If lawmakers act now, they could bring the system into actuarial balance by: 1) increasing the combined payroll tax rate 2.61 percentage points, from 12.40% to 15.01% (note: transfers from the general Treasury make up this year’s temporary 2% reduction in the payroll tax); or 2) reducing scheduled benefits by 16.2%. The trustees generally state their reform suggestions as mathematical, actuarial solutions rather than the more comprehensive proposals that have been put forth by various lawmakers.

The trustees this year were a bit more forceful in saying that the system needs to be reformed sooner rather than later: “If lawmakers do not take substantial action for several years, then changes necessary to maintain Social Security solvency will be concentrated on fewer years and fewer generations. Lawmakers will have to make large and sudden changes if they defer action until the combined trust funds become exhausted in 2033.”

SSA Commissioner Michael Astrue warned the media prior to the report’s release about sensationalizing the results. He reminded reporters that the exhaustion of the trust fund does not mean Social Security benefits will stop. Payroll taxes will continue to be collected and will be sufficient to pay 75% of promised benefits. But alas, many in the media didn’t listen. Here’s how some news outlets reported the release of the Trustees Report:

• Social Security Fund: Cash Gone in 2033
• Social Security is Slipping Closer to Insolvency
• Social Security Trust Fund to Run Dry Sooner Than Anticipated
• Social Security’s Financial Health Worsens
• More Bad News on Social Security and Medicare Trust Funds
• Social Security: Time to Panic, No. Time to Act, Yes.
• Is Social Security really “exhausted?” Not at all

I have long maintained that Social Security’s finances should not influence clients’ claiming decisions. The trust fund will remain intact for many more years, and after it’s exhausted, payroll taxes will continue to be collected. Benefits for baby boomers are not in jeopardy.
Given the recent politicization of our government and the paralysis we’ve seen over budget negotiations, expiring tax provisions, and other important items Congress has failed to act on, I’m wondering if we should assume that no action will ever be taken on Social Security reform. Sometimes in financial planning we work with what we have rather than speculate on how tax and other laws might change in the future. I wonder if we should do that here. If so, you can expect full, promised benefits until 2033, but after that, benefits will decline by 25%.

So the question becomes this: When is the best time to claim Social Security if you know your benefits are going to drop by 25% in 2033? Just for fun, I ran this through our Social Security Benefits Calculator for a hypothetical 62-year-old maximum earner who has the option of claiming a reduced benefit of $1,880 now, or a delayed-enhanced benefit with COLAs of $4,127 at age 70. As it turns out, the breakeven age occurs in the year 2028 —when our hypothetical client is 78. After 2028 the later claiming scenario gains a greater edge. So the argument that it’s better to claim early because of Social Security’s deteriorating financial condition doesn’t hold water. Today’s 62-year-olds will be better off delaying benefits to age 70 if they think that they—or their surviving spouses—will live past age 78. That hasn’t changed.

I’ve heard some people say that they plan to claim at 62 in order to be “grandfathered.” While I wouldn’t put anything past Congress, especially if the situation becomes dire due to their extended inaction, I am quite sure any “grandfathering” would be based on age, not on whether or not a person had already started benefits. In the end, a client who claims early benefits based on this kind of speculation is running the risk that he will be stuck with a permanently reduced benefit. It’s our job to keep the discussion rational, to help you understand all options, and to help understand the long-term impact of their Social Security claiming decisions.

Hybrids have been around a long time, but there are particular influences on both the supply and demand fronts that are driving a renewed interest in these securities.

From a demand perspective, the volatility in equity markets and a lack of substantial capital gains in recent years have heightened the appetite among many investors, particularly the elderly, for what they see as steady, reliable income.

From the supply side, regulators have responded to the global financial crisis by imposing tougher requirements on the bonds that banks can count toward their regulatory capital. That is leading to an explosion of new types of hybrids in which investors carry greater risk than in the past.

In Australia alone in the space of a few days recently, hybrids totaling around $2 billion were announced by major financial firms, including Westpac, Colonial First State, and ANZ Banking Group. Also pushing out hybrids in recent months have been household names outside the banks like retailer Woolworths and gaming group Tabcorp.

In Asia, the Financial Times reports a surge in issuance of so-called contingent convertible bonds or “CoCos” by European banks. These are complex instruments that convert into shares when capital drops below a pre-defined level.

Now, hybrid securities are a perfectly legitimate way for companies to borrow money from investors. They combine features of debt and shares and often are able to be traded on a secondary market. They are also a legitimate source of returns for investors—provided they are aware of the risks they are taking.

The problem is that the complexity of hybrids is growing at a time when investors are seeking and valuing greater transparency, a point made by Australia’s corporate regulator in a recent warning to investors.

The Australian Securities and Investments Commission (ASIC) advised those retail investors contemplating hybrids and unsecured notes to compare offers, read and understand prospectuses, and pay particular attention to the risks.

“Retail investors may be attracted by the interest rates offered by household name companies and trusted brands, but hybrid securities should not be confused with government bonds or ‘vanilla’ corporate debt,” ASIC chairman Greg Medcraft said. “In some cases, investors are taking on equity-like risks but only receiving bond-like returns.”

In particular, Medcraft said, investors need to pay attention to terms and conditions that allow the issuer to exit the deal or suspend interest payments. As well, the regulator warned that in some cases hybrids are offering long-term maturity dates of several decades that may expire after the individual investor has died.

While plain-vanilla corporate bonds have set maturity dates, hybrids can have “call” dates—meaning repayment is at the issuer’s discretion. Many hybrid investors are still feeling the pain of that discovery after the events of 2008–09, when banks declined to redeem issues because they needed the capital to bolster their balance sheets.

So, ultimately, investors can find themselves with equity-like risk and bond-like returns. For those aware of those risks and clear about the conditions involved, that may still be OK. But for those who place a high priority on steady, predictable returns and/or capital security, hybrids can be a poor choice.

“The retail market buys the yield and doesn’t always have the ability to fully understand the risk,” one analyst told Bloomberg recently.

Interest rate offers of 7 or 8%—as we are seeing in Australia now—may look attractive. As always, though, investors would do better to keep their focus on cash flow rather than income. Making the latter requirement the key in choosing one asset over another means they can end up taking on more risk than they bargained for.

It’s an old story, but a familiar one.

Yet, the central bank confounded market expectations and kept rates on hold. The market reaction was dramatic. The Australian dollar took off like a rocket, hitting its highest levels in six months against the US dollar and rising on the cross rates. Shares eased and bond yields rose.

At this point, the very same economists who had carefully parsed the RBA’s language going into its decision proceeded to analyze in great detail the wording of the statement announcing that rates would stay where they were for another month.  Actually, there really wasn’t that much remarkable about what the RBA said.  Essentially, it had decided that, with economic growth close to its long-term trend and inflation on target, the RBA could afford to wait another month to see how events in Europe and elsewhere panned out.  Local bank economists immediately pushed out their expectations for the next policy easing to March.  Some had second thoughts altogether and decided the central bank might be done on interest rates for the foreseeable future.

For everyday investors, there are a few lessons out of this episode. The first is that there is very little evidence market professionals—including the ones closest to policymakers—are any better than anyone else in forecasting the prices of securities, commodities, interest rates, or currencies.  Last August, for instance, a global bond fund manager admitted he felt like “crying in his beer” over his call in March 2011 to dump almost all of his flagship fund’s US government bond holdings because interest rates were unsustainably low.

The second lesson is that trying to time markets—picking the turn in performance of bonds versus equities or government bonds versus corporate bonds or value stocks versus growth stocks—is a pretty tough job.  In fact, few (if any) people – even companies in existence only this very reason (forecasting) – seem to get it consistently right.  So many studies have shown that this is simply unsustainable, that it could fill a warehouse.

The third takeout is that it really doesn’t matter how strong you think the fundamental case is for an interest rate change or a lower currency or a higher stock price; events have a distinctive and unerring way of messing up your impeccable logic.  An example: In the US in February this year, strategists at some of the world’s biggest investment banks capitulated (sold stocks in order to not risk losing value) on their bearish forecasts after global stocks registered their best start to a year since 1994. In a summary of recent research, Bloomberg quoted strategists at several banks as admitting they had gotten their timing badly wrong.

The final message is that you don’t really need any of this fundamental analysis to build long-term wealth. Markets are unpredictable because news is unpredictable.  This means the best approach is to structure a diversified portfolio that is built according to your own investment goals and risk appetite, both across and within asset classes. Occasional rebalancing of the portfolio ensures you maintain an asset allocation consistent with your risk profile. The rest is all about discipline.

This may not be a particularly exciting investment story. But it’s one that works. And it doesn’t require you to make forecasts about interest rates, currencies, stock prices, or economies. As we have seen, there are some serious cracks in the crystal ball.

Modern Greece has traditionally been supported by three pillars. First is shipping. As a culture that is mostly coastal it makes sense they would be very good at sailing; however, in the age of modern transport and super container ships, Greece simply can’t compete, and most of its ship building industry has long ago left for greener pastures in places such as Norway, China or Korea. The second pillar is tourism and this continues to be an option, but tourism by itself cannot support a modern state. The final option and the one that the Greeks have gotten the most mileage out of is leveraging Greece’s position. Typically to allow some external power a means of battling somebody in Greece’s neighborhood. When Greece achieved independence in the early 1800’s that external power was the United Kingdom who used Greece as a foil against the Turks. Later, the Americans played a similar role supporting Greece against the Soviets. In both cases massive volumes of capital came in to support Greece. However, in the post-Cold War era Turkey is a member of NATO, and while the Greeks might not get along with the Turks, nobody is looking to use Greece as a military foil against them. Greece no longer has a regional foe that it shares with anyone else. The closest might be the Turks again, but only if the Turks miscalculate their ongoing relationship with Israel or Cyprus and miscalculate very very badly.

Bottom-line, the various supports that have allow the Greek state to exist since the 1820’s simply aren’t there anymore and so the path forward goes like this: Greece is not salvageable. Greece simply can’t compete unless it is being given a constant, steady supply of capital from abroad that it doesn’t necessarily have to pay back. And even if that could be restarted, Greece can not emerge from its own debt load. It is simply too large. Greece has to be kicked out of the eurozone if the euro is to survive, but between here and there, first, a firebreak fund. The EFSF expansion has to happen because if you cannot sequester the 280 billion euro of Greek government debt that exists outside of Greece, then you’re going to trigger a massive financial catastrophe that the eurozone simply can’t survive. And so to prepare for a Greek ejection, you have to prepare a fund that can handle three things more or less simultaneously. First, you need about 400 billion euro to firebreak Greece off from the rest of eurozone. Second, you need about 800 billion euro in order to prevent a wide-scale banking meltdown, because the day that Greece defaults on that debt, the day that it’s ejected from eurozone, there will be catastrophic banking collapses in Portugal, Italy, Spain and France, probably in that order.

Third, the markets will go wild and the state that is in the most danger of falling after Greece is Italy. Using the bailouts that have happened to date as a template, any bailout of Italy would have to provide enough financing to cover all Italian needs for three years. That comes out to about another 800 billion euro. So until the Europeans have 2 trillion euro in funding stashed away, they can’t kick Greece out of the system.

By getting it out on the table, he gives us a chance to refute this long-held belief that the Social Security system is a scam and doomed to fail.  It is not a Ponzi scheme – here’s why.

Never mind that Perry has spent the last week backpedaling on the statement lest he lose too many votes. But the words are out and the press is having a heyday with them, mostly in refutation. The New York Times published a very good explanation of why Social Security is not a Ponzi scheme, and the Washington Post published a primer on Social Security which you might find useful for explaining basic Social Security financing.  The best resource, however, will come from the Social Security Administration itself, which published a piece in 2009 called Ponzi Schemes vs. Social Security.

Some history on Ponzi:
Charles Ponzi rose to fame in the 1920s as a purveyor of foreign postal coupons. Claiming there was money to be made by arbitraging such coupons in international trading, he issued bonds that promised investors returns of 50% if held for 45 days or 100% if held for 90 days. The actual postal coupons returned only a fraction of a penny each. But that didn’t matter. When the bonds of the first investors came due he paid them, along with their miraculous profit, using the money collected from the second round of investors. The news of these extraordinary profits swept up and down the east coast and thousands of investors flocked to Ponzi’s office for an opportunity to give him their money. Using the money from this new surge of investors he paid off the next round of bonds as they came due, with their full profit, which excited even more frenzy.

Seven months later, it all came crashing down. On July 26th, 1920, at the insistence of the Massachusetts District Attorney, Ponzi quit accepting deposits from new investors. It was estimated that Ponzi had been taking in $200,000 a day of new investments just prior to the halt. At that point he had already collected almost $10 million from about 10,000 investors. On August 13, he was thrown in jail. After about seven years of litigation, Ponzi’s disillusioned investors got back 37 cents on the dollar.

Here’s why Ponzi schemes never work. To pay a 100% profit to the first 1,000 investors you need the money from 1,000 new investors. Now there are 2000 “investors” in the scheme. To pay the same return to these 2,000 investors in the second round of payouts, you need the money from 2,000 new investors—bringing the number of participants to 4,000. And to pay these 4,000, you will need 8,000 “investors,” then 16,000—and so on.

If all the investors stay in the scheme, the number of participants would double after every round of payouts. Even starting with only 1,000 “investors,” by the 20th round of payouts you would need more new investors than the entire population of the U.S. Eventually, the number of new investors that would have to be found would exceed the population of the earth. But of course, Ponzi schemes always collapse long before they reach their theoretical limit as an ever-increasing number of new participants cannot be found.

If demographics were stable—that is, if each generation were the same size—no one would ever be tempted to call Social Security a Ponzi scheme. But there are several reasons why young people are being led to believe they won’t collect any Social Security by the time they retire.

First, because the baby boomer generation of 76 million is so much larger than Generation X of about 46 million, it’s easy to think that baby boomers will take it all and leave nothing to the next generation. But the Millennial generation that follows Generation X, also called the “echo boom,” has 80 million members who are just now starting to work and pay into the system. These demographic variations are normal, and the purpose of the trust fund is to hold excess contributions from larger generations to pay benefits to smaller generations. Chief Actuary Steven Goss says that the problem of too many retirees for not enough workers that will cause benefits to drop to 77% of normal in 2036 is a one-time problem. If the system can be tweaked to take care of that one shortfall, the problem will be solved permanently (assuming people don’t suddenly start having fewer children on a permanent basis).

Second, there’s a “debt overhang” from the earliest recipients, who paid far less into the system than they took out. For example, Ida Mae Fuller, the first recipient of monthly Social Security benefits, paid a total of $24.75 in social security payroll taxes. By the time she died at age 100, she had received over $22,000 in benefits. This imbalance is being made up by all future generations who are essentially being forced to subsidize the earliest recipients. Pretty much everyone receiving Social Security now, except the oldest of the old who started working before 1935, has paid their fair share, so this debt overhang is about as large as it’s going to be. There have been calls for the U.S. government to transfer enough funds into the Social Security system to make up for the overhang so the system is fair to everyone. But that’s not likely to happen in this political environment.

Third, some people think Social Security should be abolished. Ultra right-wing conservatives see it as a welfare program and they are opposed to welfare of any kind. They would rather eliminate the payroll tax and have each individual be responsible for their own financial well-being. One way they attempt to gain support of their agenda to abolish Social Security is by convincing today’s workers that they won’t see a return of their payroll taxes.

And fourth, our own financial services industry must share some of the responsibility for denigrating Social Security as we’ve worked to convince clients to save for retirement. While the argument that Social Security will replace only a portion of your income has validity, many advisors and product sponsors have gone overboard, focusing on the diminishing ratio of workers to retirees and generally suggesting that people had better not count on Social Security. While the net effect may have been positive in that it has inspired people to save more for retirement, it often has resulted in a twisted and overly pessimistic view of Social Security.

In the end, we should try to look at most things politicians say, especially when running for office, with a healthy amount of skepticism…and especially don’t make financial decisions on what you hear in the media.  Call us at any time to have a social security analysis and strategy session to maximize your benefits.

First, the Tea Party was going to be blamed if a deal wasn’t made and the debt ceiling wasn’t raised. We were told the United States would default. We were warned the world would end. In reality, the federal government could pay interest, Social Security and the active duty military with the cash coming in.  Then a relatively weak deal was made and the stock markets dropped anyway.  When the S&P downgraded the U.S. credit rating, the markets dropped again.

The message was that we simply can’t spend our way into prosperity.

S&P said they would downgrade the United States unless $4 trillion was cut from the deficit. Members of Congress only cut $900 billion and then seemed shocked when S&P followed through. S&P even explicitly spelled out the possibility in what they called scenario 2:

“The White House and Congress agree to raise the debt ceiling to avoid potential default but are not able to formulate what we consider to be a realistic and credible fiscal consolidation plan. Such a partial solution would essentially put before American voters in the 2012 presidential and congressional election the spending vs. revenue debate. Meanwhile, debt would continue to mount and the results of the election might not, in any event, resolve the issue. Under this scenario, we might lower the U.S. sovereign rating to ‘AA+/A-1+’ with a negative outlook within three months and potentially as soon as early August.”

Unlike Congress, S&P follows through on its promises.

One of the positive aspects of our country’s financial debacle has been to show our financial health more clearly as a house of cards. Stubbornness in Congress, we were told, imperiled everything from Social Security to defaulting on our interest payments. In other words, without continued deficit spending we can’t even pay our bills. It is no longer a given that money will continue to emerge indefinitely from the Public ATM.

In this regard, the credit rating downgrade was justified. Fannie Mae and Freddie Mac are backed by the full faith and credit of the federal government, and therefore they have now been downgraded as well. Social Security is supported by the full faith and credit of the federal government. Medicare and Medicaid are similarly sustained. But as a result of these entitlements, the full faith and credit of the federal government is buckling under the strain.

Unfortunately, the full faith and credit of the federal government is based on the ability to get that revenue increasingly from a much smaller percentage of those of us who actually pay income tax. The Democrats have tried to spin the idea this was a Tea Party downgrade and our real problem is that taxes need to be raised, especially on the wealthy.

Since 1960, the Federal Government has consistently collected between 15% and 20% of the nation’s gross domestic product (GDP).  Given the wild change in marginal tax rates over that same time period and even accounting for both the recessions and economic growth, it has been remarkably stable. When measured as a percentage of GDP, spending and revenue numbers should remain relatively constant. As we get richer, revenue and spending should rise proportionally and the percentages of GDP should not change.

Although this has been true for revenue, it has not been true of spending. Our spending recently has exceeded 25% of GDP. Because we are in a recession and revenues are closer to the 15% mark, we are going about 10% of GDP further into debt each year.

Additionally, there is a diminishing return for government spending. Another dollar spent on stimulus, investment or spurring economic growth is worth less than 30 cents in reducing our deficit. We simply can’t spend our way into prosperity.

I’ve worked with many families struggling with credit card debt.  A key point that I’ve learned is that the change of behavior needed to cut back on spending is nearly impossible until NO other choice is available. Even then it’s difficult. Most of the time people won’t reduce the features on their cell phone, cancel their gym membership or stop eating out until they hit bottom and everything falls apart. Unfortunately, when Congress hits bottom we will be standing under them to soften the fall.

So, spending is one side of the problem.  How about taxes, you might ask?   Our current situation is akin to forcing all U.S. businesses to rent space from our country. Raising taxes is like trying to help America become more competitive by increasing rent and forcing businesses to raise their prices. We can’t become more competitive by raising prices. In a global economy, the best contribution that our government can make is to give us low rent and more efficient management. Government needs to spend less…mostly.  Social Security for one can be solved by raising the cap on the current taxable limit – problem solved.  Medicare is a definite problem,

While we continue to invest in this country, six countries currently enjoy more economic freedom and lower debt: Hong Kong, Singapore, Australia, New Zealand, Switzerland and Canada. And all still have AAA ratings.

These are the countries that may continue to have what used to be called the American style of GDP growth: 6.5%. With our increased government spending and reduced economic freedom, we will be stuck with the European malaise level of 2 to 3% GDP growth. And obviously anything growing at 6.5% will overtake something growing only at a 3% rate of growth.

If this was a Tea Party downgrade, it is only because the Tea Party wasn’t strong enough to overcome congressional politics as usual. We need government workers who will vote for smaller government. Less government means more freedom. More freedom means faster GDP growth – which will be the only way out of our current quagmire.

Aspire Capital Mangagement of Walnut Creek, CA provides fee-based financial planning and asset management.  Visit www.aspire.biz for more information.

• Conflict in the Middle East – Egypt and then Libya
• Surging oil prices
• Japanese earthquake and tsunami
• Subsequent Japanese nuclear crisis
• Renewed European debt worries
• Very disappointing home sales in the U.S.

These events have dampened, but not broken investor optimism. The return of skepticism, though, might be a good thing as sentiment measures have dipped to more reasonable levels. The latest survey now has 50.6% of advisors in the bullish camp, down from a high of 58.8% last December, while the American Association of Individual Investors, in their weekly poll, shows bulls down to 38% versus over 63% in December.

The Fed & Rates:

Overshadowed by the events elsewhere, the Federal Reserve announced in mid-March its decision to keep interest rates unchanged. The Fed offered an upgraded view of the economic recovery by stating that it was on “firmer footing” than previous assessments, however, they’ve not indicated that they intend to raise rates at all for the foreseeable future.

Housing…it actually can get worse:

Contradicting the Fed statement, was this week’s release of housing data. New home sales plunged 16.9% in February to a record low annual rate of 225,000 units. The figure was well below the 290,000 rate forecasted by economists and the lowest since records began in 1963. An annual sales rate of 700,000 is considered by analysts as a threshold for a healthy housing market…so we’re still 475,000 off the mark! Median prices fell 13.9% to $202,100 in February from $234,800 in January. It was the lowest median home price since December 2003 when homes sold for $195,000. Sales declined in every region in the country with the Northeast taking the biggest hit as sales plunged 57.1% to only 1,000 new homes sold. Based on February’s sales pace, the supply of new homes on the market rose to 8.9 months from 7.4 months in January. There were only 186,000 new homes for sale in February, the lowest supply since 1967.

Stock Markets:

In the face of this preponderance of negative news, the Dow is only 220 points away from breaking through its February 18th bull market highs. The recent setback saw the Dow lose 777 points, -6.28%, in 17 trading sessions. Since then, the Dow has rebounded 567 points, +4.8%, and in the process moved back above its 50-day moving average. Most of the key indices have joined the Dow above their respective 50-day lines. According to the technitians among us, the markets appear poised for a breakout.

Well, the market might not be out of the woods, but it certainly has taken a big step in the right direction. The CBOE Market Volatility Index, VIX, is once again under its 50-day moving average which had contained it since last October except for four trading sessions during the most recent selloff. As the market continues to rally, we would like to see an expansion in the number of 52-week highs. The inability of the new high list to expand in recent weeks has been one of the telltale signs of the market’s deeper weakness.

Bond Markets:

Over the winter, many bonds were hurt due to several factors we’re mentioned previously.  For interest rates, we’re seeing short term Treasuries trading at support levels of 3.75%.  Long-term Treasuries have found support at about 4.25%.  This means that we may see continued price stability, if not for some degradation of the longer term interest rates (flattening rate spreads between the 10-Year & 2-Year Treasuries).  We still favor corporate bonds of both, investment grade and some higher yield, as well as well analyzed municipal bonds. The sweet spot seems to still be in the A/BBB range with durations in the 5-7 year range.

As always, please let us know if you have any questions or comments.  We encourage participation in discussions!

A Historical Perspective

Markets are impossible to predict, but history may help guide our understanding. Our studies of crisis events have demonstrated that after a period of panic-induced weakness, stocks have generally recovered. For example, three months after the 2004 Indian Ocean earthquake and tsunami, the markets of the affected countries were mostly higher (see table below).

But this has not always been the case. After the 1995 Kobe earthquake in Japan, the market continued to sell off. Then, as now, the market had already been declining when disaster struck. In addition, Japan was in the midst of the same secular bear market that has continued to depress the market’s overall performance even to this day. In contrast, the other Tsunami-stricken Asian markets had been in secular bull markets.

What does this mean for these markets? It wouldn’t be surprising to see the Japanese market attempt to rally after the panic subsides. That prospect is also supported by the seasonal tendency for the market to rally before and after the fiscal New Year on April 1.  But unless we see substantial and decisive “relative strength” improvement, we would view a rally with extreme caution. In our portfolio allocations, we remain underweight for Japan, while maintaining our slightly overweight allocations to the U.S. and normal allocations to Emerging Markets, and Asia Pacific countries (excluding Japan).

This quote, taken from today’s issue of Investment News essentially means that Ameriprise (American Express Financial Advisors) estimates that they lost their clients $400 MILLION.  Now, you may think, $400 Mil is not that much when compared to the total amount of investment dollars Ameriprise manages for clients, however, I’m thinking of the philosophical implications of these losses…not so much the dollar amounts.

Ameriprise is a company who, like so many other financial services firms, advertises that they’re on the client’s side, 100% of the time.  Not true.  I worked for AMEX Financial Advisors and their business runs the same today as it did when I was there in the late 1990′s.  Internally, the side you don’t see unless you work there, is a meritocracy based on your “production numbers”.  That is, the more revenue you earn from your client’s accounts, the better an advisor you are in the eyes of management.  And the pay can be very lucrative for big producers through innumerable bonuses and payouts.

Guess what products have a great payout when sold?  That’s right!  Privately placed products such as the one’s sold by AMEX financial advisors.

So, as I’ve stated before, investing is not rocket science.  You don’t need private investment vehicles that are expensive, and often times unregulated to make a lot of money in the markets!!  You DO need discipline, common sense, and some decent, non-sales driven financial advice.

Just be aware of the risks involved when dealing with big, multi-million dollar firms who push “products” with commissions, kick-backs, tie-ins, any sort of payout trail, and generally seemingly expensive “financial hooks”.  You can’t go too wrong by remembering that the bigger the cost for an investment generally means that the performance is inferior.

Please call us if you have any question or concern!

If you can hold out to file until you reach full retirement age, it will be the single best thing you can do to maximize your Social Security benefits.  Still, not everyone understands what the full retirement age is under government rules, or how much money you can receive if they wait a just a little longer.

Tiered Retirement Ages

The traditional “retirement age” of 65 only applies to clients born before 1943. For those born between 1943 and 1960, the age is set at 66. For those born after 1960, it’s set at 67. You need to understand that filing for benefits when you’re first eligible at age 62 can cut benefits by about 25 percent!  However, if you would wait until you’re 70 years old to file for benefits, you can increase the amount you receive by 8% for every year you delay…a maximum increase of 32% over normal retirement aged benefits!

For example, if you currently earn $100,000 and decide to file for Social Security early at age 62, you will receive about $1,600 per month. If you hold off until full retirement age, you’ll get $2,400 per month. But if you can put off filing for benefits until age 70, you’ll get $3,000 per month.

Non-Working Spouses Can Get Up to 50%

If you have a spouse who has little or no work history (typically a housewife), then the non-working spouse usually has to wait for the main breadwinner to file for Social Security benefits before he or she can receive spousal benefits. However, there’s a great workaround to this rule called the “file-and-suspend” method. As long as the higher earning spouse has reached retirement age, he/she can file for benefits and then suspend receiving them while continuing to work until age 70. This allows his non-working spouse to receive spousal benefits – up to 50 percent of what his benefits will be. This is a good tactic because it allows the working spouse’s benefits to continue to grow and it doesn’t affect his benefits when he chooses to receive them. For dual-income families, this strategy can still pay off. If both spouses earn about the same income and both are at retirement age, then one can collect half of the other’s benefits using the file-and-suspend method while delaying collecting his own benefits until they’re worth more later. To qualify for spousal benefits, couples must have been married for at least 10 years. A spouse can receive either the full benefits he qualified for on his own, or half his spouse’s benefit – whichever is greater.

Divorce Doesn’t Necessarily Negate Benefits

If a client was married for over 10 years and has been divorced for at least two years, he or she is entitled to receive spousal benefits. This does not impact the ex-spouse’s benefits. The only stipulation is that that the client cannot have married someone else. This is one reason why some older divorcees choose not to remarry. A second marriage for a non-working spouse can mean losing benefits from the first marriage.

As always, I hope this article has helped you and your friends/family. If you have an issue or concern, call our office.