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At the end of March Congress passed the CARES (Coronavirus Aid, Relief, and Economic Security) Act, which is a $2.2 trillion life support bill to help the economy survive the duration of the government-imposed shutdown. While the bill is extremely wide-ranging, and many provisions may not apply to you, there are some items in the Act which you should at least be aware of. 

Pandemic Unemployment Assistance (PUA) is included in the Act and provides extended eligibility for individuals who are traditionally ineligible for unemployment benefits, including the self-employed and independent contractors. It also provides an additional $600 on top of regular benefits, each week for up to 39 weeks. You are encouraged to check the New York State unemployment insurance website at www.labor.ny.gov for details and read the Frequently Asked Questions page to help determine your eligibility.

The CARES Act also includes a provision to temporarily suspend most Required Minimum Distributions from IRAs and retirement plans. People who were 70 ½ before January 1, 2020, or who turn 72 this year, would otherwise be required to withdraw a portion of their accounts and pay taxes on the distribution. The Act suspends this requirement through the end of 2020, resuming again next year. 

Recovery Rebates, which are direct payments from the government to individuals, have also been approved as part of the Act. These one-time  payments will include $1,200 for each adult plus an additional $500 per qualifying child, however there is a caveat. Individuals with income higher the $75,000, and joint filers with incomes great than $150,000 will have their rebates gradually reduced, and eliminated for those individuals with income great than $99,000 and joint filers with incomes greater than $198,000. These payments will be automatic, and should require no action on your part. 

For people under that age of 59 ½, who qualify, the government is allowing access to up to $100,000 of your IRA or certain retirement plans without the usual 10% early withdrawal penalty. In addition to waiving the penalty, the government is allowing the income to be recognized over three years which would help most individuals remain in a relatively lower tax bracket than they would be in, had they recognized all of the income in just one year. For those who only need to take the withdrawal as a short-term financial bridge, the Act also allows repayment of the distribution within three years of receipt which would avoid the income recognition altogether!

For small business owners, it is important to note that the ACT makes loans and grants available through the Small Business Administration (SBA). Contact the SBA directly for details on these programs.

While not technically part of the CARES Act, it is worth mentioning that the IRS has postponed the tax filing deadline for individuals from April 15, 2020 to July 15, 2020. They tax payment date has also been delayed. According to the IRS, this extension is automatic, and does not require you to file any forms. 

While nobody knows the depth or duration of the economic impact from the Coronavirus and the subsequent government-mandated economic shutdown, the CARES Act is a huge step, at least in the short-term, toward providing resources to help individuals and families weather the storm.

Like any piece of legislation, the CARES Act is convoluted and contains a myriad of provisions. Work directly with your Certified Financial Planner® professional and your CPA to help determine which provisions may apply to you, and how best to use them to benefit you and your family. 

Stephen Kyne, CFP® is a Partner at Sterling Manor Financial in Saratoga Springs and Rhinebeck. Securities offered through Cadaret, Grant & Co., Inc. Member FINRA/SIPC. Advisory services offered through Sterling Manor Financial, LLC, an SEC registered investment advisor or Cadaret Grant & Co., Inc. Sterling Manor Financial and Cadaret, Grant are separate entities.

2019 MAY BE OVER BUT, FOR MANY OF US, THE BOOKS ARE NOT COMPLETELY CLOSED.

As we open the tax filing season, options may exist to sock extra funds away and keep a little more of your hard-earned money away from Uncle Sam.

You may not realize it but you may be able to make contributions to your Roth IRA for 2019 up until the earlier of your tax filing date, or April 15.  If eligible, the contribution limit is $6,000 ($7,000 for those age 50+), but don’t be discouraged if you are not able to fully fund your account for the year. Every bit you can save will help provide for your lifestyle in retirement, so a partial contribution is better than no contribution at all. 

Just because one spouse may be a homemaker or already retired, doesn’t mean that they can’t take advantage of a Roth IRA.  IRS rules also allow for contributions to an account for a homemaker or retired spouse, as long as the working spouse has sufficient earned income, even if the spouse is older than 70 ½.

Since Roth IRAs provide tax-free distributions and are not subject to Required Minimum Distributions at age 70 ½, they can be an extremely beneficial retirement funding option!

For those who are self-employed, and don’t have access to a retirement plan through an employer, you may think you’re being disadvantaged when it comes to saving for retirement. The opposite, however, may be true. As a self-employed person, you could have the options of contributing up to $56,000 to a retirement plan for 2019, and deducting the full contribution!

Anyone whose earned income is reported to them on a form 1099, K1, or other similar non-employee form, may be eligible to establish and fund a retirement plan for 2019. The IRS rules allow this to be done up until the filing deadline (including extensions) for the previous year. Popular plan options include a SEP IRA and Individual 401k. 

A SEP IRA can allow you to contribute up to 25% of your income with a maximum contribution of $56,000, and can be appropriate for workers with high income and no employees. Because of the 25% limitation, your income would need to exceed $224,000 in order to fully contribute.

An Individual 401k has the same funding limit of $56,000 for 2019, however there is not a 25% limitation. In other words, a self-employed worker (with no employees) earning $56,000 may be eligible to contribute all of their income to an Individual 401k without being limited by the 25% cap. So, if you have a working spouse, or other means of making ends meet, an individual 401k may be a great option for supercharging your family’s retirement savings!

Individual 401ks require more in the way of record keeping and compliance, so they can be more expensive and cumbersome than a SEP IRA. Remember, you don’t have to be able to fully fund a plan for it to still make sense. Don’t rule out an Individual 401k because you can “only” afford to contribute $30,000 to it.

As a point of disclosure: Your circumstances are unique and tax regulations can be very complex. Before implementing any tax strategy, we recommend working closely with your independent financial advisor and tax preparer to determine eligibility and funding limits, and to ensure your retirement funding and tax strategies comply with all appropriate regulations. 

Stephen Kyne, CFP® is a Partner at Sterling Manor Financial in Saratoga Springs and Rhinebeck.

Securities offered through Cadaret, Grant & Co., Inc. Member FINRA/SIPC. Advisory services offered through Sterling Manor Financial, LLC, an SEC registered investment advisor or Cadaret Grant & Co., Inc. Sterling Manor Financial and Cadaret, Grant are separate entities.

At the end of last year Congress passed the SECURE Act. As is often the case with Congress, the acronym belies the content of the Act, in many respects, as it contains some provisions that are not altogether helpful to many individuals. Let’s review some of the major provisions (good and bad) of the Act.

Stretch IRAs: 
For IRAs inherited prior to Jan 1, 2020, non-spouse non-trust beneficiaries, need to take a Required Minimum Distribution (RMD) from inherited IRAs each year based on their life expectancy, for the remainder of their life. The younger a beneficiary, the smaller the distribution, as a percentage of the balance. This meant that most of the IRA balance could remain tax-deferred until the beneficiary needed it.

The new rule requires that IRAs inherited on or after Jan 1, 2020 (with few exceptions) must be completely withdrawn within only ten years. This provision will require most beneficiaries to empty inherited IRAs, which are fully taxable, during some of their highest earning years. The net effect will be a tax increase on these individuals by forcing beneficiaries to recognize more income and by forcing many into a higher tax bracket.

Beneficiary IRAs that predate the new Act taking effect are grandfathered in under the old rules. 

Required Minimum Distributions (RMDs):
Under the previous law, an individual must begin taking distributions from their own IRA by the end of the year in which they turned 70.5. The new law pushes that date out to their 72nd year.  However, anyone who attained age 70.5 before Jan 1, 2020 is still subject to the old rule, and must continue taking RMDs. Anyone turning 70.5 on or after Jan 1, 2020 can now wait until age 72. Unlike Inherited IRAs, your own IRA RMD is still based on a lifetime schedule.

IRA Contributions:
The new Act updates IRA contribution rules to bring them in-line with other retirement accounts. Beginning tax year 2020, you can now make IRA contributions beyond the age of 70.5, as long as you have earned income equal to or greater than the contribution amount. You cannot, however, make a prior year contribution for tax year 2019 under this rule. 

Withdrawals:
The Act allows for penalty-free withdrawals from IRAs of up to $5,000 in the event of a birth or adoption. 

The greatest impact of the Act will be to force withdrawals from Inherited IRAs over an accelerated period and during a time in which many beneficiaries will already be subject to higher taxes due to being in their highest earning years. That being said, you can still employ strategies to help mitigate taxes during this period. One option may be to increase contributions to your employer-sponsored plans (401k, 403b, etc), which could help offset the taxable income you’d be forced to receive from the IRA.

Again, these changes are beginning tax year 2020 (on or after Jan 1, 2020), and Inherited IRAs and other IRA RMDs schedules which predate, are unaffected. 

As always, work closely with your independent financial advisor to better understand how the Act may affect your individual circumstances, and to devise a strategy to manage the tax burden where possible. 

Stephen Kyne, CFP is a Partner at Sterling Manor Financial, LLC in Saratoga Springs, and Rhinebeck.
Securities offered through Cadaret, Grant & Co., Inc. Member FINRA/SIPC. Advisory services offered through Sterling Manor Financial, LLC, or Cadaret Grant & Co., Inc., SEC registered investment advisors. Sterling Manor Financial and Cadaret Grant are separate entities.

This week ushers out the end of another year, and another decade. We’ve just lived through a decade of economic expansion, and are still in the middle of the longest bull run in history, with no clear end in sight. All of the fear mongering and doom-and-gloom predictions since the recession, a decade ago, have been wrong. The sky has not fallen, and the future still looks promising.

In the last ten years, the S&P index (a frequently quoted index comprised of 500 commonly held US stocks), has increased 190%. Just this year, the index is up about 30%. While a third of this year’s gains were a recovery from the correction at the end of 2018, the markets still continue to reward those with the discipline to stay appropriately invested. Over the same ten years, the NASDAQ was up 295% with a gain of 36% in 2019.

Technology and capitalism are amazingly transformative forces, and when working together, they produce astounding results on a global scale. Consider that 100 years ago, 80% of the world lived in extreme poverty. In the year 2000, 20% did, and that number has since been halved. The last 100 years has seen the rise of America as a global force, spreading and protecting capitalism and democracy around the world, and creating an environment where innovation and entrepreneurship are rewarded.

Technological advances in communications, travel, logistics, heath care, shipping, agriculture, chemistry, energy and in every other part of the economy have freed billions from the shackles of extreme poverty. 

Famine is largely a thing of the past. Global inequality has fallen dramatically as Asia and Africa are experiencing faster economic growth than Europe and North America.

For all the talk about an environment on the brink, technology is solving that problem as well and allowing us to do much more with much less, every day. Consider that the computing power in your smart phone would have cost millions of dollars just twenty years ago, and would never have fit in your pocket. Today one device replaces cameras, camcorders, flashlights, atlases, watches, calendars, CD players, newspapers, a stack of board games, and virtually anything else someone with a little ingenuity can dream of. 

Twenty years ago, the US was the world’s largest energy beggar, and today we are the largest producer of energy in the world, and we owe this to technological advances in fracking. As natural gas continues to replace coal in the production of power in the US, we’ve seen CO2 production plummet since 2005, with per capital levels at their lowest since 1950. This is absolutely astounding when you consider how much the economy has grown over the same time period.

We’re going into an election year, so remember to tune out the noise. Both sides need to convince you that they are the only ones with the answers. Neither is right.  Yes, sometimes bad things happen, but that doesn’t mean the world isn’t getting better.

As we turn to the future, we think technology continues to lead the way, as long as governments allow innovators to do what they do best. 

Unemployment is functionally zero, with rates among African Americans and Latinos at historic lows. There are only two ways to grow your economy when you’ve exhausted your supply of workers; immigration and technology. Since immigration is likely to continue to be a political football, that leaves technological innovation as the primary driver for increasing worker productivity. 

In addition, wage growth continues to outpace inflation, especially for the poorest among us, which means consumers have more real dollars to spend.

In the coming year, we expect more economic growth for the US, and another positive year for the stock markets. We think 10-15% growth in the S&P is likely, although the markets will experience their normal swings. 

US government policies continue to be accommodative to growth in this country, as long as tax cuts remain in-force, regulations remain at their current levels, and interest rates continue to be appropriate. Barring a sweep of both houses of Congress and the White House by the Democrats, we expect this will be the case.

As always our forecast contains forward-looking statements which may be revised at any time. Stay focused on fundamentals in the coming year, and work closely with your financial advisor to help ensure your investments remain appropriate for your needs and market conditions. 

Stephen Kyne, CFP is a Partner at Sterling Manor Financial, LLC in Saratoga Springs, and Rhinebeck.

Securities offered through Cadaret, Grant & Co., Inc. Member FINRA/SIPC. Advisory services offered through Sterling Manor Financial, LLC, or Cadaret Grant & Co., Inc., SEC registered investment advisors. Sterling Manor Financial and Cadaret Grant are separate entities.

THE END OF ANOTHER YEAR IS RAPIDLY APPROACHING, and just as you cross items off your checklist and prepare your home for the winter, it’s also important to complete maintenance items to prepare your finances to close-out 2019.

The first piece of financial housekeeping will be to begin to gather documents you’ll be needing just after the new year to prepare your taxes. Compile receipts for medical bills, tuition payments, child care and charitable contributions, among others.

While many of us will no longer be able to itemize deductions due to the new tax law, there are credits for things like child care and education expenses which you may still be eligible for. For those with large medical bills, mortgage interest, or who have been particularly philanthropic this year, you may still be able to itemize, so it is important to have those receipts handy.

When it comes to planning for your retirement, this is the perfect time to evaluate your contribution levels to your retirement plans at work. If you have the ability, and you’re not yet contributing to the maximum levels allowed, consider topping these accounts off to take advantage of the possible tax deduction this year, as well as the ability to simply squirrel as much away for the future as possible. 

You may not be aware, but once you reach age 50, you are eligible for higher contribution levels than in prior years. So, if you’ve turned 50 this year, consider increasing your contributions. For 401(k) plans, you can contribute an additional $6,000 to a max of $25,000 from $19,000 for those under 50. For SIMPLE plans, you get a $3,000 addition, up to a new max of $16,000. Take advantage of this opportunity to catch-up on contributions you may not have been able to make when you were younger. 

On the subject of milestone birthdays, if you turned 70 ½ in 2019, you’re going to start having to take withdrawals from IRAs and certain company sponsored retirement plans. These are called Required Minimum Distributions (RMDs) Your contributions to these accounts have been allowed to grow tax-deferred all this time, and now Uncle Sam wants his share. 

Each year, from now on, you are going to have to take an RMD from these accounts, and pay taxes on the proceeds. The amount you are required to take changes each year, and is based on a combination of your age, and the closing account values from the previous year. 

If you don’t think the government is serious about this, think again. If you fail to take the required amount (you can always take more), the government imposes a penalty of 50% of the amount you failed to take, plus taxes due!

Even if you can’t itemize charitable contributions on your taxes, you may still be able to make those contributions on a pre-tax basis! If you direct your RMD to be paid directly from your IRA to your charity of choice, you won’t be taxed on that portion of the distribution. This is a great option if you are being forced to take an RMD that you don’t need, or if you are subject to the standard deduction.

The end of the year is a perfect time to review your various forms of insurance, including your home and auto. Take note of various coverage limits and deductibles. If you can, consider a higher deductible in order to save on premium expenses. 

Ensure that your homeowners coverage amounts reflect the value of your home. Your home has probably appreciated since you purchased it, but have you increased your coverage limits to keep pace? 

An often-overlooked task is to review your beneficiary declarations each year. Families grow, as new members are added, and shrink with death and divorce, which means that beneficiary and Transfer-on-Death declarations can easily become outdated and no longer reflect your true wishes. 

Since these declarations are a matter of contract, they will overrule what your Will may say. So even if you’ve updated your will to exclude an ex-spouse, but you left them as beneficiary on your IRA, your new spouse won’t be able to inherit those assets, but the ex will, and it can’t be challenged in probate.

Your independent financial advisor is perfectly suited to help you mark most of these items off your list. Review your beneficiaries, gather tax documents, maximize funding of your various retirement plans, take required distributions, and review your insurance coverage with your advisor each year, to help ensure that your financial plan is well-tuned as you prepare to turn the page on 2019.

Stephen Kyne, CFP® is a Partner at Sterling Manor Financial, LLC in Saratoga Springs and Rhinebeck. Securities offered through Cadaret, Grant & Co., Inc. Member FINRA/SIPC. Advisory services offered through Sterling Manor Financial, LLC, or Cadaret Grant & Co., Inc., SEC registered investment advisors. Sterling Manor Financial and Cadaret, Grant are separate entities.

Protecting your personal information is becoming ever more important, and ever more difficult, in our increasingly connected world. The good news is that there are steps you can take to help reduce the likelihood of becoming a victim of identity theft. 

In 2017 Equifax had a major data breach that affected 143 million people. Do you know if you were affected? Equifax has come to a settlement as a result of the breach. You can now find out if your data was compromised and take steps to protect your identity going forward. Visit www.equifaxbreachsettlement.com . If your data was impacted, you may be entitled to up to 10 years of free credit monitoring, cash payments, and identity restoration. 

Consider checking on whether your child’s information was part the breach as well. The identities of children are often stolen because they are seldom monitored. In those cases, you may not find out until your child applies for a student loan. The good news is, since minors can’t open credit cards, resolution is typically a bit easier than with adults. 

Using a free service like Credit Karma, which is a free app available for smartphones, can give you easy access to your credit scores and activity, and I find it to be a convenient option for the ongoing monitoring of activity on my accounts, as well as receiving notification when a credit inquiry may be made. 

Most Americans are finding that their mailboxes are once again being stuffed with those “prequalified” credit card offers. In order to make it easy for you to apply, these offers are often prefilled with a lot of your personal information, making them easy targets for identity thieves. You can now turn a majority of these offers off by visiting www.optoutprescreen.com and opting-out. You can opt to turn them off for 5 years, or forever! 

As for the rest of your mail, be sure to shred anything which may have any personally identifiable information. Any mail that you throw away unopened should also be shredded because you don’t know what information it may include. 

Most people only send two kinds of mail from home: bill payments and greeting cards. Both of these typically contain a check with your name, account number, routing information, address, and phone number; a lot of what’s needed to steal your identity. What’s more is that we put up a little red flag on our mailboxes which makes it easy for would-be thieves to find it! Consider bringing any of this type of mail to your post office or using a blue USPS mailbox which may be more secure. 

Almost every service provider and vendor you utilize offers paperless billing, and you should consider opting-in to these services. Doing so will help keep sensitive information out of your mailbox, but still can give you secure access online to view and print documents as needed. Secure online payments can eliminate the chances of outgoing checks being stolen as well. 

We’re all told to change our passwords frequently, and to use more sophisticated combinations of letters, numbers, and special characters to make it harder for people or bots to break into our systems. The overwhelming number of passwords and their complexity actually dissuade many people from taking the steps they should be to protect their access. Consider using a password manager to keep track of your passwords and do it in secure way. 

These services will store your various passwords in an encrypted format, and will often require a single master password for gaining access. This limits the number of passwords you actually have to remember, allows you to have unique passwords for different sites, and eliminates the password-post-its or lists you probably have somewhere near your computer. 

When creating passwords, remember that they don’t have to be terribly complex to foil most brute force breaches (those where passwords are guessed). The passphrase “IHave3Dogs” would take approximately 27,000 years to hack, but the password “grandma” is hacked in under 2 hours. So, “IHave3Dogs” can be as effective as “1r48OisBP8” but a whole lot easier to remember! 

Even though you may have a secure password, you should still change it regularly. The reason is that you likely use some similar user names and passwords across platforms. If a breach happens, and that data is stolen from a vendor, the combinations can be tried across other sites to gain access. Changing your passwords on a regular basis can help reduce the risk that a breach in one place could spread to your other services. 

We live in an ever-connected world and you need to be vigilant that the conveniences that connectivity offers don’t put you at risk of identity theft. While you may never be able to eliminate the chances, there is plenty you can do to reduce your risk.

Stephen Kyne, CFP® is a Partner at Sterling Manor Financial, LLC in Saratoga Springs and Rhinebeck.

Securities offered through Cadaret, Grant & Co., Inc. Member FINRA/SIPC. Advisory services offered through Sterling Manor Financial, LLC, or Cadaret, Grant & Co., Inc., SEC registered investment advisors. Sterling Manor Financial and Cadaret, Grant are separate entities. This article contains opinion and forward-looking statements which are subject to change. Consult your investment advisor regarding your own investment needs.

For the remainder of the year, and most of the next, two factors are going to be driving market movement: the real economy, and political drama of all sorts. While the two are interwoven to some extent, only the real economy matters.

Political drama, in the absence of actual policy and legislative changes, doesn’t move the needle in any meaningful way. It’s all just noise. 

If Trump was impeached tomorrow, nothing would change. Pence is not going to implement any wildly different economic policy. A divided Congress is not going to suddenly get together to pass any sweeping legislation. It will only add another exhausting chapter to the never-ending saga we’ve been watching for three years but, with the exception of short-term volatility, it won’t affect the strength of the economy and the direction of the market. 

Cut past the noise and look at the real economic data, and you’ll see an economy which is still relatively robust and strong.

While GDP has slowed to roughly 2% annualized, it’s important to remember that growing less-quickly is not the same thing as a recession (negative growth), no matter how badly pundits want you to think it is. This rate of growth also matches the average for the years 2009-2015.

Unemployment rates are about as low as they can go, sitting at 3.5%.  Minority unemployment rates are at or near all-time lows, as well. In addition, 95.2% of those without a high school diploma – those who, it was thought, would be replaced by automation and would never find work again – are employed. 

Wages are up 4.3% over the last twelve months, outpacing the current 1.7% rate of inflation. What that means is that workers have more money to spend and, when the consumer is strong, the economy is strong.

In spite of the trade war with China, US international trade is largely unchanged. What has changed, however is who we trade with. Trade with China is down 13.2%, but trade has increased with Vietnam (+31.5%), Taiwan (+14%), India (7.6%), and South Korea (6.8%). The longer this trade spat continues the more painful it will become for China, as Americans find alternatives for producing, shipping, and marketing goods. Yes, it’s not painless for the US, but our economy is so large and agile, it can adapt more easily to the changing landscape. 

As recently as 2005, the US imported up to eleven times the amount of petroleum product that it exported. Today, the US is a net exporter. This development has had a revolutionary impact on the American economy and foreign policy, which will continue for the foreseeable future.

While we think the next twelve months in the market will continue to be volatile and sometimes sideways, we feel the overall direction of indices will trend upward. Remember to tune out the noise as much as possible, and remain focused on the fundamentals. Work with your independent financial advisor to make sure your investments continue to match your overall objectives, and make changes where necessary. 

Stephen Kyne, CFP® is a Partner at Sterling Manor Financial, LLC in Saratoga Springs and Rhinebeck. Securities offered through Cadaret, Grant & Co., Inc. Member FINRA/SIPC. Advisory services offered through Sterling Manor Financial, LLC, or Cadaret, Grant & Co., Inc., SEC registered investment advisors. Sterling Manor Financial and Cadaret, Grant are separate entities. This article contains opinion and forward-looking statements which are subject to change. Consult your investment advisor regarding your own investment needs.

There’s a popular misconception out there that a Certified Financial Planner’s (CFP®’s) job is simply to tell you what to do with your money. The truth is far more complex.

Your relationship with your CFP® should go beyond the transactional, and should be about education before it is about simple advice. First, you need to educate your CFP®, and then your CFP® can help educate you.

In order to give you the best advice possible, your CFP® needs to learn as much as they can about you, and what drives you in your personal and professional life. At the end of the day, money is a tool; it’s a resource, and its purpose is to afford you the ability to achieve your goals. Your CFP® needs to learn about those resources, your timeline, and your values in order to understand the big picture and the context in which they will be giving advice.

Remember, this is a junk-in, junk-out process. In other words, the quality of the advice you get will be directly correlated to the quality of the information you share with your CFP®. It is imperative that you be as open and honest as possible in order to help ensure you receive meaningful advice.

Once your CFP® has learned all about you and what matters to you, they will be in a better position to educate you about your options.

More than anything your CFP®’s job is to be an educator. First to educate you about your true financial position, and where you stand relative to where you may think you stand, and relative to where you need to be in order to achieve your goals. Many clients first come to a CFP® after amassing a lifetime of financial clutter, so this can be an eye opening part of the process.

Second, once you understand your financial position, your CFP® must educate you about your relevant options and the likely outcome of choosing one option over another. 

Since everyone comes to a CFP® with a different level of financial literacy, you need to be very honest when you aren’t familiar with a word or topic. No CFP® is going to try to dazzle you with jargon, but sometimes they may assume a level of familiarity that doesn’t exist. This is your life and these are your goals, so you have a responsibility to ask for a topic to be re-framed, or for a word to be defined when you are unfamiliar. 

Only once you have been fully educated about your options, and you and your CFP® have agreed on a course of action, is it time to discuss implementation. Your CFP® should be licensed in most areas and can likely give you access to everything from ongoing investment advice to insurance, and will refer to you other professionals who specialize in areas which may require a certain expertise, such as drafting estate planning documents

In all instances, think of your CFP® as a partner and educator, and not simply as a director. Your goals deserve it.

Stephen Kyne, CFP® is a Partner at Sterling Manor Financial in Saratoga Springs and Rhinebeck. Securities offered through Cadaret, Grant & Co., Inc. Member FINRA/SIPC. Advisory services offered through Sterling Manor Financial, LLC, or Cadaret Grant & Co., Inc., SEC registered investment advisors. Sterling Manor Financial and Cadaret Grant are separate entities.

After a tumultuous 2018, the first half of this year has rewarded investors who had the discipline to stay invested through the correction that closed out last year. The S&P has recovered nearly 27% since the low set on Christmas Eve, and about 20% this calendar year, and we think there is still plenty of room to run.

You can’t turn on the news today without hearing some doom-and-gloom reporting about the economy, but the truth is the data just doesn’t support that sentiment. Fear mongering, it turns out, is a great way to boost ratings, so let’s look at some reasons you shouldn’t be concerned; at least not yet.

Current government policies are extremely conducive to growth. Recent tax cuts, coupled with greatly reduced regulatory impediments, are making it easier and more profitable for companies to do business in the United States. As such, we saw a leap in corporate profits in 2017/18 and we continue to see strong growth today. We expect companies to enjoy an increase in year-over-year profits of roughly 10% this year, and next. 

Higher corporate profits mean higher stock prices, which you’ll see reflected in your retirement account statements. Profits also mean companies can and need to keep their workforce employed in order to continue growing. Corporations take those profits and reinvest them into new technologies to make their workforce more efficient, and into the development of new products and new markets. In short, if businesses, from the corner café to the biggest conglomerate, don’t grow, then the economy stagnates. 

This year we expect GDP (the measure of all things produced in the US) to increase roughly 3%, which represents a nearly 50% increase in the rate of growth experienced annually between 2009 and 2016, and is largely a reflection of more accommodative government policies. 

Wage growth continues to increase and is currently outpacing measures of inflation. This means that, all things being equal, wages are increasing at a rate faster than living expenses, and workers have additional funds to spend or save. 

The Fed continues to be extremely loose, and there is even talk about a rate cut which we think is wholly unnecessary.

Consider that interest rates are the price of money. When money is cheap, people and companies are willing to borrow it. When money is expensive, borrowing slows. So, the Fed raises and lowers interest rates in order to help manage the rate of growth; lowering rates to help spur growth, and raising them to rein it in. 

There has been some fear that growth may be slowing, and so there has been talk about a possible rate cut. Interestingly, recent data indicates the economy is probably doing just fine, and a cut isn’t necessary. As a result, and counterintuitively, the markets have responded negatively to the positive economic news, which serves as a good reminder that markets aren’t always rational in the short term, and investors should be cautious about reacting to short term volatility.

Barring any kind of unexpected geopolitical event, we think the economy will continue growing for at least the next 18-24 months. Staying focused on the fundamentals is crucial to maintaining growth in your portfolio, and it will be even more important as the political climate begins to heat up, causing additional volatility. Tune out the noise and focus on what matters. If you stayed invested during the 2018 correction, you already know this. If you panicked, then consider the upcoming volatility a second chance. 

As always, these statements are forward looking, and are subject to revision at any time, so be sure to work closely with your independent financial advisor to help ensure that your investment portfolio remains appropriate for your needs and market conditions.

Stephen Kyne, CFP is a Partner at Sterling Manor Financial, LLC in Saratoga Springs, and Rhinebeck. Securities offered through Cadaret, Grant & Co., Inc. Member FINRA/SIPC. Advisory services offered through Sterling Manor Financial, LLC, or Cadaret Grant & Co., Inc., SEC registered investment advisors.Sterling Manor Financial and Cadaret Grant are separate entities.

As a Certified Financial Planner, one of the biggest challenges I face is in helping people take a step back and look at their financial life in the aggregate. Because people are busy, and are usually a professional at doing something other than managing their finances, I find that many times people may take a whack-a-mole approach to their finances. When looking at the entirety of their finances, however, strategies that may have seemed to make sense on the surface often lose their appeal. Let’s take a look at some common ideas, and I’ll show you why you may want to reconsider.

1. Should I use my 401k (403b, Deferred Comp, etc) to pay off my mortgage? 

The answer to this question is almost always a booming “NO.” Many people view all debt as bad and find a level of comfort in the idea of zeroing it out, but it’s often a terrible idea, where your mortgage is concerned. 

First, if you’ve refinanced in the last ten years, your interest rate is probably somewhere between three and four percent (even lower when you adjust for the tax deduction you may receive). If your 401k is invested in a relatively moderate portfolio, you’re probably earning about six percent.  That means your spread on this borrowed money is two to three percent. Consider that banks make money by borrowing from depositors at one rate and lending that money out to borrowers at a higher rate. While not perfectly analogous, if it makes sense for them, doesn’t it make sense for you?

Second, remember that your 401k has never been taxed before. That means, in order to pay off your mortgage, you’d need to withdraw funds, pay taxes (and possibly penalties, if you’re younger than 59 ½), and then pay off the loan. Depending on the amount, you may push yourself into a higher tax bracket, as well.

Let’s assume your mortgage balance is $100,000, and that the withdrawal will push you into the 24% tax bracket, not to mention about 6% to New York State. That means you’ll need to withdraw $142,857, in order to net the $100,000 needed to pay off the loan. As if that isn’t bad enough, remember that you’re also now foregoing the 3% net compounded rate of return on the withdrawal for every year going forward! Assuming ten years left on the mortgage, the amount you withdrew would have grown to $192,988 in that time, while you would have only paid $115,873 if you just kept the mortgage. All told, the strategy cost you an additional $77,115. While there are exceptions, this payoff strategy is a great way to make cheap debt very expensive, and should generally be avoided.

2. Should I shift all of my investments to bonds and CDs when I retire?

How hard your money needs to work in retirement is a function of how much you need your assets to supplement your guaranteed income sources for the duration of your retirement. If you’re lucky enough to have large pensions and a low cost of living, then you may be able to invest much more conservatively. If, however, you only have Social Security as a guaranteed income source, your assets may need to work harder in order to provide the additional income you’ll need to maintain your standard of living.

Your last years of retirement are going to be much more expensive than your first, and we know that most people don’t begin their retirement on a fixed income; they end their retirement on one.  As a retiree, let’s assume that your personal rate of inflation is 4%, which is higher than average due to the proportion of your spending allocated to energy, food, and health care. If you put the brakes on your investments at retirement and rely on CDs earning 2%, you’ve essentially committed yourself to safely losing 2% each year. 

The only asset class which consistently outpaces inflation is stocks. This isn’t to say that you should be aggressive, but most retirees will need at least a portion of their investments allocated to stocks in order to be able to outpace inflation. In order to determine how big this portion should be, you’ll need to work with your independent financial advisor to determine the rate of return you’ll need to average over your lifetime, based on your personal needs, and then back into an allocation which is likely to provide those returns. 

3. We only need enough life insurance to cover the mortgage.

Having enough life insurance to cover basic debts is certainly better than having none at all but, from a practical standpoint, it probably isn’t enough coverage. 

When working with clients, we consider life insurance need on a spectrum. At the low end is the amount that would be needed to cover basic debt, and to provide enough for a survivor to get back up and running. At the high end is the amount that would be needed to replace all the income that the decedent would have earned had they lived. Where you should be on the spectrum depends on a number of factors.

If you are a young couple, without children, and you both make roughly the same amount, you may be able to get by with a relatively low amount of life insurance. However, if you are a young couple with children, and one spouse is primarily a homemaker, the need will be very different.

In this instance, let’s say the working spouse earns $100,000, and the desire is to provide enough death benefit to get the surviving spouse through the childrearing years (20 years). The rough math, then, is that the working spouse should consider a $2,000,000 20-year term policy. This coverage would be relatively inexpensive and probably provide enough to allow the family to maintain its standard of living. 

Don’t forget about the stay-at-home parent! Even though the work is unpaid it represents a huge economic contribution to the home which would have to come from paid help in the event of the homemaker’s death. 

Every time I see a Go Fund Me page for a young family where one parent died prematurely, I’m all the more saddened because I know how truly accessible and affordable term life insurance is. Work with your independent financial advisor, determine the coverage level to meet your needs, and get insured. No surviving spouse ever complained that their spouse was over-insured. 

I’ve said this before, and I’ll say it again: in these circumstances, term insurance is probably going to be all you need since it provides more death benefit per dollar of premium than other forms of life insurance.

Of course there are exceptions to each of the scenarios I’ve outlined above, and that is why it’s so important for you to work closely with your independent financial advisor, assess your need, and devise a personal strategy that encompasses the entirely of your financial life. Review that strategy on a regular basis to ensure that it stays relevant and forward-looking.

Stephen Kyne, CFP® is a Partner at Sterling Manor Financial, LLC in Saratoga Springs, and Rhinebeck, NY. Securities offered through Cadaret, Grant & Co., Inc. Member FINRA/SIPC. Advisory services offered through Sterling Manor Financial, LLC, or Cadaret Grant & Co., Inc., SEC registered investment advisors. Sterling Manor Financial and Cadaret Grant are separate entities.