Headlines you need to know this week
Save early and save more, retirees adviseMost retirees (70%) in a recent survey said they would advise younger workers to start saving early and save more. According to the report, 49% said they wished they had planned earlier for retirement. Among those retirees who did not start working an advisor until near retirement, 57% said they could have benefited from meeting with an advisor earlier in their career. Still, many retirees reported that they do not have a formal financial plan for retirement. Only 42% of respondents had a written financial plan. Many retirees also reported being unprepared for taxes in retirement. Also, 38% said they are paying different taxes than expected. And of those who are paying different taxes than expected, 60% are paying more than expected.
Proposed bill would allow rollovers from 529 plansA new bill would allow rollovers of unused funds from 529 college savings plans without penalty. The College Savings Recovery Act, introduced by Senators Richard Bur and Bob Casey, would allow the rollover of 529 funds into Roth IRAs, without a penalty. Under current law, families are penalized for withdrawing unused or leftover funds from these accounts if their child does not go to college or completes their degree without using all the money. The penalty is 10% on the earnings portion of the funds.
Millennials cautious about financesHaving gone through several financial crises, Millennials are more cautious about their finances, according to a recent survey. In fact, 56% of respondents reported they felt confident about protecting their finances in the event of another economic downturn. Other generations were not as confident, with 43% of Generation X and 33% of baby boomers noting they were confident. Most Millennials said they were also positive about their retirement savings and 83% noted they had a strategy in place to guard against market risk.
Investors less optimistic about marketsInvestor sentiment grew more bearish in the recent AAII Investor Sentiment Survey ended June 15, 2022. The number of investors with a bearish sentiment — the belief the price of stocks will fall in the next six months — rose to 58.3% from 46.9% in the previous week. Investors reporting a bullish sentiment – the belief that stock prices will rise in the next six months – slipped to 19.4% from 21.0% in the previous survey. Those reporting a neutral position fell to 22.2% from 32.1%.
Senate committee advances retirement billThe Senate Health, Education, Labor & Pensions Committee last week unanimously approved the Retirement Improvement and Savings Enhancement to Supplement Health Investments for the Nest Egg (“Rise & Shine Act”). The bill would expand workplace savings plans, enhance auto enrollment, and provide for other improvements to retirement plans. The move would include the bill in the Senate’s version of SECURE 2.0, that was passed by the House. The Senate Finance Committee is expected to introduce a final version, which will need to be reconciled with the House bill before being voted on by both chambers.
Rising interest in ESG investingInvestments that focus on ESG (environmental, social, and governance) factors have grown in popularity in recent years. In 2021, ESG —or sustainable — funds in the U.S. took in $70 billion in net flows, up 35% from 2020. While interest in ESG has risen, more education is needed, according to a recent study. Among those surveyed, 26% hold an ESG investment, and 46% said they were interested in ESG. In addition, 35% said they were not interested. Of those, more than half said they were not interested because they don’t understand enough about these investments.
Consumers remain optimistic about finances, survey findsDespite concerns about inflation and the possibility of a recession, more than half of adults in a recent survey remain optimistic about their finances. Inflation remained the biggest concern among 63% of respondents, followed by recession (30%) and the cost of rent (25%). Still, 55% of those surveyed were optimistic overall about their financial future.
Many students lose interest in four-year college programsMany high schoolers are not interested in pursuing a four-year college degree. Instead, 73% of respondents believe post-secondary education should be a shorter, more affordable, direct path to a career, according to a recent survey. The percentage of respondents indicating they are likely to attend a four-year college fell to 51% in 2022 from 71% in 2020. Many surveyed (42%) said their ideal post-secondary education would include three years of college or less, and 31% said it should be two years or less. The survey, that began in February 2020, included more than 5,300 high school students.
Despite volatility, retirement savers stay the courseMost retirement savers stayed the course with their investments in the first quarter, despite market volatility, according to a recent study. The report compiled data from retirement plan participant activity in self-directed brokerage accounts. Overall, the average account balance across these accounts fell 6.25% in the first quarter compared with the previous quarter. However, savers did not make significant changes to their allocations. Outside of a slight increase in cash, overall holdings remained similar to the previous quarter. Savers held the majority of assets in equities (36%). Mutual funds were the second-largest holding at 29%, followed by ETFs (21%), cash (13%), and fixed income (1%), the report stated.
Connecting with next generation of investorsAs wealth transfers from baby boomers to heirs over the next two decades, advisors may want to reach out to the next generation of investors, according to industry research. More than $84 trillion is projected to transfer from boomers, with $72.6 trillion going to heirs and the rest to charity, through 2045. Gen X households are expected to inherit $30 trillion in wealth over the next 25 years. Millennials are projected to inherit $28 trillion starting in another decade. According to research, 70% of children terminate the relationship with their advisor once the primary wealth holder passes away.
Social Security trust funds see improvementThe Social Security Trust Fund that pays retirement benefits is expected to be depleted by 2034 — one year later than last year’s estimate — according to the annual report from the Trustees. If Congress fails to act by the time the fund is depleted, the law would automatically cut benefits for retirees by about 20% across the board. The fund distributing disability benefits is projected to be depleted by 2057. The total cost of the program has exceeded total income since 2021. The program’s financial position has improved this year due to the economic recovery over the past year, the report noted.
Savers change habits due to inflationMany savers have changed their financial habits due to rising inflation, a recent survey found. Among those polled, 36% said they reduced their overall savings and 21% have cut back on retirement saving. About 60% of respondents said inflation has had a serious impact on their personal finances. Among individuals ages 18 to 34, more than 60% have reduced how much they are saving. More women than men have made lifestyle changes, including reducing expenses such as dining out.
Survey finds many investors plan to add to stocksMore than one quarter (26%) of millionaire investors in a recent survey said they would add to their stock investments, rather than sell, if markets continue to decline. Only 19% said they would decrease their investments, and 25% said they would make no changes. Nearly one third said they would shift sectors. Among respondents, 37% said they would be more likely to invest in stocks. They also plan to invest more in commodities including gold (32%) and oil (31%). The survey included 900 investors and 500 business owners with at least $1 million in investable assets.
Social Security COLA estimates rise with inflationThe latest CPI data showed prices have risen 8.3% over the past 12 months through April. Based on this report, the Senior Citizens League estimated that the Social Security cost-of-living adjustment (COLA) could be 8.6% for 2023, representing the largest COLA since 1981. The calculation is an early estimate. The Social Security Administration uses average inflation in the third quarter to calculate the COLA for the following year. The COLA was 5.9% in 2022.
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