February, 2023 | Live a Life By Design

Life Isn’t “Set it and Forget it”

Posted on February 27, 2023February 27, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

“It’s the end of the world as we know it,” as the pop singer bellows out the first line of the chorus of a top song for their band. What a profound statement when we think of the chaos of the past few years and the impact economic factors have made on your net worth. For many Millennials and Gen-Z individuals it may appear as if their world has ceased to exist as they are accustomed to in their short lives. We have been here before and we will return to this state of the economy again.

One constant in U.S. economy is the fact that it will continue to cycle. The four phases of our economy have been recognized by financial experts for decades and with quite predictable accuracy – expansion, peak, contraction, and trough. Difficulty lies in defining which one of the phases we currently find our country.

Economists analyze several factors to determine the current phase of our economy. Gross Domestic Product, employment, interest rates and consumer spending are a few of the factors followed to determine trendlines within the four phases of the economy. Gross Domestic Product (better known as “GDP”) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. GDP can be computed on a nominal basis or a real basis. When accounting for GDP on a real basis, the consideration of inflation plays a significant role in the computation.

In the United States, our real GDP rate is typically between 2% – 4% on an annual basis. To compare this with other countries, consider China who reports a real GDP rate of 8.1% for 2021 according to www.data.worldbank.org. As the country’s GDP rate goes up the production for labor, exports and other areas of the United States is performing at efficient levels. If other factors considered are increased over a previous period, the country may be in expansion or reaching its peak economically.

It is important to understand the cycle of our economy and use this information to your benefit. The New York Stock Exchange, the American Stock Exchange and London Stock Exchange are auction markets. It functions by a process that someone must sell a stock for someone to buy a stock. This is known as the secondary market.

Another of the statistics focused on by investors is the labor participation rate. The United States is currently experiencing one of the best unemployment rates in modern history due to the recall of millions of workers back to the workforce after the federal government shut down the businesses employing them. If the unemployment rate rises, this will be a leading indicator to possible negative economic conditions occurring.

There is not one magic number for purposes of determining the type of economy experienced in the United States. To study these factors and guide your investment philosophy requires discipline and patience. Many investors have been unable to fight the emotional battle of watching their savings plunge and staying the long-term course determined to be the most probable path to success. As wealth advisors, our goal is to provide understanding and education to our clients so they can make intelligent decisions. Emotions play no role in the process but can be intrusive to sound judgment.

Life changes on a daily basis. It is critical that you construct your affairs in a manner that allows for the disruptive periods of time to pass without substantial change to your long-term plans. To attempt to time the markets would, in my opinion, give greater risk to reaching your long-term savings goals than to simply design a fully-diversified portfolio to weather the storm. By consistently maintaining your acceptable level of risk in the portfolio through periodic rebalancing, your probabilities for reaching your goals are much higher.

If you’re concerned about the economic conditions or have questions pertaining to your investments providing for your future in the manner you desire, consider a complimentary consultation with a Certified Financial Planner™ professional. When you have a vision for your future that helps you see your goals accomplished, it is much easier to live through the economic challenges of life. See you on the jogging trail!

Related Podcasts

It’s Tax Time! Are You Ready?

Posted on February 17, 2023February 17, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

The taxman cometh! Every year at this time, individuals in our great country are asked to file their income tax returns to contribute a portion of their earnings to the common good. Some of us are immune to this exercise in honest reporting due to income levels. Others are subject at the highest rate of taxation allowed by law. All of us owe a duty to maintain the republic in revenue that we lawfully owe.

Due to the pandemic, many companies were subjected to slowing, or ceasing, supply lines that caused temporary, or permanent, layoffs of workers. In the past couple of months, some of the largest employers on the planet have given notice that they will be reducing their workforce due to the current economic climate. For example, according to a CNBC article published on January 18, 2023, more than 70,000 individuals lost their jobs in the past three months from companies such as Google, Meta, Microsoft, and many other giant technology companies.

What does one do when their means of earning a living has been eliminated? The state in which you reside generally provides temporary unemployment benefits to assist you in transitioning to another job. What many people don’t realize is that the benefits paid them are also taxable on their income tax return. Does this seem fair? From a purely theoretical tax law perspective, the taxation of these benefits is correct. This series of payments you are receiving to substitute, although in most cases at a lower level than you earned your wages, income for purposes of living expenses does, in fact, improve your cash flow. Many people fail to consider their marginal tax rate when receiving these payments and owe taxes on the money when their return is filed.

This year individual tax filers will receive a little extra time to file their 2022 income tax returns. Due to a federal holiday and April 15 landing on a Saturday, your income tax return is not required to be filed until April 18, 2023. However, it is my recommendation that you not wait until the due date to start the filing process.

Tax rates ranging from 10% to 37% are reasonable in respect to some other countries. Congressional leaders argue as to the fairness of our tax code. However, it has been proven that the top earners in our country, the labeled “1%”, do, in fact, pay 42.3% of the total income tax collected on earnings of 22.2% of the income according to the Tax Foundation, a non-profit think tank. Those taxpayers at the bottom of the earnings schedule took home 10.2% of the total income of the United States and paid 2.3% of the total taxes collected.

Our system of taxation does work, perhaps not perfectly, but functionally. One of my mentors asked me how I felt about being able to pay my debts including my taxes. My philosophy has been one that I truly wish to pay my family’s fair share of its debt to this great country. To pay taxes at the highest rate of taxation is to say our family enjoyed a prosperous year. Too many of us seek a means of reducing our tax burden by illegal means (i.e., dealing in cash, embellishing our expenses or deductions, etc.). It is incumbent on all of us to be honest and willing participants in this self-assessing system of taxation for our country to function properly.

Regarding the 87,000 IRS agents to be hired by the agency, there are many rumors about the types of employees and their focus in the collection and enforcement process of the U.S. Treasury. It is unfathomable to think that agents toting guns will be coming to a peaceful business to enforce collection of a tax that is voluntarily assessed and paid. However, the focus of these new agents will be directed toward those taxpayers who flaunt the system and intentional fail to report their earnings properly.

I have used this quote many times, but it is no more appropriate than at this time of year: “Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.” – Judge Learned Hand

If you wish to lower your tax burden, consider a complimentary consultation with a Certified Financial Planner™ professional. By developing a plan to legally reduce your tax burden each year, you may save additional funds for other important matters in life. See you on the jogging trail!

Related Podcasts

Predicting Your Future

Posted on February 9, 2023February 9, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

Prior to starting the new year, many of us sat down with a pen and paper to develop our desired goals for 2023. Well, some of us did. Gallup, a national polling organization, studied goal setting by U.S. citizens and the results are encouraging. The findings were that 79% of adults age 18 – 34 and 72% of adults age 35 – 54 are most likely set new goals for 2023.

Based on the annual study, more Americans are setting goals for improvement of life in 2023 than in prior years. Why is it important to set goals for your life? Because it is very difficult, if not impossible, to hit a target you do not set. In other words, you will become a wandering generality rather than a meaningful specific to use the phrase of the late Zig Ziglar. I often hear people complain about life but do nothing to improve their quality of life.

Goals are far more than simply writing down aspirations and unattainable ideas. To be successful in goal achievement, you must become effective in goal setting. One of my annual tasks is to take time in November each year to evaluate my progress on current year goals and set the new year’s goals. The outcomes in life have been phenomenal! For example, I address goals in all the aspects of my life – financial, educational, spiritual, vocational, physical and familial. To gain a better understanding of this process, an example of one of my “go up” goals may be “To read and implement the learning from twelve books on my reading list by reading one per month.”

Setting goals is only one step in the process. To monitor my progress, I perform a weekly review and check on various projects, activities and appointments for each week. If I haven’t made progress on a goal, say the monthly book reading one, I can quickly correct my course and spend time reading to catch up on this important goal. This process each week takes less than fifteen minutes. Generally, I will perform such review on Friday afternoon (unless it is a beautiful day and the golf course is open, but I digress).

When you analyze your ambitions and desires in life, your goals will rise from your thoughts and inspire you to grow as a person. Success is the accomplishment of your goals but more than a checkmark beside a written statement it is the person you are becoming that you desire to see in the mirror. I am often asked what the definition of success is to me. My reply is a consistent one. Success is the freedom to live where you wish, to control your time as you desire and to live a life of abundance. Nowhere in my statement do I mention wealth or money as a definitional term for success.

Standard of living and quality of life are two different statements. Most people who chase only after a standard of living (i.e., money and wealth) do not experience a quality of life. However, with certainty, the people who seek a better quality of life achieve a better standard of living. Attitude is critical to achieve success. Gratitude is the fuel of passion that empowers you to achieve the proper attitude to reach success.

If you feel you are not making the progress you desire in life, it’s time you made a new plan. Seek out a Certified Financial Planner™ professional to assist you in forming a new plan in life that accomplishes your definition of success. At the end of life’s journey you will be more happy to say “I’m glad I did” rather than “I wish I had”.

Related Podcasts

New Retirement Changes That May Secure Your Future

Posted on February 1, 2023February 1, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

One of the best attributes about my profession is the constant change in the rules for which we give advice to our clients. One of the worst attributes of our profession is the constant change in the rules for which we give advice to our clients. This double-edge sword keeps our team of professionals motivated to learn new strategies each day. Another aspect of constant change is the challenge of providing long-term advice to clients.

On December 29, 2022, while many of us were preparing for a New Year’s Eve Party, Congress and the President were finalizing the printing and signing of the Consolidated Appropriations Act of 2023 which contains a substantial number of changes pertaining to retirement plans. To summarize the plethora of changes, the idea was to create greater opportunities for plan participants to save for their future. Congress attempted to simplify many of the complex rules pertaining to employer retirement plans and encouraged employees to become savers through automatic enrollment provisions within retirement plans.

To encourage smaller employers, defined as those entities with 50 employees or less, to establish retirement plans, the IRS will allow a tax credit for 100% of the start-up costs for a plan. This is an increase from the previously allowed 50% credit. To take advantage of this credit the plan must be started after January 1, 2023. Many smaller companies may find that a retirement plan serves as a wonderful retention tool to maintain their workforce.

For individuals reaching a certain age in which distributions from their Individual Retirement Account (IRA) are required, good news is included in the new law. Prior to 2023, required minimum distributions (RMD) were mandated by the IRS at age 72. If the individual failed to meet the minimum distribution amount in distributions, a penalty of 50% of the value required to be reported in income as was assessed on the appropriate income tax return. Starting in 2023, the age for required distributions from an IRA is 73. The law also provided for greater longevity of life in the United States in that RMDs will not start until age 75 beginning on January 1, 2033.

Some employers have desired to provide incentives to certain classes of employers to participate in retirement plans. The new law provides for employers to offer de minimis financial incentives, not paid with plan assets, such as low-dollar gift cards, to boost participation in workplace retirement plans.

One of the reasons for employees to deny participation in workplace retirement plans is that the money is required to be invested for a considerable period of time and access to the funds for an emergency is penalized unless certain criteria are met. Under the new law, employers may rely on the employee certifying that deemed hardship provisions are met. This will allow a short-term distribution of assets or a permanent distribution based on the needs of the participant.

Smaller employers generally establish SIMPLE (Savings Incentive Match Plan for Employees) IRA Plans or SEP (Simplified Employee Pension) Plans due to the lowered threshold of reporting and minimal administrative costs associated with such plans. Certain criteria must be met by the employer in the number and types of employees but overall these plans are effective in saving for the future while capturing current tax deductions for the employer. In 2023, SIMPLE IRA’s are allowed to accept Roth contributions (which are post-tax). Also, SEP contributions by the employer (employees do not contribute to these types of retirement plans if not an owner) may be treated as Roth contributions. This, my friends, is a big deal for younger workers who may wish to take advantage of a lower income tax burden early in their career.

One of the more tenuous debates in Washington, DC has been the student loan forgiveness ordered by President Biden. Many students have worked multiple jobs to pay their way through college while others applied for loans. Some of the animus results from the students who chose to attend college while working and now seem to be offended by the exclusion of their efforts from the forgiveness order. Further, some allege individuals who attended very expensive private universities would be favored since they chose to attend a university requiring significantly higher tuition than the student who attended a state-sponsored university.

The reason for opening the debate door on student loans is that employers are allowed to make matching contributions to allowed retirement plans with respect to “qualified student loan payments” beginning in 2024. This will allow the employee to continue to reduce student loan debt while not forgoing savings for their future.

Emergencies do occur in life and many are caught without liquid funds to address the problem. In 2024, plan participants will be allowed a $1,000 early withdrawal without penalty to address emergency expenses. The participant has the option of repaying the withdrawal to the plan within three years.

Retirement does not have to be a complicated process. By planning accordingly with a Certified Financial Planner™ professional, you will feel more confident and comfortable about the future you choose. As I often inform clients, “You retire for the first time only once. It is better for your future that you do it right.” Go make your world a little brighter, smile at everyone you meet!