Happy Spring, Clients and Friends!

We hope this finds you and your family well as spring does it’s best to push forward, despite a string of persistent winter storms. The market has been dealing with some stormy weather of its own, with February posting a 2.3% decline in the S&P 500 Index and the recent news that the California bank subsidiary of SVB Financial Group (SIVB) fell into FDIC receivership on Friday, March 10th. The following Sunday, regulators also closed Signature Bank (SBNY), an FDIC-insured New York state commercial bank with total assets of $110 billion.  

SVB is the largest FDIC-Insured institution to fail since 2020 and the largest by assets since Washington Mutual failed in 2008.  Many market participants are focusing on SVB’s losses in its securities portfolio as a key cause for its demise and many market  participants are also tying the bank’s failure to the Fed’s rising rate policies. We believe Fed policies were only partially to blame as SVB’s niche customer base in technology, and lack of earnings and asset diversification also contributed to the banks failure. At this time, we do not believe the SVB and SBNY bank failures are a deeper sign of things to come. Keep in mind, 72 FDIC insured banks have failed over the last 10 years.  However, we are paying close attention to ongoing developments in the banking sector. 

While, historically, March has been a pretty strong month for stocks, in recent years, seasonality trends have seen weaker average returns, before bouncing back with a stronger April. Our Market & Economic Update takes a deeper look at what clues seasonality data may give us for stock market performance in the coming months along with our thoughts on the recent bank closures and what this may mean for the markets, economy and investors.

We have a lot of other exciting things to talk about in this issue of Frank Talk, as well. Earlier this year Frank had an opportunity to participate in Seth Greene’s RIA Podcast where he talked about what it takes to build and grow a successful registered investment advisor business in today’s competitive marketplace and how our team approach and broad menu of services differentiates us among wealth management firms for the benefit of our clients. We’ve included the link to the podcast in our News & Events section, so please take a minute to watch or listen. Frank was also featured in the March issue of Smart Business where he talked about how a family constitution can help protect wealth across generations. You can find a link to that article under News & Events, as well as information about several live and virtual events planned for this year and new tools and resources available to download from our website to help you pursue the Return on Life^® you desire for your family and business.

In the coming months, we will continue to proactively communicate information about the markets and economy, as well as information and education on topics such as charitable giving, estate planning, retirement income and preparing your business for a sale, through our blog, newsletter, social media channels, email communications, articles, seminars and webinars. If there are topics you would like to see us address through these or other communication channels, please don’t hesitate to contact us with your thoughts and suggestions.

As always, we encourage you to reach out to your dedicated team whenever you have questions or when circumstances in your life change. If you need additional help or someone you know needs our advice, remember, we’re only a phone call away at 440.740.0130.

What’s In It for You?

At-a-glance guide to your 4th Quarter 2022 Frank Talk newsletter:

• News & Events
  • Awards & Recognition
    • Frank Fantozzi Honored as an LPL Top Advisor
    • Frank Fantozzi Featured on RIA Podcast
    • Frank Fantozzi Featured in March issue of Smart Business magazine
  • Events
    • Business Continuity Planning Webinar
    • 15th Annual Cleveland Economic Summit
• Resources
  • 2023 Tax Planning Guides
  • Complimentary Second Opinion Service
  • Visit Our Getting Frank Blog and Join Us on Social Media
• Market & Economic Update
  

News & Events

Frank Fantozzi Named Among LPL’s Top Financial Advisors

In February, Frank Fantozzi, CPA, MST, PFS, CDFA, AIF^®, CEPA, announces his inclusion in LPL Financial’s Executive Council, LPL’s top advisory level.  This elite award is presented to less than .5% of the firm’s more than 21,000 financial advisors nationwide. Achievement is based on annual production among LPL Advisors only.

Frank Featured on The RIA Podcast, hosted by Seth Greene

Frank was recently interviewed by Seth Greene, host of the Registered Investment Advisor (RIA) Podcast. The RIA Podcast features RIA industry executives, top producers and influencers on how they have built successful businesses, tips on business growth and development, and trends in the wealth management industry. Frank spoke about:

• What differentiates Planned Financial Services from other RIAs
• Why Frank believes an approach that focuses on life well-lived benefits clients and their families
• What drove Frank’s passion to develop a full suite of services to help simplify the complex needs of business owners and high-net-worth families
• Why he believes a team of advisors with experience across multiple financial disciplines is critical to help clients pursue their individually-defined Return on Life^®

You can listen to or watch the podcast on our YouTube channel by clicking this link: Frank Fantozzi Featured on The RIA Podcast, hosted by Seth Greene

Smart Business Features Frank Fantozzi on Making Family Wealth Last

Smart Business magazine interviewed Frank on how creating a family constitution can help prevent conflicts that can tear families apart and diminish fortunes. Read or download the March 2023 article to learn how this flexible approach may help you better protect multigenerational wealth and encourage family harmony. Click here to read the March 2023 Smart Business article: How a family constitution can help protect wealth across generations.

Upcoming Events

Save these dates and plan to join us for:

Business Continuity Planning Webinar – May 17, 2023

This virtual event hosted by Frank Fantozzi will take place via Zoom on May 17^th from 11:00 am – 11:45 pm. Frank will speak about the importance of continuity planning for business owners and their families. Watch for more information including an email invitation with registration instructions. Feel free to share the event details with other business owners you feel could benefit from attending the live webinar.

15^th Annual Cleveland Economic Summit – September 21, 2023

We look forward to welcoming you and your guest(s) to our 15th Annual Cleveland Economic Summit on September 21st at the Cleveland Botanical Garden/Woodland Hall from 4:00 – 6:30 pm. Watch for a “Save the Date” email reminder in the coming weeks with more details about the event and venue. 

Stay tuned for information on these upcoming events…

Watch for news and information in the months ahead about additional events we will host and/or sponsor in 2023, including:

• Smart Business - Cleveland Dealmakers Conference (June)
• Smart Business - Smart Women Breakfast & Awards(July)
• Understanding Medicare webinar (August)
• Smart Business - Family Business Conference & Awards (September)
• Market Noise Live! webinar (November)

Resources

Prepare for the Year Ahead with Our Complimentary Tax Planning Guides

• The Planned Financial Services 2022-2023 Tax Planning Guide is your comprehensive guide to key tax provisions and deadlines that can help you reap the full benefits of collaboration with your qualified tax advisor. View or download your PFS 2022-2023 Tax Planning Guide now.

• Our at-a-glance guide to your 2023 Federal Tax Rates makes it easy to quickly find the information you need from federal income tax brackets and rates to capital gains and qualified dividend rates, contribution limits for retirement plans, annual gift and estate tax exclusion amounts, and more. Feel free to download it, print it out or save it to your device to access throughout the year. View or download your complimentary 2023 Federal Tax Rates guide now!

Our Complimentary Second Opinion Service Was Designed for Your Family Members, Friends and Business Associates

Our complimentary Second Opinion Service continues to be well-received among the friends, family members and colleagues of our clients and business associates. This valuable service provides the people you care about with an opportunity to benefit from the same expertise and guidance that you have come to expect as a valued client of Planned Financial Services.

In many cases, a second opinion will simply provide confirmation, and the confidence that those you care about are on track to fulfill their values and achieve their goals with their current financial provider or strategy. However, if needed, we are happy to suggest ways in which we can help, including recommending another provider if we are not a good fit for their needs. Either way, following a Discovery Meeting and Investment Plan Meeting with our experienced team, they will receive a Total Client Profile and a Personalized Financial Assessment of their current situation.

Download a full description and learn more about the Planned Financial Services Second Opinion Service and the benefits it offers to the people you care about most.

Don’t Miss Out on the Topics that Are Important to You: Visit Our Getting Frank Blog

Get a jumpstart on the new year with timely information on the financial planning, business growth and investment topics that are meaningful to you. Visit our Getting Frank Blog at PlannedFinancial.com. We post new articles and opinions weekly, so be sure to visit often. You can also read the latest blog articles by connecting with Frank personally on social media at LinkedIn, Twitter and Facebook.

Market & Economic Update

What Can March Seasonals Tell Us About the Outlook for Stocks?**

As mentioned in my opening remarks, March has historically been a pretty strong month for stocks. In recent years, seasonality trends have seen weaker average returns, before bouncing back with a stronger April. Based on seasonals, it was perhaps no surprise that stocks struggled in February. Looking at average returns by month, dating back to 1950, February is one of only two months (along with September) to post average declines. Over the most recent history of the last 5 and 10 years, February has posted the worst or second worst monthly returns, and the two-month period of January to February has been the worst such period over the past 10 and 20 years.

Historically, March has been a strong month for average returns, in the top four or five months, but in the past 5 years it has slipped to be the third worst. In fact, the February to March period has been the worst two-month period over the past 5 years.

More encouraging is the March to April two-month period that has been the second strongest (behind only November to December) over all periods dating back to 1950, and over the past 20 years it has been the strongest two-month period. Over more recent periods the weaker March returns have been a drag before a strong April. April has consistently been the second or third strongest month over all the time periods studied. In recent years, May and June have historically been weaker months prior to a blockbuster July.

Taking a look at this from a slightly different angle, March has been the fourth strongest month as measured by the percentage of positive S&P 500 Index monthly returns (going back to 1950). Although this data has been weakening in recent years, a solid 60% of March monthly returns have been positive over the past 5, 10 and 20-year periods. April is the second-best month since 1950, as measured by this statistic, and has been strengthening in recent years. Last April’s negative return (-10.8%) was the first negative April in 10 years and only the second in the prior 17 years.

As we highlighted prior to the midterm election last year, a favorable historic longer-term trend for stocks is looking at returns a year after the midterm election. Since 1950, stocks have had a positive return one year after the midterm election every single time, with an impressive average of almost 15%. So far, since the midterm election, stocks returns are positive, just by 0.5%, but there is still a long way to go to November.

Another positive sign from the current stage of the presidential cycle is that we have moved into the stage where historic trends have been a tailwind for stocks. Under new presidents, markets historically struggled in the second year coming into the midterms, as they did last year, before seeing strong returns in the second half of the presidential cycle. In data going back to 1950, year three of a new president’s term has seen the best annual returns of the periods studied—posting an average gain of over 20%.

The immediate seasonal picture for March is mixed, but longer-term data around the stage of the presidential cycle is more positive, as are the strong returns that April often brings. We maintain a positive but cautious view on equities, as markets could remain volatile as the Federal Reserve tries to break the back of inflation without a deep and/or prolonged recession. Such a recession is not our base case, and we see a return to a lower volatility environment as likely, but investors will probably have to wait until later this year for clarity on the ultimate destination of interest rates. Meanwhile, prolonged debt-ceiling debates may cause flare-ups in volatility.

Bank Failures Raise Concerns

In the meantime, financial markets were shaken as Silicon Valley Bank (SVB), the California bank subsidiary of SVB Financial Group (SIVB), fell into FDIC receivership. SVB is the first FDIC-insured institution to fail since 2020 and the largest by assets since Washington Mutual failed in 2008. Prior to the latest distress, the bank held more than $200 billion in assets. SVB’s failure was then followed by another, crypto-focused Signature Bank. The news, not surprisingly, caused market participants to speculate if there will be another shoe to drop. For some, these developments have brought back painful memories of the financial crisis 15 years ago.

Before explaining what happened, let’s start with the most recent headlines. On the evening of March 12^th.  we got word that the U.S. government would step in to prevent contagion by offering SVB customers access to their uninsured deposits. And by designating SVB as a systemic risk to the banking system, the Federal Reserve (Fed) and U.S. Treasury Department are able to use emergency lending authority to help prevent runs on other banks (by making it easier to borrow against depreciating securities without suffering the balance sheet damage SVB experienced). The top priority in this situation was to prevent runs on other banks, particularly the many small and mid-sized banks not under the watchful eye of the Fed and not subject to sophisticated stress tests. The Fed Board of Governors also held a special meeting on March 13^th.

Now to the 2008 comparison. Back then, the problem was far-reaching credit risk—junky mortgages on virtually every financial institution’s balance sheet (and the balance sheets of many non-financial institutions). Credit risk is not the problem this time, it is interest rate risk. Rising interest rates caused the value of the bonds on SVB’s balance sheet to lose value. Once those securities were marked to market, as is prescribed by accounting rules, SVB was no longer capitalized as well as it needed to be, prompting the FDIC to place the bank in receivership

However, that wasn’t the whole story. SVB’s niche customer base was another big problem. Its emphasis on early-stage venture capital customers meant its deposit base was more concentrated and less sticky. Many of those start-up companies burned through a lot of cash recently, while funding options such as initial public offerings dried up.

One other unique element of this story is SVB’s mismanagement of its balance sheet. Its heavy exposure to interest rate sensitive Treasury and other government securities, with insufficient interest rate hedging activities, left the bank particularly vulnerable to a run. Once the bank was known to be facing solvency issues, word traveled fast through the venture capital community and the deposits fled as fast as these entrepreneurs could log into their online accounts.

With the federal backstop now in place and few, if any, other large banks facing similar interest rate risk, any further spillover should be limited. One potential silver lining is the Fed will likely slow its rate hiking campaign until confidence in banks is restored, though a quarter-point hike on March 22 still seems likely.

So, what should investors do? Some caution is warranted as sentiment around the banking system remains fragile. But we believe tactical investors should maintain multi-asset allocations at or near benchmark levels. And don’t lose sight of opportunities to potentially add risk after the SVB distress passes. Conditions will improve before long, in our view. For longer-term, strategic investors with well-balanced allocations, we would not make any changes at this point.

In closing, SIVB’s niche clientele and its balance sheet mismanagement were distinctive contributors of the bank’s downfall. Meanwhile, the government’s actions to backstop deposits and provide short-term funding to banks that need it, greatly reduce the odds of a systemic crisis. We may see a bit more market volatility than we would like to see in the short term, but this is not another 2008.

Closing Remarks

As these and other conditions evolve in the weeks and months ahead, you can rely on your PFS team to continue to monitor and adjust our portfolios and keep you up to date on market and economic developments. We understand the concerns that can accompany change and uncertainty and are confident in our approach to  navigating through these challenging times.

We also want to remind you that you are always welcome to contact your dedicated team if you have questions or to schedule time to meet with us at our office. For those who prefer to meet virtually, we continue to use Zoom for virtual meetings, and are always available via phone. Just let us know how you prefer to meet, and we’ll make it happen!

We are always honored to help our clients’ friends and business associates take greater control of their future with guidance from the PFS team. We welcome and are grateful for the many introductions our clients continue to provide. If you, or someone you know, has questions or concerns about your personal investment strategy or business finances, please don’t hesitate to share information about our complimentary Second Opinion Service and reach out to us at 440.740.0130.

Don’t forget to connect with PFS on Twitter, LinkedIn, Facebook and YouTube.

Real People. Real Answers. 

Health, Happiness, and Good Fortune,

Frank Fantozzi
CPA, MST, PFS, CDFA, AIF^®, CEPA
President & Founder

Frank@PlannedFinancial.com

IMPORTANT DISCLOSURES

**A portion of this research material was provided by LPL Financial, LLC, March 2023. All information is believed to be from reliable sources; however, neither Planned Financial Services or LPL Financial make any representation as to its completeness or accuracy.

Source: https://lplresearch.com/2023/03/02/what-can-march-seasonals-tell-us-about-the-outlook-for-stocks/#more-26928

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.

For a list of descriptions of the indexes and economic terms referenced in this publication, please visit lplresearch.com/definitions.

All index and market data from FactSet and MarketWatch.

Unless otherwise stated Planned Financial Services and the third-party persons and firms mentioned are not affiliates of each other and make no representation with respect to each other. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.

This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific issues with a qualified tax advisor.

Investment advice offered through Planned Financial Services, a Registered Investment Advisor.

If you’re retired or nearing retirement, you may be concerned about the impact of recent events such as market volatility, rising interest rates and inflation on your nest egg. One investment tool that may have the ability to alleviate concerns in this environment is an annuity. Annuities don’t enjoy the potential returns of equity investments and usually aren’t a substitute for other retirement savings vehicles. However, they do provide a guaranteed, tax-deferred income for life — an important feature for many retirees.

What are they?

An annuity is an investment contract, usually with an insurance company, under which you pay a lump sum or annual premiums in exchange for periodic payments for life (or for a specified term). It’s also possible to purchase an annuity that makes payments over the lives of both you and your spouse.

You can opt for payments to start right away (an “immediate annuity”) or at a later date (a “deferred annuity”). If you’re retired or will retire soon, an immediate annuity is often the best choice. This article focuses on nonqualified annuities, which are funded with after-tax dollars, as opposed to qualified annuities, which are funded with pre-tax dollars as part of an IRA or qualified retirement plan.

Annuity earnings are tax-deferred, which means they grow tax-free until they’re paid out. Most annuities impose surrender charges if you withdraw too much or too early. Payments generally consist of a combination of taxable earnings and tax-free return of principal. Plus, like other tax-advantaged investments, withdrawals of tax-deferred earnings before age 59½ are subject to a 10% tax penalty, with some exceptions.

What are the options?

There are three basic kinds of annuities:

• Fixed, which guarantee a specific interest rate on your contributions,
• Variable, which allow you to select from a menu of investment options and make payments based on the performance of your investment portfolio, and
• Equity-indexed, which are a hybrid of fixed and variable annuities.

This last type guarantees a minimum rate of return, but also has the potential to produce higher returns based on the performance of a broad stock market index, such as the S&P 500. Typically, equity-indexed annuities limit your upside potential — for example by imposing an interest rate cap or by limiting returns to a certain percentage of the index’s gains (80% is common).

Fixed annuities generally are preferable to variable annuities which expose you to market risk. Equity-indexed annuities can offer the best of both worlds, but they’re more expensive. Some annuities offer death benefits (usually for an additional fee), paid to the annuity owner’s beneficiaries either as a lump sum or a series of periodic payments.

Are they right for you?

Annuities may not be the best choice for long-term wealth accumulation. For funds you won’t need for many years, a well-diversified portfolio of stocks, bonds, mutual funds and other investments generally offers higher potential returns. Those investments also provide greater flexibility to take out or reallocate your funds without early withdrawal penalties or surrender charges.

Although annuities offer more modest returns, they can afford you the security that comes with a fixed income stream you can’t outlive. And a fixed or equity-indexed annuity offers some protection from market volatility in the short term. One popular strategy is to invest in an annuity whose payments are enough for essential expenses in retirement, such as housing, utilities, transportation, health care and food. By providing a relatively low-risk, lifetime source of funds to cover such expenses, an annuity can increase your comfort level with your riskier, long-term investments.

Opposite of life insurance

An annuity payable for life can be a great way to gain some financial certainty in uncertain times. Annuities often are described as the opposite of life insurance. Life insurance protects you against the risk of dying too soon and leaving your family financially insecure. An annuity protects you against the risk of living “too long” and running out of money. Talk to your financial advisor to determine whether an annuity makes sense given your goals and situation.

Sidebar: Tapping retirement accounts to fund lifetime gifts

Beginning in 2026, the federal gift and estate tax exemption — currently, $12.92 million — is scheduled to be cut in half. And if some lawmakers have their way, the exemption would be reduced even further (and possibly earlier). To take advantage of the current exemption before it disappears, many high-net-worth individuals plan to make substantial lifetime gifts to their children or other heirs.

But what if a significant portion of your wealth is tied up in traditional IRAs, 401(k) plans or other tax-advantaged retirement accounts? Does it make sense to fund gifts with those assets to leverage the higher exemption? To answer this question, you’ll need to weigh the income tax cost of withdrawing funds from retirement accounts against potential gift and estate tax savings.

Withdrawals from traditional retirement accounts are subject to ordinary income taxes plus a 10% penalty if you’re under age 59½. Other costs to consider include the loss of continued tax-deferred growth and a higher tax rate on withdrawals (if you expect to be in a lower bracket in retirement). Potential gift and estate tax savings include the benefits of the current exemption amount as well as removing the gifted assets’ future appreciation from your estate. © 2023

Investment advice offered through Planned Financial Services, a Registered Investment Advisor.

This information is not intended to be a substitute for specific individualized tax, legal or accounting advice. We suggest that you discuss your specific tax issues with a qualified tax, legal or accounting advisor.

If leaving a charitable legacy is important to you, you may be thinking about establishing a private foundation or other vehicle for managing your philanthropic activities. Private foundations can be highly effective, but they’re expensive to set up and operate. Donor-advised funds (DAFs) are popular alternatives, but they also have potential drawbacks.

Immediate deductions are possible

Why use a foundation or DAF? Can’t you just write checks to your charities of choice? Of course, but contributing funds to a private foundation or DAF allows you to enjoy immediate charitable tax deductions without needing to identify specific beneficiaries or make contributions right away. It gives you more time to research potential recipients or change the organizations you support from year to year.

These vehicles also allow you to involve your family in your charitable endeavors. You can name family members to the board of a private foundation or even hire loved ones to manage it. Many DAFs allow you to designate a successor advisor.

How they’re structured

A private foundation is a charitable organization, typically structured as a trust or corporation and designed to accept donations from a small group of people, such as you and your family. Private foundations usually make grants to other charitable organizations rather than provide charitable services themselves.

A DAF is an investment account, controlled by a sponsoring organization — usually, a public charity or community foundation — and often managed by an investment firm. The fund accepts tax-deductible contributions from investors, who advise the fund on how their charitable dollars should be spent.

Pros and cons

DAFs generally can be set up in a matter of days — or even hours. Setting up a private foundation, however, takes time, since it involves establishing a legal entity. Another advantage of DAFs is that they’re inexpensive (or free) to create, and minimum initial contributions can be as low as $5,000. In contrast, starting a private foundation involves significant legal and accounting fees. Foundations also require much larger initial contributions — typically hundreds of thousands or even millions of dollars — to justify their start-up and ongoing administrative expenses.

Here are other ways the two vehicles compare:

Operating expenses. DAFs typically charge management and investment fees of around 1% to 2% of your account balance. Managing a private foundation is much more expensive since you’ll need to appoint a board, hold periodic meetings, keep minutes, file separate tax returns, and incur ongoing legal and accounting costs, in addition to paying investment fees. You’ll also need to hire a staff or engage a third-party administrator, and pay an excise tax on net investment income (currently 1.39%).

Distribution requirements. DAFs aren’t subject to required minimum distributions, so investments can grow tax-free indefinitely (subject to any rules of the sponsoring organization). But private foundations must distribute at least 5% of their net market value each year.

Charitable recipients. Distributions from DAFs must be made to public charities. Private foundations can make grants to a wider range of charitable recipients, including individuals (subject to certain restrictions).

Tax deductibility. Cash contributions to DAFs are tax deductible up to 50% of the donor’s adjusted gross income (AGI), while noncash contributions are generally deductible up to 30% of AGI. For private foundations, the deduction limits are 30% and 20%, respectively. Typically, you can deduct the market value of appreciated assets donated to a DAF. Deductions for donations to foundations are limited to your cost basis (except for publicly traded stock).

Privacy. DAFs are permitted to accept donations privately, so it’s possible for contributors to remain anonymous. Private foundations must publicly disclose the names of donors who give more than $5,000.

Control. This is an area where private foundations have a clear advantage. You and other board members retain full control over the foundation’s investments and distributions. DAF contributions become the sponsor’s property and your role in managing investments and distributions is strictly advisory. Practically speaking, however, sponsors almost always follow contributors’ advice.

Your philanthropic strategy

The right charitable giving vehicle for you depends on many factors, including your financial resources, the charities you wish to support and the level of control you desire. Talk to your advisors about designing a philanthropic strategy that meets your needs. © 2023

Investment advice offered through Planned Financial Services, a Registered Investment Advisor.

This information is not intended to be a substitute for specific individualized tax, legal or accounting advice. We suggest that you discuss your specific tax issues with a qualified tax, legal or accounting advisor.

With a couple clicks of a mouse, it’s easy to sign up for digital and other services such as video streaming, music streaming, news, magazines, food delivery and retail subscriptions. In fact, it’s probably too easy. Most providers offer free trials and automatic recurring credit card payments, so you may have trouble keeping track of subscriptions. Those recurring costs can quickly add up and take a big bite out of your household budget.

Consumers underestimate costs

According to a recent survey by market research company C+R Research, consumers underestimate their subscription costs by $133 per month, or nearly $1,600 per year, on average. C+R asked participants to think about the subscription services they use and quickly estimate their monthly expenses. Later, they calculated their actual expenses. Their initial estimate averaged $86 per month, but actual expenses averaged $219 per month.

Most participants (74%) said it was easy to forget about recurring monthly subscriptions and 42% said they’ve forgotten about monthly subscriptions that they’re still paying for but are no long using. The most commonly forgotten subscriptions were for mobile phones, Internet and TV/movie streaming services.

Plan of attack

In the current inflationary environment, the cost of almost everything is increasing. So, you may want to look for monthly expenses to slash. You can wrangle subscription costs in three simple steps:

1. Review recent credit card and bank statements,
2. Identify recurring subscription charges, and
3. Cancel the subscriptions you’re not using or are using infrequently enough that it wouldn’t be a hardship to cancel them.

If poring over your banking records is too time consuming, there are several budgeting apps that can do the work for you. These apps monitor your financial transactions and identify recurring transactions, allowing you to cancel unwanted subscriptions. Some will even cancel subscriptions for you. Keep in mind, however, that this service typically comes with its own monthly fee. © 2023

Investment advice offered through Planned Financial Services, a Registered Investment Advisor.

You may have heard that you should pay off your mortgage before you retire. But that may be easier said than done if you bought a home later in life or have recently refinanced your mortgage.

LendingTree estimates that 10 million Americans aged 65 or older are still paying a mortgage — an average of 19%. Older adults living in more expensive markets (for example, Los Angeles and Miami) are more likely to still have mortgages. The good news is that having a mortgage in retirement may not be a liability — particularly in the current economic environment.

Freeing up income

With your mortgage gone, you probably can reduce the amount you may need to pull from your retirement accounts each month to cover living expenses. That’s a benefit when financial markets decline because you won’t need to sell as many investments that have dropped in value.

In addition, there’s the psychological benefit of knowing you’re free of this expense. If you’re like many people, your mortgage is your largest monthly bill.

One of the reasons often given for hanging onto a mortgage is the ability to deduct interest payments from your taxable income. However, the Tax Cuts and Jobs Act curtailed or eliminated some deductions and nearly doubled the standard deduction. For 2023, the standard deduction is $13,850 for single filers, $27,700 for joint filers and even higher for those who have reached age 65 (an additional $1,850 for single filers and $1,500 each for married filers). Even with a mortgage, you may not have enough total deductions to make itemizing worthwhile.

Some argue you can use the money you would otherwise put toward your mortgage to make other investments that could possibly earn a higher return. However, because almost all investments fluctuate in value, paying off your mortgage is likely to offer a more risk-free return. And recent market volatility may make you wary of investing extra funds in stocks and other riskier securities right now.

On the other hand, if you live in a state with high property and other taxes, mortgage interest may provide you with enough to itemize and reduce income tax. Consult your tax advisor about the best choice given your situation.

Determining priorities

Although entering retirement mortgage-free can be a sensible move for many people, it’s not right or possible for everyone. Consumer debt costs have soared over the past year as the Federal Reserve has raised interest rates. So if you have credit card and other high-interest debt, you’ll want to whittle down those balances before paying off your mortgage. And if you haven’t adequately funded your retirement accounts, you should do everything you can to boost those savings — including taking advantage of “catch-up” contributions.

Also, liquidating a large portion of your investments to pay off your mortgage might leave you “house poor,” with much of your wealth tied to your home and not easily accessible in an emergency. Finally, there may be a penalty for prepaying your mortgage. The Dodd-Frank Act of 2010 limited lenders’ ability to impose such penalties on many mortgages. But it still makes sense to check with your lender.

Considering all factors

Whether a mortgage will be a burden when you retire depends on specific factors such as your income stream, retirement plans and other goals. Be sure to work with a financial professional when planning retirement. © 2023

Investment advice offered through Planned Financial Services, a Registered Investment Advisor.

This information is not intended to be a substitute for specific individualized tax, legal or accounting advice. We suggest that you discuss your specific tax issues with a qualified tax, legal or accounting advisor.