Year End Planning: Bonuses

 Less than half of all businesses provide a year-end bonus to employees*.  During the last decade, prior to the financial crisis, more than half of companies handed out bonuses.  My grandfather worked for Ford Motor Company and received many bonuses over his 30 years there.  But one word of wisdom that he shared with me that stuck:  You don’t live on your bonus, that’s for savings.

Here are 5 things to consider in allocating your year-end bonus:

1. Review your financial plan. Are there any changes since you last updated your financial goals? 
2. Have you accumulated any additional revolving debt that you don’t want to retain, if so consider paying off the highest costing debt first if you don’t have a cash flow issue?
3. Are your emergency cash reserves at the appropriate level to provide for your comfort?  If not consider beefing them back up.
4. Are your insurance coverages where they need to be to cover anything unexpected?  If not, consider re-evaluating these plans.
5. Review your tax situation for the year.  Make an additional deposit to the IRS if you have income that has not yet been taxed so you don’t have to make that payment and potential penalties next April.   

If you can tick through the list and don’t need to put your bonus to any of those purposes, here are some other ideas: If you’re lucky enough to save your bonus, like my grandfather, consider maximizing your retirement plan at work, including the catch-up provision if you’re over 50.  Also consider maximizing a ROTH IRA, if eligible, or investing in a stock purchase program at work if one is offered.  Another idea is a 529 plan, which is a good vehicle for savings for educational goals.  If all of these are maximized, then consider saving in your after tax (non-retirement accounts) with diversified investments.

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*Source: Huffington Post

Any information is not a complete summary 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 of RJFS or Raymond James.  Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making an investment.  Investing involves risks and you may incur a profit or loss regardless of strategy selected.  Be sure to contact a qualified professional regarding your particular situation before making any investment or withdrawal decision.

FPA National Conference 3 Point Recap

 On September 28th financial planners from across the nation converged on San Antonio for the 2012 FPA Experience, a national conference hosted by the Financial Planning Association (FPA). Some of the most influential leaders and contributors within the financial planning community were in attendance.

Over a four day period they shared their collective wisdom to over 2000 conference attendees. As a first-time attendee, the conference provided an incredible opportunity to sharpen professional skills and bring back a wealth of knowledge to share with colleagues and clients. Here are a few common themes heard throughout the conference.

Retirement Distribution Planning Remains a Primary Focus

Pioneers in the distribution planning field shared extensive research as well as real world applications. Much discussion centered on initial withdrawal rates and innovative research studies that supplement past distribution studies and assumptions. It's exciting to see new approaches and strategies that begin to challenge traditional retirement income planning options. These complex and sophisticated research studies share a common goal. Help clients plan for a fulfilling retirement and in doing so, not run out of money.

Legislative (Tax) Reform Is Coming

Many discussions revolved around the uncertainties we face in tax reform and political landscape. The Fiscal Cliff remains a concern, however, opinions suggest new legislation will eventually pass and the cliff will be avoided (for now!). However, there are many components wrapped in the so-called fiscal cliff and it's likely they will continue to impact our tax and economic landscape. It's too early to say BUT not too early to plan! 

Communication Is King

A variety of communication experts shared techniques ranging from compelling conversations to effective writing to social media. A consistent message heard throughout the Conference was that our ability to improve and evolve our communication skills can directly impact our success in both professional and personal lives.   We continually look for ways to best provide efficient and meaningful ways to reach our clients. How? By sharing and listening to the best practices of 2000 of our closest peers. The art of communication is truly a life long journey and I believe is best summed up in a Vince Lombardi quote.  

"Perfection is not attainable, but if we chase perfection we can catch excellence.

In summary, I hope my thoughts provided a brief glimpse into current and future trends.At the very least, support the "work" involved in attending these education sessions.

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

Year End Planning: Holiday Spending

 Nothing louses up the family budget like the holidays.  There is something about those twinkle lights and pine smell that weakens all resolve to control spending.  It is estimated the average family spends $750* on gifts and for upper middle income families it is often four times that amount.  This figure does not include entertaining, travel, and decorations.  We all know what to do, but here are a few reminders as we approach the SEASON.

First of all remember what it is all about. Gifting is supposed to have special meaning from the giver to the receiver.  Gifting is a way of saying “thank you” or “I love and appreciate you”. If you have a large family, shorten your gift list by drawing names or giving family gifts.  This is one way to cut down on the number of gifts and make the one you give more meaningful.

It is important to set a budget for holiday spending. There is no better control mechanism.  If you cannot control your use of credit, go back to the old-fashioned method and pay cash.  Many stores have reinstituted lay-away plans which help as well. Along with the budget comes the shopping plan.  Both cut down on impulse buying.

If you are experiencing financial distress, set expectations among your family and friends. This is particularly important to do with children. Children are often unrealistic with their wish list.  Discussing what is possible will help create excitement instead of disappointment.  Get children involved in the spirit of the season. Gift certificates are another way to keep within your budget and are often most appreciated by the receiver.

Shop early and shop late. Many folks shop all year for the holidays so they can take advantage of sales.  Late shoppers can also get great bargains especially if they can be flexible in their gifting.   If you are shipping gifts, seek those stores that give free shipping to save a bundle.

Consider home-made gifts. Busy families and seniors so appreciate a basket of home-made goodies. When one of our daughters was going through a tight financial situation she made the most ingenious gifts—a colorful winter scarf, a charming basket we use for magazine storage, and a hand tiled serving tray.  It is interesting that I cherish and use those gifts but I could not tell you what I received last year.

Last but not least, keep your holidays simple and enjoyable. Remember it is not the amount you spend, but rather the quality of the time and thoughtfulness you spend on giving that counts. Happy Holidays.

*Source: National Retail Federation 10/17/2012

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

Year End Planning: Gifting and Estate

 As we approach year end, many people begin thinking about gifts – whether they be to their family or the charitable causes near and dear to their hearts.  The mainstream media has focused plenty of attention on the upcoming income tax law changes, unless Congress acts before the end of the year.  However, the media has not focused as much attention on the impending changes to our estate tax law which many would argue is more confiscatory than the income tax.

Let’s compare the current law to what will be put in place in 2013 if Congress does not act:

	2012	2013
Gift tax unified credit equivalent:	$5,120,000	$1,000,000
Gift tax annual exclusion per person:	$13,000	$13,000
Estate tax unified credit equivalent:	$5,120,000	$1,000,000
Top estate tax rate:	35%	55%
The generation-skipping transfer tax exemption:	$5,120,000	$1,000,000

Therefore, if Congress does not choose to extend the current law, families might consider making sizeable lifetime gifts in 2012 to take advantage of a friendly tax policy. For example, wealthy families might choose to gift up to $5,120,000 during their life rather than at death if they believe that the credit equivalent will only be $1,000,000 in the future. This $5.12M transfer can occur without gift tax to the donor (a parent in this example) or the donee (perhaps children). By way of example, the difference between making a gift of $5.12M in 2012 or dying with $5.12M in 2013 could result in a savings of close to $1,500,000 in future estate taxes! And, that figure would double to over $3,000,000 if both husband and wife use their $5.12M equivalent. 

Annual exclusion gifts are another way to give money (by families of all wealth levels) to family members throughout the year.   Essentially, you can gift up to $13,000 to any number of people each year without gift tax consequences.  For example, we are working with a client who wishes to gift $13,000 to his two children and two grandchildren for a total gift of $52,000.  Because no one person will receive more than $13,000; there are no gift tax issues.  If you need another reason to be thankful you are married:  Married couples can double the above amounts as you and your spouse both can gift $13,000. 

Another type of gift that is popular near year end is the charitable gift. And for purposes of this article, I am addressing substantial gifts.  There are three main issues to consider when making a charitable gift (I assume that you have the charitable intent – meaning you want to benefit the organization or cause).  First, you need to be comfortable with the affordability of the gift.  Never give a dollar away that you might need for yourself. Your personal financial plan can assist in helping determine the affordability. Second, you can give away any amount that you would like without estate or gift tax concerns. Really, you can give it all away.  Third, there are restrictions on how much you may deduct for INCOME tax purposes.  The income tax deduction details are outside of the scope of this article so please consult your tax preparer for additional information. 

A couple of specific charitable gifting strategies include the IRA Charitable Gift and the Donor Advised Fund. Unfortunately at this time the IRA Charitable Gift law has not been reenacted after expiring in 2011.  There is some hope, however, that we might see an end of the year extension.  The second charitable gifting strategy or vehicle is the the Donor Advised Fund that I wrote about June 25, 2012, and I still think it is one of the best-kept secrets for those charitably inclined. 

On a final note, sometimes folks (and their advisors) get caught up or side tracked trying to save taxes via gifting.  Ideally, your gifting strategy is about transferring values (personal & family) and not just asset values. If we can be of help putting together a gifting plan that reflects your values feel free to call or email. 

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The information contained in this report 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 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.

Q & A: New Required MinimumDistribution (RMD) Option-Right for You?

 Raymond James recently introduced a new automatic distribution option for clients taking Required Minimum Distributions each year.  We feel a few clients may find the new features beneficial when administering IRA distributions for them or on behalf of a loved one.   Let’s take a closer look!

What is the new Auto RMD option?

The Auto RMD option will allow clients to establish a periodic payment schedule that will automatically distribute their calculated Required Minimum Distributions (RMD) for the year.

Who is this option best designed for?

Our clients that our currently over age 70 ½ and already receiving RMD payments. This new feature will be most beneficial to those clients who only withdraw the amount of their RMDs each year and do not expect to need additional income from their IRA.

What is new or different about Auto RMD as compared to my current payment schedule?

The system will automatically take the RMD amount calculated as of 12/31 of the prior year and spread it over the number of payments during the year; such as monthly, quarterly or annually, without any need for you or your planner to determine the amount of each payment or physically set up the schedule each year.

Does my RMD client have to elect the Auto RMD each year?

No.  The initial Auto RMD election will remain in effect from year to year unless you want to discontinue it.

How do I set up the Auto RMD option for my RMD clients?

Auto RMD options must be tailored to meet your overall distribution planning needs.   Please contact your planner to discuss further details and potential benefits to you.

Year End Planning: Schedule a Family Meeting

 It’s hard to believe that in just a few short weeks, the holiday season will be upon us.  Family gatherings during the holidays are rare occasions when parents and siblings are in the same place at the same time.  While these gatherings are wonderful opportunities for casual conversations and reminiscing, why not use this time to have a productive family meeting?

It is important for families, no matter the ages of the family members, to have serious conversations about the legal and financial planning in place; or the planning that is not in place that needs to be.  Important points for discussion may be:

• Legal Documents – Do all family members over the age of 18 have their own Durable Powers of Attorney (POAs for Health Care and General Financial are needed)?  Do those assigned as POAs understand their potential responsibilities in their roles?  Are wills or trusts in place or needed?
• Financial Savings – Particularly for elder family members, are there financial resources and structures in place to fund potential long-term care needs in the future?  For younger family members, is there an opportunity to use year-end gifting to help fund education or retirement savings (i.e. ROTH IRAs)?
• Elder Care Planning – For family members who are aging, this meeting may be an opportunity to start conversations about future care.   Discussions regarding future housing and care needs, as well as a review of the older relative’s future challenges, alternatives and resources are important.  In particular, beginning to lay out future roles of family members is critical to the future success of this kind of planning.  For a list of questions that might be helpful in starting these conversations, click here.

As you look forward to the holiday season, plan for good food and family stories.  But also plan for important conversations that can affect your family’s legal and financial success.  By planning ahead for these conversations, family members can be prepared to contribute to the planning in a meaningful way.  For additional tips on holding these all-important family meetings, talk to your financial planner.

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

Political Insights: Carville's Secret to Marriage to Mary Matalin

 The FPA National Conference welcomed key note speakers Mary Matalin and James "the ragin cagin" Carville to share their personal story and political insights.  One a deep rooted Democrat, one a staunch Republican. As you may expect, their personal opinions and political values could not be farther apart.  

Matalin and Carville shared humorous encounters while contributing to the Clinton and Bush presidential campaigns. Individually they addressed our current political landscape and presidential election while lobbying for their respective parties. As their speaking session ended, I felt inspired by the possibility that, regardless of our political affiliation, some day we all may just get a long!

Today they are happily married with two daughters and reside in New Orleans.  I believe the lives of Matalin and Carville provide a strong example that we may prosper together regardless of our political affiliations and beliefs.

Matalin and Carville affirm that both parties - Republicans and Democrats - share an intense desire in serving the needs of the American people. It’s clear the HOW may differ, but at the end of the day, they continue to love, care, and respect each other.A lesson we may all benefit from as the Presidential race continues to intensify!

James "The Ragin' Cajun" Carville is America’s best-known political consultant. His long list of electoral successes includes leading Ehud Barak to victory to become Prime Minister of Israel in 1999 and most notably helping to secure William Jefferson Clinton as President of the United States in 1992.

Mary Matalin is a prominent political figure who has made frequent television and radio appearances and is a New York Times bestselling author. Her political successes include serving under President Ronald Reagan, George H. W. Bush, and George W. Bush. She lives in New Orleans with her husband, James Carville, and their two daughters.

Are Democrats or Republicans Better for the Markets?

 Well, since I believe that 96% of statistics are made up, and most political stats are probably the worst offenders, I’m going to stick to the facts. People often ask me, “What is better for the markets, a Democrat or a Republican president?” I wanted to be sure to be as non-partisan a possible and give you just the facts.  If we measure presidential returns since 1900 (where we have meaningful market data) the performance of the markets stacks up like this:  

Looking at the chart above, you see that the Dems have the advantage when it comes to the median.  The best returns came during the administrations of Democrats Bill Clinton and then Franklin Roosevelt. The period from 1913 – 1920 was difficult, but markets in the 1920s were great. The so-called roaring ‘20’s under Calvin Coolidge, a Republican president, was the era when the market boomed on easy money and no bank controls.  Obama's performance, using this yardstick of economic health, has been above average – only slightly below that of Republicans Dwight Eisenhower in the 1950s and Ronald Reagan in the 1980s.

Also, I might add, since Congress holds the purse strings and writes the checks, it might not be the president that we should be measuring.  However, that is what people want to know.  No one has ever asked me what party holding the majority in Congress provides for better stock market returns. The question from people has always been: “What president is better for the market?”

The current sitting president would like this news because strong stock markets usually get presidents reelected.  And the reelection is usually a good indicator of a good stock market going forward, especially if we see a Democrat in the Oval Office and a Republican-controlled Congress, which has been the best combination in politics for market returns. 

Courtesy of Stock trader’s almanac

So this is all very exciting news for Democrats, but consider that any statistician would say we have a few thousand years to go before we have a fair sample set; 17 presidents doesn’t prove much.  With that said, I’m sure that I will be asked this question many more times in my career.

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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 Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Past performance may not be indicative of future results.  The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U. S. stock market.  Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stocks of companies maintained and reviewed by the editors of the Wall Street Journal.  You cannot invest directly in an index.

Center Kids Trick or Treat!

Witches and goblins and ghosts oh my! It's the time of year when Halloween costumes take over and kids of all ages dig in for some serious trick or treating time. Don't be spooked as you check out some of our own Center family kids wearing their Halloween best. If you look closely there is a four legged masked crusader who thinks she is a kid, too. Happy Halloween to all!

Check Out My New Stand Up Desk!

I recently discovered that using a stand up desk option periodically throughout the day is just what I needed to stay productive and reduce my sitting time during the workday.   Wow, why didn’t I think of this sooner!

Things I like about having a standing desk

• The option to stand up without disrupting productivity or thought process
• Increased alertness and focus; especially during longer duration projects
• More focus on posture and core strength while standing v. sitting
• The opportunity to burn more calories than sitting – definite plus!
• Medical research suggests that getting up from your desk chair and standing for a period     of time is beneficial for overall health – another check in the plus column!

Two tips I learned from experience

• Invest in an anti-fatigue mat to cushion your feet and make standing easier on your body
• Ask an ergonomics expert to help you get set up correctly

Incorporating a stand up desk option into my office space has been a welcome addition - one which I am sure to enjoy for many years to come!