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The Independent Investor: How to Make the Most Out of Social Security
By Bill Schmick On: 03:09PM / Thursday February 19, 2015
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Yes, it's complicated. Social Security benefits have been around since 1935 and, like taxes, have become increasingly complex through time. Most people are losing out because they don't understand the fine print. Starting today, you will, so read on.

For most of us, who haven't saved a great deal during a lifetime, Social Security benefits are about all we can depend on once we retire. In 2013, almost 58 million Americans received these benefits. Retirees and their dependents accounted for 70 percent of benefits paid, 19 percent went to disabled workers and dependents while survivors of deceased workers accounted for 11 percent of the total.  Although benefits have increased numerous times since its creation and those benefits are inflation-indexed, the total doesn't come to much, so wringing every last penny out of the program is essential.

In past columns, I have explained that if you can, waiting until you are 70 years of age is your best bet as far as receiving the most money from Social Security. If you defer filing at age 62 (your earliest allowable retirement dates) until age 70, the difference is over $100,000 per person. That's a nice piece of change for retirees. Of course, the downside is that if you die at age 71, then retiring early would have been a better bet. The healthier you are, the more sense it makes to retire later.

There is also an opportunity for married couples to enhance their combined benefits. It is called "file and suspend." It works best if one spouse is making significantly more than the other. The bigger the income gap, the bigger the payoff. Hypothetically, let's say my wife and I are now 66 and debating on whether to tap Social Security since we are both at full retirement age (FRA). Assume my wife, Barbara, as president of the company, has been the real bread-winner and has earned more than me over the years. She can expect to receive $2,000 per month in benefits, while I get $900 a month.

If Barbara files for benefits under her earnings record, I could claim one-half of her benefits ($1,000). At the same time, I could let my benefits continue to increase (by as much as 32 percent if I wait until I am seventy) before claiming them. That's a great deal for me since I make $100 more a month and let my benefits ride. But what happens to Barbara's benefits under this scenario?

As soon as I claim my spousal benefit, Barbara can turn around and immediately suspend receipt of her own benefits of $2,000/month. By doing so, we can now both accumulate the 32 percent increase in benefits until age 70. In dollars and cents, Barbara's benefits will grow to $2,640 a month and mine will top out at $1,188. But in the meantime, as the claiming spouse, I still receive $1,000 a month until age 70.

If we both live to say, 95, the file and suspend strategy would result in more than $200,000 in extra benefits between us. Not a bad return to simply spend an hour or two of additional form filing. There is an added benefit as well; since it would allow me to take a survivor benefit on Barbara's increased monthly amount should she die unexpectedly after age 70. Complicated? Yes, but well worth the time and effort.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



     
The Independent Investor: The Grecian Drama
By Bill Schmick On: 03:24PM / Thursday February 12, 2015
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Greece is once again on center stage as the world looks on, wondering if this time the country's finances will finally implode. It is a play we've seen before and its outcome fairly predictable.

Several weeks ago, I warned readers to expect turmoil in Greece. As expected, the anti-austerity party, Syriza, was elected in a nationwide election at the end of January. The new prime minister, Alexis Tspiras, has promised the voters that the spending cuts, tax increases and other austerity measures leveled on Greece by the "Troika" (the IMF, ECB and the EU) would come to an end.

The austerity measures were agreed to by the previous Greek administration in exchange for a three-tranche, $272 billion bailout, which runs until the end of this month. Until the elections, the Troika was insisting that Greece implement even more measures to reduce the country's debts and spur economic growth. Now both sides are seeking a compromise.

The Troika has offered to extend the bailout package for several months to give both parties time to come to a compromise. No deal, say the Greeks. Greece evidently has learned that they can cut a better deal for themselves if there is a clock ticking in the background. They are counting on the Troika caving in to at least some of their demands by the end of the month.

As it stands now, Greek banks are already in a jam, since they can no longer use their government's bonds to borrow funds from the ECB. Instead, they have to rely on their own central bank for emergency funding. Investors have dumped Greek stocks and bond yields have spiked higher as a result. Yet, the panic we've seen before under these circumstances just isn't there.

There is a growing faction within the EU, led by Germany, who believes that a Greek exit from the EU and the Euro is probably the best outcome for everyone. After all, Greece has a long history of going in and out of bankruptcy. Some argue that it was only invited into the original European Union because it was the "birthplace of European Democracy." Its economy and finances, some argue, were never strong enough to warrant a seat at the EU table.

Others say that it is the precedent that counts: if Greece exits the EU, than others may be tempted to do the same, namely countries such as Portugal, Ireland, Spain and even Italy. All of the above are suffering from their own austerity/bailout deals with the Troika. And this is where it really gets messy. If Greece gets its way, by either renegotiating its debt and the austerity program, other countries will demand the same thing.

At the moment, both sides are still talking in a marathon session that could conceivably last through the rest of this week and into next. Tspiras, who knows full well that the major stumbling block to getting what he wants is a reluctant Germany, is attempting to muddy the water. He is demanding billions of Euros in World War II reparations and unpaid debt from Germany. It certainly plays well with the populace, who have long felt that Germany has never paid its fair share for the damage the Nazis have done. The stoic Germans, pointing to two separate agreements in the 1950s and 1960s, say that issue is a red herring as far as they are concerned.

My bet is that despite all the bluster, Greece needs Europe more than Europe needs Greece. At some point in the near future, Tspiras will back off and agree to some face-saving measures that will give his country a bit more time to get its act together. That may lead to similar measures in the case of other problem countries. End of story.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



     
The Independent Investor: Joint Business Is Jumping
By Bill Schmick On: 01:16PM / Friday February 06, 2015
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Today, more than 7 million Americans are no longer limping. Instead, they are trotting around with the assistance of artificial knees, hips or both. Every year another million of us will join the crowd, and that number is expected to grow as America ages.

Arthritis is the main reason for these surgeries, followed by obesity, which adds stress to the knees and hips. Everywhere you turn, Americans are told that they must lose weight. However, in order to do that, a less than virtuous circle has evolved for many of us. We are all striving to eat healthier and eat less while exercising more. As such, wherever you look, aging amateur athletes vie with the young on the ski slopes, the treadmill, hiking trails and wherever else one finds exercise. But this cult of weekend warriorship is demanding a high price.

It is bad enough that we Baby Boomers are wearing out our joints at a stupendous rate. However, the real growth rates in joint replacement are coming from those between the ages of 45-64. Joint replacements have tripled in that age group over the last decade, with nearly half of all hip replacements now being done in people under age 65.

In the past, orthopedic surgeons were reluctant to replace a knee or hip in patients under 65 since replacement joints typically only lasted 10 to 12 years. Today, thanks to advances in medical device technologies, a typical knee or hip can last 20-25 years. As a result, more Americans than ever are opting to get the surgery now, rather than give up their mountain bike or snowboard for less active physical pursuits. I'm one of them.

Six months ago, my knee began bothering me while doing my usual cardio fitness exercises. The pain increased to the point that I visited a doctor who informed me that my right knee "was shot." Decades of running, step aerobics, snowboarding and skiing had taken its toll on my body. Although the pain was moderate at best, I opted for surgery now rather than limp along until the pain forced me into surgery. I did not want to sacrifice my athletic lifestyle.

The procedure was successful thanks to my surgeon, Dr. Mark Sprague of Berkshire Orthopedic Associates, who is a true rock star. The staff and service of Berkshire Medical Center's orthopedic unit was exemplary as well. I guess you get what you pay for.

The cost of a joint replacement varies depending on where you get it done. A study by Blue Cross Blue Shield indicates a total knee replacement procedure, on average, costs $31,124, but could be as low as $11,317 in Montgomery, Ala., to as high as $69,654 in New York City. Hip replacements, on average, go for $30,124 but can be as much as $73,987 in Boston.

But there are whole lists of other services that must be paid for. Pre-surgery appointments, diagnostic studies, lab tests, the doctor's fees, anesthesia, postoperative hospitalization plus postoperative recovery including rehabilitation and physical therapy. Since my surgery was one month ago, I have not received a final total of the all-in charges. But when I do, I'll most likely write another column, since it is my understanding that the actual manufacturing cost of an artificial hip is about $350.

Yet, by the time the hospital purchases these sterilized pieces of tooled metal, plastic or ceramics, that same hip costs them $4,500-$7,500. From there the charges escalate. By how much, I am determined to find out — so stay tuned.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



     
The Independent Investor: College Savings Accounts Are Not Risk-Free
By Bill Schmick On: 08:22PM / Thursday January 29, 2015
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A national debate over whether to tax "529" college savings plans has turned the spotlight on these plans and how they work. Do they really help parents save the money their kids will need for college? The answer depends on how they are invested and how they are managed.

Starting in 2001, the IRS offered tax benefits to middle-class families to cope with the escalating costs of college education. Thirty-four states (and the District of Columbia) also chipped in with tax breaks of their own. These savings plans work much like a 401 (K) or a Roth IRA. The after-tax money you invest in these plans will grow (or not) without being subject to federal income tax. Any money you withdraw from the plan will be tax-free as well, as long as it is used to pay for qualified educational expenses such as room and board, tuition and books.

Since the onset of 529 plans, tuition and fees at private, nonprofit four-year colleges have risen by an average of 2.4 percent per year. Over the same period (2002-2013) the inflation rate for these same colleges averaged 5.2 percent. Today's average cost per one year at a private, nonprofit college is $39,518. A Public University's cost for in-state tuition, fees as well as room and board, averages $17,860. Given those numbers, is it any wonder that 529 plans have accumulated over $244.5 billion by 2014, with the average account size of about $20,671. For those who can afford it, these plans look like a good deal.

However, before you jump on this educational band wagon, savers should be aware of some pitfalls in this scheme. Like 401(k) and other tax-deferred plans, the responsibility to manage those savings are on your shoulders unless you want to pay a fee for someone to manage that money. If you go through a broker the average annual fee is roughly 1.17 percent/year. Some charge higher, depending on the advice they give. If you go it alone, you still pay a fee, since most states charge an annual fee of 0.69 percent.

These fees matter because in order to just keep up with inflation and college cost increases, you need to make at least 5-6 percent on your money per year just to stay even. That is no mean feat when you realize that the average return on the stock market per year over the last century or so is 6-7 percent. Given most savers' track records in investing their other tax-deferred savings accounts, the prospects are fairly low that the performance of these plans will tie, let alone, beat the market.

In 2010, nine years into these plans, most 529 plans had a negative performance record. Since then, many have at least recouped saver's initial investment amounts. Some have done even better. The point is that not all 529 plans are made the same.

For those who don't want to actively manage these funds, many plans offer target date funds that automatically shift from aggressive (mostly stocks) to conservative (mostly bonds) investments as the child approaches college age. The problem with target funds is that they do not account for market trends. Let's say your daughter is two years from college, so her target fund investment is now fairly conservative. In a rising interest rate environment, which most investors expect to begin this year, that fund, now top heavy with bonds, will do poorly just when your child can least afford losses.

Bottom line, without the tax-saving advantages of the 529 plan, there is no reason to open one. And even with the tax-deferrals, there is no guarantee that you will have the money you need by college time. That will depend on how astute an investor you are or, if you are paying a professional, how well they do on your behalf.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



     
The Independent Investor: The European Central Bank Delivers
By Bill Schmick On: 04:39PM / Thursday January 22, 2015
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Thursday, Mario Draghi, the head of Europe's Central Bank, announced new steps in an effort to lift the EU from economic malaise. Investors wonder if it will be enough.

That's not unusual. There were many doubting Thomases in this country when the Fed first launched its quantitative easing program back in 2009. Japan, which is in the second inning of its stimulus program, also has its share of detractors.

At first blush, the expanded program of stimulus includes an asset purchase program of both private and public securities of up to $60 billion Euros ($69 billion) a month through the end of September 2016. That amounts to well over a trillion Euros in new stimulus. The markets were expecting roughly half that much.

What makes the move even more impressive is that the ECB prevailed in the face of heavy opposition from Germany's Bundesbank. The Germans argue that bond bailouts like this only encourage spendthrift countries to postpone economic reform. Greece is just one such country.

Greece is scheduled for national elections this weekend and Syriza, a popular anti-austerity party, is expected to win. The ECB's new stimulus program appears to include Greek debt but under certain conditions, most likely linked to Greece's willingness to continue economic reforms.

Unlike our own central bank that has a dual purpose of maintaining employment and controlling inflation in this county, the ECB has only one mandate — inflation. They have failed miserably in achieving their stated goal of an inflation rate of just under 2 percent annually. Last month, consumer prices actually turned negative, falling 0.2 percent. What concerns European bankers and governments alike is that the EU is at real risk of entering a deflationary, no-growth economic period similar to what Japan experienced for well over two decades. Once deflation infects an economic system it is notoriously difficult to cure. The hope is that the central bank's monthly injections of capital at this scale will stimulate growth throughout the 18-member countries and re-inflate the economy.

As a result of these actions, we are now in a peculiar place globally. While the United States has discontinued its stimulus programs, Japan, Europe and China, the largest economies in the world, are embarking on their own stimulus agendas. This does cause some strange disparities in interest rates and currencies however. Interest rates in Europe at this time are lower than here in America. The U.S. dollar is gaining strength while the yen and the euro continue to weaken.

We can expect these trends to continue as time goes by, but there are some benefits. Many currency traders expect that the euro will trade one-to-one with the greenback in the months ahead. The Japanese yen is already dirt cheap. If there was ever a time to book that European or Japanese vacations, now is the time.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



     
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North Adams Happenings: Feb. 25-March 3

Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



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