facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog external search brokercheck brokercheck Play Pause
Are We There Yet? January 2023 Client Letter Thumbnail

Are We There Yet? January 2023 Client Letter

All Letters

Are we there yet?

I hope everyone had a wonderful holiday season. I wish you all the best in 2023 and hope that it proves to be a healthy and prosperous one for all.

I don’t know about you, but when I was growing up, my parents loved a good road trip. We had family scattered from New York to Florida, so every summer, there would be a pilgrimage somewhere to visit family. We would load up the station wagon and hit the road. Inevitably my sister and I would get bored and start asking, “Are we there yet?”. I wondered if this experience was only happening within my family or if this was a shared experience for other families. I got a bit of an answer when I had my children. A couple of years ago, we packed the kids in the car for a multi-hour drive somewhere, and within the first hour, I heard, “are we there yet?” from the backseat. Now, mind you that this is happening in the age of GPS (which has a prediction of your arrival time down to the minute), as well as with iPads, always-on internet, and Spotify.

The economy and the market environment we are in today have me wondering, “are we there yet”? This letter has been tough to write, mainly because we are in a period of uncertainty. By that, I mean that the three most-watched indicators – inflation, interest rates, and the jobs market – provide mixed signals.

On the positive side, employment data remains strong (despite the head tech layoffs in the headlines), earnings projections are good, energy prices are well off their highs, and consumers still have a lot of cash on the sidelines. On the negative side, the index of leading economic indicators is down, the yield curve is inverted, and retail sales are weakening.

Inflation: There is some evidence that inflation is quickly returning to a more “normal” range. For the purposes of creating a reference point, the Fed has a target of 2% per year. Inflation is usually reported “year over year,” meaning that January 2023 will be compared to January 2022. There are some compelling reasons to report the data this way, such as ignoring one-month “blips” in the data and eliminating the need to make seasonal adjustments. However, by focusing on year-over-year data, you might not get an up-to-date view of inflation when conditions are rapidly changing.

Jobs market: Amazon, Microsoft, Facebook, and Google have all recently announced layoffs. This will not be a relief to anyone directly affected by these events, but it might help to understand the “why” behind these moves. You may recall during the Covid lockdowns in 2020-2021 that tech companies fared better than non-tech companies. In my view, this is simply a reversal of this process. Companies hired aggressively for a high-growth environment. We are no longer in a high-growth environment, so some companies have more employees than needed for the current environment. That’s not the case in the rest of the economy, the “non-tech” sector, where there is a large gap between job openings and available candidates.

Interest rates: For the past year or so, the Fed has been communicating its intention concerning interest rates, which is that it will raise them aggressively until inflation has abated. Now that inflation seems to be tempering, one must speculate that the Fed will slow down the interest rate hikes. If the Fed were to follow through with the targets they set last year, we would still see rates go up by about 1% in 2023.

The data is mixed, and economists and journalists seem to be just as divided. In December, there were competing headlines released just days apart. One in Barron’s on December 9, 2022, read “Buckle Up: It’s Going to Be a Hard Landing,” and another in the Wall Street Journal read “Investors Grow More Confident Fed Will Pull Off a Soft Landing.”

When I ask, “Are we there yet?” I wonder if we have gotten to a market bottom and to a point when we can stop talking about the potential / possible / maybe recession. I don’t know. While I’m optimistic about the economy and markets in 2023, I don’t envy the Fed for needing to navigate these waters with their triple mandate of maintaining stable prices, full employment, and low-interest rates. In terms of our strategy, I would like to think that Nobel prize-winning economist Richard Thaler believes as I do, but in reality, it’s probably the inverse. Here’s a snippet from a recent interview:

Barron’s: What investment opportunities should investors look for after the pandemic?
Richard Thaler: It’s not knowable. That’s exactly the sort of thing we pride ourselves in not doing – trying to forecast what the world is going to look like six months from now or a year from now. For individual investors, the best strategy is benign neglect. Create a sensible long-term portfolio, and then ignore it.

What is SECURE ACT 2.0?

The Setting Every Community Up for Retirement Enhancement Act of 2019, popularly known as the SECURE Act, was signed into law in late 2019. Now called SECURE Act 1.0, it included provisions that raised the requirement for mandatory distributions from retirement accounts and increased access to retirement accounts.

But it didn’t take long for Congress to enhance the landmark bill that was enacted barely three years ago. Signed on December 23, 2022, and Dubbed SECURE Act 2.0, there are plenty of goodies, including another overhaul of the nation’s retirement laws. The legislation enjoys widespread bipartisan support and builds on SECURE Act 1.0 by strengthening the financial safety net by encouraging Americans to save for retirement.

Takeaways on SECURE Act 2.0

Changing the age of the required minimum distributions. Three years ago, 1.0 increased the age for taking the required minimum distribution, or RMD, to 72 years from 70½. If you turn 72 this year, the age required for taking your RMD rises to 73 with 2.0.

If you turned 72 in 2022, you’d remain on the prior schedule. If you turn 72 in 2023, you may delay your RMD until 2024, when you turn 73. Or you may push back your first RMD to April 1, 2025. Just be aware that you will be required to take two RMDs in 2025, one no later than April 1 and the second no later than December 31. Starting in 2033, the age for the RMD will rise to 75. Employees enrolled in a Roth 401(k) won’t be required to take RMDs from their Roth 401(k). That begins in 2024.

In our view, the SECURE Act 1.0 and 2.0 updates were long overdue. The new rules recognize that Americans are living and working longer.

RMD penalty relief. Beginning this year, the penalty for missing an RMD is reduced to 25% from 50%. And 2.0 goes one step further. If the RMD that was missed is taken in a timely manner and the IRA account holder files an updated tax return, the penalty is reduced to 10%.

A shot in the arm for employer-sponsored plans. Too many Americans do not have access to employer plans or simply don’t participate.

Starting in 2025, companies that set up new 401(k) or 403(b) plans will be required to enroll employees automatically at a rate between 3% and 10% of their salary.

The new legislation also allows for automatic portability, which will encourage folks in low-balance plans to transfer their retirement account to a new employer-sponsored account rather than cash out.

In order to encourage employees to sign up, employers may offer gift cards or small cash payments. Think of it as a signing bonus. Employees may opt out of the employer-sponsored plan.

Increased catch-up provisions. In 2025, 2.0 increases the catch-up provision for those between 60 and 63 from $6,500 in 2022 ($7,500 in 2023 if 50 or older) to $10,000, (the greater of $10,000 or 50% more than the regular catch-up amount). The amount is indexed to inflation. Catch-up dollars are required to be made into a Roth IRA unless your wages are under $145,000.

Charitable contributions. Starting in 2023, 2.0 allows a one-time, $50,000 distribution to charities through charitable gift annuities, charitable remainder unitrusts, and charitable remainder annuity trusts. One must be 70½ or older to take advantage of this provision. The $50,000 limit counts toward the year’s RMD. It also indexes an annual IRA charitable distribution limit of $100,000, known as a qualified charitable distribution, or QCD, beginning in 2023.

Rollover of 529 plans. Starting in 2024 and subject to annual Roth contribution limits, assets in a 529 plan can be rolled into a Roth IRA, with a maximum lifetime limit of $35,000. The rollover must be in the name of the plan’s beneficiary. The 529 plan must be at least 15 years old.

In the past, families may have hesitated in fully funding 529s amid fears the plan could wind up being overfunded and withdrawals would be subject to a penalty. Though there is a $35,000 cap, the provision helps alleviate some of these concerns.

We welcome these changes. Many Americans lack adequate savings, and the just-enacted bill helps address some of the challenges many face as they march toward retirement. What we have provided here is a high-level overview of the SECURE Act 2.0. Keep in mind that it is not all-inclusive.

I trust you’ve found this review to be educational and helpful. Once again, let me remind you that it is best to consult with your tax advisor before making decisions that may impact your taxes.

If you have any questions or want to discuss any matters, please feel free to call me or any of my team members.

As always, I’m honored and humbled that you have given me the opportunity to serve as your financial advisor.

All the best,

Chris Duke


Markets Show More Confidence In Soft Landing

Source: The Wall Street Journal. “Markets Show More Confidence in Soft Landing”, by AkaneOtani. December 12, 2022.


Buckle Up: Signs Now Point to Higher Rates And a Hard Landing

Source: Barron’s, “Buckle Up: Signs Now Point to Higher Rates And a Harder Landing”, by Megan Cassella, December 12, 2022.


Big Banks Expect Recession and Fed Pivot


November Data Signal Slowing Economy (Retail Sales, Manufacturing Declines Point to Slowing Economy)


As Savings Slowly Shrink, Consumer Spending Is on Borrowed Time


Still Hiring on All Cylinders


What if Inflation Suddenly Dropped and No One Noticed


Why Inflation Is on the Way Down


Deflating Your Inflation Fears



This is being provided for informational purposes only and should not be construed as a recommendation to buy or sell any specific securities. Past performance is no guarantee of future results, and all investing involves risk. Index returns shown are not reflective of actual performance nor reflect fees and expenses applicable to investing. One cannot invest directly in an index. The views expressed are those of Chris Duke and do not necessarily reflect the views of Mutual Advisors, LLC, or any of its affiliates

Investment advisory services offered through Mutual Advisors, LLC, DBA Context Wealth, an SEC registered investment adviser.