Tag Archives: adviser

When to Take Social Security: The Complete Guide

My Comments: Social Security is a complicated issue for almost everyone in the retirement planning process. There are so many variables it’s hard to get your arms around what is in your best interest. Many people just say to hell with it and sign up at age 62.

And that can be a huge mistake. You’ll probably end up with less money over your lifetime, not because you’ll get less in total from the Social Security Administration, but because it may cause you to pay more in taxes. And if you have a surviving spouse, it could hurt them too.

What you pay in taxes cannot be used to pay your bills. And retirement is all about being able to pay your bills and enjoy your life.

By Amy Fontinelle | March 12, 2018

If you’re about to retire, you might be wondering if you should start claiming your hard-earned Social Security benefits. If you need the income and you’re at least 62 – the minimum age to claim – the answer is obvious. But if you have enough other income to keep you going until you’re older, how do you decide?

Benefit Amount
The size of your monthly benefit payment depends on the year you were born and your age when you start claiming, down to the month. You receive your full monthly benefit if you start claiming when you reach full retirement age. To find your full retirement age, see the chart below.

Let’s say your full retirement age is 66. If you start claiming benefits at 66 and your full monthly benefit is $2,000, you’ll get $2,000 per month. If you start claiming benefits at age 62, which is 48 months early, your benefit will be reduced to 75% of your full monthly benefit (also called your primary insurance amount). In other words, you’ll get 25% less per month and your check will be $1,500. You’ll receive that reduced benefit not just until you turn 66, but for the rest of your life (though it will go up slightly over time with cost-of-living adjustments). The easiest way to do the math for your own situation is to use the Social Security Administration’s (SSA) Early or Late Retirement calculator (scroll down the linked page to find it).

If you wait until you’re 70 to start claiming benefits, you’ll get an extra 8% per year, and in total, you’ll get 132% of your primary insurance amount, or $2,640 per month, for the rest of your life. Claiming after you turn 70 doesn’t increase your benefits any further, so there’s no reason to wait longer.

The SSA’s many retirement calculators can also help you determine your full retirement age, the SSA’s estimate of your life expectancy for benefit calculations, rough estimates of your retirement benefits, actual projections of your retirement benefits based on your work record and more.

The longer you can afford to wait, the larger your check will be. But you’ll also have no money coming in from Social Security during the months when you postpone claiming. Waiting as long as possible to start claiming benefits doesn’t necessarily mean you’ll come out ahead overall, though, for several reasons: expected longevity, spousal benefits, taxes, investment opportunity and health insurance.

Expected Longevity
So much of our strategizing about how to maximize Social Security retirement benefits depends on guesses about how long we’ll live. Any of us could die in a car accident or get a terminal cancer diagnosis next week. But putting aside these unpredictable possibilities, how long do you think you’ll live? What is your health like now, and what has your relatives’ longevity looked like? Have you had a physical and blood work lately? How are your blood pressure, cholesterol, weight and other markers of health? If you predict an above-average life expectancy for yourself, you may come out ahead by waiting to claim benefits. If not, you might want to claim as soon as you’re eligible.

To make an educated guess about how to come out ahead, you’ll need to do a break-even analysis. What do we mean by breaking even? It’s the point where your lifetime benefits are the same given different initial claim ages. The question is this: Will you be better off – that is, will you get a higher total lifetime payout – getting more checks for a smaller amount (by claiming at 62, for example), or fewer checks for a larger amount (by claiming as late as age 70)?

The Social Security website will tell you that regardless of when you start claiming, your lifetime benefits will be similar if you live as long as the average retiree. The problem is that most people will not have an average life expectancy, hence all the different claiming strategies.

Spousal Benefits
Being married further complicates the decision of when to take Social Security because of the program’s spousal benefits. Certain divorcees are also entitled to benefits.

Spouses who didn’t work or who didn’t earn enough credits to qualify for Social Security on their own are eligible to receive benefits starting at age 62 based on their spouse’s work record. As with claiming benefits on your own record, your spousal benefit will be reduced if you claim benefits before reaching full retirement age (though not at the same rate as claiming your own benefits early). The highest spousal benefit you can receive is half the benefit your spouse is entitled to at their full retirement age.

While spouses will get a lower benefit if they claim before reaching their own full retirement age, they will not get a larger spousal benefit by waiting to claim after full retirement age – say, at age 70. But a nonworking or lower-earning spouse can get a larger spousal benefit if the working spouse has some late-career, high-earning years that boost benefits.

When one spouse dies, the surviving spouse is entitled to receive the higher of their own benefit or their deceased spouse’s benefit, but not both. That’s why financial planners often advise the higher-earning spouse to delay claiming. If the higher-earning spouse dies first, the surviving, lower-earning spouse will receive a larger Social Security check for life.

When the surviving spouse hasn’t reached full retirement age, he or she will be entitled to prorated amounts starting at age 60. At full retirement age, the surviving spouse is entitled to 100% of the deceased spouse’s benefit or to their own benefit, whichever is higher.

A claiming strategy called file and suspend used to allow married couples of full retirement age to receive spousal benefits and delayed retirement credits at the same time. This strategy, which ended as of May 1, 2016, helped some couples receive tens of thousands more from Social Security.

Here’s the next-best thing for older, dual-income couples: Individuals who turned 62 by January 1, 2016, can use a strategy called restricted application. Spouse A claims benefits first; spouse B claims spousal benefits. Once spouse B turns 70, spouse B claims their own benefit instead. Spouse A then claims spousal benefits, which are now higher than their own benefit because of how much spouse B’s benefit has grown by waiting to claim until age 70.

Taxes
Social Security benefits become taxable at rather low income thresholds. No matter how much you make, the first 15% of your benefit payments are not taxable. But income from interest, dividends and taxable retirement accounts such as 401(k)s and traditional IRAs can quickly push you over the tax threshold.
The Social Security Administration calculates your “combined income” as follows:

Your adjusted gross income
+ Nontaxable interest (for example, municipal bond interest)
+ ½ of your Social Security benefits
= Your “combined income”

If you file your federal tax return as an individual and your combined income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits. If your combined income is more than $34,000, you may have to pay income tax on up to 85% of your benefits.

If you’re married filing a joint return and you and your spouse’s combined income is $32,000 to $44,000, you may have to pay income tax on up to 50% of your benefits. If your combined income is more than $44,000, you may have to pay income tax on up to 85% of your benefits.

Because the math isn’t at all straightforward, the best way to calculate your tax liability is to use a calculator like the Motley Fool’s Social Security tax calculator. It gives you a detailed breakdown of how the result is calculated after you enter your numbers.

Let’s say you receive the maximum Social Security benefit for a worker retiring at full retirement age in 2018: $2,788 per month. Your spouse receives half as much, or $1,394 per month. Together, you receive $4,182 per month, or $50,184 per year. Half of that, or $25,092, counts toward your “combined income” for the purpose of determining whether you pay tax on part of your Social Security benefits. Let’s further assume that you don’t have any nontaxable interest, wages or other income except for your traditional IRA’s required minimum distribution (RMD) of $10,000 for the year.

Your combined income would be $60,184 (your Social Security income plus your IRA income), which would make up to 85% of your Social Security benefits taxable because $60,184 is more than $44,000. Now, you’re probably thinking, 85% of $50,184, is $42,656, and I’m in the 22% tax bracket, so my tax on my Social Security benefit will be $9,384. Fortunately, that’s completely wrong. By using an online calculator, you’ll see that your tax will really be a mere $340. You can read all about the taxation of your Social Security benefits in IRS publication 915. A Roth conversion could help you lower your tax bill.

How do all of these tax calculations affect when you should apply for Social Security benefits? You’ll lose less of your Social Security benefits to taxes if you can wait until your income is lower to claim.

Investment Opportunity
Are you a disciplined, savvy investor who thinks you can earn more by claiming early and investing your benefit than by claiming later and receiving Social Security’s guaranteed higher benefit? Then you may want to claim early instead of waiting until age 70.

Most investors, however, are neither disciplined nor savvy. People take early benefit payments intending to invest the money, then use it to tour Europe instead. And even savvy investors cannot predict how their investments will perform over the first decade or two of their retirement.

If you claim early, invest in the stock market and average an 8% annual return – which is far from guaranteed – you will almost certainly come out ahead compared with claiming late, according to an analysis by Dan Caplinger, director of investment planning for Motley Fool. But if your returns are lower, if you receive reduced Social Security benefits because you continue working past age 62, if you have to pay taxes on your Social Security income or if you have a spouse who would benefit from claiming Social Security benefits based on your record, then all bets are off. Most people, in other words, will not benefit from this strategy – but it is a strategy to be aware of in case you’re one of the few who might.

Effect on Health Insurance
Here’s another factor to consider: Do you have a health savings account (HSA) that you want to keep contributing to? If so and if you’re 65 or older, receiving Social Security benefits requires you to sign up for Medicare Part A. The problem with signing up for Medicare Part A is that you’ll no longer be allowed to add funds to your HSA.

The Social Security Administration cautions that even if you delay receiving Social Security benefits until after age 65, you might still need to apply for Medicare benefits within three months of turning 65 to avoid paying higher premiums for life for Medicare Part B and Part D. If you are still receiving health insurance from your employer, you might not have to enroll in Medicare yet.

The Bottom Line
You don’t have to take Social Security just because you’re retired. If you can live without the income until age 70, you will ensure the maximum payment for yourself and lock in the maximum spousal payment. Just be sure you have enough other income to keep you going and that your health is good enough that you are likely to benefit from the wait. When you’re ready, you can apply for benefits online, by phone or at your local Social Security office.

Source article: Read it HERE!

Advertisements

Civility Has Its Limits

My Comments: Instant gratification, or the desire for it, is the norm in 21st Century America. It may be OK when you discover you’re hungry and have no need to go into the woods and shoot something, or instead of waiting days for the mail to arrive, you simply go to your phone and look for a text message. But…

As a society, we’re experiencing a massive shift in thinking and it’s going to take time, years even. But it is coming. Just as women in the early 20th Century were finally allowed to vote, and before that, years of agony for immigrants from Africa to shake off the shackles of slavery. And here we are 150 years later, still not fully responding to that seminal upheaval of what was then ‘normal’ arrangements in society.

The recent societal and political chaos involving the Supreme Court will be seen in years to come in the same light. This article by Peter Beinart helped me come to terms with what happened and will allow me, hopefully, to move on and resume my ‘normal’ life. I’ll continue to resist, but I now have a positive goal of eventual gratification.

by Peter Beinart on Monday, October 8, 2018

When it comes to Brett Kavanaugh, there are three camps. The first believes it’s a travesty that he was confirmed. The second believes it’s a travesty that he was smeared. The third believes it’s a travesty that the process was so divisive.

David Brooks is in camp number three. The Kavanaugh hearings, he wrote on Friday, constituted an “American nadir.” You often hear such phrases from people who think the biggest problem with the Kavanaugh battle is that the participants weren’t more courteous and open-minded. Jeff Flake said that in debating Kavanaugh, the Senate “hit bottom.” Susan Collins called it “rock bottom.” Think about that for a second. For most of American history, Supreme Court nominees—like virtually all powerful men—could sexually assault women with complete impunity. Now, because allegations of such behavior sparked a raucous, intemperate political fight, America has hit “rock bottom,” a “nadir.”  How much better things were in the good old days when sexual-assault allegations didn’t polarize the confirmation process because sexual-assault victims were politically invisible.

Implying, as Brooks, Flake, and Collins do, that America’s real problem is a lack of civility rather than a lack of justice requires assuming a moral equivalence between Brett Kavanaugh’s supporters and Christine Blasey Ford’s. “What we saw in these hearings,” writes Brooks, “was the unvarnished tribalization of national life.” The term “tribe” implies atavistic, amoral group loyalty: Huns vs. Franks, Yankees vs. Red Sox, Hatfields vs. McCoys. There are no larger principles at stake. “There was nothing particularly ideological about the narratives,” laid out by Kavanaugh and Blasey Ford, Brooks declares, “nothing that touched on capitalism, immigration or any of the other great disputes of national life.”

But gender is indeed one of the “great disputes of national life.” The Kavanaugh fight pitted people who worry that #MeToo hasn’t changed America enough, that it’s still too easy for men to get away with sexual assault, against people who fear that #MeToo has changed America too much, that it’s become too easy for women to ruin men’s lives by charging them with sexual assault. That’s not a tribal struggle; it’s an ideological one. It involves competing visions of the relationship between women and men.

Describing Democrats and Republicans as warring tribes has become a political cliché, but it’s wrong. If tribal implies unthinking or inherited group loyalty, then Democrats and Republicans were actually more tribal in the mid-20th century. Back then, when being a Democrat or a Republican signified less about your view of the world, party identity was more a function of regional or ancestral ties. Whether or not they supported civil rights or higher taxes or the Korean War, Irish Catholics from Boston were mostly Democrats; Presbyterians from Kansas were mostly Republicans. Today, party identity is more a function of what you believe. The parties are so bitterly polarized not because they’ve become more tribal but because they’ve become more ideological.

But for Brooks, depicting the supporters of Kavanaugh and Blasey Ford as tribes is useful because it doesn’t only suggest moral equivalence, it also implies an equivalence of power. The “tribalization” of American politics, Brooks argues, “leads to an epidemic of bigotry. Bigotry involves creating a stereotype about a disfavored group and then applying that stereotype to an individual you’ve never met. It was bigotry against Jews that got Alfred Dreyfus convicted in 1894. It was bigotry against young black males that got the Central Park Five convicted in 1990. It was bigotry against preppy lacrosse players that led to the bogus Duke lacrosse scandal.”

This is misleading. There is no equivalence between the “bigotry” faced by preppy lacrosse players and that faced by black males. There’s no equivalence because preppy lacrosse players, in general, enjoy far more privilege and power and thus, the stereotypes people hold of them don’t generally land them in jail or dead. Similarly, there is no equivalence between the “bigotry” faced by men accused of sexual assault and the “bigotry” faced by women who suffer it. There’s no equivalence because men wield far more power. If you don’t think that matters, try imagining Kavanaugh getting confirmed by a Senate comprised of 79 women.

The struggle over Kavanaugh was, at its core, a struggle between people who want gender relations to change and people who want them to remain the same. And throughout American history, whenever oppressed groups and their supporters have agitated for change, respectable moderates have warned that they were fomenting incivility and division. In April 1963, seven white Alabama ministers and one rabbi wrote a letter to Martin Luther King. The letter articulated no position on segregation and the right to vote. It assumed, instead, a moral equivalence between blacks that wanted race relations to change and whites who wanted them to remain the same. Both sides held “honest convictions in racial matters.” Both “our white and Negro citizenry” should “observe the principles of law and order and common sense.”

The real danger, the authors claimed, was “friction and unrest.” Averting it required “forbearance” and “restraint” on both sides. King, whose Birmingham campaign was titled “Project C”—for confrontation—was purposefully fomenting such friction and unrest through marches, sit-ins, and boycotts. While “technically peaceful,” the ministers and rabbi warned, the “extreme measures” adopted by King and his supporters “incite to hatred and violence.”

In his response, written from jail, King argued that the white clergymen were mistaking symptom for disease. The problem wasn’t “friction and unrest” between Birmingham’s two tribes. It was centuries of oppression, which there was no frictionless way to overcome. “I am not afraid of the word ‘tension,’” King explained. “We must see the need of having nonviolent gadflies to create the kind of tension in society that will help men to rise from the dark depths of prejudice and racism to the majestic heights of understanding and brotherhood.”

Even as Bull Connor’s men savagely beat black protesters in the streets, King recognized that Birmingham was not hitting “rock bottom.” It was rising from an almost century-long nadir in which white supremacy—no matter how murderous—was barely even a subject of political controversy, in which black powerlessness was the foundation on which comity between two America’s white-dominated political parties rested.

The problem that the Kavanaugh struggle laid bare is not “unvarnished tribalism.” The problem is that women who allege abuse by men still often face male-dominated institutions that do not thoroughly and honestly investigate their claims. That problem is not new; it is very old. What is new is that this injustice now sparks bitter partisan conflict and upends long-standing courtesies. Rape survivors yell at politicians in the Senate halls. The varnish—the attractive, glossy coating that protected male oppression of women—is coming off. Brooks, Collins, and Flake may decry the “tension” this exposes. But, as King understood, the “dark depths of prejudice” can’t be overcome any other way.

Source: https://www.theatlantic.com/ideas/archive/2018/10/has-american-politics-hit-rock-bottom/572452/

4 Financial Life Stages and How to Plan for Them

My Comments: As a financial planner, I’ve described the three primary phases most of us travel through in life: childhood, adulthood, and retirement. As a child, we’re dependent on others to maintain our lives; as adults we’re dependent on our ability to fend for ourselves and typically work for money; in retirement we’re dependent largely on our earlier ability to set aside resources and have money work for us.

These words from Sunita Abraham break down ‘adulthood’ into four financial stages and they are worth noting. Even if you’ve already retired, you may find it interesting for yourself and others in your family.

by Sunita Abraham \ October 10, 2018

Having a different financial planning strategy for different stages of one’s life cycle can help simplify the task of investing for various tenures

If the laundry list of “things to do” puts you off financial planning, then here is a way to make it easier. The elements that form part of the financial planning exercise include budgeting to generate savings, investing for goals, securing , protecting income through life and general insurance, managing debt and planning for the transfer of wealth.

While each element plays an important part in securing your finances, not all of them are equally significant at every stage in the life-cycle. Categorize the activities as critical, important, urgent and optional in each phase of your life. Focus your resources on those activities that are identified as critical and important that need immediate attention. Consider activities that are labelled as urgent only if they are also seen as essential. For example, while you may consider holding off increasing contribution to the retirement corpus in favor of paying life insurance premium, you should not consider doing it to fund a holiday even if it is urgent.

We tell you the four critical stages in a life cycle and how different financial planning approaches and tools can fit into each to make it a smooth ride for you.

The first income stage

When you first begin earning an income, budgeting is the critical financial skill that you need to master. Develop a suitable budget and build the discipline to live within your income so that you don’t fall into a debt trap. Once you learn to contain your expenses to available income, start building savings into your budget. The emergency fund will have the first claim on your savings and this is an urgent and important task.

Initiating some investments for retirement is an important task at this stage even though the goal may seem too much in the future to be relevant now. Investments for other goals are optional at this stage and can commence once your income and savings stabilize.

Unless you have dependents on your income, life insurance is optional at this stage and you need not assign scarce funds for life cover. However, a basic health insurance is important, particularly if you don’t have a health cover from your employee. Other products such as auto insurance and personal accident insurance should also be included as required. Servicing debt that you may have, such as student loan, is an important element, as is controlling debt use and building your credit history. A misstep can have long-term consequences on your borrowing ability in the future.

Estate planning is optional at this stage and you can consider it in the future when wealth has been created.

The dependents stage
This is the phase that is the most demanding since many of the elements of financial planning need to be serviced. You are likely to have dependants on your income and, therefore, life insurance is a critical element for security. Consider term insurance which gives you the required protection at the most efficient cost. Expand health insurance to cover your family too.

Your income and expenses would have both expanded and you should be better at budgeting and saving by this stage. Living by the budget is critical to be able to find the savings for the many short-, medium- and long-term goals you are likely to have at this stage. Revise and fine-tune your budget periodically to reflect your income and need for savings. Invest the savings to construct a portfolio that is aligned to growth, income or liquidity needs of goals.

Use a professional to help you do this efficiently if you find yourself procrastinating. Build basic estate planning into your finances by making clear nominations on your investments and insurance.

Debt management is a critical function at this stage given that your needs are likely to be more than availability of funds. Keep your ability to repay in mind while adding debt and ensure you do not harm your credit score or credit history. You should not have to meet debt repayment obligations at the cost of your retirement savings, insurance protection and essential goals like housing. Borrow primarily for appreciating assets where it will help grow your net worth over time.

The growth stage
If you have managed your personal finances prudently so far, then this will be the golden stage for your finances. Your income would be high and seeing an upward growth trend, while your expenses would have stabilized resulting in growing savings. Being mindful of expenses is important even at this stage and the focus of budgeting would be to maximize savings.

Managing investments is critical in this period. Many of your goals would be close to being funded and the investments have to be rebalanced to reflect this. This is also the time to catch up on important goals like retirement with the excess savings being assigned to this. Where the goals are well in the future, the investments should reflect the ability to take risk to earn higher returns.

Life and health insurance should be updated and aligned to your situation.

Now that you have accumulated wealth, take time to plan how you would like to distribute your estate and formalize a Will. Make sure that the assets and investments do not have nominations that are contrary to what you have decided in your Will.

Servicing debt should not be difficult at this stage given the high income. But consider the funding needs of your other goals before you add to your debt burden.

The retirement stage
Budgeting becomes the focus of finances once again during retirement. The object now is to control expenses to stay within the available income. Managing the investments to generate income and protect the corpus from inflation becomes the primary investment activity at this stage.

Adequate health insurance is critical since health costs can throw your income off rails. Life insurance may be relevant only if it is required to protect retirement income for the spouse and debt should not be a big part of your finances at this juncture.

An important activity at the beginning of retirement is to simplify finances. This would include cutting down on multiple accounts and investments, organizing documents, updating details and consolidating investments to a few relevant ones. Make sure all your financial documents are updated and accessible.

Make optimum use of limited time, funds and energy by concentrating on the activities that are important and critical at each stage in your life. Over time you will find that you have knit together all the elements without finding the whole exercise too intimidating.

Source: https://www.livemint.com/Money/r946kZa4ZiqNghWh6GUP1H/4-financial-life-stages-and-how-to-plan-for-them.html

Listen to the IMF’s new warning, economist says, and cut your exposure to US stocks

My Comments: The International Monetary Fund (IMF) is an international organization headquartered in Washington, D.C., consisting of “189 countries working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.”

They recognize that market crashes happen from time to time, and that influences the amount of money they have in reserve to deploy around the world.

I see a parallel between their need to preserve their ability to deploy money under their mandate, with your ability to pay your bills in retirement. I encourage you to pay attention and position your money with this in mind.

by Holly Ellyatt @ CNBC

U.S. markets are “going it alone” and investors are underestimating the amount of risk in the economy, the chief investment officer at Danish investment bank Saxo Bank, told CNBC on Wednesday.

“What we’re saying (to investors) at a bare minimum, is do acknowledge the fact that the U.S. is expensive by reducing (exposure to) the U.S.,” Steen Jakobsen told CNBC Europe’s ‘Squawk Box.’

“And if you don’t want to reduce overall equity exposure go to the MSCI World (a global equity index that represents just over 1,600 large and mid-cap companies across 23 developed markets countries) or take a little bit of risk in emerging markets.”

“For now, we’re pretty much saying to customers, be aware that the market is underestimating risk,” he added.

Jakobsen’s comments were made of the same day the International Monetary Fund (IMF) warned that “a further escalation of trade tensions, as well as rising geopolitical risks and policy uncertainty in major economies, could lead to a sudden deterioration in risk sentiment.”

If that happened, the fund said in its latest ‘Global Financial Stability Report,’ it could trigger “a broad-based correction in global capital markets and a sharp tightening of global financial conditions.”

U.S. markets are fretting but concerns are centered on rising U.S. interest rates, particularly this week after a strong set of economic data last week that could prompt the U.S. Federal Reserve to hike rates further and faster.

Volatility is ‘artificially low’

Jakobsen, who’s known for his bearish view on the U.S. economy, said it was “very prudent and right of the IMF to do this warning.” “It’s very rare that I (hold) sway with any policy institute globally but I absolutely think they’re (the IMF) right,” he said.

“We have three drivers of tighter monetary conditions, one being the price of energy, of course with this bi-product of inflation risk, but we also see the price of money…and the quantity of money, globally, is collapsing. So, in other words, the credit keg is lower so it’s absolutely prudent of the IMF to do this.”

Jakobsen believed that U.S. markets were buoyant because of tax changes introduced by President Donald Trump which lowered corporate taxes and incentivized companies to repatriate overseas profits, with a one-time repatriation tax. The changes were also criticized for increasing the U.S. budget deficit, however.

Saxo Bank’s economist said the tax reforms had enabled U.S. companies to initiate share buyback programs, in which a company purchases its own stock from the marketplace, reducing the number of available shares and thus increasing its share price. Goldman Sachs said in August that U.S. companies are expected to buy back $1 trillion worth of shares in 2018.

Jakobsen said this scenario meant the U.S. market was diverging from the rest of the world, “going it alone.”

“I think they’re (the IMF) pointing to, especially in the Stability Report that just came out, the fact that the U.S. market is on its own, and the reasons it’s on its own is because the tax plan in the U.S. has meant a massive amount of repatriation into the U.S. economy,” Jakobsen said.

“The buyback program in the U.S. this year is $1 trillion and that is basically $1 trillion used to reduce the amount of floating stocks in the world. Why is that relevant? Because it makes the volatility artificially low in the U.S. stock market. It’s (the U.S. market) is almost going it alone,” he said, adding;
“So what the IMF is really doing is just pointing out that, if you exclude the U.S., the world is already moving to the brink. Whether we go beyond the brink I think is more an issue of how fast the Fed, and how insistent the Fed is, on having this projectory of higher rates,” he said.

He believed the Fed was ignoring the inflows as a result of tax reforms and could be hiking rates too quickly. “For my part, I think the Fed is doing a mistake by ignoring this massive inflow on the back of the tax plan in the U.S. and doing so, they do a policy mistake.”

Source: https://www.cnbc.com/2018/10/10/listen-to-the-imfs-new-warning-economist-says-and-cut-your-exposure-to-us-stocks.html

4 Signs You’re Thinking About Social Security Benefits the Wrong Way

My Comments: For millions of us, Social Security has become a critical source of income if we expect to continue our current standard of living into the future. For those of you not yet claiming benefits, these four items are critical to your future retirement success.

Christy Bieber \ Oct 7, 2018

Social Security benefits are a major source of income for retirees, but far too many seniors have no clear idea how these benefits work. Even worse, many seniors have major misconceptions about Social Security benefits that could affect their plans for retirement in adverse ways.

To make sure you’re not one of the millions confused about how Social Security will provide for you as a senior, consider these four signs you’re thinking about Social Security benefits the wrong way.

1. You’re expecting Social Security to provide all the retirement income you need
Social Security benefits are designed to replace about 40% of your pre-retirement income, while most financial advisors suggest you’ll need at least 70% of the money you were earning prior to retiring.

If you aren’t saving money to supplement Social Security, you’re putting yourself into a position where your Social Security benefits may be your only source of funds as a senior. This is a recipe for financial disaster, as living on Social Security alone will leave you close to the poverty level.

Don’t count on Social Security to provide you with all you need. Instead, invest in a 401(k) or an IRA so you’ll have supplementary savings. Ideally, try to invest at least 15% of your income. If you can’t start there, at least set up small automated contributions to make sure you’re saving something. You can increase contributions over time as you get used to living on slightly less or when your income increases.

2. You’re counting on taking Social Security at age 65 or later
As many as 70% of workers think they’ll take Social Security benefits at age 65 or later according to Employee Benefit Research Institute. Almost 20% plan to wait until age 70, which is the last age at which you can earn delayed retirement credits to increase monthly Social Security income.

The reality, however, is that 62 is the most common age to claim Social Security, while age 63 is the median age at which retirees claim benefits. If you anticipate waiting to claim so you can increase your monthly income from Social Security, you could find yourself short of cash if illness or unemployment forces you to leave the workforce early.

To make certain you don’t end up with a shortfall, assume you’ll receive the monthly benefit amount you’d get at 62, and plan accordingly when deciding how much additional income you need from savings. If you’re lucky enough to be able to work longer and put off claiming benefits, you’ll simply have extra income — which is far better than having too little.

3. You aren’t considering your spouse when you make your plan for Social Security benefits
If you’re planning on simply claiming Social Security benefits under your own work record, you could potentially be missing out on a higher payment if you’re eligible for widow or spousal benefits. If your spouse earned more, you should carefully consider whether claiming under his or her work record could provide you with more funds than claiming on your own work history.

You can claim spousal benefits even after divorce as long as you were married for at least 10 years, so don’t assume claiming under your own work record is your only option, even if you’re currently single.

If you’re the higher earner, you also need to think about your spouse when making a decision on claiming benefits. When one spouse dies, the surviving spouse could opt to earn either widow’s benefits or their own benefits– whichever is higher. If you’ve claimed your benefits early instead of waiting to earn delayed retirement credits, you’ve reduce the widow’s benefits your surviving spouse would otherwise have received. This could leave your spouse with insufficient funds once you’re gone.

4. You think taking Social Security at 62 won’t impact your benefits over the long-term
Many people who retire at 62 have a major misconception about what claiming benefits before full retirement age does. In fact, 39% of pre-retirees think if they claim reduced benefits early their benefits will increase to a standard benefit at full retirement age.

This isn’t the case, and the reduction in benefits that occurs when you claim before full retirement age affects your annual Social Security income throughout your retirement. Your future cost of living adjustments are based on your lower starting benefit amount, and your monthly income will never be as high as it would’ve been had you waited.

Make sure you aren’t thinking about Social Security the wrong way

Since Social Security benefits are such an important source of retirement income, it’s worth doing your research to ensure you don’t make big mistakes when it comes to your benefits. Check out this guide to Social Security benefits, and ensure you know the answers to five key questions about Social Security before you claim your Social Security benefits as a senior.

Source: https://www.fool.com/retirement/2018/10/07/4-signs-youre-thinking-about-social-security-benef.aspx

This Data Visualization Shows What’s Really Responsible For Our Current Bull Market

My Comments: Apart from my concern that many of us will wake up one day soon and discover much of our money has disappeared, it is helpful to understand where all the gains have come from since the last significant crash in 2008.

By Nicolas Rapp and Clifton Leaf September 25, 2018

Who’s responsible for the bull market: Trump, Obama, Bernanke, Yellen? Answer: Tech companies. Here’s a look at what’s really driving growth.

As Wall Street’s raging bull continues its historic charge, there has been plenty of chatter about who deserves the credit: Mr. Trump? Mr. Obama? Former Fed chairs Ben Bernanke or Janet Yellen, perhaps? But the answer seems not to be a “who” but rather a “what”: tech companies. From the market bottom in 2009 to now, the capitalization of companies listed in the S&P 500 index grew by more than $18 trillion. But three of every 10 dollars in gain came from the 73 tech companies in the index. And the true bull market of the past decade was even narrower than that. Nearly 16% of the market cap growth derived from just four stocks: Apple, Alphabet, Microsoft, and Facebook. Their combined valuations soared from just over $300 billion to more than $3 trillion.

[ FORTUNE ]

Most Americans Fail at Financial Literacy. Here Are 3 Concepts You Absolutely Need to Know

My Comments: A dilemma for many people is they find the language used by those of us in the world of finance and economics very hard to understand. It goes in one ear and comes out the other.

I’m about to launch an internet course that will help solve this problem. I call it Successful Retirement Secrets. Look for a blog post in the coming days and an opportunity for everyone to see a free preview.

In the meantime, here are three concepts to get you started.

Maurie Backman Mar 31, 2018

While Americans might have no problem spending money, managing it is a different story. In fact, nearly two-thirds of U.S. adults can’t pass a basic financial literacy test, according to the FINRA Foundation. Specifically, Americans have a hard time calculating interest payments, answering questions about financial risk, and understanding the relationship between bond prices and interest rates (the former falls when the latter rises, and vice versa). With that in mind, here are a few basic financial concepts everyone should know.

1. Compounding
If you’re not familiar with compounding, you’re not alone — but you’ll also need a quick lesson, because this is a concept that can work both for you and against you. First, the positive. Compounding is the concept of earning interest on interest. Imagine you put $2,000 in a savings account paying 1% interest per year. Let’s also assume that interest compounds once a year. At the end of the first year, your account balance will be $2,020. But if you leave that money where it is and your interest rate stays the same, then during the second year, you’ll be earning 1% interest on $2,020, as opposed to just the $2,000 you initially put in.

Now here’s where compounding really gets interesting. Imagine you’re saving for retirement by socking away $300 a month in an IRA or 401(k). Over a 40-year period, that’s $144,000 in out-of-pocket contributions. But if your investments deliver a 7% average yearly return, then you’ll actually wind up with roughly $719,000 after 40 years, because your earnings will have compounded over time.

Sounds pretty great, right? Don’t get too excited, though, because compounding can also work against you. Any time you fail to pay off your credit card, for example, the balance you owe will accrue interest. But over time, you’ll be charged interest on top of that interest, and you’ll end up paying well more than the initial outstanding amount.

Imagine you rack up $2,000 of debt on a credit card charging 20% interest. If it takes you three years to pay off that sum, it’ll cost you a total of $2,675. But if you manage to pay it off in just six months, you’ll only spend $2,118. Why? Because you’ll be giving that interest less time to compound against you.

2. Inflation
In 1940, a loaf of bread cost just $0.10 on average. In 2013, it averaged $1.98. Why is this significant? Because it illustrates the point that a dollar today will have less buying power in the future. It’s a concept known as inflation, and it basically refers to the tendency of expenses to rise over time. This affects everything from housing to consumer goods to healthcare.

Why do you need to worry about inflation? It’s simple: If you’re eager to live comfortably in retirement (which you probably are), you’ll need to start setting money aside today. But the money you contribute to your IRA or 401(k) today won’t have the same buying power in 40 years as it does now. That’s why it’s crucial to grow your savings through smart investments — to take advantage of compounding and keep up with or outpace inflation.

In the above example, we saw that investing $3,600 a year at an average annual 7% return would result in $719,000. If you were to take those same $300 monthly contributions and house them in a savings account paying just 1% interest, then in 40 years, you’d have $176,000 — more than the $144,000 you originally put away, but still hardly any growth to keep up with inflation. As a result, that ending balance likely wouldn’t be enough to pay for your living expenses when you’re older, whereas $719,000 will more likely enable you to retain the buying power you had when you first set that money aside.

3. Diversification
We just saw how a 7% average annual return could turn a series of smaller contributions into a much larger sum. But why 7% and not another number? The truth is, it’s hard to say exactly what average return your investments might generate, but that 7% is a reasonable assumption for a stock-heavy portfolio based on the market’s historical performance. In fact, it’s for this reason that younger investors are typically advised to load up on stocks.

That said, you don’t want to put all of your money in stocks. Rather, it’s wise to spread your assets out over a variety of options, from stocks to bonds to cash to real estate. This way, if the stock market has a major downturn, you’ll have other assets to tap that won’t necessarily lose value the same way. It’s a concept known as diversification, and it basically means putting your eggs in different baskets to protect yourself from severe market conditions.

There’s even the potential to diversify within an asset type. For example, among your stock investments, you shouldn’t have 90% in, say, biotech. Rather, you should invest in different industries so that if a particular sector goes down, you’re not totally out of luck. Index funds are another great way to get some instant diversification in your stock portfolio, especially if you’re new to investing and don’t quite know how to choose individual stocks.

While you don’t need to be a financial wizard to successfully manage your money, it’s critical that you grasp these basic concepts and learn how to work them into your investment strategy. A little extra reading today could set the stage for a wealthier future.