Fritz: All Fritz/All Fritz.zip/All Fritz/FILES/FINACIAL/FINPLAN.LZH/PLAN9.CHP

Text File | 1992-11-06 | 24KB | 719 lines

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#EF
#T15,4,LONG RANGE FINANCIAL PLANNING
#C3,R5
   THE FINANCIAL PLANNER includes a program to assist you in long-range
          forecasting and planning for your financial future.
#D1

   It is a very comprehensive program.  In it, you can include every sig-
   nificant known factor affecting your financial status, and you can also
   include your best estimates of factors which are important to your fore-
   cast but which are not known precisely.
#D2
#BN,2,12,78,24,1,0,0,0,11,1
      ~C~ITHE FINANCIAL PLANNER takes into account all of the following:
        ∙ Wages (Self & Spouse)
#D1
        ∙ Future Wages
#D1
        ∙ Tax-Deferred Investments
#D1
        ∙ Taxable Investments
#D1
        ∙ Checking & Savings Accts
#D1
        ∙ Lump-Sum Income
#D1
        ∙ Lump-Sum Expenses
#D1
        ∙ Mortgages
#D1
        ∙ Property Taxes
#D1
        ∙ Federal Income Tax
#D1
#C44,R14
∙ Pension Income
#D1
∙ Social Security Income
#D1
∙ Mortgages
#D1
∙ Property Taxes
#D1
∙ Federal Income Tax
#D1
∙ Investment Earnings Rates
#D1
∙ Cost-of-Living Adjustments
#D1
∙ Inflation
#D1
∙ Retirement Ages
#D1
∙ Desired Retirement Income ~N
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#C3,R5
                          USING THE PROGRAM

The program presents a series of data input screens, (one for each major
category of information), on which you enter all of the pertinent data for
your particular circumstance.
#D3

When you have entered all data, the program then considers the interactions
of all the factors listed on the previous screen in this Manual, and calc-
ulates, ~K~W~Ifor as many years into the future as you have requested,~N~k the follow-
ing projected data for each of those years:
#D3

      Tax-Deferred Investments : ~C~IEarnings, Withdrawals, and Balance~N
#D1
      Taxable Investments .... : ~C~IEarnings. Withdrawals, and Balance~N
#D1
      Cash & Checking Accts... : ~C~IYear-end Cash Balance~N
#D1
      Investment Income ...... : ~C~ITotal for the Year~N
#D1
      Social Security Income.. : ~C~ITotal for the Year~N
#D1
      Federal Income Taxes.... : ~C~ITotal for the Year~N
#D1
      Net Spendable Income.... : ~C~ITotal for the year~N
#D1

Finally, the program provides printed summary and detailed annual reports.
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#T15,4,WHAT THE PROGRAM DOES WITH YOUR DATA
#C2,R5
                                YOUR AGE(S)

   Federal Income Tax law has several age-related aspects. For example...
#D1


  Age     Impact
#HH,1,11,7,1,14,1
#HH,11,11,76,1,14,1

 55       ~C~IAll or part of the profits on a home sale may be exempt from taxes.~N
#D2
 59-1/2   ~C~IIRA withdrawals before this age are subject to a 10% penalty.~N
#D2
 65       ~C~IStandard  deductions are increased.~N
#D2
 70-1/2   ~C~IIRA withdrawals must begin no later than this age.~N
#D2
 70-1/2   ~C~IBeginning at 70-1/2, annual IRA withdrawals must be at least equal to
             amounts determined according to IRS actuarial tables based on your
             (and your spouse's) ages.~N
#D2

The program uses the age data you supply (along with the other financial trans-
action data) to properly calculate the projected Federal Income Tax for each
year in your plan.
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#C2,R4
                          YOUR TAX FILING STATUS

Federal Income Tax rates, personal exemptions, and standard deduction
amounts are determined by your tax filing status. The program selects the
correct rates, exemptions and deductions to use in the analysis based on
your filing status - <M> married filing jointly, <H> head of household, or
<S>single.
#D3

#HS,2,12,79,21,0,3
~Z~cNOTE: The program assumes that your tax-filing status will not change
      during the years covered by your financial plan.  For older people,
      (near or beyond retirement age), that's probably a good assumption.

      If it is not a good assumption in your case, and you know in which
      year a change in status will occur, you can simply split a forecast
      period in two parts: (1) now to the change date, and (2), change
      date to end of forecast period; and run the program twice, using the
      calculated ending position from the first part as the starting position
      for the second part.~N
#D5

(In fact, the ability to quickly make multiple program runs to compare what-if
alternatives is a major feature of the program).
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#C2,R5


                        WAGES (SELF & SPOUSE)

The program calculates expected future year wages based on your current wages
and your estimate of your average annual increase, and for a spouse's wages.
It adds these amounts to all other taxable income- beginning with the present
year and continuing to your respective retirement dates.

#HS,2,15,79,19,0,3

~Z~cNOTE:  If you or your spouse anticipate receiving only occasional short
term wages in a year (or a few years), either before or after retirement,
you can most easily account for those additional periodic wages by entering
them, year-by-year, in a later data entry screen titled "OTHER TAXABLE
INCOME.~N
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#C2,R5
                      PENSIONS (SELF & SPOUSE)


Most private and government pension plans will give you an estimate of the
monthly payments you can expect at a specified age, assuming you continue to
work until that age at your current wage.


The program automatically includes these pension payments (for you and/or
your spouse) to the total taxable income in the years after your respective
retirement dates. (It also handles voluntary pension supplements, if your
pension plan(s) provide them...and a few extraordinarily good plans do!).
#D4

#HS,2,18,79,23,0,3
~Z~cNOTE:  Many plans base the pension amount on years of service and a percent
of your final year's salary.  Thus, the FINANCIAL PLANNER generated forecast,
based on a pension keyed to your present salary, will be conservative.  If you
wish to make a less conservative forecast, you can adjust the pension estimate
by the ratio of your anticipated final salary to your current salary, prior
to entering that amount in the program.~N
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#C2,R5
                     SOCIAL SECURITY (SELF & SPOUSE)

The Social Security Administration can give you an estimate of the Social
Security payments you may expect starting at age 65 (or age 62) based
upon your total Social Security contributions to date.
#D3


The FINANCIAL PLANNER program automatically adjusts this amount to an amount
you might receive at your starting age (62 or 65) based on the assumption that
you will continue working and contributing to Social Security until that age.
#D3


Also, the program adjusts on-going Social Security payments based on your
estimate of the cost-of-living adjustments (COLA), if any, that may be made
by the Social Security Administration in future years.
#D3

(It can probably be assumed that these adjustments will never be negative,
and that they will never be greater (percent per year) than the average
annual inflation)..
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#C2,R5
       IRA ACCOUNTS, 401(k) ACCOUNTS, AND OTHER TAX-DEFERRED ACCOUNTS

The program handles these savings accounts separately from any other savings
savings or investments you may have--for several reasons.
#D3

First, they frequently produce earnings at a rate different than other
savings and investments.
#D2

Second, they usually have a major earnings advantage over other savings
and investments plans because their earnings are not taxed until withdrawn.
(And, therefore, the program does not withdraw any of these funds to meet
your projected expenses until all other sources of funds have been used up).
#D3

 And third, the special IRS tax rules governing taxes on IRA funds (penalties
on withdrawals before age 59-1/2, minimum withdrawals after age 70-1/2), etc.
make it necessary to treat these funds separately.
#D3


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#C2,R5
                         OTHER (TAXABLE) INVESTMENTS

The amount that any individual is allowed to invest in any year in tax-deferred
retirement plans (IRA's, 401(k)'s, and SEP's) is limited by law.
#D2

Any remaining available investment funds are usually placed in currently tax-
able investments.  Examples are stocks, stock options, bonds, mutual funds,
money market accounts, certificates of deposit, mortgages, private loans, and
small business investments.
#D3

Earnings on these accounts are taxable in the year they are earned whether the
earnings are withdrawn or are allowed to accumulate.
#D2


The program handles federal income taxes on these earnings accordingly.

~C~ITHE DATA ENTRY SCREEN FOR THESE INVESTMENTS IS TITLED "OTHER INVESTMENTS".
YOU SHOULD TOTAL ALL SUCH INVESTMENTS IN ANY YEAR AND ENTER THAT TOTAL VALUE
FOR EACH YEAR.~N
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#C2,R5
                         OTHER TAXABLE INCOME


In addition to the regular taxable income already entered in the program -
wages, earnings on investments or savings accounts, checking account
interest, pension payments, and so forth - you may have (or expect to have)
other taxable income, either regularly or irregularly occurring.


Examples:

Short-term wages after retirement (self and/or spouse), the taxable portion
of profits on the sale of a home or other residence, taxable profits on the
sale of other assets, etcetera..


If you anticipate such income, you should enter the amount of each such item
in the year(s) you expect to receive it.
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#C2,R5
                 OTHER NONTAXABLE INCOME (AND EXPENSES)

You might also expect some major NONTAXABLE income (or expenses) in certain
future years, in addition to the items already entered.
#D2

~C~IExamples of possible nontaxable income:~N
   Refunds of savings plan contributions, cash value payouts from life insur-
   ance policies, inheritances, or the nontaxable portion of profits from a
   homesale.


~C~IExamples of possible significant one-time or short-term expenses:~N
   College tuition and expenses, graduation and wedding gifts, purchase of that
   dream boat, RV or automobile, or gifts to children for home down payments.
#D5

If you anticipate one or more significant nontaxable income or expense items
such as these, you should enter the amount for each in the appropriate year
on this data input screen.

~C~INOTE: Expense items must be entered as NEGATIVE amounts.~N
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#C2,R4
                   HOME MORTGAGES (AND PROPERTY TAXES)

Mortgage interest payments and property taxes are frequently such large
parts of annual expenses that they justify separate treatment. Both mortgage
interest and property taxes are deductible from taxable income, and they may
very well total more than the standard deduction allowed on income taxes.
#D2

The program therefore computes the interest included in your mortgage payments
for each year, adjusts property taxes for yearly inflation, and uses these
deductions rather than the standard deductions to calculate your annual income
taxes in any plan year in which they exceed the standard deductions.
#D3
#HS,2,16,79,21,0,3

~Z~cNOTE: If you plan to sell a mortgaged property during any plan year, you
should run the module "SELLING YOUR RESIDENCE" before running the PLANNING
module.  This will give you the taxable and non-taxable amounts you will
realize from the planned sale.  You should note down these amounts and enter
them (for the appropriate year) in the "Other Taxable Income" and "Other Non-
Taxable Income" sections of the PLANNER module when you run the PLANNER.~N
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#C3,R9
#HS,2,9,79,17,0,3
~Z~cNOTE: Because the tax laws allow interest deductions on no more than two
homes, (your primary and secondary residences), the program  does not allow
you to input more than two mortgages.

If you carry additional mortgages on investment or income property, the
interest portions of these additional mortgage payments should be considered-
for purposes of this program analysis- as business expenses to be deducted
from business income before entering net taxable incomes in a later section
of the program.~N
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#C2,R5


                CASH ON HAND, INCLUDING CHECKING ACCOUNTS


In this program, the term "Checking Accounts" means the combined total of
all your easy-access funds - cash on hand, regular checking accounts, NOW
accounts, regular bank or S&L savings accounts for relatively small amounts,
etcetera.

If a major portion of these funds earns interest, you can enter an average
interest rate, which the program will apply to the total amount of all such
funds.  Thus, if you enter an interest rate, it should be conservatively
estimated, and should always be somewhat less than the quoted rate on that
portion which does actually earn interest.
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#C2,R5
                     DESIRED ANNUAL SPENDABLE INCOME


For many people, one of the over-riding objectives of their working careers
is to earn enough, and to invest their savings well enough, to be able to
enjoy a desired standard of living in their retirement.  That standard, at
least in terms of physical comfort and security, usually translates into a
specific annual spendable (after tax) income.


That spendable amount will probably increase slightly each year, as inflation
gradually erodes the purchasing value of the dollar.


And many people may have at least one sudden shift in the amount desired --
when they move from an owned residence to rental quarters, or vice versa.


The final data input screen in THE FINANCIAL PLANNER program asks you to
enter information on these items.
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#EF
#T15,4,PROGRAM CALCULATIONS
#C3,R5




The next few screens tell you a little of what THE FINANCIAL PLANNER does in
using the data you supply.  Among other things, the program:
#D2


~C~I- Selects the appropriate Federal Tax Tables.
#D1

- Adjusts each year's tax brackets, personal exemptions, and standard
  deductions for your projected inflation rate.
#D1

- Selects the appropriate Life Expectancy Multiples from IRS Tables (for use
  in calculating minimum IRA withdrawals each year after age 70-1/2.~N
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Then, for the current year and ~Kfor every succeeding year:~k


~C~I- Calculates earnings on your IRA accounts, investment accounts, and checking
  accounts.

- Sums all anticipated income and expenses

- Calculates  Federal income tax.~N
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#C3,R5


If the year's current income (excluding investment earnings) is ~C~IMORE~N than
the year's total expenses - (including Federal income taxes) - the program
first allocates part of the excess to increase your checking account balance
for the effect of inflation, and then it allocates the remaining excess to
your taxable investment accounts.
#D5

If the year's current income is ~C~ILESS~N than total expenses - it covers the
shortfall first by using any remaining checking account balance above your
specified minimum; and then uses any remaining funds in your taxable invest-
ment accounts.  If the shortfall is still not covered, the program then uses
the necessary funds from your IRA accounts.
#D5


~C~I(If the latter becomes necessary, the program recalculates your income
tax for that year, including a penalty if under age 59-1/2, and withdraws
the funds to cover the extra tax from the IRA account).~N
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#C3,R5
                         WHAT THE PROGRAM DOES
                       AFTER IT HAS ALL YOUR DATA

Further:

 -- If you are age 70-1/2 or older in a given year, the program also computes
minimum IRA withdrawals. If the IRA withdrawal otherwise needed to meet
expenses would have been zero or less than the calculated minimum, the program
withdraws the legally required additional amount, recalculates your
income tax once again, pays the tax, and adds the remainder of the IRA with-
drawal to your investment accounts.
#D5


    ~C~IThe foregoing is far from a complete description of the calculations
    and logical decision making within THE FINANCIAL PLANNER,  but it is
    indicative of the kind of things that are taken into account in making
    the financial projections.~N
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#T15,4,WHAT THE FINANCIAL PLANNER REPORT CONTAINS
#C3,R4


          THE FINANCIAL PLANNER provides two levels of reports:

~C~IBrief (On-screen)~N

This very abbreviated summary reports your financial status at the end of
the specified forecast period.  It includes the ending balance, if any, in
each category of investment.
#D3


In the event that your resources are exhausted prior to the end of the
specified period, the report indicates how many years into the plan the
funds finally run out.
#D3


~C~IWhatever the indicated result, it is a simple matter to make additional
program runs, adjusting early year savings and/or later year withdrawals,
until you achieve a plan that you feel is as realistic as possible, given
your present age, financial status, and best estimates of future rates-of-
return, inflation, etcetera.~N
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#C3,R4
                            PROGRAM REPORTS

~C~IDetailed (Printer Required)~N

This long-form report details your forecasted financial status at year-end
for each year in the forecast period.  It includes the follwing information
for each year:
#D2

     ~C~I(a) Calendar Year
#D1
     (b) Your (and your Spouse's) Ages
#D1
     (c) IRA Accounts Balance
#D1
     (d) IRA Accounts Earnings
#D1
     (e) Investments Balance
#D1
     (f) Investments Earnings
#D1
#C44,R13
     (g) Pension Income
#D1
     (h) Social Security Income
#D1
     (i) Investment Income
#D1
     (j) Federal Income Taxes
#D1
     (k) Net Spendable Income~N
#D1
#C3,R20
Once you have created as realistic a plan as you think possible, it is in-
valuable to save a long-form printout, together with the data & assumptions
you put into the plan, to compare your actual plan year performance against
the projection.  This technique will provide you much information to make
ever better plans in each succeeding year!     Good Luck!
#WP

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#EF
#T15,4,HANDLING FEDERAL INCOME TAXES IN THE FINANCIAL PLANNER
#C3,R12
#HH,10,11,70,1,11,1
            ~C~IFederal Income Taxes are an important part of any
            financial plan.  They can significantly affect your
            ability to accumulate assets. As such, they are
            an integral part of THE FINANCIAL PLANNER's con-
            siderations.  Here's how they are handled.~N
#HH,10,17,70,1,11,1
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#C3,R5
~C~IFEDERAL INCOME TAXES - EXEMPTIONS & DEDUCTIONS~N

Current Federal Income Tax allows specified personal exemptions and standard
deductions, based on your age and your filing status.  These exemptions and
deductions are inflation-indexed--that is, adjusted with an inflation index
so that their real value will not be diluted as inflation occurs.

THE FINANCIAL PLANNER assumes a two-person household for Married Couples
filing jointly and for those filing as Head of Household, includes the extra
deductions for those beyond 65 years of age, uses the rates established for
1991, and adjusts the dollar amounts for subsequent years based upon the est-
imated annual inflation rate you enter into the program.

Amounts paid for mortgage interest and property taxes on up to two personal
residences are deductible from taxable income as itemized deductions. Because
these amounts are generally higher than the allowed standard deductions, the
FINANCIAL PLANNER computes these amounts for each year in your plan, and, for
each year in which they are higher than the standard deduction, it uses those
amounts rather than the standard deduction in calculating that year's taxes.
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#C3,R4
~C~IFEDERAL INCOME TAXES - IRA & 401(K) INVESTMENTS~N

There are three major differences, from an income-tax point-of-view, between
these and any other investments. THE FINANCIAL PLANNER automatically includes
the effects of all three of these.

~C~IOne:~N
All earnings and, within limits, the initial investments themselves, are free
of income tax until they are withdrawn.

~C~ITwo:~N
Any funds withdrawn from these accounts prior to your reaching 59-1/2 years of
age, are subject to a Federal tax penalty of 10%, in addition to the regular
taxes due on the total amount withdrawn.

~C~IThree:~N
After you reach 70-1/2 years of age, you MUST withdraw a certain minimum part
of your total IRA investments, regardless of your need for such amounts.
The minimum withdrawal amount in any year is based upon your (or you and your
spouse's joint) life expectancy, is different each year, and is governed by
IRS published Tables.
#WP

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#C3,R4
~C~IFEDERAL INCOME TAXES - INVESTMENT EARNINGS~N

THE FINANCIAL PLANNER assumes all investments to fall into one of two classes
for income tax purposes.

~C~ITax-Deferred Investments:~N

These include IRA Accounts, 401(k) Plans, and SEP Accounts.  Earnings are con-
sidered to be tax-deferred until funds are withdrawn, and the total annual
earnings are added to the start-of-year investment.  Funds withdrawn are con-
sdered fully taxable in the year in which withdrawn.


~C~IOrdinary Taxable Investments~N

These include all other investment accounts, whatever their nature.  Earnings
are considered to be taxable in the year earned. Income taxes are calculated
on the earnings in the year earned.  If the sum of these earnings (after tax)
and all other after-tax earnings in any year are greater than your projected
earnings for that year, the remaining funds are added to the start-of-year
balance for your total Taxable Investments.
#WP

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#C3,R5
~C~IFEDERAL INCOME TAX - PROFITS FROM THE SALE OF A PERSONAL RESIDENCE~N

Net profits from the sale of any asset are subject to Federal Income Tax at
the same rate as any other income.

However, the Federal tax laws make two exceptions for the profits from the
sale of a personal residence.

~C~IOne:~N
If you re-invest the profits in another primary residence within two years of
the date of sale, and that residence costs at least as much as the residence
sold, taxes are deferred.

~C~ITwo:~N
If you are 55 years of age or more, do not purchase another primary residence
within two years, and neither you nor your spouse has used the exemption be-
fore, up to $125,000 of such profits are exempt from Federal Income Tax.

THE FINANCIAL PLANNER contains a calculation module to determine taxable & non-
taxable portions of such profits, and a facility to enter them accordingly.
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#C3,R5
FEDERAL INCOME TAXES - SOCIAL SECURITY INCOME

For the majority of Social Security recipients, Social Security payments are
tax-free.  However, there is an earned income limit.


If your earned income exceeds a certain amount, and you are under age 70,some
portion of your Social Security payments will be subject to Federal Income
Tax.  As your earned income increases above that amount, so too does the port-
ion of your Social Security payments subject to Federal Income Tax, until, at
some point, your entire Social Security payment becomes subject to tax.


After you reach age 70, your Social Security payments are not subject to tax,
regardless of the amount of your earned income.


THE FINANCIAL PLANNER automatically considers these tax provisions, and will
apply them, if appropriate, in each year of your plan.
#WP

#X