The Ideal Age to Start Social Security

 I recently had an opportunity to travel to Chicago to meet with a group of retired airline pilots.  We had a great conversation on areas such as estate planning, investment planning and income tax planning given changes that occurred in January 2013.  However, it was Social Security that garnered the most interest and questions for this group of retirees between the ages of 60 and 70.  Specifically, the question at hand was, “When is the ideal time to start receiving social security retirement benefits?” 

If you think that the IRS Code is complex, then Social Security claiming rules are a close second.  Unfortunately there is a lot of confusion and misinformation.  Moreover, the stakes are quite high.  Perhaps at age 40 social security benefits are a distant thought, but for those aged 60+ the issue is quite ripe. 

Deciding When to Claim

As with most financial planning decisions, general rules get you only so far.  The key is to structure your decision, when to claim in this case, based on your individual goals and circumstances. The reason that most Americans choose to start social security retirement benefits as early as possible is because frankly they need the money now.  However, for those with flexibility in timing, there are strategies that can be employed to maximize benefits, especially for married couples. 

Social Security Simple Math

All kidding aside, if you know the day you will die then the decision is straightforward and is a “simple” math equation.  Barring certainty on that “day” however, certain assumptions must be made.  You see, social security benefits are designed to be actuarially fair or equal. Meaning, if you collect a reduced benefit starting early at age 62 you will have smaller payments lasting for a longer period of time, but if you elect to postpone receiving benefits you will collect a larger amount for a shorter period of time. If you live to normal life expectancy the math is the same.

There are a variety of software programs designed to assist in making the most-educated decision about the optimal time to claim social security retirement benefits.  Please feel free to contact us if you would like assistance in making this important decision.

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a frequent contributor to national media including appearances on Good Morning America Weekend Edition and WDIV Channel 4 News and published articles including Forbes and The Wall Street Journal. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), trained and mentored hundreds of CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

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The information contained in this report does not purport to be a complete description of the subjects referred to in this material.  Any information is not a complete summary or statement of all available data necessary for making a 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.

Planners' Perspective: Progress by the decade

 Part 3 of a series that will shed some light on who we are and why we love financial planning. Matt Chope talks about taking the long view on investing and why to look at decades rather than days.

If we’re being honest, I was inspired to enter the financial planning profession for selfish reasons. I went in hoping to find the deep sense of personal satisfaction gained from helping someone make the most of the one life they have to live. In the beginning, it was about helping people achieve a higher, more consistent return on their investment, beating the tax man at his game, or beating the market.  I wanted people to think I was smart and good at something unique.  That made me feel special and it still does. 

In those younger years, life was very quantitative and simple. It was a numbers game; I thought that if someone had more money they could do more and be more.  While that is still an undercurrent to some extent, today this area of energy has evolved to helping clients achieve a better return on their life, which might sound kind of corny or even ridiculous.  But, to me it is about making the most out of what you have in the time remaining. 

After having worked for a decade or longer, I’ve noticed many investors gain a noticeable amount of relief and even a deep sense of fulfillment toward achieving or making considerable progress toward their lifelong goals.  I ask continually what my client’s goals are and I listen and capture those goals to help them turn goals into reality.  It’s so cool to see it transpire.   Not too much generally changes over a year but I have found that it’s absolutely amazing what can transcend over a decade when you’re dedicated to achieving something.

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Center Family Picnic

Imagine your financial advisor, laying it all on the line in a grueling, high stakes battle … of a water balloon toss. Oh, we stop at nothing to make sure our team is ready, especially when it comes to picnics! The Center social committee organized a wonderful weekend gathering August 17th at Island Lake State Park in Brighton. The event was filled with good food, good company, and lots of your typical summer picnic games. And to put the icing to the cake, we couldn’t have had a more beautiful day for it.

About 50 people – Center team members and their families and friends – came out. Everyone contributed a dish or two to go along with the burgers and dogs on the grill, and we ended up with enough food to feed closer to 100 people!

Megaphone in hand, our Dan Boyce officiated the day’s games, including that water balloon toss that quickly turned into a water balloon fight. Next up was the 3-legged race, and last but not least was an egg & spoon relay race. There were also side competitions in corn hole, ladder golf, bocce, and a very intense game of sand volleyball. Some unexpected competitive sides came out, and spectators enjoyed watching the players diving all over the court.

Great memories were made with our Center family and we have the pictures to prove it! Overall, the first annual Center Family Picnic was a terrific success, and a tradition that will undoubtedly be repeated.

House Hunting How-To: Deciding on the Best Down Payment

 You have decided to purchase a new home. Now questions start racing through your mind. How much do we put down?  What is our interest rate going to be?  Do we get a fixed loan or a variable loan? Do we finance it over 15 years or 30 years? In today’s historically low interest rate environment the answer to some of these questions may surprise you.

Let’s take a scenario between John Doe and John’s identical twin brother Jack Doe.  John and Jack have the same exact job, the same income, and the same assets.  Everything about them is the same except for how they approach money decisions.  John is a firm believer in staying out of debt. He doesn’t believe in financing anything. He pays cash for cars, houses, vacations etc…  Jack on the other hand believes that responsible use of debt could be a good way to get ahead in life.  He firmly believes that you shouldn’t put more then 20% down on a house, you should finance a car, especially when interest rates are less then 3%, he’ll even put a vacation on a credit card to earn the mileage points, making sure he pays it off within a month or two. 

John and Jack are looking to purchase an identical home in the same neighborhood; same square footage, same interior design, same lawn animals, same everything.  The purchase price of the house is $250,000. They both have identical investment portfolios valued at $250,000. John has the option to finance it with a 30-year fixed loan at 3.5%.  But instead John takes a look at his finances and decides he will take the money out of his investment portfolio and buy the house outright.  John now has no money left in his investment portfolio, but at least this will save him that pesky $1,200 mortgage payment over the next 30 years. He doesn’t like the fact that his investment portfolio now has a 0 balance, but he intends to rebuild his drained investment account by adding $1,200 each month. 

Jack, on the other hand, decides he is only going to put down 20% on the house and keep the rest of his money invested. He needs to come up with 20% of $250,000, or $50,000. After the down payment, Jack will have $200,000 remaining in his investment account.  He won’t be able to add any funds to his investment account because he needs that money to pay the mortgage.

Let’s break down the impact of their decisions after 10 years factoring at a 6% interest rate compounded annually for their investments. Let’s also assume the value of their homes has also appreciated in value at 6%:

Jack has less equity in his house because he put 20% down so, after 10 years, he still owes the bank $150,000 on the original $200,000 mortgage note. From the totals, it might appear that Jack made a slightly better money decision, but life is not quite that simple.  We can’t possibly account for all the “what if’s” that life might throw at the two brothers over that 10 year period. 

Here are some things to consider: 

• What if John had a sudden emergency such as an unexpected job loss over that 10-year period?  He has no liquidity to tap into to help him pay the bills because he spent it all on the house. 
• How much mortgage interest can John deduct off his income tax bill annually?  None because he doesn’t have a mortgage! 
• What if house prices in the neighborhood depreciate in value instead of appreciate?  Jack could potentially hand the keys back to the bank whereas John could be stuck with a rapidly depreciating asset.
• What if John isn’t as disciplined as he thought he was and starts spending the $1,200 a month instead of saving it?  Jack might not be as prone to this problem because there is a big consequence to him not paying the bank $1,200 a month which is that he loses the house.   

As you can see, having a mortgage might not be the worst thing in the world. Even though it bucks the traditional value of having a home paid off as quickly as possible, there can even be some advantages to using debt responsibly. Make sure you talk to your financial planner when deciding if you’ll follow Jack or John’s example.

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The example contained herein is hypothetical and for illustration purposes only.  It is not intended to reflect the actual performance of any particular investment.  Actual investor results will vary.  Investing involves risk and investors may incur a profit or a loss.  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 should discuss any financial or mortgage matters with the appropriate professional.

Join us in welcoming Kali Hassinger

We’re happy to announce the addition of another member to The Center team. As our new Receptionist, Kali Hassinger may be the person who greets you when you call or welcomes you into our office on your next visit. Branch Manager Tim Wyman summed it up well,

The receptionist position at The Center is critical in providing world class service to our clients. We are excited and fortunate to have Kali join current veteran Gerri Harmer as part of our welcoming team.

Kali is new to our area, having relocated to Michigan from the Philadelphia area earlier this year. “I am enjoying exploring Michigan and all it has to offer,” Kali says. She comes to us from the life insurance industry where she worked for the last six years. Her naturally outgoing personality makes her a great fit for her role in our office. And while she’s not working at The Center, Kali says she likes to stay active and spend as much time as possible with family and friends.

Is the Lost Decade Already Forgotten?

 So you or your financial planner has taken the time to put together a well-diversified portfolio.  Now what?  Disappointed lately after opening your statements?  Well you aren’t alone!

Investors everywhere have been left wondering, “Why isn’t my portfolio up more when I keep hearing of the market hitting new highs this year?”  It was not uncommon to see a diversified portfolio (40% S&P 500/20% MSCI Eafe/40% Barclays Capital Aggregate Bond Index) with a gain less than 5% for the 6 month time period ending June 30^th 2013. That’s at the same time the S&P 500 gained more than 13% including dividends!  Further diversify with commodities or real estate and your returns likely looked even worse.

This left investors wondering, “Why don’t I just own more U.S. stocks if they are producing such stellar returns this year while everything else (bonds, commodities, emerging markets and real estate) has produced very ho hum to negative results?”  How quickly we have already forgotten the “lost decade.” 

I’m referring to the 10 year time period throughout the 2000’s when the S&P 500 produced a negative total return.  This was a very difficult time period starting with the burst of the dot-com bubble and ending with the financial crisis of 2008.  Many felt like there was nowhere to hide during this time period.  In reality however, those with a widely diversified portfolio had quite the opposite results.  Sure a portion of their portfolio was flat to down but many of the other areas of their portfolio performed quite well over this decade, boosting their overall portfolio returns.  The chart below illustrates average annual returns from some of the major Morningstar categories from 2000-2009.  The lost decade only applied to one type of investment one could own.

Chart and data courtesy John Hancock® Investments

Coming into this lost decade, investors were asking the very same questions we are hearing now and the chart above shows us how that ended.  While we don’t believe we are on the doorstep of another lost decade, we do feel it is not the time to abandon diversification.  So, when you open your statements this year, you may be left wondering, “Where’s the Beef?”  But be careful before making any drastic changes to your portfolio.  Talk to your financial planner first!

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

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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 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 Angela Palacios and not necessarily those of RJFS or Raymond James. Past performance may not be indicative of future results. Diversification does not ensure a profit or guarantee against a loss.

Bonds represented by Barclay's Aggregate Bond Index a market-weighted index of US bonds. US Large Companies per S&P 500 Index a market-cap weighted index of large company stocks. International stocks measured by MSCI EAFE is a stock market index designed to measure the equity market performance of developed markets outside of the US and Canada

Labor Day Holiday

 Please note that our offices, along with the financial markets, will be closed Monday, September 2, for the Labor Day holiday. You can always access your account(s) using Raymond James Investor Access at any time, year-round.

Designating beneficiaries: Don’t Let Your IRA Get Derailed

 Imagine you’ve lined up your will, your trust, all the necessary estate planning documents, thinking you’ve covered your bases. But here’s one you may have forgotten: naming beneficiaries for your IRA. A friend recently found out the hard way that this easily overlooked detail causes huge headaches. You see, her mother wasn’t sure who to name when the account was opened and decided to think about it.  Time went on and her mother passed away before this detail was corrected, sending the IRA to probate. The two intended beneficiaries will eventually get the money, but they will be forced to take the distributions much faster than they want (and absorb the tax implications), rather than stretching the payments over a longer period of time.

Here are some potential problems when a beneficiary is not named on an IRA:

• There is no backtracking by trustees or personal representatives to “fix” the omission
• The account will be distributed according to your will; through the probate process which can be lengthy depending on the complexity of the estate
• The account becomes subject to the creditors of your estate
• The opportunity for tax deferral by spreading out distributions over a longer period of time may be lost.

It seems easy enough to name a beneficiary, but the reality is that this important designation is often overlooked. To prevent unforeseen mishaps, have your IRA beneficiary form reviewed by your financial planner annually to make sure it reflects your wishes and fits with your overall financial planning objectives. 

Laurie Renchik, CFP®, MBA is a Senior Financial Planner at Center for Financial Planning, Inc. In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie was named to the 2013 Five Star Wealth Managers list in Detroit Hour magazine, is a member of the Leadership Oakland Alumni Association and in addition to her frequent contributions to Money Centered, she manages and is a frequent contributor to Center Connections at The Center.

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Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing information is accurate or complete.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  You should discuss any tax or legal issues with the appropriate professional.

Curtain Call

 

The Center's Team enjoys sharing their knowledge with the press to help stories come to life, share facts and bring important topics to the forefront.  We are also honored when we are recognized by media and publications for our work and service to our profession. Here's what's new:

Wall Street Journal

Timothy Wyman, CFP®, JD was quoted in the Wall Street Journal on July 22, 2013, in an article titled, “Detroit’s Bankruptcy as a Teachable Moment” by Veronica Dagher.

Center Included in 2013 Financial Advisor Magazine's Top RIA Ranking

Center for Financial Planning, Inc. has been recognized among the nation's top-ranked investment advisory firms for the past four consecutive years.

Financial Advisor Magazine ranks the top registered investment advisory firms (RIAs) across the country based on a survey of firms' assets under management and percentage of growth.