Bond woes: “Why do we own bonds if we think they aren’t going to do well in a rising rate environment?”

The Center Contributed by: Center Investment Department

Hoping for capital gains is not a good reason why you should own bonds. Actually, owning or  buying bonds in this low and rising interest rate environment with the hope that you'll be able to sell them later at a higher price may not work out. BUT…just because you can’t sell this investment at a profit later does not make the investment a bad idea.

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A great real life comparison is a car. We own a car to get our family and us from one place to another, hopefully safely. Many components go into the makeup of a safe driving automobile. The engine is key in making the car go. Stocks act much like the engine of a car.  They make our portfolios go/grow. But, would you ever drive a car that wasn’t equipped with brakes or an airbag? Brakes and airbags are similar to the bonds in our portfolio. Bonds help you control some of the risk of owning stock. For most people, the reason to own bonds is to slow down our bottom-line losses experienced in our portfolio during major market declines. Without this moderation (and sometimes even with it), investors tend to panic when stock prices fall.

So in a nutshell, “Why own bonds?”

They make the scary times less so. When the stock market experiences an extended decline, investors look around for where to turn. Cash and Bonds are usually the place they turn to.A volatile stock market can happen suddenly and unexpectedly. Waiting to add bonds until something happens means you are going to suffer much of the downside before you actually add them to the portfolio. You have to have already had them in the portfolio for them to help. Talk with your financial planner to make sure you have the proper amount of your portfolio invested in bonds so you can hang on to your investments through those difficult times. A portfolio makeup that allows you to stay the course over the long term is much more likely to get you to your destination!


https://www.marketwatch.com/story/why-bonds-are-the-most-important-asset-class-2015-06-10 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.

IRS Announces Increases to Retirement Plan Contributions for 2019

Josh Bitel Contributed by: Josh Bitel

Several weeks ago, the IRS released updated figures for 2019 retirement account contribution and income limits. 

IRS Increases Retirement Plan Contributions for 2019

Employer Retirement Plans (401k, 403b, 457, and Thrift Savings Plans)

  • $19,000 annual contribution limit, up from $18,500 in 2018.

  • $6,000 “catch-up” contribution for those over age 50 remains the same for 2019.

  • An increase in the total amount that can be contributed to a defined contribution plan, including all contribution types (employee deferrals, employer matching and profit sharing), from $55,000 to $56,000, or $62,000 for those over age 50 with the $6,000 “catch-up” contribution.

In addition to increased contribution limits for employer-sponsored retirement plans, the IRS adjustments provide some other increases that can help savers in 2019. A couple of highlights include:

Traditional IRA and ROTH IRA Limits

  • $6,000 annual contribution limit, up from $5,500 in 2018 – the first raise since 2013!

  • $1,000 “catch-up” contribution for those over age 50 remains the same for 2019.

Social Security Increase Announced

As we enter 2019, keep these updated figures on the forefront when updating your financial game plan. As always, if you have any questions surrounding these changes, don’t hesitate to reach out to our team!

Josh Bitel is a Client Service Associate at Center for Financial Planning, Inc.®

No Longer Taboo: Talking to Your Kids About the Finances of Divorce

Jacki Roessler Contributed by: Jacki Roessler, CDFA®

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Recently I sat down with my client, “Jane” for a “moment of truth” meeting. The culmination of several client meetings and extensive number crunching, it was apparent that Jane’s primary financial goal wasn’t realistic. Above all else, Jane wanted her three children to experience little to no change in their current lifestyle.

Based on my projections, that wasn’t likely to happen without significant financial sacrifice on Jane’s part.

The kids’ lifestyle included private school tuition, overnight summer camp and a plethora of expensive extra-curricular activities. As a parent of young children, I empathize with the desire to keep things as stable as possible in the midst of a tumultuous time. As a divorce financial planner, however, my job is to inject a dose of reality into the emotional roller coaster of divorce.

I want my client to understand the short term and long term financial impact of their settlement before they sign on the dotted line.

In this case, Jane was stunned to hear that child support wouldn’t cover all her minor children’s expenses. Like most states, Michigan’s child support formula factors the income of both parents, the parenting schedule, family size and the tax status of the parties into the equation. The actual expenses of the children are not automatically considered. Jane assumed that since her husband had agreed in the past to prioritize private school tuition, he would be required to continue. That wasn’t necessarily the case. Savings for future college costs? Not part of the formula. The same goes for horseback riding camps, travel soccer, music lessons, etc… 

After several tough meetings and in-depth conversations, Jane made some difficult decisions.

The truth was that her kids’ expenses had contributed in some way to the divorce; she and her husband had been living beyond their means.

On the advice of her therapist, Jane sat down with her kids to discuss developing a family financial game plan. That might mean downsizing their house or cutting back on some of the extras. It might even mean a change of schools. However, it was empowering for them all (yes, even the kids) to know that they would be ok if they made smart financial decisions now to protect themselves for the future. For example, they all agreed that it was more important for Jane to be home after school than it was for the kids to continue at any particular school. The kids understood that they couldn’t attend every camp they had in the past, but would be able to choose one special experience. Jane didn’t burden her children with specific numbers or financial worries, rather, she initiated a dialogue about prioritizing to keep the family stress-free.

It may feel uncomfortable to discuss finances with children, especially as it relates to divorce, however, it is an important part of the process.

While Jane’s situation was unique, and her results not necessarily representative of all divorce circumstances, frank money talks and responsible role modeling on the part of their parents help children set and achieve their own financial goals as they venture into adulthood.

Jacki Roessler, CDFA® is a Divorce Financial Planner at Center for Financial Planning, Inc.®

Are You Retirement Ready?

Sandy Adams Contributed by: Sandra Adams, CFP®

In our work with clients, one of the most common questions we get is, “How will we know when we are ready (and able) to retire?”  That can be a tricky question, because there are two sides to being ready for the next phase of your life – the technical side and the personal side.  While certainly you need to be financially secure for the next decades of your life, you also need to be comfortable with the transition from your life as a career individual to what you now wish to become in your next phase – and that is not as easy as it sounds.

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From a financial-readiness perspective, many clients target age, monetary or benefit milestones to help them determine when they will be ready to retire:

  • “When I have $1 million in assets saved, I will be ready to retire.”

  • “When I am eligible to collect Social Security, I will be ready to retire.”

  • “When I am eligible to collect my company pension OR I have reached my XX anniversary with my company, I will be ready to retire.”

  • “When I am eligible to receive Medicare, I will be ready to retire.”

The real answer is, some or all of these may be true for you, and some or all of these may be false.Every client situation is different and no general guideline can determine whether or not you are financially ready to retire. Unfortunately, it is far more complicated than that. There are numerous financial factors that go into determining financial readiness.Let’s take a deeper look into the issues.

Financial Readiness Issues:

Retirement Savings:

Do you have enough saved?

  • What might your other retirement income sources be (Social Security, Pensions, etc.)

  • How much income will you need (what are your fixed costs versus lifestyle wants in retirement), and

  • What are your longevity expectations (how long might you expect to live based on health, family history, etc.—expect it will be longer than you think!).

Where are your savings?

  • Do you have retirement savings outside of retirement plans?

  • Do you have some after-tax and reserve cash/emergency reserve savings?

  • Do you have different types of accounts to provide tax diversification going into retirement (i.e. IRAs/401(k)s, ROTH IRAs, after tax investment accounts)?

Debt:

Have you paid down your debt or do you have a plan to be as debt free as possible by the time you retire?  This will allow you to control your retirement income for other fixed expenses and wants; it is desirable to have as little debt/fixed expenses as possible going into retirement as possible.

Retirement Income:

A large part to being retirement ready is understanding your retirement income sources, options and strategies and using them to your best advantage.  Take the time to consult with your planner to choose the option that works best for you and your family circumstance.

  • Pensions: Do you understand all your options, including the income options available to your spouse as a survivor upon your death.  We find that in many cases it makes sense to choose an option that includes a lifetime income option for you with at least a 65% survivor income benefit for your spouse if you were to die first.

  • Social Security: While many are under the false impression that because you are allowed to take Social Security benefits as early as age 62, they should, we might recommend otherwise.  For most individuals now approaching Social Security claiming age, Full Retirement Age for claiming Social Security is now age 66 and delaying benefits until age 70 results in an 8% per year increase in benefits.  Knowing and understanding the Social Security benefits, rules and strategies that can be employed, especially for married couples, to ensure the largest lifetime benefit can be an added supplement to long-term retirement income. We find that our most successful married couples in retirement employ a strategy where the lower Social Security earner draws at Full Retirement age while the higher Social Security earner waits to draw at age 70, insuring the highest possible Social Security benefit for the spouse that lives the longest.

Investments:

Preparing for retirement involves making appropriate adjustments to your investment strategy.  You should work with your financial planner to adjust your asset allocation to one that is appropriate for your new goals and time horizon. We find that our most successful retirees tend to have asset allocations ranging from 40% Bond/60% Stock to 50% Bond/50% Stock.

Insurance:

  • For those retiring before age 65 (Medicare eligibility) and without retiree healthcare, finding health insurance to bridge them to Medicare is a must. 

  • Retirement readiness does require addressing the issue of Long Term Care funding Having a plan, no matter what your choice, is something that must be done before retirement.

Estate Planning:

While not exactly monetary, having your estate planning documents (Durable Powers of Attorney, Wills and possibly Trust or Trusts in place) updated prior to retirement is a good idea.Part of this is making sure accounts are titled properly, beneficiaries are updated, and account holdings/locations and management are as simplified as possible going into your last phase of life.

Once you have determined your financial retirement readiness, you need to determine your personal retirement readiness, which may be even more difficult for many folks.  Why?  Many have spent the majority of their lifetimes to this point building careers that established them with titles, credentials and stature. They built reputations, networks, social and business circles and were well respected because of the work that they have done.  And now they are moving from that phase of their lives to another and that means starting over.  What will they be now?  What will their lives mean?  And to whom?

Until you are ready to start the next phase of your life knowing your purpose – what you want to wake up for every day – you are likely not ready for retirement.  Those that have not given the thought to their mission, values, and their “why” for their next phase will be left feeling lost and will likely fail at retirement and find themselves wanting to go back to their former lives.

How can you find your purpose?

  • Ask yourself what is most important to you? (family, friends, spirituality, charity,etc)

  • Ask yourself what are your life priorities? (family, health, knowledge, etc.)

  • Ask yourself what you want to let go of and what you want to give yourself to.

  • Realize that the rest of your life can be the best of your life if you embrace it with an open mind and enthusiasm.

  • Consider reading the book “Purposeful Retirement” by Hyrum Smith if you need more help!

“Am I ready to retire?”  It is not a simple question and there is no simple answer.  It may take months or years to answer all of the questions and make all of the preparations.  If you think that retirement is in your not too distant future, the time is NOW to start planning.  Don’t let retirement sneak up on you…work with your financial planner and be Retirement Ready!

Sandra Adams, CFP® is a Partner and Financial Planner at Center for Financial Planning, Inc.® Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

Webinar in Review: Year-End Tax and Planning Strategies

Josh Bitel Contributed by: Josh Bitel

In November of 2017, the Tax Cuts and Job Act of 2018 passed with numerous changes to our tax code. This year we provided a refresher on some of those changes as well as some planning opportunities to think about as 2018 wraps up.

If you weren’t able to attend the webinar live, we encourage you to check out the recording below. 

Check out the time stamps below to listen to the topics you’re most interested in:

  • (04:20): New 2018 Marginal Tax Brackets

  • (06:30): Highlights of the 2018 Tax Cuts and Jobs Act (TCJA) – comparing 2017 with 2018

  • (14:24): Planning charitable gifts under the new tax law

  • (19:15): Healthcare coverage overview – Health Savings Accounts (HSAs) and Medicare

  • (25:30): Roth IRA conversions as an attractive planning opportunity

  • (33:20): How to utilize your employer retirement plan most effectively

  • (36:30): How we help mitigate taxes & tax efficient investing

  • (41:30): Updates to gifting and intra-family gifting for 2018

Mid-term Elections and the Market: 2018 Outcome

The Center Contributed by: Center Investment Department

Mid-term Election and the Market: 2018 Outcome

Voting day came and went much as the markets had anticipated.  Democrats flipped the House of Representatives over to their control while the Senate maintained and even strengthened their republican majority.  From a legislative policy perspective, we expect the republican agenda to slow.  Mid-term election implications may include:

  • The President can continue to act alone regarding trade policies but had bi-partisan support for cracking down on China’s trade and intellectual property practices anyway

  • Democrats are going to scrutinize and investigate President Trump, his cabinet officials and executive actions…yes, even more!

  • Any further tax cuts are unlikely

  • Democrats will likely get to work on some infrastructure spending

  • Affordable Care act will be strongly defended

While markets care about legislation and the far-reaching impact those decisions make, long-term markets are agnostic to election results. Information and how markets digest the information affect investment outcomes more than politics.  Frankly, markets do not really care which side is in control.  In fact, the new balance of power sets a similar stage for the strongest historical performance in the S&P 500 for a republican president.  Want to learn more, check out this blog, “Mid-Term Elections and the Market.”


Any opinions are those of the author and not necessarily those of RJFS. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Investing involves risk and investors may incur a profit or a loss. 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.

Mid-Term Elections and the Market

Kali Hassinger Contributed by: Kali Hassinger, CFP®

Elections and the stock market are two topics prime for speculation.  The media will speculate on who will win elections, and then again speculate on how those outcomes will affect the markets!  With this double layer of uncertainty and recent market volatility, investors can be left with feelings of unease.  Currently the Republican president is backed by a Republican-led Congress; however, this year's midterm elections have the balance of power on the ballot.  35 Senate seats are up for grabs, and Democrats would need to gain two seats to take control.

mid-term elections and the market kali hassinger, cfp

Although there is no way to say how the markets will be affected by either outcome with certainty, history can help to keep us grounded.  The chart below shows us the average annual S&P 500 performance by the presidential party and the majority Congressional party.  Regardless of the power make-up or split, the index has averaged positive returns. A party split (i.e., Republican president and Democratic Congress or Democratic president and Republican Congress) has delivered better performance than when a single party controlled both branches of government.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.

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The year following midterm elections has historically had the best stock returns of the president's four-year term, even when a president's party loses seats in Congress.  The last time the S&P 500 declined in the year after midterm elections was 1946, but, although a guide, history is not a fortune teller. 

We cannot control the election results or the market, but we can control our vote and how we handle our investments.As always, we preach sticking to your financial plan without making changes to your portfolio out of fear or uncertainty.Our team remains aware of the political and economic landscape, but your portfolio is always constructed with your long-term goals in mind.

Kali Hassinger, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.®


Source: https://www.wsj.com/articles/midterms-are-a-boon-for-stocksno-matter-who-wins-1538645400 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.

Social Security Increase Announced

Kali Hassinger Contributed by: Kali Hassinger, CFP®

The Social Security Administration recently announced that benefits for more than 67 million Americans would be increasing by 2.8% starting in January 2019. This cost of living adjustment (COLA for short) is the largest we've seen since 2011 when the benefits increased by 3.6%. 

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The Medicare Part B premium increase was also announced, and it will only be increased by a modest $1.50 per month (from $134 to $135.50).The premium surcharge income brackets have also seen a slight increase in the monthly premium on top of the $1.50 standard.These surcharges affect about 5% of those who have Medicare Part B.The biggest change, however, is the addition of a new premium threshold for those with income above $500,000 if filing single and $750,000 if filing jointly. This will affect:

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While the Social Security checks will be higher in 2019, so will the earnings wage base you pay into if you're still working.  In 2018, the first $128,400 was subject to Social Security payroll tax (6.2% for employees and 6.2% for employers).  Moving into 2019 the new wage base grows by 3.5% to $132,900.  Those who are earning at or above the maximum will pay $8,240 in Social Security tax each year.  With the employer's portion, the maximum tax collected per worker is $16,780.  

Social Security plays a vital role in almost everyone's financial plan.  If you have questions about next year's COLA or anything else related to your Social Security benefit, don't hesitate to reach out to us.

Kali Hassinger, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.®


Source: https://www.cms.gov/newsroom/fact-sheets/2019-medicare-parts-b-premiums-and-deductibles

Webinar in Review: 2019 Medicare Open Enrollment: Selecting the coverage that works for you

Kali Hassinger Contributed by: Kali Hassinger, CFP®

A significant part of the retirement planning process includes making the transition from an individual or group health insurance plan to Medicare. The choices are numerous and are driven by many factors – from your personal health, your choice of doctors, financial considerations and even your zip code. Join us for an upcoming webinar with James Edge of Health Plan One, a Raymond James partner and Medicare consultant, to learn the basics of how Medicare coverage works and what you need to consider before selecting coverage.

See the time stamps below to listen to the topics you’re most interested in:

  • 1:30: Understanding what HPOne is

  • 2:00: Medicare Coverage Options

  • 11:45: Medicare Part A— Hospital Insurance

  • 11:50: Medicare Part B— High Income Premium Surcharge

  • 14:15: Medicare Part D— Prescription Drug Coverage

  • 16:30: Medicare Part D—The Donut Hole

  • 21:15: Original Medicare—Coverage Gaps

  • 22:15: Medigap—Standardized Benefits but Varying Costs

  • 27:30: Closing the Coverage Gaps—Medicare Advantage

  • 28:00: Part C— Medicare Advantage

  • 30:15: Enrollment Periods

  • 36:00: Enrollment Penalties

  • 40:20: Core Capabilities of HP One

Kali Hassinger, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.®

I’m a Millennial and I Inherited a Million Dollars – Now What?

Nick Defenthaler Contributed by: Nick Defenthaler, CFP®

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More than 75 million millennials born between 1981 and 1997 are set to take over an estimated $30 trillion in wealth from baby boomers (source – AARP).  No, that is not a typo - $30 TRILLION dollars.  Personally, I’ve had several circumstances arise in the past several years where friends in their mid 30s have lost parents.  For someone in a similar age group as the folks that have experienced this loss, it scares the heck out of me.  I’m getting to that stage in life where it’s not beyond uncommon for a child to lose a parent.  That’s a pretty big reality check to digest. 

Although it can be tough to even think about, it’s a reality.  More and more people who are in their 30s who are busy building a family, career and overall great life, will inherit a level of wealth that previously seemed unfathomable.  Recently, a friend reached out to me after his father passed and left him $1,000,000 in retirement assets and life insurance proceeds.  He was overwhelmed and had no idea what to do next (thus the title of this blog!).  He was a teacher and his wife was in IT.  Needless to say, navigating the investments, required distributions and tax rules (just to name a few) associated with his inheritance was extremely stressful.  The stress caused a state of paralysis in making any decisions with the dollars out of fear of stepping on any unintended land mines or making the wrong move with the dollars.  The more we talked, it was clear that now was time for them to have a professional partner in their life who they knew was qualified but more importantly, fully trusted to provide recommendations that made the most sense for their own personal situation and goals.

My friends decided to hire me as their planner and we were able to provide advice and value not only on the planning items directly associated with their inheritance, but also in the areas that were more near term and important to them (student loan payoff strategies, discussing how to pay for child care expenses tax efficiently, helping them through the process of purchasing their first home and drafting their estate plan – just to name a few).  After 6 short months of working together, we got to place where the most time sensitive issues were addressed and we had developed a financial action plan to review annually and keep them moving in the right direction.  Of course, we plan to meet at least once a year to address other life events that come up and work towards the goals they’ve set as a family. 

Financial planning doesn’t always have to be associated with retirement.Helping clients through significant life events and providing advice beyond the dollars and cents is an environment in which our team thrives.Don’t feel paralyzed.Please feel to reach out if you’re in a similar position and need a professional to help guide you through these tough conversations and complicated matters.

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc.® Nick works closely with Center clients and is also the Director of The Center’s Financial Planning Department. He is also a frequent contributor to the firm’s blogs and educational webinars.