Hermosa Advisors

"Tools, not rules"

There are many financial rules of thumb out there, dating back years or decades (and not all still apply):

> 4% withdrawal rule
> Always max your 401k
> Claim SS early
> Claim SS late.

These guidelines were developed during a time when there was not much else to go by. Analytics were once limited to a sharp pencil and a calculator. Even ten years ago, that was all that many had to work with. The advances in tax and financial analytics has changed tremendously in the last ten years....has your strategy kept up?

My #1 expense is on software tools. It allows me to look very specifically at your income, investment return and tax situation to both give better guidance and illustrate better guidance.

Sometimes the guidance is counterintuitive, but made clear by explanation and graphical representation. Working with me is a visual experience! You may not be used to this level of insight or service.....clear and client centered.

As well, if you are paying an advisor 1% on a portfolio of $1,000,000, you are paying them more than what it costs to work with me on an annual basis. Your choice. As the industry has evolved, smart clients are increasingly relying on tools, not rules.

I can show you options to stay at the top of a tax bracket while minimizing going over by using leading technology tools.

One of the shifts that occurs when we are becoming "better at money" is turning the subject of taxation from an April chore to a focused set of multi-month discussions with a multi-year perspective. My clients are making that shift.

It does start with understanding what is available to you.

This past week, the IRS published their updates for 2025 as to limits and parameters for tax-advantaged accounts and how they have been affected by inflation. This generally includes two things:

> How much you can contribute to different types of tax-advantaged accounts
> Income limits for contributing to said accounts.

Here are some edited highlights that might apply to my clients:

> The annual contribution limit for employees who participate in 401(k), 403(b), governmental 457 plans, and the federal government’s Thrift Savings Plan is increased to $23,500, up from $23,000.

> The limit on annual contributions to an IRA remains $7,000. The IRA catch‑up contribution limit for individuals aged 50 and over remains $1,000 for 2025.

> The catch-up contribution limit that generally applies for employees aged 50 and over who participate in most 401(k), 403(b), governmental 457 plans, and the federal government’s Thrift Savings Plan remains $7,500 for 2025. Therefore, participants in most 401(k), 403(b), governmental 457 plans and the federal government’s Thrift Savings Plan who are 50 and older generally can contribute up to $31,000 each year, starting in 2025. Under a change made in SECURE 2.0, a higher catch-up contribution limit applies for employees aged 60, 61, 62 and 63 who participate in these plans. For 2025, this higher catch-up contribution limit is $11,250 instead of $7,500.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the Saver’s Credit all increased for 2025. Here are the phase‑out ranges for 2025:

> For single taxpayers covered by a workplace retirement plan, the phase-out range is increased to between $79,000 and $89,000, up from between $77,000 and $87,000.
> For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to between $126,000 and $146,000, up from between $123,000 and $143,000.
> For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the phase-out range is increased to between $236,000 and $246,000, up from between $230,000 and $240,000.
> The income phase-out range for taxpayers making contributions to a Roth IRA is increased to between $150,000 and $165,000 for singles and heads of household, up from between $146,000 and $161,000. For married couples filing jointly, the income phase-out range is increased to between $236,000 and $246,000, up from between $230,000 and $240,000.
> The amount individuals can generally contribute to their SIMPLE retirement accounts is increased to $16,500, up from $16,000.

There is a lot here but I am available to explore it with you and answer any questions that you might have.

I sometimes encounter those who think of buying stocks as gambling for rich people. Perfectly understandable with the daily news obsession with price, but there is a different and healthier perspective on financial markets.

Disability insurance is a financial safety net that provides income replacement in case of injury or illness, enabling individuals to maintain financial stability when unable to work. It safeguards against lost earnings during periods of disability. Do you know what you have?

"The three big decisions:
what you do, where you live, and who you’re with."
Naval Ravikant

"When the sun is bright
And the breeze is kind
You've got what it takes
To be free"
Dylan Gossett

For everyone buying an asset at a certain price, someone is selling it…often with equal conviction that they are doing the right thing, though for different reasons. What is your reason for buying or selling?

"Ask yourself at the start of the day how you want to feel at the end of the day"

Julie Elion (sports psychologist)

"Economics for $200, Alex"

Well, friends, if you are looking for a financial advisor that has been on Jeopardy, there is really only one choice. It was a fun experience and if you want to hear more about it, call me!

If a firm promotes transparency but does not publish a fee structure on their website, a consumer is left with more questions than answers. True fee transparency should be the industry standard. As a consumer, you should look for this and insist on it.

My fees are easily found and defined on my website https://www.hermosaadvisors.com/our-process-fees

Money is numbers and numbers never end. If it takes money to be happy, your search for happiness will never end"
Bob Marley

Valleys.

Some are good (think Yosemite Valley), some not so much.
When people say that they have been experiencing peaks and valleys, they generally ascribe the word "valley" to the tough parts. However, that does not have to be the case.

There is a valley of income that can be good as one approaches retirement. Let me explain. It is not uncommon to see clients:
> Retire at 65.
> Claim Social Security at 67 or later.
> Begin to receive Required Minimum Distributions (RMDs) at 73.

During this transition, your income as graphed will look like a valley. During that income valley, you do have the ability and discretion as to how you draw funds.

Our progressive income tax system provides an opportunity to potentially pay taxes at a much lower rate during this period and can use that to do such things as Roth Conversions or realization of capital gains.

For some, this can provide significant benefits at the time that can then grow throughout their retirement. Might that apply to you? I can easily run through these concepts in an introductory conversation that you can schedule in the link below. https://hermosaadvisors.com/schedule-a-call

It is important to have some way to track your spending.

However, there is no “one way”. By category is a way. Aggregate is a way. Here is a simple way:

> Auto-invest for 401k, IRA, 529 via automatic/payroll deduction or similar.
> Run all of your paychecks and bills through one checking account and see if the balance creeps up or down.
> Get into the details when you need more understanding.

People freeze up because they don’t have the perfect budgeting or
cash tracking system. It’s OK. Just start with an imperfect system and improve it.

For those that want more, here are a few apps that are well-regarded and worth your consideration:

> Monarch Money has budgeting functionality and you can build in investment tracking if you wish It has a 7 day free trial.
> YNAB (You need a Budget) is more strictly focused on budgeting. It has a 34 day free trial.

I never intrude on how people spend their money. Spend it all on avocado toast if you wish. I do ask people if their spending is aligned with their values or if they know what they spend. That is a great conversation...

Every Sunday afternoon, I publish a newsletter about financial markets and life. Loyal subscribers know that it is worth a read! Message me with your email address and I will send it to you also.

Thoughts on life insurance:
1) It allows you to provide for your dependent loved ones if you die prematurely.
2) If no one depends on your income, you generally don’t need it.
3) It helps you sleep better at night.
4) Term is the best form of life insurance for most clients.

“He’s listed as day-to-day, but then again, aren’t we all?” - Vin Scully

“Doing well with money has a little to do with how smart you are and a lot to do with how you behave.” Morgan Housel