Looking past the headlines of the stock rallies of companies focused on artificial intelligence (Microsoft), high-powered computer chips (Nvidia), and obesity drugs (Eli Lilly, Novo Nordisk), there is an opportunity that excites us even more over the next decade. Each of us interacts with it on a daily basis, yet rarely do we ever give it a second thought. I am of course talking about infrastructure. The US government is set to spend roughly $1.25 trillion across transportation, energy, water, and broadband over the next five to ten years. This will be coupled with significant investment from the private sector and should generate strong risk-adjusted returns for years to come. However, to be clear, this isn’t just a U.S. opportunity. There’s meaningful investment happening in infrastructure across the world.    

But what exactly constitutes infrastructure investment? Interpretations vary, but generally infrastructure investments should have three important attributes:  

1. Provide an essential service.  
2. Clarity over long-term cash flows.  
3. Be difficult to replicate.

Let’s walk through each of these characteristics: 

Provide an essential service.  

The assets should be crucial for the functioning of both the economy and society. This means they should be resilient across the business cycle. These are assets like cell towers, data centers, utilities, pipelines, and shipping.    

Clarity over long-term cash flows.  

Cash flows for these assets should be stable and, ideally, linked to inflation. The assets should have long operational lives with contracted or regulated revenues with high operating margins.   

Difficult to replicate.  

The assets should require significant up-front investment and have established market positions or even monopolies where they operate.   

The last point above is important. Governments and other corporations typically will not let investors run a monopoly or near-monopoly and generate eye-popping returns. However, they will provide a substantial amount of certainty and potentially a good return. Consequently, infrastructure investments have the potential to provide a substantial amount of the market’s upside, with less downside risk. This makes infrastructure a compelling asset for anyone who has a lower risk tolerance than being 100% equity. We have been making a dedicated allocation in many client portfolios to infrastructure investments since late-2019, but some of us have been investing in utilities much longer than that, such as my colleague, Gary Hanson.  

So why am I writing an article about infrastructure now? Why didn’t I write the article 5 years ago? Two reasons:  

1. Because of rising interest rates, public utilities are trading at some of their cheapest valuations in years. It’s not just me saying it, even Morningstar proclaimed utility valuations were the cheapest since 2009.  
2. The publicly traded universe of high-quality infrastructure assets is shrinking. Many of the assets are being acquired by their peers, pension funds, and private equity.   

In light of these dynamics, our investment strategy must adapt, likely involving a greater emphasis on private assets and an expanded investment in infrastructure within client portfolios.  

Expect us to explore opportunities in private assets as we aim to enhance portfolio diversification and yield for our clients. Investing in infrastructure represents a prudent means of securing both stability and growth in an ever-evolving market landscape.  

If you have questions about investing in private infrastructure, feel free to get in touch with myself or one of the investment professionals at Heartland Trust. 

No investment is guaranteed. Other factors than those listed could impact the returns of an asset or asset class. 

  

 

 

How to Perform a Six-Step Maintenance Checkup on Your Retirement Plan 

ADAPTED FROM EPIC RETIREMENT SERVICES 

1. Review Your Goals and Plans: Each year you should ask yourself if you’re on track to reach your retirement goals. Part of that process is imagining (in detail) what you would like to be doing during that stage of your life. Are your goals and plans realistic? Has your thinking changed at all? The American Savings Education Council (asec.org) has a wealth of resources to help you review and adjust your goals and plans as needed, and help you determine how much money you need to save for retirement.
2. Maximize Your Contributions: If you’re not contributing the maximum possible to your plan, increase your contributions by at least 1% each year, with a general goal of eventually reaching around 15% of your salary. Try to contribute at least enough right now to get the full employer match (if offered). It’s one thing to read this and say “yes, I can definitely increase by 1%.” But it’s only going to happen if you log into your account on your recordkeeper’s website right now and make the change!
3. Review Your Investment Strategy: Given all the market turmoil over the past few years, including inflation and economic events beyond our control, it’s smart to ask yourself each year if your asset allocation is still appropriate. Or, if your tolerance for risk has fundamentally changed. Your plan recordkeeper likely has a risk tolerance assessment exercise you can access on their website. In addition, consider working with a financial advisor to help you determine if your investment strategy is in sync with your current personal situation.
4. Rebalance: Rebalancing is the process of adjusting your portfolio’s investments so they match your original allocation. For example, due to ongoing market volatility, your portfolio may have drifted toward either a more aggressive or conservative allocation than you are comfortable with. Rebalancing keeps your portfolio risk within your tolerance limits.
5. Check Beneficiaries: Your spouse is automatically the primary beneficiary of your 401k plan. But, if you are divorced, widowed, or remarried, you should review your beneficiary designations to make sure the correct person is named. If you are married and want to name someone else (such as a child) as your primary beneficiary, your spouse needs to sign a waiver of rights to your 401(k) benefits.
6. Check on Retirement Plan Changes: Does your retirement plan offer any new plan features, tools, or resources? What can you do to take advantage of these opportunities? Also, be sure you have a copy of the Summary Plan Description for your plan (available for free from Human Resources). The Summary Plan Description defines, in plain language, how your plan works and what its features are.

 

Questions on your 401(k)? Reach out to the team at Heartland Trust. We’ll be happy to go over your retirement plan and its features with you, even if it’s not at Heartland Trust. 

  

 

 

Financial wellness programs are increasingly recognized as vital components of an employer’s comprehensive benefits package. More than half of the employers who have initiated such programs have witnessed higher than anticipated utilization rates. This aligns with the findings of a 2023 Workplace Wellness Survey conducted by EBRI/Greenwald Research, revealing that over half of American workers’ concerns about their household’s financial well-being serve as distractions at work. Furthermore, the study indicates that over 90% of employees with access to financial wellness programs find them valuable.  

An effective financial wellness program encompasses financial education, coaching, tools, resources, and incentives that aid employees in managing money, reducing debt, saving for retirement, and achieving financial goals. Such programs contribute to enhancing employees’ financial literacy, confidence, and security while alleviating financial stress and anxiety.  

Employers can also benefit by offering an effective financial wellness program in the following ways:  

1. Increased Productivity and Engagement:  Financially stressed employees may be distracted or unmotivated at work. Financial wellness programs alleviate these concerns, enabling employees to focus on tasks, resulting in improved performance and satisfaction.  
2. Reduced Turnover and Retention Costs:  Employees who feel financially secure and supported by their employer are more likely to remain loyal. Financial wellness programs foster a sense of value and care, often reducing employee turnover.  
3. Enhanced Reputation and Social Responsibility:  Companies offering financial wellness programs demonstrate commitment to employee well-being and community. These programs contribute to improved financial security for employees, positively impacting their families and society.  

Effective financial wellness program general includes the following elements:  

• Assessing Employee Needs:  Understand current financial situations and needs through surveys, interviews, or focus groups.  

• Setting Clear Objectives:  Establish measurable goals based on assessment results.  
• Choosing Delivery Methods:  Determine appropriate delivery methods such as online, in-person, group, or individual sessions.  
• Selecting Qualified Providers:  Choose credible partners like financial experts, coaches, or vendors.  
• Effective Communication:  Promote the program through various channels such as email, intranet, newsletters, or posters.  
• Evaluation and Monitoring:  Assess program outcomes and impacts through feedback, surveys, or metrics.  

 Financial wellness programs offer mutual benefits for both employees and employers. Having a trusted financial professional as part of the program is crucial for ongoing success. The Retirement Services department at Heartland Trust Company collaborates with business clients to educate employees on a variety of retirement planning topics through group and individual sessions. If your business is considering implementing a financial wellness program, or already has one in place, please contact us to find out how Heartland Trust Company can be a valued resource.  

  

 

 

Adapted from Broadridge Communication Services

You know how important it is to plan for your retirement, but where do you begin? One of your first steps should be to estimate how much income you’ll need to fund your retirement. That’s not as easy as it sounds, because retirement planning is not an exact science. Every situation is different, and your specific needs depend on your goals and many other factors.

Adapted from Broadridge Investor Communication Services 

Everyone wants to retire comfortably when the time comes. We may also want to help our children go to college. So how do you juggle the two? The truth is, saving for your retirement and your child’s education at the same time can be a challenge. If you make smart choices now, you may be able to accomplish both goals.

Know what your financial needs are.

The first step is to determine your financial needs for each goal. Answering the following questions can help you get started.

For retirement:

• How many years until you retire?
• Does your company offer an employer-sponsored retirement plan or a pension plan? Do you participate? If so, what’s your balance? Can you estimate what your balance will be when you retire?
• How much do you expect to receive in Social Security benefits? (One way to get an estimate of your future Social Security benefits is to use the benefit calculators available on the Social Security Administration’s website, www.ssa.gov. You can also sign up for a mySocialSecurity account so that you can view your online Social Security Statement. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor’s, and disability benefits.)
• What standard of living do you hope to have in retirement? For example, do you want to travel extensively, or will you be happy to stay in one place and live more simply?
• Do you or your spouse expect to work part-time in retirement?

For college:

• How many years until your child starts college?
• Will your child attend a public or private college? What’s the expected cost?
• Do you have more than one child whom you’ll be saving for?
• Does your child have any special academic, athletic, or artistic skills that could lead to a scholarship?
• Do you expect your child to qualify for financial aid?

Many online calculators are available to help you predict your retirement income needs and your child’s college funding needs.

Figure out what you can afford to put aside each month.

After you know what your financial needs are, the next step is to determine what you can afford to put aside each month. To do so, you’ll need to prepare a detailed family budget that lists all of your income and expenses. Keep in mind, though, that the amount you can afford may change from time to time as your circumstances change. Once you’ve come up with a dollar amount, you’ll need to decide how to divvy up your funds.

Retirement takes priority.

Though college is certainly an important goal, you should probably focus on your retirement if you have limited funds. With generous corporate pensions mostly a thing of the past, the burden is primarily on you to fund your retirement. But if you wait until your child is in college to start saving, you’ll miss out on years of potential tax-deferred growth and compounding of your money. Remember, your child can always attend college by taking out loans (or maybe even with scholarships), but there’s no such thing as a retirement loan!

If possible, save for your retirement and your child’s college at the same time.

Ideally, you’ll want to try to pursue both goals at the same time. The more money you can squirrel away for college bills now, the less money you or your child will need to borrow later. Even if you can allocate only a small amount to your child’s college fund, say $50 or $100 a month, you might be surprised at how much you can accumulate over many years. For example, if you saved $100 every month and earned 8% annually, you’d have $18,415 in your child’s college fund after 10 years. (This example is for illustrative purposes only and does not represent a specific investment. Investment returns will fluctuate and cannot be guaranteed.)

If you’re unsure about how to allocate your funds between retirement and college, a professional financial planner may be able to help. This person can also help you select appropriate investments for each goal. Remember, just because you’re pursuing both goals at the same time doesn’t necessarily mean that the same investments will be suitable. It may be appropriate to treat each goal independently.

Help! I can’t meet both goals.

If the numbers say that you can’t afford to educate your child or retire with the lifestyle you expected, you’ll probably have to make some sacrifices. Here are some suggestions:

• Defer retirement: The longer you work, the more money you’ll earn and the later you’ll need to dip into your retirement savings.
• Work part-time during retirement.
• Reduce your standard of living now or in retirement: You might be able to adjust your spending habits now in order to have money later. Or, you may want to consider cutting back in retirement.
• Increase your earnings now: You might consider increasing your hours at your current job, finding another job with better pay, taking a second job, or having a previously stay-at-home spouse return to the workforce.
• Invest more aggressively: If you have several years until retirement or college, you might be able to earn more money by investing more aggressively (but remember that aggressive investments mean a greater risk of loss). Note that no investment strategy can guarantee success.
• Expect your child to contribute more money to college: Despite your best efforts, your child may need to take out student loans or work part-time to earn money for college.
• Send your child to a less expensive school: You may have dreamed your child would follow in your footsteps and attend an Ivy League school. However, unless your child is awarded a scholarship, you may need to lower your expectations. Don’t feel guilty – a lesser-known liberal arts college or a state university may provide your child with a similar quality education at a far lower cost.
• Think of other creative ways to reduce education costs: Your child could attend a local college and live at home to save on room and board, enroll in an accelerated program to graduate in three years instead for four, take advantage of a cooperative education where paid internships alternate with course work, or defer college for a year or two and work to earn money for college.

Can retirement accounts be used to save for college?

Yes. Should they be? That depends on your family’s circumstances. Most financial planners discourage paying for college with funds from a retirement account; they also discourage using retirement funds for a child’s college education if doing so will leave you with no funds in your retirement years.

However, you can certainly tap your retirement accounts to help pay the college bills if you need to. With Traditional IRAs, you can withdraw money penalty free for college expenses, even if you’re under age 59½ (though there may be income tax consequences for the money you withdraw). In a Roth IRA, you can withdraw the principal tax free if the account has been open for at least 5 years. But with an employer-sponsored retirement plan like a 401(k) or 403(b), you’ll generally pay a 10% penalty on any withdrawals made before you reach age 59½, even if the money is used for college expenses. There may be income tax consequences, as well. (Check with your plan administrator to see what withdrawal options are available to you in your employer-sponsored retirement plan.)

If this is all overwhelming or you need help putting the pieces together, a financial planner can help you with the process. The longer you wait, the less time you will have to save for any goal.

Roth in Retirement Accounts

“What’s the difference between pre-tax and Roth?”

This is one of the most common questions I receive when working with employees enrolling in a 401(k) plan. The decision to make either type of contribution to your retirement account (whether it is an IRA, 401(k), 403(b), etc.) is a complex decision that can have important tax implications now and in the future.

This article will cover some benefits of Roth contributions and how they compare to pre-tax contributions. It is not intended as a recommendation to contribute to Roth account. A qualified tax professional can help you make a decision that is right for your situation.

Often the question of whether to contribute to pre-tax or Roth is simplified by asking if you prefer to pay taxes now (when you earn your income) or later (when you take the money from your account). This question alludes to a big difference between pre-tax and Roth contributions, but it only scratches the surface of the complexity of the decision.

The best-known difference between Roth and pre-tax is the treatment of contributions and withdrawals for tax purposes. Pre-tax contributions reduce earned income in the year of the contribution, so the IRS does not impose a tax on money that goes into the retirement plan. Roth contributions do not reduce earned income in the year of the contribution, so your tax liability doesn’t change.

When you start taking withdrawals from your retirement account, any withdrawals that come from pre-tax contributions will be taxed as income in that year. This includes investment earnings related to the contributions. Roth contributions have already been taxed so withdrawals that come from Roth contributions are not taxed. Also, if the Roth withdrawal is a “qualified distribution,” any investment gains/earnings are tax free as well. A Roth withdrawal is considered a qualified distribution if your first Roth contribution was at least 5 years prior to the distribution and you’re at least age 59½.

All things being equal, the actuarial difference between Roth and pre-tax contributions is zero. But we know that all things do not remain equal over time.

It’s impossible to know whether your effective tax rate will be higher when you retire compared to today – and yet that is a big determining factor in which contribution type is best for you. You may be able to estimate the tax bracket you will be in during retirement, but Congress may change the tax code between now and then.

Another benefit of Roth contributions is that you may have more flexibility during distribution. Currently, Roth IRAs are not subject to Required Minimum Distribution (RMD) rules, but Roth 401(k) accounts are. Starting on January 1, 2024, Roth 401(k) accounts will no longer be subject to RMD rules. The absence of RMDs on your Roth contributions is important because depending on your financial situation in retirement, you may not need to take a distribution every year.

With pre-tax contributions, you’ll be required to take out RMDs every year after you reach a certain age regardless of your financial need. The exclusion of RMDs for Roth contributions will give you the potential to better preserve your retirement balance by only taking money out when you have a financial need to do so.

The chart below illustrates some basic comparisons of pre-tax and Roth contributions. As mentioned earlier, I recommend consulting a qualified tax professional.

	PRE-TAX Contribution	ROTH Contribution
When do I pay taxes on my contribution:	At Retirement Withdrawals taken from your account are taxed **	Today Taxes calculated through current payroll
When do I pay taxes on the earnings:	At Retirement Withdrawals taken from your account are taxed **	Never If specific requirements are met *
Will distributions affect my taxable income during my retirement years:	Yes Withdrawals increase taxable income	No Qualified withdrawals do not increase taxable income

Pre-tax contributions may be right for you, if:

• You are looking for a tax break today.
• You expect your income taxes to be lower when you retire.
• You want to save with a smaller reduction to your current take-home pay.

Roth contributions may be right for you, if:

• You prefer to receive a tax break during retirement rather than today.
• You expect your income taxes to be higher when you retire.
• You have many years to save before retirement.
• You like the thought of never having to pay taxes on investment earnings.*

Since it is hard to predict tax laws in the future, you may be able to make both pre-tax and Roth contributions and not have all of your eggs in the same basket. For an IRA, you would need a traditional IRA for pre-tax and a Roth IRA for Roth contributions. For employer-sponsored retirement plans, you can do this within the same account. It is important to note that employer contributions to employer sponsored retirement plans goes in as pre-tax. As always, consult your accountant or tax professional to see how each option affects your personal tax situation.

*Qualified Roth distributions are tax free if your first Roth contribution was made five years prior and you are at least 59 ½ years of age

**Early withdrawals may incur additional taxes unless exceptions apply. (See Special Tax Notice for specific details)

The end of 2022 brought several noteworthy changes to retirement savings plans. The changes are intended to have positive impacts on the ability to save for retirement and will have lasting impacts on the retirement savings industry in America.

In October of 2022, the Internal Revenue Service (IRS) set the 2023 salary contribution limits for 401(k) and similar employer sponsored retirement plans. The IRS looks at these limits every year.

The salary contribution limit in 2023 for employer sponsored plans is $22,500, an increase of $2,000 from last year. The IRS also increased the 2023 catch-up contribution limit for employer sponsored plans, available for those who are 50 years of age or older. The catch-up limit in 2023 is $7,500, which is an increase of $1,000 from last year. As you can see in the table posted below, the increases to elective deferrals and catch-up contributions are the largest the IRS has made in the last five years.

The biggest news for the retirement savings industry happened days before the end of 2022 when the Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 was signed into law. SECURE Act 2.0 made significant rule changes for individual retirement accounts and employer sponsored retirement plans. The act has generated a lot of excitement because its intention is to expand access to retirement plans, increase the amount being saved for retirement, and help preserve retirement income.

SECURE 2.0 has also gained attention due to its extensive scope. The act has over 90 provisions, making it triple the size of the first SECURE Act passed in 2019. Implementing SECURE 2.0 will be an industry-wide effort, requiring changes in tax laws, labor laws, payroll processes, and recordkeeping systems.

An important feature of SECURE 2.0 is that not all the provisions go into effect in 2023. The act has several provisions effective this year, but many other provisions don’t take effect until 2024 or beyond. It will take time to examine, understand, and implement all the provisions of SECURE 2.0, so this phased-in approach will allow some time for all parties to take the steps necessary to implement the act.

Here is an overview of select provisions of this act that will affect employer sponsored retirement plans:

• Starting in 2023, an individual must start taking Required Minimum Distributions (RMD) from their retirement account at the age of 73, one year later than the current RMD starting age. In 2033, ten years from now, the act moves the RMD starting age to 75.
• Starting in 2024, Roth contributions made into a 401(k) plan will be exempt from RMD requirements. Currently, an individual’s Roth IRA is exempt from RMD requirements, but Roth money in 401(k) plans is not exempt. This provision will create a uniform treatment of RMD requirements on Roth savings.
• Also starting in 2024, there is a new rule for individuals making catch-up contributions. Catch-up contributions must be made as Roth contributions for individuals that earned over $145,000. This will mean that a 401(k) plan that allows individuals to make catch-up contributions must also allow Roth contributions into the plan.
• Starting in 2025, there will be an increased catch-up contribution limit in place for individuals aged 60-63. The catch-up contribution limit for these individuals will be the greater of $10,000 or 150% of the catch-up limit for the year.

If you have any questions regarding SECURE Act 2.0 or any other retirement plan questions, give us a call or send us an email at info@heartlandtrust.com. We’re always here to help.

The economic and investment landscape for 2022 was memorable – and not in the way most of us want to remember.

Despite the increased optimism from investors as we rolled into 2022, the S&P 500 finished the year down 18.13%. The U.S. bond market, normally a safe haven when equity markets fall, posted returns of -13%. Inflation soared to 40 year highs. Interest rates rose to their highest levels since 2008. Egg prices went from roughly $1 per dozen to over $4 per dozen.

Through all of that, it didn’t seem like the sky was falling. We managed to avoid a recession, at least by the traditional economic definition. Unemployment remained low. The S&P 500 loss for 2022 put the value back to where it was 22 months ago in May 2021, a comparatively minor loss to other major market pullbacks. For context, The Great Recession of 2008 erased almost 12 years of gains.

The international markets did not fare quite as well through much of 2022. Most of Europe experienced higher inflation than the U.S.. They avoided a recession because declining oil prices and government subsidies softened the blow when the supply of Russian natural gas was shut off. China also fared better than expected when their “COVID-zero” policy was relaxed and an unexpected rate cut was announced.

Back in the U.S., there is still work to do in 2023. The overall market has shown strong signs of reemergence during the first part of the year. The Fed continues to raise interest rates, albeit at a much slower pace, in its efforts to curb inflation. So far it seems to be working. Return prospects for bonds should be more favorable as the Fed rate hike cycle comes to a close. Even egg prices have started to come down.

Here at Heartland Trust, we continue to do our due diligence with respect to the investments we choose . Our investment process is detailed, tested, and focused on the long-term. We work to capture as much of the upside gain as possible when the market is thriving, while limiting the downside loss during periods of market turbulence.

When it comes to your personal financial well-being, a financial plan is an invaluable tool to have. A good plan will give you a detailed view of your assets and debts, cash flow, and the protections on the life and property within the plan. While it might seem like an overwhelming process at first, the benefits are worth it.

If you already have a financial plan, great job! Make sure it is updated at least annually. Account values change, loans get paid off, new debts get added, personal property is bought and sold, and your financial goals can change. 

If you do not have a financial plan, the best time to get one is now. Look online to find a financial advisor or wealth management company with advisors on staff. It is possible to do financial planning on your own, but important factors could get missed. You should at least have a financial planning professional who is a fiduciary review it. 

Having a financial plan is a key factor in improving your financial wellness. Other benefits include:

• Knowing where your money is going. This will likely be the most noticeable effect once you have a plan. Knowing at a glance how much was saved, how much was earned, and how much was spent in a given time period is invaluable.
• Peace of mind. Understanding where your finances are overall, what areas need improvement, and where you are doing well can take a lot off your mind. It can also help you keep track of accounts you might have forgotten about.
• Improved saving. When you know how much is needed for a goal, your chances of reaching it are much higher. Those with a financial plan are more than twice as likely to save enough for retirement.
• Goal achievement. Having enough for retirement isn’t the only goal a financial plan can include. Education funding, paying off debt, funding vacations, doing charitable giving, and anything else you can attach a dollar amount to can be accounted for and tracked in a plan.
• Knowing your alternatives. Maybe there is a goal that isn’t going to be reached. Knowing that beforehand allows you to seek suitable alternatives.
• Estate planning insight. Want to leave a legacy with your wealth? If you know leaving money to people or organizations that are important to you is part of your estate plan, a financial plan will help.
• Tax planning. A financial plan can help you foresee future tax obligations or opportunities and prepare for them. Many individuals have periods of lower income between retirement and the start of required minimum distributions. This is an excellent time to take advantage of Roth conversions at a lower tax rate. 
• Investment allocation coordination. Most of us don’t have only one account set aside for saving. You may have a 401(k), IRA, Roth IRA, or more just on your own. If you have a spouse, they might also have multiple accounts. With a financial plan you can get a combined look at these accounts to how they are invested and align them to your risk tolerance.

What should be included? A thorough plan should include just about everything you can think of related to your finances.

Assets

• Retirement accounts (401(k), IRA, Pensions)
• Investment accounts
• Bank accounts (checking, savings, CDs)
• Personal property (real estate, land, automobiles, anything else of substantial value)
• Business interests

Liabilities

• Mortgages
• Personal loans
• Student loans
• Any other debts

Protection

• Life Insurance policies
• Long-term care policies
• Property/Casualty insurance policies

Once your plan is complete, the next step is to put it in action. You don’t need to make immediate alterations to your lifestyle. Start incrementally increasing your 401(k) contributions. Create a dedicated account for certain goals and save directly to it.

Want to start a financial plan? Give us a call at Heartland Trust Company. The most important step is to start the process. There is no benefit in putting it off.