December 2023

$318,000

Estimated amount that a couple who retired at age 65 in 2022 might need to save to pay for retirement health-care expenses, assuming they have Original Medicare with a comprehensive Medigap policy and median prescription drug expenses. The same couple might only have to save $184,000 with a Medicare Advantage (MA) plan, assuming average usage, or $256,000 with high usage. However, MA plans typically have more restrictions than Original Medicare.

Source: Employee Benefit Research Institute, 2023

The percentage of Medicare beneficiaries enrolled in private Medicare Advantage (MA) plans has risen steadily since 2005, when higher payments from Medicare to private health insurers enabled them to offer more attractive plans to consumers. About half of Medicare beneficiaries are projected to be enrolled in private plans in 2024, with growth slowing in succeeding years. MA plans can help reduce out-of-pocket expenses and might cover services not covered by Medicare, but they often have limited networks and may require approval to cover certain medications and services.

Source: 2023 Medicare Trustees Report (data projected for 2023 to 2032); 2013 Medicare Trustees Report

Estate planning is the process of managing and preserving your assets while you are alive, and conserving and controlling their distribution after your death. There are four key estate planning documents almost everyone should have regardless of age, health, or wealth. They are: a durable power of attorney, advance medical directive(s), a will, and a letter of instruction.

Durable power of attorney
Incapacity can happen to anyone at any time, but your risk generally increases as you grow older. Consider what would happen if, for example, you were unable to make decisions or conduct your own affairs. Failing to plan may mean a court would have to appoint a guardian, and the guardian might make decisions that would be different from what you would have wanted.

A durable power of attorney (DPOA) enables you to authorize a family member or other trusted individual to make financial decisions or transact business on your behalf, even if you become incapacitated. The designated individual can do things like pay everyday expenses, collect benefits, watch over your investments, and file taxes.

There are two types of DPOAs: (1) an immediate DPOA, which is effective at once (this may be appropriate, for example, if you face a serious operation or illness), and (2) a springing DPOA, which is not effective unless you become incapacitated.

Advance medical directive(s)
An advance medical directive lets others know what forms of medical treatment you prefer and enables you to designate someone to make medical decisions for you in the event you can’t express your own wishes. If you don’t have an advance medical directive, health-care providers could use unwanted treatments and procedures to prolong your life at any cost.

There are three types of advance medical directives. Each state allows only a certain type (or types). You may find that one, two, or all three types are necessary to carry out all of your wishes for medical treatment.

A living will is a document that specifies the types of medical treatment you would want, or not want, in a particular situation. In most states, a living will takes effect only under certain circumstances, such as a terminal illness or injury. Generally, one can be used solely to decline medical treatment that “serves only to postpone the moment of death.”

A health-care proxy lets one or more family members or other trusted individuals make medical decisions for you. You decide how much power your representative will or won’t have.

A do-not-resuscitate (DNR) order is a legal form, signed by both you and your doctor, that gives health-care professionals permission to carry out your wishes.

Will
A will is quite often the cornerstone of an estate plan. It is a formal, legal document that directs how your property is to be distributed when you die. Your will should generally be written, signed by you, and witnessed. If you don’t leave a will, disbursements will be made according to state law, which might not be what you would want.

There are a couple of other important purposes for a will. It allows you to name an executor to carry out your wishes, as specified in the will, and a guardian for your minor children.

Most wills have to be filed with the probate court. The executor collects assets, pays debts and taxes owed, and distributes any remaining property to the rightful heirs. The rules vary from state to state, but in some states smaller estates are exempt from probate or qualify for an expedited process.

Letter of instruction
A letter of instruction is an informal, nonlegal document that generally accompanies a will and is used to express your personal thoughts and directions regarding what is in the will (or about other things, such as your burial wishes or where to locate other documents). This can be the most helpful document you leave for your family members and your executor.

Unlike your will, a letter of instruction remains private. Therefore, it is an opportunity to say the things you would rather not make public.

A letter of instruction is not a substitute for a will. Any directions you include in the letter are only suggestions and are not binding. The people to whom you address the letter may follow or disregard any instructions.

Take steps now
Life is unpredictable. So take steps now, while you can, to have the proper documents in place to ensure that your wishes are carried out.

The start of a new year is typically a time when people resolve to implement or recommit themselves to a personal financial goal. This year, why not consider opening a 529 plan account, or increasing your contributions to an existing account, to enhance your child’s or grandchild’s financial future? 529 plans are the most flexible they’ve ever been since their creation more than 25 years ago.

A college fund … and more
Education, in any form, can be a key life building block. A 529 plan is specifically designed for education savings. The main benefit of a 529 plan is tax related: earnings in a 529 account accumulate tax-deferred and are tax-free when withdrawn (which could be many years down the road) if the funds are used to pay qualified education expenses. Some states may also offer a tax deduction for contributions. For withdrawals not used for qualified education expenses, the earnings portion is subject to income tax and a 10% penalty.

In recent years, Congress has expanded the list of expenses that count as “qualified” for 529 plans. Here are some common expenses that qualify:

  • Tuition and fees – up to the full cost of college/graduate school, vocational/trade school, and apprenticeship programs (schools must be accredited by Department of Education and courses can be online); up to $10,000 per year for K–12
  • Housing and food (room and board) – for college/graduate school only, provided the student is enrolled at least half time
  • Computers, required software, internet access, books, supplies – for college/graduate school only
  • Paying student loans – up to $10,000 lifetime limit

In addition, starting in 2024, families who have extra funds in their 529 account can roll over up to $35,000 to a Roth IRA in the beneficiary’s name, subject to annual Roth IRA contribution limits.

Automatic contributions … and more
Sure, you could build an education fund outside of a 529 plan, but the tax advantages of 529 plans are hard to beat. Plus, 529 plans offer other benefits:

The ability to set up automatic, recurring contributions from your checking or savings account, which automates your effort and allows you to save during all types of market conditions

The flexibility to increase, decrease, or temporarily stop your recurring contributions, or to make an unscheduled lump-sum contribution, that reflects the ebbs and flows of your financial situation

The option to choose a mix of investments based on the age of the beneficiary, where account allocations become more conservative as the time for college gets closer

A separate account from your regular checking, savings, or brokerage account, which may reduce the temptation to dip into it for a non-education purpose


Building and Education Fund

Table assumes an annual 5% return. This is a hypothetical example of mathematical principles and is not intended to reflect the actual performance of any investment. Rates of return will vary over time, particularly for long-term investments. Investments with the potential for higher rates of return also carry a greater degree of risk of loss. Fees and expenses are not considered and would reduce the performance shown if they were included.


How to open a 529 account
To open a 529 savings account, select a 529 plan and fill out an application online. You will need to provide personal information, name a beneficiary, choose your investment option(s), and set up automatic contributions or make an initial one-time contribution.

There are generally fees and expenses associated with participation in a 529 plan. There is also the risk that the investments may lose money or not perform well enough to cover college costs as anticipated. The tax implications of a 529 plan should be discussed with your legal and/or tax professionals because they can vary significantly from state to state. Most states offering their own 529 plans may provide advantages and benefits exclusively for their residents and taxpayers, which may include financial aid, scholarship funds, and protection from creditors. Before investing in a 529 plan, consider the investment objectives, risks, charges, and expenses, which are available in the issuer’s official statement and should be read carefully. The official disclosure statements and applicable prospectuses, which contain this and other information about the investment options, underlying investments, and investment company, can be obtained by contacting your financial professional.

Academic researchers have been exploring how investors’ personalities might affect their financial decisions and wealth outcomes.

In one study, three finance professors (Dr. Zhengyang Jiang from Northwestern University’s Kellogg School of Management, Cameron Peng from the London School of Economics, and Hongjun Yan from DePaul University’s Driehaus College of Business) surveyed more than 3,000 members of the American Association of Individual Investors — a relatively sophisticated group of market participants. These researchers examined correlations between five personality traits and the investors’ market expectations and portfolio allocations.1

Another study (by Mark Fenton-O’Creevy from The Open University Business School and Adrian Furnham from the BI Norwegian School of Management) involved more than 3,000 U.K. participants. These authors looked for correlations between the same five personality traits and three measures of wealth: property, savings and investments, and physical items.2

The Big Five
Both studies were designed around the “Big Five” model of personality, which has long been used by psychologists to measure people’s personalities and identify their dominant tendencies, based on five broad traits. These traits are openness to experience (curious and creative), conscientiousness (organized and responsible), extraversion (sociable and action-oriented), agreeableness (cooperative and empathetic), and neuroticism (emotionally unstable and worry-prone).

Each participant was rated on a spectrum for each trait according to how they answered survey questions, the results of which typically capture how individuals differ from one another in terms of their preferences, feelings, and behaviors.

Meaningful results
The first study pinpointed two traits that were closely correlated with investors’ market perceptions and investment behavior: openness and neuroticism. Investors who scored high for openness entertained the possibility of extreme market swings, but were more willing to bear the risk, and they allocated a larger share of their investment portfolios to stocks. Highly neurotic personalities were pessimistic about market performance, worried more about a potential crash, and had a smaller portion of their assets invested in stocks. Investors who scored higher on neuroticism and extraversion were more likely to buy certain investments when they became popular with people around them — which could easily take them down the wrong road.3

The second study found that conscientiousness was positively correlated with all three measures of wealth, even more so than education level, often because this personality type

brings a diligent approach to saving and investing. Unfortunately, the traits of agreeableness, extraversion, and neuroticism were associated with lower lifetime wealth accumulation. Highly agreeable people may devote more of their money to helping others and might also be more vulnerable to financial scams, whereas extroverts could be more impulsive spenders.4

Both studies found common ground in one respect: highly neurotic investors tend to be risk-averse, and their volatility fears may cause them to have overly conservative portfolios.


Share of portfolio invested in stocks, by personality type

 

Source: The Wall Street Journal, May 19 2023


Implications for investors
You might take some time to consider how your personality impacts the many financial decisions that you make in life. Becoming more self-aware may help you tap into your strengths and counter weaknesses that could prevent you from reaching your goals.

Even the most experienced investors can fall into psychological traps, but having a long-term perspective and a thoughtfully crafted investing strategy may help you avoid costly, emotion-driven mistakes. Also, discussing your concerns with an objective financial professional might help you deal with tendencies that could potentially cloud your judgment.

All investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful. Although there is no assurance that working with a financial professional will improve investment results, a financial professional can provide education, identify appropriate strategies, and help you consider options that could have a substantial effect on your long-term financial prospects.

1,3) “Personality Differences and Investment Decision-Making,” National Bureau of Economic Research, March 2023

2, 4) “Personality and Wealth,” Financial Planning Review, 2023

As you plan for retirement, you might not give credit a second thought, especially if your plan includes paying off your mortgage and other debts, and relying more on cash than credit. But retirement could last many years, and your need for credit doesn’t necessarily disappear on your last day of work. At some point you may want to buy a second home, move to a retirement community, take out a home equity loan, or buy a vehicle; it’s also possible you will face an unexpected expense. Keeping your credit healthy may help you qualify for a lower interest rate or better terms on a loan or credit card, or if a credit check is involved, even help you land a part-time job or obtain a better deal on auto insurance.

When it comes to getting credit, it’s not growing older that matters — lenders can’t deny a credit application based solely on age. The factors that affect your ability to get credit are the same as for younger people and include your debt-to-income ratio (DTI) and your credit score.

Lenders use your DTI to measure your ability to repay money you borrow. This ratio is calculated by totaling your monthly debt payments then dividing that figure by your gross monthly income. For example, if your retirement income totals $6,000 and your debt payments total $2,000, your DTI is 33%. What’s considered a good DTI will vary, depending on lender requirements and loan type, but lenders generally look for a DTI of 43% or less.1

If there’s a reasonable chance you’ll be applying for credit after you retire, consider what your DTI might be as you evaluate your retirement income needs or decide which debts to pay off. And think carefully about taking on new debt obligations, including co-signing a loan for a family member.

Another major factor lenders consider is your credit score. Retirement doesn’t automatically affect your score, because credit reports only reflect your history of borrowing and repaying money, not your employment status or your salary. The three things that count the most toward your score are your payment history, the amount you owe on credit cards (including the percentage of available credit you’re using), and the length of your credit history.2 So continue to make credit card or loan payments on time (consider setting up autopay or reminders), aim to use no more than 10% to 30% of your credit limits, and consider the possible negative impact of closing accounts that you’ve had for years but no longer use.

Another way to help keep your credit healthy throughout retirement is to check your credit report regularly to spot errors or fraudulent transactions. You can order free copies of your credit report from Equifax, Experian, and TransUnion at the official site AnnualCreditReport.com.

1-2) Experian 2023

According to an October 2023 survey, higher interest rates impacted more than half of small businesses, and over 20% reported that higher rates and tighter lending standards influenced their hiring decisions.1

Small businesses paid an average rate of 9.1% for short-term loans in October 2023, the highest rate since 2006, and nearly twice as much as they were paying just two years ago (4.6% in August 2021).2

Despite these hurdles, many people who need working capital or want to start, invest in, or expand a business may need to borrow money. Here’s a rundown of some common financing options.

Bank loans. National and regional banks cater to the most creditworthy businesses, as they generally require significant collateral and documentation of stable profits. New or fast-growing small businesses (even healthy ones with good prospects) are often rejected. Small banks, however, tend to have higher approval rates than large banks.3

SBA programs. In fiscal year 2022, the U.S. Small Business Administration (SBA) provided more than $43 billion in financing, in many cases to guarantee loans issued by participating banks.4 The program often makes it easier to qualify for financing and may offer more competitive terms and longer repayment periods. However, traditional SBA loans also require “worthwhile” collateral, and it can take several months for qualified borrowers to complete the application process (through a local bank or online).

Other lenders. Online lenders that use digital technology to approve smaller, short-term loans can sometimes make it easier to access cash quickly, but they often charge higher interest rates and fees. Some loans may need to be backed by business assets such as securities, equipment, inventory, and accounts receivable.

HELOCs. Homeowners may have an extra source of funds to tap into for business needs. A home equity line of credit, or HELOC, is a secured loan that may offer more flexible repayment periods and competitive interest rates than many other types of business financing. But there is one major disadvantage to consider: if the business struggles and the owner can’t make loan payments, the lender could take the home.

Credit cards. Business accounts tend to charge higher interest rates — which could now be north of 20% — and offer fewer protections than personal credit cards. Using a business credit card responsibly, however, is one way that a new business can establish the positive credit history necessary to obtain bank loans at better rates in the future.

1) The Wall Street Journal, November 14, 2023
2) National Federation of Independent Business, October 2023
3) 2022 Small Business Credit Survey, Federal Reserve, 2023
4) U.S. Small Business Administration, 2022

Spire Wealth Management, LLC is a Federally Registered Investment Advisory Firm. Securities offered through an affiliated company, Spire Securities, LLC., a Registered Broker/Dealer and member FINRA/SIPC.

Neither Spire Wealth Management nor Corbett Road Wealth Management provide tax or legal advice. The information presented here is not specific to any individual’s personal circumstances. Please speak with your tax or legal professional.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Sourced by Broadridge Investor Communication Solutions, Inc. Copyright 2024

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