Imber Wealth Advisors: May 2021

Friday, May 28, 2021

Investment Consolidation Strategies

Throughout investment industry and financial media sources we constantly hear the message that our money should be diversified. By spreading assets throughout a number of different vehicles, we can take advantage of various market opportunities while helping protect them from some investment risks.

But how much diversification is too much? And what exactly should it cover?

For example, should you spread out your money across brokerages and custodians, or maintain a small number of accounts with one or two financial institutions? As young investors, we are often tempted to try out different investment opportunities in response to broker solicitations, direct mail advertisements, money managers we hear on television or radio, as well as a number of other mediums that seem promising.

But as we near retirement, it’s usually a good idea to begin consolidating accounts. This is because it can often be easier to manage fewer accounts as we grow older. It also can help our loved ones or a hired financial professional step in to find and manage money on our behalf. If you have reached this stage and would like to get your finances organized and consolidated, we can help you decide the best options for your situation. Don’t hesitate to call.

Should you consolidate down to just one brokerage and/or one bank? That may depend on the total value of your assets. Note that the Securities Industry Protection Corporation (SIPC) insures up to $500,000 in each account held at each institution. In other words, if you hold a taxable account and a tax-deferred account at the same brokerage firm, each is insured for up to half a million dollars. Also note that your money is kept separate from the assets of the brokerage firm itself. Therefore, if the company gets into trouble, it can’t tap its customers’ money to bail itself out.¹

There are some good reasons to consolidate with one brokerage firm. First of all, it’s simply easier to monitor performance. Second, you also may enjoy additional perks if your total account size exceeds a specific threshold. For example, as a “premium investor” you may be eligible for free advisor consultations, free notary services, etc.

However, just because you consolidate with one broker doesn’t mean you need to put all of your money in one account. In fact, it can be a good idea to vary products for tax diversification. A combination of taxable and tax-free accounts — such as traditional and Roth IRAs (which do not require minimum distributions) – can reduce your tax liability during retirement.

However, be aware of portfolio overlap as you diversify your investments. Your investments — particularly mutual funds and ETFs — may share many of the same securities. When you consolidate, it can be a good time to cross reference your investments to identify security duplication and concentration. One rule of thumb is to consider holding no more than 10% of your total investment in any particular industry or company. Otherwise, a performance decline may dramatically affect your income during retirement.²

Another idea is to consolidate into a “Target Date” fund which is designed to adjust its allocation mix as you approach the target date (often your retirement date). In doing so, you benefit from a single diversified portfolio managed by financial professionals who periodically rebalance the investment mix to stay on target with its timeline and performance goals.³

Be aware that as working spouses begin to consolidate their individual accounts, they may have many of the same underlying investments. Review all accounts to determine an appropriate asset allocation and retirement timeline for each spouse as well as the household.

If you are considering consolidating multiple 401(k) plans, your choices may be limited by what your past and current plan sponsors allow. Sometimes it’s easier to roll over those assets to a traditional IRA, especially if you tend to change jobs relatively often. The IRA becomes a repository to consolidate old 401(k) assets and maintain a strategic asset allocation without being overly diversified or having too many overlapping securities. Consider your 401(k) options:⁴

· Leave the assets in the current 401(k) if allowed by your former employer’s plan.

· When changing jobs, roll your old 401(k) account assets into your new employer’s plan — if allowed by the new plan. This may be preferable if the new plan permits loans, but be sure to compare new and old plan fees and investment options to ensure you get what you want.

· Roll over your old 401(k) into an individual retirement account (IRA) — do this with each career/company move to maintain one consolidated reservoir. Be aware that an IRA does not permit loans and there may be negative tax consequences if you have significantly appreciated employer stock.

· Cash out your old 401(k) only if you need the money. Not only are those funds considered taxable income and subject to an immediate tax withholding, but you also may be subject to a 10% tax penalty if you cash out too young. Moreover, you could miss out on future tax-deferred gains.

We take pride in assisting our clients with incorporating all aspects of their life into their Retirement Roadmap 360®. Take control of your financial future and give us a call at (734) 769-1719 today to see how we may be able to help you!

¹ Teri Geske. Investorjunkie. Feb. 23, 2021. “Can You Have Multiple Brokerage Accounts?” https://investorjunkie.com/stock-brokers/can-you-have-more-than-one-brokerage-account/. Accessed April 2, 2021.

² T. Rowe Price. Spring 2021. “Focus on Diversification.” https://www.troweprice.com/content/dam/iinvestor/planning-and-research/Insights/investor-magazine-spring.pdf. Accessed April 2, 2021.

³ T. Rowe Price. Spring 2021. “A One-Stop Approach to Retirement Investing.” https://www.troweprice.com/content/dam/iinvestor/planning-and-research/Insights/investor-magazine-spring.pdf. Accessed April 2, 2021.

⁴ T. Rowe Price. Spring 2021. “What Should You Do With an Old 401(k)?” https://www.troweprice.com/content/dam/iinvestor/planning-and-research/Insights/investor-magazine-spring.pdf. Accessed April 2, 2021.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

Investment Advisory Services are offered by Imber Financial Group, LLC., a Registered Investment Adviser firm. Insurance services are offered through Imber Wealth Advisors, Inc. Imber Financial Group, LLC. and Imber Wealth Advisors, Inc. are affiliated companies

Monday, May 24, 2021

Social Security Proposals & Strategies

As the Social Security Trust Fund approaches its expiration date, many existing entities are offering helpful suggestions for funding alternatives. For example, the Association of Mature American Citizens (AMAC) recommends a combination of changing how cost of living adjustments are made, delaying retirement age and updating the delayed credit strategy. Among its proposals, the AMAC also advocates establishing a new “Social Security Plus” account — a personal retirement savings account that begins paying out at age 62. Specifically, this account would:¹

· - Be funded on a strictly voluntary basis by both employees and employers

· - Be owned by the individual

· - Provide a tax deduction for employer contributions

· - Allow after-tax contributions by employees with tax-free withdrawals (similar to a Roth)

· - Be funded via payroll deduction

Alicia Munnell, director of the Center for Retirement Research at Boston College and a respected individual in the retirement income field, advocates a long-term approach to solving the pending Social Security shortfall. While she does not advocate cutting benefits, Munnell believes that the only way to fund full benefits for the next 75 years is to raise current payroll taxes.²

Those who have already retired are less likely to be affected by changes to the Social Security system than those who are currently preparing for retirement. It’s important to have your own plan for an independent retirement income stream, separate from government benefits, to ensure your needs will be covered. Feel free to reach out to learn more about current income vehicles that can help secure your financial future.

In a recent proposal for funding Social Security, President Biden proposed:

· - Raising the guaranteed minimum benefit to 125% of the federal poverty level

· - A 5% increase for retirees who have been drawing benefits for at least 20 years

· - Enhancing payouts to surviving spouses by 20%

· - Boosting the annual cost-of-living adjustment for benefits

Biden proposes paying for benefit increases by levying FICA taxes on workers who earn more than $400,000 a year. Other proposed ideas include imposing FICA taxes on income above $142,800 (which is currently the limit for this tax), gradually increasing the payroll tax rate from the current 12.4% to 14.8%, reducing benefits for those with higher lifetime incomes, reducing cost-of-living adjustments, and limiting benefits for spouses and children of higher-income earners.³

Those are all proposals that, in some form, may likely change the future Social Security landscape. Those nearing retirement can utilize a couple of strategies now that may not be as lucrative once proposed changes are made.

One option is the delayed credit that accrues if you wait until age 70 to draw benefits. Now that people are living longer, this accrual strategy, which was implemented by the Social Security Administration back in the 1950s, produces a substantially higher advantage for retirees who delay drawing benefits and then live to a ripe old age. In fact, waiting until age 70 can make lifetime benefits worth 76% more than claiming them at age 62. This actuarially enhanced perk is available only until benefits are adjusted to match to today’s longer life expectancy.⁴

Also be aware that widows and widowers do not necessarily have to wait until age 62 to begin taking Social Security benefits based on the earnings of an eligible spouse who passed away. A surviving spouse can begin drawing the deceased spouse’s benefit at age 60, then switch to his or her own benefit later (if higher). They can even wait until age 70 for the delayed credit and begin taking the enhanced benefit at that point.⁵

¹ Association of Mature American Citizens. 2021. “The Combined Social Security Guarantee and Social Security Plus Initiative.” https://amac.us/social-security/. Accessed March 30, 2021.

² Jane Wollman Rusoff. ThinkAdvisor. March 14, 2021. “Alicia Munnell: Biden’s Social Security Tax Hike Plan Falls Short.” https://www.thinkadvisor.com/2021/03/19/alicia-munnell-bidens-social-security-plan-falls-short/. Accessed March 30, 2021.

³ Bob Carlson. Forbes. Feb. 22, 2021. “Changes Must Come To Social Security.” https://www.forbes.com/sites/bobcarlson/2021/02/22/changes-must-come-to-social-security/?sh=50094aa115e4. Accessed March 30, 2021.

⁴ Investopedia. Dec. 21, 2020. “How Much Can I Receive From My Social Security Retirement Benefit?” https://www.investopedia.com/ask/answers/102814/what-maximum-i-can-receive-my-social-security-retirement-benefit.asp. Accessed April 14, 2021.

⁵ Social Security Administration. 2021. “Receiving Survivors Benefits Early.” https://www.ssa.gov/benefits/survivors/survivorchartred.html. Accessed March 30, 2021.

Thursday, May 13, 2021

What's Driving Oil Prices?

Oil prices are influenced by supply and demand, and 2020 was a great demonstration of this principle. With global and local shutdowns due to the spread of the coronavirus, there was less demand for products and services. While online shopping was up, foot traffic in stores languished and retailers – both local and nationwide – suffered from reduced consumerism.

With fewer customers, merchants needed less inventory. Wholesale orders dropped, as did the need to transport them from manufacturers to distributors to vendors. Reduced transportation led to less need for crude oil and gas. Thus, with decreased demand, gas prices dropped and stayed low.

Today, it’s a different story. Long-awaited vaccines have given retailers new hope for consumerism, so they are ordering increased inventory and deliveries are being made every day. Higher demand begets increased transportation, so oil prices are on the rise again. Lest we succumb to the impulse to complain about increased gas prices, remember that economic growth is a big contributor.¹

Furthermore, for the first time since the pandemic began, more people are starting to leave the nest, taking vacations or planning trips for this summer. In April, the Energy Information Administration (EIA) announced that highway traffic is up 1% from a year ago and jet fuel demand jumped to 1.358 million barrels as vaccinated travelers are starting to take advantage of lower-cost airfares and hotel discounts. ²

As the economy recovers, we can expect higher inflation with many commonplace expenses. If you’ve reduced spending in the past year, note that your household budget may necessarily increase in kind – and not simply because you’re indulging in pent-up demand. If you need to make adjustments to your savings rate or review your portfolio to help defend against the effects of inflation, please give us a call. Now is a good time to review and reset your goals and allocations.

The oil industry is a little different from typical consumer goods. Because it takes time to mine for oil and refine it for consumer use, there is a lag time that can influence prices. For example, today’s new high demand will take a few months to affect crude oil production. The IEA predicts that new orders won’t be accurately reflected in global oil demand and supply until the second half of 2021. Once production is ramped up to meet rising demand, prices may begin to drop again.³

As of mid-April, the U.S. had fully vaccinated about 22% of the population. The United Kingdom was at about 11%, with France and Germany at only 6% vaccinated according to the Reuters vaccine tracker. Vaccine rollouts have been much slower and infections continue to surge in places like Europe, India and some emerging markets. Note that global oil producers take into consideration that other economies are not recovering as quickly as the U.S. While this may make them less inclined to ramp up oil production too quickly, the U.S. shale oil industry has a direct market to serve, so production is scheduled to increase by about 13,000 barrels per day.⁴

Also note that it’s not that easy to stay solvent during a year-long pandemic, even in the oil industry. In North America alone, bankruptcies among oil producers increased to the highest first-quarter level since 2016.⁵

¹ US Energy Information Administration. 2021. “Oil and petroleum products explained.” https://www.eia.gov/energyexplained/oil-and-petroleum-products/prices-and-outlook.php. Accessed April 15, 2021.

² Phil Flynn. Futures Magazine. April 15, 2021. “An Increase In Travel Is Tightening Oil Supply In The U.S.” http://www.futuresmag.com/2021/04/15/increase-travel-tightening-oil-supply-us. Accessed April 15, 2021.

³ Gina Lee. Investing.com. April 15, 2021. “Oil Down as Investors Digest Latest Supply Forecasts, U.S. Crude Oil Supply Draw.” https://www.investing.com/news/commodities-news/oil-down-as-investors-digest-latest-supply-forecasts-us-crude-oil-supply-draw-2474995. Accessed April 15, 2021.

⁴ Aaron Sheldrick, Bozorgmehr Sharafedin and Stephanie Kelly. Reuters. April 12, 2021. “Oil rises on U.S. vaccine rollout, Middle East tension.” https://www.reuters.com/business/energy/oil-prices-climb-favourable-outlook-us-fuel-demand-2021-04-12/. Accessed April 15, 2021.

⁵ Liz Hampton. Reuters. April 15, 2021. “North American oil bankruptcies hit highest Q1 level since 2016.” https://www.reuters.com/business/energy/north-american-oil-bankruptcies-hit-highest-q1-level-since-2016-haynes-boone-2021-04-15/. Accessed April 15, 2021.

Monday, May 10, 2021

Updates on FSAs and HSAs

A recent survey found that 40% of respondents with access to a health savings account (HSA) do not fully understand how they work. Basically, HSAs are paired with high-deductible health plans to help people save money for their plan’s high deductible, copayments and other qualified expenses.

However, the real value of an HSA lies in its tax-free advantages. Contributions are made tax free (reducing your current taxable income) and can be invested for tax-free growth in a variety of mutual funds, stocks and exchange-traded funds (ETFs). Additionally, HSA withdrawals are tax free as long as they are used to pay for eligible products and services.

In 2021, the contribution limit for a health savings account is $3,600 for individuals and $7,200 for families; anyone age 55 or older can make an additional $1,000 annual contribution.¹

Throughout the past year, Congress expanded the eligible uses of these funds, further increasing their value and allowing you to purchase a wider range of personal and health-related products using tax-free income. If you have access to one of these accounts through work or purchase health insurance on the individual market, they are a good idea to include in a financial portfolio. If you’d like assistance determining how to invest your HSA savings to complement the rest of your portfolio, don’t hesitate to call us for advice.

The CARES Act, passed in spring 2020, expanded the types of products that can be paid for with HSA or employer-sponsored Flexible Spending Account (FSA) savings. Under the new regulations, these funds can be used to pay for over-the-counter medications, like ibuprofen and Claritin. Other products now eligible for purchase with HSA and FSA funds include:²

· Facial cleansers, face wipes

· Prescription acne medications and over-the-counter acne treatments

· Sunscreen and medicated body lotions designed to alleviate certain skin conditions

· Lip balms for sun protection and chapped lips

· Hot and cold therapy packs, cooling headache pads

· Heartburn medication

· Allergy relief

· Toothache relief, such as Orajel

· Humidifiers, air purifiers and filters — with a letter of medical necessity (LMN) from a physician

· Dietitian fees, with an LMN

· Some mental health treatments and services

· Prescription hormone replacement therapy

· Birth control pills

· Pregnancy tests

· Fertility tests

· Fertility treatments such as in vitro fertilization, intrauterine insemination, fertility medication, the temporary storage of eggs or sperm

· Breast pumps, breastfeeding classes, absorbent breast pads, breast milk storage bags

· Feminine care items, such as pads, tampons, cups, sponges

In February, the IRS published guidelines giving employers more flexibility to extend how long employees have to use their FSA funds. Normally these are “use it or lose it” by the end of the year, with a short grace period. However, due to job interruptions last year, new guidelines allow employers to extend those funding rules to carry over or extend the grace period for unused health and/or dependent care FSA funds for plan years 2020 and 2021 to the immediately following plan year. Note that the new rules permit employers to make these changes, but it’s up to the employer to decide what to do.³

FSA owners with more time and opportunities to spend their funds have many new approved items for which they can use that money – even for gift ideas (these expenses are approved for an HSA as well):⁴

· Ancestry kits (a fun holiday gift for family members)

· Baby monitors and potty-training undies (baby shower gift)

· Birth classes and medically certified doulas

· Prescription sunglasses (for a winter ski trip)

· Nicotine gum, patches, lozenges, inhalers, nasal sprays (New Year’s resolution to stop smoking)

· Moisturizers with SPF protection (such as expensive anti-aging facial lotions)

The Personal Health Investment Today (PHIT) Act is a bipartisan bill introduced in March that, if passed, would permit the use of pre-tax FSA and HSA funds to pay for healthy living products and activities, such as gym memberships, fitness equipment and sports-league fees.⁵

¹ Brian O’Connell. Omaha World-Herald. March 4, 2021. “Saving For Medical Expenses With An HSA.” https://omaha.com/business/investment/saving-for-medical-expenses-with-an-hsa/article_3412a1e3-63be-51f0-8ebe-f6c49b3ddb2c.html. Accessed March 23, 2021.

² Regan Olsson. BannerHealth. July 19, 2020. “7 Things Covered by Your FSA That Might Surprise You.” https://www.bannerhealth.com/healthcareblog/advise-me/7-things-covered-by-your-fsa-that-might-surprise-you. Accessed March 23, 2021.

³ JD Supra. Feb. 22, 2021. “IRS Notice 2021-15 Provides Clarity Regarding FSA Relief Available Under Consolidated Appropriations Act Benefits Law Update.” https://www.jdsupra.com/legalnews/irs-notice-2021-15-provides-clarity-3663572/. Accessed March 23, 2021.

⁴ Megan Leonhardt. CNBC. Dec. 15, 2020. “15 surprising things you can buy with your leftover FSA dollars.” https://www.cnbc.com/2020/12/15/15-surprising-things-you-can-buy-with-your-leftover-fsa-dollars-.html. Accessed March 23, 2021.

⁵ Jody Heemstra. DRG News. March 19, 2021. “Thune, Murphy Reintroduce Bill to Encourage Healthy Living.” https://drgnews.com/2021/03/19/thune-murphy-reintroduce-bill-to-encourage-healthy-living/. Accessed March 23, 2021.

Thursday, May 6, 2021

New Status on Pension Plans

Financial professionals and economists have been talking about the “graying of America” and the retirement crisis for at least a couple of decades. Now, it seems, things have reached a tipping point.

Even labor union workers, largely beneficiaries of rich benefits and pension plans, have been hit hard. Throughout the past century, unions set up multiple-employer pension plans so that unionized workers in the trucking, trade, construction, ironworking, carpentry and other industries could change employers throughout their career while staying with the same union and continue accruing pension benefits from job to job.¹ Despite that effort, more than 1,400 multiemployer pension plans covering about 11 million U.S. workers have fallen into a financial hole.

For example, a worker who retired in 2009 with 37 years paid into his pension fund was due $4,265 per month for life. However, in 2015 his pension benefit was slashed to $2,217 per month due to underfunding.²

This problem doesn’t just affect pensioners, it affects the nation’s overall economy. According to the National Institute of Retirement Security, each $1 spent on pension benefits supports $2.19 in economic output. In some coal-mining areas, entire towns are supported by union pensioners. In Detroit, nearly a third of income comes from pensions, union retiree health, Medicare and Social Security. If pension plans fail, communities throughout the heartland, including Ohio, Kansas, Pennsylvania, Michigan and Indiana, will suffer immeasurably.³

Union pensions are not the only plans under financial pressure. According to the 2020 Social Security Trustee report, the Social Security retirement trust fund was scheduled to run out of money by 2034. But that estimate was before the pandemic, when unemployment and suspended FICA payroll taxes significantly reduced Social Security revenues while at the same time millions of people retired early and began tapping their benefits. The new trustee report, due in a few months, will likely update that depletion date to 2032 or sooner. Without changes, Social Security benefits soon will be funded solely by current payroll taxes, which would reduce benefits by as much as a quarter of previous estimates.⁴

It may be a good time to review your individual retirement plan to shore up any gaps that may be affected by reduced pension and government benefits. Feel free to contact us to discuss your situation and explore tax-efficient ways to provide more financial confidence to your retirement plans.

The recent $1.9 trillion stimulus bill took a first step to help stabilize pension plans. It authorized funding by the Pension Benefit Guaranty Corporation (PBGC) for eligible multiemployer plans to enable them to pay benefits at plan levels and remain solvent. The funding is being paid out from general revenues of the U.S. Treasury.⁵

¹ Martha C. White. NBC News. Feb. 8, 2021. “Stimulus checks that don’t get used right away are still ¹ Chris Farrell. Marketwatch. March 15, 2021. “The new stimulus bill will help shore up some shaky pension plans.” https://www.marketwatch.com/story/the-new-stimulus-bill-will-help-shore-up-some-shaky-pension-plans-11615586775?mod=home-page. Accessed March 22, 2021.

² Teresa Ghilarducci. Forbes. March 15, 2021. “What Is The Pension Provision In The Stimulus Package? An Explainer.” https://www.forbes.com/sites/teresaghilarducci/2021/03/15/what-is-the-pension-provision-in-the-stimulus-package-an-explainer/?sh=7fdbc4c257d1. Accessed March 22, 2021.

³ Ibid.

⁴ Bob Carlson. Forbes. Feb. 22, 2021. “Changes Must Come To Social Security.” https://www.forbes.com/sites/bobcarlson/2021/02/22/changes-must-come-to-social-security/?sh=44501abc15e4. Accessed March 22, 2021.

⁵ Pension Benefit Guaranty Corporation. March 12, 2021. “American Rescue Plan Act of 2021.” https://www.pbgc.gov/american-rescue-plan-act-of-2021. Accessed March 22, 2021.

⁶ Jory Heckman. Federal News Network. Feb. 24, 2021. “USPS 10-year plan looks to redefine ‘unachievable’ service standards.” https://federalnewsnetwork.com/agency-oversight/2021/02/usps-10-year-plan-looks-to-redefine-unachievable-service-standards/. Accessed March 22, 2021.

⁷ Govtrack. Feb. 2, 2021. “H.R. 695: USPS Fairness Act.” https://www.govtrack.us/congress/bills/117/hr695. Accessed March 22, 2021.