Author: production

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.

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.

It may seem early in the year to think about beefing up your nest egg, but as they say, the early bird gets the worm. And in order to develop a retirement savings plan for 2019, you need know the 2019 limits for retirement account contributions.

The Internal Revenue Service (IRS) sets different contribution limits for different types of retirement accounts. Since they tend to change each year, keeping up with them can be difficult. Plus, if you are 50 or older, you can make additional catch-up contributions.

To simplify retirement account contribution limits, we have listed the 2019 limits to the right. You can make contributions for 2019 until the tax-filing deadline of April 15, 2020.

Traditional IRAs and Roth IRAs 
Contribution limit: $6,000
Age 50 catch-up contribution limit: $1,000 extra

Deferred-contribution plans, such as 401(k), 403(b), and 457 plans
Contribution limit: $19,000
Age 50 catch-up contribution limit: $6,000 extra

SIMPLE IRAs
Contribution limit: $13,000
Age 50 catch-up contribution limit: $3,000 extra

Note that there are also income limits when it comes to retirement account contributions (assuming you are covered by a workplace retirement plan).

You can contribute to a traditional IRA in 2019 only if your adjusted gross income (AGI) is less than $74,000 if you are single or $123,000 if you are married filing jointly. And, the amount that you can contribute starts to phase out if your AGI is more than $64,000 for singles and $103,000 for couples.

You can only contribute to a Roth IRA in 2019 if your AGI is less than $137,000 if you are single or $203,000 if you are married filing jointly. And, the amount that you can contribute starts to phase out if your AGI is more than $122,000 for singles and $193,000 for couples.

This material has been prepared for informational purposes only and is not intended to provide and should not be relied on for tax, legal, or accounting advice.

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“This material has been prepared for informational purposes only and is not intended to provide and should not be relied on for tax, legal, or accounting advice.”

The US Federal Reserve Board (Fed) is currently in the midst of a rate-hiking cycle that began in December 2008. As a result, the federal funds rate (the rate at which banks lend money to other banks overnight) rose from 0.05 percent in December 2009 to 2.19 percent in October 2018.

When the Fed federal funds rate rises, it typically has a ripple effect on interest rates across the entire economy. US Treasury yields, for example, have followed suit, soaring to multiyear highs in October. The yield on the 10-year US Treasury note, for example, exceeded 3 percent to reach its highest level since July 2011.

With interest rates poised to continue rising, US Treasuries may be appealing. To some, 3 percent may seem far too low for a sensible long-term interest rate. For others, it is a reasonable return for the safety of bonds backed by the full faith and credit of the US government.

Additionally, there are other high-yielding alternatives. For example, you may be able to obtain higher yields with only slightly more volatility via non-Treasury government-backed bonds, such as mortgage-backed securities supported by other agencies.

One example is mortgage-backed securities supported by the Government National Mortgage Association (GNMA), which guarantees investments backed by federally insured loans. These securities carry the full faith and credit of the US government and may offer a higher yield than comparable US Treasuries do.

Of course, no investment is suitable for all investors. A financial professional can help you determine whether the mentioned securities are appropriate for your portfolio.

Many people associate blockchain with the volatile cryptocurrency Bitcoin, but they’re not one and the same. And blockchain has implications for investors beyond what you might imagine.

Blockchain is a method of distributing encrypted information among members of a network, who themselves authenticate the information.

There are two types of blockchain: public and private. In a public blockchain, like Bitcoin, every member of the network houses data, makes decisions about its accuracy, and reconciles transactions. In a private blockchain, every member has access to data, but only certain members have permission to verify and reconcile it.

Many public companies (companies in which you can invest) are using blockchain to more efficiently exchange information among various points of a network, like a supply chain.

Walmart, for example, is using blockchain to monitor its food-delivery supply chain. Blockchain tells Walmart from which supplier a product came and on what date. This can help prevent food recalls and is so significant the vice president of food and safety at Walmart has said that “blockchain will do for food traceability what the internet did for communication.”

The trucking industry is also using blockchain to help transport goods from one point to another. This is a complex process that often involves a large number of transactions via email and phone calls, which can take days. Now, a trucking consortium hopes to make that process more efficient by using blockchain.

The U.S. Food and Drug Administration is even testing blockchain to exchange medical records, data from clinical trials, and health data gathered from wearable devices.

What does that mean for investors? Companies that use blockchain could become more efficient, and that could affect their profitability. While there are many factors involved in analyzing a company’s suitability for a portfolio, this is one to consider.

Because we’re in the midst of a historically significant bull market, many investor portfolios have performed well for several years. That means it may be time to re-examine your portfolio.

The last bear market ended almost a decade ago. Since then, the rise we have seen in stocks is almost unprecedented. It is the second oldest without at least a 20% drop in the S&P 500 Index.

That may sound great. Who doesn’t like strong performance? Why make a change, when things are going so well?

But we will undoubtedly experience a market correction at some point, and you may want to start thinking about how you will position your portfolio then.

As hockey great Wayne Gretzky once said, you want to skate to where the puck is going, not to where it has been.

This doesn’t mean you should try to time the market; you may simply want to have a conversation with your financial advisor about how to best position your portfolio for now and the future.

Perhaps you focus more on capital preservation, for example. Or perhaps you consider how you might re-allocate among asset classes. That way, when there is an event such as a market downturn or a geopolitical shock, you are already ahead of it and can continue making changes.

The end of the year is a good time to have this conversation, because it is likely that you are already thinking about the changes you might make to your portfolio to keep it in tip-top shape over the coming year.

The topic of allocating retirement assets is a frequent source of questions. How much should you put into stocks, bonds, cash, and other asset classes?

There are a number of investment frameworks that can help you decide. You may be familiar with one, called the 120 Rule. This rule holds that you should subtract your age from 120, invest that percentage in stocks, and invest the rest in bonds. A 55-year-old would allocate 65 percent (120 minus 55) to stocks and 35 percent to bonds, for example.

The 120 Rule is based on a few key ideas. First, equities have a higher potential return than fixed income, which you need for growth, but also come with higher potential risk. When you are younger, you can tolerate this risk, so you can invest more in equities.

That changes as you age. So, as you age, you lower your equity allocation and move money to fixed income. (Interestingly, the 120 Rule used to be the 100 Rule, but was changed as the typical life span increased.)

Does the 120 Rule work? No investing “rule” is perfect, but even without more details about your individual financial goals and risk tolerances, it provides a guideline. Ideally, however, your investment plan would be more nuanced.

For example, the 120 Rule might specify a 65 percent allocation to stocks at age 55, but if you plan to retire within a year, you might want to dial down that allocation to minimize risk in your portfolio.

This is where an experienced financial professional can help by creating a portfolio that is customized for your situation.

From Humphrey Bogart and Lauren Bacall to Michael Douglas and Catherine Zeta-Jones, marriages with age gaps have transcended generations.

In many marriages, spouses are aged one year apart or less. According to the 2013 U.S. Current Population Survey, this is true for roughly one-third of marriages. In around 10 percent of marriages, however, one spouse is 10 or more years older than the other. That may not seem significant, but some sources say the number of May-September romances is increasing, and with this increase comes the need for better financial planning.

When spouses have significant age differences, the question of when to retire becomes more important. Will the couple retire at the same time, or will the younger spouse continue to work while the older spouse retires?

This can affect the psychological dynamics of the relationship as well as the couple’s finances. Couples with an age gap, for example, may have different income levels and investment needs (with one spouse working and one spouse retired). How should assets be allocated to protect the spouse who needs a growing nest egg as well as the spouse who is worried about market volatility? A balance must be found to keep the older spouse’s current needs with the younger spouse’s extended time horizon.

Additionally, these couples must understand the rules for withdrawing assets. For example, required minimum distributions (RMDs) from retirement accounts are typically calculated based on the Uniform Lifetime Table. But if your spouse is 10 or more years younger, instead you must use the Joint Life and Last Survivor Expectancy table, which will result in smaller RMDs (and lower your taxable income).

There is also end-of-life planning to consider. If the older spouse has children from a prior relationship, it is important to have a strong estate plan that balances the younger spouse’s financial needs with the desire to leave children an inheritance.

To strike a balance among all of these needs, consult with your financial professional to develop a personalized retirement plan.

When it’s time to take a distribution from your employer-sponsored retirement plan, you have several options.

1. Leave the money in the plan. Depending on your employer’s retirement plan rules, you may be able to leave your savings in your employer’s plan until you reach age 70 1/2 or retire. Why choose this option? This makes sense if you have other sources of retirement income such as a taxable account or a working spouse, and you want to continue to obtain tax-deferred compounding interest on your investments.

2. Move your money to another tax-qualified retirement account. You can roll the money in your employer-sponsored retirement plan over to another retirement account, such as an IRA. This can be done as a direct rollover or by taking a cash distribution and depositing it in another tax-qualified retirement plan within 60 days. Why choose this option? This route works well if you have other sources of retirement income and want to continue to obtain tax-deferred compounding interest on your investments, but you are seeking more varied investment options.

3. Take a distribution. You can also receive a lump-sum payment or take distributions in installments. Why choose this option? You may simply want your money, or you may want to invest it in a taxable account. Remember, however, that you will have to pay income taxes on the money withdrawn, and if you are under age 59 1/2, you will have to pay an additional 10 percent penalty.

Whatever you choose, the tax regulations around distributions of retirement accounts are complex, so it is best to consult a financial professional.

The 4 percent rule, which is used to determine how much you should withdraw from your retirement account each year so you don’t outlive your savings, is much loved by some and much hated by others. How effective is it, really?

How it works is simple but often misunderstood. You don’t withdraw 4 percent of your retirement savings each year in retirement; you withdraw 4 percent in the first year of retirement. In subsequent years, you increase the value of your annual withdrawal by the inflation rate.

So, as an example, if you have $2 million in retirement savings, you would withdraw $80,000 in the first year (4 percent of $2 million). Then, in the second year, when the inflation rate is 2 percent, you would withdraw $81,600 (the original $80,000 plus 2 percent).

But the 4 percent rule is more of a guideline than an absolute. The rule is intended to provide a schedule of withdrawals that will ensure that your retirement savings will last at least 30 years. When William Bengen developed it in the 1990s, that seemed to be the case. But some financial planners now argue that the 4 percent rule might not provide the same margin of safety as it did in the past, since stock returns and bond yields have declined since the 1990s.

The fact is, it has always been impossible to know with absolute certainty that the 4 percent rule will prevent you from outliving your retirement savings. Even the most careful planning cannot account for every scenario and surprise.

So how do you choose a withdrawal rate? It may be more art than science. Start with the 4 percent rule; but if you seem to be running through your savings too quickly, withdraw less. If you seem to have some wiggle room, withdraw more. Continue to monitor your investments and make adjustments as needed.

It’s certainly a conversation worth having with a financial professional who knows your individual financial circumstances and goals. This expert can help you fine-tune your retirement withdrawals to achieve a healthy balance between spending and saving.