Tag Archives: financial advisor

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!

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Retiring Soon? Plan for Market Downturns

My Comments: Are you nervous yet? If you have 20 years or so until you retire, you may not need to be nervous. But if retirement is just around the corner, then you need to start being defensive, if you’re not already.

There are a number of pressures building in the markets. This gives you a few steps to offset them. Personally, I think the average annual returns over the next decade are going to be significantly less that what they’ve been since 2009.

The author’s syntax is a little confusing but you’ll get the message.

By Anne Tergesen | Sept. 21, 2018

For every year by which a bull market persists, staff change into likelier to retire. However those that depart the workforce now—the ninth yr of the longest U.S. bull market—are probably setting themselves up for a tricky stretch that might check their portfolio’s long-term resilience.

Why? When the inventory market turns into traditionally costly, as some metrics recommend it’s at present, analysis reveals it’s typically a harbinger of below-average future returns. This may be particularly painful for retirees with lengthy life expectations as a result of withdrawals mixed with poor returns will depart much less in an account to compound over many years.

Take, as an illustration, a 65-year-old who retires when his or her portfolio is price $1 million. If the retiree withdraws 4%, or $40,000 within the first yr, and the portfolio loses 40% of its worth quickly after, she or he can have simply $576,000 left to fund a retirement that might final 30 or extra years. Any subsequent withdrawals will make it even tougher for the portfolio to get better.

Returns in “the primary 5 to 10 years of retirement matter most,” says Wade Pfau, a professor of retirement revenue on the American Faculty of Monetary Companies in Bryn Mawr, Pa. Early declines can “lock a portfolio right into a downward spiral.”

That doesn’t imply that individuals on the cusp of retiring ought to cancel their plans. For one factor, it’s notoriously tough to foretell the arrival, length and severity of bear markets. And if you’re prepared to go away your job, sticking round might undermine your well being and happiness.

The excellent news: There are steps you possibly can take to restrict withdrawals from shares when they’re down and partly shield your portfolio. Simply make sure to perceive the trade-offs.

1. Construct a money cushion

This technique sometimes includes setting apart one to 5 years of dwelling bills in money so that you received’t must promote shares at depressed costs.

Retirees with money buffers typically react extra calmly to market declines, decreasing the percentages that they are going to panic and bail out of the market fully, says Ross Levin, a monetary adviser in Edina, Minn.

The issue, Mr. Levin says, is that the low returns on money typically cut back a portfolio’s long-term returns. “If in case you have 80% in shares and 20% in bonds with a three-year money place, that’s a worse technique from a returns standpoint than having 70% in shares and 30% in bonds,” and nothing in money, he says. A money buffer “lets you handle a shopper’s psychology throughout dangerous instances, however it’s not an optimum technique.”

To unravel that drawback, some advisers as a substitute use bonds as a buffer. A $1 million portfolio with 60% in shares and 40% in bonds successfully holds eight years of dwelling bills in bonds, Mr. Pfau says.

But when shares sink and a retiree must liquidate bonds to cowl dwelling bills, the buffer is more likely to shrink.

To stop purchasers from promoting shares at depressed costs to replenish their bonds, many advisers advocate ready till the shares get better their losses to take action. However an investor who used such a method in 2008—when the monetary disaster slammed U.S. shares—would have had to attract down his or her bond buffer for about 5 years earlier than beginning to construct it again up, a nerve-racking expertise for all however the least risk-averse, Mr. Pfau says.

2. Rebalance

A greater technique, many say, is to spend money on a diversified portfolio—resembling 60% in shares and 40% in bonds—and rebalance it after main market strikes.

Retirees who accomplish that will use their winners to cowl at the very least a few of their bills. For instance, in 2008, when the S&P 500 misplaced about 37%, investment-grade bonds gained about 5.25%. Consequently, somebody who had 60%, or $600,000, in shares and 40%, or $400,000, in bonds earlier than the crash had 47%, or $378,000, in shares and 53%, or $421,000, in bonds afterward.

If a retiree with such a portfolio wanted $40,000, he would begin by withdrawing the $21,000 of bond income. As a result of bonds comprise considerably greater than 40% of the post-crash portfolio, the investor would whittle them additional, by withdrawing the extra $19,000 in spending cash he wants. To re-establish the specified 60% stock-40% bond allocation, he would then switch $77,400 extra to shares from bonds.

In distinction to holding a “money buffer,” this method “systematically ensures” that an investor sells holdings which have appreciated most whereas additionally shopping for issues which have declined and are comparatively low cost, says Michael Kitces, director of wealth administration at Pinnacle Advisory Group Inc. in Columbia, Md. By shifting cash into belongings which are crushed down, rebalancing helps a portfolio get better quicker when a turnaround lastly arrives, he provides.

In keeping with latest analysis, which checked out 140 mixtures of funding methods, withdrawal charges, and buffer-zone sizes over successive 30-year durations from 1926 to 2009, traders got here out forward with cash-buffer methods in solely three cases. In distinction, with rebalanced portfolios, they got here out forward in 70 simulations, stated co-author David Nanigian, affiliate professor of finance within the Mihaylo Faculty of Enterprise and Economics at California State College, Fullerton. Within the remaining 67 mixtures, the methods carried out the identical, he stated.

How typically must you rebalance? Some traders accomplish that quarterly or yearly. Cameron Brady, an adviser in Westlake, Ohio, says he acts when his purchasers’ portfolios drift by 5 proportion factors from goal allocations.

3. Use one other kind of buffer

What in case you like the concept of a money buffer, however don’t wish to tie up a portion of your portfolio in an asset that’s certain to earn low returns?

To supply purchasers with a supply of money within the occasion of a market meltdown, some advisers advocate utilizing home-equity traces of credit score or reverse mortgages, which permit folks ages 62 and older to transform their house fairness into money.

Each cost upfront charges. For instance, the upfront “mortgage insurance coverage premium” many debtors pay on reverse mortgages is now 2% of the house’s worth, capped at $13,593.

With a home-equity line of credit score, Mr. Pfau says, debtors should make month-to-month repayments. (Reverse mortgages should be repaid when the borrower dies, strikes, or fails to pay property taxes or house owner’s insurance coverage.) Each cost curiosity.

Mr. Pfau recommends that individuals with everlasting life insurance coverage, together with entire life and common life insurance policies, take into account tapping the money worth in these insurance policies throughout market crises. You may withdraw premiums tax-free and in addition borrow from the money worth to get extra tax-free revenue, he says.

“You’ll cut back the loss of life profit,” he provides, “however by serving to to protect the portfolio, you’re in all probability higher off.”

[ Wall Street Journal ]

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/

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

Caring for Your Aging Parents: How to Prepare

My Comments: Retirement is the third major time in people’s lives. It follows childhood and adulthood. Well, OK, a retired person is also an adult but retirement is a different stage. I describe it as when you turn off the ‘work for money’ switch and turn on the ‘money works for you’ switch.

Meanwhile, modern medicine is keeping us alive longer and longer. But it rarely happens that someone doesn’t gradually decline. And that gradual decline creates new issues for those of the next generation.

Since we as a society have never actively pushed elderly folks out the door to fend for themselves, all this means is that an infrastructure has to exist or be built, to look after aging parents. And if that applies to you, some preparation is necessary. Hence this article.

By Mike Piershale, ChFC | Piershale Financial Group, September 21, 2018

Caring for aging parents is something you hope you can handle when the time comes, but it’s the last thing you want to think about.

Whether the time is now or somewhere down the road, there are steps you can take to make your life — and their lives, too — a little easier.

It’s Time for a Chat
The first step is talking to your parents. How will you know when it’s the right time to do this? Look for indicators like failure to take medication, new health concerns, diminished social interaction, general confusion or even fluctuations in weight.

What can make things more difficult is when the parents are unwilling or unable to talk about their future.

This can happen for a number of reasons, including fear of becoming dependent, resentment toward you for interfering, reluctance to burden you with their problems, or because they are already incapacitated. Without their cooperation, you may need to do as much planning as you can without them. However, if their safety or health is in danger, you may still need to step in as a caregiver.

If you’re nervous about talking to your parents, make a list of topics that you need to discuss. This will help ease tension, and you will be less likely to forget anything.

If there is some reluctance on the part of your parents, it may be wise to cover your list over several visits so that it doesn’t sound so much like an interrogation.

Get Personal
Once you’ve opened the lines of communication, a good next step is to get as much information as you can to prepare a personal data record. This document lists information that you might need in case your parents become incapacitated or die.

Here is some information that should be included:
1. Bank and investment accounts
2. Estate documents like wills and trusts
3. Funeral and burial plans
4. Medical information
5. Insurance information
6. Names and phone numbers of professional advisers
7. Real estate documents

Be sure to write down the location of documents and any relevant account numbers. It’s also a good idea to make copies of all the documents you’ve gathered and keep them in a safe place.

Explore Living Arrangements
Eventually you’ll need to have discussions on more sensitive subjects like your parents’ wishes on medical care decisions and future living arrangements.

Where your parents eventually live will depend on how healthy they are. As they grow older, their health may deteriorate so much that they can no longer live on their own. At that point, you may need to find them in-home health care, health care within a retirement community or nursing home, or you may insist that they come to live with you.

If money is an issue, moving in with you may be the best or only option. Keep in mind this decision will impact your entire family, so talk about it as a family first.

Make It a Family Affair

The physical and financial responsibility of taking care of elderly parents may fall on several adult children, and usually not all are equally able to bear the burden. The result can be resentment, even hostility, and the breakdown of family cooperation.

The key to keeping harmony is communication. Family meetings on a regular basis are key to keeping tensions down and everyone informed. Families can talk over who can pay for care when it’s needed, and who can do physical work for a parent.

Even if a family member lives at a distance, there are things they can do. Consolidating accounts in one bank, setting up online access to paying bills and overseeing financial management are areas that can be handled from anywhere in the U.S.

Ask for Help
The key is to not try to care for your parents alone. Besides getting the family involved, there are also many local and national caregiver support groups and community services available to help you cope with caring for aging parents.

If you don’t know where to find help, contact your state department of elder care services, or call: 1-800-677-1116 to reach the Elder Care Locator, an information and referral service sponsored by the federal government that could direct you to resources available in your area.

Mike Piershale, ChFC, is president of Piershale Financial Group in Barrington, Illinois. He works directly with clients on retirement and estate planning, portfolio management and insurance needs.

The ‘Great Bull’ market is ‘dead,’ and here’s what’s next, Bank of America predicts

My Comments: For most of my adult life, the major player among brokerage firms in the US was Merrill Lynch. Actually I remember it as Merrill Lynch Pierce Fenner and Smith.

Then the crash happened in the fall of 2008 and Bank of America acquired ML on 1/1/2009. The cynic in me said that BoA saw an opportunity to further rip off middle America and what better way to do that than to purchase ML’s 100 plus year client base and reputation.

Not to say that there aren’t some ethical professionals working there but it’s long been my position that if you as a client of theirs makes any money, that’s an incidental benefit since the primary goal is to make money for BoA.

So, here we are with BoA telling the world that the great bull market that has now set records since March of 2009 is ‘dead’. They may very well be right. What does that mean for you if in fact that prediction plays out?

by Jeff Cox, Finance Editor @CNBC 9/19/2018

The “Great Bull” market that came after the financial crisis is dead due to slowing economic growth, rising interest rates and too much debt, according to a Bank of America Merrill Lynch analysis.

In its place will be one that features lower returns, the bulk of which will be concentrated in assets that suffered during the recovery, Michael Hartnett, BofAML’s chief investment strategist, said in a wide-ranging note looking at markets 10 years after the collapse of Lehman Brothers.
“The Great Bull Dead: end of excess liquidity = end of excess returns,” Hartnett said.

The liquidity reference is to central banks that have pumped in $12 trillion worth in various easing programs that have seen 713 interest rate cuts around the world, according to Merrill Lynch. Leading the way has been the U.S. Federal Reserve, which kept its benchmark interest rate anchored near zero for seven years and pumped up its own balance sheet to more than $4.5 trillion at one point.

All that stimulus has led to a 335 percent surge in the S&P 500 since the crisis lows.

But as the Fed and others end asset purchases and gradually raise rates, investors will have to brace for significant changes, Hartnett wrote.
In that climate, he advised investors to focus on “inequality, innovation and immortality,” that would benefit pharma companies and technology disruptors, along with inflation plays in commodities, value stocks, and markets outside the U.S. and Canada.

“The Fed is now in the midst of a tightening cycle, ignoring structural deflation, focusing on cyclical inflation,” he said. “Until this Fed hiking cycle ends we suspect absolute returns from financial assets will remain slim & volatile.”

The low interest rates and aggressive easing programs fueled a massive run-up in global debt — from $172 trillion pre-crisis to $247 trillion now. Chinese debt rose 460 percent to $40 trillion, global government debt is up 73 percent to $67 trillion, and total U.S. government debt has soared nearly 82 percent since the Sept. 15, 2008, implosion of Lehman, the flashpoint for a crisis that had been brewing for years.

Investors used to central bank largess are now underestimating the Fed’s resolve to normalize policy, Hartnett said. The central bank has raised rates seven times since December 2015 and is on track for two more hikes before year’s end.

Echoing concerns heard across Wall Street, Hartnett noted that additional increases could cause short-term government bond yields to eclipse longer-term rates, a condition known as an inverted yield curve that has preceded each of the past seven recessions.

“Yet the Fed is now saying ‘this time is different’ and a flat/inverted curve won’t stop them hiking,” he said. “A much more hawkish-than-expected Fed is the most likely catalyst for fresh losses across asset markets.”

There have been market disruptions that could get worse: Hartnett called cryptocurrency bitcoin the “biggest bubble ever” that has room for further losses.

The latest leg of the bull market has been fueled by last year’s tax cuts that also contributed to soaring corporate earnings along with a fresh round of share buybacks that is expected to eclipse $1 trillion this year. Buybacks have totaled $4.7 trillion since the crisis.

However, Harnett worries that the fiscal easing has contributed to “polarization” in markets that has seen U.S. performance surge and decouple from weakening global markets. The last two instances of significant fiscal stimulus ended with “currency overvaluation, domestic overheating, and massive schisms in global markets.”

Hartnett advises investors to watch bank stocks, which have pushed higher along with interest rates. If that relationship breaks down, it would signal a larger negative impact from Fed tightening.

In Defense Of Playing Defense (Part 3)

My Comments: On Wednesday I usually talk about Globla Economics. Today, however, I’m less concerned about emerging markets than I am the evolution of ideas that influence what is happening on Wall Street. Yes, it’s influenced by the hiccups we see in emerging markets globally but the political and economic forces at work in this country suggest the potential for something dramatic.

That’s a mouthful to absorb. What I hope you will get from these comments from Erik Conley is that being defensive right now with respect to your money is a good thing. I know I am with my money.

by Erik Conley, 9/18/2018

Summary
I lay out the case for playing smart defense in order to fill the hole that’s left open with the Buy & Hold approach.

When the stakes are high, it makes sense to have a contingency plan in place.

It is reasonable to expect that a solid Plan B could reduce the downside of these bear markets by at least 50%, which would have the effect of shortening the time it would take to reach one’s goals.

This idea was discussed in more depth with members of my private investing community, The ZenInvestor Top 7.

In part 1 of this series I posed the following question:
What would you do if you found out that your entire approach to investing was wrong? I said that this happens more often than you might think, and for a good reason. The investment advice industry, and the major financial media outlets, work hard to create the impression that the Buy & Hold method is far superior to any other approach that an investor can choose. But is this true?

In part 2 I closed with this thought:
The solution to managing risk with a B-H approach is to play smart defense. What’s that? My version is having a rules-based Plan B that is designed with one purpose in mind – shortening the amount of unproductive time that is wasted with a B-H approach.

Today in part 3, I will lay out the case for playing smart defense in order to fill the hole that’s left open with the B-H approach. Note that I’m not calling for anyone to abandon their B-H approach, especially if it’s been working well for them. What I’m proposing is adding a defensive piece to the B-H approach. Here’s how.

When the threat of a new recession, or a new bear market, is sufficiently high – turn to your Plan B.

Fans of the comedy show It’s Always Sunny in Philadelphia have come to know how the gang operates. After sitting around their (empty) bar and tossing around ideas about how to get people to come in and spend money, they finally agree on a Plan.

Each week the plan that the gang dreams up is more outrageous than the last one, and the plans never seem to work. What’s missing is that they never have a Plan B in case Plan A blows up, as it inevitably does. Maybe if they took the time and effort to make a backup plan, they could someday fill the bar with paying customers.

Here’s another couple of examples. Football coaches always have a Plan B ready to go if their original game plan isn’t working. Soldiers on the battlefield would never think about venturing beyond the compound without having a Plan B and a Plan C in place.

You get the idea. When the stakes are high, it makes sense to have a contingency plan in place. So what would a Plan B look like for a B-H investor?

Plan B. A rules-based, systematic procedure that is clear and concise – leaving nothing to chance.

Here are some of the steps that a B-H investor can take to manage downside risk.
• Sell your worst-performing holdings, and allow your best-performing ones to run. Review this monthly or quarterly.
• Set up news alerts on your main holdings. At the first sign of a regulatory body asking questions about accounting irregularities, misbehavior in the C-Suite, or a bad miss on an earnings report, sell first and ask questions later.
• If one of your companies announces a dividend cut, sell first and ask questions later.
• If you catch wind that the company may not be able to meet a loan recall, or roll over a line of credit, head for the door.
• If the company brings in a new CEO who has no experience in the business involved, leave quietly.
• If the CFO gives evasive or confusing answers to analyst questions on a conference call, sneak out the back door.

Macro signals
As I said earlier, recessions and bear markets are killers, especially when looked at from the perspective of time lost. The B-H promoters claim that there has never been a 20-year period in the market when investors lost money. This is true. But is it relevant? I think not, and here’s why.

We invest to grow our purchasing power. It’s that simple. But we don’t have an unlimited amount of time to accomplish this. There have been 4 really bad bear markets in the last century, and each one of them brought pain and suffering to investors. None of them suffered more than the true believers in B-H.

The investment business will tell you that bear markets are just part of the game, and if you are patient, you will recoup your losses in due time. This is another example of the mythology of B-H. It’s partly true, but it’s irrelevant. This approach requires you to sit back and watch as your life savings spend 10, 15, 20 years or more “under water.” When you finally get back to even, there is no getting around the fact that you have just wasted a significant amount of time getting to your ultimate goal, which is financial independence and security.

“Time is the one resource that can never be renewed. Once it’s gone you can never get it back.”

Major bull & bear markets throughout history
The table below shows all of the major bull and bear markets since the Great Crash of 1929. It shows what was happening at the time to cause the bear markets, the losses suffered by investors, the loss of time, the macro environment that was present during each event, and the bull market recoveries that followed.

According to my analysis, a B-H investor would have earned an average annual return of about 9.7% throughout this entire period. That’s not bad at all. But it would have taken much longer to reach her investing goals if she simply rode out all of the ups and downs along the way.

It is reasonable to expect that a solid Plan B could reduce the downside of these bear markets by at least 50%, which would have the effect of shortening the time it would take to reach one’s goals.

For example, an investor who used a simple moving average crossover system as a way to reduce equity exposure would increase their returns from 9.7% to 11.6% per year, over the entire time frame.

An investor who systematically avoided the worst parts of economic recessions, and the bear markets that accompany them, would have achieved an annual return of 12.22%.
And an investor who used both the recession warning model and the bear market probability model would have achieved an annual return of 14.10%.

The reason for these better outcomes is based on the fact that markets go through long periods of over-valuation and under-valuation, and an astute investor will pay attention to which environment is in play at all times. Today the market is somewhat overvalued, so it makes sense to reduce exposure to the riskiest parts of the capital markets.

Likewise, in 2003 and 2009, the markets were very undervalued, and it made sense at that time to increase exposure to the risky end of the market. This is not rocket science. It’s just common sense.

Everybody is a Buy & Hold investor until their account value starts going down.

Where do we go from here?

In the next installment, I will present a few options for playing smart defense. Moving average crossovers are one. Mean Reversion is another. Sector rotation is a third. They are all defensive strategies that can be part of a solid Plan B.

See you next time.

Note from TK: Read Mr. Conley’s original article HERE.