ED SLOTT'S STAY RICH FOR LIFE

You will have a plan when you retire, either the one you plan, or the one that is planned for you.

In these tough times, Slott calls it the YOYO economy - You're On Your Own.

Since corporations can no longer take care of their employees and have shifted the burden by using 401ks, and the government is also broke, it's up to you to take care of your financial needs.

"I'm proud to pay taxes in the United States; the only thing is, I could be just as proud for half the money."
- Arthur Godfrey

401ks and IRAs are not taxed until they're withdrawn. But if you wait too long, Uncle Sam could end up taking more of it than you.

Top Federal Tax Rate
1918 77%
1946-1963 Over 90%
1964 77%
1965-1981 70%
1982 50%

"History does not repeat itself, but it rhymes."
- Mark Twain

These are just Federal tax rates. There are also state and city taxes. Some counties are broke too so they may need to tax more to get out of debt. San Mateo was hit big and lost a lot of money.

"There is no way for me to express how bad we feel about the loss."
- San Mateo County Treasurer

The Big Lie
You'd Be in a Lower Tax Bracket in Retirement

Free and Clear Forever
Not many people pay off their mortgage, but people used to do it. Why don't people think about their retirement savings the same way?

Take an example. Imagine having a $200,000 mortgage on a house worth $500,000. If you pay off the $200,000, you are free and clear. Now imagine having $200,000 in retirement savings. How much is your mortgage? You don't know because it's up to the government to decide how much they will take based on what they need at the time.

It's a good time to move accounts that are
Forever Taxed to
NEVER Taxed!

There are two vehicles to reduce the tax.
Roth IRAs and life insurance

Start Converting IRAs and 401(k)s to Roth IRAs

Roth Recharacterization
If you decide to convert, you still have time to change your mind.

Another benefit with the Roth IRAs is that you can keep your money in the account as long as you want.

Life Insurance
Single biggest benefit in the tax code. Some wonder why the government would give such a break. It's similar to deductions with charities. Why aren't they taxed? So the government won't have to give money to charities. Same with life insurance. They want to give you the benefit so they won't have to take care of you.

IRA Beneficiaries
If you list your son or daughter as the beneficiary, you can skip the estate tax. Additionally, it can be "stretched" to the lifetime of the son or daughter.

Real money is spendable money, money that can be spent. Rather than using the IRA as retirement money, take a life insurance policy out. Should that person die, the distribution would be estate and income tax free. The premium can be paid for from the IRA.

Another plan is to name the son or daughter as a contingent beneficiary.
Should the spouse die, the wife gets the $1,000,000 life insurance. She can then "disclaim" the IRA, goes back to the husband estate and goes to the daughter.

"Martyr Syndrome"
You refuse to spend your own money. Plan well so you can spend without guilt.

Five Step Plan
1. Know who you are and where you are.
2. Get educated.
3. Avoid mistakes.
4. Don't be short-sighted. Take the long view.
5. Take action in small, consistent steps.

Step 1 - Know Who You Are and Where You Are

Know . . .
- Your Time Horizon
- Your Risk Tolerance
- What You Want For Your Family

Have a Family Meeting

Step 2 - Get Educated

Advisor vs. Salesman

Use multiple sources with un-biased opinions.

Step 3 - Avoid mistakes

Some of the biggest mistakes are tax mistakes. Your investments may go up and down, but when you get taxed, you won't get any of it back.

Thinking someone else took care of it.

Impulsiveness - Hot tips

Too Good to Be True (Schemes and Scams)

Don't invest in something you don't understand.

Being a do-it-yourselfer. Get a professional advisor to help you.

Step 4 - Don't be shortsighted. Look at the long view.
Think about the benefit you'll get later, not now.

Step 5 - Take action in small and consistent steps.
Small steps = Big victories!

Ancient Greeks said that suffering arises from trying to control what is uncontrollable, or neglecting what is in our power to control.

GROW YOUR MONEY WITH JONATHAN POND

PBS finance guy shares some tips to grow your money.

How Great Wealth is Created
Four (Legal) Ways to Create Wealth

• Marry it - Marriage may be grand, but divorce is about a hundred grand.
• Inherit it
• Win the lottery
• Live beneath your means

On budgeting:
Nobody was ever meant
To remember or invent
What he did with every cent.
- Robert Frost

My problem lies in reconciling my bross habits with my net income.
- Errol Flynn

Oh money, money, money!!
I often stop to wonder
How thou canst go out so fast
When thou comest in so slowly.
- Ogden Nash

The Key to Creating Wealth: Postponing Income Taxes

• Contributing to retirement plans
• Tax smart investing outside retirement plans
• Investing in real estate (including a home)
• Starting a business

It's All About Retirement
Retirement: That's when you return from work one day and say, "Hi, honey, I'm home - forever."
- Gene Perret

I've got all the money I'll ever need if I die by four o' clock.
- Henny Youngman

• Choose investments carefully
• Increase your savings each year
• Avoid financial disasters
• Put time on your side
• Find out where you stand
• Don't become discouraged

Quiz
Most investors earn about 4% annual return on their investments. If an investor averages an 8% return and holds on to the money for 20 years before withdrawing it for retirement, how much more income will the investor be able to enjoy from the money?
A. 25%
B. 50%
C. 75%

This is a trick question. None of the choices is correct. The answer is 110%.

Family Money Matters

• Money Matters of Importance for Your Parents
• Health care
• Insurance
• Housing
• Day-to-day money concerns

Resources for Senior Citizens and Their Families
U.S. government resources for seniors
National Association of Area Agencies on Aging
AARP

The Younger Generation
Helping the Younger Set Become Financially Responsible

• Set a good example
• Talk about money

Where I was brought up we never talked about money because there was never enough to furnish a topic of conversation.
- Mark Twain

• Set limits

If you want a kitten, start off by asking for a horse.
- Naomi, Age 15

• Help them prepare for retirement

Your Spouse or Partner
An Intractable Problem?
Spenders are attracted to savers - and vice versa.

If Your Loved One is a Spender . . .
Not everyone wants to be a millionaire: Many are content just to live like one.

If Your Loved One is a Saver . . .
Misers may be tough to live with, but they make great ancestors.

Becoming a Successful Investor
Investment Tutorial

Temporary Investments

• Stable value
• Interest income varies

Bonds

• Fixed interest income, principal varies

Bond prices rise and fall. As interest rates go up, bond prices go down and vice versa.

Stocks

• Growth of Capital

Taking No Risk With Your Investments is Risky
Growth of $100,000 Over the Past 10 Years (including Internet bubble crash)

• No risk US Treasury Bills $145,000
• "Risky" stocks $240,000

Don't gamble! Take all your savings and buy some good stock and hold it 'til it goes up, then sell it. If it don't go up, don't buy it.
- Will Rogers

Diversifying Your Investments
Step 1: Divvying Up Your Money Between Stocks and Bonds

• It all depends . . .
• How your age influences the way you invest

Example
Stocks 60%
Bonds 40%

Step 2: Divvying Up Stock & Bond Money

Stock Allocation Example
Large companies 25%
Small & mid-sized companies 15%
International companies 20%

Bond Allocation Example
U.S. government 15%
Municipal 10%
Corporate 15%

Big Ticket Items

• Home
• College

Save for College & Retirement in the Same Account

Knowledge accumulates in universities, because the freshman bring a little in and the seniors take none away.

• Income Taxes

THE IRS = THEIRS

It has often been said that the only two certainties in life are death and taxes. But at least death doesn't get worse every time Congress convenes.

Sensible Car Ownership

• Frequent traders buy used
• Long-term holders buy new

The only way to solve the traffic problems of the country is to pass a law that only paid-for cars are allowed to use the highways.
- Will Rogers

Top Five Reasons You Know It's Time to Trade in Your Car
#5 - Instead of an air bag, there is a whoopee cushion taped to your steering wheel
#4 - For a 15-minute job, Jiffy Lube needs to keep your car for 3 days
#3 - Thieves repeatedly break into your car just to steal "The Club"
#2 - Traffic reporters start referring to you by name when discussing morning tie-ups
#1 - While sitting at a stoplight, people keep running up to you and asking if anyone was hurt

Using Debt to Your Advantage
Borrowing is Essential
Borrow Only for Things That Will Benefit You In the Future

It saves a lot of trouble if, instead of having to earn money and save it, you can just go and borrow it.
- Winston Churchill

Three Worthwhile Reasons to go into Hock
1. A Home
2. Education
3. Sensible Home Improvements

If medical science continues to prolong life, some of us may eventually pay off the mortgage.

Need a Short Term Loan? Borrow From Your IRA (1x per year, must re-deposit within 60 days)

Covering All Your Bases

• Common Gaps in Property Insurance Coverage
• Personal liability
• Replacement cost
• Valuables
• Natural disasters
• Safe deposit box

Never lend your car to anyone to whom you have given birth.
- Erma Bombeck

Ways to Save on Insurance

• Shop for lower premiums
• Eliminate unneeded coverage
• Increase deductibles

Is it Time to Trade in Your Term Life Insurance Policy?

I owe much; I have nothing; the rest I leave to the poor.
- Francois Rabelais

Where there's a will, I want to be in it.

All-in-One Investments
Consider All-In-One Investments

• Diversifies across several important investment categories
• Holds solid investments that are actively managed
• Regularly rebalances your holdings

All-In-One Investment Menu

• Balanced Funds
• Lifestyle Funds
• Target Date Funds
  

All-In-One Investments

• Get it and forget it, no-brainer investments
• Likely to do better than most can do on their own
• Do your homework, though

Getting Rich Is Boring

• Eliminate debt
• Maintain adequate insurance
• Find ways to reduce spending
• Build up and diversify your investments
• Own a home

Learn from the mistakes of others; you can't live long enough to make them all yourself.
- Eleanor Roosevelt

The Tortoise Beats the Hare: Getting Rich Slowly
The $100 Road to Riches
Save $100 per week and increase savings rate by 5% per year.
Savings Period Amount in the Kitty
10 years = $95,000
20 years = $400,000
30 years = $1,200,000
40 years = $3,800,000

Thriving After You Retire

• Making Sure You Never Run Out of Money
• Invest on your own vs. annuity
• Not an "either/or" decision
• The solution might be some of both

I advise you to go on living solely to enrage those who are paying your annuities. It is the only pleasure I have left.
- Voltaire

Roth IRA Conversions for All . . . Revision in 2010
No income limitation to convert.

Savoring The Good Life - New and Later
Never take financial responsibility for anything that eats.

Financial Drags
#3 Pets
#2 Spouses, partners, girlfriends and boyfriends
#1 Children

My hair stands on end at the cost and charges of these boys. Why was I ever a father! Why was my father ever a father!
- Charles Dickens

Simplifying Your Financial Life

• Set your records straight
• Get rid of unnecessary papers
• Maintain a household inventory
• Consolidate your accounts
• Bank online

It's Time to Indulge Yourself

What's Your Pleasure?

• Nice home
• Vacation home
• Expensive furnishings
• Late model car
• Exotic vacations
• Fancy clothes and jewelry

And in the end it's not the years in your life that count. It's the life in your years.
- Abraham Lincoln

SAVE MONEY NOW!

Greg Sherwood from KQED offers some advice on how to save money (according to Bottom Line).

Cut Your Recurring Base Costs
You should be able to cut 10% of your costs down without really changing too many things.
Family of 4 Living on $90,000
Save $9,000 a Year
$750 a Month

Save on Your Monthly Electric Bill
Ask your Utility Company About . . .
- "Time of Day" Energy Programs
- "Power Credit" Plans

Clip Coupons
The Sunday paper can save you money.

Take Action
You can't save money unless you try.

Review Your Bills
Companies can make mistakes so check to make sure there aren't any charges you're not familiar with.

Cell Phones
Find the Best Plan for Your Needs

Tax Bills
Ask to Have Penalties Waived

Hospital Bills
Look for Errors

Be a Savvy Medical Consumer And Get the Best Care

Put Your Retirement Money Into a Roth IRA
Roth IRAs can grow tax free and beneficiaries do not get taxed on withdrawals.

Three Ways to Re-Feather Your Retirement Nest
- Consider a Reverse Mortgage. Allows you to tap into equity as monthly income, lump sum or line of credit. Mortgage is repaid with sale of your house upon your death.

Guide to Reverse Mortgages from AARP
www.aarp.org/RevMort

- Reduce Your Debt. If possible, eliminate it.

- Save $10 a Day. An $8,000 debt can be paid-off in three years if you save this much.

STAY RICH FOREVER WITH ED SLOTT

Exit Strategy
Most people don't have a plan to withdraw their retirement income.

SHIP
The SHIP Slott refers to is an acronym. Although taxes are relatively low, he expects them to rise because the following programs need to be funded.

Social Security
Healthcare
Income Tax
Pensions

Y-O-Y-O
You're On Your Own

If you don't create your own plan, you'll get the government plan.

Where do you want your money to go?
- The Nursing Home
- The Internal Revenue Service
- Children
- Grandchildren
- Charity

This is the order that 90% of estates are consumed in. This order can be changed, but you need a plan. Even a will is not enough since some things override whatever is in the will.

IRAs are like a football game.
1st Half of the Game - Accumulation
2nd Half of the Game - Distribution

The Three Biggest Benefits in the Tax Code
- Life Insurance
- Estate Tax Exemption
- "Stretch" IRA

Dramatization of a problem
Take a $10 million IRA. You die. In 9 months an estate tax kicks in. It charges $5 million. Your family takes it out of the IRA. Now the 40% income tax kicks in and your family is charged another $2 million. Your family takes it out of what's left in the IRA. But then they will be charged another 40% on the $2 million they took out which is $800,000. This process will go on every 9 months until you have no money left.

Admiration
People just love to look at their statements. But . . .

You Use It
You Leverage it
or
You Lose It

The Three Biggest Benefits in the Tax Code

Life Insurance
In the problem, Slott would have had the guy take $5 million out of the account and put it in life insurance since it comes out income tax and sometimes estate tax free. Life insurance might be expensive (and you'll have a higher income tax), but you'll benefit more than if you get into the taxation cycle explained in the dramatization.

Estate Tax Exemption
At the time of this writing, the tax code allows $2 million in exemption per person. To get the exemption, you need to leave the IRA to family other than your spouse.

Stretch IRA
You must determine who your beneficiary is so they can "stretch" that IRA throughout their lifetime by extending the lifetime of their withdrawals.

The Beneficiary Form is the single most important document to you!

It's generally a better idea to take control of your money. IRAs give you more options than a 401(k).