If You Make Less Than $61,500 Read This Before You File

It’s becoming increasingly difficult for low to middle-income families to save; however, the IRS allows a Saver’s Credit that could mean a $2,000 tax credit per family. Of course, it depends on the tax filer’s status as well as their adjusted gross income, or AGI. The tax benefit is to increase the incentive for lower income families to put money away for retirement. Every family that qualifies should be taking advantage of this bonus tax credit.

To be eligible for the Saver’s Credit…

You must be 18 years or older
You must not have been a full time student (you can be a part-time student)
You must not be claimed as a dependent on another person’s tax return.
Your Adjusted Gross Income must be below $61,500 (married filing jointly), or $30,750 (individual).

How it works…

In 2016, if your tax status is married filing jointly and your AGI is not more than $37,000, and you meet the other requirements, then you qualify for an additional 50% tax credit. This number increases annually for inflation. If you are above that income level it goes to a 20% tax credit until you are phased out above the $61,500 threshold.

Let’s say that you earned $37,000 for all of 2016, and your spouse was unemployed for the entire year. If you made a $2,000 contribution to your Qualified Plan (ie IRA, Roth IRA, 401K, 403B) for 2016, then you can receive that 50% tax credit which in this case is $1000 against any taxes owing or to add to your refund. On top of that you can contribute $2000 to your spouses Qualified Plan and get an addition $1000. That is $2000 cash money in your pocket for contributing $4000 into a retirement account. $2000 is the maximum tax credit any family can receive.

This tax credit is in addition to the tax benefit you get within the IRA such as being able to deduct from your income all contributions to a Traditional IRA.

Don’t miss out on this too little known tax credit that can save you big money on your taxes this year.

Also, if you don’t have any investment account currently, and you know you qualify for this credit, why would you forego getting 50 cents cash back for every dollar invested. And at the same time you are putting money into a growing retirement account. A win win for sure. You can open up an IRA and contribute to it for tax year 2016 up until April 15th of this year.

By Jimmy Hancock

References

IRS. “Retirement Savings Contributions Credit (Saver’s Credit).” Retirement Savings Contributions Credit (Saver’s Credit). IRS, 23 Oct. 2015. Web. 21 Feb. 2017. <https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Savings-Contributions-Savers-Credit>.
Tax Credit for Disabled Veterans. Digital image. Progressive-charlestown.com. N.p., n.d. Web. 21 Feb. 2017.

February 15, 2017February 15, 2017

How to Become a Millionaire on a $30k Salary

Becoming a Millionaire used to seem like this totally unrealistic goal that would never happen unless I won the lottery or inherited a bunch of money from some distant relative. As it turns out becoming a millionaire is not all that unrealistic of a goal. It is achievable on almost any salary if you do it the right way. There are over 8 million Millionaire households in America. That’s more than 1 in every 20 households. 1.

Is it Possible?

This is my 3 step guide to reach the status of millionaire: 1. Saving/investing at least 10% of your income, 2. investing prudently while taking proper risks, and 3. starting young.

1. Saving 10% of Your Income

I will show you an example of how a person making $30,000 a year can be a millionaire by the time they retire. A 25 year old, let’s say his name is Bayden, just graduated from college and got a job making $30k year. He decides to put 10% of that into a Roth IRA, which is $250 a month. As it turns out he stayed at that same job for his entire life and never got a raise, but continued to invest the 10%. When he retires at age 67, with growth rate of 8%, he will have $1,058,593 in his Roth IRA. And the best part of that is the money is all tax free! Obviously with a higher salary and/or frequent raises you could end up with much more than a million if you follow the 10% rule.

2. Investing Prudently While Taking Proper Risk

Time, and growth rate are the two most important factors in that equation. An 8% growth rate is not anything too crazy, but you have to be invested long term, and have a vast majority of your money in stocks. You cannot panic and take your money out if there is a crash. You must trust in the market, and understand that stocks are the greatest wealth creation tool in the world.

3. Start Young

Total contributions $12,000 $36,000

* assumes an 8% growth rate 2.

This visual further proves how important time and compounding is to your retirement account. Starting young is a principle that everyone knows, they just don’t follow it. The power of compounding interest is amazing, and the younger you start the more powerful it is. Even if you can’t reach the 10% goal, if you have an income source, you should be contributing to a retirement account. For those of you who don’t have 40 years till retirement, you will need to save more than 10% to reach a million.

Do you really need $1 Million Dollars?

Going back to the example of Bayden, when he retires at age 67, he will literally need every cent (and more) that he saved and earned while investing. Just to live on the equivalent of today’s $30,000 a year ($103k assuming 3% inflation) for 20 years in retirement, he would need $1.1 million. And that is assuming a 6% growth rate on the money for those 20 years. If you don’t have a pension at work, and you want to live on more than $30k a year in retirement, then you better get to saving!

If you can apply discipline in your finances and in your investments, you can become a millionaire by the time you retire. That is my plan.

By Jimmy Hancock

References

1. Boston Consulting Group. “Millionaire.” Wikipedia. Wikimedia Foundation, 17 June 2015. Web. 9 Feb 2017. <https://en.wikipedia.org/wiki/Millionaire>.

Matson Money. Who Wants to be a Millionaire Powerpoint. Mason, OH: Matson Money, 16 Jul. 2015. PPT.

February 1, 2017

Are Investment Fees Tax Deductible?

Everyone is looking for tax deductions this time of year, so I am going to help you out with a possible tax deduction that often get overlooked. When I get asked if investment fees are tax deductible, I say, “it depends”. If your investment fee along with other miscellaneous deductions, such as tax prep fees or unreimbursed employee expenses, total to be above 2% of your Adjusted gross income, then you qualify for the deduction. If your investment balance is much higher than your current income, then you will likely be able to use this deduction.

The following is more info from an article from David Marotta.

“If your expenses are close, you gain from lumping most of your expenses every other year. For example, if your AGI is $100,000 and your miscellaneous expenses average $2,500 a year, in most years you will only get a $500 deduction. But if you can pay the same bills in January and December of one year, you might be able to have $5,000 in deductions one year and zero the next. That means you could have a $3,000 deduction every other year. In next year’s 28% tax bracket, this would save you $560 more in taxes.

Even if you can’t deduct investment management fees directly, you can still pay a portion of the fee with pretax dollars. Investment management fees can be deducted directly from the accounts for which they were charged.

Many fee-only advisors charge a percentage of assets under management. But they can also prorate those fees back to the accounts they are managing. For traditional IRA accounts, the fee is not considered a withdrawal and therefore is not a taxable account. The fee is considered an investment expense. Thus this fee is being paid with pretax dollars. And the cost is discounted to clients by their marginal tax rate.

I’ve seen advisors take their entire management fee from IRA accounts. I don’t think that is warranted by the letter or the spirit of the tax code. Any fee taken from an IRA account should be justified as a fee for the management of a pretax account. You can’t simply start paying your bills from an IRA as a nontaxable withdrawal.

Similarly, any management fees paid directly from an IRA account should not be listed as a miscellaneous expense on Schedule A trying to qualify for an additional tax deduction. Only expenses paid from a taxable account should be listed as a miscellaneous expense.

There is no advantage in trying to pay the entire fee from a taxable account in an attempt to boost your deductions. If you pay $2,500 in management fees, it is better to pay $1,000 from an IRA with pretax dollars than to pay for it separately to get a $500 tax deduction. Any amount paid from an IRA is equivalent to getting that same amount as a tax deduction.

Although getting money out of a traditional IRA tax fee is an advantage, taking management fees out of a Roth IRA is not. There are limits on getting money into a Roth account where it will never be taxed again. We recommend paying the portion of management fees prorated to a Roth account out of your taxable account. This allows as much money as possible to stay in your Roth.

One of the advantages of working with a fee-only financial planner is that fees can be taken from the accounts under management or paid separately, depending on which is more advantageous. If fees are stuck on commission-based products, you can’t choose to pay the fees for a Roth account separately from a taxable account in order to allow the Roth to grow unimpeded.

This is another advantage to having fees based on assets under management rather than a separate fee or an hourly charge. Management fees are easily justified taken directly from accounts including IRA accounts where you can pay with pretax dollars.

Many advisors charge a percentage of assets under management and then offer comprehensive wealth management advice without an hourly charge. This is ideal. If these charges were separated, less of the fee could be paid with pretax dollars.

No one likes to pay fees. Hidden fees in many ways are easier psychologically. We recommend that when you need unbiased financial advice, seeking a fee-only financial planner makes sense. And it helps knowing there are tax-efficient ways to pay management fees.”

By Jimmy Hancock

Reference

Marotta, David. “Are Investment Management Fees Tax Deductible?” Forbes. Forbes Magazine, 25 June 2012. Web. 12 Nov. 2014. <http://www.forbes.com/sites/davidmarotta/2012/06/25/are-investment-management-fees-tax-deductible/2/>.

Income Tax Refund. Digital image. Cutiebootycakes.blogspot.com. N.p., n.d. Web. 30 Jan. 2017.

January 18, 2017January 18, 2017

2016 Stock Market Recap

Many people look at 2016 from different angles, but the stock market was an obvious positive to finish the year. In 2016 the Matson Money US Equity Fund (Diversified US Stocks) was up over 21%, and the Matson Money International Equity Fund (Diversified Intl. Stocks) was up over 8%. The following is an insight article from the Matson Money client statements about what we can learn from what happened with the election and the stock market.

“The 4th quarter of 2016 was a memorable one in the United States for many reasons. We experienced the most partisan and unique election season in recent memory, culminating in an election result that few expected. The news of a potential Donald Trump presidency brought forth many pundits clamoring to give their opinion on how it may affect the stock market and the economy as a whole.

Prior to the election, on Fortune.com, Katie Reilly reported that Citigroup predicted that a Trump win would have a negative effect on the stock market, believing the S&P 500 index would fall 3% to 5% if Trump was elected. Evelyn Cheng reported on CNBC the day before the election that JP Morgan, Barclays, Citi, and BMO all expected a Trump victory would have a negative impact on the stock market, with Barclays being as bold as saying the S&P 500 could potentially fall 11 to 13 percent.

Some went even further with their market predictions. Simon Johnson of MarketWatch wrote:
“The election of Donald Trump…would likely cause the stock market to crash and plunge the world into recession.”

In an interview with Neil Cavuto, noted billionaire Mark Cuban stated:
“In the event Donald wins, I have no doubt in my mind the market tanks,” Cuban said. “If the polls look like there’s a decent chance that Donald could win, I’ll put a huge hedge on that’s over 100% of my equity positions… that protects me just in case he wins.”

In addition to many analysts predicting a drop, the stock market itself seemed to be indicating the same thing. When FBI director James Comey announced on October 28th, that he had reopened an investigation into Hillary Clinton’s email server, the betting markets reacted favorably to Trump winning, but the stock market reacted negatively, with the S&P 500 sharply reversing gains and dropping almost 1% intraday. Even more starkly, on election night itself, as results started pouring in showing key states falling to Trump, DOW futures fell as much as 750 points.

Given this information, many investors may have had the inclination to feel uneasy about the performance of the equity markets following the election. Those that reacted to this emotion may have sold stocks and moved their money to cash or bonds. Unfortunately for those that made this decision, the prevailing market predictions of downward volatility proved to be unfounded; in fact just the opposite occurred. From November 1st through the end of the year, equity markets had a substantial growth period, with the S&P rising 5.75%. However, while this is most certainly a fine return over 2 months, investors who diversified their portfolio beyond just U.S. large stocks may have seen even greater returns. Small cap stocks as represented by the Russell 2000 rose 14.27%. But not to be outdone, the Russell 2000 Value, an index of small value stocks, increased 17.95%.

Hopefully investors will remember this period of time not just because of the election result, but as a great lesson that trying to predict the short term move of the stock market – even when it may seem so evidently clear that it will move a certain way – can be folly and cost you dearly.

In the end, choosing a wise financial strategy – and sticking to it – can have tremendous impact on an investor’s long term financial health. Chasing performance through buying and selling is a risky game. Historically speaking, it will only reduce an investor’s real return. Relying on unbiased, non-emotional advice from a trusted investor coach to make good decisions can help an investor bridge that gap between what the average investor makes and the return of the market.”

By Jimmy Hancock

References

Matson Money. “Account Statement.” Letter to James Hancock. 16 Jan. 2017. MS. N.p.
The Financial Markets Have Accepted a Trump Presidency. Digital image. Au.anygator.com. N.p., n.d. Web. 16 Jan. 2017.

January 4, 2017

“Billionaires Bet Big on Market Crash”

I go online to check Yahoo Finance everyday to see how the stock market and other markets are doing. I try to stick to the numbers and real information, and avoid the headlines and articles most of the time. But, a few weeks ago this was the headline that couldn’t be missed.

Billionaires Bet Big on Market Crash (The Reason Why Is Shocking)

I was in the mood to be “shocked” so I clicked on the link and it took me to the article. This is where it gets comical.

This is the first paragraph…

“Investment titans are making massive billion-dollar bets that the stock market is approaching an imminent crash…Multibillionaire Carl Icahn, for example, recently increased his short positions by 600% … betting as much as $4,321,000,000 that the stock market will plummet sharply and suddenly! Mysteriously, just about every major financial whale is taking specific steps against the market … all at the same time.” 2.

The amount of money Carl Icahn is betting just so happens to be numbers counting down to 0, which i thought was a funny (on purpose) coincidence. But obviously what is happening is they are trying to get me to think that stock market genius’s all see this great crash ahead, so it must be happening.

It Gets Better…

“The glaring question is … what’s coming that has them so sure? The best answer we found is linked back to a little-known, controversial calendar. Devised by a group of Wall Street analysts in 1905 and kept closely by insiders, this little-known calendar has accurately predicted every boom and bust for the last 111 years, and what it says for the rest of 2016 is alarming. “It simply labels each year with a corresponding letter. For example, 2008 was a ‘K’ year, meaning ‘low stock prices.’ Hence, I was forewarned of the crash.” In the video, one can see that 2016 ends as a “D” year … once again meaning “low stock prices.”” 2.

Wow, this kind of reminds me of the Mayan calendar that predicted the end of the world in 2012. I am pretty sure the stock market is more complex than a single letter label can define for any given year. How in the world, would some guys in 1905 know anything about the stock market in 2016. So the weird thing is, I am pretty sure this article was written at the beginning of 2016, but by the time I saw it 2016 was almost over. Now it is 2017 and we know for sure that nothing alarming happened in the stock market in 2016. In fact, just the opposite, lot’s of positive returns. It was at this point of the article that i started thinking, why would anyone write this article and put so much fear into investors. Then I read this.

“With this kind of information at hand, it’s easy to see why those in the know are making big bets that a stock market crash is imminent. But what’s even more exciting for investors is what 2017 and 2018 hold. Yastine believes that if one has the help of his updated and advanced version of the calendar, they could add an extra $1.2 million to their retirement. Click here to see the calendar in JL’s new video exposé.“ 2.

Wow, that is a great sales pitch. They are in the business of making money off of peoples fear and greed. The more fear they can put into the investors, the more money and fame they will get.

I advise you to stay away from the fortune tellers of Wall Street. Nobody has a crystal ball. Don’t fall for the headlines that are only there to sell you on emotion of fear. Fear is a powerful emotion that can take over an investors mind. Don’t let it.

By Jimmy Hancock

References

1. Mayan Calendar. Digital image. Creatingdigitalhistory.wikidot.com. N.p., n.d. Web. 4 Jan. 2017.

2. Smith, Jocelynn. “Billionaires Bet Big on Market Crash (The Reason Why Is Shocking).” The Sovereign Investor. The Sovereign Society, 8 Dec. 2016. Web. 8 Dec. 2016.

December 13, 2016December 13, 2016

Books Make the Best Christmas Presents

Christmas time is here again! This is the time I get frantic about finishing up buying gifts for everyone on my list. To those who are interested, books make great gifts. We can offer you the book “Main Street Money” by Mark Matson for free this holiday season. This book is perfect for your spouse, parent, or child looking for not just good, but great financial advice. This book is a simple and personal text with some invaluable information on investing, retirement planning and the like.

If you have not read the book Main Street Money yet, here is a brief into explaining why Mark Matson wrote this book and how it can help you to receive investing peace of mind. The following is a direct quote from the introduction to the book, “Main Street Money”.1.

“Chances are you’re one of the 95 percent of Americans who are destined to retire broke. It’s not really your fault. Goodness knows it’s confusing out there for the average American trying to secure their financial future. Contradictory advice and information, misleading promises, portfolio-gutting investment strategies – and that’s just from my fellow Wall Street investment professionals. Maybe that’s why the finance industry’s leading lights can be counted on to say one thing one year and the opposite the next. Market timing? It will never work. Oh wait, yes it can. Asset allocation? A big winner – until a real bear market comes around. Buy and hold? The best thing since sliced bread. That is, until the market tanks and the buy and hold model is tossed onto the scrap heap by so-called market experts.

It’s almost like financial professionals want to confuse the investing public. Where is the continuity? Where is the unvarnished truth about investing strategies? Why won’t anyone step up to the podium and admit that nobody can predict the future? After all, people scoff at astrologers and tarot card readers. But some guy in a suit and hang a “stockbroker is in” sign on his door and people can’t wait to see what he has to say during a bull market or during the latest market crash. There is no shortage of talking heads who pretend they have the forecast about the future that will magically allow you to own all of the best stocks and get into and out of the market at the perfect time.

These prognosticators prey on the psychology of Main Street investors. Often causing them to take risks they don’t understand and lose more money than they could possibly imagine. I call these posers Bullies because they take advantage of investors to line their own pockets with your hard-earned money. The money you will need for your retirement and most important life dreams. But it doesn’t have to be that way. I can teach you how to outwit, outsmart, and out invest the biggest Wall Street Bullies and icons. And help you create true peace of mind in your investing experience. And the good news is that it is not that hard. Once you are armed with the basic knowledge you need, you can adopt an investment philosophy and strategy beats the vast majority of all the blow-hards on Wall Street. You will soon see that your problems are their profits – the trick to getting their hands out of your pockets once and for all. Make no mistake, Wall Street does not want you to read this book and they don’t want you to take the actions outlined in this book.”

If you would like a copy of this book, get in touch with us and we can get one for you at no charge to you. We give out copies at our monthly coaching classes. It is our job to educate investors about the wall street bullies.

References

Matson, Mark. “Changing the Status Quo.” Introduction. Mason, OH: Mcgriff Video Productions, 2013. IX-X. Print.

November 22, 2016

You Can’t Afford to DIY Investing

With the proliferation of the Internet and continued expansion of online investment tools, the role of an Investment Advisor is now of crucial importance. Personal investors have access to more information than they ever have before, but wading through the data to find that path to success and discipline still requires the eye of a trained investment coach. Given the daunting amount of different investment advice, options, funds, accounts, stocks, bonds, annuities, and timelines available to investors planning for your future is intimidating to say the least. When you take the inherent danger that follows bad investments into consideration , it quickly becomes clear your retirement isn’t worth that risk, and should instead be left to a professional. The following five points are some of the more common DIY investor mistakes that a qualified investment advisor can help you avoid, while better planning for your future.

1) Buying “cool” stocks, or giving too much attention to brand loyalty
This is one of the most common mistakes of beginning investors. Although you might feel a certain pull to invest in a company whose products you already support, it’s important to remember that you’re not buying their product; you’re buying their future performance as a company. In the long run the advantage of having a globally diversified portfolio is much bigger than the cool feeling you get when you buy your favorite companies stock. Remember, your investments’ future earnings are more important to your well being than owning a fraction of a “cool” brand. On top of this, usually the “cool” stocks that people buy are extremely massive companies, which have a lower expected growth rate than small cap companies.

2) Investing too conservatively
With the previous point in mind, it’s important to not be overly conservative when it comes to planning your future. Ever since the crash of 2008 new investors have been very skittish when taking on risk, many opting out of the stock market entirely. That being said, it’s important to remember the old adage that “without risk, there is no reward.” A financial professional can better assess the highs and lows inherent with ownership of stocks. A more evenly balanced portfolio (that means one with stocks), while carrying an additional degree of risk, offers much greater rewards to the investor, and under a watchful eye it will continue to grow for years to come.

3) Hoping to beat the market “bad gambling”
This tip, more than almost any other, is extremely important to new investors. We’ve all seen a movie or heard a story with someone offering “a deal too good to be true,” and when it comes to investing that old cliché is worth its weight in gold. While we can all think of an example when a company’s stock value went through the roof seemingly overnight, it’s important to remember for every success story there are many more of failure and bankruptcy. Putting everything on a single stock or position is just as risky as taking your life savings to Vegas and hoping for the best at a roulette table. Any investment you care about should be made as part of a balanced portfolio and a long-term plan.

4) Thinking they are saving money by not having an advisor
This is a very common thought by most do it yourself investors. They think with the advisor out of the picture they take out the middleman and thus lower their investment costs. The problem with this thinking, is that it is completely wrong in most cases. Online, the extremely high fees for trading must be paid. Depending on the website, they usually run $7 to $10 per trade. If you are diversified like you should be, that would be hundreds if not thousands of dollars just to buy into all the stocks you should be holding. The advantage to working with us is that there is no fee per trade. You are no longer treated as an individual investor and thus you have a flat discounted fee no matter how many trades are made in your account.

5) Ignoring your investment horizon
To be frank, you need an investment coach to accurately accomplish your goals. Many new investors forget that investments are made for a purpose, and if you don’t have access to your money when you need it that investment has failed you. Different accounts have different tax implications that must be matched with your time horizon and age. If you are putting away money for retirement that is not for 20 years, then you should not invest your money conservatively. Your risk tolerance should be directly correlated with your time horizon for your investments. You can be more conservative with investments that you will need in a short time frame.

By Jimmy Hancock

References

Do It Yourself Lobotomy. Digital image. Smithlhhsb122.wikispaces.com. N.p., n.d. Web. 21 Nov. 2016.

November 2, 2016

Elections Impact on the Stock Market

It seems to be all anyone can talk about for the last few months. This is a very strange election year with crazy headlines and stories to go along with it. So we have gotten the question “How will the presidential election effect the market?” just about every day. For questions like this I am glad I have my crystal ball with me at all times so I can tell my clients exactly what is going to happen. O wait, I don’t have a crystal ball.

Historic Returns

Looking back at election years since 1928, the S&P 500 (Large US Stocks) has had a positive return 21 times, and a negative return 3 times (1). I think most people would find that hard to believe. From another source I found this interesting data.

“Since 1833, the Dow Jones industrial average has gained an average of 10.4% in the year before a presidential election, and nearly 6%, on average, in the election year. By contrast, the first and second years of a president’s term see average gains of 2.5% and 4.2%, respectively. A notable recent exception to decent election-year returns: 2008, when the Dow sank nearly 34%. (Returns are based on price only and exclude dividends.) But no one needs to tell you that the current cycle is anything but average. The Dow racked up an impressive 27% in the first year of President Obama’s second term, and 7.5% in year two. Last year, which was supposed to be the strongest of the cycle, saw the Dow Industrials drop 2%.” (2)

Republican vs Democrat

This is another interesting topic that divides people throughout the country, but is there any stock market effect based on which party gets into power? Looking at the numbers, since 1900 Democrat presidents have been slightly better for stocks than Republican presidents. The Dow (US Large Stocks) return when a Democrat President was in office was about 9%, vs the nearly 6% when a Republican was running things. But normal variations in annual stock market returns dwarf that difference, says Russ Koesterich, chief investment strategist at BlackRock. (2)

False Patterns

The worst thing an investor can do is get caught up in trying to find and take advantage to patterns in the stock market. It seems like a good idea, but trust me, it is not in your best interest. For example, there is a super bowl stock market predictor, which states that if the team that wins the Superbowl is a team that had its roots in the original National Football League, then the stock market will decline. There is another pattern showing that every mid decade year ending in 5 (1905, 1915, 1925 etc.) since 1905, has been an up year for stocks. (1) These patterns are just random facts that people try to turn into something that seems important.

In Conclusion

So the best and most honest answer to the question “How will the presidential election effect the market?”, is “I don’t know, but over the long term, stocks have made between 9 and 12% per year on average.”

By Jimmy Hancock

References

1.Anspach, Dana. “How Does the Stock Market Perform During Election Years?” The Balance. About Inc., 16 Oct. 2016. Web. 01 Nov. 2016.

2. Smith, Anne Kates. “How the Presidential Election Will Affect the Stock Market.” Www.kiplinger.com. The Kiplinger Washington Editors, Feb. 2016. Web. 01 Nov. 2016.

3. Donald Trump and Hillary Clinton Together. Digital image. Fabiusmaximus.com. N.p., n.d. Web. 1 Nov. 2016.

October 19, 2016October 19, 2016

Understanding your Social Security Benefit for Young and Old

Understanding your social security benefit is a huge part of being prepared for retirement, and even the young generation should understand what they can expect to receive from social security. It can be very confusing as there are many different rules and variables that go into the equation of estimating your social security benefit.

Basics

So let’s start with the basics. Anyone who has worked 10 years or more, or is married to someone that has worked that long qualifies for a benefit. The earliest you can start taking this monthly benefit is age 62, and the latest is age 70. The monthly benefit is based on 2 main factors. First, it is based on the amount of income you made throughout your working years (and thus how much you paid into the social security pot). Second, it is based on when you choose to take your benefit, with a lower monthly payment if you start at age 62, continually growing until the maximum monthly benefit if you wait until age 70.

Spousal Benefit

Spousal benefit is getting half of the Social Security benefit of your working spouse. When you file to begin receiving social security, they will let you know if your individual benefit or your spousal benefit is higher, and automatically you will receive the higher of the two. The spousal benefit maxes out when the non working spouse reaches full retirement age (age 66 or 67 depending on your birth year). Thus it is not beneficial for a non working spouse to wait until age 70.

Real Numbers

You can actually run an estimate of your social security benefits on ssa.gov to see how much you could get in social security dollars. I will give you one example I ran on the website with real numbers to show you an estimate of what you might expect with your social security benefit.

Ryder is 62 years old, and his wife Paisley is also 62. He worked his entire life and made $50,000 a year. Paisley only worked for 9 years, thus she does not qualify for her own benefit. If Ryder chose to start taking his benefit today he would receive $1326/month. If he waited until age 66 he would receive $1767/month. And if he waited until age 70 he would receive $2344/month. Now this is where it gets a bit confusing. If Ryder thinks he will live past age 78, it is not in his best interest to start at age 62. If he thinks he will live past age 82, it is not in his best interest to start a age 66. If Ryder thinks he will live past age 82 it is in his best interest to wait all the way to age 70. Obviously he would have to either work or live off of other retirement money until age 70 to get the most out of his social security money.

As for Paisley, if she chose to begin taking her spousal benefit at age 62 she would receive $618/month. If she waited to age 66 she would receive $883/month. And if she waited till age 70 she would still receive the same $883/month.

Other Factors

If you plan to work in any form and are receiving income, it is not a good idea to take your social security before your full retirement age (66 or 67). Your social security money is decreased based on the amount of income you receive. Once you reach full retirement age, you can receive your social security benefit and it will not be effected by any income you are making.

The File and Suspend Strategy that you might have heard about, is no longer in effect and cannot be used by anyone filing for social security that was under age 66 as of April 30th 2016. If you were over 66 as of April of this year you might be able to take advantage of this strategy.

If no changes are made by the government to the social security program, it is projected that by the year 2034, there will only be enough money to pay 79% of the scheduled benefit to retirees. So in short, the younger generation cannot really count on the amount shown in the example above.

Retirement Plan

Your social security benefit will only be a small portion of what you will need to live on in retirement. You need to have a retirement account to be your main source of retirement income if you do not have a work pension. Whether it be a 401k, Roth IRA, or another type of account, most people need to have between $100k and $2 million saved in order to live a comfortable retirement comparable to how they lived in their working years.

If you need help figuring out social security or getting a retirement account set up to go along with your social security benefit, please contact us.

By Jimmy Hancock

References

“Social Security.” The United States Administration. N.p., 05 Oct. 2016. Web. 05 Oct. 2016.

October 12, 2016

3rd Quarter Returns: I Told You So

The weather was not the only thing that was hot from July to September, but your investment portfolio most likely was as well. Let’s just hope you stayed disciplined to receive the tough returns. The following is an excerpt from the Matson Money quarterly statement.

“The 3rd quarter of 2016 provided much smoother sailing for the equity markets as compared to the occasionally tumultuous quarters that preceded it. 2016 began with significant downside volatility in the early part of the year, followed by geopolitical uncertainty surrounding the Brexit referendum vote, and it seemed like choppy waters was the new norm in the global marketplace. However, despite the talking heads making dire warnings, Matson Money’s recommendation to practice prudence proved to be sage advice, with post-Brexit markets have providing consistent upward movement over the last few months, with the S&P 500 index gaining 3.85% for the quarter, and international stocks as represented by the MSCI EAFE index rising 6.50%.
Another shift began to emerge recently, while U.S. large growth stocks had been one of the higher if not highest performing equity asset classes for much of past few years, we began to see a reversal of this over the last few months. Compared to the 3.85% return of the S&P 500 index in the 3rd quarter, we saw a gain of 9.05% out of small stocks as represented by the Russell 2000 index. In addition, the Russell 2000 Value index which represents small value stocks gained 8.87% for the quarter and is now up 15.49% year to date, as compared to only 7.84% for the S&P 500. We have also seen a resurgence in international stocks, which had also lagged U.S. stocks in recent memory. The MSCI Emerging Markets Index rose by 9.15% for the quarter and is now up 16.36% for the year, while the MSCI EAFE and EAFE Small Value – benchmarks for international large stocks and international small value stocks – had gains of 6.50% and 9.78% respectively for the quarter.

This recent shift can be a good lesson for investors. While we don’t know if or how long these trends will persist into the future, we do know that historically there have been premiums associated with holding small and value stocks, and there have been time periods in which international stocks have outperformed U.S. stocks. The recent occurrence over the last couple of years of large U.S. growth stocks being a great performing asset class can tempt investors to become myopically focused and assume that these familiar stocks will continue to perform well into perpetuity. This mindset can result in eschewing diversification and ignoring academically known premiums, which can lead them to make sub-optimal decisions within their investment portfolios. This can be a costly mistake. Diversifying beyond US large stocks has historically had a great impact on an investor’s performance. From 1/1979 – 09/2016, the S&P returned 11.68% a year. However, during this same time period, U.S. small value stocks returned 12.99% as shown by the Russell 2000 Value Index.

A seasoned investor is aware that perceived trends and market cycles come and go, and it is extremely difficult to know when it is happening. They know that staying invested in broadly diversified portfolios that are designed to take advantage of academically known premiums can result in a positive investing experience over a lifetime.

By Jimmy Hancock

References

1. Matson Money. “Account Statement.” Letter to James Hancock. 17 Jul. 2016. MS. N.p.

2. How to Make Easy Money Online. Digital image. Fgfinder.com. N.p., n.d. Web. 11 Oct. 2016.