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Wealth Managers Enlist Savvy Spy Software to Map Portfolios

profit-loss-riskMy Comments: I’ve been playing this financial game now for almost 40 years. And like so much in today’s world, it’s very different today than it was then. Technology forces us to embrace new thoughts and ways to deal with so much in life.

When it comes to managing your money, my role as an investment advisor and financial planner causes me to try and stay at least near the front of the line, otherwise I’ll get left behind.

Much better returns on investment (ROI) can be had today, hypothetically, than we could have hoped for 30 years ago. Do you remember when interest rates less than 10% were thought to be ridiculous? Now we are living with interest rates near zero and have been for some time. So how is it possible to predict that a 10% ROI is reasonable today?

The following article talks about people of wealth that no one around here fully understands. And so for the rest of us, it’s kind of meaningless. Except when they talk about technology and how far its come so that mere mortals like us can benefit. Having access to these technologies can make a huge difference in your life.

Posted by Steven Maimes, Contributor – on August 5th, 2014
NYT article by Quentin Hardy

Some of the engineers who used to help the Central Intelligence Agency solve problems have moved on to another challenge: determining the value of every conceivable investment in the world.

Five years ago, they started a company called Addepar, with the aim of providing clear and reliable information about the increasingly complex assets inside pensions, investment funds and family fortunes. In much the way spies diagram a communications network, Addepar filters and weighs the relationships among billions of dollars of holdings to figure out whether a portfolio is about to crash.

Professional wealth managers are going to be seeing a lot more of big data. Last spring, Addepar raised a substantial sum to take this mainstream, and although it is not the only one bringing big data to a portfolio statement, its cast of characters sets it apart.

“One of the most foundational questions in finance is ‘What do I own, and what is all of this worth?’ ” said Eric Poirier, the chief executive of Addepar. “ ‘What is my risk?’ turns out to be an almost intractable problem.”

Although the list of wealth managers who use Addepar is confidential, Mr. Poirier says it has already grown from people like Joe Lonsdale, its tech-billionaire founder, and Iconiq Capital, which manages some of the Facebook co-founder Mark Zuckerberg’s money, to include family offices, banks and investment managers at pension funds.

“In this state, some people are just getting wealthier,” said Joseph J. Piazza, chairman and chief executive of Robertson Stephens L.L.C., a San Francisco investment adviser that manages about $500 million using software from Addepar. Ten years ago, he said, “it might be a young entrepreneur with $50 million. Now it could be 10 times that, and they are thoughtful, bigger risk-takers.”

Investing used to be a relatively simple world of stocks, bonds and cash, with perhaps some real estate. But deregulation, globalization and computers have meant more choices. For a wealthy person, this could mean derivatives, private equity, venture capital, overseas markets and a host of other choices, like collectibles and Bitcoin.

And for all the computers on Wall Street’s trading floors, a lot of money management is surprisingly old-fashioned. Venture capitalists may invest in cutting-edge technology, but they sometimes still send out quarterly reports on paper. Financial custodians, which hold securities for people, often have custom-built computer systems. That makes it hard to compare a trade at one with a trade at another.

“The market is much more complicated than it used to be,” said David G. Tittsworth, president and chief executive of the Investment Adviser Association, a trade group of 550 registered firms. “The rich have bigger appetites for futures, commodities, alternative investments. There’s a lot of demand for helping them keep track of what their holdings actually are.”

Mr. Poirier, 32, a New Hampshire native who started a coding business at 14 before heading to Columbia University, worked on analyzing fixed-income products at Lehman Brothers from 2003 to 2006, before that Wall Street firm collapsed from mismanagement of its own risk. “Trying to figure out a yield, I’d work with a dozen different computer systems, with different interactions that people didn’t understand well,” he said.

He then took a job with Palantir Technologies, a company founded to enable military and intelligence agencies to make sense of disparate and incomplete data. He went on to build out Palantir’s commercial business, managing risk for things like JPMorgan Chase’s portfolio of subprime mortgages.

There were plenty of parallels between the two worlds, but instead of agencies, spies and eavesdropping satellites, finance has markets, investment advisers and portfolios. Both worlds are full of custom software, making each analysis of a data set unique. It is hard to get a single picture of anything like the truth.

Even a simple question like “How many shares of Apple do I own?” can be complicated, if some shares are held outright, some are inside a venture fund where the wealthy person is an investor and some are locked up in a company that Apple acquired.

Finance “was the same curve I encountered in the intelligence community,” Mr. Poirier said. “How do you make sense of diverse information from diverse sources, when the answer depends on who is asking the question?”

The parallel was also evident to Mr. Lonsdale, a Palantir co-founder. From an earlier stint at PayPal, he had millions in cash and on paper is a billionaire from his Palantir holdings. He also knew lots of other young people in tech who could not make sense of what was happening to their money. “Wealth management is designed for the 1950s, not this century,” he said.

Mr. Lonsdale left Palantir in 2009, starting Addepar with Jason Mirra, another Palantir employee, in 2009. “It didn’t make sense for Palantir to hire 20 or 30 people to work in an area like this,” Mr. Lonsdale said. Mr. Mirra is Addepar’s chief technical officer. Mr. Poirier joined in early 2013 and became chief executive later that year.

Besides Mr. Lonsdale, early investors in Addepar included Peter Thiel, a founder of both PayPal and Palantir. More money came from Palantir’s connections to hedge fund investors. Addepar’s $50 million funding round last May was led by David O. Sacks — another PayPal veteran, who sold a company called Yammer to Microsoft for $1.2 billion in 2012 — and Valor Equity Partners, a Chicago firm that has also invested in PayPal, SpaceX and Tesla Motors, among other companies.

Despite the pedigree, Mr. Lonsdale says Addepar, which has 109 employees, is not meant just as a tool for rich tech executives or family money. They are, he said, “just the early adopters.”
Karen White, Addepar’s president and chief operating officer, says a typical customer has investments at five to 15 banks, stockbrokers or other investment custodians.

Addepar charges based on how much data it is reviewing. Ms. White said Addepar’s service typically started at $50,000, but can go well over $1 million, depending on the money and investment variables involved.

And in much the way Palantir seeks to find common espionage themes, like social connections and bomb-making techniques, among its data sources, Mr. Lonsdale has sought to reduce financial information to a dozen discrete parts, like price changes and what percentage of something a person holds.

As a computer system learns the behavior of a certain asset, it begins to build a database of probable relationships, like what a bond market crisis might mean for European equities. “A lot of computer science, machine learning, can be applied to that,” Mr. Lonsdale said. “There are lessons from Palantir about how to do this.”

A number of other firms are also trying to map what everything in a diverse portfolio is worth. One of the largest, Advent Software, in 2011 paid $73 million for Black Diamond, a company that, like Addepar, uses cloud technology to increase its computing power and more easily draw from several databases at once.

“We’ve been chipping at the problem for 30 years,” said Peter Hess, Advent’s president and chief executive. “There is a lot more complexity now, and the modernization of expectations about how things should work is led by the new tech money. But because of Apple and Google, even my parents have expectations about how easy tech ought to be.”

Sensible Expectations for Inflation

retirement_roadMy Comments: When I talk with prospective clients and those already clients, I talk about existential risk. These are risks that may or may not happen, depending on any number of variables. One of them is inflation since it reduces the purchasing power of your dollars over time.

Another existential risk is the financial burden imposed on a family whenever someone needs long term care. The odds are high it will happen for 60% to 75% of us. However, if you simply die before the need for long term care happens, then the risk disappears.

Inflation risk is far less existential, if you expect to live a long and happy life, chances are good it will be there, with the only question being how much inflation. Having solutions in place that mitigate the risk makes sense.

Managing expectations is also an important part of financial planning. Growing your money over time at a rate that exceeds the rate of inflation goes a long way to helping you maintain your standard of living going forward.

posted by Jeffrey Dow Jones July 24,2014 in Cognitive Concord

One of the things I’ve been watching closely over the last few months is inflation. Not for the reasons you might be thinking — I’m not one of these inflation truthers banging that tired old drum that inflation is higher than being reported. I don’t think there’s a big conspiracy out there about the CPI. All things considered, and as complicated as it is to calculate, it’s actually a really good data point.

One of the early themes of this newsletter, way back in 2009, was that inflation wasn’t something to worry about. Longtime readers may remember The Inflation Chupacabra with fondness. The basic premise was: I’ll believe it when somebody brings me solid evidence. Five years later, I’m still waiting.

It’s possible – possible — that may be changing.

What I’m really watching right now is wage inflation. Because without a significant and sustained pickup in wages, you can’t get a significant and sustained pickup in prices. The one supports the other. For some reason, there’s this myth out there in certain circles where, in this decade of stagnant income, systemic inflation can run at 5 or 10% per year. It can’t. Some goods can increase in price at a dramatic rate. But not systemic prices, not unless the wages supporting those prices also rise.

Wage inflation is unquestionably picking up a little bit, but it’s not significant enough to set the sirens blaring. We still have a long way to go before reaching levels of concern. I posted this chart from Deutsche Bank’s Torsten Slok a few weeks ago:
CONTINUE-READING

5 QLAC Questions and Answers

My Comments: QLAC? What the heck is a QLAC?

By Jeffrey Levine / July 18, 2014

On July 1, 2014 the Treasury Department released the long-awaited final regulations for Qualifying Longevity Annuity Contracts (QLACs). These new annuities will offer advisors a unique tool to help clients avoid outliving their money.

The QLAC rules, however, are a complicated mash-up of IRA and annuity rules, and clients may need substantial help in understanding their key provisions. To help advisors break down the most important aspects of QLACs, below are 5 critical QLAC questions and their answers.

1) Question: What are QLACs?
Answer: QLACs, or qualifying longevity annuity contracts, are a new type of fixed longevity annuity that is held in a retirement account and has special tax attributes. Although the value of a QLAC is excluded from a client’s RMD calculation, distributions from QLAC don’t have to begin until a client reaches age 85, well beyond the age at which RMDs normally begin.

2) Question: Why did the Treasury Department create QLACs?

Answer: Prior to the establishment of QLACs, there were significant challenges to purchasing longevity annuities with IRA money. The rules required that unless an annuity held within an IRA had been annuitized, its fair market value needed to be included in the prior year’s year-end balance when calculating a client’s IRA RMD. This left clients with non-annuitized IRA annuities with an inconvenient choice to make after reaching the age at which RMDs begin. At that time, they needed to either:
1) Begin taking distributions from their non-annuitized IRA annuities, reducing their potential future benefit, or
2) Annuitize their annuities, which would obviously produce a lower income stream than if they were annuitized at a more advanced age, or
3) “Make-up” the non-annuitized annuity’s RMD from other IRA assets, drawing down those assets at an accelerated rate.

None of these options was particularly attractive and now, thanks to QLACs, clients will no longer be forced to make such decisions.

3) Question: How much money can a client invest in a QLAC?

Answer: The final regulations limit the amount of money a client can invest in a QLAC in two ways: a percentage limit; and an overall limit. First, a client may not invest more than 25 percent of retirement account funds in a QLAC.

For IRAs, the 25 percent limit is based on the total fair market of all non-Roth IRAs, including SEP and SIMPLE IRAs, as of December 31st of the year prior to the year the QLAC is purchased. The fair market value of a QLAC held in an IRA will also be included in that total, even though it won’t be for RMD purposes.

The 25 percent limit is applied in a slightly different manner to 401(k)s and similar plans. For starters, the 25 percent limit is applied separately to each plan balance. In addition, instead of applying the 25 percent limit to the prior year-end balance of the plan, the 25 percent limit is applied to the balance on the last valuation date.

In addition, that balance is further adjusted by adding in contributions made between the last valuation and the time the QLAC premium is made, and by subtracting from that balance distributions made during the same time frame.

In addition to the 25 percent limits described above, there is also a $125,000 limit on total QLAC purchases by a client. When looked at in concert with the 25 percent limit, the $125,000 limit becomes a “lesser of” rule. In other words, a client can invest no more than the lesser of 25 percent of retirement funds or $125,000 in QLACs.

4) Question: What death benefit options can a QLAC offer?
Answer: A QLAC may offer a return of premium death benefit option, whether or not a client has begun to receive distributions. Any QLAC offering a return of premium death benefit must pay that amount in a single, lump-sum, to the QLAC beneficiary by December 31st of the year following the year of death.

Such a feature is available for both spouse and non-spouse beneficiaries. In addition, the final regulations allow this feature to be added regardless of whether the QLAC is payable over the life of the QLAC owner only, or whether the QLAC will be payable over the joint lives of the QLAC owner and their spouse.

QLACs may also offer life annuity death benefit options. In general, a spousal QLAC beneficiary can receive a life annuity with payments equal to or less than what a deceased spouse was receiving or would have received if the latter died prior to receiving benefits under the contract. An exception to this rule is available, however, to satisfy ERISA preretirement survivor annuity rules.

If the QLAC beneficiary is a non-spouse, the rules are more complicated. First, clients must choose between two options, one in which there is no guarantee a non-spouse beneficiary will receive anything; but if payments are received, they will generally be higher than the second option.

The second option is a choice that will guarantee payments to a non-spouse beneficiary, but those payments will be comparatively smaller than if payments were received by a non-spouse beneficiary under the first option. Put in simplest terms, a non-spouse beneficiary receiving a life annuity death benefit will generally fare better with the first option if the QLAC owner dies after beginning to receive benefits whereas, if the QLAC owner dies before beginning to receive benefits, they will generally fare better with the second method.

5) Question: Are QLACs available now
Answer: Yes…and no. Quite simply, the QLAC regulations are in effect already, but that doesn’t mean that insurance carriers already have products that conform to the new IRS specifications.

To the best of my knowledge, and as of this writing, QLACs exist in theory only.
It’s likely, however, that in the not too distant future, QLACs will go from tax code theory to client reality. Exactly which carriers will offer them and exactly which features those carriers will choose to incorporate into their products remains to be seen.

But make no mistake: QLACs are coming (or here, depending on your point of view). If such products may make sense for clients, it probably makes sense to reach out to them now and begin the discussion.

Increased Consumer Spending Driving Strong Economic Growth In USA

USA EconomyMy Comments: On Thursday, July 30 the market dropped 300 points. The blogosphere and media were all a chatter about “was this the start of the correction?”. Who knows ?!?

It illustrates why those of us who profess to be financial advisors are more in the dark than you are. Here we are talking about a looming market correction, one that will happen, and the longer it takes to start the more violent it is likely to be. And here I am this morning, coming to you with good news about the economy. Seems totally weird, doesn’t it?

What has to be remembered is that the markets are always forward looking. I want to invest my money before it goes up, if at all possible. If I think it’s going to crater, I’m taking my money out. At least that’s the plan, unless you use some of the approaches favored by us at Florida Wealth Advisors, LLC.

What this headline tells me is that when the correction happens, it will be relatively short term and though perhaps dramatic, it will not be systemic.

Jul. 31, 2014 / APAC Investment News

Summary
• The Bureau of Economic Analysis is reporting 4 percent growth in the second quarter, a strong rebound from the first quarter.
• Consumer spending in both durable and non-durable goods is up. Both exports and imports also rose, along with most other indicators.
• This economic growth should provide some upward pressure for markets, at least in the short term.

The United States has struggled to fully recover from the 2008 Financial Crisis. While stock markets have rebounded, unemployment has remained high and economic growth has been tepid. New data points to the U.S. economy growing a solid 4 percent in the second quarter, however, propelled by an increase in consumer spending. This should help stabilize markets and perhaps even push them higher.

With consumer spending accounting for roughly 2/3rds of America’s economy, any increase in consumer spending should come as a relief for those concerned of yet another slowdown. Still, stock markets hovered in place following the release of the data on Wednesday, likely over concerns about the Fed’s next move with interest rates and the continued wind down of its asset buying program.

Consumer Spending On The Rise
According to the Bureau of Economic Analysis consumer spending increased a solid 2.5 percent in the second quarter, up from 1.2 percent in the first quarter. Durable goods, which includes automobiles, appliances, and other similar goods, increased by an astounding 14 percent, compared with an increase of just 3.2 percent in the first quarter. Non-durable goods, which includes food and clothing, increased by 2.5 percent. The BEA presents its numbers in seasonally adjusted annual rates.

Automobiles have been performing particularly well as of late, even while General Motors is still feeling the fallout from a major scandal and many automakers are suffering a rash of recalls. There were some fears of a major slowdown following the economic contraction in the first quarter, but for now it appears that the feared slow down hasn’t materialized.

Ford did suffer a decline in sales in June, falling some 5.8 percent YOY. While this may not seem like good news, the drop was not as bad as expected. Meanwhile, General Motors sales rose 1 percent even in spite of the bad publicity from the ignition scandal, and Chrysler posted a solid 9.2 gain.

Growth Being Driven By Other Factors
Besides consumer spending, other areas of the economy have also performed well. Exports rose by 9.5 percent, following a sharp decline of 9.2 percent in the first quarter. This suggests that the global economy may also be growing. Imports also rose 11.7 percent, compared with an increase of only 2.2 percent in the first quarter.

Investment in equipment rose 7 percent, while investments in non-residential structures rose by 5.3 percent.

Interestingly, federal government consumption actually decreased by .8 percent, suggesting that the rise in spending is being driven by private businesses and consumers. This should come as a welcome sign given the government’s high debt burden. Simply put, the American government likely couldn’t afford to drive up consumption even if it wanted to.

Strong Economic Growth Should Re-enforce Markets
For now, strong economic growth should keep markets buoyant even with many factors exerting downward pressures. Sanctions on Russia, tensions in the South China Seas, political infighting in Congress, the possible fallout of the Fed curtailment of its asset buying program, and numerous other factors have created jitters. Strong economic growth can counteract these downward pressures, at the very least.

Meanwhile, as stock indexes have surged to all time highs, there have been some concerns that a bubble may be building. While stock markets have been performing well, the economy in general seemed to be suffering from sluggish growth, suggesting that something besides actual economic performance has been driving stock prices upwards. Now, however, economic growth finally appears to be in line with the rising stock market indexes.

So long as the economy continues to grow, markets should remain stable. Of course, the economy itself could quickly swing back into contraction. Government debt levels remain high, profits can evaporate over night, and consumer sentiments can change quickly.

Further, as the economy continues to grow, the Fed will almost certainly continue to cut back its stimulus measures, and eventually even raise interest rates. This, in turn, could slow economic growth. Meanwhile, stagnant wages, continued high unemployment, high debt levels, and other factors could eventually pose a threat.

Obama Needs to Play The Honest Broker in the Mideast

babelMy Comments: It’s Friday, I’m looking forward to the weekend, and yet the world keeps spinning and I can’t keep up. I’ve found myself turning off the TV when I find airheads talking about Isreal and Gaza, not because it isn’t important, but because I’m tired of hatred that has no other rationale than “my God is better than your God”.

Long ago I came to terms with my relationship with a God, if one indeed exists. Some would have me rethink this in light of my increasing years, but I’m not going to.

So here we have an opinion piece from Great Britain, once the world’s policeman and while hard to accept by some, describes the US right now. We, the public, have made it clear to whomever is making decisions that we are tired of war, and if this means other stupic people are intent on killing each other for the reason described above, so be it.

On the other hand, there is a time for rhetoric, and the commitment to follow it up with a swift kick in the ass. And despite our current aversion to using our military, it might be time to deliver a message.

By Edward Luce July 27, 2014

The rote quality of America’s role masks changes taking place on the president’s watch

Here we are again. Benjamin Netanyahu is reacting like the avenging angel to rockets from Gaza. US President Barack Obama is torn between wanting to censure Israel and the desire not to reward Hamas for its aggression. The response is an exercise in futility. At some point, a sullen ceasefire will be struck and the Arab-Israeli conflict will continue on its downward trajectory. Wounds will deepen and fester. For all his frustrations with the Israeli prime minister, Mr Obama will have to keep biting his tongue. Such is the logic that imprisons him.

But the rote quality of America’s role masks changes taking place on Mr Obama’s watch. For decades, Washington has kept up the pretence of being an even-handed broker in the Arab-Israeli dispute. The policy rested on two pillars. For the most part, Israel’s governments have paid lip service to the two-state solution, and in some cases (notably that of Yitzhak Rabin), genuinely desired it. Whatever the tragedy of the moment, this made it far easier for the US to back the only bona fide democracy in the Middle East.

Second, US-Jewish support for Israel has almost always held strong. This is illustrated by the near-legendary power of the American Israel Public Affairs Committee, often ominously referred to as the “Jewish lobby”. The only real exception was President George Bush senior, whose secretary of state, James Baker, said: “They [Jews] didn’t vote for us anyway.” President George Bush Junior did his best to rectify that. But his father’s administration was an aberration. For decades, unquestioning US support for Israel has been as close as you come to an iron law of global relations.

Both pillars are showing cracks. On the first, Mr Netanyahu has mocked Mr Obama’s attempts to broker peace between Israel and the Palestinians. He killed Mr Obama’s initial effort by continuing to build settlements in the West Bank. He challenged and outplayed Mr Obama on his home turf in a speech at Aipac’s conference in Washington.Mr Obama is sometimes criticised for a lack of warmth but not often for open dislike. Mr Netanyahu is the exception. Rarely have relations between a US president and an Israeli prime minister bred such antipathy.

By all accounts, relations have grown far worse in the past few weeks. Not only did Mr Netanyahu cripple another Obama effort to foster talks – this time led by the nuclear-fuelled John Kerry (who had to abandon them earlier this year after almost a year of Sisyphean exertion). This month the Israeli leader said out loud what most people knew he thought all along: he does not believe in the two-state solution. “There cannot be a situation, under any agreement, in which we relinquish security control of the territory west of the River Jordan,” he said. In other words, the West Bank would never control its own defence or foreign policy. Unless he reneges on that stance, there is no point in any more US-led initiatives other than trying to broker ceasefires.

The second pillar is also showing signs of wobbling. In previous crises, the US media was often accused of pro-Israel bias. This time, it is nearer the reverse. Aipac and other groups have complained bitterly about the television networks’ emotive coverage of the deaths of women and children from Israeli shelling at UN protected schools and other facilities in Gaza. Many have kept score sheets of Israeli deaths (more than 40 at the time of writing) versus Palestinian (more than 1,000). A majority of the US public still support Israel’s right to protect itself by targeting Hamas militants, even if it results in heavy civilian deaths. But the numbers reverse for younger Americans. According to Gallup, 51 per cent of millennials disapprove of Israel’s actions versus 23 per cent who approve.

It is too soon to conclude Aipac’s power is waning. It remains one of Washington’s most formidable advocacy groups. But it is losing its monopoly on the debate. At moments such as this, it commands reflexive support; the US Senate voted 100-0 in support of Israel’s response to the rockets. Its sway has notably waned in other areas, however. It failed in February to persuade Congress to impose tougher sanctions on Iran. And its recommendation for a bill authorising force against President Bashar al-Assad’s regime in Syria looked set to be rejected last year.
Aipac and Mr Obama were saved by Russian President Vladimir Putin. Other groups, such as J Street, which promotes “moderate and sane” (as opposed to blind) support for Israel, are growing in influence.

The odds are that, once the dust settles in Gaza, Washington will let the situation drift. It is arguably the fourth of Mr Obama’s Middle East crises after Iraq, Iran and Syria. Why waste more capital on it? The answer lies as much within the US as in the Middle East. Unless Mr Obama is prepared to play the role of a genuinely neutral broker, talks are always likely to fail. If, as a growing number of American Jews and a brave minority of Israelis argue, Israel is digging its grave by undercutting moderate Palestinians, it is time for more thoughtful friends in the US to speak out. Why should Aipac be the one with the megaphone?

Peter Beinart, a leading backer of J Street, recounts a story where a senior Democrat made precisely this point to Mr Obama. “ ‘I can’t hear you,” Obama replied. My friend began repeating himself,” writes Mr Beinart. “The president cut him off. ‘You don’t understand,’ Mr Obama said. “I . . . can’t . . . hear . . . you.’ ”

What You Don’t Know About Social Security—but Should

retirement-exit-2My Comments: You may not agree with me but Social Security is a complicated issue. If you hope to find a quick and easy summary of what is implied by the title, you’ll be disappointed.

My assumption is that if you haven’t yet applied for Social Security benefits, that day will come, and statistics tell us you will be receiving those benefits for many years. The total dollars flowing into your family pockets over those years will be substantial.

To some extent, the flow of money will be determined by which of the 97 months you have to choose from to start your benefits. Each will result in a different number at the other end. So choosing the best month for you and your family could mean gaining or losing well over $100,000 before it’s all over.

To find out for yourself and get a free report to help you make your best choice, call or email me and I’ll provide you with some of the answers. It’s in your best interest if money means anything to you.

By Glenn Ruffenach / June 22, 2014

Imagine that you’re about to accept a new job, and it’s time to talk salary. You sit down with your boss, who begins as follows:

“Actually, our payroll system is impossibly complicated. You can pick from dozens of different ways to be paid and hundreds of different start dates, and each will produce a different salary. We offer some guidance, but we’re short-handed. As such, deciding when and how to collect a paycheck is essentially up to you.

“So…what would you like to do?”

Welcome to Social Security.

Each day, thousands of Americans apply for the first time for Social Security benefits. And each day—if questions from our readers and the stories we hear from financial advisers are any indication—many applicants have no idea what they’re getting into. They know little or nothing about the program’s complexity, the myriad ways to collect benefits and the Social Security Administration’s staffing and service problems.

As such, they’re putting their retirement—and, in many cases, their spouses’ future—at risk.

“People spend more time planning a vacation than they do planning for 20 or 30 years of Social Security benefits,” says Barry Kaplan, chief investment officer for Cambridge Wealth Counsel in Atlanta. Those benefits, he notes, are insurance against market downturns, hyperinflation and living longer than you anticipate. But would-be beneficiaries, he says, typically “go into this without a clue.”
SS summary JUL2014If you and/or your spouse are weighing your options about Social Security, here’s a look at some of the biggest issues—involving both the agency and the benefits program—that could shape your retirement for better or worse.

The Social Security Administration isn’t your financial adviser.

A fair amount of the mail we receive from readers with questions or complaints about Social Security goes something like this: “My Social Security office never told me about….” About a particular strategy for claiming benefits. About a little-known rule. About the consequences of starting one’s payouts at a particular point in time.

No, the Social Security Administration isn’t perfect. (More about this in a moment.)
But its primary job is delivering a service, paying 59 million beneficiaries, and not financial planning. The agency provides loads of information about benefits on its website http://www.ssa.gov/and does its best to answer the public’s questions in its field offices and by telephone. But a comprehensive talk about the nuances of Social Security and your financial future? That’s not going to happen.

Indeed, the Social Security Administration doesn’t know about—and it isn’t the agency’s job to know about—your household budget, your health, your savings, life insurance, plans you might have to work in retirement. In short, all the variables that should go into a decision about filing for benefits, says Mr. Kaplan in Atlanta.

So, the onus is on you to learn about, or find help in deciphering, the basics: how benefits work, claiming strategies, possible pitfalls. And if you’re hellbent, for instance, on grabbing a payout at age 62 (the earliest possible date for most people) and locking yourself—and perhaps your spouse—into a permanent reduction in benefits, the agency isn’t going to stop you.

The Social Security Administration is stretched increasingly thin at the worst possible time.

In March, Carolyn Colvin, the agency’s acting commissioner, didn’t mince words in a report tied to President Barack Obama’s request for additional funding for the Social Security Administration.

“Our service and stewardship efforts [have] deteriorated,” she said. “In fiscal year 2013, the public had to wait longer for a decision on their disability claim, to talk to a representative on our national 800 number, and to schedule an appointment in our field offices.”

The agency, in short, is overextended. In the past three years, it has lost 11,000 employees, or about 12% of its workforce; by 2022, about 60% of its supervisors will be eligible to retire. Meanwhile, budget cuts have resulted in the consolidation of 44 field offices, the closing of 503 contact stations (mobile service facilities) and a delay in plans to open eight hearing offices (where appeals about agency decisions involving retirement and disability benefits are heard) and one call center.

And that 800 number? According to a report in December from the agency’s inspector general, wait times in 2013 exceeded 10 minutes, an increase of more than five minutes from 2012.

The point: The Social Security Administration is grappling with its own problems just as the baby-boom generation, with about 75 million members, is moving full speed into retirement. (The oldest boomers are turning 68 this year.) The demands on the agency mean that you might not be able to find, or find in a timely fashion, the information or help you need. That said…

More services outside Social Security are offering more help.

The Social Security Administration is the first to acknowledge that benefits are complicated. The opening paragraphs of the agency’s “Social Security Handbook,” a guide to the benefits program, state plainly: “The Social Security programs are so complex it is impossible to include information [in the handbook] about every topic.”

Fortunately, a growing number of tools and services—some free, others for a cost—are available to help people navigate these waters.

In recent years, AARP, the Washington-based advocacy group for older Americans, and T. Rowe Price Group Inc., the Baltimore-based mutual-fund company, have introduced sophisticated online calculators that help users determine how and when to claim benefits. Both are free. (The Social Security Administration has several calculators, also free, that can help determine the size of your benefits, but not necessarily when to claim them for maximum effect.)

Among the services that charge a fee: MaximizeMySocialSecurity.com, from Economic Security Planning Inc.; SocialSecurityChoices.com, from SocSec Analytics LLC; and SocialSecuritySolutions.com, all started by academics. Our review of several Social Security tools last fall singled out Social Security Solutions for its ease of use and Maximize My Social Security for its flexibility.

Finally, check out weekly columns at the Public Broadcasting Service website from Laurence Kotlikoff, an economics professor at Boston University and the developer of Maximize My Social Security. The articles, published each Monday, address a wide range of issues about Social Security (including numerous “secrets” and “gotchas”) and answer questions about benefits. In short, invaluable reading.

The earnings test deters people from working in retirement—and shouldn’t.

Social Security’s earnings test, in which benefits are reduced if a person is collecting benefits and income at the same time, generates numerous questions and much confusion. But the apparent penalties aren’t what they seem.

If you are under your full retirement age when you first receive Social Security benefits and if you have earned income, $1 in benefits will be deducted for each $2 you earn above an annual limit. In 2014, that limit is $15,480. In the year you reach your full retirement age, the penalty shrinks; after you reach full retirement age, the deductions end completely.

The good news: Money lost to the earnings test isn’t really lost. Once you reach full retirement age, Social Security recalculates—and increases—your future benefits to account for any dollars withheld.

Most beneficiaries, though, aren’t aware of that; as such, they typically “work up to the [annual] limit—and stop,” says Andrew Biggs, a resident scholar at the American Enterprise Institute and former deputy commissioner at the Social Security Administration.

The earnings test, Mr. Biggs says, “should not be a disincentive to work.” Rather, “think of the test as delaying benefits until later in retirement,” he says. “Over your lifetime, your total benefits will come out the same.”

Spouses, at a minimum, should be aware of three claiming strategies.

Couples have a tremendous amount of flexibility in how they can claim benefits. But the options can quickly become overwhelming, which prompts many spouses to default to the easiest choice: grabbing a payout at age 62.

Before you do that, consider these three claiming strategies. Many couples aren’t aware of these options or don’t think they can benefit from them. Do yourself a favor: Run the numbers. (Fidelity Investments recently did a nice job of explaining these and other claiming strategies.)

Maximize survivor benefits: If you claim benefits before your full retirement age, you could be locking your spouse into a low survivor benefit when you die. The longer you wait to claim, the larger the survivor benefits.

Claim and suspend: Once you reach full retirement age, you can claim your benefit and then suspend it. (In other words, you stop payments before they begin.) This allows for two things: Your spouse, if he or she is 62 or older, can begin collecting spousal benefits from Social Security. (This assumes that the spousal benefit is larger than the spouse’s own retirement benefit. More on this in a moment.) Second, your own benefit, when you eventually claim it, will have increased in size. (Thanks to “delayed retirement credits.”)

Claim a spousal benefit, then later claim your own benefit: At full retirement age—if you are eligible for a spousal benefit and your own retirement benefit—you have the option of claiming just the spousal benefit. At a future point in time, you can then jump to your own benefit, which will have increased in size.

And speaking of spousal benefits…

“Deemed filing” can box you in.

It’s a frequent question: A husband who is already collecting Social Security (or weighing the claim-and-suspend strategy) asks if his wife can take just a spousal benefit at age 62—and then switch to a (presumably larger) benefit based on her earnings record in the future.

The answer: Nope.

If the wife, in this case, applies for benefits before her full retirement age, she is “deemed”—in the eyes of the Social Security Administration—to have filed for both benefits: the benefit based on her work record and a spousal benefit.

She will receive the higher of the two figures, but she will be locked into that reduced benefit going forward. (Reduced because she is claiming benefits before full retirement age.)

Again, as discussed above, if the wife waits until her full retirement age to file for benefits, she would have a choice: She could apply for just a spousal benefit. Then, a few years down the road, she could switch to a payout based on her earnings history.

William Meyer, founder of SocialSecuritySolutions.com, says the “deemed filing” rule trips up innumerable applicants. “We hear about it all the time,” he says.

The lesson is clear and critical: Claim benefits before full retirement age, and your options are limited; claim benefits after full retirement age, and you have more flexibility—and bigger payouts.

Divorced spouses and survivors don’t know what they don’t know.

Ask almost any financial adviser about Social Security slip-ups, and stories about ex-spouses, widows and widowers come tumbling out.

Mr. Kaplan in Atlanta recalls a woman—age 67, divorced and still working—who walked into his office and simply had no idea that she could have been collecting benefits for the previous five years based on her former husband’s earnings.

Prof. Kotlikoff at Boston University tells the story of a friend who had lost his wife and was convinced that he couldn’t claim Social Security checks as a survivor.
“He told me, ‘I made more [money] than she did,’ ” Prof. Kotlikoff says. “And based on that, he thought, incorrectly, that he wasn’t eligible for a survivor benefit. People just don’t know about this stuff.”

The point: Always err on the side of telling Social Security about your family circumstances and/or a change in those circumstances.

“Tell them about ex-spouses, tell them if you’ve lost a spouse, tell them if you have kids,” Prof. Kotlikoff says. (A surviving spouse with children could be eligible for additional benefits.)
“If you don’t tell them, they won’t know. It’s that simple.”

Delaying Social Security doesn’t just result in a bigger benefit; it also can make good tax sense.

You may have heard the advice countless times: Minimize (or avoid) withdrawals from your nest egg (401(k), individual retirement accounts, etc.) for as long as possible to take advantage of tax-deferred growth. Many investors who follow that advice grab Social Security benefits, typically at age 62, to help pay the bills.

But that advice ignores the possible tax benefits associated with following the opposite course: accelerating withdrawals from savings early in retirement so that you can hold off on claiming Social Security.

The thinking here is tied to the fact that Social Security benefits are taxable. As much as 85% of a married couple’s benefits are subject to tax when their income exceeds $44,000 ($34,000 for individuals); as much as 50% of benefits are taxable at lower income levels.

If you delay claiming Social Security and, as a result, end up with larger benefits, future withdrawals from savings will likely be smaller—a recipe for lower levels of taxable income.

“Many retirees don’t consider the impact of their withdrawal strategy on how their Social Security is taxed,” says Mr. Meyer, the SocialSecuritySolutions.com founder. “Missteps in tapping the wrong account and investments to generate income can significantly increase your taxes.”

The Hangover

My Comments: The blogosphere and financial press is increasingly filled with questions and presumed answers about the amount of time since the last market correction. The focus of each writers attention is to suggest doom is imminent or doom is not imminent. Personally, I have no idea when the next crash will happen, just that sooner or later it will.

That being said, here are comments from one of the bright lights at one of the best well lit family of funds available to us. Draw your own conclusions, but if you agree with me that something ominous will happen before long, then talk to me about ways to limit your losses when it does happen.

by Scott Minerd July 24, 2014

The Fed’s not taking the punch bowl from the party, but investors should be wary of the hangover.

On a fall night in 1955, Federal Reserve Chairman William McChesney Martin stood before a group of New York investment bankers at the Waldorf Astoria Hotel and delivered what is now considered his famous “punch bowl” speech. It earned this label because Martin closed his eloquent talk by paraphrasing a writer who described the role of the Fed as being “in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up.”

Janet Yellen’s recent congressional testimony suggested that she does not subscribe to her predecessor’s temperance. While citing that valuations in certain sectors, such as high-yield or technology stocks, appeared “substantially stretched”, Yellen’s overall sentiment was clear: the Fed does not view the party as really warming up to the point that the punch bowl need be removed.

The excessive risk taking among investors lulled into complacency by an overly loose Fed is a powerful cocktail indeed; one that could produce a hangover in the form of volatility. Having said that, the Fed’s party can still go on for a long time. As I’ve said before, bull markets don’t die of old age, but because of an exogenous event or a policy mistake.

In his famous speech, Martin preceded his punchbowl comment by saying, on behalf of the Fed, “…precautionary action to prevent inflationary excesses is bound to have some onerous effects…” The flipside – a lack of precautionary action by the Fed – will have its own set of consequences in time. It is very difficult to say when exactly these will happen, but near-term indicators suggest the hangover won’t hit while you’re relaxing at the beach this summer.

Chart of the Week
Equity Markets: The Bigger they Come the Harder they Fall
The S&P500 has now gone nearly 800 days since a correction of more than 10 percent – the “meaningful” level for many analysts. The more extended the market becomes, the larger the eventual decline may be. Over the last 50 years, the longer the time between market corrections, the steeper the drop once the correction does occur.

EX-RECESSION S&P500 CORRECTIONS (>10% DECLINE) SINCE 1962

Here’s All The Free Stuff You Can Get With Obamacare

healthcare reformMy Comments: Damn. I knew this was too good to be true. This had to have been written earlier this year but it showed up just a few days ago. Must have come from the same people who wrote the code for HealthCare.gov.

And yes, I know none of this is “free” but still. The GOP said yesterday that the PPACA is now history and it’s only a matter of time before we’re back to what we had before. Which was pushing us into financial oblivion. Cheers.

By Lauren F Friedman July 13, 2014

If you want to buy a plan from HealthCare.gov that will get you covered in 2014, the deadline is March 31 (with some exceptions). But what exactly will the insurance bought on the exchanges get you?

Included within the essential benefits — preventative care, mental health services, etc. — the plans cover some surprising things.

Here are 11 covered benefits that might surprise you.

1. Free aspirin (to prevent heart disease in older men and women)
2. Screening for depression
3. Flu shots
4. STD counseling (for people at high risk)
5. Help quitting smoking, such as tobacco use screenings
6. Folic acid supplements (for pregnant women)
7. Breastfeeding support and supplies, like breast pumps
8. Domestic violence screening and counseling (for women)
9. Substance abuse counseling
10. Services to help overcome long-term disabilities and chronic conditions
11. Screening to determine if your drinking is unhealthy

All of these benefits fall under the 10 essential benefits that the Affordable Care Act provides:

1. Outpatient care—the kind you get without being admitted to a hospital
2. Trips to the emergency room
3. Treatment in the hospital for inpatient care
4. Care before and after your baby is born
5. Mental health and substance use disorder services: This includes behavioral health treatment, counseling, and psychotherapy
6. Your prescription drugs
7. Services and devices to help you recover if you are injured, or have a disability or chronic condition. This includes physical and occupational therapy, speech-language pathology, psychiatric rehabilitation, and more.
8. Your lab tests
9. Preventive services including counseling, screenings, and vaccines to keep you healthy and care for managing a chronic disease.
10. Pediatric services: This includes dental care and vision care for kids
So-called “grandfathered” plans, which have existed since before March 23, 2010, may not provide all of these benefits.

These 3 Charts Show The Amazing Power Of Compound Interest

retirement_roadMy Comments: Math was not and remains not one of my strengths. But I understand this part. If you are younger than I am and have an opportunity to put some money to work, you need to push the envelope and make it happen.

Whether you do or not, the price you pay for stuff with your money will also increase via the same compounding mechanism, so it behooves you to make sure your savings are growing at least as fast and preferably, much faster. Remember, money is only useful if you can use it to buy the things you need and the things you want.

By Libby Kane July 12, 2014

One of the biggest financial advantages out there is something anyone can access by opening a simple retirement account: compound interest.

Retirement accounts such as 401(k)s and Roth IRAs aren’t just savings accounts — they’re actively invested, and therefore have the potential to make the most of this benefit.

As Business Insider‘s Sam Ro explains, “Compound interest occurs when the interest that accrues to an amount of money in turn accrues interest itself.”

So why is that so important?

The charts below will show you the incredible impact compound interest has on your savings and why starting to save in your 20s is one of the best things you can do.

1. Compound interest is incredibly powerful.

The chart below from JP Morgan shows how one saver (Susan) who invests for only 10 years early in her career, ends up with more wealth than another saver (Bill), who saves for 30 years later in life.

By starting early, Susan was able to better take advantage of compound interest.

Chris, the third saver profiled, is the ideal: He contributed steadily for his entire career.

chart-jp-morgan-retirement-1

2. When you start saving outweighs how much you save.

This chart by Business Insider’s Andy Kiersz also emphasizes the impact of compound interest, and the importance of starting early. Saver Emily, represented by the blue line, starts saving the exact same amount as Dave (the red line), but begins 10 years earlier. Ultimately, she contributes around 33% more than Dave over the course of her career, but ends up with almost twice as much wealth as he does.

saving-at-25-vs-saving-at-35-continued-saving-prettier-1

3. It can even make you a millionaire.
Compound interest can get you pretty far. In fact, Business Insider calculated — based on your current age and a 6% return rate — how much you need to be saving per month in order to reach $1 million by age 65. You can also see the calculations based on different rates of return.

monthly-savings-chart-new-1

 

25 Things You Should Do Before You Die

My Comments: This appeared in a financial planning magazine and really doesn’t need any comments from me. I’d only mess it up.

Well, wait a minute. Years and years agao, before computers, social media and instant messaging, I read that every man should achieve three goals. They were to build a house, father a child and write a book. My book is kinda tiny but I got it done.

By Richard Feloni July 11, 2014

It can be easy to get caught up in the routine of life, doing whatever it takes to get from one point to the next, without doing much that’s exciting or enriching.

Some Quora users offer a few ideas to break the routine in their responses to the thread: “What is something every person should experience at least once in a lifetime?”

The responses range from trying an extreme sport to discovering something life-changing about yourself. We’ve summarized some of the best answers below.

1. Live somewhere vastly different from your hometown.
Living in an unfamiliar setting among people with a different worldview from yours can help you become more self-reliant. —Deepthi Amarasuriya

2. Go out of your way to help a stranger.
Put in time and effort to help someone you have “absolutely no social, moral, or legal obligation to help,” and don’t expect anything in return. —Kent Fung

3. Learn how to appreciate being alone.
Avoid feeling lonely on your own by truly becoming comfortable with yourself. —Barbara Rose

4. Travel without being a tourist.
Go on a trip without feeling the need to take nonstop photos of the biggest tourist attractions. Instead of being a “tourist,” be a “traveler” and try to get an idea of how the locals live. —Arya Raje

5. Take a trip without making any plans.
A “serendipitous adventure” free of the restrictions of an itinerary can be both thrilling and relaxing. —Julian Keith Loren

6. Go paragliding/parasailing/skydiving — anything where you’re flying through the air. The feeling of weightlessness you get is a joy unmatched by anything else in life. —Sainyam Kapoor

7. Learn how to get by on the bare minimum.
If you’re just starting out professionally and fortunate enough to not know a life of poverty, it is worth struggling to make it on your own without the safety net of your family. You’ll learn to appreciate what you earn. —Anonymous

8. Work a service job.
If you’ve never had a difficult job like being a waiter, courier, or janitor, then try volunteering somewhere like a shelter. You’ll learn patience, humbleness, and dependability. —Diego Noriega Mendoza

9. Become comfortable speaking in public.
Public speaking is consistently ranked among people’s top fears, but developing the skill can advance your career and boost your confidence. —Mark Savchuk

10. Participate in an endurance trial like a marathon.
Athletic events like marathons and long cycling races are essentially “voluntary suffering” that can teach you that with enough determination, you can get through anything and appreciate the journey. —Denis Oakley

11. Go scuba diving.
“It is like exploring a completely new world.” —Rajneesh Mitharwal

12. Learn to dance.
Most people are embarrassed to dance at events without the help of some alcohol, but instead of making a fool of yourself at every wedding, learn some real techniques! —Meenakshhi Mishra

13. Run or volunteer for some position of leadership.
You don’t necessarily need to quit your day job and start a senatorial campaign, but you can take a risk and put yourself out there, even if it’s just to become head of your company’s intramural softball team. —Warren Myers

14. Learn to appreciate failure.
Life is filled with defeats and setbacks. You can choose to suffer through each of them until your fortune improves, or you can learn to appreciate the opportunities for learning every failure provides. “It will help you to know yourself — what motivates you, what you did wrong, what makes you happy, and so on.” —Shikhar Argawal

15. Witness the birth of a child.
Seeing the birth of another human being, especially your own child, of course, is something you’ll never forget. —Jack Martin

16. Develop a bond with an animal.
Anyone who has a pet can tell you that the unconditional love you receive from an animal you care for is powerful and increases your overall happiness. —Simon Brown

17. Ride an elephant.
“There’s something incredible about being on top of a majestic animal.” —Ridwa Mousa

18. Drive as fast as you can down an empty road.
Don’t drive recklessly, of course. But if you’re a good enough driver and get a chance to drive down the speed-limit-free German Autobahn, go for it. —Cyndi Perlman Fink

19. Become as good as you can at one sport.
If you make a lifelong hobby of practicing your favorite sport, you will make leading a healthier life fun, challenging, and goal-driven. —Shiva Suri

20. Take a sabbatical from work.
At least once, step away from your professional life to pursue a passion or travel extensively. —Asmita Singh

21. Meditate in a redwood forest.
The massive, ancient trees in California’s redwood forests give you a chance to reflect in untouched nature. “It’s a spiritual and cleansing experience.” —Krystle Smart

22. Fly down a mountain on skis or a snowboard.
Entering a state of extreme focus as you soar down a snowy path can be a euphoric experience. —Pete Ashly

23. Camp in the wilderness hundreds of miles from civilization.
Experiencing what it’s like to live without the luxuries of society will make you appreciate the beauty of nature as well as everything that makes your life easier. —Justin Jessup

24. Perform on stage.
“No matter how stage shy you are and if you don’t know how to sing or dance or act, just get on that stage once. Do your thing and own it. After this, I guarantee you will feel like a whole new person.” —Pritika Gulliani Jain

25. Swim in the “Devil’s Pool” above Victoria Falls in Zambia.
And if you’re a big risk-taker, at certain times of the year you can wade in a slow-moving pool that forms at the lip of the world’s largest waterfall. —Liz Dugas