Hi everyone and thank you for joining us today, my name is Stephen Rischall, I am a Certified Financial Planner and I’m one of the partners at Navalign.
Before this event we sent out a survey and asked you to weigh in on how you feel about your personal finances. About 84% of you shared with us that you felt positive about your finances, 14% said neutral and only 2% of responses were negative.
It’s great to see responses like this, I guess this really does prove that we are awesome financial planners, but seriously, all of you are working with our team here at Navalign and you’re motivated to reach your financial goals. So that’s going to skew these results a little bit.
But this is all great for us to know and thank you and we love working with you too.
So how does all of this stack up against consumer confidence?
Well, right now consumer confidence across the US, the grey line in this chart, is really strong. But the blueish green line, that’s CEO confidence, isn’t doing so well.
Consumers are confident, Businesses are pessimistic. It’s interesting and it is true that CEO confidence has fallen earlier than consumer confidence ahead of prior recessions. And the current gap between CEO and consumer confidence is noticeably large.
Does that mean we are headed into a recession?
You know, not really. All I’m seeing is that disclosure you see everywhere reminding us that past results are not indicative of future returns. Nobody really knows. You can read news articles and listen to people on TV and radio. They’ll be saying a recession looming.
I’ve been hearing this, and you probably have been too, since 2009, right since the recovery. Turn the page, flip the channel, and they’ll be saying the economy is booming.
The truth is the economy has been doing really well, and yes things have been slowing, but overall still growing. Right now, we are still seeing a lot more positives than negatives.
Yes, challenges will emerge, we’re just now starting to deal with this coronavirus, and it is an election year.
But often times these types of events are short lived, the market goes up, the market goes down, it goes back up again, but these things don’t fundamentally shift the global economy.
Another important truth, nobody knows when the next recession will happen. Just because the current economic expansion is the longest in modern history, that’s not a catalyst for a recession.
When I’m driving, I look ahead at what’s in front of me through the windshield, not the rear-view mirror. We have to make decisions by looking ahead at what’s in front of us.
By the way, I do believe that eventually the economy and stock market will pull back. But no one can ever know when and by how much until after it happens. So, don’t even try to time the market, because this is what happens more often than not.
We all know that famous saying about the stock market you “Buy Low and Sell High”. Well if it’s that easy than why do so many investors do the exact opposite?
The answer is our emotions. Our emotions can really get in the way of smart financial decision making. Two of the biggest money emotions are fear and greed.
When things are going well in our lives and the world around us, we feel pretty good. Usually that means we also feel good about our money. The stock market is going up, we’re feeling confident, maybe we spend more money than we think, and we don’t really think about it as much because, well we feel pretty good, we feel positive. But you have to be careful and not get too greedy.
In times when we have unexpected expenses or emergencies, like a car repair or a health scare, things aren’t going so well, we don’t feel as good about our money, and we start feeling anxious, or fearful, these times we just don’t feel so good about our money and we might make really poor money decisions, or sometimes we stray away from making any money decisions at all.
It’s really best that we focus on the things we can control, that’s especially true in our financial lives. Being aware of your emotions and how that affects your money behaviors is a big part of that and we’re here to help.
Now, anyone that knows me, knows that I love skiing, I really enjoy spending time outdoors especially in the snow! In fact, I just got back from a ski trip in Park City, Utah and this is my buddy George Jedenoff, he loves skiing too!
He’s been skiing in Utah every year since 1960, and you see that patch on his jacket? It says 100+. He’s a member of the 100+ ski club.
That’s right, George just celebrated his 102nd birthday and yes he’s still skiing. Don’t believe me, go check out his autobiography, it’s called My Centenarian Odyssey, a story all about positivity and his positive mind set. Interesting guy.
Why am I telling you this? Well if anyone wants to go on a ski trip, let me know because I’m totally in!
But seriously, just like George many people are living longer these days. With advancements in modern medicine, healthier diet and exercise routines, the likelihood of living into your 80’s is more than 60%.
For married couples, almost half the time at least one spouse is reaching age 90.
At the same time, more than 60% of people surveyed think they need more than $500,000 to last them through retirement. If you live somewhere like here, in Los Angeles, or other major metropolitan cities, you might think that dollar amount should probably be quite a bit higher because the cost of living for you, and retirement, is going to be higher.
The problem for the average American though, is that most haven’t saved up anywhere near $500,000 for retirement. In part, this is why we see a lot more people working longer and delaying their retirement.
But it’s not just about how much money you save up, what really matters is how you spend and also your expectations for the lifestyle you want to live in your retirement.
There’s good news is, if you are in a position to save more, the IRS just increased contribution limits for retirement savers in 2020. If you are still a participant in a 401(k) or 403(b) or similar plan through your employer, you can now contribute $19,500 this year. And if you are over age 50, you can save an additional $6,500 with your catch-up contribution. So that’s new for 2020.
For small businesses and the self-employed, which I know many of you are, contributions limits have also increased. If you have a SIMPLE IRA plan that has gone up to $13,500 for this year. And the maximum contribution for both SEP IRA and Solo 401(k) plans that’s increased to $57,000 for 2020.
One thing that didn’t change from last year is Traditional and Roth IRA contributions. For 2020 these contribution limits stay the same at $6,000 and if you’re over age 50 the catch-up contribution is an additional $1,000.
What else is new, how about the Setting Every Community Up for Retirement Enhancement Act, also known as the SECURE Act.
By now you’ve hopefully heard about this new act that congress passed just before the end of the year. In fact, it was passed as part of an appropriations bill to keep the government running, somehow, the government got retirement legislation added to that vote.
But this is very important, the SECURE Act is the biggest change in retirement legislation since 2006, and one way or another it’s going to affect your retirement savings
We think these are the top 4 changes from the SECURE Act that you should know about.
Required Minimum Distributions, also known as RMDs, are starting at age 72 – previously these mandatory distributions, and paying taxes on the distributions, started at age 70 ½. The amount you must withdraw is calculated each year based on the value of your tax-deferred retirement accounts and your age.
If you haven’t started taking RMDs yet, you can wait a bit longer now until age 72. If you happened to turn 70 ½ in 2019, then you must still satisfy your RMD for 2019, however you can then put this on pause until you reach age 72 and begin taking regular RMDs again.
Another major update from the SECURE Ace is no age restrictions for making contributions to an IRA, this is also for Roth IRAs. It used to be that by age 70 ½ you were no longer allowed to contribute to an IRA. Well that’s changed, so if our buddy George decides to start his Silver Ski’s Senior Ski clinic and earns income from it in 2020, even though he’s 102 years old, he can still contribute again to an IRA.
This next one is not so welcome; non-spouse IRA Beneficiaries must now withdraw all funds and pay taxes within 10-years of the decedent passing whom left them their IRA or 401(k). If you are a spouse, a spousal beneficiary, then you still have the option to retain the retirement account as if it was your own and eventually take RMDs at age 72. So if you’re a spouse, that doesn’t change, but for anyone else that’s a beneficiary and not a spouse, on a tax-deferred IRA , 401(k) or similar retirement account, you can no longer elect distributions over your lifetime and defer the taxes.
The IRS wants to collect their taxes sooner. Keep in mind this is only for beneficiaries of IRA account owners that pass away after December 31st 2019. So if you already had an Inherited or Beneficiary IRA account, and you are already taking distributions based on your lifetime, the good news for you is that you are grandfathered in. This new rule only affects beneficiaries receiving funds in 2020 and beyond.
Last, but certainly not least, the eligibility rules for employer sponsored 401(k) plans just got a bit easier for part-time employees, or at least those working 500 hours or more in a year. It used to be that employers were able to exclude many part time employees from participating in the group 401(k) plan, well now the SECURE Act changes some of these rules and now most all employees that work at least 500 hours in a year are eligible to participate. If you’re a business owner, with employees, and you have a 401(k) plan, this may affect you. Let’s talk about it.
With all these changes it’s important to make sure your financial plan is up to date.
Many of you heard me say this before, that financial planning is not financial guessing.
One of the main reasons I think financial planning is so important is because it lets you see the future impact of different financial decisions that you’re considering today.
What if I right size my home and relocate in retirement? How much of a difference would it make if saved an extra $1,000 per month? What happens to our family if my spouse becomes disabled or passes away unexpectedly?
And probably the most common question I get asked by clients, how long will my money last in retirement? If it’s been a while, or if you have questions about your finances, now is a good time to update your financial plan
The bottom line, nobody knows when there will be another recession, attempting to time the market can hurt you way more than you think. Don’t do it, don’t even try to do it. Make sure your investment plan is aligned with your financial goals and diversify your portfolio and maintain a disciplined investment approach.
Now is definitely an excellent time to revisit your financial plan and see if your portfolio allocation and investment risk is still appropriate. If your financial plan supports it, consider taking less risk, don’t get greedy. You might not grow your nest egg as much, but the risk of loss could be far more detrimental to your financial health long term.
I hope I’m still skiing at 102 like George, but yes, people are living longer, and we need to save more. It’s like if you knew a storm was coming and you needed to stock up on water, food and supplies to survive, would you get just enough to last a few days or would opt to have more in case it lasts for longer? Well maybe you should think of your retirement that way.
Of course, focus most on the things you can control, like your saving and spending habits. External factors like the presidential election and Coronavirus, these will come and go, and there’s only so much we can do about that, so focus your time and energy on the things you can control.
Thank you all for joining us today for our 2020 market outlook and economic update. If you have questions about your financial plan and your investments, please call our office or contact your advisor to setup a meeting. We look forward to seeing you again soon and thank you all again for coming out here today.