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Let’s Talk About … the 401(k)

The 401(k) originally began as a company profit-sharing plan. Companies had been funding defined benefit pensions for years, but as their annual profits and stock prices experienced volatility, they looked for ways to share that burden with employees. Through profit sharing, workers made money when the company did and made less during down years. While the actual section 401(k) tax law provision came later, this plan allowed employees to defer salary contributions into a retirement account before deducting taxes and established rules to ensure the plan was available to all employees, not just executives.1

Once the 401(k)-style plan was established, it could be used to invest in more than just company stock. Instead, it was a way to put investment control into workers’ hands without limiting their retirement income prospects based on their company’s performance. By contributing to their retirement portfolio and customizing how it was invested, employees had the opportunity to out-earn previous pension benefit levels and live a fuller retirement lifestyle.2

That hasn’t proven to be the case for many workers. The shift to personal savings and investment money management hasn’t led to high levels of reliable income as pensions did.3 After all, your average worker doesn’t have in-depth investment knowledge or the time to follow the markets closely. And, unless they were willing to pay an advisor for advice, they wouldn’t get much help in this area.

This is one reason to work with a financial advisor who is willing to help you manage your entire financial picture. It’s important to ensure that any individual investment portfolio doesn’t overlap too much with 401(k) holdings so you stay properly diversified. By the same token, you should consider all of your holdings when establishing an asset allocation to help you meet your financial goals. We’re happy to evaluate your portfolio, including your 401(k) investment options. Just give us a call.

In recent years, more employers have started offering “financial wellness benefits” to help employees manage their 401(k) investments. These may involve online resources or actual advisors with whom you can consult regarding your 401(k) plan.4 However, your employer-sponsored advisor may not be able to advise you on your entire investment portfolio.

Employers used to absorb the cost of managing a pension fund, but today employees have to pay individual fees for a wealth manager to manage their 401(k), and it’s not cheap. The average fee to manage a 401(k) account is around 0.5 percent a year. Over a 40-year time span, those fees can really add up and impact total earnings.5

Despite any drawbacks, 401(k) plans often offer a benefit unlike no other investment: free money. Many employers will match worker contributions up to a certain percentage. This allows them to still contribute to their employees’ retirement savings even though they are not providing a pension plan. Recently, the IRS announced 401(k) plan contribution limits for next year. While the salary deferral amount remains the same at $19,500 ($6,500 catch-up for age 50-plus), it raised the overall contribution limit from $57,000 to $58,000 in 2021. This helps if your employer plan permits special after-tax salary deferrals, and it can benefit self-employed workers who have a solo or individual 401(k) or SEP retirement plan.6

Content prepared by Kara Stefan Communications.

1 Elizabeth Bauer. Forbes. March 7, 2020. “Fact Check: Were 401(k)s Really An ‘Accident Of History’?” https://www.forbes.com/sites/ebauer/2020/03/07/fact-check-were-401ks-really-an-accident-of-history/#7f70362f6110. Accessed Oct. 28, 2020.

2 Maryalene LaPonsie. U.S. News & World Report. July 22, 2020. “What’s the Difference Between a Pension Plan and a 401(k)?” https://money.usnews.com/money/retirement/401ks/articles/pension-vs-401-k. Accessed Oct. 28, 2020.

3 Monique Morrissey. Economic Policy Institute. Dec. 10, 2019. “The State of American Retirement Savings.” https://www.epi.org/publication/the-state-of-american-retirement-savings/. Accessed Oct. 28, 2020.

4 James Mahaney. Pension Research Council. Feb. 20, 2020. “What’s Behind the Growth of Financial Wellness Programs.” https://pensionresearchcouncil.wharton.upenn.edu/blog/whats-behind-the-growth-of-financial-wellness-programs/. Accessed Oct. 28, 2020.

5 Ethan Schwartz. Bloomberg. Oct. 8, 2020. “401(k) Fees Are Eating Your Retirement Savings.” https://www.bloomberg.com/opinion/articles/2020-10-08/401-k-fees-are-eating-your-retirement-savings. Accessed Oct. 28, 2020.

6 Ashlea Ebeling. Forbes. Oct. 26, 2020. “IRS Announces 2021 Retirement Plan Contribution Limits For 401(k)s And More.” https://www.forbes.com/sites/ashleaebeling/2020/10/26/irs-announces-2021-retirement-plan-contribution-limits-for-401ks-and-more/#76dc757f215f. Accessed Oct. 28, 2020.

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

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

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America’s Need for Better “Infloodstructure”

In February, Spirit Airlines decided to transfer a portion of its operations from Miramar, Florida, to Nashville, Tennessee. The key driver of this decision was recurring hurricane and tropical storm risk. This means a loss of 240 jobs for the Panhandle area.1

By mid-September of the 2020 hurricane season, mainland U.S. had already been hit by nine named storms — the most on record since 1916. Meteorologists say that record could be broken by the end of the 2020 season.2

Have you experienced damage in recent years due to extreme weather conditions? In many cases, homeowners can purchase other types of insurance to supplement gaps in a homeowner’s policy. These may include flood insurance, a personal umbrella policy and special riders for things like valuables (jewelry, furs, fine arts, musical instruments, silver), antique and collector cars, watercraft/yachts or ATVs. If you’re interested in having a household budget review to see where you stand financially and discuss insurance options to help shore up any gaps, please contact us.

While nearly every area of the country experiences some type of natural disaster — from earthquakes to crippling snowstorms to wildfires — there are ways to mitigate some of the adverse effects. For example, greater investment in infrastructure can help prevent damages caused by storm surges and flooding. According to the National Oceanic and Atmospheric Administration, our most prevalent and expensive natural disasters involve flooding, with losses totaling well over $750 billion since the turn of this century. Experts say that the damage caused by inland flooding is generally compounded by the nation’s widespread outdated infrastructure.3

In September of this year, the House of Representatives introduced new legislation designed to adopt design and building codes based on current flood risks for all major construction of facilities and infrastructure. Legislators believe that investing in new and upgraded flood mitigation projects involving roads, bridges and railways, water and wastewater facilities, and electric and telecommunications substations would be cost-effective. In other words, investing in new infrastructure would be cheaper than paying for the fallout and economic losses due to disruption (e.g., closed schools, shuttered businesses and blocked access to medical facilities).4

The economic piece of this is important. While cities and towns may receive federal funding to rebuild after flood damage, the financial toll on individual households can be devastating. This is particularly true in flood-prone rural areas such as Lake Charles, Louisiana. Low-income parts of the country tend to be disproportionately affected and the slowest to recover.5 Because they were already poor before the disaster, they often lack insurance, access to credit and/or the resources necessary to apply for government aid — such as a computer or a car.

Some of the nation’s water and wastewater infrastructure is more than 100 years old, and much of it is near the end of its effective service life. The American Water Works Association estimates that the country needs to invest about $1 trillion in upgrades, repair and addition of new pipelines to meet the demand for drinking water service alone throughout the next 25 years.6

Content prepared by Kara Stefan Communications.

1 David Lyon. South Florida SunSentinel. Feb. 14, 2020. “Spirit Airlines has seen enough hurricanes; it’s moving https://www.sun-sentinel.com/business/fl-bz-spirit-moving-operations-center-20200214-puggqeofnneqxks7ici5y4pnny-story.html. Accessed Oct. 21, 2020.

2 Kathryn Prociv and Phil Helsel. NBC News. Sept. 21, 2020. “Beta becomes 9th landfall storm of 2020 in a record-shattering season.” https://www.nbcnews.com/news/weather/beta-be-9th-landfall-storm-2020-record-shattering-season-n1240603. Accessed Oct. 21, 2020.

3 Laura Lightbody The Pew Charitable Trusts. Jan. 2018. “Modern, Flood-Ready Approach Needed for Building and Rebuilding.” https://www.pewtrusts.org/en/research-and-analysis/articles/2018/01/modern-flood-ready-approach-needed-for-building-and-rebuilding. Accessed Oct. 21, 2020.

4 Laura Lightbody. The Pew Charitable Trusts. Sept. 30, 2020. “New Bill Aims to Make Communities and Infrastructure More Flood-Ready.” https://www.pewtrusts.org/en/research-and-analysis/articles/2020/09/30/new-bill-aims-to-make-communities-and-infrastructure-more-flood-ready. Accessed Oct. 21, 2020.

5 Knowledge@Wharton. Oct. 5, 2020. “Disaster Relief: Why the Poor Need Higher Priority.” https://knowledge.wharton.upenn.edu/article/disaster-relief-why-the-poor-need-higher-priority/. Accessed Oct. 21, 2020.

6 Zacks Equity Research. Oct. 21, 2020. “American Water’s Unit to Invest $4.1M to Replace Water Mains.” https://finance.yahoo.com/news/american-waters-unit-invest-4-114111403.html. Accessed Oct. 21, 2020.

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

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

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Fixed Income vs. Stock Portfolio

Early this year, many stopped spending and began saving money. This wasn’t difficult as many areas of the economy were — and possibly still are — shut down. For some, vacation plans were canceled, and the normal level of entertainment activities and dining out have been curbed. If you’ve remained employed, chances are good you’ve been able to step up your level of savings this year. However, with current interest rates, it can feel like savings accounts are stagnating. Should you take the risk of investing for higher returns amid today’s continuing market uncertainty?1

It’s worth noting that by mid-August, the S&P 500 had fully recovered from the 34% pandemic-induced plunge that occurred between February and March earlier this year.2 Of course, this is great news for equity investors who stayed in the market, but stock portfolios continue to be worrisome. You may wonder if financial rewards are truly commensurate given the level of anxiety associated with market declines, but there are ways to help reduce your risks and still have the opportunity for growth. If you’d like to discuss various options, please feel free to contact us.

Traditionally, stocks have yielded higher long-term gains than bond portfolios, but the tradeoff is more volatility. A recent analysis by a Wharton professor shows that historical dynamic has shifted somewhat throughout the past five decades. In fact, fixed-income portfolios have performed as well, if not better, than the U.S. stock market during this time frame. Perhaps even more surprising, fixed income has exhibited similar or more volatility than comparably performing stock portfolios.3

According to the Capital Group, investors may want to consider four strategies for deploying a fixed-income portfolio during this current period of investment uncertainty:4

  • Look at short-term bond funds that focus on high-quality and liquid investments.
  • Consider high-quality core bond funds for capital preservation to help diversify equity holdings.
  • Be prepared for defaults and downgrades at the high yield, low end of the investment-grade spectrum.
  • Reconsider municipal bonds, which offer pockets of compelling value relative to U.S. Treasurys.

The interest rate environment is another casualty of the pandemic. Low rates may keep debt payments low, but they also spell lower returns for retirement accounts and pension funds. The recent Federal Reserve announcement that it expects to hold interest rates near zero at least until 2023 does not bode well for retirees or those approaching retirement.5

Content prepared by Kara Stefan Communications.

1 Jill Cornfield. CNBC. June 22, 2020. “You saved a lot of money during the shutdown. Here’s one reason you may not feel like you’re ahead.” https://www.cnbc.com/2020/06/22/why-you-dont-feel-better-about-the-money-you-saved-amid-the-pandemic.html. Accessed Oct. 5, 2020.

2 Stan Choe, Alex Veiga and Christopher Rugaber. Associated Press. Aug. 12, 2020. “How can Wall Street be so healthy when Main Street isn’t?” https://apnews.com/article/6cadd78335fd98926ffb1e5d6ecb2916. Accessed Oct. 5, 2020.

3 Knowledge@Wharton. Aug. 11, 2020. “How Fixed-income Portfolios Match or Beat Stocks in the Long Run.” https://knowledge.wharton.upenn.edu/article/fixed-income-portfolios-match-beat-stocks-long-run/. Accessed Oct. 5, 2020.

4 Mike Gitlin, Pramod Atluri and Karl Zeile. Capital Group. June 17, 2020. “Four actions to take in bond portfolios.”

https://www.capitalgroup.com/advisor/insights/articles/fixed-income-midyear-outlook-2020.html. Accessed Oct. 5, 2020.

5 Knowledge@Wharton. Oct. 6, 2020. “Why Low Interest Rates Hurt Retirees.” https://knowledge.wharton.upenn.edu/article/why-low-interest-rates-hurt-retirees/. Accessed Oct. 6, 2020.

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

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

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.10/20-1366227C

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Is the Economy Slowly, Silently Sliding?

Prospects for stock market growth have remained resiliently and optimistically cheerful this year, despite the nine-month-long pandemic. Unfortunately, the time may be at hand for a stock market price correction that better reflects the state of the global economy.

The lack of ongoing fiscal stimulus which, even if passed, may not feasibly be able to distribute funds before the election or even before the end of the year, may have a greater effect on the economy than just individual households. Federal Reserve officials continue to call for more government stimulus, warning that the economy remains in a “deep hole.” However, this close to the highly anticipated and contentious election, government efforts are more focused on politics and judicial branch activities than the economy. As a result, some market analysts are questioning whether their initial year-end projections are overpriced based on an expected rebound that may not materialize.1

As we approach year end, you should schedule a time with your financial advisor to review your investment portfolio. While we do not typically recommend dramatic changes based on the current state of the economy, the stock market or even the outcome of a presidential election, we do encourage our clients to regularly evaluate their portfolio to ensure it is aligned to their goals and risk tolerance. Now more than ever, we believe it’s important to have an asset allocation strategy designed to weather volatile times.

There is a group of people who may be able to anticipate market trends even more quickly than Wall Street analysts — the corporate executives and officers of S&P 500 companies with firsthand knowledge of their businesses. If actions speak louder than words, prospects look pessimistic. Throughout September, these executives began selling personal shares of their own company stock at a rate not seen since 2012.2

The problem is that the damage of this economic decline has not been universal. Many office workers and their companies have adapted to a work-from-home model, enabling white collar employees to maintain their level of income despite the pandemic. The same is not true for workers in a wide range of industries, from travel to food and beverage to personal services, like hair salons and fitness instructors. Recent research has found that lower-income workers have borne the brunt of the COVID recession. In fact, by mid-summer the recession had effectively ended for high-income individuals, while the bottom half of Americans represented the bulk of the unemployed.3

Meanwhile, the initial boost to the labor market that accompanied reopening the economy this past summer is slowing down again. At the same time, oil prices have dipped due to sustained reduced demand. There is only so much that government leaders can do to stimulate the economy; they cannot force people to leave their homes and buy goods and services. Much of this realization is coming to a head just prior to the election.4

The news isn’t much better globally. Asian and Australian stocks slid toward the end of September amid fears that more countries are seeing outbreaks with the arrival of cooler weather.5 In countries where the virus remains uncontained, government stimulus efforts are drained and the year-long effect is slowly emerging. As infection rates rise again, many countries are reintroducing stricter rules to help curb the virus. This, in turn, will also curb economic growth.

A recent poll of economists concluded that a return to pre-pandemic economic levels is not expected until at least the end of 2022.6 Given that the direction of the economy appears aligned with the rise and fall of infection rates, it’s becoming more clear to both Wall Street and Main Street that the top priority in getting domestic and world growth back on track is to prioritize containment of COVID-19 once and for all.

Content prepared by Kara Stefan Communications.

1 Simon Jessop & Andrew Galbraith. The Edge Markets. Sept. 24, 2020. “Shares slide, US dollar up as hopes of economic recovery fade.” https://www.theedgemarkets.com/article/shares-slide-us-dollar-hopes-economic-recovery-fade. Accessed Sept. 28, 2020.

2 Vildana Hajric and Lu Wang. Yahoo Finance. Sept. 23, 2020. “Insiders Sell Stock at Fastest Pace Since 2012 in Market Dip.” https://finance.yahoo.com/news/insiders-sell-stock-fastest-pace-214631545.html. Accessed Sept. 28, 2020.

3 Ben Steverman. Bloomberg. Sept. 24, 2020. “Harvard’s Chetty Finds Economic Carnage in Wealthiest ZIP Codes.” https://www.bloomberg.com/news/features/2020-09-24/harvard-economist-raj-chetty-creates-god-s-eye-view-of-pandemic-damage?sref=AhQQoPzF. Accessed Sept. 28, 2020.

4 Rodrigo Campos. Reuters. Sept. 24, 2020. “GLOBAL MARKETS-Shares slide, dollar up as hopes of economic recovery fade.” https://www.reuters.com/article/global-markets/global-markets-shares-slide-dollar-up-as-hopes-of-economic-recovery-fade-idUSL2N2GL0OD. Accessed Sept. 28, 2020.

5 Gina Lee. Yahoo Finance. Sept. 23, 2020. “Asian Stocks Slide, With Investors Losing Faith in COVID-19 Economic Recovery.” https://finance.yahoo.com/news/asian-stocks-slide-investors-losing-233533523.html. Accessed Sept. 28, 2020.

6 Jonathan Cable. Reuters. Sept. 23, 2020. “Euro zone economic recovery in danger as services slide.” https://www.reuters.com/article/us-eurozone-economy-pmi/euro-zone-economic-recovery-in-danger-as-services-slide-idUSKCN26E17Z?il=0. Accessed Sept. 28, 2020.

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

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

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How Climate Change Could Affect the Economy

Some people believe that climate change is exacerbated by human intervention, while others argue that humans are not a factor. Regardless of what may or may not influence extreme weather events, economists are predicting that the long-term results of climate change could affect more than just our homes and possessions.

In fact, the Congressional Budget Office (CBO) recently reported that the effects of climate change will have a dampening effect on U.S. economic growth in the near future. The agency’s research ranged from evaluating the effects of colder climate growing seasons, to crop losses due to drought, to factory storm damage. The combination of climate change and the coronavirus has reduced the CBO’s projected level of real GDP output in 2050 by 1%.1

While the current administration is focused on investing in fossil fuels, it’s important for individual investors to remember the investment adage: Don’t put all your eggs in one basket. By diversifying energy sector assets among a variety of industries — such as oil, fracking, solar, hydropower and wind — investors may be less impacted by which way the political winds are blowing. If you’d like to find out more about diversified investing opportunities in the energy sector, we’d love to have that discussion.

The recent pandemic has revealed more holes in our business and government “safety nets” than simply an overwrought health care system. Since the first coronavirus case hit the nation in January, we have witnessed problems stemming from inadequate paid sick leave, unemployment benefits and unequal broadband access for students. Scientists claim these same vulnerabilities will surface in the future as we face escalating and simultaneous climate disasters on a regular basis. For example, we are now seeing hurricanes hit the Gulf Coast in August and September while, at the same time, massive wildfires overtake the West Coast and the Northeast is stifled by heatwaves.2

Recent research from Oxford University has identified policies boasting a high potential for addressing climate change metrics in concert with economic growth. They include new physical infrastructure and improved efficiency retrofits, investment in education and training, natural capital investment, and clean energy research and development.3

Denmark has a reputation as one of the most progressive green energy economies with some of the most ambitious environmental targets — including reducing carbon emissions by 70% by 2030. While it has an impressive list of climate-friendly energy accomplishments, the country has found a way to market its capabilities to help other countries that are behind the green curve. For example, a partnership between Denmark and the U.K. has resulted in the current construction of the world’s longest high-voltage, direct-current connection. This will allow millions of British people to receive their electricity from Denmark.4

In the U.S., fossil fuels still account for more than 80% of total energy consumption. While

nuclear power is widely considered the most inexpensive and effective substitute to challenge fossil fuels for future energy consumption — and produces almost negligible adverse climate effects — the U.S. and many other countries have stopped nuclear expansion due to public safety concerns.5 In the meantime, green technologies are projected to represent 49% of global energy consumption by 2050.6

Content prepared by Kara Stefan Communications.

1 David Lawder. Reuters. Sept. 21, 2020. “Climate change since 2000 will cut U.S. growth over next 30 years – CBO.” https://www.reuters.com/article/uk-climatechange-growth-cbo/climate-change-since-2000-will-cut-u-s-growth-over-next-30-years-cbo-idUKKCN26C37S. Accessed Sept. 22, 2020.

2 Todd E. Vachon. NJ.com. July 1, 2020. “The pandemic may be a preview of our climate future.” https://www.nj.com/opinion/2020/07/the-pandemic-may-be-a-preview-of-our-climate-future-opinion.html. Accessed Sept. 22, 2020.

3 Cameron Hepburn, Brian O’Callaghan, Nicholas Stern, Joseph Stiglitz and Dimitri Zenghelis. Oxford Smith School of Enterprise and the Environment. May 4, 2020. “Will COVID-19 fiscal recovery packages accelerate or retard progress on climate change?” https://www.smithschool.ox.ac.uk/publications/wpapers/workingpaper20-02.pdf. Accessed Sept. 22, 2020.

4 Sean Fleming. World Economic Forum. July 16, 2020. “An underwater cable will connect Danish wind power to over a million UK homes.” https://www.weforum.org/agenda/2020/07/denmark-uk-renewable-energy-electricity-cable. Accessed Sept. 22, 2020.

5 Sean Ross. Investopedia. April 5, 2020. “What Are the Main Substitutes for Oil and Gas Energy?” https://www.investopedia.com/ask/answers/060415/what-are-main-substitutes-oil-and-gas-energy.asp. Accessed Sept. 22, 2020.

6 Will Marshall. Global Risk Insights. Sept. 20, 2020. “Geopolitics and the Energy Transition: Competition or Cooperation?” https://globalriskinsights.com/2020/09/geopolitics-and-the-energy-transition-competition-or-cooperation/. Accessed Sept. 22, 2020.

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

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

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Preparing for Potential Pandemics

If you think the economic decline due to the pandemic has been difficult for you personally, the big picture numbers may be even worse. Analysts project that the total economic disruption could eventually cost between $9 trillion and $33 trillion. Many economists are advocating that the U.S. — and the world — make a concerted effort to prevent future pandemics.1 Much like individual health care, the cost for prevention is significantly less than the cost of treatment.

In fact, the coronavirus has exposed many weaknesses in our infectious-disease surveillance and ability to respond quickly and effectively. While state governments continue to work on their current response, many in the private sector are looking toward the future.2

We advise our clients to retain that same perspective. If your retirement portfolio is built to weather an economic decline, you likely have financial vehicles that can help supplement your household income during financial difficulties. By keeping your investments focused on the long term, they can help you ride out market volatility and give your money the opportunity to continue growing.[BC1] [RC2] If you’d like advice in this area, we are here for you.

Government attempts to revive the economy have been mixed. The quick efforts to roll out stimulus legislation to benefit consumers and small business ran into headwinds. Many states’ unemployment programs were not built to handle so many claims at once, resulting in delays and confusion. The application system for small business loans led to haphazard benefits, wherein many small employers lost out while large corporations, such as Shake Shack and the Los Angeles Lakers, received millions (although both companies returned the money).3

The pandemic has impacted nearly every household, business, organization and government agency in some way. At this point, it makes sense to evaluate how we’ve been affected and devise plans to help reduce the risks from similar situations moving forward. Even the Pentagon admits there are flaws in its system for protecting Americans. It recently began the process of rewriting its pandemic playbook for faster and more efficacious response efforts for this type of crisis in the future.4

It just goes to show that even the best-laid plans may not work when stress-tested in a real-life situation. It’s time we all take a deep breath, look at our current position, and determine where we want to be in the future. To some extent, we can rely on the investment markets to enhance our long-term financial futures, but we should set goals and make sure our portfolios remain well-diversified. Merrill[RC3]  recently re-assessed its portfolio models with guidance to actively rebalance back to original asset allocation targets. The wealth manager cautioned that markets tend to be more volatile during a presidential election, recommending a diversified approach and using rebalanced funds to add more global equity exposure.5

Content prepared by Kara Stefan Communications.

1 Matt Craven, Adam Sabow, Lieven Van der Veken and Matt Wilson. McKinsey & Company. July 13, 2020. “Not the last pandemic: Investing now to reimagine public-health systems.” https://www.mckinsey.com/industries/public-and-social-sector/our-insights/not-the-last-pandemic-investing-now-to-reimagine-public-health-systems. Accessed Sept. 18, 2020.

2 Ibid.

3 Zachary B. Wolf. CNN. April 28, 2020. “What Matters: This is what coronavirus capitalism looks like.” https://www.msn.com/en-us/money/markets/what-matters-this-is-what-coronavirus-capitalism-looks-like/ar-BB13ieZ6?ocid=msn360. Accessed Sept. 18, 2020.

4 Bryan Bender. Politico. Sept. 21, 2020. “Pentagon rewrites pandemic plans.” https://www.politico.com/newsletters/morning-defense/2020/09/21/pentagon-rewrites-pandemic-plans-790511. Accessed Sept. 21, 2020.

5 Merrill. Aug. 2020. “The Grinding Recovery.” https://olui2.fs.ml.com/Publish/Content/application/pdf/GWMOL/Viewpoint_August_2020_Merrill.pdf. Accessed Sept. 18, 2020.

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

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

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 [BC1]This article is advisor-facing. We should avoid using advisor-facing articles for client-facing materials. This statement does not really need a citation.

 [RC2]Since we don’t need a citation here, I’ve left it as is without the advisor-facing article.

 [RC3]Compliance: I read that “Merrill Lynch” is now referred to as “Merrill.” Since people are used to “Merrill Lynch,” I’m not sure what would be most appropriate from your perspective!

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Federal Legislative and Administrative Rules Update

If you received a stimulus check last spring to help cope with the financial effects of the COVID-19 virus on your household, there’s something you should know. Those funds are technically an advance rebate of a special 2020 tax credit. Many taxpayers will be able to reconcile that rebate on their 2020 return to equal the tax credit allowed. However, there will be some for whom credits exceed their rebates and they can claim the balance as a refund, and others for whom their rebate exceeds their credits — although tax professionals do not believe those payments will have to be repaid.1

By a variety of measures, 2020 has been a tough year for many Americans. That is why it’s important to take a step back and consider what legislative changes and new administrative rules have been implemented to make this year a little easier. As you navigate this new landscape, please give us a call if you would like guidance in your investment decisions and future retirement income strategy.

According to a Care.com survey of parents with children younger than age 15, nearly three-quarters report that they intend to make major changes in their careers to accommodate the potential need for childcare this year. 2 Among them, 15% indicate they may leave the workforce altogether. As you plan, be aware that you may be eligible for paid leave to care for your children through a provision included in the Families First Coronavirus Response Act (FFCRA).

Passed in March, this provision grants up two weeks (80 hours) of emergency paid sick leave at two-thirds pay (capped at $200 per day) for parents unable to work because of a need to care for a child under the age of 18 if their school or care provider is closed or unavailable due to the pandemic. If schools open with an intermittent schedule, parents may be able to take paid leave only on the days their children are at home.3

In light of the amount of people who need to need to stay home because they are either sick, quarantined for possible exposure to COVID-19 or at high risk if they do contract the virus, the Centers for Medicare and Medicaid Services has relaxed rules regarding in-home care and medical services. Specifically, nurse practitioners, clinical nurse specialists and physician assistants can now provide home health services for Medicare and Medicaid beneficiaries — previously unavailable unless certified by a physician. They can now order, establish and review a plan of care and certify eligibility for home health services.4

If you’re a business owner and planning for your own care needs in retirement, be aware that Sub-Chapter C Corporations can deduct long-term care (LTC) insurance premiums on behalf of employees, business owner spouses or dependents. Self-employed workers also may deduct 100% of LTC premiums up to certain age-based limits.5 Unfortunately, individual tax filers may deduct LTC premiums only if they itemize tax deductions and only to the extent those premiums exceed 7.5% of their adjusted gross income.6 Note that some states allow for limited deductions on state tax returns.7

Given the national controversy on immigration rules, one lesser-known change made this year is that the federal government has actually loosened restrictions for certain visas. Effective May 14, 2020 through May 15, 2023, the Department of Homeland Security has removed certain limitations for employers to hire H-2B workers already residing in the U.S. to provide temporary labor or services essential to the food-supply chain. This was in response to disruptions caused by the COVD-19 pandemic.8

As for rule changes that affect the country’s financial health, the Federal Reserve announced in March that large banks have held up well in light of the strain caused by the recent economic decline. Moving forward, the central bank has mandated that large banks suspend share repurchases, cap dividend payments and limit dividends in an effort to help preserve capital during the third quarter of 2020.9

Content prepared by Kara Stefan Communications.

1 Joy Taylor and Rocky Mengle. Kiplinger. June 22, 2020. “Tax Changes and Key Amounts for the 2020 Tax Year.” https://www.kiplinger.com/slideshow/taxes/t055-s011-tax-changes-and-key-tax-amounts-for-2020/index.html. Sept. 8, 2020.

2 Jennifer Liu. CNBC. Aug. 17, 2020. “Parents may qualify for paid leave, unemployment if schools are closed for the fall.” https://www.cnbc.com/2020/08/17/parents-may-qualify-for-paid-leave-unemployment-due-to-school-closure.html. Accessed Sept. 8, 2020.

3 Ibid.

4 Center for Medicare & Medicaid Services. April 30, 2020. “Trump Administration Issues Second Round of Sweeping Changes to Support U.S. Healthcare System During COVID-19 Pandemic.” https://www.cms.gov/newsroom/press-releases/trump-administration-issues-second-round-sweeping-changes-support-us-healthcare-system-during-covid. Accessed Sept. 8, 2020.

5 LTC Partner. 2020. “2020 Long Term Care Insurance Tax Deduction.” https://www.longtermcareinsurancepartner.com/long-term-care-insurance/2020-long-term-care-insurance-tax-deduction. Accessed Sept. 8, 2020.

6 Internal Revenue Service. Sept. 20, 2020. “Topic No. 502 Medical and Dental Expenses.” https://www.irs.gov/taxtopics/tc502. Accessed Sept. 21, 2020.

7 LTC Partner. 2020. “2020 Long Term Care Insurance Tax Deduction.” https://www.longtermcareinsurancepartner.com/long-term-care-insurance/2020-long-term-care-insurance-tax-deduction. Accessed Sept. 8, 2020.

8 Federal Register. May 14, 2020. “Temporary Changes to Requirements Affecting H-2B Nonimmigrants Due to the COVID-19 National Emergency.” https://www.federalregister.gov/documents/2020/05/14/2020-10486/temporary-changes-to-requirements-affecting-h-2b-nonimmigrants-due-to-the-covid-19-national. Accessed Sept. 8, 2020.

9 Federal Reserve. June 25, 2020. “Federal Reserve Board releases results of stress tests for 2020 and additional sensitivity analyses conducted in light of the coronavirus event.” https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200625c.htm. Accessed Sept. 8, 2020.

Our firm is not affiliated with or endorsed by the U.S. government or any governmental agency and does not provide tax or legal advice.

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

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

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Americans and Their 401(k)s

A recent survey found that working households experiencing financial strain due to the pandemic have not been inclined to make withdrawals from their 401(k)s to help make ends meet. In fact, the vast majority haven’t even changed their rate of contributions. Instead, these households are relying on the “old standbys” of surviving during economic decline: Reduced spending, using savings or an emergency fund, and maxing out credit cards.1

A reduction in spending shouldn’t be that difficult in the wake of today’s pandemic. After all, many people have cancelled vacations, no longer commute to work, and don’t spend nearly as much money going out to eat or for other entertainment activities. Some folks are even keeping their college students out of school for a semester or two, or at least taking the online route and saving on room and board. For those who remain employed, it’s actually a good time to increase savings.2

The coronavirus pandemic offers an ideal scenario to demonstrate the importance of diversifying retirement savings accounts. While some workers may defer as much salary as they can into a 401(k) to help reduce their current income taxes, others may spread those contributions over a work retirement plan and an IRA. There are a couple of strong reasons to consider including a Roth IRA in the mix. While Roth contributions do not offer a current tax deduction, remember that there are no tax consequences when you withdraw the money. Those funds have the opportunity to grow tax-free, and you’re free to tap your contributions without penalty when needed to supplement household income. However, keep in mind that you should consult with a qualified professional before taking any withdrawals from your retirement assets.

It’s also strategically key right now as income taxes are historically low. The income taxes you currently pay on Roth contributions now could be less than what you’ll have to pay on 401(k) distributions in the future. If you’d like to discuss ways to help maximize your retirement savings — including financial vehicles that allow for tax diversification and emergency funds for situations like pandemics — give us a call. We can tailor recommendations for your situation.

The Employee Benefits Security Administration (EBSA), which is an agency under the U.S. Department of Labor, recently announced an interim final rule for employers offering retirement plan benefits. The agency will require 401(k) and other types of retirement plan sponsors to provide employees with annual lifetime income illustrations. This is a customized statement designed to show each plan participant how his current account assets would likely translate into monthly income at a projected retirement age.3 This is similar to the Social Security Statement which projects future payouts for beneficiaries, updated annually.

The Labor Department also proposed a new rule this summer that is designed to incentivize more investment in fossil-fuel companies. Specifically, the rule would require pension and 401(k) plan wealth managers to always place economic interests ahead of “non-pecuniary goals” when it comes to Environmental, Social, and Corporate Governance (ESG) investing. Some money managers are investing more in renewable energy companies out of concern for the environment and for the long-term investment opportunities presented by sustainable power sources. While this new rule reflects the current administration’s position on fossil fuels, many money managers are concerned that the rule ignores evidence that ESG investing offers strong potential for favorable returns.4

One final note on Americans and their 401(k)s: Pay careful attention to how these plans are utilized in divorce settlements. Normally, dividing such a plan requires a court order separate from the divorce decree, called a Qualified Domestic Relations Order (QDRO). Also bear in mind that some plan administrators will not officially divide 401(k) assets until the plan participant retires.5

Another way to negotiate 401(k) assets in a divorce settlement is to allow one ex-spouse to retain the 401(k) plan while the other receives an asset of equal value (be sure to compare tax consequences and take those into account when determining equal value). Another option is to roll a portion of the 401(k) into a traditional IRA, which would avoid current penalties and tax liability and permit the ex-spouse to choose her own investments. However, this option is only available to those who have left their employer or are over age 59½.6 Not matter what route you choose, be sure to work with an experienced financial advisor, tax advisor and attorney to understand the full ramifications of splitting up a 401(k) account.

Content prepared by Kara Stefan Communications.

1 Mike Scarcella. BenefitsPRO. Aug. 20, 2020. “New virus-era survey shows tapping 401(k)s is ‘last resort’ for most participants.” https://www.benefitspro.com/2020/08/20/new-virus-era-survey-shows-tapping-401ks-is-last-resort-for-most-participants/. Accessed Sept. 2, 2020.

2 Fox Business. Sept. 1, 2020. “3 important 401(k) strategies to employ for the remainder of 2020.” https://www.foxbusiness.com/lifestyle/3-important-401k-strategies-to-employ-for-the-remainder-of-2020. Accessed Sept. 2, 2020.

3 Allison Bell. BenefitsPRO. Aug. 20, 2020. “5 things to know about the new 401(k) plan illustration regs.” https://www.benefitspro.com/2020/08/20/5-things-to-know-about-the-new-401k-plan-illustration-regs-for-agents-412-102799/. Accessed Sept. 2, 2020.

4 Tim Quinson. Bloomberg. Aug. 31, 2020. “Trump Plan to Block Green 401(k)s Stirs Fund Industry Fury.” https://www.bloomberg.com/news/articles/2020-08-31/trump-plan-to-limit-esg-investing-by-401-k-s-opposed-by-funds. Accessed Sept. 2, 2020.

5 Steven Wittenberg. Kiplinger. Sept. 1, 2020. “Tricky Divorce Issue: How to Divide 401(k)s, IRAs and Annuities.” https://www.kiplinger.com/personal-finance/601321/tricky-divorce-issue-how-to-divide-401ks-iras-and-annuities.  Accessed Sept. 2, 2020.

6 Ibid.

Neither our firm nor its agents or representatives may give tax or legal advice. Be sure to speak with a qualified professional about your unique situation.

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

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

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Financial Advising During a Pandemic

The pandemic has been hard on nearly everyone, and it’s particularly difficult for professionals who normally meet with clients in an office setting. Fortunately, financial advisors have been able to adapt to this “new normal.”

Our goal is to be our clients’ trusted advisors. Once that relationship is established, we can work with clients by phone, email, and even via a Zoom or Facetime call if they prefer. But make no mistake — we’re still here. We understand what it’s like to go through difficult times and a big part of our job is to help you weather challenges just like the one the country is facing now.

One way we do that is by keeping you informed on topical news, from the government’s stimulus package to key factors driving the market. While our job is to build you a financial plan designed to withstand a variety of economic conditions, it’s also important to stay flexible. If you could use advice regarding appropriate financial products for your situation, feel free to contact us. We are always here for you.

Since most financial advisors have long embraced technology to help engage with clients, this has been a true advantage during this time. In fact, the head of one wealth management firm recently observed that client-satisfaction levels have increased during the pandemic because of the many ways that advisors are staying in touch with clients, including phone calls, emails, texts and social media. In many cases, the immediacy and frequency of these interactions have helped facilitate a more substantive and ongoing dialogue between advisor and client.1

As financial advisors, it’s important for us to monitor not just investment performance, but the long-term outlook of U.S. businesses. According to a recent PwC COVID-19 US CFO Pulse Survey, today’s top concerns among the nation’s finance leaders include:2

  • The financial impact on their business, including effects on operations, liquidity and capital resources
  • The potential for a global recession
  • A reduction in workforce productivity
  • A decrease in consumer confidence and reduced consumption
  • Supply chain disruptions

By tracking these trends, we can help clients stay on track toward their goals and make course corrections when necessary. Ideally, your investment portfolio is designed to meet long-term goals, so temporary economic or market fluctuations should not precipitate drastic moves. One of our biggest challenges is reassuring clients and discouraging them from making decisions about their money based on panic and fear.

While “robo” advisors have become an alternative model for offering financial recommendations, it’s times like these when you can appreciate the difference between and electronic algorithm and a real-life advisor.3

A financial advisor helps you establish a plan that incorporates a whole host of considerations, such as:

  • Focusing on your specific goals, such as asset allocation, college funding or retirement income
  • Taking a broader look at your entire financial picture, not just your investments
  • Taking into account the potential for various types of disruption, whether economic or personal
  • Helping you navigate challenges to continue moving toward financial goals despite any future challenges

Remember, our reliance on technology and digital tools is designed to help you stay connected to your accounts with 24/7 access from any device. They also enable us to stay in touch virtually in a private and safe environment.

Content prepared by Kara Stefan Communications.

1 Jason Bisnoff. Forbes. May 21, 2020. “Merrill Lynch Head Predicts Bull Market For Financial Advice After Covid-19 Stock Selloff.” https://www.forbes.com/sites/jasonbisnoff/2020/05/21/merrill-lynch-head-predicts-bull-market-for-financial-advice-after-covid-19-stock-selloff/#4118bdb39f75. Accessed Aug. 19, 2020.

2 PwC. April 22, 2020. “How COVID-19 is affecting the asset and wealth management industry.” https://www.pwc.com/us/en/library/covid-19/coronavirus-asset-and-wealth-management.html. Accessed Aug. 19, 2020.

3 Craig Hawley. June 4, 2020. “Don’t Go it Alone: 4 Benefits of Having a Financial Adviser.” https://www.kiplinger.com/article/retirement/t023-c032-s014-4-benefits-of-having-a-financial-adviser.html. Accessed Sept. 3, 2020.

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

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

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Employers: Lessons From the Pandemic

We’ve learned a lot about infectious diseases this year, as well as how to adapt our lifestyles in response to a pandemic. It will be interesting to see if and how U.S. businesses adjust their operational models to account for the potential for future pandemics or other catastrophic events.

According to the employment-population ratio, nearly half of the U.S. population was out of work (which includes those no longer actively looking for work), with economists predicting 30 million jobs must be created to return the ratio to its 2000 peak.1

If your household has suffered a job loss or reduced income and you need assistance with creating a budget, or if you’re just not sure about your future retirement income and want to create an income plan, please contact us. We’re happy to evaluate your financial circumstances and provide guidance.

Work-life balance was a problem before the pandemic, but now that issue is being experienced in another context. Many employees have been able to migrate seamlessly to working from home using software to stay connected with colleagues and clients. However, with children home from school and now responsible for online learning, work-life balance can be even more difficult.

Many white-collar professionals have discovered the need for one — or two — in-home offices for spouses who are working professionals. While many are able to get their work completed independently, it is important to still be accessible to colleagues at certain points of the workday. Despite these challenges, some companies may increasingly find remote working to offer lower-cost, higher-productivity benefits if they can overcome some of the issues they currently face.2

As for working from home this year, it will be interesting to see if tax laws change before filing season next April. After all, according to a recent report from the Federal Reserve Bank of Dallas, more than 35% of Americans employed in May of this year were working entirely from home — up from just over 8% in February. Unfortunately, the Tax Cuts and Jobs Act disallowed W-2 employees from being able to deduct home office expenses.3

A work-from-home business model could also expand the net for recruiting talented employees. After all, many top companies are located in big cities where real estate sells for a premium. This is a tough life for young adults saddled with student loan debt. With a mobile workforce that allows employees to live wherever they want, companies can offer a competitive advantage when it comes to attracting top talent. In turn, Millennials and Gen Zers can move away from big city life and buy homes in less expensive areas.4 This could potentially help them save more money and turn around the fortunes of the country’s more rural areas.

It would be nice to keep your job, move somewhere with a lower cost of living and be able to keep your salary level. However, some economists claim that’s not going to be the case moving forward. Because many businesses have lost revenues due to reduced consumerism throughout this pandemic, wages are likely to stagnate for several years. Then again, the cost of living isn’t expected to increase dramatically in the near-term either.5 By moving to a less expensive locale, employees may be able to save more money even if they don’t get a salary bump in the foreseeable future.

Unfortunately, that means that any wage cuts employees received this year may not recover anytime soon. According to economists at the Federal Reserve Board, businesses initially cut wages by nearly two times as much due to the pandemic than they did during the Great Recession.6

Content prepared by Kara Stefan Communications.

1 Yung Li. CNBC. June 29, 2020. “Nearly half the U.S. population is without a job, showing how far the labor recovery has to go.” https://www.cnbc.com/2020/06/29/nearly-half-the-us-population-is-without-a-job-showing-how-far-the-labor-recovery-has-to-go.html. Accessed Aug. 12, 2020.

2 Knowledge@Wharton. May 4, 2020. “Working from Home: Navigating the Pandemic’s New Normal.” https://knowledge.wharton.upenn.edu/article/working-from-home-navigating-the-pandemics-new-normal/. Accessed Aug. 12, 2020.

3 Kelly Phillips Erb. Forbes. Aug. 12, 2020. “The Ultimate Forbes Guide to Working from Home.” https://www.forbes.com/sites/kellyphillipserb/2020/08/12/taxes-vpns-and-office-hours-the-ultimate-forbes-guide-to-working-from-home/#90a042442e7e. Accessed Aug. 12, 2020.

4 Parag Khanna and Kailash K. Prasad. Politico. May 13, 2020. “How Coronavirus Could Make People Move.” https://www.politico.com/news/magazine/2020/05/13/how-coronavirus-could-upend-human-migration-251715. Accessed Aug. 12, 2020.

5 Jessica Peres. TheDenverChannel.com. June 30, 2020. “Economists say wages will stay stagnant amid pandemic.” https://www.thedenverchannel.com/news/national/coronavirus/economists-say-wages-will-stay-stagnant-amid-pandemic. Accessed Aug. 12, 2020.

6 Carmen Reinicke. Business Insider. June 26, 2020. “Pandemic wage cuts are roughly double what they were in the Great Recession, study shows.” https://www.businessinsider.com/wage-cuts-coronavirus-pandemic-twice-great-recession-fed-study-shows-2020-6. Accessed Aug. 12, 2020.

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

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

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