Factoring the Cost of Living in a Post-Retirement Relocation

Your retirement plan may involve a move. You could be moving some place warm so you don’t have to put up with the wonderful Michigan winters or perhaps moving to be closer to your kids and grandkids.  Whatever the motivation, there is always a financial component in the decision-making process.

Paying for what you want vs. what you need

The cost to live in other areas of the country can be higher or lower, but some people don’t know the specific figures you will probably pay after you make the move.  Is a dollar in Michigan the same as a dollar in California or Utah? A recent conversation with a client evaluating relocating placed focus on this specific issue. His thinking was that it didn’t matter where you lived, you can always find a way to spend money.  While I certainly have to agree with him on that point, I think the bigger point is that there is a difference between spending money on things you want versus spending money on things you need.

Comparing Expenses

Let’s take a look at the cost of different goods and services in the two cities. These figures were taken from www.costofliving.org and they are an average estimate taken from people who live in Salt Lake City and San Francisco. The list of goods and services has more than 75 commonly purchased or used items but we’ll look at just a sampling of expenses.

As you can see, everything in San Fran is more expensive except the T-Bone steak. Unfortunately, after you pay for your basic living expenses, you might not have any money left over for that T-Bone! According to the living expense calculator on www.costofliving.org someone living on $70,000 of net income in Livonia, Michigan would need approximately $120,000 net in San Francisco.  In Salt Lake City, that same person would only need $69,000 to maintain the same standard of living. 

If you think a move might be in your future, talk to your financial advisor to weigh the costs associated with the new location and make sure it fits within your retirement income goal.

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.

Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. C14-022592

The Power of Compounding

 

When you’re just starting in your career, you can feel strapped, earning a small salary and trying to make ends meet.  You might not feel like there is any money left over at the end of the month and that’s why some people decide to wait to start saving for retirement. However, the power that time has on your money can’t be understated.

I recently had an opportunity to meet with a long-time client’s daughter.  The goal of the meeting was to give some timely financial advice as she embarks on her new career after college. One of the key points I made was the power of compounding dollars over time.    

Using Time to Compound Money

For instance, if a 25 year old were to save approximately $4,500 a year compounding at 7% she would have close to 1 Million dollars by age 65. But, if she decided to wait to start saving for retirement until she was making more money at age 45, she would need to save $21,904 a year to accomplish the same result. That’s a staggering 486% increase in the dollars she’d need to save compared with the 25-year-old saver.

Knowing Your Benefits

To help with your retirement savings, it’s very important to fully understand your employer benefits before you begin employment.  Many employers will offer qualified retirement savings programs like a 401(k) or 403(b). If these plans exist and the company offers a match on your contributions, you should do everything you can to make sure you at least get the matching dollars.  For instance, in the case of our 25 year old, we know the potential of a $4,500 a year savings and earning 7% on that money. Now, if we factor in an employer match of $2,250, that same 25 year old would have accumulated approximately $1,350,000 over that same time horizon.

The longer you wait to start saving, the more you are going to have to put away. In other words, the pain could be much worse the later you wait.

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.

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This is a hypothetical illustration and is provided for illustration purposes only and is not intended to reflect the actual performance of any particular security. Future performance cannot be guaranteed and investment yields will fluctuate with market conditions. C14-022060

EU Makes History by Setting Negative Interest Rates

 Some of you may have seen headlines recently regarding the European Central Bank’s (ECB) move to set interest rates on deposits from 0% to -.10%.   This is the first time in history that a major global central bank has made a move like this.  It’s important to note that this negative interest rate does not directly apply to customers of EU banks who deposit their money in savings and checking accounts.  The ECB is only applying this negative interest rate on deposits that banks make with the ECB.  In other words, the ECB is trying to penalize banks for parking large sums of money with the central bank, rather than lending it to consumers.   

Why set negative interest rates?

What is the ECB hoping to accomplish?  To answer this question I need to provide a little background on what’s been going on lately in the European economy.  The European Union (EU) has been going through a period of disinflation lately and there is much worry that it may fall into deflation. Disinflation is a slowing in the rate of inflation.  In the instance of the EU, the central bank estimates that increases in the general prices of goods and services has slowed over the last 12 months from 1.6% to .49% (as of May of 2014). If this trend continues, the ECB worries that deflation could set in, which is a general decrease in the price of goods and services.

What’s so bad about deflation?

Now this might not sound bad to many readers. After all, if the price of gas goes from $3.80 down to $2.80 that’s great, right? However, if companies aren’t making as much money on their products, they have to cut costs elsewhere in order to maintain the bottom line, and that ultimately means lower wages for workers. Which means less discretionary income to spend and the economy can get caught in a deflationary trap that can be hard to get out of.  

The hope is that setting a negative interest rate will stimulate lending and therefore growth in the economy. This could lead to slightly increasing inflation, which most experts agree is a better option over the long term than deflation. Will it work?  Experts are divided on how effective this monetary policy will ultimately be on the European economy, but like many things, only time will tell. 

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

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C14-022059

Is Retirement Too Late to Find a Financial Planner?

Let’s say you are approaching retirement or you have already taken the plunge. Let’s also say you have not worked with a financial planner along the way. Is there a reason to consider forming a relationship at this stage of the game? 

Even at this stage in life, it may help to seek out a financial planner to be a thinking partner leading up to and along your retirement journey. But finding the right fit may not be easy. A successful financial planning engagement starts with you figuring out what is most important.  Details about your money are equally as important when put in context with your envisioned life. 

Here are two steps that will help you pull together your overall financial picture:

1. Create a financial plan: This will be a roadmap to help you see your financial picture in one coordinated view. 

• This plan is all about you, your priorities and needs.  The goal is to help you feel secure and at ease about your financial future.

• It will show you how you are currently invested and make suggestions for appropriate changes.

• Analyze how your investments could be working to supplement your income, either on a regular basis or as needs arise.

• Make sure that your estate plan is the way you want it. 

2. Consolidate: If your accounts are spread around with many different companies, it may come with a financial and organizational cost.

• With consolidation you can easily access all of your information in one place.

• You’ll simplify the ongoing paperwork you receive and streamline information gathering at tax time and when you must take required distributions.

• It provides more consistent management and ongoing monitoring in a cohesive framework.

Even if you have the individual areas of your finances under control, it is still important to pull all the pieces together.  Perhaps you have multiple IRA’s that too closely mirror each other, investments you have inherited that aren’t worked into your overall strategy, or your life circumstances have changed and your investments have not. 

The right fit might take some trial and error.  You don’t have to settle.  A financial planner that truly understands your financial story will be able to guide you to think about areas of your financial life you may not have considered up to this point. If you’re nearing, at, or past retirement and need help exploring your financial planning options, don’t hesitate to contact me about building a relationship and shaping your plan.

Laurie Renchik, CFP®, MBA is a Partner and Senior Financial Planner at Center for Financial Planning, Inc. In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie was named to the 2013 Five Star Wealth Managers list in Detroit Hour magazine, is a member of the Leadership Oakland Alumni Association and in addition to her frequent contributions to Money Centered, she manages and is a frequent contributor to Center Connections at The Center.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. You should compare your current and prospective account features, including any fees and charges, before making consolidation decisions. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. C14-022519

Strategy for an Intra-Year Market Drop

 With minutes remaining in the game, my youth hockey team had just scored, sending the nail-biter state championship into overtime. I was 11 then, and I remember the packed stands full of parents waving signs and pom poms. The other teams were even cheering us on. Only a few minutes into overtime, I watched the puck deflect off our own player's skate into the net, ending the game and our season in agony. Through the tears and heartbreak, I'll never forget what coach said to us, "we didn't play our game." Not the most comforting line after such a loss, but it was 110% true.

That year, our team had been undefeated until our final opponent took us down. The reason we were so successful was because we had a game plan that worked for us and we stuck to it. It wasn't anything fancy; we just did the simple things really well and were consistent. If we had our backs against the wall or faced adversity during a game, we stayed true to what we knew about winning. But that's not what we did when it mattered most. We let a very good team get into our heads and it caused us to make bad decisions. We didn't stick to the game plan that had provided us with so much success through the season - something that can also easily happen to investors during a market pullback or a time where there is fear and uncertainty. 

At the Raymond James national conference in Washington D.C. in May, I listened to a JP Morgan presentation about past, present, and projected market conditions. The most intriguing fact I heard was this:

Since 1980, the average intra-year market decline has been 14.4%. However, 27 out of those 34 years, the market has closed the year positive.

So what does that tell us? To me, it highlights the importance of having a game plan and a strategy and sticking to it. The market will not always move in a straight line up like we have seen over the past few years, so being prepared for bumps along the ride is imperative. As my hockey team experienced, when you begin to deviate from a disciplined strategy, bad things can happen.

Making knee jerk decisions during difficult times can cause you to stray off your path to financial independence. This is when we, your financial planners, step in as coach to talk you through the game plan that we have helped you establish. It is a team effort and working together through the good times and bad is what we do best for our clients.

Nick Defenthaler, CFP® is a Associate Financial Planner at Center for Financial Planning, Inc. Nick currently assists Center planners and clients, and is a contributor to Money Centered and Center Connections.

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Past performance may not be indicative of future results. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Keep in mind that individuals cannot invest directly in any index. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of RJFS or Raymond James. C14-019163

Is 40 the “Magic” Age for Financial Planning?

When is Financial Planning, on your own or with the help of a professional, appropriate? The correct answer is you should probably begin saving the first day that you receive your first paycheck.  However, in my 23 years of experience, folks tend to get “serious” about planning near the age of 40.  I do not by any means want to discourage anyone younger than 40 to put off planning until they hit that “magic” 40 milestone. Just about anyone that has achieved financial success will tell you to start as early as possible.

Some questions and issues that the 40+ crowd might consider: 

• How much should I be saving? I have heard rules of thumb such as 10% or 20% but what does that mean for me and my specific goals?

• I’m busy. What are the options to pay bills other than the standard envelope and stamp method?

• Life insurance: Salespeople have been hounding me for years to buy life insurance. I couldn’t afford it in the past and secretly didn’t see the value, but I’m ready now. What type and amount should I get to protect my family so I am not insurance rich and cash poor?

• College: My kids are getting closer to college age. How do I pay the ever-increasing tuition?

• I am ready to invest my wealth. What are best options for me?  Should I max out my 401k or 403b or is a ROTH a better option?

• Estate planning: I’m all grow’d up now and ready (I think) to consider a Will and perhaps a Living Trust. How do I know which one I need?

• My parents are aging and I am not sure if they have the resources for their care. What should I be doing now to prepare or help them prepare?

• I have heard about the “Boomerang kids” phenomenon. Should I move to a one bedroom condo now?

• Employer retirement plans (401k/403b): Whoa, I have real money now! How should it be invested?

• I give to charities that are making a difference in the world. Is there a way to maximize my donations and perhaps even get a tax break?

• Income taxes: I don’t mind paying … I just don’t want to pay a cent more than my share. How can I limit my income tax exposure?

• If I choose to work with a professional financial planner whom should I contact? I have not have worked with a professional advisor yet so I am a bit leery, and maybe even a bit scared to share my financial picture (not sure how I stack up with others).

If you’ve been asking yourself some of these questions, no matter your age, you are ready to get “serious” about your financial life.  Think about some of the issues and questions that you find yourself facing and feel free to give me an email. If my 23 years of working with similar folks can be of help, I’d love to share my insight because you don’t need to wait for some “magic” age.

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a frequent contributor to national media including appearances on Good Morning America Weekend Edition and WDIV Channel 4 News and published articles including Forbes and The Wall Street Journal. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), trained and mentored hundreds of CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

C14-019069

Utilizing your Financial Advisor in a Divorce

There are times in life when it’s best to just part ways. Someone once said that the most common reason of divorce was… wait for it… marriage. That’s the lighter side of what can be a very touchy subject. I recently attended a conference that gave me new insight into helping clients through the process.

Divorce Rate Statistics

Over 50% of married Americans have experienced divorce and for couples with a disabled child, the divorce rate jumps to 90%.  Experts say it comes down to stress and growing apart and divorce can provide a time to reflect and start over.

Some of these splits are amicable and, if they can be done with a clear head and fair planning, I believe that the financial costs can be reduced in a material way. But this is also a very emotional time and it’s even more difficult to keep a level head when emotions run their course. It can help to have an intermediary who understands both parties and the finances.

Dividing Assets

Consider a situation where there are multiple pensions, IRAs, retirement plans with old employers, education funding, vehicles and joint accounts … plus a home and other personal property. Well, try to take a deep breath and tackle one item at a time.  Place each item in a category and deal with them one by one (i.e. income from pensions can be handled by a lump sum, income from one spouse to another for some fixed period of time or through a Qualified Domestic Relations Order (QDRO) process). 

• Asset value differences and the tax implications can be aligned to provide for a fair split

• Qualified plans can be combined with IRAs to simplify things in some cases

• Liquidity can be generated from qualified plans without penalty

• Properties and tangible possessions can be appraised and split

• Social security differences are typical and can be managed

My best piece of advice is to talk to each other, come to an understanding of values, and arrange things fairly prior to talking with your attorney. Once you’ve done that, go and ask for their advice on what you might be missing.  If you can, utilize your Certified Financial Planner to best organize the items above because they already understand the money issues and can help to potentially reduce your legal fees considerably.

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

This materials is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of RJFS or Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Raymond James does not provide tax or legal advice. C14-017271

Trades in a Flash: The High Frequency Trading Debate

Imagine making a trade in less than the blink of an eye. That’s called High Frequency Trading (HFT) and it has generated a lot of buzz lately. HFT trades are executed between 2 and 7 milliseconds … we’re talking one thousandth of a second (1/1000).  There are as many milliseconds in one second as there are as many seconds in 16.67 minutes.   

High Frequency Trading Changing the Spreads?

There is a pretty lively debate going on right now between proponents of HFT and some outspoken critics.   Proponents of HFT claim that it’s good for the markets because it creates a lot of liquidity and volume for exchanges so the spreads aren’t as wide for different types of securities. For instance, if you wanted to buy Ford stock back in the 90’s the bid (what someone was willing to buy it for) and the ask (what someone was willing to sell it for) may have been as much as .125 or .25.  However, nowadays, if you look at the bid/ask spread for most heavily traded stocks (such as Ford) it’s usually as little as one penny.  The proponents of HFT claim that these “tight” spreads are because of all the activity and volume their computers bring to the markets.

Is High Frequency Trading Essentially Front Running?

The critics of HFT say that these computers and algorithms are engaging in front running.  That’s an illegal practice involving having prior knowledge that a large trade is going to take place, and just before that trade happens you go in and buy the stock yourself.  When the large trade is placed, it will naturally eat up all of the available shares at that price point, and push price slightly higher allowing the front runner an opportunity to exit with a few pennies profit.   

So why should we care?  If you are a long term investor, the simple answer is that paying a few extra pennies for your Google or Apple stock probably doesn’t matter. However, if you are a day trader, then I hate to break it to you, but the deck may be strongly stacked against you.

Matthew Trujillo is a Registered Support Associate at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

In reality, this practice mostly impacts those who are in the actual business of trading stocks. And more narrowly, the debate concerns a particular segment of traders who leverage speed to gain an advantage. Raymond James has long held that investing in the markets, with the assistance of an advisor, can help clients best meet their long-term goals through strategic, customized financial planning. We encourage our clients to buy and sell in context of those long-term plans, rather than make quick trades. 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. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of RJFS or Raymond James. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. C14-009411

Joint Planning Doesn’t Replace Individual Financial Planning

Are you a casual observer or a committed participant when it comes to mapping out a strategy for your financial future?    Maybe you are already a planner and organizer, or perhaps a visionary that lives in the future, or maybe you are happy to be working on one thing at a time.  Regardless of your starting point managing your finances is like managing your health --- you have to be involved. 

A question that women often ask me is, “Should I be thinking about my financial future separately from my spouse or partner?”  My answer is an unequivocal yes.  This doesn’t mean to disregard your partner or forego joint financial planning.  What it does mean is this:

1. You will be better prepared if you are on your own at some point in your life

2. Financial health and well-being is not a “one-size-fits-all” prescription

3. Involvement provides the opportunity to step back and really ask yourself, “Are we on the right track?”

4. Looking at individual planning and then coordinating with your spouse can be a way to ensure you both are planning for financial independence when partners handle money matters differently. 

It would be simple if we could decide exactly where we want to go and chart a course accordingly, but remember, life is no ordinary journey. It all starts with the commitment to pull together the different aspects of your individual financial picture and collaborate with a spouse or partner.  Ultimately, the goal is to commit to a game plan because standing on the sidelines is for spectators.

Laurie Renchik, CFP®, MBA is a Partner and Senior Financial Planner at Center for Financial Planning, Inc. In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie was named to the 2013 Five Star Wealth Managers list in Detroit Hour magazine, is a member of the Leadership Oakland Alumni Association and in addition to her frequent contributions to Money Centered, she manages and is a frequent contributor to Center Connections at The Center.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served. C14-011216

Real Estate Rebound: Time to Buy a Home?

As the real estate market starts to climb out of the doldrums and consumer demand begins to increase, you may be thinking of buying. Before you start a house hunt, let’s take a look at some general financial planning rules with regards to what could be the biggest purchase of your life.

Picking Your Price Point

Probably the most important rule to keep in mind when you are deciding which house is right for you is determining what you can afford.   The general rule of thumb is that your principal, interest, taxes, and insurance (commonly referred to as PITI) should not exceed 28% of your gross income.  So to put that into perspective, if your total household income is $100,000 ($8,333/month), you should try to keep the PITI to no greater then $2,333 (28% of $8,333).   Please keep in mind this is a general rule and not an absolute truth.  To make a truly responsible financial decision, you should have a good understanding of your monthly cash flow and determine how much of that $2,333 you can take on without being “house poor”. 

Unless It’s Long Term, Rent

Length of time you plan to be in the home is also a big consideration.  In fact, if you plan on being in the home less then 5 years it’s probably better just to rent. The reason for this is in the first 5 years of a typical amortization schedule, you hardly pay down the principal.  The majority of your monthly payment is going to interest and, unless there is substantial appreciation in the real estate market over that 5-year period, you probably won’t have much equity in the home when you try to sell it.

Prepare for PMI

If you aren’t putting 20% down, then you’re probably going to be subject to private mortgage insurance (PMI), which will increase your monthly payment.  Once you have 20% equity in the home, and a period of two years has passed since the initial purchase date, you can apply to have PMI removed from the loan.  Until that time, you need to be prepared for the additional burden on cash flow.

Moving isn’t cheap! 

The average moving company charges between $1,000 and $5,000 for transporting all your precious possessions from one house to the next so plan on setting aside a little cash for this expense.

Most Common Questions

Purchasing a new home can be fun, but it can also be very stressful. Some common questions that we get a lot from our clients at The Center are:

• Where do I take the money from for the down payment?

• Should I do a 15 or 30-year loan?

• How much should I put down on this house?

Whether this is your first house or your tenth, take a deep breath and be sure to consult with trusted advisors. When you talk through all of these issues, it’s easier to decide if it really is your time to start shopping for a new home sweet home.

Matthew Trujillo is a Registered Support Associate at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

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 Center for Financial Planning, Inc. and not necessarily those of Raymond James. C14-009197