Capital Gains Distributions from Mutual Funds

Contributed by: Kali Hassinger, CFP®

Each November and December, investment companies must pay out their capital gains distributions for the year. If you hold these funds within a taxable brokerage account, distributions are taxable events, resulting from the sale of securities throughout the year.

Investors often meet these pay-outs with minimal enthusiasm, however, because there is no immediate economic gain from the distributions. That may seem counterintuitive, given that we refer to these distributions as capital gains! 

When capital gains distributions from mutual funds are paid to investors, that fund’s net asset value is reduced by the amount of the distribution.

This reduction occurs because the fund share price, or net asset value, is calculated by determining the total value of all stocks, bonds, and cash held in the fund’s portfolio, and then dividing the total by the number of outstanding shares. The total value of the portfolio is reduced after a distribution, so the price of the fund drops by the amount of the distribution.

In most situations we recommend that our clients reinvest mutual fund capital gain distributions,  given this is right for the investor's individual financial circumstances. 

This strategy allows you to purchase additional shares of the mutual fund while the price is reduced. Although your account value will not change, because the distribution reduces the fund’s net asset value, you have more shares in the future. By incurring the capital gain, you are also increasing your cost basis in the investment. 

As a counter point, If you rely on the dividend for income it might make more sense to take the mutual fund dividend as cash and not reinvest.

If you own mutual funds in a taxable account and expect the distributions to be large, you should work with your financial planner and tax advisor to weigh the advantages and disadvantages of owning the investment and ultimately incurring the capital gain.

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

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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. Investments mentioned may not be suitable for all investors. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Raymond James and its advisors do not provide tax advice. You should discuss any tax matters with the appropriate professional. Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Every type of investment, including mutual funds, involves risk. Risk refers to the possibility that you will lose money (both principal and any earnings) or fail to make money on an investment. Changing market conditions can create fluctuations in the value of a mutual fund investment. In addition, there are fees and expenses associated with investing in mutual funds that do not usually occur when purchasing individual securities directly.

Planning for Retirement when Unexpected Events Occur

Contributed by: Sandra Adams, CFP®

This year, more than ever, I have found myself meeting with clients in the prime of their retirement planning years who have experienced some unexpected life events – events that might not normally be part of the retirement planning process.

What am I speaking of? I have had young pre-retirees experience terminal illnesses or become caregivers for spouses or family members, experience the loss of a spouse, experience divorce after a very long marriage but before retirement, and most recently, I have had some lose their long-time jobs with recent layoffs at companies like General Motors.

Losing a job is just one of many unexpected, pre-retirement events that can potentially throw savings goals and plans off course. Some may add that a very negative or extended stock market decline can also hinder retirement and, in most cases, is unexpected. As the old saying goes, you should always “expect the unexpected”.

What can you or should you do now to make sure that you can keep your retirement strategy on track, even if one of these unexpected events comes creeping into your life?

1. Plan Early and Update Often. Although many folks don’t like to think about it, start digging into how much you much income you will need in retirement. If your income projection is significantly less than you are bringing home now, what will change in retirement to make you need less income? Will you have significantly less debt? Will the activities you plan to do in retirement cost significantly less? Be realistic. Take stock on a regular basis of where you are towards your savings goals versus your needs, so that you stay on track and are able to update your strategy if you are not moving toward those goals.

2. Save, Save, and Then Save a Little More. When times are good, and while you can, stretch yourself to meet your savings goals. There is a delicate balance between spending to enjoy your life now and setting aside funds for your retirement. It makes sense to set significant retirement savings goals (especially if you didn’t start as early as you wanted to). And making it a habit to save more – even one percent each year – will help you reach or exceed your retirement savings goals. Other ways to get ahead can include allocating a portion of your annual raise or any bonus you might receive to retirement savings. Aim to save, save, and save a little more to put yourself in a position to absorb the unexpected.

3. Take Control of What You Can Control. While you cannot control what happens to the markets, your job (for the most part), or your health (other than eating right and exercising), there are things you can control. You can control your savings rate: You can be disciplined about saving, save regularly and continue to save more over time. You can save in the right places: You can attempt to max out your savings within your employer retirement savings plans on a tax-deferred basis, you can have a liquid cash emergency reserve fund of at least 3-6 months of expenses “in case” something unexpected comes up, and you can have an after-tax investment account and/or ROTH IRA (if your income tax bracket allows) in case a life event causes an earlier-than-expected retirement or a temporary unemployment situation. You can keep debt under control and plan to have as much debt paid off as possible going into retirement. Reducing fixed costs during retirement allows you to use your cash flow for wants versus needs, and provides you with greater flexibility if an unexpected event occurs.

4. Put Protections and Guardrails in Place. Planners like to call this “risk management”. We are talking about protection for contingencies, so they don’t sink your retirement ship. Having a reserve or emergency savings account is a good first step. But what else might you put in place? It’s important to have the right insurances – disability insurance, life insurance, and long-term care insurance. Continuing education and networking are also important protections – WHAT? Keep up your credentials and training, so that if your current job is phased out, you are prepared to quickly jump back on the horse and become re-employed. Many folks become complacent, and if something unexpected happens with their company or their role, are completely unprepared to seek new employment. Unfortunately, the U.S. Government Accountability Office estimates that older workers wait more than 40 weeks to become re-employed, so being prepared can make all of the difference.

5. Seek Good Advice. This is not a time to DIY. Way too many things can go wrong when it comes to a potential early retirement transition. Seeking the advice of a trained professional can help you find the best course of action. In most cases, assessing your specific situation and making the best possible decisions, especially when it comes to things like pensions, Social Security, and which accounts to tap for retirement income, can make a huge difference.

“The more things change, the more things stay the same” – Jean-Baptiste Alphonse Karr

When we do an initial financial plan for a client, we like to say that something will very likely change when the client walks out the door, and we will need to adjust the plan. Life happens. A financial plan must be fluid and flexible. And so must you, as someone who is planning for retirement. Unexpected events that happen just as you are reaching for the golden doorknob to retirement can be frustrating. But if you have expected the unexpected, planned for the contingencies, and have some spending flexibility built into your plan, you will be on your way to a long and successful retirement.

Sandra Adams, CFP®, CeFT™, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She specializes in Elder Care Financial Planning and serves as a trusted source for national publications, including The Wall Street Journal, Research Magazine, and Journal of Financial Planning.

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Opinions expressed in the attached article are those of Sandra D. Adams and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. 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. 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 ½, may be subject to a 10% federal tax penalty. Roth 401(k) plans are long-term retirement savings vehicles. Like Traditional IRAs, contributions limits apply to Roth IRAs. In addition, with a Roth IRA, your allowable contribution may be reduced or eliminated if your annual income exceeds certain limits. Contributions to a Roth IRA are never tax deductible, but if certain conditions are met, distributions will be completely income tax free. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it authorizes use of by individuals who successfully complete CFP Board's initial and ongoing certification requirements.

Reducing Your Medicare Premium Surcharges

Contributed by: Robert Ingram, CFP®

For many clients with incomes above a certain level, Medicare premiums may be higher for Part B and Part D. As a Medicare recipient’s income exceeds specific thresholds, they may pay adjusted amounts in addition to the baseline Part B and/or Part D premiums.

Now, what if you have been paying these Medicare surcharges, but you experience a drop in your income? Can you also get your Medicare surcharge reduced? The answer is, possibly yes.

If you experience a change to your income because of certain life events, you can request that the Social Security Administration (SSA) review your situation and use your more recent income to determine what premium adjustment (if any) should apply. Examples of these life-changing events include:

• Work stoppage or work reduction

• Death of a spouse

• Marriage

• Loss of pension income

• Divorce or Annulment

• Loss of income-producing property

You might be asking yourself, “Why do I have to request this? Aren’t Medicare premiums automatically adjusted according to my income?”. A big reason for making the change request when you experience a qualifying change in income has to do with how and when the SSA measures your income.

Income-Related Monthly Adjustment Amount (IRMAA)

To determine whether your income makes you subject to an Income-Related Monthly Adjustment Amount (IRMAA) to the regular Medicare Part B or Part D premiums for the current year, the SSA looks at the income you reported to the IRS for the previous two years. This means that your Modified Adjusted Gross Income (Adjusted Gross Income with tax-exempt income added back) reported for 2017 determines your Medicare premiums for 2019. 

For individuals paying Part B premiums, for example, the standard premium in 2019 is $135.50 per month. However, the following table illustrates what you would pay in 2019 for Part B depending on your 2017 income.

For a couple who filed a joint return with income above $170,000 and up to $214,000 in 2017, each spouse paying for Medicare Part B may pay an additional $54.10 per month above the standard premium (a total of $189.60 monthly) in 2019. A couple with income that falls between $320,000 and $750,000 (or an individual filing single with income between $160,000 and $500,000) in 2017 could each pay an additional $297.90 above the standard premium, for a total of $433.40 per month in 2019.

If an individual (or couple) experienced a drop in income for 2019, it might normally take until 2021 for the Medicare premiums to reflect any reduction based on the 2019 income. Let’s say the couple who had reported income between $320,000 and $750,000 retires in 2019 and sees their income drop to an expected $165,000. The expected income falling within the $170,000 threshold could mean a difference of $297.90 per month (each!) in Medicare Part B premiums (from $433.40 to $135.50).

If a qualifying life event caused the drop in expected income, then filing a request with the SSA could mean a more immediate change in Medicare premiums, rather than waiting for the savings until 2021.

How do you request the premium surcharge reduction? 

If you think you have experienced a reduction in income due to one or more of the qualifying events, make your request to the Social Security Administration by submitting the Medicare Income-Related Monthly Adjustment Amount –Life-Changing Event form (form SSA-44).

Along with this form, you will also provide supporting documentation for your Modified Adjusted Gross Income and your life-changing event (see form SSA-44 instructions). Examples of supporting documentation may include items such as:

• Federal income tax return

• Signed statements from employers, pay stubs

• Certified documents for transfers of a business

• Marriage certificate

• Certified death certificates

• Letter or statement from pension administrator explaining a reduction/termination

For other disagreements with an IRMAA determination, you have the right to appeal. You can file an appeal online (socialsecurity.gov/disability/appeal) and select “Request Non-Medical Reconsideration”, file a Request for Reconsideration form, or contact your local Social Security office.

If you disagree with an IRMAA determination because your reported Modified Adjusted Gross Income is incorrect, you need to address the correction first with the IRS.

Because these Medicare surcharges are determined each year, you have opportunities to do more proactive income and tax planning leading up to and after Medicare enrollment. Employing different strategies that help control your Adjusted Gross Income could also help control potential Medicare premiums in future years. If you have questions about your particular situation, feel free to reach out to us!

• Want more information about Medicare? Check out The Center’s Medicare FAQ

• Looking for financial strategies and tax tips for year-end? Check out this webinar.

Robert Ingram, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® With more than 15 years of industry experience, he is a trusted source for local media outlets and frequent contributor to The Center’s “Money Centered” blog.

What You Need to Know Before You Dip Into Retirement Accounts

Contributed by: Timothy Wyman, CFP®, JD

In general, a 10% penalty applies when you access your IRA, 401(k), and other retirement accounts before age 59. The word “penalty” seems harsh, so the Internal Revenue Code classifies it as an excise tax on early distributions. Moreover, the 10% excise tax is in addition to the ordinary income taxes owed on distributions from pretax accounts. Therefore, the general rule of keeping your hands off these funds until at least age 59.5 is a good one. 

However, what if you really need the money?

Fortunately, there are exceptions to the 10% penalty rule. A complete list may be found here.

For example, “first-time” homebuyers may take out up to $10,000 to help buy or build their primary residence. A similar exception applies to higher education costs for you, your spouse, or children. These two apply for IRAs, but not 401(k) accounts.

Another exemption for medical expenses paid on behalf of yourself, your spouse, or a dependent applies only on the amount that exceeds 10% of your adjusted gross income. Let’s assume Bob and Mary are facing significant ($170,000) medical expenses for their son, Bob Jr. The expenses are not covered by their regular health insurance plan, so the couple withdraws $170,000 from Bob’s IRA. In addition to pension and social security, this distribution increases their Adjusted Gross Income to $250,000, so Bob and Mary will pay about $2,500, the 10% excise tax on approximately $25,000. 

It is best to avoid early distributions from your IRA and 401(k) accounts; after all, the money is meant for your retirement years.

However, in the event there are no other alternatives, you may be able to avoid the 10% penalty….er, excise tax.

Timothy Wyman, CFP®, JD, is the Managing Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® For the second consecutive year, in 2019 Forbes included Tim in its Best-In-State Wealth Advisors List in Michigan¹. He was also named a 2018 Financial Times 400 Top Financial Advisor²

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¹ The Forbes ranking of Best-In-State Wealth Advisors, developed by SHOOK Research is based on an algorithm of qualitative criteria and quantitative data. Those advisors that are considered have a minimum of 7 years of experience, and the algorithm weighs factors like revenue trends, AUM, compliance records, industry experience and those that encompass best practices in their practices and approach to working with clients. Portfolio performance is not a criteria due to varying client objectives and lack of audited data. Out of 29,334 advisors nominated by their firms, 3,477 received the award. This ranking is not indicative of advisor's future performance, is not an endorsement, and may not be representative of individual clients' experience. Neither Raymond James nor any of its Financial Advisors or RIA firms pay a fee in exchange for this award/rating. Raymond James is not affiliated with Forbes or Shook Research, LLC. 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. Any opinions are those of Center for Financial Planning, Inc.® and not necessarily those of Raymond James.

² The FT 400 was developed in collaboration with Ignites Research, a subsidiary of the FT that provides special-ized content on asset management. To qualify for the list, advisers had to have 10 years of experience and at least $300 million in assets under management (AUM) and no more than 60% of the AUM with institutional clients. The FT reaches out to some of the largest brokerages in the U.S. and asks them to provide a list of advisors who meet the minimum criteria outlined above. These advisors are then invited to apply for the ranking. Only advisors who submit an online application can be considered for the ranking. In 2018, roughly 880 applications were re-ceived and 400 were selected to the final list (45.5%). The 400 qualified advisers were then scored on six attrib-utes: AUM, AUM growth rate, compliance record, years of experience, industry certifications, and online accessibil-ity. AUM is the top factor, accounting for roughly 60-70 percent of the applicant's score. Additionally, to provide a diversity of advisors, the FT placed a cap on the number of advisors from any one state that's roughly correlated to the distribution of millionaires across the U.S. The ranking may not be representative of any one client's experi-ence, is not an endorsement, and is not indicative of advisor's future performance. Neither Raymond James nor any of its Financial Advisors pay a fee in exchange for this award/rating. The FT is not affiliated with Raymond James.

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

Using the Bucket Strategy to Meet Retirement Cash Needs

Contributed by: Josh Bitel, CFP®

If you are in or close to retirement, you are probably concerned about the recent market uncertainty. You may be wondering how your investment portfolio can be structured to provide the income you need, without putting the portfolio in a vulnerable position. 

The Bucket Strategy (not to be confused with the “Bucket List”) describes a cash distribution method to provide you with income from your portfolio during any kind of market cycle. 

Consider that we have four buckets, and that every investment within your portfolio fits into one of these buckets. This strategy can provide cash needed in retirement, even if equity markets drop or stay low for extended periods of time. 

Bucket 1:

The first bucket is designated for cash needs of one year or less. This bucket contains cash and short-term securities that mature in less than one year to support your needs for the next 12 months. 

Bucket 2:

The second bucket starts generating cash flow in the 13-36 month range, or years two and three. This bucket contains short-term bonds and fixed-income type securities that have a small amount of volatility, but are primarily designed for preservation of capital. The holdings in this bucket will pass on interest income that ultimately flows into the first bucket. 

Bucket 3:

The third bucket is structured to generate cash flow needs in years four and five, and primarily contains strategic income and higher yielding bonds (lower quality, longer maturing and international type bonds). However, they do pass on interest income that flows into the first bucket, much like bucket #2. 

Bucket 4:

The fourth, and last, bucket is made up of equities (stock investments) and other assets that have higher volatility like gold, real estate, commodities, etc. Many of these assets will produce dividends to help replenish the first bucket, if the dividends are set to pay in cash and not reinvest. Ideally, when the market is volatile, as we’ve been seeing lately, this bucket is left alone to ride out the market cycle and replenish as we recover.

The Bucket Strategy is designed to provide enough cash flow to get through roughly a 6- or 7-year period without needing to liquidate the stock portion of the portfolio. This should provide you with the confidence (and more importantly, cash) needed to enjoy your retirement and start working on your Bucket List! 

Talk to your financial planner to see how the Bucket Strategy might work for you.

Josh Bitel, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.® He conducts financial planning analysis for clients and has a special interest in retirement income analysis.

Can You Change Your Spending Habits in Retirement?

Contributed by: Sandra Adams, CFP®

I recently had some interesting conversations with clients, many of whom have been exceedingly good savers during their entire adult lives. These clients most often grew up in households that modeled frugality and modesty in spending, and they have followed suit. As they plan to enter the ranks of the retired, they find themselves with more saved than they are likely to spend, based on the lifestyle to which they have become accustomed. So now what?

In our conversations about “what could you spend” and “spending on things that would bring value and meaning to their lives,” these clients still struggle in many cases to imagine needing or wanting to spend even a fraction of the excess that they have accumulated. Why? I like to say it is because changing your spending “stripes” later in life is just hard to do.

When clients have learned to live a certain way with money, making significant changes may simply not be comfortable. Clients have shared stories about the challenge of hunting down the best clearance deals, something they do to compete with friends, or the fun in finding the best travel deals, even though they can afford to pay top dollar. And while circumstances may dictate how they spend their wealth in the future, these clients wouldn’t spend it now any other way. They have built the lives they want and enjoy. 

On the flip side, we work with clients who have developed lifestyles that are extremely “high-end” and keeping up with that lifestyle in retirement can take an extreme amount of saving and planning, particularly with longevity in the mix. Conversations with these clients about what expenses can be cut in retirement can be difficult. Even though some expenses go away (mortgages get paid, etc.), added expenses like travel, hobbies, etc., might come into play, especially in early retirement. Once you have become accustomed to a lifestyle, it is hard to cut back. I have found that many clients, given the choice, will work longer or save more prior to retirement rather than take less retirement income (i.e. cut back on their retirement lifestyle).  

So the answer to the question: Can you change your spending habits in retirement?

Probably not. Habits developed over a lifetime are very difficult to break.

My best suggestion:

Work with a financial advisor earlier rather than later to develop a retirement savings plan that allows you to spend whatever you want for your retirement lifestyle. The earlier you start your plan, the better your chance for success. If you or anyone you know needs assistance with developing a retirement savings plan, contact our Center Planning Team. We are always happy to help.

Sandra Adams, CFP®, CeFT™, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She specializes in Elder Care Financial Planning and serves as a trusted source for national publications, including The Wall Street Journal, Research Magazine, and Journal of Financial Planning.

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Opinions expressed are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. 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. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

Three-Legged Stool Strategy

Contributed by: Timothy Wyman, CFP®, JD

Generating income in retirement is one of the most common financial goals for retirees and soon-to-be retirees. The good news is that you can “recreate your paycheck” in a variety of ways.

Retirement income might be visualized using a “Three-Legged Stool”. The first two sources, or legs, of retirement income are generally Social Security and pensions (although fewer and fewer retirees are covered by a pension these days). The third leg for most retirees will come from personal investments (there is a potential fourth leg – part-time work – but that’s for another day). It is this leg of the stool, the investment leg, that requires preparation, planning, and analysis. The most effective plan for you depends on your individual circumstances, but here are some common methods for your consideration:

1. Dividends and Interest

2. 3–5 Year Income Cushion or Bucket

3. The Annuity Cushion

4. Systematic Withdrawal or Total Return Approach

Dividends & Interest

Usually, a balanced portfolio is constructed so your investment income – dividends and interest – is sufficient to meet your living expenses. Principal is used only for major, discretionary capital purchases. This method is used only when there is sufficient investment capital available to meet your income need, if any, after Social Security and pension.

3-5 Year Income Cushion or Bucket Approach

This method might be appropriate when your investment portfolio is not large enough to generate sufficient dividends and interest. Preferably five (but no less than three) years of your income shortfall is held in lower risk fixed income investments and are available as needed. The remainder of the portfolio is usually in a balanced investments. The Income Cushion or Bucket is periodically replenished. For example, if the stock market is up, liquidate sufficient stock to maintain the 3-5 year cushion. If stock market is down, draw on the fixed income cushion while you anticipate the market recovery. If fixed income is exhausted, review your income requirements, which may lead to at least a temporary reduction in income. 

The Annuity Cushion

This method is very similar to the 3-5 year income cushion. A portion of the fixed income portfolio is placed into a fixed-period, immediate annuity with at least a 5-year income stream. This method might work well when a bridge is needed to a future income stream, such as Social Security or pension. 

Systematic Withdrawal or Total Return Approach

Consider this method if your portfolio does not generate sufficient interest and dividends to meet your income shortfall. Generally speaking, in a balanced, or equity-tilted, portfolio, the income shortfall (after-interest income) is met at least partially from equity withdrawals. Lastly, set a reasonably conservative systematic withdrawal rate, which studies suggest is near 4% of the initial portfolio value, adjusted annually for inflation. 

After helping retirees for the last 30-plus years create workable retirement income, our experience has shown us that many times one of the above methods (and even a combination) can help with re-creating your paycheck in retirement. The key is to provide a strong foundation – or in this case – a sturdy stool. 

Where Did It Go?

Do you ever find that you have too much month at the end of your money? Be honest, in the blink of an eye, extra money seems to vanish. For those still in their earnings years, one of the keys to accumulating wealth, thus achieving your financial objectives, is to stop the disappearing act. Transfer dollars from your monthly cash flow to your net worth statement by adding funds to your savings accounts, taxable investment accounts, and retirement accounts (such as employer sponsored 401k and 403b accounts) and IRAs (Traditional or ROTH). Another smart move is to use funds from your monthly cash flow to pay down debt … which also improves your net worth statement.

Saving money and improving your overall financial position is easier said than done. The truth is that saving money is more than simply a function of dollars and cents; it requires discipline and perseverance. You may have heard about the “paying yourself first” strategy. The most effective way to pay yourself first is to set up automatic savings programs. The 401k (or other employer plan) is the best way to do this – but you can also establish similar automated savings plans with brokerage companies and financial institutions such as banks or credit unions. 

Just as important, be intentional with your spending. Rather than thinking in terms of a budget (which sounds a lot like dieting), think about establishing a “spending plan”. Planning your expenses as best you can will help ensure that you spend money on the things that add value to your life and should help keep your money from mysteriously vanishing at the end of the month.

For a free resource to help track your cash flow, email Timothy.Wyman@CenterFinPlan.com.

Timothy Wyman, CFP®, JD, is the Managing Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® For the second consecutive year, in 2019 Forbes included Tim in its Best-In-State Wealth Advisors List in Michigan¹. He was also named a 2018 Financial Times 400 Top Financial Advisor²

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¹ The Forbes ranking of Best-In-State Wealth Advisors, developed by SHOOK Research is based on an algorithm of qualitative criteria and quantitative data. Those advisors that are considered have a minimum of 7 years of experience, and the algorithm weighs factors like revenue trends, AUM, compliance records, industry experience and those that encompass best practices in their practices and approach to working with clients. Portfolio performance is not a criteria due to varying client objectives and lack of audited data. Out of 29,334 advisors nominated by their firms, 3,477 received the award. This ranking is not indicative of advisor's future performance, is not an endorsement, and may not be representative of individual clients' experience. Neither Raymond James nor any of its Financial Advisors or RIA firms pay a fee in exchange for this award/rating. Raymond James is not affiliated with Forbes or Shook Research, LLC. 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. Any opinions are those of Center for Financial Planning, Inc.® and not necessarily those of Raymond James.

² The FT 400 was developed in collaboration with Ignites Research, a subsidiary of the FT that provides special-ized content on asset management. To qualify for the list, advisers had to have 10 years of experience and at least $300 million in assets under management (AUM) and no more than 60% of the AUM with institutional clients. The FT reaches out to some of the largest brokerages in the U.S. and asks them to provide a list of advisors who meet the minimum criteria outlined above. These advisors are then invited to apply for the ranking. Only advisors who submit an online application can be considered for the ranking. In 2018, roughly 880 applications were re-ceived and 400 were selected to the final list (45.5%). The 400 qualified advisers were then scored on six attrib-utes: AUM, AUM growth rate, compliance record, years of experience, industry certifications, and online accessibil-ity. AUM is the top factor, accounting for roughly 60-70 percent of the applicant's score. Additionally, to provide a diversity of advisors, the FT placed a cap on the number of advisors from any one state that's roughly correlated to the distribution of millionaires across the U.S. The ranking may not be representative of any one client's experi-ence, is not an endorsement, and is not indicative of advisor's future performance. Neither Raymond James nor any of its Financial Advisors pay a fee in exchange for this award/rating. The FT is not affiliated with Raymond James.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Tim Wyman, and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Dividends are not guaranteed and must be authorized by the company's board of directors. Past performance is not indicative of future results. A fixed annuity is a long-term, tax-deferred insurance contract designed for retirement. It allows you to create a fixed stream of income through a process called annuitization and also provides a fixed rate of return based on the terms of the contract. Fixed annuities have limitations. If you decide to take your money out early, you may face fees called surrender charges. Plus, if you're not yet 59½, you may also have to pay an additional 10% tax penalty on top of ordinary income taxes. You should also know that a fixed annuity contains guarantees and protections that are subject to the issuing insurance company's ability to pay for them. 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.

The Power of Working Longer

Contributed by: Nick Defenthaler, CFP®

Saving 1% more towards retirement for the final 10 years of one’s career has the same impact as working one month longer.

Yes, you read that correctly. Saving 15% in your 401k instead of 14% for the 10 years leading up to retirement has the same impact as delaying retirement by only 30 days! Hard to believe but that’s exactly what the National Bureau of Economic Research found in their 2018 research paper titled “The Power of Working Longer”. To make your eyes pop even more, consider that saving 1% more for 30 years was shown to have the same impact as working 3-4 months longer. Wow!

If you’re like me, you find these statistics absolutely incredible. This clearly highlights the impact that working longer has on your retirement plan. As we’re getting very close to retirement (usually five years or less), most of us won’t be able to make a meaningful impact on our 25-35 year retirement horizon by increasing our savings rate. At this point in our careers, it just doesn’t move the needle the way you might think it would.  

Without question, the best way you can increase the probability of success for your retirement income strategy in the latter stages of your career is to work longer. But when I say “working longer”, I don’t necessarily mean working longer on a full-time basis.  

A trend I am seeing more and more, one that excites me, is a concept known as “phased retirement”. This essentially means that you’re easing into retirement and not going from working full-time to quitting work cold turkey. We as humans tend to view retirement as “all on” or “all off”. If you ask me, that’s the wrong approach. We need to start thinking of part-time employment as part of an overall financial game plan.  

Let’s look at a real-life client I recently encountered (whose name was changed to protect identity):

Mary, age 62, came in for her annual planning meeting and shared with me that the stress of her well-paying sales position was completely wearing her down. At this stage in her life and career, she no longer had the energy for the 50-hour work weeks and frequent travel. Now a grandmother of three, she wanted to spend more time with her kids and grandkids but feared that retiring at 62, compared with our plan of 65, would impact her long-term financial picture.  

The more we talked, the more clear it became that Mary did not want to completely stop working; she just could not take the full-time grind anymore. When we put pen to paper, we concluded that she could still achieve her desired retirement income goal by working part-time for the next three years (to get her to Medicare age). Her income would drop to a level that would not allow her to save at all for retirement, but believe it or not, that had no meaningful impact on her long-term plan. Earning enough money to cover virtually all of her living expenses and not dipping into her portfolio until age 65 was the key factor.

Having conversations around your desired retirement age is obviously a critical component to your overall planning. However, a sometimes overlooked question is, “WHY do you want to retire at that age?”. As a society, we do a good job of creating social norms in many aspects of life, and retirement is not immune to this. I’ve actually heard several clients respond to this question with, “Because that’s the age you’re supposed to retire!”. When I hear this, I get nervous, because these folks usually make it three months into the retirement transition, only to find they are not truly happy. They found purpose in their careers, they enjoyed the social aspects of their jobs, and they loved keeping busy, whether or not they realized it at the time.

The bottom line is this: Don’t discount the effectiveness of easing into full retirement, both from a financial and lifestyle standpoint.

Some clients have found a great deal of happiness during this stage of life by working less, trying a different career, or even starting a small business they’ve dreamed about for years. The possibilities are endless. Have an open mind and find the balance that works for you, that’s what it’s all about.

Nick Defenthaler, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® He contributed to a PBS documentary on the importance of saving for retirement and has been a trusted source for national media outlets, including CNBC, MSN Money, Financial Planning Magazine, and OnWallStreet.com.

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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. Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Keep in mind that there is no assurance that any strategy will ultimately be successful or profitable nor protect against a loss.

Monitor Your Savings Bonds Through Treasury Direct

Contributed by: Jeanette LoPiccolo, CRPC®

Throughout the years, savings bonds have been popular gifts. Before college savings accounts became so popular, grandparents sometimes gave bonds for birthdays, encouraging their grandchildren to save for the future. Could you have any savings bonds lying around in files or locked up in a safety deposit box?

If you have bonds that you have not looked at in years, now may be the right time to bring them into the digital age with Treasury Direct.

Recently, the U.S. Treasury stopped issuing paper bonds to save costs. Instead, you can create an online account and monitor your bonds as you would an investment account. If you use Raymond James Client Access, you can create an external link to your savings bonds account. Then, you and your financial planner can track your bonds.

In addition to preventing your bonds from being forgotten (or tossed away in a Marie Kondo cleaning frenzy), here are a few good reasons to try the online account:

• You can cash your electronic bonds, in full or in part, at any time – 24 hours a day, seven days a week – and move the funds to a savings or checking account that you specify. You don’t need to go to a financial institution, and there are no restrictions on the number of bonds or the value that can be cashed, once minimum requirements are met.

• Online holdings and their current values can be viewed at any time.

• When electronic bonds reach final maturity and are no longer earning interest, they will be automatically paid to a non-interest bearing account.

The process is fairly simple. Step 1 is to locate your savings bonds. Then visit https://www.treasurydirect.gov/indiv/research/indepth/smartexchangeinfo.htm and scroll down to “How Do You Use SmartExchange?”. Follow the prompts and get started!

Jeanette LoPiccolo, CFP®, CRPC®, is an Associate Financial Planner at Center for Financial Planning, Inc.® She is a 2018 Raymond James Outstanding Branch Professional, one of three recognized nationwide.

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Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.

Efficient Tax Planning is Year-Round Work

Contributed by: Josh Bitel

While many of us focus this time of year on getting our tax returns done, year-round tax planning excites us number geeks! We really can’t control taxes, right? Well, not exactly. 

Of course, we can’t change the tax rates set by our government, but we can work collaboratively on financial decisions throughout the year that help ensure the greatest possible level of tax efficiency. Let’s look at a few examples:

EXAMPLE #1: FORD STOCK

Say you have a stock position in Ford purchased at $3 a share when “the sky was falling”. Because its worth has greatly increased, your unrealized gain amounts to $20,000. The stock has done so well, you might not want to part with it. You also don’t want to pay tax on that nice $20,000 gain. 

So consider this: If your taxable income falls within the 12% marginal tax bracket, chances are you would pay very little or possibly ZERO tax on the $20,000 gain. You could lock in that nice profit and potentially improve the overall allocation of your portfolio. 

This is a hypothetical example for illustration purpose only and does not represent an actual investment.

EXAMPLE #2: ROTH CONVERSION

Let’s take a look at another real-life example we often see. What if your income this year takes a significant drop, through a job loss, retirement, job change, or other move? Be sure to keep us in the loop, so that we can help you make pro-active tax planning decisions.

In this situation, a Roth IRA conversion could make a lot of sense if your income will fall into a lower tax bracket that you most likely will not see again. You would pay tax at a much lower rate, and moving Traditional IRA dollars into a Roth IRA for potential future, tax-free growth could create a monumental planning opportunity.   

SHARING YOUR TAX RETURNS

These are just two examples of the many factors we examine in your financial plan to make sure your dollars are efficiently taxed. You can help us do this work. Sharing your tax return early gives us a much better chance throughout the year to uncover strategies that may make sense for you and your family. 

Many of our clients have now signed a disclosure form allowing us to directly contact their CPA or tax professional to obtain copies of returns and to discuss tax-planning ideas. This saves you, as the client, the hassle of making copies or e-mailing your return – and we are all about making your life easier! 

Josh Bitel is a Client Service Associate at Center for Financial Planning, Inc.® He conducts financial planning analysis for clients and has a special interest in retirement income analysis.

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While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. 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.