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Financial Planning. Financial Planning. INST-20050223-A017603. Where do I start?. Set objectives Gather cash flow and asset information Review your goals and where you are Propose solutions to reach your goals Implement your solutions Review your progress regularly.

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Financial Planning

Financial Planning



Where do I start?

  • Set objectives
  • Gather cash flow and asset information
  • Review your goals and where you are
  • Propose solutions to reach your goals
  • Implement your solutions
  • Review your progress regularly

Budget for Savings

  • ANALYZEyour personal balance sheet
  • REVIEWyour spending habits
  • DEVELOPa budget and savings plan

What requires planning?

  • Income tax planning
  • Risk management planning
  • Retirement planning
  • Education planning
  • Estate planning
  • Investment planning

Income Tax Planning

  • Process that allows you to preserve more of your taxable income
  • Increase your discretionary cash flow by reducing the outflow of funds to taxes.
  • NC 401(k) Plan
tax savers credit
Tax Savers Credit

EGTRRA 2001 Tax Credit

Credit is based on first $2,000 in contributions and the Adjusted Gross Income (AGI), and is available through 2006.

Credit Individual AGI Joint AGI

50% $0 - $15,000 $0 - $30,000

20% $15,001 - $16,250 $30,001 - $32,500

10% $16,251 - $25,000 $32,501 - $50,000

Prudential Financial is not a tax advisor.


What is the Roth Feature?

  • New 401(k) feature in the NC 401(k) Plan designed to help you save more for retirement.
  • Combines the savings and investment features of a traditional 401(k) Plan with the tax-free distribution features of the Roth IRA.
  • After-tax or Roth contribution available June 1, 2006.
how does the roth feature work

How does the Roth Feature Work?

How does the Roth Feature Work?
  • Contributions and earnings, typically grow tax free. No Federal or North Carolina State taxes upon taking a “qualified” distribution from the Plan.
  • A distribution is “qualified” if:
        • Your Roth contributions remain in the plan for at least 5 years; and:
        • You are over age 59 ½ at the time of withdrawal.
what are the contribution limits for roth

What are the contribution limits for Roth?

What are the contribution limits for Roth?
  • $15,000 for 2006 and an additional catch-up contribution of $5,000 for employees age 50 and over.
  • If an employee is contributing both traditional and Roth contributions the combined contribution amount can not exceed $15,000 or $20,000 for employees over age 50.

Are rollovers allowed with the Roth Feature?

  • Yes! Roth contributions can be rolled into:
  • Another qualified retirement plan that offers Roth contributions
  • A Roth IRA (note that a Roth IRA cannot be rolled into a Roth 401(k))
  • Roth rollovers can offer an estate planning benefit.
can money move between roth and traditional 401 k contributions

Can Money Move Between Roth

and traditional 401(k) Contributions?

Can Money Move Between Roth and traditional 401(k) Contributions?
  • As a member of the NC 401(k) Plan, you can make both traditional and Roth contributions to your account.
  • Important!! - You can't reclassify or move contributions that have already been made between the two types of contributions.
is the roth feature right for you

Is the Roth Feature right for you?

Is the Roth Feature right for you?
  • Consider your future tax bracket
      • Will you be in a higher tax bracket?
      • Will you be in a lower tax bracket?
retirement planning15
Retirement Planning

Source: Social Security Administration, Office of Research, Evaluation, and Statistics, Annual Statistical Supplement 2001.

compelling reasons to start saving for retirement
Compelling Reasons to StartSaving for Retirement

Did you know…

  • Your state retirement benefit is not intended to provide full retirement income
  • Average age individuals enter the State Retirement System: Age 34 for teachers and 37 for state employees
  • Average age of general employee population at retirement: Age 58

Information provided by the Retirement Systems Division of the North Carolina Department of State Treasurer.

compelling reasons to start saving for retirement17
Compelling Reasons to StartSaving for Retirement
  • Average replacement income equals less than 48% of average final salary

Average Final Salary

Replacement Income

Information provided by the Retirement Systems Division of the North Carolina Department of State Treasurer

compelling reasons to start saving for retirement18
Compelling Reasons to StartSaving for Retirement
  • For a 22-year-old new hire, an average of only 1 in 7 will retire from the State Retirement System

State retirement pension plan offers vesting for monthly benefits after 5 years of service.

Information provided by the Retirement Systems Division of the North Carolina Department of State Treasurer


Options for retirement savings

  • NC 401(k) Plan
  • State of NC 457 Deferred Comp Plan
  • 403(b) (for some teachers)
  • IRAs
  • Nonqualified annuities (ONLY after all other options are fully funded, member is in high tax bracket, etc.)

NC 401(k): Investment Advice

  • Member may request face-to-face meeting for help with asset allocation or other questions (Prudential has 14 Series 6/7 and 63-licensed Education & Enrollment Managers for NC plan)
  • Reps are salaried and do not give investment advice; they encourage use of GoalMakerSM
fund monitoring
Fund Monitoring

The State’s role in fund oversight:

  • Continuous monitoring by Board of Trustees
  • Annual internal audit
  • Annual independent audit
  • Subject to review by State Auditor
it costs nothing to participate
It Costs Nothing To Participate

Unlike other savings vehicles, your NC 401(k)

Plan does not charge:

  • Surrender charges or distribution fees
  • Transfer Fees Among Funds
  • Annual Account Charges (AAC)
  • Up-front sales charges
  • Administrative fee (Market Value Asset Fee)

NC 401(k) Bailey-vesting

  • Employees who had a balance in the 401(k) on 8/12/89 are Bailey-vested
  • They do not pay NC income tax on withdrawals from 401(k)
  • They can roll money from other retirement plans, including IRAs, and avoid NC tax on those funds (and earnings) when withdrawn
education planning25
Education Planning
  • Process of preparing to pay for all or a portion of your or another’s education expenses
hidden costs
Hidden Costs

* Source: College Board

saving for college
Saving for College
  • Coverdale Education Savings Account
  • Section 529 Plans
coverdale education savings account
Coverdale Education Savings Account
  • Allows for the deposit of $2,000 per year for each child under the age of 18.
  • Can withdraw money without penalty as long as it is used for education (K-12, College, Technical School)
  • Qualified withdrawals are tax-free since deposits are made after taxes.
section 529 plans
Section 529 Plans
  • Savings programs (plans) established and administered by States for the purpose of setting aside savings for "qualified higher education expenses".
estate planning31
Estate Planning
  • Process that allows an individual or family to prearrange the transfer of assets in anticipation of death.
without a will trust
Without a Will/Trust
  • Property will be divided according to state laws
  • No parents, children or descendents = 100% to spouse
without a will trust33
Without a Will/Trust

70% of American’s have neglected to write a will!

investment planning35
Investment Planning
  • Process of structuring your investments so that potentially all of your financial goals are met within a specified period of time – given your risk tolerance
6 steps in investment planning
6 Steps in Investment Planning
  • Identify your investment goals
  • Review investment options
  • Assess your tolerance for risk
  • Decide on an appropriate asset allocation mix
  • Compare your current investment portfolio to your chosen asset allocation
  • Monitor your portfolio regularly
identify your investment goals
Identify your Investment Goals
  • The need for liquidity, desired return, current income, portfolio size, tax situation, age, and investment period can all have a significant impact on which investments are appropriate.
review investment options
Review Investment Options
  • Savings and investment vehicles
    • Savings Account – low interest, safe
    • Money market funds – short term bonds
    • Certificate of Deposits – low risk
  • Long-term investment vehicles
    • Bonds, Stocks, Mutual Funds, Real Estate Investment Trusts (REITS)
investment options
Investment Options


  • US Government Bonds
  • Corporate Bonds
  • State and Local Government Bonds
  • Other Government Agency Bond (Fannie Mae, Ginnie Mae, Freddie Mac)

Mutual Funds

  • Offers diversification and liquidity, but the investor has no control over the investments and may pay a higher cost

Real Estate Investment Trusts (REIT)

  • Portfolio of real estate properties
assess your risk tolerance
Assess your Risk Tolerance
  • It’s important to understand the potential upside, and downside to all investments.
types of investment risk
Types of Investment Risk
  • Inflation Risk
  • Market Risk
  • Business Risk
  • Interest Rate Risk
  • Currency Risk
decide on an appropriate asset allocation mix
Decide on an Appropriate Asset Allocation Mix
  • Divide your investments among different asset classes
  • Helps reduce the effect of market volatility
  • Helps minimize risks
performance by asset class
Performance By Asset Class

This example is for illustrative purposes only and is not intended to represent the performance of any specific investment. For information about the funds offered in your plan, please refer to the Performance Updates located at the back of the guide.

investment categories

High Risk/High Potential Return

Global/International Stock








Stability Income Growth

Fixed- Income

Stable Value

Low Risk/Low Potential Return


Investment Categories

This is a simplified illustration of the relationship between investment risk and potential rate of return.

compare your current portfolio to your chosen asset allocation
Compare your Current Portfolio to your Chosen Asset Allocation
  • Be sure that your current investment selections line up with your chosen asset allocation, if not – rework your investments so that they do
professionally managed funds
Professionally Managed Funds
  • Pool money
  • Professionally Managed
analyzing investment funds
Analyzing Investment Funds
  • Fund Information
  • Investment Style
  • Fund Performance
  • Manager Tenure
  • Expense Ratio
fund information
Fund Information
  • Does the investment policy and objective of the fund suit the asset class for which you are considering this fund?
  • Are the risks appropriate for you?
  • Are you comfortable with the fund’s investment policies?
fund investment style
Fund Investment Style
  • Does the investment style of the fund suit the asset class for which you are considering this fund?
  • Are the risks appropriate for you?
fund investment style consistency
Fund Investment Style(Consistency)
  • Is the fund’s investment style relative to it’s stated objectives?
fund investment style foreign exposure
Fund Investment Style(Foreign Exposure )
  • How much of the fund’s assets are invested overseas?
fund performance relative to market performance
Fund Performance(Relative To Market Performance)
  • Is the fund’s performance relative to it’s benchmark?
manager tenure
Manager Tenure
  • Is the fund managed by a team or an individual?
expense ratio

How Fees Work


Actual Fund Performance:



Total Fund Expenses:


Net Return:

Expense Ratio
  • The amount paid by shareholders for operating expenses and management fees.
analyzing your funds
AnalyzingYour Funds

Fixed Income/Stable Value

Prudential Stable Value Fund

Fidelity Intermediate Bond


Van Kampen Equity Income A

Large Cap/Index

Vanguard Equity Index Portfolio

Large Cap/Value

Van Kampen Growth & Income A

Large Cap/Growth

American Funds Growth Fund of America

Mid Cap/Value

Goldman Sachs Mid Cap Value A

Small Cap/Blend

Oppenheimer Main St Small Cap A

International/Large Cap Blend

American Funds EuroPacific Gr R4

The Stable Value Fund is a bank collective fund trusteed by Wells Fargo Bank and sub-advised by Galliard Capital Management, Inc., a wholly owned subsidiary of Wells Fargo Bank, N.A. The Stable Value Fund will invest 100% in the Wells Fargo Stable Return Fund having the same investment objective. The assets of the Stable Value Fund and the Wells Fargo Stable Return Fund are not deposits or obligations of, or guaranteed by the Wells Fargo Bank; are not FDIC insured; and are not backed or guaranteed by the U.S. government

monitor your portfolio regularly
Monitor your Portfolio Regularly
  • To ensure that your investment strategy stays on track, review your portfolio at least annually, making adjustments as needed.

Shares of the mutual funds and Medley Program are offered by Prudential Investment Management Services LLC (PIMS), Three Gateway Center, 14th Floor, Newark, NJ 07102-4077. PIMS is a Prudential Financial company.