Financial Planning 101 Todd Jorns

Facts & Stats A woman age 65 has a 19% chance of living to age 95. A man age 65 has a 11% chance of living to age 95. Only 60% of workers are currently saving for retirement. Over 50% felt they were behind in saving for retirement. 32% rated themselves as “a lot behind.” 2005 Retirement Confidence Survey

Facts & Stats 25% of all workers rely solely on Social Security when they retire. 66% rely primarily on Social Security. The average Social Security benefit is $959 a month ($11,508 a year). 31% of Americans would rather scrub a bathroom than plan for retirement! 2005 Retirement Confidence Survey

Facts & Stats 2007 Retirement Confidence Survey Retirement SavingsAll Less than $10,000 35%50%36%24%26% $10,000 – $24,999 13%19%16%10%5% $25,000 – $49,999 10%9%10%11%9% $50,000 – $99,999 13%10%14%15%11 $100,000 – $149,999 8%7% 9%11% $150,000 – $249,999 7%1%9%10%9% $250,000 – $499,999 7%1%4%12%11% $500,000 or more 7%4% 9%17%

Objectives Improve Awareness and Understanding of the term “saving versus investing.” Familiarize and Educate attendees on the various retirement options available to them. Inspire and Motivate attendees to be in charge of their retirement. Challenge attendees to share this knowledge with their children, family and friends.

Do’s & Don’ts Don’t get mad at me. Don’t get mad at yourself. Don’t blame anyone (but yourself). Do use the information positively. Do create a plan for yourself. Do stick to your plan. Do enjoy retirement.

Waiver I am not a certified financial planner or accountant. All information I share with you are things I have read about or seen on TV. I have a passion to share my financial knowledge with anyone who will listen. My goal is to help others find the path towards F 3 (future financial freedom).

Investing versus Saving How to Have a Net Worth of $1 Million at Age 55 Interest Rates and Their Effect on Your Investments The Magic of Compound Interest Rule of 72 – Lump Sum Investment

How to Have a Net Worth of $1 Million at Age 55 Monthly Savings Age Return of 10% Return of 8% Return of 4% Return of 2% 20$264$435$1,094$1,646 25$442$670$1,440$2,030 30$754$1,051$1,945$2,572 35$1,317$1,697$2,726$3,392 40$2,413$2,889$4,063$4,768 45$4,882$5,466$6,791$7,535 50$12,914$13,609$15,083$15,861 Bloomberg Personal, September 1994

Interest Rates and Their Effect on Your Investments 5-yrs10-yrs20-yrs30-yrs40-yrs 0%$10,000 1%$10,512$11,051$12,213$13,497$14,916 2%$11,051$12,212$14,913$18,212$22,241 4%$12,210$14,908$22,226$33,135$49,399 6%$13,489$18,194$33102$60,226$109,575 8%$14,898$22,196$49,268$109,357$242,734 10%$16,453$27,070$73,281$198,374$537,007 12%$18,167$33,004$108,926$359,496$1,186,477 $10,000 Lump Sum

Interest Rates and Their Effect on Your Investments $100 Per Month 5-yrs10-yrs20-yrs30-yrs40-yrs 0%$6,000$12,000$24,000$36,000$48,000 1%$6,155$12,625$26,578$41,998$59,038 2%$6,315$13,294$29,529$49,355$73,566 4%$6,652$14,774$36,800$69,636$118,590 6%$7,012$16,470$46,435$100,954$200,145 8%$7,397$18,417$59,295$150,030$351,428 10%$7,808$20,655$76,570$227,933$637,678 12%$8,249$23,234$99,915$352,991$1,188,242

The Magic of Compound Interest Jimmie –Opens IRA at 12% interest at age 22. –Invests $2,000/year for 6 years = $12,000. –After 43 years IRA is worth $1,348,440. Joel –Spends $2,000/yr on himself for six years. –Opens IRA at 12% at age 28. –Invests $2,000/yr for 37 years = $74,000. –After 43 years, IRA is worth $1,363,780. Difference of $15,340 (start early!).

The Magic of Compound Interest JimmieJoelJake AgePaymentAccumulationPaymentAccumulationPaymentAccumulation 22 $2,000$2,240$0 $2,000$2, $2,000$4,749$0 $2,000$4, $2,000$7,559$0 $2,000$7, $2,000$10,706$0 $2,000$10, $2,000$14,230$0 $2,000$14, $2,000$18,178$0 $2,000$18, $0$20,359$2,000$ 2,240$2,000$ 22, $0↕ $2,000↕ $2,000↕ 65$0 $1,348,440 $0 $1,363,780 $0 $2,712,220

Rule of 72 The rule of 72 says if you take the interest rate you are receiving and divide it into 72, it will give you the number of years it will take for your investment to double. Example, 72 divided by 4 (interest rate at a bank) = 18 years for your money to double. Another example, 72 ÷ 2 = 36 years.

Rule of 72 Interest Rate (Lump Sum Investment) Year2%4%6%8%10%12% 72÷2=3672÷4=1872÷6=1272÷8=972÷10=7.272÷12=6 0$1,000 6$1,130$1,268$1,432$1,617$1,813$2,047 12$1,277$1,607$2,051$2,616$3,288$4,191 18$1,443$2,037$2,937$4,231$5,962$8,579 24$1,631$2,583$4,206$6,843$10,811$17,561 30$1,843$3,274$6,023$11,067$19,603$35,950 36$2,083$4,151$8,625$17,899$35,545$73,592

Guidelines & Resources Retirement Options/Contributions Net Worth Projection – Calculator 12 Financial Principles Debt: the Good, Bad & Ugly Financial Web Resources Financial Priorities

Retirement Options/Vehicles 401(k) (corporations) 403(b) (not-for-profits-education/hospitals) 457(b) (government) Roth IRA IRA Annuities U.S. Savings Bonds CDs Savings Accounts Others

Retirement Contributions Vehicle MaxMonthlyMaxMonthlyMaxMonthly *IRAs$5,000$416$5,000$416$5,000$416 *403(b)$16,500$1,375$16,500$1,375$16,500$1,375 *457(b)$16,500$1,375$16,500$1,375$16,500$1,375 Totals$38,000$3,166$38,000$3,166$38,000$3,166 *Catch-up contributions: Workers age 50 and above are permitted to contribute an additional $1,000 to their IRAs and $5,500 to their 403b and 457b plans in 2009.

Net Worth Projection – Calculator Will help you plan for retirement. Allows you to make projections into the future. Adjustments made to the Interest Rate shows the impact on investments. You can download this calculator at

12 Financial Principles 1.Map your financial future Take time to list your financial goals, along with a realistic plan for achieving them. You can go places you want to go without a roadmap - but seldom on the first try. 2.Pay yourself first Before paying bills and other financial obligations, set aside an affordable amount each month in accounts designated for long- range goals and unexpected emergencies. 3.Start saving young Recognize that your total savings are determined both by the interest you earn on those savings and the time period over which you save. The sooner you start saving, the more funds you'll be able to amass over time.

12 Financial Principles 4. High returns equal high risks Recognize that no one will pay you high interest rates on a sure thing. In most cases, the higher the interest rate offered to you, the investor, the higher the risk of losing some, or all, of the money you invest. Diversification of assets is the best protection against risk. 5. Money doubles by the "Rule of 72" To determine how long it will take your money to double, divide the interest rate into 72. For example, an account earning 6% interest will double in twelve years (72 divided by 6 equals 12). 6. Budget your money Create an annual budget to identify expected income and expenses, including savings. This will serve as a guide to help you live within your income.

12 Financial Principles 7. Know your take-home pay Before committing to significant expenditures, estimate how much income is likely to be available for you. Net income, after all mandatory deductions, is more important to estimate than gross income before deductions. 8. Don't expect something for nothing Be leery of advertisements, sales people or other sources of financial offers promising anything free. Like non-financial opportunities, if it sounds too good to be true, it probably is. 9. Your credit past is your credit future Be aware that credit bureaus maintain credit reports, which record borrowers' histories of repaying loans. Negative information in credit reports can affect your ability to borrow at a later point.

12 Financial Principles 10. Compare interest rates Obtain rate information from multiple financial services firms to get the best value for your money. 11. Don't borrow what you can't repay Be a responsible borrower who repays as promised, showing you are worthy of getting credit in the future. Before you borrow, compare your total payment obligations with income that you will have available to make these payments. 12. Stay insured Purchase insurance to avoid being wiped out by a financial loss, such as an illness or accident. An insurance plan should be part of every personal financial plan.

Debt: the Good, Bad & Ugly House Loan (Mortgage) Auto Loan (Car or Truck) Personal Loan Credit Card

House Loan (Mortgage) Mortgages are usually good debt because equity in the house is built up over time. Only borrow what you can reasonably afford to pay back each month. The shorter the term (15yr vs. 30yr) the less interest you pay over time. Shop around for lowest interest rate.

Auto Loan Auto loans are considered not so good debt because the value of the car goes down over time. The shorter the term (36 mo vs. 60 mo) the less interest you pay over time. Shop around for lowest interest rate. Better to buy a used car or save up and pay cash for your vehicles.

Personal Loan Personal loans are considered bad debt because you pay interest with no return. Only borrow if it is a true emergency. Shop around for lowest interest rate. Pay back the loan ASAP. Better to create your own “emergency” fund and borrow from and repay yourself.

Credit Card Debt Credit Card debt is ugly debt because you pay enormously high interest rates. Interest rates can range from 0% - 30% Credit card debt is one of the leading causes of personal bankruptcy. Don’t carry balance over each month. Better to only charge what you can easily pay back each month.

Credit Card Debt How long to pay off credit card? –$5,000 balance –10% interest rate –$100 monthly payment Almost 5.5 years to pay off the debt. –$1,495 of interest –$5,000 principle –$6,495 total money paid – Ugly!

Credit Card Debt How long to pay off credit card? –$5,000 balance –20% interest rate –$100 monthly payment Over 9 years to pay off the debt. –$5,840 of interest –$5,000 principle –$ 10,840 total money paid – Ugly!

Financial Web Resources

Financial Priorities 1.Pay down (eliminate) credit card debt ASAP 2.Create an emergency fund - enough to cover 3 – 6 months of monthly expenses 3.Make sure you have adequate life insurance (term is the cheapest) 4.Maximize all your tax-deferred opportunities first (401k, 403b, 457b) 5.Open Roth IRAs 6.Save for children’s college education

Words to “Live” By Start saving/investing now! Pay yourself first! Rule of 72 Compounding interest ($ work hard for you) Stick with your financial plan Invest 50% of your annual raise in you! Work smart, invest hard, retire peacefully

Questions