A Retirement Countdown Checklist: 5 Steps to Consider Before Retirement
Whether you’re hoping to retire soon or are just beginning to explore the idea of stepping back from your job, you’re probably wondering how to make it happen. Will you have enough money? How will you spend your time? What will you do for health insurance? Here, you’ll find a useful countdown of the five biggest steps to developing a solid retirement plan.
5. Assess Your Retirement Goals
What does retirement look like for you? Do you plan to or want to continue working part-time? Will you travel? Do you want to sell your home and hit the road in an RV? At what age will you claim Social Security? When will you qualify for Medicare?
Everyone’s retirement goals are different, which means your financial plan for retirement will also be different.
4. Decide How to Draw Down Savings
Depending on whether your assets are held in a pre-tax account, a post-tax account, or a taxable account, your savings drawdown strategy can vary widely. Your age can also dictate when, how, and how much you withdraw from your retirement accounts. For example, if you plan to retire before age 59.5, you may want to first begin withdrawing funds from a taxable account to provide flexibility until you’re able to take penalty-free withdrawals from a 401(k) or a traditional IRA.
3. Enlist a Financial Professional
If you don’t yet have a dedicated financial professional, now may be the time to assess your retirement readiness and work to optimize your income and assets as you enter retirement. You don’t want to find yourself in a position where your retirement needs exceed your income or assets and you’re forced to scale down—or even go back to work—after you’ve already been enjoying retirement for a few years.
2. Survey Potential Large Expenses
Beginning your retirement with multiple large, unexpected expenses can send even the most carefully planned budgets off track. Before you retire, consider some of the biggest expenses that are likely to come your way.
● Will your home need new windows or a new roof soon?
● Are your major appliances—washer and dryer, dishwasher, refrigerator, HVAC—getting older?
● How much longer do you expect your vehicle to last?
● Is your health plan switching to a high-deductible one?
By planning for large expenses before you retire, you can work to ensure these costs won’t catch you by surprise.
1. Begin Planning Your Estate
Whenever you’re making a big financial shift or embarking on a new phase of your life, it’s important to revisit and assess your estate plan. If you pass away without a valid will or other estate plan, your heirs could find themselves embroiled in a messy, expensive court battle to reclaim and divide your assets.
In some cases, you may only need a will to dispose of your assets in the way you’d like. Other situations may call for an irrevocable trust or some other multifaceted approach to managing your estate. Talking to an attorney and your financial professional can give you a better idea of the options available to you and where each different path may lead.
Important Disclosures
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) and options may be appropriate for you, consult your financial professional prior to investing or withdrawing.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
This article was prepared by WriterAccess.
LPL Tracking # 1-05337697.
The Most Common Tax Tips before Year End
Tax planning can be advantageous when done during the year and well in advance of year’s end. Opportunities exist for you to mitigate tax liability, which may leave more income for you and/or your family.
Generally, people put off tax planning because paying income taxes is an obligation. So, this “negative” view can cause frustration. It is often simpler to say, “Let’s see how everything shakes out between January 1 and April 15.” However, after December 31, all you can do is deal with your tax liability. On the other hand, if you take care of the tax planning now, you may save more on April 15.
Considering doing a trial tax return based on your projected personal income and deductions. Afterward, you can adjust your W-4 Form accordingly.
If you expect to have income that is not subject to withholding, review your required quarterly estimated tax payments. If you fail to have enough tax withheld or make sufficient estimated tax payments by the end of the year, you may be subject to penalties and interest. Adjust your W-4 or estimated payments to make up any shortfall.
It may be beneficial to keep an eye on what is happening in Congress. Tax reform is an ongoing process, and there may be more changes ahead.
If you can control when you receive income or take deductions, consider deferring income into next year if you expect to be in a lower tax bracket. Likewise, accelerate your deductions if you expect to be in a higher tax bracket this year as opposed to next. If you expect a tax change for the upcoming year, you may want to revisit this issue.
Watch out for the alternative minimum tax (AMT) if you expect to have any large tax items this year such as depreciation deductions, tax-exempt interest, or charitable contributions. To avoid the AMT, consider strategies such as re-positioning assets or delaying charitable contributions.
However, if you are subject to the AMT, consider accelerating next year’s income into this year if your regular tax bracket would be higher than the AMT rate. If your itemized deductions increase the likelihood of triggering the AMT and do not generate significant tax savings, consider postponing deductions into next year if you are subject to the AMT this year.
By considering the above tips and establishing the most suitable strategies for your situation, you may optimize your opportunities and mitigate your liability. Consult a tax professional for more information according to your unique circumstances.
Important Disclosures
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
This article was prepared by Liberty Publishing, Inc.
Giving Tuesday: A Global Day for Giving Back
Consider whether a donor-advised fund can help build a more generous world
November brings us Thanksgiving – a day for simply giving thanks. The 11th month also brings us Black Friday and Cyber Monday – two days encouraging us to shop.
And since 2012, the Tuesday after Thanksgiving also offers us #GivingTuesday, the Tuesday after Thanksgiving where we can come together for one common purpose: to celebrate generosity and to give back.
According to GivingTuesday.org, last year saw $2.7 billion given in donations in the U.S. alone, with 35 million adults participating in a variety of ways, including donations, volunteering, and giving goods.
While the average gift last year was approximately $129.33 according to Charity Navigator, there are other vehicles that can help jump-start your generosity, like donor-advised funds
Donor Advised Funds
Giving frequent donations to charities is not easy. Paperwork headaches, particularly related to taxes, abound. And while writing separate checks may still be the best option for small gifts, a popular alternative may make a lot of sense: the donor-advised fund.
A donor-advised fund is an account, maintained and operated by an umbrella nonprofit group, called a 501(c)(3) organization, set up by sponsoring organizations. You can open an account and give it any name you want, such as the “John and Jane Doe Foundation.”
You don’t have the expense and hassle of running a real foundation, which is the province of the wealthy anyway. Then, as the donor to the fund, you make contributions into your account. There is often a minimum contribution amount, such as $10,000, along with a minimum balance requirement. But because the Internal Revenue Service does not audit these accounts as it would a private foundation, they don’t have a separate tax ID or requirement to file a Form 990, as is the case with a private foundation. Since your contributions to these vehicles are irrevocable, the sponsoring organization has legal control of the fund.
However, with a donor-advised fund, you as the donor advise the sponsoring organization on how to distribute the money and how to invest it in the meantime. The sponsoring organization typically invests the donor-advised funds in a pool of mutual funds, and sets the investment asset allocations. It also usually charges a low asset-based fee to cover administration costs. As the fund’s advisor, you may direct the sponsoring organization to make specific donations to charities you favor. There is often a minimum donation amount from your fund, but it is reasonable, and can be as low as $250 per grant.
In addition, you may also choose successor advisors who make those recommendations when you can’t because of illness, disability or death. This can be a fantastic tool in teaching your children the value of making gifts.
From a tax vantage point, you get the same benefits with a donor-advised fund as with writing a check. Because your contribution to your donor-advised fund is an irrevocable gift to a 501(c)(3) supporting organization, you get full access to the standard charitable tax deduction. The deduction amount that you claim is limited by the type of asset you contribute and your adjusted gross income. And the charitable deduction is earned in the year you make a contribution to your donor-advised fund – not when you advise the sponsoring organization to send money to one of your favorite charities.
Benefits of Donor Advised Funds
There are many benefits to using a donor-advised fund over the traditional “checkbook charity” approach:
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You can separate your grant-making from the end-of-year deadline for getting a deduction in. For calendar year tax planning, you need only time your contributions into the fund (along with taking your possibly limited charitable deduction). After that, you make grants at your leisure.
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You no longer have to track your grant donations, because the sponsoring organization will do that for you – and generally make those grant records available online.
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As part of your grant-making, you can specify whether the grant is anonymous or not.
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Your sponsoring organization will check if the entity you’d like to donate to is eligible. That further simplifies your responsibilities in making charitable donations.
If you are the kind of person who recognizes that your accomplishments rest on the good others have done in this world– and you’d like to “give back” in an efficient and practical way – then a donor-advised fund might be your ticket.
Call your financial professional to discuss how to set one up. #GivingTuesday
Important Disclosures
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
Investing in mutual funds involves risk, including possible loss of principal.
Asset allocation does not ensure a profit or protect against a loss.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by RSW Publishing.
A Guide to Incorporating Philanthropy into Your Financial Planning
If you’re considering giving back to society or a cause as part of your financial planning, there are many ways you can do so. You can make an impact while receiving tax benefits by including philanthropic giving as part of a holistic approach to charitable giving in your financial plan. Philanthropic giving addresses the root cause of social issues and requires a more strategic, long-term strategy. Philanthropic giving often includes inviting younger generations to participate to become part of a family’s legacy. Here are actions to guide you as you work towards having philanthropy as part of your financial planning:
Identify Your Values
Determine your reason for giving and what you want to change. Since philanthropy is giving over time, determine how long you want to give and if you want it as part of your family’s legacy for the next generation to manage.
Define Your Goals
Your financial professional can help you define your goals and implement a giving plan as part of your financial plan. Each year, evaluate how much you intend to give and when. Depending on your circumstances, you may include a giving schedule, such as quarterly or a one-time contribution each year. Other things to consider when defining your philanthropic goals include:
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Your giving in retirement
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Giving through your estate plan
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Including giving as part of a business-exit strategy
Select Your Charities
To ensure a charity is legitimate, ask the charity for details about their mission and how they’ll use your donation. The charity should also provide proof that it’s a 501(c)(3) public charity or private foundation so that your contribution is tax-deductible. As a second fact check on the charity, visit the IRS Tax Exempt Organization Search list to ensure it is a reputable, tax-exempt charity.
Understand How to Maximize Giving
Financial and tax professionals can help you determine how to maximize the tax advantages of giving. As tax laws change, your financial plan and giving plan may need to revise so that you receive the tax benefits of your gift. Here are a few ways to maximize your giving:
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Qualified Charitable Distributions (QCDs)– If you’re age 70 1/2 or older, you can use a QCD to donate directly from your IRA to the charity of your choice. This strategy allows you to deduct the amount transferred to the charity from your taxable income. You can use a QCD each year versus taking the distribution and paying taxes.
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Bunch your donations- By making charitable contributions for several years at one time, the total of your itemized deductions may exceed the standard deduction and offer some tax benefits.
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Itemize your contributions- Charitable contributions can reduce your tax bill if you choose to itemize when filing your taxes. Work with your tax professional to determine how to itemize your giving if the total of your deductions plus charitable gifts equals more than the standard allowable deduction.
Determine Which Strategies to Use
There are strategies that you can use or establish to help you organize your giving within your financial plan, such as:
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Donor-Advised Funds (DAF) – A donor-advised fund allows you to donate cash or securities, which are non-refundable, to a nonprofit organization. You may claim a tax deduction for the year you contribute to the DAF rather than the year your contribution goes to the charity. Stay in touch with your financial professional, as proposed legislative changes may impact when donors can receive the tax deduction.
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Charitable Trusts – A charitable trust allows you to donate assets to a chosen tax-exempt organization to help you minimize taxes. Consult your financial and legal professionals to help you understand how trusts work and if you intend to include giving securities as part of your giving plan.
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Private Foundations – A private foundation (PF) is a nonprofit charitable entity created by an individual or a business. An initial donation, known as an endowment, is used to generate income to make grants to charities per the foundation’s charitable purpose. Consult with your financial, legal, and tax professionals to determine if a PF is appropriate for your situation.
Consider Giving Other Assets
There are other assets you can give to charity as part of your financial plan that is not associated with securities:
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Real Estate- If you have a property you no longer need, you can donate it to charity.
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Cash – With a cash gift, you may receive a tax deduction equal to the amount of money you donated minus the value of any products or services you received.
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Life insurance – You can name a charity as the beneficiary on your life insurance contract or choose to donate the cash value accumulation each year.
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Art and collectibles – Often, gifted art and collectibles are auctioned to raise money at charity events. To use either as part of your giving, have a certified appraisal completed with reporting so that you can submit the appraisal information and the donation documentation at tax time, indicating the value of your donation. Consult your tax professional regarding how to value and report these specific assets.
A benefit of including philanthropy in your financial plan is that it helps to ensure that your goals are listed, that a plan implements appropriate strategies, and progress toward your goals is monitored. Contact your financial professional to start your philanthropic planning today.
Important Disclosures
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by Fresh Finance.
Sources
Your 2022 Year-End Planning Checklist
It may be easy to forget we’re nearing the end of the year. Even during the busy end of year rush, it’s a good time to reevaluate your 2022 finances and turn an eye toward 2023. What can you do now to potentially improve and streamline your 2023 budget? Below, we discuss three year-end planning steps that may make your 2023 finances run more smoothly.
Sketch Out Your 2022 Taxes
Taxpayers should be aware that legislation to extend the increased Child Tax Credit was not passed, therefore, it has reverted back to a $2,000 credit per dependent under age 17 with no advanced monthly checks. While this tax credit may be a boon to household budgets in some cases, it’s not “free” money and, with this credit also reverting back to being partially refundable, it could increase your tax liability (or reduce your refund).
This, along with some other tax changes in 2022, make it important to do a quick sketch of your tax liability to make sure your withholdings or estimated payments remain on track. You may still make estimated payments to your 2022 taxes through January 17, 2023. If you’ve been under-withholding or earned more income than expected, you still have several months to reduce your April 2023 tax payment.
Evaluate Your Asset Allocation
Each investor has their own “model portfolio”—that is, the percentage of large-cap, mid-cap, small-cap, and international stocks, as well as bonds and cash instruments they want their portfolio to represent. Even the most model portfolio may shift over time as certain sectors gain value while others stagnate. If it’s been a while since you looked at your asset allocation, the year-end review may be a great time to make sure your investments are still representative of your needs and goals.
Check Progress On Your Long-Term Goals
Whether your goals include saving for retirement, sending children to college, buying a new home, or stepping back from a stressful career into a lower-paying one, regular “goal checkups” to assess your progress are essential. By taking snapshots of your income, spending, investment balances, and net worth on a monthly or annual basis, you may get a better idea of how long it may take you to save up for certain goals or how much investment income you may be able to spare without tapping into your principal.
Your year-end review may also present a good time to set target goals for year-end 2023. Next year, you may have an even better point of reference to see how much progress you’ve made.
Important Disclosures
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
Asset allocation does not ensure a profit or protect against a loss.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Sources
This article was prepared by WriterAccess.
What Veterans Should Know About Retirement Planning
Veterans’ retirement benefits are among some of the most generous out there, in large part due to the risks and sacrifices that come from military service. But navigating this array of benefits may seem complicated. What should veterans know about their military retirement plans?
When are Veterans Eligible for Retirement?
Veterans who are injured in the service may be eligible for retirement benefits within five years of sustaining a disability. Others may be eligible after accruing 25 years of service or at age 50 after accruing 20 years of service. Other retirement eligibility dates may apply to those whose agencies are being reorganized, those who have been laid off through a reduction in force (RIF), or those who have transferred to a new employer. For veterans, there’s rarely a one-size-fits-all answer to “when can I retire?” It’s a good idea to talk through your retirement plans with an OPM employee to make sure you’re on track.
Veteran Retirement Benefits
Some of the retirement benefits that are available to veterans include:
These benefits are in addition to any other retirement benefits that a veteran may have accrued, like an individual retirement account (IRA), Health Savings Account (HSA), or other savings plans. The amount you may receive depends on factors like your length of service, your age at retirement, the amount you’ve contributed to your Thrift Savings Plan or other 401(k)-like plan, and your average earnings over your career. In general, the higher your regular pay, the greater your pension payment.
Preparing for Retirement
During the year or two before your retirement, it may make sense to prepare to make the retirement process as streamlined as possible. Some key steps include:
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Confirming your retirement eligibility
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Choosing a retirement date
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Getting information about your available retirement benefits
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Reviewing your official personnel folder (OPF) or equivalent folder to ensure that your records include all eligible service
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Choosing eligible beneficiaries (like a spouse or children)
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Checking your health benefits records
If there are errors or omissions in any of these records, it’s important to correct them as quickly as possible. Otherwise, you may not be able to receive all the retirement benefits to which you’re entitled.
Important Disclosures
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
LPL Tracking # 1-05186914
Sources
A Year-End Wealth Planning Guide
As we approach the end of the year, you may want to review areas that may impact your wealth and estate planning next year. In this year-end planning guide, we examine four critical areas to consider that may affect your finances:
Generational Wealth Transfer
Generational wealth transfer may become more important when an event occurs, such as a death, a marriage, or the birth of a new family member. However, it’s essential to plan for generational wealth transfer by ensuring all these crucial actions have been completed:
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Established a Trust document- If you don’t have a trust document, your family may need to go through probate, a tedious court process to transfer your assets retroactively, which can be expensive and public.
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Updated beneficiary information- Consistently check the beneficiaries listed on your legal documents, retirement savings, and insurance plans, as these designations can outweigh what is in a will. Life transitions that may impact a change in beneficiaries include divorce, the birth of a new child, the loss of a loved one, a marriage, etc.
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Established directives- Review all legal directives such as power of attorney documents, medical care directives, and your trust document to ensure all information is up to date in case the relationship with the named individual(s) changes.
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Completed an inventory of assets- Periodically update inventory assets listed in your trust documents, such as real estate, collectibles, vehicles, etc., and intangible assets, such as savings accounts, life insurance policies, retirement plans, ownership in a company, and more.
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Drafted, reviewed, or updated a last will- It is important that your last will details your wishes regarding the distribution of your property, money, and assets that aren’t in your trust document. Remember to update your will as your financial and family situation changes.
Minimizing Taxes
Building wealth and planning for taxes are essential and often require the help of financial, tax, and legal professionals. For some, tax policies can impact how much taxes to pay domestically and abroad when living or working in a foreign country, or if they own companies in a foreign country. Consider these taxes that may impact your tax situation:
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Income tax- Income tax is a source of revenue that governments impose on businesses and individuals within their jurisdiction. If you work or own a business in a foreign country, you may need to file taxes in more than one country. For this reason, you must consult a tax professional in each country for the latest tax laws
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Estate tax and gift tax- The IRS limits the valuation of assets that can pass to heirs’ estate tax-free, and states set their own gift tax thresholds that are impacted by where the deceased resided and heirs live. As you plan for who pays taxes when your assets pass to your heirs, work with your financial and tax professionals to determine which tax-advantaged strategies are appropriate for your situation.
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Generation-skipping tax- The generation-skipping transfer tax is a federal tax that results when a property is transferred by gift or inheritance to a beneficiary who is at least 37½ years younger than the donor. Consult your tax professional on how transferring assets to a grandchild or other heir may impact their tax situation if inheriting from you.
Legacy Planning
Legacy planning is leaving a legacy for others, which often includes protecting others when you pass on your values and financial dreams. Some individuals give their wealth to benefit their children and their children’s children. If the wealth is great enough, endowments may be created to help many people over time. Legacy wealth transfer may become complex due to the types of assets you own, changes in tax legislation, economics, and political environments. You must consult financial, tax, and legal professionals to pass assets without economic consequences to heirs.
Succession Planning
Succession planning generally involves trusts, private trust companies, and foundations offered in various jurisdictions to ensure your wealth transfers to the next generation as efficiently as possible. There are two types of succession planning for individuals to consider:
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Generational succession planning- Planning to help ensure your wealth passes to the next generation and is comprehensively managed and passed to the next generation.
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Business succession planning- If you own a business, business succession planning may cover selling your business and retiring, selling but staying on part-time, and passing ownership to another family member or key employee.
Here are some other things you may want to consider in your succession planning:
Estate planning can be challenging for some due to the complexities of their situation but manageable when done over time. Now is a great time to use this planning guide as you work with your financial professional to plan for the start of the New Year.
Important Disclosures
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by Fresh Finance.
Sources
Treat Yourself to These 5 Retirement Saving Tricks
Your retirement is the reward after years of hard work and saving. You might dream of traveling, want to invest in a vacation home, or want to take up a new hobby. For an enjoyable retirement, saving is critical. Take charge of your retirement and work toward your goals with the help of these few tips and tricks.
1. Take Advantage of a Company 401(k) Match
When a company provides a matching contribution for your retirement savings, it is like getting free money to invest. This strategy may help your portfolio grow larger. Find out the amount of your 401(k) contribution that your company matches, and make sure you contribute that much to your 410(k). This strategy is like getting an extra company bonus each year.1
2. Start Early
No matter your age, you may save for retirement. The longer your money is invested, the greater chance you may have that your savings grows. Make your savings allocations a part of your monthly budget, like any other bill. Take advantage of payroll contributions if you have a company 401(k). If you set up an automatic savings process, you put money away with each paycheck without thinking about it.2
3. Fully Fund a Health Savings Account
Healthcare costs continue to rise yearly, and you may face significant health expenses as you age. Consider contributing money to a health savings account to prepare for these costs. When you contribute to a health savings account, it is tax deductible. You may withdraw the money tax-free as needed to pay for qualified medical expenses. In 2022, you may contribute up to $7,300 annually for a family and $3,650 for an individual. While a health savings account is a way to prepare for medical costs, it is also a way to help save for retirement. Once you hit 65, you may use the funds in the account to pay for anything, not just healthcare expenses.1
4. Find the Perfect Place to Retire
When saving for retirement, it is essential to know your goals for retirement and where you plan to retire. If you are considering moving for retirement, you might find a state that may help your money go further. Many states are good for retirees. Some have great weather, some top-notch health care services, and others do not impose a state tax. Not paying state tax on your retirement funds may make retirement easier.1
5. Look for Tax Advantages at 50
Taxes may get a little easier for you once you are at the age of 50. As you get nearer to retirement, you may take advantage of the increased limits for retirement contributions. This additional amount may help boost your retirement savings while taking advantage of the tax breaks that retirement plans offer. After age 50, contributions to a traditional individual retirement account (IRA) or a Roth IRA may increase from $6,000 to $7,0003, and you may contribute an additional $6,500 to your employer-sponsored plan.1
Get your retirement savings on track by utilizing these tips.
Important Disclosures
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by WriterAccess.
LPL Tracking #1-05313109.
Footnotes
1 8 Essential Tips for Retirement Saving, Investopedia, https://www.investopedia.com/articles/investing/111714/8-essential-tips-retirement-saving.asp
2 How to Win at Retirement Savings, The New York Times, https://www.nytimes.com/guides/business/saving-money-for-retirement
3 Retirement Plans FAQs Regarding IRAs, Internal Revenue Service, https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras
The Financial Planning Process: Why and How
Planning personal finances used to be the worry of the wealthy and their worry—usually preservation of wealth—was attended to by teams of trust officers and lawyers. Many of today’s middle class families have different concerns: funding retirement; educating children; protecting assets; and coping with unexpected changes in health, employment, and marital situations. But, whether your goal is to build or protect assets, it may be better to start sooner rather than later.
Where to begin? Once you have the resolve, you may choose to work with a financial professional whose services resides in the planning process itself. Such an individual can help you focus on the big picture, and may hold licenses and credentials allowing him or her to provide specialized services or products related to accounting, taxes, insurance, investing, and so on. Rather than zeroing in on such issues, your financial professional will start where you are, guiding you through an organized and methodical process.
Step One: Building the Relationship
Financial professionals typically follow a set procedure in helping you develop a long-range financial strategy. The first step is to establish and define the relationship by delineating the responsibilities of each so that you fully understand the nature and extent of the services provided. At this point, you may discuss how the financial professional will be compensated—flat fee, a percentage of your assets, commissions paid by a third party for products included in your plan, or a combination.
Steps Two through Four: Exploring Your Financial Life
Step two may involve identifying your personal and financial goals, your time horizon for achieving them, and the level of risk you are comfortable assuming. A detailed questionnaire may be used. Step three consists of comparing your stated goals with your current financial situation—your assets, liabilities, cash flow, insurance coverage, investments, and taxes. Step four offers concrete recommendations on ways to help work towards your goals using your current resources.
Steps Five and Six: Implementing an Action Plan
Having agreed on an action plan, step five is when you and the financial professional decide who will implement the strategy. This step may involve either you or the professional engaging the services of a specialist, an insurance agent or accountant, for example. The sixth and final step is really an ongoing one: Periodically reviewing your progress toward your goals and checking that your strategy is still in synch with your objectives.
Over and above your personal situation, you should feel free to discuss with your financial professional any changes in the economy, stock market, and tax laws that you think may have an impact on your financial strategy. The more “in touch” you are with your financial professional, the more attuned your financial strategy may be with your needs and goals.
Important Disclosures
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
This article was prepared by Liberty Publishing, Inc.
Q3 Market Recap: Recession Rumbles
Executive Summary
With inflation and interest rates on the rise and a mid-term election around the corner, it is no surprise we’re facing a volatile time in the market. In fact, by the much-contested definition of “recession,” we are already in a mild one. (The general rule of thumb is that two negative quarters of GDP signifies a recession.) Still, we’ll likely have to wait until after election season to hear the official word.
Why? The National Bureau of Economic Research (NBER) is responsible for defining when a recession begins and ends. With the election coming up in November, the non-partisan NBER does not seem to want to get political and has stayed tight-lipped.
Whatever the decision is, if we are in a recession, it’s a mild one so far. But with inflation rising, market returns on a rollercoaster, and a stubbornly inverted yield curve sticking around, it’s anyone’s guess whether this will turn into a full-blown recession or not.
Theme 1: All eyes remain on inflation.
Inflation continues to be the market’s main focus, compelling the Fed to substantially increase interest rates. We have talked at length about the relationship between rising rates and inflation, so let us dive into a different chapter in the inflation story: the Strategic Petroleum Reserve (SPR).
The SPR is effectively the U.S. government’s backup oil reserve. It’s there to serve as a buffer in case of crisis, but it is also a powerful political tool. Both the Bush and now Biden administrations have leveraged the SPR to help bring oil prices down. To deal with the current crisis, the Biden administration has been releasing 1 million barrels per day. Demand and production are stable, but much of the recent declining prices were due to the extra oil coming out of the SPR. This is set to end shortly before the next election.
Our current petroleum reserve isn’t just low — it’s the lowest it’s been since the 1980s. In addition, OPEC+ (meaning OPEC with Russia) is slowing production, and our SPR reserves diminishing. We could see energy reassert itself as an inflation driver the next quarter, especially if we avoid a deeper recession.
If inflation creeps back in and stays elevated, it will be difficult for the Fed to make their perceived pivot and could increase the chance of a more-than-mild recession in 2023. To give a quick summary, more stock market volatility is the most likely outcome.
Theme 2: A rollercoaster of returns.
Once again, volatility described last quarter. Intra-quarter returns were up close to 15% through August. The market thought inflation had peaked and began a rally, but August’s high inflation reading stopped both investors and Fed officials in their tracks.
At the most recent Sept. 20 policy meeting, chairman Jerome Powell alluded to even more planned rate hikes before the end of the year. The result of this quick pivot was a drastic selloff of bonds and stocks. Although returns were up 15%, they ended the quarter at -5%, as you can see in the Morningstar graph below.
The next graph adds to the volatility story. As you can see, at the end of August — when the market was still up about 5% for the quarter — the expectation was that Fed fund rates would be at the level they’re at now at the end of the year. Instead, they’re now projected to be 50 basis points (or 0.5%) higher. The market had to price out 50 basis points of rate hikes over the course of one month while the market went down.
Theme 3: The inverted yield curve hasn’t budged.
Rising interest rates put pressure on equities and financial conditions. Between these rate hikes and inflation, it’s no surprise the yield curve has remained inverted.
Remember, the yield curve shows the relationship between long- and short-term interest rates. When it’s inverted, a consistent explanation of this phenomenon is investors are moving short-term bond money into long-term bonds. That implies investors may be viewing the market pessimistically. The inverted curve could also signify that demand for short-term cash is increasing as banks slow lending.
Inverted yield curves have predicted future recessions with 100% accuracy. So, once again, we may already be in a mild recession with politics and NBER possibly at play.
Looking Ahead
We are heading into what I call silly season, a.k.a. mid-term election season. We would not be surprised post-election to see the news come out officially that we’re in — and have been in — a recession. It also would not be surprising to see inflation level out after the election to around 6% — well above the Fed target.
Regarding trading ranges, the S&P is currently in the 3500 – 3900 range. Below 3500, we would buy aggressively and would likely fade above 3900. That puts us in a bit of a holding pattern until we see which direction to go. For now, we have raised some cash in portfolios, and certain equity strategies hold near 10% in short-term treasuries be redeployed if we see positive signals or used to buy back into the market if we see S&P numbers drop below 3500. If we break out above 3900 and our indicators turn positive, we would then add risk. The GWS Investment Committee considers all these scenarios when managing your money.
With all the forces impacting the market, it can be hard to sift through the noise, which is why our Investment Committee does it for you. The GWS Investment Committee remains committed to the following investment management goals for our clients:
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To pursue long-term returns that first and foremost strive to help clients work toward all goals in their financial plans.
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To seek excess return above each portfolio’s benchmark over a three-year trailing time period and a full market cycle, in order to hopefully cover client fees and add surplus to their portfolios.
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To implement investment strategies that align with each client’s personal volatility and benchmark sensitivity to help them remain confidently invested and long-term focused.
A lot could change as we head into election season, and we are committed to keeping you up to date on our Monthly Market Insights broadcasts at 3:30 p.m. CT via YouTube Live. Be sure to tune in! We are here to help you make sure you are doing the right things to preserve your wealth, which is part of our mission to help people become and remain financially self-reliant.
Disclosures
Securities and advisory services are offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC.
The opinions expressed are those of John Gatewood as of the date stated on this material and are subject to change. There is no guarantee that any forecasts made will come to pass. This material does not constitute investment advice and is not intended to endorse any specific investment or security.
Please remember that all investments carry some level of risk, including the potential loss of principal invested. Indexes and/or benchmarks are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance and are not indicative of any specific investment. Diversification and strategic asset allocation do not assure profit or protect against loss. With fixed income securities and bonds, when interest rates rise, bond prices usually fall because an investor may earn a higher yield with another bond. Moreover, the longer the maturity of a bond the greater the risk. When interest rates are at low levels, there is a risk that a significant rise in interest rates can occur in a short period of time and cause losses to the market value of any bonds that you own. At maturity, the issuer of the bond is obligated to return the principal (original investment) to the investor. High-yield bonds present greater credit risk than bonds of higher quality. Bond investors should carefully consider risks such as interest rate risk, credit risk, liquidity risk, securities lending risk, repurchase and reverse repurchase transaction risk.
Investors should be aware of the risks of investments in foreign securities, particularly investments in securities of companies in developing nations. These include the risks of currency fluctuation of political and economic instability and of less well-developed government supervision and regulation of business and industry practices, as well as differences in accounting standards.
