Category

Planning

The Income Gap and the Economy

By | Planning

The income gap between the wealthy and the poor is widening in the U.S.1 Why does that matter? Because there are studies that indicate a wide swathe of income differentiation is not good for economic growth.

In the years following the Great Recession, we often heard how slowly the economy was recovering. That was true for most Americans, but not for the wealthiest 10 percent. A recent analysis of wealth distribution finds that the richest Americans saw their net worth rise 27 percent between 2007 and 2016. However, the rest of the population saw a decline in net worth, from an average of 5 percent for those in the 80 to 89.9 income percentile to 29 percent for those in the lowest fifth of wealth.2

Perhaps one way to join the group of people who can thrive during economic declines is to be financially prepared ahead of time. That may not be easy to do if your prospects for a good education and a good job are poor. But even for those who don’t come from affluent households, there are ways to help put yourself on the path toward long-term wealth. Start investing early — preferably in an employer-sponsored retirement plan that offers a contribution match. Establish an emergency fund so that an unexpected expense does not drain your investments and savings, taking away the opportunity for compounded interest earnings and potentially adding an extra tax liability. Avoid credit card debt like the plague.

For people who barely earn enough to live on, this can take great sacrifice. Even for people who have ample disposable income, it’s important to learn discipline in order to help maintain one’s financial situation in times of economic decline. If you would like help to establish savings and investment strategies, as well as asset protection strategies using insurance products, please give us a call.

One way to look at the issue of income differentiation is to evaluate where it currently exists, including, for example, between men and women. A recent survey found that 64 percent of women say their top financial priority is meeting daily living costs, compared to 60 percent of men who say that saving for retirement is their top financial priority.3 It seems unlikely that women are less concerned with how to provide for themselves in retirement. Instead, it would appear that many women, whose median annual earnings are $10,086 less than men’s, have more immediate concerns.4

Income disparity during earning years can create a big problem during retirement years. Retirees who were born during the Great Depression and World War II need to supplement only 27 percent of their retirement income with their own savings. However, that situation is expected to change dramatically by the time Generation X (those age 37 to 53) retires. Many will be without the “safety net” of employer pension plans, and they are expected to need to provide about 42 percent of their retirement income from their own savings.5 That means they must save a larger percentage of their pre-retirement income, which is easier to do if you’re financially stable, but it can be difficult when you live paycheck to paycheck.

There’s no question that the income gap has grown since the days when blue-collar workers could earn a good living at U.S. manufacturing jobs. In fact, from the end of World War II through the early 1970s, the U.S. experienced substantial economic growth and prosperity across all income levels. However, economic growth slowed after that, and the income gap widened, with lower- and middle-income families having sharply slower wage growth but top earners continuing to have strong growth.6

Some economists are coming to the conclusion that income inequality hurts growth. Researchers at the International Monetary Fund recently wrote, “If the income share of the top 20 percent (the rich) increases, then GDP growth actually declines over a medium term.” Possible solutions, however, such as welfare programs, higher taxes on the rich and redistribution of wealth, are controversial. Others believe the studies failed to prove the relationship between inequality and lower growth.7

There is a bright spot for lower- and middle-class workers: U.S. manufacturing jobs have increased by almost a million since 2010, although there still are 6 million fewer such jobs than in 1980. However, factories are increasing automation — which may threaten the jobs of humans.8

And although the “Tax Cuts and Jobs Act” gives most Americans a tax decrease, it’s still the wealthy who may benefit the most. A household making $40,000 a year will receive an average $330 tax cut in 2019, while Americans making more than $3.6 million a year will average an $85,640 tax reduction.9

 

Content prepared by Kara Stefan Communications.

Ryan Vlastelica. MarketWatch. April 6, 2018. “Why income inequality is holding back economic growth, in one chart.” https://www.marketwatch.com/story/why-income-inequality-is-holding-back-economic-growth-in-one-chart-2018-04-05. Accessed April 16, 2018.

2 Ibid.

Lee Barney. PlanSponsor. March 28, 2018. “Retirement Saving More of a Priority for Men than Women.” https://www.plansponsor.com/retirement-savings-priority-men-women/. Accessed April 16, 2018.

4 Sonam Sheth, Shayanne Gal and Skye Gould. Business Insider. April 10, 2018. “6 charts show how much more men make than women.” http://www.businessinsider.com/gender-wage-pay-gap-charts-2017-3. Accessed April 18, 2018.

5 Center for Retirement Research at Boston College. March 29, 2018. “Future Retirees Financially Fragile.” http://squaredawayblog.bc.edu/squared-away/future-retirees-financially-fragile/. Accessed April 16, 2018.

Chad Stone, Danilo Trisi, Arloc Sherman and Roderick Taylor. Center on Budget and Policy Priorities. Feb. 16, 2018. “A Guide to Statistics on Historical Trends in Income Inequality.” https://www.cbpp.org/research/poverty-and-inequality/a-guide-to-statistics-on-historical-trends-in-income-inequality. Accessed April 16, 2018.

7 Andreas Becker. Deutsche Welle. April 16, 2018. “Is inequality good or bad for the economy?” http://www.dw.com/en/is-inequality-good-or-bad-for-the-economy/a-43324466. Accessed April 18, 2018.

8 April Glaser. Recode. May 26, 2017. “Why manufacturing jobs are coming back to the U.S. — even as companies buy more robots.” https://www.recode.net/2017/5/26/15656120/manufacturing-jobs-automation-ai-us-increase-robot-sales-reshoring-offshoring. Accessed April 18, 2018.

9 Reuben Fischer-Baum, Kim Soffen and Heather Long. The Washington Post. Jan. 30, 2018. “Republicans say it’s a tax cut for the middle class. The biggest winners are the rich.” https://www.washingtonpost.com/graphics/2017/business/what-republican-tax-plans-could-mean-for-you/?utm_term=.cb6748a783ac. Accessed April 18, 2018.

Guarantees and protections provided by insurance products including annuities are backed by the financial strength and claims-paying ability of the issuing insurer.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

 

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Financial Strategies in 2018

By | Planning

One philosophy of investing, as opined by Warren Buffett, is to be “fearful when others are greedy and greedy when others are fearful.”1 The nation’s eight-year bull market, however, has tested that philosophy. Most market analysts would agree that it was more important to be in the market and taking advantage of gains than to be “fearful” on the sideline.

But as 2018 moves forward, no one can predict the markets from one day to the next. A good bit of volatility has returned, relatively speaking, and many “greedy” investors may be feeling a little less confident. It’s during this late-stage business cycle that the seasoned investor is often distinguished from the seasonal investor.

Can you hold steady during performance freefalls? Moreover, can you afford to invest new money when the market is experiencing extreme fluctuation?

Those answers may lie less in your portfolio and more in your mindset and place in life. If you’re inching close to a certain financial milestone, such as retirement, it’s usually a good idea to seek to preserve assets by moving them into less volatile financial vehicles. However, if you’ve got a substantial time horizon before needing to tap your portfolio and can stomach a bit of volatility, investing when prices drop can position your money for greater opportunities for gains in the future.

Every day, we help our clients make these types of financial decisions based on their personal goals, timeline and tolerance for risk. There is no one-size-fits-all strategy for every individual. If you would like help assessing your current financial strategy against your short- and long-term goals, please give us a call.

When analyzing the economic situation for 2018, it may be helpful to study market analyst recommendations. For example, two themes Credit Suisse is focusing on in 2018 are global economic growth and the rise of the millennial generation as a major player in the workforce.2

At J.P. Morgan Chase, analysts are looking at more normalization in monetary policy in the developed world, while earnings, inflation and interest rates in the U.S. all could affect equity performance. Further, they see potential growth in international equities.3

BlackRock also is looking globally for growth, citing above-trend economic progress in Japan and emerging markets. Domestically, their strategists see outperformance in the technology and financial sectors, and cautions that inflation is poised to make a modest comeback.4

Meanwhile, Goldman Sachs Asset Management warns that investors will need to weigh the potential for more risks this year, including the possibility of interest rate hikes and escalating geopolitical developments.5

Specifically, asset managers at Columbia Threadneedle Investments cite threats from North Korea, the political situation in Saudi Arabia and conditions in Venezuela — one of the world’s largest producers of crude oil — as their biggest geopolitical concerns for 2018.6

 

Content prepared by Kara Stefan Communications.

1 Adam Brownlee. Investopedia. Jan. 21, 2016. “Warren Buffett: Be Fearful When Others are Greedy.” https://www.investopedia.com/articles/investing/012116/warren-buffett-be-fearful-when-others-are-greedy.asp. Accessed Feb. 15, 2018.

 2 Credit Suisse. “Investment Outlook 2018.” https://www.credit-suisse.com/microsites/private-banking/investment-outlook/en.html. Accessed Feb. 5, 2018.

3 J.P. Morgan Chase. 2017. “The investment outlook for 2018.” https://am.jpmorgan.com/blob-gim/1383507154112/83456/MI-MB_2018%20Outlook.pdf. Accessed Feb. 5, 2018.

4 BlackRock. 2017. “Global Investment Outlook 2018.” https://www.blackrock.com/corporate/en-us/literature/whitepaper/bii-2018-investment-outlook-us.pdf. Accessed Feb. 5, 2018.

Goldman Sachs Asset Management. Dec. 4, 2017. “2018 Investment Outlook.” https://www.gsam.com/content/gsam/us/en/outlook/annual-investment-outlook-2018.html?sc_cid=np-2018/nttbne/vboevvx84#question-1. Accessed Feb. 5, 2018.

Columbia Threadneedle Investments. Jan. 22, 2018. “Ted Truscott: Q&A on financial markets.” https://blog.columbiathreadneedleus.com/ted-truscott-qa-on-financial-markets?cid=twitter&sf179937211=1. Accessed Feb. 5, 2018.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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A Look at the Potential Effects of Tax Reform

By | Planning

The tax overhaul legislation that was passed in December has been billed as a means to streamline tax filings at both the individual and corporate level.1 We certainly could use it. According to the IRS, Americans spend a total of 6.6 billion hours a year filling out tax forms.2

While simplifying taxes is a good thing, the new legislation may have oversold that concept. That’s because a lot of time and money usually is spent on figuring out ways to take advantage of new tax laws, and this situation likely will be no different. Analysts expect many individuals and businesses to restructure their income streams to create more tax shelter opportunities.3

It’s important to follow the letter of the law when it comes to tax filing. We recommend you work with an experienced tax advisor to ensure you comply with the new law and benefit from any changes. If you could use a referral, please give us a call; we may be able to recommend tax professionals from our network.

The new tax legislation lowered the maximum corporate tax rate to 21 percent from the current 35 percent. It’s interesting to note that the majority of American businesses won’t be able to take advantage of that lower rate. That’s because most are already set up as pass-through entities (such as sole proprietorships, partnerships and S-corporations), which means the owner’s income is taxed at his or her ordinary income tax rate. But these business owners may deduct up to 20 percent of income, with limits. However, this deduction expires after 2025.4

Unfortunately, there likely will be some negatives that accompany reduced corporate taxes, such as lower tax revenues at the state level, which could mean budget cuts. Another concern is that Congress will cut federal programs next, which states currently depend on for about a third of their revenues. If federal agencies are forced to reduce headcount, for example, Maryland could be especially hard hit since so many federal employees live and work there.5

As a result, officials in some states are urging their legislatures to raise the state corporate tax rate to help offset expected federal spending cuts. In Florida, one official has proposed a rate increase and suggests the extra funds be allocated to raise teachers’ salaries, fund early childhood education programs and invest in vocational training.6 In California, two lawmakers are recommending a 10 percent surcharge on companies with net earnings of more than $1 million.7

Interestingly, because state utilities are regulated by the government, windfalls resulting from lower taxes may be required to be passed on to consumers — good news for utility customers.8

 

Content prepared by Kara Stefan Communications.

1 Barnini Chakraborty. Fox News. Dec. 18, 2017. “GOP tax bill: Can you really file your taxes on a postcard?” http://www.foxnews.com/politics/2017/12/18/gop-tax-bill-can-really-file-your-taxes-on-postcard.html. Accessed Feb. 7, 2018.

2 The Tax Foundation. “Business Tax Compliance and Complexity.” https://taxfoundation.org/federal-tax/business-tax-compliance-complexity/. Accessed Jan. 23, 2018.

3 Adam Looney. Brookings. Dec. 14, 2017. “How the new tax bill encourages tax avoidance.” https://www.brookings.edu/blog/unpacked/2017/12/14/how-the-new-tax-bill-encourages-tax-avoidance/. Accessed Jan. 23, 2018.

4 Zoë Henry. Inc. Dec. 20, 2017. “The Tax Bill Is Final. Here’s What U.S. Businesses Need to Know.” https://www.inc.com/zoe-henry/final-tax-bill-impacts-businesses-2017.html. Accessed Feb. 7, 2018.

5 Lydia DePillis. CNN Money. Jan. 8, 2018. “How the federal tax overhaul could reshape state budgets.” http://money.cnn.com/2018/01/08/news/economy/state-budgets-tax-reform/index.html. Accessed Feb. 23, 2018.

6 WUSF News. Jan. 22, 2018. “Gillum Proposes Corporate Tax Increase.” http://wusfnews.wusf.usf.edu/post/gillum-proposes-corporate-tax-increase. Accessed Feb. 7, 2018.

7 Edmund DeMarche. Fox News. Jan. 21, 2018. “California Democrats want some businesses to fork over half tax-cut savings to state.” http://www.foxnews.com/politics/2018/01/22/california-democrats-want-some-businesses-to-fork-over-half-tax-cut-savings-to-state.html. Accessed Feb.7, 2018.

8 Tracy Samilton. Michigan Radio. Jan. 23, 2018. “Residential utility bills could go down 3% thanks to corporate tax cut.” http://michiganradio.org/post/residential-utility-bills-could-go-down-3-thanks-corporate-tax-cut. Accessed Jan. 23, 2018.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Keep an Eye on Interest Rates

By | Planning

Optimism often predates good news. Such was the case last year when, just before the end of the year, Congress passed legislation that significantly reduced the corporate tax rate. The anticipation of this fulfillment of one of President Trump’s pro-business campaign promises helped drive up stock prices in the latter half of the year — to the tune of a 24 percent uptick. In other words, the expectation for lower tax rates was already baked into market assumptions for 2017.1

Now the question is, what will happen in 2018? According to one market analyst, a challenge for this year’s equity markets will be the likelihood of the Federal Reserve raising interest rates further. If the economy grows by 3 to 3.5 percent this year, as the analyst predicts, this could trigger higher interest rates. Ultimately, higher rates can put a damper on stock prices and make bonds and CDs more attractive.2

We like to remind our clients of a couple of rules of thumb when it comes to managing an investment portfolio. First of all, remaining diversified is generally an effective way to help capture gains, reduce risk and work toward long-term goals. Second, bear in mind that what matters is overall portfolio performance, not individual sectors or investments.3 If you’d like help reviewing your current asset allocation strategy to make sure it’s aligned with your objectives, tolerance for risk and investment timeline, please contact us to schedule a consultation.

Remember that as interest rates rise, bond prices generally drop. However, as long as rates rise modestly and gradually — which is what the Fed projects — bond investors can still make money via their total return.4

The general forecast is for the Fed to increase the federal funds rate within a range of 2.75 to 3 percent by the end of 2018. With that said, note that there are some positives associated with higher interest rates, especially for retirees who rely on low-risk, fixed-income investments for income. Higher rates also could improve the pricing of annuities and credited interest rates.5

 

Content prepared by Kara Stefan Communications.

1 Knowledge@Wharton. Jan. 2, 2018. “Jeremy Siegel: What’s Ahead for the U.S. Economy in 2018.” http://knowledge.wharton.upenn.edu/article/jeremy-siegel-whats-ahead-u-s-economy-2018/. Accessed Jan. 8, 2018.

2 Ibid.

3 Mike Loewengart. Etrade. Jan. 2, 2018. “Putting a bow on 2017 with a turn to the new year.” https://us.etrade.com/knowledge/markets-news/commentary-and-insights/putting-bow-on-2017-with-turn-to-new-year. Accessed Jan. 8, 2018.

4 Jeff Benjamin. InvestmentNews. Jan. 6, 2018. “2018 outlook in bond investing calls for change.” http://www.investmentnews.com/article/20180106/FREE/180109957/2018-outlook-in-bond-investing-calls-for-change. Accessed Jan. 8, 2018.

5 Mark Miller. Morningstar. Jan. 9, 2018. “Retirees: What You Should Watch in 2018.” http://news.morningstar.com/articlenet/article.aspx?id=842831. Accessed Jan. 9, 2018.

Bond obligations are subject to the financial strength of the bond issuer and its ability to pay. Before investing consult your financial adviser to understand the risks involved with purchasing bonds.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Study Proves Aging a One-Way Process

By | Planning

As you may have already suspected, aging is not a reversible process. This was confirmed in a new study titled “Intercellular Competition and Inevitability of Multicellular Aging,” in which researchers concluded it’s impossible to halt the aging process in multi-cellular organisms like humans.1

Scientists have found a cellular mechanism that enables a reverse aging affect in mouse DNA, which also protects it from future damage.2 But alas, our cell system is different, and what works for one doesn’t always work for another.

This is also true for financial strategies. Some individuals are constantly on the lookout for the next big thing, hoping to invest early for strong rewards when a company grows. Others are more risk-averse, happy to make regular, automatic contributions to the same investments over the long haul. While each strategy may have its pros and cons, the important thing is to match strategy to investor within the context of their goals, risk tolerance and investment timeline.

Everyone needs a plan that helps address personal objectives — whether it’s determining how to invest as part of your overall financial strategy or finding the next big scientific discovery. We can help you devise a financial strategy, using a variety of investment and insurance products, based on your particular circumstances.

There are some places where the worlds of science and finance intersect, especially when it comes to big-dollar contributions. Microsoft founder Bill Gates recently invested $50 million in the Dementia Discovery Fund, a private fund specifically devoted to exploring outside-the-box ways to treat dementia.3

Other scientific studies are working to aid the aging process by repairing hearing loss. People generally become hard of hearing gradually due to overexposure to noise, damage to neuronal processes and/or the degeneration of auditory neurons — which do not regenerate once lost. Current studies are looking at ways to convert inner-ear stem cells into auditory neurons that could reverse deafness. Unfortunately, scientists have found that, while effective, this process also poses a significant cancer risk.4

A little closer to home, some studies are looking at whether muscle strength, which peaks by age 25, can be improved later in life. Nearly half of the muscle in our body disappears by age 80. One study compared four strength-training routines for people over age 60. The most effective routine was to train three times a week, inserting a low-intensity workout between two high-intensity workouts.5

From finances to personal health, we often feel at a loss to what we can control as we age. But there are things we can do to improve our chances of aging well. Although genetics play a part, eating healthy, staying active, keeping our brains challenged and remaining socially engaged with friends and family can help each of us become more resilient as we grow older.6

 

Content prepared by Kara Stefan Communications.

1 Leslie D. Monte. LiveMint.com. Nov. 1, 2017. “You will grow old, live with it.” http://www.livemint.com/Science/WeHZhePY2BkKI36txSdeGJ/You-will-grow-old-live-with-it.html. Accessed Nov. 22, 2017.

2 Ibid.

3 Bill Gates. GatesNotes. Nov. 13, 2017. “Why I’m Digging Deep into Alzheimer’s.” https://www.gatesnotes.com/Health/Digging-Deep-Into-Alzheimers. Accessed Nov. 22, 2017.

4 Todd B. Bates. Rutgers Today. Nov. 6, 2017. “Inner Ear Stem Cells May Someday Restore Hearing.” https://news.rutgers.edu/research-news/inner-ear-stem-cells-may-someday-restore-hearing/20171102#.WhXNS7aZOfV. Accessed Nov. 22, 2017.

5 Alex Hutchinson. The Globe and Mail. Nov. 2, 2017. “How should you train to retain muscle as you age?” https://www.theglobeandmail.com/life/health-and-fitness/fitness/how-should-you-train-to-retain-muscle-as-you-age/article36816684/. Accessed Nov. 22, 2017.

6 Debbie Reslock. The Oakland Press. Nov 3, 2017. “Do you have these skills to age well? Some strengths help us roll with the punches easier as we grow older.” http://www.theoaklandpress.com/lifestyle/20171121/do-you-have-these-skills-to-age-well-some-strengths-help-us-roll-with-the-punches-easier-as-we-grow-older. Accessed Nov. 22, 2017.

 

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Year-End Tax Tips

By | Planning

As of this writing, Congress is attempting to reform our tax code. While changes are common with every new presidential administration, an initiative so transforming as to be called “tax reform” is quite unusual — the last major tax overhaul happened during the Reagan administration in 1986.1

According to Fox News, some who may benefit from the proposed President Trump/GOP tax plan could include the highest and lowest income households as well as corporations with high tax rates. Residents in high-tax states, beneficiaries of social programs, and tax accountants and others who help people prepare their taxes each year are more likely to be negatively affected.2

Taxes are a complicated matter, and like all personal financial planning, no strategy is going to work for everyone. For people who have complex components to their tax situation, it’s a good idea to get professional advice from a qualified tax professional — particularly when it comes to year-end strategies that may be beneficial come tax season. We are happy to help our clients consider the possible tax ramifications of recommendations we make regarding their financial portfolios. If you’d like more information, please give us a call.

You still have time to take steps to address your 2017 tax situation, including considering factors regarding an IRA account. For example, income earners may want to maximize their 2017 IRA contributions to help save for retirement. Bear in mind that you have until April 17, 2018, to make 2017 IRA contributions.3

For people age 70 ½ or older this year, remember to take your 2017 required minimum distribution (RMD) by Dec. 31, 2017. If you turned 70 ½ in 2017, you have until April 1, 2018, to make the RMD. Also note that you must calculate the RMD separately for each IRA you own (not including Roth IRAs). However, the IRS does permit the full withdrawal to come from just one non-Roth IRA account. Those who fail to make RMDs by the deadline may be subject to a 50 percent excise tax on the undistributed amount.4

If you have a health care flexible spending account (FSA), check to see how much money you have left to spend this year. If you don’t use it up you could lose it, so consider scheduling end-of-year appointments and buying a new pair of prescription glasses or contact lenses, hearing aids or eligible medicines you’ll need in 2018. Be sure to submit those receipts for eligible expenses by your plan’s deadline to get reimbursed with 2017 funds. Also note that some employer plans permit an extra 2.5 months to continue using flexible spending account funds, but you’ll need to confirm whether yours does or not.5

If you’re considering investing a large sum in a mutual fund by year-end, check the fund company’s website to find out when that fund declares its dividend. If you buy shares before the dividend is declared, this will increase your income and subsequently your tax liability.6

If you’re looking for a state tax deduction, consider contributing to a 529 college savings plan for a child or grandchild by the end of the year. However, you’ll need to see if the state sponsoring the 529 allows a tax deduction, and the amount permitted. Note that 529 contributions are not deductible on federal tax returns.7

Taxpayers who were victims of one of this year’s declared disasters who need copies of previous tax returns can get them free via the IRS Get Transcript tool at IRS.gov or by calling 800.908.9946 to order them by phone.8

 

Content prepared by Kara Stefan Communications.

1 Lisa Desjardins. PBS NewsHour. Sept. 12, 2017. “America’s long, complicated history with tax reform.” https://www.pbs.org/newshour/politics/americas-long-complicated-history-tax-reform. Accessed Nov. 21, 2017.

2 Kaitlyn Schallhorn. Fox News. Oct. 26, 2017. “Trump’s tax reform plan: Who are the winners and losers?” http://www.foxnews.com/politics/2017/10/26/trumps-tax-reform-plan-who-are-winners-and-losers.html. Accessed Oct. 31, 2017.

3 IRS. Oct. 24, 2017. “IRA Year-End Reminders.”  https://www.irs.gov/retirement-plans/ira-year-end-reminders. Accessed Oct. 31, 2017.

4 Ibid.

5 H&R Block. 2017. “Year-End Tax Tips.” https://www.hrblock.com/tax-center/filing/year-end-tax-planning/. Accessed Oct. 31, 2017.

6 Ibid.

7 eFile. 2017. “Year-End Tax Estimate and Planning Tips for Tax Year 2017.” https://www.efile.com/tax-estimate-and-tax-planning-tips/. Accessed Oct. 31, 2017.

8 IRS. Oct. 4, 2017. “Tips for Individuals Who Need to Reconstruct Records After a Disaster.” https://www.irs.gov/newsroom/tips-for-individuals-who-need-to-reconstruct-records-after-a-disaster. Accessed Oct. 31, 2017.

The content provided in this blog post is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market or recommend any tax plan or arrangement. You are encouraged to consult your personal tax advisor or attorney.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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When One Spouse Retires First

By | Planning

It’s easy to think of retirement and dream of a relaxed stroll into the sunset with your significant other by your side. After all, many advertisements repeat this theme with salt-and-pepper-haired couples strolling hand in hand across a beachfront.

Yet, this is not always the case. Anymore, we often see couples retire at different times – perhaps one spouse actually enjoys going to work every day while the other can’t wait to retire. Different retirement times, however, can open financial and emotional rifts for couples. What if the retired spouse enjoys travel, or wants to spend long stretches with family? Did the couple consider the financial impact of one spouse retiring versus both spouses? What if the working spouse is resentful of the time or money the retired spouse spends on activities?1

At our firm, we help with issues related to couples’ financial preparedness for retirement. If you and your spouse are looking toward retirement–either at the same time or years apart – give us a call.

With the proper planning, the financial piece of retirement doesn’t have to play into your marital dynamic. Based on your circumstances, a wide variety of solutions can help provide one or more retirement income streams while allowing an investment portfolio the opportunity to grow—possibly even throughout retirement. Many of today’s retirees hope to benefit from ongoing growth opportunities to help offset the potential long-term impact of inflation, rising health care and long-term care costs, and increasing longevity.

Now, couples with a big age gap may need a totally different set of strategies from other couples. For instance, if you have a significantly younger spouse, it may be more appropriate to invest a higher percentage of an investment portfolio in stocks than it would be for couples closer in age.2

One way the IRS helps out couples with a large age gap is with an opportunity to reduce the size of required minimum distributions (RMDs) from tax-deferred retirement plans, which are generally required to start at age 70 ½. When the account owner is at least 10 years older than their spouse, and the spouse is the named beneficiary, the older spouse can use a different factor for their RMD calculation, which can result in a lower payout. The benefit to this rule is that it gives more of the older spouse’s funds the opportunity to keep growing while the younger spouse continues to work.3 This information is not intended to provide tax advice. Be sure to speak with a qualified professional about your unique situation.

Another retirement income option to consider for age-gap couples is a joint-and-survivor annuity. There are many different types of annuities to choose from, but joint-and-survivor actually refers to the type of distribution option that most annuities offer. If you purchase an annuity and choose this payout option, the annuity will continue to make payments to the surviving spouse, regardless of which spouse dies first.

A 50 percent option will continue to pay out half of the original amount to the survivor once the first annuitant dies, and a 100 percent option, while offering a lower original payout, guarantees the same amount for the life of both spouses.4 This can be a suitable component of a retirement income plan for couples with a significant age gap.

Whether you and your spouse are similar ages or decades apart, and whether you plan to retire on the same day or years apart, you should be planning for the financial – and emotional – components ahead. If you’re ready to plan, we can help.

 

Content prepared by Kara Stefan Communications.

 

1 Karen DeMasters. FA Magazine. May 12, 2017. “Who’s Retiring First?” https://www.fa-mag.com/news/couples-retirement-gap-32725.html?section=3. Accessed Sept. 11, 2017.

2 Kerri Anne Renzulli. Time. June 14, 2017. “Money, Marriage and a Big Age Gap: 6 Ways to Make Sure Your Retirement is Safe.” http://time.com/money/4810932/age-difference-relationship-couples-retirement-advice/. Accessed Sept. 11, 2017.

3 IRS. 2017. “IRA Required Minimum Distribution Worksheet.” https://www.irs.gov/pub/irs-tege/jlls_rmd_worksheet.pdf. Accessed Sept. 11, 2017.

4 Zacks. 2017. “How Does a Joint and Survivor Annuity Work?” http://finance.zacks.com/joint-survivor-annuity-work-2270.html. Accessed Sept. 11, 2017.

 

Annuities are insurance products that may be subject to fees, surrender charges and holding periods which vary by company. Annuities are not a deposit of nor are they insured by any bank, the FDIC, NCUA, or by any federal government agency. Annuities are designed for retirement or other long-term needs. Guarantees and protections provided by insurance products including annuities are backed by the financial strength and claims-paying ability of the issuing insurer.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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IRS News to Know

By | Planning

As we head into the final quarter of 2017, it’s a good idea to stay cognizant of any tax issues that may affect your finances come April 2018. Now is the time to review your investments and income distribution plans to help ensure you don’t trigger additional taxes or penalties later on.

We can help retirees create income distribution strategies that provide a reliable stream of income. As some income-generating strategies could increase your tax liability in a single year, we recommend clients also consult with an experienced tax professional to understand issues regarding their specific situation. We are happy to make a recommendation from our network of professional colleagues.

One common income distribution strategy is to transfer assets from an employer-sponsored 401(k) plan to a self-directed IRA. This move can give some individuals more investment choices. The IRS encourages eligible taxpayers to consider requesting a direct trustee-to-trustee transfer, rather than doing a rollover. However, if you do not conduct a direct trustee-to-trustee transfer, it’s important to understand the rules related to personally withdrawing money from one account and depositing it to another. The IRS allows a 60-day window to do this without penalty. If an individual misses that deadline, he may qualify for a waiver to extend the deposit window. The IRS will generally allow an extension for one or more of 11 circumstances, including the death of a family member or because the taxpayer becomes seriously ill. Furthermore, a taxpayer can use a new self-certification procedure to apply for the waiver of the 60-day period to avoid possible early distribution taxes.1

Speaking of IRAs, one income distribution strategy that early retirees may be able to take advantage of is IRS Rule 72(t). Normally, someone who retires before age 59 ½ would be subject to a 10 percent penalty on early withdrawals from a retirement plan. However, Rule 72(t) waives this penalty for individuals who make a series of “substantially equal periodic payments” for five years or until the retirement account owner reaches age 59 ½ – whichever is longer. The allowable amount is based on life expectancy and must be calculated using one of the IRS approved methods.2 Since every situation is different, individuals are encouraged to consult with a qualified tax professional before making any decisions.

A 2011 rule from the IRS relates to the “portability deadline.” This is the rule that allows a surviving spouse to absorb any unused portion of a deceased spouse’s estate tax exemption amount. The surviving spouse must file an estate tax return on behalf of the decedent in order to qualify for the portability rule, even if the estate is under the filing threshold and typically would not be required to file an estate tax return. A new IRS guideline grants a permanent automatic extension of the time to file an estate tax return just to claim portability, extending it from nine months to up to two years after the decedent’s death.3

Also, as a reminder, 2017 is the first tax year in which taxpayers age 65 and over are subject to the same 10 percent threshold of adjusted gross income (AGI) for deducting unreimbursed medical expenses as all other taxpayers (in previous years the threshold was 7.5 percent for those 65 and over). Eligible medical and dental expenses must be over 10 percent of the taxpayer’s 2017 AGI in order to claim the deduction.4

Content prepared by Kara Stefan Communications.

 

1 IRS. April 19, 2017. “2016 Tax Changes.” https://www.irs.gov/newsroom/2016-tax-changes. Accessed Aug. 14, 2017.

2 Investopedia. 2017. “Rule 72(t).” http://www.investopedia.com/terms/r/rule72t.asp. Accessed Aug. 18, 2017.

3 Michael Kitces. Nerd’s Eye View. June 28, 2017. “IRS Extends Portability Deadline (Retroactively) Under Rev. Proc. 2017-34.” https://www.kitces.com/blog/rev-proc-2017-34-automatic-extension-deadline-form-706-portability-dsue-amount/?utm_source=FeedburnerRSS&utm_medium=feed&utm_campaign=Feed%3A+KitcesNerdsEyeView+%28kitces.com+%7C+Nerd%27s+Eye+View%29. Accessed Aug. 18, 2017.

4 IRS. Dec. 15, 2016. “Questions and Answers: Changes to the Itemized Deduction for 2016 Medical Expenses.” https://www.irs.gov/individuals/questions-and-answers-changes-to-the-itemized-deduction-for-medical-expenses. Accessed Aug. 14, 2017.

 

The content provided in this blog is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market or recommend any tax plan or arrangement. You are encouraged to consult your personal tax advisor or attorney.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice.

Investing involves risk, including the potential loss of principal.  Any references to reliable income generally refer to fixed insurance products, never securities or investment products.  Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Income Strategies for an 8,000-Day Retirement

By | Planning

By 2030, it’s estimated that 20 percent of the U.S. population will be over age 65.1 That means a fifth of all Americans will be on the fringe of retirement or already retired, a milestone that’s generally perceived to come late in life. But consider this, there are approximately 8,000 days in today’s average retirement. That’s approximately the same number of days from:2

  • Birth to college graduation
  • College graduation to mid-life crisis
  • Mid-life crisis to retirement

Eight thousand days translates to about 22 years. That may seem long for retirement, but it’s actually quite common these days: Retire at 65 and live to 87; retire at 70 and live to 92; retire at 80 and live to 102. More people are doing this all the time.3

If you are fortunate enough to enjoy 8,000 days of retirement, you’ll need plenty of retirement savings accumulated to make it last. For many people, that may not happen. Some young people don’t save enough because they struggle to make ends meet. People in their 40s might splurge on a sporty convertible or have unexpected expenses for a family member.

Sometimes the bulk of retirement saving gets crammed into those 8,000 days between mid-life and retirement. If this scenario sounds familiar, note that we have experience working with clients who are in similar situations. One of the keys is to use today’s retirement income strategies and financial vehicles to help maximize your assets for long-term financial confidence. We can use a variety of investment and insurance products to customize a financial strategy for your unique situation.

One possible strategy to help with the concern of outliving your retirement income may be to delay starting Social Security benefits.For example, an economist at Boston University demonstrated a scenario in which a 66-year-old retiree begins withdrawing income from his 401(k)/IRA account while delaying Social Security until age 70. His calculations show that this strategy would yield a higher income throughout retirement than if the retiree started pulling from all income sources at full retirement age.5

Also remember that the concept of 8,000 days is a middling number. Roughly, half of retirees will die before 8,000 days and half live longer. Annuities can be an option for people who want to help ensure a portion of their retirement income will be guaranteed. An annuity is an insurance contract that can provide long-term retirement income to help protect you against longevity risk, such as a retirement spanning two decades or more.

It’s important to understand there are several different types of annuities, and they don’t all work the same way. They may offer various features; such as payout options, death benefits and potential income for your spouse. Some can offer guaranteed income (a fixed annuity) while others offer an income stream that relies on the performance of the investments you choose (a variable annuity). There may be tradeoffs for these features, like additional fees or lower income payouts.6 A financial professional can help you understand which type of annuity suits your financial needs.

Content prepared by Kara Stefan Communications

1 Richard Eisenberg. Forbes. May 9, 2017. “Why Isn’t Business Preparing More for The Future of Aging?” https://www.forbes.com/sites/nextavenue/2017/05/09/why-isnt-business-preparing-more-for-the-future-of-aging/#108dfd522dec. Accessed July 31, 2017.
2 Ibid.
3 Ibid.
4 Mark Miller. The New York Times. Feb. 18, 2017. “How to Make Your Money Last as Long as
You Do.” https://www.nytimes.com/2017/02/18/your-money/retiring-longevity-planning-social-security.html. Accessed July 31, 2017.
5 Laurence Kotlikoff. Dallas News. May 5, 2017. “Which should you take first: Social Security or your 401(k)?” https://www.dallasnews.com/business/personal-finance/2017/05/05/take-first-social-security-401k. Accessed July 31, 2017.
6 CNN. 2017. “What is an annuity?” http://money.cnn.com/retirement/guide/annuities_basics.moneymag/index.htm. Accessed July 31, 2017.

The hypothetical example provided is for illustrative purposes only; it does not represent a real life scenario, and should not be construed as advice designed to meet the particular needs of an individual’s situation. We are able to provide you with information but not guidance or advice related to Social Security benefits. Our firm is not affiliated with the U.S. government or any governmental agency.

Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Annuities are insurance products that may be subject to fees, surrender charges and holding periods which vary by company. Annuities are not a deposit of nor are they insured by any bank, the FDIC, NCUA, or by any federal government agency. Annuities are designed for retirement or other long-term needs.

This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Strategic vs. Tactical Asset Allocation

By | Planning

 In recent years, the markets, the economy and the global political scene have evolved considerably. We’ve witnessed both remarkable volatility and remarkable resilience in these areas. The reality is that less predictability in today’s economic landscape requires more vigilant risk diversification, coupled with the ability to adapt to a fast-changing environment.1

We work with our clients to set financial goals and make strategic and tactical recommendations to help them reach their individual financial objectives. Equally as important, we want to encourage clients to work with us to monitor their financial progress and let us know when their personal or financial situation changes. Investing mirrors life in many ways: You make plans, but they often get disrupted, waylaid or delayed. By closely monitoring your financial strategy, we can help you determine if and when it’s time to make changes.

To this end, it may be beneficial for you to understand the distinction between strategic asset allocation and tactical asset allocation. Strategic allocation establishes and maintains a deliberate mix of stocks, bonds and cash designed to help meet your long-term financial objectives.2

Tactical asset allocation, on the other hand, is more market focused. While an investor may set parameters for how much and how long he wants to invest in a certain asset class, he may want to then increase or decrease his allocations by 5 percent to 10 percent over a short time based on economic or market opportunities.3

It is important to be aware that tactical asset allocation strategies present higher risks but also the opportunity for higher returns. It’s a good idea to set percentage limits on asset allocations and time benchmarks for when you may want to exit certain positions.4 Tactical asset allocation is, in fact, a market timing strategy, but its risk lies more in asset categories rather than individual holdings, and a crucial key for this type of allocation is to actively manage that risk.5

To help diversify and manage risk, some financial advisors recommend exchange traded funds (ETFs). These are passively managed funds that can be bought and sold throughout the trading day. While ETFs are passively managed, they provide a means for an investor to tactically expand or shrink exposure to a specific asset class in her own actively managed portfolio. Proponents of ETFs favor them because of their low cost, tax efficiency and trading flexibility.6

 

 

 

Content prepared by Kara Stefan Communications.

 

1 Nasdaq. June 26, 2017. “Asset owners must be more innovative to fulfill investment missions.” http://www.nasdaq.com/press-release/asset-owners-must-be-more-innovative-to-fulfill-investment-missions-20170626-00612. Accessed July 8, 2017.

2 Chris Chen. Insight Financial Strategists. July 1, 2017. “Tactical asset allocation can enhance a long term strategy.” http://insightfinancialstrategists.com/asset-allocation/?utm_source=ReviveOldPost&utm_medium=social&utm_campaign=ReviveOldPost. Accessed July 8, 2017.

3 Ibid.

4 Ibid.

5 Girija Gadre, Arti Bhargava and Labdhi Mehta. The Economic Times. June 19, 2017. “5 smart things to know about tactical asset allocation.” http://economictimes.indiatimes.com/wealth/invest/5-smart-things-to-know-about-tactical-asset-allocation/articleshow/59189407.cms. Accessed July 8, 2017.

6 Robert Powell. MarketWatch. June 9, 2017. “Why financial advisers prefer ETFs over mutual funds.” http://www.marketwatch.com/story/why-financial-advisers-prefer-etfs-over-mutual-funds-2017-06-09. Accessed July 8, 2017.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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