Insert
Financial Planning Workshop
March 27, 2013
The Colony Group, LLC
The Smart Choice in Wealth Management.™
www.thecolonygroup.com
Agenda
Introduction
The Financial Planning Process
Budgeting, Debt Management, and Saving
Personal Taxes and Tax Planning
Retirement Planning
Investing
Risk Management and Personal Insurance
Estate Planning
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Introduction
Patrick Donnelly, CFP®
• Vice President & Senior Financial Counselor
• Certified Financial Planner, CFP®
• 12 years of financial services experience, 8 as a personal financial planner
to high net worth clients
Matt Ilteris, EA®, CFP®
• Financial Counselor
• Enrolled Agent, EA®
• 8 years of experience with The Colony Group
Shaun Thompson, CFA, CFP®
• Financial Counselor
• Chartered Financial Analyst, CFA
• 8 years of financial services experience
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The Financial Planning Process
Gathering
data and
goals
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Analyzing and
evaluating
your financial
status
Developing
a plan
Implementing
the plan
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Monitoring
the plan
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Budgeting
Where does my
paycheck go?
Why is budgeting
important?
• Taxes
• Insurance – Health, Dental, Home, Auto, Life, Disability, etc.
• Debt service – Student Loans, Mortgage, Auto Loan
• Retirement Savings
• Utilities
• Food, Clothing, Furnishing
• Entertainment
• Travel, Vacation
• Child care
• Personal Savings
• Identify your spending patterns
• Prioritize your spending (needs vs. wants)
• Eliminate potentially damaging spending behavior
• Control your money or your money will control you
• Piece of mind and increases probability of reaching goals
Note: www.mint.com is useful for tracking expenses and identifying trends.
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Debt Management
Organizing and prioritizing debt obligations is critical to successful financial planning
Fixed Rate vs. Variable Rate
Student Loans
Credit Cards
Auto Loans – Lease vs. Buy
Mortgage – Rent vs. Buy
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Savings
Non-retirement savings
Retirement savings
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•
•
•
•
•
•
Emergency fund (3-6 mos. of expenses)
Down payment on home (20% of purch.)
Car purchase
Vacation
College savings for children
Investing
•
•
•
•
•
•
Starting now makes it easier
Take advantage of tax-deferral
Maximize employer contributions
Target a 15% savings rate
Avoid pauses
Do not touch it until retirement
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Personal Tax
Introduction
•
•
•
•
Filing Requirement
Tax Rates
Tax Calculation
Tax Savings Tips
“In this world,
nothing can be
said to be
certain, except
death and taxes.”
- Benjamin Franklin
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Personal Tax
Filing requirement
Enforcement in a “Voluntary” Compliance System
• Unlike the taxing systems of certain other countries, the U.S.
taxing system depends largely on voluntary compliance.
• Federal and state returns need to be filed by April, 15th.
Taxpayers are allowed a six-month extension to file their
return. It is an extension of the time to file, NOT to pay.
• Online is easiest and inexpensive. Will pick up most
deductions and relevant scenarios.
• Accountants tend to be relatively expensive, but can be
helpful if your return is complicated (i.e., rental property, selfemployed, etc.)
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Personal Tax
2013 Income Tax Brackets
2013 Ordinary Income Tax Rates
Single
Married (Filing Jointly)
$0-$8,925
10%
$0-$17,850
10%
$8,925-$36,250
15%
$17,850-$72,500
15%
$36,250-$87,850
25%
$72,500-$146,400
25%
$87,850-$183,250
28%
$146,400-$223,050
28%
$183,250-$398,350
33%
$223,050-$398,350
33%
$398,350-$400,000
35%
$398,350-$450,000
35%
Over $400,000
39.6%
Over $450,000
39.6%
Alternative Minimum Tax Rates: 26%, 28%
2013 Long-Term Capital Gain and Qualified Dividend Tax Rates
Single
Married (Filing Jointly)
$0-$36,250
0%
$0-$72,500
0%
$36,250-$400,000
15%
$72,500-$450,000
15%
Over $400,000
20%
Over $450,000
20%
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Personal Tax
History Class
Highest Marginal Ordinary Income Tax Rates
100
90
80
Tax Rate (%)
70
60
50
40
30
20
10
0
1913
1923
1933
1943
1953
1963
1973
1983
1993
2003
Year
Top Marginal Tax Rate
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Personal Tax
Calculating Your Tax Liability: The Basics
Income Tax Calculation
$ Gross Income
- Adjustments
= Adjusted Gross
Income
- Deductions
- Personal Exemptions
= Taxable Income
x Tax Rate
= TAX LIABILITY
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Personal Tax
Calculating Your Tax Liability: Gross Income
Income Tax Calculation
$ Gross Income
- Adjustments
= Adjusted Gross
Income
- Deductions
- Personal Exemptions
= Taxable Income
x Tax Rate
Compensation (W-2)
Dividends
Alimony received
Interest
Business profits
Gains
Rents
Royalties
Refunds
Other
= TAX LIABILITY
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Personal Tax
Calculating Your Tax Liability: Adjustments
Income Tax Calculation
$ Gross Income
- Adjustments
= Adjusted Gross
Income
- Deductions
- Personal Exemptions
Business expenses
Losses from sales
Alimony paid
IRA contributions
Moving expenses
Rental expenses
Other
= Taxable Income
x Tax Rate
= TAX LIABILITY
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Personal Tax
Calculating Your Tax Liability: Deductions
Income Tax Calculation
$ Gross Income
- Adjustments
= Adjusted Gross
Income
- Deductions
- Personal Exemptions
= Taxable Income
x Tax Rate
= TAX LIABILITY
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Higher of:
Standard Deduction
Single: $6,100
MFJ: $12,200
Itemized Deductions
Taxes
Interest
Casualty losses
Charitable donations
Employee education
Medical expenses
Other
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Personal Tax
Calculating Your Tax Liability: Exemptions
Income Tax Calculation
$ Gross Income
- Adjustments
= Adjusted Gross
Income
- Deductions
- Personal Exemptions
$3,900 for 2013
= Taxable Income
x Tax Rate
= TAX LIABILITY
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Personal Tax
Take-home pay
Cash Flow and Paycheck Analysis
Gross
$50,000
$100,000
Federal Tax
$4,600
$16,000
MA Tax
$1,700
$4,200
Social Security
$3,100
$6,200
$700
$1,400
Medicare
401(k)
$3,000
Medical
$3,500
6%
$6,000
$3,500
Disability
$500
$500
Life
$500
$500
Net
$32,400 65%
6%
$61,700
60%
Calculated using “Single” filing status
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Personal Tax
Keeping more in your pocket
Tax Savings Tips
•Transportation: Employees can pay for transportation costs, such as a mass
transit pass or qualified parking, on a pre-tax basis up to $240/month.
•Student Loan Interest: Individuals may deduct up to $2,500 of interest paid on
a qualified student loan used for higher education, subject to AGI limits.
•Education Credits: American Opportunity Tax Credit is available for the first
four years of postsecondary education. The maximum annual credit is $2,500, subject
to AGI limits. Lifetime Learning Credit up to $2,000 (annual) available for an unlimited
number of years, subject to AGI limits.
•529 College Savings Plan: Contributions not tax-deductible, but earnings
grow tax-deferred and qualified distributions are tax-free.
•Massachusetts Rental Deduction: Limited to 50% of the rent paid to a
landlord up to $3,000 for your primary residence.
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Personal Tax
Keeping more in your pocket
Tax Savings Tips
•Flexible Spending Account (FSA): Allow employees to set aside a portion of
earnings pre-tax to pay for qualified medical and dental expenses. $2,500 limit in
2013.
•401(k):
Traditional 401(k) contributions are made with pre-tax dollars (upfront tax break,
taxable when distributed).
Roth 401(k) contributions are made with after-tax dollars (no upfront tax break,
tax-free when distributed).
At the very least, contribute enough to obtain the maximum employer match, if
available.
•IRA: Make a Traditional IRA (pre-tax) or Roth IRA (after-tax) contribution if
circumstances warrant such a contribution.
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Retirement Planning
Savings Vehicles
Employer sponsored plans: Defined Contribution (most
common) and Defined Benefit (rare)
Defined Contribution 401k limits
• $17,500 max salary deferral in 2013
• Employer matching contributions & profit sharing
• $51,000 max total contribution amount in 2013 (employee + employer)
No employer plan? Consider a Traditional or Roth IRA
• $5,500 maximum contribution in 2013 for both (deduction and contribution
limits based on AGI apply)
Note: Social Security approx. max benefit is currently only
$30,000 /year – supplementing is necessary.
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Retirement Planning
Power of Compounding and Tax Deferral
Example: Invest $50,000 today, earn 8% per year for 10, 20, or 30 years
(50,000)(1.08)^10 = 107,900 (2.15 multiple)
(50,000)(1.08)^20 = 233,000 (4.66 multiple)
(50,000)(1.08)^30 = 503,100 (10.06 multiple)
Observations
1.
If you needed 503,100 at retirement, but only had 10 years to invest, you would need to either
(a) invest 233,000 or (b) earn 26% per year.
2.
Tax deferral can increase the value of compounding because you avoid paying capital gains
taxes if selling appreciated securities.
3.
All else equal, if you anticipate your tax rate will be lower in retirement, it is advantageous to
invest with pre-tax dollars as opposed to the after-tax equivalent (i.e. 37,500 if a 25% current
tax rate was assumed).
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Investing
Basics
Why do I need to
invest?
• Retirement
• Goals: major purchases
(house)
• College education
• Maintain purchasing
power against inflation
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Where do I invest?
• Discount broker
(Scottrade, E*Trade,
etc.)
• Broker (Fidelity,
Schwab)
• RIA (The Colony
Group)
• Individual advisor
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What credentials
should I look for?
• Certified Financial
Planner® (CFP®)
Practitioner
• Chartered Financial
Analyst designation
(CFA)
• Certified Public
Accountant (CPA)
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Investing
Portfolio Construction
Diversification
The ability to tolerate higher
volatility coupled with a long
time horizon equates to a more
aggressive
asset
allocation
(more equities and less bonds).
Asset Allocation
(Equities vs. Bonds)
Risk Tolerance
Ability
Willingness
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Time Horizon
House purchase,
retirement savings, job
security, etc.
Are you averse to losses?
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Investing
Portfolio Construction
Growth Investment Portfolio
Fixed
Income
30%
Int’l
Equities
15%
Domestic Equities
 Large, Mid, Small
Domestic
Equities
55%
International Equities
 Developed, Emerging
Fixed Income (Bonds)
 Corporate, Municipal
Note: Remember to keep 3-6 months of available cash for expenses.
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Investing
Marketplace
Active vs. Passive Management
Mutual Funds
- Expense ratio, front and back-end loads, redemption fees
Target Date Mutual Funds
- May be ideal if you are not comfortable choosing investments
Exchange Trade Funds (ETFs)
- Low expense ratios with some brokers offering commission free ETFs
Individual Stocks and Bonds
- Time consuming and diversification requires significant money for investment
Annuities
Note: www.morningstar.com is useful for researching mutual funds and ETFs.
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Risk Management and Personal Insurance
Health
Insurance
Automobile
Insurance
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Property
Insurance
Liability
Insurance
Life
Insurance
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Disability
Insurance
Identity
Theft
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Health Insurance
Covered by parents’ insurance until you
turn 19, or 26 if you are a full time student
Individual health insurance policies are
expensive
Employer-provided group coverage tends
to be the best solution
HMO vs. PPO
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Automobile Insurance
College students can be covered under their parents’ policy if they share the same legal address
Coverage can get expensive depending on age, vehicle, driving record, and principle garaging
Review deductibles for potential premium savings
Inquire about discounts
Good driving
Good student
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Driver training
Annual mileage
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Anti-theft
Etc.
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Automobile Insurance Policy
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Property Insurance
Renters, Condo, and Homeowners
Protection of your possessions whether at home or not
Renters Insurance is a relatively low cost way to protect your personal belongings
If someone is injured during an accident at your home, insurance can help protect you in the
event of a lawsuit
Be sure to catalog your belongings with a digital camera
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Renters Insurance Policy
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Liability Insurance
Liability coverage via
automobile and
property policies
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Umbrella liability
coverage is a relatively
inexpensive way to
protect yourself from a
catastrophic lawsuit
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$1,000,000 of
umbrella liability
coverage can cost as
little as $150 per year
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Life Insurance
Why might I need life insurance?
• Pay off debt
• Income replacement for
dependents
• Funding future goals such as
college education for child(ren)
How much do I need?
What type is right for me?
• Term vs. Whole Life
Where do I get it?
• Individual vs. Group
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Disability Insurance
Why might I need
disability insurance?
• Income replacement
• A 30-year-old has a
40% chance of
suffering a disability
prior to age 65
• 30-year-olds are three
times more likely to
suffer a disability than
they are to die
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How much do I need?
Where do I get it?
• Typically 60% of your
gross income
• Individual vs. Group
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Identity Theft
9 million U.S. victims per year
Avoid using your Social Security Number
Shred documents with personal information
Use strong passwords, secure websites, and private
Wi-Fi
www.annualcreditreport.com
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Estate Planning
Basic Documents
Will – distributes property at death; names guardians and executor
Trust – used during lifetime and at death; manages and distributes assets
Durable Power of Attorney – lifetime document that gives legal
authority to another to make decisions on your behalf
Living Will or Medical Directive – lifetime document that states
your intent and names Health Care Agent
Personal Memorandum – communicates your wishes at death
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Estate Planning
Will
What if you die without a will?
• Your estate will be distributed according to your state’s “intestate
succession” statutes. May not necessarily distribute your property
as you would have desired.
• Your estate usually will be subject to probate; the legal process
used to value your estate, settle and debts, pay estate and other
taxes, and make an orderly distribution of assets to your heirs.
• Distribution to your heirs can be delayed from one to two years –
or longer. Substantial legal and administrative fees may be
incurred.
• The court will appoint a guardian for your minor children.
• Your estate may be subject to needless taxation.
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Estate Planning
Trust
Primary uses for trusts.
• Avoids publicity, expenses, and delays of probate.
• Avoids interruption of income for family members.
• Serves as receptacle for estate assets and death benefits from life
insurance of the settler.
• Facilitates gifts to charities in states in which there are restrictions
on charitable gifts by will.
• Places the property beyond the reach of the settlor’s creditors, at
least in some states.
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Estate Planning
DPOA
Durable Power of Attorney
• A durable power of attorney is a legal document that allows a
named individual to act on behalf of another person until the
death of that person. The designated individual may make legal
and financial decisions, as well as personal decisions.
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Estate Planning
Living Will
Medical Directive/Living Will
• A medical directive states in writing the wishes of an individual
should he or she become incapacitated and terminally ill. A
medical directive may state, for example, an individual’s wish to
forgo artificial respiration or to donate organs.
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Estate Planning
Personal Memorandum
Personal Memorandum
• A personal memorandum is not a legal document. It may state, in
the form of a letter, video tape, photo album, etc., any
sentimental wishes to convey to his or her survivors upon his or
her death.
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Estate Planning
Steps in the process
Determine Family Income Needs
These include income requirements, education costs, and special needs of dependents or minor children.
Designating Beneficiaries
Select beneficiaries for your life insurance policy, retirement savings, IRAs, etc.
Forming a Distribution Plan
Determine and set guidelines for how your assets will be distributed upon your death, naming primary, as well as secondary, beneficiaries.
Minimizing Estate Taxes
Work with an estate planner, lawyer, or tax advisor to discuss ways to minimize your survivor’s estate and inheritance taxes.
Selecting Fiduciaries
Fiduciaries are institutions or individuals who oversee the estate and its legal and financial administration.
Drafting Documents
Will, trust, DPOA, living will, and personal memorandum.
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Contact information
Patrick Donnelly, CFP®
• Two Atlantic Avenue, Boston, MA 02110
• (617) 723-8200 ext. 244
• pdonnelly@thecolonygroup.com
Matt Ilteris, EA ®, CFP®
• Two Atlantic Avenue, Boston, MA 02110
• (617) 723-8200 ext. 264
• milteris@thecolonygroup.com
Shaun Thompson, CFA, CFP®
• Two Atlantic Avenue, Boston, MA 02110
• (617) 723-8200 ext. 236
• sthompson@thecolonygroup.com
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The Smart Choice in Wealth Management.™
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Disclosures
The Colony Group, LLC (“Colony”) is an SEC Registered Investment Advisor headquartered in Boston. Registration does not imply that
the SEC has endorsed or approved the qualifications of Colony or its respective representatives to provide any advisory services
described herein.
Information provided herein is general and educational in nature. It is not intended to be, and should not be construed as, investment
advice. Colony’s financial planning and investment advisory services are provided pursuant to an advisory agreement with the client.
Data and statistics included in this presentation are based upon information reasonably available to Colony as of the date of this
presentation. Information has been obtained from sources that Colony believes to be reliable; but these sources cannot be guaranteed
as to their accuracy or completeness. The delivery of this presentation shall not, under any circumstances, create any implication that the
information contained herein is correct, including as of any time subsequent to the date of this presentation, and Colony does not
undertake an obligation to update such information at any time after such date.
Colony’s Form ADV Part 2A and 2B and Privacy Statement will be provided as required by law.
This presentation is confidential and intended only for use of the person to whom it is distributed by Colony. Further
distribution or disclosure is expressly prohibited without the prior written consent of Colony.
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