Your Partner Was Diagnosed with Dementia: What Now?

Contributed by: Sandra Adams, CFP®

Maybe you knew there was a possibility that it could happen. Maybe your partner's mother or father had dementia, and perhaps even their siblings, so you were watching for the signs. Or, maybe, it came out of the blue, and you never thought that dementia would ever impact you or your family. 

When you start to notice changes in memory, behavior, and judgment that are not normal with your partner, it gives you a sinking feeling, whether you may have been expecting it or not.

Warning Signs of Dementia

According to the Alzheimer's Association, there are ten early warning signs of Alzheimer's and Dementia that you can be watching for:

1. Memory Loss That Disrupts Daily Life

Forgetting recently learned information, forgetting important dates or events, asking the same questions repeatedly, and increasingly needing to rely on memory aids or family and friends for things they used to handle on their own are all signs.

2. Challenges in Planning or Solving Problems

This may involve changes in the ability to follow a plan or work with numbers. For instance, they may have trouble following a familiar recipe or keeping track of monthly bills. They may have difficulty concentrating and/or taking longer to do things than they did before.

3. Difficulty Completing Familiar Tasks

Examples include having trouble driving to a familiar location, organizing a grocery list, or remembering the rules of a favorite game.

4. Confusion With Time or Place

This may involve losing track of dates, seasons, or the passage of time, trouble understanding something if it is not happening immediately, and possibly forgetting where they are or how they got there.

5. Trouble Understanding Visual Images and Spatial Relationships

Some people experience vision changes that may lead to difficulty with balance or trouble reading. This may also lead to difficulty judging distance and determining color or contrast, causing issues with driving.

6. New Problems With Words in Speaking or Writing

This often presents as difficulty following or joining a conversation. They may stop during a conversation and have no idea how to continue or repeat themselves. Moreover, they may struggle to find the right words.

7. Misplacing Things and Losing the Ability To Retrace Steps

They may put things in unusual places, lose things, and be unable to go back over their steps to find them again or accuse others of stealing, especially as the disease progresses.

8. Decreased or Poor Judgment

Experience in changes in judgment or decision-making. For example, when dealing with money or keeping themselves clean.

9. Withdrawal From Work or Social Activities

Because of the changes in the ability to hold or follow a conversation, many people experiencing changes due to dementia may withdraw from hobbies, social activities, or other engagements.

10. Changes in Mood and Personality

This shows up as being confused, suspicious, depressed, fearful, or anxious. They may be easily upset at home, with friends, or when out of their comfort zone.

If You Suspect Your Partner Has Dementia...

Don't ignore the signs. Schedule an appointment with your partner's primary care physician immediately to seek a diagnosis and take the next steps.

If there is a dementia diagnosis, you are likely completely overwhelmed. Your world has been turned upside down, and it is likely hard to think beyond each day at a time, let alone the next month or year. However, taking steps to plan ahead can help things go more smoothly for you and your entire family. 

As the disease progresses, things are likely only to become more hectic, making it even more difficult to think clearly. Getting your legal, financial, and end-of-life planning finalized early on will make it easier for you to make the necessary decisions and communicate those decisions to the right people before things get even harder.

Legal

Ensure your partner has updated legal documents in place (if they don't already) before they are designated as unable to make those designations/decisions for themselves due to their new diagnosis.

• Patient Advocate/Health Care Durable Power of Attorney: This names someone as a "proxy" to make medical decisions for someone when they are not able to.

• Living Will: This informs medical professionals of how one wants to be treated at the end of life (dying, permanently unconscious, etc.) and cannot make decisions on their own.

• A Do Not Intubate, or DNI, order: This lets medical staff know someone does not want to be put on a breathing machine.

• A Do Not Resuscitate, or DNR, order: This lets medical staff know not to perform CPR or other life-saving procedures in case the heart or breathing stops.

• General Durable Power of Attorney: This names someone as a "proxy" to make financial decisions and handle financial transactions for someone when they are not able to.

• Will: This names someone to be the executor to handle their estate after they are deceased.

• Trust: For some, a Revocable or Irrevocable Trust naming someone to handle assets on their behalf and for their benefit either during their lifetime or after death is appropriate.

Financial Planning

It is important to work with your financial adviser to make sure fiscal affairs are for several reasons:

• Make sure that all your financial records are accounted for using a Personal Recording Keeping document. Keep it in a safe place before that information is lost or forgotten by either or both partners.

• Work with your financial adviser to make sure you have planned well to provide for your financial future, including your now more certain long-term care needs, including dementia care.

• Ensure assets are positioned and titled properly to assist with future long-term care needs and any future resources and assistance that may be needed.

• Research any insurances you may currently hold to make sure you understand how they may be used for future long-term care needs.

• Talk about how you might want to handle future care needs for your partner with dementia. If that includes you, as the healthy spouse, taking time from work (if you are not yet retired), plan for how you will handle that financially. Planning ahead for how care will be funded is a key piece of future planning.

• Research community and professional resources in your area. Put together a team to help you when needed.

• Communicate your future plan to your family so that they can help you execute it when things are more hectic, and the disease is more difficult to deal with.

End-Of-Life

There is currently no cure for Alzheimer's disease or any other dementia. Some treatments, though, can manage some of the symptoms for a time. 

However, a person who has been diagnosed will gradually decline, and the condition itself (or combined with additional health problems) will eventually result in death. For that reason, it is also important to plan ahead and make decisions for end-of-life early on. 

Making sure the important legal documents are in place is the first step. Communicating preferences for end-of-life to important family members is the second step. If there are any preferences for end-of-life services, that should be documented. Using a Letter of Last instruction document is a good idea.

When your partner is diagnosed with dementia, it can be a shock. For many, it can be so overwhelming that it can be hard to breathe, let alone get your head around doing anything. But once the numbness wears off, lean on your financial adviser and professional team of advisers to get a plan in place so that the legal, financial, and end-of-life pieces are in order so that you can concentrate on caring for your partner and their ongoing needs.

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.

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 Sandra D. Adams and not necessarily those of Raymond James.

Retirement Account Contribution and Eligibility Limits Increase in 2024

Contributed by: Robert Ingram, CFP®

The IRS recently announced next year's annual contribution limits for retirement plans and IRA accounts. Compared with the historically large increases to limits in 2023, 2024 brings relatively modest increases. However, the adjustments to contribution limits and income eligibility limits for some contributions are still notable as you set your savings targets for the New Year.  

Employer Retirement Plan Contribution Limits (401k, 403b, most 457 plans, and Thrift Saving)

• $23,000 annual employee elective deferral contribution limit (increases $500 from $22,500 in 2023)

• $7,500 extra "catch-up" contribution if age 50 and above (remains the same as in 2023)

• The total amount that can be contributed to a defined contribution plan, including all contribution types (e.g., employee deferrals, employer matching, and profit sharing), will be $69,000 or $76,500 if age 50 and above (increased from $66,000 or $73,500 for age 50+ in 2023)

Traditional, Roth, SIMPLE IRA Contribution Limits:

Traditional and Roth IRA

• $7,000 annual contribution limit (increases $500 from $6,500 in 2023)

• $1,000 "catch-up" contribution if age 50 and above (remains the same as in 2023)

Note: The annual limit applies to any combination of Traditional IRA and Roth IRA contributions. (i.e., you would not be able to contribute up to the maximum to a Traditional IRA and up to the maximum to a Roth IRA.)

SIMPLE IRA

• $16,000 annual contribution limit (increases $500 from $15,500 in 2023)

• $3,500 "catch-up" contribution if age 50 and above (remains the same as in 2023)

Traditional IRA Deductibility (income limits):

You may be able to deduct contributions to a Traditional IRA from your taxable income. Eligibility to do so depends on your tax filing status, whether you (or your spouse) is covered by an employer retirement plan, and your Modified Adjusted Gross Income (MAGI). The amount of a Traditional IRA contribution that is deductible is reduced ("phased out") as your MAGI approaches the upper limits of the phase-out range. For example,

Filing Single

• You are covered under an employer plan

• Partial deduction phase-out begins at $77,000 up to $87,000 (then above this no deduction) compared to 2023 (phase-out: $73,000 to $83,000)

Married filing jointly

• A spouse contributing to the IRA is covered under a plan

• Phase-out begins at $123,000 to $143,000 compared to 2032 (phase-out: $116,000 to $136,000) 
  

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

• Phase-out begins at $230,000 to $240,000 compared to 2022 (phase-out: $218,000 to $228,000) 

Roth IRA Contribution (income limits):

Similar to making tax-deductible contributions to a Traditional IRA, being eligible to contribute to a Roth IRA depends on your tax filing status and income. Your allowable contribution is reduced ("phased out") as your MAGI approaches the upper limits of the phase-out range. For 2024, the limits are as follows:

Filing Single

• Partial contribution phase-out begins at $146,000 to $161,000 compared to 2023 (phase-out: $138,000 to $153,000)

Married filing jointly

• Phase-out begins at $230,000 to $240,000 compared to 2023 (phase-out: $218,000 to $228,000)

If your MAGI is below the phase-out floor, you can contribute up to the maximum. Above the phase-out ceiling, you are ineligible for any partial contribution.

Eligibility for contributions to retirement accounts like Roth IRA accounts also requires you to have earned income. If you have no earned income or your total MAGI makes you ineligible for regular annual Roth IRA contributions, other strategies such as Roth IRA Conversions could make sense in some situations to move money into a Roth. Roth Conversions can have different income tax implications, so you should consult with your planner and tax advisor when considering these strategies.

Going into the New Year, keep these updated figures on your radar as you implement your retirement savings opportunities and update your financial plan. As always, if you have any questions surrounding these changes, don't hesitate to contact us!

Have a happy and healthy holiday season!

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.

Any opinions are those of Bob Ingram, CFP® and not necessarily those of Raymond James. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.

The information contained in this report 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. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional. Conversions from IRA to Roth may be subject to its own five-year holding period. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals of contributions along with any earnings are permitted. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.

Giving Tuesday: What It Is and Why It Matters

Contributed by: Kelsey Arvai, CFP®, MBA

Every act of generosity counts, and everyone has something to contribute toward making the world a better place. GivingTuesday was created in 2012 with one mission: to create a day that encourages people to do good. Since then, the movement has become global, inspiring millions of people to give, collaborate, and celebrate generosity. 

The biggest celebration of generosity, GivingTuesday, is celebrated annually on the last Tuesday of November. We welcome you to join the movement this GivingTuesday, every Tuesday, or every day, whether it's time, a donation, or the power of your voice in your local community. 

The Center participates in giving year-round. The Center Charitable Committee facilitates this framework for giving year-round. Our mission is to contribute time and donations to the following three areas – Financial Literacy, Community Needs (Metro Detroit), and Staff Involvement. 

In 2023, our team has donated over 102 hours and $15,020. We love helping others feel great. Below are some philanthropic efforts we have completed or plan to complete this year. Additionally, The Center offers eligible employees up to 2 days off with pay per year for engaging in organized volunteer community projects to facilitate involvement in community activities. The Center also encourages employees to make gifts to charities of their choice; each employee can request The Center to match their donation up to $100 annually. You can visit GivingTuesday.org/participate to learn more about giving time, gratitude, or support to positively affect your community and create a better tomorrow.  

2023 Events

• Capuchin

  • Center Team Members folded and displayed clothing and unloaded food boxes in Detroit.

• Gleaners’ Community Mobile Food Pantry

  • Center Team Members volunteered with Gleaners Mobile Grocery to help local seniors in our community.

• Michigan Council of Economic Education

  • The Center is delighted to co-sponsor the Michigan Council on Economic Education's 2023 Personal Finance Challenge, as it highlights the importance of making smart personal financial choices and career opportunities in the financial planning industry.

• Money Smart Week is a national campaign by the Federal Reserve Bank to encourage good financial decision-making by individuals and communities through free online education. Center for Financial Planning Inc. was excited to co-sponsor the Michigan Council on Economic Education's 2023 Personal Finance Challenge to show our support for the Money Smart Week campaign. High school students from all over Michigan were invited to compete on April 29th. Teams of 3-4 students review a personal finance case study and then provide a presentation of their financial planning advice. The competition occurs before a team of judges in person at the Macomb Intermediate School District. The winning team receives a $250 prize and will advance to a national competition.

• Greening of Detroit

  • Center Team members participated in a tree-planting event with Greening of Detroit by digging holes, planting young trees, and laying mulch. 

• Funding for the Future

  • The Center proudly supported the band Gooding through the nonprofit Funding for the Future. The event involved fun rock music, excited high schoolers, and important lessons in financial literacy. 

• Ferndale Catfé 

  • Center for Financial Planning Inc. supported the Ferndale Catfé for National Pet Month by visiting the Catfe's new location in Ferndale. We spent time in the cat room, learned about their work, and learned more about volunteering and adopting/fostering. 

• Autism Alliance of Michigan Fundraiser Walk

  • Center Team Members walked to support families affected by autism. The event at the Detroit Zoo included an autism resource fair with 50+ vendors, on-stage programming, a united community walk, and arts & crafts.

• Humble Design

  • Center Team Members will work with Humble Design to affect the lives of individuals, families, or veterans emerging from homelessness. Humble Design works to change lives and communities by custom designing and fully furnishing home interiors. 

• ALS Walk

  • Center for Financial Planning Inc. supported the march toward a treatment and, ultimately, a cure for ALS. This disease, in some manner, has affected many of our family and friends. We support the Walk to Defeat ALS and the organization's efforts to provide support groups, access to care, and advocacy. 

• Alzheimer's Walk 

  • Center for Financial Planning Inc. supported the Walk to End Alzheimer's at the Detroit Zoo. This disease, in some manner, has affected many of our family and friends. We support the Alzheimer's Association's efforts to find a cure.

• Impact100 Metro Detroit 

  • Kelsey Arvai, Jaclyn Jackson, and Kali Hassinger are all members of Impact100 Metro Detroit. Members join to award high-impact grants ($100,000) to local organizations in the tri-county area. 

• BrilliantDetroit

  • The Charitable Committee is working with BrilliantDetroit to host a drive this holiday season. BrilliantDetroit is a nonprofit dedicated to building kid success for Detroit families with children 0-8 in high-need neighborhoods to have what they need to be school-ready, healthy, and stable. 

• Baldwin Society

  • Center Team Members will help to assemble Holiday Hope Care Packages for low-income seniors.

• Fleece & Thank You Event

  • Center Team members will get into the Holiday Spirit to make blankets for the Children's Hospital.

Kelsey Arvai, CFP®, MBA is an Associate Financial Planner at Center for Financial Planning, Inc.® She facilitates back office functions for clients.

Raymond James is not affiliated with the above organizations.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Kelsey Arvai, MBA and not necessarily those of Raymond James.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.

Stellantis Announces Buyout Offer

Contributed by: Nick Defenthaler, CFP®, RICP®

Stellanits, the European automaker that builds vehicles for the US market under Jeep, Ram, Dodge, and Chrysler brands, recently announced that it is offering buyouts to half of its salaried US staff in a cost-cutting move. Over the past several years, the ‘Big 3’ have all offered similar buyouts, and many of our clients have come to us for guidance to ensure they make an informed decision. Above is a webinar recently hosted by partner and Senior Financial Planner Nick Defenthaler, CFP®, RICP®. During this educational session, Nick discusses five important considerations when going through a layoff or a recent job transition: 

Timestamps:

• Cash Flow Planning - 6:01

• Health Care & Insurance Guidance - 11:49

• Tax Considerations - 18:19

• Retirement Account & Pension Decisions - 23:41

• Putting It All Together - 35:21

If you, friends, family members, or colleagues have recently received a buy-out offer from Stellantis and would like to discuss the details with one of our team’s Certified Financial Planners, please feel free to reach out, and we’d be happy to arrange a time to chat. Our team has nearly four decades of experience helping clients navigate significant life transitions such as this – we’d be honored to serve as a resource for you. 

Office Line: 248-948-7900

Website Contact Inquiry: https://www.centerfinplan.com/contact 

If you’d like to receive a copy of our “Should I roll over my 401k to an IRA?” checklist, please click HERE! 

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.

The information contained in this report 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 information is not a complete summary or statement of all available data necessary for making an investment 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. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Unless certain criteria are met, Roth IRA owners must be 59½ 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.

Capital Gains: 3 Ways to Avoid Buying a Tax Bill

Contributed by: Mallory Hunt

As you may be aware, when a mutual fund manager sells some of their holdings internally and realizes a gain, they are required to pass this gain on to their shareholders. More specifically, by law and design, registered investment companies are required to pay out 95% of their realized dividends and net capital gains to shareholders on an annual basis. Many of these distributions will occur during November and December. With that in mind, ‘tis the season!  

Many firms have started to publish estimates for what their respective mutual funds may distribute to shareholders in short- and long-term capital gains. Whether or not a capital gains distribution is considered short-term or long-term does not depend on how long you, as the investor, have held the fund; instead, it depends on how long the management firm owned the securities that produced the gain. Investors who hold funds with capital gains distributions in taxable accounts must report them as taxable income even if the money is reinvested in additional fund shares. In tax-advantaged accounts such as IRAs or 401(k)s, capital gains distributions are irrelevant as investors are not required to pay taxes on them as long as no withdrawals are made.

It can be frustrating to know that you may even face a tax bill on a fund with a negative return for the year. There are several reasons why funds may sell holdings and generate capital gains, including but not limited to:

• Increased shareholder redemption activity during a down market. In order to fund these redemptions, funds may need to sell securities, which may, in turn, generate capital gains.

• To reinvest the proceeds in a more attractive opportunity. 

• Concerns about earnings growth (or if a stock has become fully valued in the manager’s opinion).

• Corporate mergers and acquisitions also may result in a taxable sale of shares in the company being acquired. 

Investors concerned about tax exposure may want to consider investing in more tax-efficient equity funds. Such funds tend to be managed to limit capital gain distributions, when possible, by keeping holdings turnover low and harvesting losses to offset realized gains.

Capital gains distributions are a double-edged sword. The good news? The fact that a capital gain needs to be paid out means money has been made on the positions the manager has sold. Yay! The bad news is that the taxman wants to be paid. Boo! Do keep in mind that this is what you have us for, though. We are here to help manage around and alleviate the effect these capital gains distributions may have on you and your portfolio.

WHAT WE CAN DO TO MINIMIZE THE EFFECT OF CAPITAL GAINS DISTRIBUTIONS:

1. Be Conscientious

We exercise care when buying funds at the end of the year, which may mean holding off a couple of days or weeks to purchase a fund in your account in some cases. Why? We do this to avoid paying taxes on gains you didn’t earn. This also allows you to purchase shares at a lower NAV or Net Asset Value.

2. Harvest Losses

Throughout the year, we review accounts for potential loss harvesting opportunities (also known as Tax Loss Harvesting). Where available and when appropriate, we sell holdings we have identified with this potential to realize those losses and offset end of the year gain distributions from fund companies. *See our blog titled “Tax Loss Harvesting: The ‘Silver Lining’ in a Down Market” for more details on this strategy.

3. Be Strategic

We may sell a current investment before its ex-dividend date and purchase a replacement after the ex-dividend date to avoid receiving a company’s dividend payment. Dividends are treated as income by the IRS.

As always, there is a balance to be struck between income tax and prudent investment management, and we are always here to help distinguish.

Mallory Hunt is a Portfolio Administrator at Center for Financial Planning, Inc.® She holds her Series 7, 63 and 65 Securities Licenses along with her Life, Accident & Health and Variable Annuities licenses.

This material is being provided for information purposes only and is not a complete description of all available data necessary for making an investment decision, nor is it a recommendation to buy or sell any investment. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, tax situation and time horizon before making any investment decision. Any opinions are those of Mallory Hunt and not necessarily those of Raymond James. For any specific tax matters, consult a tax professional.

Investors should carefully consider the investment objectives, risks, charges and expenses of mutual funds before investing. The prospectus and summary prospectus contains this and other information about mutual funds. The prospectus and summary prospectus is available from your financial advisor and should be read carefully before investing.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are 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.

Does the 4% Rule Still Make Sense?

Contributed by: Nick Defenthaler, CFP®, RICP®

'4% rule' history

In 1994, financial advisor and academic William Bengen published one of the most popular and widely cited research papers titled: 'Determining Withdrawal Rates Using Historical Data' published in the Journal of Financial Planning. Through extensive research, Bengen found that retirees could safely spend about 4% of their retirement savings in the first year of retirement. In future years, they could adjust those distributions with inflation and maintain a high probability of never running out of money, assuming a 30-year retirement time frame. In his study, the assumed portfolio composition for a retiree was a conservative 50% stock (S&P 500) and 50% in bonds (intermediate term Treasuries).

Is the 4% rule still relevant today? 

Over the past several years, more and more consumer and industry publications have written articles stating 'the 4% rule could be dead' and that a lower distribution rate closer to 3% is now appropriate. In 2021, Morningstar published a research paper calling the 4% rule no longer feasible and proposing a 3.3% withdrawal rate. Just over 12 months later, the same researchers updated the study and withdrawal rate to 3.8%!

When I read these articles and studies, I was surprised that none of them referenced what I consider critically important statistics from Bengen's 4% rule that should highlight how conservative it truly is:

• 96% of the time, clients who took out 4% of their portfolio each year (adjusted annually by inflation) over 30 years passed away with a portfolio balance that exceeded the value of their portfolio in the first year of retirement.

• Ex. A couple with a $1,000,000 portfolio who adhered to the 4% rule over 30 years had a 96% chance of passing away with a portfolio value of over $1,000,000!

• A client had a 50% chance of passing away with a portfolio value 1.6X the value of their portfolio in the first year of retirement.

• Ex. A couple with a $1,000,000 portfolio who adhered to the 4% rule over 30 years (adjusted annually by inflation) had a 50% chance of passing away with a portfolio value of over $1,600,000!

We must remember that the 4% rule was developed by looking at the worst possible time frame for someone to retire (October of 1968 – a perfect storm for a terrible stock market and high inflation). As more articles and studies questioned if the 4% rule was still relevant today, considering current equity valuations, bond yields, and inflation, William Bengen was compelled to address this. Through additional diversification, Bengen now believes the appropriate withdrawal rate is actually between 4.5% - 4.7% – nearly 15% higher than his original rule of thumb!

Applying the 4% rule 

My continued takeaway with the 4% rule is that it is a great starting place when guiding clients through an appropriate retirement income strategy. Factors such as health status, life expectancy, evolving spending goals in retirement, etc., all play a vital role in how much an individual or family can draw from their portfolio now and in the future. As I always say – there are no black and white answers in financial planning; your story is unique, and so is your financial plan! In my next blog, I'll touch on other considerations I believe are important to your portfolio withdrawal strategy – stay tuned!

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.

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

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 Nick Defenthaler, CFP®, RICP® and not necessarily those of Raymond James. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

One cannot invest directly in an index. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Past performance does not guarantee future results.

Sources:

• https://www.financialplanningassociation.org/article/journal/MAR04-determining-withdrawal-rates-using-historical-data

• https://www.morningstar.com/lp/the-state-of-retirement-income

• https://finance.yahoo.com/news/even-inventor-bill-bengen-revisiting-143000007.html

Social Security Cost of Living Adjustment for 2024 and other Fun Social Security Facts!

Contributed by: Kali Hassinger, CFP®, CSRIC™

It was recently announced that the 2024 Cost of Living Adjustment for those receiving Social Security will be 3.2%. This is a far cry from the 8.7% increase received for 2023, but inflation, although remaining a common topic of conversation, has slowed over the last twelve months. The Cost of Living increase is calculated based on data from the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, from October 1st, 2022, through September 30th, 2023.

The Social Security taxable wage base will increase in 2024 from $160,200 to $168,600. This means that employees will pay 6.2% of Social Security tax on the first $168,600 earned, which translates to $10,453 of Social Security tax. Employers match the employee amount with an equal contribution. The Medicare tax remains at 1.45% on all income, with an additional .9% surtax for individuals earning over $200,000 and married couples filing jointly who earn over $250,000. This income level at which the surtax comes into play has remained unchanged since 2013. 

For those collecting Social Security, the taxable portion of their benefit can range from 0%, 50%, or 85% based on income: 

• For those filing “individual” and their combined income is between $25,000-$34,000, they may have to pay income tax on 50% of their benefits, and if more than $34,000, up to 85% of their benefits may be taxable.

• For those filing a joint tax return whose combined income is between $32,000 and $44,000, they may have to pay income tax on up to 50% of their benefits, and if more than $44,000, up to 85% of their benefits may be taxable. 

For many, Social Security is one of the only forms of guaranteed fixed income that will rise over the course of retirement. The Senior Citizens League estimates, however, that Social Security benefits have lost approximately 33% of their buying power since the year 2000. This is why, when working on running retirement spending and safety projections, we factor an erosion of Social Security’s purchasing power into our client’s financial plans. If you have questions about your Social Security benefit or Medicare premiums, we are always here to help! 

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

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. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are 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.

Preparing an Emergency Action Plan

Contributed by: Sandra Adams, CFP®

Unknowns are a part of all of our lives, and the potential for the big "unknowns" becomes more significant as we age.

It is a best practice to have a full aging plan in place as we go into our retirement years. This includes:

• Where we might consider living as we age;

• Where, how, and whom we would consider having care for us as we age if we need care;

• How we will use our money, and whom it will go to once we are gone; and

• Who will help us with all of this if we cannot manage things as we age

An aging plan should also include an Emergency Action Plan. What is this, you may ask? It is the minimum provisions you should have in place in case an unexpected event occurs. Even if you don't have a full aging plan in place, an Emergency Action Plan is crucial. So, what should be part of an Emergency Action Plan?

• Name Advocates. By this, we mean having your Durable Power of Attorney in place for your financial affairs and your Patient Advocate Designation. If you have no one to name or if your family/friends' advocates need assistance, there are ways to have professional advocates in place to serve or assist (talk to your financial planner to discuss these options).

• Document Your Important Information in Advance. This includes your financial and health information so that your advocates are prepared to serve on your behalf without missing a beat. Our Personal Record Keeping Document is an excellent place to start this process.

• Communicate to Your Advocates that they have been named and verbally communicate your wishes. Your advocates can only make the best decisions for you and carry out your wishes if they (1) know they have been named your advocate and (2) are aware of the decisions you'd like to have made on your behalf.

Planning ahead is the best gift you can give yourself and your family. Having a full aging plan in place, but at a minimum, an Emergency Action Plan can put the pieces in place to allow for decisions to be made on your behalf in the way that you want them to. It can also provide resources for your best interests in your most critical time of need. If you need to put an Emergency Action Plan in place, ask your planner for assistance!

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.

Opinions expressed in the attached article are those of Sandra D. Adams and are not necessarily those of Raymond James. Securities 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.

Advanced Estate Strategies for Surviving Spouses

Contributed by: Matt Trujillo, CFP®

You will need to consider the disposition of your assets at your death and any tax implications. Statistically speaking, women live longer than men. Wives will likely have the last word about the final disposition of all the assets accumulated during marriage. You'll want to consider whether these concepts and strategies apply to your specific circumstances.

Transfer Taxes

When you transfer your property during your lifetime or at your death, your transfers may be subject to federal gift tax, federal estate tax, and federal generation-skipping transfer (GST) tax. (The top estate and gift tax rate is 40%, and the GST tax rate is 40%.) Your transfers may also be subject to state taxes.

Federal Gift Tax

Gifts you make during your lifetime may be subject to federal gift tax. Not all gifts are subject to the tax, however. You can make annual tax-free gifts of up to $17,000 (in 2023) per recipient. Married couples can effectively make annual tax-free gifts of up to $34,000 (in 2023) per recipient. You can also make tax-free gifts for qualifying expenses paid directly to educational or medical services providers. And you can also make deductible transfers to your spouse and charity. Individuals can transfer $12,920,000 free of estate, gift, and GST tax during their lives or at death in 2023.  

Federal Estate Tax

Property you own at death is subject to federal estate tax. As with the gift tax, you can make deductible transfers to your spouse and charity. Again, up to $12,920,000 (in 2023) is protected from taxation.

Portability

The estate of someone who dies in 2011 or later can elect to transfer any unused applicable exclusion amount to their surviving spouse; this is called "portability". The surviving spouse can use this deceased spousal unused exclusion amount (DSUEA) and their own basic exclusion amount for federal gift and estate tax purposes. For example, if someone died in 2011 and the estate elected to transfer $5,000,000 of the unused exclusion to the surviving spouse, the surviving spouse effectively has an applicable exclusion amount of about $17,920,000 ($12,920,000 basic exclusion amount plus $5,000,000 DSUEA) to shelter transfers from federal gift or estate tax in 2023.

Federal Generation-Skipping Transfer (GST) Tax

The federal GST tax generally applies if you transfer property to someone two or more generations younger than you (for example, a grandchild). The GST tax may apply in addition to any gift or estate tax. Similar to the gift tax provisions above, annual exclusions and exclusions for qualifying educational and medical expenses are available for GST tax. You can protect up to $12,920,000 (in 2023) with the GST tax exemption.

Indexing for Inflation

The annual gift tax exclusion, the gift tax and estate tax basic exclusion amount, and the GST tax exemption are all indexed for inflation and may increase in future years.

Income Tax Basis

Generally, if you give property during your life, your basis (generally, what you paid for the property, with certain up or down adjustments) in the property for federal income tax purposes is carried over to the person who receives the gift. So, if you give your $1 million home (purchased for $50,000) to your brother, your $50,000 basis carries over to your brother — if he sells the house immediately, income tax will be due on the resulting gain.

In contrast, if you leave property to your heirs at death, they get a "stepped-up" (or "stepped-down") basis in the property equal to the property's fair market value at the time of your death. So, if the home you purchased for $50,000 is worth $1 million when you die, your heirs get the property with a basis of $1 million. If they sell the home for $1 million, they pay no federal income tax.

Lifetime Giving

Making gifts is a common estate planning strategy that can minimize transfer taxes. One way to do this is to take advantage of the annual gift tax exclusion, which lets you give up to $17,000 (in 2023) to as many individuals as you want, gift tax-free. As noted above, you can take advantage of several gift tax exclusions and deductions. In addition, when you gift property expected to appreciate, you remove the future appreciation from your taxable estate. In some cases, it may be beneficial to make taxable gifts to remove the gift tax from your taxable estate.

Trusts

There are a number of trusts used in estate planning. Here is a quick look at a few of them.

• Revocable trust: You retain the right to change or revoke a revocable trust. A revocable trust can allow you to try out a trust, provide for management of your property in case of your incapacity, and avoid probate at your death.

• Marital trusts: A marital trust is designed to qualify for the marital deduction. Typically, one spouse gives the other spouse an income interest for life, the right to access principal in certain circumstances, and the right to designate who receives the trust property at their death. In a QTIP variation, the spouse who created the trust can retain the right to control who ultimately receives the trust property when the other spouse dies. A marital trust is included in the spouse's gross estate with the income interest for life.

• Credit shelter bypass trust: The first spouse to die creates a trust sheltered by their applicable exclusion amount. The surviving spouse may be given interests in the trust, but the interests are limited enough that the trust is not included in their gross estate.

• Grantor retained annuity trust (GRAT): You have rights to a fixed stream of annuity payments for a number of years, after which the remainder passes to your beneficiaries, such as your children. Your gift of a remainder interest is discounted for gift tax purposes.

• Charitable remainder unitrust (CRUT): You retain a stream of payments for a number of years (or for life), after which the remainder passes to charity. You receive a current charitable deduction for the gift of the remainder interest.

• Charitable lead annuity trust (CLAT): A fixed stream of annuity payments benefits a charity for a number of years, after which the remainder passes to your noncharitable beneficiaries, such as your children. Your gift of a remainder interest is discounted for gift tax purposes.

Life Insurance

Life insurance plays a part in many estate plans. Life insurance may create the estate in a small estate and be the primary financial resource for your surviving family members. Life insurance can also provide liquidity for your estate, for example, by providing the cash to pay final expenses, outstanding debts, and taxes, so that other assets don't have to be liquidated to pay these expenses. Life insurance proceeds can generally be received income tax-free.

Life insurance you own on yourself will generally be included in your gross estate for federal estate tax purposes. However, it is possible to use an irrevocable life insurance trust (ILIT) to keep the life insurance proceeds out of your gross estate.

With an ILIT, you create an irrevocable trust that buys and owns the life insurance policy. You make cash gifts to the trust, which the trust uses to pay the policy premiums. (The trust beneficiaries are offered a limited period to withdraw the cash gifts.) If structured properly, the trust receives the life insurance proceeds when you die, is tax-free, and distributes the funds according to the terms of the trust.

As you can see, this area can get very complicated very quickly, and in many cases, the various approaches have pros and cons. If you are considering employing one of these strategies or want more information on how they work, I encourage you to contact a qualified estate planning attorney for further guidance.

Matthew Trujillo, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® A frequent blog contributor on topics related to financial planning and investment, he has more than a decade of industry experience.

Opinions expressed in the attached article are those of Matt Trujillo, CFP®, and are not necessarily those of Raymond James. Securities 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.

Q3 2023 Investment Commentary

Contributed by: Angela Palacios, CFP®, AIF®

The third quarter of the year has brought some downside volatility with it. While it can be concerning when opening your statement, it is important to remember that minor pullbacks are very normal throughout the year. August and September are, historically, the toughest months on average for markets, as shown by the chart below. The good news is that the last quarter of the year tends to be one of the strongest on average.

Over the past quarter, investor mood has shifted. The S&P 500 ended the quarter down 2.08%. A diversified portfolio ended the quarter down 2.63% if using a simple blended benchmark of (40% Barcap Aggregate Bond index, 40% S&P 500, and 20% MSCI EAFE International index). Quarters like this make it challenging to remember why you want to continue holding a diversified portfolio. Periods like that of 2000-2008 are a distant memory for most investors (and many have never experienced investing when U.S. markets and technology companies have struggled). If you dissect the returns of the S&P 500 year to date, you can see that most of the returns have come from the media dubbed “Magnificent Seven.” In reality, the remaining 493 companies in the S&P have contributed only about 2% of the positive 13% in year-to-date returns. The chart below shows how just these seven companies are responsible for most of the returns.

Source: Morningstar Direct

Maintaining a balanced approach to investing is important, as most of us are investing over a lifetime. While diversification may not always work over short periods of time, studies show it to be a successful strategy over the long term.

What contributed to volatility this quarter?

Higher intermediate and long-term interest rates have spelled trouble for equity valuations recently. The Federal Reserve (the Fed) did not raise rates in September but signaled that they are likely to raise one more time this year and are unlikely to cut rates in early 2024. This has caused longer-term bond rates to increase drastically over the summer (about 1%). We have continued to maintain our allocation to short-duration bonds, which has helped over that time period.

Higher interest rates contribute to equity volatility because investors view all asset classes through a risk/reward lens when determining where best to deploy money. When interest rates are low, investors are incentivized to reach for yield in equities as they pay an attractive dividend (more than treasury bonds were paying for a long time!). You also have the added upside potential of capital appreciation. When you can get interest above 5% in a money market or CD with extremely low risk, investors are less incentivized to invest money into equities, as most of the return needed to achieve long-term goals can be earned with little to no risk! Rates usually don’t stay elevated like this for very long. On average, the period between the last interest rate increase by the Fed and the first interest rate cut is nine months in historically similar periods. So don’t expect these high rates with no risk to stay around long.

Political brinksmanship is yet again holding the economy hostage to further both sides’ political agendas. The government averted a shutdown with only hours left but kicked the can down the road, so we may hear about this again in November. Like with the debt ceiling, we have been here before. The good news is, generally, shutdowns don’t coincide with recessions. There is a lot of noise and, usually, short-term volatility but not a longer-term impact on markets or the economy. The longest shutdown was 35 days at the end of 2018. While it created some temporary market fluctuation, it did not cause a larger economic issue. At that time, the economy contracted about .2% that quarter but got that back the following quarter because government employees get back pay once things open back up. Moody’s, the final of the big three debt ratings agencies to have the U.S. rated AAA, is questioning their AAA rating on U.S. government debt because of the behavior of the politicians. 

Economic Growth is slowing

While Taylor Swift’s Eras Tour is coming to a close and noticeably adding to the local GDP of the cities she performs in, the rest of the economy might be better described by her song “Death By A Thousand Cuts.”

The consumer is out of extra money (one can only buy so many $90 concert t-shirts). The chart below shows how families had stockpiled excess earnings and government transfer payments from the COVID shutdown but have spent this excess savings over the past two years.

The UAW strike will continue to impact numbers like the above chart. As the strike expands, so does the risk of increased shutdowns and layoffs spread throughout the economy. It remains to be seen how long the strike will continue and, thus, how much of a negative impact on GDP it will have. While this strike will have economic consequences, it is only one industry. While there could be spillover if it goes on long enough (for example, people may go out to eat less if they are on strike and not earning their full wages), the UAW strike shouldn’t single-handedly be the cause of a recession.

Home affordability will continue to be hurt by high-interest rates.

Student loan payments restart in October, pulling more money out of the consumer’s pocket.   

Jobs are strong, but job openings are pulling back.

These items, or something yet unknown, could be the tipping point for the economy to turn over into recession in early 2024. Most don’t realize we have already been in an earnings recession this year. This is classified as two or more quarters of contraction in earnings from the prior year. S&P 500 companies have experienced this as a whole this year. Equity markets are certainly spooked about this and are reacting accordingly now, even as the Fed tries to engineer a “soft landing.”

What is a soft landing?

In short, very rare. Ideally, the Fed will stifle GDP growth enough with higher rates to bring down inflation but not stifle so much that growth turns negative. Rather, it just slows down, avoiding a recession. They are counting on the strength of the labor market to remain, keeping the economy out of recession. Only time will tell if the Fed will need to keep rates higher for longer to put the inflation genie back in the bottle. They have come a long way in fighting inflation, as it was just a year ago that we were talking about 9% inflation, and now we are below 4%. The easy sources of inflation have been targeted and curbed (think supply chain shortages), so now it is time to let high interest rates work their magic throughout the economy.

Politics

The Speaker of the House, Kevin McCarthy, was ousted in a 216-210 vote, with 8 Republicans joining the unified Democratic vote. Patrick McHenry is serving as the temporary speaker, who is well respected in the house and should provide good leadership for now. Since we are well into the congressional term, proceeding without a formal leader shouldn’t be too disruptive to normal functioning as committees have already been formed and a rules process adopted. Electing a new speaker will, however, take valuable time away from working on funding the government past the November 17th deadline.

The media coverage is starting to pick up for the election in 2024. Undoubtedly, headlines will only pick up later this year and throughout next year. While there is no shortage of negative headlines during an election year, they tend to be positive for markets. Markets don’t care which party controls the white house. I think many view Republicans as being more pro-business and assume that returns will be far better than when a Democrat holds the office, but that isn’t true. The S&P 500 has gone up regardless of who holds the office most of the time. This is because markets focus far more on what is going on with the economy than on politics. American companies find ways to be innovative and successful regardless of who is leading the country.    

While all of this noise can create market volatility, keeping your long-term goals in mind is more important than ever. We do not generate future forecasts; rather, we trust in the journey of financial planning and a disciplined investment strategy to get us through the more challenging times and stay the course. We appreciate the continued trust you place in us and look forward to serving your needs in the future.

Please don’t hesitate to contact us for any questions or conversations!

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.

Any opinions are those of the Angela Palacios, CFP®, AIF® and not necessarily those of Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. 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 or statement of all available data necessary for making an investment decision and does not constitute a recommendation. 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. The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations. 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. 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. Diversification and asset allocation do not ensure a profit or protect against a loss. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance is not a guarantee or a predictor of future results. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.