Building Wealth: Saving & Investing Presented By: Bruce Potter, CFP (R), Potter Financial Solutions

Building Wealth: Saving & Investing 2013 Fiscal Fitness Workshop 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.

Building Wealth: Saving & Investing 2013 Fiscal Fitness Workshop What I think is missing from education: HELPING STUDENTS LEARN TO MANAGE THEIR MONEY, CAREER, AND LIVES TO ENSURE THEIR OWN FINANCIAL INDEPENDENCE

Building Wealth: Saving & Investing 2013 Fiscal Fitness Workshop 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

Building Wealth: Saving & Investing 2013 Fiscal Fitness Workshop 1. UNDERSTAND THE FINANCIAL PLANNING PROCESS Set Goals Analyze Information Create a Plan Implement the Plan Monitor and Modify the Plan

Building Wealth: Saving & Investing 2013 Fiscal Fitness Workshop 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

Building Wealth: Saving & Investing 2013 Fiscal Fitness Workshop 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 3. MANAGE RISK & INSURANCE

Building Wealth: Saving & Investing 2013 Fiscal Fitness Workshop 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

Building Wealth: Saving & Investing 2013 Fiscal Fitness Workshop 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

Building Wealth: Saving & Investing 2013 Fiscal Fitness Workshop Tax-advantaged retirement plans Individual plans:c ontributions self or automatic – Roth IRAafter-tax contributions* $5,500/$6,500tax-free earnings conversions – Traditional IRAtax-deductible contributions* $5,500/$6,500tax-deferred earnings ordinary income withdrawals – Rollover IRAtax-deferred earnings from ER plansordinary income withdrawals – Annuitytax-deferred earnings no limitsordinary income withdrawals

Building Wealth: Saving & Investing 2013 Fiscal Fitness Workshop Tax-advantaged retirement plans Employer plans: contributions payroll deduction – 403b (7) (TSA)tax-deductible contributions $17,500/$23,000tax-deferred earnings ordinary income withdrawals – 401k available from PERA tax-deductible contributions $17,500/$23,000tax-deferred earnings (Roth 401k)ordinary income withdrawals – Self-employed planstax-deductible contributions tax-deferred earnings ordinary income withdrawals

Building Wealth: Saving & Investing 2013 Fiscal Fitness Workshop 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

Building Wealth: Saving & Investing 2013 Fiscal Fitness Workshop 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

Building Wealth: Saving & Investing 2013 Fiscal Fitness Workshop 6. CHOOSE INVESTMENTS Use 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

Building Wealth: Saving & Investing 2013 Fiscal Fitness Workshop Mutual Funds/Exchange Traded Funds: An investment 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)

Building Wealth: Saving & Investing 2013 Fiscal Fitness Workshop RISK and RISK TOLERANCE What does it mean to you? Loss of Value and/or Volatility Market Business Purchasing Power Interest Rate Economic Currency

Building Wealth: Saving & Investing 2013 Fiscal Fitness Workshop 7. PLAN FOR RETIREMENT 1.Pension Plan D.B.--- PERA 2.Savings/Investments 3.Social Security 4.Get a Job

Building Wealth: Saving & Investing 2013 Fiscal Fitness Workshop 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

Building Wealth: Saving & Investing 2013 Fiscal Fitness Workshop 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)

Building Wealth: Saving & Investing 2013 Fiscal Fitness Workshop Manage Decumulation and Retirement Risks Longevity – Money stages and priorities Taxes Inflation Healthcare Costs Investing – Declining interest income – Negative point-in-time

Building Wealth: Saving & Investing 2013 Fiscal Fitness Workshop Use Pots of Money to reduce risk spend short-term money while longer-term money grows Short-term/paycheck pot Medium-term pot Long-term growth pot

Building Wealth: Saving & Investing 2013 Fiscal Fitness Workshop 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?

Building Wealth: Saving & Investing 2013 Fiscal Fitness Workshop 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

Building Wealth: Saving & Investing 2013 Fiscal Fitness Workshop 10. HIRE A PROFESSIONAL Make sure you can trust them Make sure they put your interests first Make sure you understand conflicts of interest Make sure they explain how they are paid Banker Insurance agent Registered Rep. Broker Sells Products Suitability Rule Fee-based advisor Fee-only advisor Sells Advice Fiduciary Rule

Building Wealth: Saving & Investing 2013 Fiscal Fitness Workshop 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?

Building Wealth: Saving & Investing 2013 Fiscal Fitness Workshop Application Evaluate your current assets using the personal inventory as your guide. – Develop one saving goal and one investing goal that meet the SMART guidelines. – 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.