The Future of Social Security & Medicare

Each year, the Trustees of the Social Security and Medicare Trust Funds release lengthy reports to Congress that assess the health of these important programs. In the latest report, Social Security's total cost is projected to exceed its total income (including interest) in 2020 and remain higher for the next 75 years. The U.S. Treasury will need to withdraw from trust fund reserves to help pay benefits. The Trustees project that the combined trust fund reserves (OASDI) will be depleted in 2035, one year later than projected in last year's report, unless Congress acts. Continuing reading for more highlights and what it all means.

The Fed Hits the Brakes: No Rate Hikes Projected in 2019

At its meeting on March 20, 2019, the Federal Open Market Committee (FOMC) maintained the benchmark federal funds rate at the target range of 2.25% to 2.50% that was set in December 2018. This in itself was not surprising. But other communications signaled a definite hiatus in the Fed's policy of raising interest rates and tightening the money supply. What does this mean for the U.S. economy and the stock market?

The Cost of Income in Retirement – Medicare Edition

Retirement income planning is typically more complicated than what first meets the eye. It’s not very difficult to plan gross income. However, planning for taxes and medical expenses is a moving target. One often missed item of consequence are Medicare Part B premiums. The higher your adjusted gross income is, the higher the premiums deducted from your Social Security will be.

Sequence of Return Risk

Risk of total loss in a portfolio increases significantly when withdraws are being made during loss years. Risk is dynamic, difficult to measure and often misunderstood. In retirement it’s important to consider sequence of return risk. Sequence risk is the risk of lower average long-term returns or even total loss, because of taking withdrawals during negative return years. Read on to get a visual explanation and solution to this problem.

Opportunity Zones

Tax planning is difficult in those years you expect to recognize unusually high amounts of income in a single tax year. Whether you are selling a business, real estate of even stocks with high amounts of gain, large injections of taxable income can push you up into the highest tax brackets, causing you to pay twice as much as you would have paid if you could spread the tax out. There is a new solution to deferring taxes on these transactions, they are called Opportunity Zones.

Is the Stock Market Expensive?

Stock market history continues to repeat itself by proving to be completely unpredictable. Timing the market is hard, if not impossible. The best investors in the world have all made mistakes and taken significant losses at some point in their careers. So why exactly is the market so hard to time? Is the market expensive? Are we in for a market crash? TV experts will use the CAPE ratio to value the stock market and predict the next crash. What is the CAPE ratio and how reliable is it in predicting future market behavior?

Annuity Strategy for Modern Planning

For decades annuities have been one of the most polarizing topics in the retirement community. I was always warned to stay away from annuities because of their high costs, long surrender schedules and “smoke-and-mirror” features. About 10 years ago I was introduced to an annuity that would change the way I look at them, well at least some of them. Most annuities do deserve caution tape, but if you use the right ones in the right way they can have a positive impact on a retirement portfolio. I’m going to explain what to look for and how to use them.

Incentives For Achieving That Summer Body?

As summer quickly approaches we all see the increased ads for getting that summer body bathing suit ready.  Now, the target for these ads of course is to sell diet programs, gym memberships, and appeal to the psychology of self-image to make you act now!  What if I told you there is a financial advantage to maintaining a healthy physique?

The Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act legislation was signed into law on December 22, 2017. The Act makes extensive changes that affect both individuals and businesses. Some key provisions of the Act are discussed below. Most provisions are effective for 2018. Many individual tax provisions sunset and revert to pre-existing law after 2025; the corporate tax rates provision is made permanent. Comparisons below are generally for 2018.

Individual income tax rates

Pre-existing law. There were seven regular income tax brackets: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.

New law. There are seven tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. These provisions sunset and revert to pre-existing law after 2025.

Portfolio Insurance - How to Protect your Investment Portfolio

If you are like most investors you probably have a long position in the stock market. Your portfolio goes up and down with the market. Your investment returns are relative to stock market returns and probably adjusted for some risk measurement like volatility based on your age and risk tolerance. If this is the case you have probably experienced some nice gains with your investments over the past few years. After all, we are technically in a 9-year bull market!

Today the markets are considered to be expensive and by most measurements, they are. For example, the S&P 500 has a cyclically adjusted price-earnings ratio of 30.05 as I write this. The long-term average is 16.77 and a year ago it was at 26.69. Only 3 times in market history has the S&P 500 been this expensive based on that measurement.

That doesn’t mean they won’t remain expensive for years to come, but many investors are looking for ways to minimize their losses if markets do “revert to the mean” and drop back to historical averages. There are several ways to do this like moving your investments to cash or selling short, but who wants to do that?

Luckily there are ways to protect your portfolio without having to sell your current investments. After-all, we want to keep our good investments for long periods of time and remove “timing” risk from our portfolios as much as possible. This is why I want to show you how buying “puts” on an index or an S&P exchange traded fund like SPY can reduce your portfolio losses when markets go down while allowing you to keep your favorite investments for the long run.

What are Exchange Traded Funds?

Exchange-traded funds (ETFs) have become increasingly popular since they were introduced in the United States in the mid-1990s. Their tax efficiencies and relatively low investing costs have attracted investors who like the idea of combining the diversification of mutual funds with the trading flexibility of stocks. ETFs can fill a unique role in your portfolio, but you need to understand just how they work and the differences among the dizzying variety of ETFs now available.

What is an ETF?

Like a mutual fund, an exchange-traded fund pools the money of many investors and purchases a group of securities. Like index mutual funds, most ETFs are passively managed. Instead of having a portfolio manager who uses his or her judgment to select specific stocks, bonds, or other securities to buy and sell, both index mutual funds and exchange-traded funds attempt to replicate the performance of a specific index.

However, a mutual fund is priced once a day, when the fund's net asset value is calculated after the market closes. If you buy after that, you will receive the next day's closing price. By contrast, an ETF is priced throughout the day and can be bought on margin or sold short--in other words, it's traded just as a stock is.

Common Social Security Myths

Myth: Social Security will provide most of the income you need in retirement.

Fact: It's likely that Social Security will provide a smaller portion of retirement income than you expect.

There's no doubt about it--Social Security is an important source of retirement income for most Americans. According to the Social Security Administration, more than nine out of ten individuals age 65 and older receive Social Security benefits.

 

Proceed With Caution Before Relying on General Retirement Rules

When investing for retirement, you're likely to hear a lot of well-meaning guidance from family, friends, and others offering advice--even the media. As you weigh the potential benefits of any commonly cited investment rules, consider that most are designed for the average situation, which means they may be wrong as often as they're right. Although such guidance is usually based on sound principles and may indeed be a good starting point, be sure to think carefully about your own personal situation before taking any tips at face value.

Following are several general retirement investing rules and related points to consider.

Pay yourself first

It's hard to argue with this conventional wisdom, which helps make saving a habit. To determine how much you may be able to save and invest, develop a written budget. In this way, you can assess how much discretionary income is available after other necessary obligations are met.

If finding extra money to save is difficult, track every dollar you spend for a week or two to see where your money goes. You may surprise yourself by identifying several areas where you can cut spending.

Better yet, most employer-sponsored retirement savings plans help you pay yourself first through payroll deductions. This is perhaps the easiest way to save money. Having the money automatically deducted from your paycheck and invested in your plan eliminates the temptation to spend before you save.

Your stock allocation should equal 100 (or 120) minus your age

A widely accepted retirement savings principle states that the younger you are, the more money you should put in stocks. Though past performance is no guarantee of future results, stocks have typically provided higher returns over the long term than other commonly held securities. As you age, you have less time to recover from downturns in the stock market; therefore, the principle states, as you approach and enter retirement, you should invest some of your more volatile growth-oriented investments in fixed-income securities such as bonds.

What do I do with my old 401(k)?

If you've lost your job, or are changing jobs, you may be wondering what to do with your 401(k) plan account. You may even have an old 401(k) with a previous employer, either way It's important to understand your options.

What will I be entitled to?

If you leave your job (voluntarily or involuntarily), you'll be entitled to a distribution of your vested balance. Your vested balance always includes your own contributions (pretax, after-tax, and Roth) and typically any investment earnings on those amounts. It also includes employer contributions (and earnings) that have satisfied your plan's vesting schedule.

In general, you must be 100% vested in your employer's contributions after 3 years of service ("cliff vesting"), or you must vest gradually, 20% per year until you're fully vested after 6 years ("graded vesting"). Plans can have faster vesting schedules, and some even have 100% immediate vesting. You'll also be 100% vested once you've reached your plan's normal retirement age.

It's important for you to understand how your particular plan's vesting schedule works, because you'll forfeit any employer contributions that haven't vested by the time you leave your job. Your summary plan description (SPD) will spell out how the vesting schedule for your particular plan works. If you don't have one, ask your plan administrator for it. If you're on the cusp of vesting, it may make sense to wait a bit before leaving, if you have that luxury.