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October is Financial Planning Month
Financial planning is a comprehensive evaluation of your financial landscape with the aim of charting a course to achieve both immediate and long-term financial objectives. These goals encompass a wide spectrum, ranging from saving for significant life events such as home purchases, education expenses, and retirement, to ensuring the financial well-being of your loved ones in the event of your incapacitation or demise.
The Evolution of Financial Planning Month
Financial planning has a rich historical background, though it looked quite different in the past. Back in 1969, Loren Dunton founded the Society for Financial Counselling Ethics, and by 1973, the first graduates from the College of Financial Planning had emerged.
During this era, financial planning mainly centered around selling limited partnerships, a practice that eventually ended with the Tax Reform Act of 1986.
A significant transformation occurred in the world of financial planning, thanks to the visionary efforts of Richard Averitt III. He redefined financial planning by shifting the focus towards understanding the unique needs of individual clients and introducing a more systematic approach. This shift ignited the resurgence of financial planning as we know it today.
Today’s financial planning encompasses a broad spectrum of elements, including investment strategies, tax planning, retirement planning, and the meticulous development of budgets to ensure a secure and stable financial future. Proactively managing your finances is a wise long-term strategy, and Financial Planning Month provides an ideal opportunity to embark on this journey.
Components of a Comprehensive Financial Plan
A well-structured financial plan includes the following key components:
Financial Goals: Begin by outlining your financial objectives. Whether it’s saving for your child’s education, renovating your home, or securing your retirement, clearly define your goals.
Asset and Liability Assessment: Take stock of your assets and liabilities to gain a holistic view of your financial situation.
Budget Analysis: Scrutinize your income and expenses to determine how much you’re saving and spending.
Inflation Consideration: Recognize the impact of inflation on your financial goals. Over time, the purchasing power of your money diminishes, making it crucial to account for inflation in your planning.
Medical Expenses: For retirees, healthcare costs can be a significant financial burden. It’s wise to incorporate healthcare expenses into your financial plan.
Social Security Strategy: Determine the optimal time to begin receiving Social Security benefits, as the timing can substantially affect your lifetime benefits.
Insurance Planning: Assess your insurance needs, including life insurance, disability insurance, and personal umbrella policies, to safeguard your financial well-being.
Estate Planning: Ensure that your financial plan addresses estate planning, covering aspects such as asset distribution and the appointment of individuals to manage your financial and medical affairs in case of incapacitation.
Who Benefits from Financial Planning?
Financial planning is a valuable tool for nearly everyone, regardless of their income or net worth. It helps individuals establish a strategic approach to various financial aspects, such as Social Security optimization, cash flow analysis for sustained retirement income, insurance evaluation, and estate planning.
Furthermore, a well-constructed financial plan can extend beyond these fundamental components, accommodating specific needs such as tax planning or pension analysis. Importantly, financial plans must remain adaptable since personal goals and circumstances evolve throughout one’s life. Regular updates to your plan are essential to staying on course.
If navigating the intricacies of financial planning feels overwhelming, seeking the assistance of a qualified financial advisor is a prudent choice.
Title: October is Financial Planning Month
Source: Householder Group Estate & Retirement Specialists, LLC
©2023 Householder Group Estate & Retirement Specialists, LLC All rights reserved.
Maximizing your Retirement Income
Doing Some Tax Planning Now Can Pay Off Later in Retirement
For many people, retirement is not a time to slow down and stop. It’s a time to explore the next great chapters of your life and build upon everything you’ve learned and experienced so far. Another thing that doesn’t slow down or stop is taxes. Understanding how taxes could affect your future cash flow will help you create an effective retirement income strategy.
Know How Your Retirement Savings Accounts Are Taxed
Withdrawals from traditional 401(k) plan accounts and certain other employer-sponsored plans, as well as traditional individual retirement accounts (IRAs), will generally be subject to federal and state ordinary income taxes upon withdrawal. On the other hand, contributions to a designated Roth 401(k) account or Roth IRA are federally tax-free when you withdraw those funds, as are the earnings, assuming the withdrawal is a qualified distribution, which generally means it is made after a five-year waiting period and the account owner is 59½ years or older.
As for your nonretirement accounts, bond income and some of the dividends you receive from stocks and mutual funds may be taxed at your federal ordinary income rate, but qualified dividends and long-term investment gains are generally taxed at lower long-term capital gains rates. State and local tax treatment may vary.
Develop a Thoughtful Distribution Strategy
For some people, it will make sense to consider tapping taxable accounts first, then tax-deferred. But, depending on the circumstances, this order may not be right for every person. If most of your investment gains are from long-term assets held outside of a traditional 401(k), IRA or other similar tax-deferred accounts, you’ll likely pay long-term capital gains taxes, which are generally lower than what you pay on distributions taxed as ordinary income from your tax-deferred retirement accounts.
You’ll also need to consider the impact of your retirement savings on your taxes once you reach age 73 (or age 75 after 2032). That’s when you must begin taking required minimum distributions (RMDs) from some of your retirement accounts, which is likely to boost your taxable income.
[Callout] It’s prudent to consult with an advisor or tax professional regarding retirement income and tax planning strategies.
Avoid Moves That Could Put You in a Higher Tax Bracket
RMDs and other changes that bump up your income can result in what’s called “bracket creep,” which is unintentionally slipping into a higher tax bracket. For example, you might receive an inheritance or sell some real estate. You might also slip into a higher tax bracket by taking a large distribution from a taxable account to renovate your home or buy a new car. A higher income can also affect the taxability of your Social Security benefits and increase your Medicare premiums.
This is one reason you may want to consider funding different kinds of retirement accounts during your working years. For instance, you could diversify your retirement contributions and split them between a Roth and traditional (pretax) allocation. During retirement, you can manage the amount of taxable income you receive and make adjustments when necessary. You can also pay for qualified medical expenses during retirement with any health savings account savings you may have. Those qualified withdrawals are tax-free and won’t affect your taxable income.
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
Kmotion, Inc., 412 Beavercreek Road, Suite 611, Oregon City, OR 97045; www.kmotion.com
©2023 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this newsletter are those of Kmotion. The articles and opinions are for general information only and are not intended to provide specific advice or recommendations for any individual. Nothing in this publication shall be construed as providing investment counseling or directing employees to participate in any investment program in any way. Please consult your financial advisor or other appropriate professional for further assistance with regard to your individual situation.
The End of a Cycle?
Key Takeaways
After 5.5% of interest rate hikes, many investors believe the Fed is near the end of its hiking cycle.
The long-term investment implications of this are clearly positive in our view.
Peaking interest rates may imply a slowdown in growth, but they also imply an end to a period of very high inflation – a clear positive for investors.
Long and variable lags
Economics is not a precise science. Central banks attempt to influence the economy through monetary policy (commonly by raising or lowering interest rates). The Fed uses monetary policy to attempt to achieve its dual mandate of price stability (low inflation) and full employment (economic growth). However, monetary policy affects the economy with “long and variable lags” – sometimes raising interest rates slows growth and lowers inflation quickly. Sometimes, it may take years for growth and inflation to slow. Inflation has fallen from 9.1% last year to 3.7% in August. This has led many market participants to believe that the Fed is near the end of its hiking cycle. So, what are the implications for investors?
Hard or soft landing?
The short-term implications of the end of the hiking cycle depend on the near-term direction of growth and inflation. So far, growth has been remarkably resilient. The Atlanta Fed’s GDPNow estimates that the economy grew at close to 6% (annually) during August. The labor market remains very strong but is starting to show signs of slowing. This suggests that while the economy is slowing (even potentially into a recession), the slowdown may be mild.
In our view, the bigger question is how quickly inflation will decline to the Fed’s 2% target. While inflation has fallen markedly, resilient economic growth suggests the path to the Fed’s target may be challenging. This implies potentially modest interest rate cuts, leaving short-term interest rates somewhere north of 4.5%. For shorter-term investors, who are less concerned with reinvestment risk, these levels are very attractive compared to the last ten years.
Longer-term investors may want to consider ensuring their portfolios have sufficient levels of defensive and diversifying assets. For example, high-quality bonds (US Treasuries) offer reasonably high yields (compared to the last ten years) and good diversification benefits relative to equity portfolios.
Stepping back and considering the big picture, we view the end of the hiking cycle as a positive for long-term investors. The end of the hiking cycle implies that this period of extremely high inflation is finally over. Historical analysis shows that long periods of high inflation are incredibly damaging to investors.
Key takeaway
This interest rate hiking cycle aims to lower economic growth, eventually lowering inflation. While the end of the cycle implies an economic slowdown (and maybe a recession), it also implies an end to a period of very high inflation. Long-term, this is a clear positive for investors.
Important Information: This is for informational purposes only, is not a solicitation, and should not be considered investment, legal or tax advice. The information in this report has been drawn from sources believed to be reliable, but its accuracy is not guar anteed and is subject to change. Investors seeking more information should contact their financial advisor. Financial advisors may seek more information by contacting AssetMark at 800 664 5345.
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AssetMark, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission.©2023 AssetMark, Inc. All rights reserved. 106454 | C2 3 20391 09/2 023 | EXP 09/30/2025 AssetMark, Inc. 1655 Grant Street, 10th Floor Concord, CA 94520 2445 800 664 5345
Pumpkin Butter
INGREDIENTS:
1 (3-pound) sugar pumpkin, stemmed, halved lengthwise, and seeded
1 tablespoon vegetable oil
1/4 cup apple cider
1/3 cup light brown sugar
3 tablespoons honey
1 teaspoon apple cider vinegar
3/4 teaspoon ground cinnamon
1/2 teaspoon ground ginger
1/2 teaspoon kosher salt
1/4 teaspoon grated fresh nutmeg
Pinch of ground cloves
INSTRUCTIONS:
Preheat oven to 350°F. Brush cut sides of pumpkin halves with oil. Arrange pumpkin halves, cut side down, on a large rimmed baking sheet lined with parchment paper. Bake in preheated oven until very tender when pierced with a fork, about 50 minutes. Remove from oven, and let cool slightly, about 10 minutes.
Scoop flesh from cooled pumpkin; transfer to bowl of a food processor. Discard pumpkin shell. Add apple cider; process until smooth, about 1 minute, stopping to scrape down sides of bowl as needed. Add brown sugar, honey, vinegar, cinnamon, ginger, salt, nutmeg, and cloves; process until smooth, about 20 seconds, stopping to scrape down sides as needed.
Transfer pumpkin mixture to a saucepan; bring to a simmer over medium, stirring occasionally. Reduce heat to low; cook, stirring occasionally with a rubber spatula, until mixture is reduced by one-third and turns slightly darker in color, about 25 minutes. Remove from heat; let cool to room temperature, about 30 minutes.
Sources: https://www.foodandwine.com/recipes/pumpkin-butter; Produceforkids.com
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.