Market Recap
Following an exceptional first half of 2023 for most investors, the third quarter offered something of a reality check as a variety of asset classes suffered losses with commodities being the lone bright spot (see chart below). The pullback in U.S. equities was seemingly driven by fears of “higher for longer” interest rates, deteriorating economic data and stubborn price pressures. From a pure style perspective, value stocks held up better versus their more expensive growth counterparts, although growth stocks have still outperformed by a wide margin year to date. Outside the U.S., developed and emerging market equity returns were mostly negative for the quarter as well. Rising oil prices, sluggish economic growth, and renewed concerns about the crisis-hit property sector in China were a few of the primary drivers.
Fixed income markets were a bit of a mixed bag in the third quarter. Rising expectations of “higher for longer” rates and concerns over the amount of bond issuance required to sustain the government’s large fiscal deficit drove prices down on traditionally safer assets like government bonds. Meanwhile, more speculative areas of fixed income such as high-yield bonds managed to eke out a small gain, as higher coupon payments more than offset price declines and default rates remained within historical norms.
Looking ahead, the smooth sailing for risk assets that we saw in the first half of the year is unlikely to return any time soon. We believe it’s more likely that the coming months will continue to be challenging for investors as recession risks remain elevated and not all parts of the market appear appropriately priced for such a scenario. That being said, investors who plan to grow their wealth over time should continue to focus on maintaining a diversified investment strategy that aligns with their long term plan – even if that includes exposure to stocks. As history has shown us, markets can change swiftly and being out of the market can greatly impact investors long term returns.
| Q3 2023 | Trailing 12 Months | Trailing 3 Years | Trailing 5 Years | |
| S&P 500 | -3.27% | 21.62% | 10.15% | 9.92% |
| Russell 2000 | -5.13% | 8.93% | 7.16% | 2.40% |
| MSCI All Country World Ex-US | -3.77% | 20.39% | 3.74% | 2.58% |
| Bloomberg US Aggregate Bond | -3.23% | 0.64% | -5.21% | 0.10% |
| Bloomberg Commodity Index | 4.71% | -1.30% | 16.23% | 6.13% |
| Dow Jones Comp. All REIT Index | -8.09% | -0.83% | 2.73% | 2.45% |
*Performance data is through 9/30/23. Data according to Vanguard. Return periods greater than 1 year have been annualized.
5 Reasons to Delay Taking Your Social Security Benefits
For many retirees and those planning for retirement, a common consideration is when to start drawing Social Security benefits. While it may be tempting to claim your benefits early, there are some compelling reasons to hold off for a few years. Here are five key reasons why you might want to delay taking your Social Security benefits.
1) Life Expectancy
Taking Social Security later will result in fewer payments during your lifetime, however, the amount of your monthly benefit will be larger. Therefore, waiting to claim your benefits could result in a higher lifetime benefit if you project a longer life expectancy. On the other hand, if you’re in poor health or believe your life expectancy is below average, it might make sense to take the money now while you can.
2) Still Working Before Full Retirement Age
With individuals living longer than ever before, it’s not uncommon for some to continue working well into their sixties. If you decide to do this and opt to collect Social Security before full-retirement age (FRA), your benefits may be dramatically reduced if your annual earnings exceed certain thresholds. However, once you reach FRA or retire, the Social Security Administration will adjust your payments to account for any benefits that were previously withheld.
3) Insufficient Retirement Savings
Social Security benefits are only intended to cover about 40% of your retirement spending. Therefore, waiting to claim a higher benefit could be a crucial lifeline if you haven’t accumulated the necessary retirement savings to cover the additional 60% of your spending. Furthermore, those that remain employed can continue building their nest egg while they wait to take delayed benefits.
4) Survivor Benefits For Your Spouse
As a member of a married couple, when one of you passes away, the survivor is eligible for a widow(er) benefit equal to 100% of the deceased spouses benefit, assuming they have reached FRA. Therefore, taking Social Security later not only impacts the size of your own benefit, but the size of the survivor benefit that is payable to your spouse as well. As a result, this can have a significant impact in situations where one spouse hasn’t worked or accrued significant benefits based on their own work record.
5) An Attractive Growth Rate
By delaying Social Security until age 70, your potential benefits could grow by approximately 7%-8% annually. In today’s market environment, most would be hard pressed to find an investment that offers this kind of return without any market risk! By merely waiting to take Social Security, you’re effectively locking in this attractive rate of return without the volatility and fees of more traditional investments.
2024 Retirement Account Contribution Limits
Each year the IRS updates the annual contribution limits for all tax-advantaged retirement accounts based off cost-of-living adjustments. Here are some of the recently announced changes that will help you save more during the 2024 tax year:
1) 401(k), 403(b), and Most 457 Plans
The limit on annual elective deferrals will increase to $23,000 for participants covered by these plans. Meanwhile, the additional “catch-up contribution” limit will remain the same at $7,500 for participants that are age 50 or older in 2024.
2) Simple IRAs
The annual contribution limit will increase to $16,000 and the additional “catch-up contribution” limit will remain the same at $3,500 for participants that are age 50 or older in 2024.
3) SEP IRAs
The limit on annual contributions from employers sponsoring a SEP IRA will increase in 2024 to the lesser of $69,000 or 25% of eligible compensation. In addition, the eligible compensation limit used in the contribution calculation will increase to $345,000.
4) Defined Benefit Plans (Cash Balance and Pension Plans)
The maximum annual benefit that a participant may receive through a defined benefit plan will increase by $10,000 to $275,000.
5) IRA (Traditional or Roth)
The limit on annual contributions will increase to $7,000 – this limit applies to the total amount contributed to traditional and Roth IRA’s. However, the additional 50 or older “catch-up contribution” will remain unchanged at $1,000 for the sixth straight year. The income phase-out limits for making deductible IRA contributions and Roth IRA contributions will increase slightly as well.
If you have questions or would like to discuss any of the information contained here in greater detail, please do not hesitate to contact us.
Sincerely,
AJ, Ryan, Gary, Rhonda and Tom
AJ Gilbert, CFP®
Ryan McCafferty, CFP®
Gary Fortier, CPA
Rhonda Gilbert, CPA
Tom Savage, CPA
Keystone Financial Group, Inc. does not provide legal or tax advice
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The indices mentioned are not managed and cannot be invested in directly. Past performance does not guarantee future results. Diversification and asset allocation strategies do not assure a profit or protect against loss.
Sources used for the article:
- *T. Rowe Price Investment Research
- *J.P. Morgan Investment Research
- *Wall Street Journal