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Is a resurgence threatening our recovery?

Fri, 21 Aug 2020 15:23:44 GMT

The United States set a somber record on Thursday, July 16, 2020, with more than 75,000 new COVID-19 cases. In fact, the U.S. set new single-day COVID-19 records 11 times between June 17 and July 16. Dr. Anthony Fauci predicts the country will soon top over 100,000 new cases each day. ¹

COVID-related deaths are also increasing in some states. Florida set its single day record for COVID deaths on July 16, with 156. Nine other states also set single-day death records the same week. ¹

The resurgence in coronavirus cases has led some states to enact new measures. More than half of all states now have some kind of mask mandate. California has even rolled back its reopening, closing bars, indoor dining, gyms, and more. ²

What does this mean for the economic recovery? And what does it mean for your financial future? It’s impossible to predict what will happen in the short-term, but knowing where things stand today may help you make important decisions with your strategy.

Stock Market

The stock market continues to rally in spite of the increasing COVID numbers and the return of restrictions. As of July 16, the S&P 500 is nearly back to even for the year. In fact, it’s up 43.71% since hitting a low 2237 on March 23. ³ NASDAQ set a record-high on July 9 when it reached 10,617. ⁴

The continued gains are good news for investors, especially after the sharp decline in March. However, that decline also shows us just how quickly the market can turn, especially if state governments introduce new orders that close businesses.

If you’re concerned about another potential downturn or future risk, this could be the right time to explore risk-protection strategies. For example, products like fixed annuities allow you to participate in a portion of the market upside but also protect you against losses. A financial professional can help you determine which risk-management strategy is right for you.

Unemployment

While the number of new unemployment claims has declined for 15 consecutive weeks, unemployment numbers are still much higher than they were pre-COVID. In February, there were approximately 200,000 new unemployment claims each week. That number exploded to 6.867 million new claims in one week in late March. While new claims have declined since that point, they’re still more than double their level during the height of the Great Recession in 2009. ⁵

Stimulus

In March, the government passed the CARES Act, which, among other things, provided direct stimulus payments to many Americans. A recent study found that 74% of recipients had used all of their stimulus payments within four weeks. ⁶

As the coronavirus pandemic continues to impact Americans, Congress is considering a second round of stimulus payments. In May, the House of Representatives passed the $3 trillion HEROES Act to provide a second round of direct stimulus payments. ⁶

In an interview in mid-July, Treasury Secretary Steve Mnuchin indicated that a second round of stimulus payments was a possibility, even if it doesn’t align exactly with the HEROES Act. Senate Leader Mitch McConnell and President Trump have also recently expressed their willingness to negotiate a second stimulus package.

While stimulus payments may provide a nice boost, they’re not a replacement for long-term strategy. At Safe Harbor Retirement Planners, we can help you analyze your needs and goals and implement strategies to limit your risk exposure. Let’s connect soon and start the conversation.

1 https://www.nytimes.com/2020/07/17/world/coronavirus-updates.html

2 https://www.theguardian.com/us-news/2020/jul/15/california-coronavirus-shutdown-businesses-restaurants

3 https://www.google.com/search?q=INDEXSP:.INX&tbm=fin&stick=H4sIAAAAAAAAAONgecRowi3w8sc9YSntSWtOXmNU5eIKzsgvd80rySypFBLnYoOyeKW4uTj1c_UNDM0qi4t5FrHyePq5uEYEB1jpefpFAAAU6wGESAAAAA#scso=_Ap0RX4PNDdvRtAbPobiYBQ1:0

4 https://www.cnn.com/2020/07/09/investing/stock-market-supreme-court-trump/index.html

5 https://finance.yahoo.com/news/coronavirus-jobless-claims-unemployment-week-ended-july-11-175149759.html

6 https://amp.usatoday.com/amp/112232064

Annuities are long-term products of the insurance industry designed for retirement income. They contain some limitations, including possible withdrawal charges and a market value adjustment that could affect contract values.

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. 20279 - 2020/7/21

Can You Count on Social Security to Fund Your Retirement?

Mon, 17 Aug 2020 17:17:06 GMT

Social Security is a critical piece of the income puzzle for most retirees. In fact, half of married retirees and nearly 70% of unmarried retirees rely on Social Security for more than 50% of their retirement income. ¹

Your Social Security benefit amount is based on a few factors, including your career earnings and your age at the time you file for benefits. However, your benefit amount isn’t locked-in forever. It often increases each year because of something called COLA. ²

COLA stands for “cost-of-living adjustment.” It’s an annual increase in the benefit amount to help recipients cover increases in their cost of living. In 2020, COLA was 1.6%, down from a 2.8% increase in 2019. ²

Since 2000, Social Security benefits have increased by a cumulative 53% because of COLA. The problem? Retiree spending has increased by more than 99%. ² While COLA can be helpful, it often isn’t enough to match inflation. In fact, since 2009, COLA has averaged only 1.4% annually. ²

Fortunately, you can implement other strategies to protect your spending power and combat inflation. Below are a few ideas to consider:

Rely on other sources to cover healthcare costs.

Healthcare is one of the biggest drivers of inflation for retirees. In the past 20 years, Medicare Part B premiums have jumped 218%. Out-of-pocket prescription drug costs for retirees have increased 252%. Social Security benefits increased only 53% over the same period. ²

If the past 20 years are any indication, you can’t count on Social Security adjustments to offset increases in healthcare spending. You may want to consider using alternate strategies, like funding a health savings account (HSA) that you can use in retirement for out-of-pocket costs.

You also may want to explore various Medicare Advantage policies. These are Medicare policies offered through private insurers. They often cover the same services as traditional Medicare, plus enhanced services. They also may reduce your out-of-pocket costs. A financial professional can help you determine which policy is right for you.

Continue to grow your assets.

You may be tempted to become more conservative in retirement. After all, you don’t want to lose what you worked so hard to accumulate over several decades. Adjusting to a more conservative allocation may be the right move for your needs and risk tolerance. However, it’s also important to continue to grow your assets.

Growth can help you increase your income over time and keep up with inflation. You can give yourself a personal COLA with increased distributions from your retirement accounts. There are a wide range of strategies you can use to potentially grow your assets, but also minimize your exposure to risk. Again, a financial professional can help you implement the right strategy for you.

Ready to develop your retirement income plan? Let’s talk about it. Contact us today at Safe Harbor Retirement Planners. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.

1 https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf

2 https://www.marketwatch.com/story/social-security-recipients-may-be-in-for-a-rude-awakening-later-this-year-2020-05-12?mod=home-page

5 Ways to Reduce Your Taxes in Retirement

Thu, 06 Aug 2020 21:06:31 GMT

What are the biggest expenses you’ll face in retirement? Healthcare? Housing? Travel? All of those costs could be significant, but one of the biggest could be taxes. That’s right. Just because you’re done working, doesn’t mean you’re done paying taxes.

Many sources of retirement income, like Social Security, pensions, and retirement account distributions, are taxable. That doesn’t even include the wide range of other taxes you could face, like property taxes, sales tax, and more.

Taxes may be a part of life, but they can also be a drain on your retirement. Every dollar you pay in taxes is a dollar that can’t be used to support your lifestyle and fund your goals.

Fortunately, you can take action to reduce your tax burden and maximize your retirement income. Below are five steps to consider as you approach retirement:

1) Use a Roth IRA. A traditional IRA is an effective savings vehicle for retirement. You get tax-deferred growth, and potentially tax deductions for your contributions.

However, a traditional IRA can also create tax issues in retirement. Most distributions from a traditional IRA are taxed as income. If you use an IRA to accumulate a sizable nest egg, you could face taxes on much of your income in retirement.

The alternative is a Roth IRA. In a Roth IRA, you don’t get tax deductions when you make a contribution. However, your distributions in retirement are tax-free, assuming you are at least age 59 ½ and you have held the Roth for at least five years.

As a married couple, you cannot contribute to a Roth if your income is greater than $196,000 in 2020. For a single person, that limit is $124,000. ¹ Otherwise, you can contribute up to $6,000 this year, or up to $7,000 if you’re 50 or older. ²

You can also convert your traditional IRA to a Roth. This means paying taxes on the traditional IRA amount. However, after the conversion, you can grow the remaining assets in the Roth on a tax-free basis and take tax-free distributions in retirement.

2) Be strategic about Social Security distributions. Social Security will likely play a role in your retirement income puzzle. However, taxes will impact the net amount you receive from Social Security.

The extent that your Social Security benefit is taxed depends on a number called your “combined income.” Combined income is your adjusted gross income plus nontaxable interest plus half of your Social Security benefit. ³

If you are single and your combined income is between $25,000 and $34,000, up to 50% of your benefits could be taxable. If you earn more than $34,000, up to 85% of your benefits could be taxable. ^3.

For married couples, if your combined income is between $32,000 and $44,000, up to 50% of your benefits could be taxed. If you earn more than $44,000, up to 85% of your benefits could be taxed.

The key to reducing your combined income is to reduce your adjusted gross income. Non-taxable income is not included in that number. So, for example, you could maximize your Roth IRA to minimize your adjusted gross income. You could also delay Social Security until age 70 to increase your benefit, and draw down your taxable accounts, like a traditional IRA, before Social Security starts.

3) Consider downsizing. Simply moving to a new home could reduce your taxes. Property taxes may be a major tax burden depending on your home. If you no longer need a large home, consider moving to something smaller that has a lower value and thus lower property taxes. You also may look at a neighboring community that has a lower property tax rate.

4) Relocate to a more tax-friendly state. Another option is to move to another state completely. Some states are more tax-friendly for retirees than others. For example, Alabama doesn’t tax Social Security benefits and has a relatively low sales tax rate. ⁴ Florida is another option as it doesn’t have a state income tax. ⁵ Do your research and you may find a new home that is appealing and saves you money.

5) Use an HSA to pay for medical costs. Fidelity estimates that the average 65-year-old couple will pay $285,000 out-of-pocket for health care expenses in retirement. ⁶ If you’re using taxable distributions from an IRA or 401(k) to pay those costs, the impact on your savings could be even greater.

One strategy to minimize the tax burden is to use a health savings account (HSA) to pay for healthcare costs. In 2020, individuals can contribute up to $3,550 to an HSA. Families can contribute up to $7,100. ⁷

You can invest and allocate those funds to match your goals and risk tolerance. The assets grow on a tax-deferred basis as long as they stay in the account. When you’re ready to use the funds, you can take tax-free distributions to pay for qualified healthcare expenses like premiums, deductibles, copays, and more.

By using a tax-free source to pay for healthcare costs, you reduce the amount you need to take from taxable accounts, like an IRA or 401(k). That, in turn, reduces your overall tax burden. A financial professional can help you determine if an HSA is right for you.

Ready to develop your retirement tax strategy? Let’s talk about it. Contact us today at Safe Harbor Retirement Planners. We can help you analyze your needs and develop a plan.

1 https://www.irs.gov/retirement-plans/plan-participant-employee/amount-of-roth-ira-contributions-that-you-can-make-for-2020

2 https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits

3 https://www.ssa.gov/benefits/retirement/planner/taxes.html#:~:text=Learn%20Apply%20Manage-,Income%20Taxes%20And%20Your%20Social%20Security%20Benefit,on%20your%20Social%20Security%20benefits.&text=between%20%2425%2C000%20and%20%2434%2C000%2C%20you,your%20benefits%20may%20be%20taxable.

4 https://money.usnews.com/money/retirement/baby-boomers/slideshows/the-most-tax-friendly-states-to-retire?slide=2

5 https://money.usnews.com/money/retirement/baby-boomers/slideshows/the-most-tax-friendly-states-to-retire?slide=4

6 https://www.cnbc.com/2019/04/02/health-care-costs-for-retirees-climb-to-285000.html

7 https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/irs-2020-hsa-contribution-limits.aspx

The information contained herein is based on our understanding of current tax law. The tax and legislative information may be subject to change and different interpretations. We recommend that you seek professional legal advice for applicability to your personal situation.

Take a look at the asset winners and losers in 2020

Thu, 23 Jul 2020 14:00:50 GMT

We’re halfway through 2020, and the year has already been a rollercoaster. We’ve seen a global pandemic, record unemployment and racial protests across the country. And let’s not forget, there’s a presidential election campaign season in full swing.

Of course, the events of this year have rocked the financial markets. Between February 19 and March 23, the S&P 500 fell 33.93%. Then, from March 23 to June 18, it rose 39.24%.1

The quick rebound is certainly good news. However, given the COVID-19 pandemic is still ongoing and the election lead-up is intensifying, there’s no guarantee that the markets will stay on a positive trajectory. In fact, it’s possible the next six months could be just as volatile as the last six months.

Asset Class Winners and Losers

Believe it or not, there are some asset classes that have actually had positive returns through the first half of this year. Below are the major asset classes that have had positive returns from January 1 through May:2

Gold: 14.0%

U.S. Investment Grade Bonds: 5.5%

Treasury Inflation Protected Securities: 4.8%

U.S. Dollar Index: 2.0%

Cash: 0.5%

Foreign Developed Market Bonds: 0.1%

Of course, many of those assets, like gold and cash, are traditionally assets that investors turn to during times of volatility. Other asset classes haven’t fared so well. Here are the asset classes that declined through May of this year:2

Foreign Government Inflation-Linked Bonds: -0.4%

Emerging Market Government Bonds: -2.4%

Foreign Investment Grade Corporate Bonds: -3.5%

U.S. High Yield Bonds: -5.1%

U.S. Stocks: -5.6%

Foreign High Yield Bonds: -7.2%

Foreign Developed Market Stocks: -14.3%

U.S. REITs: -20.08%

Commodities: -21.2%

Foreign REITs: -22.7%

The Importance of Diversification

It’s impossible to predict what each asset class will do in the short-term. That doesn’t stop people from trying though. Very often short-term predictions turn out to be inaccurate.

For example, at the beginning of 2020, one major investment company said it was bullish on stocks and bearish on gold, both of which turned out to be inaccurate predictions.3 Of course, they couldn’t predict the oncoming pandemic, but that’s just one example why it’s never wise to predict returns of certain asset classes.

A more effective approach is to implement a diversified strategy that incorporates a wide range of asset classes. That way, you get positive returns from the winning asset classes to offset losses in other areas.

We can help you find the right approach for your needs and risk tolerance. Contact us today at Safe Harbor Retirement Planners. Let’s connect soon and start the conversation.

1https://www.google.com/search?q=INDEXSP:.INX&tbm=fin&stick=H4sIAAAAAAAAAONgecRowi3w8sc9YSntSWtOXmNU5eIKzsgvd80rySypFBLnYoOyeKW4uTj1c_UNDM0qi4t5FrHyePq5uEYEB1jpefpFAAAU6wGESAAAAA#scso=_y6rwXoqdG8qStAaXrrz4DA1:0

2https://seekingalpha.com/article/4351432-major-asset-classes-may-2020-performance-review

3https://apinstitutional.invesco.com/home/2020-outlook-global-market-strategy-asset-class-outlooks

Financial Moves to Consider in a "Down" Year

Wed, 15 Jul 2020 14:10:55 GMT

It’s hard to find good news in today’s economic environment. COVID-19 single-handedly brought an end to the longest bull market in history and ushered in record-setting unemployment.

If you’re like millions of others in the country, you’ve lost income or possibly even your job. You also may have lost savings due to market volatility. Given that the coronavirus pandemic is still ongoing, there’s no telling how the economy or the financial markets may respond through the rest of the year.

Even in down years, there are still opportunities to improve your financial future. Below are three such moves to consider in your strategy:

Fund a Roth IRA.

In 2020, you can contribute up to $6,000 to a Roth IRA, or up to $7,000 if you are 50 or older.1 A Roth can be helpful because you can take tax-free withdrawals from it after age 59 ½, assuming you’ve held the account for at least five years.

Not everyone can use a Roth. If you’re a married couple making more than $206,000 or a single person making more than $139,000, you can’t contribute to a Roth IRA.2 However, if a pay cut has pushed you below the income limits, you could use this time to open a Roth.

Convert your IRA to a Roth.

Another option is a Roth conversion. This is a process that converts a traditional IRA into a Roth. You pay taxes on your IRA balance and then the net amount is deposited into a new Roth IRA. You face a current tax liability, but you get potentially tax-free income in retirement.

It may make sense to do a Roth conversion during a down year, when your income is reduced. You may be in a lower tax bracket and will thus face a lower tax bill on the conversion. A financial professional can help you explore this option.

Dollar-cost average.

Dollar-cost averaging is a strategy that can be helpful at all times, but especially during volatile periods. You contribute the same amount of money at regular intervals, like once per month. That money is then invested in a predetermined strategy.

The benefit of this is that you buy more shares when prices are low and fewer shares when prices are high. This reduces your overall cost, which increases your potential for growth. Again, a financial professional can help you implement a dollar-cost averaging strategy.

We can help you determine the right strategy in this volatile time. Contact us today at Safe Harbor Retirement Planners, so we can help you develop a plan. Let’s connect soon and start the conversation.

1https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits#:~:text=For%202020%2C%20your%20total%20contributions,less%20than%20this%20dollar%20limit.

2https://www.irs.gov/retirement-plans/plan-participant-employee/amount-of-roth-ira-contributions-that-you-can-make-for-2020

Is it time for an economic recovery?

Fri, 10 Jul 2020 17:33:17 GMT

The first half of 2020 has been a rollercoaster ride. The COVID-19 pandemic completely altered our way of life and threw the economy into a tailspin. Most states have started the reopening process, but there is still significant uncertainty about the long-term impact of coronavirus and how long the pandemic will continue.

Federal Reserve Chairman Jerome Powell recently said the economy faces a “long road” to recovery, and predicted the process may take through 2022.1 While the recovery may be a long-term journey, there have been some signs of hope in recent months:

Stock Market Returns

The stock market had been enjoying the longest bull market in history before the coronavirus pandemic hit.2 The bull market came to an abrupt end starting in late February. On February 20, the S&P hit a high of 3373. From that point through March 23, the S&P fell to 2237, a decline of 33.7%.3

However, since that time, the market has increased to 3115 through June 18. That’s an increase of 39.25%. The S&P is nearly back to its pre-COVID levels.3

Of course, it’s impossible to predict the future direction of the markets. Just because the market has been on an upswing doesn’t mean it will continue. A spike in cases or a second round of shutdowns could send the markets back into a decline.

Unemployment

The pandemic has driven unemployment to record-high levels. Through mid-June, the country had 13 consecutive weeks with more than 1 million new jobless claims. Prior to the coronavirus pandemic, the record for a single week was 695,000 in May 1982.4

The good news is that jobless claims have been declining. At the beginning of the pandemic, weekly jobless claims exceeded 6 million. In fact, up until late-May, they exceeded 2 million. So while jobless claims remain at record highs, they are on the decline. The amount of continuing claims has also dropped from 25 million in early May to just over 20 million in early June.4

Consumer Spending

Consumer spending was impacted significantly by the COVID-19 pandemic. That’s not surprising, given most states were effectively shut down for two months. In April, consumer spending dropped by 16.4%, a record monthly decline.5

In May, consumer spending set another record—this time for biggest monthly increase. The figure rose by 17.7%, driven by large increases in clothing (188%), furniture (+90%), sporting goods (+88%), and electronics (+55).5

Consumer spending by itself doesn’t mean the economy is on the path to recovery. There are still plenty of uncertainties in the economy. However, it is a good sign that consumer spending is nearly back to its pre-pandemic levels.

This is uncharted territory for all of us. The situation and data changes so fast that it’s impossible to project where the economy may be headed. A comprehensive strategy that aligns with your goals and risk-tolerance can keep you on track to meet your long-term objectives.

Let’s connect today and talk about your concerns, questions and challenges. At Safe Harbor Retirement Planners, we can help you develop and implement a strategy. Contact us today and let’s start the conversation.

1https://www.marketwatch.com/story/fed-sees-rates-near-zero-through-2022-says-asset-purchases-will-continue-2020-06-10

2https://www.cnn.com/2020/03/11/investing/bear-market-stocks-recession/index.html

3https://www.google.com/search?q=INDEXSP:.INX&tbm=fin&stick=H4sIAAAAAAAAAONgecRowi3w8sc9YSntSWtOXmNU5eIKzsgvd80rySypFBLnYoOyeKW4uTj1c_UNDM0qi4t5FrHyePq5uEYEB1jpefpFAAAU6wGESAAAAA#scso=_hL3sXpOQHsnWtAal04OQCA1:0

4https://www.cnbc.com/2020/06/18/weekly-jobless-claims.html

5https://finance.yahoo.com/news/consumer-spending-comes-back-with-a-vengeance-in-may-morning-brief-100600715.html