Personal Retirement Analysis for Susan & David Example Asset Advisors Example, LLC A Registered Investment Advisor 2430 NW Professional Drive Corvallis, OR 97330 877-421-9815 www.moneytree.com IMPORTANT: The illustrations or other information generated by this report regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results.
Table of Contents Cash Flow Planning (text) - A1 2 Net Worth - A3 3 Cash Flow Needed vs Available Graph - B2 4 Cash Flow Illustration - B7 5 Asset Accounts (text) - C1 6 Account Summary - C3 7 Income Tax - Current Year - D3 8 Tax Summary - D6 9 Retirement Estimate Graph - F2 10 Retirement Capital Estimate - F3 11 Monte Carlo - F4 12 Page 1
Cash Flow Planning A1 This financial analysis has been prepared with the objective of illustrating your present and future cash flows, integrated with your assets and income taxes. Cash Flow Planning Cash flow planning is designed to account for all sources of income and expense, and to illustrate the impact that any surpluses or shortages might have on the ability of your assets to last through your life expectancy. This method of planning is sometimes referred to as an "optimized" approach. What do we mean by "Optimized" planning? Cash Flow Each year your income sources are compared to your annual expenses. Any surplus of spendable income is automatically added to your savings and investments starting in the first year. If there is a shortage of spendable income, the amount needed to make up the shortage is withdrawn from your asset accounts. This approach is intended to reflect what would happen if you are managing your funds in an optimal manner. Assets Every year your savings and investment accounts will have potential interest, dividends, capital gains or appreciation. The cash flow analysis makes the assumption that, unless otherwise indicated, the entire rate of return is reinvested into the account. This approach optimizes the potential growth of each asset account. Taxes are not charged to the earnings on the account, but instead are added to your personal expenses. Taxes Since income and FICA (Social Security) taxes can represent a substantial part of your annual expenses, the "optimized" planning approach carefully computes your tax burden every year. The analysis uses the actual IRS tax rate tables including annual adjustments for "indexing" the rate breakpoints and standard deductions. For high income taxpayers, itemized deductions and exemptions are phased out. Separate tax treatment is provided for dividends, capital gains, alternate minimum tax, the taxable portion of social security income and other areas where special treatment is required. The result is that, instead of showing a "guesstimate" of your annual taxes, the analysis provides a more accurate yearly indication of future potential taxes. Page 2
Net Worth Statement ASSETS Ordinary Interest Accounts: Susan David Joint / CP Trust/Oth. Total Checking accounts, cash $12,200 $12,200 Savings accounts 3,500 3,500 Money Market accounts 31,603 31,603 Certificate of Deposit 20,000 20,000 Gov't bonds, T Bills, Funds 22,000 22,000 Muni bonds, funds 25,000 25,000 Annuities (fixed, variable) 30,000 30,000 Insurance Cash Value, Dividends 12,450 2,850 15,300 Total $42,450 $28,350 $88,803 $159,603 Equity (Investment) Accounts: Stocks 15,000 45,429 60,429 Mutual Funds 242,417 2,745 29,063 274,225 Other ventures, businesses 24,600 24,600 Total $257,417 $2,745 $99,092 $359,254 Retirement Accounts: 401(k) accounts 93,500 93,500 403(b), SEP, Simple 77,300 77,300 Roth accounts 16,000 16,000 Inherited IRAs 12,200 12,200 Total $105,700 $93,300 $199,000 Personal Use Assets: Personal property 15,000 15,000 Jewelry, furs 2,500 2,500 Autos 12,000 19,600 31,600 Total $27,000 $2,500 $19,600 $49,100 Real Estate Assets: Residence 307,000 307,000 Real Estate, REIT 5,750 5,750 Rental real estate 200,000 200,000 Total $312,750 $200,000 $512,750 Total Assets $746,797 $126,895 $407,495 $1,281,187 A3 LIABILITIES Susan David Joint / CP Trust/Other Total Residence mortgage ($272,000) ($272,000) Credit Cards (6,640) (6,640) Life insurance loans (2,500) (2,500) Rental real estate (118,000) (118,000) Total Liabilities ($9,140) ($390,000) ($399,140) NET WORTH $737,657 $126,895 $17,495 $882,047 Note: Assets held in a Revocable Trust are included in the grantors assets. Page 3
Cash Flow B2 The bars in the above graph represent the amounts available from... Earned income (wages & self employment) Pension plans and Social Security Misc - (inheritances, sale of residence, investment account systematic withdrawal plans or interest/dividends taken in cash, scheduled retirement account distributions or required minimum distribution amounts.) The line illustrates the annual expenses including... Personal living expenses Life insurance and other premiums Mortgage and debt repayment Planned deposits to investments and retirement accounts Miscellaneous expense items Taxes If income from various sources exceeds expenses, the excess is reinvested in savings and investment accounts. If expenses are greater than income, it is assumed that funds required to meet such excess expenses will be drawn from savings and investment accounts to make up the shortage. Page 4
Cash Flow Illustration B7 Ages Earned Income Scheduled Cash flow sources and Required Minimum Distributions Retire/Roth Accounts * Investment Accounts * Pension/ SocSec Other Income Total Sources Less Living Expense & Taxes Surplus (Shortage) 1 2 3 4 5 6 7 8 58 60 $145,000 $763 $6,628 $152,391 ($141,204) $11,187 59 61 149,350 810 7,078 157,238 (146,103) 11,135 60 62 164,441 860 165,301 (168,735) (3,434) 61 63 169,373 913 9,087 179,373 (195,645) (16,272) 62 64 180,082 970 8,373 189,425 (186,800) 2,625 63 65 92,742 1,030 10,170 103,942 (147,051) (43,109) 64 66 95,524 1,095 9,299 105,918 (156,433) (50,515) 65 67 1,164 31,829 9,775 42,768 (180,258) (137,490) 66 68 1,238 32,466 10,262 43,965 (155,882) (111,917) 67 69 1,317 59,179 82,464 142,960 (128,334) 14,626 68 70 1,402 60,363 84,404 146,169 (131,231) 14,938 69 71 9,592 61,570 86,382 157,544 (137,814) 19,730 70 72 10,194 62,802 124,647 197,643 (123,937) 73,706 71 73 23,587 64,058 12,843 100,488 (151,267) (50,779) 72 74 25,001 65,339 13,391 103,730 (160,900) (57,170) 73 75 26,523 66,645 13,949 107,118 (168,815) (61,697) 74 76 25,976 67,978 14,519 108,473 (173,912) (65,439) 75 77 27,443 69,338 238,244 335,025 (235,936) 99,089 76 78 29,046 70,724 99,770 (154,814) (55,044) 77 79 30,587 72,139 102,726 (167,209) (64,483) 78 80 32,291 73,582 105,873 (173,015) (67,142) 79 81 33,980 75,054 109,034 (179,008) (69,974) 80 82 35,742 76,554 112,296 (185,224) (72,928) 81 83 37,578 78,086 115,664 (191,668) (76,004) 82 84 39,490 79,648 119,138 (198,290) (79,152) 83 85 41,356 81,241 122,597 (205,062) (82,465) 84 86 43,279 82,865 126,144 (211,974) (85,830) 85 87 45,079 84,522 129,601 (219,048) (89,447) 86 88 46,907 86,213 133,120 (197,840) (64,720) 87 89 48,752 87,937 136,689 (204,997) (68,308) 88 90 50,417 89,696 140,113 (212,383) (72,270) 89 91 52,058 47,335 99,393 (183,229) (83,836) 90 92 53,388 48,281 101,669 (176,210) (74,541) 91 93 54,638 49,247 103,885 (188,675) (84,790) 92 94 B9 C10..C11a C4..C8 B10 B12, B12a B8 * Scheduled distributions, interest or dividends taken in cash or amounts taken to meet the IRS minimum distribution requirements. Page 5
Asset Accounts C1 Your assets are illustrated in this plan based on two major groups, Personal Accounts and Tax Deductible Retirement accounts. Within these groups, the assets are further divided as described below. Personal Accounts: Fully Taxable: These are savings and investments that earn interest or dividends which are fully taxable at ordinary income rates. Included in this category are savings accounts, certificates of deposit, money market funds and accounts, bonds, notes and mortgages, etc. Tax-Deferred: Some assets allow you to accumulate money without current taxation on interest or other returns. The most common are fixed or variable annuities issued by insurance companies. Any illustration of an annuity account is hypothetical, and does not represent any specific product or underlying investment accounts and is not intended to project or predict investment results. The variable nature of a variable annuity will affect not only the investment returns, but will also affect the cash value and death benefits of the annuity. The annuity could result in zero or negative return, depending on the performance of the underlying investments and the terms of the annuity contract. Tax-Free: Interest earned on certain bonds issued by federal, state or local municipalities are exempt from federal and in some cases state income tax. These are referred to as "tax exempt" securities and may be purchased individually or as muni bond investment trusts or mutual funds. Equity and Other: Assets which receive part or all of their return in the form of appreciation and qualify for special capital gains treatment on the profits would be included in this category. Such assets include: stocks, equity mutual funds, real estate, business interest, etc. Tax Deductible Retirement Accounts: This includes any account that is treated by the IRS as qualified for special tax-deferral or deduction. IRA 401(k) Keogh or SEP TSA SIMPLE 401(k) and SIMPLE IRA Profit Sharing Roth IRA accounts Roth 401(k) Individual Retirement Accounts. Corporate thrift or savings plans. Retirement plans for self employed individuals. Tax sheltered annuity plans for employees of 403(b) tax exempt organizations. Employer sponsored plans. Corporate plans for employee profit sharing. (Tax-free growth). Tax-free after-tax personal contributions, pre-tax company additions. These accounts generally allow for pre-tax contributions and tax deferred earnings. When funds are withdrawn from these accounts the entire amount is taxable at the ordinary tax rate. (Roth accounts use after tax contributions and tax free accumulation and withdrawal.) Not an Investment Offer: This is not an offer to sell or a solicitation of an offer to buy any security. Such offer would be accompanied by a prospectus or other offering materials. IMPORTANT: The projections or other information generated by Money Tree regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Page 6
Account Summary C3 Ages Taxable Equity Tax Tax Retirement accounts Roth IRAs Account & Other Free Deferred Susan David Susan David 2.44% 7.45% 5.70% 7.25% 6.00% 6.50% 7.50% 4.00% Begin. Year Account Totals 1 2 3 4 5 6 7 8 9 58 60 $47,303 $350,004 $25,000 $30,000 $105,700 $77,300 $16,000 $651,307 59 61 50,724 388,649 26,425 32,175 120,655 89,162 19,487 727,277 60 62 54,219 430,158 27,931 34,508 136,741 102,000 23,213 808,770 61 63 52,063 465,513 29,523 37,010 155,566 115,883 27,191 882,749 62 64 36,845 503,532 31,206 39,693 175,810 130,886 31,435 949,407 63 65 38,276 546,601 32,985 42,571 198,379 147,089 35,959 1,041,860 64 66 584,866 34,865 45,657 222,631 156,650 37,396 1,082,065 65 67 578,447 36,852 48,967 248,674 166,832 38,891 1,118,663 66 68 478,359 38,953 52,517 262,392 177,676 40,446 1,050,343 67 69 397,446 41,173 56,324 276,856 189,225 42,063 1,003,087 68 70 5,928 436,181 43,520 60,407 292,106 201,525 43,744 1,083,411 69 71 12,127 477,996 46,001 64,787 308,184 214,624 45,493 1,169,212 70 72 20,420 525,918 48,623 69,484 325,133 220,185 47,312 1,257,075 71 73 50,793 603,160 51,395 73,653 342,996 225,587 49,203 1,396,787 72 74 639,117 54,325 78,072 348,644 230,789 51,170 1,402,117 73 75 618,460 57,422 82,756 353,752 235,745 53,216 1,401,351 74 76 591,824 60,695 87,721 358,158 240,404 55,344 1,394,146 75 77 559,724 64,155 92,984 364,101 244,710 57,557 1,383,231 76 78 40,155 654,715 67,812 98,563 369,521 248,659 59,858 1,539,283 77 79 678,605 71,677 104,477 374,340 252,133 62,251 1,543,483 78 80 652,697 75,763 110,746 378,558 255,127 64,740 1,537,631 79 81 622,488 80,081 117,391 382,006 257,577 67,329 1,526,872 80 82 587,540 84,646 124,434 384,688 259,413 70,021 1,510,742 81 83 547,443 89,471 131,900 386,517 260,560 72,821 1,488,712 82 84 501,761 94,571 139,814 387,400 260,937 75,733 1,460,216 83 85 450,086 99,962 148,203 387,239 260,459 78,761 1,424,710 84 86 391,887 105,660 157,095 385,930 259,158 81,910 1,381,640 85 87 326,720 111,683 166,521 383,363 256,963 85,185 1,330,435 86 88 253,907 118,049 176,512 379,604 253,800 88,591 1,270,463 87 89 202,269 124,778 187,103 374,567 249,595 92,134 1,230,446 88 90 143,825 131,890 198,329 368,163 244,272 95,818 1,182,297 89 91 77,782 139,408 210,229 360,304 237,953 99,650 1,125,326 90 92 140,754 222,843 350,903 230,596 103,635 1,048,731 91 93 71,894 236,214 340,157 222,165 107,779 978,209 92 94 237,838 328,028 212,632 112,089 890,587 C4 C5 C7 C8 C10,C10b...e C10a, C10b...e C11 C11a Note: Rates shown above are for first year only. Refer to account reports for future year rates. Page 7
Income Tax - Current Year The following calculations give an idea of the amount of taxes you might pay based on the income and asset information provided. These amounts are approximations only and the actual tax amounts may be higher or lower than illustrated. INCOME: Salaries and wages Interest Dividends* Schedule C (self employment) Schedule D (net gain/loss) Schedule E (passive gain/loss) Pension income & retirement distributions GROSS INCOME Gross $120,000 5,050 2,593 25,000 2,560 3,281 763 Taxable $120,000 1,450 2,593 25,000 2,560 3,281 763 $155,648 D3 B9 C4..C8 C6a B9 C6 a D9 B10 Adjustments: Retirement plan deposits - Susan Retirement plan deposits - David Self Employment FICA ADJUSTED GROSS INCOME 3,532 ($5,200) (3,300) (1,766) $145,382 C10-C10e D15 Itemized Deductions: Mortgage interest Charitable contributions Medical expenses Property taxes State taxes Gross $11,545 2,000 5,000 6,140 10,284 Allowed $11,545 2,000 6,140 10,284 D10 TAXABLE INCOME Itemized deductions $29,969 or Standard deductions $12,600 Personal exemptions ( 4 ) TAX SUMMARY: Federal Income Tax $15,925 FICA (Social Security) & HI Tax 12,712 Other Taxes or (credits) (200) State Income Tax 10,284 TOTAL TAXES Your combined federal & state marginal tax bracket is 34.00 %. Your total taxes equal 26.63 % of your Adjusted Gross Income, and 38.95% of your Taxable income. *Dividend and Capital Gains taxed marginally at 15.00%. ($29,969) ($16,000) $99,413 $38,722 D11 D7 Page 8
Tax Summary D6 Ages Federal Income Tax Federal Income Tax Amounts Additional AMT Tax Federal Credits Early distr. & other tax Total Fed. Income Tax 1 2 3 4 5 6 7 8 9 State Tax Additional State Tax or (credits) FICA and HI Tax 58 60 $15,925 ($200) $15,725 $10,944 ($660) $12,712 $38,721 59 61 17,411 17,411 11,556 (660) 13,093 41,400 60 62 19,736 19,736 12,495 (660) 14,298 45,869 61 63 23,160 23,160 13,475 (495) 14,727 50,867 62 64 25,504 25,504 14,424 (495) 15,599 55,032 63 65 7,655 7,655 7,201 (495) 7,094 21,455 64 66 11,186 11,186 9,504 (330) 7,307 27,667 65 67 1,733 1,733 8,558 (330) 9,961 66 68 771 771 7,701 (330) 8,142 67 69 648 (330) 318 68 70 13 13 968 (330) 651 69 71 1,912 1,912 2,886 (330) 4,468 70 72 4,903 4,903 5,552 (330) 10,125 71 73 6,722 6,722 6,853 (330) 13,245 72 74 10,109 10,109 9,361 (330) 19,140 73 75 13,046 13,046 10,467 (330) 23,183 74 76 13,776 13,776 10,826 (330) 24,272 75 77 54,969 9,451 64,420 29,543 (330) 3,504 97,137 76 78 5,922 5,922 6,423 (330) 12,015 77 79 10,833 10,833 9,759 (330) 20,262 78 80 11,901 11,901 10,196 (330) 21,767 79 81 12,984 12,984 10,646 (330) 23,300 80 82 14,106 14,106 11,114 (330) 24,890 81 83 15,266 15,266 11,600 (330) 26,536 82 84 16,422 16,422 12,091 (330) 28,183 83 85 17,545 17,545 12,579 (330) 29,794 84 86 18,603 18,603 13,079 (330) 31,352 85 87 19,616 19,616 13,587 (330) 32,873 86 88 17,942 17,942 12,350 (330) 29,962 87 89 18,722 18,722 12,765 (330) 31,157 88 90 19,487 19,487 13,187 (330) 32,344 89 91 16,099 16,099 10,234 (165) 26,168 90 92 8,493 8,493 5,185 (165) 13,513 91 93 13,246 13,246 7,046 (165) 20,128 92 94 D8 D12 D13, D14 D17 D17 D15 Total Taxes Page 9
Retirement Estimate F2 As inflation increases the amount of income needed for your standard of living, there is the potential need to draw increasing amounts out of savings, investments and retirement accounts. The graph shows how long your capital might last. The objective is to assure that your capital is properly managed so that it will last at least until your life expectancy. If the capital is depleted before your need for income has ceased, then you will become dependent on your pensions, Social Security, relatives or public sources. If there is capital remaining when your need for income stops then the remaining capital is available for your heirs. The line allows you to visualize the annual expenses as compared to your capital accounts. If the bars dip below the "0" level on the graph, it indicates that you have consumed all your savings, investment, and retirement accounts, and your spending requirements have caused a "deficit" spending situation - a need for funds where none exists. Page 10
Retirement Capital Estimate F3 Ages * Begin. Yr. Account Totals Annual Expenses Incl. Tax Earned Income Income and Capital Distributions ** Retirement Acct Distr. ** Investment Acct Distr. Pensions/ Soc Sec Other Inc. & St. Opt. Annual Surplus Ending Year Account Totals 1 2 3 4 5 6 7 8 58 60 $651,307 ($141,204) $145,000 $763 $6,628 $11,187 $727,278 59 61 727,278 (146,103) 149,350 810 7,078 11,135 808,769 60 62 808,769 (168,735) 164,441 860 3,434 882,749 61 63 882,749 (195,645) 169,373 913 16,272 9,087 949,408 62 64 949,408 (186,800) 180,082 970 8,373 2,625 1,041,860 63 65 1,041,860 (147,051) 92,742 1,030 43,109 10,170 1,082,065 64 66 1,082,065 (156,433) 95,524 1,095 50,515 9,299 1,118,663 65 67 1,118,663 (180,258) 1,164 137,490 31,829 9,775 1,050,343 66 68 1,050,343 (155,882) 1,238 111,917 32,466 10,262 1,003,088 67 69 1,003,088 (128,334) 1,317 59,179 82,464 14,626 1,083,411 68 70 1,083,411 (131,231) 1,402 60,363 84,404 14,938 1,169,212 69 71 1,169,212 (137,814) 9,592 61,570 86,382 19,730 1,257,075 70 72 1,257,075 (123,937) 10,194 62,802 124,647 73,706 1,396,787 71 73 1,396,787 (151,267) 23,587 51,018 64,058 12,843 1,402,117 72 74 1,402,117 (160,900) 25,001 57,113 65,339 13,391 1,401,351 73 75 1,401,351 (168,815) 26,523 61,701 66,645 13,949 1,394,146 74 76 1,394,146 (173,912) 25,976 65,443 67,978 14,519 1,383,231 75 77 1,383,231 (235,936) 27,443 69,338 238,244 99,089 1,539,283 76 78 1,539,283 (154,814) 29,046 55,055 70,724 1,543,482 77 79 1,543,482 (167,209) 30,587 64,489 72,139 1,537,631 78 80 1,537,631 (173,015) 32,291 67,148 73,582 1,526,872 79 81 1,526,872 (179,008) 33,980 69,981 75,054 1,510,742 80 82 1,510,742 (185,224) 35,742 72,935 76,554 1,488,711 81 83 1,488,711 (191,668) 37,578 76,012 78,086 1,460,216 82 84 1,460,216 (198,290) 39,490 79,160 79,648 1,424,710 83 85 1,424,710 (205,062) 41,356 82,474 81,241 1,381,640 84 86 1,381,640 (211,974) 43,279 85,839 82,865 1,330,435 85 87 1,330,435 (219,048) 45,079 89,455 84,522 1,270,464 86 88 1,270,464 (197,840) 46,907 64,730 86,213 1,230,445 87 89 1,230,445 (204,997) 48,752 68,319 87,937 1,182,297 88 90 2 1,182,297 (212,383) 50,417 72,280 89,696 1,125,325 89 91 1,125,325 (183,229) 52,058 84,181 47,335 1,048,731 90 92 1,048,731 (176,210) 53,388 74,541 48,281 978,209 91 93 1 978,209 (188,675) 54,638 84,041 49,247 890,587 92 94 890,587 890,587 B8 B9 C10...C10e C4...C8 B10 B12, B12a *Note - 1 = Susan's life expectancy age. 2 = David's life expectancy age. **Investment and Retirement distributions include withdrawals from account totals to satisfy "Income needed" shortages from Cash Flow report. C3a Page 11
Monte Carlo Monte Carlo Simulation illustrates possible variations in growth and/or depletion of retirement capital under unpredictable future conditions. The simulation introduces uncertainty by fluctuating annual rates of return on assets. The graph and related calculations do not presuppose or analyze any particular investment or investment strategy. This long-term hypothetical model is used to help show potential effects of market volatility and possible effects on your financial future. This is not a projection, but an illustration of uncertainty. The simulations begin in the current year and model potential asset level changes over time. Included are all capital assets, both tax advantaged and taxable, all expenses, including education funding if applicable, pension benefits and Social Security benefits. Observing results from these large number of simulations may offer insight into the shape, trends and potential range of future retirement plan outcomes under volatile market conditions. Results from 10,000 Monte Carlo Simulations: Original Retirement Capital estimate $890,587 Percentage of results above zero* Minimum (worst case) result Average Monte Carlo result $981,327 Percentage with $ remaining at Susan's age 81 Maximum Monte Carlo result $0 $6,661,635 Percentage with $ remaining at Susan's age 86 Percentage with $ remaining at Susan's age 76 *Percent of times money is remaining at last age shown. 80% 99% 100% 100% F4 The bold line is the estimated retirement capital value over time using fixed rates. Annual rate of return of 6.58% in the original retirement estimate varied from 5.77% to 7.18% based on portfolio changes over time. This simulation used a 4.25% standard deviation to create ten thousand sets of normally distributed random rates of return based on the annual rates of return in the original estimate (95% of the rates fall between -2.73% and 15.68%). A standard deviation rate of 2.00% was applied to the inflation rate used on personal expenses. The original capital estimate indicated a possibility of having $890,587 in assets remaining at last life expectancy. Monte Carlo simulation, using 10,000 trials of the same assets, income and expenses, resulted in a 80% probability of having funds remaining at last life expectancy, and an average amount of $981,327 remaining. The Monte Carlo illustration above points out the uncertainty of future retirement capital outcomes. It is important that you return regularly for a review of your goals and financial condition, in order to assure that appropriate periodic adjustments are made to your financial affairs. IMPORTANT: The projections or other information generated in this report regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment products or results and are not guarantees of future results. Results may vary with each report and over time. Results of this simulation are neither guarantees nor projections of future results. Information is for illustrative purposes only. Do not rely on this report to predict actual performance of any investment or investment strategy. Page 12