financial anylysis

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INTRODUCTION Hello, Mr. and Mrs. Jones. Thank you for choosing Smith Wealth Management. We take honor in being able to assist you in creating a plan that fits not only your financial needs but your wants as well. At Smith Wealth Management, we’ve been in business for 10+ years and have been CFP certified for fifteen years. We gathered many different aspects of your financial life, performed an analysis, and put together this plan to help you achieve your goals. Below you’ll find a summary of key information and assumptions. CLIENT DATA - Steve Jones: 53 years old - Stephanie Jones- 47 years old - Lincoln (Oldest)- 18 years old - Sheila (Middle)- 12 years old - Ryne (Youngest)-11 years old - Michael R. (Business Partner)-43 years old GOALS - Purchase a condominium in the city their son Lincoln plays major league baseball in. - Steve reducing his working capacity to 60%, and income to 60% from On-Deck. - Commercial building for their business. Owning instead of renting. - Making sure Shelia and Ryne college is fully paid for. - Group Health insurance for On-Deck employees. - Charitable donations annually and bring family into the fold. - Steve plans on retiring at 60.

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INCOME TAX ANALYSIS

You are in a healthy tax bracket based on your income and pension. One of your goals is to reduce your tax burden and we’ve developed a plan to do just that. We recommend both of you max out your SIMPLE IRAs. The additional $27,200 of contributions will immediate save you $8,704 since you are in the 32% tax bracket. We also recommend you increase your charitable giving by $30,000 while working full time. Think of this as accelerating donations you would have made anyways, but making them in the years when you are projected to be in a higher tax bracket. This extra giving will save you $9,600 of taxes. Between these two recommendations, there is $18,304 of annual tax savings while you are working full time. Your tax bracket is projected to decrease in 2027 when you start to work less at On-Deck. We recommend making your normal $20,000 contribution. Most importantly, we recommend stop making cash donations and instead replace it with a donation of appreciated security. You also mentioned looking at group health insurance for On-Deck. One way to enhance the above tax analysis is to offer a High Deductible Health Plan (HDHP) with a Health Savings Account component. We do recommend enrollment into a HDHP plan, either with the company or through the ACA plans, so you can fund an HSA. The HSA limit in 2024 is $8,300 which would save you $2,905 in taxes this year.

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CASH FLOW ANALYSIS You have an exceptional income today, especially with the MLB pension. [NOTE TO STUDENTS: go on to explain how this pension functions or other attributes of the inflows]. Your expenses seem to be lower than your income allows for which leaves you with a projected surplus of $163,069. [NOTE TO STUDENTS: go on the explain any other attributes of their outflows that you noticed.] We strive to give every dollar a home and balance your budget so we know where each dollar goes. Please refer to the highlighted cells where there is a change or a recommendation on your cash flow. These will be covered later in the plan, but the changes include:

• Steve and Stephanie both reducing their time and income with On-Deck in 2027. • Max out your respective SIMPLE IRA contributions • Save $15K and $10K to 529 plans for a period of time • Save $33K-$96K to for the downpayment for On-Deck's commercial building • Increase brokerage account by making deposits • Pay off CC/auto loans in 2024; pay off HELOC in 2025 • Allocate money for disability insurance, life insurance, estate planning, and charitable

giving. o NOTE: the extra $30K for charitable giving is actually going to your investment

account to replace the $30K of appreciated securities you gave away.

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NET WORTH STATEMENT

[NOTE TO STUDENTS: use this section to note any observations about their net worth. Use the ratios we covered in class. ]

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EDUCATION FUNDING ANALYSIS You currently have three 529 plans set up for your kids’ education. Each child’s education process is unique and Lincoln is a prime example of this. If he doesn’t need his 529 for college, there are 3 options for his account:

• Keep in his name and use for future grandkids • Split the different between his two younger siblings and transfer to their respective 529s • Use his 529 proceeds to fund his Roth IRA in a few years

We recommend the last option: using his 529 to fund his Roth IRA later. Due to a recent law that passed, [continued to describe the 529 to Roth IRA option]. For the two younger Shelia and Ryne, there is a funding gap. Sheila has 6 more years until college but only $37,450 set aside in her 529 plan. Thankfully, you have a surplus in your cash flow that allows you to increase this college savings. We recommend saving $15,000 for three years, starting in 2025, which results in a projected $80,000 balance when she starts school which is sufficient for 4 years at the local college. This also assumes a non-guaranteed interest rate of 5%. For Ryne, her 529 balance today is $30,000. To fund 4 years at the local college at a cost of $20,000/year (in the future), we recommend saving $10,000 for three years starting in 2025. This will give her $82,000 by the time she starts college. [INSERT COLLEGE FUNDING GRAPH HERE]

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RETIREMENT ANALYSIS Listed below are the assumptions for the Retirement Analysis

Goals Current Age (Steve/Stephanie) 53/47 Retirement Age 60

Life Expectancy 92/94

Lifestyle Expenses $189,000

Investment Performance Rate of Return (pre-retirement) 11.0%

Standard Deviation 35.0%

Rate of Return (post-retirement) 11.0%

Standard Deviation 35.0%

Income, Assets, & Savings Rate Social Security (Steve @ age 67, 2% COLA) $36,000 Social Security (Stephanie @ age 67, 2% COLA) $30,000

Retirement Assets $3,347,585 Taxes Calculated Automatically

Based on current projections and without making any changes to the assumptions above, the success rate is 95%. However, we know there are goals of yours above and beyond the base assumptions.

Our recommended plan includes the following:

• Retiring early at age 58 • Purchasing a condo for $500,000 (using equity in existing condo to help purchase) • Max out Simple IRA contributions for both of you • Add to your investments $51,000 in 2028 and $48,000 in 2029 • Reallocate your investments to lower the risk now and again in retirement

o Assumes a pre-retirement rate of return of 8% (12% standard deviation) o Assumes a post-retirement rate of return of 5.5% (9% standard deviation)

• Delay Social Security until age 70 The new success rate, after moving forward with these recommendations is 95%.

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LIFE INSURANCE ANALYSIS [insert commentary about current life insurance policies. ] Below you will find our calculations to define insurance needs. As a result, we recommend a $600,000 15-year term life insurance policy. A policy of this nature is estimated to cost $500/year, per https://www.term4sale.com/. It is important not to cancel or change any existing policy until this new one is issued.

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ESTATE PLANNING ANALYSIS

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DISABILITY INSURANCE ANALYSIS

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LONG TERM CARE ANALYSIS

Since this is a concern of yours and you can afford it, we recommend applying for a LTCi policy that will provide you with joint benefits of $6,800/month, indexed to inflation, with a 60 day elimination period. Once the premium is determined, we can incorporate this information into your retirement plan to make sure the additional cost won’t adversely affect your retirement plans.

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ASSET ALLOCATION Your current investment allocation is quite aggressive, with concentration in a few companies, but also have a large cash balance.

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The best way to accomplish a shift in investments is to give appreciated securities to charities instead of cash (refer to cash flow and tax pages). Listed below is the gain/loss for each position and the tax ramifications for selling after giving is accounted for.

Ticker Cost Basis Value Gain/Loss AMZN $100,000 $300,000 $200,000 RVIN $100,000 $25,000 ($75,000) TOTAL $200,000 $325,000 $125,000

Realizing $125,000 of gains in one year will generate $29,750 of taxes ($125,000 * .238). Note: there is no tax ramifications for making investment changes in your IRAs. Regarding the 529 asset allocations, we recommend two different approaches. Since we want to grow Lincoln’s plan to fund his Roth later, we recommend a 100% stock allocation. For the girls, we recommend an age based allocation that shifts more conservative the closer they get to college.

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IMPLEMENTATION

Action Responsible Party

Target Completion Date

Date Completed

1 Max out both your Simple IRAs ($15,500 each)

Steve and Stephanie

12/31/23 and annually

2 Increase charitable giving by $30,000 for the next 2 years

Steve 2024-25

3 Stop making cash donations; give securities instead

Steve Immediately

4 Enroll into a HDHP Steve 12/15/23 5 Max out HSA funding ($8,300) Steve 3/1/24 6 Save $15K/year to Shelia’s 529 Steve 2025-28 7 Save $10K/year to Rye’s 529 Steve 2025-28 8 Save $33K-$96K/yr for the

building downpayment Steve 2025-27

9 Pay off CC and auto loans Steve 2024 10 Pay off HELOC Steve 2025 11 Purchase a $600K 15 year term

life policy on Steve Steve ASAP

12 Visit with an estate planner to review your current plan

Steve and Stepanie

3/15/24

13 Purchase a long term disability policy covering $4,300/mo of earnings

Steve 2/1/24

14 Apply for a LTCi policy covering $6,800/mo of expenses

Steve and Stephanie

6/1/24

15 Reallocate your investments. See page 12-13 for details

Steve 1/15/24

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APPENDIX

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NOTE TO STUDENTS: find this engagement letter at: https://www.cfp.net/ethics/compliance-resources/2021/11/sample-engagement-letters-for-financial- planning-and-financial-advice December 1, 2023 Steve and Stephanie Jones 1234 J Street, NW Washington, DC 20008 Dear Steve and Stephanie: I enjoyed our conversation and I am pleased to be working with you. This letter gives you important

information about the work that we (my firm and I) will do for you, how you will pay for services and products, and how we will be paid for the work that we will do for you. You will find other important information and a description of my obligation to act in your best interests in my firm’s Client Relationship Summary (Form CRS), Form ADV, and Investment Advisory Agreement. These documents provide additional information not in this letter, including about how you will pay and how we are paid. We gave you these documents. You should review them carefully and let us know if you have any questions. WE WILL PROVIDE YOU THE FOLLOWING SERVICES AND PRODUCTS You have engaged us to provide financial planning, including investment advisory services. Based on our

recent conversation, we understand that you would like to focus on the following: 1. Cash flow planning, including preparing a cash flow summary and planning for an emergency fund; 2. Investment planning, including reviewing your current investment portfolio and developing and

implementing an asset management strategy; 3. Retirement planning, including analyzing how likely you are to meet your target goals by your

retirement date; and 4. Estate, gift, and wealth transfer planning, including assessing your estate net worth and liquidity,

and whether you should create a trust for the benefit of your grandchildren.

Here is our approach to financial planning:

1. At first, we will ask you for information, so we can understand your personal and financial

circumstances. 2. Then we will work with you to identify and select goals. 3. After you have chosen goals, we will analyze your current course of action and other approaches

you might take. 4. Next, we will develop the financial planning recommendations. 5. Then we will present the financial planning recommendations to you, along with the information we

considered to develop them.

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6. After that, we will analyze and recommend actions, products, and services to implement the financial planning recommendations. We will work with you to decide which of my recommendations you would like to implement.

5. At least annually, we will monitor your financial plan. This will include: a. Analyzing the progress you have made toward achieving your goals. We will

remind you to tell us about changes in your personal and financial circumstances. When needed, we will update your goals, our recommendations, and the selection of the actions, products, and services we have recommended.

b. Monitoring the investments in your Investment Advisory Account and any actions we have taken.

Here is our approach to providing you with investment advisory services:

1. At the beginning, we will meet with you to develop investment goals and strategies that are consistent with your financial planning goals.

6. We gave you our Investment Advisory Agreement. It describes our advisory relationship and my firm’s investment practices that apply to you. We will manage the Investment Advisory Account on a discretionary basis. That means we will buy and sell investments for the accounts without first gettingyour specific authorization for each transaction. We will base these decisions solely on our best judgment about what is in your best interests at that time.

2. We will help you choose a firm (such as a broker-dealer or a bank) to hold (have custody of) the assets that we will manage for you. A separate custodial agreement will outline how your assets will be held and how you may access your assets. We recommend Schwab since that is where our business lies.

3. My firm will send you a report each calendar quarter that will show the value of your accounts, your accounts’ performance, and other account-related information. The report will show all transactions made in the accounts during the quarter, and any costs or fees deducted from your accounts. In the meantime, you can access your monthly statement online.

4. We will monitor these accounts and when appropriate, update your goals, our recommendations, and the selection of the actions, products, and services we have recommended.

As we learn more about your needs, we may discover other services you may need. If you need services that we do not provide, such as accounting and legal services, then we also may be able to recommend professionals to provide those services. HOW YOU WILL PAY FOR SERVICES AND PRODUCTS My firm’s Form CRS, Form ADV, and Investment Advisory Agreement include more information about how you will pay for products and services. We gave you these documents. You also can access them online. We will help you understand the fees you will pay and the cost of any services and products we recommend. Let us know if you have any questions.

• You will pay an advisory fee each quarter. The advisory fee covers our costs to manage your assets and provide other financial planning services. My firm will deduct the fee from your accounts

based on the average of the values of the Investment Advisory Account on the last business day of each of the last three months. The amount of the fee is 1% of the average Investment Advisory Account value. If your account value increases to more than $1 million, then the fee on the amount

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above $1 million will be 0.75%. There are additional details in the Investment Advisory Agreement. You should review that agreement carefully and let us know if you have any questions.

• If you invest in mutual funds and exchange-traded funds (ETFs), then you will pay fees and

expenses to third parties. In addition to the advisory fee you pay us, these products have operating expenses and ongoing fees. Mutual fund and ETF fees and expenses can include investment management fees and shareholder service fees.

• You will pay fees and expenses to the firm that holds (maintains custody of) your assets.

You will pay fees and expenses whether you make or lose money on your investments. Fees and

expenses will reduce the amount you earn on your investments. HOW WE (THE FIRM AND I) WILL BE PAID You pay my firm an advisory fee. I am paid a salary plus a part of the advisory fees that clients pay my firm. You will find more information about payments to me and my firm in my firm’s Form CRS, Form ADV, and

Investment Advisory Agreement. MY MATERIAL CONFLICTS OF INTEREST We have a conflict of interest whenever we have interests that are different from yours. Conflicts can affect the recommendations we give you. When we have a conflict, we will tell you. You can find more information about our conflicts of interest in my firm’s Form CRS, Form ADV, and Investment Advisory Agreement. We have policies and procedures designed to help manage conflicts. We will always work in your best interests.

• The ways you pay us create conflicts of interest. The amount we earn from working with you

depends, in part, on the amount of assets we manage for you. We have a financial incentive to recommend that you make financial decisions that would result in more assets under our management.

• If we provide other services to you in the future, there may be different conflicts. When we

have a conflict of interest, we will tell you about it. If you are concerned about a conflict of interest and how it might affect your accounts, please talk to me

about it. YOUR RESPONSIBILITIES It is your responsibility to update the information you have given me about your personal and financial circumstances. You will be sent account reports at least quarterly. You also can access the reports online. You should review these documents carefully. Let me know if you want to talk about the information in these documents. TIMING OF THE ENGAGEMENT

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Our engagement will continue until one of us decides to change or end it. If you decide to change or end the engagement, you just need to tell us. We can do the same, but we will tell you in writing. YOUR PERSONAL INFORMATION My firm has adopted and implemented policies about protecting and sharing your non-public personal information. We have given you our privacy policy. PUBLIC DISCIPLINARY AND BANKRUPTCY HISTORY My and my firm do not have a disciplinary or bankruptcy record. In 2017, the Securities and Exchange Commission (“SEC”) and the Certified Financial Planner Board of Standards, Inc. sanctioned me for failing to maintain required records. You will find more information at https://adviserinfo.sec.gov/ and cfp.net/verify. THANK YOU FOR WORKING WITH US Thank you for choosing us to work with you. We look forward to getting to know you better. You may reach me at [email protected] or 202-379-2200. Sincerely, Greg Smith, CFP©