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Copyright©Foresight Education, LLC 2016REV102516

Modern Retirement PlanningWORKBOOK

Modern Retirement PlanningModern Retirement PlanningModern Retirement PlanningModern Retirement PlanningWORKBOOK

Modern Retirement PlanningModern Retirement PlanningModern Retirement PlanningModern Retirement PlanningModern Retirement PlanningModern Retirement Planning™

COPYRIGHTED MATERIAL DO NOT DUPLICATE


Welcome to Modern Retirement Planning™ (MRP), a study of the latest concepts used for successful retirement planning. This course will take you from goal setting techniques to seldom discussed control and fl exibility strategies that are very important during your retirement years.

Unlike most other basic studies, MRP covers non-market, alternative investments. These may be important when trying to structure a diversifi ed and well-correlated “nest egg.” Your “nest egg” is the compilation of investments that could produce additional income above your Social Security and/or pension during retirement.

Knowing what you want to do during retirement, how much cash fl ow you will need, and what sources will provide that need are very important. MRP will also discuss many other aspects concerning aging and legacy issues.

INTRODUCTION

COURSE OBJECTIVE:

To familiarize you with the concepts and terminology

associated with the retirement planning process

COURSE GOAL:

To prepare you to more confi dently exert control

over the retirement planning process

EDUCATION IS KNOWLEDGEAND

KNOWLEDGE CULTIVATES

CONFIDENCE

Take good notes, ask questions and prepare for a well-planned retirement based on Modern Retirement PlanningTM concepts and principles.

Enjoy the course!



5

MY OBJECTIVES

Please take a few moments to list your reasons for attending this class.

Identifying what you want to receive from this experience will help you focus on the information that is most helpful to you.

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MOST RECENT PAYROLL STUB OR EARNINGS STATEMENTS

Self

Spouse

CURRENT SOCIAL SECURITY STATEMENTS

Self

Spouse

INCOME TAX RETURNS (past 2 years)

Self

Spouse (if fi ling separately)

DIVORCE DECREES AND SEPARATION AGREEMENTS

Self

Spouse

WILLS/TRUSTS

Self

Spouse

COMPANY BENEFIT STATEMENTS/BOOKLETS

Self

Spouse

SAVINGS AND RETIREMENT STATEMENTS(current statements preferred)

Federal Thrift Savings Plans (TSP)

IRAs/Roth IRAs

Mutual Fund/Savings Accounts/CDs

Brokerage Accounts

401(k)/Keogh/SEP Accounts

403(b) (Tax Sheltered Annuities)

Pension Plans/Profi t Sharing

Voluntary Contribution Plans

INSURANCE/ANNUITY CONTRACTS, STATEMENTS, AND IN-FORCE ILLUSTRATIONS

Life

Health

Disability

Group Insurance

Annuities

FEGLI/VRS Group Life

Long-Term Care Plans

VRS Member Benefi t Profi le (available online)

Federal Employee Personal Statement of Benefi ts (EBIS) (available online from OPM)

DOCUMENTS I NEED TO CREATE A PLAN



Copyright©Foresight Education, LLC 2016

Disclosures:

The views and opinions expressed in this book are solely those of the author. This book is designed to provide readers with a general overview of fi nancial markets/fi nancial strategies and how they work. It is not designed to be a defi nitive investment guide or to take the place of advice from a qualifi ed fi nancial planner, tax preparer, or other professional. The strategies outlined in this book may not be suitable or appropriate for every individual. Given the risks involved in any investment, there is no guarantee that the investment methods suggested in this book will be profi table.

Changes in federal, state, or local laws or procedural rules, or in the interpretation of such laws or rules, may have a material impact on the observations. Thus, neither the publisher nor the author make any warranties, expressed or implied, nor assume liability of any kind for any losses that may be sustained as a result of applying the methods suggested in this book.

Disclosure Label HereInclude Advisor name(s), FINRA Member Firm & Broker-Dealer

disclosure


Setting Goals - 1Copyright©Foresight Education, LLC 2016REV102516

This course will equip you with the knowledge and concepts necessary to effectively plan your retirement. Are you prepared for the biggest transition of your life?

THESE ARE SOME QUESTIONS THAT MAY BE DISCUSSED IN THIS SECTION:

• What type of lifestyle do you want during retirement?• Will you need more or less money to live out your dreams?• Will previous generations’ strategies still work in today’s environment?• What obstacles will challenge the success of your plan?• How can you make your “nest egg” more effi cient?

Setting Goals

Planning for retirement is not something that can be accomplished overnight. Whether you are 10 years

from retirement, ready to retire, or already retired, it is never too late to have a plan.

TOPICS INCLUDE:• Starting the Planning Process (2)

• Setting Goals (4)

• Retirement Planning Steps (6)

• Funding Goals with Tax Savings (18)


2 - Setting Goals Copyright©Foresight Education, LLC 2016 REV102516

During the 17th century, George Herbert’s Outlandish Proverbs, circa 1633, stated that “A penny spar’d is twice got.” Later, Thomas Fuller’s The History of the Worthies of England, circa 1661, made a similar statement that “A penny saved is a penny gained.” It changed several more times and ended with the latest version by The Pall Mall Magazine in September 1899 (often credited to Benjamin Franklin but never proven): “A penny saved is a penny earned.”

In 1952, George Santayana stated, “Those who cannot remember the past are condemned to repeat it.” How do these words of wisdom relate to today’s circumstances?

What about that penny? Will infl ation reduce the purchasing power of the penny you saved? Should you save it, or should you invest it?

And, what about studying history? Were past conditions the same as today’s conditions? If you build a plan based on your grandparent’s depression-era experiences, will that work for today’s retirement planning process?

Addressing these old proverbs is a good starting place for the goal setting process.

FACTS:

• According to the National Center for Health Statistics, the average life expectancy in 1930 for a male was 58.1 YEARS.

• According to the 2011 Commissioners Standard Ordinary Mortality Table (CSO),a person born in 1950 should live to be 79 YEARS. However, one of the fastestgrowing age groups is the 100 year-old group.

STARTING THE PLANNING PROCESS



QUESTIONS:

Is it appropriate to use investment advice and strategies handed down from a generation that lived on average for 58.1 years and retired at age 60 to 65? How long did the money need to last for a person living then compared to how long it needs to last for a person who will retire today at the same age?

CONCLUSION:

YOU MAY NEED TO PLAN FOR 20 TO 30 YEARS OR MORE.

If you merely save your nest egg funds at interest rates near the infl ation rate, then you should have been saving one half of your paycheck for the last 20-30 years! One half would be used for you to live on during your working years and the other half to live on during your retirement years!

PLANNING PERIOD:

Depression Era:Short life expectancies.

Today:Much longer life expectancies.

RETIREMENT LIFESTYLE:

This life expectancy issue creates two new considerations:

1 2Depression Era:

What did your grandparents do?

Today:What will you do

(new career or travel)?



Setting goals for retirement is an important task. It is more than just “when to retire” and “where to reside.” While these things are important, health, weather, and many other factors should be considered when you begin the planning process.

Every retiree has his or her own unique set of decision-making criteria. It is important that you have this discussion with your retirement partner before you proceed.

RETIREMENT CONSIDERATIONS:

WEATHER

While you may enjoy cold weather for snow skiing or cool winter activities, do you really want to shovel snow during your retirement?

You might consider retiring in a warmer climate, but can you tolerate the extreme heat in the summer?

Unless you can afford more than one home, make sure you evaluate the year round weather in the area you are contemplating before you spend your valuable resources to move.

ALLERGIES

Visit the region you are considering during different times of the year to determine if allergies or other medical complications will be a concern. Research your family medical history for clues before making the expensive decision to relocate.

CHILDREN AND GRANDCHILDREN

Exotic destinations may be attractive places to retire, but how expensive will it be for your family to visit? And how diffi cult will it be for you to visit your family? Will distance be a problem? Make sure you consider this before committing.

SETTING GOALS



BE SURE THAT YOU HAVE THESE CONVERSATIONS WITH YOUR SPOUSE OR LIFE PARTNER. IDEALLY, YOUR GOALS FOR RETIREMENT SHOULD BE SIMILAR; BUT

IF THEY ARE NOT, NOW IS A GOOD TIME TO DISCUSS YOUR DIFFERENCES AND FIND AGREEABLE SOLUTIONS.

LONGEVITY OR TIME

On what date will you begin taking income from your “nest egg”? How long will you need this income?

As many people are living beyond 100 years of age, the best solution would be to plan for a perpetual stream of income without disturbing the principal.

LIFESTYLE AND DESIRES

How will you spend your retirement years? Will you travel? Will you stay at home and garden? Are grandchildren and family a leading factor? Your lifestyle will dictate the amount of money you will need.

MEANS

Determine the income you need and then review your means. Your means are the aggregate of your sources for retirement income. These include your savings, pensions, and Social Security.

Don’t forget that medical expenses may increase as you age, which might create an additional drain on your nest egg.

Your goal should be to invest at a rate that can produce the income you need so that you never have to dip into your principal. If your investment performance is poor, you may need to adjust your living standard. You do not want to run out of money and have to go back to work!

It is imperative that you balance your dreams with your means during retirement.

INFLATION

Infl ation is a reality that erodes your purchasing power during the retirement years. While you are working, your salary may refl ect cost of living increases. Once you retire, it is up to you to address this issue. Social Security and pensions sometimes have Cost Of Living Adjustments (COLA).

The investment choices that you make will determine whether your nest egg performance will be suffi cient to keep pace with infl ation and withdrawals.

Remember that the withdrawal rate that you need plus the rate of infl ation equals the performance that you should have to maintain your desired living standard.



Many of you live a comfortable lifestyle during your working years. To maintain that comfort level, you need to prepare. The following steps will be helpful for this process:

WRITE DOWN YOUR DESIRES AND GOALS.

ASSESS THE COST.

DESIGN A PLAN

EXECUTE THE PLAN.

REVIEW AND REFINE YOUR PLAN PERIODICALLY.

While specialists may be needed to put together a successful retirement plan, there could be confl icts or overlaps in professional opinions on the best way to accomplish your objectives. Your stockbroker and your insurance salesperson may each have investment strategies. If so, you will need to coordinate these ideas.

RETIREMENT PLANNING STEPS

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• Evaluate your health concerns.• Consider taxes and infl ation.• Assess your income sources and net worth.

OTHER SERVICES

Insurance brokerStockbroker

Banker

SPECIALISTS NEEDED FOR PLANNING

Estate planning attorneyTax preparer

Financial planner



ALIGN YOUR INVESTMENT STRATEGY WITH YOUR STATED DESIRES AND GOALS.

There’s a common investment philosophy that suggests while you’re young you can be aggressive because time is on your side. The same philosophy says that as you get older you should slowly move towards more conservative investments.

For example, a depression-infl uenced planning model might look like this:1

This investment strategy probably had merit many years ago. The issue today is that demographics have changed. The average person is retiring at a younger age, and life expectancies are considerably longer.

IF YOU FACTOR IN TAXES AND INFLATION USING FIXED INCOME STRATEGY, YOU COULD RUN OUT OF MONEY.

Here is a more modern approach:1

1 The above charts are not necessarily recommendations. Consult with your fi nancial planner to design a model with your specifi c objectives in mind.

20-45 Years Old 45-55 Years Old 55+ Years Old

100%Growth

75%Growth

25%Income 50%

Growth50%

Income

20-45 Years Old 45-55 Years Old 55+ Years Old

100%Growth

50%Growth

50%Income

100%Income

PLANNING STRATEGIES



START NOW - DELAYS CAN BE COSTLY

There are lots of reasons to delay the planning of your retirement, but by taking this course you have shown the motivation and interest to start now. If you have enough time, you can achieve the fl exibility and control you want in retirement. (Delays can be costly.)

LIFE EXAMPLE:

Tim and Melissa are currently 30 years old. They plan to retire at age 60. They both recently inherited money. The inheritance was to be paid out at $500 per month for the next 30 years.

Melissa immediately contacted her planner and set up an investment account. She then directed her planner to have $500 per month drafted automatically from her checking account into her new investment. Tim, on the other hand, decided to spend his inheritance as he received it.

After 10 years, Tim realized he needed to get serious about his future and set up his own investment account. He instructed his planner to start drafting $500 per month out of his checking account into his new investment.

Meanwhile, Melissa was starting a family and decided she needed the $500 per month to help purchase a new home. See the chart on the next page. 1

FOR THE SAKE OF THIS EXAMPLE, LET’S ASSUME THAT BOTH MELISSA AND TIM ULTIMATELY RECEIVED THE SAME RATE

OF RETURN ON THEIR INVESTMENTS. ALTHOUGH MELISSA INVESTED HALF AS

MUCH AS TIM, BECAUSE SHE STARTED 10 YEARS EARLIER, HER TOTAL RETURNS

WERE SIGNIFICANTLY GREATER.

1 Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profi t or protect against a loss in periods of declining values.



$6,000 per year, 8% return 1

Age Tim Melissa30 0 $6,00031 0 $6,00032 0 $6,00033 0 $6,00034 0 $6,00035 0 $6,00036 0 $6,00037 0 $6,00038 0 $6,00039 0 $6,00040 $6,000 041 $6,000 042 $6,000 043 $6,000 044 $6,000 045 $6,000 046 $6,000 047 $6,000 048 $6,000 049 $6,000 050 $6,000 051 $6,000 052 $6,000 053 $6,000 054 $6,000 055 $6,000 056 $6,000 057 $6,000 058 $6,000 059 $6,000 0

Amount Invested $120,000 $60,000

Account Value $294,510 $450,670

1 The illustration does not consider tax implications or withdrawals. It assumes an annual contribution at the beginning of the year and an 8% rate of return compounded monthly from the beginning of the period. This hypothetical is for illustrative purposes only, should not be deemed a representation of past or future investment results or performance, and is based on mathematical principals and the topics/examples covered. Principal, yield, and/or share price may fl uctuate with changes in the market conditions and, when sold or redeemed, you may receive more or less than originally invested. It does not portray tax implications, withdrawals, actual investment results, and your experience may differ.

AT THEIR PREDETERMINED RETIREMENT AGE OF 60, HERE’S HOW THEY DID:

EVEN THOUGH MELISSA INVESTED HALF AS MUCH

MONEY AS TIM, SHE ACCUMULATED 50% MORE

MONEY BY AGE 60 BECAUSE SHE STARTED

10 YEARS EARLIER.

MELISSA

Melissa invested $500 per month ($6,000/Yr) for 10 years.

At 8% return, Melissa’s nest egg grew to $450,670.

TIM

Tim invested $500 per month ($6,000/Yr) for 20 years.

At 8% return, Tim’s nest egg grew to $294,510.COPYRIGHTED MATERIAL

DO NOT DUPLICATE


OWN

NET WORTH - CURRENT

Liquid Cash

Investments

Home

Other Real Estate

Personal Property(that can be sold for cash)

Personal Credit

• Car Loans

• Credit Cards

• Other Short Term Debt

Useful Debt

• Mortgages

• College Loans

• Business Debt

ASSESS YOUR CURRENT FINANCIAL SITUATION.

Establishing a target through the goal setting process is the fi rst step towards successful retirement planning. The second step is to align your resources and cash fl ow with your desired target. There are many tools in the marketplace to assist with this step. Quick Books, Excel, or even a spiral notebook can be useful to track your cash fl ow and net worth.

These two tools might be helpful in the tracking process:

CURRENT AND FUTURE NET WORTH STATEMENTS

CURRENT AND FUTURE INCOME AND EXPENSES STATEMENTS

WHAT I OWN(even if you are indebted for their purchase)

WHAT I OWE

Total OWN = Total OWE =

OWN OWE = NetWorth

Use the following worksheets to estimate your CURRENT net worth, your annual income, and your annual expenses. Then, use a pencil to fi ll in the blanks as you estimate your PROJECTED net worth, income, and expenses at the time of retirement. You may want to revisit these projections at the end of this course.

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1COPYRIGHTED MATERIAL DO NOT DUPLICATE


OWN

NET WORTH - PROJECTED AT RETIREMENT

Liquid Cash

Investments

Home

Other Real Estate

Personal Property(that can be sold for cash)

Personal Credit

• Car Loans

• Credit Cards

• Other Short Term Debt

Useful Debt

• Mortgages

• College Loans

• Business Debt

WHAT I OWN(even if you are indebted for their purchase)

WHAT I OWE

Total OWN = Total OWE =

OWN OWE = NetWorth-

NOTES:

1COPYRIGHTED MATERIAL DO NOT DUPLICATE


INCOME AND EXPENDITURES - CURRENT

OWN

For many of us, this is the number on our tax return.

Savings & Investment Contributions

• Quali� ed Plans

• Taxable Investments

TOTAL INCOME

Total FIXED =

INCOME EXPENSES =Net

CashFlow-

• Income Tax, Social Security, or other federal tax

• State and local taxes

• Mortgage/Rent

• Other (scheduled) debt repayments

• Insurance (auto, home, health, life, etc.

Fixed Expenses

• Utilities

• Medical

• Auto Expenses (fuel, maintenance, repair)

• Recreation

• Revolving Credit

• Charitable Contributions

• Miscellaneous (clothing, pets, gifts)

TotalFIXED + Total

VARIABLE = TotalEXPENSES

Total VARIABLE =

TOTAL EXPENSES

Variable Expenses

2



INCOME AND EXPENDITURES - PROJECTED AT RETIREMENT

For many of us, this is the number on our tax return.

TOTAL INCOME

OWN

Savings & Investment Contributions

• Quali� ed Plans

• Taxable Investments

Total FIXED =

INCOME EXPENSES =Net

CashFlow-

• Income Tax, Social Security, or other federal tax

• State and local taxes

• Mortgage/Rent

• Other (scheduled) debt repayments

• Insurance (auto, home, health, life, etc.

Fixed Expenses

• Utilities

• Medical

• Auto Expenses (fuel, maintenance, repair)

• Recreation

• Revolving Credit

• Charitable Contributions

• Miscellaneous (clothing, pets, gifts)

TotalFIXED + Total

VARIABLE = TotalEXPENSES

Total VARIABLE =

TOTAL EXPENSES

Variable Expenses

2



MANAGE CREDIT AND DEBT

Managing your credit and debt properly can be very important during retirement. Not using credit wisely and/or accumulating unnecessary debt can put a huge, long-lasting strain on your cash fl ow. It could negatively impact your retirement lifestyle.

CREDIT

Credit is defi ned as confi dence in a borrower’s ability and intention to repay. The amount of credit a person has may help to determine how much money he or she might be permitted to borrow, for how long, and at what interest rate.

The level of confi dence lenders have in a potential borrower depends on several considerations. A person’s income is an indicator of his ability to repay debt. Lenders may also look at the amount of outstanding debt and how well the borrower has handled past repayments. This is an indicator of his intention to repay.

Because the information in your credit report is used to evaluate your applications for credit, insurance, employment, and renting or purchasing a home, you should be sure the information is accurate and up-to-date. It is a good idea to check it on a regular basis. EXPERIAN, EQUIFAX, and TRANSUNION are the most widely used credit reporting agencies.

THE FAIR CREDIT REPORT ACT guarantees that you are entitled to one free report from each agency every 12 months. You can request your free report online, by phone, or by mail. Visit annualcreditreport.com, call (877) 322-8228, or fi ll out the annual credit report request form and mail it to:

ANNUAL CREDIT REPORT REQUEST SERVICEP.O. BOX 105281

ATLANTA, GA 30348-5281

No matter how you request your report, you have the option to request all three reports at once or to order one report at a time. By requesting them separately, you can monitor your credit more frequently.

PROBLEMMY

GROSS HABITSLIES IN RECONCILING MY

- errol flynnNET INCOME

WITH MY



DEBT

The term “debt” often takes on a negative connotation. There are two kinds of debt, GOOD DEBT and BAD DEBT.

One example of GOOD DEBT would be if you borrow money to purchase a home. Typically, these types of loans have favorable terms. These loans usually have lower interest rates and allow the borrower to repay them over longer periods of time making this more like an investment.

Another example of GOOD DEBT would be borrowing money to pay for college. Again, the interest rates are typically low and can be repaid over a longer period of time. It’s a documented fact that, on average, college graduates make more money over their lifetimes than non-college graduates.

BAD DEBT is borrowing money to purchase items for immediate consumption and then paying it out over an extended period of time. These purchases might include groceries, gas, and entertainment. Credit cards can be considered bad debt because of the type of purchases made with them and the high interest rates they impose. Many of us use credit cards to collect reward points or airline miles. Make a commitment to pay the balance at the end of the month to avoid getting into fi nancial trouble.

REDUCING BAD DEBT

Many people have experienced the unpleasant feeling of being up to their necks in debt. Getting into debt is easy. Getting out of debt takes a plan of action.

HERE ARE SOME STEPS FOR GETTING OUT OF DEBT. DO AS MANY OF THE STEPS AS POSSIBLE IN THE ORDER LISTED:

STOP INCREASING DEBT

INTELLIGENTLY REDUCE DEBT

AS HIGHER INTEREST DEBT IS PAID OFF, SHIFT PAYMENTS TO LOWER INTEREST DEBT

These steps are an effi cient method to get out of debt and back on the road to fi nancial freedom.

1Be aware that closing accounts could have a temporary negative effect on your credit score. Consult the above-mentioned credit agencies for more information.

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• Consolidate high interest debt into low interest loans• Close unnecessary charge accounts1

• Categorize debt by interest rate• Pay off highest interest debt fi rst



WHAT IS A CREDIT SCORE?

A credit score is a 3 digit number generated by a mathematical algorithm using the information found on your credit reports. A credit score is used to predict risk, specifi cally the likelihood that you may become delinquent on your credit payments in the 24 months following the calculation of your score.

There are a number of credit scoring models in use today. One in particular dominates the marketplace: the FICO score. According to myFICO.com, the consumer website for the FICO score developer, “90 percent of all fi nancial institutions in the U.S. use FICO scores for their decision-making process.”

WHAT MAKES UP A FICO SCORE?

Data from your credit report goes into fi ve major categories that make up your FICO score. When determining your score, your payment history and amount owed are more heavily weighted.

PAYMENT HISTORY: (35%) your account payment history, including non-payments and slow pays

AMOUNT OWED: (30%) how much you owe on your existing accounts. The amount of available credit is heavily weighted.

LENGTH OF CREDIT HISTORY: (15%) how long your accounts have been open and time since last activity

TYPES OF CREDIT USED: (10%) the ratio of revolving accounts to installment accounts

NEW ACCOUNTS: (10%) your attempt to open new accounts. This includes credit inquiries and recently opened accounts.

Personal or demographic information such as age, race, marital status, income, and employment do not affect your score.

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It is important that you take the time to prepare a fi nancial plan that addresses your needs and concerns about retirement. A competent fi nancial planner, CPA, and estate attorney make up the team of professionals who can guide you through the process. Once it is complete, we recommend that you review your fi nancial plan with your team every year. Tax laws and investment opportunities change. Use professionals to help you increase your returns and to protect and pass along more assets to your heirs.

CREATE A COMPREHENSIVE FINANCIAL PLAN AND REVIEW

IT PERIODICALLY.



Tax Year 2016 Federal Income Tax Brackets and Rates 1

Married Filing Jointly

Married Filing Separately Head of Household Single

TaxRateTaxable Income Taxable Income Taxable Income Taxable Income

At Least But Less Than At Least But Less

Than At Least But Less Than At Least But Less

Than

$0 $18,550 $0 $9,275 $0 $13,250 $0 $9,275 10%

$18,550 $75,300 $9,275 $37,650 $13,250 $50,400 $9,275 $37,650 15%

$75,300 $151,900 $37,650 $75,950 $50,400 $130,150 $37,650 $91,150 25%

$151,900 $231,450 $75,950 $115,725 $130,150 $210,800 $91,150 $190,150 28%

$231,450 $413,350 $115,725 $206,675 $210,800 $413,350 $190,150 $413,350 33%

$413,350 $466,950 $206,675 $233,475 $413,350 $441,000 $413,350 $415,050 35%Over $466,950 Over $233,475 Over $441,000 Over $415,050 39.6%2

1 These tax rates are for the 2016 tax year (Source: irs.gov).

MARGINAL TAX RATE VS. EFFECTIVE TAX RATE

The following example will illustrate the EFFECTIVE TAX RATE for a married couple earning taxable income of $150,000 per year. Their MARGINAL TAX RATE would be 25% for 2015.

Notice that while the married couple earned $150,000 and their MARGINAL TAX RATE was 25%, their effective tax rate was only 19.36% ($29,042.50 / $150,000).

Married Filing Jointly Taxable Amount Tax Rate Tax DueTaxable Income

At Least But Less Than

$0 $18,550 $18,550 10% $1,855.00$18,550 $75,300 $56,750 15% $8,512.50$75,300 $150,000 $74,700 25% $18,675.00

TOTAL TAX DUE $29,042.50



STANDARD DEDUCTION OR ITEMIZE?

If you have many itemized deductions such as mortgage interest, charitable contributions, etc., it may make sense for you to itemize your deductions instead of using the standard deduction for your tax fi ling status. Consult your tax preparer for a complete list of expenses that might qualify to be itemized. Certain restrictions may apply based on your ratio of income to expenses.

Some expenses may include, but are not limited to, mortgage interest, property taxes, state income taxes, sales taxes, medical expenses, and more. If these qualifi ed expenses add up to more than your standard deduction, then you may want to itemize.

CONSULT YOUR TAX PREPARER FOR A COMPLETE LIST AND CURRENT RULES FOR ITEMIZING.

There’s an old saying, “A penny saved is a penny earned!” Saving money on your current year’s taxes will free up funds for retirement investments.

• Consider making an extra house payment in the current year. You can pay your January payment in December. Make sure you send your payment well in advance so that it will be refl ected on the form 1098 sent to the IRS. Form 1098 details the amount of interest and mortgage-related expenses paid on a mortgage during the tax year.

• The same strategy works for property taxes. Property taxes are typically due by January 31st each year. If you pay the following year’s property taxes in December, you will essentially have two years worth of property taxes to deduct.

• Schedule elective medical and dental procedures in the same tax year. You can only deduct the amount of your medical and dental expenses that exceeds 10%. This represents an increase from 7.5% of AGI in 2012. Those over the age of 65 can continue to use the 7.5% calculation through 2016.

• Time your charitable contributions. If you regularly donate to charity, consider making next year’s donations by December of this year to charity.

• When donating to charities, consider using securities. You can donate highly appreciated securities to charity at fair market value. By employing this strategy, you can avoid paying any tax on the gain. If a security is down in value, you can sell it and realize a loss on your taxes and then donate the proceeds.

TAX DEDUCTION STRATEGY

When your deductible expenses are close but not quite enough to itemize, the following strategies might be helpful:

FUNDING GOALS WITH TAX SAVINGS



TAX SAVINGS THROUGH EMPLOYER

By making the maximum contributions allowed to employment plans, employees may generate substantial tax savings. These plans often use pre-tax dollars to reduce current taxable income.

DEFINED CONTRIBUTION PLAN

Your employer may contribute pre-tax dollars to your employer-sponsored plan. Any untaxed dollars may be taxed when withdrawn. There could be an exception if you request after-tax contributions or contribute after-tax dollars to an employer-provided Roth 401k. If your company does not offer a 401k plan, then consider a traditional IRA to reduce your adjusted gross income.

CONSULT YOUR TAX PROFESSIONAL FOR DETAILS.

FLEXIBLE SPENDING ACCOUNTS

FLEXIBLE SPENDING ACCOUNTS (FSA) are accounts that may be offered by employers to allow employees to save money for qualifi ed health and child care expenses. Funding these accounts reduces your adjusted gross income. The limit for 2016 is $2,550, which is scheduled to be infl ation-adjusted going forward. Previously, employers were responsible for determining the contribution limit. Some accounts have a “use it” or “lose it” feature if there are unused funds at the end of the year.

1

2

PESSIMISTTHECOMPLAINS ABOUT

THE WIND;

OPTIMISTTHE EXPECTS ITTO CHANGE;

- william arthur wardREALISTTHE ADJUSTS

THE SAILS.



OTHER TAX STRATEGIES

• If you have held a capital asset for more than one year, it is possible to CAPTURE CAPITAL LOSSES. A capital asset is any asset used for personal or investment purposes. When a capital asset is sold, the difference between the basis in the asset and the amount it was sold for is a capital gain or loss. Capital losses can be used to offset capital gains dollar-for-dollar if they are held in a taxable account. If your capital losses exceed your capital gains in any given tax year, you may use up to $3,000 ($1,500 if you are married fi ling separately) of losses to offset your ordinary income. If your capital losses are more than this limit, you can carry the additional loss forward for subsequent years.

• TAX ADJUSTMENTS are expenses that will directly reduce your taxable income. Adjustments include contributions to traditional IRAs, moving expenses, health insurance expenses, student loan interest, and alimony paid. TAX CREDITS may be available for qualifying expenses, such as education expenses, adoption expenses, and child and dependent care expenses. COPYRIGHTED MATERIAL DO NOT DUPLICATE


The federal income tax you pay on investment income and profi t depends on the kinds of investments you have.

These are the primary types of investment earnings:

INTEREST - Income received from savings accounts, certifi cates of deposit, bonds, and similar investments.

DIVIDENDS - Income that may be received from individual stocks.

CAPITAL GAINS - Realized when an investment is sold for a profi t.

Type of Income Federal Income Tax Treatment

Interest Ordinary Income

Dividends3 Taxed at 20% rate1

Capital Gains3

Asset held less than 12 monthsAsset held at least 12 months

Ordinary IncomeTaxed at 20% Rate2

Tax-deferred Taxed as ordinary income when withdrawn

1-2 Due to an extension in the Bush-era tax cuts the following rates will remain effective through 2016: Rate is 0% for persons in the 10-15% tax brackets. 15% is the maximum tax rate on dividends and long-term capital gains. The rules are complex. See your tax advisor for details.

3 Dividends and Capital Gains (held over 12 months) - Anyone over the following thresholds must pay a 20% tax on Dividends and Long Term Capital Gains.

• $415,050 Single Filers• $466,950 Joint Filers• $441,000 Head of Household

Additional Penalties my apply.

INVESTMENTS AND TAXES

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Several types of investments offer tax advantages.

The chart below describes these categories of investments and how they work.

Investment Type Example Federal Income TaxTax-deferred 401k, 403b, 457 plans, IRA,

variable annuitiesInvest pre-tax or after-tax dollars and delay paying taxes on contributions and earnings until withdrawal. Money is withdrawn is usually taxed as ordinary income (may be subject to tax penalties).

Tax-deductible 401k, 403b, 457 plans, IRA Invest pre-tax dollars or tax deductible after-tax dollars. This investment allows you to lower your current taxable income. Money withdrawn is usually taxed as ordinary income (may be subject to tax penalties).

Tax-exempt Municipal Bond Invest using after-tax dollars. Interest income received from the investment is normally not subject to federal or state income tax.1

Tax-free Roth IRAs, Life Insurance Invest using after-tax dollars. No taxes are owed when withdrawn (subject to restrictions).

Tax credits Low-income housing, Hope Scholarship Credit

Tax credits can be used to o� set taxes due to “dollar-to-dollar!”

1 Only exempt from state and local taxes if you buy bonds issued by the city or state where you live. Municipal bonds are also subject to the alternative minimum tax (AMT).

INVESTMENTS WITH TAX ADVANTAGES



HOW MUCH INCOME WILL I NEED FOR RETIREMENT? 100% of my current income

Less than 100% of my current income

I haven’t stopped to think about what I will need

WHAT IS THE RATE OF RETURN ON MY CURRENT INVESTMENTS TODAY? Less than 6%

Greater than 6%

I haven’t calculated my average rate of return

WHEN I CALCULATE MY RETIREMENT NEEDS: I use a target need based on gross income needs

I use a target need based on net income needs after taxes

I haven’t even thought about that at this point in my planning

ONCE I RETIRE, MY “NEST EGG” INVESTMENT STRATEGY WILL BE: More aggressive than it was during my accumulation period.

Will be about the same as it was during my accumulation period

My investment strategy will be more conservative once I retire

HOW MUCH MONEY DO I NEED TO RETIRE?


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