By Scott Albraccio

Employees today have been inundated with statistics about outliving their 401(k) savings, and warnings that they need to start saving as much as they can, as soon as they can, to make sure they have enough to carry them through retirement. Life expectancy has increased as well, to 85 for men and 87 for women based on the most recent IRA actuarial tables, and this is also putting pressure on people to save.

There is an ongoing war for talent — employment levels are still low compared to pre-COVID numbers — and it is more important than ever for employers to offer a competitive benefits package to current and prospective employees. 

In this blog, I’ll share the most common pitfall employers face in setting up and managing their retirement plans, and offer insights on how you can create a competitive plan that will attract and retain employees.

Eligibility waiting period

I have had the opportunity to speak with many companies’ HR executives and review their retirement plans, and there’s one pitfall I see over and over again: the 12-month waiting period for eligibility.

This, unfortunately, is no longer acceptable to new hires. Any potential employee evaluating his or her employment opportunities is going to want to start saving for retirement as soon as possible.

Employers are more concerned about their employees’ long-term well-being, too. Some are scaling back the waiting period for retirement eligibility, allowing new employees to more quickly start saving and take advantage of employer matches. I’ve been advising companies to set a waiting period of no more than three months.

Auto-enrollment and auto-escalation

I see more and more plans being amended to implement auto-enrollment and auto-escalation for new participants. As the name suggests, auto-enrollment automatically signs up an employee to make a 3% contribution to a retirement plan while auto-escalation increases this share by 1% every year to a maximum contribution of 10%.

There are opt-out clauses if a participant does not want to contribute, and they have 90 days to request a refund of their deposits. This acts as a protection for the plan sponsor (the plan’s fiduciary) so the employee cannot accuse the sponsor of not making the plan available. 

Safe harbor match

Not offering a competitive “safe harbor” match can make you less attractive as an employer to
prospective employees. The basic match has always been 100% of the first 3% and 50% of the next 2% of compensation, for a total maximum employer contribution of 4%. I see more employers moving to 6%, in addition to a discretionary profit-sharing contribution.

The safe harbor match may also be an issue for your Highly Compensated Employees (HCEs). If your HCEs receive a refund of deferrals at the end of the year, you are most likely violating the testing your Third Party Administrator (TPA) is conducting. 

Qualified plans need to provide balance between your lower paid workers and your HCEs. There must be equality between the two groups representative of the percentage of savings vs. earnings.

Tax advantages

Depending on your type of business (small closely held or large employer) you have tax advantages related to the type of retirement plans you fund, defined contribution vs. defined benefit. You should consult with your TPA, CPA and financial advisor as to the best option given your situation.

SECURE ACT 2.0

The newly passed SECURE Act 2.0 (Setting Every Community Up for Retirement Enhancement) will mandate some of these options for all new plans starting in 2023 and 2024. It also offers tax credits to employers for matching contributions in newly established plans, and rewards participants with additional incentives.

The team at Grey Ledge Advisors can help ensure that you set up the best retirement plan for your current and future employees. Give us a call today at 203-458-5414.

The New Haven Business Journal has recognized Grey Ledge Advisors President and CEO Kenneth R. Russell Jr. as a member of their ‘Power 25’ list for 2023. The prestigious Power 25 for 2023 includes leaders from around the New Haven metropolitan area including New Haven Mayor Justin Elicker, Yale Ventures Managing Director Josh Geballe, and Yale New Haven Health CFO Gail Kosyla, among others.

“I am incredibly honored to be named among some of the most dynamic business and community leaders in our region,’ Russell said. “However, I don’t consider this recognition as a reflection of any personal accomplishment, but rather as the direct result of the Grey Ledge Advisors team and their extraordinary ability to find pathways to every client’s financial goals while providing outstanding client service.”

Read the New Haven Biz Journal Article here.

Financial planning begins with getting to know you, your family, and your current financial situation. We ask about your financial concerns and your goals for the future. The financial plan provides a roadmap for you to follow to achieve your financial goals. It is a living document that we review together regularly and update whenever you encounter life changes, such as a change in marital status, retirement, an inheritance, or sale of a business.

Preparing for the long term is a process that involves research and careful consideration of both your short and long-term goals. Our financial team can help you be more prepared to create financial strategies that best suit your situation and ensure long-term success.

A sound portfolio management strategy begins with asset allocation—that is, dividing investments among the major asset categories of equities (stocks), bonds, and cash. You can then make finer distinctions within each broad category. For example, within the equity category, you could diversify among large company stocks, small company stocks, and international stocks; and within the bond category, you could separate short-term and long-term bond investments. Since the various investment categories have different characteristics, they generally don’t rise or fall at the same time. Consequently, combining different asset classes can help balance risk and may improve the overall return of a portfolio.

The main objective of asset allocation is to match the investment characteristics of the various investment categories to the most important aspects of your personal investment profile—that is, your risk tolerance and your time horizon.

Investing according to your risk tolerance will help keep you from abandoning your investment plan during times of market turbulence. Finding an appropriate match means balancing your tolerance for risk against the different volatility levels of various asset classes. For example, low risk tolerance may dictate a portfolio that emphasizes conservative investments, while sacrificing the potentially higher returns that usually involve greater degrees of risk.

Asset allocation is more a personal process than a strategy based on a set formula. Building an investment portfolio that is right for you involves matching the risk-return tradeoffs of various asset classes to your unique investment profile. It may be prudent to consult with a financial professional to help determine the investment mix that is right for you.

Grey Ledge Advisors Summary and Outlook 2024

As the year comes to an end, we welcome 2024 and would like to share our current market views and present an outlook for the year ahead. There is no doubt that 2023 has been a year of immense events in areas such as Innovations (AI and GLP drugs), Markets, Interest Rates, and the Federal Reserve. We don’t expect 2024 to be a lackluster year either. Below we opine in detail on the above factors with respect to our view on their future expectations:

Innovations

AI (Artificial Intelligence)

We still can’t wrap our heads around the fact that Sam Altman CEO of OpenAI was overlooked as Time person of the year in favor of Taylor Swift. Although AI wasn’t invented in 2023, it was widely disseminated to the general public in the form of a chatbot by OpenAI, featuring their Large Language Model (LLM) known as ChatGPT. This was surprising to everyone, from professionals to amateurs. AI was dismissed before ChatGPT given the previous false starts of the technology and understanding and doing the work as, at best, average.

The first version of ChatGPT 3.5 could do the following:

The next iteration, GPT 4 (OpenAI ships products quickly, that is one reason the CEO was ousted) went one step further:

As this became clear, investors rushed in, adding a trillion-dollars in market capitalization to Microsoft and Nvidia, with the latter entering the trillion-dollar club. Significant investments were made in other semiconductor and software companies as well.

GLP-1 Weight Loss drugs

When FT’s person of the year 2023 was awarded to Lars Fruergaard Jørgensen, the chief executive of Danish firm behind Ozempic & Wegovy, some of our faith in humanity was restored. The advent of weight loss drugs is such a breakthrough moment in healthcare that there is a shortage of drugs even after almost one year of them being widely prescribed.

After 32 years in the making, the appetite-reducing hormone GLP-1’s version, semaglutide, was first approved for diabetes patients in 2009. In 2015, a weight loss drug was approved, but it only facilitated a 5% reduction in weight. It took scientists another 6 years and hundreds of millions of dollars in spending on clinical trials for current versions of the drugs to be approved. 2023 became the year when it became more than a celebrity fad drug with it going viral on Tik-Tok and Instagram with 1.3B mentions. The result was that two companies’ (Novo-Nordisk & Eli Lilly’s) innovation, primarily used for diabetes, changed the health industry’s landscape in such a way that its ramification will hit the lives of many people and companies.

The companies claim that along with 15%+ weight loss potential, there is a 20% reduction in heart attacks in overweight patients. A Greyledge Advisor’s team member, a user of the drug, explained the benefits go beyond weight loss. Hypertension, fatty liver, and other health vital signs have improved drastically after taking Ozempic for more than five months.

While investing in innovations might seem obvious, in reality, similar to other aspects of investing, it is more challenging. A few examples below summarize historical innovations and the wealth multipliers that went along with them:

  1. Amazon (E-Commerce, Internet): As a leader in e-commerce, Amazon has significantly outgrown the market cap of many other network providers (ATT & Verizon). Market Cap: Approximately $1 trillion.
  2. Coca-Cola (Beverage, Refrigeration): Coca-Cola, leveraging refrigeration technology, has a market cap that surpasses most other companies in the refrigeration industry. Market Cap: Approximately $250 billion.
  3. Facebook (Meta) (Social Media, Smartphone): Facebook has capitalized on the smartphone (Nokia, blackberry) revolution. Market Cap: Approximately $900 billion.
  4. ExxonMobil (Oil and Gas, Automobile): Benefited from the automobile’s popularity. Market Cap: Approximately $400 billion.
  5. Booking.com (Online Booking, Air Travel): Capitalized on the convenience of air travel. Market Cap: Approximately $122 billion (larger than all US air travel companies combined)
  6. Microsoft (Software, Personal Computing): A major software provider for personal computers. Market Cap: Approximately $2.77 trillion. Larger than all of the P.C. makers combined.

We believe the big winners from AI and GLP drugs are yet to be decided, apart from the first derivative winners, which are obvious.

While we believe there will be enormous productivity gains along with new functions emerging, the risk of Cyber-attacks on the cloud space are higher than ever. AI makes it easier for hackers to crack redundant security systems and gain access to computer and cloud networks for a ransom.

As recently as November 2023 the Industrial and Commercial Bank of China (ICBC) was hacked and had to pay ransom to regain access to email and other systems. This attack made headlines as it disrupted the most liquid treasury market in the world, which is essential for the financial plumbing that provides liquidity to institutions worldwide.

Number of incidents in 2023: 1,404
Number of breached records in 2023: 5,951,612,884
Source: itgovernance.co.uk 5th Dec,23

Cybersecurity companies, already growing at 25% year-on-year, will likely continue at this pace as companies scramble to prepare for new threats. While there will be other winners as AI develops, cybersecurity stocks are our special focus as they will benefit from a surge of companies scrambling to protect their data and networks.

The second derivative winners around the weight loss arena will be hard to predict, but recent trends show apparel, leisure brands and fitness focused companies already showing gains as traction of weight loss drugs increases. There may be more losers than winners from this transition as appetite for snacking and alcohol decreases, directly affecting loyal customers of fast-food chains, snacking companies and spirits producers.

Markets, Interest Rates & Federal Reserve

Markets today stand near all-time highs and interest rates are significantly lower after hitting a high of around 5% (10-year Treasury note) in October 2023. Markets often climb a wall worry and seem to be doing the same thing now. We all read in the news headlines that there are plenty of things to worry about. The S&P 500 is up 24% for the year after falling 19% in 2023. There were significant previous headwinds predicted which ended up not happening- e.g. the economy falling into recession. Other events could have caused a significant market downturn but didn’t – think the collapse of Silicon Valley Bank and the shotgun marriage of one the oldest financial institution in the world – Credit Suisse being absorbed by UBS, essentially dissolving the former.

Inflation halved in July, giving a significant boost to the market, coinciding with the Federal Reserve pausing interest rate hikes and leaving things on hold ever since. We witnessed inflation reaccelerating again in October along with crude Oil crossing $97/barrel as Hamas attacked Israel. As December arrived inflation cooled and is heading to the 2% level, while oil is below $70/barrel. The price of oil spiraling out of control due to the conflict in middle east has not yet materialized.

There was a meaningful change in the tone of Federal Reserve chairman Powell’s choice of words from December 1st to December 13th. Inflation numbers cooled, signaling a retreat from the hawkish stance stressing the need for “a significant period of tightening is needed” to “we are looking to cut interest rates in 2024”. This fueled a huge rally in the bond market as well as the equity markets as it sent a signal possibly drawing the curtains on tight liquidity.

While the exact reasons for the Federal Reserve’s change in stance remain unknown, speculation suggests that the Chairman did not want to risk a recession similar to what Germany is experiencing, especially as the U.S. enters an election year.

In our view, this significantly changes the dynamics for risk assets in 2024 from what has been to what could be. We agree in principle with the motto “never fight the Fed”. Recent robust growth of the economy (4.5% in Q3 2023) is expected to slow to 1.5% next year, side stepping any expected weakness as projected by the IMF.

The record unemployment rate coupled with continued federal spending and loosening of financial conditions as suggested by the Fed will play a significant role in returns for the new year.

Barring any financial accidents, we expect interest rates to fall further next year, thereby boosting both the income and capital returns of bond portfolios.

The stock market would benefit from a broadening of the rally with all other sectors joining the magnificent 7 stocks, which were the main driver of the returns in 2023.

Risks to above projections:

  1. All good news about the easing of financial conditions may have already been priced into the market and any negative inflation surprises would be harmful to the rally.
  2. Spending by congress could be jeopardized in January as the new speaker of the house presses for border security in exchange for more spending.
  3. Commodity prices start to accelerate once again.
  4. Growth of US economy slows below 1% as previous tightening of financial conditions start to weigh in with lagged effects.

As we look towards 2024, it’s essential for investors to approach the market with a balanced perspective of caution and proactive strategy. Monitoring shifts in monetary policy, keeping abreast of geopolitical changes, and understanding macroeconomic movements are critical for recognizing both risks and potential return areas. The general market outlook appears promising but being alert and flexible will be important in making the most out of the markets.

By Ted Reagle
​
​In December, Congress approved the SECURE Act 2.0 to enhance retirement savings. Here’s how those changes will affect your retirement planning.
 
Most notably, the age at which individuals must begin taking required minimum distributions (RMDs) from 401(k) or IRA accounts increases to age 73 this year. The age for initial RMDs has been creeping upward, reflecting the longer life expectancy seniors are enjoying. Just four years ago, the age for initial RMDs increased from 70 to 72; in 2033, it will increase to 75.
 
Furthermore, starting in 2025, the amount of the “catch-up” contribution for individuals ages 60 to 63 who are still working will increase 50 percent, from $7,500 to $11,250.
 
For this year, though, the maximum employee contribution to a 401(k) plan is $22,500, plus an additional $7,500 for individuals 50 and over. January is a great time to consider increasing your annual percentage contribution to your 401(k) plan to take advantage of the tax-deferred savings and power of compound interest to grow your retirement account over a long period of time.
 
Also in 2023, the limit on annual contributions to an IRA will increase by $500 to $6,500. The IRA catch-up contribution limit for individuals age 50 and over remains $1,000 in 2023. Hence, if you are over age 50 you may contribute $7,500 to your IRA this year. Starting in 2024, the IRA catch-up contribution will rise annually indexed to inflation.
 
SECURE 2.0 makes another interesting change related to 529 college savings plans. Individuals have the option to roll over up to $35,000 from a 529 plan (such as CHET) into a Roth IRA in the name of the student beneficiary. In order to take this step, the 529 plan must have been open for at least 15 years.
 
Find a better savings rate
If you have a significant balance in a savings or IRA account at a bank and are frustrated by the account’s low interest rate, you can set up a brokerage account to take advantage of the higher interest rates being offered on CDs and U.S. Treasuries. Presently, these low-risk investments are earning between 4 and 5 percent interest. Give us a call if you would like more information regarding putting your savings to better work.
 
Feeling the pinch of higher prices?
Like many families, we’ve been feeling the impact of higher prices on our household budget.  To keep our living expenses down, we started grocery shopping at a local discount grocery store and have noticed significant savings compared to the large grocery chains in our area. 
 
If you would like to reduce your living expenses, I encourage you to give a discount grocery store a try.  You may be pleasantly surprised by the selection, customer service, and (of course) the extra money you get to keep in your pocket.

To our clients,

The holidays are a time for giving, both to brighten our loved ones’ days and to give back to the community. Grey Ledge Advisors has decided to honor this spirit of giving this year by asking its employees to name the nonprofits they would like us to support with an annual donation.

We were excited to see which charitable causes our employees hold close to their hearts and touched by the stories they shared about why the selected nonprofits are important to them. Our employees recognized 13 organizations specializing in food security, health care, literacy, animal rescue, and other good work.

Funds will be distributed to:

A Place Called Hope, Killingworth
Branford Food Pantry, Branford
Chapel Haven, New Haven
Connecticut Foodshare, Wallingford
Dan Cosgrove Animal Shelter, Branford
Downtown Evening Soup Kitchen (D.E.S.K), New Haven
G.R.O.W.E.R.S., New Haven
Help Willy’s Friends, Durham
Kid-U-Not, Branford
Master’s Manna, Wallingford
New Haven Reads, New Haven
Paul Dostie Kare Foundation, Guilford
Toys for Tots

We’d like to extend our warmest appreciation to the employees who helped us identify ways to make our community a better place. To them, and to our clients, we wish a season full of merry rejoicing and happy festivities.

Sincerely,

Ken Russell
President & CEO
Grey Ledge Advisors

Follow our series of donations on Linkedin

Yes, there are good things about being older, such as increased happiness, less stress, better marriages and deeper friendships. 

I’m in my early 60s and when my 20-something children tell me I’m getting old, my now familiar response to them has become, “Yes, that’s the plan!”  ​

While it seems true that what was defined as “old” as little as 20 years ago might not seem “old” now; regardless of our definition, though, we’re going to be slowing down physically. What is important to remember, though, is that our expenses don’t necessarily slow down with us. 

One of the biggest threats to a retirement nest egg, besides the possibility of outliving it, is the high cost of care for increasing health needs.

Things Get Better With Age
An article in Consumer Reports on Health found there are some things that actually get better with age:

1. You get wiser. Research conducted by the Universities of Texas and Michigan found that significantly more older people ranked in the top 20% in wisdom performance, and the group with an average age of 65 consistently outperformed younger participants.

Maybe there’s some truth to the joke about parents seeming to get smarter as their kids get older.

2. You have fewer difficult emotions. A Gallup survey found that people in their 70s and 80s reported less stress, worry, and anger than younger respondents. Stress peaks at age 25 and steadily declines, dropping rapidly from 60 to 73. Perhaps we have something to look forward to! 

3. You become happier. A study by Stanford and Tufts University professors said that aging is associated with increased emotional well-being. 

4. Your marriage gets better. The Journal of Social and Personal Relationships found that older couples experience greater satisfaction and positive experiences with each other. The report also says happily married older people have better health, quality of life, and relationships with their children and friends. 

This may well be a case of what statisticians call selection bias, as perhaps only the better marriages actually last into old age these days; but it does give one something to think about.   

5. Your relationships get deeper and richer. While younger people have more friends, the quality of older people’s relationships becomes richer. A study done by Case Western Reserve University found that volunteering was the most consistent predictor of cognitive well-being in people over age 72. 

Consult Your Team
While there can be much to enjoy about a long(er) life, one key to keeping it as financially secure as possible is to keep in contact with your financial advisory team. Just like your physician and other medical experts can help keep your body working at its best (for its age), so too can your financial advisor and their team help you enjoy the security that can contribute to some of that less stressful living that awaits you!  

Please feel free to contact us at Grey Ledge Advisors if you think we can help you in any way. 

Your estate planning process involves a team consisting of your attorney, your Grey Ledge advisor, perhaps an insurance professional, and you. Whether you are establishing a new estate plan or revising an existing one, only you can provide the guidance, direction, and information your estate planning team needs to develop an effective plan. 

Most estate planning efforts begin with a questionnaire and an asset inventory. Although the process may seem cumbersome, the more complete the information you provide, the better equipped we will be to help you achieve your goals. Even questions that seem intrusive at first have specific purposes. Following are some examples of the kinds of estate planning information you may be asked to provide: 

Assets and Liabilities. A list of your assets, their estimated net value, and documentation of the form of ownership (individual, joint tenancy, tenancy by the entirety, and other forms of co-ownership). You will also need to identify your liabilities and those of your spouse. If you live, or have ever lived, in a community property state, you will need to provide information to separate your individual and community property and to determine who is responsible for the management and control of community property. 

Family and Other Beneficiaries. The names, ages, relationships, and special needs of family members and other beneficiaries. A copy of property settlements, other financial agreements, and court decrees from any prior marriages of both you and your spouse. 

Existing Estate Plans. A copy of your current will, along with information on any contractual or legal restrictions on the disposition of your assets. In addition, documentation of survivorship provisions and beneficiary designations on insurance policies, retirement plans, employee benefit plans, business buy-sell agreements, and other such assets. 

Health Status. Information on your current health status and that of your beneficiaries. Also, the average life spans of your ancestors and their ages at death. 

Objectives and Purposes. Your objectives, purposes, and hopes for yourself and each beneficiary, along with an assessment of each beneficiary’s ability to manage money. 

Benefits of Team Work 
Once fully informed, your team can assist you in several important ways. We can: 1) Analyze your assets to determine which you should dispose of during your lifetime, which you should retain, and whether any special expertise may be required to value and dispose of your assets; 2) Identify which assets may be subject to probate and estate taxes and estimate the potential shrinkage due to these costs; 3) Estimate and plan for the liquidity (cash) needs of your estate, your surviving spouse, and other family members and beneficiaries (for instance, cash may be needed to help cover estate taxes, probate costs, or for income replacement); and 4) Guide you in selecting the best domicile—assuming you have a choice—to help reduce the net effect of taxes on your estate. 

No Plan is Final 
Bear in mind that no estate plan is permanent. Marriages, remarriages, births, deaths, new employee benefits, and legislative changes may all necessitate adjusting an existing plan or creating a new one. Also, the composition of your assets may change over time. You can keep your estate plan up-to-date by notifying us of any relevant changes as they occur, and by responding when you are alerted to legislative changes that may affect your current estate plan. 

How do you get started? Call your Grey Ledge advisor and we will work with you to ensure that your final future, and that of your beneficiaries’, is aligned with your wishes.