Insurance Planning

Webinar in Review: Employee Benefit Open Enrollment

Contributed by: Clare Lilek Clare Lilek

Each September, as school is back in session and fall is right around the corner, the last thing on your mind is “How can I make the most of my employee benefit enrollment that’s happening soon?!” It may not be the most exciting topic, but enrollment for your employer’s benefit package happens once a year, usually in late September and early October, and can affect the benefits and coverage you receive for the following twelve months. So it is very much worth your time to look at what your company offers and weigh the pros and cons of all your options. Luckily for you, Nick Defenthaler, CFP®, recently hosted a webinar that outlines the various benefits your company could offer and how you may go about electing certain packages. Below are a few highlights from the 30-minute webinar. For a more detailed explanation, watch the full webinar recording below!

Retirement Savings Plans

  • Choosing a Traditional (pre-tax) or a Roth (post-tax) plan depends on your current tax bracket versus your projected tax bracket when you retire.
  • Make sure you are always maxing out your employer match at the very least. In order to make sure you are continually growing your retirement account, consider add 1-2% each year to your contributions.
  • Choose a mix of investment options that are aligned with your risk tolerance.
  • Ride out the changes in the market. It’s important not to make constant portfolio changes.

Executive Compensation Plans

These types of compensation plans are typically used as incentive compensation. They can vary from company to company but some of the options include: stock options, non-qualified deferred compensation plans, and employee stock purchase plans. We are currently doing a blog series on Stock Options (NSOs, ISOs, and RSUs); make sure to look out for these for a more detailed overview.

Health Insurance

Nick did a high-level overview of the different types of plans and options you may encounter when it comes to company health insurance. When choosing between a PPO or HMO, you could be choosing between the flexibility of additional benefits (PPO) or the lower cost for potentially more restrictive benefits (HMO). He also highlights the importance of reading the fine print when adding a spouse to your benefits. Lately, many companies have a spousal surcharge that makes it more expensive for a spouse to be insured on your plan if they have access to insurance through their own employer. Nick also noted that some companies are making the move to high-deductible plans, which lower their premiums but put the “buying power” back in the hands of the insured.

Flex Spending Accounts

Nick continued to describe the potential benefit of using a Flex Spending Accounts, whether it’s for medical or dependent care deductibles.  When pretax contributions are used for qualified medical expenses, within the year of contribution, they continue to go untaxed. To learn how you could potentially save some tax money, make sure to tune in to this part of the webinar!

Other Insurances

To wrap up, Nick went through disability insurance and life insurance options. He weighed the pros and cons for group vs individual coverage, and how some employees might want to consider long-term and short-term disability coverage.

If you have any questions about this webinar or your specific benefits, don’t hesitate to reach out to Nick.

Insurance Basics: Property and Casualty

Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

Over the last several months, I have touched on the various forms of insurance that are typically most important within a well-rounded financial plan. As we wrap up with my 5 part blog series on insurance basics, I’d like to discuss property and casualty (P&C) insurance and discuss some items that should be on your radar when reviewing your coverage. 

Auto Insurance

Living in Michigan (one of the most expensive states in America for car insurance) we are all aware of how pricey coverage can get, especially if you have younger drivers in your household. As such, many of us (myself included) are solely focused on getting our premiums as low as possible and we often times don’t realize what we are sacrificing by doing so. There are several components to your auto policy and liability protection is critical. As a rule of thumb, we like to see clients maintain a minimum of $250,000 in bodily injury coverage per person and $500,000 per occurrence. This level of coverage could be more, however, based on your income. In most cases, coverage amounts are not at this level. One way to potentially increase coverage but maintain affordability of coverage would be to increase your policy’s deductible. 

Homeowners Insurance

If you have a mortgage on your home, homeowners insurance is required by the lender. If you own your home free and clear, however, you technically aren’t required to carry insurance, but going without coverage is something we would never recommend. On average, the annual premium for a typical home in Michigan will run approximately $700 – $1,000, and similar to auto, the lowest cost coverage should not be your main focus.

Here are some items you want to consider on your own policy:

Liability Coverage

  • Typically we recommend at minimum $350,000 in protection, ideally closer to $500,000.
  • This coverage will protect you from lawsuits from things like a dog bite or having someone trip and fall on your property.

Flood Back-Up

  • Will provide coverage under certain circumstances if you have water in your home.

Jewelry, Art, Collectible, etc. Endorsements

  • This will provide coverage on items like wedding rings, even if they are lost, stolen, or they fall down that dreaded bathroom sink!

Umbrella Insurance

As financial planners, one of our primary roles is helping you accumulate assets. Helping you protect those assets, however, is equally important in our opinion. An umbrella policy is designed to provide additional liability coverage above and beyond the limits of your homeowners and auto insurance policies in situations such as:

  • Injuries on your property
  • Damage to property
  • Liability coverage on rental units
  • Certain lawsuits, slander, libel, false arrest, malicious prosecution and other personal liability situations

Unfortunately, we live in an extremely litigious society, so employing the proper protection for your assets is crucial. For approximately $150/year, one can purchase a $1M umbrella liability policy, which is often a sufficient back-stop of liability coverage at a very reasonable cost.  

Like most of us, you probably only speak to your P&C agent once every few years (if that) and, as mentioned previously, chances are the main focus is on cost as opposed to the liability protection the insurance provides. We encourage clients to reach out to their agent at least once a year to check rates and make sure the proper coverage and protection is in place for their given situation – especially if you’re a small business owner or own rental properties. We realize this is an area that is many times over looked. To help navigate through this we have decided to host a small, in-office seminar to discuss this extremely important topic in greater detail. Click here for more details and to register – we hope to see you there!

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.


This information does not purport to be a complete description of the Property and Casualty Insurance products referred to in this material. This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Opinions expressed are those of Nick Defenthaler and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Insurance guarantees are based on the claims paying ability of the insurance company.

Insurance Basics: Adding Long Term Care to your Coverage

Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

I can almost guarantee that if you’re reading this blog post, you know at least one friend or family member who unfortunately, at one point in their life, required some form of assisted living or nursing care. As our population grows and lives longer, the threat of a long-term care (LTC) event is becoming more real and more expensive! Just check out the chart below JP Morgan put together from the research New York Life conducted in 2014, showing the annual cost depending on what state you live in: 

Insurance, especially when it’s expensive like LTC, is a difficult thing for clients to get on board with. Let’s look at the various forms of coverage to have a better understanding of the mechanics of the policies.

Traditional

This is the most common type of LTC coverage because in almost all cases, it will offer the highest benefit payment. This of course, comes at a cost. For a healthy 60 year old couple, it’s not uncommon to see the annual cost (from both policies) be between $7,000 and $10,000, depending on coverage. In most cases, we recommend a more basic policy that does not have all the “bells and whistles” but can still be a great safety net if claim is required. Similar to a disability policy, there is a waiting period before benefits will kick in, which typically 90 days. For benefits to be paid, certain activities of daily living (ADLs for short) must be impossible for the insured to do on their own. This must also be verified in writing by a licensed physician. One of the most important aspects of a LTC policy is the cost of living adjustment (COLA) rider. In the majority of cases, this is something we almost always recommend so the benefit you’re paying for will increase each and every year to (somewhat) keep up with the rising cost of care. Similar to college tuition, the inflation rate for long-term care coverage is rather high in comparison to normal inflation for the rest of our economy. Unfortunately, traditional LTC coverage is almost always “use it or lose it” – similar to your car and homeowner’s insurance, if you never need it; you don’t get reimbursed for premiums paid.

Hybrid and Life Insurance

One of the gripes most of us have with LTC coverage is that they lose all of their premium dollars if they never need to actually use the coverage. Different products have emerged in the LTC world to accommodate those who may not purchase LTC insurance for this reason, known as “hybrid” policies.  Without digging too deep into the weeds, these policies offer additional flexibility on receiving a portion of premiums back if you never use the coverage. It’s important to note, however,  that the leverage you receive in regards to your overall benefits if you did actually need to go on claim are typically far less than a traditional LTC policy.  

Life Insurance

Life insurance may also be considered as a form of LTC protection. The average length of stay in a nursing home is approximately two and a half years which, depending on the level of care, could easily exceed $250,000 without LTC coverage. In many cases, this means that the now surviving spouse is truly the one who is facing the financial hardship because they had to pay such a large amount, out of pocket, for care which could have easily erased the majority of their once plentiful nest egg. Using life insurance in this case would guarantee a death benefit on the spouse who required care but has since passed, which would essentially “replenish” the assets that were spent down to cover the cost of care. As with hybrid policies, in most cases, the benefit you’d receive using life insurance isn’t comparable to a traditional LTC policy but it certainly has its place in certain situations.  

When you’re working and accumulating assets, your two greatest financial perils are typically a pre-mature death or a disability – which is why we purchase life insurance  and disability insurance to protect us during this stage of life. As you transition into retirement, however, those perils typically disappear and a new one emerges – the threat of a long-term care event. Just like we purchase insurance to cover the cost of an unforeseen event such as a pre-mature death or disability, LTC coverage is obtained to help cover a portion of the cost to potentially help avoid a financial catastrophe. This form of coverage does not make sense for everyone but there are many out there who should seriously consider it. Risk management is a key component of a well-rounded financial plan, and having a formal game plan on how you’ll pay for a potential LTC event is a must.

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.


This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James. Long Term Care Insurance or Asset Based Long Term Care Insurance Products may not be suitable for all investors. Surrender charges may apply for early withdrawals and, if made prior to age 59 ½, may be subject to a 10% federal tax penalty in addition to any gains being taxed as ordinary income. These policies have exclusions and/or limitations. The cost and availability of Long Term Care insurance depend on factors such as age, health, and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of Long Term Care insurance. Guarantees are based on the claims paying ability of the insurance company. Please consult with a licensed financial professional when considering your insurance options.

Insurance Basics: How Disability Insurance is underutilized but Critical

Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

As we continue through our insurance basics blog series, we move on to discuss disability insurance.  According to the Social Security Administration, studies have shown that just over 25% of today’s 20 year-olds will become disabled at some point before reaching age 67. Wow! This is a pretty staggering statistic –these odds are far greater than a pre-mature death, which is what life insurance is typically purchased to protect against (see my last Insurance Basics blog on Life Insurance). However, often times when we discuss disability insurance with clients, we find that it’s an area of confusion. Many aren’t even sure if they have coverage or they may believe that Social Security will kick in and be enough. For most of us, especially if you’re in the early stages of the “accumulation mode” of your career, your earnings power, or human capital, is most likely your largest asset both now and into the foreseeable future. A disability can wreak havoc on this “asset” which is essentially why disability insurance is purchased. Let’s look at the basic types of coverage:

Short-term vs. Long-term Disability

Long-term disability typically has what’s known as an “elimination period” of how many days must pass before benefits begin. This is often called the “time deductible” of the policy which in many cases is 90-120 days. Benefits can pay out up until age 65, however, most policies have a stated period of time where benefits would be payable. To help bridge this gap of coverage, a short-term disability policy can come in handy because benefits will usually begin within a week or two of disability and continue for up to one year, although benefits typically last between three to six months. Short-term disability policies can be a great backstop to preserve your emergency cash fund, typically at a fairly reasonable cost. 

Group Coverage

As with life insurance, many employers offer a form of disability insurance to their employees as part of their benefit package. Sometimes the employer will pay for the premium in full and other times the employee will have the option to pay for premiums (fully or partially). You may be asking yourself, “Why would an employee want to pay for the group coverage instead of having the employer foot the bill?”  Great question, with very important ramifications! If the employer pays your premiums in full, the entire amount of your benefit if needed (typically between 50% and 60% of your pay up to certain limits) would be taxable. If you as the employee were paying for the premiums in full and you needed the coverage, benefits paid out would NOT be taxable. If you were only paying a portion of the total premium, say 20%, only 20% of the benefits paid would be non-taxable to you as the employee. The tax treatment of benefits will have a large impact on the net amount of benefit that actually hits your bank account so it’s important to understand who’s paying for what if you have access to a group disability policy at work.

Individual Coverage

As the name implies, individual coverage is purchased by you through an insurance company – the policy is not offered through your employer. A major benefit of purchasing an individual policy is that the coverage is portable. You can take it with you if you change jobs because it’s not tied to your company’s benefit package (most group policies are non-portable). Another advantage (or disadvantage depending on how you look at it), you are paying for the coverage so if benefits are needed, they will not be taxable to you. With an individual policy, you have control over selecting the definition of disability that your policy uses (any occupation, own occupation, etc.) and you’d also have the option to add any additional features to the policy (for an additional cost), known as “riders.”

As you can probably tell, we’re just scratching the surface on disability coverage. As I mentioned, it is often times the most over looked part of a client’s financial plan and coverage types, despite its high probability and significant risk of long-term financial loss.  At minimum, check with your employer to see if group coverage is offered (both long-term and short-term) and consult with your financial planner on whether or not it is sufficient or if additional coverage would be recommended. If you have questions about your current coverage or how you think disability insurance should fit into your financial plan, give us a call!

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.


Sources: https://www.ssa.gov/planners/disability/

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James. Guarantees are based on the claims paying ability of the issuing company. Long Term Care Insurance or Asset Based Long Term Care Insurance Products may not be suitable for all investors. Surrender charges may apply for early withdrawals and, if made prior to age 59 ½, may be subject to a 10% federal tax penalty in addition to any gains being taxed as ordinary income. Please consult with a licensed financial professional when considering your insurance options. You should discuss any tax or legal matters with the appropriate professional.

Insurance Basics: The Ins and Outs of Life Insurance

Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

In my blog a few weeks back on Insurance Basics, I explained the importance of carrying coverage, even though it can be a tough check to cut when your premiums are due. Now, we’re going to look closely at the different forms of life insurance and discuss its importance in a well-rounded financial plan. 

Permanent Insurance

As the name implies, permanent insurance is a type of coverage designed to last your lifetime. Because the coverage is permanent, premiums are typically costly depending on age, health status, and type of permanent coverage (whole life, variable life, universal life, variable universal life). Each type of permanent coverage has two components: a death benefit and a savings component, known as the policy’s “cash value.” Although part of your premium each year is going to build up the policy’s cash value, in many cases there are more efficient and cost effective ways to save for retirement first, such as a 401(k) or an IRA. If these are being maximized, then utilizing life insurance for retirement savings could potentially make sense because a policy’s cash value offers tax-deferred growth. Some of the more common situations we recommend utilizing a permanent life insurance policy for include those who want to leave a guaranteed legacy to family or charity. They are also often used for estate planning purposes if you have significant assets as a mechanism to pay for estate tax. 

Term Insurance

A term life insurance policy contains a specified term of coverage, typically ranging between 10 – 30 years where premiums are fixed and there is a guaranteed death benefit. Unlike permanent insurance, there is no savings component or cash value, so your premium dollars are going to purchase insurance and insurance only – just like your auto or homeowners coverage. In most cases, the younger you are, the cheaper annual premiums will be so it usually makes the most sense to buy this type of policy early so you’re guaranteed insurability if your health situation changes, keeping your premiums reasonably priced. This does not mean that if you’re a little older you can’t buy term insurance; it just means it will be more expensive because the likelihood of a thirty year old passing away within the specified term is much lower from an actuarial standpoint than someone in their mid-forties or fifties. 

Group Coverage

Group life insurance is a type of coverage that is offered by your employer through an insurance company. In many cases, employees receive a “complimentary” amount of coverage—typically for the same amount as your annual salary—as part of their benefits package. You may have the option to purchase additional coverage as well, up to certain limits, at a low cost. Another perk of group coverage is that there is typically no formal medical underwriting so it’s a good option for those who aren’t in the best of health. A lot of clients I’ve spoken to believe their group coverage they have at work is sufficient. In most cases, however, it isn’t even close to being enough. Often times, clients are surprised to know that more than likely, if they leave their employer, they can’t take the coverage with them because it’s a benefit offered by the company (non-portable like an individual term or permanent policy). Typically we recommend pairing group coverage with an individual policy, to not solely rely on it as your only source of life insurance coverage.

As you can probably see, we’re just scratching the surface of the complex topic of life insurance, and there are many things to consider when purchasing coverage and deciding on what type of vehicle to protect yourself and your family. Life insurance is something all planners at The Center are licensed in but as you’re probably aware of, it’s not our main focus. Our goal is to take a look at your entire situation and identify which type of coverage makes the most sense for YOUR specific situation. When’s the last time you reviewed your coverage? Do you have enough? What’s changed in your life that makes the case for adding or removing coverage? These are the questions you should be asking yourself at each stage of life and it is something we can help guide you through to make sure you, your family, and your financial plan are protected.

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.


The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Insurance Basics: An Introduction to the Importance of Having it

Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

When most of us hear the word “insurance,” no matter what kind we’re referring to, facial expressions typically change in a negative way or the voice in our head loudly screams, “Ugh, I hate paying for that stuff!” We all seem to hate it, until we need it. 

Going back to basics, insurance in general is intended to shift risk from the insured (you) to an insurer (insurance company) to cover the possibility of loss from an unknown event that has the potential of occurring in the future. Sometimes we’re required by law to carry insurance, other times we realize that we would not be able to cover the cost of loss on our own if something bad happened, so we pay for insurance to cover the potential damage. 

Behaviorally, we as humans typically don’t enjoy paying for things that have a good chance of never occurring (house burning down, pre-mature death, or disability, etc.). Fair enough, I’m in the same camp.  However, insurance is a part of life and like many things in life, there are things we don’t enjoy doing or paying for. We do them and pay for them because we know it’s responsible and necessary to put ourselves and our family in a good position, no matter what life throws our way.   

As the first of a five part blog series, I’m going to touch on four of the most important types of insurances that can have the largest impact on our road to financial success:  life, disability, long-term care, and property and casualty. I will discuss each type of insurance in greater detail; I’ll review the different forms of coverage, who the coverage makes sense for, why the coverage makes sense and much more. 

Insurance is a crucial part of any financial plan. Although it may not be everyone’s favorite thing in the world, it’s absolutely necessary in most cases to make sure you’re protected when the unknown occurs.  Life happens. We’ve all seen it. When it does, we want to make sure you’re protected and still in a good financial position. 

Stay tuned!

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.


This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Nick Boguth and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investments mentioned may not be suitable for all investors.

Making the Most of Affordable Care Act Open Enrollment

Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

It’s that time of year again – open enrollment period for the Affordable Care Act (ACA)!  This year, open enrollment for ACA health plans runs from November 1, 2015 – January 31, 2016.  It’s very important that you enroll for a plan during this time frame if you do not have coverage to avoid being uninsured.  If you’re thinking you’ll just “roll the dice” and go without coverage, think twice.  Number one, the risk of going without coverage is a big one – having a medical event without coverage can destroy you financially.  Number two, the penalty for not having insurance will increase once again for 2016.  New next year: You will now have to pay a penalty that is equivalent to 2.5% of your income or $695 per adult, whichever is greater.

Common ACA Mistake

A common misconception is that health plans offered through the ACA are government health plans like Medicare or Medicaid.  This is NOT the case! This misconception often times will cause clients to avoid these plans that could potentially benefit them very positively.  Healthcare.gov is simply the website all of the ACA eligible plans are offered through.  Plan carriers include big names such as Blue Cross Blue Shield, Priority Health, HAP, etc. all of which have their “sweet spot” pricing depending on the type of plan (platinum, gold, silver and bronze) that makes the most sense for your needs. 

These are health plans you could simply purchase on your own as an individual policy, however, by going through healthcare.gov and utilizing the ACA, you could potentially be eligible for subsidies that could dramatically reduce your monthly premiums, potentially saving your family thousands of dollars. This link to healthcare.gov shows those qualifying ranges.  Subsidies can also be very important for younger retirees that have not yet begun Medicare (under the age of 65).  We have worked with many clients in this age range and have done strategic planning with their income throughout the year to qualify them for lower premiums.  I encourage you to contact us if you’re considering enrolling in an ACA plan to see how we could potentially help on the financial side of things!

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.


This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

Practical ways to qualify for an Obamacare subsidy

 For any “early” retirees between the ages of 55-64, one of the biggest burdens on cash flow will probably be medical expenses. More specifically health insurance premiums. Although enrolling for Obamacare won’t make you healthier per se, if you structure your income correctly, there are ways to qualify for significant subsidies to help ease the burden of your monthly health insurance premiums.

The Threshold to Qualify

In order to qualify for a subsidy, your modified adjusted gross income (MAGI) must be between 100-400% of the federal poverty level. For 2014 those levels were $15,739-$62,920 for a family of 2, and $23,850- $95,400 for a family of 4. The lower you are in these thresholds, the higher the subsidy amount will be. Also, the older you are, the higher the subsidy will be. For example a 62-year-old couple with a MAGI of $50,000 will be eligible for a larger subsidy then a 55-year-old couple with the same MAGI.

You might be thinking your income is too high and this article doesn’t pertain to you. Not so fast.  There are ways to structure your retirement income so that you will fall well within these thresholds. Here’s an example:

Let’s take a 62-year-old married couple (family of 2) with these assets:

                                                $1,500,000 of IRA money,

                                                $250,000 in checking & savings

                                                $250,000 in a taxable brokerage account

Their annual income need is $100,000 gross (before-tax). Their taxable portfolio kicks off $12,500 of interest and dividends and the husband has a $30,000 pension. Both must be reported as income on your taxes. So far, we have $42,500 of taxable income, and the threshold before you are completely ineligible for a subsidy for a family of 2 is $62,920.  That means we have $20,420 left of taxable income left to recognize before they are completely phased out.

How to Plan for a Subsidy

As mentioned previously, the couple’s annual income need is $100,000 and they have $42,500 of taxable income (so far) to go towards satisfying that need. This means they still need $57,500 to fulfill their need for the year.  This is where the planning comes into place.  By taking $57,500 from their savings account, their need for the year would be met, and they wouldn’t need to report any more taxable income as a result of this withdrawal from checking & savings (because taxes were already paid on these dollars). Also, by having a MAGI of $42,500 they would qualify for a significant Obamacare subsidy … probably $6,000-$10,000 based on the Henry J. Kaiser Family Foundation’s Obamacare calculator I used here.

Things that will affect your taxable income (and possibly disqualify you):

  • Social Security:  if you decide to collect early at age 62, up to 85% of your benefit could be taxable and could push you out of the thresholds for a subsidy.
  • Taxable dividends & interest:  Dividends and interest are good, but you should try to estimate what they will be for the year to make sure they won’t push you out of the parameters for a subsidy.
  • Capital Gains:  You bought shares of Apple when it was at $5 and decided to sell it all in 2014. Great you made a lot of money!  But you can probably forget about an Obamacare subsidy because that gain is going to push your MAGI up too high.
  • Part Time Work: Obviously earned income is going to be reported on your tax return, and have an impact on your eligibility.  Also, if your employer offers “affordable” health care to you, you don’t qualify for a subsidy.

Please keep in mind that this planning must be done very carefully, and you should almost certainly work with a professional to make sure it is done properly.  The thresholds are a “cliff” so if you go one dollar over, you will need to pay back the subsidy in its entirety. Don’t let this deter you or your family from considering a similar strategy!  We have helped many clients navigate through similar situations and would love to be a resource if you have questions or would like us to look at your personal scenario. 

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.


The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Material is provided for informational purposes only and does not constitute a recommendation. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of RJFS or Raymond James. You should discuss any tax or legal matters with the appropriate professional. This is a hypothetical example for illustration purposes only. Actual results will vary. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. C14-041066

Could the Affordable Care Act be Right for You?

 It’s hard to believe it has been just about a year since the Affordable Care Act officially rolled out.  Between technology issues from healthcare.gov and confusing plans, it was tough for many Americans signing up to truly understand the health care coverage.  But one year later, many of those issues have been resolved and the next “enrollment period” for 2015 runs November 15th through February 15th, 2015. 

What You Pay for Going Uninsured

If you are not covered under an employer plan and you do not sign up for coverage on the “exchange”, you will face a penalty for not carrying insurance.  In 2014, the “fine” for not having insurance was 1% of income or $95/person, whichever was greater (for most, it was the 1% of income).  Effective 2015, that penalty will increase to 2% or $325/person, whichever is greater.  As the years progress, the penalties for not having insurance will increase as our government attempts to dramatically reduce the amount of uninsured individuals in the country. 

Could You Reduce Your Monthly Premiums?

If your income is within certain parameters based on the number of people in your household, you could qualify for subsidies that could potentially reduce your monthly insurance premiums or provide for a free care period.  This link to healthcare.gov shows those qualifying ranges. At The Center, we have identified this as a planning opportunity for certain families and individuals, especially those who are retired but not yet age 65 and Medicare eligible.  By coordinating with a client’s CPA and doing some proactive tax planning, income can be drawn from certain accounts to keep your adjusted gross income (AGI) as low as possible to potentially qualify for a reduced insurance premium (drawing income from taxable accounts instead of IRAs, deferring Social Security, etc.) … potentially saving thousands each year. 

Including Adult Children on a Plan

It’s also worth mentioning that children can stay on their parent’s insurance plan up to age 26 – even if the child is still attending school, married, not living at home, not financially dependent on their parents and eligible to enroll in their own employer’s plan.  Often times, coverage is much cheaper for the parent to have the “child” on their plan as opposed to the child actually obtaining coverage on their own.  We’ve seen some clients have their kids pay them the cost of maintaining them on their plan so the child is still contributing to their coverage, but at a much more reasonable rate that usually offers more comprehensive coverage in general.    

As you can see, there are many things to consider with the new health care changes. Since the Affordable Care Act has been around for almost a year now, hopefully more and more folks are becoming familiar with those changes.  Although we are not insurance experts, we can still give you some insight on your coverage. Please don’t hesitate to contact us if you have any questions or would like to dive deeper into your personal financial situation.

Nick Defenthaler, CFP® is a Certified Financial Planner™ at Center for Financial Planning, Inc. Nick currently assists Center planners and clients, and is a contributor to Money Centered and Center Connections.


The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of RJFS or Raymond James. C14-034475

How to Pick Between 3 Types of Life Insurance

 For most couples, having life insurance during the wealth-accumulating years can make a lot of sense. Also, some people may consider having a policy even in retirement, if their goal is to leave a financial legacy.  Life Insurance has a lot of potential benefits to consider such as:

  • Replacement for the loss of income of a spouse
  • Paying off liabilities such as a mortgage, auto loans, or credit cards
  • Covering education costs for children
  • Providing a lump sum for the surviving spouse to utilize in retirement
  • Leaving a legacy to family or charitable organizations

When it comes to life insurance, it’s not simply deciding if you want it. It’s also deciding which kind. Here are three main types of life insurance:

Level Term Insurance

 This is the easiest type of insurance to understand because it is similar to other types of insurance you have (auto, home, disability etc.).  With Level Term Insurance you pay a premium each year and, if you die, the insurance carrier will pay a death benefit to your beneficiaries.  Typical term periods are 10, 20, or 30 years.  While you are in the level term period, your premium will remain the same.  Once your policy is outside of the level term period, the premium will begin to increase; oftentimes it will increase substantially. A few reasons where this type of insurance is appropriate:

  1.  Replacing income in the event of an untimely/unexpected death
  2.  Paying off liabilities
  3.  Funding education goals

Universal Life Insurance

This is sometimes referred to as “permanent term insurance”.  This product is usually underwritten to make sure a death benefit remains in place until age 90, 95, or 100.  Sometimes there is a cash value in the earlier years of the policy, but this is usually eaten up by internal costs and expenses as the policy reaches maturity.  This product is often used when someone wants to leave a financial legacy to their kids, church, or charity. Also, it can be used to ensure alimony or other similar court settlement agreements are paid, even in the event of an unexpected death.

Whole Life Insurance

This type of insurance is conservatively underwritten, and because of this, it is often the most expensive type of insurance.  It does have a cash component that takes several years to begin accruing.  A lot of the products I have seen take approximately 10 years to break even from what you have paid in premiums compared to what’s available in cash value.  This is another type of permanent insurance that is frequently used in legacy planning.  When Estate Taxes were an issue for many Americans (back when the exclusion amount was $3.5 Million or less) these policies were purchased to provide liquidity to pay Uncle Sam at death.

What is the right type of insurance for you? 

We typically recommend Level Term Insurance for clients when the primary goal is income replacement during the wealth-accumulation years. It’s the most affordable, and usually isn’t a significant burden on cash flow.  However, if your goal is to leave a financial legacy, and you can afford it, then Universal Life or even a Whole Life policy might make sense.

The best strategy, when making these decisions, is to work with a qualified financial professional that understands all the moving parts of your personal situation and is making a recommendation that is in your best interest.

Matthew Trujillo, CFP®, is a Registered Support Associate at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.


The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Center for Financial Planning Inc. and not necessarily those of RJFS or Raymond James. Investments mentioned may not be suitable for all investors. These policies have exclusions and/or limitations. The cost and availability of life insurance depend on factors such as age, health and type and amount of insurance purchased. Policies commonly have mortality and expense charges. In addition if a policy is surrendered prematurely, there may be surrender charges and income tax implications. Guarantees are based on the claims paying ability of the insurance company. C14-019165