Segment from The ASKBONBON Show

Happy New Year!

Maybe one of our New Year’s resolutions should be to turn off the TV and put down the newspapers. Did you know there is a direct correlation between higher News/Financial TV programs ratings and down markets? They don’t only prey on investor fear but fuel it in an attempt to keep you tuned into their program.

The New Year has brought unrest to the markets not only Stateside but just about all over the globe. Pick up any newspaper or turn on any news program and all the financial headlines are either about oil’s crash or about China and their slowing economic growth, lagging manufacturing numbers, and the fear that China’s pain will creep into other economies. The reality is that China has projected this slow down for some time. China is in the process of shifting from a manufacturing economy to one more dependent on services. For the first time in 2015 services accounted for more than half of their economy. This shift is a process that will not occur overnight and could be painful at times, but recent data suggests their economy is stabilizing. Last year China’s growth fell to 6.9% and while this is the lowest growth China has had in 25 years, this puts them nowhere close to recession territory. In comparison, our economic growth has been between 2-3 percent for the last few years. It’s not a question of if China will become the world’s largest economy, it’s when. China has certainly had missteps (circuit breaker, trade limits, lack of transparency, etc.), but at the moment I believe we are seeing an overreaction to headlines, much like we saw with the Greece crisis.

Be clever with your benjamins!

Written by: Brad Kaplan

Request a FREE Consultation: www.kaplanwealth.com

(703) 352-1780

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

Fed Rate Hike…Booo…or Yaaay!

The Federal Reserve’s Open Market Committee recently announced the first federal funds rate increase since 2006. What does this mean?! Is this a good or bad thing for American’s?

Here are some of the impacts both good and bad. Ultimately I think this is a good thing. Wbould you rather be looking at the first fed rate increase or the last fed rate increase? The Fed raises interest rates to control the growth of the economy and keep inflation under control. They obviously feel the economy is in a good place.

The “Bad“

Dollar Appreciation – If a strong dollar persists this means tough economic conditions for other economies, namely emerging market countries like Brazil, Russia and India. They could face tougher conditions due to higher borrowing costs. Also, companies that depend on exporting their goods from the U.S. overseas will likely take a hit as their products become more expensive and less desirable to foreign buyers. Conversely, overseas companies that are dependent on exporting their products to the U.S. could get a boost as their products become cheaper for U.S. consumers.

Mortgage Rates – Interest rates are just one of many factors that determine mortgage rates. Just because there is an increase in the fed funds rate doesn’t necessarily mean an increase in mortgage rates, but they are expected to slowly climb. The concern here is if borrowing costs become more expensive and homes become less affordable it could lead to a drop in demand and the industries tied to the housing market could be negatively impacted.

Borrowers – Borrowing would be more expensive. This could include student loans and other loans with variable interest rates like home equity lines of credit.

Bond Prices – Increased interest rates mean existing bond prices go down. Why would I buy an old $1,000 bond that pays 3% interest when today’s pay 4%. I wouldn’t…unless I get it at a discount.

The “Good”

Savers – Savers essentially haven’t earned any interest on their savings accounts since 2008. Rates should continue to increase over the next few years and savers will begin to see their interest earnings increase. There should be an almost immediate impact on CD rates.

Employment and Income – Employment numbers have been mostly positive. More hiring means more income. More income means more spending. Higher incomes can also over power some of the negatives we spoke of earlier like increased borrowing expenses and a drop in housing demand.

The “It’s Too Early to Tell”

Stocks – Historically, stock prices often increase with rate increases when current yields are this low. Check out this piece put out by JP Morgan. It’s part of their quarterly “Guide to the Markets”. You can find the latest release here. I’m hoping that two years from now we will say that stocks should have been in the “Good” section, but no one knows for sure how the markets are going to react and be wary of anyone that says otherwise.

Be clever with your benjamins!

Written by: Brad Kaplan

Request a FREE Consultation: www.kaplanwealth.com

(703) 352-1780

All Good Things Must Come to an End!

On Monday, November 2^nd, President Obama signed the Bipartisan Budget Act of 2015. The main purpose of the bill was to ease the sequester that took effect in 2013 and should also eliminate the cycle of shutdown threats we’ve had in the past. Or in other words, give the treasury unlimited borrowing power for the next year and a half while at the same time increasing spending caps. Scary! I digress…

Some of the cuts within the Bipartisan Budget Act of 2015 bill are to the popular Social Security loopholes, “file and suspend” and “restricted application” for spousal benefits. Anyone already enrolled in these strategies will be grandfathered in, but the “loopholes” are being eliminated for anyone who has not reached age 62 by the end of 2015. Congress believed that these strategies were used mainly by the rich. Studies have since come out, indicating the opposite and that the changes could have a larger impact on the middle and lower middle classes.

As they say…all good things must come to an end.

Be clever with your benjamins!

Written by: Brad Kaplan

Request a FREE Consultation: www.kaplanwealth.com

(703) 352-1780

Free Money!!! This is not a joke!

* The Bipartisan Budget Act of 2015 has updated the options available for claiming Social Security. Please click here for my updated post

Free $ From Social Security?

Sounds too good to be true doesn’t it? It’s not.

Social security optimization…this may not be the first time you’ve heard those three words, but I guarantee it won’t be your last. If you are approaching retirement and trying to map out your retirement income, those three words could have a major impact on not only your retirement income but also insurance and estate planning. Fact, every year you delay taking your social security benefit, your monthly benefit grows 8%. That’s pretty powerful. Can you beat that in the market?

Example of Monthly Benefit Growth

Age 66 Age 67 Age 68 Age 69 Age 70

$2,500 $2,700 $2,900 $3,100 $3,300

Obviously, the longer you wait the higher the benefit. Most people know this, but have you heard of filing a “restricted application for spousal benefits”? FREE MONEY! To better explain how this works let’s assume we are looking at a married couple. Mr. Smith is 60 years old and Mrs. Smith is 58 years old. Mr. Smith’s benefit at full retirement (age 66 and 2 months) is $2,500/mo. And Mrs. Smith’s benefit at full retirement (66 and 6 months) is $1,800/mo. One strategy to maximize lifetime benefits is as follows…Mr. Smith at full retirement age files for his social security benefits and immediately suspends payments. At age 70, he starts taking his benefit with delayed credits. Mrs. Smith at full retirement files a restricted application for spousal benefits (What is that?) Pause…a restricted application for spousal benefits allows a spouse to file for half of the other spouses benefit. Mr. Smith’s benefit at age 68 would be $3,046/mo. Half would be $1,523/mo. or $18,276/yr. FREE! There is no impact on Mr. Smith’s future benefits and because Mrs. Smith isn’t taking her benefit, her benefit continues to grow 8% a year until age 70. I’ve attached an illustration using a tool from Allianz Life. There are many out there, but this one explains the process the clearest and simplest way. In this scenario, using the above strategy would increase their lifetime benefits by nearly $470,000 compared to taking their benefits at age 62.

There’s more…the estate planning benefit. I’ve mentioned in the past that we like to see clients have at least 60% of their expenses covered by guaranteed income sources. Using the same example as earlier, let’s assume Mr. Smith dies early at the age of 75. His benefit at that time, assuming he started taking social security at age 62, would be $32,225/yr. With the optimization strategy in place it would have been $56,775/yr. 76% higher annual benefit! The remaining spouse, Mrs. Smith, has the choice of taking her benefit of $40,043/yr. or her deceased husbands benefit of $56,775. Easy choice.

Be clever with your benjamins!

Written by: Brad Kaplan

Request a FREE consulation: www.kaplanwealth.com

(703) 352-1780

Not all Financial Decisions are Financial!

No one wants financial stresses in Retirement! Here are three things that I believe you need to do in order to make your retirement years financially stress free.

Payoff your mortgage – With rates today so low, there is no argument that from a financial standpoint you are better off NOT paying down your mortgage early. BUT…This only works if you are disciplined enough to invest the money you would have used to pay down the mortgage. In my experience, people are less disciplined in paying themselves than they are paying bills. Things come up over time and they either stop investing or they dip into the investment account. To make staying on track easier, I would suggest three things. First, if you haven’t already done so, set up your payment to be automatically drafted from your bank account. Second, set up your payment bi-weekly (this alone could have you mortgage free 5 years earlier). You will have to check with your lender, if the loan only compounds monthly this won’t work. Interest must be compounded daily or be compounded monthly based on the average balance of that month. Last, figure out how much extra you would have to pay towards principal each payment to have your mortgage paid off at retirement. Then set up your automated payment to include the increased principal payment. Not all decisions are financial. The feeling of being mortgage free and eliminating, in most cases, the largest month-to-month bill can far outweigh the perceived financial benefit of having a mortgage and put a lot less stress on your retirement savings.

Have a Pension – Rule of thumb…at least 60% of your basic expenses during retirement should be covered by guaranteed income. Problem is pension plans are largely extinct today and 20 years from now Social Security may not exist in the same form we know it today. Volatile stock markets and low interest rates made pension plans very expensive for private businesses. Most employers have converted to 401(k) plans, which in turn, put the expense and risk of saving for retirement in the laps of their employees. If you are like most of us and don’t have a pension through work, you should look into insurance programs that can provide a guaranteed* income stream. There is a world of options available and no plan is perfect for every situation. Having a guaranteed income stream may help take the stress out of watching the markets and wondering if you are going to outlive your assets.

Get a Financial Plan – Going through the process of having a financial plan done is maybe the most important step towards retirement. It provides a road map to retirement, will identify any gaps or potential red flags, and assist in making sure any unforeseen life events don’t throw your plan off the cliff. At the very least it will help you work toward a financially stress free retirement.

Be clever with your benjamins, follow these steps and your chances of maintaining your pre-retirement lifestyle will become much easier.

Written by: Brad Kaplan

Request a FREE consulation: www.kaplanwealth.com

*Guarantees are based on the claims paying ability of the issuing company.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risk including loss of principal. No strategy assures success or protects against loss.

The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states:MD, MI, NJ, NC, PA, VA, WV

When Should You Take Social Security Benefits?

As clients get older and retirement approaches, we get a common question. When should I start taking Social Security? My follow-up question is, “Well how long are you going to live?” YOU DON’T KNOW! Either do I, unfortunately.

I put together a chart to illustrate generally how Social Security works and what it looks like when you start taking benefits at different ages. We can’t determine how long you are going to live, but based on health and family history, we may be able to help tilt the tables in your favor.

Social Security payouts are based on a complicated formula that takes into account a host of information including life expectancy tables. (Click here to see the life expectancy tables used in 2010.) Take a look at the Chart I created. It shows a hypothetical comparison of what it could look like starting Social Security benefits at different ages. Please refer to the hi-lited numbers. The red cell indicates the total Social Security payments through age 80 if this hypothetical person started receiving benefits at age 62. Each yellow cell indicates when the total benefits would surpass the red cell, if starting benefits were delayed to later years. There is no coincidence that the benefit seems to catch up at the same age no matter what year you begin receiving benefits. The longer you live the more it makes sense to delay the start of Social Security benefits. Just look at the cumulative benefits at age 95 and compare the total benefit received starting at 62 versus 70. There is over a $200,000 difference!

So the real question is how long will you live? If only life was that easy. But wait! There are other factors. What do your expenses or lifestyle demand in terms of monthly income? Can your investments cover the gap without running the risk you will run out of money? Do you have legacy wishes for children, family members or a favorite charity? These are all factors that impact the decision on when to start taking Social Security. We haven’t even talked about other financial planning strategies we could use for married couples. Strategies that can greatly increase your social security combined lifetime benefits and allow you to save those hard-earned investment accounts for your beneficiaries!

We can help navigate what seems confusing and hopefully create a much clearer picture of what your retirement years should look like!

Chart Assumptions:

Annual Cost of Living Adjustment of 2%
Full Retirement Age of 66
Full Retirement Benefit of $2,000
At age 62 you receive 75% of Full Benefit, 63 is 80% of Full Benefit, 64 is 87% of Full Benefit, 65 is 93% of Full Benefit.
Each year after age 66 benefit grows 8% (simple not compound) assuming you haven’t started to receive benefits.

Written by: Brad Kaplan

Request a FREE consultation: www.kaplanwealth.com

(703) 352-1780

Hello world!

Taking the blogging leap! Stay tuned for some useful and hopefully fun posts!