1. The Difference Financial Planning Can Make
Prudential Financial Planning Services
The Difference Financial Planning Can Make
Investment advisory services are offered through Prudential Financial Planning Services, a division of Pruco Securities, LLC, a Prudential Financial company. Securities products and services are offered through Pruco Securities, LLC.
Prudential Financial, its affiliates, and their licensed sales professionals do not render tax or legal advice. Please consult with your attorney, accountant, and/or tax professional for advice concerning your particular situation.
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There are seven major areas of financial planning.
We will discuss all seven in detail and, at the end of the seminar today, you will have a better understanding of the difference financial planning can make in your life.

2. 1 - Assessing Your Financial Situation
Analyze your income and expenses
Determine your net worth
Establish an appropriate size for your emergency fund
The first area to focus on is your current financial situation.
We review your current income and expenses by doing a detailed cash flow analysis with you to identify areas where you may want to make changes and improvements.
We estimate your total net worth.
We help you establish an appropriate size for your emergency fund.

3. Cash Reserves - Three Tiered Cash Reserves
TIER I
Primary Reserve m
Auto deductible è
No fluctuation m
Medical Emergencies è
Immediate access m
Unanticipated job loss
TIER II
Secondary Reserve m
Opportunity fund è
No fluctuation m
Purchases in months è
1-2 day access
Goal: Keeping your money available for emergencies/opportunities while retaining its buying power. The solution:
A cash reserve strategy, which includes:
Money in checking or savings accounts, or even loose bills. The rate of return is low, but the money is available for immediate access.
Money in vehicles like CDs and Money Markets. The relatively higher rate of return usually makes it more difficult to access the money fast, which discourages investors from making frequent withdrawals.
Money in vehicles that aim for higher rates of return with even less liquidity. These investments may take 7 to 10 days to liquidate, and include bonds and mutual funds. Of course, these vehicles are exposed to types of risk other than inflation, including market risk.
Bank savings and checking accounts and certificates of deposits are insured by the FDIC and offer a fixed rate of return, whereas the return and principal value of other investments will fluctuate in market conditions. The accounts and CDs are FDIC-insured up to $250,000 per financial institution through December 31,2013. Effective January 1, 2014, the FDIC coverage limit will be $100,000. There may be a penalty for early withdrawal from a CD. An investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency. Although the fund seeks to preserve the value of an investment at $1.00 per share, it is possible to lose money by investing in the fund. Government bonds are fixed and principal, if held to maturity, is guaranteed. US corporate bonds offer a fixed rate of return and principal value. Bond investments are affected by interest rate changes and the creditworthiness of the issues held by the funds. An investment in stocks or mutual funds can lose principal. Because mutual fund values fluctuate, redeemed shares may be worth more or less than their original value. Although common stocks have produced higher historical returns, they may subject principal to greater risk than other types of investments.
TIER III
Long Term Reserve m
Major expenses è
Some fluctuation m
Purchases in months è
7-10 day access

4. 2 – Saving/Investing for Major Expenses
Funding a college education
Purchasing a house or car
Saving/Investing for a special vacation or event
The second area to focus on is saving/investing for major expenses:
College funding: We can project what it will cost you to send your child to the university of your choice.
Saving/Investing for a new home.
Developing a cash reserve for special occasions.
We can develop a detailed plan to help you reach each of these goals.

5. 3 - Retirement Planning Review retirement income and expense needs
Estimate the value of government and company programs
Determine the amount you need to save/invest to meet future retirement income goals
The third area to focus on is retirement planning, where we’ll:
Estimate your income and expenses in your retirement years.
Estimate how much you’ll receive from government programs.
Determine the amount you need to save/invest now to meet your future income goals.

6. Dollar-Cost Averaging
A periodic investment plan such as dollar cost averaging does not guarantee a profit nor remove the risk of a loss in a declining market. Such a plan involves a continuous investment in securities regardless of fluctuating price levels of such securities. An investor should consider his/her financial ability to continue purchases through periods of low levels.
Invest $100 in each of twelve purchase periods.
Accumulated shares
Average market price per share
Average cost per share
Value
81.6
$15.50
$14.70
$1,713
169.12
$7.50
$7.09
$1,691
542.5
$3.91
$2.21
$2,712
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
$20
$15
$10 $5
$20
$15
$10
(This chart was developed for illustrative purposes only and does not reflect the performance of any specific investment.)
One of the most powerful tools you can use to achieve your financial goals is Dollar Cost Averaging (DCA).
The investment in the first example consistently gains in value every month. The investment in the second example decreases in value for a couple of months, then returns to the price at which it was purchased.
The investment in the third example loses its value dramatically, then returns only to a value of $5.
In the first example, we have purchased 81.6 shares of stock, with an average market price of $15.50; because you used DCA, your cost per share was $ The second example purchased shares of stock, with an average market price of $7.50; using DCA, your cost per share was $7.09.
Results: Over the twelve-month period in the third example, the portfolio acquired shares, with an average market price of $ Using DCA, your portfolio purchased shares at an average cost per share of $2.21. $5
$20
$15
$10 $5

7. 4 - Investment Planning Assessing your risk tolerance
Developing an asset allocation strategy
Determining appropriate investment vehicles
The fourth area to focus on is Investment Planning.
Assessing your risk tolerance and time horizons will help us identify which investment types are appropriate for your situation and which may not be.
I am often asked: “Is this a good investment for my needs?” And I typically respond “I don’t know.” First, I need to know when you’re going to need the money back, and what is your level of risk tolerance.
Ask yourself, when was the last time you took a detailed look at your risk tolerance and time horizons and the overall risk of your portfolio?

8. Modern Portfolio Theory The Efficient FrontierB
C = some portfolios
B = same risk, more return
A = same return, less risk
D = more return, less risk (cannot be sustained for long periods of time)
Return A C
The Modern Portfolio Theory is based on a Nobel Prize winning economic theory. It simply states that for any given level of risk, one can expect a maximum amount of return. Maximum return is achieved by attaining the right mix of investment types through diversification. Diversification is a method used to help manage investment risk—it does not guarantee against loss.
On this chart, the left axis represents rate of return while the bottom axis represents a given amount of risk. Point C is an example of a portfolio that isn’t properly diversified; therefore, the portfolio isn’t achieving the appropriate rate of return given the amount of risk. If we determined that your portfolio was like point C, we could re-allocate to point B, thus improving your probability of achieving a higher return for your level of risk. However, if we found the level of risk you are currently taking is too great according to your risk profile questionnaire, we could re-allocate to point A. This would allow you to help maintain your current rate of return and minimize risk.
As for point D, it may be achievable over a short term, but cannot exist over the long term. We can’t expect to achieve a high rate of return for a long period without substantial risk.
Risk
This theory is based on past returns of asset classes. There is no guarantee that the same mixes or any other particular mix of asset classes will appear on the efficient frontier in the future.

9. 5 - Tax Planning Projecting federal income taxes
Developing a tax smart strategy
Staying informed of recent tax law changes
The fifth area to focus on is Tax Planning. In this area, we help our clients look at how different investments can affect their current and future tax situation. Remember, we do not render specific tax advice.

10. Tax Control Triangle After Tax After Tax Before Tax
Tax Exempt Bonds/Funds
Education Savings Accounts
Life Insurance
Roth IRA
Roth Accounts in Qualified Plans
Potentially Tax-Free
Real Estate
Mutual Funds
Annuities
CDs
Money Markets
Qualified Plans
401(k)
TSA
IRA/SEP
A critical aspect of financial planning is identifying where your retirement savings are located; this allows us to plan how you will withdraw that money when you retire. There are three places we can save money:
Lower right (blue) circle: First we can save money in pre-tax investments. This is usually money our employer withholds from our paycheck before taxes or dollars that get deducted from our annual taxable income. Some examples include 401(k) or 403(b) plans, or TSAs, IRAs, and SEP IRAs. We don’t pay taxes on these dollars today, expecting instead to pay tax at the same or lower rate when we get to retirement. However, if we need to access the money prior to age 59½, tax penalties may be incurred.
Lower left (purple) circle: Next we can save money in after-tax investments. This is money we take home in our paycheck to be saved in checking accounts, savings, CDs, stocks, bonds, mutual funds, and annuities. Some of these investments have special tax treatment; instead of having to pay your ordinary income tax rate (%), you could only have to pay a capital gains rate. Currently, the maximum capital gains rate is 20%. With annuities, there can again be a tax penalty for accessing funds early.
Top (green) circle: The third place we can save money is in after-tax investments that offer potential tax-free growth. These include Roth IRAs and municipal bond investments. While these areas are potentially tax-free, some can impact taxation of Social Security benefits or have alternative minimum tax consequences. Of course, the primary reason to purchase a life insurance policy is for the death benefit. However, the potential cash value of a life insurance policy accumulates on a tax-deferred basis and can be used to supplement your income needs. Withdrawals and loans will reduce policy values and the death benefit and may have tax consequences.
As your financial planner, I can help ensure you have balance in this tax control picture. What many of my clients find is that they have done a great job saving, but their planning for taxes has not been optimized.
It is very likely that taxes will both increase and decrease in the future. The key to being prepared for future taxes is having the ability to respond to changes. By having money saved in all three areas, we can choose to draw from the most tax beneficial area in retirement.  Is this a strategy you would like to see applied to your situation?
Goal: Money with tax control
Taxable
After Tax
Before Tax

11. 6 - Protecting Against Financial Crises
Helping to ensure your family’s ongoing financial needs will be met if you die
Helping to protect your financial future if you become disabled
Plan for the continuation, sale, or liquidation of your business
The sixth area to focus on is how to protect you and your family against financial crises resulting from your premature death or disability. We help our clients protect themselves, their family, their income, and even their businesses from such a tragedy.

12. Insurance Planning Life Stages S t a g e s Concerns: Concerns:
Liabilities
Liabilities
Liabilities
Liabilities
Funeral Expenses
Funeral Expenses
Funeral Expenses
Funeral Expenses
Disability Income
Disability Income
Survivor Income Needs
Describe the Life Cycle – Ramp Up to the Top
Insurance needs change as we age. As children, our parents care for us and no one depends on us for financial support. We also don’t own a lot of material assets, so our need to be insured is low. As we mature, however, we purchase big ticket items like automobiles or homes, so there is a need to protect those assets with insurance. As we grow older, join the workforce, get married, and possibly have children, our need for insurance grows. Our families depend on our income to pay for the home and help them reach their goals.
But eventually, the house gets paid off, the children mature and move out, and our retirement is in sight. While the need to protect income and debt may decrease, a need to protect your estate and to protect yourself and your children against the expenses of long-term care increases.
Where do you see yourself in the Life Stages curve right now? (Take notes.)
Survivor Income Needs
Survivor Income Needs
Estate Settlement
Retirement Savings
Retirement Savings
Long -
Term Care
Education Savings
Estate Settlement

13. 7 - Estate Planning Plan for the orderly distribution of your estate
Maximize your legacy by minimizing estate taxes and probate expenses
Fund estate taxes in the most cost-effective way
Hopefully, our careful planning in the six areas we’ve discussed will allow our clients to amass more wealth than they can spend in their lifetime. Therefore, they’ll need to plan for an orderly distribution of their estate.
The goal here is to minimize your estate taxes and fund those we cannot eliminate altogether.

14. What If There Is A Gap? Delay the goal Reduce the goal
Strive for higher return or growth (increase risk)
Increase investments (systematic investments or lump sum)
What if it’s clear you’re going to fall short of a goal? There are four actions you can take:
1. Reduce the goal - This would mean lowering your cost of living in retirement or choosing a less costly school for your children to attend.
2. Delay the goal - This would mean retiring at 65 instead of 60 or paying for your children’s education later by taking student loans.
3. Strive for a higher rate of return by assuming more risk.
4. Invest more money toward the goal.

15. Planning Concerns
I feel I have the best possible strategy in place to ensure a secure retirement.
True
Somewhat true
Not true
Read the slide

16. Planning Concerns
I’m confident we’ll have the funds we need to send our children to the college of their choice.
True
Somewhat true
Not true
Read the slide

17. Planning Concerns I have a disciplined investment strategy. True
Somewhat true
Not true
Read the slide

18. Planning Concerns
My investment strategy was developed with all my financial needs in mind and is completely up-to-date.
True
Somewhat true
Not true
Read the slide

19. Planning Concerns
I feel confident my investments are properly diversified and that they are the right vehicles for helping to achieve my short-term and long-term goals.
True
Somewhat true
Not true
Read the slide

20. Planning Concerns
My investing and saving strategies are as “tax smart” as they can be.
True
Somewhat true
Not true
Read the slide

21. Planning Concerns
I know I’ve done all I can to ensure as much of my estate as possible goes to my heirs.
True
Somewhat true
Not true
Read the slide

22. Planning Concerns I have a concrete plan for reducing my debt. True
Somewhat true
Not true
Read the slide

23. Planning Concerns
I am managing my day-to-day expenses as efficiently as possible.
True
Somewhat true
Not true
Read the slide

24. Planning Concerns I’m doing all I can to reduce income taxes. True
Somewhat true
Not true
Read the slide

25. Planning Concerns
My family is completely protected in the event of my or my spouse’s death, serious illness, or long-term disability.
True
Somewhat true
Not true
Read the slide

26. People don’t plan to fail… they fail to plan.
Prudential Financial Planning Services
People don’t plan to fail… they fail to plan.
People don’t plan to fail - they fail to plan. If you answered somewhat true or not true to any of the previous statements, there may be gaps in your financial plan. We can help you address those gaps by creating or updating your financial plan and suggesting what types of insurance and financial products should be part of your financial plan. To schedule time to answer your specific question, please complete the sign-up sheet I’m passing around. Planning today can positively impact tomorrow. 26

27. Plan for tomorrow, today … with Prudential.
Prudential Financial Planning Services
Plan for tomorrow, today … with Prudential.
Thank you again for coming today. I trust you have benefitted from the topics we discussed. Remember: Your financial planning starts today! 27