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Archive: March 16, 2022

How Big Events Like Ukraine Can Impact Your Retirement

March 16, 2022

World events can impact your retirement, but you can be prepared!

 

The past few years have shown us that big world events can impact our lives at any moment. Sometimes we see them coming. Other times, we don’t have the ability to prepare and buckle in for the turmoil ahead.

The COVID-19 virus is one of the best recent examples of major world events impacting the economy. Now, the Russian invasion of Ukraine appears to be taking an immediate toll on Americans financially. It begs the question, can we prepare for these types of events so that we can, at least, soften the blow to our futures?

Well, the first step toward answering that question is knowing what to look out for when these major moments strike. Here are five ways big world events can impact your retirement:

  1. Market Shifts

Reactions to global events often shift the market, and in times of crisis, that shift is typically negative. An article from ThinkAdvisor said a global recession because of a negative supply shock is now “highly likely,” especially when you tack on the fact that the world is still recovering from the spread of the COVID-19 virus.

Market downturns often hurt retirees, especially if they have to withdraw money from accounts like mutual funds, stocks or bond funds for retirement income while account values are down. For those in or approaching retirement, the situation can be dire if they have no other sources of income and have to keep taking money out of dropping accounts, especially at the beginning of their retirement (known as “sequence of returns risk”). Many people in retirement during the 2008 Great Recession were forced back to work when they lost everything.

It’s also worth noting that market crashes can actually help younger investors because they have a long time-horizon to retirement and can “buy and hold” bargains. In other words, if younger people are able to invest when the market bottoms out, it might be an opportunity to buy low in order to accrue higher long-term gains.

  1. Inflation

Inflation can have a profound impact on finances, and those taking the brunt of the blow might be the ones who are no longer stockpiling resources. Inflation isn’t a new concept, but when your retirement money doesn’t go as far as you hoped, it can put your plans for your golden years in jeopardy. Over the course of the pandemic, the United States sent stimulus checks to qualifying Americans three different times. With more money in the pockets of consumers, prices rose, and they didn’t fall after people spent their stimulus checks. In fact, they continued to rocket upward. The Washington Post reported that inflation reached 40-year highs at the time of Russia’s invasion, posing major questions for the U.S., the Federal Reserve and retirees stretching their financial resources to their limits.

  1. Gas Prices

This one is no secret. In fact, if you drive past a gas pump when supply is short, your jaw might drop. As the Russian invasion of Ukraine wages on, CNN reports the biggest jump in gas prices since Hurricane Katrina. Russia is not the only supplier of oil, but it is Europe’s largest, producing 10% of the global demand. The U.S. imports just 8% of its oil from Russia, but energy is a global commodity, meaning that a rise in one part of the world causes a rise in another part of the world. Bob Doll, the chief investment officer of Crossmark Global Investments, spoke to ThinkAdvisor to discuss the effects of the Russia-Ukraine war. He noted, several times, that oil prices can devastate the economy. He said the price surge is why the war should be investors’ chief concern in 2022. Doll went on to say that inflation is likely still yet to peak because of rising oil prices.

You might be wondering what that has to do with your retirement. The spike in oil costs and inflation drastically affect the purchasing power of a dollar, which could be most detrimental to those living on fixed incomes. If you’re in retirement, it could force you to spend more at the pump, taking away from valuable dollars you may need for other expenses.

  1. Shifting of Retirement Ages and Plans

Uncertainty in markets, inflation and other results of a global crisis can also upset retirement plans decades in the making. In 2021, CNBC reported that 35% of Americans changed their retirement plans because of the pandemic. 68.5% of those who changed their plans said they moved their retirement expectations back by up to 10 years. Some did report that they planned to move retirement up, but the uncertainty forced others on the brink of finishing their careers to table their hopes and remain in the workforce to continue collecting paychecks.

  1. General Panic

Major events, especially ones that have negative impacts on people, markets and finances, can cause panic. Common wisdom says to never make decisions in a panicked state, but it is easy to see how you might want to unload certain investments or liquidate assets out of fear that things might get worse. In his ThinkAdvisor feature, Bob Doll said advisors shouldn’t be recommending any major risks right now, arguing that investors have seen the market during wartime, and it typically bounces back. Oftentimes, approaching the situation from a more measured perspective could actually provide an opportunity. A Kiplinger article used The Great Recession as a teacher for retirees in a crisis, citing one investor who remained patient, even adding to his investments as stock prices hit the basement. He later said he was headed toward an early retirement and squashed his fear of volatility. With a calm, steady approach, retirees can take steps to fight market downturns.

If you have questions about how you can protect your retirement plan and weather global economic storms, please call. You can reach your private wealth advisor at Silverhawk Private Wealth by calling 480.296.0200. We have offices across the United States to serve you. 

 

Sources:

https://www.thinkadvisor.com/2022/02/25/roubini-6-financial-economic-risks-of-russia-ukraine-war/

https://www.thinkadvisor.com/2022/03/07/bob-doll-10-talking-points-for-advisors-investors-amid-russia-ukraine-war/

https://www.nytimes.com/2022/02/23/business/economy/russia-ukraine-global-us-economy.html

https://www.washingtonpost.com/us-policy/2022/03/02/powell-testimony-inflation-fed/

https://finance.yahoo.com/news/russia-ukraine-crisis-what-can-prevent-150-oil-prices-112747924.html

https://www.cnbc.com/2021/10/12/pandemic-has-disrupted-retirement-plans-for-35percent-of-americans-study-says.html

https://www.aljazeera.com/news/2022/3/3/how-much-oil-does-the-us-import-from-russia

https://www.cnn.com/2022/03/04/energy/gas-prices/index.html

https://www.kiplinger.com/slideshow/retirement/t047-s004-5-retirement-lessons-learned-from-great-recession/index.html

https://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbbl_a.htm

6 Facts About Taxes

March 1, 2022

Individual income tax returns for 2021 will be due April 18th, 2022. In preparation as we head into the tax season, here are some facts to consider.

 

  1. Where your tax dollars go.

In 2021, the federal government spent $6.82 trillion, which equals 30% of the nation’s gross domestic product. Three significant areas of spending make up the majority of the budget. Medicare accounted for $696.5 billion, or 10%. Defense spending made up $754.8 billion, or 11% of the budget, was paid for defense and security-related international activities. Seventeen percent of the budget, or $1.1 trillion, was paid for Social Security, which provided monthly retirement benefits averaging $1,497 to 46 million retired workers.

 

  1. How long you should keep tax documents.

The IRS provides the following recommended timelines for retaining financial documents:

  1. You should keep your tax records for three years if #4 and #5 below do not apply to you.
  2. You should keep records for three years from the original filing date of your return or two years from the date you paid your taxes. Select whichever is the later date. This is if you claimed a credit or refund after you filed your return.
  3. You should keep your records for seven years if you claimed a loss from worthless securities or a bad debt deduction.
  4. You should keep your records for six years if you failed to report income that you should have, and the income was more than 25% of the gross income listed on your return.
  5. Keep records indefinitely if you do not file a return.
  6. You should keep employment tax records for at least four years after the due date on the taxes or after you paid the taxes. Select whichever is later.

 

  1. Tax brackets for 2021 individual income tax returns.

NOTE: These tax rates are scheduled to expire in 2025 unless Congress acts to make them permanent.

 

  1. Tax brackets for 2022.

When it comes to taxes, it’s always a good idea to plan ahead. In November 2021, The Internal Revenue Service announced that it is boosting federal tax brackets for 2022 due to faster inflation. Below is a breakdown of the new thresholds for the seven tax brackets in 2022:

10%: Single individuals earning up to $10,275 and married couples filing jointly earning up to $20,550.

12%: Single filers earning more than $10,275 and married couples filing jointly earning over $20,550.

22%: Single filers earning more than $41,775 and married couples filing jointly earning over $83,550.

24%: Single filers earning more than $89,075 and married couples filing jointly earning over $178,150.

32%: Single filers earning more than $170,050 and married couples filing jointly earning over $340,100.

35%: Single filers earning more than $215,950 and married couples filing jointly earning over $431,900.

37%: Single filers earning more than $539,900 and married couples filing jointly earning over $647,850.

 

  1. Standard deductions.

Here is an overview of the standard deductions since 2019, including the standard deduction for the 2021 tax season:

For 2022, the IRS is increasing standard deductions due to faster inflation:

The standard deduction for married couples filing jointly will rise 3.2 percent to $25,900 next year for the 2022 tax year, an increase of $800 from the prior year. The standard deduction for single taxpayers and married individuals filing separately rises to $12,950 for tax year 2022, up $400 from tax year 2021. For heads of households, the standard deduction will be $19,400, up $600.

 

  1. You can still contribute for the 2021 tax year.

If you have not already contributed fully to your individual retirement account for 2021, April 15 is your last chance to fund a traditional IRA or a Roth IRA. Please call us if you have any questions about setting up or contributing to a traditional or Roth IRA.

 

Sources: IRS.gov, SSA.gov

This information is for general purposes only and is not to be relied upon or considered as financial or tax advice. It is recommended that you work with your tax professional to complete your tax returns based on your unique situation.

 

Call us if you’d like to speak with us about tax planning or to contribute to an IRA. 

You can reach your private wealth advisor at Silverhawk Private Wealth by calling 480.296.0200. We have offices across the United States to serve you.