Core Financial Concepts A Transamerica Company
Charting your financial future begins with these core concepts
The 6 Steps to Financial Independence 1 Are you asking the right questions and making the right moves for your future? Cash Flow Earn additional income Manage expenses Emergency Fund Save 3-6 months income Prepare for unexpected expenses Build Wealth Strive to outpace inflation & reduce taxes Professional money management Debt Management Consolidate debt Strive to eliminate debt Proper Protection Protect against loss of income Protect family assets Preserve Wealth Reduce taxation Build a family legacy When investing, there are certain risks, fees and charges, and limitations that one must take into consideration. 1
Life Insurance How much do you need? 2 Age, health, debts, dependents, income and a variety of other factors should all be considered. However, the basic rule of thumb is approximately 10X your annual family income. 2
The 3-Legged Stool A Broken Traditional Retirement Model Past retirees often enjoyed a combination of a company pension, a Social Security check, and their personal savings. With this traditional model all but gone, a new retirement strategy focused on personal responsibility is needed. Personal Savings Social Security Company Pensions 3
The High Cost of Waiting Time: Your worst enemy or greatest ally 3 Here is an example of how the monthly amount required to reach $1 million for retirement changes with how much time you have to hit that goal in an 8% tax-deferred hypothetical account. The best way to put time on your side is to start saving today. $13,609.73 $5,466.09 $286.45 $435.94 $670.98 $1,051.50 $1,697.73 $2,889.85 40 35 30 25 20 15 10 5 Years Until $1 Million Retirement Goal Met 4
Ibbotson SBBR Stocks, Bonds, Bills and Inflation 1926-2013 This new era brings a turbulent market of ups and downs. There is a need to protect against down markets. $100k 10k 1k Compound annual return Small stocks 12.3% Large stocks 10.1 Government bonds 5.5 Treasury bills 3.5 Inflation 3.0 $26,641 $4,677 100 10 $109 $21 $13 1 0.10 1926 1936 1946 1956 1966 1976 1986 1996 2006 Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of 1926. Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 2014 Morningstar. All Rights Reserved. 5
The Rule of 72 It s important to manage your rate of return and risk If you divide 72 by the rate of return being earned, you will obtain the approximate number of years required for your initial savings to double. $160k For example, the Rule of 72 tells us that an investment earning a constant 8% rate of return should double approximately every 9 years. $80k So, if you made a $10,000 investment at age 29, with an 8% rate of return, it should grow to about $160,000 by age 65. $40k $20k 38 47 56 65 6 The Rule of 72 is a mathematical concept that approximates the number of years it will take to double the principal at a constant rate of return compounded over time. All figures are for illustrative purposes only, and do not reflect the risks, expenses or charges associated with an actual investment. The rate of return of investments fluctuates over time and, as a result, the actual time it will take an investment to double in value cannot be predicted with any certainty. Results are rounded for illustrative purposes. Actual results in each case are slightly higher or lower.
How many times will your money double? Notice how a $5,000 investment at age 29 doubles more often as the rate of return increases. 65 $20,000 $40,000 $80,000 $320,000 59 56 53 $20,000 $40,000 $160,000 $80,000 AGE 47 $10,000 $20,000 $40,000 41 38 35 29 $10,000 $10,000 $20,000 $10,000 4% 6% 8% 12% $5,000 $5,000 $5,000 $5,000 That s exciting to think about. But consider the interest rate on your credit card. Is it 18%? Higher? The Rule of 72 can work against you just as powerfully as it can work for you. Debt management is still important. The Rule of 72 doesn t consider taxes. Taxes can increase the amount of time it takes for money to double. Your financial professional can help you develop a strategy that considers the impact of taxes. 4 7
The Impact of Losses It hurts more than you think If you lose 50% of $10,000, what rate of return does it take to get back to $10,000? A 50% gain only gets you back to $7,500. $7,500 A 100% gain is required to fully recover a 50% loss. $10,000 50% Gain $10,000 50% Loss $5,000 100% Gain 8
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1 When investing, there are certain risks, fees, charges, and limitations that one must take into consideration. 2 There are many variables that affect your life insurance needs. You may be more or less insurance depending on any existing savings, assets, retirement funds and whether the purpose of the death benefit is to replace income or perhaps for estate planning. 3 In this hypothetical example, an 8% compounded rate of return is assumed on hypothetical monthly investments over different time periods. The example is for illustrative purposes only and does not represent any specific investment. It is unlikely that any one rate of return will be sustained over time. This example does not reflect any taxes, or fees and charges associated with any investment. If they had been applied, the period of time to reach a $1 million retirement goal would be longer. Also, keep in mind, that income taxes are due on any gains when withdrawn. 4 Tax and/or legal advice are not offered by World Financial Group, Inc., their affiliated companies or their independent associates. Please consult with your personal tax and/or legal professional for further guidance. World Financial Group, Inc. (WFG) is a financial services marketing company whose affiliates offer a broad array of financial products and services. Insurance products offered through World Financial Group Insurance Agency, Inc., World Financial Group Insurance Agency of Hawaii, Inc., World Financial Group Insurance Agency of Massachusetts, Inc., World Financial Group Insurance Agency of Wyoming, Inc., World Financial Insurance Agency, Inc. and/or WFG Insurance Agency of Puerto Rico, Inc. - collectively WFGIA. WFG and WFGIA are affiliated companies. Headquarters: 11315 Johns Creek Parkway, Johns Creek, GA 30097-1517. Phone: 770.453.9300 For use in the United States only. 2014 World Financial Group, Inc. 2896/6.14 10