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.

Women & Investing: How to Better Engage With Your Finances

Contributed by: Laurie Renchik, CFP®, MBA

REPOST

Working with women over the last 20 years has taught me that we can’t help our families, our communities, or the world if we don’t understand how money works. I have seen firsthand that when women are engaged in financial decisions, as both professionals and as consumers, we can tip the scales and improve all women’s ability to lead and understand the influence of money on financial independence.

If you are a busy, multi-tasking woman, the first step is usually the most difficult. Once you decide to pull a financial plan together, the pieces start to fall nicely into place. Having trouble with those first steps?

Practical advice to get you started:

• Give your personal financial life the attention it needs. If you feel like life is whizzing by, take time to step back and ask, “Am I on the right track?”. Implementing a financial plan serves as a point of reference for staying on track.

• If your goals change along the way, make timely adjustments. You probably have at least a vague picture in your head of what you want in the future. The beauty of the financial planning process is that it makes conversations happen, especially with the help of a financial planner who can serve as a thinking partner.

• Pull a team together. Your financial planner, tax preparer, and attorney can help you keep your arms around the different aspects of your financial plan. They’ll also recommend course corrections when necessary and chart the progress as you go.

Practical advice to keep you on track:

• Continue to ask questions. Financial planning means asking, “Where do I want to be in 3 years?, 10 years?, 20 years?”. This may change as you go along.

• Stick to your plan. Good financial habits are a foundation upon which you can build for a lifetime.

• Stay focused on your priorities. A good plan will help you remember what is most important in your life and decide how your financial resources can help you get there.

The future is not the finish line; it is just the beginning, if you have the resources to lead the life you want. Is there a better reason to become more engaged with your finances and put your plan together?

Laurie Renchik, CFP®, MBA, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® With 20 years of industry experience, she specializes in proactive retirement planning and helping clients assess risk in their portfolios.

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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 Laurie Renchik, CFP®, MBA 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. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected.

3 Things a Widow Can Do to Gain Financial Control

Contributed by: Sandra Adams, CFP®

REPOST

Typical of most couples, my clients Mike and Sue evenly split the household chores. She handled the house – decorating, cleaning, meals, etc. He handled the cars and the finances, including paying the bills.

A retired engineer, Mike loved cars, and he loved numbers and details. Sue hated all of that numbers stuff – so much so that, for the most part, she didn’t even attend annual meetings with their financial advisor. Over the last few years, I offered to meet at their home so she would be involved in the financial review. I felt it was important that Sue have at least a basic understanding of what was going on.

When Mike unexpectedly died in a car accident, a man taken way too young in his mid-70’s, Sue felt completely unprepared, as most of us would, for a life alone. Her children lived nearby, so that was comforting. From a financial perspective, she at least knew what she had to work with and knew who to call. We were able to speak shortly after Mike’s death.

In the months that followed, Sue gave herself time, as we recommended, to not make any big decisions and to find her new normal without Mike. This involved figuring out what her new cash flow looked like; she eliminated some services and added others, etc. Sue also worked her way through Mike’s bill paying system. Very detail oriented and complicated, it was way too rigorous for her tastes. But she felt, somehow, that she needed to stick to his system, because it had always worked for them.

My suggestion to Sue (and to any widow) as she takes control of her own financial affairs after the death of a loved one is this:

1. Take the time to figure out what your new normal is and what changes can be made to fit your new lifestyle.

2. Use a system that makes things easy for you. Don’t stick to a system that makes you crazy just because it’s the one that your deceased spouse used for years.

3. Use your financial advisor as a partner/coach to help guide you through the process as you take control of your financial life. If this is new, it could take a year or two for you to feel comfortable with the process. And that’s okay.

Becoming a widow at any age is challenging enough, without facing the additional hurdles of handling things for which you weren’t responsible in the past. Use your resources and give yourself permission to design your financial life to fit your new normal.

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

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Any opinions are those of Sandra D. Adams, CFP® and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. 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. The case study is a hypothetical example provided for illustrative purposes only. Individual cases will vary. 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. Past performance is not a guarantee of future results. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected. Prior to making any investment decision, you should 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.

Qualified Charitable Distributions: Giving Money While Saving Money

Contributed by: Josh Bitel, CFP®

The Qualified Charitable Distribution (QCD) can be a powerful and tax-efficient way to achieve one’s philanthropic goals. This strategy has become much more popular under the new tax laws.

QCD Refresher

The QCD, which applies only if you’re at least 70 ½ years old, essentially allows you to directly donate your entire Required Minimum Distribution (RMD) to a charity. Normally, any distribution from an IRA is considered ordinary income from a tax perspective; however, when the dollars go directly to a charity or 501(c)3 organization, the distribution from the IRA is considered not taxable.

Let’s Look at an Example

Sandy turned 70 ½ in June 2019, and this is the first year she has to take a Required Minimum Distribution (RMD) from her IRA, which happens to be $25,000. A charitably inclined person, Sandy gifts, on average, nearly $30,000 each year to her church. Because she does not really need the proceeds from her RMD, she can have the $25,000 directly transferred to her church, either by check or electronic deposit. She would then avoid paying tax on the distribution. Since Sandy is in the 24% tax bracket, she saves approximately $6,000 in federal taxes!

Rules to Consider

The QCD and similar strategies have rules and nuances you should keep in mind to ensure proper execution:

• Only distributions from IRAs are permitted for the QCD. Simple and SEP IRAs must be “inactive.”

  • Employer plans such as a 401k, 403b, 457 do not allow for the QCD.

  • The QCD is permitted within a Roth IRA but would not make sense from a tax perspective, because Roth IRA withdrawals are tax-free by age 70 ½.*

• You must be 70 ½ at the time the QCD is processed.

• Funds from the QCD must go directly to the charity and cannot go to you first and then out to the charity.

• You can give, at most, $100,000 to charity through the QCD in any year, even if this figure exceeds the actual amount of your RMD.

The amount of money saved from being intentional with how you gift funds to charity can potentially keep more money in your pocket, which ultimately means there’s more to give to the organizations you passionately support.

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.

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.

Health Care Costs: The Retirement Planning Wildcard

Contributed by: Kali Hassinger, CFP®

When planning ahead for retirement income needs, we typically think about how much it will cost us to live day-to-day (food, clothing, shelter), and to do those things we want to do, like travel and helping grandkids pay for college. The costs we don’t often think about, those that could potentially wreak havoc on retirement income planning, are health care costs.

According to a recent article from the Employee Benefits Research Institute, the average 65-year-old couple will need $400,000 to have a 90% chance of covering health care expenses over their remaining lifetimes (excluding long-term care).

Longevity is a critical factor driving health care costs. According to the Social Security Administration’s 2020 study, a couple, both 66 years of age, has a 1-in-2 chance that one will live to age 90 and a 1-in-4 chance that one will live to age 95. And considering that Medicare premiums are means-tested, the more income you generate in retirement, the higher your Medicare premiums.

So, what can you do to plan for this potential large cost?

1. If your goal is to retire early, plan on self-insuring costs from retirement to age 65. Some employers may offer retiree healthcare, or you can purchase insurance on the Health Insurance Exchange through the Affordable Care Act (still out-of-pocket dollars in retirement).

2. Consider taking advantage of Roth 401(k)s, Roth IRAs (if you qualify), or converting IRA dollars to ROTH IRAs in years that make sense from an income tax perspective. You can use these tax-free dollars for potential retirement health care expenses that won’t increase your income for determining Medicare premiums.

3. Work with your financial planner to determine whether a non-qualified deferred annuity or similar vehicle might make sense for a portion of your investment portfolio. Again, these dollars can be tax-advantaged when determining Medicare premiums.

4. Most importantly, work with your financial planner to simulate retirement income needs for health care expenses and include this in your retirement plan. Although you will never know your exact need, flexible planning to accommodate these expenses may help provide confidence for your future.

Contact your financial planner to discuss how you can plan to pay for your retirement health care needs.

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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UPDATED from original post on March 11, 2014 by Sandy Adams.

Any opinions are those of Kali Hassinger and not necessarily those of Raymond James. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Investing involves risk and you 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. Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted.

Can you roll your 401k to an IRA without leaving your job?

Contributed by: Nick Defenthaler, CFP®

Typically, when you hear “rollover,” you think retirement or changing jobs. For the vast majority of clients, these two situations will be the only time they complete a 401k rollover. However, another option for moving funds from your company retirement plan to your IRA — the “in-service” rollover — is an often overlooked planning opportunity. 

Rollover Refresher

A rollover is simply the process of moving your employer retirement account (401k, 403b, 457, etc.) to an IRA over which you have complete control, separate from your ex-employer. If completed properly, rolling over funds from your company retirement plan to your IRA is a tax- and penalty-free transaction, because the tax characteristics of a 401k and an IRA generally are the same.  

What is an “in-service” rollover?

Unlike the “traditional” rollover, an “in-service” rollover is probably something unfamiliar to you, and for good reason. First, not all company retirement plans allow for it, and second, even when it’s available, the details may confuse employees. The bottom line: An in-service rollover allows an employee (often at a specified age, such as 59 ½) to roll a 401k to an IRA while employed with the company. The employee may still contribute to the plan, even after the completed rollover. Most plans allow this type of rollover once per year, but depending on the plan, you potentially could complete the rollover more often for different contribution types at an earlier age (sometimes as early as 55).

Why complete an “in-service” rollover?

While unusual, this rollover option offers some benefits:

More investment options: Any company retirement plan limits your investment options. You can invest IRA funds in almost any mutual fund, ETF, stock, bond, etc. Having options and investing in a way that aligns with your objectives and risk tolerance may improve investment performance, reduce volatility, and make your overall portfolio allocation more efficient.

Coordination with your other assets: Your financial planner can coordinate an IRA with your overall plan with much greater efficiency. How many times has your planner recommended changes in your 401k that simply don’t get completed? When your planner makes those adjustments, they won’t fall off your personal “to do” list.

Additional flexibility: IRAs allow penalty-free withdrawals for certain medical expenses, higher education expenses, first time homebuyer allowance, etc. that aren’t available with a 401k or other company retirement plan. Although this should be a last resort, it’s nice to have the flexibility.

Exploring “in-service” rollovers

So what now? First, always keep your financial planner in the loop when you retire or switch jobs to see whether a rollover makes sense for your situation. Second, let’s work together to see whether your current company retirement plan allows for an in-service rollover. That typically involves a 5-10 minute phone call with us and your company’s Human Resources department.

With your busy life, an in-service rollover may fall close to the bottom of your priority list. That’s why you have us on your financial team. We bring these opportunities to your attention and work with you to see whether they’ll improve your financial position! 

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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Rolling over your retirement assets to an IRA can be an excellent solution. It is a non-taxable event when done properly - and gives you access to a wide range of investments and the convenience of having consolidated your savings in a single location. In addition, flexible beneficiary designations may allow for the continued tax-deferred investing of inherited IRA assets. In addition to rolling over your 401(k) to an IRA, there are other options. Here is a brief look at all your options. For additional information and what is suitable for your particular situation, please consult us. 1. Leave money in your former employer's plan, if permitted Pro: May like the investments offered in the plan and may not have a fee for leaving it in the plan. Not a taxable event. 2. Roll over the assets to your new employer's plan, if one is available and it is permitted. Pro: Keeping it all together and larger sum of money working for you, not a taxable event Con: Not all employer plans accept rollovers. 3. Rollover to an IRA Pro: Likely more investment options, not a taxable event, consolidating accounts and locations Con: usually fee involved, potential termination fees 4. Cash out the account Con: A taxable event, loss of investing potential. Costly for young individuals under 59 ½; there is a penalty of 10% in addition to income taxes. Be sure to consider all of your available options and the applicable fees and features of each option before moving your retirement assets. Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Investing involves risk and you 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. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to re tax or legal matters with the appropriate professional. 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. Roth 401(k) plans are long-term retirement savings vehicles. Contributions to a Roth 401(k) are never tax deductible, but if certain conditions are met, distributions will be completely income tax free. Unlike Roth IRAs, Roth 401(k) participants are subject to required minimum distributions at age 70.5.

How to Deal with Financial Decisions When a Major Life Event Has You Feeling Stuck

Contributed by: Sandra Adams, CFP®

We’ve all had at least one. A major life event — some might even describe it as a trauma — that leaves us feeling like we’ve been run over by a freight train. For some of us, it may have been a divorce; for others, the loss of a spouse or other close loved one. It could be the sudden loss of a job, a terminal illness diagnosis or accident. Even unexpected “good news” events, like an inheritance or job promotion that comes with a move, can feel stressful when other aspects of your life are unsettled.

Times like these might leave a person unable to envision future goals or make ANY short or long term decisions. It’s common to feel stressed, numb, uncomfortable, anxious, confused — any of these, all of these — or just plain STUCK!

If “stuck” sounds like a place where you (or someone you know) might be, what can you do?

• First, work with your financial decision partner (your financial advisor) to make sure that you are immediately okay and that any immediate cash flow needs are being met. Those are the only decisions that REALLY need to be made now.

• Next, take an intentional “time out” (we call this the “DECISION FREE ZONE”) from making any major financial decisions or plans. This gives you time to deal with the life event that has happened or is happening to you.  Take time to take care of you — physically, psychologically, and emotionally — and get back to the business of future planning and decision making when your head is in a more clear place.

• When you are ready to start thinking about planning again, take a step away from your current situation. “Getting on the balcony” can give you a more clear perspective. With the help of your financial decision partner, you can see your situation from a new point of view and begin the process of setting new goals for your new normal.

Getting “un-stuck” is not easy. And it cannot be done without patience, time, and the help of a good decision partner. 

What has you stuck?  What life event or life events have you feeling numb, stressed, and unable to make decisions?  Understand that this is likely to happen to all of us at some point in our lives, so do not feel alone.  And do not feel pressured to make decisions and or to move forward until you have taken care of yourself and feel comfortable moving ahead. 

We at The Center are trained to help clients with these types of difficult transitions. Please reach out if we can assist you or anyone you know and love.  Sandy.Adams@CenterFinPlan.com.

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

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Any opinions are those of Sandra D. Adams, CFP® and not necessarily those of RJFS or Raymond James. 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. There is no assurance any of the trends mentioned will continue or forecasts will occur. 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. 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. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

5 Financial Tips for Recent College Graduates

Contributed by: Robert Ingram

Congratulations Class of 2019! This is an exciting time for recent college graduates as they begin the next phase in their lives. Some may take their first job or start along their career path, while others may continue their education. Taking this leap into the “real world” also means handling personal finances, a skill not taught often enough in school. Fortunately, by developing good financial habits early and avoiding costly mistakes, new graduates can make time an ally as they set up a solid financial future.

Here are five financial strategies to help get your post-college life on the right path:

1. Have a Spending Plan

The idea of budgeting may not sound like a lot of fun, but it doesn’t have to be a chore that keeps you from enjoying your hard-earned paycheck. Planning a monthly budget helps you control the money coming in and going out. It allows you to prioritize how you spend and save for goals like buying a home, setting up a future college fund for children, and funding your retirement.

Everyone’s budget may be a little different, but two spending categories often consume a large portion of income (especially for younger people early in their careers): housing costs and car expenses. For someone who owns a home, housing costs would include not only a mortgage payment, but also expenses like property taxes and insurance. Someone renting would have the rental cost and any rental insurance.

Consider these general guidelines:

• A common rule of thumb is that your housing costs should not exceed about 30% of your gross income. In reality, this percentage could be a bit high if you have student loans, or if you want more discretionary income to save and for other spending. Housing costs closer to 20% is ideal.

• A car payment and other consumer debt, like a credit card payment, can quickly eat into a monthly budget. While you may have unique spending and saving goals, a good guideline is to keep your total housing costs and consumer debt payments all within about 35% of your gross income.

2. Stash Some Cash for Emergencies

We all know that unexpected events may add unplanned expenses or changes to your budget. For example, an expensive car or home repair, a medical bill, or even a temporary loss of income can cause major financial setbacks.

Start setting aside a regular cash reserve or “rainy day” fund for emergencies or even future opportunities. Consider building up to six months’ worth of your most essential expenses. This may seem daunting at first, but make a plan to save this over time (even a few years). Set goals and milestones along the way, such as saving the first $1,000, then one months’ expenses, three months’ expenses, and so on, until you reach your ultimate goal.

3. Build Your Credit and Control Debt

Establishing a good credit history helps you qualify for mortgages and car loans at the favorable interest rates and gets you lower rates on insurance premiums, utilities, or small business loans. Paying your bills on time and limiting the amount of your outstanding debt will go a long way toward building your credit rating. What goes into your credit score? Click here.

• If you have student loans, plan to pay them down right away. Automated reminders and systematic payments can help keep you organized. To learn how student loans affect your credit score, click here.

• Use your credit card like a debit card, spending only what you could pay for in cash. Then each month, pay off the accumulated balance.

• Some credit cards do have great rewards programs, but don’t be tempted to open too many accounts and start filling up those balances. You can easily get overextended and damage your credit.

4. Save Early for the Long Term

Saving for goals like retirement might not seem like a top priority, especially when that could be 30 or 40 years away. Maybe you think you’ll invest for retirement once you pay off your loans, save some cash, or deal with other, more immediate needs. Well, reconsider waiting to start.

In fact, time is your BIG advantage. As an example, let’s say you could put $200 per month in a retirement account, like an employer 401(k), starting at age 25. Assuming a 7% annual return, by age 60 (35 years of saving), you would have just over $360,000. Now, say you waited until age 35 to begin saving. To reach that same $360,000 with 25 years of saving, you would need to more than double your monthly contribution to $445. Starting with even a small amount of savings while tackling other goals can really pay off.

Does your employer offer a company match on your retirement plan? Even better! A typical matching program may offer something like 50 cents for each $1 that you contribute, up to a maximum percentage of your salary (e.g. 6%). So if you contribute up to that 6%, your employer would add an extra 3% of your salary to the plan. This is like getting an immediate 50% return on your contribution. The earlier you can contribute, the more time these matching funds have to compound. 

5. Get a Little More Educated (about money and finances)

Ok, don’t worry. Forming good financial habits doesn’t require an advanced degree or expertise in all money matters. To build your overall knowledge and confidence, spend a little time each week, even just an hour, on an area of your finances and learn about a different topic.

Start with a book or two on general personal finance topics. You can find reference books on specific topics, from mortgages and debt to investments and estate planning. Information offered through news media or internet searches also can provide resources. And you can even find a blog not too far away (Money Centered Blog).

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.

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.