How Rising Interest Rates Impact Your Wallet

In a widely anticipated move, the Federal Reserve has hiked interest rates by 25 basis points or 0.25%. Fed Chair Jerome Powell said the extent of future rate hikes is uncertain, indicating that they will take a wait and see approach. Remember, this is the eighth increase since the first one in March 2022 to combat inflation.

So, in light of these rising interest rates, we want to discuss the impact that these rising rates may have on your wallet. Of course, anything that has an adjustable interest rate is set to go up, for example, home equity lines, credit cards, auto loans, and some student loans if they are attached to either the prime rate or a variable rate index. Also, of course many people are speaking about mortgage rates which are actually following the 10-year treasury yield and have seen a significant decline in rates since the fall. So, given this data, if you’ve bought a home in the last four to six months, make sure you re-visit the rates currently and your rates. If you need help assessing your situation, we are here and happy to help you!

So, given the anticipation of future rate hikes, think about your savings rates and make sure you are earning higher rates on your savings. If you are still earning zero or close to zero in your FDIC insured savings or checking account, seek a high-yields savings account to earn more interest on your dollars. We know that the current economic environment is constantly changing and you are adjusting to this inflationary and higher-interest rate climate, it’s important to stay on top of your interest rates and know what you have. If you need us to re-evaluate your personal financial situation, email us at info@shermanwealth.com or schedule a complimentary 30-minute call here.

Robo VS. Human Financial Advisors

The last few years have certainly changed the cadence in which many of us operate on a day to day basis. This is especially true with the emergence of technology and transition to remote work, telehealth, and curbside shopping. Another area that has shown significant change is in the use of robo-advisors. While robo-advisors can virtually help you with your finances on a daily basis, a Vanguard survey of 1,500 investors with at least $100,000 in investable assets found that “nearly 90% of robo-advised clients would switch to humans”. Given the current economic environment we are in, adjusting to a higher cost of living and rising interest rates, many individuals have more thoughts and feelings about their finances than ever. In these instances, having a human to vent to and talk through ideas with is so helpful and improves financial confidence. 

The survey also found that “more than 90% of human-advised clients say they would not consider switching to a digital advisor, while 88% of robo-advised clients would consider switching to a human advisor in the future.” While digital advice can get the job done, there is something to be said about the human connection that develops between an advisor and their client.

I would say it’s quite difficult to establish trust, loyalty, and a relationship with a digital robot, which is what differentiates the robo-advisor from working with a human advisor.  In fact, the survey discovered that loyalty within those who work with a human advisor is unmatched to those who are currently utilizing a robo-one. It is interesting to see that even though our society has transitioned a huge chunk of our lives online, human interaction within the financial industry is still the trusted and preferred method. 

At Sherman Wealth, we specialize in behavioral finance, which goes beyond just the quantitative aspect of investing that a robot can properly assist with. We customize each and every financial plan to fit the needs of each client. No one client is the same so their advice should not be generalized, rather tailored to fit their specific needs. In a world where the economy is ever-changing, having a pro-active and trusted professional to hold you accountable and constantly update your financial roadmap far outweighs an online robot. Studying the behavioral aspects of our clients allows us to build connections with them, uncover hidden complexities, and truly understand their biases and relationship with money and investing. We take pride in our 24/7 accessibility and being a “financial concierge”.

Given the rollercoaster we saw in the markets last year and the extreme volatility we’ve experienced, personalized advice is more prudent now than ever. With rising interest rates and this inflationary economy, having a financial roadmap and guidance can help you navigate this climate. If you haven’t done so, think about re-visiting your financial plan, whether its adjusting your budget for inflation, checking in with your asset and risk allocation, or just an overall check-in. If you haven’t done so already and we head into February, set some financial goals for yourself to achieve before the end of the year. If you need help or even just a sounding board to bounce ideas off of, we’re here to help! If you have any questions about your financial situation or current method of advice, email us at info@shermanwealth.com or schedule a complimentary intro call here. 

Why It’s Prudent To Invest With A Long-Term Mindset

Given the extreme volatility we saw in the markets last year, how are you feeling as it relates to your investments and overall financial stability? As we embark on 2023 and take on the year to come, it’s important to reflect on your emotions during the volatility and economic uncertainty we saw last year and create a plan moving forward. We know it was a hard year for many, watching their hard-earned savings and investments plunge up and down; however, as we saw in more recent months, the market does correct itself, so we are here to discuss the long-term nature of investing and the importance of looking at the bigger picture.

As you can see in the chart listed below, it is quite valuable to stay invested in the stock market for the long term, despite market crashes and corrections.  We know that headlines in the news and day-to-day fluctuations can be scary and induce anxiety, but keep in mind your initial goals for investing and your time horizon. Many individuals try timing the markets, and we’ve actually seen many since the COVID-19 crash until now pull in and out of the market; however time in the market many times proves more prudent. If you are a long-term investor, try not to get too caught up in the day-to-day volatility, and rather the bigger picture and longer timeline. Although we do not know the direction the stock market will take in the future, as the chart depicts, time in the market instead of trying to time the market seems to be the better choice.

Another point to keep in mind is your risk tolerance and asset allocation. For those of you who have been feeling stressed or worried about your investment portfolio, now is a prudent time to meet with a financial professional to discuss your risk tolerance, asset allocation, and specific finances. It could be true that your asset allocation is not properly aligned with your risk tolerance, exposing your investments to either too much or too little risk. We always recommend a start of the year financial check-up, so now is a great time to think about your emotions towards your investments and alter any parts that need change. It is also important to keep in mind that your investments are only a piece of your entire financial picture, so it’s a good idea to make sure your whole portfolio is well diversified and right for you. If you have any questions for us, we are here to help in any way we can.  To reach our team, email us at info@shermanwealth.com or schedule a complimentary 30-minute consultation here.

Are You HSA Eligible? If So, Check This Out

Are You HSA eligible? If so, here’s how to take advantage of it during this time of year. Open enrollment just passed, but if you did not consider contributing to your HSA, now is a great time to do so given that we’re in the beginning of the year. Many individuals have questions about what benefits they are eligible for, and what those benefits truly mean. Retirement savings and medical coverage are typically a large part of your workplace benefits, which is why it’s so important to take advantage of what’s available to you, such as an HSA.

So, what are HSA’s? An HSA is a tax-advantaged health savings account that allows you to save money to use to pay medical and health care expenses. If you get your insurance coverage through high-deductible health plans, you can qualify for an HSA. Your contributions within the account will grow on a tax-free basis, and any untouched dollars can be rolled over year to year. By using untaxed dollars in a Health Savings Account to pay for deductibles, copayments, coinsurance, and some other expenses, you may be able to lower your overall health care costs.

Due to inflation, the IRS increased the contribution limits for HSAs in 2023. So, employees and employers can now contribute a total of up to $3,850 for individual coverage, up from $3650 in 2022, and up to $7750 for family coverage, up from $7,300 in 2022. The HSA catch-up contribution if you are 55 years or older remains at $1000, the same as 2022. These adjustments are quite large, so be sure to take advantage if you are eligible to do so!

Be sure to contribute by the end-of-the-year December 31st deadline, so that you can make the most of your yearly contribution. Keep in mind that HSAs are just one of the many benefits that you can take advantage of. Check out our open-enrollment blog to see what else you may have been eligible for and our retirement contribution limits blog to see the increases in retirement contribution limits ! For other end of the year tips, check out our financial checklist blog here. If you have any questions about funding your various accounts, email us at info@shermanwealth.com or schedule a complimentary 30-minute consultation here. 

 

Do You Want to Save More For Retirement This Year? Here’s How

If you were looking to increase your retirement savings last year, there is an opportunity for you in 2023. As we mentioned in a prior blog, the IRS increased retirement contribution limits for 2023, up $2000 from last year, from $20,500 to $22,500 and to $30,000 for individuals 50 years of age and older. Whether you are taking advantage of the entire contribution limit or just want to increase your contribution by a percent or two, this is a great opportunity to save more in the year ahead. 

So, let’s take a look at how individuals saved last year for their retirement. According to 2022 estimates from Vanguard, “in 2021, roughly 14% of investors maxed out employee deferrals”, based on 1,700 plans and nearly 5 million participants. We find that many individuals actually intended to max out their retirement contributions or save more than they did, but either forgot to adjust their contributions or were clouded with other goals. So, if you plan on saving more this year, log on to your 401(k) platform and make your appropriate adjustments. The sooner the better! 

Contributing to your workplace retirement plan and taking advantage of the company match is a great way to build your wealth and save for your future. When deciding how much you want to contribute to your retirement plan each payroll period, it’s important to think about your entire financial picture and your goals. Make sure you are being intentional about your saving, and accounting for all the goals you want to achieve and save for. Find a balance that works for you so you can save for both your short and long-term goals. No matter where you start with your retirement contribution, you can always change it throughout the year on your retirement platform if you feel necessary. 

We also posted a blog regarding the Secure 2.0 Act that was recently passed by Congress at the end of 2022 that includes many changes and ways for individuals to save more for their retirement. If you have any questions about adjusting your retirement contributions or about your 401(K) in general, please email us at info@shermanwealth.com and we are happy to help answer all and any questions. You can also schedule a 30-minute complimentary consultation here. 

Earning More Money With Less Risk In a Rising Interest Environment

Do you want to earn more money without taking on more risk? If so, keep reading! With the Federal Reserve raising interest rates to combat inflation over the last few months, and set to raise them about .25% in a few weeks at the February meeting,  we have been seeing a huge spike in short-term rates, CD’s, and money market accounts. At the same time, many clients and prospects we’ve been talking with are actually holding onto a ton of cash at large institutional money center banks that are paying close to 0%, so there’s a large opportunity for those of you in this position to better manage your cash in this type of increased savings rate environment. Let’s take a look.

Many of you might be weary right now about your financial picture given extreme market volatility we saw last year, 4-decade high inflation, and rising rates from the Federal Reserve. The interest rate market has sky rocketed over the last year with the Federal Reserve projecting and telegraphing future hikes in the coming months. With recent inflation data slowing, the Federal Reserve may be slowing the rate in which they increase future hikes, but interest rates are still quite high from the lows we saw in 2020 and beyond. Because of this uncertainty, a lot of people might want to hold on to extra cash in the case of a potential recession or future large purchases. However, because of these rising rates, there’s an opportunity to earn more money risk-free on cash sitting in your savings or checking accounts. 

You can now get FDIC insured savings above 3%, with some even in the 3.25% range now, so make sure you are looking at high-yield savings accounts instead of your traditional ones and are shopping around for the highest rates. If you feel like taking on further time risk, we have also been seeing individuals purchase CDs and Treasury Bills in the 4% range, which was unheard of just a year back. Additionally, for those of you looking for other higher interest rate vehicles, check out our blog on I-bonds as well which have been increasingly popular for many looking to take advantage of higher rates. 

With this changing economic environment, it’s super important to stay on top of your financial plan and make sure you are updating/altering it accordingly. As we kick start 2023, it’s important you are making sure you are taking advantage of all the interest you can earn and that you money is in the right places. If you are interested in re-visiting your financial plan or have questions about your cash management needs, email us at info@shermanwealth.com or schedule a complimentary intro call here. 

Do You Have A Financial Plan? Many Americans Do Not

As we reflect on 2022 and digest the economic volatility we saw last year, the need for having and financial plan seems more urgent. With high inflation levels, an increased cost of living, and rising interest rates, we’ve been hearing from many individuals that they do not feel financially confident or secure. Interestingly enough, it has been revealed that many Americans do not have a financial plan or are letting the current economic uncertainty derail their original plan. In fact, “nearly 70 percent of Americans at or near retirement age have less than $250,000 in savings, according to a recent survey by Schroders, the London-based asset manager.” We found this statistic quite startling, as we believe that financial planning for the long-game is extremely important in order to achieve financial success throughout your lifetime and in retirement. 

While some may not understand the underlying purpose of financial planning, a financial plan and working with a financial professional allows individuals to take both a macro and micro view of their whole financial picture, assess both their life and monetary goals as well as qualitative and quantitative risk tolerances, and set strategies to achieve long and short- term financial success. They are also able to uncover hidden investor and behavioral underlying biases that may be impacting their financial decision making process. Another benefit that comes from creating a financial plan is organization. When creating a financial plan, you are taking inventory of everything that you have, figuring out where it all is, and where it needs to go. Just being organized can immensely improve your feeling of financial confidence and ease. 

According to a survey of 1,000 investors across the U.S. between the ages of 45 and 75 by Schroders and 8 Acre Perspective, “76 percent of Americans say they feel overwhelmed by the thought of creating one and 56 percent say life is too uncertain for a plan to have any value”. At Sherman Wealth, we believe that life is complicated, but your finances don’t have to be. We are here to simplify the financial planning process and relieve our clients of some financial stressors they may feel on the day-to-day. Given the rollercoaster the markets took us on last year, many of the “do-it-yourselfers” might be realizing that their life is becoming too hectic to also be navigating their financial picture which is why we are here to help. We believe that it is never to early nor too late to create a financial roadmap for yourself and your family, and that you never need a certain amount of investable assets to get started. 

For those of you who do not have a financial plan in place or would like to revisit your old plan that may be outdated given the current market conditions, please reach out to us and we are happy to help. Email us with questions at info@shermanwealth.com or schedule a complimentary 30-minute consultation here. 

How To Teach Your Children About Finances

As we head into 2023 and think about financial goals for the year, many clients and prospects have been asking us how to think about finances for their kids and the best ways to teach their children about money from an early age. While there are many different routes to save money for children and teach them about personal finance, we wanted share a few with you. 

First and foremost, we want to stress the importance of teaching children personal finance topics and smart financial decisions from an early age. Knowing what money means to you is an important concept whether you’re a child or an adult. One savings vehicle we always recommend to parents when saving for their children is 529s plans. For further details on 529 plans, you can check out our blog, but this savings vehicle is a great way to get ahead of college and education savings for your kids. 

For those who want to educate their children about money and finances, setting up a donor-advised fund is a great way to get the kids involved in not only charitable giving, but the importance of budgeting and setting money aside for different buckets and priorities. Another question we’ve been getting from clients is where to save “birthday” or “gift” money for their kids? Parents can open a minor high yield savings account for their children to earn maximum interest while still being FDIC insured. As their money grows overtime, you can explain to them how interest works and how money can grow overtime. 

Some other ways to teach your young children about money is to talk about it. Make sure you are having conversations with your children about money, for example, how much things cost and how people earn money so that they can spend it. Teach them the difference between wants and needs. Exposing them to concepts such as these will help them learn about personal finance topics as they mature and enter adulthood. 

It is never too late to start learning personal finance concepts. If you have children that are approaching college and you want them to learn and prepare how to manage and budget their finances on their own, let us know and we are happy to help. We offer financial literacy meetings to children and young adults to educate them on personal finance and answer any questions that they have. If you are interested in educating your children, email us at info@shermanwealth.com and we are happy to set up some time to connect and share our resources. 

Here Are The Estate & Gift Tax Exclusions for 2023

The IRS has increased many contribution limits for 2023, including retirement savings, but also recently just adjusted the tax exclusions and exemptions for inflation. We want to mention a few that often times impact or apply to our clients, which involves estate planning.

For 2023, the IRS increase the annual gift tax exclusion $1,000 from $16,000 in 2022 to $17,000 for this year. So, that means that the $17,000 is the amount that a taxpayer may gift to another individual without setting off the gift tax or tapping into the taxpayer’s lifetime gift and estate tax exemption. Additionally, if the gift remains under the limit, the taxpayer does not have to report it on their tax return.  This annual exclusion is applied to each donee or receiver per year and a married couple can both utilize this exemption, donating up to $34,000 per calendar year.

Other exemptions and exclusions that may apply to your situation are the unified credit along with the generation-skipping transfer tax credit (GSTT). The unified credit which provides the limit that an individual can gift in their lifetime before setting off taxes. For 2023, the unified credit will be increased to $12.92 million and can be shared with your spouse. The GSTT exemption is an amount that can be transferred down to two or more generations younger without setting off a tax, which is also $12.92 million for this year.

Whether you or someone in your family intends on gifting money to others, it’s important to know the limits so that you can avoid setting off unnecessary taxes or penalties. Of course, consult with a tax professional with any specific tax questions you may have, or let us know your questions at info@shermanwealth.com and we are happy to point you in the right direction.

How The Secure 2.0 Act Might Impact You!

Happy New Year everyone, we hope you had a wonderful holiday season and wish you a healthy, happy, and prosperous New Year. Before the start of 2023, on December 29th, Congress passed the Secure 2.0 Act that was promised to provide changes to help many Americans’ retirement plans, including over 90 updated retirement plan provisions.

The provisions are set to encourage more employers to create retirement plans and automatically enroll employees to stimulate retirement savings growth, change the age individuals must take RMDs, make it easier to take cash out of retirement and more. We wanted to share a few of the updates that may have an impact on your financial plan and will report back with additional information and changes: 

“Mandatory Retirement Auto-Enrollment 

Required Minimum Distribution (RMD) 

Effective on January 1, 2023, the RMD age has been raised for some individuals based on the following criteria:

  • Born in 1950 or earlier: RMD begins at age 72
  • Born between 1951-1959: RMD begins at age 73
  • Born in 1960 or later: RMD begins at age 75 

Roth 401(k) RMD

Beginning in 2024, RMDs are no longer required from Roth 401(k) accounts. RMDs are still required from Roth 401(k) accounts in 2023. 

Qualified Charitable Distribution (QCD) Indexed for Inflation

Beginning in 2024, the maximum annual QCD of $100,000 will be adjusted for inflation. 

401(k) / SIMPLE IRA Catch-Up Contributions

Starting in 2025, some individuals can increase their employer-sponsored retirement plan catch-up contributions.

  • 401(k): Individuals whose age is 60-63 in 2025 and later will see their catch-up contribution limit increased to a greater of $10,000 or 150% of the regular catch-up contribution amount. RightCapital will default to $10,000 at this time.
  • SIMPLE IRA: Individuals whose age is 60-63 in 2025 and later will see their catch-up contribution limit increased to a greater of $5,000 or 150% of the regular catch-up contribution amount. RightCapital will default to $5,000 at this time.”

While these are only just a few of the many changes made in the Secure 2.0 Act, we know that these updates and information may be overwhelming, which is why it is important to defer to a trusted source such as your financial advisor to ensure you are understanding all and any changes. As we embark on 2023, it is a great time to get organized and review your budget and overall financial plan for the year to come. If you have any questions for us on the Secure Act 2.0 or your personal financial situation, email info@shermanwealth.com or schedule a complimentary intro call here.