HOW TO PROVIDE FOR YOUR FUTURE FINANCIAL SECURITY Ralph Seger, Jr. CFA

1. HOW TO PROVIDE FOR YOUR FUTURE FINANCIAL SECURITY Ralph Seger, Jr. CFA

2. The formula for determining how • much wealth you should have • for your age: • Multiply your age times your realized pretax annual household income from all sources except inheritances. Divided by 10. This, less any inherited wealth, is what your net worth should be.

3. Example 1 $143,000 Salary 12,000 Investments $155,000 x 41 $6,355,000 41 Years Divide by 10 and net worth should be $635,500

4. Example 2 61 Years $235,000 Income x 61 $14,335,000 Divide by 10 and net worth should be $1,433,500

5. HOW TO DETERMINE: Income from your investments, on a total return basis, that can be maintained indefinitely and rise with inflation. Required investment portfolio to provide necessary income to supplement Social Security benefits and pension payments.

6. Since 1926 stocks have provided a total return of 10% to 11% a year. • Withdrawing 5% to 6% annually • from a • Total Return Portfolio of Stocks • leaves 5% • for growth to offset inflation

7. To determine the value of a Total Return Stock Portfoliorequired to maintain your living standards income make the following calculations: Expected level of retirement expenses Less Social Security Benefits Less income from Pension Benefits Equals Income required from Investment Portfolio

8. Example - Annual Basis $120,000 Expected level of retirement expenses -15,000 Less Social Security Benefits -45,000 Less income from Pension Benefits $ 60,000 Income required from Investment Portfolio $60,000 divided by .05 = $1,200,000 Required value of Total Return Stock Portfolio This assumes a withdrawal of 5% from a Total Return Stock Portfolio

9. Common denominations amongthose who successfully build wealth: 1. They live well below their means. 2. They allocate their time, energy and money efficiently in ways conducive to building wealth. 3. They believe that financial independence is more important than displaying high social status.

10. 4. Their parents did not provide financial outpatient care. 5. Their adult children are economically self- sufficient. 6. They are proficient in targeting market opportunities. 7. They chose the right occupation.

11. What concrete steps can people take to become wealthy? PAW (prodigious accumulators of wealth) UAW (under-accumulation of wealth) To be well positioned in the PAW category, you should be worth twice the level of wealth expected.

12. PAW UAW Example: $ 635,500 expected net assets x 2 times two $1,271,000 • Example: • $ 635,500 expected net assets • ÷ 2 divided by two • $ 317,500

13. A Foundation for Building Wealth Frugal Frugal Frugal Being frugal is the cornerstone of wealth building. Suits - custom made or off-the-rack Shoes - $100 or $800

14. To build wealth, minimize your realized (taxable) income and maximize your unrealized income (wealth/capital appreciation without a cash flow).

15. If you're not yet wealthy but want to be someday, never purchase a home that requires a mortgage that is more than twice your household annual realized income. Spend less and invest more.

16. Car Shopping Methods There is an inverse relationship between the time spent purchasing luxury items such as cars and clothes and the time spent on planning one's financial future. Fewer than 25% of America's millionaires are driving the current year's model.

17. Never lease or buy a car on time DRIVE IT UNTIL IT WEARS OUT

18. Why would someone who is a millionaire need a game plan? The answer is always the same:

19. They became a millionaire by planning and controlling expenses and they maintain their affluent status in the same way.

20. 1. Does your household operate on an annual game plan? 2. Do you know how much your family spends each year for food, clothing and shelter? 3. Do you have a clearly defined set of daily, weekly, annual and lifetime goals?

21. 4. Do you spend a lot of time planning your financial future? Those who answer "no" are either high income types with relatively low levels of accumulated wealth, those who inherited all or most of their wealth, or wealthy senior/retirees. Financially independent people are happier than those in their same income/age cohorts who are not financially secure.

22. AVOIDING ERRORS IN PLANNING FOR RETIREMENT 1. You make all the decisions for the rest of your life on the day you retire. 2. Spur of the moment decisions that could be wrong: a) If you sell your home and move, you have to make new friends.

23. b) Rent in an area before you buy. c) Make sure your income and principal continue to grow 3. Retirees do not necessarily pay lower taxes. 4. Social Security a) It may not keep coming

24. b) It may be capped without a cost of living adjustment. c) Fifty percent can be taxed. 5. Be aware that retirees spend as much as when they worked. It will be a different menu. 6. The biggest misconception is that you won't have to worry about your children and grandchildren.

25. 7. You may not be in a nursing home. Look into long-term health care insurance that pays for assistance at home and nursing home care. 8. Don't give your assets away. You may need it all. Rather, try hard to avoid estate taxes. 9. You may need a money manager. Select one younger than you are. Get your children involved.

26. The Myths and Realities ofRetirement Planning • Myth #1: You will not need as much • money during retirement as you • do now. • Myth #2: You can afford to start planning • for your retirement a few years • before your retirement. The • magic of compounding.

27. Myth #3: Social Security will provide enough for my retirement years. • Myth #4: I have my pension plan to • provide enough for my • retirement years. • Myth #5: Medicare will take care of my • health insurance.

28. Myth #6: All of my assets are in safe vehicles for long-term accumulation and do not need to be watched closely. • Myth #7: You can always use the equity • in your home to add to your • retirement income.

29. Myth #8: If need be, my family could always help me out. • Myth #9: Money is everything when it • comes to retirement planning.

30. Determine your net worth by tabulating your assets and liabilities. Is your financial house in order?

31. Assets • · Market value of savings and investments • · Market value of home • · Market value of cars • · Present value of retirement benefits • · Cash value of life insurance policies

32. Liabilities • Everything you owe

33. Balance Sheet • Assets: • Checking • Money Market Funds • Stocks and Bonds • Real Estate • Cash Value of Real Estate • Value of Private Company • Vested benefits of Retirement • Investment Club • Sub Total:

34. Other Assets • Jewelry • Autos • Household Furnishing • Sub Total: • Total Assets = • Sum of assets & other assets

35. LIABILITIES • Credit card debt • Mortgage • Home equity loan • Borrowed on Life Insurance • Car loan(s) • Other debts, bank loans & debts • Total: • NET WORTH =Total assets less liabilities

36. Professional Investment Managementvs.Do-It-Yourself • Front end, brokerage and ongoing expenses. • The record is only as valid as the tenure of current portfolio manager. Mutual Funds

37. Taxes from unwanted capital gains distribution. • Investment style - Investment vs. trading. • Portfolio turnover. • The NAIC Mutual Fund Comparison Guide and "The Official NAIC Mutual Fund Handbook."

38. Banks and Trust Companies • Never put your assets or estate in a position where the trust company can't be easily discharged. • Professional management, but a bureaucracy.

39. Turnover of personnel. • Pooled funds unless enormously wealthy. • Legal responsibility. • Difficulty of change.

40. Investment Counselors: • Look at the record of current manager. • You must feel comfortable with managers. • Custom built portfolios.

41. Other financial advice which does not require a lawyer or accountant. • Flexibility. • Easy to change if not satisfied.

42. LEARN BY DOING INVESTMENT EDUCATION PROCESS • Join and become active • in an investment club • NAIC is a non-profit investment educational organization

43. Invest on a regular basis - monthly meeting. • Dollar cost averaging. • Buy growth stocks. • Reinvest all capital gains and income.

44. Use NAIC stock study tools to determine if security is favorably priced, has growth characteristics and the company is well managed. • Learn by doing - so be sure you do.

45. Accumulating wealth • by saving • and investing • * * * * * • The advantage • of starting early

46. The Magic of Compounding Save and invest $2,000 a year at 9% compounded annually Example 1 Invest age 19 through 27 $16,000 Value at age 65 = $692,796

47. Example 2 Invest age 27 through 65 $78,000 Value at age 65 = $673,765 STARTING EARLY IS IMPORTANT

48. MANAGING A PORTFOLIO • 1. Establish and understand your • investment objectives • (A) Growth of principal • (B) Growth of income • (C) Conserve purchasing power of • principal

49. (D) Aversion to risk • (E) Legal constraints • (F) Cash reserves • (G) Other sources of income if income • account • (H) Tax bracket

50. 2. Create a strategy to accomplish • investment objectives by screening • portfolio securities for characteristics • of: • Growth • Current yield • Risk characteristics • Central value - What is buy • and sell price