Posted on Tuesday, 13th February 2018 by

Share

Is the Stock Market Keeping You Up at Night?

What a ride the market has taken us on since my last article that talked about ways to preserve your retirement account balances during downturns. The DOW reached a high of 26,616 and the S&P 2,872 before this latest 10% downward draft.

A 10% correction is considered a normal event during a bull market and they can dip lower before returning to the upside. A 10% drop in the DOW would be 2,616 points and 282 points in the S&P from the highs which seems at first glance to be a huge amount. The DOW high in the year 2000 was 11,000! It has come a long way since then and in the year 2000 a 10% correction would have been 1,100 points, less than half of what a 10% drop would be and is today.

The important fact is that over time, the market inevitably trends upward according to a recent Market Watch article. Anyone that is employed, in their mid to late career, generally have time on their side and will recover from a downturn if they stay invested. It’s the ones that panic and sell that suffer the consequences and end up losing a good portion of their investments. You can soften the blow by holding a conservative mix of stock, ETF, and bond funds as you approach retirement and rebalance each year. Typically, those approaching or in retirement would have anywhere from 40% to 70% of their retirement accounts in bond funds, cash or individual bonds such as U.S. Treasuries. The mix depends on many factors including how much risk you can tolerate and more importantly how soon you will need the money to live on.

A market correction according to the article Stock Market Corrections Versus Crashes And How to Protect Yourself is “when the market falls 10 percent from its 52-week high. Wise investors welcome it. A pullback allows the market to consolidate before going toward higher highs. Each of the bull markets in the last 40 years has had corrections. It’s a natural part of the market cycle. Corrections can occur in any asset class.” A bear market is when the price of an investment falls over time. It occurs when prices drop 20 percent or more from their 52-week high.

A bear market can lead to a recession which is defined by Investopedia as, “A significant decline in activity across the economy, lasting longer than a few months. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country’s gross domestic product (GDP), although the National Bureau of Economic Research (NBER) does not necessarily need to see this occur to call a recession.”

The risk for retirees and those approaching retirement is the recovery periods that are listed in the Dow charts. A stock market recovery is a period of increasing business activity signaling the end of a recession. When correlated to stock market returns, from my perspective, it is the time that it takes for the DOW and S&P to exceed a previous market high and continue on their upward progression.

Over the past 120 years there has been many recessions and of course the great depression that started in 1929. From the early 1900s on there have been four major recessions with the longest recovery period from 1929 to 1955, 25 years. The average recovery period was 16.5 years! The shortest recovery period lasted only six years from 2009 to 2015. What most of us have experienced since 1985 are bull markets interrupted with one recession running six years from 2009 to 2015. Yet, the most recent recession always seems so much worse than earlier periods since it is fresh on our minds.

What does all of this really mean? There isn’t a short answer to this question and I don’t pretend to have all of the answers. I’m just a concerned and interested investor that is retired and wants to protect what I worked a life time to accumulate.

Those approaching retirement and retirees don’t have time on their side to whether a major recession and the subsequent recovery. Life is finite and even though we may think we will live forever reality and age catches up with us. You never know what lies ahead and can only prepare as best we can to stay on top of things.

Even though corrections can last a long time individual funds and stocks recover at different intervals. Recoveries are typically referenced to a market index like the S&P that is comprised of the top 500 American companies. For example, if you would have had 100% of your non TSP investments in the Vanguard Wellesley Income Fund (VWELX) before the last bear market started in 2008 your investment would have only decreased approximately 9% compared to a more than 50% drop in the DOW & S&P indexes and you would have recovered all of your losses in less than a year!

The VWELX fund is a conservative mutual fund rated 5 Stars by Morningstar, yields 2.84%, and is comprised of roughly 60% bonds and 40% stocks. The average annual gain of this fund since its inception in 1970 is 9.82% and it only charges a .22% annual fee to manage the fund. The fund’s recent 10 year average annual return is 6.94%.

Conversely, had you had 100% of your private accounts invested in an S&P 500 indexed fund or invested all of your TSP account in the C Fund just before the last recession in 2008 you would have experienced more than a 50% drop in value. It would have taken you 5 years, until 2013, to recover your losses. Can you wait 5 years or longer to recover your losses?

I use the Wellesley Income Fund in my private sector brokerage accounts as an anchor to minimize market volatility. Another excellent Vanguard fund is their Wellington Fund (VWELX) that was founded in 1929! It is what they call a balanced fund or an all-in-one fund that invests 60% in stocks and 40% in bonds, rated 5 stars, and only charges a .22% annual management fee. The yield is 2.5%. If you invest $50,000 in the fund the management fee drops to .16% for their VWENX Admiral shares. This fund dropped 22% in 2008 and recovered eighteen months later to its previous high. Currently the Wellington Fund can only be purchased through a Vanguard brokerage account. The Wellesley fund can be purchased through most brokerage houses.

If you are approaching retirement or retired now it makes sense to have a balanced account consisting of high quality mutual funds or ETFs that invest in stocks and bonds. The higher percentage of bonds and cash in your portfolio the more conservative and less volatile in general. However, you must be cautious with bonds as well. That’s why I lean towards managed funds like the two I mention in this article, where their researchers constantly monitor market conditions and adjust their stock and bond holdings accordingly.

Related Articles

Helpful Retirement Planning Tools / Resources

Distribute these FREE tools to others that are planning their retirement

Disclaimer: Opinions expressed herein by the author are not an investment or benefit recommendation and are not meant to be relied upon in investment or benefit decisions. The author is not acting in an investment, tax, legal, benefit, or any other advisory capacity. This is not an investment or benefit research report. The author’s opinions expressed herein address only select aspects of various federal benefits and potential investment in securities of the TSP and companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that retirees, potential and existing investors conduct thorough investment and benefit research of their own, including detailed review of OPM guidance for benefit issues and for investments the companies’ SEC filings, and consult a qualified investment adviser. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice. The author explicitly disclaims any liability that may arise from the use of this material.

Be Sociable, Share!

    Posted in FINANCE / TIP, LIFESTYLE / TRAVEL, RETIREMENT CONCERNS, SOCIAL SECURITY / MEDICARE, SURVIVOR INFORMATION

    Comments (0)|

    Posted on Thursday, 25th January 2018 by

    Share

    The TSP Rebalancing Act

    If you have been in the market these past ten years, including your TSP and other retirement accounts, your allocations are probably off considerably from where you initially set them. Many rebalance their stock and bond portfolios at least annually however it is easy to forgo this essential step with all that is going on in our lives. This is especially relevant considering that in the last year the markets are up an astonishing 30 percent or more!

    Stocks have risen dramatically since the historic bear market that ran from October of 2007 through March of 2009. At the bottom of the recession the S&P hit a low of 682.55 and the Dow fell to 6,594 on March 5, 2009!   The Dow closed at 25,792 and the S&P at 2,776 on January 16, 2018, a historic uninterrupted run for 9 years now. To put this in perspective had you had $100,000 in the TSP’s C Fund, which mirrors the S&P 500 index, your TSP account would have grown 306% to just over $400,000! Actually, due to management fees it would have been short of the $400,000 but not by much. The C Funds management fees are the lowest in the industry at $0.38 per $1,000 account balance, 0.038% (3.8 basis points). Can’t get much lower than that.

    The truth of the matter is that few had the guts to keep all of their savings in the C Fund all of those years. Markets rarely go up continuously like this bull has run. Most investors have a diversified conservative mix of stocks, bonds and cash especially for those close to or already retired.  A good way to check this is to review your TSP statement and look at the “Distribution of Account” column. After retirement you can’t contribute additional funds to your account and as one fund grows faster than the other that fund’s balance will show a larger percentage of your total account balance. If you set your investments initially to a conservatively balanced 50% stock and 50% bond allocation years ago, and didn’t rebalance you will be surprised to see just how over weighted you account now is in stocks. If you will need your TSP funds to provide retirement income, now is the time to review your TSP and other retirement accounts and rebalance if necessary. Now that you are older you may find it prudent to either move a portion of your account to the L Income, G Fund, or to one of the target date funds if retirement is fast approaching to preserve your nest egg.

     

    What the Markets Look Like Today

    Today, consumer confidence is up, unemployment is very low at 4%, tax reform passed, and overall the economy appears on solid ground. Inflows to stock mutual funds have increased dramatically recently as those who sat on the sidelines all these years don’t want to be left off the gravy train.

    For me personally, I’m cautious when the majority of market analysts say the high stock market valuations aren’t a major concern and I get defensive. Nine years without a major correction and counting. Seems almost too good to be true. That being said there are many positives driving the market right now including very low interest rates. How long this can last I can only guess and I’m not a professional investor or market timer, just a cautious investor.  I do know that when a major bear shows up heavily weighted stock portfolios, especially stocks that now have excessively high valuations, can drop half or more of their value in short order. All I and anyone else can do is temper our exuberance, review our portfolios, and reduce risk by rebalancing to ensure we will have the money in our accounts when needed. The older you are, I’ll be 69 this May, the less time we have to wait for a recovery and as my former boss Dick Fisher once told me, “A bird in the hand is worth two in the bush.”

     

    Rebalancing Your Investments as You Approach Retirement

    Rebalancing your investments is especially important for those who must rely on those funds in their retirement years and the closer you are to retirement the more conservative you need to be. You don’t have to worry as much about this if you are in one of the target date funds such as the TSP’s lifestyle funds. They automatically adjust your account to a more conservative mix of stocks and bonds until you finally reach the target year.  My daughter invests her contributions into the L-2040 fund. She doesn’t have to adjust her balances, the fund does this every three months for her.

    I retired December 31, 2004 and currently have the majority of my TSP account invested in the L Income fund which invests 74% in the G Fund, 6% F Fund, 11.2% C Fund, 2.8% S Fund and 5% in the I fund. I tilted the remainder of my account towards international and small cap awhile back. The L Income Fund is designed to keep up with inflation and has an average annual growth rate of 3.72% over the last 10 years compared to 2.63% for the more conservative G Fund. However, looking at the longer term annual growth rates from the fund’s inception dates, the G fund averaged 5.19% to the L Income Funds 3.95%. With interest rates increasing and with the anticipation of an eventual market down turn many retirees are thinking about moving a portion or the majority of their account to the G Fund. The G Fund is the only bond fund that I know of that is guaranteed by the U.S Government never to go down in value! Can’t get that anywhere else to my knowledge.

    Even your best bond funds, including short term bond funds, go down at least for a short period when interest rates go up. It should be noted that during a major bear market or correction bond funds, especially, short term bond funds, are the ballast in your account and either stay the course or recover much quicker than the broader market as a whole. The downside for bonds is far less than what stocks typically experience. That’s the benefit of having a balanced portfolio that consists of debt (bond) funds and equity (stock) funds.

    Unfortunately, you can’t purchase G Fund shares for any of your other retirement accounts. In those accounts many invest in bonds or raise their cash reserves, buy US Treasuries, short term bond funds, or purchase a well managed bond fund like Dodge and Cox Income Fund or Fidelity’s Total Bond Fund for example. There are many good bond funds to choose from and I use Morningstar to review and analyze all of my non-TSP investments.

    I’m not a financial advisor, professional investor, or CPA, just a knowledgeable and cautious investor. Those early in their careers certainly should take more risk because over time markets have always recovered and increased in value substantially as this last nine years has proven. If you aren’t fond of Lifecycle (target date) funds but are uncertain what to do, use the Lifecycle funds as a guide and then tilt your fund mix to whatever you feel most appropriate. For example, the L – 2040 fund mix today is:

    • G Fund-20.70%
    • F Fund-6.80%
    • C Fund-38.87%
    • S Fund-11.88%
    • I Fund-21.75%

    The L-2020 Lifecycle Fund currently has the following fund mix:

    • G Fund-58.50%
    • F Fund-6.50%
    • C Fund-19.40%
    • S Fund-5.10%
    • I Fund-10.50%

    Notice that the 2020 Lifecycle fund has considerably more invested in bond funds for a conservative allocation. If you are invested in this fund you are only 2 years from retirement and this fund is weighted a total of 65% bonds through the G and F funds.  If you plan on retiring in the next 2 to 5 years you can use the fund mix as a guide and then tilt it to whatever you feel will be the best performers during this period. Remember that every three months the Lifecycle funds change the fund mix to a more conservative allocation so the closer you get to the target date the larger your bond holdings will be.

    Currently overseas and small cap stocks are favored by many. Overseas stocks are selling at much lower multiples than American stocks and foreign economies are improving. Small cap stocks are thought to benefit from the recent tax law changes giving them more capital to grow and hire new workers.

    If you are retiring in the next two to five years you could maintain the same or similar bond fund percentages as the L-2020 fund and then increase the allocations into the S and I funds taking the additional funds from the C fund, thereby tilting your investments to the favored categories. American stock valuations (C Fund stocks) are considered historically very high now. You could also move funds from the bond funds however you will increase your market risk by doing so. A truly conservative portfolio with minimal risk has up to 70 percent invested in bonds and cash.  Cash can be in CDs, savings accounts, interest bearing checking, and money market accounts to name a few.

    There is a case to be more aggressive. If you will not require your TSP funds to live on and have sufficient annuity, social security, and other retirement income it sometimes makes sense to go for growth. In the scenario mentioned above, if you are in this category, you could transfer funds from the G and F funds to whatever you feel comfortable with to potentially achieve more long term portfolio growth. The other option is select one of the other funds such as the L-2030 fund to achieve your goals.

     

    Valuable Resources for Smart Investing

    There are many excellent magazines and online resources to help investors make sound informed decisions. I subscribe to Kiplinger’s, Money Magazine, and to Morningstar.com plus I tune in CNBC for market news.  Morningstar allows users to x-ray their portfolios to a degree that you could only get previously from professional financial advisors. I rely on them for stock, bond, mutual fund and ETF analysis and to adjust my portfolios accordingly. They offer a free online 15 day trial period and the annual premium membership costs around $100 a year. If you need information about investing these sources can help.

    Take the time to review your TSP and other account asset allocations now to see where you are at and where you need to be. If you are not sure how much you will need in retirement do a cost analysis. The time invested now can save you a lot of money, regret, and worry when a market correction inevitably comes our way.

    Related Articles

    Helpful Retirement Planning Tools / Resources

    Distribute these FREE tools to others that are planning their retirement

    Disclaimer: Opinions expressed herein by the author are not an investment or benefit recommendation and are not meant to be relied upon in investment or benefit decisions. The author is not acting in an investment, tax, legal, benefit, or any other advisory capacity. This is not an investment or benefit research report. The author’s opinions expressed herein address only select aspects of various federal benefits and potential investment in securities of the TSP and companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that retirees, potential and existing investors conduct thorough investment and benefit research of their own, including detailed review of OPM guidance for benefit issues and for investments the companies’ SEC filings, and consult a qualified investment adviser. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice. The author explicitly disclaims any liability that may arise from the use of this material.

    Be Sociable, Share!

      Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, ESTATE PLANNING, FINANCE / TIP, RETIREMENT CONCERNS, SOCIAL SECURITY / MEDICARE, SURVIVOR INFORMATION

      Comments (0)|

      Posted on Thursday, 18th January 2018 by

      Share

      1099Rs Available Now!

      Normally, federal annuitants don’t received their 1099R Tax Forms until the end of January or the beginning of February by regular mail. If you are registered to use OPM’s Retirement Services Website your 1099 R is now available for download. I visited the site on January 16, 2016 and was able to download my copy that I will use for my 2017 tax return.

      To get a head start on your taxes visit OPM’s web site and download a copy. You must be registered to use the site. If you aren’t registered read the article titled “Connect to OPM’s Online Services” to understand the registration process and sign up. It doesn’t take long, however, you may have to wait for your password to be sent via regular US mail and that can take several weeks. If you haven’t signed up yet do it now. The site offers retired federal employees many helpful options such as changing your direct deposit information, address changes, 1099 R copies, and much more.

       

      How Much Will Your Annuity Grow?

      It’s hard to image that I retired over 12 years ago on December 31, 2004!  Fortunately our annuity is Cola adjusted and since retiring my annuity has grown 33%. Not bad, however earlier retiree’s gains were greater due to higher COLAs back in those days. Since I retired there were three years where we had no COLA adjustment and in 2016 a meager .3% increase. The best COLAs in recent years for retirees and those on Social Security was the 4.1% in 2006 and a 5.8% in 2009!

      Our annuities, thanks to COLA adjustments, at least keep our heads above water. Many companies in the private sector, that still offer defined benefit plans like ours, seldom pay cost of living adjustments. My uncle Harold that was at my son’s wedding in 2009 had been retired 22 years at the time. He and his wife cautioned me about retiring at such an early age. I had retired two years earlier at age 55. They said that his defined benefit plan annuity from the company he retired from was the same amount it was 22 years previous. He wasn’t aware that federal retirees received an annual cost of living adjustment.

      Federal annuitants are able to collect their defined benefit annuity, withdraw from their TSP accounts, and receive Social Security if they are FERS or CSRS retirees that worked at least 40 quarters paying into the Social Security system.

      With interest rates rising, the possibility of higher inflation due to a growing economy, and close to  full employment, we should see a higher COLA next year. The Fed anticipates raising rates three times in 2018.  Without a COLA our buying power would erode quickly and even though it doesn’t 100% compensate for higher costs it at least provides some relief. Without COLAs my annuity would be substantially lower today.

       

      Helpful Retirement Planning Tools / Resources

      Request a  Federal Retirement Report™  today to review your projected annuity payments, income verses expenses, FEGLI, and TSP projections.

      Distribute these FREE tools to others that are planning their retirement

      Disclaimer: Opinions expressed herein by the author are not an investment or benefit recommendation and are not meant to be relied upon in investment or benefit decisions. The author is not acting in an investment, tax, legal, benefit, or any other advisory capacity. This is not an investment or benefit research report. The author’s opinions expressed herein address only select aspects of various federal benefits and potential investment in securities of the TSP and companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that retirees, potential and existing investors conduct thorough investment and benefit research of their own, including detailed review of OPM guidance for benefit issues and for investments the companies’ SEC filings, and consult a qualified investment adviser. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice. The author explicitly disclaims any liability that may arise from the use of this material.

      Be Sociable, Share!

        Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, ESTATE PLANNING, FINANCE / TIP, LIFESTYLE / TRAVEL, RETIREMENT CONCERNS, SOCIAL SECURITY / MEDICARE, SURVIVOR INFORMATION

        Comments (0)|

        Posted on Saturday, 13th January 2018 by

        Share

        We published the new 2018 Excel Leave Chart back in late October. Since then a number of our site visitors were only able to open the Excel chart in protected mode and couldn’t enter data. If your spreadsheet opens in protected view click the “enable editing” button in the yellow bar at the top of the form. However, if you don’t see the enable editing button you may have an older version of Excel. To remedy this we published two versions of the spreadsheet, one with an xls and the newer xlsx extensions.  Visit our Leave Chart Page for more information and for the links to both versions of the form.

        Please share the downloaded 2018 leave chart with everyone in your organization. The chart tracks all leave balances and you are able to annotate your work schedule on the chart as well.

        A Microsoft Office consulting firm advised us that If both versions open in protected view the protected view status is a result of security settings on your agency’s LAN and network. Some agencies increase their security settings to lock out certain documents based on the parameters the IT specialist selects. We do include several hyperlinks in our forms to link users to additional supporting information such as our sick leave conversion chart and that may be the cause. If you have this problem when opening the form I suggest talking with your IT people to have them allow the form to pass without restrictions.

        DNA Testing Results

        I wrote last year about my purchase of two Ancestry DNA kits for my wife and I. We’ve been curious for years about our heritage and I mentioned in the article that I would discuss the results in an upcoming article.

        They posted our results online in just under three weeks including an extensive list of cousins from around the world. My results aligned with what I knew about my parents roots. My father’s parents were both born in England and my mother’s parents migrated from Vienna in the early 1900s.

        The Ancestry DNA reports indicated that about half of my DNA originated from my father’s side and half from my mothers, no surprise there. However, they broke it down to actual ethnicity estimates for major regional areas. For example, my great grandparents on my father’s side immigrated to American in the very early 1900s with 11 of their 23 children! My great grandfather came to America after Queen Victoria died 1n 1901. He was the coach driver for the queen’s ladies in waiting.  The report showed that 24% of my DNA originated in Great Britain and 10% Ireland, Scotland and Wales with 35% eastern European, 7% west European, and 15% Scandinavian. Looks like I  have some Viking blood in my veins.  It also shows migration paths for years starting back to 1800 with a laundry list of 4th cousins with many pictures.

        My grandparents on my mother’s side both came from Vienna in the early 1900s through Ellis Island. That’s where the east and west European percentages came from.

        My wife’s story  is similar and she didn’t appear to have any Cherokee blood as her mother had related to her. With that said, my wife’s profile shows that those who migrated to American in the early 1700s and 1800s arrived in what was Indian territory at the time and maybe one of her ancestors married a native American.  My wife has blue eyes and red hair confirming much of what the report provided. Her family migrated much earlier to America, around 1700 and 46% of her DNA originates in Ireland, Scotland and Wales with a concentration around Ulster Ireland, 23% in Great Britain, 9% Scandinavian and 14% western Europe. Again, Viking blood so we are a good match as 48 years of marriage has proven. Now I know why I always wanted to sail the seven seas.

        Each report shows migration paths and the years of migration which is also interesting, most of Mary’s family settled in Pennsylvania, Ohio, and Indiana.  Mine settled in Pennsylvania, Canada, and many in Australia.  The DNA reports can be confirmed in part from life in general. My wife’s family had relatives in Indiana, one of the major migration paths shown on her report. Many of my relatives worked in the Pittsburgh area and several were highly skilled woodworkers that built the Cathedral of Learning in Oakland. Whenever I visit I envision my ancestors working on the intricate woodwork that is prevalent though out the site.

        Ancestry DNA provides access to family trees, and considerable genealogical research. You can search their census and voter lists, birth, marriage and death notices, immigration records and travel, military records, and their card catalog. I’ve not tried these yet, still too busy with work to make the time I would like to spend on the effort.

        From my perspective the cost of the Ancestry DNA kits are reasonable and currently on sale. The online access makes research and review easy and you can also print out your reports for safekeeping and share the results, if desired, on line with family and friends.

        Several readers mentioned after my first article on this subject about their concern for privacy. You can limit the release of your data when you sign up. I limited our data so that much of the information isn’t shared however I may change that because by sharing the results anonymously you get a larger pool of results I believe.

        Helpful Retirement Planning Tools / Resources

        Request a  Federal Retirement Report™  today to review your projected annuity payments, income verses expenses, FEGLI, and TSP projections.

        Distribute these FREE tools to others that are planning their retirement

        Disclaimer: Opinions expressed herein by the author are not an investment or benefit recommendation and are not meant to be relied upon in investment or benefit decisions. The author is not acting in an investment, tax, legal, benefit, or any other advisory capacity. This is not an investment or benefit research report. The author’s opinions expressed herein address only select aspects of various federal benefits and potential investment in securities of the TSP and companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that retirees, potential and existing investors conduct thorough investment and benefit research of their own, including detailed review of OPM guidance for benefit issues and for investments the companies’ SEC filings, and consult a qualified investment adviser. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice. The author explicitly disclaims any liability that may arise from the use of this material.

        Be Sociable, Share!

          Posted in ANNUITIES / ELIGIBILITY, FINANCE / TIP, LIFESTYLE / TRAVEL, RETIREMENT CONCERNS

          Comments (0)|

          Posted on Monday, 8th January 2018 by

          Share

          In January of 2017 the full retirement age (FRA) started increasing to age 67 in two-month increments over the next six years. When I refer to 66 as full retirement age in this article be aware that your FRA will be up to a year later depending on when you turn 62.

          OK…, you are either fast approaching 62 or already there and contemplating the best strategy to take to maximize your benefits. Should I take my benefit early at age 62, full retirement age of 66, wait to age 70, or somewhere in between? It’s a big decision for many who are on the fence and not knowing which way to go. Did you know that you don’t have to be retired to collect Social Security? Federal employees can collect Social Security at age 66, their full retirement age, without any reduction in benefits? You can work and collect it as early as age 62, however you will have to pay back a portion of your benefit until you reach full retirement age.

          Approximately 45% of all Social Security recipients claim their benefit at age 62, 30% at age 66, and only 3 to 4% wait until age 70 or later.  Others file for benefits at ages between these dates.

          Most married couples coordinate their Social Security Benefits to increase their total retirement income, that’s what my wife and I did.  It’s common practice for the lower wage earner to take their benefit early, as early as age 62, while the higher earning spouse doesn’t file for Social Security until age 70.  There are many factors to consider and it takes time to research all of your options and what is best for you and yours.

          According to a January 2018 article in Kiplinger’s Retirement Report, “Benefits at age 70 are 76% higher than at age 62.” Those who delay collecting until age 70 reap the much higher benefit and from the full retirement age of 66 until age 70 benefits increase on average 8% a year! Not bad.

          Many act on necessity. If you need the money to make ends meet apply as soon as possible. In my case my wife applied at age 62 and I won’t collect my benefit for another year and a half when I reach 70. I did file and suspend my benefit when I turned 66 so that my wife could collect a higher spousal benefit. This option is no longer available. If I should die first Mary would apply for my death benefit. The Kiplinger article states, “For married couples, at least consider having the higher earner delay as long as possible. That higher earner’s benefit will be the one that lasts the lifetime of the second spouse to die.”  The death benefit is the entire amount received by the deceased spouse.

          When to apply often depends on the ages of the couple, are you the same age or is one spouse much younger than the other.  Other circumstances come into play when making this decision. The rules are a little different depending on your retirement system.

          The rules are fairly straight forward for FERS annuitants. Employees pay into the system their entire federal and private sector careers unlike CSRS employees that don’t pay into the Social Security system. You may be  eligible for a Social Security Supplement if you retire before age 62 and your benefit is not impacted by the WEP penalty that CSRS annuitants are subject to.

          It is beneficial for FERS workers to buy back their post 1957 military service time. FERS retirees with Post 1/1/57 military service will not get credit or annuity computation for their military service without making a deposit using SF Form 3108. If a deposit is made, the employee will receive credit towards his/her annuity computation.

          CSRS annuitants are eligible for Social Security only if they worked a minimum of 40 quarters, 10 years of employment, where they paid into the Social Security system. Plus CSRS employees are subject to the Windfall Elimination Provision (WEP) that reduces any benefit you earn depending on the number of years you paid into the system. The WEP reduction stops if you have 30 years of substantial earnings.

          CSRS retirees that are eligible to collect Social Security at age 62 and have active military time will see their CSRS annuity decrease unless they buy back their military time. If you served 4 years military service and didn’t buy back your military time, your federal CSRS annuity will decrease by approximately 8%, 2% for each year of military service. If you buy your military time back your annuity will not decrease and you will also collect a Social Security check.

          I wrote an article titled Social Security – When Should I Apply and Replacing a Lost Card in 2012 when I turned 62 that you may find helpful. Be aware that the income limits in the 2012 article are now higher than they are today and some of the information is dated.

          There are many resources available to help you decide on the best path for you. Take your time to determine what is best for you and if you have specific questions call your local Social Security office at 1-800-772-1213, they can help.

          Additional Resources

          Helpful Retirement Planning Tools / Resources

          Distribute these FREE tools to others that are planning their retirement

          Disclaimer: Opinions expressed herein by the author are not an investment or benefit recommendation and are not meant to be relied upon in investment or benefit decisions. The author is not acting in an investment, tax, legal, benefit, or any other advisory capacity. This is not an investment or benefit research report. The author’s opinions expressed herein address only select aspects of various federal benefits and potential investment in securities of the TSP and companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that retirees, potential and existing investors conduct thorough investment and benefit research of their own, including detailed review of OPM guidance for benefit issues and for investments the companies’ SEC filings, and consult a qualified investment adviser. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice. The author explicitly disclaims any liability that may arise from the use of this material.

          Be Sociable, Share!

            Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, FINANCE / TIP, RETIREMENT CONCERNS, SOCIAL SECURITY / MEDICARE

            Comments (0)|

            Posted on Friday, 29th December 2017 by

            Share

            Lots of good news for federal employees and annuitants alike this year. First off, there were no major changes to our benefits even though many services wrote volumes about proposals that never materialized. I seldom cover these proposals because the majority of members in both parties currently don’t support them. That being said entitlements and interest on the national debt account for over 73 percent of the national budget according to the Center on Budget and Policy Priorities. This includes Social Security, Medicare, Medicaid, CHIPS, health care subsidies, and safety net programs. I believe we can all anticipate some changes down the road.  Eight percent of the national budget funds benefits for federal retirees and veterans.

            The new 2018 salary charts were released by OPM the last week in December including the new special compensation and SES pay tables. Another major change coming to your TSP is the additional withdrawal options authorized by a law signed by the President in September. The additional options will be available after the Thrift Saving Board completes their review and issues the updated guidance later this year.

            With the passing of the tax reform bill the vast majority of employees will see a significant increase in take home pay this April due to lower federal income tax withholdings. If you are an active TSP participant, and not contributing the maximum to your plan, this would be a great time to increase your contributions.

            Many large private companies such as PNC, Boeing, Comcast, and many others are offering employees thousands of dollars in bonuses due to their reduced corporate taxes plus they are investing billions in new projects. Fifth Third Bancorp is paying more than 13,500 employees a bonus plus they are raising their minimum wage to $15 an hour as a result of the new tax bill. In addition to cash bonuses some companies are also adding one time additional payments to their employee’s defined contribution pension plans!

            Many companies are hiring thousands of new employees for planned expansion such as AT&T that recently announced that it will invest $1 billion in their U.S. networks and offered its employees a one-time bonus. Small companies that file a Schedule C tax return will also benefit and they may be able to hire more workers as a result of projected savings and a significant reduction in their alternative minimum tax (AMT) liability.

            We published a new 2018 Federal Employee’s Leave Chart for employees to track all leave and annotate their work schedule on an Xcel spread sheet.  You will find this helpful for targeting the best date to retire for maximum annual leave buyback and sick leave credit. Many use this chart and keep it on their desk top for easy access. Read the introduction before downloading the spreadsheet. Your IT department may have to unlock it due to their internal server settings.

            The 2018 COLA is 2% for Social Security, CSRS and FERS retirees. This was considerably higher than the .3% awarded in 2017. A complete list of COLAs going back to 1999 and how they are calculated is available for your review.

            The new year looks promising from many perspectives, the unemployment rate of 4% is lower than is has been in many years, companies are hiring, wages are rising and the stock market gained 26% in 2017. This Christmas season saw record retail sales across the board and consumer confidence is higher than it has been for many years. Hopefully, this will continue however things don’t always go up, there are market corrections and sector rotations on the horizon.

            Hopefully, 2018 will prove to be as promising as 2017 was, only time will tell and I’m cautiously optimistic.

            Request a  Federal Retirement Report™  today to review your projected annuity payments, income verses expenses, FEGLI, and TSP projections.

            References

            Helpful Retirement Planning Tools / Resources

            Distribute these FREE tools to others that are planning their retirement

            Disclaimer: Opinions expressed herein by the author are not an investment or benefit recommendation and are not meant to be relied upon in investment or benefit decisions. The author is not acting in an investment, tax, legal, benefit, or any other advisory capacity. This is not an investment or benefit research report. The author’s opinions expressed herein address only select aspects of various federal benefits and potential investment in securities of the TSP and companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that retirees, potential and existing investors conduct thorough investment and benefit research of their own, including detailed review of OPM guidance for benefit issues and for investments the companies’ SEC filings, and consult a qualified investment adviser. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice. The author explicitly disclaims any liability that may arise from the use of this material.

             

            Be Sociable, Share!

              Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, FINANCE / TIP, LIFESTYLE / TRAVEL, RETIREMENT CONCERNS, SOCIAL SECURITY / MEDICARE, SURVIVOR INFORMATION

              Comments (0)|

              Posted on Monday, 18th December 2017 by

              Share

              No matter where you are at in your life; just starting out, mid career or retired, knowing where you stand financially helps you weather the storms that may be ahead. Do you have the resources to not only make ends meet today but to have the freedom in retirement to expand your horizons and do the things you’ve dreamed about all of these years?

              So few evaluate their finances until their checks start to bounce or they are so much in debt that they can’t dig themselves out. Many simply give up and keep spending beyond their means and live pay check to pay check. The younger generations rely so heavily on their credit and debit cards that they never know how much is really in their account until their cards are rejected for insufficient funds. Most don’t even know how to balance a checkbook because they don’t keep one! I talked with one federal employee recently that earns a good living and yet they can’t seem to get ahead. Each year their raise comes and goes and each year they still end up with huge overdraft fees that they simply accept as part of their world! It’s crazy considering that a few minor adjustments in their life along with some basic budgeting could convert their dilemma into an opportunity.

              This appears to be pandemic today. Being financially responsible is a necessary part of all of our lives and to go through life without knowing where you stand leads to disaster for many. When you have a good job and income many take it for granted that their good fortune will always be there for them to fall back on. That isn’t the case for life in general as many of us know from firsthand experience. You never know what may be around the corner and when times are good those are the times to sock money away for a rainy day not the time to squander what you have on transitory discretions.

              Sure, have fun but in moderation. It’s OK to go on a vacation and to enjoy life, however many simply don’t know when to stop having fun and get serious about their family life and financial security.  Many today schedule multiple trips each and every year, between vacations they take frequent short trips, attend concerts, and are always on the go; it’s never enough. Do you know anyone like that? They don’t know how to simply “smell the roses”…, just sitting back and enjoying each other’s company, their home and family. Moderation is the key, you can’t do everything and remain sane or financially secure.

              Financial problems are one of the main causes for divorce today and general discontent for families overall. If individuals and couples would take a few simple steps they could determine where they stand financially and establish a realistic plan to secure their present and future life.

              There are easy to use online financial planning tools available along with our Retirement Cost Analysis section on our website. One of the easiest and useful online tools to use from my perspective is Kiplinger’s Household Budget Worksheet. I recommend the Kiplinger’s worksheet to anyone I talk to about financial planning and link to it from our website.

              According to Kiplinger, “A good budget helps you reach your spending and savings goals. Work out a proposed household budget by inputting your sources of income and projected expenses into Kiplinger’s exclusive worksheet. You can add and delete rows as necessary to reflect your personal finances. Return and repeat as you track your actual spending.”

              This worksheet is free and can easily be completed online. The categories include:
              • Income
              • Loans/Debts
              • Utilities
              • Insurance Premiums
              • Savings & Investments
              • Miscellaneous (Includes groceries, childcare, vacations, entertainment, clothing, gas and others)

              Under insurance you can add your FEHB coverage and under investments add a line for your TSP account. If you are retired include your federal annuity and Social Security payments in the income section. After completing your entries you are able to download the results.

              This is an easy and painless process that you can typically complete in an afternoon. The first step is to  locate your pay stubs, annuity and Social Security payment information if applicable along with copies of your various bills and bank and financial statements. The worksheet will show your total monthly or annual income in relation to what you are paying for each category. You have the ability to budget for the year, month or pay period.

              This is a good exercise for literally everyone and many will be surprised at just how much they are overspending is certain areas.  This process allows individuals and couples to make informed decisions to cut their spending, save more, and it will reduce your stress. Also visit our Financial Planning pages for additional helpful information.

              I seldom use a debit card. I withdraw a certain amount each month from the bank and use that money for small purchases, restaurants, and general items. You have a better handle on what you are spending with cash. I reserve my credit card for filling up the cars and other purchases and pay the card balance off monthly to avoid interest payments. Using a debit card for all of your day to day purchases can and often leads to overspending. It’s just a  card and most keep pulling it until they receive a notice of insufficient funds from a vendor.

              I reviewed a checking account statement awhile back from someone who needed help with a spending problem. In one month’s time that person had used their debit card over 150 times and each time an entry is posted to their account. Many of the purchases were for less than $5.00 and included debit card payments for a single pack of gum!  They had no idea where there money was going and how much they were spending until it ran out. This individual had overdraft fees of $75 or more each and every month!

              The Bank of America hosts a Savings and Budgeting section on their website that offers sage advice and provides guidance to those establishing a budget and building their savings. Dave Ramsey is a financial guru who has helped many get their finances in order. His books make great gifts for anyone that needs guidance in this area. Visit his website at http://www.daveramsey.com to review his books and to locate a station near you that airs his weekly Dave Ramsey Show. Other resources are available from your broker or local bank. The individual I mentioned above visited her local bank to learn how to balance her checkbook.

              It’s both comforting and a relief when you have a grip on your finances and know the direction you are travelling. Many reading this column already understand these principles. If you know someone who needs help in this ares steer them to these resources, they can make a significant improvement in their lives.

              Request a  Federal Retirement Report™  today to review your projected annuity payments, income verses expenses, FEGLI, and TSP projections.

              Helpful Retirement Planning Tools / Resources

              Distribute these FREE tools to others that are planning their retirement

              Disclaimer: Opinions expressed herein by the author are not an investment or benefit recommendation and are not meant to be relied upon in investment or benefit decisions. The author is not acting in an investment, tax, legal, benefit, or any other advisory capacity. This is not an investment or benefit research report. The author’s opinions expressed herein address only select aspects of various federal benefits and potential investment in securities of the TSP and companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that retirees, potential and existing investors conduct thorough investment and benefit research of their own, including detailed review of OPM guidance for benefit issues and for investments the companies’ SEC filings, and consult a qualified investment adviser. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice. The author explicitly disclaims any liability that may arise from the use of this material.

              Be Sociable, Share!

                Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, FINANCE / TIP, LIFESTYLE / TRAVEL, RETIREMENT CONCERNS, SOCIAL SECURITY / MEDICARE, SURVIVOR INFORMATION

                Comments (0)|

                Posted on Saturday, 18th November 2017 by

                Share

                The TSP Modernization Act (H.R. 3031) was signed by the President November 17, 2017.  This update, one of the first since the TSP was established, provides users with additional options to manage their invested funds, including the ability to make multiple post-separation partial withdrawals and to make multiple in-service age-based withdrawals once the participant has reached the age of 59 ½.

                Under this bill many additional options will be available making it more attractive for TSP participants to keep their funds in the TSP after retiring. Dr. Donna Day, a new contributor to our retirement planning site, summarized the changes in an article she wrote on November 8, 2017 titled Proposed Additional Withdrawal Options for TSP Participants.”

                Currently, upon separation from Federal services, if an account is vested and has more than $200, the entire account can remain in the TSP until the year following the year the participant turns 70 ½. A participant has two options for withdrawing, either partial or full withdrawals. A partial withdrawal allows participants to make a one-time-only withdrawal and leave the remaining balance until a later date. A full withdrawal can occur by taking the funds all at once, over a period of time, or through a purchased annuity that will pay the participant over the remainder of their life. Once a separated participant makes an election, the election cannot be changed. Age-based in-service withdrawals occur once the participant has reached age 59 ½ and is an active Federal employee. Currently, a participant may only take one age-based in-service withdrawal during the time they are actively employed. Taking an in-service withdrawal prohibits the participant from taking a post-separation partial withdrawal.

                These changes won’t go into effect immediately. The Executive Director of the Federal Retirement Thrift Investment Board has up to two years to establish the necessary regulations to carry out the amendments prescribed in HR 3031. We will add the new options to our TSP pages coincident with the release of the new regulations by the executive director.

                Request a  Federal Retirement Report™  today to review your projected annuity payments, income verses expenses, FEGLI, and TSP projections.

                Helpful Retirement Planning Tools / Resources

                Distribute these FREE tools to others that are planning their retirement

                Disclaimer: Opinions expressed herein by the author are not an investment or benefit recommendation and are not meant to be relied upon in investment or benefit decisions. The author is not acting in an investment, tax, legal, benefit, or any other advisory capacity. This is not an investment or benefit research report. The author’s opinions expressed herein address only select aspects of various federal benefits and potential investment in securities of the TSP and companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that retirees, potential and existing investors conduct thorough investment and benefit research of their own, including detailed review of OPM guidance for benefit issues and for investments the companies’ SEC filings, and consult a qualified investment adviser. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice. The author explicitly disclaims any liability that may arise from the use of this material.

                Be Sociable, Share!

                  Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, ESTATE PLANNING, FINANCE / TIP, RETIREMENT CONCERNS, SURVIVOR INFORMATION

                  Comments (0)|

                  google-site-verification: google7da01e5320bde85e.html Terms Of Use