Women and Money

Building Community: An Antidote for Mindless Spending

Building Community

In the hustle and bustle of urban life, it’s easy to fall into the trap of mindless spending – buying things we don’t need in search of fulfillment. But what if the key to a more fulfilling life lies not in the latest purchase but in the community around us? In this blog article, we’ll explore the positive effect building community can have on your physical, emotional, and financial well-being.

The Urban Isolation Phenomenon

Living in a city, especially as a single woman, often comes with a sense of isolation. Despite living among thousands or even millions of people, the connections can feel superficial.

Indeed, loneliness is becoming increasingly common among adult Americans. According to research from Cigna and Morning Consult, 58% of U.S. adults consider themselves to be lonely.

Some of us fill this void with material possessions, a temporary fix to a more profound need for connection. Unfortunately, when left unchecked, emotional spending can lead to buyer’s remorse, clutter, and even financial strain.

The Transformative Power of Building Community

The good news is there’s a transformative power in building a community. In fact, research indicates that the stronger our sense of belonging, the better our mental health and overall well-being.  

This isn’t just about knowing your neighbors’ names or attending the occasional block party. It’s about creating a network of support and shared experiences that enrich our lives in ways shopping never can.

It begins with the simple things: a smile to a neighbor or a stranger you pass on the street, a hello to the barista who makes your morning coffee. These small interactions can make us braver and bolder in connecting with people.

Participating in local initiatives, such as Habitat for Humanity’s Women Build events, can also foster a sense of belonging. These activities unite women from diverse backgrounds to work on meaningful projects, creating a bond through shared goals and achievements​​.

Moreover, volunteering for causes dear to your heart can open doors to new friendships and connections. It’s a way of giving back that enriches the community and your life.

Finding Your Tribe

Taking cues from small towns, where community ties tend to be more robust, we can bring a similar sense of closeness into our urban lives by frequenting shops, cafes, and service providers in a favorite neighborhood. The more often you see and recognize people, the more they will recognize you, encouraging interaction and a sense of community.

To find your local tribe, explore where your interests align with others, whether through local clubs, online platforms, or community centers. Be it a book club, a yoga class, or a gardening or dining group, these are places where you can find like-minded individuals and potential friends.

For example, I discovered Jill Daniel’s Happy Women Dinners when looking for more community. Jill plans lunches and dinners, usually with a female book author as the featured speaker. If you’re curious, the best place to find more details about these events is by visiting Jill’s Instagram account.

Boost Your Financial Well-Being by Building Community

Building a community isn’t just an antidote to the loneliness of urban living; it’s a powerful response to the culture of mindless spending. In turning towards each other, we find what we’ve been searching for – connection, belonging, and a sense of purpose and fulfillment that no shopping spree can provide.

As you build these connections, something remarkable happens. The urge to fill the void with material possessions diminishes. You’ll likely find joy in experiences, shared moments, and a supportive community’s richness rather than shopping and spending. This, in turn, sets the stage for a brighter future, benefiting your mental and physical health, as well as your financial well-being.

For more personal finance tips and strategies for improving your overall well-being, please visit our free resources page.

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Maximizing Your Savings: A Guide to Smart Cash Management in the Current Financial Landscape

Cash Savings

In today’s financial climate, understanding where to keep your hard-earned cash can make a notable difference in your wealth-building journey. While stockpiling cash reserves in traditional checking and savings accounts has been the norm, currently elevated interest rates invite us to consider alternative savings options.

The State of Checking Accounts

According to the FDIC, the national average interest rate for checking accounts is a mere 0.07%. However, low rates on checking accounts aren’t unusual.

Rates have remained relatively low over the years, irrespective of fluctuations in the broader economic environment. That’s because banks traditionally profit from the differential between the low interest they pay on deposits and the higher rates they charge on loans.

Besides profit margins, factors like operational costs, cash reserve requirements, and the low-risk nature and accessibility of checking accounts contribute to their lower interest rates. Fortunately, there are other places to store your cash.

The Appeal of High-Yield Savings Accounts

Unlike traditional checking accounts, High-Yield Savings Accounts (HYSAs) at online banks are currently offering more generous yields—on average, between 4.35% and 5.15%. The absence of traditional brick-and-mortar expenses allows these institutions to offer higher rates, providing a more lucrative home for your cash savings.

Money Market Mutual Funds: A Closer Look

Money Market Mutual Funds (MMMFs) offer a blend of accessibility and enhanced interest rates, currently between 5% and 5.30%. However, while MMMFs allow for the swift movement of funds, it’s crucial to remember that they aren’t FDIC insured.

Rather, these accounts are often protected by SIPC coverage up to $500,000, including a $250,000 limit for cash, within a SIPC-member brokerage firm. Yet, it’s important to note that this protection doesn’t cover market losses, underscoring the need to consider the inherent risks of market-based investments.

For tax-sensitive savers, municipal MMMFs can provide a route to tax-exempt income, depending on where you reside.

Certificates of Deposit: Locking in Rates

Certificates of Deposit (CDs) present an opportunity to secure a fixed interest rate, with 1-year CDs currently offering between 4.76% and 5.67%. While CDs lack the liquidity of HYSAs and MMMFs, they shield against declining rates, ensuring a steady return for the deposit term.

Making Your Cash Savings Work for You

Let’s put this into perspective. Suppose you have $20,000 in a checking account, earning 0.07%, or $140 annually. Moving this to a savings account yielding 5% would make your potential earnings $1,000 a year.

After taxes, assuming a 24% tax bracket, that’s $760 net compared to $106.40 from the checking account. The difference is clear.

To maximize your earnings on cash, staying current with the most competitive rates is key. Trusted financial websites like Bankrate.com, NerdWallet.com, and Investopedia.com offer valuable comparisons and insights. In addition, checking the FDIC or SIPC status of the institution where you plan to deposit funds is essential.

Remember, your cash doesn’t have to sit idle. By being proactive and informed, you can make strategic choices that align with your financial goals and comfort level with risk.

For more financial planning tips and insights, please visit our Free Resources page.

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Navigating Uncertainty: October Market Review and Outlook

October Market Review

In this October market review and outlook, we provide a summary of recent events in the economy and financial markets and offer insights into what this may mean for investors moving forward.

For the last year, forecasters have been predicting an economic downturn in the United States as the Federal Reserve (Fed) strives to control inflation by raising interest rates. Historically, the Fed has had difficulty achieving an economic “soft landing”—that is, taming inflation without causing a damaging recession—when raising rates.

However, more than a year into the Fed’s rate hike cycle, the U.S. economy remains resilient. In fact, the first estimate of third-quarter GDP growth came in at an annual rate of 4.9%, its fastest pace since 2021.

Meanwhile, financial markets have taken a hit in recent months. Both the S&P 500 and Nasdaq dropped more than 10% from their July highs in October, placing both indexes in correction territory. The bond market has also struggled recently as interest rates climb higher.

As we near year-end, many investors are concerned about what a potential recession and ongoing market volatility may mean for their money. Here’s a recap of what’s happened lately and what that may mean for investors heading into 2024.

The Economy Remains Resilient

Since March 2022, the Fed has hiked interest rates 11 times, raising the federal funds rate from near-zero to a target range of 5.25% to 5.5%. However, the Fed has held rates steady since July 2023 in light of moderating inflation and a remarkably resilient labor market.

According to the latest reading of the personal consumption expenditures price index, the Fed’s preferred measure of inflation, core inflation is now 3.7% year over year. While this is significantly lower than its peak reading in June 2022, it’s still a far cry from the Fed’s 2% annual target.

Meanwhile, the unemployment rate continues to hold steady at 3.8%, and third-quarter wages and benefits grew 4.3% year over year. Due in part to ongoing labor market strength, consumer spending increased by 4% in the third quarter, propelling GDP to an annual rate of 4.9%.

October Market Review: Financial Markets Continue to Struggle

Despite strong economic performance, the U.S. stock market continued its decline in October, marking three straight months of negative returns. A variety of factors are in part responsible for the recent pullback in performance, including:

  • Soaring Treasury yields. The yield on the 10-year Treasury note approached 5% in October, the highest level since 2007, curbing investors’ appetite for risk and creating headwinds for big tech and other high-growth companies.
  • Tax-loss harvesting. The recent pullback prior to October created more opportunities for tax-loss harvesting, which put additional pressure on the market in October as investors sold underperforming stocks to offset gains. On the bright side, research from Bank of America shows that although tax-advantaged selling typically pressures stocks at year-end, it often sets the stage for a strong rebound in January when traders repurchase.
  • Higher-than-expected GDP growth. Third-quarter GDP grew at a surprising 4.9% annualized rate, quashing hopes that the Fed will lower interest rates in the near term.
  • Ongoing geopolitical tensions. Russia’s war in Ukraine and the Hamas-Israel conflict continue to add to market uncertainty.

The bond market has also seen weakness as interest rates continue their ascent (in general, bond prices fall as interest rates rise, and vice versa). Both 10-year and 30-year Treasury yields increased more than 0.3% in October, causing longer-term bonds to underperform.

Looking Ahead: Underlying Economic Concerns

Although the U.S. economy continues to hum along, concerns of a potential downturn persist. Some of the factors that could contribute to an economic slowdown include:

  • Declining real disposable income and household savings. Personal income adjusted for taxes and inflation fell 1% in the third quarter after rising 3.5% in the second quarter. Furthermore, personal savings as a percentage of real disposable income fell from 5.2% in the second quarter to 3.8% in the third quarter. As consumers eat through their savings, they may not be able to spend at the same rate going forward.
  • Rising long-term interest rates. Long-term interest rates recently saw their highest levels since 2007. For example, 10-year Treasury yields briefly passed 5% in October, while 30-year yields traded north of 5% for most of the month. Higher rates may be problematic for consumer spending and business investment, as well as several business sectors including the housing market.
  • Tighter credit markets. According to a recent survey from the National Federation of Independent Business, more small businesses reported difficulty accessing credit in September compared to the previous month. The inability to secure capital could lead to a pullback in business investment and hiring.

If these concerns come to fruition, financial markets and the economy might falter accordingly. On the other hand, an economic slowdown could alleviate the need for further Fed intervention, paving the way for future interest rate cuts.

What This Means for Investors

Although recent GDP data is encouraging, these growth rates may not be sustainable as underlying economic concerns create pressure for consumers and businesses alike. While a full-blown recession may not be imminent, many economists expect the economy to cool in the coming months.

Meanwhile, the Fed will decide whether future rate hikes are necessary as new data becomes available. Despite holding rates steady since July, another increase is possible before year-end.

For investors, this lack of clarity may mean heightened market volatility in the near term. At the same time, November is historically the best month for the S&P 500. Indeed, strong performance from U.S. equities could help offset recent losses.

Ultimately, we don’t know what the future holds. However, we do know that patience tends to reward long-term investors. Those who maintain a diversified portfolio and stick to their investment plan typically fare better than those who attempt to time the market.

In the meantime, I encourage you to focus on what’s controllable—for instance, your spending habits, savings rates, and investment decisions—and avoid knee-jerk reactions to negative headlines.

If you found this October market review and outlook helpful, head over to our free resources page for more financial planning tips and guidance.

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Single Women and Longevity Risk Part 3: Planning for Expenses in Retirement

Planning for Expenses in Retirement

In Part 2 of this three-part blog series on single women and longevity risk, we discussed the importance of investing to supplement your income in retirement and minimize the risk of outliving your financial resources. In Part 3, we’ll explore why planning for expenses in retirement—both expected and unexpected—is essential when it comes to managing longevity risk.  

Estimating Your Expenses in Retirement

Failing to consider and plan for the various costs you’re likely to incur in retirement can lead to a savings shortfall, increasing the risk that you’ll outlive your assets. Thus, creating a retirement budget is necessary to ensure you’re saving enough and investing appropriately.

Of course, there are always uncertainties when it comes to planning for the future. Nevertheless, with the right guidance, it’s possible to project your retirement expenses with a reasonable degree of accuracy.

For example, basic living expenses like food, housing, utilities, and clothing tend to remain relatively steady in retirement and are therefore easier to anticipate. Yet other items like healthcare, travel, and entertainment often rise significantly once you stop working.

In fact, a recent report by the Center for Retirement Research at Boston College found that in 2018, 12% of the median retiree’s total retirement income went toward medical expenses. Moreover, since 2000, the price of medical care has increased at a faster rate than the overall inflation rate.

Meanwhile, with more free time on your hands, you may wish to travel more and take longer, more expensive trips in retirement. Plus, you’re more likely to spend money on other types of entertainment once work no longer demands so much of your time.

No matter your retirement plans, it’s important to consider how your lifestyle goals will impact your budget and plan accordingly. This can help you determine what size nest egg you’ll need to retire successfully and mitigate longevity risk.  

Planning for Unexpected Expenses in Retirement

In addition to the expenses we can reasonably project, others can crop up as we age and our homes, children, and spouses age along with us. Unfortunately, unexpected expenses can mess with the best-laid plans when you’re living off savings and fixed sources of income like Social Security.

Therefore, it’s best to expect the unexpected and prepare for these expenses as best you can. Here’s a list of unexpected expenses you may face in retirement:

Home Repairs & Maintenance Costs

Many Americans own their homes when they reach retirement age. (When I say “own,” I mean they own their homes outright or are still paying down their mortgage as opposed to renting.)

It’s easy to overlook or postpone home maintenance, especially if everything looks fine on the surface. But homes age just like we do, and putting off necessary repairs can become a significant financial expense down the road.

A recent personal experience drove this point home when a routine paint job turned into a major dry rot mitigation project costing tens of thousands of dollars!

When it comes to planning for unexpected expenses in retirement, here’s a best practice to prevent a surprise cost like mine: hire a professional to inspect your home for hidden problems such as dry rot, termites, mold, foundation issues, leaks, and outdated plumbing and electrical systems. Then, develop a multi-year plan to fix the problems and schedule ongoing routine maintenance.

Remodeling Expenses

In addition to the unglamorous fixes a home occasionally needs, it’s not unusual to grow tired of your home decor over time. You may decide to buy new furniture or appliances or update the exterior of your home in retirement, all of which can be costly.

In some cases, you may simply want your home to maintain its value if you plan to eventually sell it. For example, kitchen and bathroom styles tend to change every 10-20 years, prompting homeowners to make major updates.

Or you may need to alter your home so you can age in place comfortably and safely. While no one likes to think about the possibility of losing mobility, it’s one of the realities many of us must face as our bodies age.

Regardless of the impetuous, remodeling costs are common in retirement and can be substantial. Thus, it’s best to expect them and manage your finances accordingly.  

Unexpected HealthCare Costs

The first time many retirees realize Medicare isn’t as cheap as they thought it would be is when they receive a notice from the Social Security Administration about IRMAA. IRMAA, which stands for Income-Related Monthly Adjustment Amount, is an extra charge added to your Medicare Part B and Part D premiums if your income exceeds a certain threshold.

When on Medicare, you pay monthly premiums for Part B, which covers doctor services, outpatient care, and preventive services, and Part D, which covers prescription drugs. But if you’re a high-income earner according to your tax return from two years ago, the government says, “Hey, you can afford to contribute a little more.”

So, they add an extra charge (IRMAA) to your monthly premiums. And the more you earn, the higher your IRMAA charge will be.

Also, Medicare doesn’t cover all healthcare-related expenses in retirement. You’ll still be responsible for co-pays, deductibles, and coinsurance, as well as long-term care, dental, hearing, and eye care. These out-of-pocket costs can add up quickly if you have a significant health issue or need extensive care.

Again, proper planning is essential to mitigate these costs. To avoid IRMAA, you can work with a financial planner to develop a retirement income plan that keeps your taxable income below the threshold.

In addition, you may want to consider buying a Medigap or Medicare Advantage policy to defray the healthcare costs Medicare doesn’t cover.

Medigap policies fill in the gaps in original Medicare coverage, including medical care when traveling outside the U.S. Just keep in mind you’ll still need a separate prescription drug plan (Medicare Part D).

Alternatively, Medicare Advantage (Part C) offers an “all-in-one” alternative to original Medicare. However, these plans are generally in HMOs or PPOs, which may limit your access to certain healthcare professionals or facilities.

Long-Term Care

Another common misconception is that Medicare covers long-term care costs. It doesn’t. This can be problematic, since most older adults will likely need long-term care during their lifetimes.

In fact, the U.S. Department of Health and Human Services estimates that 70% of those turning 65 this year will eventually need long-term care. Meanwhile, women are more likely to need long-term care than men and for a longer duration, according to data from Morningstar.

These services can be costly—typically thousands of dollars a month in expenses. Unfortunately, long-term care insurance is also expensive, and the rigorous eligibility requirements put it out of reach for many.

If you qualify for long-term care insurance and can afford it, you may want to consider your available options, including hybrid policies that include a life insurance component. Otherwise, self-funding long-term care by saving and investing enough money during your working years is likely your best option.

Family Obligations

It’s not uncommon for adult children or other relatives to need financial help occasionally. These requests can be tough to negotiate, especially if your loved ones don’t understand the strain an unexpected loan or gift can have on your finances in retirement.

Although discussing money is taboo in many families, it’s wise to be transparent about your financial circumstances and create boundaries around financial requests. If this isn’t a viable option, be sure to include potential loans and gifts when planning for expenses in retirement.

Losing a Spouse

Morningstar estimates that 90% of women will manage assets on their own at some point during their lifetimes. Many women experience this for the first time in retirement due to the death of a spouse.

Losing a spouse can be emotionally devastating, no matter your stage of life. Yet failing to prepare financially for this possibility can make an already challenging situation even worse.

If you depend on your partner financially, there are steps you can take now to safeguard your financial independence if you unexpectedly lose them. For example:

  • Consider purchasing a life insurance policy to replace lost income or cover funeral costs and other outstanding expenses.
  • If your spouse has a pension, explore your survivorship options before retirement to ensure continued payments.
  • Understand Social Security survivors benefits, especially if your spouse has the higher earnings record.
  • Consult an estate-planning attorney to ensure your estate plan is current and organized for a seamless transition of assets.

With Proper Planning, Single Women Can Minimize Longevity Risk and Thrive Financially in Retirement

Planning for expected and unexpected expenses in retirement is crucial for maintaining financial stability and peace of mind. Yet minimizing longevity risk requires more than managing your expenses. Meeting your savings targets and investing for your long-term goals is also essential.

Remember, the earlier you start preparing financially for retirement, the better off you’ll be long-term. Moreover, you don’t have to go it alone. A fiduciary financial planner like Curtis Financial Planning can provide expert guidance and help you implement the right strategies to secure your financial future. To learn more, please explore our services and free financial planning resources.

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Single Women and Longevity Risk Part 2: The Importance of Investing

Single Women and Investing

Saving and investing are both crucial for financial health. Yet investing is particularly important when it comes to mitigating longevity risk.  In Part 2 of this three-part series about single women and longevity risk, we’ll delve into the significance of investing and explore how understanding risk and reward can empower women to become better investors.

Differentiating Saving and Investing

When it comes to personal finance, many conflate saving and investing. While both are crucial for financial stability, they serve different purposes.

Saving entails setting aside a portion of your income for near-term expenses or potential emergencies. In other words, your savings should be a safety net that’s liquid and risk-free.

Investing, however, implies allocating money to stocks, bonds, and other assets in anticipation of a potential return in the future. Despite the inherent risks, investing is an essential strategy for single women to increase wealth over time, so you don’t outlive your financial resources.  

Understanding the Risk-Reward Relationship

While investing offers the potential for a higher return on your money, it’s also inherently riskier than saving. That’s why many women hold too much cash relative to their financial goals.

If you tend to be risk averse, you’re not alone. In fact, one Northwestern Mutual study found that in general, U.S. adults prefer to play it safe with their money than take risks.

However, understanding the risk-reward relationship is crucial for overcoming the confidence gap that many women experience as investors. Each investment carries a different level of risk, and effectively managing these risks is essential to achieve your financial goals.

Typically, investments with the potential for higher returns carry a higher degree of risk (although high risk doesn’t guarantee high returns). For example, higher-risk investments like individual stocks and equity funds generally offer the potential for higher returns over time. Conversely, lower-risk assets like savings accounts and short-term Treasury bonds tend to yield more modest returns.

Navigating the Risk vs. Reward Dilemma

Many women face the dilemma of whether to keep their money safe in a bank account or invest it for potential growth. Indeed, research suggests that men are generally more willing to take risks with their finances than women.

However, studies also indicate that as women gain confidence through education and experience, they become better investors. Moreover, women investors are more likely to exhibit traits such as reduced trading, increased patience, openness to advice, more diversified portfolios, and a healthy skepticism towards “hot” investments.

Ultimately, your financial goals determine the level of returns you need from your investments. Saving for a house down payment in the next few years, for example, might require safer investments with less risk. In contrast, saving for retirement that’s several decades away allows for higher-risk investments with the potential for more significant returns.

But you also need to weigh your return objectives against your comfort level with taking on risk. In this case, risk generally refers to the possibility of losing your money. Taking on more risk than you can tolerate can lead you to make rash investment decisions that impede your progress toward your financial goals.

Single Women and Investing: Mitigating Longevity Risk

To mitigate the risk of running out of money prematurely, women must embrace some investment risk. By profiling four different investors, we can illustrate the outcomes along the risk spectrum.

Assume the following savers/investors invest $50,000 for ten years and reinvest all interest and dividends.

  • Investor #1 places her $50,000 in a savings account earning an average annual return of 1.5%. Her account grows to $57.815 in 10 years.
  • Investor #2 places her $50,000 into a certificate of deposit (CD) with an annual yield of 3%. Her account grows to $67,196 in 10 years.
  • Investor #3 places her $50,000 into a diversified portfolio* of 60% stocks and 40% bonds earning a 6% average annualized return. As a result, her account grows to $89,542 in 10 years.
  • Investor #4 places her $50,000 into a diversified portfolio* of 100% stocks, and it earns a 9% average annualized return. As a result, her account grows to $129,687 in 10 years.

A Note on Volatility

While the 100% stock portfolio generates the highest outcome, it also experiences substantial fluctuations over the 10-year period. Meanwhile, the 60% stock/40% bond portfolio exhibits less volatility due to the lower risk associated with bonds. 

Consider the following hypothetical annual return patterns for these two portfolios:

The graphs above illustrate how Investor #4 experiences larger swings in performance over the 10-year period by investing exclusively in stocks than Investor #3. In other words, the price of higher returns is generally increased volatility.

Thus, investors who are unable to weather the ups and downs of the stock market may need to sacrifice return potential to stay the course over time.  

*Diversified portfolio returns were generated using Vanguard Total Market Funds, both U.S. and international.

Striking the Right Balance to Reach Your Financial Goals

The challenge for many independent women investors is understanding their risk tolerance in relation to their need for return.

For example, if Investor #1 doesn’t invest in stocks, will she reach her financial goals and manage longevity risk, or will she run out of money before the end of her life? On the other hand, does Investor #4 need to take quite so much risk, or can she beat longevity risk by investing in a less volatile portfolio?

These are the answers I seek when working with my female clients. Ultimately, my aim is to keep my clients invested for the long term to experience the magic of compounding returns and reach their financial goals.

In the third and final article in this blog series, we’ll look at the other side of the equation: minimizing longevity risk by managing your expenses in retirement.

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Single Women and Longevity Risk Part 1: Why Independent Women Are Most at Risk

Single Women and Longevity Risk Part 1

This is the first blog post in a three-part series about single women and longevity risk. In this article, we’ll explore why independent women are most at risk of outliving their financial resources.

One of the reasons long-term financial planning is important is to minimize longevity risk, or the risk of outliving your financial resources. Longevity risk is generally brought up in connection with retirement, since the risk of depleting your savings increases once you stop working.

With advances in healthcare and increasing life expectancies, longevity risk is becoming an increasingly relevant concern for many retirees. Unfortunately, single women are among those most at risk of outliving their resources due to a variety of factors.

#1: Women Live Longer Than Men

First, women tend to live longer than men on average, which means they may need to support themselves financially for a longer period during retirement. According to a 2021 CDC study, the average life expectancy for women in the United States is 79.1, while for men, it’s 73.2.

However, using an average statistic to determine life expectancy and longevity risk can be problematic as each person’s family, health history, and lifestyle differ. Fortunately, the Social Security Administration (SSA) has a life expectancy calculator that can help you better understand your likelihood of living past a certain age.

For example, a 45-year-old woman’s life expectancy today is 85.4 years. But if she lives until age 70, her life expectancy increases to 88.9.

#2: Single Women Face Unique Financial Challenges

Second, single women often face unique financial challenges, such as lower average incomes. According to the U.S. Department of Labor, women working full-time and year-round make 83.7% of what men earn in similar jobs.

In addition, women are more likely than men to experience a gap in employment due to caregiving responsibilities, which can interrupt their earning and saving potential. The Covid-19 pandemic exacerbated this disparity, as women’s participation in the workforce tumbled disproportionately in part due to increased childcare responsibilities as schools and daycares closed.

Given these challenges, women tend to save less than men on average, further contributing to longevity risk. In fact, a recent T. Rowe Price report found that women tend to contribute less annually to workplace retirement accounts than men and have meaningfully lower account balances.

#3: Women Tend to Invest Less Often and More Conservatively Than Men

According to data from Morningstar, women tend to invest less and hold a larger percentage of cash than their male counterparts.

Studies show that this is largely due to a lack of confidence. For example, Fidelity’s 2021 Women and Investing Study revealed that only 19% of women feel confident in their ability to choose investments that align with their financial goals.

Unfortunately, this lack of confidence often translates to smaller nest eggs in retirement, increasing longevity risk. Consider the following example.

Suppose you invested $1,000 in the U.S. stock market 30 years ago, at the beginning of 1993. Over the next 30 years, the S&P 500 generated an annualized return of 9.7% before accounting for inflation.

That means at the end of 2022, you would have had $16,074 if you reinvested all dividends. Had you kept this money in a savings account that yielded an average of 1% over the last 30 years, you’d have about $1,347 at the end of the same period.

Thus, investing is necessary for single women to minimize longevity risk and outpace inflation, so your dollars don’t lose value in retirement.

How Single Women Can Address Longevity Risk

To address longevity risk, engaging in proactive financial planning is essential. This includes:

  • Saving and investing. It’s crucial to start saving early and regularly contribute to retirement accounts, such as 401(k)s or IRAs, to accumulate a sufficient nest egg for retirement. Within investment accounts, include stocks for their above-average growth potential and diversify your investments to mitigate market volatility risks.
  • Estimating retirement expenses. Assess your expected expenses during retirement, including healthcare costs, housing, and daily living expenses. This evaluation can help determine how much you need to save to ensure a comfortable retirement and reduce longevity risk.
  • Social Security planning. Understand how the Social Security system works and develop a strategy to maximize your benefits. Consider when to start claiming benefits and spousal or survivor benefits if applicable.
  • Long-term care insurance. Evaluate the potential need for long-term care insurance to protect against the high costs associated with extended care services. Research different policies and assess your options based on your health, family history, and financial situation.
  • Health and wellness. Prioritize maintaining good health and adopting a healthy lifestyle. Being healthy can contribute to a longer and more active retirement, reducing potential healthcare expenses and increasing overall financial security.

By being proactive and mindful of longevity risk, single women can take steps to secure their ongoing financial well-being.

Part 2: The Importance of Investing for Single Women to Offset Longevity Risk

Although single women face a variety of unique challenges and risks when it comes to financial planning, there are steps you can take to manage these risks and achieve your financial goals. In Part 2 of this blog series, we’ll dive deeper into why it’s so important for single women to invest when it comes to minimizing longevity risk.

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Is a U.S. Recession Looming?

Is a Recession Looming?

Since mid-2022, concerns about an impending recession in the United States have been making headlines. However, despite various warning signs and indicators, the U.S. economy has shown resilience over the past nine months.

So, what’s happening? In this blog post, we’ll explore the factors that have fueled recession concerns, discuss the current state of the U.S. economy, and examine whether investors should be worried about a potential recession.

Understanding a Recession

Typically defined as two consecutive quarters of contracting gross domestic product (GDP), a recession indicates a significant decline in economic activity. By this definition, the U.S. economy is not heading for a recession, as GDP grew by 1.3% in the first quarter of 2023.

The National Bureau of Economic Research (NBER) is responsible for officially declaring recessions. Its definition is somewhat vague but emphasizes significant and sustained decline in economic activity across various sectors.

Mixed Economic Signals and Concerns

Mixed economic data has economists divided on whether a recession is imminent.

The Federal Reserve’s projection of low GDP growth for 2023 and successive interest rate hikes have raised concerns about a potential economic decline. A minor banking crisis, resulting in the failures of some financial institutions, also fueled worries.

Moreover, inflation has remained above the Fed’s target, prompting rate hikes that affect corporate investments and consumer loans. As a result, analysts expect negative earnings growth for S&P 500 companies, while a tightened credit market has reduced lending to corporations and consumers.

Meanwhile, the yield curve has been inverted since the middle of 2022, as the yield on 2-year U.S. Treasury notes has exceeded that of 10-year Treasury notes. An inverted yield curve can be problematic as it frequently appears before an economic downturn.

And the New York Federal Reserve’s recession probability indicator, which uses the yield curve’s slope to predict U.S. recessions, suggests a 68.2% chance of a recession in the next 12 months—its highest reading in four decades.

Yet while some indicators have sparked concerns, the current strength of the U.S. labor market and economic activity has divided economists on the inevitability of a recession. In addition, positive earnings, as well as guidance from retailers like Walmart, indicate that consumer spending remains strong.

Though slightly below estimates, retail sales grew for the first time since January. The resilience of the U.S. economy has surprised experts, suggesting that a recession may be farther in the future than expected.

What Does a Possible Recession Mean for Investors?

While concerns about a U.S. recession persist, the economy’s current state and the labor market’s ongoing strength suggest that an immediate downturn may not be inevitable. However, in the event of a recession in the second half of 2023 or early 2024, investors need not panic. Historically, recessions have been relatively short-lived, with an average duration of around 10 months.

Economic downturns also tend to present attractive opportunities for long-term investors, with the S&P 500 generating an average return of 40% in the 12 months following the market’s low point during a recession. In addition, some stocks, such as Target, Walmart, and Home Depot, have historically performed well during recessions.

Thus, despite the potential risks, investors should take a long-term perspective and consider the historical patterns of economic cycles. Recessions, although challenging, have often paved the way for favorable investment opportunities.

For more information, download our free guide: 3 Simple Steps to Improve Your Investment Results

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Charitable Giving, Part 3: Tax-Smart Ways to Give to Charity (Part 1)

Tax-Smart Ways to Give to Charity

If you’ve read the first two articles in this blog series, perhaps you’ve put some thought into how much you want to give to charity each year and to whom. In the second half of this series, we’ll discuss tax-smart ways to give to charity. Tax laws can be dense, so bear with me as I explain the strategies as clearly as possible!

The first thing to know about charitable giving and taxes is that you must itemize on Schedule A of Form 1040 to deduct your charitable donations for the year.

Your total itemized deductions must exceed the standard deduction for you to reap the tax benefit of giving to charity. In 2023, the standard deduction is $13,850 for single filers and married couples filing separately, $27,700 for joint filers, and $20,800 for heads of household.

Fortunately, if you typically take the standard deduction and the amount you give to charity each year doesn’t push you over the threshold to itemize, there are strategies you can employ to maximize your tax savings.

To maximize your tax savings, consider the following tax-smart ways to give to charity:

#1: Bunching

Suppose you’re a non-itemizer but get close to the standard deduction because you max out the State and Local Tax (SALT) deduction at $10,000. Then, you may want to consider a strategy referred to as “bunching.”

How Bunching Works

Bunching is a tax-smart way to give to charity where taxpayers combine or “bunch” their charitable donations into one tax year so they can itemize their deductions.  

Suppose a single taxpayer usually gives $3,000 to charity annually. Meanwhile, their other qualifying itemized deductions (such as state and local taxes, mortgage interest, and medical expenses) amount to $10,000 for a total of $13,000 in deductions.

Thus, it would make sense for this taxpayer to take the standard deduction of $13,850 and not itemize. But let’s say instead they give two years of their charitable budget, or $6,000, in one year.

In this case, they would itemize since their total deductions ($16,000) exceed the standard deduction. If this person is in the 24% tax bracket, their tax savings from charitable donations would be $516 for the year.

This strategy or something similar can be repeated over time, creating multi-year tax savings.

#2: Donor-Advised Funds as a Tax-Smart Way to Give to Charity

In the above example, we assumed the taxpayer wrote a total of $6,000 in checks and mailed them to their preferred charities in one year. Then, they skipped donating to charity in year two.

But there are other tax-smart ways to give to charity that can be even more financially advantageous than bunching and allow for giving each year. One example is to utilize a donor-advised fund (DAF).  

How DAFs Work

A DAF is a registered 501(c)(3) organization that can accept cash donations, appreciated securities, and other non-cash assets. Thus, if you hold highly appreciated securities in a taxable investment account, you may benefit greatly from donating to a DAF.

Here’s why. Suppose instead of writing checks for $6,000 to various charities, the same taxpayer in the example above transfers $12,000 worth of Apple (AAPL) stock with a cost basis of $35/share into a DAF. The stock is worth $160/share on the day of the donation.

The taxpayer can take a tax deduction of $12,000 (the current market value of the shares they donate) on that year’s tax return. They also avoid paying the capital gains taxes they would have incurred by selling the stock outright. This amounts to a savings of over $1,400 ($9,375 gain x 15% long-term capital gains tax rate).

Once they donate their shares to a DAF, the fund sponsor can sell the shares tax-free. The taxpayer can then invest the proceeds within the DAF and let the funds grow tax-free over time. In addition, they can designate which charities they want to receive grants from the DAF going forward.

Like bunching, donating to a DAF allows you to take a potentially large tax deduction in the year you make the donation. Yet unlike bunching, you don’t have to decide which charities to donate to right away. Instead, you can donate your $3,000 as planned each year from funds in your DAF.

Key Advantages of DAFs

  • Flexibility: Donors can recommend distributions to multiple charities over time without having to manage individual grants to each organization.
  • Tax benefits: Donors can claim an immediate tax deduction for the full amount of their donation, subject to certain limitations.
  • Investment management: DAFs typically offer a range of investment options and professional management services to help grow the value of the donations.
  • Privacy: Donors can choose to remain anonymous when making recommendations for grants, if desired.
  • Legacy: DAFs can provide a way for donors to involve their family in philanthropy and pass down charitable values and traditions to future generations.

Limitations of DAFs

Keep in mind that DAFs are not free. According to a 2021 study by National Philanthropic Trust, the average total fee for DAFs was 0.96% of assets per year. This fee includes administrative fees, investment management fees, and any other fees the DAF provider charges.

In addition, DAFs come with a number of rules, including minimum balance requirements, minimum grant requirements, deadlines, and grant approvals.

Many DAF providers require a minimum initial contribution ranging from $1,000 to as much as $25,000. Once you establish the fund, there’s typically a minimum balance requirement between $5,000 and $25,000. If you fail to meet these minimums, the provider may change additional fees or penalties.

In addition, some DAF providers may have minimum grant requirements ranging from $50 to $250 or more. And because most people actively grant at the end of the year, there may be deadlines for making grants to ensure timely processing.

Lastly, DAF providers must approve grants before disbursement to ensure the recipient is an eligible charitable organization and that the grant doesn’t violate IRS rules or regulations. However, disapproval of a grant is rare.

Despite these limitations, the potential benefits make DAFs a tax-smart way to give to charity worth considering in many cases.

Popular DAF Providers

While there are many donor-advised funds (DAFs) in the United States, the most popular providers tend to be large financial institutions and nonprofit organizations. Examples include:

  1. Fidelity Charitable: Fidelity Charitable is the largest DAF provider in the US, with over $35 billion in assets and more than 200,000 donor-advised funds.
  2. Schwab Charitable: Schwab Charitable is the second-largest DAF provider in the US, with over $20 billion in assets and more than 180,000 donor-advised funds.
  3. Vanguard Charitable: Vanguard Charitable is a DAF provider affiliated with the investment firm Vanguard, with over $14 billion in assets and more than 80,000 donor-advised funds.
  4. National Philanthropic Trust: National Philanthropic Trust is a nonprofit organization that offers DAFs and other philanthropic services, with over $8 billion in assets and more than 18,000 donor-advised funds.
  5. Silicon Valley Community Foundation: Silicon Valley Community Foundation is a community foundation that offers DAFs and other charitable services to donors in the Silicon Valley region and beyond, with over $13 billion in assets and more than 4,000 donor-advised funds.
  6. DonorsTrust: DonorsTrust is a nonprofit organization that offers DAFs and other philanthropic services to donors who prioritize limited government, personal responsibility, and free enterprise.

It’s worth noting that there are many other DAF providers in the US, and your choice of provider will depend on your specific philanthropic goals and financial situation. You must do your due diligence to understand the fees, rules, and requirements if you’re considering this tax-smart way to give to charity.

Next: Tax-Smart Ways to Give to Charity Part 2

Hopefully you now have a better understanding of why bunching and DAFs can be tax-smart ways to give to charity. In the final article of this blog series, I’ll share a few more giving strategies that can help you maximize your impact and tax savings.

In the meantime, please visit our Resources page for more information on this topic and beyond.

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Charitable Giving, Part 2: Which Charitable Organizations Should You Donate To?

Which Charitable Organizations to Donate To

This article is part two in a four-part blog series focused on charitable giving and will address the question: Which charitable organizations should you donate to?

Once you’ve decided how much money to give to charity each year, you can focus on the recipients. According to Giving USA Foundation, the types of charities that tend to receive the most donations are:

  • Religious organizations
  • Educational institutions
  • Human services such as food banks, disaster relief organizations, and homeless shelters
  • Health-related charities such as hospitals and medical research centers
  • Arts and culture charities such as museums, orchestras, or theatre groups

Many people tend to respond to end-of-year donation solicitations they receive by email or mail and give to the same organizations every year. But if you want to be more proactive about your giving, spend some time thinking about the issues or causes you care about and find the organizations that impact those issues or causes most.

Smaller organizations may have a greater need for your dollars than larger organizations. As such, you may want to take advantage of opportunities to give to local organizations, such as theatre or educational groups.

For example, I donate to a local organization called Foodwise, whose mission is “to grow thriving communities through the power and joy of local food.” Not only do I admire their mission, but I was also previously a board member and get a lot of pleasure from attending their events.

Another example is a client of mine who donates to a swim club she belongs to that’s organized as a 501(c)(3) organization. The swim club was renovating its clubhouse, so she donated dollars specifically to help get this project completed. Another client gives to a hiking club because she’s an avid hiker. 

A Word About 501(c)(3) Organizations When Deciding Which Charitable Organizations to Donate To

Suppose you’re eligible for tax deductions for charitable giving. (Ordinally, you must itemize deductions on Schedule A of your Federal Tax return to receive a tax benefit.) In that case, you should ensure that the organization you donate to is a 501(c)(3) organization.

A 501(c)(3) organization is a tax-exempt nonprofit in the U.S. that must operate exclusively for religious, charitable, scientific, literary, or educational purposes. It addition, the organization must not engage in political or lobbying activities or provide private benefits to any individual or group.

It’s also important to note that if you contribute money through crowdfunding platforms such as GoFundMe, Kickstarter, or Indiegogo, these donations are typically not tax deductible. That’s because the individual fundraising campaigns aren’t tax-exempt organizations. 

Investigating the Charitable Organizations You Donate To

There are several ways to investigate charities to ensure they’re using your charitable donations properly.

One well known charity evaluation organization is Charity Navigator, which provides ratings and financial information on thousands of nonprofits and assigns a rating based on their performance.

Another is GuideStar, which allows you to search for nonprofits by location, mission, or types of work. 

How Many Organizations Should You Donate To?

Lastly, many clients ask me if it’s better to give a large amount of money to one organization or spread their donations among several organizations. I’ve found that this is a personal decision.

Some people care about so many things that they want to spread their money widely. Meanwhile, others prefer to have a more significant impact on just a couple of organizations.

One thing I know for sure: try and give at times other than just the end of the year. The charities will appreciate it, plus you won’t get that anxious feeling that you haven’t done enough on December 31. In addition, if you write checks or take advantage of Qualified Charitable Distributions (QCDs), you’re more likely to meet the deadline to get a tax deduction in the year you donate.

Next: Giving Strategically

The first half of this blog series has focused on how much to give and which organizations to donate to. In part three, we’re going to explore various ways to give strategically, so you can make more of an impact with your donations while enjoying the associated tax benefits.

In the meantime, please visit our resources page for additional details on this topic, and stay tuned for more.

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Charitable Giving, Part 1: How Much Should You Give to Charity?

How Much to Give to Charity

This article is the first in a four-part blog series focused on charitable giving and will address the question: How much should you give to charity?

There’s a great need for charitable donations from private sources these days, and with those donations, the world can be a better place. If you have a desire to donate money but aren’t sure how much, to whom, when, and how to benefit from applicable tax laws, this blog series is for you.

How Much to Give to Charity Each Year

As a financial planner, clients often ask me for my recommendation on how much they should donate to charities each year. Because I understand my clients’ financial situation thoroughly, this is not an unusual question. I can provide a suggestion based on their cash flow or tax situation.

But with something as personal and individual as charitable giving, I prefer they determine the amount themselves.

What I’ve found helpful in guiding clients is sharing statistics on how much others give to charity. And as it turns out, there’s a psychological explanation as to why this is helpful.

It’s called “informational social influence,” and it occurs when people do not know the correct (or best) action to take. Instead, they look to the behavior of others as an important source of information and act accordingly.

How Much Do Others Give to Charity?

Americans are charitable, donating hundreds of billions of dollars annually to needy organizations. Although there are significant differences in how much Americans give, higher-income households tend to give a higher proportion of their income to charity than lower-income households (unsurprisingly). However, demographic factors, such as age, education, race, and geography, also come into play.

According to data from Giving USA Foundation, the average individual donation among all income levels in 2020 was 2.5% of income. But individual households earning over $200,000 per year gave a more significant percentage—on average, 4.5%.

According to the same report, households in the Northeast and Upper Midwest gave, on average, 3% to 4% of their income to charity. Meanwhile, households on the West Coast gave approximately 1% to 2% of their income to charity.

Of course, these are averages, and the actual percentages of income people in these regions donate depend upon many factors.

How Tax Deductions Impact Charitable Giving

Once I become familiar with my clients’ charitable giving goals, I include the discussion of “how much” in my annual tax planning meetings.

Why? Because the tax code provides incentives for individuals to make charitable donations by allowing them to deduct these gifts from their taxable income. Indeed, if you’re charitably inclined, you may be able to meaningfully reduce your tax burden each year.

Of course, there are rules and guidelines as to who can deduct such donations and to what extent. I will expand on these nuances later in this blog series.

In the meantime, I hope you find this information useful in determining how much you’d like to give to charity each year. Please check out our other resources for additional details on this topic and stay tuned for more.

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