Dealing with Death: A Financial Guide

 Emotionally and psychologically, handling the loss of a significant relationship is one of life’s most difficult tasks. But it’s the additional stress of handling legal and financial affairs that can feel like enough to put you over the edge.

There are a handful of items that need to be handled immediately.  Most decisions can, and should, be left for a later date when grief has been handled and clearer heads can prevail.

Here are the top 5 things you can’t put off:

1. Look for instructions that the deceased may have left regarding preferences for funeral and burial arrangements.  This may be part of a larger document called a Personal Financial Record Keeping System and Letter of Last Instruction, a document that provides important information about professional advisors, documents and accounts.
2. Locate important legal documents, including the will and trust, if one exists.  This will give guidance regarding who has been named to handle the financial affairs of your loved one and how funds can be accessed to pay for funeral and other costs.  Other important documents may include prepaid funeral plans, safety deposit box information, and marriage, birth and other identification like driver’s licenses.
3. Contact the Deceased’s financial advisor.  The financial advisor will likely have copies of any/all legal documents, as well as a complete list of all financial assets and insurances.  The financial advisor will be instrumental in helping to settle the estate and will be invaluable in helping to make important financial decisions later.
4. Get Multiple Copies of the Certified Death Certificate.  These documents will be important in settling all of the financial affairs of your loved one, and can be more difficult to obtain later.
5. Notify Income Providers.  This includes Social Security, employers paying pensions, etc.  Stopping income payments immediately prevents the need to repay them later.

It is most important to deal with your grief and to give yourself and your family time to honor your loved one.  Many of the rest of the financial decisions and affairs can be handled when the time is right. 

Contact your financial advisor for additional guidance.

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

Your Legacy in a Letter

 In April, to celebrate his 79^th birthday, my father had a special gift up his sleeve for our family.  It started as an idea and, over a period of two years, with pen to paper dad wrote his story.  It was a labor of love for him and came as complete surprise to us. “This story must begin with a little background information,” is the first sentence of a truly remarkable gift of personal memories and milestones, accomplishments and wisdom. 

Times and things change, however, writing letters to share wisdom, preserve tradition, record family history, explain and inspire is not a new concept.  In fact, letters like the one from my father are most commonly known today as ethical wills or legacy letters.  Until I received a legacy letter, I could only imagine the impact and value a gift like this carries. 

Estate planning documents like wills, trusts, and beneficiary designations are legal documents which typically are used to control the distribution, management and availability of assets from one generation to the next.  Legacy letters are not legal documents.  They pass on personal values and the nuances of your story.

There are no hard and fast “rules” for writing legacy letters. The contents and form of your letter are entirely up to you. You can tell your kids what you hope they’ll accomplish, tell stories about your grandfather, or relive the time you made a key tackle on the one-yard line to preserve a win for your high school football team.  Embellishment is allowed!

Here are some ideas to help you get started:

• Decide who you are writing to . . . .
• Speak from your heart in your unique voice  . . . .
• Life has taught me . . . .
• Some of my special memories are . . . .
• I believe . . . .
• Defining moments  . . . .

The beauty of the written word is that it can be handed down for generations to come.  Don’t hesitate – get started today.  Legacy letters are the perfect gift for any occasion!

The EuroCrisis

 The European Financial Crisis is far from over and continues to weigh on the minds of investors. Markets received a reprieve from the European debt crisis early this year as Greece submitted to an "orderly" default. Regardless, Europe's issues are numerous. Here, we help translate four reasons the European debt crisis will continue to percolate in the coming months and even years: 

1. Debt Rollovers: Those who have been following the European situation recognize that the fundamental problem, which seems impossible to solve is how to finance operations, or better yet, pay-off debt. With recessions imperiling debt hot spots, the opportunities to spruce up their balance sheet seem fleeting. As debt comes due, it must be refinanced.

Interested observers will note that the refinance and debt rollover calendar of countries like Spain and Italy will correlate highly to times of higher perceived threats to economic stability in the Eurozone. The success of each bond auction is closely watched for signs of deterioration or renewed crisis.

2012: A Big Year for EU Debt Rollovers

2. Austerity & Its Side Effects: The prescription for much of the Euro issues has been "spend less". Certainly spending money poorer countries do not have will not solve the problem today, but austerity (forced spending cuts) comes with its own side effects. As countries make significant cuts in spending, unemployment can increase and the wings of potential growth can be clipped. This becomes a circular process.

3. Credit Default Swaps: The advent of derivatives called "Credit Default Swaps" in the 1990s resulted in the "opportunity" for banks and investors to insure against risk of failing companies or countries. Today, European banks and, indeed, financial institutions around the world are riddled with CDS exposure to limping countries like Portugal and Spain and banks in these countries which hold much of the same troubled debt. These derivatives can have a multiplier effect in the world's financial system making a bad situation worse. 

4. Politics: When the going gets tough, elected officials have a tough time holding office. We've already seen changes in government in Italy and Greece. France has replaced Sarkozy as president, making a clear statement about the demand for change there. It is equally as important to recognize the political dynamics in debt-ridden European countries like the PIIGS (Portugal Italy Ireland Greece Spain), but also to watch the currents in the healthy ballasts to the Eurozone such as Germany and France.

Market volatility throughout the world has been reduced in part by actions and statements from Angela Merkel and the ECB indicating strong commitment to continuing to address Eurozone issues. With potential change or weakening of political will comes uncertainty and this can damage potential for normalcy.

So what's an investor to do? We believe the EuroCrisis will continue to be a drag on world economic growth. That said, markets are often self-correcting systems. Overall economic concerns can lead to opportunities in stocks that become undervalued. As Europe limps, Asia and the US may pick up the slack and be the recipient of relative competitive advantages.

If you have a long-term time horizon, waiting for an "all-clear sign" or a sunny day is often a fool's errand. Consistent execution of a well-defined investment process coupled with a diversified portfolio is our EuroCrisis prescription. In plain English, you must weather the storm.

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Diversification does not ensure profit or protect from loss in declining markets.  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.  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.  International investing involves additional risks such as currency fluctuations, differing financial and accounting standards, and possible political and economic instability.

Retirement Headwinds

 Do you ever dream of going to work, not because you have to, but because you want to? That’s the number one goal of most Americans over 40. But most financial gurus say that some of the headwinds facing the decision to retire are as daunting as ever.

Consider these Retirement Headwinds:

• Low portfolio return expectations
  • Lower bond returns: Over time, bonds generally provide long-term returns similar to the coupon percentage they make (i.e. if the coupon of a bond is 5% and held to maturity, you will receive 5% annually until maturity if there is no default).  Interest rates on the 10 year treasury recently went below 1.7%.  This is the lowest yield on the 10 year Treasury in over 50 years.  Since most bond yields are positively correlated with the 10 year treasury, the argument could be made that all yields are lower than their historical average.  According to the Wall Street Journal, rates on the 10 year Treasury touched the lowest yields in modern history.
  • Lower than average stock returns: Historically the stock market (S&P 500) has traded at an average Price to Earnings ratio of 15, but has ranged between 7 and the low 30’s  (Price to Earnings, or P/E is the ratio of a company’s current share price compared to its per-share earnings)  .  Today the P/E is around 12.[i]  If the P/E is contracting (i.e. when the P/E shrinks), the price investors are willing to pay for the combined earnings of the companies trading in the market declines.  This usually results in a decline in the value of the stock market.  This is happening for a few reasons.  One economic study points to the Baby Boomers.  Baby Boomers are entering the stage of life when they generally need to be more conservative.  They may feel that it is no longer suitable to invest in the stock market.    This pool of money that has been added to over the last 30 years now needs to be used.  The largest segment of our population with a sizable amount of investment resources is likely being more cautious and, thus, selling more equities than they are purchasing.  You can read the full FRBSF economic letter here. 

• Volatility: Markets may continue to move erratically, which tends to cause poor behavioral finance decisions (basically buying high and selling low). This is not new or necessarily worse than before, but still a major challenge for inexperienced investors and advisors.
  
• Inflation: Higher inflation may be coming in many different ways.
  
• High government debt: As a portion of GDP, government debts can kindle higher prices.
  • Currency devaluation: Low dollar value can cause resources to cost more.  For example, higher oil prices are likely the result of oil sales being denominated in U.S. dollars.
    
  • Health care costs: People are living longer due to advancements in medical and biomedical technology. Many don't realize the financial burden a few extra years will be for this generation, but it's expensive to be on those meds and have that 2nd hip replacement.
  • Increased tax rates – The debt will need to be paid by someone. You can see some of the new Pension taxes that where just pushed onto retirees in the state of Michigan last year. The extra 4.35% Pension tax adds up year after year. There are more tax hikes coming at the federal level next year, too.

• Real median personal income: Adjusted for inflation 2010 dollars (as shown by Wikipedia using census data) are flat after inflation over the last 20 years - so it’s been difficult for the average American to save more without changing their lifestyle.

With all these headwinds, surely there are some tailwinds working in our favor? Well, even though I’m a “glass half full” kind of guy, I just don’t see any. So that means investors need to make adjustments to compensate for the headwinds. Coming up in my next blog, I’ll explain some ways to do that.

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Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. Holding bonds to term allows redemption at par value. 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 opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James. Past performance may not be indicative of future results. The opinions expressed in the FRBSF Economic Letter are those of the authors and not necessarily those of Raymond James. Diversification does not assure a profit or protect against loss.

 [1] Yahoo! Finance

How Will Health Care Costs Effect Your Retirement?

 When sitting down with your financial planner, envisioning your ideal retirement, health care costs may be one of the greatest wildcards.  Health care costs are predicted to grow more than 6% annually in years to come.  According to Investment News, a 65-year-old couple that retired last year can expect to spend an average of $230,000 on health care services not covered by Medicare, assuming an average life expectancy.  The following are important considerations when it comes to planning for out-of-pocket medical expenses in retirement:

1. Early Retirement Gap: (between retirement and age 65 when you are eligible for Medicare) – If you want to retire any time before you qualify for Medicare, you may be responsible for footing your health insurance bill during this gap, assuming you do not have access to retiree health care benefits from your employer.   According to Alicia Munnell, director of the Center for Retirement Research at Boston College, “In your early 60’s you can expect at a minimum for premiums of at least $500 per month with a $2,000 to $5,000 annual deductible (in today’s dollars)”.



2. Planning for out-of-pocket expenses not covered by Medicare: Many retirees think that once Medicare kicks in this may cover all of their medical expenses and this is not the case.  On average, a couple can expect to pay $7,600 each year for out-of-pocket medical expenses, assuming no chronic conditions exist.  The following is a chart breaking down the expenses for Part A and B for Medicare.  It is important to note that Part D (prescription drug coverage) and a Medigap plan would have additional expenses. 



3. Long Term Care Event: In addition to the health care costs discussed above, long term care expenses need to be considered as well.  According to the 2007 data from the Department of Health and Human Services, 70% of Americans over 65 will need some form of long-term care during their lifetime.   Nursing home care is not cheap.  Nursing home care can cost on average $75,000 per year, assuming a stay of 3 years that is $225,000!  Protecting yourself with long term care insurance, whether it is traditional long term care or a hybrid-type policy, can make all the difference.  My grandfather left behind excellent health coverage for my now 92 year old grandmother from his service with the Wayne County Organized Crime Task Force, but now my grandmother needs daily 12 hour care. Those costs, which she now pays out-of-pocket, really do add up.

Most of us do not want to have to plan for when we get sick, but it is imperative that we do.  If specific health care planning is addressed within your retirement plan, you can take a lot of the guesswork out of it and make sure you are really ready for health care costs in retirement.

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*Part B Medicare premiums are linked to income – the more you make the more you pay.

Sources: Medicare.gov, Investment News, March 26, 2012 (Andrew Osterland)

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Links are 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.