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Social Security, New RMD Rules, Inflation News for Financial Advisers

Latest for financial advisers: Social Security news, RMD rules and the risk of inflation shock.

A roundup of the latest news and reports of interest to financial advisers.

Congress’ inaction on Social Security could cost clients 2 months’ pay: The estimate of lost income, due to planning mistakes alone, is separate from actual cuts to benefits, according to a recent academic paper, as reported by Emile Hallez.

IRS says RMD rules are coming ‘soon’: An IRS official tells a bar association gathering that the arrival of proposed regulations covering the SECURE Act's required minimum distribution provisions will be 'later than imminent but before eventually,' according to InvestmentNews.

Reconstructing lost IRA basis to avoid double taxation: While after-tax funds in employer-sponsored plans are tracked by plan administrators, clients are on their own with traditional IRAs, Jeffrey Levine writes.

BlackRock CEO Fink sees potential for ‘big shock’ from inflation: BlackRock CEO Larry Fink said that investors may be underestimating the potential for a spike in inflation, according to FinancialPlanning.

Surge in Early Retirements Exposes Inequalities Among U.S. Baby Boomers: The surge in early retirements spurred by the pandemic is increasing inequality among Baby Boomers in the U.S., with older Black workers without a college degree more likely to be forced to exit the labor market prematurely, writes Alex Tanzi.

A Curse Worse than Cash: Although prominent cryptocurrency advocates are politically connected and have democratized their base, regulators simply cannot sit on their hands forever. Malicious ransomware attacks targeting growing numbers of firms and individuals could prove to be the tipping point, writes Kenneth Rogoff of Project Syndicate.

SEC “Risk Alert” A Good Step Toward Improving ESG Standards: The recent focus of the U.S. Securities and Exchange Commission on better quality, more comprehensive reporting on environmental, social and corporate governance (ESG) standards is a welcome development, particularly as investor interest in ESG products continues to grow rapidly, writes Mary Jane McQuillen of ClearBridge Investments.

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Beware the Social Security Tax Torpedo: Wade Pfau: Watch out for the Social Security Tax Torpedo. It’s a hugely unwelcome part of 1983 tax reform, which arrived when the Social Security Administration trust fund was running out of money. But there’s an effective tax-planning strategy to steer clients out of the Torpedo’s path, writes Jane Wollman Rusoff.

Two Social Security Trends to Watch Post-Covid: It’ll be a year before Social Security data reflects beneficiary behavior as a result of the pandemic, writes by Danielle Andrus. But in order to determine how much of an impact it had, the Center for Retirement Research at Boston College analyzed the ages of beneficiaries who started claiming in 2019, as well as trends in early claiming over time.

Bill Would Allow Annual Penalty-Free $1,000 Withdrawals From 401(k)s, IRAs: The bipartisan proposal is designed to give Americans more access to emergency funds, according to Financial Advisor.

High-Net-Worth Trends In 2021: The Covid-19 crisis has accelerated trends already happening in private wealth management, write Russ Alan Prince and Brett Van Bortel.

For Better or For Worse: How to Be the ‘Voice of Reason’ When Clients Divorce: The pandemic has tested many marriages, providing advisors an opportunity to show the value of good planning and financial advice, writes Financial Advisor IQ.

Clients Need Tools for More Control, Access to Finances: Cerulli: While the Covid-19 pandemic did not result in a long-term economic downturn, it has changed investors’ attitude toward their finances — and financial advisors should be ready to address a high demand for control, according to a recent report.

Socially Responsible Funds Do Not Deliver Excess Returns: Funds with a socially responsible or environmental, social and governance (ESG) mandate may allow clients to feel good about their investments. But new research shows that they should not expect excess returns, writes Larry Swedroe.

Signs Inflation’s Surge Is Transitory: While it’s very early to say the rise in inflation has passed, there are signs that the fastest part of the rebound in inflation might soon be over, writes Jeffrey Kleintop.

Research Worth Noting

What Drives Investors to Chase Returns?

Abstract: The researchers use data on one-participant retirement savings plans to identify a behavioral bias in savings decisions. Investors who earn top-decile returns increase contributions to their accounts more than other investors. Using characteristics of the investors, characteristics of their retirement savings accounts, and multivariate regression analysis, the researchers first show that such "return chasing" behavior is robust to controls for financial illiteracy, macroeconomic conditions, learning, transaction costs, housing prices, and informational frictions. The researchers then use a structural two-asset model with tax-deferred and taxable assets to show that a permanent increase in expected returns produces investment responses for younger or liquidity-constrained investors that are consistent with the data. The results provide evidence that younger investors' recent portfolio experiences have highly persistent effects on their expectations.