How Much Guaranteed Income Should You Have In Retirement?

Contributed by: Nick Defenthaler, CFP®, RICP®

How much guaranteed income (we’re talking Social Security, pension, and annuity income) should you have in retirement? I am frequently asked this by clients who are nearing or entering retirement AND are seeking our guidance on how to create not only a tax-efficient but well-diversified retirement paycheck. 

“The 50% Rule”

Although every situation is unique, in most cases, we want to see roughly 50% or more of a retiree’s spending need satisfied by fixed income. For example, if your goal is to spend $140,000 before-tax (gross) in retirement, ideally, we’d want to see roughly $70,000 or more come from a combination of Social Security, pension, or an annuity income stream. Reason being, this generally means less reliance on the portfolio for your spending needs. Of course, the withdrawal rate on your portfolio will also come into play when determining if your spending goal would be sustainable throughout retirement. To learn more about our thoughts on the “4% rule” and sequence of return risk, click here.  

Below is an illustration we use frequently with clients to help show where their retirement paycheck will be coming from. The chart also displays the portfolio withdrawal rate to give clients an idea if their desired spending level is realistic or not over the long-term.

Cash Targets

Once we have an idea of what is required to come from your actual portfolio to supplement your spending goal, we’ll typically leave 6 – 12 months (or more depending of course on someone’s risk tolerance) of cash on the “sidelines” to ensure the safety of your short-term cash needs. Believe it or not, since 1980, the average intra-year market decline for the S&P 500 has been 13.8%. Over those 40 years, however, 30 (75% of the time) have ended the year in positive territory:

Market declines are imminent and we want to plan ahead to help mitigate their potential impact. By having cash available at all times for your spending needs, it allows you to still receive income from your portfolio while giving it time to “heal” and recover – something that typically occurs within a 12-month time frame.

A real-world example of this is a client situation that occurred in late March 2020 when the market was going through its bottoming process due to COVID. I received a phone call from a couple who had an unforeseen long-term care event occur which required a one-time distribution that was close to 8% of their entire portfolio. At the time, the stock portion of their accounts was down north of 30% but thankfully, due to their 50% weighting in bonds, their total portfolio was down roughly 17% (still very painful considering the conservative allocation, however). We collectively decided to draw the income need entirely from several of the bond funds that were actually in positive territory at the time. While this did skew their overall allocation a bit and positioned them closer to 58% stock, 42% bond, we did not want to sell any of the equity funds that had been beaten up so badly. This proved to be a winning strategy as the equity funds we held off on selling ended the year up over 15%.  

As you begin the home stretch of your working career, it’s very important to begin dialing in on what you’re actually spending now, compared to what you’d like to spend in retirement.  Sometimes the numbers are very close and oftentimes, they are quite different.  As clients approach retirement, we work together to help determine this magic number and provide analysis on whether or not the spending goal is sustainable over the long-term.  From there, it’s our job to help re-create a retirement paycheck for you that meets your own unique goals.  Don’t hesitate to reach out if we can ever offer a first or second opinion on the best way to create your own retirement paycheck.

Nick Defenthaler, CFP®, RICP® is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® Nick specializes in tax-efficient retirement income and distribution planning for clients and serves as a trusted source for local and national media publications, including WXYZ, PBS, CNBC, MSN Money, Financial Planning Magazine and OnWallStreet.com.

---

Opinions expressed are those of the author but not necessarily those of Raymond James, and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Charts in this article are for illustration purposes only.

Important Information for Tax Season 2020

Contributed by: Lauren Adams, CFA®, CFP®

As we prepare for tax season, we want to keep you apprised of when you can expect to receive your tax documentation from Raymond James.

2020 Form 1099 mailing schedule

• January 31 – Mailing of Form 1099-Q and Retirement Tax Packages

• February 15 – Mailing of original Form 1099s

• February 28 – Begin mailing delayed and amended Form 1099s

• March 15 – Final mailing of any remaining delayed original Form 1099s

Additional important information

Delayed Form 1099s

In an effort to capture delayed data on original Form 1099s, the IRS allows custodians (including Raymond James) to extend the mailing date until March 15, 2021, for clients who hold particular investments or who have had specific taxable events occur. Examples of delayed information include:

• Income reallocation related to mutual funds, real estate investment, unit investment, grantor and royalty trusts, as well as holding company depositary receipts

• Processing of original issue discount and mortgage-backed bonds

• Expected cost basis adjustments including, but not limited to, accounts holding certain types of fixed income securities and options

If you do have a delayed Form 1099, we may be able to generate a preliminary statement for you for informational purposes only, as the form is subject to change.

Amended Form 1099s

Even after delaying your Form 1099, please be aware that adjustments to your Form 1099 are still possible. Raymond James is required by the IRS to produce an amended Form 1099 if notice of such an adjustment is received after the original Form 1099 has been produced. There is no cutoff or deadline for amended Form 1099 statements. The following are some examples of reasons for amended Form 1099s:

• Income reallocation

• Adjustments to cost basis (due to the Economic Stabilization Act of 2008)

• Changes made by mutual fund companies related to foreign withholding

• Tax-exempt payments subject to alternative minimum tax

• Any portion of distributions derived from U.S. Treasury obligations

What can you do?

You should consider talking to your tax professional about whether it makes sense to file an extension with the IRS to give you additional time to file your tax return, particularly if you held any of the aforementioned securities during 2020.

If you receive an amended Form 1099 after you have already filed your tax return, you should consult with your tax professional about the requirements to re-file based on your individual tax circumstances.

You can find additional information here.

As you complete your taxes for this year, a copy of your tax return is one of the most powerful financial planning information tools we have. Whenever possible, we request that you send a copy of your return to your financial planner, associate financial planner, or client service associate upon filing. Thank you for your assistance in providing this information, which enhances our services to you.

We hope you find this additional information helpful. Please call us if you have any questions or concerns about the upcoming tax season.

Lauren Adams, CFA®, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional and Director of Operations at Center for Financial Planning, Inc.® She works with clients and their families to achieve their financial planning goals and also leads the client service, marketing, finance, and human resources departments.

---

Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. Raymond James financial advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.

Should Some Of Your Money Be In Bonds?

Contributed by: Angela Palacios, CFP®, AIF®

The Center's Director of Investments Angela Palacios, CFP®, AIF® explains 3 reasons why you should own bonds.

Through thoughtful financial planning, The Center wants to make sure that you achieve your goals regardless of what markets are doing for short periods of time.  We are often asked why we would want to own bonds in a portfolio (especially now with interest rates at all-time lows!). While equity markets generally provide positive returns, there are still periods when they do not.

By their nature, stocks are better than bonds at providing investment returns as there is more risk involved in investing.  There is no promise to repay your principal or interest along the way.  However, while stocks might be better at providing total returns, bonds can provide returns more consistently because of these “promises”.  If we were only focused on investment return, our portfolio would reflect 100% stocks. However, for most investors it still makes sense to continue holding bonds…here are a few reasons why!

Reason #1: To support a withdrawal strategy

One of the worst-case scenarios could have been retiring right before the Great Recession (late 2007).  What if you had retired right before this scenario and needed to withdraw money from your portfolio even as markets corrected?  Owning bonds during times of stress means there is a bucket within your portfolio that you can live on – perhaps for extended periods of time if needed – without having to touch stock positions that are down (they can even provide funds to deploy into equities opportunistically or through routine rebalancing).  Using bonds as your source of income during this time (both the interest and selling bond positions) allows the equity positions a chance to rebound (which usually happens as we have experienced in the past). 

Reason #2: Less Downside Capture

If you capture less of the downside it usually won’t take you nearly as long to get back to your “break-even” or back to where your portfolio value started before equity markets correct.  The below chart does a great job of showing how this looked after the Great Recession.  It shows the dark blue line [a portfolio mix of 60% stock(S&P 500) and 40% bonds (Barclays US aggregate bond index)] recovered nearly a year and a half earlier than a portfolio holding just stock.

JP Morgan Guide to the Markets

Reason #3: Better Investor Behavior

Never underestimate the shock of opening a statement and seeing a swift downturn in your nest egg!  An allocation to bonds can potentially really assist your portfolio in this aspect as shown by the chart above.  If you look at the February ’09 point on the chart and cover up everything to the right of that, ask yourself “Is the “green line” experience something you could shrug off and continue holding or even invest more at this point?”.  Now it is clear that you should have held on to your stock positions but in those moments back in 2009, we didn’t have the benefit of “hindsight” to lean on.

Current Events: What Do Bonds Have Going For Them Now?

JP Morgan Guide to the Markets

All that being said, bonds are in a unique position right now (although similar to where we stood 5 years ago before rates started to rise).  So what do bonds have going for them other than just how they behave as part of your overall return experience?  There are a few tailwinds out there for bonds.  For U.S.-based bonds, while interest rates are low in the U.S., they are still better than other countries with the exception of emerging markets and below investment grade issues.  This steadily attracts buyers of our debt supporting prices even at these low-interest rates.

Another point is that we are still in the midst of a pandemic, there could continue to be unanticipated economic impacts that affect markets unexpectedly.  The economy is pretty vulnerable right now and when we are vulnerable an unexpected shock (black swan event) could have a larger than expected impact on markets if it were to occur.  Remember these are events no one could see coming (like the pandemic itself!).  Right now it is a far easier decision to sell stock positions and rebalance into bonds while calmer markets are prevailing than in the midst of a downturn.  These markets are pricing everything to perfection, rates staying low, Federal reserve continuing with their bond-buying strategies, vaccine dosages being deployed without a hiccup, no more widespread shutdowns, another government stimulus package, etc.  Things don’t always go to plan so adding to bonds helps to insulate you against events that are out of our control.

Another caveat to this is the lower interest rates are, the fewer bonds tend to correlate with stocks.  Meaning when rates are lower the assistance they provide during equity market downturns should be improved.

The chart below provides the historical basis for this view. It shows for each month since 1926 the stock-bond correlation over the subsequent 120 months (orange line). The chart also plots for each month where the 10-year Treasury yield stood (blue line). Notice that the two data series tend to rise and fall in unison, with higher Treasury yields associated with higher stock-bond correlations over the subsequent decade.  It also shows that while the 10-year treasury rate stays below 4% their performance remains uncorrelated or negatively correlated which is exactly what we are hoping for in the event of equity market volatility.

What If The Markets’ Worst Fears Are Realized And Rates Increase Causing Bonds To Lose Value?

A bad year of performance for bonds is far different than for equities.  This decade has had some tough years for bond positions.  The Bloomberg Barclays US Aggregate bond index has experienced a negative performance calendar year in 2013 (-1.98%) and two years where returns were essentially flat (2015 up .48% and 2018 up .1%).  While it is hard to predict the path of interest rates over the coming year diversification within your bond portfolio will be important.  For example, shortening the duration of the bond portion of your portfolio may help alleviate some of the risks of interest rates rising (remember when interest rates rise bond prices tend to fall).

I hope this helps your understanding as to why we are interested in still owning bonds as a portion of your investment portfolio!  Please don’t hesitate to reach out with any questions you may have!

Angela Palacios, CFP®, AIF® is a Partner and Director of Investments at Center for Financial Planning, Inc.® She chairs The Center Investment Committee and pens a quarterly Investment Commentary.

---

This material is being provided for information purposes only. Past performance doesn't guarantee future results. Investing involves risk regardless of the strategy selected, including diversification and asset allocation. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The S&P 500 is an unmanaged index of 500 widely held stocks that's generally considered representative of the U.S. stock market. You cannot invest directly in any index. 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.

How to Decide Where to Live in Retirement

Contributed by: Sandra Adams, CFP®

One of the issues for most retirees, once you have determined that you are ready to retire and can afford to do so, is where you want to live in retirement? This, of course, is a loaded question. There are so many factors that go into making this decision, and it is as much emotional as it is financial. I could certainly write a detailed commentary on this topic, but here we will provide some bullet points to provide some issues and decision points to consider.

Location, Location, Location.  For the majority of people, the most important decision in making the retirement living decision is the location. Will you remain in your pre-retirement community that you are familiar with?  Where are your friends, connections and social contacts?  Or will you make a change, perhaps to a different or warmer climate? To a more rural setting?  Or maybe closer to the city where health care, transportation, resources and cultural activities are more accessible?  You may decide to move closer to family at this point in your life — this may be a dangerous proposition — as growing and maturing families tend to move again just as you move to be near them, leaving you again stranded in a place where you know no one.  You may find that it is more important to find a location where you can be near friends that you can socialize with, that you have commonalities with and that will provide mutual support.

Once the location is determined, the physical space becomes important.  Will you stay in the same home you’ve always lived in and “age in place”?  If you decide to do that, it may become necessary to take a good hard look at your home and make sure that it is equipped to be safe and easy for you to live in for the next 20 – 30 years or so of your retirement, if that is your plan. And if you truly do wish to stay in your own home to age (according to a recent survey by the National Council on Aging, 9 in 10 seniors plans to stay in their own home to age), you have to plan ahead to make things as safe and accommodating for yourself and your spouse as possible, so there is not a need for you to need to move to an assisted living or nursing care facility in the unfortunate case that you have a medical emergency and your home is not equipped for you to stay there.  

For those who don’t desire to stay in their pre-retirement home, there are endless choices:

• You might decide to downsize to a smaller home, condo or apartment.

• You might choose to move into a senior-only community so that you can associate with people that are in the same life situation.

• You might choose to live in a multi-generational planned community.

• You might choose to live in a shared home situation — think of older adults sharing the same living space, expenses, and providing support and resources with one another (circa the Golden Girls).

• You might decide to move in with or share space with family members.

So, how do you go about making your decision about where and in what kind of house/housing facility to live in retirement?      

• Develop your criteria – What kind of climate are you looking for?  How active do you want your social life to be? What kind of access do you want to health care and other facilities? Make a list and search locations that fit your criteria.

• Identify neutral professionals to guide you

• Do a trial run

• Consult your family

• Put together a transition team

To move or not to move, that is the question.  And even making not to move — aging in place — does not mean that there are no choices or changes to make.  But if you do decide to make a move, it is a process that takes planning, and one that should not be taken lightly. Give the process serious consideration — it is a large part of your potential retirement planning picture.

Sandra Adams, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® and holds a CeFT™ designation. She specializes in Elder Care Financial Planning and serves as a trusted source for national publications, including The Wall Street Journal, Research Magazine, and Journal of Financial Planning.

Q4 2020 Investment Commentary

Contributed by: Center Investment Department

Closing the books on an eventful 2020

I think we can all agree that 2020 has been unlike anything we have experienced before! If 2020 had a spokesperson, it would be Mayhem from the Allstate commercials. From disturbing scenes of social unrest and racism to a major pandemic, crazy devastating wildfires and an ongoing trade war, not to mention, murder hornets and a very eventful election there have been many reasons why this year has been astounding!

The pandemic has been truly heartbreaking for the average American and the economy, despite this, the S&P 500 ended 2020 with fantastic returns of nearly 18.5%. Again, we are experiencing a large disparity in returns between technology companies and “value” stocks as represented by the Russell 1000 value index, up only 2.8% for the year in stark contrast. Check out the below chart showing the returns of the various S&P 500 sectors for 2020.

---

VIDEO: If you’d like to see our friendly faces...click to watch our commentary!

---

During the last quarter of the year, Emerging Markets and Small company stocks staged a large comeback as investors’ risk appetite increased.

However, whatever party equity markets were having, the economy was not invited!

Economic Update

Efforts to resume business amid the pandemic were rewarded during the latter half of 2020. Reeling back from a historical low of -31.4% during the second quarter, real GDP was 33.4% in the third quarter of 2020. That is a substantial comeback, but still around 3.5% shy of where it was during the fourth quarter of 2019. In other words, GDP is headed in the right direction, but we still have some catch-up work to do for full economic recovery. October readings support positive momentum for 4Q20 numbers. However, the surging cases of coronavirus infections over the holiday season may reflect slower growth at the end of the quarter and into 1Q21.

While it's easy to confuse positive stock market returns with economic growth, they are quite different. We can see this in the context of employment. Thirty-four percent of the S&P 500’s growth in 2020 can be attributed to technology, yet the technology sector only represents 2% of the US labor market. On the other hand, government, agriculture and other services, which is almost 40% of the labor market, is not even represented in the S&P 500. Concisely put, US stock strength doesn’t necessarily represent strength in the economy.

Digging into unemployment numbers, the unemployment rate decreased slightly to 6.7% in November. Nonfarm payrolls increased by 245,000 during the same month. Note, this is the weakest pace of payroll increases since the start of the recovery, which reflects a larger challenge. While 56% of the jobs lost between February and April have come back, only about 7% of that comeback has happened since September. We’re witnessing how hard it has been to have business and job growth while maintaining measures created to prevent the spread of covid-19. Both are important, so future job growth is dependent on how we negotiate the two moving forward.

Finally, let’s talk about inflation. Headline CPI and core CPI rose 0.2% month on month in November. Year on year, headline CPI was 1.2% and core CPI was 1.6%. Headline and core personal consumption expenditures (PCE) were generally flat, at 1.1% and 1.4% year on year, respectively. Due to low energy prices and economic slack, inflation ended lower in 2020 than in 2019. However, 2021 may be a different story. With a vaccine-facilitated boost to economic activity, prices hit hardest by the pandemic (think sporting events, dining, concerts, hotel rates, airfare, rent) could strengthen. We’ll likely see depressed prices start to go up. Many suspect the Federal Reserve will recognize this inflation is based on temporary factors, and will not raise interest rates to compress it. We are keeping an eye on how things play out. Overall, 2021 could foster a low and rising inflation environment.

Other investment headlines: Tesla & Bitcoin

You may have noticed two headlines gaining a lot of attention in the 4th quarter from two of the most volatile investments seen in 2020: Tesla and Bitcoin. Tesla finally recorded its fourth consecutive profitable quarter in a row which prompted its entry into the S&P 500. This means that if you own any fund that tracks the index, you now own a piece of TSLA! Albeit a small piece, as it makes up about 1.5% of the index.

Bitcoin was also back making headlines as it broke past its previous high from late 2017 and rose above $28k per BTC by the end of the year. Is the digital currency a speculative asset with no value or the world currency of the future? That is yet to be decided, but as it currently stood at year-end its market cap was ~540B – about the same market cap as Berkshire Hathaway.

COVID-19

The COVID-19 pandemic took a turn for the worse during the 4th quarter of 2020. Cases, hospitalizations, and deaths all continued to climb, but December brought us a glimmer of hope as the FDA expedited the approval process for two vaccines to be distributed across the country. Governor Whitmer gave guidance for the prioritization in Michigan, and the first phase began in December with health care workers who have direct exposure to the virus receiving round 1 of the 2-round vaccine. All essential frontline workers will follow, starting first with those aged 75 and older, then ages 65-74 and adults ages 16-64 with underlying medical conditions, finishing up with the rest of adults aged 16 and over. Click here for more details. We hope that these vaccines are a light at the end of the tunnel, and wish you all health and happiness going into the New Year.

Government Update

The $900 billion fiscal stimulus act continued to face headwinds in the final hour as President Trump changed his stance on the support to families. He called for an increase to the prior negotiated $600 stimulus payments to $2,000. The House narrowly voted in favor of this package and the change, only to be met by resistance in the Republican-led Senate. Voting on this was delayed resulting in $600 stimulus payments getting issued.

The package includes new funding for:

• Small businesses with an expansion to the PPP program highlights including:

  • Guaranteed funding for first-time applications

  • Second loans with more expansive forgivable uses

  • Easier forgiveness process for loans under $150,000

  • Clarification that businesses can still deduct the (otherwise deductible) expenses of funds paid with this loan

  • Excludes publically traded companies and a business must demonstrate a 25% drop in revenue or more from 2019

• The second round of individual checks for individuals and families with phase-out starting at $75,000 of income. $600 per adult and child

• Extension of federal unemployment benefits including an additional $300 per week benefit to unemployed workers until March 14, 2021

• Moratorium on evictions through January 2021

• Various funding for state/local programs highlights including

  • $82 Billion to schools and colleges

  • $27 Billion to state highway, transit, rail and airports

  • $22 Billion to state healthcare funding

Restrictions placed on the Federal Reserve

The Federal Reserve (Fed) found itself amid the political battle of the stimulus package. It looks like the Fed may have to discontinue at the end of 2020 and potentially not be able to restart programs under the same terms that were backed by CARES Act funding, including:

• Primary Market Corporate Credit Facility – loans to investment grade businesses experiencing dislocation due to the pandemic

• Secondary Market Corporate Credit Facility – the ability for the Fed to purchase investment-grade corporate debt to facilities liquidity in the credit markets

• Municipal Liquidity Facility – allows the Fed to purchase short term bonds from certain states, counties and cities to ensure access to funds throughout the pandemic

• Main Street Lending Program – support for small and medium-sized business loans

• Term Asset-Backed Securities Loan Facility- support for AAA bonds backed by assets such as student/auto/credit card loans backed by the Small Business Administration (SBA)

Fed Chair Powell stated that these lending programs can still be restarted using Treasury’s Exchange Stabilization Fund but the effort to restrict this particular aspect of the Fed’s lending authority can be viewed as Congress stepping in and exerting oversight powers to limit how far the Fed can go in support of critical market functions. We will be watching the evolution of this debate and if the Fed’s communications become more restrained as a result. In the future, we may not be able to expect the Federal Reserve to step in and start buying secondary market issues to support prices.

The new Biden Administration

The run-off election held on January 5th in Georgia determined who holds the Senate. Democrats needed to win both of the Senate seats in Georgia to split the Senate 50-50. This meant that the democrat Vice President would be the tie-breaking vote giving a slight edge to the Democrats. This was the last major hurdle in understanding the makeup of the government for the next couple of years. This democratic advantage paves the way for a more ambitious President Biden legislative agenda. See our post-election update webinar for a summary of potential agenda items for the Biden administration. A shortlist includes President-Elect Biden’s proposed tax increases on corporations, income for those in the highest tax bracket, capital gains and estate taxes, aggressive health care changes, and the Green New Deal. While markets and the economy may favor party splits between the Presidency and Congress, an all-Democratic situation has still yielded positive outcomes for markets. The below chart shows that 27% of the time the Democrats have been in control and GDP growth has been at its best during these times and returns have been good as well.

In the short term, we could see some near-term weakness in market reaction but President Biden has announced that we can expect a third wave of stimulus payments of $2,000 (or at least the additional $1,400 they were hoping for in the second round) so this could outweigh the risks of market downside in the near term. This still requires a 60 vote in the Senate to pass and may take until March to do so.

There could be some potential impacts to investors that we will be watching closely. Most notable are:

• Corporate tax rate increases and a minimum tax for corporations seems to be the biggest potential impact to markets under a Democratic sweep

• Changes to capital gains tax rates and the preferential tax rate on qualified dividends (although could be limited to those with incomes over $1 Million) could affect individual investor behavior

It’s important to remember that many factors impact markets with politics making up a small portion of those factors!

Hopefully in 2021 Mayhem sticks with the commercials but regardless of what happens, we are here as your partners to get you through whatever is thrown our way and help you achieve your financial goals. Thank you for the trust you place in us.

---

Sector Returns: Sectors are based on the GICX methodology. Return data are calculated by FactSet using constituents and weights as provided by Standard & Poor’s. Returns are cumulative total return for stated period, including reinvestment of dividends. 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. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Bitcoin issuers are not registered with the SEC, and the bitcoin marketplace is currently unregulated. The prominent underlying risk of using bitcoin as a medium of exchange is that it is not authorized or regulated by any central bank. Bitcoin and other cryptocurrencies are a very speculative investment and involves a high degree of risk. Investors must have the financial ability, sophistication/experience and willingness to bear the risks of an investment, and a potential total loss of their investment. Securities that have been classified as Bitcoin-related cannot be purchased or deposited in Raymond James client accounts. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Retirement Plan Contribution and Eligibility Limits for 2021

Contributed by: Robert Ingram, CFP®

For the New Year, the IRS had released its updated figures for retirement account contribution and income eligibility limits.  While most contribution limits remain unchanged from 2020, there are some small adjustments for 2021 certainly worth noting. 

Employer retirement plan contribution limits stay largely the same (401k, 403b, 457, and Thrift Savings)

• $19,500 annual employee elective deferral contribution limit (same as 2020)

• $6,000 “catch-up” contribution if over the age of 50 (same as 2020)

• The total amount that can be contributed to the defined contribution plan including all contribution types (e.g. employee deferrals, employer matching, and profit-sharing) is $58,000 or $64,500 if over the age of 50 (increased from $57,000 or $63,500 for age 50+ in 2020)

Traditional, Roth, SIMPLE, and SEP IRA contribution limits

• $6,000 annual employee elective deferral contribution limit (same as 2020)

• $6,000 “catch-up” contribution if over the age of 50 (same as 2020)

Traditional IRA deductibility income limits

Contributions to a traditional IRA may or may not be tax-deductible depending on your tax filing status, whether you are covered by a retirement plan through your employer, and your Modified Adjusted Gross Income (MAGI). The amount of a traditional IRA contribution that is deductible is reduced or “phased out” as your MAGI approaches the upper limits of the phase-out range. For example:

Single Filer

• Covered under a plan

• Partial deduction phase-out begins at $66,000 up to $76,000 (then above this no deduction) compared to 2020 (phase-out: $65,000 to $75,000)

Married filing jointly

• Spouse contributing to the IRA is covered under a plan

• Phase-out begins at $105,000 to $125,000 (compared to 2020: $104,000 to $124,000)

• Spouse contributing is not covered by a plan, but other spouse is covered under the plan

• Phase-out begins at $198,000 to $208,000 (compared to 2020: $196,000 to $206,000)

Roth IRA contribution income limits

Similar to making deductible contributions to a traditional IRA, being eligible to contribute up to the maximum contribution to a Roth IRA depends on your tax filing status and your MAGI. Your allowable contribution is reduced or "phased out" as your MAGI approaches the upper limits of the phase-out range. For 2021 the limits are as follows:

Single filer

• Partial contribution phase-out begins at $125,000 to $140,000 (compared to 2020: $124,000 to $139,000)

Married filing jointly

• Phase-out begins at $198,000 to $208,000 (compared to 2020: $196,000 to $206,000)

• If your income is over the limit and you cannot make a regular annual contribution, using a Roth IRA Conversion in different ways may be an appropriate strategy depending on your circumstances.

As we begin 2021, keep these updated figures on your radar when reviewing your retirement savings opportunities and updating your financial plan. However, as always, if you have any questions surrounding these changes, don’t hesitate to reach out to our team!

Have a happy and healthy New Year!

Robert Ingram, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® With more than 15 years of industry experience, he is a trusted source for local media outlets and frequent contributor to The Center’s “Money Centered” blog.

FireEye, SolarWinds, and The Center

Contributed by: James Brown

The Center Armor

As the Senior I.T. Manager at The Center, I would like to let our clients know that Cybersecurity and protecting our client’s information is of the highest priority in our technology department. Our security structure encompasses a multi-vendor firewall protected network and off-premise connections are made via secure multi-factor authentication across a virtual private network. The desktop and laptops used at The Center are protected with multiple real-time scanners for viruses, malware and unauthorized applications.

SolarWinds

The SolarWinds attack was a software supply chain attack that could allow malware to be loaded and provide a remote threat agent with access to network data. The breach at FireEye did result in the theft of Red team tools that could cause a problem in the future. The SolarWinds attack compromised government agencies, providers as well as private sector organizations. Though providers and companies began quarantining and patching their systems in the days after the discovery, we are bound to learn more about the effect and depth of the attack.

Attacks such as these often lay dormant but we are confident that our firm data and systems have not been impacted by this attack. Along with our vendors 24 hours a day, 365 days a year monitoring, we perform endpoint analysis to monitor our Internet traffic to look for any anomalies that could be a sign of an exploit.

Defense against the Known and Unknown

Vigilance is the only defense against cyber threats. We will continue to monitor our network and endpoints but we also recommend that our clients stay vigilant and take precautions to protect themselves and their data.

• Monitor your social media and financial accounts for unauthorized changes.

• Use complex passwords, PINs and answers to security questions.

• Enable two-factor authentication on all financial accounts.

• Do not share personal identifying information on social media, email or a Web site.

• If you receive a link in an email about your online account information, do not click on it. A better practice is to go the normal login page that you use for that institution and login with your two-factor authentication as you normally do.

James Brown is a Senior IT Manager, at Center for Financial Planning, Inc.® With more than 30 years of technology experience, he manages The Center’s technology resources.

Helping You Set Your Financial Goals For The New Year!

Contributed by: Kali Hassinger, CFP®, CDFA®

New beginnings provide the opportunity to reflect.  What choices or experiences got you to where you are today, and where do you want to go from here?  Whether you’re motivated by the New Year or adjusting your course due to circumstances outside of your control, goals provide the opportunity to set your intentions and determine an action plan.

Budgeting, saving, retirement, paying off debt, and investing are all common, and often reoccurring, resolutions and goals. Why reoccurring?  Because, as is human nature, it is too easy to set a goal but lose focus along the way.  That is why it’s so important to set sustainable goals and find a way to remain accountable.

Working with an outside party, like a financial planner, can help you define these attainable goals and, most importantly, keep you accountable.  When we make commitments to ourselves and share them with others, we are more likely to follow through.

When goals are written down and incorporated in a holistic financial plan, it becomes easier to track progress and remain committed throughout the year.  The financial planning process, when executed correctly, integrates and coordinates your resources (assets and income) with your goals and objectives. As you go through this process, you will feel more organized, focused, and motivated. Your financial plan should incorporate the following (when applicable):

• Goal identification and clarification (you’re here now!)

• Developing your Net Worth Statement

• Preparing cash flow estimates

• Comprehensive investment management and ongoing monitoring of investments

• Financial independence and retirement income analysis

• Analysis of income tax returns and strategies designed to help decrease tax liability

• Review of risk management areas such as life insurance, disability, long term care, and property & casualty insurance

• College funding goals for children or grandchildren

• Estate and charitable giving strategies

As you reach one goal, new ones can emerge, and working with a financial planner can help you navigate life’s many financial stages. When you’re setting and working toward your objectives, don’t hesitate to reach out and share them with your trusted financial planner!  If you aren’t working with anyone yet, it’s never too late to start!  

Kali Hassinger, CFP®, CDFA®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.

Consolidated Appropriations Act Of 2021: More Stimulus On The Way

Contributed by: Kali Hassinger, CFP®, CDFA®

After months of deliberation, Congress passed a bill providing a second round of Coronavirus relief, and it was signed by the president on December 27th.  This will provide direct payments to citizens, extend unemployment benefits, and reopen the Paycheck Protection Program to provide loans to small businesses.  This Act, totaling $2.3 trillion dollars, earmarks $900 Billion for stimulus relief with the remaining $1.4 trillion for the 2021 federal fiscal year.   

The direct stimulus rules are largely similar to the CARES Act from March 2020, with a few changes, most notably, of course, the amounts provided.

Direct Payments

Based on income and family makeup, some Americans can expect to receive a refundable tax credit as a direct payment from the government.

• Who is eligible? Eligibility is based on Adjusted Gross Income with benefits phasing out at the following levels:

  • Married Filing Jointly: $150,000

  • Head of Household: $112,500

  • All other Filers (Single): $75,000

If income is above the AGI limits shown above, the credit received will reduced by $5 for each $100 of additional income.

• How much can I expect to receive?

  • Married Filing Jointly: $1,200

  • All other Filers: $600

  • Additional credit of up to $600 for each child under the age of 17

The rebates are dispersed based on your 2019 tax return, but, like the CARES Act, is a 2020 tax credit.  This means that if your income in 2019 phased you out of eligibility, but your 2020 income is lower and puts you below the phase out, you won’t receive the rebate payment until filing your 2020 taxes.  The good news is that those who do receive a rebate payment based 2019 income, and, when filing 2020 taxes, find that their income actually exceeds the AGI thresholds, taxpayers won’t be required to repay the benefit.

• When will I receive my benefit? As soon as possible, though delays similar to the CARES Act payments should be expected. 

• Where will my money be sent?  Payment to be sent to the same account where recipients have Social Security benefits deposited or where their most recent tax refund was deposited. Others will have a payment sent to the last known address on file.

Charitable Giving Tax Benefits

• The charitable deduction limit on cash gifted to charities will remain at 100% of Adjusted Gross Income for 2021.  This was increased from 60% to 100% for 2020 with the CARES Act.  If someone gifts greater than 100% of their AGI, they can carry forward the charitable deduction for up to 5 years.  This does not apply to Donor Advised Fund contributions.

• This Act also extends the above-the-line tax deduction for charitable donations up to $300 that was authorized by the CARES Act, but it increases this deduction to $600 for married couples ($300 per person)

Support For Small Businesses

The Paycheck Protection Program (PPP) will allow businesses affected to COVID-19 to apply for loans. Those who did not receive a loan through the CARES Act once again have the chance, and those who successfully applied for a loan previously, may have the opportunity to obtain another loan. If applying for a second loan, however, the previous loan funds must already have been received and spent.

Some of the Paycheck Protection Program provisions are more stringent and other provide more clarity:

• The business must have experienced a 25% or larger drop in revenue for any quarter in 2020

• The loan is limited to a 2.5 times the average monthly payroll costs or 3.5 times for businesses categorized as “Accommodation and Food Services.”  The total amount received is capped at $2 million.

• Expenses paid of forgiven Paycheck Protection Program funds are deductible

  • The IRS tried to withdrawal the deductibility of items funded with PPP, but this Act states that expenses paid with both forgiven and new PPP loans shall remain deductible.

• Loans are limited to businesses that have no more than 300 employees with the exception, again, for businesses categorized as “Accommodation and Food Services.”

Expanded Unemployment Benefits

Unemployment benefits were set to expire for many Americans, but the Consolidated Appropriations Act extends the benefit for an additional eleven weeks.  Additional relief will also be provided at $300 per week until Mid-march when the extension expires.

Individual Healthcare & Tax Planning

• Individuals are able to deduct medical expenses if they exceed 7.5% of their Adjusted Gross Income.  This hurdle was previously 10% of AGI.

• FSA funds that haven’t been used in 2020 can be rolled into 2021 if the employer permits this extension. 

Higher Education Deduction With Increased Phase-out

The Lifetime Learning credit provides a credit of 20% of the first $10,000 spent on higher education expenses (so $2,000 if you spend $10,000). The income phase-out limit has been increased to match the American Opportunity tax credit at $80,000 to $90,000 for single filers and $160,000 to $180,000 for joint filers. Although the American Opportunity tax credit is more lucrative for the amount spent (100% credit up to $2,000 in education expenses with an additional 25% credit on the next $2,000 of expenses.  So a total credit of $2,500 on $4,000 spent), you can only claim this credit for 4 years.  As the name Lifetime Learning credit implies, you can claim this credit throughout your lifetime!

Earned Income Tax Credit Changes

The Earned income Tax Credit and additional Child tax credit are determined by an individual’s earned employment income.  Because so many Americans have faced periods of unemployment in 2020, this Act will allow individuals to use their 2019 earned income to calculate the amount they will receive for 2020.

Student Loan Repayments

The ability for an employer to pay up to $5,250 of an employee’s qualified student loan debt is extended through 2025. The employee receives this benefit tax free.  

The period of time between the passing of the CARES Act and the passing of a 2nd round of relief throughout the Consolidated Appropriations Act of 2021 was much longer than many anticipated.  Thankfully the majority of the legislation did not provide short term deadlines for the end of 2020!

Kali Hassinger, CFP®, CDFA®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.

---

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. You should discuss any tax or legal matters with the appropriate professional.

Tying Up Loose Ends Post-Divorce: What’s Your Game-Plan?

Contributed by: Jacki Roessler, CDFA®

Your divorce is final! For many couples, getting divorced takes so much time and effort, it practically feels like a part-time job. While it might be tempting to quickly close the door on this unpleasant chapter, you actually need to do the opposite. 

It’s important to understand that your divorce decree is only binding on you and your ex. It isn’t binding on third parties such as insurance carriers, retirement plan administrators, credit unions and credit card companies. Regardless of what your Judgment says, third parties aren’t bound by your divorce decree.  Let’s suppose your ex-spouse was supposed to make the payments on the mortgage (currently in both of your names) and she decides to stop. The lender isn’t going to care that your divorce decree says she was supposed to pay. Your name is on the loan, therefore, you’re responsible. The same is true for pension plans, retirement accounts, etc.… If your ex-spouse dies, remarries, retires, moves money to a different account or stops making insurance payments before you tie up the loose ends, you may end up getting significantly less than what you worked hard to agree upon. Time is your enemy.

Tracking asset transfers

First things first, create a document that lists all the assets/debts that are being transferred as well as all the details. Since we work with such a large number of post-divorce clients at the Center, we often create a transition table or spreadsheet to track paperwork and follow-up.  Again, follow up is key as once your Judgment of Divorce is signed, there is little incentive for your ex-spouse to cooperate with any transitions.

Prioritize your list of “do it now” versus “do it later” items

Not all post-divorce tasks should be categorized as “do it now” items. Some might be “do it later” such as re-financing a mortgage or getting help with investing your settlement. Others are definitely “do it now” such as making sure your ex’s employer has received notice you want to continue your health insurance coverage through COBRA. Another important “do it now” item is closing all joint credit card accounts. Again, you don’t want to be responsible for debt that isn’t yours and you certainly want to be in control of your own credit rating. Be careful to note any items that have a written deadline in your divorce decree.

Also keep in mind that everyone’s list of “do it now” versus “do it later” might be different. If you think mortgage rates are going to up, for example, it might higher on your list than someone who is more concerned about building a better credit rating than interest rate fluctuation. Same is true for those that are ready to develop and implement an investment strategy tailored to their new lifestyle and circumstances.

A word of caution for the “do it later” items. Put a deadline in place for yourself to make sure these items actually get done. It’s shocking to learn how many people wait more than 10 years to get their QDRO drafted, for example. Similarly, during times of market volatility such as we’ve been experiencing, novice investors sometimes choose to sit on the sidelines. Since no one has a crystal ball, this wait and see approach –called “market timing” is generally a losing proposition. Many market timers miss out on the largest days of investment gains in the stock market which can seriously impact their retirement objectives.

There IS light at the end of the tunnel

There will come a day when everything is resolved. It will surely come sooner and with much less aggravation (and chance of post-judgment legal fees) if you develop your strategy now.

Jacki Roessler, CDFA®, is a Divorce Planner at Center for Financial Planning, Inc.® and Branch Associate, Raymond James Financial Services. With more than 25 years of experience in the field, she is a recognized leader in the area of Divorce Financial Planning.