Millennials Matter: The Importance of a Budget

Contributed by: Melissa Parkins, CFP®

No one likes making a budget. It takes time to make, time to maintain, and it can provide some depressing information. All this considered, you still SHOULD make a budget! Actually, no matter your age or where you are in life, a budget is a critical piece to your financial plan. A financially successful future can depend on your actions today, and budgeting is an effective way to keep your actions in check.

Why budget:

A budget helps you best plan for your short term goals (like a vacation, or paying down student loans) and long term goals (like a home purchase, or a comfortable retirement). First you lay out your goals with specific amount and timeline, then you track your spending habits and monitor your progress, and before you know it, your dreams can become a reality! I know, easier said than done. But in all seriousness, a budget is one of the best ways to keep yourself accountable AND focused so that your goals can be met. It also forces you to realize your bad spending habits (the depressing part of any budget) and then work towards correcting them. First know what you earn and what you need to spend to live then determine how much you need to save to reach your goals. As you’ve heard many times before, don’t spend money that you don’t have! Especially if you already have unwanted debt (like student loans!). Even if you are currently comfortable with your income and spending each month, creating a budget is still helpful to identify unnecessary spending and redirect those funds to your priorities. I mean, do you really need to be spending $100 a month on lattes?! A budget will show you what little guilty pleasures actually add up to in the long run, and it may surprise you.

How to setup a budget:

Taking the time to start your budget is the hardest part.

• First, collect your paystubs and any other regular monthly income statements to determine the amount that comes in each month.

• Next, collect bank and credit card statements, and other monthly bills to figure out your fixed expenses, necessary expenses, and unnecessary spending.

• Compare multiple months of statements to determine on average how much you spend monthly.

• Break down your spending into categories (living expenses, household bills, debt payments, groceries, eating out, shopping, savings etc.).

• Analyze your spending categories to see which areas are your “bad habits” and you’d like to consciously make improvements.

• Review your goals and make sure you are appropriately saving for them.

Once you have done all this, you now have your bottom line, and it is just a matter of sticking to it. The way you go about maintaining and tracking your budget is a matter of personal opinion. Some prefer using an excel spreadsheet. Others find online tools such as Mint, Level Money, or You Need a Budget to be most helpful. There are also alternatives to the traditional budget like utilizing multiple checking/savings accounts at the bank to organize your spending and savings (opening different savings accounts and titling them for different goals like emergency fund, travel, etc. or having separate checking accounts for necessary spending and discretionary spending).

It doesn’t matter how you do it, you just need to find the way that works best for you. Creating and sticking to a budget involves discipline, and maybe some sacrifice at times, but it will break the bad habits and replace them with good spending and savings habits. At the end of the day, a budget can help you eliminate your debts and build your net worth quicker. If you have dreams of luxury purchases, traveling the world, paying down student loans quickly, or just having a happy retirement, you need a budget! It can help you reach your goals quicker and easier.

Melissa Parkins, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.®

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The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Melissa Parkins 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.

Qualified Charitable Distributions: Giving Money while saving it

Contributed by: Nick Defenthaler, CFP®

Late last year, the Qualified Charitable Distribution (QCD) from IRAs for those over the age of 70 ½ was permanently extended through the Protecting Americans from Tax Hikes (PATH) Act of 2015. Previously, the QCD was constantly being renewed at the 11th hour in late December, making it extremely difficult for clients and financial planners to properly plan throughout the year. If you’re over the age of 70 ½ and give to charity each year, the QCD could potentially make sense for you. 

QCD Refresher

The Qualified Charitable Distribution only applies if you’re at least 70 ½ years old. It essentially allows you to donate your entire Required Minimum Distribution (RMD) directly to a charity and avoid taxation on the dollars coming from your IRA. Normally, any distribution from an IRA is considered ordinary income from a tax perspective, however, by utilizing the QCD the distribution from the IRA is not considered taxable if the dollars go directly to a charity or 501(c)(3) organization.    

Let’s look at an example:

Sandy, let’s say, recently turned 70 ½ in July 2016 – this is the first year she has to take a Required Minimum Distribution (RMD) from her IRA which happens to be $25,000. Sandy is very charitably inclined and on average, gifts nearly $30,000/year to her church. Being that she does not really need the proceeds from her RMD, but has to take it out of her IRA this year, she can have the $25,000 directly transferred to her church either by check or electronic deposit. She would then avoid paying tax on the distribution. Since Sandy is in the 28% tax bracket, this will save her approximately $7,000 in federal taxes!

Rules to Consider

As with any strategy such as the QCD, there are rules and nuances that are important to keep in mind to ensure proper execution:

• Only distributions from a Traditional IRA are permitted for the QCD.

• Employer plans such as a 401k, 403b, Simple IRA or SEP-IRA do not allow for the QCD

• The QCD is permitted within a Roth IRA but this would not make sense from a tax perspective being that Roth IRA withdrawals are tax-free by age 70 ½ *

• Must be 70 ½ at the time the QCD is processed.

• The funds from the QCD must go directly to the charity – the funds cannot go to you as the client first and then out to the charity.

• The amount you can give to charity through the QCD is limited to the amount of your RMD.

• The most you can give to charity through the QCD in a given year is $100,000, even if one’s RMD exceeds that amount.

The QCD can be a powerful way to achieve one’s philanthropic goals while also being tax-efficient. The amount of money saved from being intentional with how you gift funds to charity can potentially keep more money in your pocket, which ultimately means there’s more to give to the organizations you are passionate about. Later this month, we will be hosting an educational webinar on philanthropic giving – click here to learn more and register, we hope to “see” you there!

Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted.

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

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The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. Any opinions are those of Nick Defenthaler and are not necessarily those of Raymond James. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Webinar in Review: Taking Control of your Student Loans

Contributed by: Clare Lilek

If you or a loved one has student loans, then you know it’s easy to feel overwhelmed at times. According to The Institute of College Access & Success, 70% of undergraduates have student loan debt of $35,000 on average upon graduating. Moreover, these numbers and percentages increase with degree level. With increasing numbers of Americans with student loan debt and the fact that managing multiple loans of various types and interest rates can cause confusion, Melissa Parkins, CFP®, and Kali Hassinger, CFP®, hosted a webinar on the subject in order to provide some clarity.

First, it’s important to determine whether you have federal or private loans; there are various sub-categories of loan types for federal loans. The majority of loans you will come in contact with are federal loans and they tend to have fixed-interest rates and the possibility of flexible repayment plans. Private loans tend to have less flexible repayment plans and interest rates are determined by credit scores.

Federal loans tend to be considered the preferred type of loan. They offer flexible repayment plans, varied interest rates, loan consolidation options, and the possibility of loan forgiveness (note on loan forgiveness: if you still owe money at the end of your federal loan period, the government will forgive that loan but the remainder will be taxed as income that year). Private loans, however, tend to be more straight forward since there is a standard repayment plan that is not based on your income.

One big tip Melissa and Kali offered is first getting organized with your loans. Create a list that outlines the type of loan, the lender, interest rates, and the term. (For help with creating this inventory check out Melissa’s latest blog on the subject.) They also offered a helpful flow chart for deciding whether or not you should refinance your federal loans:

Taken from Social Financial, Inc

At the end of the webinar, Melissa and Kali went over an in depth case study looking at specific examples of loans and potential refinancing options to save you money and to pay back your loans at a faster rate. Listening to this case study can provide more clarity on how creating a loan inventory may help you save money in the long run.

If you have questions regarding your own student loans, listen to the webinar and see if any of the information applies to you. As always, feel free to reach out to your financial planner or Melissa and Kali for any remaining follow up questions or to talk about your specific situation.

Clare Lilek is a Challenge Detroit Fellow / Client Service Associate at Center for Financial Planning, Inc.

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The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of and Clare Lilek, Melissa Parkins and Kali Hassinger not necessarily those of Raymond James. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Your Early Retirement and Your Aging Parents

Contributed by: Sandra Adams, CFP®

Last month, I wrote about how caring for aging parents can be a roadblock to planning for your retirement, particularly if you don’t have an aging plan in place for your parents. Well, let’s assume you successfully make your way to retirement. You’ve made it to the promised-land and are ready to do all of those things you’ve dreamed of doing for years…travel, spend more time with the kids and grandkids, and explore those hobbies you haven’t had time to enjoy.

And then…bam! Your parents are now older and in need of your assistance, just in time! On the one hand, it is perfect – you no longer have the stress of needing to balance work with the stress of caregiving, and you can give them your undivided time and attention. But on the other hand, this is now your time…the time you’ve waited years to enjoy…not to spend tied to someone else’s schedule and needs. For many retired couples, they are the primary caregivers for not one, but multiple sets of aging parents, which only adds to the stress (not to mention the marital tension!). Many are worried that their retirement will be spent caring for aging parents; or that by the time the caregiving is done, they will need a caregiver themselves!

So what can you do to ease the family stress and give your retirement a needed boost?

• Make sure that you and your family have planning conversations about the care for your aging parent and that you have a Family Care Agreement in place outlining everyone’s roles and responsibilities.

• Consider having professional resources that you can use, when and if needed, to give family members breaks (i.e. Home Care Agencies, Geriatric Care Managers and Professional Physicians that can serve as advocates in your absence, paid companions and drivers, etc.).

• Look into Respite Care Centers where your aging parent can stay for a short period of time and be safe and well cared for while you are away (if they are unable to stay alone).

Again, if possible, planning ahead is always critical. Knowing the available resources (and then actually using them) is an important part of the process. Caring for your loved ones yourself and being their personal advocate is something people take very seriously. But taking care of you, including taking some time off and tending to other personal relationships, is the key to a happy and healthy life. So, I strongly advocate for families sharing responsibilities and/or taking advantage of professional advocates like Geriatric Care Managers or Professional Physicians that serve as advocates so that they can take time off from full time caregiving. Taking advantage of such resources can allow for better quality personal lives and better quality time and caregiving with your aging parent in the long run.

If you have questions or wish to discuss this type of planning in greater detail, do not hesitate to contact me.

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

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Any opinions are those of Sandra Adams and not necessarily those of Raymond James. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Millennials Matter: Student Loans

Contributed by: Melissa Parkins, CFP®

The average 2016 college graduate will have just over $37,000 in student loan debt upon completing their undergraduate degree. If it is a graduate degree they have just earned, the average debt is almost $60,000. When it comes to more specialized degrees such as a master’s degrees, law degrees, or medical degrees, the number dramatically increases (up to $250,000!). These numbers are up 6% from last year. Clearly the questions about student loan debt are not going away. This is a complex topic to understand, and it has big impact on people’s financial situations. Loans are taking longer to pay off and thus more interest is being paid, making them more and more expensive to have. That’s why it is important to understand student loans and know your potential options so you can create an efficient plan for paying them off.

Determine Your Goal

For most, your goal is going to be to minimize the cost of your student loans and pay them off as quickly as possible. However, some may have a goal to maximize federal loan forgiveness if they will qualify. Others may have a goal to free up current cash flow and thus need to find a way to lower monthly payments. Whatever your overall goal is for your student loans, you will need to first get yourself organized, and then create a plan to help get you there.

Make a Student Loan Inventory

Whether you are planning on making changes to your loans or not, it is important to first build an inventory of all of your student loans to keep yourself organized. Your inventory should include information on each individual loan like your current balance, monthly payment, interest rate, remaining term, loan servicer, if it’s private or federal, and if federal, what type of loan and what repayment plan you’ve selected.

• For your federal loans, you can utilize the National Student Loan Data System to get all of the necessary information. You will need to create a login if you don’t already have one. Once you are logged in, you can access information regarding all of your federal loans.

• For private loans, there is not one single resource that you can use to collect information like the NSLDS for federal loans. Instead, you will need to contact each of your private lenders to obtain the details of your loan and/or request a copy of the Promissory NOTE: If you are unsure who all your lenders are or you just want to double check that you have        accounted for all of your loans, you can actually use your credit report to find out. If you didn’t already know, you can download a copy of your credit report from annualcreditreport.com at no cost once a year with each of the 3 credit bureaus. All of your student loans – federal and private – will show up on your credit report. You can then compare the loans from your credit report to the loans on your NSLDS inventory to determine what private loans are currently outstanding.

Know Your Options

You know your goal and you have an inventory of all your student loans with the important details. Now you need to consider what changes to make in order to most efficiently meet your goal.

• Federal loans have many different repayment plans that you can choose from, including a few that are based on your current income level. The repayment plans that you are eligible for depend on what type of federal loan you have and when it was taken out. You can switch between repayment plans whenever you want, but you should thoroughly review your situation before doing so because it is not the most straight-forward process and changing plans can impact your loans in some instances. Depending on your goal, however, switching repayment plans may be in your best interest.

• Consolidating federal loans will give you a single monthly payment and access to additional repayment plans in some instances. The interest rate on a new consolidation loan is a weighted average of the loans that were consolidated (your interest rate is not lowered). At consolidation, you can select a new term or length of the loan, as well as a new repayment plan option. Consolidating helps to simplify your federal loans and your payments, and it is also a way to restructure your federal loans to be more suited for your personal situation.

• Refinancing is something you have probably heard about. It can be a great way to restructure your current loans in a way that is more efficient and better suited to your current financial picture. In many cases, you can get a lower interest rate which can help save significant dollars over the term of your loan. The rate you are approved for is based on your credit score, so the better your credit score, the better interest rate you will qualify for. You can refinance both private and federal loans, but before refinancing federal loans, you need to understand that you are giving up some benefits of federal loans (such as flexible repayment plans, loan forgiveness, and sometimes forbearance protection). Before refinancing, do you research, and look at multiple lenders to compare and find the best deal for your personal situation.

Student loans are very complex.  It makes sense to work with a financial planner to help you sort through your options -- we are here to help!  Contact us anytime if you would like us to take a look at your personal situation. Also, Join Kali Hassinger and me next week, Thursday, for our webinar “Taking Control of Your Student Loans.” We will be providing more in depth information on types of student loans and their certain characteristics, a few resources to help you organize your loans, and some options that could help you handle your loans more efficiently. We will also be walking you through a case study to show what this all looks like in real life and how getting yourself organized and considering different options could help you pay off your loans quicker and more efficiently! 

Melissa Parkins, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.

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This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Melissa Parkins and are not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. 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 outside website or the collection or use of information regarding any website's users and/or members.

Webinar in Review: Cash Balance Plans

Contributed by: Clare Lilek

Here at The Center for Financial Planning, Inc., we host webinars not only for our clients but also for other professionals who we may work with as part of the team to best serve our clients. During these webinars, our CERTIFIED FINANCIAL PLANNERS™ dive into specific topics in greater detail than you might find in a typical blog. In our latest webinar of this kind, Nick Defenthaler, CFP®, with the help of Abram Claude, Head of Value Add Programs Learning Center at Columbia Threadneedle Investments, hosted a 45 minute webinar detailing Cash Balance plans as a way to help business owners potentially accelerate retirement savings and lower taxes.

First, Abram clarified a cash balance plan as one type of defined benefit plan. He detailed the differences between a traditional defined benefit plan versus what the majority of the webinar discussed, a Cash Balance plan. Below you can reference a chart that distinguishes the two:

Typically, Cash Balance plans have been seen as an option only for larger companies, but many smaller businesses have been utilizing this retirement saving strategy because they’re usually easier to manage, they’re not as dependent on interest rate changes, and they offer the same benefit cost for the employer independent of the employee’s age or time with the company, compared to Traditional defined benefit plans.

Here are some questions to ask to determine whether or not a business might be a good fit for a Cash Balance plan:

• Does the business have a consistent, profitable history?

• Will the business have significant and consistent cash flow moving forward?

• Does the business have a budget that can support plan contributions?

• Does the business already maximize its contributions to a defined contribution plan (401k, 403b, etc.)?

• Are there multiple owners or partners?

• Do the business owners or partners want to accelerate their ability to save for retirement and save taxes?

• Is there a low ratio of non-highly compensated employees to highly compensated employees?

• Are the highly compensated employees older than the non-highly compensated employees?

• Is the company relatively small in size (e.g. fewer than 20 eligible employees)

The more “yes,” responses, the greater possibility that a Cash Balance plan might be a good fit for your business or your clients!

For more information, watch the webinar below as Nick and Abram go into the details surrounding the mechanics of these plans, along with helpful examples to illustrate the potential benefits of a Cash Balance plan. If you have any questions after watching the webinar, please feel free to call the office or reach out Nick Defenthaler, CFP®, and we’d be happy to help!

The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Clare Lilek and 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. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Raymond James is not affiliated with and does not endorse the opinions or services of Abraham Claude.

Clare Lilek is a Challenge Detroit Fellow / Client Service Associate at Center for Financial Planning, Inc.

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Raymond James is not affiliated with and does not endorse the opinions or services of Abram Claude and/or Columbia Threadneedle Investments.

Inherited IRA – Learn About Your Choices as a Non-Spouse Beneficiary

Contributed by: Laurie Renchik, CFP®, MBA

During a recent meeting with a client (let’s call her Anne), we discussed the options available to her as the beneficiary of her brother Jim’s IRA. This is an important discussion because there are certain tax benefits that come with inheriting an IRA, but the rules differ depending on whether you are a surviving spouse or what is called a non-spouse beneficiary. In this case Anne is considered a non-spouse beneficiary because she is the sister of the original account owner, Jim.

Here are the options available to Anne:

1. She can rollover the assets directly into an Inherited IRA for her benefit. With this option Anne will take distributions over her lifetime and enjoy the benefits of tax deferred growth.     

2. Anne can take a lump-sum distribution. With this option, there is an immediate tax impact. The value of the distribution is taxed as ordinary income in the year it is withdrawn. Because the IRA is inherited Anne can take the lump sum prior to age 59 ½ and not be subject to the 10% penalty that is usually applied for distributions before age 59 ½. 

3. The third option is that Anne does not have to take the inheritance. She can disclaim all or part of the inherited assets. If this option is chosen the assets pass to the next eligible beneficiaries.  If Anne considers this option she wants to be sure all of the legal requirements are met.

When handled correctly, Anne as a non-spouse beneficiary can enjoy the continued potential for tax-advantaged growth of these assets while avoiding the immediate income taxes.

Our discussion also highlighted some common mistakes to avoid:

1. A non-spouse beneficiary cannot move the inherited IRA into his or her own IRA. An inherited IRA must be kept totally separate from other IRA’s Anne may have and no new contributions can be deposited into the account.

2. Beneficiaries named on an IRA account supersede instructions provided in a will or trust. Since the IRA account information takes precedence it is important to make sure the designated beneficiaries named on the inherited IRA are up to date. 

3. No 60-day rollover. With this rule, you can take a distribution from your own IRA as long as you put the money back in the same account within 60 days, you won’t have to pay income taxes or a penalty. Unfortunately, you can’t do this with inherited IRAs. There is no 60 day rollover rule for inherited IRAs. If you withdraw the money, it’s taxed.

4. If you inherit an IRA, whether it’s traditional or Roth, the IRS requires you take at least some of the account balance each year. It’s called a required minimum distribution and must be taken annually, regardless of your age, beginning the year following the year-of-death of the original account owner. If you don’t take the distribution, the penalty ends up being 50% of the amount you were required to take.

If you are faced with decisions regarding an inherited IRA and have questions feel free to give me a call or send me an email.  I’ll be happy to review your options with you and make sure the choice works in harmony with the rest of your financial plan goals and objectives. 

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 is a member of the Leadership Oakland Alumni Association and is a frequent contributor to Money Centered.

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The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Laurie Renchik and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Are Your Aging Parents a Roadblock in Your Retirement Planning?

Contributed by: Sandra Adams, CFP®

As the meat in the so-called “sandwich generation,” the baby boomers are approaching retirement at a record pace. As we work with clients and client couples to get their financial and non-financial “ducks in a row,” it is becoming more and more common to discuss issues surrounding the assistance of one or both sets of parents and aging/long term care issues. If this sounds familiar, here are the possible roadblocks that this can cause for your retirement planning and some suggestions about what you can do to prevent them.

What are the Roadblocks?

• Providing assistance/caregiving often limits the time you can work; you may be forced to take family leave time to provide care, go to part time work, or even take early retirement.

• Working less reduces earnings, providing less Social Security earnings, and less in retirement savings for future retirement.

• Stopping work prior to age 65 may mean a need to bridge a health insurance gap when that was not the original plan.

• Caregiving can be stressful, especially if you are trying to continue to work and also have responsibilities with adult children and/or grandchildren, so your own health can become a concern.

• With so much going on, just being able to keep your “eye on the ball” and concentrate on your own retirement goals can be a challenge.

What Can You Do to Make Sure To Stay On Track?

If you find yourself in the position of assisting aging parents, now or in the future, do not assume that all is lost. There are things that you can do to make sure that your own retirement will stay on track:

• Have conversations with your parents and plan ahead as much as possible to make sure that their long term care is funded; have a conversation to discuss if they are willing and able to have non-family members provide care if and when the time comes (at least until you retire); have a professional moderate the planning conversation if it’s not a talk your family is comfortable having on their own.

• If you do end up leaving work to care for an aging parent, discuss having a paid caregiver contract drafted or determine if your parent’s Long Term Care insurance policy has the ability to pay you for your services as a caregiver.

• Make sure others take their turn and spread the responsibilities amongst others (see my recent blog on Family Care Agreements); take breaks and take care of yourself (caregiver stress is a real thing!).

• Continue to meet with your financial planner on an annual basis to keep yourself focused on your own goals along the way—continue to save for retirement as you are able and make progress.

We all have roadblocks that slow our progress towards our goals; aging parents might be one of yours.  The love and care we have for our family—especially our parents—is not something we would ever deny, however frustrating it might be when it delays that ultimate freedom we call retirement. But if we plan ahead, and coordinate with our families and professional partners, we can hope to make the roadblock more of a speedbump.  Contact me if you have questions about how your financial planner can be of assistance.

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

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The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Sandy Adams and not necessarily those of Raymond James. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Continuing to Work after Filing for Social Security

Contributed by: James Smiertka

If there’s a chance you will earn income while you are collecting Social Security, you will want to know about an extremely important rule put in place by the Social Security Administration called the “Earnings Test.” There are a variety of reasons why someone may earn income while receiving Social Security.  Whether it’s simply pursuing a passion after retirement or the financial need to pick up a part-time job, it’s important to fully understand the implications of earning income and collecting Social Security benefits prior to reaching your full retirement age (FRA). (Click here to see what your FRA is.) Once you reach full retirement age, however, you are not subject to any reduction of benefits from the “earnings test” on your earned income. Let’s take a look at two different examples in detail:

If you are under full retirement age (FRA) for the entire year:

• Earnings limit: $15,720

• Reduction of benefits: $1 for every $2 you earn above the earnings limit

• Example: John is currently 63 and his FRA is 66. John retires, immediately turns on Social Security benefits ($20,000/yr) but decides he wants to pursue his passion as a tutor and plans on earning $35,720 for the year. Since his earnings would be $20,000 over the Earnings Test limit ($35,720 – $15,720), one half ($1 of every $2 earned), or $10,000, would be withheld from his annual Social Security benefit, therefore, reducing John’s Social Security benefit to $10,000 for the year. 

In the year you reach full retirement age (FRA):

• Earnings limit: $41,880

• Reduction of benefits: $1 for every $3 you earn above the earnings limit

• Example: Sue is currently 65 but is reaching her FRA of 66 in a matter of months. She recently started collecting Social Security, which provides her $30,000/yr. Sue is still working, earning $161,880 annually and was not aware of the Social Security Earnings Test. Her earnings would be $120,000 over the earnings test limit ($161,880 – $41,880), one third ($1 of every $3 earned), or $40,000 would be withheld from her annual Social Security benefit. Since this amount is greater than her Social Security benefit, her entire benefit for this year would be withheld.

It’s important to note that if you have had Social Security benefits withheld because of your earnings, they are not lost forever. Once you reach full retirement age, your benefit will increase to compensate for the benefits that were withheld. It does, however, on average, take nearly 2 decades to essentially recover the benefits that were withheld. The bottom line is that there are very few instances where it would make sense to start collecting benefits if there is a strong likelihood that you will continue working. Instead of collecting Social Security early and more than likely having the majority (if not all) of your benefits withheld, you could simply delay benefits which permanently increases your Social Security benefit up to age 70 (More information on that here).

As you can see, there are many moving parts with Social Security, especially for clients who still plan to work prior to reaching full retirement age. Before turning your benefits on, we always recommend that you reach out to your financial planner to discuss your situation in detail to ensure the strategy you’re selecting is in line with your own personal goals and objectives. If you’d like to chat about your benefits and discuss different filing strategies, give us a call, we are happy to help! 

James Smiertka is a Client Service Associate at Center for Financial Planning, Inc.

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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 Jim Smiertka 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. Examples provided in this material are hypothetical and for illustrative purposes only.

How is Retirement Planning Relevant to me?

Contributed by: Matt Trujillo, CFP®

Lately I have been meeting with younger clients, and have been hearing a recurring theme: “Retirement is 20-30 years away and I don’t know that I care too much about how the numbers look at this time.” The first time I heard this, I was a little taken aback…I had always assumed that one of our core jobs was to make sure people were on a good track for retirement.

However, the more I thought about it, this line of thinking isn’t that out of the box. Consider how much the world around us has changed over the last 20-30 years. It is reasonable to think that another 20-30 years from today the world could change dramatically again?

Hearing these clients voice concerns about planning for an event so far into the future, I decided to take a different approach. I decided to focus clients’ attention, instead, on the next five to ten years and what they want their net worth statements to say then. For instance, if you have a negative net worth due to student loan debt, saving for retirement might seem out of the question; but if you come up with a goal to have a specific positive net worth amount ten years from today, it helps refocus your financial plan to something more tangible and meaningful for you and your family. This type of thinking can be very powerful and motivating for clients. The clients I have engaged in this exercise have told me that they get the sense they are working towards something tangible and each year they come in they can really see the benefits of working with a planner.

So if you are under the age of 45, and retirement seems like a lifetime away, consider putting a different spin on the old fashion retirement goal. Approach the problem a little differently. I think you will find that planning in five to ten year chunks can be more manageable and very motivating.

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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Opinions expressed are those of Matthew Trujillo and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice.