Bereavement and Social Security: The Facts

Thinking about a spouse’s death is not something anyone likes to do, but it’s an important part of financial planning. If your spouse dies, will you receive any or all of his or her Social Security benefit?

You could – but it depends on your age when your spouse passes away.

Let’s say you and your spouse both are eligible for or receive separate Social Security benefits, and your spouse dies. You can either collect your own benefit or your survivor benefit – but not both at the same time.

You’ll want to choose the greater benefit – and which one that is depends on whether you have reached your full retirement age, as defined by the Social Security Administration, when your spouse died.

If you’ve already reached full retirement age: You’ll be eligible to receive your deceased spouse’s full benefit, assuming your spouse’s benefit is larger than yours.

As an example, let’s say you’re 68 and collect $1,000 a month, and your husband is 70 and collects $2,000 a month. If he dies, you’ll be able to collect his $2,000 a month instead of your $1,000, since you are past your full retirement age.

If you haven’t reached full retirement age: You’ll be eligible to receive a fraction of your deceased spouse’s full benefit, just as you would if you took your own benefit early.

As an example, let’s say you’re at least 60 but have not reached your full retirement age when your spouse dies at age 70.

You could collect between 71% and 99% of your deceased spouse’s benefit, depending on your age.

Try these resources for more information:

•    SSA Publication 05-1007, What You Need to Know When You Get Retirement or Survivors’ Benefits

•    SSA Publication 05-10084, Survivors’ Benefits

•    SSA retirement age calculator. All at

•    Your financial advisor

Managed Futures: Are They Right for You?

Returns on managed futures are appealing, but investors may want to look before they leap.

A managed future is like a mutual fund, except instead of stocks or bonds, it holds futures contracts and similar securities. Managed futures are overseen by commodity trading advisors (CTAs).

Managed futures may seem to offer solid returns in any economic environment. The Barclay CTA Index of managed futures rose 14% in 2008, beating the S&P 500 index by leaps and bounds. It has gained an annual average of 12.2% since 1980, losing money in only three of those calendar years.1

But are managed futures right for you? Probably not. Here’s why:

•    Performance may not be as good as it seems: The historical performance of managed futures is based only on the results of those managers who choose to report their returns to industry databases, meaning the worst funds may not get into indices.

•    Fees are high: You may have to pay an introducing broker to get into a managed future. Once in, managed futures charge a management fee, plus a percentage of any “new new profits.” All told, the fees can reach 6% to 8% annually.

If you’re looking for an alternative investment strategy, we recommend you contact your financial advisor, who can point you in a suitable direction.

1Index returns assume reinvestment of all distributions and do not reflect fees or expenses. It is not possible to invest directly in an index.

Why Municipal Bonds Offer Opportunities Today

The turmoil in the credit markets has made many investors nervous – but it has also created opportunities for those who are willing to consider municipal bond funds.

Municipal bonds are issued by state and local governments and agencies, such as counties, cities, schools and water districts. They’re used to finance public projects such as roads, schools and airports and certain private projects, including nursing homes and assisted living centers.

Traditionally, investors have purchased municipal bonds primarily because they offer tax-free income: The interest on municipal bonds is exempt from federal taxes, and because most states don’t require their residents to pay state and local taxes on interest received from bonds issued by political entities within those states, it may also be exempt from state and local taxes.

The Pre-Refunded Bond

Today, many investors are interested in a specific type of municipal bond called a pre-refunded bond, because these bonds offer additional benefits.

A “refunding” occurs when a municipality issues a bond at a lower rate to retire a bond that was issued earlier at a higher rate. In most cases, municipalities will spend the money raised by the new issue on government debt such as Treasuries and then, at a later date, use these securities to retire the older bond.

Why Consider these Bonds

Why consider municipal bonds that are candidates for refundings? First, these pre-refunded bonds are essentially backed by the federal government, but they generally offer a higher yield than do Treasuries. Second, if the municipality does cash the bond, the bondholder has received a yield that one might expect to receive from a longer-term bond for a short amount of time. As a result, prices for pre-refunded bonds usually rise.

Buying interest for these bonds is higher now than at any time since the early 1990s, and as a result, they may be hard to find. Your financial advisor can help you locate them.

Investing in Your Values with Socially Responsible Funds

Many investors turned off by the questionable business practices that made headlines during the financial crisis are seeking to align their personal values and their retirement savings by making “socially responsible” investments.

So-called socially responsible mutual funds have been around for a while. Typically, they don’t invest in companies that create products or have practices deemed undesirable. In some cases, that may mean avoiding companies that manufacture alcohol or tobacco or are involved in gambling; in other cases, it may mean avoiding companies with poor pollution records or those involved in nuclear energy.

After those criteria are met, these funds typically screen for companies in the same way other funds do – by looking for strong balance sheets and good growth prospects. They may also consider factors such as workplace diversity and environmental impact.

In the past, socially responsible funds were primarily available to individual retail investors. But today, more investors are demanding – and getting – these funds as options in their retirement plans. The question is, will socially responsible funds outperform the market any better than traditional funds? That remains to be seen.

If you think the governance offered by socially responsible funds is good for your portfolio, you may want to speak to your financial advisor. He or she can help direct you to a fund that meets your values as well as your investment goals and risk tolerance.

Why It’s Important to Understand the Wash Sale Rule

Most investors are familiar with the “wash sale” rule – but that doesn’t stop them from trying to find ways around it, especially in today’s market environment.

A wash sale occurs when you sell a security at a loss, then buy back the same security (or what the Internal Revenue Service calls something “substantially identical”) within 30 days. The idea is to take a capital loss and keep the security – in essence, to have your cake and eat it too. Clearly, the IRS frowns upon this.

Some people trying to find a way around the wash sale rule mistakenly assume it refers only to buying back a security 30 days after the sale – but it applies before a sale as well.

What does that mean? To illustrate, let’s say you buy a stock and hold it for several years. You then purchase additional shares and sell the initial shares at a loss a few days later. You then deduct the loss.

That seems like it would work – but it doesn’t, because the wash sale rule still applies. You can’t sell a security then buy the same security 30 days before or after the sale.

Some areas of the law are fuzzy, as is the case with many IRS regulations. For example, the definition of “substantially identical” is unclear. And the wash sale rule can get confusing when used with derivatives, which are sophisticated securities that derive their value from the value of underlying securities.
As a result, you may want to consult your financial advisor before buying and selling any security

Ways to Find Companies That Won’t Cut Dividends

For many investors, one of the most challenging aspects of a recession is the decline in dividends that often accompanies it.

First, let’s review dividends. When a company earns profits, it often pays a share of those profits to its shareholders (directly or through mutual funds). These profits are called dividends. Typically, dividends are paid by well-established companies that generate regular profits but are too mature to grow significantly.

In a recession, many companies cut or suspend their dividends, and we see that happening now. According to Standard & Poor’s, a record number of companies cut their dividends in the first quarter of 2009. As a result, dividend decreases outpaced increases for the first time since S&P started tracking dividends in 1955 – resulting in a net dividend decrease of $77 billion.

How can you predict whether a company will cut dividends?

The size of the company. Many of the earliest dividend cuts were made by large companies. Although smaller companies could be next, the unfavorable investor sentiment resulting from cuts by larger companies could inspire smaller ones to prevent cuts.

The type of stock. Dividend cuts on preferred shares, which are hybrid securities that resemble both stocks and bonds, are rarer than dividend cuts on common shares.

A history of raising dividends. By regularly committing to distributing more of its earnings to shareholders, a company may be signaling that its prospects are good.

Where companies get the money to pay their dividends.
Many financial advisors like to see dividends supported by current earnings rather than a company’s nest egg of cash and marketable securities.

Of course, you may not be comfortable poring over a company’s books and researching its history. In this case, you can always help protect yourself from a dividend cut via two standbys: consult your financial advisor, and maintain a diversified portfolio.

When Should You Take Social Security Benefits?

Many people assume they must begin receiving Social Security benefits as soon as they reach their normal retirement age, but taking benefits is never mandatory. Should you take Social Security early, on time or later?

First, remember normal retirement age is 65 for those born in 1937 or earlier and goes up for those born in 1938 or later; it’s 67 if you were born after 1959.

Regardless of your normal retirement age, you may begin taking benefits as early as age 62. However, your benefits will be reduced by a certain percentage for each month before your normal retirement age that you receive benefits.

You can also defer Social Security benefits until after your normal retirement age, in which case they will be increased by a certain percentage for each month past your normal retirement age that you delay benefits, up to age 70.

So, should you start collecting benefits as early as age 62, wait until normal retirement age, or delay as late as age 70?

Things to Consider

One major factor to consider is your life expectancy. Social Security calculates payments so that if you start early, the smaller payments you collect over a longer time equal the larger payments over a shorter period of time you would have received had you started at normal retirement age or as late as age 70. However, all these payments are based on your normal life expectancy. If you live longer, delaying benefits will result in greater monthly payments and a potentially higher lifetime total.

You may also want to consider whether you actually need the benefits or will save and invest them. Your personal tax situation could also be a factor.

A financial advisor can help you determine when it is best to take Social Security benefits. Or call (800) 772-1213 for the location of a Social Security Administration office near you, where advice is available free of charge.

June 2009

How to Find a Financial Advisor Who Meets Your Needs

Many investors don’t have the expertise to make all their own investment decisions, and therefore they want a reliable financial advisor. While nothing can guarantee a financial advisor’s reliability, there are some things you can look for.

Investigate your advisor’s background. The website of the Financial Industry Regulatory Agency,, will tell you which states many advisors are registered in, along with exams passed, licenses held and employment history.

Learn how the advisor makes decisions. Performance is important, but so is the decision-making process.

Evaluate the advisor’s track record. While different clients will have different investment goals, you can ask how the advisor’s other clients performed relative to their benchmarks.

Understand how the advisor is paid. Different advisers are paid differently: Some receive a commission on the securities they sell, and others charge fees, either flat, hourly or based on a percentage of assets under management.
Be sure you understand and are comfortable with the fee structure.

Get it in writing. Ask for a formal written description of the services the advisor will provide for you and the fees you will pay.

Understand fiduciary responsibility vs. suitability. All advisors are required to sell you “suitable” products, but advisors who also take an oath of fiduciary responsibility are legally bound to act in your best interest. Be sure you are comfortable with your choice.

June 2009

Absolute Return: a New Strategy for a New World

As the U.S. recession enters its 17th month, stocks and bonds continue to offer little solace for weary investors – forcing them to consider alternative options.

Stocks fell a staggering 37% in 2008, and no asset class or region was immune.

In light of these circumstances, outperforming one’s benchmark – which used to be the hallmark of good performance for a traditional mutual fund – doesn’t mean much.

As a result, many investors are turning to an investment strategy that has long been used by institutional investors, but is relatively new to the retail market: the absolute return strategy, which seeks to produce positive absolute returns regardless of the direction of the markets.

Absolute return strategies can have different objectives. Many seek an absolute return target (such as 10% per year) or a range (such as 5% to 15% per year). Others seek a return above the rate of inflation or a cash rate, such as U.S. Treasuries.1

In seeking to achieve these goals, absolute return strategies typically invest in short-term cash. They can stay fully invested in cash, which may be helpful in a year like 2008. Or, as opportunities arise, they can take positions in securities spanning many asset classes – from stocks and bonds to alternatives. Unlike many traditional mutual funds, they may invest not just “long” (which means buying stocks) but also “short” (which means selling borrowed stock, then buying the stock back later when their price has, ideally, fallen).

Many such strategies are available.

Your financial advisor, who is familiar with your individual circumstances and goals, can help you determine if an investment product that uses an absolute return strategy is right for you.

  1. These examples are hypothetical and are not meant to represent the performance of any particular product.

Is Gold a Good Investment in Today’s Economy?

Investors have long considered gold a “safe haven” in times of economic, geopolitical and financial instability – conditions that are present today. The world economy has slowed dramatically. There are political skirmishes around the world. And the financial markets have plummeted.

Inflation and currency devaluation also tend to be good for gold, and those conditions are also present today. When the U.S. Federal Reserve Board (the Fed) is concerned about the economy (as it has been recently), it lowers interest rates and sells U.S. government securities, which inflates the U.S. money supply and creates excess “liquidity” in the money markets. That liquidity tends to lead to inflation, which is good for gold. It also tends to dilute, and thus lower the value, of the U.S. dollar – and gold prices normally rise with a fall in the U.S. dollar.

Not surprisingly, gold prices are high today.

The question is, could they stay high? Many investors think the Fed will stop at nothing to boost the economy, which could be bad for inflation and the U.S. dollar but good for gold.

On the other hand, the Fed is likely wary of going too far, which could create its own problems. And even if it wants to continue, at some point the Fed will exhaust the tools at its disposal. This would decrease the money supply and could lower the price of gold.

It’s something to discuss with your financial advisor., who can help you determine if gold is a good investment option for you, and if so, how you might invest in it.