Photo of Ray Ferrara CFP Ray Ferrara CFP Sep 16, 2021


Normally, the Social Security Board of Trustees issues a report every April on the status of the trust fund. Well, like many things these days, nothing is normal. The report was released at the end of August with the news that the trust fund will run out of money in 2033 and benefits will only be paid at 76% of current levels beginning that year. It isn’t much better for the Disability Insurance Trust Fund which lost eight years and will now only be able to make payments until 2057. Predictably, they blamed much of this on the pandemic with people out of work and not paying payroll taxes, as well as the higher mortality last year. At some point, Congress will no longer be able to defer the difficult decision as they have for the past two decades.


HOW DOES 700,000 EQUAL 235,000?

The consensus for the jobs number for August from economists was 700,000 new jobs being created which were about 300,000 less than in both June and July. It was shocking to many that only 235,000 jobs were created, and it has taken a while for the markets to digest this surprising news. There is no question that employers cut back as a result of the delta variant of COVID, especially in the service industries. As the delta variant runs its course, which seems to be starting, the jobs number should improve once again. There are plenty of jobs being advertised – some nine million. With the unemployment benefits being cut back dramatically earlier this month, it is reasonable to expect that many who have stayed home will start looking for a job. Having said that, October may be the biggest month for job gains. Wages are up about 4% over last year and that too should attract more workers. After all, we all have pent-up desires to travel, dine out, and be with family and friends. You need money to do those things.



Here are just a few “ideas” being bantered about in Congress these days:

1) The House Ways and Means Committee passed legislation to require employers who have been in business two years or more and have at least five employees to provide a retirement plan. It requires that 6% be deducted from paychecks initially and it rises to 10%. For those employers that don’t follow the mandate, there will be a penalty imposed.  This has only gotten out of committee so there is still a long way to go. Similar measures couldn’t get that far before and we will be surprised if it gets passed and turned into law. While we applaud the intent, it comes with significant consequences. Imagine the employee making $50,000 per year or probably about $42,000 after Federal income tax, Social Security, and Medicare. They would be forced to set aside $3,000 per year ($250 per month) which likely would be a serious reduction in cash flow.  

2) Democratic leadership is calling for the passage of a massive ($3.5 trillion) “infrastructure” bill. Speaker Nancy Pelosi hopes to have a vote in the House before the end of the month. Senator Chuck Schumer is setting things up in the Senate if it passes the House. While both feel they can get it done, moderate Democrats in both chambers have other ideas. They can’t swallow that additional expense and the taxes to pay for it. It is set up for a very interesting Fall session for Congress and that is on top of needing to increase the debt ceiling so that the U.S. does not default on its debt, and pass a budget for the 2022 fiscal year.

3) The passage of the 2017 Tax Act capped the deduction for state and local taxes (SALT) to a maximum of $10,000. Many felt that this was aimed at high-income and tax states which are largely Democratic states. This has now become a part of the negotiations for the $3.5 infrastructure bill. Democratic members of both the House and Senate from New Jersey, New York, and a handful of other states with high taxes have said they will not vote in favor of the infrastructure bill unless this provision is eliminated. It is estimated that up to 13 million people would be affected by its repeal. 

4) One of the many proposals being considered is the elimination of a step-up in basis when one dies. Under current law, when an individual dies what one paid for the property within the estate gets stepped up to the fair market value of that property on the date of death. In effect, it eliminates capital gains that have built up in the decedent’s assets. Interestingly, Congress has passed this legislation twice before – 1976 and 2010. Both times, the step-up was reinstated. Here is a twist to consider. Some assets have been held for so long that it may be hard to determine the basis, and the best source to produce it is the decedent, who is no longer around to help.

5) The compromising is starting. There is a group of Democrats now calling for a 26.5% corporate tax instead of 28% and on the individual side asking for a 3% surtax for those with incomes above $5 million. They also are proposing a 25% capital gains tax which is up from 20% in current law. For some high-income earners, they will have to tack on an additional 3.8% for the ObamaCare tax. Good news – there was no mention of eliminating the step-up in basis at death mentioned above. These provisions have not gone through the Congressional Budget Office let alone gotten out of committee. We have a long way to go.



Congress is looking to continue tinkering with retirement legislation. At the top of the list is dealing with Roth IRAs that seem to be abusive – at least to some legislators. Senator Ron Wyden (D-OR) doesn’t like seeing Roth IRAs like the one Peter Thiel (PayPal co-founder) supposedly has amassed. He took $2,000 in his Roth to buy founder shares which are now worth $5 billion. Sen. Wyden also wants to eliminate the backdoor Roth, and at the same time limit Roth’s growth to no more than $5 million. There are now about 28,000 IRAs over this limit, up from 8,000 in 2011 according to the IRS. For 401(k) legislation, there is also talk of no longer allowing for the catch-up contribution of up to $6,500 to be tax-deductible for those age 50 and above, and instead forcing it to go into a Roth 401(k). However, not all the provisions appear bad. It is likely that required minimum distributions (RMDs) will start at age 75, up from 72. Some want to increase the qualified charitable distributions above the current limit of $100,000 annually. Finally, they are even talking about allowing those over age 60 to put even more into their retirement plans.



About 30 years ago, the term “sandwich generation” was uttered for the first time just as the Baby Boomers were turning age 50. It was referencing the phenomena of taking care of their children and at the same time having to care for an aging parent from the Greatest Generation. Trying to plan financially for their children/family and pending retirement while perhaps caring for a parent emotionally, physically, and financially is not a small task. And that parent was likely living many miles away. Now many of those same Baby Boomers are the ones looking to their children for assistance in much the same way that their parents did. What goes around seems to come around. If you find yourself being “sandwiched”, it is time to chat with us and to do the necessary planning for all three generations – educational expenses for your children, retirement planning for yourself, and long-term care for your parent(s).



According to the IRS, the top 1% of taxpayers in 2018 had to earn about $737,000 to qualify. The average tax rate on those individuals as 25.4%. The top 0.1% paid at a 25.9% rate, while the rates on the top 0.001% and 0.0001% were 24.5% and 22.9% respectively. The 1,443 folks in the exclusive group of the top 0.0001% earned an average of $68.9 million. (Source: Kiplinger Letter)



Through the first few weeks of September, the Initial Public Offering (IPO) market has been on fire, raising a little under $100 billion which is the best in 20 years. It is possible that the IPO market could break the record set in 2000 near the end of the dot-com craziness. Could this be the prelude of something to come? The big difference between now and then is that today’s businesses are companies actually making money. Given that 115 companies have filed IPOs with the SEC and this year is not yet three-fourths over, 2021 could set a new record.



We often get the question of whether we think Bitcoin should be in an investor’s portfolio. There are many factors to consider, most of which we won’t review here, but one of the main reasons that influence our advice against it is volatility. Over the last decade, Bitcoin’s annual volatility has been almost 7 times higher than that of the stock market. Why is this important? There are several reasons, but a major one is that it makes it difficult to maintain a target allocation in your portfolio. For example, if an investor had a 5% allocation to Bitcoin and did not rebalance the portfolio for a year, that allocation would be up to 16.5% of the total portfolio based on historical returns. To avoid such a large overweight in the volatile asset, one would have to rebalance quite often. 

Over the last decade, maintaining a 5-15% allocation to Bitcoin would have required over 130 rebalancings. These are all taxable events and even if it was held in a non-taxable account, the dynamics of Bitcoin are disadvantageous to rebalancing. Given that it’s still in the infancy of its lifecycle, Bitcoin is very momentum-driven and is not tethered to an intrinsic value. Therefore, you would be buying as prices crater and selling as prices skyrocket. This differs from more mature asset classes, which tend to be mean-reverting around intrinsic values, making rebalancing more appealing. While many factors may complicate the addition of Bitcoin to an investor’s portfolio, volatility is an important one to consider. While it’s the reason that many find it attractive, it can also add outsized risk and taxes to a portfolio, particularly for those nearing retirement or otherwise requiring large cash withdraws.




The Wells Fargo Investment Institute published a paper on “Women and Investing – Building on Strengths”. In the section devoted to “How Women Invest”, they found women’s actual investment behavior tends to follow recommended investment principles more than men’s investment behavior. Women adhere more to the following principles:  patience, discipline, and willingness to learn.  

Under the category of patience, the study found that single women traded 27% less frequently than single men. Frequent trading may negatively impact returns over the longer term. 

Women tend to be more disciplined investors. The study noted that male investors tended to invest 100% of their accounts in stocks at least twice as often as women. Men also made more dramatic allocations going from 100% stocks to 100% bonds and vice versa. 

Finally, women are more likely to seek professional advice. A Wells Fargo/Gallup Investor and Retirement Optimism Index found that over half of women reported working with a professional advisor versus under 40% of men. The combination of these three characteristics leads to women earning higher returns on their investments for the risks they take.