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tml

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• www.calculator.com

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Welcometo Life After GULC
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Topics of Interest

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Check Your Guess-timator
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Welcome to the Financial Buffet

• The goal is to provide enough information to
  allow you to make your initial financial plans.
• The basics are resolved before you see a
  financial planner. You can tell the planner your
  goals, available resources and expenses. (See
  booklet for tips on choosing a planner)
• Charles and Ruth are available for questions
  throughout the session and during the summer.

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Man the Worksheets!
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(No Transcript)
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The Tax Bites and More Starting income
40,000

• Federal Tax 5,027
• State Tax 2,010
• City Taxes 0
• Social Security Tax of 6.20 2,480
• Medicare of 1.45 580
• Insurance premiums (employee paid) 900
• Medical, Dental, Disability, etc.
• Mandatory Withholding 0
• Retirement Withholding 2,000

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Page 1 Wrap-up

• Subtract all of the debits (12,997) from Total
  Gross Income of 40,000.
• Result is Net Annual Income of 27,003.
• Divide by 12 to get monthly income of 2,250

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Measure Your Accuracy

• Adding back any retirement you took out on the
  worksheet, was your estimate close?
• Did you overestimate or underestimate your
  resources?
• Where did the discrepancies arise?

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Income After Fixed Expenditures

• Housing 800
• Utilities 100
• Telephone 40
• Education Debt Payment 800
• LRAP Benefits (800)
• Consumer Debt Payment 150
• Food 200
• Prescriptions/Eyecare 15
• Transportation 200

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Flexible Spending Accounts

• Medical
• Allows medical and dental expenditures to be made
  free of federal, state, social security and
  Medicare taxes. Saves you about 40
• Employer offers program as part of benefit
  package
• Up to 6500 per year, but balance remaining at
  end of year is lost
• Covers items such as aspirin, contacts and doctor
  visits and more
• Childcare
• Same savings and limits as above
• Used to pay daycare and other related costs

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Transportation

• Employers offer ability to have transportation
  costs such a Metro debited from your paycheck
• Saves federal and state taxes and reduces the
  costs of your commuting by 33 or more
• Check your benefits statement for more information

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Income After Fixed Expenditures

• Housing 800
• Utilities 100
• Telephone 40
• Education Debt Payment 800
• LRAP Benefits (800)
• Consumer Debt Payment 150
• Food 200
• Prescriptions/Eyecare 15
• Transportation 200
• Life and other Insurance 25

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Page 2 Wrap-up

• Net Monthly Income 2,250
• less
• Total Fixed Expenditures 1,505
• equals
• Monthly Disposable Income 745

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Discretionary Income

• Entertainment 100
• Clothing 100
• Dry Cleaning 40
• Furnishings 100
• Pager/Cell Phone 30
• Professional Services 25
• Health and Fitness 25
• Subscriptions 15
• Dues 30

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Page 3 Wrap-up

• Monthly Disposable income 745
• less
• Total Elastic Expenditures 465
• equals
• Monthly Discretionary Income 280

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Other Items to Consider

• Starting Amount 280
• Tax Savings 291
• Student Loan Interest Deductibility
• Lifetime Learning Tax Credit
• State Tax Savings
• Add back retirement taken out pg 1. 166
• Actual Discretionary Income 737

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We have a number. So, now what?

• The Monthly Discretionary Income number is the
  basis for all financial planning made.
• This is your entry fee to the Financial Buffet.
• Think about your goals- what do you hope to
  accomplish with your earnings besides paying the
  bills?

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Building Your Financial House
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Step 1 Build a Good Foundation

• The Emergency Reserve Account should be the
  foundation for the your financial plan.
• How much? 3 to 6 months of expenses including
• Housing / utilities
• Food
• Consumer Debt Payment
• Transportation
• Sources of Funding
• Loan Grace Period Payments already counted
• Unused Credit Card until account is funded

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Where to keep your Emergency Reserve Account

• Liquidity and Security The ability to obtain
  the resource without concern for a sudden drop in
  value is critical.
• Savings-Type Accounts Insured accounts with
  banks and credit unions are ideal.
• Internet banks such as ING Direct, HSBC and
  Emigrant pay significantly more than brick and
  mortar banks and the account can be linked to
  your checking account.
• Automate your contribution either directly from
  your paycheck or monthly from your checking
  account.

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Step 2 Build a Strong Wall for the Future

• Prepare for your retirement using these two
  major types of retirement accounts -
• 401(k), 403(b), 457 Accounts
• IRAs Roth and Traditional

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401(k), 403(b) and 457 Accounts

• The contribution from the account comes directly
  out of your paycheck.
• Grows tax-free until withdrawn for retirement.
• 15,500 annual contribution limit for 2007 rising
  by 500 increments based on inflation.
• Possibility of free money if employers match.
• Contribution reduces federal and state taxes
  but not FICA (Social Security 6.2 and Medicare
  1.45).

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IRAs (2007 TY) - Roth v. Traditional

• Pay Tax Now
• 4,000 per year
• 99,000 -114,000 income phase-out
• Future tax savings generally better for people
  further away from retirement.

• Pay Tax on Withdrawal
• 4,000 per year
• 52,000 - 62,000 income phase out
• Present tax savings generally better for people
  near retirement.

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The Impact of one 4000 contribution

• A single 4000 investment
• Held for 35 years
• Invested in an SP tracking fund
• Can result in a 92,000 account at retirement

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A wise man once said.

• It is the greatest mathematical discovery of
  all time.
• Quotation regarding compound interest attributed
  to Albert Einstein.

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Start Now!

• Albert contributes 250 per month for 30 years
• Betty contributes 300 per month for 25 years.
• Each contributes same total dollar amount -
  90,000

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Results

• Alberts account contains 565,122.
• Bettys account contains only 398,050.
• Difference of over 167,000 due to compounding of
  the initial 15,000 (3,000 x 5 years)

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Start Now, Even if You Have to Stop

• Albert contributes 250 per month for 8 years and
  then stops. Total contribution 24,000
• Betty waits 8 years and then contributes 250 per
  month for 22 years. Total contribution 66,000
• Albert has 326,828 in his account at retirement.
• Betty has 238,293 in her account.
• Difference of 88,535 due to compounding and
  Albert put in 42,000 less to boot!

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Prepayment vs. Retirement

• Financial Aid Heresy It is not always best to
  prepay your federal student loans.
• In low interest rate environment, it is
  financially more sound to eliminate other forms
  of debt.
• Similar calculation can be done with retirement
  growth and contributions.
• Allows you to leverage student loan debt in order
  to promote long-term stability.

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Retirement Action Items

• Managing your 401(k)
• Does your employer match your participation?
• When are you allowed to enter?
• Traditional vs. Roth 401(k) calculator _at_
  http//www.moneycentral.msn.com/content/common/P13
  9556.asp
• IRAs
• Will you have resources available to contribute
  for 2006 (until April15) and/or 2007?

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Recalculate Your Figures

• Go back to the paycheckcity.com data entry page
  and enter an amount that represents your intended
  401K contribution. (reduces federal and state
  taxes)
• Include any Flexible Spending Accounts in a
  second item. (reduces federal, state, and FICA
  taxes)
• Note the difference in taxes paid.

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Step 3 Build a Wall for Defense

• Additional types of insurance to consider to
  protect you and your resources -
• Disability
• Homeowners / Renters
• Umbrella Liability

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Disability Coverage Whats its Purpose?

• Replaces your income when unable to work.
• What about Social Security and State disability
  programs? The coverage is minor relative to
  your total current income.
• Where can you obtain the coverage?

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Typical Disability Coverage

• Benefit usually is between 60 and 66 of your
  annual income.
• This is a taxable benefit!
• Determine if you are adequately covered by
  recalculating your worksheets.
• Some firms in the area provide less coverage
• 60 of the first 25,000 15,000
• 40 of the remainder 40,000
• Total benefit on 125K 55,000 - TAXABLE

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Disability Coverage

• What Are the Odds?
• People in their early thirties are three times
  more likely to suffer a disability lasting three
  months or longer than they are to die.
• 48 of all mortgage foreclosures in this country
  are caused by disability.
• There is a 1 in 3 probability that a person aged
  25 will suffer a disability before age 65.
• The average disability will last more than five
  years, but for 30 percent of those disabled, it
  will persist for life.

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Disability Coverage Action Items

• Determine minimum required income to meet your
  expenses.
• Verify type and amount of disability coverage
  available through your employer.
• Investigate supplemental disability coverage
  through your employer.
• If your employer allows you to pay the premium
  the benefits would be tax free.
• If you want more information, visit
  www.about-disability-insurance.com (in session
  packet)

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Homeowners/Renters Coverage

• What do you wish to have covered?
• What type of coverage you have?
• Replacement Cost
• Cash Value
• How do you prove what you have covered in case
  the insurance is needed?
• Liability coverage how much?
• Review your coverage levels each year when you
  renew your policy.

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Umbrella Liability Coverage

• The umbrella sits on top of your other liability
  coverage, such as with your Homeowners /
  Renters policy and your car policy.
• If your liability coverage limit is pierced with
  your other policies, the umbrella stands between
  you and the claim, protecting your assets.
• Coverage is inexpensive approx 200 for 1
  million in additional coverage.
• Insurance is jurisdiction specific work with a
  single insurance company/agent to ensure your
  coverage is appropriate.

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Step 4 Building your Roof

• Actions you should take before buying a home
• Before you get too far along in your home search,
  determine if renting or purchasing is better for
  you E-Loan Rent vs. Own Calculator
• Check with your employer to see if it has a
  preferred banking relationship.
• Pull your credit from all major bureaus.
  Effective 9/1/05, all US residents will be able
  to obtain a free credit report at
  annualcreditreport.com

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Mortgage Basics

• Determine your eligibility for a mortgage by
  reviewing your Debt to Income ratio
• Fixed monthly debt payments in relation to gross
  income
• Consolidation and graduated repayment options
  help
• The basic types of mortgages
• Fixed
• Variable

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Recommended Goals to enable a Career Path Change

• Fully fund your Emergency Reserve Account
• Eliminate the following
• Credit Card Debt
• Commercial Student Loans as much as possible
• Contribute to Retirement
• Start early
• As much as possible

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Test Your Expertise

• How much can I set aside for my emergency
  reserve?
• How much can I contribute to my retirement?
• Does my employer offer a 401(k) type account and
  if so, when can I participate?
• Can I contribute to an IRA by automating a
  monthly contribution?
• Am I taking advantage of all of my other employee
  benefit programs?
• Can I set up a separate account for loan payments
  AND utilize auto-debit for additional interest
  rate savings?
• Which additional financial obligations can I
  automate?

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Thank you for your participation!

• This session is just the beginning of a lifelong
  journey. The first step begins with you. Best
  wishes in your future careers.