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                    [post_date] => 2022-09-08 12:47:36
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                    [post_content] => Ryan Yamada, CFP®, Senior Wealth Planner

We’ve all heard the conventional wisdom when it comes to claiming Social Security: you should wait as long as you can before claiming benefits. Wait right up to age 70, if possible. After all, that’s when you would get the greatest monthly benefit.

But that may not be the right move for some.

What if I told you that, in some cases, taking your benefit sooner than later was the most ideal thing to do? I know it seems counterintuitive. But there are a few specific scenarios where that is just the advice I would give to clients.

Let’s dig into a few of these scenarios individually.

Scenario #1: For Surviving Spouses

On a few somber occasions, we have had clients who have passed away before getting to fully enjoy their retirement. And while the earliest that someone can claim off of their worker or spousal benefit is at age 62, there is an exception for surviving spouses to claim a widower benefit as early as 60. Like a spousal benefit, the surviving widow is eligible for their deceased spouse’s Full Retirement Age amount. Claiming any earlier than Full Retirement Age reduces this amount. However, one unique strategy is that should the surviving spouse also have their own earnings history, claiming off a widower’s benefit could then allow one to delay their own worker’s benefit. Here’s an example to help illustrate. In this example, by continuing to delay their own worker benefits, the surviving spouse significantly increases their lifetime amounts. Additionally, recognizing the opportunity to claim benefits early using a survivor’s benefit could add extra years of cash flow and tens of thousands of dollars.

Scenario #2: You’re Entering Retirement During a Turbulent Market

You’re ready to retire. You’ve planned well and you have your spending plan all laid out. You’ve even decided to wait before filing for your Social Security benefits – allowing your investments to create an ‘income bridge’ - so that you can maximize your future monthly payment. Like many who are able to retire early, this is an ideal scenario for most retirees and one that we often recommend...in most years. But wait … it’s 2022. The market is down. And your portfolio has dropped 25%. Sometimes life doesn’t quite go according to plan. But that’s okay, it’s not time to panic. After all, the market was built to rebound. We just need to look at other ways to manage until that happens. In this scenario, we might consider taking Social Security earlier than anticipated. Especially for those clients without a cash buffer, access to home equity, or other means of ‘dry powder’, selling investments during a bear market is something we try to avoid. Tapping into your Social Security can provide much needed cash flow and allow your investment portfolio some time to recover. You’ll obviously take a slight hit on your lifetime Social Security benefit, but if that amount is smaller than the potential gain your investments could make over time, it’s a smarter play in the long run.

Scenario #3: You Wouldn’t Break Even by Waiting

When a pre-retiree is looking for advice on when to begin claiming Social Security, one common way to compare strategies is to calculate their “break-even” age. That’s essentially the age that they would need to live to in order to make the delay worthwhile. When waiting until age 70 to begin claiming Social Security, most people would need to live into their late-70s or even their early-80s to hit that point. If you have good reason to believe that longevity is not on your side, and you have no spouse or children who would depend on your benefit, you might want to consider claiming your Social Security sooner rather than later. While we never want to bet against our lives, it’s important to be realistic with your situation.

Talk to a Professional

Remember that a retirement income plan is a mixture of both financial and non-financial components unique to you. When considering any of these scenarios, insist on working with a Fiduciary advisor who specializes in this field. If you need help finding a financial advisor in your area, we can help. Contact us today. H2 subhead

Need Help With Social Security? Give Us a Call

Social Security can be complicated. Talk to a qualified financial advisor today to get professional advice today. Need help finding a financial advisor in your area? Give us a call today so we can match you with an advisor who will put your needs first. This blog is for general information only and is not intended to provide specific legal, tax, or other professional advice. For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Ryan Yamada is a non-registered associate of Cetera Advisor Networks LLC. [post_title] => Claiming Your Social Security Benefits Early: When It May Not Pay to Wait [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => claiming-your-social-security-benefits-early-when-it-may-not-pay-to-wait [to_ping] => [pinged] => [post_modified] => 2022-09-23 07:36:26 [post_modified_gmt] => 2022-09-23 12:36:26 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsonhub.wpengine.com/?p=65200 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [1] => WP_Post Object ( [ID] => 65117 [post_author] => 181803 [post_date] => 2022-08-31 10:21:25 [post_date_gmt] => 2022-08-31 15:21:25 [post_content] => Scott Budd, CFP® Senior Wealth Planner  Choosing the right Medicare plan is one of the most important decisions seniors are faced with. It’s also one of the most difficult. The health care system isn't user-friendly to begin with. Stack all the Medicare options on top of that and you've got yourself a challenge.  That's why it's a good idea to consult a qualified professional about which plan works best for you. It's tricky terrain and it's something that may be difficult to navigate on your own. I recommend raising the issue with your planner 12 to 18 months in advance of enrolling in Medicare.  Wondering when you need to sign up for Medicare? For most people, the enrollment age is 65. But take note: There's a seven-month enrollment window three months before and four months after your 65th birthday, after which you may be tagged with a late enrollment fee. You can use this handy flowchart to find out exactly when you should enroll. 

What Medicare Plans Cover (and What They Don't)

Medicare, as you will see, is quintessential alphabet soup. Here's what you need to know about the plans – what they cover, what they don't, and how much they cost.  Part A - Pretty much everyone gets Part A. Why? Because the coverage is free for people who paid taxes during their working careers. This covers in-patient hospitalization as well as, in some cases, skilled nursing facility care and hospice and home health care.  Part B. This pays for your outpatient care by a doctor, medical tests, any drugs that are administered in a doctor's office and preventative measures like flu shots. Also included are ambulance services, durable medical equipment and mental health services. The average monthly premium in 2022 is $170.10.1   What's not covered in Part A or Part B: medical services outside the U.S., long term care, dental and optical care, dentures, cosmetic and other elective surgeries, acupuncture, hearing aids and routine foot care. While Medicare pays for care in a skilled nursing facility or rehab center that's preceded by a hospital stay, it does not cover so-called residential nursing home care.  Part C. Commonly known as Medicare Advantage, Part C is an alternative to Part A and Part B. For the record, Part A and Part B are often referred to as "Original Medicare." Medicare Advantage can be a good fit for seniors who are healthy and who don't mind being restricted to a specific network of doctors, health care providers, and hospitals. In the Medicare world, it's the closest equivalent to private insurance.  Depending on the state where you reside, a Medicare Advantage plan can cover traditional costs associated with original Medicare and often throws in extras like dental, vision, hearing, prescription drugs and gym memberships.  The plans, administered by a Medicare-approved private insurer, tend to have lower out-of-pocket costs. The premium itself is paid by Medicare. One hitch: Many regions in the country — rural areas, in particular — have limited or no Medicare Advantage providers. Availability could literally depend on the zip code you live in.  Part D. This helps cover outpatient prescription costs. Part D can also stand for difficult. Sometimes, it's not going to be the cheapest option when it comes to purchasing medications. Discount programs offered through companies like GoodRx and Costco are worth exploring. It's also a good practice to ask for a generic instead of a brand name drug if there's a safe alternative.  The good news? Part D providers issue a "formulary," or list of drugs, each year so you will always know what your plan covers and what it doesn't. The drug list has several cost-sharing tiers. The tier your medication is on will affect how much it costs. The lowest tier, Tier 1, involves generics and has the lowest co-payment. The current average cost of a basic Part D plan premium is $32.08 per month.2  Medicare Supplement Insurance. This insurance, known as Medigap, does precisely what the name implies – it helps to fill in any gaps not covered by original Medicare. Some policies, administered by private companies, even include medical care outside the U.S.  Medigap offers several different plans, with Plan G being the most comprehensive and far-reaching. The only things Medigap Plan G doesn't cover are the Part B deductible and anything related to drugs. The monthly premium for a Plan G policy ranges from $100 to $300. 

Have Medicare Questions? We Can Help

Medicare can be confusing. Talk to a qualified professional today to get professional advice on which Medicare plan is best for your needs. Need help finding a financial advisor in your area? Give us a call today so we can match you with an advisor who will put your needs first.     1 U.S. Centers for Medicare and Medicaid Services, “Medicare Costs,” https://www.medicare.gov/basics/costs/medicare-costs 2 U.S. Centers for Medicare and Medicaid Services, “CMS Releases Projected 2023 Medicare Basic Part B Average Premium.” July 29, 2022, https://www.cms.gov/newsroom/news-alert/cms-releases-2023-projected-medicare-basic-part-d-average-premium Scott Budd is a non-registered affiliate of Cetera Advisor Networks. [post_title] => Which Medicare Plan Is Best for You? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => which-medicare-plan-is-best-for-you [to_ping] => [pinged] => [post_modified] => 2022-08-31 10:46:59 [post_modified_gmt] => 2022-08-31 15:46:59 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsonhub.wpengine.com/?p=65184 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [2] => WP_Post Object ( [ID] => 65098 [post_author] => 182131 [post_date] => 2022-08-25 13:54:33 [post_date_gmt] => 2022-08-25 18:54:33 [post_content] => By Craig Lemoine, Ph.D., CFP®, Director of Consumer Investment Research
“How much do I need for retirement?” It’s a question I often hear, and one that seems straightforward enough to tackle. Unfortunately, the answer isn’t quite so simple. Your financial needs in retirement can depend on dozens of factors – some known and some unknown. Among these are your longevity, lifestyle, comfort with market performance, sequence of return risk, current health, housing plan, proportion of fixed to variable expenses, proximity to children and so much more. One or two million dollars may seem like a lot of money to have set aside for retirement. But if a retiree faces some rough initial returns and health care costs, they may soon find themselves unable to live their planned retirement.

A Retirement Reality Check

The concept of retirement continues to evolve with the world around us. We’re not likely to have the retirement that our parents or grandparents have had. Fewer Americans will receive a steady pension than in the past.1 We tend to live longer than a generation ago. Housing costs have hit all-time highs.2 And the market has seen unprecedented volatility in the past few years. Inflation continues to eat away at our real spending power, creating new and dynamic retirement challenges. Even with all known and unknown retirement factors answered, “How much I need to retire” last year may be wildly different from “How much do I need to stay retired?” in tougher conditions. Retirement has multiple factors and requires in-depth analysis. Simple heuristics – such as planning on spending 70% of your current income or being able to spend down a fixed percentage of your portfolio annually – fall short when life gets in the way. Answers to questions surrounding “Can I retire on a million dollars?” or “Can I retire with two million dollars?” often fail to consider sequence of return, housing, longevity, health or family risks faced in retirement.

Focus on Your Retirement Plan Rather Than a Magic Number

A better question than “What’s my magic number?” would be “How do I plan for retirement?“ Working with a qualified financial advisor to develop a holistic retirement plan can help prepare you for the road ahead. Your financial advisor can help you plan for challenges you may face in retirement, such as spending, efficient savings, taxes, inflation, debt management, Social Security and Medicare. They can help you determine your risk tolerance and build an investment portfolio you will be more likely to tick with when times get tough. They can also help you balance your savings with your spending and work through the trade-offs that come with retirement. Consider these five steps when developing a customized and meaningful retirement plan: 1.     Create a cash flow statement. A cash flow statement should show dollars in and dollars out of your personal finances. Consider tracking your actual expenses for a few months to get a concrete handle of how you live today. Income should include money earned from your job, interest from a bank, dividends from stocks, coupons from bonds and any gifts or other sources of cash. When tracking expenses consider two categories: fixed and discretionary. Fixed expenses are those you’re required to pay as well as those that provide basic needs, such as where you live, what you eat and how you get around. Examples of fixed expenses include rent or mortgage payments, insurance premiums, groceries, heating and electric bills. Discretionary expenses include money spent on travel, dinners out, savings and retirement plan contributions or occasional future purchases and upgrades. Your expenses will certainly change in retirement but documenting them today will give you an idea of how much your family spends. And spending helps open conversations about the amount needed to comfortably retire. 2.     Build a personal balance sheet. A personal balance sheet should record assets (items you own, use or enjoy) and liabilities (amounts you owe institutions or other people). Consider breaking assets into three columns: cash, investment assets and personal property. Cash includes checking, savings, money market accounts, CDs, physical currency and other banking or credit union products. Investment assets include retirement plans, investment or savings accounts, annuity or insurance cash values, or any other asset you may use towards a financial goal. Personal property would be any asset not previously mentioned such as real estate for personal use, home furnishings, vehicles, and possessions you would not consider using towards a financial goal. Liabilities can be broken into secured and unsecured categories. Secured liabilities are tied to assets (such as car loans and mortgages) while unsecured liabilities are the type of debt you owe but would not result in an immediate asset forfeiture. Unsecured liabilities include credit card debt, student loans or any personal loans. Payment terms should be footnoted on a balance sheet, including number of payments remaining, monthly liability and interest rate information. Your balance sheet helps inform your ability to retire by painting a picture of resources and debt obligations. This sheet will almost always change during retirement but creating it ahead of time will empower you to make wiser decisions. 3.     Get a copy of your Social Security statement. Social Security is a federal retirement plan originally created under the Social Security Act of 1935. Most Americans are covered by Social Security. The amount of estimated Social Security benefits available at different ages can help inform your retirement decisions. To get an estimate of your future retirement benefits, you can visit the Social Security Administration’s website. Social Security planning can be quite sophisticated. Your starting age is a function of types of assets, family longevity, marital status and your current health. At five years from retirement, an estimate of Social Security will help you plan for the next few decades. 4.     Calculate your Medicare premiums. Health care may be one of your largest expenses in retirement. It’s important to understand the costs and plan for how to pay for health care after you retire. Medicare is the health care plan offered to most retirees when they turn 65. Plan ahead by getting an idea of the coverage offered and possible premiums and co-pays you may face. You can check your Medicare eligibility and calculate the potential premiums you might pay on the Medicare website. 5.     Identify your retirement income streams. Taking inventory of future income streams will help inform retirement decisions as you get closer to the big day. Get updated statements of any future pension, defined benefit or annuity payments you will receive in retirement. Benefit amounts may change based on current interest rates, employer investment performance, divorce or other life events.

Talk to a Financial Advisor Today

Meet with a qualified financial planner to develop your plan for retirement. Consider your current level of savings, comfort with investment risk, lifestyle goals and ability to retire before leaving the workplace. A Certified Financial Planner (CFP®) professional or Investment Advisor can work with you to build a plan before you reach retirement. A wealth management team can build your investment and insurance strategy, helping to eliminate any health care and spending gaps before you retire. A professional can help navigate tradeoffs between spending today, safety for tomorrow and bequest motives. They can help develop a housing plan in retirement and work with you to find meaning and purpose in retirement. Creating a financial plan before pulling the retirement lever will boost your confidence and give you a path of savings and spending for the future. If you’re not currently working with a financial advisor, we can help. Contact us today and we’ll help you find a qualified professional in your area.   1 Economic Policy Institute, “The State of American Retirement Savings.” 12/10/2019. https://www.epi.org/publication/the-state-of-american-retirement-savings/ 2 Forbes Advisor, “Housing Market Predictions in 2022: When Will Prices Drop?” 7/1/2022. https://www.forbes.com/advisor/mortgages/real-estate/housing-market-predictions/ Craig Lemoine is not affiliated or registered with Cetera Advisor Networks LLC. Any information provided by Craig Lemoine is in no way related to Cetera Advisor Networks LLC or its registered representatives. [post_title] => How Much Do I Need to Retire? Planning for Your Unique Retirement Needs [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => how-much-do-i-need-to-retire-planning-for-your-unique-retirement-needs [to_ping] => [pinged] => [post_modified] => 2022-08-29 14:23:30 [post_modified_gmt] => 2022-08-29 19:23:30 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsonhub.wpengine.com/?p=65170 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [3] => WP_Post Object ( [ID] => 65047 [post_author] => 125924 [post_date] => 2022-08-04 08:27:06 [post_date_gmt] => 2022-08-04 13:27:06 [post_content] => By Ryan Yamada, Senior Wealth Planner    When putting away for retirement, we often dream about all the things we’ll be able to do with that money – traveling, going out to eat, maybe trying new hobbies.   Of course, there are always the everyday household expenses to account for in your post-retirement budget. But one budget line that doesn’t always get enough attention? Health care.   If you think your health care costs will be similar to what you paid in your pre-retirement years, think again. Fidelity’s annual study found that the average 65-year-old couple retiring in 2022 will need $315,000 saved to cover their health care expenses throughout retirement.1 It’s a number that just keeps rising, too. This estimate is up $15,000 from last year’s study. Oh, and it doesn’t account for things like over-the-counter medications, dental care or long-term care costs.   In other words, health care may be the single biggest purchase you make in retirement.  Whether your retirement is still years away or you’re already retired, there are things you can do now that may help you pay for this major expense. Let’s dig into some ideas. 

Ways to Start Planning Early for Retirement Health Care Costs

Let’s start with the obvious: savings plans. Purpose-specific accounts, such as health savings accounts (HSAs), often have built-in tax incentives that can make them a worthwhile option. In some cases, HSAs can offer a triple tax-advantage –  tax deductions for contributions, tax deferral during the accumulation period and tax-free distributions for qualified health-related expenses. Be sure to check what HSA deductions are available in your state before you jump in.2  Another option is adding insurance coverage that can help pay for some of the more significant health events. Before going down this path, it’s important to ask yourself what you’re trying to protect against. Here are two of the more standard coverage options that people can choose from. 
  • Critical illness coverage. Standalone critical illness policies can provide lump-sum or itemized benefits for things like cancer, heart attacks or strokes. Additionally, some life insurance policies have optional riders that can be added to help cover for these conditions or events. 
  • Extended care or long-term care coverage. Insuring for an extended care event or for long-term care can be done in a number of ways, including standalone policies and policy riders on life insurance or annuity contracts. With insurance companies making regular changes to these policies and how benefits are paid out, it's important to work with a local, independent insurance advisor who can help you find the best options for your situation.
Finally, certain retirement accounts like Roth IRAs and 401(k)s may also have features that allow penalty-free withdrawals for medical expenses. However, depending on how contributions were treated, distributions may still be taxed on the way out.  

What to Do When You’re Nearing Retirement

As you prepare to leave the workforce, it's important to get a handle on all of your expenses – that includes what health insurance options are available to you. Are you eligible for Medicare or do you need to buy coverage in the marketplace? (Hint: Take a look at your most recent paystub and consider your employer's health care subsidy. It might surprise you!) When do you need to sign up for Medicare so you won’t miss out on your open enrollment window and incur penalties? Additionally, have you thought about any procedures you might want to have done while employed? Planning out these expenses could be a great way to reduce costs post-retirement.   If you’re retiring before 65, you probably won’t be eligible for Medicare yet, so you’ll want to figure out how to get coverage in the meantime. Some early retirees are lucky enough to be covered under their previous employer. Others may find part-time employers who will help to subsidize the cost. Other options may include health sharing or co-op plans, self-insuring or even moving abroad.   As you approach Medicare open enrollment, you can start working with a trusted and independent Medicare expert. Be sure to choose someone who's familiar with the plans in your state. If you’re a “snow bird,” be sure to ask them about each of the states you plan to reside in, as coverage needs can change from state to state.  Once you’re enrolled in Medicare, you should decide whether to sign up for a Supplement or Medicare Advantage plan or purchase dental, vision or long-term care coverage. Be sure to look at how all these plans work together to determine your maximum out-of-pocket costs. Then, you can build those costs into your retirement income plan.  

Preparing for the Unknown

Now that you’ve retired, you can only hope that all your careful preparations will meet your needs. But the one constant in life is unpredictability. If a time comes when you need more money than you’ve put away or something arises that you’re not covered for, there are additional strategies to consider.  First, don’t panic. Then, call your financial advisor. They’ll be able to provide professional guidance based on your own specific situation. If you don’t already have an advisor, we can help you find one in your area.    1 “How to plan for rising health care costs,” Fidelity. May 25, 2002. https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs 2 The Finance Buff, “California and New Jersey HSA Tax Return Special Considerations.” December 4, 2018. https://thefinancebuff.com/california-new-jersey-hsa-tax-return.html#:~:text=Because%20the%20state%20of%20California%20does%20not%20recognize,gross%20pay%20for%20calculating%20the%20federal%20tax%20withholdings.   [post_title] => Paying for Health Care in Retirement [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => paying-for-health-care-in-retirement [to_ping] => [pinged] => [post_modified] => 2022-08-04 08:33:09 [post_modified_gmt] => 2022-08-04 13:33:09 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsonhub.wpengine.com/?p=65125 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [4] => WP_Post Object ( [ID] => 65033 [post_author] => 12175 [post_date] => 2022-08-02 10:06:37 [post_date_gmt] => 2022-08-02 15:06:37 [post_content] => By Jamie Hopkins, Managing Director, Wealth Services  Sonu Varghese, Director, Investment Platforms; and Ryan Detrick, Chief Market Strategist, contributed to this report.    Senate Democrats have reached a general agreement on a bill to address climate change, taxes, health care, inflation and the deficit, according to a White House statement  This agreement came as a surprise to many after the Build Back Better Act of 2021 was unable to gain enough traction in the Senate. But after months of negotiations, Senate Democrats have released a text of the bill, 725 pages, outlining the new spending and tax revenue provisions.    The bill is not yet finalized, though it appears lawmakers are motivated to take action before the midterm elections. And because Democrats plan to pass the bill through budget reconciliation, it can avoid a filibuster and pass in the Senate with a simple majority.   The Senate plans to address the bill next week before the Senate breaks. The bill would then need to pass through the House before it lands on President Joe Biden’s desk for a signature.  The major provisions of this bill include:  
  • Installing a 15% minimum corporate tax revenue for certain large firms 
  • Medicare and prescription drug reform 
  • Spending to increase IRS enforcement and efficiency to enable more audits of companies and high-income individuals and to cut back on fraud 
  • Closing the carried interest loophole  
  • Lowering drug and health care costs through expansion of the Affordable Care Act 
  • Expansion of Medicare Part D Low Income Subsidies 
  • Tax credits for electric cars and other energy investments 
  • Investments into clean and renewable energy and environmental issues 
Though the bill’s official moniker is the Inflation Reduction Act of 2022, how much the bill will directly impact inflation today or in the long run is up for debate.   There are areas of the bill that may help with inflation. For example, the drug pricing provisions are very deflationary – especially for the PCE price index (the Fed's preferred indicator), since medical costs are a big part of that.  In addition, tax increases tend to be deflationary, since they pull money out of the private sector. This also applies to the IRS funding, which provides extra money for increasing compliance, (i.e., raising tax revenue).  On the other end, the spending provisions could be inflationary. If the energy- and climate-related policies raise investment, then that's a productivity boost. That said, the transition from fossil fuels to more carbon-neutral fuels could be rough and inflationary. One item not addressed in the bill is reform to speed up permitting for energy infrastructure, since it can't be passed through budget reconciliation. It's expected to be addressed in separate legislation in the fall.  The budget impact of this bill is expected to raise tax revenue and decrease the deficit over the next 10 years by about $300 billion  It is just as important to talk about what the bill doesn’t do. According to the White House and Senate Democrats, this bill will not raise taxes on any Americans making less than $400,000 a year. Additionally, the bill does not include any expanded child tax credits, capital gains rate hikes, free college or paid leave provisions that were found in the Build Back Better Act.   This bill would represent a revenue increase for the government, potentially reduce the deficit and make significant investments into health care costs and energy sectors. Remember, this is not a final bill and could still see changes or roadblocks ahead.    Jamie Hopkins is not affiliated with Cetera Advisor Networks, LLC [post_title] => Senate Addresses Taxes, Deficit, Inflation, Health Care in Proposed Bill [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => senate-addresses-taxes-deficit-inflation-health-care-in-proposed-bill [to_ping] => [pinged] => [post_modified] => 2022-08-02 10:19:31 [post_modified_gmt] => 2022-08-02 15:19:31 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsonhub.wpengine.com/?p=65118 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) ) [post_count] => 5 [current_post] => -1 [in_the_loop] => [post] => WP_Post Object ( [ID] => 65135 [post_author] => 125924 [post_date] => 2022-09-08 12:47:36 [post_date_gmt] => 2022-09-08 17:47:36 [post_content] => Ryan Yamada, CFP®, Senior Wealth Planner We’ve all heard the conventional wisdom when it comes to claiming Social Security: you should wait as long as you can before claiming benefits. Wait right up to age 70, if possible. After all, that’s when you would get the greatest monthly benefit. But that may not be the right move for some. What if I told you that, in some cases, taking your benefit sooner than later was the most ideal thing to do? I know it seems counterintuitive. But there are a few specific scenarios where that is just the advice I would give to clients. Let’s dig into a few of these scenarios individually.

Scenario #1: For Surviving Spouses

On a few somber occasions, we have had clients who have passed away before getting to fully enjoy their retirement. And while the earliest that someone can claim off of their worker or spousal benefit is at age 62, there is an exception for surviving spouses to claim a widower benefit as early as 60. Like a spousal benefit, the surviving widow is eligible for their deceased spouse’s Full Retirement Age amount. Claiming any earlier than Full Retirement Age reduces this amount. However, one unique strategy is that should the surviving spouse also have their own earnings history, claiming off a widower’s benefit could then allow one to delay their own worker’s benefit. Here’s an example to help illustrate. In this example, by continuing to delay their own worker benefits, the surviving spouse significantly increases their lifetime amounts. Additionally, recognizing the opportunity to claim benefits early using a survivor’s benefit could add extra years of cash flow and tens of thousands of dollars.

Scenario #2: You’re Entering Retirement During a Turbulent Market

You’re ready to retire. You’ve planned well and you have your spending plan all laid out. You’ve even decided to wait before filing for your Social Security benefits – allowing your investments to create an ‘income bridge’ - so that you can maximize your future monthly payment. Like many who are able to retire early, this is an ideal scenario for most retirees and one that we often recommend...in most years. But wait … it’s 2022. The market is down. And your portfolio has dropped 25%. Sometimes life doesn’t quite go according to plan. But that’s okay, it’s not time to panic. After all, the market was built to rebound. We just need to look at other ways to manage until that happens. In this scenario, we might consider taking Social Security earlier than anticipated. Especially for those clients without a cash buffer, access to home equity, or other means of ‘dry powder’, selling investments during a bear market is something we try to avoid. Tapping into your Social Security can provide much needed cash flow and allow your investment portfolio some time to recover. You’ll obviously take a slight hit on your lifetime Social Security benefit, but if that amount is smaller than the potential gain your investments could make over time, it’s a smarter play in the long run.

Scenario #3: You Wouldn’t Break Even by Waiting

When a pre-retiree is looking for advice on when to begin claiming Social Security, one common way to compare strategies is to calculate their “break-even” age. That’s essentially the age that they would need to live to in order to make the delay worthwhile. When waiting until age 70 to begin claiming Social Security, most people would need to live into their late-70s or even their early-80s to hit that point. If you have good reason to believe that longevity is not on your side, and you have no spouse or children who would depend on your benefit, you might want to consider claiming your Social Security sooner rather than later. While we never want to bet against our lives, it’s important to be realistic with your situation.

Talk to a Professional

Remember that a retirement income plan is a mixture of both financial and non-financial components unique to you. When considering any of these scenarios, insist on working with a Fiduciary advisor who specializes in this field. If you need help finding a financial advisor in your area, we can help. Contact us today. H2 subhead

Need Help With Social Security? Give Us a Call

Social Security can be complicated. Talk to a qualified financial advisor today to get professional advice today. Need help finding a financial advisor in your area? Give us a call today so we can match you with an advisor who will put your needs first. This blog is for general information only and is not intended to provide specific legal, tax, or other professional advice. For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Ryan Yamada is a non-registered associate of Cetera Advisor Networks LLC. [post_title] => Claiming Your Social Security Benefits Early: When It May Not Pay to Wait [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => claiming-your-social-security-benefits-early-when-it-may-not-pay-to-wait [to_ping] => [pinged] => [post_modified] => 2022-09-23 07:36:26 [post_modified_gmt] => 2022-09-23 12:36:26 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsonhub.wpengine.com/?p=65200 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [comment_count] => 0 [current_comment] => -1 [found_posts] => 331 [max_num_pages] => 67 [max_num_comment_pages] => 0 [is_single] => [is_preview] => [is_page] => [is_archive] => [is_date] => [is_year] => [is_month] => [is_day] => [is_time] => [is_author] => [is_category] => [is_tag] => [is_tax] => [is_search] => [is_feed] => [is_comment_feed] => [is_trackback] => [is_home] => 1 [is_privacy_policy] => [is_404] => [is_embed] => [is_paged] => [is_admin] => [is_attachment] => [is_singular] => [is_robots] => [is_favicon] => [is_posts_page] => [is_post_type_archive] => [query_vars_hash:WP_Query:private] => 6b5c18c1252b6c6a9f5f8613c74e0017 [query_vars_changed:WP_Query:private] => [thumbnails_cached] => [stopwords:WP_Query:private] => [compat_fields:WP_Query:private] => Array ( [0] => query_vars_hash [1] => query_vars_changed ) [compat_methods:WP_Query:private] => Array ( [0] => init_query_flags [1] => parse_tax_query ) [tribe_is_event] => [tribe_is_multi_posttype] => [tribe_is_event_category] => [tribe_is_event_venue] => [tribe_is_event_organizer] => [tribe_is_event_query] => [tribe_is_past] => )

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                    [post_content] => By Erin Wood, Senior Vice President, Financial Planning and Advanced Solutions

Just a few years ago, Rose retired with a decent-sized 401(k). With some careful budgeting and a part-time job, her retirement finances were on track. Rose was looking forward to traveling, reigniting her passion for photography and spending time with her son and her grandkids.

The pandemic changed everything. Her son contracted COVID-19 in the early days of the pandemic. His health deteriorated quickly and he died at only 35 years old. He didn’t have life insurance. A gig worker without a 401(k), he had very minimal retirement savings.

Rose’s grandchildren, ages 2 and 6, joined the more than 140,000 U.S. children under the age of 18 who lost their primary or secondary caregiver due to the pandemic from April 2020 through June 2021. That’s approximately one out of every 450 children under age 18 in the United States.

Rose’s ex-daughter-in-law battles drug addiction and had lost custody of the kids during the divorce, so Rose became the children’s primary caregiver. She quickly discovered that caring for young children as an older adult is more physically challenging than when she raised her son, so she made the difficult decision to leave her part-time job to have the energy to care for her active grandchildren. She wants to do everything for these kids who have lost so much — but it puts her financial security at risk.

Sadly, she is far from alone.

Read the full article
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                    [post_content] => By: Erin Wood, CFP®, CRPC®, FBS®, Senior Vice President, Financial Planning, Carson Group

 

Laura and Caroline are in their late 50s. Friends since meeting at a playgroup for their toddlers, both were in long-term, seemingly happy marriages. Laura married her high school sweetheart right after they graduated from college and worked as an RN while her husband attended medical school. When their first child was born, Laura decided to become a stay-at-home parent. She just celebrated sending her last child off to college and was looking forward to enjoying an empty nest with her husband.

Already established in her career as an accountant for a large insurance firm, Caroline married a bit later, at 33. Today, she’s a financial controller for the same firm. Her spouse owns his own landscaping business. Caroline is the high-wage earner in the family.

Unfortunately, both women are now surprised to be facing a “gray” divorce: a divorce involving couples in their 50s or older. Each will need to make some tough choices as they deal with the emotional devastation of unraveling a long-term marriage. Although my focus as a financial planner is to help my clients find their financial footing during and after divorce, I also encourage clients to build a strong network of family and friends as well as a therapist or clergy person to offer critical emotional support during this time.

Read full article on Kiplinger.com

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Roth conversions can be a powerful tax and retirement planning technique. The idea behind most Roth conversions is to take money from an IRA and convert it to a Roth IRA. Essentially, you’re paying taxes today instead of paying taxes in the future.

The Tax Cut and Jobs Act lowered taxes for many Americans and with the SECURE Act Roth IRAs became even more powerful as an estate planning vehicle to minimize taxes, so it’s a convenient time to take advantage of Roth conversions. However, Roth conversions can come with some issues. Before you engage in one, be aware of these common problems as it can be hard to undo the transaction.

Conversions After 72

IRAs and Roth IRAs are both retirement accounts. It’s easy to assume Roth Conversions are best suited for retirement, too. However, waiting too long to do conversions can actually make the entire process more challenging. If you own an IRA, it’s subject to required minimum distribution rules once you turn 72, as long as you had not already reached age 70.5 by the end of 2019. The government wants you to start withdrawing money from your IRA each year and pay taxes on the tax-deferred money. However, Roth IRAs aren’t subject to RMDs at age 72. If you don’t need the money from your RMD to support your retirement spending, you might think, “I should convert this to a Roth IRA so it can stay in a tax-deferred account longer.” Unfortunately, that won’t work. You can’t roll over or convert RMDs for a given year. So, if you owe a RMD in 2020, you need to take it and you cannot convert it to a Roth IRA. Despite the fact you can’t convert an RMD, it doesn’t mean you can’t do Roth conversions after age 72. However, you need to make sure you get your RMD out before you do a conversion. Your first distributions from an IRA after 72 will be treated as RMD money first. This means, if you want to convert $10,000 from your IRA, but you also owe an $8,000 RMD for the year, you need to take the full $8,000 out before you do a conversion. Full article on Forbes   [post_title] => 3 Roth Conversion Traps To Avoid After The SECURE Act [post_excerpt] => Roth conversions can be a powerful tax and retirement planning technique. The idea behind most Roth conversions is to take money from an IRA and convert it to a Roth IRA. Essentially, you’re paying taxes today instead of paying taxes in the future. [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => 3-roth-conversion-traps-to-avoid [to_ping] => [pinged] => [post_modified] => 2020-02-28 16:01:10 [post_modified_gmt] => 2020-02-28 22:01:10 [post_content_filtered] => [post_parent] => 0 [guid] => https://divi-partner-template.carsonwealth.com/?post_type=news&p=53316 [menu_order] => 0 [post_type] => news [post_mime_type] => [comment_count] => 0 [filter] => raw ) [3] => WP_Post Object ( [ID] => 51325 [post_author] => 6008 [post_date] => 2019-12-06 10:26:33 [post_date_gmt] => 2019-12-06 16:26:33 [post_content] => By Jamie Hopkins People plan on having a good day, a good year, a good retirement and a good life. But why stop there? Why not plan for a good end of life, too? End of life or estate planning is about getting plans in place to manage risks at the end of your life and beyond. And while it might be uncomfortable to discuss or plan for the end, everyone knows that no one will live forever. Estate planning and end of life planning are about taking control of your situation. Death and long-term care later in life might be hard to fathom right now, but we can’t put off planning out of fear of the unknown or because it’s unpleasant. Sometimes it takes a significant event like a health scare to shake us from our procrastination. Don’t wait for life to happen to you, though. Full article on Kiplinger [post_title] => 10 Common Estate Planning Mistakes (and How to Avoid Them) [post_excerpt] => Estate planning and end of life planning are about taking control of your situation. Death and long-term care later in life might be hard to fathom right now, but we can’t put off planning out of fear of the unknown or because it’s unpleasant. Don’t wait for life to happen to you, though. [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => 10-common-estate-planning-mistakes-and-how-to-avoid-them [to_ping] => [pinged] => [post_modified] => 2020-02-28 16:02:24 [post_modified_gmt] => 2020-02-28 22:02:24 [post_content_filtered] => [post_parent] => 0 [guid] => https://divi-partner-template.carsonwealth.com/?post_type=news&p=51325 [menu_order] => 0 [post_type] => news [post_mime_type] => [comment_count] => 0 [filter] => raw ) [4] => WP_Post Object ( [ID] => 63308 [post_author] => 273 [post_date] => 2019-11-11 16:27:38 [post_date_gmt] => 2019-11-11 21:27:38 [post_content] => By Jamie Hopkins

Everyone’s heard the stories of celebrities who died without a proper estate plan in place. It’s been a hot topic in the last few years with Prince and Aretha Franklin serving as unfortunate faces of the phenomenon. But it’s not just freewheeling entertainers. Abraham Lincoln – a lawyer by trade – didn’t have one either, which leads me to say something you’ve probably never heard anyone say: don’t be like Abraham Lincoln.

Most people want to plan for a good life and a good retirement, so why not plan for a good end of life, too? Let’s look at four ways you can refine your estate plan, protect your assets and create a level of control and certainty for your loved ones.

1. Review Beneficiary Designations

Many accounts can pass to heirs and loved ones without having to go through the sometimes costly and time-consuming process of probate. For instance, life insurance contracts, 401(k)s and IRAs can be transferred through beneficiary designations – meaning you determine who you want to inherit your accounts after you die by filing out a beneficiary form. You can often name successors or backup beneficiaries, and even split up accounts by dollar amount or percentages between beneficiaries with these forms. Full article on Forbes [post_title] => 4 Ways To Improve Your Estate Plan [post_excerpt] => Most people want to plan for a good life and a good retirement, so why not plan for a good end of life, too? Let’s look at four ways you can refine your estate plan, protect your assets and create a level of control and certainty for your loved ones. [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => 4-ways-to-improve-your-estate-plan [to_ping] => [pinged] => [post_modified] => 2020-02-28 17:02:59 [post_modified_gmt] => 2020-02-28 22:02:59 [post_content_filtered] => [post_parent] => 0 [guid] => https://retirementextender1.carsonwealth.com/insights/news/4-ways-to-improve-your-estate-plan/ [menu_order] => 0 [post_type] => news [post_mime_type] => [comment_count] => 0 [filter] => raw ) ) [post_count] => 5 [current_post] => -1 [in_the_loop] => [post] => WP_Post Object ( [ID] => 64691 [post_author] => 90034 [post_date] => 2022-05-26 08:18:44 [post_date_gmt] => 2022-05-26 13:18:44 [post_content] => By Erin Wood, Senior Vice President, Financial Planning and Advanced Solutions Just a few years ago, Rose retired with a decent-sized 401(k). With some careful budgeting and a part-time job, her retirement finances were on track. Rose was looking forward to traveling, reigniting her passion for photography and spending time with her son and her grandkids. The pandemic changed everything. Her son contracted COVID-19 in the early days of the pandemic. His health deteriorated quickly and he died at only 35 years old. He didn’t have life insurance. A gig worker without a 401(k), he had very minimal retirement savings. Rose’s grandchildren, ages 2 and 6, joined the more than 140,000 U.S. children under the age of 18 who lost their primary or secondary caregiver due to the pandemic from April 2020 through June 2021. That’s approximately one out of every 450 children under age 18 in the United States. Rose’s ex-daughter-in-law battles drug addiction and had lost custody of the kids during the divorce, so Rose became the children’s primary caregiver. She quickly discovered that caring for young children as an older adult is more physically challenging than when she raised her son, so she made the difficult decision to leave her part-time job to have the energy to care for her active grandchildren. She wants to do everything for these kids who have lost so much — but it puts her financial security at risk. Sadly, she is far from alone. Read the full article [post_title] => COVID’s Financial Toll Isn’t What You Think [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => covids-financial-toll-isnt-what-you-think [to_ping] => [pinged] => [post_modified] => 2022-05-26 08:33:22 [post_modified_gmt] => 2022-05-26 13:33:22 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsonhub.wpengine.com/?post_type=news&p=64940 [menu_order] => 0 [post_type] => news [post_mime_type] => [comment_count] => 0 [filter] => raw ) [comment_count] => 0 [current_comment] => -1 [found_posts] => 6 [max_num_pages] => 2 [max_num_comment_pages] => 0 [is_single] => [is_preview] => [is_page] => [is_archive] => [is_date] => [is_year] => [is_month] => [is_day] => [is_time] => [is_author] => [is_category] => [is_tag] => [is_tax] => [is_search] => [is_feed] => [is_comment_feed] => [is_trackback] => [is_home] => 1 [is_privacy_policy] => [is_404] => [is_embed] => [is_paged] => [is_admin] => [is_attachment] => [is_singular] => [is_robots] => [is_favicon] => [is_posts_page] => [is_post_type_archive] => [query_vars_hash:WP_Query:private] => 8bbea74eca9b0e937ac286f0d22d32a8 [query_vars_changed:WP_Query:private] => [thumbnails_cached] => [stopwords:WP_Query:private] => [compat_fields:WP_Query:private] => Array ( [0] => query_vars_hash [1] => query_vars_changed ) [compat_methods:WP_Query:private] => Array ( [0] => init_query_flags [1] => parse_tax_query ) [tribe_is_event] => [tribe_is_multi_posttype] => [tribe_is_event_category] => [tribe_is_event_venue] => [tribe_is_event_organizer] => [tribe_is_event_query] => [tribe_is_past] => )

In the News

In the News

COVID’s Financial Toll Isn’t What You Think

By Erin Wood, Senior Vice President, Financial Planning and Advanced Solutions Just a few years ago, Rose retired with a decent-sized 401(k). With some careful budgeting and a part-time job, her retirement finances were on track. Rose was looking forward to traveling, reigniting her passion …
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                    [post_content] => Stocks had another rough week. The S&P 500 flirted with the June lows and swung back into bear market territory. Investors are worried about inflation, the Fed, the economy, the Russia-Ukraine war, among other market challenges.
  • The market is experiencing peak bearishness.
  • This coincides with peak hawkishness from the Federal Reserve, as it projects more interest rate hikes.
  • Fed Chair Jerome Powell warns that putting inflation behind us may not be painless.
  • A down swing in inflation could prompt the Fed to pause.
One potential positive is overall market sentiment is getting quite pessimistic, in some cases reaching levels last seen in March 2020 and even March 2009. Both periods presented major buying opportunities. Various sentiment polls are flashing extreme pessimism, which from a contrarian point of view could be quite bullish. The reasoning is once all the bears have sold, there are only buyers left. Considering October is known as a “bear market killer,” we continue to think major lows could be near. The stock market saw major lows in October in 1957, 1960, 1966, 1974, 1984, 1990, 1994, 1998, 2002, and 2011. In fact, no month has seen more major market lows than October. We wouldn’t be surprised if 2022 joined this list. The Fed Wants to Get Inflation Behind Us, But There Isn’t a Painless Way to Do That An aggressive Federal Reserve raised its target policy rate by another 0.75%, taking it to the 3.0-3.25% range. This was the fifth hike this year and third successive 0.75% rate hike by a Fed looking to get on top of inflation. While it was largely expected, the big surprise was how high the Fed projected the interest rate to rise over the next year. In short, there’s more tightening to come. By the end of 2022, the Fed projects policy rates to reach 4.4%, a full percentage point above what was projected just three months ago in June. As of the end of 2023, the Fed now expects the target rate to hit 4.6%, about 0.8% above the previous projection. These projections have risen rapidly this year amid 40-year highs in inflation. Crucially, the Fed now projects staying at these high rates through 2024 at least. The Fed is strongly committed to bringing inflation back down, and Fed members believe that is the key to sustaining a healthy economy and labor market over the long term. However, they also believe there is no painless way to do it, and that was a big takeaway from the meeting. It’s worth quoting Fed Chair Powell in full: “We’re never going to say that there are too many people working, but the real point is that people are really suffering from inflation. If we want another period of a very strong labor market, we have got to get inflation behind us. I wish there were a painless way to do that. There isn’t.” This came across in the Fed’s latest economic projections. It slashed estimates of 2022 GDP growth from 1.7% to 0.2%, and for 2023, from 1.7% to 1.2%. The Fed now expects unemployment to peak at 4.4% in 2023, up from the June projection of 3.9% (the rate is currently 3.7%). That translates to about 1.2 million more people losing their jobs. Up until June, central bankers were clearly hoping to get away with small upticks in the unemployment rate, i.e., a “soft landing.” No longer. The latest projections basically amount to a recession, although perhaps, a mild one. The problem is once unemployment starts to rise, it’s not exactly easy to cap it at a particular number. Are There Any Positives At All? Powell did lay out a scenario for a soft landing. It’s a challenging path, but not implausible in our view.
  1. The labor market is currently imbalanced, with demand outrunning supply. But job vacancies (representing demand) are at such a high level that they could potentially fall without much of an increase in unemployment. However, this would be a big break from what we’ve seen in the past, as falling vacancies have typically been associated with more layoffs. Also, workers quit their jobs at a much higher rate after the pandemic (for better-paying jobs), but that’s slowing down now. If this continues, it should also ease the supply-demand imbalance and associated wage pressures.
  2. Inflation expectations, both amongst consumers and market participants, have been well anchored. That means there’s no expectations-related inflation spiral. This occurs when people expect higher prices in the future, so they buy now to get ahead of inflation and, in turn, drive up prices.
  3. The current inflation has been partly caused by a series of supply shocks, beginning with the pandemic and the economic reopening, and amplified by the Russia-Ukraine war. These weren’t present in prior business cycles. Of course, the Fed expected to see supply-side healing by now, but it hasn’t happened yet.
The upward shift in rate projections is likely to be a one-time adjustment that reflects the current high inflation levels, as opposed to the beginning of a series of upward shifts. Several leading indicators point to easing supply-chain pressures and lower prices. It’s just going to take a little more time to show up in official inflation numbers. Just as an example, the Producer Price Index indicates that margins for auto dealers are falling quickly, which means prices for used cars should follow in short order. So, there is a high likelihood that the federal funds target rate (as projected) may rise above year-over-year inflation numbers within the first half of 2023. The chart below shows various projections for PCE inflation (the Fed’s preferred measure), based on average monthly price changes over the next 15 months. This assumes the Fed will raise rates by another 0.75% in November, 0.50% in December and 0.25% in March 2023. In our view, the scenario in which price increases average 0.3% month-over-month is quite plausible. That would take PCE inflation down to 3.7% by mid-2023. Of course, this assumes there are no more shocks, such as the Russia-Ukraine war presented. That really is the key, as a convincing deceleration in prices is required for the Fed to pivot away from its current aggressive stance.   This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. S&P 500 – A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ 100 Index is a stock index of the 100 largest companies by market capitalization traded on NASDAQ Stock Market. The NASDAQ 100 Index includes publicly-traded companies from most sectors in the global economy, the major exception being financial services. Compliance Case #01497141 [post_title] => Market Commentary: Things Are Bad, and That Could Be Good [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => market-commentary-things-are-bad-and-that-could-be-good [to_ping] => [pinged] => [post_modified] => 2022-09-27 16:40:28 [post_modified_gmt] => 2022-09-27 21:40:28 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsonhub.wpengine.com/?post_type=market-commentary&p=65269 [menu_order] => 0 [post_type] => market-commentary [post_mime_type] => [comment_count] => 0 [filter] => raw ) [1] => WP_Post Object ( [ID] => 65208 [post_author] => 90034 [post_date] => 2022-09-19 09:03:21 [post_date_gmt] => 2022-09-19 14:03:21 [post_content] => The popular Green Day song titled “Wake Me Up When September Ends” feels quite appropriate given the recent market volatility. In fact, the S&P 500 has now dropped at least 3% for three of the past four weeks. As we’ve noted in this commentary, stocks tend to be quite volatile and potentially weak in September, and that is playing out once again in 2022.
  • It’s been another volatile September. We’ve seen this before, and it may not be over yet.
  • We expect there’s more room for interest rates to rise, especially if core inflation remains high.
  • The Fed is likely to raise interest rates by 0.75% in September, but the key will be how far the Fed will go.
  • Economic indicators, including retail sales, manufacturing, and unemployment claims, do not point toward a recession.
It isn’t all bad though. The last three months tend to do quite well in a midterm election year, so we are still optimistic an end-of-year rally is possible. One more positive is just how bad the action was on Tuesday. After the hotter-than-expected inflation data (more on that below), the S&P 500 fell 4.3% for the worst single day for stocks since June 2020. Along the way, less than 1% of the S&P 500 finished higher, one of the lowest readings in recent memory. This is the 20th time since 2000 that less than 1% of S&P 500 stocks closed higher on a single day. But only twice were stocks still down one year later, and the average return was a very solid 19.1%. Not to be outdone, every stock in the Nasdaq 100 closed red on Tuesday, for only the 13th time in history and the first time since March 12, 2020. But looking back at the index one year after this rare event shows the Nasdaq 100 was higher every time and up 21.2% on average. The bottom line is stocks will still be in a seasonally weak period for the next few weeks, so caution could be warranted. But the recent heavy selling is consistent with a market nearing bottom, and a strong year-end rally is still quite possible.

Interest Rates Could Keep Rising If Inflation Stays High

The August CPI report was not pretty. The headline number came in at 0.1%, pulled down by gas prices but higher than an expected -0.1% reading. The problem was core CPI, excluding food and energy, was 0.6%, twice what was expected. Tobacco, new vehicles, vehicle repairs, dental services, and hospital services all came in hotter than expected. Shelter costs continued to remain strong, while pandemic-impacted goods and services, including used/new cars, apparel, airfares, hotels, and furnishings, did not exert as much of a deflationary force as was expected by this time. There were still some positives. For starters, CPI likely peaked in June at more than 9% year-over-year and fell to 8.3% in August. It should continue to trend lower. We have seen huge drops in prices paid in various manufacturing surveys, improvements in time to delivery, and imploding used car prices. All these factors will feed into the official inflation numbers over the next few months. Nevertheless, markets were quick to react, as a hot inflation report led investors to expect the Fed to continue raising rates at a furious pace. Investors currently anticipate the federal funds rate to be raised as high as 4.2%. The white line in the chart below shows investor expectations for the fed funds rate, while the green line shows the median of the dots, which represent each Fed member’s estimate for where the policy rate will be in 2022 and beyond. As you can see, the green line for 2022 is well below the white line (investor expectations). The Fed has a meeting this week, and we will be watching how much higher Fed members move their estimates and whether they match the market’s expectations. Our view is the green line will shift higher, close to 4% or more. That is why we’re still cautious on our outlook for interest rates. We believe there’s room for rates across the spectrum to rise — on the back of higher policy rates. Short-term Treasury interest rates, which are a good approximation of monetary policy, have surged this year and are well above pre-crisis levels. After the August inflation report was released, one-year rates rose from 3.70% to 3.92%, while slightly longer-term five-year rates rose from 3.47% to 3.58%. So, they certainly are closer to where policy rates may get to but not quite there yet.

Still No Sign of Recession

Data last week showed consumer spending remains solid, with retail sales rising 0.3% in August. This was mostly driven by auto sales, although spending was strong in various other sectors, including restaurants and building material and supply stores. The only drag was gasoline station purchases, where sales fell 4%, but that was because gas prices fell. If anything, we’re surprised at the strength of retail sales, which mostly comprise spending on goods, even as the country puts COVID in the rearview mirror. Real retail sales, which are adjusted for prices, rose 0.2% in August and are almost 10% above the pre-crisis trend, with no sign of slowdown yet. Industrial production did slow in August, falling 0.2%. However, this was because of a large pullback in electric power output. The all-important manufacturing sector saw production tick higher by 0.1%, and that overcame a 1.4% decline in motor vehicle and parts production. This is another puzzle for us — supply chains are clearly improving, but vehicle production remains below pre-pandemic levels. This is entirely because auto production is down about 32%, while light vehicle truck production (like SUVs) is back where it was. At the beginning of the year, we expected a pickup in auto production, providing more of a tailwind to the economy. Finally, though certainly not the least important, unemployment claims continue to fall and remain well below pre-crisis levels. That means people getting laid off can find jobs quickly, without having to file for unemployment benefits — a sign of a very strong labor market. The downside is that increases the odds of the Fed continuing to raise interest rates to cool the economy down.   This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. S&P 500 – A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ 100 Index is a stock index of the 100 largest companies by market capitalization traded on NASDAQ Stock Market. The NASDAQ 100 Index includes publicly-traded companies from most sectors in the global economy, the major exception being financial services. Compliance Case # 01489423 [post_title] => Market Commentary: Wake Me Up When September Ends [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => market-commentary-wake-me-up-when-september-ends [to_ping] => [pinged] => [post_modified] => 2022-09-19 13:10:34 [post_modified_gmt] => 2022-09-19 18:10:34 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.retirementextender.com/insights/market-commentary/market-commentary-wake-me-up-when-september-ends/ [menu_order] => 0 [post_type] => market-commentary [post_mime_type] => [comment_count] => 0 [filter] => raw ) [2] => WP_Post Object ( [ID] => 65145 [post_author] => 181806 [post_date] => 2022-09-12 10:08:56 [post_date_gmt] => 2022-09-12 15:08:56 [post_content] => It’s hard to believe, but we are less than two months away from midterm elections in early November. Given all the well-known worries this year — from inflation to the war in Ukraine, the economy to the bear market — most investors haven’t started to think about midterms quite yet. But we expect that to change as this important date nears. Key Points for the Week
  • Midterm elections are less than two months away, so expect talk about potential impact to heat up.
  • Midterm election years tend to be rough for stocks, but markets typically improve in the last quarter and into the following year.
  • Consumers are seeing some relief as gas prices fall, which should soften inflation numbers.
  • Unemployment claims data suggest the labor market remains strong.
Weakness is Typical for a Midterm Year Midterm election years are known for big stock market drops and weakness for most of the year, generally until late-year rallies. So far, that sounds a lot like 2022. Since 1950, the S&P 500 has corrected peak-to-trough more than 17% on average during the year. Out of the four-year presidential election cycle, midterm years typically see the largest corrections. Why? During his or her first year in office, a new president mostly enjoys a relatively smooth ride. It isn’t until the next year that bumps arrive. Toss in the uncertainty of the midterm elections (markets hate uncertainty) and conditions are ripe for trouble. As the chart below shows, stocks usually don’t do well under a first-term president in a midterm year. In this scenario, which is one of the weakest, the S&P 500 typically gains just more than 2% for the year. However, stocks typically do quite well the following year. In fact, a year after the midterm-year correction, stocks jump more than 30% on average. We think there’s a good chance June 16 was the lowest point for this calendar year, and that could leave many investors smiling into next year. Source: Carson Investment Research, YCharts 09/09/22 The bottom line is 2022 hasn’t been fun for investors. But it’s important to remember we’ve seen this before and there’s reason to expect better days ahead. How Will the Election Results Impact Markets? Investors often want to know which sectors will do well if one or the other party wins an election. Here’s the truth: It isn’t that simple. After President Donald Trump won in 2016, many investors expected steel, coal, and financials to do well, and technology to struggle. The opposite happened. When President Joe Biden won in 2020, the consensus was renewable energy would do well while coal and refiners would struggle. Again, the opposite happened. While there may be some value in following election results, be careful not to blindly follow the crowd’s expectations. Midterm elections are not typically favorable for the party in power. Since World War II, the controlling party has lost four seats in the Senate and 26 seats in the House on average. This year, Republicans only need five seats to flip the House and most strategists think this is quite possible. The Senate is split 50/50, but the open Senate seats are closely contested and considered a coin flip by many. What does this mean for investors? The best scenario for stocks is a Democratic president and Republican-controlled Congress (this was the case in the late 1990s under President Bill Clinton). A Democratic president with a split Congress has also generated solid returns in the past. Both scenarios suggest post-November, history will be with the bulls. On this subject, we prefer to take a broader view and share another important takeaway for investors. From the date of the midterm election going out one-year, the S&P 500 has been higher every single time since World War II. Not all years were up significantly, but a consistent gain and an average of 14.1% is worth noting. Consumer Confidence is Rising as Gas Prices Fall It’s as simple as that, as the chart below illustrates. Consumer confidence started falling in the summer of 2021 as gas prices climbed. Granted, the economy faced other challenges last summer, such as the spread of the COVID Delta variant. But the nationwide average gas price crossed the $3.0/gallon mark in May 2021 and rose steadily over the remainder of the year. All the while, consumer confidence moved lower, despite COVID fading into the background and economic data improving. Then, at the end of February 2022, Russia’s invasion of Ukraine sent commodity markets into a frenzy and surging global oil prices pushed gas prices above $4/gallon. March-April saw some relief, but issues with refining capacity in the U.S. sent gas prices to $5.0/gallon by mid-June. That was a 63% increase in one year. No wonder the University of Michigan Consumer Sentiment Index hit a record low of 50.0 in June. That’s lower than the start of the pandemic in March 2020 (72.3) and the depths of the financial crisis in 2008 (55.3). Even the Conference Board’s Consumer Confidence Survey, which is typically tied to the strength of the labor market, fell significantly, from 118 in April 2021 to 95 in July. But over the last four to eight weeks, sentiment indicators have picked up again just as gas prices have seen a steep fall, from $5/gallon to about $3.75. Consumer confidence tells us how consumers are feeling about the economy. And this is important because 70% of the U.S. economy is made up of consumer spending. Confident consumers can potentially fuel more spending and economic growth. On the other hand, if consumers are feeling down, they may save rather than spend, especially if they feel that poor economic conditions will eventually impact their personal finances. The Federal Reserve considers consumer sentiment, and especially consumer expectations for inflation, an important indicator. Fed members fear that rising inflation expectations will keep inflation higher for longer. The idea is if consumers expect more inflation, they will ask for higher wage increases, which will result in more spending and put upward pressure on prices, leading to a cycle of “spiraling inflation.” Now, inflation expectations rose over the past year, along with gas prices. But there is some good news as far as the Fed is concerned: Long-term inflation expectations (over the next five years) have fallen to 2.9%, and that is right at the three-decade average for this metric. Moreover, recent unemployment claims data suggest the labor market remains strong. Unemployed workers who are continuing to collect unemployment benefits now make up 1% of the labor force, which is a record low. This is not something we would expect if the economy were in a recession. Combine a strong labor market with easing price pressure, and we believe consumer confidence should continue rising as we head into the fall. This should give the Fed some breathing room as it increases rates to fight inflation, with slightly less risk of pushing the economy into a recession. This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. Compliance Case #01484392     [post_title] => Market Commentary: The Election is Near [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => market-commentary-the-election-is-near [to_ping] => [pinged] => [post_modified] => 2022-09-12 15:47:19 [post_modified_gmt] => 2022-09-12 20:47:19 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsonhub.wpengine.com/?post_type=market-commentary&p=65212 [menu_order] => 0 [post_type] => market-commentary [post_mime_type] => [comment_count] => 0 [filter] => raw ) [3] => WP_Post Object ( [ID] => 65120 [post_author] => 90034 [post_date] => 2022-09-06 11:59:19 [post_date_gmt] => 2022-09-06 16:59:19 [post_content] => It continues to be a challenging year for stocks, but all is not lost. We believe there could be some decisive gains before year-end. Let’s look back at two other midterm years that were similar to 2022 in more ways than one.
  • Historically, similar bad starts to midterm election years have been followed by stock market rallies late in the year.
  • More than 3.5 million jobs have been created over the first eight months of 2022, which is not typical of a recession.
  • September is no doubt a volatile and historically weak month. So, buckle up.
  • Supply chains are improving and gas prices are falling, signs that inflation has likely peaked in the U.S. Consumer confidence is also rising amid falling gas prices.
In 1962, first-term Democratic president John F. Kennedy faced a very tough midterm election, supply chain issues, Russia and the U.S. on the brink of war over a small island, Cuba (Taiwan today?), and a six-month 28% bear market without a recession. Sound familiar? Just for reference, the bear market this year corrected 24% in just more than five months. Stocks bottomed in late June 1962 but went on to nearly retest those lows during the Cuban missile crisis in late October. Stocks then soared 18% through the end of the year once the crisis calmed down. In 1982, the market experienced historically high inflation, another midterm year, low consumer confidence, high gas prices, an aggressive Fed, an economy in a recession, and more challenges with Russia. This time stocks lost 27% in a 21-month bear market. At the lowest point, stocks were down more than 16% for the year in mid-August, but then one of the strongest rallies in stock market history took over. In about four months, stocks made up all the losses from the previous 21 months. What sparked it? It was all about inflation showing signs of peaking and rolling over. Mark Twain said, “History doesn’t repeat itself, but it often rhymes.” Looking back at these two midterm years shows one key concept. We’ve had bad times before and stocks have bounced back. A lot of bad news is priced into the market right now, and should there be any good news on inflation, the war in Ukraine, the Fed, or the economy, there could be plenty of room for another late midterm-year rally in 2022.

A Positive Employment Report, In More Ways Than One

Good news did arrive last week in the form of the August employment report. This initially buoyed equities until news that Russia is cutting off gas supplies for Europe rocked markets late Friday — a reminder that global events can cause higher volatility over the short run. The economy created 315,000 jobs in August. Since these numbers can be revised, it’s more useful to look at the average over the last three months — job growth averaged 378,000 each month between June and August. The bigger picture is the economy has created 3.5 million jobs this year, and there are five months left to go. Average annual job growth since 1940 is about 1.5 million; 2.3 million when recessions are excluded. This is a very strong labor market. The August report also showed the unemployment rate rose from 3.5% to 3.7%. In his Jackson Hole speech last week, Fed Chair Jerome Powell said the Fed is focused on getting inflation down to its 2% target but that will involve bringing pain to households and businesses. So, are we starting to see signs of the pain Powell mentioned? Not really. The unemployment rate is calculated by dividing the number of unemployed persons (those who are looking for a job) by the size of the labor force (employed + unemployed). In August, the ranks of unemployed increased but not because more people were laid off. It was because more people came back into the labor force and started looking for jobs. This is a good sign because it points to a more attractive labor market, certainly not something seen in a recession. The connection between employment and prices is wage growth, at least as the Fed sees it. And there is good reason for this. Inflation can be impacted by several factors, including global oil, food prices, and supply-chain disruptions — as we’re all familiar with at this point. Stripping out the goods impacted by these sorts of factors leaves us with services inflation. This is what the Fed is really concerned about, and historically in the U.S., strong wage growth has led to higher services inflation. But there was good news on this front, too. Average hourly earnings for private sector workers rose about 4% (at an annualized rate) in August, which is slower than the 5% rate it has averaged over the past year. It appears to be moving closer to the pre-crisis wage growth rate of about 3%. Slower wage growth is not great news if you are employed, especially considering the high levels of inflation. Falling gas prices are providing some relief; but from the Fed’s perspective, the best news in the August payroll report was that wage growth slowed. Many economists believe that for wage growth to slow, job openings have to fall — leading to slower employment gains and, ultimately, higher unemployment. So far, that’s not happening. Wage growth has slowed despite job openings remaining extremely elevated. Job openings listed by employers are running twice as high as the number of unemployed workers. Before the pandemic the ratio was about 1.2:1, i.e., 12 jobs listed for every 10 unemployed workers. Now it’s 2:1. Employment gains slowed in August, but it was always unlikely that job growth would continue running at half a million a month. Moreover, layoffs remain at record lows. All this is exactly the opposite of what would be expected. While it’s hard to pinpoint an exact reason, a significant factor may be that the economy is continuing to normalize after two years of massive pandemic-related shifts. The pandemic prompted workers to quit their jobs at a much higher rate. Some termed this the “Great Resignation,” but it was really the “Great Job Switch.” Workers did not quit their jobs to stop work. Instead, they quit to take another job — and, importantly, one with higher pay. Over the 12 months through July, “job switchers” saw wage gains of 6.7% on average, compared to 4.9% for “job stayers.” As the economy normalizes, this trend is reversing. Quits have fallen 7% since November, with most of that decline occurring over the past four months. That may be why wage growth is falling without unemployment rising in a significant way. That would be the ideal case for the Fed and the economy. If wage growth continues to fall, that is a good sign for the services part of inflation. It also means the Fed would not have to increase rates too much further. And if all that happens on the back of fewer quits as opposed to rising unemployment, that would indeed be the best case.   This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. S&P 500 INDEX The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. MSCI ACWI INDEX The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set. Compliance Case #01478809 [post_title] => What Year Is It? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => what-year-is-it [to_ping] => [pinged] => [post_modified] => 2022-09-06 14:01:56 [post_modified_gmt] => 2022-09-06 19:01:56 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsonhub.wpengine.com/?post_type=market-commentary&p=65193 [menu_order] => 0 [post_type] => market-commentary [post_mime_type] => [comment_count] => 0 [filter] => raw ) [4] => WP_Post Object ( [ID] => 65105 [post_author] => 90034 [post_date] => 2022-08-29 12:29:08 [post_date_gmt] => 2022-08-29 17:29:08 [post_content] => The S&P 500 recently soared more than 17% off its June 16 lows but found trouble near its 200-day moving average. This is perfectly normal, as stocks might need to catch their breath before the next move higher. That is the good news. The bad news is the calendar is doing no one any favors and more volatility could be in store.
  • September is historically one of the weakest months of the year for stocks, so buckle up.
  • Fed Chair Jerome Powell reiterated that the Fed remains committed to bringing inflation down to its target 2%, which means we are going to see more rate hikes.
  • Market breadth remains quite strong; this could bode well for a continuation of the rally by year-end.
September has been one of the worst months of the year going all the way back to 1950. It is down 0.5% on average, with February the only other month routinely in the red. September has been the worst in the past 20 years and 10 years and is one of the weaker months in a midterm election year. Interestingly, June is the worst in a midterm year, and that sure played out this year. So, why is September so poor for stocks? There are many theories. One is big traders finally get back from the Hamptons after Labor Day and begin to sell. The other is many hedge funds and institutions have their year-end in October, so they sell for tax reasons. Of course, we could ask why they don’t just sell in October, but we’ll leave that for another day. The bottom line is investors need to understand that seasonality plays a part in the overall cycle of the stock market, and this September could be rocky and volatile. But take one more look at the chart above. Some of the best months of the year are coming up, so a little more pain for some nice end-of-year gain might not be so bad. The Fed Will Keep At It Until the Job is Done So said Fed Chair Jerome Powell in his much-awaited Jackson Hole Economic Symposium speech. The “job” in this case refers to getting inflation down to the Fed’s 2% target, which is really about achieving price stability, as Powell and company see it. In their view, without price stability the economy will not be able to achieve a sustained period of strong employment. However, there will be unfortunate costs. Powell admitted that getting inflation back to target will bring pain to households and businesses, which are already struggling with higher interest rates, below-trend economic growth, and softer labor market conditions. But failing to restore price stability would be worse. The Fed lifted interest rates by 200 basis points over just three months, taking it to the 2.25-2.5% range (1 basis point or 1 bps = 0.01%). After the July meeting, Powell said Fed members thought rates had reached a moderately restrictive level. And at the Jackson Hole meeting, Powell added that getting inflation back to target will require sufficiently restrictive policy for quite some time. Translation: The Fed is going to continue raising rates and will keep them there for a while. The pace of interest rate hikes will eventually slow, but the level of rates will stay higher for longer. At the same time, data dependency means markets will parse each data point for clues as to how high they will go and how long they will stay there. Last week the PCE price index report (the Fed’s preferred measure of inflation) showed prices falling 0.1% in July. Core PCE, which strips out more volatile food and energy prices, was also much lower than expected, rising just 0.1%. This is welcome news, but Powell was clear that one month of improvement is not enough. Inflation may continue to ease over the next few months, as pandemic-impacted services, such as airfares and hotel prices, and vehicle prices exert a deflationary force on inflation. If that happens, the question is how much softening would the Fed need to see before backing off its current path? Therein lies the uncertainty. Let’s Leave on Some Good News The Fed, inflation, the economy, and war in Eastern Europe are just a few of the many issues for investors to worry about. But a very strong technical development occurred recently that might bring some calm to the myriad of concerns. Market breadth, defined simply, is how many stocks are going up or down at one time. In a solid bull market, many stocks must participate for the move to have lasting power. Additionally, breadth tends to lead price, so if many stocks are performing well (strong market breadth), then the odds favor the overall indexes to follow suit. Now for the good news. The S&P 500 advance/decline line recently made a new all-time high. An advance/decline line is simply how many stocks are going up versus down each day, which is then tallied up over time. What investors need to know is new highs in breadth can often signal new highs in the overall index. The chart below shows the last seven times this indicator made a new high for the first time after a period (four months) of no new highs. Although some periods of weakness followed initially, after one year stocks were higher every single time, up 15.6% on average. This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. S&P 500 INDEX The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. MSCI ACWI INDEX The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set. Compliance Case # 01472002 [post_title] => Market Commentary: The Worst Month of the Year Is Here [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => market-commentary-the-worst-month-of-the-year-is-here [to_ping] => [pinged] => [post_modified] => 2022-08-30 08:40:29 [post_modified_gmt] => 2022-08-30 13:40:29 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsonhub.wpengine.com/?post_type=market-commentary&p=65179 [menu_order] => 0 [post_type] => market-commentary [post_mime_type] => [comment_count] => 0 [filter] => raw ) ) [post_count] => 5 [current_post] => -1 [in_the_loop] => [post] => WP_Post Object ( [ID] => 65192 [post_author] => 90034 [post_date] => 2022-09-26 08:50:11 [post_date_gmt] => 2022-09-26 13:50:11 [post_content] => Stocks had another rough week. The S&P 500 flirted with the June lows and swung back into bear market territory. Investors are worried about inflation, the Fed, the economy, the Russia-Ukraine war, among other market challenges.
  • The market is experiencing peak bearishness.
  • This coincides with peak hawkishness from the Federal Reserve, as it projects more interest rate hikes.
  • Fed Chair Jerome Powell warns that putting inflation behind us may not be painless.
  • A down swing in inflation could prompt the Fed to pause.
One potential positive is overall market sentiment is getting quite pessimistic, in some cases reaching levels last seen in March 2020 and even March 2009. Both periods presented major buying opportunities. Various sentiment polls are flashing extreme pessimism, which from a contrarian point of view could be quite bullish. The reasoning is once all the bears have sold, there are only buyers left. Considering October is known as a “bear market killer,” we continue to think major lows could be near. The stock market saw major lows in October in 1957, 1960, 1966, 1974, 1984, 1990, 1994, 1998, 2002, and 2011. In fact, no month has seen more major market lows than October. We wouldn’t be surprised if 2022 joined this list. The Fed Wants to Get Inflation Behind Us, But There Isn’t a Painless Way to Do That An aggressive Federal Reserve raised its target policy rate by another 0.75%, taking it to the 3.0-3.25% range. This was the fifth hike this year and third successive 0.75% rate hike by a Fed looking to get on top of inflation. While it was largely expected, the big surprise was how high the Fed projected the interest rate to rise over the next year. In short, there’s more tightening to come. By the end of 2022, the Fed projects policy rates to reach 4.4%, a full percentage point above what was projected just three months ago in June. As of the end of 2023, the Fed now expects the target rate to hit 4.6%, about 0.8% above the previous projection. These projections have risen rapidly this year amid 40-year highs in inflation. Crucially, the Fed now projects staying at these high rates through 2024 at least. The Fed is strongly committed to bringing inflation back down, and Fed members believe that is the key to sustaining a healthy economy and labor market over the long term. However, they also believe there is no painless way to do it, and that was a big takeaway from the meeting. It’s worth quoting Fed Chair Powell in full: “We’re never going to say that there are too many people working, but the real point is that people are really suffering from inflation. If we want another period of a very strong labor market, we have got to get inflation behind us. I wish there were a painless way to do that. There isn’t.” This came across in the Fed’s latest economic projections. It slashed estimates of 2022 GDP growth from 1.7% to 0.2%, and for 2023, from 1.7% to 1.2%. The Fed now expects unemployment to peak at 4.4% in 2023, up from the June projection of 3.9% (the rate is currently 3.7%). That translates to about 1.2 million more people losing their jobs. Up until June, central bankers were clearly hoping to get away with small upticks in the unemployment rate, i.e., a “soft landing.” No longer. The latest projections basically amount to a recession, although perhaps, a mild one. The problem is once unemployment starts to rise, it’s not exactly easy to cap it at a particular number. Are There Any Positives At All? Powell did lay out a scenario for a soft landing. It’s a challenging path, but not implausible in our view.
  1. The labor market is currently imbalanced, with demand outrunning supply. But job vacancies (representing demand) are at such a high level that they could potentially fall without much of an increase in unemployment. However, this would be a big break from what we’ve seen in the past, as falling vacancies have typically been associated with more layoffs. Also, workers quit their jobs at a much higher rate after the pandemic (for better-paying jobs), but that’s slowing down now. If this continues, it should also ease the supply-demand imbalance and associated wage pressures.
  2. Inflation expectations, both amongst consumers and market participants, have been well anchored. That means there’s no expectations-related inflation spiral. This occurs when people expect higher prices in the future, so they buy now to get ahead of inflation and, in turn, drive up prices.
  3. The current inflation has been partly caused by a series of supply shocks, beginning with the pandemic and the economic reopening, and amplified by the Russia-Ukraine war. These weren’t present in prior business cycles. Of course, the Fed expected to see supply-side healing by now, but it hasn’t happened yet.
The upward shift in rate projections is likely to be a one-time adjustment that reflects the current high inflation levels, as opposed to the beginning of a series of upward shifts. Several leading indicators point to easing supply-chain pressures and lower prices. It’s just going to take a little more time to show up in official inflation numbers. Just as an example, the Producer Price Index indicates that margins for auto dealers are falling quickly, which means prices for used cars should follow in short order. So, there is a high likelihood that the federal funds target rate (as projected) may rise above year-over-year inflation numbers within the first half of 2023. The chart below shows various projections for PCE inflation (the Fed’s preferred measure), based on average monthly price changes over the next 15 months. This assumes the Fed will raise rates by another 0.75% in November, 0.50% in December and 0.25% in March 2023. In our view, the scenario in which price increases average 0.3% month-over-month is quite plausible. That would take PCE inflation down to 3.7% by mid-2023. Of course, this assumes there are no more shocks, such as the Russia-Ukraine war presented. That really is the key, as a convincing deceleration in prices is required for the Fed to pivot away from its current aggressive stance.   This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. S&P 500 – A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ 100 Index is a stock index of the 100 largest companies by market capitalization traded on NASDAQ Stock Market. The NASDAQ 100 Index includes publicly-traded companies from most sectors in the global economy, the major exception being financial services. Compliance Case #01497141 [post_title] => Market Commentary: Things Are Bad, and That Could Be Good [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => market-commentary-things-are-bad-and-that-could-be-good [to_ping] => [pinged] => [post_modified] => 2022-09-27 16:40:28 [post_modified_gmt] => 2022-09-27 21:40:28 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsonhub.wpengine.com/?post_type=market-commentary&p=65269 [menu_order] => 0 [post_type] => market-commentary [post_mime_type] => [comment_count] => 0 [filter] => raw ) [comment_count] => 0 [current_comment] => -1 [found_posts] => 124 [max_num_pages] => 25 [max_num_comment_pages] => 0 [is_single] => [is_preview] => [is_page] => [is_archive] => 1 [is_date] => [is_year] => [is_month] => [is_day] => [is_time] => [is_author] => [is_category] => [is_tag] => [is_tax] => 1 [is_search] => [is_feed] => [is_comment_feed] => [is_trackback] => [is_home] => [is_privacy_policy] => [is_404] => [is_embed] => [is_paged] => [is_admin] => [is_attachment] => [is_singular] => [is_robots] => [is_favicon] => [is_posts_page] => [is_post_type_archive] => [query_vars_hash:WP_Query:private] => 4988683a7012c9995754a9c3eb333ba2 [query_vars_changed:WP_Query:private] => [thumbnails_cached] => [stopwords:WP_Query:private] => [compat_fields:WP_Query:private] => Array ( [0] => query_vars_hash [1] => query_vars_changed ) [compat_methods:WP_Query:private] => Array ( [0] => init_query_flags [1] => parse_tax_query ) [tribe_is_event] => [tribe_is_multi_posttype] => [tribe_is_event_category] => [tribe_is_event_venue] => [tribe_is_event_organizer] => [tribe_is_event_query] => [tribe_is_past] => )

Market Commentary

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                    [post_content] => Published by Kevin Oleszewski

As the end of the year approaches, we start to think more and more about our tax picture. What boxes can we check to reduce our taxable income?

Tax-loss harvesting is one such approach. A tax-efficient way to rebalance your portfolio, tax-loss harvesting can help you offset earnings and get back to your target allocation. Tax-loss harvesting is traditionally thought of as an end-of-year event, because it can help you minimize your tax bill.

Consider tax-loss harvesting now, before you ring in the new year. And as you head into 2022, revisit this tax-efficient tactic at least quarterly to make the most of this strategy. 

Here’s what you need to know about tax-loss harvesting, including the wash sale rule.

What Is Tax-Loss Harvesting?

Tax-loss harvesting is a strategy that lowers your taxable earnings after you sell taxable investments and use those losses to offset the gains you have to claim as income. It can also allow you to push your capital gains further out, allowing you to save on your taxes in future years when your tax bill might be higher.  For example, if you sold some of your investments this year at a loss, but your portfolio is doing well, you can lower your taxable income by claiming that loss. Also, if your losses exceed your gains, you can claim up to $3,000 on your taxes to offset ordinary income.  Let’s look at a specific, strategic and tax-efficient example. Say you have stock in Verizon that you want to sell and purchase stock in another cell phone company, AT&T. If you had a big loss in Verizon, you want to capture that loss while maintaining exposure to a cell phone company. Or, you might want to sell Verizon stock while it’s down to lower your tax footprint and soon after repurchase, because you believe it will rebound. A savvy investor might turn to either of those strategic scenarios. But before you move on this strategy, remember the wash sale rule.

The Wash Sale Rule

Let’s talk about the wash sale rule for a minute. This Internal Revenue Service (IRS) rule prevents you from taking a tax deduction for a security sold in a wash sale.  A wash sale occurs when you sell or trade securities at a loss and you also do three things within 30 days before or after the sale: 
  • Buy a substantially identical security
  • Acquire substantially identical securities in a fully taxable trade
  • Acquire a contract or option to buy substantially identical securities
Essentially, you want your allocation to stay the same. You don't want the savings on the tax to change your asset allocation. You have to be especially mindful of swapping a holding for a similar holding so you don’t trigger the wash sale rule. So, going back to the Verizon and AT&T example, say you want to buy back the Verizon stock instead of purchasing AT&T – you have to wait at least 31 days to buy it back or you can’t claim the loss.

Who Should Engage in Tax-Loss Harvesting?

Generally, tax-loss harvesting is ideal for people in higher tax brackets since the idea is to help lower tax bills.  A group of researchers from MIT and Chapman University found that tax-loss harvesting yielded a tax alpha, or outperformance by using available tax-saving strategies, of 1.10% per year from 1926 to 2018.  However, it could also be useful for people in a lower tax bracket, since you could carry those losses forward to times when you might have a higher tax bill, like if you get a higher-paying job or the government raises tax rates.  Tax-loss harvesting will play a huge role in planning if we move into a higher-tax environment. Higher tax rates call for investors to pay closer attention to tax efficiency of their taxable accounts.  There are certain situations in which you should consider tax-loss harvesting: 
  • Your investments are subject to capital gains tax. 
  • You are able to use tax-deferred retirement plans to postpone paying taxes until you retire. 
  • You anticipate you’ll change tax brackets. 
  • You invest in individual stocks. 

Questions to Ask Your Advisor About Tax-Loss Harvesting

If you don’t yet have an advisor, and you’re in the process of interviewing one, you should ask them to tell you about their process of rebalancing portfolios. They should explain to you how they do so and in what type of account they do so.  Here are a few more questions you can ask: 
  • Do you do tax-loss harvesting? 
  • How does tax-loss harvesting fit into your overall investment philosophy? 

Connect With a Financial Advisor

While we tend to focus on tax-loss harvesting now at the end of the year, it could be a beneficial strategy all year, especially as we gear up to potentially enter a higher-tax era. But it’s imperative that you discuss this with your financial professional to determine the frequency and timing of tax-loss harvesting for your particular situation.  Reach out to our team today to discuss your financial plan and how tax-loss harvesting can fit into your strategy. Kevin Oleszewski is not affiliated with Cetera Advisor Networks LLC. Any information provided by Kevin is in no way related to Cetera Advisor Networks LLC or its registered representatives. [post_title] => Any Time is Tax-Loss Harvesting Time [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => any-time-is-tax-loss-harvesting-time [to_ping] => [pinged] => [post_modified] => 2021-12-15 12:31:47 [post_modified_gmt] => 2021-12-15 18:31:47 [post_content_filtered] => [post_parent] => 0 [guid] => https://retirementextender1.carsonwealth.com/insights/monthly-newsletters/any-time-is-tax-loss-harvesting-time/ [menu_order] => 0 [post_type] => monthly-newsletters [post_mime_type] => [comment_count] => 0 [filter] => raw ) [1] => WP_Post Object ( [ID] => 64118 [post_author] => 6008 [post_date] => 2021-12-02 11:02:48 [post_date_gmt] => 2021-12-02 17:02:48 [post_content] => Many people have the idea that tax planning is only about paying less money right now, and that’s not the case. Tax planning is about paying less money over time. There are many avenues to do that. As we’re nearing the end of 2021, it’s prime time to get your finances in order for the upcoming tax season, and hopefully this article can help you figure out how to pay less money over time. In this article, we’ll focus on a few areas for your end-of-year tax planning: tax-loss harvesting and rebalancing, charitable giving, retirement plan contributions and Roth conversions.

Tax-Loss Harvesting and Rebalancing

Rebalancing your portfolio in the most tax-efficient way is key. You want to make sure you are pairing up gains and losses. In other words, if you have gains in your portfolio, you should pair them with losses to offset or minimize your tax exposure.  I recently wrote about this strategy, tax-loss harvesting, which is essentially a method that helps you lower your taxable earnings after selling taxable investments and using those losses to offset the amount of gains you have to claim as income. Tax-loss harvesting can also let you push your capital gains further out, allowing you to save on your taxes in future years when your tax bill might be higher.

Charitable Giving

Giving directly to a charity is good for your soul, but maybe not for your tax bill, especially if you aren’t itemizing. You won’t get to deduct the full donation if you aren’t itemizing, but you’ll still get a $300 above-the-line deduction.  Since the standard deduction for 2021 is so high – $25,100 for married filing jointly and $12,550 for single filers – more taxpayers have chosen to take it over itemizing deductions. CNBC reported that 16.7 million households claimed itemized deductions on their 2018 income tax returns, down from 46.2 million in the 2017 tax year.  There are two avenues to explore charitable giving this time of year: establishing a donor-advised fund and making qualified charitable distributions from your IRA.  A donor-advised fund allows you to bunch your charitable contributions this year so that you’ll be able to get a tax break. For example, you can bunch your charitable contributions for the next five years – say $10,000 a year – into a DAF and still be able to take the full tax deduction this year. This $50,000 donation will definitely get you over the standard deduction.  If you want to get more in-depth on donor-advised funds, check out our blog post on DAFs and charitable remainder trusts.  Qualified charitable distributions (QCDs), on the other hand, are good for people who have to take required minimum distributions (RMDs) but don’t need the money. QCDs allow you to donate $100,000 per taxpayer (so a married couple can donate $200,000) per year to a charity directly from your IRA if you’re over age 70½. The benefit here is you don’t have to pay income tax on that amount while also satisfying your RMD.

Establish and Contribute to Retirement Accounts

If you’ve taken a break from contributing to your retirement account, now is the time to catch up if you are able. The maximum amount you could donate this year is $19,500. If you are a small business owner and have yet to set up a retirement account, doing so by the end of the year is a good idea. First, you’ll want to explore which option is right for you. For example, if you don't foresee yourself going over the $6,000 contribution limit for traditional IRAs, that would be a good option for you. But if you anticipate you’ll contribute more than that, the SEP IRA or solo 401(k) are also both viable vehicles. These two options have different rules. For example, SEP IRAs are more cost-effective to set up and you can contribute 25% of your qualified business income or $58,000, whichever is less for 2021. So for example, if you’re self-employed and your qualified business income is $100,000, you can donate $25,000. With a solo 401(k), the contribution limit is $58,000 plus a $6,500 catch-up contribution or 100% of earned income, whichever is less for 2021. So long as you establish your solo 401(k) by year end (December 31, 2021), you have until your company’s tax return deadlines (including extensions) to make contributions.

Roth Conversions

Roth conversions are when you transfer money from a traditional IRA and convert it to a Roth IRA, which is a taxable event. Essentially, you would pay taxes on that conversion as it becomes part of your taxable income now, versus paying taxes on that money in the future. Let’s look at an example: Say you have $50,000 in an IRA and you want to transfer it into a Roth IRA. Your taxable income will now be $50,000 more than it would have been before. You and your financial professional need to evaluate whether this would be a good idea for your situation. There are many benefits to doing the Roth conversion. First, we don’t know what is going to happen with taxes in the future, so if you anticipate you’ll be in a higher tax bracket next year, you can do your Roth conversion now and take advantage of this low-tax-rate environment. Second, Roth IRAs don’t have RMDs, so you won’t be required to take from this bucket in retirement.  Also, you don’t have to pay taxes on the earnings from the Roth IRA if you meet certain IRS criteria. And since you’re contributing after-tax dollars, you can withdraw your contributions tax- and penalty-free.  Lastly, Roth IRAs are a tax-efficient asset to leave to heirs. While they still must draw down the account in 10 years, when they do inherit the funds and draw down, it’s not a taxable event.  One more thing to keep in mind when doing a Roth conversion: pay the taxes on it with cash, your taxable investment account or a trust account, instead of paying with the conversion.

In Conclusion 

Planning what you’re going to serve for the holidays might be top of mind right now, but you want to make some space for your tax planning so you can maximize your savings. Taxes are inevitable, and good tax planning will help you pay less over time. It’s imperative that you connect with your trusted financial professionals to make the best tax plan for your unique situation. Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty. Converting from a traditional IRA to a Roth IRA is a taxable event. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes. Re-balancing may be a taxable event. Before you take any specific action be sure to consult with your tax professional. [post_title] => Areas of Focus for End-of-Year Tax Planning [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => areas-of-focus-for-end-of-year-tax-planning [to_ping] => [pinged] => [post_modified] => 2021-12-02 13:52:36 [post_modified_gmt] => 2021-12-02 19:52:36 [post_content_filtered] => [post_parent] => 0 [guid] => https://retirementextender1.carsonwealth.com/insights/monthly-newsletters/areas-of-focus-for-end-of-year-tax-planning/ [menu_order] => 0 [post_type] => monthly-newsletters [post_mime_type] => [comment_count] => 0 [filter] => raw ) [2] => WP_Post Object ( [ID] => 64014 [post_author] => 6008 [post_date] => 2021-11-04 09:14:03 [post_date_gmt] => 2021-11-04 14:14:03 [post_content] => Each person’s relationship with charitable giving has an origin story. Maybe it was when your grandmother would cook dinner for people in your community who were less fortunate. Or you were required by parental contract to give up a certain percentage of your allowance to the church collection basket. No matter how it started, now you’re grown and you are still a charitably-minded individual who wants to give to causes you care about. You’re not the only one. Charitable giving, giving back through volunteering and donations soared during the COVID-19 pandemic, as exemplified by these statistics:
  • 88% of affluent households gave to charity in 2020 (according to Bank of America and the Indiana University Lilly Family School of Philanthropy).
  • Americans gave $471.44 billion in 2020, up 5.1% from 2019 (according to the National Philanthropic Trust).
  • Giving in every sector increased, but especially gifts that benefit the public/society (up 15.7%), the environment and animal rights (up 11.6%) and individuals (up 12.8%) (according to the National Philanthropic Trust).
  • 86% of affluent households maintained – and in some cases increased – giving, despite uncertainty caused by the pandemic (according to the National Philanthropic Trust).
If you are part of this increased giving trend – or want to be – among the tools available to you for your charitable giving are donor-advised funds and charitable remainder trusts. While both of these tools play a role in charitable giving – in that they both provide long-term resources for charitable causes – they are quite different. We’ll give you an overview of both, when they might be the appropriate choice and some tips for getting started with each.

Deeper in the DAF

A donor-advised fund (DAF) is a tool that can help you maximize your charitable giving. Essentially, you make an irrevocable contribution to the DAF of either cash or other assets, like appreciated securities. While there is no startup cost associated with a DAF, the initial contribution with some DAFs is at least $5,000. The DAF is sponsored by a 501(c)(3) nonprofit organization, which subsequently owns those assets and handles all the administrative tasks and the grant administration process. Some DAFs allow the financial advisor of your choice to manage the investments in your DAF so make sure you know all of the requirements as DAFs vary. Although you recommend where the money is donated to, the sponsor has the final say-so as to where the money goes. While you may get a tax deduction at the time of the original donation to the DAF, you cannot deduct the amount again when the money is distributed from the fund to the qualified charity. National Philanthropic Trust reported that grantmaking from DAFs to qualified charities increased 93% between 2015 and 2019. With DAFs, no mandatory amount has to come out of the fund. Their popularity has grown in recent years, making them the fastest-growing philanthropic vehicle, due to their flexibility and ease of use. If you were never one for the limelight or the credit, another benefit of the DAF is that you can make anonymous charitable gifts. Some restrictions with DAFs, according to the National Philanthropic Trust, include that donors can’t:
  • Advise grants be made to individuals.
  • Receive goods in exchange for donation.
  • Advise grants be used for tuition.
DAFs are a good tool to use when you want to leave a legacy or pass on your values while also giving more meaning to the wealth you’ve built. DAFs are good if you’re passionate about helping others and donating to charitable causes. If you’re having a hard time picturing it, DAFs can be likened to a checking account that holds the monies that can be distributed later on to various charitable organizations. You can even have your loved ones take over being the successor manager of some DAFs upon your passing.

Cracking the CRT

A charitable remainder trust is an irrevocable trust established to provide annual payments to current beneficiaries – which can be you – with the remainder balance distributed to a charity. CRTs are a little bit different from DAFs, as they are a trust, customized to your situation and more of an estate planning tool. Essentially, you have your attorney create a trust, you determine what asset you’re going to put into it and your professionals will run the numbers to determine the current and remainder payout parameters. The lifetime beneficiary payout has to be at least 5% of the trust assets, but cannot exceed 50%. The chosen charity must receive at least 10% of actuarial value of the assets initially transferred to the CRT at the end of its term. Keep in mind that if the assets you donate are not cash or publicly traded securities, they may need to be appraised. The type of appraisal you get depends on the type of asset it is. For example, if you are contributing art to your CRT, you will need an art appraiser. Your financial professional can help you figure out which type of appraisal to get. There are two types of CRTs:
  • Charitable Remainder Unitrust (CRUT): distributes a fixed amount each year, but no additional contributions can be made.
  • Charitable Remainder Annuity Trust (CRAT): distributes a fixed percentage on the balance of trust assets, but additional contributions can be made.
Your professionals can help you figure out which type of CRT is the best fit for your situation. Regardless of what type of CRT you use, note that there are fees associated with setting up the trust, including legal fees. With the CRT, there is a mandatory amount or percentage of the trust assets that has to come out annually to the beneficiary or beneficiaries, as noted above, and there are expenses associated with the administration of the CRT. Those expenses could include paying the trustee to administer the trust and the cost of the filing of a tax return for the trust. CRTs have a definite endpoint. Payments can stretch anywhere from 20 years to life, but at some point they stop. And also unlike DAFs, gifts from CRTs are not given anonymously. CRTs are great if you have highly appreciated assets and you want to have a defined stream of cash flow for you or your beneficiaries.  The good news is that both CRTs and DAFs offer tax benefits to you in the form of income tax deductions and capital gains tax deferral or avoidance. Both allow for an immediate tax deduction but the amount of the deduction depends on your specific tax situation, and also what type and how long you have owned the asset or assets that you are contributing. In the case of the CRT you receive an immediate tax deduction on the present value of the assets that will eventually go to charity, several charities or your DAF. Also, in most cases, capital gains tax on appreciated assets can be completely avoided or deferred when assets are transferred into the CRT or DAF and then sold. CRTs and DAFs can be used together. This happens if you want to set up a DAF as the charity to receive the assets at the end of the term of the CRT.

Working with a Professional is Key

The main reason people give to charity is because they want to help a cause, which is also among the reasons people employ these tools. But there are also benefits to using these tools, nuances you should be aware of and pitfalls to avoid. Your financial advisor can help you determine the right solution and also run point with your other professionals, like your CPA or attorney, to craft the ideal solution for your unique situation. This piece is not intended to provide specific legal, tax, or other professional advice. For a comprehensive review of your personal situation, always consult with a tax or legal advisor. [post_title] => Tools for the Charitably Minded: Donor-Advised Funds and Charitable Remainder Trusts [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => tools-for-the-charitably-minded-donor-advised-funds-and-charitable-remainder-trusts [to_ping] => [pinged] => [post_modified] => 2021-11-04 09:14:03 [post_modified_gmt] => 2021-11-04 14:14:03 [post_content_filtered] => [post_parent] => 0 [guid] => https://retirementextender1.carsonwealth.com/insights/monthly-newsletters/tools-for-the-charitably-minded-donor-advised-funds-and-charitable-remainder-trusts/ [menu_order] => 0 [post_type] => monthly-newsletters [post_mime_type] => [comment_count] => 0 [filter] => raw ) [3] => WP_Post Object ( [ID] => 63943 [post_author] => 6008 [post_date] => 2021-10-07 09:02:07 [post_date_gmt] => 2021-10-07 14:02:07 [post_content] => There’s a scene in the TV show Friends where Rachel gets her very first paycheck as a waitress at Central Perk. “Who is FICA and why is he getting all my money?” she poses to the gang. Some people age 65 and older might have a similar sentiment when they get their Social Security check and see a chunk missing that’s gone to IRMAA. “Who is IRMAA and why is she getting some of my money?” you might ask. IRMAA is your income-related monthly adjustment amount, which you pay on top of both your Medicare Part B (medical coverage) and Part D premiums (prescription coverage). We’re going to get into the subject of IRMAA in this article, as well as give you some pertinent background information necessary to understand it. We’re also going to offer you some planning tips and common mistakes to avoid.

What Is IRMAA?

When we set up retirement plans for clients, oftentimes we'll send them a worksheet and ask them to work through and itemize all their monthly expenses. Typically, when we do this with somebody who is about to retire, they’ll list their dining-out trips, their Netflix and other streaming subscriptions, but they’ll forget their health insurance costs. Many people have the misconception that all Medicare is free because they’ve paid into it all their working lives. We have to tell them that’s only partially correct. You may be getting your Medicare Part A for free, but you must pay for your Medicare Part B (medical coverage) and Medicare Part D (prescription coverage) and, based on your income, your income-related monthly adjustment amount for both Part B and Part D. IRMAA is an extra surtax you pay based on your income. I was working on a financial plan the other day for clients who are high net worth individuals. Because of their current income and projected income, we had to add an extra $400 per person per month for IRMAA to their budget. This created some discussion. The clients thought they were good with a $6,000 per month budget. But then we added on this IRMAA piece, which is essentially an additional $9,600 per year ($800 per month) – an amount that could’ve gone to a travel fund or annual gifts to family members. According to Medicare.gov, Medicare Part B premiums (which already include IRMAA) for 2021, plus Part D IRMAA surcharges based on income from 2019, are as follows:
  • Monthly premium of $207.90 + $12.30 IRMAA per person for single filers making between $88,000 and $111,000, and for married filing jointly filers who made between $176,000 and $222,000.
  • Monthly premium of $297.00 + $31.80 IRMAA per person for single filers making between $111,000 and $138,000, and married filing jointly filers who make between $222,000 and $276,000.
  • Monthly premium of $386.10 + $51.20 IRMAA per person for single filers making between $138,000 to $165,000, and married filing jointly making between $276,000 and $330,000.
  • Monthly charge of $475.20 + $70.70 IRMAA per person for single filers making between $165,000 and $500,000, married filing jointly making between $330,000 and $750,000, and married filing separately making between $88,000 and $412,000.
  • Monthly charge of $504.90 + $77.10 IRMAA per person for single filers making $500,000 and above, married filing jointly making $750,000 or above, and married filing separately making $412,000 or above.

Laying the Groundwork and Planning Tips

To give you a more robust picture of IRMAA, let’s examine some things that might impact the amount you will owe. Right now, Roth conversions are in the news because people are concerned about impending tax hikes. Roth conversions bump up your adjusted gross income (AGI), and that will impact your IRMAA. Many clients come to us thinking they are diversified from an investment standpoint – however, they might not have thought about tax diversification. If you look at the tax triangle, on one side are tax-deferred accounts like 401(k)s and IRAs, which are typically the easiest ways to save. On another side, you have taxable money, like brokerage accounts – clients will typically start building those up after they’ve built up some of those tax-deferred buckets. On the third side, you have the tax-free bucket, which includes Roth IRAs, Roth 401(k)s and the like. Under the current rules, you won’t have to pay taxes when you pull money out from the third side of the triangle. Many clients find themselves overweighted in tax-deferred money. Regardless of whether somebody is retiring with $500,000 or $5 million, I have yet to see a client retirement picture that has more tax-free money than tax-deferred money. This is relevant to the IRMAA conversation because movement of money among these three sides of the triangle – as well as pulling money from any of them – has implications on your modified adjusted gross income used to determine how much you pay in IRMAA. For example, because a Roth conversion moves money from a tax-deferred vehicle to a tax-free vehicle, it’s seen as income reported on your 1099-R. When your income is bumped up, your adjusted gross income and your modified adjusted gross income also bump up, which is what IRMAA is tied to. IRMAA looks back two years in arrears. In other words, your 2022 coverage will be based on your 2020 income. So the time to start planning for it is at age 63, two years before you have to enroll in Medicare. If you’re thinking of Roth conversions now, it may impact your IRMAA two years down the road.

Avoid Common Mistakes with IRMAA Planning

There are three common mistakes you might make when it comes to IRMAA planning. Be sure to steer clear of these: Not factoring it into your retirement budget. It’s easy to skip over how much your health insurance is going to cost. IRMAA is a significant addition to your monthly budget. It can potentially add up to $1,000 per month, in addition to what you’re already planning. If you’re on a fixed income, this could make a big difference – especially if you’re in a higher income bracket during retirement. Making sure you account for IRMAA in your retirement roadmap and monthly expenses is important. Not realizing how much income you’ll have in retirement. I have had some clients who make more in retirement than they did while they were working. However, the sources of their income are fixed, so they don’t have the ability to decrease them – like pension, Social Security or required minimum withdrawals from tax-deferred accounts, which increase every year. Many clients realize that they’ve done well and saved up, which leads to their income going up in retirement – but also has an adverse consequence on their IRMAA adjustment. Not having a plan for where you’re pulling income from. Pulling $200,000 from cash vs. pulling $200,000 from an IRA has very different tax consequences that could impact IRMAA adjustments. In your working years, you get used to getting a paycheck and knowing where your income is coming from. But in retirement, you have to create your own income by turning assets into income. This could get a little confusing. It’s important to consult a professional so that you can plan. If you need some guidance specific to your own situation, call your financial professional. This piece is not intended to provide specific legal, tax, or other professional advice. For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Converting from a traditional IRA to a Roth IRA is a taxable event. [post_title] => Who is IRMAA and Why Is She Getting My Money? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => who-is-irmaa-and-why-is-she-getting-my-money [to_ping] => [pinged] => [post_modified] => 2021-10-07 09:02:07 [post_modified_gmt] => 2021-10-07 14:02:07 [post_content_filtered] => [post_parent] => 0 [guid] => https://retirementextender1.carsonwealth.com/insights/monthly-newsletters/who-is-irmaa-and-why-is-she-getting-my-money/ [menu_order] => 0 [post_type] => monthly-newsletters [post_mime_type] => [comment_count] => 0 [filter] => raw ) [4] => WP_Post Object ( [ID] => 63849 [post_author] => 6008 [post_date] => 2021-09-02 08:25:43 [post_date_gmt] => 2021-09-02 13:25:43 [post_content] => Are you healthy? Or are you anticipating some hefty medical bills coming up? Or do you want to save money in a tax-advantaged way for future medical expenses? If so, a health savings account (HSA) might be a good choice. An HSA is a tax-favored savings and investment account that’s used for qualified health care expenses and tethered to high-deductible health plans (HDHPs). There are three tax benefits to HSAs: The first is that contributions are pre-tax if they’re coming through payroll, and if they’re not made pre-tax, the account owner will get a tax deduction; second, the growth on the account – interest or returns – is tax-free; and third, if distributions are made to pay for qualified health care costs, those come out tax-free. Outside of tax benefits, you could also get a contribution into the account from your employer when you sign up for an HSA. HSAs could also potentially play a role in retirement planning, to the extent that people are fortunate enough that they don’t use the HSA regularly. There’s an opportunity to build up that account over the years and take out the funds tax-free to pay medical expenses later in life when those costs are higher. Maybe you’re considering an HSA, or maybe you already have one. Either way, you can learn from this article how to avoid common mistakes and other ways to maximize your HSA.

Who are HSAs For?

First of all, you have to meet some criteria before you can get an HSA. According to Benefit Resource, those criteria are that you:
  • Be covered in a qualified high-deductible health plan
  • Can’t be claimed as a dependent on someone else’s taxes
  • Can’t be enrolled in Medicare
  • Can’t be covered by a non-qualified health plan
In addition to these, the ideal candidates for HSAs are people who: 1. Want to allocate assets for medical costs in the future. Do you want to start planning for how to fund medical costs in the future? 2. Only go to the doctor for routine checkups. Are you relatively healthy and only go to the doctor for preventative care? 3. Are anticipating high medical costs in a single year. If you’re on the other end of the spectrum and are going to have high medical bills, an HDHP with HSA might make sense because your deductible gets capped and total out-of-pocket medical costs – including premiums – could be lower than with other medical plans. Take a family of four who all have deviated septums. If all of them need septoplasties in the same year, an HSA might be good for them. According to eMedicineHealth, depending on where and what services you get, the average cost of a septoplasty is $8,131. For this family of four, the total cost for their septoplasties is $32,524. With an HDHP, the out-of-pocket costs for 2021 are capped at $7,000 for individuals and $14,000 for families. So that family with the deviated septums will only have to pay $14,000 out of pocket, which they can pay with their HSA. Bear in mind that those out-of-pocket limits are going to rise to $7,050 for individuals and $14,100 for families in 2022.

Common HSA Mistakes to Avoid

The first way to maximize your HSA is to avoid common mistakes. There’s room for making mistakes with HSAs because they’re flexible. Here are some to avoid:
  • Confusing HSAs with FSAs. People might be more familiar with flex spending accounts. Unlike with FSAs, when you put money into an HSA, you don’t have to use it that year – you can just let it sit and grow as long as you save your receipts. With HSAs, the entire amount you contribute can be rolled over year after year. Also, HSAs are portable, meaning you can take them with you when you change jobs or retire.
  • Not keeping your receipts. Save receipts whether you have an HSA debit card or not, because at the end of the year when you’re filing your taxes, the IRS will get a document from your HSA custodian detailing how much money went in and how much went out. You want to ensure you keep receipts should there be a tax issue.
  • Not having outside assets to cover medical care. Getting started with an HSA might be a challenge – if you don’t get the HSA funded right away and you have a medical expense early on, you might need to pay for it with assets outside of the HSA. Not having those backup funds upfront is a common mistake people make.
  • Banking on not needing medical care. The Mayo Clinic reports that people wanting to save more in their HSA sometimes forgo medical treatment. You should get medical treatment when you need it. You also can’t predict medical emergencies. Some years, you will be able to stack money in your HSA; other years, you might use everything you put in. The good news is if you do have a medical emergency, the out-of-pocket contribution is capped with HDHPs. Also, it’s nice that you still get that triple tax benefit even if you don’t get the long-term growth.

Ways to Maximize Your HSA

If you have an HSA, there are four ways to maximize it:
  • Maximize your contributions to your HSA. The maximum contribution limits for 2021 are $3,600 for self-only coverage or $7,200 for family coverage. For 2022, those limits are $3,650 for self-only coverage and $7,300 for family coverage. Also, if you are 55 and older, you can contribute up to $1,000 additional dollars each year.
  • Be aware of the investment options available. If you are in a position to invest funds in your HSA, find out if that option is available to you. HSA plans differ, and some plans have an opportunity to invest the way you do with regular investment accounts. Also be aware that, as with any investment, there is risk.
  • Have the cash flow to pay medical costs. If you are able, paying your medical costs with your cash flow or other accounts can allow your HSA to grow for the long-term. It’s also a must to have some assets outside your HSA while you’re building up the account. Keep in mind the out-of-pocket limits mentioned above.
  • Work with your financial advisor. As with everything, you need intentional planning based on your situation. Among the best ways to maximize your HSA is to work with your advisor to put together a plan specific to you.
Even if you meet all the criteria for an HSA this year, medical care is a unique, personal decision, and the direction you go with it can change from one year to the next. This piece is not intended to provide specific legal, tax, or other professional advice. For a comprehensive review of your personal situation, always consult with a tax or legal advisor. [post_title] => Got an HSA? Learn How to Maximize It [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => got-an-hsa-learn-how-to-maximize-it [to_ping] => [pinged] => [post_modified] => 2021-09-02 08:25:43 [post_modified_gmt] => 2021-09-02 13:25:43 [post_content_filtered] => [post_parent] => 0 [guid] => https://retirementextender1.carsonwealth.com/insights/monthly-newsletters/got-an-hsa-learn-how-to-maximize-it/ [menu_order] => 0 [post_type] => monthly-newsletters [post_mime_type] => [comment_count] => 0 [filter] => raw ) ) [post_count] => 5 [current_post] => -1 [in_the_loop] => [post] => WP_Post Object ( [ID] => 64166 [post_author] => 6008 [post_date] => 2021-12-15 12:31:47 [post_date_gmt] => 2021-12-15 18:31:47 [post_content] => Published by Kevin Oleszewski As the end of the year approaches, we start to think more and more about our tax picture. What boxes can we check to reduce our taxable income? Tax-loss harvesting is one such approach. A tax-efficient way to rebalance your portfolio, tax-loss harvesting can help you offset earnings and get back to your target allocation. Tax-loss harvesting is traditionally thought of as an end-of-year event, because it can help you minimize your tax bill. Consider tax-loss harvesting now, before you ring in the new year. And as you head into 2022, revisit this tax-efficient tactic at least quarterly to make the most of this strategy.  Here’s what you need to know about tax-loss harvesting, including the wash sale rule.

What Is Tax-Loss Harvesting?

Tax-loss harvesting is a strategy that lowers your taxable earnings after you sell taxable investments and use those losses to offset the gains you have to claim as income. It can also allow you to push your capital gains further out, allowing you to save on your taxes in future years when your tax bill might be higher.  For example, if you sold some of your investments this year at a loss, but your portfolio is doing well, you can lower your taxable income by claiming that loss. Also, if your losses exceed your gains, you can claim up to $3,000 on your taxes to offset ordinary income.  Let’s look at a specific, strategic and tax-efficient example. Say you have stock in Verizon that you want to sell and purchase stock in another cell phone company, AT&T. If you had a big loss in Verizon, you want to capture that loss while maintaining exposure to a cell phone company. Or, you might want to sell Verizon stock while it’s down to lower your tax footprint and soon after repurchase, because you believe it will rebound. A savvy investor might turn to either of those strategic scenarios. But before you move on this strategy, remember the wash sale rule.

The Wash Sale Rule

Let’s talk about the wash sale rule for a minute. This Internal Revenue Service (IRS) rule prevents you from taking a tax deduction for a security sold in a wash sale.  A wash sale occurs when you sell or trade securities at a loss and you also do three things within 30 days before or after the sale: 
  • Buy a substantially identical security
  • Acquire substantially identical securities in a fully taxable trade
  • Acquire a contract or option to buy substantially identical securities
Essentially, you want your allocation to stay the same. You don't want the savings on the tax to change your asset allocation. You have to be especially mindful of swapping a holding for a similar holding so you don’t trigger the wash sale rule. So, going back to the Verizon and AT&T example, say you want to buy back the Verizon stock instead of purchasing AT&T – you have to wait at least 31 days to buy it back or you can’t claim the loss.

Who Should Engage in Tax-Loss Harvesting?

Generally, tax-loss harvesting is ideal for people in higher tax brackets since the idea is to help lower tax bills.  A group of researchers from MIT and Chapman University found that tax-loss harvesting yielded a tax alpha, or outperformance by using available tax-saving strategies, of 1.10% per year from 1926 to 2018.  However, it could also be useful for people in a lower tax bracket, since you could carry those losses forward to times when you might have a higher tax bill, like if you get a higher-paying job or the government raises tax rates.  Tax-loss harvesting will play a huge role in planning if we move into a higher-tax environment. Higher tax rates call for investors to pay closer attention to tax efficiency of their taxable accounts.  There are certain situations in which you should consider tax-loss harvesting: 
  • Your investments are subject to capital gains tax. 
  • You are able to use tax-deferred retirement plans to postpone paying taxes until you retire. 
  • You anticipate you’ll change tax brackets. 
  • You invest in individual stocks. 

Questions to Ask Your Advisor About Tax-Loss Harvesting

If you don’t yet have an advisor, and you’re in the process of interviewing one, you should ask them to tell you about their process of rebalancing portfolios. They should explain to you how they do so and in what type of account they do so.  Here are a few more questions you can ask: 
  • Do you do tax-loss harvesting? 
  • How does tax-loss harvesting fit into your overall investment philosophy? 

Connect With a Financial Advisor

While we tend to focus on tax-loss harvesting now at the end of the year, it could be a beneficial strategy all year, especially as we gear up to potentially enter a higher-tax era. But it’s imperative that you discuss this with your financial professional to determine the frequency and timing of tax-loss harvesting for your particular situation.  Reach out to our team today to discuss your financial plan and how tax-loss harvesting can fit into your strategy. Kevin Oleszewski is not affiliated with Cetera Advisor Networks LLC. Any information provided by Kevin is in no way related to Cetera Advisor Networks LLC or its registered representatives. [post_title] => Any Time is Tax-Loss Harvesting Time [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => any-time-is-tax-loss-harvesting-time [to_ping] => [pinged] => [post_modified] => 2021-12-15 12:31:47 [post_modified_gmt] => 2021-12-15 18:31:47 [post_content_filtered] => [post_parent] => 0 [guid] => https://retirementextender1.carsonwealth.com/insights/monthly-newsletters/any-time-is-tax-loss-harvesting-time/ [menu_order] => 0 [post_type] => monthly-newsletters [post_mime_type] => [comment_count] => 0 [filter] => raw ) [comment_count] => 0 [current_comment] => -1 [found_posts] => 27 [max_num_pages] => 6 [max_num_comment_pages] => 0 [is_single] => [is_preview] => [is_page] => [is_archive] => [is_date] => [is_year] => [is_month] => [is_day] => [is_time] => [is_author] => [is_category] => [is_tag] => [is_tax] => [is_search] => [is_feed] => [is_comment_feed] => [is_trackback] => [is_home] => 1 [is_privacy_policy] => [is_404] => [is_embed] => [is_paged] => [is_admin] => [is_attachment] => [is_singular] => [is_robots] => [is_favicon] => [is_posts_page] => [is_post_type_archive] => [query_vars_hash:WP_Query:private] => 33360e3352fab1dda1687c7ecea517e1 [query_vars_changed:WP_Query:private] => [thumbnails_cached] => [stopwords:WP_Query:private] => [compat_fields:WP_Query:private] => Array ( [0] => query_vars_hash [1] => query_vars_changed ) [compat_methods:WP_Query:private] => Array ( [0] => init_query_flags [1] => parse_tax_query ) [tribe_is_event] => [tribe_is_multi_posttype] => [tribe_is_event_category] => [tribe_is_event_venue] => [tribe_is_event_organizer] => [tribe_is_event_query] => [tribe_is_past] => )

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Any Time is Tax-Loss Harvesting Time

Published by Kevin Oleszewski As the end of the year approaches, we start to think more and more about our tax picture. What boxes can we check to reduce our taxable income? Tax-loss harvesting is one such approach. A tax-efficient way to rebalance your portfolio, tax-loss harvesting can he …
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