Financial advisors in Troy NY

President Biden has signed the SECURE 2.0 Act, which will go into effect this year.  Here are some key take aways from the new law that could potentially impact our clients:

• The age requirement to start taking RMD’s moves to 73 in 2023, up from 72 the previous year.  The SECURE ACT also moves the RMD age to 75 beginning in 2033.  The penalty for not taking you RMD is reduced from 50% to 25% and in some cases 10%.  
• For tax yar 2023, 401k participants aged 50 and older can use the “catch up” provision to contribute $7,500 into their retirement accounts.  This amount will increase to $10,000 in 2025 for participants aged 60 to 63.  
• In 2024, student loan payments can be counted as retirement contributions on an employer match basis - Meaning, if employees are paying student loans, employers will be able to make contributions on retirement accounts on behalf of the employee.  
• Starting in 2022, employers who begin new retirement plans will now have to go the path of “opt out” instead of “opt in” for employees.  The contribution rate will be at least 3% of salary but no more than 10%.  

• Starting in 2027, low to middle income workers will be able eligible for a $2,000 per year federal contribution match into retirement plans.  

Some other notable retirement plan contribution limits that have changed in 2023:

• 401k plan contribution limits increase to $22,500, up from $20,500 in 2022.  
• IRA contribution limits increase to $6,500, up from $6,000 in 2022.  The catch-up contribution remains at $1,000 – those over 50 years old are eligible to put $7,500 into their IRA’s.  

Please give us a call at (518) 279-1044 if you have any questions regarding your accounts, the new SECURE Act or would like to update your contribution limits.

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As represented by the Bloomberg U.S. Aggregate Bond Index, returns over the past decade in fixed income can be described only as abysmal. The average annual return of the fund that tracks this index, the iShares Core US Aggregate Bond ETF (AGG) has been less than one percent. However, in part, this low interest rate environment which we appear to be exiting has also been partially responsible for the outsized returns in the equity markets as over the past decade the S&P 500 (SPY) has returned an average in excess of eleven percent.

Excluding expenses, a portfolio with a weighting of 60% in the SPY and 40% in AGG would have returned approximately seven percent per year. This assumes returns of 11% and 1%, respectively. To achieve that same return in today’s environment, with interest rates on U.S. Treasuries (fixed income) hovering near four percent, the average annual return of equities (SPY) must only be at or above 9.33%.

Moreover, in order to maintain their standard of living as well as principal over a full economic cycle, many retirees project to take annualized distributions of five percent on their principal balance. Over the past decade that individual would have had to have had 76.67% of their portfolio invested in equities. Today, with the rise in interest rates, that percentage could be reduced to 56.66%.

If history is any guide, it appears as if the TINA (There is No Alternative) era is over, at least for a while. Upon doing some research we found that since 1950 the average interest paid on the 10-year U.S. Treasury Note has been above four percent 75% of the time.

The conclusion in regard to the above is that over the next decade investors can expect to extract a larger percentage of their total return from the fixed income component of their portfolio. Savers are finally being rewarded.

Keep in mind that when retirement planning, the negative impact of inflation must be considered.

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According to a weekly survey from the American Association of Individual Investors (AAII), sentiment (a contrarian indicator) remained decidedly bearish at above sixty-percent of respondents for the second consecutive week. Within the report it was noted that “bearish sentiment has only been above 60% four other times prior to last week and this week. Those dates were August 31, 1990 (61.0%), October 19, 1990 (67.0%), October 9, 2008 (60.8%) and March 5, 2009 (70.3%).

Historically, the S&P 500 has gone on to realize above-average and above-median returns during the six- and 12-month periods following unusually low readings for bullish sentiment and the bull-bear spread. Unusually high bearish sentiment readings historically have also been followed by above-average and above-median six-month returns in the S&P 500. The S&P 500 has underperformed following periods of below-average neutral sentiment, though the link is weaker.”

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Bad news for Nike is most likely good news for inflation as the shares of the footwear and athletic/athleisure apparel manufacturer slumped Friday after the company met earnings, but saw its inventory rise 44% to $9.7 billion. Nike blamed the bloated inventory numbers on supply chain disruptions. To that we would add a consumer that has transitioned from a stay-at-home environment, one where a lot of time was spent online making purchases to one in which they are getting out and doing things. Either way, we believe that Nike will have to severely discount their wares which should help reduce the level of inflation over the next quarter or two. This weak retail environment echoes that of Target and shipping giant FedEx.

Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained

therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc. or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, Please call 518-279-1044.

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