6 HUGE Social Security Mistakes

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One of the biggest Social Security mistakes I see people make is claim their benefits too early.

According to the Center for Retirement Research at Boston College, 60% of seniors are applying for social security benefits before full retirement age.

If you turned 62 last year, your full retirement age will be 66 years and six months. Full retirement age will continue to increase in two-month increments each year until it reaches 67.

Even though you’re eligible to start claiming benefits at 62, it’s ill-advised. Monthly payments are reduced by 25-30% if you claim at 62, depending on your birth year.

In theory, claiming Social Security benefits should be straightforward — after working several decades, fill out an application and get a monthly benefit check for the rest of your life.

But, you and I know it’s not that easy. There are strategies to consider if you want to maximize your benefits, and there are several mistakes that could cost you thousands of dollars over the course of your retirement if you’re not careful.

Here are just a few mistakes I see people make that could easily be avoided.

Mistake #1 – Claiming Benefits Too Early

I already explained why this is not advised for most retirees. But if you already chose to claim benefits early and now are second-guessing your decision, there are some recourse steps you can take.

Specifically, you are allowed to withdraw your Social Security application and re-claim benefits at a later date, but two conditions apply.

First, you must withdraw your application within the first 12 months of receiving benefits. And second, you have to pay back every cent of benefits you’ve already received. Which can be a lot of money if you weren’t planning on withdrawing.

This is why you should be certain. There are some perfectly good reasons for claiming benefits before your full retirement age, but it’s important to weigh all your options before you make moves.

Mistake #2 – Not Understanding the “Earnings Test”

If you’re still working and haven’t yet reached full retirement age, your benefits can be withheld based on your earnings.

Here are the two “earnings test” rules for 2019:

  1. If you will reach full retirement age after 2019, $1 of your benefits will be withheld for every $2 you earn in excess of $17,640.
  2. If you will reach full retirement age during 2019, $1 of your benefits will be withheld for every $3 you earn in excess of $45,920. This is prorated monthly, and only the months before your birthday month are counted.

To be clear, benefits withheld under the earnings test aren’t necessarily lost. They can be returned in the form of increased benefits once you reach full retirement age.

People who think they can be fully employed and collect their Social Security benefits are often caught off guard when the Social Security office tells them they made too much money and have to repay some of the benefits.

Once you reach full retirement age, you can earn as much as you’d like with no reduction in benefits.

Mistake #3 – Assuming Social Security Is All the Retirement Income You Need

23% of married couples age 65 and older and 43% of unmarried seniors rely on Social Security for 90% or more of their income. Not only is this unsustainable, it’s not how Social Security was designed. The original intent was that Social Security would account for about half of your retirement income.

In reality, the average American can expect Social Security to replace about 40% of their income. The rest needs to come from other sources, like pensions and retirement savings.

Typically you’ll need 70% to 80% of your pre-retirement income to maintain your quality of life after retiring.

Mistake #4 – Not Checking Your Social Security Earnings Record

Do you check your Social Security statement each year? If not, now is a good time to create an account at www.ssa.gov and check it out.

Your Social Security statement has lots of valuable information, including your estimated retirement benefits, disability benefit eligibility, Medicare eligibility and benefits for your potential survivors.

But maybe the most important reason to check your statement every year is to ensure it’s correct. Recently, the SSA said there was about $71 billion in Social Security-taxed wages that couldn’t be matched to any earnings records, and only half of this was eventually resolved.

Because your future benefits are based on your earnings record, it’s important to make sure you keep tabs on this number.

Mistake #5 – Remarrying without Understanding the Consequences

If you’re collecting an ex-spousal Social Security benefit and you remarry, that benefit goes away. And if you remarry someone who is 10 or 20 years younger than you, you might not qualify for spousal Social Security benefits for awhile.

So make sure you understand how remarrying will impact your benefits. Also consider, if your ex-spouse passes away, you will step up to their full benefit amount — not the most pleasant thing to think about but important to consider.

Mistake #6 – Assuming Social Security is Tax Free

A surprising number of people I’ve talked to don’t realize they may have to pay income tax on their Social Security benefits. It depends on how much retirement income you have. But you don’t have to be considered “high income” to be taxed.

If your combined income is greater than $25,000 for single filers or $32,000 for married couples filing jointly, as much as 50% of your benefits could be taxable. If your combined income is greater than $34,000 (single) or $44,000 (joint), as much as 85% of your benefits could be subject to federal income tax.

It really depends on how significant a source Social Security will be for your retirement income. If you have a pension and significant 401(k) income, likely a portion of your Social Security benefits will be taxed.

If Social Security is your prime source of retirement income, you’re unlikely to be taxed. Consider this when estimating how much income you’ll need in retirement.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

The post 6 HUGE Social Security Mistakes appeared first on Daily Reckoning.

Mineral Resources warns of Ebitda fall

ASX-listed Mineral Resources on Wednesday has increased its earnings before interest, tax, depreciation and amortization (Ebitda) of between A$360-million and A$390-million, for the 2019 financial year. This was up from the previous guidance of between A$280-million and A$320-million estimated in November of last year, and compared with the Ebitda of A$507-million reported in the 2018 financial year.

6 Social Security Mistakes to Avoid

This post 6 Social Security Mistakes to Avoid appeared first on Daily Reckoning.

One of the biggest Social Security mistakes I see people make is claim their benefits too early. 

According to the Centers for Retirement Research at Boston College, 60% of seniors are applying for social security benefits before full retirement age. 

If you turned 62 last year, your full retirement age will be 66 years and six months. Full retirement age will continue to increase in two-month increments each year until it reaches 67. 

Even though you’re eligible to start claim benefits at 62, it’s ill-advised. Monthly payments are reduced by 25-30% if you claim at 62, depending on your birth year. 

In theory, claiming Social Security benefits should be straightforward — after working several decades, fill out an application and get a monthly benefit check for the rest of your life. 

But, you and I know it’s not that easy. There are strategies to consider if you want to maximize your benefits, and there are several mistakes that could cost you thousands of dollars over the course of your retirement if you’re not careful. 

Here are just a few mistakes I see people make that could easily be avoided. 

Mistake #1 – Claiming Benefits Too Early

I already explained why this is not advised for most retirees. But if you already chose to claim benefits early and now are second-guessing your decision, there are some recourse steps you can take.

Specifically, you are allowed to withdraw your Social Security application and re-claim benefits at a later date, but two conditions apply. 

First, you must withdraw your application within the first 12 months of receiving benefits. And second, you have to pay back every cent of benefits you’ve already received. Which can be a lot of money if you weren’t planning on withdrawing. 

This is why you should be certain. There are some perfectly good reasons for claiming benefits before your full retirement age, but it’s important to weigh all your options before you make moves.

Mistake #2 – Not Understanding the “Earnings Test”

If you’re still working and haven’t yet reached full retirement age, your benefits can be withheld based on your earnings. 

Here are the two “earnings test” rules for 2019:

  1. If you will reach full retirement age after 2019, $1 of your benefits will be withheld for every $2 you earn in excess of $17,640.
  1. If you will reach full retirement age during 2019, $1 of your benefits will be withheld for every $3 you earn in excess of $45,920. This is prorated monthly, and only the months before your birthday month are counted.

To be clear, benefits withheld under the earnings test aren’t necessarily lost. They can be returned in the form of increased benefits once you reach full retirement age. 

People who think they can be fully employed and collect their Social Security benefits are often caught off guard when the Social Security office tells them they made too much money and have to repay some of the benefits. 

Once you reach full retirement age, you can earn as much as you’d like with no reduction in benefits.

Mistake #3 – Assuming Social Security Is All the Retirement Income You Need

23% of married couples age 65 and older and 43% of unmarried seniors rely on Social Security for 90% or more of their income. Not only is this unsustainable, it’s not how Social Security was designed. The original intent was that Social Security would account for about half of your retirement income. 

In reality, the average American can expect Social Security to replace about 40% of their income. The rest needs to come from other sources, like pensions and retirement savings. 

Typically you’ll need 70% to 80% of your pre-retirement income to maintain your quality of life after retiring. 

Mistake #4 – Not Checking Your Social Security Earnings Record

Do you check your Social Security statement each year? If not, now is a good time to create an account at www.ssa.gov and check it out. 

Your Social Security statement has lots of valuable information, including your estimated retirement benefits, disability benefit eligibility, Medicare eligibility and benefits for your potential survivors. 

But maybe the most important reason to check your statement every year is to ensure it’s correct. Recently, the SSA said there was about $71 billion in Social Security-taxed wages that couldn’t be matched to any earnings records, and only half of this was eventually resolved. 

Because your future benefits are based on your earnings record, it’s important to make sure you keep tabs on this number.

Mistake #5 – Remarrying without Understanding the Consequences

If you’re collecting an ex-spousal Social Security benefit and you remarry, that benefit goes away. And if you remarry someone who is 10 or 20 years younger than you, you might not qualify for spousal Social Security benefits for awhile.

So make sure you understand how remarrying will impact your benefits. Also consider, if your ex-spouse passes away, you will step up to their full benefit amount — not the most pleasant thing to think about but important to consider. 

Mistake #6 – Assuming Social Security is Tax Free

A surprising number of people I’ve talked to don’t realize they may have to pay income tax on their Social Security benefits. It depends on how much retirement income you have. But you don’t have to be considered “high income” to be taxed. 

If your combined income is greater than $25,000 for single filers or $32,000 for married couples filing jointly, as much as 50% of your benefits could be taxable. If your combined income is greater than $34,000 (single) or $44,000 (joint), as much as 85% of your benefits could be subject to federal income tax.

It really depends on how significant a source Social Security will be for your retirement income. If you have a pension and significant 401(k) income, likely a portion of your Social Security benefits will be taxed. 

If Social Security is your prime source of retirement income, you’re unlikely to be taxed. Consider this when estimating how much income you’ll need in retirement.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

The post 6 Social Security Mistakes to Avoid appeared first on Daily Reckoning.

Three Concerns Hanging Over the Davos Elite

This post Three Concerns Hanging Over the Davos Elite appeared first on Daily Reckoning.

This week, the global elite descended private jets to their version of winter ski-camp – the lifestyles of the rich and powerful version.  The World Economic Forum’s (WEF) five-day annual networking extravaganza kicked off in the upscale ski resort town of Davos, Switzerland.

Every year, the powers-that-be join the WEF, select a theme, uniting some 3000 participants ranging from public office holders to private company executives to the few organizations that truly do help fix the world that they mess up.  This year’s theme is “Globalization 4.0”, or the digital revolution. The idea being, the potential tech take-over of jobs, and what wealthier countries are doing to lesser developed ones in the process.

While the topic might be focused on the future, the present is just as troubling, if not more so, than the future.   Such is the disconnect between real people and corporations.  That’s what the estimated 600,000 Swiss Franc membership to be a part of the WEF constellation gets you as a CEO at the Davos table.

Government leaders like German Chancellor Angela Merkel, Brazil’s president, Jair Bolsonaro and Chinese Vice President, Wang Qishan are in attendance this week. Business leaders like Microsoft co-founder Bill Gates and JPMorgan Chase CEO, Jamie Dimon will also take part in the festivities.

Yet, even though the various leaders will likely promote their achievements, what’s lurking behind the pristine snowcapped Alps, is a dark foreboding of a less secure world. Nearly every major forecast from around the world is projecting an economic slowdown. As one Bloomberg article reports, “companies are the most bearish since 2016 as economic data falls short of expectations and political risks mount amid an international trade war, U.S. government shutdown and Brexit.”

The list of non-attendees includes U.S. President Donald Trump, UK Prime Minister Theresa May and French President, Emmanuel Macron. They are too busy dealing with complex political problems in their own government institutions and domestic home fronts to make the trek.

Below is a breakdown of the three flashpoints that the Davos crowd should be watching in 2019:

Economic Growth Will Slow

Signs of slowing global economic growth are increasing. We’re seeing that in both smaller emerging market countries and larger, more complex ones. Weaker-than-anticipated data from the U.S., China, Japan and Europe are stoking worries about the worldwide outlook for 2019.

Many mainstream outlets are beginning to understand the turmoil ahead. Goldman Sachs, my old firm, is predicting an economic slowdown in the U.S. And the International Monetary Fund (IMF) has revised downward its 2019 U.S. growth prediction to 2.5% from 2.7% from 2018. It believes that the U.S. will be negatively impacted by the economic slowdowns of American trade partners and that the 2020 slowdown could be even “sharper” as a result.

The IMF also points to pressure from ongoing trade tensions between the U.S. and China and growing dysfunction between the U.S. and other major trading partners, such as Europe.

Because the world’s economies have become increasingly interdependent, problems in one economy can have widespread consequences. We learned this once before: the collapse of U.S.-based investment bank, Lehman Brothers, triggered a greater international banking crisis in 2008. That sort of connectivity has only grown. The reality is that we may now face even greater threats than forecast so far, which could lead to another financial or credit crisis.

It is likely that China could be ground zero for a global economic slowdown. Recent data out of China indicates that much global GDP and trade activity that should normally be in the first quarter (Q1) of 2019 was pulled forward into Q4 2018 to “beat” the tariff increase.

It’s likely that the same phenomenon could happen in the U.S. If this trend does snowball, you should expect to see rapidly deteriorating economic numbers arriving in the months ahead.

Debt Burdens Will Worsen

No matter how you slice it, public, corporate and individual debt levels around the world are at historical extremes. Household debt figures from the New York Federal Reserve noted that U.S. household debt (which includes mortgage debt, auto debt and credit card debt) was hovering at around $13.5 trillion. That debt has risen for 17 straight quarters.

What is different this time is that current levels are higher than just before the 2008 financial crisis hit.

In addition, global debt reached $247 trillion in the first quarter of 2018. By mid-year, the global debt-to-GDP ratio had exceeded 318%. That means every dollar of growth cost more than three dollars of debt to produce.

After a decade of low interest rates, courtesy of the Fed and other central banks, the total value of non-financial global debt, both public and private, rose by 60% to hit a record high of $182 trillion.

In addition, the quality of that debt has continued to deteriorate. That sets the scene for a riskier environment. Over on Wall Street they are already disguising debt by stuffing smaller riskier, or “leveraged” loans into more complex securities. It’s the same disastrous formula that was applied in the 2008 subprime crisis.

Now, landmark institutions like Moody’s Investors Service and S&P Global are finally sounding the alarm on these leveraged loans and the Collateralized Loan Obligations (CLOs) that Wall Street is creating from them.

CLO issuance in the U.S. has risen by more than 60% since 2016. Unfortunately, it should come as no surprise that Wall Street is now proposing even looser standards on these risky securities. The idea is that the biggest banks on Wall Street can actively repackage risky leveraged loans into dodgy securities while the music is still playing.

If rates do rise, or economic growth deteriorates, so will these loans and the CLOs that contain them, potentially causing a new credit crisis this year. If the music stops, (or investors no longer want to buy the CLOs that Wall Street is selling) look out below.

Corporate Earnings Will Be Lower

With earnings season now underway, we can expect a lot of gaming of results in contrast to earlier reports and projections. What I learned from my time on Wall Street is that this is a standard dance that happens between financial analysts and corporations.

What you should know is that companies will always want to maximize share prices. There are several ways to do that. One way is for companies to buy their own shares, which we saw happen in record numbers recently. This process was aided by the savings from the Trump corporate tax cuts, as well as the artificial stimulus that was provided by the Fed through its easy money strategy.

Another way is to reduce earnings expectations, or fake out the markets. That way, even if earnings do fall, they look better than forecast, which gives shares a pop in response. However, that pop can be followed by a fall because of the lower earnings.

The third way is to simply do well as a business. In a slowing economic environment, however, that becomes harder to do. Plus, it’s even more difficult in today’s environment of geopolitical uncertainty, as a multitude of key elections take place around the world in the coming months.

These three concerns were central in conversation in Davos. Expect global markets to be alert to the comments coming from the Swiss mountain town. Severe dips and further volatility could be ahead if any gloomy rhetoric streams from the Davos gathering.

How Will the Fed React?

Ready to help, is the answer. This month, yet another top Federal Reserve official noted that economic growth could be slowing down. That would mean the Fed should, as Powell indicated, switch from its prior fixed plan of “gradually” raising interest rates to a more “ad-hoc approach.”

Indeed, Federal Reserve Bank of New York President John Williams, used Chairman Powell’s new buzz phrase, “data dependence,” to indicate that the Fed would be watching the economy more. While he didn’t say it explicitly, it has become largely clear that the markets are determining Fed policy.

Based on my own analysis, along with high-level meetings in DC, I see growing reasons to believe the Fed will back off its hawkish policy stance. As we continue to sound the alarm, there are now a myriad of reasons including trade wars, slowing global economic conditions and market volatility.

Traders are now assigning only a 15% chance of another rate hike by June. Just three months ago, those odds were 45%.

Watch for even more market volatility with upward movements coming from increasingly dovish statements released by the Fed and other central banks. Expect added downward outcomes from state of the global economy along with geo-political pressures.

Regards,

Nomi Prins

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Wall St. Doesn’t Care About 800,000 Workers

This post Wall St. Doesn’t Care About 800,000 Workers appeared first on Daily Reckoning.

Today marks the 27th day of the government shutdown.

In total, 800,000 Federal employees missed their first paychecks last week. And another 1.2 million government contractors are also estimated to be missing paychecks as well.

That’s 2 million Americans currently out of work and not collecting paychecks!

This boils down to a large portion of America’s middle class at risk of missing mortgage payments, student loan payments, and even spending less on necessities like food and clothing.

This is a big deal!

But for some reason, Wall Street seems not to care… So what gives???

Wall Street’s Eyes are Focused Elsewhere — Not on the Shutdown

The government shutdown is definitely a frustrating experience regardless of which side of the political arguments you find yourself on. The back and forth rhetoric from both parties is exhausting.

But while I don’t mean to dismiss the very real challenges that come with the government shutdown, one thing you need to realize is that as of now, Wall Street is NOT fazed by the current gridlock in Washington.

In fact, since the shutdown officially began at midnight on December 22nd, the S&P 500 is higher by 8.17%!

Seriously, this has been quite an impressive rebound with hardly any down days in the 15 trading days we’ve had since the market bottomed. That’s great news for investors — and hopefully you’ve been taking advantage of the sharp move higher.

But this begs the question — how can stocks go higher when 2 million people are potentially now struggling to pay their bills?

It’s simple.

The key issue that Wall Street is focusing on this week is not the government shutdown… It’s not the trade war with China… And it’s not even additional interest rate hikes from the Fed.

Don’t get me wrong, those things are important, but right now they’re taking a back seat to one driving force…

The REAL Reason Stocks are Moving Higher Despite 2 Million People Not Collecting Paychecks

Earnings season!

This week, we’re starting to see some of the biggest earnings reports come in — from big financial firms like the money center banks, from retail firms, from industrial companies with international customer bases, and of course from a myriad of smaller stocks that represent smaller businesses here in the U.S.

And so far they’ve been stronger than expected!

Take the big banks for example. Goldman Sachs (GS) generated $6.04 per share in profit for the fourth quarter of 2018 versus the $4.45 per share estimated by Refinitiv. While Bank of America (BAC) posted earnings of $0.73 per share vs $0.63 estimated.

This caused both stocks to spike after the reports were released.

In addition, major airlines like United Continental (UAL) and Delta Airlines (DAL) also reported blowout 4th quarters in the face of a stock market pullback. United’s revenue for each passenger it flies a mile, a key industry metric, rose 5 percent from 4Q 2017 and Delta’s revenue per mile rose by 3.2 percent.

This is the real reason why stocks are moving higher during such an unfortunate time.

Trust me, I feel for those 2 million employees that haven’t collected a paycheck since the government shutdown started.

But in the long run, stock prices are determined by earnings. And this strong first week of earnings season far outweighs any temporary negatives that come with a government shutdown.

That’s why even as this government shutdown rolls on, I recommend that if you have the extra funds to spare, you continue allocating money towards stocks. Plenty are still on sale after the volatile last few months. And as earnings season continues, the market should respond positively to strong and growing earnings from our healthy corporations.

Here’s to growing and protecting your wealth!

Zach Scheidt

Zach Scheidt
Editor, The Daily Edge
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