Webinar in Review: College Planning: How to Navigate Financial Aid and the FAFSA

Contributed by: Abigail Fischer

Filling out the FAFSA is only one of the many tasks requiring your attention while you, or your young adult, prepares for entering college. That’s why we invited Carrie Gilchrist, Ph.D, to join Nick Defenthaler, CFP® for the College Planning webinar. She is the Senior Financial Aid Outreach Advisor at Oakland University, and well versed at assisting families with their financial concerns.

Here are a few key points from the College Planning webinar:

• The FAFSA is available October 1st.

• Everyone should fill out the FAFSA, even if you don’t think you’ll be eligible to receive aid money. At the very least, you’ll be offered loans. At best, your college might use the FAFSA to determine who will receive university-based scholarships.

• Your completed FAFSA might offer benefits other than the typical education loan:

  • Federal Pell Grants (given through your school’s loan money bank)

  • Teacher Education Assistance for College and Higher Education Grant (TEACH)

  • Federal Supplemental Education Opportunity Grant (SEOG)

  • Federal Work-Study (the fed. pays 70% of your wages for on-campus jobs)

  • Parent PLUS Loans (parents can take out federal loans with much lower interest rates than a private bank loan)

• A CSS Profile is used to reward institutional aid, used by over 400 colleges nationwide.

• When filing the FAFSA within a divorced family, your federal aid need is determined by the custodial parent.

• If there is a significant change in your finances after your FAFSA has been submitted, contact the school and inquire how they can assist you through this school year.

• If you don’t need a loan, please don’t take a loan!

You need these documents to complete the FAFSA: 

• Taxed and untaxed income

• Current bank statements

• Records of investments

Here are some helpful websites:

• FSAID.ed.gov (to create your FAFSA ID)

• FAFSA.gov (for the FAFSA4caster and Net Price Calculator)

• cssprofile.collegeboard.org (CSS Profile Application)

The Center, and your financial planner, are here to assist you in planning for college, just give us a call!

Please check out the College Planning Webinar, recorded on September 21st, 2017:

Abigail Fischer is a Client Service Assistant at Center for Financial Planning, Inc.®

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Raymond James is not affiliated with Carrie Gilchrist or Oakland University. Links are being provided for informational 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.

Ballin' on a Budget

Contributed by: Josh Bitel

When I was fresh out of college, one of the most important things for me to learn was how to budget properly. Considering I was taking on my first job with level, predictable income, I knew that it was critical for me to understand where my money goes each month. If I didn’t identify opportunities for savings, I knew I would blow through my money quickly, but I wasn’t sure where to start!

Identifying Financial Goals

Before I could create a budget, I had to identify some goals in order to give my budget a sense of direction. My goals were more short term in nature (pay down student loans, save for vacation, etc.), but long term goals are just as important. If you aim to retire someday, or a child’s education expenses are a concern, budgeting with these goals in mind is certainly a good idea. Once you have a clear picture of what you want to achieve with your budget, it can become much easier to accomplish these goals.

Understanding Monthly Income and Expenses

One of the more difficult, but most important, components of a budget is identifying monthly income and expenses. There is software available that you can leverage, or you can use the old school method and take pen to paper. Regardless of how you come to a conclusion, it is imperative to cover all the bases.

When considering income (outside of the obvious salary or wages), be sure to include any dividends or interest received. Alimony or child support expenses may also come into play depending on your situation. Expenses may be divided into two categories: fixed and discretionary. Fixed expenses are generally easier to document --  these will be your recurring bills or debt payments (Food and transportation can also be captured here). Discretionary expenses are generally more difficult to record (Entertainment expenses, or hobbies and miscellaneous shopping trips are common line items here). It’s also important to keep in mind any out of pattern expenses, like seasonal or holiday gifts, or car and home maintenance. Remember to always keep your goals in mind when crafting your budget!

Once you’ve gotten grasp on your monthly income and expenses, compare the two totals. If you are spending less than you earn, you’re on the right track and can explore ways to use the extra income (save!). Conversely, if you find that you are earning less than you spend, use your budget to identify ways to cut back your discretionary spending. With a little bit of discipline you can start finding capacity to save in no time!

Monitor your Budget & Stay on Track.

Be sure you keep an eye on your budget and make changes when necessary. This doesn’t mean you have to track every nickel you spend; you can be flexible and still be comfortable! It is important to stay disciplined with your budget however, and be aware that unexpected expenses may pop up. With proper cash management, these unexpected events can feel less crippling. To help stay on track, you may find a budgeting software that you like to use, do your research and find one that is suitable for you. A vital takeaway, and something that can go a long way to help increase savings, is being able to identify a need vs. a want. If you can limit your “want” spending, you may be surprised how quickly you can save!

Josh Bitel is a Client Service Associate at Center for Financial Planning, Inc.®

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The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Josh Bitel and not necessarily those of Raymond James.

Life Insurance and Divorce: A Cautionary Tale, Part One

Contributed by: Jacki Roessler, CDFA^TM

Years ago, I got a call from Lindsay, a divorced client that still sends shivers down my spine. Her divorce had been final for two years when her ex, Justin unexpectedly died from a heart attack. In order to maintain her living expenses, Lindsay had been dependent on Justin’s monthly child support payments for their two young children.  Once the initial trauma subsided, Lindsay pulled out her divorce decree and breathed a sigh of relief; Justin had agreed to maintain a $250,00 life insurance policy to secure his child support payments.

So; why the phone call?

Justin missed a premium payment and the policy lapsed. Lindsay’s child support income was gone and despite their divorce agreement, there wasn’t anything to replace it.

The worst part of this situation was how easily it could have been prevented.

Taking a step back, there are four parties to every life insurance contract; the insurance carrier, the policy owner, the insured (the measuring life) and the beneficiary.

Life insurance is a legally binding agreement that the carrier will make a lump sum payment to a designated beneficiary upon the death of the insured-in exchange for annual premium payments. 

The simplest and easiest solution was to require Justin to transfer ownership of the policy to Lindsay at the time of the divorce.  He would have remained the insured and the person responsible for premium payments.  However, when payments are missed, it’s the owner who’s notified, not the beneficiary. Once a policy lapses, it’s too late to reinstate it. A new policy can be obtained, but only if the insured is still in good health and is willing to cooperate with the application process!  Lindsay could have made the delinquent payment herself and then attempted to enforce the divorce agreement directly with Justin or through the court system. Either way, the policy would have stayed in force.

In my experience, attorneys can be very uncomfortable insisting on policy ownership transfers.

By the time agreement’s reached on the parenting schedule, alimony and who gets to the keep the house, no one wants to see the case fall apart over who owns the life insurance policy.  As it was in Lindsay’s case, this was a disastrous mistake on her attorney’s part.

As an additional reason to change ownership on the policy, keep in mind that only the owner can change the life insurance beneficiary. Suppose Justin had remarried and decided to switch the beneficiary to his new wife. Sure, he would have been in default of the divorce decree, but there wouldn’t be any consequences to that once he’s dead.

Another unexplored option in this case was to request that the insurance carrier send duplicate statements to Lindsay, the beneficiary. Since the divorce decree itself isn’t legally binding on third parties (like the insurance carrier), there isn’t any real way to force this on the carrier, but some will comply. 

A last option would have been a requirement that Justin pay annual premium payments instead of monthly. Although most people prefer to make monthly or quarterly payments on insurance contracts, this would have provided Lindsay with less to follow up on. Rather than being forced to confirm monthly payments, she’d only have to confirm once per year.

Luckily, Lindsay’s kids were eligible to receive Social Security survivor benefits, which helped replace some of the child support income and she was eligible for widows’ benefits while their children remained minors. Despite that, she was still forced to sell her house.

The moral to this tale? Sometimes the issue that seems nit-picky or trivial is the one that can unravel someone’s finances after a divorce.  If you’re dependent on an income stream to pay your bills, make sure you understand how it can be protected and then insist on it before you sign your judgment of divorce.

Are there any other tax issues or potential financial pitfalls related to life insurance and divorce?  Glad you asked and yes, there are! Stay tuned for my next blog!

Jacki Roessler, CDFA^TM is a Divorce Financial Planner at Center for Financial Planning, Inc.®

Irma’s Devastating Winds Don’t Devastate The Market

Contributed by: Nicholas Boguth

Hurricane Irma, one of the strongest and longest-lasting hurricanes ever recorded, recently passed leaving a long path of destruction behind it. People from the Caribbean to Florida prepared for the beast of a storm prior to labor day weekend, but there is only so much that could be done before its 180+ mph winds tore through the Virgin Islands on Wednesday the 6th, Cuba on Friday, and finally Florida and Georgia by Sunday. Entire islands were left in shambles across the Caribbean, Florida and Georgia sustained major damage, and millions of people are left without power and water.

How did the market respond?

We are constantly reminded that the markets do not like uncertainty, and this rings true when you look at short periods of volatility, but look at all of the uncertainty that we’ve seen in the past 15 years. Since ’02, we’ve had 3 presidents from republican, to democrat, back to republican, Congress party control flipped multiple times, we’ve seen 2 major wars, devastating natural disasters, massive oil spills, major business and even city bankruptcies, and a “Great Recession”. What did the S&P 500 do over the past 15 years? It is up about ~9% annualized, which is right on par with the average return of the S&P over the past 100 years.

Reminder: be a long term investor. Do not try to time the market, and if you ever have any questions – we are here to help!

Nicholas Boguth is an Investment Research Associate at Center for Financial Planning, Inc.® and an Investment Representative with Raymond James Financial Services.

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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 Nick Boguth and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. 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. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results.

Finding the Right Professional Partner: A Personal Story

Contributed by: Sandra Adams, CFP®, CeFT™

I suffer from migraine headaches. Soon after I graduated from college, I began to get these debilitating headaches more and more often (up to 3 or 4 times a week), sometimes lasting entire days at a time.  I have spent years working with numerous medical doctors, as well as tracking the headaches -- what I eat and drink, how I sleep and various other life habits in an attempt to find a way to stop them from occurring.  The traditional medical doctors I’ve seen have prescribed numerous medications (and subsequently increased dosages of those medications) in an attempt to treat the headaches – but with no results. Until recently, when I took a different approach…

I found a different professional partner to consult with about my headaches – a doctor who consults on the whole body/body systems and does not try to treat just one symptom. 

By working with a doctor who was looking at how my entire body was functioning, I found out that there were some underlying problems that existed with how my body was handling stress and by adjusting a few small things with my diet and sleep, I have all but eliminated by migraine headaches over the last several months.

What, you might ask, does this have to do with financial planning? 

Choosing the right professional partner, no matter what facet of your life, is extremely important.  Just as it made a world of difference for me to find the right medical partner, it is important for clients to find the right financial partner.  A partner who only focuses on investments or just on insurance may not be the right partner for you if you truly need someone to look at your entire financial “body” to make sure everything is working together in perfect harmony.  If you have not yet found the right professional financial partner and are looking for someone to look at your entire financial lives, contact our Center Team – we are here to help!

Sandra Adams, CFP® , CeFT™ 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.

The Importance of Friendships as We Age

Contributed by: Sandra Adams, CFP®, CeFT™

As a younger planner, I remember hearing planners older and wiser than I counseling clients to think twice before making the decision to leave their lifelong homes and communities upon retirement to move near children in a distant state (or country).  Despite that advice, many clients still think the best move as they age is to be nearest children (and grandchildren). 

However, they often regret that decision for a number of reasons:

• They find their families have their own lives to live and just don’t have the time to spend with them that they thought they would (spending time with “Mom and Dad” is not a priority);

• They may find that their children decide to relocate again, and then they are left in a location that they are unfamiliar with and have no family or community to call their own;

• Most importantly, they find that they truly miss the friends and community they spent years building.

Several conversations in client meetings recently have confirmed to me the importance of longtime friendships in the lives of older adult clients.  Friendships are especially important to those who have been widowed; it seems that family members provide support immediately after a death, but once they have a need to go back to their normal routines, it is friends that provide the emotional and social support that help widows get through the next months and years that are most difficult.  And for many older adults who have attempted to move away and start friendships in unknown communities, they realize that it is their longtime friendships that they truly value and miss (and sometimes find themselves wanting to come back to in older age).

Studies by the National Institutes of Health show that maintaining friendships and staying socially active are key components to a happy, healthy longer life.  Making the right decisions about where to live and near who are key decisions for quality of life and part of your retirement planning.  If you have not yet had these conversations about YOUR future retirement plan, contact your financial planner today.

Sandra Adams, CFP® , CeFT™ 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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This information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. Opinions expressed are those of Sandra Adams and are not necessarily those of Raymond James.

Nick Defenthaler, CFP® NAMED TO INAUGURAL FORBES LIST OF AMERICA’S TOP NEXT-GENERATION WEALTH ADVISORS

Contributed by: Center for Financial Planning, Inc.®

Southfield, MI – Nick Defenthaler, CFP®, Financial Planner at Center for Financial Planning, Inc.®, was recently named to the inaugural Forbes list of “America’s Top Next-Generation Wealth Advisors.” The list, which recognizes advisors from national, regional and independent firms, was released online July 25, 2017.  

"It’s an honor and humbling to be recognized as one of the top next-generation financial planners in the country," Defenthaler said. "I’m grateful for the amazing team I’m surrounded by each and every day that has helped me to continually progress in my career."

The Forbes ranking of “America’s Top Next-Generation Wealth Advisors,” developed by Shook Research, is based on an algorithm of qualitative and quantitative data, rating thousands of advisors with a minimum of four years of experience and weighing factors like telephone and in-person interviews, client retention, industry experience, credentials, review of compliance records, firm nominations and quantitative criteria, such as: assets under management and revenue generated for their firms. Investment performance is not a criterion due to varying client objectives and lack of audited data. Neither Forbes nor Shook receives a fee in exchange for rankings.*

Defenthaler, who specializes in working with nearly and newly retired individuals and families, is also director of financial planning at The Center. He also sits on the board of directors at Michigan Financial Planning Association where he is the leader of the chapters Next Generation focus group.

Center for Financial Planning, Inc. is a wealth management and financial planning registered investment advisor located in Southfield, Michigan. Founded in 1985, the firm has seven financial planners and 24 total team members who work with more than 800 clients, the firm manages more than $1 billion in assets under management.

Securities are offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services offered through Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.

* Past performance is not indicative of future results. Individual experiences may vary. Shook – Data provided by SHOOKTM Research, LLC. Data as of 3/31/17. SHOOK considered advisors born in 1980 or later with a minimum 4 years relevant experience. 2,356 Millennial advisors were considered based on high thresholds from which 500 were chosen. Advisors have: built their own practices and lead their teams; joined teams and are viewed as future leadership; or a combination of both. Ranking algorithm is based on qualitative measures: telephone and in-person interviews, client retention, industry experience, credentials, review on compliance records, firm nominations; and quantitative criteria, such as: assets under management and revenue generated for their firms. Investment performance is not a criteria because client objectives and risk tolerances vary, and advisors rarely have audited performance reports. Rankings are based on the opinions of SHOOK Research, LLC, which does not receive compensation from the advisors or their firms in exchange for placement on a ranking. For more information see www.SHOOKresearch.com.

Guide to the 2017 Benefits Open Enrollment

Contributed by: Nick Defenthaler, CFP®

As summer winds down and we quickly approach the holiday season, many employees will soon be updating their benefit options at work during open enrollment (click here to check out our webinar from last year on this topic).  It’s extremely easy to procrastinate and set that employer benefit booklet off to the side and put it off until you receive the e-mail from HR reminding you it’s due in a few days.  You scramble to complete the forms and more than likely, not spend as much time as you should on electing the benefits that will impact you for the next 365 days.  We’ve all been there, but it’s important to carve out a few hours several weeks before your benefit elections are due to ensure you put in enough time to thoroughly review your options.

If offered by your employer, below are some benefits that you should have on your radar:

• 401k Contributions

  • Are you maximizing your account? ($18,000 or $24,000 if you’re over 50 in 2017)

  • Traditional vs. Roth – click here to learn more about which option could make sense for you  

• Health Insurance

  • HMO vs. PPO - Click here to learn more about how these plans differ from a cost and functionality standpoint  

• Flex Spending Accounts (FSA)

  • “Use it or lose it” – click here to learn more 

  • Medical FSA maximum annual contribution 2017 is $2,550

  • Dependent care FSA maximum annual contribution for 2017 is $5,000

• Health Savings Accounts (HSA)

  • Can only be used if covered under a high-deductible health care plan

  • Click here to learn more about the basics of utilizing a HSA 

    • $3,400 maximum annual contribution in 2017 if single ($4,400 if over 50)

    • $6,750 maximum annual contribution in 2017 for a family ($7,750 if over 50)

• Life and Disability Insurance

  • Most employers will offer a standard level of coverage that does not carry a cost to you as the employee (example – 1X earnings)

  • If you’re in your 20s, 30s and 40s, in most cases, the base level of coverage is not sufficient, therefore, it’s important to consult with your advisor on the on appropriate amount of coverage given your own unique situation  

As with anything related to financial planning, every situation is different.  The benefits you choose for you and your family more than likely will not make the most sense for your lunch buddy co-worker.  We encourage all clients to loop us in when reviewing their benefit options during open enrollment – don’t hesitate to pass along any questions you might have to ensure you’re making the proper elections that align with your own personal financial goals.

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc.® Nick works closely with Center clients and is also the Director of The Center’s Financial Planning Department. He is also a frequent contributor to the firm’s blogs and educational webinars.

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This information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete.

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4 steps to our Due Diligence Process

Contributed by: Angela Palacios, CFP®, AIF®

My friend’s wife is constantly putting him on a diet. He often appeases her by ordering taco salads instead of a traditional entree.  She assumes he’s eating healthy, but little does she know: some taco salads can pack as many as 1,700 calories and over 100 grams of fat! His wife might need to do her homework.

As important as it is to the success of dieting to understand what you are eating, it is equally important to understand what you are buying when investing.  Once you have identified your appropriate mix of asset classes for your risk tolerance and time horizon (your strategic allocation), it is time to start doing your homework to identify the appropriate securities to fill each asset bucket. 

Here is a summary of the steps we follow at The Center:

• Qualitative Review: We generate ideas through reading, conference attendance, peer networking and searches in Morningstar Direct.  The following criteria serve as a starting point.

  • At least $50 Million of Assets Under Management (AUM)

  • Manager tenure of 10 years or more

  • Bottom half of expense ratio in category

  • Manager invests in their strategy ($1 Million and up preferred)

• Quantitative Review: We review the performance and risk characteristics of investment options within the category.  Criteria may include but are not limited to:

  • Review of rolling returns to identify performance standouts over different time periods – 1, 3, 5, and 10 years.

  • Review of performance during difficult time periods (bear markets or periods of performance difficulty for the asset category).

  • Review of rolling statistics including standard deviation, alpha, beta, Sharpe and information ratio relative to best-fit benchmarks.

  • Review of upside-downside capture.

  • Review asset flows by category and individual security.

• Due Diligence Questionnaire & Manager Interview:  Center for Financial Planning’s Due Diligence Questionnaire is submitted to the short list candidates for completion.  Manager interviews for active strategies are conducted via phone conference or in-person interview. 

• Mock-up in portfolios: Position is added into a mockup of the portfolio to identify if intended outcome is achieved and what degree of exposure is required to help attain the desired outcome (percent allocated within the portfolio).

You can also view a simplified graphic on this process:

You can do your investment “waistline” a favor by doing your homework. Don’t be fooled by taco salads, make sure you are getting what you want when it comes to investing by having a defined buying process, or talking to your financial planner about establishing one that is appropriate for you!

Angela Palacios, CFP®, AIF® is the Director of Investments at Center for Financial Planning, Inc.® Angela specializes in Investment and Macro economic research. She is a frequent contributor The Center blog.

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Any opinions are those of Angela Palacios and not necessarily those of Raymond James.