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Retirement Withdrawal Strategies

As hard as retirement saving and investing may seem, that’s the easy part. The real challenge is figuring out how to make your accumulated savings last throughout your and your spouse’s retirements. You need a strategy, and it’s best to have that strategy developed before retirement begins.

Because life expectancy is longer these days, many retirees need to maintain a growth component in their investment portfolio during retirement. That adds an extra challenge to your distribution strategy. The goals for drawing down funds include minimizing market risk to an equity allocation, coping with variable income that may be impacted by market returns, minimizing taxes, and supporting an increase in income needs associated with late-stage medical and long term care. It’s important to understand how these goals and needs interact to customize a retirement distribution strategy, and we can help you with that. Contact us to learn more.

Given that an investment portfolio may need to keep growing even after you retire, it’s important to consider “sequence of returns” risk. This basically means that if you retire around the time of a significant market decline, you can greatly deplete the principal from which you draw retirement income throughout the long term, subsequently having to reduce your retirement lifestyle or risk running out of money. To combat this risk, retirees should remain flexible. For example, continue to work past your planned retirement date if the market has a setback, or even re-enter the workforce post-retirement to help supplement your income and give investments time recover.1

Once you retire, you can set up a systematic withdrawal plan if you need to supplement your regular household income. If your retirement plan indicates you’ll need more money at different stages, consider the bucket strategy, wherein you allocate certain investments (“buckets”) for different stages so you have new assets to tap as you age. This strategy may also enable you to retain a more aggressive equity allocation in buckets you plan to tap later.2

To help minimize taxes in a retirement portfolio, alternatives could be to first withdraw from taxable assets (e.g., brokerage account), then tax-deferred plans (e.g., 401(k) and traditional IRA) and finally tax-free assets (e.g., Roth IRA). This approach gives your tax-advantaged accounts more time to grow tax-deferred. By planning to tap tax-free assets last, there’s a better chance of leaving tax-free income for your heirs.

However, it’s important to tailor your draw-down strategy for your personal circumstances, taking into account your retirement tax bracket. For example, a moderate-income household with multiple account types may want to draw a combination of tax-free, taxable and tax-deferred assets from the beginning to stay within a lower marginal tax bracket.3

It’s also important to consider the best time to start receiving Social Security benefits. Here, too, conventional wisdom recommends delaying as long as possible; preferably to age 70 for maximum accrual. Wayne Pfau, co-director of the New York Life Center for Retirement Income, would like to see the Social Security Administration extend the age to which additional delayed retirement credits (8% a year starting at full retirement age) accrue on benefits until age 72. This would be an effective way to encourage people to work longer and reward them for doing so. Even if they don’t work longer, investors can draw down income from their taxable accounts to reduce the value of their employer accounts and IRAs. Then, when they do begin drawing their larger Social Security benefit for life, they also benefit from lower required minimum distributions (RMD) to help them stay in a lower income tax bracket.4

The key is to customize a retirement distribution strategy for each household’s situation, taking into consideration factors such as health and life expectancy (of both spouses), retirement income needs, where assets are invested, tax bracket management and what assets are best positioned for an inheritance.

Content prepared by Kara Stefan Communications.

1 BlackRock. 2021. “Will my income last a lifetime?” https://www.blackrock.com/us/individual/insights/retirement-income. Accessed June 4, 2021.

2 Curtis V. Cloke. Retirement InSight and Trends. May 4, 2021. “Advanced Annuity and Tax Strategies for Retirement Income.” https://www.retirement-insight.com/advanced-annuity-and-tax-strategies-for-retirement-income/. Accessed June 4, 2021.

3 T. Rowe Price. February 2021. “How to Get More Out of Your Retirement Account Withdrawals.” https://www.troweprice.com/content/dam/iinvestor/resources/insights/pdfs/how-to-get-more-out-your-retirement-account-withdrawals.pdf. Accessed June 4, 2021.

4 Ginger Szala. ThinkAdvisor. May 6, 2021. “Wade Pfau Makes Case for Raising Top Social Security Claiming Age to 72.” https://www.thinkadvisor.com/2021/05/06/wade-pfau-makes-case-for-raising-top-social-security-claiming-age-to-72/. Accessed July 7, 2021.

Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. 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.

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Demographics differing on retirement plans

According to PwC’s recent Retirement in America report, the median retirement savings among people ages 55 to 64 is $120,000. Unfortunately, that likely would provide less than $1,000 per month for a retiree, for only 15 years.1

There’s an interesting dichotomy among demographics when it comes to retirement planning these days. There are those who believe they will work beyond age 70, or even never retire. Some believe they’ll need to keep working for financial reasons, while others simply want to stay engaged.2 But then there’s another cohort (one-third of workers younger than 54) who aspire to retire by age 55, according to a 2020 survey by the research firm Hearts & Wallets.3

Clearly, the pandemic affected some households’ financial situation more than others. But the primary way to successfully fund retirement is to have a plan, and those who want to retire early generally do. Those who think they’ll never be able to stop working may have either failed to plan adequately or circumstances conspired to send those plans awry. Wherever you are in your planning stage, it never hurts to get advice. We’d be happy to review your current finances — and your retirement plan if you already have one — to either get you on track or ensure you’re still on the right path to retiring when and how you want.

Bear in mind that approximately 40 million people do not have the advantage of investing in an employer-sponsored retirement plan because they work for a small business. There appears to be a growing trend to address this situation, as multi-employer and pooled-employer plans (MEP/ PEP) are starting to come on board. These plans are designed to allow small employers to share investment and administrative costs.4

A 2019 survey of retirement plan participants by American Century Investments found that the number one regret among retirees was not saving enough money for retirement. Not saving enough could lead to working longer than you wanted or scaling back to a lower-cost retirement lifestyle.5

For current retirees or those expecting to retire soon, recognize that the recent rise in inflation is not without its advantages. For example, in April the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased to 4.7% over 12 months ago. This inflation measure is the one that Social Security uses to make annual cost of living adjustments (COLA) to benefits — which means the next COLA increase could reflect that 4.7% increase next year. For context, Social Security benefits rose by only 1.3% in 2021. The actual adjustment will be calculated later this year based on how inflation continues to perform, with the final determination generally announced after the third quarter.6

Content prepared by Kara Stefan Communications.

1 PwC. 2021. “Retirement in America: Time to rethink and retool.” https://www.pwc.com/us/en/industries/asset-wealth-management/library/retirement-in-america.html. Accessed June 15, 2021.

2 American Advisors Group. May 6, 2021. “Nearly One in Three Seniors Plan to Work Past 70 or Never Retire, According to AAG Survey.” https://www.prnewswire.com/news-releases/nearly-one-in-three-seniors-plan-to-work-past-70-or-never-retire-according-to-aag-survey-301285256.html. Accessed May 31, 2021.

3 Hearts & Wallets. March 16, 2021. “Retirement Resurgence: Americans Who ‘Aspire to Retire by 55;’ Anticipation of Increasing Number of Income Sources.” https://www.heartsandwallets.com/docs/press/press_release_2021-03-16_Retirement_Resurgence_Americans_Who_Aspire_to_Retire_by_55_Goal_More_Income_Sources.pdf. Accessed June 15, 2021.

4 Stephen Miller, CEBS. Nov. 16, 2020. “DOL Final Rule Paves the Way for 2021 Launch of Pooled 401(k) Plans.” https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/dol-final-rule-paves-way-for-2021-launch-of-pooled-401k-plans.aspx. Accessed June 29, 2021.

5 Brian Mayfield. American Century Investments. 2021. “4 Reasons to Rethink Cashing Out Your Retirement.” https://www.americancentury.com/content/direct/en/insights/guidance-planning/retirement/saving-for-retirement/rollover-options/cashing-out-retirement-401k-ira-four-considerations.html. Accessed May 31, 2021.

6 David Payne. Kiplinger. June 28, 2021. “What is the Social Security COLA?” https://www.kiplinger.com/article/retirement/t051-c000-s010-what-is-the-social-security-cola.html. Accessed June 29, 2021.

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. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions.

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.

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All About RMDs

There really is a purpose behind required minimum distributions (RMD) of tax-advantaged retirement accounts. IRAs and employer-sponsored retirement plans feature tax-deferred income contributions and earnings growth throughout the lifetime of the account. There’s just one catch — when you take money out of that account, it then gets taxed at ordinary income tax rates. Some retirees use that money to pay for their expenses, but others may not need it and would rather let it continue growing, untaxed, and then leave it to heirs.

That means that retirees who need the money are taxed and those who don’t could avoid the tax. Those tax revenues are used to fund government programs, but we are fortunate to have decades of a tax reprieve so gains can accumulate faster.

Retirement investing, and RMDs in particular, can be rather confusing. But just because something is difficult — and ever changing — doesn’t mean we shouldn’t take advantage of the options available. Quite the opposite — tax-deferred investing is a way to optimize the accumulation of wealth, so it’s worth the time and effort to understand how these accounts work.

You can tap the advice of a financial professional to help you manage your retirement accounts, even those that fall under an employer plan. After all, your employer isn’t going to help you manage the rest of your portfolio, so feel free to call us if you have questions about your tax-advantaged accounts and their distribution options.

In 2019, Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act, with several changes regarding RMDs. Prior to the legislation, retirement account owners had to start RMDs at age 70½; the law increased that age to 72 for anyone born after June 30, 1949. Those with a traditional IRA must take their first RMD by April 1 of the year after which they turn age 72, even if they haven’t retired yet. Each year thereafter, they must take an RMD by Dec. 31. Investors with multiple IRAs must calculate the appropriate RMD for each one, but they can take that total amount from just one of the accounts they own. That’s easier to do with traditional IRAs than with multiple prior employer retirement accounts, which require contacting former employers to calculate and send the distributions.1

There is a penalty for not taking the appropriate RMD: The account owner must pay a 50% excise tax on the amount not distributed each year. Also note that you cannot withdraw a couple’s total RMD from just one spouse’s account or a different type of qualified account.2

The rules for an inherited IRA can be confusing, and they also changed with the recent SECURE Act. Specifically, it is now prohibited for a non-spouse IRA beneficiary to “stretch” out taxable distributions throughout his life expectancy. Starting in January 2020, the named beneficiary is required to withdraw all funds within 10 years of inheriting the account. However, unlike before, the heir can wait the full 10 years before taking distributions, meaning there are no RMDs each year.3

The inherited IRA rules didn’t change for a spouse who inherits a wife’s or husband’s IRA upon death. She also has more options for withdrawals, such as the ability to designate herself as the new account owner, roll it over to her existing IRA or take distributions as a beneficiary.

Be aware that these distribution rules do not apply to a Roth IRA, either directly owned or inherited. Since the Roth is funded with already-taxed income, withdrawals are tax-free in retirement — even the gains accrued over time. The only caveat is that the owner (or original owner, if inherited) must have owned the account for at least five years (the clock starts on Jan. 1 of the year of the first contribution). Contributions withdrawn before that five-year holding period may be taken tax free, but any withdrawn interest is taxable.4

Annuities also benefit from tax-deferred growth, but the account owner takes RMDs only if it is classified as a qualified annuity, meaning that it was funded with pre-tax money. Non-qualified annuity contracts are funded with after-tax income and feature tax-deferred earnings, so they do not mandate RMDs and are taxed upon distribution.5

Content prepared by Kara Stefan Communications.

1 Judith Ward. T. Rowe Price. May 11, 2021. “Five Important Things You Should Know About RMDs.” https://www.troweprice.com/personal-investing/resources/insights/five-things-you-should-know-about-rmds.html. Accessed May 21, 2021.

2 Denise Appleby. Investopedia. April 21, 2020. “Required Minimum Distributions: Avoid These 4 Mistakes.” https://www.investopedia.com/articles/retirement/04/120604.asp. Accessed May 21, 2021.

3 Fidelity. June 1, 2020. “SECURE Act rewrites the rules on stretch IRAs.” https://www.fidelity.com/learning-center/personal-finance/retirement/secure-act-inherited-iras. Accessed May 21, 2021.

4 Barbara Weltman. Investopedia. Feb. 15, 2021. “The Rules on RMDs for Inherited IRA Beneficiaries.” https://www.investopedia.com/articles/personal-finance/102815/rules-rmds-ira-beneficiaries.asp. Accessed May 21, 2021.

5 FINRA. 2021. “Required Minimum Distributions—Common Questions About IRA Accounts.” https://www.finra.org/investors/learn-to-invest/types-investments/retirement/rmds-questions-about-ira-accounts. Accessed May 21, 2021.

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.

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How Infrastructure Spending Affects Municipal Bonds

According to the American Society of Civil Engineers, the 10-year tab to meet the country’s basic infrastructure needs is about $6 trillion. The report, published in March, includes $125 billion needed for bridge repairs, $435 billion for roads and $176 billion for the nation’s transportation systems.1

For more than 200 years, municipal bonds have been used as public financing instruments in the U.S. Today, two-thirds of infrastructure projects such as schools, hospitals, highways and airports are financed by municipal bonds.2

In addition to providing revenue for infrastructure projects, muni bonds offer an attractive investment opportunity. They provide tax-advantaged yields for current income, stable credit quality and a risk-averse allocation for an investment portfolio. One way to diversify municipal bond investments is through a municipal bond fund or ETF. Given the potential for increased interest and investment in infrastructure in the foreseeable future, we’re happy to discuss opportunities suitable for your portfolio. Give us a call if you’d like to learn more.

President Joe Biden recently proposed a $2.3 trillion plan to invest in the nation’s infrastructure. One funding option Congress may consider is the Build America Bonds (BAB) program, which was introduced during the Great Recession as a means to fund recovery efforts through infrastructure repairs and development. BABs were originally structured for states, cities, schools, airports, mass transit agencies and other public entities to sell for a limited time. They were particularly attractive because the federal government kicked in 35% of interest costs.3

Stimulus packages over the past year have benefited the municipal market by making funds available to state and local governments to make up for lost sales tax revenues due to lockdowns and the beleaguered economy.5 Now, with more revenue available, local public agencies may be inclined to issue debt for capital purposes.

Bonds backed by states and cities tend to have high credit ratings and low default risk, and the federal government underwriting municipal debt makes them even more attractive. Historically, muni bonds have offered rates as high as 7% or more.6 Furthermore, given the potential that an expensive infrastructure bill may be supported by an increase in income tax rates, municipal bonds offer an opportunity for investors to shield income from taxation.7

Content prepared by Kara Stefan Communications.

1 Thomas Franck. CNBC. March 26, 2021. “Build America Bonds may be key to financing Biden’s infrastructure plans.” https://www.cnbc.com/2021/03/26/build-america-bonds-may-be-key-to-financing-bidens-infrastructure-plans.html. Accessed May 5, 2021.

2 Jenna Ross. Visual Capitalist. Nov. 4, 2019. “From Coast to Coast: How U.S. Muni Bonds Help Build the Nation.” https://www.visualcapitalist.com/municipal-bonds-build-nation/. May 5, 2021.

3 Karen Pierog. Reuters. March 31, 2021. “Build America Bonds may stage a comeback in Biden’s infrastructure plan.” https://www.reuters.com/article/usa-biden-infrastructure-bonds/build-america-bonds-may-stage-a-comeback-in-bidens-infrastructure-plan-idUSL1N2LR1UZ. Accessed May 5, 2021.

5 Sanghamitra Saha. Nasdaq. April 7, 2021. “4 Factors Why Muni Bond ETFs Could Rally.” https://www.nasdaq.com/articles/4-factors-why-muni-bond-etfs-could-rally-2021-04-07. Accessed May 5, 2021.

6 Ibid.

7 Franklin Templeton. March 18, 2021. “Stimulus and Infrastructure: Boon for Muni Bonds?” https://www.franklintempleton.com/investor/tools-and-resources/investor-education/talking-markets-podcast/stimulus-and-infrastructure-boon-for-muni-bonds. Accessed May 5, 2021.

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.

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Tax Strategies

In an effort to pay for new legislation, the Biden administration has proposed higher taxes for the nation’s highest earners. The president advocates returning the top tax rate to 39.6% for individuals earning $452,700 or more, and married couples with more than $509,300 in combined taxable income.1

This top tax rate was just reduced in 2017 (to the current 37%), which emphasizes a very important point: Tax rates are going to rise and fall. While it may be prudent to make adjustments to income, investments, deductions and other tax strategies in response to changes, it’s always important to do what’s best for your circumstances. Making adjustments every few years could end up derailing your long-term goals. Before making any changes based on proposed or even enacted tax laws, be sure to consult with experienced financial and tax professionals to develop a sound strategy that works for the long haul. Feel free to call us if you’d like to discuss tax strategies.

With that in mind, there are tactics you can use to help minimize your tax obligations and still remain aligned with your goals. For example, if you are currently retired and regularly make charitable contributions, you can use your required minimum distributions (RMD) to donate directly from your IRA account. Those assets would no longer be reported as income, so you would not have to pay taxes on them. It’s a way to continue your charitable goals but minimize your taxes.2

Another asset that could be targeted for higher taxes is an inherited home. Today, heirs enjoy a step-up in basis, which means the home’s cost basis is adjusted to market value at the time of the owner’s death. If the heir sells the home immediately, he or she will owe no capital gains tax. Also, heirs can defer paying taxes on that value until they actually sell the home. However, Biden’s proposed inheritance tax would remove the step-up and tax capital gains upon the death of the parent, as if the home was sold. The current proposal includes tax exemptions up to $1 million for single heirs and up to $2.5 million for couples.

That may sound like a lot, but the heirs may have to sell the property if they don’t have ready cash to pay the gains tax. For example, say a son inherits his parents’ home. It was originally purchased for $300,000 and is valued at $1.5 million when he inherits it. Under the Biden proposal, he can subtract both the original cost ($300,000) and the exclusion rate ($1 million), but that still leaves $200,000 on which he would owe capital gains taxes.3

Another tax strategy being pursued by this administration is to collect taxes legally owed that are not currently being collected. According to the IRS, that’s about $1 trillion a year based on analysis from 2011 to 2013. However, between the proliferation of virtual currencies and the impressive growth in billionaire wealth just over the past year, the amount of uncollected tax revenues could be a lot higher than that now. In fact, IRS analysis has found that illegal and foreign-sourced income that is not currently being reported would yield an additional $175 billion in tax revenues from America’s wealthiest households. In an effort to avoid raising taxes on middle and lower-income households, Biden has proposed a 10.4% increase in IRS funding to help enforce tax laws already on the books.4

Content prepared by Kara Stefan Communications.

1 Kate Duffy. Business Insider. April 29, 2021. “Biden’s tax hike will hit married couples earning more than $510,000 combined, report says.” https://www.businessinsider.com/joe-biden-tax-rise-hits-married-couples-earn-less-400000-2021-4. Accessed May 3, 2021.

2 Steven A. Morelli. Insurance News Net. April 9, 2021. “Advisors Dealing With A Flood Of Tax Anxiety.” https://insurancenewsnet.com/innarticle/advisors-dealing-with-a-flood-of-tax-anxiety. Accessed May 3, 2021.

3 Kate Dore. CNBC. April 29, 2021. “Biden’s plan for inherited real estate may impact more people than just the wealthy.” https://www.cnbc.com/2021/04/29/bidens-tax-plan-for-inherited-homes-may-impact-more-than-the-wealthy.html?recirc=taboolainternal. Accessed May 3, 2021.

4 Aaron Lorenzo. Politico. April 13, 2021. “IRS chief says some $1T in taxes going uncollected annually.” https://www.politico.com/news/2021/04/13/irs-one-trillion-taxes-uncollected-annually-481128. Accessed May 3, 2021.

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.

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The Labor Market in the Post-Pandemic Era

According to the most recent Future of Jobs Report by the World Economic Forum, 50% of employees will need new skills training by 2025 as the pace of technological innovation continues to grow. Among business leaders, 94% say they expect employees to learn new skills while on the job, compared to just 65% who made that claim in 2018.1

However, the amount of time it takes to reskill will depend on the industry, according to the online learning platform Coursera. For example, only one or two months is necessary to acquire skills in emerging professions such as content writing, sales and marketing; in contrast, it could take up to three months to expand skills in product development, data and artificial intelligence. Skills needed for roles in cloud computing and engineering could take up to four months. Among soft skills that will increase in demand, critical thinking and problem-solving top the list. But post-pandemic, skills in resilience, stress tolerance and flexibility also are highly valued.2

This recognition of the need for new skills training opens up avenues for all types of people, even retirees and middle-aged professionals who would like to change careers. After all, the acquisition of skills based on new technologies means no one will have a huge edge in terms of experience. Therefore, people with the ability to learn technical skills quickly – who already possess high-value soft skills – have strong potential to vie for a new career. If you’re thinking about making such a move, we’d be happy to review your financial portfolio to help make sure you are on the right path toward your retirement.

Another labor trend is the rise of remote work and its impact on employees’ lifestyles. With the pandemic clearing the way for many white-collar workers to work remotely, younger workers have been able to move to more affordable locales and buy their first homes. On the other hand, established homeowners can now consider relocating to wherever they’d like to retire, trading in their current home equity for their retirement home – with a plan to pay off that final mortgage while they’re still working. This way, they can move and start enjoying a retirement lifestyle near the beach, lake or mountains while still gainfully employed, albeit working remotely.3

Unfortunately, low-skilled, blue-collar professions are on the other side of that coin. Many either lost jobs during the pandemic or were classified as high-risk “essential workers.” Just because grocery store clerks became essential, it doesn’t necessarily mean an increase in pay or benefits. While the debate over raising the national minimum wage continues in Washington, there’s little doubt that many low-paying jobs will always be necessary, but experienced workers in those positions are not necessarily low-skilled.4

For example, what is the value of caregivers who can skillfully attend to mobility-challenged people? Or workers who serve multiple tables of hungry and thirsty patrons who want their meal yesterday? Skills like patience and equanimity have not traditionally received the same level of pay as an office worker, but they are no less valued or necessary. It will be interesting to see, post-pandemic, if these types of jobs begin to translate into fair pay and good benefits.5

After decades of steady decline, labor unions are hoping for greater respect and participation moving forward – based on support by President Joe Biden’s administration. Today, only one in five households has a union member, and the Economic Policy Institute estimates the decline of unions translates to an average loss of $3,250 per year for a full-time worker. Biden is advocating passage of the Protecting the Right to Organize (PRO) bill, which would abolish state laws that ban mandatory collection of dues as a condition of employment, penalize businesses that retaliate among union drives and extend federal labor rights to independent contract workers. So far, the House has approved the legislation, but it faces a more difficult path in the Senate.6

Content prepared by Kara Stefan Communications.

1 Kate Whiting. World Economic Forum. Oct. 21, 2020. “These are the top 10 job skills of tomorrow – and how long it takes to learn them.” https://www.weforum.org/agenda/2020/10/top-10-work-skills-of-tomorrow-how-long-it-takes-to-learn-them/. Accessed April 30, 2021.

2 Ibid.

3 Liam Dillon. Los Angeles Times. April 30, 2021. “The remote work revolution is transforming, and unsettling, resort areas like Lake Tahoe.” https://www.latimes.com/homeless-housing/story/2021-04-30/covid-wfh-boosts-palm-springs-lake-tahoe-housing-markets. Accessed April 30, 2021.

4 Annie Lowrey. The Atlantic. April 23, 2021. “Low-Skill Workers Aren’t a Problem to Be Fixed.” https://www.theatlantic.com/ideas/archive/2021/04/theres-no-such-thing-as-a-low-skill-worker/618674/. Accessed April 30, 2021.

5 Ibid.

6 Steve Matthews and Payne Lubbers. Bloomberg. April 15, 2021. “Biden Confronts Decades of Union Decline in Bid to Boost Pay.” https://www.bloomberg.com/news/articles/2021-04-15/biden-confronts-decades-of-union-decline-in-bid-to-boost-wages?sref=wFA4tJCq. Accessed April 30, 2021.

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.

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Survival of the Fittest

The coronavirus pandemic worsened income and wealth disparity in the U.S.1 However, if you were on a good path for retirement planning and financial stability, chances are you were in the group that came out ahead.

According to the latest Retirement Confidence Survey by the Employee Benefit Research Institute (EBRI), a majority of retirees and workers are more confident now about their retirement prospects than they were last year just prior to the pandemic. In fact, 80% of retirees feel fairly good about having enough money to last through their retirement, up from 77% a year ago. This stands to reason since people who were already retired didn’t have to worry about losing their jobs.2

The benefits of lifelong planning and saving are the purposeful equivalent to Charles Darwin’s theory of the survival of the fittest.3 In other words, if you entered retirement with reliable sources of income, a portion of your investment portfolio allocated for growth and appropriate safety nets, your likelihood of surviving a crisis — be it a stock market crash, a global pandemic or extreme weather events (all of which occurred in 2020) — could potentially increase. With that in mind, if you’d like to shore up your financial portfolio for the future, please give us a call.

Unfortunately, a secure retirement is growing more difficult to achieve these days. Recent  research found that more middle-aged Americans are actually accumulating higher debt as they get closer to retirement. For many, that means carrying credit card balances, taking on student loan debt, second mortgages to upgrade their homes or even buying a second home before they pay off their primary mortgage.4

For young adults, the road is even more difficult. Fewer people are putting their homes on the market, so low inventory has resulted in persistently high real-estate prices that are preventing young adults from buying their first house. That’s not a good sign, because home buying is one of the strongest paths to lifetime wealth accumulation. One of the stated missions of the Department of Housing and Urban Development is to address the affordable-housing shortage with plans for more than 1 million resilient and energy-efficient housing units.5 This plan is beneficial on many fronts as it will help create jobs, incorporate green energy solutions and provide wealth-building opportunities for young Americans who should most certainly be among the fittest to survive.

Jamie Dimon, co-chief executive officer at JPMorgan Chase, recently said he expects the U.S. economic boom to continue through 2023. He stated that widespread vaccinations, continued high personal savings rates, more quantitative easing, the potential infrastructure bill and euphoria associated with the end of the pandemic would help consumer, employer and investor confidence bolster economic prosperity for all.6

Content prepared by Kara Stefan Communications.

1 Alicia Adamczyk. CNBC. Oct. 23, 2020. “Inequality has been building for decades in the U.S., but experts say the pandemic ‘ripped it open’.” https://www.cnbc.com/2020/10/23/coronavirus-is-exacerbating-economic-inequality-in-the-us.html. Accessed April 21, 2021.

2 Richard Eisenberg. Forbes. April 22, 2021. “Surprising New Retirement Confidence Survey Finds Retirees Say: What Pandemic?” https://www.forbes.com/sites/nextavenue/2021/04/22/surprising-new-retirement-confidence-survey-finds-retirees-say-what-pandemic/?sh=47e349081b5c. Accessed April 21, 2021.

3 Nishan Degnarain. Forbes. Jan. 2, 2021. “Survival Of The Kindest: A New Mantra To Rebuild The Global Economy.” https://www.forbes.com/sites/nishandegnarain/2021/01/02/survival-of-the-kindest-a-new-mantra-to-rebuild-the-global-economy/?sh=332e7c4f14db. Accessed April 21, 2021.

4 Knowledge@Wharton. April 13, 2021. “Why Older Americans Are Taking on More Debt.” https://knowledge.wharton.upenn.edu/article/why-older-americans-are-taking-on-more-debt/. Accessed April 21, 2021.

5 Justin Worland. Time Magazine. April 15, 2021. “The Pandemic Remade Every Corner of Society. Now It’s the Climate’s Turn.” https://time.com/5953374/climate-is-everything/. Accessed April 21, 2021.

6 Elizabeth Dilts Marshall. Reuters. April 7, 2021. “JPMorgan CEO Dimon sees U.S. economic boom through 2023.” https://www.reuters.com/article/us-jp-morgan-ceo-letter/jpmorgan-ceo-dimon-sees-u-s-economic-boom-through-2023-idUSKBN2BU1DR. Accessed April 21, 2021.

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.

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What’s Driving Oil Prices?

Oil prices are influenced by supply and demand, and 2020 was a great demonstration of this principle. With global and local shutdowns due to the spread of the coronavirus, there was less demand for products and services. While online shopping was up, foot traffic in stores languished and retailers – both local and nationwide – suffered from reduced consumerism.

With fewer customers, merchants needed less inventory. Wholesale orders dropped, as did the need to transport them from manufacturers to distributors to vendors. Reduced transportation led to less need for crude oil and gas. Thus, with decreased demand, gas prices dropped and stayed low.

Today, it’s a different story. Long-awaited vaccines have given retailers new hope for consumerism, so they are ordering increased inventory and deliveries are being made every day. Higher demand begets increased transportation, so oil prices are on the rise again. Lest we succumb to the impulse to complain about increased gas prices, remember that economic growth is a big contributor.1

Furthermore, for the first time since the pandemic began, more people are starting to leave the nest, taking vacations or planning trips for this summer. In April, the Energy Information Administration (EIA) announced that highway traffic is up 1% from a year ago and jet fuel demand jumped to 1.358 million barrels as vaccinated travelers are starting to take advantage of lower-cost airfares and hotel discounts. 2

As the economy recovers, we can expect higher inflation with many commonplace expenses. If you’ve reduced spending in the past year, note that your household budget may necessarily increase in kind – and not simply because you’re indulging in pent-up demand. If you need to make adjustments to your savings rate or review your portfolio to help defend against the effects of inflation, please give us a call. Now is a good time to review and reset your goals and allocations.

The oil industry is a little different from typical consumer goods. Because it takes time to mine for oil and refine it for consumer use, there is a lag time that can influence prices. For example, today’s new high demand will take a few months to affect crude oil production. The IEA predicts that new orders won’t be accurately reflected in global oil demand and supply until the second half of 2021. Once production is ramped up to meet rising demand, prices may begin to drop again.3

As of mid-April, the U.S. had fully vaccinated about 22% of the population. The United Kingdom was at about 11%, with France and Germany at only 6% vaccinated according to the Reuters vaccine tracker. Vaccine rollouts have been much slower and infections continue to surge in places like Europe, India and some emerging markets. Note that global oil producers take into consideration that other economies are not recovering as quickly as the U.S. While this may make them less inclined to ramp up oil production too quickly, the U.S. shale oil industry has a direct market to serve, so production is scheduled to increase by about 13,000 barrels per day.4

Also note that it’s not that easy to stay solvent during a year-long pandemic, even in the oil industry. In North America alone, bankruptcies among oil producers increased to the highest first-quarter level since 2016.5

Content prepared by Kara Stefan Communications.

1 US Energy Information Administration. 2021. “Oil and petroleum products explained.” https://www.eia.gov/energyexplained/oil-and-petroleum-products/prices-and-outlook.php. Accessed April 15, 2021.

2 Phil Flynn. Futures Magazine. April 15, 2021. “An Increase In Travel Is Tightening Oil Supply In The U.S.” http://www.futuresmag.com/2021/04/15/increase-travel-tightening-oil-supply-us. Accessed April 15, 2021.

3 Gina Lee. Investing.com. April 15, 2021. “Oil Down as Investors Digest Latest Supply Forecasts, U.S. Crude Oil Supply Draw.” https://www.investing.com/news/commodities-news/oil-down-as-investors-digest-latest-supply-forecasts-us-crude-oil-supply-draw-2474995. Accessed April 15, 2021.

4 Aaron Sheldrick, Bozorgmehr Sharafedin and Stephanie Kelly. Reuters. April 12, 2021. “Oil rises on U.S. vaccine rollout, Middle East tension.” https://www.reuters.com/business/energy/oil-prices-climb-favourable-outlook-us-fuel-demand-2021-04-12/. Accessed April 15, 2021.

5 Liz Hampton. Reuters. April 15, 2021. “North American oil bankruptcies hit highest Q1 level since 2016.” https://www.reuters.com/business/energy/north-american-oil-bankruptcies-hit-highest-q1-level-since-2016-haynes-boone-2021-04-15/. Accessed April 15, 2021.

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.

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Gen X Prepares to Ascend the Throne

Generation X, comprised of adults between the ages of 40 and 55, have entered their prime earning years while at the same time enjoying a bull market for stocks. This demographic represents about a quarter of households in the U.S. (26.8%) and a similar share of

household net worth (26.9%). However, many economists see Gen X as the next

generation to hold significant wealth.1

While the declining Baby Boomer generation now accounts for only 22% of American consumers, Gen X is expected to grow to more than 38 million households by 2027. Furthermore, this group is expected to reach $34.6 trillion in investable assets during that same time frame, up from holding $9.2 trillion in in 2017.2

If you or someone you know is earning a good income but has little investment experience, we’d be glad to help. Forming a trusted relationship with a financial professional can be the key to designing and achieving a plan for a financially confident retirement. Please feel free to give us a call or refer us to family, friends and colleagues.

A new study of Generation X women found that more than half (54%) of those with partners earn as much as or more than their spouse. In fact, nearly a third of Millennial and Gen X women report that they are the primary breadwinners of their household. With earnings and financial planning top of mind, about 77% of Gen X women say they are making sure their children learn about managing finances.3

However, Gen X largely represents the last of the old guard. This generation grew up believing in the American dream – get an education, work hard, buy a house with a 30-year mortgage and save for retirement. In contrast, the generations following are more skeptical of these principals. Having lived through and witnessed the effects of two recessions and a global pandemic on their parents’ finances, Millennials and Generation Z are more likely to question the cost-value proposition of a college education and the wisdom of committing to a 30-year mortgage – especially while carrying student loan debt and an auto loan.4

Gen X may be more interested in a job that provides health benefits, while younger generations tend to be more entrepreneurial, and choosing the entrepreneurial path, benefits are not always included with the job. As such, Gen X is more old school when it comes to investing, contributing to traditional savings vehicles and adopting a buy-and-hold mindset. In some ways Millennials are proving more sophisticated; using apps to actively buy and sell stocks, invest in fractional shares, and mix up their savings vehicles among tax-advantaged accounts such as a 401(k) or a Roth IRA.

In many ways, Generation X is in a prime position. Although overlooked by the larger, more influential Baby Boomers and Millennials, Gen X has benefited from being sandwiched in the middle. They’ve inherited the values of the American Dream. Many got their college education before tuitions skyrocketed and student loans became prevalent. Some had bought their first house and had a firm foothold in their career before the 2007 recession.

At the same time, they grew up with computers and easily adapted to smartphones and other new technology. Gen X has accumulated assets that are well positioned to continue growing and help ease them into retirement, not to mention the potential for inheriting wealth from their parents.5

Content prepared by Kara Stefan Communications.

1 Howard Schneider. US News & World Report. March 29, 2021. “Gen X Emerging From Pandemic With Firmer Grip on Americas Wallet.” https://money.usnews.com/investing/news/articles/2021-03-29/gen-x-emerging-from-pandemic-with-firmer-grip-on-americas-wallet. Accessed April 11, 2021.

2 Steven A. Morelli. Insurance News Net. March 26, 2021. “Don’t Call Them Slackers: Why Generation X Is Really Generation $.” https://insurancenewsnet.com/innarticle/dont-call-them-slackers-why-gen-x-is-really-gen. Accessed April 11, 2021.

3 Jacqueline Sergeant. Financial Advisor Magazine. April 1, 2021. “The Buck Increasingly Stops With Millennial, Gen X Women.” https://www.fa-mag.com/news/the-buck-increasingly-stops-with-millennial–gen-x-women-61202.html. Accessed April 11, 2021.

4 Andrew Lisa. Yahoo Finance. April 6, 2021. “What Millennials Can Learn From Gen X’s Money Mistakes.” https://finance.yahoo.com/news/millennials-learn-gen-x-money-201401828.html. Accessed April 11, 2021.

5 Andrew Lisa. Yahoo Finance. March 24, 2021. “Surprising Ways Gen X and Millennials Are Worlds Apart Financially.” https://finance.yahoo.com/news/surprising-ways-gen-x-millennials-110017806.html. Accessed April 11, 2021.

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.

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Investment Consolidation Strategies

Throughout investment industry and financial media sources we constantly hear the message that our money should be diversified. By spreading assets throughout a number of different vehicles, we can take advantage of various market opportunities while helping protect them from some investment risks.

But how much diversification is too much? And what exactly should it cover?

For example, should you spread out your money across brokerages and custodians, or maintain a small number of accounts with one or two financial institutions? As young investors, we are often tempted to try out different investment opportunities in response to broker solicitations, direct mail advertisements, money managers we hear on television or radio, as well as a number of other mediums that seem promising.

But as we near retirement, it’s usually a good idea to begin consolidating accounts. This is because it can often be easier to manage fewer accounts as we grow older. It also can help our loved ones or a hired financial professional step in to find and manage money on our behalf. If you have reached this stage and would like to get your finances organized and consolidated, we can help you decide the best options for your situation. Don’t hesitate to call.

Should you consolidate down to just one brokerage and/or one bank? That may depend on the total value of your assets. Note that the Securities Industry Protection Corporation (SIPC) insures up to $500,000 in each account held at each institution. In other words, if you hold a taxable account and a tax-deferred account at the same brokerage firm, each is insured for up to half a million dollars. Also note that your money is kept separate from the assets of the brokerage firm itself. Therefore, if the company gets into trouble, it can’t tap its customers’ money to bail itself out.1

There are some good reasons to consolidate with one brokerage firm. First of all, it’s simply easier to monitor performance. Second, you also may enjoy additional perks if your total account size exceeds a specific threshold. For example, as a “premium investor” you may be eligible for free advisor consultations, free notary services, etc.

However, just because you consolidate with one broker doesn’t mean you need to put all of your money in one account. In fact, it can be a good idea to vary products for tax diversification. A combination of taxable and tax-free accounts — such as traditional and Roth IRAs (which do not require minimum distributions) – can reduce your tax liability during retirement.

However, be aware of portfolio overlap as you diversify your investments. Your investments — particularly mutual funds and ETFs — may share many of the same securities. When you consolidate, it can be  a good time to cross reference your investments to identify security duplication and concentration. One rule of thumb is to consider holding no more than 10% of your total investment in any particular industry or company. Otherwise, a performance decline may dramatically affect your income during retirement.2

Another idea is to consolidate into a “Target Date” fund which is designed to adjust its allocation mix as you approach the target date (often your retirement date). In doing so, you benefit from a single diversified portfolio managed by financial professionals who periodically rebalance the investment mix to stay on target with its timeline and performance goals.3

Be aware that as working spouses begin to consolidate their individual accounts, they may have many of the same underlying investments. Review all accounts to determine an appropriate asset allocation and retirement timeline for each spouse as well as the household.

If you are considering consolidating multiple 401(k) plans, your choices may be limited by what your past and current plan sponsors allow. Sometimes it’s easier to roll over those assets to a traditional IRA, especially if you tend to change jobs relatively often. The IRA becomes a repository to consolidate old 401(k) assets and maintain a strategic asset allocation without being overly diversified or having too many overlapping securities. Consider your 401(k) options:4

  • Leave the assets in the current 401(k) if allowed by your former employer’s plan.
  • When changing jobs, roll your old 401(k) account assets into your new employer’s plan — if allowed by the new plan. This may be preferable if the new plan permits loans, but be sure to compare new and old plan fees and investment options to ensure you get what you want.
  • Roll over your old 401(k) into an individual retirement account (IRA) — do this with each career/company move to maintain one consolidated reservoir. Be aware that an IRA does not permit loans and there may be negative tax consequences if you have significantly appreciated employer stock.
  • Cash out your old 401(k) only if you need the money. Not only are those funds considered taxable income and subject to an immediate tax withholding, but you also may be subject to a 10% tax penalty if you cash out too young. Moreover, you could miss out on future tax-deferred gains.

Content prepared by Kara Stefan Communications.

1 Teri Geske. Investorjunkie. Feb. 23, 2021. “Can You Have Multiple Brokerage Accounts?” https://investorjunkie.com/stock-brokers/can-you-have-more-than-one-brokerage-account/. Accessed April 2, 2021.

2 T. Rowe Price. Spring 2021. “Focus on Diversification.” https://www.troweprice.com/content/dam/iinvestor/planning-and-research/Insights/investor-magazine-spring.pdf. Accessed April 2, 2021.

3 T. Rowe Price. Spring 2021. “A One-Stop Approach to Retirement Investing.” https://www.troweprice.com/content/dam/iinvestor/planning-and-research/Insights/investor-magazine-spring.pdf. Accessed April 2, 2021.

4 T. Rowe Price. Spring 2021. “What Should You Do With an Old 401(k)?” https://www.troweprice.com/content/dam/iinvestor/planning-and-research/Insights/investor-magazine-spring.pdf. Accessed April 2, 2021.

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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Diversification does not ensure a profit or guarantee against loss; it is a method used to manage risk.