CFSMichael Butler, CFA® InstitutePresident/Financial Advisor3190 Whitney AvenueBuilding 6, Suite 2Hamden, CT 06518203-248-1972cfs@cooperfinservices.comwww.cooperfinservices.com

April 2018

The Standard Deduction and Itemized DeductionsAfter Tax Reform

Four Points to Consider When Setting a RetirementIncome Goal

What are some tips for creating a budget andsticking to it?

What are some strategies for paying off credit carddebt?

CFS Advisory NewsletterPlanning Your Financial FutureGovernment Report Details Household Finances

See disclaimer on final page

Every three years, theFederal Reserve sponsorsthe Survey of ConsumerFinances (SCF), whichcollects information on thefinancial state of U.S.households. The survey isone of the nation's primary

sources of information on the financial conditionof different types of households. Here are a fewinteresting observations gleaned from the mostrecent surveys conducted in 2013 and 2016,with the latter comparing changes during thattimeframe.

IncomeThe typical household's median family incomerose 10% between 2013 and 2016, from$48,100 to $52,700. During that same period,mean income (the average) increased 14%,from $89,900 to $102,700. Families at the topof the income distribution saw larger gains inincome between 2013 and 2016 than otherfamilies, consistent with widening incomeinequality.

Across age groups, median and mean incomesshow a life-cycle pattern, rising to a peak in themiddle age groups and then declining forgroups that are older and increasingly morelikely to be retired. Income also shows a strongpositive association with education; inparticular, incomes for families headed by aperson who has a college degree tend to besubstantially higher than for those with lowerlevels of schooling.

Incomes of white non-Hispanic families aresubstantially higher than those of nonwhite(black or African-American non-Hispanic,Hispanic, or Latino, and other or multiple race)families. Income is also higher for homeownersand for families living in urban areas than forother families, and income is systematicallyhigher for groups with greater net worth.

WealthFamilies near the bottom of the income andwealth distribution experienced large gains inmean and median net worth following largedeclines between 2010 and 2013. Families

without a college education and nonwhite andHispanic families experienced largerproportional increases in net worth than othertypes of families, although more-educatedfamilies and white non-Hispanic familiescontinue to have higher wealth than otherfamilies.

Overall, median and mean inflation-adjustednet worth — the difference between a family'sgross assets and liabilities — rose between 2013and 2016. Overall, the median net worth of allfamilies rose 16% to $97,300, and mean networth rose 26% to $692,100. Much of theincrease in wealth was driven by the increasedprices of homes and investments such asstocks and other securities.

The same patterns of inequality in thedistribution of wealth across all families are alsoevident within race/ethnicity groups: For each ofthe race/ethnicity groups, the mean issubstantially higher than the median, reflectingthe concentration of wealth at the top of thewealth distribution. White families had thehighest level of both median and mean familywealth: $171,000 and $933,700, respectively.Black families' median and mean net worth wasless than 15% that of white families, at $17,600and $138,200, respectively. Hispanic families'median and mean net worth was $20,700 and$191,200, respectively.

A few other interesting factsHomeownership rates decreased between2013 and 2016 to 63.7%, continuing a declinefrom their peak of 69.1% in 2004. For familiesthat own a home, mean net housing values(value of a home minus outstanding mortgages)rose.

Retirement plan participation and retirementaccount asset values rose for families acrossthe income distribution, with the largestproportional increases occurring amongfamilies in the bottom half of the incomedistribution.

Overall, many measures of debt and debtobligations indicate that debt has fallen, whileeducation debt increased substantially between2013 and 2016.

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The Standard Deduction and Itemized Deductions After Tax ReformThe Tax Cut and Jobs Act substantiallyincreased the standard deduction amounts for2018 to 2025. It also eliminated or restrictedmany itemized deductions for those years. Youcan generally choose to take the standarddeduction or to itemize deductions. As a resultof the changes, far fewer taxpayers will be ableto reduce their taxes by itemizing deductions.

Standard deductionThe standard deduction amounts aresubstantially increased in 2018 (and adjustedfor inflation in future years).

2017 2018

Single $6,350 $12,000

Head ofhousehold

$9,350 $18,000

Married filingjointly

$12,700 $24,000

Married filingseparately

$6,350 $12,000

Note: The additional standard deductionamount for the blind or aged (age 65 or older)in 2018 is $1,600 (up from $1,550 in 2017) forsingle/head of household or $1,300 (up from$1,250 in 2017) for all other filing statuses.Special rules apply if you can be claimed as adependent by another taxpayer.

Itemized deductionsMany itemized deductions have beeneliminated or restricted. The overall limitationon itemized deductions based on the amount ofadjusted gross income (AGI) was eliminated.Here are some specific changes.

Medical expenses: The AGI threshold fordeducting unreimbursed medical expenses wasreduced from 10% to 7.5% for 2017 and 2018,after which it returns to 10%. This samethreshold applies for alternative minimum taxpurposes.

State and local taxes: Individuals are able toclaim an itemized deduction of up to only$10,000 ($5,000 for married filing separately)for state and local property taxes and state andlocal income taxes (or sales taxes in lieu ofincome taxes). Previously, there were no dollarlimits.

Home mortgage interest: Individuals candeduct mortgage interest on no more than$750,000 ($375,000 for married filingseparately) of qualifying mortgage debt. Formortgage debt incurred before December 16,2017, the prior $1,000,000 ($500,000 formarried filing separately) limit will continue toapply. A deduction is no longer allowed for

interest on home equity indebtedness. Homeequity used to substantially improve your homeis not treated as home equity indebtedness andcan still qualify for the interest deduction.

Charitable gifts: The top percentage limit fordeducting charitable contributions is increasedfrom 50% of AGI to 60% of AGI for certain cashgifts.

Casualty and theft losses: The deduction forpersonal casualty and theft losses is eliminated,except for casualty losses attributable to afederally declared disaster.

Miscellaneous itemized deductions:Previously deductible miscellaneous expensessubject to the 2% floor, including taxpreparation expenses and unreimbursedemployee business expenses, are no longerdeductible.

Alternative minimum tax (AMT)The standard deduction is not available forAMT purposes. Nor is the itemized deductionfor state and local taxes available for AMTpurposes. If you are subject to the alternativeminimum tax, it may be useful to itemizedeductions even if itemized deductions are lessthan the standard deduction amount.

Year-end tax planningTypically, you have a certain amount of controlover the timing of income and expenses. Yougenerally want to time your recognition ofincome so that it will be taxed at the lowest ratepossible, and time your deductible expenses sothey can be claimed in years when you are in ahigher tax bracket.

With the substantially higher standarddeduction amounts and the changes toitemized deductions, it may be especially usefulto bunch itemized deductions in certain years;for example, when they would exceed thestandard deduction. Thus, while this mightseem counterintuitive from a nontaxperspective, it may be useful to make charitablegifts in years in which you have high medicalexpenses or casualty losses.

In this environment, qualified charitabledistributions (QCDs) may be even more usefulas a way to make charitable gifts withoutitemizing deductions. QCDs are distributionsmade directly from an IRA to a qualified charity.Such distributions may be excluded fromincome and count toward satisfying anyrequired minimum distributions (RMDs) youwould otherwise have to receive from your IRA.Individuals age 70½ and older can make up to$100,000 in QCDs per year.

The Tax Cuts and Jobs Act,signed into law in December2017, substantiallyincreased the standarddeduction amounts andmade significant changes toitemized deductions,generally starting in 2018.After 2025, these provisionsrevert to pre-2018 law.

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Four Points to Consider When Setting a Retirement Income GoalNo matter what your age or stage of life,targeting a goal for monthly retirement incomecan seem like a daunting task. Following arefour considerations to help you get started.

1. When do you plan to retire?The first question to ponder is your anticipatedretirement age. Many people base their targetretirement date on when they're eligible for fullSocial Security benefits, and for today'sworkers, "full retirement age" ranges from 66 to67. Other folks hope to retire early, while stillothers want to work as long as possible. As youthink about your anticipated retirement date,keep the following points in mind.

If you plan to retire early, you'll needsignificant resources to provide income forpotentially decades. You can typically tap youremployer-sponsored retirement plan withoutpenalty as early as age 55 if you terminate youremployment, but if you try to access IRA assetsprior to age 59½, you will be subject to a 10%early withdrawal penalty, unless an exceptionapplies. In both cases, regular income taxes willapply. Also consider that you generally won't beeligible for Medicare until age 65, so unless youare one of the lucky few who haveemployer-sponsored retiree medical benefits,health insurance will have to be funded out ofpocket.

If you plan to delay retirement, consider thatunexpected circumstances could throw awrench in that plan. In its 2017 RetirementConfidence Survey, the Employee BenefitResearch Institute (EBRI) found that currentworkers plan to retire at a median age of 65,while current retirees reported a medianretirement age of 62. And although four in 10workers plan to work until age 70 or later, just4% of retirees said this was the case. Why thedifference? Nearly half of retirees said theyretired earlier than planned, with manyreporting unexpected challenges, including theirown health concerns or those of a familymember.1

2. How long will your retirement last?The second important consideration, whichbuilds on the first, is how long your retirementmight last. Projected life spans have beenlengthening in recent decades due in part toadvancements in medical care and generalhealth awareness. According to the NationalCenter for Health Statistics (NCHS), a65-year-old woman can expect to live 20.6more years, while a 65-year-old man can

expect to live 18 more years.2 To estimate yourown life expectancy based on your current ageand health profile, visit the online longevitycalculator created by the Society of Actuariesand American Academy of Actuaries atlongevityillustrator.org.

3. What will your expenses look like?The third consideration is how much you willneed to meet your basic living expenses.Although your housing, commuting, and otherwork-related expenses may decrease inretirement, other costs — including health care —will likely rise.

In 2017, EBRI calculated that Medicarerecipients with median prescription drugexpenses may need about $265,000 just to payfor basic medical expenses in retirement.3 Andthat doesn't even include the potential forlong-term care. According to the Department ofHealth and Human Services (HHS), 52% ofpeople over age 65 will need some form oflong-term care during their lifetimes, whichcould add another $69,000, on average, to theout-of-pocket costs.4

In addition, remember to account for the impactinflation will have on your expenses over time.For example, say you need an estimated$50,000 to cover basic needs in your first yearof retirement. Ten years later, at a 3% annualinflation rate (the approximate historicalaverage as measured by the consumer priceindex), you would need more than $67,000 tocover those same costs.

4. How much can you accumulate?This is perhaps the most importantconsideration: How much can you realisticallyaccumulate between now and retirement basedon your current savings rate, timeframe,investment portfolio, and lifestyle? Once youproject your total accumulation amount basedon current circumstances, you can gaugewhether you're on track or falling short. And ifyou appear to be falling short, you can begin tothink about how to refine your strategy, eitherby altering your plans for retirement (e.g.,delaying retirement by a few years), savingmore, or investing more aggressively.1 EBRI Issue Brief, March 21, 2017

2 NCHS Issue Brief, Number 293, December 2017

3 EBRI Notes, January 31, 2017

4 HHS, "Long-Term Services and Supports for OlderAmericans: Risks and Financing Research Brief,"February 2016

Although there are certainlyno guarantees that anyfuture plans will pan out asexpected, taking time nowto assess these four pointscan help you positionyourself to pursue acomfortable retirement.

All investing involves risk,including the possible lossof principal, and there is noguarantee that anyinvestment strategy will besuccessful.

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CFSMichael Butler, CFA® InstitutePresident/Financial Advisor3190 Whitney AvenueBuilding 6, Suite 2Hamden, CT 06518203-248-1972cfs@cooperfinservices.comwww.cooperfinservices.com

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2018

IMPORTANT DISCLOSURES

Cooper Financial Services, Inc. doesnot provide investment, tax, or legaladvice. The information presentedhere is not specific to any individual'spersonal circumstances. Securitiesoffered through our affiliateBroker/Dealer, CFS Securities, Inc.,Member FINRA & SIPC.

To the extent that this materialconcerns tax matters, it is notintended or written to be used, andcannot be used, by a taxpayer for thepurpose of avoiding penalties thatmay be imposed by law. Eachtaxpayer should seek independentadvice from a tax professional basedon his or her individualcircumstances.

These materials are provided forgeneral information and educationalpurposes based upon publiclyavailable information from sourcesbelieved to be reliable—we cannotassure the accuracy or completenessof these materials. The information inthese materials may change at anytime and without notice.

What are some strategies for paying off credit carddebt?Nowadays, it's easier thanever to get caught up in thecycle of credit card debt. Infact, it's become a growing

problem for many Americans. According to theFederal Reserve, total U.S. credit cardpayments reached 111.1 billion in 2016, up7.4% from 2015.1

If you find that you are struggling to pay down acredit card debt balance, here are somestrategies that can help eliminate your creditcard debt altogether:

Pay off cards with the highest interest ratefirst. If you have more than one card thatcarries an outstanding balance, prioritize yourpayments according to their interest rates.Send as large a payment as you can to thecard with the highest interest rate and continuemaking payments on the other cards until thecard with the highest interest rate is paid off.You can then focus your repayment efforts onthe card with the next highest interest rate, andso on, until they're all paid off.

Apply for a balance transfer with anothercard. Many credit card companies offer highlycompetitive balance transfer offers (e.g., 0%

interest for 12 months). Transferring your creditcard balance to a card with a lower interest ratecan enable you to reduce interest fees and paymore against your existing balance. Mostbalance transfer offers charge a fee (usually apercentage of the balance transferred), so besure to do the calculations to make sure it'scost-effective before you apply.

Pay more than the minimum. If you only paythe minimum payment due on a credit card,you'll continue to carry the bulk of your balanceforward without reducing your overall balance.As a result, try to make payments that exceedthe minimum amount due. For more detailedinformation on the impact that making just theminimum payment will have on your overallbalance, you can refer to your monthlystatement.

Look for available funds to make alump-sum payment. Are you expecting anemployment bonus or other financial windfall inthe near future? If so, consider using thosefunds to make a lump-sum payment toeliminate or pay down your credit card balance.1 Federal Reserve, 2017

What are some tips for creating a budget and stickingto it?It's a common problem formany individuals — wonderingexactly where your paycheckgoes each month. After paying

expenses, such as your mortgage, utilities, andcredit card bills, you may find little left to puttoward anything else.

Creating a budget is the first key to successfullymanage your finances. Knowing exactly howyou are spending your money each month canset you on a more clear path to pursue yourfinancial goals. If you become sidetrackedwhen it comes to your finances, consider thesetips for creating a budget and staying on theright path.

Examine your financial goals. Start out bymaking a list of your short-term goals (e.g., newcar, vacation) and long-term goals (e.g, yourchild's college education, retirement) andprioritize them. Consider how much you willneed to save and how long it will take to reacheach goal.

Identify your current monthly income andexpenses. Add up all of your income. Inaddition to your regular salary and wages, besure to include other types of income, such as

dividends, interest, and child support. Next, addup all of your expenses. Sometimes it helps todivide expenses into two categories: fixed (e.g.,housing, food, transportation) and discretionary(e.g., entertainment, vacations). Don't forget tofactor in any financial goals you would like topursue.

Evaluate your budget. Once you've addedyour income and expenses, compare the twototals. Ideally, you should be spending lessthan you earn. If this is the case, you're on theright track, and you'll need to look at how wellyou use your extra income toward achievingyour financial goals. On the other hand, if youare spending more than you earn, you shouldmake some adjustments to your budget. Lookfor ways to increase your income or reduceyour expenses, or both.

Monitor your budget. Finally, you shouldmonitor your budget periodically and makechanges when necessary. Keep in mind thatany budget that is too rigid is likely to fail. Keepyour budget flexible as your changingcircumstances demand.

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