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Potter Financial Solutions, Inc. An Independent, fee-only, Financial Planning and Investment Advisory Firm. R. Bruce Potter, CFP® CERTIFIED FINANCIAL PLANNER™ professional Registered Investment Advisor Over 30 years experience Teacher of Marketing, Business, and Personal Finance

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Potter Financial Solutions, Inc.An Independent, fee-only, Financial Planning and Investment Advisory Firm

R. Bruce Potter, CFP®

CERTIFIED FINANCIAL PLANNER™ professional

Registered Investment Advisor

Over 30 years experience

Teacher of Marketing, Business, and Personal Finance

for 23 years

Member- Financial Planning Association of Colorado

This presentation is for your education and entertainment only and should not be viewed as a financial planning or investment advisory engagement. It is not a solicitation to buy or sell any securities and all investments and investment strategies carry risk. Before making any investment decisions consult with an investment professional to determine if the strategies mentioned fit with your goals and objectives. Potter Financial Solutions, Inc. does not furnish actuarial, accounting, tax, or legal advice.

www.PotterFinancialSolutions.com

what i think is missing from education
What I think is missing from education:

HELPING STUDENTS LEARN TO MANAGE THEIR MONEY, CAREER, AND LIVES TO ENSURE THEIR OWN FINANCIAL INDEPENDENCE

personal financial planning
PERSONAL FINANCIAL PLANNING

1. Understand the Financial Planning Process

2. Manage Your Household Finances

3. Manage Risk & Insurance

4. Control Debt & Credit

5. Open Investment Accounts

6. Choose Investments

7. Plan for Retirement

8. Own a Home

9. Plan Your Estate

10. Hire a Professional

1 understand the financial planning process
1. UNDERSTAND THE FINANCIAL PLANNING PROCESS
  • Set Goals
  • Analyze Information
  • Create a Plan
  • Implement the Plan
  • Monitor and Modify the Plan
2 manage your household
2. MANAGE YOUR HOUSEHOLD
  • It all starts with a Paycheck

Understand pay, tax withholding/tax liability, Social Security, Medicare, PERA, Pre-tax benefits, After-tax benefits

  • Develop a budget to live within your means
    • PYF-Pay Yourself First (set up auto deposits)
    • Payroll deduction AND checking account deduction
    • Save 10% to 20% of your income
  • Pay Your Bills and Control Spending
  • Professional Development/Continuing Education
3 manage risk insurance
3. MANAGE RISK & INSURANCE
  • Establish an Emergency Fund
  • If it sounds too good to be true, it probably is
  • Understand risk tolerance
  • INSURANCE:
    • Health
    • Property
    • Disability
    • Life
    • Long-Term Care
    • Liability
    • Professional Liability
4 control debt credit
4. CONTROL DEBT & CREDIT
  • Live within your means
  • Think Charge Card not Credit Card
  • Manage your Credit Score
  • Protect your Identity
  • Refinance mortgage if it makes sense
  • Use low interest rate, tax advantaged debt when it makes sense
5 open savings investment accounts banks brokerages mutual funds insurance co
5. OPEN SAVINGS & INVESTMENT ACCOUNTS(banks, brokerages, mutual funds, insurance co.)
  • Taxable: individual or JTWROS

but these still need to be tax-managed

  • Tax-advantaged (Retirement plans)
    • Current tax savings and/or future tax savings
    • Tax-deductible, tax-deferred, tax-free

Individual plans---IRA, Roth IRA, annuities

Employer plans (D.C.)---401k, 403b, 457,

self-employed plans-SEP, Simple, I-401k

tax advantaged retirement plans
Tax-advantaged retirement plans
  • Individual plans:contributions self or automatic
    • Roth IRA after-tax contributions*

$5,500/$6,500 tax-free earnings

conversions

    • Traditional IRA tax-deductible contributions* $5,500/$6,500 tax-deferred earnings

ordinary income withdrawals

    • Rollover IRA tax-deferred earnings

from ER plans ordinary income withdrawals

    • Annuity tax-deferred earnings

no limits ordinary income withdrawals

tax advantaged retirement plans1
Tax-advantaged retirement plans
  • Employer plans:contributions payroll deduction
    • 403b (7) (TSA) tax-deductible contributions

$17,500/$23,000 tax-deferred earnings

ordinary income withdrawals

    • 401k available from PERA tax-deductible contributions $17,500/$23,000 tax-deferred earnings

(Roth 401k) ordinary income withdrawals

    • Self-employed plans tax-deductible contributions

tax-deferred earnings

ordinary income withdrawals

where to open your accounts
Where to open your accounts
  • Banks/Credit Unions
  • Mutual Fund Companies
  • Brokerage Firm-full service
  • Brokerage Firm-discount
  • Insurance Companies
  • Financial Planning/Investment Advisory firms

www.FPAnet.orgwww.cfp.net

saving vs investing loan vs own cash stocks bonds real estate
Earn interest

Usually principal guaranteed

Purchasing power risk

Interest rate risk

Taxable at ordinary income tax rates

Can appreciate or depreciate in value: capital gain/loss

Earns Income: interest dividends, rent

Market & Business risk

May be taxable at lower capital gains and dividend rate

SAVING vs. INVESTING LOAN vs. OWNCASH STOCKS, BONDS, REAL ESTATE
6 choose investments use asset allocation to diversify manage risk
6. CHOOSE INVESTMENTSUse asset allocation to diversify & manage risk

Choose asset classes:

  • Cash interest
  • Fixed Income (Bonds) capital gain & dividend
  • Stocks capital gain & dividend
  • International Stocks capital gain & dividend
  • Real Estate capital gain & rent
  • R.E. Investment Trusts capital gain & dividend
  • Commodities capital gain (dividend)

Individual or mutual funds

Determine appropriate allocation percentages

Rebalance periodically

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Mutual Funds/Exchange Traded Funds: Aninvestment vehicle made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money markets, etc.

  • Professional management
  • Diversification
  • Low minimum investment
  • Daily marketability
  • Convenience
  • Reinvestment opportunity
  • Costs (Load vs. No-load, fees, expenses)
risk and risk tolerance what does it mean to you
RISK and RISK TOLERANCE What does it mean to you?
  • Loss of Value and/or Volatility
  • Market
  • Business
  • Purchasing Power
  • Interest Rate
  • Economic
  • Currency
7 plan for retirement
7. PLAN FOR RETIREMENT
  • Pension Plan D.B.--- PERA
  • Savings/Investments
  • Social Security
  • Get a Job
pension plan defined benefit
Pension plan: defined benefit
  • PERA
    • 8% of pay (before-tax contribution)
    • Retirement benefit a percentage of HAS
      • know your HAS percentage table
      • do some planning
    • Cost of living adjustment
    • Disability benefit
    • Survivor benefit
    • Careful of Section 125 flexible spending account
how much money do you need
How Much Money Do You Need?
  • To be reasonably sure your money will last for 30 years, take out no more than 4% to 5% of your nest egg each year in retirement.
  • Increase your initial withdrawal by a C.O.L.A. each year.
  • You have an 80% chance of your money lasting 30 years at a 4% withdrawal rate using a 60/40 equity to bond allocation.
  • Develop plan and manage withdrawals (declumulation)
manage decumulation and retirement risks
Manage Decumulation and Retirement Risks
  • Longevity
    • Money stages and priorities
  • Taxes
  • Inflation
  • Healthcare Costs
  • Investing
    • Declining interest income
    • Negative point-in-time
use pots of money to reduce risk spend short term money while longer term money grows
Use Pots of Moneyto reduce riskspend short-term money while longer-term money grows
  • Short-term/paycheck pot
  • Medium-term pot
  • Long-term growth pot
8 own a home
8. OWN A HOME
  • Remember the importance of Equity
  • Manage the Mortgage
  • Understand fixed vs. variable interest rates
  • One of the last tax-deductions available
  • Refinance if it makes sense
  • Not necessarily an investment
  • Should you pay off your mortgage?
9 plan your estate
9. PLAN YOUR ESTATE
  • Will
  • Importance of Beneficiary Designations
  • Durable Power of Attorney
  • Living Will
  • Health Care Durable Power of Attorney
  • Trusts- Living and Testamentary
  • Letter of Instruction
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Banker

Insurance agent

Registered Rep.

Broker

Sells Products Suitability Rule

Fee-based advisor

Fee-only advisor

Sells Advice

Fiduciary Rule

10. HIRE A PROFESSIONAL Make sure you can trust themMake sure they put your interests firstMake sure you understand conflicts of interestMake sure they explain how they are paid

reflection
Reflection
  • Reflect on what you have learned about saving and investing and what you wish you had known as a young adult. Be prepared to share your reflections in a wrap-up discussion.

Think about:

    • As a young adult, what do you wish you had known about saving or investing then that you know now?
    • How can you help your students develop fundamental knowledge and skills to plan for saving and investing?
application
Application
  • Evaluate your current assets using the personal inventory as your guide.
    • Develop one saving goal and one investing goal that meet the SMARTguidelines.
    • List at least three things you can do to modify or start an investing plan.
    • (or) If you already save and invest, then review your existing savings and investing goals. Do they meet the SMART criteria? Edit your goals to ensure they are "SMART" and adjust them based on your current situation.