Thursday
Oct302014

Are Donor Advised Funds Right for You?

 Many people are charitably inclined and like to give money to churches or synagogues (among others) throughout the year.  At The Center, we fully support these efforts, but are always conscious of the most tax efficient ways in which our clients can give to their favorite charities.   One option that we often consider is a Donor Advised Fund. 

Charitable Giving

In order to take advantage of this charitable vehicle, an individual must open an account with the fund, and deposit cash, securities or other similar financial instruments.   By taking this approach, you can set funds aside--even if you aren’t sure exactly where you want them to go-- and still take the tax deduction in the year that the donation was made. 

Who Should Consider this Strategy?

An example of where a strategy like this might make sense is if you are in your peak earning years, but approaching retirement in the next 3-5 years.  You might need the charitable deduction more now than you would in retirement when your income would probably be less and your tax liability lower.

For illustrative purposes, let’s assume that Joe and Jane Smith are 58 years old and are employed with a taxable income of $300,000.  This places them squarely in the 33% marginal tax bracket. However, in retirement, they anticipate they will only need $140,000 of taxable income to sustain their desired standard of living. This would place them in a 25% bracket.  Every year Joe and Jane like to give about $10,000 to their church.  A donor advised fund may make a lot of sense for Joe and Jane because, if they know they are going to make the gifts anyway, they can set the money aside now and take advantage of the tax deduction at a 33% marginal rate as opposed to a 25% rate.

As always, be sure to consult with a qualified financial professional before incorporating any of these ideas into your own personal financial plan.

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.


This material is being provided for information purposes only and is not a complete description of all information necessary for making a decision, nor is it a recommendation to buy or sell any investment. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. Consult a tax or legal professional for any specific tax or legal matters. C14-034226

Tuesday
Oct282014

Will the Bull Market Run out of Gas Soon?

 18 months ago, I wrote about “3 bull market killers still not being present” in this market, but now the landscape is changing ever so slowly.  I still get questions from clients and others regarding the market being high. I say, consider these factors:

  •  The market’s nominal price has made over 50 new all-time highs since my last writing of this blog.
  • 20 years from now, with an average annual gain of 9% per year, the equity market could be looking at a DOW JONES average in the 100,000 range – while 20 years ago, the Dow Jones was hovering around 4,000 (this is a hypothetical example for illustration purposes only. Actual results will vary).
  • 12 of the last 20 years the Dow did not make a significant new high, but still averaged almost 10% a year.

Those numbers don’t tell the whole story. So when I’m asked, “Do we still have time before this bull runs out of gas?” I look at the gauge and start getting uncomfortable because of three markers.

3 Bull Market Markers to Watch

The three things that tend to kill a bull market are inflation, interest rates, and valuations. Only one of these is present now. First look at inflation, where we are tracking at one of the lowest rates in history -- less than 2% annually. Then check out interest rates, which are still at the lowest levels in history. Consider that the 10-year treasury at just over 2%. And finally, look at equity valuations -- these measures are just over the historical averages of 15 times earnings. 

History as our guide would tell us that until all three of the bull market killers are present this bull is still alive, but aging.

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.


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.

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 Center for Financial Planning, Inc. and not necessarily those of Raymond James. 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. Past performance may not be indicative of future results. C14-033941

Thursday
Oct232014

Could the Affordable Care Act be Right for You?

 It’s hard to believe it has been just about a year since the Affordable Care Act officially rolled out.  Between technology issues from healthcare.gov and confusing plans, it was tough for many Americans signing up to truly understand the health care coverage.  But one year later, many of those issues have been resolved and the next “enrollment period” for 2015 runs November 15th through February 15th, 2015. 

What You Pay for Going Uninsured

If you are not covered under an employer plan and you do not sign up for coverage on the “exchange”, you will face a penalty for not carrying insurance.  In 2014, the “fine” for not having insurance was 1% of income or $95/person, whichever was greater (for most, it was the 1% of income).  Effective 2015, that penalty will increase to 2% or $325/person, whichever is greater.  As the years progress, the penalties for not having insurance will increase as our government attempts to dramatically reduce the amount of uninsured individuals in the country. 

Could You Reduce Your Monthly Premiums?

If your income is within certain parameters based on the number of people in your household, you could qualify for subsidies that could potentially reduce your monthly insurance premiums or provide for a free care period.  This link to healthcare.gov shows those qualifying ranges. At The Center, we have identified this as a planning opportunity for certain families and individuals, especially those who are retired but not yet age 65 and Medicare eligible.  By coordinating with a client’s CPA and doing some proactive tax planning, income can be drawn from certain accounts to keep your adjusted gross income (AGI) as low as possible to potentially qualify for a reduced insurance premium (drawing income from taxable accounts instead of IRAs, deferring Social Security, etc.) … potentially saving thousands each year. 

Including Adult Children on a Plan

It’s also worth mentioning that children can stay on their parent’s insurance plan up to age 26 – even if the child is still attending school, married, not living at home, not financially dependent on their parents and eligible to enroll in their own employer’s plan.  Often times, coverage is much cheaper for the parent to have the “child” on their plan as opposed to the child actually obtaining coverage on their own.  We’ve seen some clients have their kids pay them the cost of maintaining them on their plan so the child is still contributing to their coverage, but at a much more reasonable rate that usually offers more comprehensive coverage in general.    

As you can see, there are many things to consider with the new health care changes. Since the Affordable Care Act has been around for almost a year now, hopefully more and more folks are becoming familiar with those changes.  Although we are not insurance experts, we can still give you some insight on your coverage. Please don’t hesitate to contact us if you have any questions or would like to dive deeper into your personal financial situation.

Nick Defenthaler, CFP® is a Certified Financial Planner™ at Center for Financial Planning, Inc. Nick currently assists Center planners and clients, and is a contributor to Money Centered and Center Connections.


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. C14-034475

Tuesday
Oct212014

IMO - In My Opinion: A take on mortgages, Roths, pensions & more

 My wife, Jen, and I have been speed watching The Good Wife thanks to Netflix. In The Good Wife, one of the judges (apparently the legal system makes for good TV) constantly requires the lawyers in her courtroom to end their arguments with, “In my opinion.”  The attorneys look bewildered each time as if to say…well of course it’s only my opinion, just like every other statement I make, and everyone knows that except for you, apparently.  A recent consultation reminded me of the “in my opinion” skit (“IMO” for short). 

Professionals Offer Differing Opinions

In our field of professional financial planning (not to be confused with the majority of firms and advisors in the financial SALES industry) there are many rules of thumb, but very few technical standards of care that you might find in the medical or legal field.

As a Certified Financial Planner® practitioner, there are some guiding principles and general statements that CFP® practitioners are expected to display in their professional activities, but they are hardly a technical standard of care. The CFP Board states that “Allowance can be made for innocent error and legitimate differences of opinion, but integrity cannot co-exist with deceit or subordination of one’s principles.” Those legitimate differences of opinion are what I’m talking about.

Difference of opinion - a disagreement or argument about something important

Reasonable minds can and will differ just as in everyday life it is not uncommon to hear reasonable folks say, “Let’s agree to disagree.”  Professional differences of opinion do not render the other professional a crook or even wrong if they are acting from a place of integrity – IMO.  Moreover, it is perfectly appropriate to express a difference of opinion with another financial professional when done in a professional and non disparaging manner – IMO.

Back to my recent consultation – as I listened to the recommendations of another professional, I realized I had several different opinions on what was best for this particular situation and needed to share:

ROTH Conversions: As my colleagues here at The Center can attest, I hold a pretty strong opinion that most people have gotten the Roth Conversion issue “incorrect”.  I believe that many folks have accelerated income taxes at a higher rate than they will pay in the future.  Most workers have a higher income, which usually translates into a higher marginal tax bracket, during their working years than they do in retirement.  But wait; there is no Required Minimum Distribution from a ROTH. True, but this is still only relevant as to what bracket the money comes out.  Don’t get me wrong, this is not an absolutist opinion, there are plenty of correct situations where ROTH’s makes sense (IMO) – look for an upcoming post about converting after tax 401k contributions to a ROTH as an example. There are other limited situations where a ROTH makes sense, IMO.  For example, if you are a high net worth person and reasonably expect that you will always be in the highest marginal bracket, then converting and paying at 35% vs the new 39.6% marginal rate seems to make sense. 

Mortgage vs no mortgage:  A firm attempting to become a national financial planning firm recently counseled a young retiree looking to relocate to another state to, “Get the biggest mortgage possible.” Call us old school – but we think that most retirees are best served entering their retirement years debt free. And this client has substantial taxable funds to complete the purchase.  Our suggestion was to actually RENT initially.  Once they are comfortable and they have found a location that suits them for at least the next 5 years, we think they should consider a cash purchase. Rates are low, which does make obtaining a mortgage more attractive, however in retirement (at age 50) the rate is going to be much higher than any suggested distribution rate (1-3%?).

Pension Lump Sum: Our recommendation is for the client to take a monthly pension at age 55 in the form of a 100% survivor benefit even though her husband is older. The other advisor suggested that even assuming a low return, investing the lump sum will produce more money.  The client suggests that age 94 mortality was very reasonable given her family history.  Under these assumptions, the “low return” needed from the investment portfolio turned out to be 6%; hardly a “low” return IMO. Assuming only a 1% annual difference in return (5%) the lump sum lasts only to age 86.  One of the advantages to taking the lump sum is flexibility or access to a lump sum if needed.  Fortunately, the client’s other assets are substantial. Other more confident professionals might find the hurdle rate low; not me.

401k Rollover:  We both recommended a 401k rollover to an IRA managed by our respective firms.  The client left the employ of a major corporation with what I would categorize as containing a competitive 401k, in terms of investment options and expenses.  My sense is that the client will be better served by rolling the account to either professional.  Successful investment management is more about behavior than selecting the best allocation or underlying securities to complete the allocation – IMO.

Asset Allocation: The other professional recommended a 70% equity and 30% fixed income allocation versus our 60/40 allocation.  My thinking is at this time of their life, less risk is a bit more important.  I do, however, appreciate that because they are so young (hedging against inflation), and their expected withdrawal rate is under 3%, that a higher equity allocation may be reasonable. The other adviser apparently pointed out that their allocation was “optimized” (directly on the efficient frontier) because their mid cap exposure was higher than our recommendation in addition to our international equity allocation being 12% vs their 10% recommendation.  Due to current valuations, we have reduced our allocation to mid and small cap equities from a neutral weighting of 10% down to 8.5% and our international (large developed) is at our target weighting of 12%.  The other professional suggests 14% and 10% respectively.  Only time will tell which portfolio was more successful.  I do feel pretty strongly that in the end our client’s behavior will be more determinative of their investment success versus the subtle differences in portfolio recommendation – IMO.

Annuities:  Do you remember when some advisors called anyone recommending an annuity a crook?  Fast forward a few years and some of the profession’s highly regarded practitioners recommend annuities in many situations.  I still believe that they are way oversold, but that doesn’t mean there are not appropriate situations - IMO.

Everyone has an opinion and I give my clients mine. So, what’s your opinion?

Everything we hear is an opinion, not a fact. Everything we see is a perspective, not the truth.  ~Marcus Aurelius

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a frequent contributor to national media including appearances on Good Morning America Weekend Edition and WDIV Channel 4 News and published articles including Forbes and The Wall Street Journal. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), trained and mentored hundreds of CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.


Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The forgoing is not a recommendation to buy or sell any individual security or any combination of   securities. Be sure to contact a qualified professional regarding your particular situation before making any investment or withdrawal decision.

C14-033719

Thursday
Oct162014

Putting your Priorities First: A big rocks lesson

 When I was an undergrad at EMU, I heard a time management expert speak to a group of business students and, to drive home a point, she used an illustration we students would never forget. As she stood in front of the group of high-powered overachievers, she said, "Okay, time for a quiz."

Focus on the Big Rocks First

She pulled out a ½ gallon, wide-mouthed Mason jar and set it on the table for the class to see. Then she produced about 5 fist-sized rocks and carefully placed them, one at a time, into the jar. When the jar was filled to the top and no more rocks would fit inside, she asked, "Is this jar full?"

Everyone in the class said, "Yes."

Then she said, "Really?" She reached under the table and pulled out a bucket of gravel. Then she dumped some gravel in and shook the jar causing pieces of gravel to work themselves down into the space between the big rocks. Then she asked the group once more, "Is the jar full?"

By this time the class was on to her. "Probably not," one of them answered.

"Good!" she replied. She reached under the table and brought out a bucket of sand.  She started dumping the sand in the jar and it went into all of the spaces left between the rocks and the gravel. Once more she asked the question, "Is this jar full?"

"No!" the class shouted.

Once again she said, "Good." Then she grabbed a pitcher of water and began to pour it in until the jar was filled to the brim.  Then she looked at the class and asked, "What is the point of this illustration?"

One eager beaver raised his hand and said, "The point is, no matter how full your schedule is, if you try really hard you can always fit some more things in it!"

"No," the speaker explained, that wasn’t the point. The truth this illustration teaches us is:

If you don't put the big rocks in first, you'll never get them in at all."

What are the “big rocks” in your life? Your children? Your loved ones? Your education? Your dreams? A worthy cause? Teaching or mentoring others? Doing things that you love? Time for yourself? Your health? Your significant other? Remember to put these “big rocks” in first or you'll never get them in at all.

If you sweat the little stuff (the gravel, the sand) then you'll fill your life with little things you worry about that don't really matter, and you'll never have the real quality time you need to spend on the big, important stuff (the big rocks). So, ask yourself this question, “What are the 'big rocks' in my life?” Then, consider whether you’re putting them in your jar first. Because, like that time management expert showed me, if you don’t put them first, you’ll never find room.

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.


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.

A14-033720