December 24, 2019

Holiday Greetings from The Dowling Group, and an Important Note on the SECURE Act

Happy holidays to you and your loved ones! Aside from year-end tax strategies we’ve mentioned here before, the SECURE Act was signed into law on Friday and may significantly affect your retirement and legacy plan, including near-term RMD obligations on inherited IRAs. We want to make sure you are aware of and take advantage of any money-saving strategies before the end of the year. Call 203‑967‑2231 or email us to make your appointment and find out which strategies are right for you. Please scroll down for more details regarding the SECURE Act.

The SECURE Act May Affect Your Retirement and Your Legacy Planning

Last week, reports indicated the ‘Setting Every Community Up for Retirement Enhancement’ (SECURE) Act was attached to the federal spending bill President Trump signed into law on Friday.

The SECURE Act is intended to expand retirement savings opportunities. Many of its provisions make it easier for Americans to save more for retirement and, also, to convert their savings into income for retirement. The Act will change IRA rules in some significant ways. For instance, Drinker Biddle and Barron’s reported:

• Contribute to IRA accounts at any age. In the past, Americans had to stop contributing to IRAs at age 70½.
• Begin taking required minimum distributions (RMDs) at age 72. The age for RMDs was pushed to 72 from age 70½.

The Act also changes post-death IRA distribution rules, eliminating stretch IRA estate planning strategies. Barron’s explained, “Under the bill, beneficiaries of an IRA would need to draw down the account—and pay income tax on the money—over a decade, rather than a lifetime.” This will affect some legacy planning strategies and necessitate the adoption of alternative solutions.

Workplace plans may change, too. Part-time workers are now eligible to participate in defined contribution plans as long as certain criteria are met. The Act also made it easier for defined contribution plans of all sizes to add lifetime income options to plan investment lineups.

In addition, the incentive for smaller business owners to establish workplace retirement plans increased. Tax credits, of up to $5,000 for three years, can be claimed to offset plan start-up costs. Additional tax credits are possible when new plans include automatic enrollment features or existing plans add automatic enrollment features.

If you would like to discuss how the SECURE Act may affect your retirement, business, or legacy plans, please give us a call at 203‑967‑2231 or email us.

The Markets

Let’s hear it for 2019!

Major stock indices in the United States and overseas are poised to deliver double-digit gains for the year. Even with uncertainty about Britain’s exit from the European Union (EU), the FTSE 100 boasted a gain of more than 10 percent at the end of last week. That’s not bad for a year which included (in the United States) an inverted yield curve, an earnings recession, and a contentious trade war.

The strong stock market performance of 2019 owes a lot to central banks, and so does the performance of the bond market. Reuters reported:

“…the screeching change of direction by the world’s top central banks, led by the Federal Reserve, which cut U.S. interest rates for the first time since the financial crisis more than a decade earlier…fired bond markets up like a rocket. U.S. Treasuries, the world's benchmark government IOU, have made a whopping 9.4 percent after yields plunged as much as 120 basis points…German Bunds – Europe's safest asset – have had their best year in five years, making roughly 5.5% in euro terms as the European Central Bank has reversed course too.”

So, what lessons should we take from 2019?

Perhaps, we should try to come to terms with loss aversion. When you make an investment decision, it’s important to consider the impact of loss aversion on your thinking. The pain from a loss carries twice the impact of the pleasure from a gain. As a result, fear of loss may affect investment decision making.

2019 offered a great example. During a year of exceptional returns, investors pulled money out of stocks at a record pace because they were worried about recession and other issues. Axios reported:

“Data from the Investment Company Institute shows money has been pulled out of [stock investments] in every month this year except January. In total, more than $130 billion has been drawn from [stock investments] in 2019, making it already the largest year of outflows on record.”

When it comes to investing, uncertainty is normal. It is part of investing. Tolerating uncertainty may help investors earn attractive returns. As a result, our advice is to stay invested even when uncertainty makes you nervous, even when markets are falling.

If you have a diversified portfolio built to help you reach your goals, stay with it, unless your risk tolerance has changed. In 2019, pulling money out of stocks meant some investors missed out on some exceptional returns.

Weekly Focus – Think About It

“I feel that one of the most important lessons that can be learned is that what we ‘see’ may be different than what is actually in front of us.”

—Mark Singer, journalist

Best regards,
Sean M. Dowling, CFP, EA
President, The Dowling Group Wealth Management

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