What Is a Counselor S Responsibility When Guiding a Client to Invest?

Questions to Think About:

 What is a counselor’s responsibility when guiding a client to invest?  What are some factors to consider when choosing an investment plan?  What are the different types of investment options available?

Learning Objectives:

 Compare characteristics among stocks, bonds, mutual funds, ETF, and real estate  Analyze factors to determine investment choices  Learn criteria for choosing a financial planner  Understand strategies for providing for college education, and how to choose a strategy  Understand available tax benefits and role in financial planning  Understand available sources of income for retirement  Understand how to manage finances in retirement  Increase awareness of resources for seniors

1 Topic 10 | Investments & Future Planning |  Not to substitute our judgment for that of trained specialists

 Increase awareness of different types of investments and planning tools

 Increase awareness of questions consumers should ask

 Increase awareness of possible conflicts of interest

 Increase awareness of possible scams

 Increase awareness of where to find reliable, accurate resources and guidance

WHAT TO CONSIDER IN INVESTMENT & PLANNING

1. Age – Time before retirement or when access to funds may be required

2. Investment Objectives

3. Tolerance for Risk – Higher rates of returns are related to higher risks

4. Annual Savings and Investments (History)

5. Dollar Value of Current Investments

6. Economic Outlook

7. Current Assets/Diversification

2 COMMON TYPES OF INVESTMENTS

1. Stocks a) Stock certificates represent percentage share of equity ownership in a corporation b) Dividends are paid based on earnings and stockholder’s percentage share c) A corporate board can decide not to pay out dividends 2. Bonds a) Government or corporate IOUs – Pledge to repay specific amount with interest at a specific time b) Include Treasury Bonds and Treasury Direct Bonds (US Savings Bonds) c) Includes bonds issued by other government units such as cities 3. Mutual Funds a) Investor purchases shares in a company which owns shares in other diverse investments b) Helps to spread risk because mutual fund’s performance is based on diverse investments, rather than having investor put all of his investment in one type 4. Exchange Traded Funds (ETF) a) Holds assets such as stocks or bonds and trades at approximately same price as net asset value of its underlying assets over the course of the trading day.

o Most track an Index, i.e. S & P 500 5. Real Estate a) Return on investment (ROI) may be based on appreciation of value, or on revenue streams such as rent

3 Topic 10 | Investments & Future Planning | CHOOSING A FINANCIAL PLANNER

 Interview at least 3 prospective financial planners

 Look at education, experience, credentials and other qualifications

 Ask for references and talk to several of them

 Do they offer comprehensive financial planning?

 Knowledge and experience in cash management, tax planning, insurance, college savings planning, retirement planning and estate planning

 How are they paid? Any potential for conflict of interest?

 What are their credentials and licenses

 Certified Financial Planner (CFP) has met certain education, examination, experience and ethics requirements

 Pro-bono services are available

4 5 Topic 10 | Investments & Future Planning | 6 SOURCES OF RETIREMENT INCOME

1. Role of Social Security / Medicare (http://www.ssa.gov/retire2/agereduction.htm)  Eligibility  As early as age 62 or as late as age 70  Impact of age of retirement  Entitlement to full benefits depends on year of birth and designated “full retirement age”  Full retirement age is increasing  Retiring before full retirement age can mean reductions in benefits from 20 to 30%  Impact of earnings after retirement  No impact if full retirement age – can keep all benefits received If you are born January 2, 1943 - January 1, 1955 – your full retirement age is 66. If you have not reached your full retirement age during all of 2013, there will be a $1 reduction from your benefits for each $2 earned above $14,640. If client reaches full retirement age during 2013, deduct $1 from benefits for each $3 earned above $37,680 until the month full retirement age reached.

2. Pensions – Employment Based Plans  Tax deferred contributions – Catch up provisions which allow workers over 50 to increase contributions 3. Savings and Investments 4. Individual Retirement Account (IRAs) Compared  Traditional IRAs – Contributions of pre-tax dollars  Allows individuals to put away up to $5,500 ($6,500 if over age 50) annually for 2013 and accumulate interest tax free until withdrawn at the earliest age 59 ½ or beginning at 70 ½ at latest  Amount which can be contributed and deducted is based on Adjusted Gross Income levels  The funds are taxed at the time of withdrawal

7 Topic 10 | Investments & Future Planning |  Roth IRAs – Contributions are made with after tax dollars  Contributions are not tax deductible  All accumulated earnings are tax free  Allows individuals to put away up to $5,500 ($6,500 if over age 50) annually for 2013  No requirement to take distributions at any time  Eligibility for Roth IRA account is limited by income 5. Reverse Mortgage – Borrowing against the equity of home  Eligibility – age 62 years and older  Repaid upon death and/or sale of property 6. Borrowing from retirement savings  Taxes, penalties and interest may be triggered  For education or first time home purchase  Affect on “nest egg” 7. Annuities  Agreement (contract) with insurance company  Pays a guaranteed stream or series of payments

RESOURCES FOR SENIORS

1. Senior Citizens’ Resources (www.usa.gov/Topics/Seniors.shtml) includes information on: a. Caregiver resources b. End of Life Issues c. Travel

2. American Association of Retired People

3. City of Seattle Mayor’s Office for Senior Citizens www.seattle.gov/humanservices/seniorsdisabled/mosc/

8 9 Topic 10 | Investments & Future Planning | APPENDIX: Time – The Advantage of Starting NOW STARTING TO SAVE EARLY – Assume a 9% Return

10 11 Topic 10 | Investments & Future Planning |