Financial Planning: Making Choices

Transcription

1 Financial Planning: Making Choices U N I V E R S I T Y O F M I S S O U R I M E D I C A L S C H O O L N O V E M B E R 2 0 TH, P R E S E N T E D B Y : E V A N M C G I N N I S A N D S T E V E S T E I N B R U E G G E C H F C Securities and investment advisory services through Securian Financial Services, Inc.,Member FINRA/SIPC. Renaissance Financial is independently owned and operated Oakland Ave. Suite 400 St. Louis, MO 63110

2 Overview 1. Debt Management 2. Student Loan Repayment Examples 3. Psychology of Investing 4. Investment Strategy Discretionary Income Existing Assets Time Value of Money 5. Insurance Strategy Life Insurance Disability Insurance Health Insurance 6. Tax Strategy Know the Law Know Your Limits

3 Debt Management Good Debt vs. Bad Debt Good Rate vs. Bad Rate Challenge of reducing debt while simultaneously saving money Avoidance of New Debt Budgeting DOFU: 9/2010

4 Student Loan Repayment Example A: $150,000 Loan at 6.0% May 31 st, 2015 Graduation from Medical School Annual Interest Rate Roughly $9,000 or $750 Per Month Average Income Residency Year 1: $51,250 or Roughly $4,300 Per Month (After Tax Close to $3,000 Take Home) Goal to at least pay interest during Residency Outcome $2,500 Annual Tax Deduction of Interest (Capped) Monthly Payment May 31 st, 2019 for 10 Years = $1,665

5 Student Loan Repayment Example B: $150,000 Loan at 6.0% May 31 st, 2015 Graduation from Medical School Annual Interest Rate Roughly $9,000 or $750 Per Month Average Income Residency Year 1: $51,250 or Roughly $4,300 Per Month (After Tax Close to $3,000 Take Home) No Interest Paid During Residency No $2,500 Annual Tax Deduction of Interest Monthly Payment May 31 st, 2019 for 10 Years = $2,109 or $444 more Monthly ($150,000 Grows to $190,000 by waiting 4 Years)

6 Psychology of Investing Where to Start? Forming Habits ($5 vs $5,000) Creating Automatic Savings Contributions Understanding the Time Value of Money $1 Today will be worth significantly more in the future. Opportunity Cost of Saving What am I giving up? Balance of Loan Repayment with Investing Review Starting at 30 vs Starting at 40

7 Investment Strategies Discretionary Income (Accumulation) Savings and Emergency Funds (Liquid) Brokerage/ Trust (Non-Qualified) Cash Value Life Insurance IRA/Roth IRA (Income Restrictions) Qualified Plans (401k, SEP, Simple) Defined Benefit Plans

8 Investment Strategies Existing Assets (Accumulation Meets Distribution) Know and Understand Your Risk Rebalance and Re-assess Tax Diversification (Buckets of Money)

9 Investment Strategies Time Value of Money Physician A: Pay Down Student Loans Over 10 Years (Age 30-40) Roughly $1,700 Monthly Debt Free at 40: Drawback No Assets Accumulated Begin Saving for Retirement from Age 40 to Years at $2200 per month at 8% Rate of Return At Age 65 Nest Egg of $2,092,258

10 Investment Strategies Time Value of Money Physician B: Pay Down Student Loans Over 10 Year Period Roughly $1,700 Per Month Avoid New Debt and Also Save $500 Per month During this Time Frame of 10 Years Save for Retirement for 35 Years from $500 Per month from and $2,200 per month from at 8% Rate of Return At Age 65 Nest Egg of $2,763,685

11 $1 a Day Invested for Retirement Amounts at Age 65 Age 8% 10% 20 $152,361 $288, $102,120 $177, $67,927 $108, $44,656 $66, $28,818 $39, $18,039 $22, $10,703 $12, $5,711 $6,399 These hypothetical values assume that the currently illustrated non-guaranteed elements will continue unchanged for all years shown. This is not likely to occur and actual results may be more or less favorable than those shown. Investments will fluctuate and may be worth more or less than originally invested. These figures do not account for taxes or fees which would reduce the performance shown

12 $500,000 at Age 65 Monthly Amount Needed to Save Growth = 10% Starting at Age Monthly Savings 25 $ $ $ $ $ $1, $2,441 These hypothetical values assume that the currently illustrated non-guaranteed elements will continue unchanged for all years shown. This is not likely to occur and actual results may be more or less favorable than those shown. Investments will fluctuate and may be worth more or less than originally invested. These figures do not account for taxes or fees which would reduce the performance shown

13 Insurance Strategies Life Term Rented for a period of time 10,15, 20, or 30 years. Permanent Combination of investment vehicle with tax advantages and life insurance Whole Life Insurance Company Assumes Investment Risk Variable Life Owner/Insured Assumes Investment Risk Life Insurance products contain fees, such as mortality and expense charges, and may contain restrictions, such as surrender periods.

14 Insurance Strategies Disability Insurance Employer Paid Disability Insurance Personal Policy 1) Taxable Benefits 2) Non-Portable 3) More Restrictive Definition of Disability 1) You Own and You Pay 2) Tax Free Income Benefits 3) Portable 4) Better Riders Such as: Future Income Purchase Options Own Occupation Rider Residual Disability

15 Tax Strategies Know the Law Capital Gains Income Dividends Change from Year to Year Know Your Limits Contributions to 401k (maximum is $17,500) Income Limits (2014): IRA ($60,000 single filers, $96,000 for joint filers) with a max contribution of $5,500 Roth IRA ($114,000 single filers, $181,000 for joint filers) with a contribution max of $5,500 Financial advisors do not provide specific tax strategies. This information should not be considered specific tax strategies. You should consult your tax advisor for your own specific tax situation.

16 Deductions vs. Credits What is the real difference???? Example A: $1,000 Deduction Example B: $1,000 Credit 1. Individuals taxable income from employment is $100, They would be in the 28% tax bracket 3. For every $1,000 they deduct they will pay $280 less in taxes. 1. Individuals taxable income from employment is $100, They are also in the 28% tax bracket 3. They receive a credit for $1, Instead of paying $280 less in taxes they will actually pay $1,000 less in taxes.

17 Deductions vs. Credits Deductions Credits Student Loan Interest Mortgage Interest Individual ($5,700) Joint ($11,400) Charity Health Insurance Premiums State Taxes Personal Property Taxes Savings for College IRA Education Adoption Child Care Dependent Care Earned Income Tax

18 Contact Info for Questions Evan McGinnis Direct: (314) Steve Steinbruegge Direct: (314)