For most of your working life, the government gives you a pretty nice deal with accounts like a Traditional IRA or 401(k).

You put money in before paying income taxes on it. The money can grow tax-deferred for years or even decades. You generally pay the tax when you take the money out.

The government is patient.

It is not that patient.

Eventually, the IRS requires you to start withdrawing a minimum amount each year from certain retirement accounts.

That required withdrawal is your RMD.

You are always allowed to take out more than your RMD. The RMD is only the minimum amount you are required to withdraw.

For most retirees, these distributions are taxable as ordinary income.

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When do RMDs start?

The start of these required distributions depends on when you were born. If you were born between 1951 and 1959, your RMDs begin at age 73. If you were born in 1960 or later, they begin at 75.

In any given year, your RMD needs to be taken by December 31 but there is one exception with your very first RMD.

You’re allowed to delay that first distribution until April 1 of the following year.

That may sound tempting but doing so could mean taking two RMDs in the same calendar year.

Imagine you turn 73 and decide to delay your first RMD until the following March.

You would take that RMD in March.

Your next RMD would still be due by December 31.

Now you have two taxable distributions showing up in the same tax year.

This doesn’t necessarily make delaying the first RMD a mistake but it is something worth noting.

How is my RMD calculated?

Despite everything the tax code has done to earn its reputation, the basic RMD calculation is relatively straightforward.

The IRS looks at two things:

1. The value of your retirement account on December 31 of the previous year.

2. A life expectancy factor published by the IRS based on your age.

You divide the account balance by the life expectancy factor.

Let’s say you turn 73 this year and had $1 million in your IRA on December 31 of last year.

The IRS Uniform Lifetime Table gives a 73-year-old a factor of 26.5.

Here is what the calculation looks like:

$1,000,000 ÷ 26.5 = $37,736

Your RMD would be approximately $37,736.

Your investment company will help calculate this for you, so I would not expect many retirees to be sitting at the kitchen table with an IRS life expectancy chart and a calculator but it still helps to know where the number comes from.

There is an exception worth mentioning.

If your spouse is your sole beneficiary and is more than 10 years younger than you, the IRS allows you to use its Joint Life and Last Survivor Expectancy Table instead.

Because the calculation considers both life expectancies, the required distribution may be smaller.

The majority of married couples will use the standard Uniform Lifetime Table.

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Which accounts have RMDs?

RMD rules typically apply to your tax-deferred retirement accounts:

• Traditional IRAs

• Rollover IRAs

• SEP IRAs

• SIMPLE IRAs

• 401(k)s

• 403(b)s

• Governmental 457(b) plans

• Other defined contribution retirement plans

One exception is the Roth IRA.

Roth IRAs don’t require RMDs while the original owner is alive. Roth 401(k) and Roth 403(b) accounts also no longer require lifetime RMDs for the original owner.

That is one of the differences between Roth and traditional retirement accounts.

With a traditional retirement account, you received the tax break upfront and the government eventually requires distributions.

With a Roth, you already paid the tax before the money went in. Qualified withdrawals can then come out tax-free and the IRS does not force the owner to withdraw the money during their lifetime.

Do I have to take an RMD if I’m still working?

Possibly.

If you’re still working after reaching RMD age, you have to take RMDs from your Traditional IRAs.

Your current workplace retirement plan may be different.

If you’re still employed and don’t own more than 5% of the company, your plan may allow you to delay RMDs from that employer’s 401(k) or 403(b) until after you retire.

The exception typically applies only to the retirement plan sponsored by your current employer.

It does not apply to:

• Traditional IRAs

• 401(k)s or 403(b)s left behind at former employers

• Other retirement accounts that are already subject to RMDs

If you qualify for the exception, the first RMD from your current employer’s plan could also be delayed until April 1 of the year after you retire.

One important caveat: your employer’s retirement plan can require distributions sooner, so it is worth checking the specific plan rules.

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What should I do with my RMD?

It’s important to plan ahead before you take your RMD.

Here are a few ideas to consider.

1. Spend it

If you need money for normal retirement expenses, this is the easy one.

Your RMD can help cover the mortgage, groceries, travel, property taxes or whatever else retirement happens to bring that year.

For someone already withdrawing money from an IRA to support their lifestyle, the RMD may not change much. Your normal withdrawals may already satisfy the requirement.

2. Reinvest it

Maybe you’re required to take $30,000 from your IRA but don’t actually need $30,000. You don’t have to leave your RMD sitting in your checking account.

If you don’t need your RMD for daily living expenses, simply move that amount into a taxable investment account.

3. Give it away

If you’re charitably inclined, there may be another option.

You can help others and lower your tax burden.

Once you reach age 70.5, you may be eligible to make a Qualified Charitable Distribution, commonly called a QCD.

A QCD is a transfer of funds from your IRA, made out to a qualified charity. Once you're of RMD age, a QCD can also count toward satisfying your RMD.

There are parameters.

The annual maximum is $111,000 per individual, or $222,000 for a married couple filing jointly ($111,000 from each of their respective IRAs), for the 2026 tax year.

If you already give to charity every year, this can be a tax-advantaged way to accomplish something you were planning to do anyway.

4. Use it to pay your taxes

You can also have federal and/or state income taxes taken out of an IRA distribution. This can be helpful for retirees who would otherwise need to make estimated tax payments during the year.

Instead of taking the entire RMD and then writing a separate check, you can have part of the distribution withheld for taxes.

You receive the remainder, the IRS collects its share and everybody goes home happy.

Well, maybe not happy but the taxes are paid.

RMDs are more manageable than they sound

There are plenty of more complicated RMD rules, especially when inherited retirement accounts enter the picture. For most retirees dealing with their own accounts, the basic framework is much simpler.

You reach your RMD age.

The IRS determines a minimum withdrawal based on your prior year-end balance and life expectancy.

You take at least that amount out of the appropriate retirement accounts.

Then you decide what you actually want to do with the money.

Spend it, reinvest it, give it away or use part of it to cover your tax bill.

The distribution may be required but what happens next is up to you.

Sources

Internal Revenue Service – Required Minimum Distributions (RMDs)
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds

Used to explain: What an RMD is, when RMDs begin, annual deadlines, how RMDs are calculated, which retirement accounts are subject to RMDs and the treatment of Roth accounts.

Internal Revenue Service – Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs)
https://www.irs.gov/publications/p590b

Used to explain: The IRS Uniform Lifetime Table, the Joint Life and Last Survivor Expectancy Table for a spouse who is the sole beneficiary and more than 10 years younger and Qualified Charitable Distribution rules.

He started with his company in his early 30s and he stayed there for his entire career. Over the years, he received company stock as compensation, bought more stock through the employee stock purchase plan and reinvested dividends along the way.

The company did well and so did Paul.

By the time he retired, he had built a portfolio worth more than $2 million. About $900,000 of his portfolio was invested in his former employer’s stock.

He had only put in about $180,000 over the course of his career, but the stock had been very good to Paul.

When I first met Paul, we talked about reducing it and he asked two questions I would expect just about anybody to ask.

“Why would I sell the best investment I own?” and “Do you know how much tax I'm going to owe?”

Both are fair questions and both are reasons Paul needed a plan.

A great investment can become too important

Selling all $900,000 tomorrow would solve the concentration problem, but Paul was sitting on about $720,000 of unrealized gains.

Long-term capital gains can be taxed federally at 0%, 15% or 20%, depending on taxable income. Some higher-income taxpayers can also face a 3.8% net investment income tax. State taxes can add another layer.

A giant sale would come with a giant bill, and understandably, Paul was not too excited about it.

Paul needed an exit ramp.

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Start with the destination

Before selling a single share, I wanted Paul to decide what he was working toward. Did he want to get out completely? Did he want to hold onto some shares? How much of his retirement income actually depends on this one position?

The right number will be different for every investor. Someone with a large pension and plenty of money beyond what they will ever spend can tolerate more concentration in a single stock than someone relying heavily on a portfolio for retirement income.

Selling some shares when the timing feels right is not a plan. Paul needed a target and a rough timetable for getting to his destination.

Fortunately he had options.

Spread the sale across several tax years

Paul's $720,000 gain does not have to appear on a single year's tax return. He can sell shares of his position over several years. Retirement could give him that opportunity.

Let’s say Paul retires at 65 and his paychecks disappear. Perhaps he delays Social Security and his required minimum distributions are still several years away.

These lower income years could be a window of opportunity to realize capital gains at a far more favorable tax cost.

Harvest losses elsewhere

Paul's company stock is not the only investment in his portfolio. Suppose we sell some shares and realize a gain of $60,000. Other areas of his portfolio happen to have a loss of about $20,000.

Capital losses generally offset capital gains. If losses exceed gains, individuals can generally deduct up to $3,000 of additional net capital losses against other income for the year and carry any remaining losses forward to future years.

Nobody likes to see an investment fall, but if the loss already exists, it may be useful to Paul as he tries to diversify a highly appreciated position.

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Charity can help shrink the position too

Suppose Paul gives $20,000 to his favorite charity every year.

In previous years he wrote a check, while sitting on a stock he would not sell because he was concerned about the tax bill.

Selling shares and donating the cash means passing through a tollbooth. The capital gains tax comes out first.

Donating the shares goes around that tollbooth. Paul paid about $.20 on the dollar for that stock, so a $20,000 gift carries about $16,000 of gains that he never has to report.

If he itemizes, he can generally deduct today's value too, though new limits this year trim that a bit.

Only giving above 0.5% of your income counts and stock gifts are capped at 30% of your income for the year.

If the charitable intent already exists, appreciated stock is worth discussing before someone reaches for the checkbook.

Stop buying more

Every quarter, the company paid Paul a dividend and every quarter he reinvested the dividends automatically.

In Paul's situation, this position did not need any more encouragement. Turning off the dividend reinvestment was an easy way to stop adding fuel to the fire. It also freed up cash he could put toward the rest of his portfolio.

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What if the stock keeps going up?

It may.

Diversification does not guarantee the highest return. Paul was not minimizing the position because he believed his former employer was a bad company. He was minimizing it because it made up 45% of his portfolio.

Imagine Paul never owned the stock. Instead, he retires with $2 million sitting in cash.

Would Paul take $900,000 and buy shares of his former company?

That question makes the risk a lot easier to see.

Paul's employer stock had done something incredible.

It helped him build wealth.

He did not need to spend the rest of his retirement asking it to protect that wealth too.

Any client specific information in this article, including names, ages, occupations and financial figures, is fictionalized and used for illustrative purposes only. The examples are not intended to represent any particular client, investment or recommendation. Investment strategies involve risk, and diversification does not guarantee a profit or protect against loss.

Sources

• Internal Revenue Service - https://www.irs.gov/taxtopics/tc409

  Used to explain: The federal tax treatment of long-term capital gains and the general 0%, 15% and 20% long-term capital gains rate structure.

• Internal Revenue Service - https://www.irs.gov/individuals/net-investment-income-tax

  Used to explain: The 3.8% Net Investment Income Tax that can apply to certain investment income for taxpayers whose income exceeds the applicable thresholds.

• Internal Revenue Service - https://www.irs.gov/taxtopics/tc409

  Used to explain: How capital losses offset capital gains, the annual deduction for excess net capital losses and the carryforward of unused capital losses.

Two retirees can:

• Start with the same amount

• Invest in the same portfolio

• Withdraw the same amount

• Receive the same annual returns

Yet, they can finish with dramatically different balances.

This is called sequence of returns risk.

One retiree can finish with nearly twice as much money as the other.

The only difference? The order in which those returns arrive.

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Meet Margaret and Diane

They are sisters, born two years apart. They grew up in the same house, attended the same schools and spent most of their adult lives comparing notes.

Who had the tougher teacher?

Whose children slept through the night first?

Who makes a better chicken salad?

That question remains unresolved and occasionally threatens the family summer vacation.

They also followed similar financial paths. Both worked for more than 35 years. Both saved consistently. Both retired at age 65 with $1 million invested. Each sister planned to withdraw $50,000 from her portfolio at the end of every year. They even invested in portfolios that earned the same annual returns over the following 10 years.

You could reasonably assume they would end up in the same place.

They did not.

Margaret retires into a bad market

Margaret retires first and almost immediately, markets begin to tumble.

Her first three annual returns are:

• − 20%

• − 15%

• − 10%

Not exactly the retirement gift she had hoped for.

During those same years, Margaret still needs money to live. The electric company does not accept "the market is down" as a reason to skip a bill. She takes her planned $50,000 withdrawal each year while her portfolio is declining.

After the first year, her $1 million portfolio falls to ~ $750,000

After the second year, it falls to ~ $587,500

After the third year, it is down to ~ $478,750

The market eventually improves and over the remaining seven years Margaret receives returns of the following:

• 5%

• 8%

• 10%

• 12%

• 15%

• 18%

• 20%

Those are excellent returns.

Unfortunately, the recovery is now working on a much smaller portfolio. At the end of the 10 years, after taking $500,000 of withdrawals, Margaret has approximately $527,000 remaining. Margaret didn't make an investing mistake. She simply had bad timing.

Diane gets the good years first

Imagine her sister Diane retires into the mirror image.

She also begins with $1 million and withdraws $50,000 at the end of each year.

Her portfolio earns the exact same annual returns as Margaret's, with one exception.

She receives those returns in reverse order.

Her first three years returns are:

• 20%

• 18%

• 15%

After the first year, Diane has approximately $1.15 million, even after taking her $50,000 withdrawal.

After the second year, she has ~ $1.31 million.

After the third year, she has ~ $1.45 million.

The difficult years eventually arrive.

Diane experiences the same −10%, −15% and −20% returns that Margaret did. These returns arrive near the end of the decade, after Diane's portfolio has already grown substantially. At the end of the same 10 years, after taking the same $500,000 of withdrawals, Diane has approximately $983,000 remaining.

The sisters started with the same amount.

They withdrew the same amount.

Over the course of a decade they received the same annual returns.

Margaret finished with ~ $527,000.

Diane finished with ~ $983,000.

The order of the returns created a difference of ~ $456,000.

The returns used in this example are hypothetical and intentionally simplified. Investment expenses, taxes and inflation are not included. The purpose is to isolate the order in which investment returns occur.

Wait, didn't they earn the same average return?

Yes.

The sisters experienced the same list of returns. If neither sister had taken withdrawals, the order would not change the ending results.

Same returns and same ending balance. With no withdrawals, both sisters end with roughly $1.4 Million in their portfolios.

Unfortunately, retirement adds another ingredient.

Withdrawals.

Once money is leaving the portfolio, the order matters. Margaret was removing money while her account was already shrinking. That left fewer dollars invested when the strong returns finally had arrived.

Diane received strong returns while more of her original money was invested. Her portfolio built a cushion before the difficult years began.

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Before retirement, market declines are different

While you were working, a market decline is unpleasant, but usually manageable.

You still have employment income. You may continue contributing to your retirement accounts. Those contributions purchase more shares at lower prices. Time and continued savings can work in your favor.

Retirement changes that equation.

Instead of adding money, you begin removing it. A declining market combined with withdrawals can force you to sell more shares to generate the same amount of cash.

Suppose an investment is worth $100 per share.

To create $50,000 of spending money you would need to sell 500 shares.

If the investment falls to $80 per share, you now need to sell 625 shares to generate the same amount.

Those additional 125 shares are no longer invested when the market eventually recovers. You cannot spend a share and keep it invested at the same time. This is why volatility may be temporary on a market chart but can have a permanent impact on a portfolio.

The first few years matter most

Sequence of returns risk is generally the most dangerous near the beginning of retirement.

A bad year at age 85 may still be uncomfortable, but by then, the portfolio has already supported decades of withdrawals and the remaining planning period could be shorter.

A major market decline at age 66 can affect every year that follows. The portfolio has less time to recover and the retiree may need to continue withdrawing from it for another 25 to 30 years.

This does not mean every person who retires before a bear market will run out of money. It means the early years deserve more attention than a simple average return assumption might suggest.

We have all seen them. Retirement projections showing a smooth 6–8% return every year. That illustration can be useful. The market, however, has not been known for its commitment to smoothness.

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The answer is not to avoid stocks

Sequence of returns risk can lead retirees towards the wrong conclusion. They may believe the safest solution is to sell all of their stocks and keep everything in cash or short term bonds.

That eliminates one risk by introducing others.

A retirement may last 25 or 30 years. Over that period, inflation can steadily reduce purchasing power. A portfolio generally needs some opportunity for growth to support rising expenses and a long retirement.

The purpose of investing in retirement is not to eliminate every fluctuation. That is nearly impossible. The goal is to avoid being forced to sell too much of a declining asset at the wrong time. That requires more than picking a stock to bond asset allocation.

It requires a withdrawal strategy.

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How near retirees can prepare

No strategy can guarantee that a portfolio will survive every possible market outcome, but there are ways to reduce the damage that poor market returns early in retirement can cause.

Keep short term spending needs outside of the stock market

Money expected to be spent soon generally should not depend entirely on next month stock prices. A retiree might hold a portion of upcoming withdrawals in cash, money market funds, short term bonds or other relatively stable investments.

The appropriate amount depends on the household. Some retirees may hold one year of planned portfolio withdrawals in cash. Others may hold several years across cash and high quality bonds. The purpose is not to predict a market decline. It is to create another source of spending if one occurs.

If stocks, fall sharply, the retiree may be able to use the more stable portion of the portfolio rather than selling the stocks immediately.

Rebalance instead of selling everything proportionally

Imagine a portfolio that begins at 60% stocks and 40% bonds.

Stocks decline, while bonds hold their value or decline less.

The portfolio may now be closer to 50% stocks and 50% bonds.

A retiree who needs cash could potentially take the withdrawal from the bond side while also moving the portfolio closer to its intended allocation. Instead of automatically selling stocks after they fall, the retirees sells from the portion of the portfolio that has held up better.

Rebalancing is not a magic shield. Bonds can still lose value too, but a diversified portfolio creates more choices than a portfolio invested entirely in one asset class.

Make discretionary spending flexible

Not every retirement expense has the same priority.

Property taxes, groceries and insurance premiums generally need to be paid. A major vacation, new car or home renovation may have more flexibility. Reducing discretionary withdrawals temporarily after a severe market decline can give the portfolio more room to recover.

This does not necessarily mean canceling retirement. It may mean, postponing the kitchen renovation for a year or taking a less expensive trip.

A small adjustment during a difficult market can be more effective than waiting until the portfolio is under serious pressure and making a much larger adjustment later.

Coordinate withdrawals with reliable income

Social Security and pensions can cover part of retirees essential expenses without requiring an investment sale. The more basic spending that is covered by reliable income, the less the portfolio may need to provide during the market downturn.

This does not mean everyone should delay Social Security. The timing of reliable income and portfolio withdrawals should be evaluated together. Withdrawals should be evaluated together. An investment portfolio should not be asked to perform a job that another income source is already equipped to handle.

Avoid unnecessary risk

A person who accumulated wealth with an aggressive portfolio may assume the same strategy should continue unchanged after retirement but in reality, the purpose of the portfolio has changed.

During the working years, the primary goal may have been growth. In retirement, the portfolio may need to provide growth, income, stability and liquidity all at the same time.

That does not always require a dramatic change. It does require an intentional review.

Someone who needs regular withdrawals from a portfolio invested almost entirely in stocks may be especially exposed if a severe decline occur shortly after retired. The right allocation depends on spending needs, reliable income, tax situation, time horizon, risk tolerance/capacity and the amount of flexibility built into the plan.

There is no single retirement portfolio for everyone.

“What if the market crash is right after I retire?”

After sitting across the table from hundreds of households, this is one of the most common fears.

It is a reasonable concern. No one knows what the market will do during a particular retirement year. Waiting for everything to feel safe is unlikely to solve the problem.

Markets do not send an invitation, announcing that the ideal retirement date has arrived.

Options matter most when markets are not cooperating.

As for Margaret and Diane

Margaret is not necessarily doomed. The 10 year example shows the damage that can occur when poor returns arrive early and withdrawals continue without adjustment. A real financial plan would not simply watch the account decline for three years and hope for better weather.

Margaret might have used cash for part of her spending. She might've withdrawn from bonds instead of stocks. She could've postponed a large discretionary purchase. She may have had Social Security or pension income covering much of her basic spending.

The point is not that Diane made better investment selections. As a matter of fact, she did not. The point is that Margaret's plan needed to withstand a more difficult order of events.

The sisters could control how much they saved.

They could control how they invested.

They could control how much they withdrew.

The sisters cannot control market returns.

Margaret and Diane received the same investment returns. They simply received them in a different order. Sometimes, the sequence of those returns changes everything.

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Any client specific information in this article, including names, ages, family, relationships, financial figures and investment results, is fictionalized and used for illustrative purposes only. The hypothetical examples do not represent the performance of any particular investment or portfolio. They exclude taxes, investment expenses and inflation and they are not intended to predict future results.

Locus Wealth Management, LLC is a registered investment adviser in Pennsylvania and other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

This newsletter is for informational and educational purposes only. It does not constitute investment, tax, legal, or accounting advice, nor should it be construed as an offer or solicitation to buy or sell any securities or investment products. Any views expressed are general in nature and may not be suitable for all individuals.

Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. There is no guarantee that any strategies discussed will be successful.

Information is provided “as is” without warranty of any kind. While believed to be reliable, Locus Wealth Management does not guarantee the accuracy or completeness of the information presented. Opinions expressed are those of the author at the time of publication and are subject to change. Use of this content is at your own risk.

This content is not intended for use in any jurisdiction where such use would be contrary to applicable laws or regulations.

Buried inside that article was one sentence:

If your income is above certain thresholds, you pay a surcharge on top of your normal Medicare premiums.

I promised to explain that surcharge in the future and this is that issue.

The surcharge is called IRMAA, which stands for Income Related Monthly Adjustment Amount.

It sounds like either a government agency or a tropical storm.

Unfortunately, it can do some damage either way.

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The letter that arrived two years later

Let’s call them Bill and Susan.

Bill is 70. Susan is 68. Both are retired and enrolled in Medicare.

They did many things right.

They saved consistently. They waited to claim Social Security. They built a healthy retirement portfolio and had money spread across Traditional IRAs, Roth IRAs and a taxable brokerage account.

In 2024, they completed a Roth conversion.

The idea was simple.

Move some money from their Traditional IRA into a Roth IRA now, pay the tax today and reduce the amount that could be taxed later.

The conversion was not enormous. It did not push them into the highest tax bracket. It did not cause an obvious tax emergency.

They filed their return, paid the tax and moved on with their lives.

Then, near the end of 2025, a letter arrived from Social Security.

Their Medicare premiums were going up in 2026.

Bill called me with the letter sitting on the kitchen counter.

“I thought Medicare was supposed to cost $202.90 per month,” he said. “Why are they charging us more?”

The answer was sitting on a tax return from two years earlier.

Their 2024 modified adjusted gross income, or MAGI, was $218,480.

The 2026 IRMAA threshold for a married couple filing jointly was $218,000.

They were $480 over the line.

That $480 did not create an extra $480 Medicare bill.

It created an additional $2,296.80 in annual Medicare premiums for the couple.

That is not a typo.

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How $480 became nearly $2,300

For 2026, the standard Medicare Part B premium is $202.90 per person per month.

A married couple with 2024 MAGI of $218,000 or less pays the standard premium.

But once joint MAGI rises above $218,000, the first IRMAA tier begins.

Each spouse pays:

• An additional $81.20 per month for Medicare Part B

• An additional $14.50 per month for Medicare Part D

That is an extra $95.70 per person per month.

For Bill and Susan:

• $95.70 per person

• Times two people

• Times 12 months

• Total additional cost: $2,296.80

The income threshold applies to their joint tax return.

The surcharge applies separately to each spouse enrolled in Medicare.

One line on the tax return can therefore create two monthly surcharges.

The $1 cliff

Most federal income tax brackets work like ramps.

When you cross into a higher tax bracket, only the dollars above that line are taxed at the higher rate.

IRMAA works more like a staircase.

You do not gradually slide into the next level.

You step onto it.

For a married couple in 2026:

• MAGI of $218,000 means no IRMAA surcharge.

• MAGI of $218,001 means the first IRMAA surcharge applies.

That additional dollar of income could theoretically cost a couple with both spouses on Medicare nearly $2,300 over the year.

The government does not send you a tiny surcharge for going slightly over.

It sends you the whole step.

There are additional IRMAA tiers at higher income levels, with progressively larger Part B and Part D surcharges. But the first tier is often the most surprising because households can cross it through fairly ordinary retirement decisions.

Why the bill arrives two years late

IRMAA has an unusual delay built into it.

Social Security generally uses income from two years earlier to determine your current Medicare premiums.

That means:

• Your 2024 income generally determines your 2026 Medicare premiums.

• Your 2025 income will generally determine your 2027 Medicare premiums.

• Your 2026 income will generally determine your 2028 Medicare premiums.

This delay is what makes the surcharge feel like it appeared out of nowhere.

You sell an investment, complete a Roth conversion or take a large IRA withdrawal.

You pay the tax.

The calendar changes.

You forget about it.

Then Social Security sends you a letter two years later, like a waiter bringing the bill long after you have left the restaurant.

The number Medicare actually uses

IRMAA is based on modified adjusted gross income or MAGI.

For this purpose, Medicare generally calculates MAGI as:

MAGI = AGI (line 11 of Form 1040) + Tax Exempt Interest (line 2a of Form 1040)

This creates two common surprises.

Surprise No. 1: The standard deduction does not protect you

A couple may have a large standard deduction that reduces their taxable income.

That can help with their federal income tax bill.

But the standard deduction is applied after adjusted gross income is calculated. It does not reduce the MAGI Medicare uses for IRMAA.

The tax return may say you owe little federal income tax.

Medicare may still see plenty of income.

Surprise No. 2: Tax exempt interest still counts

Municipal bond interest may be exempt from federal income tax.

It is not invisible to Medicare.

Social Security adds tax exempt interest back when calculating MAGI for IRMAA.

The IRS may call it tax exempt. Medicare still wants it on the guest list.

What can push someone over the line?

IRMAA is rarely caused by one mysterious Medicare transaction.

It is usually caused by income stacking together on a tax return.

Common examples include:

• Roth conversions

• Traditional IRA withdrawals

• Required minimum distributions

• Pension income

• The taxable portion of Social Security

• Interest and dividends

• Realized capital gains

• Capital gain distributions from mutual funds

• Tax exempt municipal bond interest

• The sale of a business, property or concentrated stock position

A Roth conversion is especially important because the previously untaxed portion converted from a Traditional IRA generally becomes taxable income in the year of conversion.

That does not make Roth conversions bad.

It simply means the conversion needs to be evaluated alongside the rest of the tax return, not in isolation.

Was Bill and Susan’s Roth conversion a mistake?

Not necessarily.

This is where retirement planning requires more nuance than “IRMAA is bad.”

Suppose the conversion helps Bill and Susan:

• Reduce future required minimum distributions

• Avoid a higher tax bracket later

• Build more tax free Roth assets

• Leave more flexible assets to their children

• Reduce the taxable income of a surviving spouse in the future

Those long term benefits could easily be worth more than a one year $2,297 Medicare surcharge.

The goal is not to avoid IRMAA at all costs.

That would be like refusing to earn an extra $20,000 because you do not want to pay tax on it.

The real question is:

Does the long term benefit of the decision outweigh the additional tax and Medicare cost?

Sometimes the answer will be no.

Sometimes the answer will be yes.

But the surcharge should be part of the calculation before the transaction happens, not discovered when the letter arrives.

Medicare is a cost to consider.

It is not always a reason to abandon an otherwise good strategy.

Why leaving a cushion matters

Future IRMAA thresholds are not always known when you are making the income decision.

The 2027 thresholds, for example, may not yet be available when someone is planning a Roth conversion earlier in 2025.

That means the calculation sometimes requires an estimate.

It also means aiming to land exactly one dollar below a projected threshold is not much of a plan.

Other income can move during the year.

Dividends may be higher than expected. A mutual fund may distribute a capital gain. Bank interest may increase. A tax form may arrive with a number you did not anticipate.

When planning around an IRMAA threshold, it is generally wise to leave some breathing room.

Parking exactly at the edge of the cliff is still parking at the edge of the cliff.

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Can you appeal IRMAA?

Sometimes.

There are two broad situations to consider.

First, Social Security may have used incorrect or outdated information. Perhaps your tax return was amended, your filing status is wrong or the income information does not match your records. In that case, you may be able to challenge the decision.

Second, your income may have fallen because of a qualifying “life changing” event.

Social Security lists events such as:

• Marriage

• Divorce or annulment

• Death of a spouse

• Stopping work

• Reducing work hours

• Certain losses of income producing property

• Loss of pension income

• Certain employer settlement payments

Someone who recently retired may receive an IRMAA notice based on the salary they earned two years earlier.

That person may be able to ask Social Security to use a more recent estimate of income by filing Form SSA-44 and providing supporting documentation.

This can make an enormous difference.

However, voluntarily completing a Roth conversion, selling appreciated stock or taking a large IRA withdrawal is not, by itself, among the listed “life changing” events.

“I did not realize this would increase my Medicare premiums” is understandable.

It is generally not the type of life changing event the form is designed to address.

What I would review before creating income

Before completing a large Roth conversion, realizing a capital gain or taking an optional IRA distribution, I would want to answer five questions.

1. What is your projected MAGI?

Not taxable income.

Not just the amount of the proposed transaction.

The entire projected adjusted gross income, plus tax exempt interest.

2. Which tax year will affect Medicare?

A transaction today may affect premiums two years from now.

That future Medicare cost should be included in the analysis.

3. How close are you to the next threshold?

Being $30,000 below a threshold is different from being $300 below it.

4. Can the transaction be spread across multiple years?

One $80,000 conversion may produce a different result than two $40,000 conversions.

The same can be true for capital gains or discretionary IRA withdrawals.

5. Is crossing the threshold still worth it?

Sometimes paying IRMAA is the correct decision.

The important thing is to cross the threshold knowingly because the strategy produces a larger benefit elsewhere.

That is very different from crossing it accidentally.

As for Bill and Susan

Their conversion still made sense.

The additional Medicare cost was frustrating but it did not erase the value of moving money into their Roth accounts.

What changed was how we approached the following year.

We projected their income earlier.

We monitored interest, dividends and capital gains.

We left more room below the estimated threshold.

And we evaluated the Roth conversion based on the total cost, including federal tax, state tax and future Medicare premiums.

There was no magic strategy.

Just a more complete calculation.

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Takeaway

IRMAA is not a reason to panic. It is a reason to coordinate.

A retirement income decision can affect more than this year’s tax return. It can also affect Medicare premiums two years later.

The most important lessons are simple:

• Medicare uses MAGI, not taxable income.

• Tax exempt interest still counts.

• The calculation generally looks back two years.

• The surcharge applies in tiers rather than gradually.

• A married couple can face two surcharges from one joint income threshold.

• A Roth conversion can still be worthwhile, even if it triggers IRMAA.

• Retirement and certain other life events may allow you to request a lower surcharge.

You do not need to memorize every threshold.

You just need to know when you are approaching one.

Because sometimes one extra dollar of income is not really one extra dollar.

Sometimes it comes with a $2,300 receipt attached.

Any client specific information in this article, including but not limited to names, ages, locations, family details, occupations and financial figures, is fictionalized for privacy purposes and used for illustrative examples only.

Sources

• Social Security Administration, Medicare Premiums - https://www.ssa.gov/benefits/medicare/medicare-premiums.html
  Used to explain: The 2026 IRMAA income thresholds and the additional monthly Part B and Part D premium amounts for individuals and married couples.

• Centers for Medicare & Medicaid Services, 2026 Medicare Parts A & B Premiums and Deductibles - https://www.cms.gov/newsroom/fact-sheets/2026-medicare-parts-b-premiums-deductibles
  Used to explain: The 2026 standard Medicare Part B premium of $202.90 and the total Part B premiums paid at each IRMAA level.

• Social Security Administration, Modified Adjusted Gross Income Policy - https://secure.ssa.gov/poms.nsf/lnx/0601101010
  Used to explain: The general two year look back used for IRMAA, including that 2026 Medicare premiums are generally determined using 2024 tax return information.

• Social Security Administration, Form SSA-44 - https://www.ssa.gov/forms/ssa-44.pdf
  Used to explain: How Medicare MAGI is calculated, the 2026 surcharge amounts, the qualifying life changing events and how a person may request that Social Security use more recent income information.

• Social Security Administration, Request to Lower an Income-Related Monthly Adjustment Amount - https://www.ssa.gov/medicare/lower-irmaa
  Used to explain: How someone may request a lower IRMAA after a qualifying life changing event or an amended tax return.

• Internal Revenue Service, Retirement Plans FAQs Regarding IRAs - https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras
  Used to explain: A Roth conversion generally results in taxation of previously untaxed amounts held in a Traditional IRA.

Locus Wealth Management, LLC is a registered investment adviser in Pennsylvania and other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

This newsletter is for informational and educational purposes only. It does not constitute investment, tax, legal, or accounting advice, nor should it be construed as an offer or solicitation to buy or sell any securities or investment products. Any views expressed are general in nature and may not be suitable for all individuals.

Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. There is no guarantee that any strategies discussed will be successful.

Information is provided “as is” without warranty of any kind. While believed to be reliable, Locus Wealth Management does not guarantee the accuracy or completeness of the information presented. Opinions expressed are those of the author at the time of publication and are subject to change. Use of this content is at your own risk.

This content is not intended for use in any jurisdiction where such use would be contrary to applicable laws or regulations.

Stocks had their strongest quarter since 2020, the AI story continued to expand and the market showed signs of becoming less dependent on just a handful of giant companies.

At the same time, good planning does not stop when markets are up. In many ways, strong markets are one of the best times to review your plan with a level head.

Not because something is wrong but because things have moved.

This quarter’s update is not about making predictions or raising alarms. It is about taking a clear look at what we have seen and what to keep an eye on as we head into Q3.

Locus Wealth Management

What we have seen

1. Stocks had a strong quarter

The big headline is that stocks bounced back in a meaningful way.

After a choppy start to the year, the second quarter gave investors a lot to like. The S&P 500 finished the quarter up more than 14%, which was it’s best quarterly gain since 2020.

For long term investors, this is an excellent reminder of why staying invested matters.

2. The AI boom changed shape

Artificial intelligence or AI, is still one of the biggest stories in the market.

This quarter, the story was not just about the companies everyone talks about. It was also about the companies providing the tools behind the scenes. During a gold rush, not everyone makes money by finding gold. Some people make money by selling the picks, shovels, wagons and supplies that miners need.

Companies like Micron and SanDisk have been tied to the “picks and shovels” side of AI. They help provide the memory and storage that large AI systems need to work.

Simply put, AI needs a lot of data. That data needs to be stored, moved and used quickly. Memory chips and storage are a big part of that process.

That is why some of these companies had such a strong run.

This does not mean they are risk free. No stock or sector is risk free. In fact, many of these names can move up and down very quickly.

But it does show that the AI story is becoming bigger than just the famous household names.

3. The Magnificent 7 did not carry the whole market

Over the last few years, a lot of market attention has gone to the Magnificent 7.

That group includes Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta and Tesla.

These companies have been very important to the market. They are large. They are well known. And they have had a major impact on index returns.

But so far in 2026, the story has been a little different.

Returns as of July 2nd, 2026 (Source: www.reuters.com)

The Magnificent 7 have not all been leading the way like they did in recent years. Some companies have lagged the broader S&P 500 and the rest of the market has started to catch up a bit.

When only a few stocks are carrying the whole market, the market can become top heavy. When more companies participate, the market feels a little sturdier.

This does not mean the Magnificent 7 are bad companies. Many of them are still excellent businesses.

It simply means the market leadership may be broadening.

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What we have seen in bonds

The stock market had a strong quarter but the bond market is still dealing with a different issue.

Inflation is still above the Federal Reserve’s 2% goal.

The Fed uses interest rates to help fight inflation. If inflation stays too high, the Fed may not be in a rush to lower rates. At the beginning of the year, many investors expected the Fed to cut rates in 2026 but as the year went on, that story changed.

Inflation stayed sticky. The economy held up better than some expected and the market started to move away from the idea of easy rate cuts.

By the end of Q2, rate cut hopes had faded and now some investors are even talking about the possibility of rate hikes. When rates move around, bond prices can move too.

That does not make bonds useless.

Bonds still have a job. For many investors, bonds can help reduce risk, provide income and create more balance in a portfolio but they are not magic. They still respond to inflation, Fed policy and interest rate expectations.

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What to watch in Q3

I am not trying to predict exactly what will happen next quarter but as we move into Q3, I am watching three main areas.

1. The Fed under Kevin Warsh

Kevin Warsh is now the new Chair of the Federal Reserve.

As mentioned above, Fed plays a major role in interest rates.

The Fed does not control every rate in the economy but it has a lot of influence. It’s decisions can affect savings rates, CD rates, bond yields, mortgage rates and the cost of borrowing money.

One thing I am watching is how the Fed communicates under Warsh.

In recent years, investors became used to reading the Fed’s words very closely. Sometimes markets moved not because the Fed changed rates but because investors thought the Fed gave a clue about future rate cuts or future rate hikes.

Under Warsh, the Fed may give fewer clues.

Warsh seems to prefer saying less about the future and focusing more on the data as it comes in meaning markets may have to live with a little less hand holding from the Fed.

2. Inflation

Inflation is still one of the biggest items on my list. It shows up in real life, not just in government reports.

For retirees, inflation can be especially frustrating because many costs rise while income may not rise as quickly. If inflation cools, that could give the Fed more room to lower rates in the future. If inflation stays sticky, the Fed may have to keep rates higher for longer. It may even have to consider raising rates again.

That is why inflation matters so much.

It affects the market.

It affects bonds.

It affects cash.

And most importantly, it affects your wallet.

3. Portfolio drift

After a strong quarter for stocks, many portfolios may have drifted.

Portfolio drift simply means your investments may no longer be in the same mix you originally planned.

For example, let’s say someone wanted a portfolio that was 60% stocks and 40% bonds.

If stocks rise a lot, that same portfolio might become 65% stocks and 35% bonds without the investor doing anything.

That may not sound like a big deal.

But for someone close to retirement or already retired the portfolio may now be taking more risk than originally intended.

That is where rebalancing comes in. We do not know what the market will do next. We are simply bringing the portfolio back in line with the plan.

Think of it like trimming the hedges.

It is not a prediction, it is maintenance.

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Planning takeaway

Q2 was a strong quarter.

But a strong quarter is not a green light to take more risk than you need, just like a weak quarter is not a reason to panic.

Both are reminders to return to the plan.

For retirees and people close to retirement, the question is not just, “What did the market do?”

The better questions are:

• Does my portfolio still match my goals?

• Do I have enough safe money for near term needs?

• Am I taking the right amount of risk?

• Has my stock exposure drifted higher than intended?

• Do I need to rebalance?

• Are there tax planning opportunities I should review before year end?

Markets will keep moving. Some quarters will feel great. Others will feel uncomfortable.

But the goal is not to build a plan that only works when markets are good.

The goal is to build a plan that can handle reality.

Sources

• Reuters - https://www.reuters.com/markets/global-markets-technicals-graphic-2026-07-02/
  Used to explain: The S&P 500 gained more than 14% in Q2 2026, its best quarterly performance since the pandemic rebound in 2020 and finished the first half of the year up 9.5%.

• Reuters - https://www.reuters.com/world/china/micron-joins-1-trillion-club-ai-race-powers-memory-chip-boom-2026-05-26/
  Used to explain: Micron’s strong performance and how the AI boom has increased demand for memory chips, which are part of the infrastructure behind artificial intelligence.

• Reuters - https://www.reuters.com/business/sandisk-joins-western-digital-seagate-signaling-strong-ai-storage-demand-2026-04-30/
  Used to explain: SanDisk’s role in the AI storage demand story and how generative AI has increased demand for enterprise storage, solid-state drives and flash-memory chips.

• Reuters - https://www.reuters.com/graphics/MAG7-AUTOMATED/MARKET-COMP-YTD-LIVE/movaqgbbzva/
  Used to explain: The year-to-date performance comparison between the Magnificent 7 and the rest of the S&P 500.

• Federal Reserve - https://www.federalreserve.gov/newsevents/pressreleases/monetary20260617a.htm
  Used to explain: The Fed’s June 2026 decision to hold interest rates steady and its statement that inflation remains elevated relative to the Committee’s 2% goal.

• Bureau of Labor Statistics - https://www.bls.gov/opub/ted/2026/consumer-prices-up-4-2-percent-over-the-year-ended-may-2026.htm
  Used to explain: The Consumer Price Index increased 4.2% from May 2025 to May 2026.

• Federal Reserve - https://www.federalreserve.gov/newsevents/pressreleases/other20260522a.htm
  Used to explain: Kevin Warsh becoming Chair of the Federal Reserve in May 2026.

Locus Wealth Management, LLC is a registered investment adviser in Pennsylvania and other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

This newsletter is for informational and educational purposes only. It does not constitute investment, tax, legal, or accounting advice, nor should it be construed as an offer or solicitation to buy or sell any securities or investment products. Any views expressed are general in nature and may not be suitable for all individuals.

Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. There is no guarantee that any strategies discussed will be successful.

Information is provided “as is” without warranty of any kind. While believed to be reliable, Locus Wealth Management does not guarantee the accuracy or completeness of the information presented. Opinions expressed are those of the author at the time of publication and are subject to change. Use of this content is at your own risk.

This content is not intended for use in any jurisdiction where such use would be contrary to applicable laws or regulations.

For years, families are told to save for college. Then college ends and sometimes there is still money sitting in the account.

Maybe the child received a scholarship. Maybe they chose a less expensive school. Maybe they went into the trades. Maybe they did not go to college at all.

An unused 529 is not automatically a financial mistake. It may simply be a tool that needs a new job.

Think of a 529 like a Swiss Army knife. Most people buy it for one blade, college tuition. But tucked inside are several other tools that can still be useful, especially for families who are trying to help children, grandchildren or future generations without creating unnecessary taxes and penalties.

Let’s walk through the main options.

First, What Is a 529?

A 529 plan is an investment account designed to help pay for education.

The big benefit is this: if the money is used for qualified education expenses, the investment growth can come out tax free.

Locus Wealth Management

Option 1: Roll Some Money Into a Roth IRA

This is one of the newer and more interesting options.

Under the newer 529 rules, unused 529 money may be moved into a Roth IRA for the beneficiary. A Roth IRA is a retirement account where money can potentially grow tax free for the future.

This can turn leftover education money into a head start on retirement savings. But there are guardrails.

The 529 account generally must have been open for more than 15 years. The Roth IRA must be for the same beneficiary. The rollover must be a direct transfer.

The amount rolled over is still limited by the annual Roth IRA contribution limit. For 2026, that annual IRA contribution limit is $7,500 or $8,600 for someone age 50 or older.

The beneficiary also needs earned income. Earned income means compensation from work, such as wages or self employment income. Investment income does not count.

There is also a lifetime cap of $35,000 that can be moved from a 529 to a Roth IRA for a beneficiary. So this is not a magic “empty the whole 529 into a Roth” button.

It is more like a slow bridge.

Used carefully, though, it can be a very nice bridge.

Option 2: Pay Down Student Loans

A 529 can also be used to pay certain student loans.

The lifetime limit is $10,000 per individual. That can apply to the beneficiary. It can also apply to a sibling of the beneficiary.

This is helpful when the education bill has technically moved from “tuition” to “debt.” The money is still being used for education. It is just being used after the fact.

One detail to watch: you generally cannot double dip by using tax free 529 earnings to pay student loan interest and then also deduct that same interest.

That does not mean this is a bad option. It just means the tax reporting needs to be handled cleanly.

Option 3: Change the Beneficiary

This is often the simplest answer.

If one child does not need the money, another family member may. The beneficiary can often be changed to a qualifying family member without income tax consequences.

That could include a sibling, a parent, a child, a grandchild or even yourself in some cases.

This is where the family planning side matters. Maybe the original child is finished with school but a younger sibling is not. Maybe the grandchildren are not born yet. Maybe a parent wants to go back for a credential, certification or continuing education.

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Option 4: Use It for More Than Traditional College

A 529 is not only for four year college tuition.

That is one of the most common misunderstandings I see.

Qualified uses may include certain vocational schools, trade schools, registered apprenticeship programs, books, supplies, required equipment and some credentialing programs.

In limited cases, 529 money can also be used for K-12 tuition. The K-12 tuition limit is generally $10,000 per year per beneficiary.

This matters because education does not always look like a dorm room and a four year degree. Sometimes education looks like a welding program. Sometimes it looks like nursing credentials. Sometimes it looks like an apprenticeship. Sometimes it looks like a career change later in life.

The IRS does not care whether the path looks traditional.

They cares whether the expense qualifies.

Option 5: Roll Money Into an ABLE Account

This one is more specific but it can be very important.

An ABLE account is a tax advantaged account for certain individuals with disabilities. In some cases, 529 money can be rolled into an ABLE account for the same beneficiary or a qualifying family member.

This can allow unused education money to support a disabled beneficiary in a more appropriate account.

There are contribution limits and those limits matter. So this is not something I would do casually.

But for the right family, it can be a meaningful planning tool.

Option 6: Use the Scholarship Exception

Scholarships create a common 529 question.

“What if we saved for college but our child received a scholarship?”

If the beneficiary receives a tax free scholarship, you may be able to withdraw up to the scholarship amount from the 529 without paying the 10% penalty.

That does not automatically make the withdrawal tax free. The earnings portion may still be subject to income tax.

But avoiding the 10% penalty can still matter.

The IRS generally says, “We will not punish you with the extra penalty just because your child earned a scholarship.”

That is reasonable. But the earnings may still need to be reported as income.

This is a good example of why “penalty free” and “tax free” are not always the same thing.

Option 7: Keep the Account for Future Generations

Sometimes the best move is no move.

A 529 does not necessarily have to be emptied the year college ends. The money may be kept invested for a future beneficiary.

That could mean future grandchildren. It could mean another relative. It could mean a later education need that has not appeared yet.

This is the generational planning angle.

For some families, a 529 starts as a college account for one child and slowly becomes an education fund for the family.

That does not mean everyone needs to do this. It just means an unused 529 is not always a problem to solve immediately.

Sometimes it is an asset to steward.

What should you do? (NOT FINANCIAL ADVICE)

If you have an unused 529, I would not start with the tax code.

I would start with the family.

Ask these questions in order:

1. Does the original beneficiary have more qualified education expenses coming?

   • Graduate school?

   • Trade school?

   • Credentialing?

   • Apprenticeship?

   • Continuing education?

2. Does the beneficiary have student loans?

   • If yes, the 529 may be able to help, subject to the lifetime limit.

3. Is the account old enough for Roth IRA rollover planning?

   • If the account has been open long enough and the beneficiary has earned income, a Roth IRA rollover may be worth reviewing.

4. Is there another family member who could use the money?

   • A beneficiary change may be cleaner than taking a nonqualified withdrawal.

5. Is there a disabled beneficiary or family member who may benefit from an ABLE account?

   • This can be powerful but it needs careful coordination.

6. Did the beneficiary receive scholarships?

   • If yes, the scholarship exception may reduce or eliminate the 10% penalty on some withdrawals.

7. Is there a future generation that may benefit?

   • If the family does not need the money today, the account may have a longer runway.

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If you know someone with an old 529 account sitting around, send this to them.

There may be more options than they realize.

The most valuable planning starts with knowing that your money is not trapped.

Sources

• IRS Publication 970 - https://www.irs.gov/publications/p970
  Used to explain: The general tax treatment of 529 plans, qualified education expenses, tax-free distributions, scholarship exceptions, student loan repayment rules, beneficiary changes, ABLE account rollovers, Roth IRA rollovers and K-12 tuition limits.

• IRS 529 Plans: Questions and Answers - https://www.irs.gov/newsroom/529-plans-questions-and-answers
  Used to explain: How 529 accounts work, how beneficiary changes can be made without tax consequences when changed to a qualifying family member and how funds can be rolled to another 529 plan.

• IRS ABLE Savings Accounts and Other Tax Benefits for Persons with Disabilities - https://www.irs.gov/newsroom/able-savings-accounts-and-other-tax-benefits-for-persons-with-disabilities
  Used to explain: ABLE account basics and how certain 529 plan funds may be rolled into an ABLE account for the same beneficiary or a qualifying family member, subject to annual contribution limits.

• Fidelity - https://www.fidelity.com/learning-center/smart-money/what-can-529-funds-be-used-for
  Used to explain: Common qualified 529 expenses, including college costs, trade and vocational schools, apprenticeships, K-12 tuition, student loan repayments and Roth IRA rollover planning for unused 529 funds.

Locus Wealth Management, LLC is a registered investment adviser in Pennsylvania and other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

This newsletter is for informational and educational purposes only. It does not constitute investment, tax, legal, or accounting advice, nor should it be construed as an offer or solicitation to buy or sell any securities or investment products. Any views expressed are general in nature and may not be suitable for all individuals.

Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. There is no guarantee that any strategies discussed will be successful.

Information is provided “as is” without warranty of any kind. While believed to be reliable, Locus Wealth Management does not guarantee the accuracy or completeness of the information presented. Opinions expressed are those of the author at the time of publication and are subject to change. Use of this content is at your own risk.

This content is not intended for use in any jurisdiction where such use would be contrary to applicable laws or regulations.

You put money in. It sits there. The market does what the market does.

That is mostly true. But index funds are not a frozen snapshot. They are living things. Companies get added. Companies get dropped. The weights shift quietly and most investors never notice and honestly, that is part of the appeal.

Index funds are simple. They are low cost. They do not require you to follow every stock, every earnings report, or every headline.

This year, the changes might be hard to miss.

If the term “index fund” still feels a little fuzzy, you may want to start with my explainer: What Is an Index Fund?

This article will make more sense if that basic idea feels clear first.

Three companies likely heading to your portfolio

Three of the largest private companies in the world are preparing to go public. You have probably heard of all of them.

SpaceX, Elon Musk’s rocket and satellite internet company, is targeting a valuation of roughly $1.75 to $2 trillion and is reportedly aiming to raise up to $75 billion in what could be the largest IPO in history. (Sources: Reuters, Bloomberg, company S-1 filing.)

OpenAI, the company behind ChatGPT, raised money earlier this year at a private valuation of approximately $852 billion and is eyeing a public listing as early as this fall. (Source: Reuters.)

Anthropic, an AI research company and the maker of the Claude assistant, recently closed a funding round valuing the company at roughly $965 billion. An IPO is expected as early as October. (Source: Bloomberg.)

Combined, these three companies represent somewhere in the neighborhood of $3 to $4 trillion in anticipated market value.

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Here is what you likely currently own a lot of

Right now, the largest holdings in a typical S&P 500 index fund look something like this: Apple, Microsoft, Nvidia, Amazon, Meta, Alphabet.

If SpaceX, OpenAI and Anthropic join the index near their expected valuations, they could each land in that same neighborhood, or higher.

That means your index fund could own more SpaceX than it owns of Coca-Cola, JPMorgan, Walmart or Procter and Gamble. Companies that have been public for decades. Companies your parents may have owned.

That is not necessarily bad. It is just different from what most people picture when they hear “diversified index fund.”

Locus Wealth Management

Things are moving quickly

Historically, a company had to be publicly traded for at least twelve months and show four straight quarters of profitability before joining the S&P 500. That filter existed for a reason. It kept unstable or unproven companies out until they had a track record.

The Nasdaq has already changed its own rules to allow fast entry for large IPOs within 15 trading days of a company going public.

SpaceX, OpenAI and Anthropic are large enough that the rules are being reconsidered.

Think of it like a nightclub with a strict velvet rope. Usually everyone waits in line. But if someone shows up in a motorcade, sometimes the rope goes up a little faster.

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What this means for your funds

Index funds don’t pick stocks. They follow rules.

When a new company joins an index, every fund tracking that index has to buy it.

There is no vote. No discretion. The fund is required to own it.

Most large index funds are market cap weighted. That sounds more complex than it is. Market cap means the total value of a company’s shares. A market cap weighted fund gives more room to bigger companies.

So if one company is worth $2 trillion and another is worth $200 billion, the $2 trillion company usually gets a much larger spot in the fund.

This is why the biggest companies can drive a lot of the return.

For investors in retirement or approaching it, this is important. Your portfolio may be about to concentrate more heavily in young, fast growing tech and AI companies, whether or not that is the profile you thought you had.

That is not a reason to panic or abandon index investing. Indexes have always evolved and will continue to do so.

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Could these companies drive fund returns?

Yes, they could. But let’s be careful. No one knows which stocks will drive returns in the future.

The point is not to predict that these companies will do well or poorly. The point is that very large companies can have a very large impact. If a company becomes 2%, 3%, or 4% of your portfolio, it matters.

This is already true today.

A small number of very large companies often drive a large share of index returns.

That can feel strange because an investor may think:

“I own 500 companies. I am spread out.”

And that is partly true.

But if the largest 10 companies make up 40% of the fund, your return may still depend heavily on those top names.

Diversified does not always mean evenly spread out.

This does not make index funds bad

I want to be very clear. This is not an argument against index funds.

Index funds are excellent tools.

They can be low cost, tax efficient and can help people avoid emotional stock picking. But do not mistake their outward simplicity for inward sophistication.

Index funds are simple to own but they are still worth understanding.

Final thought

If SpaceX or OpenAI joins one of your index funds and you are 65 years old drawing income from these accounts, it is worth knowing whether your "conservative" portfolio is quietly concentrated in a handful of trillion dollar bets on the future of spaceflight and artificial intelligence.

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One small ask… If you found this helpful, consider sharing it with someone who owns index funds but may not know what is inside them.

A quick share helps more than you might think.

A note on timing: The valuations cited in this article reflect reporting from early June 2026 and are moving quickly. The proposed S&P 500 rule change that would fast track mega cap IPOs was still pending as of publication. Index rules change frequently and the exact timeline for when or whether these companies join major indexes is not yet settled. The purpose of this piece is to explain how index construction works and why it matters, not to predict specific outcomes. Your own situation will depend on which funds you hold and how these rules ultimately take shape.

Sources

• SpaceX S-1 Filing - https://www.sec.gov/Archives/edgar/data/1181412/000162828026036936/spaceexplorationtechnologi.htm

  Used to explain: SpaceX’s expected IPO valuation of $1.75 to $2 trillion and the potential to raise up to $75 billion.

• Reuters - https://www.reuters.com/legal/transactional/openai-investors-question-852-billion-valuation-strategy-shifts-ft-reports-2026-04-14/

  Used to explain: OpenAI’s private valuation of approximately $852 billion and its expected fall 2026 IPO timeline.

• Bloomberg - https://www.bloomberg.com/news/articles/2026-05-12/anthropic-in-talks-to-raise-30-billion-at-900-billion-valuation?

  Used to explain: Anthropic’s valuation of approximately $965 billion and its expected October IPO timeline.

• Morningstar - https://global.morningstar.com/en-eu/stocks/how-will-mega-ipos-change-face-us-stock-market

  Used to explain: The impact of mega cap IPOs and concentration risk associated.

• Charles Schwab - https://www.schwab.com/learn/story/some-indexes-accelerate-entry-massive-ipos

  Used to explain: FTSE Russell’s fast-entry rule allowing large IPOs to join the Russell index within five trading days, and Nasdaq’s 15 trading day fast entry window.

• InvestmentNews - https://www.investmentnews.com/equities/mega-ipos-set-to-force-mutual-fund-rebalancing-as-indexes-reshuffle/266762

  Used to explain: How passive fund managers are required to buy newly added index constituents and the downstream effect on 401(k)s and individual accounts.

• State Street Global Advisors -https://www.ssga.com/us/en/institutional/insights/mega-cap-ipos-implications-for-institutional-investors-and-index-managers

  Used to explain: The combined private market value of large venture backed companies and their potential to reshape benchmarks.

Locus Wealth Management, LLC is a registered investment adviser in Pennsylvania and other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

This newsletter is for informational and educational purposes only. It does not constitute investment, tax, legal, or accounting advice, nor should it be construed as an offer or solicitation to buy or sell any securities or investment products. Any views expressed are general in nature and may not be suitable for all individuals.

Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. There is no guarantee that any strategies discussed will be successful.

Information is provided “as is” without warranty of any kind. While believed to be reliable, Locus Wealth Management does not guarantee the accuracy or completeness of the information presented. Opinions expressed are those of the author at the time of publication and are subject to change. Use of this content is at your own risk.

This content is not intended for use in any jurisdiction where such use would be contrary to applicable laws or regulations.

Before we jump in, a quick update. Locus Wealth Management has some additional capacity this spring and will be taking on a limited number of new clients. If you’re interested in learning more about working together or would like a second opinion, you can schedule an appointment here.

Let's Connect!

I have sat across the table from plenty of households who hear a phrase like “estate tax exemption” and immediately check out.

I do not blame them.

It sounds like one of those terms invented by a committee in a windowless room.

But the idea is actually pretty simple.

It is just the line where the government says, “If your estate is bigger than this amount when you die, we may start looking at estate tax.” The IRS says the estate tax is a tax on the transfer of property at death and it is based on the value of what you own when you die, not what you paid for it.

Where we stand today

A new law, the One, Big, Beautiful Bill Act, was signed on July 4, 2025. One of the big estate planning changes in that law is that the federal basic exclusion amount rises to $15 million per person in 2026, up from $13.99 million in 2025. For a married couple, that can effectively mean up to $30 million combined but only if the proper portability election is made after the first spouse dies. The IRS also says the annual gift exclusion for 2026 is $19,000 per person, per recipient.

If that sounds like a giant number, that is because it is.

So what is the estate tax exemption?

Here is the easiest way to think about it:

Imagine the government puts a very tall fence around all of your assets.

If your estate is under the height of the fence, no federal estate tax.

If your estate is over the height of the fence, only the part above the fence may be taxed.

That fence is the estate tax exemption, also called the basic exclusion amount. The IRS says the 2026 amount is $15 million per person.

That means this is not an “all or nothing” trap.

A lot of people hear “estate tax” and picture the government taxing the whole estate. That is usually not how people should think about it. The threshold matters first. Then the amount above that line is what becomes relevant.

A very short history

This is one of those rules that has changed a lot over time.

The modern federal estate tax began in 1916. Back then, the exemption was much smaller. A Congressional Research Service history says the modern system starts with the Revenue Act of 1916 and other historical summaries show the early exemption was only $50,000.

Fast forward many decades and the line kept moving.

In 2001, the exemption was $675,000. Then a 2001 tax law gradually raised it over the decade, reaching $3.5 million in 2009. In 2010, the estate tax was even repealed for one year, which is a weird little footnote in tax history. A CBO brief explains that after that temporary repeal, the law was set to snap back.

Then came the big jump most people have heard about more recently.

The IRS says the 2017 tax law doubled the basic exclusion amount for 2018 through 2025. That is why the exemption was $11.18 million in 2018, then rose with inflation over time, reaching $13.99 million in 2025. Before the new 2025 law, many planners expected the exemption to fall back closer to the old pre 2018 framework in 2026. Instead, the new law raised it again to $15 million in 2026.

Locus Wealth Management

What if you are nowhere near $15 million?

A lot of people hear “the exemption is huge now” and think, “Great, I can ignore estate planning.”

Not quite.

State rules can matter even when the federal estate tax does not.

Pennsylvania is a good example because PA does not work like the federal system.

At the federal level, people often talk about the estate tax. That is a tax based on the size of your estate and it usually only becomes relevant if your estate is very large.

Pennsylvania, on the other hand, is known for its inheritance tax.

In Pennsylvania, the tax rate depends on who inherits the asset:

• 0% to a surviving spouse

• 4.5% to direct descendants and lineal heirs, like children

• 12% to siblings

• 15% to other heirs, with some exceptions for charities, exempt institutions and government entities

In PA, these rules apply no matter the size of the estate and are paid by the beneficiary on the assets they receive.

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“Good” states and “bad” states

I want to be careful here.

No state is better than another. Income tax, property tax, cost of living and family location, weather, ect., all matter.

But from a death tax perspective only, some states are easier than others.

A lot of states impose no estate tax and no inheritance tax. States like Florida, Texas and Arizona are examples of states without those death taxes, according to Tax Foundation’s state by state overview.

On the other hand, states like Pennsylvania, New Jersey, Kentucky, Nebraska and Maryland are worth extra attention because they impose an inheritance tax, an estate tax or both. Maryland is the only state identified as having both an estate tax and an inheritance tax.

That does not mean people should move because of one tax rule.

It just means state rules belong in the conversation.

So even if a family is nowhere near the federal estate tax exemption, state rules can still show up.

What the One Big Beautiful Bill changed

1. Bigger estates got more room before federal estate tax applies

The new law increased the federal exemption to $15 million per person in 2026. Before that, it was $13.99 million in 2025.

For very wealthy families, that can be a major planning change.

For many other families, it mainly means this: federal estate tax was already unlikely and now it is even less likely.

2. The annual gift rule is still around

The IRS says you can give $19,000 per person, per recipient in 2026 without using up part of your lifetime exemption. If married couples split gifts, they can effectively double that, though gift splitting generally requires a gift tax return election.

That matters because some families like to help children or grandchildren while they are alive, not just through a will.

3. Direct tuition and medical payments still get special treatment

The IRS says certain tuition or medical payments made directly to the school or provider can be excluded from taxable gifts.

Again, not everyone will use this. But it is one of those quietly useful rules that can matter more than people realize.

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If you made it this far, one small ask.

If someone came to mind while reading this, please send it to them.

It goes a long way and helps more people get clear, useful information in front of them.

Thank you for reading, I always appreciate it.

Sources

• IRS — https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax
  Used to explain: What the federal estate tax is and how it applies to the transfer of property at death.

• IRS — https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax
  Used to explain: The new federal estate tax exemption amount under the One Big Beautiful Bill and the updated estate and gift tax thresholds.

• IRS — https://www.irs.gov/newsroom/estate-and-gift-tax-faqs
  Used to explain: How the federal exemption changed under prior law, including the temporary doubling of the exemption after the 2017 tax law.

• Pennsylvania Department of Revenue — https://www.pa.gov/agencies/revenue/resources/tax-types-and-information/inheritance-tax
  Used to explain: Pennsylvania inheritance tax rates, who pays them and how PA inheritance tax differs from the federal estate tax.

• Tax Foundation — https://taxfoundation.org/data/all/state/estate-inheritance-taxes/
  Used to explain: Which states have estate taxes, inheritance taxes, both, or neither and to help readers check how their own state compares.

Locus Wealth Management, LLC is a registered investment adviser in Pennsylvania and other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

This newsletter is for informational and educational purposes only. It does not constitute investment, tax, legal, or accounting advice, nor should it be construed as an offer or solicitation to buy or sell any securities or investment products. Any views expressed are general in nature and may not be suitable for all individuals.

Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. There is no guarantee that any strategies discussed will be successful.

Information is provided “as is” without warranty of any kind. While believed to be reliable, Locus Wealth Management does not guarantee the accuracy or completeness of the information presented. Opinions expressed are those of the author at the time of publication and are subject to change. Use of this content is at your own risk.

This content is not intended for use in any jurisdiction where such use would be contrary to applicable laws or regulations.

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Most people hear “Medicare” and assume it is one clean government health plan.

That would be convenient but not quite how it works.

Medicare is more like ordering from a menu than buying one single meal. There are core items, optional add ons and a few choices that change how the whole plate comes together.

The goal of this issue is not to become a Medicare expert.

The goal is to understand the basic layout.

I’ve sat across the table from many households approaching retirement and here’s what I see repeatedly.

People are not confused because they are careless.

They are confused because Medicare is confusing.

So let’s slow it down and begin with some of the key building blocks.

There are a few key parts to Medicare. Once you understand the purpose of each part, the whole thing starts to feel less intimidating.

Part A: The Hospital Piece

Part A covers inpatient hospital stays. It also includes some benefits for skilled nursing care (the first 100 days), hospice care and certain skilled home care services.

The good news: most people do not pay a premium for Part A. You already paid for it through payroll taxes during your working years. Think of it as something you prepaid over your career. It kicks in automatically.

Part A includes:

• Inpatient care in hospitals.

• Post hospital skilled nursing facility care.

• Hospice care.

• Short term, post hospital home health care.

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Part B: The Doctors and Everything Else

Part B covers outpatient care like doctor visits, outpatient surgery, lab work, durable medical equipment, ambulance services. Basically, everything that is not a hospital stay.

Part B is not free. You pay a monthly premium and if your income is above certain thresholds, you pay a surcharge on top of that (this is called IRMAA, more on that in a future issue). You also pay a small annual deductible and once that is met, you typically owe 20% of covered costs.

That 20% with no cap is the part that makes some people nervous. Without something to cover that gap, a serious illness could become expensive quickly.

Covered costs include:

• Services from doctors and other health care providers.

• Outpatient care.

• Home health care.

• Durable medical equipment designed for everyday, repeated use in the home.

• Many preventive services such as screenings, shots and yearly wellness visits.

Part C: The Bundled Option

Part C, also called Medicare Advantage, is an alternative way to get your Part A and Part B benefits. Instead of going through Medicare directly, you enroll in a private plan that contracts with Medicare to provide that same coverage and often adds prescription drugs and extras like dental or vision.

Many Medicare Advantage plans cost roughly the same as the standard Part B premium. The tradeoff is that most are Health Maintenance Organizations (HMO), which means you are working within a provider network. Before choosing one, it is worth checking whether your doctors are in network.

Part C typically includes:

• All Part A and Part B benefits, bundled into one plan.

• Prescription drug coverage in most plans.

• Extra benefits such as dental, vision and hearing in many plans.

• A provider network, usually an HMP or PPO (Preferred Provider Organization).

Part D: Prescription Drugs

Part D is optional prescription drug coverage. These are private plans that contract with Medicare and they come as either stand alone plans or bundled into a Part C plan.

Premiums vary by plan. Higher income households pay a surcharge here too. The important thing about Part D: insurance carriers can change their formularies (the list of covered drugs), preferred pharmacies and prices every year. That is why the annual review window in the fall matters.

Part D helps cover:

• The cost of prescription drugs.

• The cost of certain shots and vaccines.

Medigap: The Gap Filler

This is the one that trips people up, partly because the naming overlaps with the Medicare alphabet in a confusing way. Medicare Part A and Medigap Plan A are not the same thing.

Medigap policies are private supplemental insurance designed to cover costs that Parts A and B do not. Things like that 20% coinsurance under Part B or hospital costs beyond what Medicare covers. Policies follow standardized forms labeled A through N and any plan with a given letter offers the same set of benefits regardless of which insurer sells it.

One important timing note: if you want to switch Medigap plans later in life, you may have to go through underwriting. Insurance companies can charge higher premiums or turn you away based on your health history. The most protection comes from enrolling when you first become eligible.

Medigap can help cover:

• The 20% coinsurance you owe under Part B.

• Hospital costs beyond what Part A covers.

• Deductibles, depending on which plan you choose.

From what I’ve seen, most people end up with one of two setups:

Original Medicare (Parts A + B), often paired with a Part D drug plan and a Medigap policy to cover the gaps.

Or Medicare Advantage (Part C), which bundles most of this together under one plan, often at lower upfront cost but with network restrictions.

Neither is universally better. The right answer depends on your health, your doctors, your budget and how much flexibility matters to you.

If you made it all the way to the end of this one, you deserve a gold star. Medicare is not exactly light reading. I hope it made things a bit clearer.

If this helped clarify Medicare for you, please forward it to one person who might benefit from it. It helps the newsletter grow and more importantly, it helps someone else feel a little less overwhelmed.

Sources:

• Medicare.gov — https://www.medicare.gov/basics/get-started-with-medicare/medicare-basics/how-does-medicare-work

  Used to explain: The difference between Original Medicare, Medicare Advantage and drug coverage.

• Medicare.gov — https://www.medicare.gov/health-drug-plans/medigap/basics/how-medigap-works

  Used to explain: How Medigap can help cover some costs Original Medicare does not fully cover.

• Medicare.gov — https://www.medicare.gov/basics/get-started-with-medicare/get-more-coverage/your-coverage-options/compare-original-medicare-medicare-advantage

  Used to explain: The basic tradeoffs between Original Medicare and Medicare Advantage.

Locus Wealth Management, LLC is a registered investment adviser in Pennsylvania and other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

This newsletter is for informational and educational purposes only. It does not constitute investment, tax, legal, or accounting advice, nor should it be construed as an offer or solicitation to buy or sell any securities or investment products. Any views expressed are general in nature and may not be suitable for all individuals.

Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. There is no guarantee that any strategies discussed will be successful.

Information is provided “as is” without warranty of any kind. While believed to be reliable, Locus Wealth Management does not guarantee the accuracy or completeness of the information presented. Opinions expressed are those of the author at the time of publication and are subject to change. Use of this content is at your own risk.

This content is not intended for use in any jurisdiction where such use would be contrary to applicable laws or regulations.

Most people don’t notice it until they do and then they can’t stop thinking about it.

Every time I go out for coffee, I do the same thing.

I order, I tap my card and I spend just a little longer than I should staring at the receipt. Not because I can’t afford it. Just because I remember when a cup of coffee didn’t require a brief moment of silent acceptance before moving on with my day.

That’s inflation. If it’s hitting you at the coffee counter, it’s worth asking what it’s quietly doing to your portfolio over time.

Locus Wealth Management

First, what is inflation?

Inflation is simply the rate at which prices rise over time.

Here’s a concrete way to think about it. In 1916, nine cents would buy a quart of milk. By 1966, nine cents would only get you a small glass. By 2017, nine cents would buy about seven tablespoons. The money is the same. What it buys is not.

That gap between what your dollars are worth today and what they’ll be worth in the future is the real enemy of retirement planning. Not market crashes. Not bad years. The slow, quiet erosion of purchasing power over 20 or 30 years.

The Federal Reserve aims for roughly 2% annual inflation. That level is considered healthy. Prices rising slowly is a sign of a growing economy. The problem comes when inflation runs hotter than that or when it becomes unpredictable.

So what does inflation actually do to stocks?

This is where most people expect a simple answer. Higher inflation, lower stocks. But the data is more nuanced than that.

Dimensional Fund Advisors looked at the last 30 years of S&P 500 returns alongside inflation data.

Their conclusion: there is no reliable year-to-year connection between high inflation and poor stock returns.

In fact, 23 of the 30 years from 1996 through 2025 saw positive stock returns even after adjusting for inflation. Over that entire stretch, the S&P 500 returned 7.6% per year after inflation.

2021 is a good example. Inflation was rising fast that year. Stocks still had a strong year. Then in 2022, stocks had a rough year with similar inflation. The two don’t move together as cleanly as people assume.

Zoom out further and the picture gets even more reassuring. One dollar invested in the S&P 500 in 1926 would have grown to more than $500 in real purchasing power by the end of 2017. One dollar left in Treasury bills over that same period? It grew to $1.51.

Stocks, for all their short-term noise, have been one of the most reliable tools humans have ever invented for staying ahead of rising prices over the long run.

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But here’s where it gets complicated.

That long run story is real and it comes with a caveat.

There have been meaningful stretches where stocks failed to outpace inflation, sometimes for years at a time.

From 1966 to 1982, the S&P 500 returned 6.8% per year before inflation. After accounting for inflation, that return dropped to exactly 0%.

Sixteen years of investing, flat in real terms.

From 2000 to 2009, the so-called “lost decade”, the S&P 500 returned -0.9% before inflation. After adjusting, it was -3.4%.

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Fighting inflation in retirement

For a 35-year-old, a prolonged rough patch with inflation is uncomfortable. It is not catastrophic. They are not drawing down yet. They have time.

For someone in their 60s or 70s, the math shifts.

If you are taking withdrawals from your portfolio every year, and inflation is running hot at the same time, you face what planners call a double squeeze. Your withdrawals are buying less in the real world, so you may need to pull out more dollars to cover the same expenses. And if the market is flat or down during that same stretch, you are selling more shares at lower prices to cover those withdrawals.

High inflation early in retirement is especially dangerous. A bad stretch in your first five or ten years of drawing down can permanently reduce how long your money lasts, even if the market recovers strongly afterward.

What actually helps

A few things are worth examining if inflation stays elevated.

Check whether your income sources adjust with inflation. Social Security does, through its annual cost of living adjustment. Most pensions do not. A fixed pension check of $3,000 per month today will buy meaningfully less in 15 years if inflation averages even 3%.

Think about staying invested in equities. The long run case for stocks as an inflation fighter is strong, even though short stretches can be painful. Retirees who hold too little in equities out of fear are sometimes trading one risk for another.

Treasury Inflation Protected Securities, or TIPS, are another option worth knowing about. They are government bonds that adjust in value as inflation rises. They may not offer the growth potential of stocks, but they are specifically designed to protect purchasing power.

And think about withdrawal flexibility. If you can pull back slightly on spending during high-inflation stretches, even modestly, you protect more of your principal and give your portfolio room to recover.

None of this requires dramatic action. It requires awareness and a plan that accounts for the reality that inflation does not always go back to 2% on schedule.

If any of this raised a question about your own situation, just hit reply and send it my way. These are exactly the conversations I have with clients every day and I’m glad to work through the numbers with you.

Sources

• Dimensional Fund Advisors, “Will Inflation Hurt Stock Returns? Not Necessarily.” - https://www.dimensional.com -- Used in this article to explain: the lack of a reliable year-to-year connection between inflation and stock returns, the 23 out of 30 positive-return years, and the 7.6% annualized real return figure.

• OneBridge Wealth Management, “A Brief History of Inflation and the Stock Market” -- https://www.onebridgewealth.com/blog/a-brief-history-of-inflation-and-the-stock-market -- Used in this article to explain: the long-run correlation between elevated inflation and compressed real returns, and the observation that best real returns occur during moderate inflation environments.

• WealthGen Advisors, “Navigating Stagflation: Lessons from the 1970s and Today” -- https://wealthgenadvisor.com/navigating-stagflation-lessons-from-the-1970s-and-today/ -- Used in this article to explain: the real return data from 1973-1982 and how equities lost purchasing power during prolonged high-inflation periods.

• Kitces.com, “How Sequence-Of-Inflation Risk Impacts Retirees” -- https://www.kitces.com/blog/sequence-of-inflation-risk-retirement-investment-monte-carlo-technology/ -- Used in this article to explain: why high inflation early in retirement is especially damaging and can permanently reduce how long a portfolio lasts.

• Kiplinger, “How Inflation Is Impacting Retirees” -- https://www.kiplinger.com/retirement/social-security/how-inflation-is-impacting-retirees -- Used in this article to explain: Social Security COLA as an inflation hedge, strategies for managing inflation risk, and survey data on retiree concerns.

Locus Wealth Management, LLC is a registered investment adviser in Pennsylvania and other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

This newsletter is for informational and educational purposes only. It does not constitute investment, tax, legal, or accounting advice, nor should it be construed as an offer or solicitation to buy or sell any securities or investment products. Any views expressed are general in nature and may not be suitable for all individuals.

Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. There is no guarantee that any strategies discussed will be successful.

Information is provided “as is” without warranty of any kind. While believed to be reliable, Locus Wealth Management does not guarantee the accuracy or completeness of the information presented. Opinions expressed are those of the author at the time of publication and are subject to change. Use of this content is at your own risk.

This content is not intended for use in any jurisdiction where such use would be contrary to applicable laws or regulations.

We pull up their IRA beneficiary form, the one they filed when they opened the account twelve or fifteen years ago. Three adult children listed as equal primary beneficiaries. Everything looks fine on the surface.

Then I ask: “Is this per stirpes or per capita?”

Nine times out of ten, the answer is some version of: “I honestly have no idea.”

That's not a knock on anyone. These terms sound like something from a law school exam. But they sit quietly on your beneficiary form and determine something real.

Locus Wealth Management

Why it matters

Your IRA does not care what your will says.

Neither does your 401(k), your life insurance policy or your bank. These accounts pass directly to whoever you named on the beneficiary form, regardless of what your estate documents say. The form wins. Every time.

For most people, that form was filled out when the account was opened, handed back in thirty seconds and never looked at again.

That quiet little form, sitting in a filing cabinet at a financial institution, could be controlling the fate of hundreds of thousands of dollars or more.

Buried inside it are two Latin phrases that produce very different results for your family if one of your children dies before you do.

Per Stirpes: the branch holds

Per stirpes is Latin for “by branch.” Think of your family as a tree. Each child is a branch. Each grandchild is a limb off that branch.

If a branch dies, per stirpes says the inheritance flows down that same branch, to the next living person on it. Your grandchildren step in and receive their parent’s share. The money stays in the family line you intended.

Here is a simple example. Peter, Paul, and Mary are your three children. You have a $1.5 million IRA. Paul passes away before you, but he has two kids of his own.

Under per stirpes:

Peter gets $500,000. Mary gets $500,000. Paul’s two children split his $500,000, each receiving $250,000.

The branch held. Your grandchildren were protected without you ever updating a single form.

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Per Capita: the living split everything

Per capita is Latin for “by head.” It counts only the people who are alive at the time of distribution.

Same family. Same $1.5 million IRA. Paul dies before you. Under per capita:

Peter gets $750,000. Mary gets $750,000. Paul’s children get nothing.

Not a penny.

Unless you had separately named those grandchildren on the form, Paul’s entire share, $500,000, simply gets absorbed by his surviving siblings. Your grandchildren were legally invisible on that document.

This is not a legal glitch. It is exactly what the form says. It just may not be what you intended.

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One more thing worth knowing

Not all financial institutions handle this the same way. Some default to per capita if you never selected anything. Others offer per stirpes only if you write it in specifically. A few do not offer it at all on standard forms.

The form itself is worth pulling up and reading.

Here’s what to do

Make a short list of every account you own that carries a beneficiary designation: IRAs, 401(k)s, life insurance policies, annuities, any payable-on-death bank accounts. For each one, answer two questions.

One: Who did I name?

Two: Is it per stirpes or per capita?

If you do not know the answer to question two, call the custodian and ask them directly. This is a five-minute phone call that could protect hundreds of thousands of dollars for the people you love most.

If you are a current client and want to walk through this together, just hit reply. It is one of those things that rarely makes it onto the agenda but genuinely deserves a look.

Let's connect!

If you made it this far, thank you.

I’m not here to tell you who should inherit what. I just want to help make sure your money goes where you intend.

Beneficiary forms are not exciting but they may be the single most consequential piece of paperwork you own and most families never review them.

Any client-specific information in this article, including but not limited to names, ages, locations, family details, occupations, and financial figures, is fictionalized for privacy purposes and used for illustrative examples only.

Sources

• Cornell Law School, Legal Information Institute — https://www.law.cornell.edu/wex/per_stirpes

  Learn more here: Cornell’s legal definition of per stirpes.

  Used in this article to explain: The “by branch” meaning of per stirpes.

• Cornell Law School, Legal Information Institute — https://www.law.cornell.edu/wex/per_capita

  Learn more here: Cornell’s legal definition of per capita.

  Used in this article to explain: The “by head” meaning of per capita.

• CFP Board — https://www.letsmakeaplan.org/financial-topics/articles/estate-planning/a-guide-to-the-estate-planning-documents-you-need

  Learn more here: CFP Board’s consumer guide to key estate planning documents.

  Used in this article to explain: Why beneficiary designations are one part of a broader estate plan.

Locus Wealth Management, LLC is a registered investment adviser in Pennsylvania and other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

This newsletter is for informational and educational purposes only. It does not constitute investment, tax, legal, or accounting advice, nor should it be construed as an offer or solicitation to buy or sell any securities or investment products. Any views expressed are general in nature and may not be suitable for all individuals.

Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. There is no guarantee that any strategies discussed will be successful.

Information is provided “as is” without warranty of any kind. While believed to be reliable, Locus Wealth Management does not guarantee the accuracy or completeness of the information presented. Opinions expressed are those of the author at the time of publication and are subject to change. Use of this content is at your own risk.

This content is not intended for use in any jurisdiction where such use would be contrary to applicable laws or regulations.

Before we jump in, a quick update. Locus Wealth Management has some additional capacity this spring and will be taking on a limited number of new clients. If you’re interested in learning more about working together or would like a second opinion, you can schedule an appointment here.

Free Retirement 
Strategy Session

Most investors have heard of the S&P 500.

You may have seen it mentioned on the news.

“The S&P 500 was up today.”

“The S&P 500 hit a new high.”

“The S&P 500 fell after inflation data came out.”

It is one of those phrases that gets tossed around so often that people start to recognize it, even if they are not exactly sure what it means.

And that is a good place to start.

Because the S&P 500 is an index.

An index is simply a list.

In this case, the S&P 500 is a list of roughly 500 large U.S. companies. It is used as a way to measure how that part of the stock market is doing.

You cannot invest directly in the S&P 500 itself.

But you can invest in a fund that tries to copy it.

That is an index fund.

Why I Use Index Funds

I am a fan of index funds.

That does not mean every index fund is right for every person.

It does not mean index funds are perfect.

And it definitely does not mean you can randomly pick a few funds with the word “index” in the name and call it a plan.

But in my experience, index funds can be excellent building blocks.

They are low cost.

They are transparent.

They are usually easy to understand.

And they can provide exposure to broad parts of the market without needing to pick individual stocks or guess which manager may outperform next.

That is why index funds are included in my clients’ portfolios.

But not all for the same reason.

One index fund may be used for exposure to large U.S. companies. Another may be used for smaller U.S. companies. Another may be used for international companies. Another may be used for bonds.

Each one has a different job. Think of it like building a house. You would not use the same material for every part of the house. The foundation, walls, windows, roof, and wiring all matter. They all contribute to the finished home. But they do not all do the same thing.

Index funds work the same way in a portfolio.

The goal is not just to own index funds.

The goal is to understand the exposure each fund provides and what role it plays.

The Simple Definition

An index fund is a mutual fund or ETF that tries to track a specific index.

The index is the list. The fund is the investment you can actually buy.

So if you buy an S&P 500 index fund, you are buying a fund designed to track the S&P 500.

If you buy a total U.S. stock market index fund, you are buying a fund designed to track a much broader list of U.S. companies.

If you buy an international stock index fund, you are buying a fund designed to track companies outside the United States.

Same basic idea. Different list. Different investment.

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Here is where people often get tripped up…

They hear “index fund” and think it means one specific investment.

It does not.

“Index fund” is not one investment. It is a category.

Saying “I own an index fund” is a little like saying, “I drive a vehicle.” It tells us something but not everything.

A bicycle, pickup truck, minivan and sports car are all vehicles but all used for different reasons. Index funds work the same way.

An S&P 500 index fund, a bond index fund, an international stock index fund and a technology index fund are all index funds but they are very different.

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How the Fund Decides What to Own

Once an index fund chooses the index it wants to track, the next question is:

How much of each company goes into the fund?

In many cases, the answer is based on size.

This is called market capitalization, or market cap for short.

Market cap is simply the total value of a company’s stock in the market.

A very large company like Apple is worth far more than a much smaller public company.

Because of that, Apple usually takes up a bigger portion of an index like the S&P 500.

And if Apple makes up a bigger portion of the index, then an S&P 500 index fund will usually hold more Apple than it holds of a smaller company.

That is how many index funds work.

They do not give every company an equal slice. They give bigger companies more room because bigger companies make up more of the market.

You May Already Own One

Many investors already own index funds without realizing it.

They often show up inside:

• 401(k)s

• IRAs

• Brokerage accounts

• Target-date funds

• Employer retirement plans

• Model portfolios

If you have ever looked at your statement and seen a fund with words like:

• “Index”

• “S&P 500”

• “Total Market”

• “Russell”

• “MSCI”

• “Aggregate Bond”

you may already own an index fund or a fund that is tracking an index.

That is not unusual. In fact, index funds have become one of the most common building blocks in modern investing. They are popular because they are usually simple, diversified, transparent and relatively low cost.

What To Look For On Your Statement

Here is a simple exercise.

Pull up one investment account and look at the funds inside it.

You do not need to fix anything.

Just look.

For each fund, ask:

1. Does the name include “index”?

2. Does it mention a familiar index, like the S&P 500?

3. Does it mention another index name, like Russell, MSCI, Bloomberg, or CRSP?

4. What part of the market does it appear to track?

5. Do I know why I own it?

That last question is the most important.

You do not need to know every technical detail. You do not need to memorize fund tickers. You do not need to become the kind of person who casually says “market-cap weighted” at dinner.

In fact, please do not. Your family may leave the table.

But you should have a basic understanding of what your funds are trying to do.

Bottom Line

An index fund is simply a fund designed to track a specific index.

So when you hear the phrase “index fund,” do not stop there.

Ask the next question:

What index does it track?

That is the key. The index fund is only the wrapper; the index is the substance.

Once you understand that, investing starts to feel a little less mysterious.

Thanks for reading The Locus Letter. If this helped clarify something you have seen on your own statement, feel free to share it with someone who owns “some funds” but is not entirely sure what they are.

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Locus Wealth Management, LLC is a registered investment adviser in Pennsylvania and other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

This newsletter is for informational and educational purposes only. It does not constitute investment, tax, legal, or accounting advice, nor should it be construed as an offer or solicitation to buy or sell any securities or investment products. Any views expressed are general in nature and may not be suitable for all individuals.

Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. There is no guarantee that any strategies discussed will be successful.

Information is provided “as is” without warranty of any kind. While believed to be reliable, Locus Wealth Management does not guarantee the accuracy or completeness of the information presented. Opinions expressed are those of the author at the time of publication and are subject to change. Use of this content is at your own risk.

This content is not intended for use in any jurisdiction where such use would be contrary to applicable laws or regulations.

Before we jump in, a quick update. Locus Wealth Management has some additional capacity this spring and will be taking on a limited number of new clients. If you’re interested in learning more about working together or would like a second opinion, you can schedule an appointment here.

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Tom still wakes up early.

Not because he has to. Just because after 40 years of getting up before sunrise, his body has not gotten the memo.

When I called him one morning in early 2025, he had already been to the grocery store, made coffee, and organized a shelf in the garage that did not need organizing.

Linda laughed when she picked up the phone.

“Retirement,” she said, “has somehow made him busier.”

That was Tom and Linda. Practical people. Easy to like. Not flashy. Never reckless. The kind of couple who did a lot of small things right for a very long time.

They live in Lancaster, Pennsylvania, in a house they bought decades ago and never left. The mortgage is gone. The kids are grown. The calendar is quieter now, even if the group text with their three adult children is somehow louder than ever.

Tom is 68. Linda is 66.

Tom spent most of his career as an operations manager for a regional food distributor. Linda worked part-time for years at the public library, then later at the front desk of a dental office. They were not trying to “beat the market” or pull off anything fancy. They just saved steadily, avoided lifestyle creep, and made sensible decisions year after year.

By the start of 2025, they had built something solid:

• about $1,020,000 in Traditional IRAs

• about $185,000 in Roth IRAs

• about $140,000 in an old 401(k) that still needed to be rolled over

• about $410,000 in a taxable brokerage account

• about $62,000 in cash savings

• about $21,000 in an HSA

• a home worth roughly $625,000, fully paid off

They had also done something that turned out to matter a lot.

They retired at the right time for this strategy.

Tom retired in August 2024. Linda stopped working at the end of 2024. They had no pension. They had not started Social Security yet. Tom wanted to delay until age 70. Linda was open to waiting too.

That meant 2025 was shaping up to be one of those rare years that planners get excited about and normal people usually overlook.

A low-income year.

Most people hear that phrase and think something has gone wrong.

Sometimes the opposite is true.

Sometimes a low-income year is an opportunity.

That was the setup for Tom and Linda.

Why this year was different

In many retirement years, income shows up whether you want it to or not.

Paychecks. Social Security. Pension income. Required minimum distributions. Interest. Dividends. Maybe even rental income.

But Tom and Linda were in a temporary gap year.

The paychecks had stopped.

Social Security had not started.

RMDs had not started either.

And because they had a taxable account and cash savings, they did not need to pull heavily from their IRAs just to pay the electric bill.

That gave them choices.

A lot of retirement tax planning comes down to this one question:

Can you choose where your income comes from, or is it choosing you?

For Tom and Linda, in 2025, they had a choice.

And that opened the door to one of the most useful strategies in retirement planning.

A Roth conversion.

The part that sounds backward at first

A Roth conversion means moving money from a Traditional IRA into a Roth IRA.

The catch is that the amount converted is generally treated as ordinary taxable income in the year of the conversion.

So at first glance, this can sound strange.

Why would a retired couple voluntarily create taxable income?

Because sometimes you can create income in a year when the tax cost is unusually low, or even potentially zero.

That was the opportunity in front of Tom and Linda.

For tax year 2025, married couples filing jointly get a $31,500 standard deduction. If both spouses are age 65 or older, they also get an additional $1,600 each, for another $3,200. On top of that, for 2025 through 2028, eligible seniors may also qualify for an additional $6,000 deduction per person, or $12,000 total for a qualifying married couple filing jointly, with a phaseout starting above $150,000 of MAGI for joint filers.

That meant Tom and Linda potentially had this much deduction room in 2025:

• $31,500 standard deduction

• $3,200 extra age-65-or-older deduction

• $12,000 senior deduction

• Total: $46,700

That number matters.

Because in a year with little or no other ordinary income, they could potentially convert about $46,700 from Traditional IRA to Roth IRA and still owe $0 in federal income tax on that conversion, because the income could be absorbed by those deductions.

That is the kind of sentence that makes people sit up.

“Wait,” Tom said, “so you’re telling me we may be able to move money into Roth and not pay federal tax on it?”

Potentially, yes.

Not because of a loophole.

Just because of how the tax code works in a year where income is unusually low.

The simple version of the math

Here is the easy version.

Step 1. Figure out the deduction room

For Tom and Linda in 2025:

• Standard deduction: $31,500

• Age 65+ add-on: $3,200

• Senior deduction: $12,000

• Total deductions: $46,700

Step 2. Use that room for a Roth conversion

• Convert $46,700 from Traditional IRA to Roth IRA

• That creates $46,700 of ordinary income

• But their deductions may offset it

• Potential federal income tax: $0

Step 3. Repeat while the window is open

If they did that for four years:

• $46,700 x 4 = $186,800

• That is nearly $185,000 to $187,000 shifted from future-taxable IRA money into Roth money

• And it may happen at little or no federal income tax, depending on what other income shows up each year

That is the heart of the strategy.

It is not flashy.

It is just smart timing.

But how do they live if they are not using the IRA?

This is the part people miss.

A strategy like this only works well when the couple has another place to draw from.

Tom and Linda did.

Their annual spending need was roughly $84,000 after tax. Nothing outrageous. Their house was paid off. Their kids were independent. Their spending was mostly property taxes, groceries, healthcare, travel to see family, and the ordinary rhythm of life.

They covered that spending from:

• their cash reserve

• withdrawals from their taxable brokerage account

• selective sales of appreciated investments

Not every dollar that comes out of a taxable account is taxable gain.

Some of it is just your original investment, often called basis.

So if Tom and Linda sold, say, $70,000 from a taxable account, that does not necessarily mean they had $70,000 of taxable income. A portion may be gain. A portion may simply be principal coming back to them.

That gave them flexibility.

They did not have to force more ordinary income onto their tax return than necessary.

And that is what made the whole thing work.

The 0% capital gains part, explained simply

This is where many people get confused, so let’s slow it down.

For 2025, the 0% long-term capital gains rate applies to married filing jointly taxpayers whose taxable income is at or below $96,700.

That means some couples can sell appreciated investments and owe 0% federal tax on those long-term gains.

But there is an important detail.

The Roth conversion and the capital gains do not get their own separate tax buckets.

They stack on top of each other in taxable income.

So if Tom and Linda already used $46,700 of taxable income with a Roth conversion, they would not usually still have the full $96,700 available for 0% capital gains.

They would have roughly this much room left:

• 0% long-term capital gains ceiling: $96,700

• Less taxable income already used by Roth conversion: $46,700

• Remaining room for 0% long-term capital gains: about $50,000

That is still very useful.

It means a couple in a low-income bridge year may be able to do both:

• convert some IRA money to Roth

• and realize some long-term capital gains at 0%

But the math has to be coordinated carefully.

As for Tom and Linda

Because the future was coming.

And the future was probably more taxable.

Tom would eventually turn on Social Security.

Linda probably would too.

RMDs would arrive later.

And once those income streams start stacking up, the clean low-tax planning window begins to close.

This is why retirement tax planning is so often about timing.

Not just where your money is invested.

Not just what account type you have.

Timing.

Tom and Linda had what I think of as a “golden middle.”

They were retired enough to have low income.

But not yet old enough to be forced into higher income.

That middle period can be incredibly valuable.

They did not need to do something dramatic.

They just needed to use the window.

What their plan looked like

Here is the version I gave them without the planner jargon:

• You have a year where your income is unusually low.

• Because of that, you may be able to move around $46,700 from IRA to Roth and owe $0 federal tax on that move.

• You can live on cash and your taxable account while doing it.

• If you sell investments in the taxable account, some of that sale is not taxed because it is just your original money coming back.

• Some gains may also fall into the 0% capital gains bracket, as long as total taxable income stays low enough.

• If we repeat this while the window is open, we may slowly reduce future IRA balances and build up more Roth money instead.

Linda got it immediately.

Tom took another minute.

Then he smiled.

“So this is one of those weird situations where doing something on purpose is better than waiting for the government to tell us to do it later.”

Exactly.

That is retirement tax planning in one sentence.

Why you should care

Even if your numbers are not exactly like Tom and Linda’s, the lesson is broader than their case.

A lot of people assume retirement taxes get simpler once the paychecks stop.

Sometimes they do.

Often they do not.

In fact, retirement can create new tax planning decisions that were not as important during working years:

• When should you claim Social Security?

• Which account should you spend from first?

• When does it make sense to do Roth conversions?

• Should you realize gains in a low-income year?

• How do future RMDs affect today’s decisions?

You do not need to know every tax rule by heart.

You just need to understand the big idea:

The years right after retirement can be some of the most valuable planning years you will ever have.

Not because you are trying to be aggressive.

Because you finally have room to be intentional.

Takeaway

Tom and Linda did not “beat the system.”

They used the system they had.

They retired with:

• a paid-off home

• money in different account types

• taxable assets to live on

• enough planning ahead of time to recognize an opportunity when it showed up

That is why this strategy fit them.

It was not magic.

It was preparation meeting the right tax year.

And for the right couple, that can mean something pretty remarkable:

A year where you live on your assets, shift money toward Roth and potentially owe $0 in federal income tax while doing it.

Any client-specific information in this article, including but not limited to names, ages, locations, family details, occupations, and financial figures, is fictionalized for privacy purposes and used for illustrative examples only.

Sources

• IRS Publication 17 (2025), Your Federal Income Tax. Used for the 2025 standard deduction amount for married filing jointly, including the $31,500 figure.

• IRS Standard Deduction guidance. Used for the 2025 additional standard deduction for taxpayers age 65 and older, including the $1,600 per qualifying spouse figure for married filers.

• IRS. “One, Big, Beautiful Bill provisions – Individuals and workers.” Used for the new 2025–2028 senior deduction, including the $6,000 per qualifying person amount and the $150,000 MAGI phaseout threshold for joint filers.

• IRS Topic No. 409, Capital gains and losses. Used for the 2025 0% long-term capital gains threshold of $96,700 for married filing jointly.

• IRS Publication 554 (2025), Tax Guide for Seniors. Used for general support on the tax treatment of retirement distributions and the fact that traditional IRA distributions and Roth conversion amounts are generally taxable as ordinary income unless offset by deductions.

Locus Wealth Management, LLC is a registered investment adviser in Pennsylvania and other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

This newsletter is for informational and educational purposes only. It does not constitute investment, tax, legal, or accounting advice, nor should it be construed as an offer or solicitation to buy or sell any securities or investment products. Any views expressed are general in nature and may not be suitable for all individuals.

Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. There is no guarantee that any strategies discussed will be successful.

Information is provided “as is” without warranty of any kind. While believed to be reliable, Locus Wealth Management does not guarantee the accuracy or completeness of the information presented. Opinions expressed are those of the author at the time of publication and are subject to change. Use of this content is at your own risk.

This content is not intended for use in any jurisdiction where such use would be contrary to applicable laws or regulations.

Lately, I have been having a version of the same conversation over and over again.

A client leans in a little and says something like:

“Why does it feel like the market changed personalities this month?”

That is actually a pretty good way to put it.

In January, the market felt calm-ish. People were talking about interest rates, company earnings, and whether stocks could keep climbing.

Then March showed up like that one chaotic friend who turns a quiet dinner into a full-blown scene.

All of a sudden, oil mattered, bonds mattered, the dollar mattered, war mattered, inflation worries came back and the market started acting like it had three cups of coffee and no plan.

So let’s slow it down and make sense of what actually happened.

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The quarter in one image

If January through March felt like March Madness, that is because it kind of was.

In the beginning, everyone filled out their bracket with confidence.

They had their favorites. They had their predictions. They had a very strong opinion about what was “supposed” to happen.

Then one upset hit. (No. 9 Iowa 73, No. 1 Florida 72)

Then another. (No. 12 High Point 83, No. 5 Wisconsin 82)

Then suddenly the whole bracket was on fire and no one was as confident anymore.

That is what the market felt like this quarter.

At the start of the year, the story was mostly about rate cuts and corporate earnings.

By late March, the story had changed to oil, inflation, and geopolitics.

Same market. Different script.

1. Stocks held up better than you might think

When people hear scary headlines, they often assume the stock market must be in free fall. That was not really the story here.

Yes, stocks were tested. But they did not completely fall apart. The bigger takeaway is that the market got pickier. A smaller group of stocks had been doing a lot of the heavy lifting. Then March reminded everyone that leadership can change quickly when the world gets messy.

Think of it like a basketball team that has been relying on one star player all season. That works well until the defense adjusts. Then suddenly the team has to prove it can score in other ways.

That is part of what happened this quarter.

For investors, the lesson is simple. A portfolio can look diversified on paper but still be leaning heavily on one corner of the market.

2. Bonds became a part of the market to watch

This surprises a lot of people.

Most novice investors assume stocks are the “exciting” part of the market and bonds are the boring part.

Usually that is fair. But this quarter, bonds were not boring. They were important.

Why?

Because the bond market is where investors place a lot of their bets on interest rates, inflation and the economy. When bond investors get nervous, it is often because they are rethinking the big picture.

A simple way to think about bonds is this:

The bond market is a lot like the foundation under a house. You may spend most of your time looking at the kitchen and living room, but if the foundation starts shifting, the whole house feels it.

That is what happened this quarter.

The Fed held rates steady in March, but also made it clear that uncertainty had risen. Investors started backing away from the idea that several rate cuts were right around the corner. That made bonds a major pressure point.

3. Oil became the loudest voice in the room

If one market could win “Most Likely to Interrupt Everyone Else,” it would be oil.

Oil prices jumped sharply in March and when oil jumps, it does not stay in its lane.

It spills into everything. Gas prices. Shipping costs. Airline tickets. Business expenses. Inflation fears. Consumer mood. Market nerves.

Oil is a bit like hot sauce. A little goes a long way. Too much and suddenly that is all anyone can talk about.

The market was not just reacting to oil itself. It was reacting to everything higher oil prices might cause next.

That is why oil mattered so much. Not because most investors trade oil directly, but because oil can affect a lot of other things investors do care about.

4. The U.S. dollar started feeling like a shelter again

When the world gets uncertain, investors tend to look for places that feel familiar and liquid. That helped the U.S. dollar this quarter.

You do not need to get too deep into currency markets to understand the big idea. Money tends to run toward what feels sturdy in stressful moments. When stress picks up, they tend to move toward assets that feel more dependable in the short run.

This does not mean every long-term question about the dollar has been answered. It just means that in a stressful moment, the dollar looked like a place people wanted to stand.

5. The market story changed faster than most people expected

This might be the biggest lesson of all.

At the beginning of the year, investors were mainly focused on two things:

1. Would the Fed cut rates?

2. Would company earnings stay strong?

Those were the main characters.

Then the plot changed.

By late March, the market was focused much more on:

1. Higher oil prices

2. Sticky inflation

3. Geopolitical risk

4. Whether rate cuts might get delayed

Markets do not just react to facts. They react to changing expectations.

That sounds complicated, but it really is not.

Imagine you are expecting a calm flight. Then the pilot comes on and says, “We may hit some turbulence.” The plane has not dropped yet but your experience has already changed.

That is how markets work too. Sometimes the shift in expectations matters as much as the event itself.

So what does all of this mean?

This is not a prediction and it is certainly not a complete list but I do think this quarter sent a few useful signals.

1. Concentration matters more than people think

If too much of your portfolio depends on one sector, one theme, or one recent winner, you may be taking more risk than you realize.

This does not mean that area is bad.

It just means you do not want the whole plan depending on one player having a career night every night.

2. Bonds still matter

A lot of investors ignore bonds until something weird happens.

Then suddenly they realize bonds affect a lot more than just income.

Bonds influence borrowing costs, retirement income planning, and how the market views future inflation and future Fed decisions.

3. Inflation fears can come back quickly

Many people were starting to feel like inflation was yesterday’s problem.

Then oil jumped and the conversation changed fast.

Markets have a funny habit of taking old fears off the shelf and putting them right back on the table.

4. A plan matters more than a forecast

This quarter was a good reminder that the script can change quickly.

That is exactly why long-term investors need a plan that does not depend on guessing every next headline correctly.

One smart thing to do this week

If I could ask every retiree or near-retiree to do one thing this week, it would be this:

Create a simple “Where would I get my money?” list.

Just write down:

1. How much you have in cash

2. How much you have in bonds

3. How much you have in stocks

4. Which account you would tap first if you needed money this year

5. Whether your portfolio feels heavily dependent on one area of the market

That is it. No spreadsheets. No dramatic overhaul. Just a simple map.

Because here is what I see repeatedly. Stress rises when people do not know where their next dollar would come from during a rough patch.

Clarity brings the temperature down.

You do not need to become a market expert. You just need to understand the basic moving parts well enough that the next scary headline does not immediately knock you off balance.

That is the goal. Not perfection. Not prediction. Just a steadier footing.

Sources

Federal Reserve. FOMC Statement, March 18, 2026

Reuters. “Stock indexes, bond prices fall as Iran crisis pushes oil above $105.” March 26, 2026

Reuters. “Iran oil shock sets US Treasury seismograph twitching.” March 26, 2026

Locus Wealth Management, LLC is a registered investment adviser in Pennsylvania and other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

This newsletter is for informational and educational purposes only. It does not constitute investment, tax, legal, or accounting advice, nor should it be construed as an offer or solicitation to buy or sell any securities or investment products. Any views expressed are general in nature and may not be suitable for all individuals.

Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. There is no guarantee that any strategies discussed will be successful.

Information is provided “as is” without warranty of any kind. While believed to be reliable, Locus Wealth Management does not guarantee the accuracy or completeness of the information presented. Opinions expressed are those of the author at the time of publication and are subject to change. Use of this content is at your own risk.

This content is not intended for use in any jurisdiction where such use would be contrary to applicable laws or regulations.

We stare at a bracket, convince ourselves a 12-seed has destiny on its side and then act surprised when things go sideways by Saturday afternoon.

If you are reading this on Saturday morning, after 32 games in the tournament have been played, roughly 1 in 4.29 billion brackets remain 100% correct.

Taxes create a similar kind of confusion, except with fewer mascots and buzzer beaters. I have sat across the table from a lot of households and here is what I see repeatedly: many smart people do not actually know what bracket they are in, or what that bracket really means. That is not their fault; they have just never seen it laid out in front of them.

Key terms

• Tax bracket: The tax rate that applies to your next layer of taxable income, not to every dollar you made.

• Taxable income: The amount left after subtracting deductions from your income, which is the number you use to find your bracket.

• Marginal tax rate: Your top bracket, meaning the rate that applies to the next dollar of taxable income.

• Effective tax rate: Your overall average rate, which is usually lower than your marginal rate because your income is taxed in layers. This is a simple math concept based on how progressive brackets work.

A lot of people think, “I’m in the 22% bracket, so 22% applies to all of my income.”

That is the part worth correcting.

Your tax bracket is not a flat charge slapped onto every dollar. It is more like a staircase. You move through each step as income rises, and only the dollars on the higher step get the higher rate. The IRS explains that tax brackets work in layers and moving into a higher bracket does not mean all of your income is taxed at that higher rate.

How to find your tax bracket

1. Find your filing status.

   Look at whether you are single, married filing jointly, married filing separately, or head of household. The bracket ranges depend on that.

2. Find your taxable income.

   On Form 1040, this is usually line 15. That is the number used to match up with the federal tax bracket chart.

3. Match that number to the bracket chart.

   Find the range your taxable income falls into for your filing status. That gives you your marginal tax bracket, which is your top bracket. For 2026, the IRS still uses graduated bracket ranges by filing status.

4. Remember what that means.

   Your bracket is the rate on your next dollar of ordinary taxable income, not the rate on every dollar you made.

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How to find your tax rate

1. Start with your total federal tax.

   On Form 1040, this is generally line 24, labeled total tax.

2. Choose the income number you want to compare it to.

   If you want a simple “overall tax rate,” use taxable income from line 15. If you want a broader “effective rate on total income,” use total income instead. Those are two different calculations.

3. Do the math.

   Divide total tax by the income number you chose.

   Example: $9,000 of tax divided by $90,000 of taxable income = 10%.

4. Do not confuse that with your bracket.

   Your tax bracket might be 12% or 22%, while your overall tax rate can be lower because income is taxed in layers. Also, qualified dividends and long-term capital gains may be taxed differently, so the simple math is useful, but not always the full story.

Example

Let’s say a retired couple files jointly and their 2026 taxable income is $90,000.

That puts them in the 12% bracket, because for 2026 the 12% bracket for married filing jointly goes up to $100,800 of taxable income. It does not mean all $90,000 is taxed at 12%. Some of it is taxed at 10%, and only the amount above $24,800 is taxed at 12%.

So if they tell a friend, “We’re in the 12% bracket,” that is true.

If they tell a friend, “We pay 12% on everything,” that is not true.

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Guardrails (what this does NOT mean)

• It does not mean your tax picture is fully captured by one bracket. Capital gains, Social Security taxation, Medicare premiums, credits, and state taxes can all change the broader picture.

• It does not mean your withholding rate is your true tax rate. Money withheld during the year is not the same thing as your final tax result.

• It does not mean you need a perfect estimate to be useful. Even a rough first pass can help you understand where you are standing before making a retirement withdrawal, Roth conversion, or year-end move. This is a planning tool, not a prediction.

Most people do not need a tax seminar. They just need a cleaner mental picture.

Your tax bracket is a layer, not a label on your whole life. Once you see that, the chart gets much less intimidating and much more useful.

Pull out your latest tax return or income estimate, find your taxable income and match it to the 2026 bracket chart for your filing status.

A five-minute check can make future money decisions feel calmer and easier to explain to your spouse, your advisor or yourself.

If you’ve made it this far, reply to this email or comment with who you have winning your March Madness bracket.

I have Iowa State winning my bracket!

Sources

1. IRS. Tax year 2026 inflation adjustments and marginal rates.

   Learn more here: the official IRS summary of 2026 federal tax brackets and standard deductions.

   Used in this article to explain: the 2026 bracket ranges and the seven federal tax rates.

2. IRS Understanding Taxes. Progressive taxes.

   Learn more here: an IRS educational explanation of progressive tax systems.

   Used in this article to explain: why overall tax rates are typically lower than the top marginal bracket.

Locus Wealth Management, LLC is a registered investment adviser in Pennsylvania and other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

This newsletter is for informational and educational purposes only. It does not constitute investment, tax, legal, or accounting advice, nor should it be construed as an offer or solicitation to buy or sell any securities or investment products. Any views expressed are general in nature and may not be suitable for all individuals.

Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. There is no guarantee that any strategies discussed will be successful.

Information is provided “as is” without warranty of any kind. While believed to be reliable, Locus Wealth Management does not guarantee the accuracy or completeness of the information presented. Opinions expressed are those of the author at the time of publication and are subject to change. Use of this content is at your own risk.

This content is not intended for use in any jurisdiction where such use would be contrary to applicable laws or regulations.

Rule No. 1: do not lose money.
Rule No. 2: do not forget Rule No. 1.

That line is a little extreme if taken literally, because every investor will experience declines at some point. But the spirit of it matters a lot more once work optionality starts shrinking and withdrawals start getting closer.

Story Time

It started with a Christmas present.

A Peloton bike showed up at his house in December 2020. It was for his wife and she absolutely loved it. So when he looked at the company behind the bike, it did not feel like “a stock.” It felt like something he understood.

Then he did something that made perfect emotional sense.

He bought Peloton (PTON) in the middle of the 2020 chaos.

On March 23, 2020, PTON closed at $23.34.

By the time we met in August 2021, it had become life changing money. Our meeting was in mid-August. I remember looking at the chart before our conversation just to sanity-check what I was about to see.

On August 2, 2021, PTON closed at $120.69.

That is roughly a 5x move from those March 2020 prices. And this was not a small sum of money.

He had put a huge portion of his net worth into the stock, inside his rollover IRA. He pulled the statement up on his screen and with a half laugh that was really a little bit of adrenaline, said something like, “This is the one thing I did right during COVID.”

Then came the line I hear a lot, in different versions.

“If I sell and it keeps going up, I’ll feel sick.”

So I tried to slow the conversation down.

I told him, “I am not asking you to predict Peloton. I am asking you to decide how much control one company should have over your retirement.”

I asked one simple question.

“If this got cut in half, would that change your plans?”

He did not answer right away.

Because that is the moment where people realize this is not really about return anymore. It is about what happens to life if the story changes.

What made this hard was that the stock had rewarded him for being bold and the bike in his house made the story feel personal. It is very human to confuse familiarity with safety.

See part two below…

The Real Issue

Diversification is not a performance trick. It is a damage control tool.

Retirement is different from your 30s and 40s. Earlier in life, you still have new savings coming in, more working years ahead and more time for markets to do what markets tend to do eventually. Near retirement, the job changes. The name of the game is no longer doing anything and everything to get extra return. It is protecting the nest egg you already earned from the kind of setback that changes choices at exactly the wrong time.

I have sat across the table from a lot of households where the real risk was not that they were too conservative. It was that they were still playing the accumulation game with retirement money. They were still acting like the goal was to win the race, when the real goal had become finishing with the baton still in hand.

The attached chart captures one of the cleanest truths in investing.

• A 20% loss needs a 25% gain to fully recover.

• A 30% loss needs a 43% gain to fully recover.

• A 50% loss needs a 100% gain to fully recover.

• A 60% loss needs a 150% gain to fully recover.

• A 70% loss needs a 233% gain to fully recover.

That is the kind of math that sounds obvious once you see it and oddly invisible before you do.

There is a second layer people miss. Recovery is not just about the percentage gain required. It is also about time.

Summary of Major Recovery Durations

Here are the big historical stretches where the S&P 500 price index fell from a prior peak and then took more than 5 years to get back above that old high (a “breakeven” in index level, not counting dividends).

• Great Depression era

  • Prior peak: August 1929 (pre-Depression record)

  • Recovery above prior high: September 1954

  • Time to recover: about 25 years

• 1973–74 bear market and stagnation

  • Prior peak: 120.24 on January 11, 1973

  • Recovery above prior high: 121.44 on July 17, 1980

  • Time to recover: about 7.5 years

• Dot-com bust

  • Prior peak: 1,527.46 on March 24, 2000

  • Recovery above prior high: 1,530.23 on May 30, 2007

  • Time to recover: about 7.2 years

• Global Financial Crisis

  • Prior peak: 1,565.15 on October 9, 2007

  • Recovery above prior high: 1,569.19 on March 28, 2013

  • Time to recover: about 5.5 years

Two quick notes (because people often mean different things by “recover”).

1. If you use total return (dividends reinvested), recoveries are typically faster than the price index.

2. If you mean inflation-adjusted recovery (real purchasing power), some periods, like the 1970s, look worse than the nominal price index.

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Part Two

As for the family with the Peloton…

We did not end up working together as he did not want to take my, not so sexy, advice.

I do not know what he did with the position.

Here is what I do know.

Since then, Peloton’s stock has taken a very different path. As of March 4, 2026, PTON closed at $3.85.

I do not tell this story to pick on Peloton nor the client. After all, hindsight is always 20/20.

I tell this story because it is the cleanest picture of concentration risk I know.

A single winning stock can feel like proof you are smart.

In retirement planning, it can also become a single point of failure.

Guardrails (what this does NOT mean)

• This does not mean stocks are bad, or that retirees should avoid them entirely. It means stock exposure should match the job the money needs to do.

• This does not mean diversification guarantees gains or eliminates losses. The SEC is clear on that point. It is a risk-management tool, not a promise.

• This does not mean every concentrated position must be sold tomorrow morning. Taxes, embedded gains, charitable goals and estate considerations all matter. The right answer is often a process, not a panic move.

  ---

Bottom Line

If you are in or nearing retirement, the biggest investing question is often not, “How do I get more return?”

It is, “How do I avoid the kind of loss that forces bad decisions later?”

Diversification will never be the flashy part of a financial plan. But it is often one of the most important.

Action item: See if any specific security makes up more than 5% of your net worth. One oversized position can quietly turn a market event into a family event.

If you have any questions about this article or a similar situation applies to you, reply to this email or shoot me a message. I reply to every email sent my way.

I’m always happy to help!

Sources

1. Investor.gov, Diversify Your Investments

   Learn more here: SEC investor education page explaining diversification in plain English.

   Used in this article to explain: why diversification reduces concentration risk but does not guarantee against loss.

2. SEC, Beginners’ Guide to Asset Allocation, Diversification, and Rebalancing

   Learn more here: SEC overview of how asset allocation and diversification work together.

   Used in this article to explain: the core purpose of diversification and the role of portfolio mix.

3. FINRA, Asset Allocation and Diversification

   Learn more here: FINRA investor page on spreading risk across asset classes and rebalancing.

   Used in this article to explain: concentration risk and retirement portfolio guardrails.

4. FRED, S&P 500 Price Index

   Learn more here: Federal Reserve Bank of St. Louis data series for the S&P 500 price index.

   Used in this article to explain: how long some prior stock market recoveries took after major peaks.

Locus Wealth Management, LLC is a registered investment adviser in Pennsylvania and other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

This newsletter is for informational and educational purposes only. It does not constitute investment, tax, legal, or accounting advice, nor should it be construed as an offer or solicitation to buy or sell any securities or investment products. Any views expressed are general in nature and may not be suitable for all individuals.

Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. There is no guarantee that any strategies discussed will be successful.

Information is provided “as is” without warranty of any kind. While believed to be reliable, Locus Wealth Management does not guarantee the accuracy or completeness of the information presented. Opinions expressed are those of the author at the time of publication and are subject to change. Use of this content is at your own risk.

This content is not intended for use in any jurisdiction where such use would be contrary to applicable laws or regulations.

Someone opens their tax return, sees a big refund, and says, “Nice. We beat the IRS.”

I get it. It feels like a win. Like you outsmarted a complicated system and got your money back in one piece.

But most of the time, that is not what happened.

Most of the time, you did not beat the IRS. You just gave them too much money throughout the year and they handed back the extra without interest. Which is a bit like finding $20 in your winter coat, except you put it there yourself. Nice surprise, until you realize you probably could have used it last week. Say, to tip the nice high school kid at Dairy Queen after opening your wallet and realizing there was no cash inside, while your wife gave you the big guilty eyes in front of the staff and the whole line. Not that I am speaking from a weirdly specific personal example or anything…

That does not mean a refund is bad. It does mean it is worth asking a calmer, smarter question.

Was this a victory or was this just an expensive habit wearing a party hat?

The real issue

Most people think a tax refund is a bonus.

In reality, a refund is usually just your money coming back to you. Money you already earned, but did not get to use, save, or invest during the year.

For retirees and near retirees, this happens a lot because income gets “layered.” Social Security. Pension. IRA withdrawals. Part time work. Dividends and capital gains. Maybe a Roth conversion. Each one can have withholding rules that do not talk to each other.

So the real issue is not “refund good” or “refund bad.”

The real issue is control.

Control means you get to choose. Do you want more cash flow each month? Or do you want the IRS to hold extra as a forced savings plan? Either can be fine. What we want to avoid is accidental overpaying, or the opposite problem… an April surprise.

Website

Key terms (plain English)

• Withholding: Taxes taken out of a paycheck, pension, or IRA distribution before the money hits your bank account.

• Estimated tax payments: Taxes you send in during the year when withholding is not happening automatically.

• Safe harbor: A rule that can protect you from underpayment penalties if you pay in “enough” during the year, even if you still owe a bit at filing.

• Underpayment penalty: A fee the IRS can charge if you did not pay enough tax during the year, even if you pay the full balance by April.

• Total tax: The final tax you owed for the year, shown on your tax return, before subtracting what you already paid in.

• Refund: The amount you overpaid. It is not a prize. It is a reconciliation.

The Refund Control System

The framework I use is the Refund Control System.

The goal is simple. Aim for “boring.” Not a giant refund. Not a scary bill. Just a clean landing.

Think of your taxes like a thermostat, not a scoreboard.

A scoreboard tells you who won. A thermostat keeps the house comfortable all year. If the house is freezing in January but perfect in April, the thermostat did not do its job.

A big refund is often the same. It can mean you were “too cold” all year. You paid extra each month, then got comfort later. That is not wrong. It is just a choice. And a lot of people never realize they are making it.

The Refund Control System says: set your withholding so you are close to your actual tax bill during the year, then do one quick midyear check to keep it on track.

Not perfection. Control.

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Step-by-step

1. Find your “anchor number” in under 2 minutes.

   Pull up last year’s tax return and locate your total tax. That is the anchor for planning. If you do not have it handy, your tax software, preparer or client portal usually does.

2. Identify your “withholding engines.”

   Make a short list of where taxes can be withheld automatically:

• Wages (if still working)

• Pension payments

• Social Security (optional withholding)

• IRA distributions, including RMDs (you can choose withholding)

  Then note which ones currently withhold and at what rate.

3. Choose the simplest lever first.

   For many retirees, the cleanest lever is IRA withholding on distributions, including RMDs. Here is why. It is flexible, easy to adjust and can be timed later in the year if needed.

   If you are still working, your W-4 is often the best lever. If you have a pension, the pension withholding election is a close second.

4. Do one midyear “tax weather check.”

   Pick one date you will repeat every year, like late June or early July.

   At that check, you are not trying to rebuild your entire tax return. You are asking:

   • Are we on pace to pay enough during the year to avoid penalties?

   • Are we drifting toward a huge refund or a surprise bill?

   Then adjust one lever, not five. A small change now can prevent a big adjustment later.

A simple scenario (round numbers)

Let’s use one clean example.

A couple is retired. Their total tax for last year was $20,000. This year, they have withholding coming from a pension and from Social Security. Combined, it is set to $30,000.

When they file, they get a $10,000 refund.

In reality, they paid $10,000 more than they needed to during the year.

If that same $10,000 had stayed in their household month by month, that is about $800 a month of extra breathing room. Or it could have funded travel, home projects, giving or simply a larger cash cushion that reduced stress.

Now flip the situation.

If they were only withholding $10,000 and their total tax still landed at $20,000, they could owe $10,000 at filing. That is where stress shows up, and where safe harbor and underpayment penalties start to matter.

The point is not to chase a perfect zero.

The point is to make the result intentional.

Guardrails (what this does NOT mean)

• This does NOT mean a refund is always “bad.” Some households prefer a refund because it reduces anxiety, especially in the first year of retirement or after a big income change.

• This does NOT mean you should cut withholding aggressively. If you cut too far, you can create a surprise bill and potentially underpayment penalties.

• This does NOT mean safe harbor is something to ignore. It is often the guardrail that lets you adjust calmly, especially if income is lumpy from capital gains, Roth conversions or one time distributions.

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Rules of Thumb

• Big refund two years in a row = probably worth checking withholding

• Still working = start with the W-4

• Mostly retired = start with pension or IRA withholding

• Lumpy income = assume a midyear tax check is part of the job

• Owe every April = do not wait until March to fix it

Here is the bottom line

A refund is not a trophy. It is feedback.

If yours is consistently large, you may be giving the IRS an interest free loan. If yours swings wildly, your withholding engines may not be coordinated.

Either way, you can fix it with one small, repeatable system.

Pull up last year’s tax return and write down your total tax, then compare it to how much you had withheld this year so far.

Less stress at filing time and more control over monthly cash flow for the life you are actually living.

You’re not behind. You’re building a repeatable system.

Locus Wealth Management, LLC is a registered investment adviser in Pennsylvania and other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

This newsletter is for informational and educational purposes only. It does not constitute investment, tax, legal, or accounting advice, nor should it be construed as an offer or solicitation to buy or sell any securities or investment products. Any views expressed are general in nature and may not be suitable for all individuals.

Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. There is no guarantee that any strategies discussed will be successful.

Information is provided “as is” without warranty of any kind. While believed to be reliable, Locus Wealth Management does not guarantee the accuracy or completeness of the information presented. Opinions expressed are those of the author at the time of publication and are subject to change. Use of this content is at your own risk.

This content is not intended for use in any jurisdiction where such use would be contrary to applicable laws or regulations.

But I get it. You spend 30 or 40 years paying into a system, then right when it’s time to turn it on, the headlines start sounding like a disaster movie. It’s normal to wonder if the benefit is real or if it’s going to disappear right when you need it most.

Here is the truth. Social Security is not projected to turn off. The risk is not “zero benefit.” The risk is a future reduction from the full scheduled benefit to a lower payable benefit if Congress does nothing.

This week I’ll unpack what is real, what is noise and how to plan for both claimers and future claimers. If you have talked about Social Security “running out” with someone lately. You are not alone. Send them this so you can both enjoy your coffee in peace. A spouse, a sibling, a neighbor, a guy at the gym who says “it won’t be there for us” every time the news is on.

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The real numbers

1) What Social Security is funded by

Social Security is funded primarily by payroll taxes that come in every year from workers and employers. Those dollars are used to pay benefits to current retirees and other beneficiaries.

2) What the “Trust Fund” actually means

For decades, Social Security collected more than it paid out, so it built up reserves. Those reserves are held in special-issue U.S. Treasury securities. When annual costs are higher than annual income, the program uses some of those reserves to make up the difference.

3) The key dates and percentages (from the Social Security Trustees)

This is the part most people want and it is also the part most headlines oversimplify.

• Old-Age and Survivors Insurance (OASI). The Trustees project the OASI trust fund can pay 100% of scheduled benefits until 2033. After that, if nothing changes, continuing income is projected to cover about 77% of scheduled benefits.

• If you combine retirement, survivors and disability (OASDI). The Trustees say the combined funds could pay 100% until 2034, then about 81% of scheduled benefits after reserves are depleted.

Read that again slowly, because it is the real headline.

If reserves run out, the program is still projected to collect enough money to pay most benefits. It does not go to zero. The projected change is a reduction from “scheduled” to “payable.”

4) A second set of forecasts lines up with this

The Congressional Budget Office also projects the combined trust funds to be exhausted around fiscal year 2034, and it uses the same concept of “scheduled” versus “payable” benefits in its analysis.

A little history

This is not the first time Americans have worried about Social Security’s finances.

In the early 1980s, the system faced a serious short-term financing crunch. Congress responded with major reforms in the Social Security Amendments of 1983, which were designed to address immediate stress and improve longer-term funding.

The point is not that “history will repeat itself perfectly.” The point is that Social Security has been adjusted before when funding and age demographics changed and it has continued to pay benefits through those periods.

Likely fixes

When people worry about Social Security “running out,” they usually imagine a program that disappears. In reality, the debate in Washington tends to revolve around a short list of levers. These ideas show up again and again in proposals across the political spectrum, because there are only so many ways to close a gap this big.

1) Tax more earnings by raising, or reshaping, the wage cap

Right now, Social Security taxes apply to earnings up to an annual limit. That limit changes each year. For 2026, the Social Security Administration says the taxable maximum is $184,500.

One widely discussed fix is to subject more high earnings to the payroll tax, either by raising the cap or by restoring the share of earnings covered by the tax to about 90 percent, which is a benchmark often referenced in policy discussions. The Congressional Budget Office has published budget options along these lines.

Put simply: if more earnings are taxed, more money flows into the system, and the funding gap shrinks.

2) Increase the payroll tax rate, slightly, over time

Another common lever is a small increase in the payroll tax rate, sometimes phased in gradually over many years. The Congressional Budget Office has modeled versions of this approach as well.

This option is straightforward. It is also the reason you will sometimes hear people say, “If we acted sooner, we could spread the change out and make it smaller.”

3) Adjust benefits for higher earners, not by cutting everyone equally

Many proposals focus benefit changes on higher income workers, while preserving or enhancing benefits for lower income workers. The Congressional Budget Office’s options discussion often separates approaches that reduce benefits from those that raise revenue, and some proposals blend both.

Put simply: The system can be made more progressive, so the people who rely on Social Security the most are protected.

4) Raise the full retirement age, or change the way it rises going forward

Raising the full retirement age has been discussed for decades because it reduces lifetime benefits, especially for future retirees. The important nuance is that these changes are typically designed to phase in gradually and often do not affect people who are already retired.

5) Change the cost of living adjustment formula

Some proposals adjust how benefits are indexed for inflation. For example, you may hear references to “chained Consumer Price Index (CPI)” as an alternative inflation measure that would tend to produce smaller Cost Of Living Adjustments (COLA) over time.

This tends to sound technical. The real world impact is simple. If COLAs grow more slowly, benefits are a little lower over long periods and that improves viability.

No one can promise which combination will happen. What history suggests is that changes, when they come, are usually phased in and they often try to avoid sudden disruption for people already receiving benefits. That is exactly why a good retirement plan should not depend on guessing politics. It should depend on flexibility.

Headlines are built to trigger urgency. Retirement plans are built to handle uncertainty.

Here are practical, non-alarmist suggestions depending on where you are.

If you have not claimed Social Security yet

1) Do not claim early out of fear alone.

Claiming is a permanent decision. It should be tied to your cash-flow needs, health, family longevity and spousal or survivor considerations.

2) Plan with two scenarios.

• Scenario A: scheduled benefits (the amount shown on your Social Security statement)

• Scenario B: a conservative “payable benefit” assumption later in retirement, using something like the Trustees’ post-2033 percentage as a stress test

3) Make sure your record is correct. Create your SSA account, check your earnings history, and fix errors early. It’s boring. It’s also one of the highest return tasks you can do.

If you are already claiming Social Security

Keep perspective. The near-term projections are about a potential funding gap years from now, not checks stopping next month.

Build flexibility around your Social Security “floor.” If Social Security is covering your baseline expenses, we can design the rest of the plan to be adjustable. Spending, withdrawals and tax strategies can absorb a lot of change.

Stay focused on what you control. Investment risk, tax planning, withdrawal sequencing and keeping adequate cash reserves usually matter more to your day-to-day outcome than trying to guess the exact shape of future legislation.

Primary sources

• Social Security Administration, Office of the Chief Actuary. Trustees Report Summary (latest).

• Social Security Administration. “Projection for Combined Trust Funds One Year Sooner Than Last Year’s Estimate” (Press Release, June 18, 2025).

• Social Security Board of Trustees. The 2025 OASDI Trustees Report (landing page).

• Social Security Board of Trustees. The 2025 Annual Report (full PDF).

• Congressional Budget Office. CBO’s 2024 Long Term Projections for Social Security (Report).

• Congressional Research Service. Social Security. Trust Fund Status in the Early 1980s and Today and the 1980s Greenspan Commission (R47040, PDF).

• SSA Office of the Chief Actuary. Long Range Solvency Provisions. Summary list of common policy levers.

• SSA Office of the Chief Actuary. Provisions Affecting Payroll Taxes. Summary page (includes options like raising the taxable maximum).

Helpful explainers

• Bipartisan Policy Center. “2025 Social Security Trustees Report Explained” (Aug 5, 2025).

• Center on Budget and Policy Priorities. “What the 2025 Trustees’ Report Shows About Social Security” (Jul 2, 2025).

• Brookings Institution. “Social Security. Today’s financing challenge is at least double what it was in 1983” (Sep 18, 2023).

Locus Wealth Management, LLC is a registered investment adviser in Pennsylvania and other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

This newsletter is for informational and educational purposes only. It does not constitute investment, tax, legal, or accounting advice, nor should it be construed as an offer or solicitation to buy or sell any securities or investment products. Any views expressed are general in nature and may not be suitable for all individuals.

Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. There is no guarantee that any strategies discussed will be successful.

Information is provided “as is” without warranty of any kind. While believed to be reliable, Locus Wealth Management does not guarantee the accuracy or completeness of the information presented. Opinions expressed are those of the author at the time of publication and are subject to change. Use of this content is at your own risk.

This content is not intended for use in any jurisdiction where such use would be contrary to applicable laws or regulations.

Violets are blue,

Your plan is outdated,

Your beneficiary is “Who?!”

Seriously, go check your beneficiaries.

Two years ago a client called me a day after the passing of her husband.

She told me, “We share everything.” She meant it, too. Shared bank logins, shared calendars, shared family plans.

After the passing of her husband, she learned there was one thing they did not share.

The Apple Account.

Not because they were hiding anything but because it never felt urgent, until it suddenly was.

This takes 15 seconds and could save your loved ones weeks of unnecessary trouble during the worst time of their lives.

The 3 step process with screenshots are below.

In the name of Valentine’s Day, this week’s article isn’t about finances. It’s about Legacy Contacts on your devices.

What is a Legacy Contact?

Per Apple, a Legacy Contact is someone you choose to have access to the data in your Apple Account after your death. Adding one is presented as the easiest, most secure way to allow access after death.

Naming someone does not give them access today. They do not get to browse your photos or read messages while you are alive. They only gain the ability to request access after your death and only after Apple verifies the request.

They may be able to access data like: photos, messages, notes, files, apps you downloaded and device backups.

They cannot access certain categories, including: purchases like movies, music, books, subscriptions, and anything stored in Keychain like payment info, passwords and passkeys.

Two things your Legacy Contact will need

To file a request after you pass away, Apple says your Legacy Contact will need both of the following.

The access key that is generated when you add them and your death certificate.

Access lasts three years from when the first legacy request is approved, then the account is permanently deleted.

How to add one

This takes about 15 seconds. The only “hard” part is treating the access key like a real document, not a casual text to a loved one.

Step 1.

Open Settings. Tap your name at the top. Tap Sign-In and Security.

You will see Legacy Contact near the bottom. Tap it, then tap Set Up.

Step 2.

You will be prompted to choose a Legacy Contact. Apple will usually suggest people from your Family Sharing group or contacts, if applicable.

Pick the person you trust to handle sensitive information calmly and follow through later. If the right person is not listed, tap Choose Someone Else and select them from your contacts.

Step 3.

After you select the person, you will be asked how to share the access key. You will typically see two simple options.

• Send an iMessage. This shares the key with them digitally.

• Print a Copy. This is the cleanest “estate planning” move. Print it, then store it with your core documents so it is easy to find later.

My practical recommendation? Do both. Send the iMessage and print a copy for your estate folder. Then tell the person where the printed copy lives.

That is it. You just removed a major point of friction your family would otherwise run into at the worst possible time.

If you set up a Legacy Contact today, nothing changes.

You still have your privacy. You still have your passwords. You still have full control.

But one day, if the unthinkable happens, the people you love will not be stuck staring at a locked screen thinking, “Now what?”

So yes, buy the chocolates today.

But while you’re waiting to check out, do your future family a favor and assign a legacy contact.

All screenshots are from Apple’s support website. For further detail please visit: https://support.apple.com/en-us/102631

Locus Wealth Management assumes no responsibility with regard to the selection, performance, or use of third-party websites or products. Locus Wealth Management makes no representations regarding third-party website accuracy or reliability.

Locus Wealth Management, LLC is a registered investment adviser in Pennsylvania and other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

This newsletter is for informational and educational purposes only. It does not constitute investment, tax, legal, or accounting advice, nor should it be construed as an offer or solicitation to buy or sell any securities or investment products. Any views expressed are general in nature and may not be suitable for all individuals.

Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. There is no guarantee that any strategies discussed will be successful.

Information is provided “as is” without warranty of any kind. While believed to be reliable, Locus Wealth Management does not guarantee the accuracy or completeness of the information presented. Opinions expressed are those of the author at the time of publication and are subject to change. Use of this content is at your own risk.

This content is not intended for use in any jurisdiction where such use would be contrary to applicable laws or regulations.

The Dealership Dilemma

A couple sat down with me recently and I could tell, immediately, they had been through it.

Not through a job loss. Not through a medical bill. Not through a market crash.

Through a car upgrade.

They were buying a new SUV. Practical. Sensible. The kind of purchase you make when you want reliability and a little peace and quiet. But they had turned one option into a full-blown household event.

The option was a “technology package.” The price tag was $2,800.

Not $28,000. Not “this changes our retirement date.” Just $2,800.

They had been debating it for so long that the salesperson knew them by name. They were on a first-name basis with the finance manager. There were multiple texts exchanged that started with, “Okay, final decision.”

They walked me through the dilemma like they were presenting to a board.

One of them had a spreadsheet. Of course. Columns included: Cost, How often we will use it, Pain avoided, Resale value, and my personal favorite, Likelihood of regret.

The other one had a philosophical angle.

“If we get it, we are rewarding ourselves for no reason.”

“If we do not get it, we are being responsible.”

“If we get it, it is a slippery slope.”

“If we do not get it, we will hate the car every time we sit in traffic.”

They were not arguing, exactly. It was worse. They were earnestly negotiating. Like two perfectly reasonable adults trying to solve world peace, except the stakes were heated seats and a bigger screen.

At one point, one of them said, “Okay, but $2,800 invested at 7% for 20 years becomes like… a lot.”

Which is a fair point. A very fair point. I love that point.

Then we turned the page.

They had a portfolio north of seven figures. Their investments were spread across multiple accounts that had not been coordinated in years. They had two funds that were basically the same thing with substantially different expense ratios. Their tax withholding was far bigger than it needed to be and they were sitting on a single stock that made their entire plan more fragile than it needed to be.

And I am sitting there thinking, “I am watching two people burn emotional calories on a $2,800 decision?” While a handful of macro moves, the kind you can do in one focused meeting, could be worth tens of thousands maybe hundreds of thousands over decades and remove a ridiculous amount of stress.

So yes. We can talk about the tech package.

But the real win was helping them redirect that same brainpower toward the stuff that actually changes outcomes.

Because the funniest part is this…

The car package was not the real financial problem.

It was just the one that felt small enough to control.

Below are the two most common reasons I see scenarios like this surface.

Old money scripts in a new money life

One of the biggest things I have learned sitting with households over the years is this…People do not update their money mindset as quickly as their balance sheet.

For many families, this is the first time in their lives, parents’ lives, or grandparents’ lives, that they have had this kind of money or this kind of financial responsibility. And that matters because most of us are still running the same internal operating system we downloaded in our teens.

Maybe the script was, “We do not waste.”

Maybe it was, “If we do not watch every dollar, something bad will happen.”

Maybe it was, “Debt is danger.”

Maybe it was simply, “People like us do not buy things like that.”

Those scripts are not silly. They are often the exact reason someone is doing well today. They learned to be careful. They learned discipline. They learned how to delay gratification. They learned how to live below their means, and that is a superpower.

The only problem is that scripts written in a season of scarcity do not always work perfectly in a season of abundance.

The scripts can create a weird kind of whiplash. Your financial reality improves but your nervous system still behaves like it is fragile.

So you end up with a household that is objectively fine. But still feels like it is one bad decision away from trouble. That is not irrational. That is conditioning. And it deserves a little compassion, not criticism.

Micro decisions feel like control

The second reason is even more human. Small money decisions feel controllable.

This is the same psychology behind to do lists. When people are overwhelmed, they do not start with the hardest thing. They start with the easiest thing because it gives the brain a quick win.

“Make a cup of coffee.” Check.

“Write out the to do list.” Check.

“Send one email.” Check.

It is not laziness. It is self-soothing. Your brain is trying to create momentum, because momentum feels like safety.

Money works the same way. Investing returns are not fully controllable. Taxes feel complicated. Markets do what they do. Career stuff can be messy. Health, family needs, and timing are unpredictable.

But spending? Spending feels like something you can put your hand on.

Should we buy this? Yes or no.

Should we upgrade that? Yes or no.

Should we cancel this subscription? Yes or no.

It is concrete. It is immediate. It gives you the feeling that you are “being responsible” in real time.

And to be clear, spending matters. It just tends to matter less than people think once you are already in a strong position. The bigger issue is when spending becomes the only lever you feel you can pull. Then you end up pouring energy into micro decisions, not because they are truly urgent but because they are the easiest place to feel in control.

If any of this feels familiar, here is the most important point. You are not broken. You are not bad with money. You are doing something completely normal. You are reaching for the nearest lever that your brain believes it can control.

In the next section, I will show you how to keep the healthy part of that instinct. Then redirect it toward the bigger levers that actually buy you freedom.

The Brown M&M Rule

My wife and I use what I call the Brown M&M Rule. The phrase comes from Van Halen’s 1982-era tour rider, where they famously asked venues to provide a bowl of M&Ms with no brown ones. It sounded ridiculous on purpose. The brown M&M was a quick compliance check. If the venue missed that tiny detail, it was a signal they might have missed the much more important technical and safety requirements buried in the rider.

That is exactly how I think about money stress. When we catch ourselves spiraling over a small purchase, we pause and ask, “Do we have any brown M&Ms in the bowl right now?” Which translates to, “Are we obsessing over something tiny because it is easy to control, while a bigger, more important decision is sitting quietly in the background?” If there is a brown M&M, we stop debating the financial equivalent of heated seats and cupholders. We check the “stage safety” items first, like beneficiaries, insurance gaps, tax moves, portfolio alignment or that one account we keep meaning to simplify. Then the small decisions get easier. Not because we suddenly became perfect with money, but because we stopped using big energy on small problems.

The Mental Real Estate Rule

Do not pay rent to small problems.

Your time and attention are valuable. Your mental real estate is valuable. So here is a simple rule. If a purchase is small enough that it will not matter next month, it does not deserve to move in and start charging rent in your head. I have seen people spend days mentally rehearsing a $200 decision, and that stress ends up spilling into the big stuff. The tone at dinner. Patience with kids. Sleep. The weekend. The whole point of being financially stable is to buy more peace, not less. So when you catch yourself looping, use the phrase. “Am I paying rent to a small problem?” If the answer is yes, make a good-enough decision and move on. Save your best focus for the Brown M&Ms and for the parts of life that are actually worth your attention.

I will leave you with this. I am not a psychologist. I do not have a couch in my office. I do not ask anyone to “tell me about their childhood” unless they bring it up first. But after sitting with hundreds and hundreds of households, I can tell you this with confidence...

Money stress is often just normal human stress wearing a finance costume.

So cut yourself some slack. If you have ever spiraled over a small purchase, it does not mean you are careless or “bad with money.” It means you are human. Your brain was looking for something it could control.

Use the Brown M&M Rule. If you find yourself stuck on the tiny stuff, treat it like a signal. Handle the big and boring decisions first. Then go enjoy your life. That is the whole point of getting the money part right.

Locus Wealth Management, LLC is a registered investment adviser in Pennsylvania and other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

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