Recently the U.S. House of Representatives passed a bipartisan bill aimed at modernizing and promoting retirement savings. There hasn’t been a major update to the retirement landscape since the Pension Protection Act of 2006, so meaningful movement here is overdue. Known as the “Secure Act”, the legislation passed the House in late-May but has stalled in the Senate.

Some of the details have started to bubble up to major media outlets and several of you have asked about it, so let’s have an update, shall we?

Even in a bitterly divided Congress it’s still possible to get something done. Or at least done halfway. The Secure Act passed 417-3 in the House and was apparently getting fast-tracked through the Senate and to President Trump’s desk for signature when it was held up by two senators. The issues causing delay, apparently, have to do with expansions to how 529 plan dollars could be used by parents to fund homeschool and religious schooling. These are political hot buttons for some and worthy of holding up otherwise popular legislation. Others have wondered why political issues with education savings accounts should impede legislation aimed at retirement accounts, but that’s Washington, right? 

Here’s a review of the “major” would-be changes –

The age for starting required minimum distributions (RMD) would be moved from 70.5 to 72. This would let retirement money accumulate a little more and adjusts for longer life expectancies since the 1960’s when the current law was written. 

IRA contributions would be allowed to continue past age 70.5 for the same reason. Folks are living longer, and many are still working well past 70. It doesn’t make sense to disincentivize continued retirement savings for those not yet retired.

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If your adult child needs to move back home for some reason, should you charge them rent? This is another recent question from a few different clients that I thought I’d address in this blog.

We all know how expensive it is to live in Sonoma County. We’ve seen home prices rise in recent years (and even more after the fires) to a current median sales price of about $611,000. The high cost makes it difficult for young first-time buyers to get a foothold in the market unless they have a higher-paying job.

But the situation is just as bad, if not worse, in the rental market. According to the website Rent Jungle, the average rent for a one-bedroom apartment in Santa Rosa is about $1,900 per month, up around 14% from last year. These housing costs contribute mightily to Santa Rosa being roughly 70% more expensive in overall cost of living than the national average.

Many of us are also painfully aware of how expensive a college degree is. The average debt load for recent grads is about $37,000 while your own child’s loans could be much higher. It can also be difficult to find a good job. The Bureau of Labor Statistics says that four-year college grads have an unemployment rate that’s almost half that of the national average, but that doesn’t necessarily mean their job pays enough.

Add all this up and it’s no surprise that many “boomerang kids” are moving back home. According to the Wall Street Journal, more than a third of young adults aged 18-34 live at home, up from about a quarter a decade or so ago.

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One of the things I enjoy about writing this weekly blog is that the subject matter can ebb and flow over time and doesn’t have to follow any particular pattern (or, at least I don’t think so…). This week is a perfect example. I was set to write about recent market volatility, the yield curve and evolving expectations. But then I had a “driveway moment” while listening to Marketplace on KQED. The topic dovetails with our brief discussion last week about brain health and other posts I’ve written regarding elder financial abuse, so I wanted to continue the conversation.

Called “Brains and Losses”, the short series from the folks at Marketplace tackles the complicated issues associated with financial fraud perpetrated against seniors. The series also looks at some of the causes and what to do about them. We all probably know, or at least know of, a senior who has been a fraud victim. Sometimes we equate the loss to their simply being too old to manage their own finances or even the onset of dementia, but it’s more complicated than that. Interestingly, doctors studying seniors who are otherwise physically and mentally healthy are finding that some are still at heightened risk for financial abuse.

According to Marketplace there’s a new term for this: “age-associated financial vulnerability”, or the decreasing ability to detect fraudulent activity as folks age, even without other symptoms of cognitive decline. One researcher showed how the brains of scam victims and others who had fended off scammers were physically different. The differences appeared in the area of the brain thought to control our intuition, or what one researcher referred to as our “spidey sense”. If true, this would make it that much harder for folks to avoid well-honed fraudulent schemes. Lack of other symptoms would also make it harder for loved ones to tell when there might be a problem.

Before we begin, I wanted to say a few words regarding my post from last week. I had written about the importance of charging rent to “boomerang kids” when they move back home. The idea is to welcome them as the adults they’ve become with an understanding, on both sides, of what’s expected.

This isn’t to suggest that you charge rent in all cases, however. Our kids could move back for any number of reasons and many of them, such has health-related issues, personal trauma, and so forth, would (and should) reasonably be free from rent for obvious reasons. I failed to mention this last week and wanted to clarify that here (thanks for the reminder - you know who you are).

Now on to this week’s post…

As often happens in the short-term, financial markets are all over the place. Stocks have moved up from recent lows, but the interesting activity has been mostly in the bond market. I’ve mentioned previously how the yield curve is currently inverted and how this has been a good indicator of an oncoming recession. Let’s update where we stand.

My research partners at Bespoke Investment Group put out a very good piece last week addressing how long the yield curve normally stays inverted before it starts flashing a bright red light, so to speak, for a coming recession. As shown in the graphic below, out of the seven recession periods (the gray bars) in recent decades, the yield curve has been inverted for at least 30 days, but more commonly at least 50, before being a better signal.

If you look closely, you’ll also see a lengthy inversion in 1967 that didn’t precede a recession, as well as a couple of blips as outliers in the late 90’s. While not a foregone conclusion, our current inversion is about 20 days old, so we’re knocking on the door of this becoming a more meaningful indicator.

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What’s going on with the stock market? That’s a question several of you have asked in the last week. I thought I’d answer the question here as well since I’m sure others are also wondering. The short answer is that this is a normal bout of volatility that is part of getting good long-term returns. But since the slightly longer answer is usually more interesting, here goes…

Although stocks have logged decent performance of about 4% in the past 12 months, you’d be forgiven if you felt like it’s been a bit of a rollercoaster ride getting there. We had all that volatility to end 2018 when stocks fell almost 20%. Then we had a good upsurge to start 2019, only to be followed by stocks falling 6% in May. These gyrations are due in large part to several risks, some of which are new while some could be considered old (but persistent) news.

We’ve previously discussed how we’re nearing the end of the economic cycle that began during the Great Recession. This is old news. As the cycle starts to slow investors get nervous and headlines that might otherwise get overlooked take on greater significance. For example, it turns out Google may be subject to an antitrust investigation by the Department of Justice, and possibly Amazon and Facebook as well. Since the tech industry makes up nearly a quarter of the S&P 500, the long-term viability of the business models of these companies matters a great deal. I don’t know that these antitrust revelations are necessarily new, but they contribute to a growing sense of anxiety within the stock market.

Piling on last month was worsening geopolitical and trade news. We learned that British PM Theresa May was resigning after failing to deliver Brexit. This almost ensures another down-to-the-wire ordeal come October when their extension to leave the European Union ends. Continued disfunction around Brexit adds to fears about the structure of the EU itself. Taken to the extreme, the EU collapsing as other countries with nationalist tendencies try to leave would obviously have far-reaching ramifications. On top of this we learned of more tariffs from the Trump Administration directed at China and, at month’s end, potential tariffs aimed at Mexico. All of this raises the tension level in the room, so to speak.

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Ever wonder what financial planners talk about when they go to an industry conference? I know you spend lots of time wondering, so this week I’m going to give you a sense of the conference I attended last week in Austin, TX.

I’m a member of the National Association of Personal Financial Advisors, the organization that puts on this twice-annual continuing education extravaganza. NAPFA’s conferences are unlike many I’ve attended because they’re filled with high-quality educational content, not product pitches from the latest mutual fund or insurance product.

There were some interesting themes this year, with maybe half of the content being investment-related and the rest addressing topics such as health, wellness and aging. Here are three examples.

Keeping Our Brain Young

This talk was given by a wellness guru about brain health and how serious mental decline isn’t necessarily a given as we age. Apparently, lifestyle choices we make over time have a huge impact on brain health. Sleep plays a major role. The speaker provided some basic tips to ensure quality sleep, such as staying on a schedule, limiting screen-time prior to bedtime and darkening our bedrooms at night followed by natural light in the morning.

Dementia, the speaker also explained, is a set of symptoms and not a disease, such as Alzheimer’s. A third of dementia is preventable and much is treatable if it’s caught early. Alzheimer’s research is rapidly evolving. 95% of what we know about the disease has been discovered within the last 15 years and much of that has come in the last few years. For example, the speaker talked about how our roughly 80 billion brain cells produce waste every day. This waste, if left to accumulate too long, starts interfering with how the cells in our brain communicate with each other. The waste gets cleared up during sleep, which is part of what makes getting a good night’s sleep so important.

Other tips for keeping the brain young included getting good exercise, going outside for even just a few minutes of nature-time daily, eating heart-healthy foods (“what’s good for the heart is good for the brain”), social engagement and learning new things. It’s also important to monitor for issues like sleep apnea and diabetes as both are risk factors for Alzheimer’s. Interestingly, these suggestions don’t require fancy gadgets or apps on our phone; they’re simple things we can do each day.