Estate Taxes May Be Amended Soon

To help raise revenue to pay for President Biden’s Build Back Better Plan, Congress is considering a number of tax law changes, including adjusting estate taxes.

One of the proposals would reduce the estate tax exemption to anywhere between $3.5 and $5 million, with an effective date of January 1, 2022. Another proposal would bring new rules to grantor trusts, including a change to how life insurance held in a trust would be taxed.^1,2

At this point, many ideas are being evaluated, but nothing is final. Corporate tax rates, individual tax rates, and capital gains taxes are also on the negotiating table. For now, the federal estate tax exemption remains at $11.7 for 2021, with a married couple having a combined exemption for 2021 of $23.4 million.³

But it wouldn’t be a surprise if the estate tax law changed as part of the overall plan. In 2019, 2,570 taxable estate-tax returns were filed, and they owed a combined $13.2 billion. Lowering the estate tax exemption to $5 million would raise an estimated $52.3 billion over five years.¹

As difficult as it may be, the best approach is to wait-and-see. It would be hasty to make any estate changes based on current discussions.

But if you’re feeling unsettled as Congress continues to work on these changes, please reach out. Estate strategies often need adjustments as tax laws change, and it’s best to be prepared for a range of potential new rules coming out of Washington.

Gridlock in the Supply Chain

While the world has begun to recover from the economic disruption of the COVID-19 pandemic, the delayed reaction has been felt in the supply chain. Industrial shutdowns around the world slowed production to a relative crawl, leaving many businesses struggling to meet consumer
demands, both during lock-downs and since.¹

Challenges continue, even as manufacturing picks up, with worker shortages and a fight to locate the materials needed for production complicating the struggle. President Biden worked an agreement with the port of Los Angeles in recent weeks to operate 24 hours a day, which has helped reduce the number of container ships offshore to 58 from a peak of 73.²

What does this mean for American consumers? For one, some items that are normally manufactured overseas may be harder to find in stock for the next few months. While that means some household necessities, that extends to items like consumer electronics, toys, and other items that make up a large portion of our holiday purchases.

Yes, we all complain about how the holidays seem to come earlier every year, but in this case, it’s a good thing to bear in mind. If you can, it’s a good idea to prepare for the holidays early. In addition, if you have any concerns about the supply chain crisis concerning your financial strategy, I’d welcome a chance to answer your questions.

Will Fed Chair Powell Get a Second Term?

Financial markets tend to function best when they have clear, strong leadership. When there’s concern about who’s the boss, markets can struggle.

Jerome Powell’s first term as Fed Chair ends in February 2022. Until the past few weeks, Wall Street overwhelmingly believed he would be nominated to a second term by President Biden.¹

But Powell’s prospect for being renominated appears less certain than ever. During an appearance by Powell before the Senate Banking Committee in September, a prominent committee member stated that she would not support his nomination. Other senators have voiced concerns, but this was the first time that a key senator declared opposition.²

As the budget, debt ceiling and infrastructure debates continue in D.C., it’s clear that everything is on the negotiating table, including Powell’s future.

Biden is not obligated to nominate Powell, and for now, Powell appears to enjoy bipartisan support in the Senate for a second term. But if resistance increases and throws a second term into doubt, it could have an unsettling impact on the markets.^1,2

We’re keeping an eye on what’s going on at the Fed—like we keep an eye on all events that could have an influence on the financial markets. We will keep you posted if anything unfolds that may cause us to reconsider certain strategies.

Ready for Medicare Open Enrollment?

Medicare’s annual open enrollment period begins October 15 and ends December 7. During this time, current Medicare beneficiaries have the option to adjust their coverage for the coming year. Any changes to your plan will go into effect on January 1, 2022.¹

This is an opportunity to reassess your current coverage and identify potential areas for improvement. Maybe you’ve recently changed medication, find yourself underutilizing coverage, or are in need of additional benefits.

Before open enrollment begins, you’ll receive a report outlining your current coverage. Review your elections carefully, especially if you haven’t updated coverage in the last few years. Medicare offers a Plan Finder tool to help compare other offerings if you’re considering making a switch.

Your health insurance coverage in retirement should work to protect your financial wellbeing. I’m happy to help navigate new opportunities or plan changes during this upcoming open enrollment period. Feel free to reach out with any questions, or to schedule a meeting to talk.

Midyear Outlook 2021 Webinar

If you were unable to attend our Midyear Outlook 2021 webinar, we welcome you now to view it. If you have any questions, we invite you to contact us. All of our knowledgeable advisors are here to assist you and answer all your your questions.

AQuest Wealth Strategies’ Dr. Jason Van Duyn delivers market insights on what we can expect in the economy, policy, stocks, and bonds for the rest of 2021.

Will the IPO Market Heat Up?

If the stock market outlook brightens, there are expectations for a bumper crop of initial public offerings to make their debuts over the next several weeks.

Somewhere between 90 to 110 IPOs are preparing to come public by the end of the year, which would make 2021 the biggest year for total capital raised since 2000.¹

But a sluggish stock market may disrupt the best-laid plans. The Standard & Poor’s 500 index lost nearly 5 percent in September—snapping its seven-month winning streak.²

Companies attempt to make a splash with their IPO, and in the past, some have opted to postpone their public listing if they believe it will meet a lukewarm reception from investors.

The primary objective of an IPO is to raise money to operate the business. Going public also can increase a company’s public profile, which might help boost sales. But there are several disadvantages, including the fact that an IPO is expensive, and the new status requires additional costs unrelated to running the business.³

If you have your eye on an IPO, please reach out. One of our professionals may be able to help you find additional research on the company.

Fed Rescues September

A funny thing happened in the investment markets the other day. September was living up to its reputation as a volatile month, but then the Federal Reserve came to the rescue.

The Fed concluded its Federal Open Market Committee meeting on Wednesday, September 22. It announced that it might start tapering its monthly bond purchases soon, perhaps as early as November, and could raise interest rates sometime next year.¹

Before the Fed news, the Standard & Poor’s 500 index was down nearly 4% for the month.²

Fed Chair Jerome Powell said that bond purchases may end entirely by the middle of 2022. The support for hiking interest rates also increased, with half of the 18 Fed officials expecting interest rates to be higher by the close of next year, up from just seven who thought similarly in June.¹

The markets embraced the update, and over the next three days, the S&P 500 rose 2.3%.²

The Fed also raised its inflation forecast from 3% to 3.7%, which caught some by surprise. The Fed news on inflation came at the same time several large companies warned about higher prices.^1,3

Market volatility can test the mettle of even the most patient investor, so please remember we’re here when your patience gets tested.

Are Your Taxes Going to Change?

Most likely, you’ve heard what’s brewing in Washington, D.C., called by one of these names.

The Build Back Better Act. Or the $3.5 trillion budget reconciliation bill. Or the Jobs and Economic Recovery Plan for Working Families.¹

Regardless of what name you’ve heard, one fact is clear: It likely to be months before any action is taken. When bills are being worked on—especially one that’s this size—it’s a good time to take a quick Civics refresher. Right now, the bill is “in committee” with both the House of Representatives and the Senate. The committees are filing in the policy details and the exact financial figures, which can be a long process.²

It will then be up to the House and Senate to vote on an identical version of a final bill—if both can agree to a final version.²

Right now, it would be hasty to make any portfolio changes based on what’s being discussed and debated. An ambitious investor would have to guess at what policies will be in the final bill, estimate the financial impact, and determine what portfolio changes should be made. That’s a tall order.

So as difficult as it may be, the best approach is to wait-and-see. We work with professionals who are watching every twist and turn. If something starts to take shape, we will evaluate the impact.

We also understand that some of you may have concerns about whether your taxes are going to change. If that’s the case, please reach out. We would welcome the chance to speak with you.

The September Effect

The stock market notched its 7th straight month of gains in August, and the Standard & Poor’s 500 index has set 53 new highs so far in 2021.¹

During August, stocks rallied as investors looked past the increased number of COVID-19 Delta variant cases and barely reacted when the Federal Reserve said it might begin tapering its monthly bond purchases by year-end.

But it’s a new month, and you should expect to see an article or two about what’s called the “September Effect.” September is when many professional investors end their fiscal year, which can lead to some overall market weakness.²

When I see articles about the September Effect, I’m reminded of my favorite stock market quote by Mark Twain.³

“October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” There’s always going to be some market theory, opinion, or model that suggests we’re in “this cycle” or “that trend.” Over the years, we’ve found that the best strategy is to ignore the noise and focus on your investing
goals.

Social Security Benefits May Be Cut by 2034

The economic impact of COVID-19 has been felt from coast to coast. And, unfortunately for many pre-retirees, it could potentially impact Social Security benefits as well.

A new report indicates that if Congress doesn’t take action to address funding, benefits will be cut to 78 percent by 2034. Social Security’s longterm funding has been a concern for some time now, but it appears that COVID-19 has shortened the timeline.¹

In December 2020, the average monthly benefit for a retired individual receiving Social Security was $1,544. Even with benefits at full funding, you may not be able to meet your financial needs in retirement on Social Security alone. For those who have the opportunity to plan and prepare,
Social Security doesn’t have to be their only source of retirement income. There are a few options to consider when preparing to supplement the difference between what you earn in Social Security benefits and what you need to thrive in retirement.²

Individual Retirement Accounts – There are two types of Individual Retirement Accounts, or IRAs, to choose from— traditional IRAs and Roth IRAs. If you’ve had these accounts set up for some time and made contributions regularly, then the potential growth of these accounts may make up for Social Security reductions.^3,4

Defined Contribution Plans – If your employer offers a defined contribution plan, such as a 401(k), 403(b), or 457 plan, the accumulated income in these accounts could supplement Social Security, especially if this amount has had time to grow.

Defined Benefit Plans – Though not as common as they used to be, pensions are a type of defined benefit plan. Benefits established by an employer take into account work history and salary to determine benefits.

Personal Savings – Your personal savings could be used to help make up the difference in Social Security benefits. If your savings may become your main source of Social Security supplementation, then consider consulting a financial advisor who can help you determine a long-term, more sustainable solution.

Continued Employment – Unfortunately for some retirees and pre-retirees, if Social Security does not help make ends meet, and the above options are not available or don’t provide enough benefits, then it may be time to consider postponing your retirement. The good news, though, is that working while collecting Social Security could potentially increase your benefit amount.⁵