Reinventing Your Retirement New Realities For New Challenges For Clear View

Reinventing Your Retirement


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New Reality, New Challenges

Transition Assistance Plan TIPS for Salem Works May 18, 2009

Steve Stanganelli, CRPC®, CFP®Member, Financial Planning Association

Rated Advisor, Paladin Registry

[email protected]

Direct: 978-388-0020 Cell: 978-621-8268

mailto:[email protected]

http://www.moneylinkpro.wordpress.com/

Resource LinksResource Links

• www.moneylinkpro.wordpress.comwww.moneylinkpro.wordpress.com

• http://www.cfp.com/learn/ http://www.cfp.com/learn/

• http://www.fpaforfinancialplanning.org/ http://www.fpaforfinancialplanning.org/

• www.moneylinkpro.wordpress.comwww.moneylinkpro.wordpress.com

• http://www.cfp.com/learn/ http://www.cfp.com/learn/

• http://www.fpaforfinancialplanning.org/ http://www.fpaforfinancialplanning.org/

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Steve Stanganelli, CRPC®, CFP®

Common Comments Today Common Comments Today

• How Do I Get Back on Track?How Do I Get Back on Track?

• Where’s My Bailout?Where’s My Bailout?

• How Will I Be Able to Afford to Retire?How Will I Be Able to Afford to Retire?

• Who Will Be There to Help Me?Who Will Be There to Help Me?

• How Do I Get Back on Track?How Do I Get Back on Track?

• Where’s My Bailout?Where’s My Bailout?

• How Will I Be Able to Afford to Retire?How Will I Be Able to Afford to Retire?

• Who Will Be There to Help Me?Who Will Be There to Help Me?

Source of data: Employee Benefits Research Institute (EBRI) 2005 SurveyPA0000.029.0405


Today’s PresentationToday’s Presentation

• 10 Tips to Financial Health10 Tips to Financial Health

• Reviewing the Fundamentals of InvestingReviewing the Fundamentals of Investing

• Retirement Plan DistributionsRetirement Plan Distributions

• Understanding the Impact of Your Understanding the Impact of Your Behavior on Financial SuccessBehavior on Financial Success

• 10 Tips to Financial Health10 Tips to Financial Health

• Reviewing the Fundamentals of InvestingReviewing the Fundamentals of Investing

• Retirement Plan DistributionsRetirement Plan Distributions

• Understanding the Impact of Your Understanding the Impact of Your Behavior on Financial SuccessBehavior on Financial Success

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What’s a Person to Do?What’s a Person to Do?

• Develop a plan

• Increase your savings

• Invest with clear goals in mind

• Review your plan regularly

• Review estate planning needs

• Develop a plan

• Increase your savings

• Invest with clear goals in mind

• Review your plan regularly

• Review estate planning needs

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Back to BasicsBack to Basics

• Have a Plan – Have a Plan – Every House Starts with a BlueprintEvery House Starts with a Blueprint

• Have SMART GoalsHave SMART Goals

• Recalibrate Your Risk TemperatureRecalibrate Your Risk Temperature

• Understand the Impact of Inflation & TaxesUnderstand the Impact of Inflation & Taxes

• Diversify: Your Mom’s Advice Was RightDiversify: Your Mom’s Advice Was Right

• Control What You Can – Control What You Can –

• Don’t Panic Over the PressDon’t Panic Over the Press

• Have a Plan – Have a Plan – Every House Starts with a BlueprintEvery House Starts with a Blueprint

• Have SMART GoalsHave SMART Goals

• Recalibrate Your Risk TemperatureRecalibrate Your Risk Temperature

• Understand the Impact of Inflation & TaxesUnderstand the Impact of Inflation & Taxes

• Diversify: Your Mom’s Advice Was RightDiversify: Your Mom’s Advice Was Right

• Control What You Can – Control What You Can –

• Don’t Panic Over the PressDon’t Panic Over the Press

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Back to Basics -- Part 2Back to Basics -- Part 2

• Your Asset AllocationYour Asset Allocation

• It’s Not All About Buy & HoldIt’s Not All About Buy & Hold

• Avoid the Common MistakesAvoid the Common Mistakes

• Control Your CostsControl Your Costs

• With Your Lifestyle & InvestmentsWith Your Lifestyle & Investments

• Take Care of the Ones You LoveTake Care of the Ones You Love

• Insurance is for the Living & Day-to-DayInsurance is for the Living & Day-to-Day

• Estate Planning is for EveryoneEstate Planning is for Everyone

• Your Asset AllocationYour Asset Allocation

• It’s Not All About Buy & HoldIt’s Not All About Buy & Hold

• Avoid the Common MistakesAvoid the Common Mistakes

• Control Your CostsControl Your Costs

• With Your Lifestyle & InvestmentsWith Your Lifestyle & Investments

• Take Care of the Ones You LoveTake Care of the Ones You Love

• Insurance is for the Living & Day-to-DayInsurance is for the Living & Day-to-Day

• Estate Planning is for EveryoneEstate Planning is for Everyone

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Understand the effects of taxes

Taxable Illustration1 Tax-Deferred Illustration2

$100,0009%33%33%

Starting investmentsRate of returnTax rateTax rate on 9% = 6% net

$100,0009%33%0%

Starting investmentsRate of returnTax rateTax rate on 9% = 9% net

It will take 12 years to double your investment.72 ÷ 6% = 12 years

It will take 8 years to double your investment.72 ÷ 9% = 8 years

$100,000 Start $100,000 Start$200,000 12 years $200,000 8 years$400,000 24 years $400,000 16 years

$800,000 24 years

This is a hypothetical illustration and does not represent the performance of a specific investment option. Taxable distributions (and certain deemed distributions) are subject to ordinary income tax and, if taken prior to age 59½, may also be subject to a 10% federal income tax penalty. Early surrender charges may apply.1 Based on an assumed federal tax rate of 33% and assume no distributions. This chart is intended to illustrate the advantage of tax deferral. It does not project the actual performance of a specific product or its underlying funds.2 Tax-deferred results do not reflect Total Insurance Charge or surrender charges, or the $30 annual maintenance fee, which is waived for contract anniversary values of $50,000 or more and no Contingent Deferred Sales Charge. Please note that no federal income taxes have been paid on the results.

What 3% Inflation Can Do What 3% Inflation Can Do to a $30,000 Per Year Standard of Livingto a $30,000 Per Year Standard of Living

5 Years5 Years $34,778$34,778

10 Years10 Years $40,317$40,317

15 Years15 Years $46,739$46,739

20 Years20 Years $54,183$54,183

25 Years25 Years $62,813$62,813

Inflation Matters What Will It Cost to Maintain Your Lifestyle?What Will It Cost to Maintain Your Lifestyle?Inflation Matters What Will It Cost to Maintain Your Lifestyle?What Will It Cost to Maintain Your Lifestyle?

Be prepared to double your moneyif you’re retired for 25 years!!

Be prepared to double your moneyif you’re retired for 25 years!!

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Auto

340%College Tuition (not including boarding and books)

Home

1978: $6,379 2004: $28,050

1978: $37,229

116%

2004: $80,328

1978: $62,500 2004: $225,000

260%

Understand the effects of inflation

Source: NADA Industry Analysis Division, May, 2005

Source: The College Board, 2005

Source: US Census Bureau, 2005

The Investment PyramidThe Investment Pyramid

GrowthGrowth

CurrentIncomeCurrentIncome

Cash Equivalent Savings

Cash Equivalent Savings

Higher Risk/Higher Reward PotentialHigher Risk/Higher Reward Potential

Lower Risk/Lower Reward PotentialLower Risk/Lower Reward Potential

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Stocks were up 71% of the time—

57 up periods,23 down

Stocks were up 99% of the time—70 up periods,

1 downPo

tent

ial R

etur

n

Stocks were up 87% of the time—

66 up periods,10 down

Dec. 31, 1925–Dec. 31, 2005

Pote

ntia

l Ret

urn

Pote

ntia

l Ret

urn

Dec. 31, 1925–Dec. 31, 2005

Dec. 31, 1925–Dec. 31, 2005

One-yearHoldingperiods

Five-yearHoldingperiods

Ten-yearHoldingperiods

The Advantages of Diversification and Equities

INDEX PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTSThis illustration is for illustrative purposes only, and does not represent the performance of The Hartford Mutual Funds, The Hartford variable annuities, or any particular investment. The S&P 500 Index is unmanaged. You cannot invest directly in the S&P 500 Index. Assumes reinvestment of income and no transaction cost. Data source: Wiesenberger, 1/06

Wall Street: The Rise in Red Ink – Newsweek

How Many Lean Years? – Newsweek

The Economy: Blood, Sweat and Tears – Newsweek

The Death of Equities – Business Week

Staring into the Abyss…crash is a shocking warning that the economy is living on borrowed time – U.S. News & World Report

After an Economic Heart Attack: The crisis calls for emergency treatment to calm the markets –and a long-term plan to restore the nations fiscal health – Newsweek

How the Bull Crashed Into Reality –Business Week

“…the flight of individual investors and the breakdown of the markets foreshadow the end of the capitalistic system as we have known it.” – Business Week

Don’t panic over the Press

Wall Street: The Rise in Red Ink – April 16, 1973

How Many Lean Years? – August 5, 1974

The Economy: Blood, Sweat and Tears – August 12, 1974

The Death of Equities – August 13,1979

Staring into the Abyss…crash is a shocking warning that the economy is living on borrowed time – November 2, 1987

After an Economic Heart Attack: The crisis calls for emergency treatment to calm the markets –and a long-term plan to restore the nations fiscal health – November 2, 1987

How the Bull Crashed Into Reality –November 2, 1987

“…the flight of individual investors and the breakdown of the markets foreshadow the end of the capitalistic system as we have known it.” – September 14, 1974

Don’t panic over the Press … History Does Repeat and So Do the Headlines

Don’t panic over the Press

INDEX PAST PERFORMANCE IS NO INDICATION OF FUTURE RESULTSThe S&P 500 Index is unmanaged and does not represent the performance of any particular investments. You can not invest directly into the S&P 500 Index. Assumes reinvestment of income and no transaction cost. Source: Compilation of both the Bloomberg and Wiesenberger, 1/06.

Looking past the current crisisThere will always be reasons not to invest. However, in the long-run, even investments made on the worst days of the century, ones with the most upheaval and instability, have historically done well. For example, if you invested $100 S&P 500 Index on December 31, 1936, and added $100 on some of the worst days of the century (instability that was reflected in the market’s performance), what would the outcome be? By December 2005, despite those declines, an investment would have accumulated $407,721. The parenthesis notes the date of the addition.

Four Numbers You Need to KnowComparing Returns: Average Annual Returns From Stocks, Bonds Comparing Returns: Average Annual Returns From Stocks, Bonds and Treasury Bills Over the Last 54 Years (12/31/54–12/31/08)and Treasury Bills Over the Last 54 Years (12/31/54–12/31/08)

Four Numbers You Need to KnowComparing Returns: Average Annual Returns From Stocks, Bonds Comparing Returns: Average Annual Returns From Stocks, Bonds and Treasury Bills Over the Last 54 Years (12/31/54–12/31/08)and Treasury Bills Over the Last 54 Years (12/31/54–12/31/08)

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Let’s Talk About RiskLet’s Talk About Risk

• Risk is the chance of not meeting your goals

• Risk is a natural, necessary part of investing

• A majority of Americans continue to have most of their money in investments that aren’t beating inflation

• The greatest risk to financial successcan be taking no risk at all

• Risk is the chance of not meeting your goals

• Risk is a natural, necessary part of investing

• A majority of Americans continue to have most of their money in investments that aren’t beating inflation

• The greatest risk to financial successcan be taking no risk at all

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TIPS TO REBUILDING FINANCIAL HEALTH

What You Can Do Now …


1.) Let’s Get Physical …Getting Your Nest Egg Off the Couch and Back Into Shape

1.) Let’s Get Physical …Getting Your Nest Egg Off the Couch and Back Into Shape

• Finding Balance is Not Just for YogaFinding Balance is Not Just for Yoga

• Rebalancing Reduces Risk and May Lead Rebalancing Reduces Risk and May Lead to Bigger Future Gainsto Bigger Future Gains

• Finding Balance is Not Just for YogaFinding Balance is Not Just for Yoga

• Rebalancing Reduces Risk and May Lead Rebalancing Reduces Risk and May Lead to Bigger Future Gainsto Bigger Future Gains

Source of data: Schwab Center for Financial ResearchPA0000.029.0405


$2.9M $3.5M

Never Rebalanced Annually Rebalanced

Source of data: vanguard Center for Retirement Research

2.) Diversify to Protect2.) Diversify to Protect

• A 60%-stock / 40%-bond Mix in Action

• Since 1926 this mix has returned 8.5% versus 8.1% for a 50%/50% Mix

• Use an Auto-Rebalancing Feature

• Too Much of a Good Thing Can Give You More than a Headache

• Trim holdings in US Treasuries to no more than 20% of total bond/fixed income portfolio

• A 60%-stock / 40%-bond Mix in Action

• Since 1926 this mix has returned 8.5% versus 8.1% for a 50%/50% Mix

• Use an Auto-Rebalancing Feature

• Too Much of a Good Thing Can Give You More than a Headache

• Trim holdings in US Treasuries to no more than 20% of total bond/fixed income portfolio

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3.) Understand Your Self 3.) Understand Your Self

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““People don’t change their People don’t change their behavior unless it makes a behavior unless it makes a difference for them to do so.”difference for them to do so.”

––Fran TarkentonFran TarkentonAmerican Football player,American Football player,

Businessman, Author, Businessman, Author, Corporate Consultant Corporate Consultant

Traditional Finance Theory versus Actual Reality

®

Behavioral FinanceBehavioral Finance

““InvestorsAre not totally rationalOften act based on imperfect information

MarketsMay be difficult to beat in the long termIn the short term, there are anomalies and

excesses”

““InvestorsAre not totally rationalOften act based on imperfect information

MarketsMay be difficult to beat in the long termIn the short term, there are anomalies and

excesses”

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Behavioral FinanceBehavioral Finance

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• Loss aversion

• Narrow framing

• Anchoring

• Mental accounting

• Naïve Diversification

• Disposition effect

• Herding

• Regret

• Media response

• Optimism

• Take Your Risk Temperature: www.myriskprofile.com

•Risk Profiles Change Over Time Usually Because of Market Conditions

• Financial Planning May Help Us Avoid Bubbles

(see www.moneylinkpro.wordpress.com)

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4.) Lose Rate4.) Lose Rate

• Consider Refinancing Your Home Loan

• Refinance or Get a New Home Equity Line for Emergencies

• Talk with an Experienced Real Estate Attorney About a Loan Modification

• Consider Refinancing Your Home Loan

• Refinance or Get a New Home Equity Line for Emergencies

• Talk with an Experienced Real Estate Attorney About a Loan Modification

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5.) Boost Your Credit Score•Check Your Credit Report for Errors or Possible ID Theft

•Go to www.annualcreditreport.com

•Check out these consumer info sites: www.ftc.gov or www.idtheftcenter.org

•Avoid balance transfers or using more than 50% of line

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6.) Lighten the Load6.) Lighten the Load

• Review Recurring Charges to Identify Items to Cut

• Those Movie Channels You Rarely Watch

• Calling Features on Phone Services

• Negotiate with Providers for Lower Fees

• They’d Rather Keep You than Lose You

• Empower Your Kids to Handle Their Own Budget – A Great Learning Tool

• Consider the “Latte Factor”

• Review Recurring Charges to Identify Items to Cut

• Those Movie Channels You Rarely Watch

• Calling Features on Phone Services

• Negotiate with Providers for Lower Fees

• They’d Rather Keep You than Lose You

• Empower Your Kids to Handle Their Own Budget – A Great Learning Tool

• Consider the “Latte Factor”

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7.) Safety Net Makeover7.) Safety Net Makeover• Review All Your Insurance Coverage

• Don’t Skimp in the Wrong Places

• Poor Coverage Will Leave You Exposed

• Life Insurance: Newer Actuarial Tables Mean Possible Lower Rates if Current Policy > 5 yrs old and Health Hasn’t Changed

• Auto & Home: Raise the Deductible, Reap the Savings

• Real Estate: File a “Homestead Declaration”

• Health: Talk with an Insurance Specialist about post-COBRA options

• ID Theft: Take Steps to Protect Yourself

• Review All Your Insurance Coverage

• Don’t Skimp in the Wrong Places

• Poor Coverage Will Leave You Exposed

• Life Insurance: Newer Actuarial Tables Mean Possible Lower Rates if Current Policy > 5 yrs old and Health Hasn’t Changed

• Auto & Home: Raise the Deductible, Reap the Savings

• Real Estate: File a “Homestead Declaration”

• Health: Talk with an Insurance Specialist about post-COBRA options

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8.) Estate PlanningDecide Now or Someone Else Will8.) Estate PlanningDecide Now or Someone Else Will

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Now’s the time to get your affairs in order:

• Health Care Directives – Remember Terry Schiavo?

• Durable Power of Attorney • “Simple” Will – Your Life is Probably More Complex but It’s a Start• Guardianship for Minors• Trusts – Great Way to Lower Probate Costs & Protect Privacy

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9.) Roll, Roll, Roll Your EggRetirement Plan Distribution Strategies9.) Roll, Roll, Roll Your EggRetirement Plan Distribution Strategies

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A.) Leave It• Cannot make additional contributions• Limited investment choices• Plan may change if company changes hands• Potential for tax issues based on payout to heirsB.) Transfer It to New Employer• Same as ‘A’ aboveC.) Cash-Out/Lump Sum = TAXESD.) Roll to Your IRA = More Options

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9.) Roll, Roll, Roll Your EggRetirement Plan Distribution Strategies9.) Roll, Roll, Roll Your EggRetirement Plan Distribution Strategies

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• Consider a “self-directed” IRA Option to invest in a number of non-traditional alternatives like real estate, operating businesses or franchises.

• Consider starting a business and opening a solo-401(k) with a loan option; roll your old 401(k) into the new plan and then take a loan without jeopardizing the tax-deferral status

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10.) College Funding is A Retirement Issue10.) College Funding is A Retirement Issue

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If your child is already in school or getting ready to attend in fall 2009:• Call the Financial Aid Officer and let them know• Appeal any awards

If your child is within 3 years of attending:• Minimize assets held by the child• Consider starting a business – it reduces income and assets used in financial aid calculations

What Advantages Does a Fee-Only Fiduciary Financial Planner Offer to You?

The Value of Advice … Work with an Advisor Working On Your Side

Experience

Time

Resources

Knowledge

Investment Planning

Investment Discipline

An Understanding of the Effectsof Taxes

What Should You Do Next?What Should You Do Next?

• Find a Fee-Only CFP ® Professional Through the Resource Links Provided

• Learn More. Sign up for Financial Topics/Financial Planning Strategies e-newsletters.

• Check out www.investorwatchdog.com and www.moneylinkpro.wordpress.com for more comments, information and resource links.

• Call for a complimentary Money Tune Up, Portfolio Review or College Money Assessment

• Call 978-388-0020 to discuss any questions.

• Find a Fee-Only CFP ® Professional Through the Resource Links Provided

• Learn More. Sign up for Financial Topics/Financial Planning Strategies e-newsletters.

• Check out www.investorwatchdog.com and www.moneylinkpro.wordpress.com for more comments, information and resource links.

• Call for a complimentary Money Tune Up, Portfolio Review or College Money Assessment

• Call 978-388-0020 to discuss any questions.

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Steve Stanganelli, CRPC®, CFP® 978-388-0020

Reinventing Your Retirement New Realities For New Challenges For Clear View

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