The Fed Just Cut Rates (Again) - Do CDs and Treasuries Still Make Sense?

Contributed by: Mallory Hunt

The Federal Reserve’s recent decision to continue cutting interest rates has left many investors wondering about their next moves and how to adjust their portfolios. Safe investment options like Certificates of Deposit (CDs) and U.S. Treasuries remain viable options for conservative investors seeking stability and predictable income. As interest rates fluctuate, it’s crucial to assess whether now is a good time to invest in these types of investments or if other options might yield better returns based on you and your investment goals. Here’s why we think these instruments are still worth considering and how you can make the most of them in the current economic climate. Let’s break it down.

Understanding CDs & Treasuries

*A Certificate of Deposit (CD) is a time deposit offered by banks that typically provides a fixed interest rate for a specific term, ranging from a few months to several years. CDs are considered low-risk investments, often insured by the FDIC up to $250,000 per person on the account, making them appealing to conservative investors.

U.S. Treasuries are debt securities issued by the United States Department of the Treasury to finance government spending consisting mainly of Treasury Bills (short-term securities that mature in one year or less), Treasury Notes (medium-term securities that mature in 2 to 10 years) & Treasury Bonds (long-term securities that mature in 20-30 years). They are considered one of the safest investments because they are backed by the full faith and credit of the U.S. Government.

Why CDs Are Still a Good Investment

Despite the rate cuts, CDs continue to offer several benefits for conservative investors:

1. Safety and Predictability: CDs provide defined income over a fixed term. If you’re risk-averse or looking to preserve capital, CDs can be a stable option, even in a lower-rate environment.

2. No Market Volatility: Unlike stocks or bonds, CDs are not subject to market fluctuations, making them a reliable choice for those who prefer to avoid risk.

3. Potential for Laddering: With a lower interest rate environment, you might consider a CD ladder strategy, where you stagger the maturity dates of multiple CDs. This allows you to take advantage of potential future rate changes while still securing some cash in safe, interest-bearing accounts.

As with any investment, what may be suitable for one investor might not be ideal for another. CDs do come with their own set of limitations such as potential liquidity constraints (tying up your funds for a predetermined period) or risks related to reinvestment and interest rates. It is crucial to be thoroughly informed on both the advantages and disadvantages of any investment before making a commitment.

The Appeal of U.S. Treasuries

U.S. Treasuries are another safe haven for investors, especially during periods of economic uncertainty:

1. Government-Backed Security: Treasuries are backed by the full faith and credit of the U.S. government, making them one of the safest investments available.

2. Variety of Options: Treasuries come in various maturities, from short-term bills to long-term bonds, allowing you to tailor your investments to your financial goals.

3. Interest Rate Sensitivity: While treasuries’ yields may decrease following a rate cut, they often perform well during economic downturns as investors seek safe assets.

While the recent rate cuts may have reduced the yields on CDs and Treasuries on the front end of the curve, these instruments still offer valuable benefits for conservative investors. In fact, yields on CDs & Treasuries with longer maturities have actually INCREASED since The Fed began their rate cutting cycle. By employing strategies like laddering and diversification, you can navigate the changing interest rate environment and continue to achieve your financial goals. Keep an eye on economic indicators and remain flexible; the investment landscape can change quickly, and adapting your approach can lead to better outcomes. As always, consult with a financial advisor to tailor your investment strategy to your unique situation. Whether you choose CDs, Treasuries, or explore other avenues, making informed decisions is key to achieving your financial goals.

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 market commentary is provided for information purposes only and is not a complete description of the securities, markets, or developments referred to in this material. Any opinions are those of the author and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. Diversification and asset allocation do not ensure a profit or protect against a loss.

*Raymond James Financial Services, Inc., is a broker-dealer, is not a bank, and is not an FDIC member. All references to FDIC insurance coverage in relation to Brokered CDs and/or Market-Linked CDs address FDIC insurance coverage, up to applicable limits, at the insured depository institution that is disclosed in the offering documents. FDIC insurance only covers the failure of FDIC-insured depository institutions, not Raymond James Financial Services, Inc. Certain conditions must be satisfied for pass-through FDIC insurance coverage to apply.

Yield Curve and Forward Returns

Contributed by: Nicholas Boguth, CFA®, CFP®

In 2022, there were fear-inspiring articles about the yield curve inversion. Two years later, we’re seeing the same kind of articles about the yield curve UN-inversion! It can’t be both…can it?

Let’s look back at the last 50 years of inversions and un-inversions and see if either has been a consistent signal for the stock market*.

*Source: Morningstar Direct. Performance = S&P 500 TR.

*Source: Morningstar Direct. Performance = S&P 500 TR.

Do those results surprise you? On average, returns look BETTER after inversions AND un-inversions. That headline doesn’t grab as much attention as one that provokes fear, though.

It is hard to filter out the noise when it is so prevalent in our daily lives. We listen to the noise but rely heavily on the data when making decisions in our investment process. If you have questions about your portfolio, please don’t hesitate to reach out.

Nicholas Boguth, CFA®, CFP® is a Senior Portfolio Manager and Associate Financial Planner at Center for Financial Planning, Inc.® He performs investment research and assists with the management of client portfolios.

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.

The information contained in this email 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. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Any opinions are those of Center for Financial Planning and not necessarily those of Raymond James.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary.

Proactive Longevity Planning: Preparing Caregivers & Futures

Contributed by: Sandra Adams, CFP®

According to the Family Caregiver Alliance, more than 1 in 6 Americans work full-time or part-time and assist with caring for an elderly or disabled family member, relative, or friend. 70% of working caregivers suffer work-related difficulties due to their dual roles. Many caregivers feel they have no choice about taking on their caregiving responsibilities (nearly 50%). A significant number of caregivers experience unwanted changes in employment and lost productivity and wages due to their caregiving responsibilities, which impacts their future financial security.

What if more of these caregivers had been able to anticipate their future caregiving responsibilities? What if they could have been better prepared for their responsibilities and have been able to, as much as possible, put plans and resources in place to help prevent these changes to their own lives from happening? Or what if they could even help their aging parents or family members get their financial affairs and other longevity plans in order before significant care needs started occurring so they had a real plan in place, too?

This is what proactive longevity planning is all about. It can happen, but the truth is that few people do it. Who wants to think about the day that either they or a loved one will not be able to care for themselves on their own? Or live in their own home any longer? Or may not have the capacity to make decisions for themselves (or have to make decisions for a loved one because they can no longer make decisions for themselves)?

Even though these are difficult conversations and topics to approach, if you are lucky enough to have the opportunity to plan, this can put you in the best position to avoid obstacles later.

Planning for the Older Adult

Find a trained professional to help you and your family design a longevity plan. In many cases, this may be a financial advisor with special training in the area of longevity planning and/or gerontology. Items to be discussed during this planning include:

• How can I use my financial income and assets to support me as I age?

• If I need long-term care assistance in the future, how can I pay for that based on my individual situation?

• If I am no longer able to care for myself in the future, how would I like to be cared for? Where would I like to be cared for?

• If care cannot be provided for me in my own home, where would I consider being cared for?

• Are my estate planning documents in order to best carry out my longevity plan?

• How can I make sure my monetary and life values are passed on to my family the way I would like them to be?

• How would I like to be cared for at the end of life? Is my plan in place to make that happen when the time comes?

Planning for Caregivers

According to a recent AARP study, there are currently 37.1 million unpaid caregivers caring for older adults. One-quarter of those are in what we call the “sandwich” generation – those who are also in the prime of their careers and getting serious about planning for their own financial independence. Taking the initiative to plan for the time when caregiving is another responsibility can be crucial to making life work for these folks without undue emotional, psychological, and financial stress.

Where to Start?

From the very beginning, plan to find ways to manage your own caregiver stress. We know that this is a big risk to caregivers, so going in knowing that this needs to be managed puts you ahead of the game. What are things that you can be doing to get ahead of managing stress?

• Know the resources in your community that you can call on for help (paid and unpaid). This can be family, community resources (senior centers, churches, other non-profits), and paid caregiving resources. Find your version of the Area Agency on Aging, a.k.a. Ageways (a Michigan resource) for no or low-cost resources in your state. You should also find a qualified geriatric care manager (GCM) to help you with all things safety and care-related in your area (you can find a qualified GCM in your area at www.aginglifecare.org).

• Work with the individual in need of care’s longevity plan (if they have one) to make sure to best utilize their financial resources in conjunction with their legal resources and any government resources to help them get the help that they need so that you can continue to also provide for you and your family.

• Rely on longevity professionals to do what they do best: manage the financial resources, keep the legal resources updated, help you manage the health, care, and medical resources, etc. Please do not feel that you have to do it all yourself.

• When and if it comes to moving the person you are caring for to a facility, utilize the services of a professional to help you assess the needs of your loved one, narrow down the appropriate facilities, and vet out the appropriate possible choices to help make that overwhelming “task” seem not so impossible.

Caregiving, if planned for in advance, can be a beautiful gift. If you can build a team and utilize available resources to avoid the pitfalls of caregiver stress, you can enjoy giving back to a parent or family member who likely cared for you when you were young – there is something special about that!

If you would like to watch a replay of our recent Longevity Virtual Conference focused on Caregiver Issues and Resources, feel free to access it here.

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.

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.

GivingTuesday: A 2024 Reminder

Contributed by: Kelsey Arvai, CFP®, MBA

As we approach another season of gratitude, it's a reminder that each act of kindness can make a meaningful difference, no matter how small. Since its inception in 2012, GivingTuesday has grown into a worldwide movement, inspiring millions to contribute time, resources, and compassion to strengthen our communities.

Celebrated on the Tuesday following Thanksgiving, GivingTuesday is a global call to action, but its spirit doesn't need to be limited to one day a year. At The Center, we aim to give back year-round through our Charitable Committee, which leads our mission to support three key areas: Financial Literacy, Community Needs in Metro Detroit, and Staff Involvement.

In 2023, our team contributed over 120 hours of volunteer time and raised $16,500, enhancing lives in our community and beyond. From donation drives to hands-on support, we're dedicated to building a brighter future. To further encourage giving, The Center offers eligible employees up to two paid days per year for community volunteer work and matches employee charitable donations up to $100 annually.

For those looking to join this movement, visit GivingTuesday.org/participate to discover ways to give back through time, donations, or simply using your voice to uplift those around you. Together, we can create a ripple of kindness every day.

Kelsey Arvai, MBA, CFP® 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 the Center for Financial Planning, Inc. The Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.

This electronic communication and all contents are sent and provided by Kelsey Arvai in her individual capacity as an ACTIVITY, and not in the capacity of agent, representative or financial advisor of Raymond James Financial Services, Inc. and/or any and all of its affiliates, including Raymond James & Associates, Inc. and Raymond James Financial, Inc. (collectively “Raymond James”). Kelsey's STATUS in the ACTIVITY is independent of her activity as a financial advisor with Raymond James, and his additional use of a Raymond James email address for communications pertaining to her POSITION in the ACTIVITY is authorized. Raymond James, however, assumes no responsibility for the substance, accuracy, completeness or reliability of any content in this communication, and Raymond James’ sponsorship, endorsement, association or affiliation of/with the ORGANIZATION or its activities is not implied, nor should it be inferred.

Three Financial Planning Questions for Small Business Owners

Contributed by: Lauren Adams, CFA®, CFP®

One of the most rewarding types of clients we have the honor of working with are business owners. These folks have built their companies from the ground up across a wide variety of industries or worked their way up through the ranks to now serve at their company’s helm. They are masters of their fields of expertise and savvy strategists. However, they are often frustrated when their expertise in their domain doesn’t translate into know-how to manage their finances. This is why many choose to outsource the management of their finances to professionals. If you are a business owner devoted to your business and perhaps putting your own planning on the back burner, we’ve put together a few questions for you to consider.  

1. Are you optimizing your retirement savings?

Two of the most popular retirement savings vehicles for small business owners are the SEP (Simplified Employee Pension) IRA and the solo 401(k).

SEP IRAs are one of the most common retirement accounts for self-employed individuals and small business owners; they are popular for their simplicity and flexibility. They are similar to traditional IRAs in many ways but with some twists. With a SEP IRA, you can most likely contribute much more than a traditional IRA. Depending on your business entity structure, a business owner’s limit is generally the lesser of 25% of compensation (up to $69,000 in 2024). These accounts tend to be ideal for folks who have very few (or zero) other employees because owners must contribute proportional amounts for each eligible employee.

SEPs also offer a lot of flexibility: you can freely roll over the account into a Traditional IRA in the future, and you can make contributions until your taxes are due the following year. Some limitations to consider: you don’t have the ability to take a loan from your SEP IRA (like you can from a 401(k)), there is no Roth contribution option with SEPs (contributions will always be tax deductible up front and withdrawals will always be taxed when taken out), and typically the self-employed person would need to earn a lot to be able to max out their annual contribution limit ($300k+ in 2024).

Solo 401(k)s are a simplified version of the popular corporate 401(k) savings plan. They might be a fit for owner-only businesses whose only employees are the owner or the owner and spouse. With solo 401(k)s, the owner gets to decide how much to contribute as the employee and the employer. Contributions can be pre-tax or Roth, and 401(k)s do allow for tax-free loans (if the proper procedure is followed). There are some nuances to the employee and employer contribution limits, but solo 401(k)s have the same high contribution rate as SEP IRAs, and typically, you can get there faster (with an overall lower level of total compensation) than the SEP. A downside of solo 401(k)s is that they have some added cost and complexity. Plan documents need to be established, and the IRS requires owners to file a Form 5500 if it has $250,000 or more in assets at the end of the year.

Luckily, these are both great savings options for business owners to build long-term retirement savings and diversify the wealth they are building inside their businesses. We have experience assisting our business owner clients with both types of plans.

2. Are you taking advantage of the QBI deduction?

The qualified business income (QBI) deduction is a potential 20% deduction for self-employed individuals and owners of pass-through entities like LLCs, partnerships, and S corps that was created by the 2017 Tax Cuts and Jobs Act. There is a threshold and phaseout of this deduction if you make too much money, and the rules and calculations around it are complex. We won’t get into the nitty-gritty here, but we want to ensure it is on our business owner clients’ radar. In our experience, many business owners are not aware of this deduction, or they may be paying themselves too high a salary than legally necessary (thus increasing their FICA taxes and limiting their profits and the amount of the potential deduction they are eligible for).

Also, this benefit is scheduled to sunset on December 31, 2025 (unless Congress votes to extend it). So you want to make sure you’re making the most of it while you can, as it can translate into potentially large tax savings under the right circumstances. Don’t wait – call your CPA today and discuss ways you can maximize this benefit while it is still around.

3. Are you planning for the future?

As business owners ourselves, we understand how easy it is to get caught up in working “in” the business instead of “on” the business. That’s why we’ve found helpful tools like Gino Wickman’s Traction and the EOS Resources (https://www.eosworldwide.com/). Dedicating time to work on the business itself can pay dividends in your own quality of life and the equity value of the business itself.

If you are contemplating a sale in the future, don’t assume that you need to wait until after you cash out to call a financial advisor. We can employ many tactics leading up to your business sale (such as tax-loss harvesting strategies like direct indexing or tax-advantaged charitable giving) to help mitigate the tax bite of this watershed moment in your life.  

We hope these questions have helped get you thinking about some opportunities you might be missing and showcase how important prioritizing your own financial planning can be. Reach out to talk through your personal situation together. We’d love to help!

Lauren Adams, CFA®, CFP®, is a Partner, 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.

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 Lauren Adams, CFA®, CFP® 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 Raymond James Financial Services Advisors, Inc.

Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.

Are You and Your Partner on the Same Retirement Page?

Contributed by: Matt Trujillo, CFP®

Retirement and Longevity

Many couples don't agree on when, where, or how they'll spend their golden years.

When Fidelity Investments asked couples how much they need to have saved to maintain their current lifestyle in retirement, 52% said they didn't know. Over half the survey respondents – 51% – disagreed on the amount needed to retire, and 48% had differing answers when asked about their planned retirement age.*

In some ways, that's not surprising – many couples disagree on financial and lifestyle matters long before they've stopped working. However, adjustments can become more complicated in retirement when you've generally stopped accumulating wealth and have to focus more on controlling expenses and dealing with unexpected events.

Ultimately, the time to talk about and resolve any differences you have about retirement is well before you need to. Let's look at some key areas where couples need to find common ground.

When and Where

Partners often have different time frames for their retirements, an issue that can be exacerbated if they are significantly older. Sometimes, differing time frames are due to policies or expectations in their respective workplaces; sometimes, it's a matter of how long each one wants – or can physically continue – to work.

The retirement nest egg is also a factor here. If you're planning to downsize or move to a warmer location or nearer your children, that will also affect your timeline. There's no numerical answer (65 as a retirement age just isn't relevant in today's world), and this may be a moving target anyway. But you both need to have a general idea on when each is going to retire.

You also need to agree on where you're going to live because a mistake on this point can be very expensive to fix. If one of you is set on a certain location, try to take a long vacation (or several) there together and discuss how you each feel about living there permanently.

Your Lifestyle in Retirement

Some people see retirement as a time to do very little; others see it as the time to do everything they couldn't do while working. While these are individual choices, they'll affect both of you as well as your joint financial planning. After all, if there's a trip to Europe in your future, there's also a hefty expense in your future.

While you may not be able to (or want to) pin everything down precisely, partners should be in general agreement on how they're going to live in retirement and what that lifestyle will cost. You need to arrive at that expense estimate long before retirement while you still have time to make any changes required to reach that financial target.

Your Current Lifestyle

How much you spend and save now plays a significant role in determining how much you can accumulate and, therefore, how much you can spend in retirement. A key question: What tradeoffs (working longer, saving more, delaying Social Security) are you willing to make now to increase your odds of having the retirement lifestyle you want?

Examining your current lifestyle is also a good starting point for discussing how things might change in retirement. Are there expenses that will go away? Are there new ones that will pop up? If you're planning on working part-time or turning a hobby into a little business, should you begin planning for that now?

Retirement Finances

This is a significant topic, including items such as:

• Monitoring and managing expenses

• How much you can withdraw from your retirement portfolio annually

• What your income sources will be

• How long your money has to last (be sure to add a margin of safety)

• What level of risk you can jointly tolerate

• How much you plan to leave to others or to charity

• How much you're going to set aside for emergencies

• Who's going to manage the money, and what happens if they die first

... and the list goes on. You don't want to spend your retirement years worrying about money, but not planning ahead might ensure that you will. Talk about these subjects now.

Unknowns

"Expect the unexpected" applies all the way along the journey toward retirement, but perhaps even more strongly in our later years. What will your healthcare costs be, and how much will have to come out of your pocket? Will you or your spouse need long-term care, and should you purchase insurance to cover that? What happens if the market suffers a severe downturn right after you retire?

While you obviously can't plan precisely for an unknown, talking about what might happen and how you'd respond will make things easier if the unexpected does occur. Included here is the reality that one of you will likely outlive the other, so your estate planning should be done together, and the day-to-day manager of your finances should be sure that their counterpart can take over when needed.

Communication is vital, especially when it comes to something as important as retirement. Almost all of us will have to make some tradeoffs and adjustments (as we do throughout our relationships), and it's important to remember that the earlier you discuss and negotiate what those are going to be, the better your chances of achieving the satisfying retirement you've both worked so hard to achieve.

*2021 Fidelity Investments Couples & Money Study

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.

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.

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.

The Widow’s Penalty: Lower Income, Higher Taxes

Contributed by: Nick Defenthaler, CFP®, RICP®

A newly widowed example client, whom we'll call "Judy," receives communication from Medicare that her Part B and D premiums are significantly increasing from the prior year. To make matters worse, she also notices that she's now in a much higher tax bracket when filing her most recent tax return. What happened? Now that Judy's husband is deceased, she is receiving less in Social Security and pension income. Her total income has decreased, so why would she have to pay more tax and Medicare premiums? Unfortunately, she's a victim of what's known as the "widow's penalty."

Less Income and More Taxes. What Gives?

Simply put, the widow's penalty is when a surviving spouse ends up paying more taxes on less income after the death of their spouse. This happens when a widow or widower starts filing as a single filer the year after their spouse's death.

When the first spouse dies, the surviving spouse typically sees a reduction in income. While the surviving spouse will continue to receive the greater of the two social security benefits, they will no longer receive the lower benefit. In addition, it's also very likely that the surviving spouse will either entirely or partially lose income tied only to the deceased spouse (ex., employment income, annuity payments, or pensions with reduced or no survivor benefits). Depending on how much income was tied to the deceased spouse, the surviving spouse's fixed income could see a sizeable decrease. At the same time, the surviving spouse starts receiving less income, and they find themself subject to higher taxes.

With some unique exceptions, the surviving spouse is required to start filing taxes as single instead of as married, filing jointly in the year following their spouse's death. In 2024, that means they will hit the 22% bracket at only $47,150 of taxable income. Married filers do not reach the 22% bracket until they have more than $94,300 of income. To make matters worse, the standard deduction the widow will receive will also be cut in half. In 2024, for a married couple (both over 65), their standard deduction will be $32,300. A single filer (over the age of 65) will only have a $16,500 deduction! Unfortunately, even with less income hitting the tax return, widowed tax filers commonly end up paying higher taxes due to the compression of tax brackets and the dramatic standard deduction decrease for single filers.

Medicare Premiums Increase

Tax brackets are not the only place surviving spouses are penalized. Like the hypothetical example above, many surviving spouses see their Medicare premiums increase even though their income has decreased because of how the income-related monthly adjusted amount (IRMAA) is calculated (click HERE to visit our dedicated Medicare resource page). Whereas there is no surcharge until a married couple filing jointly reaches an income of $206,000, single filers with a modified adjusted gross income (MAGI) of more than $103,000 are required to pay a surcharge on their Medicare premiums. This means that a couple could have an income of $127,000 and not be subject to the Medicare IRMAA surcharge. However, if the surviving spouse now has income over $106,000, their premium will increase by almost $1,000 per year. In this same example, the widow could now be in the 22% bracket (as compared to the 12% bracket with $120k of income filing jointly) and be paying approximately $3,600 more in federal tax.

Proactive Planning

Short of remarrying, there is no way to avoid the widow's penalty. However, if your spouse has recently passed away, there may be some steps you can take to minimize your total tax liability.

For most widows, the year their spouse dies will be the last year they will be allowed to use the higher married filing jointly tax brackets and standard deduction. In some cases, it can make sense to strategically realize income during the year of death to minimize the surviving spouse's lifetime tax bill. A surviving spouse might do this by converting savings from a Traditional IRA to a Roth IRA while they are still subject to the married filing jointly rates.

Let's look at a hypothetical scenario with a couple we'll call John and Mary. After several years in a long-term care assisted living facility, John sadly passed away at age 85. Because John and Mary did not have long-term care insurance, they had sizeable out-of-pocket medical expenses that resulted in a significant medical deduction in the year of John's passing. Several months after her husband's passing, over $100,000 was converted from her IRA to a Roth IRA. Because this was the last year she could file jointly on her taxes and had the significant medical deduction for the year John passed, Mary only paid an average tax rate of 10% on the $100,000 that was converted. As we stand here today, Mary would now be filing single and find herself in the 24% tax bracket (which will likely increase to 28% in 2026 as our current low tax rates expire at the end of 2025).

The widow's penalty should be on every married couple's radar. It's possible that while both spouses are living, their tax rates will always remain the same, as we've highlighted above. Unless both spouses pass away within a very short period of time from one another, higher taxes and Medicare premiums are likely inevitable. However, proper planning can help dramatically reduce the impact of this penalty on your plan.

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.

Raymond James and its advisers do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

These examples are hypothetical illustrations and are not intended to reflect any actual outcome. they are for illustrative purposes only. Individual cases will vary. 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. Prior to making any investment decision, you should consult with your financial advisor about your individual situation.

Financially Preparing to Become a Pet Parent

Contributed by: Kelsey Arvai, CFP®, MBA

Contributed by: Nick Errer and Ryan O'Neal

Typically, we celebrate National Pet Month in May and Pet Appreciation Week in the first week of June. Year-round, we acknowledge the love, joy, and companionship our furry, feathered, or shelled friends bring into our lives. We reflect on the importance of responsible pet ownership and acknowledge the profound impact that pets have on our well-being. 

To say that our pets make us happy is selling short the real physical and mental health benefits of pet ownership. The National Institute of Health (NIH) found that pet owners are encouraged by the motivation and social support provided by their pets and are more likely to adopt a physical exercise routine. Furthermore, pet ownership has been associated with lowered blood and cholesterol levels while increasing our levels of serotonin and dopamine. Although it is easy to focus on the positive effects our pets have on us, it is equally important to acknowledge the caretaking commitment and financial burden we are taking on. 

Be honest: Does your lifestyle allow room for a pet? Consider your lifestyle, work, family, financial, and housing situation. Does your situation support a healthy and happy environment for a pet?

According to the American Society for the Prevention of Cruelty to Animals, the average annual cost for dog and cat ownership lies at $1,391 and $1,149, respectively. This doesn't factor in other financial planning aspects, such as pet insurance and estate planning for your pets. Pet insurance can help cover the cost of medical care for your animals. Typical policies can cost around $60 per month for dogs and $30 per month for cats. Premiums will vary depending on your pet's age, breed, cost of services, where you live, and the policy you choose. Pet insurance isn't right for everyone, but it is helpful if you are struck with an unexpected medical expense which can cost over $1,000. Since most plans won't cover pre-existing conditions, starting as soon as possible is important. The alternative is to "self-insure" by paying out-of-pocket expenses that arise. As a guideline, an average pet insurance policy with a $5,000 annual coverage, a $250 deductible, and an 80% reimbursement level will cost about $50 per month in 2024, according to Forbes Advisor.

I always recommend that everyone have enough cash on hand in an emergency fund to cover a minimum of three to six months of living costs. Once you are a pet owner, you'll need to consider increasing the amount to include expenses for your pets. While pet ownership is a choice, once you have a pet, taking care of it is not.

According to a USA Today Blueprint Survey, some dog owners spend up to $376 per month on their dogs, or $4,512 per year. This includes all day-to-day expenses like food, supplies, grooming, routine vet care, insurance, training, and dog walking, but it also includes occasional costs such as boarding and vet care in case of illness.

Research breed characteristics – explore the unique needs of your potential pet and assess how it could impact your budget. Consider home insurance and rental fees (some home insurers may increase your premiums or choose not to cover you if you own certain dog breeds). If you become a dog owner, you may want to consider additional liability coverage in case of dog bites. If you rent, some landlords require additional "pet deposits" or "pet rent".

In support of National Pet Month, The Center partnered with two local nonprofits this past May to support rescue and caretaking efforts. As part of our commitment, we donated $1,000 each to Happy Paws Haven Co. and Almost Home Animal Rescue. These organizations provide care, comfort, and compassion to animals in need. We hope our contribution helps further their mission and brings comfort to our furry friends in search of forever homes.  

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

Opinions expressed in the attached article are those of the authors 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.

You've inherited an IRA – Now What?

Contributed by: Kali Hassinger, CFP®, CSRIC®

Receiving an inheritance can be confusing and filled with mixed emotions. However, when inheriting a traditional IRA, the confusion can be compounded by the multitude of rules, regulations, and tax implications surrounding these accounts. How you manage the account in the future can depend on several factors, such as your relationship with the deceased and the age of the deceased at death.

You've Inherited an IRA from your Spouse

If you inherited an IRA from your spouse, and you are the sole beneficiary, you have several options on how to manage the account in the future. The first option is to simply allow the account to remain in your deceased spouse's name.  In this example, if your spouse hadn't yet reached RMD or Required Beginning Date age (as of right now, this is age 73, but it has changed several times in the last few years), you wouldn't need to begin taking Required Minimum Distributions (RMDs) until your spouse would have reached age 73. With this process, you will have additional elections to make regarding which life expectancy table will be used to determine your RMDs.

Spouses can also transfer the account assets into their own traditional IRA. This option is specific to spouses only. With this election, the account is treated no differently than an IRA established in your name. Required Minimum Distributions would not begin until your RMD age. 

However, if you want to access the funds earlier than 59.5 without a 10% tax penalty, it could make more sense to open a beneficiary IRA. This account will be subject to annual required distributions, but again, without a tax penalty.

You've Inherited an IRA from Someone Else

If you recently (since 2020) inherited an IRA from someone else, such as a parent, aunt, or uncle, and as long as they were more than ten years older than you, you will likely need to open an inherited IRA and distribute the entire account within ten years!

If the deceased was subject to Required Minimum Distributions before their death, you must also take an RMD each year (Note: This requirement has been waived in recent years but is set to begin in 2025.) Given that traditional IRA withdrawals, whether inherited or not, are subject to ordinary income tax, this can create significant tax implications for beneficiaries. Purposeful tax planning is essential to avoid unforeseen or forced distributions in later years.

The options discussed here are certainly not exhaustive, and rules differ for beneficiaries who are disabled, chronically ill, minors, or entities (as opposed to individuals). These differing rules also apply to instances in which the beneficiary is less than ten years younger than the deceased account holder.

If you've inherited an IRA and are looking for guidance on which option or planning path is best for you, we are 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 information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Kali Hassinger, CFP®, CSRIC® and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

When is the Right Time for a Family Meeting?

Contributed by: Sandra Adams, CFP®

In the context of our financial planning work with clients, family meetings can be scheduled for many different reasons. These meetings are often scheduled because something has changed, and the family needs to discuss a family transition or crisis. However, family meetings, like most planning, are most effective when done proactively — before a stressful life transition or crisis.

What does a proactive family meeting look like?

When we talk to clients about scheduling a family meeting with their children, what is the purpose? What is on the agenda?

Purpose(s):

One of the purposes of the meeting is to ensure that our clients’ children get to know us. They are most often the future decision-makers for their parents if anything happens with their health or decision-making ability in the future (as future powers of attorney, trustees, etc.), and it is always nice if they have met us and are comfortable contacting us when that time comes. Another purpose for the meeting is to communicate to the children the parents’ long-term plans and wishes and (if the parents are comfortable) review their overall assets, estate plan, and how everything works and will work in the future when and if needed.

Agenda Items:

The agenda is something that can change based on the family and based on the parent’s needs and desires. Some clients are comfortable going over their complete plan with their families, covering everything we would cover in our full annual review. Others want to keep things much higher level and explain their long-term plan and wishes without discussing specific assets and amounts.

No family meeting will look the same, but most clients and children leave feeling that they are valuable and are helpful to everyone involved to help plan for the future.

So, when is the right time for a family meeting? When it is needed. That means when a family transition or a crisis is looming, that is the right time. If you are part of a family that would like to be proactive and communicate your plan to your family in advance of a transition or crisis, then scheduling a family meeting with your financial advisor early as part of your retirement planning or early longevity planning may be the best time. In any case, there is no wrong time unless you never do it.

If you or someone you know is interested in scheduling a family meeting and has questions about the process, please let us know. We are always happy to help. Reach out to me at Sandy.Adams@CenterFinPlan.com

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.

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.