Your 2018 Tax Guide

With all the recent attention from tax changes made by Congress recently, many of us are wondering how it will affect us. Here’s something you might find is useful. Just remember I’m not licensed or qualified to give tax advice so this is information only.

It comes from an insurance company called Athene. Technically, their full name is Athene Annuity and Life Company. They are my current company of choice when it comes to shifting some of your retirement reserves into a protected place.

Much of the money you have should be exposed to the markets so it will grow and be there in the future when you need it to pay bills. But in the meantime, you need a way to protect or insure yourself against a market crash. The insurance ‘policy’ or contract that I consider the best possible one on the market comes from Athene.

If you click on the ‘tax’ image just above, you can download a copy and save it somewhere as reference material.

 

Advertisements

Trump’s Looming Bust-up with China is Bad News for 2018

My Comments: Having more money to spend in retirement requires a delicate balance between living cautiously and making sure your funds are growing properly. If you stay alive, the money to pay your bills has to come from somewhere.

All that is to say that global economics is going to play a role in your future financial affairs, whether you understand it, like it, or don’t give a hoot about it. My efforts to help my friends and clients is to try and provide insights to help you get it right and have more money rather than less money.

Trump has already conceded economic hegemony to China on the global stage by refusing to participate in the Trans-Pacific Partnership. That alone is going to limit your financial future over the next several decades. Don’t say I didn’t warn you.

by Edward Luce / January 3, 2018

Flattery gets you everywhere with Donald Trump. But only while it lasts. Like any addiction, it needs regular boosts in higher doses. Amid fierce bidding, China’s Xi Jinping won first prize as 2017’s most effective Trump flatterer. All it took was a lavish banquet in the Great Hall of the People. In return, Mr Trump forgot to raise America’s trade complaints or human rights. Mr Xi easily outflanked the US at the Asian summits following Mr Trump’s China visit. If the key to seducing him is a dish of Kung Pao chicken, what’s not to like?

The problem is that Mr Xi must continually feed Mr Trump. At a certain point, the ratio of Trump flattery to loss of self-respect will be too high. Would another flurry of trademark approvals for Ivanka Trump break China’s bank? Probably not. What about giving the go-ahead for a Trump Tower in Shanghai? Possibly. Another red carpet reception is unlikely to cut it. The law of diminishing returns applies to favors already bestowed. In 2018, it is likely to turn negative. China has always been in Mr Trump’s sights. Massaging his ego buys only brief respite.

The other ego is Mr Xi himself. China has acted with caution for more than a generation. For Washington’s “never Trumpers”, Beijing’s restraint gave it honorary membership of the axis of adults that would curb Mr Trump’s instincts. If Mr Trump was a loose cannon, China could be counted on to behave responsibly. In the opening months of Mr Trump’s presidency, Mr Xi did just that. China, not the US, is now the darling of the Davos economic elites. Mr Xi can lecture on Ricardian trade theory with the best of them.

But China’s age of forbearance is over. In October, Mr Xi opened a bolder chapter in China’s foreign ambitions. Deng Xiaoping, China’s great moderniser, spent his last years with no official role other than chairman of China’s bridge association. Hu Jintao, Mr Xi’s predecessor, was happy with just being president. Mr Xi, by contrast, has grabbed every title going and immortalized his own thought in the party’s constitution. Mr Trump has competition, in other words. For the first time since Mao Zedong, China has a living personality cult. US-China relations are now in the hands of two gargantuan egos.

That is bad news for 2018. Added to this are two bigger clouds. For the first time since the cold war, the US has an explicit competitor. Mr Xi’s China has set itself the target of becoming the world’s top dog within a generation. Unlike the Soviet Union, China can sustain technological rivalry with the US. America’s dominance in the Asia Pacific is no longer a given. Mr Xi’s aim is to achieve military parity. Second, America’s president thinks in hourly increments. China’s leader plans in decades. The battle between these two egos is one-sided. Mr Xi holds a telescope. Mr Trump stares at the mirror.

The scope for misunderstanding is growing. Too much attention has been paid to the spectre of a nuclear conflict between the US and North Korea — too little to the looming fallout in US-China relations. That is in spite of Mr Trump’s latest tweet boasting that he had a bigger nuclear button than Mr Kim.

The US president still believes China can disarm Kim Jong Un on America’s behalf. No one else thinks that is likely. Last week, Mr Trump said his patience with China was running out. Mr Trump’s advisers have so far curbed his protectionist impulses. But Mr Trump is rarely muzzled for long. His one consistent belief is that the US is being ripped off. China, whom he has repeatedly accused of raping America, tops the list. “If they don’t help us with North Korea, then I do what I’ve always said I want to do,” he told The New York Times. We should expect 2018 to produce US trade actions against China and Beijing to fight them at the World Trade Organization. There will also be more nuclear tweets.

But the US-China fog extends far beyond the Korean peninsula. As does the potential theatre of confusion. Last year China opened its first overseas base, in Djibouti. A Chinese aircraft carrier made its first visit to the Mediterranean. Mr Xi also stepped up China’s installations in the South China Sea — a subject on which Mr Trump has yet to comment.

Mr Trump has not uttered the word “Taiwan” since he spoke to its leader after his election. His first tweet of 2018 was to accuse Pakistan of “lies and deceit”. China rushed to Pakistan’s defense. “China and Pakistan are all-weather partners,” said Beijing after praising Islamabad’s “outstanding contribution” to fighting terrorism. Mr Trump was far closer to the truth. But there are few gulfs of perception wider than that.

In a stand off between Mr Trump and Mr Xi, who would blink first? There is no way of knowing. However, China is giving hints of over-confidence. From the Iraq war to Mr Trump’s election, China has been reaping one windfall after another. His disdain for democratically elected leaders plays straight into Beijing’s hands. But its luck cannot last for ever. Mr Xi should remember that Mr Trump launched missile attacks on Syria when the two were having dinner in Mar-a-Lago. Many in China believe Mr Trump is a paper tiger. They may be right. But it would be rash to test that theory.

Finding the Best Social Security Claiming Strategy – 3 Questions

My Comments: As you’ve heard me say many times, Social Security benefits have become an absolutely critical piece of the retirement income puzzle for most of us. If it’s not there to pay critical monthly bills, it’s there to allow us freedom of movement as we transition from the retirement go-go years to the slow-go years and ultimately the no-go years. What follows here are good insights for you.

Sean Williams | Nov 27, 2017

Here’s how you can get the most out of Social Security.

Many Americans will lean on Social Security pretty heavily during retirement. Data from the Social Security Administration finds that more than three out of five seniors currently rely on their benefits for at least half of their monthly income. Separately, a study from the Urban Institute estimates that an average-earning male ($47,800 in 2015 dollars) will net about $304,000 in lifetime benefits from Social Security if he turns 65 in 2020. That’s about $82,000 more in lifetime benefits than Medicare will provide for this same individual.

Yet in spite of the clear importance placed on Social Security income during retirement, deciding when is the best time to file for benefits is perhaps the greatest mystery for most workers.

Your retirement benefit from Social Security, assuming you’ve earned the prerequisite 40 lifetime work credits, is derived from four factors — three of which you can control. It’s based on your earnings history, length of work history, claiming age, and your birth year. This latter factor is what determines your full retirement age, or the age at which you’re entitled to receive 100% of your retirement benefit.

In its simplest form, if you sign up before your full retirement age, you’ll accept a permanent reduction in your payout of up to 30%, depending on your claiming age and birth year. Similarly, waiting until after your full retirement age to enroll could boost your payout by up to 32%, depending on your claiming age and birth year. You can begin receiving retired worker benefits at age 62, or any point thereafter, but be aware that your benefits grow by approximately 8% for each year you hold off on enrolling.

This is the dilemma that retired workers commonly face: Take the money now and accept a permanent reduction to your monthly payout, or wait and allow your benefit to grow.

Answering these questions will maximize your claiming strategy

The easiest way to figure out what the best Social Security claiming strategy will be for you is to answer the following three questions.

1. Am I in good health?

The first thing you’ll want to do is assess your long-term health outlook to the best of your ability. Admittedly, trying to guess our own expiration date is nothing any of us can do with accuracy. We can, however, factor in our own medical history, and that of our immediate family, to determine whether or not we’re in poor, good, or excellent health. Your overall health and longevity outlook will help determine whether claiming early, late, or somewhere in the middle makes sense.

People with chronic health conditions and/or those with immediate family members who haven’t reached the average U.S. life expectancy of 78.8 years, according to the Centers for Disease Control and Prevention, are often best served claiming benefits earlier. While waiting would boost your monthly payout, claiming early and immediately receiving a payout will usually maximize what you’ll receive over your lifetime.

Conversely, waiting until ages 68 to 70 and boosting your payout well above your full retirement age benefit can be worthwhile for seniors in excellent health who’ve had parents or grandparents live into their 80s, 90s, or even 100s. Waiting can produce a significantly higher lifetime payout by ages 85 and up.

If you’re in good, but not great, health, then claiming around your full retirement age might be a wise decision. Again, it’s something of a crap shoot, but the smartest thing to do is take the information we have about our health and apply it as best as possible to our claiming decision.

2. Will this claiming decision affect anyone other than me?

The second question you’ll want to answer to ensure you’re making the best Social Security claiming decision possible is: How will this claiming decision affect those around me?

For instance, if you’re an unmarried elderly individual with no dependents, then your claiming decision really is your own to make. What you do should affect you alone.

On the other hand, if you’re married, your claiming decision could have implications on your spouse. As an example, if you’re the higher-earning spouse and file for benefits before reaching full retirement age, and you wind up passing away before your lower-earning spouse, the maximum survivor benefit that your lower-earning spouse may be eligible for will be reduced.

Elderly couples should also work on coordinating claiming strategies to maximize what they receive while they’re alive. Higher-earning spouses often benefit by waiting until their full retirement age or later to sign up for Social Security. Letting this larger benefit appreciate makes sense given that it’ll have the biggest positive impact on the couples’ household income later in life. Meanwhile, couples can sometimes gain by having the lower-income spouse claim early in order to generate some income for the household while the larger benefit grows.

Long story short, understand how your claiming decision will affect those around you.

3. How reliant will I be on Social Security income?

Perhaps the most important question you’ll want to ask yourself is this: How reliant will you be on Social Security? Generally speaking, the more reliant you’ll be, the greater incentive you’ll have to wait before signing up.

One of the bigger mistakes made by enrollees is filing for benefits early if you have little or nothing saved for retirement. If your nest egg is practically nonexistent, then you’re probably going to lean very heavily on Social Security during your golden years. If this is the case, the last thing you’d want to do is file for benefits early and permanently reduce your monthly payout. Instead, you should be working during your 60s, assuming you’re in good enough health to do so, and allowing your wages to cover your living expenses. This way your Social Security payout can keep growing, thus allowing you to maximize your monthly payout.

How reliant should you be on Social Security? I believe the ultimate goal should be to have no reliance on Social Security income whatsoever. In other words, your ability to save and invest for the future allows your Social Security payout to be nothing more than icing on the cake. But for the average American, it’s designed to replace about 40% of working wages. As long as you have a primary source of income, and Social Security isn’t it, you’re doing something right and should be in decent shape during retirement.

If you take your health, your marital/dependent situation, and your expected reliance on Social Security income, into question when making your claiming decision, you’re liable to find the best claiming strategy for you.

What should I do with the $300,000 I am about to inherit?

My Comments: What would you do if you just found out you were getting an extra $300,000? And to whom is this question posed?

The article appeared in a news feed on my phone this morning as I was drinking coffee and getting ready for the day. You can find it HERE.

I’m sharing it with you for other reasons, none of which should imply I’m about to have an extra $300k, because I’m not. Unfortunately.

Since it appeared in a public forum, there are financial advisors across the country, who when asked this question by someone, will immediately think of answers like these:

1. Buy stocks and bonds (I make a commission.)
2. Buy an annuity (I make a commission)
3. Invest in a managed portfolio (I earn a fee or % of the assets invested)
4. Buy a portfolio of mutual funds and let me manage them (I make a commission and a fee)
5. I’m a realtor also, so buy a property and hope it appreciates (I make a commission)
6. Buy a life insurance policy and gain tax advantages (I make a commission)
7. Etc., etc., etc….

To be fair, some of those thoughts crossed my mind since for the past 41 years, I’ve called myself a financial advisor and earned a living from commissions and advisory fees.

On the other hand, offering someone a litany of options, all of which might be valid choices, begs the question that should immediately follow the above question, which is “What are your strategic goals?”.

This implies that someone has developed and articulated their strategic goals, all of which surface when you ask yourself certain questions. For example:

1. I’m a long way from retirement, so do I want to spend it now or do I want to grow it and spend it in the future?
2. I’m close to retirement and this money will help a lot but I have an immediate need to pay down debt. Should I use it for that or perhaps pay off my home mortgage?
3. How much money do I make now and how significant is this $300k in the grand scheme of things when it comes to living my life the way I want to?
4. I know that receiving this money has no current income tax implications for me but if I successfully turn it into $400k, what are the future tax implications?
5. Does having this money present opportunities to limit other existential threats to my financial future like bankruptcy, my future health needs, living too long and being broke, paying more taxes than I need to pay?
6. How much risk am I willing to accept without getting really nervous?
7. Etc., etc., etc….

The lesson learned by me from the article is that there are people who are only in the ‘answer’ business and there are people in the ‘question and answer’ business and if this happens to you, you should first find someone in the ‘question and answer’ business that you can trust and enjoy working with, who will help you first define your strategic goals.

Bull Market Heading for Major Correction in 2018, Bank of America Says

My Comments: If I sound like a broken record, you have my apologies.

In these days of supposedly good cheer and optimism, no less an institution than Bank of America/Merrill Lynch says to be cautious. That’s good advice.

As I continue working on my book/course on retirement planning, I have one eye watching what’s happening in the world. I consider myself lucky that I still have two good eyes.

Watch for a publication announcement in the next few weeks. Happy Holidays!

By Bradley Keoun | Dec 6, 2017

Bank of America Corp. says signs are growing that the eight-year-old bull market in stocks and risky assets could soon come to an end.

And, as with all late-stage bull markets, the trick for investors is in getting the timing right.

The Standard & Poor’s 500 Index, a key benchmark for U.S. stocks, could peak at 2,863 during the first half of 2018, Bank of America analysts predicted in a report. That’s 8% above current levels.

But the second half could bring mostly gloom for investors, as the Federal Reserve tightens financial conditions by raising interest rates and shrinking its balance sheet.

Volatility — a measure of the size of daily price swings — could rise from this year’s unusually low levels. Inflation is likely to increase. Yields on corporate bonds could widen relative to those of U.S. Treasuries — an indicator of fading investor confidence in companies’ ability to repay their debt.

“Signs of bubble-like behavior abound,” according to the report, which cited examples like record-high art prices, soaring Bitcoin prices and a 100-year-bond sale by Argentina, the South American nation that has defaulted on its debt eight times in the past 200 years. Next year “could represent the move toward euphoria, which typically heralds the end of a bull market.”

Wall Street firms are becoming increasingly anxious about frothy conditions in financial markets, with Goldman Sachs Group inc. warning investors last week that stocks and bonds are trading at the highest average valuations since 1900.

Bank of America noted that much of the recent gains have been fueled by central banks like the Fed, which have pumped trillions of dollars into global markets in the past decade to kindle elusive economic growth.

In fact, according to the bank, there may be little driving the stock market at this point except for bullish sentiment.

While there are ample gains are to be had by savvy investors, the risks are growing. By the end of 2018, the bank predicts, the S&P 500 could fall from its mid-year peak to about 2,800.

Signs are growing that the bull market is “nearing the end of its leash, triggering a mid-year pullback alongside potential for some of the best returns in the last gasps of the cycle,” the analysts wrote.

Yields on U.S. Treasury 10-year bonds could surge to 2.9% or 3% by the end of 2018, from about 2.37% now, the report said, a move that would lead to falling prices for the assets. According to the analysts, the tax bill could lead to $1 trillion or more of U.S. budget deficits, prompting the Treasury to issue more bonds and increase market supply of the securities even as the Fed proceeds with a plan to liquidate government securities currently held on its balance sheet.

“Balance sheet unwinding could mean a spike in net supply of Treasuries the market would have to absorb,” according to the analysts.

A key call in the report is that China’s bond and foreign-exchange markets could face a reckoning after officials for more than a decade encouraged heavy borrowing and spending to fuel economic growth. President Xi Jinping’s efforts to reduce debt in the country’s financial system could become “messy,” the Bank of America analysts wrote.

Investor fears of a Chinese currency devaluation sent markets reeling in early 2016, until officials managed to stabilize the exchange rate through strict capital controls.

So — proceed with caution.

Forecasting the Next Recession

My Comments: I may have retired from providing investment advice but I’ve not yet left the building. What happens in the world of money still interests me both professionally and personally.

Attached to this post, by way of a link to a 12 page, downloadable report, is a projection from Guggenheim that says we’ll experience a recession roughly 24 months from now.

Whether they are right or wrong, the next one is somewhere on the horizon. Knowing in advance when it might happen will help manage the financial resources you have that pay for your retirement.

Just don’t confuse the timing of a recession with the timing of market corrections of 10% or more. While there is some correlation, it is far from 100%. Also keep in mind the stock markets price things based on what people THINK will happen, not what actually does happen.

Here’s the link to download a copy of the report: Forecasting the Next Recession.

The Perfect Storm (Of The Coming Market Crisis)

My Comments: We do not live in a perfect world. Flaws are all around us. As responsible adults, we always try to make good decisions, and mostly we succeed. Until we don’t.

If you expect to live another 20 or 30 years, the money you’ll need to pay your bills has to come from somewhere. If you’ve already turned off the ‘work for money’ switch and retired, you’re dependent on work credits and saved resources. Maybe you have a pension that sends you money every month. Good for you.

If you are still working, you’re probably setting aside some of what you earn so you can someday retire and get on with the rest of your life without financial stress. At least that should be your plan.

This article from Lance Roberts, a professional money manager, needs to be read and understood. I’m not going to copy everything he says, but I do encourage you to follow the link I’ve put below. Make an effort to understand what he’s telling us. Your financial life may depend on it.

Know also there are ways to shift the risk of loss to a third party. For a fee, you get to enjoy the upside and avoid the downside. If you do live for another 20 – 30 years, where is your money going to come from?

Lance Roberts published this today, November 28th, and it can be found HERE.