TODAY’S LINE-UP

• What is Financial Planning?

• Goals & Assumptions

• Know Your Resources (Net Worth)

• Spending plan (Budget)

• Risk Management (Insurance)

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• Investments

• Tax Planning

• Retirement Planning

• Estate Planning

• Why Have a Financial Planner?

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• How much money will I need to save for the future? • When can I retire? • If retired, how do I insure against running out of

money? • Are my investments diversified? • Have I protected my family against risks? • Are my assets going to pass efficiently?

SELF-ASSESSMENT QUIZ?

• Goals and Assumptions • Net Worth, Cash Flow, & Budgeting • Retirement Planning • Risk Management & Insurance • Tax Minimization • Investment Planning • Estate Planning

WHAT IS FINANCIAL PLANNING?

The Web

Risk Management/ Insurance

Tax Minimization

Net Worth, Cash Flow &

Budgeting Retirement

Planning Estate Planning

Investment Planning

• Accumulating

• Spending / Protecting

• Transferring

PLANNING STAGES

Accumulation Stage

Buying Stuff Houses, Cars,

etc. Fortify Your Savings

Prepare for the “What Ifs” of Life

Develop Estate Plan

Determine Best Tax Strategy

Plan for the Costs of College

Look After Kids and Take Care of Aging

Parents

Managing Risk

(Income / Property))

Spending & Protecting Stage

Maintain Estate Plan

Financially Empower Children

Explore Heath Care

Options

Monitor Tax Strategy

Enjoy Philanthropic

Gifting

Social Security

Strategies Review Risk

Management Strategies

Make Retirement Money Last

GOALS

ESTABLISH YOUR GOALS

• Formulate goals (with spouse/partner).

• Make them realistic / achievable

• Be specific! Include a dollar amount and a date.

• Rank or prioritize goals.

• Develop a written plan

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ESTABLISH YOUR GOALS

If you are having trouble, try these questions: 1. If you had enough money for all of your needs, how would

you live your life? Would you change anything? 2. You’ve received a terminal diagnosis with 5-10 years left to

live. What will you do with your time? 3. You’ve received a terminal diagnosis with 24 hours left to

live. What do you regret most? What did you miss? What did you not get to do?

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NET WORTH & CASH FLOW

What You Own = Current Assets + Invested Assets + Personal Use Assets (less)

What You Owe = Current Liabilities + Long-Term Liabilities

Net Worth/Balance Sheet

STATEMENT OF NET WORTH

Tip: Know “Good Debt” (15-year mortgage, 3-year auto loan) from “Bad Debt” (Credit Card balances)

STATEMENT OF CASH FLOWS

Income = Earned Income + Dividends

+ Rental Income + 1099 Income + Capital Gains (less)

Expenses = Fixed Expenses + Variable Expenses + Savings

Surplus (Commonly Accumulation Stage) OR Shortage (Commonly Spending & Protecting Stage)

Tip: Consider where you can reduce monthly/annual expenses

INVESTMENT PLANNING

RISK and RETURN

Risk

Retu

rn

0

It’s impossible for an investment to have a high expected return and also have low risk

Stocks • Ownership in a company • Stockholders rewarded by dividends and increases in stock value

Bonds • Loans made to a company or government • Short, intermediate, or long term • Investment grade or junk

Cash • While working: 3-6 months of living expenses • At retirement: 2 yrs of living expenses

INVESTMENTS

DIVERSIFICATION

HOW MUCH OF MY PORTFOLIO SHOULD BE INVESTED IN STOCKS?

Ability Willingness

Need

Ability to take risk

1. Liquidity needs

2. Investment horizon

3. Stability of earned income

Need to take risk 1. What are your goals?

2. Saving or spending?

3. Return objective

Willingness to take risk 1. The stomach acid test

2. Will you stay in the boat?

MUTUAL FUNDS

• Advantages over buying individual securities

• Professional management • Diversification • Liquidity • Cost efficiency • Service

• Disadvantages over buying individual securities

• Professional management doesn’t necessarily mean good management

• Not all mutual funds provide adequate diversification

• All mutual funds charge a fee to pay for the services provided

• Is the fee worth it?

MUTUAL FUNDS Which factors are reliable predictors of mutual fund returns?

Manager tenure?

10-15 yr past performance?

3-5 yr past performance?

Manager with own money in fund?

Morningstar rating?

“I like/trust the manager”

MUTUAL FUNDS

• The real answer: Expenses

INVESTMENT PLANNING 6 KEY STEPS

Choose an appropriate stock allocation.

Diversify broadly.

Minimize expenses – use low cost mutual funds.

Be tax aware.

Rebalance after large market shifts. Manage Emotions.

1 2 3 4 5 6

MANAGE EMOTIONS

MISTAKES ARE COSTLY

Tip: Missing only a few days of strong returns can drastically impact overall performance.

• Performance of the S&P 500 Index, 1970---2015

$89,678

$80,370

$58,214

$33,710

$21,224

$9,195

Gro

wth

of $

1,00

0

Total Period

Missed 1 Best

Day

Missed 5 Best Single

Days

Missed 15 Best Single

Days

Missed 25 Best Single

Days

One- Month

US T-Bills

Annualized Compound Return

10.27% 10.01% 9.24% 7.95% 6.87% 4.94%

RISK MANAGEMENT & INSURANCE

1. Don’t risk more than you can afford to lose.

2. Consider the odds.

3. Don’t risk a lot for a little.

RISK MANAGEMENT

Protect your cash flow • Life Insurance • Health Insurance • Disability Insurance • Long-Term Care Insurance

RISK MANAGEMENT

• How much do I need?

• Term vs. Permanent

o Replace Income - Term

o Pay Estate Tax – Permanent

o Leave Bequest – Permanent

LIFE INSURANCE

Protect your stuff • Homeowner Insurance • Automobile Insurance • Umbrella Insurance • Rider for Collectibles

RISK MANAGEMENT

Tip: Keep liability limits and deductibles high!

Protect yourself • Professional Insurance (E & O) • Corporation, LLC, LLP

TAX PLANNING

Tax Strategies • Defer Income • Accelerate Deductions • Maximize Pre-Tax Savings

Maximize Deductions

• Medical Expenses • Tax (State Income, Property) • Mortgage Interest • Charitable Contributions

TAX MINIMIZATION Accelerate. Defer. Eliminate.

Tip: Meet with CPA in October/November to discuss tax strategies before year end.

RETIREMENT PLANNING

RETIREMENT QUESTIONS

• How much can I spend and not run out of money? • What is the impact of inflation and taxes? • How should you invest to meet your goals? • How do Social Security and Medicare fit in?

• Income • Expenses • Assets • Savings/Withdrawals • Goals

• Health • Inflation • Taxes • Investment Returns

ASSUMPTIONS

Tip: Review annually - Financial Plan vs. Financial Process

7+% Red Light 5-6% Yellow Light 3-4% Green Light

HOW MUCH CAN I SPEND?

SOCIAL SECURITY

• Amount is based on how much you earned while working - Average: $1,328/month - Maximum : $2,639/month (at age 66) • Reduced benefits available at age 62 • Increased benefits for delaying – maxes out at age 70 • Example:

– $1,000/mo at age 66 – $750/mo at age 62 – $1,320/mo at age 70

• Annual benefits increase with inflation • Spouse can claim a spousal benefit

– Work history not required

ESTATE PLANNING

ESTATE PLANNING

• Management during your lifetime • Distribution following your death • Protect loved ones • Preserve property • Avoid conflicts and delays • Reduce costs and taxes

ESTATE PLANNING Important Documents

• Will

• Living Trust

• Durable Power of Attorney

• Property and Health Care

• Advanced Health Care Directive

• Letter of Instruction

Tip: Estate planning documents should be reviewed every 3-5 years.

ESTATE PLANNING - TRUSTS

• Eliminate probate • No delay upon death • Privacy • Simplified administration • Flexibility • Professional management

• Estate Tax Exclusion: $5,450,000 • Estate Tax Rate: 40% • $14,000 Annual Gift Tax Exclusion

ESTATE PLANNING

BIGGEST MISTAKES IN

ESTATE PLANNING

• Procrastination

• Failure to take advantage of exemptions

• Not funding trust

• Incorrect beneficiary designations

• Lack of durable powers of attorney

• Selection of trustees

Tip: Remember that named beneficiaries take priority over those named in will!

FINANCIAL ADVISORS

THE BIG PICTURE

WHY HAVE A

FINANCIAL PLANNER? If you don’t know where you're going, you may wind up somewhere else. -Yogi Berra “ ”

Comprehensive Financial Planning Self Directed I have clear financial direction. 88% 60% I have control of my finances. 87% 71% I am on track to achieve my financial goals. 78% 51% I have financial peace of mind. 81% 70% I feel my goals and dreams are financially secure. 75% 49% I have confidence in my ability to cope with the 82% 57% financial impact of unexpected events.

• Fiduciary Standard • Education & Credentials/Designation • Compensation Structure/Conflicts of Interest • Recent & Relevant Experience • Investment Philosophy • Service Model • No professional disciplinary citations

CHOOSING AN ADVISOR?

Tip: Don’t subscribe to a compensation model that may affect the advice given to you

• Fiduciary Standard • Education & Credentials/Designation • Compensation Structure/Conflicts of Interest • Recent & Relevant Experience • Investment Philosophy • Service Model • No professional disciplinary citations

CHOOSING AN ADVISOR? (cont.)

Tip: Don’t subscribe to a compensation model that may affect the advice given to you

ARE ALL ADVISORS THE SAME?

BROKERCHECK From FINRA’s BrokerCheck, local advisors in or near Orange County: • “assault with deadly weapon” • “client states she had no idea she was investing in a variable annuity” • “impersonating a police officer” • “unsuitable investment into a variable annuity” • “tax lien” • “possession of narcotics” • “personal bankruptcy to escape arbitration award”

MORE INFO: If interested, we would be happy to email a copy of NAPFA’s Questions to Ask an adviser to you. Please sign up on the back table.

• Friends/Family Referrals • Professional Referrals • Professional Resources

– NAPFA (888-Fee-Only) – FPA (800-322-4237) – CFP Board – Fee Only Network

WHERE DO YOU FIND A

FINANCIAL PLANNER?

RS Crum, Inc.

949-428-9696 www.rscrum.com/iym

QUESTIONS?