Kootenay Valley Financial Services
Two Great Questions in Life
A$$ETSWhat do What do
You Have?You Have?What do What do
You Have?You Have?
GOAL What do What do You Need?You Need?What do What do
You Need?You Need?
Principles for Long Term Investment Success
Asset class performance is ________________over long time frames.
Investment expense are ________ importantthan returns.
Diversification is not always ____________ .
Mutual Funds are ____________ within asset classes.
______________ asset classes based on volatility enhances return.
PREDICTABLE
MORE
EFFICIENT
RANDOM
COMBINING
What are Your CORE BELIEFS?
Taxes WILL always go up, not down. ______ ______
To be financially SECURE incomemust keep pace with inflation. ______ ______
Life expectancies ARE greater than ever. ______ ______Managed Equities ARE safer than CD’s and Bonds. ______ ______
Risk is a necessary evil. ______ ______
Yes No
XX
XX
XX
XXXX
Speculative
Foundation
Investors typically have THREE types of Capital
To achieve a consistent investment return – You must avoid the BIG MISTAKE!
3. _______________ 2. _______
1.
Core
The S&P Average MarketReturn over the last 10 Years?
12.7%
Ibbotson, Morningstar andFidelity studies show
Average Investor Returns over the last 10 Years.
2.3%
The THREE Barriers to financial success
1. _____________________
2. _____________________
3. _____________________
Taxes
InflationInefficient
Diversification
INVESTMENT FRICTION
Let’s look at TAXES!!!
If $1 doubles every year for 20 years
$1,048,576$100 =In a
40% Tax Bracket$12,089
In a28% Tax Bracket
$51,353
Notice the huge impact TAXES can have on your wealth
What is RISK?
Name the TWO kinds of risk:
1. _____________________________
2. _____________________________
Loss of Capital
Loss of Purchasing Power
What Causes LOSS of CAPITAL?
It’s all about Volatility
Whose Numbers are those?
They are notYours - UNLESSYou are Buying orSelling
How do you measure Volatility?
Average ROR
Index
Average ROR+/-
12% 17
+17%-17% 12%
High 29% Low - 5%
+29%- 5%
Risk is ALL ABOUT VolatilityRisk is ALL ABOUT VolatilityRisk is ALL ABOUT VolatilityRisk is ALL ABOUT Volatility
3.0% 2.7% 1.6% 1.7% 3.3% 2.7% 2.7% 2.8% 3.0% 3.1% 6.1% 4.6% 4.4% 4.4% 1.1% 3.8% 4.0% 3.8% 3.9% 8.9%12.4%
200019991998199719961995199419931992199119901989198819871986198519841983198219811980
13.0% 9.0% 6.8% 4.8% 7.0% 12.2% 8.8% 3.4% 3.4% 5.5% 6.1% 4.7% 3.0% 3.3% 1.9% 1.2% 1.7% 1.2% 0.7% 1.5% 1.5%
1.8% 3.0% 2.0% 0.4% - 0.5% 0.6% 0.9% 5.9% 5.8% - 1.8% 2.7% 9.0% 18.2% 2.2% 2.1% 3.2% 9.3% 9,7% 1.0% - 0.5% - 2.8%
197919781977197619751974197319721771197019691968196719661965196419631962196119601959
195819571956195519541953195219511950194919481947194619451944194319421941194019391938
Now let’s look at INFLATION
AVERAGE 3.6% 4.8% 3.4%
StampWoman’s SkirtHouseCarLoaf of Bread½ Gal MilkMedian Income
$ .09$ 7.50$25,000$ 3,400$ .23$ .50$ 4,594
$ .50$ 85.00$235,000$ 25,000$ 2.39$ 2.15$ 18,500
5.85%8.43%7.76%6.68%8.12%4.98%4.66%
COMMODITY 1970 TODAY INFLATION
Does History Really Repeat Itself?
What is the TRUE Inflation rate?
24%?
1940 1960 1980 2000
7%
14%
% Over age 65Living to age 90
Why is Inflation such a PROBLEM?
The longer people livethe higher the risk theywill “Run Out of Money”
The longer people livethe higher the risk theywill “Run Out of Money”
The ‘Real’ Return of a GIC
4.3%2.4%
6.9%
10.8%8.8%8.8%
14.8%
1.3%e
0.03%
1.9%0.52%
1.2%1.9%
-2.0%1.2%
-1.2%e
2.6%1.4%
6.5%
4.5%5.3%
8.9%
0.8%e
-3.0
-1.0
1.0
3.0
5.0
7.0
9.0
11.0
13.0
15.0
Ye
arl
y T
ota
l Re
turn
s %
2.1%
GIC yearly return
GIC after marginal tax rate (40%)
GIC Real Return (after inflation)
Source: DataStream, Dec 2001 ($ Cdn)
Real Return on $1000 Invested 1981-2001
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
Ye
arl
y R
etu
rns
$
Source: DataStream, Dec 2001 ($ Cdn)
GIC Real Return 20 yr avg 0.84%
MSCI Real Return 20 yr avg 6.6%
TSE 300 Real Return 20 yr avg 4.3%
S&P 500 Real Return 20 yr avg 10%
$1000 invested in 1981
$6726.13
$3604.68
$2333.26
$1166.97
Retirement
But Remember – Risk is also Inflation
So, which Risk is Guaranteed to Happen?
Brinson Study
60
80
100
0
20
40
Timing
2%2%
StockSelection
4%4%
AssetAllocation
94%94%
What IMPROVES Portfolio PerformanceWhat IMPROVES Portfolio Performance
1.
2.
3.
Where should I invest my MONEY?Where should I invest my MONEY?
Name THREE basic Asset Classes?
Cash
Stocks
Bonds
Stocks
Domestic International
Large Small
GrowthBlendValue
Medium
HistoricalHistoricalReturn on Return on InvestmentInvestment
Volatility IndexVolatility Index
Small Cap
Large Cap
Corporate Bonds
Gov’t Bonds
Inflation
Is asset class performance PREDICTABLE?Is asset class performance PREDICTABLE?
12.4%
11.3%
5.6%
5.1%
3.3%
39.62%
20.17%
8.78%
9.43%
16.61%
8.51%
4.57%
4.69%
1 Year 5 Year
4.42% 3.29%
The Lipper StudyThe Lipper Study
Mutual Funds in the same asset class eventuallyEarn the same average rate of return.
REGRESSION TO THE MEAN
Some asset classes move in Some asset classes move in OPPOSITE directionsOPPOSITE directions
-1 Zero +1
Negative – Moves in opposite directionsTotally Random – no relationshipPositive – Moves in the SAME direction
U.S. vs. InternationalU.S. vs. International
Rolling
12-Month
40%
30%
20%
10%
0%
10%
20%
30%
40%
50%
60%
70%
Returns
72 76 80 84 86 90 94 98
International outperforms U.S.
U.S. outperforms International
ASIA 30.7
ASIA199419931992 1995 1996 1997 1998 1999 2000
ASIA 108.3
ASIA -9.3
ASIA -8.3
ASIA 3.4
ASIA -45.9
ASIA -4.5
ASIA 60.1
ASIA -39.8
Small Cap 30.2
Small Cap
Small Cap 23.8
199419931992 1995 1996 1997 1998 1999 2000
Small Cap 14.3
Small Cap 4.4
Small Cap 27.7
Small Cap 16.9
Small Cap 25
Small Cap 4.0
Small Cap 0.8
Nasdaq 27.0
Nasdaq199419931992 1995 1996 1997 1998 1999 2000
Nasdaq 19.3
Nasdaq 2.7
Nasdaq 36.2
Nasdaq 23.3
Nasdaq 26.9
Nasdaq 47.4
Nasdaq 77.4
Nasdaq -36.9
S&P 500 18.4
S&P 500199419931992 1995 1996 1997 1998 1999 2000
S&P 500 14.5
S&P 500 7.5
S&P 500 33.9
S&P 500 23.5
S&P 500 39.2
S&P 500 37.8
S&P 500 14.0
S&P 500 -5.6
Canadian Bond 11.6
Canadian Bond199419931992 1995 1996 1997 1998 1999 2000
Canadian Bond 26.3
Canadian Bond 14.2
Canadian Bond 18.5
Canadian Bond 12.8
Canadian Bond -6.0
Canadian Bond 13.0
Canadian Bond 22.1
Canadian Bond -7.4
Global Bond 9.8
Global Bond199419931992 1995 1996 1997 1998 1999 2000
Global Bond 18.1
Global Bond -4.3
Global Bond 20.7
Global Bond 12.3
Global Bond 9.6
Global Bond 9.2
Global Bond -1.1
Global Bond 10.2
T-Bills 7.1
T-Bills
T-Bills 5.5
T-Bills 4.7
T-Bills 4.7
T-Bills 3.2
T-Bills 4.8
T-Bills 7.6
T-Bills 5.4
T-Bills 5.5
199419931992 1995 1996 1997 1998 1999 2000
Europe 5.2
Europe199419931992 1995 1996 1997 1998 1999 2000
Europe -4.9
Europe 9.8
Europe 38.4
Europe 29.6
Europe 22.2
Europe 18.8
Europe 8.8
Europe 35.3
Dow Jones 4.2
Dow Jones
Dow Jones -6.2
Dow Jones 25.2
Dow Jones 13.7
Dow Jones 16.1
Dow Jones 22.6
Dow Jones 26.0
Dow Jones 33.5
Dow Jones 2.1
199419931992 1995 1996 1997 1998 1999 2000
TSE 300 -1.4
TSE 300199419931992 1995 1996 1997 1998 1999 2000
TSE 300 7.4
TSE 300 31.7
TSE 300 -1.6
TSE 300 15
TSE 300 28.3
TSE 300 14.5
TSE 300 -0.2
TSE 300 32.5
International
Int’l -3.1
199419931992 1995 1996 1997 1998 1999 2000
Int’l -11.0
Int’l 20.3
Int’l 29.2
Int’l 6.6
Int’l 6.9
Int’l 8.5
Int’l 14.5
Int’l 38.6
19941993 1995 1996 1997 1998 1999 200019941993 1995 1996 1997 1998 1999 200019941993 1995 1996 1997 1998 1999 200019941993 1995 1996 1997 1998 1999 200019941993 1995 1996 1997 1998 1999 200019941993 1995 1996 1997 1998 1999 200019941993 1995 1996 1997 1998 1999 200019941993 1995 1996 1997 1998 1999 200019941993 1995 1996 1997 1998 1999 200019941993 1995 1996 1997 1998 1999 200019941993 1995 1996 1997 1998 1999 200019941993 1995 1996 1997 1998 1999 2000ASIA 108.3
ASIA -9.3
ASIA -8.3
ASIA 3.4
ASIA -45.9
ASIA -4.5
ASIA 60.1
ASIA -39.8
Small Cap 23.8
Small Cap 4.0
Small Cap 25
Small Cap 16.9
Small Cap 27.7
Small Cap 4.4
Small Cap 14.3
Small Cap 0.8
Nasdaq 19.3
Nasdaq 2.7
Nasdaq 36.2
Nasdaq 23.3
Nasdaq 26.9
Nasdaq 47.4
Nasdaq 77.4
Nasdaq -36.9
S&P 500 14.5
S&P 500 7.5
S&P 500 33.9
S&P 500 23.5
S&P 500 39.2
S&P 500 37.8
S&P 500 14.0
S&P 500 -5.6
Canadian Bond 22.1
Canadian Bond -7.4
Canadian Bond 26.3
Canadian Bond 14.2
Canadian Bond 18.5
Canadian Bond 12.8
Canadian Bond -6.0
Canadian Bond 13.0
Global Bond 18.1
Global Bond -4.3
Global Bond 20.7
Global Bond 12.3
Global Bond 9.6
Global Bond 9.2
Global Bond -1.1
Global Bond 10.2
T-Bills 5.5
T-Bills 5.4
T-Bills 7.6
T-Bills 4.8
T-Bills 3.2
T-Bills 4.7
T-Bills 4.7
T-Bills 5.5
Europe 35.3
Europe 8.8
Europe 18.8
Europe 22.2
Europe 29.6
Europe 38.4
Europe 9.8
Europe -4.9
Dow Jones 13.7
Dow Jones 2.1
Dow Jones 33.5
Dow Jones 26.0
Dow Jones 22.6
Dow Jones 16.1
Dow Jones 25.2
Dow Jones -6.2
TSE 300 32.5
TSE 300 -0.2
TSE 300 14.5
TSE 300 28.3
TSE 300 15
TSE 300 -1.6
TSE 300 31.7
TSE 300 7.4
Int’l 38.6
Int’l 14.5
Int’l 8.5
Int’l 6.9
Int’l 6.6
Int’l 29.2
Int’l 20.3
Int’l -11.0
200020002000200020002000200020002000200020002001
ASIA -23.8
Small Cap -11.5
Nasdaq -28.5
S&P 500 -11.9
Canadian Bond 8.1
Global Bond 5.2
T-Bills 4.7
Europe -15.0
Dow Jones -7.1
TSE 300 -12.6
Int’l -16.5
2002Global Bond 18.5
Canadian Bond 10.5
T-Bills 2.5
ASIA -8.2
TSE 300 -12.4
Int’l -14.9
Dow Jones -16.8
Europe -17.5
Small Cap -20.5
S&P 500 -22.1
Nasdaq -37.6
Why are Correlation CoefficientsWhy are Correlation Coefficientsimportant?important?
VA
LU
EV
AL
UE
TIMETIME
This is Called INEFFICIENT Diversification
We need to create DISSIMILARWe need to create DISSIMILARPrice MovementsPrice Movements
This is Called EFFICIENT Diversification
VA
LU
EV
AL
UE
TIMETIME
AA
AA && BB
BB
Determine the REAL rate of returnDetermine the REAL rate of return
YEARYEAR
1122334455
25%25% 25%25% 25%25% 25%25%-30%-30%
RETURNRETURN
14%14% 15%15% 13%13% 16%16% 4%4%
RETURNRETURN
Average ROIAverage ROI 14.00%14.00% 12.40%12.40%
IRRIRRIRR 11.3%11.3% 12.2%12.2%
Determine the REAL rate of return of Determine the REAL rate of return of $100,000$100,000
IRRIRRIRR 11.3%11.3% 12.2%12.2%
YEARYEAR
1122334455
25% - $125,00025% - $125,000 25% - $156,25025% - $156,250 25% - $195,31225% - $195,312 25% - $244,14025% - $244,140
14% - $114,00014% - $114,000 15% - $131,10015% - $131,100 13% - $148,14313% - $148,143 16% - $171,84616% - $171,846
RETURNRETURN RETURNRETURN
Average ROIAverage ROI 14.00%14.00% 12.40%12.40%
-30% - $170,898-30% - $170,898 4% - $178,7194% - $178,719
AGF PRECIOUS METALS
Precious Metals
-61.3
-16.9
27.5
71.9
116.3
160.8
1993 1994 1995 1996 1997 1998 1999 2000 2001 02YTD-61.3
-16.9
27.5
71.9
116.3
160.8
X X
X
XX
XX
X
X
--
----
--
--
----
--
--
--
% Annual Return for One Calendar Year December 31, 2002
5th Percentile95th Percentile1st QuartileMedian3rd QuartileTHIS FUND
RankNumber Of FundsTSX Gold & Precious MeQuartile
-- X
115.535.2
105.870.139.6
2
105.4
3.4-3.93.12.8
-0.62.8
2 3
-9.8
63.80.0
26.623.66.48.3
4 6
9.4
70.023.757.538.824.857.5
2 6
9.2
-33.7-48.2-35.2-43.3-45.9-48.2
9 9
-43.2
-1.8-58.4-6.8
-14.6-23.6-28.2
1012
-6.5 4
24.8-19.6
1.8-3.5
-10.81.5
413
-17.0 2
8.6-25.7-4.9
-14.0-15.2-14.0
713
-10.0 3
47.3-55.236.127.723.624.4
914
18.3 3
153.125.089.780.167.1
103.8
316
27.2 1
Load : Front-end or DeferredAssets: $ 101.470 MillionRRSP Eligible
AVERAGE RATE OF RETURN FOR 9 YRS. OF 11.9%INTERNAL RATE OF RETURN ????????
Why is this IMPORTANT?Why is this IMPORTANT?
This effect can ONLY be consistently achieved with EFFICIENT Diversification
VA
LU
EV
AL
UE
TIMETIME
100% Stocks100% Stocks
80% Stocks/20% Bonds80% Stocks/20% Bonds
60% Stocks/40% Bonds60% Stocks/40% Bonds
100% Bonds100% Bonds
20% Stocks/80% Bonds20% Stocks/80% Bonds
40% Stocks/60% Bonds40% Stocks/60% Bonds
50% Stocks/50% Bonds50% Stocks/50% Bonds
YEARS
30
25
20
15
10
5
1
35 40 45 50 55 60 65 70AGE
Discover your optimal risk allocationDiscover your optimal risk allocation
Three Professors from the Chicago School of Economics (Miller, Sharpe and Markowitz) received the NOBEL PRIZE in 1990 for these
research conclusions:
1. Reduce Investment Risk
2. Increase Return
3. Create Dissimilar Price Movements4. Use Asset Allocation
NobelPrize
What is the EFFICIENT FRONTIER?What is the EFFICIENT FRONTIER?
100%100% InternationalInternational
100% 100% Large CapLarge Cap
Retu
rn
Risk
Optimum MixOptimum Mix
Recession #1 – 1974/75
Source: Datastream
US GDP and S&P 500
Recession EndsRecession Ends
50
55
60
65
70
7580
85
90
95
100
Jun-
74
Jul-7
4
Aug-
74
Sep-
74
Oct-7
4
Nov-7
4
Dec-
74
Jan-
75
Feb-
75
Mar
-75
Apr-7
5
May
-75
Jun-
75
Jul-7
5
Aug-
75
Sep-
75
Oct-7
5
Nov-7
5
Recession #2 : 1981/1982US GDP and S&P 500
Source: Datastream
RecessionEnds
RecessionEnds
80
90
100
110
120
130
140
150
160
170
180
Jun-
81
Aug
-81
Oct
-81
Dec
-81
Feb
-82
Apr
-82
Jun-
82
Aug
-82
Oct
-82
Dec
-82
Feb
-83
Apr
-83
Recession #3: 1990/1991US GDP and S&P 500
Source: Datastream
Recession EndsRecession Ends
250
270
290
310
330
350
370
390
410
Jun-
90
Jul-9
0
Jul-9
0
Aug-
90
Aug-
90
Sep-
90
Sep-
90
Oct-9
0
Oct-9
0
Nov-
90
Nov-
90
Nov-
90
Dec-
90
Dec-
90
Jan-
91
Jan-
91
Feb-
91
Feb-
91
Mar-9
1
Mar-9
1
Apr-9
1
Apr-9
1
May-
91
May-
91
May-
91
Jun-
91
Jun-
91
A Tale of Three Recessions
1H ’91+ 34%Sept 1990
Q1 ’83+ 67%Aug 1982
Q2 ’75+ 47%Dec 1974
Recession EndS&P +1 yearMarket bottom
History and Crisis Events – DJI % Reaction
33.7%24.7%15.1%-11.3%8/18/1998- 10/8/1998Russia default, LTCM Crisis
6.5%4.7%-11.2%-0.3%8/7/1998- 8/10/1998US Embassy Bombings In Africa
25.0%10.5%8.8%-12.4%10/7/1997- 10/27-1997Asia Stock Market Crisis
12.9%9.7%3.9%0.6%4/19/1995- 4/20/1995Oklahoma City Bombing
20.7%8.4%2.7%-2.8%10/11/1994- 12/20/1994Russia,Mexico,Orange County
8.5%5.1%2.4%-0.5%2/26/1993- 2/27/1993World Trade Centre Bombing
9.2%3.2%0.6%-6.0%9/14/1992- 10/16/1992ERM UK Currency Crisis
11.3%1.6%4.4%2.4%8/16/1991- 8/19/1991Gorbachev Coup
18.7%19.8%17.0%-4.5%12/24/1990- 1/16/1991Gulf War Ultimatum
8.0%0.3%-2.7%-1.9%12/15/1989- 12/20/1989US invasion of Panama
15.0%11.4%11.5%-34.2%10/2/1987- 10/19/1987Financial Panic ’87
-1.0%-4.1%-4.3%2.6%4/15/1986- 4/21/1986US Bombs Libya
-3.2%-2.8%3.9%-2.7%10/24/1983- 11/7/1983US Invades Granada
20.8%-9.8%-8.5%4.3%4/1/1982- 5/7/1982Falkland Islands War
25.8%16.2%6.7%-15.0%2/13/1980- 3/27/1980Hunt Silver Crisis
6.8%-4.0%6.7%-2.2%12/24/1979- 1/3/1980USSR in Afghanistan
12.5%-5.7%-7.9%-15.5%8/9/1974- 8/29/1974Nixon Resigns
7.2%10.2%9.3%-17.9%10/18/1973- 12/5/1973Arab Oil Embargo
13.5%3.8%0.4%-4.2%5/4/1970 -5/14/1970Kent State Shootings
20.7%20.3%9.9%-14.4%4/29/1970- 5/26/1970US Bombs Cambodia
15.1%12.4%7.2%-2.9%11/21/1963- 11/22/1963JFK Assassination
24.2%17.1%12.1%1.1%10/19/1962- 10/27/1962Cuban Missile Crisis
7.2%6.7%5.5%-9.9%10/3/1957- 10/22/1957Sputnik
11.7%6.6%0.0%-6.5%9/23/1955- 9/26/1955Eisenhower Heart Attack
19.2%15.3%9.1%-12.0%6/26/1950- 7/13/1950Korean War
-4.9%
-6.5%
-17.1%
Date Range % Loss/Gain
11/2/1948- 11/10/1948
12/6/1941- 12/10/1941
5/9/1940 - 6/22/1940
Reaction Dates
Truman Upset Victory
Pearl Harbor
Fall of France
Event
1.9%3.5%1.6%
-9.6%-2.9%3.8%
7.0%8.4%-0.5%
126 mkt days63 mkt days
22 mkt days
1. What do you have?
2. What do you need?
3. How do you fill the gap?
What do you HAVE? What do you NEED?What do you HAVE? What do you NEED?
1. Invest in pure assets• Institutional instead of retail• Avoid style drift
2. Combine dissimilar asset classes• Stay on the efficient frontier• Utilize multiple asset classes
What do you HAVE? What do you NEED?What do you HAVE? What do you NEED?
3. Minimize the tax effect• Reduce turnover• Use tax-free investments when
appropriate• Achieve deferred TAX growth,
if possible
4. Minimize expenses• No wrap fees• No loads• No surrender charges• No trading costs
What do you HAVE? What do you NEED?What do you HAVE? What do you NEED?
1. How many years do you have until you retire?
35+ 30 25 2015 10 5
2. What is your investment time horizon?
35+ 30 25 2015 10 5
How much retirement incomeHow much retirement incomeWill you NEED each month?Will you NEED each month?
$ _____________ Current Annual Income
$ _____________ Your retirement goal
=
X
$ _____________ Your INFLATIONINFLATION Factor
=$ _____________ Your INFLATIONINFLATION Adjusted Income
at retirement.
$42,000$42,000
$ _____________ % required at retirement
X
70%70%
$29,000$29,000
1.901.90
$55,100$55,100$55,100$55,100
123456789101112131415161718192021222324252627282930313233343536373839404142434445
1.031.071.101.141.171.211.251.291.331.381.421.471.521.561.621.671.721.781.841.901.962.022.092.152.222.302.372.452.532.612.702.782.872.973.063.163.273.373.483.593.713.833.964.084.22
Years toRetire
InflationFactor
20 1.90
Now we will estimate your Social Security IncomeNow we will estimate your Social Security Income
Step 1. Enter your current monthly income.
Annual income 12 = $42,000$42,000
1212= $3,500$3,500
Step 2. Enter your Year of Birth. 19651965
Step 3. Age of Expected Retirement. 6565
To Calculate Your Factor – Follow These StepsTo Calculate Your Factor – Follow These Steps
Step 4. Find the Social Security Factor.
Year of Birth1940
orBefore
1941to
1957
1958or
After
0.270.290.320.340.360.37
0.260.270.300.320.340.37
0.240.260.280.300.320.35
Age at
Retirement
62 or Prior6364656667
$3500 per month
3. And your AGE at retirement. ________
2. Then use your Birth YEAR. ________
4. FIND the correct monthly factor. ________
1. Using your income, find the correct
BOX. _________ $3,500$3,500
65 0.34 0.32 0.30
6565
19651965
1958or
After
0.300.30
Now we will estimate your Social Security IncomeNow we will estimate your Social Security Income
Step 5. Figure your Social Security Income.
First – Determine The SmallerSmaller Of Your Annual Income or $68,400.
Second – Input your Social Security Factor.
X
Third – Calculate your projected Social Security Benefit.
=
0.300.30
$42,000$42,000
$12,600$12,600
Let’s calculate how much NET INCOMELet’s calculate how much NET INCOME you’ll need at retirement.you’ll need at retirement.
$55,100$55,100$55,100$55,100First – Enter your Adjusted Annual Income
at retirement.
$12,600$12,600Second – Now enter your projected annual
Social Security benefit.
-
Third – Your NET Inflation Adjusted Retirement (NIA) Income.
=
$42,500$42,500
LifeExpectancy
Factor
Ageat
Retirement
55565758
59606162
63646566
67686970
7172737475
18.7518.4118.0017.66
17.2516.8316.4216.00
15.5015.0814.5814.08
13.5013.0012.4211.83
11.2510.589.929.258.58
Pension FactorPension Factor Let’s calculate how much CAPITALLet’s calculate how much CAPITALwill be needed to provide this income.will be needed to provide this income.
Step 1. Your projected NIA income.
Step 2. Your projected pension benefit, if any.
-
Step 3. Your NIA income less any pension benefit.
=
Step 4. Now select your life expectancy factor.
X
Step 5. Total CAPITAL required to meet your goal.
=
$42,500$42,500
$0$0
$42,500$42,50065 14.58
14.5814.58
$619,650$619,650
How much will my current SAVINGS How much will my current SAVINGS help me reach my goal.help me reach my goal.
List your Assets – 401(k), IRA, 403(b), Mutual Funds
1. __________________2. __________________3. __________________
________________________________________________
________________
$15,000$15,000$25,000$25,000$ 5,000$ 5,000
Type FMV
Total
IRA401(k)
Mutual FundsMutual Funds
$45,000$45,000
Step 1. Your Accumulated assets.
Step 2. Growth Factor.
X
$45,000 $45,000
??
6% 10%8%Yrs toRetire
Growth FactorGrowth Factor
1.061.121.191.261.341.421.501.591.691.791.902.012.132.262.402.542.692.853.033.213.403.603.824.054.294.554.825.115.425.746.096.456.847.257.698.158.649.159.7010.2910.9011.5612.2512.9913.75
1.081.171.251.361.471.591.711.852.002.162.332.522.722.943.173.433.704.004.324.665.035.445.876.346.857.407.998.639.3210.0610.8711.7412.6813.6914.7915.9717.2518.6320.1221.7223.4625.3427.3729.5631.92
1.101.211.331.461.611.771.952.142.362.592.853.143.453.804.184.595.055.566.126.737.408.148.959.8510.8311.9213.1114.4215.8617.4519.1921.1123.2325.5528.1030.9134.0037.4041.1445.2649.7954.7660.2466.2672.89
123456789101112131415161718192021222324252627282930313233343536373839404142434445
30 5.7410.0617.45
Figuring the Growth FactorFiguring the Growth Factor
Step 1. Determine the number of Years to retirement.
AGE at Retirement
Current AGE
Years until Retirement
6565
3535
3030
Step 2. Look up Growth Factor at 8%. 10.0610.06
X
Step 3. Accumulated assets. $45,000 $45,000
=Step 4. Capital Available at 65. $452,700$452,700
6% 10%8%Yrs toRetire
122540577595117141168198230265304347393444500560626699777863956
1058116812881419156117151883206522622476270929613235353238544202458049905434591464356999
122539557290110132155181208238269304341381423470519572629691756827902983
1069116212611367148116021731187020172175234425232715292031383371361938844166
1226415878100124151182216254297344397455520592672761859968
108812211368153117101909212823712638293332593618401444514933546560506696740781919055100061105412209
123456789101112131415161718192021222324252627282930313233343536373839404142434445
Saving FactorSaving Factor How much MORE will you haveHow much MORE will you haveto SAVE to reach your goal?to SAVE to reach your goal?
Step 1. Total CAPITAL required to meet your goal.
$452,700$452,700Step 2. Capital Available at 65.-=
Step 3. Additional CAPITAL you need to create before retirement.
$619,650$619,650
$166,950$166,950..Step 4. Determine the Saving Factor
Years until Retirement 3030
Look up Saving Factor at 8%.
18831883
30 1367 1883 2638
Step 5. The Additional amount you need to SAVE
=$89 $89 per monthper month
1. What do you have?
2. What do you need?
3. How do you fill the gap?