Does Your Portfolio Fit Your Retirement Lifestyle?

Most portfolios are constructed based on an individual’s investment objective, risk tolerance, and time horizon.

Using these inputs and sophisticated portfolio-optimization calculations, most investors can feel confident that they own a well-diversified portfolio, appropriately positioned to pursue their long-term goals.¹

However, as a retiree, how you choose to live in retirement may be an additional factor to consider when building your portfolio.

Starting a Business?

Using retirement funds to start a business entails significant risk. If you choose this path, you may want to consider reducing the risk level of your investment portfolio to help compensate for the risk you’re assuming with a new business venture.

Since a new business is unlikely to generate income right away, you may want to construct your portfolio with an income orientation in order to provide you with current income until the business can begin turning a profit.

Traveling for Extended Periods of Time?

There are a number of good reasons to consider using a professional money manager for your retirement savings. Add a new one. If you are considering extended travel that may keep you disconnected from current events (even modern communication), investing in a portfolio of individual securities that requires constant attention may not be an ideal approach. For this lifestyle, professional management may suit your retirement best.²

Rethink Retirement Income?

Market volatility can undermine your retirement-income strategy. While it may come at the expense of some opportunity cost, there are products and strategies that may protect you from drawing down on savings when your portfolio’s value is falling—a major cause of failed income approaches.

Fed Gives Clear Signal About Interest Rates

The Federal Reserve met in mid-January, and clarified its position on monetary policy, providing the clearest hint yet about short-term interest rates. The fed hinted that the first interest rate hit could come as soon as March.¹

The markets were on edge anticipating the Fed update. But by the end of the meeting, the market relinquished its gains as traders across the globe worked to assess what the upcoming rate hikes will mean for the year ahead.¹

While Powell feels confident that the ongoing supply chain issues will soon see some relief, it remains to be seen if the proposed rate hikes will be enough to combat higher-than-expected inflation. Powell stated that they recognize that inflation is causing issues for many Americans, but said the Federal Open Market Committee (FOMC) is committed to stabilizing prices.¹

If you’re concerned about the direction of interest rates, don’t hesitate to reach out.

The Business Cycle

What has upswings and downturns, troughs, peaks, and plateaus? Though such terms could easily describe a roller coaster ride, they are also commonly used to describe the business cycle.

The business cycle – also known as the economic cycle – refers to fluctuations in economic activity over several months or years. Tracking the cycle helps professionals forecast the direction of the economy. The National Bureau of Economic Research makes official declarations about the economic cycle based on specific factors, including the growth of the gross domestic product, household income, and employment rates.

Recovery & Recession

An upswing, or recovery, occurs when the economic indicators improve over time. A recession occurs when the same indicators go through a contraction. A particularly long or severe recession is referred to as a depression.

Despite being called a cycle, it’s important to understand that the business cycle is not regular or even cyclical. Its’ pattern resembles the movement of waves, and those waves don’t consistently undulate at set, periodic intervals. Some recoveries have lasted several years, while others are measured in months. Recessions, too,can last for a number of years or be as short as a few months.

Stages of Cycle

So, how should investors look at information about the business cycle?

Investors who understand that the economy moves through periods of recovery and recession may have a better perspective on the overall cycle. During recovery, understanding whether the economy is at an early or late stage of the cycle may influence certain investment decisions. Conversely, during a recession, deciphering whether the economy is passing through a shallow or deep cycle may be influential as well.

The business cycle will transition from recovery to recession – and recession to recovery – over several months. Understanding that the economy travels through cycles may help you put current business conditions in better perspective.

Five Most Overlooked Tax Deductions

Who among us wants to pay the IRS more taxes than we have to?

While few may raise their hands, Americans regularly overpay because they fail to take tax deductions for which they are eligible. Let’s take a quick look at the five most overlooked opportunities to manage your tax bill.

1. Reinvested Dividends: When your mutual fund pays you a dividend or capital gains distribution, that income is a taxable event (unless the fund is held in a tax-deferred account, like an IRA). If you’re like most fund owners, you reinvest these payments in additional shares of the fund. The tax trap lurks when you sell your mutual fund. If you fail to add the reinvested amounts back into the investment’s cost basis, it can result in double taxation of those dividends.¹
   
   Mutual funds are sold only by prospectus. Please consider the charges, risks, expenses and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.
   
   
2. Out-of-Pocket Charity: It’s not just cash donations that are deductible. If you donate goods or use your personal car for charitable work, these are potential tax deductions. Just be sure to get a receipt for any amount over $250.¹
   
   
3. State Taxes: Did you owe state taxes when you filed your previous year’s tax returns? If you did, don’t forget to include this payment as a tax deduction on your current year’s tax return. The Tax Cuts and Jobs Act of 2017 placed a $10,000 cap on the state and local tax deduction.²
   
   
4. Medicare Premiums: If you are self-employed (and not covered by an employer plan or your spouse’s plan), you may be eligible to deduct premiums paid for Medicare Parts B and D, Medigap insurance and Medicare Advantage Plan. This deduction is available regardless of whether you itemize deductions or not.
   
   
5. Income in Respect of a Decedent: If you’ve inherited an IRA or pension, you may be able to deduct any estate tax paid by the IRA owner from the taxes due on the withdrawals you take from the inherited account.³

Rising Rates & Your Account

When bond yields go up, bond prices go down. It’s a time-tested principle, but it’s also one we haven’t experienced much since the pandemic began. At least, not until the past several weeks.

You could feel the effect of rising yields in a near-term drop in price for your existing bonds. And the first time you might see that change is when your January account statement arrives.

But it’s important to remember that rising yields can also create new opportunities. New bonds can be purchased with higher yields, and money that is scheduled to be reinvested can also take advantage of the higher yields. That could lead to more income being generated on a regular basis.

Interest rates have been low in recent years, but the Fed has said it’s prepared to raise short-term rates in 2022 to help manage inflation. So I’m anticipating some changes in the months ahead.

Bonds can be confusing, so please reach out if you want a quick refresher. I look forward to hearing from you.

RMDs Get a Small Reprieve

For the first time in nearly 20 years, the IRS has released updated actuarial or life expectancy tables. Those who take required minimum withdrawals (RMD) from retirement accounts may already know we use these tables to calculate your RMD. Using these new tables is relatively simple, but here are some considerations to keep in mind.

What’s my RMD?
We determine the required amount you must withdraw annually by dividing the previous year-end balance of your qualifying accounts by what the IRS calls a “life expectancy factor.” The newest tables assume we’ll live longer, which may impact the amount you need to withdraw.

What about inherited accounts?
There are some exceptions, but you must generally withdraw all assets within ten years, regardless of your life expectancy. The Secure Act eliminated the ability to “stretch” your withdrawals across your lifetime if the original account owner passed away in 2020 or later.

While most RMD calculations are straightforward, the process can get more complicated if you have multiple accounts or other sources of retirement income. Before modifying your current strategy, please reach out so we can help discuss your situation with your tax professional.

Helpful Retirement Strategies for Women

Preparing for retirement can look a little different for women than it does for men. Although stereotypes are changing, women are still more likely to serve as caretakers than men are, meaning they accumulate less income and benefits due to their time absent from the workforce. Research shows that 39% of women took a significant amount of time off work to care for loved ones – compared to 24% of men.¹ Women who are working also tend to put less money aside for retirement, saving just 7% of their paychecks on average, while men save closer to 10%.²

These numbers may seem overwhelming, but you don’t have to be a statistic. With a little foresight, you can start taking steps now, which may help you in the long run. Here are three steps to consider that may put you ahead of the curve.

1. Talk about money. Nowadays, discussing money is less taboo than it’s been in the past, and it’s crucial to taking control of your financial future. If you’re single, consider writing down your retirement goals and keep them readily accessible. If you have a partner, make sure you are both on the same page regarding your retirement goals.^3,4 The more comfortably you can talk about your future, the more confident you may be to make important decisions when they come up.

2. Be proactive about your retirement. Do you have clear, defined goals for what you want your retirement to look like? And do you know where your retirement accounts stand today? Being proactive with your retirement accounts allows you to create a goal-oriented roadmap. It may also help you adapt when necessary and continue your journey regardless of things like relationship status or market fluctuations.²

3. Make room for your future in your budget. Adjust your budget to allow for retirement savings, just as you would for a new home or your dream vacation. Like any of your other financial goals, you may find it beneficial to review your retirement goals on a regular basis to make sure you’re on track.³

Retirement may look a little different for women, but with the right strategies – and support – you’ll be able to live the retirement you’ve always dreamed of.

Outlook 2022

Luxury Car Brands Have Peak
Sales Year

It was interesting to note, amid other economic indicators, that many of the highest of the high-end auto brands are having banner years. While many more everyday domestics and imports are still dealing with supply issues, to the point where used cars are in high demand, “top-shelf” auto brands like Rolls-Royce, Bentley, and Lamborghini are either reporting or anticipating peak sales.¹

Why is that? It turns out that, while the pandemic hit them in 2020 like anyone else, these brands decided to shift their emphasis to bread-and butter factors, while still remaining attractive to wealthy buyers. Newer models offer hybrid options, designs that are more practical, such as sedans and SUVs, and, perhaps most importantly, more affordable price points. You mix these factors together with lower interest rates, and this banner year starts to make more sense.¹

It’s good to see that even these luxury brands are making decisions with the bottom line in mind. It’s an indicator that, for many companies in many fields, everybody’s ready to get down to business. So, while it might be a while before you see me sporting around in a Bentley (unless I get a good deal), you will see me scanning the business pages for stories like this, and other signals that the economy may be on the right track.

Don’t Fight the Fed

You may have heard the old Wall Street saying, “Don’t fight the Fed.” It suggests that investors should align their strategy with the Federal Reserve’s outlook rather than try to outsmart the world’s most powerful banker.

In the past few months, the Fed has said it’s prepared to raise short-term interest rates in 2022. And so far this year, interest rates have been trending higher, which has been one of the factors contributing to the market volatility in the first few trading days.

The perception of a more hawkish Fed put a hard stop to the year’s positive start and pushed bond yields higher and stocks into a broad retreat.

Technology and other high-valuation shares were particularly hard hit by rising yields. Even the larger capitalization technology companies with strong cash flows and profits were damaged. As yields trend higher, investors are questioning if these companies can lead the market in 2022.

Fueling this decline was a four-day sell-off of technology companies by hedge funds that, in dollar terms, represented the highest level in more than ten years. Stocks continued to struggle into the final trading day, unsettled by a renewed climb in yields and an ambiguous employment report.¹

Minutes of December’s Federal Open Market Committee (FOMC) meeting were released last week and it revealed a more hawkish Fed than investors had been expecting. One surprise was that the first hike in interest rates could occur as early as March. Another, and perhaps more consequential, surprise was the idea of beginning a “balance sheet runoff” by the Fed following the first hike in the federal funds rate.²

A balance sheet run-off means that maturing bonds won’t be replaced with new bonds, the result of which is a smaller Fed balance sheet. Many investors view this step as removing liquidity from the system, a departure from market expectations that the balance sheet would remain flat during the Fed’s pivot to monetary normalization.

When creating a portfolio, our professionals consider a wide range of factors, including the Fed’s outlook. The Fed may not always be correct, but we’ve found that understanding its overall strategy can only help when managing money