1 A Course Focusing on the Foundations of Retirement Planning

2 Six Pillars of Retirement IncomeSection Four

3 Foundations of Retirement PlanningThis discussion is offered free of charge. It is designed to be educational in nature and is not intended to provide tax or legal advice. Consult with your tax advisor and/or legal counsel for suitability for your specific situation. This presentation is not endorsed or approved by the Social Security Office or any other Government Agency. Hypothetical and/or actual historical returns contained in this presentation are for informational purposes only and are not intended to be an offer, solicitation, or recommendation. Rates of return are not guaranteed and are for illustrative purposes only. Projected rates do not reflect the actual or expected performance within any example or financial product. First to cover some basics…(Read slide). Foundations of Retirement Planning

4 Dave Vick 8700 E. Vista Bonita Drive Suite 240 Scottsdale, AZ Give a short introduction to yourself and handout your simple, one sheet BIO. Contact Information

5 Redhawk Wealth AdvisorsTheir may be financial advice offered as a result of this course, including life insurance and annuity products, along with investment advice which is offered through Redhawk Wealth Advisors an SEC Registered Investment Adviser. Insurance products are sold through Vick & Associates, Inc. Include your disclosure and read. Disclosure

6 Let’s Review Eight Challenges Which Challenge do you believe to be:Life Expectancy Inadequate Savings Inflation Taxation Market Uncertainty Health Care Costs Unrealistic Expectations Poor Decision Making Which Challenge do you believe to be: The greatest? Most Expensive? Hardest to Overcome? Let’s Review

7 Let’s Review Which Goal is the: Four Main Goals Most Troubling?Hardest to Accomplish? Four Main Goals Conserve Your Assets Generate Your Income Guard Against Inflation Limit Taxation Let’s Review

8 Six Pillars of Retirement Income

9 Introduction IntroductionImagine you are in an airport looking for one of those reader boards displaying flight information. You need to know if your flight is on time or delayed, what gate it’s at and when it’s boarding. But, you come across a different type of display. All the flights are listed, airlines, flight numbers, departure times, and then on the far right you see a percentage. You wonder what the heck that’s all about and seeing at the top of the column “Flight Destination Chances.” It’s the percentage chance that once you take off, your plane will actually make it to its destination ! You gaze down the list and notice there are no flights listing 100%. How confident would you feel about getting on your flight? What would you do? As  crazy as the illustration sounds, it is comparable to current thinking on retirement income planning. Those facing retirement are discovering the wisdom of a 4% withdrawal is not the sure bet it once was thought to be. In fact, a recent T. Rowe Price study shows some results that would cause most to be concerned on the runway of retirement. T. Rowe Price’s recent study about drawing retirement income during Bear markets is enlightening. Their study looked at a 30 year retirement scenario starting January 1, 2000, with an account balance of $500,000. The account was invested in a conservative mix of 55% equities and 45% bonds. The retiree withdrew 4% a year ($20,000), with a 3% inflation factor and played it out over the ensuing decades. They played out 10,000 market scenarios in the study and found that the success rate was about 89%. In other words, 11% of the time the retiree would have run out of money before the 30 years ran out. They also found that the balance of the initial $500,000 would have sunk to $334,578 and would only have a 29% chance of succeeding for the next 30 years. In fact, the chances of success were only 6% for at the conclusion of the Bear market that ended in (1) Again, would you get on that flight? Many people are so used to the typical Wall Street retirement flight information that they are willing to take excessive risk in their portfolios in an attempt to acquire the gains they need to fund their retirement. You must be thinking to yourself, “There has to be a better way.” And there is. The Six Pillars of Retirement Income using the ABC Planning Model will help you determine either the amount of risk you currently have in your retirement income stream or the amount of risk and guarantees you prefer to have. If you make use of the ABC Planning Model, determining your sources of income, your inflation hedge, your guarantees and your strategies to avoid excess taxation you will be able to confidently take off on your retirement flight knowing you’ll land safe and secure at the end of your journey. Would you get on any other plane? Really? Introduction

10 Pillar #1: Personal Retirement AccountsSix Pillars of Retirement Income

11 Personal Retirement AccountsQualified/ Pre-Tax Dollar Plans: 401(k) 403(b) 457 KEOUGH Simple IRA SEP IRA IRA Qualified plans: 401k, 403b, 457, Simple IRA, SEP IRA, IRA The first Pillar of retirement income is the one you have focused on for most of your working career. It’s the investing foundation you have made into your pre-tax dollar accounts at work or your IRAs. We use the term “qualified” for all retirement plans that were created with monies deducted from wages and self-employment income and thus have not to this point been taxed. So, all the monies sitting in these accounts are taxable. These include 401(k), 403(b), 457, KEOUGH, Simple IRA, SEP IRA, IRA plans that are all funded with monies you deducted from your tax return while working. Employer sponsored qualified retirement accounts are known as Defined Contribution Plans. Personal Retirement Accounts

12 Defined Contribution Plans401(k) Advantages: Tax-deduction Tax-deferral Payroll deduction Company matching Loan structure Defined Contribution Plans The defined contribution plan was created in 1978 Congress amended Section 401(k) of the IRS code. “It took effect in 1980, and by 1983 more than half of large companies were setting up 401(k) plans, a little more than 17,000. Half way through the 1980’s there were less than 8 million people investing in 401(k)’s with about $100 billion invested. By 2006, there were seventy million participants and more than $3 trillion invested.” (2) The 401(k) plan is a defined contribution plan where the worker deducted earnings from their wages and deposited them into an account set up by their employer. Often, but not always, the employer matched the employee’s deposits up to a percentage of monthly earnings. The 401(k) and all of the plans like it, the 457, 403(b), SEP IRA, and such, were designed to transfer the risk for funding retirement from the employer to the employee. It was also designed to open up more opportunity for employees to save for retirement past what their employee could afford to do through company pensions, otherwise known as defined benefit plans. 401(k) plans and those like them are called defined contribution plans because it is the employee’s contribution, which is the focus of the plan. The defined benefit plan is named so because the employer on the payment or benefit focuses on the employee’s retirement. Advantages These pre-tax, employer sponsored plans were designed for the wealth accumulation of the employee with a view toward retirement. The employee would choose a percent of their earnings to deduct from their paycheck, say 5%, and the employee would match up to a percentage, say 3%. Thus, any monies you put into the account up to your matching would double when the employer put in their amount. You could put in more, but the employer wasn’t obligated to match past their stated percent. It became the wealth accumulation vehicle for a generation of Boomers. One of the advantages of this strategy is that you could reduce your taxable income by the amount of your deductions up to certain limits stipulated by the IRS. If you were making $60,000 a year and deducted 5% from your paycheck, you could deduct the $3,000 from your taxes right off the top. That strategy could have easily saved you $300 to $450 in taxes if your net tax rate was 10% to 15%. It might have even put you in a different marginal tax bracket. Of course, along with the benefit of tax-deduction came the benefit of tax-deferred growth. You wouldn’t be paying any taxes on your pre-tax dollar plans as they accumulated value. This means that the money normally directed toward taxes would stay in the account and grow as well. Tax-deferred growth is a powerful force in saving for retirement over the long haul. Defined Contribution Plans

13 Defined Contribution Plans401(k) Disadvantages: Compliance DRAC Limited Choices 20% Withholding Limited Beneficiary Options RMD Errors Disadvantages While the 401(k) and other plans like it have been powerful retirement savings vehicles, there are at least six notable disadvantages. Compliance: Is your 401(k) compliant and will it remain compliant throughout your retirement. The IRS website lists the top ten reasons for 401(k) failures as far as the tax code is concerned. The top one is always the same. It involves the inability for the employer whose managing the plan to follow its own rules. If a plan is ever found non-compliant the IRS gives plenty of warning, but in some cases the plan fails and all the funds deposited become taxable. Roth Accounts: Roth accounts in 401(k) plans are called DRAC’s, or Designated Retirement Accounts. The problem is they don’t follow some of the beneficial rules of a Roth created outside of a 401(k) plan. “The IRS also considers the Roth beginning date for any Roth contributions as January 1st of the year in which the account was opened. For example, if you opened a Roth on November 15th of 2010, the start date of the “non-exclusion” period would be January 1st of The client could then start taking tax-free withdrawals from the account January 1st, Opening a contributory Roth account begins the 5-year “non-exclusion” period for all ensuing Roth accounts, unless they’re in a 401(k). If a Roth is a DRAC, then each new Roth opened inside other 401(k) plans with subsequent employers start a new 5-year period before tax-free money can be withdrawn. (3) Another problem with a DRAC is that it has to follow the same required minimum distribution rules of the plan it’s a part of. Meaning that you would have to start taking RMDs out of your Roth at age 70 ½. If the Roth is outside the 401(k) plan there are no RMDs necessary. Limited Choices: 401(k) plans and other employer sponsored plans are limited to the investment options inside the employer’s plan. While there might be some great options inside the plan, it is safe to say that there is a world of investment options outside a company sponsored plan that may better meet the needs and wants of individual investors. 20% Withholding Trap: If you are at the point of withdrawing monies from your employer’s plan to another plan you may fall into the 20% withholding trap. This happens if you decide to take the money and deposit it into your personal account and not transferring it to another pre-tax dollar plan like an IRA with the new company’s name on the check or transfer form. The employer’s plan will deduct 20% and send it into Uncle Sam. You may eventually get it back when you file your tax return in the following year. Limited Beneficiary Options: Most people aren’t aware of who is listed on their employer-sponsored plans as primary beneficiaries, let alone secondary, or tertiary beneficiaries. Often the paperwork for the employer plan only gives you one option for a primary beneficiary. What happens if you and your primary beneficiary die in a tragic car accident? Interesting question. RMD Errors: Probably the most common error in dealing with employer sponsored retirement plans is with required minimum distributions or RMDs. In today’s world, most people have had more than one job during the course of their wage-earning career and may carry two to four different kinds of pre-tax retirement plans into retirement. They might have a 401(k), 457, 403(b) and an IRA. Most people believe if they have more than one kind of plan when it comes to taking RMDs at age 70 ½ they can take a distribution from one plan to cover the requirement from all plans. Nothing is further from the truth. You must take a RMD from each type of plan to satisfy the requirement. Otherwise it could cause a 50% penalty! Defined Contribution Plans

14 Withdrawals Pre-59 ½: Hardship Non-hardship 72t RuleSeparation From Service – Age 55+ Post-59 ½: No 10% Penalty Pre-59 ½ Withdrawals In most instances when monies are withdrawn from your employer-sponsored plans you will have to pay, not only normal income tax, but you will also incur a 10% excise penalty from the IRS. There are ways around the penalty such as: Hardship withdrawals: According to the IRS, plans may, but are not required to provide for hardship withdrawals. The hardship withdrawal must meet a need that is “immediate and heavy.” Immediate and heavy might be certain medical expenses, costs relating to the purchase of a home, tuition and educational expenses, monies necessary to prevent an eviction from a primary residence, some funeral expenses, and certain expenses for repairs on your personal residence. (4) Non-Hardship withdrawals: While the IRS allows for pre-59 ½, non-hardship withdrawals, most plans don’t have the clause written into the plan either by design or ignorance. Your company can always amend the rules to allow for non-hardship withdrawals for little expense and effort allowing a major benefit for employees. While you will still owe normal income tax on your withdrawal, you will avoid the 10% penalty. Typically there are restrictions that limit non-hardship withdrawals. They won’t allow amounts greater than your vested balance and the company may cap or limit you on how much you can withdraw. 72t withdrawals: The 10% tax penalty for pre-59 ½ distributions from retirement plans is found in IRS Code §72(t) (5). However Code §72(t)(2) lists exceptions to the 10% tax one of which are distributions received in substantially equal periodic payments. The 72t rule is explained from the IRS below: “If distributions are made as part of a series of substantially equal periodic payments over your life expectancy or the life expectancies of you and your designated beneficiary, the §72(t) tax does not apply. If these distributions are from a qualified plan, not an IRA, you must separate from service with the employer maintaining the plan before the payments begin for this exception to apply. If the series of substantially equal periodic payments is subsequently modified (other than by reason of death or disability) within 5 years of the date of the first payment, or, if later, age 59½, the exception to the 10% tax does not apply. In that case, your tax for the modification year is increased by the amount that would have been imposed (but for the exception), plus interest for the deferral period.” (6) Separation from service, age 55 or older: In the calendar year in which you have separated from your employer who is sponsoring your 401(k), you can withdraw funds without the customary 10% penalty prior to age 59 ½. Post 59 ½ Withdrawals After age 59 ½ there are no penalties for distributions from pre-tax dollar retirement plans. You will still have to pay regular income tax on any distributions paid directly to you and the 20% withholding trap still applies for employer sponsored plans. You can transfer or rollover your employer sponsored plans into a personal IRA and take advantage of more investment options and beneficiary choices without the hindrance or expenses incurred in employer plans. You won’t be taxed in the transfer, but as you set up your income plan, know that withdrawals are taxed as regular income. Withdrawals

15 Qualified Retirement Plans as a Pillar of Retirement IncomeRed or Green money source of income 4% rule is questionable Combine with other Red & Green money sources Coordinated with other income Great for wealth accumulation One of the largest sources for income Sequence of returns is key Qualified Retirement Plans as a Pillar of Income Obviously, qualified retirement plans are a major source of income in your golden years. Structured carefully with the help of a competent financial advisor, these funds should last a lifetime. Can be set-up as Red or Green money sources of income The 4% rule is questionable Should be used in combination with other Red & Green money sources Withdrawals should be coordinated with other assets and Social Security Use first in coordination with Social Security if possible Great for wealth accumulation One of the largest sources for income Sequence of returns in the market is key Income can be structured with guarantees Pre-59 ½ withdrawal penalties 72t rules and non-hardship withdrawals can eliminate 10% penalty Monies are taxed as ordinary income when distributed Can be withdrawn to create a Roth IRA (taxable event) Withdrawals after taxes can be deposited into a LIRP Must take RMDs at age 70 ½ Qualified Retirement Plans as a Pillar of Retirement Income

16 Qualified Retirement Plans as a Pillar of Retirement IncomeCan be structured with guarantees (IRA) Pre-59 ½ withdrawal penalties 72t rules and non-hardship withdrawals Monies are taxed as ordinary income Can be withdrawn to create a Roth IRA (taxable event) Withdrawals after taxes can be deposited into a LIRP Must take RMDs at age 70 ½ Qualified Retirement Plans as a Pillar of Income Obviously, qualified retirement plans are a major source of income in your golden years. Structured carefully with the help of a competent financial advisor, these funds should last a lifetime. Can be set-up as Red or Green money sources of income The 4% rule is questionable Should be used in combination with other Red & Green money sources Withdrawals should be coordinated with other assets and Social Security Use first in coordination with Social Security if possible Great for wealth accumulation One of the largest sources for income Sequence of returns in the market is key Income can be structured with guarantees Pre-59 ½ withdrawal penalties 72t rules and non-hardship withdrawals can eliminate 10% penalty Monies are taxed as ordinary income when distributed Can be withdrawn to create a Roth IRA (taxable event) Withdrawals after taxes can be deposited into a LIRP Must take RMDs at age 70 ½ Qualified Retirement Plans as a Pillar of Retirement Income

17 Personal Retirement AccountsQuestion: If you have a 401(k) plan or similar qualified plan, in what ways were you planning to use it for income? (Withdrawals or a guaranteed stream of income) Question: In what ways do you plan to lessen the tax burden of your pre-tax dollar plans? Question: Have you done a beneficiary review of your qualified plans? Personal Retirement Accounts

18 Pillar #2: Defined Benefit Plans: Corporate PensionsSix Pillars of Retirement Income

19 Defined Benefit Plans: CorporatePension Plans Company takes on risk & management Qualified or Non-Qualified Company guarantees benefit Definition of DBP The cornerstone of employer sponsored retirement plans for many years has been the Defined Benefit Plan, commonly referred to as a pension plan. The DBP is an employer sponsored retirement plan, but different than the DCP in that the employee benefits are figured out based on a company’s formula composed of salary history and length of employment. The investment risk is taken on by the company along with the management of the portfolio. There are usually restrictions on when and how you receive benefits without penalties. A defined benefit plan can be both qualified and non-qualified. Different from DCP, payouts don’t depend totally on the returns of the invested funds and the employers may have to dip into the company’s assets in the event of a funding shortfall. In a DBP the employer guarantees there employee will receive a specific benefit regardless of the performance of the underlying assets in the plan. Defined Benefit Plans: Corporate

20 Lump Sum or Annuity Annuity payments structured in various ways:Life only Joint life Period Certain & Life Period Certain Lump Sum or Annuity When you retire with a DBP in most cases you are given the option of either a lump sum payment or a monthly annuity payment. Generally, you can take one or the other. If you take the lump sum, it is generally a smaller amount than the total of all the payments you might otherwise receive. You might very well be able to take the lump sum and invest it in an asset that will give you the same or larger payments than if you had taken the payment option from the company. Once you take the lump sum your employer is totally off the hook for any more payments to fund your retirement. If you take the payment you will receive a type of guaranteed annuity payment. The annuity payments can be structured in various ways. The largest payment you might be offered is called a life only payment that guarantees you monthly payments until your death. You might choose a spousal continuation payment that gives a smaller amount to your wife upon your death. There are payments guaranteed for a certain number of years, like 20 or 30 years and then the rest of your life. In other words, if you were to die in the first years your beneficiaries would receive the balance of your year payments. If you were to die after the year period your beneficiaries would receive nothing. Many retirees research pension maximization plans which take the funds you receive and create more income than offered by your employer through creative usage of insurance assets. Lump Sum or Annuity

21 Disappearing PensionsFrom 1980 through 2008, the proportion of private wage and salary workers participating in DB pension plans fell from 38 percent to 20 percent Disappearing Pensions Disappearance of DBPs Defined benefit plans on the whole are disappearing as a staple of corporate America. The risk for funding employees’ retirements has been shifted away from the employee and put squarely on the backs of the employee. The Social Security website reports: “The percentage of workers covered by a traditional defined benefit (DB) pension plan that pays a lifetime annuity, often based on years of service and final salary, has been steadily declining over the past 25 years. From 1980 through 2008, the proportion of private wage and salary workers participating in DB pension plans fell from 38 percent to 20 percent (Bureau of Labor Statistics 2008; Department of Labor 2002). In contrast, the percentage of workers covered by a defined contribution (DC) pension plan—that is, an investment account established and often subsidized by employers, but owned and controlled by employees—has been increasing over time. From 1980 through 2008, the proportion of private wage and salary workers participating in only DC pension plans increased from 8 percent to 31 percent (Bureau of Labor Statistics 2008; Department of Labor 2002). More recently, many employers have frozen their DB plans (Government Accountability Office 2008; Munnell and others 2006). Some experts expect that most private-sector plans will be frozen in the next few years and eventually terminated (Aglira 2006; Gebhardtsbauer 2006; McKinsey & Company 2007).” (7) Government options for help Pension Benefit Guarantee Corporation is a U.S. government agency which helps protect 40 million Americans in more than 26,000 defined benefit pension plans. Created through the Employee Retirement Income Security Act of 1974, the PBGC is not funded by general tax revenues, but collects insurance premiums from employers that sponsor insured pension plans, earnings from investments, plus receives monies from pension plans it takes over. Their stated mission is to “encourage the continuation and maintenance of private-sector defined benefit pension plans, provide timely and uninterrupted payment of pension benefits, and keep pension insurance premiums at a minimum.” You can find out more about the Pension Benefit Guarantee Corporation by visiting It’s a great place to research potential pension benefits.

22 Failing Pensions & PBGCFirm and Year Terminated Total Claims Vested Participants Average Claim Per Person 1. United Airlines (2005) $7.4 billion 123,957 $60,033 2. Delphi (2009) $6.1 billion 69,042 $88,475 3. Bethlehem Steel (2003) $3.7 billion 91,312 $40,021 4. US Airways (2003) $2.8 billion 55,770 $49,337 5. LTV Steel (2002, 2003, 2004) $2.1 billion 83,094 $25,694 6. Delta Air Lines (2006) $1.6 billion 13,291 $123,473 7. National Steel (2003) $1.3 billion 33,737 $37,811 8. Pan American Air (1991, 1992) $0.8 billion 31,999 $26,285 9. Trans World Airlines (2001) $0.7 billion 32,263 $20,717 10. Weirton Steel (2004) $0.6 billion 9,410 $68,064 Top 10 Total $27 billion 543,875 $49,933 Failing Pensions As mentioned before, issues of financial solvency have made these plans questionable. CBS Money Watch on November 16, 2012 reports that the Pension Benefit Guarantee Corporation had the largest deficits in its 38 year history. Its deficits grew to $34 billion in the budget year from September 2011 to September 2012, as opposed to a $26 billion deficit the year before. They say that pensions obligations in America grew by $12 billion to $119 billion and assets to cover those obligations only grew by $4 billion to $85 billion. That’s the 10th straight year of deficits, which are due to failing corporations and bankruptcies. (8) Here’s a look at the 10 biggest pension failures ever turned over to the PBGC. Failing Pensions & PBGC

23 Corporate Defined Benefit Plans as a Pillar of IncomeGreen Money guaranteed income source Many corporations and government pensions are either being terminated, reduced or restructured Can be a lump sum or annuity payment Should be used in combination with other Red and Green money income sources Taxation depends on the qualified/non-qualified status of the plan Is calculated by a formula using your work and wage history Lump sum can be set-up as Red or Green money sources of income Corporate Defined Benefit Plans as a Pillar of Income As a pillar of retirement income the DBP is definitely showing some cracks and is not nearly what it used to be for retirees. DBP’s are a Green Money guaranteed income source Many corporations and government pensions are either being terminated, reduced or restructured Can be a lump sum or annuity payment Should be used in combination with other Red and Green money income sources Taxation depends on the qualified/non-qualified status of the plan Is calculated by a formula using your work and wage history Lump sum can be set-up as Red or Green money sources of income The 4% rule is questionable Withdrawals should be coordinated with other assets and Social Security Sequence of returns in the market is key Lump sums can fund guaranteed income streams Pre-59 ½ withdrawal penalties may apply Most monies are taxed as ordinary income when distributed After taxes, lump sums can be transferred to a Roth IRA After taxes, lump sums can be deposited into a LIRP Lump sums transferred to IRAs must take RMDs at age 70 ½ Corporate Defined Benefit Plans as a Pillar of Income

24 Corporate Defined Benefit Plans as a Pillar of IncomeThe 4% rule is questionable Withdrawals should be coordinated with other assets and Social Security Sequence of returns in the market is key Lump sums can fund guaranteed income streams Pre-59 ½ withdrawal penalties may apply Most monies are taxed as ordinary income when distributed After taxes, lump sums can be transferred to a Roth IRA After taxes, lump sums can be deposited into a LIRP Lump sums transferred to IRAs must take RMDs at age 70 ½ Corporate Defined Benefit Plans as a Pillar of Income As a pillar of retirement income the DBP is definitely showing some cracks and is not nearly what it used to be for retirees. DBP’s are a Green Money guaranteed income source Many corporations and government pensions are either being terminated, reduced or restructured Can be a lump sum or annuity payment Should be used in combination with other Red and Green money income sources Taxation depends on the qualified/non-qualified status of the plan Is calculated by a formula using your work and wage history Lump sum can be set-up as Red or Green money sources of income The 4% rule is questionable Withdrawals should be coordinated with other assets and Social Security Sequence of returns in the market is key Lump sums can fund guaranteed income streams Pre-59 ½ withdrawal penalties may apply Most monies are taxed as ordinary income when distributed After taxes, lump sums can be transferred to a Roth IRA After taxes, lump sums can be deposited into a LIRP Lump sums transferred to IRAs must take RMDs at age 70 ½ Corporate Defined Benefit Plans as a Pillar of Income

25 Defined Benefit Plans: CorporateQuestion: What percent of your retirement income does a pension represent? Question: Do you believe the government is doing enough to back pensions? Are they doing too much? Question: How did your parents set up their retirement income? Was it mainly funded by pension income? Defined Benefit Plans: Corporate

26 Pillar #3: Defined Benefit Plans: Personal PensionsSix Pillars of Retirement Income

27 Defined Benefit Plans: PersonalAnnuities Guaranteed Withdrawal Benefits Guaranteed Death Benefits Guaranteed Roll-up Rates MYGA/Fixed SPIA SPDA/FPDA VA/FIA Much like a corporate pension plan, annuities provide a pension-type payment geared for the long haul in retirement. Using these assets can help provide income from your retirement savings much the same way a company would provide a pension. The difference is, instead of your employer investing and managing your deposits, you work together with an insurance company to manage your growth. Then, when you need income, you turn on a pension-type monthly payment from your annuity contract. Annuities have a number of payment options which are often better than your employer would be able to offer. So, annuities are a sort of “personal pension plan” that gives you a wide range of investing options, from fixed principal guarantees, to growth and value type funds, to guaranteed withdrawal benefits, and even a straight annuity-pension type payment. Annuities Technically, an annuity is a contract with an insurance company for a payment either now or in the future. If you purchase an annuity payment that begins right away, it is called an “immediate annuity.” If you purchase a future payment, then the annuity is called a “deferred annuity” because and your premium is held on deposit with the insurance company. Gains in an annuity contract grow tax-deferred and are taxed as ordinary income upon withdrawal. You can purchase a Single Premium Deferred Annuity (SPDA) which is paid for with essentially one lump sum or a sum paid in over a year’s period of time. Or you can make payments over years into a Flexible Premium Deferred Annuity (FPDA). They call the deposits into an annuity “premiums” because you are purchasing a guaranteed payment. Technically, they are not deposits as in a Certificate of Deposit or an investment as in a stock or mutual fund. Annuities can be either Category B, Green Money assets, such as fixed or fixed indexed annuities, or they can be Category C, Red Money assets, such as variable annuities. Defined Benefit Plans: Personal

28 Long Term Retirement AssetsYearly Surrender Penalties for Early Withdrawal 1st Year 2nd Year 3rd Year 4th Year 5th Year 6th Year 7th Year 8th Year 8% 7% 6% 5% 4% 3% 2% 0% Annuities are long term retirement solutions and are moderately liquid at best. The annuity contract is great for planning income strategies, and not for short term savings goals. They usually have a number of years in that the money has penalties associated with early withdrawals. Most annuities allow the policy holder to withdraw 10% without penalties after the first year. For example if you purchased a 7 year contract, the benefits would last a life-time, but if you drew more than 10% out each year you would be penalized. The penalty usually declines in some manner over the course of the years as illustrated below. Yearly Surrender Penalties for Early Withdrawal 1st Year 2nd Year 3rd Year 4th Year 5th Year 6th Year 7th Year 8th Year 8 7 6 5 4 3 2 Let’s take a look at three different types of annuities: Variable annuities, Fixed Annuities and Fixed Indexed Annuities. Long Term Retirement Assets

29 Types of Deferred AnnuitiesVariable Annuity Fixed Annuity Fixed Indexed Annuity Variable Annuities Many have characterized variable annuities (VA) as a group of mutual funds wrapped in an insurance blanket. While the VA carries some guarantees from an insurance company, like a death benefit or even a guaranteed income benefit, the principal is at risk, so it is definitely a Red Money asset. A variable annuity puts the risk of the principal on the investor. In comparison a fixed annuity puts the risk of the protecting the principal on the insurance company. When purchasing a variable annuity, the insurance company deposits your premium into a separate account and offers you the option to choose from a variety of side accounts which are similar mutual funds. They are not technically mutual funds, yet are managed in much the same way as mutual funds outside the VA. For example, with in the structure of the VA you are offered portfolio options like American Funds, T. Rowe Price, Janus, Fidelity, ING, etc. Variable annuities offer a wide range of investing strategies to suit the risk tolerance like growth funds, value funds, emerging market funds, domestic funds, retirement target funds and bond funds. There are the normal management fees and internal fund expenses inside these funds along with other fees and expenses unique to variable annuities. These expenses range from 1.25% to 5% depending on the options you might choose, like an enhanced death benefit or income benefit. While variable annuities are a risk oriented asset, they are popular because they provide income and death benefit protections other Red risk assets can’t match. Fixed Annuities Protection of principal is the main characteristic of a fixed annuity, putting the risk for protecting the principal back on the insurance company. A fixed annuity is like a CD with an insurance company, though not protected by FDIC. They, along with VAs, are protected by each state’s guarantee association up to a certain limit. Check with your state insurance department to find the limits on this protection. Unlike a variable annuity, a fixed annuity guarantees principal and credits interest to your account, normally on an annual basis. In a traditional fixed annuity the insurance company issuing the annuity declares a rate it will credit for the year, much like a bank announces its interest rate on CD’s. It is compounded and tax-deferred. There is usually a “base rate” in the traditional fixed annuity that is carried throughout the contract years, though the company can go to its guaranteed rate at the anniversary dates of the policy. The traditional fixed annuity is often enhanced by a first year interest bonus. Similar to traditional fixed rate annuity is the multi-year guaranty annuities. These annuities fix an interest rate for the entire contract term. For example, you might have a 3 year contract that credits a guaranteed 3% rate interest each year. Fixed Indexed Annuities The uniqueness of a fixed indexed annuity (FIA) is found in how the insurance company determines the amount of interest to credit. An FIA’s interest rate is tied to an index such as the S&P If the index goes up, the owner of the annuity is credited with a portion of the increase in the index. The interest credited is protected and the gain can’t be lost as in a variable annuity. If the index goes down, both the principal and previous years credited interest is retained. The four year graph below illustrates how an FIA credits interest over a period of four years. There are several different modes available in FIAs to link interest credited to the performance of a market index. The crediting method illustrated below is known as “annual point-to-point.” The insurance company looks at the 12 month period between contract anniversary dates to determine the amount the market has increased. They set a cap on the gain at the beginning of the contract year and credit any gains in the market up to the cap. If the market loses ground for the year, the contract is credited with no interest, yet protects the previous year’s gains. There are many different crediting methods insurance companies use. Be sure to ask your advisor about the options available for your retirement plan. Notice at the bottom of the illustration there are some additional aspects of an FIA to be sure and cover with your agent. Each insurance company structures the annuities differently and there are many options to choose from. Types of Deferred Annuities

30 FIA’s: A Simple Four Year Graph10%+ 10%+ 5% 10% 5% 0% 5% cap This four year graph shows a simple, base-model chassis of an index annuity. Let’s say that the market goes up 10% in the first year. The annuity company will cap your earnings in some manner, so let’s say the cap is 4%. Now, if the market went down the next year 40%, how much would you lose? Zero! So, would you be upset if the market went down 40% an you got zero? Of course not. Zero is your hero. In fact the 4% stays in the account unless you pull money out. In the third year, if the market went up 4% and the cap was still 4%, the company would give you 4% compounded on top of the first year’s earnings. In the fourth year, if the market went up a whopping 15%, and the cap was still at 4%, you would throw in another 4%. Now you are up 12 plus percent because of compounding while the market isn’t even back to where it started in year one. Sounds too good to be true doesn’t it. So, let’s take a look at some negative aspects of the annuity. Once you deposit money in an annuity you will have limited liquidity, usually 10% a year of the account value, after the first year. The length of term can be anywhere from 3 to 16 years. You can choose a ladder of maturities that never go over 10 years or even less if you’d like. That’s why you develop liquidity in Columns A and C of the ABC Model. You need to find out about caps and other riders that can limit or enhance your earning power, which is something we discuss on an individual basis. Year One Year Two Year Three Year Four 5% -40% 15% Items to Consider: ___Surrender Duration ___Liquidity Options ___Caps ___Income Riders ___Crediting Methods ___Other

31 Guaranteed Withdrawal BenefitsGuaranteed Withdrawal Benefit (GWB) Example: Roll-Up Rate: 7% Bonus: 8% Premium: $250,000 Age at Issue: 57 Age Withdrawals Chosen: 67 Pay Out Rate: 5% Income Account Value: $531,131 Guaranteed Annual Withdrawal Benefit: $26,557 Planning for Income with an Indexed Annuity There are two ways receive money from an annuity. First, you can “annuitize” your contract and receive period payments, and much like a pension, there is no longer a cash value associated with the contract. The second way is by “withdrawing” funds from the contract. This allows the remaining cash value to grow by the chosen index crediting. The major difference is what happens to the cash value when you choose either of these two options. While the payments can be higher with annuitization, the flexibility of having your cash value remains only through the withdrawal structure. Guaranteed Withdrawal Benefits “Guaranteed Income Benefits” or “Guaranteed Withdrawal Benefits” offer the best of both worlds, the availability of your cash account to stay liquid and a guaranteed income stream. When using an “income rider” an insurance company has the ability to account for the money in your contract in different ways, at the same time. For example: Accumulation Value This is the current value of your annuity’s cash account, including any bonus and interest credits, less any withdrawals. Income Account Value This is the current value of your annuity’s income account including any bonus and interest credits, less any withdrawals. Note: there is no cash value here, it is used strictly to calculate future guaranteed withdrawals. A typical income rider has two elements, a guaranteed interest rate called a “roll-up rate” and a guaranteed withdrawal percentage, commonly referred to as a “payout rate.” It’s important to remember that there is no cash value in the income account, it is only used as a way to calculate the amount of your guaranteed withdrawal benefit. The roll-up rate is credited to the income account value for a specified number of years. You can then choose the year in which you begin to take advantage of the lifetime of guaranteed withdrawals based on your payout rate in that year. You will continue to receive your guaranteed withdrawals, even if the cash account value is completely depleted. Below is an example of how a guaranteed withdrawal benefit would work: Guaranteed Withdrawal Benefit (GWB) Example: Guaranteed Income Account Growth Rate (Roll-Up Rate): 7% Bonus: 8% Premium: $250,000 Age at Issue: 57 Age Withdrawals Chosen: 67 Guaranteed Withdrawal Percent (Pay Out Rate): 5% Income Account Value: $531,131 Guaranteed Annual Withdrawal Benefit: $26,557 As you can see, the guaranteed withdrawal benefit would payout $26,557 annually for life, no matter what happens to the accumulation value. The accumulation value would continue to earn interest credits attached to the indexes chosen. Assuming a 15% net tax rate, any other asset would have to return a little over 7.1% every year for life to match the income benefit in the personal pension plan. Guaranteed Withdrawal Benefits

32 Guaranteed Withdrawal BenefitsPlanning for Income with an Indexed Annuity There are two ways receive money from an annuity. First, you can “annuitize” your contract and receive period payments, and much like a pension, there is no longer a cash value associated with the contract. The second way is by “withdrawing” funds from the contract. This allows the remaining cash value to grow by the chosen index crediting. The major difference is what happens to the cash value when you choose either of these two options. While the payments can be higher with annuitization, the flexibility of having your cash value remains only through the withdrawal structure. Guaranteed Withdrawal Benefits “Guaranteed Income Benefits” or “Guaranteed Withdrawal Benefits” offer the best of both worlds, the availability of your cash account to stay liquid and a guaranteed income stream. When using an “income rider” an insurance company has the ability to account for the money in your contract in different ways, at the same time. For example: Accumulation Value This is the current value of your annuity’s cash account, including any bonus and interest credits, less any withdrawals. Income Account Value This is the current value of your annuity’s income account including any bonus and interest credits, less any withdrawals. Note: there is no cash value here, it is used strictly to calculate future guaranteed withdrawals. A typical income rider has two elements, a guaranteed interest rate called a “roll-up rate” and a guaranteed withdrawal percentage, commonly referred to as a “payout rate.” It’s important to remember that there is no cash value in the income account, it is only used as a way to calculate the amount of your guaranteed withdrawal benefit. The roll-up rate is credited to the income account value for a specified number of years. You can then choose the year in which you begin to take advantage of the lifetime of guaranteed withdrawals based on your payout rate in that year. You will continue to receive your guaranteed withdrawals, even if the cash account value is completely depleted. Below is an example of how a guaranteed withdrawal benefit would work: Guaranteed Withdrawal Benefit (GWB) Example: Guaranteed Income Account Growth Rate (Roll-Up Rate): 7% Bonus: 8% Premium: $250,000 Age at Issue: 57 Age Withdrawals Chosen: 67 Guaranteed Withdrawal Percent (Pay Out Rate): 5% Income Account Value: $531,131 Guaranteed Annual Withdrawal Benefit: $26,557 As you can see, the guaranteed withdrawal benefit would payout $26,557 annually for life, no matter what happens to the accumulation value. The accumulation value would continue to earn interest credits attached to the indexes chosen. Assuming a 15% net tax rate, any other asset would have to return a little over 7.1% every year for life to match the income benefit in the personal pension plan. Guaranteed Withdrawal Benefits

33 Personal Defined Benefit Plans as a Pillar of IncomeA Green Money guaranteed income source Can be set-up as an annuity payment or guaranteed withdrawal Should be used in combination with other Red and Green money income sources Taxation depends on the qualified/non-qualified status of the annuity Is calculated by a formula using your age, a roll-up rate, and a withdrawal rate The 4% rule does not apply Annuities as a Pillar of Income As a pillar of retirement income the DBP, personal pension in an annuity could be an extremely valuable part of every retiree’s income plan. The question you would want to ask is what part of your retirement income you would want guaranteed for life. That’s the amount you want in this particular pillar. Personal pension plan annuities are a Green Money guaranteed income source Can be set-up as an annuity payment or guaranteed withdrawal Should be used in combination with other Red and Green money income sources Taxation depends on the qualified/non-qualified status of the annuity Is calculated by a formula using your age, a roll-up rate, and a withdrawal rate The 4% rule should not apply here because the withdrawals or annuity payments can be guaranteed for life Withdrawals should be coordinated with other assets and Social Security “Sequence of market returns” is irrelevant because of the income guarantees Lump sums from other sources can be used to fund personal pension plans Pre-59 ½ withdrawal penalties apply Taxation is on a LIFO basis (Last In, First Out). Any gains are taxed as ordinary income when distributed After taxes, lump sums can be transferred to a Roth IRA personal pension plan Non-Qualified assets are tax-deferred in a personal pension plan Personal Defined Benefit Plans as a Pillar of Income

34 Personal Defined Benefit Plans as a Pillar of IncomeWithdrawals coordinated with other assets and Social Security “Sequence of market returns” is irrelevant because of the income guarantees Lump sums from other sources used to fund personal pension plans Pre-59 ½ withdrawal penalties apply Taxation is on a LIFO basis (Last In, First Out). Taxed as ordinary income After taxes, lump sums can be transferred to a Roth IRA personal pension plan Non-Qualified assets are tax-deferred in a personal pension plan Annuities as a Pillar of Income As a pillar of retirement income the DBP, personal pension in an annuity could be an extremely valuable part of every retiree’s income plan. The question you would want to ask is what part of your retirement income you would want guaranteed for life. That’s the amount you want in this particular pillar. Personal pension plan annuities are a Green Money guaranteed income source Can be set-up as an annuity payment or guaranteed withdrawal Should be used in combination with other Red and Green money income sources Taxation depends on the qualified/non-qualified status of the annuity Is calculated by a formula using your age, a roll-up rate, and a withdrawal rate The 4% rule should not apply here because the withdrawals or annuity payments can be guaranteed for life Withdrawals should be coordinated with other assets and Social Security “Sequence of market returns” is irrelevant because of the income guarantees Lump sums from other sources can be used to fund personal pension plans Pre-59 ½ withdrawal penalties apply Taxation is on a LIFO basis (Last In, First Out). Any gains are taxed as ordinary income when distributed After taxes, lump sums can be transferred to a Roth IRA personal pension plan Non-Qualified assets are tax-deferred in a personal pension plan Personal Defined Benefit Plans as a Pillar of Income

35 Defined Benefit Plans: PersonalQuestion: What percent of your retirement income would you want from Green Money sources? Question: What are the positives of using an annuity as an income stream? Question: What are the negatives of using an annuity as an income stream? Defined Benefit Plans: Personal

36 Pillar #4: After-Tax Retirement AccountsSix Pillars of Retirement Income

37 After-Tax Retirement AccountsNon-Qualified Assets Stocks Bonds REITS Mutual Funds ETFs Annuities Options Green & Red Money Non-Qualified Account The fourth pillar of retirement income comes from your non-qualified retirement savings accounts. These are non-qualified because you had already paid taxes on the monies originally invested in the accounts. They can be set-up in brokerage accounts, trust accounts, annuities, stock accounts, mutual funds, ETFs, REITS, etc. The monies that are set up in brokerage accounts, trust accounts and mutual fund accounts are generally subject each year to capital gains and income taxes depending on the types of assets which are held and the sale of those assets as they are managed. The monies that are set up in annuities are tax-deferred and will only be taxed when distributions are taken. The tax depends on how you receive a distribution from the annuity. If you simply withdraw money from your cash value in your annuity then it is taxed on a LIFO basis (Last In, First Out). LIFO means the interest is taxed first and then principal as it comes out of your annuity. If you use a method of annuitization, similar to the Defined Benefit Plan pension payment, then you will receive a tax-favored payout where only a portion of your payment is taxable each year. Generally, there are three ways income is derived from a stock, bond or mutual fund portfolio, dividends, capital gains or ordinary income. For the most part, bonds spin off interest income which is either tax-free through municipal bonds or taxable at ordinary income marginal rates. Stocks, mutual funds and other securities usually are taxed as capital gains or dividends. Non-Qualified Assets There are many different types of assets used in after-tax accounts. Many people planning for retirement income use stocks, especially preferred stocks, as a way to collect a steady stream dividend income. The challenge with individual stocks is the volatility of the asset rises and falls with the market, so your cash value invested changes over time. Bonds are a great source of income in retirement. Interest income is taxed at ordinary income tax rates, except for tax-free municipal bonds. Most people aren’t aware that bonds are a “red money” asset in which they can lose value if the underlying company or governing body goes into default. Also, bond values have an inverse relationship to interest rates. If rates rise, bond prices go down. Other assets commonly used in non-qualified accounts are mutual funds, ETFs, and REITs. Some trade options as a way of generating income in retirement. These are all “red money” assets. Many people are learning the value of non-qualified fixed and fixed indexed annuities, “green money” assets, as a way to generate a steady stream of income without risking principal. These assets are best known for their protection of principal. These annuities can offer guaranteed withdrawal benefits that enhance the income generated without risking principal. Annuities are to be used as long term assets for retirement purposes. Others have chosen variable annuities because of their upside potential in market value. Variable annuities also can have guaranteed withdrawal benefits and are thought of as long term retirement assets as well. They generally have fees associated with their death benefits, internal expenses, and guaranteed withdrawal benefits. Variable annuities are a “red money” asset because of the risk to an investor’s principal. After-Tax Retirement Accounts

38 Types of Income Dividend Income Capital Gains Income Ordinary IncomeWhen considering how to structure income and choosing assets it’s important to know how they are each taxed. There are three types of income: Dividend Income, Capital Gains Income and Ordinary Income Types of Income

39 “Unqualified” or OrdinaryOrdinary Income Tax Rate “Unqualified” or Ordinary Dividend Tax Rate Qualified Dividend Tax Rate 15% 0% 25% 28% 33% 35% 39.6% 20% Dividend Income Dividend income is income which comes from stocks or mutual funds that invest in stocks. Dividends represent a share of corporate profits, are usually paid out quarterly, and are taxed generally in one of two ways, both of which depend on how long you held the asset. First, "Qualified dividends" are taxed at long-term capital gains rates. Second, "unqualified dividends" are taxed at your ordinary income tax rates. Dividends are qualified if you have "held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date," according to the Internal Revenue Service publication 550. The table below shows the how your income tax rates and dividend tax rates relate to each other. For example, if your ordinary income tax rate is 33%, your unqualified/ordinary dividends will be taxed at the same rate. Yet, if you have qualified dividends they will be taxed at the 15% rate. Dividend Income Three Types of Income

40 Capital Gains Income Three Types of Income Tax Rates:Short-Term Capital Gains Held one year or less taxed at ordinary income tax rates. Tax Rate on Long-Term Capital Gains Assets held longer than one year taxed at a special long-term capital gains rate. The rate that applies depends on which ordinary income tax bracket you fall under. Capital Gains Income Stock Purchase Price $100/Share Stock Liquidation Price $300/Share Capital Gain $200/Share Zero percent rate if your total income (including capital gain income) places you in the ten or fifteen percent tax brackets. 20% rate if your total income (including capital gain income) places you in the twenty-five percent tax bracket or higher. Capital Gains Income Capital gains occur when a capital asset like a stock, mutual fund or ETF is sold for more than its purchase price. They are often taxed at a lower rate and under current law most long-term gains are taxed no higher than 20%. A capital loss occurs when the underlying asset is sold for less than its purchase price. The rules are complicated and make it difficult for most people to estimate their tax liability. Tax Rate on Short-Term Capital Gains Capital gain income from assets held one year or less is taxed at the ordinary income tax rates in effect for the year, ranging from 10% to 39.6%. Tax Rate on Long-Term Capital Gains Capital gain income from assets held longer than one year are generally taxed at a special long-term capital gains rate. The rate that applies depends on which ordinary income tax bracket you fall under. Zero percent rate if your total income (including capital gain income) places you in the ten or fifteen percent tax brackets. 20% rate if your total income (including capital gain income) places you in the twenty-five percent tax bracket or higher. Capital Gains Income Three Types of Income

41 Ordinary Income from AnnuityTaxable Amount as Withdrawn Last In First Out Amount of Increase Non-Taxable Amount as Withdrawn First In Last Out After-Tax Deposit in Annuity Ordinary Income from Annuity Income from Annuities Monies that are deposited in annuities are taxed in two different ways. If the payment you receive is a withdrawal from a deferred annuity’s cash value account it is taxed under the LIFO (Last In, First Out) rule. The interest is accounted for first and then the principal. For example if you deposited $100,000 in an annuity and gained $10,000 or interest, then a withdrawal of $10,000 would be all taxable. However, a withdrawal of $15,000 would contain $10,000 of interest and $5,000 of principal and you would only pay tax on the $10,000. If you are taking payments through one of the annuitization options in your contract, then the payment’s interest and principal are spread out through the life of the payments. Essentially, each payment would contain a taxable amount of interest and a non-taxable amount of principal. Three Types of Income

42 After-Tax Retirement Accounts as a Pillar of IncomeRed or Green money sources of income The 4% rule is questionable Used in combination with other Red & Green money sources Use in coordination with Social Security Great for wealth accumulation One of the largest sources for income After-Tax Retirement Accounts as a Pillar of Income As a pillar of retirement income the After-Tax Retirement Accounts are probably the second biggest resource for a retirement income stream: Can be set-up as Red or Green money sources of income The 4% rule is questionable Should be used in combination with other Red & Green money sources Use last in coordination with Social Security if possible Great for wealth accumulation One of the largest sources for income Sequence of returns in the market is key, unless set-up in a personal pension plan Income can be structured with guarantees No pre-59 ½ withdrawal penalties Taxation is on capital gains, interest, and dividends as they occur or withdrawn from annuity Withdrawals after taxes can be deposited into a LIRP No RMDs at age 70 ½ After-Tax Retirement Accounts as a Pillar of Income

43 After-Tax Retirement Accounts as a Pillar of IncomeSequence of returns is key, unless set-up in a personal pension plan Income can be structured with guarantees Pre-59 ½ withdrawal penalties may or may not apply Taxation is on capital gains, interest, and dividends as they occur or withdrawn from annuity Withdrawals after taxes can be deposited into a LIRP No RMDs at age 70 ½ After-Tax Retirement Accounts as a Pillar of Income As a pillar of retirement income the After-Tax Retirement Accounts are probably the second biggest resource for a retirement income stream: Can be set-up as Red or Green money sources of income The 4% rule is questionable Should be used in combination with other Red & Green money sources Use last in coordination with Social Security if possible Great for wealth accumulation One of the largest sources for income Sequence of returns in the market is key, unless set-up in a personal pension plan Income can be structured with guarantees Pre-59 ½ withdrawal penalties may or may not apply Taxation is on capital gains, interest, and dividends as they occur or withdrawn from annuity Withdrawals after taxes can be deposited into a LIRP No RMDs at age 70 ½ After-Tax Retirement Accounts as a Pillar of Income

44 After-Tax Retirement AccountsQuestion: How important is controlling taxation on your after-tax accounts? After-Tax Retirement Accounts

45 Pillar #5: Tax-Free AccountsSix Pillars of Retirement Income

46 Tax-Free Accounts Muni Bonds Roth IRAs LIRPs Stocks Bonds REITSMutual Funds ETFs Annuities Options Green & Red Money LIRPs Tax Free accounts like Muni bonds or Roth IRAs, which can be invested in various assets, and Life Insurance Retirement Plans can be effective in holding off the tax burden while in retirement. Tax-Free Accounts

47 A state, municipality or county issues Municipal Bonds, to fund capital expenditures.They are exempt from federal taxes and if you live in the state where your bond is issued, from state and local taxes as well. Governing bodies issue muni-bonds to fund the construction of highways, bridges, schools and other public works. People with high income tax brackets seeking ways to limit taxation on investments. Income from municipal bonds is included in the calculation for taxation of Social Security benefits. Only as secure as the governing body that issues them. Muni-Bonds A state, municipality or county issues Municipal Bonds, to fund capital expenditures. Also known as “muni-bonds” or “munis” they are exempt from federal taxes and if you live in the state where your bond is issued, from state and local taxes as well. Governing bodies issue muni-bonds to fund the construction of highways, bridges, schools and other public works. People with high income tax brackets seeking ways to limit taxation on investments choose these potentially tax-free holdings. The income from municipal bonds is included in the calculation for taxation of Social Security benefits. They are also only as secure as the governing body that issues them. The Wall Street Journal in an article date March 2, 2011 reports, “A consulting firm founded by economist Nouriel Roubini said there could be close to $100 billion of municipal-bond defaults over the next five years as state and local government-debt problems damp the U.S. economic recovery.” (9) Municipal Bonds

48 Contributory 2015: For married couples, filing jointly who make less than $183,000 a year, you can contribute after-tax dollars to a Roth IRA up to $5,500 if you’re under age 50 and $6,500 if you’re over age 50. You can contribute a reduced amount up if you make between $183,000 and $193,000. If you make over $193,000 you cannot contribute to a Roth IRA. For singles that make less than $116,000 a year, you can contribute after-tax dollars to a Roth IRA up to $5,500 if you’re under age 50 and $6,500 if you’re over age 50. You can contribute a reduced amount up if you make between $116,000 and $131,000. If you make over $131,000 you cannot contribute to a Roth IRA. Roth IRA The Roth IRA can be a very useful tool in managing your tax bills during retirement. Monies deposited in a Roth IRA are tax-free once the account has passed it’s “non-exclusion” period of 5 years. You can withdraw money prior to the end of five years on a FIFO (First In, First Out) basis. That means your principal is accounted for first and you won’t get any tax-free earnings on that portion. Whatever monies you leave in a Roth after the 5-year period is all tax-free. Tax-free to you and your heirs! (10) The Roth beginning date for any Roth contributions during any given year always go back to January 1st of the year the deposit was made. For example, if you deposited money in September, the IRS would look back to January 1st of that year to start “non-exclusion” period of 5 years ticking. You could then take tax-free withdrawals at the end of the 5-year period. Contributory: For married couples, filing jointly who make less than $183,000 a year, you can contribute after-tax dollars to a Roth IRA up to $5,500 if you’re under age 50 and $6,500 if you’re over age 50. You can contribute a reduced amount up if you make between $183,000 and $193,000. If you make over $188,000 you cannot contribute to a Roth IRA. For singles that make less than $116,000 a year, you can contribute after-tax dollars to a Roth IRA up to $5,500 if you’re under age 50 and $6,500 if you’re over age 50. You can contribute a reduced amount up if you make between $116,000 and $131,000. If you make over $131,000 you cannot contribute to a Roth IRA. Conversions: There are no income limits on converting qualified monies to Roth IRAs. The IRS code allows you to convert your traditional IRA to a Roth IRA by: Rollover – If within 60 days you contribute a distribution paid in your name from your traditional IRA to a Roth IRA. Trustee-to-trustee transfer – If you have the trustee of institution whose holding your traditional IRA transfer your monies directly to the trustee of the new institution setting up your new Roth IRA. Same trustee transfer – If your traditional and Roth IRAs are held at the same institution you simply ask the trustee to transfer the amount you want in the Roth IRA from the traditional IRA. Note: A conversion to a Roth IRA results in taxation of any untaxed amounts in the traditional IRA. (11) Illustration: As an example, let’s use a married couple who are both age 62. Their AGI is $90,000 and their net tax rate is about 16%. So, any distributions on an IRA would currently be taxed at a net of about 16%. The wife has a $60,000 IRA in which her financial advisor suggests she converts to a Roth IRA. In doing so, their net tax rate would increase to 20% and the tax on the IRA would be around $12,000. Estimating a 5% growth rate on both the IRA and the Roth IRA, in the sixth year, the Roth cash value is estimated at $80,405 that is all tax-free. If she took 4% withdrawals from this account she would receive $3,216 per year, tax-free. If she had left the monies growing taxable in her IRA she would have the same cash value, yet it would all be taxable. She could receive the same annual payments, but after taxes it would only be $2,702, assuming tax rates hadn’t increased. They could liquidate the IRA and realize a $16,885 tax, much more than the taxes paid at the creation of the Roth IRA. The tax could be much greater if the rates went up. Illustration using an annuity: As an example, let’s use a married couple who are both age 62. Their AGI is $90,000 and their net tax rate is about 16%. So, any distributions on an IRA would currently be taxed at a net of about 16%. If the wife has a $60,000 IRA in which her financial advisor suggests she converts to a Roth IRA using a fixed indexed annuity with a Guaranteed Withdrawal Benefit (GWB) and a bonus of 8% on the premium and the income account. The Income Account is a non-cash account used to calculate the amount of guaranteed withdrawals at any age. The Income Account (LIBR) growth percent is 6.5% and we estimate the index credits growing at a 4% rate for the Cash Account Value. The results are very interesting and illustrated on the next page. In the sixth year, the Roth cash value is estimated at $86,838 that is all tax-free. With the GWB the income payments at 5% for would generate $4,727 of tax-free annual income. If she had left the monies growing taxable in her IRA she would have an after tax value of $69,148 which would spin after tax income at 5% of about $3,457. That is nearly a 37% increase in spendable income in retirement. Roth IRAs

49 Conversions: There are no income limits on converting qualified monies to Roth IRAs.Rollover – 60 day rule. Trustee-to-trustee transfer – The trustee of the institution whose holding your traditional IRA transfers your money directly to the trustee of the new Roth IRA institution. Same trustee transfer – If your traditional and Roth IRAs are held at the same institution you simply ask the trustee to transfer the amount you want in the Roth IRA from the traditional IRA. Note: A conversion to a Roth IRA results in taxation of any untaxed amounts in the traditional IRA. (11) Roth IRA The Roth IRA can be a very useful tool in managing your tax bills during retirement. Monies deposited in a Roth IRA are tax-free once the account has passed it’s “non-exclusion” period of 5 years. You can withdraw money prior to the end of five years on a FIFO (First In, First Out) basis. That means your principal is accounted for first and you won’t get any tax-free earnings on that portion. Whatever monies you leave in a Roth after the 5-year period is all tax-free. Tax-free to you and your heirs! (10) The Roth beginning date for any Roth contributions during any given year always go back to January 1st of the year the deposit was made. For example, if you deposited money in September, the IRS would look back to January 1st of that year to start “non-exclusion” period of 5 years ticking. You could then take tax-free withdrawals at the end of the 5-year period. Contributory: For married couples, filing jointly who make less than $178,000 a year, you can contribute after-tax dollars to a Roth IRA up to $5,500 if you’re under age 50 and $6,500 if you’re over age 50. You can contribute a reduced amount up if you make between $178,000 and $188,000. If you make over $188,000 you cannot contribute to a Roth IRA. For singles that make less than $112,000 a year, you can contribute after-tax dollars to a Roth IRA up to $5,500 if you’re under age 50 and $6,500 if you’re over age 50. You can contribute a reduced amount up if you make between $112,000 and $127,000. If you make over $127,000 you cannot contribute to a Roth IRA. Conversions: There are no income limits on converting qualified monies to Roth IRAs. The IRS code allows you to convert your traditional IRA to a Roth IRA by: Rollover – If within 60 days you contribute a distribution paid in your name from your traditional IRA to a Roth IRA. Trustee-to-trustee transfer – If you have the trustee of institution whose holding your traditional IRA transfer your monies directly to the trustee of the new institution setting up your new Roth IRA. Same trustee transfer – If your traditional and Roth IRAs are held at the same institution you simply ask the trustee to transfer the amount you want in the Roth IRA from the traditional IRA. Note: A conversion to a Roth IRA results in taxation of any untaxed amounts in the traditional IRA. (11) Illustration: As an example, let’s use a married couple who are both age 62. Their AGI is $90,000 and their net tax rate is about 16%. So, any distributions on an IRA would currently be taxed at a net of about 16%. The wife has a $60,000 IRA in which her financial advisor suggests she converts to a Roth IRA. In doing so, their net tax rate would increase to 20% and the tax on the IRA would be around $12,000. Estimating a 5% growth rate on both the IRA and the Roth IRA, in the sixth year, the Roth cash value is estimated at $80,405 that is all tax-free. If she took 4% withdrawals from this account she would receive $3,216 per year, tax-free. If she had left the monies growing taxable in her IRA she would have the same cash value, yet it would all be taxable. She could receive the same annual payments, but after taxes it would only be $2,702, assuming tax rates hadn’t increased. They could liquidate the IRA and realize a $16,885 tax, much more than the taxes paid at the creation of the Roth IRA. The tax could be much greater if the rates went up. Illustration using an annuity: As an example, let’s use a married couple who are both age 62. Their AGI is $90,000 and their net tax rate is about 16%. So, any distributions on an IRA would currently be taxed at a net of about 16%. If the wife has a $60,000 IRA in which her financial advisor suggests she converts to a Roth IRA using a fixed indexed annuity with a Guaranteed Withdrawal Benefit (GWB) and a bonus of 8% on the premium and the income account. The Income Account is a non-cash account used to calculate the amount of guaranteed withdrawals at any age. The Income Account (LIBR) growth percent is 6.5% and we estimate the index credits growing at a 4% rate for the Cash Account Value. The results are very interesting and illustrated on the next page. In the sixth year, the Roth cash value is estimated at $86,838 that is all tax-free. With the GWB the income payments at 5% for would generate $4,727 of tax-free annual income. If she had left the monies growing taxable in her IRA she would have an after tax value of $69,148 which would spin after tax income at 5% of about $3,457. That is nearly a 37% increase in spendable income in retirement. Roth IRAs

50 Roth IRAs – Conversion IllustrationIllustration: As an example, let’s use a married couple who are both age 62. Their AGI is $90,000 and their net tax rate is about 16%. So, any distributions on an IRA would currently be taxed at a net of about 16%. The wife has a $60,000 IRA in which her financial advisor suggests she converts to a Roth IRA. In doing so, their net tax rate would increase to 20% and the tax on the IRA would be around $12,000. Estimating a 5% growth rate on both the IRA and the Roth IRA, in the sixth year, the Roth cash value is estimated at $80,405 that is all tax-free. If she took 4% withdrawals from this account she would receive $3,216 per year, tax-free. If she had left the monies growing taxable in her IRA she would have the same cash value, yet it would all be taxable. She could receive the same annual payments, but after taxes it would only be $2,702, assuming tax rates hadn’t increased. They could liquidate the IRA and realize a $16,885 tax, much more than the taxes paid at the creation of the Roth IRA. The tax could be much greater if the rates went up. Illustration using an annuity: As an example, let’s use a married couple who are both age 62. Their AGI is $90,000 and their net tax rate is about 16%. So, any distributions on an IRA would currently be taxed at a net of about 16%. If the wife has a $60,000 IRA in which her financial advisor suggests she converts to a Roth IRA using a fixed indexed annuity with a Guaranteed Withdrawal Benefit (GWB) and a bonus of 8% on the premium and the income account. The Income Account is a non-cash account used to calculate the amount of guaranteed withdrawals at any age. The Income Account (LIBR) growth percent is 6.5% and we estimate the index credits growing at a 4% rate for the Cash Account Value. The results are very interesting and illustrated on the next page. In the sixth year, the Roth cash value is estimated at $86,838 that is all tax-free. With the GWB the income payments at 5% for would generate $4,727 of tax-free annual income. If she had left the monies growing taxable in her IRA she would have an after tax value of $69,148 which would spin after tax income at 5% of about $3,457. That is nearly a 37% increase in spendable income in retirement. Roth IRAs – Conversion Illustration

51 Life Insurance Retirement Plans (LIRP)In his blog on July 7th, 2013, titled “What’s a LIRP and Why You Should Own One,” Ike Ikokwu of the Huffington Post says, “Some of the many uses of a LIRP include: Creating a self-completing retirement plan. Providing supplemental retirement income for corporate executives and every day employees. Avoiding the threat of higher income taxes in the future..."The Real Fiscal Cliff". Addressing estate tax issues at death and paying off debts. Guaranteeing what you want to happen financially in life will happen, whether or not you are here to see it happen. Life Insurance Retirement Plans (LIRP) Growing in recent popularity are Life Insurance Retirement Plans where monies are deposited in a life insurance product, with the interest linked to indexes in the market. The funds grow tax-deferred and are pulled out via a zero-net cost loan structure. These plans offer the benefits of being able to withdraw income prior to age 59 ½, with no limit on deposits into the plan unlike qualified pre-tax dollar retirement plans. Monies used for these plans are after-tax dollars, which can turn into a stream of tax-free income. The income in the form of a loan, if not paid back, is taken from the death benefit heirs will receive. The death benefit is tax-free in most instances. In his blog on July 7th, 2013, titled “What’s a LIRP and Why You Should Own One,” Ike Ikokwu of the Huffington Post says, “Some of the many uses of a LIRP include: Creating a self-completing retirement plan. Providing supplemental retirement income for corporate executives and every day employees. Avoiding the threat of higher income taxes in the future..."The Real Fiscal Cliff". Addressing estate tax issues at death and paying off debts. Guaranteeing what you want to happen financially in life will happen, whether or not you are here to see it happen. Becoming your own bank and making more efficient purchasing decisions. Providing access to funds that may be earmarked for retirement purposes. Having multiple investments uses on the same investment dollar. Paying for college education without being disqualified from financial aid. Addressing long-term care needs later in life. Creating a tax-free income stream at retirement.”(12) The LIRP can be an effective tax-free retirement strategy, but must be set up correctly by an experienced financial planner familiar with life insurance solutions. Life Insurance Retirement Plans (LIRP)

52 Life Insurance Retirement Plans (LIRP)Becoming your own bank and making more efficient purchasing decisions. Providing access to funds that may be earmarked for retirement purposes. Having multiple investments uses on the same investment dollar. Paying for college education without being disqualified from financial aid. Addressing long-term care needs later in life. Creating a tax-free income stream at retirement.” Life Insurance Retirement Plans (LIRP) Growing in recent popularity are Life Insurance Retirement Plans where monies are deposited in a life insurance product, with the interest linked to indexes in the market. The funds grow tax-deferred and are pulled out via a zero-net cost loan structure. These plans offer the benefits of being able to withdraw income prior to age 59 ½, with no limit on deposits into the plan unlike qualified pre-tax dollar retirement plans. Monies used for these plans are after-tax dollars, which can turn into a stream of tax-free income. The income in the form of a loan, if not paid back, is taken from the death benefit heirs will receive. The death benefit is tax-free in most instances. In his blog on July 7th, 2013, titled “What’s a LIRP and Why You Should Own One,” Ike Ikokwu of the Huffington Post says, “Some of the many uses of a LIRP include: Creating a self-completing retirement plan. Providing supplemental retirement income for corporate executives and every day employees. Avoiding the threat of higher income taxes in the future..."The Real Fiscal Cliff". Addressing estate tax issues at death and paying off debts. Guaranteeing what you want to happen financially in life will happen, whether or not you are here to see it happen. Becoming your own bank and making more efficient purchasing decisions. Providing access to funds that may be earmarked for retirement purposes. Having multiple investments uses on the same investment dollar. Paying for college education without being disqualified from financial aid. Addressing long-term care needs later in life. Creating a tax-free income stream at retirement.”(12) The LIRP can be an effective tax-free retirement strategy, but must be set up correctly by an experienced financial planner familiar with life insurance solutions. Life Insurance Retirement Plans (LIRP)

53 Tax-Free Accounts as a Pillar of IncomeRed or Green money sources of income The 4% rule is questionable Should be used in combination with other Red & Green money sources LIRPs can be used to limit taxation on Social Security Great for wealth accumulation Source of tax-free income stream Tax-Free Account as a Pillar of Retirement Income Obviously, tax-fee accounts are incredibly useful in planning your retirement income. If the accounts are set up correctly, they can help manage the tax liabilities in your plan both now and in the future. Can be set-up as Red or Green money sources of income The 4% rule is questionable Should be used in combination with other Red & Green money sources LIRPs can be used to limit taxation on Social Security Great for wealth accumulation Source of tax-free income stream Withdrawals should be coordinated with other assets and Social Security Sequence of returns in the market is key Income can be structured with guarantees Pre-59 ½ withdrawal penalties No RMDs at age 70 ½ Tax-Free Accounts as a Pillar of Income

54 Tax-Free Accounts as a Pillar of IncomeWithdrawals should be coordinated with other assets and Social Security Sequence of returns in the market is key Income can be structured with guarantees Pre-59 ½ withdrawal penalties No RMDs at age 70 ½ Tax-Free Account as a Pillar of Retirement Income Obviously, tax-fee accounts are incredibly useful in planning your retirement income. If the accounts are set up correctly, they can help manage the tax liabilities in your plan both now and in the future. Can be set-up as Red or Green money sources of income The 4% rule is questionable Should be used in combination with other Red & Green money sources LIRPs can be used to limit taxation on Social Security Great for wealth accumulation Source of tax-free income stream Withdrawals should be coordinated with other assets and Social Security Sequence of returns in the market is key Income can be structured with guarantees Pre-59 ½ withdrawal penalties No RMDs at age 70 ½ Tax-Free Accounts as a Pillar of Income

55 Question: If you believe taxes are going up, would you consider tax-free options for your retirement income to help lessen the tax burden? Question: In what ways would converting some of your pre-tax dollar plans help you in retirement? Question: What are some of the concerns you have about municipal bonds? Question: What are some of the concerns you have about Roth IRAs?  Question: What are some of the concerns you have about a LIRP? Tax-Free Accounts

56 Pillar #6: Social SecuritySix Pillars of Retirement Income

57 Do you know how all your assets fit together with your entitlements to create the income you need to fund your quality of life in retirement? Next week we’ll be spending all of our class time answering this question: “Do you know how all your assets fit together with your entitlements to create the income you need to fund your quality of life in retirement?”

58 Maximizing Social Security BenefitsWe’ll take a hard look at Social Security and answer the question, when should you take your benefits and what are some of the strategies to maximize those benefits.

59 Putting It All TogetherSix Pillars of Retirement Income

60 Putting It All TogetherHow do all your assets fit together to with entitlements to fund the quality of life you want in retirement? Let’s put it all together. Read the question on the slide. Putting It All Together

61 Putting It All TogetherSample: Male 60 Female 60 $50k in Savings $50k in CD $10k in Checking $75k in NQ at Vanguard $125k VA w/ Prudential $85k IRA Mrs. w/ Vanguard $200k 401k Mrs. $500k 401k Mr. $1,195,000 Total Assets Read the client stats. Putting It All Together

62 They desire an ABC Allocation of 10/60/30Sample: Mr. & Mrs. Sample want to have a before tax income of $132k/yr. starting at age 66. They desire an ABC Allocation of 10/60/30 Putting It All Together

63 Mrs. Deposits $3k/yr. into 401k Mr. wants to semi-retire at age 66 Sample: Mr. earns $180k/yr. Mrs. Earns $36k/yr. Mr. deposits $18/yr. into 401k Mrs. Deposits $3k/yr. into 401k Mr. wants to semi-retire at age 66 Mrs. wants to fully retire at age 66 Mrs. Will receive $1,000/mo. pension at age 66 w/ 3% inflation and 50% survivor benefit for husband. Putting It All Together

64 Mr. will file and suspend at FRA 66. Sample: Mr. will file and suspend at FRA 66. Mr. will cut back to half-time earning $90k a year at age 66. Mr. files and suspends for Social Security receiving $4,572/mo. at age 70 when he fully retires. Mrs. Files for benefits at age FRA 66 and receives $1,510/mo. which is 50% of Mr.’s benefit Putting It All Together

65 Putting It All TogetherUsing a combination of deferred withdrawals from savings, withdrawals from their Red money accounts, tow personal pension plans, one corporate pension, and social security (with a file and suspend strategy), they reach their goal of durable retirement income. You should use the print out as a handout in the class and run through the options. This is only one option, and can be enhanced with tax free strategies like a Roth Carveout and a LIRP. Putting It All Together

66 Putting It All Together

67 Six Tips for a Financially Successful RetirementSection Four

68 #1: Create a Retirement BudgetSix Tips for a Financially Successful Retirement

69 Create a Retirement BudgetA retirement budget can: Help you find out how much you’re spending now compared to how much you will be or want to be spending in retirement. Assist you in avoiding unrealistic expectations. Keep you from blindly spending in excess. Save you from making bad financial commitments. Create a Retirement Budget A retirement budget can: Help you find out how much you’re spending now compared to how much you will be or want to be spending in retirement. Assist you in avoiding unrealistic expectations. Keep you from blindly spending in excess. Save you from making bad financial commitments. Remember all those expectations we talked about in the Standard of Living section. The acknowledgement of retirement expectations changes the game of planning. You must account for those changes, whether it’s shopping at the fashion mall every Friday afternoon or going out to eat on Wednesday nights. You love doing those things, so let’s try planning ahead, setting aside the money every month for leisure, but don’t forget the essentials. In your new retirement home (a good investment in the long-run) requires utilities, internet and cable, water, and sewage. Hopefully you won’t be paying any mortgage or rent payments. If you want the extended guide for budgeting, we’ve included a form in the appendixes for your use. You can find more budgeting sheets and even create your own in Microsoft Excel. Budgeting is that important! Just like you budgeted in your youth (I know, it’s a big assumption), maintaining a budget in your retirement ushers in a life with less anxiety. Beware the pitfalls that come with budgeting. Already having a budget is great, but the plan is only good if you stick to it. We have all had those days and months where we hit a snag in paychecks or a car breaks down, but staying on task and on budget is more important in retirement. So, if you get off budget, limit the damage by getting back to the basics as soon as possible. A major pitfall, worse than hitting speed bumps, is an unrealistic expectation. While it’s okay to have expectations for a comfortable retirement, sometimes our ability to fund them lack perspective. If you’re churning out high income through your retirement benefits and investments, but you’re living with high cost auto leases, a mortgage on your house, and a couple well pampered guard dogs, your money can disappear like a bad magic trick in a three ring circus. It will probably run out long before you planned, then it’s back to credit cards and home equity loans. It’s an illusion to think that just because you have a great stock portfolio or a handsome benefits package from your old company that you will be exempt from emergencies and long term Bear markets. Investing is still taking on risk, and there are no “do-overs” in retirement. As you age and your health starts to that downhill slope, your bills pile up faster and those expectations of long years sipping exotic drinks in warm climates turn out to be mirages. Reducing your debt before your retirement, and eliminating it for good, will unclog the blockage on your cash flow. More of your money will go to your retirement spending rather than the debt acquired before you’re finally out of the work force. To get the best start that you can, make sure your pre-retirement plan includes the elimination of as much debt as possible, along with a well-rounded investment and income portfolio. Lastly, take care of yourself before you retire. You are the best asset you have in retirement and want to enjoy it as long as possible. Start to develop a healthy diet and exercise program that can take you well into retirement. As mentioned before, healthcare can cost you not only in rising medical bills, but in the quality of your days spent in retirement. While you may not be the type who’s looking forward to those days on the beach sipping something with an umbrella in it, you probably don’t want to be worrying about mounting medical bills either. Question: Have you created a retirement budget? Question: What items in a budget are the most difficult for you to predict? Question: What item in a budget are the most difficult for you to stick to? Exercise: Use the retirement budget in the Appendix to create a retirement budget. Create a Retirement Budget

70 #2: Compare Insurance AlternativesSix Tips for a Financially Successful Retirement

71 Compare Insurance AlternativesPolicies to Review: Health Long Term Care Life Car Homeowners Umbrella Compare Insurance Alternatives One way to save money in retirement and make your dollars last longer and be more available for the fun things you want to do is making sure you are paying good prices for insurance needs. Performing a simple insurance review can save you hundreds, if not thousands of dollars each year. If you could spend less on insurance, you’ll have more to spend on the kinds of things you want to do in retirement, like sky-diving with George H. W. Bush! (Just kidding) Be sure to review the following: Health Insurance: It’s important to make sure that you have a well-priced Medicare Supplement each year. That’s right, each year. Supplement prices can increase dramatically from year to year with your insurer’s claims experience. You can often stay with the same coverage and get a lower price with a different carrier. Be sure you get a good service carrier with a supplement, too. Check these rates yearly. Long Term Care Insurance: The secret here is to buy this early or use some of the new life insurance alternatives to meet this need. The older you get and the more health issues you have will drive up the costs of Long Term Care policies or make you unable to qualify. So, checking into this early will help keep prices down significantly. Also, insurance carriers have been very creative by coupling life insurance benefits with long term care benefits, which helps to keep costs down as well. Imagine using some of the assets you don’t need to create income with and instead placing them in a cash value life insurance plan that allows the death benefit to be used for nursing or home health care. If you need the nursing benefit it’s there and often in multiples of the death benefit. If you need cash you can take it out tax-free through the loan structure. If you die, excuse me, when you die, your heirs receive tax-free dollars to pay taxes on any residual income plans you’ve passed on to them like IRA’s or 401(k)s. Just remember to check this option out early. Life Insurance: This is a simple one to have your planner do an analysis on some of your old life insurance policies to see if the new mortality rates will bring the costs down and drive the benefits up. Depending on your estate needs, you may want to pay for estate taxes for pennies on the dollar with a last-to-die life insurance policy. Make sure its set up right from the beginning by going to a qualified estate planning advisor. Again, the sooner you do the life insurance review the better. The older you get, the costs go up and you may find you can’t qualify because of pre-existing conditions you don’t have right now. Car Insurance, Homeowners, & Umbrella Policies: This is very easily done online each year. Allstate, GEICO, Esurance, Progressive, State Farm, Farmers and others, all have online quoting systems. You can save hundreds to thousands of dollars a year on these insurance policies by shopping around. Again, be sure you pick a strong company with good service. The Umbrella liability coverage may be a financial life saver. It can cover gaps in your homeowners and auto insurance, potentially saving you from financial ruin. All of these policies are useful tools to ensure a financially safe retirement. Everyone hates paying premiums, but they love the coverage when the unexpected happens. Protecting yourself from the unexpected in retirement is smart money. Question: In what ways would an insurance review help you save money? Question: What is your plan for long term care expenses? Compare Insurance Alternatives

72 #3: Learn How You Make Financial DecisionsSix Tips for a Financially Successful Retirement

73 Learn How You Make Financial DecisionsInvesting Temperaments Logic Emotions Beliefs Take Your Time Process, Process, Process What Investing Temperament Color are you (Black vs. Red) Doing personality tests may sound like a waste of your time right? If you haven’t figured out what kind of person you are by now, oh boy. It’s important to remind yourself that you change over time, and that your experiences in life will impact your personality and decisions. Maybe taking on a lot of risk is more tempting than sitting in your favorite chair all day safe and sound with your laptop or iPad checking in on your portfolio. Who you are today will be different than the person you might be tomorrow or in the past, even heading into retirement. Realizing the change and adjusting your budget and retirement plans to adapt to your expectations as well as your personality will lessen anxiety and bring more comfort to your lifestyle. If you’re a Black Temperament analytical, someone who constantly pours over the details and wants to know everything with a healthy fear of what could go wrong in retirement, you will feel more comfortable in the B column of your ABC Plan. The B Column or Green money is a protected money strategy, which brings comfort to anxious analytical. They can live in the tight budget that confines them and which is how they want it to be. Red Temperament sanguines are confidently impulsive and loose on budgets. They would probably prefer no budget at all and trust that everything will work out all right in the end. Red Temperaments tend to rely on others to enhance their life, they are connected people. Pitfall? Maybe. Although, it could benefit them if they choose to live in a retirement community with several people groups giving their lives meaning and relaxation. The importance of budgeting can be especially hard to work into their lifestyle, because their standard of living can be vague. They just want whatever hits them that day. You get the idea. Less personal discipline needs more budgetary discipline. Budgeting for the Red Temperament can cause anxiety, but is needed to take care of practicalities. Ultimately, finding process for making financial decisions and retirement plans that feels the best to you will make feel confident in your direction. While you might like the free chicken dinners at seminars, sitting frustrated and anxious looking for real solutions to questions that affect the rest of your lives takes more than 90 minutes and a “complimentary consultation.” Learn Your Beliefs About Money We all have beliefs we’ve acquired throughout the years. We have beliefs about the stock market, risk, liquidity, safety, advisors, and so much more that affects our judgment. Try to discover which beliefs are factual and which are fictional. Fictional beliefs are ones that sound right, but are really akin to urban myths. For instance, many believe that you can’t lose money in bonds. Bonds are the safe money bet. Well, for sure, bonds are a more conservative investment. However, if you held Enron bonds, WorldCom bonds, Bear Stearns bonds, Lehman Brothers bonds or Detroit municipal bonds, you would have lost some of your money “safely.” Be open to the possibility that what you thought about an asset may not be the truth at all. You want to know the facts about an asset and trust in the truth, rather than your neighbor who had a “bad experience” and passes on misinformation that could cripple your decisions. Here are some helpful hints: Learn how your emotions get in the way of your logic and how to take small emotional steps. It has to “make sense” as well as “make cents.” Choose a competent advisor that you feel comfortable with. Beware of salesmen trying to force you into a decision. If it sounds too good to be true, find out the details. There are no “free lunches” – there’s always an angle. Don’t be intimidated into a decision. Don’t make a decision in 90 minutes that will affect the rest of your life. When starting a business, there is a big temptation for pursuing “get rich quick schemes.” What separates smart entrepreneurs and investors from the herd gobbling up every sales pitch is Hard Work. There’s no substitute for due diligence and the fine art of research. Remember, don’t be intimidated by the enormity of the task at hand, which can create more emotional clutter. Just follow a logical process to a rational conclusion. Investigate your options, develop and mold recommendations with an advisor, implement your best choices then review and adjust the plan at least yearly. Take Your Time The smartest generals in every war knew that waiting out the enemy could be the difference between the death of bright soldiers and the victory of hard working veterans. Take your time developing a plan that fits you. Work with an advisor who’s patient and thinks with you, not for you. Take it step by step and weigh the options you think are relevant. After you get the “big picture” concept of your retirement plan, decide on small elements of the plan, one by one until you have a complete plan. Once you feel comfortable, believing that you have a plan that meets your goals and does so within the framework of your risk tolerance, go ahead and make it happen. Be sure to meet regularly with your advisor to review and adjust your plan. And then sleep easy knowing you’ve made the best plan possible for you. Question: How do you make large financial decisions? Who do you include in the process? Question: As best as you can tell, which temperament color are you and how does it affect your “money decisions?” Learn How You Make Financial Decisions

74 #4: Know Your Costs (In Investments)Six Tips for a Financially Successful Retirement

75 Know Your Costs (In Investments)Management Fees Trading Fees Internal Expense Ratio Commissions Know Your Costs (In Investments) It’s important to know how much you are spending to get the results you want in your retirement plan. There’s nothing free when it comes to investments and planning. No free lunches, for sure. While some fees are easy to find and openly disclosed, there are often less obvious fees in assets and plans. Most of the time a prospectus or company brochure will cover the fees in full disclosure. These publications can be confusing and as understandable as a foreign language. Make sure your advisor covers all the fees and expenses in the asset and his proposed plan. Management fees: Management fees are monies paid to the people who buy and sell assets on your behalf. They can be found in mutual funds, an RIA’s managed accounts, variable annuity side accounts, etc. They can range from .20% to 3% or even higher. What you are doing is hiring someone to make buying and selling decisions for you according to the guidelines you set out. These fees come directly out of your funds to pay the manager. Paying for money management isn’t necessarily a bad thing, and it should pay off in the long run. Trading Fees: These fees represent the cost of buying and selling the underlying assets in a portfolio. If in a managed account, you will receive a notice every time an asset is traded and it will also be reported on your statements. If it is within a mutual fund or variable annuity side account, it will be very hard to find as they are not typically disclosed. Mortality and Expense Fees: These fees are associated with the expenses in a variable annuity. They cover the insurance company’s costs for the death benefit on the annuity, along with the administration and commissions attributed to the sales and oversight of the asset. Internal Expense Ratios: These fees are associated with mutual funds and are components of operating expenses. These can be management fees, 12b – 1 fees, recordkeeping, custodial services, taxes, legal expenses, and accounting fees. The funds loads, trading fees, and redemption fees are not included in the expense ratios. Loads and redemption fees are paid directly by the investor. Commissions to Planners: Usually fees paid to planners come in two categories: commissions and fees. If an advisor is a “fee-based” planner, he or she receives fees based on a percentage of the assets under management or a standard fee charged for development of a plan. If it is an insurance based plan or a mutual fund type sale, the advisor receives a commission. The mutual fund commission comes directly out of the buyer’s funds. If the buyer pays a 5% commission on a fund and invests $100,000, then the commission of $5,000 would be taken out of the investment first, leaving $95,000 for the fund. If it is an insurance vehicle like an annuity, the company pays the agent a commission that does not come directly out of the premium paid. In the example above, the agent may receive a 5% commission, but the full $100,000 goes to work for the investor immediately. Be sure to have your advisor explain and disclose all fees that come out of your money invested. They should provide this information in writing. Again, nothing is provided free of charge and there aren’t any free lunches. Paying for services rendered and asset management is normal and can be an effective means to having your assets watched over by professionals. Question: How do fees and commissions play a role when you decide on investments? Know Your Costs (In Investments)

76 #5: Know Your Risks (In Investments)Six Tips for a Financially Successful Retirement

77 Know Your Risks (In Investments)Systematic Specific Stock Bond Longevity Interest Rate Inflation Liquidity Know Your Risks (In Investments) The market giveth and the market taketh away. So, goes investing. The reality for every person facing retirement is that investing in any asset carries risk. Risk is in the DNA of the stock and bond markets. There are even risks in guaranteed fixed principal assets. Understanding the type of risk and the impact of risk on your portfolio is of utmost importance. While the following isn’t a complete list of risk, it will give you a sampling of the types of risk everyone faces in the markets and must be accounted for in your retirement planning. Systematic or Market Risk: This means that risk runs completely through every inch of the markets. Every stock, bond, and option carries not only the risk of losing money, but various ways to lose your money. Specific or Unsystematic Risk: This is the risk associated with one specific asset such as a stock, bond or mutual fund. Stock Risk: A risk associated with the equities market; the risk of ownership in a company’s stock. Bond Risk: A risk associated with the bond market; risk of owning a debt instrument where a company or municipality issues a bond. Longevity Risk: This risk is associated with pension funds or life insurance companies who are exposed to higher than expected pay-out ratios. Usually plans which have the greatest levels of this type of risk are pensions and annuities, which guarantee lifetime benefits. Thus it’s a risk the company holds. Interest Rate Risk: The risk that an investment like a bond will lose value when interest rates change. This is usually associated with bonds which have a lower interest rate than the current rate, driving down the value of the lower yielding bond. Changes in interest rates usually have an inverse relationship with securities. Inflation Risk: This is the risk that your purchasing power will be reduced over time. While not as sensational as a large market crash, it can be more devastating in the long run. This has the effect of reducing the value of income on interest bearing certificates. Liquidity Risk: This is the risk that a security can’t be traded quickly enough in the market to avoid a loss. The risks listed above are just a short list of those you’ll face while you are planning for and in retirement. Knowing your exposure to such risk can help you develop plans to minimize its effect. Question: What is the risk listed above you fear the most? Know Your Risks (In Investments)

78 #6: Strategically Allocate, Tactically ManageSix Tips for a Financially Successful Retirement

79 Strategically Allocate, Tactically ManageABC Seven Steps: Gather Assets Write It Down ABC Assets Choose Advisor Process Review & Adjust Sleep Easy Strategically Allocate, Tactically Manage How Do You Manage Risk? As you can see in the previous section, there is a lot of risk associated with investing for retirement. People are often paralyzed with fear as they look to plan for the future and see so many possibilities of failure in the markets. They commonly look to historical returns of assets to make them feel more comfortable about that asset’s potential to do well in the future. However, historical returns can be misleading. What if the mutual fund manager who made the investing choices in the mutual fund during the time frame of the returns viewed is no longer managing the fund? A better question to ask in planning for your retirement is, “How do you manage risk?” Since, risk is systematic and is the DNA of the market it would be wise to formulate a plan to minimize losses and enhance the gains. Two important facets of this type of planning are strategic allocation and tactical management. This calls for placing assets in your portfolio in such a way as to protect as much gain as possible while minimizing the downturns in the markets. This strategy is at the core of the ABC Planning Model. With the ABCs you strategically determine the amount of your assets you want protected from market loss, in essence protecting your gains. You want to choose the amount of stock or bond type risk you want in your overall portfolio by allocating a percent you’re comfortable with to the growth money, Red Money column. Once you’ve allocated, choose a manager for the Red Money column, be it yourself or an advisor, reviewing and adjusting your portfolio as conditions change in the markets. In so doing, you will expose yourself only to the amount of volatility you are comfortable with while having a certain part of your portfolio in protected money strategies. Seven Steps to an ABC Plan (1) Step One - Gather your most recent statements Begin by gathering all your most recent statements together. The following is a partial list of statements to gather: Brokerage accounts Mutual funds IRA, 401(k), 403(b) and other qualified plans Annuities Bank accounts, including CD’s, savings, and money market accounts Stock certificates Bonds, including government savings bonds Life Insurance Precious Metals Real Estate Step Two: Write It Down Write down some of your greatest concerns you have about your assets and your goals for retirement. These are your frustrations and fears that keep you awake at night. You may be struggling to develop an asset base on which to retire. Write down your income goals and how you plan to reach them. You might have concerns about your current advisors ability to develop and maintain a retirement plan. He or she might have been great at accumulation, but retirement planning is a different ballgame. Writing down your goals and reviewing them with your advisor will enable you to know if you are on track with your investments. Work on your immediate, 1 year, 3 year, 5 year and even longer goals. You will want to adjust your goals as time moves on, but having a baseline to start with gives you clear direction. Step Three: ABC Your Assets Choose the amount of liquidity, protection and risk you want in your portfolio by using the ABC Planning Model. In the ABC Model there are three categories of assets Yellow, Green, and Red. Choose the percent you need in short term cash assets. These are monies for emergencies, next year’s vacation, or family events, plus six months of income to cover your needs. Then choose the percent you want in the market with either bond-type risk or stock-type risk. This is the growth or Red Money allotment for Column C. Then add the two percentages together and subtract it from 100, giving you the amount of money you want in the Green Money, Column B. Keep in mind this is the least liquid of the three columns, usually ten percent at any given time. Monies put in this column are focused primarily for long term retirement income needs. Step Four: Choose an Advisor Choosing an advisor to help you think through the retirement process can be challenging, but very rewarding. Try to attend some advisor events, talk to their clients if possible, ask them questions about their experience, specialty areas, risk management, etc. Once you are satisfied that they are competent and understand the ABC Planning Model, begin to show them what you’ve done in steps 1 through 3, and let them guide you through the next steps. Whether your advisor is an insurance agent, a CFP, or a securities broker, make sure they understand the ABC Planning Model and is able to facilitate your ABC goals. There are many different types of advisors with various financial licenses and designations. You will want to choose one who understands what is important to you. Step Five: Process, Process, Process Remember the ABC Planning Process steps of Investigate, Recommend, Implement, Review and Adjust. Make sure your advisor utilizes these steps, helping you challenge your fictional beliefs, and work through your emotions, developing a plan that makes sense to you and leads to financial success. Step Six: Review & Adjust Make sure you and your advisor schedule reviews that meet your needs best. Establish a review process, as it will give you confidence in your plan. Reviews will allow you to make changes in your plan as needs and circumstances arise. Families change, markets change and needs change and new opportunities develop. All are good reasons to stay on top of your plan. Step Seven: Sleep Easy Once your plan is in place you can sleep better at night knowing you have strategies to battle the financial challenges ahead of you in retirement. Planning doesn’t make problems go away, it simply gives you a peace of mind knowing you’re ready for what lies ahead. You may not know the turns in the road ahead, but you can be prepared for them. Question: In what ways do you see the ABC Planning Model helping you in planning for retirement? Strategically Allocate, Tactically Manage

80 Homework for next week: Read the Social Security section in your workbook.

81 Foundations of Retirement PlanningThis discussion is offered free of charge. It is designed to be educational in nature and is not intended to provide tax or legal advice. Consult with your tax advisor and/or legal counsel for suitability for your specific situation. This presentation is not endorsed or approved by the Social Security Office or any other Government Agency. Hypothetical and/or actual historical returns contained in this presentation are for informational purposes only and are not intended to be an offer, solicitation, or recommendation. Rates of return are not guaranteed and are for illustrative purposes only. Projected rates do not reflect the actual or expected performance within any example or financial product. First to cover some basics…(Read slide). Foundations of Retirement Planning

82 Dave Vick 8700 E. Vista Bonita Drive Suite 240 Scottsdale, AZ Give a short introduction to yourself and handout your simple, one sheet BIO. Contact Information

83 Redhawk Wealth AdvisorsTheir may be financial advice offered as a result of this course, including life insurance and annuity products, along with investment advice which is offered through Redhawk Wealth Advisors an SEC Registered Investment Adviser. Insurance products are sold through Vick & Associates, Inc. Include your disclosure and read. Disclosure