It’s sometimes difficult to think about relatively mundane financial planning topics with all that’s going on right now. But these things are still important. They’re what we can control. That said, let me indulge in a little “inside baseball” this week.
I’ve written previously about how much I loathe annuities. They’re expensive, complicated, and are said to be sold and not bought. (In other words, a reasonable person wouldn’t buy one, someone must sell it to them.) That latter point is probably my biggest problem with annuities; armies of highly trained and highly paid salespeople masquerading as financial planners and peddling their wares to unsuspecting grandmas.
But that’s just a stereotype. As with all stereotypes that emanate from grains of truth, we should look deeper to see what, if any, value there is to be had. This is what I’ve tried to do over time with annuities. I’ve attended copious continuing education sessions and have delt with many companies and brokers, while always trying to peel back the layers to find the good stuff. This has led to an evolution in how I think about annuities and which types I think might be most appropriate for retirees. Simply put, not the variable or equity-indexed kind, but a simpler variety known as a SPIA (Spee-Ah), short for Single Premium Immediate Annuity.
SPIAs aren’t appropriate, or even necessary, for every retiree. But for those folks needing to stretch their savings into extra income, or for others who like the peace of mind that comes with having a specific expense, such as a monthly mortgage payment, covered by a specific income source, a good quality SPIA can work.
It’s interesting that other fiduciary financial planners have been on a similar path in recent years. I’ve talked with these folks and other experts at conferences (when we used to have conferences in person) and read analysis from the more analytically minded.
The following article is a good example of this thought evolution. Like me, the author is a practicing planner who has pinched their nose long enough to develop a better understanding, even an appreciation of, the utilitarian nature of a SPIA. What follows are excerpts from the article. It was written for an industry audience so there’s some jargon to contend with. I’m also including a link to the whole thing if you’d like to read additional detail and see some charts.
This is going to be a challenging holiday season. I don’t think that’s news to anybody. To me, Thanksgiving has always been a time to reflect on the year gone by and to look ahead at the year to come. To take stock and appreciate what’s been accomplished. But so much has happened, and continues to happen, in 2020 that last Thanksgiving seems like a distant memory.
Frankly, it’s sometimes hard to feel gratitude and to be thankful amid all the uncertainty and fear plaguing us these days. But then I remind myself that I truly have much to be thankful for. We all do. I have a wonderful family, good friends, work that fulfills me, and (hopefully) good health along with a positive outlook for the future.
So I hope you enjoy Thanksgiving this week, even if it’s unlike any you’ve yet experienced.
Most of my clients receive emails every weekend updating them on how their portfolios performed during the week. While this can sometimes seem like too much information, I’ve always felt it’s better to know, for better or worse, how things are going. The week heading into Election Day was pretty rough for markets and, as I understand it, was one of the worst pre-Election weeks on record. But markets have been so on-again-off-again volatile in recent years it seems fitting that last week turned out to be one of the best General Election weeks ever. Go figure. But why did this happen? How could markets move so rapidly from feeling gloomy to ebullient?
To answer these questions I will again lean on my partners at Bespoke Investment Group. This is one of those times when I couldn’t have explained any better myself, so here you go.
As votes now stand, Republicans will hold 50 Senate seats in the next session of Congress while Democrats will hold 48. The two remaining seats are both up in the air in Georgia because none of the candidates in those two races received more than 50% of the vote. This triggers an automatic run-off with voting set for early January. If Republicans end up winning one of those two run-offs, they will hold the Senate and offer a significant check on a presumed President Biden and the Democratic House. At this point, we would expect Republicans to indeed hold onto at least one of those GA Senate seats and likely two, but obviously it’s far from a done deal and anything can happen.
Now that we’ve entered December it’s a good time to think about year-end tax strategies. But doing so is challenging because so much is different for 2020 with the passage of the CARES Act, stimulus payments, unemployment, and so forth. Also, speculation about the incoming administration trying to change tax policy complicates things further. All these moving parts make it difficult to figure out what to do, if anything, to improve your tax situation for 2020.
Going through the motions is still important, however. The process starts with getting a handle on what you expect your taxable income to be for the year. This helps you understand what tax bracket you’re likely to be in (you can Google the brackets to see how that works). If your income might be lower than normal in 2020, think about filling up your expected tax bracket with a Roth conversion or possibly pulling forward some of next year’s income into this year. You could even “harvest” gains in your portfolio to take advantage of a lower income year. Doing one (or even all) of these things helps smooth out how your income looks on paper and should save you some money in taxes over the long run.
Along these lines, here are parts of a recent article on year-end strategies from Christine Benz at Morningstar. I’ve italicized a few areas for emphasis and a link to the full article is included below. As a reminder, our tax code is full of complications, so make sure you do your homework before acting.
It can be hard to think about what you want your retirement to look like. How do you plan to spend your time? How will you structure your week when Mondays can feel just like Saturdays? Many people assume they’ll just keep doing what they’ve been doing all along, while others plan for change. The bottom line is that transitioning into retirement is challenging, especially since it’s an end of something, like your primary occupation, but the beginning of so much more.
Planning is critical, of course, but not only the dollars and cents. You’ll want to figure out why you’re retiring and what it means to you – what kind of retirement you’ll want to live. Research and practical experience tell us that the concept of retirement is changing. Longevity expectations are increasing, and the pandemic has altered the outlook for many. Retirees today could encounter multiple transitions during a retirement that spans decades.
Along these lines I found an article on MarketWatch that interviews a counseling professor who, at 91, is still searching and working on her own transitions, even after many years of “retirement”. Here are some excerpts from the article and a link at the end if you’d like to read the whole thing…
Nancy K. Schlossberg, an author and former counsellor [… has] written about the transition to retirement for decades and [has switched] paths a few times herself in the last couple of decades. Now at 91, she’s starting an entirely new journey, acting as a consultant for Zoom programs about transitions in life.
I don’t know about you, but I still like to vote in person. I’ve worked the polls a couple of times and think in-person voting is just more fun. Granted, Election Day this year is even more politically charged than usual and we have the pandemic to think about. Showing up to vote in 2020 requires a sense of adventure and a healthy dose of patience. Also, our daughter recently turned 18 and my wife and I are taking her with us to vote. Exciting times indeed.
This week let’s keep things light and peek into that age-old question about which party is better for markets, Republicans or Democrats. This is one of those highly subjective questions where it can be easy to find information that fits your hypothesis instead of the other way round. Historical and economic context is important, and so is a variety of other detail that goes into a more robust answer to the question. Understanding all that, let’s simply look at the numbers.
My research partners at Bespoke Investment Group published a quick piece back in February looking at returns of the Dow Jones Industrial Average, a major US stock index, during presidential administrations going back to 1900. A quick note: while the data below is pre-Covid, the total return for the Trump Administration is currently still about 48% since Inauguration Day.
Beyond the numbers, however, remember that it’s important to think beyond politics when it comes to investing. Presidents don’t control the stock market and one administration is often the beneficiary (sometimes lucky, sometimes not) of work done by its predecessor. You’re investing over a long period of time, over multiple administrations, and a good goal is to be an all-weather investor. In other words, historical numbers like those below are interesting information for a cocktail party, but you wouldn’t want to make investment decisions based on it.
