© CV Macro Asset Perspective Macro Asset Perspective ® A Wealth Accumulation Seminar

© CV Presented by Vanessa Diego Agent, New York Life Insurance Company WA Lic# Seattle G.O, (Seattle West Campus) 500 Yale Ave. N Suite 400 Seattle, WA Presented for Presented for This seminar is for informational purposes only. Neither New York Life Insurance Company, its subsidiaries, nor any of its agents are in the business of offering tax, legal or accounting advice. You should consult with your own professional advisors for tax, legal or accounting advice.

© CV Today’s Agenda Charting Your Course with MAP “Wonder” of Tax Deductible Investing Annual Asset Reallocation A Financial EKG

© CV A Financial EKG

© CV Financial EKG Worksheet Current Age Desired Retirement Age Years to Accomplish Goal Current Income Anticipated Rate of Return Monthly Contribution Desired Retirement Income 5 More Years 5 Less Years $80,000 8%/5% $1,367 $60,000 $882$2,185 $60K $30K $15K $120K $240K $1,200, ) 14 Income from working Income from assets Accumulation Phase Conservation Phase Hypothetical example for illustrative purposes only.

© CV A Wealth Accumulation Strategy ® Macro Asset Perspective ®

© CV MAP is designed to give you a visual picture of where assets can be placed and why.

© CV The vertical arrangement of boxes represents the concept of vertical diversification. ss MM AA Paper Assets Real Wealth AA

© CV Your personal diversification depends upon such factors as your age, risk tolerance and holding period. ss MM AA Paper Assets Real Wealth

© CV A Wall Street “Rule of Thumb” suggests a percentage of assets equal to one’s age below the line. ss MM AA Paper Assets Real Wealth

© CV One of the primary objectives of vertical diversification over time is to convert “paper assets” into “real wealth.” ss MM AA Paper Assets Real Wealth Vertical diversification has been touted for decades.

© CV Recently another issue has emerged.- The concept of horizontal diversification. That is, diversification between tax treatments. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax

© CV For many years, it has been said that we should concentrate on the Pre-Tax side. But why has that been such a good idea? ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax

© CV The top marginal tax bracket* in the eighties was 70 percent* *and there were 15 different brackets. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax $100,000 $80,000 25%-28% 70% * Your MTB or marginal tax rate is the rate (%) at which your last dollar (last increment) of income is taxed. **Source: Federal tax code 1981

© CV Deferring taxes at 25 or 28 percent, to pay them later in a higher tax bracket would be a major mistake. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28%

© CV Don’t run out and cancel your 401(k) as some may be suggesting. The pre-tax side can still be a great place to accumulate wealth if used properly. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 %

© CV When you defer taxes at one bracket to pay them later in a lower bracket you make the pre-tax side work as it was intended to. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Let’s see how to accomplish this.

© CV The advantages found below-the-line are not generally needed on the pre- tax side. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Safe Liquid Tax Advantage

© CV Historically, assets that have kept pace with inflation, or exceeded it, have been found above- the-line. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Safe Liquid Tax Advantage

© CV The first rule of accumulation is simple – ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Safe Liquid Tax Advantage * Take the free money. Be sure to maximize any employer matching in pre-tax plans. Above-the-line is the key area on the Pre-Tax side.

© CV The advantages that were of little value on the pre-tax side, have great value on the after-tax side. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Safe Liquid Tax Advantage * *

© CV Use the after-tax side to get proper vertical diversification with a focus on tools that can provide tax-free future income. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Safe Liquid Tax Advantage * * Roth IRA Muni Bonds CV Life Ins. Annuities 529 Plans 4-5%

© CV 4 or 5 percent, tax- free, may be the equivalent of 7 or 8 percent taxable, depending upon your tax bracket. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Safe Liquid Tax Advantage * * Roth IRA Muni Bonds CV Life Ins. Annuities 529 Plans 4-5% 7-8% T.E.

© CV Don’t compare expected rates of return for “safe”, conservative products to that of “risky” or aggressive ones. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Safe Liquid Tax Advantage * * Roth IRA Muni Bonds CV Life Ins. Annuities 529 Plans 4-5% 7-8% T.E.

© CV The Roth IRA is an ideal tool above-the- line due to its long- term nature. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Safe Liquid Tax Advantage * * Roth IRA Muni Bonds CV Life Ins. Annuities 529 Plans 4-5% 7-8% T.E. Roth IRA

© CV Aside from the Roth, we are not generally looking for tax-free income above-the- line, but potential growth with a secondary consideration for tax advantages such as long-term capital gains. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Safe Liquid Tax Advantage * * Roth IRA Muni Bonds CV Life Ins. Annuities 529 Plans 4-5% 7-8% T.E. Roth IRA Stock Mkt. Real Estate

© CV Utilize a “funnel approach” to turn paper money gains into real wealth. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Safe Liquid Tax Advantage * * Roth IRA Muni Bonds CV Life Ins. Annuities 529 Plans 4-5% 7-8% T.E. Roth IRA Stock Mkt. Real Estate The systematic method known as “annual asset reallocation” may help you buy low and sell high.

© CV Possibly the best tool for the “funnel approach” is an Employee Stock Purchase Plan (ESPP). ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Safe Liquid Tax Advantage * * Roth IRA Muni Bonds CV Life Ins. Annuities 529 Plans 4-5% 7-8% T.E. Roth IRA Stock Mkt. Real Estate ESPP An ESPP with a 15 percent discount provides a guaranteed minimum return-on-investment of 17.6 percent*. *15 divided by 85 equals 17.6%

© CV Proper overall diversification, both vertical and horizontal, is the key to the MAP. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Safe Liquid Tax Advantage * * Roth IRA Muni Bonds CV Life Ins. Annuities 529 Plans 4-5% 7-8% T.E. Roth IRA Stock Mkt. Real Estate ESPP $ 50% 50/50 horizontal diversification is reasonable in most cases, but…

© CV Those desiring high retirement income may want to lean heavier toward the after-tax side to avoid paying taxes later at higher income tax rates. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Safe Liquid Tax Advantage * * Roth IRA Muni Bonds CV Life Ins. Annuities 529 Plans 4-5% 7-8% T.E. Roth IRA Stock Mkt. Real Estate ESPP $ 50% In most cases, the pre-tax side can be entirely above-the- line.

© CV Use the after-tax side to maintain the desired overall vertical diversification percentages. ss MM AA Paper Assets Real Wealth IRA 401(k) Pensions Pre TaxAfter Tax 70% $100,000 $80,000 25%-28% 100% Taxable Income Tax- Free Income $40,000 15%0% 7 1/2 % Safe Liquid Tax Advantage * * Roth IRA Muni Bonds CV Life Ins. Annuities 529 Plans 4-5% 7-8% T.E. Roth IRA Stock Mkt. Real Estate ESPP $ 50% 25-50% 0-25% 75% 25%

© CV A Wealth Accumulation Strategy Macro Asset Perspective ®

© CV The “Wonder” of Tax-Deductible Investing

© CV Robert Tax-Deductible 401(k) Roberta Non-Deductible Roth IRA Annual Available Contribution Tax Paid Account Balance Day 1 If Accessed Day 2 Tax Paid Net Balance Day 2 Balance at Retirement If Liquidated at Retirement Tax Paid Net Retirement Balance Post Retirement Cash Flow Annual Withdrawal Tax Paid Net Retirement Cash Flow 0 4,000 1,000 3,000 1,000 3, , ,000300, , , ,000 40,00030,000 10,000 30, ,000 6,000 34,000 15%14,00035% 26,000 $4,000 25% 10,000 30,000 25%

© CV Cash Flow Comparison RobertRoberta $100,000Salary: 401(k) Contribution: $4,000 $96,000 Taxable Income: $24,000 Hypothetical Tax: $72,000 Net Spendable: $100,000Salary: Hypothetical Tax: $25,000 $75,000 After-Tax Income: $3,000 Roth Contribution: $72,000 Net Spendable:

© CV Annual Asset Reallocation

© CV ABC Buy High Sell Low Buy Low Sell High C C Annual Asset Reallocation Balance Re-Balance

© CV ABC C C D D Company Stock Component

© CV Macro Asset Perspective ® A Wealth Accumulation Seminar