know your numbers: financial planning fundamentals key note... · 2016-11-01 · know your numbers:...

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

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!

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”?

8

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

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?

12

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

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

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

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

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

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

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

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

• 45Years

• 8%Annual Interest %

• $0Present Value

• $5,500Annual Payment

• $2,295,843Future Value

• 40Years


• $0Present Value


• $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


• $2,295,843Present Value


• $100,000Future Value

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

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)

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 __%

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

S&P 500: October 2008 – April 2009

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S&P 500: January 2009 – April 2015

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

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

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…”

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

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

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

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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know your numbers: financial planning fundamentals key note... · 2016-11-01 · know your numbers:...

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