Student Loan Interest Rates Increase for the 2018/2019 School Year

Contributed by: Josh Bitel

Stop me if you’ve heard this before, college is expensive. For the second year in a row, rates on federal student loans for students attending college in the fall of 2018 are rising by 0.60%. This is a result of the rise in 10-year Treasury note rates. This rate increase wont effect loans made on or before June 30, 2018. Of course, this only applies to federal loans.

For current students, new loan payments will be slightly higher – to the tune of about two or three dollars per month. However, the bigger hit comes for students enrolling for the first time in the fall. With the combination of rising interest rates and the cost of college sky rocketing every year, repayment of these loans can feel daunting. We are likely to see consistent rate hikes for the foreseeable future which will serve to be a bigger burden down the road.  

These rate hikes stress the importance of reducing your need for loans, if possible. Saving as early as you can is an easy way to do this. Simply put, the more you have saved, the less you will need to borrow for education. Filling out the Free Application for Federal Student Aid (FAFSA) and applying for as many scholarships and grants as you qualify for is a great starting point.

Before applying for loans, you should always know how much you need to borrow, there are numerous student loan affordability calculators available online that can give you a sense of what you need and what you can afford. Bear in mind that you may qualify for more than you need, so fighting the temptation of a little extra spending money (at 6.60% interest) is key.

At any rate it is important to understand key information when signing into a loan. Education costs are steadily rising, and interest rates seem to be headed in the same direction. With a responsible payoff strategy and a little bit of hard work, you can start chipping away at that debt in no time. 

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

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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 Josh Bitel and not necessarily those of Raymond James.

When It Might Make Sense to Distribute an IRA Account

Contributed by: Sandra Adams, CFP®

As you might imagine, most financial planners (and most clients) have a preference for stretching the distribution of their IRA (or other qualified retirement) accounts over long periods of time so as to lessen the income tax burden on those accounts over many years.  And, if possible, most clients would prefer the ability to leave dollars in those accounts to their children and grandchildren as a form of legacy/inheritance. However, as life circumstances change, it sometimes makes sense to keep an open mind about how we view the distribution of those accounts. 

In our experience, we have found that it sometimes makes sense to consider accelerating the distribution of IRAs/qualified retirement accounts when the following circumstances are present:

• Owner of the IRA is an older adult (in this context, meaning beyond RMD status)

• IRA/Qualified Retirement Accounts are smaller accounts within the clients overall investment portfolio (i.e. have a $30k IRA and have other investment accounts/bank accounts to draw from)

• Are likely in a lower tax bracket than the heirs they might be leaving the assets to

• May have medical/health care costs to write off to offset the income from the potential income from IRA/qualified account distributions

While these circumstances certainly will not apply to MOST clients, they might apply to a select few. When they do, this strategy can not only save significant tax dollars but can simplify the distribution of an estate long term by avoiding the division of a small IRA amongst multiple beneficiaries.

If you or your family have questions about whether this strategy might apply to you or someone you know, please reach out to our Center Team.  We are always happy to help!

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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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. Any information is not a complete summary of all available data necessary for making a financial decision and does not constitute a recommendation. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. Raymond James does not provide tax advice. You should consult a tax professional for any tax matters related to your individual situation.

Webinar in Review: The Big Four - Understanding Estate Documents

Contributed by: Timothy Wyman, CFP®, JD

Missed the webinar? Don’t worry, there’s a recording!

See the below time stamps to listen to the topics you’re most interested in:

• What is estate planning? (Minute 0:30)

• Current Estate Tax Environment: (1:40)

• Last Will & Testament: (5:20)

• Revocable Living Trust (11:30)

• Durable Power of Attorney- Finances/ Property (12:10)

• Durable Power of Attorney- Healthcare (13:20)

• Asset Titling & Beneficiary Designations (14:30)

• Resources (15:50)

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.

Is there a loss when a municipal bond purchased at a premium matures at par value?

Contributed by: Center Investment Department

Investors often erroneously believe that they will lose money when purchasing a bond at a premium and allow it to mature at a lower par value.  In order to understand why this is not the case we should step back and explain some bond basics.

Coupon and Par Value explained

Bonds pay interest to you, the investor. A coupon is simply the amount of money that you receive at each interest payment (typically every six months). Par value, or the issuer’s price of a bond, is typically $1000. If a bond has a 5% coupon, then you receive 5% of $1000 every year; or $25 every 6 months.  The price you pay is often expressed as a percent of par value.  So if it is selling at $103 you are paying 103% of the par value, or $1,030. (1,000*1.03).

Why would you pay a premium?

When you buy a municipal bond at a premium price (or more than the $1,000 par value), you may be doing so because you are getting a higher coupon rate.  For example, let’s say the going market interest rate for a par value bond you are looking at is 3%.  If you found a bond that is paying a coupon of 4% with the same maturity you may think, “Jackpot!”  However, in order to buy this bond you are going to have to pay more than the $1,000 par value for the 3% bond. To better understand this we use the measure of yield to maturity (the rate at which the sum of all future cash flows from the bond is equal to the current price of the bond).  Ultimately, the yield to maturity should be very similar between the two bonds, you will just get more current income from the premium bond as it has a higher coupon, but you pay a higher price to get it.  Unfortunately, you don’t get to write off this “loss” when the bond matures and only pays you back the $1,000 par value.  The premium of this bond is amortized down each year and is being returned to you in the form of the higher coupon rate.  See the example below.

Once the bond finally matures, you have amortized out all of the premium over the life of owning the bond and your cost basis would ultimately be the par value now.  Fortunately, you don’t have to worry about calculating this yourself.  IRS guidelines require your custodian to calculate and report this on your yearly 1099 Form.

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 Tim Wyman and not necessarily those of Raymond James. Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. There is an inverse relationship between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall and when interest rates fall, fixed income prices rise. Investments mentioned may not be suitable for all investors. Investing involves risk and investors may incur a profit or a loss. Please include if clients are able to click on the link: 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.

Just Kickin’ It

Contributed by: Raya Chope

The Center is dedicated to living and encouraging a healthy, active lifestyle. So this year, we decided to take it to the next level and join a kickball league offered through an organization called, Stay & Play Social Club (SPSC). The season started out a little rough for our team. We lost a few games in a row, but that certainly didn’t discourage The Center spirit (we just had to warm up first). Once the team started to get a feel for the tips and tricks of the game, we eventually became one to beat. I suppose the saying is true: with all great failures, come great success. With that being said, we lost in the championship game, but ended up coming in third place! We can all agree that this was one of the most fun, team-building opportunities we have participated in.

If you’re interested, SPSC provides various sports leagues and tournaments for adults (21+) as a way to stay active, engaged and involved, all while having a great time doing so. Once a year, they present ‘Kicks for Kids’, a one-day, adult, charity Kickball Tournament that raises money to support healthy environments for children to stay active, and build valuable social and emotional skills through play.

As for team Just Kickin’ It, we will be back for the championship win next year!

Raya Chope is a Client Service Administrator at Center for Financial Planning, Inc.®

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Any opinions are those of Raya Chope and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Raymond James is not affiliated nor endorse Stay & Play Social Club or Kicks for Kids.

Seven Summer Financial Planning Strategies

It is summer time! So, if you get a few minutes in between all of the outdoor activities here are 7 quick financial planning strategies to review.  As always, if we can help tailor any of these to your personal circumstances feel free to reach out.

By now you have heard there is a new tax law.  Because we will not experience the actual affects until next April, many of us are not sure how it applies to our specific circumstances.

1. Do a quick tax projection with your tax preparer and check your tax withholding. Many of us will have an overall tax decrease – but withholdings from our paychecks also went down. Do not get caught off-guard. More importantly, some folks will see higher taxes due to the new limitations on certain itemized deductions. Combine this with lower withholding and you have a double whammy (read: you will be writing a bigger check to the IRS).

2. Lump and clump itemized deductions. The standard deduction has increased to $24k for married couples filing jointly. In addition, miscellaneous itemized deductions have been removed completely. $10k cap. For some. Lumping charitable deductions in one year to take advantage of itemizing deductions and then taking the standard deduction for several years might be best.

3. Utilize QCD’s. If you are over age 70.5 and making charitable contributions, you should consider utilizing QCD. Don’t know what QCD stands for? Call us now.

4. Consider partial ROTH conversions to even out your tax liability. If you are retired, but not yet age 70.5 (when RMD’s start). Don’t know what an RMD is? Talk with us today! If you are in this group, multiyear tax planning may be beneficial.

5. Most estates are no longer subject to the estate tax given the current exemption equivalent of $11.2M (times 2 for married couples). However, income taxes remain an issue to plan around. One of my favorites: Transfer low basis securities to aging parents and then receive it back with a step up in basis. If you think you might be able to take advantage of this let us know.

6. Review your distribution scheme in your Will or Trust. Are you using the old A-B or marital/credit shelter trust format? Do you understand how the increased exemption affects this strategy?

7. How should high-income folks prioritize their savings?
   Are you in the new 37% marginal bracket? If so, consider contributing to a Health Savings Account IF eligible. Next, consider making Pretax or traditional IRA/401k contributions. However, if you reasonably believe that you will be in the highest marginal tax bracket now AND in retirement – then the ROTH may be suggested. Know that for the great majority of us this will not be the case. Meaning, we will be in a lower bracket during our retirement years than our current bracket. Next, use Backdoor ROTH IRA contributions. If your employer offers an after tax option to your 401k plan, take advantage of it. You can then roll these funds directly into a ROTH. Next, consider a non-qualified annuity that provides tax deferral of earnings growth followed by taxable brokerage account.

If you have not received a copy of our 2018 Key Financial Data and would like a copy let us know! 

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.

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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 Tim Wyman and not necessarily those of Raymond James. Investments mentioned may not be suitable for all investors. Unless certain criteria are met, Roth IRA owners must be 591⁄2 or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. A fixed annuity is a long-term, tax-deferred insurance contract designed for retirement. It allows you to create a fixed stream of income through a process called annuitization and also provides a fixed rate of return based on the terms of the contract. Fixed annuities have limitations. If you decide to take your money out early, you may face fees called surrender charges. Plus, if you're not yet 591⁄2, you may also have to pay an additional 10% tax penalty on top of ordinary income taxes. You should also know that a fixed annuity contains guarantees and protections that are subject to the issuing insurance company's ability to pay for them. 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.

Volatility Isn’t Always a Bad Thing

Contributed by: Kali Hassinger, CFP®

If you’ve been paying attention to the markets this year, you’ve certainly noticed that the days of 2017’s slow and steady positive returns have disappeared.  Instead, 2018 has been full of daily market ups and downs, which, it turns out, is actually normal! 

With the calm and comfortable markets of 2017, it’s easy to let our short term memory overshadow previous years.  2018, on the other hand, has created feelings of investor anxiety as the markets switch between red and green on a daily basis.  The word volatility alone often has a negative connotation.  However, in relation to your portfolio, volatility also includes positive returns! 

Post 2008, overall portfolio and market returns have been positive. However, as presented in the chart below, each year since then has been filled with daily market movements of 1% - both up and down!  2017 is by far the greatest outlier within the most recent 10 year average.

Investors have to be willing to endure the occasional market rollercoaster in order to reach long-term goals.  Even though we work to minimize volatility over time, avoiding it altogether isn’t realistic.  Try to remember that we never base your plan on market returns of a single day or calendar year.  Staying disciplined and committed to your financial plan can help you filter out the noise and focus on your long-term goals. 

Kali Hassinger, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.®

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The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. As of June 2007 the MSCI World Index consisted of the following 23 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States. 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. Investing involves risk and investors may incur a profit or a loss. 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 the author and not necessarily those of Raymond James.

Sustainable Investments and Your Portfolio

Contributed by: Laurie Renchik, CFP®, MBA

Planning for a sustainable retirement is one that will financially support you for a lifetime. The financial planning process is dynamic as life unfolds and is subject to new information and changing circumstances along the way. 

One of the changes I see happening today is that a growing number of retirement savers are thinking more seriously about how a sustainable investment strategy fits into their overall investment plan. 

In tandem, the sustainable investment landscape is also evolving and growing.  Once a niche market, sustainable investing is becoming mainstream moving from a limited universe of investments focused on screening objectionable exposures to a range of solutions to achieve sustainable outcomes.  In fact, US investments focused on sustainable objectives grew 135% in the four year period from 2012 through 2016.**  With this volume of growth comes opportunity.  Demographic shifts, government policies and corporate views on environmental and social risk are the primary forces driving growth and change today.

For example, sustainable investing today includes Exclusionary Screens, ESG factors and Impact Targets.  Exclusionary screens avoid exposure to companies who operate in controversial sectors such as fossil fuels, tobacco or weapons.  ESG Factors invest in companies whose practices rank highly by Environmental, Social, and Governance (ESG) performance standards.  Impact Targets invest in companies whose products and solutions target measurable social or environmental impact.

If your goal is to create a sustainable retirement and in tandem allocate a portion of your investments to supporting a sustainable global future we can help. 

Our top priority is to create the best plan coupled with the best investment portfolio for you.  If that means taking sustainable investment preferences into consideration we have the resources and solutions available to build on traditional portfolio analytics to understand your current exposures and relevant sustainability factors.  We can set targets to improve the sustainability of your portfolio based on your personal objectives and measure performance data over time.

Contact us today to learn more!  Sustainable investing can drive positive social or environmental impact alongside financial results, allowing investors to accomplish more with their money.  Opportunity awaits.

Laurie Renchik, CFP®, MBA is a Partner and Senior Financial Planner at Center for Financial Planning, Inc.® In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie is a member of the Leadership Oakland Alumni Association and is a frequent contributor to Money Centered.

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**Year over year growth in sustainable assets in the U.S. 2012 to 2016. Source: Global Sustainable Investment Alliance. Views expressed are not necessarily those of Raymond James Financial Services and are subject to change without notice. Information contained herein was received from sources believed to be reliable, but accuracy is not guaranteed. Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision. Past performance is not indicative of future results. There is no assurance these trends will continue or that forecasts mentioned will occur.  Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success.

Nick Defenthaler, CFP® Named to Forbes list of “America’s Top Next-Generation Wealth Advisors” for second year

Contributed by: Center for Financial Planning, Inc.®

For the second year in a row, Nick Defenthaler, CFP® has been named to the 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, 2018.  

“I’m ecstatic to once again be recognized as one of the top next generation financial planners in the country.  It’s truly a privilege to serve such amazing clients and to be surrounded by an incredible team of professionals here at The Center.” Defenthaler said. 

Nick specializes in working with clients who are closely nearing retirement or currently retired.  He has a passion for helping clients throughout the retirement transition and working with them to develop a sound, tax-efficient retirement income and portfolio decumulation strategy.  In addition to meeting with clients, Nick is the Director of The Center’s Financial Planning Department, a member of the firm’s Operations Committee as well as a frequent speaker and writer on various financial planning and investment related topics.

 Email Nick to set up an initial meeting.  Learn more about our process here.

The Forbes ranking of “America’s Top Next-Generation Wealth Advisors,” developed by Shook Research, Data as of 3/31/2018 SHOOK Research considered advisors born in 1980 or later with a minimum 4 years relevant experience. 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 derived from telephone and in-person interviews and surveys: service models, investing process, client retention, industry experience, review of compliance records, firm nominations, etc.; 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. Neither SHOOK nor Forbes receives compensation from the advisors or their firms in exchange for placement on a ranking. Raymond James is not affiliated with Forbes or Shook Research, LLC. This ranking is not indicative of advisor’s future performance, is not an endorsement, and may not be representative of individual clients’ experience. Out of 5,832 advisors considered, 1000 made the final list in 2018.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 ten financial planners and 29 total team members who work with more than 900 clients; the firm manages more than $1.1 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. Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.

Webinar in Review Blog: Staying Safe with Best Practices

Contributed by: James Brown

In today’s technology environment, information is just a click away. Sadly, bad guys looking for your information are just a click away also. Good security practices can protect you from becoming prey while you are on the Web.

The Center for Financial Planning, Inc.® offers some best practices on how to protect your accounts and your information.

Basic Security Hygiene: (Minute 1:15)

• Prevention

• Updates

• Firewalls

• Safe Browsing

Mobile\Wireless Security: (Minute 6:50)

• Limit your transactions

• Make sure the network is the right network

• ·Turn off what you are not using

Passwords: (Minute 11:10)

• Bad Practices

• Good Practices

Final Solution: (Minute 25:00)

• Your Backup Plan

• Backup best Practices

James Brown is an IT Manager at Center for Financial Planning, Inc.®