From Overwhelmed to Empowered: A Widow's Journey to Financial Well-Being

Contributed by: Sandra Adams, CFP®

Bonnie's Story

Bonnie and Carl had what they considered a very traditional marriage, with well-defined and balanced family roles. Carl was a corporate executive, so it seemed logical that he would manage all the family finances. Bonnie oversaw the running of the household, including maintenance, meals, the kids, and the household social calendar.

Bonnie knew they were financially comfortable but never really knew how much they had coming in or going out. Nor did she know how much they had saved or invested for retirement. Carl would bring her the signature page for the tax return annually, and when she asked how they did it, he would say, "We did fine, Bonnie. We have plenty of money…you don't need to worry." She would sign the return but never see the actual numbers, nor did she ask.

All the bank and investment statements would come in Carl's name, and she trusted him so completely that she was never tempted nor interested enough to look at them.

When Carl turned 78, he suddenly became ill. He was diagnosed with stage 4 pancreatic cancer and had only months to live. Bonnie was overwhelmed with the news. All she could do was care for Carl and try to spend what little time she had with him in a quality way. This did not involve asking him questions about their finances. When he passed away four months later, she found herself utterly ignorant about her financial situation and was quite anxious about what her financial future might look like. It was all a mystery to her.

Theresa's Story

Theresa was a caregiver for her husband, Henry, who had Parkinson's. She cared for him in their home for nearly eight years. Henry had managed the financial responsibilities during the marriage and continued to do so until the very end of his illness. Theresa did all she could to learn about their finances from Henry and started to manage them on her own. She understood their financial situation and what it might look like for her when Henry passed.

However, with the intense caregiving duties, not a lot of the information "is stuck." While she could pay her bills and had a firm grasp of their income and expenses, she had no sense of what her new normal would be. Nor did she have any relevant knowledge about how their investments and savings worked or how she would use them for herself going forward.

She also found herself anxious and depressed; the caregiving had kept her socially isolated. By the time Henry passed away, she had discovered that she had not been out with friends in over five years and had little sense of what was going on in the real world. She was overwhelmed and didn't know where to start.

These examples illustrate just two situations in which widows find themselves. While more women these days are involved with or in control of the financial planning for their families, it's not uncommon for some to find themselves in the dark when it comes to their marital and financial affairs. If they're not curious or forthright in asking to participate in the planning conversations, they likely find themselves in situations like Bonnie and Theresa — overwhelmed by the loss of their husbands and lacking the information they need about their own finances, entirely at a loss about how to plan for themselves.

What Can a Widow Do If She Finds Herself in This Kind of Situation?

1. Build a team. Start with a professional decision-making partner or team of partners to help. A financial adviser who focuses on comprehensive financial planning (a CERTIFIED FINANCIAL PLANNER™ professional) should be part of the team. In addition, you might consider adding a Certified Professional Accountant (CPA) and possibly an estate planning attorney to the team for guidance on the full scope of the financial picture.

2. Get organized. With the assistance of the financial planner, gather information on all income sources, savings, and investments, and then determine a budget and ongoing expenses for the new normal lifestyle. This will lay the groundwork for a complete financial picture and help you understand your financial resources now and in the future.

3. Learn financial planning basics. With the help of the team, learn the basics of financial planning based on your own plan. Part of collaborating with a financial planner is understanding how financial tools and resources work and how they can work for you.

4. Become empowered. Don't stop at the initial plan. To become fully empowered, you need to grow and develop financial confidence over time. Maintaining the relationship with your team over months and years provides trusted financial partners to go to for help with questions and making financial decisions in the future.

Becoming a widow can be overwhelming. If you haven't been privy to your marital finances before your spouse's death, the adjustment can be even more difficult. If you have found yourself in this situation or know someone who has, the help of professionals and basic financial education can empower you and help you reclaim your own financial independence.

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.

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 Sandra D. Adams and not necessarily those of Raymond James.

Prior to making an investment decision, please consult with your financial adviser about your individual situation. Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Center for Financial Planning, Inc®. Center for Financial Planning, Inc.® is not a registered broker/dealer and is independent of Raymond James Financial Services.

The examples provided above are hypothetical in nature and do not represent actual people or situations.

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

Can You Move Required Distributions from Your Tax-Deferred Retirement Plan or IRA to Your Roth IRA?

Contributed by: Kelsey Arvai, CFP®, MBA

Contributed by: Nick Errer and Ryan O'Neal

Required Minimum distributions (RMDs) are the minimum amounts you must withdraw from your retirement accounts each year. You generally must start taking withdrawals from your Traditional IRA, SEP IRA, SIMPLE IRA, and retirement plan accounts when you reach age 72 (73 if you reach age 72 after December 31st, 2022, or 75 if you were born after 1960).

Account owners in a workplace retirement plan (for example, a 401(k) or profit-sharing plan) can delay taking their RMDs until the year they retire unless they own 5% of the business sponsoring the plan.

These amounts vary depending on the value of your account and your life expectancy factor. The amount of your Required Minimum Distribution (RMD) is calculated by dividing the value of your account value at the previous year's end by a life expectancy factor, as determined by the Internal Revenue Service (IRS). If the sole beneficiary of your IRA is your spouse and your spouse is ten years younger than you, use the life expectancy table from Table II (Joint Life and Last Survivor Expectancy).

For the 2024 tax year, the annual contribution limit to an IRA is $8,000 if you're 50 and older. The limit is the total of all your IRAs – traditional and Roth. (The limits are $1,000 less for anyone under age 50). The IRS requires you to have enough earned income to cover your Roth IRA contributions for the year – but the actual source of your contribution need not be directly from a paycheck. The IRS defines Earned income as any income from wages, salaries, tips, and other taxable employee pay, including self-employment income. However, the IRS does not regulate the pool of money from which the contribution comes. This means you can take your RMD from a Traditional IRA, pay the taxes, and reinvest into your Roth IRA. The only catch is that you would need enough earned income to cover the contribution, but not too much, so you are over the contribution threshold.

The Roth IRA contribution rules are based on your income and tax-filing status. If your modified adjusted gross income (MAGI) is in the Roth IRA phase-out range, you can make a reduced contribution. You can't contribute if your MAGI exceeds the upper limits for your filing status. If your RMD was $8,000 or less, you could deposit all the money into your Roth IRA; however, if you contributed $4,000 to another IRA in the same year, you could just place $4,000 of your RMD into a Roth IRA.

Just because you can, doesn't mean you should… 

It is important to remember that no method is perfect for every individual and there are important factors you should consider before reinvesting RMD income into a Roth IRA. Any contribution to a Roth IRA must be held in the account for a five-year period to avoid a 10% early withdrawal penalty. Additionally, converting RMDs to a Roth IRA is not the only reinvestment vehicle you have. Other options include Roth Conversions, 529 Contributions, and Qualified Charitable Distributions. Talk to a financial advisor today to find a solution that works best for you. Reach out to us here or call us at 248-948-7900.

Sources:

• https://www.investopedia.com/ask/answers/08/ira-rmd-reinvest.asp

• https://smartasset.com/retirement/planning-to-take-rmds-convert-to-roth-why-not

• https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs

• https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs#:~:text=The%20RMD%20rules%20apply%20to,while%20the%20owner%20is%20alive.

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

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.

Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.

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 the author and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability. Conversions from IRA to Roth may be subject to its own five-year holding period. 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 of contributions along with any earnings are permitted. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion. Matching contributions from your employer may be subject to a vesting schedule. Please consult with your financial advisor for more information. 401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. Contributions to a Roth 401(k) are never tax deductible, but if certain conditions are met, distributions will be completely income tax free. Unlike Roth IRAs, Roth 401(k) participants are subject to required minimum distributions at age 72.

Beyond the 4% Rule: Five Strategies to Ensure Your Retirement Income Lasts a Lifetime

Contributed by: Nick Defenthaler, CFP®, RICP®

In a prior article, I focused on the popular 4% rule and discussed safe portfolio distribution rates over the course of retirement. While the percentage you are drawing from your portfolio is undoubtedly very important, other factors should also be taken into consideration to ensure the income you need from your portfolio lasts a lifetime.

Asset Allocation

It's common for retirees to believe their portfolio should become extremely conservative when they're in retirement. But believe it or not, having too little stock exposure has proven to do MORE harm than holding too much stock. While having a 90-100% stock allocation is likely not prudent for most retirees, maintaining at least 50-60% in equities is typically recommended to ensure your portfolio is outpacing inflation over time.

Reducing Your Withdrawal Rate

Spending less during market downturns is one of the best ways to preserve your portfolio's long-term value. When I think of this concept, I always go back to March 2020. When the global pandemic hit, the U.S. stock market fell 35% in only two weeks, resulting in the quickest bear market in history.

Due to the COVID-19-induced recession we were living through, we were all forced to dramatically reduce activities such as travel, entertainment, and dining out. This reduced spending for many, which helped tremendously while portfolio values recovered. This highlights the importance of reducing fixed expenses (e.g., mortgage, car payments, etc.) over time to provide flexibility. In years when markets are down significantly, having the ability to reduce variable expenses will prove to be an advantage.

Impact of Fixed Income Sources

Often, we recommend delaying Social Security into your mid-to-late 60s to take advantage of the over 7% permanent annual increase in benefits. It's also fairly common to have pension and annuity income start around the same time as Social Security, which could mean several years of drawing on your portfolio for your entire income need. In many cases, this means a significantly higher portfolio withdrawal rate for several years.

To plan for this short-term scenario with elevated distributions, you might consider holding at least several years' worth of cash needs in highly conservative investments (i.e., cash, money market funds, CDs, short-term treasuries, and bonds). Doing so helps reduce the likelihood of being forced to sell stocks while down considerably in a bear market, something we want to avoid at all costs — especially in the first several years of retirement (also referred to as a sequence of return risk).

Intentional Withdrawal/Distribution Strategy

Being highly intentional about what accounts you draw from and when you draw from them throughout retirement could be a game changer for your long-term financial plan. Chances are, our tax code will change several times throughout your 25+ year retirement. When it does, it's imperative to work with an adviser who understands how these changes could impact your situation and help you plan accordingly.

In some years, drawing from IRAs and 401(k)s and less from after-tax brokerage accounts will make more sense. Then, in other years, it will be the exact opposite. Prudent spend-down strategies, implementing Roth IRA conversions when tax rates are low, and strategically realizing capital gains at preferential tax rates have been shown to increase the "lifespan" of an investment portfolio by 2-3 years.

Part-time Income

Let's be honest – most of us don't want to think about work after retirement. That said, I'm seeing more and more retirees take the "retire from working full-time" approach for several years. In these cases, someone might work 15-30 hours per week at a job they enjoy (or can at least tolerate). This helps reduce distributions from their portfolio during a time when the sequence of return risk is at its peak. I find that most folks dramatically underestimate how valuable even earning $15,000 annually for 2-3 years can be in the long-term sustainability of their overall financial plan.

While working part-time in retirement certainly has its financial benefits, I've also seen it help with the emotional/lifestyle transition to retirement. Going from working full-time for 40+ years to a hard stop can prove challenging for many. Phasing into retirement through part-time work can be an excellent way to ease into this exciting next chapter of your life.

If you're within five years of retirement, I would encourage you to discuss these concepts and ideas with your adviser. Having these conversations early is advisable to ensure a well-thought-out plan is in place to help with your retirement transition.

Nick Defenthaler, CFP®, RICP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® Nick specializes in tax-efficient retirement income and distribution planning for clients and serves as a trusted source for local and national media publications, including WXYZ, PBS, CNBC, MSN Money, Financial Planning Magazine and OnWallStreet.com.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Center for Financial Planning, Inc is not a registered broker/dealer and is independent of Raymond James Financial Services Investment advisory services are offered through Center for Financial Planning, Inc.

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 Nick Defenthaler, CFP®, RICP® and not necessarily those of Raymond James. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation.

Wire Transfer Delays

Contributed by: Jeanette LoPiccolo, CFP®

Clients occasionally request a wire transfer from their Raymond James account. We're delighted to assist, but we want you to be informed about the possibility of an industry-wide delay in the process. While most wire transfers occur promptly on the same day requested, a few are delayed.

Who is impacted?

All financial institutions using the wire transfer system are impacted. 

Why is this happening now?

Recently the federal government and international financial communities have instituted a more comprehensive due diligence review process for electronic wire transmissions, including domestic and international. For Raymond James clients, we have partnered with Citibank to provide wire transfer services. These U.S. federally mandated reviews may cause delays at Citibank as the wire transfer sender or delays at the receiving financial institution.

How long are the wire transfer delays?

We do not have an estimate of how long the reviews might take at the banks, as in some instances, the turnaround times have ranged from several hours (most common) to several business days and, in isolated cases, have run up to several weeks.

I plan to send a wire transfer in the future. What can I do to avoid this?

If you're planning to send a wire transfer in the future and want to avoid potential delays, don't hesitate to contact your Client Service team member. We're here to review your specific situation  and suggest ways to reduce the chance of any inconvenience.

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

Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Center for Financial Planning, Inc. Center for Financial Planning, Inc.® is not a registered broker/dealer and is independent of Raymond James Financial Services.

Planning Ahead for Later Retirement Living

Contributed by: Sandra Adams, CFP®

Clients often find their adventurous side once they retire. It is not uncommon for them to find themselves living in a different part of the country (or the world) from their family for at least part of the year to enjoy the benefits of a warmer climate and a more active lifestyle with others who share the same interests.

Planning conversations with these clients often make their way around to the topics of long-term care and the specifics of where they will want to live when they are older and potentially need care and who they want to take care of them. For most clients, they want to be at least living close to family later in life when they might need care, whether that means that family is providing care or they are receiving care from professionals and their family is just close enough to be able to see them frequently. That is usually the plan. We encourage clients to make those plans become reality well before they need care, but most people do not want to think about those things, so they put off acting on their plans.

Recently, though, I have had several clients starting to plan ahead (Yes! People are hearing the message!). They are taking the time to look at where they might want to live near their family in advance. For some, this might be an independent condo. For others, this is an apartment in a retirement community, a Continuing Care Retirement Community, or an Assisted Living Facility (if they are already experiencing care needs). The point is that they are thinking ahead and finding their “right fit” and finding the place they want to be before it is critical that they move. For some, they may have two places for a while and transition over time. For others, they determine it is time to move back “home” near family and give up the active retirement lifestyle with peers. Because they are planning in advance, they can determine what works best and take their time to make it work for them.

Planning ahead for where you will live in each of the distinct phases of retirement can be critical. Getting caught in a situation where you need to change your living situation or move to a care facility when you have not planned for it can be disruptive and challenging, at best, especially if you have yet to give it any thought. Plan ahead for your future long-term care and retirement living situation so that you and your family have the best overall experience possible in your later retirement years.

If you or someone you know needs assistance with these types of planning conversations, please reach out, we are always happy to help. Sandy.Adams@CenterFinPlan.com

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.

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 Sandra D. Adams and not necessarily those of Raymond James.

Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Center for Financial Planning, Inc. Center for Financial Planning, Inc.® is not a registered broker/dealer and is independent of Raymond James Financial Services.

Will Social Security Run Out in The Next 10 Years?

Contributed by: Kelsey Arvai, CFP®, MBA

Contributed by: Nick Errer and Ryan O'Neal

No, social security won't run out, at least not entirely. As a result of changes to Social Security enacted in 1983, benefits are expected to be payable in full until 2037. When these reserves are used up, continuing tax revenues are expected to pay 76% of scheduled benefits. What is causing the financial status of the Social Security Fund to shortfall? Americans have fewer children, live longer, and have an aging population of Baby Boomers retiring at a record pace, further lowering the workforce.

Many discussions have surfaced about how Congress will address the issue of an insolvent Social Security fund. Because we are currently in an election term, it is unlikely that any immediate action will be taken, but these are likely the eventual options on the table, barring any other creative solutions.  

Payroll Taxes may increase. The current Social Security tax rate is 12.4%. For most Americans who are W2 employees, this is split 50/50 between the employer and employee. An increase of 1% for both parties would bring the total rate up to 14.4% and substantially improve the program's state.  

Retirement age may have to go up. There have been no significant changes to the Social Security Program since the full retirement age was lifted from 65 to 67 in 1983. Since then, the average life expectancy in the United States has risen from 74.6 to 77.5 years old. A slight increase in the full retirement age represents how much longer people live today. Another increase would extend the fund substantially.

Benefits may get cut. Like any other struggling budget, there are two ways to fix it. One can either increase revenues or decrease spending. Rather than increasing revenue via payroll taxes to improve the state of the Social Security Fund, policymakers may decide to lower the maximum benefit individuals may receive. While this option would face scrutiny in the current high-price environment, it is certainly on the table.

In today's political environment, it is astute to structure your retirement portfolio to accommodate at least 30 years of retirement or longer. You can do this by creating a savings plan and choosing the right mix of investments (also known as a portfolio allocation). Individuals may rely on several fixed income sources besides Social Security in retirement, such as annuities, pensions, rental properties, or other recurring sources. Maintain at least one year of cash in a relatively safe, liquid account, such as an interest-bearing bank account or money market fund. Next, create a short-term reserve in your investment portfolio equivalent to two to four years' worth of living expenses, accounting for regular income sources or not, depending on how conservative you are. Invest the rest of your portfolio in investments that align with your goals and risk tolerance. The overarching goal here should be to hold a mix of stock, bond, and cash investments that can generate growth, provide income, and preserve your capital—balancing retirement income between social security and other income streams to create a more reliable financial future. Are you looking to implement a retirement income strategy? Reach out to us!

Sources:
https://www.ssa.gov/policy/docs/ssb/v70n3/v70n3p111.html  
https://www.investopedia.com/ask/answers/071514/why-social-security-running-out-money.asp  

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

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. Any opinions are those of the author and are not necessarily those of RJFS or Raymond James. Every investor’s situation is unique, and you should consider your investment goals, risk tolerance and time horizon before making any investment or investment decision. Investing involves risk and you may incur a profit or a loss regardless of strategy selected. Past performance is no guarantee of future results. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Mutual Funds vs. ETFs – What’s the Difference?

Contributed by: Nicholas Boguth, CFA®, CFP®

At the highest level…not much! Mutual funds and Exchange Traded Funds are two common types of investments that group individual securities together into a neat package to make it easier for us investors to build our ideal portfolios.

The difference between mutual funds and ETFs shows up more when you dig into the details of their liquidity, tax efficiency, costs, and transparency (more information on each difference is at the bottom of this post for anyone looking for the specifics). ETFs do have some structural benefits compared to mutual funds, which has led to their faster growth over the past decade, but the total assets invested in ETFs are still less than half that of mutual funds.

I buried the specifics at the bottom of this post because, for most of us, ETFs and mutual funds can be used interchangeably to reach our investment goals. In fact, some companies offer the exact same investment product in both fund structures.

The major question: "Which is better?" If only it were that easy…

ETFs do have a handful of advantages compared to mutual funds. Two of the most significant advantages are that they are often cheaper and more tax efficient. But like all things in investing, the best answer is…"It depends." Here are some examples where you might lean towards a mutual fund compared to an ETF: sometimes mutual funds ARE cheaper, or maybe you want to invest in a portfolio manager who doesn't offer an ETF, or perhaps you believe an asset class is better served by the mutual fund structure than the ETF, or you are holding a mutual fund in a taxable account and now have a large capital gain that you do not want to realize yet, or your trading platform charges higher fees to trade ETFs, or you want to set up automatic periodic purchases and a mutual fund is the only way to do that.

Ultimately, your investment portfolio can only be perfect for YOU. We would love the opportunity to help you build a portfolio that will help you reach your financial goals. Shoot us an email to get started!

• Liquidity: ETFs trade intra-day, similar to stocks, so you can get a different price when you buy/sell at 10 a.m. compared to 2 p.m., for example. When you buy or sell a mutual fund, the price is determined at the end of the day.

• Tax Efficiency: Mutual funds and ETFs rebalance and trade their individual holdings throughout the year, and those trades may generate capital gains. Mutual funds and ETFs must pass those capital gains onto you, the end investor. The difference is that the structure of an ETF gives it the option to create or redeem shares or "creation units" that allows them to minimize capital gains for the end investor throughout the year. From your perspective, the capital gains don't just disappear when you hold an ETF. You'll still realize those capital gains once YOU sell the ETF in your portfolio, but it gives you more control over WHEN you will realize them, which can be important for your financial plan.

• Costs: ETFs are generally cheaper than mutual funds. There are a whole host of reasons for this, from operational efficiencies to commission/load differences. However, the average ETF is about half the cost of the average mutual fund when comparing expense ratios. There are exceptions to every rule, though, and trading fees/commissions also have to be taken into consideration when building your portfolio.

• Transparency: Mutual funds generally only report their holdings to the SEC, whereas ETFs report daily. This gives end investors more transparency into what the fund is actually holding and can help inform our investment decisions.

• Minimums and periodic purchases: Mutual funds often have higher minimums than ETFs, but you cannot buy fractional shares of ETFs, which may cause some operational issues in smaller portfolios. You are also not able to set up automatic purchases or sales into or out of ETFs like you can with mutual funds.

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

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.

Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.

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. Any opinions are those of the author and are not necessarily those of RJFS or Raymond James. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment or investment decision. Investing involves risk, investors may incur a profit or loss regardless of strategy or strategies employed. Asset allocation does not ensure a profit or guarantee against a loss.

Is the 4% Rule Dead?

Contributed by: Nick Defenthaler, CFP®, RICP®

In 1994, financial adviser and academic William Bengen published one of the most popular and widely cited research papers titled: "Determining Withdrawal Rates Using Historical Data," published in the Journal of Financial Planning. Through extensive research, Bengen found that retirees could safely spend about 4% of their retirement savings in the first year of retirement. In future years, they could adjust those distributions with inflation and maintain a high probability of never running out of money, assuming a 30-year retirement time frame. In Bengen's study, the assumed portfolio composition for a retiree was a conservative 50% stock (S&P 500) and 50% in bonds (intermediate term Treasuries).

Is the 4% Rule Still Relevant Today?

Over the past several years, more and more consumer and industry publications have written articles stating that the 4% rule could be dead and that a lower distribution rate closer to 3% is now appropriate. In 2021, Morningstar published a research paper calling the 4% rule no longer feasible and proposing a 3.3% withdrawal rate. Fast forward 12 months later to mid-2022, and the same researchers updated the study and changed their proposed sustainable withdrawal rate to 3.8%.

When I read these articles and studies, I was surprised that none of them referenced what I consider critically important statistics from Bengen's 4% rule that should highlight how conservative this retirement income rule of thumb truly is:

• 96% of the time, individuals who took out 4% of their portfolio each year (adjusted annually by inflation) over 30 years passed away with a portfolio balance that exceeded the value of their portfolio in the first year of retirement.

Example: A couple with a $1,000,000 portfolio who adhered to the 4% rule over 30 years had a 96% chance of passing away with a portfolio value of over $1,000,000.

• An individual had a 50% chance of passing away with a portfolio value 1.6 times the value of their portfolio in the first year of retirement.

Example: A couple with a $1,000,000 portfolio who adhered to the 4% rule over 30 years (adjusted annually by inflation) had a 50% chance of passing away with a portfolio value of over $1,600,000.

We must remember that the 4% rule was developed by looking at the worst possible time frame for someone to retire (October of 1968 – a perfect storm for a terrible stock market and high inflation). As more articles and studies questioned if the 4% rule was still relevant today, considering current equity valuations, bond yields, and inflation, William Bengen was compelled to address this. Through additional diversification, Bengen now believes the appropriate withdrawal rate is actually between 4.5% - 4.7% – nearly 15% higher than his original rule of thumb.

Applying the 4% Rule

My continued takeaway with the 4% rule is that it is a great starting place when considering a retirement income strategy. Factors such as age, health status, life expectancy, fixed income sources, evolving spending goals in retirement, etc., all play a vital role in how much an individual or family can draw from their portfolio now and in the future. As I always say – there are no black-and-white answers in financial planning; your story is unique, and so is your financial plan.

Sources for this article includE:

• https://www.financialplanningassociation.org/article/journal/MAR04-determining-withdrawal-rates-using-historical-data

• https://www.morningstar.com/lp/the-state-of-retirement-income

• https://finance.yahoo.com/news/even-inventor-bill-bengen-revisiting-143000007.html

Nick Defenthaler, CFP®, RICP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® Nick specializes in tax-efficient retirement income and distribution planning for clients and serves as a trusted source for local and national media publications, including WXYZ, PBS, CNBC, MSN Money, Financial Planning Magazine and OnWallStreet.com.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Center for Financial Planning, Inc is not a registered broker/dealer and is independent of Raymond James Financial Services Investment advisory services are offered through Center for Financial Planning, Inc. 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 Nick Defenthaler, CFP®, RICP® and not necessarily those of Raymond James.

Investing involves risk and you may incur a profit or a loss regardless of strategy selected. The S&P 500 is comprised of approximately 500 widely held stocks that is generally considered representative of the U.S. stock market. It is unmanaged and cannot be invested into directly. Past performance is no guarantee of future results. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Don’t Be a Victim! Financial Abuse of Seniors – How to Spot Scams & Protect Yourself

Contributed by: Sandra Adams, CFP®

As a financial adviser in an almost 40-year-long practice, I work very hard to keep my aging client base educated on anything that might be a risk to them or their financial plan. Financial exploitation, including current fraud and scams, rises to the top of this list when it comes to the older adult population.

With technological advances, including artificial intelligence and access to computers, cell phones, and other devices, it is hard to keep up with how we can be attacked, who we can trust, and what is safe. According to the American Bankers Association, senior financial abuse is estimated to have cost victims at least $2.9 billion last year alone.

What is Senior Financial Exploitation?

This is a crime that strips older adults of their resources and independence. You should be on alert if you see signs of theft, fraud, misuse of another person’s assets or credit, or use of undue influence to gain control of an older person’s money or property. Those are signs of possible exploitation. Older adults who may have disabilities, including cognitive impairment, or may rely on others for help can be especially susceptible to scams and other fraud.

Dr. Peter Lichtenberg of Wayne State University’s Institute of Gerontology has done intensive research on financial exploitation in the senior population. He recommends avoiding scams by being aware of PRESSURE:

Phone: Phishing or text solicitations to start a scam.

Requests: That you send money by gift card, wire transfer, or cryptocurrency.

Ex tracking: Your personal information (Social Security number, date of birth, account numbers) to verify your identity.

Secrecy: Scammers insist that you keep their contact with you a secret!

Spamming: Multiple emails or texts, hoping one will catch you off guard.

Urgency: Scammers insist you act quickly before you become suspicious.

Repetitive: Requests to provide money or information (to wear you down).

Emotional: Scammers appeal to your emotions to make you panic (“your grandson is in jail”) or become excited (“you won the lottery”), so you act without thinking.

What are actions you should take to protect yourself against exploitation?

• Make sure your estate planning documents are updated and that you have someone prepared to make decisions for you in the case that you are unable to make those decisions for yourself.

• Shred receipts, bank statements, and unused credit card offers before throwing them away.

• Lock up your checkbook, account statements, and other sensitive information when others will be in your home.

• Check your credit report at least once a year (www.annualcreditreport.com) to ensure accuracy and ensure there are no unauthorized credit openings.

• Never give personal information, including your Social Security number, account number, address, or other financial information, to anyone over the phone or computer unless you initiated the call and the other party is trusted.

• Never pay a fee or taxes to collect sweepstakes or lottery winnings.

• Never rush into a financial decision. Ask for details in writing and get a second opinion.

• Consult with a financial adviser or attorney before signing any document you don’t understand.

• Get to know your financial adviser and build relationships with those who handle your finances. They can look out for any suspicious activity related to your account.

• Check with your trusted financial adviser before proceeding with transactions if you are not sure.

• Check references and credentials before hiring anyone. Don’t allow workers to have access to information about your financial accounts.

• Pay with credit cards instead of cash to keep a paper trail. In the event of fraud, credit cards give you the best recourse for getting your money back.

• Feel free to say “no.” This is your money. Do not be pressured into making a decision.

• Trust your instincts.

What should you do if you suspect you have been a victim of financial abuse?

• Do not keep it to yourself — talk to a trusted family member or professional who has your best interests at heart.

• Contact your financial adviser, an officer at your bank, or your attorney.

• Contact Adult Protective Services in your state or your local police for help.

If you are helping older adults, what are the warning signs of financial abuse?

• Unusual activity in bank accounts, including large, frequent, or unexplained withdrawals.

• ATM withdrawals by an older person who may have never used a debit or ATM card in the past.

• Withdrawals from bank accounts or transfers between bank accounts that the older adult cannot explain.

• New companions accompanying the older person to the bank or financial planning appointments who have never been part of the relationship in the past.

• Sudden and uncharacteristic non-sufficient funds activity or unpaid bills.

• Suspicious signatures on checks or other paperwork.

• Confusion, fear, or lack of awareness on the part of the older adult client.

• Refusal to make eye contact, shame, or reluctance to discuss an issue or problem with their financial account.

• Checks written as loans or gifts when this is not typical of the client.

• Sudden change of address or bank statements that no longer go to the customer’s home.

• New power of attorney that the older adult does not understand.

• Altered estate planning documents.

• Loss of property.

If you suspect financial abuse, what should you do?

• Have a conversation with the older adult to try to determine what is happening; seek advice for these difficult conversations, if needed.

• Report the elder abuse to their bank or other financial institutions to help stop it and prevent its recurrences.

• Contact Adult Protective Services in your town or state for help.

• Report all instances of elder financial abuse to your local police. If fraud is involved, it should likely be investigated.

It is not uncommon to be vulnerable to fraud and scams. Older adults are even more susceptible than most due to things like social isolation, unfamiliarity with technology, cognitive decline, etc. Romance scams, grandparent scams, Medicare and Social Security scams, and new scams are catching us all by surprise and stealing thousands of dollars from unsuspecting seniors every day. Be educated, alert, and careful to avoid the risk of financial exploitation.

To keep informed of the most current ongoing scams, go to www.ftc.gov.

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.

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 Sandra D. Adams and not necessarily those of Raymond James.

Prior to making an investment decision, please consult with your financial adviser about your individual situation.

Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Center for Financial Planning, Inc. Center for Financial Planning, Inc.® is not a registered broker/dealer and is independent of Raymond James Financial Services.

Q2 2024 Investment Commentary

Contributed by: Angela Palacios, CFP®, AIF®

Contributed by: Nicholas Boguth, CFA®, CFP®

When the circumstances change, our perspective evolves. This anthem of the past year highlights the importance of adaptability and openness to new information. But as much as things have changed this year, much has stayed the same. Megacap tech stocks are still driving the S&P 500 gradually upward for the year. The S&P 500 has had the best start to a presidential reelection year by logging 31 record highs this year and low volatility. Interest rates are still high. Stocks are performing better than bonds, while the U.S. continues to trounce international and large company stocks, which continue to beat small company stocks. 

Elections

The remainder of the summer and fall will surely be dominated by election headlines. Because elections can be divisive and unnerving, it's important to remember that markets are often resilient even in the face of the most unsettling election scenarios. Watch for an invitation to our upcoming election event to hear more details on this topic, but here are some quick observations:

• U.S. stocks trend upward on average in election years regardless of which candidate wins the White House

• Balanced portfolios historically help investors meet their financial planning objectives while managing risk over presidential terms

• It's time in the market and not timing that matters the most for an investor; sitting on the sidelines with long-term assets sitting in cash can be costly to a long-term investment strategy

If you look at average and median returns through a presidential cycle, you can see that election years tend to be strongly positive. Historically, median returns are over 10% in an election year, with average returns over 7% in an election year. 

Returns also tend to come more strongly in the second half of the election year, as shown in the chart below. This year has broken the mold with strong returns through the first half of the year. Usually, when this happens, there tends to continue to be strong returns also through the second half of the year.

What Has Led to These Strongly Positive Returns?

While higher interest rates and high inflation seem like a staple part of the economy now, it is easy to forget that we enjoyed decades of low interest rates, low inflation and globalization that drove those trends.

Inflation has resumed its slow march downward despite a small pause this year and some numbers that had looked like they might be turning back upward. It seems unlikely that inflation will accelerate and should continue to resume the disinflation trend. Now, most of the inflation comes from shelter costs, and we have seen rent prices level off and slow slightly. Rent prices starting to come down should help this source of inflation. You also may have noticed your insurance rates increasing. Car insurance has contributed notably to recent inflation numbers. 

Many consumers still feel the sting of higher prices because slowing inflation only means prices aren't going up at the pace they were. The price increases we experienced over the past several years are here to stay and will need to be permanently factored into budgets going forward. Many households have found substitutes by shopping around at bargain retailers, and some have been lucky enough to experience wage inflation (although not enough to offset economic inflation.

Interest Rates and The Fed

It is hard to talk about inflation without discussing The Federal Reserve and the current interest rate environment. As of the end of the quarter, the 1-year treasury rate was ~5.1%, and the 10-year treasury rate was ~4.4%. You are still getting paid MORE in short-term bonds than you are in longer-term bonds – that is strange! In a normal interest rate environment, you would get a higher coupon from longer bonds because, in return, you are taking on more risk and uncertainty from the longer time until maturity.

This environment has made it much more attractive to hold money market funds, CDs, and other short-term instruments, BUT those are not without risks of their own. If the 10-year rate falls, for example, then the risk of being in the short-term bond is that you will miss out on the price gains of the 10-year bond, and if short-term rates fall as well, then you will have to reinvest your money at a lower interest rate once your bond matures. Without knowing the path of interest rates going forward, there is no way to know with certainty which type of bond will outperform. However, we are here to help make sure your portfolio is positioned well for YOUR financial plan.

Speaking of the path of interest rates, despite inflation heading in the direction that the Fed wants, they kept the Fed Funds rate steady at the same rate as it has been for almost the past year: 5.25-5.5%. There are advocates on each side of the argument saying that they should have cut rates already OR that they should even keep further hikes on the table. Jerome Powell continues to stress data dependence and their commitment to the 2% inflation target, and this sentiment is shown in bond rates as rate cut expectations have continually been priced out of the market year-to-date. No one has control over inflation numbers, the Fed, interest rates, or the stock market – you have to  invest given the hand you are dealt.

AI and Meme Stocks

Several investment crazes have filtered into this stock market rally; some have long-term validity, and some don't. The evolving landscape surrounding artificial intelligence has strongly impacted any company investing heavily in it. Nvidia corporation has been the poster child of a rally surrounding artificial intelligence, which has been up very strongly this year, even though it has recently pulled back some. Nvidia is viewed as a pioneer in the space as its business shifted from gaming consoles to data centers where its chips now power large language models like ChatGPT.  Meanwhile, Gamestop found itself in the middle of the meme stock craze again. While returns attributed to meme stock hype are usually short-lived, the idea of social media heavily influencing trading performance is something the markets are still trying to make sense of. While investing in a long-term productivity enhancement like artificial intelligence can drive long-term fundamental returns, meme stocks are more about hype and short-term volatility.

Hopefully, you take a few moments to check out the Olympics this month. I am often in awe of the amazing talent seen from around the world. That kind of talent comes from a lifetime of diligence and hard work, much like successful investing. Natural ability or luck can only take you so far and can't be counted on. Athletes must train in various muscle groups and mental stamina to be successful. Much like athletes rely on diversified training in investing, we rely on asset diversification, good investor behavior, and consistent saving over time to reach our finish line. We are here to help ensure your investments are helping you reach the finish line no matter what the market environment looks like. Don't ever hesitate to reach out with any questions you may have.

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.

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

Any opinions are those of the Angela Palacios, CFP®, AIF® and Nick Boguth, CFA®, CFP® and not necessarily those of Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. 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 22 developed nations. The Bloomberg 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. Diversification and asset allocation do not ensure a profit or protect against a loss. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance is not a guarantee or a predictor of future results. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.