September, 2022
Under Pressure
Stocks dropped on Friday following Powell's remarks reiterating the Fed's inflation-fighting resolve. While his comments did not break new ground, markets reacted severely, perhaps on worries that interest rate hikes may continue into next year.
After starting the week sharply lower on renewed rising interest rates and economic slowdown fears, markets staged a modest turnaround beginning mid-week. Stocks rallied on Thursday, sparked by a revised Gross Domestic Product estimate showing the economy's shrinking less than initially estimated. Thursday's rally also got a boost from regional Federal Reserve Bank presidents, who suggested future rate hikes may be in line with market expectations.
Powell at Jackson Hole
In his much-anticipated speech at the Jackson Hole Economic Symposium, Powell unflinchingly reaffirmed the Fed's commitment to raising rates to lower inflation, even if it results in causing pain to individuals and businesses.
Wall Street focused on Powell's presentation in the hope it might provide greater clarity on future Fed direction, though his remarks ultimately went no further than restating past communications. Powell commented, "We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to two percent." This statement may have put to rest any thoughts that the Fed would soon pivot on rate hikes.1
Stocks and Elections
As we've discussed in some of our past market update videos, stocks tend to underperform in mid-term election years. This is certainly holding true so far this year and is further exacerbated by a plethora of other factors. The question remains, will we see an end of year rally like in a typical mid-term election year? Or are there too many other headwinds to overcome? The chart below shows some historical data on past performance for the second half of a mid-term election year.
Recent Legislative Happenings
The Student Debt Relief Plan
Last week, President Biden announced a three-part plan to make good on his campaign promise to help cancel some student debt for working and middle-class federal student loan borrowers in the wake of the pandemic.
If you or someone close to you carries student loan debt, you likely have lots of questions. Read on for some answers to frequently asked questions related to this new plan.
How do I know if I am eligible for debt cancellation and how much should I expect?
If you have a federal student loan, and your annual income is less than $125,000 (for individuals) or $250,000 (for married couples), you are eligible for up to $10,000 in debt cancellation. If you meet that income threshold and you received a Pell Grant in college, you are eligible for up to $20,000 in debt cancellation. Your relief is capped at the amount of your outstanding debt, so if you are eligible for $20,000, but your balance is only $15,000, you would receive $15,000 in relief.2
What do I need to do in order to receive loan forgiveness?
Nearly 8 million borrowers may be eligible to receive relief automatically because their income data is already available to the U.S. Department of Education. They are still encouraging everyone who is eligible for loan forgiveness to file an application, which is expected to be available in early October.2 If you would like to be notified when the application is open, you can subscribe to updates HERE.
What is the timeline for relief?
Following submission of an application, you should expect to see relief within 4-6 weeks. The Biden administration has extended the loan repayment pause through December 31st, 2022, so if you would like to receive it before the pause expires, you should apply before November 15th.2
How many borrowers could be relieved of student debt?
According to the Education Department, over 45 million people hold federal student loans. Approximately 14.6 million borrowers owe up to the $10,000 forgiveness cap, so assuming they meet the income requirements, nearly one third of borrowers could see their debts forgiven.3
The Inflation Reduction Act: A Quick Summary
You've probably heard some news recently about the Inflation Reduction Act (IRA). This bill is a rebranded--and scaled-down-- version of the $3 Trillion Build Back Better Act proposed in 2021. In contrast, the IRA (this is admittedly a difficult acronym for us to adopt for obvious reasons) is a bill that includes $737 billion in provisions and is estimated to reduce the deficit by about $300 billion. It passed through both chambers of Congress on a pure party-line vote.
Read on for answers to the following questions:
What is in the bill?
How will it impact me?
Will it reduce inflation?
What is in the bill?
There are three primary objectives of the IRA:
- Fighting Climate Change -
The IRA essentially offers incentives in the form of tax credits for companies and individuals to adopt green energy. The hope is that by offering these tax credits, the government is encouraging broader adoption and technological innovation that will eventually drive costs down over time, making renewable energy more widely available.
It's important to note that there are also pieces of the bill that subsidize fossil fuels to help ease America's continued transition toward more renewable energy sources.
- Lowering the Cost of Retiree Healthcare -
The bill's highlights from the consumer's perspective are the changes to Medicare (not private insurance) drug costs. Starting next year, insulin costs will be capped at $35 per month. And in 2025, Part D out-of-pocket maximums will be capped at $2,000 per year. These are both significant changes that will positively impact retirees.
Additionally, this bill corrects some of the flaws of the Medicare Modernization Act of 2003 by allowing Medicare to negotiate drug prices with pharmaceutical companies on some of the most expensive drugs starting in 2026.
It's a natural question of whether these changes will cause premiums to rise? We can't know yet, but anyone who has turned 65 knows that the world of Medicare is intensely competitive, so insurers are incentivized to keep premiums low to be as competitive as possible.
- Increasing Tax Revenues -
There are two primary ways the bill is planning to increase tax revenues. One is raising taxes on large corporations by implementing a 15% minimum tax on companies with $1 billion or more in profits and adding a 1% tax on stock buybacks.
Secondly, the bill significantly increases the budget for IRS tax enforcement. The idea is that additional enforcement of our current tax code will result in more taxes being collected. While not an increase in individual taxes, it will likely result in more tax revenue.
How will the IRA Impact You?
There are two ways the bill might benefit you. For one, the noted decreases in prescription drug costs and caps on Part D expenditures are significant.
Secondly, you may take advantage of some of the tax credits available for electric vehicles or energy-efficient home improvements.
As for how it may "negatively" impact you, it appears that we are all more likely to be audited thanks to the increase in IRS tax enforcement.
Will the IRA Reduce Inflation?
Maybe, or maybe not.
Drug costs should come down, but it remains to be seen whether premiums will rise to offset the savings there.
On the energy front, from a purely economic perspective, when spending is encouraged (which tax subsidies do), prices typically rise. But over time, technological innovation tends to push prices down.
That said, while the "Inflation Reduction Act" is a clever name, many sources seem to agree that this bill's impact on inflation will be negligible. Time will tell.
Check Out this Estate Planning Checklist
The value of having an estate plan can hardly be understated. A plan is necessary to help manage the wealth you accumulate over a lifetime and ensure your loved ones are cared for and supported for years to come.
Having an estate plan in place could also save your family members from having to make tough decisions by themselves and from engaging in the costly and stressful probate process.
While many people may feel overwhelmed by the idea of drafting such impactful legal documents, knowing you have something in place will likely feel like a large weight lifted off your shoulders.
See below for an easy-to-follow list of items to consider when preparing your own estate plan. If you need help drafting your own Will, Power of Attorney, or Health Care Directive, reach out to GTS Financial and we will be happy to provide you with trustworthy referrals and resources to get it done!
ESTATE MANAGEMENT CHECKLIST
Do you have a will?
A will enables you to specify who you want to inherit your property and other assets. A will also enables you to name a guardian for your minor children.
Do you have healthcare documents in place?
Healthcare documents spell out your wishes for health care if you become unable to make medical decisions for yourself. They also authorize a person to make decisions on your behalf if that should prove necessary. These documents may include a living will, a power of attorney agreement, and a durable power of attorney agreement for healthcare.
Do you have financial documents in place?
Certain financial documents can outline your financial wishes. If you become unable to make decisions for yourself, these financial documents can be structured to empower a person to make decisions on your behalf. These documents may include joint ownership, durable power of attorney, and living trusts.
Have you filed beneficiary forms?
In some cases, naming a beneficiary for bank accounts and retirement plans makes these accounts "payable on death" to your beneficiaries. In other cases, you will need to fill out a "Payable on Death" form.
Do you have the right amount and type of life insurance?
When was the last time you assessed your life insurance coverage? Have you compared the life insurance benefit with your financial obligations? Keep in mind that several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.
Have you taken steps to manage your federal estate tax?
If you and your spouse have more than $24.12 million in assets (for 2022), you may want to consider taking steps to manage federal estate taxes, which will be due at the second spouse's death.4
Have you taken steps to protect your business?
Do you have a succession plan? If you own a business with others, you may also want to consider a buyout agreement.
Have you created a letter of instruction?
A letter of instruction is a non-legal document that outlines your wishes. A strong, well-written letter may save your heirs time, effort, and expense as they administer your estate.
Will your heirs be able to locate your critical documents?
Your heirs may need access to the specific documents you have created to manage your estate. These documents may include:
- Your will
- Trust documents
- Life insurance policies
- Deeds to any real estate, and certificates for stocks, bonds, annuities
- Information on your financial accounts and safe deposit boxes, including access to log-ins and password information for online accounts
- Information on your retirement plans
- Information on any debts you have: credit cards, mortgages and loans.
Note: Power of attorney laws can vary from state to state. An estate strategy that includes trusts may involve a complex web of tax rules and regulations. Consider working with a knowledgeable estate management professional before implementing such strategies.
When Back to School Means Back to Screens
September is traditionally known as Back to School Season. All the kids are hot to trot with their new backpacks, notebooks, and gym shoes...but for many, this time of year also implies a sharp increase in time spent on screens. This phenomenon has become particularly exacerbated since the start of the pandemic.
There are a number of ways your children's health could be negatively impacted by too much time on screens, so what norms and expectations can you set up in your household to help promote healthy screen-time habits? Read on to learn more!
Screen Time Recommendations by Age
Before anyone can have a conversation about the impact of 'too much' time spent viewing a screen for television, working on a computer or playing video games, it is important to establish what is considered appropriate amounts of screen exposure for kids of various ages. The following guidelines come from the American Academy of Child and Adolescent Psychiatry5:
- 0-18 months: The only screen use recommended is video chatting with a close relative, such as a parent away on a trip. Otherwise, screens should be avoided as much as possible.
- 18-24 months: Educational programming is OK’d for a few hours a week, with a parent watching and playing along. The screen should be a supplement to an activity, not the focus of the activity.
- 2 years to 5 years: More educational screen time alone is fine, but anything non-educational should be kept to an hour per weekday and three or less on weekend days.
- 6 and up: At this age, recommendations are centered around encouraging habits and hobbies that don’t involve screens. Continue to limit non-educational screen use on weekdays while allowing a bit more on weekends. As kids make friends, and join more after-school and weekend activities, use their schedule and physical activity level to help determine what screen time is appropriate.
Potential Consequences of Too Much Screen Time
When viewed with a parent, children as young as two years old can benefit from some types of interactive screen time that involve music, movement, and story-telling.6 It is important, however, to recognize that passive screen time with less quality programming at any age can lead to a whole host of issues including:
- Obesity - It isn't necessarily what kids are doing on their screens that doctors are most concerned with, but rather what kids are not doing - moving.7 Too much sedentary time can also impact heart health and lead to a higher risk of diabetes, increased blood pressure, or cholesterol.8
- Sleep Disturbances - The blue light emitted by screens can trick the body into thinking it is still daytime, and late night screen time can also delay the release of hormones like melatonin that bring on feelings of sleepiness. These triggers can lead to insomnia or more restless sleep.7
- Neck and Back Pain - Maintaining positions for long periods of time, particularly when viewing phones or tablets, can lead to poor posture. If not intentional about taking breaks for movement, excessive screen time can lead to chronic back, shoulder, or neck pain.8
- Mental Health and Social Skill Impediment - Online gaming and social media can create unhealthy dopamine patterns similar to other types of addiction.7 Other studies have linked time on screens with depression and anxiety, particularly in adolescent girls.8 Replacing actual social interaction with socializing through screens can also impede kids' ability to read social cues and empathize with others.7
- Inhibition of Creativity - Plugging into a screen can easily be used as a mindless distraction that 'unplugs' kids from the world around them. Rather than approaching the world with curiosity and creatively interacting with their environment, it is easy to become content with endless scrolling or gaming.7
Family-Friendly Screen Time Tips
Here are a few specific screen time tips to support the health of everyone in your household:
- Family Unplugged Time - Aim to establish agreed-upon times for the whole family to put away devices (maybe dinnertime, in the car when you are driving places together, or set aside a few hours to get outside and move together each weekend!)
- Parental Controls - Let technology work for you to limit your kid's technology use! You can filter or block unwanted content, and can set daily limits that can lock children out of apps when they've reached a set amount of time.8
- Create an Overnight Charging Station - Plan to collect all devices one hour before bed to mitigate the impact of blue light exposure, and charge devices in a common room (outside of bedrooms) overnight to eliminate the temptation that could interfere with sleep.8
- Seek Interactive Screen Time - When you are allowing screens, aim to engage in things you can do together with the family. Even just talking about what games you're playing or shows you're watching will add a layer of real life interaction to the experience.6
- Eliminate Background TV - While it is quite common just to keep a television on in the house for some background noise, it still becomes a constant source of screen exposure. Be intentional about when the TV is on, and if no one is watching, turn it off.6
- Limit the Use of Screens as Babysitters - At some point or another, most every parent has used a screen to calm a nervous young traveler on a long plane flight or set their child down with some cartoons in order to get something done around the house. One way to make sure that trick always works to pacify your child is to avoid over-using it. When possible, consider books, arts and crafts, or other alternatives to keep them occupied.7
Perhaps the most important thing to remember when establishing expectations around screen time at home is that you need to model the behavior you hope to see in your kids.8 This can be through simple things like keeping your phone in your pocket and avoiding the temptation to pull it out anytime there is a moment of downtime. It also might mean pacing yourself the next time you're tempted to go on a Netflix binge.
"Unretiring" To Stay in the Game
Knowing when it’s the right time to retire can be difficult, especially if you love your job. Even professional athletes have a hard time knowing when to walk away!
These athletes thought they were ready for retirement but “un-retired” and returned to seek new challenges or extend legendary careers. Let’s look at their non-traditional retirement stories.
After the 2022 NFL season (and after missing out on another Super Bowl), Tom Brady announced his retirement, only to roll it back about a month later. His “retirement” barely lasted 40 days! After reflecting on his decision, he stated that the time will come when he is ready to retire, but it’s “not now.” Instead, fans can expect to see him playing for the Tampa Bay Buccaneers for his 23rd season in the NFL.1
Michael Phelps is one of the most decorated Olympic athletes and claimed 22 medals (18 gold) when he announced his retirement in 2012. But, he dove into the pool one more time for the 2016 Summer Olympic games and went on to win six more Olympic medals, including five gold medals. After 16 years of competing in the Olympics, Phelps announced his official retirement. He’s still close to Team USA and served as part of the NBC commentary team at the 2020 Summer Olympics in Tokyo.
Keira D'Amato was a 4-time All-American distance runner for American University when she graduated in 2006. She had a promising career ahead of her, but after a series of injuries, she was forced to take hiatus from the sport in 2009 and instead, focused on building a family and began a successful career in real estate. After 7 years off, with two toddler children at home, Keira decided to start running recreationally again just get back in shape and take time for herself. Fast forward to January of 2022, Keira D'Amato, at age 37, ran 2:19:36 to set the new American Record in the Marathon. On her return to competitive running, D'Amato stated, "I feel like I have nothing to lose. I have another life outside of this, which is very important to me. And I feel that gives me a lot of freedom to take risks and not be afraid of failing. Everything that I wish I would have [done in round 1], I'm now doing it in the second phase. I'm taking it really seriously, but I also am having more fun than I’ve ever had in my whole life.”9
Earvin “Magic” Johnson led a superstar NBA career and retired in 1991 after announcing that he was HIV-positive. He then went on to play in the 1992 NBA All-Star Game (and earned the MVP award). He wanted to play in the 1992-1993 season, but the comeback got scrapped in the preseason. He then went on to play 32 games in the 1996 season and then retired for good. At least, from basketball. Today, Johnson is an entrepreneur, and you often read of his involvement in a number of high profile deals in a wide variety of industries.
The good news about retirement is that it’s far from the end. It’s merely a change in circumstances and might even be turned around if you miss the action or are offered the right deal. Retirement isn’t necessarily about leisure but about using your time to pursue what moves and motivates you. Next time we speak, let’s chat about what you want to get out of retirement and paths you might consider.
