Q: I know I have to take my Required Minimum Distribution, is there any way I can take that as a tax loss?
A: Sadly that answer is no. Since all of the funds in your IRA have been accumulating tax deferred, you cannot take the distribution as a loss.
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We are half way through the worst month in hurricane season, with one month left to go for this year. As we have recently seen, power can be knocked out quickly, but might not be restored quickly. That is why I want to know how much cash you have stashed?
I have always thought it was important to keep cash, real paper money, in our homes, especially during hurricane season. I think having around $3000 in small bills is sufficient to get you out of an emergency situation, some people think $5000 is better. Regardless, you should have cash in $10’s and $20’s in a safe, accessible place in your home for emergencies.
Keep this in mind, if the corner gas station/convenience store is open on generator power, you will be able to buy provisions with cash. Credit cards or debit cards will do you no good as those systems will be down.
Cash is king in an emergency.
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As part of the Inflation Reduction Act just passed, the IRS is working on a program to file your tax return for you.
Here is what has been proposed:
The IRS will send you a pre-filled return that will show either what you owe or what you will be refunded. If you are accepting of this, simply sign and mail back.
Here are my questions:
What data is being used to calculate the return?
What would happen to me if I do not accept their return?
What if I also do my own return and reach a different result, can I re-file or am I stuck?
Most of my clients only pay around $200/year for their returns to be done by an accountant, I would feel more comfortable with that vs. the IRS doing a return for me.
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Q: We just sold our house but have not found a new one yet. While we are shopping, what should we do with the proceeds from our sale?
A: My rule of thumb is: if you have cash that you will need to use within 18- 24 months, it has to stay in cash. Use a savings or money markets account. You cannot afford to invest the proceeds and subject those dollars to the whims of the markets.
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As I have my regular review appointments the conversations often turn to more than just how their portfolios are doing right now. Recently, one of my retired clients brought up a few points that are worth sharing.
First, he said he would have taken smaller (less expensive) family vacations so he would have been able to save more over a longer period of time. He now shares my advice with his Grandkids, save at least 10% form your very first paycheck for your retirement.
Second, realize that everything will cost more. Sure, there are times when prices go down, but inflation takes a big bite out of your purchasing power.
Third, taxes are forever and will constantly change. There have been a few times during his life that taxes have gone down, but mostly have gone up. Not being prepared for taxes in retirement can take a big bite out of your spendable funds.
Like I said, sage advice.
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Numbers are very important to my practice. Annualized rate of return, how much you have to invest, how long will you live? These all figure into my planning done for my clients. Here are a few key numbers I would like you to think about:
How much will inflation impact your investment to and through retirement? Here are a few famous quotes regarding inflation:
“Inflation is when you pay fifteen dollars for a ten-dollar haircut you used to get for five dollars when you had hair.” –Sam Ewing
“Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hitman.” –Ronald Reagan
“Inflation is the crabgrass in your savings.” –Robert Orben
Right now we are seeing some of the highest inflation we have seen in years. When going out to purchase anything, think about whether the item is a need or a want, then shop for the best prices.
What is the average rate of return you are earning? Please keep in mind that we take a long term look at the investments we manage. Let’s look at the S&P 500, in my opinion this is the broadest index used as a measure today.
Historic benchmarks for the S&P: For the previous 10-year time period (2010-2020) the annualized (nominal) return was 13.9%.The average annualized return since its inception in 1926 is 10.49%
The highest annual returns in that time period were 29.6% in 2013.
The lowest annual returns were -6.24% in 2018.*
Health care cost can put the biggest dent in the best planned retirement. According to Fidelity’s Retiree Health Care Cost Estimate, a 65-year-old couple retiring in 2022 can expect to spend $315,000 in health care and medical expenses throughout retirement. And, this does not include any money that may need to be spent on long-term care needs.
*Historical returns from Fidelity Institutional.com
These are just a few numbers to think about as you plan your retirement. If you want help with these, please contact me at nancy@financialgroup.com or (407)-869-9800.
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Q: When should I start investing money?
A: I learned from my Dad to start investing from your very first pay. Whether it was babysitting money or my first paycheck, 10% at a minimum should go to investments.
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This is the first Bear Market we have seen in a long time. Investors are starting to panic, wanting to sell their holdings, and that is the exact opposite that investors should be doing. Anyone who is taking advantage of a 401k or 403b is buying more shares of their mutual funds per deposit then they have been able to since 2008. More share = probability of more income in retirement.
The people who panic and sell the stocks in their retirement portfolios right now will most likely end up kicking themselves. Maybe not this week, this month, or this year. Maybe not even for a couple of years. But eventually, and big-time if history repeat itself.
The people who take advantage of this crash by investing more long-term money will most likely up patting themselves on the back. They might feel like chumps at first, for weeks, months or even years. But eventually they will be thankful if history prevails.
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Rebalancing is an important part of portfolio management. If you’re decades away from retirement, there’s no need to panic over a down market. Stocks have a long history of losing value only to rally afterward. But if you’re within a year or two of retirement, a stock market dip or, worse yet, a full-fledged crash could really spoil your plans.
That’s why it’s so important to check on your asset allocation as retirement nears. While it’s certainly not advisable to dump your stocks before retirement, as you’ll need some in your portfolio to continue generating strong returns, you’ll also want more access to safer investments, like bonds, which tend to be far less volatile.
Not only that, but if you’re getting close to retirement, it’s important to keep a chunk of your savings in plain old cash. That way, if stocks tank, you won’t get stuck in a position where you need to liquidate investments at a loss to cover your living costs.
This is exactly why we look at our client’s portfolios each quarter to see if their allocation has changed. By regularly rebalancing we keep our clients within their risk profiles. Often, this allows me to buy quality funds for my clients on sale as well as any fund that pays regular dividends or capital gains buying more shares while the prices are low. Keep in mind, the more shares you have going into retirement, means more income for you once you have reached that milestone.
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A veteran is someone who, at one point in his life, wrote a blank check payable to
“The United States of America” for an amount “up to and including his life.”
That is honor. There are too many people in this country who no longer understand this.
God Bless Our Veterans.
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