Kelli A. Adams, EA, CFP Counselor Meg Welborn, JD Associate Counselor

Transcription

1 Kelli A. Adams, EA, CFP Counselor Meg Welborn, JD Associate Counselor

2 GW & Wade provides a comprehensive array of financial services to address your unique financial needs. Whether we re helping you plan for retirement, manage your tax burden or fund that college education, our counselors apply their many years of professional expertise to help you reach your goals. Financial Counseling Our expert counselors work closely with you to understand your needs and goals, and to craft a custom plan just for you: * Income Tax Planning * Investment Management * Retirement Planning * Estate Planning * Cash Flow Analysis * Charitable Gifting Strategies * Education/College Planning * Risk Management * Debt Management Asset Management * Once we have worked together to create your custom plan, we can help you manage your investments and other assets to stay on track. Tax Planning * Managing your tax burden should be a goal in any comprehensive financial plan. That s why GW & Wade offers tax planning and preparation services to the clients who work with us. Executive Team Services * GW & Wade can help the members of your executive leadership team with specific financial services, including investment planning and wealth management.

3 Personal Financial Fundamentals: KEY TOPICS Budget Savings and Investments Importance of Creating Goals Dealing with Debt

4 Monthly spending depends upon your personal circumstances, but here is a good place to start: Monthly Budget Fixed Costs 30% Retirement/Savings 50% 10% Debt Repayment 10% Discretionary Fixed Costs: rent/mortgage, utilities, car, insurance, childcare costs Retirement/Savings: 401(k), IRA, savings account Debt Repayment: credit card, student loans Discretionary: eating out, groceries, gas, entertainment Savings Good rule of thumb is to keep six months worth of expenses in savings in case of emergency *Use online tools, such as mint.com, to help you create and stick to your budget

5 Category Expense Goal % Your % FIXED 50% Rent/Mortgage Utilities (electric, gas, phone, internet, cable) Car payment/transportation costs ( T pass) Insurance (car, renters/ homeowners, umbrella, health) Childcare costs RETIREMENT/SAVINGS 10% 401(k) IRA Savings Account DEBT REPAYMENT 10% Credit cards Student Loans DISCRETIONARY 30% Food (groceries, eating out) Gas Entertainment (movies, fitness membership, vacation) Clothing Other (charity, pets, family support)

6 Housing: Should you rent or buy? Rent PROS Limited expenses to pay (no property taxes, homeowners insurance) No/limited maintenance (landlord has the burden) Mobility not stuck to a place if you don t like it CONS Not gaining equity ( throwing money away ) Limited tax deductions Not permanent usually not your dream house Buy PROS Possibility of appreciation Permanent May receive tax deduction for expenses (mortgage interest, property taxes) CONS High upfront costs (sales tax, closing costs, inspections) Extra expenses (homeowners insurance, property taxes) Not mobile your ability to move depends on your ability to sell or rent Housing market fluctuates Have to address and pay for all maintenance issues (a pipe bursts, you can t call the landlord) Tips on Buying a Home Buy what you can afford today, not what you expect to afford in the future Lenders will likely approve you for a mortgage of more than you should spend (often 5 times your salary) 2 ½ times your salary is reasonable, but run the numbers using the budget guidelines Aim for a 20% down payment

7 What is an Individual Retirement Account (IRA)? Traditional IRA: An account that allows you to contribute pretax or after-tax income, up to specific annual limits, towards investments that can grow tax-deferred Roth IRA: A retirement account that allows you to set aside after-tax income up to a specified amount each year, and withdraw the earnings on the account and withdrawals after age 59 ½ tax-free. You can also withdraw your contributions at any time without penalty and tax-free. Who can contribute? Are contributions deductible? Traditional IRA Anyone under age 70 ½ with taxable compensation Yes, if you qualify (income range limits depending on retirement plan at work) Roth IRA At any age, anyone with taxable compensation, whose income is below certain amounts No, contributions are not deductible How much can I contribute? For 2015, you can contribute up to $5,500 (plus a $1,000 catch-up if you are over 50) to all of your traditional and Roth IRAs Are withdrawals taxable? Are there required minimum distributions? Yes, deductible contributions plus earnings are taxable at withdrawal. In addition, there is a 10% penalty tax on withdrawal prior to age 59 ½ (with some exceptions*) Yes, you must start taking distributions when you turn 70 ½ No, qualified distributions are not taxable at withdrawal. You must have the account for at least 5 years, and be at least 59 ½, disabled, or a beneficiary (there are exceptions*) No, there are no required minimum distributions if you are the original owner *First time home buyer IRA distribution: a withdrawal from an IRA for home acquisition costs is considered a qualified distribution ($10,000 lifetime limit per person), without penalty (and without income tax for Roth IRA distribution)

8 How to manage your 401(k) Contributions: * Take advantage: If your employer matches, contribute up to the max match amount if you can, that s free money! * Annual maximum: the maximum you can contribute in 2015 is $18,000. * Strike a balance: not everyone can max out their 401(k), but the important thing is to find a good balance between having enough cash on hand for now, and putting away enough money for retirement. As your salary increases (raises, bonuses, etc.), consider increasing your contributions as you feel comfortable. Investing: Your plan could offer anywhere from 3 to 100 options. Consider the following: * Timeline. The more time you have until retirement, the more aggressive you can afford to be. You have time to recover from a loss and to compound earnings from rises in the market over time. As you approach retirement, you should focus more on preserving your investments and generating income rather than investing aggressively. * Risk tolerance. Many factors will affect your willingness to take risk, including your goals, your timeline, other financial assets, current income and stability of your job. A higher risk tolerance will point you towards equity investments, like mutual funds. A lower risk tolerance will point you towards regular return investments. * Other retirement assets. Evaluate the investment options within your 401(k), and select the best funds. Then, complement those funds with other assets you may have, such as IRAs, taxable investments, pensions or deferred annuities. * Diversification. Your aggregate portfolio should have exposure to all asset classes to ensure diversification. Helpful Resource:

9 Financial Planners Fee-only: a la carte rate they can charge a one-time or ongoing fee, depending on the service. They conduct business under a fiduciary duty by law they must act in good faith on behalf of their clients. They typically offer more comprehensive advice (real estate, retirement planning, tax planning, college financial aid). Fee-based: may charge both fees and commissions based on products they sell. Typically they hold licenses allowing them to sell investments or insurance. Commission-based: their compensation is tied to specific products they sell.

10 Where to put a 401(k) from an old job? Four main options: Option Pro Con 1. Keep your money in the former employer s plan 2. Rollover the money into an IRA 3. Rollover the money to your new employer s plan 4. Withdraw the money (not recommended!) No action to take right now Typically you must have at least $5,000 No control over investment choices May include extra fees No new contributions to old employer plan Old employer can make changes without notifying you You get to decide who to work with Ability to control investments Ability to consolidate retirement accounts Transferrable between financial institutions Penalty-free withdrawals for education and first-time home buying May allow for loans from 401(k) account May offer options for hardship withdrawals May need help selecting investments No loans from IRAs May have fewer investment choices Full control over the money Owe federal and state tax on entire withdrawal Automatic 20% federal withholding If under age 59 ½, you will owe 10% penalty on the withdrawal Jeopardize your retirement savings plan

11 Examples: 5 year goal: Pay off credit card debt/save for a house 10 year goal: Pay off student loans/save for children s education and retirement 15 year goal: Save aggressively for retirement *Retirement Goals*: Pay off mortgage Enough money saved to maintain standard of living 30x after-tax spending Life Insurance Factors to prepare for: Put children through college? Pay off mortgage, heavy debt? Income replacement? **Industry standard: life insurance benefits should be about 7-10 times your current joint income** Term Permanent (Whole Life and Universal Life) What does it do? Income replacement in lump sum Wealth transfer, income protection and some tax-deferred wealth accumulation Protection period Designed for a specific period (usually number of years) Flexible; generally for a lifetime Cost differences Least expensive More expensive than term Premiums Typically fixed Flexible or fixed Tax Implications if policy is cancelled None Pay ordinary tax on gains (difference between cash value and premiums paid) Other types of insurance: Umbrella: extra liability insurance protects against major claims and lawsuits. Has a high deductible because it is a worst case policy. Should match your assets to protect what you have. Homeowners/renters: protects your home/apartment and its contents. Has a high deductible. Auto: protects you in case of an auto accident. Has a low deductible; low limits when combined with an umbrella policy.

12 Highest Interest First: Rule of thumb when tackling debt, is to take on the debt with the highest interest rate. That typically means credit cards. If you have more than one credit card, pay off the one with the highest interest rate first. Credit Card Illustration: Theory of 20% Card 1 25% Card 2 15% Card 3 10% Total Minimum Payment $50 $100 $150 $300 Actual Payment (Add 20% of total minimum payment towards highest interest credit card) $50 +$60 $110 $100 $150 $360 20% of $300 = $60 Add $60 to Card 1 payment Take advantage of balance transfers: Some credit cards will allow you to transfer debt from higherinterest credit cards to a lower or no-interest (for a period of time) credit card. Watch out for finance charges or balance transfer charges. Also keep an eye on what the real interest rate is (for example: if the card promises a 0% interest rate for the first six months, does it go up to 24% after that initial time period?) Student loan repayment plans: Student loans tend to be flexible in their repayment plans. For example, graduated repayment (pay a smaller amount now and it becomes higher in later years) and income-based repayment (a percentage of what you actually earn)

13 The information provided herein is general in nature and does not take into account the specific investment objectives, financial situation or particular needs of any specific person who may receive it. Always consult an attorney or tax professional regarding your specific legal or tax situation. No client or prospective client should assume that the above information serves as the receipt of, or a substitute for, personalized individual advice from GW & Wade, LLC, which can only be provided through a formal advisory relationship. Please see the Contact Us section of our website, for information on contacting GW & Wade.