Pension Vs. Lump Sum

Contributed by: Nick Defenthaler, CFP®, RICP®

Monthly payments or a lump-sum?  This is often times the “million-dollar question” for those in the workforce who still have access to a defined benefit, pension plan. As I’m sure you’re aware of, pension plans in the world we live in today are about as common as seeing someone using a Walkman to listen to music – virtually non-existent. Most companies have shifted from defined benefit retirement plans that offer a fixed payment or lump-sum upon retirement to defined contribution plans such as a 401k or 403b as a cost savings measure. However, if you’re lucky enough to be eligible for a pension upon retirement, the “hurdle rate” or “internal rate of return (IRR)” is one of the more important, quantitative aspects of the decision that you’ll have to make when deciding if it makes more sense to take the lump-sum, or receive fixed monthly payments.

What the Heck is a “Hurdle Rate”?

To keep things simple, the “hurdle rate” or “internal rate of return” is essentially the rate of return necessary for the investment of the lump-sum option to produce the same income as the fixed monthly payment option.  One of the most important factors that will go into this calculation is life expectancy.  Typically, the longer you expect to live, the higher the “hurdle rate” will be because the dollars will have to support your spending longer.  Let’s take a look at a hypothetical example. 

Tom, age 65, will be retiring in several months and has to make a decision surrounding his pension options.  He can either take a $50,000/yr payment that would continue in full, even if he pre-deceases his wife, Cindy (also 65) or take a lump-sum distribution of $800,000 that could be rolled over to an IRA (tax-free) for his financial planner to manage.  Tom and Cindy both have longevity in their family and feel there is a good chance at least one of them will live until age 95.  If either of them lived another 30 years and they invested the $800,000 lump-sum, the IRA would have to earn a 4.65% rate of return to produce the same $50,000 of income the fixed payment option would offer.  If, however, age 85 was a more realistic life expectancy for Tom and Cindy, the “hurdle rate” would decrease to 3.78% because the portfolio would not have to produce income quite as long. 

Interest Rates and Other Considerations

Looking at the example above, I’m confident that most financial planners would argue that a 4.65% ‘hurdle rate’ out to age 95 is more than doable in a well-balanced, diversified portfolio over three decades. This is also documented by the popular ‘4% rule’ - click HERE to read my recent article on this very topic. However, factors such as risk tolerance, other fixed income sources, life expectancy, legacy goals, etc. all come into play when making this monumental financial decision.

Another critical factor when it comes to the lump sum vs. monthly payment option is the current interest rate environment. PPA rates, in the context of pension plans, refer to the interest rates used to discount future pension payments when calculating the present value of those payments. These rates are part of the Pension Protection Act (PPA) of 2006 and are used to determine a plan's funding status and the amount of lump sum payments available to participants. PPA uses several segment rates which are averages of corporate bond yields over different maturity periods. This sounds confusing but the concept is actually quite simple. When interest rates are extremely low like we saw in the early 2020s, this dramatically increases the value of a lump-sum option. Conversely, when interest rates dramatically increase, like we saw in 2022 and 2023, the value of the lump-sum will decrease. As a firm located in the metro-Detroit area, our team serves dozens of clients from the ‘Big Three” (Ford, GM and Fiat Chrysler). Back in the summer of 2023, Ford Motor company actually sent a letter to employees informing them that after the annual ‘interest rate adjustment’ period (occurs each year in September for the Ford pension), they could expect their lump sum to decrease by as much as 25%! We had several clients (and new ones seeking guidance on this decision) ultimately push retirement up by 1-2 years because if they didn’t take the lump-sum offer ASAP, for example a lump-sum could have potentially gone from $1.5M to almost $1.1M! Now, I’m sure Ford had some good intention by informing their more ‘mature’ workers that their pension was set to decrease soon if no action was taken, however, this was clearly another way for them to entice many folks to accelerate retirement…and guess what, from our observation, it appears to have worked!  

While we wish there was a clear, black and white, right or wrong answer for each client situation, it’s virtually impossible because of all the different variables that go into analyzing your options. There’s also the emotional/behavioral aspect of the decision that we must also take into consideration. As always, I suggest consulting with a CERTIFIED FINANCIAL PLANNER™ (CFP®) professional to help you make the right choice and also have them run various scenarios through their financial planning software to see how the different options impact your long-term strategy. This is one financial decision most folks can’t afford to get wrong, so choose wisely!  

Nick Defenthaler, CFP®, RICP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® Nick specializes in tax-efficient retirement income and distribution planning for clients and serves as a trusted source for local and national media publications, including WXYZ, PBS, CNBC, MSN Money, Financial Planning Magazine and OnWallStreet.com.

Any opinions are those of the author and not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Investing involves risk, and you may incur a profit or loss regardless of strategies selected, including asset, allocation and diversification. Past performance is not a guarantee of future results. The hypothetical examples are for illustrative purposes only and are not intended to predict the returns of any investment choices. Rates of return will vary overtime, particularly for long-term investments. There is no guarantee the selected rate of return can be achieved. Any investments may have fees and expenses that are not taken into account, which would lower the performance. Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, and CFP® (with plaque design) in the United States, which it authorizes use of by individuals who successfully complete CFP Board's initial and ongoing certification requirements. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through The Center for financial Planning Inc. The Center for financial Planning Inc. is not a registered broker/dealer and is independent of Raymond James Financial Ser

Smart Tax Strategies to Protect Your Retirement Income

Contributed by: Matt Trujillo, CFP®

You've spent decades building your nest egg—now it's time to enjoy it. But without the right tax strategies, Uncle Sam could take a bigger bite out of your retirement income than you expected. The good news? With some thoughtful planning, you can minimize your tax burden and make your savings last longer. Below are key strategies to help protect your retirement income from unnecessary taxation.

1. Understand Your Tax Bracket in Retirement

Most retirees assume their tax rate will drop, but that's not always the case. Required Minimum Distributions (RMDs), Social Security, pensions, and investment income can all push you into a higher bracket than you planned. Know your projected income sources and work with a tax professional to estimate your future tax brackets.

2. Use Tax Diversification in Your Accounts

Ideally, your retirement savings should be spread across three types of accounts:

• Tax-deferred (Traditional IRA, 401(k)): taxed when withdrawn.

• Tax-free (Roth IRA, Roth 401(k)): tax-free withdrawals if rules are followed.

• Taxable brokerage accounts: taxed annually on dividends and capital gains.

This mix gives you the flexibility to manage income and control tax exposure each year.

3. Delay Social Security (If You Can)

Delaying Social Security benefits until age 70 increases your monthly payout and can reduce the number of years your benefits are taxed. Since up to 85% of Social Security benefits can be taxable depending on other income, using withdrawals from tax-free or low-tax sources early on can help keep those benefits tax-efficient later.

4. Use Roth Conversions Strategically

A Roth conversion moves money from a traditional IRA or 401(k) into a Roth IRA. You pay tax now at current rates, but future withdrawals are tax-free. This strategy is particularly powerful in years when your income is temporarily lower—such as early retirement before RMDs start at age 73 (for those turning 72 after 2022).

Tip: Be careful not to trigger a higher tax bracket or affect Medicare premiums (IRMAA surcharges) when doing a conversion.

5. Withdraw in a Tax-Efficient Order

Here's a general rule of thumb (though personal situations vary):

1. Withdraw from taxable accounts first (use capital gains rates if favorable).

2. Then tax-deferred accounts (IRA, 401(k), subject to ordinary income tax).

3. Save Roth accounts for last, allowing them to grow tax-free as long as possible.

This approach helps manage taxes today while preserving long-term tax-advantaged growth.

6. Manage RMDs Carefully

Once you hit RMD age, you must begin taking minimum distributions from your traditional retirement accounts, which are taxed as ordinary income. Failure to take RMDs results in severe penalties. Strategies to reduce future RMDs include:

• Roth conversions before RMD age.

• Qualified Charitable Distributions (QCDs), which let you donate up to $100,000 per year directly to charity tax-free.

7. Take Advantage of the Standard Deduction and Tax Credits

In retirement, many people itemize less and rely on the standard deduction, which increases with age (currently higher for taxpayers 65+). Smart timing of deductions or capital gains can help you stay under taxable thresholds. Also, check for available tax credits, such as the Credit for the Elderly or Disabled.

8. Be Aware of State Taxes

State taxes can significantly impact your retirement income. Some states tax Social Security, pensions, or IRA withdrawals, while others (like Florida, Texas, or Nevada) have no state income tax. If you're planning a move in retirement, consider the state's tax treatment of retirees as part of your decision.

Taxes don't stop when your paychecks do, but with the proper planning, you can keep more of your hard-earned retirement savings. Whether you're just starting retirement or already enjoying it, work with a financial advisor or tax professional to tailor a strategy that fits your goals, lifestyle, and income needs.

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Enjoyed this blog? Boost your financial confidence with our book, Finding Your Center: Achieving Confidence Through Financial Planning. Click HERE to learn more and get your copy.

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Matthew Trujillo, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® A frequent blog contributor on topics related to financial planning and investment, he has more than a decade of industry experience.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.

Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.

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 the author and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability. Conversions from IRA to Roth may be subject to its own five-year holding period. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals of contributions along with any earnings are permitted. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion. Matching contributions from your employer may be subject to a vesting schedule. Please consult with your financial advisor for more information. 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. 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 72.

Thinking About Retiring Early? Don’t Overlook the Rule of 55

Contributed by: Sandra Adams, CFP®

As a financial advisor, one of the most common questions I hear from clients considering early retirement is: "How can I access my retirement funds before age 59 ½ without penalty?" If you are asking that too, let's discuss an often-overlooked option: the Rule of 55.

The Rule of 55 allows you to withdraw money from your 401(k) or 403(b) without the usual 10% early withdrawal penalty if you leave your job in the year you turn 55 or later. This can be a helpful tool if you are retiring early and need income before other sources like Social Security, pensions, or IRAs kick in.

Here is the key: this rule applies only to the retirement account with your most recent employer. It does not work with old 401(k)s you have rolled into an IRA, so timing and account structure matter. That is why reviewing your plan before making any moves is important.

I have worked with clients who successfully used the Rule of 55 to bridge the income gap during early retirement—while keeping their long-term investments on track. With the right strategy, it can be part of a broader plan that balances your ability to draw income now with the freedom to draw from other sources of income later. And even if you don't ultimately need to draw on the funds, but you might, keeping at least a portion of your 401(k) balance in-tact to allow you the ability to draw on it "in case" could be a smart move until you reach that magic age 59 ½ if you haven't built up significant reserve savings or after-tax investment account balances to draw on.

If you are thinking about retiring before 59 ½ and may need access to your retirement savings, it is best to map out the best path for your unique situation. There's no one-size-fits-all solution, but with careful planning, you can avoid surprises and make the most of your hard-earned savings.

Early retirement is possible—just make sure you are stepping into it with a plan that supports your lifestyle and your future. If you or anyone you know is considering early retirement and might need to think through their options, do not hesitate to reach out. We are always happy to help! Sandy.Adams@CenterFinPlan.com.

Sandra Adams, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® and holds a CeFT™ designation. 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.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Sandy Adams, CFP® and not necessarily those of Raymond James. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.

Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.

What is an “In-Service” Rollover?

Contributed by: Nick Defenthaler, CFP®, RICP®

When you hear "rollover," you typically think of retirement or changing jobs. For the vast majority of clients, these two situations will really be the only time they will complete a 401k rollover. However, you might not know about another type of situation in which you can move funds from your company retirement plan to your IRA. This is what's known as the "in-service" rollover and is an often-overlooked planning opportunity. 

Rollover Refresher

A rollover is a pretty simple concept. It is the process of moving your employer retirement account (401k, 403b, 457, etc.) over to an IRA that you have complete control over and is entirely separate from your employer plan. Most people do this when they retire or switch jobs. If completed properly, rolling over funds from your company retirement plan to your IRA (and vice versa) is a tax and penalty-free transaction because the tax characteristics of a 401k and IRA are generally the same.

What is an "In-Service" Rollover?

Unlike the "traditional" rollover, an "in-service" rollover is probably something you've never heard of, and for good reason. First, not all company retirement plans allow for it, and second, even for those that do, the details can be confusing to employees. The bottom line: An in-service rollover allows an employee (often at a specified age such as 55 or 59 ½) to be able to roll their 401k to an IRA while still employed with the company. The employee can also still contribute to the plan, even after the rollover is complete. Most plans allow this type of rollover once per year, but depending on the plan, you could potentially complete the rollover more often for different contribution types (ex., 'after-tax' contributions that you could possibly roll over to a Roth IRA for future tax-free growth).

Why Complete an "In-Service" Rollover?

More investment options: With any company retirement plan, you will be limited to the plan's investment options. By having the funds in an IRA, you can invest in just about any mutual fund, ETF, stock, bond, etc. Having access to more options can potentially improve investment performance, reduce volatility, and make your overall portfolio allocation more efficient. In my experience, most employer plans have decent options for stock funds but are very limited when it comes to bond options. This can become problematic as one gets closer to retirement and needs to position their portfolio more conservatively.

Coordination with your other assets: If you're working with a financial planner, they can coordinate an IRA into your overall plan far more efficiently than a 401k. How many times has your planner recommended changes in your 401k that simply don't get completed? (Tisk, tisk!) If your planner is managing the IRA for you, those recommended changes are going to get completed instead of falling off your personal "to-do" list.   

Additional flexibility: IRAs allow certain penalty-free withdrawals that aren't available in a 401k or other company retirement plans (certain medical expenses, higher education expenses, first-time homebuyer allowance, etc.). Although using an IRA for these expenses should be a last resort, it's nice to have the flexibility if needed.

Exploring "In-Service" Rollovers

So what now? The first thing is to always keep your financial planner in the loop when you retire or switch jobs to see if a rollover makes sense for your situation. In many cases, it might make more sense to keep your employer retirement plan as is. Factors such as cost of professional management, flexibility on distributions (ex., special age 55 penalty-free distribution rules), and possible increase of creditor protection should all be considered when determining if a rollover could be right for you and your long-term financial plan. Just like most things in financial planning, there is almost never a 'black and white' answer when it comes to rollovers. Ideally, you may want to consider working with a Certified Financial Planner when making this determination for you. CFPs must typically adhere to the ethics and standards conduct of the CFP® board by acting in your best interests.

Nick Defenthaler, CFP®, RICP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® Nick specializes in tax-efficient retirement income and distribution planning for clients and serves as a trusted source for local and national media publications, including WXYZ, PBS, CNBC, MSN Money, Financial Planning Magazine and OnWallStreet.com.

Article written by Nick Defenthaler, Partner, Financial Planner with Center for financial Planning, Inc. 24800 Denso Drive, Suite 300, Southfield, MI 48033, 248-948-7900. If you've changed jobs or are retiring, 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. 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. 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. Not all employer plans accept rollovers. Rollover to an IRA Pro: Likely more investment options, not a taxable event, consolidating accounts and locations: usually fee involved, potential termination fees. 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. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Center for Financial Planning, Inc.®, is not a registered broker/dealer and is independent of Raymond James Financial Services. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax issues, these matters should be discussed with the appropriate professional. 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. Prior to making any investment decision, you should consult with your financial advisor about your individual situation. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James. Contributions to a traditional IRA may be tax-deductible depending on the taxpayer’s income, tax-filing status, and other factors. 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. Earnings withdrawn prior to 59 1/2 would be subject to income taxes. Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Like Traditional IRAs, contribution limits apply to Roth IRAs. In addition, with a Roth IRA, your allowable contribution may be reduced or eliminated if your annual income exceeds certain limits. Contributions to a Roth IRA are never tax deductible, but if certain conditions are met, distributions will be completely income tax free. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.

How Much is Enough? Calculating Your Retirement Savings Goal

Contributed by: Josh Bitel, CFP®

Retirement may seem far off, but knowing how much you need to save is a crucial first step toward financial security. The answer to "How much is enough?" isn't one-size-fits-all—it depends on your lifestyle expectations, health, location, and longevity. However, there are some "rules of thumb" that can help you put a pulse check on your retirement plan:

Start with the 80% Rule

A common rule is that you'll need about 70% to 80% of your pre-retirement income to maintain your lifestyle in retirement. For example, if you currently earn $100,000 annually, plan on needing around $70,000–$80,000 per year after you stop working. This accounts for lower expenses—such as commuting, work clothing, or mortgage payments—but you may spend more on healthcare or travel.

Use the 25x Rule

Once you have your annual income target, multiply it by 25 to estimate your total retirement savings goal. If you need $70,000 a year, that means you should aim for $1.75 million. This rule is based on the 4% withdrawal strategy, which assumes you can withdraw 4% of your retirement savings annually without running out of money for at least 30 years, a popular strategy for estimating the strength of a financial plan.

Factor in Other Income Sources

Remember to account for other income sources like Social Security, pensions, or rental income. If Social Security is expected to provide $20,000 a year, and you need $70,000, then your savings only need to cover the $50,000 gap—meaning a goal closer to $1.25 million instead of $1.75 million.

Adjust for Inflation and Healthcare Costs

Healthcare expenses tend to rise with age, and inflation steadily erodes purchasing power. It's wise to build a cushion by overestimating your needs rather than falling short. Consider using retirement calculators or working with a financial advisor to model different scenarios.

Start Early, Save Consistently

The earlier you begin saving, the more time your investments have to grow through compound interest. Even modest contributions can grow significantly over time. Don't worry though, it is never too late to get started! If you start later, increasing your savings rate or delaying retirement by a few years can make a big difference.

Ultimately, your retirement goal should reflect your unique vision for the future. Take time to define that vision, crunch the numbers, and revisit your plan regularly. Your future self will thank you. And, of course, don't hesitate to seek advice from a financial planner if you are curious about your retirement path.

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Enjoyed this blog? Boost your financial confidence with our book, Finding Your Center: Achieving Confidence Through Financial Planning. Click HERE to learn more and get your copy.

If you're in the Metro Detroit area, join our book tour and receive a FREE copy!

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Josh Bitel, CFP® is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® He conducts financial planning analysis for clients and has a special interest in retirement income analysis.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Josh Bitel, CFP® and not necessarily those of Raymond James.

Investing involves risk and investors may incur a profit or a loss regardless of strategy selected, including asset allocation and diversification.

Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Center for Financial Planning, Inc®. Center for Financial Planning, Inc.® is not a registered broker/dealer and is independent of Raymond James Financial Services.

The Power of Working Longer

Contributed by: Nick Defenthaler, CFP®, RICP®

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 heard 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, 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 how big of an impact working longer has on your retirement plan. When you’re getting very close to retirement (usually 5 years or less), most of us won’t be able to make a meaningful impact to 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 of 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”. That’s the wrong approach if you ask me. We need to be thinking of part-time employment as part of your overall retirement/financial game plan.  

Let’s look at this case study about Diane:

Diane, age 61 came in for her annual planning meeting and shared 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 3, she wanted to spend more time with her kids and grandkids but was fearful of how retiring at 61 compared to our plan of 65 would impact her long-term financial picture.  After further conversations, it became evident that Diane did not want to stop working completely; she just could not take the full-time grind anymore. When the pen was put to paper, it was concluded that she could still achieve her desired retirement income goal by working part-time for the next 3 ½  years (until 65 to get her to Medicare age).  Her income level would be dropping to a level that would not allow her to save for retirement at all, but believe it or not, that did not have a meaningful impact on her long-term plan! Earning enough money to cover virtually all of her living expenses and dramatically reducing portfolio distributions until age 65, however, was the key factor. 

Having conversations surrounding your desired retirement age is obviously a critical component to your overall planning.  However, a question that is sometimes overlooked that I like to pose 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 and say, “Because that’s the age you’re supposed to retire!”.  When I hear this, I get nervous because these are the folks who usually make it 6 months into the retirement transition only to find that they are not truly happy. They found purpose in their career, they enjoyed the social aspects their job offered and they loved keeping busy, whether they realized it at the time or not. 

The bottom line is this – don’t discount the effectiveness easing into full retirement can have, 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 been thinking 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. 

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Enjoyed this blog? Boost your financial confidence with our book, Finding Your Center: Achieving Confidence Through Financial Planning. Click HERE to learn more and get your copy.

If you're in the Metro Detroit area, join our book tour and receive a FREE copy!

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Nick Defenthaler, CFP®, RICP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® Nick specializes in tax-efficient retirement income and distribution planning for clients and serves as a trusted source for local and national media publications, including WXYZ, PBS, CNBC, MSN Money, Financial Planning Magazine and OnWallStreet.com.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Center for Financial Planning, inc. is not a registered broker/dealer and is independent of Raymond James Financial Services. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax issues, these matters should be discussed with the appropriate professional. This case study is for illustrative purposes only. Individual cases will vary. 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. Prior to making any investment decision, you should consult with your financial advisor about your individual situation. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James.

How to Measure Your Financial Health Before Retirement

Contributed by: Kali Hassinger, CFP®, CSRIC™

Retirement can be one of life's most exciting milestones, but achieving it successfully requires careful planning and preparation. Whether you're a few years away from retirement, just starting to think about it, or already have a determined retirement date approaching, it's essential to evaluate your financial health prior to retirement. When clients approach the Center Team with retirement at the forefront of their minds, we work through a detailed and personalized financial planning process in order to determine if and when a comfortable retirement can become a reality.

The Financial Planning process includes a step-by-step review of all of the aspects of your financial life, including, but not limited to, the following:

Determine Your Retirement Goals and Spending Needs

I've often been asked, "How do I know when I've saved enough for retirement?" Ultimately, that answer is driven by what you plan or hope to do in retirement and how much that lifestyle costs! Sitting down to reflect on what you would like retirement to look like is an important part of the process. When you have outlined your goals and spending needs, you can begin the process to determine whether or not you've saved enough for retirement.

Develop a Net Worth Statement and Evaluate Your Retirement Savings

Of course, assessing the amount of savings you've accumulated for retirement is an important step in the financial planning process. It includes retirement plans like 401ks, IRAs, Roth accounts, and any other cash or investment savings you have earmarked for retirement. It's not uncommon for someone to have multiple accounts with the same tax treatment. Consolidating similar accounts can help you to feel organized, especially when these accounts are needed to create income in the future.

Other items to add to your Net Worth statement are any real estate, debts, business assets, or property.

Review Retirement Income

As mentioned above, your savings will be needed to create cash flow in retirement, but there are also other sources of income that must be reviewed and planned for. For many Americans, Social Security is often the largest source of fixed income in retirement. When to begin collecting Social Security is a very important decision that should be made with a deep understanding of the benefits and options. 

For those who have pension income, there are often decisions that must be made with those programs as well. Understanding the benefits and trade-offs between electing a pension over a lump sum option can help you to make the decision that is best for your lifestyle and retirement plan.

With these income sources in mind, we work with clients to develop a cash flow approach that incorporates and plans for tax implications, withdrawal strategies, and the longevity of your retirement.

Understand Your Investment Portfolio

As you approach retirement, you will want to reassess your overall investment portfolio, allocation, and strategy. While the set-it-and-forget approach may have been effective during your working years, managing your investment portfolio in retirement can require a more detailed methodology. Managing cash, your risk profile, and maintaining a balanced and diversified portfolio is important throughout retirement. Ultimately, your allocation should match both the amount of risk your plan necessitates and your level of comfort with investment risk.

Plan for the Unexpected

Retirement can realistically last 30 years or more! Think about your life and the world 3 decades ago. So much has changed and evolved that it can be hard to know what our lives could look like that far into the future. There will always be factors we can't control, but we can plan for those factors to the best of our abilities through insurances and an estate plan.  Additionally, our financial planning process incorporates possible market returns (including negative market environments) and the effects of inflation over time.

Determining your financial health before retirement requires a comprehensive review of all aspects of your financial life. The sooner you start this process, the better. By understanding where you are today, you can make any necessary adjustments to reach your goals. Financial planning is an ongoing process, and working with a financial planner can provide the planning and guidance you need to live your desired retirement!

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Kali Hassinger, CFP®, CSRIC® is a Financial Planning Manager and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Kali Hassinger, CFP®, CSRIC™ and not necessarily those of Raymond James.

Prior to making an investment decision, please consult with your financial adviser about your individual situation. Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Center for Financial Planning, Inc®. Center for Financial Planning, Inc.® is not a registered broker/dealer and is independent of Raymond James Financial Services.

The Problem with Having Excess to Spend in Your Retirement Plan

Contributed by: Sandra Adams, CFP®

You spent your entire working life saving for your future retirement. You may have sacrificed things you wanted or wanted to do, at times, to make sure that you were saving enough for your future financial security. And now that you are retired, you may find that you saved so well that you have more than you need to support the retirement income you need for your projected life expectancy. What a problem to have!?!

Now, more likely than not, when you meet with your financial advisor each year, you discuss “what would add more to your life to add value and meaning” for which you might be using your excess funds. For many clients, this is a difficult question to answer. They feel that they have and have done most of the things that have meaning for them (or they are already doing them within their current cash flow and do not need to spend additional money to add further value to their life).

Many clients DO plan to leave legacy gifts to children, grandchildren, other family members, OR charities at the end of their lives. When there is excess in the retirement plan, even if a long-term care event were to occur for one or both spouses, the plan would still be in good shape, so giving thought to gifting during a lifetime might make sense.

For children, grandchildren, and other family members, at least taking advantage of the annual gift exclusion amounts (in 2025, $19,000 per person) to help fund retirement accounts, college education accounts, etc., is a wonderful way to gift. This is also a terrific way to help get family members started with their own financial planning and get them introduced to a planner (whether it is someone with the firm you work with or someone else they can trust). From a charitable perspective, beginning to use the various tools you have available, whether it be Qualified Charitable Distributions to gift directly from your IRA if you are over 70 ½, donating appreciated investment positions in an after-tax investment account so that both you and the charity avoid paying capital gains taxes (makes sense if you have enough other deductions to itemize), or potentially using a Donor Advised Fund to get a large deduction in the year you contribute cash or appreciated securities and then making grants from the fund to charities over time.

When you find that you have saved more than you ever thought you would, and you feel like spending to spend is not something you are not interested in doing, it might make sense to accelerate the legacy gifting you had planned for after your death and do the gifting during your lifetime. This will allow you to enjoy seeing the gifts “do their good work” during your lifetime and add value and satisfaction to your life that you might never have expected.

If any of these gifting strategies are of interest to you, please reach out to your planner at The Center to discuss. We are always happy to help!

Sandra Adams, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® and holds a CeFT™ designation. 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.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Sandy Adams, CFP® and not necessarily those of Raymond James. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.

Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.

If You’re a Single Woman, These Are the Top 5 Things to Plan for Prior to Retirement!

Contributed by: Kali Hassinger, CFP®, CSRIC™

Retirement planning comes with its own unique set of opportunities and challenges. When you're a single woman, deciding to retire and the many subsequent decisions surrounding that life change can feel like it presents even more anxiety. Focusing on a few key areas to optimize your financial future can help ease these doubts and ensure you make the right financial choices. Here are the top five items to plan for as you consider retirement:

1. Build and maintain a Diversified Investment Portfolio

Throughout your career, you've successfully built your retirement savings pool. When you're working and living off of your income, it can be easier to weather the market's ups and downs. When your portfolio is needed to provide income for your lifestyle and well-being, the stakes are a bit higher. Building a balanced portfolio that aligns with your risk tolerance, time horizon, and retirement goals is extremely important. With those guidelines in mind, your investment portfolio should be well-diversified across various asset classes, sectors, and geographical regions.

2. Understand your Budget, Expenses, and Lifestyle Needs

At all stages of our lives, having a budget and understanding of spending is important. When making the decision to retire, you'll want to plan for both current and future expenses. Women often have longer life expectancies than men, meaning their savings need to last longer in retirement. A detailed budget and retirement spending projection can help you determine if you've saved enough to have a financially confident retirement.

3. Create a Comprehensive Withdrawal Strategy

A well-thought-out withdrawal strategy can help preserve your portfolio and ensure it lasts throughout your lifetime. One common approach is the "bucket strategy," where you segment your savings and portfolio into different buckets or investments based on when you will need to use the money. When working with clients, we recommend keeping approximately 12 months of your portfolio income need in cash or low-risk, cash-like positions that are not subject to market volatility. Beyond that 12-month need, your ability to handle risk can vary.

Your withdrawal strategy should also incorporate and consider the tax implications of your withdrawals to avoid unforeseen tax burdens.  Strategic tax planning can also help to extend the life of your portfolio.

4. Develop an Estate Plan

Estate planning is often overlooked, but it's one of the most critical steps in helping to ensure that your assets are distributed according to your wishes. Whether you choose family or charitable causes, deciding how your savings and possessions are handled can avoid unnecessary stress for your loved ones.

Without a spouse who would be the default decision-maker in a situation where you cannot make them yourself, it's extremely important to ensure that you've appointed a power of attorney for financial or healthcare decisions.

5. Understand your Social Security Benefits

For many, Social Security is the only fixed source of income in retirement, and the decisions are often irrevocable. As a single person, you'll want to optimize the Social Security benefits available to you. Although you can collect as early as age 62, your benefit will be higher if you collect at your full retirement age or even as late as age 70. A financial planner can help you determine the best strategy for you based on your assets, life expectancy, and retirement goals.

As retirement approaches, it's natural to feel overwhelmed by the decisions that need to be made. Working with a financial planner can provide you with the expertise and personalized advice to feel confident in your financial future. It can also provide a partner you can trust with any of life's financial decisions.

Kali Hassinger, CFP®, CSRIC® is a Financial Planning Manager and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Kali Hassinger, CFP®, CSRIC™ and not necessarily those of Raymond James.

Prior to making an investment decision, please consult with your financial adviser about your individual situation. Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Center for Financial Planning, Inc®. Center for Financial Planning, Inc.® is not a registered broker/dealer and is independent of Raymond James Financial Services.

2025 Retirement Account Contribution and Eligibility Limits Increases

Contributed by: Robert Ingram, CFP®

The IRS has recently announced the annual contribution limits for retirement plans and IRA accounts in 2025. And while the increases to most of the limits are modest, there are some notable increases. In particular, the legislation Setting Every Community Up for Retirement Act of 2022 (SECURE Act 2.0) adds some special contribution limits starting in 2025. Here are some of the adjustments to contribution limits and income eligibility limits for some contributions that you should keep on your radar as you plan your savings goals and targets for the New Year.

Employer retirement plan contribution limits (401k, 403b, most 457 plans, and Thrift Saving):

• $23,500 annual employee elective deferral contribution limit (increases $500 from $23,000 in 2024)

• $7,500 extra "catch-up" contribution if age 50 and above (remains the same as in 2024)

• Total amount that can be contributed to a defined contribution plan, including all contribution types (e.g., employee deferrals, employer matching, and profit sharing), will be $70,000 or $77,500 if age 50 and above (increased from $69,000 or $76,500 for age 50+ in 2024)

*SECURE Act 2.0 contribution limit change

Under a change made in SECURE ACT 2.0, starting in 2025, there will be a higher catch-up contribution limit for employees aged 60, 61, 62, and 63 who participate in the above plans.

• $11,250 is the "catch-up" contribution for those aged 60, 61, 62, and 63  ($3,750 more than the age 50 and above "catch-up" amount)

Traditional, Roth, SIMPLE IRA contribution limits:

Traditional and Roth IRA

• $7,000 annual contribution limit (remains the same as in 2024)

• $1,000 “catch-up” contribution if age 50 and above (also remains the same as in 2024)

Note: The annual limit applies to any combination of Traditional IRA and Roth IRA contributions. (i.e., You would not be able to contribute up the maximum to a Traditional IRA and to up the maximum to a Roth IRA.)

SIMPLE IRA

• $16,500 annual elective contribution limit (increases $500 from $16,000 in 2024)

• $3,500 “catch-up” contribution if age 50 and above  (remains the same as in 2024)

*SECURE Act 2.0 also sets a higher “catch-up” contribution limit to a SIMPLE for those aged 60-63)

• $5,250 “catch-up” contribution if aged 60, 61, 62, and 63 ($1,750 more than the age 50 and above “catch-up” amount)

Traditional IRA deductibility (income limits):

You may be able to deduct contributions to a Traditional IRA from your taxable income.  Eligibility to do so depends on your tax filing status, whether you (or your spouse) is covered by an employer retirement plan, and your Modified Adjusted Gross Income (MAGI). The amount of a Traditional IRA contribution that is deductible is reduced ("phased out") as your MAGI approaches the upper limits of the phase-out range. For example,

• Filing Single

  • You are covered under an employer plan

    • Partial deduction phase-out begins at $79,000 up to $89,000 (then above this no deduction) compared to 2024 (phase-out: $77,000 to $87,000)

•  Married filing jointly

  • Spouse contributing to the IRA is covered under a plan

    • Phase-out begins at $126,000 to $146,000 compared to 2024 (phase-out: $123,000 to $143,000)

  • Spouse contributing is not covered by a plan, but the other spouse is covered under a plan

    • Phase-out begins at $236,000 to $246,000 compared to 2022 (phase-out:  $230,000 to $240,000)

Roth IRA contribution (income limits):

Similarly to making tax-deductible contributions to a Traditional IRA, being eligible to contribute to a Roth IRA depends on your tax filing status and your income. Your allowable contribution is reduced ("phased out") as your MAGI approaches the upper limits of the phase-out range. For 2025, the limits are as follows:

• Filing Single or Head of Household

  • Partial contribution phase-out begins at $150,000 to $165,000  compared to 2024 (phase-out:  $146,000 to $161,000)

•  Married filing jointly

  • Phase-out begins at $236,000 to $246,000 compared to 2023 (phase-out: $230,000 to $240,000)

If your MAGI is below the phase-out floor, you can contribute up to the maximum. Above the phase-out ceiling, you are ineligible for any partial contribution.

Eligibility for contributions to retirement accounts like Roth IRA accounts also requires you to have earned income. If you have no earned income or your total MAGI makes you ineligible for regular Roth IRA contributions, other strategies such as Roth IRA Conversions could be good alternatives in some situations to move money into a Roth. Roth Conversions can have different income tax implications, so you should always consult with your planner and tax advisor when considering these types of strategies.

As always, if you have any questions surrounding these changes, don’t hesitate to contact us!

Have a happy and healthy holiday season!

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.

Any opinions are those of Bob Ingram, CFP® and not necessarily those of Raymond James. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.

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. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.