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I Have the CFP®, Now What?

220px-Cliff_Clavin_in_CheersThis week, several anxious individuals will sit in front of a computer screen at a testing center and will answer 170 questions over a six hour span. These folks are sitting for the national CFP® exam that’s given every March, July, and November. Question topics range from life insurance and annuities to taxation, investment planning, estate planning and ethics. Successful exams takers will be allowed to use the prestigious marks (assuming all other requirements are met).

If you’re one of these folks – first of all congratulations! You put in a lot of hard work, studying, and relinquished personal time in order to be successful. You should be proud. But I would also encourage you to not fall to the temptation of thinking, “you’ve made it.” In other words, I hope the exam has taught you that there’s so much we don’t know as planners and the CFP®  is merely a stepping stone (albeit a big one) in our career as financial planners.

What I mean is that you should continue to put in the effort and strive to be successful in acquiring more knowledge that complements or goes above what your CFP® studies taught you. Don’t be afraid to earn other designations such as the ChFC® and CLU® or to become more specialized in a field such as taxation by becoming an Enrolled Agent or CPA. There’s nothing holding you back from earning a Master’s degree or law degree.

The point is that once you’ve gotten this far, don’t settle. We owe it to our clients, or colleagues and the industry to hold ourselves out as professionals that are continually striving to make our profession and clients better off – and that can only come with more knowledge.

Again, congratulations! Now the real work begins.

Analyze your assets to avoid missing the mark

financial fitnessWhen we talk about financial fitness, one of the measures that is most important to the conversation is the value of our assets. There are really five different kinds of assets that we should consider:

Personal Assets. Clothing, furnishings, and jewelry fit into this category. Most of this “stuff” decreases in value to less than half what we paid for it before we even get it home.

Household Assets. This includes real estate, cars, and appliances. Most of these items either appreciate in value over time or provide a fair value over their life (in relation to renting the service). The total value of these assets must be reduced by any loans that we have against them – such as mortgages and auto loans. This will produce a net value of Household Assets.

Employment Assets. Some employers still provide for a pension for their employees’ retirement. This pension has a value, and should be considered an asset. Since most companies have under-funded their pension plans, you might discount the value of this asset, but you should still consider it if you have a pension available to you. In addition to the pension value, consider the value of your employability – this is an asset as well. If you are able to work and earn an income, this asset (your skillset and therefore your earning power) is one of your most valuable, especially in your earlier years.

Social Security Assets. Given that Social Security’s solvency is in question these days, often we don’t even think about this benefit as an asset. Unless it is eliminated entirely, though, we should still consider the value of this future income stream as an asset. It would be wise to discount it somewhat, due to the fact that the system is vastly underfunded and will become overburdened over the next several years as the Boomers continue retiring and drawing benefits.

Financial Assets. This is the 401(k) plan, IRA, brokerage, mutual fund and savings accounts that you’ve established. This one usually gets the most attention, because it tends to trump all the other types of assets. When you have plenty in this category, you don’t tend to worry about the other categories, because you can always use the money from here to buy the goods and services to cover those other categories. This is also one of the primary types of assets that we have some degree of control over.

Now for the good news – even though most of us don’t have anywhere near enough set aside in the financial assets category, it’s not impossible to build things up in order to make your future a little brighter.

The problem is that we have built up some unrealistic expectations about some of our asset types, and we need to deal with these in order to ensure a comfortable future.

The first of these illusions is that our personal assets will somehow contribute to our future security. Take a stroll through the Goodwill store and you’ll see the illusion of what those things are worth, should you ever need to sell them.

Secondly, and possibly the most harmful of these illusions, is that our household assets can be quickly turned into financial assets. This illusion is harder to break, because past generations have done this successfully: most retired residents of Florida and Arizona had very little in financial assets before they sold their household assets in New York or Chicago or Los Angeles. It doesn’t work as well for those of us in the great Midwest, where property doesn’t “bloom” in value every year. And as we saw in the Great Recession, these property values can be nothing more than an illusion.

So – how can you tell if you’re doing the right thing with your assets? Here are some basic benchmarks to consider:

  • If your monthly budget focuses more on Personal Assets than your Financial Assets, your focus is in the wrong place and trouble is on the horizon.
  • If your Household Assets are growing faster than your Financial Assets, you’re fortunate to live where you do. But you may be heading for a problem in the future, having to sell your home in order to provide funds to live on, because that’s where your money is.
  • And a sign that you’re headed in the right direction – if your financial decisions revolve around reducing your mortgage or increasing your financial assets rather than purchasing or paying for Personal Assets, then you’re doing the right things. Keep up the good work!

The two primary places that you should place focus on in order to improve your overall financial condition are your employment skillset and your personal Financial Assets.

There is no better way, at any point in your life, to improve your financial condition than to increase your earning power by taking on new skills. This earning power will translate in to more discretionary earnings each month, allowing you to add more to the savings plans that you have available to you. Handled carefully, both of these types of assets can serve you well for a long time into the future.

Should You Delay Retirement?

decisionThe question of delaying retirement may arise as you get closer to your “goal year” of when you want to retire. For some individuals’ fortunate enough to be covered under a company or state pension, it can be tempting to retire as soon as possible and collect the pension benefit. The same may be true for folks wanting to start taking Social Security at age 62.

Before making the decision to retire or retire early an individual should consider the effects on delaying retirement and continuing to work. This is assuming that they can accrue extra pension benefits for the extra years of service. For Social Security, this would be delaying past an individual’s normal retirement age as long as to age 70.

For example, let’s say an individual has the opportunity to be eligible to retire at age 55 and receive a pension of $5,500 per month. However, if the individual decides to wait until age 60 to retire their pension will increase to $7,500 per month, a difference of $2,000 or $24,000 per year.

Recently, I had just such a scenario presented to me. The individual came to me with the above retirement ages and pension amounts and asked which one I recommended. My response seemed to throw them off. I asked them what would make them the happiest. We then dove into possible scenarios and future goals they wanted to achieve.

After about an hour of conversation the individual decided to delay retirement in exchange for the extra benefit. The reasons were that they were still young enough to re-enter the workforce doing something else, but they would always have the $7,500 coming in. f they chose to work at another job, the extra income was gravy. However, they also felt happiest with their decision based on if they didn’t want to work another job; they would have enough income to not work if they chose.

The same thing can be done if a person delays their Social Security benefit past their normal retirement age. Delaying Social Security can increase the benefit by as much as 8% per year.

Essentially what we’re doing by delaying the pension and Social Security is increasing the income floor. Think of an income floor as a guaranteed stream of income that will never decrease throughout your lifetime. In other words, no matter what happens to the stock market, your future job (after retirement), or the economy, the income floor represents income that will never go away.

Think of it this way. If an individual needs approximately $5,000 per month for expenses in retirement and they have an income floor (from pension and or Social Security) of $3,000 then they only need to find $2,000 per month from other income sources such as employment or retirement savings in a 401k or IRA. The individual may also create their own income floor by purchasing longevity insurance (annuities) with some of their retirement savings. If their floor is exactly $5,000 their income matches their expenses. A floor higher than $5,000 and they have a surplus – a good situation to be in (and also less stressful).

The decision of whether or not to delay retirement should be carefully considered. Talk to a competent financial professional to see if you may be leaving money on the table. Look at your recent Social Security statement to see how much your benefit increases by delaying or talk to your HR department (if you have a pension) to get an estimate of your benefit should you decide to delay retiring.

Get your billion back, Americans – time’s running out

Photo courtesy of Josh Felise via

Photo courtesy of Josh Felise via

Oftentimes folks with low incomes don’t see the need to file a tax return. Much of the time this is the correct way to go – after all, why go through the hassle and expense of filing a tax return for no purpose?

Unfortunately, many of these folks who didn’t file a tax return are actually due a refund of withheld tax, and possibly even tax credits that they weren’t aware of. The IRS has compiled a list of approximately 1 million taxpayers who didn’t file a tax return in 2011, and this group is due a total of approximately $1 billion in refunds.

The problem is that in order to claim these refunds, the tax return for 2011 has to be filed by April 15, 2015 – 3 years after the original filing date. If you don’t file by then, the refund is lost to you forever.

Recently the IRS produced a Newswire IR-2015-44 which details the information about these unclaimed tax refunds. Below is the text of the Newswire:

Keep reading…

Missing your SSA-1099? Here’s How to Get It

Photo courtesy of Kyle Szegedi via

Photo courtesy of Kyle Szegedi via

The Social Security Administration has a lot on their plate. Along with handling the tax rolls from some 150 million-plus wage earners, servicing around 50 million retirees and surviving spouses and 11 million-plus disabled workers and dependents, there are 10,000 baby boomers reaching retirement age each day. These folks (current recipients of benefits and newly-eligible) are generating nearly half-million phone calls a day to SSA’s 800 number, and nearly 200,000 per day visiting the local offices. Every day.

And they’re doing all this on administrative expenses of less than 1% of all the money they handle.

Much has been written about what the SSA is not capable of doing – such as advising folks on the best way to file – but little has been written about what they are doing well. One of those things is their website.  Keep reading…

Should You Invest Dollars or Percentages?

119499471383482357percent.svg.medIn many employer sponsored plans such as a 401k, 403b, 457, or SIMPLE employees are generally given the option of deferring a fixed dollar amount or fixed percentage of their income. The question becomes which category to choose when initially enrolling in the plan and whether or not to change the original decision.

Generally, the wiser decision is to choose (or switch to) the fixed percentage. The reason is that by choosing a percentage, you really never have to worry about increasing your contributions. For example, an individual starts a job earning $50,000 annually and decides to contribute 10% annually to his retirement plan which is $5,000 per year.

Keep reading…

Book Review: Finance for Nonfinancial Managers

finance for nonfinancial managersThis recently-released Second Edition is a wonderful book for folks who find themselves in the position of needing to understand financial reports, when the last time you looked at a balance sheet was in your first year of high school accounting.

Author Gene Siciliano has produced an excellent guide to the primary concepts of finance, written from the point of view that you have no background at all in finance or accounting.

Managers of all levels in today’s business organizations need to have at minimum a basic understanding of financial systems in order to be effective. Day-to-day decisions are influenced by information found in financial reports, and without being able to interpret these financial reports, you’re flying blind. Maybe you’ve been thrust into a management position without any training – and you need to have an understanding of financial reports to do your job. Gaining a better understanding (after you’ve got the basics down) of financial systems and reports can be an entree’ to advancement, as well.  Keep reading…

The Most Important Factor in Retirement Saving

planning for coffee

Photo courtesy of André Freitas via

We’ve all been there: making decisions about the ol’ retirement savings account. It doesn’t matter if it is a Roth IRA, a traditional IRA, a 401(k), or a deferred comp plan, there are many different decisions that you need to make.

It can be overwhelming, until you step back and realize that there are actually only three primary decisions to make about retirement savings:

  1. How much to contribute
  2. How to allocate between asset classes (stocks and bonds; as well as within the sub-classes like large-cap, mid-cap & small-cap stocks; corporate bonds, government bonds, etc.)
  3. Which funds/investments to choose

Keep reading…

Where to Keep Your Emergency Fund

Image courtesy of anankkml at

Image courtesy of anankkml at

Ask any qualified financial planner and they’ll generally tell you to have at least 3 to 6 months of living expenses set aside in order to fund a “rainy day” in the future. This emergency fund is there to help you pay bills such as your mortgage, utilities, and groceries in the event you lose your job, become disabled, or to pay for an unexpected emergency (such as a car or home repair). Some folks may need greater than 6 months expenses if they lose a job that may be hard to find again or a single income family that relies on one individual’s income.

Keep reading…

Why Social Security Decisions Are So Tough

decisionIf you’re facing the decision of when to file for your Social Security benefit, you’ve probably noticed just how confusing it can all be. There are so many decision-points in the system, it’s no wonder folks are confused.  Depending on your point of view and how you count the decision-points, each person facing this decision has thousands of possible combinations to consider as they decide when to pull the trigger and file for benefits.

Recently I was going over a decision tree that I had built to describe the decision-making process for filing, and within this review I have counted that for a single, there are 14 decision-points and a total of 96 months in which a filing decision can be made, for a total of 1,344 combinations. Keep reading…

How to Choose a Financial Planner

300px-Mark_Gorman_PreachingBefore you sign a contract or buy a product consider the following before choosing your financial planner.

  1. Make sure they’re a CFP®. At the very minimum, a CERTIFIED FINANCIAL PLANNER™ has the met the education, exam, ethics and experience requirements in order to be qualified to discuss your financial planning needs. Anyone can call themselves a financial planner, but not everyone is a CFP®. This should be the starting point of your search. Just because the planner is a CFP®, doesn’t mean you should automatically work with them.

Keep reading…

IRS Gives 5 Good Reasons for Direct Deposit


Since we’re in the middle of income tax preparation season, I thought it was appropriate to share some of the tips that the IRS has put forth. Today’s tip is to take advantage of direct deposit for your tax refund. It can be very handy to have this option specified on your tax return, as you’ll see below. It’s faster, more secure, and much more convenient than the old paper check method.

Below is the text of IRS’ Tax Tip 2015-23, which details some of the reasons that it makes sense to use direct deposit for your tax refund.  Keep reading…

Looking for a tax preparer? IRS can help

prepping peppersAlthough there are literally tax preparers standing on the street corners (sometimes in ridiculous costumes), it can be tough to find a qualified income tax preparer near you. Of course, word of mouth is a good way to find a preparer, by way of your family or friends – but what if you still can’t find a qualified tax preparer that you can trust?  Keep reading…

How to Easily Maximize Your IRA

minimize taxesRecently I had a chance to have some fun with some of my undergraduate students. Polling my entire class I asked them to make a list of wants (not needs) that they frequently spent money on. Answers varied from smartphones (and the respective bill), cable and satellite TV, dining out, coffee shops, beverages (you know which ones), and appearance (spending extra to dye hair, pedicures, etc.).

Here’s a list of how each expense was broken down as told by the students. In other words, it was their numbers not mine.

Keep reading…

What Plans Can I Rollover My Retirement Plan To?

When you rolloverhave a retirement plan, or many different types of retirement plan, you may be faced with decision-points when it would be helpful to rollover one plan into another plan. But do you know which type of plan I can rollover my retirement plan into?

What follows is a description of the types of accounts that you can rollover each particular source account into, along with the restrictions for some of those accounts. The IRS also has a handy rollover chart which describes these rollovers in a matrix.  Keep reading…

IRS’s Dirty Dozen Tax Scams for 2015

dirty dozenThe IRS produces a list each year of the “dirty dozen” tax scams that they and taxpayers deal with.

I’ve kept track of these over the past several years, so I’ve included the changes to rankings from 2012 to this year for those items in the list that continue to be listed. Topping the list this year is phone scams, which was first listed in the dirty dozen in 2014, at #2.  Keep reading…

One of the Best Investments to Make

300px-Assorted_United_States_coinsTraditionally when we think of investing our minds turn to stocks, bonds, mutual funds or real estate. While these may or may not be the best investments for an individual’s portfolio there is one investment that is almost always the right choice for any individual – human capital.

Human capital is an individual’s worth of their own potential. Coined by economist Theodore Schultz, human capital can be invested in like any other asset in order to add value to an individual’s life through earnings, health, and quality of life.  Keep reading…

WEP Impact Calculation Factors

big windfallIn this blog we’ve covered the Windfall Elimination Provision (WEP) from many different angles. Here we’ll go into some more depth on the actual calculation of the WEP, including how some of the factors are determined.

As you are likely aware, the Windfall Elimination Provision or WEP impacts your Social Security benefit when you are receiving a pension based on work where Social Security tax was not applied to the earnings. The point of WEP is ostensibly to act as an offset, since the reason no Social Security tax was applied to the earnings is because the pension is intended to replace Social Security benefits for that worker. WEP impact is applied as a reduction to the first bend point of the calculation of the Primary Insurance Amount. (Calculation of the PIA is explained further here.)  Keep reading…

5 Tips to Lower Your Tax for 2015

3446025121_072700607f_n2With 2014 over and 2015 well on its way you may be finding yourself gathering all of your 2014 tax information and getting ready to file your income taxes. Some folks will be expecting refunds while others will woefully dread writing out a check to the IRS.

If you find yourself in the group of folks that will be writing a check to Uncle Sam, here are some tips to reduce your tax burden for 2015.

Keep reading…