Dealing with Death: A Financial Guide

 Emotionally and psychologically, handling the loss of a significant relationship is one of life’s most difficult tasks. But it’s the additional stress of handling legal and financial affairs that can feel like enough to put you over the edge.

There are a handful of items that need to be handled immediately.  Most decisions can, and should, be left for a later date when grief has been handled and clearer heads can prevail.

Here are the top 5 things you can’t put off:

  1. Look for instructions that the deceased may have left regarding preferences for funeral and burial arrangements.  This may be part of a larger document called a Personal Financial Record Keeping System and Letter of Last Instruction, a document that provides important information about professional advisors, documents and accounts.
  2. Locate important legal documents, including the will and trust, if one exists.  This will give guidance regarding who has been named to handle the financial affairs of your loved one and how funds can be accessed to pay for funeral and other costs.  Other important documents may include prepaid funeral plans, safety deposit box information, and marriage, birth and other identification like driver’s licenses.
  3. Contact the Deceased’s financial advisor.  The financial advisor will likely have copies of any/all legal documents, as well as a complete list of all financial assets and insurances.  The financial advisor will be instrumental in helping to settle the estate and will be invaluable in helping to make important financial decisions later.
  4. Get Multiple Copies of the Certified Death Certificate.  These documents will be important in settling all of the financial affairs of your loved one, and can be more difficult to obtain later.
  5. Notify Income Providers.  This includes Social Security, employers paying pensions, etc.  Stopping income payments immediately prevents the need to repay them later.

It is most important to deal with your grief and to give yourself and your family time to honor your loved one.  Many of the rest of the financial decisions and affairs can be handled when the time is right. 

Contact your financial advisor for additional guidance.

Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

Your Legacy in a Letter

 In April, to celebrate his 79th birthday, my father had a special gift up his sleeve for our family.  It started as an idea and, over a period of two years, with pen to paper dad wrote his story.  It was a labor of love for him and came as complete surprise to us. “This story must begin with a little background information,” is the first sentence of a truly remarkable gift of personal memories and milestones, accomplishments and wisdom. 

Times and things change, however, writing letters to share wisdom, preserve tradition, record family history, explain and inspire is not a new concept.  In fact, letters like the one from my father are most commonly known today as ethical wills or legacy letters.  Until I received a legacy letter, I could only imagine the impact and value a gift like this carries. 

Estate planning documents like wills, trusts, and beneficiary designations are legal documents which typically are used to control the distribution, management and availability of assets from one generation to the next.  Legacy letters are not legal documents.  They pass on personal values and the nuances of your story.

There are no hard and fast “rules” for writing legacy letters. The contents and form of your letter are entirely up to you. You can tell your kids what you hope they’ll accomplish, tell stories about your grandfather, or relive the time you made a key tackle on the one-yard line to preserve a win for your high school football team.  Embellishment is allowed!

Here are some ideas to help you get started:

  • Decide who you are writing to . . . .
  • Speak from your heart in your unique voice  . . . .
  • Life has taught me . . . .
  • Some of my special memories are . . . .
  • I believe . . . .
  • Defining moments  . . . .

The beauty of the written word is that it can be handed down for generations to come.  Don’t hesitate – get started today.  Legacy letters are the perfect gift for any occasion!

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Retirement Headwinds

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 Do you ever dream of going to work, not because you have to, but because you want to? That’s the number one goal of most Americans over 40. But most financial gurus say that some of the headwinds facing the decision to retire are as daunting as ever.

Consider these Retirement Headwinds:

  • Low portfolio return expectations
    • Lower bond returns: Over time, bonds generally provide long-term returns similar to the coupon percentage they make (i.e. if the coupon of a bond is 5% and held to maturity, you will receive 5% annually until maturity if there is no default).  Interest rates on the 10 year treasury recently went below 1.7%.  This is the lowest yield on the 10 year Treasury in over 50 years.  Since most bond yields are positively correlated with the 10 year treasury, the argument could be made that all yields are lower than their historical average.  According to the Wall Street Journal, rates on the 10 year Treasury touched the lowest yields in modern history.
    • Lower than average stock returns: Historically the stock market (S&P 500) has traded at an average Price to Earnings ratio of 15, but has ranged between 7 and the low 30’s  (Price to Earnings, or P/E is the ratio of a company’s current share price compared to its per-share earnings)  .  Today the P/E is around 12.[i]  If the P/E is contracting (i.e. when the P/E shrinks), the price investors are willing to pay for the combined earnings of the companies trading in the market declines.  This usually results in a decline in the value of the stock market.  This is happening for a few reasons.  One economic study points to the Baby Boomers.  Baby Boomers are entering the stage of life when they generally need to be more conservative.  They may feel that it is no longer suitable to invest in the stock market.    This pool of money that has been added to over the last 30 years now needs to be used.  The largest segment of our population with a sizable amount of investment resources is likely being more cautious and, thus, selling more equities than they are purchasing.  You can read the full FRBSF economic letter here. 
  • Volatility: Markets may continue to move erratically, which tends to cause poor behavioral finance decisions (basically buying high and selling low). This is not new or necessarily worse than before, but still a major challenge for inexperienced investors and advisors.
  • Inflation: Higher inflation may be coming in many different ways.
  • High government debt: As a portion of GDP, government debts can kindle higher prices.
    • Currency devaluation: Low dollar value can cause resources to cost more.  For example, higher oil prices are likely the result of oil sales being denominated in U.S. dollars.
    • Health care costs: People are living longer due to advancements in medical and biomedical technology. Many don't realize the financial burden a few extra years will be for this generation, but it's expensive to be on those meds and have that 2nd hip replacement.
    • Increased tax rates – The debt will need to be paid by someone. You can see some of the new Pension taxes that where just pushed onto retirees in the state of Michigan last year. The extra 4.35% Pension tax adds up year after year. There are more tax hikes coming at the federal level next year, too.
  • Real median personal income: Adjusted for inflation 2010 dollars (as shown by Wikipedia using census data) are flat after inflation over the last 20 years - so it’s been difficult for the average American to save more without changing their lifestyle.

With all these headwinds, surely there are some tailwinds working in our favor? Well, even though I’m a “glass half full” kind of guy, I just don’t see any. So that means investors need to make adjustments to compensate for the headwinds. Coming up in my next blog, I’ll explain some ways to do that.

Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. Holding bonds to term allows redemption at par value. 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 Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James. Past performance may not be indicative of future results. The opinions expressed in the FRBSF Economic Letter are those of the authors and not necessarily those of Raymond James. Diversification does not assure a profit or protect against loss.

 [1] Yahoo! Finance

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Angela Palacios Training for Not 1, but 3 Triathlons!

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What was I thinking? CFP Angela Palacios, our Portfolio Coordinator, makes a commitment to healthy living that has her diving into a summer of triathlons.

Summers are my favorite time of year.  My family and I are fortunate enough to have a pool in our backyard and a great place for a summer BBQ with our friends…unfortunately, we have a great place for summer BBQs with our friends.  That means there is always a party and reason to celebrate with chips, meat, desserts and beer at our house!  This invariably ends up in my clothes fitting a bit snugly come September.

Well, this year I decided no more!  So instead of just deciding to cut back on indulging so much each weekend, like a normal person would do, I decided to commit to doing 3 sprint triathlons this summer (.5 mile swim, 12 mile bike and 3.1 mile run).  Since I have never done anything like this in my life, I’m still not sure what I was thinking but after several months I have learned how to swim (other than just floating around on a pool toy), ride a bike (which I haven’t done for over 20 years), and run (which I have never been a big fan of).  After logging 12.4 miles in the pool, 163 miles on my bike and 48 miles on foot so far in training, I feel as though I may actually be able to do this. 

My first triathlon is June 20th at Island Lake Recreation Area and my ONLY goal for the first one is to finish. We’ll see after that if I set any more lofty goals for the next two in July and August. 

Hopefully at the end of all this I will be in better shape at the end of the summer than I am now and will be setting a great example for my daughter Lilly that you can truly do anything you set your mind to!

 

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Why is Ford Motor Company Offering to Pay-Off 90,000 Retirees?

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 On April 27, 2012, Ford Motor Company announced via an internal communication a voluntary lump sum buy-out offer for 90,000 retirees and surviving beneficiaries.   Essentially, Ford wants to pay off or pay out as many retirees as possible.  So why of the sudden generosity?     There are two primary reasons:

    1. To get retirees off the books. Paying lump sums will get the pension liability off of their company balance sheet – which according to Bob Shanks, Ford executive vice president and chief financial officer, will "improve the underlying strength of our balance sheet”. And,

    2. The math looks better in 2012. The Pension Protection Act of 2006 (“PPA”), fully in effect in 2012, allows companies to use the higher yielding corporate bond rate versus the lower Treasury rate when calculating lump sum payments; making the cost of a lump sum lower to employers such as Ford.

Point 2 forces us to further consider how lump sum payments are calculated (for all employers – not just Ford Motor) and its impact on our decision making process.  

How the Math Affects the Company and Retirees

First let me apologize to all of the actuaries (i.e. number crunchers with serious calculators) for grossly underestimating the complexity of the calculation.    Calculating a lump sum takes into account factors such as your specific income, years of service, age, and survivor’s age, if any.    In addition, a “discount” rate is used in determining how much all of the monthly payments (present value) would equal if paid in a single lump sum today.   Why is the discount rate important?

    1. The higher the discount rate, the smaller the lump sum.

    2. The lower the discount rate, the greater the lump sum.

On a relative basis, with general interest rates near historical lows, lump sum payments should be higher than say 10 years ago.  However, the change in the discount rate via the PPA significantly reduces an employer’s lump sum payment obligations – perhaps by as much as 30%. So while Ford has had a desire to offer this type of payout in the past – waiting until 2012 provided a lower cost.

So, let’s agree for the moment that this plan is good for Ford’s balance sheet. However, there is a far more important issue: Is a lump sum good for your finances? Are you better off receiving a one-time lump sum payment rather than guaranteed lifetime monthly payments (guarantees based on For Motor’s ability to continue payments)? What’s good for the company….may or may not be good for you. (I don’t say this lightly – growing up in Dearborn I witnessed firsthand Ford’s exemplary community stewardship). I do however suggest taking a page out of Fords book – run the numbers to see what is most appropriate for you.

Is it good for your finances?

So how much is at stake? Plenty. For example, a 60 year old male entitled to a $2,000/monthly pension might be offered a lump sum close to $600,000 depending upon the actual discount rate used (this is a hypothetical only assuming a single life payment and 3.5% discount rate). Depending upon your unique circumstances this might be a “good deal” – but it might not.

On one side, if you are someone with a long life expectancy and very risk averse you should consider declining the lump sum and sticking with the monthly benefit.    On the other hand, if you are single and not in good health, taking the lump sum might be a better option. As you might expect, most folks will fall somewhere in between these two extremes.

At the risk of stating the obvious, this is a complex and important decision, and you are encouraged to consult with a financial planner and/or tax advisor. Talking with an experienced advisor about your personal situation can help lead to an appropriate decision focused on your balance sheet.

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 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 Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

You LIKE, We Pay!

In honor of the 6th Annual Cystinosis Fun Run for TEAM KACY on May 6th, The Center will donate $1 for each person who likes our Facebook page or follows us on Twitter. This is in addition to our overall support of the event.

All you have to do is LIKE and we pay.

Please make us pay and keep up with our ongoing activities by clicking on the Facebook and Twitter icons below. We encourage you to share this with your friends!

 

The Financial Benefits of a Healthy Lifestyle

 Spring seems to be the time to get moving and get healthy in preparation for the coming summer months (and the need to sport a bathing suit at the beach!!!).  Many of my co-workers and I are in training mode for various events – 5k runs, Triathlons, you name it.  And it turns out that our healthy behavior could have more benefits to us than just our fit and trim bodies and strong heart rates – we could be developing healthy wallets, as well!

Recent studies by the University of Rutgers in New Jersey have found that physical health and financial health are highly correlated to each other, and to a person’s overall happiness.  It appears that the habits that lead to a healthy lifestyle, like the ability to stay disciplined, make good choices and see the future implications of decisions, lead individuals to have a more positive outlook on life, including their current and future financial success.

Interestingly, these are some of the specific relationships that the Rutgers studies identified between health status or behaviors and finances:

  • Studies show that physical appearance affects a person’s earning ability; smokers typically earn less than non-smokers who do similar work.
  • Healthy people pay lower health insurance premiums now, and typically have lower health care costs throughout their lives.
  • Inactivity has been estimated to cost $670 to $1,125 per person per year due to the impact of obesity on overall health.
  • Eliminating unhealthy habits saves dollars that can be redirected to investments for future goals.  For instance, eliminating a junk food habit could save $3,650 or more annually.

For the chance at a financially successful future, get up, get moving and get healthy!!

Source:  Rutgers University Health Finance and Health Behaviors Studies (http://njaes.rutgers.edu)

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 Center for Financial Planning, Inc., and not necessarily of RJFS or 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.

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Lessons in Delayed Gratification from a 4 year old

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 On Easter morning my daughter, Lilly, who is 4 years old, awoke with great anticipation as every child does.  Knowing the Easter Bunny came the prior night, she ran downstairs to hunt for her basket and was thrilled to find it.  She turned to me and said, “Mommy the Easter Bunny left me a basket full of c-AN-dy,” stretching the word out for emphasis.  I know, I know, I’m not winning any parent of the year award by filling the basket with candy but, hey, it’s a special occasion.  So then she said, “Come on Mommy let’s go upstairs and lay out all of the candy and you can tell me about each one.”  So we did this and she didn’t even ask to eat a piece.  I was blown away!  When I asked if she wanted anything she said, “No I’ll wait until after breakfast when I can eat more than one piece of it without getting a belly ache,” which is often my reasoning when telling her she has to wait until after breakfast for a treat.  

Her Easter morning restraint reminded me of the study done on deferred gratification by a psychologist at Stanford in the late 1960’s.  Here’s a great YouTube of what came to be known as the Marshmallow experiment. In the experiment, each child was offered a marshmallow now or, if they could resist eating the marshmallow, they could receive two.  The children that participated were later studied to determine if this resulted in future success.  In fact, it did.   The children that waited showed higher SAT scores, had higher self-esteem, and weren’t so easily frustrated. 

Deferred gratification is a very important life lesson and one of the keys to financial success.  In order to meet future financial goals, something has to be given up today, but that doesn’t always have to be difficult.  Here are a few easy steps: 

  1. Avoid the temptation of spending money now, for example, not taking that extra vacation this year in order to make my Roth IRA contribution (which is still painful for me even though I know it is the right thing to do). 
  2. You need to find an alternative because you still have to make life worth living in the present.  So for me that ends up being a local “staycation” instead of that big vacation. 
  3. It is always important to focus on the reward, which in my case is hopefully a comfortable retirement, or in my daughter’s, lots of candy after breakfast. 

While I’d like to take credit for my superior parenting skills by pointing out my 4 year old grasps the concept of delayed gratification better than most adults, I don’t think I can.  That one she came up with all on her own.  And it is a lesson that we all need to incorporate into our lives to become better savers and investors.  

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

Health and Wellness in April

With April showers in mind, The Center held a Parking Spot Raffle the last week in March.  The winner of the raffle received the right to park in the reserved (and very close) spots for the rainy month of April. And those lucky winners were….Brenda Spencer and Tim Wyman!  Proceeds from the raffle went to benefit the Epilepsy Foundation of Michigan.

Tuesday Tennies continue to roll as we lace up our tennis in our quest for a healthier lifestyle.  It’s a fantastic way to smell the flowers and enjoy our beautiful surroundings.   You’ll find our business neighbors circling the grounds as well! 

Strawberry Shortcake for everyone!  For the price of a small donation we gobbled up this delicious goodie for our Thursday Treat this past week.   In our effort to strive for a healthier version we used angel food cake, fresh cut strawberries and fat-free whip cream…Yum!   Donations went to the Cystinosis Research Network.  

Our Center initiatives and efforts have been noticed recently.  Look hard and you'll find a few Center team members pictured throughout Blue Cross Blue Shield's Annual Report.

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. Links are being provided for informationpurposes only. Raymond James is notaffiliated with and does not endorse,authorize or sponsor any of the listedwebsites or their respective sponsors.Raymond James is not responsible for thecontent of any website or the collection oruse of information regarding any website'susers and/or members.

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