Retirement

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How to Get Started with Your Savings Goals

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 Whether you are young and starting your own life as an adult or in mid-life and realizing that you are behind in getting started towards your financial planning savings goals, it may be hard to know how to begin.  No matter where you are now, it’s time to take steps towards setting and achieving your financial goals. 

Ready.

Determine your top financial goals.  Maybe you need to start saving, period.  Then there is college for the kids and retirement someday (?)

Set.

Prioritize your main goals.  Top priority is building emergency reserves – at least 3 – 6 months of monthly expense needs is recommended.  Next, balance retirement and education savings, keeping in mind that loans are available for education costs, but there are no loans for retirement.

Go.

  • Begin your saving by paying yourself first.  Budget an amount to set aside in savings, as if your savings account is someone you owe, until your savings reserve is built up to your goal.
  • Next, begin contributing at least a minimal amount to your employer retirement plan.  Start by contributing enough to receive any employer match that might be available, and then slowly increase your contribution percentage over time.  
  • Education saving can begin by investing monetary gifts received for birthdays and other holidays into 529 college education accounts for your children.  As cash flow allows, budget in a set amount monthly to add to the 529 accounts.

No matter what your current place in life, it’s the right time to start saving to meet your financial planning goals.  Contact a Certified Financial Planner™ to help you come up with a plan to get you to the starting line and off to the races!

Sandra Adams, CFP® is a Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012 and 2013, Sandy was named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

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 Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

What Do Organ Donation and 401(k)s Have In Common?

 While taking a Duke University course on Behavioral Finance, which is a topic I find fascinating, the professor presented the following scenario on organ donation: 

While individuals around the world generally approve of organ donation, very few actually sign a donor card to grant permission, especially here in the US. 

According to the chart below, some countries like Austria and France have an extremely high participation rate, 100% of the population.  Why, then, is there such a difference from a country like Germany with only a 12% participation rate to Austria with a 100% participation rate?  They share a border and culturally don’t have vastly different beliefs.  

“Do Defaults Save Lives?”  www.sciencemag.org

The answer is actually much simpler than cultural differences or beliefs. It is Defaults.  Individuals love to take the easiest way out.  The fewer decisions we have to make the better.  Requiring people to opt out of something rather than opt in is a very effective way to push us toward a choice.

Defaults can be a very powerful tool, not only to increase organ donors, but also in investing for your retirement.  Many 401(k)s offered by employers opt to automatically enroll their employees in the plan.  If just a few percent is automatically deducted from employee’s paycheck, most individuals will not go out of their way to stop this as shown in the graphic below.

Automatic enrollment plans actually encourage individuals who are younger and have lower incomes to start saving for retirement much earlier than they normally would, when the effects of compounding interest are the most powerful.

While I will likely never live to regret being an organ donor, 401(k) contributions make me cringe just a little precisely every other Monday.  Hopefully though this delayed gratification will pay off in retirement!

Angela Palacios, CFP®is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well asinvestment updates at The Center.

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 Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

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Ladies – Don’t be left out of the Retirement Income Discussion

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 We know that statistically women outlive men.  By age 85, there are approximately five women alive for every three men.  By age 95, the ratio of women to men doubles.  (Source: 2010 U.S. Census Bureau).  We also know that income disparities over time can have significant implications on the amount women are able to save for retirement.  Ultimately this means women need to fund a longer retirement with fewer financial resources.  

To help frame the retirement income decisions women have to make when approaching retirement, use the following suggestions as general guidelines:

  • Establishing a target age is important because when you retire will affect how much you need to save.  For example, if you retire early at age 55 the number of years you have to save is lessened and the number of years that you will be living off retirement savings is longer.
  • Medicare generally doesn’t start until you reach age 65.  Retiring prior to eligibility for Medicare means you may have to look into COBRA or a private individual policy, which can be expensive.
  • You can begin receiving your Social Security benefit as early as age 62.  However, your benefit is then reduced 25% to 30% if you do not waiting to collect until full retirement age.
  • Working part time during retirement will allow you to rely less on retirement savings in the beginning and you may also have access to affordable health care while waiting for Medicare.
  • If you are married, and your spouse is still working too, it may pay to think about staggering retirements to ease the financial transition into retirement.

Creating a retirement income roadmap is a practical suggestion for managing and overcoming the unique challenges women face in retirement.  Don't sit this one out.  Join the discussion and learn along the way if necessary.  A financial professional can help sort through the options to develop a plan that is right for you.   One of my favorite quotes by Henry David Thoreau provides a timeless message for looking to the future; "Go confidently in the direction of your dreams. Live the life you have imagined."

Laurie Renchik, CFP® is a Senior Financial Planner at Center for Financial Planning, Inc. In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie was named to the 2013 Five Star Wealth Managers list in Detroit Hour magazine, is a member of the Leadership Oakland Alumni Association and in addition to her frequent contributions to Money Centered, she manages and is a frequent contributor to Center Connections at The Center.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

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 Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

What to do in the Last Crucial Months before Retirement

 After years of saving and planning for retirement, you may be relieved and excited about the prospects of making the decision to move forward and retire.  If you are at this point, careful planning in the months leading up to retirement can help you ensure a smooth transition from employment to retirement. But many of us may be missing out on an important step in this process.

I recently read a statistic about women and retirement that surprised me.  Insured Retirement Institute (July 2012) reported that through planning with a financial advisor, women can take steps to increase their optimism and financial outlook for funding their retirement years.  Yet, nearly 53% of Baby Boomer women reported that they have not consulted with a financial advisor.  This is a pressing problem that has the potential to create long term financial and emotional roadblocks for women who are on the cusp of retirement.  The following information to help you gauge retirement preparedness.

Conversations to Have as Retirement Draws Near

These conversations should include a detailed look at the following areas of your financial plan:

  • Inventory investments, review employer retirement plan options and analyze Social Security benefits to make sure you can afford to leave the workplace.
  • Decide on an initial annual withdrawal amount that you feel you can take from your investments every year without substantial risk of running out of money.
  • If you are under age 65 and not eligible for Medicare, determine how you will cover health insurance needs.

Transition From the Work Force Into Retirement

Once you have a clear understanding of your retirement resources, another important part of retirement planning is to focus on the period of transition as you move from the work force into retirement.  Here are some suggestions to help make the transition run as smoothly as possible:

  • Reduce or eliminate credit card debt prior to retirement.
  • Carefully weigh your options for handling your mortgage.
  • Focus on your actual expenses today and think about whether they will stay the same, increase, decrease, or even disappear by the time you retire.

If you find yourself with unanswered questions, I recommend hiring a financial professional to help you understand financial options and opportunities for retirement.   The decisions you make in the final months leading up to retirement can have a considerable impact on your overall retirement plan.  

Laurie Renchik, CFP® is a Senior Financial Planner at Center for Financial Planning, Inc. In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie was named to the 2013 Five Star Wealth Managers list in Detroit Hour magazine, is a member of the Leadership Oakland Alumni Association and in addition to her frequent contributions to Money Centered, she manages and is a frequent contributor to Center Connections at The Center.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

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 Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

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The Magic Age of 70 ½ and Your Required Minimum Distributions

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 You could call it a rite of passage … one about which you have little choice. Taking a Required Minimum Distribution from your traditional IRA can’t be sidestepped or avoided without federal tax penalty.  The IRS keeps a watchful eye on distributions and navigating through the ins and outs is a must for all retirees who reach the magic age of 70 ½.  To complicate matters, SEP IRAs and SIMPLE IRAs are also subject to the same RMD rules.  On the flip side, Roth IRAs are an exception as no distributions are required during your lifetime. 

What is a Required Minimum Distribution(RMD)? 

  • A specific minimum dollar amount that must be withdrawn every year after age 70 ½.  This number will change every year as account values change and life expectancy factors change.  RMDs are calculated by dividing your traditional IRA or retirement plan account balance (as of December 31 of the year prior to the calendar year during which the distribution must be made) by a life expectancy factor specified in IRS tables.  
  • You can always withdraw MORE, but if you withdraw LESS you will be subject to federal penalty.
  • RMD rules are designed to spread out IRA account distributions over your lifetime. 

Here’s the question I get asked most about RMD’s: “When must it be taken?” 

The short answer is the year you reach age 70 ½.  However, questions usually pop up because the RMD can be taken during the year you reach 70 ½ OR you can delay it until April 1st of the following year.  

For example: 

  • Your 70th birthday is December 2, 2012, so you will reach 70 ½ in June of 2013.
  • You can take your first RMD during 2013, or you can delay it until April 1, 2014. 
  • If you choose to delay until 2014, you will have to take two distributions during 2014 – one for 2013 and one for 2014.   

From a financial planning perspective, you might delay taking your first distribution if you expect to be in a lower income tax bracket in the following year, perhaps because you’re no longer working or will have less income from other sources.  On the other hand, receiving your first and second RMDs in the same year will increase income and could possibly push you into a higher federal income tax bracket for that year.  So the decision about whether to delay your first required distribution can be important, and should be based on your personal tax situation.

This post contains general information meant to raise awareness of the importance of taking Required Minimum Distributions even if you don’t need or want the income.  Since RMD rules are very specific and IRS penalties punitive, my advice is to talk with your financial advisor or tax preparer to ensure you are meeting the annual distribution requirement.

Visioning Your Future Retirement: How to Write Your Own Story

 A recent Wall Street Journal headline caught my eye and got the wheels turning in my head.  It read, “The Let’s Sell Our House and See the World Retirement.”  This article outlines an interesting variation to the more traditional retirement theme of choosing a static location to call home for retirement.  It’s an unconventional take on retirement that required some careful planning and some carefree exploration. As the globe-trotting couple says in the article, “When all else fails, walking and gawking are free everywhere.”

The retirees featured in the piece sold their permanent residence and live in furnished apartments and houses around the world.  They call themselves senior gypsies that put down roots – at least for a month or two.  The simplified version of their story is that they are both happier in life while “on the road.”  Health is good and the desire to see the world in bigger bites than 2-3 weeks at a time is their primary motivation. 

The message I find compelling is that traditional financial planning principals provided the fundamental backdrop for the decision-making but the individual creativity of the retirees provided the unique detail.  This means that a myriad of possibilities exist for all retirees contemplating future retirement. We can start with financial planning as a home base and then craft a unique retirement that provides value and worth regardless of individual preferences. 

Here are three tried and true tips to consider when visioning your future retirement picture:

  1. Engage in honest conversations about what is important in retirement.  This simple exercise has a way of opening doors to future possibilities. 
  2. Own the reality check.  Crunching the numbers provides context and insight to what can be possible in retirement.  In the article, selling the home was a key to realizing the desired lifestyle in retirement.
  3. Develop a solid spending strategy.  This step is instrumental in keeping any budget in line.  Adjustments are an ongoing part of any budget and lend to the health of the overall plan. 

Technological advances connect the world in amazing ways and the reality is that times are changing. Many baby boomers and younger cohorts are writing their own retirement story, even if it means creating a new set of rules about how to spend retirement.

In the spirit of a new adventure, I started to make a mental list of the pros and cons to this hybrid approach and wondered how an idea like this might float with my husband! 

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 Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

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File & Suspend: The Best Kept Social Security Secret?

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 The other day, one of our associates was on the phone with the Social Security Administration (SSA). When asked about the “File & Suspend” strategy, the SSA staffer said he hadn’t heard about it “yet”. Not exactly encouraging since “File & Suspend” has been around since about 2000. More than a decade later, this highly effective social security retirement benefit strategy is still considered new and obviously causing confusion.

To recap, this strategy is designed to help a married couple maximize their combined social security retirement benefits.  One of the spouses, the higher earner, will “file & suspend” at full retirement age which allows the lower earner (or one with no earnings record) to begin receiving spousal benefits.  Additionally, the higher wage earner will receive delayed retirement credits from full retirement age until the age of 70, which can have a significant impact in maximizing the couple’s combined benefits. (See Julie Hall’s October 31, 2012 blog post One Social Security Strategy Too Many Married Couples Miss).

Once a couple decides to implement this strategy

It's time to deal with the Social Security Administration. 

We have not had a client file and suspend using the SSA’s online process.  While this may be possible, because of the importance on getting this correct and the apparent confusion involved, we suggest visiting the SSA in person if possible.  Obviously this requires more of a time commitment on your behalf, but may ensure that the application gets processed correctly. Additionally, both couples can attend together to take care of both their applications. A client recently shared their experience and stated that they were glad that they went in person. The visit took an hour and a half with their cooperative SSA staffer (even though this was the staffers first time completing a “file & suspend” request). 

What needs to be communicated to the Social Security Administration at your meeting? 

It is important to note that there is nothing on the application that asks if you want to suspend your benefits to earn delayed retirement credits, thus the general confusion even for SSA staffers. It is important to put a statement in the “remarks” section of the application stating, "I want to voluntary suspend all benefits in order to earn delayed retirement credits”. This is critical because voluntary suspension can only be requested if benefits have not yet been paid for the month. 

What might the conversation actually sound like?  Let’s use Bob and Mary Smith as an example: 

Bob: “I have reached full retirement age.  I would like to file for social security and suspend my benefits immediately so that I do not receive any payments and earn delayed retirement credits.”

Mary: “Once my husband Bob files and suspends his benefits, I would like to file for my spousal benefits, please,” (while using “please” may or may not help, I trust you agree that is a good thing). 

Last, but certainly not least, ask to get a photocopy of the application for your own records. 

Please use us a resource for all of your social security retirement needs.  Social security retirement benefits can play an important role in your overall retirement success and we’d enjoy helping you maximize your benefits.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material, is not a complete summary or statement of all available data necessary for making an investment decision, and does not constitute 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 Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  The strategy mentioned may not be suitable for all investors.  Please consult the appropriate professional regarding your individual situation.

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Year End Retirement Savings: From 401ks to IRAs

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 It should come as no surprise that saving for retirement is a financial priority that takes discipline, diligence and oversight. One important year-end financial move to help keep your retirement savings in check is to review your contributions to 401k plans and IRA’s for the year.

If you received a year-end bonus, you may want to go ahead put some of it into your retirement to max out your contributions for the year (see our post on year-end planning for your bonus).  Likewise, if you’ve received a raise, can you increase your regular contributions? 

Year-End Tips for 401k Participants:

    ✔ Max out 401k contributions if cash flow permits. For 2012 the limit is $17,000 and if you are over age 50 you can contribute an extra $5500 per year.  To calculate your maximum percentage divide $17,000 by your annual salary.

    ✔ Review your employer match policy to make sure you are not leaving money on the table.

    ✔ Plan for 2013.  The maximum contribution amount for 2013 is $17,500; an increase of $500 from 2012.

    ✔ If you have left an employer and have an old 401k sitting around, you may want to consider rolling over to an IRA.

Year-End Tips for IRA Owners:

    ✔ The 2012 maximum contribution amount for IRA’s is $5000. 

    ✔ Don’t forget about the “Catch-up” contribution if you are 50 or older.  That’s an extra $1000 you can contribute for a total of $6000. (Note:  Total combined contributions to Roth and/or traditional IRA’s cannot exceed these amounts)

    ✔ Do you have multiple IRA accounts?  Consider combining them to simplify record keeping and management. 

    ✔ SEP-IRA:  Maximum contribution limits for self-employed and small business owners is 25% of salary or $50,000; whichever is smaller.

    ✔ Plan for 2013.  The IRA contribution limit is $5500 and the SEP-IRA limit is 25% or $55,000; whichever is smaller

So, before you bid farewell to 2012, spend some time with these checklists. Your future is worth the time it takes to properly plan today. If you need help, we’re always ready with answers.

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.  The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.

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Medicare Open Enrollment

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 For a retired couple*, healthcare costs can exceed $10,000 per year and over $250,000 for a lifetime. It’s pretty obvious, given those totals, why making the right Medicare choices is critical. In addition to ever-increasing health care costs, Medicare premiums are projected to go up at a rate that is higher than the 1.7% Social Security cost of living increase for 2013. So, even if you dread digging into your Medicare options, there is no time like the present. It is officially Medicare Open Enrollment (October 15-December 7, 2012) which means it is time to review your A’s, B’s, C’s and D’s. If you are age 65 or older and are enrolled in Medicare, during Open Enrollment, you can make changes to:  

  • Medicare Part D plans
  • Medicare Advantage *
  • Medigap Plans

*Medicare Advantage plans can also be changed from January 1 to February 12, 2012.

It is just a short window so it is important that you carefully evaluate your needs and the available plans to make sure that you are in the most appropriate and cost-effective plan for your situation. You can do your own analysis by using the online tools provided by or look for the help provided by local senior organizations or independent Medicare consultants. Taking the time to find the best plan for you can be financially life changing. Contact your financial planner for resources in your area.

When Should You Take Social Security?

 Baby boomers, on average, are living longer than any previous generation.  While that’s good news, it also presents new challenges. 

    1)  A longer life increases the likelihood that you’ll have increased medical and long-term care expenses.
    2)  The value of your nest egg will be more significantly impacted by increases in the cost of living over a longer term 

When you consider these factors, it’s more important than ever to make calculated decisions about when to begin drawing Social Security benefits within the context of your overall retirement income plan.  

According to the Social Security Administration, 74% of retired Americans drawing retirement benefits are receiving permanently reduced amounts.  Reduced benefits are the result of filing when you first become eligible for benefits at age 62.  Social Security rules are built around full retirement age (FRA), which is the age at which you are entitled to your full retirement benefit or Primary Insurance Amount (PIA).  

The reason the PIA is an important number to know is because it is the base amount on which:

• Reductions will be made
• Increases given or
• On which spousal benefits are determined  

Eligible Americans who turn 62 this year must wait until age 66 to begin receiving full payments.  But they can receive smaller payments beginning as soon as age 62, or larger lifetime payments beginning as late as age 70.  The net effect of filing at age 62 will be a 25% permanent reduction of annual benefits.  On the other hand, those waiting until age 70 will see their benefit bumped up by 8% for every year they wait to file from age 66 to age 70. That’s a permanent 132% increase in benefit amount for life!   

Here is a hypothetical example illustrating how the math works: 

If Boomer Betsy decides to apply at age 62, or waits until FRA of 66, or delays to age 70.  Boomer Betsy’s PIA is $2,230. 

Age 62: Benefit amount is permanently reduced by 25% from $2230 to $1672    

Age 66: Full retirement age benefit of $2230

Age 70: Benefit increases 8% per year from age 66 to 70 increasing from $2230 to $2943 

Of course, there’s no telling how many years you will be collecting benefits but with careful planning, a strategy can be developed to improve potential lifetime benefits of Social Security by structuring the benefits to begin at optimal times based on your financial plan.

Have a social security question?  Send me an email.

Click Here to get information on our upcoming seminar on Social Security Planning.

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 Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

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