How Market Volatility Can Be Your Friend

Contributed by: Nick Defenthaler, CFP®

Chances are if you’re in your thirties or forties, the financial media is something you don’t watch on a daily basis (don’t worry; we think that’s a good thing). You’re busy with life. Between your career, family, after-school activities for your kids, commitments with friends etc., it’s hard enough to carve out a few minutes to unwind at night, let alone find the time or interest to keep up on recent updates in the stock market.  Even if you aren’t a financial media junky, you’ve probably still seen a few headlines or overheard co-workers discussing how crummy the markets have been so far in 2016 and that 2015 wasn’t a great year either.

If you’re in “accumulation mode” and retirement is 15 years or more out, don’t get caught up in the noise or the countless investment tips and stock picks you’ll inevitably hear from others. If your investment accounts are positioned properly for your own specific goals, with personal objectives and risk comfort levels in mind, roller coaster markets like we’ve experienced over the last few months are your friend. For some reason, investments are the only things I can think of that people typically don’t like to buy when they may be undervalues OR at attractive valuations. Why? Because it can be a little nerve wracking and possibly seem counterintuitive to continue to “buy” or invest when markets are falling. But what is occurring when you do just that? You’re purchasing more shares of the investments you own for the same dollar amount! Let’s look at an example: 

Sarah is 38 and is putting $1,000/month into her 401k, which is roughly 10% of her salary. She owns a single investment with a current share price of $10, meaning for this month, she bought 100 shares ($1,000 / $10/share). What if, however, the market declines like we’ve seen so far in 2016 and now the share price is down to $9? That same $1,000 deposit is going to get Sarah just over 111 shares ($1,000 / $9/share). Since she is about 25 years out from retirement, Sarah welcomes these short-term market corrections because it gives her the opportunity to buy more shares to potentially sell at a date in the future at a much higher price. If we look back in history, those who stayed consistent with this strategy typically had the greatest success.  

Everything I’ve described above is pretty straightforward. It’s not flashy or “sexy” and it might even sound somewhat boring. Good! Investing and financial planning does not have to be overcomplicated. I recently heard this quote and it really resonated with me: “Simplicity wins every time. Complexity is the enemy of execution.”  Why make things more complicated than they have to be?

Here are a few examples of simple, but effective ways to build wealth:

• Live within your means.

• Save at least 10% of your income for retirement each year starting early and increase that percentage 1% each year. For more information, check out a blog I wrote on this topic.

• Invest in a well-balanced, diversified portfolio that matches YOUR needs, not someone else’s.

• Work together with a financial planner that you trust and who can help to take as much stress out of money for you and your family as possible.

• Tune out the “noise” from financial media – the world doesn’t end very often!

You might be thinking, “I know this stuff is important, but I just don’t have the time or desire to understand it better.” Fair enough. This is one reason of the many reasons our clients hire us. They know we’re experienced and are passionate about an area in their life that is extremely important, and our clients want to get it right. Our goal is to work with you to make smart financial choices and help take the stress out of money for you and your family during each stage of your life. Let us know how we can help you do just that. 

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.

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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 Nick Defenthaler and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Past performance is not a guarantee of future results. Dollar-cost averaging cannot guarantee a profit or protect against a loss, and you should consider your financial ability to continue purchases through periods of low price levels. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected. There is no guarantee that using an advisor will produce favorable investment results. Diversification and asset allocation do not ensure a profit or protect against a loss. The example provided in this material is hypothetical and for illustrative purposes only. Actual investor results will vary.

How Your Retirement Age Could Affect Your Social Security Benefits

Contributed by: Melissa Parkins, CFP®

When planning for retirement, one of the biggest factors to figure out is how you will recreate your paycheck when you are no longer working to receive one from an employer. A couple of questions to think about:

• Do you have a pension through your employer and if so, when are you eligible to start receiving income?

• Will you live off of your portfolio?

• Is Social Security the only income stream you have access to?

Many people (including myself!) long to retire early, but doing so could reduce your Social Security benefits. Your benefit will depend not only on how much you have earned in the past, but also when you decide to leave the workforce.

If you stop working before you have 35 years of earnings reported, then a zero is used for each year without earnings when your benefit amount is calculated. Any zeros will bring down your earnings average and reduce the benefits you will receive. Even if you have 35 years of earnings reported, if some of those years are low earning years (maybe at the beginning of your career), they will be averaged into your calculation and bring your benefits down lower than if you had continued to work for a few more years while, ideally, earning higher wages during your peak earning years.

One potential point of confusion when planning to retire early comes on your Estimated Benefits statement. When you look at your Social Security statement, your reduced expected benefit at age 62 actually means the amount you are expected to receive if you work until age 62 and begin collecting benefits at that time. Likewise, your increased expected benefit at age 70 means the amount you are expected to receive if you work until age 70 and then begin collecting benefits. So if you do retire early or at different ages than the two listed, the number shown as your estimated benefit could be different.

At my current age of 25, retiring early is something I aspire towards – I picture a long, lavish (read: expensive) life of luxury! Hey, a girl can dream! Many people (maybe more realistically than me) also strive to retire early, and if you don’t have access to a pension, then you may be depending more heavily on your Social Security benefit. If you do retire early, then you may receive a reduced benefit. However, retiring early is not unrealistic; but in order to have enough money to live at your comfort level, it may require working part time for a bit after retirement or even saving more now to make up for a potentially lower Social Security benefit. When making these decisions, talk with your Financial Planner about your retirement goals to see how best to build your plan to financial independence.

Melissa Parkins, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.

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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 Melissa Parkins and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete.

The Truth Behind Getting Your Resolutions to Stick

Contributed by: Kali Hassinger

It’s New Year’s Eve, which means it’s time for New Year’s Resolutions!  Typically, this is a point when we think about the big changes in store for next year.  It’s a fresh start.  Come January, gyms will be packed, diet commercials will be constant, and people will be committed to making the New Year better!  As the days roll on, however, it’s easy to lose focus and old habits tend to creep back into our lives.  Eventually, it’s difficult to remember the resolutions that you felt so passionately about a few months ago.  In some cases, it’s because we set unrealistic expectations.  Other times it’s because life gets too busy and it’s hard to remain motivated.

I know you may be expecting me to provide you with a list of suggested financial resolutions for 2016, but honestly I’m not sure that would really help you. Change isn’t as simple as writing a list or reading a blog.  Making a real change requires so much more effort, which is part of the reason why resolutions can be so easily forgotten after a few months.  There are so many pieces that go into our habits and behaviors in life, and in order to really enact change, we have to connect our goals to our actions, logic, resources, and emotions.

According to a quick Google search, here are the most common financial resolutions each year: 

• Save More

• Pay off Debt

• Spend Less

These are very modest and sensible goals; however, these are the top 3 resolutions every year.  Keep in mind, if you are planning to include one of these three resolutions, they are great goals!  But try to be specific when establishing your plan for the New Year.  Instead of “Save more,” try saving an additional $100 each month and set it up to occur automatically.  Instead of “Pay off Debt,” try determining which credit card has the highest interest rate and target that first. I am absolutely not trying to suggest that resolutions aren’t worthwhile (I make them every year, too!).  I’m only suggesting that you ask yourself, “Why do I wait until January 1st to make my life better?”

Consider your motivation behind saving more and spending less.  It’s not because we just want to see a bigger number in our accounts.  Feeling financially secure enables us to enrich our lives with new experiences.  Instead of “Save More,” connect your savings’ goal to what it truly means – building toward a future, a trip, retirement, or whatever it is that is genuinely important to you. 

Instead of making a resolution, make a change that is:

1. Attainable

2. Sustainable

3. Meaningful

If you find that you missed a monthly deposit into your savings account (or you skipped the gym for a week), don’t give up.  Life is unpredictable and our resolutions for change have to be adaptable and resilient.  Reconnect your resolution with what it means to you on a long-term and emotional level.  We don’t need January 1st to make a change, we just need resolve and determination (both are synonyms for resolution – see what I did there?!).  Have a happy and healthy 2016, everyone!

Kali Hassinger is a Registered Client Service Associate at Center for Financial Planning, Inc.

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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 Kali Hassinger and not necessarily those of Raymond James.

How to use your Year End Bonus

Contributed by: Matt Trujillo, CFP®

It’s that time of year. The weather is getting cooler, family is in for the holidays, and yearend bonuses are about to be paid! For some the bonus might already be spent before it is paid, but for those of you that are still looking for something to do with that money consider the following:

Here are 5 things to consider in allocating your year-end bonus:

1. Review your financial plan. Are there any changes since you last updated your financial goals? 

2. Have you accumulated any additional revolving debt throughout the year? If so consider paying off some or all of it with your bonus.

3. Are your emergency cash reserves at the appropriate level to provide for your comfort?  If not consider beefing them back up.

4. Are your insurance coverages where they need to be to cover anything unexpected?  If not, consider re-evaluating these plans.

5. Review your tax situation for the year.  Make an additional deposit to the IRS if you have income that has not yet been taxed so you don’t have to make that payment and potential penalties next April.   

If you can go through the list and don’t need to put your bonus to any of those purposes, here are some other ideas:

• If you’re lucky enough to save your bonus consider maximizing your retirement plan at work ($18,000 for 2015), including the catch-up provision if you’re over 50 ($6,000 for 2015). 

• Also, consider maximizing a ROTH IRA ($5,500 for 2015) if eligible or investing in a stock purchase program at work if one is offered. 

• Another idea is a creating/or adding to an existing 529 plan, which is a good vehicle for savings for educational goals. 

• If all of these are maximized, then consider saving in your after tax (non-retirement accounts) with diversified investments.

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Matt Trujillo and not necessarily those of Raymond James.

Use Your FSA Dollars Before you Lose Them!

Contributed by: Nick Defenthaler, CFP®

With less than a month left in 2015, now is a good time to evaluate your Flex Savings Account (FSA) balance to see if there are any funds remaining from the year.  An FSA is an account that you, as an employee, contribute to on a pre-tax basis – like a traditional 401k. You can then use the contributions for medical or dependent care expenses, allowing you and your family to pay for these inevitable expenses in a tax-efficient manner.  The catch however, is that funds contributed to the FSA typically must be used by the end of the year or the money is forfeited.

Flex Plans Get More Flexible

As mentioned, FSAs are "use it or lose it plans" but in recent years, the rules have become slightly more flexible - no pun intended.  Employers now have the option to either:

1. Provide a “grace period” of up to 2 ½ extra months to use the remaining funds in the FSA or…

2. Allow you to carry over up to $500 to use in the following year

It’s important to note that your employer is NOT required to offer these options, but if they do, they are only permitted to choose one of the above options – not both.  This recent change to how the unused balances for FSAs are treated helps you and makes FSAs far more attractive than years past.    

How to Make the Most of Your Flex Spending Account

The most you can contribute to an FSA for 2016 is the same as 2015 - $2,550 or $5,000 as a family.  A medical FSA can be used for qualified medical expenses such as prescription drugs, co-pays, teeth cleanings, eye exams, etc.  Typically items such as over-the-counter drugs and elective medical procedures are not eligible to be paid from your FSA.  The dependent care FSAs are great for working parents who pay for childcare, but just like the health care FSAs, you should check out IRS.gov for a list of “approved” expenses.

This is a crazy busy time of year for all of us, but if you have an FSA through work, make it a priority over the next few weeks to check the balance and see what options you have for the unused balance (if there is one).  If you only have until 12/31/15 to use the money, now might be a good time to schedule that teeth cleaning or annual physical you’ve been putting off all year.  Chances are you’ve already gone through open enrollment at work but if you’ve yet to choose to participate in the FSA through your employer, take a look at potentially utilizing it.  When used properly, an FSA is a great tool to help pay for the expenses most of us cringe at in – all while lowering your year-end tax bill. 

If you have questions on how much you think you should contribute or if an FSA makes sense for you and your family – give us a call, we’d be happy to give you some guidance!

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.

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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 Nick Defenthaler and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. You should discuss tax matters with the appropriate professional.

How Much is my Medicare Part B Premium Going Up in 2016?

Contributed by: Nick Defenthaler, CFP®

Several months ago we heard the news that Medicare part B premiums were increasing by a whopping 52% for many Americans currently enrolled and those who were set to begin benefits in 2016 (Click here to read Matt Trujillo’s blog describing the proposed increase in greater detail).  Obviously this created quite an uproar, which has since caused a significant scaling back of the increase. 

On November 2nd, when President Obama signed the “Bipartisan Budget Act of 2015” into law, most of the “press” was focused on the new Social Security changes that will occur in 2016 (Click here to see how the changes could impact your filing strategy).  However, the deal also included a revision to the increase in Medicare part B premiums many would face. The change effectively trimmed the hike to approximately 14% (from 52%) and included a $3 per month surcharge to premiums.  The majority of those impacted by the increase are those who are single with income over $85,000 and those who are married with income over $170,000 (approximately 30% of part B participants). 

Although no one is happy when a monthly expense goes up by 14%, I must say that it’s extremely refreshing to see both political parties come together and compromise on an issue that was set to have a dramatic impact on millions of Americans. 

If you or anyone you know has questions or concerns on how these changes could impact your personal situation, please don’t hesitate to reach out to us for guidance. We’d be happy to help!

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.

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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 Nick Defenthaler and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete.

The Ladder to Adulthood—What Millennials Need to Know

Contributed by: Clare Lilek

I graduated from college in 2014, and this year started the first salaried job of my professional career. These are big steps in what I call my “ladder to adulthood.” What is this ladder, you may ask? Well twenty-somethings (and thirty-somethings too) each have their own ladder to adulthood: the stepping blocks we accomplish little by little to become full adults. These steps can include becoming participating civil citizens, being financially independent, and having a sense of life and economic stability. Yeah, it’s a pretty important ladder.

When you turn eighteen, your ladder begins as you choose your next steps after graduating high school. Depending on how knowledgeable you are about the adult decisions that lie ahead and how ready you are to make said decisions, you could have a step ladder, or something reminiscent of a skyscraper.

Personally, I didn’t realize exactly how long my own ladder to adulthood was until I arrived at The Center. This is my first time working in the financial industry and my previous exposure to these topics were hushed whispers of the mysterious 401ks and the disappearance of pensions—what did that even mean?! After working here for a couple of months, not only did I figure out what a 401k is, but in general, my knowledge about financial topics has grown exponentially. But that got me thinking, if I didn’t work at The Center, when would I have learned all this? Would it have been too late? Well, not to worry, I have compiled a very basic list of what millennials entering the workforce fulltime should be (but aren’t necessarily) doing:

1. Think about your future. 401ks and IRAs are fancy terms for savings – savings that are dedicated to your retirement. The earlier you open one of these accounts, the more money you can accumulate and the more stable you’ll be when your retirement comes.

2. Understand the importance of the market. Investments are the way of the world and just saving money in a bank account is not going to accrue as much interest as investing does. 401ks and IRAs take your savings and invests it in the market which, in theory, will allow you to have more money than just by keeping your money in the bank.

3. Know the lingo. Stocks vs bonds, and the pros and cons of each. Understand diversified portfolios and what that means for stability.

4. Save, save, and save some more! Have a budget that includes savings, and stick to it. Don’t live beyond your means, an important life lesson! And when budgeting, save a portion of each monthly salary.

5. Have a plan. If investments and 401ks are mysteries to you, there is no shame in having a Certified Financial Planner™ help create a plan with you—actually, it’s a very “adult” thing to do. They can set up accounts, plan for your future, and make sure you’re in the know.

Hey Millennial, if you were to win the lottery today, would your first thought be, “I should probably invest that money and save for my future?” What about your second or third thought? I’m going to take a guess that, no, that’s probably not in your initial thought process. But shouldn’t it be? That’s my point. We’re not talking about these topics and no one is talking to us about them, yet they are crucial in securing our future.

We learn as preschoolers that the early bird gets the worm, and in this case, the early bird gets a more comfortable retirement and financial life. Just by learning about financial planning, investments and the like, you are stepping up that ladder to adulthood and ensuring that when you step off that ladder, you’re stepping onto a stable platform.

Clare Lilek is a Challenge Detroit Fellow / Client Service Associate at Center for Financial Planning, Inc.

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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 Clare Lilek and not necessarily those of Raymond James. 401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Year-End Financial Checklist: 7 Tips to End on High Note

Contributed by: Jaclyn Jackson

And just like that, we are already in the fourth quarter; the year has gone by quickly! Before it completely slips away...

Try these top tips to strengthen your finances and get things in order for the year ahead:  

1. Harvest your losses – Tax-loss harvesting generates losses that can be used to reduce current taxes while maintaining your asset allocation. Take advantage of this method by selling the investments that are trading at a significant loss and replacing them with a similar investment. 

2. Max out contributions – While you can wait until you file your tax return, it may be easier to take some of your end-of-year bonus to max out your annual retirement contribution.  Traditional and Roth IRAs allow you to contribute $5,500 each year (with an additional $1,000 if you’re over age 50).  You can contribute up to $18,000 for 401(k)s, 403(b)s, and 457 plans.

3. Take RMDs – Don’t forget to take the required minimum distribution (RMD) from your IRA.  The penalty for not taking your RMD on time is a 50% tax on what should have been distributed.  RMDs should be taken annually starting by April 1st of the year following the calendar year you reach 70 ½ years of age.

4. Rebalance your portfolio – It is important to rebalance your portfolio periodically to make sure you are not overweight in an asset class that has outperformed over the course of the year.  This helps maintain the investment allocation best suited for you.

5. Use up FSA money – If you haven’t depleted the money in your flexible spending account (FSA) for healthcare expenses, now is the time to squeeze in those annual check-ups.  Some plan sponsors allow employees to roll over up to $500 of unused amounts, but that is not always the case (check with your employer to see if that option is available to you). 

6. Donate to a charity – Instead of cash, consider donating highly appreciated securities to avoid paying capital gains tax.  Typically, there is no tax to you once the security is transferred and there is no tax to the charity once they sell the security.  If you’re not sure where you want to donate, a Donor Advised Fund is a great option.  By gifting to a Donor Advised Fund, you could get a tax deduction this year and distribute the funds to a charity later. 

7. Review your credit score – With all of the money transactions done during the holiday season, it makes sense to review your credit score at the end of the year.  You can go to annualcreditreport.com to request a free credit report from the three nationwide credit reporting agencies: Equifax, Experian, and TransUnion.  Requesting one of the reports every four months will help you keep a pulse on your credit status throughout the year.

Bonus: 

If there have been changes to your family (new baby, marriage, divorce, or death), consider these bonus tips:

• Adjust your tax withholdings

• Review insurance coverage

• Update financial goals, emergency funds, and budget

• Review beneficiaries on estate planning documents, retirement accounts, and insurance policies

• Start a 529 plan

Jaclyn Jackson is a Research Associate at Center for Financial Planning, Inc.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Jaclyn Jackson and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected. RMD's are generally subject to federal income tax and may be subject to state taxes. Consult your tax advisor to assess your situation. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

What the End of “File and Suspend” and “Restricted Application” Means for You

Contributed by: Nick Defenthaler, CFP®

On November 2nd, President Obama signed the Bipartisan Budget Act of 2015 into law. It contained the first major change in Social Security since 2000, eliminating popular Social Security strategies “file and suspend” and “restricted application”.  The result of this legislation is less lifetime Social Security benefits for many who planned on delaying retirement benefits until age 70.

Let's take a look at an example of how the strategies were most widely utilized:

Mark and Carrie are 65 years old and recently both retired from Microsoft.  They were both highly compensated and paid the maximum into Social Security for several decades, thus creating a $30,000/yr benefit for Mark and a $32,000/yr benefit for Carrie upon reaching full retirement age (FRA) – in their case, age 66.  Because they are both in great health, have longevity in their family and have accumulated a $1.5M portfolio to supplement retirement income, they planned to delay filing until age 70 to both get the highest possible annual benefit for life (benefits increase 8% each year you delay until age 70).    

Mark and Carrie’s financial planner suggested one change to this plan.  If Carrie were to file and immediately suspend her benefit at her Full Retirement Age  of 66, this would allow Mark to file a “restricted application”.  Filing the “restricted application” would entitle Mark to 50% of Carrie’s FRA benefit, or $16,000/yr (50% of $32,000) from age 66 until age 70.  During this same time frame, Carrie would not be receiving any benefit because she “filed and suspended” in order to receive an 8% annual benefit increase until age 70. 

When Mark turns 70, he would switch from the “restricted application” benefit of $16,000/yr to his own maximized benefit of approximately $41,000/yr (compared to $30,000/yr at age 66). At 70, Carrie would finally start to collect on her own benefit that has now grown to approximately $43,000/yr (compared to $32,000/yr at age 66) after receiving no benefits from age 66 – 70. 

It made perfect sense for Mark and Carrie to both delay benefits until age 70 because of the reasons mentioned earlier, however, by taking advantage of the “file and suspend” and “restricted application” strategies, they were able to bring home another $64,000 in total lifetime benefits ($16,000 x 4 years)! 

So why are these strategies going away? 

Lawmakers saw “file and suspend” and “restricted application” as unintended loopholes that emerged from legislation in 2000.  An additional $64,000 in total lifetime benefits really adds up, especially as more and more retirees are maximizing their benefits using this strategy.  The reforms in this year’s budget bill are projected to save Social Security an estimated $168 billion over 75 years – WOW!

Some important things to consider:

What if I’m currently receiving benefits from the “file and suspend” or “restricted application” strategies?

Don’t panic!  You are “grandfathered” in and your benefits will not change or be interrupted whatsoever.

When will the “file and suspend” strategy be eliminated and is there an age requirement?

If you attain age 66 (full retirement age for those born between 1943 and 1954) by April 29, 2016 you are eligible to still take advantage of the strategy but you must also apply for this benefit strategy by the same date.  If you wait beyond April 29, 2016 or attain age 66 after this date, you will not be able to “file and suspend”.  

When will the “restricted application” strategy be eliminated and is there an age requirement?

If you attain age 62 by the end of 2015, you are “grandfathered” in and are able to take advantage of this filing strategy if it makes sense for your situation.  Those who will not be 62 by year-end will unfortunately not be able to employ this filing strategy.

Obviously with this being a very new piece of legislation, there are still questions that need to be answered and details that need to be shaken out.  Keep your eyes open for additional communication regarding this important change in Social Security and as always, don’t hesitate to reach out to us directly if you have questions about your own personal situation!

If you are interested in more on this topic, register for our April 7th webinar here.   

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.

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

An Innovative Approach to your Emergency Fund

Contributed by: Timothy Wyman, CFP®, JD

Innovation isn’t a word you generally hear from financial planners. I have to admit my DNA is more about consistency and research-based practices.  However, at times new thinking and methods might just be what the (financial) doctor calls for.

Traditional Emergency Fund Approach

Take the old Emergency Fund – Financial Planning 101.  You’ve heard the advice; place 6-12 months of living expenses in a safe and liquid vehicle (think savings account or Certificate of Deposit) so funds are available should there be an emergency such as a leaky roof, need for a new hot water heater, kids medical bills, etc.  My sense is that this is a good strategy especially for younger folks starting their careers and families.  This strategy provides discipline and limits the chances of abusing credit, which hampers many young families today.

Innovative Emergency Fund Strategy

However, for more seasoned folks like me, perhaps a change in strategy is in order.  Partly due to very low interest rates (that may even become negative soon) as well as hopefully more financial discipline from years making mistakes, you might consider using a ROTH IRA, Home Equity Line of Credit (“HELOC”), or Securities Based Line of Credit (“SBL”) for your emergency fund needs. Here’s a closer look at all three.

Roth IRA in an Emergency

While the ROTH is intended for retirement savings, they do offer some flexibility in that contributions (but not earnings) may be withdrawn penalty and income tax free at any time.  Hopefully the money is not needed and your so called emergency money can grow tax free.  The downside is that not everyone qualifies due to income limitations - that is, of course, unless your financial advisor is not innovative enough to know about the “Back Door Roth”…we do! If you haven’t yet, read this blog on Back Door Roth IRA Conversions.

Home Equity Line of Credit (“HELOC”) in an Emergency

A HELOC can provide flexibility or access to immediate cash if needed, thus perhaps eliminating or reducing the amount you need to set aside in an emergency fund earning close to zero.  If you are required to use the line of credit, make plans to pay it down or off with other assets over time.

Securities Based Line of Credit (“SBL”) in an Emergency

A SBL is a line of credit secured by a taxable investment account.  In many respects it is very much like a HELOC except that it is secured by an investment account rather than your home equity.  Like a HELOC, the rates are very competitive currently; however they are normally variable rate products.

In the great words of Forrest Gump “IT happens”. The key is to be prepared prior to a crisis by having an emergency fund established, whether it be a traditional savings account, Roth IRA, HELOC, SBL or combination of all three. We’re always here to help you be ready to deal with IT.  

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a contributor to national media and publications such as Forbes and The Wall Street Journal and has appeared on Good Morning America Weekend Edition and WDIV Channel 4. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), mentored many CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

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The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment or financial decision, and it does not constitute a recommendation. Any opinions are those of Center of Financial Planning and are not necessarily those of Raymond James.