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The 4% Rule: From advisor Luke Porter: Historically, the rule of thumb has been that you can safely withdraw 4% of your investments each year to support your income needs throughout retirement. However, as life expectancy has continued to increase and people are regularly living into their late 80s and 90s, this rule of thumb has started to come into question. In this illustration from JP Morgan’s Guide to Retirement, 4% distributions over 35 years can really start to put pressure on an individual’s assets. This is why it is so important to have a financial plan in place that is regularly reviewed with your advisor. If longevity is a risk to your plan, there are normally options that may involve minor changes over time to ensure you will not outlive your assets. If you have not updated your financial plan in several years or have never put a financial plan together in the past, please contact us and let us help.

Thinking Ahead: It’s not necessarily the kind of thinking ahead we enjoy doing. However, there is a necessity for it. Considering what long-term care you might need is important in your retirement planning. Considering long-term disability insurance (LTD) is a good step in the planning process. Few relish paying for the coverage, which provides an income when a person can no longer work because of illness or, in most cases, a non-work injury. But here’s why it’s good to consider in your planning process: it is more likely that you’ll face disability, rather than death, during your career. Sober thought.

There are two options when it comes to LTD insurance:

  • Pre-Tax Option: you pay the premium with pre-tax dollars. The cost is typically a payroll deduction.
  • Post-Tax Premium: you pay with after-tax dollars, which is your take-home pay after taxes have been pulled from your earnings.

Each option has pros and cons that your adviser would be happy to consider with you. Here are five basic questions to consider as you continue with retirement planning:

  1. Would you rather pay taxes now on disability benefits or when you’re on leave?
  2. Is your budget dependent on the full sum of your current paycheck?
  3. Is your primary focus the benefit, not your contribution?
  4. Will you have family or others to support you with your disability payments?
  5. Does your employer offer both pre-tax and post-tax options?

It can be a bit overwhelming, and we are available to help you wade through the options. It’s not a fun exercise but one that may be helpful for future planning.

Business Briefing

  • Debt Limit Talks Postponed: President Biden and Congressional leaders postponed a Friday meeting on raising the debt ceiling until this week. Staff members will continue negotiations as the threat of catastrophic June default on the nation’s obligations looms. (The Washington Post)
  • Inflation: Inflation edged down to an annual rate of 4.9 percent in April from 5.0 percent in March in the 10th straight decline, the Bureau of Statistics reported Wednesday. The consumer price index rose 0.4 percent from the previous month. The increase was slightly lower than economists expected, nudging the annual rate to the lowest level in two years. Inflation has fallen dramatically since peaking at 9.1 percent last summer but remains significantly above the Federal Reserve’s 2 percent target rate. (The Washington Post)
  • Twitter CEO: Elon Musk said Thursday that a new CEO will take over Twitter in six weeks. When the new leader, an as-yet-unnamed woman, starts the job, Musk plans to transition “to being exec chair & CTO.” The Twitter leadership change cheered Tesla investors. Tesla shares jumped more than 2 percent. (The Wall Street Journal)

A Few Charts from This Week

  • The workforce balance between men and women is always an interesting statistic. Perhaps the highest labor force participation for prime-aged women is at 77.5 percent. Participation from prime-aged men is rebounding a bit but has steadily declined since the 1950s.
  • Year over Year is a calculation comparing data from one time period to the previous year. It allows us to see how a particular variable grows or falls over an entire year rather than just weekly or monthly. Here is one from the past month—an interesting perspective on the economy.

Speaking of Retirement Planning: A recent study showed how listening to music or playing an instrument can delay cognitive decline as we age. The study reveals that doing so actually produces gray matter in the brain. The researchers followed over 100 retired people who had never practiced music before. They were enrolled in piano and music awareness training for six months, which, when finished, resulted in an increase in working memory performance by 6% and a total reduction in gray matter loss in the piano-playing group. Maybe this should be part of our retirement planning portfolio questions?