How to Finish Financially Strong in 2020

No one could have predicted what 2020 had to offer. The stock market saw wild swings that hadn’t occurred since the 2008 recession. Concerns over Iranian tensions and an oil war quickly took a backseat as Covid 19 spread across the world. Many other notable things happened this year, but let’s discuss how you can end the year financially strong.

Here are the top 8 tips from our financial advisors.

1. Consider rebalancing your portfolio.

The stock market’s major recovery since March may have left your portfolio overweight in some areas or underweight in others. Be sure that you’re taking on the correct amount of risk by rebalancing your long-term asset allocation.

2. Assess your financial goals.

Starting now, assess where you are with the financial goals you’ve set for yourself. Take the necessary steps to help meet your goals before year-end so that you can begin 2021 with a clean slate.

3. Know the estate tax rules.

For those with estates over $5M, be sure to review your potential estate tax exposure under both a Republican and Democrat administration.

4. Review your employer benefits package and retirement plan.

Open enrollment runs from Nov. 1 through Dec. 15. Review your open enrollment benefit package and your employer retirement plan. Don’t gloss over areas such as Group Life and Disability Elections as most Americans are vastly underinsured. Many 401k plans now offer an “auto increase” feature which can increase your contribution 1% each year until the contribution level hits 15%, for example.  

5. Take advantage of tax planning opportunities.

Such as tax-loss harvesting in after-tax investment accounts or Roth IRA conversions. Many folks have a lower income in 2020 which could present an opportunity to move some money from a traditional IRA to a Roth IRA while in a slightly lower tax bracket.

6. Boost your cash reserves.

It’s so important to have cash savings to cover unexpected expenses or income loss. Having a solid emergency fund can prevent you from having to sell investments in a down market or from taking on high-interest debt. Ideally, families with two working spouses should have enough cash to cover at least 3 months of expenses. While single income households should have cash to cover six months. Take the opportunity to review your budget and challenge yourself to find additional savings each week through year-end.

7. Contribute more to your retirement plan.

Increase your retirement account contributions for long-term savings, great tax benefits, and free money (aka an employer match).

Contributions you make to an employer pre-tax 401k or 403b are excluded from your taxable income and can grow tax-deferred. Roth account contributions are made after-tax but can grow tax-free.

If your employer plan and financial situation allow for it, you can accelerate your savings from now until the end of the year by setting your contribution level to a high percentage of your income.  Many employers allow you to contribute up to 100% of your pay.

8. Give to charity.

Is there a charity you would like to support? Make a charitable donation! Salvation Army and Toys for Tots are popular around this time.

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 the author and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability. 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. Matching contributions from your employer may be subject to a vesting schedule. Please consult with your financial advisor for more information. 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. Contributions to a Roth 401(k) are never tax deductible, but if certain conditions are met, distributions will be completely income tax free. Unlike Roth IRAs, Roth 401(k) participants are subject to required minimum distributions at age 72.

What Are The Hidden Costs Of Buying A Home?

Contributed by: Robert Ingram, CFP®

Today’s historically low-interest rates can mean a more affordable mortgage payment. However, when buying a home within your budget, it’s important to consider the costs beyond the mortgage.

Let’s begin with the costs to purchase a home.

Even while carrying a mortgage, you will need to make a down payment. While there are low down payment loans, try to put down at least 20% of the purchase price. Otherwise, your loan may have a higher interest rate and you could face additional monthly costs such as mortgage insurance.

You will have closing costs, which can include things such as loan origination fees for processing and underwriting the mortgage, appraisal costs, inspection fee, title insurance, pre-paid property taxes, and first year’s homeowner’s insurance. Generally, you should expect to pay between 3-5% of the mortgage amount.

Now, you will have ongoing costs to live in your home.

Annual property taxes average about 1% of the home value nationwide, but the tax rates can vary widely depending on the city or town. Keep property taxes top of mind when you are looking at different communities.

Homeowner’s insurance is another annual cost that not only depends on the value of the home and the contents within it you are covering, but also on the state and local community. This cost generally ranges between $500-1,500 per year, sometimes more.

If your home is a condominium or a single family home, you should expect annual or monthly homeowner’s association fees that cover the care of common areas, the grounds, clubhouses, or pools. Depending on the number of amenities and of course the location, average fees range from $200-400 per month.

While you may be used to paying some utilities as a renter, the size of your new home could significantly increase your utility rates. Going from an 800 square-foot apartment to a 2,500 square-foot house could double or triple the costs to heat it, cool it, and to keep the lights on. Add your local area water and sewer fees and your utilities could easily reach $500 per month or more.

Going from renting to homeownership also means having to maintain the new home (both inside and out). Things can be regular ongoing maintenance like lawn care and landscaping, or larger projects like painting, roof repair, furnace, and appliance replacement. Consider the tools and equipment you would need to buy or the services you would hire to do the work.

Finally, there is another hidden cost that can put a dent in your budget, filling up the house.  A home with more rooms can mean more spaces that “need” furniture and other decorative touches. The costs of furnishings can be several thousands of dollars to tens of thousands of dollars. Without proper planning, it can be all too easy to rack up those credit card bills and have a mountain of debt as you move into your new home.

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.

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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 Bob Ingram, and not necessarily those of Raymond James. Raymond James Financial Services, Inc. does not provide advice on mortgages. Raymond James and its financial advisors do not solicit or offer residential mortgage products and are unable to accept any residential mortgage loan applications or to offer or negotiate terms of any such loan. You will be referred to a qualified professional for your residential mortgage lending needs.

2 Reasons Why Your Investment Portfolio Needs Adjusting

Contributed by: Abigail Fischer

It’s historically proven, the age-old advice urging you to stick with your investment plan through thick and thin. The Center preaches this, especially during market volatility. But maybe your financial advisor has recently suggested making a change in your investment plan. How could this be? Well, there are two possible reasons: either your circumstances changed or new information emerged about the market.

1. Your circumstances changed

• Retiring in 2020 or the near future? Wow, what a way to end your career, and congratulations! There may be a case to make your portfolio more conservative so that when volatility hits, you see less downturn than you might in a more aggressive model. Read this if you’re concerned about your 401k balance fluctuation. 

• Big purchase ahead? Sticking with your investment plan is a long-term view. When you’ve set your sights on a making a big purchase soon, consider taking a portion of your portfolio to cash or a short-term fixed income fund.

• Your paycheck comes from your portfolio? Consider taking the next six months of expenses in cash or a short-term fixed-income fund so that when you hear market news, you can sleep soundly knowing your next portfolio paycheck will not be affected.

None of these apply but you’re unsure about your portfolio allocation? Read this.

2. New information about the market

• As interest rates fell in March, we saw a short-term opportunity to tactically overweight the Strategic Income portion of the Fixed Income category in some portfolio models. Generally, Strategic Income funds invest in high-yield bonds, emerging market debt, international bonds, asset, and mortgage-backed securities. This short term strategy was sought out by our Investment Committee as we aim to add value to our clients’ portfolios during market volatility. We closely tracked the Bank of America US High Yield Index Option-Adjusted Spread and set a point where we would tactically switch the allocation back to short and long term fixed income funds. Here’s one of the charts we watched:

Ice Data Indices, LLC, ICE BofA US High Yield Index Option-Adjusted Spread [BAMLH0A0HYM2], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/BAMLH0A0HYM2, August 28, 2020.

• The Investment Committee saw an opportunity in the gold market. Gold is primarily seen as a hedge against inflation risk within the US Market. As the Federal Reserve printed cash at a rapid pace in April 2020, the value of the US Dollar slipped and many investors flocked to gold as a hedging measure. Gold can also be seen as a consistent store of value during a choppy period of high unemployment and low business activity; its long-term value has steadily increased.

The fiduciary standard of seeking return while managing risk is our priority. A strong investment portfolio compliments a clear financial plan. As your circumstances change and the market gives us more information, we are committed to your personal financial goals within the financial planning process. As always, please contact your Center Financial Planner for advice on your specific situation.

Abigail Fischer is an Investment Research Associate and Investment Representative at Center for Financial Planning, Inc.® She gained invaluable knowledge as a Client Service Associate, giving her an edge as she transitions into her new role in the Investment Department.

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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. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated.

Can I Afford To Buy A Second Home In Retirement?

Contributed by: Robert Ingram, CFP®

It’s a dream for many Americans as they envision retirement, having a second home as a vacation getaway, a seasonal escape, or a primary residence someday.  Even with the relatively mild winter we’ve just experienced in Michigan, it’s easy to appreciate the idea of living away during the cold months or enjoying a summer home up North.  But before you can live the dream, do your due diligence and crunch the numbers.

Retirement income expenses include the daily cost of living and the things you want to enjoy.  Making a large purchase, such as buying a second home, will take a significant chunk of your savings.  If you’ve underestimated the cost, it will wreak havoc on your retirement income.  

So, how realistic is your second home retirement plan? Factor in our suggestions below.

Purchasing costs

If you plan to buy the home using a mortgage, you will of course have a monthly payment.  While the continued low interest rates may help with the home’s affordability, this payment does add to the expenses that your retirement income sources will support.  Calculate your withdrawal rate (the percentage of savings needed to be withdrawn each year) and determine if it’s sustainable over your retirement years.

Now, if you’re able to purchase the property without a mortgage, yes, you would avoid paying interest and you would have no monthly payment.  On the other hand, using a portion of your retirement savings to purchase the home could mean that you have fewer assets reserved for other retirement spending needs.  Consider the impact it may have on the sustainability of your retirement income and whether purchasing or financing the property is more advantageous.

Don’t forget about property taxes. They’re ongoing expenses that you must factor into your budget. They vary widely depending on the state and local community.  Consider any difference in tax rates; non-homestead property is taxed higher than homestead property.

Additional costs

Unfortunately, we know that the cost of owning a home doesn’t end with the purchase. This is certainly true with a second home as well.  Depending on the property type, location, and climate/environment there may be additional costs that you aren’t used to with your current home.  It’s vital that your plan supports these costs as well.  Some examples include:

• Insurance: You’ll pay annual premiums for homeowner’s insurance on two properties.  Plus, homes with higher risk (e.g. hurricane prone southern states) often require additional flood or wind damage insurance.  In some cases, this nearly doubles the cost of the new policy.

• Condo/Association Fees:  Buying a condominium or a standalone house in a community with a neighborhood association will likely mean additional monthly fees.  Homeowners associations may also impose special assessments during the time you own the property for maintenance projects, community amenities, etc.  Understanding the previous history of assessments and the need for future projects can help you better prepare for those potential costs.

• Maintenance on two properties:  Now you have two homes to maintain.  If your second property is far away or you won’t visit often, you may need to hire people locally to provide the maintenance services for you.

• Home security:  Especially for a home that is unoccupied for long periods of time, you want to protect it from vandalism, trespassing, and burglary.  That could mean investing in security systems or working with local service providers to routinely check-in on the property.   

• Heating and cooling year-round: Unlike cottages or houses up North that you can close down and winterize, vacation homes in warm climates may require you to run the air conditioning when you’re not there.  Issues like mold and mildew can be a problem when temperatures and humidity are too high, which is another reason you may need to hire local services to make sure everything is working properly.

• Insect/pest control:  Your second home may be in a region with insects or other critters that require more regular/aggressive pest control.  Add this to your list of monthly or annual maintenance expenses.

What if I plan to rent out my second home?

• Renting out your second home could be an excellent way to generate additional income to offset the costs of ownership.  However, you could face lifestyle compromises. Here are some considerations:

•  Local rules on renting:  It’s critical to understand any local government ordinances or homeowners association restrictions on using your property as a rental.  In some cases, short-term rentals are not allowed or there are limits on the total number of rentals.

• Property management:  The farther the distance between your rental and primary properties, the greater chance you’ll need to hire a property manager to provide on-site service for your vacation guests or long-term tenants.  Property managers can advertise, book renters, and manage financial transactions.  The cost to outsource these services is typically between 10-35% of the rental cost.

•  Additional insurance coverage:  Tenants may not be covered by your insurance.  Homeowners insurance often covers incidents only when the property is owner-occupied.  You may need to add a form of landlord insurance, depending on factors such as the frequency and amount of days you will have the property rented.  Review your policy to be sure.

• Extra maintenance and repair:  You may face repairs and/or need to replace furniture.  Studies suggest that the cost to maintain a vacation rental is 1.5-2% of the property value each year.

The decision to buy a second home involves a combination of both lifestyle and financial considerations. Build a sound plan by balancing your priorities.  Consult with your financial planner as you work through these important life goals, and if we can be a resource for you, please reach out to us! 

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.

How To Invest Your Money In Turbulent Markets

Contributed by: Jaclyn Jackson, CAP®

Navigating daily market fluctuations through COVID-19 has been challenging. With every newsfeed from Washington or new economic data numbers, markets react. So what do we make of this as investors? Well, it truly depends on your circumstance. For individuals who have a long investment horizon and stable finances, there may be an opportunity to take advantage of market inefficiencies.

For individuals who have experienced (or anticipate) financial changes, it may be time to reevaluate your investment approach. Here are a few ideas to discuss with your advisor when considering investment strategies during the coronavirus pandemic.

Strategies for Long-Term Investors

For long-term investors, volatile markets should not discourage commitment to your investment plan. Staying invested, reestablishing your asset allocation, gradually investing, and generating tax opportunities are still valuable to progressing your investment aims. Think about the following strategies:

1. Rebalance - Rebalancing is a systematic way of adapting the commonly suggested investment advice, “buy low and sell high”. It disciplines investors to trim well-performing investments and buy investments that have the potential to gain profits. In our current environment, that looks like trimming from bond positions and investing in equities for many people. Importantly, rebalancing helps investors maintain their established asset allocation; someone’s predetermined investment allocation suited to meet their investment objectives. In other words, rebalancing helps investors maintain the risk/return profile meant to enhance their probability of meeting long-term goals.

2. Dollar-Cost Average - A gingerly alternative to rebalancing is dollar-cost averaging. Investors who use this strategy identify underexposed asset classes and invest a set amount of money into those assets at a set time (i.e. monthly) over a set period (i.e. 1 year). This method helps investors buy more shares of something when it is inexpensive and fewer shares of something when it is expensive. Buying at a premium when the market is up is stabilized by taking advantage of prices when the market is down. Therefore, the average cost paid per share of your investment is cheaper than just paying the premium prices. Having a dollar-cost averaging strategy in place now, while markets have dipped, helps you buy more shares of investments while they cost less.

3. Tax Loss Harvest - Selling all or part of a position in your taxable account when it is worth less than what you initially paid for it creates a realized capital loss. Losses can offset capital gains and other income in the year you realize it. If realized losses exceed realized gains during that year, realized losses can be carried forward (into future years). Harvesting losses could help investors replace legacy positions, diversify away from concentrated positions, or stow away losses for more profitable times.

4. Do Nothing - The key here is to stay invested. The challenge with fleeing investment markets when they are down is that it is incredibly hard to time reinvesting when they will go back up. Missing upside days may inhibit full recovery of losses. According to research developed by Calamos Investments, missing the 20 best days of the S&P 500 over 20 years (1/1/99 – 12/31/19) reduced investment returns by two-thirds. Time, not market timing, supports you in meeting your investment goals.

Strategies Amid Financial Hardships

Many people’s employment and financial situations have changed. Understandably, some have to review their ability to invest. If you are concerned about losing your job or potential health issues, it is time to revisit your savings. Could your rainy day resources cover 6-8 months of financial needs? If not, you will likely need to build up savings. For those who are experiencing financial challenges, consider the following strategies:

1. Add to emergency funds by lowering or pausing retirement account contributions. Luckily, you do not have to liquidate part of your retirement account with this strategy. Staying invested gives your portfolio a chance to benefit from long-term performance. If your employer matches retirement account contributions, continue to invest up to that amount, then add to savings with the balance of your normal participation amount. Once savings needs are met, resume full investment participation.

2. Rebalance your portfolio to provide liquidity. As noted above, rebalancing takes earnings off the table from investments that have performed well. However, instead of reallocating to other investments, use proceeds to increase your rainy day savings. This method prevents you from selling off positions that are at a loss.

Jaclyn Jackson, CAP® is a Portfolio Administrator at Center for Financial Planning, Inc.® She manages client portfolios and performs investment research.

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Please note, the options noted above are not for everyone. Consult your advisor to determine which options are appropriate for you. 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. 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. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability. 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’s the Difference Between a Roth and a Traditional IRA?

Contributed by: Kali Hassinger, CFP®, CDFA®

Many are focused on filing their taxes by April 15th, but that day is also the deadline to make a 2019 IRA contribution! With only a week left, how will you decide between making a Roth or a traditional IRA contribution? There are pros and cons to each type of retirement account, but your individual situation will determine the better option. Keep in mind, the IRS has rules to dictate who can make contributions, and when.

2019 Roth IRA Contribution Rules/Limits

• For single filers, the modified adjusted gross income (MAGI) limit is phased out between $122,000 and $137,000.

• For married filing jointly, the MAGI limit is phased out between $193,000 and $203,000

• Please keep in mind that for making contributions to this type of account, it makes no difference if you are covered by a qualified retirement plan at work (401k, 403b, etc.), you simply have to be under the income thresholds.

• The maximum contribution is $6,000 for those under the age of 50. For those who are 50 & older (and have earned income for the year), you can contribute an additional $1,000 each year.

2019 Traditional IRA Contributions

• For single filers covered by a company retirement plan, the deduction is phased out between $64,000 and $74,000 of MAGI.

• For married filers covered by a company retirement plan, the deduction is phased out between $103,000 and $123,000 of MAGI.

• For married filers not covered by a company plan, but have a spouse who is, the deduction for your IRA contribution is phased out between $193,000 and $203,000 of MAGI.

• The maximum contribution is $6,000 if you’re under the age of 50. For those who are 50 & older (and have earned income for the year), you can contribute an additional $1,000 each year.

Now, you may be wondering what type makes more sense for you (if you are eligible). Well, like many financial questions…it depends! 

Roth IRA Advantage

The benefit of a Roth IRA is that money grows tax deferred. So, when you are over age 59 1/2 and have held the money for 5 years, the money you take out is tax free. However, in exchange for tax free money, you don’t get an upfront tax deduction when investing the money in the Roth. You are paying your tax bill today rather than in the future. 

Traditional IRA Advantage

With a traditional IRA, you get a tax deduction the year you contribute money to the IRA. For example, a married couple filing jointly has a MAGI of $190,000 putting them in a 24% marginal tax bracket.  If they made a full $6,000 traditional IRA contribution they would save $1,440 in taxes. To make that same $6,000 contribution to a Roth, they would need to earn $7,895 to pay 24% in taxes in order to then make the $6,000 contribution. The drawback of the traditional IRA is that you will be taxed on it later in life when you begin making withdrawals in retirement. Withdrawals taken prior to age 59 1/2, may be subject to a 10% federal tax penalty.

Pay Now or Pay Later?

Future tax rates make it challenging to choose what account type is right for you. If you go the Roth IRA route, you will pay your tax bill now. The downside is that you could find yourself in a lower tax bracket in retirement. In that case, it would have been more lucrative to take the other route. And vice versa.

How Do I Decide?

We typically recommend Roth contributions to young professionals because their income will most likely increase over the years. However, if you need tax savings now, a traditional contribution may make more sense. A traditional IRA may be the best choice if your income is stable and you’re in a higher tax bracket.  However, you could be disqualified from making contributions based on access to other retirement plans. 

As always, before making any final decisions, it’s always a good idea to work with a qualified financial professional to help you understand what makes the most sense for you.

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

COVID‐19 and Your Money: New Risks and Simple Solutions

Contributed by: Center for Financial Planning, Inc.®

Should pre‐retirees (and their advisors) take a new look at retirement income? It’s no secret that COVID‐19 has greatly impacted the world, but let’s talk specifically about its impact on retirement planning. Partner and Senior Financial Planner Nick Defenthaler, CFP®, RICP® provides valuable insight in this Q+A.

Q. Does the COVID‐19 crisis (market decline and job loss) mean retirement is more in peril than ever before? Some advisors tell clients to "work longer" to achieve their desired retirement outcome, but has that advice quickly become outdated due to job cuts?

A. Unfortunately, many retirement plans will be pushed out by the pandemic. Even in a diversified 60% stock and 40% bond portfolio, many clients were down just north of 20% around mid‐April. Thankfully, the market has recovered quite a bit since its lows in March. However, for those closely approaching retirement, this highlights the danger of the “sequence of returns risk”…aka having crummy market returns in the year or so leading up to retirement or shortly after transitioning into retirement. Working longer is still good advice, in my opinion, but what most advisors don’t communicate is that working longer doesn’t have to mean working full‐time longer. Over the past 5 years, I’ve seen an uptick with clients “phasing into retirement”, which essentially means working on a part‐time basis before stopping work completely. Most clients largely underestimate how big of a positive impact on working and earning even $15,000/yr for several years can have on the long term sustainability of their portfolio.

Q. Does the 4% withdrawal rule make sense?

A. Yes, I believe it does. Keep in mind, it’s still a very conservative distribution rate for those with a 30‐35 year retirement time horizon, especially if the client is comfortable dipping into principal. Right now, I think the biggest risk of the 4% rule is our low interest rate environment and the “sequence of returns risk” mentioned previously. However, they both can be greatly mitigated through prudent planning and investment choices in the “retirement risk zone” which I would define as 3 years leading up to retirement and 3 years post‐retirement.

Q. Should pre‐retirees be looking at guaranteed sources of income, such as annuities?

A. Annuities should be evaluated for almost all retirees. The keyword here is evaluated and not implemented. Annuities have a bad reputation by some very prominent faces you see in the media and rightfully so for a myriad of reasons. But the reality is simple, guaranteed income is proven to make human beings feel happier and more secure, especially in retirement and there are only a few ways to get it. Through the government (Social Security), pensions (which are becoming extinct), and annuities. When using annuities for clients I work with, it’s only for a portion of their overall spending goals, perhaps 10‐20% of their cash flow needs. That will not be the right fit for everyone, but it should be part of the due diligence process when evaluating the proper retirement income strategy for a client. In times like this, you won’t find too many clients who are upset that they transferred risk from their portfolio to an insurance company in the form of an annuity that offers guaranteed income.*

Q. Do you have an interesting story about a client who changed their strategy?

A. I work with a couple who recently faced a hard stop working full‐time for several reasons, one being health‐related. Their retirement income goals are a bit of a stretch considering their accumulated portfolio. Our plan was for husband and wife (both 62) to work part‐time starting this year to be eligible for health insurance and receive some income until at least 65. This would dramatically shrink their portfolio distribution rate in the early years of retirement where the “sequence of return risk” is very real. Unfortunately, both of their jobs were affected by the pandemic and the possibility of working part‐time for several years is now slim to none. The clients own their home free and clear and have no plans whatsoever to move in the future. This ultimately led them to explore a home equity conversion mortgage (HECM) which is a type of reverse mortgage insured by the Federal Housing Administration. Over the past decade, there have been dramatic improvements in how these loans are structured to protect borrowers and surviving spouses. It can be a phenomenal financial planning and retirement income tool as researched by well‐respected thought leaders in our profession such as Wade Pfau and Michael Kitces. The HECM is allowing the clients to fully retire right now and enjoy time with their grandkids. They can now step away from jobs that have been extremely stressful for them over the years. Helping them find such a solution to still achieve their goal in this environment has been extremely rewarding!

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.

*Guarantees are based on the claims paying ability of the insurance company. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Be sure to contact a qualified professional regarding your particular situation before making any investment or withdrawal decision. This material is provided for information purposes only and is not a complete description of the securities, markets, or developments referred to in this material. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. This information is not intended as a solicitation or recommendation to buy or sell any security referred to herein. Raymond James Financial Services, Inc. does not provide advice on mortgages.

The Trillion-Dollar Stimulus On The Way – What You Need To Know About The CARES Act

Contributed by: Kali Hassinger, CFP®

 

As more states implement quarantine tactics, lawmakers in Washington struck a compromise on a major fiscal stimulus package to help combat the effects of the COVID-19 pandemic. The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 packs in a lot, with upwards of $2 trillion slated to provide critical support for the economy. In comparison, the American Recovery and Reinvestment Act of 2009 was $831 billion.

While we don't know the short or long term effects of this pandemic on the economy, the combination of monetary and fiscal stimulus efforts will hopefully serve as a bridge until regular economic activity can continue. Even with the largest spike in single-week unemployment claims ever, the optimism surrounding this stimulus helped the S&P 500 post its largest three-day rally (+17.6%) since April 1933.

Lawmakers put together this bipartisan package much more quickly than initially anticipated with crucial provisions to expand unemployment eligibility and benefits, small business relief, and even direct financial support to some US citizens. Here's what we know so far:

Checks Are Coming

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

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

• Married Filing Jointly: $150,000

• Head of Household: $112,500

• All other Filers: $75,000

The rebates are dispersed based on your 2018 or 2019 income (whichever is the most recent return the government has on file) but are actually for 2020.  This means that if your income in 2018 or 2019 phases you out of eligibility, but your 2020 income is lower and puts you below the phase-out (for example, lose your job in 2020, which many are experiencing), you won't receive the rebate payment until filing your 2020 taxes in 2021!  The good news is that those who do receive a rebate payment based on 2018 or 2019 income and, when filing 2020 taxes, find that their income exceeds the AGI thresholds, taxpayers won't be required to repay the benefit.

How much can I expect to receive?

• Married Filing Jointly: $2,400

• All other Filers: $1,200

• An additional credit of up to $500 for each child under the age of 17

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

When will I receive my benefit? The Timeline isn't clear at this point.  The CARES Act mandates that these payments be processed as soon as possible, but that term doesn't provide a firm deadline. 

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

Retirement Account Changes

• Required Minimum Distributions are waived in 2020

• Distributions due to COVID-19 Financial Hardship – Distributions up to $100,000 from IRAs and employer-sponsored retirement plans that are due to COVID-19 related financial hardships will receive special tax treatment. There will be no 10% penalty for individuals under the age of 59 ½ and the usual mandatory 20% Federal tax withholding will be waived.  Income, and therefore the taxes due from these distributions, can be spread over three tax years (2020, 2021, and 2022), and there is even the option to roll (or repay) distributions back into the retirement account(s) over the next three years.

• Loans from Employer-sponsored Retirement Plans – The maximum Loan amount was increased from $50,000 to $100,000 and allows account holders to borrow from 100% of their vested balance.  Repayment of these loans can be delayed one year.

Charitable Giving Tax Benefits 

• The CARES Act reinstates a possible above-the-line tax deduction for charitable donations up to $300.  This deduction is only available for taxpayers who do not itemize.

• For those who do itemize, the charitable deduction limit on cash gifted to charities is increased from 60% of Adjusted Gross Income to 100% of Adjusted Gross Income for 2020.  If someone gifts greater than 100% of their AGI, they can carry forward the charitable deduction for up to 5 years.  This does not apply to Donor Advised Fund contributions.

Student Loan Repayments

• Student loan payments are deferred, and loans will not accrue interest until the end of September.  Although the interest freeze will occur automatically, borrowers will have to contact their loan servicers and elect to stop payments during this period.

Expanded Unemployment Benefits

• Unlimited funding for Temporary Federal Pandemic Unemployment Compensation to provide workers laid off due to COVID-19 an additional $600 a week, on top of state benefits, for up to four months. This includes relief for self-employed individuals, furloughed employees, and gig workers who have lost contracts during the pandemic.

Small Businesses Support

• In the form of more than $350 billion, the CARES Act offers forgivable loans to help keep the business afloat, a paycheck protection plan, grants, and the ability to defer payment of payroll tax, to name a few.

Individual Healthcare

• HSAs and FSAs will now enable the purchase of over the counter medications as qualified medical expenses.  Medicare Part D participants must be allowed to request a 90 day supply of prescription medication, and if/when a COVID-19 vaccine becomes available, it must be free to those on Medicare.

Additional Healthcare Support

• $150 billion is allocated to hospitals and community health centers to provide treatment and equipment to fight coronavirus.

Education Funding

• $30 billion will be allocated to bolster state education and school funding.

State And Local Government Funding

• $150+ billion will be allocated to "state stabilization funds" to support reduced state and local tax receipts.

Other Provisions

• The CARES Act provides an additional $500 billion buffer for impacted and distressed industries, including the airlines, mass transit, and the postal service.

Depending on the length and impact this pandemic, lawmakers are already talking about another round of intervention in a phased approach.

Life may feel a little chaotic these days, but we hope you take comfort in knowing your financial plan was tailored to your risk tolerance, ability to handle market volatility, and overall financial goals. As always, we are here to answer your questions.

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

Taxpayer Relief Amid Coronavirus Crisis

Contributed by: Allison Bondi

Americans now have an extra 3 months to file their 2019 federal income taxes.

President Trump issued an Emergency Declaration on March 13, 2020 to provide relief from tax deadlines to Americans who have been impacted by the COVID-19 emergency.

The new deadline is July 15.

If you’re expecting a refund, consider filing sooner. However, for those with a large tax liability, the new deadline provides some extra time to develop a thoughtful strategy for paying the taxes due.

According to guidance from the IRS, individuals will be able to defer up to $1 million and corporations will be able to defer up to $10 million for 90 days without penalties and interest for taxes due. The $1 million limit applies both to single filers and to married couples filing joint returns.

Does this apply to state income tax payment deadlines?

• No. The extension is for federal income tax, not state income tax. Consult your tax professional for more details about your state’s policies.

What do I need to do to elect the deferral?

• Nothing. Any interest or penalty from the IRS from April 15 to July 15 will automatically be waived. Penalties and interest will begin to accrue on any remaining unpaid balances as of July 16, 2020. 

Does this mean I can make 2019 IRA contributions until July 15?

• Yes. Per IRS publication 590-A: “Contributions can be made to your traditional IRA for a year at any time during the year or by the due date for filing your return for that year, not including extensions.” The due date for filing the 2019 return is now July 15, 2020, so you have until that date to make 2019 IRA contributions.

Stay up to date with COVID-19-related changes. Visit irs.gov/coronavirus to explore related resources, and reach out to your tax professional and financial advisor with any questions you have about your specific tax situation and financial plan.

Allison Bondi is a Marketing Administrator at Center for Financial Planning, Inc.® She facilitates marketing initiatives and communications.

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Raymond James and its advisors do not offer tax advice. You should discuss any tax matters with the appropriate professional. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.

Things to Consider if You are Anticipating an Inheritance

Contributed by: Sandra Adams, CFP®

If you are like most clients, anticipating an inheritance likely means that something is happening, or has happened, to someone you love. Often this means dealing with the complexities of grief and loss, in addition to the potential stress of additional financial opportunities and responsibilities. Combining your past money experience and your relationship with the person you are losing or have lost can cause varying degrees of stress.

Based on our experience with clients who expect to receive an inheritance, we offer a few suggestions that will serve you well and help you avoid some of the common pitfalls:

• Avoid making big plans to upgrade your home, buy the fancy car, or take the exotic trips. In other words, don’t spend the money before you have it.

• Don’t let others pressure you into quick decisions or coax you into making purchases or gifts that you wouldn’t normally make.

• Don’t make any big purchases until you have taken the time to do more purposeful planning.

• Take an intentional time-out from decision-making. Give yourself the ability to grieve, and to make sure your head is clear and ready to make smart financial decisions.

• In the planning process, determine what will change, or has changed, for you since receiving the inheritance (income, savings, investments, expenses, home, etc.); this information will help guide your financial planning decisions with the inherited funds.

• Identify your current and future financial goals, then plan so that inherited funds help you meet those goals.

Even if you have a financial plan and are an experienced investor, receiving an inheritance can throw you for a loop from an emotional standpoint – and from a planning standpoint – when you rush to make decisions. If you have no experience with money, receiving an inheritance can seem completely overwhelming and stressful. In either case, having a financial planner – a decision partner to provide assistance, guidance, and a sounding board – can be invaluable. If you expect, or know someone who expects, an inheritance and could use some guidance, please contact us for assistance (Sandy.Adams@CenterFinPlan.com). We are always happy to help!

Sandra Adams, CFP®, CeFT™, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® 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.

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Any opinions are those of Sandra D. Adams, CFP® and not necessarily those of Raymond James. 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.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and CFP® in the U.S.