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Know Your Numbers: Financial Planning Fundamentals2015
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Personal action plan
Action Step When Done
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Did you know?
What % Americans grade their financial knowledge a “B” or higher?
14%
26%
37%
59%Source: NFCC / NerdWallet 2015
However…
70% are currently worried about their finances
60% continue to spend without a budget
21% are spending more than they did last year
33% carry a credit card balance
24% don’t pay all their bills on time
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Important financial things you need to know, calculate, download, prepare or talk about…and the reasons why
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Did you know?
What % of Americans say disagreements about money are a major source of stress
in their relationships?
1%
17%
29%
47%Source: National Foundation for Credit Counseling / JoFP March 2015
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Talk about your goals and priorities!
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Did you know?
What % of 65 year-olds are working full-time, part-time, or seeking work?
10%
20%
30%
40%Source: Gallup / JoFP March 2015
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What is your “Picture of Retirement”?
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Age60
Age40
Age90
20years
30years
TODAYHOW MANY
YEARS?
ENDOF
RETIREMENT
BEGINNINGOF
RETIREMENT
HOW MANY
YEARS?
Consider your retirement time horizon today
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How long might you live?
Current Age - Gender 50%
55 - Male 81
55 - Female 84
60 - Male 82
60 - Female 85
65 - Male 83
65 - Female 85
Sources: U.S. Department of Health and Human Services, National Vital Statistics Reports, Vol. 63, dated July 27, 2015 and RP 2000 Mortality Table
25%
92
94
92
94
92
95
10%
97
99
98
99
98
99
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Thoughts on college funding
How much should a
parent pay for?
What is the REAL timeline for saving for
college?
How much does college
cost?
How much do I need to save each
month?
Where should I save for college?
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What is your true saving timeline?When will you start? When will you stop?
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0-18 18-22 22+
Save until college begins
Pay for college “just-in-time” while the student is
in school
Use student loans and pay back after college
Save through college years
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Education funding
• 9,258,079
Total FAFSA applications received Q1 2012-2013 year
• 2,000,000
Number of students who would be eligible for a Pell Grant that never completed the FAFSA
• 20 minutes
Average time to complete the FAFSA
• 85%
Percentage of first-time, full-time degree/certificate-seeking undergraduate students at 4-year institutions receiving any financial aid in 2012-2013
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Prepare and update a detailed Net Worth statement
Net Worth = Assets - Debts
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Know your numbers: Net Worth
• Prepare annually; develop a goal to increase Net Worth number each year
Net worth (assets – debts)
• Make extra payments towards highest rate debt firstInterest rates
from high to low
• Compare your rate to the market – consider a refinance, or Home Equity to consolidate debtsMortgage rate
• Monthly debt payments ÷ Monthly gross income• < 36% is preferred by lender• > 42% - potential signs of financial difficulty
Debt to income ratio
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Debt and savings
$7,281• Average U.S. household
credit card debt****
$15,609• Average U.S. household
credit card debt for those who carry
a balance****
21%• Americans that have no savings*
29%• American that have
less than 3 months of savings**
40%• U.S. parents who said their most important financial goal is building an emergency fund***
*Bankrate.com**nbcnews.com***CFP Board / JoFP, November 2014****Federal Reserve, 2015
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Maintain an emergency fund
Know your number: 6 months of necessary expenses
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Did you know?
What % of Americans with a household income under $100,000 are living paycheck-to-paycheck?
5%
20%
35%
50%Source: Money’s Americans and Their Money study / JoFP May 2014
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Prepare a detailed cash flow statement
Cash Flow = Income - Expenses
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The $5 problem
$5 per day
30 days per month
30 year career
7% assumed growth rate
= $182,997
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Know your numbers: Cash Flow
• Understand where all of your money goes and your net cash flow; update and review periodicallyNet cash flow
•Track ALL expenses for 30 days. •Find opportunities to cut or reduce expenses, acquired desired items differently•Know your “allowance” – understand how much of your paycheck is really ‘yours’
Notebook method
• Total monthly savings divided by total gross monthly income
Personal Savings Rate
• Automate as many of your recurring bills as possible –auto pay and auto-debit arrangements
Go on auto-pilot
• Consider online and App resources such as Mint.comGo high-tech
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Credit scores
• 25%
Percentage of consumers that found errors in their credit reports which could impact their credit scores
• 80%
Percentage of consumers who experienced some modification of their report after filing a dispute
Source: Federal Trade Commission study, 2013
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Importance of your credit scores
Credit score: 650
Mortgage: $250,000 for 30 years at 4.53%
Monthly payment: $1,271
Total paid: $457,560
Credit score: 780
Mortgage: $250,000 for 30 years at 3.49%
Monthly payment: $1,121
Total paid: $403,560
Interest rates from myfico.com as of 10/01/15
$150
$54,000
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Know your number: Access a free credit report every 4 months
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Know your number: Obtain your credit score
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Saving early
• 90%*
Percentage of workers that have least some regret about when they started saving for retirement
• 65% men / 53% women**
Percentage of men and women that have started saving for retirement
• 22***
The median age that millennial investors started saving for retirement
*American Century / JoFP Oct 2015**BlackRock / JoFP April 2015***TransAmerica Center for Retirement Studies / JoFP Oct 2015
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• 45Years
• 8%Annual Interest %
• $0Present Value
• $5,500Annual Payment
• $2,295,843Future Value
• 40Years
• 8%Annual Interest %
• $0Present Value
• $5,500Annual Payment
• $1,538,795Future Value
Save early: Use a Future Value App(fCalculate for iPhone)
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Withdraws in retirement: Use a Present Value App(fCalculate for iPhone)
• 30Years
• 6%Annual Interest %
• $2,295,843Present Value
• $165,525Annual Payment
• $100,000Future Value
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Social Security
• 59%*
Percentage of current retirees using Social Security as a major source of income
• 77%**
Percentage of promised Social Security benefits that will be paid out after 2033 if the system isn’t revised
• 64%*
Percentage of Millennials that do not expect to receive any Social Security benefit
*Gallup / JoFP Oct 2013**Forbes / JoFP Oct 2015
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Social Security estimates
Action Step
• Visit www.ssa.gov to obtain your Social Security statement, review your earnings record, and estimate your benefits
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401(k)
• 50% men / 45% women*
Percentage of men and women who feel they are doing a good job preparing for retirement
• 49% men / 43% women**
Percentage of men and women that participated in their 401(k)
• $121,000 men / $78,000 women***
Average retirement accounts of men and women
• $245,000****
Total projected amount a couple with average income can expect to spend throughout retirement on health care
*EBRI Retirement Confidence Survey, 2015**Wells Fargo / JoFP June 2015***Money / JoFP June 2015****Fidelity
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Focus on your 401(k)
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Know your numbers: 401(k) Plan
• Current contribution _____ %Your contributions
• Maximum company match % ___________Match
• Rate of return for your account, and your chosen funds, for 1, 3, 5 and 10 yearsPerformance
• Reduce risk and increase potential return• Know your asset class percentagesAsset allocation
• Operating expense basis points and any loads for each fundInvestment fees
• Take advantage of auto-escalation features• Rebalance annually or use target date fundsAction steps
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Know your numbers: Asset allocationasset class percentages
Foreign Equity __%
Cash / Fixed Income __%
Large Cap US Equity __%
Mid/Small Cap US Equity __%
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Why is asset allocation important?Asset-class winners and losers
Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2015 Morningstar. All Rights Reserved.
$100
$525
$288
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Did you know?
What % of money is held in cash, for those in their early/mid 30s?
9%
20%
33%
42%Source: UBS / JoFP May 2014
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S&P 500: October 2008 – April 2009
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S&P 500: January 2009 – April 2015
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Where would you be now?
Moved to all cash allocation
• Value at peak: $10,000 (October 2008)
• Value at bottom: $4,400
(March 2009)
• Switch to cash
• Current value: $4,700
(April 2015)
Maintained S&P 500 allocation
• Value at peak: $10,000 (October 2008)
• Value at bottom: $4,400 (March 2009)
• Maintain stock allocation
• Current value: $13,200 (April 2015)
Figures rounded to $100. Assumes 1% annual cash return. No additional contributions. Does not account for dividends.
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Did you know?
What % of Americans do not have a will?
18%
32%
50%
64%Source: UBS / JoFP May 2014
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Prepare basic estate planning documents now
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Ensure your wishes are followed
• Financial & Healthcare• Choose TODAY who will make your financial and health decisions for
you if incapacitatedPowers of Attorney
• Make your life sustaining wishes known to family and doctorsLiving Will
• Opportunity to make key decisions – executor, guardian, distribution of personal assetsWill
• LOOK at the forms every 5 yearsBeneficiary forms
• Organize your affairs – ease the burden on your survivors
Records Organizer & Letter
• Employer group legal planAction step
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Life insurance
30%• Percentage of people
without life insurance*
$320,000• Gap between the amount
of life insurance the average American has vs. the amount they need**
*LIMRA / JoFP Aug 2015
**U.S. News & World Report / JoFP Aug 2015
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Life insurance considerations
Know your numbers: Have the insurance conversation “If I die…, If you die…”
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Know your numbers: Personal income tax
• Total Tax Due (Line 61)÷Taxable Income (Line 43)Effective tax rate
• The highest tax bracket you reach this year, which will apply to your ‘next’ dollar of incomeMarginal tax rate
• Current W-4 withholding status, exemptionsWithholding
• Roth or Regular IRA, 401(k)? • Know the AGI and contribution limits
Tax-advantaged savings
• Update your W-4 if you owe, or get a large refund• Review your 1040 line-by-line• Check your last 3 years’ returns for errors• Consider the advantages of Roth vs. Regular
Action steps
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Focus on your benefits
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Cutting medical expenses
If you contribute $2,500 to a medical FSA…
You could save $750* or more on taxes
*Based on 30% federal, state, and FICA taxes
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Know your numbers: Insurance
• Monthly medical premium $ ____________• Annual out of pocket maximum $ _________Medical plan
• Employer-provided STD & LTD monthly benefits $ _____
• Current additional disability benefits $ _____Disability
• Average annual cost where YOU (or your parents) live?Long-term care
• Current annual insurance premium $ _____• Current deductible $ _____
Home & Auto insurance
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Long-term care
• 70%*
Percentage of people over age 65 that will require some form of long-term care services during their life
• $91,250*
Average annual cost for a private room in a nursing home in the U.S.
• 40%**
Percentage of the 13 million American receiving long-term care who are between the ages of 18 and 64
*Genworth 2015 Cost of Care Survey**The Family Caregiver Alliance / JoFP Aug 2015
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Know your numbers: Planning and organizing
• Physical and computer filing system for statements, taxes, projections, etc.
Get organized
• Consider a subscription to the WSJ or a financial magazine, but don’t follow everything you read
Read
• Schedule one annual task each monthCreate a financial
calendar
• Check your bank for kids savings programs• Example: PNC’s “S is for Savings” program
Teach your kids about money
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Personal action plan
Action Step When Done
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