​The Senate has passed an emergency relief bill that is expected to pass the House later this week. The package is over $2 trillion in scope, $6 trillion if you include loan provisions, and is the largest relief bill in the history of the United States. 

Let’s start with the direct payment checks you have probably heard about. In general, individuals will receive payments of $1,200 and joint filers $2,400, plus $500 for each qualifying child. The definition of a qualifying child is already in the current Child Tax Credit Guidelines i.e. if you claim someone as a dependent child on your tax return in 2020 then they’ll qualify for the additional $500 per child payment.

High income taxpayers will see these amount reduced as income exceeds $150,000 for joint filers, $112,500 for head of household, and $75,000 for single filers. For every $100 over those limits the payment is reduced by $5 until you reach zero.  That means joint filers earning $198,000 or more, heads of households earning $136,500 or more and single filers earning $99,000 or more will receive nothing.

The payments will be based on the most recent tax return filed. So, if you have already filed for 2019 you are stuck with those earnings. If you have not filed for 2019, then your payment will be based on 2018 return information. If your income is higher in 2019 than 2018 DO NOT FILE YOUR TAXES UNTIL LATER. On the other hand, if your 2019 income is lower than 2018 IT IS IMPORTANT TO FILE YOUR TAXES NOW.

The payments will be direct deposited for taxpayers who elected to have direct deposit on their income tax forms. This could be a problem if the direct deposit instructions you provided in 2018 are to an account that has since been closed, or if you have divorced or separated since your 2018 tax filing. Within 15 days of the money being released, the IRS will send a letter informing you of the amount and where it was sent. If there is an issue with your payment, like it never arrived or went to a divorced spouse, the letter will include a phone number where you can call to resolve the issue, but unfortunately, the IRS is difficult to communicate with in general.

​For the tax year 2020, there are no required minimum distributions (RMDS) from IRA accounts. If you have already withdrawn your RMDs for 2020, you cannot undo that. If you haven't taken your RMD yet, consider how delaying or withdrawing your RMD will affect your income tax brackets. For inherited IRA accounts required withdrawals are also eliminated for the 2020 tax year.

Distributions of up to $100,000 from any IRA, 401k, 403b, or other qualified plan will not be subject to the usual 10% early withdrawal penalty for those who are infected with the COVID virus, have a family member infected by the virus, or were laid off or lost wages due to the virus. The distribution is still taxable, but the income, by default, will be spread over a 3-year period. This can help you access funds without bumping yourself into a much higher income tax bracket. It could potentially be used to advance fund Roth IRA conversions. More on that as we have time to digest all the ins and outs of the legislation.

The law also allows for repayment of any qualified plan distributions over a 3-year period as a qualified rollover contribution. So, if you need the funds now and are re-employed later, you will be able to replace the funds, offsetting any potential tax bracket increase in the future.
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Allowable loans from qualified plans, such as a 401ks, are also increased to $100,000 or 100% of the vested account balance, whichever is lower. Repayment of any loan taken in 2020 can be delayed for up to one year.
 

​After the recent Tax Cuts and Jobs Act (TCJA), many taxpayers found themselves using the increased standard deduction and no longer itemizing on their income tax return. That eliminated the charitable contribution deduction. One of the permanent changes the relief bill provides is a new above the line deduction for up to $300 of cash contributions to a qualified charity. This does not include contributions to donor advised funds.

I don't want to add flames to the fire regarding the new coronavirus-- COVID-19, however, the time to have a lifeboat drill is prior to the ship sinking. Investors should contemplate what this virus can do to the markets and world economies while they are still thinking rationally, rather than waiting until widespread panic clouds their judgement.

The COVID-19 is the same type of virus as the common cold, but it’s definitely not common. It is a strain that is new in humans, so we, as a species, have not developed antibodies to fight it, and there is no herd immunity to slow its contagion. Rather than turn to Facebook or the popular press for answers, we  recommend you visit the Center for Disease Control web site for more detailed information on what COVID-19 is and the threat it poses.

Early data shows a high fatality rate-- somewhere around 2%; but keep in mind this data could well be skewed because diagnosing those infected is rudimentary at best. We are aware of nearly 100% of the fatalities but the number of cases of infection could be vastly under-reported. A coronavirus is a cold, and except in the most serious cases, likely to pass with little notice.

You’re probably aware that drug companies around the world are trying to find a vaccine. We wouldn’t hold out much hope on this front as we have been trying to find a cure for the common cold for decades with zero success.

In the past week, we’ve seen the US Stock market drop by about 10% as concerns over COVID-19 have swept the globe. While markets usually do a very good job of pricing risk and opportunity, there are times when rationality tips to panic, and markets no longer function as they should. The most recent example of this was the 2008-2009 period when markets lost half of their value based on panic that the world was ending. They would eventually rebound fourfold as panic subsided and rational thought came back to the forefront.

So, is the pullback, so far, a rational repricing of risk/opportunity? Or is it the beginning of a panic? We believe it is too soon to tell.
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Some companies have already announced that the COVID-19 is having an effect on their sales and earnings. Microsoft and Apple have noted problems with their supply chains. As market participants try to peer into the future, they’ve battered the travel and energy sectors, expecting consumers to avoid travel. As fear spreads this will work its way into the restaurant sector, fear of contagion may cause consumers to avoid crowded spaces where the virus could be easily transmitted. On a more basic level missed workdays and a drop in productivity could potentially hurt businesses of every type.

The stock market has had an incredible run over the past 14 months, reaching new highs at almost a monthly pace. The technical indicators we follow showed the market nearing overbought levels on a short-term basis prior to the recent drop. So, a pullback was not unexpected-- with or without the COVID-19 outbreak. That doesn’t mean we expect a reversal, but it does mean we would not expect a continuation of these 2%-3% per-day drops. From a technical perspective, a pullback to around 2,600 for the S&P 500 would not be overly concerning.
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If markets stabilize on a short-term basis, there are gaps in index price levels that will be filled. So, in fact, we could soon have a very good buying opportunity for long-term investors with cash to allocate to stocks. 

Nothing. Rational investors know that their default position should always be to remain fully invested. It is too soon to tell if this is a normal market adjustment to new information, or the beginning of a panic. For those with reasonable investment time frames, this will be a barely noticeable blip on the long-term chart of their investment history.

​In the short term there will be times when investors doubt themselves. This is normal. We believe thinking about this problem now and preparing for an uncertain future can only help long-term investors achieve their long-term goals.

​IRAs that will be inherited by anyone except a spouse, minor children, beneficiaries with disabilities, and anyone who is ten years or less younger than the IRA owner, are now to be completely distributed over 10 years, rather than the lifetime of the heir.

​With a shortened time span to distribute inherited IRAs, taxable income generated from an inherited IRA, in addition to one’s normal earned income, can cause uncharacteristically high tax bills if appropriate tax planning is not executed. In larger inherited IRAs, tens of thousands of tax dollars are at stake.

With the passage of the SECURE Act, stretch IRAs became a thing of the past. Rather than allowing beneficiaries to withdraw funds based on their life expectancy, the Act requires IRA beneficiaries to make a total distribution of all funds from the IRA within 10 years, with limited exceptions for spouses, minor children, beneficiaries with disabilities, and anyone who is ten years or less younger than the IRA owner.

Congress passed the Act knowing the net effect would be higher income taxes to most IRA beneficiaries. According to the Congressional Research Service, the elimination of the stretch IRA alone has the potential to generate about $15.7 billion in tax revenue over the next decade. For many beneficiaries, the inherited IRA will come during their peak earnings years when their income tax rate could be at a maximum. The effect of high earnings and additional taxable distributions from a Beneficiary IRA could cause the net value of the IRA to be reduced by 30% or more. To minimize to tax bite of an IRA inheritance, both the original IRA owner and the beneficiary will need to do diligent tax planning.

Now, more than ever, converting Traditional IRAs to Roth IRAs should be examined. We strongly believe almost everyone should convert enough funds from a Traditional IRA to a Roth IRA to fill the 12% income tax bracket each year. 12% is a fair tax rate for most taxpayers and it’s much easier to implement effective tax planning for inherited Roth IRAs than for inherited Traditional IRAs.

Having assets in a Roth IRA has advantages for the original IRA owner as well. It will reduce the amount of required minimum distributions (RMDs) when you reach age 72 (up from 70 ½, a positive from the SECURE Act), as well as provide more flexibility in managing your income-tax rate in retirement. For a free Roth conversion flow chart that will help you understand how a Roth conversion can work for you click here.

While we usually don’t recommend going beyond the 12% bracket for Roth conversions, there could be certain circumstances where that might be appropriate. For example, if you don’t need the assets in your Traditional IRA for your retirement lifestyle and all of your heirs are high wage earners, it might be better for you to pay a 22% tax rate now rather than leaving the IRA to an heir who may be taxed 32-40% on those same assets.

If you have grandchildren, including them as partial beneficiaries of your IRA can potentially increase the net value of an inherited IRA. For example, suppose you have a $500,000 IRA, two children, and four minor grandchildren.

Both children and their spouses work and earn $150,000 per year in combined taxable income, so under current income tax law that puts them in the 22% marginal Federal income tax bracket. With a Beneficiary IRA of $250,000 each, if they take equal distributions from their Beneficiary IRA of $25,000 per year for 10 years, they will be pushed into the 24% bracket and thus nearly every dollar distributed from the Beneficiary IRA is taxed at the 24% level. Or worse, say they wait to take the full $250,000 distributions in year 10 or another single year—they would jump into the 32% Federal tax bracket.

To steer some IRA assets away from being taxed at those higher tax brackets you could earmark a portion of the IRA to go to each grandchild. Under current rules, any minor can have $1,100/year of unearned income with no income tax liability.  This kiddie tax rate applies to children under the age of 19 and college students under the age of 24. 

Every year $1,100 is distributed from your grandchild’s inherited IRA tax-free, resulting in a savings of $242 each year the child qualifies. If the child has earned income during their teen years, the distributions can be increased to fund a Traditional IRA or Roth IRA for the child’s benefit. Smart tax-planning could combine Traditional and Roth IRA contributions to eliminate all taxes on the child’s earnings. Once the child reaches the age of majority, the ten-year rule begins. It is unlikely the grandchild’s earnings will place them in a top bracket fresh out of school, so the strategy of offsetting distributions with tax-deferred savings could allow your grandchild to build a nice retirement nest egg without much loss to income taxes.

To accomplish this, you must be sure to name a custodian for the minor grandchildren since minors cannot make financial decisions for themselves. The custodian could be a parent, but one must be named.  Another important factor in determining the dollar amount that should be allocated to a grandchild is the age of the grandchild when they receive the Beneficiary IRA.

Most IRA owners will name a spouse as a primary beneficiary and that is perfectly fine. Spouses are exempt from the ten-year distribution rules. Children are generally named as contingent beneficiaries, in some equitable percentage of the account value. Most custodians only allow for simple percentage distributions to be named beneficiaries and that could create some problems. For complex beneficiary strategies, using a pass-through trust might be a better solution.

If you’ve already established a trust as the beneficiary of your IRA, it is imperative that you review and update that trust. Most trusts have language that instructs the trustee to pay out the required minimum distribution (RMD) to the beneficiary each year. Under the SECURE Act, there are no annual RMDs until the end of the 10-year term, then the required distribution is 100% of the account value. This is a tax time bomb just waiting to explode.
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At a minimum, you must rewrite the trust to allow flexibility for distributions, which also provide flexibility for income tax planning for the beneficiary(ies) of your IRA. Realizing a $500,000 Beneficiary IRA distribution through a trust in one single year will likely subject the distribution to the maximum income tax rate of 37%, plus a 3.8% Medicare surtax on some of the recipient’s income. This is just for the Federal level taxes; add in state income taxes and the beneficiary may only end up with 50% of the original account value-- certainly not what you had in mind when you drew up the trust.

Most IRA custodians do not allow for complex IRA beneficiary schemes, so the ability of pass-through trusts to manage distributions to multiple generations becomes much more important. Through a trust you can establish custodians for minor beneficiaries, name an investment and income tax counselor, and provide for flexibility in the timing of distributions during the 10-year window allowed under the SECURE Act, or even longer in the case of minor children. Although establishing the trust incurs more expense and investment of time and thought, the result can certainly provide enough benefit to owners of substantial IRA assets and their families to make it worthwhile.

For many Beneficiary IRA owners, the biggest tax planning opportunity will be to simply manage the distributions over the 10-year period. One strategy would be to offset the taxable Beneficiary IRA distributions with additional tax-deferred savings. To do this, simply increase savings to an employer’s retirement plan such as a 401k, 403b, or other tax-deferred plan, or establish and contribute to a separate deductible Traditional IRA or self-employed retirement plan of your own. Any form of tax-deductible contribution will reduce the impact on income realized from one’s Beneficiary IRA dollar-for-dollar.

Let’s go back to our previous example with the $500,000 IRA. If the IRA owner’s children in this illustration are like most investors, they only contribute about 5% of their salaries to an employee retirement plan in order to maximize the company matching formula-- a.k.a get the free money. This means the parents are likely contributing much less than the $19,500 maximum salary deferral allowed by the IRS.

Let’s assume the decedent’s children can defer an additional $15,000 for each spouse in their employer 401k plans. If they defer the additional $30,000 in one year, they can distribute another $30,000 from their Beneficiary IRA(s). This results in a wash for $30,000 of distributions from the Beneficiary IRA as it would swap funds from one tax-deferred account to another and fulfill the original IRA owner’s estate planning intent.

While inherited Roth IRAs are easier to manage from an income tax perspective, you should put some thought into the options. The most obvious option is to do nothing until the final day of the ten-year withdrawal period and then take a distribution of the entire account. This maximizes the tax-free growth of the inherited Roth IRA and because the distribution is tax free, has no effect on the recipient’s tax rate.

If the beneficiary is not making maximum retirement plan contributions when they inherit the Roth IRA, taking distributions along the way and using those funds to fund their own Roth IRA, or even better-- make contributions to a Roth 401k-- could mean you really do get to stretch the inherited Roth IRA over your lifetime. Non-deductible 401k contributions, up to the annual $19,500 limit, will work as well. When you retire, the non-deductible contributions, but not the earnings, can be rolled over into your own Roth IRA. Taking money from one pocket and moving it to the other pocket, that has no hole in it, (i.e. tax-free) makes a lot of sense.

The SECURE Act makes working with a financial planner more important than ever before. Earning an 8% or even 10% return on your investments pales in comparison to shielding 30% or more of your assets from the ravages of our income tax system. To get started on a plan to preserve your IRA assets, click HERE.
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With the end of the year approaching, now is the time to look for opportunities to save on income taxes. Here are some items you should look for:
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• Determine whether bunching deductions into 2019 or 2020 will enable you to itemize.
• Maximize the $15,000 per donee annual gift tax exclusion if estate taxes are a concern
• Maximize contributions to retirement plans
• Maximize contributions to Health Savings Accounts
• Look to offset realized capital gains with any losses you may have
  • Don't forget you can claim an extra $3,000 per year in losses over gains
• Estimate income & deductions year-to-date. Consider if accelerating or delaying income can lower your tax bill
  • Roth conversions must be completed by December 31st, 2019
• If you're over 70 & 1/2 and have not taken you required minimum distribution from an IRA, consider making a Qualified Charitable Contribution from your IRA in the amount of your RMD to a qualified charity to avoid taxation of the RMD altogether
• If you'll be paying  private school tuition (not daycare expenses) or college tuition in 2020, consider making a contribution to your state's 529 college savings plan in 2019, if the state allows a deduction for 529 plan contributions
  • SC allows up to $10,000 of state tax deductions each year, a $700 estimated yearly tax savings 

In Charleston and Myrtle Beach, clients and potential clients often assume the Affordable Care Act (ACA) only helps low earning individuals and families. This is far from the case. When using proper financial planning strategies, some families can make up to $239,000 and still qualify for the healthcare subsidy.

​Over 10 million Americans utilized Affordable Care Act (ACA) healthcare insurance in 2018, 87% of which received some sort of subsidy to help them pay for that insurance. Many receiving that subsidy don’t understand the how and why of the program; and many who aren’t receiving the subsidy don’t realize just how close they may be to pocketing thousands in tax relief via the Premium Tax Credit. We’re going to walk you through a broad overview, without getting into too much detail, so you may determine if you can qualify for the Premium Tax Credit and what strategies you can implement to help you qualify.

Who qualifies for tax relief from the Affordable Care Act in 2020?

How do you determine your Modified Gros Income (MAGI)? 

Start with Gross Income which, for simplicity, is any income you receive throughout the year. 

Next, you’ll need to determine your Adjusted Gross Income (AGI). You’ll do this by subtracting:

• Retirement plan contributions and IRA contributions
• Half of the self-employment tax
• Healthcare Savings Account (HSA) deductions
• Alimony paid
• Losses incurred from the sale or exchange of property
• Early-withdrawal penalties levied by financial institutions
• School tuition, fees, and student loan interest
• Other, miscellaneous and rarer expenses

 
 
Finally, to determine your MAGI, add-back to your AGI:

• Foreign earned income and housing costs for qualified individuals)
• Interest received from tax-free investments, such as Municipal Bonds
• Social Security benefits that were un-taxed in the Gross Income calculation

​We see that for most people, the only way to lower your MAGI number is to increase the deductions that calculate your AGI, such as 401k (or any qualified employer plan), IRA (SEP, SIMPLE, Traditional) and HSA contributions—therefore we use these deductions in our general example below. Theoretically, the following gross compensations can be earned with corresponding contributions reducing overall MAGI:

Often families cannot afford to, or choose not to, dedicate the maximum amounts to these accounts. We recommend establishing a strategy each year for qualifying for the Premium Tax Credit that matches your personal and financial goals.
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Keep in mind, this is a general overview. There are many other rules that can change these calculations, such as non-working Spousal IRA contributions which phase out at certain income levels and the catch-up provisions afforded to anyone over the age of 50 for IRAs and 55 for HSAs; The goal of this article is to give a broad overview so you may pinpoint exactly where your family sits in reference to the Premium Tax Credit eligibility.
 
If you’d like a CERTIFIED FINANCIAL PLANNER™ to help create and manage a tax strategy that will aims to qualify your family for the Premium Tax Credit click here.

By James Liu, CFA

Some investors and economists have been worried about a recession for some time. This is only natural after over a decade of steady economic growth and the spectacular rise of both stocks and bonds. On the one hand, the economy is still quite healthy by many measures, especially based consumer spending and the labor market. On the other hand, there are clear signs that industrial and corporate activity have slowed.

One important measure of economic activity, the ISM manufacturing index, suggests that manufacturing activity has been slowing over the past year and actually shrank last month for the first time in three years. However, this alone is not a reason for investors to panic.

First, manufacturing activity is directly affected by the on-going global trade disputes. Uncertain and reduced demand for U.S.-made goods will continue to be a drag on industrial activity until firm trade agreements are in place. Second, the corresponding non-manufacturing index has also slowed but is still expanding at a strong pace. This suggests that business activity overall would still be healthy if not for these global effects.

From the perspective of GDP growth, the contribution from corporate investment has fallen since the financial crisis. This is partly because investment spending by many companies has been weaker than in past cycles. The underlying reasons for this are unclear, but they likely include slower economic growth trends compared to previous business cycles and improvements in technology.

Regardless, what has increased over time is the share of GDP growth from consumer spending. Not only do consumers (on average) have strong balance sheets, with total net worth at record levels, but their spending has maintained a healthy pace. Of course, not all consumers are doing as well as they were one or two decades ago. But from the perspective of corporate profits and the stock market, the consumer is still the cornerstone of the economy.

Thus, while the overall economy may be slowing, this is because we're now in the eleventh year of the business cycle and global trade disputes have created an environment of uncertainty. Manufacturing activity has decelerated but consumer spending is still strong. Here are three charts on this important topic:

1. U.S. manufacturing activity shrank last month

The chart above shows the ISM manufacturing index. This is a "diffusion index" which means that values above 50 represent expansion while those below 50 imply contraction. Thus, the index shows that manufacturing activity shrank in August for the first time in three years.

While this index has been slowing for over a year, on-going trade uncertainty has dragged it down further. Fortunately, the non-manufacturing index still shows healthy expansion.

2. Investment spending has fallen over the past decade

GDP Components

Investment spending by companies has fallen as a share of U.S. GDP growth over the past decade. This is in contrast to consumer spending which has increased.

3. However, consumer spending is still healthy

Consumer Spending

Consumer spending continues to be healthy despite economic uncertainty. Non-store sales (i.e. online retailers) has increased at an even more rapid pace, a sign of shifting consumer trends over the past two decades.

What's the bottom line? The economy is slowing in part due to shrinking manufacturing activity, driven in no small part by trade disputes. Despite this, other parts of the economy are still quite healthy. Investors should maintain a broader perspective on economic growth.

With nursing home care running north of $68,000 per year, many families who have a "comfortable retirement" could find themselves facing the prospect of spending down a large chunk of their savings and investments should the need for nursing home care arise. Without long-term care insurance some will find their only option may be to apply for Medicaid assistance.
 
While Medicaid rules vary from state-to-state, typically a person needing long-term care benefits must spend down their assets to $5,000. If there is a surviving spouse, they can usually keep the family home (but states can consider home equity in excess of $500,000), a prepaid burial plan, and between $50,000 and $100,000 in resources.
 
 
Cost
For couples aged 60, the average cost of long-term care insurance runs about $3,500 per year. For many this is expensive; some alternatives you might consider are long-term care annuities and life insurance policies with long-term care riders.
 
Regardless of cost, you should shop for a policy from a company with the financial stability to pay a claim if it becomes needed. Limiting your coverage and extending the waiting period can help reduce costs as well.
 
You should choose a policy that meets your needs and include in-home care and policy triggers that are reasonable. A report from the American Association for Long-Term Care Insurance suggests that for the majority of policy owners, three years of coverage is sufficient. With high cost of coverage, the primary reason for not having coverage this study suggests that some coverage is better than none, and for most, is all that is needed.
 


What Triggers Your Long-Term Care Benefits?
Most companies will pay benefits if you are unable to complete two of the six activities of daily living, which include:
 

• Eating
• Bathing
• Dressing
• Toileting
• Transferring from a bed or chair
• Maintaining continence

 
Or if you have severe cognitive impairment.
 
When Do Benefits Begin
Often long-term care policies have an exclusion period before benefits will begin. There can be some flexibility here if you have the resources to pay for some expenses yourself, for a few months. The most common exclusion period is 90 days. That means you would pay the first 90 days of expenses out of your pocket. This is reasonable and ties in with Medicare, who will generally cover the first 90 days of care if you are in a nursing home for something you are expected to recover from, such as surgery or a stroke.
 
What Long-Term Care Insurance Covers
Virtually all policies are comprehensive plans, which cover care provided in many settings: at home, adult daycare centers, assisted living facilities, nursing homes, and Alzheimer’s facilities.  A home care benefit will typically cover skilled nursing care and occupational, speech, physical, and rehabilitation therapy.  Most importantly, it can help with personal care, such as bathing and dressing.  
 
Where to find Long-Term Care Facilities
You may at some time in your life be involved in selecting a nursing home facility for a loved one. The US Department of Health and Human Services Medicare site now has a feature called Nursing Home Care Compare. You can use this site to find and compare nursing homes by state, zip code, county or name.
 
Once you have found nursing homes in your area you can view information on the quality of care provided. Each home is compared to the state and national averages for each category; for example, the number of nursing staff per-resident, per-day; or the percentage of residents who are physically restrained. Although the grading is measured against negatives and a little confusing (it seems a lower score is better), it is an excellent resource and a good place to start should you ever need nursing home facilities.
 

​It’s been a stellar start to the year. The S&P 500 has risen nearly 20%--crossing the 3,000 mark for the first time on June 12th, 2019.

​Stock market valuations are getting a bit high and investor confidence remains unchecked.

​While corporate earnings growth is slowing.

​And as a contrarian indicator, investors remain very upbeat about the market…

​…while volatility remains low.

The Fed seems to be caving to political pressure and markets believe we’ll get one or two rate cuts during the second half of 2019. The yield curve has avoided a major inversion as short-term rates have continued to fall.

Other things that we find worrisome:
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Treasury Secretary Mnuchin indicated the government may run out of funds by early September. However, Congress is scheduled for a summer recess and politicians seem to be more divided than ever so the Federal budget could become a big deal.

Although the markets seem to have priced-in an easing of trade tensions, there may be no quick end to the US trade war with China

Here’s What Oak Street Advisors is Doing Now:

When making any decisions we need to ask ourselves “Can I afford to be wrong?”. The long-term lesson of the markets dictates that our default position should be fully invested. The markets may go down-- but they do not stay down-- and the price of the permanent ups is the short-term downs.
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With that said, and knowing we may be wrong, we have made some changes to our stock portfolios. We’ve taken about 10% out of the stock allocation in the equity portion of your portfolio and are holding those funds as extra cash positions.

This means if the stock market were to gain an additional 10% from now until year-end, we would only achieve a 9% gain. However, if the market were to pull back from here by 10%, we would only fall the same 9% and would have cash available to reinvest at lower prices.

Only time will tell if our caution is justified.
 
Note. This information does not constitute investment advice. It is merely posted so clients can understand the thought process that goes into managing their portfolios. Each individual’s circumstances and needs are unique. No one can predict the future or the valuation of any financial market with accuracy.

Often, navigating the Social Security Administration’s rules can be complex and confusing. None more so than trying to determine a surviving spouse’s social security benefit. Nearly every couple will face this problem at some point.

Timing is everything regarding social security surviving spouse benefits. The filing date alone—when you decide to claim social security and when your spouse does—ultimately determines how much you both will receive in Widow or Widowers benefit. Getting your initial claiming strategy right is paramount to maximizing this important benefit.

If the deceased spouse has not begun receiving social security income at the time of death, the survivor’s benefit is based upon the decedent’s primary insurance amount (their social security income at Normal Retirement Age) plus any delayed retirement credits up to the date of death. Delayed retirement credits add about 8% to the social security income received for each year you delay taking your social security benefit beyond your normal retirement date, up to age 70. If this is the case the surviving spouse’s decision to claim social security benefits will be based on their age at the time they file. What this means is if the survivor decides to receive social security income before they reach their normal retirement date, there will be a reduction in income for each year of early filing, even if the deceased spouse had earned delayed retirement credits.

If the deceased spouse had been receiving social security income before their normal retirement date, their benefit and the widow(er)’s benefits are reduced forever, depending on when the initial benefit claim was filed. Generally, you would lose about 8% of social security income for each year you receive social security payments prior to reaching your Normal Retirement Age (NRA). A widow(er)’s benefit is limited to the larger of 82.5% of the deceased spouse’s death primary insurance amount or the reduced income benefit the deceased would have been eligible for if they had lived.

The Social Security Administration provides the following example:

“Mr. B, age 64 on August 3, received reduced retirement income benefit of $350 (primary insurance amount $374.90) for August and September. He died in October. Mrs. B, age 66, comes in, to file for widow's benefits. The retirement income benefit if Mr. B were alive would be $350. 82 1/2 percent of the death primary insurance amount is $309.20 ($374.90 X .825). The life and death primary insurance amounts are the same. The widow’s income benefit will be the higher of the two, $350 in this example.”

Your widow or widower can get benefits at any age if they take care of your child younger than age 16 or disabled, who’s receiving Social Security benefits. If the surviving spouse is disabled, benefits can begin as early as age 50. Unmarried children, younger than age 18 (or up to age 19 if they’re attending elementary or secondary school full time), can also get benefits.  Children can get benefits at any age if they were disabled before age 22.  Under certain circumstances stepchildren, grandchildren, step-grandchildren, or adopted children may also be eligible for benefits. These circumstances are exempt from the deemed filing rules and do not affect future claims made under their own work record. There is a family maximum to survivor benefits that will vary between 150% and 180% of the deceased worker’s benefit amount.

For divorcees who had been married for ten years or longer, the survivor benefit is available if they have not remarried before age 60. An ex-spouse’s survivor benefit has no effect on the family maximum benefit, so a new spouse and any children can still be eligible to receive survivor benefits based on the same wage earner.

Although a widow may be eligible for benefits based on their own work record, if they file for social security benefits, they will receive the highest benefit they qualify for at the time they file.  Some benefits are calculated independently with the larger benefit being paid or the smaller benefit being paid plus the excess amount of the larger one. Other types of benefits are calculated with a carry-over reduction amount from the first benefit to the second.
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Although the loss of a loved one is a terrible time to assess and compare your social security filing options, it is important that you choose wisely. If possible, delay the decision until you have had the time to be emotionally ready to face the problem and consult with a trusted financial planner.
 

“Money has never made man happy, nor will it, there is nothing in its nature to produce happiness. The more of it one has the more one wants.”-  Benjamin Franklin
 
I agree with the last sentence, but there is no doubt that money can buy some happiness. Studies show that earning $75,000 annually buys happy; and $95,000 annually buys really happy.

Taking that into account, the final financial commandment to conquer is a self-assessment of the way you spend your money. Do you spend more on the things that really matter in life-- providing protection for your family, ensuring you have enough assets in retirement, and making memories with the ones you love? Or do you spend more on that new car payment, credit card debt or eating out every night?