Financial Planning for Divorced Women

Financial Planning steps toward a post-divorce action plan.

Provided by Jose Yanez

 

A divorce is one of the most stressful circumstances a woman can experience. It can leave you feeling as if some things are beyond your control. Do not let that feeling interfere with your effort to maintain control over your financial life.

Financial planning after a divorce is not radically different than financial planning before a divorce. The basic principles are the same. The big difference comes down to how you start – or rather, how you start over.

What appears to be an “equal” divorce settlement may not be an equitable one. An effort to divide assets 50/50 may seem fair and just, but the really important part is how you are financially positioned for the future. If you earn much less than your former spouse earned, and, if you are left with little retirement savings, then, arguably, you are not emerging from the divorce on equal financial ground.

Your financial goals can change markedly after a divorce, so can your financial needs and priorities. How do you begin to address all this? 

As a first step, find a financial professional experienced in divorce financial planning. He or she has the skills to assess a divorcing couple’s finances comprehensively. He or she can use software to forecast the potential short-term and long-term financial outcomes of a settlement. In addition, that professional can help spouses develop spending and cash management strategies and consider the tax implications of a split. 

It is best to think about your financial situation – your income, your expenses, the needs of your children – before you divorce or as you divorce, not afterward. Remember that child support can increase along with income levels. If alimony will be involved, keep in mind that it does not last forever and that taxes will eat into it – $10,000 of monthly alimony, for example, will actually become $6,500-7,000 a month after taxes.1 

If you have been away from the workforce, more education may be a good investment. It does not necessarily need to be a new degree, but, if your industry has changed in the years since you have been away from it, skills training or reacquainting yourself with certain aspects of the field may help you compete in the job market. (Access to an employer-sponsored retirement plan might become a deciding factor for you in a job search.) 

Insurance may become even more important post-divorce. You may have had health insurance as a consequence of your spouse’s employment. A new job may be a gateway toward new coverage. Long-term care insurance is expensive; disability insurance, less so. Both are worth looking into, in case you become ill or disabled. 

A woman’s retirement is usually more expensive than a man’s. Today, a 45-year-old woman can expect to live to age 86. That implies a need for 20-25 years of retirement income. You may even live longer: in the 2010 Census, 83% percent of Americans older than 100 were female.2,3 

With your spouse’s financial resources absent, you must review your own retirement income sources (projected Social Security benefits, any future pensions, potential inflows from your retirement assets) and the way you invest. In doing so, you can see what moves you may want to consider to try and realize the kind of lifestyle you would like to have in retirement. 

Update your beneficiaries & consider a trust for asset transfer. People often forget to change beneficiary designations on their life insurance policy and bank, investment and retirement accounts after a divorce. If these go unchanged, your ex-husband may stand to inherit a large portion of your assets. Also, estate tax laws give certain breaks to married couples that are unavailable to singles. A trust may give you an avenue to pass along more of your assets to your heirs rather than the IRS, and may prove critical if you have special needs children. 

Finally, there may come a time when you consider marrying again. That will also have financial effects. If you were married longer than 10 years, you may be collecting or entitled to 50% of your ex-husband’s Social Security benefit. If you remarry, you will no longer have that right. While you will become entitled to your new husband’s benefit, you must know if your new husband’s benefit will be lower or higher, and how that will affect your retirement. In addition to blended families, remarriage can also lead to blended assets and blended income.4

While it is all in your hands, partnering with a financial professional can help you move on to the next phase of your life with a solid plan for your financial future.

Jose Yanez may be reached at 517-316-5333 or [email protected]
www.fullcirclefp.com    
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
   
Citations.
1 – entrepreneur.com/article/247785 [7/10/15]
2 – ssa.gov/cgi-bin/longevity.cgi [6/15/16]
3 – 247wallst.com/general/2015/05/29/statistics-and-observations-of-living-to-be-100-years-old-centenarians/ [5/29/15]
4 – ssa.gov/planners/retire/divspouse.html [6/15/16]

 

How Can Women Save More for Retirement?

Suggestions to accelerate & maintain the pace of the retirement effort. 

Provided by Jose S. Yanez

 

Numerous articles have mentioned the obstacles women can face as they save for retirement. Turning from the negative, here are some positive factors that may help women save more.   

Financial literacy. Learning about investing, retirement topics and the markets is step one. An appreciation and understanding of the potential of equity investment, a recognition that a six-figure or seven-figure sum may be needed to retire – a retirement savings effort proceeds from these understandings.

When you have knowledge, you have more confidence and your money decisions feel empowering. A 2014 TIAA-CREF survey found that 81% of women who had obtained knowledge from a financial professional reported feeling informed about retirement planning and retirement saving, and 63% of women who had received financial advice felt confident about their retirement saving progress.1   

Debt reduction. Less debt leaves more money to save. One recent survey suggests that women amass less debt than men: in reviewing credit trends for 2013, Experian found women were 4.3% less indebted than men overall and that female borrowers missed fewer mortgage payments and took out smaller home loans. As for handling a student loan burden while saving for retirement, most federal college loans are eligible for at least one of the new income-based repayment plans which cap monthly payment levels based on family size and income.2,3   

Estimating high. Here are seven words you will rarely (if ever) hear from a financial professional: “You are saving too much for retirement.” Most people save too little, and here is a case where erring on the side of caution is no error at all. Building your retirement nest egg through multiple vehicles (an IRA, a workplace retirement plan, an equity portfolio, savings accounts) can contribute to the generation of a larger-than-necessary retirement fund.

Saving 10% or more of your income as soon as you can. Starting early allows you to take advantage of the considerable power of compounding. Putting away 10% or 15% of your annual income into retirement accounts is not excessive; it is quite reasonable, even necessary.

As a hypothetical example, 35-year-old Christina has already saved $30,000 for retirement with the idea of retiring at 65. She currently earns $70,000 annually. A retirement income of $100,000 seems like a nice idea for 2045 and the 20 years stretching beyond that date.

Assuming a 6% return before and after retirement, Christina would need to save 17.61% of her income, or $12,329 a year, to reach her goal under such parameters.4

At age 45 she has built $152,000 in retirement savings and earns $120,000 a year. To get that $100,000 retirement income for a 20-year retirement, she still has to save 14.9% of her income ($17,928) at a hypothetical 6% consistent return to realize that objective. The lesson: save, save early, and save more.4 

Asking for raises or creating new income streams. It can be hard to ask for a raise, but it is harder to live on a substandard salary or risk positioning yourself for a retirement savings shortfall. Your employer will not likely give you one out of thin air, so initiate the conversation and assert your value. Also, look for opportunities to make more money outside of the 8-to-5 or 7-to-4: speaking engagements, home organizing, direct sales, consulting and other methods.

Owning your financial life. That is to say, keep control over it. If a relationship is wonderful and intense, great, but avoid being seduced into a passive financial role in the long term. That was the default role for women decades ago when they married, but even today, when one person makes most of the financial decisions in a relationship, the other person risks moving forward in life with inadequate financial knowledge. That problem plagues widows.

Actively managing your finances also means straightforwardly addressing spending issues, debt and any other financial problems or dilemmas that must be resolved as you pursue your retirement savings goal.

Thinking positive. Saving for retirement begins by pairing the right outlook and the right actions. Stay positive; stay consistent; run the numbers and make sure you are saving enough. To find out just how much is enough, consult a financial professional who can help you assess your saving potential.      

Jose Yanez may be reached at 517-316-5333 or [email protected]
www.fullcirclefp.com     
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.       
Citations.
1 – tiaa-cref.org/public/about/press/about_us/releases/articles/pressrelease534.html [10/29/14]
2 – experian.com/blogs/news/2013/05/22/women-vs-men/ [5/22/13]
3 – studentaid.ed.gov/repay-loans/understand/plans/income-driven [4/9/15]
4 – msn.com/en-us/money/tools/retirementplanner [4/9/15]

 

Women & Retirement Perceptions

Will the reality of retirement live up to expectations?

 Provided by Jose Yanez

 

After 55, do women think more about retirement than men? One recent survey found that to be true. Fidelity Investments polled 12,000 retirement savers 55 and older and found that, within the past 24 months, 59% of women had seriously thought about when they would retire, as compared to 45% of their male peers.1 

What do women enjoy doing once retired? TIAA (formerly TIAA-CREF) tried to determine that as part of its Voices of Experience 2016 survey of recent retirees. Eighty percent of women said they valued “spending time alone with personal interests such as reading.” Eighty percent also ranked “connecting with and spending time with family” as one of their activities. Seventy-five percent cited “socializing with friends;” 58%, “volunteering and giving back to the community,” and 43%, “caring for others.” Retired women were also 47% likely to participate in “fitness or more athletic strenuous pursuits,” and 40%, likely to engage in “creative pursuits,” such as writing and visual arts.2

Another poll suggests some women may have a different kind of active retirement. In its 2016 Retirement Survey of Workers, the Transamerica Center for Retirement Studies found that 56% of women planned to retire after age 65 or not at all. In addition, 51% anticipated working in retirement.3

Many women are concerned about outliving their money. A 2015 Fidelity survey of more than 1,500 women found that 60% were worried about that possibility. Even among the affluent, a notable gender gap exists in retirement savings; in its most recent high net worth client survey, Wells Fargo discovered that that the median retirement account balance for women was approximately $500,000, versus approximately $700,000 for men.4,5 

Too many women approach retirement with too little saved or invested. You can cite two major reasons for that.

One, the multi-year absence of some women from the workplace (which can coincide with peak earning years, lessening the rate of retirement plan contributions). Barron’s notes that, on average, women spend 11 years out of the workforce compared to men. AARP calculates that an 11-year absence may potentially cost a woman as much as $324,000 in lifetime earnings and Social Security income.5

Two, a notable earnings gap. On average, women working full-time earn 79 cents for every $1 men earn, which may reflect everything from gender inequality in career paths to wage discrimination.6

Another factor may be a preference for extremely conservative investing (and that is a preference that many men share as well). There can be a cost for assuming too little risk in one’s portfolio. When investments are too risk-averse, an investor may lose the potential to generate returns that keep up with inflation.

How about you? How are you investing & saving to pursue your retirement dream? Do you have a strategy in place with defined goals? A chat with a financial professional may lead to the discovery of creative new ways to pursue your retirement objectives, and new steps toward creating the retirement you want for yourself.

What is that kind of professional input worth? It may make a big difference in retirement confidence and in the process of retiring. In the new TIAA study, 69% of women said their transitions to retirement were “easy,” versus 77% of men. The more confidence you have, the more knowledge you have.2,5

 

Jose Yanez may be reached at 517-316-5333 or [email protected]
www.fullcirclefp.com 
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.     
Citations.
1 – money.usnews.com/money/personal-finance/articles/2016-05-19/how-and-why-men-and-women-retire-differently [5/19/16]
2 – forbes.com/sites/nextavenue/2016/04/20/retirement-life-women-and-men-do-it-very-differently/ [4/20/16]
3 – transamericacenter.org/retirement-research/women-and-retirement [1/11/16]
4 – usatoday.com/story/money/2015/02/12/women-financial-savings-retirement/22982383/ [2/12/15]
5 – tinyurl.com/jexfqwp [2/13/16]
6 – washingtonpost.com/news/wonk/wp/2016/03/08/its-2016-and-women-still-make-less-for-doing-the-same-work-as-men/ [3/8/16]

 

Free Personal Financial Organizer

One of the most important aspects of financial planning is taking financial inventory.  In the case of the loss of a loved one, it’s about organizing where all of your important financial statements, contacts, and estate planning documents can be found.  Click below to download your Personal Financial Organizer for you and your family.

Personal Financial Organizer

Could You Improve Your Personal Finances Today?

Simple decisions & new habits might lead you toward a better financial future.

Provided by Jose Yanez

 

In life, there are times when simple decisions can have a profound impact. The same holds true when it comes to personal finance. Here are some simple choices you could make that may leave you better off financially – in the near term, the long term, or both.

Use less credit. Every time you pay with cash instead of credit, you are saving pennies on the dollar – actually, dimes on the dollar. At the start of December, the average “low interest” credit card in America charged users 12.45%, the average cash back card 17.15%. If you want to see your bank balance grow, try consistently paying in cash. There is no need to pay extra money when you pay for something.1  

Set up automated contributions to retirement plans & investment accounts. By automating your per-paycheck salary deferrals to your workplace retirement plan or your IRA, you remove the chore (and the psychological hurdle) of having to make lump-sum contributions. You can bolster invested assets with regular inflows of new money, without even thinking about it. Often, arranging these recurring account contributions takes 20 minutes or less of your time.2  

Bundle your insurance. Many insurers will give you a discount if you turn to them for multiple policies (home and auto, possibly other combinations). This may help you reduce your overall insurance costs.  

Live somewhere less expensive. Sure, it takes money to move, but that one-time cost might be worth absorbing, especially if you can perform your job anywhere. A look at the December United States Rent Report at ApartmentList.com reveals that the median rent for a 1-bedroom apartment in Los Angeles is $1,900. The median rent for a 1-bedroom apartment in Spokane is $630. What is the median rent for a 2-bedroom apartment in Boston? $3,200. How about in Fayetteville, North Carolina? $700.3

Look into refinancing your largest debts. Perhaps your student loans could be consolidated. Perhaps you could qualify for a refi on your mortgage (while rates are still low). Both of these moves could free up money and leave you with more financial “breathing room” each month.

Spend less money on “stuff” and more money on yourself. Many people associate possessions with well-being – the more “toys” you have, the richer your life becomes. That kind of thinking can quickly put you deep in debt. You may find yourself living on margin as your “toys” depreciate.

A wise alternative: pay yourself first and direct more of your income into retirement or savings accounts. Or if you like, use some money you would normally spend on creature comforts to attack your debt. Instead of simply entertaining yourself today, make money moves on behalf of your financial future. Too many people give their financial future little thought, and they may be in for a shock when they reach retirement age.

We all want to splurge now and then, but try spending money on memorable experiences instead of flashy items – you may find the former many times more valuable than the latter.

Forgo several purchases a month and see what happens. A recent SunTrust bank survey found that roughly a third of U.S. households earning $75,000 or more live paycheck to paycheck. Earlier this year, Money noted that the average household credit card balance was nearly $16,000. In short, people are spending too much.4

Some expenses are obligatory, others spur-of-the-moment and unexamined. Pause and think before you buy something; do you really need it? If you separate your needs from your wants and say no to several of them, you may find yourself living a simpler life with less debt and more cash.

Spend less than what you make, invest and save some of the difference – this is the classic path toward improving your financial situation.

 

Jose Yanez may be reached at 517-316-5333 or [email protected].com
www.fullcirclefp.com
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
SECURITIES OFFERED THROUGH SIGMA FINANCIAL CORPORATION, MEMBERS FINRA/SIPC | WWW.FINRA.ORG | WWW.SIPC.ORG
FULL CIRCLE FINANCIAL PLANNING IS INDEPENDENT OF SIGMA FINANCIAL CORPORATION 
     
Citations.
1 – bankrate.com/finance/credit-cards/current-interest-rates.aspx [12/1/16]
2 – forbes.com/sites/robertberger/2016/05/14/20-ways-to-improve-your-finances-in-under-20-minutes/ [5/14/16]
3 – apartmentlist.com/rentonomics/national-rent-data/ [12/1/16]
4 – time.com/money/4320973/why-you-are-poor/ [6/6/16]

 

Your Annual Financial To-Do List

Things you can do before & for 2017. 

Provided by Jose Yanez

                       

What financial, business, or life priorities do you need to address for 2017? Now is a good time to think about the investing, saving, or budgeting methods you could employ toward specific objectives. Some year-end financial moves may help you pursue those goals as well. 

What can you do to lower your 2017 taxes? Before the year fades away, you have plenty of options. Here are a few that may prove convenient: 

*Make a charitable gift before New Year’s Day. You can claim the deduction on your 2016 return, provided you itemize your 2016 deductions with Schedule A. The paper trail is important here.1 

If you give cash, you need to document it. Even small contributions need to be demonstrated by a bank record, payroll deduction record, credit card statement, or written communication from the charity with the date and amount. Incidentally, the IRS does not equate a pledge with a donation. If you pledge $2,000 to a charity in December, but only end up gifting $500 before 2016 ends, you can only deduct $500.1 

Are you gifting appreciated securities? If you have owned them for more than a year, you will be in line to take a deduction for 100% of their fair market value, and avoid capital gains tax that would have resulted from simply selling the investment and then donating the proceeds. (Of course, if your investment is a loser, it might be better to sell it and donate the money, so you can claim a loss on the sale and deduct a charitable contribution equal to the proceeds.)2 

Does the value of your gift exceed $250? It may, and if you gift that amount or larger to a qualified charitable organization, you will need a receipt or a detailed verification form from the charity. You also have to file Form 8283 when your total deduction for non-cash contributions or property exceeds $500 in a year.1,2                                                             

If you aren’t sure if an organization is eligible to receive charitable gifts, check it out at irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check. 

*Contribute more to your retirement plan. If you haven’t turned 70½ this year and you participate in a traditional (i.e., non-Roth) qualified retirement plan or have a traditional IRA, you can cut your 2016 taxable income through a contribution. Should you be in the 35% federal tax bracket, you can save $1,925 in taxes as a byproduct of a $5,500 regular IRA contribution. Your TY 2016 contribution to a Roth or traditional IRA may be made as late as April 15, 2017. There is no merit in waiting, however, since delaying a contribution only delays tax-advantaged compounding of those dollars.3,4

If you are self-employed and don’t have a solo 401(k) or something similar, look into whether you can still establish and fund such a plan before the end of the year. For TY 2016, you can contribute up to $18,000 to any kind of 401(k), 403(b), or 457 plan, with a $6,000 catch-up contribution allowed if you are age 50 or older.5 

*See if you can take a home office deduction. If your income is high and you find yourself in one of the upper tax brackets, look into this. You may be able to legitimately write off expenses linked to the portion of your home used to exclusively conduct your business. (The percentage of costs you may deduct depends on the percentage of the square footage of your residence you devote to your business activities.) If you qualify for this tax break, part of your rent, insurance, utilities, and repairs may be deductible.6 

*Open an HSA. If you are enrolled in a high-deductible health plan, you may set up and fund a Health Savings Account in 2017. You can make fully tax-deductible HSA contributions of up to $3,400 (singles) or $6,750 (families); catch-up contributions of up to $1,000 are permitted for those 55 or older who aren’t yet enrolled in Medicare. Moreover, HSA assets grow untaxed and withdrawals from these accounts are tax-free if used to pay for qualified health care expenses. HSAs are sometimes referred to as “backdoor IRAs,” because once you reach age 65, you may use withdrawals out of them for any purpose; although, withdrawals will be taxed if they aren’t used to pay for qualified medical expenses.7 

*Practice tax-loss harvesting. You could sell underperforming stocks in your portfolio – enough to rack up at least $3,000 in capital losses. In fact, you can use this tactic to offset all of your total capital gains for a given tax year. Losses that exceed the $3,000 yearly limit may be rolled over into 2017 (and future tax years) to offset ordinary income or capital gains again.4 

Are there other moves that you should consider? Here are some additional ideas with merit.   

*Pay attention to asset location. Tax-efficient asset location is an ignored fundamental of investing. Broadly speaking, your least tax-efficient securities should go in pre-tax accounts and your most tax-efficient securities should be held in taxable accounts. 

*Can you contribute the maximum to your IRA on January 1, 2017? The sooner you make your contribution, the earlier those assets have the potential to earn interest. In 2017 the contribution limit for a Roth or traditional IRA remains at $5,500 ($6,500 for those making “catch-up” contributions). Your modified adjusted gross income (MAGI) may affect how much you can put into a Roth IRA, though: singles and heads of household with MAGI above $133,000 and joint filers with MAGI above $196,000 cannot make 2017 Roth contributions.5   

What are the income limits on deducting traditional IRA contributions? If you participate in a workplace retirement plan, the 2017 MAGI phase-out ranges are $62,000-$72,000 for singles and heads of households, $99,000-$119,000 for joint filers when the spouse making IRA contributions is covered by a workplace retirement plan, and $186,000-$196,000 for an IRA contributor not covered by a workplace retirement plan, but married to someone who is.5 

*Should you go Roth before 2017 gets here? You might be considering that. If you are a high earner, you should know that MAGI phase-out limits affect Roth IRA contributions. For 2016, phase-outs kick in at $184,000 for joint filers, and $117,000 for single filers (those thresholds move north by $2,000 and $1,000, respectively, in 2017). Should your MAGI prevent you from contributing to a Roth IRA at all, you still have the chance to contribute to a traditional IRA in 2016 and then go Roth.5

Incidentally, a footnote: distributions from Roth IRAs, traditional IRAs, and qualified retirement plans such as 401(k)s are not subject to the 3.8% Medicare surtax affecting single/joint filers with AGIs over $200,000/$250,000. If your AGI surpasses these MAGI thresholds, then dividends, royalties, the taxable part of non-qualified annuity income, taxable interest, passive income (such as partnership and rental income), and net capital gains from the sale of real estate and investments are subject to that surtax.8   

Consult a tax or financial professional before you make any IRA moves to see how they may affect your overall financial picture. If you have a large traditional IRA, the projected tax resulting from a Roth conversion may make you think twice. 

What else should you consider as 2017 approaches? There are some other things to note… 

*Review your withholding status. Should it be adjusted due to any of the following factors? 

>> You tend to pay a great deal of income tax each year.

>> You tend to get a big federal tax refund each year.

>> You recently married or divorced.

>> A family member recently passed away.

>> You have a new job and you are earning much more than you previously did.

>> You started a business venture or became self-employed. 

*If you are retired and older than 70½, remember your RMD. Retirees over age 70½ must begin taking Required Minimum Distributions from traditional IRAs and 401(k), 403(b), and profit-sharing plans by December 31. The IRS penalty for failing to take an RMD equals 50% of the RMD amount that is not withdrawn.9 

If you turned 70½ in 2016, you can postpone your initial RMD from an account until April 1, 2017. The downside of that is that you will have to take two RMDs next year, both taxable events – you will have to make your 2016 tax year withdrawal by April 1, 2017 and your 2017 tax year withdrawal by December 31, 2017.9  

Plan your RMDs wisely. If you do so, you may end up limiting or avoiding possible taxes on your Social Security income. Some Social Security recipients don’t know about the “provisional income” rule – if your adjusted gross income, plus any non-taxable interest income you earn, plus 50% of your Social Security income surpasses a certain level, then some Social Security benefits become taxable. Social Security benefits start to be taxed at provisional income levels of $32,000 for joint filers and $25,000 for single filers.10 

*Consider the tax impact of 2016 transactions. Did you sell real property this year? Did you start a business? Have you exercised a stock option? Could any large commissions or bonuses come your way before January? Did you sell an investment held outside of a tax-deferred account? Any of this might significantly affect your 2016 taxes. 

*Would it be worth making a 13th mortgage payment this year? If your house is underwater, it makes no sense – and you could argue that those dollars might be better off invested or put in your emergency fund. Those factors aside, however, there may be some merit to making a January mortgage payment in December. If you have a fixed-rate loan, a lump-sum payment can reduce the principal and the total interest paid on it by that much more. 

*Are you marrying in 2017? If so, why not review the beneficiaries of your workplace retirement plan account, your IRA, and other assets? In light of your marriage, you may want to make changes to the relevant beneficiary forms. The same goes for your insurance coverage. If you will have a new last name in 2017, you will need a new Social Security card. Additionally, the two of you no doubt have individual retirement saving and investment strategies. Will they need to be revised or adjusted with marriage? 

*Are you coming home from active duty? If so, go ahead and check the status of your credit, and the state of any tax and legal proceedings that might have been preempted by your orders. Make sure your employee health insurance is still there, and revoke any power of attorney you may have granted to another person. 

Talk with a qualified financial or tax professional today. Vow to focus on being healthy and wealthy in the New Year. 

Jose Yanez may be reached at 517-3165333 or [email protected]www.fullcirclefp.com 
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.      
SECURITIES OFFERED THROUGH SIGMA FINANCIAL CORPORATION, MEMBERS FINRA/SIPC | WWW.FINRA.ORG | WWW.SIPC.ORG
FULL CIRCLE FINANCIAL PLANNING IS INDEPENDENT OF SIGMA FINANCIAL CORPORATION 
Citations.
1 – irs.gov/uac/Newsroom/Six-Tips-for-Charitable-Taxpayers [5/19/15]
2 – marketwatch.com/story/what-to-know-when-deducting-charitable-donations-2016-02-23 [2/23/16]
3 – irs.gov/Retirement-Plans/Traditional-and-Roth-IRAs [2/19/16]
4 – turbotax.intuit.com/tax-tools/tax-tips/General-Tax-Tips/4-Last-Minute-Ways-to-Reduce-Your-Taxes/INF22115.html [11/4/16]
5 – forbes.com/sites/ashleaebeling/2016/10/27/irs-announces-2017-retirement-plans-contributions-limits-for-401ks-and-more/ [10/27/16]
6 – irs.gov/Businesses/Small-Businesses-&-Self-Employed/Home-Office-Deduction [9/27/16]
7 – shrm.org/resourcesandtools/hr-topics/benefits/pages/irs-sets-2017-hsa-contribution-limits.aspx [5/2/16]
8 – fidelity.com/viewpoints/personal-finance/new-medicare-taxes [9/30/16]
9 – fool.com/retirement/general/2016/04/11/required-minimum-distributions-common-questions-ab.aspx [4/11/16]
10 – smartasset.com/retirement/is-social-security-income-taxable [3/10/16]

 

The Many Benefits of a Roth IRA

Why do so many people choose it rather than a traditional IRA?

 

The Roth IRA changed the whole retirement savings perspective. Since its introduction, it has become a fixture in many retirement planning strategies.

The key argument for going Roth can be summed up in a sentence: Paying taxes on retirement contributions today is better than paying taxes on retirement savings tomorrow.

Here is a closer look at the trade-off you make when you open and contribute to a Roth IRA – a trade-off many savers are happy to make.

You contribute after-tax dollars. You have already paid federal income tax on the dollars going into the account. But, in exchange for paying taxes on your retirement savings contributions today, you could potentially realize great benefits tomorrow.1   

You position the money for tax-deferred growth. Roth IRA earnings aren’t taxed as they grow and compound. If, say, your account grows 6% a year, that growth will be even greater when you factor in compounding. The earlier in life that you open a Roth IRA, the greater compounding potential you have.2

You can arrange tax-free retirement income. Roth IRA earnings can be withdrawn tax-free as long as you are age 59½ or older and have owned the IRA for at least five tax years. The IRS calls such tax-free withdrawals qualified distributions. They may be made to you during your lifetime or to a beneficiary after you die. (If you happen to die before your Roth IRA meets the 5-year rule, your beneficiary will see the Roth IRA earnings taxed until it is met.)2,3

If you withdraw money from a Roth IRA before you reach age 59½ or have owned the IRA for five tax years, that is a nonqualified distribution. In this circumstance, you can still withdraw an amount equivalent to your total IRA contributions to that point, tax-free and penalty-free. If you withdraw more than that amount, though, the rest of the withdrawal may be fully taxable and subject to a 10% IRS early withdrawal penalty as well.2,3

Withdrawals don’t affect taxation of Social Security benefits. If your total taxable income exceeds a certain threshold – $25,000 for single filers, $32,000 for joint filers – then your Social Security benefits may be taxed. An RMD from a traditional IRA represents taxable income, which may push retirees over the threshold – but a qualified distribution from a Roth IRA isn’t taxable income, and doesn’t count toward it.4


How much can you contribute to a Roth IRA annually? The 2016 contribution limit is $5,500, with an additional $1,000 “catch-up” contribution allowed for those 50 and older. (The annual contribution limit is adjusted periodically for inflation.)5 

You can keep making annual Roth IRA contributions all your life. You can’t make annual contributions to a traditional IRA once you reach age 70½.2

 

Does a Roth IRA have any drawbacks? Actually, yes. One, you will generally be hit with a 10% penalty by the IRS if you withdraw Roth IRA funds before age 59½ or you haven’t owned the IRA for at least five years. (This is in addition to the regular income tax you will pay on funds withdrawn prior to age 59 1/2, of course.) Two, you can’t deduct Roth IRA contributions on your 1040 form as you can do with contributions to a traditional IRA or the typical workplace retirement plan. Three, you might not be able to contribute to a Roth IRA as a consequence of your filing status and income; if you earn a great deal of money, you may be able to make only a partial contribution or none at all.3,5

A chat with the financial professional you know and trust will help you evaluate whether or not a Roth IRA is right for you given your particular tax situation and retirement horizon.

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Citations.
1 – forbes.com/sites/gurufocus/2016/07/12/dividend-investing-in-a-roth-ira/#15a5276e320b [7/12/16]
2 – fool.com/retirement/2016/07/03/5-huge-roth-ira-advantages-you-need-to-know.aspx [7/3/16]
3 – hrblock.com/free-tax-tips-calculators/tax-help-articles/Retirement-Plans/Early-Withdrawal-Penalties-Traditional-and-Roth-IRAs.html?action=ga&aid=27104&out=vm [8/8/16]
4 – investopedia.com/ask/answers/013015/how-can-i-avoid-paying-taxes-my-social-security-income.asp [7/6/16]
5 – fool.com/retirement/general/2016/01/02/ira-contribution-limits-in-2015-and-2016-and-how-t.aspx [1/2/16]

What Will the Election Do to the Market?

Will volatility seize Wall Street? Or will calm prevail?  

 

Wall Street has had a rather calm summer. How about fall? Will volatility increase before and after Election Day?    

So far, the market is performing roughly in line with historical patterns. In 19 of the prior 22 presidential election years, the S&P 500 advanced from June through October. The median gain for the index during that 5-month period: 4.1%.1

During those 22 election years, the S&P averaged a gain of 1.5% in June, 1.9% in July, and 3.0% in August. This year, the S&P rose 0.1% in June and rallied 3.6% in July; it is up slightly for the month as August draws to a close. An August gain would represent its sixth straight monthly advance.1,2  

In past election years, July & August have been the most volatile months. The yearly standard deviation for the S&P averaged 18.6% during the past 22 election years, but volatility averaged 28.8% in July and 30.3% in August of those 22 years. (These July and August numbers, however, are a bit distorted as a result of the wild market turbulence of 1932. In that year, the S&P gained 55.7%.)1 

Whoever wins the election, the status quo will likely remain on Capitol Hill. As a Morgan Stanley report commented in July, “Current evidence suggests the U.S. elections in November won’t yield outcomes that substantially change market fundamentals.” Morgan Stanley analysts foresee Clinton winning the election and Republicans retaining their majority in the House of Representatives. In that scenario, Clinton wins, but her administration has difficulty enacting any of its planned reforms.3 

If the Republicans lose control of the House or Trump wins, Wall Street could see some pronounced short-term volatility, which is also an outcome that could possibly affect market fundamentals. Even if one candidate or the other wins by a landslide, their most ambitious proposals may never get off the ground. As Morgan Stanley asserts, “attempts by Clinton or Trump to exercise transformative power domestically will be stunted” by a lack of support in Congress.3 

Should stocks rollercoaster before or after Election Day, keep calm. Any disturbance may be short-term, and your investing and retirement saving effort is decidedly long-term. The election is a big event, but earnings, central bank monetary policy, and macroeconomic factors may have a much bigger impact on the markets this fall.

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Citations.
1 – cnbc.com/2016/06/03/history-shows-stocks-rally-during-presidential-elections.html [6/3/16]
2 – money.cnn.com/data/markets/sandp/ [8/25/16]
3 – money.cnn.com/2016/07/13/investing/donald-trump-stock-market/ [7/13/16]

The Trump & Clinton Tax Plans

How do they differ?

 

Seemingly every presidential candidate offers a plan for tax reform. You can add Donald Trump and Hillary Clinton to that long list. Here is a look at their plans, and the key reforms to federal tax law that might result if they were enacted. 

Donald Trump revised his tax plan this summer. The latest plan put forth by Trump and his advisors contains the key features of the one introduced last year.

Under Trump’s plan, the standard deduction would rise. It would rise from the current level of $6,300 to $25,000 for single filers. Joint filers could claim a $50,000 standard deduction. (The GOP plan proposes respective standard deductions of $12,000 and $24,000.) Instead of seven federal income tax rates, there would just be three – 12%, 25%, and 33%. (In his original tax reform blueprint, the rates were 10%, 20%, and 25%.)1

The estate tax would vanish entirely under Trump’s plan. Taxes on capital gains and dividends would top out at 20%.2,3

Trump wants to reduce the corporate tax rate from 35% to 15%. The new lower rate would apply to partnerships, LLCs, and S corps as well as C corps. (With a proposed corporate tax ceiling of 15% and a proposed individual tax ceiling of 33%, some economists have wondered if a Trump presidency might generate a wave of individuals incorporating themselves.) Full expensing would also be allowed for business investments under Trump’s plan.1

Notably, Trump’s reforms would do away with the deferral of taxes on foreign profits. As it stands now, corporate taxes on foreign profits are deferred until overseas affiliates repatriate them. It can take years for those inbound dividends to arrive. The Trump plan would tax domestic and foreign profits on the same current-year basis.1

Trump has also publicly spoken of greater tax relief for families raising children. This would likely not be an expansion of the Child and Dependent Care Credit, but something new – either a deduction, a credit, or an exclusion. Given the high standard deductions that would be offered if Trump’s tax plan becomes law, higher-income households might be most interested in such an expanded child care deduction. If the Trump plan applies a child care deduction to payroll taxes rather than income taxes, many lower-income households could, theoretically, claim it. Less payroll tax revenue would mean less revenue for some key government programs.1

Hillary Clinton’s tax plan would lower some taxes & raise others. As the non-partisan Tax Policy Center has noted, only around 5% of Americans would see any real change to their taxes under the Clinton reforms – but the richest Americans would pay higher income taxes under her plan. Clinton’s corporate tax reforms would encourage firms to do more business in America, while her estate tax reforms could prompt changes in wealth transfer planning for some families.2,3

High-earning households could see marginal rates rise. Under Clinton’s plan, taxpayers with adjusted gross incomes greater than $5 million would pay a 4% surtax, effectively setting their marginal tax rate at 43.6%. Anyone earning more than $1 million would face an effective tax rate of 30%. Investors would have to buy and hold for longer intervals to take advantage of long-term capital gains tax rates. The current long-term rate of 20% would only apply if an investor owned an investment for six years; in preceding years, it would be incrementally higher.2,3,4

The federal estate tax would also rise to 45% through Clinton’s reforms. The current $5.45 million individual exemption would be reduced to $3.5 million ($7 million for married couples).2

Clinton’s plan would adjust corporate taxation. U.S. firms would find it harder to make tax inversions, whereby they merge with an overseas competitor and move their headquarters to another country to exploit that nation’s lower corporate tax rate. Earnings stripping – in which U.S. affiliates of multinational corporations “strip” profits from their stateside taxable income and send them to overseas parent companies in pursuit of tax savings – would cease. Companies would also face limits on deducting interest payments on their debt. While she has talked of a tax on the biggest financial institutions, Clinton has also expressed a desire to make the process of estimating, filing, and paying taxes less involved for small business owners.2,3

Like Trump, Clinton wants tax relief for families. She wants a new kind of tax credit for child care; the details have yet to emerge at this writing.2

These plans have one destination. That is Congress, and there is no telling how many or how few of these reforms may become law if Clinton or Trump are elected.

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Citations.
1 – taxanalysts.org/tax-analysts-blog/trump-s-tax-plan-version-20/2016/08/12/194511 [8/12/16]
2 – nytimes.com/2016/08/13/upshot/how-hillary-clinton-and-donald-trump-differ-on-taxes.html [8/13/16]
3 – cbsnews.com/news/hillary-clinton-donald-trump-taxes-presidential-campaign-2016/ [8/3/16]
4 – fool.com/investing/2016/06/19/how-would-hillary-clinton-change-your-taxes.aspx [6/19/16]
 

How Can LTC Insurance Help You Protect Your Assets?

Plan to create a pool of healthcare dollars that you can use when the time comes.

Provided by Jose S. Yanez

How will you pay for long-term care? At the moment, you may not be able to answer that question – but long-term care insurance can provide an answer for you.

Why are baby boomers opting to make long-term care coverage an important part of their retirement strategies? The reasons to get an LTC policy at or after age 50 are very compelling.

Your premium payments buy you access to a large pool of money which can be used to pay for long-term care costs. By paying for LTC out of that pool of money, you can help to preserve your retirement savings and income.

The cost of assisted living or nursing home care alone could motivate you to pay for an LTC policy. Genworth Financial conducts a respected annual Cost of Care Survey to gauge the price of long-term care in the U.S. Here is some data from the latest edition:

*In 2016, the median monthly cost of a private room in a nursing home is $7,698. The median monthly cost of a semi-private room is $6,844, 2.27% greater than Genworth’s 2015 estimate.
*How about the median monthly cost of an assisted living facility? That currently comes to $3,628. Thankfully, that has increased only 0.8% from last year.
*The median monthly cost of an in-home health aide (44 hours per week) is $3,861. Across the past five years, that median cost has risen 6.6%.1

When you multiply these monthly cost estimates, the math gets downright scary. Can you imagine taking $45-90K out of your retirement savings to pay for a year of these expenses? What if you have to do it for more than one year?

The Department of Health & Human Services estimates that if you are 65 today, you have about a 70% chance of needing some form of LTC during the balance of your life. About 20% of those who will require it will need LTC for at least five years. Today, the average woman in need of LTC needs it for 3.7 years, while the average man needs it for 2.2 years.2

Why procrastinate? The earlier you opt for LTC coverage, the cheaper the premiums. This is why many people purchase it before they retire.

What it pays for. Some people think LTC coverage only pays for nursing home care. It can actually pay for a variety of nursing, social, and rehabilitative services at home and away from home, for people with a chronic illness or disability. For example, it can fund home health care, care in a group living facility, and adult daycare.3

Choosing a DBA. That stands for Daily Benefit Amount – the maximum amount that your LTC plan will pay per day for care in a nursing home facility. You can choose a Daily Benefit Amount when you pay for your LTC coverage, and you can also choose the length of time that you may receive the full DBA on a daily basis. The DBA typically ranges from a few dozen dollars to hundreds of dollars. Some LTC plans offer you “inflation protection” at enrollment. That means that every few years, you will have the chance to buy additional coverage and get compounding – so your pool of money can grow.

The Medicare misconception. Medicare is not long-term care insurance. At most, it will pay for 100 days of nursing home care, and only if 1) you are getting skilled care, and 2) you go into the nursing home right after a hospital stay of at least 3 days. Medicare also covers limited home visits for skilled care, and some hospice services for the terminally ill. That’s all.4

In some cases, Medicaid might help you pay for nursing home and assisted living care, but it is basically aid for those in dire financial need. Some nursing homes and assisted living facilities don’t accept it, and, for Medicaid to pay for LTC in the first place, the care has to be proven to be “medically necessary” for the patient. Do you really want to wait until you are nearly broke to try and find a way to fund long-term care? Of course not. LTC insurance provides a way to do it.5

Why not look into this? You may have heard that yearly premiums on LTC policies have increased recently. They have – as MarketWatch recently noted, annual premiums for a typical policy covering a 55-year-old couple can exceed $5,000. Those premiums are cheap, however, relative to the financial burden those without LTC policies may face in the future.6

Ask your insurance advisor or financial advisor about some of the LTC choices you can explore – while many Americans have life, health, and disability insurance, that is not the same thing as long-term care coverage.

 

Jose Yanez may be reached at 517-316-5333 or [email protected]
www.fullcirclefp.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

«RepresentativeDisclosure»

Citations.
1 – tinyurl.com/hbc3s2a [5/10/16] 2 – longtermcare.gov/the-basics/how-much-care-will-you-need/ [7/6/16] 3 – doi.nv.gov/Consumers/Long-Term-Care-Insurance/ [7/6/16] 4 – medicareadvocacy.org/18-medicare-doesnt-cover-long-term-nursing-home-care/ [7/6/16] 5 – nolo.com/legal-encyclopedia/when-will-medicaid-pay-nursing-home-assisted-living.html [7/6/16] 6 – marketwatch.com/story/can-you-afford-5000-a-year-for-long-term-care-insurance-2015-06-25 [6/25/15]