What a unified government may mean for your finances
Enjoy this week's edition of the Planner's Beta
Beta (n) - climber's jargon that designates information about a climb This digest's purpose is to share observations, ideas, and treasures found this week which you may also find insightful. Sharing does not mean it's an endorsement. I am endorsing the pursuit of knowledge and exploration.
The photo above is from a recent cross country ski trip. No weekend adventures this week...Becky and I were busy preparing the nursery!
What a Unified Government May Mean for Personal Finances
Last week was a difficult week for many Americans. However, the stock market continued to rise to new records. Much of this has to deal with the markets' expectations of a unified government (one party in control). For the first time in over a decade, the House, Senate, and White House will be under Democratic control. With this, markets digest campaign rhetoric and elected officials' language to determine likely outcomes from their policy initiatives. Here are some points I think investors, savers, and citizens are investigating for clues about what to expect over the coming two years.
In the near term, the federal government will likely provide additional support to the tattered economy. Some speculate this support will come in the form of another $1 trillion spending package. This next round of economic support may include another round of stimulus payments to individuals and households. These payments were central to the debate in the special Senate runoff election in Georgia. Although it is not clear what the amount will be and if it will happen, elected officials are voicing support for an additional $2000 per person. Additionally, there are growing indications the Biden administration will push for forgiving $10,000 of federal student loans for each borrower and continue the suspension on interest, payments, and defaults for federal student loans.
Over the next two years, there may be significant changes to the current tax code. Generally speaking, I see a pattern of expectations revolve around higher effective tax rates for high-income earners and decreased taxes for low-income earners. Proposals floating in the headlines include:
Increasing marginal tax rates for those who make $400,000 or more per year.
Eliminating the step-up in basis for assets held at death. There are talks levying taxes on capital gains upon the owner's death who held appreciated assets.
Providing significantly more assistance to low and middle-income families for child care. There is talk of doubling the tax credits for child care.
Providing a federal 12-week family and medical paid leave program. The current plans floated include a more significant percentage of paid leave assistance for low and middle-income households.
There is speculation there will also be broad changes to retirement plans over the next couple of years. Numerous ideas are being put forth. Those ideas include:
Making it easier for individuals to contribute to retirement plans.
Increasing the age for required minimum distributions from 72 to 75.
Allowing older savers to make larger catch-up contribution to their retirement accounts.
The incoming government has a lot on its hands. Besides dealing with a pandemic, the new legislature and executive will need to tackle many divisive domestic and international issues. And with such narrow margins in both chambers of Congress, moderate Democrats and Republics will likely possess more influence.
Does Home Ownership Equal Happiness?
While purchasing a home may be the ultimate dream for many, be prepared because not all emotions associated with homeownership are positive. Today, homeownership is harder to achieve for those who are just starting on their own. Millennials are much less likely than other generations to own homes today, partially due to living through a double recession and increased student debt and healthcare costs. The key question addressed in this article is: does homeownership lead to happiness? Many believe that owning a home is a necessary part of the American dream and leads to true independence. Shopping for a home is often a satisfying experience for many, but homeownership comes with other headaches.
Interestingly, the research indicates that happiness doesn't change due to owning versus renting a place to live. Shelter and security, two fundamental needs for most people, can be achieved in a home that is rented or owned. Homeowners have to spend significant resources on home maintenance, which can lead to dissatisfaction and less money for experiences (which often leads to less satisfaction as well). Owning a home for five years or more may lead to long-term financial success and security. But getting to that five-year-plus mark is the trick.
This Month's Financial Planning Item - Review Your Debts
It is a start to a new year, which often means folks begin the year seeking to improve themselves and their lives. Financial planning is a process that systematically helps individuals create, analyze, implement, and monitor their financial and life goals.
A goal many Americans focus on is improving their financial life. One of the critical economic elements many households have to manage is debt. For this month's financial planning item, I encourage you to look through your current debts and ask yourself, "Am I deploying the best strategy to pay off my debts?"
Many American's have student loan debt and/or a mortgage. Use these two resources below to help organize your thoughts on how to improve your debt management strategies.
If you need independent advice on how to manage your debt, so it aligns with your overall financial aspirations, please review the services I offer and place an introductory appointment on my calendar.
If you are a current Pursuit Planning and Investments client, securely upload any statements needing review to PreciseFP. We can discuss this in our next check-in meeting, or feel free to place an appointment on my calendar for any urgent issues.
Managing Your Home Loan - Should You Refinance Your Mortgage?
When interest rates decline, mortgage refinancing becomes a trendy topic. However, there are several good reasons to consider refinancing. Each person's situation is unique, and you should consider many factors before deciding to refinance.
This flowchart helps guide your thoughts when considering to refinance your mortgage. This flowchart considers:
Interest rate trends
Current loan rates and terms
Motivations for refinancing
Cautions against refinancing
Strategies for Student Loan Debt - What Issues to Consider
More than 44 million borrowers in the U.S. hold more than $1.6 trillion in student loan debt. There are many factors to consider when choosing a repayment plan or deciding to refinance or consolidate. Each person's unique circumstances will determine what strategies are available and favorable to them.
This checklist helps when planning around student loans and covers:
Relief available to borrowers
Costs and benefits of refinancing
Eligibility for loan forgiveness
Quote of the Week
"A genius is the man who can do the average thing when everyone else around him is losing his mind." - Napoleon
Have something on your mind? Schedule a free call with Nate.
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