An easy guide to help you navigate your financial future.
Goal Setting: Insurance: Tax Planning:
Whether your personal financial goals are to Insurance is a common tool used to help Taxation planning considers the taxation start a family, pay down student debt, retire transfer significant risks such as premature implications of individual, investment, or early or buy a home, your main financial goal death or disability, which could impede business decisions, usually with is to grow your Net Worth and manage your achieving one’s personal financial goals. the goal of minimizing tax liability. Cash Flow. • Life Insurance – provides a death benefit • This is often achieved by reducing taxable Net Worth = Assets – Liabilities in the event of premature death of a income through income deferral and spouse or significant other. income shifting. Cash Flow = Income – Expenses • Disability Insurance – provides income in • Other strategies for reducing taxable the event of full or partial disability. income include: Tip: Write down your financial goals. When o Deduction planning doing so, consider how much money you will Tip: When buying insurance, first decide how o Investment tax planning need, when you need the money and how much you need, for how long, and what you o Year-end planning strategies important one goal is relative to other can afford to pay. financial goals. Also, keep in mind the Investment Tax Planning amount of risk you are willing to tolerate to Rules of Thumb: How Much Life Insurance • This involves evaluating how to best achieve your goal. Do I Buy? position assets in order to minimize the amount of taxes you have to pay on an ongoing basis. Cash Management: • Some people like using a calculation that • Requires year-round planning. Get Organized! Prepare a budget and allows their family to use the lump sum insurance benefit to create income • Begins with an in-depth understanding of determine if you are you running a cash flow the tax implications of various investments surplus or deficit. indefinitely. One rule of thumb is the 4% rule, which means that you buy enough and investment strategies. insurance so that your family could live off Income > Expenses = CF Surplus Common Tax Planning Mistakes 4% of the policy’s death benefit each year. • Waiting until the end of the year to begin Income < Expenses = CF Deficit • Another approach is to add up all the tax planning. expenses you expect your family to need • Ignoring the impact of the federal While budgets can be time consuming, they to cover for a set period of time. Alternative Minimum Tax will help you understand your current on your financial decisions. lifestyle and create a sustainable structure Tip: When shopping for life insurance, there • Not taking advantage of tax-deferred or for your finances and long-term goals. are many types of life insurance products to tax-free investments. consider, including term and permanent • Ignoring the tax implications of life Surplus = Savings = Increasing Net Worth insurance. Consider working with a financial changes, such as the birth professional to help determine which of a child, marriage, divorce, selling a Tip: If you find that tracking your spending is product is right for you given your needs home or business, etc. too time consuming, after you have trained and affordability. • Overlooking the tax-lowering impact of yourself to spend wisely, you can consider charitable gifts. the following guideline: 60% of your gross Protecting Your Income: Outside of family • Not understanding the tax savings income can be dedicated to fixed expenses and loved ones, many consider their ability opportunities under new tax laws. (i.e. food, bills, all taxes) while 40% can be to earn income to be their most important • Not maximizing the potential tax dedicated to savings and discretionary asset. advantages afforded by retirement plans. spending (fun money). • Selling property without taking into • If long-term disability benefits are not consideration the capital gain impact. Build a Cash Reserve: As a rule of thumb, offered through your place of consider keeping 3-6 months of living employment, consider the benefits of Tip: Even if you delegate filing your taxes to expenses as cash or cash equivalents for owning an individual disability insurance your accountant or tax professional, knowing emergency and/or opportunity. This way, policy. Policies such as these could the decisions that can affect your tax liability you don’t need to tap savings earmarked for provide between up to 60-70% of your will allow you to take the greatest possible other financial goals when an unexpected earned income, up to age 65 and, in some advantage of permissible tax savings. expense or opportunity comes your way. cases, longer. Investments: Retirement Planning: Estate Planning: Once your financial goals, needs and Retirement planning is the process of Estate planning is usually defined as the attitudes have been determined, your assets evaluating your current financial situation process of anticipating and arranging for the can be distributed among a variety of and creating an accumulation and disposal of an estate during your life. investment categories. distribution strategy to help support a However, this definition can be expanded to desired lifestyle after your working years. handle critical life decisions in the event of Asset Allocation: Helps build a disciplined, an emergency, such as appointing someone long-term financial strategy for distributing Why You Need to Plan For Retirement: to make medical or financial decisions for wealth among various investment categories you should you be unable to make them for (stocks, bonds, money markets, real estate, 1. Retirement is typically the longest life yourself. etc.) based on your investment goals, time event you will ever face, and it generally horizon and risk tolerance. By spreading your dominates other financial goals. Do I Really Need to Worry About This Now? investments over various asset classes (such 2. Average life expectancy in the U.S. for as large-, mid- and small-cap stocks; males is 74.8 years and 80.1 years for Probably. Having basic estate planning emerging markets; international equities and females. documents in place is something definitely various bonds), also known as diversification, 3. Increased longevity means that your worth considering, especially if you are asset allocation attempts to reduce overall retirement years can span decades. married or have children. The following investment risk, create more reliable documents are typically used to help investment returns, and improve the Retirement Savings individuals plan for the unknown: risk/return tradeoff of your portfolio. Qualified Plans: Include employer-sponsored A Will – is a method many people use to Investment Selection: Once an asset plans, such as 401(k)s and pension plans, transfer assets upon death. This document allocation approach has been determined, governed by the Employee Retirement answers the question, “Where does my stuff one typically implements the plan through Income and Security Act of 1974 and years of go?” the selection of specific investment vehicles continuous legislation. to fill each asset class. Depending on the • Plans allow for pretax investments that Heath Care Directive – is a specific form that portfolio type and risk tolerance, a grow tax-deferred. lists your healthcare preferences and is used combination of investments will help an • Plans also have contribution limits and at a time when you cannot communicate investor pursue their long-term financial strict distribution rules. your wishes. It also lists the people who can objectives. Choices of securities for an o Types of qualified plans include: make healthcare related decisions on your investment portfolio may include basic 401(k), Nonprofit 403(b)s/457s, behalf. securities and alternative investments. Defined benefit plans and ESOPs Power of Attorney – is a document that Basic (Traditional) Securities: May include IRAs: Help you save for retirement while appoints a person you trust to handle your Stocks, Bonds, Mutual Funds, Annuities, allowing you to take advantage of favorable finances. This form could be very important Stock Options and Managed Accounts tax incentives. IRAs are inexpensive as well should you become unable to do this as easy to establish and maintain. Many yourself. Alternative Investments: May include Real people use IRAs to consolidate retirement Estate Investment Trusts, Oil and Gas assets that were previously held in Guardianship Provisions – ensure that your Programs, Managed Futures and Hedge employer-sponsored plans. children are cared-for in the event of death. Funds. Note: Some potential benefits of • Types of IRAs include: These instructions typically require specific alternative investments may include Traditional/Rollover IRAs, Roth IRAs, language to ensure that your children are historically low correlation to traditional SEPs and SIMPLEs, Spousal IRAs, both cared for and that they properly inherit markets, greater diversification and other “Stretch” IRAs property specified under your will. potential benefits. 2014 Contribution Limits Tip: Consider seeking the advice of an estate Tip: Whether you are investing for 401(k) – Employee $17,500 planning attorney to assist with drafting retirement, college, or another financial goal, Traditional IRA $5,500 these documents. Due to the gravity and you are faced with the task of quantifying Roth IRA $5,500 sensitivity surrounding these matters, it your goal, developing an asset allocation SEP IRA / Solo 401(k) $52,000 could be ill advised to use boilerplate estate strategy and choosing the most appropriate planning documents and taking the “do-it- investment vehicles. In the midst of this IRA Catch-up $1,000 yourself” approach. The costs of dealing with complexity, financial professionals are able 401(k) Catch-Up $5,500 an invalid, or poorly designed, estate to partner with you to help you to pursue *Age 50 and older planning document could significantly your financial goals. outweigh the costs of hiring a legal professional. Securities offered through Commonwealth Financial Network®, member FINRA/SIPC, a Registered Investment Adviser. Advisory services offered through Bone Fide Wealth, LLC are separate and unrelated to Commonwealth. Bone Fide Wealth, LLC – 7 World Trade Center, 246h Floor, New York, NY 10007. P 212.390.1161 Asset allocation programs do not assure a profit or protect against loss in declining markets. No program can guarantee that any objective or goal will be achieved. Investing in alternative investments may not be suitable for all investors and involves special risks, such as risk associated with leveraging the investment, adverse market forces, regulatory changes, and illiquidity. There is no assurance that the investment objective will be attained. Diversification does not assure a profit or protect agains a loss.