Battle of the Brackets…Portfolio Management Edition: A Center Spin-Off Competition

Contributed by: Nicholas Boguth, CFA®

I believe certain things make our team outstanding here at The Center, and a few of them were in the spotlight this past month amid the March College Basketball Tournament:

• We constantly practice our company values.

• We have a heavy focus on charitable giving.

• And ultimately, we are just a cool place to work.

In the spirit of education, teamwork, and some friendly competition, we ran a bracket competition with an investment focus (we did a normal bracket game too, but mine was busted the first day, so there is no need to talk about that). Every team member chose an asset class to represent their “team” in the tourney. The winner of each round is the asset class that outperformed over the week, and we are repeating for five weeks until we have our champion.

Some team members chose more stable asset classes like short-term U.S Treasuries or investment-grade bonds, while some chose more volatile options like Emerging Market stocks or commodities. Overall, it is fun for the entire team to collaborate and for all of us (not just those in investment roles) to watch how different asset classes move with economic news*.

*We all know there is no shortage of economic news lately from the U.S. and overseas. Markets have been volatile, and times like these stress the importance of having a plan in place. As always, we are here to help answer any questions you may have about your plan. One small but powerful tool in investment management that we have taken advantage of is tax-loss harvesting during volatile markets. Read more about that here.

The cherry on top of this competition is that we are playing for some of our favorite local charities. The Center’s Charitable Committee donated $1,000 to the winning four team members’ charities of choice. Check out the results from last year, as we ran the same competition using individual stocks instead of asset classes. We will continue to find new ways to collaborate, learn, and partner with charities here at The Center. We hope you follow our blog as we update along the way!

Nicholas Boguth, CFA® is a Portfolio Manager at Center for Financial Planning, Inc.® He performs investment research and assists with the management of client portfolios.

Any opinions are those of Nicholas Boguth, CFA® and not necessarily those of Raymond James. 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.

Strategies for Retirees: Understanding Your Tax Bracket

Contributed by: Michael Brocavich, CFP®, MBA

Over the last few years, most Americans have seen lower taxes due to the Tax Cuts and Jobs Act put into effect in January 2018. With the increase in the standard deduction and lower tax rates, taking income from your retirement accounts has cost you less in taxes than in previous years. This has allowed retirees to do some strategic income and tax planning in the early years of retirement before they have to start taking Required Minimum Distributions ("RMD") from their Qualified Retirement Accounts.

First, it is important to look at some significant tax changes that came with the Tax Cuts and Jobs Act. The standard deduction for 2022 is $12,950 for single filers and $25,900 for married filing jointly. For married couples over the age of 65, there is an additional $1,300 deduction each. Add that all up, and joint filers who are both 65 or older will have a standard deduction of $28,500. That means that your first $28,500 of income will be federal tax-advantaged!

The current tax laws have reduced the 15% tax bracket rate to 12%. For married filing jointly, the top of the 12% tax bracket for 2022 is $83,550. That means that retirees aged 65 and older could potentially have up to $112,050 of adjusted gross income and remain in the lowest tax bracket. Understanding the tax laws and taking money from the proper accounts at the right time could help reduce your future taxes throughout retirement and reduce taxes significantly for your heirs.

Strategies for Retirees

1) Roth Conversions: If you are like most retirees, you do not have substantial assets in your Roth IRA, if you even have one at all. With income limits on Roth contributions and clients preferring to save in tax-deductible accounts first, many older taxpayers never opened Roth IRA's. The early part of retirement allows you to strategically take money from your IRA and convert it to a Roth IRA. There is no income limit or even minimum dollar amount requirements for Roth conversions. Still, you have to be aware that pulling money from your Traditional IRA and moving to your Roth IRA is taxable. By understanding your tax situation in retirement, you can move money into your Roth IRA and pay tax at lower rates than you potentially would later in retirement while building tax-advantaged assets and reducing your future RMDs (Required Minimum Distributions).

Common sense would tell you to try and take income and pay the least amount of taxes possible. This is prudent, but many retirees either forget about or do not truly understand their future RMDs and their impact on taxes in the future. With RMDs on Qualified Retirement Accounts at age 72, many retirees will be forced to withdraw more money from their Qualified Retirement accounts than they need and pay taxes on those distributions. You can take money strategically out of these qualified retirement accounts and convert the funds to Roth IRA accounts that do not have minimum distributions at 72. This, in turn, will reduce the values in your Qualified Retirement Accounts, reduce your future RMDs, and give you more tax-advantaged assets to use in retirement or to pass on to your heirs.

Investor Situation:

(This is a hypothetical example for illustration purposes only)

John and Cindy are now ready to retire at age 65 with a desired retirement income of $100,000. Typically it would be suggested that they take their Social Security at their full retirement age of 66 and use their taxable brokerage account for retirement income, delaying WD's from their IRAs till 70 1/2. In this scenario, their taxes could be as minimal as 85% or less of their Social Security. With a standard deduction of $28,500, their Federal Income Taxes would be only a couple thousand dollars or less depending on the capital gains they realized. What is not being considered is that with just a modest growth rate on their Qualified Retirement Accounts of 6%, when they reach 72, they could have an RMD of $85,000 - $90,000, giving them much more income than they need.

Suppose they were to delay taking Social Security to age 70 and do a Roth Conversion of $60,000 per year to top out their 12% tax bracket from ages 65 through 69. They could reduce their future RMDs to align with their retirement income needs, reduce their future taxes, and build a substantial tax-advantaged Roth IRA. In addition, they would also benefit from the delay in Social Security, giving them their maximum benefit assuming they have good longevity.

Base Scenario, no Roth conversions, SS at 66:

(Assumptions: Annual rate of return of 6.0% with a $100,000 per year income adjusted for inflation at 2.58% per year.  Social Security income uses a 1% COLA)

Utilizing Roth Conversion Strategy, $60,000 converted annually, SS at 70:

(Assumptions: Annual rate of return of 6.0% with a $100,000 per year income adjusted for inflation at 2.58% per year.  Social Security income uses a 1% COLA. This is a hypothetical example for illustration purposes only and does not represent an actual investment)

So let’s examine what happened here:

• Over their lifetime, they took $533,000 less in required minimum distributions by doing the conversions, much of which would have been taxed at the 22% tax rate vs. 12% rate;

• They are passing on $1,348,960 in Roth IRA assets to their children that can grow and never be taxed, if certain conditions are met;

• They are passing on $761,306 less in IRA assets to their children, which will be taxed over time at whatever rate applies to the children as adults; and

• In total, the heirs are getting an additional $164,000 than they would have had. The assets are also now positioned to be much more tax-efficient going forward.

2) Harvesting Tax Gains: For clients like above that have also been able to save not only in Qualified Retirement Accounts but also brokerage accounts, there may be an opportunity to harvest taxable gains in the first years of retirement as well. Another advantage of the 12% (formally 15%) tax bracket is that capital gains realized up to the top of the 12% bracket are not taxable to the account owner.

Brokerage accounts allow you to sell stocks or mutual funds that you have held for a long time with large gains in them. You can then use these highly appreciated funds for income in retirement or to rebalance your brokerage account to reduce risk and future taxes.

Combining the two strategies would create multiple advantages. Using your assets in your brokerage account for income in the first years while converting IRA assets to Roth IRA can potentially convert more money to a Roth while still staying in the 12% tax bracket. You will have to be aware of the amount of long-term capital gains, as the combination of those gains and your conversions could put some of your taxable income over the 12% tax bracket threshold.

Optimizing withdrawals in retirement is a complex process that requires a firm understanding of tax situations, financial goals, and how accounts are structured. However, the two simple strategies highlighted here could potentially help reduce the amount of tax due in retirement.

It is important to take the time to think about taxes and make a plan to manage withdrawals. Be sure to consult with a tax advisor and your financial planner to determine the course of action that makes sense for you.

Michael Brocavich, CFP®, MBA is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® He has an extensive background in both personal and corporate finance.

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

Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While familiar with the tax provisions of the issues presented herein, Raymond James financial advisors are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.

Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.

Examples used are for illustrative purposes only.

Don’t Forget to Plan for Your “Every Day” Retirement

Contributed by: Sandra Adams, CFP®

On a recent podcast focused on Longevity entitled “Nobody Plans for an Inactive Retirement,” Dr. Joe Coughlin from the MIT Age Lab commented that we all plan for our big goals in retirement. This includes the big trips, the projects, the events, and activities we want to check off our bucket list that we have been waiting decades to have the time and resources to achieve. However, he also says, “retirees have to have meaningful engagement, things to do every day that bring value to their lives; they have to be able to plan for what they will do on the most boring Tuesday afternoon, and know that they will feel satisfied with their day.”

We talk to clients about this as one of the pre-retirement planning items that is just as essential as the financial piece of their planning. Once you know you have enough money to be financially secure retiring, it is just as important to plan for what you will spend your time doing once you get there. And, of course, that includes all of the big goals. But that also includes what you will do every day in between; you have to have something meaningful to get up for every day, or your retirement will not be a success.

For many clients, the recent COVID pandemic and lockdowns were a trial run for what they might experience in retirement. Making sure the resources and technology were in place to maintain social connections, get resources when needed, and find meaningful things to do for many days in a row (instead of finding yourself in front of the television for hours on end) was a trial by fire for certain. We recommend that clients start building social networks outside of work, begin getting proficient at hobbies before they retire, dip their toes into volunteer opportunities they might be interested in pursuing later in life, and consider where they might want to live. This gives you the best opportunity to stay active and engaged as you age into your next stage of life. 

As an added layer of planning, taking the opportunity to take some extended vacations or sabbaticals from work pre-retirement to “test drive” retirement is not a bad idea. Take some time to simulate retirement and see what it is like for you. You can often see what you are missing and what you have yet to plan for before jumping into the deep end.

Work with your financial planner to plan for your retirement. Remember that, in addition to making sure that you are financially secure and that your big goals are prepared for, you are planning for all of the normal, average days of your retirement. A good resource is “A Purposeful Retirement” by Hyrum Smith (click here to read the blog I wrote referencing this book). Planning for all facets of your retirement will give you the greatest opportunity to live your best retirement life. If you or anyone you know is planning for retirement and needs guidance, please reach out to us. We are always happy to help.

Sandra Adams, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® and holds a CeFT™ designation. 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.

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 Sandra D. Adams, CFP® and not necessarily those of Raymond James.

The Center Named 2022 Best Place to Work for Financial Advisers by InvestmentNews

Contributed by: Jaclyn Jackson, CAP®

On February 7th, 2022, Center for Financial Planning. Inc. was named a 2022 Best Places to Work for Financial Advisers by InvestmentNews. The Center was chosen as one of this year’s top 75 based on employer and employee surveys delving into everything from company culture, benefits, career paths, and more. InvestmentNews partnered with Best Companies Group, an independent research firm specializing in identifying great places to work, to compile the survey and recognition program.

Winning Culture

Our mission, core values, service values, and company vision are the foundation of Center culture. The Center team is committed to…

• The Financial Planning Process

• Education and Personal Growth

• Being Nice and Kind

• Teamwork and Collaboration

• Energy and Enthusiasm

• Being Real and Down to Earth

We take our work seriously and are enthusiastic about providing excellent service. Yet, we recognize healthy company culture is also fun. We have brought levity to the office with fantasy football competitions, “soup”er Thursday charity drives, company outings like fowling and curling, and peer training through lunch n’ learns. Additionally, we have started stellar committees including our Social, Health & Wellness, Creativity, and new Diversity & Inclusion Committees. Two parts professionalism and exceptional service with one part fun has proven to be our award-winning mix to make The Center a great workplace.

Winning Culture Promotes Winning Service

As rewarding as it is to receive public recognition, our motivation for applying to InvestmentNews’ award has much more to do with offering incomparable service. We wholeheartedly believe that happy employees happily provide great service.  

The InvestmentNews selection process starts with each employee filling out an anonymous survey, rating everything from wages to company benefits. Fortunately, InvestmentNews provides an aggregate of survey results to award candidates. To us, this is the most valuable part of the process; getting critical feedback collected by an independent research firm. In the years since we began applying, The Center has used employee feedback to…

• Add dental and vision insurance

• Revamp parental leave

• Add flexible holiday leave to accommodate multi-cultural practices

• Expand bereavement eligibility

Improving opportunities for employees supports business sustainability. Compared to peers, The Center has a low team turnover. Not only have we been able to retain staff (even through - dare I say the dreaded word - a pandemic), our team has actually grown. A huge benefit of being a “best place to work” is that we are able to attract top-tier talent to the firm. Take it from partner and CERTIFIED FINANCIAL PLANNER™, Lauren Adams, who found The Center years ago while reviewing best places to work lists,

“Our intentional focus on creating a great workplace has allowed us to maintain high team member engagement, keep turnover low, attract top talent to our firm, and collectively strive to live our mission of “improving lives through financial planning done right.”

We have retained seasoned professionals who provide a level of service that only comes with experience. Our success in attracting, training, developing, and maintaining professionals is a sustainable competitive advantage. We know this advantage helps The Center consistently provide top-quality service to our clients.

Please join us in celebrating this prestigious acknowledgment. We are excited and hopeful that fostering a healthy work environment creates a win-win situation for both employees and clients alike! Want to meet our team? Click HERE.

Jaclyn Jackson, CAP® is a Senior Portfolio Manager at Center for Financial Planning, Inc.® She manages client portfolios and performs investment research.

Any opinions are those of Jaclyn Jackson, CAP®, and not necessarily those of Raymond James.

Investment News “2021 Top 75 Best Places to Work for Financial Advisers”. The Best Places to Work for Financial Advisers program is a national program managed by Best Companies Group. The survey and recognition program are dedicated to identifying and recognizing the best employers in the financial advice/wealth management industry. The final list is based on the following criteria: must be a registered investment adviser (RIA), affiliated with an independent broker-dealer (IBD), or a hybrid doing business through an RIA and must be in business for a minimum of one year and must have a minimum of 15 full-time/part-time employees. The assessment process is compiled in a two part process based on the findings of the employer benefits & policies questionnaire and the employee engagement & satisfaction survey. The results are analyzed and categorized according to 8 Core Focus Areas: Leadership and Planning, Corporate Culture and Communications, Role Satisfaction, Work Environment, Relationship with Supervisor, Training, Development and Resources, Pay and Benefits and Overall Engagement. Best Companies Group will survey up to 400 randomly selected employees in a company depending on company size. The two data sets are combined and analyzed to determine the rankings. The award is not representative of any one client's experience, is not an endorsement, and is not indicative of an advisor's future performance. Neither Raymond James nor any of its Financial Advisors pay a fee in exchange for this award. Investment News and/or Best Companies Group is not affiliated with Raymond James.

March FOMC Meeting: Rate Liftoff

Contributed by: Angela Palacios, CFP®, AIF®

“The best-laid plans of mice and men often go awry” is a nice way of saying bond market experts had beautifully laid out projections of interest rate increases for the rest of this year, but those projections have quite possibly been turned on their heads now that they are exposed to reality. However, the Federal Reserve (the Fed) began the potential upward march in interest rates with a .25% increase this month. 

Remember from my writing last year, the Fed increases interest rates in an effort to temper inflation. Recent events in Russia put the Fed in a difficult position because they feel pressured to move away from their ultra-accommodative policy. However, the longer the Russia/Ukraine conflict persists, the more unlikely it is that the US economy will be unscathed, as we are seeing with energy prices right now. Raising interest rates will not combat inflation caused by a spike in energy prices nearly as easily (not that it was easy before). It may even risk pushing the economy into a stagflationary environment (a period of low economic growth with high inflation).

The bonds markets have accounted for a large amount of these rate increases already (pricing six 0.25% rate increases in 2022, giving a 50% change of a .5% rate increase occurring at the next meeting in May). However, we are still seeing rates jitter up and down as bond markets try to digest rate liftoff coupled with inflation and the Russia/Ukraine crisis.

So while Chairman Powell is still standing firm that they will utilize increasing interest rates (approximately six more times this year) to combat inflation, plans can often change!

Angela Palacios, CFP®, AIF®, is a partner and Director of Investments at Center for Financial Planning, Inc.® She chairs The Center Investment Committee and pens a quarterly Investment Commentary.

This market commentary is provided for information purposes only and is not a complete description of the securities, markets, or developments referred to in this material. Any opinions are those of the author and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. Diversification and asset allocation do not ensure a profit or protect against a loss.

What’s the Social Security Spousal Benefit?

Contributed by: Lauren Adams, CFA®, CFP®

At The Center, having a Social Security filing strategy is an important part of the retirement planning process. For couples where one of the spouses did not work outside of the home, many are surprised to find out that their projected Social Security benefit is much larger than they would have expected. 

This is usually due to the Social Security Spousal Benefit – a benefit that an individual may be entitled to based on the earnings history of their spouse. Here is the high-level overview of this benefit:

Who: Available to those who have been married at least one year and are 62 years or older.

What: The benefit amount can be up to 50% of the working spouse’s Primary Insurance Amount at Full Retirement Age (FRA). The spousal benefit only kicks in if this benefit is higher than the receiving spouse’s own retirement benefit.

When: That depends! The working spouse needs to have filed for the spouse to claim this benefit. If the receiving spouse claims before their own FRA, then the spousal benefit is permanently reduced (just like the standard benefit). But unlike the standard benefit, there are no delayed retirement credits that increase the spousal benefit after the receiving spouse’s FRA. This complicates claiming decisions for couples and is why working with a financial advisor - who can take all the different factors related to each couple’s situation into account - is especially important.

Where: You can apply for benefits, including spousal benefits, online at https://www.ssa.gov. 

Why: The spousal benefit originated earlier in the 20th century when the typical family structure often saw only one individual working outside the home and aimed to provide some level of financial security for the non-working spouse. 

Note that the rules above are different if the spouse is caring for a qualifying child or has been divorced or widowed. Contact us to see how we can help maximize your retirement benefits based on your individual situation.

Lauren Adams, CFA®, CFP®, is a Partner, CERTIFIED FINANCIAL PLANNER™ professional, and Director of Operations at Center for Financial Planning, Inc.® She works with clients and their families to achieve their financial planning goals.

The foregoing information 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 Lauren Adams, CFA®, CFP® and not necessarily those of Raymond James.

Tips for Investors During Times of Market Volatility

Contributed by: Michael Brocavich, CFP®, MBA

When faced with volatility in the market, emotions can be triggered in investors that can impact their judgment and potentially affect returns. These pullbacks can make folks want to pull up stakes and run – a reaction that is often a mistake, especially for long‐term investors.

The likelihood that we will continue to see volatility this year is high. The Fed has slowed down its bond buying activities and is raising interest rates, the threat of a new COVID variant that could shut down the economy still exists, and there are supply chain and labor issues around the globe. To top it all off, we are gearing up for mid‐term elections in November.

Here are some tips to consider when we do face a volatile market. Having a plan during this time can help provide clarity, confidence, and even strategies to take advantage of the volatility.

• First, we need to remember that market volatility is normal. As investors, when we experience long periods of upward markets with little volatility, we forget how regular market volatility really is. We need to remember that historically, the market will dip by 5% at least three times a year. Also, on average, the market will have a 10% correction once a year. Understanding that volatility is a natural process of investing and challenging to avoid can help curb some emotions triggered by these markets.

• Make sure your employer retirement accounts are rebalanced appropriately. Over the last few years, money invested in stocks have severely outperformed the bond market. Now is a good time to revisit the allocations in your Employer‐Sponsored Retirement plans to make sure your allocation is still within your risk tolerance. You will want to make sure that your allocation to stock funds and bonds funds is appropriate for the amount of risk you want to take. If you are unsure of how you should

• Increase Plan contributions when markets are down. For younger investors still in the accumulation stage, a volatile market is a great time to increase your contributions. Though it may seem scary to increase your contributions when markets are volatile, you are actually buying into the market when prices are on sale. Contributions added when the market is down 5‐10% from the previous high have much more earning power than contributions made when the market is up 5‐10% from its last high.

• Have additional cash on hand to invest in dips and corrections. For investors who have been able to max out their Employer‐Sponsored plans and still have additional cash to invest, a volatile market can make for an excellent opportunity to do so. Consider talking with your advisor about moving extra cash to your investment accounts to invest on dips and corrections. Together, you can develop a strategy to get your cash invested over time or all at once, depending on market conditions.

Stumbling through bad times without a strategy makes a troubling situation even worse. If you do not have a retirement or investment plan, you will not accurately assess the damage when markets do take a dive. This could increase stress and cause investors to make bad decisions.

These periods of volatility are an opportunity to connect with your advisor, enabling them to act as a sounding board for your concerns. By talking about current events in light of your overall financial plan, your advisor can provide a reassuring perspective to help you stay the course or even invest extra cash during an opportune time.

Michael Brocavich, MBA is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® He has an extensive background in both personal and corporate finance.

Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Past Performance does not guarantee future results.

How to Find the Right Retirement Income Figure for You

Contributed by: Sandra Adams, CFP®

A big part of the planning work that we do is planning for future retirement. Simply put, how much income will you need each year to support the expenses you will have in retirement, and what income sources and assets will you have once you get there to support those needs throughout your lifetime.

For many clients, they have an accurate calculation of the income they will need. This is based on what expenses they have pre-retirement adjusted by the expenses that will go away (like mortgages, employment-related expenses, etc.), and those that may increase (like travel, those related to additional hobbies, etc.). For other clients, coming up with a future retirement income need is truly a wild guess. They may not have a good handle on what they spend now, and knowing what they need in retirement is even more of a mystery to them. So, where should you start to develop your correct retirement income figure?

First, we suggest tracking expenses before retirement to determine your average monthly spending. We suggest using a budget tracking tool to track spending for two or three months at least a couple of times, during different times of the year, to catch irregular expenses and trends. Once you feel that you have a good handle on your average income needed monthly, you can estimate your annual need. This method also helps you understand WHERE you are spending and where that might change once you retire. You can also develop an annual expense need estimate by backing into it. For example, start with your gross salary and subtract what you pay in taxes and save to 401k or other savings vehicles. You can generally assume what is left is going towards spending. However, this method will not tell you where you are spending and how it will change. Now, we at least have a number to start with for our planning projections.

Next, I often suggest that clients very close to retirement try living on their future retirement income BEFORE they retire to see if it feels comfortable. For instance, I have had clients live on just one of a couple’s salary to see if they could do it without feeling like they were denying themselves. Trying to live on the amount you are planning on living on in future retirement, even for a few months, gives you a taste of your future reality. If it feels comfortable, you likely have the correct number. However, if you feel like you are denying yourself and completely changing how you live, perhaps you need to go back to the drawing board and plan for a different income goal to see if that is possible. Not planning for the retirement you want from the beginning will only set you up for years of retirement planning. Why not see if the retirement you want is possible by starting with the right retirement income number?

When it comes to retirement income, you do not want to guess the number. It is worth your time and effort to come up with the most accurate number for you to meet your ideal retirement goals. Retirement planning projections are only as good as the assumptions we use. If we are not using the right assumptions, especially the right number for your retirement income, the projections for your retirement success will not be as accurate as you want them to be.

Work with your financial planner to find the tools you need to come up with YOUR most accurate retirement income need, and then make sure your plan can support those needs. We want you to have the most successful retirement possible!

Sandra Adams, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® and holds a CeFT™ designation. 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.

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 Sandra D. Adams, CFP® and not necessarily those of Raymond James.

The Power of Compounding Interest

Contributed by: Kelsey Arvai, MBA

Saving for retirement can feel like flossing your teeth; we know we should, but sometimes it is easier to keep putting it off. If you are young and have yet to prioritize your retirement savings, you are not alone. According to Investment Executive, only 58% of Millennials are actively saving for retirement. While this might sound as scary as flossing your teeth, time is your greatest advantage.

When comparing a 25 and 35-year-old who have each saved $10,000 in their 401(k)’s, the 25-year-old could build a $200,000 retirement fund by the time they are 65 without adding any more money (assuming an 8% rate of return). In contrast, the 35-year-old could reach $100,000 of savings by age 65 without saving another dime (assuming an 8% rate of return). Both are able to grow their savings massively, thanks to compounding interest. The 25-year-old has had more time (10 years) for their interest to compound, hence the $100,000 advantage over the 35-year-old. The lesson here is that the sooner you start saving for retirement, the more time you will have to take advantage of compounding interest.

Compounding happens when your savings are reinvested to generate their own earnings, those earnings create more, and so on. This is the key to helping grow your savings, and getting started early pays off. With time on your side, saving becomes much more pleasant and accessible. If you have access to an employer-based retirement plan, it is a good idea to make the most of it. Most employers will also match some of your contribution, and it is in your best interest to contribute at least that match, so you are not leaving any money on the table. For example, if your employer matches up to 3%, it would be most beneficial to you to defer at least 3% of your paycheck (pretax) so that you retain the full 6% (3% of your deferral + 3% employer match) of your income going into your retirement savings.

Since the deductions are pretax, meaning the savings happen before the check hits your bank account, you will likely hardly notice your money being put away once you have created the habit. The longer you wait to plan for your retirement, the more you will need to invest later on. In your twenties and thirties, a longer time horizon before you retire affords you the ability to invest largely in stocks, where you will be able to handle market losses and benefit from market growth.

An early start is only the beginning for retirement savings. It is important to stay consistent with your commitment to your retirement savings. The sooner you start saving, the better - reach out to us if you have any questions on how to get started! 

Kelsey Arvai, MBA is an Associate Financial Planner at Center for Financial Planning, Inc.® She facilitates back office functions for clients.

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 Kelsey Arvai, MBA and not necessarily those of Raymond James.

What Happens to my Social Security Benefit If I Retire Early?

Contributed by: Kali Hassinger, CFP®, CSRIC™

Did you know that the benefit shown on your Social Security estimate statement is not just based on your work history? Your estimated benefit actually assumes that you will work from now until your full retirement age, and on top of that, it assumes that your income will remain about the same that entire time. For some of our younger, working, and successful clients, early retirement is becoming a frequent discussion topic. What happens, however, if you retire early and do not pay into Social Security for several years? In a world where pensions have become a thing of the past for most people, Social Security will be the largest, if not the only, fixed income source in retirement. 

Your Social Security benefit is based on your highest 35 earning years, with the current full retirement age at 67. So, what happens to your benefit if you retire at age 50? That is a full 17 years earlier than your statement assumes you will work, effectively cutting out half of what could be your highest earning years.

We recently had a client ask about this exact scenario, and the results were pretty surprising! This client has been earning an excellent salary for the last ten years and has maxed out the Social Security tax income cap every year. Her Social Security statement, of course, assumes that she would continue to pay in the maximum amount (which is 6.2% of $147,000 for an employee in 2022 - or $9,114 - with the employer paying the additional 6.2%) until her full retirement age of 67. By completely stopping her income, and therefore, her contributions to Social Security tax at age 50, she wanted to be sure that her retirement plan was still on track.

We were able to analyze her Social Security earning history and then project her future earnings based on her current income and future retirement age of 50. Her current statement showed a future annual benefit of $36,000. When we reduced her income to $0 at age 50, her estimated Social Security benefit actually dropped by 13% or, in dollars, $4,680 per year. That is still a $31,320 per year fixed income source that would last our client throughout retirement. Given that she is working 17 years less than the statement assumes, a 13% decrease is not too bad. This is just one example, of course, but it is indicative of what we have seen for many of our early retirees. 

If you are considering an early retirement, Social Security is not the only topic you will want to check on before making any final decisions. There are other issues to consider, such as health insurance, having enough savings in non-retirement accounts that are not subject to an early withdrawal penalty, and, of course, making sure you have saved enough to reach your goals! If you would like to chat about Social Security and your overall retirement plan, we are always happy to help!

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

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 Kali Hassinger, CFP®, CSRIC™ and not necessarily those of Raymond James.