Consumer Confidence at the Pump

The latest Consumer Price Index (CPI) report was recently released and confirmed what economists anticipated: consumer inflation has risen 7.9% over the past year, the largest spike since 1982— none of which is a surprise for anyone who has visited a gas station lately.¹

With the price of gasoline trending higher, it may be tempting to attribute these prices to the global economic disruptions caused by Russia’s aggression toward Ukraine. However, the latest CPI reflected the 12-months ended in February and didn’t include most of the oil and gas price increases that followed Russia’s invasion of Ukraine on Feb. 24.²

There is a slight silver lining within the CPI, however. The food away from home index, which tracks restaurant purchases, rose 0.4 percent in February after increasing 0.7 percent in January. This could indicate strengthening consumer confidence despite inflation, as consumers continue to eat out.³

What does this all mean for consumers? It’s hard to say, but some predict further inflationary pressures, while others wait and see what the Fed says at its meeting next week.

If you have any questions or concerns regarding recent events and your portfolio, let us know. We’re always ready to help.

Women and Financial Strategies

Forty-four percent of American women are the primary breadwinner in their house.¹ Yet only 10% of women feel very confident in their ability to fully retire with a comfortable lifestyle.²

Although more women are providing for their families, when it comes to preparing for retirement, they may be leaving their future to chance.

Women and College

The reason behind this disparity doesn’t seem to be a lack of education or independence. Today, women are more likely to go to college and graduate than men.³ So what keeps them from taking charge of their long-term financial picture?

One reason may be a lack of confidence. In one recent study, less than half of the more than 2,000 women surveyed said they felt satisfied with their knowledge of finances.⁴ Women may shy away from discussing money because they don’t want to appear uneducated or naive and hesitate to ask questions as a result.

Insider language

Since Wall Street traditionally has been a male-dominated field, women whose expertise lies in other areas may feel uneasy amidst complex calculations and long-term financial projections. Just the jargon of personal finance can be intimidating: 401(k), 403(b), fixed, variable.⁵ To someone inexperienced in the field of personal finance, it may seem like an entirely different language.

But women need to keep one eye looking toward retirement since they may live longer and could potentially face higher health-care expenses than men.

If you have left your long-term financial strategy to chance, now is the time to pick up the reins and retake control. Consider talking with a financial professional about your goals and ambitions for retirement. Don’t be afraid to ask for clarification if the conversation turns to something unfamiliar. No one was born knowing the ins-and-outs of compound interest, but it’s important to understand in order to make informed decisions.

Compound Interest: What’s the Hype?

Compound interest may be one of the greatest secrets of smart investing. And time is the key to making the most of it. If you invested $250,000 in an account earning 6%, at the end of 20 years your account would be worth $801,784. However, if you waited 10 years, then started your investment program, you would end up with only $447,712.

This is a hypothetical example used for illustrative purposes only. It does not represent any specific investment or combination of investments.

A Challenging Start to 2022

2022 is off to a challenging start for most investors.

Stock prices have been down 6 of the past 9 weeks, and the major averages are either in or teetering on correction territory.

Bond prices are lower, and yields are higher, which has created an opportunity for some but has resulted in losses for others.

The Fed is expected to raise interest rates at its March meeting, where they may attempt to thread the needle of cooling inflation while maintaining the economic recovery.

Geopolitical events have added a layer of uncertainty and are one of the main drivers of volatility. Energy prices continue to move higher as events unfold in Eastern Europe.

Corporate earnings are a bright spot. The job outlook is improving, and it appears that we’re moving past the pandemic. But these green shoots tend to be overlooked.

Add it all up, and you could be thinking, “I just want to sit this one out.” But that’s exactly the time when you should remind yourself about investment strategy. Call me if you’re worried about what lies ahead. We can talk over what’s on your mind.

Healthcare Costs in Retirement

In a 2021 survey, 32% of all workers reported they were either “not too” or “not at all” confident that they would have enough money to pay for their medical expenses in retirement. Regardless of your confidence, however, being aware of potential health care costs during retirement may allow you to understand what you can pay for and what you can’t.¹

Health-Care Breakdown

A retired household faces three types of health care expenses.

1. The premiums for Medicare Part B (which covers physician and outpatient services) and Part D (which covers drug-related expenses). Typically, Part B and Part D are taken out of a person’s Social Security check before it is mailed, so the premium cost is often overlooked by retirement-minded individuals.
2. Copayments related to Medicare-covered services that are not paid by Medicare Supplement Insurance plans (also known as “Medigap”) or other health insurance.
3. Costs associated with dental care, eyeglasses, and hearing aids – which are typically not covered by Medicare or other insurance programs.

It All Adds Up

According to a HealthView Services study a 65-year-old healthy couple (male living to age 87; female, age 89), can expect their lifetime health care expenses to add up to around $662,156.²

Should you expect to pay this amount? Possibly. Seeing the results of one study may help you make some critical decisions when creating a strategy for retirement. Without a solid approach, health care expenses may add up quickly and alter your retirement spending.

Prepared for the Future?

Workers were asked how much they have saved and invested for retirement – excluding their residence and defined benefit plans.

Source Employee Benefit Research Institute, 2020

The Fed Has An Eye On Ukraine

The Russian invasion of Ukraine has made the Fed’s interest rate decision a little more complicated.

The Fed appears set to raise interest rates by 0.25% at its March meeting. Up until recently, there was talk by Fed officials that the economy needed a 0.5% bump to help manage inflation.

Energy prices have been rising since Russia began to assemble forces at the Ukraine border. As prices rise, consumer discretionary spending trends lower as businesses take on higher costs. (Remember, consumer spending accounts for a big chunk of our overall economy.)

Higher energy prices, higher commodity prices, and the prospect of slower economic growth due to lower spending place the Fed in a bit of a pickle; the inflationary impact of these factors could be considerable.

Fed Chair Jerome Powell testified before Congress that he still sees interest rate hikes ahead but acknowledges that geopolitical events have interjected uncertainty into the Fed’s outlook.

I work with a team of professionals who monitor the Fed and help me interpret its signals about the economy. If you’re feeling a bit unsettled, please reach out. Some think that it’s best to be proactive at times like this. We can discuss your thoughts and compare them with your overall strategy.

Russia Attacks Ukraine Q&A Videos

Thanks to everyone who attended our first Live Q&A session.

Wall Street’s main benchmarks tumbled after Russian President Vladimir Putin launched a military invasion of Ukraine. This fuels uncertainty in the way we handle our finances. That is why we held a Live Question & Answer session.

If you missed this event we are happy to provide you with these videos of the event.We have broken these up based on each question.

We also want to provide you with a list of verified charities, in case you want to support the people of Ukraine. Click on each name for the link.

UNHCR 

Razom’s Emergency Response i

Save the Children 

Voices of Children 

Doctors Without Borders

Sunflower of Peace  

CARE Crisis Fund  

IRA Withdrawals that Escape the 10% Tax Penalty

The reason withdrawals from an Traditional Individual Retirement Account (IRA) prior to age 59½ are generally subject to a 10% tax penalty is that policymakers wanted to create a disincentive to use these savings for anything other than retirement.¹

Yet, policymakers also recognize that life can present more pressing circumstances that require access to these savings. In appreciation of this, the list of withdrawals that may be taken from a Traditional IRA without incurring a 10% early withdrawal penalty has grown over the years.

Penalty-Free Withdrawals

Outlined below are the circumstances under which individuals may withdraw from an IRA prior to age 59½, without a tax penalty. Ordinary income tax, however, generally is due on such distributions.

1. Death — If you die prior to age 59½, the beneficiary(ies) of your IRA may withdraw the assets without penalty. However, if your beneficiary decides to roll it over into his or her IRA, he or she will forfeit this exception.²
2. Disability — Disability is defined as being unable to engage in any gainful employment because of a mental or physical disability, as determined by a physician.³
3. Substantially Equal Periodic Payments — You are permitted to take a series of substantially equal periodic payments and avoid the tax penalty, provided they continue until you turn 59½ or for five years, whichever is later. The calculation of such payments is complicated, and individuals should consider speaking with a qualified tax professional.³
4. Home Purchase — You may take up to $10,000 toward the purchase of your first home. (According to the Internal Revenue Service, you also qualify if you have not owned a home in the last two years). This is a lifetime limit.⁴
5. Unreimbursed Medical Expenses — This exception covers medical expenses in excess of 7.5% of your adjusted gross income.⁴
6. Medical Insurance — This permits the unemployed to pay for medical insurance if they meet specific criteria.
7. Higher Education Expenses — Funds may be used to cover higher education expenses for you, your spouse, children or grandchildren. Only certain institutions and associated expenses are permitted.
8. IRS Levy — Funds may be used to pay an IRS levy.
9. Active Duty Call-Up — Funds may be used by reservists called up after 9/11/01, and whose withdrawals meet the definition of qualified reservist distributions.

Filing Final Tax Returns for the Deceased

When a family member passes away, there are many decisions that need to be made and many emotions to handle. The last thing anyone thinks about is taxes.

Unfortunately, even the deceased can’t escape taxation. If the departed family member earned taxable income during the year in which they died, then federal taxes may be owed. An executor or a survivor must, therefore, file a final federal income tax return (Form 1040).¹

Similarly, if the deceased individual had a sizable estate or assets that might generate income in the future, the estate may owe taxes. Federal estate tax forms pertaining to the decedent’s estate may need to be filed (Form 1041, Form 706).¹

The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult a professional with tax expertise if you find yourself in this situation.

Income Taxes

The Internal Revenue Service generally gives you until April 15 of the year following the taxpayer’s death to file a final 1040 form. If the deceased was married, a surviving spouse has the option to file a final joint federal tax return for the last year in which the deceased lived.²

If you file the return online, the IRS provides instructions on all of this. If you are filing a paper return, you must write “Deceased,” the decedent’s name, and the date of death at the top of the 1040 form. An appointed personal representative and/or surviving spouse must sign this return per IRS guidelines. If a refund is due, you may need to file a Form 1310 (Statement of Person Claiming Refund Due a Deceased Taxpayer).^2,3

Estate Taxes

If an estate is large enough, Form 706 (the United States Estate Tax Return) is due to the IRS within nine months of the death of the deceased, with a 6-month extension permitted. The individual federal estate tax exemption is $11.7 million for 2021, so an estate smaller than $11.7 million may not be faced with estate taxes unless the deceased individual made substantial monetary gifts before their passing.^4,5

When the decedent’s estate has an executor or administrator (in IRS terminology, an “appointed personal representative”), they must sign the return for the decedent. For a joint return, the spouse must also sign. Alternately, a survivor of the deceased can file the return.²

If an estate generates more than $600 in gross yearly income within 12 months of that taxpayer’s death, it will also be necessary to file Form 1041 (U.S. Income Tax Return for Estates and Trusts), usually by April 15 of the year after the year in which the individual died. Should 100% of the income-generating assets of the deceased be exempt from probate, the need to file Form 1041 is removed. Estates required to file Form 1041 should consult a tax professional.¹

Lastly, there are some cases where expenses paid before death can be deductible. Under certain circumstances, part of the cost of treating a final illness may be deducted on the deceased’s final federal tax return.¹

You Are Not Alone

A death in the family can take a heavy toll. In the event of such a tragedy, the last thing you may want to do is deal with the related financial issues. Contact us – we are here to help.

Keeping It in Perspective

It’s easy to get excited reading the news. With all of the storm and stress of the last few years, it’s only natural to react to each ping of our phone’s news apps with a deep sigh and a cynical “what now?”

The truth is, there’s always good news and bad news if you dig deep enough into the paper. For every international crisis, there’s a medical breakthrough. Each victory has a counteracting problem when you step back and take a look at the big picture. Does this mean that we should just shut off the news and let things happen? No, it’s good to stay informed. Keeping all of that information in perspective, though, can be difficult. If you aren’t careful, it can lead to emotional or rash decision-making.

Your financial strategy, for instance, has been developed with the “big picture” in mind. Many things can happen in that time, and our strategy gives room for those events to rise, take place, and then fall into the rearview.

Keeping it all in perspective can be tough at times, but this is one of the many reasons you aren’t going it alone. When times seem turbulent, it’s good to have someone to reach out to who can help you keep that big picture in mind. Give me a call if you’re feeling that turbulence; I’d be happy to check in with you and help you keep your focus.