PERFECT
STORM,
PRACTICAL
SOLUTIONS

In 2022, together we faced not only the devastation of Hurricane Ian, but a storm in the financial markets as well. We’ve seen higher inflation, interest rate increases, uncertainty about a recession and a war in Ukraine – all happening at the same time. All these largely unexpected events created one of the most difficult and volatile market environments in recent history.

We can’t control the weather. But what we can do is ride it out together and find ways to keep us dry as the storm rages. Whether that’s through continuing tax-smart investment strategies; reviewing, discussing and possibly reevaluating your goals and financial plan; taking advantage of market volatility; or partnering with experts to help create robust insurance and estate plans that can provide for your family – we’re here to help.

PREDICTING RAIN DOESN’T COUNT. BUILDING ARKS DOES.

– Warren Buffett

WHAT MATTERED MOST TO YOU IN 2022

In this review, we’ll cover what happened in the markets, the economy and Washington in 2022 – and look at where we might go from here. And in our latest video, our Senior Vice President of Portfolio Management, Neil Gilfedder, CFA^®, speaks with wealth planner Michelle Muhammed, director, financial planning, CFP^®, ChFC^® about the issues that mattered most to you in 2022 and what we are doing to help.

Watch Michelle Muhammed and Neil Gilfedder discuss the year’s events.

Even with a crystal ball, predicting the events of 2022 would have been a challenge. Remember, at the beginning of the year, we were still emerging into the post-lockdown landscape: prices began to rise as consumer spending picked up, and the Federal Reserve kept interest rates low as it attempted to stimulate the economy back to growth. As it turns out, the U.S. had its strongest economic growth in four decades at 5.7% gross domestic product for 2021. At the time, the consensus was that higher inflation was a temporary result of this growth.

By early 2022, however, this perception began to shift. Supply chain issues, already in place from the global economic shutdown in 2020, were heightened by Russia’s invasion of Ukraine in February, leading to higher energy and food prices. In an attempt to slow the rate of inflation, the Federal Reserve began to increase interest rates once again – but not so much that it risked slowing the economy to the point of recession.

GDP (the measure of the U.S. economy’s growth) was negative for the first two quarters of 2022 but was higher than expected for the third quarter at 2.9%. The labor market and wage growth generally remained robust, which - while positive news for workers - also helped keep inflation high.

Looking ahead, of course, the big question is whether we are facing a recession in 2023. If we define a recession as two consecutive quarters of negative GDP, that seems less likely as of this writing. But we would expect slowing economic growth as a result of Fed actions and their impact on housing costs, corporate earnings and consumer sentiment. So even if we don’t see a technical recession, it may feel that way to some people.

WHAT WE ARE DOING FOR YOU

There’s a reason “saving for a rainy day” is a sound financial principle. No one can control or predict what will happen with the economy but following the action steps you set with your planner – from your emergency savings to your long-term retirement strategy – grants you the peace of mind of knowing that you’re doing all you can to ride out the storm.

If there was a silver lining to the higher prices that 2022 delivered, it came in the form of legislative changes from Washington.

In response to the pressures created by persistently high inflation, the Social Security Administration announced a cost-of-living increase of 8.7% starting in 2023, the highest such hike since 1981, providing a significant boost to those in or nearing retirement. The yearly cost-of-living adjustments are often offset by higher Medicare costs. But instead, Medicare actually lowered Part B premiums and the deductible, meaning retirees can keep more of their Social Security benefits.

Meanwhile, the IRS has set higher standard deductions for 2023. The standard deduction will increase to $27,700 for married couples filing jointly and to $13,850 for single taxpayers. The IRS often adjusts tax rates to account for inflation, but in most years, it’s a modest amount. This year, the shift represents a significant jump of about 7%.

In other policy news, the Inflation Reduction Act was signed into law, offering various “green energy” related rebates and a handful of other changes that may provide some relief to taxpayers in 2023.

Finally, SECURE 2.0 was passed at the end of 2022. The bill extends retirement savings opportunities for American workers by increasing catch-up contribution limits, enabling them to invest more in their employer retirement plans. Regular contribution limits for 2023 were announced: The amount individuals can contribute to their 401(k) plans in 2023 has increased to $22,500, up from $20,500 for 2022.

WHAT WE ARE DOING FOR YOU

We believe that an integrated financial plan – one that takes a broad view of your financial life – is your best defense against any storm clouds on the horizon. That’s why we monitor policy developments and take action when changes might affect your financial plan. For example, your planner can work with you to adjust your systematic withdrawals in line with the Social Security increase. Your planner works closely with in-house subject matter experts in tax and estate planning, insurance, Medicare, Social Security and more. Our teams work together to ensure that your financial plan is positioned for any ongoing developments that could help you reach your goals.

ACTIONS

The legislative changes brought in during 2022 provide an opportunity to review and adjust your financial plan. Your planner can answer your questions and help you decide which of the following steps might be right for you:

1. Increase contributions to your retirement plan in 2023

   If you’re still working, consider putting as much as you can into your employer-sponsored retirement plan, such as a 401(k), 403(b), 457 or TSP.  You can now contribute up to $22,500 (up from $20,500 in 2022), and for those over 50, the IRS also increased the catch-up contribution value for 2023, from $6,500 in 2022 to $7,500. In total, employees above the age of 50 can contribute up to $30,000 to their 401(k).

   For IRAs, the IRS increased the limit on annual contributions in 2023 to $6,500, up from $6,000 in 2022. The IRA catch‑up contribution limit for individuals aged 50 and over is not subject to an annual cost‑of‑living adjustment and remains $1,000. The same applies to Roth IRAs but remember that the $6,500 limit is a combined total.

2. Review your cash reserves

   Higher interest rates mean more attractive yields on savings and money market funds. Talk to your planner about which options are best for you.

3. Take Required Minimum Distributions

   Determine if you are required to take RMDs this year. The age to begin taking Required Minimum Distributions will increase from 72 to 73 in 2023 (for people who reach age 72 after Dec. 31, 2022). The penalty for failing to take RMDs will decrease from 50% to 25% of the RMD amount, and 10% if corrected in a timely manner for IRAs.

4. Consider making charitable contributions with Qualified Charitable Distributions

   If you need to take a RMD in 2023, consider a QCD using part of your RMD.

5. Annual gift allowances have increased

   Consider making gifts to your family members. The IRS has increased the annual gift allowance to $17,000 in 2023 so you can make a gift up to that amount to as many people as you like without incurring a federal gift tax. Your spouse could do the same, if you chose to make gifts to each of your children or grandchildren, for example.

6. Adjust your HSA and FSA pretax savings contributions for 2023

   The annual inflation-adjusted limit on HSA contributions for self-only coverage will be $3,850, up from $3,650 in 2022. The HSA contribution limit for family coverage will be $7,750, up from $7,300. The adjustments represent approximately a 5.5% increase over 2022 contribution limits, whereas these limits rose by about 1.4% between 2021 and 2022. If you’re still employed, you can save $3,050 in an FSA in 2023, an increase of about 7% from the $2,850 limit in 2022. (Remember, unlike an HSA, you can’t take your FSA with you when you leave a job.)

7. Consider Social Security and pension cost-of-living adjustments

   The 8.7% COLA raise for Social Security takes effect in 2023. Government CSRS pensions also received an 8.7% increase and FERS pensions received 7.7%. Military retirees and disabled veterans will also see their monthly checks increase by 8.7% for 2023. With these increases, you may be able to reduce your portfolio distributions (RMDs or systematic withdrawals), so contact your planner to discuss this further.

8. Medicare premiums will decrease (slightly)

   Each year, the Medicare Part B premium, deductible, and coinsurance rates are determined according to the Social Security Act. The standard monthly premium for Medicare Part B enrollees will be $164.90 for 2023, a decrease of $5.20 from $170.10 in 2022. The annual deductible for all Medicare Part B beneficiaries is $226 in 2023, a decrease of $7 from the annual deductible of $233 in 2022.

9. Review your property and casualty insurance coverage

   2022 saw significant increases in home prices, as well as an increase in natural disasters like fires and hurricanes. Discuss your property and casualty coverage with your insurance agent to be certain you have adequate coverage. Discuss replacement costs, deductibles, flood insurance options and revised appraisals for jewelry and other high-priced personal property.

10. Review your life, disability and long-term care insurance coverage

    Determine if there are any changes needed, that your beneficiaries are up to date, and that you have sufficient life insurance coverage to help secure the financial future for your dependents. Consider adding disability insurance in the event you are no longer able to work. Be sure to add a third-party notification to your policies in case you miss a payment.

11. Review your estate plan

    If you have had a life event this year, like a birth, divorce, death, marriage, retirement or relocation, be sure the beneficiaries on your accounts are correct and your POA or medical directive updated. Create or, if needed, update your will, and remember to consider the handover of your digital assets, such as online accounts and social media.

12. Check in with your planner

    Set up a call or meeting with your planner if you have any questions or concerns about anything on this list, or if you have experienced or expect any major life changes in the new year that could affect your financial strategy in 2023 – and beyond.