Thursday, December 28, 2023

2023 Personal Finance Events and Trends


On December 12, I presented the ninth annual (2023) Personal Finance Year in Review webinar for OneOp, an online professional development resource for military family service providers. Below is a summary of ten key events and trends from the past year that were discussed:

Inflation Rate- The year-to-year inflation measure, the consumer price index (CPI), was 6.4% in January 2023 and 3.2% in November. Thus, inflation has eased but still remains elevated.


Interest Rates- From March 2022 to July 2023, the Federal Reserve raised interest rates 11 times to a 5.25%-5.5% range. At its last three 2023 meetings, there were rate hike pauses. High interest rates impacted home mortgages, car loans, and annual percentage rates on credit cards.


Credit Cards-Total outstanding credit card debt topped $1 trillion for the first time ever in Q2 of 2023 and the share of Americans revolving a credit card balance increased to a record 51%.


Student Loans- Student loan interest resumed on 9/1/23 and payments resumed in October after a 43-month pandemic pause, effectively acting like a pay cut to pinch household budgets.


Housing- 30-year fixed mortgage rates reached 7.49% (October) and have slowly fallen since then. There was a “golden handcuff” housing market with few existing homes for sale. Owners did not want to lose low-rate mortgages. Also, increased interest in ARMs and assumable loans.


Banking- The FDIC stepped in to protect Silicon Valley Bank depositors and 11 large U.S. banks rescued First Republic Bank. Small and mid-size banks lost market share and online bank savings accounts and CDs and money market accounts were paying 4.5%-5% by year-end.


Investments- There was an inverted yield curve where short-term debt returns exceeded long-term debt and renewed interest in bonds as interest rates reached historic levels. Money market fund yields hit their highest level since 2007 and Treasury yields rose to decade-plus highs.


Stocks- There was volatility (up and down) during the first 10 months of 2023, followed by one of the best Novembers on record that extended into December. The DJIA index was 33136.37 on 1/3/23, reached record highs in mid-December, and closed at 37656.52 on 12/27/23. Also, the share of Americans owning stock directly/indirectly (58%) reached its highest point ever.


Shopping- Subscription service (e.g., streaming, satellite radio) cancellations surpassed new orders and “premiumization” (higher cost tier products and services) flourished. Also, buy now, pay later (BNPL) was increasingly used for basic necessities and BNPL standards tightened.


Car-Buying- By Q3 of 2023, the average new car loan interest rate was 7.4% (highest since 2007) and the average car payment was $736 per month, a record high. Only one new car was available for under $20,000 and 1 in 6 car buyers committed to a monthly payment of $1,000+.


To learn more, review this list of references about 2023 research studies, trends and events.

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, December 21, 2023

Useful Information “Nuggets” From 2023 Webinars

Every few months, I review my personal learning journal and summarize notes taken from various webinars. Below are 12 nuggets of information that I gleaned from 2023 webinars:

Getting Going- Some people procrastinate on saving for financial goals because goals seem too big and intimidating. Flip this around, focus on small do-able steps, and start doing something.


529 Plan Myth- Some people think having a 529 plan lowers chances for college financial aid. In reality, only 5.64% of parents’ 529 account balance is reported as an asset on FAFSA forms.


Savings Account Labels- Naming a savings account for a financial goal (e.g., vacation fund) and posting pictures of the goal can provide increased motivation and accountability.


Estate Non-Planning- More than 60% of Americans have no estate plan. #1 reason: thinking they don’t have enough assets. $70 trillion is expected to be transferred in the next two decades.


Property Transfers- There are 4 ways to transfer property: by contract (e.g., beneficiary designation), by law (e.g., joint tenancy with right of survivorship), by a trust, and by probate.


Debt Avalanche- This is where you list debts from highest interest (APR) to lowest and aggressively tackle high APR debt first by making extra payments beyond the minimum. With a debt snowball, you list debts by outstanding balance and pay extra on smallest balances first.


Workplace Roth Accounts- Effective January 1, 2024, no required minimum distributions (RMDs) are required from workplace Roth accounts (e.g., 401(k), 403(b), 457b, and TSP). This change, therefore, aligns workplace Roth account rules with Roth IRA rules.


Tax Uncertainty- The tax code is written in pencil. Income taxes are headed higher in 2026 if Congress does not pass a new tax law and the 2017 Tax Cuts and Jobs Act expires. This adds a sense of urgency to tax planning strategies such as Roth IRA conversions.


Romance Scams- These often start on social media and move to messaging apps. Soon, fraudsters talk about a future together (but they never meet) and then come requests for money.


Social Security Formula- Work in your late 60s and 70s can increase your Social Security benefit by replacing years with “0” earnings or low-earning years from your teens or early 20s.


Individualism- The U.S. is the most individualistic culture in the world. The opposite of individualism is collectivism (i.e., a high value on group work). Americans are expected to take care of themselves instead of relying on family members (although many eventually do).


Behavioral Finance- Three major behavioral finance biases are confirmation bias (seeking validation to support what you already believe), overconfidence (thinking you know more than you actually do and are “above average” compared to others) and loss aversion (feeling the pain of a loss more than the joy of an equivalent gain).

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, December 14, 2023

Twelve Signs That You Are Ready to Retire

 Many older adults retire at the end of December to “start fresh” financially in a new calendar (and tax) year. Many younger adults wonder when they will be ready to retire and how they will know. Below is a brief discussion (in no particular order) of 12 signs of retirement readiness:

Financial Preparedness- This includes adequate savings and other income sources (e.g., Social Security, pension, rent) as indicated by online tools like the FINRA Retirement Calculator.


Financial Independence- Multiple income sources that provide the ability to support your desired lifestyle without a paycheck from an employer.


Retirement Savings Accounts- Money saved, preferably for decades, in tax-deferred employer retirement accounts; e.g., 401(k), 403(b), and 457 plans and the thrift savings plan (TSP).


No or Low Debt- Major debts are paid off or have low balances including mortgages, home equity loans, car loans, student loans, and outstanding credit card balances.


Adequate Emergency Savings- At least three to six months of essential living expenses are set aside for emergencies (e.g., car repairs, new appliances, vet bills).


Health Insurance Coverage- There is a solid health insurance plan in place including Original Medicare with a supplemental policy, Medicare Advantage, or an employer’s retiree coverage.


Social Security Knowledge- An understanding of Social Security benefits and how much will be left after subtracting Medicare premiums, including IRMAA for high-income retirees.


Clear Retirement Goals- A clear vision of how you want to spend your retirement years (e.g., travel, volunteerism, entrepreneurship, part-time work, sports/hobbies, family caregiving).


Mental Readiness- Emotionally prepared for the transition from a work-oriented lifestyle to a more leisurely lifestyle where work is optional and there is more unstructured time.


Identity Bridges- Established hobbies, interests, and activities from pre-retirement years that can carry over into later life to provide meaning, structure, and “a reason to get up in the morning.”


Family Considerations- Agreement with a spouse on the timing of your respective workplace exits, where you will live, and activities that will be pursued individually and together.


Work Satisfaction- A feeling of satisfaction with having achieved career goals and a desire to make work optional in the future or dissatisfaction with your current work environment and a desire to leave.


For additional information about retirement readiness and financial transitions that occur in later life, read my book, Flipping a Switch.

Thursday, December 7, 2023

Year-End Tax Moves to Save Money

 As the year winds down so, too, does your opportunity to take proactive steps to reduce 2023 income tax due in April 2024 and, perhaps, taxes due in future years as well.  Below are some money-saving tax planning strategies to consider. Seek professional advice as needed.

Early RMD Withdrawals- The “financial gap years” between age 59½ and 73 (or 75 if born in 1960 or later) are when there are no longer penalties for withdrawals from tax-deferred accounts but required minimum distributions are not yet mandatory. Sometimes it makes sense to pay taxes voluntarily at a lower tax rate during gap years to save on taxes later at a higher tax rate.


Draft Tax Return- A draft tax return with “best estimates” of taxable income and tax write-offs is the first step in a year-end tax review. By early December 2023, income and tax withholding should be pretty predictable and tax-saving strategies taken so far (e.g., tax-deferred retirement plan contributions and charitable gifting) are already accounted for.


Year-to-Year Comparison- Once a draft 2023 tax return is prepared, compare it to 2022. Look for big changes in income and expenses that will affect taxes owed. Example: savers earned about 0.25% interest in 2022 vs. 4.5%+ with online banks and money market funds in 2023. On large account balances, this could result in a big difference of thousands of dollars of additional taxable income (e.g., $250,000 x .0025 = $625 versus $250,000 x .045 = $11,250).


Tax-Loss Harvesting- This is where investors proactively take a loss on the sale of securities to offset realized capital gains. If losses exceed gains, up to $3,000 can be claimed against other taxable income and any losses beyond that carried forward to future tax years. Securities held for a year and a day or longer are taxed at long-term capital gains rates (versus ordinary income rates for short-term gains) so it is important to review their holding period before selling.


Tax Bracket Planning- The objective is to control your marginal tax bracket to avoid paying taxes at a higher rate. For example, if you are near the top of the income range for the 12% tax bracket, you want to try to avoid slipping into the 22% tax bracket, which is a big jump. Knowing where you stand can inform tax-reducing strategies such as Roth IRA conversions, deferring income from 2023 to 2024, increasing retirement plan contributions, and “bunching” itemized deductions such as charitable contributions and property taxes due in early 2024.


Fourth Quarter Estimate- The last opportunity to apply tax payments toward expected 2023 tax liability and avoid an under-withholding penalty is a fourth quarter estimated tax payment due January 16, 2024. By early January, all information for a tax return should be known, including mutual fund dividend/capital gain distributions that are passed through to investors.


For additional year-end tax-saving strategies, consult with a tax advisor or financial planner and/or review this publication from Intuit.

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.

Saturday, December 2, 2023

My Key Take-Aways From The #AFCPE2023 Symposium

I recently attended the 2023 Association for Financial Counseling and Planning Education (AFCPE) Symposium along with over 600 financial educators, researchers, planners, counselors, and other practitioners. Below are six key take-aways:


Climate and Finances- Financial impacts of climate change include the cost of property damage and infrastructure repairs (think floods, hurricanes, wildfires, and tornados), higher home energy spending (e.g., air conditioning due to more frequent heat waves), chronic health condition expenses (e.g., asthma), and higher property insurance premiums.


Nursing Home Admission- The median stay in a nursing home is 2.2 years. Older adults applying for Medicaid funding need cash for about three months of care because it takes that long to process an application. Medicaid will reimburse this cost (if approved), but it will not pay for nursing home care until someone is admitted to a nursing home and nursing homes will not admit patients without an upfront payment. Houses should be retitled solely in the name of the community (non-institutionalized) spouse or Medicaid will put a lien on it.


Financial Biases- People have many biases that affect their financial behavior. Examples include anchoring (latching on to an inappropriate reference point) and the endowment effect (over-valuing things that you own). Ways to leverage biases for good include automating positive behaviors (e.g., savings), having an accountability partner, and setting up personal decision rules (e.g., “if my stock goes up 10%, I’ll sell 10% of the shares”).


Consumer Debt- Outstanding consumer debt in the U.S. now totals $15 trillion and many households are one financial shock away from financial distress. In addition, Buy Now, Pay Later (BNPL) sales have experienced a ten-fold increase in recent years. BNPL started as a product for beauty and apparel items but is now used for many types of purchases (e.g., travel).


“Oldest Old” Adults- There are four types of caregivers and many people experience multiple types: those who have been caregivers, are caregivers, will be caregivers, and will need caregivers. Adults age 85+ are the fastest growing age demographic in the U.S. and experience the greatest incidence of cognitive decline, making them vulnerable to financial fraud. Protective factors against financial fraud are a lifetime of knowledge, prior knowledge and education about scams, and disclosure of scam attempts to others.

The Power of Stories- Powerful brain chemicals are released when people share stories and one of them, cortisol, assists with retention of information and memories. Financial educators (and anyone trying to influence others) should be both story tellers and story listeners. The story listening process consists of four steps: receiving information, appreciating the story (e.g., “thank you for sharing this with me”), summarizing (i.e., repeating back what you heard), and asking follow-up questions (e.g., “can you share more with me about…?” and “tell me more about that”).

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...