Macke Financial AdvisoryGroupTodd C. Macke, CFP®President & Founder12699 New Brittany BlvdFort Myers, FL 33907239-275-1122todd@mackefinancial.comwww.mackefinancial.com

February 2018Key Retirement and Tax Numbers for 2018

Demographic Dilemma: Is America's AgingPopulation Slowing Down the Economy?

Is the Social Security Administration stillmailing Social Security Statements?

How do economists measure inflation, andwhy does it matter to investors?

Macke Financial Advisory GroupWealth Management & Life PlanningWhat's Your Money Script?

See disclaimer on final page

I have a special announcement tomake. Curtis, who graduated MagnaCum Laude from Palm BeachAtlantic University in December, alsopassed his Series 65 exam on thefirst try. This exam is what allowsCurtis to operate as an investmentadviser. Many people struggle withthis exam. Curtis has worked with ussince June of 2014 and for the lastyear, has been working oncoordinating the Orion platform.Orion, if you recall, allows you tomonitor the performance of yourinvestments. Most of you havealready seen the information fromthat, and if you haven't yet, keepwatching to hear from Curtis about it.Orion holds 14 years worth of data toempower you to keep track of what'shappening with your money.

Money is power. Afool and his moneyare soon parted. Apenny saved is apenny earned.Money is the root ofall evil.

Do any of theseexpressions ringtrue for you?

As it turns out, the money beliefs our familiesespoused while we were growing up may havea profound effect on how we behave financiallytoday — and may even influence our financialsuccess.

Beliefs drive behaviorsIn 2011, The Journal of Financial Therapypublished a study by financial psychologistBrad Klontz et al., that gauged the reactions of422 individuals to 72 money-relatedstatements.1 Examples of such statementsinclude:

• There is virtue in living with less money• Things will get better if I have more money• Poor people are lazy• It is not polite to talk about money

Based on the findings, Klontz was able toidentify four "money belief patterns," alsoknown as "money scripts," that influence howpeople view money. Klontz has described thesescripts as "typically unconscious,trans-generational beliefs about money" thatare "developed in childhood and drive adultfinancial behaviors."2 The four categories are:

1. Money avoidance: People who fall into thiscategory believe that money is bad and is oftena source of anxiety or disgust. This may resultin a hostile attitude toward the wealthy.Paradoxically, these people might also feel thatall their problems would be solved if they onlyhad more money. For this reason, they mayunconsciously sabotage their own financialefforts while working extra hours just to makeends meet.

2. Money worship: Money worshippers believethat money is the route to true happiness, andone can never have enough. They feel that theywill never be able to afford everything theywant. These people may shop compulsively,hoard their belongings, and put work ahead ofrelationships in the ongoing quest for wealth.

3. Money status: Similar to moneyworshippers, these people equate net worthwith self-worth, believing that money is the keyto both happiness and power. They may livelavishly in an attempt to keep up with or evenbeat the Joneses, incurring heavy debt in theprocess. They are also more likely than those inother categories to be compulsive gamblers orto lie to their spouses about money.

4. Money vigilance: Money vigilants arecautious and sometimes overly anxious aboutmoney, but they also live within their means,pay off their credit cards every month, and savefor the future. However, they risk carrying alevel of anxiety so high that they cannot enjoythe fruits of their labor or ever feel a sense offinancial security.

Awareness is the first stepAccording to Klontz's research, the first threemoney scripts typically lead to destructivefinancial behaviors, while the fourth is the oneto which most people would want to aspire. Ifyou believe you may fit in one of theself-limiting money script categories, considerhow experiences in your childhood or thebeliefs of your parents or grandparents mayhave influenced this thinking. Then do somereality-checking about the positive ways to buildand manage wealth. As in other areas ofbehavioral finance and psychology in general,awareness is often the first step towardaddressing the problem.1 "Money Beliefs and Financial Behaviors," TheJournal of Financial Therapy, Volume 2, Issue 1

2 Financial Planning Association, accessed October24, 2017

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Key Retirement and Tax Numbers for 2018Every year, the Internal Revenue Serviceannounces cost-of-living adjustments that affectcontribution limits for retirement plans,thresholds for deductions and credits, andstandard deduction and personal exemptionamounts. Here are a few of the keyadjustments for 2018.*

Employer retirement plans• Employees who participate in 401(k), 403(b),

and most 457 plans can defer up to $18,500in compensation in 2018 (up from $18,000 in2017); employees age 50 and older can deferup to an additional $6,000 in 2018 (the sameas in 2017).

• Employees participating in a SIMPLEretirement plan can defer up to $12,500 in2018 (the same as in 2017), and employeesage 50 and older can defer up to anadditional $3,000 in 2018 (the same as in2017).

IRAsThe limit on annual contributions to an IRAremains unchanged at $5,500 in 2018, withindividuals age 50 and older able to contributean additional $1,000. For individuals who arecovered by a workplace retirement plan, thededuction for contributions to a traditional IRAis phased out for the following modifiedadjusted gross income (AGI) ranges:

2017 2018

Single/headof household(HOH)

$62,000 -$72,000

$63,000 -$73,000

Married filingjointly (MFJ)

$99,000 -$119,000

$101,000 -$121,000

Married filingseparately(MFS)

$0 - $10,000 $0 - $10,000

Note: The 2018 phaseout range is $189,000 -$199,000 (up from $186,000 - $196,000 in2017) when the individual making the IRAcontribution is not covered by a workplaceretirement plan but is filing jointly with a spousewho is covered.

The modified AGI phaseout ranges forindividuals to make contributions to a Roth IRAare:

2017 2018

Single/HOH $118,000 -$133,000

$120,000 -$135,000

MFJ $186,000 -$196,000

$189,000 -$199,000

MFS $0 - $10,000 $0 - $10,000

Estate and gift tax• The annual gift tax exclusion for 2018 is

$15,000, up from $14,000 in 2017.• The gift and estate tax basic exclusion

amount for 2018 is $11,200,000, up from$5,490,000 in 2017.

Personal exemptionThere is no personal exemption amount for2018; it was $4,050 in 2017. For 2018, there isno phaseout of personal exemptions or overalllimit on itemized deductions once AGI exceedscertain thresholds.

Note: For 2017, personal exemptions werephased out and itemized deductions werelimited once AGI exceeded $261,500 (single),$287,650 (HOH), $313,800 (MFJ), or $156,900(MFS).

Standard deduction

2017 2018

Single $6,350 $12,000

HOH $9,350 $18,000

MFJ $12,700 $24,000

MFS $6,350 $12,000

Note: The additional standard deductionamount for the blind or aged (age 65 or older)in 2018 is $1,600 (up from $1,550 in 2017) forsingle/HOH or $1,300 (up from $1,250 in 2017)for all other filing statuses. Special rules apply ifyou can be claimed as a dependent by anothertaxpayer.

Alternative minimum tax (AMT)

2017 2018

Maximum AMT exemption amount

Single/HOH $54,300 $70,300

MFJ $84,500 $109,400

MFS $42,250 $54,700

Exemption phaseout threshold

Single/HOH $120,700 $500,000

MFJ $160,900 $1,000,000

MFS $80,450 $500,000

26% rate on AMTI* up to this amount, 28%rate on AMTI above this amount

MFS $93,900 $95,750

All others $187,800 $191,500

*Alternative minimum taxable income

*The Tax Cuts and Jobs Actmade significant changes tothe estate and gift tax, thepersonal exemption, thestandard deduction, and thealternative minimum tax,which are included here.

Page 2 of 4, see disclaimer on final page

Demographic Dilemma: Is America's Aging Population SlowingDown the Economy?It's no secret that the demographic profile of theUnited States is growing older at a rapid pace.While the U.S. population is projected to growjust 8% between 2015 and 2025, the number ofolder Americans ages 70 to 84 will skyrocket50%.1

With roughly 75 million members, babyboomers (born between 1946 and 1964) makeup the largest generation in U.S. history. As agroup, boomers have longer life expectanciesand had fewer children than previousgenerations.2

Now, after dominating the workforce for nearly40 years, boomers are retiring at a rate ofaround 1.2 million a year, about three timesmore than a decade ago.3

Though the economy has continued to improvesince the Great Recession, gross domesticproduct (GDP) growth has been weakcompared with past recoveries. A number ofeconomists believe that demographic changesmay be the primary reason.4

Spending shiftsThe lower birth rates in recent decadesgenerally mean that fewer young people arejoining the workforce, so the consumerspending that fuels economic expansion andjob creation could take a hit. When youngpeople earn enough money to strike out ontheir own, marry, and start families, it typicallyspurs additional spending — on places to live,furniture and appliances, vehicles, and otherproducts and services that are needed to set upa new household.

On the other hand, when people retire, theytypically reduce their spending and focus moreon preserving their savings. Moreover, retirees'spending habits are often different from whenthey were working. As a group, retirees tend toavoid taking on debt, have more equity built upin their homes, and may be able to downsize ormove to places with lower living costs. Morespending is devoted to covering health-carecosts as people age.

If a larger, older population is spending lessand the younger population is too small to driveup consumer spending, weaker overall demandfor products and services could restrain GDPgrowth and inflation over the long term. Lessborrowing by consumers and businesses couldalso put downward pressure on interest rates.

A new normal?The onslaught of retiring baby boomers haslong been expected to threaten the viability ofSocial Security and Medicare, mainly becauseboth are funded by payroll taxes on current

workers. But this may not be the onlychallenge.

A 2016 working paper by Federal Reserveeconomists concluded that declining fertility andlabor force participation rates, along withincreases in life expectancies, accounted for a1.25 percentage point decline in the natural rateof real interest and real GDP growth since1980. Furthermore, the same demographictrends are expected to remain a structuralimpediment to economic growth for years tocome.5

Put simply, a nation's potential GDP is aproduct of the number of workers times theproductivity (output) per worker, and the U.S.workforce is shrinking in relation to the totalpopulation.

The labor force participation rate — thepercentage of the civilian labor force age 16and older who are working or actively lookingfor work — peaked at 67.3% in early 2000, notcoincidentally the last time GDP grew by morethan 4%. The participation rate has droppedsteadily since then; in August 2017, it was62.9%. This reflects lower birth rates, increasedcollege enrollment, some men in their primeworking years dropping out of the labor force,and large numbers of retiring baby boomers.6

Many economists acknowledge that U.S.population trends are a force to be reckonedwith, but the potential impact is still up fordebate. Some argue that labor shortages coulddrive up wages and spending relatively soon,followed by higher growth, inflation, and interestrates — until automated technologies startreplacing larger numbers of costly humanworkers.7

Even if demographic forces continue to restraingrowth, it might not spell doom for workforceproductivity and the economy. Another babyboom would likely be a catalyst for consumerspending. Family-friendly policies such as paidmaternity leave and day-care assistance couldprovide incentives for women with children toremain in the workforce. It's also possible that alarger percentage of healthy older workers maydelay retirement — a trend that is alreadydeveloping — and continue to add theirexperience and expertise to the economy.8

1, 3) The Conference Board, February 24, 2017

2) The Wall Street Journal, January 16, 2017

4-5) Federal Reserve, 2016

6, 8) The Financial Times, October 25, 2016

7) U.S. Bureau of Labor Statistics, 2016-2017,Bureau of Economic Analysis 2017

Page 3 of 4, see disclaimer on final page

Macke FinancialAdvisory GroupTodd C. Macke, CFP®President & Founder12699 New Brittany BlvdFort Myers, FL 33907239-275-1122todd@mackefinancial.comwww.mackefinancial.com

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2018

IMPORTANT DISCLOSURES

Broadridge Investor CommunicationSolutions, Inc. does not provideinvestment, tax, legal, or retirementadvice or recommendations. Theinformation presented here is notspecific to any individual's personalcircumstances.

To the extent that this materialconcerns tax matters, it is notintended or written to be used, andcannot be used, by a taxpayer for thepurpose of avoiding penalties thatmay be imposed by law. Eachtaxpayer should seek independentadvice from a tax professional basedon his or her individualcircumstances.

These materials are provided forgeneral information and educationalpurposes based upon publiclyavailable information from sourcesbelieved to be reliable — we cannotassure the accuracy or completenessof these materials. The information inthese materials may change at anytime and without notice.

How do economists measure inflation, and why does itmatter to investors?The Federal Open MarketCommittee (FOMC) adjustsinterest rates to help keepinflation near a 2% target. The

FOMC's preferred measure of inflation is thePrice Index for Personal ConsumptionExpenditures (PCE), primarily because itcovers a broad range of prices and picks upshifts in consumer behavior. The Fed alsofocuses on core inflation measures, which stripout volatile food and energy categories that areless likely to respond to monetary policy.

The typical American might be more familiarwith the Consumer Price Index (CPI), whichwas the Fed's favorite inflation gauge until2012. The Consumer Price Index for All UrbanConsumers (CPI-U) is used to determinecost-of-living adjustments for federal incometaxes and Social Security.

The CPI only measures the prices thatconsumers actually pay for a fixed basket ofgoods, whereas the PCE tracks the prices ofeverything that is consumed, regardless of whopays. For example, the CPI includes a patient'sout-of-pocket costs for a doctor's visit, while thePCE considers the total charge billed to

insurance companies, the government, and thepatient.

The PCE methodology uses current and pastexpenditures to adjust category weights,capturing consumers' tendency to substituteless expensive goods for more expensiveitems. The weighting of CPI categories is onlyadjusted every two years, so the index does notrespond quickly to changes in consumerspending habits, but it provides a goodcomparison of prices over time.

According to the CPI, inflation rose 2.1% in2016 — right in line with the 20-year average of2.13%.1 This level of inflation may not be a bigstrain on the family budget, but even moderateinflation can have a negative impact on thepurchasing power of fixed-income investments.For example, a hypothetical investment earning5% annually would have a "real return" of only3% during a period of 2% annual inflation.

Of course, if inflation picks up speed, it couldbecome a more pressing concern forconsumers and investors.1 U.S. Bureau of Labor Statistics, 2017 (data throughDecember 2016)

Is the Social Security Administration still mailing SocialSecurity Statements?Your Social SecurityStatement provides importantinformation about your SocialSecurity record and future

benefits. For several years, the Social SecurityAdministration (SSA) mailed these statementsevery five years to people starting at age 25,but due to budgetary concerns, the SSA hasstopped mailing Social Security Statements toindividuals under age 60.

Workers age 60 and over who aren't receivingSocial Security benefits will still receive paperstatements in the mail, unless they opt to signup for online statements instead. If you're age60 or older, you should receive your statementevery year, about three months before yourbirthday. The SSA will mail statements uponrequest to individuals under age 60.

However, the quickest way to get a copy ofyour Social Security Statement is to sign up fora my Social Security account at the SSAwebsite, ssa.gov. Once you've signed

up, you'll have immediate access to yourstatement, which you can view, download, orprint. Statement information generally includesa projection of your retirement benefits at age62, at full retirement age (66 to 67), and at age70; projections of disability and survivorbenefits; a detailed record of your earnings; andother information about the Social Securityprogram.

The SSA has recently begun using a two-stepidentification method to help protect my SocialSecurity accounts from unauthorized use andpotential identity fraud. If you've neverregistered for an online account or haven'tattempted to log in to yours since this change,you will be prompted to add either your cellphone or email address as a secondidentification method. Every time you enter youraccount username and password, you will thenbe prompted to request a unique security codevia the identification method you've chosen,and you need to enter that code to completethe log-in process.

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