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If you think the economic decline due to the pandemic has been difficult for you personally, the big picture numbers may be even worse. Analysts project that the total economic disruption could eventually cost between $9 trillion and $33 trillion. Many economists are advocating that the U.S. — and the world — make a concerted effort to prevent future pandemics.1 Much like individual health care, the cost for prevention is significantly less than the cost of treatment.
In fact, the coronavirus has exposed many weaknesses in our infectious-disease surveillance and ability to respond quickly and effectively. While state governments continue to work on their current response, many in the private sector are looking toward the future.2
We advise our clients to retain that same perspective. If your retirement portfolio is built to weather an economic decline, you likely have financial vehicles that can help supplement your household income during financial difficulties. By keeping your investments focused on the long term, they can help you ride out market volatility and give your money the opportunity to continue growing. If you’d like advice in this area, we are here for you.
Government attempts to revive the economy have been mixed. The quick efforts to roll out stimulus legislation to benefit consumers and small business ran into headwinds. Many states’ unemployment programs were not built to handle so many claims at once, resulting in delays and confusion. The application system for small business loans led to haphazard benefits, wherein many small employers lost out while large corporations, such as Shake Shack and the Los Angeles Lakers, received millions (although both companies returned the money).
The pandemic has impacted nearly every household, business, organization and government agency in some way. At this point, it makes sense to evaluate how we’ve been affected and devise plans to help reduce the risks from similar situations moving forward. Even the Pentagon admits there are flaws in its system for protecting Americans. It recently began the process of rewriting its pandemic playbook for faster and more efficacious response efforts for this type of crisis in the future.4
It just goes to show that even the best-laid plans may not work when stress-tested in a real-life situation. It’s time we all take a deep breath, look at our current position, and determine where we want to be in the future. To some extent, we can rely on the investment markets to enhance our long-term financial futures, but we should set goals and make sure our portfolios remain well-diversified. Merrill recently re-assessed its portfolio models with guidance to actively rebalance back to original asset allocation targets. The wealth manager cautioned that markets tend to be more volatile during a presidential election, recommending a diversified approach and using rebalanced funds to add more global equity exposure.5
Fresno Retirement Advisor Takeaways
As your Fresno financial advisor we thought this was a good takeaway: Analysts project that the total economic disruption could eventually cost between $9 trillion and $33 trillion. Many economists are advocating that the U.S. — and the world — make a concerted effort to prevent future pandemics.1 In fact, the coronavirus has exposed many weaknesses in our infectious-disease surveillance and ability to respond quickly and effectively. While state governments continue to work on their current response, many in the private sector are looking toward the future.2 We advise our clients to retain that same perspective.
Diversifying your retirement assets among a variety of vehicles and alternatives—both insurance and investment oriented, depending on what is appropriate for your situation—may offer you a better chance of meeting your retirement income goals throughout your lifespan. We help our clients with problems sometimes associated with retirement such as stopping spend down and avoiding probate. In doing so we leverage stop spend down as well as long-term care strategies designed to help accomplish those goals.
When searching for Fresno financial advisors, look no further than Soutas Financial & Insurance Solutions Inc. your Fresno financial planning consultant is committed to helping take the complexity out of retirement planning. By using a variety of insurance and investment strategies that focus on Asset Protection, Long-Term Care Strategies, Legacy Planning, Tax-Efficient Strategies, IRA, 401(k) & 403(b) Rollovers, Life Insurance Annuities, Medicare, we can help you develop an overall retirement income strategy specific to you and your family. We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to get your retirement plans on track for success!
Other Fresno Financial Advisor Articles
Soutas Financial & Insurance Solutions Inc.
333 W. Shaw Avenue Suite 106
Fresno, CA 93704
(559) 230-1648
Soutas.com
Content prepared by Kara Stefan Communications.
1 Matt Craven, Adam Sabow, Lieven Van der Veken and Matt Wilson. McKinsey & Company. July 13, 2020. “Not the last pandemic: Investing now to reimagine public-health systems.” https://www.mckinsey.com/industries/public-and-social-sector/our-insights/not-the-last-pandemic-investing-now-to-reimagine-public-health-systems. Accessed Sept. 18, 2020.
2 Ibid.
3 Zachary B. Wolf. CNN. April 28, 2020. “What Matters: This is what coronavirus capitalism looks like.” https://www.msn.com/en-us/money/markets/what-matters-this-is-what-coronavirus-capitalism-looks-like/ar-BB13ieZ6?ocid=msn360. Accessed Sept. 18, 2020.
4 Bryan Bender. Politico. Sept. 21, 2020. “Pentagon rewrites pandemic plans.” https://www.politico.com/newsletters/morning-defense/2020/09/21/pentagon-rewrites-pandemic-plans-790511. Accessed Sept. 21, 2020.
5 Merrill. Aug. 2020. “The Grinding Recovery.” https://olui2.fs.ml.com/Publish/Content/application/pdf/GWMOL/Viewpoint_August_2020_Merrill.pdf. Accessed Sept. 18, 2020.
We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.
Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Soutas Financial & Insurance Solutions Inc. are not affiliated companies. 719276 – 12/20
Christmas came early this year. Well, sort of. In an effort to provide financial aid to millions of Americans in dire economic straits, President Trump declared a payroll tax holiday between September and the end of the year. Available to workers who earn $104,000 a year or less, this means that no FICA taxes will be taken out of paychecks by employers that opt into the program.1 This enables workers to take home more income.
Unfortunately, while that may help households whose hours have been reduced, are burdened with health care bills or other expenses that have cropped up during the pandemic, it doesn’t help the 27 million people who actually lost their jobs.2
The payroll tax is noted as a FICA tax on paycheck stubs. It refers to the Federal Insurance Contributions Act, which deducts taxes before wages are paid allowing the government to pay for the Social Security and Medicare programs. This means 6.2% of your salary up to the first $137,700, is deducted from your take-home pay.3 According to the Social Security Administration, 95% of U.S. workers make less than $137,700 a year. The 5% who earn more pay no additional FICA taxes on their income above $137,700.4
To put this into perspective, if you make $100,000 a year, 100% of your income is subject to FICA taxes. If you make $500,000 a year, less than 28% of your income is subject to FICA taxes.
Be aware that FICA taxes are different from federal income taxes, which will still be deducted from paychecks and are not part of the payroll tax holiday.
It’s important to understand that a president cannot impose a tax cut, he can only defer taxes on a temporary basis. When Trump announced his executive order, he declared that if he were re-elected that he would forgive the payroll taxes due this year, and make permanent cuts to payroll taxes going forward. It’s worth noting that only Congress can actually enact these two measures.
Also, recognize that workers can’t opt into or out of whether they’d like to suspend their payroll taxes. These taxes are collected by the employer and therefore the employer makes the decision. The military and many federal government agencies have opted in, so approximately 1.3 million federal workers are projected to have their payroll taxes deferred. This could result in approximately $36 million in lost interest earnings for the Social Security Trust Fund, which is used to pay income benefits to retirees.5
If Congress does not pass legislation to “forgive” this year’s payroll tax holiday, workers will have twice as much — 12.4% of their wages — deducted from their paychecks starting in January. According to the IRS, those payroll taxes must be repaid in full by the end of April or they will be subject to interest and penalties. However, employers will be on the hook to pay those penalties. Should an employee leave the company before those taxes are recouped, the employer would have the option to take the full outstanding payroll tax amount out of his final paycheck.6
The full consequences of the payroll tax program are yet unknown, but they could be problematic. For example, if payroll taxes were permanently eliminated, and another funding source was not created to replace it, it is estimated that the Social Security fund would be depleted by mid-2023 — meaning that this source of income for America’s retirees could be entirely eliminated in three years.7
A further downside is that for cash-strapped employers, the cost of implementing the payroll tax changes may outweigh the benefit to employees. When you consider how long it takes Congress to pass tax legislation, the payroll holiday may simply be a short-term “loan” that is due in full about the same time that 2020 tax returns must be filed.
The payroll tax holiday is designed to give struggling Americans more money right now. However, since there is no way of knowing the likelihood of those taxes being forgiven, the more prudent action may be to save that excess money to repay the taxes early next year. In that case, the payroll tax isn’t very useful for households at all.
It’s also worth noting that the Government Accountability Office (GAO) has indicated that Congress has the power to overturn Trump’s payroll tax holiday.8
Fresno Financial Consultant Takeaways
Fresno portfolio advisor– Soutas Financial appreciated these points: In an effort to provide financial aid to millions of Americans in dire economic straits, President Trump declared a payroll tax holiday between September and the end of the year. Available to workers who earn $104,000 a year or less, this means that no FICA taxes will be taken out of paychecks by employers that opt into the program.1 To put this into perspective, if you make $100,000 a year, 100% of your income is subject to FICA taxes. If you make $500,000 a year, less than 28% of your income is subject to FICA taxes.
Diversifying your retirement assets among a variety of vehicles and alternatives—both insurance and investment oriented, depending on what is appropriate for your situation—may offer you a better chance of meeting your retirement income goals throughout your lifespan. We help our clients with problems sometimes associated with retirement such as stopping spend down and avoiding probate. In doing so we leverage strategic wealth management as well as retirement annuity designed to help accomplish those goals.
When searching for Fresno financial advisors, look no further than Soutas Financial & Insurance Solutions Inc. your Fresno financial advisor is committed to helping take the complexity out of retirement planning. By using a variety of insurance and investment strategies that focus on Asset Protection, Long-Term Care Strategies, Legacy Planning, Tax-Efficient, Strategies IRA, 401(k) & 403(b) Rollovers, Life Insurance, Annuities, Medicare, we can help you develop an overall retirement income strategy specific to you and your family. We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to get your retirement plans on track for success!
Other Fresno Financial Advisor Articles
Soutas Financial & Insurance Solutions Inc.
333 W. Shaw Avenue Suite 106
Fresno, CA 93704
(559) 230-1648
Soutas.com
Content prepared by Kara Stefan Communications.
1 Shannon Liao. CNN. Aug. 31, 2020. “Here’s what the payroll tax deferral action means for you.” https://www.cnn.com/2020/08/29/economy/trump-treasury-new-guidance-tax-holiday/index.html. Accessed Sept. 18, 2020.
2 Ibid.
3 Ryan Guina. Forbes. Sept. 8, 2020. “Payroll Tax Holiday – Will You Have To Repay The Taxes That Are Not Withheld?” https://www.forbes.com/sites/ryanguina/2020/09/08/payroll-tax-holiday-will-you-have-to-repay-the-taxes-that-are-not-withheld/#7af6375365d1. Accessed Sept. 18, 2020.
4 Social Security Administration. Aug. 31, 2020. “Wage Statistics for 2018.” https://www.ssa.gov/cgi-bin/netcomp.cgi?year=2018. Accessed Sept. 18, 2020.
5 Shahar Ziv. Forbes. Sept. 16, 2020. “Social Security Could Lose $36 Million As Military Forced Into Payroll Tax Deferral.” https://www.forbes.com/sites/shaharziv/2020/09/16/trumps-payroll-tax-deferral-start-irs-notice-2020-65-could-cost-social-security-20-million/#50f6a15a544d. Accessed Sept. 18, 2020.
6 Darla Mercado. CNBC. Sept. 14, 2020. “Why Trump’s payroll tax holiday may be a lose-lose for workers and their firms.” https://www.cnbc.com/2020/09/14/why-trumps-payroll-tax-cut-may-be-a-lose-lose-for-workers-and-firms.html. Accessed Sept. 18, 2020.
7 Nicholas Reimann. Forbes. Aug. 24, 2020. “Social Security Fund Would Be Empty By 2023 If Payroll Taxes Were Cut, Actuary Estimates.” https://www.forbes.com/sites/nicholasreimann/2020/08/24/social-security-fund-would-be-empty-by-2023-if-payroll-taxes-were-cut-actuary-estimates/#47aea338a3b2. Accessed Oct. 5, 2020.
8 Lisa Rowan. Forbes. Sept. 16, 2020. “Trump’s Payroll Tax Holiday, Already Unpopular, Could Be Overturned By Senate.” https://www.forbes.com/advisor/personal-finance/payroll-tax-holiday-could-be-overturned/. Accessed Sept. 18, 2020.
Neither our firm nor its agents or representatives may give tax advice. Be sure to speak with a qualified professional about your unique situation.
We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice.
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.
Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Soutas Financial & Insurance Solutions Inc. are not affiliated companies. 719276 – 12/20
More than 90% of America’s older adults prefer to “age in place” in their own homes rather than in a senior housing community or facility.1 With today’s insight into how a deadly pandemic can affect nursing homes — as of September 6, COVID-19 has claimed nearly 55,000 nursing home residents’ lives — this preference may be prudent from a health care standpoint.2
However, aging at home also can be quite expensive. Much depends on the level and amount of care you require. And, as you can imagine, those levels are likely to increase as you get older. For some, it starts out as light housekeeping and running errands. That may progress into cooking meals and taking you to doctor appointments. Eventually, you may need someone to help you dress, groom and move around. A few hours a week could eventually change into 24-hour care, depending on your rate of health and/or mental decline.
According to the 2019 Genworth Cost of Care Survey, the average cost of an in-home caregiver is $22.50 per hour.3 If you need someone for eight hours a day, that could run you about $5,400 a month. If you need 24-hour care because, for example, you need help walking to the bathroom in the middle of the night, that cost could quickly amount to $16,200 a month. Is that a potential cost you’ve factored into your retirement income plan?
For many, the answer is no. We tend to plan as well as possible and hope for the best. If you’d like to explore different insurance options to help pay for potential long-term care needs, we can help. Contact us for more information.
As you develop a plan for old age and staying at home, it’s important to embrace technology. Today, about 75% of people age 55- to 65-years old own smartphones, download and use apps, and many search online for health information.4 This is a good start.
One of the silver linings of the pandemic is that more people have begun to embrace remote patient monitoring devices. Wearable technology enables certain vital signs to be constantly monitored and even emitted electronically to their physician’s office if they exceed normal levels. This allows some people who suffer from chronic illnesses or who are home-bound to monitor their own health instead of visiting doctors’ offices or requiring hospitalization.5
Another way to help combat the cost of 24-hour in-home care is to explore the growing availability of artificial intelligence-aided robots. While lacking the warmth of a human being, robots can research information, engage in conversation, play games and even make remote phone calls if their ward needs emergency care.6
If you’d rather have an actual body in the house to keep you company and provide for your needs, another way to help cut costs is to provide a rent-free room in exchange for care. This can start out as a simple arrangement in exchange for light housekeeping, cooking and chores. Later on, you may want to seek out a nursing student or other type of medical provider who can offer more substantive caregiving duties in exchange for a place to live.
Fresno Retirement Consultant Takeaways
Fresno financial planning is our utmost concern here at Soutas Financial and we thought these takeaways were worth mentioning again: More than 90% of America’s older adults prefer to “age in place” in their own homes rather than in a senior housing community or facility.1 However, aging at home also can be quite expensive. Much depends on the level and amount of care you require. Another way to help combat the cost of 24-hour in-home care is to explore the growing availability of artificial intelligence-aided robots. While lacking the warmth of a human being, robots can research information, engage in conversation, play games and even make remote phone calls if their ward needs emergency care.6
Diversifying your retirement assets among a variety of vehicles and alternatives—both insurance and investment oriented, depending on what is appropriate for your situation—may offer you a better chance of meeting your retirement income goals throughout your lifespan. We help our clients with problems sometimes associated with retirement such as stopping spend down and avoiding probate. In doing so we leverage strategic wealth management as well as retirement annuity designed to help accomplish those goals.
When searching for Fresno financial advisors, look no further than Soutas Financial & Insurance Solutions Inc. your Fresno retirement plan consultant is committed to helping take the complexity out of retirement planning. By using a variety of insurance and investment strategies that focus on Asset Protection, Long-Term Care Strategies, Legacy Planning, Tax Efficient Strategies IRA, 401(k) & 403(b) Rollovers Life Insurance, Annuities, Medicare, we can help you develop an overall retirement income strategy specific to you and your family. We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to get your retirement plans on track for success!
Other Fresno Financial Advisor Articles
Soutas Financial & Insurance Solutions Inc.
333 W. Shaw Avenue Suite 106
Fresno, CA 93704
(559) 230-1648
Soutas.com
Content prepared by Kara Stefan Communications.
1 Tracy Arabian. Gloucester Daily Times. Sep. 2, 2020. “Help available for all wanting to age in place.” https://www.gloucestertimes.com/news/living/senior-lookout-help-available-for-all-wanting-to-age-in-place/article_a375bb79-166d-5ddb-954f-8b70c11735ff.html. Accessed Sept. 8, 2020.
2 Centers for Medicare & Medicaid Services. Sept. 6, 2020. https://data.cms.gov/stories/s/bkwz-xpvg. Accessed Sept. 21, 2020.
3 Rachel Hartman. US News & World Report. June 10, 2020. “Can You Afford In-Home Elderly Care?” https://money.usnews.com/money/retirement/aging/articles/can-you-afford-in-home-elderly-care. Accessed Sept. 8, 2020.
4 Mallory Hackett. MobiHealthNews. Sept. 9, 2020. “An untapped market for digital health innovation exists among seniors hoping to age in place.” https://www.mobihealthnews.com/news/untapped-market-digital-health-innovation-exists-among-seniors-hoping-age-place. Accessed Sept. 9, 2020.
5 Rich Griset. Chesterfield Observer. Sept. 2, 2020. “During the pandemic, local companies help seniors bridge the technology gap.” https://www.chesterfieldobserver.com/articles/during-the-pandemic-local-companies-help-seniors-bridge-the-technology-gap/. Accessed Sept. 8, 2020.
6 Wolf Shlagman. HomeCare. Sept. 1, 2020. “The Potential of AI in Homecare.” https://www.homecaremag.com/september-2020/potential-ai-homecare. Accessed Sept. 8, 2020.
We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice. 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.
Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Soutas Financial & Insurance Solutions Inc. are not affiliated companies. 719276 – 12/20
Overview
2020 brought a very powerful pair of crises: A worldwide pandemic and the deepest recession since World War II. While most Americans have been affected in one way or another, the variance in impact on individual households is staggering — kind of like the way a tornado can demolish one house but leave the homes situated on either side intact.
Households in which income could continue to be earned, be it from an essential job such as a health care worker, grocery stork clerk or mail carrier, or a position which could be transitioned to work from home, have in many cases been unscathed by the economic decline. Yet others with employees who work in hard-hit industries such as travel, hospitality, food and beverage may have lost their jobs, their livelihood and even their health insurance, life insurance and matching retirement plan contributions. Many entrepreneurs have had to shutter their small businesses. For these households, the economic situation may be dire, threatening their ability to pay for basic necessities such as food, housing and transportation.1
Worldwide, millions of people have been displaced from jobs, consumer spending has dropped precipitously and company plans for growth and expansion have been put on hold. All G7 countries experienced significant plunges in gross domestic product this spring.2
New U.S. Leadership
Joe Biden and Kamala Harris have published detailed plans on how they intend to tackle the COVID crisis and economic decline, which some analysts predict will outlive the pandemic.4 The Biden-Harris administration also is prepared to address citizen protests and initiatives, which have drawn attention to other timely issues, such as racial equality and climate change, over the past few years.
1918 Pandemic Influenza: “There were three different waves of illness during the pandemic, starting in March 1918 and subsiding by summer of 1919. The pandemic peaked in the U.S. during the second wave, in the fall of 1918. A third wave of illness occurred during the winter and spring of 1919.”5
A Plan To End The Pandemic
While the Trump administration believed that the pandemic was best managed at the state level, Biden is in favor of swift and aggressive federal government action to unify state efforts in an all-in-one push to stop the coronavirus spread. The following are details from the new plan:6 •
Exponentially increase testing by:
– Ramping up production and distribution of tens of millions of tests
– Investing in at-home and instant tests
– Doubling the current number of drive-through testing sites
Establish a nationwide Public Health Jobs Corps to create immediate jobs to perform contact tracing and protect at-risk populations
Maximize the Defense Production Act to increase production of masks, face shields and other personal protective equipment so the national supply exceeds demand and stores and stockpiles are fully replenished
– Utilize American-sourced and manufactured capabilities to limit dependency on other countries
– Provide all states, cities, tribes and territories the critical supplies they need
– Provide the resources necessary for schools, small businesses and households to remain protected
Establish national guidelines based on specific evidence-based guidance by the Centers for Disease Control and Prevention (CDC)
– Establish benchmark measures to help municipalities and communities determine the level of risk and degree of viral spread within local areas
– Establish benchmark measures to determine when to open or close certain businesses, bars, restaurants, schools and other public spaces
– Provide specific instructions on what is needed to make classrooms and facilities safe, including appropriate restrictions for the size of gatherings and when to issue stay-at-home restrictions
Establish a renewable fund for state and local governments to help prevent budget shortfalls so critical roles, such as teachers and first responders, do not suffer from pay cuts or layoffs during a crisis situation
Work with Congress to pass an emergency package that will:
– Ensure schools have the additional resources they need to adapt effectively to COVID-19
– Help small businesses cover the costs of operating safely, including things like plexiglass and PPE
Work with governors and mayors on the best way to implement mask mandates nationwide, as necessary
Invest $25 billion in a vaccine manufacturing and distribution, and guarantee every American has access to a cost-free vaccine
– Ensure consumers are not price gouged as new drugs and therapies come onto the market
Establish a high-risk task force to protect older Americans and others at high risk to COVID-19
Create a nationwide pandemic dashboard that enables people to gauge the level of real-time transmission occurring in their ZIP code (and places they plan to travel)
Rebuild and expand defenses to predict, prevent and mitigate future pandemic threats
Ensure the millions of Americans who suffer long-term side effects from COVID will not face higher premiums or denial of health insurance because it is classified as a pre-existing condition
A Plan for Economic and Household Recovery
The Biden administration’s goal is to rebuild and revitalize the economy by remedying previous structural weaknesses and barriers that handicapped some demographics from pursuing and achieving personal prosperity. By working on both sides of the aisle with former colleagues in Congress, Biden and Harris are committed to providing immediate relief to working families, small businesses and communities suffering from the economic decline. Their plans include:7
• Offering a comeback package for small businesses and entrepreneurs to re-establish shuttered businesses
• Job generation to support building modern, sustainable infrastructure now and delivering clean energy in the future
• Establishing U.S.-based industrial and small-business-led supply chains to retain and create millions of jobs in manufacturing and technology
In the interest of prioritizing jobs — and after the pandemic showed how much caregiving weighs on working parents — the Biden administration will focus on ways to provide affordable quality care for children, aging relatives and people with disabilities. This includes access to both home and community-based care as well as increasing wages, benefits and professional opportunities for caregivers and educators. With a stronger foundation of nationwide caregivers, millions more people can join the labor force and contribute to a stronger economy in the future.
Biden Tax Plan In 2019, the tax plan Biden proposed during the primaries included the following highlights:8
• Raise the highest individual tax rate to 39.6% (from the current 37%)
• Place a cap on deductions for wealthy taxpayers
• Tax capital gains at income tax rate for those who earn more than $1 million a year
• End the stepped-up basis loophole for wealth inherited by heirs
• End real estate loopholes (e.g., limit “like-kind exchanges” by real estate investors)
• Impose sanctions for using tax havens
• Raise the corporate tax rate to 28% (currently 21%; previously 35%)
• Establish a minimum corporate tax rate that cannot be reduced by deductions
• Tax foreign profits at 21%
However, 2020 brought an altogether new set of priorities. In the spring, Biden announced that as president he would not support a tax increase for individuals earning less than $400,000/year. By autumn, Biden updated his tax plan with a greater focus on helping the economy recover from the pandemic. It features credits for individuals suffering financially and building an American reshoring platform through corporate taxes and penalties. The following are some highlights of the updated Biden tax plan:
Individual Taxpayers:9
• Increase the Child Tax Credit to $3,600 for children under age 6 and $3,000 per child for children ages 6 to 17
• Offer up to $8,000 in tax credits to low-income and middle-class families to help pay for childcare
• Expand access to tax subsidy credits to ensure no family spends more than 8.5% of its income on health insurance
Corporate Taxpayers:10
• Introduce a 10% tax penalty for companies that offshore manufacturing and service jobs (e.g., call centers) to foreign nations that in turn sell goods or provide services back to the American market; plus a 30.8% tax rate on those profits
• Introduce a 10% advanceable “Made in America” tax credit for companies that invest to create more American jobs and accelerate economic recovery. For example:
– Revitalize a closed or closing facility
– Retool an existing factory to produce electric vehicles, new machinery or equipment that meet new Buy American standards
– Return overseas production/call center/other service jobs to the U.S.
– Increase wages for manufacturing jobs paying up to $100,000
• Introduce a 21% minimum tax on foreign earnings of overseas U.S. companies (applies to earnings in each separate foreign country)
• Close current loophole that enables U.S. companies to avoid paying taxes on the first 10% of profits when relocating manufacturing and service jobs to foreign nations
• Eliminate tax deductions and write-off expenses for moving production overseas
• Introduce stronger anti-inversion regulations and penalties
A Plan To Address Racial Equality
During the midst of the worst pandemic since 1918, the Black Lives Matter movement gained momentum following a series of high-profile incidents of police brutality against Black Americans. In the aftermath of nationwide marches and protests, more than a third of Americans believe the increased focus on issues of race this year have created a turning point, while 48% think it will lead to policy and societal changes.11 Electing a woman of color to be vice president may also help turn the tide. The Biden/Harris team plans to advance racial equity in America as a core component in every facet of its economic agenda, from investing in Black, Latino and Native American entrepreneurs and communities, to expanding affordable housing and educational opportunities, to advancing policing and criminal justice reform.12
A Plan To Address Climate Change
While the debate over what causes climate change may not be reconciled, nearly two-thirds of adults in the U.S. believe protecting the environment should be a top priority for the president and Congress. According to the Pew Research Center:13
• 63% of Americans say stricter environmental regulations are worth the cost
• 62% say climate change has had some effect on their local community
• 67% say the federal government isn’t doing enough to reduce the effects of global climate change
Because the majority of Americans support efforts to combat the impact of extreme weather, there is a good chance subsequent legislation may enjoy bipartisan support in Congress. The Biden team hopes to address environmental changes while at the same time stimulating the economy by generating jobs in environmentally responsive industries. Biden aims to focus on innovation to create new and effective products manufactured by American workers with supply chain materials provided by small businesses, family farms and job creators throughout the U.S.
This expansive initiative would include infrastructure projects (e.g., roads, bridges, green spaces, water systems, electricity grids and universal broadband), the auto industry, public transit, reliable carbon pollution-free energy solutions, weatherized and sustainable homes, buildings and appliances, and climate-smart agriculture with an emphasis on resilience and conservation.
Ultimately, the goal of the Biden administration is to lay a foundation for sustainable growth, strengthen global competitiveness, withstand the impacts of climate change and improve public health via cleaner air and water.14
Final Thoughts
Whether these initiatives see headway under a new administration and Congressional session in Washington remains to be seen. However, there will be stark differences between the old guard and the new, mainly that the new administration will probably look more like the traditional political environment of the past. In lieu of dramatic reform deals and pronouncements, it’s more likely the federal government will plod along seeking to negotiate legislative solutions for the highest priorities touching the greatest number of people.
At very least, this political climate is familiar to the investment markets. Barring any other unforeseen crises, markets are not expected to undergo wildly volatile swings, but rather bask in the comfort of a more predictable government. We don’t need to look back further than the last recession to appreciate that a slow economic recovery was, in fact, accompanied by strong, sustainable stock market performance. Perhaps that is a fitting solution to the exhausting events of 2020 and a silver lining for the new and more conventional term starting in 2021.
Fresno Financial Planner Takeaways
Soutas Financial your Fresno financial planner would like to remind you of the following information: 2020 brought a very powerful pair of crises: A worldwide pandemic and the deepest recession since World War II. Households in which income could continue to be earned, have in many cases been unscathed by the economic decline. Yet others with employees who work in hard-hit industries such as travel, hospitality, food and beverage may have lost their jobs, their livelihood and even their health insurance, life insurance and matching retirement plan contributions. Barring any other unforeseen crises, markets are not expected to undergo wildly volatile swings, but rather bask in the comfort of a more predictable government. We don’t need to look back further than the last recession to appreciate that a slow economic recovery was, in fact, accompanied by strong, sustainable stock market performance.
Diversifying your retirement assets among a variety of vehicles and alternatives—both insurance and investment oriented, depending on what is appropriate for your situation—may offer you a better chance of meeting your retirement income goals throughout your lifespan. We help our clients with problems sometimes associated with retirement such as stopping spend down and avoiding probate. In doing so we leverage Medicare long term care as well as risk management designed to help accomplish those goals.
When searching for Fresno financial advisors, look no further than Soutas Financial & Insurance Solutions Inc. your Fresno retirement planning advisor is committed to helping take the complexity out of retirement planning. By using a variety of insurance and investment strategies that focus on Asset Protection, Long-Term Care Strategies, Legacy Planning Tax-Efficient Strategies, IRA, 401(k) & 403(b) Rollovers, Life Insurance, Annuities, Medicare, we can help you develop an overall retirement income strategy specific to you and your family. We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to get your retirement plans on track for success!
Other Fresno Financial Advisor Articles
Soutas Financial & Insurance Solutions Inc.
333 W. Shaw Avenue Suite 106
Fresno, CA 93704
(559) 230-1648
Soutas.com
1 MSN. Dec. 6, 2020. “Pandemic sends hunger rising in America, and children bear the brunt.” https://www.msn.com/en-us/news/us/pandemic-sends-hunger-rising-in-america-andchildren-bear-the-brunt/ar-BB1bFpxZ. Accessed Dec. 7, 2020.
2 Julia Horowitz. CNN. Aug. 28, 2020. “Covid-19 dealt a shock to the world’s top economies. Here’s who has fared the worst.” https://www.cnn.com/2020/08/28/economy/globalrecession-g7-countries/index.html. Accessed Dec. 4, 2020.
3 Ibid.
4 Holly Ellyatt. CNBC. Nov. 11, 2020.“‘Don’t be under the illusion’ that an economic recovery will come quickly with a vaccine, UBS’ Weber says.” https://www.cnbc.com/2020/11/11/ coronavirus-vaccine-doesnt-mean-a-quick-economic-recovery-ubs-weber.html. Accessed Dec. 4, 2020.
5 CDC. May 11, 2018. “1918 Pandemic Influenza: Three Waves.” https://www.cdc.gov/flu/ pandemic-resources/1918-commemoration/three-waves.htm. Accessed Dec. 4, 2020.
6 Biden-Harris Transition. December 2020. “COVID-19.” https://buildbackbetter.gov/priorities/ covid-19. Accessed Dec. 4, 2020.
7 Biden-Harris Transition. December 2020. “Economic Recovery.” https://buildbackbetter.gov/ priorities/economic-recovery. Accessed Dec. 4, 2020.
8 Ben Geier. SmartAsset. Oct. 29, 2020. “Joe Biden’s Tax Plan Explained.” https://smartasset. com/taxes/joe-bidens-tax-plan-explained. Accessed Dec. 9, 2020.
9 JoeBiden.com. September 2020. “A tale of two tax policies: Trump rewards wealth, Biden rewards work.” https://joebiden.com/two-tax-policies/. Accessed Dec. 9, 2020.
10 JoeBiden.com. September 2020. “The Biden-Harris Plan to Fight for Workers by Delivering on Buy America and Make It in America.” https://joebiden.com/wp-content/ uploads/2020/09/Buy-America-fact-sheet.pdf. Accessed Dec. 9, 2020.
11 Julian Menasce Horowitz, Kim Parker, Anna Brown and Kiana Cox. Pew Research Center. Oct. 6, 2020. “Amid National Reckoning, Americans Divided on Whether Increased Focus on Race Will Lead to Major Policy Change.” https://www.pewsocialtrends.org/2020/10/06/ amid-national-reckoning-americans-divided-on-whether-increased-focus-on-race-will-lead-tomajor-policy-change. Accessed Dec. 4, 2020.
12 Biden-Harris Transition. December 2020. “Racial Equity.” https://buildbackbetter.gov/ priorities/racial-equity/. Accessed Dec. 4, 2020.
13 Cary Funk and Brian Kennedy. Pew Research Center. April 21, 2020. “How Americans see climate change and the environment in 7 charts.” https://www.pewresearch.org/facttank/2020/04/21/how-americans-see-climate-change-and-the-environment-in-7-charts/. Accessed Dec. 4, 2020.
14 Biden-Harris Transition. December 2020. “COVID-19.” https://buildbackbetter.gov/priorities/ covid-19/. Accessed Dec. 4, 2020.
This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security or insurance product.
No investment strategy can guarantee a profit or protect against loss in periods of declining values. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM, nor the firm providing you with this report, are affiliated with or endorsed by the U.S. government or any governmental agency.
AE Wealth Management, LLC (“AEWM”) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IAR) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at https://brokercheck.finra.org/.
Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Soutas Financial & Insurance Solutions Inc. are not affiliated companies. -791276 – 12/20
Fresno Financial Advisor News: How to Pull Out of a Decline: Lessons From the Last Recession
Overview
According to the National Bureau of Economic Research, the Great Recession that began at the end of 2007 was considered the worst in U.S. history since the 1930s. That is, until the coronavirus hit our shores.
Some academics claim that the 2008 recession would have been much worse had Congress, the U.S. Treasury and the Federal Reserve not conducted a series of proactive measures.1 Because the recent economic decline is still ongoing — with containment of the virus nowhere in sight — it remains to be seen whether government actions will be enough.
Stimulus Checks
In the immediate aftermath of the Great Recession, Congress passed several important pieces of legislation in an effort to alleviate financial strain and jumpstart the economy. The first was the 2008 Troubled Assets Relief Program (TARP), also known as a $700 billion bank bailout. In 2009, Congress followed up with the Economic Stimulus Act, which sent out $14.2 billion in the form of $250 stimulus checks sent to Social Security and Supplemental Security Income recipients, as well as veterans and railroad retirees. The idea was that the more than 52 million beneficiaries would immediately spend the money, which would help jump-start the economy.2
That was basically discretionary income for retirees, but it did little to help workers who lost their jobs, their health care and, for many, their homes because they could no longer pay the rent or mortgage. While the bailout in the financial sector helped stabilize banks so that depositors could withdraw money, it did not stop lending institutions from foreclosing on homeowners or penalizing borrowers who could no longer make their auto or credit card payments.
Fresno Retirement Consultant News: Employers: Lessons From the Pandemic
We’ve learned a lot about infectious diseases this year, as well as how to adapt our lifestyles in response to a pandemic. It will be interesting to see if and how U.S. businesses adjust their operational models to account for the potential for future pandemics or other catastrophic events.
According to the employment-population ratio, nearly half of the U.S. population was out of work (which includes those no longer actively looking for work), with economists predicting 30 million jobs must be created to return the ratio to its 2000 peak.1
If your household has suffered a job loss or reduced income and you need assistance with creating a budget, or if you’re just not sure about your future retirement income and want to create an income plan, please contact us. We’re happy to evaluate your financial circumstances and provide guidance.
Work-life balance was a problem before the pandemic, but now that issue is being experienced in another context. Many employees have been able to migrate seamlessly to working from home using software to stay connected with colleagues and clients. However, with children home from school and now responsible for online learning, work-life balance can be even more difficult.
Fresno Retirement Advisor News: Americans and Their 401(k)s
A recent survey found that working households experiencing financial strain due to the pandemic have not been inclined to make withdrawals from their 401(k)s to help make ends meet. In fact, the vast majority haven’t even changed their rate of contributions. Instead, these households are relying on the “old standbys” of surviving during economic decline: Reduced spending, using savings or an emergency fund, and maxing out credit cards.1
A reduction in spending shouldn’t be that difficult in the wake of today’s pandemic. After all, many people have cancelled vacations, no longer commute to work, and don’t spend nearly as much money going out to eat or for other entertainment activities. Some folks are even keeping their college students out of school for a semester or two, or at least taking the online route and saving on room and board. For those who remain employed, it’s actually a good time to increase savings.2
The coronavirus pandemic offers an ideal scenario to demonstrate the importance of diversifying retirement savings accounts. While some workers may defer as much salary as they can into a 401(k) to help reduce their current income taxes, others may spread those contributions over a work retirement plan and an IRA. There are a couple of strong reasons to consider including a Roth IRA in the mix. While Roth contributions do not offer a current tax deduction, remember that there are no tax consequences when you withdraw the money. Those funds have the opportunity to grow tax-free, and you’re free to tap your contributions without penalty when needed to supplement household income. However, keep in mind that you should consult with a qualified professional before taking any withdrawals from your retirement assets.
It’s also strategically key right now as income taxes are historically low. The income taxes you currently pay on Roth contributions now could be less than what you’ll have to pay on 401(k) distributions in the future. If you’d like to discuss ways to help maximize your retirement savings — including financial vehicles that allow for tax diversification and emergency funds for situations like pandemics — give us a call. We can tailor recommendations for your situation.
Other Fresno Financial Advisor Articles
Our firm is not affiliated with the U.S. government or any governmental agency.
We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice. Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Soutas Financial & Insurance Solutions, Inc are not affiliated companies. California Insurance License # OK48173
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. Investing involves risk, including possible loss of principal. Insurance product guarantees are backed by the financial strength and claims-paying ability of the issuing company. Diversification cannot ensure a profit or guarantee against losses in a declining market. 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. 722736 – 9/20
A recent survey found that working households experiencing financial strain due to the pandemic have not been inclined to make withdrawals from their 401(k)s to help make ends meet. In fact, the vast majority haven’t even changed their rate of contributions. Instead, these households are relying on the “old standbys” of surviving during economic decline: Reduced spending, using savings or an emergency fund, and maxing out credit cards.1
A reduction in spending shouldn’t be that difficult in the wake of today’s pandemic. After all, many people have cancelled vacations, no longer commute to work, and don’t spend nearly as much money going out to eat or for other entertainment activities. Some folks are even keeping their college students out of school for a semester or two, or at least taking the online route and saving on room and board. For those who remain employed, it’s actually a good time to increase savings.2
The coronavirus pandemic offers an ideal scenario to demonstrate the importance of diversifying retirement savings accounts. While some workers may defer as much salary as they can into a 401(k) to help reduce their current income taxes, others may spread those contributions over a work retirement plan and an IRA. There are a couple of strong reasons to consider including a Roth IRA in the mix. While Roth contributions do not offer a current tax deduction, remember that there are no tax consequences when you withdraw the money. Those funds have the opportunity to grow tax-free, and you’re free to tap your contributions without penalty when needed to supplement household income. However, keep in mind that you should consult with a qualified professional before taking any withdrawals from your retirement assets.
It’s also strategically key right now as income taxes are historically low. The income taxes you currently pay on Roth contributions now could be less than what you’ll have to pay on 401(k) distributions in the future. If you’d like to discuss ways to help maximize your retirement savings — including financial vehicles that allow for tax diversification and emergency funds for situations like pandemics — give us a call. We can tailor recommendations for your situation.
The Employee Benefits Security Administration (EBSA), which is an agency under the U.S. Department of Labor, recently announced an interim final rule for employers offering retirement plan benefits. The agency will require 401(k) and other types of retirement plan sponsors to provide employees with annual lifetime income illustrations. This is a customized statement designed to show each plan participant how his current account assets would likely translate into monthly income at a projected retirement age.3 This is similar to the Social Security Statement which projects future payouts for beneficiaries, updated annually.
The Labor Department also proposed a new rule this summer that is designed to incentivize more investment in fossil-fuel companies. Specifically, the rule would require pension and 401(k) plan wealth managers to always place economic interests ahead of “non-pecuniary goals” when it comes to Environmental, Social, and Corporate Governance (ESG) investing. Some money managers are investing more in renewable energy companies out of concern for the environment and for the long-term investment opportunities presented by sustainable power sources. While this new rule reflects the current administration’s position on fossil fuels, many money managers are concerned that the rule ignores evidence that ESG investing offers strong potential for favorable returns.4
One final note on Americans and their 401(k)s: Pay careful attention to how these plans are utilized in divorce settlements. Normally, dividing such a plan requires a court order separate from the divorce decree, called a Qualified Domestic Relations Order (QDRO). Also bear in mind that some plan administrators will not officially divide 401(k) assets until the plan participant retires.5
Another way to negotiate 401(k) assets in a divorce settlement is to allow one ex-spouse to retain the 401(k) plan while the other receives an asset of equal value (be sure to compare tax consequences and take those into account when determining equal value). Another option is to roll a portion of the 401(k) into a traditional IRA, which would avoid current penalties and tax liability and permit the ex-spouse to choose her own investments. However, this option is only available to those who have left their employer or are over age 59½.6 Not matter what route you choose, be sure to work with an experienced financial advisor, tax advisor and attorney to understand the full ramifications of splitting up a 401(k) account.
Fresno Retirement Advisor Takeaways
As your Fresno retirement plan consultant we felt the following ideas were top notch: The coronavirus pandemic offers an ideal scenario to demonstrate the importance of diversifying retirement savings accounts. The Employee Benefits Security Administration (EBSA), which is an agency under the U.S. Department of Labor, recently announced an interim final rule for employers offering retirement plan benefits. One final note on Americans and their 401(k)s: Pay careful attention to how these plans are utilized in divorce settlements. Normally, dividing such a plan requires a court order separate from the divorce decree, called a Qualified Domestic Relations Order (QDRO). Also bear in mind that some plan administrators will not officially divide 401(k) assets until the plan participant retires.5
Diversifying your retirement assets among a variety of vehicles and alternatives—both insurance and investment oriented, depending on what is appropriate for your situation—may offer you a better chance of meeting your retirement income goals throughout your lifespan. We help our clients with problems sometimes associated with retirement such as stopping spend down and avoiding probate. In doing so we leverage stop spend down as well as long-term care strategies designed to help accomplish those goals.
When searching for Fresno financial advisors, look no further than Soutas Financial & Insurance Solutions Inc. your Fresno financial planner is committed to helping take the complexity out of retirement planning. By using a variety of insurance and investment strategies that focus on Asset Protection, Long-Term Care Strategies, Legacy Planning, Tax-Efficient Strategies, IRA, 401(k) & 403(b) Rollovers, Life Insurance Annuities, Medicare, we can help you develop an overall retirement income strategy specific to you and your family. We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to get your retirement plans on track for success!
Other Fresno Financial Advisor Articles
Soutas Financial & Insurance Solutions Inc.
333 W. Shaw Avenue Suite 106
Fresno, CA 93704
(559) 230-1648
Soutas.com
Content prepared by Kara Stefan Communications.
1 Mike Scarcella. BenefitsPRO. Aug. 20, 2020. “New virus-era survey shows tapping 401(k)s is ‘last resort’ for most participants.” https://www.benefitspro.com/2020/08/20/new-virus-era-survey-shows-tapping-401ks-is-last-resort-for-most-participants/. Accessed Sept. 2, 2020.
2 Fox Business. Sept. 1, 2020. “3 important 401(k) strategies to employ for the remainder of 2020.” https://www.foxbusiness.com/lifestyle/3-important-401k-strategies-to-employ-for-the-remainder-of-2020. Accessed Sept. 2, 2020.
3 Allison Bell. BenefitsPRO. Aug. 20, 2020. “5 things to know about the new 401(k) plan illustration regs.” https://www.benefitspro.com/2020/08/20/5-things-to-know-about-the-new-401k-plan-illustration-regs-for-agents-412-102799/. Accessed Sept. 2, 2020.
4 Tim Quinson. Bloomberg. Aug. 31, 2020. “Trump Plan to Block Green 401(k)s Stirs Fund Industry Fury.” https://www.bloomberg.com/news/articles/2020-08-31/trump-plan-to-limit-esg-investing-by-401-k-s-opposed-by-funds. Accessed Sept. 2, 2020.
5 Steven Wittenberg. Kiplinger. Sept. 1, 2020. “Tricky Divorce Issue: How to Divide 401(k)s, IRAs and Annuities.” https://www.kiplinger.com/personal-finance/601321/tricky-divorce-issue-how-to-divide-401ks-iras-and-annuities. Accessed Sept. 2, 2020.
6 Ibid.
Our firm is not affiliated with the U.S. government or any governmental agency.
We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice. Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Soutas Financial & Insurance Solutions, Inc are not affiliated companies. California Insurance License # OK48173
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. Investing involves risk, including possible loss of principal. Insurance product guarantees are backed by the financial strength and claims-paying ability of the issuing company. Diversification cannot ensure a profit or guarantee against losses in a declining market. 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. 00775247 12/20
We’ve learned a lot about infectious diseases this year, as well as how to adapt our lifestyles in response to a pandemic. It will be interesting to see if and how U.S. businesses adjust their operational models to account for the potential for future pandemics or other catastrophic events.
According to the employment-population ratio, nearly half of the U.S. population was out of work (which includes those no longer actively looking for work), with economists predicting 30 million jobs must be created to return the ratio to its 2000 peak.1
If your household has suffered a job loss or reduced income and you need assistance with creating a budget, or if you’re just not sure about your future retirement income and want to create an income plan, please contact us. We’re happy to evaluate your financial circumstances and provide guidance.
Work-life balance was a problem before the pandemic, but now that issue is being experienced in another context. Many employees have been able to migrate seamlessly to working from home using software to stay connected with colleagues and clients. However, with children home from school and now responsible for online learning, work-life balance can be even more difficult.
Many white-collar professionals have discovered the need for one — or two — in-home offices for spouses who are working professionals. While many are able to get their work completed independently, it is important to still be accessible to colleagues at certain points of the workday. Despite these challenges, some companies may increasingly find remote working to offer lower-cost, higher-productivity benefits if they can overcome some of the issues they currently face.2
As for working from home this year, it will be interesting to see if tax laws change before filing season next April. After all, according to a recent report from the Federal Reserve Bank of Dallas, more than 35% of Americans employed in May of this year were working entirely from home — up from just over 8% in February. Unfortunately, the Tax Cuts and Jobs Act disallowed W-2 employees from being able to deduct home office expenses.3
A work-from-home business model could also expand the net for recruiting talented employees. After all, many top companies are located in big cities where real estate sells for a premium. This is a tough life for young adults saddled with student loan debt. With a mobile workforce that allows employees to live wherever they want, companies can offer a competitive advantage when it comes to attracting top talent. In turn, Millennials and Gen Zers can move away from big city life and buy homes in less expensive areas.4 This could potentially help them save more money and turn around the fortunes of the country’s more rural areas.
It would be nice to keep your job, move somewhere with a lower cost of living and be able to keep your salary level. However, some economists claim that’s not going to be the case moving forward. Because many businesses have lost revenues due to reduced consumerism throughout this pandemic, wages are likely to stagnate for several years. Then again, the cost of living isn’t expected to increase dramatically in the near-term either.5 By moving to a less expensive locale, employees may be able to save more money even if they don’t get a salary bump in the foreseeable future.
Unfortunately, that means that any wage cuts employees received this year may not recover anytime soon. According to economists at the Federal Reserve Board, businesses initially cut wages by nearly two times as much due to the pandemic than they did during the Great Recession.6
Fresno Retirement Consultant Takeaways
Soutas Financial your Fresno financial planner would like to remind you: According to the employment-population ratio, nearly half of the U.S. population was out of work (which includes those no longer actively looking for work), with economists predicting 30 million jobs must be created to return the ratio to its 2000 peak.1 As for working from home this year, it will be interesting to see if tax laws change before filing season next April. A work-from-home business model could also expand the net for recruiting talented employees. After all, many top companies are located in big cities where real estate sells for a premium.
Diversifying your retirement assets among a variety of vehicles and alternatives—both insurance and investment oriented, depending on what is appropriate for your situation—may offer you a better chance of meeting your retirement income goals throughout your lifespan. We help our clients with problems sometimes associated with retirement such as stopping spend down and avoiding probate. In doing so we leverage Medi-Care long term care as well as risk management designed to help accomplish those goals.
When searching for Fresno financial advisors, look no further than Soutas Financial & Insurance Solutions Inc. your Fresno retirement planning advisor is committed to helping take the complexity out of retirement planning. By using a variety of insurance and investment strategies that focus on Asset Protection, Long-Term Care Strategies, Legacy Planning, Tax-Efficient, Strategies IRA, 401(k) & 403(b) Rollovers Life Insurance, Annuities, Medicare, we can help you develop an overall retirement income strategy specific to you and your family. We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to get your retirement plans on track for success!
Other Fresno Financial Advisor Articles
Soutas Financial & Insurance Solutions Inc.
333 W. Shaw Avenue Suite 106
Fresno, CA 93704
(559) 230-1648
Soutas.com
Content prepared by Kara Stefan Communications.
1 Yung Li. CNBC. June 29, 2020. “Nearly half the U.S. population is without a job, showing how far the labor recovery has to go.” https://www.cnbc.com/2020/06/29/nearly-half-the-us-population-is-without-a-job-showing-how-far-the-labor-recovery-has-to-go.html. Accessed Aug. 12, 2020.
2 Knowledge@Wharton. May 4, 2020. “Working from Home: Navigating the Pandemic’s New Normal.” https://knowledge.wharton.upenn.edu/article/working-from-home-navigating-the-pandemics-new-normal/. Accessed Aug. 12, 2020.
3 Kelly Phillips Erb. Forbes. Aug. 12, 2020. “The Ultimate Forbes Guide to Working from Home.” https://www.forbes.com/sites/kellyphillipserb/2020/08/12/taxes-vpns-and-office-hours-the-ultimate-forbes-guide-to-working-from-home/#90a042442e7e. Accessed Aug. 12, 2020.
4 Parag Khanna and Kailash K. Prasad. Politico. May 13, 2020. “How Coronavirus Could Make People Move.” https://www.politico.com/news/magazine/2020/05/13/how-coronavirus-could-upend-human-migration-251715. Accessed Aug. 12, 2020.
5 Jessica Peres. TheDenverChannel.com. June 30, 2020. “Economists say wages will stay stagnant amid pandemic.” https://www.thedenverchannel.com/news/national/coronavirus/economists-say-wages-will-stay-stagnant-amid-pandemic. Accessed Aug. 12, 2020.
6 Carmen Reinicke. Business Insider. June 26, 2020. “Pandemic wage cuts are roughly double what they were in the Great Recession, study shows.” https://www.businessinsider.com/wage-cuts-coronavirus-pandemic-twice-great-recession-fed-study-shows-2020-6. Accessed Aug. 12, 2020.
We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice. Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Soutas Financial & Insurance Solutions, Inc are not affiliated companies. California Insurance License # OK48173
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. Investing involves risk, including possible loss of principal. Insurance product guarantees are backed by the financial strength and claims-paying ability of the issuing company. Diversification cannot ensure a profit or guarantee against losses in a declining market. 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. 00775247 12/20
Overview
According to the National Bureau of Economic Research, the Great Recession that began at the end of 2007 was considered the worst in U.S. history since the 1930s. That is, until the coronavirus hit our shores.
Some academics claim that the 2008 recession would have been much worse had Congress, the U.S. Treasury and the Federal Reserve not conducted a series of proactive measures.1 Because the recent economic decline is still ongoing — with containment of the virus nowhere in sight — it remains to be seen whether government actions will be enough.
Stimulus Checks
In the immediate aftermath of the Great Recession, Congress passed several important pieces of legislation in an effort to alleviate financial strain and jumpstart the economy. The first was the 2008 Troubled Assets Relief Program (TARP), also known as a $700 billion bank bailout. In 2009, Congress followed up with the Economic Stimulus Act, which sent out $14.2 billion in the form of $250 stimulus checks sent to Social Security and Supplemental Security Income recipients, as well as veterans and railroad retirees. The idea was that the more than 52 million beneficiaries would immediately spend the money, which would help jump-start the economy.2
That was basically discretionary income for retirees, but it did little to help workers who lost their jobs, their health care and, for many, their homes because they could no longer pay the rent or mortgage. While the bailout in the financial sector helped stabilize banks so that depositors could withdraw money, it did not stop lending institutions from foreclosing on homeowners or penalizing borrowers who could no longer make their auto or credit card payments.
The American Recovery and Reinvestment Act allocated $247 billion for immediate relief to families (via stimulus checks of $600 per adult; $300 per child), as well as a mix of tax cuts, tax credits and extended unemployment benefits. However, when your goal is simply to pay the bills and make ends meet during an economic crisis, stimulus money does little to kick-start buying habits. One survey found that only 20% of people who received checks spent the money; the majority paid off debt or placed it in savings.3
Another $106 billion was earmarked to create jobs via modernizing federal infrastructure and increasing alternative energy production. Health care, education and science research programs received a combined $273 billion, while small businesses were allotted $54 billion in tax deductions, credits and loan guarantees.4
Quantitative Easing
The Federal Reserve stepped in with an aggressive monetary policy known as quantitative easing. This means it purchased about $2.1 trillion in Treasury bonds and mortgage-backed securities in an effort to flood money directly into the U.S. financial system.6
The Fed also mandated stringent reserves and investment guardrails on the nation’s largest financial institutions in order to meet “stress test” guidelines.7
“Sounds a bit like the Great Depression and the New Deal. But while the Depression led to both a revolution in economic thinking and a host of huge institutional and legal changes (e.g., the FDIC, the SEC, Glass-Steagall), the Great Recession has not.” 8
2020 Pandemic-Induced Economic Decline
The initial numbers that launched the 2020 recession were actually worse than that of the Great Recession. The U.S. economy contracted by a record 31.7% in the second quarter. The unemployment rate surged to 14.7%. Retail sales plummeted by 16.4% and, in March, the Dow Jones Industrial Average (DJIA) set four new record drops, culminating in a one-month decline of 20.3%. This marked the end of the 11-year bull run.9
Over March and April, Congress passed four pieces of legislation for a combined total of more than $2.5 trillion in stimulus dollars.10 In October, Fed Chairman Jerome Powell urged lawmakers to provide more stimulus in order to help the recovery move stronger and faster.11
However, perhaps it’s worth taking a look back at how well the economy recovered in response to past interventions.
Target Consumers
During the Great Recession, lawmakers looked to bail out Wall Street first. The strategy was a holdover from the Reaganomics “trickle-down Great Recession Numbers5 • 8.8 million jobs lost • 10% unemployment rate • 8 million foreclosed homes • Average home price declined 40% • $19.2 trillion lost in household wealth • S&P 500 declined 38.5% • $7.4 trillion lost in stock wealth (avg. $66,200 per household) • Employer-sponsored savings/retirement account balances declined 27% theory,” wherein wealthy financiers would then be able to help the masses. Except during the recession, Wall Street recovered but Main Street did not. Companies looked internally to reduce labor costs and shore up fundamentals to continue delivering value to shareholders. However, this meant jobs did not return and, as a result, homeowners struggled to get above water on their mortgages.
During the recent pandemic, one round of stimulus focused on helping consumers, with a single check for $1,200 mailed out to the majority of adults. The second priority was to prop up small businesses hurting due to the shutdown — both through formal mandates and the ongoing loss of business from people reluctant to engage in the economy for fear of contracting the virus.
To add insult to injury, many small-business loans ended up at companies far better capitalized than Main Street mom-and-pop stores. The likes of P.F. Chang’s China Bistro and TGI Fridays received Paycheck Protection Program (PPP) loans of between $5 million and $10 million. Meanwhile, many small-business owners who didn’t meet minimum loan qualifications lost out.12 Without money to keep workers on the payroll, many businesses have been forced to shut down permanently. And without income, many Americans are left with no way to pay bills or engage in spending to help grow the economy.
Moving forward, policymakers may want to consider a reverse policy, where capitalizing individual households not only helps them pay bills, stay in their homes and build wealth, but they also continue spending, which helps save jobs, contribute to tax rolls and stimulate economic growth.
Conditional Bailouts
The PPP did incorporate one lesson from the Great Recession: placing conditions on bailout money. In 2008, many government funds were used to pay out bonuses to C-suite executives rather than save jobs. This time around, PPP loans may be forgiven if the funds are used for eligible expenses — such as maintaining payroll.
Market Expectations
Oddly enough, one aspect of the economy that has held steady during both downturns has been the stock market. Despite initial and intermittent volatility, investors who stayed the course have been rewarded with a long-running bull market. Even now, although the bull market has officially ended, the markets continue to perform well in the wake of an uncontained virus and weak economic numbers. The main takeaway is that this is true only for well-capitalized investors who have retained employment and do not need to dip into investment assets to sustain day-to-day expenses.
Unfortunately, 45% of Americans are not invested in the stock market and do not benefit from market gains.13 This continues to exacerbate the problems related to income disparity — particularly during an economic downturn. Again, fewer people who live on secure financial footing means fewer people spending, investing and growing the economy
Personal Lessons
Rank-and-file investors with retirement plans should take comfort in the remarkable stock market performance of the past decade. It’s important to maintain a robust, liquid savings account for emergency situations, so you don’t have to withdraw from your portfolio during an unpredictable market downturn.
The key is to keep regular expenses low during both good times and bad. Fortunately, this was a hard-learned lesson from the Great Recession that has stuck with many Americans — both young and old. In fact, the personal savings rate has increased steadily since the last recession, now boasting an average of 4% for the first time since the late 1990s.14
Individual investors also have done a good job of constructing investment portfolios built to weather economic declines. This means not only diversifying across a traditional mix of stocks, bonds and other securities but also incorporating guaranteed income products such as annuities. While annuities are complex vehicles with additional rules, restrictions including limited liquidity, and in some instances fees, they do offer a stream of guaranteed income payments, and some offer contract owners the opportunity to earn interest credits based in part on the participation of an index, while not actually investing in or participating in the index. Additionally, annuities protect against loss of principal due to market fluctuations.
Final Thoughts
Although financial crises tend to be cyclical and unavoidable, it seems to be human nature to forget the lessons we learn and repeat the same mistakes. This holds true for both policymakers and personal households. It’s a good idea to keep your focus on the outcome you want to achieve. Set financial goals, build a savings and investment plan designed to keep you on track, then spend the rest of your time enjoying your life and career.
Also, don’t go it alone. Financial professionals have studied and experienced these lessons along with their clients, so they’ve seen more financial scenarios than a single household can imagine. An experienced financial advisor can offer guidance and recommendations aimed at helping you through periodic economic declines, stock market volatility and even temporary losses of household income. After all, it’s the lessons we learn that can help prevent us from making the same mistakes twice, so look to your advisor to help you through uncertain times.
Fresno Financial Planner Takeaways
As your Fresno financial advisor we thought this was a good takeaway: The initial numbers that launched the 2020 recession were actually worse than that of the Great Recession. Over March and April, Congress passed four pieces of legislation for a combined total of more than $2.5 trillion in stimulus dollars.10 In October, Fed Chairman Jerome Powell urged lawmakers to provide more stimulus in order to help the recovery move stronger and faster.11 Individual investors also have done a good job of constructing investment portfolios built to weather economic declines. This means not only diversifying across a traditional mix of stocks, bonds and other securities but also incorporating guaranteed income products such as annuities.
Diversifying your retirement assets among a variety of vehicles and alternatives—both insurance and investment oriented, depending on what is appropriate for your situation—may offer you a better chance of meeting your retirement income goals throughout your lifespan. We help our clients with problems sometimes associated with retirement such as stopping spend down and avoiding probate. In doing so we leverage long-term care as well as Medi-Cal designed to help accomplish those goals.
When searching for Fresno financial advisors, look no further than Soutas Financial & Insurance Solutions Inc. your Fresno portfolio advisor is committed to helping take the complexity out of retirement planning. By using a variety of insurance and investment strategies that focus on Asset Protection, Long-Term Care Strategies, Legacy Planning Tax-Efficient Strategies, IRA, 401(k) & 403(b) Rollovers, Life Insurance, Annuities, Medicare, we can help you develop an overall retirement income strategy specific to you and your family. We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to get your retirement plans on track for success!
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We are an independent financial services firm helping individuals create retirement strategies using a variety of investment and insurance products to custom suit their needs and objectives. Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Soutas Financial & Insurance Solutions, Inc. are not affiliated companies. California Insurance License # OK48173.
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. Investing involves risk, including possible loss of principal. Insurance product guarantees are backed by the financial strength and claims-paying ability of the issuing company. Diversification cannot ensure a profit or guarantee against losses in a declining market. 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. 00775247 12/20
Content prepared by Kara Stefan Communications.
1 Alan S. Blinder. Griswold Center for Economic Policy Studies. November 2014. “What Did We Learn from the Financial Crisis, the Great Recession, and the Pathetic Recovery?” https:// spia.princeton.edu/system/files/research/documents/Blinder_What_Did_We_Learn_from_ the_Financial_Crisis_the_Great_Recession_and_the_Pathetic_Recovery.pdf. Accessed Oct. 12, 2020.
2 Kimberly Amadeo. The Balance. April 10, 2020. “2020 Stimulus Checks Compared to 2009 and 2008.” https://www.thebalance.com/stimulus-checks-3305750. Accessed Oct. 12, 2020.
3 Ibid.
4 Ibid.
5 Caleb Silver. Investopedia. Aug. 17, 2020. “10+ Years Later, Lessons from the 2008 Financial Crisis.” https://www.investopedia.com/news/10-years-later-lessons-financial-crisis/. Accessed Oct. 12, 2020.
6 Peter G. Peterson Foundation. July 21, 2020. “The Federal Reserve Holds More Treasury Notes and Bonds Than Ever Before.” https://www.pgpf.org/blog/2020/07/the-federal-reserveholds-more-treasury-notes-and-bonds-than-ever-before. Accessed Oct. 21, 2020.
7 Alan S. Blinder. Griswold Center for Economic Policy Studies. Nov. 2014. “What Did We Learn from the Financial Crisis, the Great Recession, and the Pathetic Recovery?” https://spia. princeton.edu/system/files/research/documents/Blinder_What_Did_We_Learn_from_the_ Financial_Crisis_the_Great_Recession_and_the_Pathetic_Recovery.pdf. Accessed Oct. 12, 2020.
8 Ibid.
9 Kimberly Amadeo. The Balance. April 10, 2020. “2020 Recession: Why It Won’t Become a Depression.” https://www.thebalance.com/recession-2020-4846657. Accessed Oct. 12, 2020.
10 Ibid.
11 Megan Henney. Fox Business. Oct. 6, 2020. “Fed’s Powell urges more federal stimulus to help economy recover from coronavirus pandemic.” https://www.foxbusiness.com/economy/fedspowell-urges-more-federal-stimulus-to-help-economy-recover-from-coronavirus-pandemic. Accessed Oct. 12, 2020.
12 Lauren Hirsch and Jason Pramuk. CNBC. July 6, 2020. “Trump administration releases list of companies that received most money from small business bailout loans.” https://www.cnbc. com/2020/07/06/coronavirus-stimulus-list-of-ppp-small-business-loan-recipients-released. html. Accessed Oct. 12, 2020.
13 Teresa Ghilarducci. Forbes. Aug. 31, 2020. “Most Americans Don’t Have A Real Stake In The Stock Market.” https://www.forbes.com/sites/teresaghilarducci/2020/08/31/most-americansdont-have-a-real-stake-in-the-stock-market/. Accessed Oct. 12, 2020.
14 Canandaigua National Bank & Trust. 2020. “Lessons Learned from The Great Recession.” https://www.cnbank.com/Your_Bank/Education_and_Advice/CNBU_Articles/Lessons_ Learned_from_The_Great_Recession/. Accessed Oct. 12, 2020.
Overview
At this point, near-term retirees tend to fall into one of three categories:
1. You already have all the savings you need; you’re ready.
2. You’re on track to have all the savings you need by the time you retire.
3. You’re not on track and are worried about it.
Regardless of which track you’re on, the steps are the same. However, if you believe your savings will be inadequate, use this time now to boost your nest egg.
That may include several actions. First, contribute regularly to your investments. If you’ve got a five- to 10-year investment timeframe before you retire, it may be appropriate to invest with a growth-oriented or balanced approach. This will depend on several variables, such as how much risk you’re willing to take for the potential of higher returns, your health status, how reliable your job is until retirement and if you’re willing to work longer than you’d planned.
Those are often the variables that help determine how much you can invest based on your projected future earnings. The second factor to consider is how much you can reduce your current expenses. Think about it. If you can cut $1,000 in expenses a month (perhaps all the fluff on your credit card bill), that adds up to $12,000 a year. If you don’t retire until 2030, that’s another $108,000 saved for your nest egg. Consider this hypothetical example of the impact of investing that $1,000 each month in a diversified equity portfolio for a 7% average annual return over the next nine years: The total yield would be more than $150,000.2 Hypothetical example is provided for illustrative purposes only and does not represent any product or investment and does not represent a real life scenario.
That household savings and investing added to your existing investment contributions to an employer-sponsored plan could help your future retirement look a lot brighter. Of course, finding ways to cut back spending can be quite challenging, but it’s a matter of setting priorities and thinking about them every time you’re about to spend money.
Retirement Income: What Will You Reasonably Spend in Retirement?
The key to figuring how much nest egg you’ll need is anticipating how much you’ll spend in retirement. Where you spend your money will change, but how much you spend overall may not — unless you make an effort. Start with your basic living expenses. For example, the general rule of thumb is to try to pay off your mortgage before you retire to alleviate that large monthly expense. Also consider that you will no longer be saving aggressively anymore.
Next, what do you plan to do with your leftover (discretionary) income? Do you have big travel plans, want to buy a second home — or are you planning to stay local and keep your expenses low? Those plans may depend on how much you’ve accumulated by the time you retire, so it’s important to realistically match your spending goals with your accumulation potential.
According to AARP, the rule of thumb is that you’ll need about 80% of your pre-retirement income to maintain your pre-retirement lifestyle. That’s based on the fact that you won’t have some of your pre-retirement expenses, such as costs associated with working (like commuting expenses), contributions to a 401(k) plan and so on.3
Bear in mind that there’s a good chance you’ll need long-term care (LTC) assistance at some point. The latest research shows that someone turning age 65 today has almost a 70% chance of needing long-term care services and supports during retirement. Moreover, women tend to outlive their husbands and need care assistance an average of 3.7 years longer.4
Inevitably, some expenses will be replaced with others. For example, at some point, retirees often have fewer transportation expenses, so those funds can be reallocated for LTC once gas, insurance and maintenance costs are eliminated. However, that may not be enough to cover all LTC expenses. According to the 2020 Genworth Cost of Care Survey, the median cost of an in-home caregiver is $24 per hour.5 If you need someone for eight hours a day, that can run you about $5,400 a month. If you need 24-hour care, that cost can spiral into about $16,000 a month.
It’s important to consider the options for a long-term care plan in case you and/or your spouse live beyond independent years. You’ll want to consider them while you’re still young and healthy enough to be eligible for potential insurance options.
Transition Assets: Develop a New Asset Allocation Strategy
Remember that generally, people invest for growth throughout their lifetime and then put those assets into conservative financial vehicles for use during retirement. However, there is a transition period — the three to five years before you retire — when you may want to reposition your portfolio from what is generally a more risk-oriented allocation to a more balanced allocation.
If you’re planning on retiring in the near term, right now may be your transition period. There are a lot of variables to consider in order to establish an asset allocation strategy for this last chapter before retirement. Much may depend on whether you’re behind the savings curve, and you’ll also want to consider your personal situation and the economic outlook for the next few years. It’s a good idea to consult with a financial advisor to help you determine the best way to allocate your assets for this pre-retirement investment timeframe.
Create a Withdrawal Plan: Consolidation and Tax Considerations
Next, establish your sources of retirement income and your spending plan. For example, how much of your income will come from Social Security, a pension or other guaranteed income sources? How much of your personal retirement portfolio will need to be tapped on a regular basis to supplement those income sources?
Before you retire, consider a withdrawal plan from your retirement portfolio. This means deciding whether you should maintain separate retirement accounts or consolidate them into one. If you have an employer-sponsored plan, find out what distribution options are available to help decide whether you should leave the money where it is and make regular or periodic withdrawals, or roll it over into an individual retirement account (IRA). Keep in mind withdrawals from retirement accounts could have tax consequences, so make sure you check with a tax professional regarding your personal situation prior to taking any actions.
Also consider — from a tax burden perspective — which accounts to draw from first. The order may vary based on your situation, so it’s good to get advice from both a financial advisor and a tax professional, like a CPA or an attorney. The general rule of thumb typically follows this order:
1. Start with taxable accounts to benefit from lower long-term capital gains rates
2. Then tax-deferred accounts (e.g., 401(k), traditional IRA) because distributions are taxed at ordinary income rates
3. Then tax-free accounts (e.g., Roth IRA) to give them the most time to continue growing
Multi-Year Calendar: Schedule Important Due Dates
An important component of your retirement plan is Social Security. The longer you delay taking it, the higher your benefit. It’s also important to consider when to start drawing Social Security with your spouse in mind. For example, if you start drawing early (you may begin at age 62) because you’re in poor health, consider that the benefit will be locked in at that lower rate for your spouse for the rest of his or her life, should you die first. Depending on your personal circumstances, it may be wiser to draw from invested assets that have the opportunity to continue growing rather than lock in a lower Social Security benefit.
On the flip side, claiming Social Security early may allow you to receive benefits for a longer period over your lifetime, which, in the end, may net the same or more total Social Security benefits than delaying benefits and not living as long. Like all the other components of retirement income planning, the decision on when to take Social Security is unique to your personal situation.
Another consideration is Medicare. You must enroll within three months before or up to three months after the month in which you turn age 65 (or face penalties). Medicare currently offers a lot of options, and they can be confusing, so start investigating how it all works and what it costs long before this enrollment window.
The Binder: A Tool For the Inevitable
Before you retire, or just after, make it easy for you and your family to find and understand your retirement and estate plans. The easiest way to do this is to use a large three-ring binder with dividers to file all of your financial and insurance papers. You don’t need to keep all of your statements. Make sure there is at least one per account, and you may want to update it each year.
Also include your legal papers, such as wills and trusts; everything your loved ones would need to settle your affairs according to your wishes.
“If you’ve thoughtfully prepared and have a well-allocated portfolio and a conservative spending plan, there’s every reason to think you can still retire as planned. But if your vision for retirement has changed, assessing the financial impact of your new priorities can help you adjust your timeline if necessary.”7
Final Thoughts
The pandemic has put a wrench in many people’s retirement plans. Some were forced to retire early, while others know that they will have to go back to work, or work longer, to make up for reduced income or investment losses.
Remember that the further you are from retirement, the more time you have to make adjustments to improve your long-term outlook. Working longer may enable you to save more, invest longer and postpone claiming your Social Security benefit.
Regardless of how well you are tracking toward retirement goals, consider how the pandemic and the recent economic decline may alter your previous plan. You may wish to reconsider travel plans, thoughts of moving to a retirement community and where you want to be cared for should you lose your independence in old age. Each of these factors can add or subtract expenses from the nest egg you need to plan for, and how long it lasts.
The new year is — as always — a great time to take a fresh look at your plans and set new goals to meet them. Never has this been more critical than after this difficult year. With a vaccine and the reopening of the economy on the horizon, make a plan for all the opportunities that may entail.
1 Judith Ward. T. Rowe Price. Oct. 8, 2020. “Retiring Baby Boomers: 6 Steps for Smart Planning.” https://www.troweprice.com/personal-investing/resources/insights/retiring-babyboomers-6-steps-for-smart-planning.html. Accessed Nov. 23, 2020.
2 Veeru Perianan. Charles Schwab. June 23, 2020. “Why Market Returns May Be Lower and Global Diversification More Important in the Future.” https://www.schwab.com/resource-center/ insights/content/why-market-returns-may-be-lower-in-the-future. Accessed Nov. 23, 2020.
3 John Waggoner. AARP. Sept. 17, 2020. “How Much Money Do You Need to Retire?” https:// www.aarp.org/retirement/planning-for-retirement/info-2020/how-much-money-do-you-needto-retire.html. Accessed Dec. 2, 2020.
4 U.S. Department of Health and Human Resources. Oct. 15, 2020. “How Much Care Will You Need?” https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html. Accessed Nov. 23, 2020.
5 Genworth. Dec. 2, 2020. “Cost of Care Survey.” https://www.genworth.com/aging-and-you/ finances/cost-of-care.html. Accessed Dec. 2, 2020.
6 Judith Ward. T. Rowe Price. Oct. 8, 2020. “Retiring Baby Boomers: 6 Steps for Smart Planning.” https://www.troweprice.com/personal-investing/resources/insights/retiring-babyboomers-6-steps-for-smart-planning.html. Accessed Nov. 23, 2020.
7 T. Rowe Price. Fall 2020. “Can I Still Retire as Planned?” https://www.troweprice.com/ content/dam/iinvestor/planning-and-research/Insights/investor-magazine-fall.pdf. Accessed Nov. 23, 2020.
This content is provided for informational purposes; it is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security or insurance product.
No investment strategy can guarantee a profit or protect against loss in periods of declining values. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM nor the firm providing you with this report are affiliated with or endorsed by the US government or any governmental agency.
AE Wealth Management, LLC (“AEWM”) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IAR) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at https://brokercheck.finra.org/.
12/20-1428036
Overview
Compared to 2008, the current pandemic-induced recession is three times worse in terms of annualized gross domestic product (GDP) decline. Economists have urged Congress to pass additional stimulus legislation for unemployment benefits, forgivable loans to small businesses, aid to the travel industry and allocated funds to save local government jobs in the wake of reduced tax revenues.1
The good news is that vaccine manufacturers Pfizer and Moderna both recently announced they have developed vaccines that are more than 90% effective; the bad news is that it may take a while for production to ramp up enough to vaccinate the entire U.S. population.2 And globally, until the majority of intercontinental travelers are immune, we’re not out of the woods yet.
Economic Prospects
In addition to the U.S., Europe, Brazil, India and others, emerging markets have been hit hard economically. Even the Swedish economy, which never locked down, suffered due to lack of consumer demand. Domestic consumers have displayed a reduced willingness to spend throughout the course of the pandemic, especially those whose employment — and livelihood — remains tenuous.
Interestingly, countries that mandated strict protocols have emerged less scathed. For example, China technically escaped a recession altogether. South Korea and Taiwan conducted widespread testing and contact tracing, so they were able to quash outbreaks and largely contain the virus, saving their economies from the wrath of consumer fear.3
Because widespread vaccination immunity is still many months away, economists warn that the U.S. will face a very dark winter. However, one thing a vaccine does provide is optimism; we can now see a light at the end of this dark tunnel.
Financial Lessons for the Future
The pandemic brought with it a whole new set of variables for investment opportunity. For example, some companies flourished in the glow of the stay-at-home culture this year, such as Zoom, Amazon and Netflix.4 The country is in a precarious state. We have more than 1,500 deaths and 160,000 new positive cases of coronavirus per day, contested election results and potential shutdowns threatening a fragile economy.
On the day Pfizer announced its vaccine, the stock market rejoiced. The Dow Jones Industrial Average jumped 834 points, up 2.95%, while the S&P 500 rose to 1.17%.5 The vaccine news also boosted pharmaceutical stocks and industries hurt by the pandemic, such as cruise line, movie theater and airline stocks, as well as oil prices.6
The pandemic has been a good reminder that we cannot predict a global crisis or its potential impact on markets. It’s useless to try to time investment decisions, particularly when saving for a long-term goal such as retirement. Instead, time in the market allows for steady, sustainable growth, a key factor in achieving long-term financial goals.
It’s important to balance your long-term investing strategy in order to weather short-term bouts of market volatility. By maintaining an appropriate mix of a variety of financial vehicles, your asset allocation strategy can help you pursue financial goals within a specific time horizon.
Personal Safety Net
The pandemic left many people who had never been unemployed before with no income. Even those without much in savings may have felt immune from hard times because they had a steady job, employer sponsored health insurance and a retirement plan. Then suddenly, they found themselves with no insurance, no way to pay their bills and worried about withdrawing money from their 401(k).
For those living paycheck-to-paycheck, this underscored the need for an emergency savings fund to cover three to six months’ worth of expenses. Having a separate, liquid savings account can provide a safety net to help people stay in their homes, keep their car and put food on the table during difficult times — without taking on debt or threatening their future financial security.
Health Outlook
While a near-term vaccine is great news, it does not negate the damage already caused by COVID-19, both economically and physically. The medical community warns that we still don’t understand the long-term effects of this potentially debilitating and fatal disease.
Follow-up among people who survived serious COVID-19 cases suggests that many may never return to their previous health status. Studies show that the virus can cause serious damage to the heart, lungs and other organs that are likely to cause problems in the future. There is evidence that even those who suffered only mild symptoms may have lingering effects.7
While we continue to learn more about the long-term effects of COVID-19, the challenge of the Affordable Care Act (ACA) has many Americans concerned. They worry that, if the Act is overturned, insurance providers could consider a previous COVID-19 diagnosis as a pre-existing condition and deny coverage as a result. As of this writing, the Supreme Court had not reached a decision regarding the future of the ACA.
President-elect Joe Biden outlined his steps to mitigate these types of foreseen ramifications of the virus with a plan that includes:8
• Communicating national, evidence-based guidance designed to slow community spread and stop outbreaks.
• Working with state- and local-level officials to implement prevention protocols and strengthen public health facilities.
• Boosting vaccine distribution and personal protective equipment production.
• Hiring thousands of public health workers to perform contact tracing and provide health services for high-risk populations.
• Strengthening the Affordable Care Act by expanding coverage for people eligible for premium subsidies and reopening the federal marketplace for special enrollment as necessary for those who lose employer-sponsored insurance.
• Creating a caregiving workforce for families struggling to find affordable care for their children, aging relatives or loved ones with disabilities, as well as helping improve the outlook for women’s employment.
“We have to function as one nation. That means having a national plan.” — President-Elect Joe Biden5
Final Thoughts
COVID-19 has impacted not only the U.S. but the entire global population in many ways. Throughout this pandemic, economists have cautioned that economies hit hard by the pandemic cannot fully recover until the coronavirus is contained. The big question on everyone’s minds is exactly when that might happen. Uncertainty and anxiety linger for many Americans, especially among rising case numbers and lack of additional stimulus from Congress.
There is light on the horizon, however. The promise of a new vaccine provides hope that we might begin to return to normal soon. Additional treatments for COVID-19 symptoms also look promising and could provide assistance in lowering death rates while shortening the length and strength of the illness. As we make progress on treatments for our physical health, our economic health should improve as well. Although questions around the coronavirus and its after-effects remain, we feel optimistic that we may be poised to turn the corner and open a new chapter for our economy.
1 Scott Egan. CNN. Nov. 9, 2020. “A vaccine might be coming, but the Covid economy still desperately needs stimulus.” https://www.cnn.com/2020/11/09/business/coronavirusvaccine-economy-stimulus/index.html. Accessed Nov. 9, 2020.
2 Zachary Brennan and Sarah Owermohle. Politico. Nov. 16, 2020. “There are two effective Covid-19 vaccines. What’s Next?” https://www.politico.com/news/2020/11/16/modernacoronavirus-vaccine-effective-436776. Accessed Nov. 16, 2020.
3 Ceri Parker. World Economic Forum. Sept. 25, 2020. “World Vs Virus podcast: An economist explains what COVID-19 has done to the global economy.” https://www.weforum.org/ agenda/2020/09/an-economist-explains-what-covid-19-has-done-to-the-global-economy/. Accessed Nov. 9, 2020.
4 David Goldman and Anneken Tappe. CNN. Nov. 9, 2020. “Dow soars more than 1,000 points after Pfizer announces great news about its vaccine and Joe Biden declared victorious.” https://www.cnn.com/2020/11/09/investing/dow-stock-market-today/index.html. Accessed Nov. 9, 2020.
5 Joseph Woelfel. The Street. Nov. 9, 2020. “Dow Closes Up 800, Nearly 3%, on Coronavirus Vaccine Progress.” https://www.thestreet.com/markets/stock-market-dow-pfizer-vaccinecoronavirus-110920. Accessed Nov. 9, 2020.
6 Richard Beales. Reuters. Nov. 9, 2020. “Breakingviews – Pfizer jolt delivers taste of postCovid markets.” https://www.reuters.com/article/us-health-coronavirus-vaccine-breakingvi/ breakingviews-pfizer-jolt-delivers-taste-of-post-covid-markets-idUSKBN27P1YP. Accessed Nov. 9, 2020.
7 David Hunter and Anne Moore. World Economic Forum. Oct. 2, 2020. “7 things we still don’t know about coronavirus, even after 1 million deaths.” https://www.weforum.org/ agenda/2020/10/million-deaths-coronavirus-experts-questions/. Accessed Nov. 9, 2020.
8 Allison Aubrey. NPR. Nov. 8, 2020. “President-Elect Biden Has A Plan To Combat COVID-19. Here’s What’s In It.” https://www.npr.org/sections/health-shots/2020/11/08/930887069/ hold-president-elect-biden-has-a-plan-to-combat-covid-19-heres-what-s-in-it. Accessed Nov. 9, 2020.
9 Ibid.
No investment strategy can guarantee a profit or protect against loss in periods of declining values. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. This information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security or insurance product.
AE Wealth Management, LLC (“AEWM”) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IAR) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at https://brokercheck.finra.org/.
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