Since July we’ve tracked key metrics that often lead to a recession. Month over month we’ve seen housing permits, money supply, and profit margins start to lag which typically leads to cautious or recession territory. However, other indicators lead us to believe there isn’t a recession including jobless claims and gross domestic product (GPD). But this past week the yield curve inverted, making the 3-month Treasury Bond at 4.04% surpass the 10-Year Note at 4.01%. This new information often means a recession will follow within six to eighteen months. So, with the possibility of a recession, what can you do to prepare?

First, evaluate your time horizon to make a strategic withdrawal. A traditional recession will last approximately 10-18 months. So, create a new plan where you withdraw a lump sum and deposit into a high-yield savings account. Oftentimes online accounts are offering higher rates than brick and mortar. For instance, bankrate.com has an online offer of 3 percent and most brick and mortar are closer to .05 percent. The purpose is to stop the dreaded sequence of returns and earn interest during declining market conditions. 

Second, if you are contributing to your retirement accounts, adjust future contributions to a stable value fund rather than auto investing. A stable value fund is a portfolio of bonds that are insured to protect the investor against a decline in yield or a loss of capital. This will help protect your incoming investments from loss during more volatile periods. Once you make the switch, you’ll also need a plan to reenter the market. Your risk tolerance can help guide you or you can reach out to a financial advisor for additional assistance.

Lastly, if you haven’t already started a savings fund, do it now! During a recession, lending processes become more scrupulous and it’s more difficult to get funds in a crunch. Many people save using their bonuses but start to save more regularly with your base paycheck. These regular transfers to a savings account will help you in the long run.

The last time the yield curve inverted was in March of 2020, however, it was abnormal as it only lasted two months and it’s unlikely that we will be that lucky again. What makes this difference this time is inflation and interest rates, a past we’ve known all too well. If you need help with a plan for your income stream or investable assets, book an appointment with KJ Dykema, MRFC® today. I can customize a plan to make sure you weather this inevitable storm.

After two agonizing years of waiting, the big wedding day is finally near. But before you say your “I do’s” there is one more thing you need to check off your list - planning the financial journey you will take as a married couple. With finances being one of the leading causes for arguments and divorce, it is crucial you take this step together before walking down the aisle. Here are the three questions to ask before you get married.
 
The first question you should ask, will you be signing a prenuptial agreement? For some, the answer is simply “no” and they can move to the next question. But for others this is a complex and delicate process where both parties must seek individual counsel. In these agreements, topics to cover range from establishing a plan for their existing net worth and inheritance to the custody of a shared pet. How comprehensive an agreement is depends on the couple but the best thing to do is find a plan that benefits both parties.
 
The second question to ask, how will you set up your accounts? Surveys have found that 49% of baby boomers and 48% of Gen Xers join their accounts together (1 Konish). Whereas, the trend for millennials and younger generations are opting for entirely separate accounts. Some things to assess when making a decision to join or separate accounts include saving and spending habits, as well as the joint goals you want to reach together. There are pros and cons to each strategy but your priority should be regularly assessing your spending and savings to ensure it’s in line with your family goals.
 
The last question to ask, how will you save for large financial expenses? The national average savings for individuals under the age of 35 is $11,200 but the average cost of a wedding in the U.S. is $29,200 (2 McCain). Now, that doesn’t leave much wiggle room for your emergency expenses. As a couple, you will need to discuss your saving and spending habits to gain understanding of each other. Finding the strengths of each partner and utilizing them strategically is essential to get the most out of your conversation.
 
Teaching couples how to grow together and build wealth is one of the most rewarding parts of being a financial advisor. In fact, the journey I took with my partner started with simple budgeting conversations which grew into acquiring businesses and real estate - none of this would be possible without starting on the same page and consistently reviewing our goals together. If you find these questions are too difficult to ask or want some assistance, we are here to help. To start your financial journey together, use our complimentary Budgeting Workbook and book an appointment with KJ Dykema, MRFC® today.
 
References
 
1 Konish, L. (2022, March 7). Joint vs. separate accounts: How couples choose to handle finances could impact their financial success. CNBC. Retrieved June 28, 2022, from https://www.cnbc.com/2022/03/07/joint-vs-separate-accounts-how-couples-choose-to-handle-money.html#:~:text=Baby%20boomers%20are%20most%20likely,versus%20just%2031%25%20of%20millennials.&text=Meanwhile%2C%2045%25%20of%20younger%20millennial,boomers%20who%20do%20the%20same.
 
2 McCain, A. (2022, June 7). U.S. Wedding Industry Statistics [2022]: Wedding services market trends and facts. Zippia. Retrieved June 28, 2022, from https://www.zippia.com/advice/wedding-industry-statistics/#:~:text=The%20American%20wedding%20industry%20is,of%20over%2062%25%20since%202020.%203%20https://www.sofi.com/learn/content/average-savings-by-age/ 

In case you haven’t heard, May is Mental Health Awareness month and it comes as no surprise to learn that financial wellness and mental health can be directly related. In fact, “One study found that individuals with depression and anxiety were three times more likely to be in debt. Other studies have even found a link between debt and suicide.” (Morin, 2019) Now, I’m a financial advisor and not a mental health expert but I think it’s important to provide you a way to connect with mental health resources since the search alone can be overwhelming.

First and foremost, if you or someone you know is struggling with suicidal thoughts please use the National Suicide Prevention Lifeline at 1-800-273-TALK (8255) or TTY 1-800-799-4889. The free and confidential Lifeline is available 24 hours every day in the U.S. Sometimes it will take a moment to speak with someone and if you can’t wait, call 911.

Washington state offers 24-Hour Crisis Lines (see numbers below) that provide immediate help to individuals, families, and friends of people in emotional crisis. The Crisis Line will help you determine if you or a loved one needs professional consultation and link you to the appropriate services.

King County
1-866-427-4747

North Central WA
1-800-852-2923

Pierce & Southeast WA
1-800-576-7764

The WA Warm Line at 1-877-500-WARM (9276) offers peer support for people living with emotional and mental health challenges. Their office is open everyday between 12:30 pm and 9:00 pm and helps with people experiencing anxiety, depression, loneliness, problems with family or friends, and other emotional or mental health challenges.

These are only a few of the phone numbers I found online and oftentimes the crisis lines will provide you with more information and additional resources. If you want to learn more about the correlation between financial wellness and mental health read “How Mental Health Affects Your Financial Health”. To start taking control of your financial journey, book your appointment with KJ Dykema, MRFC® today.

Resources

Morin, A. (2019, September 10). How Your Mental Health Affects Your Financial Health. Psychology Today. Retrieved May 18, 2022, from https://www.psychologytoday.com/us/blog/what-mentally-strong-people-dont-do/201909/how-your-mental-health-affects-your-financial-health. 

​We often talk about diversification in your investment portfolios but focusing on different tax treatments in your retirement accounts is equally important. The type of account(s) you can contribute to are based on many factors including income, age, and filing status. Each investment account type (i.e., Roth, Traditional, Brokerage, etc.) offers unique ways to save with your taxes. Some common account types include:

Traditional 401(k), 403(b), or IRA: A tax deduction at the time you contribute but you will pay taxes when you withdraw funds during retirement.

Roth 401(k), 403(b), or IRA: Funds are taxed when contributions are made, gains are not taxed, and qualified withdrawals are tax-free.

Taxable Savings or Brokerage: Taxes are paid on dividends, interest earned, and capital gains.

As you can see, Roth IRA account contributions are made in after-tax dollars, which means you pay for the taxes upfront. When you reach retirement age and withdraw the funds, it is tax-free. Compared to a tax-deferred Traditional IRAs where distributions are taxed at your ordinary income tax rate during retirement.

In addition to choosing the best account types, it is beneficial to create a strategy for how and when you will withdraw your funds. Distributions are almost always considered income and can bump you into a higher tax rate. By staggering distributions, you can maximize savings by keeping taxable income below the next tax-bracket rate increase. 

There are several strategies you can implement to reduce lifetime taxes and our list is certainly not comprehensive. Take some time to consult with your tax professional or book your appointment with KJ Dykema, MRFC® today and find new ways to save.

The majority of people use their HSAs to pay for qualified medical expenses but don’t realize you can do so much more. For instance, did you know that most HSAs offer a way for you to invest your funds while you are not using them? How about the fact that your contributions and distributions are tax-free*? HSAs are more than just a way to pay for medical expenses, they are a great solution to help reach your financial goals.

Qualifications
In order to qualify for an HSA you must be covered under a high deductible health plan (HDHP), have no other health coverage**, must not be enrolled in Medicare, and can’t be claimed as a dependent on someone else’s tax return.

Contributions
One of the best features of an HSA is that contributions can come from just about anyone - this includes you, your spouse, your employer, family members, and more. In fact, the funds contributed by your employer to your HSA are not included in your gross income - free money, yes please. Do keep in mind that there are contribution limits. The amount depends on the type of HDHP coverage you have, your age, the date you become an eligible individual, and the date you cease to be an eligible individual. For 2021, if you have self-only HDHP coverage, you can contribute up to $3,600. If you have a family HDHP coverage, you can contribute up to $7,200. For eligible individuals age 55 or older, contribution limits are increased by $1,000 at the end of your tax year.

Distributions
You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. For more information on qualified medical expenses, review IRS Pub. 502, Medical and Dental Expenses. Did you know that you can’t pay for insurance premiums using an HSA but you can use it to pay for Long-term care insurance? Of course, there are some limitations based on age and the amount is adjusted annually but this can save you some money.

Tax Benefits
HSAs have a triple-tax advantage. First, many people contribute pre-tax dollars to HSAs through payroll deductions. If you have an HSA outside of your workplace, contributions can be used as a deduction from your taxes. Second, interest or other earnings on the assets are tax-free. Third, when you use the funds for qualified medical expenses the distributions are tax-free.

I could easily have an entire series of articles on the advantages of HSAs but everyone’s situation is different. Let’s talk specifics about how you can use an HSA to boost your financial wellbeing - book your appointment with KJ Dykema, MRFC® today.

* Some exceptions apply. Review IRS Publication 969 to learn more.
** Except what is permitted under IRS Publication 969, Other health coverage.


Resources

Publication 969 (2020), Health savings accounts and other tax-favored health plans. Internal Revenue Service. (2021, February 16). https://www.irs.gov/publications/p969.