Category: Insights

Age plays a pivotal role in several tax credits, deductions, and rules — sometimes for the better.

BY KELLEY R. TAYLOR

Did you know that several tax credits, deductions, and rules hinge on your age? For instance, age might determine how much you can deduct on your federal tax return for long-term care insurance premiums. In other cases, your age dictates when you must begin complying with specific rules that affect your tax liability, such as taking required minimum distributions (RMDs). 

Knowing which tax regulations and benefits link to which ages can aid in tax planning and potentially reduce your tax burden before and during retirement.

To get you started, here is a list of six tax breaks that change as you get older and the associated ages at which you can become eligible. As always, and in any case, if you are unsure whether any tax provision, credit, or deduction applies to you, consult a trusted tax professional or financial advisor.

Extra tax breaks for people 50 or older

Note: The following is a short list of some common tax changes and amounts that depend, at least in part, on your age. This list is not exhaustive, meaning it does not include all tax provisions triggered by age nor all tax credits and deductions available for (or rules applicable to) people 50 and older.

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Contribution limits over 50

If you are 50 or older, you can take advantage of catch-up contributions to retirement accounts such as IRAs and 401(k)s. These contributions allow additional savings beyond standard annual contribution limits, which can help bolster your retirement funds. 

According to the IRS, the limit on annual contributions to an IRA increased to $7,000 for 2024, up from $6,500 for the 2023 tax year. The SECURE 2.0 Act changed the IRA catch‑up contribution limit for individuals age 50 and over to include an annual cost‑of‑living adjustment but remains $1,000 for 2024. (So, the total annual IRA contribution if you are 50 and older is up to $8,000.)

The 401(k) catch-up contribution limit for employees age 50 and older and those participating in 403(b) and most 457 plans and the federal government’s Thrift Savings Plans is $7,500 for 2024. 

• Participants in 401(k), 403(b), and most 457 plans, as well as the federal government’s Thrift Savings Plan who are 50 and older, can contribute up to $30,500 in 2024. (That’s the $23,000 limit plus the catch-up of $7,500.)
• The catch-up contribution limit for employees 50 and over participating in SIMPLE plans is $3,500 for 2024.

Note on a catch-up contributions change for high earners: Under the SECURE 2.0 Act, passed a couple of years ago, if you are at least 50 and earned $145,000 or more in the previous year, you can make catch-up contributions to your employer-sponsored 401(k) account. But there’ is a catch. Beginning in 2026, you must make those extra contributions on a Roth basis, using after-tax money. 

• When the IRS implements the rule, you won’t be able to get tax deductions on those catch-up contributions as you would with typical 401(k) contributions.
• But you could withdraw the money tax-free when you retire. 
• The SECURE 2.0 Roth catch-up contribution rule won’t apply to taxpayers making $144,999 or less in a tax year.

What about HSA contribution limits? If you are 55 or older by the end of the tax year, the IRS says you can increase your annual HSA contribution by up to $1,000 a year. As Kiplinger has reported, the IRS announced record-high HSA contribution limits for 2024. Individuals can contribute up to $4,150 to their HSA accounts for 2024, and families can contribute up to $8,300.

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Early withdrawal penalty

People age 59½ and older can make penalty-free withdrawals from traditional IRAs and 401(k)s, avoiding the usual 10% early withdrawal penalty. Penalty-free withdrawals can give you more flexibility in accessing retirement savings and managing finances.

• Qualified distributions (i.e., from a Roth account at least five years old since you first contributed and when you are 59½ years or older) are tax-exempt. 

Additionally, if you are 65 and older, you can withdraw HSA funds for non-medical expenses without paying the additional tax penalty. However, ordinary income tax rates apply to distributions for medical expenses other than qualified ones. 

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Free tax help

The IRS offers tax counseling for people age 60 and older. (If you have a joint tax return, only one spouse must meet the age threshold.) This counseling program, known as TCE, or Tax Counseling for the Elderly, operates in partnership with the AARP Foundation’s Tax-Aide program. It utilizes IRS-certified volunteers specializing in pensions and other retirement-related concerns unique to older adults. The IRS provides an online lookup tool to find a TCE provider. 

There are also several other ways to file taxes for free this tax season, not tied to age. For more information, see Ways to Free File Your Taxes This Year.

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Extra standard deduction: 65 and older

Once you turn 65, you become eligible for an additional standard deduction on top of the regular standard deduction. This extra deduction reduces taxable income, potentially lowering overall tax liabilities and allowing retirees to keep more of their hard-earned money.

However, the amount of this extra standard deduction can vary based on factors like filing status and whether you or your spouse are 65 or older. Another factor is whether you or your spouse is blind.

• If you have yet to file your 2023 tax return, the additional standard deduction for the 2023 tax year is $1,850 if you are single or file as head of household. If you are married, filing jointly or separately, the extra standard deduction amount is $1,500 per qualifying individual. 
• If you are 65 or older and blind, the 2023 extra standard deduction is $3,700 if you are single or filing as head of household. It’s $3,000 per qualifying individual if you are married, filing jointly or separately.
• For information on the extra standard deduction amounts for 2024 (tax returns you’ll file in 2025), see Kiplinger’s report: The Extra Standard Deduction for 65 and Older.

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Charitable IRA rollover: QCDs

If you are 70½ or older, you can make qualified charitable distributions (QCDs) directly from your IRA to eligible charitable organizations. These distributions can be helpful for retirees who want to support charitable causes while minimizing their tax liability. QCDs fulfill required minimum distributions (RMDs) without being included in adjusted gross income (AGI).

• QCDs are not subject to tax.
• You can benefit from a QCD even if you claim the standard deduction. (However, a QCD is not deductible as a charitable contribution.)
• There are other rules to follow and a limit: For 2024, the IRA QCD limit is $105,000. For the 2023 tax year (if you haven’t yet filed), the limit is $100,000. For married couples, each spouse can exclude up to the limit for a total, for the 2023 tax year, of up to $200,000 and for 2024, up to $210,000.

A note on RMDs: Due to changes brought about by the SECURE 2.0 Act, 73 is the age at which you must start taking distributions from retirement savings accounts (other than Roth IRAs). You have until April 1 of the following year to take your first required minimum distribution. Different RMD rules may apply to inherited IRAs.

Source: https://www.kiplinger.com/taxes/tax-breaks-that-come-with-age

By DARIA UHLIG

Published March 4th, 2024

Retirement planning is a confusing but necessary financial step. There are many retirement account types that may be good for you, depending on a few key factors, like your employer and how you prefer to be taxed. Here’s a look at the top nine types of retirement plans.

What Are the Top 9 Retirement Plans?

Some retirement plans are designed for people with full-time jobs. Some are meant exclusively for business owners. Others are adaptable to anyone, no matter their situation. Each has its own benefits and drawbacks.

1. Traditional IRA
2. Roth IRA
3. SEP-IRA
4. SIMPLE IRA
5. 401(k)
6. Solo 401(k)
7. 403(b)
8. Annuity
9. Defined benefit plan

1. Traditional IRA

An individual retirement account is a savings plan that any individual with a taxable income can open and manage themselves. An IRA offers a tax advantage because once you contribute, your money will grow and you won’t pay taxes until you withdraw it.

Different financial service companies offer different IRA plans. This makes them adaptable for anyone, no matter the income, because you have the freedom to choose the investment options you can afford.

2. Roth IRA

A Roth IRA is similar to a traditional IRA. The primary difference between them is that with a traditional IRA, you pay taxes when you withdraw your contributions. With a Roth IRA, you pay taxes on contributions as you make them, but you don’t pay when you withdraw the money upon retirement.

Also, unlike some of the alternatives, a Roth IRA will allow you to start withdrawing money early under certain circumstances.

3. SEP-IRA

A Simplified Employee Pension IRA is an IRA specifically designed for people who are self-employed or run their own businesses.

A SEP-IRA plan has a similar structure to a traditional IRA. The main difference is that an employer can contribute more than a traditional IRA would allow. As of 2024, the employer is allowed to contribute 25% of an employee’s income up to a maximum amount of $69,000.

Given that the contribution is dependent on income, in years when the business makes less money, you can make smaller contributions. This is beneficial if you are the employer, but less so if you are the employee.

4. SIMPLE IRA

A Savings Incentive Match Plan for Employees IRA is also intended for use by small-business owners. To qualify for a SIMPLE IRA, a business must have 100 employees or fewer.

Under this plan, the employer matches up to 3% of an employee’s salary per year. If an employee leaves the company, they keep the contributions that the employer has already made.

5. 401(k)

A 401(k) is the most common retirement plan offered by employers. A 401(k) is tax-free until you are ready to withdraw the money, at which point you pay income tax on the amount you take out. Generally, with some exceptions, you must be at least 59 1/2 to start withdrawing funds without incurring an early withdrawal tax penalty.

Many employers match contributions that you make into a 401(k). You may not be allowed to keep all of your employer’s contributions if you leave the company before you are fully vested. However, you can roll over contributions into your new employer’s 401(k) plan or into an IRA.

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6. Solo 401(k)

A solo 401(k) is similar to a standard 401(k), but it’s for self-employed individuals with no employees. This type of retirement plan treats you as both an employer and an employee. That means you can make contributions as both — which translates to potentially more tax-deferred savings than you’re allowed with a standard 401(k).

You can contribute as much as 100% of your earned income from self-employment, up to contribution limits. The limit on contributions you can make as an employee is $23,000 in 2024, plus a catch-up contribution of $7,500 if you’re age 50 or older. The limit on your contributions as an employer is 25% of your employee compensation from the business, up to $69,000, plus a catch-up contribution of $7,500 if you’re age 50 or older.

The IRS has a formula for calculating earned income for the purpose of determining your contribution limits. The formula can be tricky and mistakes can be costly, so consider talking with a financial advisor or accountant before you begin contributing to a solo 401(k) account.

7. 403(b)

A 403(b) plan is similar to a 401(k), but it’s offered to employees of public schools and certain nonprofits, such as churches and 501(c)(3) organizations.

As with 401(k) contributions, 403(b) contributions are tax-deferred, and so is the growth of funds in your account. You’re not taxed until you withdraw the money.

Some employers offer Roth versions in addition to standard 403(b)s. With a Roth 403(b) account, you make contributions from after-tax income and withdraw funds tax-free in retirement.

8. Annuity

Annuities are contracts between you and an insurance company. In exchange for your purchase, whether you pay a lump sum or in installments, the insurance company agrees to make one or more payments, and perhaps pay a death benefit, to you. You can take the payout as a lump sum or as a series of payments.

There are three primary types of annuities:

• Indexed annuity: Returns are tied to an index, such as the S&P 500
• Fixed annuity: Offers a fixed interest rate on your funds and periodic payments of a predetermined dollar amount
• Variable annuity: Allows you to invest funds, which grow tax-free at a variable interest rate

Annuities have fees and risks you should be aware of before you purchase one. While only variable annuities are considered securities, a fee-only investment advisor might be the best person to help you determine whether any kind of annuity you’re considering is the right choice for you.

9. Defined Benefit Plan

A defined benefit plan is the type of retirement plan most people probably associate with employee pensions. Recipients receive a fixed, predetermined benefit when they retire. The benefit can be a set dollar amount or a percentage of your salary, set according to your years of service. The benefits of defined benefit plans are that your employer contributes most of the funds, and you know in advance how much you’ll receive — your employer can’t retroactively decrease the amount, according to the IRS.

Most defined benefit plans are annuities that pay out for the rest of your life or your and your spouse’s lives.

Final Take

Choosing from the retirement account types that are available can be overwhelming, but it is important. If your employer offers a specific plan, that may take the choice out of your hands. If they don’t, then consider what you want out of your plan now in terms of investments and taxation, and what you expect out of it once you retire.

FAQ

• What are the most common types of retirement plans?
  • A 401(k) is the most common type of retirement plan offered by employers, edging out defined benefit plans, according to an IBISWorld analysis. However, an IRA is the most common retirement plan chosen by individuals.
• What is the simplest retirement plan?
  • A traditional IRA is the most straightforward retirement plan. Anyone who earns an income can open one, so there are fewer hoops to jump through to see if you qualify.
• What is better than a 401(k) for retirement?
  • A retirement plan is a personal choice, dependent on when you would rather be taxed and what kind of employer contributions you expect. The best plan for a business owner is not the best plan for an employee, so deciding if a 401(k) or another retirement account type is best requires research or the advice of a professional.
• What is the difference between a 403(b) and a 401(k)?
  • The primary difference between a 403(b) and a 401(k) is the type of employer that offers them. Public schools and certain charitable organizations sponsor 403(b) plans, while for-profit companies sponsor 401(k)s.
• Is a Roth IRA better than a 401(k)?
  • They’re different products, and one isn’t necessarily better than the other. Roth IRAs have the benefit of being individual plans — you don’t need an employer to sponsor one. In addition, you withdraw money tax-free in retirement. The main benefits of a 401(k) are the higher contribution limits and your employer’s ability to contribute funds on your behalf.

Source: https://www.aol.com/types-retirement-plans-choose-one-223307908.html?guccounter=1

By Patricia Amend, AARP

Published January 19, 2024

The rate of inflation fell in 2023. The Consumer Price Index, the government’s main gauge of inflation, rose 3.4 percent for the 12 months that ended in December, compared with 6.5 percent in December 2022. But that doesn’t mean that the cost of living has gone down; it’s just rising at a slower rate. What to do?

Paying less in taxes is a good start. 

Americans are dealing with inflation in many ways.  People have created budgets, reduced spending, and started taking part-time side jobs for extra income, according to a study by the financial services company Empower. And that helps: The study indicates that 68% of those surveyed said they’ll be ready for retirement when the time comes.

But don’t forget that big chunk of change you send to Uncle Sam every year. And at age 50, you become eligible for some considerable tax benefits, which can help if you’re behind on your retirement savings goals. 

Estimate Your 2023 Taxes

AARP’s tax calculator can help you predict what you’re likely to pay for the 2023 tax year.

Now you can contribute more to your traditional individual retirement account (IRA), Roth IRA or to your employer-sponsored plan or to your health savings account (HSA).

“It is enough to pick up your pace if you’re feeling behind, especially if you’ve got more disposable income and fewer expenses,” says Jacqueline Koski, a certified financial planner (CFP) in Dayton, Ohio, who serves on the board of the Financial Planning Association (FPA).

Here’s how to take advantage of the tax laws to catch up, if needed. If you’re already retired, or close to it, these laws can enable you to reduce your tax bill. That’s too good to pass up.

1. Contribute more to your retirement plan

“The most important ‘kicker’ when one is over 50, is the additional deductible contribution to a 401k or IRA,” says John Power, a CFP at Power Plans in Walpole, Massachusetts. “These are often the highest earning years, and they often synchronize with children becoming independent.” If this is your case, and your expenses are lower, then Power encourages maximizing your retirement savings.

For 2024, the contribution limit for employees who participate in 401(k) and 403(b) programs, most 457 retirement saving plans and the federal government’s Thrift Savings Plan has been increased to $23,000, up from $22,500 in 2023. Employees 50 and older can contribute an additional $7,500, the same as for 2023, for a total of $30,500.

The contribution limit for a traditional or Roth IRA is $7,000, up from $6,500 for tax year 2023. The catch-up amount is $1,000, the same as 2023. The 2024 catch-up contribution limit for a Savings Incentive Match Plan for Employees (SIMPLE) plan is $3,500, unchanged from 2023.

Unfortunately, attractive as these catch-up provisions are for folks 50 and older, a mere 16% of those who are eligible have been making these contributions, according to “How America Saves 2023,” a report by Vanguard.

At the same time, data from the National Retirement Risk Index compiled by the Boston College Center for Retirement Research, indicates that about half of American households are at risk of being unable to maintain their preretirement standard of living in retirement. 

In addition to making your retirement more secure, contributing to a tax-deferred retirement plan, such as an IRA or a 401(k), will also reduce your taxable income—which, in turn, reduces the taxes that you’ll be required to pay. Increasing your contribution won’t reduce the amount of your paycheck as you might think, thanks to the reduction in taxes.

Let’s assume your salary is $35,000 and your tax bracket is 25%. Contribute 6%—$2,100—and your taxable income will be reduced to $32,900. The income tax you’ll pay on $32,900 will be $525 less than on $35,000, according to figures from Intuit TurboTax.

To be clear: Retirement contributions made to a Roth IRA or Roth 401(k) are made on an after-tax basis. That is, you get no up-front tax break for these contributions, but the qualifying withdrawals that you take in retirement will be tax-free. However, when you contribute pretax money to a traditional IRA or a 401(k), it will grow tax-free. But you’ll be liable for taxes once you start making withdrawals in retirement.

Keep in mind that the tax deduction you receive may be limited if you are (or your spouse is) covered by a workplace retirement plan and your income exceeds certain limits. According to the IRS, for 2024, IRA deductions for singles covered by a retirement plan at work aren’t allowed after modified adjusted gross income (MAGI) reaches between $77,000 and $87,000. MAGI is your adjusted gross income, minus certain deductions, such as student loan interest.

For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to between $123,000 and $143,000. If an IRA contributor is not covered by a workplace retirement plan, and is married to someone who is covered, the phase-out range is between $230,000 and $240,000.

Roth IRAs also have income limits. For 2024, the income phase-out range for taxpayers making contributions to a Roth IRA is increased to between $146,000 and $161,000 for singles and heads of households. For married couples filing jointly, the income phase-out range is increased to between $230,000 and $240,000.

When it comes to catch-up contributions for a traditional IRA or Roth IRA, you still have time to do so for the 2023 tax year. The deadline is April 15, the filing date for your tax return, unless you file for an extension. However, 401(k)s, 403(b)s, Thrift Savings Plans and most 457 plans go by the calendar year, so you’ll be investing for 2024, and will have until the end of the year to do so.

2. Ease the pain of RMDs

Obviously, the longer you tap your retirement savings, the less you’ll have over your lifetime, and the greater the odds of outliving your money. Nevertheless, you can’t leave it untouched forever. You’ll probably have to face required minimum distributions (RMDs), the minimum amount you must withdraw from a tax-deferred retirement plan, such as a traditional IRA. Roth IRAs don’t require distributions while the owner is alive.

Under rules that kicked in 2023 under the Secure Act 2.0, you can wait until the year in which you reach age 73 before you start taking RMDs. Previously, the age was 72. For your first RMD payment, you can delay it until April 1 of the following year, but you’ll also have to pay another RMD in December of that year.

If you don’t need the RMD, consider donating it to charity. Donate your RMD to a qualified charity directly from your retirement account, up to $100,000, and you won’t owe income tax on the distribution.

3. Max out your HSA

Another often overlooked opportunity lies in Health Savings Accounts (HSAs) that employers offer, says Brenna Baucum, a CFP at Collective Wealth Planning in Salem, Oregon: “For those in their 50s, HSAs offer a unique advantage. By contributing to your HSA, you prepare for future health care expenses and enjoy a triple tax benefit—tax-deductible contributions [from your gross income], tax-free growth, and tax-free withdrawals for qualified medical expenses.”

Also, there’s a small catchup on the health savings account, $1,000, that Sandi Weaver, a CFP at Weaver Financial in Mission, Kansas, reminds her clients to make use of once they reach 55:  “We get an immediate tax deduction for that catchup, plus for the basic HSA contribution itself, of course.”

Plus, the account is yours: You can take it with you to a new job and use the funds in retirement.

For 2024, you can contribute up to $4,150 if you have coverage for yourself, or up to $8,300 for family coverage, plus the additional $1,000 catchup if you reach 55 during the year. However, your contribution limit will be reduced by any amount your employer contributed that has been excluded from your income.

4. Enjoy a larger standard deduction at 65

You can look ahead to an additional tax benefit down the road. The standard deduction, which reduces your taxable income and, in turn, lowers your tax bill, will be larger once you reach 65.

In 2024, when you fill out your federal income tax forms for income earned in 2023, if you’re married and filing jointly, you’ll get a standard deduction of $27,700. If you’re a single taxpayer, or a married and filing separately, the standard deduction rises to $13,850.

However, if you are 65 or older and file as a single taxpayer, you get an extra $1,850 deduction for tax year 2023. Married and filing jointly or separately? The extra standard deduction is $1,500 for each person who is qualified.  For taxpayers who are both 65-plus and blind, the extra deduction is $3,700. If you are married, filing jointly or separately, it’s $3,000 for each person who qualifies.

There is one drawback for some taxpayers with the higher standard deduction: It sets a high bar for itemizing deductions. Therefore, it doesn’t make sense to go to the trouble of itemizing if your deductions aren’t higher than the standard deduction. Nevertheless, getting a larger standard deduction is a good thing.

Other deductions

What about cash gifts to qualified charities? Back in tax year 2021, single individuals could take a $300 deduction for cash gifts to qualified charities. Married couples could take $600. You could take this deduction if you took the standard deduction and didn’t itemize. But those days are gone. This charitable deduction disappeared in the 2022 tax year.

The high standard deduction means that for most people, it’s not worthwhile to itemize tax returns. But you can deduct some expenses without itemizing, thanks to above-the-line deductions, which are deductible from your gross income before calculating your adjusted gross income (AGI). For example, you can deduct student loan interest that you paid in the 2023 tax year. Other above-the-line deductions:

Teacher expenses. Individuals can deduct up to $300 in unreimbursed teaching expenses, and married couples can deduct $600, assuming both are educators.

Self-employed health insurance. If you’re self-employed, you can deduct the premiums for medical, dental, vision and long-term care insurance.

Alimony paid. The law used to allow those who paid alimony to deduct their payments. No longer. But there’s one loophole: If your divorce or separation agreement was signed before Dec. 31, 2018, you can deduct alimony paid.

Military moving expenses. Active-duty members of the military can deduct their moving expenses when they move because of a permanent change of station.

Patricia Amend has been a lifestyle writer and editor for 30 years. She was a staff writer at Inc. magazine; a reporter at the Fidelity Publishing Group; and a senior editor at Published Image, a financial education company that was acquired by Standard & Poor’s.

Source: https://www.aarp.org/money/taxes/info-2024/tax-breaks-after-50.html

BY: JORDAN RAU, KFF HEALTH NEWS – JANUARY 2, 2024 5:30 AM

If you’re wealthy, you’ll be able to afford help in your home or care in an assisted living facility or a nursing home. If you’re poor, you can turn to Medicaid for nursing homes or aides at home. But if you’re middle class, you’ll have a thorny decision to make: whether to buy long-term care insurance. It’s a more complex decision than for other types of insurance because it’s very difficult to accurately predict your finances or health decades into the future.

What’s the difference between long-term care insurance and medical insurance?

Long-term care insurance is for people who may develop permanent cognitive problems like Alzheimer’s disease or who will need help with basic daily tasks like bathing or dressing. It can help pay for personal aides, adult day care, or institutional housing in an assisted living facility or a nursing home. Medicare does not cover such costs for the chronically ill.

How does it work?

Policies generally pay a set rate per day, week, or month — say, up to $1,400 a week for home care aides. Before buying a policy, ask which services it covers and how much it pays out for each kind of care, such as a nursing home, an assisted living facility, a home personal care service, or adult day care. Some policies will pay family members who are providing the care; ask who qualifies as a family member and whether the policy pays for their training.

You should check to see if benefits are increased to take inflation into account, and by how much. Ask about the maximum amount the policy will pay out and if the benefits can be shared by a domestic partner or spouse.

How much does it cost?

In 2023, a 60-year-old man buying a $165,000 policy would typically pay about $2,585 annually for a policy that grew at 3% a year to take inflation into account, according to a survey by the American Association for Long-Term Care Insurance, a nonprofit that tracks insurance rates. A woman of the same age would pay $4,450 for the same policy because women tend to live longer and are more likely to use it. The higher the inflation adjustment, the more the policy will cost.

If a company has been paying out more than it anticipated, it’s more likely to raise rates. Companies need the approval of your state’s regulators, so you should find out if the insurer is asking the state insurance department to increase rates for the next few years — and, if so, by how much — since companies can’t raise premiums without permission. You can find contacts for your state’s insurance department through the National Association of Insurance Commissioners’ directory.

Should I buy it?

It’s probably not worth the cost if you don’t own your home or have a significant amount of money saved and won’t have a sizable pension beyond Social Security. If that describes you, you’ll probably qualify for Medicaid once you spend what you have. But insurance may be worth it if the value of all your savings and possessions, excluding your primary home, is at least $75,000, according to a consumer guide from the insurance commissioners’ association.

Even if you have savings and valuable things that you can sell, you should think about whether you can afford the premiums. While insurers can’t cancel a policy once they’ve sold it to you, they can — and often do — raise the premium rate each year. The insurance commissioners’ group says you probably should consider coverage only if it’s less than 7% of your current income and if you can still pay it without pain if the premium were raised by 25%.

Many insurers are selling hybrid policies that combine life insurance and long-term care insurance. Those are popular because if you don’t use the long-term care benefit, the policy pays out to a beneficiary after you die. But compared with long-term care policies, hybrid policies “are even more expensive, and the coverage is not great,” said Howard Bedlin, government relations and advocacy principal at the National Council on Aging.

When should I buy a policy?

Wait too long and you may have developed medical conditions that make you too risky for any insurer. Buy too early and you may be diverting money that would be better invested in your retirement account, your children’s tuition, or other financial priorities. Jesse Slome, executive director of the American Association for Long-Term Care Insurance, says the “sweet spot” is when you’re between ages 55 and 65. People younger than that often have other financial priorities, he said, that make the premiums more painful.

When can I tap the benefits?

Make sure you know which circumstances allow you to draw benefits. That’s known as the “trigger.” Policies often require proof that you need help with at least two of the six “activities of daily living,” which are: bathing, dressing, eating, being able to get out of bed and move, continence, and being able to get to and use the toilet. You can also tap your policy if you have a diagnosis of dementia or some other kind of cognitive impairment. Insurance companies will generally send a representative to do an evaluation, or require a doctor’s assessment.

Many policies won’t start paying until after you’ve paid out of your own pocket for a set period, such as 20 days or 100 days. This is known as the “elimination period.”

KFF Health News is a national newsroom that produces in-depth journalism about health issues and is one of the core operating programs at KFF—an independent source of health policy research, polling, and journalism. Learn more about KFF.

Source: https://oregoncapitalchronicle.com/2024/01/02/a-guide-to-long-term-care-insurance/

JANUARY 2, 20241:21 PM ET

By Carmel Wroth

Sometimes trying to be healthy feels like just another item on your endless, exhausting to-do list. Here on NPR’s health team, we don’t want to add to anyone’s stress. The good news is that it doesn’t take great feats of fitness or a heroic commitment to good habits to stay well. Often small changes can make a significant difference.

In 2023, our reporters turned up the latest research on how to stay well without stressing out about it. We highlighted these in our series Living Better, on what it takes to get healthy in America.

Below are some of our best wellness tips from 2023.

1. Get healthier without even going to a gym

Hate the gym? That’s cool. Scientists now say you can get a lot of the health benefits associated with exercise just by increasing how active you are in your daily life. Think of low-effort movements like sweeping the floor, strolling through the grocery aisle, climbing the stairs, bobbing your leg up and down at your desk or stirring the pot while you cook. Researchers have studied this kind of movement and given it the moniker NEAT, which stands for this mouthful: non-exercise activity thermogenesis. Learn how NEAT can keep you healthier and how to get more of it.

2. Flip hunger into satisfaction with this cheap superfood

Weight-loss drugs like Ozempic mimic a hormone that our bodies make naturally to curb food cravings. What if we could increase levels of this hormone (called GLP-1) through our diet? Whether or not we’re trying to lose weight, many of us would like to feel sated longer after we eat and be a little less beholden to our sweet (or salt) tooth.

It turns out that, yes, you can increase satiety hormones by eating more foods with fiber — especially what’s known as fermentable fiber, which is found in foods such as oats, rye, whole wheat and many legumes. Read the full story on your body’s satiety hormones.

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Plus, there’s a host of other reasons to eat more fiber — it helps control blood sugar levels and lower cholesterol and inflammation. And it’s linked to a lower risk of issues like obesity, Type 2 diabetes, cancer and cardiovascular disease. The good news is that foods with fiber are often cheap. And adding more fiber to your meals isn’t as hard as it sounds — we’ve got tips.

3. Little acts of joy can have a big payoff

Small moments add up. From chatting up a stranger, to taking time to reframe a bad day and find the silver lining, to noticing the beauty of nature, science shows that moments like these make a difference to your well-being. Even petting other people’s dogs can give you a boost. The recently launched Big Joy Project from the University of California, Berkeley is gathering data that shows that we can change our emotional state by embracing these “micro-acts” of happiness.

Learn more about how to up your joy quotient — plus how to participate in the ongoing citizen science project.

4. Outsmart dopamine and screens

Over the past few years, neuroscientists have started to better understand what’s going on in our brains when we can’t stop scrolling through social media or stop shopping online, eating junk food or playing video games. These types of activities trigger surges of the neurotransmitter dopamine. And it’s now becoming clear that rather than giving us pleasure, dopamine drives craving, the urge for more. It has a strong, though short-term, hold on our willpower. Understanding how this works can help shift how you manage your own or your kids’ behavior.

Here are four ways to outsmart dopamine and ease off compulsive cravings for screens or sweets.

5. Learn from the Japanese way of life

When NPR’s Yuki Noguchi visited her parents in Japan recently, she logged an average of 6 miles a day running errands with her folks by foot. That’s because Japanese cities are designed for walkability and most people take public transport and walk wherever they need to go. And that’s not all: Fresh food is highly prized there, so even convenience store meals to-go are nutritious and not packed with additives. The country has a “default design” that supports wellness, making healthy choices automatic. It’s not so easy, in many cases, to re-create that in the U.S., but there are ways to adopt parts of the lifestyle — walk whenever you can, choose fresh over packaged — and live more like the Japanese.

6. Combat loneliness through creativity

Loneliness is linked to all kinds of health problems, including increased risk of heart attacks and dementia. And forging new social connections — even with casual acquaintances — can counter that. But how do you break out of an isolated rut?

Jeremy Nobel, a primary care physician and the author of the new book Project UnLonely, has an idea: get artsy. Research shows that making art or even viewing it reduces levels of the stress hormone cortisol and increases levels of the feel-good hormones, like endorphins and oxytocin. In other words, it can put you in a relaxed mood, which can help create an inviting vibe to connect.

And you don’t have to be Picasso; almost any creative act will do, including cooking, gardening, even doodling. Here are five tips from Noble’s new book for how to connect, via creativity.

7. Find a therapist you can afford

You could compare finding a therapist to apartment hunting in a crowded housing market. Demand is high; availability is limited. It requires persistence, flexibility and the knowledge that you may not be able to check every one of your boxes. Some people feel so daunted by the prospect that they give up, especially if they’re trying to find someone who is covered by their insurance or is low cost. At the same time, you may have more options available than you know. Here’s a step-by-step guide to finding a therapist who fits your needs and your budget.

8. Cut back on the ultraprocessed foods in your diet

Read the ingredients list of your favorite packaged snack, and you’ll find some things you’ve surely never stocked in your kitchen pantry, like additives that thicken, emulsify, stabilize or preserve. And that’s not to mention high levels of sugar, fat and sodium. Eating a lot of ultraprocessed foods like sodas, TV dinners and packaged sweets is linked to health problems like Type 2 diabetes and heart disease.

And most of us are likely eating more of these foods than we realize: Ultraprocessed foods make up nearly 60% of what the typical U.S. adult eats and nearly 70% of what kids eat.

So do you need to completely overhaul your family’s diet? Researchers say to start by cutting back. After all, there’s a reason why busy families like packaged foods: They’re convenient, tasty and affordable. So how can you make healthier choices without breaking the bank or cooking late into the night? Start by learning to recognize ultraprocessed foods and then try these easy ways to cut back, plus some smart swaps for kids’ favorite junk foods.

9. Manage back and neck pain

If you suffer from back or neck pain, you probably know that hunching over screens isn’t helping. You might have tried improving your ergonomic setup and posture, but exercise research points to another strategy: taking short spurts of movement throughout the day to release tension and stress in the body.

When the brain senses physical or emotional stress, the body releases hormones that trigger muscles to become guarded and tight. Movement breaks counter that stress response by increasing blood flow to muscles, tendons and ligaments and sending nutrients to the spine.

Here are five exercises to prevent pain, developed by fitness specialists at NASA, an agency where people work in high-stress seated positions.

And sometimes living better with back pain is a matter of making adaptations to how you do the things you love — we’ve got smart hacks for cooking with back pain and adjustments to make so you can get out and garden.

01.30.2024
Retirement account rules and contribution limits get adjusted in the new year.

By Kerry Hannon-Senior Columnist
Date: Decemeber 27th, 2023

Saving for retirement is getting a little easier in 2024 thanks to the phase-in of a handful of provisions stemming from the Secure 2.0 Act, which became law at the end of last year.

Here’s a roundup of some of the key retirement-related changes to watch out for in the new year and planning-related moves to consider.

New retirement saving reforms and rule changes

Employers will be able to consider student loan payments as qualifying contributions toward retirement-matching programs. That means if your employer provides a match to your 401(k) contributions and you are paying down your student loan, you could count your monthly student loan payments as your “contribution” to your employer-provided retirement account, even though your dough isn’t going in there.

Your employer’s match does, however, go into a retirement savings account. Provisions from the retirement law makes it possible for employers to earn a tax break on that type of match. The precise matching formula and whether the employer offers this depends on the employer.

There will be easier emergency access to retirement savings accounts. Ransacking retirement accounts to pay for unexpected financial shocks spiked in 2023 as inflation and interest rates stretched Americans’ budgets. This might help solve that for some folks. Starting in 2024, you may be able to pull up to $1,000 annually from a retirement account for specific emergency needs without owing the 10% early distribution penalty.

And if you agree to pay it back within three years, you might not face a tax bill on the sum either. That’s providing the withdrawal can be tagged to a personal or family emergency.

Domestic abuse victims under age 59½ can now take up to $10,000 from their IRAs or 401(k)s without paying the 10% penalty tax.

Employers also have the green light to offer their employees the option of putting money into an emergency fund that is paired with their retirement plan. Employees would be able to save up to $2,500 in an emergency fund. While this provision goes into effect on Jan. 1, it may take some time to get going.

“I don’t anticipate that getting much traction until a wide variety of administrative issues are worked out between plan sponsors, record keepers, policymakers, and regulators,” Emerson Sprick, senior economic analyst at the Bipartisan Policy Center, told Yahoo Finance.

Another critical measure effective in the new year authorizes “starter 401(k)s.”

“This is a simplified plan that employers can offer if they’re just getting started as a plan sponsor and that they can use off the shelf,” Sprick said. “These plans could really help expand retirement plan coverage in coming years, as they have the potential to drastically reduce administrative burden, especially on smaller employers.

“This question of access is really gaining momentum, as only around half of US workers have access to an employer-sponsored retirement savings plan,” he added.

And if you’re sitting on unused funds in 529 education accounts, take heart. Starting in 2024, you can roll those savings over tax-free to a Roth IRA. There are restrictions, of course. For instance, there’s a $35,000 lifetime cap, and rollover amounts cannot exceed the annual contribution limit for Roth IRAs. So, if you are under 50 and have $35,000 in unused 529 assets, you could roll over $7,000 per year (this contribution limit may change annually) over a five-year period. And the 529 account must have been open for more than 15 years.

Higher saver contribution limits

“The changes that retirees and those preparing for retirement can expect in 2024 are fairly standard,” Sprick said. “Contribution limits for retirement plans increased modestly.”

Workers who have a 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan can contribute up to $23,000 next year, up from the limit of $22,500 this year.

Those of you who are 50 and over can save an additional $7,500 catch-up contribution.

The contribution limit on individual retirement accounts (IRAs) will increase by $500 in 2024, from $6,500 to $7,000.

The IRA catch‑up contribution limit for individuals aged 50 and over was amended under the Secure 2.0 Act of 2022 to include an annual cost‑of‑living adjustment but remains $1,000 for 2024.

For 2024, IRA deductions for singles covered by a retirement plan at work aren’t allowed after their modified adjusted gross income (MAGI) hits $87,000 versus $83,000 in 2023. The deduction disappears for married couples filing jointly when their MAGI hits $136,000, up from $129,000 in 2022.

More people will be able to contribute to Roth IRA accounts too. In 2024, the income limit range will increase to between $146,000 and $161,000 for single individuals and heads of households, up from between $138,000 and $153,000 in 2023. For married couples filing jointly, the range increases to between $230,000 and $240,000.

Finally, the income limit for the Saver’s Credit, a nonrefundable tax credit worth up to $1,000 ($2,000 if married filing jointly) for taxpayers who contribute to a retirement account is $76,500 for married couples filing jointly, up from $73,000; $57,375 for heads of household, up from $54,750; and $38,250 for singles and married individuals filing separately, up from $36,500.

A key retirement tool gets sweeter

How much you can contribute to your health savings account is getting more generous. The new 2024 annual contribution limit announced by the IRS on health savings accounts, or HSAs, for individuals will be $4,150, a $300 uptick from 2023. For family coverage, the HSA contribution limit rises to $8,300, up $550.

“HSA contribution limit increases for 2024 are higher than what we’ve grown accustomed to in recent history because of above-average inflation in 2022 and 2023,” Jake Spiegel, research associate, health and wealth benefits, at the Employee Benefit Research Institute (EBRI), a nonprofit, nonpartisan organization, told Yahoo Finance.

While these accounts are not a substitute for a traditional retirement account, the larger contribution maximum can help boost retirement savings with the vehicle’s triple tax advantage. It’s the only account that lets you put money in on a tax-free basis, lets it build up tax-free, and lets it come out tax-free for qualified healthcare expenses.

A health savings account option is available if you’re enrolled in a high-deductible health care plan (HDHP). You can also open an account as a self-employed freelancer or business owner if you have a qualified HDHP. The IRS sets the parameters for these accounts annually.

“While an HSA is not explicitly a retirement savings vehicle, it’s a smart move to use it in that way, if possible,” Morningstar’s personal finance director Christine Benz, told Yahoo Finance.

“The idea would be to contribute to the HSA, invest the money, and use non-HSA funds to cover healthcare expenses. It’s pretty much a can’t miss from a tax standpoint.”

01.30.2024

By Jeanne Sahadi, CNN

Published 9:00 AM EST, Thu December 28, 2023

You may think that improving your financial life is simply a matter of taking unpleasant but necessary steps: Curb spending. Cut debt. Make more. Boost savings.

But, in real life, if your money resolutions for 2024 are just a long list of financial chores that you know you “should” have been doing but haven’t, you’re likely to ditch the plan by your third pot of coffee in January.

Here’s why: When it comes to managing our money, regardless of our net worth, there is usually a persistent gap for most of us: We know what we should do, but we struggle to actually do it.

“If you have the key fob to the gym, it doesn’t make you fit,” said Ashley Agnew, president of the Financial Therapy Association and director of relationship development at Centerpoint Advisors.

It’s hard to get motivated to do anything when you’re just doing it because you think you “should.” When it comes to improving your finances, staying motivated is much easier when you’ve honestly assessed what makes you feel content and secure in life and then figured out how to use your money to foster those feelings.

So make just one financial new year’s resolution for 2024: Figure out what financial well-being means for you. It will be a highly personal endeavor. Then pick one or two steps to improve it.

Here are seven ways you might define it and improve upon it in the new year:

1. Create a greater sense of ease

Money helps mitigate uncertainty like emergencies, job loss, illness or premature death. Hence the desire for rainy day funds and insurance.

How much you’ll need for either depends on your circumstance. To help figure out what is right for you, familiarize yourself with what your life today costs, so you know what baseline you’re working with, Agnew suggested.

Beyond reviewing your monthly expenses (food, housing, utilities, health care, debt payments, subscriptions, etc.), map out when those and other anticipated expenses will arise. She recommends drawing a quadrant, and labeling each box with a season. In each season’s box, include your regular expenses plus special ones like birthdays, weddings and vacations, or scheduled expenditures like a roof replacement or tuition bill.

Doing so will make it easier to see how much you’re really spending, what you can cut if need be and where you might be able to free up money to do something you’ve been avoiding but that might give you peace of mind. For instance, if you have young kids, you might make 2024 the year you buy a low-cost life insurance policy so you know you’ll be able to provide for your family when you’re gone.

No one wants to think about their own death, but avoiding the issue just makes things harder on your family. “Avoidance will prevent you from taking a deep breath. You can avoid the action but you can’t bury something completely when it comes to money,” Agnew said.

2. Spend in ways that are true to who you are, not others’ expectations

Beyond creating a greater sense of security, financial well-being is about using your money as you wish.

So look at where your money goes. Does it reflect what you really want? Or do you spend some of it living up to the standards and expectations set by your parents or society? For example, maybe you got a bigger, more expensive home than you feel you need or you feel an unspoken pressure to buy more expensive brands. Or maybe you spend too much on your children in ways that aren’t really that meaningful to either of you, or which your adult children take for granted.

“We live in a world of comparison. It can be difficult to live up to someone else’s financial standards,” Agnew said.

3. Buy yourself time

Financial well-being is also about reallocating the money you have in ways that serve you better.

“Sometimes it isn’t about adding more. It’s about subtracting. Sometimes it can be, ‘How can I spend my money to do less?’” said Meghaan Lurtz, learning and development specialist at Shaping Wealth, which trains financial professionals to help their clients achieve “funded contentment.”

Lurtz is referring to the fact that time is everyone’s most limited resource. You can use money to buy a little time back if it lets you focus on what is most important to you.

Take house chores and cooking. If they eat up most of your free time outside of work and take you away from being fully present with your young kids at key times of the day, you might consider spending money on a meal plan or hiring a house cleaner to help out once in a while.

4. Express your values

Financial well-being also results when you use your money to express your values in the world through charitable donations or providing a meaningful gift for someone in need — e.g., help with tuition or paying off a medical bill or student loan, etc. Or it can simply be having the capacity to volunteer your time.

It’s not necessary to be a multi-millionaire in any of these regards. “People can be wealthy in that they live within their means and live within their values,” Lurtz said.

5. Don’t confuse what you buy with joy

Money is a tool that can free you from the distress of always having to choose between paying for groceries or paying the electric bill. But beyond allowing you to afford life’s basic necessities, it’s not a magic wand that can buy you deep-in-your-bones happiness.

That’s worth remembering the next time you’re thinking about buying something that was marketed to evoke feelings of a beautiful home, a perfect family or a sense of being on top of the world. Ask yourself, “Is it the thing you want or the feeling from the thing you want?” Agnew said.

6. Focus on what brings you contentment

Take time to envision what would make you feel more content in your life overall because ultimately money should serve you in achieving that vision.

“What do you enjoy? What did you like doing as a kid that you don’t do now? Everyone has their own picture of contentment. Get in touch with what you want your picture to be,” Lurtz suggested.

Be specific, she said. Envision what would be happening, where you are, how you are spending your time, who is with you and how you feel.

Compare that vision with where you are today. Then come up with a couple of small, achievable goals to move you closer to that vision. For instance, if you used to love playing the piano or painting when you were younger, it might mean committing time to doing that and maybe even some money for lessons. Or if you miss spending time with old friends who live far away, it may mean setting aside some money to travel to see them.

7. Figure out your relationship with money

There are plenty of other ways to define financial well-being for yourself. And you can help keep your new year’s resolution by simply reading a book that helps you think differently about money and its role in your life.

Among the ones Agnew and Lurtz like best are: Mind over Money by Brad Klontz; The Psychology of Money by Morgan Hounsel; and The Geometry of Wealth by Brian Portnoy.

Ultimately, the goal is to figure out what role you want money to play in your life. “It only does what you tell it to do,” Agnew said.

Source: https://edition.cnn.com/2023/12/28/success/financial-new-years-resolution/index.html

01.16.2024
BY ERIN BROWNE, GERALDINE SUNDSTROM, EMMANUEL S. SHAREF NOVEMBER 14, 2023

The global economic outlook along with market valuations and asset class fundamentals all lead us to favor fixed income. Relative to equities, we believe bonds have rarely been as attractive as they appear today. After a turbulent couple of years of high inflation and rising rates that challenged portfolios, investors may see a return to more conventional behavior in both stock and bond markets in 2024 – even as growth is hindered in many regions.

In this environment, bonds appear poised to perform well, while equities could see lower (though still positive) risk-adjusted returns in a generally overvalued market. Risks still surround the macro and geopolitical outlook, so portfolio flexibility remains key.

Macro outlook suggests a return of the inverse stock/bond relationship

In PIMCO’s recent Cyclical Outlook, “Post Peak,” we shared our baseline outlook for a slowdown in developed markets (DM) growth and, in some regions, the potential for contraction next year as fiscal support ends and monetary policy takes effect (after its typical lag). Our business cycle model indicates a 77% probability that the U.S. is currently in the “late cycle” phase and signals around a 50% probability of a U.S. recession within one year.

Growth has likely peaked, but so has inflation, in our view. As price levels get closer to central bank targets in 2024, bonds and equities should resume their more typical inverse relationship (i.e., negative correlation) – meaning bonds tend to do well when equities struggle, and vice versa. The macro forecast favors bonds in this trade-off: U.S. Treasuries historically have tended to provide attractive risk-adjusted returns in such a “post-peak” environment, while equities have been more challenged.

Valuations and current levels may strongly favor fixed income

Although not always a perfect indicator, the starting levels of bond yields or equity multiples historically have tended to signal future returns. Figure 1 shows that today’s yield levels in high-quality bonds on average have been followed by long-term outperformance (typically an attractive 5%–7.5% over the subsequent five years), while today’s level of the cyclically adjusted price/earnings (CAPE) ratio has tended to be associated with long-term equity underperformance. Additionally, bonds have historically provided these return levels more consistently than equities – see the tighter (more “normal”) distribution of the return outcomes. It’s a compelling statement for fixed income.

Delving deeper into historical data, we find that in the past century there have been only a handful of instances when U.S. equities have been more expensive relative to bonds – such as during the Great Depression and the dot-com crash. One common way to measure relative valuation for bonds versus equities is the equity risk premium or “ERP” (there are several ways to calculate an ERP, but here we use the inverse of the price/earnings ratio of the S&P 500 minus the 10-year U.S. Treasury yield). The ERP is currently at just over 1%, a low not seen since 2007 (see Figure 2). History suggests equities likely won’t stay this expensive relative to bonds; we believe now may be an optimal time to consider overweighting fixed income in asset allocation portfolios.

Price/earnings (P/E) ratios, are another way that equities, especially in the U.S., are screening rich, in our view – not only relative to bonds, but also in absolute.

Over the past 20 years, S&P 500 valuations have averaged 15.4x NTM (next-twelve-month) P/E. Today, that valuation multiple is significantly higher, at 18.1x NTM P/E. This valuation takes into account an estimated increase of 12% in earnings per share (EPS) over the coming year, an estimate we find unusually high in an economy facing a potential slowdown. If we assume, hypothetically, a more normal level of 7% EPS growth in 2024, then the S&P today would be trading even richer at 18.6x NTM P/E, while if we are more conservative and assume 0% EPS growth in 2024, then today’s valuation would rise to 19.2x NTM P/E. Such an extreme level, in our view, would likely drive multiple contraction (when share prices fall even when earnings are flat) if flat EPS came to pass.

We note, however, a crucial differentiation within the equity market: If we exclude the seven largest technology companies from this calculation, then the remainder of the S&P trades close to the long-term average at 15.6x NTM P/E. This differentiation could present compelling opportunities for alpha generation through active management.

Overall, we feel that robust forward earnings expectations might face disappointment in a slowing economy, which, coupled with elevated valuations in substantial parts of the markets, warrants a cautious neutral stance on equities, favoring quality and relative value opportunities.

Equity fundamentals support cautious stance

Our models suggest equity investors appear more optimistic on the economy than corporate credit investors. We use ERP, EPS, and CDX (Credit Default Swap Index) spreads to estimate recession probability implied by different asset classes, calculated by comparing today’s levels with typical recessionary environments. The S&P 500 (via ERP and EPS spreads) is currently reflecting a 14% chance of a recession, which is significantly lower than the estimates implied by high yield credit at 42% (via CDX).

Such optimism is underscored by consensus earnings and sales estimates for the S&P 500, which anticipate a reacceleration rather than a slowdown (see Figure 3). We’re concerned about a potential disconnect between our macro outlook and these equity earnings estimates and valuations. It reinforces our caution on the asset class.

Managing risks to the macro baseline

We recognize risks to our outlook for slowing growth and inflation. Perhaps the resilient U.S. economy will stave off recession, but also drive overheating growth and accelerating inflation that prompts into much more restrictive monetary policy. There’s also potential for a hard landing, where growth and inflation fall quickly.

In light of these risk scenarios, we believe it’s prudent to include hedges and to build optionality – and managing volatility, especially in equities, is attractively inexpensive (see Figure 4). For example, one strategy we favor is a “reverse seagull” – a put spread financed by selling a call option.

Investment themes amid elevated uncertainty

Within multi-asset portfolios, we believe the case for fixed income is compelling, but we look across a wide range of investment opportunities. We are positioned for a range of macroeconomic and market outcomes, and we emphasize diversification, quality, and flexibility.

Duration: high quality opportunities

At today’s starting yields we would favor fixed income on a standalone basis; the comparison with equity valuations simply strengthens our view. Fixed income offers potential for attractive returns and can help cushion portfolios in a downturn. Given macro uncertainties, we actively manage and diversify our duration positions with an eye toward high quality and resilient yields.

Medium-term U.S. duration is particularly appealing. We also see attractive opportunities in Australia, Canada, the U.K., and Europe. The first two tend to be more rate-sensitive as a large portion of homeowners have a floating mortgage rate, while the latter two could be closer to recession than the U.S. given recent macro data. Central bank policies in these regions could diverge, and we will monitor the bond holdings on their balance sheets for potential impact on rates and related positions.

In emerging markets, we hold a duration overweight in countries with high credit quality, high real rates, and attractive valuations and return potential. Brazil and Mexico, where the disinflation process is further along and real rates are distinctly high, stand out to us.

By contrast, we are underweight duration in Japan, where monetary policy may tighten notably as inflation heats up.

While we recognize cash rates today are more attractive than they’ve been in a long time, we favor moving out along the maturity spectrum in an effort to lock in yields and anchor portfolios over the medium term. If history is a guide, duration has significant potential to outperform cash especially at this stage of the monetary policy cycle.

Equities: relative value is key

Although the S&P 500 appears expensive in aggregate, we see potential for differentiation and opportunities for thematic trades. From a macro perspective, there’s also the potential for economic resilience (such as a strong U.S. consumer) to support equity markets more than we currently forecast. Accordingly, we are neutral in equities within multi-asset portfolios. An active approach can help target potential winners.

In uncertain times, we prefer to invest in quality stocks. Historically, the quality factor has offered an attractive option for the late phase of a business cycle (see Figure 5). Within our overall neutral position, we are overweight U.S. equities (S&P 500), which present more quality characteristics than those in other regions, especially emerging markets. Also, European growth could be more challenged than in the U.S., so we are underweight the local equity market despite its more attractive valuation.

We also favor subsectors supported by fiscal measures that may benefit from long-cycle projects and strong secular tailwinds. The U.S. Inflation Reduction Act, for example, supports many clean energy sectors (hydrogen, solar, wind) with meaningful tax credits.

On the short side of an equity allocation, we focus on rate-sensitive industries, particularly consumer cyclical sectors such as homebuilders. Autos could also suffer from higher-for-longer interest rates; as supply normalizes, we think demand will struggle to keep up.

Credit and securitized assets

In the credit space we favor resilience, with an emphasis on relative value opportunities. We remain cautious on corporate credit, though an active focus on individual sectors can help mitigate risks in a downturn. We are underweight lower-quality, floating-rate corporate credit, such as bank loans and certain private assets, which remain the most susceptible to high rates and are already showing signs of strain.

In contrast to corporate credit, attractive spreads can be found in mortgages and securitized bonds. We have a high allocation to U.S. agency mortgage-backed securities (MBS), which are high quality, liquid, and trading at very attractive valuations – see Figure 6. We also see value in senior positions of certain securitized assets such as collateralized loan obligations (CLOs) and collateralized mortgage obligations (CMOs).

Key takeaway

Looking across asset classes, we believe bonds stand out for their strong prospects in the baseline macro outlook as well as for their resilience, diversification, and especially valuation. Given the risks to an expensive equity market, the case for an allocation to high quality fixed income is compelling.

12.27.2023
BY SANDRA BLOCK
CONTRIBUTIONS FROMDONNA LEVALLEY

Renting isn’t right for all retirees, but it does offer flexibility and it frees up cash.

Now that the kids are gone, you no longer need a five-bedroom home with a big backyard. It’s expensive, too. But when it comes time to downsize, you need to make an important decision: buy or rent?

Upside of renting

While many long-time homeowners may resist the idea of renting, don’t dismiss it outright. Instead of sinking money into a new house, you may be better off putting it in your investment portfolio. For example, suppose you sell your five-bedroom home and net $300,000 in cash. If you invest that money and earn 6% annually, you’ll generate an extra $18,000 in the first year. Even after taxes, you’ll have a good amount left over to put toward rent, and the cost of homeownership will drop sharply or disappear altogether.

You should also think about how long you expect to stay in your new place. Renting may be the better choice if you’re not sure where you want to settle down for good in retirement. This is especially true if you think you may move within three to five years. (See the 10 Best States for Retirement and The 8 Best Places to Retire for Renters for ideas.) Otherwise, your home might not increase enough in value to offset your initial expenditures on things like real estate commissions and closing costs.

Factors to consider as you decide

When deciding whether to buy or rent, estimate how much income you’ll need to pay the bills. You should also look at the costs of home prices versus yearly rent for comparable homes in your community. You could do some comparisons on your own by using NerdWallet’s Rent vs Buy calculator.

RENTING VS OWNING

Renting

• Annual rent increases
• No down payment, maintenance, or repairs
• Rental could be sold forcing you to vacate
• Limited ability to customize surroundings
• Lower insurance and utility costs

Owning

• Trapped equity — your investment in your home is beyond your reach
• Cost of home maintenance
• Stability — no one can sell your home except you
• Possible capital taxes on gain from sale of home
• Current home may lack the accessibility you need now

And if you ultimately decide to buy, don’t automatically assume that a mortgage is a bad idea in retirement. Although the market has changed dramatically in the last few years. Mortgage rates and payments are up, tax deductions for mortgage interest have been reduced and home inventory is scarce.

If you do buy, you may be better off taking a mortgage for part of the purchase and investing the rest of your money in a portfolio of stocks and bonds. Your investments may grow faster than your home appreciates, and you’ll also have money available for health care and other needs.

You can use our tool, in partnership with Bankrate, to find mortgage rates from multiple lenders.

Your happy ending

Don’t discount emotional issues when making this important decision. Do you love the idea of owning your own place and fixing it up the way you want? Or will it be a big relief after years of ownership not to worry about the lawn or a broken sump pump?

Mortgage interest rates are making buying an expensive option. Coupled with inventory shortages, the process of finding and buying a home is more stressful than normal. Rental price increases are finally returning to a pre-pandemic normalcy.

While your decision needs to be financially sound, make the decision that makes the most sense for you. Not being a homeowner can be freeing, scary or both. Your home, its location and amenities should fit the life you lead now.

12.27.2023
Tax withholding rules mean a portion of your bonus won’t make it into your bank account.

BY KELLEY R. TAYLOR

For some fortunate workers, a new year approaching means a bonus is on the way. That can be good news since some companies are cutting budgets, laying off workers, or scrapping bonus pay or salary increases altogether.

But, people are often surprised when the amount of money they receive from an announced bonus is much less than expected. That situation — where a big chunk seems missing from your bonus pay — is due to federal tax withholding and so-called bonus tax rates.

Even though you can’t eliminate bonus tax withholding, it is helpful to understand how bonuses are taxed so that you know how much money to expect. Additionally, knowing how much bonus pay will arrive in your account can help with tax planning. That might involve navigating tax changes and trying to offset income through various tax deductions, credits, and exemptions.

Why are bonuses taxed so high?

When you see that the amount of your bonus check or direct deposit is less than your employer-promised bonus amount, it’s most likely because your employer has withheld taxes from your bonus. (Although, it is always important to double-check the amount of your bonus as described by your employer.)

• First and foremost, bonuses are taxed because they are considered taxable income. But the IRS also considers bonuses to be supplemental wages.
• Essentially, supplemental wages are types of wages, e.g., overtime, commissions, etc., that aren’t regular wages.
• When your employer pays supplemental wages, they are supposed to follow payroll tax rules and withhold a portion of those wages (in this case, your bonus), for taxes.

The amount that is withheld from your bonus depends on the withholding method that your employer uses, which depends, in part, on the amount of your bonus, and how your bonus is paid.

Tax rate for bonuses: How bonus tax withholding works

Percentage Method: The first supplemental wage tax withholding method is called the percentage method. This method is typically used when your bonus check is issued separately from your normal paycheck.

• The percentage method means that if your bonus is less than $1 million, your employer automatically withholds a flat 22% from the bonus for tax.
• If you earn commission or have ever received severance pay, you may also have had the flat 22% withheld because those types of pay are also usually considered to be supplemental wages.

So, for example, if you’ve been told that you are receiving a $5,000 bonus, and your employer uses the flat percentage method, they should withhold at least 22%, which based on this example would be $1,100.

If your bonus exceeds $1 million, the flat percentage withholding would be 37% of the amount of your bonus that exceeds $1 million. Thirty-seven percent correlates to the top federal income tax rate.

Aggregate Method: The other method for withholding from supplemental wages is the aggregate method. This is typically used when your employer pays your bonus money along with your regular pay in a single payment.

Under this method, your employer withholds tax in accordance with a formula based on the information that you provided on your W-4 Form.

Note: The aggregate withholding method can cause some confusion and frustration for people. That’s because your regular and bonus pay are combined as a lump sum. As a result, the amount of tax taken from the check that includes your bonus pay is higher than what you’re used to with your usual paycheck on your regular payday.

Remember that other standard income and payroll taxes (e.g., state taxes, Social Security taxes, etc.) are also withheld.

Can you avoid taxes on your bonus check?

Because your employer is required to withhold, you can’t avoid the tax on your bonus. But it can understandably be frustrating to receive compensation for a job well done and then find that much of that money goes to taxes.

With that said if you’re curious about how much your bonus payment might impact your taxes, the IRS has a calculator that can help estimate your withholding before you file your tax return. And, when you file your federal income tax return, it turns out that too much tax was withheld (based on your income and tax rate), you could look forward to a tax refund.

On the other hand, if you’re worried that your bonus will be large enough to bump you into a higher income tax bracket, you could consider deferring your bonus to the next tax year.

For example, if your company plans to pay your bonus in December (and you expect to have less income in the coming year) you could ask to have the bonus payment deferred. (Your employer doesn’t have to agree to this.)

If your bonus is paid at the end of the year, you might offset your bonus and other taxable income with some year-end tax moves. Tax deductions for donations to charity or contributions to your retirement savings account can reduce your tax liability.

But remember: December 31 is the deadline for making many contributions for tax purposes that might help offset a year-end bonus.

Source: https://www.kiplinger.com/taxes/how-a-bonus-is-taxed