The Colony Group, LLC The Smart Choice in Wealth Management.™ Insert Financial Planning Workshop...

The Colony Group, LLC The Smart Choice in Wealth Management.™ www.thecolonygroup.com

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Financial Planning Workshop

March 27, 2013


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


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


The Financial Planning Process

Gathering data and

goals

Analyzing and evaluating

your financial status

Developing a plan

Implementing the plan

Monitoringthe plan


Budgeting

Where does my paycheck go?

• 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

Why is budgeting important?

• 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.


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


Savings

• Emergency fund (3-6 mos. of expenses)

• Down payment on home (20% of purch.)

• Car purchase• Vacation• College savings for children• Investing

Non-retirement savings

• 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

Retirement savings


• Filing Requirement• Tax Rates• Tax Calculation• Tax Savings Tips

“In this world,nothing can be

said to becertain, except

death and taxes.”

- Benjamin Franklin

Personal TaxIntroduction


Personal TaxFiling 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, self-employed, etc.)


Personal Tax2013 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%


Personal TaxHistory Class

1913

1914

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0

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30

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50

60

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90

100

Highest Marginal Ordinary Income Tax Rates

Top Marginal Tax Rate

Year

Ta

x R

ate

(%

)


Personal TaxCalculating Your Tax Liability: The Basics

Income Tax Calculation

$ Gross Income

- Adjustments

= Adjusted Gross Income

- Deductions

- Personal Exemptions

= Taxable Income

x Tax Rate

= TAX LIABILITY


Personal TaxCalculating Your Tax Liability: Gross Income


$ Gross Income

- Adjustments


- Deductions


= Taxable Income

x Tax Rate

= TAX LIABILITY

Compensation (W-2)DividendsAlimony receivedInterestBusiness profitsGainsRentsRoyaltiesRefundsOther


Personal TaxCalculating Your Tax Liability: Adjustments


$ Gross Income

- Adjustments


- Deductions


= Taxable Income

x Tax Rate

= TAX LIABILITY

Business expensesLosses from salesAlimony paidIRA contributionsMoving expensesRental expensesOther


Personal TaxCalculating Your Tax Liability: Deductions


$ Gross Income

- Adjustments


- Deductions


= Taxable Income

x Tax Rate

= TAX LIABILITY

Higher of:

Standard DeductionSingle: $6,100MFJ: $12,200Itemized DeductionsTaxesInterestCasualty lossesCharitable donationsEmployee educationMedical expensesOther


Personal TaxCalculating Your Tax Liability: Exemptions


$ Gross Income

- Adjustments


- Deductions


= Taxable Income

x Tax Rate

= TAX LIABILITY

$3,900 for 2013


Personal TaxTake-home pay Cash Flow and Paycheck AnalysisGross $50,000 $100,000

Federal Tax $4,600 $16,000

MA Tax $1,700 $4,200

Social Security

$3,100 $6,200

Medicare $700 $1,400

401(k) $3,000 6% $6,000 6%

Medical $3,500 $3,500

Disability $500 $500

Life $500 $500

Net $32,400 65% $61,700 60%Calculated using “Single” filing status


Personal TaxKeeping 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.


Personal TaxKeeping 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.


Retirement PlanningSavings Vehicles

Employer sponsored plans: Defined Contribution (most common) and Defined Benefit (rare)• $17,500 max salary deferral in 2013• Employer matching contributions & profit sharing• $51,000 max total contribution amount in 2013 (employee + employer)

Defined Contribution 401k limits

• $5,500 maximum contribution in 2013 for both (deduction and contribution limits based on AGI apply)

No employer plan? Consider a Traditional or Roth IRA

Note: Social Security approx. max benefit is currently only $30,000 /year – supplementing is necessary.


Retirement PlanningPower 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).


InvestingBasics

Why do I need to invest?

• Retirement• Goals: major

purchases (house)• College education• Maintain

purchasing power against inflation

Where do I invest?

• Discount broker (Scottrade, E*Trade, etc.)

• Broker (Fidelity, Schwab)

• RIA (The Colony Group)

• Individual advisor

What credentials should I look for?

• Certified Financial Planner® (CFP®) Practitioner

• Chartered Financial Analyst designation (CFA)

• Certified Public Accountant (CPA)


InvestingPortfolio Construction

Diversification

Asset Allocation (Equities vs. Bonds)

Risk Tolerance

AbilityWillingness

Time Horizon

The ability to tolerate higher volatility coupled with a long time horizon equates to a more aggressive asset allocation (more equities and less bonds).

House purchase, retirement savings, job security, etc.Are you averse to losses?


InvestingPortfolio Construction

Domestic Equities

55%

Int’l Equi-ties15%

Fixed Income

30%

Growth Investment Portfolio

Note: Remember to keep 3-6 months of available cash for expenses.

Domestic Equities Large, Mid, Small

International Equities

Developed, Emerging

Fixed Income (Bonds)

Corporate, Municipal


InvestingMarketplace

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.


Risk Management and Personal Insurance

Health Insurance

Automobile

Insurance

Property Insurance

Liability Insurance

Life Insurance

Disability Insurance

Identity Theft


Health Insurance


Automobile Insurance


Automobile Insurance Policy


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


Renters Insurance Policy


Liability Insurance

Liability coverage via automobile and

property policies

Umbrella liability coverage is a

relatively inexpensive way to

protect yourself from a catastrophic

lawsuit

$1,000,000 of umbrella liability

coverage can cost as little as $150 per

year


Life Insurance

Pay off debtIncome replacement for

dependentsFunding future goals such as

college education for child(ren)

How much do I need?

Term vs. Whole Life Individual vs. Group


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

How much do I need?

• Typically 60% of your gross income

Where do I get it?

• Individual vs. Group


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


Estate PlanningBasic 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


Estate PlanningWill

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.


Estate PlanningTrust

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.


Estate PlanningDPOA

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.


Estate PlanningLiving 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.


Estate PlanningPersonal 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.


Estate PlanningSteps in the process


Contact information

Patrick Donnelly, CFP®•Two Atlantic Avenue, Boston, MA 02110•(617) 723-8200 ext. 244•[email protected] Ilteris, EA ®, CFP®•Two Atlantic Avenue, Boston, MA 02110•(617) 723-8200 ext. 264•[email protected] Thompson, CFA, CFP®•Two Atlantic Avenue, Boston, MA 02110•(617) 723-8200 ext. 236•[email protected]


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.

The Colony Group, LLC The Smart Choice in Wealth Management.™ Insert Financial Planning Workshop...

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