Financial Preparedness When You’re Expecting

 Expectant parents know that their world will soon be completely new and different with growing responsibilities and shifting priorities. Beyond the baby name discussion, registries, and nursery preparations, new parents need to make sure they've got their financial house in order. 

Here are some areas to get you started while you’re still expecting. 

Plan for child care. Finding appropriate child care or arranging for one partner to stay home takes work. If you're consider staying at home, look at how a change in cash flow will affect your family budget and how an extended absence from the workplace will impact your long-term career goals. Make sure that you account for lost benefits such as employer-sponsored health care and retirement savings. 

If you'll be using day care, look into using flexible spending accounts for the first $5,000 in spending or related tax breaks. Consider how day care costs may affect your cash flow and put money aside as soon as you can to pad for the additional costs. 

Maternity and Paternity Leave. Talk to your employer about your options for parental leave and your plans for returning to work. If your company offers any paid leave or short-term disability, discuss the details and get the process rolling. A recent study showed that men rarely take advantage of paternity leave offered by employers. Consider going against the grain to give your family some extra support during a once-in-a-lifetime period for bonding. It's a decision you will never regret and one you never get to go back and change. 

Health Care. The new baby needs health insurance just like everyone else. Figure out which employer plan you'll be adding to and talk to HR about how to get things added after birth. The year of birth may result in more medical expenses in general. Talk to your doctor's office about anticipated cost and evaluate whether you should increase your health savings or flexible spending account in anticipation of out of pocket costs. 

Do you have all of your pregnancy related financial items checked off? In my next blog, I'll explore more financial planning hints and tips for young families. 

Melissa Joy, CFP®is Partner and Director of Investments at Center for Financial Planning, Inc. In 2011 and 2012, Melissa was honored by Financial Advisor magazine in the inaugural Research All Star List. In addition to her frequent contributions to Money Centered blogs, she writes frequent investment updates at The Center and is regularly quoted in national media publications including The Chicago Tribune, Investment News, and Morningstar Advisor.

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Financial Advisor magazine's inaugural Research All Star List is based on job function of the person evaluated, fund selections and evaluation process used, study of rejected fund examples, and evaluation of challenges faced in the job and actions taken to overcome those challenges. Evaluations are independently conducted by Financial Advisor Magazine.

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.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

CNBC Ratings as a Leading Indicator?

 This may be the most unique candidate for a leading indicator I’ve run across in a long time.  A leading indicator is defined as a measurable economic factor that changes before the economy starts to follow a particular pattern or trend.  You may have heard of an inverted yield curve predicting recessions or the number of building permits applied for predicting a housing boom or bust.

How about CNBC viewership predicting the next stock market boom or bust?  Below is a chart showing Nielson Ratings for CNBC over the last eight years.  The last time their ratings were this low was 2005 when markets had stablized after the tech bubble burst and we had enjoyed a couple of years of good returns.  Sound familiar?

As you can see in the chart below of the S&P 500 total returns, 2005 was the start of some very nice returns which continued for the next few years.  Could the low viewer ratings be a potential indicator that the returns we have experienced since 2009 are just the beginning?  As returns accelerated toward the market peak in 2007 so did CNBC’s ratings into 2007. 

Data from Morningstar

As individual investors start to jump on the band wagon of a bull market run, they become more interested in what is happening to their money and thus turn on the news.

There are many reasons investors could be choosing not to watch the channel now:

1. Investors have been lulled into a sense of security about market returns and aren’t concerned about current events
2. Many are not actually invested in the markets; therefore, they do not care
3. Investors are finding their information elsewhere
4. They have grown tired of the sensationalizing the network does to try to get better ratings (which is actually my main reason for not watching)

Assuming investors aren’t watching anymore because of one of the first two reasons, then this could be a very good indicator of what is to come, potential positive returns as more individuals put money back to work in the markets.

It is too bad there isn’t much historical data to determine if this is, indeed, a good stock market indicator but it is definitely something from CNBC that is much more interesting to follow than their overly dramatic, TV personalities!

Angela Palacios, CFP® is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well as investment updates at The Center.

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Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  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.  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 may not be indicative of future results.

Why is 2020 So Significant to Boomers and Their Children?

 We’re not talking about 20/20 the news program, or about your vision.  We’re talking about the startling statistic released by the Alzheimer’s Association that by the year 2020, there will be 20 million baby boomers with Alzheimer’s disease.  In case you’re counting, that will be nearly 1 out of every 3 baby boomers that have Alzheimer’s or a related dementia.  The cost of care will be a huge concern for these boomers and their families (according to AARP, the current average cost to care for someone with Alzheimer’s is $56,800 annually), among the many issues that will arise.

If you are a boomer, here are the top 3 things you can do to prepare for this risk:

1. Put Together a Team of Professionals – Start with a Certified Financial Planner™, who can help you plan ahead for the financial risks.  This will involve simplifying accounts, managing your assets, and helping you plan for your financial future with your personal preferences in mind.  Your financial planner will help you to put together a team of the additional professionals you may need and will bring on additional team members, as needed, along the way.
2. Make Sure Your Legal Documents are Up-To-Date – We are talking here about your wills, possibly a trust, but most importantly Durable Powers of Attorney.  All individuals should have two durable powers of attorney – one for Health Care and the other for General/Financial affairs.  These Powers of Attorney will be invaluable if you ever need someone to make health care or financial decisions when you are unable to make them yourself. 
3. Get Your Financial Life in Order and Document – Not only is it a good practice to take inventory of what you have and where it is, but it is also (and equally) important to document these items and indicate where and who to contact if there are questions.  Documenting investment accounts, insurance policies, legal documents, former employer benefits, etc., will be invaluable to family members or close friends who may need to assist you with your financial affairs in the future.  Click Here for our Personal Record Keeping document that can serve as a guideline for this purpose.

While an Alzheimer’s diagnosis is not something any of us want to think about, it is better to plan ahead so that your financial life will be handled as you intend, rather than leaving the burden of making those decisions to your family when you might not be able to communicate your wishes. 

Sandra Adams, CFP® is a Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012 and 2013, Sandy was named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

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Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing information is accurate or complete.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  You should discuss any tax or legal matters with the appropriate professional.

What is a Tax Refund & What Should You Consider if You Get One?

 I hear lots of buzz this time of year and, I have to admit, I get a little buzzed myself when I am awaiting a tax refund.  I begin to envision myself using my tax refund to go on a beautiful beach vacation. There I am, sipping a pina colada and soaking up the sun … but what does it really mean when you get a tax refund?  A tax refund essentially is an interest free loan from the government.  It means you paid Uncle Sam too much money in taxes last year and they are going to return it to you.   It means that the government got to use the extra money you paid them a little while longer than you did.

According to David Wessel, economics editor of The Wall Street Journal, out of the 143 million tax returns filed with the IRS more than 80 percent of them produced a refund either because they paid too much or due to the earned income tax credit for low income earners.   Yes, I know getting a refund (overpaying) is a lot better than underpaying, but no matter how appealing jetting off to Jamaica in search of the perfect pina colada may sound, you should consider adjusting your income withholdings.  If you received an income tax refund that was significant, you might want to consider adjusting your income tax withholdings and get more money in your paychecks throughout the year.  This way you control the money you are earning each year and can use this extra money to meet other cash flow needs and goals.

Need some ideas of what to do (other than plan that dream vacation)? The following are a few ways to allocate an income tax refund if you get one to meet your financial planning goals:

Cash Flow Planning

• Emergency Reserve Fund:  If you do not have an emergency fund, use this money to establish one.  You should typically have 3 months of reserves if both spouses work, and 6 months of reserves if only one spouse works or you are single.      
• Pay Off Debt:  If you have unsecured debt such as credit cards and student loans, consider using your refund to pay on these liabilities.        

Retirement Planning

• Contribute to a tax deductible Traditional IRA:  assuming you meet the requirements to contribute, a Traditional IRA provides tax benefits to you today via an income tax deduction.        
• Contribute to a ROTH IRA:  Assuming you are not over the income limitations, contributing to a ROTH IRA can provide significant tax benefits to your retirement income portfolio, as monies in a ROTH grow tax deferred and can be withdrawn tax free if certain conditions are met.      
  • Work with your CPA and financial planner to find out which might make the most sense for you and if you meet the requirements. 
• Invest in a taxable investment account:   Investing in a tax-efficient taxable investment account is another great use of your tax refund dollars.      

College Planning

• Fund College Accounts:  Assuming your current retirement savings plan is on track, using your refund to save for your children's college education is very helpful as well.  Check with your state provided IRC Section 529 Savings plan to see if there are state tax benefits available to you when making a contribution to your state IRC Section 529 Savings plan.        

Risk Management Planning

• Have your risk management needs evaluated and if you need to allocate more dollars to meet these objectives, consider allocating your refund here.        

Please feel free to contact me if you would like some financial planning advice in this area.

Julie E. Hall, CFP® is the Director of Financial Planning at Center for Financial Planning, Inc. In addition to her contributions to Money Centered and Center Connections, Julie was named to the 2013 Five Star Wealth Managers list in Detroit Hour magazine. Julie is a member of the Financial Planning Association™ (FPA®) and is currently serving on the Financial Planning Association™ (FPA®) Pro-Bono committee, which works to help promote financial literacy within our local community.

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Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

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.  The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Prior to making an investment decision, please consult with your financial advisor about your individual situation.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Expressions of opinion are as of this date and are subject to change without notice.  You should discuss any tax or legal matters with the appropriate professional.

Is Your Portfolio Off to the Races?

 We just got to enjoy what has been called “The Greatest Two Minutes in Sports.”  I have always been a fan of the Kentucky Derby, the horses, the outrageous hats, wondering who is wearing the hats, and a blanket of roses.  I’ve had the privilege of actually going down to Louisville to watch but I have never been part of the glamorous, hat-wearing crowd. We’ve always watched from the infield, though “watch” is a loose term. It is more like standing on your tip toes to see a blur of horses run by you for about one-tenth of a second and then return to drinking your mint julep.  But it is fun nonetheless. 

This year the market has felt a lot like we have been off to the races.  It has been one of the strongest starts to the year this decade.  Is it too much too fast?  A new chart put out by Russell Investments says maybe not.

 

For additional disclosure and interpretive guidance on this chart, please click on the following link: http://www.russell.com/Helping-Advisors/Markets/acd.aspx?d=t 

How to interpret the chart:

1. The gray bar is the full range of 1 year returns the asset class has experienced throughout history
2. The blue portion of the bar is where returns fall most of the time (68%)
3. The number highlighted in orange is where returns fell for the 12 months that ended as of March 31^st, 2013

Even with the strong returns, as of recently, most indexes are still hovering near “middle of the road” returns for the past 12 months.  So perhaps it hasn’t been too much too quickly.

If you are seeking some advice on an appropriate strategy for your portfolio, put the odds in your favor and contact your Financial Planner today!

Angela Palacios, CFP®is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well asinvestment updates at The Center.

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The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Links are being provided for information purposes only.  Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors.  Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.