Retire With Ryan

I bonds were one of the hottest investments of 2022. But lower interest rates have one listener wondering if they are still worth a spot in her portfolio? On this episode, I’ll break down what I bonds are, why they took off in 2022, if they are still worth it in 2023, and potential investment alternatives.

• What is an I Bond? [1:40]
• Why I bonds were one of the hottest investments of 2022 [3:50]
• The benefits and restrictions of I bonds [5:55]
• How to buy I bonds [8:34]
• Are I bonds still a good investment? [9:55] 
• Exploring I bond alternatives [12:18]

Before we can determine if I bonds are still a sound investment in 2023, we need to understand what they are. An I bond is a U.S. government savings bond. Government bonds are considered one of the safest investments you can make because of the U.S. democratic system’s stability and payment history. We have never defaulted on any of our payments. The “I” in I bond stands for inflation, and the interest you receive from the bond has two components. 

The first part is a fixed rate determined when you purchase the bond. Currently, the fixed rate is sitting at 0.40%. The second part of the bond is tied to a measurement of inflation known as the Consumer Price Index Urban (CPI-U). Every May 1st and November 1st, an interest rate is determined for the I bond based on changes in the CPI-U over the previous six months. Adding both numbers together will determine what percentage of interest you will earn for the year.

There are several perks to investing in I bonds. You don’t pay interest on the bonds while they are deferred. Meaning the interest that you receive just gets added to the value of the 30-year bond. They also typically have a higher interest rate than most checking or savings accounts. And if you use them for education, there is no federal tax on the interest you pay when you redeem them.

However, I bonds do have their fair share of restrictions. One of the biggest sticking points is that you can only purchase up to $10,000 in I bonds per Social Security number or Tax ID per year. The lowest denomination being $25. The only way to get around that limit is by putting up to $5000 into I bonds directly through your federal tax return. Other restrictions include the inability to sell I bonds until you’ve owned them for one year. And if you sell them in under 5 years, you will owe a penalty of 3 months' interest. So are I bonds still worth it? Listen to this episode to find out!

• Increase Your Cash Return With I Bonds, #84
• Consumer Price Index Data from 1913 to 2023
• I Bonds Interest Rates

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The most important rule for using credit cards is to pay them off regularly and avoid carrying a balance to avoid paying the usual high-interest rates. Unfortunately, many Americans don’t follow this rule and struggle to pay off growing credit card debt. On this episode, I'm going to cover seven steps to eliminating credit card debt once and for all.

• Understanding the American credit card debt problem [0:54] 
• The first steps to debt freedom [2:44]
• Two methods for debt repayment [3:51]
• Lowering your interest rate to pay off debt [4:58]
• Finding the finances to get out of debt [5:56]
• Making changes and overcoming the hardest part of eliminating debt [9:24]

The average American carries roughly $6,569 in credit card debt. As a country, the U.S. owes $525 billion in credit card debt as of 2022’s third quarter. That is a 15% increase over the same number from 2021 and the largest year-over-year increase in 20 years. However, it's still below the all-time high of $927 billion set in 2019. That number has ballooned over the last two decades, considering in 1999 American credit card debt totaled $480 billion. 

Obviously, credit card debt is a problem for a lot of Americans. There is also data on the average credit card balance per state. Interestingly enough, most of the highest credit card debt states are in the northeast. New Jersey is number one with an average balance of $7,721. My home state of Connecticut is a close second, just behind that number. The lowest balance state is Kentucky with an average of $5,441. Now that we’ve clearly identified the problem, let’s take a look at some of the solutions.

The first step to solving any problem is recognizing that you have one in the first place. There are plenty of legitimate reasons for getting into credit card debt. Maybe you lost your job, or your car broke down unexpectedly. In any case, the only way out is to say: enough. Once you decide it’s time to dig yourself out of the debt hole, the next step is to figure out exactly how much credit card debt you're in. Make a list of the credit cards you have, their balances, and how much interest each card charges so that you can plan your next move for paying off debt.

There are two schools of thought on how debt should be paid off. The first, and in my opinion, the best method is to identify which cards have the highest interest rates and pay those off first. Not all debts are the same. Each credit card company likely charges a different interest rate. Some rates are as high as 29%! So it’s a good idea to make extra payments on whatever card has the highest interest rate. The other repayment method is what’s known as the Snowball Strategy. When utilizing the Snowball, you target the smallest balances first, gradually working up to your largest debt until everything is paid off in an attempt to make debt elimination more manageable. Either method works. The key is to simply start paying off debt and don’t stop until it’s gone.

• 7 Ways To Cut Your Monthly Bills, #111
• Debt Repayment Calculator

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In a perfect world, none of us would use credit cards. We would only use cash or debit cards to pay for things, and we wouldn't spend more than we can afford. While this is definitely an option, using credit cards is a necessity for many people. On this episode, I'm going to cover seven credit card rules to live by so you can utilize them responsibly and to their full potential.

• Why you should always make your credit card payment [1:00]
• Automating your monthly credit card payment [3:21]
• Getting your annual fee waived [4:16]
• Lowering your APR [5:16]
• The benefits of keeping your credit accounts open [6:54]
• Increasing your limit for a better credit score [8:47]
• Taking advantage of your credit card’s secret benefits [11:39]

The first and biggest rule for credit cards is that you have to pay them off regularly. Debt payment represents 35% of your credit score, and it's one of the single most important things you can do to improve it. Even committing to make the minimum payment every month goes a LONG way. Ignoring your credit card bill means asking for a lower credit score and a late fee. Even a single missed payment can drop your credit score by 100 points and raise interest as high as 30%. If you happen to miss your credit card payment, the best thing to do is call your credit card company, make the payment ASAP, and see if there is anything they can do for you. Sometimes they are willing to waive the late fee or forego reporting the mishap on your credit history if you catch it soon enough.

One way to ensure you never miss a payment is to automate your credit card billing. This can be done by contacting your credit card company directly or taking advantage of the online payment services they may offer. That way, if you forget to pay during the holidays or while you’re on vacation, you've at least made the minimum payment to avoid late fees and other credit consequences.

One thing about the credit card industry that many people fail to realize is that it’s customer service based. If you are using your credit cards responsibly, you may be able to reach out to your credit card company for additional perks, benefits, and services. Many credit cards charge an annual fee counterbalanced by its benefits, such as airline points or cash back. But if none of those benefits appeal to you, give your credit card company a call and see if they are willing to waive it. The same goes for lowering your annual interest rate. Threatening to leave a company you have a long and positive history with could open the door to a lower APR.

Aside from the standard perks, there are many hidden benefits to owning a credit card. My favorite is that a lot of cards cover collision insurance when you rent a vehicle instead of paying for additional coverage through the rental company. I’ve even had to use this coverage with my credit card, and it worked out great! Another secret perk for some cards is that they carry trip cancellation insurance. Some credit card companies will cover change fees if your travel plans get shaken up. Listen to this episode for more insight on using credit cards well!

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At the end of 2022, Congress passed The Secure Act 2.0. Originally ratified in 2019, this new version introduces even more changes to the ways Americans save for retirement. On this episode, I'm going to cover nine ways The New Secure Act 2.0 will impact current and future retirees. 

• Changes to required minimum distributions [1:48]
• Higher catch-up contributions in 2025 [3:42]
• Receiving vested matching contributions to Roth accounts from employers [4:44]
• Making qualified charitable distributions [5:34]
• Introducing qualified longevity annuities [6:45]
• Automatic 401k and 403b enrollment and plan portability [7:49]
• Contributing to a retirement emergency fund [8:46]
• Saving for retirement by paying off student loans [9:32]
• Rolling over a 529 Plan to a Roth IRA [9:57]

The Secure Act stands for “Setting Every Community Up for Retirement Enhancement” and is designed to provide more accessibility and flexibility when saving for retirement. The Secure Act 2.0 changes several things about its predecessor while introducing new tools for the retirement savings toolbelt. One of those changes is starting January 1st of 2025, individuals 60-63 years old can make catch-up contributions to a workplace retirement plan up to $10,000 annually. Also, the $1,000 catch-up contribution limit for people 50 and older will be indexed for inflation starting in 2024. This means the amount could rise every year based on federally determined cost of living increases.

Another provision made by The Secure Act 2.0 allows defined contribution retirement plans to add a designated Roth account as an emergency savings account. These accounts would be eligible to accept participant contributions from non-highly compensated employees starting in 2024. The contributions would be limited to $2,500 annually or a lower amount set by the employer. The first four withdrawals in a year are tax and penalty-free, and depending on your plan’s rules, contributions may be eligible for an employer match. This gives you the ability to set up an invested emergency fund that grows tax-free and allows you to pay for both short-term and unexpected expenses.

Required minimum distribution (RMD) changes are another big part of The Secure Act 2.0. As you may know, RMDs refer to the age at which you have to start taking money out of your retirement accounts. The original Secure Act increased that age from 70 to 72. Thanks to 2.0, that age increased to 73 starting January 1st of this year, and individuals turning 72 in 2023 will be able to delay their RMD until the following year. Additionally, the RMD age raises to 75 in 2033.

Prior to the passing of The Secure Act 2.0, there was a steep 50% penalty on late or insufficient RMD withdrawals. Starting in 2023, that penalty drops to only 25%, and further decreases to 10% for an IRA owner that fails to withdraw their RMD but corrects it in a timely manner. Additionally, Roth IRA accounts and employer-sponsored retirement plans will be exempt from required minimum distributions beginning in 2024. Listen to this episode to hear all the ways The Secure Act 2.0 could affect your retirement savings!

• Changes To Required Minimum Distributions For 2020, #3

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Hindsight is always 20/20. However, I thought it would be fun to give my market predictions for 2023 at the beginning of the year to see how close I can get. On this episode, I’m going to share six market predictions for 2023 along with historical and financial analysis to support my take.

• Will the S&P 500 make a comeback? [1:53]
• Which will outperform: Growth or value stocks? [4:20]
• Large cap or small cap stocks? [6:54]
• Bitcoin or gold? [9:37]
• Domestic or international stocks? [11:49]
• Will interest rates continue to rise? [14:19]

The S&P 500 is a collection of the 500 largest stocks in the United States. Last year, the S&P 500 declined 19.4%, making it only the 32nd decline in the last 96 years. That means it has only experienced a decline one-third of the time, with the average being around 14%. While the S&P 500’s 2022 decline was higher than average, it’s by no means the worst historical decline.

Another historical gem about the S&P 500 is that it rarely experiences back-to-back declines. There have only been 10 occurrences of consecutive negative returns in its history. The last time we saw this was when the dot-com bubble burst, and 2001 through 2003 saw a decline. Typically when the S&P 500 has a negative return, the following year sees a double-digit increase of 20% or more. That’s why my prediction for 2023 is that the S&P 500 will see a 28% increase, making it firmly 3% higher than it was prior to the decline.

A big question I have for 2023 is whether small-cap or large-cap stocks will outperform the other at the end of the year. If you’re unfamiliar, you can further categorize stocks based on the size of the company. This is called market capitalization, which can be determined by multiplying the number of shares of a company by the share price. That gives you a value and separates large companies as those with a value of 10 billion or more and small companies with a valuation of 2 billion or less. 

When you look at these two stock categories, you can see big differences in performance. The most commonly measured index for large-cap stocks is the S&P 500, and the most commonly measured index for small-cap stocks is the Russell 2000. Large-cap stocks tend to favor technology in consumer staples, whereas small-cap stocks tend to be weighted more toward healthcare, financials, and industrials. So which one will win in 2023? Listen to this episode for my prediction on this and other areas of the market!

• 7 Best Short-Term Investments To Grow Your Money, #116

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We are more likely to spend when we have money in our pockets. That’s why automating the process of saving for retirement is a great way to achieve your financial goals. On this episode, I’m going to share five ways you can automate your retirement savings this year and stay on track for years to come.

• Are you automatically saving? [1:29]
• Automated savings through an HSA [3:27]
• Using a Roth IRA for automated savings [5:58]
• Opening a high-yield savings account [7:39]
• Automating debt payments [10:58]

The first and easiest way to automate saving for retirement is to set up and contribute to a work-sponsored retirement plan. If your company offers retirement options through a 401k, 403b, or 457 plan, chances are you’re already taking advantage of this. But perhaps other financial priorities have kept you from signing up for one of these automated retirement savings plans? If that’s the case, make sure you sign up for a retirement plan this year so you can receive the maximum match for your company.

If you want to max out your 401k this year, my recommendation is to double-check the amounts you’re set to contribute on an annual basis. The maximum contribution for a 401k in 2023 has increased to $22,500 if you're under 50. For those over 50, you can make an additional $7,500 catch-up contribution, bringing the maximum to $30,000. It’s also a good time to review your investments and make sure you have an advantageous asset allocation.

Do you have extra money just sitting in your regular bank account? Whether it’s for emergencies or fun, it’s time to check the interest you’re accruing. Without even looking, I can tell you that it's probably almost zero. Banks make money by paying you little to no interest. So take matters into your own hands! One option is opening a high-yield savings account. You could also open a brokerage account by combining an investment and savings account. With interest rates rising, any of these options will give you a more competitive yield than a traditional bank account.

Another great option for automatic retirement savings is through a Roth IRA. If opening a Roth IRA makes sense for your financial situation, you need to determine how much you want to contribute to your Roth account on a monthly or semi-monthly basis once it’s set up. The annual contribution limit for 2023 has gone up to $6,500 for those under 50, and $7,500 for anyone older. If you want to make the maximum contribution, simply divide the amount that applies to you by 12 or 24 and set up automatic contributions in that amount. Listen to this episode for additional tips on automating your retirement savings and investments!

• Bankrate.com

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The path towards healthcare coverage in retirement starts with enrolling in Medicare Part A and B. However, it’s only the first step! Signing up for supplemental coverage will save you from out-of-pocket costs beyond the cost of Medicare Part B. On this episode, I’m going to cover Medigap and Medicare Advantage plans, their pros and cons, and how to decide which plan is best for you.

• Understanding Medicare and supplemental coverage, and Medigap [0:56]
• Exploring Medicare Advantage and its various plan types [5:16]
• Deciding which supplemental coverage is right for you [8:37]

Signing up for Medicare is great, but it doesn’t cover everything. Such as 20% of doctor’s bills, outpatient services, chemotherapy, and more. Thankfully, you have the option to sign up for supplemental coverage through Medigap or Medicare Advantage plans. But which is better? The answer depends on you and your medical needs. The best way to make this choice is to weigh the pros and cons of each supplemental coverage plan. 

The benefit of a Medigap plan is that you have a fixed monthly premium instead of unexpected out-of-pocket costs. Additionally, all doctors, clinics, specialists, and hospital systems that accept Medicare will accept your Medigap supplemental insurance. One potential downside to Medigap plans is that they don’t include prescription drug or dental coverage. However, those can be purchased separately. All coverage for Medigap plans is the same, so find the lowest-cost option when shopping.

Medicare Advantage is a different type of supplemental coverage. Rather than purchasing additional insurance, Medicare Advantage is like buying into a separate network. By agreeing to use the doctors, specialists, and hospitals in your local area, your monthly premiums are typically much less than Medigap. In some cases, plans cost as little as $0 per month because a portion of your Medicare Part B premium goes to the insurance company. However, whenever you use a portion of your plan, expect to pay co-pays with an out-of-pocket maximum of $8,300 for 2023.

The three main Medicare Advantage options are an HMO, PPO, or a hybrid HMO POS plan. Health Maintenance Organization (HMO) plans are the most restrictive of the three. Monthly premiums can be as low as $0, but you can only use in-network doctors and facilities, pre-authorizations and referrals are required to see specialists, and one doctor generally oversees all parts of your health care. Preferred Provider Organization (PPO) plans offer a wider range of options, more flexibility, and the ability to use in-network or out-of-network providers without referrals. However, out-of-network providers can cost more. Finally, Health Maintenance Organizations with a Point of Service option (HMO POS) plans have the restrictions of an HMO with the flexibility to get out-of-network referrals at a higher cost. Listen to this episode for more on supplemental health care coverage in retirement!

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A great year-end tax strategy for Connecticut residents is a contribution to the Connecticut Higher Education Trust, also known as the CHET Plan. If you’re preparing to send someone to school, this is an excellent way to save while receiving deductions and creating tax-deferred growth. On this episode, learn five ways to get the most out of contributing to CHET accounts or other qualifying 529 plans.

• Making your first contribution [1:30]
• Taking advantage of the Baby Scholars Program [2:17] 
• Investing the money carefully [3:30]
• Using your CHET account for qualified expenses [10:46]
• Creating tremendous tax-deferred growth [13:00]

The first thing you need to do to take advantage of the CHET Plan is to make a contribution. Simply opening the account is not enough. But hurry! You have until the end of the year to do so for a deduction in 2022. If you have a child under the age of one or you adopted a child in the last year, you can get up to a $100 bonus by taking advantage of the Baby Scholars Program. Within 60 days of opening the CHET, that $100 bonus will be deposited into your account if you do so by midnight on the child's first birthday or within one year of adopting your child.

Like any investment, the key to maximizing your returns with a CHET account is using caution around how the money is invested. These plans are supposed to be easy. They are set up so that investors need to exert minimal effort to manage them. However, just because something is being done for you does not mean it’s the best option. Listen to this episode to hear my insight on how you should invest funds in a CHET account!

If your child is going off to school next Spring and you’re about to write a $10,000 tuition check, you have a potential $10,000 deduction just sitting in the bank. Putting that money into a 529 plan like the CHET plan is the easiest way to create a deduction for yourself by simply making a $10,000 contribution and then pulling it out. But a big mistake people make with CHET accounts is not using that money for qualified expenses so that it counts as a deduction.

Qualified expenses include tuition, fees, books, supplies, computers, computer software, and internet access. Room and board also qualify, but the student needs to be enrolled at least half time, and it doesn’t matter if they live on or off campus. Unfortunately, things like renting a car, maintaining a vehicle, travel costs for flying home, and health insurance do not qualify. Other uses for CHET account funds include up to $10,000 per year for elementary and secondary school tuition and a $10,000 lifetime maximum to pay off student loans.

• CHET Baby Scholars

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As we close out 2022, I want to ensure you're setting yourself up for success in 2023. A great way to do that while helping you save for retirement is opening a Health Savings Account (HSA). On this episode, I'm going to break down the three reasons why opening an HSA is a smart retirement planning move and how to choose the right HSA provider.

• Why an HSA is different than any other retirement account [1:43]
• Investing with an HSA [4:00]
• Using an HSA to reimburse your medical expenses [9:52]
• The logistics of opening an HSA [12:24]

A critical part of retirement planning is developing strategies that help you save the money needed for retirement. You're likely already doing that through your employer-sponsored retirement plan, but you might not be taking advantage of a potentially better retirement savings option known as a Health Savings Account (HSA). Many people do not automatically connect an HSA to retirement planning, but the two go hand in hand.

The first reason you should consider opening an HSA in 2023 is that it’s a triple tax-free account. This means you receive a deduction when you contribute to the HSA. Any gains, interest, or dividends are tax-deferred while your money is invested. And if you take the money out for health related costs, it's completely tax-free. Once you reach 65, if you have excess money in your HSA that you need for non-healthcare related expenses, you can withdraw the money, and it will be taxed just like a 401k distribution.

The second reason you should open a health savings account is that the money can be invested. An HSA’s real benefit is that you can experience compound growth like regular retirement accounts. Many people do not use an HSA to it's full potential by treating it like a medical checking account. To get the most bang for your buck, you need to invest your money in some type of a bucket strategy.

Because you’re using this account to pay for out of pocket medical expenses, emergencies, and sicknesses, you want to invest the money in relatively conservative, minimal fluctuation buckets like money market or short term bonds. If you don’t plan on needing the money for a long time, then a longer term investment would be best. This looks like stock funds, real estate funds, and possibly commodities funds for longer term growth. You also want to make sure you’re getting a competitive interest rate. If you're not earning at least 3% interest on your Health Savings Account, you might want to consider switching to a different HSA. Listen to this episode for more on why opening an HSA in 2023 is a great move for retirement planning!

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Many listeners have submitted questions for the podcast. On this week’s episode, I’m going to answer a few! We’ll dive into the logistics of collecting Social Security survivor benefits and the best ways to maximize your benefits in the event of a spouse's passing. I’ll also discuss how to change financial advisors without selling funds and the benefits of tax-loss harvesting.    

• Collecting Social Security survivor benefits [1:07]
• Switching to a different financial planner without having to sell funds [4:42]
• More on tax-loss harvesting and Roth conversions [6:54] 

The unexpected passing of a spouse is heartbreaking. If you haven’t reached full retirement age yet, knowing what to do with your Social Security benefits can ease the financial burden during such a difficult time. First, it’s important to know that any benefits (whether you’re collecting them or not) will receive cost of living adjustments. Next year, that will be an adjustment of 8.7%. There may be an urge to immediately start collecting your own Social Security benefits to account for the loss of income. This is definitely an option, but if you collect your benefits early, there's a limit to how much you can earn before your full retirement age. If you wait until full retirement age to collect your own benefit, you'll receive an additional 8% increase per year for doing so.

Another option would be to collect your late spouse's Social Security survivor benefit. Let's just say your Social Security survivor benefit was $1,500 a month, and you were going to earn under $56,520 that year. You could receive the whole benefit without any reduction. Even if you haven’t reached full retirement age! This is because of a special provision in place for Social Security survivor benefits.

It’s been a trying year for the stock and bond market. Many investors are underwhelmed with the results. However, if you feel like your financial advisor could have handled 2022 better, you may be in the market for a new one. Therefore you may be asking yourself (like one of our listeners), “Can I switch to a different financial planner without having to sell the funds and take a big loss?” The answer is YES! You can make the change without having to sell your funds. Most financial planners use a custodian like TD Ameritrade Institutional, Fidelity, Charles Schwab, or other broker-dealers. Most firms will allow you to change companies without selling your funds because they use the Automated Customer Account Transfer Service (ACATS) to make those transfers.

Once you have an idea about who you’d like to hire as your new financial planner, you need to check with them to find out where they plan to hold your money. Give them your account statement and show them the funds that you have. You shouldn’t have any issues if it's a traditional mutual fund. This may also be a good time to assess what you’re investing in. You want to look at the performance of your funds versus the different benchmarks. If it's a large-cap fund, you want to compare how it’s doing against other large-cap funds. Same thing for smaller cap funds. You also want to understand the ongoing costs to manage active funds and evaluate if the investment is worth it.

• Social Security And Medicare 2023 Cost Of Living Adjustment, #120
• How To Lower Your Income Taxes With Tax-Loss Harvesting, #117

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