Weekend Reading For Financial Planners (October 17–18)

Author: Adam Van Deusen, CFP®

Team Kitces

Adam Van Deusen, CFP®, is a Financial Planning Nerd at Kitces.com, where he hosts the Financial Advisor Technician podcast, writes articles for the Nerd’s Eye View blog (including the popular Weekend Reading for Financial Advisors), and regularly speaks at industry events on a range of technical and practice management topics. He previously worked at a financial planning firm in the Washington, D.C. area and as a journalist covering the banking and insurance industries. Outside of work, he serves as a volunteer financial planner and class instructor for local and national non-profits.

Read more of Adam’s articles here.

Client AI Use Linked To Boosted Trust In Their Human Advisor: Survey

(Leo Almazora | InvestmentNews)

While many financial advisors use Artificial Intelligence (AI)-powered tools in their day-to-day work, a concern that (perhaps future) consumer-facing AI tools could reduce the demand for human-provided financial advice continues to lurk in the background. However, a recent survey suggests that consumer exposure to AI-provided answers to financial questions could in fact boost the perceived value of human-provided advice.

According to a survey by Vanguard of 6,686 personal investors on its platform, 32% of respondents said they’ve used AI tools for money management or planning (with use varying by generation; while more than 40% of those in younger generations said they had, only 15% of Baby Boomers and those older said the same). Despite this use, many individuals appear to see AI interactions as a starting point or a way to get a quick (and free) answer to a question. In fact, amongst those with an advisor, 41% said they value their (human) advisors more because of AI, compared to only 2% who said they value human advice less.

Part of this could be based on trust; while more than 50% of overall respondents reported having high trust in human advisors, more than 60% reported having low or no trust in AI (this effect was particularly pronounced for older respondents, with 78% of those in the Boomer generation or older saying they had little to no trust in AI guidance). Also, amidst the possibility of more ‘agentic’ AI tools emerging, at least 80% of respondents across generations said they were uncomfortable with AI taking action on their behalf (suggesting a greater willingness to consult AI rather than have it operate on one’s behalf).

In general, those who hadn’t used AI for financial issues expressed skepticism of its value compared to human advisors across a range of functions, rating human advisors as better in understanding their situation, accuracy, consistency, and objectivity. However, those who had used AI were somewhat less convinced about human advisors’ superiority in these areas (with a majority rating AI as either equal or better in accuracy, consistency, and objectivity) and actually favored AI when it comes to conflicts of interest (with 42% saying AI is better compared to 26% for human advisors), suggesting that while investors appear to recognize the ability of human advisors to get to know them as a person, openly addressing potential conflicts of interest (and how they are managed) could assuage lingering concerns in this area.

In the end, while a not-insignificant percentage of investors surveyed have used AI for money management or planning, these actions (at least so far) appear to be largely casual, taking advantage of these tools’ convenience and (no) cost to get quick answers or guidance (perhaps leading to further, more personal, questions that can be answered and/or acted upon by a human advisor). Which suggests that human advisors appear to be well-positioned to meet consumer needs at the moment (particularly by leaning into what makes them human), though work to identify and mitigate conflicts of interest could serve as a further defensive mechanism into the future.

Social Security Announces 3.6% COLA Hike For 2027, But Potential Policy Changes Loom

(Jacqueline Sergeant | Financial Advisor)

Social Security benefits are a key piece of retirement income planning not only because they provide a steady stream of lifetime income, but also because they come with annual cost-of-living adjustments (COLAs) that are intended to ensure benefits keep pace as prices rise over time (a feature that is harder to find in other sources of guaranteed income, such as annuities). And given that annual price changes can fluctuate significantly, so too do Social Security COLAs.

The Social Security Administration announced this week that the COLA for 2027 will be 3.6% (up from the 2.8% COLA received in 2026), effective for benefits payable starting in January. According to an analysis by the Senior Citizens League, the average Social Security check will increase by $75.15 per month from $2,087.52 to $2,162.67 after the change (though some or all of this gain could be eaten up by expected increases in Medicare premiums, which have yet to be announced for 2027). Also notable for advisors with working-age clients is that the maximum amount of earnings subject to the Social Security tax is slated to increase to $192,300 from $184,500.

While the release of the 2027 COLA will give Social Security recipients a better idea of their income for the coming year, perhaps a more important longer-term issue is how COLAs might be calculated in the future. Given that the Social Security trust fund is expected to be depleted sometime in the early 2030s (at which point, absent any policy action from Congress, the system would be able to pay out approximately 80% of benefits due to most revenues coming from payroll tax receipts), policymakers have an incentive to shore up the system. One area that could be considered is adjusting the COLA calculation, which could result in higher or lower COLAs for Social Security recipients, depending on which route is chosen (i.e., a change to the so-called "Chained CPI" that would result in lower COLAs over time or a change to the "CPI-E" benchmark that is designed to track the spending of seniors and typically would lead to higher annual Social Security COLAs).

Ultimately, the key point is that while the annual Social Security COLA announcement can help clients with their cash flow planning, perhaps a more impactful consideration is how COLAs might change in the future (given that they can compound over what could be 30+ years of receiving benefits). Given that a future policy direction is unknown today, this presents an opportunity for advisors to help 'stress test' client financial plans if the COLA calculation (as well as Social Security taxes or benefit calculations) were to change (for instance by reducing, or even eliminating, future COLAs) and gauging the impact on the client's financial plan.

Congress Passes Bill Giving Social Security Claiming Ages New Names

(Lorie Konish | CNBC)

The world of personal finance is full of technical terms and jargon that can be confusing to the broader public. For instance, when it comes to deciding when to claim Social Security benefits, not only do consumers face the challenging task of deciding when to claim, but also the difficulty of parsing the potentially confusing language involved with it.

In an attempt to clarify key milestones when it comes to claiming Social Security, the Senate recently passed the Claiming Age Clarity Act, which had already passed the House of Representatives and will now go to the president for his signature. If signed, the legislation would change the names of three key ages for those deciding when to claim Social Security: the age at which qualifying retirees are first eligible to claim Social Security benefits (currently 62) would change from "early eligibility age" to "minimum benefit age", while the current "full retirement age" (67 for those born in 1960 and later) would change to "standard benefit age" and "delayed retirement age" (currently age 70) would be dubbed "maximum benefit age". In general, these changes link the claiming age to the size of the benefit received rather than the more amorphous concept of retirement.

Altogether, while this legislation wouldn’t change the formula for determining how much individuals would receive for claiming Social Security benefits at a particular age, it could serve as a nudge to encourage individuals to delay claiming benefits (given that "minimum benefit" doesn’t sound particularly attractive!). That said, given that there are a wide range of factors that can influence the ‘best’ age for a particular individual to claim benefits, financial advisors are well-positioned to both help clients understand the consequences of claiming at different ages and to make the decision that best meets their personal and financial needs.

A Top 10 List Of Common RMD Mistakes

(Andy Ives | The Slott Report)

The ability to make pretax contributions to workplace retirement plans and/or IRAs (and receive tax-deferred growth on assets in the account as well) is an attractive feature of these tax-advantaged retirement accounts. Nevertheless, these savings aren’t entirely tax-free, but rather are subject to Required Minimum Distributions (RMDs) later in life, where amounts withdrawn from these accounts are treated as ordinary income (allowing the government to recoup taxes that weren’t collected when the contributions were made). Not only can RMDs be frustrating for retirees given the taxes they might owe, but they can sometimes be challenging to execute correctly, with mistakes potentially leading to penalties for the taxpayer.

First off, an individual subject to RMDs must calculate their annual RMD correctly, using the proper life expectancy table, age, and balance (and, at a more basic level, remember to take the RMD in the first place!). Next, retirees can get tripped up by aggregation rules, where IRAs can be aggregated for RMD purposes (meaning the total RMD owed for all IRAs can be taken out of one of them) but IRAs and workplace retirement plans (e.g., 401(k)s) cannot be aggregated. Also, some couples filing taxes jointly might mistakenly assume that one spouse can take an RMD on behalf of another.

Individuals who have reached RMD age and continue to work can take advantage of the ‘still working’ exception, which means they don’t have to take an RMD from the workplace retirement plan of their current employer (though they will if they own more than 5% of their company). However, they might not realize they will still be subject to RMDs on their IRAs and workplace retirement plans from previous employers. Another RMD ‘opportunity’ that can confuse some retirees as well is the opportunity to delay the first RMD until April 1st of the following year. While this might seem like an effective tax-deferral tactic, in reality it means that there will be two RMDs owed the following year (which could put them into a higher tax bracket). Also, charitably minded individuals might meet their entire RMD requirement through Qualified Charitable Distributions (QCDs); notably, individuals are not limited to their RMD when it comes to QCDs and can contribute up to the annual QCD limit ($111,000 for 2026), which could reduce the size of RMDs they owe in the future.

In the end, while RMDs are a common feature of retirement savings, they aren’t necessarily simple to calculate and execute correctly on an annual basis. Which offers financial advisors the opportunity to both take this task off of their clients’ shoulders while also identifying opportunities (e.g., QCDs) that can help them mitigate the tax burden that comes from them!

Pros And Cons Of Three RMD Timing Strategies

(Jean-Luc Bourdon | Advisor Perspectives)

While Required Minimum Distributions (RMDs) are required to be taken during the year (as the name implies), retirees have flexibility on when to take them during the year. While those who need their RMD amount (and possibly more) to cover spending needs might make withdrawals as cash is needed, others might elect to take them first thing in January, wait until the end of the year, or perhaps still spread them out throughout the year.

Each of these RMD strategies comes with its own set of pros and cons. Those who take their RMD early in the year don’t have to worry about forgetting to take it (and potentially incurring a penalty for a missed RMD) and, for those who end up passing away during the year, allow their heir(s) to avoid the need to take the RMD for that year (which can easily be missed amidst the grieving and logistics involved when a loved one dies). However, taking the RMD first thing means that assets in the account have less time to benefit from tax-deferred growth and could reduce the benefit of any QCDs made afterwards (as the first dollars out of the account count towards the RMD).

On the other end of the spectrum, individuals might delay taking their RMD as late as possible, perhaps making it in December. This allows for additional months of tax-deferred growth of the RMD amount (though the actual benefits of growth in a retirement account versus a taxable brokerage account will depend on the individual’s circumstances). However, the possibility that the retiree ends up forgetting to take the RMD (and potentially being subject to a penalty) could outweigh any tax deferral advantages.

Some individuals might decide to split the difference by taking distributions from their retirement account(s) throughout the year. Doing so could leave space for QCDs or for withholding from late-year distributions to meet tax obligations. At the same time, this could require tracking to ensure the full RMD is made over the course of the year (and to make sure that the individual doesn’t distribute more than their RMD amount, if that’s not desired).

Ultimately, the key point is that the ‘best’ RMD strategy is likely to depend on a particular client’s preferences and circumstances. Though, working with a financial advisor who can ensure that RMDs are made and assess whether certain timing strategies apply to their client’s situation (which can change from year to year) can prove valuable in this regard!

Inherited An IRA? Here's When An RMD Must Be Taken Before A Transfer

(Denise Appleby | Morningstar)

While taking Required Minimum Distributions (RMDs) on IRAs is an annual habit for many retirees, those who inherit these accounts (many of whom haven’t reached RMD age themselves) might not be used to the RMD requirements they face. This can be particularly tricky for the year the original IRA owner died, both in terms of calculating the (remaining) RMD obligation and in working with the custodian where the decedent’s IRA was held.

To start, the beneficiary of an IRA can determine whether the decedent was required to make an RMD for the year in which they passed away (e.g., by determining whether they had reached their required beginning date for RMDs). If not (or if the account is a Roth IRA, as the owner of this account is treated as having died before the required beginning date because Roth IRA owners are not required to take lifetime RMDs), no RMD will be required for the year of death. However, if the decedent had reached their required beginning date, the next step is to determine whether they had already fulfilled their RMD requirement for the year before they passed away (in which case no additional RMD is owed for that year) or if they had not, which would require the beneficiary to take a distribution to fulfill this (remaining) amount.

When a distribution is required to fulfill an RMD, the key is that the IRA custodian must be able to report the post-death distribution under the name and tax identification number of the beneficiary who receives it. Notably, operating procedures aren’t uniform amongst custodians when it comes to this process: some will require the beneficiary to first establish a beneficiary IRA, move the assets from the decedent’s IRA to the new beneficiary IRA and then take any remaining year-of-death RMD from the beneficiary IRA while others can distribute the remaining year-of-death RMD from the decedent’s IRA and report it under the beneficiary’s tax identification number. Either way, the key is that while distributions from the IRA made before the decedent’s death will appear as income on their tax return, distributions made after the death will be treated as income for the beneficiary.

In sum, at a time when the death of a loved one can already be trying, navigating RMD rules and account opening issues can add another layer of stress and uncertainty for beneficiaries, putting financial advisors in a helpful position to understand custodial requirements and RMD rules to ensure any required distributions and account transfers are completed successfully.

Analyzing Historic Asset Class Performance When Bond Yields Spike

(Julien Esnault | Portfolio Terminal)

After an extended period of historically low bond yields, the past several years have seen a significant increase. This includes a sharp spike experienced over the past year, with the yield on the 10-year Treasury note increasing by 1.02 percentage points to 5.18% as of late September. For investors, a key question is how different asset classes have performed during periods of rapid yield increases as well as afterwards.

Between 1963 and August 2026, there were 20 instances where the 10-year Treasury jumped by 1 percentage point or more in a year. During these periods, one-month Treasury bills outperformed 10-year Treasuries all 20 times (reflecting that the larger price decline associated with higher yields for Treasuries with longer maturities outweighed the higher yields associated with these instruments). In fact, 10-year Treasuries finished positive only once, in the 12 months leading up to February 1989 (a 1.3% gain), whereas one-month Treasury bills advanced in 19 of the 20 periods. Other asset classes fared better than the 10-year as well, including U.S. stocks and gold (each of which were up in 13 of these 20 periods).

A key question for longer-term investors, though, is what happened to these asset classes after the yield spike. Notably, in the 12 months after the sharpest month of each spike, 10-year Treasuries gained 18 times out of 20 (with a median 8.3% gain), besting T-bills 14 times. Which suggests that while there is significant ‘pain’ associated with yield spikes for relatively longer-maturity Treasuries, higher yields on newly purchased bonds (and the potential for price gains if yields retreat) could offer upside in the aftermath of these periods (though the catch [for those who might be interested in timing this pattern] is that an investor doesn’t know in the moment whether the sharpest month of each spike has occurred!).

Altogether, while the recent spike in yields has likely proved frustrating for many fixed income investors (though those with exposure to equities can take solace in recent gains in that part of the market, unlike the pain experienced in 2022 when both asset classes fell), there could be some light on the horizon in the form of larger coupon payments on newly purchased Treasury notes and bonds (and the possibility of price gains if yields eventually decline).

With Stocks Up And Bonds Down, Is It Time For A Portfolio Rebalance?

(Ben Carlson | A Wealth Of Common Sense)

Equity investors have benefited from the bull market experienced over the past 15+ years. In this environment, some investors might have seen their allocations to equities (relative to bonds) expand, whether due to active asset allocation and/or to portfolio drift over time. Which raises the question of whether it might be an appropriate time to rebalance the portfolio to a target allocation for the investor’s current circumstances.

One factor that has changed in the past few years is the yield available on high-quality bonds. When bonds were yielding 1%–2% relatively recently, there was little upside available, both in terms of potential price appreciation and in coupon yield (perhaps leading some investors to overweight equities in the pursuit of greater returns). For instance, investors with a 60% stock / 40% bond portfolio looking to earn a total portfolio return of 7% would need to see stocks rise 11% when bond yields are at 1%.

However, now that Treasuries are available with yields greater than 5%, this math shifts, with investors only needing to see an 8%–9% return from their stock allocation (in a 60/40 portfolio) to achieve 7% total returns. Further, some investors’ portfolios have likely drifted over time amidst the relative strength of stocks over the past several years. For example, an unrebalanced 60/40 portfolio at the start of 2020 would now be made up of 76.6% stocks and 23.4% bonds. For this investor, rebalancing back to the 60/40 target could offer the opportunity to tap into higher bond yields while reducing risk from the equity portion of the portfolio (of course, while this could be effective from a risk mitigation standpoint, continued relative outperformance by stocks could lead to some regret from a total return perspective).

Ultimately, the key point is that while those who have an overweight allocation to equities compared to their target allocation have been rewarded in recent years, the recent rise in bond yields could provide an attractive opportunity to rebalance and tap into the steadying force bonds can provide. Nevertheless, given that each investor’s situation is different, financial advisors are well-positioned to help clients determine whether their current asset allocation fits their needs and whether a regular rebalancing strategy might be appropriate.

Why Cash Is Still King For Short-Term Goals

(Amy Arnott | Morningstar)

When saving for future goals (whether short-, medium-, or long-term), a helpful practice is to match the expected amount needed for each goal to assets that have an attractive risk-reward profile for reaching it. For instance, a heavy allocation to equities might be appropriate for a long-term goal in order to beat inflation and provide an additional return, while shorter-term goals might call for less-risky assets.

Those seeking to save or invest for short-term goals have several options available to them, from cash-like instruments (e.g., savings accounts and money market funds) to short-term bond funds to long-term bond funds. During a normal yield curve environment (as exists today), investors are compensated more for bonds with longer maturities (reflecting the additional risk being taken), which suggests that an individual might consider whether the additional yield available is worth the risk.

While yields have risen across most maturities for Treasuries over the past year (with the 10- and 30-year Treasury yielding above 5%), Arnott argues that cash remains attractive for short-term goals. First, yields on cash-like instruments are currently matching or outpacing inflation, suggesting that an individual can maintain purchasing power without taking on additional risk. Also, while the yield on the 30-year Treasury is about 150 basis points (i.e., 1.5 percentage points) higher than that of the three-month T-bill, this term spread remains below its longer-term average of approximately 190 basis points (suggesting that investors might not be getting paid enough for the additional risk that comes with Treasuries with longer maturities).

In sum, while yields on longer-maturity Treasuries could be attractive to some investors (and might be a good fit for longer-term goals), others might prefer to take significantly less risk for their short-term goals (and keep up with inflation) and stick with cash. Which presents an opportunity for financial advisors to help clients narrow in on time horizons for key goals and select assets to meet them accordingly (in line with their risk tolerance).

Small Talk: The (Valuable) Dialogue Of My Nightmares

(Meghaan Lurtz | Less Lonely Money)

While ‘small talk’ is a regular part of life, whether chatting with a fellow guest at a party or having a few words with the clerk ringing up your groceries, individuals have a wide range of views on it, from those who seek it out as a form of greater connection to those who find it awkward or nerve-wracking and seek to avoid it at all costs.

In a win for the former group, research tends to come out on the side of small talk being valuable, identifying two separate types of small talk. The first type is the brief, informal chatter that can occur between strangers (e.g., two people waiting for a bus). This could include the classic weather discussion, or perhaps conversation about a potential topic of common interest, such as a local sports team. While such an interaction probably has a small chance of blossoming into a longer-term relationship, it can provide community- and trust-building benefits by encouraging encounters between people who might not have crossed paths otherwise.

A second type of small talk occurs in the professional setting between professionals and customers or clients. For instance, a doctor might ask a patient about a recent trip they took before diving into questions related to their health or a salesperson might find a common point of interest with a potential customer before diving into their pitch. Research suggests that this type of small talk can ‘grease the wheels’ for a more positive interaction the rest of the way.

In the end, whether an individual likes or loathes small talk, it appears to play a valuable role in facilitating social and commercial ties, whether short in duration or longer-term. And for financial advisors, such small talk could serve a dual role not only in helping clients ease into meetings but also in potentially finding out more about them and applying this knowledge to the planning process.

How To Make Yourself Easier To Talk To

(Brett and Kate McKay | The Art of Manliness)

Conversations are a two-way street, meaning that it’s up to both parties to keep the discussion going until it reaches a natural (and hopefully not awkward) conclusion. Which suggests that taking it upon oneself to help guide the conversation can lead to better results (and make life easier for your interlocutor!).

First, wearing a conversation piece can provide an easy conversation starter. This could include a shirt with a recognizable logo (e.g., a college, band name, or sports team) or even a memorable ‘look’ (e.g., a noticeable mustache). Next, the way you introduce yourself can both help your counterpart remember your name and get the conversation off to a good start. For example, saying, "My name is…" rather than, "I’m…" can prime the other party to pay attention for your name (and be sure to say your name clearly!). Also, adding something about yourself to the introduction can get the conversation started (e.g., "My name is X and I recently moved here from Y"). In addition, as the conversation moves along, providing expansive, specifics-filled answers to questions you’re asked can give the counterpart more ways to share information about themselves or craft follow-up questions (e.g., saying, "I just returned from a trip to France and Germany" is a richer response than, "I travel often").

Altogether, while no two conversations are alike, making it easier for an interlocutor to remember your name, learn something about you, and ask better follow-up questions could ultimately lead to a better dialogue and perhaps a longer-term relationship. Which could be valuable for financial advisors when networking or just meeting someone new (perhaps starting by coming up with a more detail-rich response to the inevitable "What do you do?").

13 "Magical Questions Of Conversational Goodness" With (New) Clients

(Nerd’s Eye View)

Meaningful communication is crucial to building strong, durable relationships, and asking effective questions is an essential part of facilitating impactful conversations. Being able to initiate and lead those conversations has become an important aspect of any financial advicer's skill set, but for many, it's one that isn't always as straightforward or easy to learn.

It's generally accepted in the financial planning world that people don't typically wake up in the middle of the night because they've realized they need a comprehensive financial plan. More often, initial outreach from a prospect occurs because there's some urgent issue they need help with. Accordingly, advicers can foster a space for deeper money conversations by helping the prospect (or new client) paint a picture of their desired future state, homing in on whatever the underlying issues may be (which won't always be the same reasons they reached out in the first place). Questions like "What brought you in today?" and "How do you think we could help with that?" are great places to start, while Dan Solin's "3 years", Bill Bachrach's "What's important about money to you?", and George Kinder's EVOKE questions can offer powerful avenues to help clients start to open up.

As conversations (and relationships) deepen, advicers can probe further by 'working through time', asking questions like "What was money like in your home growing up?" and "Were you one of the rich kids or poor kids in middle school (and how could you tell)?" From there, advicers can help clients explore their relationships with money by asking, "If you could go back and talk to yourself with the benefit of hindsight, what would you say?", potentially providing them with insight around experiences that have been informing their lives for years. From a forward-looking perspective, advicers can ask about how the client deals with money in their home, and (if they have children) what they think their kids would say if asked the same series of questions 20 years down the road.

It's important to note that the goal isn't to tackle all these questions in one meeting. Rather, advicers can have multiple conversations over time to deepen the relationship. Initially, advicers can focus on discovery questions to understand the client's future desired state, which (once defined) becomes the basis for a Statement Of Financial Purpose, which in turn becomes the foundation for well-informed goals. And with clear goals, the advicer can then ask about the client's current state, identifying what they owe and what they own.

Ultimately, the goal is to normalize the process of having meaningful conversations about money. And by implementing some of these questions, not only can advicers help their clients buy into their financial plans, implement recommendations, and reach their 'desired future states', but they can also learn a skill set that helps them differentiate themselves in an increasingly crowded marketplace while engendering long-term, durable relationships with their clients!

We hope you enjoyed the reading! Please leave a comment below to share your thoughts, or send an email to [email protected] to suggest any articles you think would be a good fit for a future column!

In the meantime, if you're interested in more news and information regarding advisor technology, we'd highly recommend checking out Craig Iskowitz's "WealthTech Today" blog.