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What Is Digital Fashion, And Why Is It Important?

From Big Tech boardrooms to podcasts and tweets, the metaverse hype is everywhere. However, as with many emerging technologies, excitement around the expected future impact often outshines its actual readiness for mainstream adoption. 

But even among all the hoopla, it’s foolish to dismiss Web3 and the metaverse completely. Within the next decade, emerging technologies might change life as we know it. In the same way, the television and the internet democratized access to information and entertainment, the blockchain and the metaverse will change the way we shop, game, and craft our digital identities. 

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Whether physical or digital, fashion is a core layer of our being. It serves as one of the purest forms of self-expression while acting as a direct extension of our emotions and beliefs. As humans, we care deeply about our appearance and as we spend more time in virtual environments, the same behavior is expected to continue. By 2030, Morgan Stanley estimates that the digital fashion market alone could be worth $50 billion. 

While this prediction is ambitious, and far from a guarantee, industry leaders have recognized the potential and are already beginning to heavily invest in the trend:

  • Nike (NKE) acquired RTFKT and announced the launch of CryptoKicks, alongside their own virtual world in Roblox (RBLX).
  • Rebecca Minkoff partnered with The Dematerialised to release a collection of NFT dresses, hoodies, and accessories.
  • Bob Iger invested an undisclosed sum into Genies, a company that produces metaverse-ready digital avatars for stars like Jennifer Lopez, Rihanna and Lil Nas X. 

With that in mind, there’s a compelling case that the winners of this emerging sector could be sound investments for years to come. But before we even think about investing, it’s important to cover the basics of digital fashion.

What Is Digital Fashion?

Digital fashion is virtual 3D clothing designed with both humans and digital avatars in mind. Rather than using fabric and textiles, digital garments are created with special 3D computer programs like Blender and CLO3D. 

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Relative to traditional garment manufacturing, digital fashion is inexpensive and wildly sustainable. More importantly, it comes with zero creative constraints or production limitations. This is where the true beauty of digital fashion shines. The only limits are our imaginations. We don’t need to be the same people online as we are in real life. We can be whoever we want to be.

According to Jackson Bridges, NFT Project Advisor and Showcase Guide at Alterrage, digital fashion allows for a new medium for individual expression.  

“In the metaverse, we can decide our own identities compared to the physical world in which we cannot choose our own race, gender, or cultural background. Digital fashion builds upon this idea by enhancing self-expression outside of the constraints of the physical world and by leveraging technologies such as augmented and virtual reality. The ability for one to express themselves with limitless creative freedom unlocks doors for a true expression of one’s identity,” he shared in an interview with Kiplinger. 

To date, digital fashion has been most prevalent in gaming, where gamers pay billions of dollars per year to outfit their digital avatars in the latest cosmetic skins. Epic Games, the company behind Fortnite, sold 3.3 million units of their NFL partnership skins, netting a cool $50 million in only a few weeks.

How Do You Wear Digital Clothes and Accessories in the Physical World?

Outside of gaming, digital dressing is the most practical way for shoppers to showcase their digital style. By altering photos and using advanced technologies like augmented reality and artificial intelligence, consumers can actually wear their digital garments. 

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For digitally-native apparel retailers like DRESSX, digital dressing is built into their business model. Customers who purchase digital garments from DressX can upload a photo to the platform to have themselves digitally dressed in their new look. For social media influencers who often spend thousands of dollars on an outfit only to return it moments after a photo is taken, wearing digital fashion offers a much more efficient and cost-effective alternative.

Snapchat (SNAP), a leader in augmented reality technology, has offered a variety of AR filters since its inception. Snap has also partnered with companies such as Prada and Ulta (ULTA) to offer customers virtual try-on experiences, which have resulted in substantial sales lifts. 

To encourage more retailers to adopt AR-powered ecommerce, Snapchat has made its proprietary technology free to use. Now retailers can seamlessly integrate Snap’s AR try-on technology and Camera Kit into their own mobile apps and websites.

Why Is Digital Fashion Important? 

To fully recognize the importance of digital fashion, you must first understand the desire for digital identity and ownership. Among digitally native generations, there is strong demand for digital ownership and the ability to express our identity the same way we do in real life. 

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Based on a report from BoF Insights, approximately 70% of US general consumers (Gen Z to Gen X) rate their digital identity as important. And they’re voting with their wallets, with 50% interested in purchasing a digital asset in the next 12 months (gaming skin, digital fashion, avatar, and/or NFT.)

While still incredibly early, digital fashion is positioned to be a significant revenue driver for apparel retailers. Over the last year, brands such as Gucci, Tommy Hilfiger, and Dolce & Gabbana have invested millions of dollars in opening virtual metaverse storefronts where they’ve sold a mix of digital fashion NFTs and NFTs redeemable for physical goods. The virtual stores also allow customers to shop through on-site ecommerce collections. 

As explained by Nico Fara, a retail Web3 strategist and founder of Chief Metaverse Officer, virtual stores in the metaverse aren’t replacing traditional retail channels, but are instead serving as a much-needed complement. 

“In the same way that retailers need a brick-and-mortar or ecommerce store (Web 1.0) and a social media page (Web 2.0), they should have a metaverse presence (Web 3.0). Virtual stores in the metaverse are more efficient, immersive, and accessible than any other retail experience.”

Like all new tech trends, there will be companies that invest in the hype for PR and quick cash. But there will be others that make digital fashion a core part of their future retail strategy. Whether the winners will be legacy fashion and tech companies, digitally native retailers, or a combination of both, only time will tell. But when industry players of this caliber all make a move, it’s generally one worth paying attention to.

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Will Private Student Loans Be Forgiven?

The short answer: No.

Currently the administration is only considering canceling federal student loans. And at last report, its forgiveness plan will include a $10,000 cap for federal student loan borrowers, with income limits for single tax filers who make $150,000 or less or $300,000 jointly. Federal borrowers are still waiting for official plans to be announced. And the moratorium that paused federal student loan payments is set to end August 31, 2022.

What Happens to Private Student Loans?

Private student loans are issued by financial institutions such as banks, credit unions and credit card issuers like Discover. These loans are not eligible for forgiveness because they are not distributed by the Education Department. And borrowers with these loans were not exempt from paying during the federal student loan payment pause.

Also, unlike federal student loans, interest rates on private student loans are variable. This means that as the Federal Reserve raises its benchmark interest rate—the government’s primary tool to fight inflation—rates on these loans also go up. In contrast, federal student loan rates are set by the government and fixed over the life of the loan.

For example, federal undergraduate student loans taken out between July 1, 2022 to June 30, 2023 have a fixed interest rate of 4.99%. Rates reset every July. For private student loans, the interest rate can range anywhere between 1% to 13%.

Why Are Rates So Different?

Interest rates on private student loans are based on a borrower’s creditworthiness. To get the best rate, you would need to have good to excellent credit score. (For FICO that range is 670 to 800.) Or you would have to have a co-signer on the loan to lower your rate.

If you currently have a private student loan, there are ways to lower your interest rate. Talk to your lender and ask if they would be willing to lower your interest rate. Or you can ask that the monthly payment be lowered—especially if your income has recently decreased.

Should You Refinance?

Another solution to lowering your current payments is to refinance your loan to one with a lower rate. If possible, try to lock in a lower rate as soon, as rates are rising more broadly.

However, don’t rush blindly into a new loan for a lower rate alone, especially if you currently hold a federally issued loan. Refinancing into a loan not issued by the federal government also means you’ll also have to opt out of some of your current protections, including the ongoing suspension of interest charges. It may make more sense to wait to refinance until repayment moratoriums end, even if you’ll pay a higher overall interest rate for the time being.

Tax Planning Shouldn’t Be an Afterthought

There are so many elements of a comprehensive retirement plan, such as claiming Social Security, investing, planning for long-term care costs and estate planning. The one thing they all have income is taxes. Tax planning touches on every element of one’s financial plan, which is why it should never be an afterthought.

The first thing to realize when planning for retirement is that taxes don’t stop when you stop receiving a paycheck. Taxes could still be one of your biggest expenses, which is why you need to integrate tax planning into your overall financial plan.

How Will Your Retirement Income be Taxed?

Although you paid into Social Security during your working years, you may still have to pay tax on your Social Security benefit. If your provisional income as an individual is between $25,000 and $34,000 or is between $32,000 and $44,000 as a married couple filing jointly, up to 50% of your benefit may be taxable. If your provisional income as an individual is over $34,000 or over $44,000 as a married couple filing jointly, up to 85% of your benefit may be taxable. Note that these income thresholds have not increased since they were first instituted in 1984, and there are no current plans to adjust them with inflation. If you’re near this threshold, consider that inflation could push you over and trigger this tax.

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If you have a private pension, your pension payments could be taxed at ordinary income rates. If you’re like most retirees these days, you don’t have a pension, but you may well have a 401(k) or IRA. These are tax-deferred accounts, which means that what you take out will be taxed as ordinary income, as well as a 10% federal penalty if you take a withdrawal before age 59½. Keep in mind that at age 72, you will most likely be required to take minimum withdrawals from your tax-deferred retirement accounts. These amounts are set by the IRS and may force you to withdraw more than you normally would in one year, causing an increase in your tax burden.

You may also have other sources of taxable income in retirement, such as investment gains and dividends, rental income from a property, or selling your home. There are potential tax-minimization strategies available for all of these with the right amount of planning and knowledge. For example, at any age, you can take $250,000 tax free from a home sale if you meet requirements, including that you’ve lived there for two out of the last five years – this doubles to $500,000 for married couples. The two years don’t have to be consecutive. This does not apply to other property sales, only primary residences.

Will Taxes Rise in the Future?

We could be living in a time of historically low income tax rates, but this could change soon. Government programs such as Social Security and Medicare are under strain, and government spending increased during COVID. We recently saw President Biden propose a new Billionaire Minimum Income Tax, which could also affect many people who aren’t billionaires. While this is just one tax proposal, it could be indicative of the direction tax policy will go in the next 10 years.

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At the end of 2025, we will likely see the expiration of the Tax Cuts and Jobs Act, and no one knows what will take its place. That’s why it’s important to plan for the tax rates of tomorrow, not just those of today.

Foresight is 20/20

Many of the most effective tax strategies out there require forethought and advanced planning – sometimes years in advance. For example, a Roth conversion is a strategy that could potentially pay off many years down the line. In exchange for paying tax on the retirement savings you convert from a traditional IRA to a Roth IRA at the known tax rates of today, you can enjoy tax-free income in five or more years’ time (after the account has been open for at least five5 years and you’re age 59½ or older).

Consider whether you think taxes will go up, down or stay the same in the next five years. Depending on your answer, a Roth conversion could be a viable long-term tax-minimization strategy.

A Roth conversion could especially be valuable if you have retired and are younger than age 72, the age at which you must start taking required minimum distributions (RMDs) from a traditional IRA or 401(k). Once you reach that “magic” RMD age, you cannot convert any dollars that are a part of your RMD – only dollars over and above your RMD.  Many times, this severely restricts one’s ability to continue doing Roth conversions at all.  Further, with rising tax rates anticipated in the near future, there is no time like the present to essentially “buy the government” out at today’s historically low tax rates. 

If you are charitably inclined and at least age 70½, utilizing a Qualified Charitable Distribution (QCD) could be for you.  Simply put, you can send contributions to qualifying charitable organizations directly from your IRA and bypass paying taxes on the amount given.  If you would otherwise take the standard deduction, utilizing this strategy allows you essentially to take the standard deduction AND a charitable deduction by way of not having to report the QCD as income. 

It’s Not What You Earn, It’s What You Keep

As the saying goes, it’s not what you earn, it’s what you keep. When we think about our biggest expenses, we often overlook taxes because we assume there’s nothing we can do to change how much we owe. However, this often isn’t the case. Tax planning and developing tax strategies is one of the five major areas we address in our process of building financial plans for our clients. Viewing tax planning as an integrated part of an overall financial plan instead of a separate afterthought could make a big difference in retirement.

We are an independent financial services firm helping individuals create retirement strategies using a variety of investment and insurance products to custom suit their needs and objectives. We do not offer tax, estate planning or legal advice or services. Always consult with qualified tax/legal advisers concerning your own circumstances. We are not affiliated with Medicare or any other government agency.
Harlow Wealth Management Inc. is an SEC Registered Investment Adviser and an insurance agency registered with the state of Washington and other states.
Investing involves risk, including possible loss of principal. Insurance and annuity guarantees are backed by the financial strength and claims-paying ability of the issuing company.
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Stock Market Today: S&P Surges to Fourth Gain in a Row

The S&P 500 matched its longest winning streak of the year Thursday as data continued to suggest that the Federal Reserve just might have some breathing room soon.

The Department of Labor reported that 234,000 Americans applied for unemployment benefits during the week ending July 2 – 4,000 more claims than the previous week, and the highest such level in nearly six months.

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“It’s never a good thing to see layoffs, but the pressure on wages may have now peaked,” says Jamie Cox, managing partner for financial planner Harris Financial Group. “A few more weeks of these types of numbers and maybe, just maybe, financial conditions are tight enough to allow the Fed to throttle back on the scale of rate increases.”

A much stronger indicator of whether the U.S. central bank will do just that comes tomorrow morning, in the form of the June jobs report.

“The key for tomorrow’s jobs report is that it furthers the idea that we’ve hit ‘peak hawkishness’ with the Fed and ‘peak inflation,'” says Tom Essaye, editor of the Sevens Report. “If the jobs report reflects those two realities, it’ll likely spur a continued relief rally. If it implies the opposite, look for another painful decline.”

Also helping to drive stocks was data suggesting global supply-chain disruption might be easing. Jeffrey Roach, chief economist for independent broker-dealer LPL Financial, notes that New York Fed data showed that global supply chains were under less pressure in June compared to May.

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“The small improvement in supply chains will eventually filter through to improved consumer pricing,” says Roach, who adds that supply-chain effects take about four months to affect headline consumer prices.

Energy stocks (+3.6%) were the top sector Thursday, led by the likes of APA (APA, +7.8%) and Devon Energy (DVN, +5.2%). Data from the Energy Information Administration showed a recent snap-back in gasoline demand, helping U.S. crude oil futures rebound 4.3% to $102.73 per barrel.

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Technology stocks (+2.1%) also produced robust gains, largely on the back of the semiconductor industry. Just a few days after Micron (MU, +2.6%) warned that it expected demand for consumer-product components to wane, Samsung triggered a relief rally after saying it expected second-quarter revenues to improve by 22%; Qualcomm (QCOM, +5.8%), Advanced Micro Devices (AMD, +5.2%) and Nvidia (NVDA, +4.8%) were among the beneficiaries.

The S&P 500 (+1.5% to 3,902) posted its fourth consecutive gain to equal its previous 2022-best streak during the end of January and beginning of February. The Nasdaq Composite (+2.3% to 11,621) also made it four in a row, while the Dow Jones Industrial Average (+1.1% to 31,384) strung together two days of black ink.

YCharts

Other news in the stock market today:

  • The small-cap Russell 2000 jumped 2.4% to 1,769.
  • Gold futures snapped their seven-day losing streak, adding 0.2% to settle at $1,739.70 an ounce.
  • Bitcoin rallied 7.3% to $21,780.17. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.) 
  • GameStop (GME) soared 15.1% after the video game retailer joined several other companies this year by announcing a stock split. The board-approved move will split GME stock in a 4-to-1 ratio – and will give stakeholders three additional shares for each one they own at the close on Monday, July 19. It will also lower GME stock’s price on a split-adjusted basis beginning on Friday, July 22. Based on today’s close at $135.12, shares would go for roughly $34 apiece.
  • Virgin Galactic Holdings (SPCE) shot up 12.1% after the space exploration company announced a partnership with Aurora Flight Sciences, a subsidiary of Boeing (BA, +2.7%), to develop two additional aircraft carriers, with the first expected to be ready to launch in 2025. Reagrdless, CFRA Research analyst Keith Snyder today initiated coverage on SPCE stock with a Sell rating. “While it will take a number of years to work through the current customer list, our Sell recommendation reflects our view that its main competitor, Blue Origin, has already begun commercial operations and offers tickets at a much lower cost compared to the $450k charged by SPCE per seat,” Snyder says. “In addition, companies like SpaceX could easily enter the space tourism market with its vastly superior and flight proven launch technology.”

Don’t Fall for These Debunked Myths

You know how you’ve heard that you should pay off your debt before you start investing? Well … that’s not necessarily true. Sometimes it pays to knock out your IOUs first, but depending on how high or low your interest rate on that debt is, investing might actually be a better use of your money.

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That’s just one example of several investing myths that are often touted as conventional wisdom.

Most of the time (but not always), the people who peddle these misconceptions don’t have ill intent – sometimes, they pick it up from other people they respect, and sometimes, things that used to be true have simply changed over time. All the same, these myths could result in financial decisions that aren’t right for you.

Today, we’d like to put some of these myths to bed. Read on as a group of financial experts review seven of the most common investing myths and explain why they don’t hold up.

Kyle Woodley was long AMD and NVDA as of this writing.

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Stock Market Today: Stocks Finish Mixed After Boffo Jobs Report

A whopper of a June jobs report landed in Wall Street’s lap Friday morning, and it kept investors and traders guessing all session.

Anyone looking to the Bureau of Labor Statistics’ latest employment situation for signs of a coming recession walked away mighty disappointed. The U.S. added 372,000 nonfarm payroll jobs last month, shattering consensus forecasts for 265,000. The unemployment rate held firm at 3.6% for the fourth consecutive month. And aggregate hours worked by private workers was up another 2.6% annualized during 2022’s second quarter, following 3.4% annualized growth in Q1.

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“You just don’t see that in a recession,” says Bill Adams, chief economist for Comerica Bank.

Indeed, Adams believes between that and average monthly payroll job growth of 457,000 during the first half of the year, “it would be no surprise to see the first quarter’s contraction in GDP revised to growth as statistical agencies get more complete information to measure the economy; GDP is hard to measure in real time and subject to many revisions.”

This good news for the U.S. economy got a more nuanced reaction from the stock market, as some experts think the Federal Reserve could continue an aggressive pace of interest-rate hikes if the economy has strength to bear them.

Jason Pride, chief investment officer of private wealth at wealth management firm Glenmede, says of the central bank’s dual mandate of full employment and low inflation: “For the time being, [full employment] appears intact, affording the Fed the flexibility to tackle its price stability goal head-on. While next week’s [consumer price index] print will be the next important indicator to watch, today’s jobs report likely gives the Fed headway for another 75-basis-point rate hike later this month.”

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Stocks swung between shallow losses and gains throughout the day before settling with mixed results. The Nasdaq Composite (+0.1% to 11,635) closed in the black for the fifth consecutive session. However, Friday marked the end of winning streaks for the Dow Jones Industrial Average (-0.2% to 31,338) and S&P 500 (down marginally to 3,899).

YCharts

Other news in the stock market today:

  • The small-cap Russell 2000 was marginally lower to 1,768.
  • U.S. crude oil futures gained 2% to end at $104.79 per barrel, but still finished the week down more than 3%.
  • Gold futures edged up 0.2% to close at $1,742.30 an ounce. For the week, gold futures gave back more than 3%.
  • Bitcoin also finished with a tiny gain, of 0.1%, to $21,811.80. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.) 
  • Twitter (TWTR) fell 5.1% after a report in The Washington Post on Thursday suggested Tesla (TSLA, +2.5%) CEO Elon Musk’s plans to buy the social media platform for $44 billion could fall through. Citing people familiar with the matter, the article said Musk’s team has pulled back on talks with investors in recent weeks amid concerns over an unverified number of spam accounts on Twitter. “We believe the chances of a deal ultimately happening are currently at ~60% with a renegotiated bid at a lower price likely in the $42-$45 range due to the fake account issue,” says Wedbush analyst Dan Ives, who has a Neutral (Hold) rating on TWTR stock. “There is still a ~35% chance Musk decides to walk away from the deal, try to pay the $1 billion breakup fee, and likely end up in a nasty court battle with Twitter’s Board for the coming months.” As for the current bid of $54.20 per TWTR share, Ives says that is “essentially out the window” at this point. 
  • Upstart Holdings (UPST) was one of the biggest decliners on the Street today, shedding 19.7% after the consumer lending firm last night lowered its second-quarter revenue guidance, now expecting sales to arrive around $228 million compared to its previous forecast of $295 million to $305 million. UPST also said its quarterly net loss will range from $27 million to $31 million, wider than its prior guidance for a loss of $4 million to $0 million. In a press release, Dave Girouard, co-founder and CEO of Upstart, pointed to “inflation and recession fears” that have driven interest rates up and put banks and capital markets on cautious footing.” Wedbush analyst David Chiaverini maintained an Underperform (Sell) rating on UPST stock. “The company has yet to operate through a true recession  which means its underwriting model has yet to be battle-tested,” the analyst says. “We fear that weakening delinquency and loss trends combined with macro- and geopolitical risks could lead to waning appetite from Upstart’s credit buyers and the securitization market.”

What Do Q2 Earnings Have in Store?

Coming up next week: the start of a pivotal second-quarter earnings season. The earnings calendar will kick off with reports from the likes of Delta Air Lines (DAL), JPMorgan Chase (JPM) and UnitedHealth Group (UNH). And despite Friday’s encouraging employment news, a broader cadence of data pointing toward an eventual recession has some gloomy about the coming earnings season. 

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Lindsey Bell, chief markets and money strategist for Ally Invest, isn’t necessarily one of them.

“There are plenty of reasons to be cautiously optimistic heading into what could be a volatile Q2 earnings season,” she says. “Several companies have already cut profit outlooks while others have hinted at the broad economic backdrop being not so bad. With estimates having been reduced in some key sectors and stock prices down big from earlier this year, the bar might be low enough to spark a near-term rally.”

Cautious sentiment is often best met with prudent positioning. You ultimately want your portfolio to be able to harness any surprise upside without gambling on unproven stocks with lousy fundamentals.

One way to thread that needle can be found within the Dividend Aristocrats. A reminder: The Aristocrats are a group of 65 dividend stocks that have raised their annual payout in each of the past 25 years – at a minimum. But even within this subset of income-producing royalty, you can give yourself an even higher chance at success.

The 12 Dividend Aristocrats we’re featuring today don’t just have a fantastic dividend track record – they’re also trading at fire-sale prices and boasting higher yields than they historically do. Take a look.

This is Senior Investing Editor Kyle Woodley, letting you know it’s my final day with Kiplinger. I’m extremely grateful for getting to serve Kiplinger readers for the past few years, and I wish you both good health and good fortune.

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3 Ways to Get Future Lifetime Income with Annuities

Other than Social Security or pensions, an annuity is the only financial product that can guarantee lifetime income.

If you want to secure future income with an annuity, you have three main choices. Each can be appropriate for nonqualified (taxable) accounts as well as IRAs and Roth IRAs. Each has its pros and cons.

Option 1: A deferred income annuity offers simplicity and predictability but little flexibility

A deferred income annuity (DIA) is a promise by an insurer guaranteeing to pay a stream of income starting on a set future date. You typically pay a single premium for this contract.

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You may choose to take the income for a set period, such as 15 years, but most people take the lifetime option. You can buy either a single-life annuity or a joint-life annuity to cover both spouses. The popular optional cash-refund feature guarantees that in the event of your early death prior to the income start date, your premium payment will be refunded to your beneficiaries.

This is a straightforward plan. You know exactly what your income is going to be starting on the date you’ve chosen. The downside is that there’s little or no flexibility. In exchange for the future income, you’ve turned over your money to the insurer. You’re committed.

Option 2: A fixed indexed annuity with an income rider is flexible but complex and adds fees

Fixed indexed annuities offer buyers a chance to get a portion of the stock market’s gains while offering complete protection from loss. They credit interest based on the growth of a market index, such as the Dow Jones Industrial Average or S&P 500. But, uniquely, you lose nothing in down years.

By adding a lifetime-income guarantee rider, you can guarantee future income. Since the starting date for income is not set when you buy the annuity, you retain flexibility.

Normally, when you convert an annuity into an income stream, (“annuitization”), its cash surrender value becomes zero. That’s not the case here. You still own the full unused value of your annuity.

This makes it sound like this option is “have your cake and eat it too.”  In a way it is, but there are downsides.

One of the biggest ones is cost. Most insurers charge around 1% annually of the assets in the annuity to add an income rider. So, your money will grow more slowly than without the rider.

The lifetime income amount is determined by the income account value and your gender and age at the time you start receiving payments. The income account value typically grows at a guaranteed annual compounded rate of 4% to 8%, so the longer you wait, the greater the income.

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The income account value and cash value of your contract are separate. The income account value is used only to calculate your guaranteed income payments. It has no cash value and cannot be withdrawn. In contrast, the contract value can be withdrawn or passed to your heirs.

Another downside is fluctuating interest rates. If the market goes through a long bear cycle, you may earn nothing on your contract value for a number of years.

Option 3: Buying a fixed-rate annuity now and converting it to an immediate annuity later on offers flexibility and guaranteed growth, but future income varies.

This can be the best choice for people who want to keep control over their money for now, stay flexible and build more future income.

A fixed-rate deferred annuity (technically, a multi-year guarantee annuity, or MYGA) acts much like a bank certificate of deposit. You deposit a lump sum and get a guaranteed interest rate for a set period, usually two to 10 years.

You’ll know to the penny what your annuity will be worth (assuming no withdrawals), at the end of the term. Interest is tax-deferred as long as you reinvest it in the annuity.

Here’s how this strategy works.

Let’s say you plan to retire in five years. You buy a five-year fixed-rate annuity. Near the end of the five-year term, you can shop the market for the best deal on an immediate-income annuity. If you hold your annuity in a nonqualified account, you can swap it tax-free, via a 1035 exchange, for an immediate annuity.

An immediate annuity is pretty much identical to a DIA except that income payments begin right away. You won’t know exactly what your income will be because immediate annuity rates will have changed in the interim.

Here’s a scenario:

Joe Doe, age 60, deposits $150,000 in a five-year MYGA that pays an annual effective rate of 4.30%. Assuming he lets the interest accumulate, the annuity will be worth $185,145 at the end of the term.

He uses that sum to buy an immediate annuity. Based on today’s rates, with a joint-life policy for him and Mrs. Doe (also 60), the payout will be $964.50 per month for as long as either spouse is alive. (Of course, he might get a better or worse deal than what’s available today.)

If it’s a nonqualified annuity, $464.89 will be taxable income and $499.61 will be nontaxable return of premium. If it’s a standard IRA annuity, payments will be fully taxable. With a Roth IRA annuity, all the income will be completely tax-free.

But suppose five years from now Joe decides to keep working for two more years. He can roll over the proceeds tax-free into a two-year MYGA and delay buying the income annuity.

Of course, he can do whatever he wants with the money in his annuity. If Joe decides to use some or all of it to sail around the world or give to charity, it’s his choice.

Different types of annuities are powerful tools for nailing down future lifetime income. None of these three options is always best for everyone. It depends on your situation and preferences.

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Montana Storm and Flooding Victims Get More Time to Pay Taxes

The IRS has granted victims of the recent Montana severe storms and flooding more time to file various individual and business tax returns and make tax payments. Specifically, victims of the storms and flooding that began on June 10, 2022, have until October 17, 2022, to file and pay tax returns and payments due between June 10 and October 16.

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The tax relief is available to anyone in any area designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual assistance. At this point, only affected taxpayers who live or have a business in Carbon, Park and Stillwater Counties qualify for the extensions, but the IRS will offer the same relief to any taxpayers in other Montana localities designated by FEMA later.

The IRS will also work with other people who live outside the disaster area but whose tax records are in the disaster area. Call the IRS at 866-562-5227 if you face this situation. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization, and anyone visiting the area who was killed or injured as a result of the disaster.

Deadlines Extended

The deadlines that are pushed back for Montana storm and flooding victims include the quarterly estimated tax payments that are due on June 15 and September 15, 2022. The due date for quarterly payroll and excise tax returns normally due on August 1, 2022, are extended to October 17, too. Penalties on payroll and excise tax deposits due from June 10 to June 26 are also waived as long as the deposits were made by June 27, 2022.

The due date for 2021 business tax returns that were properly extended to September 15, 2022, are now due by October 17 for the storm and flooding victims.

Taxpayers don’t need to contact the IRS to get this relief. However, if an affected person receives a late filing or payment penalty notice from the IRS, he or she should call the number on the notice to have the penalty abated.

Deduction for Damaged or Lost Property

Victims of the Montana severe storms and flooding may be able to claim a tax deduction for unreimbursed damaged or lost property. To do so, they typically must itemize and file Schedule A with their tax return. However, victims who claim the standard deduction may still be able to deduct their losses if they can claim them as business losses on Schedule C.

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The deduction can be claimed on the tax return for the year the damage or loss of property occurred or for the previous year. So, for any destruction in 2022, the deduction can be claimed on either a 2021 tax year return or a 2022 return. In either case, you must write the FEMA declaration number on the return claiming the deduction. For the recent Montana severe storms and flooding, the number is DR-4655-MT.

If you decide to claim a deduction for 2021, you can amend your 2021 return by filing Form 1040X. For this purpose, you must file the amended return no later than six months after the due date for filing your return (without extensions) for the year in which the loss took place. So, for Montana storm or flooding losses in 2022, you would need to file an amended 2021 return by October 16, 2023. Affected taxpayers claiming the disaster loss on a 2021 return should also put the Disaster Designation (“Montana Severe Storms and Flooding”) in bold letters at the top of the form. See IRS Publication 547 for details.

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With High Inflation and an Uncertain Stock Market, Do I Have Enough to Retire?

It’s an unusual time for people approaching retirement. While everyone wants to know if they are financially ready to retire, rising inflation and a slumping stock market may be fueling doubts. Some – especially those without a solid financial plan – may wonder if they need to keep working longer until there is more financial and geopolitical stability.

  • SEE MORE 8 Money Tips for Seniors Suffering from Inflation

I’ve worked with many individuals and couples who needed help to feel financially secure in retirement. Many have taken an initial stab at planning, taking online financial “quizzes” and running numbers through calculators to find answers.

For anyone is this position, here is a list of recommendations to begin the retirement planning process.

Understand Your Financial Position

 Start by answering a few questions; the answers will help serve as the foundation of any plan.  The questions include:

  • What assets do you own that can be used to fund retirement?
  • How much do you plan to spend each month in today’s dollars?
  • What kind of lifestyle do you want in retirement?
  • How long will your finances sustain you?
  • Do you want to leave money for your children and grandchildren?

With this information, a financial adviser can develop a comprehensive financial plan. To ensure that a person doesn’t run out of money in retirement, the plan is built for each person’s life expectancy. Life expectancy is often higher than what people might think – according to the Social Security Administration, there’s a 30% chance that men will live to age 92 and women to age 94. Families need to ensure that their portfolios can sustain living 20-30 years after retirement.

Should You Budget or Track Spending?

Many people don’t have a formal budget. That’s OK – budgeting can be helpful for some and emotionally draining for others. But it’s important to understand what makes up current spending in order to understand what spending looks like in retirement.

  • SEE MORE How to Find the Perfect Balance Between Spending and Saving

One way to build the financial plan is to assume spending is the same during working years and retirement. This assumption, though not exact, provides for some flexibility if anything changes – an important part of building a 30-year plan. 

Sometimes families spend more in retirement for a number of years while both spouses are in good health.  For example, a couple may feel they have a good handle on their retirement spending if they spend $120,000 annually with no mortgage payment or other debt.

However, what if that couple wants to travel more, spoil their grandchildren with gifts, and leave a decent financial legacy for their children? If that’s the case, they may need to make some changes so their portfolio can accomplish these new goals.

Gather a List of Specific Investments and Assets

Next, look at your current assets. Typically, we count only the assets that meet certain criteria:

  • Assets that are investable. These include cash, stocks, bonds and mutual funds.
  • Assets that can/will be sold for investment. A common example is a business.
  • Assets that produce income.  These can include rental properties or royalty payments.

A Financial Analysis Helps Determine Your Long-Term Plan

To build a plan for an individual or couple’s unique needs, financial advisers often use software programs that determine how wealth can be spread out over 20-30 years to cover all expenses.

As just one example, an analysis might consider what would happen if you retire today, and the market begins a three-year bear market. Will the portfolio sustain the desired spending or run out of money?

A financial analysis provides insight into how your retirement plan will really work.  And, in an effort to make certain your plan stays on track, we analyze it annually, even during retirement.

One way to get started on the goal to take charge of your finances would be to perform a self-audit with the above questions. This can help provide a baseline of information to begin developing a structured retirement plan together with your financial adviser.

As always, remember to consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. 

  • SEE MORE An Easy Way to Find How Much You Will Spend in Retirement

Is the Stock Market Closed for the Fourth of July in 2022?

Through the sheer luck of the calendar, investors will be able to enjoy yet another long Fourth of July weekend away from their brokerage accounts. That’s because the stock market is closed on the Fourth of July; Independence Day falls smack-dab on Monday, July 4 this year.

Bond traders get a slightly sweeter deal. Not only are the bond markets closed completely on Monday, but they also shut down early Friday, July 1, calling it quits at 2 p.m.

  • SEE MORE The 15 Best Stocks to Buy for the Rest of 2022

Regular trading hours for both the stock market and the bond market resume on Tuesday, July 5.

The following is a schedule of all stock market and bond market holidays for 2022. Please note that regular trading hours for the New York Stock Exchange (NYSE) and Nasdaq Stock Market are 9:30 a.m. to 4 p.m. Eastern on weekdays. The stock markets close at 1 p.m. on early-closure days; bond markets close early at 2 p.m.

2022 Market Holidays

Date Holiday NYSE Nasdaq Bond Markets*
Monday, Jan. 17 Martin Luther King Jr. Day Closed Closed Closed
Monday, Feb. 21 Presidents’ Day/Washington’s Birthday Closed Closed Closed
Thursday, April 14 Maundy Thursday Open Open Early close
(2 p.m.)
Friday, April 15 Good Friday Closed Closed Closed
Friday, May 27 Friday Before Memorial Day Open Open Early close
(2 p.m.)
Monday, May 30 Memorial Day Closed Closed Closed
Monday, June 20 Juneteenth National Independence Day (Observed) Closed Closed Closed
Friday, July 1 Friday Before Independence Day Open Open Early close
(2 p.m.)
Monday, July 4 Independence Day Closed Closed Closed
Monday, Sept. 5 Labor Day Closed Closed Closed
Monday, Oct. 10 Columbus Day Open Open Closed
Friday, Nov. 11 Veterans Day Open Open Closed
Thursday, Nov. 24 Thanksgiving Day Closed Closed Closed
Friday, Nov. 25 Day After Thanksgiving Early close
(1 p.m.)		 Early close
(1 p.m.)		 Early close
(2 p.m.)
Friday, Dec. 23 Christmas Eve (Observed) Open Open Early close
(2 p.m.)
Monday, Dec. 26 Christmas Day (Observed) Closed Closed Closed
Friday, Dec. 30 New Year’s Eve (Observed) Open Open Early close
(2 p.m.)

* This is the recommended bond market holiday schedule from the Securities Industry and Financial Markets Association (SIFMA). This schedule is subject to change.

  • SEE MORE The 12 Best ETFs to Battle a Bear Market

Market Holiday Observances

When it comes to the stock and bond markets alike, if a holiday falls on a weekend, market closures are dictated by two rules:

  • If the holiday falls on a Saturday, the market will close on the preceding Friday.
  • If the holiday falls on a Sunday, the market will close on the subsequent Monday.

Stock and Bond Market Hours

The “core trading” stock market hours for the NYSE and Nasdaq are 9:30 a.m. to 4 p.m. on weekdays. However, both exchanges offer premarket trading hours between 4 and 9:30 a.m., as well as late trading hours between 4 and 8 p.m.

Bond markets typically trade between 8 a.m. and 5 p.m.

The stock markets close at 1 p.m. on early-closure days; bond markets close early at 2 p.m.

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Stock Market Today: Energy Dampens Dow, FAANGs Elevate Nasdaq

The first session of the holiday-shortened week was a wild one, as a deep Tuesday morning dip evolved into a severely split market featuring pockets of red and green alike.

On one side, you had big dips in economically sensitive sectors. Energy (-4.0%) fared the worst thanks to a drastic decline in U.S. crude oil futures, which plunged 8.2% to $99.50 – the commodity’s lowest finish in more than two months.

  • SEE MORE The 10 Best Stocks for a Bear Market

“This move came on the back of an ever-increasing number of economic indicators (Goldman Sachs US Financial Conditions Index, Citi US Economic Surprise Index, ISM orders) now pointing to sustained weakening of financial conditions as well as Street expectations,” says Michael Reinking, senior market strategist for the New York Stock Exchange.

Also weighing on oil was a strengthening U.S. dollar, which closed the session at a 19-year high. (Remember: Oil is priced in U.S. dollars, so a strong dollar will weigh on oil prices, and vice versa.) The aforementioned worries of weakness hampered other sectors, too, including materials (-2.0%) and industrials (-1.5%).

“Shifting to a more near-term view, with commodity prices coming a bit back down to reality, some investors may view this as a welcome sign that inflation is beginning to cool – the main driver of recent volatility,” adds Chris Larkin, managing director of trading for E*Trade.

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However, other parts of the market – namely, those pinned to the ground by rising interest rates – came off the mat as recent weakness in Treasury yields continued.

The 10-year T-note yield fell as low as 2.78% on Tuesday, sending communication services (+2.4%) and consumer discretionary (+2.2%) stocks higher. Facebook parent Meta Platforms (META, +5.1%), Google parent Alphabet (GOOGL, +4.2%) and Amazon.com (AMZN, +3.6%) – all members of the “FAANGs” – were among the session’s noteworthy winners.

  • SEE MORE Can AI Beat the Market? 10 Stocks to Watch

That resulted in markedly divergent results among the major indexes, which all finished well off their morning lows. The Dow Jones Industrial Average, led lower by Chevron (CVX, -2.6%), dipped 0.4% to 30,967, while the S&P 500 finished with a tame 0.2% uptick to 3,831. The Nasdaq Composite, however, popped 1.8% to 11,322.

YCharts

Other news in the stock market today:

  • The small-cap Russell 2000 gained 0.8% to 1,741.
  • Gold futures, also weighed down by a strong dollar, closed off 2.1% to $1,763.90 per ounce, marking their lowest settlement of 2022.
  • Bitcoin strengthened as the day went on, recovering by 5.4% to $20,397.00. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.) 

Buy the Dip in Emerging Markets?

Inflationary pressures (and related stock-market pain) are hardly exclusive to investors in U.S. equities. For instance, the iShares MSCI Emerging Markets ETF (EEM) – one of the most popular funds holding emerging markets stocks – entered bear-market territory this year and is currently off 19% year-to-date.

  • SEE MORE How to Go to Cash

Like with anything that’s down, investors might put EMs on their buy-the-dip list. BofA Securities does warn that a comeback isn’t necessarily imminent – but emerging markets won’t be down forever.

“We stay bearish into the summer but see emerging long-term value. Don’t turn bullish before central banks panic about recession more than inflation,” say BofA’s David Hauner and Claudio Irigoyen. But they add that “2023 is starting to come into focus: it might get better for EM. The EM-US growth differential is one of the more reliable top-down indicators. For 2023, our mid-year forecast update implies the best such number in a decade.”

Thus, investors would do well to at least start building their EM wish lists.

But if you find individual names to be a bit too risky, emerging markets mutual funds allow you to enjoy some of this category’s explosive upside while decreasing the chances that a single-stock blow-up will torpedo your portfolio. We look at five top emerging market funds.

  • SEE MORE The 15 Best Growth Stocks to Buy for the Rest of 2022