How To Invest Your Money In Turbulent Markets

Contributed by: Jaclyn Jackson, CAP®

Navigating daily market fluctuations through COVID-19 has been challenging. With every newsfeed from Washington or new economic data numbers, markets react. So what do we make of this as investors? Well, it truly depends on your circumstance. For individuals who have a long investment horizon and stable finances, there may be an opportunity to take advantage of market inefficiencies.

For individuals who have experienced (or anticipate) financial changes, it may be time to reevaluate your investment approach. Here are a few ideas to discuss with your advisor when considering investment strategies during the coronavirus pandemic.

Strategies for Long-Term Investors

For long-term investors, volatile markets should not discourage commitment to your investment plan. Staying invested, reestablishing your asset allocation, gradually investing, and generating tax opportunities are still valuable to progressing your investment aims. Think about the following strategies:

1. Rebalance - Rebalancing is a systematic way of adapting the commonly suggested investment advice, “buy low and sell high”. It disciplines investors to trim well-performing investments and buy investments that have the potential to gain profits. In our current environment, that looks like trimming from bond positions and investing in equities for many people. Importantly, rebalancing helps investors maintain their established asset allocation; someone’s predetermined investment allocation suited to meet their investment objectives. In other words, rebalancing helps investors maintain the risk/return profile meant to enhance their probability of meeting long-term goals.

2. Dollar-Cost Average - A gingerly alternative to rebalancing is dollar-cost averaging. Investors who use this strategy identify underexposed asset classes and invest a set amount of money into those assets at a set time (i.e. monthly) over a set period (i.e. 1 year). This method helps investors buy more shares of something when it is inexpensive and fewer shares of something when it is expensive. Buying at a premium when the market is up is stabilized by taking advantage of prices when the market is down. Therefore, the average cost paid per share of your investment is cheaper than just paying the premium prices. Having a dollar-cost averaging strategy in place now, while markets have dipped, helps you buy more shares of investments while they cost less.

3. Tax Loss Harvest - Selling all or part of a position in your taxable account when it is worth less than what you initially paid for it creates a realized capital loss. Losses can offset capital gains and other income in the year you realize it. If realized losses exceed realized gains during that year, realized losses can be carried forward (into future years). Harvesting losses could help investors replace legacy positions, diversify away from concentrated positions, or stow away losses for more profitable times.

4. Do Nothing - The key here is to stay invested. The challenge with fleeing investment markets when they are down is that it is incredibly hard to time reinvesting when they will go back up. Missing upside days may inhibit full recovery of losses. According to research developed by Calamos Investments, missing the 20 best days of the S&P 500 over 20 years (1/1/99 – 12/31/19) reduced investment returns by two-thirds. Time, not market timing, supports you in meeting your investment goals.

Strategies Amid Financial Hardships

Many people’s employment and financial situations have changed. Understandably, some have to review their ability to invest. If you are concerned about losing your job or potential health issues, it is time to revisit your savings. Could your rainy day resources cover 6-8 months of financial needs? If not, you will likely need to build up savings. For those who are experiencing financial challenges, consider the following strategies:

1. Add to emergency funds by lowering or pausing retirement account contributions. Luckily, you do not have to liquidate part of your retirement account with this strategy. Staying invested gives your portfolio a chance to benefit from long-term performance. If your employer matches retirement account contributions, continue to invest up to that amount, then add to savings with the balance of your normal participation amount. Once savings needs are met, resume full investment participation.

2. Rebalance your portfolio to provide liquidity. As noted above, rebalancing takes earnings off the table from investments that have performed well. However, instead of reallocating to other investments, use proceeds to increase your rainy day savings. This method prevents you from selling off positions that are at a loss.

Jaclyn Jackson, CAP® is a Portfolio Administrator at Center for Financial Planning, Inc.® She manages client portfolios and performs investment research.

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Please note, the options noted above are not for everyone. Consult your advisor to determine which options are appropriate for you. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Diversification and asset allocation do not ensure a profit or protect against a loss. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

What’s the Difference Between a Roth and a Traditional IRA?

Contributed by: Kali Hassinger, CFP®, CDFA®

Many are focused on filing their taxes by April 15th, but that day is also the deadline to make a 2019 IRA contribution! With only a week left, how will you decide between making a Roth or a traditional IRA contribution? There are pros and cons to each type of retirement account, but your individual situation will determine the better option. Keep in mind, the IRS has rules to dictate who can make contributions, and when.

2019 Roth IRA Contribution Rules/Limits

• For single filers, the modified adjusted gross income (MAGI) limit is phased out between $122,000 and $137,000.

• For married filing jointly, the MAGI limit is phased out between $193,000 and $203,000

• Please keep in mind that for making contributions to this type of account, it makes no difference if you are covered by a qualified retirement plan at work (401k, 403b, etc.), you simply have to be under the income thresholds.

• The maximum contribution is $6,000 for those under the age of 50. For those who are 50 & older (and have earned income for the year), you can contribute an additional $1,000 each year.

2019 Traditional IRA Contributions

• For single filers covered by a company retirement plan, the deduction is phased out between $64,000 and $74,000 of MAGI.

• For married filers covered by a company retirement plan, the deduction is phased out between $103,000 and $123,000 of MAGI.

• For married filers not covered by a company plan, but have a spouse who is, the deduction for your IRA contribution is phased out between $193,000 and $203,000 of MAGI.

• The maximum contribution is $6,000 if you’re under the age of 50. For those who are 50 & older (and have earned income for the year), you can contribute an additional $1,000 each year.

Now, you may be wondering what type makes more sense for you (if you are eligible). Well, like many financial questions…it depends! 

Roth IRA Advantage

The benefit of a Roth IRA is that money grows tax deferred. So, when you are over age 59 1/2 and have held the money for 5 years, the money you take out is tax free. However, in exchange for tax free money, you don’t get an upfront tax deduction when investing the money in the Roth. You are paying your tax bill today rather than in the future. 

Traditional IRA Advantage

With a traditional IRA, you get a tax deduction the year you contribute money to the IRA. For example, a married couple filing jointly has a MAGI of $190,000 putting them in a 24% marginal tax bracket.  If they made a full $6,000 traditional IRA contribution they would save $1,440 in taxes. To make that same $6,000 contribution to a Roth, they would need to earn $7,895 to pay 24% in taxes in order to then make the $6,000 contribution. The drawback of the traditional IRA is that you will be taxed on it later in life when you begin making withdrawals in retirement. Withdrawals taken prior to age 59 1/2, may be subject to a 10% federal tax penalty.

Pay Now or Pay Later?

Future tax rates make it challenging to choose what account type is right for you. If you go the Roth IRA route, you will pay your tax bill now. The downside is that you could find yourself in a lower tax bracket in retirement. In that case, it would have been more lucrative to take the other route. And vice versa.

How Do I Decide?

We typically recommend Roth contributions to young professionals because their income will most likely increase over the years. However, if you need tax savings now, a traditional contribution may make more sense. A traditional IRA may be the best choice if your income is stable and you’re in a higher tax bracket.  However, you could be disqualified from making contributions based on access to other retirement plans. 

As always, before making any final decisions, it’s always a good idea to work with a qualified financial professional to help you understand what makes the most sense for you.

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

The Trillion-Dollar Stimulus On The Way – What You Need To Know About The CARES Act

Contributed by: Kali Hassinger, CFP®

 

As more states implement quarantine tactics, lawmakers in Washington struck a compromise on a major fiscal stimulus package to help combat the effects of the COVID-19 pandemic. The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 packs in a lot, with upwards of $2 trillion slated to provide critical support for the economy. In comparison, the American Recovery and Reinvestment Act of 2009 was $831 billion.

While we don't know the short or long term effects of this pandemic on the economy, the combination of monetary and fiscal stimulus efforts will hopefully serve as a bridge until regular economic activity can continue. Even with the largest spike in single-week unemployment claims ever, the optimism surrounding this stimulus helped the S&P 500 post its largest three-day rally (+17.6%) since April 1933.

Lawmakers put together this bipartisan package much more quickly than initially anticipated with crucial provisions to expand unemployment eligibility and benefits, small business relief, and even direct financial support to some US citizens. Here's what we know so far:

Checks Are Coming

Based on income and family makeup, some Americans can expect to receive a refundable tax credit as a direct payment from the government now!

Who is eligible? Eligibility is based on Adjusted Gross Income with benefits phasing out at the following levels:

• Married Filing Jointly: $150,000

• Head of Household: $112,500

• All other Filers: $75,000

The rebates are dispersed based on your 2018 or 2019 income (whichever is the most recent return the government has on file) but are actually for 2020.  This means that if your income in 2018 or 2019 phases you out of eligibility, but your 2020 income is lower and puts you below the phase-out (for example, lose your job in 2020, which many are experiencing), you won't receive the rebate payment until filing your 2020 taxes in 2021!  The good news is that those who do receive a rebate payment based on 2018 or 2019 income and, when filing 2020 taxes, find that their income exceeds the AGI thresholds, taxpayers won't be required to repay the benefit.

How much can I expect to receive?

• Married Filing Jointly: $2,400

• All other Filers: $1,200

• An additional credit of up to $500 for each child under the age of 17

If income is above the AGI limits shown above, the credit received will be reduced by $5 for each $100 of additional income.

When will I receive my benefit? The Timeline isn't clear at this point.  The CARES Act mandates that these payments be processed as soon as possible, but that term doesn't provide a firm deadline. 

Where will my money be sent?  The CARES Act authorizes payments to be sent to the same account where recipients have Social Security benefits deposited or where their most recent tax refund was deposited. Others will have their payment sent to the last known address on file.

Retirement Account Changes

• Required Minimum Distributions are waived in 2020

• Distributions due to COVID-19 Financial Hardship – Distributions up to $100,000 from IRAs and employer-sponsored retirement plans that are due to COVID-19 related financial hardships will receive special tax treatment. There will be no 10% penalty for individuals under the age of 59 ½ and the usual mandatory 20% Federal tax withholding will be waived.  Income, and therefore the taxes due from these distributions, can be spread over three tax years (2020, 2021, and 2022), and there is even the option to roll (or repay) distributions back into the retirement account(s) over the next three years.

• Loans from Employer-sponsored Retirement Plans – The maximum Loan amount was increased from $50,000 to $100,000 and allows account holders to borrow from 100% of their vested balance.  Repayment of these loans can be delayed one year.

Charitable Giving Tax Benefits 

• The CARES Act reinstates a possible above-the-line tax deduction for charitable donations up to $300.  This deduction is only available for taxpayers who do not itemize.

• For those who do itemize, the charitable deduction limit on cash gifted to charities is increased from 60% of Adjusted Gross Income to 100% of Adjusted Gross Income for 2020.  If someone gifts greater than 100% of their AGI, they can carry forward the charitable deduction for up to 5 years.  This does not apply to Donor Advised Fund contributions.

Student Loan Repayments

• Student loan payments are deferred, and loans will not accrue interest until the end of September.  Although the interest freeze will occur automatically, borrowers will have to contact their loan servicers and elect to stop payments during this period.

Expanded Unemployment Benefits

• Unlimited funding for Temporary Federal Pandemic Unemployment Compensation to provide workers laid off due to COVID-19 an additional $600 a week, on top of state benefits, for up to four months. This includes relief for self-employed individuals, furloughed employees, and gig workers who have lost contracts during the pandemic.

Small Businesses Support

• In the form of more than $350 billion, the CARES Act offers forgivable loans to help keep the business afloat, a paycheck protection plan, grants, and the ability to defer payment of payroll tax, to name a few.

Individual Healthcare

• HSAs and FSAs will now enable the purchase of over the counter medications as qualified medical expenses.  Medicare Part D participants must be allowed to request a 90 day supply of prescription medication, and if/when a COVID-19 vaccine becomes available, it must be free to those on Medicare.

Additional Healthcare Support

• $150 billion is allocated to hospitals and community health centers to provide treatment and equipment to fight coronavirus.

Education Funding

• $30 billion will be allocated to bolster state education and school funding.

State And Local Government Funding

• $150+ billion will be allocated to "state stabilization funds" to support reduced state and local tax receipts.

Other Provisions

• The CARES Act provides an additional $500 billion buffer for impacted and distressed industries, including the airlines, mass transit, and the postal service.

Depending on the length and impact this pandemic, lawmakers are already talking about another round of intervention in a phased approach.

Life may feel a little chaotic these days, but we hope you take comfort in knowing your financial plan was tailored to your risk tolerance, ability to handle market volatility, and overall financial goals. As always, we are here to answer your questions.

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

Taxpayer Relief Amid Coronavirus Crisis

Contributed by: Allison Bondi

Americans now have an extra 3 months to file their 2019 federal income taxes.

President Trump issued an Emergency Declaration on March 13, 2020 to provide relief from tax deadlines to Americans who have been impacted by the COVID-19 emergency.

The new deadline is July 15.

If you’re expecting a refund, consider filing sooner. However, for those with a large tax liability, the new deadline provides some extra time to develop a thoughtful strategy for paying the taxes due.

According to guidance from the IRS, individuals will be able to defer up to $1 million and corporations will be able to defer up to $10 million for 90 days without penalties and interest for taxes due. The $1 million limit applies both to single filers and to married couples filing joint returns.

Does this apply to state income tax payment deadlines?

• No. The extension is for federal income tax, not state income tax. Consult your tax professional for more details about your state’s policies.

What do I need to do to elect the deferral?

• Nothing. Any interest or penalty from the IRS from April 15 to July 15 will automatically be waived. Penalties and interest will begin to accrue on any remaining unpaid balances as of July 16, 2020. 

Does this mean I can make 2019 IRA contributions until July 15?

• Yes. Per IRS publication 590-A: “Contributions can be made to your traditional IRA for a year at any time during the year or by the due date for filing your return for that year, not including extensions.” The due date for filing the 2019 return is now July 15, 2020, so you have until that date to make 2019 IRA contributions.

Stay up to date with COVID-19-related changes. Visit irs.gov/coronavirus to explore related resources, and reach out to your tax professional and financial advisor with any questions you have about your specific tax situation and financial plan.

Allison Bondi is a Marketing Administrator at Center for Financial Planning, Inc.® She facilitates marketing initiatives and communications.

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Raymond James and its advisors do not offer tax advice. You should discuss any tax matters with the appropriate professional. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.

Things to Consider if You are Anticipating an Inheritance

Contributed by: Sandra Adams, CFP®

If you are like most clients, anticipating an inheritance likely means that something is happening, or has happened, to someone you love. Often this means dealing with the complexities of grief and loss, in addition to the potential stress of additional financial opportunities and responsibilities. Combining your past money experience and your relationship with the person you are losing or have lost can cause varying degrees of stress.

Based on our experience with clients who expect to receive an inheritance, we offer a few suggestions that will serve you well and help you avoid some of the common pitfalls:

• Avoid making big plans to upgrade your home, buy the fancy car, or take the exotic trips. In other words, don’t spend the money before you have it.

• Don’t let others pressure you into quick decisions or coax you into making purchases or gifts that you wouldn’t normally make.

• Don’t make any big purchases until you have taken the time to do more purposeful planning.

• Take an intentional time-out from decision-making. Give yourself the ability to grieve, and to make sure your head is clear and ready to make smart financial decisions.

• In the planning process, determine what will change, or has changed, for you since receiving the inheritance (income, savings, investments, expenses, home, etc.); this information will help guide your financial planning decisions with the inherited funds.

• Identify your current and future financial goals, then plan so that inherited funds help you meet those goals.

Even if you have a financial plan and are an experienced investor, receiving an inheritance can throw you for a loop from an emotional standpoint – and from a planning standpoint – when you rush to make decisions. If you have no experience with money, receiving an inheritance can seem completely overwhelming and stressful. In either case, having a financial planner – a decision partner to provide assistance, guidance, and a sounding board – can be invaluable. If you expect, or know someone who expects, an inheritance and could use some guidance, please contact us for assistance (Sandy.Adams@CenterFinPlan.com). We are always happy to help!

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

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Any opinions are those of Sandra D. Adams, 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.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and CFP® in the U.S.

What You Need to Know Before You Dip Into Retirement Accounts

Contributed by: Timothy Wyman, CFP®, JD

In general, a 10% penalty applies when you access your IRA, 401(k), and other retirement accounts before age 59. The word “penalty” seems harsh, so the Internal Revenue Code classifies it as an excise tax on early distributions. Moreover, the 10% excise tax is in addition to the ordinary income taxes owed on distributions from pretax accounts. Therefore, the general rule of keeping your hands off these funds until at least age 59.5 is a good one. 

However, what if you really need the money?

Fortunately, there are exceptions to the 10% penalty rule. A complete list may be found here.

For example, “first-time” homebuyers may take out up to $10,000 to help buy or build their primary residence. A similar exception applies to higher education costs for you, your spouse, or children. These two apply for IRAs, but not 401(k) accounts.

Another exemption for medical expenses paid on behalf of yourself, your spouse, or a dependent applies only on the amount that exceeds 10% of your adjusted gross income. Let’s assume Bob and Mary are facing significant ($170,000) medical expenses for their son, Bob Jr. The expenses are not covered by their regular health insurance plan, so the couple withdraws $170,000 from Bob’s IRA. In addition to pension and social security, this distribution increases their Adjusted Gross Income to $250,000, so Bob and Mary will pay about $2,500, the 10% excise tax on approximately $25,000. 

It is best to avoid early distributions from your IRA and 401(k) accounts; after all, the money is meant for your retirement years.

However, in the event there are no other alternatives, you may be able to avoid the 10% penalty….er, excise tax.

Timothy Wyman, CFP®, JD, is the Managing Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® For the second consecutive year, in 2019 Forbes included Tim in its Best-In-State Wealth Advisors List in Michigan¹. He was also named a 2018 Financial Times 400 Top Financial Advisor²

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¹ The Forbes ranking of Best-In-State Wealth Advisors, developed by SHOOK Research is based on an algorithm of qualitative criteria and quantitative data. Those advisors that are considered have a minimum of 7 years of experience, and the algorithm weighs factors like revenue trends, AUM, compliance records, industry experience and those that encompass best practices in their practices and approach to working with clients. Portfolio performance is not a criteria due to varying client objectives and lack of audited data. Out of 29,334 advisors nominated by their firms, 3,477 received the award. This ranking is not indicative of advisor's future performance, is not an endorsement, and may not be representative of individual clients' experience. Neither Raymond James nor any of its Financial Advisors or RIA firms pay a fee in exchange for this award/rating. Raymond James is not affiliated with Forbes or Shook Research, LLC. 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. Any opinions are those of Center for Financial Planning, Inc.® and not necessarily those of Raymond James.

² The FT 400 was developed in collaboration with Ignites Research, a subsidiary of the FT that provides special-ized content on asset management. To qualify for the list, advisers had to have 10 years of experience and at least $300 million in assets under management (AUM) and no more than 60% of the AUM with institutional clients. The FT reaches out to some of the largest brokerages in the U.S. and asks them to provide a list of advisors who meet the minimum criteria outlined above. These advisors are then invited to apply for the ranking. Only advisors who submit an online application can be considered for the ranking. In 2018, roughly 880 applications were re-ceived and 400 were selected to the final list (45.5%). The 400 qualified advisers were then scored on six attrib-utes: AUM, AUM growth rate, compliance record, years of experience, industry certifications, and online accessibil-ity. AUM is the top factor, accounting for roughly 60-70 percent of the applicant's score. Additionally, to provide a diversity of advisors, the FT placed a cap on the number of advisors from any one state that's roughly correlated to the distribution of millionaires across the U.S. The ranking may not be representative of any one client's experi-ence, is not an endorsement, and is not indicative of advisor's future performance. Neither Raymond James nor any of its Financial Advisors pay a fee in exchange for this award/rating. The FT is not affiliated with Raymond James.

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 the author and not necessarily those of Raymond James

Social Security Cost of Living Adjustment for 2020

Contributed by: Kali Hassinger, CFP®

The Social Security Administration recently announced that monthly benefits for nearly 69 million Americans will increase by 1.6% beginning in January 2020. The adjustment is calculated based on data from the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, through the third quarter. This cost of living adjustment (COLA, for short) is slightly less than the raises received in 2018 and 2019, which were 2% and 2.8%, respectively.

For many, Social Security is one of the only forms of guaranteed, fixed income that will rise over the course of retirement. The Senior Citizens League estimates, however, that Social Security benefits have lost approximately 33% of their buying power since 2000. This is why, when running retirement spending and safety projections, we factor an erosion of Social Security’s purchasing power into our clients’ financial plans.

So far, no changes to the Medicare premium and Social Security wage base tax have been announced, but they are expected by year end. Medicare trustees estimate Part B premiums will increase by about $9 per month for those not subject to the income-related surcharge. Unfortunately, the Social Security COLA adjustment is often partially or completely wiped out by the increase in Medicare premiums.

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

Using the Bucket Strategy to Meet Retirement Cash Needs

Contributed by: Josh Bitel, CFP®

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

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

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

Bucket 1:

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

Bucket 2:

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

Bucket 3:

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

Bucket 4:

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

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

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

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

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

Contributed by: Nick Defenthaler, CFP®

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

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

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

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

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

“Front-Load” Charitable Contributions

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

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

Health Care

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

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

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

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

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

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

Can You Change Your Spending Habits in Retirement?

Contributed by: Sandra Adams, CFP®

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

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

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

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

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

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

My best suggestion:

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

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

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