Investment Philosophy

Our Investment Recommendation to You and Your Family

After you have established appropriate cash reserves, invested in money market funds or municipal bonds, we will recommend that you pay down, or better yet, eliminate personal debt.

We will recommend that you invest long-term assets in shares of large, profit-motivated, rationally run, multi-national companies.  Although the future is unknowable, and certainly unpredictable, the investment return to you, from ownership in these companies, should be greater than return from other savings programs.  We expect, but do not know, that the fluctuation in value of your investments in these companies will be significant.  We also expect the fluctuation to be temporary.  A significant part of Our Service to you, and your family, is to encourage you to invest as large a portion of your assets in these companies as you can tolerate.  Then, Our Service to you, and your family, is to encourage you to maintain your investments in the shares of these Great Companies during market downturns.

Only by maintaining your investment during market downturns can you realize the long-term rewards as an owner of the great companies of America and the World.  Read our General Investment Disclaimer.

The following are recent articles that expand on our Investment Philosophy. Please use the search function on your right for older articles.

The Decade In Review: 2010-2019

Every January, I send my clients a letter titled The Year in Review, where together we look back at the year that was.  What were the highlights?  What were the “lowlights”?  What did we learn?

But this January doesn’t just mark a new year.  It marks the beginning of a new decade.  (Unless you are a strict observer of the Gregorian calendar system, in which case the next decade begins in 2021.  But I digress.)  So, for this letter, we’re going to look back at what shaped the markets in the 2010s – and what lessons we should take with us into the ‘20s.

2010-11: Aftershocks of the Great Recession

The best way to see how much can change in a decade is to remember how things were at the end of the last one.  In 2010, we were coming off the worst decade for stocks since the 1930s.  The Great Recession had devastated the retirement savings of millions of people.  Many of the world’s most famous financial institutions had collapsed.  And the national unemployment rate was near 10%.1

It was a scary and uncertain time.  Many investors had fled the markets entirely by 2010, some for good.  As a result, they missed a remarkable recovery that was just around the corner.  Not only that, they missed the longest bull market in history.

In hindsight, it might seem obvious that there was nowhere to go but up.  But just as the start of a recession is very hard to see coming, the ending can be equally hard to wait for.  People can be forgiven for thinking the worst was still to come, because in 2010 and 2011, there were still a lot of ominous headlines to deal with.  Remember any of these terms?

Sequestration   ●   U.S. Debt Ceiling   ●   European Debt Crisis ●   Bailouts   ●   Austerity   ●   The Fiscal Cliff

For the first few years, fear abounded as to whether the global economy would be able to recover at all.  Nation after nation dealt with spiraling debt that couldn’t be paid off.  Remember how often Greece used to be in the news?  Some analysts speculated about the possibility of a second recession. 2011 was an especially tenuous year for the stock market, especially when the United States’ credit rating was downgraded for the first time in history.

2012-14: The Federal Reserve intervenes

During this time, however, the world’s largest central banks were working behind the scenes to keep the recovery going.  In the United States, for example, the Federal Reserve embarked upon a massive bond-buying program, to the tune of $85 billion per month.  This accomplished two things.  First, it flooded the money supply and kept interest rates historically low.  Lower interest rates made borrowing less costly, which meant businesses and individuals could borrow and spend more, thereby pumping more money into the economy as a whole.  This, of course, equaled growth.  Slow growth, but growth nonetheless.

The second thing the Fed’s bond-buying did was drive more investors into stocks.  Low interest rates often lead to lower returns for fixed income investments, so it was into the higher risk, higher reward stock market that investors went.  All this had been going on for years, but the results were only then becoming apparent.  So, it came almost as a surprise when the markets reached new highs, even though the economy still seemed to be licking its wounds.  It was in mid-2013 that the Dow hit 15,000 for the first time, rising to 16,000 by the end of the year, and then 17,000 the year after.

2015-16: Waiting for the other shoe to fall

But that didn’t mean the markets were immune to volatility.  Despite the economic recovery, many experts spent the decade in near-constant fear of another bear market.  Every wobble, every market correction, was watched with fearful anticipation.  It was like standing next to someone’s hospital bed, thinking every next breath will be their last.  Some of this was probably a form of post-traumatic stress caused by the Great Recession.  The rest came from the spasms of an ever-changing world.

Oil prices plunged dramatically around this time, hurting both oil-producing nations as well as the energy industry.  China’s stock market crashed.  The Greek debt crisis reared its ugly head again, prompting fears that “financial contagion” would spread and create another global recession.  And then came Brexit.  The news that the United Kingdom would leave the European Union sent shockwaves around the world.  And here at home, one of the most bitterly contested presidential elections in U.S. history had both sides of the political aisle forecasting economic ruin if the other side won.

But despite the dire predictions, these developments only slowed the recovery’s march rather than derailing it completely.  In fact, by July of 2016, the Dow once again hit new heights.

2017-19: The longest bull market

While most of the decade had seen slow-but-steady growth, the horse started picking up speed as it neared the finish line, buoyed by tax cuts, increased government spending, and corporate earnings.  Nowhere was this truer than with the Dow.  Comprised of thirty of the largest publicly-traded companies, the Dow hit 20,000 for the first time early in 2017 – and closed well above 28,000 on December 31, 2019.2

Exactly ten years before, the number was only 10,428.  That’s an increase of over 170% - the culmination of the longest bull market in history.

Of course, it wasn’t all smooth sailing.  The trade war with China is an ever-present concern, with rising tariffs often leading to brief, but dramatic downswings in the market.  2018 was actually a down year for the S&P 500, the only one of the decade.  And as the 2010s drew to a close, many economists warned of a slowing economy – with maybe even a mild recession in store.

Despite these warnings, investors did what they had done for most of the decade: Act startled, and then head right back into the markets.  Some pundits call it a market “melt-up” instead of the usual meltdown.

What have we learned?

So.  A remarkable decade filled with twists and turns.  But what did we learn? 

When I looked back at the last ten years, one thing that struck me was how interconnected the world has become.  So many of the storylines that drove the markets originated far beyond our shores.  We truly live in a global economy.  We invest in other countries, buy products in other countries, loan money to other countries (or apply for loans, as the case may be) and trade with other countries.  We might be separated by the world’s biggest ponds, but the ripples near one shore are always felt near the other.

That means two things.  One, for an advisor like me, it means there’s more than ever to keep track of.  But two, it means we should react less and less to the headlines of the day – or to each individual ripple.  A butterfly might flap its wings in Beijing and cause a hurricane in Topeka, as the saying goes, but there are butterflies flapping their wings everywhere.  That’s one reason why we saw many storms but fewer hurricanes in the 2010s.

Another thing we learned?  Sometimes, most times, slow and steady really does win the race.  We were all taught the truth of this as children when we learned the story of the tortoise and the hare.  The past decade proved it.  Everyone loves growth that comes fast and hot.  But when something burns fast and hot, it tends to burn out faster, too.  One reason we never saw the recession so many people feared is because the economy recovered as slowly as it did.  It’s a lesson we can apply to our own financial decisions.  While it’s always tempting to chase after windfalls and jackpots, it’s so much smarter to prioritize steady progress over short-term whims.  The race to your goals is a marathon, not a sprint.

A third thing we learned is how often things don’t go as predicted.  In 2010 and 2011, many experts predicted a gloomy decade for the stock markets – and they had good reason to think so!  But it didn’t happen.  When, say, Obamacare became the law of the land, many experts predicted economic disaster.  As of this writing, it hasn’t happened. When Brexit became a reality, many experts predicted a global catastrophe.  As of this writing, it hasn’t happened.  When President Trump was elected, many experts predicted a market meltdown.  As of this writing, it hasn’t happened.  We all have our opinions on whether events like these were good or bad, of course.  But it’s a good thing we didn’t base our investment decisions on any expert’s predictions!

Because if there’s one thing we learned this decade, is that a prediction is like a person’s appendix – pretty much useless.

2020 and beyond

With that in mind, I won’t make any predictions for the coming decade.  If history is correct – and it always is – another market correction, another bear market, another recession will come eventually.  Whether it’s this year, or next, or the one after that, I can’t say.  What’s more important is that we remember this: It’s when we fly that we should have the healthiest respect for gravity.  But it’s when we’re on the ground that we should raise our eyes to the skies.

Investing is like trying to find our way in the dark – and our strategy is our North Star.  It’s so much more valuable than any prediction!  We may bump into the occasional obstacle.  Sometimes, we may even trip.  But if we hold to that star, we will keep moving forward in the direction we want to go.

We will make this decade whatever we want it to be.

My team and I can’t wait to spend the next decade with you.

Family Meeting Series Part 1

Dad Needs Memory Care Assistance

Long-time client, his wife and two adult children came to the office recently.  Dad was a long-time corporate executive who ran U.S. operations for a multi-national company.  He handled all of the Family finances.  Mom ran the house and the Family but had no interest in the Family finances.  (My mistake was to allow this situation to continue for too long.  Today, I would no longer allow Mom to be absent from their Annual Meeting.)  The children were unaware of their parents’ financial situation other than to be thankful for the generous gifts to the grandchildren.  Retirement was destructive both financially and physically to this couple.  Health issues and accidents accumulated.  The Big House, the vacations and country clubs were maintained for many years after the couple could no longer afford them.

When Dad started to develop memory issues the financial problems became apparent.  Mom had to learn fast but Dad would not give up control, a symptom of his memory problems.  Although the children were aware of the memory issues, they were not aware of the financial issue.  What should the Family do?

One of the most demanding topics for a family to deal with is the development of a memory loss by the family matriarch or patriarch.  This problem can be compounded in a situation where the memory loss issue develops in the family member who has always handled the family finances, and perhaps even had created the family wealth.  Interestingly, my experience has been that the memory loss can initially develop around financial matters.  The family member has been very strong on finances and was very comfortable maneuvering numbers and financial projections in their own mind.  Suddenly the family member has trouble calculating the tip at dinner.

What should the family do?  How might the family address the matter in a family meeting?  Typically, two related topics.

First, what healthcare services may be needed for the family member? And second, how will the family pay for those healthcare changes?  What changes might take place in the financial and  the family investment program to respond to these needs?  To start, the Family should develop an approach to the medical care that is necessary.  It is common for these problems to linger.  The spouse of the person with memory loss may wait longer than they should before seeking help.   The caretaking spouse can even do some damage to their own health in the caretaking process.   There is a good chance the Family will not agree on what is appropriate.  The Family should have these conversations about managing expectations far earlier than the actual implementation of the strategy.  There also should be some conversation about expected contributions by children in both time, effort, and management of parental health and financial needs.  As always, conversations in advance of the events can be developed before there is an emergency.

The Family should evaluate the circumstances.  If the caretaking spouse is unable to do routine activities, such as make appointments, see friends, take care of their own financial matters.  These are all indications that professional help is needed.  Daycare or home healthcare aids may be necessary.  It is very useful to have family meetings on these matters early in the process.  The cost of home healthcare help can start at a reasonable level.  When the help advances to all day care, you can move into the hundreds of dollars per day cost.

Of course, the cost to maintain memory care is easiest to bear when the family has significant financial resources.  All day care can move from a couple of thousand a month up to a $8,000 or $9,000 per month.  It is important to recall that the care amounts are in addition to ordinary monthly living expenses.

Alternatively, long-term care insurance may have been purchased many years ago.  In many cases, these long-term care policies were issued at very reasonable premium structures, but recently, they have become much more expensive with shorter terms for benefits.  All these programs must be purchased well in advance of any memory issues developing.  If a family does not have the financial resources to address the medical care, then they must immediately begin planning towards less expensive alternatives, such as Veterans facilities, and possibly the use of Medicaid facilities.  It is beyond the scope of this memo to discuss the full range of requirements to qualify for Medicaid.  However, there are elder care lawyers that specialize in this area, and their expertise can be crucial.  Medicaid can be available and will allow the spouse to live in the family home.  Support of the spouse is also allowed by Medicaid.  Assets cannot be transferred from the spouse with the memory issue within five years of eligibility without penalty.  It may be useful for any caretaking spouse who is working to make significant contributions to a retirement plan or 401(k) plan and accumulate assets in their own name.  The joint funds from the spouse's IRA who's having memory issues can be used to support the couple.  Investment strategy, where if the family is concerned about resources, might be changed.  The Family may decide to adopt a more aggressive equity-oriented strategy.  The approach might be that if the markets move against them, their qualification for Medicaid may come sooner, and if the markets move in their favor, the family may be able to pay for the care.

The investment strategy change could apply to the caretaker’s spouse in that she might decide to have a more equity-oriented approach.  Her money has to last a very long time, and Medicaid would not attach her retirement assets.  The family should also keep in mind that the family home is typically exempted from Medicaid planning attachment.  The caretaking spouse may decide to pay down the mortgage.  Expenses of living can come from the parent who has memory loss issues and has  potential medical care.

Our firm has developed a significant expertise in helping families think through these issues on their own.  We also have an extensive relationships with elder care counsel and primary care home healthcare providers that could also assist them, independently of the medical care for the patient.

Please contact us, to setup your family meeting today.

Maximize Your Social Security Benefit

4 Thoughts to Maximize Your Social Security Benefit

How long are you and your spouse going to live?  My clients’ answer, “Forever!”  My long-time client and I were reviewing his investment program when he mentioned that he had just returned from his Aunt’s funeral in Florida.  She lived to age 101.  My client’s mother had also lived to age 101.  His Aunt was actually a Grand Aunt!

Of course, Social Security works best for those who live the longest.  But Social Security Benefits are also maximized for those who wait longer to receive them…Survivor benefits are also maximized.  Consider Social Security as insurance if you live too long!

What will the inflation rate be in the future?  My ability to predict the future is precisely as flawed as your ability.  Recently we have gone through a period of long-term averages of 2 to 3% per year.  Social Security Benefits under current law are increased (but not decreased) for inflation.  Consider your Social Security Benefits as part of your investment plan that will increase with your increasing cost of living.

 

What will your investment return be in the future on other assets?  The future continues to be unknowable.  It is tempting to look at the past investment returns for guidance.  However, just because the past is measurable does not mean that it is useful to us.  As our disclaimer states, “Past performance does not predict future results”.  However, can you rely on Social Security payments in the future, or at least most of them?  Maybe your Social Security Benefits can be part of your overall fixed-income investment allocation.  This approach may allow for an increase in your stock or real estate allocation.

 

How long will your spouse live after you are gone?  The survivor of you and your spouse will receive the greater of your individual Social Security Benefits.  Consider making your Social Security Benefit decision with the goal of maximizing the survivor benefit.  This approach might be particularly appropriate for Social Security recipients where the benefits are a small portion of a monthly income.

 

Jim Vaughan and Vaughan & Co. Securities, Inc. provides individual analysis of Social Security designed to maximize your benefits for your personal retirement income investment plan.  Contact Jim at jdviii@vaughanandco.com

What is an Inverted Yield Curve?

If you ask an economist what makes them toss and turn at night, chances are they’ll tell you, “Fear of missing the warning signs of a recession.”  After all, for anyone who studies the economy for a living, few things could be worse than a sudden economic slump catching you by surprise.

That’s why many economists rely on certain indicators to predict if there’s rough weather ahead.  Historically, one of the most reliable indicators is the inverted yield curve.  This is when the yield on long-term bonds drops below the yield on short-term bonds.  Why does this matter to economists?   Because an inverted yield curve has preceded every recession since 1956.1

Long-Term Bond Yield Hits Record Low2
Stocks Skid as Bonds Flash a Warning
3
The Wall Street Journal, August 14, 2019

On August 14, the yield on 10-year Treasury bonds dropped below 1.6%, officially falling beneath the yield on 2-year Treasury bonds for the first time since 2007.4  That’s an inverted yield curve.  The markets responded the way children do when a hornet gets inside the family car – they panicked.  The Dow, the S&P 500, and the NASDAQ all fell sharply, with the Dow plunging over 700 points.3

The obvious question, of course, is “Why?”

It’s a smart question!  To the average investor, the term “inverted yield curve” probably doesn’t sound very scary.  So, why does it have the markets freaking out?  Let’s break it down by answering a few basic – but also smart – questions.

  1. What’s a bond yield, again?

A bond yield is the return you get when you put your money in a government or corporate bond.  Whenever an investor buys a bond, they’re agreeing to loan money to the issuer of that bond – the government, in the case of Treasury bonds – for a specific length of time.  Typically, the longer the time, the higher the yield, as investors want a greater return in exchange for locking up their money for years or even decades.  That’s why the yield on long-term bonds is almost always higher than on short-term bonds.  When these trade places, we have an inverted yield curve.

  1. Okay, so why have bond yields inverted?

Bear with me here, because I’m about to get a little technical. 

Bond yields have an inverse relationship with bond prices.  That means when prices go up, yields fall, and vice versa.

What do I mean by price?  Well, investors must pay to buy bonds, of course, and when more people buy them, the price of these bonds goes up.  (It’s the basic law of supply and demand: When the demand for something increases, so does the price.)   When that happens, yields drop.

Investors often see bonds as safe havens of sorts, especially during economic turmoil.  Stocks, on the other hand, tend to be seen as “higher risk, higher reward” investments.  In this case, investors are selling their stocks and plowing more and more money into long-term bonds, pushing prices up and yields below that of short-term bonds.  The fact investors are doing this suggests they’re not optimistic about the near-future health of the economy and are seeking safe places to park their money.

  1. Why are investors so worried about the economy?

On the home front, it’s largely because of the trade war between the U.S. and China.  As the two nations engage in an ever-growing battle of tariffs, the fear is that businesses in the U.S. will have to raise prices, thereby hurting consumers.  On August 13, President Trump decided to delay the most recent round of tariffs until December, saying he didn’t want tariffs to affect shopping during the Christmas season.5  Previously, Trump predicted tariffs would not hurt U.S. businesses, so this sudden about-face suggests even he is worried.

Investors are also worried about a slowdown in the global economy.  Two of the world’s most important economies, China and Germany, have both shrunk.  Put all these things together and it’s not hard to see why investors worry about a recession in the near future.

Fears the recent news about inverted yield curves will only stoke.

  1. So is a recession imminent?

As I mentioned earlier, inverted yield curves have preceded every recession since 1956.  This includes the Great Recession of 2008.  But does this mean a recession is just around the corner?

No!

There are two things to keep in mind here.  First, a brief inverted yield curve is not the same thing as a sustained one.  While inversions have preceded every modern recession, inversions do not always lead to a recession.  Think of it this way: You can’t have a rainstorm without dark gray clouds.  But dark gray clouds don’t always lead to a rainstorm.  Make sense?

You see, correlation does not equal causation.  By this I mean that while inversions and recessions are often seen together, one does not actually cause the other.  An inverted yield curve is like a sneeze: It’s a symptom, not the disease itself.  And while a sneeze can mean you have a cold, it doesn’t lead to a cold.  Sometimes, we sneeze because we got pepper up our nose.

Second, let’s assume for argument’s sake that this recent inversion is a warning sign of a future recession.  That doesn’t mean a recession is imminent.  Some analysis suggests that it takes an average of twenty-two months for a recession to follow an inversion.1  That’s a long time!  A long time to save, invest, plan and prepare.

  1. So does an inverted yield curve even matter, then?

I’ll put it simply: It matters enough to pay attention to.  It doesn’t matter enough to be worth panicking over.

Make no mistake, we’re in a volatile period right now.  There’s a lot of evidence to suggest that volatility will continue.  But while comparing the markets to the weather has become something of a cliché, it also makes a lot of sense.  When storm clouds gather, we pack an umbrella or stay inside.  We don’t run for the hills.

The same is true of market volatility.

Remember, an inverted yield curve is an indicator, not a prophecy.  Economists can toss and turn about such things, but you and I are focusing on something much less abstract: your financial goals.  More important than any indicator, more important than the day-to-day swings in the markets, is the discipline we show.  If you think about it, market volatility is really a symptom, too – a symptom of emotional decision making.  Investors see a good headline, and they buy, buy, buy!  That’s a market rally.  Investors see a bad one, and they sell, sell, sell!  That’s a market dip.

Investing based on emotion leads to one thing: Regret.  Regret that we bought into the hype and bought when we should have waited for a better deal.  Regret that we fell into fear and sold when we should have held on longer.  We invest by being disciplined enough to buy, hold, or sell when it makes sense for your situation.

That’s the best way to stay on track toward your goals.  That’s the best way to not toss and turn at night.  We don’t make decisions based on predictions.  We make decisions based on need.

My team and I will keep watching the indicators.  We’ll keep doing our best to explain the twists and turns in the markets.  And we’ll keep doing our best not to overreact to any of them.  In the meantime, please contact me if you have any questions or concerns.  We always love to hear from you!

 

 

 

1 “The inverted yield curve explained,” CNBC, August 14, 2019.  https://www.cnbc.com/2019/08/14/the-inverted-yield-curve-explained-and-what-it-means-for-your-money.html

2 “Long-Term Bond Yield Hits Record Low,” The Wall Street Journal, August 14, 2019.  https://www.wsj.com/articles/bond-rally-drives-30-year-treasury-yield-to-record-low-11565794665

3 “Stocks Skid as Bonds Flash a Warning,” The Wall Street Journal, August 14, 2019.  https://www.wsj.com/articles/asian-stocks-gain-on-tariff-delay-11565769562

4 “Dow tumbles 700 points after bond market flashes a recession warning,” CNN Business, August 14, 2019.  https://www.cnn.com/2019/08/14/investing/dow-stock-market-today/index.html

5 “U.S. Retreats on Chinese Tariff Threats,” The Wall Street Journal, August 13, 2019.  https://www.wsj.com/articles/u-s-will-delay-some-tariffs-against-china-11565704420

General Social Security Rules

General Social Security Rules

 

Popular wisdom suggests jumping at the opportunity to collect Social Security retirement benefits as soon as possible, which currently is age 62.  About 73% of Social Security beneficiaries collect at 62.  While this strategy may have been prudent for millions of Americans in the past, longer life expectancies have changed the face of retirement planning. Waiting to collect Social Security benefits may well be a more advantageous option. While there is no one-size-fits-all approach, this much is universally clear:

TIPS

Life expectancy is exploding, particularly for our clientele.

 

Warning – Social Security has its own language.

DECIDING WHEN TO BEGIN TAKING SOCIAL SECURITY BENEFITS IS AN IMPORTANT AND MULTIFACETED CONSIDERATION that should be factored into each individual’s broader retirement plan.  In order for us to help you decide how and when to take your Social Security, we must go over some basic Social Security concepts.  In the following memo, we review key details to consider in your Social Security decision-making.  Your Social Security strategy must be integrated with your investment plan and your overall retirement plan.

Social Security Benefits-Divorced

Social Security Benefits for Divorced People

 

When Should I Take My Benefits ?

OVERVIEW:  As an Ex-Spouse you may be entitled to your individual benefits and spousal or survivor benefits.  We will review both sets to decide what decision you should make.

 

Individual Benefit Collection Decision

 

COLLECTING BENEFITS AT FULL RETIREMENT AGE

Your benefits, known as your Primary Insurance Amount (PIA) is the monthly benefit for which you are eligible at your full retirement age (FRA). FRA varies based on year of birth. Originally age 65, the federal government has increased FRA for anyone born after 1937 in recognition of longer life expectancies.  Life expectancy in 1937 was less than 65.  Today, it is about 78.  We expect our clients to live even longer.

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You must have worked for 40 Quarters to be eligible to receive benefits.

 

Planning Tip:  Social Security aims to encourage you to collect your benefits at Full Retirement Age, known as FRA in Social Security Language.

 

Your monthly benefit, known as your Primary Insurance Amount (PIA), is calculated based on your highest 35 years of employment.

The Social Security Administration (SSA) uses your highest 35 years of employment to arrive at your Average Indexed Monthly Earnings (AIME).  For more information, please visit www.ssa.gov to get your Social Security statement. If you continue working after reaching FRA, the SSA will automatically recalculate your benefits each year you continue to work. If your current income is greater than any of your previously calculated “highest 35 years”, your benefits will be adjusted upward. The increase generally will be made in October of the following year, but will be retroactive to January 1.  In addition, Social Security retirement benefits are automatically modified each year for inflation, known as Cost-Of-Living Adjustments (COLAs).

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COLAs have averaged between 1% and 2% over the past 10 years.  Over the last 90 years inflation has averaged about 3% per year.

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Benefits are reduced by about 6% per year for each year you receive benefits prior to your full retirement age (FRA).

COLLECTING BENEFITS EARLIER THEN FRA

While your full benefit, your PIA, is payable at your FRA, you are entitled to  collect benefits as early as age 62. However, if you choose to collect early, you will permanently reduce the size of your benefits. Your benefits will not be adjusted upward when you attain FRA. The amount of your reduction will depend on two factors—your FRA and the number of months before it that you start collecting. If you begin taking benefits on your 62nd birthday, you are subject to the maximum reduction. That reduction will be smaller for each month you delay benefits after age 62 but prior to reaching FRA.

COLLECTION AGE IMPACTS BENEFIT AMOUNT

WORKING WHILE COLLECTING BENEFITS PRIOR TO FULL RETIREMENT AGE

 

Social Security benefits are intended to supplement retirement income.  There are consequences to collecting your benefits early if you are not retired and are still receiving wages. If you choose to collect benefits prior to FRA, you are subject to an Earnings Test every year until you reach FRA.

 

If your earnings exceed certain thresholds, the SSA will Withhold part or all of your benefits. The earnings test for individual and survivor benefits looks only at the salary or wages of the individual collecting early benefits. It does not consider any other type of income, nor does it

consider the salary or wages of a spouse. However, the test on spousal benefits (see memo on Married Couples) may take into account both spouses' wages if both are under age 62.

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Withheld benefits are different and in addition to reduced benefits.

 

The Withholding on Social Security before FRA eliminates Benefits for many Employees.

WITHHELD BENEFITS

Benefits withheld by the SSA due to early collection will not be refunded. However, your benefits will be adjusted at FRA to account for the benefits that were withheld.  For example, if your FRA was 66 and you began collecting benefits at age 62, the SSA would have reduced your benefit by 25%. Assuming you returned to work at age 64; the SSA may have withheld two years’ worth of benefits by the time you reached FRA. The SSA would then lessen your 25% reduction to give you credit for the two years of lost benefits. Your new reduction would be as if you started collecting benefits at age 64 (13.3% reduction) rather than age 62.

2019 RETIREMENT EARNINGS LIMIT

Under FRA

  • $1 of benefits withheld for every $2 in earnings above $17,640
  • Earned $27,640 – $17,640 = $10,000 over x 1/2 = $5,000 withheld

                                                                                                                                                                                                                                               

Year individual reaches FRA

  • $1 of benefits withheld for every $3 in earnings above $46,920 for months prior to attaining FRA
  • Earned $56,920 – $46,920 = $10,000 over x 1/3 = $3,333 withheld

                                                                                                                                                                                                                                               

Month individual reaches FRA

  • Unlimited

                                                                                                                                                                                                                                               

 

 

WAITING TO COLLECT BENEFITS

If you elect to defer collecting benefits beyond your FRA, the SSA will give you a delayed retirement credit (DRC) for every month you defer between FRA and age 70, the age at which

your benefits max out. This increase will be in addition to the annual COLA, if applicable. Depending on your year of birth, your increase will amount to 7% to 8% annually

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When collecting before FRA, always consider the net (after-tax) benefits you will receive. A working spouse may cause more of your benefits to be taxed, and at potentially higher tax rates.

TAXATION OF BENEFITS

You should plan on income taxes on Social Security Benefits.  Individuals with high total incomes must include up to 85% of their benefits as income for federal income tax purposes. Special step-rate “thresholds” on Provisional Income determine the amount which you may be taxed. We should plan as if you will pay income tax on your benefits when making the decision.

COLLECTING SPOUSAL BENEFITS

If you are married to an individual who is collecting Social Security retirement benefits and you are at least age 62, you may be entitled to collect spousal benefits.  Spousal benefits will be equal to 50% of your spouse’s PIA if you collect benefits at FRA or later. If you are entitled to your own benefits and your PIA is less than 50% of your spouse’s PIA, spousal benefits will be paid in addition to your own. These combined benefits will equal 50% of your spouse’s PIA, assuming you start collecting both benefits at FRA or later.

 

COLLECTING SPOUSAL BENEFITS EARLY

If you collect spousal benefits prior to your FRA, your adjusted spousal benefits (amounts in addition to your own benefits) will be reduced. Your spouse’s collection age has no impact on your spousal benefits.

COLLECTING SURVIVOR BENEFITS

If you have been married for at least nine months and your spouse passes away, you may be entitled to survivor benefits. If you remarry before age 60, survivor benefits will not be paid unless the subsequent marriage ends.  Remarriage after age 60 does not prevent or stop entitlement to benefits. The amount of your survivor benefits depends on when your spouse began taking benefits. If the death occurs prior to your spouse collecting benefits, your survivor benefits will equal 100% of your spouse’s PIA when you attain FRA. If your spouse was collecting benefits at the time of his or her death, your survivor benefits will equal his or her actual benefits, assuming you have attained FRA.  The only exception is if he or she was collecting benefits that were reduced more than 17.5%. In that case, your survivor benefits will be 82.5% of your spouse’s PIA. The survivor benefits, if higher, will replace your other benefits.

COLLECTING SURVIVOR BENEFITS EARLY

You can collect survivor benefits as young as age 60. If you collect at age 60, your survivor benefits will be reduced by up to 28.5% .

 

 

CHOOSING BETWEEN BENEFITS

If you are entitled to both individual and survivor benefits, you can choose to begin collecting one and then switch to the other at a later date. It is possible to collect reduced survivor benefits at age 60, and then convert to your own unreduced benefits at FRA or later. You also have the

option to collect individual benefits and then switch to survivor benefits.

 

SPOUSAL AND SURVIVOR BENEFITS AFTER DIVORCE

If you are not married but previously had been married to the same individual for at least 10 years, you may be entitled to collect spousal and/or survivor benefits based on your ex-spouse’s

work history, as described earlier. To collect spousal benefits you and your ex-spouse must be at least 62. You are not required to wait until your ex-spouse files for benefits.

 

What decision should you make ?  Please contact us for an appointment.

 

Social Security Benefits-Widows and Widowers

Social Security Benefits for Widows and Widowers

When Should I Take My Benefits ?

 

OVERVIEW:  As a widow or widower you may be entitled to your individual benefits and survivor benefits.  We will review both sets to decide what decision you should make.

 

COLLECTING BENEFITS AT FULL RETIREMENT AGE

Your benefits, known as your Primary Insurance Amount (PIA) is the monthly benefit for which you are eligible at your full retirement age (FRA). FRA varies based on year of birth. Originally age 65, the federal government has increased FRA for anyone born after 1937 in recognition of longer life expectancies.  Life expectancy in 1937 was less than 65.  Today, it is about 78.  We expect our clients to live even longer.

TIPS

You must have worked for 40 Quarters to be eligible to receive benefits.

 

Planning Tip:  Social Security aims to encourage you to collect your benefits at Full Retirement Age, known as FRA in Social Security Language.

 

Your monthly benefit, known as your Primary Insurance Amount (PIA), is calculated based on your highest 35 years of employment.

The Social Security Administration (SSA) uses your highest 35 years of employment to arrive at your Average Indexed Monthly Earnings (AIME).  For more information, please visit www.ssa.gov to get your Social Security statement. If you continue working after reaching FRA, the SSA will automatically recalculate your benefits each year you continue to work. If your current income is greater than any of your previously calculated “highest 35 years”, your benefits will be adjusted upward. The increase generally will be made in October of the following year, but will be retroactive to January 1.  In addition, Social Security retirement benefits are automatically modified each year for inflation, known as Cost-Of-Living Adjustments (COLAs).

 

TIP

COLAs have averaged between 1% and 2% over the past 10 years.  Over the last 90 years inflation has averaged about 3% per year.

TIP

Benefits are reduced by about 6% per year for each year you receive benefits prior to your full retirement age (FRA).

COLLECTING BENEFITS EARLIER THEN FRA

While your full benefit, your PIA, is payable at your FRA, you are entitled to  collect benefits as early as age 62. However, if you choose to collect early, you will permanently reduce the size of your benefits. Your benefits will not be adjusted upward when you attain FRA. The amount of your reduction will depend on two factors—your FRA and the number of months before it that you start collecting. If you begin taking benefits on your 62nd birthday, you are subject to the maximum reduction. That reduction will be smaller for each month you delay benefits after age 62 but prior to reaching FRA.

COLLECTION AGE IMPACTS BENEFIT AMOUNT

WORKING WHILE COLLECTING BENEFITS PRIOR TO FULL RETIREMENT AGE

 

Social Security benefits are intended to supplement retirement income.  There are consequences to collecting your benefits early if you are not retired and are still receiving wages. If you choose to collect benefits prior to FRA, you are subject to an Earnings Test every year until you reach FRA.

 

If your earnings exceed certain thresholds, the SSA will Withhold part or all of your benefits. The earnings test for individual and survivor benefits looks only at the salary or wages of the individual collecting early benefits. It does not consider any other type of income, nor does it

 

consider the salary or wages of a spouse. However, the test on spousal benefits (see memo on Married Couples) may take into account both spouses' wages if both are under age 62.

 

TIP

Withheld benefits are different and in addition to reduced benefits.

 

The Withholding on Social Security before FRA eliminates Benefits for many Employees.

WITHHELD BENEFITS

Benefits withheld by the SSA due to early collection will not be refunded. However, your benefits will be adjusted at FRA to account for the benefits that were withheld.  For example, if your FRA was 66 and you began collecting benefits at age 62, the SSA would have reduced your benefit by 25%. Assuming you returned to work at age 64; the SSA may have withheld two years’ worth of benefits by the time you reached FRA. The SSA would then lessen your 25% reduction to give you credit for the two years of lost benefits. Your new reduction would be as if you started collecting benefits at age 64 (13.3% reduction) rather than age 62.

2019 RETIREMENT EARNINGS LIMIT

Under FRA

  • $1 of benefits withheld for every $2 in earnings above $17,640
  • Earned $27,640 – $17,640 = $10,000 over x 1/2 = $5,000 withheld

                                                                                                                                                                                                                                               

Year individual reaches FRA

  • $1 of benefits withheld for every $3 in earnings above $46,920 for months prior to attaining FRA
  • Earned $56,920 – $46,920 = $10,000 over x 1/3 = $3,333 withheld

                                                                                                                                                                                                                                               

Month individual reaches FRA

  • Unlimited

                                                                                                                                                                                                                                               

 

 

WAITING TO COLLECT BENEFITS

If you elect to defer collecting benefits beyond your FRA, the SSA will give you a delayed retirement credit (DRC) for every month you defer between FRA and age 70, the age at which

your benefits max out. This increase will be in addition to the annual COLA, if applicable. Depending on your year of birth, your increase will amount to 7% to 8% annually.

TIP

When collecting before FRA, always consider the net (after-tax) benefits you will receive. A working spouse may cause more of your benefits to be taxed, and at potentially higher tax rates.

TAXATION OF BENEFITS

You should plan on income taxes on Social Security Benefits.  Individuals with high total incomes must include up to 85% of their benefits as income for federal income tax purposes. Special step-rate “thresholds” on Provisional Income determine the amount which you may be taxed. We should plan as if you will pay income tax on your benefits when making the decision.

COLLECTING SURVIVOR BENEFITS

If you have been married for at least nine months and your spouse passes away, you may be entitled to survivor benefits. If you remarry before age 60, survivor benefits will not be paid unless the subsequent marriage ends.  Remarriage after age 60 does not prevent or stop entitlement to benefits. The amount of your survivor benefits depends on when your spouse began taking benefits. If the death occurs prior to your spouse collecting benefits, your survivor benefits will equal 100% of your spouse’s PIA when you attain FRA. If your spouse was collecting benefits at the time of his or her death, your survivor benefits will equal his or her actual benefits, assuming you have attained FRA.  The only exception is if he or she was collecting benefits that were reduced more than 17.5%. In that case, your survivor benefits will be 82.5% of your spouse’s PIA. The survivor benefits, if higher, will replace your other benefits.

 

COLLECTING SURVIVOR BENEFITS EARLY

You can collect survivor benefits as young as age 60. If you collect at age 60, your survivor benefits will be reduced by up to 28.5% .

 

CHOOSING BETWEEN BENEFITS

If you are entitled to both individual and survivor benefits, you can choose to begin collecting one and then switch to the other at a later date. It is possible to collect reduced survivor benefits at age 60, and then convert to your own unreduced benefits at FRA or later. You also have the

option to collect individual benefits and then switch to survivor benefits.

 

What decision should you make ? Please contact us for an appointment.

 

Social Security Benefits-Singles

Social Security Benefits for Singles

When Should I Take My Benefits ?

 

Individual Collection Decision

COLLECTING BENEFITS AT FULL RETIREMENT AGE

Your benefits, known as your Primary Insurance Amount (PIA) is the monthly benefit for which you are eligible at your full retirement age (FRA). FRA varies based on year of birth. Originally age 65, the federal government has increased FRA for anyone born after 1937 in recognition of longer life expectancies.  Life expectancy in 1937 was less than 65.  Today, it is about 78.  We expect our clients to live even longer.

TIPS

You must have worked for 40 Quarters to be eligible to receive benefits.

 

Social Security aims to encourage you to collect your benefits at Full Retirement Age, known as FRA in Social Security Language.

 

Your monthly benefit, known as your Primary Insurance Amount (PIA), is calculated based on your highest 35 years of employment.

 

The Social Security Administration (SSA) uses your highest 35 years of employment to arrive at your Average Indexed Monthly Earnings (AIME).  For more information, please visit www.ssa.gov to get your Social Security statement. If you continue working after reaching FRA, the SSA will automatically recalculate your benefits each year you continue to work. If your current income is greater than any of your previously calculated “highest 35 years”, your benefits will be adjusted upward. The increase generally will be made in October of the following year, but will be retroactive to January 1.  In addition, Social Security retirement benefits are automatically modified each year for inflation, known as Cost-Of-Living Adjustments (COLAs).

TIP

COLAs have averaged between 1% and 2% over the past 10 years.  Over the last 90 years inflation has averaged about 3% per year.

TIP

Benefits are reduced by about 6% per year for each year you receive benefits prior to your full retirement age (FRA).

COLLECTING BENEFITS EARLIER THEN FRA

While your full benefit, your PIA, is payable at your FRA, you are entitled to  collect benefits as early as age 62. However, if you choose to collect early, you will permanently reduce the size of your benefits. Your benefits will not be adjusted upward when you attain FRA. The amount of your reduction will depend on two factors—your FRA and the number of months before it that you start collecting. If you begin taking benefits on your 62nd birthday, you are subject to the maximum reduction. That reduction will be smaller for each month you delay benefits after age 62 but prior to reaching FRA.

COLLECTION AGE IMPACTS BENEFIT AMOUNT

WORKING WHILE COLLECTING BENEFITS PRIOR TO FULL RETIREMENT AGE

 

Social Security benefits are intended to supplement retirement income.  There are consequences to collecting your benefits early if you are not retired and are still receiving wages. If you choose to collect benefits prior to FRA, you are subject to an Earnings Test every year until you reach FRA.

 

If your earnings exceed certain thresholds, the SSA will Withhold part or all of your benefits. The earnings test for individual and survivor benefits looks only at the salary or wages of the individual collecting early benefits. It does not consider any other type of income, nor does it consider the salary or wages of a spouse. However, the test on spousal benefits (see memo on Married Couples) may take into account both spouses' wages if both are under age 62.

 

 

 

TIP

Withheld benefits are different and in addition to reduced benefits.

 

The Withholding on Social Security before FRA eliminates Benefits for many Employees.

WITHHELD BENEFITS

Benefits withheld by the SSA due to early collection will not be refunded. However, your benefits will be adjusted at FRA to account for the benefits that were withheld.  For example, if your FRA was 66 and you began collecting benefits at age 62, the SSA would have reduced your benefit by 25%. Assuming you returned to work at age 64; the SSA may have withheld two years’ worth of benefits by the time you reached FRA. The SSA would then lessen your 25% reduction to give you credit for the two years of lost benefits. Your new reduction would be as if you started collecting benefits at age 64 (13.3% reduction) rather than age 62.

 

2019 RETIREMENT EARNINGS LIMIT

Under FRA

  • $1 of benefits withheld for every $2 in earnings above $17,640
  • Earned $27,640 – $17,640 = $10,000 over x 1/2 = $5,000 withheld

                                                                                                                                                                                                                                               

Year individual reaches FRA

  • $1 of benefits withheld for every $3 in earnings above $46,920 for months prior to attaining FRA
  • Earned $56,920 – $46,920 = $10,000 over x 1/3 = $3,333 withheld

                                                                                                                                                                                                                                               

Month individual reaches FRA

  • Unlimited

                                                                                                                                                                                                                                               

 

 

WAITING TO COLLECT BENEFITS

If you elect to defer collecting benefits beyond your FRA, the SSA will give you a delayed retirement credit (DRC) for every month you defer between FRA and age 70, the age at which

your benefits max out. This increase will be in addition to the annual COLA, if applicable. Depending on your year of birth, your increase will amount to 7% to 8% annually.

TIP

The 8% per year increase is greater than the expected return from most investments.  In addition, increase applies to Survivor Benefits.

TIP

When collecting before FRA, always consider the net (after-tax) benefits you will receive. A working spouse may cause more of your benefits to be taxed, and at potentially higher tax rates.

TAXATION OF BENEFITS

You should plan on income taxes on Social Security Benefits.  Individuals with high total incomes must include up to 85% of their benefits as income for federal income tax purposes. Special step-rate “thresholds” on Provisional Income determine the amount which you may be taxed. We should plan as if you will pay income tax on your benefits when making the decision.

Social Security Benefit-Married

Social Security Benefits for Married Couples

When Should We Take Our Benefits ?

 

OVERVIEW:  Each spouse is entitled to their individual benefits and spousal benefits.  We have to review your individual benefits first.

 

Individual Collection Decision

COLLECTING BENEFITS AT FULL RETIREMENT AGE

Your benefits, known as your Primary Insurance Amount (PIA) is the monthly benefit for which you are eligible at your full retirement age (FRA). FRA varies based on year of birth. Originally age 65, the federal government has increased FRA for anyone born after 1937 in recognition of longer life expectancies.  Life expectancy in 1937 was less than 65.  Today, it is about 78.  We expect our clients to live even longer.

TIPS

You must have worked for 40 Quarters to be eligible to receive benefits.

 

Social Security aims to encourage you to collect your benefits at Full Retirement Age, known as FRA in Social Security Language.

 

Your monthly benefit, known as your Primary Insurance Amount (PIA), is calculated based on your highest 35 years ofemployment

 

The Social Security Administration (SSA) uses your highest 35 years of employment to arrive at your Average Indexed Monthly Earnings (AIME).  For more information, please visit www.ssa.gov to get your Social Security statement. If you continue working after reaching FRA, the SSA will automatically recalculate your benefits each year you continue to work. If your current income is greater than any of your previously calculated “highest 35 years”, your benefits will be adjusted upward. The increase generally will be made in October of the following year, but will be retroactive to January 1.  In addition, Social Security retirement benefits are automatically modified each year for inflation, known as Cost-Of-Living Adjustments (COLAs).

TIP

COLAs have averaged between 1% and 2% over the past 10 years.  Over the last 90 years inflation has averaged about 3% per year.

TIP

Benefits are reduced by about 6% per year for each year you receive benefits prior to your full retirement age (FRA).

COLLECTING BENEFITS EARLIER THEN FRA

While your full benefit, your PIA, is payable at your FRA, you are entitled to  collect benefits as early as age 62. However, if you choose to collect early, you will permanently reduce the size of your benefits. Your benefits will not be adjusted upward when you attain FRA. The amount of your reduction will depend on two factors—your FRA and the number of months before it that you start collecting. If you begin taking benefits on your 62nd birthday, you are subject to the maximum reduction. That reduction will be smaller for each month you delay benefits after age 62 but prior to reaching FRA.

 

COLLECTION AGE IMPACTS BENEFIT AMOUNT

WORKING WHILE COLLECTING BENEFITS PRIOR TO FULL RETIREMENT AGE

 

Social Security benefits are intended to supplement retirement income.  There are consequences to collecting your benefits early if you are not retired and are still receiving wages. If you choose to collect benefits prior to FRA, you are subject to an Earnings Test every year until you reach FRA.

 

If your earnings exceed certain thresholds, the SSA will Withhold part or all of your benefits. The earnings test for individual and survivor benefits looks only at the salary or wages of the individual collecting early benefits. It does not consider any other type of income, nor does it consider the salary or wages of a spouse. However, the test on spousal benefits (see memo on Married Couples) may take into account both spouses' wages if both are under age 62.

TIP

Withheld benefits are different and in addition to reduced benefits.

 

The Withholding on Social Security before FRA eliminates Benefits for many Employees.

 

WITHHELD BENEFITS

Benefits withheld by the SSA due to early collection will not be refunded. However, your benefits will be adjusted at FRA to account for the benefits that were withheld.  For example, if your FRA was 66 and you began collecting benefits at age 62, the SSA would have reduced your benefit by 25%. Assuming you returned to work at age 64; the SSA may have withheld two years’ worth of benefits by the time you reached FRA. The SSA would then lessen your 25% reduction to give you credit for the two years of lost benefits. Your new reduction would be as if you started collecting benefits at age 64 (13.3% reduction) rather than age 62.

2019 RETIREMENT EARNINGS LIMIT

Under FRA

  • $1 of benefits withheld for every $2 in earnings above $17,640
  • Earned $27,640 – $17,640 = $10,000 over x 1/2 = $5,000 withheld

                                                                                                                                                                                                                                               

Year individual reaches FRA

  • $1 of benefits withheld for every $3 in earnings above $46,920 for months prior to attaining FRA
  • Earned $56,920 – $46,920 = $10,000 over x 1/3 = $3,333 withheld

                                                                                                                                                                                                                                               

Month individual reaches FRA

  • Unlimited

                                                                                                                                                                                                                                               

WAITING TO COLLECT BENEFITS

If you elect to defer collecting benefits beyond your FRA, the SSA will give you a delayed retirement credit (DRC) for every month you defer between FRA and age 70, the age at which

your benefits max out. This increase will be in addition to the annual COLA, if applicable. Depending on your year of birth, your increase will amount to 7% to 8% annually.

TIP

The 8% per year increase is greater than the expected return from most investments.  In addition, increase applies to Survivor Benefits.

TIP

When collecting before FRA, always consider the net (after-tax) benefits you will receive. A working spouse may cause more of your benefits to be taxed, and at potentially higher tax rates.

TAXATION OF BENEFITS

You should plan on income taxes on Social Security Benefits.  Individuals with high total incomes must include up to 85% of their benefits as income for federal income tax purposes. Special step-rate “thresholds” on Provisional Income determine the amount which you may be taxed. We should plan as if you will pay income tax on your benefits when making the decision.

 

Spousal Collection Decision

COLLECTING SPOUSAL BENEFITS

If you are married to an individual who is collecting Social Security retirement benefits and you are at least age 62, you may be entitled to collect spousal benefits.  Spousal benefits will be equal to 50% of your spouse’s PIA if you collect benefits at FRA or later. If you are entitled to your own benefits and your PIA is less than 50% of your spouse’s PIA, spousal benefits will be paid in addition to your own. These combined benefits will equal 50% of your spouse’s PIA, assuming you start collecting both benefits at FRA or later.

TIP

Consider collecting your individual benefits first, then spousal benefits once your spouse starts collecting benefits.

COLLECT  MORE INCOME BY COMBINING SPOUSAL

AND INDIVIDUAL BENEFITS

COLLECTING SPOUSAL BENEFITS EARLY

If you collect spousal benefits prior to your FRA, your adjusted spousal benefits (amounts in addition to your own benefits) will be reduced. Your spouse’s collection age has no impact on your spousal benefits.

 

 

WAITING TO COLLECT SPOUSAL BENEFITS

Unlike your own benefits, spousal benefits are not subject to guaranteed annual increases if you defer collecting them beyond FRA. Spousal benefits are at their maximum when you reach FRA, so there is no advantage to be gained by deferring collection.

COLLECTING SURVIVOR BENEFITS

If you have been married for at least nine months and your spouse passes away, you may be entitled to survivor benefits. If you remarry before age 60, survivor benefits will not be paid unless the subsequent marriage ends. Remarriage after age 60 does not prevent or stop entitlement to benefits. The amount of your survivor benefits depends on when  your spouse began taking benefits. If the death occurs prior to your spouse collecting benefits, your survivor benefits will equal 100% of your spouse’s PIA when you attain FRA. If your spouse was collecting benefits at the time of his or her death, your survivor benefits will equal his or her actual benefits, assuming you have attained FRA. The only exception is if he or she was collecting benefits that were reduced more than 17.5%. In that case, your survivor benefits will be 82.5% of your spouse’s PIA. The survivor benefits, if higher, will replace your other benefits

 

COLLECTING SURVIVOR BENEFITS EARLY

You can collect survivor benefits as young as age 60. If you collect at age 60, your survivor benefits will be reduced by up to 28.5%.

 

CHOOSING BETWEEN BENEFITS

If you are entitled to both individual and survivor benefits, you can choose to begin collecting one and then switch to the other at a later date. It is possible to collect reduced survivor benefits at age 60, and then convert to your own unreduced benefits at FRA or later. You also have the option to collect individual benefits and then switch to survivor benefits.

 

Market Volatility 2019

“Investing When Money Markets Moves Our Way”

The last several years, and even the last several months, have been a microcosm of the money markets. The 7% drop in the month of May set off by one of Trump’s tweets was followed by an almost immediately 7% upswing in the month of June and continuing into early July. In the year 2018, we had two different 20% downturns, each of which were promptly followed by strong market upturns. As most of our clients know, and have come to accept, this level of market fluctuation is normal but unpleasant. Our strategy to deal with these market fluctuations is to acknowledge that they will continue to occur, but it is the price that we must pay for the higher equity market returns that we receive and expect to receive in the future. That the new market records would be a good time to address a couple of changes in the markets. First, I have finally decided that it’s time that for me to get on Twitter. Our president has decided that he’s going to, generally speaking, bypass the normal press release mechanism and release new information to the public through Twitter. I understand that Twitter is used for all kinds of purposes other than general policy announcements. It also seems to be used for sparring with your enemies, and it’s certainly being used to communicate directly with the US citizens and bypass the Washington Press Corps. I don’t want to spend too much time on the technical details of our work for you, but I can’t help but notice that the equity market mutual fund ETF purchases by the general public has been running at very low levels with bond fund purchases outrunning them throughout the month of June. That is, most of your fellow investors were selling stocks and buying bonds during the June period when the market was setting market records, unfortunately we cannot help them because they’re not our clients, but it is an indicator to us how many people are poor investors.

It has been and continues to be our recommendation to you that you maintain your investment in these wonderful multi-national rational companies in which you have invested.  The value of these companies may fluctuate dramatically in the stock market.  Your fellow investors may sell out at the latest whim or presidential tweet, but you know and we agree with you, that all of these changes and the daily press fixations on one matter or another all pass very quickly and it becomes insignificant to the long-term health of these rationally run companies.  This is a wonderful time for you to point out to your family that market ups and downs change very quickly, change unpredictably, but that we believe the long-term trend is up and that the 20% up and down turns, the 7% up and down months, are part of the cost of being a good long-term investor.  Please note that during all of last year with its ups and downs and this year with its ups and downs, the dividends in your account have continued to come into your account and to rise.  If you come across any of your good friends or family who are complaining about and concerned about market fluctuation, market volatility, please give them our name and we would be happy to talk to them and see if we can help them.

A final point that I would like to address, because I hear it come up from time to time are various market strategies that fall into the category of technical analysis, sometimes the “trend following,” sometimes they’re called market momentum play.  All of them are designed to offer an investor the possibility of avoiding large market downturns and yet participate in the upside of markets.  Many times, their components will argue for loss protection analysis or plan to protect capital.  We believe that all these technical analysis type programs sound great, a program which avoids serious market downturns.  But unfortunately, we can’t, because they don’t work.

The market technical analysis for rules-based investing is designed to help you stay invested in investment programs that are working well now and avoiding programs that are not working well.  The idea being that the recent past can indicate and predict what the future will be.  Our argument is that the future is unknowable, and that we have faith that capitalism will, and the investment markets moving cycles, will fix any problems that they’ve had in the past, any excesses that they’ve had in the past.  We will move forward, solve our problems, and figure out a way to increase earnings going forward.

The market analysts offer you the possibility and pretend that they have a system whereby they can avoid these losses.  It sounds very enticing because it’s exactly what you would like to hear, that losses can be avoided, and gains realized.  This is not possible, so our strategy to deal with market downturns is for you and your spouse to fully acknowledge that they’re coming, to embrace them, to treat them as part of the entire process, and then to teach your children the exact same formula, so that they don’t make the mistake of getting involved in any one of these market time schemes that promise to have you out of the markets and selling before a downturn, and yet somehow magically getting you back into the markets in time for an upturn.

The last two years are just further evidence and a career’s worth of evidence, that these programs don’t work.  That they have you sell to late, have you buy back into an investment program too late as well, so that you realize a lot of the loss don’t get the gain get the market gets her upturn, and are disappointed anew with significant transition cost all along.  Our approach to dealing with market downturns is to understand that they’re coming.  This is not a prediction for the future, but we understand that they will come.  They will come at an unpredictable, unknowable time, that it’s part of the process.  Both you and your spouse should understand that.  You should explain it to your children so that they can become effective investors as well.

If you, your spouse, or any family members have any questions, please give us a call.  We continue to be optimistic about the future.  Your prosperity is our business.  Thank you.  Contact me with any questions.

Very truly yours,
James Vaughan III