ESG Investing: Why Everybody Is Talking About It

Contributed by: Jaclyn Jackson, CAP®

According to CNBC, almost 1 in 4 dollars is going into Environmental, Social, and Governance (ESG) funds this year.  Even before 2021, the combination of ethical provisions and competitive performance turned many heads towards ESG investments.  I aim to explain what the big fuss is about and why ESG investments are gaining traction.

Investors Are Talking About It

To be clear, the March 2020 downturn was no picnic (for anyone).  However, investors who had stake in environmental, social, and governance (ESG) investments managed the economic downturn with greater resilience.  Leading research firm, Morningstar, reported that during March 2020, “sustainable funds dominated the top quartiles and top halves of their peer groups.  Sixty-six percent of sustainable equity funds ranked in the top halves of their respective categories and more than a third (39%) ranked in their category's best quartile.”  Compared to peers, ESG funds pulled top rankings.

Not only did peer to peer comparisons look good, but index comparisons proved more robust too.  In the same study, Morningstar compared 12 passive ESG funds in the large-blend category to a traditionally passive fund. They reported, “For the year through March 12, all 12 ESG index funds outperformed”. What’s more is that fees were included in this study.  While the ESG passive funds compared were more expensive than the traditional passive fund, they still managed to outperform.  Impressively, the trend held with international and emerging market index comparisons…and everybody is talking about it! 

Including the world’s largest investor/asset manager, BlackRock, who’s CEO challenged corporations to consider the impact of climate change on business models.  In 2020, CEO Larry Fink announced BlackRock would incorporate ESG metrics into 100% of their portfolios.  The asset manager also pledged to produce data and analytics to punctuate why considering climate change should be an investment value. 

Yellen And Powell Are Talking About It

Investors are not the only people concerned.  In wake of recent natural disasters, Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell are working to assess the risks climate change poses to the health and resilience of the financial system.  Their consensus implied a concentrated effort to monitor financial institutions and their exposure to extreme weather events.  Leading the charge, Fed Governor Lael Brainard, recently announced the Financial Supervision Climate Committee (FSCC).  Brainard is a proponent of using scenario testing to understand banks’ ability to survive hypothetical climate catastrophes.  The FSCC will focus on developing evaluation processes for climate risks to the financial system.

Why Everybody Is Talking About It

While many people acknowledge the ethical appeal of ESG methodologies, they may not fully appreciate the businesses appeal that underpins stock performance.  Business litigation risk provides a clear example.  The Financial Analyst Journal featured a study that explored the relationship between ESG performance and company litigation risks.  Analyzing US class action lawsuits, researchers found, “a 1 standard deviation improvement in the ESG controversies of an average company in the sample reduced litigation risk from 3.1% to 2.4%”.  The study also asserted that companies with low ESG performance experienced market value losses ($1.14 billion) twice the size of companies with high ESG performance.  Further, the study integrated their findings with a trading strategy and concluded investors benefitted from lower litigation risk.

It doesn’t stop with litigation risk.  There are also links between healthy corporate governance and market returns.  As You Sow, a nonprofit promoting corporate responsibility, has been tracking S&P 500 companies with excessively compensated CEOs since 2015.  They collaborated with R. Paul Herman, CEO of HIP Investor Inc., to do performance analysis based on their tracking. Herman determined, “…shareholders could have avoided lagging returns by excluding companies that keep making the list for excessive CEO pay”.  Companies without excessively paid CEOs significantly outperformed companies with excessively paid CEOs.  The former generated 5.6% in annualized returns compared to the latter at 1.5%.  What’s astonishing is that the report noted, “The performance gap due to excessive compensation equates to approximately $223 billion in shareholder value lost.”  How are companies without overpaid CEOs edging out competitors?  Instead of overpaying CEOs, more resources can be dedicated to research and development projects, dividends to shareholders, or equitable pay for employees; things that advantage company profits and support positive investor outcomes.

Are You Talking About It?

There is definitely a case for the merits of ESG investing.  It is no wonder folks are talking about it.  Are you interested in the conversation?  If you’ve followed trends in ESG investing and are considering adapting ESG strategies into your portfolio, The Center is here to help.  Ask your advisor about the Center Social Strategy; they would be happy to talk about it with you.

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

This material is provided for information purposes only and is not a complete description of the securities, markets, or developments referred to in this material. Any opinions are those of the author and not necessarily those of Raymond James. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Utilizing an ESG investment strategy may result in investment returns that may be lower or higher than if decisions were based solely on investment considerations. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results.

Am I Spending Enough Or Saving Too Much?

Contributed by: Kali Hassinger, CFP®, CDFA®

No you didn’t read that title incorrectly.  After decades of consistent and focused saving, how do you change your mentality to feel comfortable spending what you’ve worked so hard to accumulate?  Good savers spend decades developing the discipline to save, plan, and minimize debt, all for the ultimate goal of reaching financial independence and freedom.  However, when it comes time to use those hard-earned funds to support your retirement lifestyle, it can be a difficult transition.

The Center defines financial planning as a coordinated and comprehensive approach to reaching your financial goals.  It necessitates an appropriate balance between spending now and investing for the future.  That is a difficult balance to maintain, and without truly understanding your current resources and future needs, it is easy to miss the mark.  Without professional analysis and review, many either spend too much now and jeopardize future goals or have save too aggressively and end up unnecessarily sacrificing current quality of life. 

In planning, we can quantify what it takes to meet future financial goals, and make sure that we are doing what is needed to help reach those objectives.  In some cases, that knowledge can provide the freedom to actually reduce savings.  Beyond just allowing increased spending, this can also provide the opportunity to pursue passions as opposed to income.

When finally reaching that retirement finish line, however, turning your savings into income can be a daunting task.  Pulling from a balance that you’ve worked years to accumulate and build up can be uncomfortable, especially if you don’t know how much you can safely withdrawal without jeopardizing your long term financial security.  If you’re like many of our clients, it isn’t uncommon to react to this discomfort by under-spending and unintentionally accumulating money throughout retirement. 

Life is all about balance.  In this example, it’s about protecting your financial future while also enjoying life now.  If you’re in the enviable position of having more than you need for retirement, making a meaningful plan for the excess can help to ease the reluctance to spend.  Whether it is gifting, creating a financial legacy, or granting yourself permission to indulge a bit, if it brings you joy, it is worth considering.  Of course we would not recommend spending money frivolously, but, the ultimate goal is to pursue areas of interest because they are meaningful and important to you - unconstrained by financial concerns.  Isn’t that true financial freedom?  

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

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Opinions expressed are not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Past performance is not a guarantee of future results. Investing involves risk and investors may incur a profit or a loss.

The Benefits Of Working With An ‘Ensemble Practice’

Contributed by: Josh Bitel, CFP®

Financial planning practices come in all shapes and sizes, but perhaps the two most common arrangements are solo practices and ensemble practices. Solo practices are normally led by a single advisor who calls the shots, while ensemble practices are team-oriented firms, all working toward a common goal. The Center identifies with the latter.

An ensemble practice is structured with multiple advisors under the same roof. This allows for constant sharing of ideas, best practices, strategies, and even sharing of resources. The Center has a 2 hour meeting every Monday for just this purpose. Our planners at The Center, all with unique expertise, get together to eat lunch and share client cases, tough questions, interesting reading pieces, and maybe a few jokes here and there. This is all possible because we are all working collaboratively toward a shared vision, as outlined in the Vision 2030 document our entire team had a hand in creating.

The Center, as with many ensemble practices, leverages the power of teams. We have team members who are specialists in such areas as insurance, divorce planning, tax planning, retirement planning, and many more. So if an advisor is met with a tough client case involving long-term care, for example, he or she can seek out help from a team member with expertise in this area instantly.

An often overlooked advantage for clients choosing to work with an ensemble practice such as The Center is the foundation for internal succession planning. It is often said that as an advisor ages, so do their clients. This begs the questions who will take care of me when my advisor retires? And from the advisors end, who will take care of my legacy once I’ve moved on? With a practice like ours, there is an internal succession plan in place for many years before a planner decides to retire. Often, clients are transitioned to an advisor who has been working under the tutelage of the retiring advisor.

As with anything, you must weigh the pros and cons of working with an advisor under their practice’s arrangement. In the end, it is all about finding the right person to help you reach your goals and feel comfortable along the way. At The Center, we have found that working in a team-based environment toward a shared vision helps us serve our clients the best way we can.

5 Social Security Rules to Know for Maximizing Your Benefits

Contributed by: Robert Ingram, CFP®

Social Security is still a key source of income for most retirees.  At the same time with the program’s many nuanced rules and options, just understanding your available benefits can be confusing enough, let alone figuring out how to make the most of those benefits throughout retirement.  Additionally, there are some strategies not as widely publicized and they can easily fly under the radar.

Here are five Social Security rules to keep in mind as you plan your Social Security filing strategy. 

1. Delaying Social Security Can Increase Your Benefit Amount

Under the Social Security retirement program, you can collect your full retirement benefit at the designated Full Retirement Age (FRA), determined by your birth year.  Individuals born from 1943 to 1954 reached FRA at age 66.  In each year from 1955 to 1959 the FRA increases by 2 months (e.g. 1955 = age 66 and 2 months, 1956 = age 66 and 4 months, and so on). Those born in 1960 or later reach their FRA at age 67.

Think of your full retirement age benefit as your baseline benefit.  You can begin collecting benefits as early as age 62.  However, your benefit amount would be reduced by a small percentage for each month that you collected early.  This can add up to a sizable reduction. For example, if your full retirement age is 67 and you begin collecting as early as possible at 62, you could see your benefit reduced by 30%.

Now, the opposite is also true if you begin collecting your benefits after your full retirement age.  For each month that you delay taking your benefits beyond your full retirement age until age 70, your benefit amount increases by 2/3 of 1%.  (Are you thinking that doesn’t sound like much?)  These delayed retirement credits would yield an 8% increase over 12 months.  For clients that are concerned about longevity in retirement (a.ka. living a long time needing retirement income), this can be an effective way to help protect themselves.

2. Delaying Social Security Can Impact Benefits To A Surviving Spouse

For married couples that are receiving their Social Security retirement benefits, when one spouse passes away, the surviving spouse will receive only one benefit going forward.  It is the larger of his or her benefit or the deceased spouse’s benefit. 

By delaying Social Security to increase your benefit amount while you are living, you are also locking in a higher benefit amount that could be available to your surviving spouse.   Conversely, taking benefits early at a reduced amount may leave a smaller benefit available to your surviving spouse.  These different possible scenarios present both unique challenges and planning opportunities for maximizing the value of your benefits over both spouses’ lifetimes.

3. Withdrawal of Social Security Application (The “Do-Over”)

Suppose you have started collecting your benefits and then you changed your mind.  Perhaps you had collected early at a reduced benefit.  Can you go back and reverse the decision to claim benefits?  Well, if you are within the first 12 months of claiming, you can.

You can withdraw your application for benefits and then reapply later.  This resets things as if you had never started benefit.  Keep in mind there are also some important requirements.

• You must repay all of the benefits you and your family received from your original retirement application, including:

  • Benefit amounts your spouse collected based on your earnings record or benefits dependent children received

  • Any amounts withheld for Medicare premiums

  • Voluntary tax withholding

• Anyone who receives benefits based on your application must provide written consent

• You can only withdraw your application once in your lifetime.

4. Voluntary Suspension

Ok, you may be wondering if it has been longer than 12 months since you claimed your benefits and you change your mind, are you completely stuck?  Well, not exactly.  There is another way to increase your benefit amount.

Once you reach full retirement age, you can request a suspension of your benefit payments (regardless of when you started them).  By doing so, the benefit you were receiving earns those delayed retirement credits of 2/3 of 1% for each month that your benefits are suspended.  This results in a higher amount when you resume your benefits, no later than age 70.

This strategy of suspending benefits can be an effective tax planning tool for years in which you anticipate other outside income, like a pension that recently started or a lump sum from the sale of a business.

5. Benefits Based On An Ex-Spouse’s Earnings

If you are divorced, you may be able to collect benefits based on your ex-spouse’s Social Security record.  Similar to the benefits for married couples, you can receive up to one-half of your ex-spouse’s full retirement amount by waiting until your full retirement age to apply.  Collecting earlier than your full retirement age still results in a reduced benefit.

You can collect based on your ex-spouse’s record if you meet the following criteria:

• You were married at least 10 years and you have been divorced for at least 2 years

• You are unmarried

• You are age 62 or older

• The benefit you are entitled to on your Social Security earnings record is less than the benefit you would receive based on your ex-spouse’s record

If the amount you could receive based on your ex-spouse’s record is larger than the amount from your record, you have the opportunity to receive the higher benefit.

Decisions around when and how to collect Social Security benefits can be complicated and depend so heavily on your unique circumstances.  Your health, your retirement spending needs, your income sources, and financial assets are just a few that come to mind.  If you have questions about how Social Security fits within your overall retirement income plan, or if we can be a resource for you, please reach out to us!

Robert Ingram, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® With more than 15 years of industry experience, he is a trusted source for local media outlets and frequent contributor to The Center’s “Money Centered” blog.

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This material is being provided for informational purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Prior to making a decision, please consult with your financial advisor about your individual situation.

How Risky Was It To Invest In Gamestop?

Contributed by: Nicholas Boguth

A quick Google search tells us that the odds of winning the Powerball Jackpot is roughly .000000003%. The odds of getting struck by lightning is roughly .0002%. What are the odds of getting rich by investing in a stock that grows by 100x in a year like Gamestop? Also slim.

It is hard not to envy those individuals posting screenshots of their LIFE-CHANGING gains like we saw last month with some of the lucky winners of the GME hysteria. The only problem is that it is far more likely that style of investing ends with life-changing LOSSES.

How often does a stock return 100x?

Christopher Mayer explored that question in his book, “100 Baggers”. His research found that 110 stocks returned 100x between 1976-2014.

Pair that with research from Credit Suisse and you soon realize that if your goal is to get rich quick, the odds are stacked against you. The number of listed securities has fluctuated from 3,000+ to 7,000+ over the past 50 years, and there have been OVER 15,000 new stocks listed in that time frame alone.

Some “back of the napkin” calculations would suggest that there is a ~0.5% chance you pick the stock that returns 100x, and that is assuming you hold through all the turbulence and sell at the correct time as well.

Back to the major problem – while 110 stocks returned 100x, there were THOUSANDS of stocks that failed. Some go bankrupt or get delisted because they never trade above $1/share, or lose 90% of their value and plateau. There’s a good chance a lot of those companies shared the financial position of Gamestop as well (Gamestop lost almost $500M in 2020).

So when we see a Reddit user celebrating their life-changing journey from $50k to $5M, know that there are DOZENS of individuals who tried the same thing – but are sulking in a less fortunate journey from $50k to $0.

At The Center, we believe in a more sustainable, long-term approach to gaining (and preserving) wealth. If you have questions about how that applies to you and your financial plan, please don’t hesitate to call or email anyone on our team.

Nicholas Boguth is a Portfolio Administrator at Center for Financial Planning, Inc.® He performs investment research and assists with the management of client portfolios.

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Any opinions are those of Nick Boguth and not necessarily those of Raymond James. This material is being provided for informational purposes only and is not a complete description, nor is it a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or a loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

How Much Guaranteed Income Should You Have In Retirement?

Contributed by: Nick Defenthaler, CFP®, RICP®

How much guaranteed income (we’re talking Social Security, pension, and annuity income) should you have in retirement? I am frequently asked this by clients who are nearing or entering retirement AND are seeking our guidance on how to create not only a tax-efficient but well-diversified retirement paycheck. 

“The 50% Rule”

Although every situation is unique, in most cases, we want to see roughly 50% or more of a retiree’s spending need satisfied by fixed income. For example, if your goal is to spend $140,000 before-tax (gross) in retirement, ideally, we’d want to see roughly $70,000 or more come from a combination of Social Security, pension, or an annuity income stream. Reason being, this generally means less reliance on the portfolio for your spending needs. Of course, the withdrawal rate on your portfolio will also come into play when determining if your spending goal would be sustainable throughout retirement. To learn more about our thoughts on the “4% rule” and sequence of return risk, click here.  

Below is an illustration we use frequently with clients to help show where their retirement paycheck will be coming from. The chart also displays the portfolio withdrawal rate to give clients an idea if their desired spending level is realistic or not over the long-term.

Cash Targets

Once we have an idea of what is required to come from your actual portfolio to supplement your spending goal, we’ll typically leave 6 – 12 months (or more depending of course on someone’s risk tolerance) of cash on the “sidelines” to ensure the safety of your short-term cash needs. Believe it or not, since 1980, the average intra-year market decline for the S&P 500 has been 13.8%. Over those 40 years, however, 30 (75% of the time) have ended the year in positive territory:

Market declines are imminent and we want to plan ahead to help mitigate their potential impact. By having cash available at all times for your spending needs, it allows you to still receive income from your portfolio while giving it time to “heal” and recover – something that typically occurs within a 12-month time frame.

A real-world example of this is a client situation that occurred in late March 2020 when the market was going through its bottoming process due to COVID. I received a phone call from a couple who had an unforeseen long-term care event occur which required a one-time distribution that was close to 8% of their entire portfolio. At the time, the stock portion of their accounts was down north of 30% but thankfully, due to their 50% weighting in bonds, their total portfolio was down roughly 17% (still very painful considering the conservative allocation, however). We collectively decided to draw the income need entirely from several of the bond funds that were actually in positive territory at the time. While this did skew their overall allocation a bit and positioned them closer to 58% stock, 42% bond, we did not want to sell any of the equity funds that had been beaten up so badly. This proved to be a winning strategy as the equity funds we held off on selling ended the year up over 15%.  

As you begin the home stretch of your working career, it’s very important to begin dialing in on what you’re actually spending now, compared to what you’d like to spend in retirement.  Sometimes the numbers are very close and oftentimes, they are quite different.  As clients approach retirement, we work together to help determine this magic number and provide analysis on whether or not the spending goal is sustainable over the long-term.  From there, it’s our job to help re-create a retirement paycheck for you that meets your own unique goals.  Don’t hesitate to reach out if we can ever offer a first or second opinion on the best way to create your own retirement paycheck.

Nick Defenthaler, CFP®, RICP® is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® Nick specializes in tax-efficient retirement income and distribution planning for clients and serves as a trusted source for local and national media publications, including WXYZ, PBS, CNBC, MSN Money, Financial Planning Magazine and OnWallStreet.com.

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Opinions expressed are those of the author but not necessarily those of Raymond James, and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Charts in this article are for illustration purposes only.

Important Information for Tax Season 2020

Contributed by: Lauren Adams, CFA®, CFP®

As we prepare for tax season, we want to keep you apprised of when you can expect to receive your tax documentation from Raymond James.

2020 Form 1099 mailing schedule

• January 31 – Mailing of Form 1099-Q and Retirement Tax Packages

• February 15 – Mailing of original Form 1099s

• February 28 – Begin mailing delayed and amended Form 1099s

• March 15 – Final mailing of any remaining delayed original Form 1099s

Additional important information

Delayed Form 1099s

In an effort to capture delayed data on original Form 1099s, the IRS allows custodians (including Raymond James) to extend the mailing date until March 15, 2021, for clients who hold particular investments or who have had specific taxable events occur. Examples of delayed information include:

• Income reallocation related to mutual funds, real estate investment, unit investment, grantor and royalty trusts, as well as holding company depositary receipts

• Processing of original issue discount and mortgage-backed bonds

• Expected cost basis adjustments including, but not limited to, accounts holding certain types of fixed income securities and options

If you do have a delayed Form 1099, we may be able to generate a preliminary statement for you for informational purposes only, as the form is subject to change.

Amended Form 1099s

Even after delaying your Form 1099, please be aware that adjustments to your Form 1099 are still possible. Raymond James is required by the IRS to produce an amended Form 1099 if notice of such an adjustment is received after the original Form 1099 has been produced. There is no cutoff or deadline for amended Form 1099 statements. The following are some examples of reasons for amended Form 1099s:

• Income reallocation

• Adjustments to cost basis (due to the Economic Stabilization Act of 2008)

• Changes made by mutual fund companies related to foreign withholding

• Tax-exempt payments subject to alternative minimum tax

• Any portion of distributions derived from U.S. Treasury obligations

What can you do?

You should consider talking to your tax professional about whether it makes sense to file an extension with the IRS to give you additional time to file your tax return, particularly if you held any of the aforementioned securities during 2020.

If you receive an amended Form 1099 after you have already filed your tax return, you should consult with your tax professional about the requirements to re-file based on your individual tax circumstances.

You can find additional information here.

As you complete your taxes for this year, a copy of your tax return is one of the most powerful financial planning information tools we have. Whenever possible, we request that you send a copy of your return to your financial planner, associate financial planner, or client service associate upon filing. Thank you for your assistance in providing this information, which enhances our services to you.

We hope you find this additional information helpful. Please call us if you have any questions or concerns about the upcoming tax season.

Lauren Adams, CFA®, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional and Director of Operations at Center for Financial Planning, Inc.® She works with clients and their families to achieve their financial planning goals and also leads the client service, marketing, finance, and human resources departments.

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Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. Raymond James financial advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.

How to Decide Where to Live in Retirement

Contributed by: Sandra Adams, CFP®

One of the issues for most retirees, once you have determined that you are ready to retire and can afford to do so, is where you want to live in retirement? This, of course, is a loaded question. There are so many factors that go into making this decision, and it is as much emotional as it is financial. I could certainly write a detailed commentary on this topic, but here we will provide some bullet points to provide some issues and decision points to consider.

Location, Location, Location.  For the majority of people, the most important decision in making the retirement living decision is the location. Will you remain in your pre-retirement community that you are familiar with?  Where are your friends, connections and social contacts?  Or will you make a change, perhaps to a different or warmer climate? To a more rural setting?  Or maybe closer to the city where health care, transportation, resources and cultural activities are more accessible?  You may decide to move closer to family at this point in your life — this may be a dangerous proposition — as growing and maturing families tend to move again just as you move to be near them, leaving you again stranded in a place where you know no one.  You may find that it is more important to find a location where you can be near friends that you can socialize with, that you have commonalities with and that will provide mutual support.

Once the location is determined, the physical space becomes important.  Will you stay in the same home you’ve always lived in and “age in place”?  If you decide to do that, it may become necessary to take a good hard look at your home and make sure that it is equipped to be safe and easy for you to live in for the next 20 – 30 years or so of your retirement, if that is your plan. And if you truly do wish to stay in your own home to age (according to a recent survey by the National Council on Aging, 9 in 10 seniors plans to stay in their own home to age), you have to plan ahead to make things as safe and accommodating for yourself and your spouse as possible, so there is not a need for you to need to move to an assisted living or nursing care facility in the unfortunate case that you have a medical emergency and your home is not equipped for you to stay there.  

For those who don’t desire to stay in their pre-retirement home, there are endless choices:

• You might decide to downsize to a smaller home, condo or apartment.

• You might choose to move into a senior-only community so that you can associate with people that are in the same life situation.

• You might choose to live in a multi-generational planned community.

• You might choose to live in a shared home situation — think of older adults sharing the same living space, expenses, and providing support and resources with one another (circa the Golden Girls).

• You might decide to move in with or share space with family members.

So, how do you go about making your decision about where and in what kind of house/housing facility to live in retirement?      

• Develop your criteria – What kind of climate are you looking for?  How active do you want your social life to be? What kind of access do you want to health care and other facilities? Make a list and search locations that fit your criteria.

• Identify neutral professionals to guide you

• Do a trial run

• Consult your family

• Put together a transition team

To move or not to move, that is the question.  And even making not to move — aging in place — does not mean that there are no choices or changes to make.  But if you do decide to make a move, it is a process that takes planning, and one that should not be taken lightly. Give the process serious consideration — it is a large part of your potential retirement planning picture.

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

Retirement Plan Contribution and Eligibility Limits for 2021

Contributed by: Robert Ingram, CFP®

For the New Year, the IRS had released its updated figures for retirement account contribution and income eligibility limits.  While most contribution limits remain unchanged from 2020, there are some small adjustments for 2021 certainly worth noting. 

Employer retirement plan contribution limits stay largely the same (401k, 403b, 457, and Thrift Savings)

• $19,500 annual employee elective deferral contribution limit (same as 2020)

• $6,000 “catch-up” contribution if over the age of 50 (same as 2020)

• The total amount that can be contributed to the defined contribution plan including all contribution types (e.g. employee deferrals, employer matching, and profit-sharing) is $58,000 or $64,500 if over the age of 50 (increased from $57,000 or $63,500 for age 50+ in 2020)

Traditional, Roth, SIMPLE, and SEP IRA contribution limits

• $6,000 annual employee elective deferral contribution limit (same as 2020)

• $6,000 “catch-up” contribution if over the age of 50 (same as 2020)

Traditional IRA deductibility income limits

Contributions to a traditional IRA may or may not be tax-deductible depending on your tax filing status, whether you are covered by a retirement plan through your employer, and your Modified Adjusted Gross Income (MAGI). The amount of a traditional IRA contribution that is deductible is reduced or “phased out” as your MAGI approaches the upper limits of the phase-out range. For example:

Single Filer

• Covered under a plan

• Partial deduction phase-out begins at $66,000 up to $76,000 (then above this no deduction) compared to 2020 (phase-out: $65,000 to $75,000)

Married filing jointly

• Spouse contributing to the IRA is covered under a plan

• Phase-out begins at $105,000 to $125,000 (compared to 2020: $104,000 to $124,000)

• Spouse contributing is not covered by a plan, but other spouse is covered under the plan

• Phase-out begins at $198,000 to $208,000 (compared to 2020: $196,000 to $206,000)

Roth IRA contribution income limits

Similar to making deductible contributions to a traditional IRA, being eligible to contribute up to the maximum contribution to a Roth IRA depends on your tax filing status and your MAGI. Your allowable contribution is reduced or "phased out" as your MAGI approaches the upper limits of the phase-out range. For 2021 the limits are as follows:

Single filer

• Partial contribution phase-out begins at $125,000 to $140,000 (compared to 2020: $124,000 to $139,000)

Married filing jointly

• Phase-out begins at $198,000 to $208,000 (compared to 2020: $196,000 to $206,000)

• If your income is over the limit and you cannot make a regular annual contribution, using a Roth IRA Conversion in different ways may be an appropriate strategy depending on your circumstances.

As we begin 2021, keep these updated figures on your radar when reviewing your retirement savings opportunities and updating your financial plan. However, as always, if you have any questions surrounding these changes, don’t hesitate to reach out to our team!

Have a happy and healthy New Year!

Robert Ingram, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® With more than 15 years of industry experience, he is a trusted source for local media outlets and frequent contributor to The Center’s “Money Centered” blog.

2 Easy Ways To Determine If Your 401k Is Too Aggressive

Contributed by: Matt Trujillo, CFP®

For the investor who’s unsure of how their retirement plan works…here are two easy ways to measure how aggressive or conservative your 401k is.

1. Determine your stock-to-bond ratio.

Most custodians offer a pie chart with this information. Login to your 401k account to view the percentage of your money that is invested in stocks and how much is in bonds. In general, it’s aggressive to invest 70% or more in stocks. Once you know your level of risk you should understand if you can handle the ups and downs of that risk emotionally, and also how much risk your long-term planning calls for. 

2. Check your balance at the end of each month.

For example, if an investor’s account jumped from $100K to $110K (10% growth in a month) then they probably have invested most of their money in stocks. This will feel great when things are going up, but that investor needs to be prepared to see some significant paper losses when we experience a downturn like what we just saw in March and April.

So, how can an investor strike a good balance? And when should an allocation change from aggressive to conservative?

As you get closer to taking distributions, it’s reasonable to scale back your stock exposure and move money into safe havens like highly rated corporate bonds and treasury bonds. I say “taking distributions” instead of “retirement” because your plan should be based on when distributions begin. Retirement is a type of distribution event, but not necessarily the only one.

However, if a client has most of their income needs satisfied from other sources and has the emotional appetite to handle the swings, I can see them continuing a more aggressive allocation even in retirement (70% or more in stocks). However, if a client is relying heavily on their portfolio then generally a more conservative allocation is recommended (50% or less in stocks).

Matthew Trujillo, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® A frequent blog contributor on topics related to financial planning and investment, he has more than a decade of industry experience.

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401(k) plans are long-term retirement savings vehicles. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. 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.