“What are I Bonds?” Thank you to a growing number of curious and smart clients, friends and colleagues for hammering this question enough over the past several months to warrant a TGIF 2 Minutes dedicated to I-Bonds. The “I” in I Bonds stands for inflation, which is why these bonds are so HOT at the moment. (Note: inflation overall is clearly not a good thing; I Bond interest rates may be one of the only things that benefit from skyrocketing inflation.)
Inflation is higher in 2022 than it has been in over 40 years – longer than lots of TGIF 2 Minutes readers may have been alive, and certainly longer than lots of readers have been working for, earning, and spending “real money”.
Yup, it is tax season. This year as clients and friends were completing their 2021 tax returns* the cries of, “Are you kidding me?” and “This is by far the most taxes I have ever paid in my life!” were louder than ever. There were valid reasons for wealthier taxpayers paying more taxes for tax year 2021 – far more than for tax year 2020. A few reasons were somewhat UN-related to the coronavirus pandemic, and a number of reasons were directly pandemic-related.
The majority of my clients and friends simply made more money in 2021 than 2020. (Is that a bad thing? Most likely not.) The pandemic, in a delayed fashion, led to promotions and opportunities in 2021 for lots of individuals in corporate America and at companies that “dug in” amidst epic challenges in 2020. Retention and performance bonuses wound up being paid in 2021 (continuing in 2022), following a time in late 2020 when it seemed basic compensation and jobs were at serious risk. This turnaround was a huge irony and welcome relief to a number of people – and the “flip side” became higher taxes for tax year 2021.
Clearly another topic with multiple sequels, aging has its positives and not-so-positives. Recently a slight positive – from the IRS.
Its Life Expectancy Tables, otherwise known as the “IRS Uniform Life Tables I, II and III”, have adjusted the American life expectancy UP by approximately two more years. That means that RMD amounts, or required minimum distributions, from IRA, 401k and other retirement accounts will be slightly lower when calculated. These RMDs count as taxable income so even a small break will be welcome!
Wow… year-end 2021 is fast approaching. As if 2020 was the year we all wanted to turn the page… it is deja vu all over again in 2021. BUT a positive spin can still be put on year-to-date 2021, especially with respect to market returns.
It may be too early to say that stock market gains, to date, have been better than decent in 2021. From the US small-cap index up 12%, to large-cap S&P 500 up 22%, to Nasdaq up 19%, to the Dow Jones up 13%, these are all solid year-to-date returns.
Tax planning is important stuff. Perhaps not as exciting as the markets but saving money on taxes can still be exciting! Mid-November begins the countdown to year-end. The following is a handy Tax Planning Checklist.* Some of these items, if done now, could make a big difference to the 2021 tax year AND add to savings.
1. How close are you to maxing out your 401k? The max is $19,500 for those under age 50 and an extra $6,500 for those age 50 and above. The deadline is December 31st and lots of 401k and 403b plans allow contributions of as much as 25-30% or even 100% of pay. Contribution rates can be lowered again in the new year.
Last week tgif2minutes.com explored a basic statement directly from Social Security’s SSA.gov summarizing that taxes will mostly likely need to go UP TODAY to afford Social Security in the mid 2030’s and for future generations – which is only 15 years away.
This week’s edition will present several possible changes that could take place along the path to higher taxes in order to preserve the Social Security that American workers pay into dearly and expect to receive someday.
Here starts a mini-series of TGIF 2 Minutes editions.
The following is taken directly from the current Social Security website. The italics below are copied from the website and presumably are meant for emphasis. Underlinesare mine.
The concepts of solvency, sustainability, and budget impact are common in discussions of Social Security but are not well understood. Currently, the Social Security Board of Trustees projects program cost to rise by 2035 so that taxes will be enough to pay for only 75 percent of scheduled benefits.This increase in cost results from population aging, not because we are living longer, but because birth rates dropped from three to two children per woman. Importantly, this shortfall is basically stable after 2035; adjustments to taxes or benefits that offset the effects of the lower birth rate may restore solvency for the Social Security program on a sustainable basis for the foreseeable future. Finally, as Treasury debt securities (trust fund assets) are redeemed in the future, they will just be replaced with public debt.If trust fund assets are exhausted without reform, benefits will necessarily be lowered with no effect on budget deficits.
Have you ever had back trouble? Boy can it be a pain in the ### (pun intended). Recovery is usually possible by seeking – and taking – proper advice and treatment. Believe it or not, there is a way to relate the recovery process from back pain to the recovery and durability of investment portfolios. Stay with me here!
I will credit my excellent physical therapist, who knows very well my profession as a CFP®, for coming up with the concept. He said to me, “like your advice about my 401k allocation, the physical strength work a person does for years can make recovery from back trouble much swifter and even easier.” Hooray! While the recovery process for a person’s back can take several weeks to several months, the recovery process for properly positioned investment portfolios has been actively taking place for over 12 months and could continue over the life of a portfolio.
From the January 2021 archives of TGIF 2 Minutes – a relevant 401k tax tip video. Remember, the 2020 tax filing deadline was delayed until MAY 17TH, 2021. Considering this extra time, it is never too late to plan for the rest of 2021 and beyond. Enjoy this quick video.
In the interest of the upcoming Easter and current Passover holidays today’s edition will be quick. Similar to the 1st Quarter of 2021 which seemed to FLY BY!
Market – and my clients’ portfolio – performance was strong to start the year. There is caution in the air, however, as 10-year US Treasury yields climbed to levels not seen since early 2020 before the pandemic began. The swiftness of the rise in bond yields warrants caution in the overall stock and bond markets.