The End of File and Suspend for Social Security

(Congress Plans to Close Social Security “Loopholes”)

This week, budget legislation (Bipartisan Budget Act of 2015) passed in Congress to remove the ability for spouses to take advantage of the Social Security strategy commonly known as file and suspend. Previously, the file and suspend strategy allowed Spouse A, at full retirement age, to file and suspend their own retirement benefits to earn delayed retirement credits. This also allowed Spouse B to begin receiving a spousal Social Security benefit at that time (while earning delayed retirement credits on Spouse B’s benefits as well). The new law prevents a spouse from claiming a spousal benefit and later switching to their own benefit.

This strategy, often debated as a “loophole” by some, became possible in 2000, when Congress passed the Senior Citizens Freedom to Work Act. This allowed voluntary suspension of Social Security benefits for people who had already claimed, and then changed their mind and wanted to suspend them later.

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Beginning Retirement During Declining Markets

Retirement portfolios are generally intended to have withdrawals made regularly. These withdrawals provide the regular income necessary for a retiree’s living (and other) needs. However, when a multi-year downturn in the markets is combined with regular withdrawals, a retirement portfolio can deplete at a rapid pace.

The S&P 500 (a broad measure of large American business stocks) averaged a compound annual return over the last century of more than 9% (made up of the change in stock prices plus dividends). This long-term average has been remarkably consistent over long periods of time, but it is a poor predictor of returns over shorter periods of time. Let’s look at some examples to see why. Read the rest of this entry »

An Odysseus Agreement To Earn Buffett-Like Returns

In the Greek poem, The Odyssey, Homer illustrates an age old flaw in human nature. Odysseus, the hero, is warned by goddess Circe that when his ship is sailing by the island of the Sirens, the irresistible songs of the Sirens will lure him towards the island and destroy his ship.

The sirens are symbolic of the flaws and biases that seem to be a natural part of our brain’s chemistry. Homer suggests a solution to keep these flaws in check. To counter the allure of the Sirens, Odysseus orders his crew to tie him to the mast of the ship and to ignore his future pleas for release until they have passed the dangerous islands. Odysseus commits himself to a rational course of action at a neutral time to ensure that he does not get swayed by emotions during the time of distress. Read the rest of this entry »

Should I Adjust My Portfolio For Bad Governments?

History books are filled with examples of what can happen to investors under the direction of poor national governance. The real challenge is, once we are aware of poor governance, how do I respond as an investor?

Recent events have highlighted the potential for trouble in an investment portfolio. Commonly known as political risk, this may be any event triggered by a government’s executive, judicial or legislative decisions that has the potential to negatively affect the stock or bond holders of that country.

As international investing has become broader and more accessible to investors, these issues have become front-and-center questions for the average investor. A recent Economist article sought to quantify the impact of “bad governments” on that same nation’s investors, and cited some specific examples (Argentina, Iran, and Russia in this research) to study their impact relative to their global peers. Read the rest of this entry »

Will an Aging America Cause Lower Stock Returns?

The relationship between supply and demand is widely understood in economics. But does an aging America mean future stock returns will be lower as older Americans sell stocks for day-to-day needs in retirement?

Most economists I’ve spoken with on the matter in recent years have expressed concern about this very dynamic. It’s also a rational, simple explanation for several things. But while supply and demand are still present forces, this thesis makes a number of implied assumptions. The foremost being that baby boomers will be the only supplier of savings (capital) to the productive businesses that need it (in the form of stock purchases in the primary/secondary markets).  Read the rest of this entry »

“Market Volatility” Really Means “I Don’t Know”

What does the financial news media mean when they say, “brace for more market volatility”?

Over several decades in the investment business, I have consumed many thousands of hours of financial news from the likes of CNBC and Fox Business News. Over that same time period I have heard the term “market volatility” used ad nauseam by news anchors and Wall Street analysts in reference to every kind of investing situation. I would guess you have, too.

Here are several recent examples from a CNBC print article on their website Brace for More Market Volatility in the Second Half of 2013. http://cnbc.com/id/100848558

“Investors, buckle your seat belts. Markets in the second half could be driven by more volatility, though most strategists expect equities to ultimately end the year higher than their current levels.” Read the rest of this entry »

Same-Sex Couples May Now File Joint Income Tax Returns

The U.S. Department of Treasury and Internal Revenue Service have just established that several key income tax benefits previously only available to opposite-sex marriages are now available to those in a same-sex marriages as well.

Under the announcement (U.S. Treasury) and the rule (IRS), benefits now available include the ability to file a joint income tax return (which may cut your tax cost), but also increase the tax-free part of a couple’s estate for transfer to heirs (double an individual’s lifetime limit). Additionally, all the same income tax benefits that may come from filing a household income tax return are available, including deductions, exemptions and credits. Read the rest of this entry »

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