Bob’s Journal for 5/30

Reporting on Notable Events That Grabbed My Attention This Week

Digital Assets Make Big Strides

Digital currencies and assets moved closer to the financial mainstream in the few weeks since I posted my May 2024 Retirement Watch Spotlight Series online webinar, “Bitcoin, Digital Assets and Your Retirement Finances: What You Need to Know.”

Earlier this year, the Securities & Exchange Commission (SEC) approved exchange-traded funds (ETFs) that invest in spot bitcoin after a federal appeals court ruled the SEC’s previous denial was arbitrary and capricious.

Last week, without hints it was imminent, the SEC approved an ETF that invests in the digital currency Ethereum.

The approval was a surprise because the SEC fought so hard to deny approval of the bitcoin ETFs. The widespread assumption was the agency would argue bitcoin was different enough from the other digital currencies that it could prohibit non-bitcoin ETFs.

Instead, the SEC essentially said Ethereum is a commodity, not a security, and that ETFs can invest in it.

Another anti-digital asset move the SEC made in the recent past was to issue an accounting bulletin, SAB 121, that made it difficult or impossible for banks to offer custody services for digital assets. This occurred even though the Comptroller of the Currency approved some banks to offer custody services for digital assets.

Both the House of Representatives and the Senate voted to overturn SAB 121. The President said he would veto the resolution but hasn’t done so yet.

The House also approved a bill to establish regulations for digital asset markets instead of having existing regulators adopt piecemeal regulations based on their own views of digital assets. The Senate hasn’t taken action on the bill yet, and President Biden said he opposes it.

These actions show, as I stated in the Spotlight Series, that digital assets are becoming more widely accepted and integrated into the traditional finance structure.

The moves also bring further clarity to the place of digital currencies in the financial and regulatory worlds. That should make them acceptable to more people and institutions over time.

Should High-Income People Avoid Large IRAs or 401(k)s?

Since 1974, Congress has provided incentives for people to build large, qualified retirement accounts, such as IRAs and 401(k)s. Yet today some people should consider whether it’s in their long-term interests to accumulate large balances in the accounts.

As I’ve said in the past, some taxpayers should reconsider using tax deferral to postpone income taxes from the current year to future years. Tax deferral could cost more money over the long term.

Income tax rates are likely to increase in future years.

It seems likely that Congress will allow at least some of the 2017 tax cuts to expire as scheduled after 2025.

In addition, the federal budget deficits and accumulated debt are likely to cause Congress to enact higher income taxes in the future.

The higher your income or net worth, the more likely you are to see your income tax rates increase.

Many higher-income people are paying the lowest tax rates they’ll pay in the rest of their lifetimes. They might want to pay some income taxes at today’s rates by drawing down or converting traditional retirement accounts instead of waiting to pay higher tax rates on higher balances in the future.

Some proposals in President Biden’s recent budget plan are additional reasons to reconsider the wisdom of maintaining a significant balance in any type of retirement account, including a Roth IRA.

I don’t think the proposals are likely to become law this year, but history indicates such proposals are likely to be enacted in the future, just as the end of the Stretch IRA was enacted in 2019 after being proposed for years.

One proposal would require high-income taxpayers with large retirement account balances to distribute at least 50% of the amount by which the balances at the end of the previous year exceeded a certain amount. This change would apply to both traditional and Roth accounts.

Another proposal would limit the ability of high-income taxpayers to roll over amounts from traditional retirement accounts to Roth-type accounts.

Other proposals would put additional limits on the types of transactions IRA owners could make in their retirement accounts.

Another proposal would affect taxpayers who own non-traditional assets in their retirement accounts.

The IRS would be given a longer statute of limitations period to assess taxes and penalties when the assets were misvalued or the taxpayer engaged in prohibited transactions with the IRA.

As I said, now these are only proposals. But they should cause taxpayers, especially higher-income taxpayers, to question whether they want to maintain large balances in traditional or Roth-type retirement accounts for the long term.

Questions to Ask Senior Living Facilities

Most people don’t have much experience with senior residences, such as assisted living. So, they don’t know some key questions to ask. In addition, practices in the industry changed in recent years.

Learn the policies for when a resident falls.

Most people assume the residence staff would help the resident to a chair or bed, assess his or her condition and then determine if medical treatment or testing is needed.

But that’s not what happens most of the time.

When my parents were in assisted living, the staff would try to help a resident off the floor. But a fall also resulted in an automatic summoning of an ambulance and a trip to the hospital.

Now, many senior residences won’t even let their employees try to lift fallen residents, according to The Washington Post.

A 911 call is automatic when a resident falls. The first responders are responsible for lifting the resident and deciding on the next course of action.

Calls to 911 to help lift people increased 30% nationwide in recent years, according to the Post, about three times the increase in overall 911 calls.

Requests to lift people who have fallen now are the seventh most common 911 call nationwide. Many first responder units have equipment specifically designed to help lift people without injuring either the first responders or those who fell.

Assisted living and other residences have no-lifting policies to avoid liability. They don’t want employees to injure themselves trying to lift individuals, and they want to avoid the liability that comes when efforts to lift a resident increase any damage from the fall.

You also should ask a facility what its policies are in cases of influenza or food poisoning. When cases reach a certain level, many will automatically implement Covid-type policies in which residents are restricted to their living units and visitors are prohibited.

The Data

The Consumer Sentiment Index from the University of Michigan declined in May to 69.1, the lowest month-end level in six months, from 77.2 at the end of April. But it was higher than the 67.4 reading in mid-May.

High inflationary expectations for both the next 12 months and five years were a major factor in the decline in sentiment.

But the Consumer Confidence Index from The Conference Board bounced higher in May after declining for three months. The index was 102.0 in May, up from 97.5 in April.

Both the Present Situation Index and Expectations Index improved in May, with expectations having the larger increase.

But the Expectations Index still was less than 80 for the fourth consecutive month. The Conference Board indicated a reading below 80 usually is a precursor of a recession.

Economic activity increased in the first half of May, according to the flash indexes from PMI.

The PMI Manufacturing Flash Index increased to 50.9 from 50 at the end of April.

The PMI Services Flash Index rose to 54.8 from April’s 51.3.

The PMI Composite Flash Index improved to 54.4 at mid-month from 51.3 at the end of April.

New home sales fell 4.7% in April after increasing 5.4% in March. Sales have bounced around without establishing a trend for the last 12 months, rising during six months and declining during six months.

Both the median sales price and average sales price were higher in April than 12 months earlier.

Home prices increased 1.6% in March, according to the S&P Corelogic Case-Shiller Home Price Index, following a 0.9% increase in February.

The index increased 7.4% for the 12 months ending in March and 7.3% over the 12 months concluding in February.

The FHFA House Price Index rose 0.1% in March and 1.2% in February. The index increased 6.7% for the 12 months ending in March and 7.1% for the 12 months through February.

The Kansas City Fed Manufacturing Index improved to negative 1 in May from negative 13 in February. Negative 1 is the best level in three months. The index has been positive in only two of the last 12 months: February 2024 and August 2023.

The Dallas Fed Manufacturing Index fell to negative 19.4 in May from negative 14.5 in April. The last positive reading in the index was in April 2022.

The Richmond Fed Manufacturing Index rose to 0 in May, the highest level in seven months, from negative 7 in April.

Durable goods orders increased 0.7% in April following a 0.8% rise in March.

Excluding defense and transportation orders, which is considered a good measure of business investment, orders increased 0.3% in May after declining 0.1% in April. This measure has been positive five of the last 12 months.

New unemployment claims declined by 8,000 to 215,000 in the latest week.

Continuing claims, which lag a week behind new claims, increased to 1.794 million from 1.786 million.

The Markets

The S&P 500 fell 0.29% for the week ended with Tuesday’s close. The Dow Jones Industrial Average lost 2.55%. The Russell 2000 declined 1.53%. The All-Country World Index (excluding U.S. stocks) dropped 0.75%. Emerging market equities retreated 0.92%.

Long-term treasuries lost 1.66% for the week. Investment-grade bonds dropped 0.91%. Treasury Inflation-Protected Securities (TIPS) fell 0.58%. High-yield bonds declined 0.62%.

In the currency arena, the U.S. dollar rose 0.07%.

Energy-based commodities increased 1.02%. Broader-based commodities lost 0.15%. Gold declined 2.73%.

Bob’s News & Updates

A recent review on amazon.com of my latest book said, “Carlson is a unique national Asset while alive! Get the book, dude!” Look for “Retirement Watch: The Essential Guide to Retiring in the 2020s” (Regnery Capital: 2023) at amazon.com, barnesandnoble.com, booksamillion.com and regnery.com.

My previous book, “Where’s My Money: Secrets to Getting the Most out of Your Social Security,” is receiving mostly five-star reviews on Amazon for telling you clearly what your benefit options are in different situations and how to determine the best choice for you. You can find it on amazon.com or Regnery.com.

The number of regular viewers for my Retirement Watch Spotlight Series continues to increase. You should sign up because I make in-depth presentations of key retirement finance topics. You can watch these online seminars from the comfort of your home or office at times you choose. To learn more about my new Spotlight Series, click here.

A recent five-star review of my book, “The New Rules of Retirement” on amazon.com said, “A complete retirement guide! One of the best books on this topic!” Click for more details about the revised edition of “The New Rules of Retirement.”

If you’re interested in my books, check my amazon.com author’s page.

I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.