I hope you are staying safe and healthy.
Many things change as we transition from our work career to retirement. We switch from asset accumulation to asset decumulation. During our careers, we work hard to build a nest egg. But we may not know how to make our retirement withdrawals tax efficient. There are strategies we can use to lower the taxes we pay on distributions.
Retirees often don’t have the right answers to tax-related questions. One of the easiest mistakes is assuming our tax bills will fall in retirement. While that can happen, it might not. It depends on what type of accounts you have and how you withdraw money from them. Understanding the tax rules around Social Security income can also be complicated.
This week’s first article shares 10 tax-related questions retirees often get wrong.
Investment Commentary
After suffering their worst three-day decline since late October, U.S. stocks soared Thursday. There’s no reason to lament the losses. Remember to keep things in perspective. After Thursday’s rise, the S&P 500 Index has fallen only 1.6% so far this month. For the year, it’s still up 9.5%. The S&P has surged almost 84% above the lows it reached in March 2020.
Concerns about a faster-than-expected increase in inflation have concerned investors. Against this backdrop, shares of more expensive growth shares have lagged. Data released earlier this week showed consumer prices surged higher in April. Another report Thursday said producer prices posted their biggest annual jump since the Bureau of Labor Statistics began tracking the data in 2010.
Investors’ main worry is that inflation could hamper companies’ profit margins and force the Federal Reserve to unwind its easy monetary policies sooner than expected. So far, central bank officials expect any jump in inflation to be transitory. On Wednesday, a Fed policymaker said more data would be necessary for the central bank to begin scaling back its policies.
Against this backdrop, we continue to follow our process and remain focused on the long term. Our long-term market outlook remains positive.
Here are the links to this week’s articles as well as a brief description of each:
1. 10 Questions Retirees Often Get Wrong About Taxes in Retirement. I often say, “Taxes and investing are joined at the hip.“ Why? Considering taxes when you invest can leave you more money to save for the future or to spend today. We work hard to build a retirement nest egg. We should take permitted steps to minimize the taxes we pay on our savings. Many retirees end up paying more in taxes than they should. Read the article and see if you know the answers to the 10 questions it says retirees often get wrong. The first question: “When you retire, is your tax rate going to be higher or lower than it was when you were working?” The answer? It depends.
2. 19 Things Rich People Rarely Do. This article, which my lovely wife, Diana, found and shared with me, includes some great suggestions. I don’t claim to be rich, but I can say I practice many of these habits. Many can make your life richer even if they don’t fatten your wallet. One that jumped out at me: Never go without a to-do list. Earlier in my career, I took the Myers-Briggs assessment. I was at the opposite extreme when it came to making lists (I was a “P” or Perceiver, rather than a “J” or Judger.) Running a business and taking care of clients has led to some big changes. I view to-do lists as essential.
3. Stock Market Returns Are Anything but Average. On average, the U.S. stock market delivers an annualized return of about 10% (including dividends). But we rarely see that return in any given year. If the market provided the same return consistently, returns would be lower. Why? That would equate to less risk. If you want to eliminate some of this randomness, you should have a long time horizon.
4. How to Say ‘No’ to Everything Ever: A Universal Script for… Well, Everything Ever. Most of us know we should say “no” more often. Always saying yes can leave us exhausted, stressed, and time-poor. We may also wonder why we have been busy without being productive. We end up with over-cluttered calendars and feel stressed out. If you have trouble saying no, check out this article for some suggestions. It includes a five-step script you can store as a draft in your email inbox as well.
5. What Is a Fiduciary Financial Advisor? For many investors, the word fiduciary first entered the picture in April 2016. The release of the Department of Labor’s Fiduciary Rule was officially vacated a little more than two years later in June 2018. It resurfaced in a less restrictive form in 2020. President Biden’s administration approved the latest version. It went into effect on February 16th. Financial advisors fall into two camps: fiduciaries and non-fiduciaries. True fiduciaries work in your best interest. Unfortunately, the article also refers to pretend fiduciaries. This issue is important enough to Apprise, that I provide a signed Fiduciary Oath to all clients. I have also blogged about the topic.
Our practice continues to benefit from referrals from our clients and friends. Thank you for your trust and confidence.
We hope you find the above posts valuable. If you would like to talk to us about financial topics including your investments, creating a financial plan, saving for college, or saving for retirement, please complete our contact form. We will be in touch. You can also schedule a call or a virtual meeting via Zoom.
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Phil Weiss founded Apprise Wealth Management. He started his financial services career in 1987 working as a tax professional for Deloitte & Touche. For the past 25+ years, he has worked extensively in the areas of financial planning and investment management. Phil is both a CFA charterholder and a CPA.
Located just north of Baltimore, Apprise works with clients face-to-face locally and can also work virtually regardless of location.
