INTRODUCTION

We are pleased to present you with this Newsletter.  In this edition we begin with two articles on Financial Planning for younger adults, written from different perspectives.  David wrote the first article from the position of a Senior.  Our most recently hired employee, Jess Potter (the last article introduces her), wrote the second from the position of a Millennial. 

The next article addresses the question of whether Americans can depend on the survival of the Social Security system using the current payment calculations.  That is followed by an article that tries to clarify how to retrieve information from Schwab, with paper documents or by going paperless.

Finally, there is a lengthy piece bringing you up to date on Office Matters.  We hope you enjoy it.    

FINANCIAL PLANNING FOR YOUNG ADULTS

David Otto

This article is written for our younger clients in their 20s or early 30s, who may be just getting started on establishing financial stability.  Even if you are an older reader, you may be interested because you have a child, a grandchild, a neighbor, or an employee for whom you are a mentor.  This article addresses some of the traditional questions for this age group.

The first thing to say about seeking financial stability is, Ask for help. The school system from K through graduate school has often been inadequate in terms of financial education.  So, ask someone with a bit more experience who may have learned a few things, sometimes the hard way.  Or, ask a professional in the field.

If you are still a student, now might be a good time to talk with your family about how they might be able to be involved in your financial future.  Can you stay on your parents’ health insurance plan? The family mobile phone plan?  It is important to understand things you may soon be responsible for.

In this regard, you need to start tracking your spending, knowing where your money goes, and spending it with intention.  Using a charge card or tapping on your phone is very easy, but what you are spending is real money and being aware of your outlay requires a system. 

Having a budget is also important.  It is the only way to manage money successfully at this age.  To this end, setting up categories, such as food, housing and utilities, entertainment, etc. is a first step.  Years ago, some people had envelopes for categories in which they put cash each week or month.  If the envelope was emptied before the period expired, they would spend no more money in that category.  That does not work for people who use credit or debit cards.  But some system is necessary.  There are online programs that may help.

It may also help to see your budget as a statement of values.  If you spend most of your money through a debit or credit card, the card company can provide you with your historical spending.  You can log in and view all purchases in the last 12 months and then put those expenses in categories.  Take out the amount spent on basic food and shelter.  Examine what is left.  Does your spending reflect the things you care most about?  If not, this is an opportunity to spend less on those things you value less, which will allow you to spend more in other categories that bring greater satisfaction.  If you are overspending, this system will point to the most logical areas to cut. 

Managing debt also requires attention.  Many people graduate from college with large student loans.  These can be particularly challenging because there are various types of student loans, with different rules and interest rates.  Also, some student loans qualify for debt forgiveness.  If you have large loans, you need a plan.  Without one, the loans are likely to limit your future options in borrowing additional money for a car or home. 

It is also vital to avoid credit card debt.  Some years ago a young client built up significant debt on a VISA card as she waited for grant money to arrive that was awarded her for a graduate degree.  Even after the grant money paid off the card, she continued charging.  Old habits die hard. 

She now looks back on that as a great lesson.  She claims to have eaten only rice and beans and by the end of the second semester her finances were back to normal.  Credit card debt can be insidious and if it is controlling your life, consider doing something quickly.  And remember:  Ask for help.

Saving money matters.  No one wants to work forever, but when you’re 30, retirement may seem a very long way away.  Early savings will result in having to save less over the long haul.  The easiest way to save is to have money automatically deducted, and if you work for a company, a retirement plan may be available allowing you to contribute with each paycheck.  There is a good chance your employer will match your contribution up to a certain point. 

Developing habits in managing your financial life early in adulthood will pay dividends for the remainder of your life.

(Many of the ideas for this article appeared in a series in the New York Times that began on May 13, 2024, called “A Boot Camp for 20-Somethings.”)

THINGS I WISH I KNEW AT 22

Jess Potter

Millennials (like myself) have experienced 9/11, the 2008 market crash, the COVID-19 pandemic, and a housing crisis.  We who are between the ages of 28–43 have experienced fluctuations in real estate and the stock market and may have a huge amount of student loan debt.  After living and working my adult life in higher education, getting married and having babies in my mid-thirties and not ever having worked in finance before now – here are things I wish I had known when I was twenty-two:

• Make more dinners at home & buy the cheap wine
• Small amounts of savings add up (hello, compound interest!)
• At least match your employer’s retirement contribution – many employers are giving you free money just for saving for retirement!
• Although invincible at 22, complete estate documents to get your wishes on paper.  
• Protect yourself as your greatest asset – get good health and life insurance policies now while you’re young and healthy.
• Start an emergency fund (for when the car your parents gifted you in high school breaks down in Ohio or if you need to put down first month, last month and a security deposit on an apartment)
• Keep driving the old car
• Open a Roth IRA
• Set up a Fun Fund – money for the bigger trips and the new skis.
• Don’t cash out your retirement when you leave a job!
• If you get a raise, add a percent or two into your 401k contribution instead of taking it in your paycheck.

I wonder what 22-year-old me would have thought of these tips.  By now I am fortunate to have, for one reason or another, done at least a few of them.  However, I could have benefitted from learning more financial lessons earlier in life.

If you are a millennial like me, or have kids who are entering into the ‘real world,’ consider giving them some real-life advice on how to be financially independent.  I’m thankful and excited to be at O&A to continue to develop my financial knowledge and skills, and how I can set my two young boys up for financial success in the future.

DO WE NEED TO WORRY ABOUT SOCIAL SECURITY?

Many of you older adults reading this newsletter are happily receiving your monthly checks from Social Security.  There is no doubt that for those who have worked and paid into the system (or had a spouse who did so), Social Security is a significant benefit during your retirement years. 

But what about those who are not yet 70?  There are millions of Americans who are in line to receive payments from the Social Security Administration, and many are wondering if they can count on them.  In fact, many younger people are convinced that Social Security will not be there for them when they retire.  These concerns have some merit.  The latest annual Social Security Trust Fund report that came out in May said that unless something was done, benefits could be cut about 20% starting in 2033.

But do we really need to worry?  There are many indications that fixing the Social Security short-fall problem may be relatively easy.

An article by Jeff Sommer in the New York Times cites a solution suggested by Dr. Alicia Munnell, a Boston College economics professor.  Currently, today’s workers’ pay 6.2% of their salary into the system in the form of a Social Security payroll tax.  Employers also contribute 6.2% for a total of 12.4%. 

Munnell suggests that raising the total tax by 3.5% (the employee and employer would each contribute half) would keep benefits flowing.  While she recognizes that this will be unpopular, raising this payroll tax will solve the problem into the indefinite future and ultimately benefit those who will have to endure the increase today.

There are other ideas that have been suggested to keep Social Security on track.  Benefits could be means-tested so if you made over a certain amount of money – either through investments or other income sources – you would receive a reduced Social Security benefit, or none at all. 

Another solution might be to raise the age at which you can receive your full retirement benefit (currently between 66 and 67).  Or, the Social Security wage base could be increased.  As of today, employees and employers pay Social Security tax up to $168,600 in wages.  All income above that level requires no additional Social Security contributions.

It seems very likely however, that the benefits for those already retired, or nearly retired, won’t be cut.  According to polls, most Americans view Social Security as a crucial part of their financial well-being in retirement and these people vote.  Both major political parties have historically recognized the importance of the program and have worked to protect it, even if their approaches differ.

While Social Security faces challenges, its enduring popularity, bipartisan support, adaptability, and economic importance make it likely to continue as a foundational element of American life.  Policymakers will continue to grapple with how to best ensure its sustainability, but the combination of historical precedent, political will, and public necessity provides a strong case for the program's ongoing presence and relevance.  Social Security's ability to evolve and adapt will be key to maintaining its role in providing security and stability to millions of Americans in the years to come.

PAPER OR PAPERLESS

As you are aware, in the fall of 2023, O&A switched financial custodians from TD Ameritrade to Schwab.  This brought about a number of changes for all of us, and some confusion.  As we prepare for the upcoming tax season, we want you to be aware of choices that you have for accessing 1099s that are sent out from Schwab.

Collecting documents for the 2023 tax year was a challenge.  Most clients had 1099s from both TD Ameritrade and Schwab for all accounts.  We anticipate this year will be much easier with 1099s being issued only from Schwab.

Many clients prefer to go “paperless” so they are not inundated with documents that Schwab is required to send, or they simply choose to send as part of their information/marketing program.  But “paperless” can cause difficulties at tax time if you want hard copies of your tax documents.  It is important to know that “paperless” is not an all or nothing matter.

To choose documents to receive on paper, log into the Schwab Alliance website.  By going to the “Statements & Tax Forms” tab on your Schwab Alliance portal, you can choose to receive your tax documents in paper format.  Simply click on the right side of the page where it says “Update Paperless Preferences” and make sure that your tax forms are not enrolled for paperless delivery.

Alternatively, you can call the office to talk with Jess or Laura and they can make the change so that your accounts are set up the way you want them to be.

OFFICE MATTERS

We have been in our newest Vermont office on Beaver Meadow Road in Norwich for almost two years by now, and we feel quite settled.  The office is in an old house and we have three rooms, each with its own charming fireplace. Eliza has moved on to employment related to her Oberlin College geology degree and is planning to apply to graduate school.  Jess Potter (details below) has moved in to the vacant office. While we miss Eliza, Jess arrived with tremendous energy and an obvious ability to learn new skills quickly.

Eliza Goodell, Susan’s daughter, was hired in January of 2023 as a “temp” at O&A, specifically to help us get through two major transitions: Joan’s retirement and the change from TD Ameritrade to Schwab. She was instrumental in shoring up back-office procedures and supporting clients through both of these events.  Things went so well that we all decided that keeping her on longer was ideal, and she agreed to stay until this past May.  The fall will find her living in Burlington, Vermont.

Jessica (Jess) Potter joined us as our administrative coordinator just before Eliza departed.  She had been an assistant athletics director at Dartmouth College and brings with her experience in organization, technology, and efficiency.   She also enjoys people and problem solving.  She lives in Hartland, Vermont, with her husband and two young boys.  She is a wonderful addition to our team.

Kathy Patton, still fulfilling our Office Manager role from her home in New York, has been enjoying her first grandchild, who is now two years old.  The most recent event in her family is the marriage of her son at the end of August.

Deborah Maher and her family have had two big trips this year.  The first one was to Cuba, and included her husband and three adult children.  She and her husband then went to Seattle in July to visit their son.  While in Seattle, she was able to attend the Pacific West Land lunch meeting and was recognized for travelling the farthest distance to attend the event.

Laura Bergstresser anticipates a busy year with having both a senior in high school and a senior in college.  She is also half-way through the process of becoming a Certified Financial Planner (CFP).  She is enjoying the course work and learning more about financial planning.  She is starting to take on small pieces of planning work, under the supervision of David, Susan, and Deborah, and she attends many client meetings.  We anticipate, as time goes on, that Laura will be a more active participant in the financial planning team.

David continues working at O&A, but on a reduced schedule.  He and his wife, Mary, had a wonderful trip to Germany to attend the opening of daughter Libby’s art show in Weimar.  They then headed to London, where they enjoyed a week of theater, museums, and visits with clients and friends.  David and Mary continue to spend about three months in Maine and reside in Shelburne, Vermont, for the rest of the year.

Susan has fully taken over the management of Otto & Associates, although David is never far away.  She also spends some of her summer in Maine and time with her oyster farmer son, Carter, who lives in Portland.  In addition, throughout the year she and her husband, Jeff, remain committed to Newbury, Vermont, a small, vibrant New England town.

Since our last Newsletter, Otto & Associates has endured a routine examination from the Securities and Exchange Commission (SEC).  This was a random event that happens to financial planning firms every five to ten years.  Aspects of the process continued for nearly six months, but we were pleased with the results.  Only a few insignificant items were faulted, and we were able to easily make the corrections.

Also, since our last Newsletter, David and Mary have sold their condo in New York.  It was hard to give up the Katonah residence, since they have been New Yorkers for over 60 years.  David and Susan will continue to go to Katonah for client meetings that also include Deborah, and have found a VRBO to rent that is still within walking distance of downtown Katonah.  All O&A contact information remains the same, including the phone numbers.

The Vermont office is staffed Monday through Friday and we always welcome visitors.  For those of you who are not near Norwich or Katonah, please keep those destinations in mind if your travels take you to Vermont or New York.  We will always try to arrange our schedules to be able to see you in person.  We also have clients who find their way to Maine in the summer, and we have an office there as well.  While the phone and Zoom are great tools, we always prefer in-person meetings.  We hope to see you soon!