Bulls, Bears, and Gas Prices: Oh My
Bull vs. Bear Market
Alright, I’ll admit, I always have to stop and think: “bull vs. bear stock market - which one is the good one?” Why do they even call it that? Surprisingly no one really knows, but one theory is that it has to do with how the animals attack. Bulls swipe up to attack and bears swipe down to attack. So, Bulls GOOD, Bears BAD. Honestly, I wouldn’t want to get involved with either. You can learn more here about the reason for those names.
As you might have heard, yes, we’re officially in a bear market. A bear market is when stocks decline at least 20% off of their recent high. This chart shows all bear markets since 1930, how long the bear market lasted and how long it took the market to recover. Try not to get too discouraged and remember that the stock market always recovers, even if it takes a little while.
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But what about a mortgage in retirement?
Frequently retirees (or soon-to-be retirees) ask me if they should pay off their mortgages, if they have the money? The answer tends to be: depends on who you ask. For most people who have the ability to pay off their mortgage in a lump sum, the answer comes down to how you feel about money and debt (i.e., a really personal question).
What I can give you are some general observations about the financial and tax consequences of paying off your mortgage:
If you have the money in cash and aren’t concerned about losing liquidity, then you should probably pay off your mortgage. Reason: you aren’t earning as much on the money as you are paying on the mortgage. For example, if the bank is paying you 0.25% interest on savings cash and charging 3.75% interest on your mortgage, you’re actually losing money. Remember: this is only if you are NOT concerned about liquidity. It’s ok to forego an opportunity, to make yourself feel secure. From a tax perspective, you will lose a deduction on the mortgage interest, so your effective tax rate will increase. But, if your tax bill goes up less than the amount of interest you were paying on the mortgage you still come out ahead.
If you have the money in a brokerage or taxable account, returns typically outpace mortgage. Think: if the taxable account returns have been 10% on average since 1991 and your mortgage is only 3.75%, then you’re better off leaving the money in a brokerage account. Now we all know that we are in a bear market right now. This means that returns are down. But, if you are playing the long game and not using the crystal ball method of investing, you have to bet that the odds are in your favor.
If you have the money in a retirement account and take a lump sum to pay the associated tax bill, you will be taxed at ordinary rates and you will likely be in a higher tax bracket than you were before. Be sure you consider the tax bracket jump and not just your usual tax rate, if you are thinking about going this route.
Check out this article for observations about the benefits and downsides on these options. As always, speak to your advisor about what is best for you.
It’s amazing what an hour can do for your future. Book your 60-minute strategy session with Addie Prewitt now.
IRS recognizes pain at the pump is real: a rare move.
No breaking news here that even if you adjust for inflation, gas prices are practically at an all-time high. Effective July 1, 2022, the IRS will increase the mileage rate for business travel to 62.5 cents per mile, up 4 cents since the beginning of the year.
Typically, mileage reimbursement rates are set before the start of the year and it is rare for the IRS to make a mid-year adjustment. So make sure you take advantage of this if you do a lot of driving for work!
On a personal note: here’s what’s new with us.
We made it through 5-year-old baseball!
It was entirely coach pitch, no tee, 3 strikes and you’re out rules. Those are crazy rules for 5-year-old baseball, right?!?
I was an assistant coach and kudos to those who took on the head coach role because I had to fill in for a week and it was seriously stressing me out.
It was a tough season from a win/loss perspective (we had no wins), but the kids improved so much, everyone got at least one hit.
The highlight of the year for me was my 5-year-old Luke fielding the ball at second and tagging the runner going past him out. I was probably more excited than he was.