Millennials Matter: Paying Down Debt While Saving for the Future

Contributed by: Melissa Parkins, CFP®

If you missed it, last month I began a monthly blog series geared towards millennials, like me, with topics that are important and relevant to us. Chances are you are going to have debt at some point in your life—student loans, credit cards, new cars, or perhaps a mortgage—and let’s be honest, most of us millennials are drowning in student loan debt these days! Let’s say you finally have a steady income stream and want to start building your net worth… but have enormous student loan debt and maybe some credit cards to think about too. If you are like me, a big question on your mind is probably, “with extra money in my budget over my necessary expenses, do I pay down more debt, or invest more for the future?” The decision can be overwhelming and definitely not easy answer-- how do you decide the right mix of paying down debt and saving for the future?

Things to Consider:

• First, make sure you are able to at least make the minimum payments on your debts and cover all your other necessary monthly expenses. Then, determine how much extra cash you have each month to work with for additional loan payments and to invest for the future.

• Have an adequate emergency reserve fund established (the typical emergency fund should be 3-6 months of living expenses). If you don’t have a comfortable emergency fund, start building one with your extra monthly cash flow now.

• Take advantage of your employer’s 401(k) match, if they offer one.*  If there is a 401(k) match, contribute enough to get the matching dollars. You are not only saving for the future, but it’s extra money invested for retirement too!

• Make deductible IRA contributions – who doesn’t like saving for the future while saving on taxes? If you have earned income and are not covered by a retirement plan like a 401(k) through work, you are eligible to make deductible IRA contributions up to the annual limit. If you are covered by a retirement plan at work, the deduction on IRA contributions may be limited if your income exceeds certain levels.

• Make high interest rate debt a priority. Take inventory of your debts and their corresponding interest rates and terms. It is a good idea to pay more than the minimum due on high interest rate debt so you are reducing your interest paid over the life of the loan. You can do this by increasing your monthly debit amount or by making more than one payment a month. Also, check with your lenders for discounts for enrolling in auto payments – many offer a small rate reduction when payments are set to be automatically debited each month.

• Remember that interest you pay on some debt is tax deductible, like student loan interest (if your income is below certain levels) and mortgage interest (if you are itemizing your deductions). So at least some of the interest payments you are making on your loans go towards saving on your taxes.

• Lastly, don’t forget to consider what short-term goals you have to pay for in the next 1-2 years. Are you looking to buy a home and need a down payment? Wedding to pay for? New car? Or maybe you have just been working hard and want to treat yourself to a vacation! Lay out these larger short-term goals with amounts and time frame, and see how much of your monthly extra cash should be going to fund them.

Ideas and Tools to Help

• Technology – Consider the use of budgeting apps like Mint or Level Money to keep your spending in check and your goals on track

• Social Media – Look to your Twitter feed for inspiration and helpful tips (personally, I like to follow @Money for motivation).

• Do you receive commissions, bonuses or side income above your normal pay? Instead of counting on that as typical cash flow, each time it comes in put it towards paying off high interest rate debt (I do this and I promise, the feeling is rewarding!). You can also do this with your tax refund each year.

• When you receive a pay increase at work, instead of increasing your spending level, use it to increase your savings (have you read Nick’s blog on his “One Per Year” strategy?)

• Call us! We are here not only as financial planners, but also as behavioral coaches to help you effectively achieve your goals!

Ultimately, how do you feel about debt? Your balance between paying down debt and saving for the future will depend on your personal feelings about having liabilities. It is a good idea to start saving as early as possible because of the power of compounding over the long term. But that doesn’t mean you can’t be aggressively tackling your debt as well. Create a plan that you are comfortable with, review it often to make sure you are staying on track, and make adjustments as your cash flow changes over time.

Continuing on with the topic of debt… read next month about student loans and what you can  be doing to be more efficient with them. Don’t forget to look for more info on our upcoming webinar in July as we’ll be going into more details about student loans!

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

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*Matching contributions from your employer may be subject to a vesting schedule. Please consult with your financial advisor or your retirement

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Melissa Parkins and are not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax matters. You should discuss tax matters with the appropriate professional.

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Are Your Aging Parents a Roadblock in Your Retirement Planning?

Contributed by: Sandra Adams, CFP®

As the meat in the so-called “sandwich generation,” the baby boomers are approaching retirement at a record pace. As we work with clients and client couples to get their financial and non-financial “ducks in a row,” it is becoming more and more common to discuss issues surrounding the assistance of one or both sets of parents and aging/long term care issues. If this sounds familiar, here are the possible roadblocks that this can cause for your retirement planning and some suggestions about what you can do to prevent them.

What are the Roadblocks?

• Providing assistance/caregiving often limits the time you can work; you may be forced to take family leave time to provide care, go to part time work, or even take early retirement.

• Working less reduces earnings, providing less Social Security earnings, and less in retirement savings for future retirement.

• Stopping work prior to age 65 may mean a need to bridge a health insurance gap when that was not the original plan.

• Caregiving can be stressful, especially if you are trying to continue to work and also have responsibilities with adult children and/or grandchildren, so your own health can become a concern.

• With so much going on, just being able to keep your “eye on the ball” and concentrate on your own retirement goals can be a challenge.

What Can You Do to Make Sure To Stay On Track?

If you find yourself in the position of assisting aging parents, now or in the future, do not assume that all is lost. There are things that you can do to make sure that your own retirement will stay on track:

• Have conversations with your parents and plan ahead as much as possible to make sure that their long term care is funded; have a conversation to discuss if they are willing and able to have non-family members provide care if and when the time comes (at least until you retire); have a professional moderate the planning conversation if it’s not a talk your family is comfortable having on their own.

• If you do end up leaving work to care for an aging parent, discuss having a paid caregiver contract drafted or determine if your parent’s Long Term Care insurance policy has the ability to pay you for your services as a caregiver.

• Make sure others take their turn and spread the responsibilities amongst others (see my recent blog on Family Care Agreements); take breaks and take care of yourself (caregiver stress is a real thing!).

• Continue to meet with your financial planner on an annual basis to keep yourself focused on your own goals along the way—continue to save for retirement as you are able and make progress.

We all have roadblocks that slow our progress towards our goals; aging parents might be one of yours.  The love and care we have for our family—especially our parents—is not something we would ever deny, however frustrating it might be when it delays that ultimate freedom we call retirement. But if we plan ahead, and coordinate with our families and professional partners, we can hope to make the roadblock more of a speedbump.  Contact me if you have questions about how your financial planner can be of assistance.

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.

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The information contained in this blog 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 Sandy Adams and not necessarily those of Raymond James. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Center for Financial Planning, Inc. Named to 2016 Financial Times 300 Top Registered Investment Advisers

Contributed by: Center for Financial Planning, Inc.

Center for Financial Planning, Inc. is pleased to announce it has been named to the Financial Times 300 Top Registered Investment Advisers, as of June 16, 2016. The list recognizes top independent RIA firms from across the U.S. This is the second year The Center has been on the list.

This is the third annual FT 300 list, produced independently by the Financial Times Ltd. in collaboration with Ignites Research, a subsidiary of the FT that provides business intelligence on the investment management industry.

The “average” FT 300 firm has been in existence for 22 years and manages $2.6 billion in assets.

More than 1,500 pre-screened RIA firms were invited to apply for consideration, based on their assets under management (AUM). Applicants that applied were then graded on six criteria: AUM; AUM growth rate; years in existence; advanced industry credentials of the firm’s advisors; online accessibility; and compliance records. Neither the RIA firms nor their employees pay a fee to The Financial Times in exchange for inclusion in the FT 300.

The 300 top RIAs hail from 34 states and Washington, D.C.

The FT 300 is one in series of rankings of top advisers the FT produces in partnership with Ignites Research, including the FT 401 (DC retirement plan advisers) and the FT 400 (financial advisers from traditional broker-dealer firms).

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This award is bestowed by an independent third party organization not affiliated with Raymond James.

Center Stories: Timothy Wyman, CFP®, JD

Contributed by: Timothy Wyman, CFP®, JD

If video had been around before the English idiom “a picture is worth a thousand words,” was first uttered, the phrase just might have been “a video is worth a million words.” 

A successful financial planning relationship is very personal, and for it to be truly successful it has to not only be personal but also worthy of trust. While education and credentials are important and the written word or professional bios provide a great medium to learn more about our backgrounds, trying to find out if a planner or firm might be a good fit is difficult to ascertain from words alone. Therefore, if we haven’t had the privilege of meeting yet I hope this video allows you to see, feel, and hear why I am passionate about helping folks make good financial decisions – it’s what I love to do.

If you feel that we might be a fit, please feel free to reach out. And if we decide to work together, you can be assured that I will do my best to stand in your shoes and use my roughly 25 years of experience to your benefit.

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

Insurance Basics: Property and Casualty

Contributed by: Nick Defenthaler, CFP®

Over the last several months, I have touched on the various forms of insurance that are typically most important within a well-rounded financial plan. As we wrap up with my 5 part blog series on insurance basics, I’d like to discuss property and casualty (P&C) insurance and discuss some items that should be on your radar when reviewing your coverage. 

Auto Insurance

Living in Michigan (one of the most expensive states in America for car insurance) we are all aware of how pricey coverage can get, especially if you have younger drivers in your household. As such, many of us (myself included) are solely focused on getting our premiums as low as possible and we often times don’t realize what we are sacrificing by doing so. There are several components to your auto policy and liability protection is critical. As a rule of thumb, we like to see clients maintain a minimum of $250,000 in bodily injury coverage per person and $500,000 per occurrence. This level of coverage could be more, however, based on your income. In most cases, coverage amounts are not at this level. One way to potentially increase coverage but maintain affordability of coverage would be to increase your policy’s deductible. 

Homeowners Insurance

If you have a mortgage on your home, homeowners insurance is required by the lender. If you own your home free and clear, however, you technically aren’t required to carry insurance, but going without coverage is something we would never recommend. On average, the annual premium for a typical home in Michigan will run approximately $700 – $1,000, and similar to auto, the lowest cost coverage should not be your main focus.

Here are some items you want to consider on your own policy:

Liability Coverage

• Typically we recommend at minimum $350,000 in protection, ideally closer to $500,000.
• This coverage will protect you from lawsuits from things like a dog bite or having someone trip and fall on your property.

Flood Back-Up

• Will provide coverage under certain circumstances if you have water in your home.

Jewelry, Art, Collectible, etc. Endorsements

• This will provide coverage on items like wedding rings, even if they are lost, stolen, or they fall down that dreaded bathroom sink!

Umbrella Insurance

As financial planners, one of our primary roles is helping you accumulate assets. Helping you protect those assets, however, is equally important in our opinion. An umbrella policy is designed to provide additional liability coverage above and beyond the limits of your homeowners and auto insurance policies in situations such as:

• Injuries on your property
• Damage to property
• Liability coverage on rental units
• Certain lawsuits, slander, libel, false arrest, malicious prosecution and other personal liability situations

Unfortunately, we live in an extremely litigious society, so employing the proper protection for your assets is crucial. For approximately $150/year, one can purchase a $1M umbrella liability policy, which is often a sufficient back-stop of liability coverage at a very reasonable cost.  

Like most of us, you probably only speak to your P&C agent once every few years (if that) and, as mentioned previously, chances are the main focus is on cost as opposed to the liability protection the insurance provides. We encourage clients to reach out to their agent at least once a year to check rates and make sure the proper coverage and protection is in place for their given situation – especially if you’re a small business owner or own rental properties. We realize this is an area that is many times over looked. To help navigate through this we have decided to host a small, in-office seminar to discuss this extremely important topic in greater detail. Click here for more details and to register – we hope to see you there!

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.

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This information does not purport to be a complete description of the Property and Casualty Insurance products referred to in this material. This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Opinions expressed are those of Nick Defenthaler and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Insurance guarantees are based on the claims paying ability of the insurance company.

FINRA BrokerCheck Rule Adds Resources to Our Website

Contributed by: Melissa Joy, CFP®

BrokerCheck is a free tool managed by financial industry regulator FINRA. This site researches professional backgrounds of investment adviser firms, their advisers, and brokers as well. You can search the background of your adviser for licensing, credentials, employment information, and misconduct.

In an effort to increase awareness of the services offered by BrokerCheck, advisers are now required to provide a link to this service on their websites. This information must be displayed on an advisory firm home page as well as biography pages.

In conjunction with these new rules, we have updated our website to provide these links. We are always proud to share our background with you and anyone interested in The Center and our services. We also think that regulatory efforts to increase disclosures to investors are in the best interest of everyone.

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.

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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.

Alexander Hamilton—the Man, the Musical, the Financial Founding Father

Contributed by: Benjamin Wright

As the 70th Tony Awards approach this Sunday, the rap-infused musical, Hamilton, has grabbed a record-breaking 16 nominations and seems to be all anyone can talk about. The musical premiered on Broadway in August of 2015, yet tickets are still extremely expensive, fetching no less than $700 per seat. Alexander Hamilton is portrayed by writer and composer Lin-Manuel Miranda, a 36 year-old Puerto Rican native. Miranda has recently spoken out, and sometimes even rapped, about the economic and debt crisis Puerto Rico is currently experiencing. During Miranda’s recent trip to the White House, he jokingly offered Hamilton tickets to Congress if that would help solve Puerto Rico’s problems. The parallels are uncanny as Miranda’s most famous and increasingly most popular work, Hamilton, dives into the life of Founding Father Alexander Hamilton and his role in the early American financial system, including our nation’s very first debt crisis.

Born in the Caribbean, Hamilton had to grow up quickly not having a father and losing his mother when he was thirteen. When Hamilton was seventeen, a hurricane devastated his town and he immigrated to New York seeking economic opportunity. After Hamilton served under George Washington in the Revolutionary War, he practiced law and founded the Bank of New York. The young United States found itself experiencing economic hardships and was in a heap of debt after borrowing from other countries, its own colonies, and even private colonists in order to support the revolutionary war effort. The government under the Articles of Confederation lacked sufficient tax authority over the states which only grew the national debt. Dissatisfied with the inefficiencies of the federal government, Hamilton wrote 51 of the 85 Federalist Papers which were a collection of essays promoting the ratification of the new U.S. Constitution. Under the newly approved Constitution, George Washington appointed Alexander Hamilton as the first Secretary of the Treasury.

In this role, Hamilton engineered a compromise with political opponents, Thomas Jefferson and James Madison, that would overhaul and centralize the debt market through the federal government. Hamilton’s plan was a major success and by demonstrating America’s willingness to pay off their debts, the U.S. became attractive to more foreign investors. Hamilton then proposed and helped create a national bank and paper currency. Additionally, Hamilton believed that the U.S. dependence on imports and exports limited the American economy. He supported high tariffs, government subsidies, and government-financed transportation improvements which were designed to protect American manufacturing. Most strikingly, it was an economic vision that had no place for slavery. Hamilton’s economic outlook contradicted Adam Smith’s “invisible hand,” laissez-faire, approach. Mixtures of these ideas have helped shape the modern capitalist economy the U.S. flourishes under today.

The popularity of the musical Hamilton is partly due to its groundbreaking format of rap/hip-hop with an almost all minority principle cast, but also in part due to the reentering and popularizing of Alexander Hamilton’s important role in history and in the development of our modern financial system. Though we generally learn the Founding Fathers’ roles in the creation of our country in school, Hamilton has effectively brought Hamilton to the center of our attention, making his contribution to our modern day economics impossible not to notice. So whether you’re watching the Tony Awards on Sunday, listening to coworkers and friends rave about the music, or using cash to make a purchase, it’s all thanks to Alexander Hamilton. 

Continuing to Work after Filing for Social Security

Contributed by: James Smiertka

If there’s a chance you will earn income while you are collecting Social Security, you will want to know about an extremely important rule put in place by the Social Security Administration called the “Earnings Test.” There are a variety of reasons why someone may earn income while receiving Social Security.  Whether it’s simply pursuing a passion after retirement or the financial need to pick up a part-time job, it’s important to fully understand the implications of earning income and collecting Social Security benefits prior to reaching your full retirement age (FRA). (Click here to see what your FRA is.) Once you reach full retirement age, however, you are not subject to any reduction of benefits from the “earnings test” on your earned income. Let’s take a look at two different examples in detail:

If you are under full retirement age (FRA) for the entire year:

• Earnings limit: $15,720

• Reduction of benefits: $1 for every $2 you earn above the earnings limit

• Example: John is currently 63 and his FRA is 66. John retires, immediately turns on Social Security benefits ($20,000/yr) but decides he wants to pursue his passion as a tutor and plans on earning $35,720 for the year. Since his earnings would be $20,000 over the Earnings Test limit ($35,720 – $15,720), one half ($1 of every $2 earned), or $10,000, would be withheld from his annual Social Security benefit, therefore, reducing John’s Social Security benefit to $10,000 for the year. 

In the year you reach full retirement age (FRA):

• Earnings limit: $41,880

• Reduction of benefits: $1 for every $3 you earn above the earnings limit

• Example: Sue is currently 65 but is reaching her FRA of 66 in a matter of months. She recently started collecting Social Security, which provides her $30,000/yr. Sue is still working, earning $161,880 annually and was not aware of the Social Security Earnings Test. Her earnings would be $120,000 over the earnings test limit ($161,880 – $41,880), one third ($1 of every $3 earned), or $40,000 would be withheld from her annual Social Security benefit. Since this amount is greater than her Social Security benefit, her entire benefit for this year would be withheld.

It’s important to note that if you have had Social Security benefits withheld because of your earnings, they are not lost forever. Once you reach full retirement age, your benefit will increase to compensate for the benefits that were withheld. It does, however, on average, take nearly 2 decades to essentially recover the benefits that were withheld. The bottom line is that there are very few instances where it would make sense to start collecting benefits if there is a strong likelihood that you will continue working. Instead of collecting Social Security early and more than likely having the majority (if not all) of your benefits withheld, you could simply delay benefits which permanently increases your Social Security benefit up to age 70 (More information on that here).

As you can see, there are many moving parts with Social Security, especially for clients who still plan to work prior to reaching full retirement age. Before turning your benefits on, we always recommend that you reach out to your financial planner to discuss your situation in detail to ensure the strategy you’re selecting is in line with your own personal goals and objectives. If you’d like to chat about your benefits and discuss different filing strategies, give us a call, we are happy to help! 

James Smiertka is a Client Service Associate at Center for Financial Planning, Inc.

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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 Jim Smiertka 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. Examples provided in this material are hypothetical and for illustrative purposes only.

Webinar in Review: Aligning your Values with your Investments

Contributed by: Clare Lilek

In the investment world and in our conversations with clients, there has been a lot more talk about Socially Responsible Investing (SRI), Impact Investing, and Environment, Social, and Governance (ESG) based investing practices. But what does it all mean? Laurie Renchik, CFP®, partner and lead planner, and Angela Palacios, CFP®, Director of Investments, hosted a webinar on the blossoming social investing trend and how to align your values with your investments. Basically, how you can use your investment dollars to support and directly impact your social values in a sustainable long term approach without diminishing returns.

First, Angela described the difference between SRI, Impact, and ESG investing, which all get thrown around when talking about aligning your values with your investments. Check out the chart below for a quick, and helpful, recap on the various terms:

Currently, ESG Investing is the direction the market could be heading, which breaks down in Environment, Social, and Governance related factors. Social factors can include labor policy practices; governance looks at the diversity of leadership and point of view on company boards; and environment refers to the environmental impact a company’s production has. ESG is a lens through which to evaluate a company and is a positive screen to identify certain behaviors that not only align with particular investor values, but can also be a guide to help reduce costs and help to increase business (potentially less law suits, less environmental cleanup necessary, diverse boards creating better business practices, etc).

When attempting to align your values with your investing dollars, Laurie emphasized the importance of setting priorities. She suggests writing down your values and seeing where they most strongly lie, whether that is in social innovation, environmental stewardship, corporate governance, or perhaps a combination of all three. Once you prioritize your values, you and your financial planner can discuss risk potential and growth options to find a portfolio that most effectively aligns your interests with your ultimate financial goals. Taking a holistic approach to your social financial planning, by matching your financial goals with your social values, can be implemented more easily with the help of an Investment Policy Statement. Using an Investment Policy Statement can provide a blueprint for future investments and their trajectory, while simultaneously acting as a report card for past performance. Laurie reviewed a particular example to further explain the concept.

Overall, the webinar provided clarity for the various terms and definitions floating around for this blossoming social trend, while providing real tools for assessing sustainability and performance. For more information on this topic, please watch the entire webinar via the link below, and feel free to contact Angela or Laurie with specific questions or if you want help aligning your values with your investments.

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

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The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. 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. 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 Laurie Renchik and Angela Palacios and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.