[jIM_Ohio]

Questionaire- if you have suggestions for changing it, or adding to it, list changes here.

This list of questions is something I want so I can copy/paste to forum posts when people ask about retirement savings.

The goal of the questions is to give someone new to retirement saving something to think about.

The goal of the questions is to eventually make you self sufficient when doing retirement planning.

1) Do you have a budget? At minimum the monthly and yearly budget should show:
a) annual expenses (total)
b) annual income (total)
c) monthly expenses (total)
d) monthly income (total)

List the amounts for each

2) Do you spend less than you earn?
If you do, 1b should be higher than 1a and 1d should be higher than 1c.

If you spend more than you earn, redo the budget above until it balances.

3) For retirement planning purposes, take your annual expenses (1a) and multiply by 25. This is your "retirement target".

For example if you spend $40,000 per year, and multiply that by 25, you get $1,000,000. Meaning to retire on 40k per year, you need to save around $1,000,000.

This number is a target, it is not exact science... if you plan to retire in 30 years, the 40k you spend now might change depending on paying for kids college, paying off a mortgage, moving to a state with higher (or lower) taxes. The purpose of the target is to establish sticker shock only. Because of taxes, social security, pensions, inheritances, selling of a business and many other factors, the sticker shock can be reduced when you are within 5-10 years of retirement.


INVESTMENT RISKS
4) Nothing is risk free. Nothing. There are many types of risks. Do you know what the following risks are?
a) market risk
b) principal risk
c) interest rate risk
d) currency risk
e) investment risk
f) geo political risks
g) information risk
h) sector risk
i) liquidity risk
j) fees risk

If you do not know what a risk is, ask.

5) Which is better- a large sum of money earning a small interest rate/ rate of return, or a small sum of money earning a higher interest rate or rate of return?

example:
Is it better to have $50,000 earning 2% interest or $5,000 earning 8% interest?

There is not "one" correct answer- the purpose of that question is make decisions based on information and risk.

6) If someone tells you the expected return of a given investment is 9% with a standard deviation of 15, do you know what this means?

standard deviation is the expected return variances, meaning if 9% is the average return, with a deviation of 15, that means that investment returns -6% as often as it returns 24%. 9-15=-6 and 9+15=24.

6a) what is an acceptable standard deviation for investments you choose?

7) Do you know what asset allocation is?

8) Do you know what the following terms mean?
a) stock
b) bond
c) cash
d) money market
e) mutual fund
f) commodity

9) what is the difference between something labeled domestic and something labeled foreign?

For example foreign stock vs domestic stock or a foreign bond vs domestic bond.

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TAXES. This next section is to see how much you know about taxes and tax rates as it pertains to personal finance and investing.

10) What will be higher, taxes for you now or taxes for you in future? Consider future as both what you earn next year, and what you will also pay 30-60 years from now.

11) Do you know what tax bracket you are currently in for federal level? Hint, answers are
a) 10%
b) 15%
c) 25%
d) 28%
e) 33%
f) 35%

12) Does your state have an income tax?

13) Which federal tax bracket are 66% (most) of US tax payers in?

14) If you move from one tax bracket to another, does all of your income get taxed at the higher income tax rate?

14a) Do you know what determines what tax bracket you are in (federal tax bracket)?

15) What is a tax deduction (as it pertains to filing your income tax return)?

15a) What is a tax credit (as it pertains to filing your income tax return)?

16) Is the goal of saving to
a) pay less taxes
b) make money you have available work most efficiently
c) maximize income regardless of taxes
d) pay no taxes
e) maximize deductions and tax credits

**In general there is not one correct answer to above**

Example questionaire:
Use these examples to see how you would respond to certain financial planning situations.

Example A: Asset Allocation examples with deviations.

portfolio 1
93% equities
7% bonds and cash
70% domestic
23% foreign
7% bonds and cash is mostly cash
expected return 10.5%
expected deviation 15%
range of returns -4.5% as likely as +25.5%

portfolio 2
79% equities 21% bonds
62% domestic
27% foreign
21% bonds or cash with some foreign bonds
expected return 10%
expected deviation 14.3%
range of returns -4.3% as likely as +24.3%

portfolio 3
55% equities 45% bonds
41% domestic
14% foreign
45% bonds and cash. Cash is higher than above; more domestic bonds than above, about same amount of foreign holdings as above.
expected return 8.5%
expected deviation 9.9%
range of returns -1.4% as likely as +18.4%

portfolio 4
40% equities 60% bonds
20% domestic
20% foreign
60% bonds and cash. Cash, bonds and foreign holds all higher than above.
expected return 7.5%
expected deviation 7.1
range of returns .4% as likely as 14.6%.


Example 2: Porfolio philosophy
There are 5 phases a portfolio goes through as you progress through life.

They are:
1) starting out
means your deposits are higher than account balance, or your deposits are a significant (at least 5%) of your account balance.
2) accumulation.
means your deposits are higher than annual return (for example a $5000 annual Roth IRA deposit is higher in dollar amount than the annual return of your portfolio)
3) growth
means your deposits are a small fraction of your portfolio value. For example if you have $500,000 already invested and that money earns 5% ($25000) in one year, that $25,000 is worth more than the $5000 annual IRA deposit.
4) stability
means the growth of the porfolio is worth more than the income you have from a job. If you earn $40,000 per year and have $500,000 earning 9%, the portfolio is stable because it earned $45,000 while you earned $40,000.
5) draw down
means you have to sell shares because the stable portfolio does not provide enough income to you through annual gains. If you need $50,000 and your porfolio of $500,000 earning 9% only generates you $45,000, you need to sell shares so you have $50,000 in income for the year. The following year you only have $495,000 earning 9% and you will need to sell more each year to meet income needs.

17) Which portfolio allocation is best when you are accumlating assets? There is not one single correct answer.

18) Which porfolio allocation is best when you are retired? There is not once single correct answer.

19) How do you decide when porfolio goes from one phase to another?

20) How do you decide how paying off a mortgage fits into the plan?

21) How do you decide how paying for kids college education fits into the plan?

22) Which of the following best describes how comfortable you are with money and life?
a) You prefer to be debt free and are willing to work 10-20 years longer because you have no debt, and no debt means no stress.
b) You prefer to have your net worth be as high as humanly possible. Means you will be smart with money, look for decent returns with money, and knowing the returns of a given decision drives most financial matters.
c) You want to stop working as soon as humanly possible because you prefer to spend time with family, friends and lead a richer, more fulfilling life.
d) You want to be financially independent as soon as possible, so you can make decisions about debt, retirement, work and other life matters without regards to money.