The Last Day for 2016 IRA Contributions is Coming Soon!

Contributed by: Jeanette LoPiccolo, CRPC®

Just like last year, the 2017 federal tax return deadline doesn't fall on the usual date of April 15. With the 15th falling on a Saturday and a holiday on the 17th, income tax filings for the 2016 tax year and federal tax payments are due on Tuesday, April 18th, 2017.

The last day to make a contribution to an IRA for any tax year is when taxes are due.

So, April 18th, 2017 is the last day to make a contribution to your individual retirement account for the 2016 tax year. Even if you file for an extension on your tax return, the deadline for 2016 IRA contributions is still April 18th.

Individuals who are 50 or older can contribute up to $6,500 to an IRA during a tax year, whereas younger savers can contribute $5,500. Making a contribution to an IRA before the tax deadline is a great way to catch up if you didn't maximize your IRA contribution during the last calendar year. 

Contributing to your retirement account is not just a smart decision for your future. Making a contribution to a traditional IRA can potentially reduce taxes you owe or result in a larger refund for the 2016 tax year. 

In addition, did you know that the Saver’s Credit is available to some taxpayers who make IRA contributions? While not everyone reading this blog may be eligible for this deal, you may have a friend or family member who is. You can pass along this info because helping others save money feels good too, right? 

It’s called the Retirement Savings Contributions Credit (aka the Saver’s Credit). Nick Defenthaler, CFP®, wrote a great blog about it.

Want a quick example of how the Saver’s Credit works? Jill, who works at a retail store, is married and earned $37,000 in 2016. Jill’s husband is finishing college and didn’t have any earnings. Jill contributed $1,000 to her IRA for 2016 before the 4/18/17 deadline. After deducting her IRA contribution, the adjusted gross income shown on her joint return is $36,000. Jill may claim a 50% credit, $500, for her $1,000 IRA contribution.

For more information, check out the IRS website link here.

If you have any questions or want to contribute to your retirement account, please feel free to contact us or your CERTIFIED FINANCIAL PLANNER™ professional.

Jeanette LoPiccolo, CRPC® is a Client Service Manager at Center for Financial Planning, Inc.®

---

This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Opinions expressed are those of Jeanette LoPiccolo and are not necessarily those of RJFS or Raymond James. 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 render advice on tax issues. You should discuss tax matters with the appropriate professional. Links to third party websites are being provided for informational purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

Sources:
irs.gov
google image 1 and google image 2

Preparing for Aging: Baby Boomers vs. Generation X

Contributed by: Sandra Adams, CFP®, CeFT™

In our day-to-day work with clients, Baby Boomer and Generation X clients, assist their parents and sometimes grandparents (those in the “Silent Generation,” born in the mid-1920s to early 1940s) plan for their aging years. But are those “children” planning for their own aging years? Are they learning any lessons from watching family members age? Who is planning better at preparing for aging – Baby Boomers or Generation X?

As it turns out, neither generation is as prepared as they should be, but Generation X is actually LESS prepared for aging than the Baby Boom generation. Why is that?

• Generation X has more debt (student loan debt, credit card debt, etc.), which caused them to start saving later.

• Generation X has less access to pensions and feels less secure in their promised future Social Security benefits.

• Generation X is even more of a “sandwich generation” than the Baby Boomers. Call it a club sandwich with multi layers: Generation Xers can be stuck in the middle of supporting grandparents, parents, children, and grandchildren all at the same time all while trying to hold down a job and going back to school to get additional education or credentials. Wonder why we can’t pay attention to our own health and well-being? (Yes, I am a Generation Xer!!)

• In addition to having no time to visit physicians and do the routine self-care that should be done due to the multi-levels of our responsibilities, recent studies by MDVIP, Inc. (WHSV 2014) indicate that this generation is also afraid of receiving bad news, which also deters them from visiting the doctor (which of course, may prevent getting information on conditions early, when they could be treated).

With each generation, we anticipate that life expectancy assumptions get a little bit longer if only for improvements in health care and technology. Therefore, each generation needs to be even more prepared, financially, physically, psychologically and otherwise for a longer life that may occur. Both the Boomers and the Generation Xers have a lot of work cut out for them if they want to be prepared!

If you feel that you are behind in your plan for aging and need some assistance, we can help! If you’re in Generation X, take the time to view our webinar dedicated to planning for your retirement. If you have any questions, free to reach out to me at Sandy.Adams@centerfinplan.com.

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

---

This information has been obtained from sources considered to be reliable, but we do not guarantee that this material is accurate or complete. Opinions expressed are those of Sandy Adams and are not necessarily those of RJFS or Raymond James.

Tax Terms: Carried Interest and the Buffett Rule

Contributed by: Matt Trujillo, CFP®

If you followed the 2016 campaign coverage as closely as I did, than you probably heard some tax-related terms repeated time and time again. Two terms in particular were “carried interest” and the “Buffet Rule.” For those that aren’t terribly familiar with these terms I will attempt to give a brief description of each.

What is "Carried Interest?”

Carried interest refers generally to the compensation structure that applies to managers of private investment funds, including private-equity funds and hedge funds. As a result of the carried interest rule, fund managers' compensation is taxed at lower long-term capital gain tax rates rather than at ordinary income tax rates. Both Clinton and Trump released plans calling for carried interest to be taxed as ordinary income.

What is the "Buffett Rule?”

In a 2011 opinion piece, Warren Buffett, chairman and CEO of Berkshire Hathaway, argued that he and his "mega-rich friends" weren't paying their fair share of taxes, noting that the rate at which he paid taxes (total tax as a percentage of taxable income) was lower than the other 20 people in his office (Warren E. Buffett, "Stop Coddling the Super-Rich," New York Times, August 14, 2011).

As Buffett pointed out, this is partially attributable to the fact that the ultra-wealthy typically receive a high proportion of their income from long-term capital gains and qualified dividends, which are generally taxed at lower rates than those that typically apply to wages and other ordinary income.

The "Buffett Rule" has since come to stand for the tenet that people making more than $1 million annually should not pay a smaller share of their income in taxes than middle-class families pay. As a result, some have proposed that those making over $1 million in annual income should have a flat minimum tax of 30%.

What is the right thing to do? That is not for this humble author to decide. But at least now, some of you can be better informed about what these terms mean the next time you hear them on the news!

The tax environment is evolving rapidly. Be sure to talk to a qualified professional before implementing any changes to your tax and investment strategy.

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

---

The information 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. Any opinions are those of Matt Trujillo, CFP®, and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. 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.

More Potential Changes Under the Trump Administration

Contributed by: James Smiertka

The New Year always brings changes, but this year may be particularly notable. We have a new U.S. President & our Congress is ruled by a Republican majority. This surely brings a new direction for the country and also the prospect of policy and regulatory changes.

As we know, President Trump made tax reform a key issue during his campaign, and he has proposed wide-ranging changes to the U.S. tax system. Additionally, with the GOP with majority control of the House and the Senate, there is a better chance for an overhaul of the federal tax system than in the past. Changes will most likely not be quickly completed, and it is likely that any tax reform will not take place until late 2017 or early 2018.

Here are some of the potential changes:

Estate Tax

• Trump’s plan seeks to repeal the current estate tax as well as the alternative minimum tax (AMT) and generation-skipping transfer tax (GSTT)

• Total repeal is unlikely

• $10 Million exemption (per couple)

  • Assets above this amount would be subject to capital gains tax

• Likely change to the asset basis step-up for heirs

  • Date of death value rules likely preserved for heirs of smaller estates

  • Limited basis step-up for heirs inheriting from larger estates

• There is also the potential for state estate taxes to disappear as they are based on the federal estate tax system

Gift Tax

• Will most likely stick around in some form

  • Prevents income shifting from donors in high tax brackets to the donated in lower tax brackets

• If the estate tax is repealed, we could be looking at a change to the lifetime gift tax exemption in the neighborhood of around $1 Million or higher (lifetime), with the annual gift tax exclusion preserved (currently $14,000/year)

There are a wide range of possible combinations of estate & gift tax reform, and potential tax planning opportunities depending on the details of that reform. Here are some potential scenarios, per Michael Kitces:

While there are many potential planning scenarios for both individuals and businesses, nothing is certain. Only very broad strokes have been “painted” thus far. Regardless, Center for Financial Planning, Inc. is always staying up to date with the most recent changes. Make sure to speak with your financial advisor if you have questions on any of these topics.

Also, make sure to check out our previous blog on the new administration’s potential impact to marginal tax brackets, standard deductions, and capital gains tax.

James Smiertka is a Client Service Associate at Center for Financial Planning, 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. Any opinions are those of James Smiertka and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Sources:

• Kiplinger Tax Letter, Vol. 92, No. 2 (1/27/17)
• http://www.forbes.com/sites/ashleaebeling/2016/11/09/will-trump-victory-yield-estate-tax-repeal/#aef41902bf2a
• https://www.kitces.com/blog/repeal-estate-gift-taxes-and-carryover-basis-under-president-trump/
• http://www.forbes.com/sites/nextavenue/2016/12/12/what-the-trump-tax-proposals-mean-for-high-net-worth-retirees/#5f7253b17ef4
• http://www.cnbc.com/2017/01/22/how-trumps-proposals-may-affect-every-income-tax-bracket.html

The Connection between Home Renovations and Financial Planning

Contributed by: Nick Defenthaler, CFP®

About two months ago, my wife and I decided that it was time to take the plunge and finish our basement.  As I’m sure many of you can relate to, our 18 month old son’s toys have quickly taken over our living room. What was once a peaceful area for us to relax and watch some TV, has literally turned into a mini-jungle gym! We wanted more room for his play area as well as give us some extra space for entertaining friends and family. Home renovations are a pain. We’ve all been there. They’re expensive, stressful, and can often time end up being a money pit. After much thought and months of saving, however, we decided it was the right time to move forward with our project.

I think it’s important to note that I am NOT a do-it-yourself kind of guy. The extent of my handyman skills are changing lightbulbs and hanging a picture. I think acknowledging this as a weakness is extremely important. Since I know home improvements are not my forte, we’ve elected to delegate this work and hire a professional to make sure our project was done properly and to our liking. Even if I had the expertise to do some of the work on my own, I know I wouldn’t want my spare time to be consumed working on the basement. I’d much rather spend that time with my family and friends. 

We spent several weeks interviewing different contractors to determine who we felt would be the best fit for our project. Many things were taken into account throughout this process. Referrals from friends and family, quality of work, level of comfort and cost, just to name a few. We probably met with five contractors who all wanted the job, and who were all fairly close in price. Jack, the contractor we ended up hiring, was not the cheapest, but he wasn’t the most expensive. We decided to move forward with him because we gained a level of trust with him and knew he did quality work for mutual friends and family members. Jack won me over when I called him about five times within two days, asking him what probably seemed like simple, and more than likely, dumb questions. To Jack’s credit, however, he never lost his patience with me or made me feel silly for asking them. He was willing to make sure my mind was at ease, knowing this was not something I was an expert in. Although the process has been stressful at times, Jack has kept us in the loop the entire time, been extremely honest and overall, has done a phenomenal job building out our basement to how we had envisioned. 

As our basement is in the final stages of completion, I couldn’t help but take a step back and realize how many similarities existed with our home renovation and how we work together with clients at The Center. Over our 30+ year history, in my opinion and experiences, the clients that have the most potential success are those who realize that investing and financial planning is not an area of expertise or something they want to spend free time on. They value delegating, have the desire to hire a professional they trust and know we will be with them throughout each step of life to help them achieve their personal and financial goals. One of the best pieces of advice I was ever given was to always identify and accept the things you are not an expert in, and hire a professional to do the work right for you. I firmly believe those who find the most success in life are masters at this. By doing so, it allows us to focus more energy on the areas we are truly passionate about. Time is hard to come by, why not try to spend more of it on the things that create more meaning and happiness for us and our family? So give us a call when you’re ready to delegate, we’re always here to help and answer your questions!

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

---

Any opinions are those of Nick Defenthaler, CFP®, and not necessarily those of Raymond James.

Why Approaching Difficult Topics Now Could Help Avoid a Mess with Parents’ Finances

Contributed by: Sandra Adams, CFP®, CeFT™

As I write this, we are a couple of weeks into 2017, and already I have been involved with two client family meetings – adult children meeting with their parents about their parents estate planning and finances. I am sure this is just the tip of the iceberg for this type of meeting – and I am so thankful. Why? Because these families are planning ahead! Approaching these sometimes very difficult topics now can be the key to avoiding a very big mess later.

You might think “So, what’s the big deal? Mom and Dad seem to have things under control. They can pay their bills just fine, they seem to be financially comfortable, and I don’t want to invade their privacy and ask them too many questions about their money, so let’s leave well enough alone until we really need to get involved.”

Here are just a few of the “big deals” that could occur for those who wait until mom and dad can’t handle things (i.e. in this case, parents now are unable to handle financial affairs due to incapacity):

• Parents may not remember where they hold accounts, what their account numbers are, passwords, etc.

• Parents may not remember all income sources, amounts, etc. (pensions, Social Security, etc.) and may not have been reconciling checkbooks.

• Parents may not have been paying bills and may not remember what bills need to be paid (you are lucky if they have bills set up for auto bill pay, as many of this generation have been uncomfortable setting this up).

• Parents may or may not have a filing system and/or record keeping system that you can understand; depending on the stage of their incapacity, they may or may not be able to explain it to you.

• If your parents have existing Durable Powers of Attorney (General/Financial and Medical) that give you authority to act on your behalf, you can hope that they are up to date and written broad enough instructions to be used with most financial and medical institutions.

• You can hope that there aren’t too many other surprises that you didn’t expect!

My advice is always to follow the proactive planning of some of my clients, and start talking to your parents in advance of a crisis (or in advance of “that time” when parents can no longer do things themselves). Sure, it is not always the most comfortable conversation to start, but you might be surprised to find that many older adult parents find comfort in knowing that their children (1) want to be involved, (2) are interested in their well-being, and (3) know that there is a plan in place once the family meeting has taken place. Start the process of planning for your parents today! Don’t hesitate to contact me if I can be of assistance (Sandy.Adams@CenterFinPlan.com).

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

---

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Sandy Adams and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Planning for a Wild 2017

Contributed by: Kali Hassinger, CFP®

Happy 2017 everyone! A new year is a great opportunity to evaluate your financial wellbeing and set goals for the future.  Some of you may have existing financial plans in place, and others may be thinking that 2017 is the year to take control of your finances.  In either situation, it’s important to understand that financial planning is an ongoing and ever-evolving process. Separate from your personal circumstances, there are many outside forces that affect your financial plan, and there are a few items that may be especially important to evaluate this year.

Given the events of 2016 and possible changes in 2017, the following circumstances could be prime examples of why it’s important to review and update your plan.

• Taxes – With the impending presidency of Donald Trump and the GOP in control of both the House and the Senate, we are anticipating a possible overhaul of the current tax system. For almost all taxpayers, your current tax rate could be reduced.  If the brackets are consolidated as expected, 2017 may be a good year to accelerate taxable income or max out your Roth IRA contributions. You can read more about the proposed tax plans here (http://www.centerfinplan.com/money-centered/2016/12/22/is-tax-reform-coming ).  

• Estate Planning – Just as with taxes, the political landscape of 2017 is set to possibly repeal the current Estate Tax. Because this tax is such a central point for Estate Planning with high net worth individuals, some current estate plans may need to be revised. There is also the possibility that the current gift tax laws may be on the docket for elimination. Although nothing is certain at this point, we will remain up to-date on any changes as they come.

• Allocation – 2016 was certainly a year of surprises for the market. After a decline in January, the shock of Brexit, and Donald Trump’s unanticipated election, the market overcame intermittent volatility and reached all-time highs in November.  Just as no one could predict that the market dip after Brexit would recover so quickly, no one expected the markets to actually go up in the wake of Trump’s election. There is no way to predict the future, but there is a disciplined investing approach that can help you through market uncertainties. With a balanced investment portfolio it is possible to reap the benefits of part of these gains while also insulating yourself from potential volatility. Your balanced portfolio returns may not reach the same highs as the S&P 500, but it can help you reach your goals with proper management over time. 

Regardless of your situation, a new year is always a great opportunity to reorganize and review your goals.  Life can be unpredictable, but not unplannable. We are always here to help, and we encourage you to reach out with questions.

Happy New Year! 

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

---

This information does not purport to be a complete description of the securities, markets, or developments referred to in this material, it is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Opinions expressed are those of Kali Hassinger, CFP®, and are not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change. There is no assurance that the statements, opinions or forecasts mentioned will prove to be correct. Investing involves risk, investors may incur a profit or loss regardless of the strategy or strategies employed. Asset allocation and diversification do not ensure a profit or guarantee against loss. Raymond James Financial Services, Inc. and its advisors do not provide advice on tax or legal issues, these matters should be discussed with the appropriate professional. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Please note that direct investment in an index is not possible.

Year-End Financial Checklist: Tips to End the Year on a High Note (UPDATED)

Contributed by: Jaclyn Jackson

This post was written in December 2015 as a helpful reminder of things you can do to strengthen your finances and get things in order for the upcoming year. Many of the tips are still useful, but I’ve updated to reflect potential policy changes in 2017.   

1. Harvest your losses – Tax-loss harvesting generates losses that can be used to reduce current taxes while maintaining your asset allocation. Take advantage of this method by selling the investments that are trading at a significant loss and replacing it with a similar investment. In light of potential 2017 tax cuts, it is also important to consider whether you may land in a lower tax bracket. If that is the case, postpone realizing capital gains and losses until next year.

2. Taking Advantage of Deductions – If marginal tax rates decrease significantly in 2017, now is a great time to get the most “bang for your buck” from deductions. In other words, consider paying medical expenses, real property taxes, fourth quarter state income taxes, or your January mortgage this month instead.

3. Max out contributions – While you have until you file your tax return, it may be easier to take some of your end-of-year bonus to max out your annual retirement contribution.  Traditional and Roth IRAs allow you to contribute $5,500 each year (with an additional $1,000 for people over age 50). You can contribute up to $18,000 for 401(k)s, 403(b)s, and 457 plans.

4. Take RMDs – Don’t forget to take the required minimum distribution (RMD) from your IRA.  The penalty for not taking your RMD on time is a 50% tax on what should have been distributed. RMDs should be taken annually starting the year following the year you reach 70 ½ years of age.

5. Rebalance your portfolio – It is important to rebalance your portfolio periodically to make sure you are not overweight an asset class that has outperformed over the course of the year. This helps maintain the investment objective best suited for you.

6. Use up FSA money - If you haven’t depleted the money in your flexible spending account (FSA) for healthcare expenses, now is the time to squeeze in those annual check-ups. Some plan sponsors allow employees to roll over up to $500 of unused amounts, but that is not always the case (check with your employer to see if that option is available to you).

7. Donate to a charity – Instead of cash, consider donating highly appreciated securities to avoid paying capital gains tax. Typically, there is no tax to you once the security is transferred and there is no tax to the charity once they sell the security. If you’re not sure where you want to donate, a Donor Advised Fund is a great option. By gifting to a Donor Advised Fund, you could get a tax deduction this year and distribute the funds to a charity later. Again, considering the possibility of decreased marginal tax rates in 2017, you may be better off moving your 2017 contributions into 2016.

8. Review your credit score – With all of the money transactions done during the holiday season, it makes sense to review your credit score at the end of the year. You can go to annualcreditreport.com to request a free credit report from the three nationwide credit reporting agencies: Equifax, Experian, and TransUnion. Requesting one of the reports every four months will help you keep a pulse on your credit status throughout the year.

Bonus:  If there have been changes to your family (new baby, marriage, divorce, or death), consider these bonus tips:

• Adjust your tax withholds

• Review insurance coverage

• Update financial goals, emergency funds, and budget

• Review beneficiaries on estate planning documents, retirement accounts, and insurance policies.

• Start a 529 plan

Jaclyn Jackson is a Portfolio Administrator and Financial Associate at Center for Financial Planning, Inc.®

---

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Jaclyn Jackson and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected. RMD's are generally subject to federal income tax and may be subject to state taxes. Consult your tax advisor to assess your situation. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability.

How Much of My Income Should I Be Saving?

Contributed by: Nick Defenthaler, CFP®

This is a common and logical question to ask, right?  Unfortunately, there are too many unknown factors to give a precise answer.  If you’re 45, you have at least 15-20 years before you retire.  A lot can change in life during this time frame! What you think you may want retirement to look like might drastically change over the course of nearly two decades. How much you save obviously can have a big impact on your retirement goals. The simple answer I often hear in regards to this question is, “save at least what your company match is.” Meaning, if your employer offers a 4% match, you should contribute at least 4% to be eligible for the free money your employer is offering by incentivizing you to save for the future. Time to get blunt. Saving 4% isn’t enough. If you’re in your mid to late twenties, this is an acceptable savings rate to get in the habit of saving for retirement, in conjunction with paying down student loans, saving for a house, wedding or having children. When you’re 20 or fewer years away from retirement, however, that number simply needs to be more than the company match – probably closer to 15% - 20%. 

Thirty or forty years ago, saving 4% often times could in-fact create a successful retirement. So what’s changed? The extinction of the company pension plan.  Do you know that it would take a $615,000 retirement account to re-create a $40,000 income stream for 30 years, assuming a 5% distribution rate? In addition, most retirees who do receive a pension don’t just spend their pension income, they withdraw from their portfolio as well -- meaning far more than the $615,000 in my example would have to be accumulated prior to retirement to supplement spending for a 25+ year time horizon. 

So, if you’re not saving in the teens or twenties for retirement, how do you get there? I recommend implementing what I call the “one per year” strategy.  Meaning, you commit to increasing your 401k savings percentage by at least 1% each and every year until you get where you need to be in regards to your retirement saving goals. This is typically very doable for most; we just simply don’t make the change online or with our Human Resources department. As the New Year quickly approaches, now is the perfect time to evaluate your current savings level and check in with your planner to see if you need to be doing more. Many 401k plans now actually offer a great feature that automatically increases your contribution level each and every year, typically in January. Studies have shown that when things are automated, such as savings, they actually get done!  Ask your HR manager or 401k administrator if the plan allows for this and if so, seriously consider taking advantage of it.  

By increasing savings gradually, it will help make retirement savings far more manageable and realistic for many.

Think about it, if you’re trying to lose 100 pounds and you become fixated on that large number, chances are you’ll become overwhelmed and give up on your weight loss goal. Those who have the most success are the ones who focus on small victories. Losing a few pounds per month until that goal is met– the same goes for retirement savings.  

Keep it simple and be consistent – good things usually happen when we do just that!

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

---

The information contained in this 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. Any opinions are those of Nick Defenthaler, CFP® and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. 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. Matching contributions from your employer may be subject to a vesting schedule. Please consult with your financial advisor for more information.

Should I Accelerate My Mortgage Payoff?

Contributed by: Matt Trujillo, CFP®

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

How Prepayment Affects a Mortgage

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

If you prepay a fixed rate mortgage, you'll pay your loan off 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 where your contributions are matched, as in some employer-sponsored 401(k) plans). Remember, though, that the interest savings you'll obtain by 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 that are 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 you'll use for mortgage prepayment 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 make any large financial moves. We’re here to look at the big picture and help make the best decisions for you particular situations.

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

---

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.