How Could Rising Geopolitical Risks Affect the Markets?

As concerns rise about the conflict in the Middle East, investors are asking what the impact could be on financial markets, especially if tensions escalate further and for a prolonged period.

While no one knows for certain how the crisis could evolve, reviewing similar events in history may help investors assess the potential impact on their portfolio. In this episode of Buckingham Perspectives, Head of Investment Research Jared Kizer addresses investors’ concerns about geopolitical risks and shares insights on making portfolio adjustments based on these events.

Social Security and Medicare: How to Plan for Next Year

Each October, the Social Security Administration (SSA) announces how much, if any, benefit increase Social Security recipients will receive the following January, depending on the rate of inflation. As the 2024 increase is set to be less than that announced for 2023, retirees may be wondering what impact the Social Security adjustment will have on their Medicare costs next year. Here are some commonly asked questions about the changes coming, as well as tips to keep your Medicare costs lower, regardless of how much your Social Security benefits rise.

What is the COLA for 2024?

The cost-of-living adjustment (COLA) for 2024 is 3.2%, which the SSA estimates will raise the average monthly retirement benefit by about $59, to $1,906. Those currently receiving benefits should receive notification of their increase via their online Social Security account before the end of December and will receive the increased amount beginning in January. While this increase is considerably less than the 8.7% bump for 2023, which made plenty of headlines when announced last year, it is still higher than the 2.6% average over the past 20 years.

Will the COLA be enough to offset an increase in Medicare costs?

Medicare Part B and Part D are the coverage options most susceptible to annual changes in costs. Medicare Part B covers medical services like doctors’ visits and outpatient care while Part D covers your prescription drugs. It’s generally best to have Part D coverage as well, especially as you age and may require specific medications.

The SSA typically deducts Medicare Part B premiums from Social Security benefits, so as many recipients know, the financial impact from an increase in Social Security benefits may be muted. While there have been years in which Part B premiums remained unchanged from year to year, in 2023, the standard premiums decreased for the first time in over a decade, which allowed recipients to benefit more from the 8.7% COLA. This year, the Centers for Medicare & Medicaid Services (CMS) announced 2024 Part B premiums earlier than anticipated. The standard premium will increase next year by $9.80 to $174.70. This is lower than some feared and means Social Security recipients whose Part B premiums are deducted from their monthly benefits can still expect some increase in income next year given the recently announced COLA.

How else might my Social Security benefits affect Medicare costs?

It’s important to consider that an increase in Social Security payments could actually raise your Medicare costs if it pushes you into a higher income threshold. That’s because your income can affect your Medicare premiums for Part B and Part D coverage. People with high incomes (over $97,000 for a single individual and over $194,000 for a married couple in 2023) pay higher premiums for Part B and Part D.

If you earn over the income thresholds, which are announced annually, you’ll pay an income-related monthly adjusted amount (IRMAA) – a surcharge added to the Part B and Part D premiums. If your income is slightly below the tier, the increase you receive in Social Security income may push you over that threshold, causing you to pay a higher amount for both Part B and Part D benefits. Based on the recently announced changes for 2024, the tables below indicate how your income level can affect your Medicare Part B and D premiums.

Medicare premiums are based on a two-year lookback framework, meaning Social Security reviews your tax return from two years prior. Therefore, for 2024 rates, Social Security will use your 2022 federal tax return to determine which of the tiers you fall under.

Medicare Part B income-related monthly adjustment amounts for 2024:

Medicare Part D income-related monthly adjustment amounts for 2024:

Strategies to keep Medicare costs under control

To prevent your Medicare premiums from rising based on a change in income, it’s best to consult a team of financial professionals who can help apply tax strategies that include being mindful of IRMAA. We also recommend reviewing your Part D plan annually to ensure it meets your specific needs. Even if your medications stay the same, individual plans may adjust their prescription costs, preferred pharmacies or the drugs they cover, so it can be helpful to review this with your financial advisor each year.

Legislative changes stemming from the Inflation Reduction Act of 2022 should also help reduce health care costs for Medicare recipients. One particularly impactful change that should help Medicare Part D recipients save money is the elimination of the donut hole, a coverage gap in which individuals are not covered for their prescription costs and must pay out of pocket. This change will cap overall Medicare Part D costs at $2,000 annually per individualstarting in 2025.

Another change to Medicare Part D plans that went into effect in 2023 relates to insulin-related costs. For those on Medicare, the cost is now limited to a maximum copay of $35 per month. This should provide savings for insulin-dependent diabetics who have grappled with the rising costs of this medication over the last decade or two.

Your financial advisor can help

Historically, Medicare premiums have risen faster than Social Security COLAs. However, when factoring in the upcoming legislative changes to Medicare benefits, as well as incorporating health care planning with your financial advisor, there are plenty of strategies to reduce your Medicare costs that can lead to significant savings over the long term.

The above considerations are just a handful of ways a financial advisor can help review your Social Security benefits and suggest strategies to lower Medicare costs. Please reach out to your advisor to discuss the best options for your situation. If you are not presently working with one, we would love to help you. Please schedule a short phone call or virtual conversation with our team.

Steve Weiss, CFP®

Steve Weiss is a seasoned wealth advisor with a passion for empowering others through financial knowledge. Using a client-centered approach, Steve takes the time to meet his clients where they are in life, understanding their unique needs and concerns, whether they are planning for retirement or facing other financial decisions in the near future. Additionally, Steve’s understanding of Social Security matters has made him an invaluable resource for clients.

Angela Muckler
As an Associate Regional Director, Angela is dedicated to providing support to advisors and their teams in various aspects of their business. Her goal is to build a strong relationship with every individual she works with, better understand the challenges they face and look for opportunities to help them grow. Angela’s passion for comprehensive financial planning and problem solving enhances her ability to connect firms with resources that ultimately help their clients.

For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is based on third party data information and may become outdated or otherwise superseded without notice. Individuals should speak with a qualified financial professional based on their circumstances. Third party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this information. R-23-6359

The Rise of the Female Breadwinner: Key Planning Tips and Considerations

Over the past several decades, women have increasingly taken on the responsibility as their family’s primary or sole breadwinner. This rising role has prompted a different approach to comprehensive financial guidance. Wealth Advisor Alyssum Malone, CFP®, BFA™ shares how partnering with a professional can help ensure your family’s finances are protected for years to come, no matter what situation may arise.

Women as Breadwinner

For much of the past century, men have customarily been the breadwinner in most families. However, over a dynamic era of progress spanning the past several decades, the role of women as financial providers has significantly increased. In fact, it’s becoming more common for women to be the primary or sole wealth contributor in their family. These powerful statistics illustrate this growing trend:

  • 16% of married couples now have a woman who earns more than her spouse, up threefold from the 1970s, according to Pew Research.
  • In 40% of families with children under 18, the mother is the primary breadwinner, according to Pew Research.
  • As women currently outnumber men almost 3 to 2 on college campuses, the number of female breadwinners is likely to increase in the future, according to the National Student Clearinghouse.

The rising role of women as providers has prompted a different approach to comprehensive financial guidance. Utilizing the resources and experience of a financial professional is a great starting point to ensure long-term security for your whole family.

How can partnering with a wealth advisor help?

Managing finances is often a stressful and time-consuming task. Partnering with a financial planner takes more things off your to-do list. While getting time back in your busy schedule is invaluable, the peace of mind knowing your money is being managed by a professional is arguably one of the most valuable benefits of working with a wealth advisor. A recent study by the Life Insurance Marketing and Research Association (LIMRA) revealed that 40% of women respondents working with an advisor feel “very prepared” for retirement versus 27% of respondents without an advisor.

When one spouse is the sole or primary breadwinner for a family, certain financial planning considerations become even more important. These components should be top of mind in your overall financial plan:

Life insurance: While life insurance is essential for many families, it’s even more important for families when most or all of their income stems from one person. If you are considering adding or increasing life insurance for yourself or another family member, ask yourself these questions:

  • Would your family be financially sound if the worst were to happen?
  • Does the spouse earning less also need protection?
  • If you have children, would your spouse’s Social Security survivor’s benefit be enough to cover childcare?
  • What about other things your spouse currently takes care of? Would you need to hire a house cleaner or begin paying for laundry service to replace the things a stay-at-home spouse does around the house?

An advisor can help you navigate these conversations to make sure you have adequate coverage in place.

Disability insurance: How would your family manage if you were to become disabled and unable to work? Your spouse may find employment but may be unable to bring in a similar income as you were making. This is where disability insurance kicks in. Keep in mind this income protection insurance typically does not replace 100% of your salary, so working with an advisor to make sure your family will be able to cover expenses is very important.

Emergency savings: I cannot emphasize this enough – any family or couple relying on a sole income needs a larger emergency fund. If you lose your job, you need to ensure you have liquid savings in place while you search for another. A financial advisor can help you to determine the correct amount to ensure your bills will be covered.

Goal planning and prioritization: Single-income families typically make less overall than dual-income families, which can make cash flow tighter and therefore potentially lower the rate of savings. Collaborating with a financial advisor can help to assure you’re on track to meet your short- and long-term goals or make the changes necessary to get there.

Tax planning: Working with a professional who understands your tax and income situation can help your family minimize liabilities whenever possible and make sure you are taking advantage of tax-efficient savings strategies.

Executive and stock compensation planning: Top-tier managers and key employees may be eligible for executive and stock compensation incentives. This can lead to a substantial increase in income. While this can be exciting and rewarding, it can also lead to more financial decisions. An advisor can help ensure you’re taking advantage of these benefits in a tax-efficient manner.

The above considerations are just a handful of ways a financial advisor can help protect families who rely on a primary or sole provider. Please reach out to your advisor to discuss the best options for your situation.

Note: The statistics shown above are by no means telling for all families in these situations. Each family is unique and structures household tasks and other items discussed differently. This article also focuses on heterosexual couples as this is where most of the research on breadwinner dynamics has been focused. All the planning needs outlined above are important for LGBTQ+ couples as well. For more information, click here.

For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is based on third-party data and may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Individuals should speak with qualified financial professional based on their circumstances. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this article. R-23-6103

Government Shutdown Averted for Now

Over the weekend, Congress passed legislation to enact a 45-day reprieve of any imminent government shutdown fears. However, this won’t get us through the end of the year.

In this episode of Buckingham Weekly Perspectives, Head of Investment Research Jared Kizer explores the impact of a government shutdown from a political and historical perspective, the near- and long-term risks from an investment strategy perspective, and three ways investors can manage this risk.

Source: Vanguard

If you have any questions please feel free to drop us a note.

For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is based on third party data and may become outdated or otherwise superseded without notice. Third party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. The time frame chosen because of the dates of available data. The inception of the AIEQ ETF was 2017. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio nor do indices represent results of actual trading. Information from sources deemed reliable, but its accuracy cannot be guaranteed. Performance is historical and does not guarantee future results. All investments involve risk, including loss of principal. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this information.

How Investor Expectations Are Driving Stock Prices

This year, there has been more optimism in the stock market compared to 2022. For investors only looking at the returns of the S&P 500, it may seem like the economy is in a boom. This dynamic may be surprising, given the rising interest rates and forecasts for slower growth.

“Expectations are like a debt that must be repaid.” – Morgan Housel

To make sense of what’s happening with stock performance this year, let’s start with some basics about stock valuations. First, know that expectations are built into every company’s stock price. Valuation theory teaches us that a company’s stock price is based on a combination of the company’s current value and its expected future cash flows, or what investors expect the company will earn over time.

One of the more popular ways to measure investors’ expectations is the earnings yield, which is simply a company’s earnings expressed as a percentage of its market price. It’s the inverse of the price-to-earnings (P/E) ratio, and just like with bonds, a higher yield suggests that the stock may earn more over time.* With that background, here are three insights from the earnings yields we see around the world today, which show why chasing the biggest returns in equity markets may not be the wisest choice.

1. The Big Companies Are Expensive

We generally see large positive returns from a stock for one of two reasons: unexpected improvements in business fundamentals or improved expectations for the company.

With technology stocks, we’ve seen a lot of the second scenario playing out. Nvidia, a maker of computer components that help artificial intelligence applications run effectively, nearly tripled in value through the first six months of the year. As of the end of June, the top five stocks in the S&P 500 comprised nearly 24% of the index value. On average, these top five companies are worth 10 times as much as the rest of the index, but they only yield about half as much. Warren Buffett offered sound advice when he said: “A business with terrific economics can be a bad investment if it is bought for too high a price.”

Tech is Dominating the S&P 500

The Big Companies Are Expensive

2. The Price for Smaller, Less Expensive Companies Has Dropped

The optimism in U.S. stocks seems to be limited to large, established companies. Smaller companies in the U.S. are trading at significantly better yields. Specifically, companies that are inexpensive relative to their peers, what we call value companies, are seeing yields higher than during the 2008 financial crisis – they’re trading like we are already in a deep recession. Although that part might sound concerning, the higher yields show these stocks may be a great opportunity for investors who are focused on the long term.

Small Value Stocks Look Very Attractive

The Price for Smaller, Less Expensive Companies Has Dropped

3. Investors Agree That International Stocks Are Risky

The U.S. has had a great 15 years of stock market performance. However, the outperformance in the U.S. has been driven by multiples expansion – investors have been willing to pay more per dollar of earnings from U.S. companies, at least partially because they are perceived to be safer investments than companies overseas. Compared to the latest earnings, international stocks are about one-third less expensive than their U.S. counterparts, meaning the yields on international stocks look quite a bit more attractive.

Prices Reflect Higher Risk Internationally

Investors Agree That International Stocks Are Risky

Good Years Will Come at Different Times

The media portrays certain indexes, such as the Dow Jones and S&P 500, so frequently that they have become the de facto barometer for how stocks are performing. However, these indexes only represent a portion of investable companies, and as we have seen, the largest companies can represent an outsized portion of the index returns. The earnings yield is one way to measure how good of a deal different stocks or regions are compared to their peers, and right now, the evidence suggests that leaning toward both international companies and small, less expensive companies offers an attractive opportunity for evidence-driven investors.

*This is an imperfect measure: a stock with a low earnings yield could go on to outperform, assuming the company can exceed the current expectations or make unexpected innovations in its field. But comparing differences in yields can give an indication of how high investors have priced their expectations for different companies or segments of the market.

Sources: Returns data were retrieved from Morningstar. Earnings yield data are based on trailing 12-month earnings. U.S. stocks are represented by the Russell 3000 Index. International stocks are represented by the MSCI World ex USA IMI. Small Value stocks are represented by the Russell 2000 Value Index. Holdings and concentration calculations for the S&P 500 Index are based on the holdings of the Vanguard S&P 500 Index Fund ETF (ticker: VOO). All returns and valuation metrics presented are through June 30, 2023. In Chart 1, Tech is Dominating the S&P 500, four companies had an earnings yield greater than 25% and were excluded from the visual.

For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is based on third-party data and may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio nor do indices represent results of actual trading. Information from sources deemed reliable, but its accuracy cannot be guaranteed. Performance is historical and does not guarantee future results. All investments involve risk, including loss of principal. By clicking any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party websites. Buckingham is not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the accuracy of this article. R-23-6175

Saving for College with a 529 Education Plan

Kevin Grogan: With it being back to school time, I wanted to spend today’s video talking about saving for college and specifically saving with 529 plans. So the agenda for today’s video is I’ll first talk about some of the basics related to 529 plans, and then I’ll cover a couple of the common questions that we often get related to saving in these plans.

529 Plan Basics

Kevin Grogan: So in terms of the 529 plan basics, the way these plans work is that you save into the accounts with after-tax money and then the amount that you save gets to grow tax free until you withdraw the money. And as long as you withdraw the money for educational purposes, then the money gets to come out tax free. And one additional benefit is that some states actually offer an income tax deduction at the state level for making the contributions in the year that you make the contributions. But to be clear, in all states, the investment gets to grow tax free and in all states the money gets to come out tax free if it’s used for education purposes. And the way 529 plans are structured is that they’re actually sponsored by individual states. So every state has its own 529 plan. You can kind of think of it as kind of analogous to how each company has its own 401K plan and the way these 529 plans work is each state’s plan will have its own set of investment options, will have its own set of costs associated with it. And again, it’s very analogous to how each company has a different set of investment options and costs associated with their 401k plans. And so that’s kind of an easy way to think about the structure of 529 plans.

What Happens to Unused Funds Left in a 529 Plan?

Kevin Grogan: So in terms of the common questions that we get, first, a most common question is what happens if I put money into a 529 plan and then I wind up not needing it for some reason, because again, my child winds up not going to college, gets a scholarship, things like that. And so the first thing to understand is that the penalty for pulling money out of a 529 plan for non-education related purposes is pretty steep. So you have to pay federal and state taxes on all of the earnings that were made in the account, plus a 10% penalty on all of the earnings in the account. So it is a pretty steep penalty to use 529 dollars for something other than educational purposes. But there are some workarounds that you can use if you wind up in a circumstance where you don’t need all the dollars that you’ve saved to the 529 plan. So the first and most common workaround is that you can change the beneficiary of the account. So let’s say, for example, you have three children. The first child winds up not going to college, second child winds up getting a full-ride scholarship that covers all of their education-related expenses and then the third child winds up going to an expensive college where they have to pay full freight. They don’t get any financial aid and no scholarships. What you can do in that circumstance is change the beneficiaries of the first two 529 plans assuming you’re saved into separate accounts for each beneficiary, you could change the beneficiaries of those first two 529 plans to your third child, and then that child could use all of those dollars. So that’s a very clear example where changing the beneficiary can be really helpful in using up all of the dollars that you’ve saved across all of your children. Beyond that, you can also change the beneficiary beyond just kind of your immediate family. You can change the beneficiary to a niece, nephew or if you really wanted to stretch things out over a longer period of time, you could change the beneficiary to a future grandchild if you wanted to do it that way as well. And then finally, there’s been a recent change in the law in that beginning in 2024, you can actually roll 529 dollars into a Roth IRA for that beneficiary. So there are a lot of limits and caveats associated with this Roth IRA provision. So be sure to look into that, check with an advisor before counting on the ability to roll things out into a Roth IRA.

Do I Have to Use My Own State’s 529 Plan?

Kevin Grogan: Second most common question is do I need to use my own state’s 529 plan? And the answer here is that it depends largely based on the tax provisions in your specific state. So if your state offers a tax deduction for using your home state’s plan, then in general it makes sense to go ahead and use that state’s plan to take advantage of that income tax deduction from making the contribution. So that would be the first piece of advice. But beyond that, there are groups of people in different categories that can use any state’s plan and they kind of fall into three different categories. So first category is the most straightforward. Those would be people who live in states that don’t have a state income tax. And so in that circumstance, it doesn’t really matter which state’s plan you use. Those examples of those states would be Florida, Nevada, Tennessee and Texas. The second category would be states that don’t offer any deduction regardless of which state’s plan that you use. So examples there would be California and North Carolina. Finally, there are a group of states that offer deductions, whether you use the home state plan or another state’s plan. And examples of those would be residents of Arizona, Missouri and Pennsylvania. So if you fall into one of those three categories where you can use any state’s plan, we would generally recommend using the Utah plan because it has very low costs and a good mix of investment options available for savers to use. If you do have any questions on anything I’ve covered in today’s video, please don’t hesitate to reach out to your advisor.

If you have any questions please feel free to drop us a note.

For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is based on third party data and may become outdated or otherwise superseded without notice. Third party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. The time frame chosen because of the dates of available data. The inception of the AIEQ ETF was 2017. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio nor do indices represent results of actual trading. Information from sources deemed reliable, but its accuracy cannot be guaranteed. Performance is historical and does not guarantee future results. All investments involve risk, including loss of principal. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this information.

Buckingham Connects Quarterly Webinar: September 2023

Buckingham thought leaders’ discuss U.S. and global market performance, tax planning considerations, and other financial planning topics.

During this recorded webinar, Chief Investment Officer Kevin Grogan, CFA, CFP®  gave an update on year-to-date market performance and shared why recession predictions for this year may be overblown. Chief Planning Officer Jeffrey Levine, CFP®, CPA, PFS, CWS, AIF, RICP, ChFC®, BFA touched on timely planning topics, including protecting yourself from cybersecurity risks, financial tips for teenagers who earned money in part-time jobs this summer, and an update on what taxpayers should know about state and local tax deductions. Buckingham Strategic Wealth President Wendy Hartman, CFP® covered what to know about the TD Ameritrade and Charles Schwab merger, changes affecting required minimum distributions (RMDs), and charitable giving strategies to consider before the year is over.