A New Season: Empty-Nesters

Contributed by: Laurie Renchik, CFP®, MBA

This year the fall season took a different turn than the past eighteen and it wasn’t associated with the weather.  My youngest child was college bound for his freshman year.  How did that happen?  It was a mad rush from high school graduation festivities in June to college move in day in August.  The reality of an empty nest began to set in as my husband and I drove home leaving our son to settle into his new digs.  Our conversation took many expected turns reminiscing about the past and looking forward to the future.  

This new chapter we surmised was as an opportunity to put some additional focus on our life goals including a “catch-up” sprint to shore up retirement savings. More questions than answers surfaced.  Should we downsize, take a big trip, save more, spend more, double up on mortgage payments, or put a finer point on our expectations for the future?  Perhaps you can relate to this milestone in life. 

The following Empty Nest Checklist can help to organize thoughts and prioritize action steps:

1. Revisit the big picture.  Make time to talk about lifestyle changes you’re thinking about, along with their financial impact. Think of it like a test drive for your retirement years. While you are at it, give your financial plan a fresh look. Celebrate successes, clarify goals and identify potential gaps.

2. Consider your finances.  Updating your monthly budget is a good first step.  Putting money you were using to support children toward larger financial goals like paying down your mortgage and boosting retirement savings may be an option with surprising benefits.

3. Review investments.  The status quo may not meet your future needs.  Your financial advisor can help with a review of retirement savings accounts.  Learning how your savings can generate income in retirement helps financial decision making during this new chapter. 

4. Update your goals and need for insurance.  The bottom line is to make sure that existing insurance policies still make sense for your situation.  If your mortgage is paid off and dependents are now independent you may want to reassess your coverage.

Goals change at every stage of life, so regularly reviewing your plans is an important step. Revisiting the basics can build confidence as you plan for tomorrow. Reconciling your next steps as empty nesters is essential to enjoying all that is to come. Don’t forget to celebrate each milestone you’ve achieved along the way and put in place a plan for what comes next.

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.

BrainStorm: A Workout for the Mind

Contributed by: Sandra Adams, CFP®

According to the Alzheimer’s Association, mental decline as we age appears to be largely due to altered connections among brain cells.  But research has found that keeping the brain active seems to increase its vitality and may build its reserves of brains cells and connections – maybe even enough to generate new brain cells!  You don’t have to turn your life upside down or make extreme changes to see the results.  Just ask the folks at Wayne State University’s Institute of Gerontology who recently presented their Brainstorm! Program for nearly 100 Center clients and guests! 

Brainstorm! is a research-based wellness program developed by the Institute that addresses multiple facets of brain health, as well as physical, emotional and spiritual health.  The presentations were filled with hands-on activities, humor, and social interaction designed to target key cognitive skills. 

Four Key Tips from BrainStorm:

1. No Strain, No Train. Activities must be challenging if you want the brain to grow new cells and make new connections. Concentrate, focus and pay attention. If crossword puzzles are easy for you, try math problems or vice versa. Force your brain to stay awake with daily surprises like brushing your teeth or eating dinner with your non-dominant hand or placing framed photos upside down. The brain responds to novelty, but will get lazy and fall into ruts if you let it.

2. Gather with Others. Socializing is a major brain stimulant. We talk, listen, interpret social cues and sometimes share an activity - all at the same time -- quite a positive brain challenge! Regular social activity also deepens friendships, calms anxiety and lifts our mood. Depression and loneliness take a tough toll on memory, so open your door (and heart) to others for a healthier, happier brain.

3. Sleep Deep. At least four consecutive hours of deep sleep a night lets us organize the thousands of thoughts and experiences we have every day. Without deep sleep, our brains start to look like a hoarder's house with clutter piled everywhere. When this happens, we can't find the mental information we're looking for (like the name of the neighbor who is now at the door). Sleep well and let your brain get organized. Aim for seven to eight hours a night and make four of those uninterrupted.

4. Move. A healthy brain needs a strong oxygen supply for all its cells - it uses 20% of all the oxygen we breathe in. Keep arteries open and flowing freely with 30 minutes of aerobic exercise three times a week. Aerobic means you're breathing more heavily and your heart is beating a little faster. Aim for 30 minutes of aerobic exercise three times a week. Your physician can tell you what's safe, but most folks are fine with a brisk walk. A healthy brain needs a healthy body to sustain it.

Our job is to make sure that financial resources support you for your lifetime and that you have a strong financial partner to guide you along the way.  Helping you to achieve an excellent quality of life (including great brain health) to allow you to enjoy those years and meet all of your life goals is something else we would like to accomplish.  All it takes is a little help from you! 

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.

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Raymond James is not affiliated with Wayne State University Institute of Gerontology.

Investment Commentary: 3Q 2017

Contributed by: Angela Palacios, CFP®, AIF®

This summer came and went with no shortage of topics for investors to worry about.  Low inflation, natural disasters, and geopolitical tension kept the headlines busy.  Despite all of this, the quarter ended on a positive note.  The uptick in markets was spurred on by a wide-spread pick up in global growth.  Recession risks continue to remain muted as dovish global central banks continue to inject liquidity in the system, or only very slowly begin to pull back on the injections.  In general, economic data remains strong.   We remain watchful for a slowing, particularly in manufacturing, business and consumer confidence, as these are early indicators of the tide of the economy turning. However, they are still positive.

Diversification is coming back into style as international and emerging markets continue to perform stronger than their domestic counterparts this year.  The S&P 500 Index ended the quarter returning 14.24% through the 30th of September.  International markets are truly the bright spot with the MSCI EAFE returning 19.96% and the MSCI EM Index returning 27.78%.  Bonds ended the third quarter with a respectful 3.14% return coming from the Barclays US Aggregate Bond Index.

Rates remain unchanged

In September, the Federal Reserve (Fed) kept rates unchanged, but also announced additional information on how it will begin to unwind the $4.5 trillion balance sheet in October. 

The Committee intends to gradually reduce the Federal Reserve's holdings of treasury securities and agency securities--agency debt and agency mortgage-backed securities (MBS)--by decreasing the reinvestment of the principal payments it receives from securities holdings. Each month, such payments will be reinvested only to the extent that they exceed a pre-specified cap. The caps will rise gradually at three-month intervals over a 12-month period and the maximum value of the caps at the end of the 12-month period will be maintained until the size of the balance sheet is normalized. (https://www.federalreserve.gov/monetarypolicy/policy-normalization-qa.htm)

This plan to shrink the balance sheet seems to reflect the Fed’s positive view of the U.S. economy.

Proposed tax changes being debated

Political stakes are high for President Trump to score a legislative win on what remains of his campaign promises.  In late September, he unveiled a proposal to slash taxes for individuals and businesses.  To simplify the tax code, Republicans have proposed condensing from seven tax brackets down to three (12%, 25% and 35%), doubling the standard deduction to help tax payers eliminate the need to itemize, and “significantly increasing” the child tax credit while also adding a new tax credit for the care of non-child dependents (elder-care situations).

Currently, many taxpayers use itemized deductions, claiming write-offs for things like charitable contributions, interest paid on a mortgage, state and local taxes. If the standard deduction becomes larger, fewer taxpayers will need to itemize, reducing the incentive to hold a mortgage or contribute to charity.

President Trump is also proposing to cut the corporate tax rate from 35% down to 20%.  A new tax rate would be established for pass-through entities which represent about 95% of businesses in the United States.  Generally when corporate tax rates are cut, markets perform very well in the year following the tax cut. The chart below demonstrates that after the rate cut for corporate taxes (Orange area below the line), the following 1 year returns on the S&P500 are quite positive (blue bar above the line).

Michigan 529 plan changes

In September, the Michigan 529 Advisor Plan, transitioned its program from Allianz Global Investors to Nuveen Securities, LLC.  Account numbers stayed the same and investments mapped over to similar strategies; if you had one of these accounts, the transition was seamless.  Some of the benefits of the change include an expanded investment line-up, more leading edge investment managers and lower fees.  If you have any questions don’t hesitate to reach out!

After several years of equity volatility near historic lows, this quarter we again experienced the speed and scale at which geopolitics can possibly move markets. We remain committed to the view that managing volatility is at the heart of proper portfolio design.  It is a responsibility we take very seriously and we thank you for the continued trust you place in us to help you with these decisions!

On behalf of everyone here at The Center,

Angela Palacios, CFP®, AIF®
Director of Investments
Financial Advisor

Investment Pulse: Check out Investment Pulse, by Nick Boguth, a summary of investment-focused meetings for the quarter.

Investor Ph.D Series: How Currency Movement Effect International Investments

Investor Basics Series: Nick Boguth, Investment Research Associate, talks about exchange rates.

Of Financial Note:  Jaclyn Jackson, Portfolio Coordinator, shares a look at the asset flow for 3rd quarter.

Angela Palacios, CFP®, AIF® is the Director of Investments at Center for Financial Planning, Inc.® Angela specializes in Investment and Macro economic research. She is a frequent contributor The Center blog.

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This information does not purport to be a complete description of the securities, markets, or developments referred to in this material; it has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. Any opinions are those of Angela Palacios and are not necessarily those of Raymond James. This information is not a complete summary or statement of all available data necessary for making and investment decision and does not constitute a recommendation. Investing involves risk; investors may incur a profit or loss regardless of the strategy or strategies employed. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. Investing in emerging markets can be riskier than investing in well-established foreign markets. Asset allocation and diversification do not ensure a profit or guarantee against loss. Past performance is not a guarantee of future results. The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 21 developed nations. The MSCI Emerging Markets is designed to measure equity market performance in 25 emerging market indices. The index's three largest industries are materials, energy, and banks. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Barclays Capital US Aggregate Index is an unmanaged market value weighted performance benchmark for investment-grade fixed rate debt issues, including government, corporate, asset backed, mortgage backed securities with a maturity of at least 1 year. Please note direct investment in any index is not possible. Index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary.

Investor Ph.D: How Currency Movement Effect International Investments

Contributed by: Angela Palacios, CFP®, AIF®

Investors with the patience to hold on to their diversified portfolio that maintains a component of international have likely been rewarded this year.  Before this year, investors challenged the advice of diversifying their portfolio away from the U.S. as international investments, represented by the MSCI EAFE, noticeably lagged U.S. returns in recent years.  The chart below shows how the MSCI EAFE has performed vs. the S&P 500.  When the gray shaded area is above 0, this represents a time when the prior three years of returns have been dominated by the MSCI EAFE outperforming the S&P 500.  When you drill down into specific extended time periods when this happens, you can see that much of the returns come from the impact of the currency return (the lighter green portion of the return).  You see in recent years the S&P 500 has significantly outperformed international investments. 

A weakness in the U.S. dollar has contributed to the outperformance year-to-date by the MSCI EAFE (as of 9/30/2017 the MSCI EAFE was up XX% vs. the S&P 500 was up XX%).  When the dollar is in a cycle of weakening against foreign currencies, there is a natural tailwind helping performance.  Coupled with the global economy strengthening and political risks receding due to a failed populist movement in Europe, this could be a continuing recipe for international investing tailwinds.

Take a look at the impact on stock markets around the globe during these periods of different U.S. dollar trends:

Source: http://awealthofcommonsense.com/2017/04/how-the-dollar-affects-the-stock-market/

When the U.S. dollar index is retreating, Foreign and Emerging markets have outperformed and vice versa.  If the U.S. dollar continues its current trend of weakening or even levels out, we could continue to see the performance story dominated by foreign investments.

Angela Palacios, CFP®, AIF® is the Director of Investments at Center for Financial Planning, Inc.® Angela specializes in Investment and Macro economic research. She is a frequent contributor The Center blog.

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This information has been obtained from sources deemed to be reliable but its accuracy and completeness cannot be guaranteed. This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Opinions expressed are those of Angela Palacios and are not necessarily those of Raymond James. There is no assurance the trends mentioned will continue or the forecasts provided will prove to be correct. Investing involves risk, investors may incur a profit or loss regardless of the strategy or strategies employed. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. Investing in emerging markets can be riskier than investing in well-established foreign markets. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 21 developed nations. The MSCI Emerging Markets is designed to measure equity market performance in 25 emerging market indices. The index's three largest industries are materials, energy, and banks. Please note direct investment in an index is not possible. Index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results.

Investor Basics: Exchange Rates

Contributed by: Nicholas Boguth

An exchange rate is just the price of one currency in terms of a different currency. For example, as I wrote this blog on 9/29/17, the USD/EUR exchange rate was .85. This means that 1 US Dollar would buy 0.85 Euro.

Exchange rates fluctuate though, and this is where things get complicated for investors. Inflation, interest rates, asset flows, trade, and economic stability are all factors that move exchange rates. Below is a chart showing just how much the exchange rate between the US Dollar and the Euro has fluctuated in the past 10 years.

Now these exchange rates may not directly affect you in your day to day purchases, but if you are invested internationally, exchange rates affect your portfolio. Head on over to our Director of Investments Angela Palacios’s blog (coming on Thursday!) to read about exactly how exchange rates have affected returns recently.

Nicholas Boguth is an Investment Research Associate at Center for Financial Planning, Inc.® and an Investment Representative with Raymond James Financial Services.

Financial Note: Asset Flow Watch 2017 3Q

Contributed by: Jaclyn Jackson

One of the most common ways to monitor consumer confidence and investor sentiment is to watch fund inflows and outflows.  Market analysts use fund flows to measure sentiment within asset classes, sectors, or markets. This information (combined with other economic indicators) help identify trends and determine investment opportunities.

July trends picked up where June left off, as international equities and taxable bonds continued to receive inflows. 

Most of these flows came through passive funds, but active flows were still positive.  Conversely, US equities saw outflows as valuations appear to be fair or high (depending on whom you ask) and administration confidence declines.  Accordingly, The International Monetary Fund decreased their US GDP growth forecast from 2.3% to 2.1%.  In terms of internationals, investors are opting for developed markets through foreign large blend funds.  Ultimately, this is a play for Europe.  The International Monetary Fund increased its expected growth rate from 1.7% to 1.9% in Europe.   Investors also sought out emerging market funds as the MSCI Emerging Markets index has double-digit returns year to date (28.3% returns YTD at the end of August).

In August, international equity inflows were positive but less positive than in July. 

The slowdown reflects lackluster corporate earnings internationally and uncertainty about North Korea.  Nonetheless, internationals remain compelling to investors with rebounds from Japan and Europe progressing.  MSCI EAFE returns have remained ahead of the S&P 500 in 2017.  Taxable bonds, specifically intermediate-term bond funds, remained the leading category group for inflows. Intermediate bond funds hit the “sweet spot” for many investors because they are usually not as severely impacted by rising rates as long term bonds and typically generate more return than short term bonds.  From January 1st through August 15th, intermediate bonds gained 3.2% beating both the Bloomberg Barclays US Bond Index and 2016 returns.  Differing from June and July, investors are trending back towards active management for their bond funds.

As of writing this, October 4th, 2017, September flows mimic July and August with outflows from US equities and continued inflows to international equities and taxable bonds. 

There are also positive inflows for municipal bonds and alternatives.  Outflows from the US are mostly from growth (especially large growth) and US large blend funds.  International equities experienced outflows last week, but are net positive for the month.  Bond inflows are steady with investors largely continuing to invest in intermediate term bond funds as wells as modestly investing in high yield municipals funds and national intermediate municipal bonds.

Bonds Lead the Pack

Even as rates rise, investors continue to pour assets into bond funds. Why is that the case? Income and diversification seem to motivate the trend.  Even if interest rates rise and bond prices go down, investors still want the guaranteed income stream bonds provide.  Some may also feel they can pick up higher payouts from new bond issues as interest rates increase.  In terms of diversifications, investors have seen gains from their US equities and feel like it is time to rebalance into a true stock diversifier; bonds.

Jaclyn Jackson is a Portfolio Administrator and Financial Associate at Center for Financial Planning, Inc.®

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This information does not purport to be a complete description of the securities, markets, or developments referred to in this material; it has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. Any opinions are those of Jaclyn Jackson and are not necessarily those of Raymond James. This information is not a complete summary or statement of all available data necessary for making and investment decision and does not constitute a recommendation. Investing involves risk, investors may incur a profit or loss regardless of the strategy or strategies employed. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. Investing in emerging markets can be riskier than investing in well-established foreign markets. Asset allocation and diversification do not ensure a profit or guarantee against loss. Past performance is not a guarantee of future results. The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 21 developed nations. The MSCI Emerging Markets is designed to measure equity market performance in 25 emerging market indices. The index's three largest industries are materials, energy, and banks. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Barclays Capital US Aggregate Index is an unmanaged market value weighted performance benchmark for investment-grade fixed rate debt issues, including government, corporate, asset backed, mortgage backed securities with a maturity of at least 1 year. Please note direct investment in any index is not possible.

Investment Pulse: 3Q 2017

Contributed by: Nicholas Boguth

We’ve been busy here in the Investment Department! Check out some of our research highlights from the third quarter.

Angela Palacios, Director of Investments at The Center, attends Capital Group Advisor Forum

Angela traveled to Capital Group’s headquarters in California, to look under the hood at their investment strategies focusing on their process, people and investment outlooks.  You may know the strategies as the American Funds family. The discussion spanned from macro-economics to fixed income and equity discussions. On the macroeconomic front they discussed their recession outlook. Anne Vandenabeele, Economist, stated that expansions don’t die of old age, they die because imbalances build up in the economy or the Federal Reserve raises rates too quickly. They don’t see either of these scenarios right now. Most severe bear markets are when you have a bear market combined with a recession. While there may be a bear market in the next several years they don’t see a recession occurring at the same time. 

Clayton Shiver, Portfolio Manager at Stadion Money Management

Part of our investment process is to stay on top of investment products being offered in the marketplace. Nick Boguth met with Clayton Shiver to discuss Stadion’s alternative product platform and understand the team’s investment process. Clayton discussed their three sleeve alternative approach that included an equity, income, and trend sleeve implemented with the buying and selling of stocks and options in order to generate very different potential returns from the S&P 500 or Barclays US Aggregate Bond Index.

Matt Lamphier, Portfolio Manager at First Eagle

Matt Lamphier, director of research for the Global Value team at First Eagle Investment Management, joined us at our office for a jam-packed hour of investment updates. We discussed First Eagle’s investment process, outlook, and rationale behind their investments. Matt stressed the importance of being a value investor, and choosing companies that will outperform over the long term. One surprising statistic that Matt shared was that the average timespan of a stock in their portfolio is over 10 years!

What to expect next time…

We have a busy schedule next quarter and are looking forward to sharing highlights from our upcoming conferences including: Thornburg Investment Management, First Eagle, and Investment News.

Nicholas Boguth is an Investment Research Associate at Center for Financial Planning, Inc.® and an Investment Representative with Raymond James Financial Services.

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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 Boguth and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Raymond James is not affiliated with Anne Vandenabeele, Clayton Shiver, Stadion Money Management, Matt Lampier and/or First Eagle Investment Management.

Webinar in Review: College Planning: How to Navigate Financial Aid and the FAFSA

Contributed by: Abigail Fischer

Filling out the FAFSA is only one of the many tasks requiring your attention while you, or your young adult, prepares for entering college. That’s why we invited Carrie Gilchrist, Ph.D, to join Nick Defenthaler, CFP® for the College Planning webinar. She is the Senior Financial Aid Outreach Advisor at Oakland University, and well versed at assisting families with their financial concerns.

Here are a few key points from the College Planning webinar:

• The FAFSA is available October 1st.

• Everyone should fill out the FAFSA, even if you don’t think you’ll be eligible to receive aid money. At the very least, you’ll be offered loans. At best, your college might use the FAFSA to determine who will receive university-based scholarships.

• Your completed FAFSA might offer benefits other than the typical education loan:

  • Federal Pell Grants (given through your school’s loan money bank)

  • Teacher Education Assistance for College and Higher Education Grant (TEACH)

  • Federal Supplemental Education Opportunity Grant (SEOG)

  • Federal Work-Study (the fed. pays 70% of your wages for on-campus jobs)

  • Parent PLUS Loans (parents can take out federal loans with much lower interest rates than a private bank loan)

• A CSS Profile is used to reward institutional aid, used by over 400 colleges nationwide.

• When filing the FAFSA within a divorced family, your federal aid need is determined by the custodial parent.

• If there is a significant change in your finances after your FAFSA has been submitted, contact the school and inquire how they can assist you through this school year.

• If you don’t need a loan, please don’t take a loan!

You need these documents to complete the FAFSA: 

• Taxed and untaxed income

• Current bank statements

• Records of investments

Here are some helpful websites:

• FSAID.ed.gov (to create your FAFSA ID)

• FAFSA.gov (for the FAFSA4caster and Net Price Calculator)

• cssprofile.collegeboard.org (CSS Profile Application)

The Center, and your financial planner, are here to assist you in planning for college, just give us a call!

Please check out the College Planning Webinar, recorded on September 21st, 2017:

Abigail Fischer is a Client Service Assistant at Center for Financial Planning, Inc.®

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

Ballin' on a Budget

Contributed by: Josh Bitel

When I was fresh out of college, one of the most important things for me to learn was how to budget properly. Considering I was taking on my first job with level, predictable income, I knew that it was critical for me to understand where my money goes each month. If I didn’t identify opportunities for savings, I knew I would blow through my money quickly, but I wasn’t sure where to start!

Identifying Financial Goals

Before I could create a budget, I had to identify some goals in order to give my budget a sense of direction. My goals were more short term in nature (pay down student loans, save for vacation, etc.), but long term goals are just as important. If you aim to retire someday, or a child’s education expenses are a concern, budgeting with these goals in mind is certainly a good idea. Once you have a clear picture of what you want to achieve with your budget, it can become much easier to accomplish these goals.

Understanding Monthly Income and Expenses

One of the more difficult, but most important, components of a budget is identifying monthly income and expenses. There is software available that you can leverage, or you can use the old school method and take pen to paper. Regardless of how you come to a conclusion, it is imperative to cover all the bases.

When considering income (outside of the obvious salary or wages), be sure to include any dividends or interest received. Alimony or child support expenses may also come into play depending on your situation. Expenses may be divided into two categories: fixed and discretionary. Fixed expenses are generally easier to document --  these will be your recurring bills or debt payments (Food and transportation can also be captured here). Discretionary expenses are generally more difficult to record (Entertainment expenses, or hobbies and miscellaneous shopping trips are common line items here). It’s also important to keep in mind any out of pattern expenses, like seasonal or holiday gifts, or car and home maintenance. Remember to always keep your goals in mind when crafting your budget!

Once you’ve gotten grasp on your monthly income and expenses, compare the two totals. If you are spending less than you earn, you’re on the right track and can explore ways to use the extra income (save!). Conversely, if you find that you are earning less than you spend, use your budget to identify ways to cut back your discretionary spending. With a little bit of discipline you can start finding capacity to save in no time!

Monitor your Budget & Stay on Track.

Be sure you keep an eye on your budget and make changes when necessary. This doesn’t mean you have to track every nickel you spend; you can be flexible and still be comfortable! It is important to stay disciplined with your budget however, and be aware that unexpected expenses may pop up. With proper cash management, these unexpected events can feel less crippling. To help stay on track, you may find a budgeting software that you like to use, do your research and find one that is suitable for you. A vital takeaway, and something that can go a long way to help increase savings, is being able to identify a need vs. a want. If you can limit your “want” spending, you may be surprised how quickly you can save!

Josh Bitel is a Client Service Associate at Center for Financial Planning, Inc.®

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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 Josh Bitel and not necessarily those of Raymond James.

Life Insurance and Divorce: A Cautionary Tale, Part One

Contributed by: Jacki Roessler, CDFA^TM

Years ago, I got a call from Lindsay, a divorced client that still sends shivers down my spine. Her divorce had been final for two years when her ex, Justin unexpectedly died from a heart attack. In order to maintain her living expenses, Lindsay had been dependent on Justin’s monthly child support payments for their two young children.  Once the initial trauma subsided, Lindsay pulled out her divorce decree and breathed a sigh of relief; Justin had agreed to maintain a $250,00 life insurance policy to secure his child support payments.

So; why the phone call?

Justin missed a premium payment and the policy lapsed. Lindsay’s child support income was gone and despite their divorce agreement, there wasn’t anything to replace it.

The worst part of this situation was how easily it could have been prevented.

Taking a step back, there are four parties to every life insurance contract; the insurance carrier, the policy owner, the insured (the measuring life) and the beneficiary.

Life insurance is a legally binding agreement that the carrier will make a lump sum payment to a designated beneficiary upon the death of the insured-in exchange for annual premium payments. 

The simplest and easiest solution was to require Justin to transfer ownership of the policy to Lindsay at the time of the divorce.  He would have remained the insured and the person responsible for premium payments.  However, when payments are missed, it’s the owner who’s notified, not the beneficiary. Once a policy lapses, it’s too late to reinstate it. A new policy can be obtained, but only if the insured is still in good health and is willing to cooperate with the application process!  Lindsay could have made the delinquent payment herself and then attempted to enforce the divorce agreement directly with Justin or through the court system. Either way, the policy would have stayed in force.

In my experience, attorneys can be very uncomfortable insisting on policy ownership transfers.

By the time agreement’s reached on the parenting schedule, alimony and who gets to the keep the house, no one wants to see the case fall apart over who owns the life insurance policy.  As it was in Lindsay’s case, this was a disastrous mistake on her attorney’s part.

As an additional reason to change ownership on the policy, keep in mind that only the owner can change the life insurance beneficiary. Suppose Justin had remarried and decided to switch the beneficiary to his new wife. Sure, he would have been in default of the divorce decree, but there wouldn’t be any consequences to that once he’s dead.

Another unexplored option in this case was to request that the insurance carrier send duplicate statements to Lindsay, the beneficiary. Since the divorce decree itself isn’t legally binding on third parties (like the insurance carrier), there isn’t any real way to force this on the carrier, but some will comply. 

A last option would have been a requirement that Justin pay annual premium payments instead of monthly. Although most people prefer to make monthly or quarterly payments on insurance contracts, this would have provided Lindsay with less to follow up on. Rather than being forced to confirm monthly payments, she’d only have to confirm once per year.

Luckily, Lindsay’s kids were eligible to receive Social Security survivor benefits, which helped replace some of the child support income and she was eligible for widows’ benefits while their children remained minors. Despite that, she was still forced to sell her house.

The moral to this tale? Sometimes the issue that seems nit-picky or trivial is the one that can unravel someone’s finances after a divorce.  If you’re dependent on an income stream to pay your bills, make sure you understand how it can be protected and then insist on it before you sign your judgment of divorce.

Are there any other tax issues or potential financial pitfalls related to life insurance and divorce?  Glad you asked and yes, there are! Stay tuned for my next blog!

Jacki Roessler, CDFA^TM is a Divorce Financial Planner at Center for Financial Planning, Inc.®