Final Conference Notes

This week let’s get into our final installment of my conference notes. Hopefully some of these have been worthwhile. The content has been varied but our first few notes today are more like what you’d expect from a meeting of financial planners. The last note is a little different but, as with others in recent weeks, helpful with the human side of personal finance.

Social Security and Medicare –

If you’re already drawing Social Security you’re no doubt aware of the 8.7% cost-of-living adjustment this year. That’s old news at this point after a runup in inflation last year. But it’s important to note that this bump helps those waiting to start their benefits as well. And since SSI benefits don’t deflate even if the economy does, this raises the floor that all future inflation adjustments will be based on.

As a reminder, Social Security COLAs are based on changes in the government’s primary measure of inflation from October to October. Inflation peaked last summer at 9% and has been trending lower ever since, down to 4% in May. Assuming this trend continues we could be down to 2-3% by October and a net decline from a year prior, implying no benefit increase for next year. 1-2% per year has been more the norm in the past decade or so, but we’ll find out when the SSA makes its announcement in October.

Regarding the program’s health, current projections are for the Social Security “trust fund” to cover about 80% of benefits by 2035 while still supporting 74% of benefits by 2097. That baseline assumes, as I understand it, a benefit reduction starting in 2035. That’s not etched in stone, of course, just part of a long-range projection with a trajectory that could, at least in theory, be altered at any time by Congress.

This probably sounds obvious, but the younger you are the riskier it is to assume current levels of Social Security benefits during your retirement. Who knows what our elected officials end up doing regarding this issue, so it’s prudent to plan and save appropriately to nurture and eventually hatch your own next egg. Ideally, whatever you receive from Social Security down the road is a bonus, not something you’re relying on to make ends meet.

Here’s a link to the SSA’s website for details on these projections and the variety of proposals lingering in Congress to shore up the system.

https://www.ssa.gov/oact/solvency/index.html

The Medicare Part B monthly base premium is $164.90 per person and gets more expensive as your adjusted gross income rises to $194,000 for joint returns and $97,000 for single filers. Part B and Part D premiums max out at around $637 per person per month for households with over $750,000 of AGI. Base Part B premiums are expected to be about $175 per month for 2024, but the final number won’t be announced until November.

IRA Beneficiaries –

There have been a lot of changes in recent years to how inherited IRAs are treated. Most of the complexity relates to non-spouses who inherit an IRA. For example, before 2019 a popular option for beneficiaries was to “stretch” the account balance over one’s life expectancy. Doing so reduced the tax burden on distributions and, at least hypothetically, allowed the account to grow and pass to the next generation. Then the SECURE Act did away with this by capping the stretch period to ten years from the year following the original account owner’s death. And then at the end of last year the SECURE Act 2.0 added more complexity.

One of the lingering issues following these changes was whether someone inheriting an IRA had flexibility as to which year they took distributions during the ten years mentioned above, or if they had to start immediately. The IRS issued proposed regulations to clarify the “at least as rapidly” rule, so we now understand that if the original account owner was taking required minimum distributions, then so must the beneficiary during the ten-year period. This is a bit of a turnaround but comes on the heels of a Covid-era waiver period for missed beneficiary RMDs. So, if you missed taking an RMD due to this issue, now is a good time to get started.

Interpersonal Neurobiology –

Two financial “life” planners presented their very interesting work on integrating the research of Dr. Dan Seigel into the realm of financial planning. If you haven’t heard of Dr. Seigel, he’s a psychotherapist, author, and either the creator or a chief proponent of the field of Interpersonal Neurobiology.

Frankly, the details of IPNB are beyond me but the gist is a series of tools to increase self-awareness and empathy through regulating our emotions by understanding the signals provided by our body and mind. That’s sort of a mouthful and might sound a little woo-woo, but cultivating more awareness and understanding can be helpful in the fractured and fractious times we’re living through.

How does this inform my work as a financial planner? Essentially, the presenters suggested that we need to be able to master our own preconceived notions and fears about money, risk, and uncertainty, for example, before we can do a better job helping clients in these areas. Empathy is important, as is patience and the ability to link the interpersonal nature of our work to the technical stuff. Easier said than done, but it’s good to see these sorts of conversations happening in the context of a financial planning conference.

Here's a link to Dr Seigel’s “Wheel of Awareness” if you’d like to check that out. There are some guided explanations of these concepts that are similar to meditation.  

https://drdansiegel.com/wheel-of-awareness/

Have questions? Ask us. We can help.