Financial FocusSteven ArnoldSenior Partner31731 Northwestern Hwy 261WFarmington Hills, MI 48334248-539-3399 x225248-229-4488Steve@Fin-Focus.comwww.Fin-Focus.com

June 2016Projecting a Happy Retirement

Debt Optimization Strategies

Four Reasons Why People Spend TooMuch

Can I make charitable contributions frommy IRA in 2016?

Projecting a Happy Retirement

See disclaimer on final page

Hello Everyone!

We at Financial Focus would like towish you and your family a very happyand enjoyable Independence Day aswell as a belated Happy Father's Day!

As always now is a good time and ofgreat value to review each investment.This also is a great time to review andpossibly consolidate other accountsnot held under my management if itmakes financial sense.

Please schedule your annual review ifyou haven’t already done so. It iscritical that we meet at least once ayear to review your Financial Plan.This gives us a chance to go over yourfinancial strategy and make sure thatwe discuss any changes or updatesthat we may need to assess.

Sincerely,Steven Arnold and Staff

A 2015 study foundthat 41% ofhouseholds headedby someone aged55 to 64 had noretirement savings,and only about athird of them had atraditional pension.Among householdsin this age group

with savings, the median amount was just$104,000.1

Your own savings may be more substantial, butin general Americans struggle to meet theirsavings goals. Even a healthy savings accountmay not provide as much income as you wouldlike over a long retirement.

Despite the challenges, about 56% of currentretirees say they are very satisfied withretirement, and 34% say they are moderatelysatisfied. Only 9% are dissatisfied.2

Develop a realistic pictureHow can you transition into a happy retirementeven if your savings fall short of your goals?The answer may lie in developing a realisticpicture of what your retirement will look like,based on your expected resources andexpenses. As a starting point, create a simpleretirement planning worksheet. You might adddetails once you get the basics down on paper.

Estimate income and expensesYou can estimate your monthly Social Securitybenefit at ssa.gov. The longer you wait to claimyour benefits, from age 62 up to age 70, thehigher your monthly benefit will be. If youexpect a pension, estimate that monthlyamount as well. Add other sources of income,such as a part-time job, if that is in your plans.Be realistic. Part-time work often pays lowwages.

It's more difficult to estimate the amount ofincome you can expect from your savings; thismay depend on unpredictable market returnsand the length of time you need your savings tolast. One simple rule of thumb is to withdraw4% of your savings each year. At that rate, the

$104,000 median savings described earlierwould generate $4,160 per year or $347 permonth (assuming no market gains or losses).Keep in mind that some experts believe a 4%withdrawal rate may be too high to maintainfunds over a long retirement. You might use 3%or 3.5% in your calculations.

Now estimate your monthly expenses. If you'vepaid off your mortgage and other debt, you maybe in a stronger position. Don't forget to factorin a reserve for medical expenses. One studysuggests that a 65-year-old couple who retiredin 2015 would need $259,000 over theirlifetimes to cover Medicare premiums andout-of-pocket health-care expenses, assumingthey had only median drug expenses.3

Take strategic stepsYour projected income and expenses shouldprovide a rough picture of your financialsituation in retirement. If retirement isapproaching soon, try living for six months ormore on your anticipated income to determinewhether it is realistic. If it's not, or youranticipated expenses exceed your income evenwithout a trial run, you may have to reduceexpenses or work longer, or both.

Even if the numbers look good, it would be wiseto keep building your savings. You might takeadvantage of catch-up contributions to IRAsand 401(k) plans, which are available to thosewho reach age 50 or older by the end of thecalendar year. In 2016, the IRA catch-upamount is $1,000, for a total contribution limit of$6,500. The 401(k) catch-up amount is $6,000,for a total employee contribution limit of$24,000.

Preparing for retirement is not easy, but if youenter your new life phase with eyes wide open,you're more likely to enjoy a long and happyretirement.1 U.S. Government Accountability Office,"Retirement Security," May 20152 The Wall Street Journal, "Why Retirees AreHappier Than You May Think," December 1,20153 Employee Benefit Research Institute, Notes,October 2015

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Debt Optimization StrategiesAs part of improving your financial situation,you might consider reducing your debt load. Anumber of strategies can be used to pay offdebt. However, before starting any debt payoffstrategy (or combination of strategies), be sureyou understand the terms of your debts,including interest rates, terms of payment, andany prepayment or other penalties.

Understand minimum payments (astarting point)You are generally required to make minimumpayments on your debts, based on factors setby the lender. Failure to make the minimumpayments can result in penalties, increasedinterest rates, and default. If you make only theminimum payments, it may take a long time topay off the debt, and you may have to pay largeamounts of interest over the life of the loan.This is especially true of credit card debt.

Your credit card statement will indicate theamount of your current monthly minimumpayment. To find the factors used in calculatingthe minimum payment amount each month, youneed to review terms in your credit cardcontract. These terms can change over time.

For credit cards, the minimum payment isusually equal to the greater of a minimumpercentage multiplied by the card's balance(plus interest on the balance, in some cases) ora base minimum amount (such as $15). Forexample, assume you have a credit card with acurrent balance of $2,000, an interest rate of18%, a minimum percentage of 2% plusinterest, and a base minimum amount of $15.The initial minimum payment required would be$70 [greater of ($2,000 x 2%) + ($2,000 x (18%/ 12)) or $15]. If you made only the minimumpayments (as recalculated each month), itwould take you 114 months (almost 10 years)to pay off the debt, and you would pay totalinterest of $1,314.

For other types of loans, the minimum paymentis generally the same as the regular monthlypayment.

Make additional paymentsMaking payments in addition to your regular orminimum payments can reduce the time it takesto pay off your debt and the total interest paid.The additional payments could be madeperiodically, such as monthly, quarterly, orannually.

For example, if you made monthly payments of$100 on the credit card debt in the previousexample (the initial minimum payment was$70), it would take you only 24 months to pay

off the debt, and you would pay total interest ofjust $396.

As another example, let's assume you have acurrent mortgage balance of $100,000. Theinterest rate is 5%, the monthly payment is$791, and you have a remaining term of 15years. If you make regular payments, you willpay total interest of $42,343. However, if youpay an additional $200 each month, it will takeyou only 11 years to pay off the debt, and youwill pay total interest of just $30,022.

Another strategy is to pay one-half of yourregular monthly mortgage payment every twoweeks. By the end of the year, you will havemade 26 payments of one-half the monthlyamount, or essentially 13 monthly payments. Inother words, you will have made an extramonthly payment for the year. As a result, youwill reduce the time payments must be madeand the total interest paid.

Pay off highest interest rate debts firstOne way to potentially optimize payment ofyour debt is to first make the minimumpayments required for each debt, and thenallocate any remaining dollars to the debts withthe highest interest rates.

For example, let's assume you have two debts,you owe $10,000 on each, and each has amonthly payment of $200. The interest rate forone debt is 8%; the interest rate for the other is18%. If you make regular payments, it will take94 months until both debts are paid off, and youwill pay total interest of $10,827. However, ifyou make monthly payments of $600, with theextra $200 paying off the debt with an 18%interest rate first, it will take only 41 months topay off the debts, and you will pay total interestof just $4,457.

Use a debt consolidation loanIf you have multiple debts with high interestrates, it may be possible to pay off those debtswith a debt consolidation loan. Typically, thiswill be a home equity loan with a much lowerinterest rate than the rates on the debts beingconsolidated. Furthermore, if you itemizedeductions, interest paid on home equity debtof up to $100,000 is generally deductible forincome tax purposes, thus reducing theeffective interest rate on the debt consolidationloan even further. However, a home equity loanpotentially puts your home at risk because itserves as collateral, and the lender couldforeclose if you fail to repay. There also may beclosing costs and other charges associated withthe loan.

You may be able to improveyour financial situation byimplementing certain debtpayoff strategies that canreduce the time you makepayments and the totalinterest you pay. Beforestarting any debt payoffstrategy (or combination ofstrategies), be sure youunderstand the terms ofyour debts, including anyprepayment penalties.

Note: All examples arehypothetical and used forillustrative purposes only.Fixed interest rates andpayment terms are shown,but actual interest rates andpayment terms may changeover time.

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Four Reasons Why People Spend Too MuchYou understand the basic financial concepts ofbudgeting, saving, and monitoring your money.But this doesn't necessarily mean that you're incontrol of your spending. The following reasonsmight help explain why you sometimes breakyour budget.

1. Failing to think about the futureIt can be difficult to adequately predict futureexpenses, but thinking about the future is a keycomponent of financial responsibility. If youhave a tendency to focus on the "here and now"without taking the future into account, then youmight find that this leads you to overspend.

Maybe you feel that you're acting responsiblysimply because you've started an emergencysavings account. You might feel that it will helpyou cover future expenses, but in reality it maycreate a false sense of security that leads youto spend more than you can afford at a givenmoment in time.

Remember that the purpose of your emergencysavings account is to be a safety net in times offinancial crisis. If you're constantly tapping it forunnecessary purchases, you aren't using itcorrectly.

Change this behavior by keeping the big picturein perspective. Create room in your budget thatallows you to spend discretionary money anduse your emergency savings only for trueemergencies. By having a carefully thought-outplan in place, you'll be less likely to overspendwithout realizing it.

2. Rewarding yourselfAre you a savvy shopper who rarely splurges,or do you spend too frequently because youwant to reward yourself? If you fall in the lattercategory, your sense of willpower may be toblame. People who see willpower as a limitedresource often trick themselves into thinkingthat they deserve a reward when they are ableto demonstrate a degree of willpower. As aresult, they may develop the unhealthy habit ofoverspending on random, unnecessarypurchases in order to fulfill the desire for areward.

This doesn't mean that you're never allowed toreward yourself--you just might need to think ofother ways that won't lead to spending toomuch money. Develop healthier habits byrewarding yourself in ways that don't costmoney, such as spending time outdoors,reading, or meditating. Both your body and yourwallet will thank you.

If you do decide to splurge on a reward fromtime to time, do yourself a favor and plan yourpurchase. Figure out how much it will costahead of time so you can save accordinglyinstead of tapping your savings. Make sure thatyour reward, whether it's small or big, has apurpose and is meaningful to you. Try scalingback. For example, instead of dining out everyweekend, limit this expense to once or twice amonth. Chances are that you'll enjoy going outmore than you did before, and you'll feel goodabout the money you save from dining out lessfrequently.

3. Mixing mood with moneyYour emotional state can be an integral part ofyour ability to make sensible financialdecisions. When you're unhappy, you might notbe thinking clearly, and saving is probably notyour first priority. Boredom or stress also makesit easy to overspend because shopping servesas a fast and easy distraction from yourfeelings. This narrow focus on short-termhappiness might be a reason why you'respending more than normal.

Waiting to spend when you're happy andthinking more positively could help shift yourfocus back to your long-term financial goals.Avoid temptations and stay clear of stores ifyou feel that you'll spend needlessly afterhaving an emotionally challenging day. Stayingon track financially (and emotionally) will benefityou in the long run.

4. Getting caught up in home equityhabitsDo you tend to spend more money when thevalue of your assets--particularly yourproperty--increases? You might think thatappreciating assets add to your spendingpower, thus making you feel both wealthier andmore financially secure. You may be tempted totap into your home equity, but make sure you'reusing it wisely.

Instead of thinking of your home as a piggybank, remember it's where you live. Be smartwith your home equity loan or line ofcredit--don't borrow more than what isabsolutely necessary. For example, you mayneed to borrow to pay for emergency homerepairs or health expenses, but you want toavoid borrowing to pay for gratuitous luxuriesthat could put you and your family's financialsecurity at risk. After all, the lender couldforeclose if you fail to repay the debt, and theremay be closing costs and other chargesassociated with the loan.

You may be more likely tooverspend on a particularpurchase compared to otherpossible expenditures.According to researchconducted by the ConsumerReports National ResearchCenter, adults in the UnitedStates reported that theywould spend money on thefollowing throughout theyear:

• 54%--electronics

• 33%--appliances

• 27%--a car

• 23%--home remodeling

Source: Consumer Reports,November 2014

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Financial FocusSteven ArnoldSenior Partner31731 Northwestern Hwy 261WFarmington Hills, MI 48334248-539-3399 x225248-229-4488Steve@Fin-Focus.comwww.Fin-Focus.com

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016

Neither Forefield Inc. nor ForefieldAdvisor provides legal, taxation, orinvestment advice. All contentprovided by Forefield is protectedby copyright. Forefield claims noliability for any modifications to itscontent and/or information providedby other sources.

Securities and advisory servicesoffered through LPL Financial, aRegistered Investment Advisor,Member FINRA/SIPC.

The opinions voiced in this materialare for general information onlyand are not intended to providespecific advice orrecommendations for anyindividual.

Can I name a charity as beneficiary of my IRA?Yes, you can name a charityas beneficiary of your IRA, butbe sure to understand theadvantages anddisadvantages.

Generally, a spouse, child, or other individualyou designate as beneficiary of a traditional IRAmust pay federal income tax on any distributionreceived from the IRA after your death. Bycontrast, if you name a charity as beneficiary,the charity will not have to pay any income taxon distributions from the IRA after your death(provided that the charity qualifies as atax-exempt charitable organization underfederal law), a significant tax advantage.

After your death, distributions of your assets toa charity generally qualify for an estate taxcharitable deduction. In other words, if a charityis your sole IRA beneficiary, the full value ofyour IRA will be deducted from your taxableestate for purposes of determining the federalestate tax (if any) that may be due. This canalso be a significant advantage if you expectthe value of your taxable estate to be at orabove the federal estate tax exclusion amount($5,450,000 for 2016).

Of course, there are also nontax implications. Ifyou name a charity as sole beneficiary of yourIRA, your family members and other loved oneswill obviously not receive any benefit from thoseIRA assets when you die . If you would like toleave some of your assets to your loved onesand some assets to charity, consider leavingyour taxable retirement funds to charity andother assets to your loved ones. This may offerthe most tax-efficient solution, because thecharity will not have to pay any tax on theretirement funds.

If retirement funds are a major portion of yourassets, another option to consider is acharitable remainder trust (CRT). A CRT can bestructured to receive the funds free of incometax at your death, and then pay a (taxable)lifetime income to individuals of your choice.When those individuals die, the remaining trustassets pass to the charity. Finally, anotheroption is to name the charity and one or moreindividuals as co-beneficiaries. (Note: There arefees and expenses associated with the creationof trusts.)

The legal and tax issues discussed here can bequite complex. Be sure to consult an estateplanning attorney for further guidance.

Can I make charitable contributions from my IRA in2016?Yes, if you qualify. The lawauthorizing qualified charitabledistributions, or QCDs, hasrecently been made

permanent by the Protecting Americans fromTax Hikes (PATH) Act of 2015.

You simply instruct your IRA trustee to make adistribution directly from your IRA (other than aSEP or SIMPLE) to a qualified charity. Youmust be 70½ or older, and the distribution mustbe one that would otherwise be taxable to you.You can exclude up to $100,000 of QCDs fromyour gross income in 2016. And if you file ajoint return, your spouse (if 70½ or older) canexclude an additional $100,000 of QCDs. Butyou can't also deduct these QCDs as acharitable contribution on your federal incometax return--that would be double dipping.

QCDs count toward satisfying any requiredminimum distributions (RMDs) that you wouldotherwise have to take from your IRA in 2016,just as if you had received an actual distributionfrom the plan. However, distributions (includingRMDs) that you actually receive from your IRAand subsequently transfer to a charity cannotqualify as QCDs.

For example, assume that your RMD for 2016is $25,000. In June 2016, you make a $15,000QCD to Qualified Charity A. You exclude the$15,000 QCD from your 2016 gross income.Your $15,000 QCD satisfies $15,000 of your$25,000 RMD. You'll need to withdraw another$10,000 (or make an additional QCD) byDecember 31, 2016, to avoid a penalty.

You could instead take a distribution from yourIRA and then donate the proceeds to a charityyourself, but this would be a bit morecumbersome and possibly more expensive.You'd include the distribution in gross incomeand then take a corresponding income taxdeduction for the charitable contribution. Butthe additional tax from the distribution may bemore than the charitable deduction due to IRSlimits. QCDs avoid all this by providing anexclusion from income for the amount paiddirectly from your IRA to the charity--you don'treport the IRA distribution in your gross income,and you don't take a deduction for the QCD.The exclusion from gross income for QCDsalso provides a tax-effective way for taxpayerswho don't itemize deductions to makecharitable contributions.

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