Tag Archives: financial advisor

Hidden Bonus: Taking Early Social Security Payments

retirement_roadMy Comments: I’ve said it before and I’m sure I’ll say it again: when to claim Social Security benefits is a complex question. On one hand, if you know you will live to life expectancy, it’s a fairly simple math question. But on the other hand, if you don’t know when you will die, or when your spouse will die, it’s another matter.

Added to this uncertainty is the differential in your respective ages, how much other money you have that you can draw upon until the optimal date, your respective work histories, which determine, along with your age, how many actual spendable dollars you will get. And on and on.

This is another look at this issue.

By John Wasik,  July 11, 2014

Suppose you didn’t need to live off of Social Security, and took the “early” payments at 62?

You may do better using this strategy in terms of total lifetime payments rather than waiting until your “normal” retirement age (depends upon when you were born) or age 70 — when Social Security pays you the largest-possible payment.

The “early saver” strategy works best, of course, if you can get a decent return on your money — you don’t lose principal — and have other sources of income to support your lifestyle. It may even trump waiting until age 70, when Social Security will pay you their highest-possible benefit.

Hannah Alexander, who teaches at the University of Missouri, sent me some compelling numbers on how this strategy could work:

“The assumptions are that the person does not work (or else would not be allowed to collect Social Security), and that this person does not need the money right away, and can wait for it to grow. I agree that this person will get more money per month by waiting, but not enough to make up for the loss of not being paid for the 8 years between 62 and 70. Over a lifetime this person will make less money by waiting. And if that person indeed does not need the money, and can put it in corporate bonds at 4%, she will make even that much more over a lifetime.”
SSA 2009-2083Future payouts of Social Security Benefits in the US from 2009-2083. Source: Social Security Administration. (Photo credit: Wikipedia)

How much more? This is what Prof. Alexander figures:

“I’m using your supposed life expectancy of 85 (as the average between men and women) and your monthly payment ($1,000 for 62, and $1,320 for 70). Starting at 62 will translate to an extra $38,000. Even in a 20% tax bracket the numbers favor an early start with $30,000 extra. “

In order for this strategy to make the most sense, the additional returns need to be compounding until age 94 for the additional savings to exceed the amount you’d receive by waiting until 70 for the higher benefit.

“Even if the person does not invest the money, or even if he/she spends it right away, and does not save a dime, this person will still be better off taking it early, because over a life time she will make more money just from the Social Security checks alone,” Dr. Alexander adds.

There’s also a huge wild card on how you invest your Social Security payments (if you choose to do so): If you take a lot of risk, it could blow up. For example, if you put all of the money in Treasury bonds, you could lose money if inflation or interest rates rise. Stocks also have their own risks.

You also have to keep in mind that many people have little or no skill investing long term, so they may fall prey to an undiversified, unhedged strategy that could diminish their Social Security nest egg. It also gets complicated with a spouse because then you are examining the value of spousal and survivor benefits.

But it’s possible to make it work if 1) you find a risk-adjusted strategy that works over time and 2) you stick to the plan through various market turns. Discipline is essential in retirement investing. If you don’t have it, hire a certified financial planner to run the numbers and keep you on track. You can also experiment with Social Security’s many online calculators. http://www.ssa.gov/oact/anypia/anypia.html

John F. Wasik is the author of 13 books, including Keynes’s Way to Wealth: Timeless Investment Lessons from the Great Economist. He contributes to Reuters, The New York Times and Morningstar.com and speaks around the country.

When It Comes to Claiming Spousal Benefits, Timing Is Everything

Family and fenceMy Comments: The questions surrounding Social Security are almost endless. It’s a complicated system and as more and more of us reach eligibility, it is clear that simply signing up as soon as you are eligible will cost you and your family lots of money and options over the years.

Philip Moeller / Sept. 9, 2014

Seemingly straightforward questions about claiming Social Security spousal benefits can wind up becoming complicated in a hurry. Here’s one answer.

Recently I received a question from a reader that opens up all sorts of concerns shared by many couples:

I am four years older than my husband. I have reached my full retirement age (66) in June 2014. My own benefit is very small ($289/month), since my husband is the bread earner. I have been mostly a stay-at-home mom.

Should I just claim my own benefit now and wait four more years for my husband to reach his full retirement age, then apply for spousal benefits? That means he will get about $3,000/month, and I will get half of his benefit.

Or should my husband apply for early retirement now, at age 62, so I can apply for my own spousal benefits? He can then suspend his benefit and wait four more years until his full retirement age to get more money.

Please advise.

First, your husband should not apply for early retirement at 62. If he does so, his benefit will be reduced by 25% from what he would get if he waits until age 66 to file, and a whopping 76% less than if he waits to age 70, when his benefit would hit its maximum.

Further, if he does file at 62, he cannot file and suspend, as you suggest. This ability is not enabled until he reaches his full retirement age of 66. So if he files early, he will be triggering reduced benefits for the rest of his life. And because his benefits are set to be relatively large, this reduction would involve a lot of money.

If your household absolutely needs the money now, or if your husband’s health makes his early retirement advisable, he could file early and then, at 66, suspend his benefits for up to four years. They would then grow by 8% a year from their reduced level at age 62 – better than no increase, but not nearly as large a monthly benefit as if he simply files at age 66 and then suspends.

I normally advise people to wait as long as possible to collect their own benefits. But this is probably not the best advice in your case. Here’s why:
When your husband turns 66 in four years, it’s clear that you should take spousal benefits based on his earnings record. You say he would be entitled to $3,000 a month at that point and that you stand to get half of that, or $1,500 a month. That $3,000 figure seems a little steep to me, so I’d first ask you to make sure that is his projected benefit when he turns 66 and not when he turns 70.

In either event, however, it’s clear that your spousal benefit based on his earnings record is going to be much, much higher than your own retirement benefit. Even if you waited to claim your own retirement benefit until you turned 70, your spousal benefit still would be much higher.

Thus, you’re only going to be collecting your own retirement benefit for four years, from now until your husband turns 66. Even though your own retirement benefits would rise by 8% a year for each of those four years, those deferred benefits would never rise enough to come close to equaling the benefits you will get by filing right away.

So, take the $289 a month for four years, and have your husband wait until he’s 66 to file for his own retirement benefit and enable you to file for a spousal benefit based on his earnings record. He may decide to actually begin his retirement benefits then or, by filing for his benefit and then suspending it, earn annual delayed retirement credits of 8% a year, boosting his benefit by as much as 32% if he suspends until age 70.

If he does wait until 70, he will get his maximum monthly benefit. But you also will benefit should he die before you. That’s because your widow’s benefit would not just be equal to your spousal benefit but would equal his maximum retirement benefit. So, the longer he waits to file, the larger your widow’s benefit will be.

Philip Moeller is an expert on retirement, aging, and health. He is an award-winning business journalist and a research fellow at the Sloan Center on Aging & Work at Boston College. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Source file: http://time.com/money/3306319/social-security-spousal-benefits/

Being a Stock-Market Bull Just Got a Lot Harder

question-markMy Comments: For over a year now, I’ve been warning my clients that a reversal is coming in the stock market. As a result, we’ve slowly moved into investments that have reacted positively and made money during downturns. Only it hasn’t happened yet.

Consequently, some of them are frustrated and angry with me because while the market has grown considerably in the last eighteen months, their accounts have not kept up, and look rather anemic.

Having been through this kind of thing before, and somehow survived, I continue to promote ideas that have made money for clients, especially 2007-2009 when the last crash happened. While I don’t expect the next one to be as big, it will still be painful. Unless…

By Mark Hurlburt – September 9, 2014

London (MarketWatch) — Making the bullish case is getting a lot harder.

Let’s say that you want to wriggle out from underneath the bearish conclusions of the cyclically adjusted price-to-earnings ratio (CAPE), which for some time now has been very bearish. Sidestepping that conclusion turns out to be a lot harder than you think.

The CAPE is the version of the traditional P/E ratio that has been championed by Yale University finance professor (and recent Nobel laureate) Robert Shiller. Currently, for example, the CAPE stands at 25.69, which is 55% higher than its average back to the late 1800s of 16.55 and 61% higher than the ratio’s median level of 15.95. In fact, there have been only three times since the 1880s when the CAPE has been higher than where it stands today: 1929, 2000 and 2007 — all three of which, of course, coincided with major market highs.

The CAPE isn’t a perfect indicator, as Shiller himself will tell you. There are legitimate reasons to question its approach to market valuation. In addition, the bulls have shamelessly come up with myriad other “reasons” not to pay attention to it.

But Mebane Faber, chief investment officer at Cambria Investment Management, has this to say to all these so-called CAPE haters: “Fine, don’t use it. Let’s substitute in book and cash flows, two totally different metrics.”

Unfortunately for the bulls, the conclusion of looking at the market from those alternate perspectives is almost identically bearish.

Courtesy of data from Ned Davis Research, Faber ranked 43 countries’ stock markets around the world according to their relative valuations according to the CAPE as well as to cyclically adjusted ratios of price-to-book, price-to-cash flow, and price-to-dividend. When ranked according to the CAPE, for example, with top ranking going to the most undervalued country’s stock market, the U.S. is in 41st place. Only two countries are more overvalued according to this indicator.

CAPE = 41
Cyclically-adjusted price-to-book ratio = 37
Cyclically-adjusted price-to-dividend ratio = 39
Cycilcally-adjusted price-to-cash-flows ratio = 36

To argue that the U.S. stock market isn’t overvalued, in other words, the bulls not only have to dismiss the CAPE but also argue why the U.S. market should be priced so richly relative to book value, cash flows and dividends.

That’s not necessarily impossible. But it is clear that the bulls have a lot more work cut out for them.

Furthermore, even if the bearish conclusions of these diverse indicators turn out to be right, you should know that they are long-term indicators, telling you very little about the market’s near-term direction. My favorite analogy to describe the situation comes from Ben Inker, co-head of the asset-allocation team at Boston-based money management firm GMO.

He likens the market to a leaf in a hurricane: “You have no idea where the leaf will be a minute or an hour from now,” he says. “But eventually gravity will win out and it will land on the ground.”

Before You Send Your Child Off To College…

108679-bruegel-wedding-dance-outsideMy comments: Yes, I know this should have been posted several weeks ago. But I didn’t have it then.

The advice come from an attorney in Michigan by the name of Julius Giarmarco whose website can be found HERE. I’m unsure how rules in Michigan differ from any other state but I suspect the fundamental thoughts he offers will apply to whatever state you either live in or where your child is enrolled.

If they have already left for college, put it on your to-do list for Thanksgiving or Christmas.

Before sending your child off to college, have him/her sign a General Durable Power of Attorney and a Patient Advocate Designation. Without them, under Michigan law, parents cannot make financial or health care decisions for a child who has attained age 18 (without probate court approval) – even though the child is still a dependent and still covered under the parent’s health insurance plan.

The General Durable Power of Attorney deals with financial matters. In the event of an unexpected disability, it allows the attorney-in-fact (presumably, one or both of the parents) to handle all of the student’s business, financial and school affairs, while the student is unable to do so. The attorney-in-fact must accept the designation in writing and acknowledge his/her responsibilities.

The Patient Advocate Designation allows the patient advocate to make the student’s health care decisions. Similar to the General Durable Power of Attorney, the designated patient advocate must sign an acceptance before he/she may act.

This document permits the patient advocate to make care, custody, and medical/mental health care decisions for the student when he/she can no longer make those decisions. It also permits the patient advocate to withhold or withdraw life support and to make anatomical gifts.

Compared with other college expenditures, the nominal cost of preparing a General Durable Power of Attorney and a Patient Advocate Designation could turn out to be a good investment when compared to the cost of seeking a probate court approved conservatorship or guardianship.

Social Security: Boost Benefits for Both Spouses

Social Security cardMy Comments: Helping potential clients with an analysis of coming Social Security benefits is big business across the country these days. And I’m doing my share of it. Thank you very much.

But in spite of my being closely aligned with this process for the past 15 months, I’m still confused by the myriad of ways to extract the most you can from the system. How are old are you now, have one of you started taking benefits already, how different are your ages, does one of you have a divorced spouse who has not yet started taking benefits and earned more than you did but you are not yet remarried?

The point is there is typically a lot more money on the table for you than appears at first glance. Just because you can start taking benefits based on YOUR history as soon as you reach age 62 is not necessarily the best decision. But it might be.

by Miriam Rozen AUG 12, 2014

Peg Eddy, a founder of San Diego-based Creative Capital Management, joins the ranks of others advisors who stress spouses should coordinate when they “trot down” to their local Social Security agency branch to make sure they’ve calculated a schedule accurately and most cost effectively.

Here’s the example, Eddy wants them to consider: Both spouses in a couple worked and earned Social Security credits, each in their own accounts. Both plan to defer seeking Social Security benefits until they reach 70 so they may each earn the 8% annual return the government promises to those who wait.

But nonetheless, that couple should not overlook the window of opportunity for spousal benefits for one spouse before full retirement age, Eddy warns. After after reaching full retirement, between ages 66 and 67, spousal benefits are available under the current rules for one spouse per couple, without jeopardizing maximized pay outs for both spouses at age 70.

Assuming the couple is the same age, or the higher earning spouse is older, at full retirment the higher earning spouse applies for Social Security retirement benefits but then requests to have the payments suspended so he or she can continue to earn delayed retirement credits (that 8%) until 70.

Meanwhile, the other spouse, when he or she reaches full retirement, applies for the spousal benefits without requesting his or her own work-earned benefits. The spouse requesting the spousal benefits may also continue working and still receive some benefits. But, as the government agency notes on its own website: “Only one member of a couple can apply for retirement benefits and have payments suspended so his or her current spouse can collect benefits.”

Financial advisors must factor in the age and pre-retirement income levels of each spouse before calculating who should apply for and then defer benefits and who should claim spousal benefits at full retirement between age 66 and 67. The higher the pre-retirement income, the higher the spousal benefit, but also significant are the ages of each spouse since that will determine the number of years he or she will earn spousal benefits before applying for his or her own earned Social Security benefits.

“It is legal and each spouse maximizes benefits,” says Eddy. She typically tells clients “make an appointment and visit the Social Security office in person” before they reach full retirement so they verify all the timing.

Miriam Rozen, a Financial Planning contributing writer, is a staff reporter at Texas Lawyer in Dallas.

Is It Too Late To Get Back In?

080519_USEconomy1My Comments: This is a writer I’ve learned to enjoy over the past several months. I’ve used his articles before and I do so here again. He makes such good sense.

posted by Jeffrey Dow Jones July 17,2014 in Cognitive Concord

I get all sorts of questions from all sorts of different investors. As strange as it seems, this is one of the most common right now. Is it too late? Clearly the last bear market had a permanent effect on investor psychology. Nobody was asking this question in 2006 or 2007.

The question doesn’t always take this exact form. Frequently I hear, “Isn’t the market too expensive here?”, or, “The market can’t possibly keep going up, can it?” or its straightforward non-question variant, “I hate the market because it’s too expensive.”

Those are all different ways of talking about the same basic concept. The market has run a long way and investors have a new type of uncertainty about how much longer it can keep running.

Did I miss it?

Is it too late?

The simple answer is that, no, it’s not too late to get in. The market can keep running, and running, and running… and running.

Have you ever looked at a 100 year Dow chart? The trajectory is pretty clear. If you have a sufficiently long horizon and truly don’t care about picking tops or bottoms then now is as good a time to buy as any.

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Gauging The Stock Market With The Tocalino Index

bruegel-wedding-dance-ouMy Comments: Football season is about to start, Ukraine is still bothered by the Russians, and Ferguson, Missouri is still a mess. So here I am talking about the stock market and an index I have never heard of before. I suspect you haven’t either.

But there is reference here to the Misery Index, which I have heard of, though never followed. It’s the sum of the unemployment rate and rate of inflation. Right now it’s pretty low in historical terms and getting lower. That’s good.

My next question has to do with why so many of us think the world is coming to an end. Well, maybe it is, but I doubt it. A changed world, definitely, but one we must adapt to and stop with the constant message of doom.

By Sebastiao Buck Tocalino, August 12, 2014

Summary
• Here I’m gauging the performance of the Dow Jones Industrial Average with the Help of the Tocalino Index (applying demographics to a variation on Arthur Melvin Okun’s Misery Index).
• The point that stands out recently is the noticeable gap between the rapid rise of the Dow Jones index and the lagging behavior of my own indicator from 2009 onward.
• The market seems to be feeding more on some sort of paranoia or complacency from the lack of investment alternatives than any demographic, business and economic fundamentals could ever support.

Among the many indicators that track the health of the economy, two are very popular due to the obvious affliction they may inflict on all of us regular Joes and Janes. They are: the inflation rate and the unemployment rate. Between the two of them, inflation is often the most conspicuous. After all, we routinely have to reach for our wallets to pay for our daily needs and those of our children, including education and a variety of goods and services. But, if the unemployment rate is somewhat less followed by those who hold on to a steady job, it is still the most distressing for the less fortunate ones who are out of work!

Arthur Melvin Okun was a professor of economics at the famous Yale University, later he was also an important economic advisor to presidents John F. Kennedy and Lyndon B. Johnson. Besides “Okun’s Law,” another well-known contribution of his to the tracking of economic trends was the Misery Index. Its formulation could not be any simpler or more intuitive: it was just the sum of the unemployment rate and the inflation rate. Naturally, to be out of work and having to cope with an escalating cost of life is a sheer disastrous situation leading to social distress, therefore the obvious choice of name for this indicator: the Misery Index.

(Some economists may say that, with a delay of one year or so, this Misery Index, with its implicit social distress, would be a contributing factor to swings in the rate of crimes. I tend to believe that crime is still more related to cultural issues.)

Personally, I don’t usually pay much attention to this index and believe that few people actually do. Though we pay close attention to its two constituents separately. But for some time recently, I have been glancing at the Misery Index and its downward trajectory in the U.S. It is clear that, in spite of all the insane efforts in printing money and keeping real interest rates negative and punitive for the more cautious and conservative majority of savers, inflation is still modest and below the target aimed by the FOMC and the Federal Reserve. By the end of June, the twelve-month inflation climbed a tad higher at 2.07%. Data relative to the closing of July is scheduled to be released only on Aug. 19.

At the closing of June, to the cheers of everyone, the unemployment rate had also fallen to 6.1%. It did rise slightly to 6.2% in July, as reported on Aug. 1.

Trying to avoid much of the noise in inflation data, I will adopt from now on the 12-month core inflation rate, which excludes the more disruptive cost swings of food and energy (due to the villainy of oil prices). The core inflation for the 12 months ended last June was of 1.93%. By using that same month’s unemployment rate of 6.1%, the sum has resulted in an 8.03% Misery Index.
Misery Index

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