Stop Overlooking These Valuable Workplace Benefits
Kevin Oleszewski, CFP®, Senior Wealth Planner It’s hard to fathom, but there are a lot of employee benefits that people aren’t using correctly — or aren’t using at all.
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[post_content] => Kevin Oleszewski, CFP®, Senior Wealth Planner
It's hard to fathom, but there are a lot of employee benefits that people aren't using correctly — or aren't using at all.
Why? I blame it largely on the failure of employers to educate in a coherent and easy-to-understand fashion. The employee benefits business has its own language and most workers — even if they read all of their onboarding documents — won't necessarily understand the content. It doesn't help that most high schools and colleges choose not to include personal finance in their curriculum.
Here's an example, out of my own experience, of how a workplace benefit can be overlooked. I have two friends, both in education, who literally threw away their 403(b) enrollment forms because they didn't understand what the tax-sheltered retirement plan was. I helped sort them out and they've been taking advantage of the benefit ever since.
5 Employee Benefits You Might Be Missing Out On
Here are five of the most often misunderstood workplace benefits that employees should take a hard look at.
1. Employer match on 401(k) plans. There's not a lot of mystery surrounding the 401(k) retirement and savings investment plan. It's been around for a long time. But things can go sideways when employees auto-enroll in the program at a contribution rate that's lower than the company match. If you are contributing 3% and the company match is 6%, the employer is only required to match at your level. That's missed opportunity. It's a good idea to revisit your rationale behind the amount of your contribution on a routine basis.
2. Health savings accounts. The health savings account, or HSA, can be a great tool to boost retirement savings. Typically, an HSA is used by people with high-deductible health insurance plans to pay out-of-pocket expenses. When you contribute to an HSA, you get a tax deduction for the money you put in and it grows tax-free. If you don't need to use the money early on, you can use it in retirement to reimburse for all medical expenses.
3. Employee stock purchase plans. Typically offered by a public company, these plans allow employees to buy stock at a discount. Discount rates tend to range from 10 to 15 percent. If used correctly, these plans can be a great investment, but you should consider your contributions to an ESPP in the context of your overall financial plan, as all investments have risk and the taxation rules on these plans can be complex.
4. Group disability and group life insurance. The plans offered by employers are generally the cheapest in the marketplace that you can buy. These low-cost plans can give financial stability to a family — yet they are often left on the table. On the insurance side, companies sometimes provide a certain amount of coverage— maybe two to three times your salary — with no physical exam required. It comes back to a lack of education. Also, there are a ton of insurance agencies that want you as customers and it's their loud, loud marketing voice that you are going to hear first.
5. Commuter benefits. More and more companies are offering commuter benefits to help with expenses like train tickets, parking costs, tolls and ride-share programs. You don't pay a tax on the benefit. The problem is there's a tremendous lack of awareness about a perk that could save you hundreds of dollars over the course of a year.
Use It or Lose It
The bottom line? It's important to maximize workplace benefits that are relevant and impactful to you. Ideally, set up a one-on-one consultation with your human resources contact when you start a new job. If you're working at a big company, there should be some sort of power point presentation that's offered during the onboarding process that outlines every benefit and how it works. Sometimes, the really large corporations will offer employee benefits workshops on routine basis.
This is a textbook case of "Use it or lose it." Ask questions. Read the small print. And talk to your colleagues who have worked at the company for a while. Get educated.
Have Questions About Workplace Benefits?
Talk to a qualified financial advisor today to get professional advice today. Need help finding a financial advisor in your area? Give us a call today so we can match you with an advisor who will put your needs first.
Kevin Oleszewski is not registered or affiliated with Cetera Advisor Networks, LLC.
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[post_content] => 2022 has been historically difficult for investors so far, and it’s likely you have questions. We’re here to answer some of the most common questions we’re hearing nowadays.
Feel free to talk with your advisor about any of these topics – or if you have other questions not addressed here.
1) Just how bad has this year been?
There’s no way to sugar coat things – 2022 has been a rough year. Bonds historically have done well when stocks don’t, but this year that isn’t happening. In fact, the five previous times the S&P 500 lost 10% or more for the year, bonds (as measured by the Bloomberg U.S. Aggregate Bond Index) gained every time, up 7.7% on average.
With the S&P 500 price index down 22.5% for the year and bonds down 13.8%, only 2008 was a worse year for a 60/40 portfolio (with 60% in stocks and 40% in bonds).
2) My bonds are down a lot. How bad has it been?
Yields have soared this year on higher inflation expectations and a hawkish Federal Reserve. As a result, bonds have been performing poorly.. Yields and bond prices historically trade inversely.
The Bloomberg U.S. Aggregate Bond Index is currently down nearly 14% for the year, far and away the worst year historically (since 1976). To put things in perspective, it had never been down two years in a row (which will likely happen this year) and the previous worst year was a 2.9% drop in 1994.
3) Why shouldn’t I just sell everything right now?
Stocks historically haven’t done very well the first few quarters of a midterm year, but they do quite well once the midterm election is over. In fact, since World War II, the S&P 500 has been higher a year after the midterm election every single time, up 14.1% on average. Much better times could be coming – and soon.
One final reason to remain optimistic and not sell now is that data shows stocks have historically tended to perform well after a midterm year low. Since 1950, the S&P 500 has gained more than 32% on average off the lows and has never been lower a year later. The June lows are not far away from current levels. Should new lows be made, it could be another positive for investors going out a year or more.
4) Should we have seen this trouble coming?
Although the size of the drop in stocks and bonds is surprising, to see some weakness this year wasn’t overly surprising. Some of the worst quarters of the four-year cycle took place during this year. The second year (so this year) under a new President tends to be quite weak as well. The good news is how well stocks historically do the following year under a new President.
5) What should we do now that stocks are in a bear market?
There’s an old saying that the stock market is the only place where when things go on sale, everyone runs out of the store screaming. Things are no doubt on sale and investors with a long enough investment horizon may want to look at this weakness as a potential opportunity.
We continue to think the economy isn’t in a recession (more on this below), so that likely means stocks won’t fall significantly from here. Historically, the bear markets that took place without a recession showed stocks falling about 24% on average. In fact, only once did stocks fall more than 30% without a recession and that was the 1987 crash. More near-term pain is always possible, but a major low could be quite near.
6) What could happen once the bear market is over?
No one knows when this current bear will end (we do think it will be fairly soon), but you should be open to significant gains coming off the bear lows.
7) Is the Fed going to break something? Or when will they stop hiking?
The Fed has made it very clear that they would be okay with some pain (think a mild recession) to put a lid on inflation. There is no easy answer here, but Chairman Powell knows history and knows that the Fed didn’t increase rates enough or keep them high for long enough in the 1970s, which led to massive inflation in the late ‘70s and early ‘80s. The truth is the Fed might break something and that might be part of their plan.
Looking back at the previous eight rate hike cycles shows that the Fed hikes until rates get above the headline CPI number. With inflation still running at 8.3% and rates at 3.25%, more hikes could be in the cards. And the Fed’s latest projections suggest we’ll see at least another 125–150 basis points of rate hikes.
8) Will inflation ever come back down?
The recent CPI number was disappointing, showing prices for many goods and services at the consumer level were increasing more than expected. The good news is various other inflation measures are coming back, and quickly, in many cases. For starters, energy prices have fallen and in many cases are lower than before the war started – a good sign. Meanwhile, supply chains are improving, as this survey by the NY Fed shows.
One of the main reasons we are optimistic that inflation could be about to come down quickly is used car prices are rapidly dropping. The recent Manheim Used Car Value Index fell 4% last month, which is one of the largest drops ever. Used cars make up a large part of inflation readings and this should provide a nice tailwind going forward.
9) Aren’t we in a recession right now?
The odds of a recession in 2023 have unquestionably gone up, as the Fed continues to hike rates. But currently, we do not see the economy in a recession. The main reason is the employment backdrop is so strong. More than 3.5 million jobs have been created this year, one of the most ever and not at all recessionary. Additionally, industrial production has been very strong, another important component to the economy. Even consumer spending has remained stubbornly strong amid all the concerns.
Now, there are obvious worries as consumer confidence has been very low (but has been improving with gas prices falling) while manufacturing has slowed, and housing data is tanking due to higher mortgage rates. Currently, we think this is more of a midcycle slowdown versus the start of a recession.
10) What could happen after the midterm elections?
One thing we try to stress on the Carson Investment Research team is not to mix your politics with investing. Many investors didn’t like President Obama and missed out of significant gains, while others didn’t like President Trump and missed out on gains.
Turning to the midterms, we know the party that lost the prior Presidential election is the motivated party and they tend to gain four seats in the Senate and nearly 30 seats in the House. Should this pattern hold again, and the Republicans take both chambers of Congress, this is the very best scenario for stocks. A Democratic President and Republican-controlled Congress has seen the S&P 500 gain more than 16%, on average, during the calendar year. In fact, we saw this in the late 1990s under President Clinton.
What if the Democrats keep control of the Senate? This is about a coin flip by the odds makers and the good news is a Democratic President with a split Congress is also a bullish scenario.
Schedule a Conversation
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 – A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
Bloomberg
U.S. Aggregate Bond Index” formerly known as the “Barclays Capital U.S. Aggregate Bond Index”, and prior to that, “Lehman Aggregate Bond Index,” is a broad-based flagship benchmark that measures the investment grade, US dollardenominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed rate pass-throughs), ABS and CMBS (agency and non-agency).
[post_title] => 10 Answers to Questions About the Bear Market
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[post_content] => Chances are good we've all felt a bit like Rachel on “Friends" when she peruses her first paycheck in bewilderment and says, “Who's FICA? And why's he taking all my money?"
FICA stands for the Federal Insurance Contributions Act, or as most of us know it, Social Security. A portion of your paycheck is deducted as a payroll tax to fund Social Security benefits, including the retirement program it's most commonly associated with.
But that amount doesn't go into an account with your name on it to tap into later. Today's workers are funding today's retirees, with the expectation that when they become future retirees, they in turn will be funded by those future workers.
That's just one of the components of Social Security that is frequently misunderstood. Here are eight questions I often get about Social Security retirement benefits that will help you understand the program and how it affects you and your financial future.
1. At what age can I start taking Social Security retirement benefits?
Although most are eligible to receive Social Security as early as age 62, there are a variety of factors that influence what may be the most optimal claiming strategy for your situation. The difference is in the size of the monthly benefit you will receive if you wait.
For many, age 65 is the magic number they’ve heard when retirement “officially" begins, and that was the minimum age to receive full retirement benefits when the program began. But as our life expectancy has increased — meaning which we will draw benefits for that much longer — so has the age at which we are expected to start taking Social Security. This chart shows how the full retirement age has inched up.
The longer you wait to retire, the bigger your benefit each month and for the duration of the time you receive it. If you’re able to delay collecting benefits until age 70, your monthly amount will increase even more. In fact, every month you wait to file from your full retirement age (currently 67 for those born in 1960 and later) until age 70, your benefit will increase a total of 8% per year. This chart shows how it works for someone whose current full retirement age is 66, demonstrating the bonus you'll reap if you wait.
2. What is my monthly Social Security benefit based on?
The formula is a bit complicated but here are the main parts. First, the Social Security Administration takes your 35 highest earning years as their basis. Then they apply an inflation factor based on the first year they use since, as we know, $10,000 in 1970 wasn't the same as $10,000 today. They will add up those 35 highest years (or fewer if you don't have at least 35 years in the workforce) and divide it by the number of months to determine the average indexed monthly earnings (AIME).
Then, they will apply what's called a “bend" point, designed to even out the system so those who had the least income get the most benefits. It's a little complex, but it's essentially a formula that changes with the national average wage index to ensure someone who doesn't make a lot of income will be protected in the system. This chart shows the bend points used to determine this formula for the past few years, and this video breaks down how it works.
3. As a high-income earner, why am I paying so much in tax when I won't get it all back?
This is a common grievance, given that the collected funds aren't sitting in an account just for you, as discussed. Yet many people don't realize that the amount they pay doesn't rise commensurate with their entire income.
The government has created a Social Security wage cap, currently set at $147,000 for 2022. If your earnings exceed that amount, nothing over it will be taxed for Social Security. Therefore, someone who earns $147,000 and someone who earns $5 million pay the same into the Social Security coffers, according to current law.
So, even though you may not get every dollar back when you collect your benefit, there is a limit on the amount of your wages that are subject to taxes if you earn above the wage limit.
4. If I want to keep working, will it affect my Social Security benefit?
Many workers, particularly those in white collar industries, can keep working past their retirement age either part-time or on a consulting basis. My clients often view retirement as a time when they have more flexibility, yet want to do something that gives them purpose, fulfillment, connection and routine—which often is found in a job.
However, any sort of wages, whether a salary, contract or bonus, is earned income, which could reduce your Social Security benefit. If you are younger than full retirement age and earn more than $19,560—the annual limit for 2022—the Social Security Administration will deduct $1 from your benefit payment for every $2 you earn. In the calendar year before you reach full retirement age, that earnings ceiling bumps up to $51,960 and the amount you are docked goes down to $1 for every $3 you earn. Once you reach full retirement age, earnings of any amount no longer reduce your benefit payment.
The good news is that if your benefit is reduced due to excessive earnings, the money doesn't just evaporate. Instead, the government will recalculate your future payments and increase them to reflect the benefits withheld because of earned income.
Any unearned income, such as that from interest and dividends from your stock portfolio or passive rental income, would not reduce your Social Security benefit—although it could factor into how it's taxed. More on that next.
5. Do I have to pay taxes on Social Security?
Your benefit may be taxed as ordinary income at your regular tax rate, depending on how much other income you are receiving. The government will tabulate your income from all sources, which could be rental income, a pension, or investment income, to determine the portion of your Social Security benefit that will be taxed. The amount of your benefit that could be subject to taxes ranges from 0% to a high of 85%. This article from the Social Security Administrations shows the breakdown by income.
6. What if I started taking a Social Security payment and changed my mind?
If your financial situation changes, you may decide to halt benefits in order to help amp up your future monthly payment. If you are under full retirement age and elected benefits, you can pretend it never even happened for up to 12 months from when you first started receiving benefits by withdrawing your application and paying back the entire amount you already received.
Otherwise, if it has been more than 12 months since you started receiving benefits, you'll need to wait until you reach full retirement age and then request a suspension. You'll then receive credit for each month of the suspension, ultimately boosting your eventual monthly benefit.
7. Will the Social Security fund run out before I receive my benefits?
This is a valid concern many clients have, which becomes clear as you begin to consider demographics: While increasing numbers of retirees are often living longer, there are dwindling numbers of workers contributing to the system that pays out to them. What I tell my clients, based on what we know today, is that as long as people keep paying into the system and the government keeps collecting, Social Security benefits are expected to be fully funded until2034, when they will drop to 77% of scheduled benefits absent any changes.1
However, no one knows what those changes will be, and it's important to plan conservatively for retirement. It's a best practice to stress test portfolios against various events. By stress testing the effect of a Social Security benefit reduction in the context of a holistic financial plan, you can see how well your finances could withstand that shock – either alone or in conjunction with another event.
We consider this a vital exercise as clients approach retirement so they can see where they should make adjustments.
8. Should I depend on Social Security to fund my retirement?
This all depends on the quality of life you want. Above, we've covered issues such as the potential size of your benefit and the solvency of the Social Security fund. But people are often surprised to hear the maximum Social Security benefit they can earn. Even if they were high-wage earners throughout their career and waited until age 70 to collect, the top monthly benefit in 2022 is $4,194 (assuming you retire at age 70).2 Many find that doesn't adequately fund the lifestyle they anticipate or the legacy they hope to leave.
That's why it's wise to start planning ahead for those golden years right now. Consulting with a financial advisor can help you clarify your financial goals and the steps it will take to achieve them. While Social Security will likely be one core piece of your retirement, for most people it shouldn't be their only one.
Have More Questions About Social Security?
Your financial advisor can help answer any questions you might have about retirement and Social Security.
Don’t have a financial advisor? Give us a call today to get paired with a qualified fiduciary financial advisor in your area.
This blog is for general information only and is not intended to provide specific legal, tax, or other professional advice. For a comprehensive review of your personal situation, always consult with a tax or legal advisor.
1 Social Security Administration, “Status of the Social Security and Medicare Programs: A Summary of the 2022 Annual Reports” https://www.ssa.gov/OACT/TRSUM/index.html
2 Social Security Administration, “Frequently Asked Questions: What is the maximum Social Security retirement benefit payable?” https://faq.ssa.gov/en-us/Topic/article/KA-01897#:~:text=For%20example%2C%20if%20you%20retire,maximum%20benefit%20would%20be%20%244%2C194
[post_title] => Your Most Common Social Security Questions Answered
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[post_content] => Ryan Yamada, CFP®, Senior Wealth Planner
We’ve all heard the conventional wisdom when it comes to claiming Social Security: you should wait as long as you can before claiming benefits. Wait right up to age 70, if possible. After all, that’s when you would get the greatest monthly benefit.
But that may not be the right move for some.
What if I told you that, in some cases, taking your benefit sooner than later was the most ideal thing to do? I know it seems counterintuitive. But there are a few specific scenarios where that is just the advice I would give to clients.
Let’s dig into a few of these scenarios individually.
Scenario #1: For Surviving Spouses
On a few somber occasions, we have had clients who have passed away before getting to fully enjoy their retirement. And while the earliest that someone can claim off of their worker or spousal benefit is at age 62, there is an exception for surviving spouses to claim a widower benefit as early as 60.
Like a spousal benefit, the surviving widow is eligible for their deceased spouse’s Full Retirement Age amount. Claiming any earlier than Full Retirement Age reduces this amount. However, one unique strategy is that should the surviving spouse also have their own earnings history, claiming off a widower’s benefit could then allow one to delay their own worker’s benefit.
Here’s an example to help illustrate.
In this example, by continuing to delay their own worker benefits, the surviving spouse significantly increases their lifetime amounts. Additionally, recognizing the opportunity to claim benefits early using a survivor’s benefit could add extra years of cash flow and tens of thousands of dollars.
Scenario #2: You’re Entering Retirement During a Turbulent Market
You’re ready to retire. You’ve planned well and you have your spending plan all laid out. You’ve even decided to wait before filing for your Social Security benefits – allowing your investments to create an ‘income bridge’ - so that you can maximize your future monthly payment. Like many who are able to retire early, this is an ideal scenario for most retirees and one that we often recommend...in most years.
But wait … it’s 2022. The market is down. And your portfolio has dropped 25%.
Sometimes life doesn’t quite go according to plan. But that’s okay, it’s not time to panic. After all, the market was built to rebound. We just need to look at other ways to manage until that happens.
In this scenario, we might consider taking Social Security earlier than anticipated. Especially for those clients without a cash buffer, access to home equity, or other means of ‘dry powder’, selling investments during a bear market is something we try to avoid. Tapping into your Social Security can provide much needed cash flow and allow your investment portfolio some time to recover. You’ll obviously take a slight hit on your lifetime Social Security benefit, but if that amount is smaller than the potential gain your investments could make over time, it’s a smarter play in the long run.
Scenario #3: You Wouldn’t Break Even by Waiting
When a pre-retiree is looking for advice on when to begin claiming Social Security, one common way to compare strategies is to calculate their “break-even” age. That’s essentially the age that they would need to live to in order to make the delay worthwhile.
When waiting until age 70 to begin claiming Social Security, most people would need to live into their late-70s or even their early-80s to hit that point.
If you have good reason to believe that longevity is not on your side, and you have no spouse or children who would depend on your benefit, you might want to consider claiming your Social Security sooner rather than later. While we never want to bet against our lives, it’s important to be realistic with your situation.
Talk to a Professional
Remember that a retirement income plan is a mixture of both financial and non-financial components unique to you. When considering any of these scenarios, insist on working with a Fiduciary advisor who specializes in this field.
If you need help finding a financial advisor in your area, we can help. Contact us today.
H2 subhead
Need Help With Social Security? Give Us a Call
Social Security can be complicated. Talk to a qualified financial advisor today to get professional advice today. Need help finding a financial advisor in your area? Give us a call today so we can match you with an advisor who will put your needs first.
This blog is for general information only and is not intended to provide specific legal, tax, or other professional advice. For a comprehensive review of your personal situation, always consult with a tax or legal advisor.
Ryan Yamada is a non-registered associate of Cetera Advisor Networks LLC.
[post_title] => Claiming Your Social Security Benefits Early: When It May Not Pay to Wait
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[post_content] => Scott Budd, CFP®
Senior Wealth Planner
Choosing the right Medicare plan is one of the most important decisions seniors are faced with. It’s also one of the most difficult. The health care system isn't user-friendly to begin with. Stack all the Medicare options on top of that and you've got yourself a challenge.
That's why it's a good idea to consult a qualified professional about which plan works best for you. It's tricky terrain and it's something that may be difficult to navigate on your own. I recommend raising the issue with your planner 12 to 18 months in advance of enrolling in Medicare.
Wondering when you need to sign up for Medicare? For most people, the enrollment age is 65. But take note: There's a seven-month enrollment window three months before and four months after your 65th birthday, after which you may be tagged with a late enrollment fee. You can use this handy flowchart to find out exactly when you should enroll.
What Medicare Plans Cover (and What They Don't)
Medicare, as you will see, is quintessential alphabet soup. Here's what you need to know about the plans – what they cover, what they don't, and how much they cost.
Part A - Pretty much everyone gets Part A. Why? Because the coverage is free for people who paid taxes during their working careers. This covers in-patient hospitalization as well as, in some cases, skilled nursing facility care and hospice and home health care.
Part B. This pays for your outpatient care by a doctor, medical tests, any drugs that are administered in a doctor's office and preventative measures like flu shots. Also included are ambulance services, durable medical equipment and mental health services. The average monthly premium in 2022 is $170.10.1
What's not covered in Part A or Part B: medical services outside the U.S., long term care, dental and optical care, dentures, cosmetic and other elective surgeries, acupuncture, hearing aids and routine foot care. While Medicare pays for care in a skilled nursing facility or rehab center that's preceded by a hospital stay, it does not cover so-called residential nursing home care.
Part C. Commonly known as Medicare Advantage, Part C is an alternative to Part A and Part B. For the record, Part A and Part B are often referred to as "Original Medicare." Medicare Advantage can be a good fit for seniors who are healthy and who don't mind being restricted to a specific network of doctors, health care providers, and hospitals. In the Medicare world, it's the closest equivalent to private insurance.
Depending on the state where you reside, a Medicare Advantage plan can cover traditional costs associated with original Medicare and often throws in extras like dental, vision, hearing, prescription drugs and gym memberships.
The plans, administered by a Medicare-approved private insurer, tend to have lower out-of-pocket costs. The premium itself is paid by Medicare. One hitch: Many regions in the country — rural areas, in particular — have limited or no Medicare Advantage providers. Availability could literally depend on the zip code you live in.
Part D. This helps cover outpatient prescription costs. Part D can also stand for difficult. Sometimes, it's not going to be the cheapest option when it comes to purchasing medications. Discount programs offered through companies like GoodRx and Costco are worth exploring. It's also a good practice to ask for a generic instead of a brand name drug if there's a safe alternative.
The good news? Part D providers issue a "formulary," or list of drugs, each year so you will always know what your plan covers and what it doesn't. The drug list has several cost-sharing tiers. The tier your medication is on will affect how much it costs. The lowest tier, Tier 1, involves generics and has the lowest co-payment. The current average cost of a basic Part D plan premium is $32.08 per month.2
Medicare Supplement Insurance. This insurance, known as Medigap, does precisely what the name implies – it helps to fill in any gaps not covered by original Medicare. Some policies, administered by private companies, even include medical care outside the U.S.
Medigap offers several different plans, with Plan G being the most comprehensive and far-reaching. The only things Medigap Plan G doesn't cover are the Part B deductible and anything related to drugs. The monthly premium for a Plan G policy ranges from $100 to $300.
Have Medicare Questions? We Can Help
Medicare can be confusing. Talk to a qualified professional today to get professional advice on which Medicare plan is best for your needs. Need help finding a financial advisor in your area? Give us a call today so we can match you with an advisor who will put your needs first.
1 U.S. Centers for Medicare and Medicaid Services, “Medicare Costs,” https://www.medicare.gov/basics/costs/medicare-costs
2 U.S. Centers for Medicare and Medicaid Services, “CMS Releases Projected 2023 Medicare Basic Part B Average Premium.” July 29, 2022, https://www.cms.gov/newsroom/news-alert/cms-releases-2023-projected-medicare-basic-part-d-average-premium
Scott Budd is a non-registered affiliate of Cetera Advisor Networks.
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[post_content] => Kevin Oleszewski, CFP®, Senior Wealth Planner
It's hard to fathom, but there are a lot of employee benefits that people aren't using correctly — or aren't using at all.
Why? I blame it largely on the failure of employers to educate in a coherent and easy-to-understand fashion. The employee benefits business has its own language and most workers — even if they read all of their onboarding documents — won't necessarily understand the content. It doesn't help that most high schools and colleges choose not to include personal finance in their curriculum.
Here's an example, out of my own experience, of how a workplace benefit can be overlooked. I have two friends, both in education, who literally threw away their 403(b) enrollment forms because they didn't understand what the tax-sheltered retirement plan was. I helped sort them out and they've been taking advantage of the benefit ever since.
5 Employee Benefits You Might Be Missing Out On
Here are five of the most often misunderstood workplace benefits that employees should take a hard look at.
1. Employer match on 401(k) plans. There's not a lot of mystery surrounding the 401(k) retirement and savings investment plan. It's been around for a long time. But things can go sideways when employees auto-enroll in the program at a contribution rate that's lower than the company match. If you are contributing 3% and the company match is 6%, the employer is only required to match at your level. That's missed opportunity. It's a good idea to revisit your rationale behind the amount of your contribution on a routine basis.
2. Health savings accounts. The health savings account, or HSA, can be a great tool to boost retirement savings. Typically, an HSA is used by people with high-deductible health insurance plans to pay out-of-pocket expenses. When you contribute to an HSA, you get a tax deduction for the money you put in and it grows tax-free. If you don't need to use the money early on, you can use it in retirement to reimburse for all medical expenses.
3. Employee stock purchase plans. Typically offered by a public company, these plans allow employees to buy stock at a discount. Discount rates tend to range from 10 to 15 percent. If used correctly, these plans can be a great investment, but you should consider your contributions to an ESPP in the context of your overall financial plan, as all investments have risk and the taxation rules on these plans can be complex.
4. Group disability and group life insurance. The plans offered by employers are generally the cheapest in the marketplace that you can buy. These low-cost plans can give financial stability to a family — yet they are often left on the table. On the insurance side, companies sometimes provide a certain amount of coverage— maybe two to three times your salary — with no physical exam required. It comes back to a lack of education. Also, there are a ton of insurance agencies that want you as customers and it's their loud, loud marketing voice that you are going to hear first.
5. Commuter benefits. More and more companies are offering commuter benefits to help with expenses like train tickets, parking costs, tolls and ride-share programs. You don't pay a tax on the benefit. The problem is there's a tremendous lack of awareness about a perk that could save you hundreds of dollars over the course of a year.
Use It or Lose It
The bottom line? It's important to maximize workplace benefits that are relevant and impactful to you. Ideally, set up a one-on-one consultation with your human resources contact when you start a new job. If you're working at a big company, there should be some sort of power point presentation that's offered during the onboarding process that outlines every benefit and how it works. Sometimes, the really large corporations will offer employee benefits workshops on routine basis.
This is a textbook case of "Use it or lose it." Ask questions. Read the small print. And talk to your colleagues who have worked at the company for a while. Get educated.
Have Questions About Workplace Benefits?
Talk to a qualified financial advisor today to get professional advice today. Need help finding a financial advisor in your area? Give us a call today so we can match you with an advisor who will put your needs first.
Kevin Oleszewski is not registered or affiliated with Cetera Advisor Networks, LLC.
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[post_content] => Have questions about how to incorporate your employee benefits into your financial plan? Talk to your financial advisor today or request an initial meeting with one of our highly qualified fiduciary advisors.
Download the checklist today to get started.
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[post_content] => Determining what age to begin claiming your Social Security benefit can be a big decision. Do you claim early at age 62? Take it at your full retirement age? Or delay until age 70? There are a wide variety of factors that can go into your final decision, and you should always consult with a qualified professional first. We put together a few charts to help you start that conversation.
Download the checklist today to get started.
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[post_content] => Medicare can be a confusing topic for many. You can't simply sign up anytime you want – and your enrollment timeframe can depend on a variety of factors. To help you figure out when your eligibility begins, we have put together the following flowchart.
Download the checklist today to get started.
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[post_content] => Trillions of dollars will soon transfer from the Silent Generation and baby boomers to their adult children in what financial experts are calling “The Great Wealth Transfer.”
Are you one of the people expecting an inheritance in this historic transfer of wealth? Have you thought about the implications of receiving a tidy sum as a beneficiary?
Get ready and informed for your role as a beneficiary.
Download the checklist today to get started.
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[post_content] => The financial world is full of industry jargon and unfamiliar language that the average consumer may struggle to understand. This can be especially distressing during times of volatility, when we're all grappling for answers.
In this guide, we've broken down some of the most common phrases you might be hearing and reading to help you understand what's really being said.
Download the checklist today to get started.
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Download the checklist today to get started.
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Resources
Resources
Commonly Overlooked Employee Benefits
Have questions about how to incorporate your employee benefits into your financial plan? Talk to your financial advisor today or request an initial meeting with one of our highly qualified fiduciary advisors. Download the checklist today to get started.
Continue Reading! 
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[post_content] => October Is Misunderstood
Good riddance to September, as both stocks and bonds had another rough month. When it was all said and done, the S&P 500 fell 9.3% for the worst September since 2008 and one of the worst ever. For the quarter, the S&P 500 lost 5.3%. That was the third consecutive quarterly decline, the longest streak since the six that occurred during the 2007-2008 financial crisis.
- October is known for both crashes and major market bottoms.
- The fourth quarter is typically the best quarter of the year, and that could play out once again.
- Midterm elections are nearly here, and stocks typically do well after elections.
- Inflation remains elevated, especially core inflation, and that means no relief from the Fed yet.
- A large component of core inflation is rents, and private measures show rents are decelerating sharply.
The Bear Market Killer
Every year is different, and the headwinds to this bear market are alive and well. But they are also well documented. One potential positive is overall market sentiment is approaching historic levels of bearishness. Remember what General Patton said, “If everybody is thinking alike, then somebody isn’t thinking.” The truth is everyone is expecting things to get worse, and that means a lot of bad news is priced into the market, suggesting potential capitulation is near.
The American Association of Individual Investors (AAII) Sentiment Poll recently showed two consecutive weeks of bears more than 60%. Incredibly, this has never happened before. Not during the crash of 1987, tech bubble burst, financial crisis, or pandemic. From a contrarian point of view, expectations are quite low, which could spark a rally on any good news (or maybe even less bad news). Of course, this doesn’t mean stocks will bottom immediately, but we are getting close.
The timing is also potential good news. While October has a reputation for crashes, it is really a bear market killer. Of the past 17 bear (or near bear markets), stocks bottomed in October six times. Could it happen again? With sentiment this pessimistic and extremely positive seasonals right around the corner, we’d be open to it.
Post-Election Positivity
It’s important for investors to remember we are about to enter one of the strongest periods for investors: the year after the midterm election.
Markets hate uncertainty, and there is a lot of that heading into an election. But once the election is over, stocks have historically done extremely well. In fact, since World War II, they’ve never been lower a year later and have risen an average of 14.1%. It might not feel like it now, but there could be good opportunities for investors over the coming year, and history would say be open to potential strength.
Inflation Continues to Run Hot, But a Big Break May Be Coming
We keep looking for inflation to break lower, but Lucy continues to take the football away. The Federal Reserve’s preferred measure of inflation, the price index based on personal consumption expenditures (PCE), came in above expectations for August. Headline inflation rose 0.3% in August and is now up 6.2% from a year ago. That’s lower than June’s 7% pace, but it’s not falling fast enough, despite the sharp drop in energy prices.
The big reason is core inflation, which excludes volatile food and energy prices, is running hot. Core prices rose 0.6% in August, the second highest monthly jump since inflation began its run last year. Core inflation is up 4.9% from last year, barely below the peak of 5.4% we saw in March. This is even more concerning with respect to monetary policy. The Fed uses core inflation to gauge where underlying inflation may be headed, and these numbers are not good. If this continues, the Fed is likely to keep raising interest rates to slow down the economy.
A big part of core inflation is housing, which is categorized as “rents” because official inflation numbers assume homeowners rent their homes to themselves as a service, and these rents are obtained from equivalent homes (called “Owner’s Equivalent Rents”). The good news is private measures of rents are showing a rapid deceleration in prices. The latest Apartment List national rent report showed rent growth is considerably slower than last year. Its rental index is up 7.5% year-over-year as of September, which is well below the peak 18% from last November.
The only hitch here is it may take a while for the deceleration to show up in official inflation statistics. This is because of the way the government measures rents — unlike the private measures, which include only new leases, the official data considers both new and existing leases. It makes sense because most leases are not up for renegotiation every month, but it does mean a sharp rise in market rents does not show up in the data immediately. On top of that, the government also averages the data over several months. What this means is the official rental inflation data may lag private measures by 8-12 months. The consumer price index for rents is still climbing, and conditions may get worse before they get better, with the numbers potentially going up for the next month or two. But the break will come.
The big question is whether the Fed will continue to focus on core inflation, an obviously lagging measure, to justify further interest rate increases. One potential positive is several supply-chain-related price indicators are pointing to a slowdown/reversal in goods prices, as we pointed out in previous commentary. This could offset higher rents over the next few months, providing some respite to a Fed looking to get on top of inflation. We just don’t need a repeat of the August inflation data, not to mention a repeat of what markets did in September.
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 – A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ 100 Index is a stock index of the 100 largest companies by market capitalization traded on NASDAQ Stock Market. The NASDAQ 100 Index includes publicly-traded companies from most sectors in the global economy, the major exception being financial services.
Compliance Case # 01504375
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[post_content] => Stocks had another rough week. The S&P 500 flirted with the June lows and swung back into bear market territory. Investors are worried about inflation, the Fed, the economy, the Russia-Ukraine war, among other market challenges.
- The market is experiencing peak bearishness.
- This coincides with peak hawkishness from the Federal Reserve, as it projects more interest rate hikes.
- Fed Chair Jerome Powell warns that putting inflation behind us may not be painless.
- A down swing in inflation could prompt the Fed to pause.
The Fed is strongly committed to bringing inflation back down, and Fed members believe that is the key to sustaining a healthy economy and labor market over the long term. However, they also believe there is no painless way to do it, and that was a big takeaway from the meeting. It’s worth quoting Fed Chair Powell in full:
“We’re never going to say that there are too many people working, but the real point is that people are really suffering from inflation. If we want another period of a very strong labor market, we have got to get inflation behind us. I wish there were a painless way to do that. There isn’t.”
This came across in the Fed’s latest economic projections. It slashed estimates of 2022 GDP growth from 1.7% to 0.2%, and for 2023, from 1.7% to 1.2%. The Fed now expects unemployment to peak at 4.4% in 2023, up from the June projection of 3.9% (the rate is currently 3.7%). That translates to about 1.2 million more people losing their jobs.
Up until June, central bankers were clearly hoping to get away with small upticks in the unemployment rate, i.e., a “soft landing.” No longer. The latest projections basically amount to a recession, although perhaps, a mild one. The problem is once unemployment starts to rise, it’s not exactly easy to cap it at a particular number.
Are There Any Positives At All?
Powell did lay out a scenario for a soft landing. It’s a challenging path, but not implausible in our view.
- The labor market is currently imbalanced, with demand outrunning supply. But job vacancies (representing demand) are at such a high level that they could potentially fall without much of an increase in unemployment. However, this would be a big break from what we’ve seen in the past, as falling vacancies have typically been associated with more layoffs. Also, workers quit their jobs at a much higher rate after the pandemic (for better-paying jobs), but that’s slowing down now. If this continues, it should also ease the supply-demand imbalance and associated wage pressures.
- Inflation expectations, both amongst consumers and market participants, have been well anchored. That means there’s no expectations-related inflation spiral. This occurs when people expect higher prices in the future, so they buy now to get ahead of inflation and, in turn, drive up prices.
- The current inflation has been partly caused by a series of supply shocks, beginning with the pandemic and the economic reopening, and amplified by the Russia-Ukraine war. These weren’t present in prior business cycles. Of course, the Fed expected to see supply-side healing by now, but it hasn’t happened yet.
Of course, this assumes there are no more shocks, such as the Russia-Ukraine war presented. That really is the key, as a convincing deceleration in prices is required for the Fed to pivot away from its current aggressive stance.
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 – A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ 100 Index is a stock index of the 100 largest companies by market capitalization traded on NASDAQ Stock Market. The NASDAQ 100 Index includes publicly-traded companies from most sectors in the global economy, the major exception being financial services.
Compliance Case #01497141
[post_title] => Market Commentary: Things Are Bad, and That Could Be Good
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[post_content] => The popular Green Day song titled “Wake Me Up When September Ends” feels quite appropriate given the recent market volatility. In fact, the S&P 500 has now dropped at least 3% for three of the past four weeks. As we’ve noted in this commentary, stocks tend to be quite volatile and potentially weak in September, and that is playing out once again in 2022.
- It’s been another volatile September. We’ve seen this before, and it may not be over yet.
- We expect there’s more room for interest rates to rise, especially if core inflation remains high.
- The Fed is likely to raise interest rates by 0.75% in September, but the key will be how far the Fed will go.
- Economic indicators, including retail sales, manufacturing, and unemployment claims, do not point toward a recession.
Interest Rates Could Keep Rising If Inflation Stays High
The August CPI report was not pretty. The headline number came in at 0.1%, pulled down by gas prices but higher than an expected -0.1% reading. The problem was core CPI, excluding food and energy, was 0.6%, twice what was expected. Tobacco, new vehicles, vehicle repairs, dental services, and hospital services all came in hotter than expected. Shelter costs continued to remain strong, while pandemic-impacted goods and services, including used/new cars, apparel, airfares, hotels, and furnishings, did not exert as much of a deflationary force as was expected by this time.
There were still some positives. For starters, CPI likely peaked in June at more than 9% year-over-year and fell to 8.3% in August. It should continue to trend lower. We have seen huge drops in prices paid in various manufacturing surveys, improvements in time to delivery, and imploding used car prices. All these factors will feed into the official inflation numbers over the next few months.
Nevertheless, markets were quick to react, as a hot inflation report led investors to expect the Fed to continue raising rates at a furious pace. Investors currently anticipate the federal funds rate to be raised as high as 4.2%. The white line in the chart below shows investor expectations for the fed funds rate, while the green line shows the median of the dots, which represent each Fed member’s estimate for where the policy rate will be in 2022 and beyond.
As you can see, the green line for 2022 is well below the white line (investor expectations). The Fed has a meeting this week, and we will be watching how much higher Fed members move their estimates and whether they match the market’s expectations. Our view is the green line will shift higher, close to 4% or more. That is why we’re still cautious on our outlook for interest rates. We believe there’s room for rates across the spectrum to rise — on the back of higher policy rates.
Short-term Treasury interest rates, which are a good approximation of monetary policy, have surged this year and are well above pre-crisis levels. After the August inflation report was released, one-year rates rose from 3.70% to 3.92%, while slightly longer-term five-year rates rose from 3.47% to 3.58%. So, they certainly are closer to where policy rates may get to but not quite there yet.
Still No Sign of Recession
Data last week showed consumer spending remains solid, with retail sales rising 0.3% in August. This was mostly driven by auto sales, although spending was strong in various other sectors, including restaurants and building material and supply stores. The only drag was gasoline station purchases, where sales fell 4%, but that was because gas prices fell. If anything, we’re surprised at the strength of retail sales, which mostly comprise spending on goods, even as the country puts COVID in the rearview mirror. Real retail sales, which are adjusted for prices, rose 0.2% in August and are almost 10% above the pre-crisis trend, with no sign of slowdown yet.
Industrial production did slow in August, falling 0.2%. However, this was because of a large pullback in electric power output. The all-important manufacturing sector saw production tick higher by 0.1%, and that overcame a 1.4% decline in motor vehicle and parts production. This is another puzzle for us — supply chains are clearly improving, but vehicle production remains below pre-pandemic levels. This is entirely because auto production is down about 32%, while light vehicle truck production (like SUVs) is back where it was. At the beginning of the year, we expected a pickup in auto production, providing more of a tailwind to the economy.
Finally, though certainly not the least important, unemployment claims continue to fall and remain well below pre-crisis levels. That means people getting laid off can find jobs quickly, without having to file for unemployment benefits — a sign of a very strong labor market. The downside is that increases the odds of the Fed continuing to raise interest rates to cool the economy down.
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 – A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ 100 Index is a stock index of the 100 largest companies by market capitalization traded on NASDAQ Stock Market. The NASDAQ 100 Index includes publicly-traded companies from most sectors in the global economy, the major exception being financial services.
Compliance Case # 01489423
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[post_content] => It’s hard to believe, but we are less than two months away from midterm elections in early November. Given all the well-known worries this year — from inflation to the war in Ukraine, the economy to the bear market — most investors haven’t started to think about midterms quite yet. But we expect that to change as this important date nears.
Key Points for the Week
- Midterm elections are less than two months away, so expect talk about potential impact to heat up.
- Midterm election years tend to be rough for stocks, but markets typically improve in the last quarter and into the following year.
- Consumers are seeing some relief as gas prices fall, which should soften inflation numbers.
- Unemployment claims data suggest the labor market remains strong.
Source: Carson Investment Research, YCharts 09/09/22
The bottom line is 2022 hasn’t been fun for investors. But it’s important to remember we’ve seen this before and there’s reason to expect better days ahead.
How Will the Election Results Impact Markets?
Investors often want to know which sectors will do well if one or the other party wins an election. Here’s the truth: It isn’t that simple. After President Donald Trump won in 2016, many investors expected steel, coal, and financials to do well, and technology to struggle. The opposite happened. When President Joe Biden won in 2020, the consensus was renewable energy would do well while coal and refiners would struggle. Again, the opposite happened. While there may be some value in following election results, be careful not to blindly follow the crowd’s expectations.
Midterm elections are not typically favorable for the party in power. Since World War II, the controlling party has lost four seats in the Senate and 26 seats in the House on average. This year, Republicans only need five seats to flip the House and most strategists think this is quite possible. The Senate is split 50/50, but the open Senate seats are closely contested and considered a coin flip by many. What does this mean for investors? The best scenario for stocks is a Democratic president and Republican-controlled Congress (this was the case in the late 1990s under President Bill Clinton). A Democratic president with a split Congress has also generated solid returns in the past. Both scenarios suggest post-November, history will be with the bulls.
On this subject, we prefer to take a broader view and share another important takeaway for investors. From the date of the midterm election going out one-year, the S&P 500 has been higher every single time since World War II. Not all years were up significantly, but a consistent gain and an average of 14.1% is worth noting.
Consumer Confidence is Rising as Gas Prices Fall
It’s as simple as that, as the chart below illustrates.
Consumer confidence started falling in the summer of 2021 as gas prices climbed. Granted, the economy faced other challenges last summer, such as the spread of the COVID Delta variant. But the nationwide average gas price crossed the $3.0/gallon mark in May 2021 and rose steadily over the remainder of the year. All the while, consumer confidence moved lower, despite COVID fading into the background and economic data improving.
Then, at the end of February 2022, Russia’s invasion of Ukraine sent commodity markets into a frenzy and surging global oil prices pushed gas prices above $4/gallon. March-April saw some relief, but issues with refining capacity in the U.S. sent gas prices to $5.0/gallon by mid-June. That was a 63% increase in one year. No wonder the University of Michigan Consumer Sentiment Index hit a record low of 50.0 in June. That’s lower than the start of the pandemic in March 2020 (72.3) and the depths of the financial crisis in 2008 (55.3). Even the Conference Board’s Consumer Confidence Survey, which is typically tied to the strength of the labor market, fell significantly, from 118 in April 2021 to 95 in July.
But over the last four to eight weeks, sentiment indicators have picked up again just as gas prices have seen a steep fall, from $5/gallon to about $3.75.
Consumer confidence tells us how consumers are feeling about the economy. And this is important because 70% of the U.S. economy is made up of consumer spending. Confident consumers can potentially fuel more spending and economic growth. On the other hand, if consumers are feeling down, they may save rather than spend, especially if they feel that poor economic conditions will eventually impact their personal finances.
The Federal Reserve considers consumer sentiment, and especially consumer expectations for inflation, an important indicator. Fed members fear that rising inflation expectations will keep inflation higher for longer. The idea is if consumers expect more inflation, they will ask for higher wage increases, which will result in more spending and put upward pressure on prices, leading to a cycle of “spiraling inflation.” Now, inflation expectations rose over the past year, along with gas prices. But there is some good news as far as the Fed is concerned: Long-term inflation expectations (over the next five years) have fallen to 2.9%, and that is right at the three-decade average for this metric.
Moreover, recent unemployment claims data suggest the labor market remains strong. Unemployed workers who are continuing to collect unemployment benefits now make up 1% of the labor force, which is a record low. This is not something we would expect if the economy were in a recession.
Combine a strong labor market with easing price pressure, and we believe consumer confidence should continue rising as we head into the fall. This should give the Fed some breathing room as it increases rates to fight inflation, with slightly less risk of pushing the economy into a recession.
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
Compliance Case #01484392
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[post_content] => It continues to be a challenging year for stocks, but all is not lost. We believe there could be some decisive gains before year-end. Let’s look back at two other midterm years that were similar to 2022 in more ways than one.
- Historically, similar bad starts to midterm election years have been followed by stock market rallies late in the year.
- More than 3.5 million jobs have been created over the first eight months of 2022, which is not typical of a recession.
- September is no doubt a volatile and historically weak month. So, buckle up.
- Supply chains are improving and gas prices are falling, signs that inflation has likely peaked in the U.S. Consumer confidence is also rising amid falling gas prices.
A Positive Employment Report, In More Ways Than One
Good news did arrive last week in the form of the August employment report. This initially buoyed equities until news that Russia is cutting off gas supplies for Europe rocked markets late Friday — a reminder that global events can cause higher volatility over the short run. The economy created 315,000 jobs in August. Since these numbers can be revised, it’s more useful to look at the average over the last three months — job growth averaged 378,000 each month between June and August. The bigger picture is the economy has created 3.5 million jobs this year, and there are five months left to go. Average annual job growth since 1940 is about 1.5 million; 2.3 million when recessions are excluded. This is a very strong labor market.
The August report also showed the unemployment rate rose from 3.5% to 3.7%. In his Jackson Hole speech last week, Fed Chair Jerome Powell said the Fed is focused on getting inflation down to its 2% target but that will involve bringing pain to households and businesses. So, are we starting to see signs of the pain Powell mentioned?
Not really. The unemployment rate is calculated by dividing the number of unemployed persons (those who are looking for a job) by the size of the labor force (employed + unemployed). In August, the ranks of unemployed increased but not because more people were laid off. It was because more people came back into the labor force and started looking for jobs. This is a good sign because it points to a more attractive labor market, certainly not something seen in a recession.
The connection between employment and prices is wage growth, at least as the Fed sees it. And there is good reason for this. Inflation can be impacted by several factors, including global oil, food prices, and supply-chain disruptions — as we’re all familiar with at this point. Stripping out the goods impacted by these sorts of factors leaves us with services inflation. This is what the Fed is really concerned about, and historically in the U.S., strong wage growth has led to higher services inflation.
But there was good news on this front, too. Average hourly earnings for private sector workers rose about 4% (at an annualized rate) in August, which is slower than the 5% rate it has averaged over the past year. It appears to be moving closer to the pre-crisis wage growth rate of about 3%.
Slower wage growth is not great news if you are employed, especially considering the high levels of inflation. Falling gas prices are providing some relief; but from the Fed’s perspective, the best news in the August payroll report was that wage growth slowed.
Many economists believe that for wage growth to slow, job openings have to fall — leading to slower employment gains and, ultimately, higher unemployment. So far, that’s not happening.
Wage growth has slowed despite job openings remaining extremely elevated. Job openings listed by employers are running twice as high as the number of unemployed workers. Before the pandemic the ratio was about 1.2:1, i.e., 12 jobs listed for every 10 unemployed workers. Now it’s 2:1. Employment gains slowed in August, but it was always unlikely that job growth would continue running at half a million a month. Moreover, layoffs remain at record lows. All this is exactly the opposite of what would be expected.
While it’s hard to pinpoint an exact reason, a significant factor may be that the economy is continuing to normalize after two years of massive pandemic-related shifts. The pandemic prompted workers to quit their jobs at a much higher rate. Some termed this the “Great Resignation,” but it was really the “Great Job Switch.” Workers did not quit their jobs to stop work. Instead, they quit to take another job — and, importantly, one with higher pay. Over the 12 months through July, “job switchers” saw wage gains of 6.7% on average, compared to 4.9% for “job stayers.”
As the economy normalizes, this trend is reversing. Quits have fallen 7% since November, with most of that decline occurring over the past four months. That may be why wage growth is falling without unemployment rising in a significant way.
That would be the ideal case for the Fed and the economy. If wage growth continues to fall, that is a good sign for the services part of inflation. It also means the Fed would not have to increase rates too much further. And if all that happens on the back of fewer quits as opposed to rising unemployment, that would indeed be the best case.
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 INDEX
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
MSCI ACWI INDEX
The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set.
Compliance Case #01478809
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[post_content] => October Is Misunderstood
Good riddance to September, as both stocks and bonds had another rough month. When it was all said and done, the S&P 500 fell 9.3% for the worst September since 2008 and one of the worst ever. For the quarter, the S&P 500 lost 5.3%. That was the third consecutive quarterly decline, the longest streak since the six that occurred during the 2007-2008 financial crisis.
- October is known for both crashes and major market bottoms.
- The fourth quarter is typically the best quarter of the year, and that could play out once again.
- Midterm elections are nearly here, and stocks typically do well after elections.
- Inflation remains elevated, especially core inflation, and that means no relief from the Fed yet.
- A large component of core inflation is rents, and private measures show rents are decelerating sharply.
The Bear Market Killer
Every year is different, and the headwinds to this bear market are alive and well. But they are also well documented. One potential positive is overall market sentiment is approaching historic levels of bearishness. Remember what General Patton said, “If everybody is thinking alike, then somebody isn’t thinking.” The truth is everyone is expecting things to get worse, and that means a lot of bad news is priced into the market, suggesting potential capitulation is near.
The American Association of Individual Investors (AAII) Sentiment Poll recently showed two consecutive weeks of bears more than 60%. Incredibly, this has never happened before. Not during the crash of 1987, tech bubble burst, financial crisis, or pandemic. From a contrarian point of view, expectations are quite low, which could spark a rally on any good news (or maybe even less bad news). Of course, this doesn’t mean stocks will bottom immediately, but we are getting close.
The timing is also potential good news. While October has a reputation for crashes, it is really a bear market killer. Of the past 17 bear (or near bear markets), stocks bottomed in October six times. Could it happen again? With sentiment this pessimistic and extremely positive seasonals right around the corner, we’d be open to it.
Post-Election Positivity
It’s important for investors to remember we are about to enter one of the strongest periods for investors: the year after the midterm election.
Markets hate uncertainty, and there is a lot of that heading into an election. But once the election is over, stocks have historically done extremely well. In fact, since World War II, they’ve never been lower a year later and have risen an average of 14.1%. It might not feel like it now, but there could be good opportunities for investors over the coming year, and history would say be open to potential strength.
Inflation Continues to Run Hot, But a Big Break May Be Coming
We keep looking for inflation to break lower, but Lucy continues to take the football away. The Federal Reserve’s preferred measure of inflation, the price index based on personal consumption expenditures (PCE), came in above expectations for August. Headline inflation rose 0.3% in August and is now up 6.2% from a year ago. That’s lower than June’s 7% pace, but it’s not falling fast enough, despite the sharp drop in energy prices.
The big reason is core inflation, which excludes volatile food and energy prices, is running hot. Core prices rose 0.6% in August, the second highest monthly jump since inflation began its run last year. Core inflation is up 4.9% from last year, barely below the peak of 5.4% we saw in March. This is even more concerning with respect to monetary policy. The Fed uses core inflation to gauge where underlying inflation may be headed, and these numbers are not good. If this continues, the Fed is likely to keep raising interest rates to slow down the economy.
A big part of core inflation is housing, which is categorized as “rents” because official inflation numbers assume homeowners rent their homes to themselves as a service, and these rents are obtained from equivalent homes (called “Owner’s Equivalent Rents”). The good news is private measures of rents are showing a rapid deceleration in prices. The latest Apartment List national rent report showed rent growth is considerably slower than last year. Its rental index is up 7.5% year-over-year as of September, which is well below the peak 18% from last November.
The only hitch here is it may take a while for the deceleration to show up in official inflation statistics. This is because of the way the government measures rents — unlike the private measures, which include only new leases, the official data considers both new and existing leases. It makes sense because most leases are not up for renegotiation every month, but it does mean a sharp rise in market rents does not show up in the data immediately. On top of that, the government also averages the data over several months. What this means is the official rental inflation data may lag private measures by 8-12 months. The consumer price index for rents is still climbing, and conditions may get worse before they get better, with the numbers potentially going up for the next month or two. But the break will come.
The big question is whether the Fed will continue to focus on core inflation, an obviously lagging measure, to justify further interest rate increases. One potential positive is several supply-chain-related price indicators are pointing to a slowdown/reversal in goods prices, as we pointed out in previous commentary. This could offset higher rents over the next few months, providing some respite to a Fed looking to get on top of inflation. We just don’t need a repeat of the August inflation data, not to mention a repeat of what markets did in September.
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 – A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ 100 Index is a stock index of the 100 largest companies by market capitalization traded on NASDAQ Stock Market. The NASDAQ 100 Index includes publicly-traded companies from most sectors in the global economy, the major exception being financial services.
Compliance Case # 01504375
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[post_content] => Optimizing your Social Security benefits can have a big impact on your quality of life in retirement.
Carson’s Senior Wealth Planner Ryan Yamada hosted the webinar How to Optimize Social Security, which is now available on-demand.
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[post_content] => You probably have questions on the newly signed into law Inflation Reduction Act. You hear about it on the news and wonder what impact it can potentially have on the market – and your wallet. Get your questions answered in our webinar on the Inflation Reduction Act, now available on-demand.
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[post_content] => Watch this webinar hosted by Carson’s Matt Lewis, Vice President, Insurance, as he dives into the Medicare.
[post_title] => Maximizing Medicare: A Strategic Approach to Health Care in Retirement
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[post_content] => Watch this webinar hosted by Carson’s Scott Kubie, Senior Investment Strategist, and Patrick Sittner, Portfolio Strategist, as they dive into the quarterly market outlook.
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[post_content] => Carson Partners’ Scott Kubie shares key events we saw in the past quarter and how we think they’ll affect markets in the upcoming quarter. Contact us to speak with a financial advisor.
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Videos
Videos
How to Optimize Social Security
Posted on September 19, 2022
Optimizing your Social Security benefits can have a big impact on your quality of life in retirement. Carson’s Senior Wealth Planner Ryan Yamada hosted the webinar How to Optimize Social Security, which is now available on-demand.
Continue Reading! Inflation Reduction Act of 2022
Posted on September 9, 2022
Maximizing Medicare: A Strategic Approach to Health Care in Retirement
Posted on August 22, 2022
Q3 2022 Quarterly Market Outlook
Posted on July 22, 2022
Quarterly Market Outlook Highlights: Q3 2022
Posted on July 15, 2022
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[post_date] => 2022-05-26 08:18:44
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[post_content] => By Erin Wood, Senior Vice President, Financial Planning and Advanced Solutions
Just a few years ago, Rose retired with a decent-sized 401(k). With some careful budgeting and a part-time job, her retirement finances were on track. Rose was looking forward to traveling, reigniting her passion for photography and spending time with her son and her grandkids.
The pandemic changed everything. Her son contracted COVID-19 in the early days of the pandemic. His health deteriorated quickly and he died at only 35 years old. He didn’t have life insurance. A gig worker without a 401(k), he had very minimal retirement savings.
Rose’s grandchildren, ages 2 and 6, joined the more than 140,000 U.S. children under the age of 18 who lost their primary or secondary caregiver due to the pandemic from April 2020 through June 2021. That’s approximately one out of every 450 children under age 18 in the United States.
Rose’s ex-daughter-in-law battles drug addiction and had lost custody of the kids during the divorce, so Rose became the children’s primary caregiver. She quickly discovered that caring for young children as an older adult is more physically challenging than when she raised her son, so she made the difficult decision to leave her part-time job to have the energy to care for her active grandchildren. She wants to do everything for these kids who have lost so much — but it puts her financial security at risk.
Sadly, she is far from alone.
Read the full article
[post_title] => COVID’s Financial Toll Isn’t What You Think
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[post_content] => By: Erin Wood, CFP®, CRPC®, FBS®, Senior Vice President, Financial Planning, Carson Group
Laura and Caroline are in their late 50s. Friends since meeting at a playgroup for their toddlers, both were in long-term, seemingly happy marriages. Laura married her high school sweetheart right after they graduated from college and worked as an RN while her husband attended medical school. When their first child was born, Laura decided to become a stay-at-home parent. She just celebrated sending her last child off to college and was looking forward to enjoying an empty nest with her husband.
Already established in her career as an accountant for a large insurance firm, Caroline married a bit later, at 33. Today, she’s a financial controller for the same firm. Her spouse owns his own landscaping business. Caroline is the high-wage earner in the family.
Unfortunately, both women are now surprised to be facing a “gray” divorce: a divorce involving couples in their 50s or older. Each will need to make some tough choices as they deal with the emotional devastation of unraveling a long-term marriage. Although my focus as a financial planner is to help my clients find their financial footing during and after divorce, I also encourage clients to build a strong network of family and friends as well as a therapist or clergy person to offer critical emotional support during this time.
Read full article on Kiplinger.com
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[post_date] => 2020-01-28 10:38:21
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[post_content] => By Jamie Hopkins
Roth conversions can be a powerful tax and retirement planning technique. The idea behind most Roth conversions is to take money from an IRA and convert it to a Roth IRA. Essentially, you’re paying taxes today instead of paying taxes in the future.
The Tax Cut and Jobs Act lowered taxes for many Americans and with the SECURE Act Roth IRAs became even more powerful as an estate planning vehicle to minimize taxes, so it’s a convenient time to take advantage of Roth conversions. However, Roth conversions can come with some issues. Before you engage in one, be aware of these common problems as it can be hard to undo the transaction.
Conversions After 72
IRAs and Roth IRAs are both retirement accounts. It’s easy to assume Roth Conversions are best suited for retirement, too. However, waiting too long to do conversions can actually make the entire process more challenging.
If you own an IRA, it’s subject to required minimum distribution rules once you turn 72, as long as you had not already reached age 70.5 by the end of 2019. The government wants you to start withdrawing money from your IRA each year and pay taxes on the tax-deferred money. However, Roth IRAs aren’t subject to RMDs at age 72.
If you don’t need the money from your RMD to support your retirement spending, you might think, “I should convert this to a Roth IRA so it can stay in a tax-deferred account longer.” Unfortunately, that won’t work. You can’t roll over or convert RMDs for a given year. So, if you owe a RMD in 2020, you need to take it and you cannot convert it to a Roth IRA.
Despite the fact you can’t convert an RMD, it doesn’t mean you can’t do Roth conversions after age 72. However, you need to make sure you get your RMD out before you do a conversion. Your first distributions from an IRA after 72 will be treated as RMD money first. This means, if you want to convert $10,000 from your IRA, but you also owe an $8,000 RMD for the year, you need to take the full $8,000 out before you do a conversion.
Full article on Forbes
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice."
"Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty. Converting from a traditional IRA to a Roth IRA is a taxable event. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.
[post_title] => 3 Roth Conversion Traps To Avoid After The SECURE Act
[post_excerpt] => Roth conversions can be a powerful tax and retirement planning technique. The idea behind most Roth conversions is to take money from an IRA and convert it to a Roth IRA. Essentially, you’re paying taxes today instead of paying taxes in the future.
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[post_date] => 2019-12-06 10:26:33
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[post_content] => By Jamie Hopkins
People plan on having a good day, a good year, a good retirement and a good life. But why stop there? Why not plan for a good end of life, too?
End of life or estate planning is about getting plans in place to manage risks at the end of your life and beyond. And while it might be uncomfortable to discuss or plan for the end, everyone knows that no one will live forever.
Estate planning and end of life planning are about taking control of your situation. Death and long-term care later in life might be hard to fathom right now, but we can’t put off planning out of fear of the unknown or because it’s unpleasant. Sometimes it takes a significant event like a health scare to shake us from our procrastination. Don’t wait for life to happen to you, though.
Full article on Kiplinger
[post_title] => 10 Common Estate Planning Mistakes (and How to Avoid Them)
[post_excerpt] => Estate planning and end of life planning are about taking control of your situation. Death and long-term care later in life might be hard to fathom right now, but we can’t put off planning out of fear of the unknown or because it’s unpleasant. Don’t wait for life to happen to you, though.
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[post_date] => 2019-11-11 16:27:38
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[post_content] => By Jamie Hopkins
Everyone’s heard the stories of celebrities who died without a proper estate plan in place. It’s been a hot topic in the last few years with Prince and Aretha Franklin serving as unfortunate faces of the phenomenon. But it’s not just freewheeling entertainers. Abraham Lincoln – a lawyer by trade – didn’t have one either, which leads me to say something you’ve probably never heard anyone say: don’t be like Abraham Lincoln.
Most people want to plan for a good life and a good retirement, so why not plan for a good end of life, too? Let’s look at four ways you can refine your estate plan, protect your assets and create a level of control and certainty for your loved ones.
1. Review Beneficiary Designations
Many accounts can pass to heirs and loved ones without having to go through the sometimes costly and time-consuming process of probate. For instance, life insurance contracts, 401(k)s and IRAs can be transferred through beneficiary designations – meaning you determine who you want to inherit your accounts after you die by filing out a beneficiary form. You can often name successors or backup beneficiaries, and even split up accounts by dollar amount or percentages between beneficiaries with these forms.
Full article on Forbes
[post_title] => 4 Ways To Improve Your Estate Plan
[post_excerpt] => Most people want to plan for a good life and a good retirement, so why not plan for a good end of life, too? Let’s look at four ways you can refine your estate plan, protect your assets and create a level of control and certainty for your loved ones.
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[post_content] => By Erin Wood, Senior Vice President, Financial Planning and Advanced Solutions
Just a few years ago, Rose retired with a decent-sized 401(k). With some careful budgeting and a part-time job, her retirement finances were on track. Rose was looking forward to traveling, reigniting her passion for photography and spending time with her son and her grandkids.
The pandemic changed everything. Her son contracted COVID-19 in the early days of the pandemic. His health deteriorated quickly and he died at only 35 years old. He didn’t have life insurance. A gig worker without a 401(k), he had very minimal retirement savings.
Rose’s grandchildren, ages 2 and 6, joined the more than 140,000 U.S. children under the age of 18 who lost their primary or secondary caregiver due to the pandemic from April 2020 through June 2021. That’s approximately one out of every 450 children under age 18 in the United States.
Rose’s ex-daughter-in-law battles drug addiction and had lost custody of the kids during the divorce, so Rose became the children’s primary caregiver. She quickly discovered that caring for young children as an older adult is more physically challenging than when she raised her son, so she made the difficult decision to leave her part-time job to have the energy to care for her active grandchildren. She wants to do everything for these kids who have lost so much — but it puts her financial security at risk.
Sadly, she is far from alone.
Read the full article
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In the News
In the News
COVID’s Financial Toll Isn’t What You Think
Posted on May 26, 2022
By Erin Wood, Senior Vice President, Financial Planning and Advanced Solutions Just a few years ago, Rose retired with a decent-sized 401(k). With some careful budgeting and a part-time job, her retirement finances were on track. Rose was looking forward to traveling, reigniting her passion …
Continue Reading! Emerging Financially Healthy After a Gray Divorce
Posted on March 25, 2022
3 Roth Conversion Traps To Avoid After The SECURE Act
Posted on January 28, 2020
10 Common Estate Planning Mistakes (and How to Avoid Them)
Posted on December 6, 2019
4 Ways To Improve Your Estate Plan
Posted on November 11, 2019
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