General Financial Planning

Using the Bucket Strategy to Meet Retirement Cash Needs

Josh Bitel Contributed by: Josh Bitel, CFP®

Using the Bucket Strategy to Meet Retirement Cash Needs

If you are in or close to retirement, you are probably concerned about the recent market uncertainty. You may be wondering how your investment portfolio can be structured to provide the income you need, without putting the portfolio in a vulnerable position. 

The Bucket Strategy (not to be confused with the “Bucket List”) describes a cash distribution method to provide you with income from your portfolio during any kind of market cycle. 

Consider that we have four buckets, and that every investment within your portfolio fits into one of these buckets. This strategy can provide cash needed in retirement, even if equity markets drop or stay low for extended periods of time. 

Bucket 1:

The first bucket is designated for cash needs of one year or less. This bucket contains cash and short-term securities that mature in less than one year to support your needs for the next 12 months. 

Bucket 2:

The second bucket starts generating cash flow in the 13-36 month range, or years two and three. This bucket contains short-term bonds and fixed-income type securities that have a small amount of volatility, but are primarily designed for preservation of capital. The holdings in this bucket will pass on interest income that ultimately flows into the first bucket. 

Bucket 3:

The third bucket is structured to generate cash flow needs in years four and five, and primarily contains strategic income and higher yielding bonds (lower quality, longer maturing and international type bonds). However, they do pass on interest income that flows into the first bucket, much like bucket #2. 

Bucket 4:

The fourth, and last, bucket is made up of equities (stock investments) and other assets that have higher volatility like gold, real estate, commodities, etc. Many of these assets will produce dividends to help replenish the first bucket, if the dividends are set to pay in cash and not reinvest. Ideally, when the market is volatile, as we’ve been seeing lately, this bucket is left alone to ride out the market cycle and replenish as we recover.

The Bucket Strategy is designed to provide enough cash flow to get through roughly a 6- or 7-year period without needing to liquidate the stock portion of the portfolio. This should provide you with the confidence (and more importantly, cash) needed to enjoy your retirement and start working on your Bucket List! 

Talk to your financial planner to see how the Bucket Strategy might work for you.

Josh Bitel, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.® He conducts financial planning analysis for clients and has a special interest in retirement income analysis.

Retiring? Here’s How to Maximize Your Last Year of Work

Nick Defenthaler Contributed by: Nick Defenthaler, CFP®

Retiring? Here's How to Maximize Your Last Year of Work

So you’ve decided to hang ‘em up – congratulations! Retirement is an extremely personal decision made for a multitude of reasons.

Some of our clients have been able to afford to retire for several years and have reached a point where the weekly grind isn’t as enjoyable as it once was. Probably dozens of thoughts are running through your head. What will life look like without work? How will I spend my days? Where do I/we want to travel? Do I want to work part-time or volunteer?

With so many emotions and thoughts churning, you might easily miss potentially good opportunities to really maximize your final year of full-time work. In this blog, I’ll touch on planning concepts you should consider to get the most “bang for your buck” as you close out your full-time career:

Maximizing Employer Retirement Plans (401k, 403b, etc.)

If you aren’t already doing so, consider maximizing your company retirement plan. If you are retiring mid-year, if appropriate, adjust your payroll deduction to make sure you are contributing the maximum ($25,000 for those over the age of 50 in 2019) by the time you retire. If monthly cash flow won’t allow for it, consider using money in a checking/savings or taxable account to supplement your cash flow so you can max out the plan. Making pre-tax contributions to your company retirement plan is something you should consider.  

“Front-Load” Charitable Contributions

If you are charitably inclined and plan to make charitable gifts even into retirement, you might consider “front-loading” your donations. Think of it this way: If you are currently in the 24% tax bracket, and you will drop into the 12% bracket once retired, when will making a donation give you the most tax savings? The year you are in the higher bracket, of course! So if you donate $5,000/year to charity, consider making a $25,000 contribution (ideally with appreciated securities and possibly utilizing a Donor Advised Fund) while you are in the 24% bracket.

This strategy has become even more impactful given recent tax law reform and the increase in the standard deduction. (Click here to read more.) This would satisfy five years’ worth of donations and save you more on your taxes. As I always tell clients, the more money you can save on your tax bill by being efficient with your gifts, the less money in the IRS’s pocket and more for the organizations you care about!

Health Care

This is typically a retiree's largest expense. How will you and your family go about obtaining medical coverage upon retirement? Will you continue to receive benefits on your employer plan? Will you use COBRA insurance? Will you be age 65 soon and enroll in Medicare? Are you retiring young and need to obtain an individual plan until Medicare kicks in?

No matter what your game plan, make sure you talk to the experts and have a firm grip on the cost and steps you need to take so that you don’t lose coverage and your insurance is as affordable as possible. We have trusted resources to help guide clients with their health care options.  

Those are just a few of many things you should be thinking about prior to retirement. With so many moving parts, it really makes sense to have someone in your corner to help you navigate through these difficult, and often confusing, topics and decisions. Ideally, seek out the help of a Certified Financial PlannerTM (CFP®) to give you the comprehensive guidance you need and deserve!

Nick Defenthaler, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® He contributed to a PBS documentary on the importance of saving for retirement and has been a trusted source for national media outlets, including CNBC, MSN Money, Financial Planning Magazine, and OnWallStreet.com.


Opinions expressed are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. The information contained in this blog 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. Generally, if you take a distribution from a 401k prior to age 59 ½, you may be subject to ordinary income tax and a 10% penalty on the amount that you withdraw, in addition to any relevant state income tax. Contributions to a Donor Advised Fund are irrevocable. Changes in tax laws or regulations may occur at any time and could substantially impact your situation. Raymond James financial advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

Can You Change Your Spending Habits in Retirement?

Sandy Adams Contributed by: Sandra Adams, CFP®

Can you change your spending habits in retirement?

I recently had some interesting conversations with clients, many of whom have been exceedingly good savers during their entire adult lives. These clients most often grew up in households that modeled frugality and modesty in spending, and they have followed suit. As they plan to enter the ranks of the retired, they find themselves with more saved than they are likely to spend, based on the lifestyle to which they have become accustomed. So now what?

In our conversations about “what could you spend” and “spending on things that would bring value and meaning to their lives,” these clients still struggle in many cases to imagine needing or wanting to spend even a fraction of the excess that they have accumulated. Why? I like to say it is because changing your spending “stripes” later in life is just hard to do.

When clients have learned to live a certain way with money, making significant changes may simply not be comfortable. Clients have shared stories about the challenge of hunting down the best clearance deals, something they do to compete with friends, or the fun in finding the best travel deals, even though they can afford to pay top dollar. And while circumstances may dictate how they spend their wealth in the future, these clients wouldn’t spend it now any other way. They have built the lives they want and enjoy. 

On the flip side, we work with clients who have developed lifestyles that are extremely “high-end” and keeping up with that lifestyle in retirement can take an extreme amount of saving and planning, particularly with longevity in the mix. Conversations with these clients about what expenses can be cut in retirement can be difficult. Even though some expenses go away (mortgages get paid, etc.), added expenses like travel, hobbies, etc., might come into play, especially in early retirement. Once you have become accustomed to a lifestyle, it is hard to cut back. I have found that many clients, given the choice, will work longer or save more prior to retirement rather than take less retirement income (i.e. cut back on their retirement lifestyle).  

So the answer to the question: Can you change your spending habits in retirement?

Probably not. Habits developed over a lifetime are very difficult to break.

My best suggestion:

Work with a financial advisor earlier rather than later to develop a retirement savings plan that allows you to spend whatever you want for your retirement lifestyle. The earlier you start your plan, the better your chance for success. If you or anyone you know needs assistance with developing a retirement savings plan, contact our Center Planning Team. We are always happy to help.

Sandra Adams, CFP®, CeFT™, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She specializes in Elder Care Financial Planning and serves as a trusted source for national publications, including The Wall Street Journal, Research Magazine, and Journal of Financial Planning.


Opinions expressed are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. The information contained in this blog 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. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

Open Enrollment Season for Health Insurance and Medicare 2020

Robert Ingram Contributed by: Robert Ingram, CFP®

Open Enrollment Season for Health Insurance and Medicare 2020

It’s hard to believe we’re already down to the last official days of summer and about to begin another fall season. And along with the foliage, football games, and cider mills comes the health insurance open enrollment season for many employers and for Medicare.

Now, I know reading through benefits manuals may sound about as fun as cleaning out the gutters or raking those autumn leaves. But as our health care costs continue to rise (federal government actuaries estimate U.S. health care spending averaged $11,212 per person in 2018), making smart decisions is critical to keeping more money in your wallet.

Investing a little time to make sure your coverage meets your needs, and limits your financial risks, can really pay off.

Employer-sponsored health insurance plans

Many employers offer an annual open enrollment this time of year, giving employees an opportunity to select, or make changes to, benefits effective in the next calendar year.

Consider these points as you make your health insurance elections for 2020:

  • Review and compare your available plan offerings (e.g. PPO vs. HMO). For some key differences among plan types, click here.

  • Focus on more than just the premium costs. Compare the potential total out-of-pocket costs, including deductibles, copays, and the annual out-of-pocket maximums.  

  • Consider your health history and the services you may use in the next year. Are you likely to hit the deductible or maximum out-of-pocket costs each year? The benefit of lower premiums for a high deductible plan may be outweighed by higher overall out-of-pocket costs. Are you less likely to hit the deductible, or do you have excess cash in savings to cover unexpected health care costs? A lower premium, high deductible plan may be a good choice.

  • Consider whether funding an available Flexible Spending Account (FSA) for health care or Health Savings Account (HSA) makes sense. Keep in mind some key differences:

    • HSA requires a high deductible health plan.

    • You generally must spend FSA dollars on eligible expenses by the end of each plan year or forfeit unspent amounts (use-or-lose provision).

    • HSA balances carryover (no use-or-lose provision).

  • For working spouses, it is also important to review each of your employer-sponsored health plan options and consider any limitations on spousal coverage. It has become increasingly common for employers to add surcharges to the premium for spousal coverage, or to entirely exclude coverage for spouses who have access to their own employer-sponsored coverage.

Medicare Open Enrollment

The *Open Enrollment for Medicare Advantage and Medicare prescription drug coverage window opens each year for anyone currently enrolled in Medicare to make changes to their plan, add certain coverages, or enroll in a new plan. It also allows first-time enrollment for individuals who have qualified for Medicare but have not previously enrolled at age 65 or during a Special Enrollment Period.

 This window opens from October 15 through December 7. Changes you can make include: 

  • Changing from Original Medicare (Part A/Part B) to a Medicare Advantage Plan

  • Changing from a Medicare Advantage Plan back to Original Medicare

  • Switching to another Medicare Advantage Plan

  • Joining a Medicare Prescription Drug Plan (Part D)

  • Switching from one Medicare drug plan to another Medicare drug plan

  • Dropping your Medicare prescription drug coverage

*There is also a Medicare Advantage Open Enrollment from January 1 through March 31, but only for those currently enrolled in a Medicare Advantage Plan. It allows changing from one Medicare Advantage Plan to another, or changing from a Medicare Advantage Plan back to Original Medicare.

Unlike the fall open enrollment period, this window does NOT allow changes such as switching from Original Medicare to a Medicare Advantage Plan, joining a Medicare Prescription Drug Plan, or switching from one Medicare Prescription Drug Plan to another if enrolled in Original Medicare.

What if I am employed at age 65 or older?

For employees age 65 and older who are reviewing their health coverage options, the decisions can become more complicated due to Medicare eligibility. If such employees have access to great employer group health insurance coverage at very reasonable costs, it could make sense to continue this coverage even while Medicare eligible. This can lead to additional questions such as:

  • Should I enroll in Medicare if I have other coverage?

  • For which parts of Medicare should I apply?

With more than one potential payer (e.g. employer health insurance provider and Medicare), “coordination of benefits” rules determine which pays first. Understanding how your employer coverage coordinates with Medicare is an important factor in your decision-making process.

For employers with more than 20 employees, the group health plan generally pays first, and Medicare is secondary. This means that if the group plan does not pay all of the bill, Medicare would pay based on its coverage structure, what the group plan paid, and what the provider charged. Because the group health plan is the primary payer, you may have more flexibility to apply for portions of Medicare, such as selecting Part A (which is premium-free for most everyone) and deferring Part B (which has a monthly premium).

If an employer has fewer than 20 employees, Medicare generally pays first, and the group health plan becomes secondary. In this case, as an eligible employee, you should probably enroll in Medicare Parts A and B. (Medicare Advantage Plans also cover services under Parts A and B.) Failing to enroll in both parts of Medicare could leave you responsible out-of-pocket for anything that Medicare would have covered.

While many factors apply to your own unique circumstances, here are some additional tips for employees age 65+ who are making Medicare enrollment decisions:

  • Get the details of your employer-provided coverage in writing to help you decide how to handle Medicare choices. Confirm with your employer plan how benefits coordinate with Medicare.

  • Coordinate with your spouse when evaluating your coverage options (just as you would if you were under age). If you are both still working at age 65, you can compare employer health plans and how they work with Medicare, as well as understanding any available spousal/family coverage options. Doing a little homework can help you choose the optimal plan.

  • Are you contributing to a Health Savings Account (HSA)? By enrolling in any part of Medicare, you lose the ability to continue HSA contributions. Determine which is most important to you, enrolling in Medicare or continuing the HSA contributions.

  • If enrolling in Original Medicare Parts A and B, don’t forget to look at Medicare Supplement Insurance (Medigap), which literally helps fill certain coverage gaps in traditional Medicare. 

Health care costs may be one of your largest expenses over your lifetime, and the planning decisions are often complex. Take advantage of these other great resources available to you:

As always, if we can be a resource for you or someone you know, please get in touch.

Robert Ingram, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® With more than 15 years of industry experience, he is a trusted source for local media outlets and frequent contributor to The Center’s “Money Centered” blog.


Source: https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/nationalhealthexpenddata/nationalhealthaccountshistorical.html Opinions expressed are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. The information contained in this blog 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. Changes in tax laws or regulations may occur at any time and could substantially impact your situation. Raymond James financial advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Prior to making a decision to purchase an insurance product, please consult with a properly licensed insurance professional.

Should I Accelerate My Mortgage Payments?

Josh Bitel Contributed by: Josh Bitel, CFP®

Should I Accelerate My Mortgage Payments?

Most homeowners make their regular mortgage payments every month for the duration of the loan term, and never think of doing otherwise. But prepaying your mortgage could reduce the amount of interest you'll pay over time.

How Prepayment Affects a Mortgage

Regardless of the type of mortgage, prepaying could reduce the amount of interest you'll pay over the life of the loan. Prepayment, however, affects fixed rate mortgages and adjustable rate mortgages in different ways.

If you prepay a fixed rate mortgage, you'll pay off your loan early. By reducing the term of your mortgage, you'll pay less interest over the life of the loan, and you'll own your home free and clear in less time.

If you prepay an adjustable rate mortgage, the term of your mortgage generally won't change. Your total loan balance will be reduced faster than scheduled, so you'll pay less interest over the life of the loan. Every time your interest rate is recalculated, your monthly payments may go down as well, since they'll be calculated against a smaller principal balance. If your interest rate goes up substantially, however, your monthly payments could increase, even though your principal balance has decreased.

Should I Prepay My Mortgage?

A common predicament is what to do with extra cash. Should you invest it or use it to prepay your mortgage? You'll need to consider many factors when making your decision. For instance, do you have an investment alternative that will give you a greater yield after taxes than prepaying your mortgage would offer in savings? Perhaps you'd be better off putting your money in a tax-deferred investment vehicle (particularly one in which your contributions are matched, as in some employer-sponsored 401(k) plans). Remember, though, that the interest savings from prepaying your mortgage is a certainty; by comparison, the return on an alternative investment may not be a sure thing.

Other factors may also influence your decision. The best time to consider making prepayments on your mortgage would be when:

  • You can afford to contribute money on a regular basis.

  • You have no better investment alternatives of comparable certainty.

  • You cannot refinance your mortgage to obtain a lower interest rate.

  • You have no outstanding consumer debts charging you high interest that isn't deductible for income tax purposes (e.g., credit card balances).

  • You are in the early years of your mortgage when, given the amortization schedule, the interest charges are highest.

  • You have sufficient liquid savings (three-to-six months' worth of living expenses) to cover your needs in the event of an emergency.

  • You won't need the funds in the near future for some other purpose, such as paying for college or caring for an aging parent.

  • You intend to remain in your home for at least the next few years.

Particularly against a fixed rate mortgage, regular contributions toward prepayment can dramatically shorten the life of the loan and result in savings on the total interest you're charged. As always, consult your financial planner before making any large financial moves. We’re here to look at the big picture and help you make the best decisions for your particular situation.

Josh Bitel, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.® He conducts financial planning analysis for clients and has a special interest in retirement income analysis.


UPDATED from original post on December 6, 2016 by Matt Trujillo.

Any opinions are those of the author and not necessarily those of RJFS or Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Raymond James Financial Services, Inc. and your Raymond James Financial Advisor do not solicit or offer residential mortgage products and are unable to accept any residential mortgage loan applications or to offer or negotiate terms of any such loan. You will be referred to a qualified Raymond James Bank employee for your residential mortgage lending needs.

The Power of Working Longer

Nick Defenthaler Contributed by: Nick Defenthaler, CFP®

The Power of Working Longer Center for Financial Planning, Inc.®

Saving 1% more towards retirement for the final 10 years of one’s career has the same impact as working one month longer.

Yes, you read that correctly. Saving 15% in your 401k instead of 14% for the 10 years leading up to retirement has the same impact as delaying retirement by only 30 days! Hard to believe but that’s exactly what the National Bureau of Economic Research found in their 2018 research paper titled “The Power of Working Longer”. To make your eyes pop even more, consider that saving 1% more for 30 years was shown to have the same impact as working 3-4 months longer. Wow!

If you’re like me, you find these statistics absolutely incredible. This clearly highlights the impact that working longer has on your retirement plan. As we’re getting very close to retirement (usually five years or less), most of us won’t be able to make a meaningful impact on our 25-35 year retirement horizon by increasing our savings rate. At this point in our careers, it just doesn’t move the needle the way you might think it would.  

Without question, the best way you can increase the probability of success for your retirement income strategy in the latter stages of your career is to work longer. But when I say “working longer”, I don’t necessarily mean working longer on a full-time basis.  

A trend I am seeing more and more, one that excites me, is a concept known as “phased retirement”. This essentially means that you’re easing into retirement and not going from working full-time to quitting work cold turkey. We as humans tend to view retirement as “all on” or “all off”. If you ask me, that’s the wrong approach. We need to start thinking of part-time employment as part of an overall financial game plan.  

Let’s look at a real-life client I recently encountered (whose name was changed to protect identity):

Mary, age 62, came in for her annual planning meeting and shared with me that the stress of her well-paying sales position was completely wearing her down. At this stage in her life and career, she no longer had the energy for the 50-hour work weeks and frequent travel. Now a grandmother of three, she wanted to spend more time with her kids and grandkids but feared that retiring at 62, compared with our plan of 65, would impact her long-term financial picture.  

The more we talked, the more clear it became that Mary did not want to completely stop working; she just could not take the full-time grind anymore. When we put pen to paper, we concluded that she could still achieve her desired retirement income goal by working part-time for the next three years (to get her to Medicare age). Her income would drop to a level that would not allow her to save at all for retirement, but believe it or not, that had no meaningful impact on her long-term plan. Earning enough money to cover virtually all of her living expenses and not dipping into her portfolio until age 65 was the key factor.

Having conversations around your desired retirement age is obviously a critical component to your overall planning. However, a sometimes overlooked question is, “WHY do you want to retire at that age?”. As a society, we do a good job of creating social norms in many aspects of life, and retirement is not immune to this. I’ve actually heard several clients respond to this question with, “Because that’s the age you’re supposed to retire!”. When I hear this, I get nervous, because these folks usually make it three months into the retirement transition, only to find they are not truly happy. They found purpose in their careers, they enjoyed the social aspects of their jobs, and they loved keeping busy, whether or not they realized it at the time.

The bottom line is this: Don’t discount the effectiveness of easing into full retirement, both from a financial and lifestyle standpoint.

Some clients have found a great deal of happiness during this stage of life by working less, trying a different career, or even starting a small business they’ve dreamed about for years. The possibilities are endless. Have an open mind and find the balance that works for you, that’s what it’s all about.

Nick Defenthaler, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® He contributed to a PBS documentary on the importance of saving for retirement and has been a trusted source for national media outlets, including CNBC, MSN Money, Financial Planning Magazine, and OnWallStreet.com.


The information contained in this blog 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. Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Keep in mind that there is no assurance that any strategy will ultimately be successful or profitable nor protect against a loss.

3 Reasons to Get an Early Start on College Savings

Robert Ingram Contributed by: Robert Ingram

Get an Early Start on College Savings

The back-to-school season is right around the corner. And if you have school-aged children, the thought of planning for their college education may be enough to cause your own case of back-to-school jitters. Costs of a four-year education at many colleges and universities are already well into the six-figure range (per child!). For many families hoping to cover a large portion of the costs, significant savings goals are likely required. That’s why, more than ever, you should create a college savings plan as early as possible. 

College Costs Keep Rising

When planning to fund an education goal that may be years away, focusing on today’s costs is (unfortunately) just the beginning. Like the prices of many other goods and services, college costs have increased over time. These costs, however, have been rising much faster than those of other household expenses. According to JPMorgan Asset Management’s research, tuition costs have grown by an average annual rate of 6.4% since 1983. At this rate, today’s cost of tuition would double in about 11 years. Even if this rate of inflation slowed somewhat, potential college costs are eye-opening.

The illustration below shows projected total tuition, fees, and room and board expenses for a four-year, public or private college education, with a 5% annual increase in costs.

Source: JPMorgan Asset Management College Planning Essentials, using The College Board,  2018 Trends in College Pricing . Future college costs estimated to inflate 5% per year. Average tuition, fees and room and board for public college reflect four-year, in-state charges.

Source: JPMorgan Asset Management College Planning Essentials, using The College Board, 2018 Trends in College Pricing. Future college costs estimated to inflate 5% per year. Average tuition, fees and room and board for public college reflect four-year, in-state charges.

As you can see in this example, a child who is 10 years old today could expect a total cost of $136,085 at an in-state public college or university. Her education at a private college could cost over $308,000.

The power of compound growth on your savings and invested earnings can be one of your best allies as you save for these potential future costs. Let’s say the family of our 10-year-old child began saving $3,600 each year. At 7% growth compounded annually, they would have $36,935 by the time she turned 18. What if, instead, they began saving that same amount eight years earlier, when the child was age 2? At the same 7% annual return, they would have $100,396. The sooner you can begin saving and investing, the more time compounding has to work its magic.

The Burden of Student Loan Debt

As the costs of college have continued to rise, the amount of student loan debt has grown as well. A recent report from the New York Federal Reserve Consumer Credit Panel showed that outstanding student loan debt totaled $1.44 trillion as of September 30, 2018. In addition, studies from the Institute of College Access and Success found that 65% of students graduating in 2017 from public and private, non-profit colleges had student loans, and the average borrower owed $28,650.

Loans can help provide students the funds to complete their educations, but a large debt balance can have serious implications for a graduate’s personal finances. As new graduates begin their careers, servicing this student loan debt can take up a large portion of their budgets. More dollars going to pay down debt means fewer dollars available for other needs, for building an emergency fund, saving for a house, or saving for retirement. (Click here to see some financial tips for new graduates). Parents managing student loan debt can also feel similar constraints. Often, parents in the home stretch toward retirement are paying down debt instead of funding their own retirement plans. 

Of course, every dollar of college expenses paid from savings can mean one less dollar of debt to service. More than that, the longer you have to build college savings, the greater the difference between the out-of-pocket cost of paying for college with debt and the out-of-pocket cost of saving. Take a look at the following chart, which compares the cost of funding education through loans (the principal borrowed and interest) with the cost of saving over 18 years.

529 college savings plan vs. college loan

In this hypothetical example, the total out-of-pocket amount of $65,800 contributed to the savings plan combined with investment earnings of 6% annually provided the total balance of $117,698. Borrowing that same $117,698 could result in total spending of $168,390 for the loan principal and interest.

What about Financial Aid?

If you’re like many clients thinking about college planning, you may be concerned that your savings and investments will negatively affect your eligibility for college aid. You might be worried that the more you save, the less likely it is that you will receive assistance.

To determine financial aid eligibility, schools use an Expected Family Contribution (EFC), which is a measure of a family’s financial strength. The EFC formula takes into account the incomes and assets of both the student and the parents. While the amount of savings and investment assets are considered, assets – and particularly those held in parents’ names – are a much smaller factor than incomes.  

The EFC formula includes up to 50% of the student’s income and 47% of parents’ income. On the other hand, the EFC considers up to 20% of the student’s assets and only 5.64% of the parents’ non-retirement assets, above a protected amount. Although balances in college savings plans are counted along with other non-retirement assets, the smaller percentage applied to parental assets can allow parents to build some meaningful savings without drastically affecting their student’s EFC. For a closer look at the financial aid process, check out our college planning webinar.

As with other areas of financial planning, college savings involves balancing your goals and priorities in order to most effectively align your resources. Your own unique circumstances will determine the right amounts to save, and when and where to save. If we can be a resource for any of your college planning needs, please let us know!

Robert Ingram, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® With more than 15 years of industry experience, he is a trusted source for local media outlets and frequent contributor to The Center’s “Money Centered” blog.

Qualified Charitable Distributions: Giving Money While Saving Money

Josh Bitel Contributed by: Josh Bitel, CFP®

Qualified Charitable Distributions

The Qualified Charitable Distribution (QCD) can be a powerful and tax-efficient way to achieve one’s philanthropic goals. This strategy has become much more popular under the new tax laws.

QCD Refresher

The QCD, which applies only if you’re at least 70 ½ years old, essentially allows you to directly donate your entire Required Minimum Distribution (RMD) to a charity. Normally, any distribution from an IRA is considered ordinary income from a tax perspective; however, when the dollars go directly to a charity or 501(c)3 organization, the distribution from the IRA is considered not taxable.

Let’s Look at an Example

Sandy turned 70 ½ in June 2019, and this is the first year she has to take a Required Minimum Distribution (RMD) from her IRA, which happens to be $25,000. A charitably inclined person, Sandy gifts, on average, nearly $30,000 each year to her church. Because she does not really need the proceeds from her RMD, she can have the $25,000 directly transferred to her church, either by check or electronic deposit. She would then avoid paying tax on the distribution. Since Sandy is in the 24% tax bracket, she saves approximately $6,000 in federal taxes!

Rules to Consider

The QCD and similar strategies have rules and nuances you should keep in mind to ensure proper execution:

  • Only distributions from IRAs are permitted for the QCD. Simple and SEP IRAs must be “inactive.”

    • Employer plans such as a 401k, 403b, 457 do not allow for the QCD.

    • The QCD is permitted within a Roth IRA but would not make sense from a tax perspective, because Roth IRA withdrawals are tax-free by age 70 ½.*

  • You must be 70 ½ at the time the QCD is processed.

  • Funds from the QCD must go directly to the charity and cannot go to you first and then out to the charity.

  • You can give, at most, $100,000 to charity through the QCD in any year, even if this figure exceeds the actual amount of your RMD.

The amount of money saved from being intentional with how you gift funds to charity can potentially keep more money in your pocket, which ultimately means there’s more to give to the organizations you passionately support.

Josh Bitel, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.® He conducts financial planning analysis for clients and has a special interest in retirement income analysis.

Can you roll your 401k to an IRA without leaving your job?

Nick Defenthaler Contributed by: Nick Defenthaler, CFP®

Can you roll your 401k to an IRA without leaving your job?

Typically, when you hear “rollover,” you think retirement or changing jobs. For the vast majority of clients, these two situations will be the only time they complete a 401k rollover. However, another option for moving funds from your company retirement plan to your IRA — the “in-service” rollover — is an often overlooked planning opportunity. 

Rollover Refresher

A rollover is simply the process of moving your employer retirement account (401k, 403b, 457, etc.) to an IRA over which you have complete control, separate from your ex-employer. If completed properly, rolling over funds from your company retirement plan to your IRA is a tax- and penalty-free transaction, because the tax characteristics of a 401k and an IRA generally are the same.  

What is an “in-service” rollover?

Unlike the “traditional” rollover, an “in-service” rollover is probably something unfamiliar to you, and for good reason. First, not all company retirement plans allow for it, and second, even when it’s available, the details may confuse employees. The bottom line: An in-service rollover allows an employee (often at a specified age, such as 59 ½) to roll a 401k to an IRA while employed with the company. The employee may still contribute to the plan, even after the completed rollover. Most plans allow this type of rollover once per year, but depending on the plan, you potentially could complete the rollover more often for different contribution types at an earlier age (sometimes as early as 55).

Why complete an “in-service” rollover?

While unusual, this rollover option offers some benefits:

More investment options: Any company retirement plan limits your investment options. You can invest IRA funds in almost any mutual fund, ETF, stock, bond, etc. Having options and investing in a way that aligns with your objectives and risk tolerance may improve investment performance, reduce volatility, and make your overall portfolio allocation more efficient.

Coordination with your other assets: Your financial planner can coordinate an IRA with your overall plan with much greater efficiency. How many times has your planner recommended changes in your 401k that simply don’t get completed? When your planner makes those adjustments, they won’t fall off your personal “to do” list.

Additional flexibility: IRAs allow penalty-free withdrawals for certain medical expenses, higher education expenses, first time homebuyer allowance, etc. that aren’t available with a 401k or other company retirement plan. Although this should be a last resort, it’s nice to have the flexibility.

Exploring “in-service” rollovers

So what now? First, always keep your financial planner in the loop when you retire or switch jobs to see whether a rollover makes sense for your situation. Second, let’s work together to see whether your current company retirement plan allows for an in-service rollover. That typically involves a 5-10 minute phone call with us and your company’s Human Resources department.

With your busy life, an in-service rollover may fall close to the bottom of your priority list. That’s why you have us on your financial team. We bring these opportunities to your attention and work with you to see whether they’ll improve your financial position! 

Nick Defenthaler, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® He contributed to a PBS documentary on the importance of saving for retirement and has been a trusted source for national media outlets, including CNBC, MSN Money, Financial Planning Magazine, and OnWallStreet.com.


Rolling over your retirement assets to an IRA can be an excellent solution. It is a non-taxable event when done properly - and gives you access to a wide range of investments and the convenience of having consolidated your savings in a single location. In addition, flexible beneficiary designations may allow for the continued tax-deferred investing of inherited IRA assets. In addition to rolling over your 401(k) to an IRA, there are other options. Here is a brief look at all your options. For additional information and what is suitable for your particular situation, please consult us. 1. Leave money in your former employer's plan, if permitted Pro: May like the investments offered in the plan and may not have a fee for leaving it in the plan. Not a taxable event. 2. Roll over the assets to your new employer's plan, if one is available and it is permitted. Pro: Keeping it all together and larger sum of money working for you, not a taxable event Con: Not all employer plans accept rollovers. 3. Rollover to an IRA Pro: Likely more investment options, not a taxable event, consolidating accounts and locations Con: usually fee involved, potential termination fees 4. Cash out the account Con: A taxable event, loss of investing potential. Costly for young individuals under 59 ½; there is a penalty of 10% in addition to income taxes. Be sure to consider all of your available options and the applicable fees and features of each option before moving your retirement assets. Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Investing involves risk and you may incur a profit or a loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to re tax or legal matters with the appropriate professional. 401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. Roth 401(k) plans are long-term retirement savings vehicles. Contributions to a Roth 401(k) are never tax deductible, but if certain conditions are met, distributions will be completely income tax free. Unlike Roth IRAs, Roth 401(k) participants are subject to required minimum distributions at age 70.5.

How to Deal with Financial Decisions When a Major Life Event Has You Feeling Stuck

Sandy Adams Contributed by: Sandra Adams, CFP®

How to Deal with Financial Decisions When a Major Life Event Has You Feeling Stuck

We’ve all had at least one. A major life event — some might even describe it as a trauma — that leaves us feeling like we’ve been run over by a freight train. For some of us, it may have been a divorce; for others, the loss of a spouse or other close loved one. It could be the sudden loss of a job, a terminal illness diagnosis or accident. Even unexpected “good news” events, like an inheritance or job promotion that comes with a move, can feel stressful when other aspects of your life are unsettled.

Times like these might leave a person unable to envision future goals or make ANY short or long term decisions. It’s common to feel stressed, numb, uncomfortable, anxious, confused — any of these, all of these — or just plain STUCK!

If “stuck” sounds like a place where you (or someone you know) might be, what can you do?

  • First, work with your financial decision partner (your financial advisor) to make sure that you are immediately okay and that any immediate cash flow needs are being met. Those are the only decisions that REALLY need to be made now.

  • Next, take an intentional “time out” (we call this the “DECISION FREE ZONE”) from making any major financial decisions or plans. This gives you time to deal with the life event that has happened or is happening to you.  Take time to take care of you — physically, psychologically, and emotionally — and get back to the business of future planning and decision making when your head is in a more clear place.

  • When you are ready to start thinking about planning again, take a step away from your current situation. “Getting on the balcony” can give you a more clear perspective. With the help of your financial decision partner, you can see your situation from a new point of view and begin the process of setting new goals for your new normal.

Getting “un-stuck” is not easy. And it cannot be done without patience, time, and the help of a good decision partner. 

What has you stuck?  What life event or life events have you feeling numb, stressed, and unable to make decisions?  Understand that this is likely to happen to all of us at some point in our lives, so do not feel alone.  And do not feel pressured to make decisions and or to move forward until you have taken care of yourself and feel comfortable moving ahead. 

We at The Center are trained to help clients with these types of difficult transitions. Please reach out if we can assist you or anyone you know and love.  Sandy.Adams@CenterFinPlan.com.

Sandra Adams, CFP®, CeFT™, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She specializes in Elder Care Financial Planning and serves as a trusted source for national publications, including The Wall Street Journal, Research Magazine, and Journal of Financial Planning.


Any opinions are those of Sandra D. Adams, CFP® and not necessarily those of RJFS or Raymond James. 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. There is no assurance any of the trends mentioned will continue or forecasts will occur. 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. 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. Investing involves risk and you may incur a profit or loss regardless of strategy selected.