The Independent Investor: Changes to Social Security and Medicare Benefits
As the year begins, those who are retired, or who plan to soon, need to know the changes the government has recently announced to your benefits.
The good news is that retirees will get a 2.8 percent increase in Social Security payments. While that doesn't sound like much, it happens to be the largest cost-of-living adjustment in seven years. What that amounts to for the average couple in retirement is about $67 per month, or an average monthly payment of $2,448.
If you are one of those workers like me, who waited until 70 years of age before collecting benefits and are considered a "high earner," then you will be receiving as much as $73 more per month up to $2,861. On the opposite end of the scale, individuals who want to claim their benefits earlier than their full retirement age, (but still plan to work) get a benefit. The amount of money they can make before their Social Security benefits are reduced or eliminated has increased. This year, a worker younger than 66 can earn up to $17,640 before losing any social security benefits. That is $600 more than last year. After that, they will lose $1 in benefits for every $2 of earnings over that limit.
If you are going to turn 66 this year, you can earn as much as $46,920 without jeopardizing your benefits, which is $1,560 more than you could last year. Anything over that new limit will mean you will lose $1 in benefits for every three bucks you make. The earnings cap goes away once you reach full retirement age. That means you can earn any amount without forfeiting your benefits.
However, the government both giveth and taketh away. As I predicted in past columns, the government has increased the retirement age yet again. For those readers born after 1954, the new current retirement age is 66 years old. Those of us born in 1957 or later have just had six months tacked on to full retirement age. You now have to wait until you reach 66 1/2. You can still opt for early retirement at 62, but your benefits will now be reduced by 27.5 percent (compared to 25 percent last year).
As most readers know, in order to qualify for Social Security in the first place, you must earn at least 40 "credits" with a maximum of 4 credits each year. That came to $5,280 worth of credits per year. Now, those four credits must be worth at least $5,440, or a $40 increase from 2018.
Social Security benefits, despite the tax cut this year, will still be taxed in the same way. That is, your tax will be based on your adjusted gross income, plus tax-exempt interest (such as municipal bonds) and half of your Social Security benefits.
Let's say you bring home between $25,000 and $34,000 in income this year all-in. In that case, half of your Social Security benefits will be taxed. Anything more than $34,000 and 85 percent of Social Security income will be taxed. What happens if you are married? If your combined incomes range between $32,000 and $44,000, up to 50 percent of your benefits will be taxed. Over $44,000, 85 percent will be taxed.
While income taxes for many may be going down this year, payroll taxes are going up — at least for high-income workers. Maximum wages subject to FICA taxes have increased by $4,500 in 2019. What that means is that high-wage earners could be paying as much as an additional $344.25 in payroll taxes this year.
Medicare, by the way, receives 1.45 percent of the tax on all wages. Individuals making over $200,000 and married couples pulling in more than $250,000 a year will be required to fork over an additional high-income surcharge of 0.9 percent in Medicare taxes this year. Speaking of Medicare, the good news is that your Part B premiums (outpatient service charges and doctor visits) will only increase slightly this year.
|Write a comment - 0 Comments|
@theMarket: The Trump Dump
The sell-off in stocks has now exceeded the 2016 decline. Investor sentiment is as low as it has been since May of that year. The Fed refuses to save us, and Donald Trump insists on his wall or he will lay off thousands of federal workers. Did I say Merry Christmas?
The reasons for this rout are well-known by now. The latest disappointment was on Wednesday when, contrary to investor's expectations, the Fed stood firm in their quantitative tightening agenda. For a more in-depth view of the reasons for their stance, please read my Thursday column "The Fed Stands Tall."
The markets expressed their unhappiness by declining 1.5 percent in the last four days. But it wasn't just the Fed. Last Sunday evening, China's President Xi Jinping made it clear in a speech celebrating 40 years of Chinese progress and reform that "no one is in the position to dictate to the Chinese people what should or should not be done."
In essence, Xi is calling Trump's hand while upping the stakes. He is betting that Trump has a weak hand. Between the continuing revelations of the Mueller investigation, the slow-down in the U.S. economy, a divided Congress, and his shrinking popularity among voters, Trump is, at best, a paper tiger.
Investors, in my opinion, are beginning to agree with Xi. Despite Trump's tweets and assurances, the trade war he has started won't be resolved anytime soon. As that understanding takes hold among investors, the markets are selling off. The prospect of a debilitating trade war has now permeated the economy. It is slowing growth, reducing earnings and transforming a fairly positive future into something unknown and potentially extremely dangerous.
It is also becoming increasingly clear that the tax cut, which was forced through Congress by Trump, Paul Ryan, and the Republican party, has been a colossal failure. It was the largest redistribution of wealth from the poor and the middle-class to corporations and the wealthy in the history of this country. It was sold as a way to incentivize corporations to invest in capital equipment, bring skilled jobs back, hire more highly-paid workers and generally "Make America Great Again."
It has done the opposite. To date, $1.1 trillion of the $1.3 trillion tax cut to corporations went into buying back stock. If you add in the money spent on increasing dividends, then all of the corporate tax cut has been squandered. I say squandered, because most of those share purchases were made at higher stock prices. In a sense, there is some poetic justice in that.
I have written in the past that corporations (through share buy-backs) and the wealthy (who own most of the equity in this country) have benefited the most from this tax cut. However, leverage works both ways. Both parties have now seen their stocks and holdings erase all those ill-gotten gains and are in jeopardy of losing a lot more in the months to come.
Thanks to the trade war, companies are shifting jobs and investments overseas. Forecasts of economic growth are declining. The lack of skilled American workers, combined with the much stricter immigration policies of the Trump regime has forced companies to pay higher wages to existing workers, but not new workers. Those higher wages, without a corresponding increase in productivity, is what ignites inflation. And now you see why the Fed needs to hold steady on its tightening course of action.
I have not even mentioned the growing list of concerns that are slamming investors in the face on almost a daily basis. The dissolution of the Trump family "charitable" foundation, the resignation of one of the administration's last reliable cabinet members, General Jim Mattis, the sentencing of two of Trump's inner circle — the list goes on and on. Readers may observe that just about every concern I have listed has one common thread — Donald Trump. And thus, my headline: The Trump Dump.
I will be taking a long holiday this year and won't be back until after the New Year. I wish all my readers a happy holiday season and hopefully a better 2019. In the meantime, the markets are due for a bounce. But as long as Donald Trump is in the White House and calling the shots, don't for a moment think this decline is over.
|Write a comment - 0 Comments|
The Independent Investor: The Fed Stands Tall
Sometimes it takes a while, but financial markets almost always test a new incoming Federal Reserve Bank chairman. On Wednesday, Jerome Powell faced his test and passed with flying colors. Of course, a glance at the stock market averages at the end of the day on Wednesday would have the casual observers scratching their heads.
As most readers know, the stock market has been declining since October. One of the reasons for the sell-off is the fear that the Federal Reserve Bank's gradual tightening policies have gone too far. Their continuous interest rate hikes coupled with the selling of $50 billion of U.S. Treasury bonds every month had started to reduce the excess liquidity from the financial markets.
Investors fear that these actions will slow the growth of the economy and tip the country into a recession as early as next year. No one is sure that this will happen, although most economists are already ratcheting down our forecasted growth rate to somewhere around 2-2.5 percent for 2019. That is by no means a recession, simply a slowing of growth, but nonetheless, investors have decided to sell first and see what happens as events unfold.
The continued losses in the stock market, after so many years of gains, have driven the level of angst to a point where the markets (and the president) have demanded that the Fed stop tightening — now. The media and Wall Street, coming into Wednesday's FOMC meeting, were convinced that the Fed would cave-in to their demands and announce a cessation of their tightening policies. Investors wanted him to say no more rate hikes and possibly a slow-down in the amount of bonds the Fed planned to purchase in the future.
None of that happened. Instead, Jerome Powell, while bowing to the fact that the economy was slowing a wee bit, simply reduced the Fed's planned rate hikes next year from three to maybe two, depending on the economic data. As for his bond sales, that process will continue at its $50 billion monthly clip until circumstances warrant a change.
Clearly, given the 1-2 percent declines in the U.S. stock market averages for the day, investors were dismayed and sold stocks in protest. In the past, many investors have talked about the "Fed Put." Initially, this concept was coined to reflect the Federal Reserve's willingness to intercede and support the equity and bond markets during the financial crisis.
Markets understood at the time that the Fed "would have their back" in times of crisis. Through the last decade, when Greece and the Euro seemed to be in crisis, when political in-fighting in Washington jeopardized our ability to pay interest on our debt, through the various government shut-downs, etc., the Fed was there to ensure market stability.
However, those days are gone. The Fed did its job. The global economy recovered and grew. It was, the Fed explained, time to normalize their relationship to the financial markets. Their traditional job is to control the nation's inflation rate and support employment, not make sure that investors always make money in the markets. That, I believe, is the lesson everyone must re-learn.
Back in the day, you took risks and you generated returns. If you were wrong, you paid heavily, depending upon your investment choices. As we face the new year and the possibility of a recession sometime in the period of 2020-2022, the Fed's message is clear. We are returning to a time where you (and your adviser) will be responsible for your investment choices, where there is no "Fed Put" to save you if you guess wrong. And, no, the Fed has not abandoned us. It is simply returning to its historical duties. You can't have it both ways.
From the president on down, most Americans espouse the concept of a free market; how we want our economy to run with the minimum of government interference, fewer rules and regulations and, for the most part, the Darwinian concept of "every man for himself." I suggest we start practicing what we preach.
|Write a comment - 0 Comments|
@theMarket: The Market's Winter Storm
Stocks worldwide have experienced a downdraft since October. All the gains so painstakingly made thus far in 2018 have been erased. Volatility has battered markets with all the severity of a Nor'easter. Next year may prove to be a continuation of the same.
It is interesting that the culprits responsible for this change of heart in the markets have been around for just about all of the past year. Leading the list is Donald Trump. It was our president that decided to wage a trade war against the world. There has been little success in his battle thus far. The prospect of more of the same faces us well into the new year.
The Federal Reserve Bank can also take some blame. After over a decade of "easy money," the new Fed chief, Jerome Powell, (appointed by Donald Trump), has decided to raise interest rates and sell $50 billion in Treasury bonds every month for the foreseeable future. In his own way, Powell is draining the system that has been swamped with money for years.
As a result of both the continued threat of a trade war and rising interest rates, the economy is slowing. It has not lost enough steam to threaten a recession, but it has removed the wind from the market's sails, to say the least.
Let us not forget the controversy raging across the pond. The United Kingdom is having a devil of a time pulling off their exit from the European Community. On the one hand, the EU doesn't want to make it too easy for this to happen, lest other members might follow the UK's lead. At the same time, the electorate, as represented by the UK Parliament, are not happy with the deal Prime Minister Theresa May has struck with the EU.
Finally, oil prices have collapsed since October. While the price decline has been a boon to the consumer, it threatens an array of companies related to energy production. Employment, capital spending, earnings and worries about debt servicing have added to the worries of stock investors as a result. In the recent past (2014-2015), declining energy prices put a large dent in the overall earnings of the S&P 500 Index of companies and could do so again.
As if all of the above were not enough, we are now faced with two immediate threats within our own political system. The House will be turned over to the Democrats in less than a month. And, within that time frame, the long-awaited Mueller Investigation should also reveal its results. Neither event is expected to help the presidency of Donald Trump.
Investors have no idea what will happen as a result of these developments. Will Donald Trump be proven right in his almost-daily denial of any collusion in regard to the Russian investigations? What if he is exonerated in part, but his family members are not? Has he committed any impeachable offenses in other areas? If so, how will that affect his trade negotiations or any future legislation?
In summary, few, if any of these issues can be resolved any time soon. Therefore, readers should expect the markets to exhibit the same kind of volatility into January and maybe into the end of the first quarter of 2019. That is not to say that many of the issues could turn out to be positives for the markets.
The Fed, for example, is already talking about easing up on the interest rate hikes. China seems to be amenable to further trade negotiations over the next three months. And who knows, Trump could turn out to have been right all along in blaming the entire Mueller probe on the fake news media and Democrat machinations.
In the meantime, expect stocks to ride a continued wave of wild swings of one percent or more almost daily in either direction. Most of these moves are fueled by computer programs that indiscriminately buy and sell stocks, sectors and entire country markets in a blink of the eye. My advice is to ignore these moves and wait out the storm.
|Write a comment - 0 Comments|
The Independent Investor: Will Our Country's Military Win the Next War?
There was a time, not long ago, when most Americans would answer that question in the affirmative without much thought. It was one of those "truisms" that we didn't give much thought. But today, many experts are debating that answer.
Back in the day, after World War II, our military prowess, (aided by the development of the atomic bomb) was unquestioned throughout the world. Growing up, it was never a question of spending on defense for me, it was simply how much. Republicans wanted more, Democrats wanted less. Today, not only is the amount of spending crucial but also its predictability and even more importantly, what those billions are spent on.
The Pentagon's National Defense Strategy was issued in January. Like all of their tomes before, it is heavy reading and fairly boring but this time around things were different. The United States Institute of Peace, a federal institution, issued a 98-page report rebutting some of the assumptions made about peacetime competition or wartime conflict.
The authors focused primarily on our top competitors for global hegemony, Russia and China, but also included recognized threats in Europe, Asia, portions of the Middle East. The report authored by a panel of former security officials and military experts did not mince words.
"The U.S. military could suffer unacceptably high casualties and loss of major capital assets in its next conflict. It might struggle to win or perhaps lose, a war against China and Russia. The United Sates is particularly at risk of being overwhelmed should its military be forced to fight on two or more fronts simultaneously."
Unlike WW II, where we did fight successfully on two fronts, on future battlefields we will face enemies that have developed extremely lethal weaponry, outnumber us, will be fighting on their own turf and will get to hit us first. In addition, it would be a big mistake to assume that our enemies would confine their attacks to the war theater. America and its military should expect devastating kinetic, cyber or other types of attacks (biological or otherwise) while fighting us abroad.
Until recently most of our conflicts were fought with America enjoying total air dominance, our logistics base (supply lines) were safe and secure from interdiction. Rarely, if ever, did we face long-range fire. About the worst anti-armor our tanks and Humvees faced were rocket-propelled grenades. We also owned the field when it came to unimpeded communications.
What our soldiers can expect to face in the next war will be advanced, tandem warhead anti-tank guided missiles, precision-guided artillery projectiles, long-range guns, armed drones and air-delivered weapons. The skies will no longer be exclusively ours as well. By now you are getting the picture.
Warfare is changing but the report says we are not keeping up. The proliferation of advanced technology, things like hypersonic and artificial intelligence that our enemies are applying to weaponry and soldiers on a mass scale are quickly eroding U.S. advantages and creating new vulnerabilities in a military that has relied for far too long on more ships, tanks and aircraft carriers.
Not only must the actual spending be increased but it should be allocated to those areas where we are behind the competition. The report suggested a 3-5 percent increase (above inflation) for the Department of Defense with areas such as cybersecurity and new technologies taking the brunt of the increase. Of course, that will cause lots of problems in Congress where "pork" has been a tradition among legislators when voting for the defense budget roll s around.
Year after year, politicians allocate the lion's share of defense spending to their states, which manufacture all that traditional and increasingly obsolete hardware. That would need to change but don't hold your breath. Those jobs (and votes) are what make Washington the swamp that it is.
|Write a comment - 0 Comments|