Insurance Basics: An Introduction to the Importance of Having it

Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

When most of us hear the word “insurance,” no matter what kind we’re referring to, facial expressions typically change in a negative way or the voice in our head loudly screams, “Ugh, I hate paying for that stuff!” We all seem to hate it, until we need it. 

Going back to basics, insurance in general is intended to shift risk from the insured (you) to an insurer (insurance company) to cover the possibility of loss from an unknown event that has the potential of occurring in the future. Sometimes we’re required by law to carry insurance, other times we realize that we would not be able to cover the cost of loss on our own if something bad happened, so we pay for insurance to cover the potential damage. 

Behaviorally, we as humans typically don’t enjoy paying for things that have a good chance of never occurring (house burning down, pre-mature death, or disability, etc.). Fair enough, I’m in the same camp.  However, insurance is a part of life and like many things in life, there are things we don’t enjoy doing or paying for. We do them and pay for them because we know it’s responsible and necessary to put ourselves and our family in a good position, no matter what life throws our way.   

As the first of a five part blog series, I’m going to touch on four of the most important types of insurances that can have the largest impact on our road to financial success:  life, disability, long-term care, and property and casualty. I will discuss each type of insurance in greater detail; I’ll review the different forms of coverage, who the coverage makes sense for, why the coverage makes sense and much more. 

Insurance is a crucial part of any financial plan. Although it may not be everyone’s favorite thing in the world, it’s absolutely necessary in most cases to make sure you’re protected when the unknown occurs.  Life happens. We’ve all seen it. When it does, we want to make sure you’re protected and still in a good financial position. 

Stay tuned!

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.

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 Nick Boguth 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. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investments mentioned may not be suitable for all investors.

, , ,

Are You a Peyton or a Cam Investor?

, , ,

Contributed by: Sandra Adams, CFP® Sandy Adams

As we approach Super Bowl Sunday, considered the greatest American sports day, the farthest thing from our minds might be our investments. And given the volatility of markets thus far in 2016, that might be a welcome break!  However, the quarterbacks in Super Bowl 50 provide us the opportunity to observe two very different personalities in sports that we can relate to our investment personalities.  Which quarterback are you more like?

 Peyton Investors:

  • Value consistency of performance over the long term.  Peyton Manning has been a quarterback in the NFL since 1998 and will be playing in his 4th Super Bowl on Sunday at the age of 39 and 320 days (the oldest quarterback to play in the Super Bowl).  He is a five-time league MVP and is one of the NFL’s ELITE quarterbacks.  He is the epitome of performing at a high level over the long term.

  • Desire to use experience and wisdom built over time to make low risk decisions, even in times of high stress.  Peyton has experience in the playoffs – while it is his 4th trip to the Super Bowl – he has done so under 4 different coaches.  He has worked with different players, different coaches and in different situations over a lot of years, giving him the ability to handle himself and his team in almost any situation. 

  • Aim for balance and an even keel.  Just like when investment markets are stressful, the Big Game can get stressful, but Peyton seems to always have a cool head and not overreact based on emotion.

Cam Investor:

  • Get a rush from a new and exciting investment opportunity.  Cam Newton was drafted into the NFL in 2011 by the Carolina Panthers, so is still very new to the league.  His youth, size and athleticism make him a clear standout amongst current NFL quarterbacks.  In addition, he has a clear affinity for excitement and taking risks – dazzling the crowd with exciting plays and athletic feats not seen before. 

  • Desire change on a more often basis.  Cam changes up his play selection on a more often basis; surprising the defense is his goal.  For an investor, this translates into someone who change his portfolio to the newest investment idea on a regular basis.

  • Wish to celebrate successes.  Of course I had to go there…we’ve all seen Cam celebrate…it’s his thing. Whether it’s the chest pumping or the “Dabbin” – Cam likes to celebrate his successes.  The only problem with too much gusto – what happens when the success ends?

So, as we approach Super Bowl Sunday and you sit down to enjoy the big game, keep an eye on Peyton and Cam and see if you can identify with either of them – as a quarterback or as an investor.  And no matter which team wins, know that we at The Center were watching and cheering along with you. And don’t think of us as the Cam or the Peyton – we’re the coach with the eye on the ball and the experience to help you call the plays.

Sandra Adams, CFP® is a Partner and Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

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 Sandy Adams and not necessarily those of Raymond James. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected. Holding investments for the long term does not insure a profitable outcome.

Another One Passes the Test!

Kali Hassinger, now CFP®, passed the test and is officially a CERTIFIED FINANCIAL PLANNER PROFESSIONAL™. After starting in the Client Services department for her first few years here and committing to her role fully, Kali decided to dive deeper into the world of financial planning. She spent the year diligently studying and has now entered the ranks of the planners. The Center is extremely proud of her accomplishments and we are thrilled to add the coveted CFP® to her title.

We asked Kali a few questions to better get a sense of her experience with the exam:

Where were you when you heard the good news? The test gives you feedback automatically now, so I was at the test center!  I called my mom first because I think she was actually more nervous than I was. Got to love moms!

How did you celebrate your accomplishment? I took the test right before Thanksgiving, so I used that long weekend as a chance to relax and have fun (without the guilt of knowing I should be studying).

What part of the test did you feel most confident in? I felt most confident in the Retirement Planning category.  A lot of the tested items are things that we talk about every day at work!

What was your favorite study aid?  I followed the study calendar provided during my review class exactly as recommended, and it worked to my benefit!

Kali will continue working as a Client Service Associate to our lead planners as she begins to take on more associate financial planner duties. Next time you’re in the office, feel free to say “Hi!” to the newest CFP® at CFP!

, , ,

How Your Retirement Age Could Affect Your Social Security Benefits

, , ,

Contributed by: Melissa Parkins, CFP® Melissa Parkins

When planning for retirement, one of the biggest factors to figure out is how you will recreate your paycheck when you are no longer working to receive one from an employer. A couple of questions to think about:

  • Do you have a pension through your employer and if so, when are you eligible to start receiving income?

  • Will you live off of your portfolio?

  • Is Social Security the only income stream you have access to?

Many people (including myself!) long to retire early, but doing so could reduce your Social Security benefits. Your benefit will depend not only on how much you have earned in the past, but also when you decide to leave the workforce.

If you stop working before you have 35 years of earnings reported, then a zero is used for each year without earnings when your benefit amount is calculated. Any zeros will bring down your earnings average and reduce the benefits you will receive. Even if you have 35 years of earnings reported, if some of those years are low earning years (maybe at the beginning of your career), they will be averaged into your calculation and bring your benefits down lower than if you had continued to work for a few more years while, ideally, earning higher wages during your peak earning years.

One potential point of confusion when planning to retire early comes on your Estimated Benefits statement. When you look at your Social Security statement, your reduced expected benefit at age 62 actually means the amount you are expected to receive if you work until age 62 and begin collecting benefits at that time. Likewise, your increased expected benefit at age 70 means the amount you are expected to receive if you work until age 70 and then begin collecting benefits. So if you do retire early or at different ages than the two listed, the number shown as your estimated benefit could be different.

At my current age of 25, retiring early is something I aspire towards – I picture a long, lavish (read: expensive) life of luxury! Hey, a girl can dream! Many people (maybe more realistically than me) also strive to retire early, and if you don’t have access to a pension, then you may be depending more heavily on your Social Security benefit. If you do retire early, then you may receive a reduced benefit. However, retiring early is not unrealistic; but in order to have enough money to live at your comfort level, it may require working part time for a bit after retirement or even saving more now to make up for a potentially lower Social Security benefit. When making these decisions, talk with your Financial Planner about your retirement goals to see how best to build your plan to financial independence.

Melissa Parkins, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.

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 Parkins 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.

,

Pensions: Understanding the Hurdle Rate

,

Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

Monthly payments or a lump-sum? This is often times the “million dollar question” for those in the workforce who still have access to a defined benefit – a pension plan. As I’m sure you’re aware of, pension plans, in the world we live in today, are about as common as seeing someone using a Walkman to listen to music – pretty much non-existent. Most companies have shifted from defined benefit retirement plans that offer a fixed payment or lump-sum upon retirement to defined contribution plans such as a 401(k) or a 403(b) as a cost savings measure. However, if you’re lucky enough to be eligible for a pension upon retirement, the hurdle rate, or internal rate of return, is one of the more important, quantitative aspects about receiving a pension that will influence your decision to either take the lump-sum or receive fixed monthly payments.

What the heck is a hurdle rate?

To keep things simple, the hurdle rate, also known as the internal rate of return, is essentially the rate of return necessary for the investment of the lump-sum option to produce the same income as the fixed monthly payment option. One of the most important factors that will go into this calculation is life expectancy. Typically, the longer you expect to live the higher the hurdle rate will be because the dollars will have to support your spending longer. Let’s take a look at an example. 

Tom, age 65, will be retiring in several months and has to make a decision surrounding his pension options. He can either take a $50,000/year payment that would continue in full, even if he pre-deceases his wife, Cindy (also 65), or he could take a lump-sum distribution of $800,000 that his financial planner could help him manage. Tom and Cindy both have longevity in their family and feel there is a good chance at least one of them will live until age 95. If either of them lived another 30 years and they invested the $800,000 lump-sum, the IRA would have to earn a 4.65% rate of return to produce the same $50,000 of income the fixed payment option would offer. If, however, age 85 was a more realistic life expectancy for Tom and Cindy, the hurdle rate would decrease to 3.78% because the portfolio would not have to produce income for quite as long. 

Some financial planners would argue that 4.65% as a hurdle rate at age 95 is more than doable in a well-balanced, diversified portfolio over three decades, but others may not (check out Tim Wyman’s, CFP®, blog on how professional opinions can differ). While we certainly have our opinions on long-term market performance, the most important decision, in my opinion, determining between lump sum or fixed payments, is how the decision made will help you sleep at night. 

Keep in mind that this is just one of the many factors we help clients evaluate when making this important decision with their pension. While we wish there was a clear, black and white, right or wrong answer for each client situation, that’s virtually impossible because there are so many different variables that go into analyzing your financial options. We’ll help you look at and understand all of your options, but ultimately it’s your decision on what route you take depending on what makes you feel the most comfortable. In the end, at The Center we work with our clients to ensure that they can live their plan when they are ready and in a manner that they are confident with. When making important financial decisions, especially regarding your pensions, remember that we are here to help.

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.

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 Nick Defenthaler 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. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected. Diversification and asset allocation do not ensure a profit or protect against a loss. The example provided in this material is for illustrative purposes only.

, , ,

A Webinar in Review: Cyber Security and How to Keep Your Information Safe

, , ,

Contributed by: Clare Lilek Clare Lilek

As more and more of our personal information makes its way onto the web or into our devices, cyber security is a growing concern. Did you know that there are 12 victims of cybercrime per second?! That’s over 1 million victims per day, and 378 million per year! The numbers are staggering and the threat is all too real. That’s why Nick Defenthaler, CFP®, hosted a webinar on cyber security with guest presenter Andy Zopler to help us combat these prevalent fears. Andy Zopler, Chief IT Security Officer with Raymond James, has been doing IT work for over three decades and has been focusing on the financial services for the past 15 years. Over an hour’s time, he explained the growing epidemic of cyber fraud and not only told us how Raymond James combats such attacks, but also gave the attendees tips for practicing cyber safety in their daily lives.

Let’s set the scene: we are currently living the second technology revolution (the first being the industrial revolution). The advancements and growing pervasiveness throughout society has made technology extremely influential in how we live our lives. The technology explosion has changed the way we interact with and conduct our finances, and how criminals can access our personal, financial information. Andy Zopler addressed these concerns by first identifying the threat actors.

Knowing who the threat actors, or bad guys, are is crucial to understanding our own fear and the reality of what type of attacks are most likely to be perpetrated. Andy talked about how external factors such as criminals, spies, and hacktivists are what make up most of our concerns. Of course there are also insider and partner threat actors as well; but of the five mentioned, criminal threat actors are the most common concern. Criminal threat actors want your money, which makes them scary, but also, quite predictable. Raymond James screens about 1.5 million spam and fraudulent emails every day that are sent to their financial advisors across the United States.

The sheer amount of attempts can be worrisome, but Andy explained how Raymond James defends the company and its financial advisors (including The Center) every day. The strategy includes:

  • Protect – using creative solutions to stop attacks from happening.

  • Detect – assume that all protections will fail, so remain vigilant for fraud.

  • Develop – invest in the training employees to cultivate the highest talent.

  • Partner – Raymond James only partners with trusted and well vetted third party vendors.

This is all done at the Raymond James Cyber Threat Center, which is a key component to the cyber security strategy. Andy then explained to all attendees the different layers of defensive measures Raymond James uses to protect financial information.

Finally, Andy gave concrete actions and best practices that all of us can use individually to keep our sensitive and private information safe and out of the hands of criminals. Those tips include:

  • Secure your computers (with Antivirus, firewalls, and software updates).

  • Restrict your browsing behavior.

  • Strongly encrypt the files on your PC.

  • Change your passwords frequently and don’t share passwords among sites. When saving passwords, it’s best to use an application on your phone or put it on a piece of paper – don’t save it as a word file on your computer! Also, when possible, opt for “two factor authorization.”

  • Use multiple personal emails.

  • Use a separate computer for online banking.

  • Insist on having verbal/phone confirmation for “high risk” transactions.

  • Back up your data! On a hard drive or in a secure cloud.

Raymond James and everyone here at The Center work diligently to protect your financial information and to stop fraud and cybercrime from affecting clients. We encourage you to watch the video and rethink your own personal practices. Don’t be one of the victims of cybercrime, instead invest in your cyber security just as you invest in your future.

Clare Lilek is a Challenge Detroit Fellow / Client Service Associate at Center for Financial Planning, Inc.

This material is being provided for information purposes only. Any opinions are those of Clare Lilek and not necessarily those of Raymond James.

,

A Day for Competition and a Day for Vision!

,

Contributed by: Kali Hassinger, CFP® Kali Hassinger

In previous years, The Center has held an annual Retreat at some point in December. This was always an opportunity to review the year, look to the future, and have a little bit of fun, too!  This year, however, we started a new tradition! Instead of one day to cover fun and business, we took two separate days to accomplish two very different goals – Competition and Vision! 

On December 11th, The Center hosted a holiday staff appreciation day at the Detroit Curling Club.  Yes, that kind of Curling.  The Curling that you’ve watched during the Olympics and thought, “Oh my gosh! I could totally do that!” Turns out, it isn’t that easy. Although it may look totally doable, Curling actually requires a lot of accuracy and finesse!  I have a whole new respect for Curling athletes (in addition to the respect for their incredible sense of style – I highly recommend a quick google image search for “Curling Olympic Uniforms”).

The office broke up into four teams and everyone dressed up to show their Curling spirit.  As usual (and as you may have guessed), it got pretty competitive!  There was plenty of friendly fire on the ice, but Amanda Toia was named the Curling MVP with an incredible game winning shot!  The day was set aside for fun and bonding, and it was great way to close the year.

In January, however, we used our energy for the New Year to focus on the days ahead.  “Vision” was the buzzword of the day as we brainstormed ways to improve personally and professionally. We don’t believe in complacency at The Center and we are always working toward new goals. It was a time to assess our current strategies and decide on how to improve upon them. 

A large part of the day focused on reviewing the firm’s Vision 2020 that was developed by the office in 2012. This Vision 2020 functions as an ideal guide on how the office would develop and improve by the year 2020.  As we reviewed the document, however, it became clear that The Center has already accomplished many of the goals set forth in the Vision 2020. Of course there are still matters that we are working on and ways to further improve, but it was great to see the vast amount of progress that has been made in just a few years. 

Although it was a luxury to take two days away from the office, both days proved themselves to be unique, worthwhile, and effective.  We absolutely want to thank our clients for their patience and understanding while the office was closed. Please know that we used this time to refocus and rejuvenate, but mostly to become a better firm for our clients!  

Kali Hassinger is a Registered Client Service Associate at Center for Financial Planning, Inc.

,

Taking a Look at Your Credit Score

,

Contributed by: Matt Trujillo, CFP® Matt Trujillo

If you have ever financed anything before, then you are probably familiar with the concept of your “credit score.”  This number, or score, can play a significant role in your life as it has real implications when you go to purchase a home or car, to name a few big ticket items. Most of you reading this probably have a sense of what your current score is, but have you ever wondered how that score is calculated?

Here is a quick break down of the composition:

35%: Payment History

Naturally payment history is one of the biggest components of your credit score. Have you paid your bills in the past? Did you pay them on time? 

30%: Amounts Owed

Just owing money doesn’t necessarily mean you are a high risk borrower. However, having a high percentage of your available credit being used will negatively impact your credit score.

15%: Length of Credit History

Generally having a longer credit history will increase your overall score (assuming other aspects look good), but even people with a short credit history can still have a good score if they aren’t maxing out their credit and are paying bills on time.

10%: New Credit Opened

Opening several lines of credit in a short period of time almost always adversely affects your score. The impact is even greater for people that don’t have a long credit history. Opening multiple lines of credit is generally viewed as high risk behavior.

10%: Types of Credit you have

A FICO score will consider retail account credit (i.e. Macy’s card), installment loans, mortgage loans, and traditional credit cards (Visa/ MasterCard etc). Having credit cards and installment loans with a good payment history will raise your credit score. 

Hopefully now you have a better understanding of how your score is comprised. For more information please visit www.myfico.com for tips and strategies on how to improve your score!

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.

(source: http://www.myfico.com/ ) This material is being provided for information purposes only. Any opinions are those of Matt Trujillo 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.

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.

Live YOUR Plan™