Having patience can be challenging when recent downturns have occurred. But the reality is that some of the biggest innovations (and opportunities) arise out of difficult times. And when it comes to investing, all we have is what those opportunities might bring us in the future. This is why investing can be hard when focusing on short-term movements for your long-term retirement plan.
We can’t go back in time and change the past, but we can return to the evidence, and review what has occurred each time. And while not perfect or any guarantee, we can put the odds in our favor to grow over time.
Our partners at Dimensional put this visual together (below) showing how returns have averaged coming out of downturns of -10%, -20%, and -30%. Please take a look as a reminder of how having a longer-term outlook has helped investors in times like these – to not only stay on course but also to be confident in what can lie ahead. > SEE MORE
Waypoint Wealth Management
You may have missed the news – buried in a much bigger spending bill and passed in the thick of the holiday season. But after months of nearly bringing it to the finish line, it’s now official: the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law.
The SECURE Act provides a mixed bag of incentives and obligations for retirement savers and service providers alike. Its intent is to make it easier for families to save more for retirement.
That said, “easier” doesn’t necessarily mean less complicated. The following is an overview of the most significant changes that we see for you (our clients), as the SECURE Act starts rolling out in 2020.
Tax-Favorable Retirement Saving
Compared to previous generations, more Americans are living longer, remaining employed into their 70s, and shouldering more of the duty to fund their own retirement. As such, the SECURE Act includes several incentives to start saving sooner and keep saving longer.
- Initial RMD increases to age 72 – Until now, you had to start taking Required Minimum Distribution (RMDs) out of retirement accounts at age 70 ½. RMDs are then taxed at ordinary income rates. Now, you don’t need to begin taking RMDs until age 72. However, if you turned 70 ½ in 2019 or earlier there is no change; the new rules begin for those turning 70 ½ in 2020. Rules for qualified charitable distributions (QCDs) and Roth IRA withdrawals remain unchanged.
- IRA contributions for as long as you’re employed – If you work past age 70 ½, you can now continue to contribute to either a Roth or a traditional IRA. Before, you could only contribute to a Roth IRA after age 70 ½.
- Expanded participation for long-term, part-time employees – Even if you’re a part-time employee, you may now be able to participate in your employer’s 401(k) plan.
Waypoint Wealth Management
I recently had a conversation with my youngest son, who is seven years old. “Daddy.” He says. “A few days ago I built a fort and it was fun.” “That’s great,” I tell him. “When exactly did you get to do that?” “Tomorrow” he replies, before correcting himself. “No, no. It was tonight. I mean yesterday.”
This exchange has been typical as Zachary learns where he and his (very important) events lie on the spectrum of time. Something from the past has occurred but putting it into the context of when exactly that took place (and verbalizing it correctly) is something he is learning to do. Understanding when something took place in the context of time is a bit of a challenge for him right now.
To me, this is similar to the perspective we can have with our investment portfolios and the markets. > SEE MORE
Pete Dixon, CFP®
Partner and Advisor