Volatility Isn’t Always a Bad Thing

Contributed by: Kali Hassinger, CFP®

If you’ve been paying attention to the markets this year, you’ve certainly noticed that the days of 2017’s slow and steady positive returns have disappeared.  Instead, 2018 has been full of daily market ups and downs, which, it turns out, is actually normal! 

With the calm and comfortable markets of 2017, it’s easy to let our short term memory overshadow previous years.  2018, on the other hand, has created feelings of investor anxiety as the markets switch between red and green on a daily basis.  The word volatility alone often has a negative connotation.  However, in relation to your portfolio, volatility also includes positive returns! 

Post 2008, overall portfolio and market returns have been positive. However, as presented in the chart below, each year since then has been filled with daily market movements of 1% - both up and down!  2017 is by far the greatest outlier within the most recent 10 year average.

Investors have to be willing to endure the occasional market rollercoaster in order to reach long-term goals.  Even though we work to minimize volatility over time, avoiding it altogether isn’t realistic.  Try to remember that we never base your plan on market returns of a single day or calendar year.  Staying disciplined and committed to your financial plan can help you filter out the noise and focus on your long-term goals. 

Kali Hassinger, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.®

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The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. As of June 2007 the MSCI World Index consisted of the following 23 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Investing involves risk and investors may incur a profit or a loss. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of the author and not necessarily those of Raymond James.

The Mystery Surrounding Public Service Loan Forgiveness

Contributed by: Kali Hassinger, CFP®

The Public Service Loan Forgiveness program started in 2007, and in the fall of 2017, the first round of borrowers became eligible for possible loan forgiveness.  This program, however, has been the subject of confusion and frustration by those who were hoping to qualify, and, in some cases, planning for the reprieve of student loan forgiveness.  So confusing that the recent federal spending plan earmarked $350 million to help those who would have been eligible to receive loan forgiveness but may have unknowingly enrolled in the wrong repayment plan.  The Public Service Loan Forgiveness (PSLF) rules are stringent and require that the qualifying conditions are met for a period of 120 monthly payments, or 10 years!  Even for those who followed all of the rules and have been submitting the correct documents,

If you are hoping to qualify for Public Service Loan Forgiveness, you'll want to be sure that your loans and repayment plan are eligible under the program. 

Listed below are some of the requirements that you should be sure are in order.

1. You must work full time for a qualifying Employer in a qualifying role.

• Most jobs working for a state, local, or federal government qualify.

• Non-profit employers that qualify as tax-exempt under Section 501(c)(3) are eligible.

*Even if you think your employer and role qualify, you should complete and submit the Public Service Forgiveness Employment Certification Form on an annual basis and every time you switch employers

It can be accessed online:  https://studentaid.ed.gov/sa/sites/default/files/public-service-employment-certification-form.pdf 

2. Only Direct Loans are eligible for Public Student Loan Forgiveness.  There are four types of Direct Federal Student Loans:

• Direct Subsidized – These loans are for undergraduate students who demonstrate a financial need. The U.S. Department of Education pays the accrued interest while you're still in school, for the first six months after you graduate, and during periods of deferment.

• Direct Unsubsidized – These loans are for undergraduate and graduate students, but financial need isn't required to qualify. These loans accrue interest while you're in school and during periods of deferment.

• Direct PLUS Loans – These loans are for graduate students and parents of undergraduate students.

• -Direct Consolidation Loans – This loan allows you to combine all of your eligible federal student loans into a single loan.

3. You must be enrolled in an income-based federal repayment plan.  The required payments are based on what is deemed to be your "Discretionary" income in comparison to the current poverty level, and payments are updated on an annual basis.

• Income-Based Repayment Plan (IBR Plan) – Monthly payments are usually 15% of your discretionary income, but they can be as low as 10%. Loan terms can be 20 or 25 years.

• Income-Contingent Repayment Plan (ICR Plan) – Payments under this plan are the lesser of 20% of your monthly discretionary income or your monthly payment on a 12-year repayment term with an income factor calculation. Loan terms under this plan are 25 years.

• Pay as you Earn Repayment Plan (PAYE Plan) – Monthly payments are limited to 10% of your discretionary income. To qualify, you must have a partial financial hardship. The loan term is 20 years.

• Revised Pay as your Earn Repayment Plan (REPAYE Plan) – Under this plan, your monthly payments are equal to 10% of your discretionary income. Undergraduate loans have a 20-year term, and graduate loans have a 25-year term.

If you've gotten through this list and you think you still may qualify, there are a couple of additional items that you'll want to keep in mind. 

• The 120 qualifying payments don't need to paid consecutively. That means if you work for a non-qualifying employer for a bit, you won't lose credit for past payments that qualified.

• The income-based payment amounts are affected by your Adjusted Gross Income on your tax return. If you are married and file taxes separately to keep your payments low, this strategy could increase your family's tax obligation.

• If your income-based payments are suppressed low enough, they may be less than the amount of interest that accrues. If you leave the plan or no longer qualify for the repayment plan, the unpaid interest is capitalized and added to your loan's principal balance.

• Making additional and early payments won't help you in the PSLF program. The program requires monthly payments, and you can only receive credit for one payment per month. If you do want to make additional payments, contact your loan servicer to be sure that the extra amount is credited to cover future monthly payments.

Even with all of the variables that we've covered, some additional rules and qualifications can be incorporated into the program.  It's especially important to check with FedLoan Servicing throughout the process and at least on an annual basis.  Be sure that you are weighing all of the pros and cons of the program, and as with any financial strategy, staying organized is essential!

Kali Hassinger, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.®

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Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members. The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Kali Hassinger, CFP© and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. This material is being provided for information purposes only. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. You should discuss any tax or legal matters with the appropriate professional.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

Center Stories: Kali Hassinger, CFP®

Contributed by: Kali Hassinger, CFP®

Regardless of your circumstances or stage in life, there can be a general sense of anxiety surrounding money.  Our society tells us it's uncouth to discuss our personal finances with others, and in many cases fundamental financial concepts aren't taught in schools. This environment can make taking control of your financial life seem extremely difficult and overwhelming.

When I decided to become a financial planner, I knew that I wanted to help others to establish, maintain and ultimately reach their goals.

Money and finances are an integral part of our personal wellbeing, and the most effective way to feel empowered is through education.  I take the time to make sure you understand the financial planning process and that you feel confident in our decisions.  Whether you're starting from scratch or reevaluating your current plan, we can walk through each step together and without judgment. The relationship between you and your financial planner is profoundly personal and built on trust, and here at The Center there is nothing we take more seriously.

If you want to know a little more about my background, please check out my bio video above.

Kali Hassinger, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.®

Annuity Basics

Contributed by: Kali Hassinger, CFP®

An annuity is a contract between you, the purchaser or owner, and an insurance company, the annuity issuer.  In its purest form, you pay money to an annuity issuer, and the issuer eventually pays the principal and earnings back to you or a named beneficiary.  Life insurance companies first developed annuities to provide income streams to individuals during retirement, but these contracts have since become a highly criticized investment vehicle.  The surrender periods, fees, and endless annuity products on the market make it difficult for retail investors to understand contracts, let alone feel confident that it's the best option available for their situation.  There are of course pros and cons to consider when entering into an annuity contract, and it's especially important to understand the basics of what an annuity offers. 

Annuities are categorized as either qualified or non-qualified. 

Qualified annuities are used similarly to tax-advantaged retirement plans, such a 401(k)s, 403(b)s, and IRAs.  Qualified annuities are subject to the same contribution, withdrawal, and tax rules that apply to these retirement plans.  That may make you question why someone would use a qualified annuity at all!  If you are merely looking for tax-deferral, a qualified annuity probably doesn't make sense in connection with your retirement account.  However, depending on your goals, there are aspects of a qualified annuity that are not available with traditional retirement plans, such as a living income benefit guaranteed by the insurance company and an additional death benefit. 

One of the attractive aspects of a non-qualified annuity (which means the money deposited has already been taxed), on the other hand, is that its earnings are tax-deferred until you begin to receive payments or make withdrawals. During the period before withdrawing funds, the non-qualified annuity is treated similarly to your typical retirement plan.  The same age requirement is enforced, which means that if you access this account before age 59 ½ there is still a 10% tax penalty on a portion of the withdrawals.  The difference between a qualified and non-qualified annuity becomes apparent, however, when the withdrawal or annuitization payments begin.  Only the part of these payments that represents investment or account growth is taxed at ordinary income tax rates.  When annuitizing a contract, there is an "exclusion ratio" that means each payment represents both a portion of your initial investment and a portion of your investment returns.  This means that the entire payment received isn't taxable to you – only the percentage that represents an investment gain. 

Beyond the categories of qualified and non-qualified annuities, you can then classify annuities into fixed and variable contract options.

A fixed annuity functions similarly to a bank CD.  You make a deposit, and the insurer will pay a specific interest rate over a specified period.  A variable annuity, on the other hand, allows a contract holder to invest the funds in annuity subaccounts or mutual funds.  Insurance companies can offer income riders as an additional benefit to their annuities.  These riders typically have a guaranteed income growth rate, and they will increase the overall cost of the contract. 

It is important to understand that annuities, although they can be an effective savings tool, are not right for everyone.  Most deferred annuity contracts are designed to be long-term investment vehicles and can penalize the contract holder for making early withdrawals.  If an annuity seems like it would fit within your overall financial picture, it is essential to consider which annuity products are appropriate and how to utilize them within your investment portfolio. 

Kali Hassinger, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.®

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The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Kali Hassinger, CFP® and not necessarily those of Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors.

With variable annuities, any withdrawals may be subject to income taxes and, prior to age 59 1/2, a 10% federal penalty tax may apply. Withdrawals from annuities will affect both the account value and the death benefit. The investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. An annual contingent deferred sales charge (CDSC) may apply.

A fixed annuity is a long-term, tax-deferred insurance contract designed for retirement. It allows you to create a fixed stream of income through a process called annuitization and also provides a fixed rate of return based on the terms of the contract. Fixed annuities have limitations. If you decide to take your money out early, you may face fees called surrender charges. Plus, if you're not yet 59½, you may also have to pay an additional 10% tax penalty on top of ordinary income taxes. You should also know that a fixed annuity contains guarantees and protections that are subject to the issuing insurance company's ability to pay for them. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation.