Wednesday, May 31, 2023

Useful Information from 2022 Webinars- Part 2

As I noted in a previous post, I periodically summarize notes taken from various webinars that I think might be useful to others. Below are seven information tidbits that caught my eye:



Defensive Investing- Financial markets were volatile in 2022 and, for a while, “there was no (good) place to hide.” Stocks and cryptocurrencies experienced big drops in value, bond prices decreased when interest rates rose, and cash assets were eroded by high inflation. What to do? Successful investors ride through down markets, stick with a disciplined long-term plan, and  control two things: fees (e.g., low expense ratios) and how they react to market downturns.

 

Tax Planning- Until 12/31/25, taxes are “on sale.” Nobody has a crystal ball, but we know that tax rates will rise starting in 2026 when the Tax Cuts and Jobs Act expires. There are only two ways to reduce taxes: 1. Make less income and 2. When the government lowers tax rates. The highest marginal tax rate was once 91% in the years before President Reagan vs. 37% today.

 

Budget Culture- This term was used on a webinar to describe “rules” that there is one right way to manage money and a strong belief in discipline and will power. With this mindset, it is easy to blame and shame people who are “under-performing.” The dominant voices in personal finance advocacy are white, male, and middle class with privilege. Wealth accumulation and money management strategies that “worked for them” often do not work for others.

 

Financial Education- Personal finances classes can be a “great equalizer” for income and asset disparities and should be available everywhere and not by ZIP code. It can completely change a student’s life. One student on a Next Gen Personal Finance webinar stated, “We only get one life- why wouldn’t you want to take a course to make it the best it can be?”

 

RMD Insights- Required minimum distribution (RMD) divisors grow by almost a factor of 1 every year after starting at 27.4 at age 72 under the 2022 revised Uniform Lifetime Table. Each year thereafter, retirees will withdraw a larger percentage of their tax-deferred assets. Experts recommend consolidating accounts to reduce the chance of errors. The tax penalty for incorrect withdrawals is now 25% of the amount that should have been taken out but was not (and 10% if paid promptly).

 

Work in Retirement- A speaker at the 2022 Retirement Summit sponsored by the Employee Benefit Research Institute (EBRI) noted that 1 in 3 retirees have experience working after retiring from a primary career. Their primary reasons are that work is rewarding and provides additional income for discretionary and unexpected expenses.

 

Effective Tax Rate- This is the percentage of income that someone pays in taxes. The formula to calculate it is Effective Tax Rate = Total Tax ÷ Taxable Income. Someone’s effective tax rate is useful to determine tax withholding or estimated taxes for investments, pensions, and Social Security. Their marginal tax rate (tax on last dollar earned) is useful for financial planning.

 

Financial knowledge is power. I hope that you found these information tidbits useful.


This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.


Wednesday, May 24, 2023

Insights From a Financial Education and Research Conference

I recently attended a virtual conference sponsored by FERMA, which included dozens of sessions about topics of interest to personal finance educators and researchers. Below is a summary of new and/or useful information that caught my attention:


Fast Fashion- Key characteristics are short production and distribution lead times, highly fashionable product design through continuous trend spotting, and a sense of urgency and scarcity so consumers make frequent purchases. Also, decreased quality of clothing (e.g., fabric that does not launder well) and a “throw away” mentality among some Gen Zers, who do not want to be seen wearing the same clothes more than once in their social media posts.

 

Fast Fashion Retailing- Retailers that use a fast fashion business model include Zara, Shein, H&M, and Forever 21. Some retailers create “knock-off” clothing from popular fashion designers using artificial intelligence (AI) technology and fast fashion benefits from marketing by TikTok influencers. Downsides of fast fashion include wasted resources (i.e., having to constantly replace poor quality clothes), exploitation of low-wage workers to produce clothes, and an increase in discarded clothing sent to landfills, resulting in land and water degradation.

 

Estate Planning Issues- Power of Attorney (PoA) authority ceases upon the death of the person who granted it. PoA designees must be highly trustworthy people because they have the right to access bank accounts, sign contracts, and sell property. Certain government programs (e.g., Social Security, Veterans benefits, and U.S. railroad retirement board) require a representative payee, not a PoA. In real life, however, a lot of “informal money management” goes on.

 

Future Self- Whether they are 30, 50, or 70, people think of their future self as a totally different person than who they are now. Financial practitioners can help people align their future self and present self, break through limiting beliefs, and see that they, alone, are “the captain of their own life.” To move forward financially, people must break through their fears and focus on where they are, what they have control over, and where they want to go.

 

Shrinkflation and Skimpflation- Both are forms of inflation and often happen gradually and go unnoticed by consumers. With shrinkflation, the cost per ounce or pound increases because manufacturers keep prices the same but reduce package sizing or the amount of product placed in packages. Examples: 9.25 oz. of chips versus 9.75oz. (five fewer chips) or a large “dimple” in the bottom of a jar of peanut butter. Skimpflation is when companies spend less on materials (e.g., poor quality clothing fabric) or services so consumers get less for their money.

 

ChatGPT and AI- The AI platforms ChatGPT, Bing AI, and Google Bard are not fully reliable and can have incorrect output (called hallucinations) and biases. Thus, output should always be reviewed by a subject matter expert. Having said that, AI can write a letter better than many people and can be useful for “first drafts” of documents. Many ethical issues have arisen with AI use (e.g., term paper cheating) but it can never replace the “human element” in teaching.


This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

 

 


 

Thursday, May 18, 2023

Three Words That Irk Me and Why

Unlike 99% of my Money Talk posts, this one is different. It is not specifically about a personal finance topic such as inflation, investing, or retirement planning. However, the topic (language) does have financial implications. 


How so? The way that people speak and present themselves in the business world and are perceived by others can affect their job opprtunities, income, and experiences as consumers.


Curious about my three pet peeve words? The words that I avoid using myself and cringe at when I hear others use? Read on to learn about my concerns and suggested alternatives.

 

Still

When “still” is used to indicate that something is free from noise or motionless (e.g., standing still), that is fine. However, when people use the word still to mean “at this time” (e.g., are you still working?), I have a problem with it. It implies that the action described after the word “still” is in some way abnormal or, at the very least, out of synch with most other people.

Even the IRS uses the word “still” in the “still working exception” rule that allows required minimum distributions (RMDs) from a current employer’s retirement savings plan to be delayed for older workers until they leave the labor force. IMHO, the phrase “continued working exception” could convey the RMD-postponement concept in a more positive way.

Other negative examples of “still” are “You’re 28 and still not married” and “My children are in their 30s and I’m still not a grandmother.” Many of these “still” phrases are a result of social clocks; i.e., norms governing the ages at which particular life events are “supposed to” occur. When I get a “still” question, I deflect it- unanswered- and talk about the work that I love to do.


Just

A number of articles were written in business magazines a decade ago advising workers, especially women, to avoid using the word “just” in letters, e-mails, and conversations. Examples include “I’m just a [fill in a job title],” “Just checking in to…,” and “Just wondering if you…,” where people use “just,” often in a perceived effort to “soften” a request to others.

The problem with “just” is that it undercuts an otherwise coherent argument or information that follows it, thereby diminishing its importance and/or difficulty (i.e., when used to refer to an assigned task). “Just” can also reveal a lack of confidence when used as a hedging qualifier. When I review my written correspondence, I always check for “justs,” as well as for typos, and redo sentences as needed. I also avoid saying “just.” Along with “sorry,” “just” is a word I was socialized to use as a young woman. Today, I mindfully and proactively guard against using it.


Dear

As a “Jersey Girl Living in a Florida World,” the word “dear” (and its close cousins “sweetheart,”  “sweetie,” and “honey”), when used to address me by a total stranger, irks me the most and I don’t have a workaround. Mostly, I cringe and silently murmur to myself “I am not your sweetheart.” Numerous Southern friends have told me that “dear et al." is typical language in this part of the country. To me, and others, it feels like sexist and ageist “elderspeak” and I avoid using it…ever. I believe if you want to connect with others, use their first or last name or a derivation (e.g., Miss Barbara).


What words get under your skin and why? Let’s start a conversation.


This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.


Thursday, May 11, 2023

Barbservations from Three Retirement-Focused Webinars

I recently attended three webinars related to retirement planning. One discussed required minimum distribution (RMD) rules, the second, retirement planning in general, and the third, the FIRE (Financial Independence, Retire Early) movement.



Below are eight key take-aways from these programs:


Simple RMD Description- The IRS wants their cut of your retirement savings that they have been waiting to take for decades. The amount that older taxpayers must withdraw is called a required minimum distribution (RMD) and it is 100% taxable as ordinary income. If taxpayers are near the top of a marginal tax bracket, RMDs can move them up to a higher tax bracket.


Use of RMD Withdrawals- A chunk will pay income taxes. Many people use their effective tax rate as a guide to determine how much to set aside and ask their retirement account custodian to withhold taxes or send the IRS estimated payments. After that, the government does not care what taxpayers do with RMDs. They can spend, gift, or resave this money.


Secure 2.0 Legislation- As a result of this December 2022 law, designed to boost retirement savings by American workers, benefits experts are predicting more qualified employer plans and more plan participants…eventually. Time will tell if workers save more money and have more income in retirement. Unfortunately, many Americans simply don’t have money to save.


Multiple RMD Ages- People with tax-deferred retirement savings accounts born in 1950 or earlier have a RMD of 72 (or 70½ for those who turned 70½ prior to 2020). Those born in 1951-1959 and 1960 and later must begin RMDs at age 73 and 75, respectively. This is a moot point for many older adults as over 80% of account holders withdraw money before RMD age.


IRMAA Surprises- Many older baby boomers who are exiting the workforce in peak earning years are meeting IRMAA (income related monthly adjustment amount) for the first time and are shocked because it is based on income earned two years ago and it feels punitive. IRMAA is a Medicare Part B and Part D premium surcharge for higher earners and there are 5 tiers. Managing income tax and IRMAA income brackets is a key challenge for these taxpayers.


The Future of Social Security- Depletion of the Social Security reserve (a.k.a., trust fund) is projected to take place sometime in the 2030s decade, but this has been anticipated for years based on demographic trends. Depletion of the reserve is not the same as Social Security “going bankrupt,” as many people falsely believe. Benefits may be cut, but they will not go away.


Permission to Spend- Financial planners often encounter long-time “super-saver” clients who have accumulated $1 million+ and have difficulty spending down their accumulated savings. A key question to ask is “What is the purpose of your wealth?” Discussing this question can help give people “permission” to spend their savings.


FIRE Number Formula- FIRE proponents aggressively save young adulthood to afford to leave 9 to 5 jobs in their 40s or earlier. They set a “walking away number” (savings goal) and save as much as possible by maximizing income and reducing expenses. Various FIRE calculators are available to “do the math.” Another FIRE goal-setting technique is saving 25x desired annual income (e.g., $55,000 x 25 = $1,375,000). Obviously, not everyone can do this.


I watch about a dozen personal finance webinars each month. More “Barbservations” to follow.


This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

 

 


Thursday, May 4, 2023

Ten Trending Topics in Financial Education

Today, I presented a general session program for financial educators and researchers at an online professional conference. My chosen topic was Ten Trending Topics in Financial Education. Below is a brief description of the ten trends that I discussed:


Inflation- The U.S. had an ascending 5% inflation rate (CPI) in May 2021 and a descending 5% CPI in March 2023 and many higher inflation rates in between. Inflation-induced price hikes on goods and services are like a regressive sales tax and hurt those with low incomes the most.

 

Interest Rates- Between March 2022 and May 2023, the Federal Reserve raised interest rates 10 times in an effort to decrease inflation by slowly increasing the cost of borrowing. The goal is a so-called “soft landing” (i.e., not slowing the economy too much to avoid a recession).

 

Savings Rates and Higher APYs- U.S. households are currently saving a lower percentage of income than they were pre-COVID. The savings rate was 9.1% in January 2020 and 5.1% in March 2023. Due to Federal Reserve interest hikes, annual percentage yields range from 3.75% to 4.5%, on average, for online savings and money market accounts.

 

Increasing Debt Loads- The average credit card balance was $5,805 at year-end 2022 and the average credit card interest rate in April 2023 was 24.2%. In addition, 72- and 84-month car loans are more common and 16.8% of new car buyers now have monthly payments of $1,000+.

 

Online Gambling- Online gambling in all forms (sports betting, casinos, poker, etc.) is on the rise and legalized sports betting has spread nationwide. As of January 2023, mobile sports bets are legal in 26 states with three states pending. Young males are especially attracted to this.

 

ChatGPT and AI- Financial practitioners are experimenting with ways to use AI platforms (e.g., ChatGPT) to enhance productivity. AI output often contains mistakes and should only be considered as a “rough first draft” for review and editing by a subject matter expert.

 

Cryptocurrencies- About 16% of Americans say that they have ever invested in or traded cryptocurrencies This has led to greater income tax scrutiny and calls for more government oversight by the SEC and/or CFTC after 2022 collapses of crypto lenders and exchanges.

 

Increased State Financial Education Mandates- As of April 2023, 18 states have passed laws mandating a semester-long financial education course prior to graduation. This means that more young adults will enter college, careers, or the military with personal finance knowledge.

 

Different Types of FIRE- Different paths to Financial Independence, Retire Early (FIRE) have emerged in recent years. In addition to Traditional FIRE, there is Fat, Lean, Barista, and Coast FIRE, all in recognition of alternative paths to aggressively saving 25x annual living expenses.

 

More Attention to Asset Decumulation- Baby boomers were “guinea pigs” for voluntary self-directed retirement savings accounts and the decline of pensions. Many are now scrambling to figure out how to create a retirement “paycheck” for life using accumulated savings. Asset decumulation is a “hot” topic for financial advisors, researchers, and fintech developers.


This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

 

 


Loud Budgeting: A Financial Discipline Strategy

  Have you heard the term “loud budgeting?” It started gaining traction earlier this year on TikTok (where else?) and has been covered by fi...