Retirement and Financial Planning for Nonprofit Professionals

Transcription

1 Retirement and Financial Planning for Nonprofit Professionals Investment advice offered through Fragasso Financial Advisors, a registered investment advisor.

2 This material may not be reproduced by any means without written permission. Copyright Fragasso Financial Advisors All rights reserved. This material is intended to provide educational information and is not intended to provide legal or tax advice. Each individual s or family s situation should be examined uniquely to determine appropriate planning and investment strategies. It is recommended that decisions be made after creation of a financial plan and after consultation with competent financial, tax and legal advisors. Course instructors are employees of Fragasso Financial Advisors and may be licensed to provide financial products and services. Instructors will not offer any product endorsement or selling during the duration of the course. When the course is over and when a proper financial analysis is performed, instructors may offer financial advice, securities and asset management as investment advisor representatives of Fragasso Financial Advisors. 2 2

3 What is a financial plan? Why is it important? How to get yourself on track for a secure retirement Different types of advisors Planning on your own 3 3

4 RETIREMENT PLANNING Recent reports show that those with a written financial plan report that they are feel more "on track" for retirement (75% vs. 40%) and "confident about their personal financial future" (69% vs. 38%) than those who do not have a plan for retirement. Recent research shows that people who have written plans say they: Are more likely to feel their retirement has worked out the way they planned. Are more likely to have determined the amount of money needed to save for retirement. Have a clear financial direction. Feel prepared, even during changing market conditions. Source: Ameriprise Financial, How financial planning makes a difference, 2012 study 4

5 A FINANCIAL PLAN PROVIDES: An objective, rational analysis of your current situation relative to your goals. A better understanding of your future financial security. A strategy to help you reach your goals. 5

6 BENEFITS OF FINANCIAL PLANNING Good financial planning decisions increase retirement income by 29%, which is the equivalent of generating 1.82%/year of higher returns Source; Monday, November Morningstar Tries To Quantify The Value Of Financial Planning - 1.8% Gamma For Retirees? Of-Financial-Planning-1.8%25-Gamma-For-Retirees.html 6

7 Dominican University of California conducted a study on written goals in participants completed the study The people that wrote down their goals, shared this information with a friend, and sent weekly updates were: 33% more successful in accomplishing their stated goals Source: 7 7

8 GET YOURSELF ON TRACK FOR A SECURE RETIREMENT WITH THESE STEPS: 1. Determine your life goals 2. Analyze your current situation 3. Create a plan to help you reach your goals 4. Implement the plan 5. Monitor & adjust the plan 6. Continue to educate yourself 8 8

9 Samuel and Barbara Sample Current Age: Assumed Retirement Age: Samuel 60 Samuel 65 Barbara 60 Barbara 65 Current Annual Income: Retirement Income: Samuel's Salary $ 100,000 Social Security Not Included Barbara's Salary $ 50,000 Current Savings: Samuel's 401(K) Contribution $ 18,000 IRS Maximum Samuel's 401(K) Catch Up Contribution $ 6,000 IRS Maximum Barbara's IRA Contribution $ 5,500 IRS Maximum Barbara's IRA Catch Up Contribution $ 1,000 IRS Maximum Current Expenses: Retirement Expenses: Taxes Calculated yearly based on income Discretionary: $ 100, %) Discretionary All pre retirement net income T axes Calculated yearly based on income (after savings) is assumed to be spent *All pre-retirement net income is assumed to be spent This is an example of a sufficiency projection. The number and returns are purely hypothetical to illustrate this analysis. When used for actual clients, all assumptions and recommendations are based on the individual's specific situation. This is a hypothetical example and is not representative of any specific security. Inflation is assumed at 3.5% 9 9

10 ASSETS: Samuel Barbara Joint Total NON-QUALIFIED ASSETS: Taxable Investments: Personal Investment Accounts $750,000 $750,000 Total: Non- Qualified Assets $750,000 $750,000 LIABILITIES: Samuel Barbara Joint Total LONG TERM LIABILITIES: Mortgage ($250,000) ($250,000) Total: Long Term Liabilities $0 $0 ($250,000) ($250,000) TOTAL LIABILITIES $0 $0 ($250,000) ($250,000) NET WORTH $800,000 $50,000 $900,000 $1,750,000 RETIREMENT ASSETS: Qualified Retirement: Barbara's Individual Retirement Account Samuel's Qualified Retirement Plan Total: Retirement Assets TOTAL LIQUID ASSETS -- $50, $50,000 $800, $800,000 $800,000 $50, $850,000 $800,000 $50,000 $750,000 $1,600,000 REAL ESTATE ASSETS: Residence $400,000 $400,000 Total: Real Estate Assets $400,000 $400,000 TOTAL ASSETS $800,000 $50,000 $1,150,000 $2,000,000 TOTAL NET WORTH: $1,750,

11 Withdraw Retirement Assets First with a 7% Rate of Return Prepared for Samuel and Barbara Sample The Cash Flow report illustrates your income, savings, expenses, and resulting net cash flow on an annual basis. Based upon the levels of income and spending in the Withdraw Retirement Asset with a 7% Rate of Return, you will deplete your portfolio assets in 2044 (age 89/89). Portfolio Assets 2,400 2,100 1,800 1,500 1, Relevant Facts Samuel's Retirement: 2020 (65) Barbara's Retirement: 2020 (65) First Death (Samuel): 2045 (90/90) MONTHLY LIVING EXPENSES Retirement: $100,000 After First Death: $80,000 Indexed at: 3.50% 0 Portfolio Assets Withdrawal of retirement assets first can greatly reduce the potential for tax deferred growth on those retirement assets. Withdrawals taken prior to age 59 ½ may be subject to 10% IRS penalty, income taxes, or surrender penalty. FOR ILLUSTRATION PURPOSES ONLY. This data is not intended to represent actual or typical results for any individual and is not based upon an actual investment allocation. Supporting documentation is provided when actual allocations are reviewed with a client to support data within the graph. Past Performance is no guarantee of future results. The value of investments can fluctuate over time, and loss of principal may occur. 1111

12 Withdraw Personal Assets with a 7% Rate of Return Prepared for Samuel and Barbara Sample The Cash Flow report illustrates your income, savings, expenses, and resulting net cash flow on an annual basis. Investmen t Income Planned Distributio ns Total Portfolio Assets Year Age Income Flows Total Inflows Total Expenses Planned Savings Total Outflows Net Cash Flow /60 $150,000 $0 $0 $150,000 $119,500 $30,500 $150,000 $0 $1,742, /61 155, , ,250 31, , ,895, /62 160, , ,184 32, , ,060, /63 166, , ,308 33, , ,237, /64 172, , ,629 34, , ,429, / , ,459 (190,459) 2,408, / , ,904 (204,904) 2,372, / , ,852 (215,852) 2,322, / , ,009 (223,009) 2,262, / , ,070 (231,070) 2,189, / ,059 26, , ,017 (168,958) 2,147, / ,471 21, , ,594 (182,123) 2,094, / ,829 15, , ,586 (196,757) 2,028, / ,948 8, , ,938 (212,990) 1,948, / , ,488 (169,877) 1,914, / , ,556 (176,556) 1,871, / , ,360 (182,360) 1,820, / , ,313 (188,313) 1,759, / , ,407 (194,407) 1,688, / , ,805 (200,805) 1,605, / , ,600 (207,600) 1,510, / , ,608 (214,608) 1,401, / , ,837 (221,837) 1,277, / , ,295 (229,295) 1,138, / , ,988 (236,988) 980, / , ,925 (244,925) 804, / , ,114 (253,114) 607, / , ,563 (261,563) 388, / , ,278 (270,278) 145, / , ,195 (272,195) (116,399) / , ,679 (280,679) (397,078) 12

13 Withdraw Personal Assets First with a 7% Rate of Return Prepared for Samuel and Barbara Sample The Cash Flow report illustrates your income, savings, expenses, and resulting net cash flow on an annual basis. 2,400 2,100 1,800 1,500 1, Based upon the levels of income and spending in the Withdraw Personal Assets with a 7% Rate of Return, your portfolio assets will last through at least 2045 (age 90/90). Portfolio Assets Relevant Facts Samuel's Retirement: 2020 (65) Barbara's Retirement: 2020 (65) First Death (Samuel): 2045 (90/90) MONTHLY LIVING EXPENSES Retirement: $100,000 After First Death: $80,000 Indexed at: 3.50% Portfolio Assets Withdrawal of personal assets first allows for retirement assets to remain invested on a tax deferred basis. FOR ILLUSTRATION PURPOSES ONLY. This data is not intended to represent actual or typical results for any individual and is not based upon an actual investment allocation. Supporting documentation is provided when actual allocations are reviewed with a client to support data within the graph. Past Performance is no guarantee of future results. The value of investments can fluctuate over time, and loss of principal may occur. 1313

14 Withdraw Personal Assets with a 7% Rate of Return Prepared for Samuel and Barbara Sample The Cash Flow report illustrates your income, savings, expenses, and resulting net cash flow on an annual basis. Investme nt Income Planned Distributi ons Total Portfolio Assets Year Age Income Flows Total Inflows Total Expenses Planned Savings Total Outflows Net Cash Flow /60 $150,000 $0 $0 $150,000 $119,500 $30,500 $150,000 $0 $1,742, /61 155, , ,250 31, , ,895, /62 160, , ,184 32, , ,060, /63 166, , ,308 33, , ,237, /64 172, , ,629 34, , ,429, / , ,489 (154,489) 2,444, / , ,842 (158,842) 2,456, / , ,277 (163,277) 2,465, / , ,800 (167,800) 2,470, / , ,429 (172,429) 2,470, / ,493 70, , ,454 (80,961) 2,492, / ,330 75, , ,740 (81,410) 2,510, / ,494 80, , ,240 (81,746) 2,523, / ,007 86, , ,929 (81,922) 2,532, / ,895 91, , ,832 (81,937) 2,535, / ,178 98, , ,944 (81,766) 2,533, / , , , ,295 (81,409) 2,524, / , , , ,823 (81,308) 2,508, / , , , ,637 (80,519) 2,484, / , , , ,307 (92,730) 2,438, / , , , ,381 (102,968) 2,376, / , , , ,381 (105,641) 2,303, / , , , ,821 (119,085) 2,211, / , , , ,807 (127,135) 2,103, / , , , ,159 (136,453) 1,978, / , , , ,899 (148,215) 1,835, / , , , ,121 (161,970) 1,671, / , , , ,726 (177,990) 1,485, / , , , ,837 (196,849) 1,275, / , , , ,374 (219,048) 1,039, / ,215 91, , ,477 (246,262) 775,158

15 KEY CONSIDERATIONS Your taxes Your cash flow Your asset productivity Your projected estate costs Your survivorship needs Education funding needs and solutions A retirement security projection 15

16 PUTTING THE PLAN IN ACTION Implement the plan Monitor & adjusting the plan Continue to educate yourself 16

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18 There is no shortage of financial advice Traditional brokers Discount brokers Insurance agents Banks Accountants Independent advisors How do you determine the right financial partner for you? 18 18

19 Options What is their primary business? How are they compensated? Traditional Brokers Help corporations raise capital from investors Offer a variety of investment products Through underwriting fees from corporate clients Through commissions based on investors transactions Insurance Agents Transfer risk Through insurance policy premiums Discount Brokers Provide a platform for executing transactions Through transaction charges Banks Borrowing from depositors Making loans Note: In order to improve revenues, banks are increasingly pursuing other lines of business (investment advisory). Through difference between money borrowed and money lent Accountant Tax planning advice Business accounting Note: in order to diversify revenues some accountants are pursuing other lines of business (investment advisory) Through hourly fees Independent Advisors Planning your financial future Managing your investment assets Through fees based on assets under management 19

20 Online advisors automated investment services that manage their stocks and bonds for you How does it work? Customers fill out an online questionnaire about their income, goals and comfort with risk taking. Computer software then selects the best investments, often in various low-cost exchange-traded funds (ETFs). Technology then does all the work, continually rebalancing the portfolios. No human interaction Potentially appropriate for new investors just starting out 20

21 Among families that do not work with a financial advisor, 28% reported having difficulty falling asleep, while only 18% of those who worked with a planner did. Similar differences were found when subjects were asked if they experienced general stress, difficulty staying asleep, changes in weight or irritability. The study shows that those working with financial planners feel less financially vulnerable; 52% of those working with an advisor felt financially secure, while only 28% of those without one did. Likewise, 46% of those with an advisor felt confident in their ability to retire, while only 20% of those without one felt secure. Source: Financial Advisor Magazine, May 24, 2012, Working With A Financial Planner Reduces Stress 21

22 ROBERT FRAGASSO, CFP, AIF Chief Executive Officer (412) MELISSA RICHEY, CFP, AIF Executive Vice President, Sales and Marketing (412) DOTTI BECHTOL Fiduciary Asset Business Development Officer (412)