Tag Archives: financial advisor

About Your Money Market Fund

My Comments: We take them for granted. A place to park money that earns a little bit and can be used to buy stuff or used to invest somewhere else. If you’re bored by finance and economics, this post is not for you, even though it may affect your wallet along the way.

by Bob Bryan | October 15, 2016

On Friday, money market funds underwent a huge shift in how they will be regulated, resulting in a sea change for the $2.65 trillion money market fund industry.

Let’s recap quickly. Money market funds are mutual funds that invest mostly in short-term assets such as US Treasurys and short-dated corporate bonds with maturities under one year. These funds are generally thought of as safe, but yield low returns.

The net asset value [(market value of all of its shares – fund’s liabilities) / number of issued shares] of money market funds is designed to remain around $1, but should not go below. Only three money market funds have fallen below $1 in NAV, or “broken the buck,” the most recent in 2008. This caused a run on money market funds and contributed to the financial instability of the time.

To try to prevent this from happening again, the federal government passed regulations in 2014 that mandated changes to make these funds safer. Now all money market funds are required to maintain an average maturity for their assets of just 60 days, and the ratings criteria for the types of assets the funds can hold have increased as well.

The new regulations have made investors shift large amounts of money out of prime market funds, which invested in all types of short-dated assets, and into government funds which only invest in government debt. In fact, prime market funds have seen massive outflows.

“More than half a trillion dollars have fled the prime money market fund complex since this summer,” said Dominic Konstam, an analyst at Deutsche Bank. “In recent weeks, the pace of outflows has also picked up considerably – prime funds lost on average $60 billion of assets per week in September and an eye-popping $110 billion last week, with their total assets now below $500 billion for the first time.”

In total, more than $700 billion has flowed out of prime market funds, according to Barclays, since the reforms were announced, with much of it heading to government funds.

With fewer funds holding non-government short-dates assets, the liquidity in trading for things such as commercial paper and certificates of deposit have increased. With less liquidity, interest rates for near-term lending products such as the London Interbank Offering Rate, or Libor, have increased to their highest levels since the financial crisis.

This increase in Libor, however, may have run its course according to Konstam. The gap between the Federal Reserve’s fed funds rate and the Libor rate, which is used as a proxy of stability for the banking system and the benchmark for how expensive short-term leaning is, has tightened in recent weeks after exploding over the summer.

“Despite this, 3-month Libor and the Libor bases have been relatively well behaved during this stretch, and FRA/OIS spreads are actually now ~5 bps tighter from three weeks ago,” said Konstam.

“We are inclined to think that the midsummer Libor pain has fully run its course, and 3-month Libor could begin to set tighter against Fed expectations (OIS) after next week’s SEC money market reform deadline.

All in all, these changes aren’t going to impact retail investors very much and the long lead time has allowed many fund managers to make the shift in portfolios ahead of time.

Jim O’Connor, senior portfolio manager for money market funds at BNY Mellon’s subsidiary The Dreyfus Corporation, told Business Insider that most of his clients’ portfolios had been shifted away from prime funds well before the date of the regulation implementation and the only changes made in the run-up were to back-end maintenance.

The jump in rates such as the Libor, however, may impact some borrowers. Floating rate mortgages and other types of floating rate loans can be pegged to the Libor, thus as it increases the interest costs for those borrowers will increase.

The move has been a massive multi-year shift of billions of dollars, but for many investors it will likely not even move the needle.

Stocks Heading Toward A Healthy Cleanse

money mazeMy Comments: My thinking about a market crash is evolving. I think it’s much closer than it was six months ago. I think it will be relatively short lived. I don’t expect it to be as deep as the one that happened in 2008-2009. But it will happen, and for some of us, it will be painful.

by Eric Parnell, CFA | October 14, 2016

The stock market needs a good cleanse. A solid correction is just what the doctor ordered in working the market back toward some semblance of true fundamental health.

Many signs suggest that such a cleanse could begin to take place at any time now.

Any potential cleanse should be view with opportunity through the start of next year.

The stock market needs a good cleanse. Having become chock full of all sorts of toxins since the calming of the financial crisis so many years ago, a solid correction is just what the doctor ordered in working the market back toward some semblance of true fundamental health. Many signs suggest that such a cleanse could begin to take place at any time now.

In fact, one is long overdue. And for investors focusing on the short-term time horizon, any such stock market cleanse that begins to unfold in the coming week should be viewed as a potentially attractive buying opportunity for holding periods through the start of next year.

Feeling Sluggish
The U.S. stock market has been stuck in a sluggish trading range for far too long now. Despite all of the talk of new all-time highs, the S&P 500 Index (NYSEARCA:SPY) has effectively gone nowhere for the last two years since the end of QE3 in late 2014.

Along the way, it has endured a few corrections that have been unsettling for investors already fidgety about the fact that U.S. stocks are trading at historically high valuations and steadily declining earnings at a time when stock markets around the rest of the world have given way to the downside a long time ago now. In short, it has been a long and sleepless road over the past two years in generating flat-to-low single-digit returns at best on the headline benchmark U.S. stock index.

Nevertheless, the S&P 500 Index remains the leading major stock market on the planet given that supposedly there is no alternative (TINA) to owning U.S. large cap stocks. Thus, it is worthwhile to consider where we stand today and where we are likely to go next.

Put simply, the setup is hardly bullish for the S&P 500 Index as we progress through the final quarter of 2016.

First, the corporate earnings situation remains deeply challenged. The earnings outlook is critically important to the stock market, for it is the “E” in the all-important “P/E ratio.” Thus, if the “E” is shrinking, the stocks that investors own become increasingly more expensive even if the price is grinding nowhere. And such has been the case over the past two years since corporate earnings peaked in 2014 Q3, which is not coincidentally at the start of this sideways grinding period.

Indeed, while corporate earnings are expected to deteriorate even further for Q3 on an annual basis once the final numbers from the quarterly earnings season have been tallied, they are expected to gradually improve in the coming quarters thanks in large part to the gaping profit holes caused by the massive drop in oil prices back in 2014 and 2015 begin to roll off. But with stocks trading at historically high valuations at present, even an unlikely robust corporate earnings recovery will do little in bringing current valuations down from nosebleed levels.

Also, the technical outlook for the S&P 500 Index is looking increasingly like a market that is breaking down. At the moment, the S&P 500 is continuing to hold support at its previous all-time highs of 2134.72, but it has been increasingly testing this support level over the past month as well as the level below it at 2116.48 on the S&P 500 Index.

Given such a soft breakout induced almost purely by the post ‘Brexit’ euphoria in early July (huh? Sounds like something only liquidity-spraying central bankers could cook up), the fact that stocks are already repeatedly testing these previous resistance, now support levels is a bad sign for the ability of stocks to continue holding their ground.

Focusing in on the red box in the chart above, we see that a number of key technical readings are presenting a market that is increasingly wearing down. The S&P 500 Index has been steadily setting a sequence of lower highs since mid-August. And on Thursday, it managed to touch a lower low on an intraday basis for the first time since early September.

Over this same time period, the relative strength of the S&P 500 Index has been on the wane. Over the past month plus since early September, relative strength also switched over from consistently bullish readings steadily over 50 to bearish readings below 50.

Adding to the concern is the fact that momentum has been on a steady ski slope downward from strongly positive readings on the MACD in the immediate aftermath of ‘Brexit’ in early July to consistently in negative territory over the past month.

At the same time, money flow has been consistently fading from strongly positive readings in late July to marginally negative and trending lower today.

Time For A Detoxifying Cleanse

So the market appears to be heading toward a correction. But the first point to mention is the following. Just because it looks like the S&P 500 Index is headed toward correcting does not mean that it actually will. A characteristic that has repeatedly defined the post crisis U.S. stock market is that just as it looks like the bottom is about to go out from under the S&P 500, it somehow manages to find its footing time and time again to rally its way back higher.

As a result, we should not be surprised if we suddenly see the stock market regain its vigor once again and push its way back to the upside. After all, U.S. stocks had many of the makings of a market that was ready to fall into correction in August and September, yet here we are today still grinding along.

But suppose we do fall into cleansing period sometime over the next few weeks. What, if anything, should investors do about it? What magnitude of a correction should we expect? And how long is it likely to last before we see some relief?

In order to answer this question, it is worthwhile to reflect back on the stock market dating back over the past decade, nearly all of which includes the financial crisis period and its aftermath. In each of the past nine years, through both good years and bad, we have seen at least one correction of -5% or more take place during the period from August to December with the magnitude of the average correction coming in at around -10% excluding the fall of 2008.

Thus, a correction in the -5% to -12% range should not be ruled out in the next few weeks. It should be noted that at present, the S&P 500 Index is currently -2.5% below its recent highs, so today’s market would already have at least some of any potential near-term correction already baked in.

What is the most likely correction magnitude in the short term? Something in the -6% to -7% range overall should be considered likely. For a correction of this magnitude would bring the S&P 500 Index back to both its 200-day and 400-day moving averages, which is likely to provide support on any initial corrective move lower. Moreover, a correction in the range of -7% has historically been the pain threshold at which the U.S. Federal Reserve typically begins to relent with soothing words about backing off on any monetary tightening in the near term.

And given that the Fed has conditioned the markets to think that it will be raising interest rates in December, it is already armed and ready with the policy concession of backing off on this rate hike to get the U.S. stock market back into good cheer again.

And if such a correction were to unfold, exactly how long should we expect it to last? August to December corrections in recent history have tended to be sharper and shorter. And given that we are already late in the year in mid-October, it is likely that any correction that were to unfold over the next few weeks would likely be swift, which could end up being unsettling to investors, many of which may already be braced for the “big one” where the stock market finally falls and does not come back.

But for as prone as the market is to corrections during this time of year, so too is it inclined toward bouncing strongly following these sharp corrections. For example, the average rebound following these corrections over the past decade has been +12.6%. And the sharper the market corrects, the more meaningful the subsequent bounce higher. This even includes the period in 2008, as stocks rallied by +27% from mid-November through early January following the dramatic declines that came before in October and early November.

Seek To Benefit From Any Purifying Stock Market Experience

Thus, investors may be well served to actively seek to capitalize on any short-term correction in stocks in the coming weeks. If the correction is shallow – say we only see another -2.5% of downside from here in the next few weeks – expect the subsequent bounce to be shallow. And if the correction is more pronounced – suppose the market pulls back by -6% to -7%, or perhaps even -10% or more – expect the subsequent rally to be more profound.

For while the market may have serious challenges going forward from a long-term fundamental perspective, enough liquidity and policy firepower still exist in the system to restore its verve for a respectable bounce in the short term.

Anticipate that any such post correction bounce could last at least through late December and early January. This may be true even if the Fed does end up raising interest rates by 25 basis points in December. But once we begin to move solidly into the New Year, all subsequent bets about market direction are off, particularly if corporate earnings disappoint expectations between now and then, which is very much a possibility. Put more simply, the potential still looms large over the intermediate term to long term for the onset of a new sustained bear market at some point in time going forward.

America’s Economic Mess

retirementMy Comments: Like a pig going through a python, baby boomers represent a demographic with staggering economic implications. I’m on the front end of that demographic, and those of you behind me are coming to terms with the concepts of retirement and getting older.

It’s the primary reason we perceive there’s a change happening in our lives over which we have little or no control. And make no mistake, there is very little we can do about it. But it does help to have a better understanding of the dynamics involved.

By Ana Swanson | October 7, 2016

Ever since the financial crisis, the U.S. economy has grown at a stubbornly slow rate, far less than the 3 percent that was widely considered a sign of good health. This disappointing outcome — the Federal Reserve expects the economy to grow only about 1.8 percent this year — has been blamed by economists on many factors: the financial crisis in 2008, fiscal fights in Washington, Europe’s repeated debt crises, China’s slowdown and more.

But according to provocative new research from Fed economists, there might be a simple explanation for the slow growth — and there might not have been much policymakers could have done about it. If the new explanation is true, it might also explain why efforts to boost economic growth — including trillions of dollars in monetary stimulus and near-zero interest rates — haven’t worked that well.

In a new paper, the Fed economists argue that America’s slow economic growth and low interest rates might have been largely inevitable — and they might not have much to do with the 2008 financial crisis at all. Their main culprit: demographics.

The researchers — Etienne Gagnon, Benjamin Johannsen and David Lopez-Salido — created a model of the economy that shows how changes in births, deaths, aging, migration, labor markets and other trends have affected the U.S. economy since 1900. Using that model, they find that most of the decline in economic growth and interest rates since 1980 has been due intractable factors like the aging and retirement of baby boomers, lower fertility rates and longer life expectancy for Americans.

They find that these demographic changes account for a 1.25 percentage point decline in annualized economic growth since 1980, which is essentially all of the decline we’ve seen in that metric, according to some estimates.

What’s really remarkable is that we might have seen this coming. The macroeconomics effects of this kind of demographic transition “have been largely predictable,” the economists write in their paper. In fact, most of the relevant changes that have weighed on growth and interest rates took place before the 1980s.

The biggest drag on the economy has been the aging and retirement of America’s baby boomers, the researchers say. The boomers are by far the largest American generation on record, with 76 million people born between 1946 and 1964. They are substantially more numerous than the 47 million members of the Silent generation that preceded them, as well as the 55 million Gen Xers, the 66 million millennials and the 69 million post-millennials, according to Pew Research Center.

Their generation is so large that it’s easy to see their impact as they move through the American age distribution, as the chart below from the U.S. Census Bureau shows:

As the boomers reached working age in the 1960s and 1970s, they greatly drove up the supply of labor in the United States, and that in turn boosted economic growth and interest rates. The effect was especially strong because boomer women went to work in much larger numbers than their mothers did, due in part to the women’s rights movement and more readily available birth control.

The U.S. economy enjoyed the benefit of a demographic dividend, as the number of workers relative to the total population reached a historic high.

But the boomer generation also ended up having fewer children than their parents did. And as they aged and retired, they left fewer people in the American workforce, and that reduced the country’s economic output.

The aging and retirement of the boomers also put downward pressure on America’s interest rates, the economists say. Interest rates that stay low for a long time are a problem in that they indicate an economy in which growth is slow and there is little willingness to invest. Low interest rates also leave central bankers with little capacity to stimulate growth in the future by cutting interest rates.

The retirement of the baby boomers has meant that what economists call capital — machines, factories, roads and buildings — has become relatively abundant compared to labor. That has depressed the return investors receive for investing in capital, and led to our era of lower investment. And that in turn led to a fall in the interest rate. In line with their model, the real interest rate in the United States rose through the 1960s and 1970s, peaked around 1980s, and has gradually declined since then, the economists say.

In the last decade, the effect of these trends has become even more pronounced, they say, as more boomers have retired and effects of the IT boom have faded. And their model suggests that low interest rates, low economic growth and low investment are here to stay, since America’s working population is not set to grow much in coming decades. Other countries in Europe and East Asia, are undergoing similar transitions, with rapidly aging populations, too.

Because of the timing of this trend, the economists say, many have confused it with the lingering effects of the financial crisis. The financial crisis undoubtedly had a powerful effect on the economy. Actions like the massive bond-buying programs undertaken by central banks around the world to lift their economies are powerful, too. But both may pale in comparison to the economic power of demography.

Source article: https://www.washingtonpost.com/news/wonk/wp/2016/10/07/theres-a-devastatingly-simple-explanation-for-americas-economic-mess

How To Explore The World On Social Security Income Alone

My Comments: Let me know how this works for you…

Suzan Haskins and Dan Prescher – 09/06/2016

Sometimes it just pays to retire overseas … not only can you live much more affordably overall, but you can treat yourself to experiences you might not have access to or be able to afford at home …

One of the biggest advantages we’ve discovered in our 15 years of living overseas is the constant availability of travel and adventure … and a big benefit is how remarkably little it costs.

We’ve written before about the low cost of bus travel in Ecuador, where we live. For about $2.50 we can travel by bus from our home in Cotacachi in northern Ecuador to the capital city of Quito, two hours to the south. If we want to hire a private driver, we’ll typically pay $50 to $60 for that. Domestic airfares are low, too. You’ll rarely spend more than $50 to $70 to fly anywhere in the country.

So if, on a whim, we want to take a weekend junket to the city…or to the Amazon basin and one of Ecuador’s many rainforest lodges, or to a Pacific coast beach town … we can do that both easily and affordably.

Case in point … a few weekends ago, we took a Sunday trip — from 7 a.m. to 6 p.m. — to visit a national park in Ecuador’s Carchi province that’s home to one of the most unique ecosystems on the planet.

This tour cost just $25 apiece. (The U.S. dollar is Ecuador’s official currency, in case you’re wondering.) This included our transportation and driver/guide. We spent another $10 for our park entry and our eco-guide.

Along the way, we stopped for a breakfast of grilled cheese toast, eggs, fruit, yogurt and granola, coffee, and fresh-squeezed juice — just $4. Lunch was a choice of fresh-fried trout or grilled chicken with salad, rice and potatoes, more delicious juice, coffee, and homemade ice cream for dessert. The grand total for that feast was just $6 apiece.

Of course, just living outside the U.S. can be a daily adventure for a couple of U.S. Midwesterners like us, and we suspect the same is true for most North Americans we know who have moved abroad. But the opportunity to spend the day or weekend visiting someplace amazingly exotic and seeing something that you’ve never seen before … often right on your doorstep and often for less than the price of a fancy dinner back home … sets the adventure bar pretty high for us.

This most recent adventure took us up into the high-elevation Andes Mountains to explore an ecosystem that only exists between 11°N and 8°S latitudes, mostly in the northwest corner of South America. It’s called the páramo, and it’s a kind of alpine tundra that exists between 9,000 to 15,000 feet above sea level … from down where the trees start to get weird and stunted up to where the permanent snow line starts and almost nothing grows.

In Ecuador’s El Angel Ecological Reserve, the local páramo is an amazing wetland thanks to a convergence of air currents that brings fog and rain almost daily. A two-hour walk through the park takes you through two of the three main zones of a páramo ecosystem—first a walk through a stunted, twisted, shaggy barked forest of polylepis trees, some of the slowest-growing trees in the world—trees that only grow at high elevations. Climbing up, the forest soon gives way to a zone of grasses and stunted frailejones, a plant that looks like a cross between a dwarf palm tree and a cactus.

We thankfully didn’t walk up into the third zone of the paramo up near the snow line…but we could see it high above us.

Aside from the fact that the páramo only exists in very few places on the planet, it is even more special because, here in Ecuador, it forms a kind of huge geological sponge. The plants and soils trap the constant upper-altitude rain and fog and release it slowly into streams and rivers that flow down into Ecuador’s Andean valleys, supplying much of the fresh water for entire regions of the country.

In fact, there are places in the El Angel Ecological Reserve that look like broad, grassy avenues—a kind of Alpine mirage. Beneath the pathways, underground waterways flow through fine sandy mud…you can jump on the ground and feel it quiver and shake as though you’re walking on a sponge.

The opportunities to visit places like this in Ecuador are legion thanks to the little country’s geography and latitude. The Andes Mountains run right down Ecuador’s spine, from north to south. From the beaches at sea level on the Pacific coast, the country rises eastward to some of the highest mountain peaks on the planet before descending again into jungles from which spring major headwaters of the Amazon River basin.

The diversity is incredible, which makes for some really diverse and amazing opportunities to visit places unique on the globe. And luckily for us, it’s more than affordable to explore Ecuador. It’s easy enough to find comfortable hostels — yes, with private bathrooms — for anywhere from $20 to $40 a night, breakfast included. And you can spend more for more luxurious digs with all meals and tours included.

This isn’t just true of Ecuador, of course. Expats living overseas all have a world of such adventures to choose from. In eastern Mexico, the ruins of the entire northern Maya empire are day trips apart…and they sit atop an amazing geographical region of underground rivers and cenotes to explore. In Belize, the second-largest reef system on the planet lies just a few hundred yards offshore. In Costa Rica, a significant portion of the entire country is national parkland with some of the most bio-diverse flora and fauna anywhere.

The list of amazing places that expats have access to is as vast and diverse as the places they settle. It’s part of what makes retiring overseas such a worthwhile experience … it can be easy and affordable to indulge your inner explorer.

Social Security Tips For Working Retirees

SSA-image-3My Comments: Again, more useful insights about the Social Security benefits system. Even if you consider yourself already retired, understanding the ins and outs of the Social Security program might be very helpful to you. Reach out to me if you are still confused.

Fidelity Viewpoints – 04/20/2016

Do you plan to work in retirement? If so, you need to be aware, if you’ve begun taking Social Security benefits, of how your Social Security income may be taxed—and the earned income thresholds that determine the level of your taxes and any reductions in benefits.

Thirty-seven percent of people in a recent AARP survey indicated that they plan to work either full time or part time during retirement. Why? In addition to the financial benefits, many older workers find that a job can add valuable structure to their day and provide the mental stimulation that comes from interacting with co-workers, clients, and other work associates.

Among those who plan to work in retirement out of financial necessity, a survey by the Transamerica Center for Retirement Studies found 43% expected to use the money to cover essential expenses, 37% to pay for health care, and 20% to save more for retirement.

Whatever your reason for considering working in retirement, it’s a good idea to know how doing so will affect your Social Security benefits and your tax bill. Here are the facts plus some strategies to consider.

Temporary benefit reductions for earned income

Note that “earned” income includes wages, net earnings from self-employment, bonuses, vacation pay, and commissions earned—because they are all based upon employment. Earned income does not include investment income, pension payments, government retirement income, military pension payments, or similar types of “unearned” income.

The earliest age at which you are eligible to claim Social Security benefits is 62. If you claim your benefits and continue to work, there is an earnings restriction until you reach your full retirement age (FRA) of 66. If you have earned income in excess of $15,720 in 2016, your benefits will be reduced by $1 for every $2 of earned income over the $15,720 limit.

If you reach your FRA during 2016, the limit for earned income rises to $41,880 and the benefits reduction is $1 for every $3 earned over the limit until the month you reach your FRA. After that, there are no earnings limits and no benefit reductions based upon earned income.

For example, if your monthly benefit was $2,000, here is how much your benefit would be reduced for various levels of earned income at certain ages:

Income tax implications

Social Security benefits are subject to federal income taxes above certain levels of “combined income.” Combined income consists of your adjusted gross income (AGI), nontaxable interest, and one-half of your Social Security benefits. (See: “Income Taxes And Your Social Security Benefits ,” for more information.)

For individual filers with combined incomes of $25,000 to $34,000, 50% of your Social Security benefit may subject to federal income taxes. If your combined income exceeds $34,000, then up to 85% of your Social Security benefits could be taxed.

For joint filers with combined incomes of $32,000 to $44,000, 50% of your Social Security benefit may subject to federal income taxes. If your combined income exceeds $44,000, then up to 85% of your Social Security benefits could be taxed.

Regardless of your income level, no more than 85% of your Social Security benefits will ever be subject to federal taxation.

Additionally, 13 states also tax your Social Security benefits. The rules and exemptions vary widely across this group so it is wise to research the rules for your state or consult with a tax professional if this affects you.

Social Security and Medicare taxes

In addition to federal and possibly state income taxes, you will pay Social Security and Medicare taxes on any wages earned in retirement. There is no age limit on these withholdings, nor any exemption for any sort of Social Security benefits status.

The good news is that these earnings can also count toward the calculation of your benefits: Social Security checks your earnings record each year and will increase your benefit, if appropriate, based on these additional earnings.

What if you are making much less in retirement than before? Could it hurt your benefits? The answer is no, because the benefit payment is still based on your 35 highest years of earnings. At worst, there would be no impact; at best, it could help if this replaces any of the lower 35 years.

The big decision: When to claim Social Security

When to claim Social Security benefits will be one of the most important decisions that you make regarding your retirement, along with how to take retirement income from your various retirement accounts and how you will fund your health care needs in retirement. The following chart shows the difference for someone turning 62 in 2016. Let’s assume his or her annual salary at retirement is $100,000. The first set of numbers on the chart shows the benefit amounts he or she would receive by claiming at various ages.

The bottom row of the chart expresses the differences as a percentage of the benefit amount received by claiming at your FRA for someone born in the years from 1943 to 1954.

A change in the rules in late 2015 closed the door on the popular claiming strategy for couples that allowed one spouse to file and suspend his or her benefit while the other spouse files a restricted application for a spousal benefit based on the first spouse’s earnings record. This option ended as of April 30, 2016.

You should also be aware of a special rule for the first year of retirement. This rule allows you to get a full Social Security check for any whole month you’re retired, regardless of your yearly earnings. This helps people who retire in midyear or later who have already earned more than the annual earnings limit.

Going back to work—meet James

In our hypothetical example, James, age 64, retired at 62 from a plumbing supply company in the Chicago area, and claimed Social Security benefits as soon as he was eligible, at 62. James misses not having some structure in his day. He loves home improvement and helping people, so he found a job at a big box retailer. His wife, Arlene, age 61, is still working part time. Both have FRAs of age 66.

Three Social Security options for James to consider

1. Social Security do-overs are allowed within 12 months of commencing benefit payments. In James’s case, he missed this window for a do-over. You are allowed one lifetime do-over, or withdrawal of benefits, and you must repay all benefits received. This includes, in addition to your own benefits, any benefits received by other family members based upon your earnings record, whether or not they are living with you; any monies withheld for Medicare payments; and any garnishments that may have been withheld from your benefit payments. When you resume benefits at a later date, they will be at the starting amount for your age and earnings record at that new time.

2. Suspending your benefit is allowed once your reach your FRA. James can do this when he turns 66 if he chooses. The advantage is that his benefit will be suspended at the level at the time of suspension, and it can now grow until he resumes taking it at any point up until age 70, when it reaches its maximum level. The advantage for James is the accrual of delayed retirement credits, which will result in a higher benefit level when he resumes his benefit. However, he will pay taxes on earned income. Under the new rules, once James suspends his benefit, no one, including his spouse, can receive a benefit from his earnings record.

3. Filing a restricted application. Since Arlene did not turn 62 prior to December 31, 2015, she would not be eligible to file a restricted application for a spousal benefit based upon James’s earnings record once she reaches her FRA, to allow her own benefit to continue accruing. She would have to choose between filing a spousal benefit or her own benefit when she files. This might be advantageous for the couple, and could provide a reason for James to continue drawing his benefit.

Benefits of working longer

Working into retirement can help in your retirement planning, especially if your savings are running a bit behind your goals. Continuing to work allows you to keep building retirement savings. If you meet the eligibility requirements, you can contribute to a 401(k) or other tax-deferred workplace savings plan, a health savings account (HSA), and an IRA, even if you are collecting Social Security. You can also make catch-up contributions, which enable you to set aside larger amounts of money for retirement. The combination of the added savings, tax-deferred growth potential, the ability to delay claiming Social Security benefits, and the ability to defer tapping into your savings can be powerful, even at the end of your working career.

We’re Issuing a Formal Alert: Something Major is Coming in the Markets

My Comments: I know, I know, I said the worm had turned. Well, maybe not.

Phoenix Capital Research/Sep 29, 2016

Time for a reality check.

The market has had nothing but positives for three months now. BREXIT was contained. The Fed failed to raise rates again. The Bank of Japan and European Central Bank are printing a combined ~$180 billion per month (a record pace) and using it to prop the markets up.

And stocks are DOWN. While the bulls and CNBC shills talk about the markets like they’re in some incredible rally, the fact is that the S&P 500 peaked in mid-August. And if you want to go back further it’s gone absolutely NOWHERE since July 9th.

Seriously, if you cannot manufacture a roaring rally with follow through on the last three months’ worth of news, you’re not going to manufacture one ever.

Indeed, Central Banks have never been more aggressive in their easing.

1. Two of world’s FIVE major Central Banks (ECB and BoJ) are printing $180 billion per month and giving it to the banks.

2. One of the FIVE (the Swiss National Bank) is openly BUYING stocks outright.

3. Another of the FIVE (the Bank of England) just cut rates and announce a new QE program.

4. The last of the FIVE, and the only one that is supposed to be tightening policy (the Fed) hasn’t raised rates in nine months and will not do so until December at the earliest.

And the bulls can’t get it done. So… what do you think is coming next?

Here’s how bruised bears should approach this resilient stock market

bear-market-bearMy Comments: I’m facing increased criticism for preaching woe and gloom. In spite of a 24 month rain dance to herald the start of a storm, the sky is still clear, if a little overcast. Maybe it is different this time.

That being said, it’s time to stop with the woe and gloom and focus instead on steps to take advantage of the situation. As a friend pointed out yesterday, this stuff cycles and, yes, there will come a bad downturn, and you will be declared right. Meantime, you miss out on all the good stuff and end up stiffing your clients.

So… how do we set ourselves up to be successful? Here’s a start.

by Anora Mahmudova | Published: Sept 27, 2016

It is perfectly fine to be pessimistic about future stock market returns, as long as you’re prepared to think outside the box when it comes to seeking out safe investments, analysts said.

There is no shortage of scary charts and lousy fundamentals that point to equities being risky. But they rarely, if ever, can be used to pinpoint a market top. Indeed, bold bearish calls continue to get rebuffed in this long-running bull market.

Recall that in early January, RBS analysts made their highly publicized call to “sell everything except high quality bonds”.

Barely a month later, when the S&P 500 SPX, +0.64%  dropped to multiyear lows to mark a third correction in less than two years, it seemed the call would be vindicated. But after nine months, it is apparent that heeding it would have been costly as markets soon rebounded and then rallied to records.

Valuations are above historical averages and earnings growth has deteriorated over the past two years—all suggesting that, in the long term, returns are going to be low.

Wouter Sturkenboom, senior investment strategist at Russell Investments, said the current environment has been among the most trying he can recall for market bears.

“Normally, if you feel bearish about the stock market you would be looking for safe bets but right now, all the traditional safe bets are no longer safe,” Sturkenboom said, in an interview.

Even bonds, which tend to rally when things get gloomy, aren’t a reliable wager.

“Bonds are overvalued, which makes exposure to duration risky if inflation rises even by a bit,” he said.

Duration is a measure of the sensitivity of a bond’s price to a change in interest rates. Bonds with higher duration carry more risk.

The first step investors should take now is to accept that future returns will be low, said Michael Batnick, director of research at Ritholtz Wealth Management.

“Stocks are expensive on every metric you take and that means that future returns will be lower. Investors should simply accept it and act accordingly, which means saving more,” he said in an interview..

“The idea you can take lower returns and turn them to get higher returns by timing is ruinous for average investors. It doesn’t work for the vast majority of investors. Even if you knew with precision how much earnings will be next year, you won’t know what multiple millions of investors are going to pay,” he said.

While pessimism about returns is pervasive, there are still ways to invest and build wealth.

Both Batnick and Sturkenboom advocate adding assets with lower valuations while trimming exposure to expensive U.S. large-cap equities.

“For investors looking for safety bets, they should think outside of the box. Safety now comes in cheap valuations and there are several assets that could fit the bill out there,” Sturkenboom said.

Among assets that Sturkenboom prefers are Spanish and German real-estate investment trusts, gold ETFs, Treasury inflation-protected securities, or TIPS, and cash.

While cash gives investors the option to swoop in and sweep up bargains when the market tanks, it requires patience as big drawdowns are rare events, Sturkenboom said.

“Cash is good if you are tracking markets and can deploy it quickly. The past three years have been disappointing for those who held cash and were unable to buy at corrections, because they were very short-lived,” he said.

“But in the current environment it is still worth it to keep cash for the eventual 30%-40% drawdown, the likelihood of which is pretty high over the next three years,” he said.

Batnick is a fan of rules-based planning: “You have to have a plan and stick to it. Allocate to markets that are cheap on relative and absolute terms, but don’t try to wing it,” he said.

“Building wealth through investing in the stock market requires a lot of pain. There will be big drawdowns. But more money has been lost by trying to avoid drawdowns than by staying invested,” Batnick said.