The EndGame(tm) We derive our philosophy from Chess, where the masters analyze three phases of the game: opening, middle and end. If we view life thusly way each phase is about 24 years. In the first we acquire knowledge and skills, in the middle it is money and in the end it should be rewards, but often that is not the outcome. The EndGame(tm) is designed to optimize and your retirement with powerful ideas and challenges to convention. Let us consider one of them: Leaving it to the kids? If you married in your 20's, had children and live into your 70's or 80's, your offspring will be in their 50's by the time they get your money. If they haven't made theirs by then, they never will and won't know how to handle yours. If they've made their own, they won't need yours so why does this idiotic tradition survive? Secretly, in the darkness of your larcenous old heart, you're really slathering guilt on your offspring when you talk about your Will so they'll invite you to Sunday dinner, listen to your old stories again and not call you a jerk when you get obnoxious, drunk or fart. In every family where the inheritance is more than a few bucks, the children will be at each other's throats before you're at room temperature. Don't leave your kids a problem that will divide the family. Spend it. But, to do it properly you need to know: (1) how long you will live, (2) how to optimize your assets to draw on them tax free and (3) how much to draw annually, the Zero Concept. This disk will help you determine the term of your life with accuracy, give you methods to optimize earning, tax and drawing procedures such that you can use all of your money, and maybe more, during your lifetime. LifeTerm(tm) This expert system computes the length of your life, barring accident or infectious illness. Most life extension has come from public health programs for infectious dis- eases. Clean water, food and air have banished plagues and pestilence to places only the idle rich and politicians can afford to visit. The latter, of course, are doing it on your money with the intent of giving American farm and business contributors guarantees in the name of "foreign aid" with even more of your money. If you can stay away from these places you'll likely not die of an infectious illness. Most men live to age 72 and most women 76, but in your family the numbers may be significantly different. If you don't know the history of your ancestors use 72 years for men and 76 years for women as the starting point. If you do know of your family history the longevity of ancestors of your sex is the most significant indicator of the term of your life. You should see a consistent figure for the age of death of the men and women in your family and discount the exceptions to arrive at an average figure. If there is a genealogical record, you will want to study it, but remember many people died prematurely not very long ago. Discount these unfortunates as they likely died of accidents, wars or infectious disease. The terms of their lives bear no significance on your yours in this relatively disease free time. To run the program you type/input "LIFETERM" when you see the ">" cursor. You can exit this program at any time by touching the "X" key. Optimize(tm) This program will maximize your holdings in a way to reduce taxes and produce the largest possible drawable asset portfolio. Bear in mind that the objective is to acquire the largest possible equity in any form because you can borrow on that equity with no taxes! Loan proceeds are not taxable. The EndGame(tm) is like golf: The lowest score wins. On your death, if the sale of your assets leaves more than a few thousand dollars after the loans are paid, you've lost the EndGame(tm). If it covers exactly, or is lacking, you've won. Suppose you have a California home that is appreciating by five percent per year. If it has a value of $500,000 you are actually making $25,000 per year in borrowable equity. In California getting that money out of the property is like making $42,000 because adding income to the top of your tax picture means you pay the highest rates in federal and state income taxes, a total of 40 percent and to get a spendable $25,000 you've got to make $42,000! Again, the basic prin- ciple is that loan proceeds are not taxable, and if you borrow money on your residence the interest paid is a tax deduction. You've got to get over the Great Depression hangup of wanting to "pay off the mortgage" and the feeling that owning your home "free and clear" makes you secure. That is true only if you are willing to borrow on it and spend the loan proceeds. However, there are so many more things that can be done to optimize your financial picture. It is possible to make 33 data inputs to this program to model your finances, but you likely won't have inputs in all areas. Just ignore them, they'll zero out. This program is a dedicated spreadsheet system. Once you see how it works, you may want to do your own spread- sheet, or just run this program whenever you need to make a course correction in financial navigation. And, "navigat- ing" through the changes in laws and the economy is exactly what you will be doing. You should run this at least once a year or whenever there is any new legislation affecting your taxes or a significant change in the markets, interest rates or the like. With the Republican Revolution sweeping the country you can expect tax changes in business' favor, but benefits like Social Security may decline. If you examine your financial picture carefully with this program you are going to find that what is needed for the country now is good for all of us, so get out there and raise that flag! With respect to the "Assets" column: There are only a few places to put your money: Bank deposits, stocks, bonds, loans and property. In our setup we have Cash, Insurance, Municipal Bonds, Mutual Funds, Others and Property. Cash is generally in banks and you pay taxes on the appreciation. Insurance policies may appreciate, but you don't pay taxes on them as long as the value stays in the policy, but you can borrow on it with no tax consequences. Municipal bonds are not taxed and their payouts are not part of your taxable income. Corporate bonds are to be avoided in the end-game. They are speculative and many will have little or no value in the future. We like the stock markets, but not as lone investors. Witness IBM stock which dropped 50% suddenly. Only the highest level professional investors and fund managers had any inkling the IBM drop was coming. What to do? Many mutual funds have done very well through good and bad times and should be considered, but study the annual evaluations in financial publications where they are ranked. Don't take the word of a broker alone as he will tend to pick one that pays him well. His better judgement may be compromised. Appreciation on property is not taxed, but it produces borrowable equity and tax deductions, thus property owner- ship is very important in arriving at the lowest possible income tax and the highest possible retirement spendable. We did not say "income" because the end-game is not one of making money so much as spending it. The Spending Phase In the first phase of life you probably didn't worry much about money; ignorance, hormones and visions of "the long road ahead" propelled you through your opening-game. The middle-game was different. There you discovered life is finite, work is hard, never too much money, always too many responsibilities. The end-game is different. This is the spending phase; the clever spending phase. It does not mean squandering anything. It does mean embracing mortality, optimizing assets and having fun. Older people are the most overlooked asset in America. Their experience and judgment are largely wasted, but in your own personal financial matters you can employ it with enormous effect, but this does not mean running your own investment portfolio because you now have the time. We believe in mutual funds because the people who run them are on Wall Street with their antenna up and working. These are people who think of every nuance from company name to popular song lyrics and other esoteric stuff affecting the price of stock, but still they diversify even to the point of putting money in banks when the markets are nerv- ous. We do not recommend individual investing in the stock market unless you are going to handle your money with broad diversification. This is really a full time job and while you may save a few bucks in fund fees you will spend so much time at it we doubt it will ever be worth the effort for anything short of one million dollars. At that level each percent in fees represents $10,000 and if you love the business, have good information sources and enjoy the work, do your own portfolio. To run this program type/input "OPTIMIZE" when you see the ">" cursor. You can exit this program any time by touching the "X" key. When you see the OPTIMIZE screen, move the cursor over to the green < LOAD > control and "click" on it. A set of data figures will appear. This is our working example. We are using an affluent California example as most computer users are in this class and we apologize if our numbers are inappropriate. In any case they are instruc- tive. We have $5,000 in the Cash account and this is mix of savings, checking and cash with an overall earnings rate of six percent. Then we have a paid up insurance policy with a typical appreciation of one percent, and never wonder where the insurance companies make theirs. We have $20,000 in municipal bonds, which is four of them at $5,000 each, earning only five percent, but tax free. We have $30,000 in a mutual fund, earning 15%. The "Others" include a mix of loans to friends and family members, maybe a second trust deed and if you're in business, a "factoring" deal or two. "Factoring" is a good way to make money if you have a reliable small businessman friend who needs cash and has excellent receivables. You can buy his "paper" at substan- tial discounts, wait the 30, 60 or 90 days and collect the full price. If you are careful you can make some very high rates of return with these kinds of deals so we put the rate of return on "Others" at 15% The "Property," which is your residence, is valued at more than $500,000, but you have a small mortgage outstand- ing so we'll use $500,000 as the figure to keep things simple. And, we will note that we've deliberately left out many things accounts would like to see in this system, as it is designed to deal with one issue: Asset optimization. Under "Earnings" we see a small business activity, largely kept for it's ability to generate deductions, which drives the IRS berserk. Your pension of $5,000, a rental on a small warehouse you own where your brother-in-law runs his homing pigeon business and a $500 Royalty on a book you wrote entitled, "Making Your Own Toothbrush," a salary of $7,000 you are earning as a radio talk show host and your $14,000 Social Security benefit. Under "Deductions" we see $5,000 for Business, $3,000 for Dependents as your sister-in-law moved in a year ago and you haven't yet worked up the courage to push her off a building or cut the brake lines on her car. There is $2,000 medical deduction, which is too complicated to explain and $1,000 in Miscellanous Taxes, most of which was state sales tax and you pay $2,000 in property taxes because Proposition 13 froze your taxes in 1976 when it began gouging the young people who dared to buy homes. You had better hope they don't catch on to the shucking they're getting now, but they will soon... The tax rate is shown at 20% and this will vary depend- ing on how much you make, but we estimate this from the tax table in the instruction books given with the forms. Under "Expenditures" you have the whole list and we will not examine this in detail as it does not affect your tax and appreciation picture but in the sum total. It is involved in the final "Gain/Loss" figure at the bottom of the screen as this is the bottom line to tell you how you're doing and what the asset total will be for the coming year. Click the cursor on < COMPUTE > and you will see the chart of your finances. Gross Income includes earnings and appreciations from Cash, Mutual Funds and Others as these gains are taxed, but Insurance, Municipal Bonds and Property are not as long as you didn't sell them. If your Mutual Funds are in an IRA or Keogh plan they will not be taxed, but to keep this analysis simple we are assuming they are not because we are going to make changes in that figure in ways you cannot in those plans as contri- butions to them are limited by law. If your retirement plan includes such funds you will want to put their sums in the Municipal Bonds cell where they will not be taxed, but will reflect appreciation approrpiately. With an anticipated combined, federal and state, tax rate of 20%, given deductions, etc., we see that your Gross Income is $37,200 and with $14,000 deducted becomes $23,200 taxable. With taxes of $4,640 your net spendable income is $32,560 and with expenditures of only $17,000 you have a gain on this year of $48,360. This sounds pretty good, but you can do much better. Suppose you would get a loan for half the equity in your home, $250,000 and split it between municipal bonds and mutual funds, putting $100,000 into bonds and $130,000 into your fund. At current rates that will give you a house payment of about $1,500 per month, or $18,000 per year, but an interest tax deduction of about $15,000. You can install these figures in the system by moving the cursor to each location with the mouse and changing them. To see the net effect, "click" on the < COMPUTE > control. Bear in mind your net asset picture is still $615,000 because you have a $250,000 loan, but your asset apprecia- tion has gone from $32,800 to $60,300. On the actual money involved your rate of appreciation has gone from 5.3% up to 9.8%. You Gross Income has gone from $37,200 to $59,700, an increase of $22,500. Your tax rate has thus gone from 20 to 30 percent, but your taxes have only increased $3,170, you're ahead of the game nearly $20,000 on this score alone, but that isn't all! Your real gain includes the appreciation of assets on which you can borrow and that has gone from $48,360 to $77,890 for a gain of $29,530. At this rate of gain your $250,000 loan will have liquidated itself in eight and one- half years! Is there more risk in having your money in these funds, bonds, and perhaps a few small business deals than just leaving it in your home? No. In fact we think there is less risk because all the eggs are not in one basket which may be legislated or regulated to zero value. Suppose an EPA scientist announces your home was built over a naturally occuring radon fissure? Can you sell it or borrow money on it? What if some government biologist pokes around your back yard and discovers an endangered cockroach? You may have to set up some kind of reserve for these little critters at your expense. Which may well cost more than your own home! Hopefully, the Republicans will change these insanities, but for the moment they are a grim reality in our "Amerika." Proper diversification and attention to what is going on in the world, the markets and Washington, DC, as well as your state capitol, will give you greater security than you can ever have by sinking everything into one investment. This may challenge conventional wisdom, but on simple analy- sis the truth should be evident. However, the most chal- lenging aspect of this system is yet to come: The Zero Concept It is amazing how many sophisticated people try to build an enormous nest egg with the idea of living off the interest while never touching the principal. Do they think they're going to live forever? They act like it, but they're not alone. The Wall Street Journal recently featured an article wherein the author declared you would need one million dollars in the bank to fund retirement in the next century. That sum earns $60,000 per year in interest in CD's or T- Bills, but pays $12,000, or more, in federal and state taxes, netting $48,000. In municipal bonds you would get about $50,000 and pay no tax. But, how many people can put away one million dollars? Very few. However, we can show you how you can have this kind of money annually with a total asset picture that is a fraction of $1,000,000. The critical trick in this system is that of knowing how long you will draw on the money and the interest rate at which the declining balance will be appreciating because you are going to draw off interest and principle every year until both you and the money will be gone. This is not a simple calculation and is only practical with a computer, hence the reason this concept is new. No one could easily, or accurately, calculate the draw before this technology existed. Let's see how it works: The Draw(tm) Program This is the "piece de resistance" of the system and will permit you to use all of your money before you pass on. You will likely be shocked at how much you can spend if you go about it correctly and will probably feel you have more money than you can ever spend! Only two data inputs are necessary to run this program, the number of years of your retirement and total assets. Where this changes with legislation and economic cycles, we recommend you run this program at least annually or whenever there is a significant change in the laws or the markets, and your asset picture. From our previous example, where we had an asset pic- ture of $615,000 and suppose an indication of living until age 82, but we'll add three years for cushion and make the entire anticipated retirement period 20 years. Inputting the two figures and "clicking" on the < COMPUTE > control produces a result of $4,628 per month or $55,536 per year! And, bear in mind this is on top of Social Security, which it does not affect, and is like earning $92,560 because you pay no taxes on this money! In our example, where we only had $17,000 of expenses in addition to the house payment, we literally had more money than we could ever spend. This is a frequent outcome when you look at your life clearly, optimize your finances and accept the "Zero Concept." This program will not work on the "demo" version of this system. You will see the screen, it will take inputs, but it will not compute. If you want a full-functioning version of this program send $50 to Adrian Vance, AV Sys- tems, Inc., Box 60533, Santa Barbara, CA 93160. (California residents add $3.88 sales tax.) If you wish to discuss this program call Adrian Vance at 805 - 569 - 1618. To run this program type/input "DRAW" when you see the ">" cursor. You may obtain the ">" cursor from this program by touching the "X" key.