Your Financial News Roundup
January 11, 2022
TL;DR
1. Economy: Major changes are coming to your retirement plans; the economy is trending towards lower income inequality and healthcare spending.
2. Tech: Laid-off workers are launching startups and finding investors in droves; the Seattle public school district sues Big Tech for its role in the youth mental health crisis.
3. World/U.S.: After several deals and 15 votes, Kevin McCarthy was finally elected Speaker of the House; the new XBB 1.5 COVID variant is becoming dominant around the globe.
Weekly Finance Concept: Retirement Investing
Our Take
…on how the news impacts you and your wallet
1. Economy: The new changes to retirement accounts will make them more accessible for the average American, especially with automatic 401(k) enrollment and access to funds in an emergency — giving people more reason to start saving. If implemented well, this move will address the current retirement savings gap among Americans. Despite recent economic difficulties, the decrease in the division of wealth between the wealthiest and poorest Americans, along with the stabilization of healthcare costs, will hopefully bring relief to many people’s lives.
2. Tech: Big Tech is coming under increased government scrutiny, including a possible ban on TikTok. Regulators are skeptical over the addictive aspects of tech products, mental health impacts, etc. — and are more willing to crack down on them. Meanwhile, laid-off tech workers are using recent tech advancements (i.e. AI) to build their own startups instead of job searching — ushering in a new era of disruption. However, market conditions may make IPOs more difficult as startup valuations fall.
3. World/U.S.: McCarthy’s election was based on making concessions to detractors within his own party, which means he lost the “bully pulpit” power of the Speaker role. Divisions within House Republicans are likely to create a divided government and reduce the chances of major policy changes — leading to a lack of progress in either party’s agenda. Historically, a divided government with a Democratic president has been linked to good stock market performance.
Economy
👵🏽 Changes To Your Retirement: The passage of the U.S. Congressional $1.7T spending bill for 2023 also reformed 401(k)s, IRAs, and Roth IRAs. The new changes take place over different timelines and include:
- 401(k) holders younger than 59 1/2 can withdraw up to $1K a year for emergencies with 3 years to repay the withdrawal. No documentation needed.
- In 2025, employers must automatically enroll employees into new 401(k) plans and set their contributions at 3%. They must also create emergency savings accounts where employees can contribute up to $2500 a year in after-tax money, receive an employer match, and make up to 4 penalty-free withdrawals a year.
- Employers can make 401(k) matches based on if employees make their student loan payments.
- In 2027, the IRA tax credit (”Saver’s Credit”) will be replaced with a federal match to a retirement account. (CNET)
📈 3 Major Economic Improvements Underway: While wealth inequality increased significantly over the past 40 years, the growth in the wage gap between the highest- and lowest-paid workers has been reduced by 1/3rd over the last 3 years. Meanwhile, healthcare spending is expected to stabilize over the next decade to ~20% of GDP. Also, the labor market bounced back stronger than before and recovered every job lost during the pandemic in only 30 months. (The Atlantic)
Tech
🔥 Startups Emerging From The Ashes: Great companies are born in downturns — about half of Fortune 500 firms were founded during recessions. Layoff.fyi, a tech industry layoff tracker, estimates 153K workers were laid off from 2021-22. ZipRecruiter found that 79% of laid-off workers found a new job within 3 months, but many want to start their own companies. As VC firms search for the next Meta or Google, their investments in early-stage startups remained strong at $37.4B raised in angel or seed rounds in 2022 — in line with 2021’s numbers. (TechStartups)
📚 Seattle Public Schools vs. Big Tech: Last week, Seattle’s public school district filed a lawsuit against Alphabet (Google’s parent firm), Meta, Snap, and ByteDance (TikTok’s owner) for their role in fueling the youth mental health crisis. According to the district’s claim, Big Tech is making it difficult for schools to educate their students by exploiting the youth into excessive social media use and abuse. In response, Google, Meta, and Snap pushed back, stating that they prioritize safe and enjoyable experiences for users and do not purposely exploit people for profit. (MSN)
World/U.S.
🇺🇸 New Speaker in the House: 5 days and 15 rounds of voting later, the Republican-led House of Representatives finally voted in Rep. Kevin McCarthy as Speaker. His election was the result of several tension-filled negotiation rounds and concessions with the 20 members of the right-wing Republican Freedom caucus. Much of the concessions are unknown to the public. But, they likely including cutting $75B in military aid to Ukraine, placing Caucus members as leads on powerful committees, holding votes on bills crucial to the Republican agenda, and reducing his ability to govern. (US News)
🦠 New COVID On the Block: From Dec. 5th to Jan. 1st, there was a 25% global spike in COVID cases — bringing the count to 14.5M+. Fatalities rose 21% to 46K+ in the same timeframe. In the U.S., the new XBB 1.5 variant surged from 1.3% of the total caseload in early December to 41% by year’s end. In other parts of the world, it has had a similar spread. XBB 1.5 is related to the infectious Omicron BA.5 strain, which is the dominant one in the U.S. Fortunately, it does not appear more lethal than other variants. (MSN)
Finance Concept of the Week
Setting Yourself Up For Financial Success — Part 4/6
Retirement Investing
Now that we’ve covered budgeting, saving, and building credit, let’s talk about a crucial aspect of managing your personal finances – retirement investing. The typical timeframe for investing in preparation for retirement is 30-40 years, with many people aiming to retire at age 67. However, due to longer lifespans, people’s retirement age may get postponed until their early 70s, expanding the time horizon.
Designed for retirement saving, there are several investment accounts with special tax advantages (i.e. tax breaks) that reward you for contributing towards your retirement. These advantages typically take 1 of 2 forms:
- Pre-Tax Benefits – Each contribution qualifies as a pre-tax deduction, reducing your federal tax bill for the year you made it. When you withdraw in retirement, you will pay taxes on the growth of your investment through income tax.
- Post-Tax Benefits – You make contributions using post-tax money, so Uncle Sam has already taken their share. But, when you withdraw your funds in retirement, you do not pay any income taxes on the capital gains.
It’s recommended to use both pre- and post-tax accounts to give yourself financial flexibility and options in your retirement years. Here’s more about the most common types of accounts:
Getting Started and Other Tips
- Open a Roth IRA with a reputable brokerage like Fidelity, E*Trade, or TD Ameritrade.
- Contact your company’s benefits manager or HR team to gain access to a 401(k) or Roth-401(k) and learn about your retirement plan options.
- If your employer offers a 401k) match, contribute at least enough to earn the match — otherwise, you leave free money on the table.
- If your budget permits, put at least 10% of your pre-tax income towards retirement savings.
- Set a yearly goal for how much you want to contribute to your retirement accounts.
- Setup automatic deductions from your paycheck to your 401(k). Increase them as your earnings raises.
- Schedule automatic transfers (and investing) from your personal bank account into your Roth IRA on a monthly basis.
- Examine the expense ratio and performance history for each fund before investing in it. Most actively managed funds charge high expense ratios that exceed their long-term performances.
- Rollover your 401(k) plan to a new employer within 3 months of transitioning jobs.
Tip of the Day
💵 Automate your savings. The easiest way to save money is to set up automatic transfers from your checking account to a savings or investment account. Time the transfer to when you receive your paycheck. This way, you can save consistently with minimal effort.
#Oof
Recommended Resources
- Workers Still Quitting at High Rates (CNBC)
- 48 Stock Market Words to Help You Invest Better (Finance Futurists)
- The Link Between the Mind and Motivation (BBC)
- New York State Sues Celsius CEO for Fraud (CNBC)
- 2023 Fed Damage Assessment (YouTube/Invest Answers)
- A Guide to Churning Credit Cards (Finance Futurists)
Personal Finance Resources
🚀 We recently launched a curated collection of personal finance resources on Gumroad, featuring both free and paid options! Visit us for all your personal finance tracking needs, including:
Stay tuned for updates! In the meantime, if there’s any other product you’d like to see, feel free to suggest it here.
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