Basic Personal Financial Planning Strategies for the New Year [date] [venue] [contact information]

Personal Financial Planning Section Introduction About the PFP Section & PFS Credential The AICPA PFP Section provides information, resources, advocacy and guidance for CPAs who specialize in providing estate, tax, retirement, risk management and investment planning advice to individuals and their closely held entities The CPA/Personal Financial Specialist (PFS) credential distinguishes CPAs as subject-matter experts who have demonstrated their financial planning knowledge through experience, education and testing 2

Personal Financial Planning Section What we will cover Estate tax changes and planning Income tax changes and planning Asset allocation and importance of saving early Retirement planning and safe withdraw rates Insurance Get your questions answered 3

Personal Financial Planning Section Estate Tax Planning Necessary for Everyone to have: Will Health Care Proxy Power of Attorney Living Will 4

Personal Financial Planning Section Key “Permanent” Estate, Gift, and GST Changes under ATRA Estate, Gift and GST exemptions set at $5,250,000 for 2013 Applicable exclusion amount will be adjusted for inflation Top transfer tax rate is 40% (up from 35% in 2012; down from 45% maximum rate in 2009) Spousal portability made permanent GST Provisions extended 5

Personal Financial Planning Section Estate Planning Planning Review and Update your Will, Health Care Proxy, Power of Attorney and Living Will. Gifting of $14,000 per person per year available before using any of your $5,250,000 Lifetime Exemption. 5 year rule still in affect for transfers made before a Medicaid application. State Estate limits are not necessarily the same as the federal limits. 6

Personal Financial Planning Section Income Tax Rates 7 © 2013 Keebler & Associates, LLP All Rights Reserved

Personal Financial Planning Section 2013 Ordinary Income Tax Rates 10%, 15%, 25% and 28% rates made permanent 33% and 35% rates made permanent up to certain threshold levels— Income above these threshold levels taxed at 39.6% Threshold amounts are adjusted for inflation Single taxpayers$400,000 Head of households$425,000 Married filing jointly or surviving spouse$450,000 Married filing separately$225,000 8

Personal Financial Planning Section Long-Term Capital Gains & Dividends 20% tax rate for taxpayers with income above the threshold amounts Their capital gain rate will actually be 23.8%, including the 3.8% Medicare surtax 15% tax rate for taxpayers with lower incomes Qualified dividend treatment is made permanent 9

Personal Financial Planning Section Income Tax Planning Child Tax Credit: $1,000 permanently extended after 2012 Dependent Care Credit: $3,000 ($6,000 from $4,800 for more than one qualifying child) permanently extended after 2012 American Opportunity Tax Credit – credit for tuition at post-secondary education extended through 2017 for joint incomes less than $160,000 (phase-out after) Education Assistance Exclusion from Employer extended 10

Personal Financial Planning Section Income Tax Planning Student loan interest deduction made permanent Sales tax and local income tax deductions made permanent Alternative Minimum Tax: inflation adjustment for exemption made permanent and fixed retroactively No need to “patch” the law. Payroll tax cut expired New healtcare tax for earned income over $200,000 (single) and $250,000 (MFJ) of.9% 11

Personal Financial Planning Section Income Tax Planning Watch for key income and taxable income thresholds to keep out of the top tax rate brackets Reduce current AGI and taxable income, especially if near a tax rate threshold Save more in employer retirement plans Reduce current taxable income through IRAs and Roth IRAs, Roth conversions, deferred compensation plans, municipal bonds, etc. Watch investment income and plan capital gains to avoid the extra 3.8% Medicare surtax. 12

Personal Financial Planning Section Asset Allocation Each Investment Asset Class has an Expected Return and a Standard Deviation. Combining two or more Asset Classes has the Effect of Increasing the Expected Return and Decreasing the Standard Deviation of the Total Portfolio. Look at All of your Holdings When Developing an Asset Allocation; your 401(k), outside savings, possible pension, spouse’s assets. 13

Personal Financial Planning Section Starting Early Comparison of: A 21 year old saving $2,000 each year in the 401(k) plan for 10 years and then never investing again through retirement at age 67. Total invested = $20,000 A peer who waits 10 years later to start saving and saves $2,000 each year in the 401(k) plan from age 31 to age 67; a total of 37 years. Total invested = $74,000 14

Personal Financial Planning Section Starting Early Assumption made: Both individuals invest with Blue Ocean Strategic Capital, LLC and enjoy a 7% annual rate of return from the moment they begin saving until the age of 67. What will each person have at age 67? 15

Personal Financial Planning Section Starting Early Of course you know the answer: The 21 year olds $20,000 investment has grown to $361,418 at age 67 The peer who started 10 years later and invested $74,000 has a nest-egg of $343,122 or $18,296 LESS. 16

Personal Financial Planning Section Starting Early End up like this Not like this 17

Personal Financial Planning Section Safe Withdrawal Rates Now as you near retirement, what can you safely withdraw from your savings and 401(k) plan to assure that it will last the rest of your life; a minimum of 30 years? Or put another way – if I want to spend $XXX, how much money do I need in my accounts to safely retire? 18

Personal Financial Planning Section Safe Withdrawal Rates Challenges of safe withdrawal rates: Stock and Bond Market Volatility. What is the Optimal Portfolio Allocation to Survive Volatility? How High of a Withdrawal Rate Would Have Survived any Historical market Scenario? Sensitivity to the date of retirement (timing). Portfolio Changes to Manage Risk. Fees and Taxes. 19

Personal Financial Planning Section Safe Withdrawal Rates According to a study performed by Michael Kitces, Director of Research at Pinnacle Advisory Group, the following facts are presented: Using rolling 30 year periods from 1868 to 1980, the safe withdrawal rate ranges from a low of 4.3% to a high of 10.7% with the 112 year average of 6.6%. The Safe Withdrawal Rate is Heavily Influenced by Early Returns. Valuation Environments are Predictive of Safe Withdrawal Rates. Volatility necessitates 2% reduction from Historical Averages. Taxes and Fees necessitates an additional.5% reduction. 20

Personal Financial Planning Section Safe Withdrawal Rates In Summary: The Optimal Portfolio Mix is 60% Equity/40% Fixed. The Base Safe Withdrawal Rate is 4 – 4 ½ %. Adjust the Safe Withdrawal Rate on Current P/E Ratios -P/E above 20.0 – use the Base -P/E between 12.0 and 20.0 – Increase the Base by.5% -P/E below 12.0 – Increase the Base by 1% 21

Personal Financial Planning Section Insurance Types of life insurance Term Whole Life Universal Life Variable Universal Life 22

Personal Financial Planning Section Insurance Other Insurance to own/consider Disability Long-Term Care Property and Casualty Automobile Umbrella 23

Personal Financial Planning Section The Top 5 Items To Do Financially 5. Establish a budget for your household that covers your day-to-day expenses but also includes paying yourself (meaning saving for retirement), saving for short-term goals and saving for education. Include planning for income and/or estates taxes through strategies that take advantage of tax deductions and credits to reduce AGI and taxable income. 4. Assess risk – Review insurances and determine if you are sufficiently protecting your loved ones. 3. Make sure your Will, Health Care Proxy, Power-of- Attorney and Living Will are current and up-to-date. 24

Personal Financial Planning Section 2. Make saving for retirement a priority! And the Number One Item………… 1. Remember that the science of asset allocation is totally opposite of high school science – the more things you mix together that have unlike properties the less likely it is that it will blow-up in your face! In other words, DIVERSIFY! The Top 5 Items To Do Financially 25

Q&A [insert contact information here] Special thanks to Theodore J. Sarenski, CPA/PFS, CFP® and Robert Keebler, CPA, MST, AEP (Distinguished) for contributing content.