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Investor Access: How the Raymond James Online System Allows Easy Access to your Tax Documents

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Contributed by: Jennifer Hackmann Jennifer Hackmann

If you are not currently enrolled in the free, secure, online Raymond James Investor Access portal, then now would be the perfect time to jump on board. It’s a great tool offered by Raymond James that will allow you to access your tax documents online, as opposed to waiting for hard copies in the mail. Tax season can be frustrating enough, so as an added convenience Raymond James now allows you the option to receive your tax documents electronically – this is a new feature that just started with this 2015 tax year. Tax documents are available in PDF format, so you will be able to print and/or save them to your computer.

There are many additional features to the Investor Access system that will help make tax time much less of a headache, including:

  • The ability to access your documents quicker; as soon as they become available.
  • Option to export your 1099 tax information to an Excel format
  • Raymond James has partnerships with TaxACT, TurboTax, and H&R Block, which provides clients with additional information and instructions for downloading your tax information.
  • Information regarding Required Minimum Distributions.
  • A Guide to your Consolidated Tax Statement.

Login in to your Investor Access today to check-out all of these features and if you are not currently enrolled, please click on the Investor Access Tab on our website to get started.

Jennifer Hackmann, RP® is a Registered Paraplanner℠ at Center for Financial Planning, Inc.

A Key to Successful Aging: Livable Communities

Contributed by: Sandra Adams, CFP® Sandy Adams

A topic that comes up often in conversations with clients while discussing plans for their futures as they age usually centers around, "where will we live?" It should not be a surprise that most folks are inclined to want stay in their own homes for as long as possible (or so they think). It may actually be the community, more so than the home, in many cases, that clients are really tied to. The community is where our social contacts are, where health care and other supports are, and often times where our friends and family are. So determining how livable one’s community is for the long haul is important. That is why when I came across the new Livability Index Tool developed by AARP's Public Policy Institute, I stood up and took notice.

The Livability Index (found at www.livabilityindex.aarp.org) scores neighborhoods and communities across the U.S. for the services that impact seniors' lives the most. It looks at housing, transportation, the environment, health, social engagement, and opportunity, all of which are determined by the Public Policy Institute's research and the opinion surveys of 4,500 Americans age 50+. A positive Livability Index means access to a variety of housing, with close proximity to jobs, and access to activities and services to keep seniors engaged and healthy.

So, when the topic of "Where will we live?" comes up, whether the client is looking to stay in their own home, move to a Continuing Care Retirement Community, Independent Retirement Community, or other Assisted Living Community, we may suggest looking up the location in the Livability Index to see how the community in which the housing is located ranks. In addition, of course, to determining how the community fits into the clients plan from a financial and long term care perspective. When discussing with your financial planner where you will live as you age, in addition to the financial aspect, make sure you discuss the livability piece. Making sure you live in a community that provides you substantial support with access to essentials and amenities can keep you socially active and engaged, which is the key to successful aging!

Sandra Adams, CFP® 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.

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 Sandy Adams and not necessarily those of Raymond James. Raymond James is not affiliated with and does not endorse the opinions or services of Livability Index and/or AARP. Please include: 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.

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What The Bachelor taught me about Personal Finance

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Contributed by: Clare Lilek Clare Lilek

I know what you’re thinking, how could the reality TV show The Bachelor teach me financial lessons? Well, dear reader, you will be surprised at what you can learn from other peoples’ misguided actions.

As of late, I have gotten into a new TV show. Ironically, one I thought I would never watch. Yup, you’ve guessed it: The Bachelor. I never really saw the point in the show—the excess drama, the crafted confessions and personas, and of course, all of this under the guise of finding “true love”—until I had a group of friends to watch the show with and debunk all the over-the-top drama. It actually can be fun and kind of engrossing. So, along with half of America, I resigned myself to having a guilty pleasure.

Recently, I came across an article, “25 Behind-The-Scene-Secrets about The Bachelor.” The title alone caught my eye. I knew it would be a little foray into the actual reality behind the “reality TV show.” Just like the appeal of tabloid magazines, getting behind the scenes gossip on The Bachelor, or any TV show obsession, is deeply satisfying. I, however, was most shocked by the reveal of the financial aspect of the show.

While watching with my friends, we frequently comment on the outfits of the female contestants because during every Rose Ceremony they are all dressed to impress in ensembles that can rival the most ostentatious red carpets. This could be their last chance to appeal to The Bachelor before he makes a final decision—aka their last time on TV—so they consistently look like an entire hair and makeup team, equipped with fashion expert, styled them. According to this article, that is false. These women, apart from the first and very last episode of the season, do all their own styling and have bought all their own clothes. Before coming on the season they have to prepare for 7 weeks of filming. If they are in it to win it, they have to buy gorgeous gowns and sassy dresses for 10 different rose ceremonies! Not to mention group and individual dates, making sure they look approachable yet at the same time like a glam team primped them before. Do you know how much time, effort, and most importantly, money that takes?! A lot. The answer is a lot.

How then, you might wonder, do these 20-somethings afford being on The Bachelor? First of all, it’s important to note that many of the contestants have to either quit their job or go on unpaid leave for two months. After which, the winner, might chose to move locations to be with her new beau. Many of the contestants, in order to foot the bill have reportedly either borrowed against or completely cashed in their 401(k)s. Apparently retirement savings can wait when you’re looking for love on national television. More contestants go into credit card debit to front the money that can’t be found in their savings account.

Let’s look at an example:

The average contestant could be a single woman, age 25, who earns $50,000 a year putting her in the 25% tax bracket. Let’s say she has about $10,000 in her 401(k). If she needs an influx in cash she has a few options: take out a personal loan, remortgage her home, max out her credit cards, borrow against her 401(k), or take a distribution from her 401(k) (essentially cashing it out). Taking out a distribution before you are 59.5 years of age means you have to pay a 10% penalty on that distribution on top of the income taxes for that money. So not only does this particular contestant not have savings for her eventual retirement or investments growing over time, she now has only $6,500 to spend on clothes, beauty products, and whatever else they need in order to find “true love.”

Now let’s look at the potential financial upside of being on The Bachelor, and no, this usually doesn’t come with benefits or a retirement plan. The contestants don’t get paid for going on the show, but when they arrive they receive a goody bag filled with clothes and beauty products. There is also the chance that the contestants fall into fortune after gaining fame from the show by endorsing products and the like. Also, The Bachelor gets paid a reported $100,000 and gets a lot of endorsement deals. So along with getting an expensive Neil Lane diamond engagement ring (which after two years of being together, the couple can cash in with written producer approval— “cha-ching”), winning the show might mean you fall into quite a bit of money.

Of course, not every woman can (or would!) trade in her 401(k)s for a chance at landing a fiancé. But the next time you’re watching The Bachelor (or thinking about applying yourself) remember the money and tough choices it takes to get there. I guess the reality behind reality TV is a lot less glamorous than you might think.

Clare Lilek is a Challenge Detroit Fellow / Client Service Associate at Center for Financial Planning, Inc.

Any opinions are those of Clare Lilek and not necessarily those of Raymond James.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

Deducting Investment Management Fees

Contributed by: Timothy Wyman, CFP®, JD Tim Wyman

It’s that time of year again: it’s tax reporting season! Hopefully your 1099 statements have arrived and you have begun your annual tax gathering progress. A common question this time of year is, “Can I deduct investment management fees?” Like many areas of the US Tax Code, this can be anything but a straight forward answer. Your tax preparer is the best person to consult with on this issue – but in the meantime, here are some guidelines.

The first place to start when trying to determine if an investment management fee is deductible or not is to determine the type of account: Taxable, Traditional IRA, Roth IRA, 401k, etc.

Investment management fees paid in taxable accounts (such as single, joint or living trust accounts) are a tax deductible expense and reported as a miscellaneous itemized deduction on Schedule A of Form 1040. That’s the easy part – but not the whole story. There is more to the story because not everyone can actually benefit from miscellaneous itemized deductions. In order to benefit from your miscellaneous itemized deductions, in aggregate they must exceed 2% of your Adjusted Gross Income. As an example, if you have Adjusted Gross Income of $100,000, then the first $2,000 of miscellaneous itemized deductions are not deductible – only the balance or amount in excess of $2,000 can be deducted. To further confuse the issue, if you are subject to the Alternative Minimum Tax some or all of these deductions could be disallowed as a tax preference.

For accounts such as Traditional IRA’s, ROTH IRA’s, and 401k’s, it continues to be my interpretation of the tax code that investment management fees paid by assets in these accounts are not deductible; the positive trade off however is nor are they considered taxable income. So, the fees are not deductible but you don’t pay income on the fee either. That said, some professionals do interpret that the fee is deductible, just as it is for taxable accounts discussed above, if the fees are paid with money outside of the IRA. For example, some tax professionals will suggest that fees attributed to IRA type funds be paid via a separate check or billed to a taxable account making them deductible.

As you can see, there are some gray areas on this topic.  What can you do?

  • Be sure to share the information about your paid investment management fees with your tax preparer.

  • Break the fees out by account type (taxable versus other types, such as an IRA).

Fortunately your yearend tax reports from your brokerage firm (such as Raymond James) should contain the necessary information on investment management fees for correct accounting. And, as always, if you need help getting through the maze give us a call. 

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

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James. Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. 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 matters with the appropriate professional.

Women’s History Month: The Inspiration of Sylvia Lawry

Whether you’ve just started your career or you’re a seasoned professional, establishing yourself as a leader at work can boost your ability to achieve success in the short term and advance your career over the long term. An important part of being an effective leader is inspiring those around you. In honor of National Women’s History Month, I want to take the time to highlight the accomplishment and inspirational leadership of Sylvia Lawry.

Sylvia Lawry is the woman who single-handedly launched an international war on Multiple Sclerosis. In search for a successful therapy for her brother Sylvia put an ad in The New York Times. The year was 1945 and she received more than 50 replies from people who were themselves seeking a cure. This was her first step in the fight for a world without MS. She won over famous scientists to her cause and shortly after her initial ad, in 1947, she had founded the National MS society.

My interest in Sylvia Lawry’s story goes deeper than supporting National Women’s History during the month of March. It’s personal as I have family members, friends, and clients who are affected by MS.  Today, 70 years later I am supporting Sylvia’s vision to find a cure for MS by participating in the 2016 MS Leadership Class. Leadership class members commit to increasing their knowledge about MS, to raising public awareness, and to raising funds for ongoing research.

My interest also has professional roots. At The Center, we are a team that meets you where you are, understands where you want to go and through collaboration with you, we develop and execute a strategy focused on your financial well-being through every stage of life. While retirement planning is a common cornerstone of a majority of financial plans, it is not uncommon for clients to make contingency plans for health related issues or craft philanthropic strategies to ensure their charitable dollars create the desired impact.

National Women’s History month presents an opportunity to be intentional about reflecting on the past successes of women throughout history. It hits home here at The Center too as our 30+ year history reflects the inspired leadership of many women through the years. When you wonder what you can do because you are one person, think about Sylvia Lawry.

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.

Raymond James is not affiliated with Sylvia Lawry or The National MS Society.

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How Market Volatility Can Be Your Friend

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Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

Chances are if you’re in your thirties or forties, the financial media is something you don’t watch on a daily basis (don’t worry; we think that’s a good thing). You’re busy with life. Between your career, family, after-school activities for your kids, commitments with friends etc., it’s hard enough to carve out a few minutes to unwind at night, let alone find the time or interest to keep up on recent updates in the stock market.  Even if you aren’t a financial media junky, you’ve probably still seen a few headlines or overheard co-workers discussing how crummy the markets have been so far in 2016 and that 2015 wasn’t a great year either.

If you’re in “accumulation mode” and retirement is 15 years or more out, don’t get caught up in the noise or the countless investment tips and stock picks you’ll inevitably hear from others. If your investment accounts are positioned properly for your own specific goals, with personal objectives and risk comfort levels in mind, roller coaster markets like we’ve experienced over the last few months are your friend. For some reason, investments are the only things I can think of that people typically don’t like to buy when they may be undervalues OR at attractive valuations. Why? Because it can be a little nerve wracking and possibly seem counterintuitive to continue to “buy” or invest when markets are falling. But what is occurring when you do just that? You’re purchasing more shares of the investments you own for the same dollar amount! Let’s look at an example: 

Sarah is 38 and is putting $1,000/month into her 401k, which is roughly 10% of her salary. She owns a single investment with a current share price of $10, meaning for this month, she bought 100 shares ($1,000 / $10/share). What if, however, the market declines like we’ve seen so far in 2016 and now the share price is down to $9? That same $1,000 deposit is going to get Sarah just over 111 shares ($1,000 / $9/share). Since she is about 25 years out from retirement, Sarah welcomes these short-term market corrections because it gives her the opportunity to buy more shares to potentially sell at a date in the future at a much higher price. If we look back in history, those who stayed consistent with this strategy typically had the greatest success.  

Everything I’ve described above is pretty straightforward. It’s not flashy or “sexy” and it might even sound somewhat boring. Good! Investing and financial planning does not have to be overcomplicated. I recently heard this quote and it really resonated with me: “Simplicity wins every time. Complexity is the enemy of execution.”  Why make things more complicated than they have to be?

Here are a few examples of simple, but effective ways to build wealth:

  • Live within your means.

  • Save at least 10% of your income for retirement each year starting early and increase that percentage 1% each year. For more information, check out a blog I wrote on this topic.

  • Invest in a well-balanced, diversified portfolio that matches YOUR needs, not someone else’s.

  • Work together with a financial planner that you trust and who can help to take as much stress out of money for you and your family as possible.

  • Tune out the “noise” from financial media – the world doesn’t end very often!

You might be thinking, “I know this stuff is important, but I just don’t have the time or desire to understand it better.” Fair enough. This is one reason of the many reasons our clients hire us. They know we’re experienced and are passionate about an area in their life that is extremely important, and our clients want to get it right. Our goal is to work with you to make smart financial choices and help take the stress out of money for you and your family during each stage of your life. Let us know how we can help you 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.

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. 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. Past performance is not a guarantee of future results. Dollar-cost averaging cannot guarantee a profit or protect against a loss, and you should consider your financial ability to continue purchases through periods of low price levels. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected. There is no guarantee that using an advisor will produce favorable investment results. Diversification and asset allocation do not ensure a profit or protect against a loss. The example provided in this material is hypothetical and for illustrative purposes only. Actual investor results will vary.

What's going on with China's Currency?

Contributed by: Nicholas Boguth Nicholas Boguth

The biggest Yuan devaluation in over 20 years shook up the markets late last year and has been a recent source of uncertainty for investors. What exactly happened? And why would China want to devalue their currency?

Why peg one currency to another?

Well, many developing countries fix the exchange value of their currencies to one of a more stable economy’s in order to stabilize their currency exchange rate fluctuations and better control domestic inflation. The U.S. Dollar is a preferred target for other countries because it has a highly liquid government bond market and a relatively stable economy. In fact, Saudi Arabia, Venezuela, and Egypt, among others are all currently pegged to the U.S. Dollar.  

Why would China discontinue its Yuan peg to the U.S. Dollar?

The Yuan has been tied to the U.S. Dollar since 1994, but China has had a deep economic slowdown while the US economy has been going through an expansion in recent years. Monetary authorities typically take opposite actions in these two different phases of a business cycle. As we have seen, the Fed has started to raise interest rates, which usually leads to a currency appreciating, and stimulates the economy less. The People’s Bank of China wants to stimulate the economy more during their contraction, so staying tied to the U.S. Dollar would be contradictory. If the dollar rose while the Yuan was pegged to it, then the Yuan would rise too. 

A more expensive Yuan puts pressure on exporters that are a large part of China’s GDP. During China’s economic slowdown, their exports have been hurt. By devaluing their currency and allowing it to diverge from the U.S. Dollar, China is saying that it wants to focus effort on supporting exporters because a cheaper Yuan makes Chinese exports more attractive to foreign countries. This is a stimulus meant to boost economic growth.

What could go wrong?

While a cheaper currency is good for exporters and can help boost domestic economic growth, there is downside as well. A major risk of devaluing a currency is capital outflow. If the value of a currency drops, investors may move themselves or their money out of the country and into another that has a stronger currency.

China is not completely abandoning a peg though. Rather than tying their currency to the U.S. Dollar alone, they are tying it to a basket of currencies. This will allow it to stray from the U.S. Dollar, but will not allow the exchange rate to float independently and risk a larger amount of currency volatility.

Nicholas Boguth is an Investment Research Associate at Center for Financial Planning, Inc.

This material is being provided for information purposes only and is not acomplete description, nor is it a recommendation. Any opinions are those of Nicholas Boguth 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.

Challenge Detroit – An Update Half Way Through

Contributed by: Clare Lilek Clare Lilek

Let me paint a picture for you: imagine you’re a 32 year old single mother, whose husband recently left her, with a 17 year old son who’s dropped out of high and a 14 year old daughter who’s already disinterested in school, with only $10 in your pocket and no job. This was the card I received when I participated in a poverty simulation with Challenge Detroit. Throughout the entire day, I was physically nervous. The overwhelming anxiety and never ending list of “must do now or you’ll lose your home” tasks had broken down my normally chatty personality till all that remained was a shell of who I really am. Let me clarify that the poverty simulation was only one hour long. One hour of role-playing made me stress to the point of losing myself. I know that you’re probably judging me right now, but the whole point of the simulation was to create a deeper understanding and install a greater empathy in all of the fellows - and mission accomplished! As fellows we participate in challenges that center around underserved, and a lot of the time, impoverished populations, and empathy is the key to designing solutions that are sustainable, practical, and implementable. To be completely honest, this was just an average Friday for me.

The whole reason for my presence at The Center is because of Challenge Detroit. For those of you who need a quick refresher, Challenge Detroit is a yearlong fellowship that aims to attract and retain young professionals and innovative thinkers to the city of Detroit in order to aid in the revitalization through intellectual giving. This intellectual giving manifests itself in what we refer to as “challenges.” Each Friday I am not physically at The Center, but working with my fellow fellows on these challenges; we partner with other non-profits with the intention of focusing on a broad topic. We help these organizations by providing man and brain power to their mission for five weeks at a time. This usually results in innovative strategies for the organization to implement over time that will incrementally impact Detroit in a positive manner and help that non-profit’s overall mission.

I am halfway through my fellowship—time sure flies—and we’ve completed three challenges already. Below is a brief overview of the work that we have done up to this point.

Challenge #1: Working with Mayor Duggan’s office and the City of Detroit

As fellows, we had an amazing opportunity to partner with the Mayor of Detroit and facilitate the development of the first small business directory for the city. It’s called Dream It, Do It, Detroit and the directory is available online and in a book format. In the online directory you can look for different restaurants, businesses, and enterprises located in the seven different districts of the city. Take some time and check out all that Detroit and its entrepreneurs have to offer, I guarantee you will learn something new!

Challenge #2: Working with Detroit Public Schools

We split off into six groups and partnered with six different schools to focus on how to improve parental engagement and empowerment. It was and remains a poignant challenge in light of the current struggle with DPS. It was a good lesson in empathy and reminded us all the importance of putting children and their education as a first priority, without forgetting to educate and support the “whole student,” which includes their parents.

Challenge # 3: Working with Goodwill Industries and the Coalition on Temporary Shelter (COTS)

The fellows spilt up into two groups to partner with our two different nonprofits on workforce development. I had the pleasure of working with COTS to create an engagement strategy for potential and existing corporate partners. COTS needs partners to help make their Passport to Self Sufficiency TM framework advantageous for their participants in order to foster poverty resistant families. The Goodwill and COTS teams both created innovative strategies and campaigns for the organizations to use to improve and maximize their current efforts as it pertains to workforce development in underserved populations.

At the end of the day, The Center is making a huge impact in Detroit and the metro area by participating in Challenge Detroit. They have made it possible for me and the rest of the fellows to do the work we get to do every week. Over time, The Center’s impact will grow and the community around us will be better for their support. I am grateful that one of The Center’s missions is to partner with the community and create positive change. That is why I’m here and, in part, why Challenge Detroit is able to have the impact it has around Detroit and the metro area. 

Clare Lilek is a Challenge Detroit Fellow / Client Service Associate at Center for Financial Planning, Inc.

Social Security Filing Alert: Sometimes “No” just isn’t good enough

Contributed by: Timothy Wyman, CFP®, JD Tim Wyman

I recently had the opportunity to work with a long time client to maneuver the new Social Security filing rules; and if they would have taken the first “no” answer from the local SSA office the results would not have been good, to say the least.  As we have shared in the past, there have been significant changes to some of the Social Security filing rules, and specifically to the “file & suspend” strategy that we have worked hard to incorporate into many clients’ financial plans. Check out this blog by Nick Defenthaler, CFP®, for more information.

The most egregious part of this recent experience is that our client went to the SSA office with a copy of instructions specifically outlining “what” and “why,” and they still were turned away.

Here's part of the story:

Timothy Wyman, an adviser in Southfield, Mich., described a similar situation. His clients, a 67-year-old husband and 64-year-old wife, wanted to file and suspend the husband's benefits before April 30 to trigger spousal benefits for his wife. The wife plans to claim spousal benefits only when she turns 66.

The claims representative told the couple the husband only needed to file and suspend if the wife was planning on claiming her benefit now. Otherwise, they had nothing to lose by waiting.

Wrong! They would have a lot to lose. Miss the deadline and this couple would forfeit the opportunity to trigger benefits for the wife while his own benefit continues to grow until it is worth the maximum amount at age 70. It's an excellent strategy for married couples since it will also create a maximum survivor benefit for whichever spouse is left behind.

Anyone who is full retirement age has the right to request to suspend his or her retirement benefits that can trigger benefits for a spouse. The spouse does not have to be full retirement age at that time. -Mary Beth Franklin, Contributing Editor at InvestmentNews

Fortunately, our client knew better than to accept the “no” and emailed over the weekend for additional clarification. In the end, our client filed online and has preserved their right and benefit of filing and suspending. Please feel free to reach out if we can help you maneuver and maximize your Social Security benefits.

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

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 Timothy Wyman 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.

Insurance Basics: The Ins and Outs of Life Insurance

Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

In my blog a few weeks back on Insurance Basics, I explained the importance of carrying coverage, even though it can be a tough check to cut when your premiums are due. Now, we’re going to look closely at the different forms of life insurance and discuss its importance in a well-rounded financial plan. 

Permanent Insurance

As the name implies, permanent insurance is a type of coverage designed to last your lifetime. Because the coverage is permanent, premiums are typically costly depending on age, health status, and type of permanent coverage (whole life, variable life, universal life, variable universal life). Each type of permanent coverage has two components: a death benefit and a savings component, known as the policy’s “cash value.” Although part of your premium each year is going to build up the policy’s cash value, in many cases there are more efficient and cost effective ways to save for retirement first, such as a 401(k) or an IRA. If these are being maximized, then utilizing life insurance for retirement savings could potentially make sense because a policy’s cash value offers tax-deferred growth. Some of the more common situations we recommend utilizing a permanent life insurance policy for include those who want to leave a guaranteed legacy to family or charity. They are also often used for estate planning purposes if you have significant assets as a mechanism to pay for estate tax. 

Term Insurance

A term life insurance policy contains a specified term of coverage, typically ranging between 10 – 30 years where premiums are fixed and there is a guaranteed death benefit. Unlike permanent insurance, there is no savings component or cash value, so your premium dollars are going to purchase insurance and insurance only – just like your auto or homeowners coverage. In most cases, the younger you are, the cheaper annual premiums will be so it usually makes the most sense to buy this type of policy early so you’re guaranteed insurability if your health situation changes, keeping your premiums reasonably priced. This does not mean that if you’re a little older you can’t buy term insurance; it just means it will be more expensive because the likelihood of a thirty year old passing away within the specified term is much lower from an actuarial standpoint than someone in their mid-forties or fifties. 

Group Coverage

Group life insurance is a type of coverage that is offered by your employer through an insurance company. In many cases, employees receive a “complimentary” amount of coverage—typically for the same amount as your annual salary—as part of their benefits package. You may have the option to purchase additional coverage as well, up to certain limits, at a low cost. Another perk of group coverage is that there is typically no formal medical underwriting so it’s a good option for those who aren’t in the best of health. A lot of clients I’ve spoken to believe their group coverage they have at work is sufficient. In most cases, however, it isn’t even close to being enough. Often times, clients are surprised to know that more than likely, if they leave their employer, they can’t take the coverage with them because it’s a benefit offered by the company (non-portable like an individual term or permanent policy). Typically we recommend pairing group coverage with an individual policy, to not solely rely on it as your only source of life insurance coverage.

As you can probably see, we’re just scratching the surface of the complex topic of life insurance, and there are many things to consider when purchasing coverage and deciding on what type of vehicle to protect yourself and your family. Life insurance is something all planners at The Center are licensed in but as you’re probably aware of, it’s not our main focus. Our goal is to take a look at your entire situation and identify which type of coverage makes the most sense for YOUR specific situation. When’s the last time you reviewed your coverage? Do you have enough? What’s changed in your life that makes the case for adding or removing coverage? These are the questions you should be asking yourself at each stage of life and it is something we can help guide you through to make sure you, your family, and your financial plan are protected.

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.

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. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

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