The Compass Newsletter: Summer 2020

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erik dullenkopf | wealth manager | certified financial plannerâ„¢ professional ca insurance license #0F97513

I hope this newsletter finds you well, healthy and sane. It certainly has been an interesting year and the rest of 2020 undoubtably promises more. For a little reprieve, we have included some fun future travel ideas as well as an at home dinner date night idea. For those interested in an assessment of what may lie ahead in the economy and markets this year please see our Market Outlook on pages 4 and 5. Aside from the pandemic and economy, a big topic this year has been the SECURE Act implemented in late 2019. This is significant to many of our clients because of the tax impacts it may impose on the next generation when inheriting large IRA’s. For a description of the new laws and some strategies to optimize inherited assets, check out the enclosed article. We will continue working with you closely to evaluate your personal best options to navigate this new environment.


On Wednesday, September 9th we will be hosting an online webinar with guest speaker Bryan Langdon, CLU®, an expert on long term care. This is a discussion about health, lifestyle, family and how you want to be prepared for the unexpected. Bryan will walk us through important considerations such as: • Why long-term care planning is about more than money • The importance of having a written plan • Understanding why Medicaid and Medicare should be your last choice • Considerations and goals when choosing a funding source and insurance options

I t al i an D in n e r D a te Ni g h t Written by Jordan Dullenkopf In late June, I decided to cash in on my Mother’s Day gift...a private Italian Cooking Class. To say we were excited was an understatement. Myself & Erik hadn’t had a date night since the beginning of March when COVID became prevelant in the U.S. and with a 2 year old at home, the opportunity for adult time is few and far between.

On the menu for the evening was homemade fettuccini with roasted garlic and shrimp, baby arugala salad with a lemon vinagarette, and for dessert, polenta budino. As someone who doesn’t eat a ton of pasta, I found the fettuccini out of this world, maybe it was because of all the work put into it.

We had our neighbor watch Douglas, cracked a bottle of red wine and let the cooking begin. The chef showed up to our home donning a full mask, gloves and everything we needed for the class from the pasta maker to the ingredients partitioned for each of us in small bowls.

I have included the recipe for the Roasted Garlic & Shrimp Fettuccini. Highly recommend giving it a try and if you do, send us an email with a picture and let us know! Grazie!



12 Shrimp 2 cloves garlic (minced) 1/4 tsp. white pepper 1 tbsp. olive oil Salt to taste

12 Shrimp (marinated) 2 cups spinach 2 tbsp. shallots 2/3 cup heavy cream 1/2 cup white wine 2 tbsp roasted garlic 1 tbsp. parsley (minced) 4 tbsp. chilled butter 10 oz. fettuccini noodle

1. Combine all ingredients in a bowl and let shrimp marinate for 30 minutes minimum, or overnight if desired.

1. Heat up a 12” pan. Once pan is hot add oil to the pan and then add shrimp. Cook shrimp about 1 minute and then add the shallots. Cook one more minute and flip the shrimp. 2. Once shrimp is flipped cook for one minute and then deglaze with white wine. Season with salt. 3. Cook until mixture is reduce by half. Once reduced by half add the heavy cream and roasted garlic. Stir mixture until garlic is broken up. 4. Next, add the spinach and cook until wilted. Once spinach is wilted, add the butter while continuing to stir. 5. Add the fettuccini and toss to coat. 3

DESPITE BUMPS ALONG THE WAY, ROAD TO ECONOMIC RECOVERY SHOWS PROMISE Presented by Erik Dullenkopf, CFP® Halfway through 2020, we’ve already had enough news (and then some) to fill up an average year. So far, we’ve seen a pandemic explode—then moderate. The stock market crashed—then recovered rapidly. There were protests around the nation—and we don’t know what will come next there. In addition to these major events, politics has steadily become more confrontational, and we know it will likely get worse as we move toward the November elections.

are seeing localized outbreaks in several states and rising case counts in others—the spread of the virus remains moderate in much of the country. Second, the Federal Reserve (Fed) provided substantial monetary support at the same time the federal government provided trillions in stimulus payments. The combination acted as life support until the economy could reopen, and that life support appears to have worked.

Given the headlines, the key to figuring out what is likely to happen over the rest of the year is to focus on the most important trends, which for our industry means the coronavirus pandemic, the economic response to it, and the financial markets.

Financial markets have also responded to the surprisingly positive outcome so far. After an initial drop and what looked like an impending depression, they recovered strongly because of federal support and control of the virus.

DESPITE RISING CORONAVIRUS CASES, POSITIVE ECONOMIC SIGNS EMERGE The real question about the coronavirus for the rest of 2020 is not if there will be a second wave, but whether it will be large enough to derail the economic recovery underway. So far, it does not look like it will. As of early July, we are seeing significant second waves in several states, and rising case counts in many others. It is quite possible we will see lockdowns locally, but a national shutdown looks unlikely, which should allow much of the recovery to continue. Although there are risks to that outlook, it remains the most probable case for the rest of the year.

Looking forward, while the risks of a national resurgence remain, the more probable outcome is that localized outbreaks will be contained as local authorities take appropriate measures. Even if cases increase nationally, the bulk of the damage will likely be confined to a limited number of states. Local shutdowns are to be expected as states respond, but we are still far away from even considering national measures, which means the economic recovery is likely to continue through the end of the year.

Despite the rising case counts, the economic reopening is making solid progress. Job reports so far have indicated the damage has peaked and many have returned to work, leading to a bottoming out and rebound in consumer confidence. Surprisingly strong consumer spending data has validated this, as consumers spend only when employed and confident. Business confidence has rebounded as well, bringing it close to or above pre-pandemic levels.

In fact, it may accelerate. So far, many metrics have recovered much faster than expected. Mobility data is already above pre-pandemic levels, while consumer spending has regained a substantial share of its losses. Auto sales and the housing industry have also shown significant bounces. Overall, for much of the economy, if we trend the recovery over the past several weeks through the end of the year, we could be close to where we were at the start.

The recovery has benefited from two major factors. First, the virus was brought under control faster than expected. Although that improvement has paused—we 4

would be an amazing recovery. Stocks, however, are well above the levels we saw then—which also suggests limited future appreciation. A great deal of good news is already priced in, which means there are downside risks if things do not go as well as expected. Looking at the numbers, the economy will still be in recession in the third quarter but should recover substantially from what looks to be a very weak second quarter. The fourth quarter should see the economy close to breakeven, with the very real prospect of a return to growth at the start of next year. The stock market, in the form of the S&P 500, will likely finish the year around current levels, maybe a bit higher. Interest rates will remain low, as inflation remains under control and the Fed refrains from any increases.

Chances are that won’t happen, of course, and setbacks are likely. Still, based on the data so far, the chances of continued improvement look to be well supported. If we do suffer setbacks, the government is likely to provide more stimulus to close the gap. All in all, these trends should counteract any damage.

POSITIVE MOMENTUM SHOULD CONTINUE THROUGH 2020 The story for the rest of 2020 is continued healing—from the pandemic, economic damage, and market turbulence. Although real risks remain and setbacks are inevitable, the outlook is positive. For the coronavirus, we know what to do and are addressing renewed outbreaks. For the economy, the current momentum should keep us improving through the end of the year. And the market’s confidence in a positive outcome is a good sign for the future.

WITH RECOVERY EXPECTED, MARKETS ARE HOLDING STEADY This is exactly what financial markets are expecting— continued progress on controlling the virus and a smooth economic recovery. Markets have returned close to pre-pandemic highs, and, despite some recent volatility, are holding steady even in the face of state outbreaks and fears from the Fed. Markets expect a positive outcome across the board, and that remains very possible.

Despite the headlines, despite the risks, and despite everything, we move into the second half of the year in a better place than anyone expected a couple of months ago. That is a very good place to start.

The expectation that everything will proceed smoothly, however, limits potential appreciation through the end of the year. With all the good news priced in, valuations are quite high—the highest level in the past decade based on expected earnings. For markets to appreciate beyond that, things have to go even better than expected, which will be difficult.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. Emerging market investments involve higher risks than investments from developed countries, as well as increased risks due to differences in accounting methods, foreign taxation, political instability, and currency fluctuation. Erik P. Dullenkopf, CFP® (CA Insurance license #0F97513) is a Registered Representative and Investment Adviser Representative with/and offers securities and advisory services through Commonwealth Financial Network®, member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through CES Insurance Agency or Screaming Eagle Wealth Management. © 2020 Commonwealth Financial Network®

Markets, for example, now expect earnings for S&P 500 companies to rebound to levels we saw in 2019, which 5

SECURE ACT The Setting Every Community Up for Retirement Enhancement Act

On December 20, 2019, the SECURE Act was signed into law. The SECURE Act contains 29 provisions, encompassing many aspects of financial planning and retirement saving. Once treasury regulations are released, nuances in interpreting this new law will become clearer. Until then, individuals are left to interpret the law’s effects based on the language of the law itself. This article will address what the SECURE Act entails and who it affects, as well as provide suggestions on how to plan for the changes that have been instituted.

individuals and businesses may result in less tax revenue to the government, however. So, the SECURE Act also includes requirements designed to account for this loss of revenue by accelerating the withdrawal and taxation of inherited retirement accounts.

• E liminate the lifetime “stretch” IRA option, requiring nonspouse beneficiaries of IRAs to deplete the inherited balance within 10 years of the decedent’s death (with exceptions; see below for more details).

PLANNING FOR THE LOSS OF THE “STRETCH” IRA OPTION Although there are many ways in which the SECURE Act will change how individuals save for retirement, the provision with the greatest effect is the elimination of the lifetime “stretch” option for IRAs. Prior to the SECURE Act, individual beneficiaries were entitled to stretch out the withdrawal of their inherited retirement account in accordance with their life expectancy. Now, beneficiaries are required to withdraw their entire inherited retirement account within 10 years of the original owner’s death. There are some exceptions to this rule, however. The individuals who remain entitled to the lifetime “stretch” option include: • The surviving spouse of the employee

• P ermit penalty-free withdrawals of up to $5,000 from retirement accounts to help pay for childbirth or adoption expenses.

• A child of the employee who has not reached the age of majority (account would need to be distributed within 10 years of reaching the age of majority)

• E xpand permitted expenses for 529 college savings plans to include apprenticeships, as well as up to $10,000 of qualified student loan repayments for the beneficiary and $10,000 for each of the beneficiary’s siblings (an aggregate lifetime limit, not an annual limit).

• Disabled individuals

KEY PROVISIONS OF THE SECURE ACT • Repeal the prohibition of retirement contributions after the account owner reaches age 70½. • Delay the age for required minimum distributions (RMDs) from 70½ to 72.

• A chronically ill individual • A n individual who is not more than 10 years younger than the employee In most instances, withdrawal of a beneficiary’s retirement account over a 10-year period (rather than over the course of his or her lifetime) will result in substantially less tax-deferred growth, as well as more taxes due on withdrawal from the account. To help mitigate the potential negative ramifications of these changes, below are a few strategies to consider when planning for the loss of the beneficiary “stretch” IRA option.

• R einstate the “kiddie tax” to pre-Tax Cuts and Jobs Act rates. (Excess income will be taxed at the parents’ rate rather than the trust and estate rates.) • A llow graduate students to count stipends and nontuition fellowship payments as compensation for IRA contribution purposes.

Roth conversions. With tax rates at historic lows and uncertainty surrounding their future, it could be a good year to coordinate with a CPA to potentially accelerate Roth conversions, so that beneficiaries may avoid being taxed

Many of the provisions adopted into the Internal Revenue Code as part of the SECURE Act allow individuals more time for tax-deferred savings and growth before distributions are required. The provisions deemed advantageous to 6

rapidly on distributions. This is an especially applicable strategy if the beneficiaries are in a higher tax bracket than the account owner.

Account owners will need to coordinate with their CPA if they are planning to contribute to their IRA after age 70½, as such contributions may affect the QCD treatment.

Alternatively, individuals with legacy priorities may not be motivated to accelerate Roth conversions under the SECURE Act because a grandchild (for example) will not receive the long period of tax-free growth from the inherited Roth. Going forward, account owners should be sure to ask these key questions before making a Roth conversion: • Will the individual need the money within five years of conversion?

Trusts. The SECURE Act decreases the amount of complexity and risk involved in naming a trust as a beneficiary. The costbenefit analysis of tax deferral versus control of distributions will shift, as the stretch would be no more than 10 years. It is imperative that individuals who named a trust as the beneficiary of an IRA prior to the implementation of the SECURE Act review their current estate plan with an attorney to determine how the SECURE Act may affect the distributions from the IRA to the trust. In some instances, trusts drafted prior to the SECURE Act may be obsolete, resulting in a distribution pattern that works against the original intent of the trust.

• W ill the individual be in a higher or lower tax bracket in the future? Are the beneficiaries expected to be in a higher tax bracket? • W here will the individual get the money from to pay the taxes owed because of the conversion?

Estate planning. It may make sense for account owners to revise their estate plan to take a more comprehensive “assetby-asset” approach, rather than to continue splitting assets by percentage. For example, the account owner might earmark IRA assets to be distributed to minors or individuals in lower tax brackets and designate a larger proportion of nonretirement assets to those with higher incomes.

Charitable remainder trusts (CRTs). An account owner could consider naming a CRT as the beneficiary of an IRA. These trusts are structured so that a beneficiary would collect a stream of income from the assets of the CRT for a specified time. At the end of that period, the charity would collect whatever is left. The CRT isn’t taxed on the distribution from the IRA or the income it earns; however, the beneficiary will be responsible for any taxes owed on distributions from the CRT.

WHO IS NOT AFFECTED BY THE SECURE ACT? This new legislation will not affect the following individuals: • Those who turned 70½ prior to December 31, 2019 (Individuals who were 70½ or older as of December 31, 2019, will continue with RMDs under the pre-SECURE Act rules.)

Life insurance. Individuals may want to explore whether taking a withdrawal from the retirement account to pay premiums on a life insurance policy is more advantageous than leaving the retirement account to the beneficiaries. Beneficiaries typically receive life insurance money tax free. Depending on the insurability of the individual, the total death benefit payable to the beneficiaries may exceed what they receive as beneficiary of an IRA. This analysis should be performed by a qualified financial professional.

• Surviving spouses of IRA owners • B eneficiaries of IRA owners who died before December 31, 2019 • B eneficiaries of some owners of existing qualified annuities SECURE YOUR FUTURE As more information becomes available regarding the interpretation of the SECURE Act, it’s important to continue to review all aspects of your financial plan and beneficiary elections to ensure that you understand how you and your family have been affected. Be sure to reach out to your tax professional or contact our office for help navigating your situation.

Qualified charitable distribution (QCD). If an individual is older than 70½, he or she is entitled to make tax-free gifts of up to $100,000 per year from their IRA payable directly to charity. QCDs may become more advantageous after the SECURE Act because IRAs will become a less attractive inherited asset. Therefore, tax-free depletion of the IRA may be more beneficial than the dissipation of other nonqualified appreciated assets, which could pass to beneficiaries at a stepped-up basis.

© 2020 Commonwealth Financial Network®


2021: 2021: TRAVEL’S TRAVEL’S TRIUMPHANT TRIUMPHANT RETURN? RETURN? Taking a break from current events, below are two potential travel ideas for upcoming year.

Scenic Switzerland by Train

9 Days from Zurich to Zurich This Scenic Switzerland by Train tour is the perfect way to see Switzerland’s breathtaking mountains, charming mountain resorts, fascinating old towns, and beautiful lakes—all while you relax in first-class aboard Switzerland’s famous trains. You’ll overnight in Zurich, the Lucerne area, Lausanne, Zermatt, and St. Moritz. One of the highlights of this Switzerland train tour is the train journey aboard the Glacier Express from Zermatt, a picturesque cluster of rustic chalets beneath the majestic Matterhorn, to glitzy St. Moritz, one of the world’s most famous resorts. From your carriage windows, marvel at the thundering waterfalls, impressive snow-capped peaks, glacial ice fields, lush meadows, and picture-perfect villages. Another highlight of this Switzerland train tour is the journey aboard the Bernina Express from St Moritz to Tirano, Italy. Traveling on the highest railway across the Alps, you’ll witness glistening glaciers, stunning mountain streams, and alpine scenery, and you’ll travel through tunnels and over bridges that are engineering masterpieces! But that’s not all…in Zermatt you’ll also experience the Gornergrat open-air cog railway, Europe’s highest. You’ll journey over remarkable bridges, through tunnels, and past rocky ravines and beautiful lakes. The views of the Matterhorn from the top are nothing short of spectacular! Other train journeys you’ll experience on this tour through Switzerland are the Golden Pass Panoramic train to Montreux, situated on the shores of Lake Geneva and known as the “Swiss Riviera.” You’ll feel like you are immersed in the landscapes passing you by.

European Tapestry

14 Day Tour from Amsterdam to Paris

A tapestry takes distinct colors and threads, and weaves them together into a beautiful design. That’s exactly what this European tour—European Tapestry—does. It weaves together the distinct cities, cultures, landscapes, and food of seven countries to make a beautiful vacation to Europe. Start with sightseeing and a canal cruise in Amsterdam and end with sightseeing and a cruise on the River Seine with spectacular views of the Eiffel Tower and Notre Dame Cathedral in Paris. In between, see some of Europe’s must-see attractions, such as the Lion Monument in Lucerne; St. Mark’s Square in Venice; the Colosseum, Sistine Chapel and Vatican Museums in Rome; Signoria Square in Florence, the center of the city’s political life since the 14th century; and the amazing Leaning Tower in Pisa. But that’s not all. Have a beer at a local café in Heidelberg; take a romantic Rhine cruise past castle-crested cliffs and terraced vineyards; learn about woodcarving from a local woodcarver in Germany’s Black Forest and taste the traditional Black Forest Cake; enjoy dinner at a Venetian restaurant to try out local specialties; and a highlight of this European tour is an overnight stay in Monte Carlo. Globus has worked hard behind the scenes to ensure your time and fun is maximized. That’s why we’ve included VIP access in this tour of Europe. That means that rather than waiting in long lines at places such as the Vatican Museums and Colosseum in Rome, you’ll be inside the attractions and enjoying this amazing vacation. It’s just one more way this European tour is sure to delight! Lora Brigham is a Travel Agent in the Ventura County Area. She specializes in River Cruises, European Tours & All-Inclusive Resorts. Lora was kind enough to lend us some ideas for upcoming 2021 Travel. If you are interested in the trips above or additional ideas, please contact Lora at 805.676.0292, or visit her on Facebook at Brigham-Travel.

Screaming Eagle Wealth Management P: 805.643.7700


305 S. Kalorama Street, Suite F, Ventura, CA 93001 E: | W:

Erik P. Dullenkopf, CFP® (CA Insurance license #0F97513) is a Registered Representative and Investment Adviser Representative with/and offers securities and advisory services through Commonwealth Financial Network®, member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through CES Insurance Agency or Screaming Eagle Wealth Management.