </li></ul><ul><li>Highest tolerance for risk </li></ul><ul><li>Long investment horizon </li></ul>truth… Adjust your risk exposure for your age
    32. 32. <ul><li>Investing is too complicated and time-consuming. </li></ul>myth #10
    33. 33. <ul><li>A well-structured plan doesn’t require you to be a market-savvy financial expert </li></ul><ul><li>An experienced financial professional can help guide you through the planning process </li></ul>truth…
    34. 34. retirement planning/ living the retirement of your dreams
    35. 35. myth #11 <ul><li>I “max out” the contributions to my 401(k), so I’m all set for retirement. </li></ul>
    36. 36. truth… <ul><li>A 401(k) is not a savings account: </li></ul><ul><ul><li>Offers investment options. </li></ul></ul><ul><ul><li>Requires strategic planning. </li></ul></ul><ul><li>Maximize your retirement funds — choose investments wisely. </li></ul><ul><li>Consider the allocation of your contributions. </li></ul>
    37. 37. myth #12 <ul><li>I don’t need a retirement plan because my successful business will fund all of my retirement needs. </li></ul>
    38. 38. truth… <ul><li>Relying solely on your business to ensure your personal financial well-being is risky: </li></ul><ul><ul><li>Will your business still be a success after you retire? </li></ul></ul><ul><ul><li>Are you overestimating its worth? </li></ul></ul><ul><li>Strategic planning protects both your business and personal finances. </li></ul><ul><li>Consider the allocation of your contributions: </li></ul><ul><ul><li>Maintain separation (business/personal). </li></ul></ul><ul><ul><li>Implement a business continuation plan. </li></ul></ul><ul><ul><li>Take advantage of financial vehicles available to you. </li></ul></ul>
    39. 39. myth #13 <ul><li>When I retire, I’ll just sell all my assets and collect the money. The order in which I do it doesn’t matter. </li></ul>
    40. 40. truth… <ul><li>Timing and sequencing are important to avoid additional taxes and penalties. </li></ul><ul><ul><li>Ex: Many pensions, 401(k)s and annuities are subject to restrictions or penalties for early withdrawals. </li></ul></ul><ul><li>Create a planning strategy for retirement. </li></ul><ul><li>At retirement: </li></ul><ul><ul><li>A 20+ year retirement? </li></ul></ul><ul><ul><li>Evaluate short and long-term needs. </li></ul></ul><ul><ul><li>Identify assets for liquidation. </li></ul></ul><ul><ul><li>Periodic reviews. </li></ul></ul>
    41. 41. estate planning/ preserve more of your hard earned assets
    42. 42. <ul><li>I don’t need to worry about estate planning since everything is going to my spouse when I die. </li></ul>myth #14
    43. 43. truth… <ul><li>You and your spouse could be involved in a common accident or other unexpected situation where lack of a plan could be costly. </li></ul><ul><li>Leaving everything to your spouse could eventually cost your heirs large amounts in estate taxes. </li></ul><ul><li>Utilize the Unified Tax Credit. </li></ul><ul><ul><li>Under the Economic Growth and Tax Relief Reconciliation Act of 2001, numerous changes to </li></ul></ul><ul><ul><li>the federal estate and gift taxes are scheduled to take effect between 2002 and 2010. These </li></ul></ul><ul><ul><li>include repeal of the estate tax for the year 2010 (although gift taxes on lifetime transfers would </li></ul></ul><ul><ul><li>continue in effect). 2001 estate and gift tax law are scheduled to be reinstated for year 2011 and </li></ul></ul><ul><ul><li>thereafter. Therefore, while the Act provided several years of lower rates and higher exemptions </li></ul></ul><ul><ul><li>followed by one year of repeal for 2010, in the absence of new legislation, 2011 would bring back </li></ul></ul><ul><ul><li>the old $1 million exemption. </li></ul></ul><ul><li>It is also expected that Congress will be revisiting gift and estate taxes. </li></ul>
    44. 44. truth… Net to heirs without using the Unified Credit Decedent’s Taxable Estate $7,000,000 All to Surviving Spouse Hypothetical example: Tax savings: $1,575,000 * Assumes both spouses die in 2009, when the applicable exclusion amount is equal to $3,500,000. Other deductions and/or credits which are not shown that may be available. Surviving Spouse’s Taxable Estate $7,000,000 Net to heirs with Unified Credit Planning Decedent’s Taxable Estate $7,000,000 Surviving Spouse’s Taxable Estate $3,500,000 Non-Marital Trust $3,500,000 IRS $1,575,000* Children $5,425,002 Children $7,000,000
    45. 45. myth #15 <ul><li>Estate plans are only for wealthy people. </li></ul>
    46. 46. truth… <ul><li>Realize your worth. </li></ul><ul><li>Create a plan. </li></ul><ul><li>Preserve more of what you’ve earned for those you care about. </li></ul>Cash Real Estate Employee benefits Investments Life insurance Pension Profit sharing IRA 401(k) = An estate worthy of planning and protection
    47. 47. <ul><li>The truth – the most important tool you need in planning for your financial future </li></ul><ul><li>The right advice can help you make smart decisions </li></ul><ul><li>Plan ahead </li></ul>summary
    48. 48. where do you want to go from here <ul><li>Do it yourself. </li></ul><ul><li>Work with us. </li></ul><ul><li>Most importantly, don’t procrastinate; timing is important. </li></ul>
    49. 49. workshop evaluation <ul><li>Please complete evaluation form and hand it in before you leave. </li></ul><ul><li>Schedule time to meet for a personal consultation. </li></ul>
    50. 50. thank you!