Wealth Building Plan

Transcription

1 Wealth Building Plan Investing, Portfolio Design, Management & Analysis Example David & Deborah Smith 1111 North River Road Bloomfield Hills, MI A Wealth Building and Retirement Plan are written long-term plans to guide you to meet your retirement goals and maintain income in retirement. A plan provides peace of mind to your family, defines goals, monitors progress and drives adjustments. Plans make you less likely to overreact to market volatility and increase one s confidence and effectiveness in managing income, spending, saving, debt and investing. The investment process is complicated and requires strict discipline without emotion. Without professional guidance, you will likely produce mediocre returns, and not meet your retirement goals. You should always seek professional advice unless you receive the proper training, invest in the proper tools, and are willing to put the time into managing your portfolio. Most people find investing complicated, difficult to find good advice and are worried about losing money. Prepared by Philip Michalek August 2018 (2017, 2016, 2015) PDM Investment Services, LLC A Registered Investment Advisor 5131 Standish Drive, Troy, Michigan * * info@fginvestor.com See our website or brochure for our Disclosure, Fee Schedule and Privacy Policy

2 Personal Information & Goals Page 1 Birth Dates & Ages (2018) David Smith Deborah Smith Michael Smith Michelle Smith 02/10/1973 (45) 09/10/1973 (45) 02/10/2004 (14) 09/10/2008 (10) Retirement Dates Job Income Ends Social Security Starts 55/55 years old 67/67 years old An ideal retirement is often defined as one including freedom, security, flexibility, reduced stress, peace of mind, travel, time with family and time with hobbies. Follow your investment plan to achieve your goals. How much will you need to save for retirement to maintain your standard of living? Income Current Income Job Retirement Income Other Spending Current Spending Retirement Spending Savings & Investment Pre-tax saving rate Post-tax savings rate $120,000/$30,000 per year $0 (rental, pension, part time job) $84,000 per year/$7,000 per month $84,000 per year/$7,000 per month $47,000 per year $5,000 per year Net Worth Investments Taxable $250,000 Investments 401(k)/IRA $500,000 Investments Roth $100,000 Home $300,000 (Zillow Estimate) Other $0 Liabilities $170,000 Total $980,000 Debt Home Mortgage $150,000 Home Equity $0 Automotive $20,000 Other Assumptions Inflation in retirement 2.25% Tax Rates in retirement 15% federal, 5% state Investment Strategy Portfolio Risk Level Portfolio Strategy Portfolio Performance Stock market performance Moderate Risk (75% equity) Diversified Mutual Fund & Sector Portfolio Tactical Equity Allocation Strategic Active Asset Class & Sector Allocation Varies Varies Expected Returns Expected 5-year annual returns for a moderate risk portfolio is 5.0%. (Earnings growth 4.0%, Dividends 2.5%, Valuation PE Expansion -1.0%, Risk Level Deration 10%) Expected 20-year annual return for a moderate risk portfolio is 6.0%. (Money Guide Pro) Probability of Success Money Guide Pro Calculation 95% Probability of funding your financial goals if you implement and follow this plan. The variables above will help determine your success rate of not running out of money in retirement.

3 Risk Tolerance Risk score 70 (Money Guide Pro), Moderate Risk Your current $850,000 Investment Portfolio six-month risk is 70, Moderate +24% (+$200,000) to -15% (-$125,000). Risk Tolerance Page 2 Risk Tolerance (Risk survey) Risk tolerance is the amount of short-term price volatility and long-term investment loss an investor is willing to withstand before changing their behavior. Risk tolerance also considers the risk level needed to achieve your goals. Risk comes in the form of market risk, security risk, financial risk, valuation risk, economic risk, currency risk, political risk, interest rate risk, inflation risk and liquidity risk. Most investors are not trained to know their risk tolerance. At market tops, most people will say their risk tolerance is high. At market bottoms, they will say they have no tolerance for risk. Volatility is only a problem if you sell. There is long-term risk in not owning equities. Time Horizon The longer your time horizon, the higher the risk you can take. Risk Composure (How did you react in past bull markets, corrections and bear markets?) Risk composure is an investor s ability to consistently understand and correctly perceive the risks they re taking. Risk composure determines whether you are able to effectively stay the course during extreme market volatility, market tops and market bottoms. Unstable perceptions of risk lead to poor investment returns. Achieving goals based on a long-term plan is more important than a benchmark beating returns each year. To participate in bull market gains, you must also endure the risk of corrections and bear markets. Without some risk, reward will likely be small. If you have a large pension, you may be able to take on more investment risk. If your job earned income is very stable into your sixties, you may be able to take on more risk. If the investment will be passed on to heirs, you may be able to take on their level of risk. If you have no debt, you may be able to take on more risk. The more you understand the markets, the more likely you will be comfortable with more risk. Select a portfolio type based on your goals, risk tolerance and time horizon from the table below. Fidelity Asset Manager Funds 40% FFANX 50% FASMX 60% FSANX 70% FASGX 85% FAMRX 100% PREIX Risk Category INCOME CONSERVATIVE MODERATE CONSERVATIVE MODERATE MODERATE AGGRESSIVE AGGRESSIVE Fund % Stocks / % Bonds & Cash 40% / 60% 50% / 50% 60% / 40% 75% / 25% 80% / 20% 100% / 0% Risk Description Low Low Medium Medium High High Beta, Standard Deviation (5 / 10 year) B=0.8 / 0.8, SD=5 / 8 B=0.9 / 1.0, SD=6 / 10 B=1.1 / 1.2, SD=7 / 11 B=1.2 / 1.3, SD=8 / 13 B=1.4 / 1.5, SD=9 / 15 B=1.0 / 1.0, SD=10 / 15 Time Horizon 0 years 0 years 5 years 10 years 15 years 20 years Annual Return (Past 5 / 10 years) 6.8% / 5.2% 7.9% / 5.6% 9.0% / 6.0% 10.1% / 6.0% 11.9% / 6.4% 15.9% / 8.2% Best Year Return (Past 10 years) 26% 31% 33% 36% 39% 32% Worst Year Return (Past 10 years) -23% -28% -30% -35% -39% -37% The Risk Category, Risk Description and Time Horizon are defined by PDM Investment Services. The other numbers are from Morningstar ending December Beta is volatility relative to the S&P 500 of 1.0 and Standard Deviation is return variation from the mean. Past returns are used for comparison between risk categories only. Future returns may be significantly different and are not guaranteed in the future.

4 Wealth Building Guidelines Page 3 Career Income Maintain or increase your income level until retirement. Select a career in a field that is in demand and pays well. Increase your income by at least 5% annually by employing continued education, acquiring new skills, hard work and developing strong interpersonal skills. Seek out promotions into management to get bonus and stock option income. Spending Plan Document your monthly spend, create a budget and review it annually. What are your liquidity needs? Prioritize saving over spending, plan savings first then adjust your budget for what you have left. Live within your means with a modest home and car. Vacation homes and boats are not typically good investments. Do not buy more house than you need. The house you live in is more of a liability than an asset. A large home mean high interest payments and high taxes, insurance, utilities and maintenance. Your home is not a good investment. Over long periods of time, homes grow near the inflation rate of 3% to 4%. A diversified mutual fund portfolio historically saw returns of 7% to 8%. Bag a lunch and only purchase insurance you need. Buy a car, maintain it and keep it at least 8 years, stay in your house at least 15 years before you move. Use a cash flow tracking app like mint.com cash flow tracking app or Personal Capital s mobile PFM app. Saving Investing Plan Automate your savings to control your budget. Automate your paycheck to be distributed to your 401(k), stock purchase plan, savings account and IRA account by taking money out before you see it setting up the self-discipline to save. Target saving 20% of your wages annually. Your 401(k) should be your primary saving account for retirement. You should be contributing as much as you can from each paycheck in bull and bear markets. Do not try to time the market or your returns will likely suffer from poor emotional decisions. Contribute enough to your 401(k) to get at least the full match. Invest profit sharing into your 401(k). Once you reach the IRS max in your 401(k), contribute to your Roth or IRA and last your taxable account. Invest extra money in your taxable account for a home, home improvement or a car. A Health Savings Account (HSA) is an employer sponsored health insurance saving plan that allows you to accumulate pre-tax money to be used to pay medical bills like co-payments and deductibles. Typically offered by plans with higher deductibles. Money going in is pre-tax, grows tax free and the money is not taxable on the way out if used for qualified health-care expenditures. There is no limit on the amount of unused HSA funds that can roll over one year to the next. Once you build up the account with enough cash to use for the year, the extra can be invested for long-term. In 2017, IRS rules allow you to contribute $6,750 per family and $7,750 if 55 and older per year. For single s it is $3,400 or $4,400 per year. There are no wage restrictions. This is a great tax advantaged savings tool to help pay for your medical expenses in retirement. Not all health care plans and employees offer HSA s. These plans take some work to manage. You must manage your cash balance for withdrawal and the investment portion of the account. Most people cannot even manage their 401(k) let alone another HSA account. For many it may not be worth the effort unless you max out each year. Annual fees may eat away at the tax advantage. Debt Reduction Plan Document your debt level. Pay off high interest loans first. Pay off credit card balances each month. Maintain a good credit rating to get lower interest loans.

5 Wealth Building Mechanics Page 4 Below you can see how job income is invested pre-tax into 401 (k) s and the rest after tax into your primary bank account for spending and investing in taxable and IRA accounts. The investment accounts show the custodian, manager, risk level, and annual savings amount and rate. Merrill Lynch 401(k), David Fidelity 401(k), Deborah Job Income $150,000 PDM Design and Client Managed Moderate Risk Primary savings vehicle +$18,000 per year with match +$18,000 per year with match 24% Savings rate TD Ameritrade Rollover IRA David PDM Design & Managed Moderate Risk +$0 per year 0% savings rate TD Ameritrade Roth David TD Ameritrade Roth Deborah Client Design & Managed Moderate Risk +$11,000 per year 7% Savings rate Joint Taxable Primary Bank Checking Client Managed, Conservative Risk, Annual +$100,000 take home after 401(k), taxes and healthcare - $80,000 spending ($6,500 per month) - $11,000 savings for Roth IRA contributions - $5,000 savings to TD Ameritrade taxable account - $4,000 extra for major purchases TD Ameritrade Taxable Joint PDM Design & Managed Moderate Risk +$5,000 per year 3% savings rate

6 Merrill Lynch 401(k), David PDM Investment Services design and client managed Moderate Risk (Base Allocation: 75% stocks / 25% bonds & cash) Contributions: 2017= $18,000, 2016=$18,000, 2015= $15,000 Performance: 2017 to 2012: 21.1%, 9.9%, -0.7%, 5.7%, 23.5%, 16.6% Benchmark: 2017 to 2012: 18.7%, 7.1%, -0.6%, 5.6%, 20.1%, 14.2% $200,000 (December 2017) Investment Summary Page 5 TD Ameritrade Rollover IRA, David PDM Investment Services design and managed (Started 2012) Moderate Risk (Base Allocation: 75% stocks / 25% bonds & cash) Contributions: 2017=$0, 2016= $0 Performance: 2017 to 2012: 17.9%, 7.0%, -0.3%, 5.2%, 22.8%, 14.5% Benchmark: 2017 to 2012: 18.7%, 7.1%, -0.6%, 5.6%, 20.1%, 14.2% Performance does not include the 0.6% annual management fee of $3,088 in $200,000 (December 2017) TD Ameritrade Roth, David Client design and managed Moderate Risk (Base Allocation: 75% stocks / 25% bonds & cash) Contributions: 2017=$5,500, 2016= $5,500 Performance: See quarterly performance report. $30,000 (December 2017) TD Ameritrade Roth, Deborah Client design and managed Moderate Risk (Base Allocation: 75% stocks / 25% bonds & cash) Contributions: 2016=$5,500, 2015= $5,500 Performance: See quarterly performance report. $40,000 (December 2017) TD Ameritrade Taxable, Joint PDM Investment Services design and managed Moderate Risk (Base Allocation: 75% stocks / 25% bonds & cash) Contributions: 2017=$5,000, 2016= $5,000 Performance: See quarterly performance report. $200,000 (December 2017) Bank of America, Taxable, Joint Client design and managed Conservative Risk (Base Allocation: 0% stocks/100% cash) $30,000 (December 2017) Benchmarks Moderate-Aggressive (Fidelity Asset Manager 70%/85%, FASGX/FAMRX) 2017 to 2012: 20.5%, 7.3%, -0.6%, 5.7%, 22.7%, 15.1% Moderate (Fidelity Asset Manager 70%, FASGX) 2017 to 2012: 18.7%, 7.1%, -0.6%, 5.6%, 20.1%, 14.2% Moderate-Conservative (Fidelity Asset Manager 60%, FSANX) 2017 to 2012: 16.4%, 6.8%, -0.6%, 5.8%, 16.9%, 12.7% Moderate Aggressive (Fidelity Asset Manager 70%/85%, Morningstar 2012 thru 2015) 2017 to 2012: 20.5%, 7.3%, -2.1%, 5.1%, 16.1%, 12.4% Moderate (Fidelity Asset Manager 70%, Morningstar 2012 thru 2015) 2017 to 2012: 18.7%, 7.1%, -1.8%, 4.9%, 14.3%, 12.1%

7 Investment Action List Page 6 (Proposed - January 2018) Career Income, Spending, Saving and Debt Reduction Increase your income by at least 5% annually by employing continued education, acquiring new skills, hard work and developing strong interpersonal skills. Stick to your spending plan. Review your budget and spending for reductions annually. Focus on reducing your debt to zero by age 60. Merrill Lynch 401 (k), David Allocate mutual funds to the recommended allocation for the Contribution and the Balance. Setup your contribution rate to save $18,500 per year. The maximum contribution for 2018 is $18,500 under 50 years old, $24,500 over 50 years old plus match. Fidelity 401 (k), Deborah Allocate mutual funds to the recommended allocation for the Contribution and the Balance. Setup your contribution rate to save $18,500 per year. The maximum contribution for 2018 is $18,500 under 50 years old, $24,500 over 50 years old plus match. TD Ameritrade Rollover IRA, David Contribute $0 per year. TD Ameritrade Roth IRA, David Contribute $5,500 per year. The maximum contribution for 2018 is $5,500 for under 50 years old and $6,500 for over 50 years old. TD Ameritrade Roth IRA, Deborah Contribute $5,500 per year. The maximum contribution for 2018 is $5,500 for under 50 years old and $6,500 for over 50 years old. TD Ameritrade Taxable, Joint Setup an auto-investment plan to transfer $416 per month automatically from your primary bank checking. Bank of America Taxable, Joint No actions Education Savings Account Start an ESA with TD Ameritrade for each child and contribute $2,000 each year to each account. Insurance Planning, Tax Planning and Estate Planning Review your home, auto, health, life, disability, umbrella policy and long-term care insurance needs and rates annually. Make sure your accountant and investment advisor are working together. Make sure you keep your Will and Revocable Living Trust updated with your estate planning attorney. Setup your online Social Security account at and verify your earnings are recorded are correct. To correct earnings, gather your W2 s and call Beneficiaries TD Ameritrade IRA account have your spouse as primary and children as contingent. TD Ameritrade taxable account is Joint so spouse is primary. To add contingent change to TOD or Trust. Check other accounts for primary and contingent beneficiaries. Life Insurance (2018) Family monthly spend $6,500 per month David s income $9,000 per 20% taxes Deborah s income $2,700 per 20% taxes Investment income now (taxable account, IRA account) Life Insurance need David (not taxed, 15% capital gain tax only) Total Deborah Only $6,000 Assume: 5% return, 20% taxes IRA and 15% taxable account. Long Term Care Insurance (2018) Self-Funded.

8 Total Allocation Investment Total Allocation Page 7 (Current) Taxable/Tax Deferred Bonds 19% Cash 8% Taxable 27% Equities 73% Real Estate 0% Tax Deferred 73% Asset Allocation Bonds 19% Cash 8% Large Cap 23% Healthcare 2% Mid Cap 14% Financial 3% Technology 3% International 12% Small Cap 16% Real Estate 0% Natural Resources 0% Risk Allocation Financial Advisor Conservative 4% Client 12% Moderate 96% PDM 47% PDM/Client 41% Aggressive 0%

9 Investment Projection Table Page 8 The table below shows your accumulation of wealth created at various retirement dates. Future value calculations are calculated using the assumptions in the table and the excel FV formula. Retirement Income Plan Spend in Retirement Goal (70%-80%-90% pre-retirement) $6,500 current x 90% $6,000 Higher withdrawal in the first half of retirement years and lower in the second half. Per Month After 20% Tax Retirement in 2026) 100% Moderate Risk Portfolio $1,852,248 5% return $6,174 ($7,718 pre-tax) 0% Conservative Portfolio $0 4% return $0 0% Real Estate Condo $0 3% return $0 Total $1,852,248 $6,174 max + Part time job income (David 55 to 60) $2,000 ($30k income) Total $8,174 max + Pension in 2031) $1,600 ($2,000 pre-tax) Total $7,774 max + Social Security in 2038) *$2,000 ($2,500 pre-tax) + Social Security in 2038) *$1,000 ($1,250 pre-tax) Total Account Type Risk Level Annual Estimated Average Return Annual Contribution $10,774 max Goals: Income, minimize risk of running out of money, protecting portfolio principal and minimizing taxes. Assumptions on Returns (Future returns are not guaranteed each year and are an average of the years) Accumulation Mode: Annual estimated average return is based on timeframe until retirement, strategy, portfolio size, risk level and portfolio past performance. Numbers and calculations are estimates and should be updated annually. Long term returns are more accurate than short term return calculations. Capital gains tax should be paid with extra money. Short term return assumptions (< 5 years): Base annual returns for a moderate risk portfolio is 5.0%, 6.0% for PDM portfolio. (Alpha=1) Long term return assumptions (> 5 years): Base annual returns for a moderate risk portfolio is 6.0%, 7.0% for PDM portfoli0. (Alpha=1) PDM portfolios use strategic asset class & sector allocation, active security selection & tactical asset allocation. PDM portfolio alpha over the past 10 years was about +1.8% - 0.8% fees = +1.0%. Distribution Mode: Retirement return assumptions: 5.0% annual return on investment portfolio. (7.5% - 2.0% inflation 0.5% fees) Timeframe is 30 years, moderate risk (70%/30), inflation of 2.0%, portfolio management fees (0.6% x 80% = 0.5%), a 20% combined federal and state tax rate and no depletion of capital. Social Security: (Birth year before 1960) Max amount Age 62: $2,100 75% of full Subtract 6.25% per year from full Age 66-67: $2,800 Full Benefit Break even 62 vs 66 is 76 to 78 years old Age 70: $3, % of full Add 8.00% per year from full to 70 Break even 62 to 70 is 79 to 81 years old Social Security benefits are based on the average of the top 35 years of earnings. Only up to the allowable max is counted. ($128,000 in 2018) *Social Security tax rate for married couples: Adjusted gross income plus tax-exempt interest and 50% social security >$44,000 taxed on up to 85% of SS benefits. $25,000 to $35,000 SS taxed at up to 50% of benefits. Social Security Trust fund is scheduled to run out of money in Payroll taxes would still provide 80% of payout Q4 Worth Age 42 Custodian Name Merrill Lynch 401 (k) David Moderate 6% $18,000 $140,000 $160,000 $180,000 $200,000 $493,285 $682,392 $1,008,223 Fidelity 401 (k) Deborah Moderate 6% $18,000 $110,000 $120,000 $130,000 $150,000 $422,755 $598,625 $901,647 Scottrade IRA David Moderate 7% $0 $160,000 $180,000 $180,000 $200,000 $310,594 $387,056 $526,730 Scottrade Roth David Moderate 6% $5,500 $20,000 $25,000 $25,000 $30,000 $106,841 $156,387 $241,754 Scottrade Roth Deborah Moderate 6% $5,500 $30,000 $35,000 $35,000 $40,000 $120,947 $173,140 $263,069 0% $0 $0 $0 $0 $0 $0 $0 $0 Scottrade Taxable Joint Moderate 7% $5,000 $170,000 $190,000 $190,000 $200,000 $372,035 $490,977 $708,247 $0 $0 $0 Bank Taxable Joint Conservative 1% $0 $30,000 $30,000 $30,000 $30,000 $25,792 $23,915 $21,514 $0 $0 $0 Totals $52,000 $660,000 $740,000 $770,000 $850,000 $1,852,248 $2,512,491 $3,671,185 Based on David's Age Moderate Risk 12.1% 4.1% 10.4% ST 5.0% Inflation Rate 2.5% ST PDM 6.0% Years to LT 6.0% Retirement Distribution: 5% return after inflation, 20% Tax rate LT PDM 7.0% Annual Income $74,090 $100,500 $146,847 PDM After Monthly Income $6,174 $8,375 $12, % fee 2014 Q4 Worth Age Q4 Worth Age Q4 Worth Age Worth Age Worth Age Worth Age 67

10 Portfolio Allocation & Analysis Page 9 Merrill Lynch 401(k) David (Proposed Portfolio - December 2017) The portfolio is designed to meet your goals, risk tolerance and time horizon. Grades are derived from technical charts, fundamentals and other rating services. Funds listed below may be like funds and not exactly the ones in the plan. Change the allocation of the Contribution Elections and the Current Balance to the new allocation below. Q Leaders in Bold TICKER ASSET ALLOCATION GRADE SYMBOL CLASS CURRENT RECOMMENDED T. Rowe Price Growth Stock PRGFX LCG 11% 15% B Vanguard Equity Income Admiral VEIRX LCV 16% 10% A PRIMECAP Odyssey Aggressive Growth POAGX MCG 7% 10% A JPMorgan Mid Value FLMVX MCV 11% 7% A Vanguard Extended Market Index VIEIX SCG MCG 6% 9% B T. Rowe Price US Small Cap Value PRSVX? SCV 10% 6% B American Funds Euro Pacific Growth R4 RERGX INT LCG 5% 6% B Templeton Inst. Foreign Small Cap TFSCX INT MCV 6% 7% B Invesco Developing Markets GTDIX INT EM MKT 3% 5% B PIMCO Total Return (Y=3.3%, D=5.6yrs, Q=NR) PTTRX ITB 10% 10% B PIMCO Income Fund (Y=3.9%, D=2.6yrs, Q=NR) PIMIX MULTI BD 10% 10% B Vanguard Prime Money Market Fund VMRXX MONEY MKT 5% 5% B Asset Class Key LCG-Large Cap Growth, LCV-Large Cap Value, MCG-Mid Cap Growth, MCV-Mid Cap Value, SCG-Small Cap Growth, SCV-Small Cap Value, INT-International, INT EM MKT-International Emerging Market, INT BOND-International Bond, HY BOND-High Yield Bond, IT BOND-Intermediate Term Bond, ST BOND-Short Term Bond, MM-Money Market.

11 Strategy Mutual Fund Research Example PRIMECAP Odyssey Growth Fund (POGRX) The PRIMECAP Odyssey Growth Fund is in the Large Cap Growth asset class. Joel Fried has been manager since 2004 and has over $1,000,000 of his own money in the fund. He has an MBA degree. The fund is tax efficient and has a high sustainability rating by Morningstar. Management looks for companies that have grown rapidly in the past and have good potential to continue the growth but that have become temporarily cheap for some reason. Stocks are sold when the company or the economic environment has shifted significantly or for valuation reasons. They tend to have more-pronounced sector bets. Technology and healthcare at above benchmark ratings The turnover rate is low at 9%. The fund has a low expense ratio of 0.65%. The fund size is medium at $11 billion in assets under management. Performance The fund outperformed its category by 4% annually in the past 3 years, by 4% in the past 5 years and by 3% in the past 10 years. POGRX Category: LG S&P 500 TR USD 35K 30K 25K 20K 15K 10K History (12/31/2017) POGRX S&P 500 TR USD Category (LG) / S&P 500 TR USD / Category (LG) Annual Report Net Expense Ratio Turnover Ratio Rank in Category Fund Category LG LG LG LG LG LG LG LG LG LG LG Category: LG return as of 12/31/2017 S&P 500 TR USD return as of 12/31/2017 POGRX return as of 12/31/2017 Source: Print page to PDF. Performance Consistency The fund has outperformed its category in over 80% of the years between 2005 and Risk & Reward The fund volatility and variation are the same as its category. The risk-adjusted return is higher than its category risk-adjusted return. The maximum downdraft was 34% in 2008, less than the S&P 500 loss of 37%. The up/down capture ratio is positive at 1.1. Valuation The fund valuation is lower than its category. Summary This fund is strong with an A overall rating, making it one of the best funds in its category. The fund is OPEN to new investors with a $2,000 minimum for taxable accounts and $1,000 for IRAs. The fund is no-load but carries a transaction fee through TD Ameritrade and Schwab.

12 Retirement Preparation Old Linear Retirement: School, work, retirement at 62 with pension and death at 75 years old. New Cyclical Retirement: School, work, semi-retirement at 55 with no pension, school/lifelong learning second part time career, full-retirement at 75 and death at 85 to 110. Most people spend more awake time with their co-workers than their families. The more your identity is tied to your work, the more difficult it will be to find happiness in retirement. Jobs create connections, relationships and friendships. Some of these friendships will persist, but many will fade away. Early retirement can have a negative impact on physical, mental (self-worth, depression) and social health. It is critical you have a retirement plan addressing your exercise program, work/volunteer program and social activities. Keeping your brain active with mental stimulus can reduce the onset of dementia and Alzheimer s. A certified professional retirement coach can help. Retirees who engage in hobbies, clubs, part-time jobs, volunteer work and join organizations are happier, healthier and more youthful. These activities help fill the social void from your job. Select a second career you can love. Identify your passion, what you are good at, what the world needs and what you can get paid for. See if you can turn a hobby or something you are passionate about into a second career. To prepare for retirement you should engage in retirement activities before you retire. Some of these activities could lead to a small business or a part time job for fun. Taking a class or getting a certification can be helpful. Some second career ideas are gardening, investment advisor, cooking, web designer, home repair, dog breeding, internet product trading and consulting. College Decisions Take advanced placement classes in high school to earn free college credits. Part time work gives you valuable experience. Search for scholarships on websites like Fastweb and MyScholly. Submit your FAFSA application even if you are not going to use a student loan. Most scholarships require FAFSA. Parents and students should consider the following variables for career and college decisions: Job demand, salaries, college costs, return-on-investment and student loan debt limits. Other Professional Services Career Counselor How is your career going and do you have any concerns? A Career Counselor and Financial Planner can help align work, interests and lifestyles while staying on a healthy financial track. How much money do I need to quit my crappy job? How do I figure out a better way? It is a good idea to put a portion of your savings in a taxable account to be used for lifetime learning and cushion transition periods between jobs and careers. Phasing in a retirement schedule is often the best method to get to full retirement. Part time work will extend the life of your investment portfolio, offer job satisfaction and social interaction. Insurance Planning Purchase insurance you really need. Ask yourself the what if question? Do not mix investing and insurance. Review home, auto, health, life, disability, umbrella and long-term care insurance needs and rates annually. If you live in a state with Filial responsibility laws, long-term care or $100,000 life insurance may me a good idea. The law has the potential to stick unwitting family members with relatives hefty long-term care costs. Michigan and Illinois do not have this law. Some of the states with this law are CA, GA, IN, MA, NV, NJ, NC, OH, PA, TN, VA and WV. Tax Planning Make sure your accountant and investment advisor are working together. Accountant Recommendation: Tammy Moncrief, Yeo & Yeo, 691 N. Squirrel Road, Suite 100, Auburn Hills, MI 48326, tammon@yeoandyeo.com Estate Planning Review your tax-deferred account beneficiary s each time accounts change and at least every 10 years. Make sure you keep your Will and Revocable Living Trust updated. A revocable living trust can help you avoid estate taxes and probate, define who receives your assets, distribute your assets to your children in predefined amounts over time, assign a guardian to your minor children, appoint a trustee to handle your estate and distribute the assets, avoid settlement costs, define financial and durable power of attorney, patient advocate and HIIPA medical records. A Will directs your assets through probate the way you want them. Estate Planning Attorney Recommendation: Michael Witzke, McDonald Hopkins, LLC, Woodward Ave, Suite 318, Bloomfield Hills, MI 48304, , direct mwitzke@mcdonaldhopkins.com

13 Cyber Security & Credit Protection 2018 Passwords Verify your bank, brokerage, credit card, retail, computer, router and phone are secured with a strong password using capital and small letters, numbers and symbols. Change passwords often, use different. Use a long sentence password with the max characters including a capital letter, number and symbol. Use two-factor authentication for all financial websites and Amazon. (Login, password, text code) Never use your social security number as a password. Computer, s, Phone, The Cloud Make sure your computers are running virus protection software and are always updating. Turn your computer off every night. Encrypt your computer hard drive to protect your data if your laptop is stolen. Never access accounts or make purchases from a laptop or phone when on a public unsecured Wi-Fi. Do not respond with personal information to computer popups, links or phone requests. Always go to the official website or call your institution before you give information. Do not open attachments on suspicious s or s without an unsubscribe option. Look close at the address for clues. It is better to block the address than click on the unsubscribe link. Never send an or text with personal information in the title or body content. Only enter your personal information on secure websites that start with https and not http. Phone fraud and soliciting: Do not answer if not in your address book, if important they will leave a message. Continue blocking these numbers. Apps to screen these calls are questionable. Never send money or information to solicitations from overseas unless verified reputable. Verify sources using Google. Look close at address and websites for similar but not valid. Monitor Activity and Statements Monitor your bank, credit card and brokerage online/statements on a regular basis for fraud activity. Identity Protection, Fraud & Credit Alerts Turn on your bank and credit card fraud alerts. Setup Fraud Alert with the credit rating agencies if your data has been compromised. This notifies potential lenders for 12 months to take extra precaution before approving a loan or credit. A compromise is only certain if someone tries to use your data. Sign up for free Identity protection/credit alert services each time you are notified of a potential compromise. Identity protection services monitor reported fraud data bases for your SS#, monitors the 3 credit services for activity, credit report lock/unlock, $1 million identity theft insurance. Text or notification. Trusted ID Premier, Identity Guard, Identity Force, ID Shield, Experian ID, LifeLock, True Identity, AllClear ID are some of the larger providers. Credit Reports Run a free credit report annually from one of the top credit rating services to see if anyone opened a credit card or loan in your name. The report monitors loan and credit card history. When you apply for a loan or credit card, the bank or agency will use one of the credit reporting agencies to check your credit. Official credit report site: which allows you to select from one of the top three. Equifax, TransUnion and Experian. I have good luck with Experian. Other smaller new services are: Innovis and PRBC. Business credit reports start at $40 and are offered by Experian. Sbcr.experian.com Credit Freeze Consider placing a credit freeze with the top three credit rating services if you want added protection, suspect an identity breach and have no immediate plans to take out a loan or open a new credit card. A credit freeze will stop crooks from opening a credit card or taking out a loan in your name. For a married couple, go online with all three agencies for you and your spouse at $10 each, that s $60. Repeat the process when you unfreeze your credit and wait 10 days before you can use it. You are not liable for the credit card or loan charges so long as you can prove it was not you. Clean up your credit reports. Some credit card companies offer phone activated credit card freeze and unfreeze. Fraud Information View the AARP Fraud Watch Network Scam-Tracking Report for your area. Identity Theft Resources Center at PDM Investment Services

14 Activity Calendar January Research, NL, Trading Invoice, Portfolio Analysis Summary Compliance Investor Education Capital Gains Performance February Research, NL, Trading IRA Contribution March Research, NL, Trading April Research, NL, Trading Invoice, Portfolio Analysis Summary May Research, NL, Trading Wealth Plan RMD June Research, NL, Trading July Research, NL, Trading Invoice, Portfolio Analysis Summary Investor Education August September Research, NL, Trading Research, NL, Trading October Research, NL, Trading Invoice, Portfolio Analysis Summary November Research, NL, Trading Communication December Research, NL, Trading Key Research Monthly Compile ratings on the market, sectors and stocks for asset allocation and equity selection NL Monthly Write and send the Focused Growth Investor Newsletter Trading Monthly Review all portfolios for asset allocation and equity selection and trades Invoice Quarterly Send Invoice for your review Analysis Summary Quarterly Send Portfolio Analysis Summary Report Communication Six-month Phone call to each client 6 months after their wealth plan review Investor Education Six-month Post updated Investor Education Series to our web site RMD Annual Send Required Minimum Distribution paperwork to retirees over 70 with IRA s IRA Contribution Annual Send reminder to make IRA Contributions Jabil 401(k) Design Annual Send Jabil 401 (k) allocation for Jabil employees clients Compliance Annual Send of updated ADV2, Business Summary and Disclosure, Privacy Policy and Fee Schedule Wealth Plan Annual Send Wealth Plan data request, design, send and review meeting Capital Gains Annual Send Capital Gains reports for clients with taxable accounts Performance Annual Post model moderate portfolio performance with verification to web site Other periodic sends Investor Education s Market updates for corrections and increased volatility Advisor Agreement Updates is fees change

15 Benchmarks The chart below shows our client household projected Investment Net Worth at 60 years old and the number of clients at each level. The average client age was 48 years old in The numbers are based on average projection calculations in 2015 with 12 years to retirement. Does not include retired clients drawing income. See our wealth plan for projection calculation details. The table displays the monthly income at each level based on a 5% annual return and a 20% tax rate. The average client is projected to have $1,500,000 of investment net worth at 60 years old. Data from 35 households was averaged and linearized. Outlier data points were not used in calculations. The net worth does not include social security. The lines are you with and without your future annuity/pension. Pension Calculation: $5,000/month before taxes x 12 months = $24,000/year / 0.05 return = 60 years old. Projected Re+rement Savings at 60 Year Old $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 Investment Net Worth Projection at Age 60 Number of Clients Average Client Investment Net Worth 60 $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 Number of Client Households Monthly Income After (5%Y, 20%T) $1,700 $3,300 $5,000 $6,700 $8,300 $10,000 $11,700 Annual Income, Spending & Saving Benchmark The chart below shows our client household annual spending and saving at various income levels in Annual income is based on an average 10-year annualized income at 48 years old. Spending and savings is based on client averages in Each household is in a different situation with different variables. Some of the variables include the number of dependents, age, college expenses and debt service levels. The dots are you in the accumulation mode before retirement. $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 Annual Spending (A8er Tax) Annual Savings (Before & A8er Tax) $0 $100,000 $125,000 $150,000 $175,000 $200,000 $225,000 $250,000. Annual Income (Before Tax) Average Client Annual Income (Before Tax) $100,000 $125,000 $150,000 $175,000 $200,000 $225,000 $250,000 Annual Spending (After Tax) $60,000 $70,000 $80,000 $90,000 $100,000 $110,000 $120,000 Annual Savings (Before & After Tax) $15,000 $20,000 $30,000 $40,000 $45,000 $60,000 $70,000 Investment Net Worth 60 $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 Monthly Income After (5%Y, 20%T) $1,700 $3,300 $5,000 $6,700 $8,300 $10,000 $11,700 Number of Clients Households

16 Benchmarks Investment Net Worth at Different Age Levels The chart below shows our client current 2015 Investment Net Worth at different ages. Data was averaged, linearized and outlier data points were not used in calculations. The net worth does not include social security. The dots are you with and without your future annuity/pension. $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $ Client Age Current Investment Net Worth in 2015 (High) Current Investment Net Worth in 2015 (Average) Current Investment Net Worth in 2015 (Low) Age in Current Investment Net Worth in 2015 (High) $500,000 $700,000 $1,000,000 $2,000,000 $3,000,000 Current Investment Net Worth in 2015 (Average) $350,000 $500,000 $700,000 $1,500,000 $2,000,000 Current Investment Net Worth in 2015 (Low) $200,000 $300,000 $500,000 $750,000 $1,000,000 Your Investment Projections Over Time The chart below shows your Investment Net Worth and your projection at age 60 each of the year s projections were calculated. The net worth does not include social security and pension worth. Projections Planned Contributions Market Performance YEAR Steady Rising Higher (5.0% expected, 8.6% average) PLANNED CONTRIBUTION BENCHMARK PERFORMANCE (Moderate Risk) INVESTMENT 2012 x 12.1% $2,600, $40, % $2,600, $40, % $2,500, $45, % $2,500, $50, % $2,500, $50, % $2,500,000

17 Social Security Strategy Optimization (Example) 2018 The main focus is maximizing your lifetime benefit in-line with your life expectancy. Set a target retirement date and review the strategy periodically up until your file date. Variables David 1 Deborah 2 1. Birthdate/Age 1958/ /55 2. Marital status and history Married, once Married, once 3. Annual Income (now until retirement date) > $128,000 Retired 4. Life Expectancy Male, female Male 0 Female + Smoker no + past 0 Drinking habits moderate 0 moderate 0 Eating habits ok 0 good + Exercise habits good + good + Stress management ok 0 good + Your current health good + good + Family history > average + > average + Total +4/8 +6/8 5. Social Security Start Dates Break even ages Early Retirement Age 75% of Full Retirement Age (FRA) 100% 66, 8mo. 67 (62 vs 66) 76 to 78 Late Retirement Age 132% of (62 to 70) 79 to 81 (66 vs 70) 82 to Social Security Estimated Amount (in current dollars) See Social Security Statements on-line. Social Security benefits are based on the average of the top 35 years of earnings. Only up to the allowable max is counted each year, $128,400 in Use 50% of top earner if greater Social Security at 62 (As soon as possible) $2,013 mo. $427 mo. Social Security at Full Retirement Age (FRA) $2,835 mo. $629 mo. Social Security at 70 $3,599 mo. $784 mo. 7. Do you need the SS income? If not and you have a long-life expectancy you could wait. Social security will be reduced if your annual earned income exceeds $17,040 and you are taking social security before your Full Retirement Age. You will get lost benefits back at your FRA. 8. The last chance to file for a file/suspend or restricted application for married couples was April Social Security do-overs allow you to stop payments within the first 12 months and pay back. 10. Suspending your benefit allows you to stop payments at FRA and resume at 70 to increase payout. 11. If top earner is older than their spouse and spouse is projected to live longer, top earner may want to wait to increase payout for longer living spouse. 12. Widow benefit, spouse dies before 62, surviving child, X spouse benefit 13. Social security disability, childhood disability 14. Non-covered pensions, some government pensions may reduce your SS 15. To qualify for Social Security you need to have paid into Social Security payroll tax for a total of 10 years or be married to someone who has. 16. Social Security Trust fund is scheduled to start seeing more outflows than inflows by Solutions could be reduce the payout by 20%, moving the FRA out for future recipients, reducing benefits for retirees who can afford it or increasing the Social Security payroll tax. Select Your Strategy (Maximize Total Lifetime Benefit) Money Guide Pro Calculator Ages Break Even Ages SINGLE FULL PLAN Full plan includes all income sources, tax bracket, 78 69/64 and RMD using Money Guide Pro / /71 Social Security Calculators $40/year for web access, +$150 for consultant $50/year for web access, +$125 for consultant

18 Retirement Income & Tax Management Create enough income to support your retirement lifestyle and minimize your taxes in retirement. It is common to spend more in the first half of retirement years and less in the second half years. Take income from a mix of income sources to fill your Federal Tax Bracket, but not go over it. In early retirement if taxable income is low do Roth conversions to fill your lower bracket to reduce higher RMD taxes later in life. Take some money out of large IRA s and 401(k) s in early retirement and pay the taxes to reduce the large Required Minimum Distribution (RMD) that start at 70.5 that push you into a higher tax bracket. A $1,000,000 IRA and 401(k) RMD at 70.5 could produce over $30,000 of taxable income per year. Add that to your $50,000 joint social security annual income and you are into a higher tax bracket. After you complete your taxes for the prior year, do your estimates for the new year in April and October. Tax Brackets (2018) Joint Taxable Income $19,050 to $77,400. Federal tax rate 12%. LT Capital gains and qualified dividends is 0%. Joint Taxable Income $77,400 to $165,000. Federal tax rate 22%. LT Capital gains and qualified dividends is 15%. Ordinary Income Taxed Retirement Sources Social Security For most couples wait until Full Retirement Age of 67 unless you need the income or do not expect to live past 78 years old. Maximize your Total Lifetime Benefit using a good Social Security calculator. Pension Start taking pension between 60 and 65 years old depending on your plan and needs. Part Time jobs Social security will be reduced if your annual earned income exceeds $17,040 and you are taking social security before your FRA. Traditional IRA and 401(k) tax-deferred accounts Hold on to tax-deferred growth if you can. Must start withdrawals at 70.5 at RMD table rate. Heirs must take RMD distributions. For Traditional IRA s, consider making charitable contributions. Appreciated Stock (< 70.5 years old) or QCD (> 70.5 years old, RMD) After Tax Income Retirement Sources Taxable Accounts (Joint, trust and individual) Only dividend and capital gains are taxed each year at a lower rate. Design and manage your portfolios in a tax efficient way with ETF s and tax loss harvesting. Heirs receive a stepped-up tax basis. Tax Free Income Retirement Sources Roth IRA and Roth 401(k) Grow tax-deferred and income is tax free. Draw income here for in high income tax years. Heirs receive a good tax-free investment.

19 Our Financial Advisor Value Proposition We put our clients interest first, investing our client s money in the same investments we invest our personal money. Performance is monitored and verified by an independent party. If you answer NO to any of the following questions, it is likely a good financial advisor can add value. Do you feel you have the proper investment training? (Asset allocation, security selection, portfolio implementation and portfolio management) Do you have the proper investment tools? (Market forecast, fundamental, technical, valuation, psychology and cycles & seasonality) Will you make the time to keep up with the complex and changing investment environment? (Barron s, Morningstar and newsletters on the market forecast, stocks and mutual funds) Are you putting in enough time to design, manage and monitor your portfolios? Are you measuring your portfolios performance each year against its benchmark? The average investor lagged the S&P 500 s 11.1% return by 7.4% per year from 1993 to 2013 due to poor timing decisions particularly during down markets. (DALBAR research) Do you sell at market tops when everyone else is buying and buy at market bottoms? If an advisor can improve your portfolio performance annually over time by at least the management fee, then the portfolio is performing well. Trust & Confidence are very important. Wealth Building Plan Development and Support Identify goals and risk tolerance, income, spending, saving and debt service. Investment portfolio allocation and analysis, investment and income projections. Value comes from applying discipline to the unpredictable, chaotic and complex financial world. A Wealth Plan is a written long-term investment plan to guide you to meet your retirement goals. It provides peace of mind to your family, defines goals, monitors progress and drives adjustments. Projections to goals and retirement income cash flow. A wealth plan makes you less likely to overreact to market volatility and increase one s confidence and effectiveness in managing income, spending, saving, debt and investing. Our plans have measured goals with investment and income projections along with portfolio allocation & analysis. The plans are reviewed annually. Benchmark comparison of your progress to goals compared to others in your situation. Investor Education Focused Growth Investor Newsletter An educated investor increases one s confidence and effectiveness in investing. Guidance through the Transition into retirement, retirement income and complex IRA rules. Investment Research & Strategy Keeping your strategy current with the complex and changing investment environment. Tactical strategies to control risk and strategic asset allocation and sectors to improve return. Professional Portfolio Design and Management Market outlook, strategic asset class & sector allocation and mutual fund selection. Efficient portfolio management and implementation with timely execution of trades. Free annual 401(k) design for portfolio management clients. Behavior Coach & Fraud Detection Behavior coach for disciplined emotional support through bull & bear markets and bubbles. Help investors stick to their strategy and avoid low returns from jumping in and out of funds. A trusted advisor monitors account activity for fraud, account titles and beneficiaries. Portfolio Performance Analysis with Quarterly Performance Reports Investments, asset allocation, cash movement, management fees and performance.