A Look Back and Ahead

To start, we want to notify everyone of a few changes to retirement funding guidelines, courtesy of the recently passed SECURE 2.0 Act of 2022 and other updated regulations.  Below are some of the highlights: 

• Relaxed RMD rules - The age at which required minimum distributions from tax-deferred retirement accounts must begin has increased from 72 to 73 in 2023 and will increase to 75 in 2033.
• Roth & Traditional IRA contribution limits have increased from $6,000/year for those under 50 years of age to $6,500/year in 2023.  If you’re over 50 years of age, you can now contribute $7,500/year.
• Enhanced access to Roth contributions - potential for employer matching to a Roth within a 401k 
• Individuals can now contribute $22,500 to their 401k throughout the year, up from $20,500 in 2022. 
• Additional updates to retirement plans will take place in 2024 and future years.  These changes will have an impact on student loans, 529 plans and even a retirement savings lost & found website.

Quickly turning back to 2022 - it was a year where there were few places for investors to hide as nearly every corner of the financial markets posted sizable losses.  Of note:

• The S&P 500 dropped 19.44% - the biggest annual loss since 2008
• Growth stocks, largely represented in the NASDAQ 100 index, fell 33.10%
• Aggregate US Bond funds fell 12.9% - the worst calendar year in modern history.  Going back to 1976, the lowest previous performance was a 3% loss.  Since 1976, US Aggregate bond annual returns have been positive in 42 of the 47 years.  This was caused by the following…
• The Federal funds rate increased at the fastest pace in history rising from near zero in January to 4.25%-4.50% at the end of the year.
• Lastly, cryptocurrency experienced record losses with the value of Bitcoin dropping 64.7% (ouch).  Numerous crypto-related companies went bankrupt, most infamously FTX.

Inflation and higher interest rates were the main culprit of the financial market losses.  While we covered the ugly above, dividend stocks significantly outperformed the broader markets.  This outperformance was a shift from the previous decade where growth stocks - think most tech companies - fared better. 

While 2022 presented historical challenges, 2023 began with a good amount of risk already reduced in equity markets as asset prices were reset last year.  For bonds, it’s hard to imagine the fixed income sector experiencing losses (especially to the extent they did last year) in back-to-back years and we are now seeing a significant increase in interest received from these securities.  

As always, if you have questions or concerns about your individual situation, please don’t hesitate to contact us.