Topic 10
Investments & Future Planning
Questions to Think About:
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What is a counselor’s responsibility when guiding a client to invest?
What are some factors to consider when choosing an investment plan?
What are the different types of investment options available?
Learning Objectives:
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Compare characteristics among stocks, bonds, mutual funds, ETF, and real
estate
Analyze factors to determine investment choices
Learn criteria for choosing a financial planner
Understand strategies for providing for college education, and how to choose a
strategy
Understand available tax benefits and role in financial planning
Understand available sources of income for retirement
Understand how to manage finances in retirement
Increase awareness of resources for seniors
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ROLE IN GUIDING CONSUMERS
ON INVESTMENT & FUTURE PLANNING
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Not to substitute our judgment for that of trained specialists
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Increase awareness of different types of investments and planning tools
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Increase awareness of questions consumers should ask
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Increase awareness of possible conflicts of interest
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Increase awareness of possible scams
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Increase awareness of where to find reliable, accurate resources and guidance
WHAT TO CONSIDER IN INVESTMENT & PLANNING
1. Age – Time before retirement or when access to funds may be required
2. Investment Objectives
3. Tolerance for Risk – Higher rates of returns are related to higher risks
4. Annual Savings and Investments (History)
5. Dollar Value of Current Investments
6. Economic Outlook
7. Current Assets/Diversification

Estimate your Social Security Retirement Benefits: U.S. Social Security
Administration offers this feature on its website, as well as options for applying for
benefits, appealing decisions or getting or replacing a Social Security card – along
with informative articles on retirement planning… Also available in Spanish.
www.socialsecurity.gov/estimator

Taking the Mystery Out of Retirement Planning: From the U.S. Department
of Labor, this is an online (or downloadable PDF) seven chapter booklet that helps
unravel the financial mysteries of life after work and offers suggestions for
creating a financially secure future.
www.dol.gov/ebsa/publications/nearretirement.html
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COMMON TYPES OF INVESTMENTS
1. Stocks
a) Stock certificates represent percentage share of equity ownership in a
corporation
b) Dividends are paid based on earnings and stockholder’s percentage share
c) A corporate board can decide not to pay out dividends
2. Bonds
a) Government or corporate IOUs – Pledge to repay specific amount with
interest at a specific time
b) Include Treasury Bonds and Treasury Direct Bonds (US Savings Bonds)
c) Includes bonds issued by other government units such as cities
3. Mutual Funds
a) Investor purchases shares in a company which owns shares in other diverse
investments
b) Helps to spread risk because mutual fund’s performance is based on diverse
investments, rather than having investor put all of his investment in one type
4. Exchange Traded Funds (ETF)
a) Holds assets such as stocks or bonds and trades at approximately same
price as net asset value of its underlying assets over the course of the trading
day.
o Most track an Index, i.e. S & P 500
5. Real Estate
a) Return on investment (ROI) may be based on appreciation of value, or on
revenue streams such as rent
Creating a Financial Plan
Sources of Advice:
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Financial Planner
Accountants
Attorneys
Insurance Brokers
Bankers
Other financial services professionals
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CHOOSING A FINANCIAL PLANNER
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Interview at least 3 prospective financial planners
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Look at education, experience, credentials and other qualifications
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Ask for references and talk to several of them
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Do they offer comprehensive financial planning?
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Knowledge and experience in cash management, tax planning, insurance, college
savings planning, retirement planning and estate planning
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How are they paid? Any potential for conflict of interest?
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What are their credentials and licenses
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Certified Financial Planner (CFP) has met certain education, examination,
experience and ethics requirements
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Pro-bono services are available
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Investing in a 529 plan may offer college savers special tax benefits. Earnings
in 529 plans are not subject to federal tax, and in most cases, state tax, so
long as you use withdrawals for eligible college expenses, such as tuition and
room and board.
However, if you withdraw money from a 529 plan and do not use it on an
eligible college expense, you generally will be subject to income tax and an
additional 10% federal tax penalty on earnings.
The GET Program is Washington’s 529 prepaid college tuition plan. Parents
prepay for their child’s future college tuition and the value of their account is
guaranteed by the state to keep pace with rising public college tuition. The
after-tax money they put into their GET account will grow tax-free. The
growth (rate of return) they experience is the yearly increase in tuition rates
at the most expensive public institution in the State of Washington. Students
can use their account at nearly any public or private college in the country
and some schools around the world.
The money they withdraw will be tax-free too as long as they use it for
qualified higher education expenses. The State of Washington guarantees
that if they buy one year of college tuition today (100 GET units), they’ll have
one year of college tuition when their child is ready for college. Each year on
May 1, the State of Washington establishes the price of GET tuition units.
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Planning for Retirement
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Create a budget
Review sources of retirement income
Review availability of benefits after retirement
SOURCES OF RETIREMENT INCOME
1. Role of Social Security / Medicare (http://www.ssa.gov/retire2/agereduction.htm)

Eligibility
 As early as age 62 or as late as age 70
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Impact of age of retirement
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 Entitlement to full benefits depends on year of birth and designated
“full retirement age”
 Full retirement age is increasing
 Retiring before full retirement age can mean reductions in benefits
from 20 to 30%
Impact of earnings after retirement
 No impact if full retirement age – can keep all benefits received
If you are born January 2, 1943 - January 1, 1955 – your full retirement age is 66. If you
have not reached your full retirement age during all of 2013, there will be a $1 reduction
from your benefits for each $2 earned above $14,640. If client reaches full retirement
age during 2013, deduct $1 from benefits for each $3 earned above $37,680 until the
month full retirement age reached.
2. Pensions – Employment Based Plans
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Tax deferred contributions – Catch up provisions which allow workers over 50 to
increase contributions
3. Savings and Investments
4. Individual Retirement Account (IRAs) Compared
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Traditional IRAs – Contributions of pre-tax dollars
 Allows individuals to put away up to $5,500 ($6,500 if over age 50)
annually for 2013 and accumulate interest tax free until withdrawn at
the earliest age 59 ½ or beginning at 70 ½ at latest
 Amount which can be contributed and deducted is based on Adjusted
Gross Income levels
 The funds are taxed at the time of withdrawal
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Roth IRAs – Contributions are made with after tax dollars
 Contributions are not tax deductible
 All accumulated earnings are tax free
 Allows individuals to put away up to $5,500 ($6,500 if over age 50)
annually for 2013
 No requirement to take distributions at any time
 Eligibility for Roth IRA account is limited by income
5. Reverse Mortgage – Borrowing against the equity of home
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Eligibility – age 62 years and older
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Repaid upon death and/or sale of property
6. Borrowing from retirement savings
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Taxes, penalties and interest may be triggered
 For education or first time home purchase
 Affect on “nest egg”
7. Annuities
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Agreement (contract) with insurance company
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Pays a guaranteed stream or series of payments
RESOURCES FOR SENIORS
1. Senior Citizens’ Resources (www.usa.gov/Topics/Seniors.shtml) includes
information on:
a. Caregiver resources
b. End of Life Issues
c. Travel
2. American Association of Retired People
3. City of Seattle Mayor’s Office for Senior Citizens
www.seattle.gov/humanservices/seniorsdisabled/mosc/
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APPENDIX:
Time – The Advantage of Starting NOW
STARTING TO SAVE EARLY – Assume a 9% Return
Starting Age
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
Total
Available
at Age 50
Student "A"
Amount Deposited
Yearly
Student "B"
Amount Deposited
Yearly
The following example shows you
what a difference starting to save
early can make.
$1,000
$1,000
$1,000
$1,000
$1,000
$1,000
$1,000
$1,000
$1,000
$1,000
Total Invested $10,000
$131,050
$1,000
$1,000
$1,000
$1,000
$1,000
$1,000
$1,000
$1,000
$1,000
$1,000
$1,000
$1,000
$1,000
$1,000
$1,000
$1,000
$1,000
$1,000
$1,000
$1,000
$1,000
$1,000
$1,000
$1,000
$1,000
Total Invested
$25,000
Student “A” began to save $1,000 per
year beginning at the age of 16. By the
time she is 25 years old, she has
saved $10,000. If she never puts any
more of her own money into the
account, at the rate of 9% per year, “A”
will have $131,050 in her account by
the time she is 50 years old. In other
words, for her input of $10,000, she
has gotten a return of $121,050.
Compare what happens to Student
“B” who does not start to save until
he is 26 years old.
Assuming “B” saves $1,000 per year
for 25 years, at the rate of 9%, by the
time “B” is 50 years old, he will have
input $25,000 to have $84,701 in the
account. His return on his input of
$25,000 is only $59,701. In other
words, Student “B” put in two and half
times the money that Student “A” did
and yielded only half of the money that
Student “A” yielded.
$84,701
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