Retirement

Will There Be a Big Cost of Living Adjustment for Social Security Benefits in 2022?

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The news keeps getting better for Social Security recipients.

It’s now projected that benefits will increase 6.1% in 2022, up from the 4.7% forecast just two months ago. That would be the most significant increase since 1983. (1,2)

It’s all about inflation. Social Security cost of living adjustments (COLA) are based on the consumer price index, which rose 5.4% in June — its largest 12-month increase since 2008. The official announcement is expected in October and, once it’s confirmed, the revised payment will go into effect in January 2022. (3)

More than 65 million Americans receive Social Security, and the annual cost of living adjustments are designed to help recipients manage higher costs. At the start of 2021, recipients saw a 1.3% increase. (4)

The average monthly benefit is $1,544 for retired workers. So a 6.1% increase amounts to $94 more a month. That might not be quite enough for a car payment, but it’s double the 3% raise being given to U.S. workers in 2021. (4,5)

Social Security can be confusing. One survey found only 6% of Americans know all the factors that determine the maximum benefits someone can receive. If you have any questions, please reach out. We have a number of resources at our fingertips that you may find helpful. (6)

Claiming Social Security – decision tree

This decision tree is designed to help individuals think through some of the factors related to when to take Social Security benefits. Working, having other sources of income, expected longevity, preserving a portfolio and trying to maximize benefits are important considerations. The possibility of benefits for family is not included; individuals should contact the Social Security Administration if they have questions about their personal situation.

Sources

  1. Fortune.com, July 15, 2021
  2. SeniorsLeague.org, May 12, 2021
  3. InvestmentNews.com, July 13, 2021
  4. SSA.gov, June 2021
  5. SHRM.org, June 2021
  6. FinancialAdvisorIQ.com, July 19, 2021
  7. https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/retirement-insights/guide-to-retirement/

The forecasts for Social Security benefits are based on assumptions, subject to revision without notice, and may not materialize.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

What to Be Thinking About In Preparation for Retirement

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How do you picture your future?

If you are like many contemplating retirement, your view is likely pragmatic compared to that of your parents. That doesn’t mean you must have a “plain vanilla” tomorrow. Even if your retirement savings are not as great as you would prefer, you still have great potential to design the life you want.

With that in mind, here are some things to think about.

What do you absolutely need to accomplish?

If you could only get four or five things done in retirement, what would they be? Answering this question might lead you to compile a “short list” of life goals, and while they may have nothing to do with money, the financial decisions you make may be integral to achieving them.

What would revitalize you?

Some people retire with no particular goals at all, and others retire burnt out. After weeks or months of respite, ambition inevitably returns. They start to think about what pursuits or adventures they could embark on to make these years special. Others have known for decades what dreams they will follow … and yet, when the time to follow them arrives, those dreams may unfold differently than anticipated and may even be supplanted by new ones.

In retirement, time is really your most valuable asset. With more free time and opportunity for reflection, you might find your old dreams giving way to new ones. You may find yourself called to volunteer as never before or motivated to work again in a new context.

Who should you share your time with?

Here is another profound choice you get to make in retirement. The quick answer to this question for many retirees would be “family.” Today, we have nuclear families, blended families, extended families; some people think of their friends or their employees as family. You may define it as you wish and allocate more or less of your time to your family as you wish (some people do want less family time when they retire).

Regardless of how you define “family” or whether or not you want more “family time” in retirement, you probably don’t want to spend your time around “dream stealers.” They do exist. If you have a grand dream in mind for retirement, you may meet people who try to thwart it and urge you not to pursue it. (Hopefully, they are not in close proximity to you.) Reducing their psychological impact on your retirement may increase your happiness.

How much will you spend?

We can’t control all retirement expenses, but we can control some of them. The thought of downsizing may have crossed your mind. While only about 10% of people older than 60 sell homes and move following retirement, it can potentially lead to more manageable mortgage payments. You could also lose one or more cars (and the insurance that goes with them) and live in a neighborhood with extensive, efficient public transit. Ditching landlines and premium cable TV (or maybe all cable TV) can bring more savings. Garage sales and donations can have financial benefits as well as helping you get rid of clutter, with either cash or a federal tax deduction.1

This article is for informational purposes only and is not a replacement for real-life advice, so make sure to consult your tax, legal, and accounting professionals before modifying your overall tax strategy.

Could you leave a legacy?

Many of us would like to give our kids or grandkids a good start in life, but given some of the economic realities of today, leaving an inheritance can be trickier than many realize.

Consider a couple with, for example, $285,000 in retirement savings. If that couple follows the 4% rule, the old maxim that you should withdraw about 4% of your retirement savings per year, subsequently adjusted for inflation – then you are talking about $11,400 withdrawn to start. When you combine that $11,400 with Social Security and other potential investment income, that couple isn’t exactly rich. Sustaining and enhancing income becomes the priority, and legacy preparations may have to take a backseat. On the other hand, a recent survey showed that 92% of all respondents believe it is important to leave money and other assets to their children.2

How are you preparing for retirement?

This is the most important question of all. If you feel you need to prepare more for the future or reexamine your existing strategy in light of recent changes in your life, conferring with a financial professional experienced in retirement approaches may be a smart move.

Changes in lifestyle

As households transition into retirement, time that had been spent working now is available for other pursuits. Individuals often enter retirement having spent too little time determining how they plan to spend this time – and run the risk of spending valuable time and money pursuing activities that may not prove to be as fulfilling as they had anticipated. For those who continue to work, they work fewer hours per day. Watching more television is a concerning trend. While a slightly higher percentage of people volunteer at older ages, it is important to note that the time spent volunteering remains about the same.

Sources

  1. IRS.gov, March 14, 2019
  2. Bankofamerica.com, Spring 2019
  3. https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/retirement-insights/guide-to-retirement/#

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Retirement Questions to Consider That Have Nothing to Do With Money

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Retirement Planning is Not Entirely Financial

Your degree of happiness in your “second act” may depend on some factors that don’t come with an obvious price tag. Here are some non-monetary factors to consider as you plan your retirement.

What Will You Do With Your Time?

Too many people retire without any idea of what their retirement will look like. They leave work, and they cannot figure out what to do with themselves, so they grow restless. It’s important to identify what you want your retirement to look like and what you see yourself doing. Maybe you love your career, and can’t imagine not working during your retirement. There’s no hard and fast rule to your dream retirement, so it’s important to be honest with yourself. An EBRI retirement confidence survey shows that almost 74% of retirees plan to work for pay, whereas just 27% of retirees report that they’ve actually worked for pay. (1)

While this concept doesn’t have a monetary value, having a clear vision for your retirement may help you align your financial goals. It’s important to remember that your vision for retirement may change—like deciding you don’t want to continue working after all.

Where Will You Live?

This is another factor in retirement happiness. If you can surround yourself with family members and friends whose company you enjoy, in a community where you can maintain old friendships and meet new people with similar interests or life experience, that is a definite plus. If all this can occur in a walkable community with good mass transit and senior services, all the better. Moving away from the life you know to a spread-out, car-dependent suburb where anonymity seems more prevalent than community may not be the best decision for you.

How Are You Preparing to Get Around in Your Eighties and Nineties?

The actuaries at Social Security project that the average life expectancy for men is 84 years old, and the life expectancy for women is 86.5 years. Some will live longer. Say you find yourself in that group. What kind of car would you want to drive at 85 or 90? At what age would you cease driving? Lastly, if you do stop driving, who would you count on to help you go where you want to go and get out in the world? (2)

How Will You Keep Up Your Home?

At 45, you can tackle that bathroom remodel or backyard upgrade yourself. At 75, you will probably outsource projects of that sort, whether or not you stay in your current home. You may want to move out of a single-family home and into a townhome or condo for retirement. Regardless of the size of your retirement residence, you will probably need to fund minor or major repairs, and you may need to find reliable and affordable sources for gardening or landscaping.

These are the non-financial retirement questions that no pre-retiree should dismiss. Think about them as you prepare and invest for the future.

▲Working for Pay in Retirement

“Nearly 3 in 4 workers (74 percent) plan to work for pay in retirement, compared with just 27 percent of retirees who report they have actually worked for pay in retirement. In fact, the RCS has consistently found that workers are far more likely to plan to work for pay in retirement than retirees are to have actually worked (Figure 3). In the 2019 RCS, among retirees who worked for pay in retirement reported why they worked for pay in retirement and almost all gave a positive reason for doing so, saying they continued to work because they wanted to stay active and involved (91 percent), they enjoyed working (89 percent), or a job opportunity came along (58 percent). a Retirees could have retired for more than one reason. However, they reported that financial reasons also played a role in that decision, such as wanting money to buy extras (75 percent), needing money to make ends meet (37 percent), a decrease in the value of their savings or investments (28 percent), or keeping health insurance or other benefits (16 percent). *Retirees could have worked for pay in retirement for more than one reason.” (1)

Sources

  1. EBRI/Greenwald Retirement Confidence Survey, 2020
  2. SSA.gov

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Here are the 2021 Contribution Limits for Your IRAs, 401(k) and 403(b)

On October 26, the Treasury Department released the 2021 adjusted figures for retirement account savings. Although these adjustments won’t bring any major changes, there are some minor elements to note.

401(k)s

The salary deferral amount for 401(k)s remains the same at $19,500, while the catch-up amount of $6,500 also remains unchanged. However, the overall limit for these plans will increase from $57,000 to $58,000 in 2021. (1)

Individual Retirement Accounts (IRA)

The limit on annual contributions remains at $6,000 for 2021, and the catch-up contribution limit is also unchanged at $1,000. (2)

Roth IRAs

Roth IRA account holders will experience some slightly beneficial changes. In 2021, the Adjusted Gross Income (AGI) phase-out range will be $198,000 to $208,000 for couples filing jointly. This will be an increase from the 2020 range of $196,000 to $206,000. For those who file as single or as head of household, the income phase-out range has also increased. The new range for 2021 will be $125,000 to $140,000, up from the current range of $124,000 to $139,000. (3)

Although these modest increases won’t impact many, it’s natural to have questions anytime the financial landscape changes. If you’re curious about any of the above, speak to your financial or tax professional for more information.

RETIREMENT PLANS (Annual Contribution Limits)202120202019
401(k), 403(b), most 457 plans
• 50+ Catch-up Contribution
$19,500
+$6,500
$19,500
+$6,500
$19,000
+$6,000
IRAs and Roth IRAs
• 50+ Catch-up Contribution
$6,000
+$1,000
$6,000
+$1,000
$6,000
+$1,000
SIMPLE IRA
• 50+ Catch-up Contribution
$13,500
+$3,000
$13,500
+$3,000
$13,000
+$3,000

Sources

  1. IRS.gov, October 26, 2020
  2. IRS.gov, October 26, 2020
  3. IRS.gov, October 26, 2020

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

What Could the Impact of a Biden Presidency be on the Stock Market?

Photo by Todd Jacobucci on flickr

The impact of a potential new President on stock market returns is always a key question in the weeks prior to a general election. It’s important to keep in mind that, despite frequent worries around this time of year, and that financial markets may react in the shorter-term term to poll results and election outcomes (especially surprises), the longer-term effects of any administration’s policies appear to be disconnected from financial market results. Instead, stocks especially tend to follow earnings, which follow economic growth trends. Nevertheless, there are always policy distinctions that could affect various industries to some extent.

In contrast to election season norms in prior decades, polarization between the two parties has become more pronounced, with more extreme positions on both sides forcing candidates away from traditional ‘centrist’ policy often adopted during general election campaigns. A Biden victory has the potential of moving policy toward a more progressive stance, although this is not as simple of a story as in past years, with the current administration having taken a variety of unconventional stances in its own right.

The potential retaking of the Senate by Democrats, in addition to their already holding power in the House, would heighten the risk of more progressive policies being voted in—with minimal opposition. On the other hand, Republicans successfully retaining the Senate would continue to act as an effective counterbalance against legislation from the House, potentially resulting in a policy log jam for the next four years. (Some see this as a best-case scenario, although doing little to alleviate the high current levels of political disagreement.)

The following represent a few areas that could be most impacted by a new Democratic administration, through either new legislation, reversals of prior policies, or no change:

Taxes

It is assumed that the corporate and personal tax cuts put into place in the current regime could be reversed—partially or fully—towards prior levels. Personal income tax policy rhetoric during the campaign has been aimed at the ultra-wealthy, but with high budget deficits and an unprecedented level of fiscal debt, higher tax rates for even middle-income Americans have been feared. This includes higher capital gains tax rates, seen as benefitting the wealthy the most, as they own the majority of financial assets. ‘Wealth taxes’ based on assets are out there as a wildcard as well (although targeted at billionaires). Even if corporate rates do not return to prior max levels of 35%, they are likely not to remain at 21%, either. Most directly, higher tax rates for companies directly erode multi-year earnings projections, which could result in lower stock valuation assessments.

Environment

This multi-faceted policy area includes not only ‘green’ legislation (likely to be promoted by a Biden administration), but also important carryover effects related to the energy industry broadly. It would likely be unfavorable for traditional petroleum- and coal-based energy production (and emissions), including limitations for drilling, and increased regulation of impacts. Conversely, alternative energy sources would likely be promoted—including wind and solar—as well as the potential taxation of carbon emissions.

U.S.-China Relations and Trade

This is a more challenging policy point, as both parties have adopted a hard line on China—for a variety of different reasons. The current administration has taken a more confrontational approach. This has been unique relative to prior regimes, which, at least at the surface, had attempted to avoid outright hostile language and direct economic sanctions. While the two parties agree in principle for a tougher stance, Republicans have focused this effort on corporate intellectual property, while Democrats have also included human rights concerns; specifically, based on the treatment of several ethnic and religious minority groups within the country. This remains a wildcard to some degree, but the majority of Americans and politicians now favor a tougher stance toward China—a rare point of policy agreement.

Antitrust Legislation

This wouldn’t normally surface as a key policy platform, but the rise of several technology behemoths has raised questions over the competitive environment and growing economic power of these firms. In prior decades, pro-business conservative politicians have been more reluctant to attack oligopolistic entities, while populist/progressive movements had been responsible for breaking up dominant ‘Robber Baron’ firms—such as Rockefeller’s Standard Oil in the early 1900’s. In recent years, though, the more progressively-minded tech giants have been supportive of the Democratic agenda and drawing the ire of Republicans—creating a role reversal. The pressure on these firms may continue to some degree, depending on who’s in charge. Some of this oligopolistic power is due to the structures of the industries. They’ve remained among the most fundamentally solid from a financial standpoint during the pandemic, which has rewarded investors. Of course, many small businesses have not fared nearly as well, fanning the flames of resentment.

Workers

Republican policies over the years have generally been focused on letting ‘laissez faire’ (free market) forces determine market competition and pricing dynamics—favored by many mainstream economists. Biden policies would likely offer more worker-friendly populist concessions, such as a higher minimum wage, better health coverage, paid leave, student loan relief, etc. On one hand, additional benefits and pay cut into company profit margins. On the other hand, more money in the pockets of consumers could be a catalyst for broader personal spending and consumption growth broadly, which benefits the broader economy in its own way.

Healthcare

The formation of the Affordable Care Act (‘Obamacare’) was followed by an immediate battle for repeal by Republicans and expansion by Democrats. This fight is likely to continue, with any enhancements in coverage (like ‘Medicare For All’) or other changes aimed at high prescription drug prices (also favored by the current administration, despite potential impact on corporate profits). Some pharmaceutical firms have acted to pre-emptively curb pricing for some drugs in efforts to stem the criticism and potentially unfavorable legislation. These firms counter that such high prices act as the funding mechanism for continued research and development on new therapeutics, which many politicians have accepted. The convoluted health care system, though, continues to overwhelm attempts at reform, which has led to a lower financial market probability for radical change in the near-term.

Defense

In prior years, a strong defense budget and global projection of power has been a Republican party tenet. Lately, this has taken a bit of an opposite turn with conservatives moving more towards a stance of isolation, and progressives seeking to maintain greater globalism. This may be an area with little net change, absent geopolitical surprises (which can be counted on).

Immigration

This doesn’t seem like a market-related topic at first glance, but movement of people across borders affects demographics, which, in turn, affects the size of the labor force and productivity—and ultimately economic growth. This has been a divisive issue throughout America’s history, and each side currently has a mixed relationship with it. Generally, economists argue that a more lenient immigration policy provides a larger pool of workers, which results in not only higher production but also higher consumption. Companies have often silently been in favor of these less restrictive policies, which brings in a higher supply of workers, which lowers wages and boosts profits. On the other side, and often in conflict with other elements of the party, Democratic politicians have tended to have strong support from unionized U.S. workers, which often oppose globalism and foreign worker competition—in efforts to retain jobs and sustain higher wages domestically. Realistically, on net, there could be few extreme changes due to these continual conflicts.

Fiscal Policy

In decades of old, Republicans were seen as the fiscally spendthrift party, while Democrats were cast in debates as ‘tax-and-spend.’ But even prior to the Covid recession, these traditional labels were less applicable, with higher spending proposed on all sides. Due to economic woes from the pandemic likely carrying over into 2021, and perhaps 2022, as well as increasing acceptance of policies such as Modern Monetary Theory (MMT), it appears the accepted spending may continue regardless of the party in office. However, at the fringes, Democrats have proposed more direct relief to workers, and Republicans to small businesses, in keeping with other distinct policy preferences.

Monetary Policy

This should be unaffected by politics, and largely has been over the years. Of course, there have been notable and theatrical exceptions, such as the Fed Chair being physically bullied at LBJ’s Texas ranch in the 1960’s, and the current President’s urging of low rates via social media. A Biden presidency could likely feature more restraint, and a conventional ‘hands off’ approach. However, the Fed could be increasingly impacted by the large Federal deficit and rising debt load, which affects both interest payment obligations as well as credit rating—which affect rates outside of the Fed’s control.

In short, by looking at individual industries, the outlook may not appear to change that much, aside from policy preferences one way or another. The key differences relate to tax policy, the broader regulatory environment, and fiscal spending policies.

It’s important to remember that an elected President has very little effect on market results, historically. In fact, some of the stronger periods of market performance have been under Democratic administrations, contrary to popular assumption. (1)

Avoid Market Timing Around Politics

Sticking with a sound long-term investment plan based on individual investment objectives is usually the best course of action. Whether that strategy is to be fully invested throughout the year or to consistently invest through a vehicle such as a 401(k) plan, the bottom line is that investors should avoid market timing around politics. As is often the case with investing, the key is to put aside short-term noise and focus on long-term goals.

3 Tips for Successful Investing in an Election Year

  1. Don’t allow election predictions and outcomes to influence investment decisions. History shows that election results have very little impact on long-term returns.
  2. Expect volatility, especially during primary season, but don’t fear it. View it as a potential opportunity.
  3. Stick to a long-term investment strategy instead of trying to time markets around elections. Investors who were fully invested or made regular, monthly investments did better than those who stayed in cash in election years. (3)

Sources

  1. https://www.capitalgroup.com/ria/insights/articles/election-watch-2020.html
  2. https://www.capitalgroup.com/advisor/pdf/shareholder/MFGEBR-121-632421.pdf
  3. https://www.capitalgroup.com/ria/insights/articles/3-investor-mistakes-election-year.html
  4. LSA Portfolio Analytics

How Much Do You Really Know About Extended Care? Fact vs. Myth

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How much does eldercare cost, and how do you arrange it when it is needed? The average person might have difficulty answering those two questions, for the answers are not widely known. For clarification, here are some facts to dispel some myths.

True or False:
Medicare will pay for your mom or dad’s nursing home care.

FALSE. Medicare is not extended care insurance. (1)

Medicare Part A will pay the bill for up to 20 days of skilled nursing facility (SNF) care, but after that, you or your parents may have to cover some costs out-of-pocket. After 100 days in a SNF, you will have to cover all costs out of pocket. The only way to “reset the clock” for Medicare coverage of these services is if the patient can somehow go without skilled nursing care for 30 or 60 days or if they require a hospital stay of three full days or longer.

True or False:
A semi-private room in a skilled nursing facility costs about $35,000 a year.

FALSE. The median cost of a semi-private room is now $89,297. A private room in an assisted living facility has a median annual cost of $100,375 annually. A home health aide could run you up to $4,385 per month for full-time care. Even if you just need someone to help mom or dad with activities of daily living (ADLs), such as eating, bathing, or getting dressed, the median hourly expense is not cheap: non-medical home aides run about $23 per hour, which at 10 hours a week, means nearly $12,000 a year. (2,3)

True or False:
Only around 40% of Americans aged 65 and older are expected to need extended care.

FALSE. Someone turning 65 today has a 70% chance of needing extended care. That means that by 2030, it’s estimated that around 24 million Americans will need extended care. This is double the current number already receiving care. (4,5)

True or False:
The earlier you buy extended care insurance, the more manageable the premiums.

TRUE. Younger policyholders may pay lower premiums.

The best time to consider extended care insurance is when you are healthy. While you may be paying a premium for a longer amount of time, the expense may pale in comparison to paying for unexpected medical costs out of pocket. (6)

True or False:
Medicaid can pay nursing home costs.

TRUE. The question is, do you really want that to happen? While Medicaid rules vary by state, in most instances, a person may only qualify for Medicaid if they have no more than $2,000 in “countable” assets ($3,000 for a couple). A homeowner can even be disqualified from Medicaid for having too much home equity. A primary residence, a primary motor vehicle, personal property, and household items, burial funds of less than $1,500, and tiny life insurance policies (with face values of less than $1,500) are not countable. So, yes, under these economic circumstances, Medicaid may end up paying extended care expenses. (7)

▲Long-term care planning solutions

When planning for long-term care, consider multiple solutions that may be utilized including family assistance, income, savings, home equity, life insurance for a surviving spouse, and other insurance options that range from traditional long-term care insurance to combination products to annuities. Continuing Care Retirement Communities (CCRCs) are also a possibility for those who can afford them. Types of CCRCs vary – see MyLifeSite.net for more information. Medicaid may be a last resort; and if Medicaid is utilized, you may have less control of type of care and care setting. For specifics regarding Medicaid qualification in your area, consult with an eldercare attorney.

Sources

  1. Medicare.gov, March 26, 2020
  2. SeniorLiving.org, June 24, 2020
  3. APlaceForMom.com, May 11, 2020
  4. AmericanActionForum.org, February 18, 2020
  5. LongTermCare.gov, July 23, 2020
  6. Forbes.com, April 17, 2020
  7. LongTermCare.ACL.gov, July 23, 2020
  8. https://am.jpmorgan.com/us/en/asset-management/gim/protected/adv/insights/guide-to-retirement

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

What Could the Impact of a Trump Reelection be on the Stock Market?

Photo by Library of Congress on Unsplash

In many ways, policies to expect would likely be similar to what’s in place today, and largely opposite of those proposed under a Biden administration. At the same time, Trump’s policies have not followed ‘traditional’ Republican ideologies from decades past in a variety of areas. The Senate Republicans have been far more predictable from a policy standpoint, as have the Congressional Democrats.

The practical factor for the election continues to be whether or not the Democrats are able to take the Senate from the Republicans, which, in addition to holding the House, would allow for the ability to push through a greater volume of progressive legislation. A split-party legislative and/or administrative branch could result in four years of gridlock, with little net change in policy. (That might be perceived as the ‘worst case’ or ‘best case’ depending on the observer.)

Little may change from a higher-level view if the first Trump term morphs into a second. But, it’s important to remember from a financial markets perspective that the President in power has been relatively unimportant in driving longer-term sentiment and returns. Attempting to time election results or moving out of markets to avoid volatility can result in sub-optimal results, even though the weeks prior to an election can become more volatile. Interestingly, in the cases where an incumbent is seeking re-election, one of the few consistent tendencies over the past century is based on U.S. stock market results in the three months prior to Election Day. Based on the S&P 500, a positive return for that stretch has proven favorable for an incumbent’s chances, while a negative return has favored the challenger. (For perspective’s sake, from the window starting Aug. 3, the market is up 0.75% through Fri., Sept. 18—with several more weeks to go until Nov. 3.)

That said, while politics can coincide with day-to-day financial market movements at times, the two rarely correlate meaningfully over the long haul. The chart below bears this out fairly dramatically:

The following policy items assume that a Trump reelection is accompanied by Republicans retaining the Senate, which creates a ‘status quo’ situation. A newly Democratic senate majority would create more of a wildcard:

Taxes

It is probably safe to assume the tax cuts from 2017 would remain in place. These have served to benefit corporations, which receive an immediate boost to the bottom line, resulting in higher reported earnings. Consequently, this models out to higher multi-year growth and justifies higher equity valuations. Personal income tax rates would likely also remain low, along with capital gains rates. Traditional supply-side economists argue that stronger corporate performance and fewer hurdles (such as regulation and taxes) result in a larger ‘pot’ for everyone. However, this assumes that wealth trickles down proportionately to all workers, which has been debated in recent years as income equality between different groups has widened.

Environment

This would also be assumed to be status quo, which includes minimal promotion of green technologies. It would likely be coupled with a pushback on more stringent standards, such as those adopted by California (whose standards predate the EPA and are often stricter). While the energy sector has been struggling with low petroleum prices, due to weaker demand due to the pandemic, current policies would keep additional regulatory headwinds at bay. However, energy firms have been hurt far more by weaker demand from the pandemic than by other factors.
U.S.-China relations and trade. The geopolitical tension with China has been steadily growing, and a status quo result would assume more of the same. It’s been claimed by some China experts that the country is currently just playing a ‘waiting game’—for the Trump administration to eventually end, and to instead deal with the successor. As part of their 50- and 100-year national plans, such a delay is seen as just a temporary roadblock. The important component is that a tough U.S. stance on China has support across the aisle—it’s one of the few policy items both parties agree on. So, a longer-term decoupling is likely, although the public stances and negotiation styles could differ between administrations.

Antitrust Legislation

In years past, some Democratic platforms have been seen as anti-corporate (and conversely, pro-worker). This would have translated to a crackdown on large ‘oligopolies’ and a reining in of corporate power in the economy and society. In the current case, argued by some due to the more progressive political leanings of large tech companies, Democrats have appeared less interested in breaking up these firms. Republicans have certainly appeared more interested. Since it’s not quite clear where any ‘abuses’ lie and how consumers are adversely affected (many argue they’ve benefited greatly through both product variety and cost), this issue remains complex and path unclear.

Workers

In line with trends seen globally, not just in the U.S., both parties have taken on a more populist tone in recent years, largely in keeping with the larger societal income gaps. The polarization has taken place far more on the political side than the socioeconomic side, as all parties want to be seen as ‘pro-working class.’ This creates a conundrum, although no clear evolution in policy. Continued trade restrictions may help U.S. firms in the near term, although it’s not clear that benefits trickle down to workers longer-term and could hurt consumers through higher prices. Contrary to the Biden agenda, a second Trump administration would make more progressive items, such as a higher minimum wage and other benefits less likely—although these also depend on the Congressional makeup.

Healthcare

A Trump administration would likely continue to fight ‘Obamacare,’ and continue support for the current private insurance-based healthcare model. Despite the battles over universal coverage/single-payer format, there remains no constructed alternative to the current system for legislators to gravitate to. However, there is bi-partisan populist support for better regulation of high pharmaceutical prices and plugging some gaps to help reduce medical care costs for seniors. The industry has fought back on pharma prices, arguing that profits feed back into research and development for important new therapies, so this has largely resulted in a stalemate in recent years.

Defense

A traditional Republican policy platform has been a strong defense base. This is thought likely to persist, although the Trump administration has focused on far less global interventionism. This hasn’t manifested completely, but could continue to play a role in broader policy thinking. At the same time, China has been viewed as an increasing global military threat, which would necessitate further spending. The trend has been moving from conventional military spending towards new technologies, such as cyberwarfare, satellites, drones, etc.—all of which are technologically complex and expensive.

Immigration

The border ‘wall’ has largely been symbolic, as the Trump administration has clamped down on immigration mostly through policy, which would seem likely to continue in a second term. This has provided a seeming veil of protection for U.S. workers (championed by both candidates in different ways), but economists, who view labor in a global context, see increased restrictions of any kind as a hurdle to stronger economic performance. This is a complex issue, with outcomes the result of multi-decade trends, so the policy action of a single President may only provide a short-term impact on GDP growth. Demographics and business/worker competitiveness play a far more important role, with job training and education enhancements acting as a behind-the-scenes policy championed by many but not discussed as much by candidates in terms of specific plans.

Less stringent regulatory environment.

The President promised to rollback regulations imposed over the past administration, including the expanded use of executive orders, and that has certainly occurred. It’s likely another four years would continue regulation downsizing, in a generally pro-business way, including financial markets and their oversight.

Fiscal policy

The old stereotypes have been cast aside, as parties on both sides are in a spending mode. Republicans are a bit less in favor of direct stimulus to workers (at least in the same large amounts Democrats have been), and more in favor of corporate injections. During the pandemic, airlines and the travel industry have been lobbying especially hard for more aid. This pandemic will end up being expensive regardless of who ends up in the White House, with debt ramifications far beyond the next four years.
Monetary policy. As noted earlier, a central bank should be agnostic to political pressures, but that has been easier said than done. Pressure to lower rates or keep policy as ‘easy’ as possible is preferred, since it coincides with keeping the economy growing—which most administrations prefer under their watch. The U.S. Fed has sidestepped such pressure far better than in some countries, of course, but a continuation of the current administration and ‘tweeting’ about central bank decisions runs the risk of negatively influencing public opinion about the Fed and its functions. Politics can also appear in the nomination of certain new board members, such as the controversial Judy Shelton (who has favored revisiting the gold standard—a position rejected by many mainstream economists). Regardless, the Fed has continued to stay out of the political fray over the decades, despite a variety of administrations holding opposing views.

Judicial branch

The Supreme Court is typically not a top concern of financial markets, but with the passing of Justice Ruth Bader Ginsburg, a position on the bench has opened. Any new appointee’s political leanings can tilt the balance of key decisions toward either the conservative or progressive end of the spectrum. So, this can have ramifications for decisions involving business, regulations, or any other economically-relevant area.

Avoid Market Timing Around Politics

Sticking with a sound long-term investment plan based on individual investment objectives is usually the best course of action. Whether that strategy is to be fully invested throughout the year or to consistently invest through a vehicle such as a 401(k) plan, the bottom line is that investors should avoid market timing around politics. As is often the case with investing, the key is to put aside short-term noise and focus on long-term goals.

3 Tips for Successful Investing in an Election Year

  1. Don’t allow election predictions and outcomes to influence investment decisions. History shows that election results have very little impact on long-term returns.
  2. Expect volatility, especially during primary season, but don’t fear it. View it as a potential opportunity.
  3. Stick to a long-term investment strategy instead of trying to time markets around elections. Investors who were fully invested or made regular, monthly investments did better than those who stayed in cash in election years. (3)

Sources

  1. LSA Portfolio Analytics
  2. https://www.capitalgroup.com/ria/insights/articles/election-watch-2020.html
  3. https://www.capitalgroup.com/advisor/pdf/shareholder/MFGEBR-121-632421.pdf
  4. https://www.capitalgroup.com/ria/insights/articles/3-investor-mistakes-election-year.html

How Much Money Will You Need for Retirement?

Image by dietcheese from Pixabay

It depends on your goals, time horizon, and risk tolerance.

“Will I Outlive My Retirement Money?”

That’s one of the top fears for people who are starting to prepare for their retirement years.

So I have to chuckle a bit when I see headlines that say, “Here’s how much money Americans think they need to retire comfortably.” (1)

$1.9 million is the number, according to a nationwide survey of 1,000 employed 401(k) participants by a well-known financial services company. In 2019, the same survey reported the number was $1.7 million. But this year’s pandemic increased the total by $200,000.2

Is $1.9 million a realistic figure for retirement? It’s hard to say. The survey didn’t ask participants how they arrived at that figure or what information they used to draw that conclusion.

Determining How Much Money You Need in Retirement is a Process.

It shouldn’t be a number that you pull out of thin air.

The process should include looking at your current financial situation and developing an approach based on your goals, time horizon, and risk tolerance. The process should take into consideration all your potential sources of retirement income, and also may project what your income would look like each year in retirement.

A significant figure like $1.9 million does little good if you’re uncertain what it means for your retirement years. It’s a good idea to develop a retirement strategy combined with investment ideas designed to help you pursue the retirement you envision.

▲Retirement Saving Checkpoints

Achieving a financially successful retirement requires consistent savings, disciplined investing and a plan, yet too few Americans have calculated what it will take to be able to retire at their current lifestyle. This chart (for household incomes of $100,000 or more) helps investors to quickly gauge whether they are “on track” to afford their current lifestyle for 30 years in retirement based on their current age and annual household income. This analysis uses an appropriate income replacement rate (detailed on slide 15), an estimate of how much Social Security is likely to cover and the rate of return and inflation rate assumptions detailed on the right to determine the amount of investable wealth needed today, assuming a 10% gross annual savings rate until retirement. It is important to note that this analysis assumes a household with a primary earner who plans to retire at age 65 when the spouse is assumed to be 62. If an investor’s current retirement savings falls short of the amount for their age and income, developing a written retirement plan tailored to their unique situation with the help of an experienced financial advisor is a recommended next step.

Sources

  1. FoxBusiness.com, August 4, 2020
  2. Pressroom.aboutshwab.com, August 4, 2020
  3. https://am.jpmorgan.com/us/en/asset-management/gim/protected/adv/insights/guide-to-retirement

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

4 Key Factors to Consider Before Filing For Your Social Security Benefits

Whether you want to leave work at 62, 67, or 72, claiming the retirement benefits you are entitled to by federal law is no casual decision. You will want to consider a few key factors first.

How long do you think you will live?

If you have a feeling you will live into your nineties, for example, it may be better to claim later. If you start receiving Social Security benefits at or after Full Retirement Age (which varies from age 66 to 67 for those born in 1943 or later), your monthly benefit will be larger than if you had claimed at 62. If you file for benefits at FRA or later, chances are you probably a) worked into your mid-sixties, b) are in fairly good health, and c) have sizable retirement savings. (1)

If you really need retirement income, then claiming at or close to 62 might make more sense. If you have an average lifespan, you will, theoretically, receive the average amount of lifetime benefits regardless of when you claim them. Essentially, the choice comes down to more lifetime payments that are smaller versus fewer lifetime payments that are larger. For the record, Social Security’s actuaries project that the average 65-year-old man to live 84.0 years, and the average 65-year-old woman, 86.5 years. (2)

Will you keep working?

You might not want to work too much, since earning too much income may result in your Social Security being withheld or taxed.

Prior to Full Retirement Age, your benefits may be lessened if your income tops certain limits. In 2018, if you are aged 62 to 65, receive Social Security, and have an income over $17,040, $1 of your benefits will be withheld for every $2. If you receive Social Security and turn 66 later this year, then $1 of your benefits will be withheld for every $3 that you earn above $45,360. (3)

Social Security income may also be taxed above the program’s “combined income” threshold. (“Combined income” = adjusted gross income + nontaxable interest + 50% of Social Security benefits.) Single filers who have combined incomes from $25,000 to $34,000 may have to pay federal income tax on up to 50% of their Social Security benefits, and that also applies to joint filers with combined incomes of $32,000 to $44,000. Single filers with combined incomes above $34,000 and joint filers whose combined incomes surpass $44,000 may have to pay federal income taxes on up to 85% of their Social Security benefits. (3)

When does your spouse want to file?

Timing does matter, especially for two-income couples. If the lower-earning spouse collects Social Security benefits first, and then the higher-earning spouse collects them later, that may result in greater lifetime benefits for the household. (4)

Finally, how much in benefits might be coming your way?

Visit SSA.gov to find out, and keep in mind that Social Security calculates your monthly benefit using a formula based on your 35 highest-earning years. If you have worked for less than 35 years, Social Security fills in the “blank years” with zeros. If you have, say, just 33 years of work experience, working another couple years might translate to a slightly higher Social Security income. (1)

A claiming decision may be one of the most significant financial decisions of your life. Your choices should be evaluated years in advance – with insight from the financial professional who has helped you plan for retirement.

Maximizing Social Security benefits (average earner)

The age at which one claims Social Security greatly affects the amount of benefit received. Key claiming ages are 62, Full Retirement Age (FRA is currently 66 and 8 months for individuals turning 62 in 2020) and 70, as shown in the row of ages in the middle of the slide. The top three graphs show the three most common ages an individual is likely to claim and the monthly benefit he or she would receive at those ages, assuming average earnings at retirement of $70,000 (based on JPMorgan research). Claiming at the latest age (70) provides the highest monthly amount but delays receipt of the benefit for 8 years. Claiming at Full Retirement Age, 66 and 8 months, or at 62 years old provides lesser amounts at earlier ages. The bars represent the cumulative value of benefits received by the specified age. The gray shading between the bar charts represents the ages at which waiting until a later claim age results in greater cumulative benefits than claiming at the earlier age. This is called the “breakeven age.” The breakeven age between taking benefits at age 62 and FRA is age 76 and between FRA and 70 is 80. Along the bottom of the page, the percentages shown are the probability that a man, woman or one member of a married couple currently age 62 will live to the specified ages or beyond. Comparing these percentages against the breakeven ages will help a beneficiary make an informed decision about when to claim Social Security if maximizing the cumulative benefit received is a primary goal.

Note that while the benefits shown are for an average earner, the breakeven ages would be the same for those with other earnings histories.

Sources

  1. MarketWatch.com
  2. SSA.gov
  3. BlackRock.com
  4. MarketWatch.com
  5. https://am.jpmorgan.com/us/en/asset-management/gim/protected/adv/insights/guide-to-retirement

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Roth IRA Conversion in the Era of COVID-19: Is Now the Right Time for You?

Image by Nattanan Kanchanaprat from Pixabay

The COVID-19 pandemic has shaken up nearly every aspect of American life. To say it’s been a difficult time would be an understatement.

However, difficult times may open doors to new possibilities. Businesses are changing their ways of operating, and individuals are exploring new avenues for investment. It may be time for you to consider some opportunities, as well.

What is a Roth Conversion?

A Roth conversion refers to the transfer of an Individual Retirement Account (IRA), either Traditional, SIMPLE, or SEP-IRA, into a Roth IRA. With Roth IRAs, you pay tax on the money before it transfers into the account.

One benefit to having your money in the Roth IRA is that, unlike a Traditional IRA, you currently are not obligated to take Required Minimum Distributions (RMDs) after you reach age 72 (RMDs would be required to any non-spousal beneficiaries, however).

Another benefit is that since the money was taxed before going into the Roth IRA, any distributions are tax-free. Keep in mind that tax rules are constantly changing, and there is no guarantee that Roth IRA distributions will remain tax-free. (1,2)

Why Go Roth in 2020?

In the face of the market downturn after the COVID-19 outbreak, you may be in a unique financial situation. For example, suppose you have an IRA account that was worth $1 million before the downturn, but it’s currently worth $800,000.

Perhaps your income has also decreased, potentially putting you in a lower tax bracket. Maybe you own one or more businesses, such as restaurants, that have been closed. You may not yet know if these businesses will be opening again in 2020. Your income could hypothetically be considerably lower this year than last year.

But: this may present an opportunity. Less earned income may mean lower total taxes due on a Roth conversion, especially if the overall account value has dropped.

Keep in mind, this article is for information purposes only and is making an assumption on an IRA account’s value and applying a hypothetical drop in earned income. We recommend you contact your tax or legal professional before modifying your retirement investment strategy.

No Turning Back.

While this may be a good time for you to consider converting to a Roth IRA, remember that there’s no turning back once you do. The Tax Cuts and Jobs Act of 2017 decreed that Roth conversions could no longer be undone. (3)

A Roth IRA conversion is a complicated process, and it’s wise to involve your trusted financial professional.

▲ Evaluate a Roth at different life stages

The decision to make a pre-tax/deductible contribution to a Traditional 401(k) or IRA or an after-tax contribution to a Roth 401(k) or Roth IRA is based on the income tax rate of the individual at the time of making the contribution, and his/her anticipated tax rate in the future. The difference in tax rates can be caused by an investor’s personal situation and/or tax policy over time. This chart shows a typical wage curve and the general “rule of thumb” about what type of contribution may be most appropriate based on current income and the bracket in retirement. An additional consideration is to maintain a healthy mix of taxable, tax-free (Roth) and tax-deferred accounts so that you can have greater flexibility to manage your income taxes. The numbers on the chart specify situations in which contributing to a Roth option should be carefully considered.

Sources

  1. Investopedia.com, November 26, 2019.
  2. Investopedia.com, January 17, 2020.
  3. Congress.gov, December 22, 2017.
  4. https://am.jpmorgan.com/us/en/asset-management/gim/adv/insights/guide-to-retirement

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal also can be taken under certain other circumstances, such as a result of the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals.