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Thinking About Relocating?

Two-thirds of home buyers and sellers would consider moving to a different city or area if their employer allowed them to work remotely on a permanent basis. Correspondingly, more than 70% of home buyers and sellers say they expect to be able to work remotely after the pandemic.1

Here’s a shock: Even if you don’t move, but you work remotely out of state (or several different states, if you travel while working), the income you earn could be subject to those states’ income tax — which could mean you’d be double-taxed. Each state has its own tax laws related to working remotely. While some set a minimum of workdays before being subject to state taxes, more than 20 states have a one-day rule for owing state income taxes.2 Some states may issue a tax credit to eliminate double taxation of that income, but the credit may not cover the full liability if your home state tax rate is higher.

If these circumstances applied to your work status in 2020, it might be a good time to consult with an experienced tax professional. There are many complex tax issues related to last year’s pandemic, including tax deductions associated with working from home, claiming a stimulus credit, rules associated with returning (rolling over) a required minimum distribution (RMD) you took (but didn’t have to) and many others.3 If you need a referral for a tax professional, we may be able to help out.

Some states and localities are excited about the prospect of remote workers permanently relocating to areas with a lower cost of living — so much so that they are offering incentives such as flights to Hawaii, an income tax break or up to $10,000 in cash. Most of these inducements have strings attached, like already having a remote job and committing to living in the area for one or two years.4

Work arrangements aren’t the only reason people may consider moving in the near future. It’s common among new retirees to relocate to a state with a warmer climate, and/or one that has lower or zero state income taxes, such as Florida.5 In doing so, a retiree won’t have to pay state taxes on his or her retirement benefits. Remember, however, that states with no income tax have to drum up revenue somehow, which often means a high consumer sales tax or high property taxes.

On the other hand, if you’re looking to relocate to a state with generous city and county amenities, cultural events and high-end real estate, consider a more affluent area. According to a recent analysis by Moneypenny, California, Massachusetts, Washington, New York and Hawaii are on target to be the wealthiest states in the U.S. by 2025. That analysis was based on three combined criteria: real GDP, personal income per capita and real estate prices.6

1 Redfin. Jan. 12, 2021. “Redfin Survey: One-Third of Homebuyers Would Relocate If Remote Work Becomes Permanent; One-Third Already Have.” https://press.redfin.com/news-releases/news-release-details/redfin-survey-one-third-homebuyers-would-relocate-if-remote-work. Accessed Feb. 18, 2021.
2 Susan Tompor. Detroit Free Press. Feb. 18, 2021. “Where did you work remotely during COVID-19 pandemic? It may affect your taxes.” https://www.freep.com/story/money/personal-finance/susan-tompor/2021/02/18/remote-work-tax-returns-pandemic-taxes/4244398001/. Accessed Feb. 18, 2021.
3 IRS. Aug. 24, 2020. “IRS: Deadline to return distributions to retirement accounts is Aug. 31.” https://www.irs.gov/newsroom/irs-deadline-to-return-distributions-to-retirement-accounts-is-aug-31. Accessed Feb. 18, 2021.
4 Stacey L. Nash. Bob Vila. February 2021. “13 U.S. Cities Incentivizing Remote Workers to Relocate.” https://www.bobvila.com/slideshow/13-u-s-cities-incentivizing-remote-workers-to-relocate-578931. Accessed Feb. 18, 2021.
5 Katherine Loughead. Tax Foundation. Feb. 17, 2021. “State Individual Income Tax Rates and Brackets for 2021.” https://taxfoundation.org/state-income-tax-rates-2021/. Accessed Feb. 18, 2021.
6 Moneypenny. Jan. 28, 2021. “Ranked: The richest states by 2025.” https://www.moneypenny.com/us/resources/blog/ranked-the-richest-states-by-2025. Accessed Feb. 18, 2021.
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What Is The Value of a CEO Pledge?

As it turns out, the value of the 2019 pledge signed by 181 U.S. corporate CEOs was a fairly good deal for themselves and their shareholders … although less so for the other stakeholders it was designed to represent.

In the past, private companies thought little of the injustice of layoffs and reducing compensation packages for employees when the goal was to deliver greater value to shareholders. After all, workers could be replaced — but shareholders held the company purse strings. Efforts to increase dividend payouts as well as fighting labor demands and environmental regulations were considered justified to serve the greater good — which referred to stockholders.

This shareholder-driven business philosophy harkens back to the writings of economist Milton Friedman. In 1970, he wrote a treatise for The New York Times proclaiming that the primary social responsibility of a business was to increase its profits. Beyond that dictate, all other goals should be secondary.1

While growing share price is important, investors have other factors they must consider. It’s critical to pair the potential for investment growth with your tolerance for market risk and timeline. Don’t ever lose sight of what you want your money to accomplish beyond simply accumulation. If you would like guidance on investments and potential market risks, we are here to help.

In recent years, the tide has begun to turn regarding that singular business vision. The 2019 CEO Business Roundtable pledged to not emphasize shareholder value so much if it would harm other stakeholders, particularly customers, employees and distributors.2 They also pledged a commitment to investing in employees, delivering value to customers, dealing ethically with suppliers and supporting local communities.

Signatories included J.P. Morgan Chase’s Jamie Dimon, Amazon’s Jeff Bezos, Apple’s Tim Cook, Bank of America’s Brian Moynihan, Boeing’s Dennis A. Muilenburg and GM’s Mary Barra.3 It is worth noting that signing the pledge was mostly an independent action by these CEOs, and wasn’t always approved by their company boards.4

This initiative was indicative of the changing times. The presidential administration was entirely focused on supporting an “America First” platform, so the private sector felt compelled to support social and economic issues that affected the general public.

Many of the CEOs subsequently did reduce shareholder payouts, but in some cases, they redirected that cash to shield their companies from the financial effects of the pandemic. However, perhaps even more interesting is that a Reuters analysis of data compiled by Refinitiv found that most of those signatory companies paid out higher median net income to shareholders than S&P 500 firms that did not sign the pledge.5

Further analysis by Wharton School of the University of Pennsylvania revealed that, among those signatories, companies that paid out the largest share of profits to investors were also more likely to announce layoffs and furloughs during the pandemic.6

Alas, the lesson is that shareholder priority and CEO compensation are still deeply baked into corporate America’s governance. While more companies have developed plans to support social initiatives, priorities are still driven by profits and an average of 91% of CEO compensation continues to be linked to company financial performance.7

1 Milton Friedman. The New York Times. Sep. 13, 1970. “The Social Responsibility of Business Is to Increase Its Profits.” https://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-of-business-is-to.html. Accessed Feb. 8, 2021.

2 Business Roundtable. Aug. 19, 2019. “Statement on the Purpose of a Corporation.” https://s3.amazonaws.com/brt.org/BRT-StatementonthePurposeofaCorporationOctober2020.pdf. Accessed Feb. 8, 2021.

3 Maggie Fitzgerald. CNBC. Aug. 19, 2019. “The CEOs of nearly 200 companies just said shareholder value is no longer their main objective.” https://www.cnbc.com/2019/08/19/the-ceos-of-nearly-two-hundred-companies-say-shareholder-value-is-no-longer-their-main-objective.html. Accessed Feb. 8, 2021.

4 Jessica DiNapoli, Ross Kerber and Noel Randewich. Reuters. Jan. 25, 2021. “Investor payouts and job cuts jar with U.S. companies’ social pledge.” https://www.reuters.com/article/health-coronavirus-businessroundtable-wo/insight-investor-payouts-and-job-cuts-jar-with-u-s-companies-social-pledge-idINL1N2JU217. Accessed Feb. 8, 2021.

5 Ibid.

6 Ibid.

7 Michael Hiltzik. yahoo!finance. Aug. 19, 2020. “Last year CEOs pledged to serve stakeholders, not shareholders. You were right not to buy it.” https://www.yahoo.com/lifestyle/column-ago-ceos-pledged-serve-130028409.html. Accessed Feb. 8, 2021.

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Retirement Planning Insights

Amid lost jobs and a scaled-back economy in 2020, some workers may have decided to retire earlier than planned. There are a couple of Social Security strategies worth considering in this scenario.

First, if both spouses are over age 62, determine if you can make ends meet by taking only one Social Security benefit while letting the other benefit accrue to a higher level. Depending on your circumstances, it may be better to let the higher earner’s benefit accrue untapped as long as possible. This tactic not only provides higher income for the latter stages of retirement, but also allows the surviving spouse to receive a higher benefit – which is important when the household income is cut in half.

A second strategy is to wait until the economy recovers and then look for another job. If you start Social Security and then go back to work in fewer than 12 months, you can stop your benefit and actually pay back the money received. That will reset your start date and enable your benefit to continue accruing until you’re ready to retire again.1

Remember, there are various strategies you can use to create bridge income should you retire early or just want to give your Social Security benefits and/or investments more opportunity to grow. For example, if you downsize to a less expensive living arrangement, you can use excess equity to create a reliable income stream either throughout a specific period of time, or for life. Please contact us if you’d like to learn more about strategic retirement income solutions.

One of the silver linings of the pandemic was that the average savings rate among Americans increased significantly last year. According to the Bureau of Economic Analysis, the U.S. personal savings rate soared to a record 32.2% in April 2020 – which coincided with many state and local lockdowns. The previous one-month record was set back in May of 1975, at a mere 17.3%. Throughout the past decade, our savings rate has floated between 6-8%.2

Even if for only one month, Americans proved that they could live without many everyday goods and services. For the sake of saving more aggressively for retirement and other long-term goals, consider keeping your savings rate high, even post-pandemic. If that seems too challenging, consider appointing a “cut-back month” when you and your family commit to reducing expenditures just for one month. You may have done that last April; consider doing it again. If you are successful, consider deploying a cut-back month once every quarter.

What’s the best way to accumulate extra savings to build your wealth? Here are the 2021 contribution limits for various tax-advantaged accounts:³

  • Employer-sponsored 401(k)/403(b) plans – $19,500 ($26,000 for age 50+)
  • SIMPLE IRA and SIMPLE 401(k) – $13,500 ($16,500 for age 50+)
  • Traditional and Roth IRAs – $6,000 ($7,000 for age 50+)
  • Health Savings Accounts (HSAs) – $3,600 individuals; $7,200 families

If you’ve maxed out your available tax-deductible contributions, consider stashing extra cash into a Roth IRA. They’re funded with money you’ve already paid taxes on, so qualified distributions are tax-free. 4 Moreover, a Roth does not mandate required minimum distributions (RMDs) at any age, so if you don’t need that money during retirement, it’s a way to continue accumulating assets for your heirs.

While it is generally recommended that investors save at least 15% of their annual earnings to generate adequate retirement income, that number may need to be higher or lower based on what age you started saving and your retirement goals. To determine the percentage of income (“savings multiple”) you should consider saving going forward, divide your total retirement savings by your annual income.5

1 Ilana Polyak. BenefitsPro. Dec. 28, 2020. “3 Social Security changes coming in 2021.” https://www.benefitspro.com/2020/12/28/3-social-security-changes-coming-in-2021/. Accessed Feb. 18, 2021.
2 Alex Gailey. NextAdvisor. July 31, 2020. “The Pandemic Has Resulted in Record U.S. Savings Rates, but Only for Some.” https://time.com/nextadvisor/banking/savings/us-saving-rate-soaring/. Accessed Feb. 18, 2021.
3 T. Rowe Price. Feb. 4, 2021. “2021 Key Financial Numbers That You Need to Know.” https://www.troweprice.com/personal-investing/resources/insights/key-financial-numbers.html. Accessed Feb. 18, 2021.
4 Roger Young. T. Rowe Price. Feb. 3, 2021. “What You Need to Know When Deciding Between Roth and Traditional.” https://www.troweprice.com/personal-investing/resources/insights/what-you-need-know-deciding-between-roth-and-traditional.html. Accessed Feb. 18, 2021.
5 Judith Ward. T. Rowe Price. Feb. 4, 2021. “What Adjustments Should I Make to My Retirement Savings?” https://www.troweprice.com/personal-investing/resources/insights/what-adjustments-should-i-make-my-retirement-savings.html. Accessed Feb. 18, 2021.
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Women’s Top Retirement Concerns in a Post-COVID World

There is no doubt that the COVID-19 virus has had quite an impact on the world. Physically, psychologically and financially there will be fallout for years to come from this pandemic.

This article is not to argue points as to whether this or that party handled things optimally or whether you mask or don’t mask or even whether you should or shouldn’t get the vaccine. No, in these areas, I tend to hold to a position of liberty for the individual (freedom of thought and action) and charity (love) for those with whom we may disagree. In other words, no matter your position, just don’t be a jerk about it! Be thoughtful, caring, considerate and most of all, be flexible and teachable.

Specifically to the article’s title, in the area of finance and the economy, this virus has really impacted women particularly hard. According to a May through June 2020 Nationwide study of over 2,500 men and women, women seem to shoulder much of the worry when it comes to the economy and the growing concerns of preparedness and their ability to retire. This has been taken to even higher levels due to the pandemic. There are five areas that were found in the study that showcased the most common concerns.

According to the research, the first concern was that of reduced retirement income longevity with 72% of respondents expressing concern in this area. At our firm, we have found that this is a direct result of losses in investment asset value which is directly tied to investment risk management. There is typically a lack of understanding surrounding the risk management philosophy of their investments and how they are affected when markets correct to any degree but especially that of last year. Many women (and men for that matter) don’t know that there is more than one way to manage investment portfolio risk (that is, static versus dynamic). Also, understanding how much loss would be needed to knock their long-term income plan off the rails is not only freeing in the sense of just knowing the unknown (for many) but also helps build the parameters needed in the area of investment risk management.

The second was concern about a possible recession (82%) or an on-going bear market (74%). Since this market recovery has been the fastest on record, this fear may have subsided a bit since last year’s survey. However, one should not be complacent, the economy as a whole is not out of the woods yet. Also, bear markets typically last 1-2 years. 2020’s market recovery is an anomaly in many respects. There will be more bear market corrections, it’s inevitable and thus a typical bear market time-frame is not outside the realm of expectation. The question is how are you addressing that risk.

The third concern women expressed was the level of their market losses and lack of preservation for their investment assets (36%). This ties back to my comments in the first concern above but also highlights that many believe they have to have all their assets in the market to have a successful investment strategy. This may or may not be the case. Our philosophy is don’t have any more money in the market than what’s needed to meet a long-term retirement plan income goal. There are ways to off-lay certain risks to preserve your income in retirement but they should be coordinated with a sound financial plan.

The fourth concern involved not having enough guaranteed sources of income (as just discussed). Fifty-nine percent of women stated they’d feel more secure knowing a portion of their portfolio was used in a more predictable type asset like an annuity. I have nothing against annuities, we use them here in our office. However, they are complex products with wide-ranging applications. Using the wrong product in the wrong way with the wrong amount of money can devastate a retirement plan. We know, we have to fix many of these type of problem cases coming into our office. A product solution of any kind should be in the best interest of the client and always tied back to a sound financial plan. Anything different and you’re just being sold.

The fifth and final area of concern was being properly diversified. Diversification is important to any long-term investment strategy. However, not necessarily in the way many are used to. Doesn’t it make sense that you would want to be diversified into areas that actually show the potential of making money? Of course! Also, diversifying retirement income sources falls into this camp as well.

Women are aware of the challenges they face in a macro sense, they tend to be ahead of us gents in that regard. However, many may be unaware or behind in addressing the retirement plan gaps they may have and how those may have been exacerbated by the COVID crisis. This is where we have been able to help many of our female clients. Planning that is in their best interest to help meet their unique goals and challenges.

Fixed Annuities are long-term insurance contacts and there is a surrender charge imposed generally during the first 5 to 7 years that you own the annuity contract. Withdrawals prior to age 59-1/2 may result in a 10% IRS tax penalty, in addition to any ordinary income tax. Any guarantees of the annuity are backed by the financial strength of the underlying insurance company.
Diversification does not guarantee a profit or protect against a loss in a declining market.  It is a method used to help manage investment risk.
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