Resource Center

Staying Physically (and Fiscally) Fit as You Age

August 9, 2023

Keep connected, develop good sleep hygiene and get in fiscal shape

Aging is a natural process that everyone goes through, but how we age can be significantly influenced by our daily habits. Staying fit and healthy as we grow older is not just about physical exercise, though that plays a crucial role. Experts emphasize that it’s also about focusing on mental well-being, maintaining social connections, and prioritizing good sleep hygiene.

Exercise for the Body and Brain

Physical Exercise: Engaging in regular physical activity helps to maintain muscle mass, flexibility, and cardiovascular health. It can also reduce the risk of chronic conditions like obesity, diabetes, and heart disease. Whether it’s walking, swimming, or practicing yoga, find an exercise routine that suits your abilities and preferences.

Cognitive Exercise: Just as the body needs exercise, so does the brain. Mental exercises like puzzles, reading, or learning a new skill can sharpen cognitive function and ward off memory-related ailments like dementia. Never stop challenging and engaging your mind.

Related article: How to Preserve and Grow Your Family’s Legacy

Strive for Mental Fitness

Mental fitness goes beyond cognitive exercises. It encompasses emotional well-being, resilience, and overall psychological health. Engaging in activities that bring joy and purpose, practicing mindfulness, and seeking professional help if needed, can keep your mind in top shape. Staying fit and positive mental health supports overall well-being and can even enhance immune function.

Staying Fit Socially

Humans are social creatures, and staying connected to friends and family is essential for emotional health. Social interactions stimulate the brain and enhance feelings of happiness and fulfillment. Joining clubs, volunteering, or simply maintaining regular contact with loved ones can foster a strong social network. Remember, quality is often more valuable than quantity when it comes to social connections.

Develop Good Sleep Hygiene

Sleep is a vital but often overlooked aspect of overall health. Good sleep hygiene means creating a conducive environment for sleep, establishing a regular sleep schedule, and avoiding things that might disrupt sleep patterns (such as screens or caffeine close to bedtime).

Aging might come with changes in sleep patterns, but maintaining a healthy sleep routine can have profound impacts on physical and mental health. Adequate rest supports cognitive function, mood regulation, and overall wellness.

Not Just About Staying Fit at the Gym

A holistic approach to staying fit as you age encompasses more than just hitting the gym. These habits aren’t just for those in their golden years either; starting early can lay the foundation for a robust and resilient aging process.

Regular check-ins with healthcare professionals who understand your individual needs can further support these habits. Ultimately, the journey of aging is unique to each person, and cultivating these habits can make that journey a fulfilling and healthy one.

Your Financial Advisor

A good advisor will spell everything out for you in ways that you understand. After all, it is your future that you are working on. If your doctor or advisor shoos you out without explaining problems and solutions, you can find a better one.

Decision-making in both areas changes with circumstances and works best with consistent, objective planning. Just as your health changes over time, markets and economies change even faster. 

• Your financial advisor is there to discuss your future and be a sounding board for your career. 
• Your financial advisor can help you maintain a healthy lifestyle. 
• Your financial advisor will be there for to help you get in – and stay in – fiscal shape. 

Your financial advisor is always there to care for your financial well-being, but also your emotional well-being. Always.

Tax-Efficient Wealth Building: Strategies to Maximize Your Returns

August 2, 2023

Tips to Keep More of Your Hard-Earned Money Working for You

When it comes to preparing for a financially secure future, utilizing tax-efficient wealth building strategies can help you make the most of your assets. In fact, one often overlooked aspect of wealth building is the impact of taxes on investment returns. Implementing tax-efficient strategies can help you minimize tax liabilities and keep more of your hard-earned money working for you. In this article, we will explore various strategies that can optimize your investment returns and help you on your journey to tax-efficient wealth building.

Understand Tax-Advantaged Accounts

One of the foundational strategies for tax-efficient wealth building is leveraging tax-advantaged accounts. Familiarize yourself with options such as Individual Retirement Accounts (IRAs), 401(k) plans, Health Savings Accounts (HSAs), and 529 education savings plans. These accounts offer tax advantages, such as tax-deferred growth or tax-free withdrawals, allowing your investments to grow more efficiently.

Capitalize on Tax-Deferred Investments

Investing in tax-deferred vehicles can have a significant impact on your long-term wealth accumulation. Explore options like traditional IRAs, 401(k) plans, and deferred annuities. By deferring taxes on investment gains until withdrawal, you can potentially benefit from compounding growth and keep more of your returns working for you.

Utilize Tax-Efficient Asset Location

Strategic asset location involves placing different types of investments in the most appropriate accounts to optimize tax efficiency. For example, high-growth assets that generate significant capital gains may be best held in tax-advantaged accounts to defer taxes, while tax-efficient investments like index funds or tax-managed funds can be placed in taxable brokerage accounts. If you’re unsure about the tax treatments of different types of accounts, work with a financial advisor or tax professional to determine the most tax-efficient wealth-building strategies for your personal circumstances.

Harvest Tax Losses

Tax-loss harvesting involves strategically selling investments that have experienced losses to offset taxable gains. By realizing losses, you can reduce your tax liability while maintaining a similar investment position by reinvesting in similar assets. Careful consideration of tax rules and restrictions is crucial to ensure compliance and maximize the benefits of tax-efficient wealth building strategies like this one.

Long-Term Investing for Capital Gains

Holding investments for the long term can have substantial tax advantages. Capital gains from investments held for more than one year are subject to lower long-term capital gains tax rates. By adopting a long-term investment strategy, you can take advantage of these preferential tax rates and enhance after-tax returns.

Consider Tax-Efficient Investment Vehicles

Certain investment vehicles, such as exchange-traded funds (ETFs) or index funds, are designed to be tax-efficient. These funds aim to minimize taxable distributions by minimizing portfolio turnover or using in-kind transfers. Exploring these options can help you reduce taxable events and improve overall tax efficiency.

Charitable Giving

Charitable giving may strike you as an odd addition to a list of tax-efficient wealth building strategies, but these types of contributions offer potential tax benefits while supporting causes you care about. Consider donating appreciated securities directly to charitable organizations instead of cash. By doing so, you can potentially avoid capital gains taxes and still claim a deduction for the fair market value of the donated assets.

Related Article: Five Charitable Gifting Strategies That Come With Tax Advantages

Seek Professional Guidance

Navigating the complexities of tax-efficient wealth building can be challenging, and some of the above strategies may leave you feeling confused or overwhelmed if you try to go it alone. Consider working with a knowledgeable financial advisor or tax professional who can provide personalized guidance based on your unique financial situation. They can help you identify and implement the most effective tax strategies and ensure compliance with tax laws.

Are You Utilizing Tax-Efficient Wealth Building Strategies?

Building wealth requires a comprehensive approach that includes optimizing your investment returns while minimizing tax liabilities. By implementing tax-efficient wealth building strategies such as leveraging tax-advantaged accounts, capitalizing on tax-deferred investments, and utilizing strategic asset location, you can enhance your after-tax returns and accelerate your wealth-building journey. By making tax efficiency a priority, you can keep more of your wealth working for you and achieve greater long-term financial success.

If you’d like to discuss strategies for tax-efficient wealth building, 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. I have been granted a license in perpetuity to publish this article on my website’s blog and share its contents on social media platforms. I have no right to distribute the articles, or any other content provided to me, or my Firm, by Illuminated Advisors in a printed or otherwise non-digital format. I am not permitted to use the content provided to me or my firm by Illuminated Advisors in videos, audio publications, or in books of any kind.

EQUITIES ADVANCE LAST WEEK AS THE FED RAISES RATES BY 25 BASIS POINTS

July 31, 2023

CORPORATE EARNINGS COME IN BETTER THAN EXPECTED

Summary

• The small-cap Russell 2000 (+1.1%) recorded another positive week, followed closely by the S&P 500 (+1.0%) and the DJIA (+0.7%)
  
• There was a lot of economic news last week, but by far the biggest news was probably also the most expected, when the Fed voted on Wednesday to raise the target range for the fed funds rate by 25 basis points to 5.25-5.50%
  
• Surprisingly, Wall Street reacted well to the expected rate hike, on hopes that the Fed is done raising rates for the year, as the CME FedWatch Tool put the probability of a second rate hike any time later this year at less than 30%
  
• It was a busy earnings week, too, with Microsoft, Google (Alphabet) and Facebook (Meta) all moving decently
  
• Of the 11 S&P 500 sectors, 9 were positive as the Communication Services led the pack with a whopping 6.9% gain, whereas Utilities and Real Estate dropped by about 2% each
  
• The 10-year Treasury yield moved up 11 basis points and came to rest at 3.96%, a whisper away from that 4% threshold so important to Wall Street

Weekly Market Update – as of JULY 28, 2023

*Source: Bonds represented by the Bloomberg Barclays US Aggregate Bond TR USD.

This chart is for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results

Stocks Advance as Fed Raises Rates

Stocks had a good week, as all four of the major U.S. equity indexes advanced on hopes that a soft landing engineered by the Federal Reserve was becoming real. Most encouraging for investors was the fact that the DJIA saw its 13^th consecutive daily gain through Wednesday, marking its longest winning streak since 1987. Growth stocks far outpaced Value stocks, driven by NASDAQ’s 2% gain, which padded its 36%+ YTD gain.

The week’s biggest news was widely anticipated, as the Federal Reserve voted unanimously on Wednesday to raise the fed funds rate by 25 basis points, after pausing last month. Fed Chair Jerome Powell was non-committal about whether rates would be raised further, but he did acknowledge that inflation is far from its most-recent peak. The fed futures market is predicting that there will be about a 30% chance of another rate hike later this year.

There was a lot of economic data received last week and here are a few highlights:

• Q1 GDP revised up significantly;
  
• New home sales jumped in May;
  
• New home sales prices declined in May;
  
• Durable goods orders advanced in May;
  
• Consumer confidence leapt in July;
  
• Personal income increased in May;
  
• Personal spending rose in May;
  
• Wages and salaries increased in May;
  
• Initial jobless claims dropped last week

GDP Revised Up Significantly

The third estimate for Q1 GDP saw a very large, upward revision to 2.0% from 1.3%, as consumer spending proved to be much more robust than anticipated.

Highlights

• Personal consumption expenditures growth was revised to 4.2% from 3.8%. That contributed 2.79 percentage points to Q1 GDP growth versus the second estimate of 2.52 percentage points.
  
• Gross private domestic investment declined 11.9%, versus the second estimate of -11.5%, after increasing 4.5% in Q4. This subtracted 2.22 percentage points from GDP growth versus 2.14 percentage points in the second estimate.
  
• Exports were up 7.8%, versus the second estimate of 5.2%, after declining 3.7% in Q4. Imports were up 2.0%, versus 4.0% in the second estimate, after declining 5.5% in Q4. Net exports contributed 0.58 percentage points to Q1 GDP growth versus the second estimate of 0.00 percentage points.
  
• Government spending increased 5.0%, versus the second estimate of 5.2%, after increasing 3.8% in Q4. This added 0.85 percentage points to Q1 GDP growth versus 0.89 percentage points in the second estimate.

New Home Sales Jump in May But Sales Prices Decline

New home sales surged 12.2% month-over-month in May to a seasonally adjusted annual rate of 763,000 units. On a year-over-year basis, new home sales were up 20.0%, but the median sales price declined 7.6% year-over-year to $416,300 while the average sales price declined 6.6% to $487,300.

In addition:

• New home sales month-over-month/year-over-year by region:
  
  • Northeast (+17.6%/+110.5%);
  • Midwest (+4.1%/+40.0%);
  • South (+11.3%/+22.0%);
  • West (+17.4%/-0.6%).
    
• At the current sales pace, the supply of new homes for sale stood at 6.7 months, versus 7.6 months in April and 8.3 months in May 2022.
  
• The percentage of new homes sold for $399,999 or less accounted for 44% of new homes sold versus 49% in April and 39% one year ago.

Durable Goods Orders Are UP

Total durable goods orders were up 1.7% month-over-month following an upwardly revised 1.2% increase (from 1.1%) in April. Excluding transportation, durable goods orders increased 0.6% month-over-month following a downwardly revised 0.6% decline (from -0.2%) in April.

Highlights

• New orders for machinery jumped 1.0% after increasing 0.3% in April.
  
• New orders for computers and electronic products increased 0.3% after declining 1.8% in April.
  
• New orders for fabricated metal products were flat after declining 0.2% in April.
  
• Transportation equipment orders jumped 3.9% after increasing 4.8% in April. New orders for motor vehicles and parts were up 2.2% after being flat in April. New orders for nondefense aircraft and parts rose 32.5% after slipping 2.0% in April.
  
• Shipments of nondefense capital goods excluding aircraft, which factors into GDP computations, increased 0.2% following a 0.4% increase in April.

Sources: conference-board.org; bea.gov; census.gov;  msci.com; fidelity.com; nasdaq.com;  wsj.com;  morningstar.com

Consumer Confidence Up 2nd Month in A Row To Best Level Since July 2021

July 25, 2023

The Consumer Confidence Survey from the Conference Board “reflects prevailing business conditions and likely developments for the months ahead.”

This monthly Consumer Confidence report details consumer attitudes, buying intentions, vacation plans, and consumer expectations for inflation, stock prices, and interest rates. Data are available by age, income, 9 regions, and top 8 states.

On Tuesday, it was announced that the Conference Board Consumer Confidence Index rose again in July to 117.0 (1985=100), up from 110.1 in June.

Further:

• “The Present Situation Index – based on consumers’ assessment of current business and labor market conditions – improved to 160.0 (1985=100) from 155.3 last month.
 
• The Expectations Index – based on consumers’ short-term outlook for income, business, and labor market conditions – improved to 88.3 (1985=100) from 80.0 in June.
 
• Importantly, Expectations climbed well above 80 – the level that historically signals a recession within the next year. Despite rising interest rates, consumers are more upbeat, likely reflecting lower inflation and a tight labor market. Although consumers are less convinced of a recession ahead, we still anticipate one likely before year end.

Consumer confidence rose in July 2023 to its highest level since July 2021, reflecting pops in both current conditions and expectations. Headline confidence appears to have broken out of the sideways trend that prevailed for much of the last year. Greater confidence was evident across all age groups, and among both consumers earning incomes less than $50,000 and those making more than $100,000.”

Family’s Current Financial Situation

Consumers’ assessment of their Family’s Current Financial Situation signals still-healthy family finances in July.

• 31.6% of consumers say their current family financial situation is “good,” up from 28.8% in June.
 
• 17.6% say their current family finances are “bad,” down from 18.6%.

Sources: conference-board.org

Bridging The Retirement Income Gap With FIAs

July 11, 2023

Authored By: Heather L. Schreiber, RICP® NSSA®

What do retirees fear most?

According to a GoBankingRates survey, 66% of Americans worry that they will run out of money during retirement. That’s ahead of the 50% who were concerned about a steep healthcare outlay¹.

How can seniors and their financial advocates address this worry? Many are choosing to do so with a fixed index annuity (FIA). LIMRA reports that FIA sales were $79.4 billion in 2022, up 25% from 2021, and 8% higher than the record set in 2019²’³. What’s so appealing about FIAs? Before the big reveal, let’s set the stage.

Shaky Stool

During the 20th century, a so-called 3-legged stool provided an underpinning for retirees’ finances. That is, cash flow could come from 3 sources: Social Security, pensions from former employers, and personal savings. However, employer pensions have become the exception rather than the rule for many retirees. Pensions are still common for long-term government workers but are relatively rare in the private sector.

Instead of pensions, private sector employers offer employees the opportunity to put wages into defined contribution plans such as 401(k)s. Generally, those dollars go into funds holding stocks and bonds. Recently, though, market
volatility has been in the headlines.

Down Year

The Morningstar U.S. Market Index lost 19.4% in 2022, the biggest annual loss since 2008…when it lost a 38.4%. Bonds are supposed to offer stability when stocks sag, but the Morningstar U.S. Core Bond Index lost 12.9% in 2022, its biggest annual loss since inception of the index in 1993³.

To demonstrate the potential effect of such results on an approaching retirement, suppose a hypothetical Holly Smith retired in early 2022. At the start of that year, Holly had managed to accumulate $600,000 in retirement savings, evenly divided between stock funds and bond funds.

Assume Holly’s investments matched the broad equity and fixed-income markets. At the start of 2023, her holdings would have been down to $241,800 in stocks and $261,300 in bonds—from $600,000 for retirement to just over $500,000. After such a loss, Holly would need almost a 20% gain just to get back to where she had been. Moreover, our Holly had retired in 2022, taking 4% of her savings ($24,000) to supplement Social Security last year. Now, Holly bears sequence-of-return risk, which impacts people whose retirement coincides with a bear market.

Holly’s choices might be taking that same $24,000 this year, from the $479,100 left in her portfolio. That’s a 5% withdrawal rate, which could lead to depletion while Holly is still alive. Or, Holly might stick to her 4% strategy, withdrawing only $19,164 (4% of $479,100) in 2023, which could mean cutting back on her lifestyle in retirement.

Financial markets have bounced back in the past, and that could be the case again, helping Holly’s portfolio last longer. Even with a rebound, retirees such as Holly face risks such as longevity that could eventually drain her portfolio, inflation that could strain her budget, and a need for costly long-term care. Threats to cut back on Social Security benefits add to Holly’s dilemma.

Mitigating Retirement Risks

Savvy planning can help take these key retirement risks off the table, or at least reduce them to the point where retirees are comfortable. Fixed Index Annuities (FIAs) can help mitigate these concerns to the extent that exceeds what other sources of retirement income can provide for retirees.

An FIA is funded either through a single lumpsum payment or a series of periodic contributions from a consumer to an insurance company. In exchange, the consumer receives a contract that may deliver tax-deferred buildup, principal protection in a down market, and growth potential. Increases to the annuity value, termed interest, are credited to the contract annually, tied to a market index such as the S&P 500. FIA dollars are not directly invested in the index components but are pegged to the results.

Generally, FIAs offer protection against market losses. In return, they usually provide lower upside potential than being invested directly in the market. With a crediting rate of 70% of the S&P 500, for example, a hypothetical 12-month index gain of 10% would generate a 7% crediting rate to the annuity value of an FIA with that provision. The tax-deferred nature of an FIA allows money to compound over time without having to pay ordinary income taxes on the growth until funds are withdrawn. Consumer have the choice of turning on a reliable income stream from an FIA for a period of time or for a lifetime to supplement other sources of income in retirement.

Related Article: Passing an Inheritance to Your Children: 8 Important Considerations

Bountiful Benefits

On the plus side, considering a fixed index annuity when building a retirement income strategy has several advantages which include:

Tax deferral. Any gains inside an FIA avoids immediate income tax, allowing the annuity owner to take advantage of pre-tax compound growth during the accumulation phase. FIA owners also benefit from flexibility in creating retirement income drawdown strategies by controlling when and how to take income from the annuity.

Asset allocation alternative. Conventional wisdom holds that a 60-40 split, stocks to bonds, combines the growth potential of equities with the stability of fixed income. However, both stocks and bonds suffered double-digit losses in 2022, as previously mentioned. Concerns of ongoing inflation may lead to hesitation regarding investing in bonds.

An income stream that retirees can’t outlive. Americans are living longer than ever. That generally equates to more time spent in retirement and pressure on retirement assets to last longer. Even with Social Security and perhaps other sources of dependable cash flow, there still may be a gap between actual income and desired annual outflow. An FIA can fill that gap, generating income that will last as long as the retiree (and perhaps a spouse) may live.

Principal protection against possible market losses. As explained above, sequence-of-returns risk occurs when financial markets drop early in retirement while a retiree is tapping his or her investment portfolio. That can cause lifelong savings to deplete more rapidly than would have been the case if those market corrections occur later in retirement. An FIA can protect retirement assets by offering a source of cash flow that is not exposed to this risk during a market downturn.

Income to allow deferral of Social Security benefits. Waiting to claim Social Security benefits, perhaps to as late as age 70, can increase lifelong payouts substantially and often increase payments to a surviving spouse. In order to finance such a delay while avoiding additional stress on other assets, an FIA can play a key role. A retiree might start tapping into an FIA at, say, age 62 to bridge income so that Social Security claiming occurs later. Seniors can make their accumulated retirement assets work smarter, not harder.

Support for a surviving spouse. When one spouse dies, the Social Security income benefit of the lower-earning spouse goes away, and the higher benefit is payable to the survivor. Loss of a spouse generally means a decline in income—going from two Social Security benefits to one survivor benefit—so depending on an FIA to replace lost income may be a strategy that can help the survivor maintain the same standard of living.

A hedge against unanticipated long-term care expenses in retirement. Standalone LTC insurance policies can be costly. Data from the American Association for Long-Term Care Insurance put the average premium for a 55-year-old couple on a $165,000 initial policy with a 3% annual growth in maximum coverage at approximately $5,025 per year³. That can be an unnecessary expense if the policy benefits are never used.

Nevertheless, LTC coverage may be necessary, because Medicare does not cover custodial LTC and the average cost nationwide for a private room in a nursing home is about $9,000 a month, according to Seniorliving.org⁴. Adding a long-term care rider to an FIA can provide an additional layer of protection, offsetting the potential expense of a need for LTC.

Spousal benefits. FIAs, when jointly owned, can create income streams over the course of two lives for a married couple. This can be extremely important because widow(er)s typically become single taxpayers, owing increased income tax. What’s more, a surviving spouse may not have much experience handling the couple’s finances. An FIA offering continued contract ownership to the survivor may provide tax deferral and market risk-free cash flow to an aging widow(er) in need of stable income.

Legacy planning: Non-qualified annuities, with properly named beneficiaries, may be utilized as an estate planning opportunity to permit non-spousal beneficiaries, such as the owner’s children, to stretch post-death withdrawals over decades, based upon their life expectancy. That’s because non-qualified annuities are not covered by SECURE Act’s 10-year rule.

Due Diligence

No financial product is perfect for every consumer in every situation, and that’s true for FIAs, too. These annuities may deliver exceptional results, but there are risks as well. For starters, any guarantees are backed by the issuer, so it’s necessary to evaluate the insurer’s financial strength; therefore, due diligence is vital. A knowledgeable financial professional can provide real value here.

In addition, FIAs may have costs, just as is the case with any financial product, such as an additional fee for an income rider. Again, a financial professional can help by determining the actual cost of buying a specific FIA to ensure that the product and associated costs meets the specific needs of the investor. The more that is known before buying an FIA, the greater the chance of enjoying the multiple benefits listed above.

Retirement Action Plan:

• Prepare early. Determine a realistic retirement timeline that considers income needs in retirement, source of retirement income, family history, and current investor health.
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• Develop a plan that includes guaranteed income sources for predicable and necessary expenses. This plan should aim to fill any projected gaps.
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• Recognize the various risks that come with any financial plan, including market risk, healthcare risk, inflation, loss of employment, or death of a loved one. Adjust the approach to minimize such concerns.
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• Schedule a plan review at least annually with a knowledgeable financial professional and make needed changes.
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• Consider including a fixed index annuity as part of a retirement income plan, to provide needed lifelong income without exposure to possible market weakness.

Sources

¹ https://www.nasdaq.com/articles/66-of-americans-are-worried-theyll-run-out-of-money-in-retirement-here-are-7-tips-to-make

² www.morningstar.com/articles/1131213/just-how-bad-was-2022s-stock-and-bond-market-performance

³ www.aaltci.org/long-term-care-insurance/learning-center/ltcfacts-2022.php#2022costs

⁴ www.seniorliving.org/nursing-homes/costs/

Not affiliated with the Social Security Administration or any other government agency. This information is being provided only as a general source of information and is not intended to be the primary basis for financial decisions. It should not be construed as advice designed to meet the needs of an individual situation. Please seek the guidance of a professional regarding your specific financial needs. Consult with your tax advisor or attorney regarding specific tax or legal advice. ©2023 BILLC. All rights reserved. #23-0432-053024