Don’t Let 2015 Goals Become Afterthoughts

New beginnings offer the chance to hit the reset button.  Whether it’s setting personal goals spurred on by the beginning of a New Year or adjusting your financial course to focus on retirement, hitting the reset button is an opportunity to think about your intentions and put a finer point on your action plan.

One challenge that comes into play when setting goals, either personal or financial, is the potential to get distracted along the way.  Day-to-day stuff gets in the way and goals can easily become afterthoughts. How can you avoid falling into the gap trap that exists between expressing a goal (Point A) and crossing the finish line (Point B)? 

Here are three tips to get you started.

1. Commitment is essential.  Commitments have an emotional component attached to our personal values.  If something is truly meaningful, you will automatically do what is necessary to get there, whether you set a goal or not.  I am committed to saving appropriately today, so that when I reach retirement I won’t worry about running out of money.

2. Put more focus on the journey rather than the destination.  Goals focused solely on the destination can be met without enjoyment or personal growth along the way.  To retire at age 65 the savings number I need to hit is 15% per year.  Commitments, on the other hand, allow you to chart a course and keep the ultimate arrival point in clear view.   I am committed to understanding how my rate of savings affects my lifestyle in retirement.

3. Don’t get lost in the details of the planning. Getting caught up in the details is a good way to procrastinate.  Action is a must to move good intentions toward progress.

Throughout our lifetime, there are natural breaks in the journey that offer a chance to hit the reset button.  With your goals in hand and motivation clear, the future is shaped.  What will you commit to in 2015?

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.

The goals listed are for illustrative purposes only. Individual cases will vary. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of RJFS or Raymond James. C15-000603

Making the Most of Your Empty Nest Years – Part 2

The kids have gone to college or moved away and now you enter the Empty Nest Years. Will your empty nest years resemble “empty nest syndrome” (complete with a sense of loss, perhaps depression, alcoholism, identity crisis and marital conflicts)? Back in July 2014, I shared a conversation with a client in my first Empty Nest blog. They described their empty nest like this: “It’s Like being in college, only with money!” Working with clients whom have transitioned into the empty nest years successfully, the first common thread has been that they make time to plan.

Making time to Plan

It seems like such a simple statement, but it is often overlooked.  Like most successful folks, those empty nesters made a plan to live with intention. They examined their values, decided what was truly important in their lives, and then aligned their decisions with their intentions.

One of the most profound ways to examine values is through the work of George Kinder of the Kinder Institute.  My wife Jen and I have gone through the process with one of our firm’s partners and it has been quite helpful in leading an intentional life.  George Kinder takes a unique approach to financial planning – what he terms “life planning”.  My personal take is that at the core life planning is “financial planning done right”.  Many of life’s most important goals have a financial component. Like life planning, our comprehensive financial planning is designed to move beyond the numbers (not just dollars and cents) and address your goals and values.

3 Steps to Setting Financial Intentions

How can you discover or clarify the deeper values in your life and live with [more] intention? Here are two exercises that you might find helpful.  If they resonate, we’d love to help you.

To help clients discover the deeper values in their lives, Kinder poses three questions:

1. Imagine you are financially secure, that you have enough money to take care of your needs, now and in the future. How would you live your life? Would you change anything? Let yourself go. Don’t hold back on your dreams. Describe a life that is complete and richly yours.

2. Now imagine that you visit your doctor, who tells you that you have only 5-10 years to live. You won’t ever feel sick, but you will have no notice of the moment of your death. What will you do in the time you have remaining? Will you change your life and how will you do it? (Note that this question does not assume unlimited funds.)

3. Finally, imagine that your doctor shocks you with the news that you only have 24 hours to live. Notice what feelings arise as you confront your very real mortality. Ask yourself: What did you miss? Who did you not get to be? What did you not get to do?

When you understand what you want to do with your life, you can make financial choices that reflect your values as you plan for your empty nest years.

Taking Stock of Life

Here is a second exercise to consider that can help lead to clarity and intention. Take a piece of paper and at the top write “Goals for My Life – Taking stock”. Below that, across the top write “One month, 3 months, one year, 3 years, 5 years, 10 years, 20 years, and lifetime”.  Next, down the left hand side write “Work, Family, Relationships, Spirit, Community, Creativity, Health, Finances” and any other category for your personal circumstances.

Consider each time frame and category and the things you would like to accomplish.  Perhaps in 5 years under Family you would like to take the entire family on a holiday trip.  Or perhaps in 3 months under Work you want to reduce your hours.  Write it down – don’t underestimate the power of the pen or pencil.  Dr. Gail Matthews, a psychology professor at Dominican University in California, found that you are 42 percent more likely to achieve your goals just by writing them down. My experience suggests it’s even higher – write them down!

The empty nest years are an important transition.  I hope yours are “It’s Like being in college, only with money!”

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.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. 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. C15-001184

Smart Moves to Make the Year You Retire

So you’ve decided to hang ‘em up? Congratulations!  Retirement is an extremely personal decision and is made for a multitude of reasons.  Many of our clients have had the ability to retire for several years, however, they have now reached a point where the weekly grind isn’t as enjoyable as it once was.  There are probably thousands of things 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, it can be easy to miss good opportunities to really maximize your final year of full-time work. How do you get the most “bang for your buck” in your final year of working full-time?

Maximizing your employer retirement contribution (401k, 403b, etc.)

If you aren’t doing so already, do your best to maximize your company retirement plan contribution.  If you are retiring mid-year, adjust your payroll deduction to make sure you are contributing the maximum ($24,000 for those over the age of 50 in 2015) 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 put the max into the plan.  This will most likely be the final year you will be in the highest tax bracket of your life, you really want to take advantage of this and get the maximum tax benefit. 

“Front-load” your charitable contributions

If you are charitably inclined and plan on making charitable gifts, even into retirement, you might consider “front-loading” your donations.  Think of it this way – if you are currently in the 25% tax bracket and you will drop into the 15% bracket when retired, donating in which year will give you the most tax savings by making a donation?  The year you are in the higher bracket, of course!  So if you donate $5,000/year to charity, consider making a contribution for $25,000 while you are in the 25% bracket (ideally with appreciated securities).  This would satisfy five years worth of donations and save you more on your taxes.  As I always tell clients: When you save more money on your tax bill by gifting efficiently, you give less to the IRS’ and more to the organizations you care about!

Explore your health care options

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 go on COBRA?  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 to ensure you don’t go without coverage and that it’s as affordable as possible.  With recent changes in health care, we are positioning more and more clients in a way to qualify for health care premium subsidies under the Affordable Care Act (“Obamacare”). For more information on how you might qualify, take a look at Matt Trujillo’s recent blog on this topic.

With so many moving parts, it really makes sense to have someone in your corner to help you navigate through these difficult and sometimes confusing retirement topics and decisions.  Ideally, seek out the help of a Certified Financial Planner (CFP®) to give you the comprehensive guidance you need and deserve!

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 Money Centered and Center Connections blogs.

Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. 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. C14-041996

Capital Gains: 3 Ways to Avoid Buying a Tax Bill

Many asset management firms have started to publish estimates for what their respective mutual funds may distribute to shareholders in short- and long-term capital gains. Moreover, early indication is that some firms will be paying out capital gains higher than recent years. As you may be aware, when a manager sells some of their holdings internally and realizes a gain they are required to pass this gain on to its shareholders. More specifically, by law and design, asset management firms are required to pay out 95% of their realized dividends and capital gains to shareholders on an annual basis. Many of these distributions will occur during November and December. Remember this is only relevant for taxable accounts; capital gain distributions are irrelevant in IRA’s or 401k’s.

Capital gain distributions are a double edged sword.  The fact that a capital gain needs to be paid out means money has been made on the positions the manager has sold. The bad news – the taxman wants to be paid.

What can we do to minimize the effect of capital gain distributions:

1. We exercise care when buying funds at the end of the year to avoid paying tax on gains you didn’t earn, and in some cases hold off on making purchases.

2. We may sell a current investment before its ex-dividend date and purchase a replacement after the ex-dividend date.

3. Throughout the year we harvest tax losses, when available, to offset these end of the year gains. 

As always, there is a balance to be struck between income tax and prudent investment management.  Please feel free to contact us if you would like to discuss your personal situation.

This material is being provided for information purposes only and is not a complete description of all available data necessary for making an investment decision, nor is it a recommendation to buy or sell any investment. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, tax situation and time horizon before making any investment decision. Any opinions are those of [insert FA name] and not necessarily those of Raymond James. For any specific tax matters, consult a tax professional. C14-040561

The 2014 Movember Challenge: Changing faces at The Center

Who doesn’t love a good beard or mustache?  I think you’d be hard pressed to find many people who don’t enjoy the look on us guys.  Heck, Dan Boyce has been rocking a mustache since our firm came into existence almost 30 years ago!  Over the last few years, November has become the month dedicated to growing out your facial hair, otherwise known as “MOVEMBER”.   What many people don’t realize though, is that Movember is actually dedicated to raising money and spreading awareness for prostate cancer, the second leading cause of cancer-related deaths in men in the United States.  To find out more about the foundation that’s changing the face of men’s health, check out movember.com. I think it’s a fun thing to do each year, switch the look up a little bit and save some time and money with your shaving supplies while hopefully donating some of those savings to prostate cancer research.   

Throwing down the Movember Gauntlet

This year, Matt Trujillo and I took the Movember challenge and have had an ongoing facial hair battle all month. You can check out our hairy progress on The Center’s Facebook page.  When I decided to partake in Movember once again this year, I started thinking about the “skillset” that it takes to grow an amazing beard/mustache.  When I really took a step back, I realized how much it had it common with investing -- as crazy as that may sound! Consider these hair-raising similarities to investing:

Patience – Not everyone has the genes for growing good facial hair – like me for example.  I have what many deem as a “baby face” and have a hard time filling in the gaps in certain areas, but hey, I’ve seen way worse. Have you ever seen Justin Bieber’s attempt at a mustache?  If not, take a look because it makes me feel better. But the one thing I do have in my favor is patience.  I know it will take longer than most to get a decent beard/mustache going, but I’m in it for the long run. 

Persistence – As every man can attest, you will come to a point where your facial hair drives you crazy.  This is typically about 1½ – 2 weeks into the growing cycle and is when the itchiness and overall feel starts to really get to you.  Although this growth period is tough to push through, persistence is essential and is necessary to prevail.

Consistency – You have to stick with it!  If you want good facial hair, consistency is key.  You have to know going in that the process won’t be easy. Being consistent and keeping up with the general maintenance of having facial hair, along with fighting the countless urges to shave that lip sweater off your face, is what separates the men from the boys.

Movember & Investing Parallels

Can you see how these three attributes required to growing facial hair can play into investing too? The most successful clients we’ve worked with started saving at a young age and did so over the course of their 30+ year working career. That required discipline and patience.  They’ve seen the market go up and down along with their account balances; however, they’ve stayed the course and are now enjoying a very comfortable retirement.  Investing with persistence, in my opinion, means staying true to your personal goals and maintaining a diversified portfolio. Instead of following “new” or “hot” investment crazes. Keeping it simple and using asset allocation has led to countless success stories for our clients.  Finally reaching your goals takes consistency, which if you ask me, is the number one key to investor success.  Consistent saving at a reasonable rate, no matter what the market is doing, can reap monumental dividends over the course of 40+ years. 

Matt and I have had a lot of fun the past few weeks partaking in Movember and know the office has also enjoyed our evolution into our “business professional cave man” look.  However, what we can’t forget is the true purpose of growing our facial hair– prostate cancer awareness.  We all know someone who has been affected by cancer and if trends like Movember can help to ultimately fight the cancer battle, I’m all for it.  Happy Movember, from everyone at The Center! 

Nick Defenthaler, CFP® is a Certified 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.

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. C14-039023

Do You Have Warren Buffett’s Stomach for Volatility?

It is rare that I don’t agree with advice from Warren Buffett, but earlier this year we took different sides of a debate. His recommendation for a simple, flawless investment strategy was putting 90% of your assets in an equity fund designed to mirror the performance of the S&P 500 and 10% in cash.

This sounds great if you have nerves of steel and can make it work. But most people can’t stomach it.  Buffett is an amazing investor who understands his emotions and has a great ability to see the value of companies and what he owns.  But we’re not all Warren Buffett.  That is one of the reasons there are financial advisors in the world who help people understand appropriate volatility in their portfolio and what to do when that volatility spikes. 

Your Own Risk Tolerance

One common question I got during the downturn five years ago was when do we stop the bleeding?  One client said to me, “I had $1,200,000. Now I have about $1,000,000 due to the financial crisis and the market falling.  When do I do something?” To determine a time to sell really takes two correct decisions.  When to sell and when to buy back in. It is almost impossible to be right twice consistently.   

These difficult questions were most prevalent during the final weeks of the financial crisis in January to March of 2009.  And there was a lot more bad news to come. GM’s pending bankruptcy was front stage in the spring of 2009.  If someone was to try and time the exit and reentry during this period, it could have been devastating. Actually, the S&P soared over 30% from March to June in 2009 in the face of such horrible news and if someone sold out, it would be almost impossible to buy back in without paying more.  And those are the people on the sidelines that missed one of the greatest markets in history.

Nerves of Steel or Appropriate Allocation?

No one knows when a market downturn will occur or for how long it will go. More importantly to reap the benefits of long-term equity returns we need to be in to win.  Even more important, we need to have the right amount allocated so that we can withstand any type of downdraft and wait it out.  

So, while Buffett and his steely nerves might be able to stay invested through thick and thin with 90% of his wealth in the stock market, most people need less volatility to stay the course.  Buffet realized the value of companies when they were extremely cheap in 2009, while most investors could only see the losses from the past. Through those challenging times when people kept asking if it was time to do something, many investors benefited from staying the course through the last market cycle and went on to reap the benefits of this bull market.  I believe some nerves were enforced with regular meetings, appropriate plan design and investment portfolio allocation.

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 material 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 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. Holding stocks for the long-term does not ensure a profitable outcome. Investing always involves risk and investors may incur a profit or loss regardless of strategy selected. Inclusion of any index is for illustrative purposes only. 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. C14-036847

Establishing Clear Direction for your Retirement Plan

Retirement planning is an exercise in imagining your future.  We all posses the ability to think ahead and plan for the future; whether it is making plans for tomorrow, arrangements for a trip next year or planning ahead for retirement in 5 years, 10 years or even longer. Thinking ahead allows us to carefully arrange our financial lives to align with our future vision.

Be Ready to Adjust Your Plan

Like life, adjustments will be necessary along the way.   It is more common than you may think for couples to approach retirement with an agreed upon plan, only to have divergent thoughts surface before reaching the goal.  Financial planning and thoughtful conversation can help to reestablish clear direction and a workable plan to follow together. Here is a simplified case study to help illustrate crucial planning steps leading to retirement.

Try 3 Action Steps to Jumpstart Your Plan

When Jack and Sally began to think about retirement, they had more questions than answers.  Sally was looking forward to relaxing and spending time in a warmer climate, while Jack couldn’t imagine moving to another state away from his volunteer work and grandchildren.  This is not a unique situation.  With a goal of retirement in 5 years, we established these three action steps:

• First they needed to review assets, future income sources and anticipated expenses to determine how much money they will need to live their retirement plan.  Increased longevity is factored into the financial analysis.

• They were in agreement to be debt free and have enough assets and income sources that cash flow would not be a limiting factor in retirement.  That gave them a clear picture of how much they needed to save and invest leading up to retirement.

• Jack and Sally agreed they would downsize their home to accommodate the goal of renting in a warmer climate for 5 months during the coldest part of Michigan winters.

Test your pre-retirement plan by laying out your unique objectives to see if you have a clear direction and workable plan to follow together.  The most successful transitions hold the promise of retiring to something, not away from something.  Contact me if you need help getting started or making adjustments along the way to your retirement goals.

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. C14-034237

IMO - In My Opinion: A take on mortgages, Roths, pensions & more

My wife, Jen, and I have been speed watching The Good Wife thanks to Netflix. In The Good Wife, one of the judges (apparently the legal system makes for good TV) constantly requires the lawyers in her courtroom to end their arguments with, “In my opinion.”  The attorneys look bewildered each time as if to say…well of course it’s only my opinion, just like every other statement I make, and everyone knows that except for you, apparently.  A recent consultation reminded me of the “in my opinion” skit (“IMO” for short). 

Professionals Offer Differing Opinions

In our field of professional financial planning (not to be confused with the majority of firms and advisors in the financial SALES industry) there are many rules of thumb, but very few technical standards of care that you might find in the medical or legal field.

As a Certified Financial Planner® practitioner, there are some guiding principles and general statements that CFP® practitioners are expected to display in their professional activities, but they are hardly a technical standard of care. The CFP Board states that “Allowance can be made for innocent error and legitimate differences of opinion, but integrity cannot co-exist with deceit or subordination of one’s principles.” Those legitimate differences of opinion are what I’m talking about.

Differenceofopinion-adisagreementorargumentaboutsomethingimportant

Reasonable minds can and will differ just as in everyday life it is not uncommon to hear reasonable folks say, “Let’s agree to disagree.”  Professional differences of opinion do not render the other professional a crook or even wrong if they are acting from a place of integrity – IMO.  Moreover, it is perfectly appropriate to express a difference of opinion with another financial professional when done in a professional and non disparaging manner – IMO.

Back to my recent consultation – as I listened to the recommendations of another professional, I realized I had several different opinions on what was best for this particular situation and needed to share:

ROTH Conversions: As my colleagues here at The Center can attest, I hold a pretty strong opinion that most people have gotten the Roth Conversion issue “incorrect”.  I believe that many folks have accelerated income taxes at a higher rate than they will pay in the future.  Most workers have a higher income, which usually translates into a higher marginal tax bracket, during their working years than they do in retirement.  But wait; there is no Required Minimum Distribution from a ROTH. True, but this is still only relevant as to what bracket the money comes out.  Don’t get me wrong, this is not an absolutist opinion, there are plenty of correct situations where ROTH’s makes sense (IMO) – look for an upcoming post about converting after tax 401k contributions to a ROTH as an example. There are other limited situations where a ROTH makes sense, IMO.  For example, if you are a high net worth person and reasonably expect that you will always be in the highest marginal bracket, then converting and paying at 35% vs the new 39.6% marginal rate seems to make sense. 

Mortgage vs no mortgage:  A firm attempting to become a national financial planning firm recently counseled a young retiree looking to relocate to another state to, “Get the biggest mortgage possible.” Call us old school – but we think that most retirees are best served entering their retirement years debt free. And this client has substantial taxable funds to complete the purchase.  Our suggestion was to actually RENT initially.  Once they are comfortable and they have found a location that suits them for at least the next 5 years, we think they should consider a cash purchase. Rates are low, which does make obtaining a mortgage more attractive, however in retirement (at age 50) the rate is going to be much higher than any suggested distribution rate (1-3%?).

Pension Lump Sum: Our recommendation is for the client to take a monthly pension at age 55 in the form of a 100% survivor benefit even though her husband is older. The other advisor suggested that even assuming a low return, investing the lump sum will produce more money.  The client suggests that age 94 mortality was very reasonable given her family history.  Under these assumptions, the “low return” needed from the investment portfolio turned out to be 6%; hardly a “low” return IMO. Assuming only a 1% annual difference in return (5%) the lump sum lasts only to age 86.  One of the advantages to taking the lump sum is flexibility or access to a lump sum if needed.  Fortunately, the client’s other assets are substantial. Other more confident professionals might find the hurdle rate low; not me.

401k Rollover:  We both recommended a 401k rollover to an IRA managed by our respective firms.  The client left the employ of a major corporation with what I would categorize as containing a competitive 401k, in terms of investment options and expenses.  My sense is that the client will be better served by rolling the account to either professional.  Successful investment management is more about behavior than selecting the best allocation or underlying securities to complete the allocation – IMO.

Asset Allocation: The other professional recommended a 70% equity and 30% fixed income allocation versus our 60/40 allocation.  My thinking is at this time of their life, less risk is a bit more important.  I do, however, appreciate that because they are so young (hedging against inflation), and their expected withdrawal rate is under 3%, that a higher equity allocation may be reasonable. The other adviser apparently pointed out that their allocation was “optimized” (directly on the efficient frontier) because their mid cap exposure was higher than our recommendation in addition to our international equity allocation being 12% vs their 10% recommendation.  Due to current valuations, we have reduced our allocation to mid and small cap equities from a neutral weighting of 10% down to 8.5% and our international (large developed) is at our target weighting of 12%.  The other professional suggests 14% and 10% respectively.  Only time will tell which portfolio was more successful.  I do feel pretty strongly that in the end our client’s behavior will be more determinative of their investment success versus the subtle differences in portfolio recommendation – IMO.

Annuities:  Do you remember when some advisors called anyone recommending an annuity a crook?  Fast forward a few years and some of the profession’s highly regarded practitioners recommend annuities in many situations.  I still believe that they are way oversold, but that doesn’t mean there are not appropriate situations - IMO.

Everyone has an opinion and I give my clients mine. So, what’s your opinion?

Everything we hear is an opinion, not a fact. Everything we see is a perspective, not the truth.  ~Marcus Aurelius

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.

Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The forgoing is not a recommendation to buy or sell any individual security or any combination of   securities. Be sure to contact a qualified professional regarding your particular situation before making any investment or withdrawal decision.

C14-033719

A ROTH IRA Strategy for High Income Earners

Do you have a 401k Plan from your current employer?  Does it allow you to make after tax contributions (these are different than pretax contributions and Roth 401k contributions)?  If the answer to both is “yes”, a recent IRS notice may present a welcome opportunity.  IRS Notice 2014-54 has provided guidance (positive guidance) allowing the splitting of after tax 401k contributions to a ROTH IRA. Although I believe that ROTH IRAs are used in many less than ideal situations, this is one strategy that can make sense for higher income earners; tax diversification and getting money into a ROTH without a big upfront tax cost. 

After answering “yes” to the first two questions, the next question is, “Are you making maximum contributions on a pretax basis?”  That is, if you are under 50 years old, are you contributing $17,500 and if you are over 50 (the new 30) $23,000? If you are making the maximum contribution, then a second look at after tax contributions should be considered.  Whew – that’s three hoops to jump through – but the benefits might just be worth it.

Putting Notice 2014-54 to Work

For example, Teddy, age 50 has a 401k plan and contributes $23,000 (includes the catch up contribution) and his employer matches $5,000 for a total of $28,000.  Teddy’s plan also allows for after tax contributions and he may contribute $29,000 more up to an IRS limit of $57,000. 

The new IRS Notice makes it clear and simplifies the process allowing this after tax amount at retirement to be rolled into a ROTH IRA.

The bottom line:  It is more attractive to make after tax contributions to your 401k with the flexibility of converting the basis to a ROTH at retirement or separation of employment without the tax hit of an ordinary Roth conversion.

As usual, the nuances are plentiful and your specific circumstances will determine whether this strategy is best for you.  To that end, we are here to help evaluate the opportunity with you.

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.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of 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. C14-033701

Where are we in the full market cycle?

Cycles exist everywhere.  One of the first cycles we learn about as a child is the water cycle or the journey of a raindrop. There’s something about the circularity of cycles that I just love.

The economy and financial markets also cycle. An economic cycle is the periodic ebb and flow of economic growth like Gross Domestic Product or employment.  According to the National Bureau of Economic Research the average economic cycle lasts a little less than six years.  This span is measured both from one peak to the next peak or one trough to the next trough.  While six years is an average, the cycle can be much quicker or much longer than six years. 

The Cyle of Economic “Seasons”

The various stages of the economic cycle can be thought of like seasons of the year as shown in the chart below.  From winter, or recession, where jobs are lost and the economy is shrinking to summer, where growth is accelerating and jobs have been recovered. 

Every quarter we take a poll at The Center to see where team members think we fall in this spectrum.  Our consensus is that we believe we are in the midst of summer meaning that this bull still has some room to go as we are still lacking some keys signs of a maturing economy like inflation and volatility.

Stock Market Cycles

The stock market also goes through cycles and, along with it, investor emotions ebb and flow.  Usually the stock market cycle is slightly ahead of the economic cycle meaning that market indexes often peak before the economic cycle peaks.  Our latest survey of our employees placed the stock market cycle near excitement in the picture below.  At this point (excitement/thrill/euphoria) investors start to question why they don’t have more aggressive positions because they have clearly performed very well and many even start to shift their portfolios in this direction.  As Warren Buffett said”

“Be fearful when others are greedy and greedy when others are fearful.”

Refocusing on the Long Term

This is the point when it is most important to stay in a diversified portfolio, not abandon your long-term investment objectives while reaching for more returns. Rebalancing at these market extremes may go against what investors want to do, for example, selling your stock positions to buy more bonds right now or selling your bonds in 2009 to buy more stocks. However, going against these basic emotions have potential to be the best decisions you can make for your portfolio.  Navigating these emotions is the single most difficult road block to the success of an investment strategy.  While markets and economies will cycle as long as water continues to cycle, having sound financial advice during these market extremes can make big difference in the success of your long-term financial plans. 

Angela Palacios, CFP®is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well asinvestment updates at The Center.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Angela Palacios 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. Investing involves risk and investors may incur a profit or loss regardless of strategy selected. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Angela Palacios 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. Investing involves risk and investors may incur a profit or loss regardless ofstrategy selected. C14-031971