Your Path to Financial Security

Editor's Notes

• #2: Welcome, and thank you for joining me. In a world where life is flashing by us in 140-character blasts, it can be tough to take a timeout. I thank you for your time and focus today, taking a look at your path to financial security. Most people don’t have the luxury of becoming experts on all financial matters. You’re looking for straightforward, realistic, stress-free solutions. Today, I’ll share how I can help educate you and help you make informed choices to achieve your goals. It’s a process called Financial Strategies. Financial Strategies is designed to help people set and achieve their financial goals!
• #3: ***CAREER VERSION DISCLOSURES – IF USING THIS, DELETE FOLLOWING SLIDE OF BGA DISCLOSURES [ Presenter note: Leave on screen long enough for people to read. Reinforce that the presentation will not include legal, accounting or tax advice, and any such questions should be referred to experts in those fields. ]
• #4: ***BGA VERSION DISCLOSURES – IF USING THIS, DELETE PREVIOUS SLIDE OF CAREER DISCLOSURES . ALSO, ADD YOUR BGA NAME WHERE YOU SEE THE RED TEXT. [ Presenter note: Leave on screen long enough for people to read. Reinforce that the presentation will not include legal, accounting or tax advice, and any such questions should be referred to experts in those fields. ]
• #5: Our objectives today will be to: Discuss the foundation of financial security Discover why people don’t become financially successful, and Identify steps to help you reach financial security [ Ask the audience if there is anything missing from the agenda they were hoping to cover in today’s meeting. If it’s included just not on the agenda, reassure them you’ll get there. If it’s a topic in a future workshop or for a one-on-one conversation, be sure to follow up. ] Let’s get started!
• #6: Achieving your financial goals means you have more potential to achieve financial security. Financial security can be achieved when it is built on a solid foundation.
• #7: That foundation is usually constructed of four types of assets -- your personal and business assets, employment benefits, insurance plans and government programs. The first type, personal and business assets, includes your home, cars, savings and investments, as well as any business interest you might own. The second type is employment benefits, such as your retirement plan, and employer-sponsored savings, like 401(k) plans. Next, you have insurance plans, including your personal and company life insurance. It includes not only the death benefits but also the cash values you can use during your lifetime. Last, there are government programs, such as Social Security, that may provide benefits during a disability or retirement or to survivors at death.
• #8: I’d like to take a quick poll of the group. Seeing this list of foundational assets, on a scale of 1 to 10 with 1 being completely unstable and 10 being perfect, how solid would you say your foundation of financial security is? [ Show of hands who is a 1-3 ] [ Show of hands who is a 4-7 ] [ Show of hands who is an 8-10 ] [ NOTE: For more reserved groups, you could consider having people write down their answers on a slip of paper and hand them to the front. You can do a quick tally before moving onto the next slide. ]
• #9: For every 100 people starting their careers today and still living at age 65, 48% will have annual incomes under $25,000 19% will have annual incomes between $25,000 and $40,000 17% will have annual incomes between $40,000 and $70,000 And just 15%, that’s 3 in 20, will have annual incomes over $70,000
• #10: [ Get the audience to participate. There are no wrong answers. If there is a white board or another place to take notes that the group can see, write down their answers. ] Those are great examples. Here are a few others of note.
• #11: These are some of the roadblocks to financial security people like you have noted in the past: Inflation. Over the long term, inflation reduces your purchasing power. Taxes make the situation worse yet. They take away 20-30% of the earnings you do make so your 5% return on taxable investments is actually only 3-4%! Market volatility can result in losses in your investments. And, if you become too sick or hurt to work, just a few months of disability could wipe out years of accumulated savings. Saving to spend, or “deferred spending,” plagues many people. Rather than investing for the long term, they tap into savings rather than allowing them to grow. Any finally, there’s procrastination. Many people put off starting to save because they’re not sure what steps they should take to get the best return over the long haul. Most people spend first and save whatever is left over, which is usually nothing.
• #12: Most of us never achieve financial security because we don’t have a specific plan. We procrastinate because it’s never quite the right time, and as a result, few end up reaching financial security. I assume you would want to be among those few who have more potential to achieve financial security. Is that right? Without an essential element like money management, we can lose the ability to provide for our financial security.
• #13: How many times have you saved the money needed for a car, a home appliance or another consumer item? Have you tried the theory of paying yourself first? Many people spend first, and try to save what little is left. A few people save first, and spend the balance.
• #14: People who save first are more likely to have money when they want it and money when they need it for such things as education funds, retirement income and other financial goals they’ve set for themselves.
• #15: Next, we’re going to talk about the pros and cons of different savings options. First, I wanted to define a couple terms you’ll hear in the next few slides. Qualified and nonqualified. These terms refer to the tax treatment of various savings and investment vehicles and take into account: The type of growth you can expect – tax deferred growth or taxed on the growth each year Your access to the money, in other words whether it acts like a liquid account or if there are penalties for withdrawing the money before a certain age Who can contribute to an account and if the money going in has been taxed or not And, finally, how taxes are applied to this money - income tax, capital gains, tax-free, etc. Your 401(k) through your employer is an example of qualified money. The contributions go in before taxes are taken out. It grows tax-deferred. Another example would be an Individual Retirement Account, or IRA, which offers a tax-deferred option. We won’t get into a lot more detail today, but just know that there are IRS limits on the amount of qualified assets you can set aside in a year. And then there are nonqualified vehicles, like a company stock purchase program or a retail mutual fund that you invest in outside of your 401(k).
• #16: Let’s look at three specific ways of saving money and the unique advantages they offer. First, let’s look at the advantage of tax-deferred savings when compared to a taxable savings vehicle like a CD or a passbook savings account. This example compares after-tax savings of $1,000 per year in a taxable account with $1,000 per year in a tax-deferred vehicle (such as an annuity)*. CDs or traditional passbook savings accounts require the annual payment of taxes as they accumulate over the years. During the accumulation years is typically when the tax rates for most people are at their highest. Conversely, earnings on a tax-deferred savings vehicle like an annuity are not taxed until they are received. This is usually in the retirement years when tax rates for most people are lower. Notice the two columns and how the tax-deferred column grows larger over time as interest is earned on tax-deferred interest. * Certificates of Deposit are FDIC insured. Annuities and other investment products are not FDIC insured. Return of investment depends on the performance of the issuing insurer. Withdrawals made prior to age 59 1/2 are subject to 10% IRS penalty. Taxes are paid at ordinary tax rates when withdrawn.
• #17: My second example highlights the advantage of adding tax-deductibility to a savings plan, like you would have in a qualified plan such as an IRA, TDA or 401(k). My example is identical to the last slide, except that now, the amount saved each year, i.e. $1,000, can be deducted from the current year’s taxable income. This point is illustrated by deducting taxes each year from the left column. For example, the first year deposit is $700, that’s $1,000 minus the $300 tax bill. Eight percent interest is earned on $700, not the full $1,000 deposit. Conversely, in the right column, the full investment of $1,000 was deductible, so interest is earned on the entire amount. Notice the gap between the two columns is even wider when you enjoy tax-deductibility and tax-deferral. Tax-deductible and tax-deferred savings are advantages associated with qualified plans such as IRAs, TDAs, 401(k)s. It must be remembered that all contributions and the interest earned are taxed upon distribution. However, this is usually in later years when the tax rates for most people are lower.
• #18: Our third example speaks to the 401(k) Advantage. Many employers offer 401(k) plans to their employees. It’s a great way to save, particularly if the employer offers a matching contribution. This example compares saving $1,000 per year after taxes (such as a passbook savings or a certificate of deposit) with $1,000 per year before taxes in a 401(k) with a 50% employer matching contribution. 401(k) contributions reduce current taxable income by the amount of contribution. Notice the even wider gap between the two columns when you throw in an employer matching contribution. This is a great benefit to take advantage of. Like our previous slide, all contributions and earnings are tax-deferred, but fully taxable at distribution which is usually at retirement when tax rates are typically lower. The advantages of tax-deferral of earnings, tax-deductibility and participating in a 401(k) are all good ways to pursue financial security.
• #19: You may be wondering how you can be financially secure. Here are four steps you can take that can help lead you to your financial security.
• #20: People don’t plan to fail when it comes to financial security. They often just fail to plan. Our first step to financial security is to set and prioritize your goals. Our next step is to create an action plan. Third, you need to implement your plan. Finally, monitor your progress. You’ll need to keep your plan current. I hope you’ll leave here today with the encouragement you need to take the next step on your path to financial security.
• #21: A financial professional can answer your specific questions and help you set and achieve your financial goals. Using a process like Financial Strategies lets you: Save time and effort -- A few hours of planning now can save you hundreds of hours in hassles later. Find some peace of mind -- Knowing you’re setting your course in a defined direction can help you feel more secure. Create a formal record -- It’s easy -- you know exactly where you are and where you’re heading. Get results -- If you follow through with your plan, you’re able to watch your financial goals become a reality. Change your plans as needed -- Your goals today may be different tomorrow. Financial Strategies adapts to meet your changing needs. Develop a long-term relationship -- It’s always nice working with someone who knows you and is familiar with your financial goals.
• #22: Financial Security... It all begins with taking that first small step, developing your own Financial Strategies program.
• #23: [ Optional: If time allows, you can offer Q&A at the end of the session. ] Are there any questions I can address for you before we go?
• #24: Thank you again for attending today’s session. Please take a minute to complete the evaluation form (BB11177) to let us know if this information was helpful. You can also indicate if you would like more information on today’s topic or anything else.