Dan’s Desk: The Legacy Revealed

When I saw Center founder Dan Boyce’s email offering up his desk and credenza, I knew what I had to do. This was in the summer, as The Center was preparing to move offices, and Dan was getting new furniture. I couldn’t stand to see such an iconic piece of Center history vanish into the night, so, without much hesitation, I went to Dan’s office to inspect the desk and see if I could make use of it.

A Desk with a History

As I expected, there was normal wear and tear from years of use. Dan had leaned over that desk in countless meetings with clients. He had signed off on too many documents to count. He may have even spilled a little coffee on it here and there. But that wasn’t the whole story. Dan told me he bought the furniture in the late ‘80s from his father-in-law, an attorney who’d used it for years as he worked as an attorney in Benton Harbor/St. Joseph. But he didn’t get it new. Dan’s father-in-law purchased it from his mentor, Charles Gore. Gore was also an attorney and had purchased it new in the ‘20s or ‘30s. This was a desk where business had been conducted for close to a century!

From Before to After

I felt confident with a little TLC I could restore the desk to its former glory. The project took me about three weeks. I sanded the desk down to the original wood and put a clear coat on it. I purposely didn’t stain it because I thought the underlying natural wood was beautiful. I’m really happy with the results and hope it will bring me the same mental acuteness it brought Dan throughout his career. I see myself pulling up a chair and sitting down behind the desk, making a difference in people’s financial lives just like Dan.

Where are we in the full market cycle?

Cycles exist everywhere.  One of the first cycles we learn about as a child is the water cycle or the journey of a raindrop. There’s something about the circularity of cycles that I just love.

The economy and financial markets also cycle. An economic cycle is the periodic ebb and flow of economic growth like Gross Domestic Product or employment.  According to the National Bureau of Economic Research the average economic cycle lasts a little less than six years.  This span is measured both from one peak to the next peak or one trough to the next trough.  While six years is an average, the cycle can be much quicker or much longer than six years. 

The Cyle of Economic “Seasons”

The various stages of the economic cycle can be thought of like seasons of the year as shown in the chart below.  From winter, or recession, where jobs are lost and the economy is shrinking to summer, where growth is accelerating and jobs have been recovered. 

Every quarter we take a poll at The Center to see where team members think we fall in this spectrum.  Our consensus is that we believe we are in the midst of summer meaning that this bull still has some room to go as we are still lacking some keys signs of a maturing economy like inflation and volatility.

Stock Market Cycles

The stock market also goes through cycles and, along with it, investor emotions ebb and flow.  Usually the stock market cycle is slightly ahead of the economic cycle meaning that market indexes often peak before the economic cycle peaks.  Our latest survey of our employees placed the stock market cycle near excitement in the picture below.  At this point (excitement/thrill/euphoria) investors start to question why they don’t have more aggressive positions because they have clearly performed very well and many even start to shift their portfolios in this direction.  As Warren Buffett said”

“Be fearful when others are greedy and greedy when others are fearful.”

Refocusing on the Long Term

This is the point when it is most important to stay in a diversified portfolio, not abandon your long-term investment objectives while reaching for more returns. Rebalancing at these market extremes may go against what investors want to do, for example, selling your stock positions to buy more bonds right now or selling your bonds in 2009 to buy more stocks. However, going against these basic emotions have potential to be the best decisions you can make for your portfolio.  Navigating these emotions is the single most difficult road block to the success of an investment strategy.  While markets and economies will cycle as long as water continues to cycle, having sound financial advice during these market extremes can make big difference in the success of your long-term financial plans. 

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.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Angela Palacios and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Investing involves risk and investors may incur a profit or loss regardless of strategy selected. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Angela Palacios and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Investing involves risk and investors may incur a profit or loss regardless ofstrategy selected. C14-031971

How Singles Can Use File and Suspend

 There are certain advanced social security income strategies available for married couples that can help to maximize income in retirement. It’s a different story for single people who have fewer opportunities to use some of these more advanced strategies.  But there’s a strategy called “filing and suspending” that may work for you, no matter your marital status. 

File & Suspend: Not just for married couples

This strategy is sometimes used by married couples because it allows for one partner to defer taking benefits and gain credits on their benefit for doing so. In the meantime, the other partner receives a spousal benefit. But if you’re single, there is no “spousal benefit” so the rationale for utilizing such a strategy is different.  A single person might use this strategy by filing for benefits retroactively.

Retroactive Benefit Payment Limits

Under the “normal” social security rules, those who are full retirement age can only file to receive back payment benefits retroactively for up to 6 months. For example, let’s say George plans to wait until age 70 to collect benefits so he doesn’t go through the process of filing and suspending those benefits. Then, at age 67, George changes his mind and wants to file and suspend. He is only entitled to receive a lump sum payment for the last 6 months of benefits that he could have received.  If George had filed and suspended benefits at his full retirement age and later changed his mind, he would be entitled to receive all of the benefits he would have been entitled to receive going back all the way to the date that he originally filed and suspended.

When File & Suspend Can Pay Off

Now you might be asking, “Why does any of this matter if my game plan is to wait until age 70 to collect benefits?”  Your skepticism is justified because in most cases it will make no difference.  However, in some cases, your health might change from the time you are 66 to 70. Then, it would make a lot of sense to go back to social security and ask for a lump sum payment for benefits you would have received from 66 to 70.  If you filed and suspended, you are entitled to get all of those benefits. If you didn’t file and suspend than you are only entitled to receive 6 months’ worth of back payments.

The rules surrounding social security are vast and very complex.  As with any complicated financial decision, it’s often best to seek the help of a qualified financial professional to help navigate the waters.

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

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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 available data necessary for making a n 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. Examples are for illustrative purposes only. C14-028511

Our Workplace Wellness is Award-Worthy

Did you know we hold meetings while walking and when we’re working at our desks, we might be standing instead of sitting? It’s all part of our commitment to keeping The Center team healthy. That commitment has led to a 3rd healthy workplace award in less than a year. This time, we’re being recognized in Corp! Magazine’s online publication as one of Michigan’s Best and Brightest in Wellness. For Partner and Financial Advisor Sandy Adams, keeping our constant focus on health is one thing that makes The Center a great place to work.

For me, staying healthy and active gives me the energy and positive attitude to best serve my team and our clients. The Center is committed to helping our team stay healthy by providing us with education on health and wellness, providing equipment like standing desks and balance balls for alternative seating, and by encouraging standing or walking meetings.”

The Best and Brightest in Wellness awards will be handed out at a gala on October 2nd. The selection was based on an assessment by the wellness systems firm Wellco. We won this award based on criteria like wellness policies, healthy work environment, senior leadership support of health initiatives, and motivation.

Earlier this year we won a Healthy Workplace Award from the Governor’s Council on Physical Fitness, Health and Sports. And last December The Center was recognized as one of Michigan’s Healthiest Employers by Priority Health, Crain’s Detroit Business and MiBiz. In 2007, we launched an initiative to shape up our office. Looks like we’re on the right track.

Want to be a Genius when it comes to Retirement?

My friend* and fellow professional Marc Freedman, CFP® recently published his first book Retiring for the Genius®. The two subtitles capture the essence of the book: “Your Blueprint for Planning a Comfortable Retirement” designed “For the Genius in All of Us™”. I had the honor of providing a peer review during editing and, according to the Author’s Acknowledgement, provided “invaluable and honest insights.” Writing a book is an admirable undertaking and it was truly an honor and pleasure playing a very small role.

Retiring for the Genius® is very comprehensive, covering almost 400 pages of text. Marc addresses an enormous amount of content including social security, income taxes, designing retirement income, estate planning; Marc covers it all. Fortunately there’s an array of summaries, examples and “inspiration” tips to keep the material interesting and practical.  Marc accomplished his goal of providing meaningful content that we all can understand and implement. Give it a read.

*In the spirit of full disclosure, I need to define “friend”.  Marc and I are Facebook friends, and according to my three kids, that means in 2014 we are almost like family.  More importantly, we both served the Board of Directors of the Financial Planning Association and its 25,000 members about a decade ago. I came to honor his knowledge and passion for serving his clients and the financial planning profession. Congrats my friend!

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.

Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of 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. C14-026543

Investment Commentary - September 2014

Clients and Friends,

While much of our communications with you in the last few months have been about The Center’s recent move, our intensive investment focus is always present. The last few months were marked by many insightful conversations with portfolio managers and investment professionals. This reminds me that at our core, our investment process is focused on good old fashioned research whether it comes to the way we construct asset allocation mixes or how we select investments for your portfolios.

Here is some news for you from our investment team:

• We’re more than halfway through 2014 and the financial markets have picked up where they left off last year. Not only are stocks measurably higher this year, but bonds have made a rebound with positive returns as well. We’ve got a new one-page investment dashboard that sums up the current investment world. We’ll update this one-pager each quarter going forward. Let us know what you think of the new look and feel.

• Angie Palacios, CFP® provides a great recap of the Morningstar Investment Conference which is held in Chicago each June. This is a can’t-miss conference each year and 2014 was no exception. She includes notes about employment predictions for the US economy and focus on international as some of the key takeaways this year.

• Our quarterly investment pulse includes recaps from four meetings held here and around Detroit and highlights the extraordinary access we’re able to get to investment professionals because of size and reputation. I particularly enjoyed a meeting with Joseph Brennan and Lee Norton from Vanguard. The discussion was broad and interesting including how Vanguard, known for their preference for indexes, identifies active investment managers for their offerings.  With several other top-notch investors giving us time for lengthy discussion, you can see the quality of discourse we are privileged to entertain.

• Matt Chope shares insight from a conversation with one of his favorite investors – Charles de Vaulx – who is a portfolio manager with IVA.

Do you have investment-related questions for us? Please don’t hesitate to let me or your financial planner know. Thanks again for your trust and commitment to The Center for the opportunity to work with you to pursue achievement of your financial goals!

On behalf of everyone at The Center,
Melissa Joy, CFP®
Partner, Director of Wealth Management
CERTIFIED FINANCIAL PLANNER™

Melissa Joy, CFP®is Partner and Director of Investments at Center for Financial Planning, Inc. In 2013, Melissa was honored by Financial Advisor magazine in the Research All Star List for the third consecutive year. In addition to her contributions to Money Centered blogs, she writes investment updates at The Center and is regularly quoted in national media publications including The Chicago Tribune, Investment News, and Morningstar Advisor.

Financial Advisor magazine's inaugural Research All Star List is based on job function of the person evaluated, fund selections and evaluation process used, study of rejected fund examples, and evaluation of challenges faced in the job and actions taken to overcome those challenges. Evaluations are independently conducted by Financial Advisor Magazine.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Melissa Joy and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Investing involves risks and investors may incur a profit or a loss regardless of strategy selected.

Is now the time for Active Management to shine?

 What is active and passive management?

Active management is an investing strategy in which investment professionals strive to outperform specific benchmarks. Passive management is an investing strategy that attempts to mirror the return pattern of a specific benchmark.

Can active managers actually outperform benchmarks?  The debate between active and passive management is not new, but in my research on these two very different management styles, I uncovered something that actually caused my jaw to drop.  I found research from Vanguard showing that just as markets are cyclical, there are cycles to management.  Sometimes active management wins, but passive management outperforms at other points, as shown in the chart below.  Over the past 10 years, every time interest rates went up (the orange line), the percent of active fixed income managers that beat their index also went up (the yellow line). 

Benchmark used: Barclays U.S. Government Bond Index

Over the past 10 years (and looking beyond this chart, the past 30 years) interest rates have been on a downward march, making it difficult for active managers to add value over their fees for a very long time.   There have been brief periods of rising rates though as shown in the chart above.  

What does this mean now for portfolios now?

Interest rates are near 30 year lows.  While I don’t believe they will go much lower they should soon start to trend upward…though it could be tomorrow, next month or a year from now.  A bet on passive investing in fixed income, at this point, is against the odds in an environment with such low and potentially increasing rates.  Active managers may have their chance to shine after what has seemed like a period of prolonged underperformance to their benchmarks.

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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Source: “The Active-Passive Debate: Market Cyclicality and Leadership Volatility”, Vanguard Research July 2014

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Every investor’s situation is unique and investors should consider their investment goals, risk tolerance and time horizon before making any investment decision. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Indexes are unmanaged and cannot accommodate direct investment. C14-027422

Finance & flexibility? The link between yoga & your money

 If you think yoga and finance have nothing in common, you are wrong. It may not be obvious at first glance, but let me explain. On June 1^st, Kim and I participated in a 90-minute Bikram Yoga session on the lawn of the Detroit Institute of Arts with another 350 other people. The idea was to share time together and nurture our body while enjoying the sun. 

Bikram Yoga is one way for me to release and renew. There’s such a sense of caring that goes into the each move, such deliberate breathing, and a centering of the mind that takes place.  Whether you’re practicing under the hot sun or in a 104-degree studio, water takes on a whole new meaning. It never tastes as nourishing and refreshing – so much better than sitting in front of the TV and watching the game.  

I usually feel so much better after a class, a feeling that lasts for up to 2 days. Yoga may sound like an easy, funny looking exercise routine, but I assure you this is tough stuff!  My entire body gets stretched and almost massaged from the 26 movements and two breathing exercises held in this class. By the end, you feel a huge sense of accomplishment ... kind of like a cleaning at the dentist or an annual review with your financial advisor. Yes, yoga and finance can relate!   

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Could The Dollar Lose World Reserve Currency Status?

 Clients have been asking about the potential that the U.S. could lose the role as the world reserve currency.  To really understand the issue, you need to know what a world reserve currency is and what advantages (if any) it gives the U.S. to be the world’s current leading reserve currency. 

World Reserve Currency: Protection & Stability

Almost all countries hold foreign financial reserves, whether they are in bonds or money markets, denominated in another country’s currency. In addition to this, countries will usually hold gold and special drawing rights with the International Monetary Fund. These reserves help protect a country’s currency from large swings in valuation. 

For instance, let’s say that large amounts of Japanese Yen were being sold on a global scale. The policy makers in Japan might not like the idea of their currency being depressed due to outside forces.  One strategy they might use to maintain the value of their currency is to tap into their foreign reserves (like U.S. dollars) and begin selling dollars and buying Yen.  This usually would have the effect of stabilizing the value of their local currency if they held enough U.S. dollars to make an impact on the Yen market.

Currency Liquidity

Think for a second about how many U.S. dollars the Japanese government would need to sell in order to have an impact on a global scale for the Yen.  The number is probably billions if not tens of billions of U.S. dollars. What this means is that for a reserve currency to have relevance and make sense for widespread use, it has to be very “liquid”.  Liquid means that the currency can be sold quickly and readily without having too much of an impact on the overall price.  The U.S. dollar is simply the only currency in the world currently that can make this claim. 

Alternatives to the Dollar

Some other currencies used today to bolster foreign reserves are the Euro and the British Pound/Sterling. The Euro is becoming more popular, but is still a very distant second to the U.S. dollar in terms of overall use.  In fact, recent estimates suggest that the U.S. dollar comprises 60% of foreign reserves with the Euro making up 20%.  With the recent economic troubles in Portugal, Spain, Greece, and Ireland, most experts don’t see the Euro overtaking the dollar anytime in the near future.  As far as the British Pound/Sterling goes, it would seem that the British economy is simply too small to support massive global use.  This goes back to my earlier point on liquidity.

A dark horse in reserve currency use is the Chinese Renminbi or Yuan.  The Chinese economy is certainly big enough to provide enough liquidity to global markets. However, due to tight Chinese government controls and some outright manipulation, other countries have shown hesitancy to adopt this currency on any large scale. So it would seem that the U.S. Dollar is fairly “safe” from being replaced as the world’s primary reserve currency for the time being, but why does it matter if the U.S. dollar is the world reserve currency, does it offer any competitive advantages?

Potential Advantages for U.S. Dollar as Currency Reserve

There are likely two main reasons the U.S. wants to remain as the world’s leading reserve currency. Since much of the reserves other countries hold are in the form of Treasury Bills, this has the effect of keeping a nice steady demand for bonds issued by our government.  This demand has helped to keep interest rates relatively stable over time.  Also, since the U.S. dollar is so widely accepted, American businesses do not usually need to arrange currency swaps when doing business internationally. It’s not clear what percentage this potentially adds to the bottom line for U.S. corporations, but several economists have said somewhere between 1-3%. 

There is potentially a third benefit, referred to as “seigniorage” which is the profit a country makes in the difference of issuing currency versus production costs. Experts are deeply divided on whether this is significant or has a nominal impact. For more, take a look at the Federal Reserve’s white paper on the topic. Ultimately, if the U.S. dollar is less widely used, there will be some unpleasant ripple effects, but by no means would it likely be the doomsday scenario you might have heard about from the media.

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

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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. 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. C14-024135

Retirement Spending: Is My Savings Goal Too High?

 Determining how much you actually spend each month is really the first step in dialing in on how much money you need or want in retirement. (If you missed it, check out my last blog on this!) With so many payroll deductions (taxes, 401k savings, medical premiums, insurance, etc.) it can be pretty staggering when you crunch the numbers and see what you’re truly spending each month. It’s probably much less than you thought!  The good news is that several of these payroll deductions will disappear or be significantly reduced when you retire.  Let’s dive in and take a look at some of those items to shed some light on what might be your “number” for desired retirement spending.

The Good News on Taxes

There’s a good chance your tax liability will be lower in retirement.  Two items that go away upon retirement are Social Security and Medicare tax (FICA).  As an employee, you are responsible for kicking in 6.2% to Social Security and 1.45% to Medicare – a total of 7.65%. Think about it, that’s $7,650/yr if you earn $100,000 annually.  Kiss those taxes goodbye on your last day of work. 

When you begin to receive your Social Security benefit, the benefit may or may not be taxable, depending on your adjusted gross income (AGI).  However, most clients see at least some taxation of benefits. Per SSA.gov, the maximum amount of your benefit that can be subject to federal tax is 85%. Meaning if you were receiving $35,000/yr in benefits, the maximum taxable amount that would be included in your AGI would be $29,750 ($35,000 x 85%).  In addition, most states, including Michigan, do not tax Social Security benefits.

Pension , IRA, qualified retirement plan (401k, 403b, etc.) distributions will be included in your income for the year on the federal level – these income sources are treated as ordinary income.  This is why being cognizant of your current and future tax bracket is so important in proactive tax planning.  A few years ago, Michigan began taxing these income sources on the state level, but the amount that is included in taxable income for the year is dependent on your age and total benefits.

Forget Saving for Retirement

One of the many benefits of being retired is that you no longer have to save for retirement!  The maximum 401k contribution for someone over the age of 50 in 2014 is $23,000. We commonly see clients saving the maximum while in the latter half of their working years.  For a couple who both maximize their retirement plans at work, we are talking about a $46,000/yr outflow that will no longer exist upon retirement.    

Getting Rid of Debt

The goal of many is to be debt free (or close to it) upon retirement.  If your mortgage (not including taxes and insurance – unfortunately those items never go away) is $1,500/mo, this is $18,000/yr in savings … a huge amount if you are able to eliminate your house payment prior to retirement.  With rates as low as they have been, it often makes sense to keep the mortgage because it’s “cheap money”.  However, being debt free in retirement is a very personal decision and is typically more of a “what makes you sleep better at night” decision rather than a strictly “numbers” decision.

Adding it All Up

When you factor in what you are saving for retirement, taxes, and having a mortgage, many clients are shocked to realize that those items can eat up close to 50% of total gross income.  So, if a client has joint income of $200,000 we may propose $100,000 in retirement spending (when we do, they often look at us like we’re crazy).  But if we back out their total 401k savings of $46,000, Social Security and Medicare tax of $15,300 ($200,000 x 7.65%), their $1,500/mo or $18,000/yr mortgage and a total tax reduction of approximately $10,000 because less total dollars are being generated, that is a total of almost $90,000 that will no longer exist in retirement.  So what does that mean?  It means the couple can live the equivalent of their current $200,000 lifestyle on $110,000 in retirement – pretty close to the suggestion of $100,000 in retirement spending! 

For this reason, I cringe when I hear advice like, “You need $2,000,000 to have a fighting chance at retiring,” or, “You will spend 70% of your current income in retirement.”  Everyone’s situation is different and many folks are probably living on a heck of a lot less than they actually think.  If you’re retiring in the next 10 years, I urge you to walk through this process. Really start thinking about what you want to spend when that time comes.  It will help you plan accordingly and will hopefully significantly improve the chances of you reaching your retirement goals.

Nick Defenthaler, CFP® is a Certified Financial Planner™ at Center for Financial Planning, Inc. Nick currently assists Center planners and clients, and is a contributor to Money Centered and Center Connections.

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Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of RJFS or Raymond James. Any example is hypothetical in nature and is used for illustrative purposes only. Individual cases will vary. Every investor’s situation is unique. Please consult with your financial advisor about your individual situation. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. Investors should consult a tax advisor about any possible state tax implications. C14-026884