• 5 Reasons Women Should Plan for Long-Term Care

    Women Face Many Challenges in Retirement and Planning Ahead is Key to Achieve Financial Security

    As healthcare costs continue to skyrocket, it’s becoming more and more important for American workers to develop a plan for addressing the costs of long-term care within their overall retirement plans. Failing to do so can pose a significant risk to your financial security, and it’s particularly critical for women, who already face extra challenges when it comes to living comfortably in retirement.

    Below we’ll discuss five specific reasons that women should consider the costs of long-term care when planning for retirement.

    #1. Women Find Themselves at a Statistical Disadvantage

    Despite the substantial progress we’ve made as a nation towards gender equality, women still find themselves at a consistent financial disadvantage compared to their male counterparts. Currently, white women earn 17% less than men on average, with the gap being even larger for women of color. What’s more is that women are more likely to leave the workplace or put their careers on the back burner to care for children or elders, causing them to lose career momentum or to miss out on gaining the crucial experience needed to stay competitive. Additionally, due to a lifetime of socialization and ingrained biases, women are more likely to shy away from salary negotiations with superiors and be overlooked for leadership promotions.

    Taken together, these challenges create a unique financial situation for women that puts them at a serious disadvantage when it comes to saving enough for a financially secure retirement. Not only that, but it also means that women have less working capital to put towards necessary things like long-term care expenses.

    #2. Women Have Longer Lifespans

    According to the latest CDC figures, the average American man will live to age 75, while the average woman in America will live to age 80. There are plenty of theories about why women are more likely to outlive men, some having to do with biology and others with behavior. Whatever the reasons, a longer lifespan for women means a longer retirement and a greater chance of needing long-term care. In fact, women comprise 75% of nursing home residents. So, for women who are planning for life after retirement, incorporating a plan to cover the expenses of long-term care is imperative.

    Related Article: Every Woman Needs Her Own Financial Strategy

    #3. Women are Disproportionately Impacted by Disabilities and Chronic Health Problems

    Another consequence of living longer is that women have a longer window to experience poor health and disability. A study done for the Journal of Women’s Health showed that women report more health concerns in terms of functional limitations and disability than men. It also showed that women report more cases of chronic health problems such as arthritis, hypertension, and poor vision.

    Collectively, these statistics indicate that, even though women are living longer lives than men, they’re not necessarily enjoying more active, healthy years. This highlights why it’s so crucial that women have a plan in place for long-term care in their later years.

    #4. Women Often Live Alone in Their Later Years  

    Because women tend to live longer than men, they’re more likely to find themselves living alone in their older age. In fact, recent research from Harvard University showed that we can expect the number of people in their 80s and 90s living alone to increase dramatically. In the same report, it was stated that women comprise 74% of solo households aged 80 and over, with that percentage continuing to grow in the next two decades. This means that women are often in need of long-term care that they must pay for rather than being able to depend on their partner or other live-in family members for care.

    #5. Women Are More Likely to Be Caregivers  

    In America today, there are roughly 48 million unpaid or informal caregivers of adults, and women account for approximately 75% of that demographic. While this may not seem to be related to a woman’s need for long-term care, studies show that women who become caregivers are 2.5 times more likely to end up in poverty and five times more likely to depend on Social Security in retirement.

    One major reason for this is that women are often forced to take a job with greater flexibility or are forced to leave the workforce completely to take care of their children or elderly family members. Many times, these limitations lead to a troubling impact on earning ability. Such workforce interruptions, compounded by a lifelong pay gap, leave women likely to have earned a cumulative $1,055,000 less than their male counterparts by retirement. Ironically, becoming a caregiver means a woman is less likely to be able to care for herself in her later years.

    What Can Women Do to Properly Plan for Long-Term Care?

    In the face of these very real challenges, long-term care planning is an integral piece of a woman’s retirement plan. There are various ways you can go about planning for long-term care. Perhaps you want to set up a designated long-term care investment account that will solely be used for future long-term care expenses. Or you may simply want to cut back on current expenses to further increase your retirement savings so that you’ll have more resources to depend on later. Another option could be to purchase long-term care insurance that will cover expenses as needed.

    If you think you would benefit from a conversation with one of our Certified Financial Planners® about creating a long-term care plan that works with your retirement plans, contact Lane Hipple Wealth Management Group at our Moorestown, NJ office by calling 856-638-1855, emailing info@lanehipple.com, or to schedule a complimentary discovery call, use this link to find a convenient time.

    Illuminated Advisors is the original creator of the content shared herein. We have been granted a license in perpetuity to publish this article on our website’s blog and share its contents on social media platforms. We have no right to distribute the articles, or any other content provided to our Firm, by Illuminated Advisors in a printed or otherwise non-digital format. We are not permitted to use the content provided to us or my firm by Illuminated Advisors in videos, audio publications, or in books of any kind.

  • Understanding Stock Options: ISOs, NQSOs & Restricted Stock

    Employee stock options can be a valuable way to take advantage of your company’s growth and enhance your financial security. However, it’s important to understand the fine print. Each opportunity comes with its own set of rules for how you receive, manage, and maximize it. Not fully understanding your stock options can negatively impact your financial success.

    In order to guard yourself against leaving money on the table, unsavory tax surprises, and poor stock management, you need a plan. Keep reading to get the information and strategies you need to make the most of NQSOs, ISOs, and restricted stock options.

    Non-Qualified Stock Options (NQSOs)

    Non-Qualified Stock Options (NQSOs) are by far the most common stock incentive offering. They give you the right to buy a certain number of company shares, at a specified price (the exercise price) during a window of time (typically 10 years). The “non-qualified” in its name doesn’t mean that it’s exclusive—on the contrary, NQSOs can be given to all levels of individuals including employees, directors, contracts, and consultants. They are considered “non-qualified” because this type of stock option isn’t eligible for special tax consideration under the IRS code.

    Here’s how NQSOs work. Once NQSOs vest, you can choose to exercise and purchase the shares, but you are not required to do so. If you choose to exercise the options, taxes are based on the spread, meaning the difference between the grant price and the fair market value of the stock at the time of exercise. The difference will be considered compensation income, which means your employer will also withhold income tax, Medicare tax, and Social Security, and this compensation will be declared on that year’s W-2. 

    When you subsequently sell the shares, any further increase will be taxed as either a short or long-term capital gain, depending on how long you’ve held onto the shares. You’ll report any earnings on your IRS 1040 tax return, on Form 8949, Schedule D.

    Incentive Stock Options (ISOs)

    Like NQSOs, Incentive Stock Options (ISOs) are a form of equity compensation that may be offered to you by an employer. Unlike NQSOs, however, ISOs qualify for a special kind of tax treatment, meaning they aren’t subject to Medicare, Social Security, or withholding taxes, though they must meet very rigid tax code criteria.

    ISOs differ from NQSOs in a number of other notable ways including:

    • There’s a $100,000 limit on an ISO’s vested aggregate value in a calendar year.
    • While NQSOs can be given to a number of different kinds of people affiliated with a company, ISOs can only be given to employees, not consultants or contractors.
    • In order to get the full tax benefits, you’re required to exercise your ISOs within 90 days of leaving the company.

    Keep in mind that you must hold your shares for at least two years from when they were granted and at least one year from when they were exercised in order to take advantage of the long-term capital gains tax after exercising your ISOs. If you hold onto them for any shorter length of time, anything you appreciate will be taxed at the standard income tax rate, which is generally much higher than the long-term capital gains tax rate.

    Conversely, if you hold onto your ISOs beyond the calendar year in which they were exercised and have gains, you will be subject to the alternative minimum tax. In and of itself, that’s a financial nuisance, but not a problem. However, in the hypothetical but very real scenario that your company’s stock price takes a dive, you’ll be left to pay a high amount of tax on income that has completely disappeared.

    One other important consideration for both NQSOs and ISOs: whether it’s advantageous to make a Section 83(b) election, which allows you to be taxed on the value of shares when they’re granted to you, rather than when they are vested. Consulting a financial advisor is a good idea when making this choice—between costs, taxes, requirements, and deadlines, it can be a very complicated endeavor.

    Restricted Stock

    Some companies aren’t able to give stock options and choose to give restricted stock units (RSUs) instead. RSUs are a common form of employee compensation that grants non-transferable shares, which usually come with conditions and restrictions regarding the timing of sales.

    RSUs maintain their value of vesting regardless of the performance of the stock itself. It could have increased, decreased, or remained the same since the grant date and the restricted stock would have the same value. That’s in stark contrast to NQSOs and ISOs, both of which depend on how much your company’s stock price differs from the price set on the date you received it.

    From the IRS’s perspective, restricted stock is considered to be a supplemental wage, which means it follows the same tax and reporting requirements as NQSOs do. Restricted stock may be particularly attractive to people who have a lower risk tolerance, but to receive that surefire value, you must remain employed until your shares vest. Oftentimes, unvested restricted stock is forfeited immediately once employment is terminated.

    Need Help Making Sense of Your Stock Options? We Can Help

    If you’d like to be sure you understand the ins and outs of your stock options, consider partnering with a professional to develop the right strategy for you. If you think you may benefit from a conversation about your equity compensation, contact Lane Hipple Wealth Management Group at our Moorestown, NJ office by calling 856-638-1855, emailing info@lanehipple.com, or to schedule a complimentary discovery call, use this link to find a convenient time.

    Illuminated Advisors is the original creator of the content shared herein. We have been granted a license in perpetuity to publish this article on our website’s blog and share its contents on social media platforms. We have no right to distribute the articles, or any other content provided to our Firm, by Illuminated Advisors in a printed or otherwise non-digital format. We are not permitted to use the content provided to us or my firm by Illuminated Advisors in videos, audio publications, or in books of any kind.

  • Midterm Elections – What Do They Mean For Markets?

    Studying the history of stock market returns relative to midterm elections will give you a sense of how impactful they are to your own portfolio’s potential gain or loss.

    This article was written by Dimensional Fund Advisors and can be found HERE.

    It’s almost Election Day in the US once again. For those who need a brief civics refresher, every two years the full US House of Representatives and one-third of the Senate are up for reelection. While the outcomes of the elections are uncertain, one thing we can count on is that plenty of opinions and prognostications will be floated in the days to come. In financial circles, this will almost assuredly include any potential for perceived impact on markets. But should long-term investors focus on midterm elections?

    Markets Work

    We would caution investors against making short-term changes to a long-term plan to try to profit or avoid losses from changes in the political winds. For context, it is helpful to think of markets as a powerful information-processing machine. The combined impact of millions of investors placing billions of dollars’ worth of trades each day results in market prices that incorporate the aggregate expectations of those investors. This makes outguessing market prices consistently very difficult.¹ While surprises can and do happen in elections, the surprises don’t always lead to clear-cut outcomes for investors.

    The 2016 presidential election serves as a recent example of this. There were a variety of opinions about how the election would impact markets, but many articles at the time posited that stocks would fall if Trump were elected.² The day following President Trump’s win, however, the S&P 500 Index closed 1.1% higher. So even if an investor would have correctly predicted the election outcome (which was not apparent in pre-election polling), there is no guarantee that they would have predicted the correct directional move, especially given the narrative at the time.

    But what about congressional elections? For the upcoming midterms, market strategists and news outlets are still likely to offer opinions on who will win and what impact it will have on markets. However, data for the stock market going back to 1926 shows that returns in months when midterm elections took place did not tend to be that different from returns in any other month.

    Exhibit 1 shows the frequency of monthly returns (expressed in 1% increments) for the S&P 500 Index from January 1926–June 2022. Each horizontal dash represents one month, and each vertical bar shows the cumulative number of months for which returns were within a given 1% range (e.g., the tallest bar shows all months where returns were
    between 1% and 2%). The blue and red horizontal lines represent months during which a midterm election was held, with red meaning Republicans won or maintained majorities in both chambers of Congress, and blue representing the same for Democrats. Striped boxes indicate mixed control, where one party controls the House of Representatives, and the other controls the Senate, while gray boxes represent non-election months. This graphic illustrates that election month returns were well within the typical range of returns, regardless of which party won the election. Results similarly appeared random when looking at all Congressional elections (midterm and presidential) and for annual returns (both the year of the election and the year after).

    In It For The Long Haul

    While it can be easy to get distracted by month-to-month or even one-year returns, what really matters for long-term investors is how their wealth grows over longer periods of time. Exhibit 2 shows the hypothetical growth of wealth for an investor who put $1 in the S&P 500 Index in January 1926. Again, the chart lays out party control of Congress over
    time. And again, both parties have periods of significant growth and significant declines during their time of majority rule. However, there does not appear to be a pattern of stronger returns when any specific party is in control of Congress, or when there is mixed control for that matter. Markets have historically continued to provide returns over the long run irrespective of (and perhaps for those who are tired of hearing political ads, even in spite of) which party is in power at any given time.

    Equity markets can help investors grow their assets, and we believe investing is a long-term endeavor. Trying to make investment decisions based on the outcome of elections is unlikely to result in reliable excess returns for investors. At best, any positive outcome based on such a strategy will likely be the result of random luck. At worst, it can lead to
    costly mistakes. Accordingly, there is a strong case for investors to rely on patience and portfolio structure, rather than trying to outguess the market, to pursue investment returns.

    1. This is known as the efficient market theory, which postulates that market prices reflect the knowledge and expectations of all investors and that any new development is instantaneously priced into a security.
    2. Examples include: “A Trump win would sink stocks. What about Clinton?” CNN Money, 10/4/16, “What do financial markets think of the 2016 election?” Brookings Institution, 10/21/16, “What Happens to the Markets if Donald Trump Wins?” New York Times, 10/31/16.

    In USD. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of
    an actual portfolio. Past performance is not a guarantee of future results. Diversification does not eliminate the risk of market loss.


    There is no guarantee investment strategies will be successful. Investing involves risks, including possible loss of principal. Investors should
    talk to their financial advisor prior to making any investment decision. There is always the risk that an investor may lose money. A long-term
    investment approach cannot guarantee a profit.


    All expressions of opinion are subject to change. This information is intended for educational purposes, and it is not to be construed as an
    offer, solicitation, recommendation, or endorsement of any particular security, products, or services.


    Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.

  • Social Security Gets Biggest Boost Since 1981

    The Cost of Living Adjustment, or COLA, from the Social Security Administration (SSA) is announced every fall and has major implications for the 66 million people who receive benefit checks. With inflation surging, retirees need help maintaining purchasing power. The agency announced its 2023 COLA will be 8.7%, the highest since 1981.

    For those concerned about medical costs eating into this increase, Medicare – the health insurance plan for older Americans – said last month it would drop its premiums next year by about 3% for its Medicare Park B Plan.

    For more information and context, please read this article from CBS News.

    For instructions on how to sign up for a “my Social Security” account with the SSA, which is the fastest way to find out when and how much you will receive, watch the video below:

  • 7 Year-End Tax Planning Tips

    Consider preparing for the upcoming tax season by taking advantage of a few important end-of-year tax strategies.

    Original article from www.usbank.com HERE

    We’re now in the final quarter of the year, so why not start thinking about how to minimize our tax burden with actionable tips required prior to December 31st.

    1.  Check your paycheck withholdings

    An incorrect W-4 can result in an unexpected refund at tax time – or an unexpected tax bill.  Beginning in 2020, the IRS eliminated the old system of withholding “allowances” and now allows employees to provide the specific amount by which they would like to increase or decrease their federal tax withholdings directly. 

    Use the IRS Tax Withholding Estimator to find out if you’ve been withholding the right amount or even to calculate your desired refund amount.

    Take action:  If you need to make adjustments, file a new Form W-4 at your workplace that includes the added (or subtracted) withholding amount provided by the Withholding Estimator.

    Tip:  This is a good time to confirm your state income tax withholding information (if applicable) as well.

    2.  Max out your retirement account contributions


    Tax-advantaged retirement accounts (such as a traditional IRA or 401(k) plan) compound over time and are funded with pre-tax dollars. That makes them a great investment in your future. They’re also helpful at tax time, since any contributions you make to these plans lower your taxable income.

    For the current tax year, the maximum allowable 401(k) contributions are as follows: 

    • $20,500 up to age 49
    • $27,000 for age 50+ (with $6,500 catch-up contribution)
       

    For the current tax year, the maximum allowable IRA contributions are as follows:

    • $6,000 up to age 49
    • $7,000 for age 50+ (with $1,000 catch-up contribution)
       

    If you have an HSA (health savings account), consider maxing out contributions to that account as well (currently $3,650 for individuals, $7,300 for families and an additional $1,000 for individuals age 55+).

    Take action: Can’t make the maximum contribution to your 401(k)? Try at least to contribute the amount your employer is willing to match. All 401(k) contributions must be made by December 31 for that calendar year. However, you have a few extra months to make contributions to IRAs and HSAs, up until the tax filing deadline in April.

    3.  Take any RMDs from traditional retirement accounts (if you’re age 72 or older)


    All employer-sponsored retirement plans, traditional IRAs and SEP and SIMPLE IRAs mandate required minimum distributions (RMDs) by the April 1 that follows the year you turn 72. Thereafter, annual withdrawals must happen by December 31 to avoid the penalty.*

    RMDs are considered taxable income. If you don’t take the RMD, you face a 50 percent excise tax on the amount you should have withdrawn based on your age, life expectancy, and beginning-of-year account balance.

    Take action: Take your RMD by December 31. Once you turn 72, you must take your first withdrawal on or before April 1 the following year to avoid penalty.

    If you don’t need the cash flow and would prefer not to increase your taxable income, you may want to consider a Qualified Charitable Distribution (QCD), directly from your qualified account to a public charity. However, you won’t get the charitable contribution itemized deduction. QCDs are limited to $100,000 per year. Different from rules governing RMDs, you can make a QCD gift as early as age 70 ½ if you’re charitably inclined..

    4.  Consider a Roth IRA conversion

    While eligibility to open and contribute to a Roth IRA is based on income level, you can convert some or all of the assets in a traditional IRA or workplace savings plan (e.g., 401(k)) to a Roth IRA. Roth IRAs can play a valuable role in your retirement portfolio; unlike traditional IRAs, Roth IRAs are not subject to income taxes at the time of withdrawal in retirement. This can give you more flexibility to manage your cash flow and future tax liability.

    Converting qualified assets, such as 401(k) or traditional IRA assets, to Roth IRA assets is considered a taxable event during the conversion year. Any pre-tax contributions and all earnings converted to the Roth IRA are added to the taxpayer’s gross income and taxed as ordinary income. 

    Take action: Talk with your tax advisor or Lane Hipple to determine if a Roth conversion is right for you. If you move forward with a conversion, try to manage the tax impact. One strategy is to convert amounts only to the level where you remain in your current tax bracket. You can utilize partial Roth IRA conversions over a period of years to manage the tax liability.

    5.  “Harvest” your investment losses to offset your gains

    Tax-loss harvesting is a strategy by which you sell taxable* investment assets such as stocks, bonds, and mutual funds at a loss to lower your tax liability. You can apply this loss against capital gains elsewhere in your portfolio, which reduces the capital gains tax you owe.

    In a year when your capital losses outweigh gains, the IRS will let you to apply up to $3,000 in losses against your other income, and to carry over the remaining losses to offset income in future years.  

    The goal of tax-loss harvesting is to potentially defer income taxes many years into the future — ideally until after you retire, when you’d likely be in a lower tax bracket. This process lets your portfolio grow and compound more quickly than it would if you had to take money from it to pay the taxes on its gains.

    Take action: Tax-loss harvesting requires you to diligently track tax loss across a portfolio, as well as monitor market movements, since the chance for tax-loss harvesting can occur at any time. Lane Hipple can help you identify any losses you can use to offset any gains.

    *Note: Tax-loss harvesting does not apply to tax-advantaged accounts such as traditional, Roth, and SEP IRAs, 401(k)s and 529 plans. 

    6.  Think about “bunching” your itemized deductions


    Certain expenses, such as the following, can be classified as “itemized” deductions: 

    • Medical and dental expenses
    • Deductible taxes
    • Qualified mortgage interest, including points for buyers
    • Investment interest on net investment income
    • Charitable contributions
    • Casualty, disaster and theft losses
       

    In order to itemize, your expenses in each category must be higher than a certain percentage of your adjusted gross income (AGI). For example, let’s say you’d like to itemize your medical expenses. For the current tax year, the threshold for itemizing medical expenses is 7.5% of your AGI. If your medical expenses total 5% of your AGI, it wouldn’t be beneficial to itemize.

    “Bunching” is a way to reach that minimum threshold. In this example, you could delay 2.5% of your expenses to the following year. And then you’d be more likely to reach the minimum 7.5% AGI that next tax season, allowing you to itemize.

    Take action: If you’ve been waiting on certain medical and dental expenses or charitable contributions, you might want to group these expenses to take the most advantage of itemizing the deductions.

    7.  Spend any leftover funds in your flexible spending account (FSA)


    FSAs are basically bank accounts for out-of-pocket healthcare costs. An FSA earmarks your pre-tax dollars for medical expenses, lowering your taxable income.

    When you tell your employer how much of each paycheck to set aside for your FSA, remember you’ll pay taxes on any funds still in the account on December 31*. Plus, you’ll lose access to the money unless your employer allows a certain amount in rollovers for the next calendar year.

    Take action: Schedule any last-minute check-ups and eye exams by December 31. Fill prescriptions for you and your family. Still carrying a balance? Stock up on items approved for FSA spending (e.g., contact lenses, eyeglasses, bandages).

    *Note: Some employers give you until March of the following year to use your FSA dollars.

    With a little planning before the year ends, you can be better prepared for the upcoming tax season.

    Take Action

    If you think you would benefit from a conversation about year-end tax planning, contact Lane Hipple in Moorestown, NJ by calling 856-638-1855, emailing info@lanehipple.com, or to schedule a complimentary discovery call, use this link to find a convenient time.