Factoring the Cost of Living in a Post-Retirement Relocation

Your retirement plan may involve a move. You could be moving some place warm so you don’t have to put up with the wonderful Michigan winters or perhaps moving to be closer to your kids and grandkids.  Whatever the motivation, there is always a financial component in the decision-making process.

Paying for what you want vs. what you need

The cost to live in other areas of the country can be higher or lower, but some people don’t know the specific figures you will probably pay after you make the move.  Is a dollar in Michigan the same as a dollar in California or Utah? A recent conversation with a client evaluating relocating placed focus on this specific issue. His thinking was that it didn’t matter where you lived, you can always find a way to spend money.  While I certainly have to agree with him on that point, I think the bigger point is that there is a difference between spending money on things you want versus spending money on things you need.

Comparing Expenses

Let’s take a look at the cost of different goods and services in the two cities. These figures were taken from www.costofliving.org and they are an average estimate taken from people who live in Salt Lake City and San Francisco. The list of goods and services has more than 75 commonly purchased or used items but we’ll look at just a sampling of expenses.

As you can see, everything in San Fran is more expensive except the T-Bone steak. Unfortunately, after you pay for your basic living expenses, you might not have any money left over for that T-Bone! According to the living expense calculator on www.costofliving.org someone living on $70,000 of net income in Livonia, Michigan would need approximately $120,000 net in San Francisco.  In Salt Lake City, that same person would only need $69,000 to maintain the same standard of living. 

If you think a move might be in your future, talk to your financial advisor to weigh the costs associated with the new location and make sure it fits within your retirement income goal.

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.

Any opinions are those of Center for Financial Planning, Inc. 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. C14-022592

The 50/50 strategy turns your next raise into lifelong savings

 Ever wonder how much you should be saving? We hear it from a lot of clients who want to make sure they’re putting away enough each paycheck towards retirement.  We typically suggest saving at least 10% of your before-tax income and for those approaching retirement within 10 – 15 years, we like to see that number closer to 20%.  Although we never like to make blanket statements in financial planning, those savings rates are typically what most should be striving for while still maintaining a balance to live a full life now.  But is there a better strategy that could be more efficient?

Give Your Savings a Raise

What do most people do when they get a raise?  Many people keep their savings rate the same but increase their standard of living.  Sure, the actual dollar amount is increasing because the savings percentage is now based on a larger salary; however, my argument would be that controlling your standard of living is what is most important, especially when approaching retirement.  So how do you keep your standard of living from getting out of control and far surpassing savings? 

Spend 50% of your raise and save the other 50% 

Let’s see how that strategy could impact our hypothetical client, Jack.  Jack is 30 years old and is earning $100,000/yr as a business consultant.  He is currently saving 10% towards his 401k ($10,000/yr).  Jack had a great year in 2013 and earned an 8% raise for 2014, increasing his base salary to $108,000.  Assuming Jack kept his savings rate of 10% the same, he would now be putting $10,800/yr into his 401k.  However, what if he took the “spend 50, save 50” approach?  After taxes and other payroll deductions, Jack actually realizes a “take home” raise of $5,000.  In the 50/50 strategy, Jack would tack on $2,500 to his annual 401k savings, increasing total annual contributions to $12,500 (from $10,000 prior to his raise).  By simply saving 50% of the money that didn’t exist the year prior, Jack has increased his total retirement savings to about 11.6% ($12,500/$108,000). He’s controlled how quickly his standard of living increases. 

As a young professional, I can certainly attest to the difficulty of looking down the retirement road to a goal that is 35+ years away.  However, committing to your goals and having a clear, simple strategy, such as the 50/50 savings approach, can help you reach the financial goals you set for yourself or family!

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick currently assists Center planners and clients, and is a contributor to Money Centered and Center Connections.

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Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of RJFS or Raymond James. C14-025359

The Power of Compounding

 

When you’re just starting in your career, you can feel strapped, earning a small salary and trying to make ends meet.  You might not feel like there is any money left over at the end of the month and that’s why some people decide to wait to start saving for retirement. However, the power that time has on your money can’t be understated.

I recently had an opportunity to meet with a long-time client’s daughter.  The goal of the meeting was to give some timely financial advice as she embarks on her new career after college. One of the key points I made was the power of compounding dollars over time.    

Using Time to Compound Money

For instance, if a 25 year old were to save approximately $4,500 a year compounding at 7% she would have close to 1 Million dollars by age 65. But, if she decided to wait to start saving for retirement until she was making more money at age 45, she would need to save $21,904 a year to accomplish the same result. That’s a staggering 486% increase in the dollars she’d need to save compared with the 25-year-old saver.

Knowing Your Benefits

To help with your retirement savings, it’s very important to fully understand your employer benefits before you begin employment.  Many employers will offer qualified retirement savings programs like a 401(k) or 403(b). If these plans exist and the company offers a match on your contributions, you should do everything you can to make sure you at least get the matching dollars.  For instance, in the case of our 25 year old, we know the potential of a $4,500 a year savings and earning 7% on that money. Now, if we factor in an employer match of $2,250, that same 25 year old would have accumulated approximately $1,350,000 over that same time horizon.

The longer you wait to start saving, the more you are going to have to put away. In other words, the pain could be much worse the later you wait.

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 is a hypothetical illustration and is provided for illustration purposes only and is not intended to reflect the actual performance of any particular security. Future performance cannot be guaranteed and investment yields will fluctuate with market conditions. C14-022060

401(k) After-tax Accounts: Preparing your checklist

 In my last blog, I answered four common questions about an after-tax 401(k). If you’ve decided that this savings options might be right for you, your next step is to sit down with your financial advisor.

Getting ready: A checklist for the meeting

Your financial advisor can help you review your plan documentation to establish whether you have an after-tax contribution option; and, if so, whether it would make sense for you to set aside some of your pay on an after-tax basis. Before you meet with your financial advisor, you may want to gather some important information and documents:

• The most recent statement from your 401(k) plan
• Any plan documentation you may have, such as an SPD (your human resource department can provide a copy or you may be able to access it online)
• The telephone numbers of your current and former employer’s benefits administrators so you and your financial advisor can confirm information
• Any retirement income planning documents you may have accumulated
• The contact information for your tax advisor should you have any tax-related questions

First, review your plan documentation with your financial advisor to establish whether you have an after-tax contribution option. Then determine with your tax advisor whether you should make after-tax contributions to your 401(k) plan and/or proceed with a conversion. Be sure to discuss any potential tax and penalty implications, as well as expenses and sales charges that may result from your decisions.

Rolling after-tax savings into a Roth IRA

Explore whether a conversion of all or a portion of your after-tax account to a Roth IRA or designated Roth account would be a strategy that advances your retirement savings and income planning goals.

If you decide to make after-tax contributions and/or execute a conversion of all or a portion of your after-tax account, work with your financial advisor to execute the proper documentation and authorizations. And, as always, we’re here to answer any questions that may crop up as you consider making contributions to an after-tax 401(k) plan.

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.

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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. You should discuss any tax or legal matters with the appropriate professional. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Converting a traditional 401(k) into a Roth IRA has tax implications. An investor should carefully consider the source of funds used to pay the taxes owed on a Roth conversion. Penalties and taxes may apply if the investor uses money from the 401(k) as the source for conversion taxes. Consult a tax professional for details. C14-016529

401(k) After-tax Accounts: The forgotten contribution feature

 Roughly half of 401(k) plans today allow participants to make after-tax contributions. These accounts can be a vehicle for both setting aside more assets that have the ability to grow on a tax-deferred basis and as a way to accumulate assets that may be more tax-advantaged when distributed in retirement.

As you discuss after-tax contributions with your financial advisor, you might consider the idea of setting aside a portion of your salary over and above your pre-tax salary deferrals. By making after-tax contributions to your 401(k) plan now, you could build a source of assets for a potentially tax-efficient Roth conversion.

Here are some questions to consider:

Does your plan allow for after-tax contributions?

Not all plans do. If an after-tax contribution option is available, details of the option should be included in the summary plan description (SPD) for your plan. If you don’t have a copy of your plan’s SPD, ask your human resources department for a copy or find it on your company’s benefits website. You can also talk to your financial advisor about other ways to obtain plan information, such as by requesting a copy of the complete plan document.

What does “after-tax” mean?

After-tax means you instruct your employer to take a portion of your pay — without lowering your taxable wages for federal income tax purposes — and deposit the amount to a separate after-tax account within your 401(k) plan. The money then has the ability to grow tax-deferred. This process differs from your pre-tax option in which your employer takes a portion of your pay and reduces your reported federal taxable wages by the amount of your salary deferrals and deposits the funds to your pre-tax deferral account within the plan.

Are there restrictions?

Even if your plan has an after-tax contribution option, there are limits to the amount of your salary that you can set aside on an after-tax basis. Your after-tax contributions combined with your employee salary deferrals and employer contributions for the year, in total, cannot exceed $52,000 (or $57,500 if you are age 50 or over and making catch-up contributions). Your after-tax contributions could be further limited by the plan document and/or to meet certain nondiscrimination testing requirements.

How does a 401(k) after-tax account help me acquire Roth assets?

When you are eligible to withdraw your 401(k) after-tax account — which could even be while you are still employed — you can roll over or “convert” it to a Roth IRA or a qualified Roth account in your plan, if available. A conversion requires you to include any pre-tax assets that you convert in your taxable income for the year. That means if you convert your after-tax account, only the earnings are included as ordinary income for the year. And if you have pre-1987 after-tax contributions, special rules allow you to convert just those contributions without including any of the associated earnings.

If your plan allows for after-tax contributions and you think they may be right for you, it’s time to talk to your financial planner. In my next blog, I’ll walk you through what you need to take to your meeting.

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.

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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. You should discuss any tax or legal matters with the appropriate professional. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Converting z traditional 401(k) into a Roth IRA has tax implications. An investor should carefully consider the source of funds used to pay the taxes owed on a Roth conversion. Penalties and taxes may apply if the investor uses money from the 401(k) as the source for conversion taxes. Consult a tax professional for details. C14-016528

Making the Most of your Empty Nest Years

 In a recent meeting, I asked a client how their year had been and they exclaimed:

“It’s like being in college, only with money!”

The words struck a chord. After raising two children, educating them, and seeing them move away (fully employed) my clients were busy starting their empty nest years.  As they explained, after years of doing the right things financially, they were ready and excited for the next chapter in their lives before retiring.  Fortunately, they are healthy, both physically and financially, and have begun weaving more leisure and travel into their schedules.  Their new lifestyle is a fine reward for years of delayed gratification in some areas and I couldn’t be happier for them. 

Planning for the Empty Nest

Here are some of the keys to living well during the empty nest years:

• Make time to plan – ideally over multiple years
• Spend less than you earn – this may be financial planning 101 but it takes commitment and discipline
• Save for college – it is not always necessary to save 100% of the costs, but going into the college tuition years with substantial savings (i.e. 529 plan) will allow you and your kids to avoid significant debt
• Save for your own retirement – systematically contribute to your 401k, 403b or other tax advantaged plan

My client’s story also gave me reason to pause and reflect, or plan, on what might be “next” for our family.  While I am used to dispensing advice for a living and helping others plan an ideal life, I am fortunate to have so many clients and meetings like the above to inspire me to continuously think about and plan for a life well lived.  While my wife Jen and I (we celebrated our 22^nd wedding anniversary this month) are not quite empty nesters, two of our three children will be full time college students living on their own for most of the year.

Wyman Nest Dwindles

Our oldest Matt will be in his third year at The University of Kansas.  Matt, a soccer player in high school, walked on to the football team and won the starting position last season.  His year was highlighted by kicking a game-winning 52-yard field goal as time expired.  Matt will return to KU in the fall for his second season after interning here at The Center this summer. 

http://www.youtube.com/watch?v=HyYWj5lsFmk

Our middle child, Jack, just graduated from Bloomfield Hills High School, the first ever class at the merged high school.  Jack finished a stellar baseball season as his team won their district and he was named team MVP, All League and All District as a pitcher and third baseman.  Jack is undecided on his college choice but has been accepted to Albion College and Belmont University in Nashville.

http://www.miprepzone.com/oakland/results.asp?ID=13633

Our youngest, Kacy, just finished 5^th grade and continues to be an inspiration as she manages a rare disease called Cystinosis.  A highlight of Kacy’s year was being to be Principal for the Day at Bloomfield Hills Middle School where extra lunch time and recess was the call of the day! Kacy also enjoys swimming year round with a little dance thrown in for variety.

Words of encouragement from our principal....

"Good morning BHMS! Please excuse this interruption. This is your Principal for the Day, Kacy Wyman. I just wanted to wish you a great day - have fun and work hard!"

Jen and I look forward to our empty nest years and living the “college life” like my clients described.  However, for now, we are mostly excited to be traveling to Kansas and other parts of the country for football and baseball as well as being with friends at Wing Lake beach or Kacy’s swim meets. 

From our family to yours, have a great summer and take pause to plan what’s “next” for you and yours :)

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

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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 Center for Financial Planning, Inc. and not necessarily those of Raymond James. 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. C14-019071

Raymond James Bank Deposit Program simplifies FDIC coverage

If you’re not familiar with the Raymond James Bank Deposit program, a quick read here could save you a big hassle. The program is designed to help you take advantage of up to $2,500,000 of FDIC coverage without putting any extra work on your plate.

What is FDIC?

The FDIC (Federal Deposit Insurance Corporation) covers cash deposit accounts, dollar for dollar, including principal and accrued interest up to a limit in the event of a bank failure.  It is funded by the premiums paid into the corporation by banks on the deposits they hold.  Historically, in the event of a failure, funds are available to depositors within days after the closing of the bank.

How much does FDIC cover?

Until October 2008 coverage was limited to $100,000 per depositor.  During the financial crisis in the fall of 2008 the government stepped in and increased the insurance limit temporarily to $250,000 to prevent bank runs from occurring as the financial crisis and subsequent bank failures accelerated.  Later in 2010 the increase in the limit was made permanent. 

How do you calculate the coverage you have?

For example, let’s say Joe has $250,000 at a bank between his checking, savings, CDs and money market accounts maximizing his coverage there.  If Joe was married to Sally, and these accounts were titled jointly, then they could have a combined coverage of up to $500,000.  The coverage is per bank meaning if Joe and Sally had $500,000 at 10 different banks they would have $5,000,000 in FDIC coverage.  But, for Joe and Sally, or anyone, having money spread out between multiple banks could be very confusing and time consuming to keep track of everything.

Gone are the days of playing games to maximize your FDIC insurance coverage on bank deposits! 

Insuring more than $250,000 per depositor

One account at Raymond James through the Raymond James Bank Deposit Program (RJBDP) can provide up to $2,500,000 ($5,000,000 for joint accounts) of total FDIC coverage.  The work is done behind the scenes by Raymond James as available cash is deposited into interest-bearing deposit accounts at up to 12 banks automatically for our clients.

Another way to qualify for more coverage is by holding deposits in different ownership categories (account types).  Below is a table of the categories and limits.  The RJBDP can then increase these limits according to the above numbers as well.

Source: Raymond James

As with all insurance, you hope you never need to use it.  Cash can play an important role in an overall financial plan and knowing it is protected can lend confidence.  When it comes to FDIC insurance coverage you likely have much more than you realize!

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 contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Laws, coverage, and program rules are subject to change. Hypothetical example is for informational purposes only, and does not represent and account or investor experience.

Raymond James & Associates, Inc. and Raymond James Financial Services, Inc. are affiliated with Raymond James Bank, a federally chartered savings bank. Unless otherwise specified, products purchased from or held at Raymond James & Associates or Raymond James Financial Services are not insured by the FDIC, are not deposits or other obligations of Raymond James Bank, are not guaranteed by Raymond James Bank and are subject to investment risks, including possible loss of the principal invested. The FDIC insurance limit per depositor is $250,000. Coverage applies to total holdings per bank per depositor. Visit fdic.gov for more information.

Is 40 the “Magic” Age for Financial Planning?

When is Financial Planning, on your own or with the help of a professional, appropriate? The correct answer is you should probably begin saving the first day that you receive your first paycheck.  However, in my 23 years of experience, folks tend to get “serious” about planning near the age of 40.  I do not by any means want to discourage anyone younger than 40 to put off planning until they hit that “magic” 40 milestone. Just about anyone that has achieved financial success will tell you to start as early as possible.

Some questions and issues that the 40+ crowd might consider: 

• How much should I be saving? I have heard rules of thumb such as 10% or 20% but what does that mean for me and my specific goals?

• I’m busy. What are the options to pay bills other than the standard envelope and stamp method?

• Life insurance: Salespeople have been hounding me for years to buy life insurance. I couldn’t afford it in the past and secretly didn’t see the value, but I’m ready now. What type and amount should I get to protect my family so I am not insurance rich and cash poor?

• College: My kids are getting closer to college age. How do I pay the ever-increasing tuition?

• I am ready to invest my wealth. What are best options for me?  Should I max out my 401k or 403b or is a ROTH a better option?

• Estate planning: I’m all grow’d up now and ready (I think) to consider a Will and perhaps a Living Trust. How do I know which one I need?

• My parents are aging and I am not sure if they have the resources for their care. What should I be doing now to prepare or help them prepare?

• I have heard about the “Boomerang kids” phenomenon. Should I move to a one bedroom condo now?

• Employer retirement plans (401k/403b): Whoa, I have real money now! How should it be invested?

• I give to charities that are making a difference in the world. Is there a way to maximize my donations and perhaps even get a tax break?

• Income taxes: I don’t mind paying … I just don’t want to pay a cent more than my share. How can I limit my income tax exposure?

• If I choose to work with a professional financial planner whom should I contact? I have not have worked with a professional advisor yet so I am a bit leery, and maybe even a bit scared to share my financial picture (not sure how I stack up with others).

If you’ve been asking yourself some of these questions, no matter your age, you are ready to get “serious” about your financial life.  Think about some of the issues and questions that you find yourself facing and feel free to give me an email. If my 23 years of working with similar folks can be of help, I’d love to share my insight because you don’t need to wait for some “magic” age.

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

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Roth vs. Traditional IRA

 If you’re planning to use an IRA to save for retirement, but aren’t sure if Roth or Traditional is best for you, we can help sort it out. First, before we begin breaking down the pros and cons of each type of retirement account, you need to be sure that you are eligible to make contributions to these accounts.

For 2014 Roth IRA contribution rules/limits:

• For single filers the modified adjusted gross income (MAGI) is phased out between $114,000 and $129,000 (unsure what MAGI is? Click here)
• For married filing jointly the MAGI is phased out between $181,000 and $191,000
• Please keep in mind that for making contributions to this type of account it makes no difference if you are covered by a qualified plan at work (such as a 401k or 403b), you simply have to be under the income thresholds.
• Maximum contribution amount is $5,500

For 2014 Traditional IRA contributions:

• For single filers who are covered by a company retirement plan (401k, 403b etc…), in 2014 the deduction is phased out between $60,000 and $70,000 of modified adjusted gross income (MAGI).
• For married filers, if you are covered by a company retirement plan in 2014, the deduction is phased out between $96,000 and $116,000 of MAGI.
• For married filers not covered by a company plan but with a spouse who is, in 2014 the deduction for your IRA contribution is phased out between $181,000 and $191,000 of MAGI.
• Maximum contribution amount is $5,500

If you are eligible, you may be wondering which makes more sense for you?  Well, like many questions in finance the answer is…it depends! 

Roth IRA Advantage

The benefit of a Roth IRA is that the money grows tax deferred and someday, when you are over age 59.5, you can take the money out tax free.  However, in exchange for the ability to take the money out tax free, you don’t get an upfront tax deduction from the IRS.  Essentially you are paying your tax bill today rather than in the future. 

Traditional IRA Advantage

With a Traditional IRA, you get an upfront tax deduction.  For example, if a married couple filing jointly had a MAGI of $180,000, (just below the phaseout threshold), then they would probably be in a 28% marginal tax bracket.   If they made a full $5,500 Traditional IRA contribution they would save $1,540 in taxes.  To make that same $5,500 contribution to a ROTH, they would need to earn $7,040, pay the taxes, and then make the $5,500 contribution.  The drawback of the traditional IRA is that you will be taxed on it someday when you begin making withdrawals in retirement.

Pay Now or Pay Later?

The challenging part about choosing which account is right for you is that nobody has any idea what tax rates will be in the future.  If you choose to pay your tax bill now (Roth IRA), and in retirement you find yourself in a lower tax bracket, then you may have been better off going the Traditional IRA route. However, if you decide to make Traditional IRA contributions for the tax break now, and in retirement you find yourself in a higher tax bracket, then you may have been better off going with a Roth. 

How Do You Decide?

A lot of it depends on your personal situation, such as the career path you’ve chosen and your desired income in retirement. However, we typically recommend that people just starting out in their careers who will probably earn a much higher income in the future make ROTH contributions.  If you’re in the 25-28% marginal bracket, a Traditional IRA may make more sense for the immediate tax break now.  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.

Matthew Trujillo, CFP®, is a Registered Support Associate 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. Any opinions are those of the Center for Financial Planning, Inc. and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Roth IRA owners must be 59 ½ or older and have held the IRA for five years before tax-free withdrawals are permitted. You should discuss any tax matters with the appropriate professional.

Links are being provided for informational 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. C14-015057

Rewriting Retirement: 5 Steps to Your Plan

Life, after work, has been completely redefined. Those leaving the 9 to 5 behind, in favor of a more relaxed, enriched or exciting lifestyle, are rewriting the meaning of retirement.  Part of the credit for retirement’s overhaul can be given to longer and healthier lifestyle trends.  Leaving the workforce does not have to be the endgame, but rather your signature version of a rich life after retirement that could last a long time!

Here are five steps to help you get ready for what comes next:

1. Create a retirement budget and track expenses

2. Shore up cash reserves

3. Know how you will deal with unexpected financial needs

4. Identify income sources that contribute to cash flow

5. Take the time to ensure that you are psychologically ready for the change of pace

On the most basic level, we all have goals and aspirations for our life after work.  Some are big, some small, but most importantly, they are unique to each retiree.   If you are stressed thinking about retirement, talk to your financial planner about the five steps above.  Take the time to double-check that you are ready for what comes next.  Today’s retirement holds the promise of being more fulfilling than ever before – but could be longer and more expensive too. 

Laurie Renchik, CFP®, MBA is a Partner and 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.

Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of RJFS or Raymond James. C14-017445