Should You Take Social Security ASAP

Americans have the option of taking Social Security benefits early, on time, or late. Is your plan to hold off as long as possible? Even if you don’t need Social Security benefits to live on, there are some compelling reasons to take them as soon as possible rather than wait.

Sometimes, older Americans are advised to refrain from collecting Social Security benefits until age 70 in order to get the highest benefit possible. In some cases, that’s solid advice. For example, if your health allows you to work past the earliest age that you can collect Social Security, and you believe you will rely heavily on it to support your later retirement, it seems wise to delay taking benefits.

But let’s say you’re 62, would like to retire, and already have significant retirement income (such as a pension) outside of Social Security. In this case, you may want to start collecting benefits as soon as possible.

Why? Because, as an investor, you have to think about risk. You (and your financial advisor) evaluate all associated past, present, and future risks when you invest in stocks and bonds. Why wouldn’t you do the same when you “invest” in Social Security?

This careful evaluation may prove valuable. In the past, Social Security benefits have been reduced twice through taxation, and these changes have primarily affected wealthier investors with bigger income streams. If Congress changes Social Security laws again (and it’s reasonable to think they might, given projected shortfalls), you could be disadvantaged.

The moral of the story: Social Security is designed to be a safety net for all Americans, and it is. But it doesn’t protect everyone in exactly the same way. Knowing how to make it work for you, based on your individual financial circumstances, is important.

Consult with your financial advisor to determine the best way to approach Social Security based on your individual investment needs and future plans.

Are We Nearing the End of the Market Cycle?

Markets have a history of repeated cycles: a growing euphoria followed by crashes and then recoveries. Currently, we’re in the midst of a bull market of nearly a decade. Is the end near?

Looking back at the past four decades, we can see these cycles playing out clearly.

In the mid-1980s, we had a period of prosperity created by loose monetary policy. Stock markets rallied, with the S&P 500 Index increasing by roughly 85% between February 1985 and August 1987. But in October 1987, the markets crashed on the day known as “Black Monday,” and the Federal Reserve (Fed) stepped in to stop it.

We saw a similar situation play out in the 1990s. After Black Monday, the Fed kept interest rates low, and the economy and stock market (particularly in the technology sector) overheated. When the Fed finally started raising rates, the tech-heavy Nasdaq Composite Index fell by almost 30%.

It happened again in the 2000s. In a seemingly safe environment, the risk premia on risky assets declined, and investors piled money into the housing sector in search of yield. We all know how that ended. The equity market began declining in 2007, and the Fed stepped in again, lowering the target federal funds from 5.25% in September 2007 to below 1.0% in October 2008.

Since then, we’ve been in a prolonged period of prosperity, but, if history is any indication, it will end at some point. We don’t know when; it’s never a good idea to time the market. But it is a good idea to be prepared with a diversified portfolio.