Welcome to another episode of “Ethel’s Diamond Post.” How many people find it difficult to open their banking and investment statements due to the negative news in the media? Did you consider withdrawing your savings, money markets, and cash reserves from the bank in fear of a financial debacle? Were you checking all your accounts to ensure you didn’t have more than $250,000 in your banking account? Did you consider transferring assets to safeguard your cash reserves protected by the Federal Deposit Insurance Corporation (FDIC)? Do you feel like you are suffering from Financial Longhaulers Syndrome because it seems we have been in a holding pattern since the height of the pandemic? If so, you are not alone. Many people suffer from anxiety, depression, and apathy due to the bombardment of negative headlines regarding the financial arena.
Many investors are looking for the silver lining in the economic news, but that has not happened yet. Of course, you remember the “hot” stock market we experienced during the pandemic lockdown. Most people are stuck in a holding pattern, reflecting upon their account balances at an all-time high. Yet, we know there are market risks, and the market does not move in tandem every year. Last quarter a small number of stocks carried the market, which seems unfathomable, but Nvidia (NVDA), Telsa (TSLA), and Facebook parent Meta Platforms (META) delivered a stellar performance. To this point, the primary drivers of the 2023 upside are technology, communications services, and consumer discretionary sectors. Of course, the banking crisis is an apparent reason for the underperformance in the financial services sector. However, what happens to healthcare or industrials from contributing more to this year’s equity market rebound? The year is not over; it’s anybody’s ball game.
It takes tremendous humility to navigate markets successfully. Many financial advisors with big egos cannot admit mistakes or believe they are above reproach. VZD Capital Management, LLC does not have a crystal ball, and we are transparent in our outlook and perspective of the economic environment. We monitor every account, and positions, take profits, and transition additional assets into equities and fixed-income instruments, as appropriate. Every client has different risk levels, goals, and objectives, so we customized each portfolio based on the client’s circumstances. Before investing, we answer two questions – 1) At what price will I sell or take profits if I am correct, and 2) When will I pull the trigger if I am wrong? We are looking at the fundamentals, the evaluations, the institutional ownership, and several proprietary components of information to ensure our client’s financial health is our number one priority. A wealth manager who sells products such as annuities, commission-based mutual funds, or proprietary investments does not worry about performance because it does not impact their compensation. Their salary and bonuses come from the investment vehicle’s markups and commissions. Clients take withdrawals based on retirement distributions, supplemental income, and when unexpected expenses show up from time to time. Portfolio management is not about ALWAYS being right. It is about consistently getting “on base” that wins the long-term game. There isn’t a strategy, discipline, or style that will work 100 percent of the time.
RETIREMENT: ARE WE THERE YET?
American workers are worried about their retirement savings and losing sleep due to how much money they need to retire from their jobs comfortably. Working Americans over 45, on average, require an estimated $1.1 million to retire comfortably. Only 20 percent of workers expect to reach the $1 million market, down 24 percent in 2022. Many will not get close to that wealth level due to many factors, including but not limited to – contributing to employer-sponsored retirement plans and having adequate savings to maintain their standard of living. Do you know how much money you need to continue living at your current comfort level? Are you there yet?
Older Americans preparing to move from work to retirement face a significant challenge – how can they enjoy the fruits of their labor while ensuring they spend wisely? There are profound gaps between what American workers say they need for a comfortable retirement and what they expect to have. Approximately 59 percent of workers expect less than $500,000 of retirement savings at the end of their working days. The lack of savings might be due to poor planning and difficulty saving and investing enough to reach retirement goals. Like banks, wealth managers need to give retirees a “stress test” to create a roadmap to ensure they will not exceed reasonable expectations of retirement living.
Many retirees are concerned about outliving their retirement savings. Most people want to know what they can expect from the capital markets. Unfortunately, my crystal ball is all over the place, but I believe the S&P 500 will deliver between 8 and 9 percent return. My outlook considers low unemployment numbers but increasing big tech layoffs. Inflation is still too high but has shown signs of slowing somewhat. Worries that the failures of several banks could cause a widespread market meltdown have proven to be overblown. Yes, bank stocks have taken a beating, but the overall stock market has held up pretty well. I would not be surprised to see two additional interest rate hikes by the Federal Reserve before year-end.
Did you hear that the new SECURE Act (Setting Every Community Up for Retirement Enhancement Act) seeks to make it easier for United States taxpayers to save for retirement and expand access to retirement plans – which is good? Politicians and lawyers wrote the legislation, which makes it difficult to absorb, for it continues to change like the weather. One of the primary catalysts is that Secure 2.0 has increased the age at which individuals must begin taking required minimum distributions (RMDs) from a retirement plan or account. The Act raises the age that IRA owners must start taking required minimum distributions to 73 from 72 for anyone born on or after January 1, 1951, and before January 1, 1960. Then, it further delays the RMD age to 75 for those born on or after January 1, 1959.
As you can see, the confusion begins with the phase that someone born during 1959 will have two first RMDs, ages 73 and 75. Like anything that involves politicians, it’s an ever-changing environment, and wait, and another amendment will come out soon to give clarification or bring additional confusion. The good news is there is plenty of time to make changes before it goes into effect. Taxpayers who contribute pretax dollars to 401(k), 403(b), and IRAs can look forward to an increase in the catch-up contributions in 2025.
Now, I like the provision that permits a 529 account owner, starting in 2024, to do a tax-free rollover of up to $35,000 of unused 529 funds to a Roth IRA. The “fine print” states the account must have been open for over 15 years. However, another “grey” area is unclear whether a new 15-year waiting period is required when someone changes 529 plan beneficiaries. Or, can the new beneficiary use the current time the 529 accounts have been open, or does the clock reset? I was hoping you could wait for the answer. I do not know at the time of writing this newsletter because it is up in the air.
Starting January 1, 2025, individuals ages 60 through 63 can make a catch-up contribution of up to $10,000 annually to a workplace plan based on inflation. The catch-up amount for people and older in 2023 is currently $7,500. In addition, the steep penalty for failing to take an RMD will decrease to 25 percent of the RMD amount not taken from the current 50 percent. The penalty will be reduced to 10 percent for IRA account holders if the account owner withdraws the RMD amount previously not taken and promptly submits a corrected tax return.
Taxpayers who contribute pretax dollars to 401(k), 403(b), and IRAs are not entitled to reap tax deferral benefits forever. The law requires them to complete their account funds and pay the associated taxes once they reach retirement age. The change in the required minimum age applies to company plans, including IRAs, SEP IRAs, and SIMPLE IRAs (but not to Roth IRAs, which are not subject to a lifetime RMD rule). Taxpayers need to know that if you should have an emergency where you might need to access your retirement accounts before your RMD age and specific circumstances will be exempt such as – federally declared disasters (up to $22,000), a terminal illness (one that results in death in 24 months or less), domestic abuse (domestic abusers can withdraw the lesser of $10,000 indexed for inflation or 50 percent of the vested balance), financial emergencies (immediate financial needs relating to personal or family emergencies of $1,000 or less), qualified long-term care distributions (limited to the lesser of $2,500 annually (indexed for inflation or 10 percent of the vested balance). We monitor every retirement account for VZD Capital Management clients to ensure we meet the IRS requirements regarding mandatory withdrawals.
VZD CAPITAL PERSONNEL
ARE ON THE MOVE
VZD names Nikisha L. Johnson as Senior Vice President, effective immediately. Nikisha brings over 20 years of executive legal experience from prominent legal firms, including Polsinelli of Kansas City, MO. Nikisha completed the Executive Mentoring Program and is responsible for many aspects of the firm’s day-to-day operations and compliance standards. Nikisha accommodates Ethel in client reviews and assists with the firm’s succession planning.
Ethel is undergoing knee replacement surgery to remove a bone spur on Wednesday, April 12, 2023. She is looking forward to physical therapy and should be back on the move within 4 to 6 weeks but will continue to work throughout the recovery time. You can schedule virtual meetings with her until further notice. She has been named a Five Star Wealth Manager for nine years and a Fortune Women’s Five Star Wealth Manager. The Kansas City Business Journal is one of the Twenty Financial Professionals You Need to Know.
Please call VZD at (816) 726-7066 for immediate assistance or concerns. Thank you for the trust and confidence you have placed in your VZD team.
With Gratitude,
Ethel and Nikisha