The economic fallout from the coronavirus pandemic continues, even as states start to reopen restaurants, retail stores, and other businesses. The crisis brought an end to the bull market that started in 2009 and threatens to usher in a recession.1 What does the future hold for the stock market and the economy? When will the economy recover? And how will this crisis impact your retirement and your financial future? It’s impossible to definitively answer those questions. In many ways, this event is unprecedented. We don’t know how long the virus will present a threat, so it’s impossible to predict how or when the economy may recover. However, it is possible to make adjustments to your strategy to minimize risk and take advantage of potential opportunities. It’s also helpful to keep in mind the long-term nature of the economy and the financial markets. Nothing lasts forever, including recessions and bear markets. Stock Market PerformanceThe financial markets have been a rollercoaster since the onset of the pandemic. On February 19, the S&P 500 closed at 3386. On March 23, it closed at 2237, a drop of 33.93%. Since that time, the market S&P has climbed to 2863 as of May 15.2 It’s important to remember that the stock market isn’t the same as the economy. A drop in the stock market doesn’t necessarily signal a recession, just like a rise doesn’t necessarily spell an economic recovery. It’s also helpful to remember that bear markets are a natural part of investing. They aren’t always caused by global pandemics, but they do happen. There have been 16 bear markets since 1926. On average, they last 22 months and are followed by a 47% gain in the year following the market’s lowpoint.3 We can’t predict when the market will hit its low point, or if it already has, but if history is any guide, the market will recover at some point. Economic NewsWhile the stock market has bounced back somewhat since its March decline, the overall economic news continues to be negative. More than 36 million people have filed for unemployment since late March. In 11 states, more than a quarter of the workforce is unemployed.4
In the first quarter, the economy contracted for the first time since the 2008 financial crisis. GDP declined by an annualized rate of 4.8%. That’s not as steep as the GDP decline of 8.4% annualized decline in 2008. However, it’s possible the economy could face a greater decline in the second quarter. Consumer spending, which accounts for 70% of GDP, fell by an annualized rate of 7.6% in the first quarter. That’s the steepest drop for that metric since 1980.5 While states may be starting the reopen process, there is still significant uncertainty surrounding the crisis and the economy’s future. The good news is you can take action to minimize risk. Contact us today at Heritage Financial North. We can help you analyze your goals and needs and implement a strategy. Let’s connect today and start the conversation. 1https://www.cnn.com/2020/03/11/investing/bear-market-stocks-recession/index.html 2https://www.google.com/search?safe=off&tbm=fin&sxsrf=ALeKk01UjyvpIcf62vDAgyulZ3dZuL1GWg:1589832165005&q=INDEXSP:+.INX&stick=H4sIAAAAAAAAAONgecRowi3w8sc9YSntSWtOXmNU5eIKzsgvd80rySypFBLnYoOyeKW4uTj1c_UNDM0qi4t5FrHyevq5uEYEB1gp6Hn6RQAAItD1MEkAAAA&sa=X&ved=2ahUKEwikycWrmr7pAhWWU80KHfhUBrcQlq4CMAB6BAgBEAE&biw=1536&bih=754&dpr=1.25#scso=_JerCXv0o9o70_A-NwLLYBg1:0 3https://www.fidelity.com/viewpoints/market-and-economic-insights/bear-markets-the-business-cycle-explained 4https://www.nytimes.com/2020/05/14/business/economy/coronavirus-unemployment-claims.html 5https://www.npr.org/sections/coronavirus-live-updates/2020/04/29/847468328/tip-of-the-iceberg-economy-likely-shrank-but-worst-to-come Advisory Services Offered Through Change Path LLC, a Registered Investment Advisor. Heritage Financial North and Change Path LLC are not affiliated. Licensed Insurance Professional. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. No information on this website is intended to provide and should not be relied upon for or construed as accounting, legal, tax or investment advice. Neither Change Path, LLC not its representatives give tax or legal advice. Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. 20093 - 2020/5/19
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On March 27, the government passed the Coronavirus Aid, Relief, and Economic Security Act, otherwise known as the CARES Act. The Act had a wide range of provisions to provide Americans and small businesses with economic support during the coronavirus pandemic. The bill provided stimulus payments, enhanced unemployment, and various forms of business loans. One provision that flew under the radar was the ability for qualified individuals to take distributions from their 401(k) plans and IRAs without paying early distributions penalties. Normally, you face a 10% early distribution penalty if you take a withdrawal from these accounts before age 59 ½.1 However, under the CARES Act you can take up to $100,000 as a penalty-free distribution from your qualified accounts, assuming you are a qualified individual.2 Are you qualified? And even if you can take a distribution, is it wise to do so? CARES Act Qualified Plan DistributionsUnder the CARES Act, you can take up to $100,000 in qualified plan distributions if you are a qualified individual. Who is qualified? Anyone who meets the following criteria:
If you meet any of these criteria and you decide to take a distribution, you won’t have to pay the 10% early distribution penalty, even if you are under age 59 ½. However, you will still have to pay income taxes on the distribution. You can spread the taxes out over a three-year period, but you still have to pay them.2 Should you take a CARES Act distribution?A CARES Act distribution may be the right strategy if you are in a financial crisis and have limited avenues available for relief. However, just because the distribution is “penalty-free” doesn’t mean it comes without consequences.
In addition to paying taxes on the distribution, you’ll also forego any future growth on the assets you withdraw. Tax-deferred growth is one of the biggest advantages of a qualified account. However, if you pull out funds, you lose all future tax-deferred growth on that amount. That could lead to a substantial reduction in your future assets at retirement. Instead of dipping into your 401(k) or IRA, consider what other options you may have available. For instance, perhaps you could tighten your budget. Maybe you could refinance mortgages or other loans, or even renegotiate new payment terms. It may be tempting to take an IRA distribution, but you’re only taking money from your future self. Let’s talk about strategies to help you get through this period. Contact us today at Heritage Financial North. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation. 1https://www.irs.gov/newsroom/what-if-i-withdraw-money-from-my-ira 2https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers Advisory Services Offered Through Change Path LLC, a Registered Investment Advisor. Heritage Financial North and Change Path LLC are not affiliated. Licensed Insurance Professional. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. No information on this website is intended to provide and should not be relied upon for or construed as accounting, legal, tax or investment advice. Neither Change Path, LLC not its representatives give tax or legal advice. Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. 20100 - 2020/5/20 The stock market crash of 1987. The tech bubble in the early-2000s. The financial crisis of 2008. And now, the coronavirus pandemic.
What do all of these things have in common? They all involve sharp market downturns that end a bull market and trigger a bear market. For many investors, these events create anxiety and worry about the long-term ramifications. These events all share something else in common. They offer potential opportunities. In a difficult time like this, it can be hard to see opportunities, but they do exist. Of course, not all opportunities are right for everyone. Your strategy and decisions should be based on your specific needs, goals, and risks. However, it’s possible that you could take action today to improve your financial future. Below are three examples of potential opportunities. A financial professional can help you determine the right course of action for your long-term strategy. Tax-Loss Harvesting If you have seen your portfolio suffer since late February, you are not alone. As recently as early February, we were still enjoying a strong economy. Between Friday, February 21, and Tuesday, March 16, the Dow Jones Industrial Average (DJIA) dropped by 35.87%. Since that low point, the market has recovered somewhat. However, the DJIA is still down 16.4% year-to-date.¹ If you are considering a change in strategy, you also may be able to take advantage of a potential tax deduction. A change in allocation may require you to sell assets that have declined in value. While realizing a loss is never a good outcome, you could qualify for a tax-loss deduction. Of course, this doesn’t mean you should realize losses simply for the tax deduction. Your decision should be guided by your long-term goals. A financial professional can help you determine how best to move forward. Roth IRA Conversion Do you hold a significant amount of retirement assets in a traditional IRA? One of the benefits of a traditional IRA is that you realize an upfront deduction for contributions. However, that also means that your future distributions are taxable as income. You may prefer to use a Roth IRA, which allows you to take tax-free withdrawals in retirement, assuming you are 59 ½ or older, and the account is at least five years old. You can convert your traditional IRA into a Roth, and now could be the time to do so. When you convert a traditional IRA to a Roth, you pay income taxes on the converted amount. If you have seen a decline in your IRA over the past couple of months, you now have a reduced balance. That means the tax exposure from conversion would be lower today than it was two months ago. It’s also possible that, like millions of Americans, you have been laid off, furloughed, or that you have accepted a pay cut. It’s possible that your income for 2020 will be lower than it has been in years past, which means you may be in a lower tax rate. Again, this could reduce your tax exposure in a Roth conversion. Roth conversions aren’t right for everyone. However, if you have been considering one, this may be the right time. Investing at Discounted Prices It’s never a good idea to try and predict the market’s direction, especially in the short-term. Investment decisions should always be guided by long-term strategy and specific goals and needs. However, there is no denying the fact that many assets are currently trading at prices substantially reduced from two months ago. If you have cash available to invest and have the risk tolerance to withstand potential volatility, this could be a good time to revisit your strategy. It’s always wise to hold six to twelve months in liquid, risk-free emergency reserves, even if those accounts pay very little in interest. However, if you have other funds that aren’t needed for emergency reserves, you may want to consider how best to use them in the long-term. Investing at discounted prices may allow you to more fully participate in a future recovery. As always, your decisions should be based on your unique needs, not generalized advice. Let’s talk about it and implement the right strategy for your goals. Contact us today at Heritage Financial North. We can help you analyze your needs and goals and find the right opportunities. Let’s connect soon and start the conversation. 1https://www.google.com/search?safe=off&tbm=fin&sxsrf=ALeKk006ktaTHRuJ1MB-WYLuWkeqF7PpWw:1588177817109&q=INDEXSP:+.INX&stick=H4sIAAAAAAAAAONgecRowi3w8sc9YSntSWtOXmNU5eIKzsgvd80rySypFBLnYoOyeKW4uTj1c_UNDM0qi4t5FrHyevq5uEYEB1gp6Hn6RQAAItD1MEkAAAA&sa=X&ved=2ahUKEwjPyP-0h47pAhXIWM0KHR3mBUQQlq4CMAB6BAgBEAE&biw=1536&bih=754&dpr=1.25#scso=_N6ypXpKOEYu2tAbp-I-oAQ1:0 Advisory Services Offered Through Change Path LLC, a Registered Investment Advisor. Heritage Financial North and Change Path LLC are not affiliated. Licensed Insurance Professional. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. No information on this website is intended to provide and should not be relied upon for or construed as accounting, legal, tax or investment advice. Neither Change Path, LLC not its representatives give tax or legal advice. Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. 20050 - 2020/4/2 The coronavirus pandemic has launched the country, and the world, into uncharted territory. In much of the world, society is essentially shut down. Schools and large events are closed. People are staying in their homes. Businesses have effectively closed across the country.
The economy has felt the impact of the pandemic. Stocks have declined significantly, and unemployment has surged. On March 3, the Federal Reserve took action by cutting the fed funds rate to 0%. The Fed expects to maintain this rate until “it is confident that the economy has weathered recent events.”1 Given the unpredictability of the current pandemic, it’s hard to say how long rates might be at zero or how the economy may change in the future. However, changes to the fed’s benchmark rate often have ripple effects throughout the economy. Below are some things you may want to consider as we navigate a zero-rate environment for the near future: Debt Many common types of debt are tied to the prime rate. For instance, if you have a credit card with a variable interest rate, it could fall soon. If so, this may be a good time to get that balance paid off. You also may see lower rates on things like car loans and mortgages. This could be a good time to rate shop, especially if you have good credit. Even if you don’t want to transfer a credit card balance or refinance a home, the prospect of doing so could be enough to convince your lender to reduce your rate. Student loan rates could also be impacted. Rates for new federal student loans are adjusted every year. The rate for 2019-20 is already set, but the rate for next year could drop significantly if rates stay low for some time. Private student loan rates could be fixed or variable. It depends on the terms of your loan agreement. Savings Savers have unfortunately been used to low-interest rates for some time. Interest rates on savings accounts had started to climb, but after the Fed’s cut, the average FDIC rate is now down to 0.09%. While CDs may offer higher rates, they also come with less liquidity. It’s always advisable to have liquid savings available to cover emergencies and unexpected costs. However, it may be difficult to find interest-bearing accounts for those savings at this time. We can help you explore all your options and develop a liquidity strategy that’s right for your needs and goals. Investments There’s a misconception that a Federal Reserve rate cut always leads to gains in the stock market. One need look no further than the most recent cut to see that it’s not true. When the Fed cut rates on March 3, the Dow Jones Industrial Average fell nearly 800 points.2 These are unprecedented times and it’s impossible to predict when the pandemic will end or how it will fully impact investors. While interest rates are a factor, there are many others to consider. Your retirement income strategy should be based on your unique needs and goals. Now could be the right time to review your strategy and make adjustments. A change in allocation could be appropriate. You also may want to take advantage of financial vehicles that limit your exposure to risk. A financial professional can help you find the right strategy for your needs. Ready to review your retirement income strategy? Let’s talk about it. Contact us today at Heritage Financial North. We can set up a virtual consultation, so you don’t have to leave the comfort and safety of your home. Let’s connect today and start the conversation. 1https://www.usatoday.com/story/money/2020/03/03/coronavirus-dow-jones-stocks-react-after-fed-cuts-interest-rates/4938447002/ 2https://www.usatoday.com/story/money/2020/03/03/coronavirus-dow-jones-stocks-react-after-fed-cuts-interest-rates/4938447002/ Advisory Services Offered Through Change Path LLC, a Registered Investment Advisor. Heritage Financial North and Change Path LLC are not affiliated. Licensed Insurance Professional. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. No information on this website is intended to provide and should not be relied upon for or construed as accounting, legal, tax or investment advice. Neither Change Path, LLC not its representatives give tax or legal advice. Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. 19959 - 2020/3/31 On March 27, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act, which provides economic support to Americans who have been impacted by the coronavirus pandemic. You’re probably familiar with the highlights of the bill:
Those components are important and will certainly help many people get through this unprecedented period. However, there are some other provisions that could be important for you, especially if you’re approaching retirement or are already retired. Extended Tax Filing and IRA Deadline The IRS pushed back the tax filing deadline to July 15 from the traditional April 15.2 That gives you more time to prepare your return, collect documents, and possibly implement a strategy to minimize your tax bill. That also gives you more time to contribute to your IRA. You can make an IRA contribution up to July 15 and count it as a deduction on your 2019 return, assuming of course that you meet income requirements.3 401(k) and IRA Distribution Options It’s possible that you may need additional funds to get you through this period, especially if you or your spouse have been furloughed or have lost income. The CARES Act allows you to tap into your qualified retirement accounts through special distributions. You can take a withdrawal from your 401(k) and IRA without paying the 10% early distribution penalty, even if you are under age 59 ½. The distributions are taxable, but the taxes are spread over a three-year period. However, you can also repay the distribution over that three-year period and avoid paying taxes on the distribution.3 While a 401(k) or IRA distribution may be helpful, it could also have long-term consequences. When you take a distribution from your account, those funds are no longer invested. That means those funds can’t compound and grow. It’s possible that you may not fully participate in a market recovery if you decide to take a distribution, which could hurt your long-term growth. Waiver of RMDs Are you required to take an RMD in 2020? Not anymore. The CARES Act waives all RMDs in 2020, so there is no penalty for not taking a minimum distribution from a 401(k) or IRA. 4 This could be very helpful for your account balance. Your RMD would have been based on your December 31, 2019. Depending on how you are allocated, your account value may have been significantly higher on that date than it is today. That means that had the RMD not been waived, you would have potentially been required to take a substantial withdrawal from an account that had fallen in value.4 This may be a confusing and unprecedented time, but you have options available. We are here to help you explore those options and implement a strategy for your retirement needs and goals. Contact us today at Heritage Financial North. Let’s connect and start the conversation. 1https://www.thebalance.com/2020-stimulus-coronavirus-relief-law-cares-act-4801184 2https://www.irs.gov/coronavirus 3https://www.marketwatch.com/story/this-is-how-the-2-trillion-coronavirus-stimulus-affects-retirees-and-those-who-one-day-hope-to-retire-2020-03-31 4https://www.aarp.org/money/investing/info-2020/cares-act-retiree-tax-benefit.html Advisory Services Offered Through Change Path LLC, a Registered Investment Advisor. Heritage Financial North and Change Path LLC are not affiliated. Licensed Insurance Professional. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. No information on this website is intended to provide and should not be relied upon for or construed as accounting, legal, tax or investment advice. Neither Change Path, LLC not its representatives give tax or legal advice. Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. 19977 - 2020/4/7 The 2020 election cycle is in full swing. It’s primary season, which means the general election is right around the corner. Before you know it, the two major parties will have their conventions and we’ll be heading to the ballot box. Of course, you may already have election fatigue. From the local level all the way up to national races, candidates are already flooding television with political ads. As is the case in most presidential elections, candidates are also talking about the economy. They may make claims about what will happen in the economy if they’re elected or that the markets might decline if their opponent is elected. That kind of rhetoric is common during elections, but is it accurate? Will the outcome of the election impact your portfolio? Should you worry about the election? Or perhaps even change your allocation to protect yourself. Below are a few tips to keep in mind through the rest of the election year: Keep history in perspective. Often when there is one issue or story dominating the news, like the presidential election, it’s easy to focus solely on that story. It’s in the news and on social media so much that it feels like it’s the most important issue in the world. However, the truth is that this country and the stock market have been through many presidential elections. In fact, in most of those years, the markets performed positively. In fact, since 1928, there have been 23 presidential elections. In 19 of those years, the S&P 500 had a positive return.1 In fact, in the four instances when the markets did have negative returns, there were also economic events happening that may have driven the performance. In 1932, the country was in the midst of the Great Depression. In 1940, the country was entering World War II. The markets declined in 2000, which was the year George W. Bush ran against Al Gore. However, the bursting tech bubble in Silicon Valley may have had more influence on the markets than the election. Finally, in 2008, the S&P 500 also declined, but that was the year of the financial crisis. The takeaway is that market declines can happen in any year. The fact that it’s an election year may cause news stories and rhetoric, but the market is likely driven by investor concerns and economic conditions. Focus on the long-term. Your investment strategy was likely designed for the long-term. Perhaps you’re saving for retirement or some other goal that is years or possibly even decades in the future. Over that period, you’ll likely see times of market volatility. Whether it’s an election year or not, it’s always helpful to focus on the long-term during challenging periods. Market downturns happen, but they are always temporary. There are two common types of downturns: corrections and bear markets. Corrections are losses of 10% or more. Bear markets are losses of 20% or more. As you can see in the chart below, the average correction loses around 13% and the average bear market sees a loss of around 30%.2 However, the duration of each is also important. A correction, on average, lasts around four months. After that period, there is an average four-month recovery period to recoup the losses. Bear markets last longer. They have an average duration of 13 months with a 22-month recovery period.2 Market downturns are never pleasant, but they are temporary. Keep an eye on the long-term and stick to your strategy. Don’t make gut decisions. It can be easy to make a gut, impulse decision when you hear and see stressful news on a regular basis. It might be tempting to sell your investments and move to asset classes that have less risk and volatility. However, a move to perceived safety could do more harm than good. The chart below shows how the average equity investor has fared compared the S&P 500 over different periods of time. As you can see, the index always wins, sometimes by a wide margin. 3 Why does this happen? Primarily because the index stays invested at all times, while the average investor is constantly moving in and out of the market based on gut decisions or attempts to avoid loss. While investors may miss some declines with this strategy, they also miss out on gains. Staying invested usually leads to better long-term performance.
At the writing of this article the impact of the Coronavirus was not included, however the long-term principals of investing still holds true. With the recent markets sell off and volatility increasingly high, it is a good time to remind you that we are available if you’d like to ask any questions or take a look at your portfolio. Ready to protect your portfolio this election year? Let’s talk about it. Contact us at Heritage Financial North. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation. 1https://www.thebalance.com/presidential-elections-and-stock-market-returns-2388526 2https://www.cnbc.com/2018/12/24/whats-a-bear-market-and-how-long-do-they-usually-last-.html] 3https://www.marketwatch.com/story/americans-are-still-terrible-at-investing-annual-study-once-again-shows-2017-10-19 Advisory Services Offered Through Change Path LLC, a Registered Investment Advisor. Heritage Financial North and Change Path LLC are not affiliated. Licensed Insurance Professional. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. No information on this website is intended to provide and should not be relied upon for or construed as accounting, legal, tax or investment advice. Neither Change Path, LLC not its representatives give tax or legal advice. Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. It’s been a volatile few weeks in the financial markets. Up until late January, we were still enjoying the longest bull market in history. In three short weeks, the bull market has ended, and we’ve entered bear market territory. Between Friday, February 21 and Monday, March 16, the Dow Jones Industrial Average has dropped by 30.37%.1
The rapid decline has left many investors with two questions:
There’s no easy answer to the first question. If history is any guide, eventually the decline will stop, and the markets will recover. The average bear market lasts 13 months, followed by a 22-month recovery.2 However, it’s impossible to predict when that recovery might begin. The second question is even more difficult to answer. There are certainly protection options available, but not all options are right for all investors. Your strategy should be based on your unique needs, goals, and tolerance for risk. Below are a few options you have available: Shifting to a more conservative allocation. Changing your allocation to a more conservative strategy is always an option. Many people become more risk averse as they approach retirement. If you haven’t reviewed your allocation in years, this may be the right time to do so. Of course, a more conservative allocation could limit your participation in a recovery when it happens. Work with a financial professional to find an allocation that limits your exposure to further losses, but still gives you an opportunity to participate future upside. Staying the course. Another option is to stay the course and stay invested in your current allocation. Again, that may expose you to further losses, but it could also put you in a position to take advantage of a recovery when it does happen. Again, it’s impossible to predict when a recovery could happen, but history can provide some insight. The last bear market started in October 2007 and lasted until March 2009, spanning much of the financial crisis. The S&P 500 dropped 56.8%. However, the subsequent bull market (which just ended) lasted more than 10 years and saw the S&P 500 increase by more than 400%.3 The 2000 bear market was triggered by the tech bubble. It lasted nearly 30 months and saw a total decline of more than 49%. It was followed by a 60-month bull market with a return of more than 100%. The 1990 bear market lasted only three months and had a decline of 20% and it was followed by a 113-month bull market with a cumulative return of 417%.3 Bear markets are often followed by bull markets. The question is whether you can stick it out through further losses. Again, your financial professional can talk through your options with you and help you decide which path is right. Use risk-protection vehicles. Another option is to take advantage of market risk-protection vehicles like annuities. There is a wide range of different types of annuities that can limit your exposure to market risk and protect your future. For example, some guarantee your principal against loss, but also offer upside growth potential. Others guarantee your future retirement income, no matter how the market performs in the future. A financial professional can help you determine if an annuity or other risk-protection tool is right for you. Ready to protect your nest egg from the coronavirus? Let’s talk about it. Contact us today at Heritage Financial North. We can help you analyze your investments and implement a strategy. Let’s connect soon and start the conversation. 1https://www.google.com/search?safe=off&sa=X&tbm=fin&sxsrf=ALeKk02Fk2yPH2_A7nU0wQGE5IUIixHyGQ:1584394531365&q=INDEXDJX:+.DJI&stick=H4sIAAAAAAAAAONgecRozC3w8sc9YSmtSWtOXmNU4eIKzsgvd80rySypFBLjYoOyeKS4uDj0c_UNkgsry3kWsfJ5-rm4Rrh4RVgp6Ll4eQIAqJT5uUkAAAA&ved=2ahUKEwiBmOfJ-Z_oAhWUW80KHc2dA3MQ3N8BMAJ6BAgCEAM#scso=_SfFvXsWJMJe1tAbX6pm4BQ1:0 27https://www.cnbc.com/2018/12/24/whats-a-bear-market-and-how-long-do-they-usually-last-.html 3https://www.cnbc.com/2020/03/14/a-look-at-bear-and-bull-markets-through-history.html Advisory Services Offered Through Change Path LLC, a Registered Investment Advisor. Heritage Financial North and Change Path LLC are not affiliated. Licensed Insurance Professional. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. No information on this website is intended to provide and should not be relied upon for or construed as accounting, legal, tax or investment advice. Neither Change Path, LLC not its representatives give tax or legal advice. Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. 19926 - 2020/3/17 Do you use a 401(k) or IRA to save for retirement? You’re not alone. These types of accounts are popular for many reasons, but one of the biggest is their tax treatment. As you may know, these accounts are tax-deferred. That means you don’t pay taxes on growth as long as the funds stay inside the account.
Qualified accounts may also offer upfront tax benefits for your contributions. Contributions to your 401(k) come out on a pre-tax basis. That reduces your taxable income, which in turn reduces your taxes. Contributions to an IRA.may also be tax-deductible, depending on your income level. Qualified accounts aren’t completely tax-free, however. While you may get a deduction upfront and taxes may be deferred over time, eventually, you do have to pay taxes on these assets. That time is usually when you take withdrawals in retirement. Most distributions from qualified accounts are taxed as income. That could be problematic if you plan on using your 401(k) or IRA to generate most of your retirement income. You could create high levels of taxable income that may create a significant tax liability, which could reduce your net income and your ability to live a comfortable lifestyle. Fortunately, you can minimize your tax burden by planning ahead. Every situation is unique, so there’s no universal strategy that is right for everyone. However, the following three-step process can help you project your tax liability in retirement and take steps to control it. List all your sources of retirement income. The first step in managing your retirement taxes is to project just exactly where your income will come from. In fact, this isn’t just useful for tax planning; it’s important for your entire retirement strategy. Make a list of all your potential income sources. The list could include things like:
Categorize them by tax treatment. Once you have your list, you can start to categorize your income sources according to how they are taxed. Some income sources will likely be taxable, like:
Other types of income may be tax-free, such as:
And finally, there could be some sources of income that simply require more research. They may be taxable, but also may not be. It could depend on your total taxable income or perhaps other factors. These types of income could include:
Meet with a professional and develop a tax strategy. The final step is to work with a professional to create a detailed projection of your potential income and tax liability in retirement. They can estimate your income and your possible taxes each year. They can then work with you to develop a strategy that minimizes tax payments. For example, they might recommend the use of tax-free income from municipal bonds or a Roth IRA. They could suggest the use of strategic Roth IRA conversions or life insurance to create tax-free income. They may recommend that you delay Social Security or choose a different pension benefit to reduce your taxable income. A financial professional can help you find the strategy that is best for your needs. Ready to develop your retirement tax strategy? Let’s talk about it. Contact us at Heritage Financial North. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation. Advisory Services Offered Through Change Path LLC, a Registered Investment Advisor. Heritage Financial North and Change Path LLC are not affiliated. Licensed Insurance Professional. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. No information on this website is intended to provide and should not be relied upon for or construed as accounting, legal, tax or investment advice. Neither Change Path, LLC not its representatives give tax or legal advice. Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. 19662 - 2020/1/16 For decades, some of the world’s largest institutional investors have used one tool to guide their decision-making. Mutual funds, educational endowments, defined benefit pensions, and more all use this document to focus on their long-term goals and select only the investments that meet their specific criteria. It’s an investment policy statement (IPS).
An IPS isn’t just for institutional investors though. Individuals are now often using their own IPS to set long-term strategy and develop a formal process for choosing investments. While the format of an IPS can vary, most involve the following elements:1
Do you need an IPS? It could be a valuable tool to help you maintain a long-term strategy and stick with a consistent investment approach. Below are a few ways in which you might benefit from an IPS: It helps you avoid emotional decisions. The average equity investor routinely underperforms the S&P 500 index. In fact, over the past 30 years, the average investor has had a 3.98% average annual return. The S&P 500 has averaged more than 10% annually over that same period.2 Why do investors underperform the market? There are many reasons but one of the biggest is that investors change their strategy based on emotional decisions and short-term impulses. For example, you may get out of the equity markets if they take a downward turn. However, by the time the market has improved, you’ve already missed much of the recovery. These kinds of decisions cost investors return over the long-term. An IPS helps you avoid short-term impulse decisions because all of your actions are guided by the document. If a change or adjustment isn’t specified in the IPS, you don’t make it. In many ways, an IPS protects you from yourself. It clarifies risk. What is your risk tolerance? Don’t know? You’re not alone. Unfortunately, many investors jump right into their strategy without considering their own tolerance for risk. That often leads to an allocation that isn’t right for their needs and goals. Risk tolerance is an important component in IPS. Before you can establish your long-term strategy, you have to define the specific levels of risk that are or are not acceptable to you. You then develop an allocation that aligns with your acceptable level of risk. Without an IPS, you might choose an allocation that has far more potential for risk than is right for you. Ready to create your own IPS? We can help. Contact us today at Heritage Financial North. We can help you document your goals, clarify your risk tolerance, and create a comprehensive policy that keeps you focused on the long-term. 1https://www.morningstar.com/articles/808692/how-to-create-an-investment-policy-statement 2https://www.marketwatch.com/story/americans-are-still-terrible-at-investing-annual-study-once-again-shows-2017-10-19 Advisory Services Offered Through Change Path LLC, a Registered Investment Advisor. Heritage Financial North and Change Path LLC are not affiliated. Licensed Insurance Professional. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. No information on this website is intended to provide and should not be relied upon for or construed as accounting, legal, tax or investment advice. Neither Change Path, LLC not its representatives give tax or legal advice. Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. 19564 - 2019/12/16 There’s a growing trend among new retirees. With increasing frequency, Americans are choosing to leave their retirement savings. According to data from Fidelity, 55% of workers leave their retirement savings in their former employer’s 401(k) plan for a full year after retirement. That’s up from 45% just four years ago.1
Why are retirees leaving their assets in their old 401(k) rather than rolling those funds to an IRA? There could be a variety of reasons. Workers may be happy with the plan’s investment options and administration. They may feel comfortable with the plan’s online access and other management tools. They might not need the money immediately, so they don’t have urgency to do anything with it. It’s also possible that some retirees may not be aware that they can roll their funds into an IRA tax-free. While there are certainly benefits to keeping your assets in your employer’s 401(k), there are also good reasons to roll the assets into an IRA. If you’re approaching retirement, now is the time to consider your options for your 401(k), which may be your largest retirement asset. Below are a few factors to consider: Investment Options If you’ve been in your 401(k) plan for a significant amount of time, you are likely familiar with the plan’s investment options. You may feel comfortable with your allocation and perhaps you even like the plan’s fee structure and performance. However, your goals and risk tolerance won’t always be the same as they are today. Just as your investment strategy has evolved through your career, it will likely continue to evolve through retirement. What you’re comfortable with today may not be something you’re comfortable with in the future. Generally, IRAs offer significantly more investment options than most 401(k) plans. That’s not necessarily true with every IRA and 401(k), but it is often the case. While a 401(k) plan may offer dozens of options from select providers, an IRA will often allow you to choose from a wide universe of stocks, bonds, mutual funds, ETFs, annuities, and more. That greater diversity of options can help you develop an allocation that is just right for your goals and risk tolerance, no matter how it changes in the future. Management and Administration You also may be comfortable with your 401(k) plan’s management and administration tools. Perhaps the website is easy to use. Maybe you have a dedicated support person within the plan administrator’s office. You know how to make changes and review your account, and you may not want to make changes at this time. Again, though, consider whether it will still be convenient in the future to keep your assets in your old 401(k). If you’re like many retirees, you may have multiple 401(k) plans from old employers. You also might have IRAs and other investment accounts. It’s difficult to manage and adjust your strategy when you have accounts spread across multiple custodians and institutions. You could simplify the process by consolidating your qualified retirement assets into one IRA. Also, when you reach 72, you’ll have to take required minimum distributions (RMDs) from your 401(k) and IRA. Again, that process may be inconvenient if you have to pull distributions from multiple accounts. If you consolidate your qualified assets into one IRA, you simply have to make withdrawals from one account to satisfy your RMD each year. Income Protection While you may not need to tap into your 401(k) assets today, it’s possible that at some point in the future you will need to take withdrawals from your retirement savings. Of course, it’s difficult to know how much you can safely take in a withdrawal each year. What if you live longer than you anticipate? What if the market takes a downward turn? How can you be sure your assets and income will last for life? In most IRAs, you can use financial vehicles like annuities to convert a portion of your savings into guaranteed* income. You receive a regular consistent check that is guaranteed* for life, no matter how long you live or how the markets perform. Historically, annuities with guaranteed income benefits have been more available in IRAs than in 401(k) plans. However, the passage of a new law, called the SECURE Act, creates the possibility for 401(k) plans to start offering these vehicles. Whether it’s through your IRA or 401(k), guaranteed income could give you a base level of financial stability confidence in retirement. Ready to implement a plan for your 401(k) assets? Let’s talk about it. Contact us today at Heritage Financial North. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation. 1https://www.marketwatch.com/story/more-americans-are-leaving-their-money-in-401k-plans-after-retirement-should-you-2019-10-31 Advisory Services Offered Through Change Path LLC, a Registered Investment Advisor. Heritage Financial North and Change Path LLC are not affiliated. Licensed Insurance Professional. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. No information on this website is intended to provide and should not be relied upon for or construed as accounting, legal, tax or investment advice. Neither Change Path, LLC not its representatives give tax or legal advice. *Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. 19563 - 2019/12/16 |
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