Articles for March 2014

Can You Raise Your Social Security Benefits By Reapplying?

Social Security has closed a popular loophole, but all is not lost. 
The “reset button” has been removed. A few years back, the distinguished economist Laurence Kotlikoff alerted people to a loophole in the Social Security framework: retirees could dramatically increase their Social Security benefits by reapplying for them years after they first applied.

It worked like this: upon paying back the equivalent of the Social Security benefits they had received to the federal government, retirees could fill out some simple paperwork to reapply for federal retirement benefits at a later age, thereby increasing the size of their Social Security checks. Figuratively speaking, they could boost their SSI after repaying an interest-free loan from Uncle Sam.

You can’t do this any longer.

In late 2010, the Social Security Administration closed the loophole. Too many retirees were using the repayment tactic, and the SSA’s tolerance had worn thin. (The Center for Retirement Research at Boston College figured that the strategy had cost the Social Security system between $5.5-8.7 billion.)1,2

Today, accumulated Social Security benefits can no longer be repaid with the goal of having the SSA recalculate benefits based on the retiree’s current age. You can only withdraw your request for Social Security benefits once, and you are only allowed to reapply for benefits within 12 months of the first month of entitlement.1,3

Couples can still potentially increase their SSI. This involves using the “file and suspend” strategy once one spouse has reached full retirement age (FRA).

An example: Eric applies for Social Security at age 66 (his FRA). Immediately after filing for Social Security benefits, he elects to have his benefit checks stopped or postponed. As he has technically filed for benefits at full retirement age, his wife Fiona can begin receiving spousal benefits – a combination of her own benefits plus the extra benefits coming to her as a spouse, both reduced by a small percentage for each month that she is short of her FRA. (If she is younger than her FRA, she cannot apply to only receive a spousal benefit.)4

Meanwhile, Eric’s Social Security benefits are poised to increase as long as his checks are halted or deferred. As Eric has hit FRA, he now has the chance to accrue delayed retirement credits (DRCs) and have his benefits enhanced by COLAs between today and the month in which he turns 70.4

Before you claim Social Security benefits, run the numbers. Knowing when to apply for Social Security is crucial. As it may be one of the most important financial decisions you make for retirement, it cannot be made casually. Be sure to consult the financial professional you know and trust before you apply.

Michael Moffitt may be reached at (641) 782-5577 or email: mikem@cfgiowa.com
Website: www.cfgiowa.com

Securities offered through LPL Financial (LPL), Member FINRA/SIPC. Investment advice offered through Advantage Investment Management, a registered investment advisor. Cornerstone Financial Group and Advantage Investment Management are separate entities from LPL Financial.
This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – www.socialsecurity.gov/pressoffice/pr/withdrawal-policy-pr.html [12/8/10]
2 – www.cbsnews.com/8301-505123_162-37841858/the-end-of-social-securitys-interest-free-loan/ [12/9/10]
3 – www.financial-planning.com/fp_issues/2011_3/under-the-radar-2671684-1.html [3/1/11]
4 – www.foxbusiness.com/personal-finance/2012/01/30/social-security-qa-how-to-maximize-benefits/ [1/30/12]

China, Ukraine & the Markets

Dow drops again, analysts wonder. March 13 saw another triple-digit descent for the blue chips – the Dow Jones Industrial Average plummeted more than 230 points, the second market day in less than two weeks to witness a loss of 150 points or greater. The S&P 500’s (small) YTD gain was also wiped out by the selloff. As the bull market enters its sixth year, it faces some sudden and potentially stiff headwinds, hopefully short-term.1,2

In Ukraine, the situation is fluid. As the trading week ended, much was unresolved about the nation’s future. The parliament of its autonomous Crimea region had announced a March 16 referendum, which gave voters two options: rejoin Russia, or break away from Ukraine and form a new nation.3

Ukraine’s government calls the referendum unconstitutional. The United States and key European Union (EU) members agree and claim it violates international law. Russia welcomes the vote – 60% of the Crimean Peninsula’s population is made up of ethnic Russians, and Russian troops more or less control the region now.3

Russia wants the real estate (its Black Sea naval fleet is based on the Crimean Peninsula) and could spread its economic influence further with the annexation of that region. The cost: economic sanctions, probably harsh ones. Should diplomacy fail to stop the secession vote, then Russia can expect “a very serious series of steps Monday in Europe and [the United States],” according to Secretary of State John Kerry.3

So far, the moves have been largely symbolic: a suspension of the 2014 G8 summit and the talks on Russia’s entry into the OECD, and asset freezes for individuals and companies deemed to be hurting democracy in Ukraine. Additional “serious” steps could include financial sanctions for Russian banks, an embargo on arms exports to Russia, and the EU opting to get more of its energy supplies from other nations. Russia could respond in kind, of course, with similar asset freezes and possible pressure on eurozone companies doing business in Ukraine. The fact that Russia has already staged war games near Ukraine adds another layer of anxiety for global markets.4

Investors see China’s growth clearly slowing. Its exports were down 18.1% year-over-year in February. Analysts polled by Reuters projected China’s industrial output rising 9.5% across January and February, but the gain was actually just 8.6%. The Reuters consensus for a yearly retail sales gain of 13.5% for China was also way off; the advance measured in February was 11.8%. These disappointments bothered Wall Street greatly on Thursday. The news also roiled the metals market – copper fell 1.3% on March 13, its third down day on the week.

Besides being the world’s top copper user, China also employs the base metal as collateral for bank loans.1,5,6

As Chinese Premier Li Keqiang noted on March 13, the nation’s 2014 growth target is 7.5%; the respected (and very bearish) economist Marc Faber told CNBC he suspects China’s growth is more like 4%. The upside, Faber commented, is that “4 percent growth in a world that has no growth is actually very good.”6

Will the bull market pass the test? It has passed many so far, and it is just several days away from becoming the fifth-longest bull in history (outlasting the 1982-7 advance). Bears wonder how long it can keep going, referencing a P-E (price-to-earnings) ratio of 17 for the S&P 500 right now (rivaling where it was in 2008 before the downturn), and the 1.9% consensus estimate of U.S. Q1 earnings growth in Bloomberg’s latest survey of Wall Street analysts (down from a 6.6% forecast when 2014 began).1

Then again, the weather is getting warmer and the new data stateside is encouraging: February saw the first rise in U.S. retail sales in three months, and jobless claims touched a 4-month low last week. Maybe Wall Street (and the world) can keep these signs of the U.S. economic rebound in mind as stocks deal with momentary headwinds.1

Michael Moffitt may be reached at 1-800-827-5577 or email: mikem@cfgiowa.com
Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and, securities are offered through LPL Financial, member FINRA/SIPC.  Investment advice offered through Advantage Investment Management, a registered investment advisor and a separate entity from LPL Financial.

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. It cannot be invested into directly.

The Dow Jones Industrial Average (the ‘Dow’) is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.

The P/E ratio (price-to-earnings ratio) is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. It is a financial ratio used for valuation: a higher P/E ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with lower P/E ratio.

International and emerging market investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – bloomberg.com/news/2014-03-12/nikkei-futures-fall-before-china-data-while-oil-rebounds.html [3/12/14]
2 – ajc.com/feed/business/stock-market-today-dow-jones-industrial-average/fYjPS/ [3/3/14]
3 – cnn.com/2014/03/13/politics/crimea-referendum-explainer/ [3/13/14]
4 – uk.reuters.com/article/2014/03/13/uk-ukraine-crisis-factbox-idUKBREA2C19L20140313 [3/13/14]
5 – cnbc.com/id/101492226 [3/13/14]
6 – cnbc.com/id/101489500 [3/13/14]

Is your portfolio ready for 2014?

Since we’re nearly 5 years removed from the bottom that the S&P 500 index set on March 9, 2009, it’s probably a good time to reexamine where we are and whether or not we’re looking at a possible correction again. Of course, everyone has their own opinion on this and at this point it IS just OPINIONS. But facts (or lack of facts) usually back up a person’s opinions, so let’s try looking at some of the facts and see how those opinions are formed.
First, let’s look at the positives. The economy looks to be growing, albeit slowly. Total retail sales in the USA in calendar year 2013 were $5.085 trillion, up +4.2% from its total in 2012, according to Michael A. Higley’s “By the Numbers” 2/24/14 newsletter. The early February Federal Reserve meeting, the Fed committed to continuing the reduction in bond purchases, with an additional $10 billion reduction in quantitative easing bond purchases. That could indicate the Federal Reserve believes the economy is getting stronger. Their language about conditions and business/consumer spending was generally more optimistic.
The STOXX Europe 600 Index posted a third straight week of gains and climbed to its highest level in six years. News about the Eurozone economic recovery has turned increasingly positive. And with earnings season nearly over, S&P Dow Jones Indices says it’s likely that fourth-quarter 2013 earnings for S&P 500 companies will break a record, as they did in each of the preceding three quarters of 2013. This is a little deceiving, however, as I’ll explain shortly.
John Hancock’s most recent Viewpoints newsletter trumpets “Bias towards higher equity prices remain.” Mark Donovan, CFA, says that “at around 1,800, the S&P 500 Index trades at about 16.5 times estimated 2013 earnings,” and as such, “the equity markets look neither cheap nor overvalued.”

So is there anything to worry about?
Some others see some negative factors. LSA Portfolio Analytics sends us their weekly investment committee minutes. They noted many economic indicators came in weaker than expected in February: Empire manufacturing survey, the Philadelphia Fed manufacturing index, the NAHB housing market index. Housing starts for January fell -16.0% and building permits also lost ground, falling -5.4% compared to an expected decline of -1.6%.

Noted economist Harry Dent, who studies the world’s demographic trends as a predictor of future economic trends, thinks we are in a bubble that will burst soon. He cites the fact that margin debt – borrowing money to buy investments, is approaching the high of 2007. Stock buybacks are reaching very high levels as well, as 83% of the S&P 500 companies are buying back their shares compared to 87% in 2007. Stock buybacks artificially inflate earnings per share and can give the illusion that a company’s earnings are growing when they may not be; if a company for instance has $10 of earnings and 10 shares outstanding, that’s $1 of earnings/share. If they buy back 4 shares, now there’s only 6 shares outstanding, so the earnings per share goes up from $1/share to $1.67/share ($10 of earnings/6 shares) even though the earnings themselves did not change.

As for the market itself, since 2000 each successive major correction has only gotten greater. The 2000-2002 crash was nearly a 50% drop in the S&P 500, the 2007-2009 drop was over 55%. If the market drops to that same general level of support as in 2002 and 2009, the drop will be over 63%. Although there are a few exceptions, most bull markets don’t last much longer than 5 years!

While we are not predicting such a drop, we also would not rule it out. Given that anything is possible, we have been suggesting it would be worthwhile to stress test your portfolio against potential negative outcomes.

The Federal Reserve, Wall Street banks and other major hedge funds use stress testing to project their losses in the event of the unexpected. Stress testing is a routine part of our process.
We start by asking questions like, “Historically, what happened to this group of investments when the dollar crashes, the economy falls into recession/depression, or oil prices skyrocket?” We model over 60 scenarios – both positive and negative.
Our model measures the potential impact of these scenarios on investments using history as a guide, providing insight into the historical characteristics of portfolios.
The software then uses this data to project how your investments might react to future scenarios, both positive and negative. When running a stress test, each investment in your portfolio can be tested against 60+ scenarios in this manner, with the results combined and summarized for easy understanding.
You can see how the stress test works by going to www.cfgiowa.com and click on the “Take Your Free Stress Test” button on the home page.
Investing involves risk including loss of principal.

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. All indices are unmanaged and may not be invested into directly.