Broker Check

The Weekly Wealth Report

June 05, 2023


Stocks surged higher in the closing days of a holiday-shortened trading week, ignited by a political resolution on raising the debt ceiling and a strong employment report. The Dow Jones Industrial Average rose 2.02%, while the S&P 500 advanced 1.83%. The Nasdaq Composite index gained 2.04% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, slipped 0.52%.


On June 6, 1683, The Ashmolean, the world’s first university museum, opens in Oxford, England. At the time of the English Restoration, Oxford was the center of scientific activity in England. In 1677, English archaeologist Elias Ashmole donated his collection of curiosities to Oxford University, and the school’s directors planned the construction of a building to display the items permanently. Acclaimed English architect Sir Christopher Wren was commissioned for the job, and on June 6, 1683, the Ashmolean opened.
The first modern museum, the Ashmolean was designed to display its collections, organized so that Oxford University could use it for teaching purposes, and was regularly opened to the public. In 1845, architect Charles R. Cockerell completed the construction of a new home for the museum’s rapidly growing collection on Oxford’s Beaumont Street. Today, the collection at the Ashmolean Museum of Art and Archaeology ranges from the earliest implements of man, made about 500,000 years ago, to 20th-century works of art. Curiosities like Guy Fawkes’ lantern and relics like the Alfred Jewel are among the collection of antiquities and artwork.


A Sigh Of Relief
The weight of uncertainty over negotiations to raise the federal debt ceiling was lifted last week by the news of an agreement between President Biden and House Speaker McCarthy and its subsequent passage in Congress. After a modest gain on Thursday following the House vote, stocks rallied on Friday, responding to the Senate passage of the debt ceiling bill, which eliminated a significant overhang to the market. A robust federal employment report also contributed to the Friday rally. The report exceeded market expectations in the growth of new jobs while reflecting a deceleration in wage growth.

The Irrepressible Labor Market
Last week’s employment data showed that the labor market remains stout after over a year of sharp interest rate hikes. Job openings in April increased to more than 10 million, reversing three straight months of declines, while private sector employment increased by 278,000 jobs in May, according to a survey by Automated Data Processing (ADP), a significant payroll processor. In line with these strong numbers, the Department of Labor reported 339,000 new jobs were added in May. That came above the consensus estimate of 190,000 and marked the 29th consecutive month of positive growth.


A crucial topic often overlooked in retirement planning: the "Widow's penalty."

First of all, why is it called the "Widow's penalty", and not the "Widower's penalty"? Statistically, women live 4.2 years longer than men on average. Also, on average, women are approximately two years younger than their husbands. So if you do the math, women do indeed live longer than men.

However, this is not a gendered topic. It should probably be named the "Survivor's Penalty" because it often has the same effect on men who survive their wives. So today, I want to talk about the realities of going from a 2-person household to a 1-person household during retirement due to the death of a spouse. There are practical and financial matters, beyond finalizing the estate, after the death of a spouse. The truth is, the income of the surviving spouse will likely decrease. Your bills will probably fluctuate with some bills going up, especially, your income tax bill.

Household Errands and Chores: As we age, we may need to rely on other people to complete various tasks and essential errands. Most couples split responsibilities around the house. What do you do about household chores you once divided with your spouse, that you cannot do alone? Planning for those scenarios in retirement is something to consider. Will you need to hire someone to run errands for you? Will you need to bring in someone to cook, clean, or take care of your home? Will you need to hire a landscaper to cut the grass or, here in Chicago, someone to shovel the snow? All of these things have financial implications that may affect your retirement.

Tax Bracket Shift: After the death of a spouse, you are almost guaranteed to change tax brackets; that means going to a higher tax bracket with less income. Why you may ask?
Well, the surviving spouse will need to file as a single taxpayer and not as a taxpayer who is married and filing jointly. So even if their income stays the same, widowed filers will be paying higher taxes on the same income.

IRMAA: Another increase you might see is your IRMAA surcharge. In layperson's terms, IRMAA is the income amount that determines how much you pay for Medicare.
The amount of taxable income single filers use to determine how much they will pay in Medicare is much less than married filers. The surviving spouse will likely pay more for Medicare than they did when they were part of a married couple. This is another possible challenge to your monthly budget.

So, knowing all of this could happen, what do you do? There are several options and strategies available to help you address the "Widow's Penalty."

These include:

Minimizing your Adjusted Gross Income through tax deferral directly affects how much you will pay in income taxes and for Medicare.
Utilizing the Roth conversion strategy to create tax-free growth and income while both spouses are alive.
Understanding survivor's benefits for Social Security and the lasting effects of when you take them.

According to a recent Forbes article, you should be planning for two retirements if you are part of a married couple. The first scenario is to prepare for your joint retirement. I hope this will be the long scenario for you. The second scenario is the retirement of the person who survives in the marriage. If you are part of a legally married couple and clients of our firm, we have addressed the planning for both scenarios; rest assured, you're taken care of. If you're not a client of our firm, we'd love to talk to you about your planning options to address the "Widow's Penalty”.

If you have a specific question, please call Ashley at the office, and let's schedule some time to talk. We are here for you.
Have a great week!