All Things Financial Planning Blog

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It’s Never Too Late (Well, Almost Never)

Saving for retirement, or whatever you choose to call your post-earning years, is something that everyone should plan for. You can’t start too soon and it’s never too late to start, unless of course you’re already retired!

While you would think this is a conversation for the 20-something crowd, you’d be amazed at how many entrepreneurs and others who are well into their 30s and 40s have saved very little or nothing at all for retirement. One statistic I’ve seen indicated that 60% of Americans had less than $25,000 saved for retirement.1 And that is up from 56% the year before.2 This is a trend that clearly is going in the wrong direction.

So what are your options? First, you can spend less and save more. Pretty simple. Second, you can utilize tax-advantage savings plans that may be available through your employer such as a 401(k) or 403(b) plan. Try to target saving 10% or more because these plans allow you to contribute with pre-tax dollars directly from your paycheck. The investment will grow tax-deferred until you withdraw funds in your retirement years.

A third option is to use a traditional IRA. This type of savings account allows you to contribute tax-deductible contributions each year and like the employer plans above, grow tax-deferred. The maximum contribution allowed is significantly less than under the employer plans, but at least you gain some benefit in deferring taxes. If you are self-employed, you have additional options with varying benefits and rules including solo 401(k), simplified employee pension (SEP), savings incentive match plan for employees (SIMPLE) and Keogh plans. You can learn more about these plans on the IRS website,

I know in recent years, many have been forced to take early distributions from their retirement savings and these come at a heavy price. Not only are you required to pay the tax that was previously deferred, but you also incur a substantial penalty unless you qualify for an exemption. Others have fallen victim to changes in their employment while they had a 401(k) loan outstanding. When you take out a loan against your retirement savings and then change employers or lose your job altogether, the loan usually must be paid back and if you can’t, then it becomes an early distribution subject to the taxes and penalties already mentioned. That is one reason why employer plan loans should only be used as a last resort.

No matter how much you have saved today, you can start saving more and improve on your retirement picture. A consideration happening more often is to continue saving but also work later in life. Those at or approaching retirement age are looking at ways to continue earning income either in their chosen career or perhaps through a new business venture. In any case, your decision to save more now will give you more flexibility about what the retirement picture looks like for you.

By Andy Van Ore, CFP®
Special to FPA

1 2012 Retirement Confidence Survey, Employee Benefit Research Institute, March 2012
2 2011 Retirement Confidence Survey, Employee Benefit Research Institute, March 2011


Connecting Your Money with Your Life

So how’s that money connection going in your life? As financial planners we spend a lot of time putting things together like budgets, net worth statements, investment policy statements, performance reports, financial plans, investment strategies, asset allocations, tax analysis, insurance reviews and just about any list you can imagine. In gathering all this information, sometimes we forget to ask the most important question: Why? It’s important to know what your motivation is, what you are trying to do, and why you are doing it. The motto of my organization is “Connecting your money with your life.” When I say that to people, they get a puzzled look on their face and those that are more candid ask what it means? My first response to the question is to answer with a question: what are you trying to accomplish in your life? That’s where it gets interesting because people go in one of two directions. First they will talk about the “stuff” like having a vacation home on the water, owning a nicer car (maybe even a midlife crisis car), paying for the kids $50,000 a year education, taking a trip around the world, being able to retire on $100,000 a year and able to have a little left over as legacy for the next generation. All of these things are important, but is that what makes you happy and fulfilled when it comes to your life? If the answer is yes then you can stop reading right here because that does it for you. If your answer is no, then let’s go on to the next paragraph.

To me, connecting your money with your life is about achieving the things that you wanted when you were 10 years old. You want to have good friends that you can trust, to have fun, be happy, be your own person, and have a life of meaning, even if you didn’t get drafted by the Celtics or Red Sox. That means it’s all about what you want to give, or even give back. I hope number one on your priority list is your family. After that it may be your career, social life, religious beliefs, hobbies or giving back to the community. You begin to learn in the financial planning process that it’s not what you accumulate that becomes the most important connection, it’s about giving back and making the world a better place that completes the money-life connection.

The two most important things in my life are my family and my profession. Why else would I be sitting here at six o’clock on a Saturday morning writing an article for people that I don’t even know? It’s because I’m trying to make your life a little better by allowing you to see things that even I, a well trained financial planning professional sometimes forget. The main goal is to connect your money with your life. It isn’t about net worth, it’s about self worth. Whether it’s money we give, wisdom, compassion or even just our time, the Bible had it right when it said that “it’s better to give than to receive.” Not that I’m complaining about receiving since it is my job to help people try to achieve a comfortable life with financial freedom.

So my exercise for you is to think about everything during the next few days that puts a smile on your face. Try to avoid the things that drain your energy and do more things that give you energy. My mantra has always been the five S’s where I try and make everyone Smile, be more Self-Aware, be more Self-Assured, be Smarter and be more Successful. If I’ve done that in a conversation then I’ve accomplished my money-life connection. Find out what you love to do and develop your own S list! Try to keep a log of what made you a little warm and fuzzy that day. Pull out your financial plan that lists your budget, net worth statement, insurance, investments, performance and your “to do” list and start writing out your own list as to why you do what you do, and what makes you feel good. I recently read a book by Simon Sinek and it talked about some of the best people and corporations in the world and why they were successful. The book used a lot of examples like Apple, Harley Davidson, Martin Luther King and the Wright brothers. It focused on 3 questions that separate them from others. What do you do, how do you do it and WHY do you do what you do? The differentiator is WHY! So answer that question about yourself today and check out this video link by spending a few minutes listening to the WHY hypothesis. If you can do that, then you have fulfillment in life, both financially and emotionally. Another resource to take a look at if retirement is high on your priority list is The New Retirementality by Mitch Anthony. It talks about having the passion and desire to wake up and do the things you love to do for the rest of your life. It’s important to realize there are two sides of our brain. The left side does the calculating of the information. The right side of the brain makes you feel good about it. I feel that getting an 8% rate of return versus 6% is not as important as the daily satisfaction of doing what matters most to you (although we will still try hard to get higher returns!). So use both parts of your brain and you will learn to connect your money with your life. You will live a more fulfilled life as well as a financially successful one!

Dave Caruso, CFP®
Certified Financial Planner™
Coastal Capital Group
Danvers, MA


Why Invest in the Roth IRA?

Roth IRA! Roth IRA! Roth IRA! I am sure you have never heard that pep rally cheer at any program you have gone to. But then again, most times we suggest that we need to look at your goals and objectives and a bunch of other aspects of your life before we make recommendations on what you should do with your money.

For this blog I am assuming most readers would say “I need to put money away for my eventual retirement and I have a few goals along the way that will require some money to be saved. I just don’t know when those goals will show up or how much they will cost me.” Those elusive goals might include a down payment on a house or tuition for your children’s education.

So the important thing here is you need to save money, you want access to this money when these goals show up, and you want this to be tax efficient along the way. In the end, the money not used on other goals will be funding your retirement.

Given the above requirements, I would be recommending that you have the Roth IRA on your list of places to be putting your money each year. So let’s look at what the Roth IRA is all about.

The Roth IRA was established by the Taxpayer Relief Act of 1997 (Public Law 105-34) and named for its chief legislative sponsor, Senator William Roth of Delaware. In the first year (1998) of this program, the annual limit was $2,000 that could be contributed to this retirement fund for you (and your spouse if married) based on the level of your earned income. As long as you earned at least the maximum allowed to be contributed, you could have a Roth IRA. So if you earned $1,500 in a year, you were limited to contributing $1,500 to the Roth IRA.

Contributions to a Roth IRA are from after-tax income which is where it gets some of its tax-free benefits. In addition, contributions to a Roth IRA are over and above what you might be contributing to a 401k or 403b type program through your employer.

Today the annual contribution limit for 2011 and 2012 is $5,000 per year if you are age 49 and below and $6,000 per year if you are age 50 in that year. This limit assumes that you had at least that amount in earned income for the year. If you are married, the earned income for both of you would have to be twice those amounts. There are limitations to contributing to a Roth IRA based on your income, but there is a way around that limitation (a subject for another time).

When you contribute to a Roth IRA, the earnings on the Roth IRA grow tax-deferred just like the earnings in your employer’s 401k plan during the period of accumulation while you are working and saving. Once you reach age 59 ½, the total value of the Roth IRA (contributions and earnings) is available for withdrawal by you with no income tax liability for any amount withdrawn. That is a huge difference and advantage over your 401k account which will be totally taxable as you make withdrawals each year. That means you have increased purchasing power with the Roth IRA money compared with the 401k money.

The second advantage of the Roth IRA account is that during the years before you reach age 59 ½, you have access to the amounts you contributed each year with no tax consequences. This is because you would be withdrawing what you had contributed annually form after tax dollars. What you cannot touch during this period is the earnings portion of your account – that amount would be subject to a penalty if withdrawn before age 59 ½.

A third advantage becomes available to you at age 70 ½ and later. The Roth IRA does not require any minimum annual distributions like you are required to do with your 401k account that you may have rolled over to an IRA when you left your employer or retired. If you do take money from the Roth IRA in your later years, the amounts withdrawn do not create any taxable income under current laws.

A fourth advantage becomes available to your heirs upon your passing. The heirs get to receive this money in annual or lump sum distributions in the same tax-free way that you would have. By contrast, if they receive your 401k/IRA as an inheritance, they will have to pay taxes on the amount withdrawn each year, just like you did.

The fifth advantage is tied to those other goals that you might have along the way. Let’s use the college tuition as the example. Your child reaches college age and you need some money for tuition. You could withdraw the amount from the Roth IRA for the tuition as long as it was less than the annual contributions you had made to date. For instance, if you had contributed $5,000 per year for 15 years you would have a total of $75,000 that could be withdrawn from the Roth IRA to meet the college expenses. There would be no tax liability on that withdrawal and the remaining value of that account would continue to grow for your retirement. 

Had you decided to take money from your 401k/IRA to pay the same $75,000 of college expenses, you would have had to pay income tax and probably a 10% penalty for that early withdrawal.

All these advantages are not without some penalty to you. The biggest disadvantage is that you are putting this money into the Roth IRA with after-tax money. This means you already paid tax on the amount your contributed each year as compared to the amount you put into the employer 401k plan was before taxes. That tax cost to you would be based on what your incremental tax rate is currently applied to the contributed amount. If you are in the 15% tax bracket, then the tax cost on the $5,000 contribution is $750 on your annual contribution.

In the meantime, the growth of your Roth IRA investment over many years did not cost you any income taxes!

Roth IRA! Roth IRA!


Francis St. Onge, CFP®
Total Financial Planning, LLC
Brighton, MI


Flexible Spending Account Changes Looming

What is a FSA?

Health care Flexible Spending Accounts, FSA’s, are benefit plans established by employers to reimburse employees for health care expenses, such as deductibles and co-payments. FSAs are a type of flexible benefit arrangement that generally qualify for tax advantages as a Code Sec. 125 cafeteria plan, under which employees choose between cash (i.e., take-home pay) and certain nontaxable benefits without paying taxes if they select the benefits. Although they are usually funded by employees through salary reduction agreements, employers may contribute as well. 

FSAs are considered part of a cafeteria plan when they are funded through voluntary salary reductions. However, if they are funded by non-elective employer contributions, then they are not governed by the cafeteria plan provisions, but the benefits are excludible under Code Sec. 105 and Code Sec. 106.

Some FSA Statistics

According to the Bureau of Labor Statistics (BLS) National Compensation Survey, 39% of all workers in 2010, and 56% of workers in firms with over 100 employees, had access to a health care FSA. However, in establishments with fewer than 100 employees, only 20% of the workers could choose to participate in an FSA. According to a 2010 Mercer study, 37% of employees with the option of participating in an FSA did so, with an average annual contribution amount of $1,420.

FSA Rules Now and Looming

Contributions to and withdrawals from FSAs are tax-exempt. The federal income tax savings opportunities from health care FSAs essentially depend upon the amount set aside by the employee and the employee’s tax bracket. Since FSAs are funded with pre-tax dollars, the tax savings are the amount of tax that would have been paid on the set-aside amount. So, an employee in the 30% tax bracket who set aside $1,000 would save $300 in federal income taxes. Thus, the higher tax bracket the employee is in, the greater the potential tax savings. 

Unused FSA contributions left over at the end of a plan year have historically been forfeited to the employer under the so-called “use-it-or-lose-it rule.” However, a plan can (but is not required to) provide an optional grace period immediately following the end of each plan year, extending the period for incurring expenses for qualified benefits to the 15th day of the third month after the end of the plan year (i.e., March 15th for a calendar-year plan). Benefits or contributions not used as of the end of the grace period are forfeited. So any tax savings from participating should be carefully weighed against the potential risk of forfeiture under the use-it-or-lose-it rule.

A recent Congressional Research Report highlights the following characteristics of health care FSAs:

  • FSAs are limited to employees and former employees
  • IRS currently imposes no dollar limit on health care FSA contributions, but employers generally do
  • FSAs generally can be used only for unreimbursed medical expenses that would be deductible under the Code, but not for health insurance or long-term care insurance premiums; and
  • Employers may impose additional restrictions.

The report goes on to remind us that there have been changes to the FSA rules as required by the Patient Protection and Affordable Care Act. Significantly, PPACA:

  • Modified the definition of “qualified medical expenses” to remove over-the-counter medicines (except those prescribed by a physician), effective 2011. Effective Jan. 1, 2011, expenses incurred for over-the-counter medicines, with the exception of insulin, will not be eligible for reimbursement under a health FSA, HRA or HSA without a prescription. The penalty for using HSA funds for ineligible expenses increased from 10 percent to 20 percent; and
  • Limited the amount of contributions to health care FSAs to $2,500 per year (indexed for inflation after 2013), effective in 2013 (Code Sec. 125, as amended by PPACA).

Planning Implications for Individuals and Business Owners

So even though the contribution amount will be changing, we should not lose sight of the value of participating in a FSA account if it is available to us. In the 30% tax bracket one has to make a $1.42 before taxes to have $1 of after-tax dollar to spend on medical or other expenses. Wouldn’t you rather pay a $1 ‘cost’ (pre-tax contribution) for a medical expense rather than a ‘$1.42’? Of course, we wouldn’t want to ‘lose’ any overfunded FSA contribution amount so make your deferral election choices judiciously, but, nonetheless, make those choices and participate in this valuable employee benefit!

Employers who offer an HSA may want to consider adding a limited-purpose health care FSA (allowing employees to set aside pre-tax dollars for eligible dental and vision care expenses). Or, employers who aren’t offering HSA-eligible, high-deductible plans may want to consider them. Employers who offer FSAs can reduce their workers’ compensation obligations as well as the employer matching on Social Security and Medicare taxes.

Paired together, limited-purpose FSAs and HSAs allow employees to maximize their tax-advantaged savings for health care. They can use limited-purpose FSA funds to reimburse themselves for dental and vision care, and use HSA funds to pay or reimburse themselves for qualified medical expenses (deductibles and co-insurance, for example) and save for future expenses. HSA contribution limits for 2012 are $3,100 for individual coverage and $6,250 for family coverage. Don’t forget the limits for catch up contributions for persons over age 55 – $1,000 (unchanged from 2011).


In today’s world of spiraling medical costs it is imperative that we make every ‘benefit dollar’ we expend go as far as it can in covering our medical, and other, needs. I don’t know about you, but I would rather pocket that $.42 cents of taxes (referenced above), say into my 401k, than give it to the government. 

Effectively coordinating your family’s personal circumstances with benefit plans and options available to you is just one of the steps in the financial planning process but it is clearly an important one!

David Bergmann, CFP®, EA, CLU, ChFC
Managing Principal
The David Bergmann Group
Marina Del Ray, CA

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Stress Test Your Financial Health

Take this financial checkup, and in ten easy questions, you will know which essential aspects of your financial plan are healthy and what needs attention. Your score will also give you clues about the level of risk in your investment strategy that’s healthy for you.   

Circle the answer that best fits your situation and tally up the total at the end. Ready, set, go! 


  • 10 Points: I know my goals, and their estimated cost and timeline.
  • 5 Points: I have goals, but don’t know the details yet.
  • 1 Point: The future looks really fuzzy and it’s too hard to set goals.


  • 10 Points: My income, from sources like my job,  investments, pension, Social Security etc. is reliable and grows each year, and is more than enough to pay the bills.
  • 5 Points: My income is enough to pay the bills, but I’m worried that my income may not be enough in the future.
  • 1 Point: There’s barely enough to pay the bills.


  • 10 Points: My job is secure, and my skills are in high demand.
  • 5 Points: My job is pretty secure, but it could be difficult to find another job at the same pay. 
  • 1 Point: I need new skills to find a decent job in today’s economy.

Cash Reserves:

  • 10 Points: I have cash savings equal to at least half of my annual income or expenses.
  • 5 Points: I have cash savings equal to less than half of my annual income or expenses.
  • 1 Point: Cash in the bank? I wish. 


  • 10 Points: I’m saving 10% or more of my annual income.
  • 5 Points: I’m saving 1 – 9% of my annual income.
  • 1 Point: Saving? No can do.  


  • 10 Points: I pay all my debts on time and in full. (Or, I have no debt at all.)
  • 5 Points: I can afford the monthly minimum payments on my debts, and sometimes a little more.
  • 1 Point: I don’t know how I’m going to repay my debts.  

FICO Score:

  • 10 Points: My FICO score is good enough to get the credit I need without paying a premium.
  • 5 Points: My FICO score isn’t as good as I want it to be, but I’m working on a plan to improve it.
  • 1 Point: My FICO score makes it difficult for me to buy a home, buy or lease a car, rent an apartment, or get a cell phone.    

Health Insurance

  • 10 Points: I have health insurance and use it.
  • 5 Points: I have health insurance but hesitate to use it because it costs too much to get medical care.
  • 1 Point: I don’t have health insurance right now.

Life Insurance

  • 10 Points: People (like a spouse and children) depend on me financially, and I have life insurance equal to at least four times my income. Or, no one is financially dependent on me, and I have life insurance equal to at least one year’s income.
  • 5 Points: People depend on me financially, and I have life insurance equal to at least 2 times my income. 
  • 1 Point: People are dependent on me financially, and I have insurance equal to less than 2 times my income.

Estate Plan:

  • 10 Points: My will, durable power of attorney, and healthcare power of attorney are up to date.
  • 5 Points: I have an up to date will, but not a durable or healthcare power of attorney.
  • 1 Point: I just haven’t gotten around to updating or completing my estate plan. 

My Total Score:   _____________

 Your Financial Health Assessment:

Score What This Means for My Financial Health & Investment Strategy
85 – 100 Congratulations! Keep up your healthy financial habits and decisions to maintain your financial strength. With a healthy financial base, you have strength and resiliency to cope with the ups and downs of the investment markets. You can consider having some, but not all, of your investments in risky assets, like stocks and stock mutual funds.
50 – 84 Good start! You’ve made some progress towards financial health, but don’t stop here. With expert help or on your own, address one essential area at a time, and work on making it stronger. Until you improve your overall financial health, play it safe with your investments, with little to no risky assets, so that you don’t put the savings you do have at risk of loss.
Under 50 Get help now, and avoid the stock market completely. It’s never too late to improve your financial health. It’s not easy to make changes in your financial situation, habits, or mindset, but it is possible to take one step at a time to create a new financial future. Do it for yourself, and for the people you love.

Plan Well. Live Well.

karinMaloneyStiflerKarin Maloney Stifler, CFP®, AIF®
True Wealth Advisors
Hudson, OH


Low Rates You May Have Missed

This may come as a shock, but interest rates are near historic lows.    

Most of you have heard the above countless times over the last several years, but do you really know how to apply it to your life? Sure, if you have sufficient equity in your home, there’s likely no better time to refinance, substantially improve your rate, shorten your term and save yourself thousands of dollars in the long run. But, aside from that, most just observe the negative impact of low rates in the paltry earnings paid in savings accounts, money market funds and similar vehicles. 

The Federal Reserve has signaled that they foresee rates staying at or near lows into 2014. But, at some point, rates will march upward once again. Before that occurs, it’s important to consider various ways in which you can take advantage of low rates. Much like large companies have used the last several years to save, restructure and achieve some of the healthiest balance sheets in years, now is also a good time to make sure you’re in the best possible position moving forward. 

So, what can you do besides try and refinance that mortgage? Today we’ll focus on three areas impacted by the low interest environment that you may be ignoring.

Automobile loans

This is an area where refinancing is not often discussed. Car loans are short in term and rates rarely move enough to make it worthwhile. However, there are three instances now where I’d suggest taking a look at potentially revisiting an auto loan. 

  1. You currently have a higher-rate car loan and your credit or income situation has improved.
  2. You purchased a used car and didn’t shop for competitive rates.
    • If you’re a member of group one or two, now might be the time to look for a lower rate. Many banks and credit unions are offering competitive deals. For example, a local credit union in Cincinnati was recently offering rates as low as 1.79% over 60 months on 2009-2012 models with no fees for signing up. Even over a short term, interest savings can be substantial. Use this opportunity to lower your current payment or shorten the time it takes to pay it off.    
  3. You owe very little or own your car outright, but have other, high interest debt.
    • You may want to look at this opportunity as a way of borrowing cash to pay off higher interest debt (like that credit card bill). The lower rate will save you plenty and the short term will get you out of the cycle of paying minimums and force you to pay it off. The most important thing is to have the discipline to lock that credit card up and start living on what you can afford going forward.

Life Insurance

Premiums for life insurance rates have also fallen substantially over the last several years. Interest rates play a role here, as does the market overall. If your health hasn’t changed substantially, rates can be sharply lower despite your aging since you last priced your policy. Rates vary all over the place based on a number of factors, but the savings can be substantial. An important note, even after getting a new quote and passing the physical, never cancel an existing policy until the replacement has been signed, sealed and delivered.

Prepay for Services

There are any number of services, such as property & casualty insurance, lawn care, private school tuition, just to name a few, where a discount is available for paying in advance or in a lump sum. In a more typical interest rate environment, the thought is often to forego this offer as the interest you’d earn on that money alone is worth more than the discount. Not so these days. While ensuring not to damage your cash flow or any other savings, take advantage of these pre-payment discounts wherever available. The savings is likely to outperform your money market.

Low interest rates can feel like a drag on our ability to meaningfully grow our savings. It’s important while in this historically low environment to make sure you’re doing everything you can to position yourself for long term success by taking care of some of the advantages low rates offer too.

Chip Workman, CFP®, MBA
Lead Advisor
The Asset Advisory Group
Cincinnati, Ohio