2013-05-05 ACR Fundamentals of Financial Planning

Money. Grow it for Good ®
American College of Radiology
Fundamentals of
Financial Planning
Dennis Gogarty, CFP®, AIF®
President
Chase Deters, CFP®, ChFC®
Portfolio Manager
May 5, 2013

Fundamentals of Financial Planning / Page Money. Grow it for Good.®
WELCOME
2
Raffa Wealth Management (RWM)
•Founded in 2005 by principals with over 25
years of financial services experience
•Clients are mid-sized institutions, high net-
worth investors, and qualified retirement
plans
•Assets under management exceed $250
million
•Affiliated with accounting, tax, estate and
financial planning professionals.

AGENDA
3
•Cash Flow Tracking & Savings Techniques
•Insurance Planning
•College Savings Strategies
•Asset Allocation Techniques
•Retirement Savings Strategies
•Basic Estate Planning
•What to Look For in a Financial Planner

CASH FLOW & SAVINGS STRATEGIES
4
Save First, Spend Second
•Prioritize your financial goals
•Calculate the monthly savings required
•Invest savings based on amount of time until goal date
Find Ways to Increase Savings
•Get a raise or bonus?
•Done paying down a debt?
•Capture a portion of increase in surplus cash flow –
part savings, part increase in lifestyle

CASH FLOW & SAVINGS STRATEGIES
5
Where
to
Save?
Open a Vanguard/Fidelity/Schwab
Investment Account
•Set up ACH link to checking account (overnight
transfers)
•Begin monthly deposits from your checking account
Ultra Short Term Goals < 1 Year
•ING Savings Account
•DFA One-Year Fixed Income Fund
Short Term Goals > 1 Year
•Vanguard Short Term Bond Index Fund
•Vanguard Limited Term Tax Exempt Fund

AGENDA
6

INSURANCE PLANNING
7
Types of
Insurance
Life Insurance
•Term, Variable Life, Universal Life, Whole Life
Disability Insurance
•Short and Long Term Disability
Long Term Care Insurance
•Home and Facility Care
Property and Casualty
•Home, Auto, Liability

INSURANCE PLANNING
8
Term Insurance
•Covers needs for the
least expense
•Layer policies to cover
needs over various time
periods
Permanent Insurance
•More expensive
•Protects long term
needs
$500,000
$1,500,000
$2,500,000
$3,500,000
$4,500,000
$5,500,000
Income Replacement Children's Education
Debt Coverage Estate Taxes
Life
Insurance
Needs
Change
Over Time

INSURANCE PLANNING
9
Permanent Life Insurance – As Savings Vehicle?
•Permanent Insurance will be pitched to you as a way to
supplement your retirement income
–In order for this approach to work, you must over fund the
policy being purchased as much as possible
–Distributions are then "borrowed" out of the policy free of tax –
but not free of expenses
–Loans are paid back when the policy pays out the death benefit
•Insurance company sets the lowest
premium you can pay (Term), the
government sets the highest (MEC)
•Most insurance salesmen are not acting as
fiduciaries, they are selling a product
Potential
Pitfalls of
Permanent
Life
Insurance

INSURANCE PLANNING
10
What to Look Out For in an Salesmen's Illustration
•Front loaded Premiums (higher in start years)
–Feeds the Salesmen a higher commission, at your expense
•Premiums that are below the maximum allowable premium
based on the policy you are looking for
–The same premium dollars in policies with larger death benefits
result in larger commisions, at your expense
•Unreasonable Rate of Return Illustrated
–Policies will fall apart if those returns are not
met
•Rate of Return does not change during
illustrated distributions during retirement
–Rate of Return expectations should be reduced
when distributions are being made
Red Flags
in
Permanent
Life
Insurance
Illustrations

INSURANCE PLANNING
11
Your Ideal Permanent Life Insurance Policy
•Quotes from MORE THAN ONE Insurance Company
–Identical illustrations from more than one company allow you to more
easily identify superior products
•MAXIMIZE the premium dollars that fit into the smallest
possible death benefit
•Inexpensive Investment Options – Fees Matter
•Low Spread between Loan Rate and Loan Credit Rate
–Less than 2% is ideal, some as low as 0.50% or less, are avaiable
•Hire an independent third party for an assessment of
what people are showing you!
Life
Insurance
is a
Complex
and
Expensive
Product to
Purchase

INSURANCE PLANNING
12
Disability
Insurance
Planning
Group Short & Long Term Disability
•Inexpensive coverage
•Benefits can be taxable, depending on how premiums are paid
•Potentially low monthly cap on benefits paid
Supplemental Long Term Disability
•Covers gaps in some group DI plans
•Can provide more specific definitions of disability that will
protect specialized skill sets
Short
Term
Group DI
Long Term
Group DI
Supp.
Long
Term
DI

AGENDA
13

COLLEGE SAVINGS STRATEGIES
14
529 Savings Plans
•Can be used for college
expenses at any college or
university
•Potential for state tax
deductions
•Account grows tax deferred
•Distributions for college
expenses are tax free
•Ideal for long term
accumulation needs
Education Savings Trusts
•Prepay tuition semesters for
certain state public schools
•Lock in tuition at today’s rates
(deposits earn a rate of return
equal to tuition inflation rate)
•Ideal for older children with less
time for growth before college
•Cannot be used for other college
expenses (but can be paired with
a 529 account for other expenses)

COLLEGE SAVINGS STRATEGIES
15
Supplimental
Sources for
College
Expenses
401k Plans
•Most plans allow for an in-service loan up to 50% (up
to $50k) of your account value to be taken out, usually
at a low net interest rate
•5 year payback period.
•Potential tax liability if you leave your job before
paying back the loan
Student Loans
•Deferred payment student loans can provide you and
your child time to get on better financial footing
before payments are due
•Help pay back loans without sacrificing your own
financial goals

AGENDA
16

ASSET ALLOCATION TECHNIQUES
17

18
Building a
Balanced
Investment
Portfolio
Portfolio Building Process:
1. Determine Stock/Bond Mix
- 60 Stock, 40% Bond
2. Decide on US vs. International Mix
3. Determine US Large/Mid/Small
Mix
4. Determine International Developed
vs. Emerging Markets
5. Decide on Long/Intrm/Short Term
Bond Holdings

19
US Stocks
vs.
International
Stocks
Global Market Breakdown
July 31, 2011
Location Total Value ($mm) Weight Securities
United States 15,078,889 43.94% 3599
International 14,713,323 42.87% 3720
Emerging 4,526,117 13.19% 2811
Global 34,318,329 100% 10,130

Fundamentals of Financial Planning / Page Money. Grow it for Good.®20
- 60% Stock, 40% Bond
- 65% US Stock,
35% International Stock
Mix
4. Determine International Developed
vs. Emerging Markets
5. Decide on Long/Intrm/Short Bond
Term Holdings
Building a
Balanced
Investment
Portfolio

21
Market
Neutral
Allocation
Russell
3000
Index
•Asset classes were
created in order to
segment stocks by
shared risk
characteristics
•Each style box
contains a basket of
stock with
comparable return
and volatility
expectations.
Traditional Consulting
Style Box

- 65% US Stock,
3. Determine US Large/Mid/Small Mix
- 72% Large, 20% Mid, 8% Small
4. Determine International Developed vs.
Emerging Markets
5. Decide on Long/Intrm/Short Term Bond
Holdings
Building a
Balanced
Investment
Portfolio

23
Developed
Intl Stock
vs.
Emerging
Markets
International Market Breakdown
July 31, 2011
Location Total Value ($mm) Weight Securities
International 14,713,323 76.47% 3720
Emerging 4,526,117 23.53% 2811
Intl Total 19,239,440 6,531

- 65% US Stock,
Mix
- 72% Large, 20% Mid,
8% Small
4. Determine International Developed vs. Emerging Markets
- 75% Developed Intl Stock, 25% Emerging Markets Stock
5. Decide on Long/Interm/Short Term Bond Holdings
Building a
Balanced
Investment
Portfolio

25
Fixed
Income
Allocation

4. Determine International Developed vs. Emerging Markets
- 75% Developed Intl Stock, 25% Emerging Markets Stock
5. Decide on Long/Interm/Short Term Bond Holdings
- 0% Long Term, 70% Intermediate, 30% Short Term
1. Determine Stock/Bond
2. Decide on US vs. International
- 65% US Stock
- 72% Large, 20% Mid,
8% Small
Building a
Balanced
Investment
Portfolio

AGENDA
27

RETIREMENT SAVINGS STRATEGIES
28
Three
Types of
Accounts
Tax Deferred
Assets
Tax Free Assets
Taxable Assets
•Traditional IRA’s, 401k, SEP,
SIMPLE, KEOGH, 457, 403b, etc.
•Money goes in pre-tax, comes out as
Taxable Income
•Pay no taxes on earnings
•Roth IRA, Roth 401k
•Money goes in after tax, comes out Tax
Free
•Pay no taxes on earnings
•Pay taxes on interest and realized
capital gains each year

Employer-sponsored Retirement Plans
•2013 limit: $17,500
–+$5500 catch-up for those over 5o
•Maximize Employer Match – 100% return on investment
Traditional IRA
•Likely your largest asset during retirement
•All retirement plans you accumulate during working
years will roll into this account
•Ideal if tax rates decrease in the future
Tax
Deferred
Assets

Employer-sponsored Roth 401k Plans
•2013 limit: $17,500
+$5500 catch-up for those over 5o
•Money goes in after-tax, comes out tax free
Roth IRA
•Maximum income of $112k single / $178k
married for 2013
•Roth(k)’s will roll into Roth IRA
•Ideal if tax rates increase in the future
Tax
Free
Assets

Investment Accounts
•Money goes in after tax, basis comes out tax free
•Pay tax on 1099 income each year
•Surplus account for savings when all other savings
options are max funded
•Pay capital gains tax rate on long term gains and
qualified dividends
•Pay income tax rate on short term gains and ordinary
dividends
•Balance of muni-bonds and tax managed equity funds
makes this a perfectly viable savings opportunity
Taxable
Assets

Control Your Tax Rate During Retirement
•Balance Savings between Taxable, Tax Free, and Tax
Deferred accounts
•Allow for strategic distributions during retirement
•Maximize tax bracket distributions
Tax Deferred Assets Tax Free Assets
Taxable Assets

Ima Client (age 72): needs $225,000/yr
•Has Rental Property income of $18,000/yr
•Social Security income of $36,000/yr
•Pension income of $16,000/yr
•RMD for 2013 of $31,500
• Total Taxable Income of $101,500/yr
•Pull $44,900 more from Tax
Deferred Assets
- Maximize 25% Tax Bracket
•Pull remaining $78,600 from Tax
Free Assets and Taxable Assets
Tax
Rate Income Bracket
10% Up to $17,850
15% $17,851 - $72,500
25% $72,501 - $146,400
28% $146,401 - $223,050
33% $223,051 - $398,350
35% $398,351 - $450,000
39.6% $450,001 +
Control
Your Tax
Rate
During
Retirement

AGENDA
34

Will & Advanced Directives
•Written document that outlines your final wishes, including:
• Designating a Guardian for your children
• Bequest assets and valuables to your heirs
• Make charitable donations
•Advanced Directives also specify what type of medical
treatment you desire, should you become incapacitated
Durable Power of Attorney
•An advance directive, you provide another individual the
power of attorney to allow them to make bank transactions,
sign checks, apply for disability, etc., in the case of an
incapacitating medical condition
BASIC ESTATE PLANNING
Make the
Decisions
Now
-Or-
The State
Will
Decide for
You

AGENDA
36

WHAT TO LOOK FOR IN A
FINANCIAL PLANNER
37
Look for a Certified Financial Planner - CFP®
• Held to higher level of fiduciary care by the CFP Board of Standards
• Search for a CFP in your area at www.cfp.net
Broker/Dealer (BD) vs. Registered Investment Advisor
(RIA)
• BD’s charge commissions for products, leaving room for a potential
conflict of interest
• RIA’s charge an asset based management fee, aligning your
interests with theirs
• RIA’s are held to a 3(21) or 3(38) fiduciary standard to put your
interests ahead of their own
Review their Client Service History
• Check for a history of past client complaints
at www.brightscope.com

HELPFUL PLANNING TOOLS
38
Visit www.raffawealth.com
•Click on the “Resources” tab
•Click on “Calculators”
–Retirement Nestegg Calculator
–How Long Will My Money Last?
Contact RWM
•Email: chase@raffawealth.com or dennis@raffawealth.com
•Phone: (202) 955-7217

DISCLOSURE
39
The performance data presented represent past
performance. Past performance is not a guarantee of
future results and there is always a risk that an investor
may lose money. Information contained has been
gathered from sources we believe to be reliable, but we do
not guarantee the accuracy or completeness of such
information. Current performance may be lower or higher
than the performance quoted. An investment in a sub-
account will fluctuate in value to reflect the value of the
underlying portfolio and, when redeemed, may be worth
more or less than original cost. Performance current to
the most recent month end is available at
www.jhpensions.com. Indices are not available for direct
investment and performance does not reflect expenses of
an actual portfolio. Returns are shown net of fund
expenses and gross of RWM’s advisory fee.

2013-05-05 ACR Fundamentals of Financial Planning

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2013-05-05 ACR Fundamentals of Financial Planning