A thousand-point drop just isn't what it used to be. When the Dow traded at 20,000 about three years ago, a 1000 point decline was a 5% loss. With the widely-watched index recently breaking 30,000, a 1,000-point decline is a 3.3% loss. A decade ago, the Dow traded at 10,000 and a 1000-point drop was equivalent to a 10% loss in value. So discount the frightening reports about point drops.
With tens of millions of Americans desperately seeking security in retirement, Uncle Sam should have been more careful about how he named the new tax law, known as the SECURE Act. Instead of co-opting the names of federal laws for marketing purposes, the U.S. government should be able to figure out how to name a new law that skirts the standards in federal truth-in-advertising regulations.
The coronavirus has focused renewed attention to the risk of investing in China, but China may pose a hidden risk to retirement investors holding emerging markets funds.
Whatever your views on income inequality, the trend toward a larger and wealthier middle class is good for consumer spending, which drives 70% of the economy. For investors, that's positively fundamental.
Yet another new tax reform law went into effect in 2020 under the SECURE Act. In addition to ultra-high-net-worth individuals, the many millions of mass affluent Americans are likely to be impacted by the 470-page SECURE Act's retirement income tax provisions. The SECURE Act is a sweeping and substantive effort to make retirement income tax more sensible, a rare legislative action to win bipartisan support in Congress and the president's signature.
The U.S. Tax Code has been reformed more and more over the past few decades. From 1940 to 1979, 24 major tax laws were enacted, compared with the 40 years from 1980 to 2019, when 63 major tax revisions were enacted.
Americans over age 65 are staying in the labor force more often than expected, brightening the U.S. economic forecast and the outlook for U.S. stocks.
Wall Street firms spend a great deal of time and money trying to forecast relative performance of stock sectors, styles, markets and asset classes, and on convincing investors to buy their advice. However, a comprehensive new study indicates Wall Street's tactical approach is unwise.
2% U.S. Growth & Low Rates. The latest indication of what to expect on interest rates and economic growth came on December 17th, 2019, in an interview with Robert S. Kaplan, President and Chief Executive Officer, Federal Reserve Bank of Dallas. "We expect, again, 2%-plus growth, 2% growth for next year, unemployment rate around 3½%.," Mr. Kaplan told the Council on Foreign Relations. "We'll have some firming in inflation gradually toward 2%. And I think with that profile, I think the right-at 1 ½-1 ¾ fed funds rate, I think the right thing for us to do is stay right where we are unless something changes materially on the upside or the downside." In addition, on December 11th, the Federal Reserve released its latest expectations for growth, inflation, and unemployment for 2020, which are highlighted in the chart.
We've warned about the SECURE Act's effects on retirement income planning in previous articles over the past nine months, and this is a final call to action. If you're in any of the following four retirement income planning situations, you have one last chance to reduce your tax bill by acting before January 1st, 2020:
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Performance Anxiety: A Leading Cause Of Investor Dysfunction After Age 55
Are you nearing retirement and worried about your portfolio's performance? Do you fear outliving your money?
Investment performance anxiety is often hard to talk about for a pre-retiree and can lead to investor dysfunction. This revealing illustration vividly shows that retirement success is about the size of your savings rate when you're in your 50s and 60s!
Although your portfolio performance is more important in your 20s and 30s, your savings rate matters more to retirement success as your retirement nears.
A 25-year-old with a $35,000 income that rises annually by 3%, who saves 6% of their income in a tax-deferred retirement plan and averages a 6% portfolio return annually, would accumulate $528,007 at age 65. If the 25-year-old boosts their savings rate to 10%, the retirement account would grow to $880,012 at age 65.
If the 25-year-old with the same income annually saves at the same 6% rate, but earns 10% annually, the account at age 65 would be worth $1,392,758.
Clearly, the extra 4% portfolio return annually boosts the retirement portfolio more for the 25-year-old than boosting the savings rate by 4%.
But look what happens when a 55-year-old is faced with the same dynamic.
A 55-year-old — earning $84,954 today after 3% raises annually since age 25 — who continues to get 3% raises annually, saves at the 6% rate, and earns a 6% portfolio return annually, would have $87,344 in their retirement account at age 65. Boosting their portfolio return annually to 10% would grow the account to $106,961 at age 65. In contrast, boosting the 55-year-old's savings rate to 10% puts the portfolio value at $145,573 at age 65 — a much better result.
While pre-retirees often grow anxious about portfolio performance, it's their savings rate that is more influential as retirement nears. Portfolio returns are subject to investment risks, which you do not control. Your savings rate, in contrast, is something you do control. Rather than suffering from investment performance anxiety, it's wise for pre-retirees worried about outliving their money to examine their ability to boost their savings rate.
This article was written by a veteran financial journalist. While these are sources we believe to be reliable, the information is not intended to be used as financial or tax advice without consulting a professional about your personal situation. Tax laws are subject to change. Indices are unmanaged and not available for direct investment. Investments with higher return potential carry greater risk for loss. No one can predict the future of the stock market or any investment, and past performance is never a guarantee of your future results.
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