Retirement Accounts | Consumer Spending and Human Cannonballs

Contributing to Retirement Accounts: It’s pretty routine for the IRS to lift contribution limits for retirement accounts every so often. However, with the recent flurry of the Fed’s monetary maneuvering paired with an inflation spike—recent legislation (the Secure Acts) has provided a more notable increase than usual.

News headlines had mostly focused on other elements of the Secure Acts, but as financial advisors, we want to draw out the newsworthy increases for qualified retirement accounts. In fact, 401ks received the largest-ever limit increase for 2023 (+$2,000). This is a silver lining for investors with qualified accounts (i.e. more dollars for tax-advantaged growth).

Below is a basic layout of the updated limits. If you have one of these accounts with us, email/call one of us if you’d like to increase your contributions to meet these increases. Even if you have one of these accounts elsewhere and want to think them through with us, be in touch. We’re here to help.

Have Money, Will Spend: That is the mantra of the consumer in the U.S. economy right now—have money, will spend. As a result, retail sales and food services surged 3% in January, far exceeding the expected 1.7% gain. This is the most significant monthly increase since March 2021, but that came on the heels of stimulus checks. So, excluding the 2020/2021 recovery period, you have to go back to October 2001 to find a month with larger gains.

Bottom line: consumption is running strong. Vehicle sales were up, but there was broad strength everywhere: general merchandise, e-commerce, clothing stores, and even furnishings. Spending at restaurants and bars was up 7.2%. Why? Well, in large part, it is because real incomes are rising, not to mention the consumer still has substantial cash reserves.

While this doesn’t fix the inflation problem, it’s an important piece in understanding how Americans relate to the Federal Reserve interest rate hikes and the overall state of their finances.

Business Briefing

• Federal Reserve Meeting Minutes: Nearly all Federal Reserve officials backed a quarter-point hike at the central bank’s last policy meeting, slowing the pace in their efforts to raise borrowing costs as inflation shows signs of easing. They said prices are still rising too quickly, so continuing rate increases would be necessary to bring inflation closer to the Fed’s two percent target. (Reuters)
• Mortgage Rates Rise: The average interest rate on the popular 30-year, fixed-rate mortgage rose last week by 23 basis points to 6.62 percent, the highest since November, according to data from the Mortgage Bankers Association. The surge came as bond markets were rattled by increasing fears that the Federal Reserve will have to raise its benchmark interest rate higher and longer than previously expected as the economy slows by inflation remains much higher than preferred. Mortgage rates jumped above seven percent in October of last year as the Fed raised rates in 2022 at the fastest pace in over 40 years. (Reuters)

For those considering a career change: We don’t necessarily recommend taking to the road with your kids and living the life of daredevils. But if you’re so inclined, David and Jeannie Smith might be the ones to follow. They quit their day jobs for a life of daredevil stunts, including becoming human cannonballs. Among their many Guinness Book of World Records is one for the highest cannon shot. David would go 90 feet high to fly through a ring of fire—crazy stuff. Click here to read more about this fascinating family (or watch their videos).