0 november 2015 wealth management plan

1www.truepointwealth.com

November 2015

Wealth Management Plan

2 TruepointWealth.com

William Sharpe on Retirement Planning

“Retirement is a meaty topic. It’s meaty because there are no obvious solutions. There’s no ah-ha moment, where the answer is “x”.”

“The only way you can look at the retirement problem is through probability. You can’t look at it not with probability. Everywhere you turn there are probabilities: of inflation, of market performance, or mortality. It’s true that you don’t know the range of possible outcomes for next year, let alone 40 years from now. But you try to come up with the most credible set of probabilities that you can.”

William Sharpe

1990 Nobel Prize in Economic Sciences

Professer of Finance, Emeritus Stanford University

3 TruepointWealth.com

Focus on What Can Be Controlled

CONTROL

Less More

Policy

InflationInvestment

Returns

HealthLongevity

Employment

Portfolio Risk

SavingSpending

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Policy:Understand Risks – Social Security Benefits

Optimize lifetime Social Security benefits

Primary

Full Retirement Age

Early

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Spending:Understand Your Budget

EXPENSES

Essential Discretionary

Food

Healthcare

Charity

Travel

Transportation

Housing

Entertainment

The concept of essential and discretionary expenses:• A continuum – not 2 distinct buckets• Flexibility provides higher levels of sustainable spending over

long-periods

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Spending:Understand Changes Over Time

Source: Estimating the True Cost of Retirement, Morningstar

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Spending:Understand Risks – Longevity

50% ProbabilityEither Lives to age 92

30% ProbabilityEither Lives to age 95

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Spending:Understand Risks – Healthcare

Source: Consumer Expenditure Survey, Morningstar

Healthcare

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Spending:Understand Risks – Long Term Care

Average Duration of Nursing Home Care: Likelihood of Long Term Care Use:

Source: Center for Retirement Research at Boston College, “Long Term Care: How Big a Risk?”

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Spending:Understand Risks – Portfolio Volatility

All Trials Average Return Bad Timing

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Spending:Financial Projection – Scenario Analysis

Base Scenario Alternate Scenarios

Retire Age 52 Retire Age 55 Options 0% Growth

Retirement Age / Year 52/582016

55/612019

52/582016

Retirement – “Safe” Spending $80,000 $90,000 $50,000

Retirement – Discretionary Spending $40,000 $50,000 $50,000

Retirement – Total Spending $120,000 $140,000 $100,000

College Yes Yes Yes

Separation Payment Yes No Yes

P&G Price Appreciation 5% 5% 0%

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Investment Management

“I’d compare stock pickers to astrologers but I don’t want to bad mouth astrologers.”

– Eugene Fama, Nobel laureate in Economics and University of Chicago Finance Professor

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Focus on What Can Be Controlled

CONTROL

Less More

Policy

InflationInvestment

Returns

HealthLongevity

Employment

Portfolio Risk

SavingSpending

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There’s No Free Lunch

Many Choices

Don’t invest at all

Cash

Bonds

Annuities

Alternatives

Stocks

…and Tradeoffs

Longevity and inflation risk

Longevity and inflation risk

Credit and interest rate risk

Liquidity and credit risk

Liquidity, credit, and market risk

Market risk

Longevity

Market

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It’s a Balancing Act

Source: JP Morgan 4Q15 Guide to the Markets

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Gambling is for the Casino, Not the Portfolio

Attempting to identify “winners” can be a losing strategy

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Concentrated Position Test

Retire Age 52

• Single stocks carry idiosyncratic risk that as an investor, you are not compensated for.

• The markets reward diversified risk.

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Timing is Everything

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Employee Stock Options

You don’t need a crystal ball, but you might need to change your strategy.

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Focus on What Can Be Controlled

CONTROL

Less More

Policy

InflationInvestment

Returns

HealthLongevity

Employment

Portfolio Risk

SavingSpending

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Historical Marginal Tax Rates: Why Should You Care?

1913 1918 1923 1928 1933 1938 1943 1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 20130%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Historically speaking, our top federal marginal rate is low…

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Why Does Type Matter?

Current rate – 15% for most / 20% for high income taxpayers

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Surtaxes – An Alarming Trend

How to increase tax revenue without increasing the tax rate...

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Surtaxes – An Alarming Trend

This is not the only ‘surtax:’

Medicare surtax: 0.9%• On ‘excess’ wage/self employment income

Itemized deduction / exemption phase-out: 1.9%• When income exceeds thresholds

Actual top marginal tax bracket is in excess of 45%

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Let’s Add in Quasi-Means Testing

Medicare premiums dependent upon taxpayer income

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What One Hand Giveth...

The Alternative Minimum Tax continues to thrive...

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Alternative Minimum Tax By State

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What You Can Control

Timing of Income• Bonus deferrals• Option exercise• P&G lump sum distribution• Roth IRA conversions

– Roth “Two Step”– Outright conversions

• IRA withdrawals

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What You Can Control

Type of Income• Long term capital gain income

– Line 9b– Line 13

• Tax free income– Line 8b– Line 15a

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Identifying Timing Opportunities

Shift / defer higher taxed income into lower tax years:

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Leave none in the Plan

Leave all in the Plan

Use Retirement Plus feature of the Plan for investmentsMust maintain 40% of Plus account in P&G stockTake annuity, lump sum, or other form of distribution later

Leave some in the Plan

Take partial distributionsUse Retirement Plus feature of Plan for investmentsMust maintain 40% of Plus account in P&G stock

Individual annuity

Lump sum distribution – taxed or rolled

Annual distributions

Monthly distributions

Ad hoc distributions

Significant Arbitrage Opportunity

Profit Sharing Trust and Savings Plan Distribution Choices

Conversion of Marginal Tax into Capital Gain Tax

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Duke Technique Example

Non-P&G

P&G Common and

Preferred

Proper application of 60-day rollover of fair market value of P&G stock equal to or exceeding trustees’ cost may result in zero federal or state tax on qualified lump sum distribution

60-day rollover of P&G stock

PSTNon-P&G $1,000,000P&G Common $ 500,000P&G Preferred $ 800,000

(Trustees’ Cost = $ 300,000)

IRA

$ 1,000,000 + $300,000 $1,300,000

Computer Share $1,300,000

Taxable Brokerage $1,300,000 - $300,000 $1,000,000