Planning for a Wild 2017

Contributed by: Kali Hassinger, CFP®

Happy 2017 everyone! A new year is a great opportunity to evaluate your financial wellbeing and set goals for the future.  Some of you may have existing financial plans in place, and others may be thinking that 2017 is the year to take control of your finances.  In either situation, it’s important to understand that financial planning is an ongoing and ever-evolving process. Separate from your personal circumstances, there are many outside forces that affect your financial plan, and there are a few items that may be especially important to evaluate this year.

Given the events of 2016 and possible changes in 2017, the following circumstances could be prime examples of why it’s important to review and update your plan.

• Taxes – With the impending presidency of Donald Trump and the GOP in control of both the House and the Senate, we are anticipating a possible overhaul of the current tax system. For almost all taxpayers, your current tax rate could be reduced.  If the brackets are consolidated as expected, 2017 may be a good year to accelerate taxable income or max out your Roth IRA contributions. You can read more about the proposed tax plans here (http://www.centerfinplan.com/money-centered/2016/12/22/is-tax-reform-coming ).  

• Estate Planning – Just as with taxes, the political landscape of 2017 is set to possibly repeal the current Estate Tax. Because this tax is such a central point for Estate Planning with high net worth individuals, some current estate plans may need to be revised. There is also the possibility that the current gift tax laws may be on the docket for elimination. Although nothing is certain at this point, we will remain up to-date on any changes as they come.

• Allocation – 2016 was certainly a year of surprises for the market. After a decline in January, the shock of Brexit, and Donald Trump’s unanticipated election, the market overcame intermittent volatility and reached all-time highs in November.  Just as no one could predict that the market dip after Brexit would recover so quickly, no one expected the markets to actually go up in the wake of Trump’s election. There is no way to predict the future, but there is a disciplined investing approach that can help you through market uncertainties. With a balanced investment portfolio it is possible to reap the benefits of part of these gains while also insulating yourself from potential volatility. Your balanced portfolio returns may not reach the same highs as the S&P 500, but it can help you reach your goals with proper management over time. 

Regardless of your situation, a new year is always a great opportunity to reorganize and review your goals.  Life can be unpredictable, but not unplannable. We are always here to help, and we encourage you to reach out with questions.

Happy New Year! 

Kali Hassinger, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.®

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This information does not purport to be a complete description of the securities, markets, or developments referred to in this material, it is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Opinions expressed are those of Kali Hassinger, CFP®, and are not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change. There is no assurance that the statements, opinions or forecasts mentioned will prove to be correct. Investing involves risk, investors may incur a profit or loss regardless of the strategy or strategies employed. Asset allocation and diversification do not ensure a profit or guarantee against loss. Raymond James Financial Services, Inc. and its advisors do not provide advice on tax or legal issues, these matters should be discussed with the appropriate professional. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Please note that direct investment in an index is not possible.

How Much of My Income Should I Be Saving?

Contributed by: Nick Defenthaler, CFP®

This is a common and logical question to ask, right?  Unfortunately, there are too many unknown factors to give a precise answer.  If you’re 45, you have at least 15-20 years before you retire.  A lot can change in life during this time frame! What you think you may want retirement to look like might drastically change over the course of nearly two decades. How much you save obviously can have a big impact on your retirement goals. The simple answer I often hear in regards to this question is, “save at least what your company match is.” Meaning, if your employer offers a 4% match, you should contribute at least 4% to be eligible for the free money your employer is offering by incentivizing you to save for the future. Time to get blunt. Saving 4% isn’t enough. If you’re in your mid to late twenties, this is an acceptable savings rate to get in the habit of saving for retirement, in conjunction with paying down student loans, saving for a house, wedding or having children. When you’re 20 or fewer years away from retirement, however, that number simply needs to be more than the company match – probably closer to 15% - 20%. 

Thirty or forty years ago, saving 4% often times could in-fact create a successful retirement. So what’s changed? The extinction of the company pension plan.  Do you know that it would take a $615,000 retirement account to re-create a $40,000 income stream for 30 years, assuming a 5% distribution rate? In addition, most retirees who do receive a pension don’t just spend their pension income, they withdraw from their portfolio as well -- meaning far more than the $615,000 in my example would have to be accumulated prior to retirement to supplement spending for a 25+ year time horizon. 

So, if you’re not saving in the teens or twenties for retirement, how do you get there? I recommend implementing what I call the “one per year” strategy.  Meaning, you commit to increasing your 401k savings percentage by at least 1% each and every year until you get where you need to be in regards to your retirement saving goals. This is typically very doable for most; we just simply don’t make the change online or with our Human Resources department. As the New Year quickly approaches, now is the perfect time to evaluate your current savings level and check in with your planner to see if you need to be doing more. Many 401k plans now actually offer a great feature that automatically increases your contribution level each and every year, typically in January. Studies have shown that when things are automated, such as savings, they actually get done!  Ask your HR manager or 401k administrator if the plan allows for this and if so, seriously consider taking advantage of it.  

By increasing savings gradually, it will help make retirement savings far more manageable and realistic for many.

Think about it, if you’re trying to lose 100 pounds and you become fixated on that large number, chances are you’ll become overwhelmed and give up on your weight loss goal. Those who have the most success are the ones who focus on small victories. Losing a few pounds per month until that goal is met– the same goes for retirement savings.  

Keep it simple and be consistent – good things usually happen when we do just that!

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

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The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Nick Defenthaler, 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. 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. Matching contributions from your employer may be subject to a vesting schedule. Please consult with your financial advisor for more information.

Restricted Stock Units vs Employee Stock Options

Contributed by: Kali Hassinger, CFP®

Some of you may be familiar with the blanket term "stock options." In the past, this term was most likely referring to Employee Stock Options (or ESOs). ESOs were frequently offered as an employee benefit and form of compensation, but, over time, employers have adapted stock options to better benefit both the employee and themselves.

ESOs provided the employee the right to buy a certain number of company shares at a predetermined price for a specific period of time. These options, however, would lose their value if the stock price dropped below the predetermined price, thus becoming essentially worthless to the employee. As an alternative to this format, a large number of employers are now utilizing another type of stock option known as Restricted Stock Units (or RSUs). This option is referred to as a "full value stock grant" because, unlike ESOs, RSUs are worth the "full value" of the stock shares when the grant vests. This means that the RSU will always have value to the employee upon vesting (assuming the stock price doesn't reach $0). In this sense, the RSU is more advantageous to the employee than the ESO.

As opposed to some other types of stock options, the employer is not transferring stock ownership or allocating any outstanding stock to the employee until the predetermined RSU vesting date. The shares granted with RSUs are essentially a promise between the employer and employee, but no shares are received by the employee until vesting. Since there is no "constructive receipt" (IRS term!) of the shares, there is also no taxation until vesting.

For example, if an employer grants 5,000 shares of company stock to an employee as an RSU, the employee won't be sure of how much the grant is worth until vesting. If this stock is valued at $25 upon vesting, the employee would have $125,000 of compensation income (reported on the W-2) that year.

As you can imagine, vesting can cause a large jump in taxable income for the year, so the employee may have to select how to withhold for taxes. Some usual options include paying cash, selling or holding back shares within the grant to cover taxes, or selling all shares and withholding cash from the proceeds. In some RSU plan structures, the employee is allowed to defer receipt of the shares after vesting in order to avoid income taxes during high earning years. In most cases, however, the employee will still have to pay Social Security and Medicare taxes the year the grant vests.

Although there are a few differences between the old school stock option and the newer Restricted Stock Unit hybrid, these options can provide the same incentive for employees. If you have any questions about your own stock options, please reach out to us!

Kali Hassinger, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.®

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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. Any opinions are those of Kali Hassinger, 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. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. This is a hypothetical example for illustration purpose only and does not represent an actual investment.

Should I Accelerate My Mortgage Payoff?

Contributed by: Matt Trujillo, CFP®

Most homeowners make their regular mortgage payments every month for the duration of the loan term, and never think of doing otherwise. But by prepaying your mortgage, you could reduce the amount of interest you'll pay over time.

How Prepayment Affects a Mortgage

By prepaying your mortgage, you could reduce the amount of interest you'll pay over the life of the loan, regardless of the type of mortgage. Prepayment, however, affects fixed rate mortgages and adjustable rate mortgages in different ways.

If you prepay a fixed rate mortgage, you'll pay your loan off early. By reducing the term of your mortgage, you'll pay less interest over the life of the loan, and you'll own your home free and clear in less time.

If you prepay an adjustable rate mortgage, the term of your mortgage generally won't change. Your total loan balance will be reduced faster than scheduled, so you'll pay less interest over the life of the loan. Every time your interest rate is recalculated, your monthly payments may go down as well, since they'll be calculated against a smaller principal balance. If your interest rate goes up substantially, however, your monthly payments could increase, even though your principal balance has decreased.

Should I Prepay My Mortgage?

A common predicament is what to do with extra cash. Should you invest it or use it to prepay your mortgage? You'll need to consider many factors when making your decision. For instance, do you have an investment alternative that will give you a greater yield after taxes than prepaying your mortgage would offer in savings? Perhaps you'd be better off putting your money in a tax-deferred investment vehicle (particularly one where your contributions are matched, as in some employer-sponsored 401(k) plans). Remember, though, that the interest savings you'll obtain by prepaying your mortgage is a certainty; by comparison, the return on an alternative investment may not be a sure thing.

Other factors may also influence your decision. The best time to consider making prepayments on your mortgage would be when:

• You can afford to contribute money on a regular basis

• You have no better investment alternatives of comparable certainty

• You cannot refinance your mortgage to obtain a lower interest rate

• You have no outstanding consumer debts that are charging you high interest that isn't deductible for income tax purposes (e.g., credit card balances)

• You are in the early years of your mortgage, when, given the amortization schedule, the interest charges are highest

• You have sufficient liquid savings (three to six months' worth of living expenses) to cover your needs in the event of an emergency

• You won't need the funds you'll use for mortgage prepayment in the near future for some other purpose, such as paying for college or caring for an aging parent

• You intend to remain in your home for at least the next few years

Particularly against a fixed rate mortgage, regular contributions toward prepayment can dramatically shorten the life of the loan and result in savings on the total interest you're charged. As always, consult your financial planner before make any large financial moves. We’re here to look at the big picture and help make the best decisions for you particular situations.

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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Raymond James Financial Services, Inc. and your Raymond James Financial Advisor 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 Raymond James Bank employee for your residential mortgage lending needs.

How to Get on the Same Financial Page

Contributed by: Laurie Renchik, CFP®, MBA

If I told you that over 40% of couples don’t know how much their partner earns, would you believe it? The Couples Retirement Survey recently published by Fidelity Investments revealed that this statistic is in fact true. My first thought was, “how can this be” and a close second was “what’s the best way for folks falling in the 40% to get in sync financially?”   

Here are 5 straightforward questions to help get the conversation started.

Getting to the answers may not be easy especially if there is no centralized management in the household. Ready – set – go!

1. Do we have any financial secrets? Talk about debt, obligations, past mistakes and what you learned. Are you a spender or a saver? Develop a shared vision for the future.

2. How much do we earn? Include bonuses in your discussion and consider your future career goals and earning potential as well. 

3. What’s our budget? Do you know your cost of living? Is it above your means or below? Create and maintain a budget together.

4. What do we own and what do we owe? Take an inventory or your collective assets and liabilities; property, insurance policies, bank and retirement accounts—anything that involves money.

5. How much are we saving for retirement and where are the accounts? Keep track of your 401(k)s, including those from previous jobs; IRA’s and other accounts dedicated to retirement savings. How much are you contributing and whose name is on each?

The preceding five questions are conversation starters. Want to get started? Set a date to talk money using these questions as a starting point. Compile all of your account numbers and passwords in a secure place for easy reference and share with your partner. Schedule time with your financial planner to review your progress and strategize for a more complete understanding of your financial status as a couple which is crucial to planning, budgeting and saving toward future goals.

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 is a member of the Leadership Oakland Alumni Association and is a frequent contributor to Money Centered.

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

Webinar In Review: Post Election Update & Year End Planning Opportunities

Contributed by: Center for Financial Planning, Inc.®

The Center's most popular webinar of 2016 was the Post-Election Update and Year End Planning Opportunity presentation. Melissa Joy, CFP®, and Nick Defenthaler, CFP®, break down what President Trump's win may mean for financial markets. They also review areas of financial planning including retirement, taxes, and investments for year-end financial planning opportunities.

Catch a replay of the webinar below. Also, we have a companion year-end planning guide available along with a year-end planning worksheet.

Center for Financial Planning, Inc. is a Registered Investment Advisor and independent of Raymond James Financial Services. Securities offered through Raymond James Fianncial Services, Inc., Member FINRA/SIPC.

Why You Should Have a Roadmap for Your Aging Years

Contributed by: Sandra Adams, CFP®, CeFT™

I was asked to speak on a panel of professionals recently on the topic of “11th Hour Planning,” which is essentially planning steps that should be taken when a person nears the end-of-life. Much of the discussion revolved around the vast differences in the resulting situations when a client has planned ahead for their aging years versus when they have not. It was certainly the consensus of the professionals on the panel that those clients who plan in advance have a much more pleasant experience overall, their families are generally less stressed and panicked, and, more often, there are better financial results.

What, might you ask, is involved in “planning for your aging years?” I am referring to planning that goes beyond traditional retirement planning, where we are talking about cash flow projections and making sure your money will last as long (or longer) than you will. The financial aspect is an important piece, and as we discuss what I call the Roadmap for your Aging Years, the financial piece will focus largely on how to pay for funding during the later years of your retirement. We hope that those later years continue to be filled with travel, hobbies, and fun, but they could involve expenses focused on healthcare and long term care.

The Roadmap for your Aging Years covers the following topics:

• Housing

• Care (Where will you receive Care/Whowill Care for you)

• Family

• Legacy

• Financials

Within the context of the above topics, you design your plan by exploring the Challenges you see yourself facing as you age, the Alternatives (i.e. solutions) you have for facing those challenges, the Resources you may have at your disposal for facing those challenges, and ultimately envisioning the Experience you would like to have as you age. We call this the C.A.R.E. planning method that was developed by Dan Taylor, author of The Parent Care Conversation. Ideally, you design your Roadmap with the guidance of a professional (your financial planner can help) and in collaboration with your family, so that everyone is on board and part of the plan from the beginning.

The 11th hour can come for any of us at any time, but for most of us comes later in life. Planning ahead can make end-of-life a less stressful experience if there is a plan in place.  If you do not yet have a Roadmap for Your Aging Years, contact your financial planner today to start the conversation.

Sandra Adams, CFP® , CeFT™ is a Partner and Financial Planner at Center for Financial Planning, Inc.® Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. 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.

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The opinions expressed are those of Sandra Adams and are not necessarily those of RJFS or Raymond James. Raymond James Financial Services, Inc. and its advisors do not provide advice on tax or legal issues, these matters should be discussed with the appropriate professional. Raymond James is not affiliated with nor does it endorse Dan Taylor.

Four Considerations for Year End Tax Planning

Contributed by: Nick Defenthaler, CFP®

With the end of the year fast approaching, end of year tax planning is top of mind for many clients. At The Center, we are proactive throughout the entire year when it comes to evaluating a client’s current and projected tax situation but now is typically the time most people really start thinking about it. Let’s be honest, how many of us feel like we don’t pay ENOUGH tax? Most clients want to lower their tax bill and be as efficient with their dollars as possible.

Here is a brief list of items we bring up with clients that could ultimately lead to lowering one’s tax bill for the year:

1. Are you currently maximizing your company retirement account (401k, 403b, Simple IRA, SEP-IRA, etc.)?

   • These plans allow for the largest contributions and are deductible against income.

     • In our eyes, this is often times the most favorable way to help reduce taxes because it also goes towards funding your retirement goals! 

2. How are you making charitable donations? 

   • Consider gifting appreciated securities to charity instead of cash if you have an after-tax investment account with appreciated positions. By doing so, you receive a full tax-deduction on the value of the security gifted to the charity and you also avoid paying capital gains tax – a pretty good deal if you ask me! 

     • Donor Advised Funds are a great way to facilitate this transfer and are becoming increasingly popular lately because of the ease of use and flexibility they provided for those who are charitably inclined.

   • If you’re over the age of 70 ½ and own a Traditional IRA, taking advantage of the now permanent Qualified Charitable Distribution (QCD) could be a great option as well. 

3. Should I be contributing to an IRA? If so, should I put money in a Traditional or Roth?

   • As I always say, in financial planning, there is never a “one size fits all” answer – it really depends on your income and your current and projected tax bracket

     • Keep in mind, not all IRA contributions are deductible, your income and availability to contribute to a company sponsored retirement plan plays a major role.

     • If your current tax bracket is lower than your projected tax bracket in the future, it more than likely makes sense to invest within a Roth IRA, however, as mentioned, everyone’s situation is different and you should consult with your advisor before making a contribution. 

4. Do you have access to a Health Savings Account (HSA) or Flex Spending Account (FSA) at work?

   • These are fantastic tools to help fund medical and dependent care costs in a tax-efficient manner.

     • HSAs can only be used, however, if you are covered under a high-deductible health plan and FSAs are “use it or lose it” plans, meaning money contributed into the account is lost if it’s not used throughout the year. 

This is a busy time of year for everyone. Between holiday shopping, traveling, spending time with family, completing year-end tasks at work, taxes are often times lost in the shuffle.  We encourage you to keep your eyes open for our year-end planning letter you will be receiving within the next few weeks which will be a helpful guide on the items mentioned in this blog as well as other items we feel you should be keeping on your radar.

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

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Please include the following to all of the above: Please include: The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James. 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. Investments mentioned may not be suitable for all investors. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Social Security Changes You Need to Know

Contributed by: Kali Hassinger, CFP®

The Social Security Administration announced on October 18th that the Cost of Living Adjustment for 2017 will be 0.3 percent. This announcement comes after 2016, when Social Security provided no COLA benefit. For many Social Security recipients, however, this minimal increase will be negated by the expected rise in Medicare Part B premiums, which are usually deducted directly from Social Security payments. For those subject to the “hold harmless” provision, the Medicare Part B premiums cannot increase by more than the COLA. Those not covered by that provision, however, could be subject to a larger premium increase. The specific Medicare changes will be announced later this year.

The Social Security Administration will also increase the wage ceiling subject to payroll taxes to $127,200 in 2017 (previously capped at $118,500). This means that the first $127,200 earned by any taxpayer will be taxed at 12.4% (6.2% is paid by the Employee and 6.2% is paid by the Employer). Any earnings above $127,200 won’t be subject to the OASDI (Old Age, Survivor and Disability Insurance) tax. The Retirement Earnings Test (concerning any wages earned while collecting Social Security prior to Full Retirement Age), also received a slight boost. Those receiving benefits prior to Full Retirement Age can now earn up to $16,920/year before Social Security will start to withhold benefits. If you have any questions about how these changes affect you and your family, please feel free to give us a call!

Kali Hassinger, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.®

Will Social Security be Around When I Retire?

Contributed by: Matt Trujillo, CFP®

If you're retired or close to retiring, then you've probably got nothing to worry about—your Social Security benefits will likely be paid to you in the amount you've planned on (at least that's what most of the politicians say). But what about the rest of us?

Watching the news, listening to the radio, or reading the newspaper, you've probably come across story after story on the health of Social Security. Depending on the actuarial assumptions used and the political slant, Social Security has been described as everything from a program in need of some adjustments to one in crisis requiring immediate and drastic reform.

Obviously, the underlying assumptions used can affect one's perception of the solvency of Social Security, but it's clear some action needs to be taken. Even experts disagree, however, on the best remedy. So let's take a look at what we do know.

According to the Social Security Administration (SSA), over 64 million Americans currently collect some sort of Social Security retirement, disability, or death benefit. Social Security is a pay-as-you-go system, with today's workers paying the benefits for today's retirees.

How much do today's workers’ pay? Well, the first $118,500 (in 2016) of an individual's annual wages is subject to a Social Security payroll tax, with half being paid by the employee and half by the employer (self-employed individuals pay all of it). Payroll taxes collected are put into the Social Security trust funds and invested in securities guaranteed by the federal government. The funds are then used to pay out current benefits.

The amount of your retirement benefit is based on your average earnings over your working career. Higher lifetime earnings result in higher benefits, so if you have some years of no earnings or low earnings, your benefit amount may be lower than if you had worked steadily.

Your age at the time you start receiving benefits also affects your benefit amount. Currently, the full retirement age is in the process of rising to 67 in two-month increments, as shown in the following chart:

What Is Your Full Retirement Age?

You can begin receiving Social Security benefits before your full retirement age, as early as age 62. If you retire early, however, your Social Security benefit will be less than if you had waited until your full retirement age to begin receiving benefits. For example, if your full retirement age is 67, you'll receive about 30% less if you retire at age 62 than if you wait until age 67 to retire. This reduction is permanent—you won't be eligible for a benefit increase once you reach full retirement age.

Even those on opposite sides of the political spectrum can agree that demographic factors are exacerbating Social Security's problems—namely, life expectancy is increasing and the birth rate is decreasing. This means that over time, fewer workers will have to support more retirees.

According to the SSA, Social Security is already paying out more money than it takes in. By drawing on the Social Security trust fund, however, the SSA estimates that Social Security should be able to pay 100% of scheduled benefits until fund reserves are depleted in 2034. Once the trust fund reserves are depleted, payroll tax revenue alone should still be sufficient to pay about 77% of scheduled benefits. This means that in 2034, if no changes are made, beneficiaries may receive a benefit that is about 21% less than expected.

So the question still remains, with trouble looming on the horizon, how do we fix the system?  While no one can say for sure what will happen (and the political process is sure to be contentious), here are some solutions that have been proposed to help keep Social Security solvent for many years to come:

• Allow individuals to invest some of their current Social Security taxes in "personal retirement accounts"

• Raise the current payroll tax

• Raise the current ceiling on wages currently subject to the payroll tax

• Raise the full retirement age beyond age 67

• Reduce future benefits, especially for wealthy retirees

• Change the benefit formula that is used to calculate benefits

• Change how the annual cost-of-living adjustment for benefits is calculated

The financial outlook for Social Security depends on a number of demographic and economic assumptions that can change over time, so any action that might be taken and who might be affected are still unclear. No matter what the future holds for Social Security, your financial future is still in your hands. Focus on saving as much for retirement as possible, and consider various income scenarios when planning for retirement.

It's also important to understand your benefits, and what you can expect to receive from Social Security based on current law. You can find this information on your Social Security Statement, which you can access online at the Social Security website, socialsecurity.gov by signing up for a “my Social Security” account. Your statement contains a detailed record of your earnings and includes retirement, disability, and survivor's benefit estimates that are based on your actual earnings and projections of future earnings. For more details on how to sign up for an online account see our previous blog post for step by step instructions.

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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(Source: Fast Facts & Figures about Social Security, 2015)

(Source: 2015 OASDI Trustees Report)

This 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 Matthew Trujillo and are not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor the third party website listed 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.