The Bureau of Labor Statistics Thursday released inflation numbers for September. The Consumer Price Index for All Urban Consumers (CPI-U) rose by 0.4% in September on a seasonally adjusted basis, or 8.2% over the past 12 months before seasonal adjustment. The CPI numbers now allow us to calculate the inflation rate on I bonds that will take effect in November.
Using the month-by-month data, the new inflation rate will drop to approximately 6.47% starting next month. Keep in mind that we don’t yet know the fixed rate portion for November I bonds. The Treasury Department will release that information next month. The rate makes I bonds an excellent place to invest cash.
The projected 6.47% is a significant drop from the current 9.62% rate. At the same time, it’s still an excellent rate for a risk-free investment, particularly given the performance of both the stock and bond markets in 2022. And the lower rate beats some of the best interest rates on savings accounts and CDs. Still, there are several ways to lock in the 9.62% rate, even if you’ve already purchased I bonds this year.
If You Haven’t Bought $10,000 Of I Bonds This Year
For those who haven’t purchased I bonds this year, now is the time to do it. You can purchase up to $10,000 a year per person. If you make the purchase by October 28, 2022, you’ll receive the current 9.62% annualized rate for the first six months.
With Inflation Hot, Can Fed Stay The Course?
This confuses some folks. Even though the rate will change next month for new purchases, those who buy in October will first earn the annualized 9.62% for six months, and then the new November rate for six months.
Keep in mind two things about I bonds. First, you cannot cash them in for the first 12 months. Second, if you redeem an I bond within the first five years, you’ll forfeit 3 month’s worth of interest.
If You Have Purchased $10,000 Of I Bonds This Year
For those who have already purchased their limit in I bonds, there are still strategies available to buy even more.
First, those with trusts can buy I Bonds in the name of the trust. Many families have revocable living trusts, for example, which can purchase I Bonds subject to the $10,000 limit. In some cases, families may have more than one trust, thus increasing the limits they can purchase. You’ll find resources for trusts on the Treasury Direct website here.
Second, you can also purchase I bonds in the name of a business. The business can be a sole proprietor or an LLC. Even somebody with a side hustle can purchase I bonds.
Third, you can purchase I bonds as a gift. Parents or grandparents, for example, might purchase I bonds for their children or grandchildren. To purchase an I bond as a gift, you must know the recipients social security number, and the bonds are registered in the recipient’s name.
After an I bond is purchased as a gift, it remains in the buyer’s Treasury Direct account until transferred to the recipient. While it sits there, it earns interest and is subject to the same rules as any other I bond purchase. And the buyer can keep the I bond in their account for years before delivering it to the recipient’s Treasury Direct account.
As odd as that may seem, it actually presents a fourth strategy for maxing out the current 9.62% rate. Spouses, those with significant others, or perhaps close friends can buy each other a $10,000 I bond as a gift.
If purchased before the new rates take effect, the I bond will earn the annualized 9.62% rate for the first six months. There is one catch, however.
When the I bond is transferred to the recipient’s account, it counts toward the recipient’s annual limit. If they’ve already purchased $10,000 in I bonds this year, you would have to wait until next year to deliver the I bond. Given that it earns the higher return from the start, this shouldn’t present an issue.
In theory, one could purchase more than $10,000 in I bonds as a gift this month for the same person. Just keep in mind that one cannot deliver more than $10,000 a year in I bonds to the recipient, and that assumes they haven’t purchased I bonds on their own.
One final note. Treasury Direct made some updates to its site this month. That’s the good news. The bad news is that the update broke parts of the website. One part that isn’t working is the buying of I bonds as a gift. The hope is the website will get fixed before the 9.62% rate goes away.
Many women aren’t financially prepared for retirement, according to a recent report from TransAmerica. Men have about twice as much money saved for retirement ($118,000) than women do ($57,000). Of concern, nearly a quarter (24%) of women currently have less than $10,000 saved for retirement, compared to just 14% of men.
Seventy-nine percent of men are confident in their ability to fully retire with a comfortable lifestyle, compared to just 64% of women. Both men and women think that they’ll need to have saved $500,000 in order to retire comfortably. A third (33%) of women do not have any retirement strategy at all, which is significantly more than the 18% of men. Women are also far less likely than men to be currently saving for retirement, at 77% and 86%, respectively.
Despite the fact that the vast majority of both men and women worry that Social Security will run out before they retire, 27% of women and 17% of men expect to rely on Social Security payments as their primary source of income during retirement.Keep reading to learn the challenges women face when saving for retirement, as well as how women can better financially prepare to retire. If you’re searching for ways to improve your financial situation ahead of retirement, visit Credible to compare a variety of financial products from debt consolidation loans to high-yield savings accounts.
Women face unique challenges when preparing for retirement
There are a number of obstacles that women must overcome when saving money for retirement — starting with the gender wage gap, according to Stacy J. Miller, a Tampa, Fla.-based certified financial planner (CFP). Women typically earn less money than men, which results in lower retirement savings.
Miller said that because “women are often the caretakers in the family,” they may have to leave the workforce to care for children and aging parents. Missing periods of work can result in lower earnings over time and “fewer opportunities for pay raises and promotions.”Most woman caregivers have had to make work adjustments, such as missing days of work (36%), working an alternative schedule (28%), reducing their hours (27%) and even quitting their jobs (10%), TransAmerica reports.
“Additionally, women statistically live longer than men, and therefore their retirement portfolio would need to be larger than men to last longer,” Miller said. Without proper financial planning and adequate retirement savings, some retirees may become reliant on credit card spending to cover basic expenses. If you’re struggling to pay down high-interest credit card balances, you may be able to save money through debt consolidation. You can learn more about credit card consolidation on Credible to determine if this is the right financial strategy for you.
Both working women and self-employed caretakers should find a way to contribute the maximum amount to retirement plans, according to Kimberly Foss, a CFP in Roseville, Calif. — “especially in older women’s peak earning years, which often occur as they are nearing retirement.” In 2022, employees can defer up to $20,500 of their annual income into their workplace retirement plan or 401(k). The current contribution limit across all individual retirement accounts (IRAs) is $6,000 per year.
Women who are near retirement age should take advantage of catch-up provisions to grow their account balances, Foss said. This allows individuals ages 50 and up to contribute an additional $6,500 annually to their 401(k) plans and an added $1,000 to their traditional IRAs and Roth IRAs.
Allocate your investments
Besides maximizing their contributions, women should also consider their how their retirement investments are allocated, according to Joyce Streithorst, a CFP in Melville, N.Y. “Default investments make an impact on one’s long-term growth and returns,” Streithorst said. “Lifecycle or target date funds can help provide an allocation to equities and fixed income to attempt to align risk to your age and anticipated retirement year.”
TransAmerica reports that while 43% of men use a financial advisor to help them manage their savings and investments, just 34% of women do. This could be due to a lack of female advisors, said Tess Zigo, a CFP in Palm Harbor, Fla.
“Because we don’t see many women in finance and as financial advisors, it doesn’t feel approachable or accessible,” Zigo said. “Many women feel more comfortable working with someone relatable.”Retirement planning can at times be overwhelming, so you might consider enlisting a professional to help guide you through the process. You can search for advisory services in your area on the CFP website.
For women, the salary gap they face in their working years eventually turns into a retirement savings gap. Only about 6 in 10 women have a plan to keep them from outliving their savings once they retire, according to a recent study by Nationwide Advisory Solutions. Among men, it’s more than 3 out of 4.
The firm polled about 1,021 financial advisors and 824 investors in February and March. “We’re in an industry that is inherently addressing the issues of men,” said Kristi Rodriguez, leader of the Nationwide Retirement Institute at Columbus, Ohio-based Nationwide. “We have to instill confidence in female investors.”
Women also tend to spend more time away from work to care for children. Once they return, they can fall behind in rank and miss out on opportunities for promotion. This “motherhood penalty” costs women $16,000 a year in lost wages, according to an analysis of Census data by the nonprofit advocacy organization National Women’s Law Center in 2018. Financial advisors must address these obstacles and ensure women feel comfortable discussing these challenges.
“You can find an advisor that meet the needs of both you and your spouse,” Rodriguez said. “But what is important is to find someone who creates that environment to make you feel welcome.”
This morning crypto advocates and the crypto curious alike woke up to the news that asset management giant Fidelity will start allowing investors to put bitcoin into their 401(k) retirement savings accounts. On its surface this looks like an easy way for individuals to get access to this emerging asset class in an advantageous way from a tax perspective. However, there are still some important considerations to take into account.
Here is what you need to know.
The service will be available later this year to participants in employee-sponsored retirement plans offered by Fidelity—but only if an employer opts to offer it. Annual gains in a 401(k) are tax deferred, which eliminates the hassles associated with crypto investing and annual tax reporting. Withdrawals from a 401(k) in retirement are either taxed as ordinary income (if you contributed to a traditional pre-tax account) or tax-free (if you put after tax dollars into a Roth account).
According to The Wall Street Journal fees on these investments will range between 0.75%-0.90%, plus trading fees which falls within the mid-range of spot market trading fees offered by most major exchanges in the U.S. such as Coinbase, Gemini, Kraken, FTX.US, and Binance.US. Additionally, for now, employees will only be able to allocate a maximum of 20% of their currently account balances and new contributions to bitcoin.
The service is going to be slowly rolled out over the course of 2022. Currently the only firm to have publicly signed on is business analytics firm MicroStrategy. Led by billionaire bitcoin bull Michael Saylor, MicroStrategy is the world’s largest corporate holder of bitcoin with a treasury topping $5 billion worth of the asset. And again, your employer will have to agree to offer the service. Some may balk at the asset’s volatility.
Back in 2013 you could purchase a single bitcoin for under $300. As of this writing, a whole bitcoin will run you approximately $40,000. This is gargantuan growth, but it has not been smooth.
There have been multiple occasions where bitcoin and other leading crypto assets have lost well north of 50% of their value (many of which happened before the industry broke into the mainstream consciousness). However, many investors likely remember bitcoin approaching $20,000 in late 2017 before losing 75% of its value in the subsequent months.
We saw another such drop during the late fall when bitcoin fell from $69,000 to the low $30,000s. Bitcoiners will tell you that the asset more than recovers each time that it gets knocked down. In fact, many consider riding these boom and bust cycles as a rite of passage. But it might not be for everyone.
While there may have been cheering throughout #cryptotwitter that Fidelity is letting clients dip their toes in bitcoin, the government may not be as happy. For starters, federal regulators have been very reticent at letting investors get easy exposure to the crypto spot markets, even bitcoin.
Famously, the Securities and Exchange Commission is yet to approve a bitcoin spot ETF (it has approved a handful of products that offer exposure to bitcoin futures contracts), often citing the market’s vulnerability to fraud and manipulation.
When it comes to retirement planning, volatility again comes into play. Bitcoin is down nearly 40% from its all-time high of just under $70,000 last November, and retirees and those soon to retire may not have the funds or time to ride out these boom and bust cycles. In fact, last month the Department of Labor issued a notice expressing several concerns with investing retirement funds in crypto.
Chief among them were the market’s extreme volatility, its emerging (cloudy) regulatory status, the inability of investors to make informed decisions, as well as more basic concerns about the security of holding crypto assets, which have become juicy targets for hackers. Labor’s concerns matter because it has a say in the regulation of employer sponsored plans.
In addition, when news came out last July that Coinbase, the largest crypto exchange in the U.S., had partnered with a retirement firm to offer such services, David John, a senior policy advisor at AARP Policy Institute and the deputy director of the retirement security project at the Brookings Institution, told Forbes: “Crypto itself is fascinating, and intriguing as it starts to develop, but it’s still in its early phases.
And it is definitely not appropriate for retirement investing.” Added John: “The fact is that for retirement investing, you want growth, and you want a limited amount of volatility. The older you get, the less you want your portfolio to gyrate up and down, because it makes it very hard to plan your retirement income.”
While Fidelity is a world unto itself when it comes to asset management and retirement savings, there are other ways to get your retirement savings access to crypto. Firms such as Kingdom Trust, iTrust Capital and BitcoinIRA let investors purchase digital assets via exchanges and hold them in individual retirement accounts.
Additionally, Coinbase partnered with ForUsAll in June to let participants in employer sponsored plans purchase dozens of different crypto assets and hold them in tax deferred programs.
Finally, if you want exposure to the industry but don’t want to directly hold digital assets, there are plenty of stocks and ETFs that track companies operating in the crypto industry that are highly correlated to the underlying assets.
Saving for retirement is a personal decision, and your strategy – from what to hold to allocation percentages must —depend on your specific circumstances. Please seek out a Registered Investment Advisor or other professional advice before making any big decisions.
My north star(s) for philosophy, management, and politics are Star Wars, The Sopranos, and Game of Thrones, respectively. The Iron Bank (GoT) is a metaphor for today’s financial institutions, if present-day banks didn’t need bailouts or to invent fake accounts to juice compensation. Regardless, it was well known throughout Braavos that The Iron Bank will have its due.
If you failed to repay, they’d fund your enemies. So today’s Iron Bankers are the venture capitalists funding (any) incumbents’ enemies. If this makes VCs sound interesting/cool, don’t trust your instincts.
Lately, I’ve spent a decent amount of time on the phone with my bank in an attempt to get a home equity line, as I want to load up on Dogecoin. (Note: kidding.) (Note: mostly.) If Opendoor and Zillow can use algorithms and Google Maps to get an offer on my house in 24 hours, why does it take my bank — which underwrote the original mortgage — so much longer?
How ripe a sector is for disruption is a function of several factors. One (relatively) easy proxy is the delta between price increases and inflation, and if the innovation in the sector justifies the delta. Think of the $200 cable bill, or a $5.6 million 60-second Super Bowl spot, as canaries in the ad-supported media coal mine.
Another, easier (and more fun) indicator of ripeness is the eighties test. Put yourself smack dab in the center of the store/product/service, close your eyes, spin around three times, open your eyes, and ask if you’d know within 5 seconds that you were not in 1985. Theaters, grocery stores, gas stations, dry cleaners, university classes, doctor’s offices, and banks still feel as if you could run into Ally Sheedy or The Bangles.
It’s hard to imagine an industry more ripe for disruption than the business of money.
Let’s start with this: 25% of U.S. households are either unbanked or underbanked. Half of the nation’s unbanked households say they don’t have enough money to meet the minimum balance requirements. 34% say bank fees are too high. And, if you’re trying to get a mortgage, you’d better hope the house isn’t cheap.
Inequity is a breeding ground for disruption, leaving underserved markets for insurgents to seize and launch an attack on incumbents from below. We have good reason to believe that’s happening in banking.
A herd of unicorns is at the stable door, looking to trample Wells Fargo and Chase. Fintech is responsible for roughly one in five (17%) of the world’s unicorns, more than any other sector. In addition, there are already several megalodons worth more than financial institutions that have spent generations building (mis)trust.
How did this happen? The fintechs are zeroing in on everything big banks aren’t.
Example #1: Innovation. Over the past five years, PayPal has issued 26x more patents than Goldman Sachs.
Example #2: Cost-cutting. “Neobanks” offer the basic services of a bank, with one less expensive and cumbersome feature: the branch. A traditional bank branch needs $50 million in deposits to generate an adequate return. Yet nearly half (48%) of branches in the U.S. are below that threshold. Neobanks don’t have that problem, and there are now at least 177 of them. Founders frame these offerings as more progressive, less corporate. Dave, a new banking app, offers a Founding Story on its website (illustrated with cartoon bears) about three friends “fed up” with their banking experience, often incurring $38 overdraft fees. Fed up no longer: Dave provides free overdraft protection and has 10 million customers.
Example #3: Less inequity. NYU Professor of Finance Sabrina Howell’s research found fintech lenders gave 18% of PPP loans to Black-owned businesses, while small to medium-sized banks provided just 2%. Among all loans to Black-owned firms, Professor Howell found 54% were from fintech startups. Racial discrimination is the most likely explanation, as lenders faced zero credit risk.
Example #4: Serving the underserved. Unequal access to banking is a global botheration. Almost a third of the world’s adults, 1.7 billion, are unbanked. In Argentina, Colombia, Nigeria, and other countries, more than 50% of adults are unbanked.
But innovation is already on the horizon: Take Argentine fintech Ualá, whose CEO Pierpaolo Barbieri I spoke with on the Pod last week. In just 4 years, more than 3 million people have opened an account with his company — about 9% of the country — and over 25% of 18 to 25-year-olds now have a tarjeta Ualá (online wallet). Ualá recently launched in Mexico, where, as of 2017, only 2.6% of the poorest 40% had a credit card. This is more than an economic issue — it’s a societal issue, as financial inclusion bolsters the middle class and forms a solid base for democracy.
Chase savings accounts are offering, no joke, 0.01% interest. Wells Fargo? The same, though if you keep your investment portfolio with Wells, they’ll double that rate to 0.02%. Meanwhile, neobanks including Ally and Chime offer 0.5% — 50 times the competition.
There is also blood in the water for fintech unicorns that have created a debit, vs. credit, generation: The buy-now-pay-later fintech Afterpay has more than 5 million U.S. customers — just two years after launching in the country. As of February, its competitor Affirm has 4.5 million customers.
Unicorns are also coming for payments. The megasaurus in this space is PayPal, which has built the first global payments platform outside the credit card model and is second only to Visa in payment volume and revenue. Square’s Cash app is capturing share, and Apple Cash is also a player, as it’s … Apple.
Square, Apple, and a host of other companies are taking the “partnership” approach, bolting new services onto the existing transaction infrastructure. Square’s little white box is a low-upfront-cost way for a small merchant to accept credit cards. It’s particularly interesting that Apple teamed up with Goldman Sachs instead of a traditional bank. Goldman is looking to get into the consumer space (see Marcus), and Apple is looking to get into the payments space — this alliance could be the unsullied fighting with air cover from dragons. It should make Wells and BofA anxious.
The Big Four credit card system operators (Visa, MasterCard, Discover, and American Express) are still the dominant payment players, and they have deep moats. Their brands are global, their networks robust. Visa can handle 76,000 transactions per second in 160 currencies, and as of this week it had settled $1 billion in cryptocurrency transactions.
Still, even the king of payments sees dead people. In 2020, Visa tried to buy Plaid for $5.3 billion. Plaid currently helps connect existing payments providers (i.e. banks) to finance software such as Quicken and Mint. But it plans to expand from that beachhead into offering a full-fledged payments system. Visa CEO Al Kelly initially described the deal as an “insurance policy” to neutralize a “threat to our important U.S. debit business.” In an encouraging sign that American antitrust authorities are stirring, the Department of Justice filed suit to block the merger, and Visa walked.
Fintech is also coming for investing with online trading apps (Robinhood, Webull, Public, and several of the neobanks) and through the crypto side door (Coinbase, Gemini, Binance). Insurance is under threat from companies like Lemonade (home), Ladder (life), and Root (auto).
In sum, fintech is likely as underhyped as space is overhyped. Why? The ROI on your professional efforts and investing are inversely proportional to how sexy the industry/investment is, and fintech is … boring. Except for the immense opportunity and value creation — for multiple stakeholders. “Half the world is unbanked, but we need to colonize Mars,” said no rational investor ever.
Re: investing in fintech: What has, and will always be, a good rap? The guy/gal who owns the bank.