What a difference a degree or two can make, as we all learned this past week from Hurricane Milton. This strange disturbance deep in the Southwestern Gulf of Mexico did the unthinkable, moving eastward and multiplying its force. I can’t remember a pattern like that, and if I never see it again, I’ll be better than fine.
Looking back on the week, having watched the various options for landfall and destruction, the Cone of Uncertainty appeared to spell out a cataclysmic result for Tampa, supposedly the nation’s 49th-largest city. In reality, the Greater Tampa Bay area is comprised of a multitude of smaller cities and towns, with a total population in the millions. Situated on a huge bay, and with a shallow Gulf floor near the harbor entrance, a storm surge could devastate countless people and properties.
And that was exactly what the forecast was showing, with a tidal surge estimated at up to 15 feet, with waves likely doubled in height by the geography of the region. Losses would be some form of catastrophic, defying words.
Slowly, the path seemed to be shifting a degree or two southward. That trend continued, and landfall eventually occurred south of the City on the Bay. This bit of serendipity resulted in a negative storm surge in the high-density population area, saving countless devastation of lives and property.
Of course, wherever a huge storm goes, there are winners and losers, and horrible losses further South will be examined over the next few days. Applying the term “good news” to any part of this seems heartless and even reckless, but of all the possible outcomes, this was probably the least awful.
Life in the area (and generally throughout the State) will not return to normal for many months and even years. Following on the heels of Helene, we should take heed of my last week’s Blog regarding insurable risks. Don’t wait any longer to begin your disaster planning. Start with buying Flood Insurance.
I have no doubt that many Floridians will decide to abandon Florida in the aftermath of our back-to-back storms. However, more will come to replace them, and the population will continue to grow. We should expect no less in our Tropical Paradise.
Overall, various reports show that residents in the Cone of Milton were acting responsibly in abandoning the Coastline area for higher ground. Countless lives were saved because of their actions. The rest of us need to view their misfortune and self-reliance as providing role models for life in Florida.
Many years may pass with very little “excitement” regarding Hurricanes and Tropical Storms, but that is not cause for complacency. Protect yourselves and your possessions, while enjoying your stay in the Sunshine State.
Van Wie Financial is fee-only. For a reason.
Florida’s First Coast dodged a bullet last week, when Hurricane Helene roared through several states for hundreds of miles, wreaking untold devastation on areas largely unprepared to handle this form of dangerous weather. As the death toll passes 200, and the missing toll remains in the hundreds, we look around our immediate area and breathe a sigh of relief. Minor power outages and messy yards were ubiquitous, but loss of life was nonexistent, to the best of my knowledge. The season is not over, and another storm is brewing. What now?
Feeling grateful is a good start, and donating whatever time and money is available to the rescue effort is also commendable, but Helene also presents a learning experience for all of us who live in Hurricane Country. An old saying reminds us that an ounce of prevention is worth a pound of cure. Though we can’t prevent hurricanes from doing what they do, what we can do is to prepare ourselves for the possibility that we will be hit hard one day.
Life exposes us to two essential forms of risk, insurable and uninsurable. Possessions can be insured against loss using conventional insurance policies. Unfortunately, most Americans are not adequately insured against catastrophic losses, whether from fire, windstorm damage, or flooding. One fundamental precept in financial planning is that the very day you need insurance is the first day that you can no longer obtain it. At the extreme of this rule of thumb is Flood Insurance, which is 30 times worse, in that a 30-day waiting period is imposed before the Flood Insurance Policy becomes effective.
Originally, Flood Insurance was offered by a handful of private companies, but that system failed. Floods violate a fundamental principle of insurance, in that floods affect everything and everyone in their path. There is no random selection, causing damage to be so widespread as to only be insurable by an entity as large as the Federal Government. As of this writing, Flood Insurance is only required by mortgage companies for mortgaged properties in government-designated flood zones.
We have argued for many years that this requirement is pathetically insufficient. This week illustrated that wisdom beyond anything we ever imagined when mountainous properties hundreds of miles inland flooded beyond salvation. They will not receive payments from their homeowners’ insurance policies when the damage is ruled flood (defined as damage from rising water). Many people will be wiped out, and my heart breaks for them.
Flood Insurance is expensive and rising much faster than the rate of inflation, rendering flood protection both a luxury and a necessity. At a minimum, all Floridians should be using this time to evaluate their coverages and costs. Waiting for a potential threat to present is not a plan.
Van Wie Financial is fee-only. For a reason.
“Silly Season” is in full swing in Washington, D.C. This is the period immediately preceding a Presidential Election, a period during which excessive promises are made to voters on both sides. Mostly, promises are for tax cuts for the Middle Class (and sometimes for others). Sprinkle in some tax increases for people who aren’t you and those you aren’t supposed to like, and you have the Mulligan Stew of promises, most of which will remain unfulfilled.
Cutting taxes is difficult and complicated. For that matter, so is raising taxes. With the U.S. GDP (Gross Domestic Product) in excess of $27 Trillion, our economy contains too many intertwined moving parts for any politician to accurately assess the outcome of new tax proposals.
In a perfect world, tax policy would benefit the national economy and the vast majority of our citizens. Let’s get into the weeds with a few of today’s popular themes to see if any or all proposals qualify for my lofty standard.
- “Further tax cuts for everyone” is a current Trump proposal. This follow-up to the 2017 tax cuts would likely benefit nearly everyone, as well as the economy, and tax cuts generally raise government revenues.
- “No tax on tips” is a Trump original, which was immediately aped by team Harris. Expect a very small economic impact, but lots of goodwill.
- “No tax on overtime” is another Trump original. Once again, it has very little overall economic impact and is dripping in voter goodwill.
- “No tax on Social Security Benefits” is a recent addition to Trump’s campaign. This would strain the already overstressed Social Security System, hastening its insolvency, but again generates goodwill.
- “Cut taxes for the Middle Class” is a Harris Campaign slogan. This repetitive promise never gets enacted but sounds good to voters.
- “Raise the Corporate Tax Rate to 28%” is another Harris proposal. This job-killing, budget-busting proposal is pure economic tripe.
- “Tax Deduction of $50,000 for starting a business” is another Harris proposal. Waiting until a new business is profitable to get a tax deduction does absolutely nothing (short-term, anyway) for our economy or the entrepreneur. Tantamount to vote buying, and not much else.
During “Silly Season,” it is critical to note that Presidents do not control the U.S. Tax Code. That is the purview of the Legislature, and quite literally requires an Act of Congress. No wonder so little actually gets done. The only economic proposals encompassing sound financial principles must entail massive spending cuts. I have yet to see or hear one such proposal this cycle. Unfortunately, the only place where Economics comes before Politics is in the dictionary.
Van Wie Financial is fee-only. For a reason.
Only five months have passed since our past April 15th tax day, and most people are not thinking about year-end tax and financial planning just yet. In a “normal” year, that is an oversight, but in a Presidential election year, it could represent a financial error. In this particular election year, it could constitute an epic fail. Taxpayers who are also investors should be assessing the possibilities and what effect certain outcomes may produce.
Markets and political polls are rife with volatility this year and with good reason. Financially, the candidates are polar opposites, and the winner is likely to have a dramatic impact on individual and corporate taxation. With that in mind, this is none too soon to begin contingency planning. Once plans are made, there will be time post-election to execute whatever steps have been outlined.
From our standpoint, tax planning could be significantly dependent on election results. Trump’s Plan includes making the 2017 TCJA (Tax Cuts and Jobs Act) tax rates (and expanded brackets) permanent. The Harris proposal would let the “Sunset” provision kick in, raising tax rates for nearly all Americans on January 1, 2026. That leaves two tax years to take advantage of the lower rates.
Should the likelihood arise that taxes will be higher, this may be a perfect time to begin Roth Conversions, reducing future RMDs (Required Minimum Distribution) in the future, when tax rates will likely be higher. Naturally, if election results favor making rates permanent, the wisdom of performing Roth Conversions may be lessened.
Taxpayers with a degree of control regarding their personal income and expenses can often minimize the tax impact. Taxpayers in high-tax states, who have been limited to a $10,000 maximum annual deduction for SALT (State and Local Taxes) may be able to defer some of their expenses to 2026 when the limitation would expire.
In every year, investors should examine their holdings (those in taxable accounts) to see if they could benefit from some tax-loss harvesting. In order to realize a capital loss, the asset cannot be repurchased until at least 31 days after the sale. “Banking” some losses allows future gains to be offset, which may be much more valuable in 2026 if rates rise.
With markets high right now, many of our clients are finding it impossible to find and execute taxable losses. However, investors holding many individual stocks may have several winners and several losers, as recent market gains have favored super-huge companies. Lesser-known companies have only recently begun a rebound, and losses may be available, in time for a replacement purchase prior to a broad market rally.
Van Wie Financial is fee-only. For a reason.
A few years ago, we (personally) found ourselves approaching Medicare age, with a combination of trepidation and relief. To be fair, in terms of medical insurance, we have had an overall positive experience with Medicare. Originally, Medicare excluded coverage for prescription medicines. This changed under President George W. Bush, when Medicare Part “D” (Prescription Drug Coverage) was implemented in 2006. From the start, Part D was optional, and remains that way. As an alternative to Part D, enrollees may purchase drug coverage through a private Prescription Drug Policy, or they can go it alone.
I should also mention that for Medicare enrollees electing to use Part C (Medicare Advantage), which places all coverages outside traditional Medicare, many Advantage Plans include drug coverage. That is a topic for another time.
One of the Original Sins of Part D is “affectionately” called the “Donut Hole.” This is stage 3 of annual coverage, with Stage 1 being the deductible, which must be met before Stage 2 benefits are paid using traditional cost sharing between Medicare and the enrollee. Stage 3 is the Donut Hole, wherein the consumer pays a larger portion of each prescription until reaching Stage 4, the Catastrophic Coverage period, where the policyholder no longer pays any portion of prescription costs. Every January 1, the policy resets back to Stage 1.
For years, politicians have been promising to close the Donut Hole, staying with co-payments until the Catastrophic Coverage period. At last, come 2025, the Donut Hole is going the way of the Dodo Bird. Since its elimination is costly, there will be compromises. First is a higher deductible, which must be met before the Plan really kicks in. The maximum Deductible in 2025 will be $590.
Once the Deductible is satisfied, enrollees will pay shared costs for covered prescriptions until they have spent $2,000 out of pocket. Covered prescriptions after that point are secured at no out-of-pocket cost for the balance of the year.
People approaching age 65, when Medicare eligibility begins, but still working for an employer that offers health insurance benefits, need to know the new rules. Normally, Americans sign up for Medicare for their 65th birthday month, and failure to do so can result in penalties. An exception is made for employees with Qualified Coverage.
Qualified Coverage is determined by Medicare, based on the terms of the employer-sponsored Plan. For most private insurance that is not a problem. However, with upcoming changes to Medicare Part D, employees should take a new look at their employer’s drug coverage. A thorough review is required of each employer offering Drug Coverage to determine if Qualification will still be granted. Failure to re-qualify may subject employees turning 65 to Medicare penalties. If you are in doubt, contact your Benefits Manager.
Van Wie Financial is fee-only. For a reason.
Americans are notoriously generous, both with their money and their time. Our government recognizes two basic forms of gifts: gifts to Qualified Charities and gifts to individuals. The former may provide some tax incentives, but care must be taken to ensure compliance with the Tax Code. IRS publishes a list of Qualified Charities in Publication 526, available on the IRS website. Tax deductions are allowed for gifts to those charities, subject to the gift givers’ tax status, which is explained on the IRS website.
The second form of gift-giving takes place between individuals. In every personal gift transaction, there are two sides—the giver and the recipient. From a tax standpoint, the recipient is the winner, as gifts are not considered taxable income under the U.S. Tax Code. Any and all tax liability falls on the gift giver. Note that we are discussing gifts made in lifetime, rather than inheritance.
Under the Tax Code, any real person can give any other real person (this simply means that entities such as trusts do not qualify) a certain amount of money in any calendar year, tax-free. This annual limit is indexed for inflation, and currently stands at $18,000. These gifts will likely not ever be challenged, although the giver should keep complete and thorough records.
Gifts to an individual in excess of the annual limit are allowable, but to avoid the giver being taxed, a Gift Tax Return must be filed (IRS Form 709), which will credit the giver’s lifetime exclusion amount, currently $13.61 Million. Other gift-giving methods are available, and some are important when the recipient is a minor. One of our favorites is 529 College Savings Programs, which are available in various states to all Americans, regardless of residence.
Contributions are limited by the annual non-taxable gift tax maximum, although up to 5 years of contributions may be made upon account opening. Further contributions may then be resumed starting in year 6. Used correctly, the 529 will supply tax-free payments for qualified higher education expenses for the beneficiary. Keep in mind, however, that contributions to a 529 Plan (or other Educational Funding Plan) are not federally tax-deductible.
Far more complex options for personal gifting exist, but they generally involve attorneys creating trusts, for which fees will be charged. Again, neither the contributions nor the attorney’s fees are tax-deductible. Maintaining control of funds in the account is the main highlight of this method of giving, aside from obvious financial benefits to the recipient.
In short, there are no perfect giving options, meaning that if taxes are involved, any tax will only affect the giver. Therefore, when considering making gifts, it is wise to have a thorough discussion with a knowledgeable planner and/or attorney. We recommend a fee-only Certified Financial Planner®.
Van Wie Financial is fee-only. For a reason.
Florida is halfway through another Hurricane Season (officially defined as June 1 through November 30), but is right now just entering the peak of seasonality. Recent years have produced some horrible storms, causing several huge financial losses (those over $1 Billion each). While zealots cite this statistic to enhance their climate change arguments, the truth is much more complicated.
Continued population growth, heavily slanted toward coastal Florida, has stimulated development and demand. Prices have risen accordingly, with the top 2 cities in the country for home price appreciation since COVID-19 being in Florida. Miami and Tampa share this distinction, with approximately 70% increases in home prices. Insurance costs, especially for Homeowners, have been responsive to the large demand and rising prices. High insurance costs are now driving many people out of the home-buying market.
Tallahassee, we have a problem.
Contributing to insurance inflation are lawsuits brought against insurance companies. To me, the easiest thing in the world is to simply blame lawyers for everything that is wrong in society. While our insurance problem has an element of overly aggressive attorneys, no one profession can be blamed for a monumental and complex problem.
Politicians must shoulder some blame, as Florida laws are generous and conducive to lawsuits. Of course, many lawmakers are attorneys, but the body of legislators can help to shift the favoritism back to “the people.” Some changes have been made, but others remain under prolonged discussion.
So far, our real estate prices continue to rise, exacerbated by the COVID-19 migration out of high-tax, overcrowded states. If the Florida market becomes unaffordable to most Americans, the real estate appreciation we enjoy today will begin to fade. A reasonable goal would be stabilization with slower growth.
We hear stories of citizens living in Miami being forced out by unaffordable rent increases. The worst example I have heard involves an overnight increase from $1,500/month to $4,000/month for an apartment in Miami. While extreme, the example is emblematic of a growing concern for Floridians. As I see it, we have a real estate bubble forming, perhaps not as extreme (yet) as in 2008, but foreboding in the absence of changes from our elected leaders.
Recent modifications, stimulated by our hands-on Governor, have created an environment that is once again attracting insurers back to Florida. While 8 new carriers have been approved so far, we have not regained the competitive level lost to the 11 carriers that exited the state over recent years. Competition and new laws are needed to slow or reverse the assault on homeowners’ pocketbooks.
Van Wie Financial is fee-only. For a reason.
Inflation today, while easing, remains ubiquitous and presents a rare point of agreement throughout the country. What to do about it, however, is a divisive topic, and this past week, we were treated to one of the worst proposals in economic discourse — price controls to curtail inflation.
Throughout documented history, pharaohs, kings, dictators, and presidents have implemented mandatory price controls, which have universally failed. Remember the old definition of insanity, whereby the results of a repeated action are expected to differ? Economically, there are no exceptions, despite claims that results will be “different this time.” Actions have consequences. Repeated actions have repetitive consequences. Lather, rinse, repeat.
Free market principles seem always to prevail. If there were only one economic principle everyone on Earth should understand, it is the simple concept of Supply and Demand. John Locke wrote of Supply and Demand in 1691, but Adam Smith is better known for the discussion in his masterpiece, Wealth of Nations, in 1776. Interesting timing, to say the least, coinciding with the American Revolution that would soon display the power of free market economics.
I can’t remember when I first read Smith’s powerful treatise, in which he introduced what he called the “Invisible Hand” that guided the world’s economies. That guiding hand is now known as the Law of Supply and Demand, and woe be to those who attempt to override its power. Yet our fearless leaders and wannabes occasionally feel compelled to try.
The 2024 version of (economic) insanity is on display in recent calls for “anti-inflationary” price controls. While the rate of inflation is waning, it leaves an overpriced country in its wake. Price Controls, which possibly will morph into Wage and Price Controls, present an even more comprehensive dumb idea.
Fortunately for all Americans, voters of a certain age have experienced the abject failure of Wage and Price Controls. President Richard Nixon attempted to “fix” inflation in 1971 with a 90-day freeze on all wages and prices. During those 90 days, we should have experienced zero inflation, right? Not so much. Instead, employers added non-taxable fringe benefits galore to retain and hire employees, while satisfying the unworkable price stability laws. Health Care and other items rose in price as demand soared.
The laws of economics are irrefutable. Results do not vary through repetition of experimentation. Rather, outcomes are predictable, and price controls present no exception. Inflation is the result of too much money being introduced into the economy by deficit spending. When will we ever learn?
Van Wie Financial is fee-only. For a reason.
For the first time in American history, we are being told by the U.S. Centers for Disease Control and Prevention (CDC) that life expectancy has decreased in recent years. This is contradictory to what we all experience day-to-day, and perhaps no better evidence is available than right here in Florida. Surrounded by healthy, intelligent, and involved 70-somethings and beyond, statistics telling us that people are dying younger require examination.
Life expectancy is a largely misunderstood concept and must be considered on a case-by-case basis in order to be useful in responsible financial planning. Over many decades, Americans’ life expectancies rose steadily, fueled by advances in medical science, nutrition, and overall lifestyle, including safer work environments. Assigned at birth, life expectancy is applied based on actual experience of people, both alive and deceased. The concept is a forecasted average, a statistic that, like all statistics, must be clearly understood.
According to CDC, about a decade ago, Americans’ life expectancies stagnated, and then began to fall. The implication is that newborn babies will not live as long as their 10 and 20-year-old counterparts. This is true only in the statistical sense. In actuality, people who survive their mathematical danger points will live longer than ever. Life insurance statistics show that potentially lethal events include learning to drive, entering military service, and illegal drug use, rampant in inner cities and on college campuses.
Later on in life, diseases come into play, with heart attacks, various cancers, and a recent pandemic, taking many lives. While these perils claim Americans of all ages, modern medicine and healthy lifestyles lessen their lethality. Survivors now join healthy Americans with lengthened life expectancies. Regardless of statistics, planning for a long life is critical.
Americans fear two concepts more than they fear death itself. Public speaking is one, and we can’t do much to help people with that. The Big One, though, is running out of money. Enter financial planning. We can and do help with that.
Early deaths, those that distort the life expectancy tables, must be statistically ignored when planning for a long retirement. Thirty years is now commonplace, and more is possible. In our Retirement Planning, we generally consider the target to be at least age 100, with a goal of being financially stable throughout the entire period. Planning for less may result in disastrous financial outcomes. Live long and prosper. Despite early dangers, Americans have a great opportunity to enjoy life.
Van Wie Financial is fee-only. For a reason.
In the past week, the S&P500 Index logged a total of 838 points (intra-day volatility), on its way to closing flat for the week. Between the highest high and the lowest low was about 240 points, or 4.4% of the closing price. All for nothing, one might say. However, volatility serves a purpose, and is essential to maintaining and growing a profitable investment portfolio over time.
Much of the “real” money (meaning the real big money) is actually speculative, rather than “buy and hold” investors’ portfolios. Individuals generally lack both the time and expertise to be involved in frequent stock trading, and most who try to “beat the market” underperform their own assets.
What does that mean? Over time, a stock, an index, a mutual fund, or an Exchange-Traded Fund (ETF) amasses a performance record. Over the same time period, many investors buy and sell shares in those investments, often frequently, and most of those traders do not match the performance of the asset itself. Chasing market returns most often produces abysmal results.
The reason for underperformance lies in a very human desire to perform better by taking periodic action, rather than just sitting back and waiting. This practice is called market timing, and while it can be exciting, it generally fails. This week illustrated why, far better than words can portray.
Using the Dow Jones Industrial Average (DJIA) as our example, this week’s action would dizzy any sane investor. Monday’s 1034-point drop instilled fear enough in investors to cause many to sell perfectly good assets. Conversely, Thursday’s 683-point gain elicited seller’s remorse, and many repurchased their sold assets. This is a formula for underperformance. It makes my head spin.
Professional traders have experience and tools to react better than ordinary retail investors. They move huge sums of money on a daily basis, and are not afraid to make important decisions. Many are institutional money managers, representing hundreds or even thousands of individual participants, allocating block trades among them. For a price, of course.
Also in the trading arena are stockbrokers, making trades for their customers, while generating commission income for themselves. All these big players add to the market volatility on which they (hope to) thrive.
For the right people and individual traders, volatility also can add excitement to their lives. For the rest of us, it is a necessary evil. We understand that long-term investing has ups and downs that must be accepted during the process. Not to say that nothing ever changes, as portfolios, like their owners, evolve over time.
During time periods similar to the week just passed, high volatility can affect our mental equilibrium. Would someone please pass the Dramamine®?
Van Wie Financial is fee-only. For a reason.