Small Business Month is a time to celebrate the entrepreneurs in our communities who are the driving force of the American economy. If you’re a small business owner, it’s also a good time to evaluate what sets your company apart — and whether you can improve the benefits you offer to your employees.

In today’s competitive job market, a robust retirement plan can be a game-changer. SECURE Act 2.0, passed at the end of 2022, has made (or is phasing in) several changes to retirement planning that make it easier and more cost-effective for companies to offer retirement plans. The legislation also encourages employees to save for their future.

An easier way to start a plan

SECURE Act 2.0 offers a suite of benefits that make establishing and maintaining a retirement plan more cost-effective — thus helping smaller companies to start and maintain these benefits. There are now tax credits available to cover up to 100% of start-up costs for certain plans, as well as options to help offset employer contributions.

Small businesses with up to 50 employees can receive a credit covering 100% of administrative expenses (capped at $5,000) for the first three years of a new plan. There’s also an additional credit for employers with 100 or fewer employees to help offset the cost of employer contributions, up to $1,000 per employee.

If you don’t have an existing plan, you can create a streamlined deferral-only 401(k) or 403(b) starter plan with lower contribution limits. These plans are easier to administer and meet participation requirements automatically.

The legislation also makes it simpler for employers to offer Roth IRA contributions as part of their retirement plans. This option can be administered more easily, and will also appeal to employees who prefer making after-tax contributions to their retirement savings in order to make tax-free withdrawals later on.

Encouraging employee participation

Even when an employer offers a retirement plan, employees may not participate — often because they forget to opt in once they become eligible, or believe it’s preferable to retain more of their income in the present day. Failing to participate in a retirement plan is a major error, since it means an employee will miss out on an account’s potential for long-term appreciation and have much less money available in the future.

SECURE Act 2.0 aims to reduce non-participation by requiring plan providers to automatically enroll eligible employees in retirement plans established after December 29, 2022. This automatic enrollment will begin in 2025, with an initial contribution set by the employer between3% and 10% and an automatic increase of 1% each year to a minimum of 10% or a maximum of 15%. 

This requirement means companies take a more active role in helping their employees start and advance their retirement savings, while still giving employees the option to opt out. Note that some businesses are excluded from the requirement, including small businesses with fewer than 10 employees and businesses that are less than three years old.

Also starting in 2025, part-time workers who meet eligibility requirements (at least 21 years old and at least 500 hours of service in two consecutive years) will be able to contribute to a 401(k) or 403(b) plan if one exists. Currently, part-time workers can only make these contributions if they have worked for a business for three consecutive years.

A saver’s match incentive beginning in 2027 will further encourage retirement savings. This will offer a government-funded 50% match on contributions to an IRA or retirement account, up to $2,000 for eligible individuals or $4,000 for eligible couples. This replaces the current system of lowering eligible employees’ tax liability, with the funds being deposited directly into the recipients’ retirement accounts.

Flexible options

The SECURE Act 2.0 also builds more flexibility into how employers can put together their plan, and how employees can access it: 

Ready to take the next step?

A strong retirement plan isn’t just good for your employees; it’s good for your business. By offering a path to financial security, you can attract and retain top talent and keep your employees happy.

Grey Ledge Advisors can help you navigate the SECURE Act 2.0 and explore your retirement plan options. We’ll work with you to design a plan that fits your budget and helps you build a winning team. Contact Grey Ledge Advisors today to learn more.

Changing jobs is an exciting time, but in the midst of the transition it’s easy to forget about your retirement savings. One common mistake people make is leaving their 401(k) behind with their old employer, which can also leave you with less control of your investments and awareness of how your portfolio is performing. 

As frequent career changes become more commonplace, it has become even more likely for retirement funds to be dispersed across multiple accounts. Research shows that the average person holds 12 jobs during their working life, or about once every four years. This can lead to quite a trail of retirement accounts at previous workplaces.

Rather than leaving your 401(k) in the hands of the former employer, you should consider rolling over these funds to an IRA when you switch jobs. This action will help you manage your retirement savings more easily and allow you to make more informed decisions about your financial future.

Why You Shouldn’t Leave Your 401(k) Behind

Keeping your 401(k) with a former employer’s plan is usually allowed as long as you have a sufficient amount of money in the account — $5,000 in most plans. Employees sometimes opt to keep their retirement funds with a previous employer because they’re satisfied with how the account is being managed. This approach is also much preferable to cashing out the fund when you depart a job, which can often result in an early withdrawal penalty plus a tax on the distribution.

In many cases, however, employees simply leave their 401(k) behind because they don’t think to move over the funds to a new retirement account, or because they think it will be too complicated or time-consuming to do so. They may believe that it’s wiser to leave the funds to mature in a separate account as a way of diversifying their retirement investments.

Unfortunately, leaving your 401(k) with a previous employer can also create several disadvantages for your retirement savings:

Why Rolling a 401(k) Over to an IRA Benefits You

Rolling over your 401(k) savings to an IRA is a convenient way to update your retirement savings strategy when you switch jobs. There are several compelling reasons to consider taking this action:

Rolling Over Your 401(k) with Grey Ledge Advisors

Rolling over your 401(k) to an IRA is a relatively straightforward process. As a first step, you can   contact  Grey Ledge Advisors to assist you in setting up your new account with a new IRA custodian. Then you contact your current 401(k) administrator and request a direct rollover to the new IRA. Since this action transfers funds from one qualified retirement account to another and does not withdraw them, you will not incur any taxes or penalties.

If a direct transfer is not available, you’ll need to do an indirect transfer by requesting a check payable to the new IRA custodian. However, you have only 60 days from receiving the check to deposit it into your IRA to avoid tax penalties.

Working with a financial advisor like Grey Ledge Advisors will not only help you complete the rollover process efficiently, but also provide you with a valuable partner as you pursue your retirement goals. An advisor can also guide you through any unique circumstances, such as what to do when a 401(k) with a previous employer includes company stock.

Grey Ledge Advisors also abides by the fiduciary standard, which means we act in our clients’ best interests. Rather than chasing commissions, we seek out the lowest cost investments that have a higher probability of maximizing our clients’ returns — including options for minimizing IRA fees.

Contact Grey Ledge Advisors using our online form or give us a call at 203-453-9075 to begin a 401(k) rollover process.

Financial advisors handle portfolios of all sizes. Some clients have a modest sum left over to invest after accounting for their regular expenses. Others have millions of dollars they’re willing to put into the market in pursuit of strong returns.

With the growing awareness of accessible portfolio options, the misconception that you need a large amount of money to begin investing is fading. However, the amount you invest can still influence your investment strategies and goals.

Here are a few points to keep in mind:

Smaller investments won’t always affect your risk tolerance

Investing offers the potential to grow your assets more quickly than if you simply put your money into a savings account. People are sometimes wary of investing, though, since there is the possibility that your portfolio will lose value if the market dips or your investments underperform.  

For this reason, it’s important to create a budget as a first step. This allows you to compare your income, expenses, and contributions to other funds to determine how much money you can comfortably invest. 

Individuals who have a substantial amount of money available to invest will have a higher risk capacity, which means they’ll be better equipped to absorb losses on their investments without it affecting their financial well-being. For this reason, people who can afford to put more money into investing may have more risk tolerance and will pursue more aggressive high risk, high reward strategies.

People who have less money to put aside for investing are considered to have a lower risk capacity. Since a larger share of their income goes toward essential expenses, they may be more concerned about potential losses and financial difficulties if their portfolio loses value. As such, people investing smaller sums may prefer low-risk investments that offer lower returns but also greater stability.

Even if you only have a modest amount of money available to invest, you may be able to pursue a more risk-tolerant strategy if you take steps to ensure financial stability. One key step is to establish an emergency fund with enough money to cover three to six months of regular expenses. By having this dedicated account, you’ll have a safety net to address unexpected emergency expenses such as a major medical bill. This will give you a way to remain financially stable even if your portfolio loses value, allowing you to pursue investments that carry higher risks but can also produce higher returns.

Similarly, having a high risk capacity doesn’t necessarily mean that you’ll want to pursue a high-risk investment strategy. For example, if your goal is to set up an investment fund to leave to your children as part of your estate planning, you may opt for a lower risk capital preservation strategy.

Short-term goals may be prioritized with smaller portfolios

Whenever you invest your money, you should have your personal financial goals in mind. These may include long-term objectives, such as putting aside enough money to retire, and short-term objectives, such as building capital for the purchase of a home or your children’s college education.

If you have a large amount of money to invest, it’s easier to establish multiple investment strategies to pursue different goals. You’ll also likely want to contribute more money toward long-term goals, since adding capital to these investments will allow for stronger gains over the long timeframe. 

Those investing smaller amounts will need to weigh their options more carefully. It may be more challenging to pursue multiple goals with a smaller amount of funds, as this could minimize your gains. Short-term goals may take precedence over long-term ones; this priority could also necessitate a lower risk strategy, since you’ll want greater stability for certain goals (such as accumulating enough money to pay for a down payment on a house).

At the same time, investors with smaller portfolios shouldn’t lose focus on long-term investments, especially contributions to a retirement fund. Since these have a longer timeframe in which to gain value, even small contributions toward these goals can have substantial returns over time. 

Smaller portfolios should pursue more tax efficient investments

If you only have a modest amount of money to invest, you’ll want to minimize the tax impact on your portfolio in order to maximize your gains. This is particularly important for long-term investments like retirement accounts, which offer tax-advantaged options like IRAs or 401(k)s.

Some more short-term investment options will also allow greater tax efficiencies for smaller investments. These include 529 funds for education savings, where earnings are tax-exempt, and dividend-paying stocks.

Investors with larger portfolios will be more capable of spreading their investments across both tax-advantaged options and taxable accounts where gains are taxed as ordinary income. Even though these accounts will lose some value to taxation, they can also offer other advantages such as greater flexibility and higher returns.

Financial advisors provide helpful guidance for all portfolio sizes

Whether you have a lot of money to invest or a small amount, financial advisors are valuable partners who can assist you in building and maintaining your portfolio.

With smaller portfolios, a financial advisor can help you set realistic goals and create a sustainable plan for your investments. They can assist you with investment options that are well-suited for smaller portfolios, such as fractional shares and exchange-traded funds, and help adjust your strategy as your portfolio matures. 

Larger portfolios require more complex financial strategies and investment decisions, and financial advisors provide in-depth knowledge to assist with them. A financial advisor can also walk these investors through options for minimizing their tax liabilities and offer guidance on matters such as estate planning.

To set up a meeting with a financial advisor, contact Grey Ledge Advisors online or call us at 203-453-9075.

The start of a new year is often when people set goals for the next 12 months and begin making plans to achieve them. Naturally, this means it’s the perfect time to assess your financial situation and determine how much you might invest in the coming year. 

By researching your current budget, you’ll be able to determine how much of your money you can comfortably contribute toward your investment goals. This process also provides useful information for your financial advisor to help guide your decisions.

Whether you’re creating your first investment budget or updating a current one, there are four basic steps you should follow. These ensure that you’ll be able to maximize your investments while still being able to comfortably meet your other financial obligations.

1. Assess your current financial situation

Take a look at your current budget to get a sense of how much money you’re taking in each month, how much you’re spending, and how much you’ll be able to set aside. This process will also update you on the progress you’re making toward any short-term or long-term goals.

Check the past two or three months of your financial activity and plot out the following:

Creating this budget will show how much of your income you could potentially contribute to an investment portfolio. It will also let you determine if there are any areas where you might be able to adjust your spending. For example, you may opt to reduce the amount you spend each month on dining out or cancel some subscriptions in order to have more discretionary income available to invest.

2. Determine how much you can invest

One common recommendation for dividing up your after-tax income is a 50/30/20 distribution, which aims to strike a balance between meeting your basic needs, spending on discretionary items, and addressing long-term goals. This distribution commits:

Investments complicate this model to some degree, as you can consider them as a form of both savings and discretionary spending. Depending on your personal financial situation, you may opt to invest a larger share of your income (such as 25 percent) or a smaller share (10-15 percent).

Even if a larger share of your income goes toward covering basic needs and you only have a small share of your budget available for investing, you can still take this step. One common misconception is that you need to have a substantial amount of money available in order to invest. In reality, you can start an investment portfolio with a modest sum that fits your budget. You can even opt to commit a set dollar amount for investing each month rather than a specific share of your income.

Time is the most important consideration when investing. The earlier you start an investment portfolio, the longer it will have to grow. Committing to regular contributions toward your portfolio, even if it’s just a small amount of money, will allow you to grow your assets more quickly over time.

Look into setting up automations to help support your investment goals. These could include an automatic transfer to shift some of your income to your investment portfolio each time you receive a paycheck. 

3. Set your goals for investing

Once you know how much you can comfortably set aside, you should set goals you’d like to accomplish through your investments. Some common goals include having enough money to:

Your goals will dictate your investment strategies, since they will help you decide how much risk you’re willing to take on and how long you’ll need to save. For example, saving for retirement takes place over a long period of time and usually includes an adjustment of risk strategy (from higher-risk investments at a young age to more conservative investments as you near retirement). Saving for a children’s college fund is also a long-term process, typically accomplished with a tax-advantaged 529 plan. By contrast, investments intended for wealth accumulation often have a shorter timeframe and may pursue more of a high risk, high reward strategy. 

You may decide that short-term financial obligations should take precedence over investing. These could include paying off high-interest debts or building up an emergency fund sufficient to cover at least three months of living expenses. Once you have achieved these goals, you’ll be in a better financial situation and can invest more comfortably.

4. Make adjustments as necessary

An investment plan is not something you set and forget. You’ll need to revisit it periodically and make adjustments to reflect changes to your budget as well as your investment goals. 

You may be able to invest more of your income if you receive a raise, pay off a debt, or no longer need to pay for an expense such as child care. However, you may also want to reduce the amount you invest if you have taken a pay cut or are coping with higher expenses.

You should ideally review your investment plan at least once a month with your financial advisor. This will allow you to make adjustments quickly based on any changes to your circumstances.

To set up a meeting with Grey Ledge Advisors, contact us online or call 203-453-9075.

Generosity warms the heart, and our neighbors.

As is our annual holiday tradition, in honor of our clients, and in place of greeting cards and other branding items, Grey Ledge Advisors is donating to the highly respected and impactful Operation Fuel of Connecticut. 

As you know, it is our job to be aware of good investments, and there are fewer, more meaningful ways to celebrate the spirit of this season than to ensure that our neighbors are warm…and cozy. 

If you are not familiar with Operation Fuel, they serve more than 10,000 families every year, and they do so despite diminishing emergency grants and increased demand. We are honored to support this organization and the basic needs they meet. We invite you to learn more about why we selected Operation Fuel for our 2023 client honorarium.

Warm — and cozy — regards,

Ken Russell and the

Grey Ledge Advisors Team

Thanksgiving is a wonderful opportunity to get together with your family for a holiday that’s all about good food and gratitude. It can also be easily spoiled if conversations turn confrontational, which is why some subjects — namely politics and religion — are usually considered off-limits. 

Many people include financial matters on the list of off-limits topics during the holiday, but having the family together presents a perfect opportunity to discuss important financial matters — especially estate planning. While this may seem like an uncomfortable topic to bring up, effective communication with your loved ones is a critical part of the process. 

You don’t want this topic to come up by surprise, so give advance notice to your family that you’d like to make it part of the day. It doesn’t have to be the central discussion during the big meal; setting aside some time after the feast, or at some point during the long weekend, will suffice. 

Here are a few ways a family discussion about estate planning can be useful:

It helps set expectations

There has been considerable discussion about the massive wealth transfer that is expected to take place between Baby Boomers and younger generations. Fortune recently determined that the average Baby Boomer has a net worth of $970,000 to $1.2 million. An analysis by Cerulli and Associates estimates that the Baby Boomers and their parents (the Silent Generation) will pass on about $72.6 trillion to their Gen X and Millennial heirs.

This transfer of assets could have major ramifications for younger generations, especially for Millennials whose economic advancement has been hampered by challenges such as the Great Recession. Receiving a substantial sum could allow them to purchase a home, strengthen their retirement account, start an investment portfolio, or achieve other long-delayed financial goals.

However, there may also be a significant disconnect between what younger generations think they’ll inherit from their parents and what their parents are actually planning to leave them. While the figure in the Cerulli analysis is impressive, it’s worth noting that 42 percent of the wealth to be transferred is from ultra-high net worth households. A recent survey by Alliant Credit Union found that while 52 percent of Millennials believe they’ll receive an inheritance of at least $350,000, 55 percent of Baby Boomers said they were planning to leave less than $250,000 to their heirs.

Other factors also affect how much the older generations intend to leave for younger ones, or how much they’ll actually be able to pass on. Retirees must balance factors such as long-term care costs, higher costs due to inflation, and longer life expectancies to ensure that they don’t outlive their savings, and this can also limit how much money they’ll be able to pass on to their heirs.

A discussion about your finances can help set realistic expectations, and is also a good starting point for a conversation on estate planning. 

It gets the ball rolling

Failing to discuss what happens to a loved one’s assets after their death is a key source of wealth transfer problems. If you make your heirs aware of your plans and involve them in the process, it makes the process much smoother. 

An initial discussion on estate planning can simply inform your children of any plans and preparations you’ve made. Estate planning allows you to inventory all of your assets, including debts and liabilities, so you might share this information to help set expectations and discuss what you’d like to leave as an inheritance or as charitable donations. Your initial discussion can also be a useful way to inform your children about where your assets are being held, such as the names of any bank accounts, investment portfolios, and retirement accounts.

Clearly establish what steps you’ll be taking as part of your estate planning. This might include determining how your assets will be divided, setting up a will or a living trust, making preparations for long-term care, establishing health care directives, and setting up your power of attorney for financial and health care decisions in case you are incapacitated.

A Thanksgiving meeting is also a good way to get input from your offspring on your estate planning. You’ll be able to determine who is best suited to share the responsibility of this process, and make sure they’re ready for it. Your children may challenge some of your own assumptions as well; for example, you may believe that your family will want to keep a vacation home and discover in the course of the conversation that they’d prefer to sell it.

It can be the first in a series of important conversations

Estate planning is far too weighty a topic to cover in one conversation. While a discussion on Thanksgiving is a good starting point, you should regularly revisit the subject in the ensuing months and years.

Your initial talk might simply make a checklist of what you’re looking to accomplish as part of your estate planning, then make a plan for an ongoing dialogue. Perhaps you’ll want to set up weekly or monthly check-ins to keep your children up to date on your plans.

Financial advisors can help you prepare a family meeting to discuss your estate planning. These professionals will also take a considerable amount of stress off your children while also providing helpful expertise in organizing your assets, making sound investment decisions, and minimizing tax liabilities. They’ll also coordinate with attorneys overseeing the legal aspects of estate planning.

Every major life event comes with a transition period. It happens with children starting school, people getting hired for a new job, and couples getting married. In each of these cases, there’s the initial excitement over a new chapter in your life, the nervousness about what lies ahead, and eventually a comfortable routine.

Retirement is no different. Once you’ve reached that point in your life where you can comfortably leave the workforce and enjoy your newfound freedom, you’re likely to be excited early on, then grow more restless before becoming accustomed to your new situation. 

All retirees typically go through a few stages of retirement, whether it’s over a period of a decade or just a few years. Here’s a look at what you’re likely to experience in each stage, and how you might adjust your investment decisions along the way.


The pre-retirement stage occurs when you become more concerned about your post-career life than any advancement or change to the career itself. At this point, you’ll likely be satisfied to continue in your current role until it’s time to retire.

Retirement planning is essential during the pre-retirement stage, which typically extends about five to 10 years before your actual retirement. This is the time to see how your retirement portfolio is performing against your expected retirement needs; if you’re running a little short, you may need to use this time to catch up with additional contributions or possibly pursue a more aggressive growth strategy. If your savings are on track, you may want to shift to a more conservative strategy aimed at preserving the assets you’ve built up.

Assess your current debts and expenses as well as the income sources you’ll have in retirement, such as savings, pensions, retirement funds, investments, and home equity. You’ll also need to consider some major changes that come with retirement, such as changes to your health insurance that come when you move off an employer’s plan and the possibility of downsizing to a smaller home.

By meeting with a financial advisor, you can use this information to set your retirement goals and realistically plan for a lifestyle you’ll be able to afford. This planning should be an ongoing, flexible process that extends into your retirement, helping to ensure that you don’t outlive your assets and that you have enough to leave something behind for your loved ones or a meaningful charitable cause.


As the name suggests, the honeymoon stage is marked by excitement and optimism over your long-awaited retirement. You’re now free to spend your time however you’d like! 

This is also a time when retirees tend to splurge a bit, dipping into their savings to take a long-awaited dream vacation. Although it’s a major expenditure, it will also take up a smaller share of your overall savings and won’t have as substantial an impact on its growth potential as it would if you tapped into it later in life.

This stage is a good time to track your income and expenses, monitor your investments, and see how well your assets are supporting you. Your financial advisor can discuss any concerns you may have, and recommend strategies to meet upcoming expenses such as the potential for higher health care costs.


The honeymoon period is usually rather brief. After awhile, retirees start to feel bored or frustrated with the succession of wide open days, and may feel like they’ve lost their sense of purpose. 

This stage may also be accompanied by growing concerns about your finances and whether you’ll be able to meet your needs as your retirement extends for several more years. This can also be a confusing time to set a budget due to factors such as required minimum distributions from retirement accounts, Social Security eligibility, and unpredictable health care costs.

This is an especially important time to take long-term care expenses into account and meet with your financial advisor on how you can continue to prepare for them. You should also review and update any documents related to the transfer of your assets in the event of your death or incapacitation, including your power of attorney, will, and estate plan.


During the reorientation stage, you’ve had time to experience retirement and can now consider what adjustments you’d like to make. Reorientation is all about finding a new purpose and pursuing new passions now that you’ve decoupled from work. You may find yourself volunteering more, taking on new hobbies, or creating a bucket list of travel destinations.

Some retirees decide during this phase that they’d like to return to the workforce, although this is usually in a seasonal or part-time capacity. Doing so can help give more structure to your days while also bringing in some extra income.

If you’re earning extra money through a job, your financial advisor can discuss options for investing this money. They can also update your retirement plan to adjust for any financial changes that your reorientation may create.


In this final stage, you’ve established an identity and daily routine you’re satisfied with. This is similar to the routines that come with earlier adjustments in life, but you’ll have more self-direction in your decisions.

Your finances should also be routine, in that your income should be enough to meet your expenses. Your financial advisor can help you monitor your assets to make sure this is the case, and can also help you make any adjustments necessary.

By Ted Reagle

With the Federal Reserve recently raising the target Fed Funds rate to the 5.25% to 5.5% range, now remains a great opportunity—the best in a long time—for retirees to lock in attractive low-risk returns for the portion of their retirement portfolio that they do not want exposed to stock market volatility. 

As we saw last year, even short- and medium-term bond funds were quite volatile and did not provide the countermeasure to stock market declines that investors anticipated. So, locking in guaranteed returns at attractive rates in the fixed income allocation of an IRA or other investment account can be very reassuring for investors, especially after enduring nearly a decade in which returns on CDs and U.S. Treasuries were anemic.

Today, interest rates on CDs, U.S. Treasuries, and money market funds are at their highest level in 22 years. Investors can currently earn in the 5% range on any of these low-risk investments. 

Interestingly, many retirees may not be aware that these rates are available to them because the bank or institution where their IRA accounts are held may not be publicizing or offering competitive rates. These low-risk investment choices can be readily bought in an IRA or taxable brokerage account at firms like Fidelity, Schwab, Vanguard, and many others.

The window to take advantage of these attractive interest rates could likely last for several more months before interest rates start to decline. Investment pundits anticipate that the Fed could increase rates by a quarter percentage point once more before the end of 2023, and that the Fed will begin to reduce rates either by the end of the year or in 2024 as inflation is brought down to the desired 2% range. 

The Fed has raised interest rates for the past 16 months to combat inflation. Higher interest rates tend to reduce demand for goods and services because borrowing costs are higher, which in turn cools inflation. Inflation peaked at 9% in 2022, but fell to 3% in August 2023. 

With the availability of 5% returns on low-risk investments, some retirees may be inclined to significantly reduce—if not completely eliminate—their allocation or exposure to the stock market. This could prove to be sub-optimal, however. Most retirement account investors will want to continue to invest a portion of their portfolio in the stock market to enable their accounts to continue to grow sufficiently and keep pace with inflation during their retirement years. 

Historically, fixed income investments such as the ones we’ve been discussing and longer term bonds  have earned in the 5% range. By contrast, the US stock market has earned in the 10% range, though stocks experience greater market volatility. 

A portfolio comprised of 60% stock and 40% fixed income investments has evolved into a “typically appropriate” allocation for retirement accounts that strike a good balance between the desire to minimize risk with the need for the portfolio to continue growing to sustain income throughout one’s retirement years. For many retirees, investing 100% in fixed income will not provide sufficient long-term returns to support a lengthy life expectancy.

Fitch ratings

I also wanted to touch on the recent news that Fitch Ratings, one of the major bond rating services, has downgraded U.S. government debt, generally perceived to be the safest and most risk-free investment available, from their highest rating of AAA to AA+.  This is the second time in history that U.S. debt investments have been downgraded, the other time being in 2011. 

Fitch cited the federal government’s growing deficit, now at $34 trillion, as one of the main reasons for the downgrade. The rating agency also cited factors including deteriorating confidence in the government’s fiscal management due to partisan divisions and repeated standoffs over the debt limit, higher interest rates, and the failure to address medium-term challenges related to government entitlement programs.

The government deficit continues to increase in 2023, and interest expenses are increasing $180 billion this year as the cost to service government debt has risen with the increase in interest rates.  And Social Security, Medicare, and Medicaid entitlement programs are expected to continue to grow as the US population continues to age. These programs account for two-thirds of all government spending. Finally, tax revenues are down 10% so far in 2023, further exacerbating the deficit.

While the federal deficit is worrisome, the Fitch downgrade should not discourage investors from investing in CDs or Treasuries. The U.S. dollar remains the reserve currency for the world. There is global demand to own Treasuries. The U.S. economy is growing, 2.4% in the most recent quarter. Inflation is coming down. So overall the U.S. economic picture looks pretty good.

Many older adults have high levels of regret about their finances, according to responses to a 2020 survey of Americans over age 50 conducted by the University of Michigan Health and Retirement Study.

The survey found that nearly 60% of participants regretted not saving more for retirement. Forty percent regretted not buying long-term care insurance, 37% regretted not working longer, and 23% regretted taking Social Security too early.

Financial regrets may be common, but they don’t have to be inevitable. And even if you have regrets about how you prepared for retirement, these errors don’t have to be permanent. There are options for course correction, even after you’ve stopped working.

Here are four tips to help you avoid or mitigate financial mistakes in retirement.

1. Plan for long-term care expenses

One mistake that clients may make after retirement is not considering long-term care planning,

including the potential need for nursing home or assisted living expenses. These costs can deplete your assets and put a strain on your loved ones.

Someone turning 65 today has almost a 70% chance of needing some type of long-term care services and supports in their remaining years, according to the U.S. Administration on Aging. The average person requires care for three years. 

You may want to explore options for long-term care insurance and create a comprehensive estate plan that addresses the potential costs of long-term care.

2. Account for inflation

Nearly two-thirds of retirees said inflation and the rising cost of living was the “biggest financial shock” in retirement, according to surveys conducted from January to March 2023 by Edward Jones and The Harris Poll.

Respondents cited inflation as a shock more often than the combined total of the next three top

responses — unexpected medical or dental expenses (22%), major home expenses or repairs (20%), and significant declines in the value of investments (19%).

If your earlier retirement planning didn’t account for high inflation, it might be time to re-examine your retirement finances.

3. Keep managing your investments

Whether it’s to deal with inflation or for any other reason, you might want to revise your investment and/or withdrawal strategies to help your money last in retirement. You should have a retirement income plan in place that matches your current lifestyle.

4. Prepare for surprises

Even with a good retirement income plan, your finances need to be ready to deal with surprises. Unplanned expenses such as a roof replacement or a large unexpected medical bill could cause problems.

Some of these problems might be harder to deal with now than in the past. Higher inflation means those unexpected expenses might cost more than before, while you’re also spending more on the day-to-day cost of living.

Plan to put some of your retirement income aside for unforeseen costs. An emergency fund of three to six months is generally sufficient to cover or defray these expenses.

By Brant Walker, Chief Investment Strategist

“Now is always the hardest time to invest, especially when the market is exhibiting schizophrenic behavior.” 

This statement could apply to virtually any period in the last three-and-a-half years, starting with the impact of the COVID-19 pandemic and its associated disruptions. Before we take a look at the first half of 2023, it will be useful to review the market trends that have characterized this uncertain period and what they mean for current and forward-looking investing climates.

How we got here

The year 2020 started on a high note, with the S&P 500 index closing 2019 with a stellar total return of 28.9%. Then the potential gravity of the coronavirus became clear in February 2020. In five short weeks, the S&P lost 33 percent of its value, bottoming out on March 16th.

Around that time, the federal government began rapidly printing money to buttress businesses that had to shut down and employees that were ordered to stay home, many of whom lost their jobs. This infusion of cash buoyed the market, and stocks finished the year up 16.3%. 

The year 2021 was also an excellent time for stocks due to continued money creation and the wide distribution of COVID-19 vaccines, which helped restore a sense of normalcy and optimism. The S&P 500 index again finished strong, with a 27% gain for the year.

The following year, reality set in. The elevated money creation of the previous two years led to excess demand, driving inflation to a 40 year high of over 9%. The Federal Reserve reacted, perhaps belatedly, by raising interest rates from zero to where they stand today, at just over 5%. The stock market acted as it often does in a period of sharply rising rates and dropped, tumbling 19.5%. 

2023 so far

After a brief but steep stock market loss in early 2020, followed by two years of strong returns, and another significant downturn in 2022, where are we today after the first two quarters of 2023? To date, the market has done another about face by returning close to 15 percent. Schizophrenic indeed.

We are dealing with an unusual combination of data points that will need to be carefully monitored and addressed as 2023 unfolds. First, the yield curve has been inverted for well over a year, meaning short-term interest rates (think money market funds and bank CDs) are higher than longer term interest rates. In normal times it would be the other way around. 

Money funds now pay close to 5% and some short-term CD’s can be had for 5.5%. Long maturity U.S. Treasury bonds are yielding under 4%. This is due to the Federal Reserve trying to slow the economy and raise unemployment to get inflation back down to the 2% range. 

Despite this effort, the economy remains resilient. The national unemployment rate is near a 40-year low, and inflation remains stubbornly above 2%. Fiscal policy in Washington is also hampering the Federal Reserve’s intention of lowering inflation, as government spending and new social programs continue to pour money into the system. 

It may take more time than anticipated to get inflation down to target, and this is a risk to the markets — both stock and fixed income. Hence, we are approaching the second half of 2023 in a cautious stance.

The impact of AI

We also feel it is worthwhile to spend a few moments on artificial intelligence (AI). Some say the growing capabilities of AI have the potential to change the world, similar to the invention of electricity and the automobile. Time will tell, but we do know that a handful of technology stocks that are on the forefront of AI have appreciated rapidly due to current hype and their possible future potential. 

The situation is similar to market behavior in 1999, when the internet was still in its infancy. Anything labeled internet, and any company that had .com attached to its name, soared in value. There’s a reason this trend was referred to as the “dot com bubble,” though. In March of 2000, the highly touted tech stocks came back to earth. Some took years or decades to recover to their 1999 highs. Some have never recovered.

The bubble also allowed a handful of companies to dominate the tech sector and drive the majority of market returns. A similar trend is happening today, with six stocks accounting for most of the year-to-date market return in the S&P 500. We don’t know exactly how the AI cycle will play itself out. History doesn’t always repeat,but it often rhymes.

Year-over-year market changes

The benchmark S&P 500 stock index has returned 19.6% for the year ending June 30, 2023. The benchmark iShares Core US Aggregate bond index ended the same period in negative territory, logging a -3.5% return. These returns are in stark contrast to calendar year 2022, when the S&P 500 logged a negative total return of 18.1% and the iShares Aggregate bond index lost 14.6%. 

Usually, one would expect bonds to act as a buffer when stocks fell as much as they did in 2022. In calendar year 2022, both stock and bond markets began, in retrospect, at levels that would prove to be highs for the year. Both markets plummeted in sawtooth fashion before reaching their lows on or around November 1. 

This was caused by the Federal Reserve lifting short-term interest rates from essentially zero to the 5% level that is prevailing today.  Early in 2022 most market participants expected interest rates to stay near zero or increase on a much slower trajectory than what has actually happened, causing stocks and bonds to plummet. 

Stocks have staged a strong recovery since last November as the market has become more comfortable with interest rates at 5% and the economy remains resilient. In addition, the labor market remains strong, and the unemployment rate sits near historic lows.

Economists have been predicting an economic recession for the better part of a year based on the “inverted” yield curve, where short-term interest rates are higher than long-term rates. Inverted yield curves often presage economic recessions as the Fed attempts to slow economic activity and cool inflation. Some market pundits have quipped that this is the most widely predicted recession that never happened, at least up until now.

Year-end forecast and expectations

Market performance in the back half of 2023 depends on several variables which are yet to unfold. The first and most prominent factor will be how far the Fed increases its interest rates before the economy and inflation cool to acceptable levels. Recent reports show the economy remains resilient, inflation is still too high, and job creation has been surprisingly strong. 

Elevated government spending based on recent bills passed in Washington is complicating the Fed’s action to slow the economy. Common stocks are highly valued based on historical standards, particularly with short-term interest rates above 5% and potentially headed for 6%. 

We may have to “thread the needle” in the back half of 2023 for the markets to remain resilient. Meaning inflation, the economy, and the labor market will need to cool without triggering a deep recession. We suspect the second half of 2023 may be more challenging than the first half.