The Ocean Institute, Laguna Canyon Foundation, American Heart Association, Mission Hospital Foundation, Chapman University, PBS SoCal, St Jude Memorial Foundation, American Bible Society, St. Joseph Hospital Foundation, and Pacific Symphony present

1
The Ocean Institute, Laguna Canyon Foundation,
American Heart Association, Mission Hospital
Foundation, Chapman University, PBS SoCal, St
Jude Memorial Foundation, American Bible Society,
St. Joseph Hospital Foundation, and Pacific
Symphonypresent Its Your Money
A Financial Planning Workshop

• September 2013
• Laura Tarbox, CFP
• [phone]
• Laura_at_TarboxGroup.com

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Financial Advisors/Planners

• These terms are interchangeable and mean nothing
  in themselves
• Financial Advisor
• Financial Planner
• Financial Consultant
• Wealth Manager/Advisor
• Investment Advisor
• Investment Consultant
• Financial Analyst

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Financial Advisors/Planners

• Financial Services Industry
• Independent RIA
• Independent broker/dealer
• Independent RIA with b/d
• Regional broker/dealer
• Wirehouse broker/dealer
• Bank
• Insurance company
• Trust company

4
Financial Advisors/Planners

• Compensation method
• Commission
• Fee plus commission
• Fee-offset
• Fee-based
• Fee-only
• Hourly (may or may not be fee-only)

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Financial Advisors/Planners

• Credentials
• Registered Investment Advisor (RIA)
• Certified Financial Planner (CFP)
• Chartered Financial Consultant (ChFC)
• Charted Financial Analyst (CFA)
• Experience
• Rapport/trust
• Fiduciary?
• Independent, outside custodian?

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For More Information

• Financial Planning Association (FPA)
• 800-322-4237
• National Association for Personal Financial
  Advisors (fee-only)
• 888-Fee-Only or 888-333-6659

7
Self-assessment Quiz

• How much will I need in the future for
• Retirement / Financial independence?
• Education funding?
• Lifestyle goals and other needs?
• Are my investments properly diversified
• and is my strategy appropriate for me?
• Is my overall strategy tax-efficient?
• Have I protected myself, my family and
• property against risks?
• If I died tomorrow, would my family be prepared?

8
What is Financial Planning?

• Analysis, Integration Implementation of
• Goals Assumptions
• Cash Flow Budgeting
• Risk Management / Insurance
• Tax Planning
• Investment Planning
• Retirement Planning
• Estate Planning
• Misc. and Special Situations Planning

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Goals Objectives

• If You Dont Know Where Youre Going, Youll
  Probably Wind Up Somewhere Else

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Goals Objectives

• Formulate goals (together if you have a spouse or
  partner)
• Include a dollar amount and date
• Consider best case/worst case/ most likely case
• What if youre disabled?
• What if you pass away?
• Rank or prioritize goals

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Assumptions

• Inflation is not always low
• 1950s 2.2
• 1960s 2.5
• 1970s 7.4
• 1980s 5.1
• 1990s 2.9
• 2000s 2.6
• Return on investments
• Fixed income 4 a year
• Stocks 8 - 11

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Cash Flow Income Statement

• Track all sources of income
• Earned income
• Self-employment or 1099 income
• Social security and pensions
• Dividends, capital gains, rental income and
  royalties
• Remember reinvested dividends and capital gains
  on mutual funds

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Cash Flow Income Statement

• Track all expenses
• Remember once a year or other extraordinary
  expenses
• Count spending of pocket change or ATM use
• Break down expenses on credit cards
• Include credit card and other debt payments

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Cash Flow Balance Sheet

• Assets what you own
• Include cash value of life insurance, annuities
• Note who owns it/how owned, e.g., joint with
  rights of survivorship (helpful for estate
  planning)
• Be sure you have original cost or basis info

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Cash Flow Balance Sheet

• Liabilities what you owe
• Mortgages
• Car loans
• Credit card balances
• Personal loans

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Risk Management

• Obtain objective advice to make sure you have
  proper types and coverage
• Health insurance
• Disability insurance
• Long-term care insurance
• Homeowners, auto, and personal liability
  insurance
• Life insurance

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Risk Management Life Insurance

• Who needs it?
• How much is enough?
• What type is best for me?
• Review old policies periodically

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Risk Management Life Insurance

• You need an amount sufficient to replace
• potential lost income provided by wage
• earner(s)
• People with children generally need more
• Term vs. cash value insurance
• Life insurance as an estate planning tool

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Risk Management Disability Insurance

• Most people do not have enough disability
  insurance
• Policies can focus on disability for your
• own occupation or any occupation
• It is usually wise to buy as much as you
• can through your employers plan

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• Tax Planning
• Determining Your Tax Bracket
• not so simple any more
• Gross Income
• Deductions
• Exemptions
• Taxable Income
• AMT?
• Personal Exemption Phaseout?
• Itemized Deduction Reduction?
• 3.8 Medicare Surtax?

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2013 Federal Income Tax Rates
Federal Tax Bracket Joint Return Taxable Income Single Return Taxable Income
10 0 17,850 0 8,925
15 17,850 72,500 8,925 36,250
25 72,500 146,400 36,250 - 87,850
28 146,400- 223,050 87,850- 183,250
33 233,050- 398,350 183,250- 398,350
35 39.6 398,350- 450,000 Over 450,000 398,350- 400,000 Over 400,000



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Tax Planning Tax Strategies

• Tax Savings Strategies
• Defer income
• Accelerate deductions
• Maximize pre-tax savings
• Deductions
• Medical
• Taxes
• Interest
• Charitable contributions
• Miscellaneous itemized deductions
• Be aware of the AMT!

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Tax Planning

• Capital gains and dividends

10, 15 Brackets 25, 28, 33, 35 Brackets 39.6 Bracket
S-Tlt12 months Ordinary rate Ordinary rate Ordinary rate
L-Tlt12 months 0 15 20
Qualified Dividends 0 15 20
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Investment Planning Annuities

• JUST SAY NO !
• (High expenses, tax-inefficient, illiquid,
• no step-up in cost basis at death,
• guarantees are not what they look like, etc.)

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Investment Planning Basic Asset Classes

• Cash Equivalents
• Bonds
• Stocks
• Alternatives

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Investment Planning Cash and Equivalents

• What are they?
• Deposits with a bank or financial institution
• Contracts with an insurance company
• Treasury securities
• Also referred to as stable value investments
• What risks do they have?
• Inflation riskare they outpacing inflation?

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Investment Planning Bonds

• What are they?
• Loans made to a company or the government
• that may have a fixed rate of return
• Can be short, intermediate or long-term bonds
• What risks do they have?
• Inflation risk
• Interest risk
• Market risk
• Company performance risk

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Relationship Between Bond Prices and YieldsWhen
yields increase, bond prices decrease
16
1.60
14
1.40
12
1.20
10
1.00
8
0.80
Bond prices ()
Bond yields ()
6
0.60
4
0.40
2
0.20
0
1996
2006
1986
1976
1966
1956
1946
1936
1926
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Investment Planning Stocks

• What are they?
• Units of equity ownership in a company
• What risks do they have?
• Inflation risk
• Principal risk
• Market risk
• Company performance risk

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Investment Planning Alternatives

• Non-Correlated Assets (reduce volatility
  of overall portfolio)
• Commodities
• Hard Assets
• Hedge Funds
• Real Estate
• Venture Capital
• Private Equity

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Investment Planning Diversifying Stocks

• Domestic vs. International Funds
• Growth vs. Value Funds
• Growth high Price/Earnings ratio
• Value low Price/Earnings ratio
• Small Cap vs. Large Cap Funds
• Market capitalization - Number of shares
  outstanding
• multiplied by share price
• Small Cap generally less than 5 billion
• Mid Cap generally between 5-10 billion
• Large Cap generally more than 10 billion

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Ibbotson SBBIStocks, Bonds, Bills, and
Inflation 19262011
15,532
10,000
3,045
Compound annual return
Small stocks
11.9

1,000
9.8
Large stocks
5.7
Government bonds
Treasury bills
3.6
Inflation
3.0
119
100
21
13
10
1
0.10
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Reduction of Risk Over Time19262011
Small stocks
Large stocks
Government bonds
Treasury bills
150
120
90
60
Compound annual return 11.9
30
9.8
5.7
3.6
0
30
60
1-year
5-year
20-year
1-year
5-year
20-year
1-year
5-year
20-year
1-year
5-year
20-year
Holding period
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Historical Asset Class Returns
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Bonds 9.0 Small Cap Growth 51.2 Small Cap Value 29.2 Internat'l Stocks 32.6 Internat'l Stocks 7.8 Large Cap Growth 38.1 Large Cap Growth 24.0 Large Cap Growth 36.5 Large Cap Growth 42.6 Small Cap Growth 43.1 Small Cap Value22.8 Small Cap Value14.0 Bonds10.3 Small Cap Growth48.5 Small Cap Value22.3 Internat'l Stocks13.5 Internat'l Stocks26.3 Internat'l Stocks11.2 Bonds5.2 Small Cap Growth34.5 Small Cap Growth29.1 Bonds7.8 Small Cap Value18.1
3 MonthT-Bills 7.5 Small Cap Blend 46.1 Small Cap Blend 18.4 Small Cap Value 23.8 3 MonthT-Bills 4.3 Large Cap Blend 37.6 Large Cap Blend 23.0 Large Cap Blend 33.4 Large Cap Blend 28.6 Large Cap Growth 27.8 Bonds11.6 Bonds8.4 3 MonthT-Bills 1.6 Small Cap Blend47.3 Internat'l Stocks20.3 Large Cap Value5.8 Small Cap Value23.5 Large Cap Growth9.1 3 MonthT-Bills 1.3 Internat'l Stocks31.8 Small Cap Blend26.9 Large Cap Growth4.7 Large Cap Value17.7
Large Cap Growth 0.2 Small Cap Value 41.7 Large Cap Value 10.5 Small Cap Blend 18.9 Large Cap Growth 3.1 Large Cap Value 37.0 Large Cap Value 22.0 Small Cap Value 31.8 Internat'l Stocks 20.0 Internat'l Stocks 27.0 Large Cap Value6.1 3 MonthT-Bills 3.4 Small Cap Value-11.4 Small Cap Value46.0 Small Cap Blend18.3 Large Cap Blend4.9 Large Cap Value20.8 Small Cap Growth7.1 Small Cap Value-28.9 Large Cap Growth31.6 Small Cap Value24.5 Large Cap Blend2.1 Internat'l Stocks17.3
Large Cap Blend -3.1 Large Cap Growth 38.4 Small Cap Growth 7.8 Large Cap Value 18.6 Large Cap Blend 1.3 Small Cap Growth 31.0 Small Cap Value 21.4 Large Cap Value 30.0 Large Cap Value 14.7 Small Cap Blend 21.3 3 MonthT-Bills 5.8 Small Cap Blend2.5 Internat'l Stocks-15.9 Internat'l Stocks38.6 Large Cap Value15.7 Small Cap Value4.7 Small Cap Blend18.4 Bonds7.0 Small Cap Blend-33.8 Small Cap Blend27.2 Large Cap Value15.1 3 MonthT-Bills 0.1 Small Cap Blend16.4
Large Cap Value -6.9 Large Cap Blend 30.5 Large Cap Blend 7.6 Small Cap Growth 13.4 Large Cap Value -0.6 Small Cap Blend 28.4 Small Cap Blend 16.5 Small Cap Blend 22.4 Bonds 8.7 Large Cap Blend 21.0 Small Cap Blend-3.0 Small Cap Growth-9.2 Small Cap Blend-20.5 Large Cap Value31.8 Small Cap Growth14.3 Small Cap Blend4.6 Large Cap Blend15.8 Large Cap Blend5.5 Large Cap Growth-34.9 Large Cap Blend26.5 Large Cap Blend15.1 Large Cap Value-0.5 Large Cap Blend16.0
Small Cap Growth -17.4 Large Cap Value 22.6 Bonds 7.4 Large Cap Blend 10.1 Small Cap Value-1.6 Small Cap Value 25.8 Small Cap Growth 11.3 Small Cap Growth 12.9 3 MonthT-Bills 4.8 Large Cap Value 12.7 Large Cap Blend-9.1 Large Cap Value -11.7 Large Cap Value -20.9 Large Cap Blend28.7 Large Cap Blend10.9 Small Cap Growth4.2 Small Cap Growth13.4 3 MonthT-Bills 4.4 Large Cap Blend-37.0 Large Cap Value21.2 Large Cap Growth15.1 Small Cap Growth-2.9 Large Cap Growth14.6
Small Cap Blend-19.5 Bonds 16.0 Large Cap Growth 5.1 Bonds 9.8 Small Cap Blend-1.9 Bonds 18.5 Internat'l Stocks 6.1 Bonds 9.6 Small Cap Growth 1.2 3 MonthT-Bills 4.6 Internat'l Stocks-14.2 Large Cap Blend-11.9 Large Cap Blend-22.1 Large Cap Growth28.2 Bonds4.3 Large Cap Growth4.0 Large Cap Growth11.0 Large Cap Value2.0 Small Cap Growth-38.5 Small Cap Value20.6 Internat'l Stocks7.8 Small Cap Blend-4.2 Small Cap Growth14.6
Small Cap Value-21.8 Internat'l Stocks 12.1 3 MonthT-Bills 3.4 3 MonthT-Bills 3.0 Small Cap Growth -2.4 Internat'l Stocks 11.2 3 MonthT-Bills 5.0 3 MonthT-Bills 5.1 Small Cap Blend-2.6 Bonds -0.8 Large Cap Growth-22.1 Large Cap Growth-12.7 Large Cap Growth-23.6 Bonds4.1 Large Cap Growth4.0 3 MonthT-Bills 3.2 3 MonthT-Bills 4.7 Small Cap Blend-1.6 Large Cap Value-39.2 Bonds5.9 Bonds6.5 Small Cap Value-5.5 Bonds4.2
Internat'l Stocks -23.5 3 MonthT-Bills 5.4 Internat'l Stocks -12.2 Large Cap Growth 1.7 Bonds -2.9 3 MonthT-Bills 5.5 Bonds 3.6 Internat'l Stocks 1.8 Small Cap Value-6.5 Small Cap Value-1.5 Small Cap Growth-22.4 Internat'l Stocks-21.4 Small Cap Growth-30.3 3 MonthT-Bills 1.0 3 MonthT-Bills 1.4 Bonds2.4 Bonds4.3 Small Cap Value-9.8 Internat'l Stocks-43.4 3 MonthT-Bills 0.2 3 MonthT-Bills 0.1 Internat'l Stocks-12.1 3 MonthT-Bills 0.1
35
Investment Planning Asset Allocation Process

• 1st Step Determine asset classes to be used
• 2nd Step Make a pie!
• 3rd Step Implement, rebalance periodically,
  and evaluate performance

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A Good Basic Moderate Growth Portfolio
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Investment Planning - Income Tax Consequences

• Always look at total return
• Not everyone should own munis
• Beware of mutual fund distributions
• Investment location
• Beware of annuities they may be the most tax
  inefficient investment

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Retirement Planning

• How much will you have?
• How much will you need?
• Calculate impact of additional savings
• What is the impact of inflation and taxes?
• How much can you spend?
• How should you invest to meet your goal?
• Social Security and Medicare

39
Nest Egg Needed to Sustain Various Spending
Levels
Annual Pre-Tax Expenses ROR 2 ROR 5 ROR 8
60,000 2.1 million 1.4 million 1.0 million
100,000 3.5 million 2.3 million 1.6 million
150,000 3 inflation 5.2 million 3.4 million 2.4 million 30 year retirement
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Retirement Planning Are you saving enough?

• To accumulate 2.3 million over 20 years, you
  would need to invest
• 86,000 per year at 3
• 70,000 per year at 5
• 50,000 per year at 8

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Retirement Planning -Projections

• Rule of 72
• A rough estimate of how long it will take (or the
  return you will need) to double your money
• Divide 72 by the return your money is getting
• 72/6 12 years at 6 interest, your money will
  double in 12 years OR
• 72/10 years 7.2 if you want your money to
  double in 10 years, you need a 7.2 return

42
Retirement Planning Retirement Income Resources

• Social Security
• Employer Retirement Plans
• Other Savings
• Spouse/Partner retirement plans
• IRAs (Roth?)
• Regular Investment Accounts
• Inheritance?

43
Retirement Planning -401(k) Contributions

• You can contribute a of your pay on
• a before-tax basis
• Maximum of 17,500 for 2013
• Age 50 or older
• 5,500 catch-up contribution
• The best way to save for retirement
• you get an immediate return because
• of the tax break!

44
Retirement Planning Social Security

• Based on quarters of coverage
• Amount is based on how much you
• earned while working
• Annual benefits increase with inflation
• Reduced amount for benefits prior to
• normal retirement age
• Increased amount for delaying benefits
• past normal retirement age

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Social SecurityNormal Retirement Age (NRA)
Birth Year NRA Birth Year NRA
Before 1938 65 1955 66/2 months
1938 65/2 months 1956 66/4 months
1939 65/4 months 1957 66/6 months
1940 65/6 months 1958 66/8 months
1941 65/8 months 1959 66/10 months
1942 65/10 months After 1959 67
1943-1954 66
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Social SecuritySample Benefit
Final Average Pay Social Security of Pay
2,000 950 48
3,000 1,200 40
4,000 1,450 36
5,000 1,701 34
6,000 1,948 32
7,000 2,065 30
8,000 2,182 27
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Retirement Planning Taxation of Retirement
Benefits

• Pre-tax retirement contributions
• decrease taxable income now
• Earnings grow tax-deferred
• You pay taxes when you receive the
• benefit

48
Estate Planning

• Management during your lifetime
• Distribution following your death
• Protect loved ones
• Preserve property
• Avoid conflicts and delays
• Reduce costs and taxes

49
Estate Planning Techniques

• Do nothing (intestacy)
• Will
• Trust

50
Estate Planning - Wills

• Control distribution of estate
• May minimize fees and taxes
• Ensure probate
• Legal and executor fees
• Select guardian

51
Estate Planning Living Trusts

• Reduce taxes and probate costs
• No delay upon death
• Privacy
• Simplified administration
• Flexibility
• Professional management

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Estate and Gift Taxation

• Tax Rates 2013 top rate is 40
• Applicable Estate Tax Exclusion Amount
  5,250,000 in 2013
• Gift Tax Exclusion 5,250,000
• Unlimited Marital Deduction
• 14,000 Annual Gift Exemption
• Generation Skipping Tax

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Special Situations Planning Saving for College

• College Savings Vehicles
• Coverdell Savings Accounts
• 2,000 annual contribution limit
• Regular Investment Account
• Not in childs name
• Taxable earnings each year
• Eligible for long-term capital gain rates
• Maximum flexibility for future financial
  decisions
• UGMA/UTMA Accounts
• 14,000 annually
• Some savings grows at childs tax rate
• Child gets control of money at age 18 or 21

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Special Situations Planning Saving for College

• 529 Savings Plans
• Investment options
• Individual Funds
• Age-Based and Risk-Based Portfolios
• Tax-free withdrawals for qualified expenses
• Contribution limit 300,000 in CA plan
• Can start with as little as 50 or 15 per month
• 529 Prepaid Tuition Plans

.
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• Thank you for coming!