Price Financial Group | Financial Advisors | Beaverton, Oregon

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What are your financial goals for the coming year? The beginning of a new year is a good time to look at shoring up weak spots and simplifying your financial plan.

Overview

At the end of every December, we celebrate and hope for a healthy and prosperous new year, but we never know what to expect. And since we can’t know the unknowable, it’s important to be prepared. This is a good time of year to make sure your financial situation is sound and easy to access and understand — even for your loved ones — plus clean up any nettling issues. Even small loose ends can take time and hassle to resolve, so you may want to take care of them now.

This report provides seven steps everyone may want to consider to help make saving, earning, spending, investing, insuring, retiring and — yes, even passing away — easier for all involved.

1. Boost Your Emergency Resources

One of the best ways to help shore up your financial future is to have three months to a year’s worth of emergency savings. At the very least, save in an account with liquid access to securities that have no tax or penalty consequences, such as a checking or savings account.

Having available cash to pay for unexpected expenses and/or supplement the loss of regular income can help prevent you from racking up high-interest debt and help protect against having to tap into investments.. This is likely your best defense against potential financial strain caused by the loss of income due to a natural disaster, a possible recession, or a major medical or home expense.

2. Diversify Your Income

We can’t always predict when the next market downturn will come or how much it will affect your income when it happens. One way to help protect against a downturn is to diversify your income sources so that you have multiple streams in case one or more are threatened, whether that’s from a market downturn, job loss or some other unexpected event.

There are multiple ways to add new income streams. Some people might consider taking a second job or going back to work after retirement. Others may purchase a rental property or monetize a hobby. You might also consider diversifying a portion of your portfolio among different income-producing vehicles, such as bonds, annuities or dividend stocks. There are many innovative products that provide differentiated income sources to help insulate your monthly cash flow; your financial advisor can help you identify and select the right options for you.

3. Inflation-Proof Your Portfolio

High prices continually test the buying power of household budgets. While you might not be able to do much about rising costs due to inflation, you can help protect your investments from its impacts. Consider allocating a portion of your portfolio to investments that tend to grow in tandem with inflation. The following are some ideas you may wish to discuss with your financial advisor:

Treasury Inflation-Protected Securities (TIPS) — These securities allow an investor’s principal to increase in tandem with inflation and decrease when inflation declines. The coupon rate remains fixed, so payouts vary based on the inflation-adjusted principal. Upon maturity, the investor receives the greater of the adjusted principal or the original principal.1
Dividend-Paying Stock Index Fund — An index fund composed of dividend stocks offers both diversification and inflation-hedged income via rising dividends.2
Real Estate Investment Trust (REIT) — This is a company that owns or finances a range of income-producing real estate, such as office buildings, apartment buildings, warehouses, retail centers or hotels. REITs pay out reliable dividend income that tends to rise with inflation, along with rental prices.3

4. Check on Your Volatility Risk

When investment markets decline, it is important not to panic sell. In fact, if you are financially stable, you can use the occasional dips to purchase more shares for potentially greater profits when the market recovers.

Now may be a good time to consult with your financial advisor to “stress test” your investment portfolio. If you own holdings that are particularly vulnerable to periodic bouts of volatility, you may want to consider repositioning those assets to alternatives that tend to perform reliably under duress, such as:

Government bonds
Consumer staples stocks
Buffered exchange-traded funds (ETFs)
Fixed index annuities (FIAs)

Un-Diversify

Many times in our efforts to diversify, we over diversify. Investments spread out over a range of mutual funds and individual securities may overlap substantially — which means you may actually be less diversified than you think. Take some time at the beginning of the year to review the underlying holdings of your investments. You may find significant overlap among the different types of accounts you hold, such as a 401(k) plan, an IRA and a brokerage account with stocks, bonds, mutual funds and ETFs. Your financial advisor can help you understand what each part of your portfolio is trying to achieve and help remove redundancy where necessary.

5. Be Weather-Ready

Natural disasters can wreak unimaginable devastation. You never think your entire home and belongings will be wiped out, but it can happen. This may be a good time to climate-proof your life savings by helping make sure you are properly insured. There are many types of policies to consider in addition to a homeowner’s policy, so consult with an insurance agent to help bolster potentially weak areas. For example:

Flood insurance
Supplemental insurance for accidents or long-term disability
Personal umbrella policy
Special riders for things like valuables (jewelry, furs, fine art, musical instruments, silver), antique and collector cars, watercraft/yachts, all-terrain vehicles
A life insurance policy that offers a cash account from which you can make limited withdrawals

Also, recognize that climate change could potentially ravage your investment portfolio as well. Some industries are more affected by natural disasters than others, such as gas production, home improvement products and services, and property insurance. One way to help protect your portfolio may be by diversifying internationally. Since different hemispheres experience opposite seasons, they are not typically subject to the same types of weather disasters at the same time.

Remember, if you do suffer from portfolio losses, you may be able to offset them with tax deductions for property damage caused by a natural disaster. Check out the IRS website at www.irs.gov/newsroom/tax-relief-in-disaster-situations to see if you meet the criteria for tax relief.

6. Set a Date for Retirement

Have you set a retirement date? Even if your expectations change, it’s better to have a plan than just wing it. This is particularly important when it comes to starting Social Security benefits. You and your spouse should consider coordinating your benefits strategy to help you start with the highest Social Security benefit for which you qualify. If you begin drawing benefits before your full retirement age (FRA), your payout will be permanently lower than if than if you wait until your FRA.

Moreover, you can fully optimize your lifelong Social Security benefit by delaying until age 70, during which time you will earn credits for a higher payout. An additional perk to delaying retirement is the ability to save and invest longer for a larger nest egg — which would then be needed for a shorter timeframe.

Consolidate

If you’re like most people, you have likely worked for several different companies during your career and may have left a trail of 401(k) plans behind you. Now may be a good time to roll over and consolidate them. Consider transferring those assets to your current employer’s 401(k) plan or rolling them into an IRA.

If you have multiple IRAs, consider consolidating them into one for ease of tracking performance, managing fees and taking required minimum distributions (RMDs) during retirement. If you have one traditional IRA and one Roth IRA, this may help diversify your tax liability later in life.

Automate

If you’re not using online banking yet, you might want to set that up for the new year. This makes it easier to schedule bill payments, and you can even set up repeat bills to autopay when they’re due. If you spend a fair amount of time away from home, request electronic bills instead of mailed ones. This makes it easier to pay your bills remotely, which can be beneficial for several reasons. For example, if you decide to live in a second home for part of the year, you’ll still be able to pay bills without being at your primary residence to receive them.

It may also be a good time to automate any incoming funds, such as RMDs, investment dividends and other payouts.

7. Get Your Estate Plan Sorted Out

The end of the year can be an ideal time to get all of your estate plans established and/or updated. Here are the items you might want to include in your estate plan:

If you don’t have a will, it might be time to draw one up — even if it’s a simple one that leaves all your assets to one person. This is a roadmap that will make it easier for your beneficiaries to go through the probate process without having to prove how you intended to leave your assets.
Revocable Living Trust — allows your beneficiaries to potentially avoid probate altogether.
Advance Medical Directive — details treatment preferences (such as “do not resuscitate”) and appoints a person to make decisions about your medical care if you cannot.
Living Will — states what you want to happen if you become incapacitated.
Financial Power of Attorney — assigns a person the legal authority to act on your behalf concerning financial issues.
Update beneficiary designations on your financial accounts any time there are changes to your family dynamic, such as marriage, new children, divorce or death.
Work with an insurance agent to help ensure you have adequate financial support for your dependents should one or both spouses pass away.
Maintain a file or notebook for all of your legal documents, financial accounts and insurance policies. Be sure to include your login credentials, any auto-payment information and named beneficiaries.

Final Thoughts

It’s important to recognize that you don’t have to do all your financial strategizing on your own. In fact, it may be better if you work with an experienced financial advisor so that someone else understands your needs and why you made certain decisions. Also include your spouse and children, when appropriate, so everyone is on the same page.

SOURCES

1 TreasuryDirect. “Treasury Inflation Protected Securities (TIPS).” https://www.treasurydirect.gov/marketable-securities/tips/. Accessed Oct. 16, 2024.

2 Morningstar. “Dividend Index Funds.” https://www.morningstar.com/best-investments/dividend-index-funds. Accessed Oct. 16, 2024.

3 Peter Gratton. Investopedia. July 19, 2024. “REIT: What It Is and How to Invest.” https://www.investopedia.com/terms/r/reit.asp. Accessed Oct. 16, 2024.

Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM nor the firm providing you with this report are affiliated with or endorsed by the U.S. government or any governmental agency. AE Wealth Management, LLC (AEWM) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IARs) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Registered Investment Advisers (RIAs) providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at http://brokercheck.finra.org.

11/24-3972018

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Not every investment strategy is a good fit for your life. A little due diligence goes a long way toward moving you closer to your financial goals.

Overview

You don’t need to turn far for financial advice. After all, a quick internet search yields millions of results covering every money-related topic. Enter the term “financial planning” into Google, and you’ll get more than a billion pages to explore.

But in this sea of content, how can you find practical investing advice? And how can you determine what strategies work for you? Unfortunately, most websites don’t have disclaimers or flashing warning signs to let you know if the information they contain is credible or whose portfolios they might fit.

Educating yourself on finance- and investment-related topics is always a great idea. But in your search for knowledge, be aware that online content can be plagued by inaccurate information and investing strategies that are inappropriate for your situation. Here’s a look at a few other things to know in your search for investing strategies to help you reach your goals.

Work With Someone You Trust

While online content can provide education and investing ideas, understanding if those ideas apply to you and implementing them is best left to a professional investment advisor. Advisors must pass certain exams and meet criteria for both industry certification and state licensing requirements. They’re also required to complete ongoing continuing education to stay updated on investing rules, regulations and products.

Even if you choose an investment advisor based on a referral, it’s important to conduct your own due diligence to ensure he or she is licensed and that they haven’t mishandled money in the past. Consider tapping these resources to learn more about an advisor:

BrokerCheck – searchable database from the Financial Industry Regulatory Authority (FINRA)
Investment Adviser Public Disclosure – searchable database from the Securities and Exchange Commission (SEC)
Contact your state regulator with the North American Securities Administrators Association (NASAA)

If you’ve been working with an advisor for a while, it’s still a good idea to do your due diligence every now and then to make sure nothing has changed with the advisor’s status.

Evaluate Your Investment Decisions

Once you’re confident that you are working with a knowledgeable and trustworthy advisor, your job isn’t over. It’s a good idea to evaluate the recommendations and strategies you and your advisor develop for your portfolio.

Your advisor may introduce investment ideas or options you have never heard of or aren’t quite sure how they work. When this happens, you might hesitate to ask questions for fear of looking unknowledgeable or uninformed. But trust us: Your advisor wants you to ask questions! A trustworthy advisor wants you to feel confident that you understand what the investment does and how it fits into your overall plan. If you don’t ask questions, they can’t fill in the blanks and make sure the selected strategy makes sense.

Here are a few questions you might want to ask about a proposed strategy:

1. Does this investment help me pursue my goals?

Your portfolio is designed to help you work toward your personal goals. Those goals might include living a specific lifestyle in retirement, creating multigenerational wealth or funding college for your kids or grandkids. Each individual’s goals are different — and your advisor can work with you to tailor your portfolio strategies to get you closer to reaching them.

Among the first things your advisor will probably ask are questions about your family, your finances and your goals for the future. And they won’t just ask you once; they may ask you at annual reviews or in between meetings if anything has changed. They’re asking this question because they want to make sure your investments are still aligned with your life. If they’re not, they’ll likely recommend some portfolio adjustments that are a better fit for your new direction.

2. What are the fees associated with this investment?

Every investment has fees, including broker fees, trading fees and/or expense ratio (a percentage you are charged for owning a mutual fund or exchange-traded fund (ETF)).1 Some investments carry high fees, while others — like indexed ETFs and bond funds — may have relatively low fees.2

Since fees can cut into your overall returns, it’s prudent to know how much your investments cost. Your advisor should discuss fees with you when exploring new investment options or when reviewing your portfolio. They may make recommendations to replace investments if fees increase or are preventing you from reaching your financial goals.

3. Does the level of risk match my overall goals and risk tolerance?

How much risk you are willing or able to take varies from person to person. It’s based on several factors: how much money you have saved, your age, your desired lifestyle and how much risk you’re willing to handle. (Some people are much more risk-averse than others.)

Your advisor can help identify the major risks associated with a particular investment or strategy. These might include:3

Market risk – Overall market performance may decline
Credit risk – Fixed income might drop if a company is unable to repay capital or interest to an investor
Interest rate risk – Increasing or decreasing interest rates may negatively impact an asset
Inflation risk – Rising costs could reduce your purchasing power over time
Liquidity risk – Your money may not be accessible if and when you need it

It’s always good to evaluate your personal circumstances and determine how much money you can afford to lose if markets drop. One way to help manage your risk is to diversify investments and/or include financial products that provide guaranteed income, such as annuities or fixed-income bonds.

4. Can I access my money in this investment if I need it?

When life happens, you may need access to invested funds. Some investments allow for early withdrawals while others don’t. And some investments may charge you a penalty for accessing your money before it’s time.

For example, Roth IRA owners can take distributions from their accounts without penalty after age 59 ½. However, you also may be able to access your money penalty-free if you meet certain criteria:4

You pass away (and the money goes to your beneficiary)
You’ve owned the account for five years
You’ve become disabled
You use the money for a first-time home purchase (up to $10,000 maximum)

Final Thoughts

It’s your money — and you should feel comfortable with how it’s invested. If an investment recommendation doesn’t feel like a good fit, ask your advisor to consider other options. You should feel confident that your advisor understands not just your investment goals but also your comfort level with the risks you take with your money.

Many folks have experience and knowledge in their respective fields, and the same can be said for investment advisors. Often the best way to create an investment strategy is to combine professional financial advice with personal knowledge and education. The more you learn, the more confident you will be about your investment decisions.

SOURCES

1 James Royal, Ph.D. Bankrate. Oct. 2, 2024. “What is an expense ratio and what’s a good one?” https://www.bankrate.com/investing/what-is-an-expense-ratio/. Accessed Oct. 4, 2024.

2 SEC.gov. “How Fees and Expenses Affect Your Investment Portfolio.” https://www.sec.gov/investor/alerts/ib_fees_expenses.pdf. Accessed Oct. 4, 2024.

3 James Chen. Investopedia. May 16, 2024. “Risk: What It Means in Investing, How to Measure and Manage It.” https://www.investopedia.com/terms/r/risk.asp. Accessed Oct. 4, 2024.

4 Charles Schwab. Feb. 22, 2024. “Must-Ask Questions: Roth IRA Withdrawals.” https://www.schwab.com/learn/story/must-ask-questions-roth-ira-withdrawals. Accessed Oct. 4, 2024.

Any references to guarantees or lifetime income generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.

Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM nor the firm providing you with this report are affiliated with or endorsed by the U.S. government or any governmental agency. AE Wealth Management, LLC (AEWM) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IARs) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at http://brokercheck.finra.org.

10/24-3916279

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Overview

When volatility rises and markets drop, many investors — both new and seasoned — get nervous about the possibility of losing money. They worry that their assets won’t recover and that their financial plan will be negatively impacted. These investors frequently end up making emotion-driven investing decisions — decisions that prove to be mistakes over the long term.

Read on to learn about a few of the frequent mistakes investors make during a market decline, and the actions to consider taking instead when markets turn rocky.

Mistake #1: Panic Selling

The desperate feeling of seeing long-term gains freefall in a portfolio can lead investors to sell off their assets in an attempt to thwart potential losses. Unfortunately, selling at the wrong time can lock in losses.

The worst part of panic selling is when an investor goes to cash — and stays there. Many times, when the market rebounds, some of the most robust advances are early in the recovery. The investor who waits, worried about another potential decline, may miss out on those early gains. Plus, some investors may want to jump back into a rising market but keep waiting for another dip. Meanwhile, they lose out on potential gains.

For example, take the case of Sheila and Paul.* Both invested $5,000 per year from 1980 until the end of February 2022. By staying fully invested during that time, Sheila achieved a 12% annual return and eventually accumulated $4.3 million. Paul, on the other hand, sold after each market downturn and ended up missing out on two consecutive years of positive returns. He still averaged a 10% annual return but accumulated only $2.5 million.1

Mistake #2: Anchoring to a Specific Price

Sometimes, we get it in our heads that certain items should cost a certain price — and when the items cost more than that price, it can feel too expensive. For example, if you’re used to paying $2 for a gallon of gas, you may feel “ripped off” when a gallon of gas goes much higher than $2.

This concept is known as anchoring, and it can also apply to how we perceive an asset’s value. If all you know about a stock is its price today, you might assume how much it will grow over the next year. But what you may not know is how much it grew or declined and why it performed the way it did in the past. Instead, you become biased by its current price, and you “anchor” your investment decisions based on that information.2

It’s important to understand the anchoring bias because we often adopt it without even knowing it. As an investor, you should work with an advisor who will help you vet many underlying fundaments to gauge both the future performance of holdings and whether they are well suited for your investment strategy and goals.

Mistake #3: Clinging to a Declining Asset

Some investors cling to stocks that are losing ground when, in fact, selling in a declining market could be a prudent tactic. The two key factors to consider are the long-term prospects of that stock or sector and the potential upside of harvesting a loss to help improve long-term tax efficiency.

If your holdings in a taxable investment account are declining and not well-positioned for long-term gains, you may want to harvest those losses to offset future gains from stocks that are rising and are better positioned for the current economic and market environment.

Mistake #4: Trying to Time the Market

“Buy low and sell high.” That’s typically the overarching principle of investing — but it can become a challenge when you try to time the exact right moment to buy or sell. Timing the market is generally ill-advised, especially when it’s based on daily market fluctuations. This method could also generate substantial transaction costs and capital gains taxes that make it more expensive than just staying on course.

One tactic you may consider instead is to deploy dollar-cost averaging to your portfolio. With this strategy, you invest a certain percentage into your accounts at regular intervals. When markets decline, you can take advantage of lower prices. Plus, you don’t risk a large portion of assets all at once, putting you in a good position to realize gains when markets go up.3

Mistake #5: Not Doing Anything

Sometimes traffic gets backed up on the highway in the opposite lanes from where a wreck has occurred. It’s human nature to stare in horror at something bad that has just happened. Unfortunately, this occurs among investors as well. Watching your portfolio sink during a market decline may leave you feeling powerless and stuck.

However, long-term price shifts — both upward and downward — are actually an opportunity to improve your portfolio’s asset allocations. When stocks drop, bonds may rally and vice versa. By rebalancing on a regular basis, you can redeploy your investment dollars to take advantage of current opportunities for growth and possibly improve your tax-efficiency. Rebalancing losses can also realign your portfolio with your goals by reducing risk, often leading to improved risk-adjusted returns over time.4

Final Thoughts

We all know that making emotion-based financial decisions isn’t always the best approach — but it’s not unusual to let fear get the best of us when markets drop. Being a prudent investor means we need to learn to adapt to the market’s natural ups and downs, recognizing our personal tolerance level for volatility and staying focused on long-term rewards.

Historical performance has shown over and over that stock markets will recover and grow after a drop.* However, if you find yourself worried about your portfolio when volatility rises, we recommend speaking with a financial advisor. He or she can review your investments and make sure you’re still on track to reach your goals. You may also want to consider rebalancing your portfolio or incorporating other assets with insurer-backed guarantees, such as annuities.

Investing can be stressful at times. However, knowing what mistakes investors make during downturns and ways to avoid them allows you to better pursue your financial goals, particularly when you stay focused on investing over the long term.

SOURCES

1 Dan Hunt. Morgan Stanley. May 24, 2024. “Top 5 Mistakes Investors Make in Volatile Markets.” https://www.morganstanley.com/articles/top-5-investor-mistakes. Accessed Sept. 3, 2024.

2 Kendra Cherry, MSEd. Verywell Mind. Oct. 8, 2023. “How Anchoring Bias Affects Decision-Making.” https://www.verywellmind.com/what-is-the-anchoring-bias-2795029. Accessed Sept. 3, 2024.

3 Dan Hunt. Morgan Stanley. May 23, 2024. “How to Handle Volatility.” https://www.morganstanley.com/articles/how-to-handle-volatility. Accessed Sept. 3, 2024.

4 John Rekenthaler. Morningstar. July 16, 2024. “When Rebalancing Creates Higher Returns — and When It Doesn’t.” https://www.morningstar.com/columns/rekenthaler-report/when-rebalancing-creates-higher-returnsand-when-it-doesnt. Accessed Sept. 3, 2024.

*For illustration purposes only. Past performance is not indicative of future performance.

This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM nor the firm providing you with this report are affiliated with or endorsed by the U.S. government or any governmental agency. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. AE Wealth Management, LLC (AEWM) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IARs) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at http://brokercheck.finra.org.

10/24-3833801

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Mutual funds are a highly utilized investment choice. However, investors should ask several crucial questions before selecting a mutual fund for their portfolio.

Overview

As American companies (and profits) took off in the early part of the 20th century, everyone wanted in on the action. There was just one problem: Investing wasn’t that accessible. Trading took place on the floors of stock exchanges, and big-ticket orders went to the top of the stack. And, of course, online brokerage companies didn’t exist until the last decade of the 1900s. Good money managers were hard to find and typically had high account minimums. The ordinary investor had very few options.

This changed in 1924 when Massachusetts Investment Trust had an idea for normal investors to “mutually” pool their money together in a common “fund.”1 Collective buying power meant they could hire a top-notch money management team and get stock traders to take them seriously.

Voilà! Just like that, the first mutual fund was born.

Today, mutual funds are among the most widely held investment vehicles in the world. In the U.S. alone, over $25.5 trillion is held in mutual fund accounts.2 But as with any investment, it’s important to understand what you’re buying. Let’s break down what you need to know before adding mutual funds to your portfolio.

Questions to Ask Before Buying Mutual Funds

1. How is the mutual fund managed?

Mutual funds are managed in two ways: actively or passively. Active funds aim to outperform a specific benchmark, such as the S&P 500 or Russell 2000 index. To achieve this, fund managers are continually buying and selling securities to maximize the funds’ returns.

Passively managed funds are designed to match a specific index’s performance. Because managers are more “hands-off,” passively managed mutual funds may have lower fees than those that are actively managed.

2. What is the fund’s goal?

Mutual funds come with a clear directive the management team must follow while running the fund. For example, one fund might have a directive to find the best U.S. large company stocks. Another might only invest in short-term government bonds. This sets “guardrails” around how the money is invested and allows the investor to purchase funds that match their goals or values. For example, conservative investors might feel more comfortable with a government bond fund manager who can’t buy risky stocks.

3. How accessible are my funds?

It’s important to be able to turn your investments back into cash when you need the money. Some investments can be easily sold, while others are tougher to liquidate. Mutual funds tend to be fairly liquid, since investors can sell fund shares at any time.

However, there are some types of mutual funds that aren’t as liquid as others. For example, closed-end mutual funds can only be sold after a specific period or when the fund matures. Certain funds may also be less liquid if they carry investments such as real estate or other alternative types.

4. Are there any hidden fees?

You might assume that all the costs of owning a mutual fund are fully disclosed. After all, that’s what the fund management fee is, right? Well, it isn’t quite that simple. Mutual funds are legally allowed to charge expenses to the fund over and above the standard expense ratio.

A few additional fees a mutual fund might charge include:3

Redemption fee
Exchange fee
Account fee
Management fees
Fund operating expenses
Purchase fee

Investors can generally find all expenses listed in a fund’s prospectus under the headings of “Shareholder Fees” and “Annual Fund Operating Expenses.” Part of our due diligence process is to combine what we believe to be the best funds moving forward at the absolute best cost available.

5. What share classes does the mutual fund offer?

Each mutual fund can be packaged into different “share classes.” It is the same fund, just packaged in multiple ways. Imagine a 12-ounce can of Coca-Cola. It could be packaged in a standard can, a Christmas collection can, an Elvis memorabilia can, etc. But regardless of its packaging, it’s still a Coke.

Mutual funds work in a similar way and can have a significant expense to the investor. Take the American Funds Growth Fund of America, for example. It is offered in 17 different share classes at a wide variety of costs.4

An important item to consider is that each class will have different services, distribution arrangements, fees and expenses, which will lead to different performance results.

Final Thoughts

Knowing what questions to ask is crucial when deciding which mutual funds are right for your portfolio. Our investment management team can help you analyze fund options and find the share class that fits your goals. We can also review your current mutual fund holdings and assess how much you’re really paying in fees. Contact our office to learn more!

SOURCES

1 MFS. “First Fund: The Origins and Legacy of Massachusetts Investors Trust (MIT).” https://www.mfs.com/en-us/individual-investor/about-mfs/our-history/first-fund-the-origins-and-legacy-of-massachusetts-investors-trust.html. Accessed Aug. 5, 2024.

2 Statista. “Total net assets of US-registered mutual funds worldwide from 1998 to 2023.” https://www.statista.com/statistics/255518/mutual-fund-assets-held-by-investment-companies-in-the-united-states/. Accessed Aug. 1, 2024.

3 Investor.gov. “Mutual Fund Fees and Expenses.” https://www.investor.gov/introduction-investing/investing-basics/glossary/mutual-fund-fees-and-expenses. Accessed Aug. 2, 2024.4 Capital Group. “The Growth Fund of America.” https://www.capitalgroup.com/individual/investments/fund/agthx. Accessed Aug. 5, 2024.

This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM nor the firm providing you with this report are affiliated with or endorsed by the U.S. government or any governmental agency. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. AE Wealth Management, LLC (AEWM) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IARs) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at http://brokercheck.finra.org.

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No matter their age or net worth, every adult can benefit from planning for what happens with their assets when they die. There are many components involved, and it can be a highly emotional process – but it’s worth knowing your loved ones can focus on more important things after you’re gone.

Overview

What do you want to happen to your assets after you’re gone? According to a recent study, 68% of people surveyed don’t have a will.1 While their reasons for not having one varied, 40% of those surveyed said they didn’t have enough assets to need a will. Other reasons included a lack of knowledge or funds to create a will and simply putting it off because they didn’t want to think about it.

Source: Caring.com

But here’s the thing: Even the most basic financial planning can be impactful for your loved ones in the wake of your death. When someone passes away, just paying the bills can become a chore that’s worsened by grief. The last thing you want is for the power to be cut off or for long-term-care insurance on a surviving spouse to be stopped because you weren’t there to pay the bills.

Even if you’re single with no children, it’s important to consider where your assets and possessions will end up. If you pass away without a will, the state will decide how to distribute your belongings – including any physical property, investments and even pets.

Pre-planning can also head off disagreements or arguments over who gets what. So, how can you get started with planning for what happens when you die? Let’s break it down into four simple steps.

Step #1: Gather Your Documentation

Some of the most effective pre-planning is simply letting your loved ones know where your assets are located and how to access relevant paperwork. It’s a good idea to develop a “financial fact sheet” listing your bank accounts, investments, pension, employer retirement plans, etc. It may also include details about property you own, outstanding debts and other relevant financial information.

Your financial fact sheet can be stored in a secure location, such as a safe deposit box or fireproof safe in your home. Let your loved ones know where the documents are kept, and make sure they know how to access them when necessary.

Step #2: Work With a Trusted Financial Advisor

While your financial advisor can’t help you set up a will or trust or provide tax advice, they can work with an estate planning attorney and tax consultant to make sure your accounts are set up correctly. This combination of experience can help ensure your assets are transferred to beneficiaries directly and in the most tax-efficient manner. Should you decide to put investments or other assets into a trust, your financial advisor can also help make sure they are moved correctly and provide support for distributing the assets after you’re gone.

If you don’t have an estate planning attorney or tax professional, your financial advisor can likely refer you to someone they know. They can also provide support and advice for your surviving spouse, children or other beneficiaries to manage their inheritance.

Step #3: Create Your Estate Plan

You can’t take it with you. That’s why it’s important to write a will providing instructions on how you want your possessions to be distributed when you die. While many states assign all assets to a surviving spouse, this isn’t always automatic – and may even be problematic depending on your family situation.

Here’s a look at what might be included in a comprehensive estate plan:

Life Insurance: Depending on your age and level of assets, you may want to consider adding life insurance to your estate plan. Life insurance proceeds are distributed to your beneficiaries tax-free, and they can be used to replace income, pay off debt or even cover funeral expenses. In some cases, they can also be used to provide retirement income for a surviving spouse.
Payable on Death Designation: Your bills will continue when you’re gone, and you’ll want to make sure your loved ones have the financial means to pay them. Consider completing a “payable on death” (POD) form to give a loved one immediate access to your bank accounts (checking, savings, money market) after you die. This is very simple paperwork that can be completed at your local bank branch (or online if your accounts are at an internet-only bank).
Transfer on Death Deed: If you own a home or other property, you may want to establish a transfer on death (TOD) deed, directing the transfer of the property to another person at the moment of your death. (You don’t need a POD or TOD if your bank accounts or property are owned by a trust.)
Limited Power of Attorney (POA): This legal document grants another person the power to act on your behalf for a specific purpose and for a limited period. For instance, if you’re going to be out of the country for two months, you might want to give someone limited POA to handle your affairs while you’re gone.
General POA: This assigns another person all powers and rights to act on your behalf, including the ability to sign documents, pay bills and conduct financial transactions. This can often be a useful document to have if you’re single and want someone else to be able to help with your affairs if you begin to experience cognitive decline.
Durable POA: A durable POA is used if you become incapacitated and can’t make decisions for yourself. It can be used for general or limited purposes.
Living Will: Also known as an advance directive, a living will conveys if you want emergency and medical professionals to resuscitate or engage in “heroic efforts” to sustain your life.

It’s not always automatic that a spouse can make medical, legal or financial decisions on behalf of an incapacitated spouse, so it’s important to have this paperwork in order even if you’re married. It’s also important to review all of your estate planning documents regularly to make sure they’re up to date and aligned with your wishes.

Step #4: Consider Funeral Pre-Planning

When someone dies, there are a lot of decisions to make – and you can relieve some of the burden for your loved ones with funeral pre-planning. This might include details such as:

Where you want to be buried (you might even pre-purchase a plot or headstone)
Where to scatter your ashes if you want to be cremated
The clothes you’d like to be buried in
Favorite songs to play or verses/poems to be read at your services
A preferred charity or organization to receive memorial contributions

Writing down these details may seem morbid at first, but thinking through your wishes can actually be a liberating experience. It also allows you to communicate your likes, dislikes and how you want to be remembered. Without this guidance, grieving loved ones must make these decisions on their own while navigating their own grief.

Final Thoughts

The best time to develop a plan – whether it’s retirement, long-term care or death – is well before you need it. It’s important to engage in end-of-life planning while you’re still in good health because the financial and legal complications can be onerous if you wait too long.

One of the best things you can do for your loved ones is to regularly review every plan, document, account and beneficiary designation to ensure they continue to reflect your wishes. These details tend to get lost in the wake of new marriages, blended families, the addition of new family members, divorce and death. That’s why it’s important to work with a financial advisor to help ensure your plan stays on track for the sake of your loved ones.

SOURCES

1 Rachel Lustbader. Caring.com. “2024 Wills and Estate Planning Study.” https://www.caring.com/caregivers/estate-planning/wills-survey/. Accessed July 8, 2024.

This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM nor the firm providing you with this report are affiliated with or endorsed by the U.S. government or any governmental agency. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. AE Wealth Management, LLC (AEWM) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IARs) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at http://brokercheck.finra.org.

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Knowing you have a regular and consistent source of income waiting for you in retirement can help create confidence and make it easier to make the jump from employee to retiree.

OverviewWhat happens when the paychecks stop coming? That’s the question for many people approaching retirement age. Most of us will rely on a combination of financial sources to cover our expenses in our later years, but how do we know if they will be enough to cover our everyday expenses?

Let’s take Social Security, for example. In December 2023, more than 50 million retirees in the U.S. received Social Security benefits averaging $1,905 per month.1 These benefits are based on an individual’s lifetime earnings, so they fluctuate from person to person and may only cover a portion of your expected expenses in retirement.

Other income sources may make up the difference, including an employer retirement plan (such as a 401(k) or 403(b)) or IRA. You might also have access to a pension, although fewer employers are offering pensions to their employees.

Some retirees will need to use their own non-retirement savings and investments to create additional streams of income. However, these funds may be subject to external factors — such as a market drop or changing investment rates — and may not provide as much income as planned for as long as you need.

How, then, can retirees make sure they have enough to live on in retirement? One option is to add an annuity to your portfolio, which can be a source of guaranteed lifetime income for retirees when set up properly.

Annuity BasicsAn annuity is a contract between you and an insurance company, where the purchaser pays a premium in exchange for a variety of guaranteed payout options for a set period of time or for the remainder of the individual’s life. (It could also be for the remainder of a surviving spouse’s life, if the annuity is jointly owned by a couple.)

The two phases of an annuity are the accumulation phase, where the contract value accumulates interest, and the distribution phase, where income is paid out from the annuity to the account owner.

Annuities are the only financial product that can provide guaranteed income for life. One caveat, however: The guarantees of an annuity are backed by the financial strength and claims-paying ability of the issuing insurance company.

Types of AnnuitiesThere are two main categories of annuities: fixed and variable. A fixed annuity earns a guaranteed rate of interest and, once income payments are started, can provide a guaranteed income amount for a certain period or life, depending on the options selected.2

A variable annuity provides income subject to underlying investment performance, so even though the interest credits may not be guaranteed during the accumulation phase, it does offer the potential for higher payouts over time. Like the fixed annuity, payments are guaranteed for either the time period or life, depending on the options selected.3

Some annuities offer both fixed and indexed interest crediting. For example, depending on the interest crediting options chosen, an indexed annuity provides a guaranteed interest crediting rate with the opportunity to enhance accumulation and income payouts based on the performance of the market index, such as the S&P 500. If the S&P 500 has a good year, the annuity owner will receive higher interest credits, up to a predetermined limit, based on a proportionate calculation of index earnings. If the S&P performs poorly, there will be no additional interest credit, but the annuity owner will continue to receive the guaranteed minimum benefit. Unlike variable annuities, fixed index annuities do not actually participate in the market; they only track the index as a means of determining interest credits.

Dispelling Annuity Myths and MisperceptionsAnnuities have gotten a bad rap over the years, and some misperceptions still exist despite changes over time. However, insurance companies have made many positive changes to annuities, and today’s annuities often provide benefits investors don’t know about. Here are just a few:

Some policies offer a “lifetime income payout” rider. This optional add-on allows you to select a guaranteed lifetime income payout option without “annuitizing” or giving up control of your account to the insurance company. (The rider may be offered for an additional fee.)
You may be able to leave money to your heirs. Some policies offer a guaranteed death benefit, transferring funds to your beneficiaries upon your death. (This option is typically available through a rider and also may be offered for an additional fee.)
You can have access to a portion of your funds. Some people believe that once you pay the premium for the annuity, you can no longer access any portion of your funds, but most insurance companies allow account owners to withdraw funds up to a certain cap, such as 10% per year. However, most annuities have surrender charges if you withdraw funds exceeding the cap during a certain time period, typically in the early years of an annuity’s life. And keep in mind that withdrawals will impact how much money is in the annuity for your retirement.

Annuity RealitiesOne perception that is grounded in reality: Annuities can be difficult to understand. This is in large part because there are so many types of annuities and optional riders available. Plus, annuities aren’t one-size-fits-all, and deciding which one works for you and your situation is a difficult task. Because of this, it’s important to work with an experienced insurance professional to help you understand whether an annuity is a good fit for your portfolio and identify the right annuity (and add-ons) for you.

Another reality is that despite an annuity’s guarantee, it is possible to miss out on lifetime income. This feature is determined by actuarial calculations based on the amount of money initially used to purchase the contract. If the annuity owner violates any of the withdrawal limits or other contract rules, it could result in a reduction of benefits or even void the guarantee altogether. This is another reason to work with a qualified advisor and read the policy literature to understand the features, risks, charges and expenses related to the account. And it bears repeating: All annuity guarantees are subject to the claims-paying ability of the issuing company.

Final ThoughtsWhile guaranteed lifetime income is the goal for many people as they plan for retirement, it’s not always easy to generate. In recent years, concerns about Social Security funding and the decline of pensions have made it especially difficult for retirees to know where income will come from in their later years. It’s becoming more and more important for individuals to proactively develop their own income streams using a portion of their savings and invested assets.

Annuities can offer important benefits such as the opportunity for tax-deferred growth, potential guaranteed income and a possible death benefit for your beneficiaries. If you’re worried your income may not be enough to live on in retirement, an annuity can help shore up your financial situation. We encourage you to reach out to your financial advisor to find out if an annuity is right for you and pinpoint annuity options that fit your situation.

SOURCES

1 Social Security. “Fact Sheet: Social Security.” https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf. Accessed May 30, 2024.

2 Amy Bell. Investopedia. June 1, 2024. “How a Fixed Annuity Works After Retirement.” https://www.investopedia.com/articles/personal-finance/121415/how-fixed-annuity-works-after-retirement.asp. Accessed June 2, 2024.

3 Akhilesh Ganti. Investopedia. June 7, 2023. “Variable Annuity: Definition, How It Works, and vs. Fixed Annuity.” https://www.investopedia.com/terms/v/variableannuity.asp. Accessed June 3, 2024.

The guarantees of an annuity are backed by the financial strength and claims-paying ability of the issuing insurance company.

This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM nor the firm providing you with this report are affiliated with or endorsed by the U.S. government or any governmental agency. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. AE Wealth Management, LLC (“AEWM”) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IARs) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at http://brokercheck.finra.org.

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It isn’t an easy time to be a young adult. Economic uncertainty, a softening job market and rising prices create challenges for college graduates who are just setting out on their own journeys toward independence.

Overview

Graduating from college should be an exciting time, but today’s graduates are launching into a particularly challenging environment. From the conflicts overseas having their impact in the U.S. to a softening job market and high prices, your recent college graduate may need support and advice as they define the road ahead.

Many of these graduates are also carrying a financial load as they embark on their careers. Public university students borrow nearly $33,000 on average for their bachelor’s degree, and those costs can double or triple for private schools.1

It’s challenging to start life “underwater” in terms of their debt-to-income ratio, and most graduates are focused more on becoming debt-free than building wealth. Still, it can be important for college grads — especially those in their early 20s — to develop successful money management habits now. The following are ways you can help your recent college graduate find their financial footing.

“It takes courage to grow up and become who you really are.” — E. E. Cummings

Establishing Solid Financial HabitsOne of the first life lessons we all learn is that building a strong foundation can increase our chances of success. Building a financial foundation starts with developing good practices in four categories: spending, saving, investing and protecting.

Spending

While some of us are naturally inclined to spend while others save, financial responsibility can be learned. One of the keys is to create a budget that accounts for both practical purchases and indulgences. Splurging on the occasional big purchase can be balanced out by incorporating money-saving habits. Even a graduate making a good entry-level salary can still make coffee at home or pack a lunch for work most days. Grabbing a coffee from Starbucks or dining out in a restaurant can be an infrequent indulgence. The advice is simple: “Live like you’re still a college student.”

Saving

Setting aside each month — even if it’s only a small amount — can help graduates establish a saving habit. The initial goal could be to create an emergency savings fund with enough money to cover three to six months of expenses. This is especially helpful to have early in your career when you may be more likely to be caught up in a layoff.

This is also the time money graduates will start chipping away at debt, especially student loans. One way to do this is by increasing payments toward the loan with the highest interest with the goal of paying it off first. Once that loan is dispatched, add the monthly payment to the loan with the second-highest interest rate and repeat until all the debt is paid off.

Investing

Some earlier — and even older — adults mistakenly believe investing is for people who are further along in their careers or making more money. But anyone can benefit from investing, even if it’s small amounts. Right out of college is a great time to start investing.

The younger your grad starts investing, the more money they can earn over the long term, thanks to the power of compound interest. Here’s an example of how it works:

Evelyn starts investing at age 25, putting $10,000 a year in her investment account every year for 15 years for a total of $150,000. At age 40, she stops investing and reallocates the money for her child’s college fund.

Doug, on the other hand, decides to spend his money on other things. He doesn’t start investing until age 35, a full decade after Evelyn. At that point, he invests $10,000 per year for the next 30 years – twice as long as Evelyn. In all, Doug contributes $300,000 to his investment account.

Check out how they fared in the chart below:2

*This hypothetical illustration assumes an average annual return of 6%. The illustration does not represent any particular investment, nor does it account for inflation.

Despite investing half as much money as Doug, Evelyn earned over $220,000 more by age 65. That is the power of compound interest at work, especially for someone who is early in their career and starts investing as soon as possible.

College graduates entering the workforce might find it easiest to start investing through their workplace retirement plan, where they can potentially take advantage of matching contributions from their employer. You might also consider introducing them to your financial advisor, who can help them get set up with investing options outside their workplace.

Protecting

Compound interest works both ways, which is why it’s important for everyone to make loan payments on time. Missing payment dates can end up costing more through late penalties and even higher interest rates. It can also negatively impact your credit rating, making it much more difficult to purchase large-ticket items such as a car or house later.

Final Thoughts

may be in charge of managing their finances for the first time. You can help by offering a lot of patience, a little understanding and your own personal insights.

Some of the real-life lessons you’ve learned over the years may be brand new for the young college grads in your life. Perhaps the biggest — and best — lesson you can share with them is to develop good financial habits early. If they do, they will reap the rewards for years and even decades to come.

SOURCES

1 Melanie Hanson. Education Data Initiative. March 3, 2024. “Student Loan Debt Statistics.” https://educationdata.org/student-loan-debt-statistics. Accessed May 6, 2024.

2 Vanguard. “When should you start saving for retirement?” https://investor.vanguard.com/investor-resources-education/retirement/savings-when-to-start. Accessed May 6, 2024.

This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM nor the firm providing you with this report are affiliated with or endorsed by the U.S. government or any governmental agency. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. AE Wealth Management, LLC (AEWM) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IARs) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at http://brokercheck.finra.org.

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Summer is a popular time to take off on a vacation. The more you plan ahead of time, the more likely you’ll be able to enjoy yourself while you’re gone and return home without lingering financial concerns in your wake.

Overview

Planning an upcoming trip? You’re not alone — nearly 85% of Americans are making travel plans for this summer.1 But before you hit the road, there’s a host of things to do: Arrange care for the pets. Pack. Buy toiletries and other necessities. The list goes on.

Your pre-travel checklist might also contain money-related tasks. Here’s a look at some of the financial items to add to your list and help make sure your vacation is the relaxing and entertaining trip of a lifetime.

Set Your Budget

It can be tempting to spend, spend, spend when you’re on a special trip. Keep overspending in check with a pre-determined budget, especially for things like meals, activities and souvenirs. With a little research and pre-planning, you can find out typical costs for your destination and plan your trip accordingly.

Automate Your Bills

Who wants to worry about bills during a vacation? Set up automatic payments for recurring bills that are due while you’re away, especially if you’re going on an extended trip. Consider pre-paying bills if auto-pay options aren’t available.

Check Your Credit Cards

Some credit card companies encourage you to inform them ahead of time if you’re planning to travel, especially if you’re leaving the country. That’s because many companies have systems in place to automatically trigger a fraud alert for unusually large charges or purchases outside your usual stomping grounds. And you don’t want to be denied if you’re trying to buy yourself (or your kids) a souvenir from the trip!

Most credit cards have a chip that is encrypted and deemed safe for use anywhere. But if you have a magnetic-stripe card, some foreign merchants may not be able to accept it, especially at self-service payment kiosks. You might want to request a chip-enabled card from your issuing company before your trip.2

It’s also a good idea to use a credit card that doesn’t charge a foreign transaction fee to convert the local currency to U.S. dollars. Some merchants will ask if you want them to convert that fee at the point of purchase to help you determine how much you’re paying in U.S. dollars. (This is called a Dynamic Currency Conversion or DCC fee.) It’s usually a good idea to turn down this service, as the point-of-purchase fee is typically more than what credit cards charge. If you use a card with no foreign transaction fees and decline the DCC service, you won’t have to pay a currency conversion fee. Keep in mind, however, that you will have to pay whatever the charge converts to in U.S. dollars when you get the credit card bill.3

Visit the Bank

Traveler’s checks may not be as popular as they once were, especially since credit cards are more widely accepted. But most banks still offer them, especially for people headed out of the country. Traveler’s checks act like cash, but banks provide security for lost or stolen checks.4 If you prefer to purchase items in cash and avoid using credit, you might want to head to the bank for some traveler’s checks.

For international trips, you might check with your bank to see about exchanging for foreign currency before you leave. Plan to do this a couple of weeks before your trip, since bank branches don’t tend to keep every foreign currency on hand. Some banks will even allow you to order the currency and have it shipped directly to your home. Picking up foreign currencies stateside will help you avoid paying a high service fee at foreign banks.

If you need more cash while abroad, pay attention to the conversion fees charged. These fees are usually less at banks than at more conveniently located places, such as airport kiosks. You may be able to get even lower rates if your bank has branches or a partnership with a financial institution in the country you’re visiting.

Help Protect Yourself—and Your Accounts

Even the best-laid plans sometimes get waylaid. When they do, trip insurance can help recoup some losses due to an unexpected health crisis, lost luggage or natural disasters. And while you’re checking on your credit card’s travel features, you may want to set up alerts to be notified of any unusual activity. (This is a good practice to have even when you’re home!)

Final Thoughts

SOURCES

1 Eric Jones. The Vacationer. April 1, 2024. “Summer Travel Survey & Trends 2023 – Nearly 85% to Travel, 42% to Ravel More than Last Summer, More than 54% to Fly on a Plane, 100 Million to Road Trip Over 250 Miles.” https://thevacationer.com/summer-travel-survey-2023/. Accessed April 2, 2024.

2 Rick Steves. Rick Steves’ Europe. “Using Credit Cards in Europe.” https://www.ricksteves.com/travel-tips/money/chip-pin-cards. Accessed April 2, 2024.

3 Jacqueline DeMarco and Poonkulali Thangavelu. Bankrate.com. Oct. 20, 2023. “A guide to foreign transaction fees.” https://www.bankrate.com/finance/credit-cards/a-guide-to-foreign-transaction-fees/. Accessed April 2, 2024.

4 Julia Kagan. Investopedia. March 24, 2024. “Traveler’s Check: What It Is, How It’s Used, Where to Buy.” https://www.investopedia.com/terms/t/travelerscheck.asp. Accessed April 2, 2024.

5 Rebecca Rosenberg. Investopedia. March 25, 2024. “Want to Travel the World in Retirement? Here’s How.” https://www.investopedia.com/traveling-during-retirement-7564945. Accessed April 2, 2024.

This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM nor the firm providing you with this report are affiliated with or endorsed by the U.S. government or any governmental agency. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. AE Wealth Management, LLC (AEWM) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IARs) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at http://brokercheck.finra.org.

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While no one can predict who might experience dementia in their later years, it’s prudent to include the possibility as you’re building your long-term financial plan.Overview

We’ve all had them: Moments when we’ve walked into a room and forgotten what we came in for. Or saw someone out and about and couldn’t remember their name. Or know we just had the cell phone — but now have no idea where it’s gone.

We laughingly call these brief bouts of forgetfulness “senior moments,” but in some cases, these can be early signs of age-related cognitive decline. In its mildest forms, we may just notice an increased inability to recall information as quickly. Other cases may be the first indicators of dementia — a disease that takes a physical, mental and financial toll on both the individual and those they love.

Alzheimer’s disease is the most common form of dementia, representing 60-70% of all cases.1 While people with Alzheimer’s live three to 11 years after diagnosis on average, many individuals can live up to 20 years.2

Consider, then, that the average coverage of a long-term care policy is one to five years — which can leave some individuals with Alzheimer’s or dementia without care benefits for several years.3 Given these statistics, it’s prudent for people approaching retirement age to include the possibility of cognitive decline and dementia in their financial plans.

Stage Planning

Dementia is a progressive disease, but it generally follows three stages: mild, moderate and severe. Financial skills generally begin to deteriorate in the early stages and may become evident as the individual starts to have trouble paying bills or managing bank statements. During this time, it’s a good idea to set up bank services such as direct deposit for all income and automatic bill pay for outgoing payments.

This is also the time to establish a legal authority as power of attorney to take over financial management on the individual’s behalf when necessary. It’s critical to take this action now, while the individual is still capable of understanding and agreeing to the decision.

During the moderate decline stage, the individual may lose the ability to manage daily finances altogether. This may cause anger, frustration, and irrational thoughts and behaviors — which is why it’s important to transfer money management to another person before the moderate stage occurs. Depending on the individual’s living situation, it may be necessary to hire a caregiver to shop, cook and help out with other basics of daily living.

In the severe decline stage, patients tend to lose short-term memory, including the ability to hold conversations and make decisions. The individual will likely need additional support and care and may no longer recognize loved ones or even understand words.

Financial Options

Once a family receives a diagnosis of progressive cognitive impairment, they’ll likely see a change in where and how their money is spent. They may need to adjust assets to pay for prescription drugs, personal care supplies, medical care, or even full-time in-home or residential care services.

The following are some things to know as you develop a plan for yourself or a loved one facing dementia and related expenses.

Medicare and Medicaid

Medicare will pay for up to 100 days of skilled nursing home care in some circumstances. However, Medicare benefits do not include long-term nursing home care.4
To qualify for Medicaid long-term care coverage, beneficiaries must spend down assets that could be used to fund their care.
Not all nursing homes accept Medicaid. Those that do may have limited beds available.

Veterans Benefits

Certain government benefits, including health and long-term care, may be available for people who served in the military. Veterans and their families can determine benefit eligibility by visiting the Veterans Affairs website at va.gov.

Long-Term Care (LTC) Insurance

An LTC policy needs to be purchased before the individual receives a dementia or Alzheimer’s diagnosis.
When reviewing potential policies, pay attention to the amount of the daily benefit and if it is adjusted annually for inflation.
Understand how long benefits will be paid and if there is a maximum lifetime payout. You may reach this payout limit if care is extended over multiple years.
Check what type of care is covered (e.g., skilled nursing home, assisted living, licensed home care, etc.).
Check if there is an elimination period before coverage begins. This is the amount of time that passes after a “trigger” occurs but before payments begin. In some cases, this elimination period may be the first 100 days during which Medicare will cover the cost.5

Life Insurance

Life insurance should be discussed prior to any hint of dementia or Alzheimer’s. Companies will decline coverage if an individual receives a diagnosis or experiences symptoms prior to applying.
Policy owners may be able to borrow or withdraw from the cash value account of certain types of life insurance contracts.
Many policies offer accelerated death benefits for a predetermined percentage of the policy’s face value. These benefits are paid out if the insured is not expected to live beyond the next 12 months due to a terminal illness.
Some policies also offer a rider that waives premium payments if the owner becomes disabled.

Long-Term Care Annuity

Long-term care annuity policies are typically fully funded by the initial premium. Coverage is typically valued at 200-300% of the initial premium amount (the higher the initial premium paid, the more coverage the individual receives).
If and when long-term care is required, a specific monthly amount is paid from the annuity until the value is depleted.
The policy owner may be able to access cash value from the account, even if they never require care.
Once the annuity contract matures, the remaining cash value (if any) may be passed on to named beneficiaries.

Asset-Based Long-Term Care Insurance

This option offers coverage for long-term care expenses as well as a death benefit.
If the policy owner depletes the LTC coverage, the death benefit may be used to continue paying for expenses.

Please work with a qualified financial professional and attorney before making any purchasing decisions to ensure you fully understand all the benefits, features and limitations of the above-referenced programs and financial products.

Financial Planning Checklist

✓ Identify all assets (bank accounts, investment accounts, property, household items, real estate).

✓ What is their estimated value?

✓ How is the main residence titled?

✓ Review all insurance policies, including what is covered (e.g., cognitive conditions, long-term care), benefits payable and named beneficiaries.

✓ Review all income sources, including Social Security, disability payments, pensions and required minimum distributions (RMDs) from retirement accounts.

✓ Research if penalty-free distributions are allowed from qualified retirement accounts.

✓ Consider government resources, such as Medicare, Medicaid, Social Security and veterans benefits.

✓ Consider what tax deductions and/or credits the individual or caregiver may be able to claim.

✓ Seek out free or low-cost community resources for meals, transportation, respite and adult daycare.

✓ Consider how personal property and work-related benefits can be utilized, such as a flexible spending account, family and Medicaid unpaid leave or paid time off.

✓ Select a trusted person to manage the individual’s money, tax returns and health care decisions when the time comes.

✓ Consult with experienced financial and legal advisors.

Final Thoughts

Retirement planning is difficult enough without adding the possibility of dementia or advanced cognitive impairment to the mix. And it doesn’t just affect the person diagnosed with the disease. Some caregivers will spend their own money or retire early to provide assistance to their loved ones, which can negatively impact their own financial future. We recommend working with a trusted financial advisor and attorney to develop a comprehensive plan to help protect your own financial future as well as those who may provide future care.

SOURCES

1 World Health Organization. March 15, 2023. “Dementia.” https://www.who.int/news-room/fact-sheets/detail/dementia. Accessed March 9, 2024.

2 Mayo Clinic. June 7, 2023. “Alzheimer’s stages: How the disease progresses.” https://www.mayoclinic.org/diseases-conditions/alzheimers-disease/in-depth/alzheimers-stages/art-20048448. Accessed March 9, 2024.

3 Alison Tobin. Money. Dec. 26, 2023. “Long-Term Care Insurance Costs.” https://money.com/long-term-care-insurance-costs/. Accessed March 9, 2024.

4 Alzheimer’s Association. “Medicare.” https://www.alz.org/help-support/caregiving/financial-legal-planning/medicare. Accessed March 9, 2024.

5 Cindy Wong. Experience.care. Aug. 18, 2022. “4 Tips for Understanding Long Term Care Elimination Periods.” https://experience.care/blog/understand-long-term-care-elimination-periods/. Accessed March 9, 2024.

This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM nor the firm providing you with this report are affiliated with or endorsed by the U.S. government or any governmental agency. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. AE Wealth Management, LLC (AEWM) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IARs) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at http://brokercheck.finra.org.

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Spring is a good time to organize your finances, clean up debt and credit issues, consolidate old accounts and develop good habits to work toward your goals.Overview

Do you have a space in your house in constant need of organizing? You know the one: the space where clutter seems to accumulate and visitors are never, ever allowed to see.

We often want to tidy up this area of our lives but keep putting it off. However, simply knowing there’s an undone task takes up precious real estate in our brains, a phenomenon known as the Zeigarnik effect.1

Most of us have probably experienced the Zeigarnik effect. It’s when you start working on a task but quit before it’s done — and then find yourself thinking about it even after you’ve turned to other projects. It’s as if checking off a task from your list closes it in your brain; if the task stays open, it lingers until it’s addressed.

Time to Check off Undone Tasks

As the weather gets warmer, we often turn to the tasks we’ve left undone or half-done all winter. Many of these are home-related chores: cleaning out closets, organizing the garage, tackling the storage room where all the holiday decorations need to be put away. We call this frenzy of activity “spring cleaning,” and it’s spurred by the wish for a fresh space in a fresh season.

Spring cleaning doesn’t just have to be about organizing your physical space. We recommend spending some time tackling those undone tasks in your financial space as well. Doing so can help close those tasks in your brain and leave you space to think about other things.

“A place for everything, everything in its place.” -Benjamin Franklin

Your Financial Spring-Cleaning List

Here are some tasks you could add to your financial clean-up list:

Address your spending

Many folks are spending too much or spending on unnecessary items. To help you determine what’s necessary and what’s not, review your past six months of expenses. Are you still being billed for subscriptions or memberships you no longer use? Are you paying more than you thought for recurring expenses like insurance or utilities? This is a good time to shop around for better prices or eliminate items you no longer need.

Check your credit score

It might be a good idea to check your credit score at least once a year to see where you stand and make sure there’s no incorrect information or fraudulent activity. You are entitled to a free annual credit report from each of the three major credit reporting agencies: TransUnion, Experian and Equifax. You can request all three reports via the government-authorized website www.annualcreditreport.com.

And speaking of your credit: Did you know that canceling credit cards may negatively impact your credit score? It may be better to put them in a drawer and stop using them. Another strategy is to put a small, recurring expense on autopay on cards and then pay off the balance each month. This keeps the card active and contributes positive information to the credit agencies each month. It also keeps additional charges from hitting a card on which you’re paying off the balance.

Track down your employer retirement plans

On average, American workers change jobs every 3.5 years and hold 12 jobs over a 40-year career.2 Even if you participated in the company retirement plan at only half of those jobs, you could have quite a trail of 401(k)s, 403(b)s or Thrift Savings Plans (TSPs) left behind. In fact, it’s estimated that there’s $1.65 trillion currently sitting in forgotten 401(k) accounts. 3

Now’s a good time to clean that up. You may be able to roll assets from former employers’ plans into your current plan, or you could roll them into an IRA. If you have multiple IRAs, you might consider consolidating them into one for ease of tracking performance, managing fees and taking required minimum distributions (RMDs) during retirement. You may also want to have a traditional IRA and Roth IRA to diversify your tax liability when you start taking withdrawals later.

Modernize your filing

If you’re holding on to paper documents, now’s a good time to digitize your files. Sign up for paperless documentation on all your accounts and opt in to receive statements, policy documents and other important information electronically. Shred outdated receipts and other documents you no longer need. The IRS recommends keeping tax returns and related documents for three years after the date of filing. 4

Consider setting up a cloud drive (like Google Drive or Dropbox) to organize and save important electronic documents. There are two good reasons to organize your documents in the cloud: Your files remain safe even if disaster strikes your home, and you don’t have to transfer files every time you buy a new computer.

Do an insurance inventory

A good spring cleaning should also include an insurance checkup to make sure you have the appropriate amount of insurance coverage for your home, vehicles and other property. It’s also a good time to create an inventory of your belongings. You can do this by taking videos or photographs of the items you own. Upload documentation and receipts for your items to your cloud files. This will make it much easier to replace items in case of a disaster.

Review your policies

When was the last time you reviewed your policies to make sure your money will be easily transferred where you want it to go? Check the beneficiary designations on your will, life insurance policies, annuities, checking and savings accounts, and other investments to make sure they are aligned with your wishes. You’ll also want to double-check that your beneficiaries’ information is up to date and accurate.

Other legal documents to complete during your spring clean-up include:

Advance medical directive – details treatment preferences and appoints a person to make decisions about your medical care if you’re unable to do so
Living will – details what you want to happen if you’re alive but incapacitated
Financial power of attorney – assigns a personal legal authority to act on your behalf for financial issues

Final Thoughts

We’ll admit: Financial spring cleaning can take some time. It’s a good idea to make a list of tasks and tackle them one by one.

It’s also important to recognize that you don’t have to do all your financial spring cleaning alone. It’s good to work with an experienced financial advisor as well as tax and legal professionals who can help you update beneficiaries, understand what documents to keep, consolidate accounts or simply think of things you may not have considered.

SOURCES

1 Kendra Cherry, MSEd. VeryWell Mind. Jan. 1, 2024. “The Zeigarnik Effect and Memory.” https://www.verywellmind.com/zeigarnik-effect-memory-overview-4175150. Accessed Feb. 7, 2024.

2 Elsie Boskamp. Zippia. Feb. 9, 2023. “21 Crucial Career Change Statistics [2023]: How Often Do People Change Jobs?” https://www.zippia.com/advice/career-change-statistics/. Accessed Feb. 7, 2024.

3 Scott Woolridge. Benefits Pro. Aug. 3, 2023. “The true cost of ‘forgotten’ 401(k) accounts: $1.65 trillion.” https://www.benefitspro.com/2023/08/03/the-true-cost-of-forgotten-401k-accounts-1-65-trillion/?slreturn=20240108105318. Accessed Feb. 8, 2024.

4 Intuit TurboTax. Jan. 12, 2024. “How Long Do Federal and State Tax Returns Need to Be Kept?” https://turbotax.intuit.com/tax-tips/tax-planning-and-checklists/how-long-do-federal-and-state-tax-returns-need-to-be-kept/L43GK2Wcs. Accessed Feb. 7, 2024.

This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM nor the firm providing you with this report are affiliated with or endorsed by the U.S. government or any governmental agency. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. AE Wealth Management, LLC (“AEWM”) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IARs) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at http://brokercheck.finra.org.

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Help Avoid Outliving Your Savings While Maintaining Your Desired Retirement LifestyleWhen it comes to retirement planning, all of us want to know we have enough money saved and how to make it last. We also want to feel confident that we can live our desired lifestyle in retirement.

Overview

When it comes to planning for the future, it’s easy to fall into the trap of thinking we have all the bases covered. Take retirement planning, for example. You can plan for the lifestyle you want and the income you think you’ll need. You can even stash away extra funds for unexpected expenses. But can you truly plan for every variable or event that may occur years from now?

Even the best-laid retirement plans may get derailed by future unknowns and threats. Three of the most common threats to your retirement plan are:

Underestimating income needs
Withdrawing more money than you should
Overexposure to market risk

If your retirement plan misfires in any of these areas, you could end up outliving your savings.

Piecing together an accurate retirement plan is a little like putting together a puzzle without having the finished picture as a reference. You just don’t know if you’ve got it right until you get to the end.

Read on to discover ways to address these potential threats and help make sure you save enough money and can make it last while living the lifestyle you want in retirement.

Ways to Save (and Keep) Enough Money

Knowing how much to save is the big question for many pre-retirees. After all, none of us know how long we will live or what costs we will incur later in life. But we can look at the averages: A 65-year-old American man has a life expectancy of nearly 84, while a 65-year-old woman lives to be 86 on average.1

Based on those averages, people who retire in their early to mid-60s could expect to live two or even three decades in retirement. Planning for an additional 30 years of income after you’ve stopped earning a paycheck requires disciplined saving and knowledgeable investing.

Let’s say an investor does it all “right.” In the early stages of developing a retirement plan, he or she may invest 100% of funds in equities to help maximize growth. That might have been appropriate at the time, but as retirement inches closer, a more conservative approach is typically necessary. After all, people want to retire with the maximum savings possible, and they don’t want to suffer investment losses near their retirement date.

As time goes on, most investors shift from wanting to grow their money to preserving it. If this is one of your goals, one of the first steps is to consider choosing an investment allocation strategy appropriate for your timeline. Work with an experienced financial professional to adjust allocations as you near retirement. Keeping your investments aligned with your goals and tolerance for risk can help increase the chances of having enough money in your later years.

Ways to Make Your Money Last

Even if they have successfully built wealth during their working years, retirees can still stumble if their withdrawal rate is off base. It can be important to adjust the investment mix to reflect a change from the accumulation phase to distribution. In other words, once you have built up a substantial nest egg, it needs to be paid out in a manner that will last throughout your retirement.

That could mean repositioning assets from growth-oriented to income-oriented vehicles. While retirement accounts such as employer-sponsored 401(k)s and IRAs can be excellent growth vehicles, they are also impacted by market fluctuation. Money remaining in these accounts during the withdrawal stage could still be lost as a result of poor market performance, which would likely deplete a nest egg faster than anticipated.

Other threats to a retirement income plan are health care and long-term care costs, both of which can be exorbitantly expensive. According to a Fidelity Retiree Health Care Cost Estimate, a 65-year-old couple retiring this year can expect to spend approximately $315,000 on health care alone in retirement — and that only accounts for expenses such as doctors’ visits, insurance premiums and prescriptions.2

To address these unknown expenses, some investors reposition a portion of their assets to insurance products, like fixed annuities and life insurance. Policies are available with features that can help provide for long-term or critical care expenses, an inflation hedge and even growth opportunities without direct exposure to securities markets. These products also contain limitations and may be subject to qualifications you need to fully understand before making any purchasing decisions.

Ways to Live a Fulfilling Lifestyle

Retirement is a great time to live out our values. Throughout our careers and while raising a family, we may feel compelled to keep pace with the lifestyles our friends, neighbors and colleagues are living. The downside is we may buy a bigger house than necessary or take expensive vacations that don’t bring the family closer together in the long run.

Retirement can be a time to right the ship. If you’ve always felt the house was too big, consider downsizing. If you want to travel, adjust your retirement income to accommodate the trips you want to take and activities you want to pursue. Also, keep in mind you may not need an expensive country club membership if you would be just as happy hitting the links at a public golf course. The point is to right-size your lifestyle to match your budget, which doesn’t mean you necessarily have to give up everything. You may be able to continuing doing what you love, just pay less to do it.

Remember that your retirement lifestyle is typically defined by how you spend your days. Revel in the fact that your time is truly yours. You can travel, spend time with family, read great books, learn a foreign language, take a dance class … whatever you want. As you plan for retirement income, consider ways you might offset expensive hobbies with more fulfilling ones. You do not always have to do what you’re expected to do anymore; you can do what you want.

Balance: You’re the Professional

Ultimately, no one can plan for every threat or contingency they may face in retirement. However, if you’re fortunate enough to get there, you’ve likely learned some powerful lessons along the way. Like how to be flexible when plans go awry. How to adapt when less money is coming into the household. Or how to keep your spirits up through a run of bad luck. An important part of pursuing retirement confidence is to balance your needs and wants against your income. It’s a skill you’ve been practicing your entire life.

Final Thoughts

Thinking through each of these issues can be daunting, but it’s an important part of making sure you have enough saved for retirement and you won’t outlive your savings. Your best approach is to work with a financial professional who can help you think through potential threats to your retirement and then put a plan in place to help protect and preserve your savings. Knowing what you might expect early on can help keep surprises from derailing a retirement plan.

SOURCES

1 John Waggoner. AARP. Dec. 4, 2023. “How Much Money Do You Need to Retire?” https://www.aarp.org/retirement/planning-for-retirement/info-2020/how-much-money-do-you-need-to-retire.html. Accessed Jan. 12, 2024.

2 Fidelity. June 21, 2023. “How to plan for rising health care costs.” https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs. Accessed Jan. 12, 2024.

This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM nor the firm providing you with this report are affiliated with or endorsed by the U.S. government or any governmental agency. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. AE Wealth Management, LLC (“AEWM”) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IARs) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at http://brokercheck.finra.org.

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RMDs are crucial for retirement account owners age 73 and older

Some qualified retirement account owners are surprised that the IRS requires them to take a certain amount from their accounts each year. Including required minimum distributions in your financial plan can help you avoid higher taxes and potential IRS penalties.

Overview

If you own a qualified retirement account and you’re approaching or recently reached age 73, heads up: The IRS says you must start taking annual distributions from your account. Known as required minimum distributions, or RMDs, these withdrawals begin in the year you turn 73.

Why does this rule exist? Qualified retirement accounts are funded with pre-tax money, and the account’s growth is tax-deferred. You don’t pay any taxes until you start taking withdrawals from the account. The IRS uses RMDs to limit how long you can postpone paying taxes on those funds.

How RMDs Work

The RMD rule applies to traditional IRAs, SEP or SIMPLE IRAs, and employer-sponsored plans, such as 401(k)s, 403(b)s and 457(b)s. It also pertains to profit-sharing plans and other defined contribution plans. RMDs do not apply to Roth IRAs since they are funded with post-tax money.

RMDs apply to these account types:

Traditional IRA
SEP IRA
SIMPLE IRA
401(k)
403(b)
457(b)
Profit-sharing plan
Other defined contribution plan

Your total amount of RMDs will vary from year to year. The amount is calculated by taking the account balance at the end of the immediately preceding calendar year and dividing that amount by a distribution period from the “Uniform Lifetime Table” provided by the IRS.

Since withdrawals from a qualified retirement account are taxable, 100% of your RMDs are added to your taxable income for the year in which they’re taken out.

Many people own more than one qualified retirement account, and RMDs are calculated separately for each account. However, if you own more than one traditional IRA, you can take the total amount of your RMDs only from one IRA.

For example, say you own three traditional IRAs, and you’re required to take annual RMDs totaling $4,000: $500 from IRA No. 1, $1,500 from IRA No. 2 and $2,000 from IRA No. 3. You can take the whole amount from the account of your choosing or split it among two or more accounts.

If you own other retirement accounts (such as a 401(k) or 403(b)), then you must take those RMDs separately from those accounts.

Want to see how much your RMDs will be? The IRS provides a worksheet to calculate RMDs at https://www.irs.gov/retirement-plans/plan-participant-employee/required-minimum-distribution-worksheets

Donating Your RMDs

Since RMDs are taxable, many account owners prefer to donate their RMDs. Through a qualified charitable donation (QCD), the account owner can direct the RMD to be sent directly to a charitable organization. This approach is a win-win: The charity can use the funds to support its mission, while the account owner can take a tax deduction for the donation (if they itemize deductions).

Mark Your Calendar

The timing for your first RMD gets a little complicated. The IRS says you have until April 1 of the year after you turn age 73 to take your first withdrawal. So if you turned 73 on Sept. 1, 2023, you have until April 1, 2024, to request your initial RMD.

Your second and subsequent RMDs must be taken by Dec. 31 to fulfill the requirement. And don’t be late: If you miss the deadline or don’t take the RMDs at all, you could end up paying as much as 25% of the RMD as a penalty.

If you wait until April 1 of the following year to take your RMDs, you’ll be required to take two years’ worth of RMDs in one year (one for the prior year when you turned 73 and one for the current calendar year when you turned 74). Taking two sets of RMDs in one year could make a big difference in your total tax bill for that year.

If you’ve already taken previous distributions from a qualified account in the calendar year, those withdrawals count toward your RMDs. For example, if your total RMD for the year is $10,000 and you’ve already taken $5,000, you need to take an additional $5,000 to meet your annual RMD.

Final Thoughts

The end of the year is approaching quickly, and Dec. 31 will be here soon! It’s a good practice to start the RMD process now since it can take time for custodians to process the request.

If you turned (or will turn) 72 this year, we recommend scheduling a meeting with your financial advisor soon to review your RMDs and begin the process. And whether it’s your first year or 20th year of receiving RMDs, it’s also a good idea to set up recurring, systematic distributions to fulfill your RMDs. These distributions can be made monthly, quarterly or annually and sent to you by check or direct deposit. You can also request taxes be withheld from the distributions before they are sent. Not only does this make the process convenient and easy, but it reduces the chances of missing the deadline and potentially ending up with a large penalty from the IRS.

SOURCES

IRS. April 20, 2023. “Retirement Topics – Required Minimum Distributions (RMDs).” https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds. Accessed Nov. 30, 2023.

IRS. March 14, 2023. “Retirement Plan and IRA Required Minimum Distributions FAQs.” https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs. Accessed Nov. 30, 2023.

This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM nor the firm providing you with this report are affiliated with or endorsed by the U.S. government or any governmental agency. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. AE Wealth Management, LLC (“AEWM”) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IARs) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at http://brokercheck.finra.org.

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Longer lifespans mean more Americans will need some sort of long-term care assistance in their later years. Your financial professional can help you find and implement options to cover the cost and help make sure you receive the care you need when you need it most.

OverviewAmericans are living longer — and that means more of us will rely on long-term care services late in life. While health insurance covers expenses related to acute issues (like an overnight stay in the hospital, doctor visit or procedure), it usually doesn’t cover the cost of assistance over a long period. That means expenses related to assisted living or nursing home care must be paid out of pocket unless you qualify for government benefits or purchase some form of long-term care insurance.

While fees vary, they can add up, especially if the care is prolonged over several years. Genworth’s 2023 Cost of Care Survey revealed that the cost of care can range anywhere from $20,000 to $110,000 annually, based on location and type of care you receive.1

Fortunately, there are tools to help protect a household’s assets so that the care of one family member doesn’t devastate a family’s lifetime savings and threaten the financial future of a surviving spouse or other dependents. Read on to discover some of the options available to make sure you can pay for the long-term care you may need in retirement.

Medicaid and MedicareFor many years, Medicaid was the only government-sponsored plan that paid for long-term care. To qualify, beneficiaries must first spend down their own assets. (The amount of this spend-down varies by state.)2 Plus, the coverage only applies when recipients reside in traditional nursing homes; beneficiaries can’t use Medicaid to pay for in-home care or “senior” housing. And not every nursing home accepts Medicaid patients, making it even more difficult for Medicaid recipients to find a room or bed.

Medicare also provides some coverage for long-term care needs. Original Medicare may pay for up to 100 days in a skilled nursing facility per benefit period, which can be handy for someone recovering from surgery or a significant health event.3 Medicare pays 100% of the first 20 days for an inpatient stay, while the recipient must make a copayment for Days 21 through 100. After Day 100, you are responsible for 100% of the costs.4

In 2019, the Centers for Medicare and Medicaid gave the green light for Medicare Advantage plans to pay for certain long-term care services. Coverage specifics depend on the policy and insurer but may include home aides to help with daily living activities, including dressing, eating and other personal care needs. (Note: This rule applies only to Medicare Advantage plans, not original Medicare.)

Veterans’ BenefitsVeterans may qualify for long-term care benefits from the Veterans Aid and Attendance program to help pay for the costs of long-term care. This lesser-known VA benefit may provide assistance to a qualifying veteran as well as a surviving spouse, as long as the veteran meets specific income and asset-limit requirements.5

Qualifying veterans who do not need daily assistance but have a permanent disability that leaves them mostly shut in at home may qualify for the housebound benefit. This is an additional stipend paid to veterans who receive a monthly pension.6

Long-Term Care InsuranceLong-term care (LTC) insurance generally pays for daily assistance due to chronic illness, disability or conditions associated with aging. Coverage is issued in one of two ways: either as an indemnity policy (where a fixed sum is paid regularly for any use) or as a reimbursement policy, in which payments are made directly to a long-term care facility.

Long-term benefits kick in when a policy owner qualifies based on specific “activities of daily living” (ADLs).7 To qualify, the policy owner must need help with at least two ADLs, such as:

Personal hygiene
Continence management
Dressing
Feeding
Mobility

An LTC policy typically pays a fixed amount for costs related to a nursing home, assisted living facility or home health care. Some policies may require a waiting period before coverage begins, such as 90 days. In that case, policy owners who also have a Medicare Advantage plan might use their plan to cover the first 90 days of a stay, then switch to their long-term care policy to cover costs.

Life Insurance with Long-Term Care CoverageCertain types of life insurance policies have evolved to include long-term care coverage options. This includes:

Asset-based long-term care: This type of insurance product combines a life insurance contract with a long-term care policy. If the long-term care benefits aren’t needed or utilized, then a death benefit will be paid out upon the insured’s death.
Long-term care riders: Some whole or universal life insurance policy owners may be able to add a long-term care rider for an additional fee and separate underwriting. This coverage enables the policyholder to utilize the death benefit to help cover the cost of long-term care.
Chronic illness rider: This coverage can be purchased as an add-on to life insurance policies for additional coverage if a chronic or non-recoverable illness occurs.
Accelerated death benefits: Many life insurance policies now include the option to access benefits if a policy owner has been diagnosed with a terminal illness or cognitive impairment.

In all instances, the riders will reduce the death benefit, with the cost of care deducted before beneficiaries receive payouts after the policy owner’s death. And most long-term care coverage options will increase policy premiums, depending on the type of coverage and your health at the time the policy is issued. But one upside of adding long-term care coverage to your life insurance policy: You’ll use the benefits either for your own care or give them to your loved ones after you’re gone. It’s not a “use it or lose it” situation typically found in standalone long-term care policies.

Final ThoughtsWith the increasing cost of medical care and increasing lifespans, it’s important to think about who will provide your late-in-life care and how you will pay for it. Today, there are plans that combine insurance goals such as coverage for long-term care expenses, a steady stream of retirement income and/or a death benefit for your heirs. However, it can be overwhelming to uncover the right policies to fit your needs and budgets. We recommend working with an experienced professional to select an affordable solution that fits your life and ensures you receive the right type of care when the time comes.

Sources

1 Genworth. June 2, 2022. “Cost of Care Survey.” https://www.genworth.com/aging-and-you/finances/cost-of-care.html. Accessed Oct. 15, 2023.

2 American Council on Aging. Dec. 14, 2022. “Spending Down Assets to Become Medicaid Eligible for Nursing Home / Long Term Care.” https://www.medicaidplanningassistance.org/medicaid-spend-down/. Accessed Oct. 15, 2023.

3 Centers for Medicare & Medicaid Services. Page 14. “Medicare Coverage of Skilled Nursing Facility Care.” https://www.medicare.gov/Pubs/pdf/10153-Medicare-Skilled-Nursing-Facility-Care.pdf. Accessed Oct. 15, 2023.

4 Centers for Medicare & Medicaid Services. Page 19. “Medicare Coverage of Skilled Nursing Facility Care.” https://www.medicare.gov/Pubs/pdf/10153-Medicare-Skilled-Nursing-Facility-Care.pdf. Accessed Oct. 15, 2023.

5 U.S. Department of Veterans Affairs. Oct. 12, 2022. “VA Aid and Attendance benefits and Housebound allowance.” https://www.va.gov/pension/aid-attendance-housebound/. Accessed Oct. 15, 2023.

6 Ibid.

7 Robyn Correll. Care.com. Feb. 16, 2023. “Activities of daily living: What are they and how are they used?” https://www.care.com/c/activities-of-daily-living/. Accessed Oct. 15, 2023.

This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management (AEWM). Neither AEWM nor the firm providing you with this report are affiliated with or endorsed by the U.S. government or any governmental agency. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. AE Wealth Management, LLC (“AEWM”) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IARs) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at http://brokercheck.finra.org.

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Natural disasters can strike anytime, anyplace. Fortunately, your portfolio doesn’t have to suffer major damage when they do. It is possible to help protect your investments from declines after a natural disaster and potentially uncover growth opportunities when the storm clears.

OverviewFrom wildfires on Maui to powerful hurricanes along the East Coast, recent news cycles have reminded us that Mother Nature can pack a powerful wallop. Extreme weather events are not new; Pompeii was lost to the lava nearly 2,000 years ago. Yet they seem to be happening more frequently and with more ferocity than ever before, with six of the 11 most expensive natural disasters in the U.S. over the past 40 years occurring between 2012 and 2022.1

The 11 Most Expensive Natural Disasters in the U.S. since 19802

In the first nine months of 2023 alone, there were 23 confirmed weather- or climate-related disasters in the U.S., each with total losses over $1 billion.3 And that doesn’t include the drought affecting numerous states across the Midwest, where a lack of rainfall has caused negative impacts on crops and livestock.

Natural Disasters and Your PortfolioEach new natural disaster serves as a reminder that our lives and property are often at the mercy of the elements. Even our portfolios can be impacted by tornadoes, hurricanes, wildfires, droughts and floods. Companies of all sizes and across industries may see their operations disrupted, due to damage to facilities, lack of power or other utilities, or even decreased manpower as employees tend to their personal property. This can result in cash-flow issues for the company, decreased production or inventory shortages due to post-disaster supply-chain snarls. These challenges can dampen companies’ earnings, possibly affecting how investments within your portfolio perform. They may also lead to higher costs for consumers as demand for products exceeds availability and companies raise prices in response.

Recovery from natural disasters such as these doesn’t happen overnight. One report revealed it took three years for cities and businesses in Texas to resume normal life and operations after Hurricane Harvey hit the region in 2017.4 The Great Flood of 1993 lasted nearly 200 days in some locations, impacting farms and businesses across nine states and stopping barge traffic on the Missouri and Mississippi Rivers for almost two full months.5

Battening Down the HatchesOne way to help protect your portfolio from declines following a natural disaster is to diversify across a wide range of security types, classes or industries. Potential loss is mitigated by spreading assets across a large number of companies and industries; when one asset category declines, other categories may offset losses by outperforming.

You might also consider diversifying internationally across different hemispheres. Since the Northern and Southern hemispheres experience opposite seasons, they aren’t subject to the same types of weather disasters at the same time.

While you can’t buy insurance to help protect against stock market declines, property insurance can help pay for emergency expenses or property damage. Owning the right amount of insurance reduces the need to liquidate your portfolio or sell assets to cover household expenses or loss of income.

Assessing the Damage After the StormThe good news is natural disasters don’t tend to have a long-term impact on stock market performance. For example, the S&P 500 dropped when Hurricane Ian pummeled Florida in late September 2022. The index had more than recovered its losses just one month later and gained nearly 1,000 points over the following 12 months.6

Natural disasters may also present investment opportunities, especially in certain industries. Gas prices may rise if a hurricane takes refineries offline. Building materials and construction work become hot commodities as people in the affected areas rebuild or repair damaged homes and structures. Stock prices may rise as a result, although these are generally short-term price changes due to proactive investors looking to take advantage of a temporary surge or to help protect their portfolio from losses. Prices tend to normalize as recovery continues and companies resume regular operations.

Final ThoughtsOne of the best ways to help protect your investments from the impact of the increasing number of natural disasters each year is to be prepared. Using standard defensive tactics such as diversification can help mitigate potential losses when natural disasters happen. You can also potentially add a component of growth by investing in developing industries that are working toward long-term strategies to help offset the impact of extreme weather.

If you are impacted by a natural disaster, you may be able to offset losses with tax deductions for property damages. Visit www.irs.gov/newsroom/tax-relief-in-disaster-situations to see if you meet the criteria for tax relief.

Sources

1,2 David Muhlbaum. Kiplinger. Sept. 1, 2023. “The Most Expensive Natural Disasters in U.S. History.” https://www.kiplinger.com/slideshow/business/t019-s001-most-expensive-natural-disasters-in-u-s-history/index.html. Accessed Sept. 11, 2023.

3 National Centers for Environmental Information. “Billion-Dollar Weather and Climate Disasters.” https://www.ncei.noaa.gov/access/billions/. Accessed Sept. 11, 2023.

4 Patricia Kirk. WealthManagement.com. Oct. 6, 2022. “How Much Hurricane Ian Disrupted the Supply Chain.” https://www.wealthmanagement.com/industrial/how-much-hurricane-ian-disrupted-supply-chain. Accessed Sept. 11, 2023.

5 National Weather Service. “The Great Flood of 1993.” https://www.weather.gov/dvn/071993_greatflood. Accessed Sept. 11, 2023.

6 Yahoo! Finance. “S&P 500 (^GSPC).” https://finance.yahoo.com/quote/%5EGSPC/. Accessed Sept. 11, 2023.

This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM nor the firm providing you with this report are affiliated with or endorsed by the U.S. government or any governmental agency. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. AE Wealth Management, LLC (“AEWM”) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IARs) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at http://brokercheck.finra.org.

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Members of the “sandwich generation” are simultaneously providing support for both a parent and a child. This group has unique financial needs to consider, especially when planning for retirement.

OverviewIf you’re finding yourself toggling between caring for the needs of an aging parent and a child, you’re not alone. The Pew Research Center recently reported that more than half of U.S. adults are part of the “sandwich generation,” a group with at least one living parent aged 65 or older and actively raising minor children or financially supporting adult children.1

Individuals in their late 40s and early 50s make up the bulk of the sandwich generation, although people in their 30s and late 50s/early 60s may also be included. Their time, attention and finances are often divided between parents’ and children’s needs, leaving it difficult to save and plan for their own retirement.

Older ParentsBy 2030, the baby boomer generation — the cohort of individuals born between 1946 and 1964 — will all be over age 65.2 As they grow older, they may become more reliant on their adult children to provide care, especially if they experience a decline in physical or cognitive health.

That care may come with a financial commitment. A 2021 AARP study found that family caregivers spent an average of $7,242 annually on out-of-pocket caregiving costs — and that doesn’t include lost income related to reduced working hours or stepping out of the workforce to provide care.3

Younger ChildrenOn the other side of the equation, the sandwich generation may also be caring for minor children, young adults (either in college or starting a career), or even children who have come back home to live, sometimes with their own minor children in tow. The pandemic created a spike in these so-called “boomerang kids,” and 67% of young adults who moved home in early 2020 were still there two years later.4

Even if their grown children aren’t living at home, an increasing number of Americans are helping their young adults pay their bills. A recent survey showed 45% of American parents provide an average of $1,400 in monthly support for at least one grown child, paying for staples such as groceries, rent and utilities.5

Parents who are financially supporting both children and parents may find themselves juggling an eclectic set of expenses, from braces and ballet lessons to health care costs for both children and parents (plus themselves).

Financial Juggling ActWith these financial responsibilities, members of the sandwich generation are saving less for their own retirements. In fact, the typical Generation X household – whose oldest members are rapidly approaching retirement age — has only $40,000 saved for retirement.6

How can individuals who are “stuck in the middle” get back on track with their financial planning? Here are our top tips:

Start the conversation about money with parents as early as possible. It’s a good idea to become familiar with senior parent finances earlier rather than later, although they may resist having the discussion or talking about the potential need for help. Hold a family meeting (including other siblings) with them while they are still vibrant and healthy. Ask them to tell you about their finances and discuss things like where they want to live, caregiving preferences and who they work with to manage their money.
Ask your parents to include you (and/or other siblings) on their bank accounts. This will ensure that you’ll be able to pay their bills for them if the need arises. Also, ask them to appoint a durable power of attorney (POA) and meet with an estate planning attorney to smooth out the process of transferring accounts later.
Find out if your parents have purchased long-term care insurance or any other type of policy to offset the cost of elderly care. Their existing assets — including annuities and life insurance — may offer withdrawal options to help cover long-term care costs. If your parents don’t have many assets, look into available resources through Medicaid.
Ask to be included in meetings with your parent and their financial advisor. This can help you get a feel for how much they have invested and where they are held, particularly if they have substantial assets. You’ll also be able to develop your own relationship with their advisor and get an impartial opinion when financial decisions need to be made.
Explore options to pay for college. If you plan to help children with higher-education costs, savings vehicles such as a 529 can let you grow your money while potentially offering tax benefits. While you don’t want to sacrifice your own retirement, any amount you save could lessen your children’s potential student-loan burden later.
Make sure you have enough life insurance. With three generations relying on your income, adequate life insurance coverage is a must-have. Even full-time, unpaid caregivers should have life insurance since paid care will be required if something happens to the current caregiver.
Speak with your own financial advisor. They can help you find potential ways to save on taxes, such as dependent care credits for parents or qualified college-saving plans. They can also help ensure you’re saving enough for yourself in retirement and covering your own future care expenses.

Final ThoughtsCaregiving demands can take a high toll on members of the sandwich generation — physically, emotionally and financially. And for many caregivers, it’s easy to fall into “I have to do it all myself” thinking. But this isn’t true — especially when it comes to making financial decisions. Work with a financial advisor to develop a financial plan for your own retirement savings and financial confidence early on. Even if you can’t put away a lot of money due to multiple priorities, saving and investing over a long period of time can help provide a financial footing in your later years.

Sources1 Juliana Menasce Horowitz. Pew Research Center. April 8, 2022. “More than half of Americans in their 40s are ‘sandwiched’ between an aging parent and their own children.” https://www.pewresearch.org/short-reads/2022/04/08/more-than-half-of-americans-in-their-40s-are-sandwiched-between-an-aging-parent-and-their-own-children/. Accessed July 14, 2023.

2 Andrew Meola. Insider Intelligence. Jan. 1, 2023. “The aging US population is creating many problems – especially regarding elderly health care issues.” https://www.insiderintelligence.com/insights/aging-population-healthcare/. Accessed July 14, 2023.

3 Nancy Kerr. AARP. June 29, 2021. “Family Caregivers Spend More Than $7,200 a Year on Out-of-Pocket Costs.” https://www.aarp.org/caregiving/financial-legal/info-2021/high-out-of-pocket-costs.html. Accessed July 14, 2023.

4 Jessica Dickler. CNBC. Sept. 6, 2022. “67% of pandemic ‘boomerang kids’ are still living with mom and dad.” https://www.cnbc.com/2022/09/06/many-pandemic-boomerang-kids-still-live-with-mom-and-dad.html. Accessed July 14, 2023.

5 Amy Legate-Wolfe. Yahoo! Finance. June 21, 2023. “Nearly 50% of US parents with adult children still pay their kids’ bills – to the tune of $1,442 per month on average. 3 ways to build good habits so they can finally leave the nest.” https://finance.yahoo.com/news/nearly-50-us-families-adult-110000404.html. Accessed July 14, 2023.

6 Nick Robertson. KRQE News. July 17, 2023. “Many Gen-Xers facing retirement ‘nightmare’ due to lack of savings: report.” https://www.krqe.com/news/national/many-gen-xers-facing-retirement-nightmare-due-to-lack-of-savings-report/. Accessed July 17, 2023.

This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM nor the firm providing you with this report are affiliated with or endorsed by the U.S. government or any governmental agency. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. AE Wealth Management, LLC (“AEWM”) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IARs) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at http://brokercheck.finra.org.

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Four things to consider when rebalancing your portfolio

Imbalance in a portfolio typically occurs due to various shifts in the markets, industries or asset classes. If a portfolio has shifted away from its initial asset benchmark, it may be time to think about rebalancing.

OverviewWhen you first set up an investment, you (and your financial advisor) carefully created allocation ratios to fit your needs and chose an asset mix to match. Over time, however, those allocations may have strayed from their original benchmarks, leaving the portfolio too heavy in one asset class and underweight in others.

This imbalance can occur due to a variety of reasons. Perhaps the weight of an asset class within your portfolio shifted as assets rose and fell in value due to performance. Or maybe you sold or bought assets based on news headlines or events, skewing the portfolio away from its original allocations. In some cases, imbalance is caused after reinvesting back into high-performing assets and putting too much weight in one asset class. Finally, a portfolio may become imbalanced as the result of selling off assets for the purpose of harvesting losses.

If a portfolio has shifted away from its initial asset benchmarks, it may be time to analyze whether a rebalance is required. There are three common approaches to rebalancing: redirecting money to lagging asset classes, adding new investments to lagging asset classes or selling off a portion of holdings within outperforming asset classes (or some combination of the three).

Some Benefits of RebalancingNo matter which method is used, rebalancing can bring a host of potential benefits, including:

Rebalancing can renew discipline. Investing is a marathon — not a sprint. And like marathon training, investing is a practice with a long-term outlook, requiring discipline, strategy and focus. Many individuals lose sight of their discipline as their investing practice grows mundane or feels tedious. Rebalancing reminds you of the original boundaries you set for your portfolio and why you established them in the first place.
Rebalancing can remove unnecessary risk. This is especially true when we experience a long-running bull market, during which time investors may become too heavily weighted in stocks, creating a portfolio that exceeds their risk tolerance. Rebalancing can help identify potential areas of risk before they become a problem.
Rebalancing can create additional return potential. On the flip side of reducing unnecessary risk, rebalancing may also help investors identify opportunities to improve returns within the portfolio. This is especially true as markets shift and different asset classes become overperformers.

What to Consider During a RebalanceBefore shifting assets around to realign with initial allocation benchmarks, however, it may be important to consider how rebalancing might impact your portfolio. Here are four things to think about before rebalancing:

There are costs associated with rebalancing. Account shifting could result in potential sales charges and other fees. Can your portfolio absorb these costs at this time? If not, rebalancing may need to wait.
Rebalancing may produce capital gains in a taxable account. An investor may see an increase in their tax bill if capital gains result from selling off assets as part of a rebalance. However, this could potentially be offset by harvesting losses from underperforming assets in the portfolio.
Should the allocation benchmarks be changed? Portfolio allocations should change as people do. Many investors don’t consider that their risk tolerance decreases as their age increases — and sometimes never act to reduce risk as they near retirement. Your asset allocation should be forward-looking; what worked for you in the past may no longer work for you, due to changes in your life, markets or economic environment. In some cases, you may need to change your asset allocation boundaries altogether.
Rebalancing shouldn’t just happen by the calendar. Many investors and their advisors review portfolios for potential rebalancing around the first of the year, especially after assets have been sold to harvest losses for tax purposes. However, you shouldn’t rebalance just because the calendar says it’s time to do so. Instead, rebalancing should occur any time allocations have strayed a predetermined amount from their original limit. One example: You could set a personal rule to consider rebalancing any time allocations have strayed more than 5% outside the original lines.

Final ThoughtsBy proactively aligning your asset allocation with current circumstances, you can increase the likelihood of reaching your financial goals. If you haven’t done so recently, we recommend talking with your financial advisor to make sure your portfolio is balanced and well-positioned to take advantage of opportunities in the second half of 2023.

This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM nor the firm providing you with this report are affiliated with or endorsed by the U.S. government or any governmental agency. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. AE Wealth Management, LLC (“AEWM”) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IARs) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at http://brokercheck.finra.org.

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More retirees are planning to head back to work. Will you be one of them?

An increasing number of Americans say they plan to return to the workforce at least part time after taking their “official” retirement. Their top reasons for returning: boredom, more income and the urge to pursue new interests.

OverviewIn late 2022, Debbie,* age 62, was at a crossroads. She had retired a year earlier from her 39-year teaching career and had spent much of her first year in retirement taking care of her 5-year-old granddaughter, Bailey.

But now that Bailey was in full-day kindergarten, Debbie found herself with a little too much time on her hands. If she was honest, she was also a bit lonely: Her husband, Bill, was still working full time, so he wasn’t around during the day. And many of her friends were also employed.

Debbie started volunteering two days a week at her church office, answering phones and helping church members. When the head pastor asked if she would be interested in turning the volunteer job into a paid part-time gig, she was somewhat surprised to hear one word immediately fly out of her mouth: “Yes.”

Working After RetirementA recent report from payroll platform Paychex revealed that one in six retirees was thinking about going back to work. On average, these individuals had been retired for four years. Although their reasons for wanting to return to the workforce varied, they generally fell into one of five top categories:

Personal reasons (57%)
Needing more money (53%)
Boredom (52%)
Feeling lonely (45%)
Inflation (45%)1

Debbie, an extrovert, probably would have said her reasons for wanting the church job were boredom and loneliness. She also missed having a daily routine and a sense of purpose — and she felt the job would help address both of those things.

Since Bill still had a full-time paycheck, income wasn’t a huge concern for Debbie. However, the money she would make at her new job would help offset some monthly bills, especially with the price of everything from gas to groceries rising significantly in the year after she’d retired.

Before accepting the job, however, Debbie had a conversation with Bill to make sure he was on board. The couple then called their financial advisor to find out how her going back to work might impact their retirement plan.

The Financial Considerations of Returning to WorkAlthough money wasn’t one of Debbie’s primary drivers for taking the job, their financial advisor pointed out one significant benefit: The income Debbie earned, combined with distributions from her Roth IRA, would allow her to continue postponing Social Security benefits until closer to her full retirement age. Her wages from the part-time job made up for any income shortfall that might have been covered by Social Security.

But let’s say Debbie had started her Social Security benefits already. In this case, she would need to be aware of earnings limits. Social Security beneficiaries who haven’t yet reached full retirement age have caps on how much they can earn before their benefits are reduced. For 2023, the cap is $21,240, and benefits are reduced by $1 for every $2 earned above that limit.2

That number improves slightly in the year Social Security recipients reach full retirement age. During that year, Debbie would receive a deduction of $1 in benefits for every $3 earned above the limit. (In 2023, the limit for those reaching full retirement age is $56,520.) Once she reached full retirement age, the limits would go away, and she could work — and earn — as much as she wants. (But she’ll still pay taxes on that income!)3

There are other financial considerations when deciding to return to work after retirement. Some companies offer employees health insurance, which could be a big benefit for retirees who haven’t reached the age of 65 and become eligible for Medicare. You may also be able to contribute to an employer-sponsored retirement plan, such as a 401(k) or 403(b), adding to your retirement savings. Plus, the income you earn from your job may allow you to postpone distributions from your existing retirement accounts, and you can let the money grow a little while longer.

The Emotional Side of Working in RetirementDuring their meeting, Debbie and Bill were surprised when their advisor brought up not only the financial considerations but also the emotional ones. “Financial planning for the future isn’t just about money,” the advisor said. “It’s also about helping you figure out what kind of life you want to live in retirement — and then finding ways to get you there.”

For Debbie, the decision to take the part-time church job was driven more by emotional needs than financial. She had looked forward to retirement for so long, so she was surprised to discover how adrift she felt without a daily structure and routine. And after teaching for so long, she missed being needed by others — not an unusual feeling for retirees, especially those who work in “helping” roles.

Still, Debbie didn’t just want to jump into new work without considering how it might impact their day-to-day lives. The couple had talked at length about traveling extensively once Bill retired, but that was still more than a year away. And Debbie wanted to be able to help out with the grandkids from time to time.

The advisor helped Debbie and Bill think through all the pros and cons of Debbie’s going back to work. In the end, she decided part-time work was ideal: She could delay Social Security benefits, get out among people and still have a flexible schedule to pursue the activities she wanted to do, like watch the grandkids and volunteer.

Final thoughtsWhile many people enter retirement and never look back, others may get there and discover they need or want to work. After all, sometimes we reach a goal and discover it wasn’t quite what we thought it would be.

Whether you’re thinking about going back to work in retirement or considering taking a new job, it might be a good idea to follow Debbie and Bill’s example and talk with a financial advisor. Not only can they walk you through the financial considerations, but they can also help you navigate the emotional side of following a new and sometimes unexpected path.

SOURCES

1 Sarah O’Brien. CNBC. Feb. 22, 2023. “1 in 6 retirees are mulling a return to work. What to consider before ‘unretiring.’” https://www.cnbc.com/2023/02/22/1-in-6-retirees-are-considering-a-return-to-the-workforce.html. Accessed May 17, 2023.

2,3 Social Security. “Receiving Benefits While Working.” https://www.ssa.gov/benefits/retirement/planner/whileworking.html. Accessed May 23, 2023.

This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM nor the firm providing you with this report are affiliated with or endorsed by the U.S. government or any governmental agency. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. AE Wealth Management, LLC (“AEWM”) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IARs) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at http://brokercheck.finra.org.

6/23-2924925

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Which category do your mutual funds fall into?

Mutual funds have become a staple of U.S. portfolios, especially in employer-sponsored retirement plans. Each fund falls into a primary category, based on the fund’s objective and holdings.

OverviewIf it seems like “everyone” owns a mutual fund in their portfolio, you may be on to something. In 2022, 68.6 million households (or 115.3 million individual investors) owned mutual funds, according to a survey by the Investment Company Institute.1 The survey revealed this ownership was spread across age and income groups, highlighting their appeal to a wide variety of investors.

The study also showed that half of those households were made up of baby boomers, most likely due to the longer time they’ve had to buy and hold assets. And boomers were more likely to buy mutual funds directly; more than one-third of Generation X and millennial mutual fund owners held theirs through employer-sponsored retirement plans vs. 22% of boomers.2

Although mutual funds have become a portfolio staple, many investors don’t know that there are actually different types of funds. Read on to learn more about the primary fund categories and the benefits — and drawbacks — of including them in your portfolio.

A (Very) Short History of Mutual FundsThe first mutual funds were established in 1772 when an Amsterdam businessman named Adriaan van Ketwich established a trust called Eendragt Maakt Magt (“unity creates strength”). The concept was introduced in the U.S. in the 1890s, and early versions included closed-end funds offering a fixed number of shares.3

In 1928, the original open-end mutual fund — offering redeemable shares — opened to investors in the U.S. The fund was offered as the Massachusetts Investors Trust, which is still operating 100 years later as MFS Investment Management. The Wellington Fund, which included both stocks and bonds, was introduced the following year and is also still in existence as the Vanguard Wellington Fund (VWELX).4

Following the passage of several regulatory acts in the 1930s and ’40s, mutual funds were required to register with the Securities and Exchange Commission (SEC). Companies offering them were also required to provide full disclosure of the funds’ holdings and how they performed in a formal document called a prospectus.

Hundreds of new mutual funds were introduced over the next 30 years, including several new types of funds. The bull market of the 1980s and ’90s made mutual funds more popular than ever, although the funds suffered big blows in the tech bubble crash in the early 2000s and the Great Recession of 2008-09. Today, there are more than 7,400 mutual funds to choose from in the U.S.5

Categories of Mutual FundsEvery mutual fund has unique characteristics, including target returns, objective and what assets it owns. Each fund typically falls into one of these categories, based on its holdings and overall goals:

Money market funds invest in high-quality, short-term investments issued by governments and U.S. corporations.
Fixed income funds pursue higher returns than money market funds by holding bonds of varying durations and types.
Stock (or equity) funds are made up of corporate stocks. There are several sub-categories of stock funds, including growth funds, income funds, index funds (tracking a specific market index) and sector funds (investing in certain industries).
Balanced funds invest in both stocks and bonds. Their focus is on achieving higher returns while reducing the potential for risk.
Target date funds are sometimes known as lifecycle funds. These can include a mix of asset types, and the fund’s goals are based on “target” retirement dates. For instance, someone who plans to retire in 2030 might invest in a 2030 target date fund.
Specialty funds have a specific investment strategy. For instance, a socially responsible fund may include stocks of companies supporting environmental conservation efforts.
Index funds seek to match or exceed the performance of a specific index, such as the S&P 500 or the Russell 3000.
Mortgage funds typically own commercial or residential mortgage-backed securities bonds.
A fund of funds invests in a selection of mutual funds. Similar to balanced funds, a fund of funds is usually designed to pursue higher returns while reducing investor risk.

Benefits and Drawbacks of Mutual FundsNo matter which category a fund falls into, they offer similar benefits and drawbacks. Most investors choose mutual funds because they provide the opportunity to diversify a portfolio without purchasing and managing a long list of individual stocks. Instead, the fund manager does all the legwork for investors, buying and selling assets in alignment with the fund’s goals.

However, this active management can come with higher fees. Investors who wish to pay lower fees may want to explore passively managed funds, such as an index fund or exchange-traded fund (ETF). Since these track existing indexes, they don’t require as much hands-on management.

Mutual fund investors can also buy and sell shares at will, much like trading stocks or bonds. This liquidity makes them an attractive option for many investors. But also like stocks or bonds, you’ll owe capital gains taxes on any realized gains when you sell mutual fund shares. And if the fund sells a security at a gain, you could end up owing taxes on that gain, even if you didn’t sell shares.6

Finally, one of the biggest benefits to investing in mutual funds is that they’re customizable. The high number of available funds means there are many options from which to choose. And you can mix and match funds to meet your specific goals, whether your investing style is super conservative, highly aggressive or something in between.

Final thoughtsMuch like owning individual stocks and bonds, buying and selling mutual funds shouldn’t be a one-time, set-it-and-forget-it activity. Mutual funds are allowed to change investment objectives and holdings as long as they give a 30-day notice to shareholders. Additionally, over time your goals might change, and the funds you currently own may no longer be a good fit.

If a mutual fund’s objective or holdings no longer align with your goals, it may be time to sell and replace it with a different fund. Your financial advisor can assist with this review, helping you identify funds that might be a good fit for your portfolio.

SOURCES

1,2 Investment Company Institute. Oct. 31, 2022. “Mutual Funds Are Key to Building Wealth for Majority of US Households.” https://www.ici.org/news-release/22-news-ownership. Accessed April 14, 2023.

3 Wikipedia. “Mutual fund.” https://en.wikipedia.org/wiki/Mutual_fund. Accessed April 14, 2023.

4 James McWhinney. Investopedia. Jan. 29, 2022. “A Brief History of the Mutual Fund.” https://www.investopedia.com/articles/mutualfund/05/mfhistory.asp. Accessed April 14, 2023.

5 Statista. “Number of mutual funds in the United States from 1997 to 2021.” https://www.statista.com/statistics/255590/number-of-mutual-fund-companies-in-the-united-states/. Accessed April 14, 2023.

6 Vanguard. “How mutual funds & ETFs are taxed.” https://investor.vanguard.com/investor-resources-education/taxes/how-mutual-funds-etfs-are-taxed#:~:text=Just%20as%20with%20individual%20securities,haven’t%20sold%20any%20shares. Accessed April 17, 2023.

This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM nor the firm providing you with this report are affiliated with or endorsed by the U.S. government or any governmental agency. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. AE Wealth Management, LLC (“AEWM”) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IARs) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at http://brokercheck.finra.org.

4/23-2849764

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The banking industry wobbled in March following the closure of multiple banks. Fortunately, protections exist for investors and their assets if a brokerage firm or investment bank fails.

OverviewSilicon Valley. Signature. Credit Suisse. Deutsche Bank. In early March, several large financial institutions buckled under the combined weight of too many depositor withdrawals and varying levels of mismanagement. The banking industry found itself under intensified scrutiny, with Americans concerned that a larger crisis was at hand for the U.S. financial system.

Many also wondered if the recent banking struggles could extend into brokerage firms, which hold trillions of dollars in investor assets. Although brokerage firms can fail, examples of this happening are few and far between. If they do close unexpectedly, however, investors have some basic protections for their money in place.

In the following, we’ll answer some of the frequently asked questions we’ve received from clients about their investments at brokerage firms.

Has an investment bank or brokerage ever failed?Unfortunately, yes. During the Great Recession of 2008-09, investment bank and brokerage firm Bear Stearns went bankrupt and was ultimately purchased by JPMorgan Chase & Co. Another notable firm, Lehman Brothers, crashed soon after. Once thought “too big to fail,” Lehman Brothers was the fourth-largest investment bank in the U.S. before it closed.1 Both banks were casualties of the subprime mortgage crisis, which resulted in the housing bubble bursting.

Aren’t these financial institutions regulated?They are. Most investment banks are under the watchful eye of two separate regulatory agencies. The U.S. Securities and Exchange Commission (SEC) sets rules about how firms handle assets under management. The Financial Industry Regulatory Authority (FINRA) monitors organizations and their representatives (such as advisors) to make sure everyone is staying compliant with those rules.

Finally, the Securities Investor Protection Corp (SIPC) insures investments and handles the transfer of assets should a brokerage firm or investment bank fail. Formed under the Securities Investor Protection Act of 1970, the SIPC is not a regulatory agency. Instead, it’s a membership organization, made up of U.S. brokerage firms and investment banks.2

Does that mean my investments are insured?Some of them are. If an institution fails or shows signs of trouble, the SIPC insures a total of $500,000 in assets for each investor. The SIPC limits its protection to $250,000 in cash; the protection also extends to certain securities, such as stocks and bonds.3

The SIPC’s $500,000 limit can be tricky to navigate. Let’s say John Smith holds two individually owned brokerage accounts at Firm A, totaling $1 million in cash and securities. These accounts are known as “same capacity,” since they are both brokerage accounts. If Firm A fails, 50% of John’s assets are covered by the SIPC. But if John owns same capacity accounts at Firm A and Firm B, he is covered for up to $500,000 at both institutions (for a total of $1 million in coverage).

If a customer owns accounts in a “separate capacity,” then they could qualify for additional SIPC protection. For example, if John and his wife, Mary Ellen, have additional assets in in a jointly owned account, that account qualifies for another $500,000.4 The SIPC provides these examples of separate capacities:

Individual account
Joint account
An account for a corporation
An account for a trust
An individual retirement account (IRA)
A Roth individual retirement account
An account held by an executor for an estate
An account held by a guardian for a ward or minor5

What the SIPC does not do is protect investors from market losses during a downturn. Their protection also doesn’t extend to more complex types of investments, such as commodity contracts or hedge funds. Fixed annuities also don’t fall under SIPC’s protection. Instead, annuity contracts are backed by the financial strength and claims-paying ability of the issuing insurance company.*

So how do I know my invested money is preserved with a brokerage firm?A financial institution failure doesn’t happen overnight; there are typically signs that trouble is brewing way in advance. If it appears that a failure is looming, an agency such as FINRA will step in to help transfer assets to another registered firm. And the SIPC protection will apply if customers lose assets due to the failure.

Additionally, the SEC requires financial firms to segregate their own assets from customers’. This is to keep firms from potentially using investors’ funds for their own purposes (either intentionally or unintentionally).

Final thoughtsWhile regulatory agencies provide oversight, investors can also take steps to make sure their assets are protected. You can find out how a brokerage firm or investment bank is performing by accessing their company filings at www.sec.gov. It’s also best practice to only use brokerage firms or investment banks with a well-established track record and solid reputation.

Your financial advisor also serves as a good source of information about the financial institutions holding your assets. We encourage you to contact them anytime you have questions or concerns about your individual investments and the brokerage firm they use as a custodian.

SOURCES

1 Nick Lioudis. Investopedia. March 10, 2023. “The Collapse of Lehman Brothers: A Case Study.” https://www.investopedia.com/articles/economics/09/lehman-brothers-collapse.asp. Accessed March 26, 2023.

2 SIPC. “About SIPC: Who We Are.” https://www.sipc.org/about-sipc/. Accessed March 27, 2023.

3 SIPC. “Mission.” https://www.sipc.org/about-sipc/sipc-mission. Accessed March 26, 2023.

4, 5 SIPC. “Investors with Multiple Accounts.” https://www.sipc.org/for-investors/investors-with-multiple-accounts. Accessed March 26, 2023.

*All investments are subject to risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Any references to guarantees or lifetime income generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Past performance is not a guarantee of future results.

This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM nor the firm providing you with this report are affiliated with or endorsed by the U.S. government or any governmental agency. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. AE Wealth Management, LLC (“AEWM”) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IARs) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at http://brokercheck.finra.org.

3/23-2814189

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Social Security is a significant source of income for many retirees. Your financial professional can help you explore your options and make sure you’re getting the most retirement income possible.

Overview

For many Americans, Social Security is a primary source of income in retirement. But understanding how benefits work and when you should start your benefits can be confusing. Here, we break down seven basics you should know about Social Security benefits before you begin receiving monthly payments.

You can know exactly how much you’re eligible to receive.One of the most common questions we get is, “How do I know how much I’ll receive every month in Social Security income?”

When you log in to www.ssa.gov/myaccount, you’ll see a summary including your payment amount when starting benefits early, waiting until full retirement age or delaying payments until age 70. The interactive tracker lets you see how much your benefits will be at different ages.

Source: www.ssa.gov/myaccount. The above image is for example only. Your benefits will vary based on age, work history, full retirement age, and past and future earnings.

Your benefits are calculated using several variables, including number of years in the workforce, average annual earnings and full retirement age. Since these variables are always changing, it’s a good idea to check the monthly benefits calculator annually to get an updated estimate of your future Social Security income.

The right time to start taking benefits is different for everyone.Deciding when to begin taking Social Security benefits is a big decision. Start them too early, and you could end up with less income during your later years than you need. But if you start too late, you run the risk of depleting your other retirement savings or even dying before you have the chance to take much of what you’ve earned.

Every American is currently eligible to begin Social Security benefits at age 62. But use caution: If you begin taking income earlier than your full retirement age, you’ll receive a discounted monthly amount. For every month you wait to start benefits, you’ll earn a little bit more, up until age 70.1

Your FRA is based on your year of birth:

| Year of Birth | Full Retirement Age | | 1943-1954 | 66 | | 1955 | 66 and 2 months | | 1956 | 66 and 4 months | | 1957 | 66 and 6 months | | 1958 | 66 and 8 months | | 1959 | 66 and 10 months | | 1960 and later | 67 |

Source: Social Security Administration. www.ssa.gov/benefits/retirement/planner/agereduction.html

There’s no one-size-fits-all when it comes to starting benefits. One person might benefit from taking Social Security income as soon as they’re eligible at age 62; another might be better served to wait until age 70.

(Side note: Your benefits stop growing after you turn age 70. So make sure to start your benefits — or you could be leaving retirement income on the table!)

Your Social Security benefits could increase your taxable income.Yes, you can keep working while receiving Social Security benefits. If you’re under full retirement age, your benefits will be subject to the earnings test and reduced by $1 for every $2 over the earnings limit. (The earnings limit is $21,240 in 2023.) Then in the year you reach full retirement age, your benefits are reduced by $1 for every $3 in income over $56,520. That continues until the month you reach full retirement age. But the earnings aren’t lost: Social Security will credit it to your record when you reach full retirement age, resulting in a higher benefit.2
You may be eligible for spousal benefits.If you spent time out of the workforce, you may not meet the eligibility requirements for receiving benefits based on your lack of employment history. But if you’re married and your spouse worked, you could be eligible for spousal benefits.

Nonworking spouses can qualify for a portion of their partner’s full retirement benefit, as long as they meet certain criteria:

The working spouse must already be receiving benefits.
The nonworking spouse must be at least age 62.

Like traditional benefits, spousal benefits are also reduced if the nonworking spouse begins taking Social Security income before their full retirement age. The difference is that spousal benefits stop growing after the nonworking spouse reaches their full retirement age. At that time, they can receive up to 50% of their partner’s full benefit.3

Your spouse might be able to take over your benefits when you die.If you’re married at the time of your death, your widow becomes eligible to take your benefits once they reach age 60. (If they’re disabled, they can take over benefits at age 50.) The surviving spouse can decide whether to keep their own benefits or take over their spouse’s Social Security benefits, based on which is higher. The benefits will be reduced if the surviving spouse hasn’t reached full retirement age.

A couple things to keep in mind: If the surviving spouse is still working, the earnings test applies. (See item 3 for more about the earnings test.) And the surviving spouse isn’t eligible for benefits if they remarry prior to age 60.4

You may be entitled to spousal benefits — even if you’re divorced.Divorce doesn’t necessarily disqualify you from spousal benefits. You have to meet a few criteria to be eligible:
The marriage lasted at least 10 years.
You haven’t gotten remarried.
You (and your former spouse) have reached age 62.
You aren’t eligible for higher benefits on your own.

If you meet the above criteria, you may be eligible for 50% of your former spouse’s full benefit.5

You have a limited time to change your mind.Whether you’re 62 or 70, once you’ve made the decision to start benefits, you only have one year to make changes. Social Security lets you withdraw your application for benefits one time in the 12 months after you turn them on.6 That’s why it’s so important to understand how Social Security works and what your options are before turning on Social Security as an income stream.

Final Thoughts

When is the time for you to start taking benefits? It depends. Your financial professional can help you make a decision based on your personal situation, including how much income you will need in retirement, how much you have saved and other factors that could impact your future. If you’re starting to think about Social Security, we recommend calling your financial professional for a full retirement income review.

SOURCES

1 Social Security Administration. “Starting Your Retirement Benefits Early.” https://www.ssa.gov/benefits/retirement/planner/agereduction.html. Accessed Feb. 13, 2023.

2 Social Security Administration. “Receiving Benefits While Working.” https://www.ssa.gov/benefits/retirement/planner/whileworking.html. Accessed Feb. 13, 2023.

3 Social Security Administration. “Benefits for Spouses.” https://www.ssa.gov/oact/quickcalc/spouse.html. Accessed Feb. 13, 2023.

4 Social Security Administration. “If You Are the Survivor.” https://www.ssa.gov/benefits/survivors/ifyou.html. Accessed Feb. 13, 2023.

5 Social Security Administration. “Benefits For Your Family.” https://www.ssa.gov/benefits/retirement/planner/applying7.html#h4. Accessed Feb. 13, 2023.

6 AARP. Dec. 23, 2022. “Can I stop Social Security benefits and restart them later to get a bigger payment?” https://www.aarp.org/retirement/social-security/questions-answers/social-security-going-back-to-work.html. Accessed Feb. 13, 2023.

This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM nor the firm providing you with this report are affiliated with or endorsed by the U.S. government or any governmental agency. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. AE Wealth Management, LLC (“AEWM”) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IARs) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at http://brokercheck.finra.org.

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Proactive tax planning isn’t limited to just “tax season” — it’s a year-round event. Your financial professional can help you deploy these three strategies to potentially optimize your income and lower how much you pay in taxes each year.

Overview

Credits and deductions. AGI. Capital gains. These words seem to be used more frequently recently — which means it must be tax-return season!

Many people consider taxes to be a one-time-per-year event, kicking off when they receive their first W-2 or 1099 and ending when they hit “submit” on their annual return. And some think they simply owe what they owe, and there’s no way to proactively plan for taxes or even reduce their bill.

Fortunately, it is possible to plan for and potentially lower how much you pay in taxes. This can be done by considering “tax season” as a 12-month event and considering how each financial decision throughout the year impacts how much you pay in taxes annually.

But what year-round strategies can you use to potentially reduce your tax bill? Here is a look at three frequently used methods.

Did you know? The modern federal tax code was officially enacted in 1913. And many of today’s taxes — such as the gift tax and estate tax — were put in place 100 years ago.

1. Postpone your incomeYour annual taxable income can come from a variety of sources: Paychecks. Social Security or disability benefits. A pension or annuity. An IRA or 401(k). Reducing — or removing — one of these sources during a tax year results in less taxable income and may even move you down a tax bracket.

How do you postpone income? For pre-retirees, one method is to defer money into a qualified retirement plan, such as a traditional IRA or employer-sponsored plan. All contributions to these qualified accounts are directly deducted from your taxable income, lowering your taxes for the year in which the contribution was made. Keep in mind, however, that you will have to pay taxes on those funds eventually, when you start taking withdrawals.

For retirees, postponing income may involve delaying distributions from a qualified retirement account and covering expenses with money from a non-taxable account, such as a Roth IRA. This may be an especially good idea if you have other taxable sources of income, like Social Security benefits or a paycheck from a part-time or full-time job.

Other ways to help reduce your annual taxable income include making contributions to health savings accounts (HSAs), flexible spending accounts (FSAs) or dependent care flexible spending accounts (DCFSAs), all of which allow for tax-deductible contributions. However, eligibility for these types of accounts may depend on income limits or availability through an employer. Contributions to 529 college-savings plans may also be deductible on your state taxes, if the plan is hosted by your state. (There is no federal tax deduction for 529 plans.1)

2. Optimize your deductions and creditsAn estimated 90% of taxpayers claim the standard deduction on their taxes2; after all, it’s much simpler than keeping track of all potentially deductible expenses. But optimizing your deductions can be a great way to reduce your annual taxable income. The challenge is finding enough in itemized deductions to exceed the required threshold.

2022 and 2023 Standard Deductions

| Tax year 20223 | Tax year 20234 | | Single | $12,950 | $13,850 | | Head of household | $19,400 | $20,800 | | Married filing jointly | $25,900 | $27,700 |

One way to optimize deductions is to strategically “bunch” them. For example, instead of making annual charitable contributions, make two years’ worth of contributions in the same year and take the itemized deduction. If you selectively choose to make the contribution in a high-taxable-income year, you can lower your tax bill for the year in which you made the donation. Take the standard deduction for the following year, and repeat the cycle as needed.

You can also take advantage of available credits, which reduce your taxable income dollar-for-dollar. These may include family and dependent credits (such as the Child Tax Credit or Dependent Care Credit), health care credits or even homeowner credits. These credits may play into your decision about specific purchases; for example, you may decide to upgrade your furnace if you know you’ll receive an energy-efficiency credit on your tax bill. Check with your accountant or CPA to see which tax credits apply to you.

3. Sell assets strategicallyWhen you sell a security for more than you paid, the profit is called a capital gain — and capital gains are taxable. There are generally two types of capital gains: Short-term gains are realized on assets held for one year or less, while long-term gains apply to assets held for more than 365 days. While short-term gains are taxed at the same rate as ordinary income, long-term gains have their own tax rates:

2022 Long-Term Capital Gains Tax Rates5

| 0% | 15% | 20% | | Single | $0 – $41,675 | $41,676 – $459,750 | $459,751+ | | Head of household | $0 – $55,800 | $55,801 – $488,500 | $488,501+ | | Married filing jointly | $0 – $83,350 | $83,351 – $517,200 | $517,201 |

2023 Long-Term Capital Gains Tax Rates

| 0% | 15% | 20% | | Single | $0 – $44,625 | $44,626 – $492,300 | $492,301+ | | Head of household | $0 – $59,750 | $59,751 – $523,050 | $523,051+ | | Married filing jointly | $0 – $89,250 | $89,251 – $553,850 | $553,851+ |

Timing can make a big difference in how much you pay in capital gains. For example, say you and your spouse want to sell assets totaling $100,000 in long-term capital gains. If you took the entire $100,000 in capital gains in 2022, you’d end up paying 15% in taxes. But if you sold half the assets in 2022 and half in 2023, your total taxes on the long-term capital gains would be 0%.

You could also offset some capital gains by selling assets at a loss. Known as tax-loss harvesting, this option also reduces your taxable income. Again, correctly timing the sale of an asset can make a big difference in how much you owe at tax time.

Final Thoughts

When you work with a financial advisor, they can provide insights into how each financial decision you make impacts your current and future taxes. They can also assist you in identifying and implementing tax-friendly strategies to make the most of your income. We recommend contacting your advisor any time there’s a shift in your financial situation, so they can provide a thorough analysis of how changing circumstances may affect your tax bill.

SOURCES

1 H&R Block. “Are 529 contributions tax deductible?” https://www.hrblock.com/tax-center/filing/adjustments-and-deductions/are-529-contributions-tax-deductible/. Accessed Jan. 17, 2023.

2 Rocky Mengle. Kiplinger. Dec. 14, 2022. “What’s the Standard Deduction for 2022 vs. 2023?” https://www.kiplinger.com/taxes/tax-deductions/602223/standard-deduction. Accessed Jan. 17, 2023.

3 IRS.gov. Nov. 10, 2021. “IRS provides tax inflation adjustments for tax year 2022.” https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2022. Accessed Jan. 17, 2023.

4 IRS.gov. Oct. 18, 2022. “IRS provides tax inflation adjustments for tax year 2023.” https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2023. Accessed Jan. 17, 2023.

5 James Royal. Bankrate. Nov. 23, 2022. “What is the long-term capital gains tax?” https://www.bankrate.com/investing/long-term-capital-gains-tax/. Accessed Jan. 17, 2023.

This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM nor the firm providing you with this report are affiliated with or endorsed by the U.S. government or any governmental agency. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. AE Wealth Management, LLC (“AEWM”) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IARs) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at http://brokercheck.finra.org.

1/23-2686000

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New legislation could bring big changes for people saving for and living in retirement

Overview

When Congress passed the SECURE Act in 2019, the new legislation included significant changes for retirees. Now, after months of debate and deliberation, Congress has approved SECURE 2.0. While the new legislation builds on the 2019 changes benefiting Americans in their 70s and 80s, the 2022 version also includes provisions impacting individuals who are still working toward retirement.

What’s included in SECURE 2.0 — and how could it affect your retirement? Let’s take a look at a few of the highlights:

Required Minimum Distributions

Owners of qualified retirement accounts — such as an IRA or employer-sponsored workplace plan — must start taking required minimum distributions (RMDs) from these accounts at a certain age. In 2019, the original SECURE Act raised the age of required minimum distributions (RMDs) from 70 ½ to 72.1

Now, SECURE 2.0 raises the age of your first RMD to age 73. That means that if you turn 72 in 2023, you can wait until 2024 to start taking RMDs.2 Why does this matter? Not only will you be able to let the money in your account grow for another year, but distributions from qualified retirement accounts won’t be counted as taxable income for another year.3

If you’re still in your 60s and planning ahead, you may benefit even more from RMD changes. SECURE 2.0 further raises the age at which RMDs must begin to age 75 in 2033.

Catch-up Contributions

In 2023, anyone over the age of 50 can save an additional $7,500 annually to an employer-sponsored retirement plan, such as a 401(k) or 403(b).5 But if you’re ages 62, 63 or 64 in 2023, the catch-up contribution amount increases to $10,000 under the SECURE 2.01 Act. That means you could defer a total of $32,500 into your employer-sponsored retirement account annually.6

Designated Roth Account Matching Contributions

Many employers offer designated Roth account options7 in certain qualified plans, such as Section 401(k) or Section 403(b) plans, but there has been a drawback: Employers were not permitted to deposit matching contributions into the designated Roth accounts. The SECURE 2.0 Act allows employers to make matching Section 401(k) plan contributions into the employee’s Roth 401(k) account, potentially allowing for additional growth of tax-free retirement funds for the participant.

Automatic 401(k) Enrollment

If a company sponsors a retirement plan, eligible employees will be automatically enrolled in the plan and must opt out if they choose not to participate. The intent behind this provision is to encourage retirement savings among historically reluctant workers.

Student Loan Matching

Previously, employers only matched plan participants’ contributions directly into their retirement plan. In 2024, if an employee makes qualified student loan payments, employers can make a matching contribution into their 401(k), 403(b) or SIMPLE IRA. Under the new rule, individuals don’t have to make a choice between paying off student loans and saving for retirement. Instead, they can do both at the same time.

Part-time Workers and Retirement Plan Eligibility

The SECURE Act of 2019 allowed part-time workers to become eligible for their employer-sponsored 401(k) after three years of employment. Beginning in 2025, the SECURE 2.0 Act reduce the period to two years, provided the employee works at least 1,000 hours per year.8

529 College Savings Plan Rollovers

For 529 college savings plan owners, starting in 2024 you will be able to roll leftover funds into a Roth IRA tax- and penalty-free. Some limits apply, however: The 529 plan must be at least 15 years old, and you are limited to a lifetime rollover amount of $35,000.9 There is an absolute annual limit on such rollovers equal to the regular Roth IRA contribution limit.

Final Thoughts

The passage of SECURE 2.0 is a good reminder that Congress can always pass legislation impacting how you save for retirement and how much you pay in taxes — both positively and negatively. Your financial advisor stays on top of these changes and understands how they may affect your current and future income. Contact your financial advisor to schedule a review and learn more about the potential impact of the SECURE 2.0 Act on your financial plan.

SOURCES

1 IRS. Dec. 8, 2022. “Retirement Topics — Required Minimum Distributions (RMDs).” https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds. Accessed Dec. 27, 2022.

2 Ashlyn Brooks. Yahoo! Finance. Dec. 28, 2022. “The SECURE 2.0 Act and Your Retirement Savings: Expect to See These Big Changes.” https://finance.yahoo.com/news/secure-2-0-act-retirement-150042550.html. Accessed Dec. 28, 2022.

3 IRS. Sept. 23, 2022. “Retirement Plan and IRA Required Minimum Distributions FAQs.” https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions. Accessed Dec. 27, 2022.

4 Jeffrey Levine. Kitces.com. Dec. 28, 2022. “SECURE Act 2.0: Later RMDs, 529-to-Roth Rollovers, And Other Tax Planning Opportunities.” https://www.kitces.com/blog/secure-act-2-omnibus-2022-hr-2954-rmd-75-529-roth-rollover-increase-qcd-student-loan-match/. Accessed Jan. 5, 2023

5,6 IRS. Dec. 8, 2022. “401(k) limit increases to $22,500 for 2023, IRA limit rises to $6,500.” https://www.irs.gov/newsroom/401k-limit-increases-to-22500-for-2023-ira-limit-rises-to-6500. Accessed Dec. 27, 2022.

7 Greg Iacurci. CNBC. Dec. 16, 2022. “88% of employers offer a Roth 401(k) – almost twice as many as a decade ago. Here’s who stands to benefit.” https://www.cnbc.com/2022/12/16/88percent-of-employers-offer-a-roth-401k-how-to-take-advantage.html. Accessed Dec. 27, 2022.

8 Sarah O’Brien. CNBC. Dec. 23, 2022. “‘Secure 2.0’ clears Congress as part of omnibus appropriations bill, will bring more changes to U.S. retirement system.” https://www.cnbc.com/2022/12/23/secure-2point0-clears-congress-will-bring-changes-to-retirement-system.html. Accessed Dec. 27, 2022.

9 Emerson Sprick, Rachel Snyderman and Shai Akabas. Bipartisan Policy Center. Dec. 20, 2022. “Secure 2.0 Is About to Pass. What Made It In?” https://bipartisanpolicy.org/blog/what-made-it-in-secure-2/. Accessed Dec. 27, 2022.

This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. The information and opinions contained herein are provided by third parties and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM nor the firm providing you with this report are affiliated with or endorsed by the U.S. government or any governmental agency. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. AE Wealth Management, LLC (“AEWM”) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IARs) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at http://brokercheck.finra.org.

01/23-2657287

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Tax brackets, standard deductions and retirement contributions increased for inflation.

New tax laws are set to take effect on Jan. 1. Tax brackets have expanded, while standard deductions and contribution limits to retirement accounts are higher. Gift tax limits and estate tax exclusion limits have also increased.

Overview

The start of a new year always brings changes to tax laws, impacting how much you can save for retirement and deduct from your tax returns. Inflation played a big role in tax law changes for 2023, with some adjustments being made in larger-than-usual percentages.

Standard Deductions

The Tax Cuts & Jobs Act of 2017 substantially increased the amount of the standard deduction, and today it’s estimated that 90% of Americans choose to take the standard deduction instead of itemizing on their annual returns.1

In 2023, the standard deduction for single and married filing separately taxpayers will be $13,850. Heads of household can take a standard deduction of $20,800, while those who are married and filing jointly can take $27,700.2

Tax Brackets

While the highest tax rate remains steady at 37%, brackets have expanded to account for inflation and rising wages. But remember: Taxpayers don’t pay the full rate on their entire income. Instead, Americans pay a marginal tax rate. For example, a single filer in the 22% bracket would pay 10% on their first $11,000 earned, 12% on $11,001-$44,725 and 22% on remaining income up to $95,375.

Here’s what you need to know as we head into the 2023 tax year:

2023 Tax Brackets3

| Rate | Single filers | Married filing jointly | | 10% | $0 – $11,000 | $0 – $22,000 | | 12% | $11,001 – $44,725 | $22,001 – $89,450 | | 22% | $44,726 – $95,375 | $89,451 – $190,750 | | 24% | $95,376 – $182,100 | $190,751 – $364,200 | | 32% | $182,101 – $231,250 | $364,201 – $462,500 | | 35% | $231,251 – $578,125 | $462,501 – $693,750 | | 37% | $578,126 or more | $693,751 or more |

Great news! You’ll be able to save more in your retirement accounts in 2023. Participants in an employer-sponsored plan (such as a 401(k), 403(b), 457 or Thrift-Savings Plan) can defer $22,500 of their salary into the plan for the year. Americans who are age 50 and older defer an additional catch-up amount of $7,500, bringing their total limit to $30,000.4

IRA and Roth IRA owners are also getting higher contribution limits. The new maximum for IRA and Roth IRA contributions will be $6,500, an increase of $500 over 2022. Account owners who are age 50 and older can contribute an additional $1,000, for a total contribution limit of $7,500.5

The income phaseout amount for Roth IRAs also increases for 2023. Single taxpayers with income higher than $153,000 will not be eligible to contribute to a Roth IRA, but they will be able to make partial contributions on income between $138,000-$153,000. The phaseout range for taxpayers who are married filing jointly is $218,000-$228,000.6

Social Security Cost-of-Living Adjustment

Social Security recipients will see a significant jump in benefits in 2023, due to stubbornly high inflation. The 8.5% cost-of-living adjustment (COLA) is the highest increase in 40 years.7

Gift Exclusion Limits

For 2023, the gift tax increases to $17,000 per individual, up from $16,000 in 2022. This is the amount one person can give to another without triggering a taxable event for the recipient. A married couple can both give $17,000 to the same recipient, bringing the total gifted amount to $34,000.8

Estate Tax

The estate tax exclusion amount also increased in 2023, rising to $12,920,000 (single) or $25,840,000 (married). Estates under this amount will not be subject to federal taxes, although state and local taxes may apply.9

Final Thoughts

Constantly shifting tax regulations can make it difficult to keep up with which laws apply to you and can create challenges when creating a financial plan. However, your financial professional can work with you to identify and implement tax strategies that work for your situation. They can also work with your accountant or CPA to help find potential opportunities to optimize taxes while potentially maximizing your current and future income.

SOURCES

1 Lauren Ward. Bankrate. Oct. 4, 2021. “Standard deduction vs. itemized deduction: Pros and cons, and how to decide.” https://www.bankrate.com/taxes/standard-or-itemized-tax-deduction/#:~:text=You%20could%20potentially%20qualify%20for,when%20filing%20taxes%20each%20year. Accessed Dec. 12, 2022.

2,3 IRS. Dec. 8, 2022. “IRS provides tax inflation adjustments for tax year 2023.” https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2023. Accessed Dec. 8, 2022.

4,5,6 IRS. Dec. 8, 2022. “401(k) limit increases to $22,500 for 2023, IRA limit rises to $6,500.” https://www.irs.gov/newsroom/401k-limit-increases-to-22500-for-2023-ira-limit-rises-to-6500. Accessed Dec. 13, 2022.

7 Lorie Konish. CNBC. Oct. 13, 2022. “Social Security cost-of-living adjustment will be 8.7% in 2023, highest increase in 40 years.” https://www.cnbc.com/2022/10/13/social-security-cola-will-be-8point7percent-in-2023-highest-increase-in-40-years.html#:~:text=Amid%20record%20high%20inflation%2C%20Social,on%20average%20starting%20in%20January. Accessed Dec. 12, 2022.

8,9 IRS. Dec. 8, 2022. “IRS provides tax inflation adjustments for tax year 2023.” https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2023. Accessed Dec. 8, 2022.

This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM nor the firm providing you with this report are affiliated with or endorsed by the U.S. government or any governmental agency. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. AE Wealth Management, LLC (“AEWM”) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IARs) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at http://brokercheck.finra.org.

12/22-2636881

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Investors get more shares for their money with a stock split.

Stock splits can be a good way for companies to lower share prices, making their stock more affordable for potential investors. Current shareholders can also benefit by getting more shares with the same total value.

Overview

Amazon. Shopify. Tesla. What do these companies have in common? They all underwent stock splits in 2022.

When well-known companies split stock, they tend to garner a lot of attention. However, even lower-profile stock splits can benefit both current and potential investors. But what exactly is a stock split, and how does it work?

2022 Stock Splits1

Amazon 20-for-1

Alphabet 20-for-1

Shopify 10-for-1

DexCom 4-for-1

Tesla 3-for-1

Palo Alto Networks 3-for-1

More Shares, Same Value

If a company splits its stock, it’s usually because its share price has risen substantially. To make its stock more attractive to potential investors, the issuing company divides outstanding shares while keeping the total value of the outstanding shares the same. This reduces each share’s price, providing more liquidity for the company while retaining the company’s overall value.

Companies can choose to split stocks by whatever ratio they choose. For example, Amazon split its stock at a 20-for-1 ratio in 2022. Every outstanding share was split into 20 pieces, while the total value of the stock remained the same. Shopify investors received a 10-for-1 split.

The most common stock splits, however, are 2-for-1 or 3-for-1. For example, if you own one share worth $24, under a 2-for-1 split you would now own two shares, each worth $12. You would own three shares worth $8 with a 3-for-1 split.

3-for-1 stock split

1 share for $24 = 3 shares for $8

The Pros and Cons of a Stock Split

Stock splits can benefit both current and potential investors. Current investors tend to like stock splits because they immediately increase the number of shares they own. And for potential investors, the company’s stock becomes more affordable. A split may provide increased liquidity for companies because the lower price may make it easier for investors to buy and sell their shares.

However, there are drawbacks to stock splits, mostly for the issuing company. A stock split can be expensive and must conform to regulatory laws and rules. And because a split doesn’t impact the company’s market value, it can be a lot of work for little benefit to the stock issuer.

Companies must also guard against dropping share prices too low. The Nasdaq, for example, issues compliance warnings to companies whose stocks drop below $1 for 30 consecutive days.2 If a company trades on the Nasdaq, it must be aware of this requirement and avoid issuing stock splits that could take share prices below $1.

Still, many companies find a stock split to be beneficial in the long run. Many often see their stock prices increase following a split. Apple, for example, split its shares in August 2020. Before the split, shares were trading at $540. A 4-for-1 split took share prices to $135.3 As of late November 2022, Apple’s stock was trading at $151.4

Reverse Stock Splits

Sometimes, companies want to bolster their share price by reducing the number of outstanding shares. In this case, they will perform a reverse stock split, in which a certain number of shares are consolidated into one. Like a regular stock split, the price of each share changes while the total overall value of outstanding shares remains the same.

For example: You own 10 shares of Company XYZ, worth $1,000. Each share is worth $100. The company decides to do a reverse stock split of 1-for-2. Following the reverse split, you now own five shares of Company XYZ, each worth $200.

Final Thoughts

While stock splits don’t impact the company’s market value or an investor’s total holdings, they can be beneficial for long-term investors. Take Apple stockholders, for example. In addition to its 4-for-1 stock split in 2020, Apple split its stock in 1987 (2:1), 2000 (2:1), 2005 (2:1) and 2014 (7:1). Investors who owned one share of Apple stock before the 1987 split and kept it through the 2020 split would have seen that one share turn into 224 shares.5

Should you consider investing in companies that have announced an upcoming stock split? It depends on a number of factors. It’s always best practice to consult with your financial advisor before buying or selling shares. Your advisor can assist you with crafting a portfolio aligned with your specific long-term goals.

SOURCES

1 Nicholas Rossolillo. The Motley Fool. Nov. 8, 2022. “Stock Splits in 2022.” https://www.fool.com/investing/how-to-invest/stocks/stock-split/calendar/. Accessed Nov. 23, 2022.

2 Cory Janssen. Investopedia. Sept. 13, 2022. “How To Avoid Getting Delisted From Nasdaq.” https://www.investopedia.com/investing/the-dirt-on-delisted-stocks/. Accessed Nov. 23, 2022.

3 Adam Hayes. Investopedia. June 7, 2022. “What a Stock Split Is and How It Works, With an Example.” https://www.investopedia.com/terms/s/stocksplit.asp. Accessed Nov. 23, 2022.

4 Yahoo! Finance. “Apple Inc. (AAPL).” https://finance.yahoo.com/quote/AAPL?p=AAPL&.tsrc=fin-srch. Accessed Nov. 23, 2022.

5 Adam Hayes. Investopedia. June 7, 2022. “What a Stock Split Is and How It Works, With an Example.” https://www.investopedia.com/terms/s/stocksplit.asp. Accessed Nov. 23, 2022.

This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM nor the firm providing you with this report are affiliated with or endorsed by the U.S. government or any governmental agency. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. AE Wealth Management, LLC (“AEWM”) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IARs) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at http://brokercheck.finra.org.

12/22-2608874

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The rise of digital payments has made more Americans vulnerable to online fraud. Take these proactive steps to help protect your money and identity from being stolen by scammers and cybercriminals.

Overview

Digital payments are on the rise — and hackers are looking for a cut. More than 80% of Americans made a digital payment in 2021, using available payment platforms such as Zelle, PayPal and Venmo.1 They also lost roughly $6.9 billion to cybercrime in that same time frame.2 And during the 2020 holiday season, 25% of Americans reported being the victims of scammers.3

It’s easy and convenient to pay for things via digital transactions, but how can you protect yourself from being a victim of cybercrime? Here are our top eight suggestions for protecting your money and your identity from online thieves.

Potential pull-out

Americans lost roughly $6.9 billion to cybercrime in 2021.

Eight Tips for Preventing Online Theft

1. Treat app-based transfers like cash payments.

Some apps, like Zelle, don’t allow you to cancel transactions once they’re in progress. This makes it more difficult to get your money back once it’s transferred out of your account. Before hitting “send” on a payment, double-check that it’s going to the correct recipient and the amount of the transfer is correct.

2. Manage your passwords wisely.

Let’s face it: Most of us use the same password across many websites, including those from our financial institutions. But reusing the same password makes you more vulnerable to hackers, especially if the password is easy to guess. Instead, choose a complex, unique password every time you add or update a login. And it’s best practice not to physically write them down; instead, tools such as LastPass can store all your login details, including usernames and passwords. If you do choose to write them down, keep the list in a safe, locked place.

The other mistake most of us make with our passwords is not updating them frequently enough. Online security expert McAfee recommends changing passwords every three months.4 If you receive notification from a retailer or financial institution that your account has been compromised, you should change your password immediately.

3. Don’t give out your information to people who contact you.

Have you ever received a phone call or email saying there’s a problem with your account and asking you to verify sensitive information? Financial institutions and official organizations such as the IRS or Social Security will never ask you for details such as date of birth, Social Security number, account numbers or passwords in contact they initiate. If you receive communication requiring this information, call the institution directly to verify the legitimacy of the request.

4. Stay on guard for fakes.

Cybercriminals are smart — and they’ve gotten good at creating fake websites, emails and even in-app notifications that look like the real thing. If something looks or feels “off” about a message, trust your gut and don’t complete the transaction. When you’re shopping online, always look for the lock symbol and “https” in the website’s address, indicating you’re shopping at a secure site.

5. Manage your devices.

“Malvertising” is a form of malicious software in which hackers create seemingly innocuous advertisements infected with malicious codes. Once you click on the ad, hackers can use the malware to steal your identity or even take over your device. Download ad blockers to prevent these ads from being displayed and reduce the chances of interacting with a malicious ad.

Also, don’t ignore notifications that an update is available for your device. Many of these updates are fixing bugs and patching potential security holes. Install updates as soon as they are available to prevent data leaks.

6. Be wary of public Wi-Fi.

Public Wi-Fi is handy when you’re out running errands or working in a coffee shop, but it can also provide a gateway for hackers to access your device. Avoid logging into financial websites or other sites where your sensitive information might be exposed until you’re back on a private, secure Wi-Fi network.

7. Embrace multifactor authentication.

You may have noticed that your bank, brokerage or other financial firms require you to provide multiple identifying details when you call about your account. Likewise, some websites also use this multifactor authentication approach to verify your identity, requiring you to input a six-digit code or answer an additional security question. These steps may seem like a minor annoyance, but they are in place to protect you from fraud.

And speaking of security questions: Most security questions aren’t really that secure. A motivated hacker could probably find out your mother’s maiden name or child’s date of birth with a little sleuthing. Instead, choose security questions that aren’t easily guessed or findable, such as the color of your first car.

8. Review transactions regularly.

The best deterrent to fraud is early detection. It’s best practice to log in to your financial accounts weekly to review transactions and verify their legitimacy. Report any unexpected payments to your financial institution; scammers sometimes use these to test whether your account is active before attempting to withdraw funds.

Final Thoughts

If you have been the victim of identity theft or online fraud, notify every financial institution where you have an account, including banks, credit unions, investment brokerages, etc. You can also place a 90-day fraud alert with the nationwide credit-reporting agencies:

Equifax: equifax.com
Experian: experian.com
TransUnion: transunion.com

In addition, contact your financial professional to let them know your data has been breached. They can keep an eye out for any unusual requests for transactions and help protect your hard-earned savings from potential scammers.

SOURCES

1 Vaibhav Goel, et al. McKinsey & Company. Oct. 26, 2021. “New trends in US consumer digital payments.” https://www.mckinsey.com/industries/financial-services/our-insights/banking-matters/new-trends-in-us-consumer-digital-payments. Accessed Nov. 14, 2022.

2 Katherine Skiba. AARP. March 22, 2022. “FBI: Nearly $7 Billion Lost to Cybercrime in 2021.” https://www.aarp.org/money/scams-fraud/info-2022/fbi-internet-crime-report.html. Accessed Nov. 14, 2022.

3 Stefan Lembo Stolba. Experian. Nov. 18, 2020. “1 in 4 Americans Report Falling Victim to Fraud During the Holidays.” https://www.experian.com/blogs/ask-experian/survey-some-consumers-would-risk-identity-theft-for-an-online-holiday-deal/. Accessed Nov. 14, 2022.

4 McAfee. Sept. 23, 2022. “How Often Should You Change Your Passwords?” https://www.mcafee.com/blogs/tips-tricks/how-often-should-you-change-your-passwords/#:~:text=But%20how%20often%20should%20you,has%20access%20to%20your%20account. Accessed Nov. 14, 2022.

This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM nor the firm providing you with this report are affiliated with or endorsed by the U.S. government or any governmental agency. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. AE Wealth Management, LLC (“AEWM”) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IARs) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at http://brokercheck.finra.org.

11/22-2592532

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RMDs are crucial for retirement account owners age 72 and older

Overview

If you own a qualified retirement account and you’re approaching or recently reached age 72, heads up: The IRS says you must start taking annual distributions from your account. Known as required minimum distributions, or RMDs, these withdrawals begin in the year you turn 72.

How RMDs Work

RMDs apply to these account types:

Traditional IRA
SEP IRA
SIMPLE IRAs
401(k)
403(b)
457(b)
Profit-sharing plan
Other defined contribution plan

Since withdrawals from a qualified retirement account are taxable, 100% of your RMDs are added to your taxable income for the year in which they’re taken out.

Many people own more than one qualified retirement account, and RMDs are calculated separately for each account. But you have two options: You can either take the total amount from one account or spread it across multiple accounts. For example, say your annual RMDs total $2,000: $400 from IRA No. 1, $600 from IRA No. 2 and $1,000 from your 401(k). You can take the whole amount from the account of your choosing or split it among two or more accounts. It doesn’t matter how you take them as long as your total RMDs add up to $2,000 for the tax year.

Want to see how much your RMDs will be? The IRS provides a worksheet to calculate RMDs at www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf.

Donating Your RMDs

Mark Your Calendar

The timing for your first RMD gets a little complicated. The IRS says you have until April 1 of the year after you turn age 72 to take your first withdrawal. So if you turned 72 on Sept. 1, 2022, you have until April 1, 2023, to request your initial RMD.

Your second and subsequent RMDs must be taken by Dec. 31 to fulfill the requirement. And don’t be late: If you miss the deadline or don’t take the RMDs at all, you could end up paying 50% of the RMD amount as a penalty.

If you wait until April 1 of the following year to take your RMDs, you’ll be required to take two years’ worth of RMDs in one year (one for the prior year when you turned 72 and one for the current calendar year when you turned 73). Taking two sets of RMDs in one year could make a big difference in your total tax bill for that year.

Final Thoughts

The end of the year is approaching quickly, and Dec. 31 will be here soon! It’s a good practice to start the RMD process now since it can take time for custodians to process the request.

SOURCES

IRS. Sept. 23, 2022. “Retirement Topics – Required Minimum Distributions (RMDs).” https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds. Accessed Oct. 26, 2022.

IRS. Jan. 3, 2022. “RMD Comparison Chart (IRAs vs. Defined Contribution Plans).” https://www.irs.gov/retirement-plans/rmd-comparison-chart-iras-vs-defined-contribution-plans#:~:text=How%20should%20I%20take%20my,from%20each%20of%20your%20IRAs. Accessed Oct. 26, 2022.

This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM nor the firm providing you with this report are affiliated with or endorsed by the U.S. government or any governmental agency. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. AE Wealth Management, LLC (“AEWM”) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IARs) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at http://brokercheck.finra.org.

10/22-2561741

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What midterm elections could mean for your financial plan

Elections tend to create a lot of questions and uncertainty. The uncertainty wreaks havoc on markets, which are concerned about potential changes or stalls in fiscal, tax, estate, international and environmental policies.

Overview

Americans are heading back to the polls. Midterm elections, scheduled for Tuesday, Nov. 8, will determine not only who has control of both the U.S. House and Senate but also who is governor in 36 states.

While midterm elections don’t generally see the same level of turnout as presidential elections, some analysts say turnout could be higher than usual this November.1 That’s because this year’s race seems to be centered more on hot-button social issues, which tend to drive up voter participation.

Investors are keeping a particularly close eye on this year’s elections. A shift in power could mean either gridlock or advancement of political agendas. And in this hotly contested election season, it’s anyone’s guess which party will end up in charge. But one thing is for certain: Until the election is completed and uncertainty dies down, markets will likely stay volatile.

Who is up for election in 2022?

All 435 House seats

35 of the 100 Senate seats

36 out of 50 state governors

Market Volatility and Midterm Elections

We don’t need to look far to find examples of midterms causing trouble for markets; in fact, since 1962 the average market decline during a midterm election year is 19%.2 So far, we have followed the trend in 2022, although this year’s losses have been higher than average for some indexes. By mid-October, the S&P 500 was down 24.82% for the year, while the Dow Jones had declined by 18.45%.3,4

But why do midterms create such havoc for markets? Uncertainty, mostly. If the presidential party also has control of the Senate and House, it could result in the passage of a host of new policies. But if the non-presidential party holds the majority in either chamber, then it could halt the adoption of new legislation until the next election cycle.

The thought of shifting legislative priorities tends to make markets squeamish, particularly when they concern changing fiscal, environmental, tax and international policies. After all, these policies directly impact businesses and consumers, the driving forces of the U.S. economy. That’s an especially nerve-wracking thought for markets this year, as high inflation, rising interest rates and a sluggish economy have everyone on high alert for a potential recession.

Still, there is good news. In the past 60 years, markets have roared back following a midterm election. On average, markets have returned 31.6% in the 12 months after midterms, with zero negative returns in that same amount of time.5 Whether this midterm election will continue or break the cycle remains to be seen, especially as we face strong headwinds going into the new year.

Final Thoughts

So what should investors hope for as we head into midterms? Politics aside, stocks have historically performed best under divided control. A 2020 study published by Forbes found that the Dow Jones averaged annual returns of 12.9% in the years when Congressional leadership was split, compared to the overall annual average of 8.3% between 1945 and 2020.6

If Republicans take control of the House or Senate, it will likely slow government spending — not necessarily a bad thing as the Federal Reserve wages its battle against inflation. Divided control will also make the passage of new tax hikes and changes to retirement-related legislation unlikely. However, it will mean an uphill battle for the Biden administration in its pursuit of expanded social and environmental programs.

No matter which political party is in charge, investors would be wise to remember that short-term events should not serve as a distraction from long-term goals. Stay focused on the bigger picture and rely on your financial advisor to help you navigate new legislation and regulations as they come.

SOURCES

1 Lyon Nishizawa. Council on Foreign Relations. Aug. 24, 2022. “How Does U.S. Voter Turnout Compare to the Rest of the World’s?” https://www.cfr.org/in-brief/how-does-us-voter-turnout-compare-rest-worlds. Accessed Oct. 17, 2022.

2 Bill Stone. Forbes. Oct. 2, 2022. “Midterm Elections: The Politics of the Stock Market.” https://www.forbes.com/sites/bill_stone/2022/10/02/midterm-elections-the-politics-of-the-stock-market/?sh=1d16b20d71cc. Accessed Oct. 17, 2022.

3 Morningstar. “S&P 500 PR.” https://www.morningstar.com/indexes/spi/spx/quote. Accessed Oct. 17, 2022.

4 Morningstar. “DJ Industrial Average PR USD.” https://www.morningstar.com/indexes/dji/!dji/quote. Accessed Oct. 17, 2022.

5 Bill Stone. Forbes. Oct. 2, 2022. “Midterm Elections: The Politics of the Stock Market.” https://www.forbes.com/sites/bill_stone/2022/10/02/midterm-elections-the-politics-of-the-stock-market/?sh=1d16b20d71cc. Accessed Oct. 17, 2022.

6 Mike Patton. Forbes. Jan. 12, 2021. “Stock Performance And The Political Party in Power: An Historical Look At The Past 75 Years.” https://www.forbes.com/sites/mikepatton/2021/01/12/stock-performance-and-the-political-party-in-power-an-historical-look-at-the-past-75-years/?sh=560a40807a64. Accessed Oct. 17, 2022.

This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM nor the firm providing you with this report are affiliated with or endorsed by the U.S. government or any governmental agency. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. AE Wealth Management, LLC (“AEWM”) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IARs) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at http://brokercheck.finra.org.

10/22-2519363

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Don’t let market downturns derail your long-term goals.

Market downturns are an inevitable part of the investing cycle. Investors who see them as an opportunity for growth and stay the course are more likely to achieve their long-term goals.

Overview

“What goes up must come down.” Investors were brutally reminded of this phrase in 2020, when the bull market run of the 2010s came to a screeching halt at the start of the pandemic. Markets resumed their upward trajectory in 2021, only to reverse course once again at the start of 2022.

Since then, the three major benchmark indexes — S&P 500, Nasdaq and Dow Jones — have struggled to regain momentum. In late September, the Dow was squarely in correction territory (down 10%-20%), while the S&P 500 and Nasdaq remained mired in a bear market (a decline of 20% or more).

Market Returns

Jan. 1, 2022 – Sept. 28, 2022

S&P 500 -21.97%1

Nasdaq -29.36%2

Dow Jones -18.31%3

Market Drivers

While bear markets are never welcome, they are a natural part of the investing cycle, which is marked by peaks and valleys. Both the highs and the lows are driven by various events, many of which we’ve experienced so far this year. They include:

– Interest rate changes

– Fluctuating levels of national debt

– International trade relations

– Domestic and international politics

– Global events that threaten economic stability

– News headlines that shape investor and consumer sentiment

Although these events can drive down markets and cause short-term pain for investors, it’s important to remember that they can also create opportunities for growth. For example, a market downturn means investors can add stocks to their portfolios at lower prices. In the words of Warren Buffett: “Bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.”4

The other good news is that there’s always been light at the end of the tunnel. Bear markets have always given way to bull markets — eventually. And investors have typically come out ahead in the long run. Consider, for example, the S&P 500. Between 1928 and 2021, the S&P 500 experienced 21 bear markets.5 Despite those pullbacks, the index posted an average annualized return of 11.82% during that period.6

Actions to Take in a Down Market

Still, even though history has told us down markets come back, it can be difficult to know what actions to take when our portfolios have taken a hit. Here are our recommendations for proactive steps to take as you ride out the current bear market:

Diversify.

Spreading your money across a wider range of asset classes and sectors can help reduce the impact of a market decline, particularly if certain industries or asset types decline more than others.

Use dollar-cost averaging.

If you’re in contribution mode, you’ll likely want to take advantage of lower stock prices since investing during a down market allows you to buy more shares. Keep in mind, however, that regular investing doesn’t ensure positive returns, and you’ll need to consider your personal appetite for risk should prices fall further.

Consider converting to a Roth IRA.

A major stock market correction allows you to pay less in taxes when you convert from a traditional IRA to a Roth IRA. You will owe taxes on the amount of the conversion, but that amount will be lower since the value of the stocks in your portfolio is reduced.

Rebalance for your risk tolerance.

Portfolios can often become unbalanced during both bull and bear markets. Growth or losses in certain asset classes or industries could create a mismatch between your holdings and your risk tolerance. You might want to consider rebalancing your assets to protect against unnecessary risk while still taking advantage of growth opportunities.

Final Thoughts

Finally, the negative headlines and news surrounding a down market can create anxiety for investors, especially those approaching or living in retirement. Your financial advisor can walk you through all the “what if” scenarios and help you implement strategies to keep your financial plan on track. They may even tell you the prudent thing to do is nothing at all, and that staying the course is your best plan of action.

Remember: Your advisor serves as your financial partner during both bull and bear markets. If you have concerns or questions about the current market environment, contact your advisor to schedule a time to talk.

SOURCES

1 Morningstar. “S&P 500.” https://www.morningstar.com/indexes/spi/spx/performance. Accessed Sept. 29, 2022.

2 Morningstar. “NASDAQ Composite PR USD.” https://www.morningstar.com/indexes/xnas/@cco/quote. Accessed Sept. 29, 2022.

3 Morningstar. “DJ Industrial Average PR USD.” https://www.morningstar.com/indexes/dji/!dji/quote. Accessed Sept. 29, 2022.

4 Theron Mohamed. Markets Insider. May 17, 2020. “Warren Buffett has weathered multiple market crashes. Here are his 8 best quotes about investing in tough times.” https://markets.businessinsider.com/news/stocks/warren-buffett-10-best-quotes-investing-market-crashes-2020-5-1029191115#bad-news-is-an-investors-best-friend-it-lets-you-buy-a-slice-of-americas-future-at-a-marked-down-price-5. Accessed Sept. 29, 2022.

5 Yardeni Research, Inc. Sept. 28, 2022. “Stock Market Historical Tables: Bull & Bear Markets.” https://www.yardeni.com/pub/sp500corrbeartables.pdf. Accessed Oct. 3, 2022.

6 J.B. Maverick. Investopedia. Aug. 16, 2022. “S&P 500 Average Return.” https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp. Accessed Sept. 29, 2022.

This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM nor the firm providing you with this report are affiliated with or endorsed by the U.S. government or any governmental agency. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. AE Wealth Management, LLC (“AEWM”) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IARs) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at http://brokercheck.finra.org.

10/22-2450823

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The post 10 Answers to Questions About the Bear Market appeared first on Price Financial Group.

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Sarah Duey I once had clients with only one daughter. They created a trust for only their grandchild without ever telling their daughter why. As the trustees, we worked with this daughter, because her child was still a minor. There were hard feelings — a lot of wondering why her parents …

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It’s almost impossible not to feel anxious at the dips and dives the stock market has been taking recently, compounded by relentless inflation-focused headlines. That’s why you might be surprised to learn there’s a lot of positive news to be had, despite the market uncerta …

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Burt White, Chief Strategy Officer So far, 2022 is off to one of the worst ever starts of a year for stock returns. And the reasons are numerous and front of mind for us all: an unexpected war in Ukraine, the lingering impacts of COVID-19, the highest inflation rates in 40 years and the …

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When market volatility occurs, it’s completely natural to feel anxious about your finances. This is an uncomfortable time for all investors – seasoned and new. It’s important to remember that market volatility is nothing new, and staying the course is usually the best plan of action. But i …

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By Craig Lemoine, Director of Consumer Investment Research Stocks, bonds and mutual funds have had a rocky start to the year. The S&P 500, a broad measure of the United States stock market, was down 4.6% over the first quarter. Mutual funds holding stocks and bonds have also lost value. …

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Price Financial Group | Financial Advisors | Beaverton, Oregon: Recent Episodes

Price Financial Group | Financial Advisors | Beaverton, Oregon