Broker Check

May Newsletter

May 17, 2024

Hello All-

I hope you’re enjoying spring, despite the indecisive weather.

Last weekend I took a trip to San Francisco/Silicon Valley to visit my best friend, Kalli. Kalli is a Boston native and we went to college together. Kal is one of those highly inspiring friends who, in only a few years time, has been able to transform herself from nurse at Spaulding Rehab (specializing in spinal cord injuries) to a Director of Human Engineering at Apple. The work Kalli is doing within the healthcare space at Apple is so cutting edge and innovative/proprietary that she pretty much can’t tell me, or anyone else, what she does more specifically. Eventually I’ll get to know the details, but regardless, I’m so proud of Kalli and all she has accomplished. Per usual, with the exception of San Francisco, the weather was ideal, and we did a lot of outdoorsy stuff, including Castle Rock State Park, where we took this photo.

Are you invested in the right kind of accounts?

An investing strategy called asset location has the potential to help lower your overall tax bill. This article from Fidelity provides a refresher on the differences between taxable, tax-deferred, and tax-exempt accounts.

 By putting tax-inefficient investments in tax-deferred or tax-exempt accounts rather than in your taxable accounts, you can potentially improve the overall tax efficiency of your investments.

What Should You Do With Maturing CDs And Bonds?

 Reflect on what this money is for—such as whether it’s part of your emergency savings, an eventual down payment, your retirement nest egg, or something else. Once you’ve assigned that money a goal, look at what your overall investment mix is for that goal and across all of your accounts.

 Consider how much access you need to have to this money, and how much risk you can afford to take on in pursuit of potentially higher returns.

Money Market Funds Look Like a Tempting Place For Your Cash. But Don’t Make This Mistake

These days, with stocks lurching up and down, there’s a lot of comfort and safety in money-market funds for retail investors as well as institutional investors. That’s why I say money market funds are tempting. It’s easy to fall in love with reliability and predictability, and a 5%+ yield is pretty nice.

But it’s a mistake to consider these a permanent investment like stocks or bonds. That’s because, among other things, someday money fund yields will fall. And over the long-term, returns on cash have been far lower than stock market returns. According to a recent Vanguard paper, global stocks earned 6% more per year than cash from 1901 to 2022, and bonds earned about 1.6% more. Compound those differences for 20 or 30 years, and the difference is huge.

The U.S. Economy Is On A Hot Streak It Hasn’t Seen In 20 Years

After another burst of growth in early 2024, the economy is on track to expand by at least 2% for the seventh quarter in a row. The last time the U.S. pulled off such a feat was 20 years ago. What’s remarkable about the current expansion is that it’s happening after the Federal Reserve rapidly raised interest rates to the highest level in more than two decades.

High borrowing costs usually slam the brakes on the economy. Not this time. Consumers keep spending, and there’s been a big spike in productivity.

The Simon Abundance Index 2024

The Simon Abundance Index (SAI) quantifies and measures the relationship between resources and population. The SAI converts the relative abundance of 50 basic commodities and the global population into a single value. The index started in 1980 with a base value of 100. In 2023, the SAI stood at 609.4, indicating that resources have become 509.4% more abundant over the past 43 years. All 50 commodities were more abundant in 2023 than in 1980.

Human Work In The Age of Artificial Intelligence

Technology has a long history of destroying jobs and creating new ones. So far, it has created more jobs than it has destroyed, and the new jobs have been of higher quality.

 Is this time different? I don’t think so.

The Cheat Sheet to Buying or Leasing A Car

In an age when paying the sticker price is considered a good deal, it pays to be prepared.

Boomers and Gen Xers are betting on a retirement ‘megatrend’

A so-called ‘phased retirement’ can help near-retirees reduce their workload and stress while still earning income and maintaining workplace connections, and businesses can continue to benefit from their many years of experience, especially as the labor shortage continues to worsen. A recent report from Principal Financial Group finds that ‘gradually decreasing hours’ is the most desired way of retiring for current workers.

There Is Nothing Special About Dividends

 For behavioral reasons, retired investors have been found to have a preference for dividends. However, they’re actually not a very tax-efficient way to return capital to shareholders, and they’re technically NOT income, as they reduce the investment.

IRS Delays Inherited IRA RMD Rules Again

The IRS is again offering taxpayers relief from confusing rules for RMDs on IRA assets inherited in 2020 or later. Most non-spouse beneficiaries who inherited IRAs on or after January 1, 2020, must still empty the account within 10 years of the account owner’s death, but get a pass on the RMD again for 2024. Rules for Inherited IRAs continue to be complex and already vary based on factors including account type, the original owner (including their age and date of passing), and beneficiary (designated vs. non-designated, age, non-spouse, etc.)

How Retirees Can Avoid the ‘Tax Torpedo’

It’s a long-standing principle of retirement draw-down strategies: Preserve the tax-saving benefits of tax-sheltered investments as long as possible. But there’s no one-size-fits-all rule here, and a growing number of retirement researchers are pointing to a different approach: Tap tax-deferred accounts first in the early years of retirement in order to reduce the total lifetime tax burden. The idea is to use dollars in 401k or IRA accounts to meet living expenses—or convert a portion of these assets to Roth IRA accounts—before claiming Social Security in years when your marginal tax rate is lower tan it will be after you start to receive benefits.

This approach takes advantage of Social Security’s valuable delayed claiming credits while minimizing taxes on ordinary income. It can also help avoid or minimize taxes on Social Security benefits and Medicare income-related monthly adjustment amounts levied on high-income retirees, and the net investment income surtax.

How To Reduce Taxes When You Start Withdrawing From a 401k plan

Contributing to a 401k plan can significantly lower your tax bill. But once you start withdrawing, your 401k money could be taxed at 30%+. There are a few steps you can take now and in retirement to avoid a surprising tax bill.

Is the 4% Rule Too Safe?

61% of financial advisors most commonly use 4% as the withdrawal rate for clients in retirement. However, this 4% ‘rule of thumb’ may be too safe given some of the nuances around retirement planning.

First, this rule of thumb ignores other income streams such as Social Security. This means a retiree’s portfolio is generating income in addition to these guaranteed sources, thereby providing a safety net that might allow for a different portfolio withdrawal rate. Second, traditional models commonly don’t acknowledge spending flexibility (i.e. desire or ability to adjust spending during retirement). Retirees have an ability to adjust spending based on real-life needs and circumstances, which can significantly affect spending rates.

The latest research introduces the concept of ‘guided spending rates’ where the spending level varies based on an individual’s flexibility associated with the goal, for retirement periods from 10 to 40 years. The adjustment from 4% to 5% might not sound like much, but it’s a 25% increase in potential portfolio income and could be viewed as additional discretionary funding that retirees could use earlier in retirement, when they are most likely to be active.