Posted on Friday, 17th June 2022 by Dennis Damp

I described the advantages of Treasury bills in “Ditch your Bank’s Low Savings Rates” last March. They provide higher yields for savers; if you ladder your investments a portion of your savings will be available at set intervals throughout the year. I’ve gone through several reinvestment cycles since starting treasury bill ladders earlier this year. The yield is increasing dramatically as funds are reinvested at higher rates.

When I started purchasing 4 and 8-Week bills last February they were yielding slightly more than my local bank and credit union savings rate of .04%. The 4-week bill rate has increased to 1.055% as of June 14, 2022, just 3 months later, while my local bank and credit union rates remain unchanged.

TREASURY BILL INVESTEMENT RATES

The chart below shows the interest rate increases for 4, 8, 13, 26 and 52-week bills during this period. The 52-week bill issued on June 16,2022 yields 3.134% and on June 14th the 2-year note yield was 3.324%! These rates far exceed my local bank and credit union’s .04% rate.

It’s easy to move savings that include funds previously invested in certificates of Deposit (CDs) to the Treasury for better yields. When rates level off, it will be a good time to lock in higher rates with Treasury notes of 2,3,5,7, and 10-year maturities. You may also find attractive CD rates at that time.

If rates go through the roof, like they did in the early 80s, it could be possible to pick up Notes and Bonds with very high yields. In 1981 the 30-year Treasury bond paid as high as 15.21%!

On the flip side, I relocated in the early 1980s under Permanent Change of Station (PCS) orders; our mortgage interest rate was 11%! The sellers laughed at the closing when they saw the 30-year total cost with financing.

If you are planning your retirement, learn an easy technique to retire mortgage free and other ways to economize before submitting your retirement application.

COMMON SENSE FIXED INCOME ALTERNATIVE

Treasury bills are sold at discount (below face value); when the bill matures the investor receives face value. These rates may seem insignificant to some. I can assure you the results are worth the effort.

Put another way, if you are fortunate enough to have $50,000 in combined savings earning .04%, your bank would pay you a grand total of $20 a year to keep these funds in their institution! A 1% yield would pay out $500 or $480 more than your bank is willing to pay you. Short term Treasury yields increase each reinvestment cycle and interest compounds as the Federal Reserve continues to raise rates.

If you invested the same amount in a 52-week bill, currently yielding 3.134%, you would earn $1,567. Essentially you would pay $48,433 for the 52-week note and at the end of the 12-month term the Treasury will deposit $50,000 back into your account.

CDs, Bank, and credit union interest rates will eventually rise to entice customers back to the fold. Right now, they are flush with cash and have no incentive to payout more. They are also aware of the fact that most depositors are unwilling to change and stay regardless.

TREASURYDIRECT.GOV

Visit TreasuryDirect.gov to register, explore the options, and start purchasing Treasury bills, notes, and bonds, TIPS, and savings bonds. You are buying direct from the government and eliminating the middle man; there aren’t any fees charged for purchases. Most brokerage accounts offer clients access to Treasury auctions and will purchase them for your account; the longer-term notes and bonds can be sold on the secondary market if needed. Here is more information on the Treasury’s programs:

• Treasury Bills In-depth
• Treasury Notes In-depth
• Treasury rates (Yields)
• Auction schedule

COLA UPDATES

According to Wilbert J Morell III, a retired Navy Engineering Project manager, if inflation remains constant at 8.6% and the CPI-W at 288.012 the Social Security and CSRS COLAs will be 7.3% and the FERS COLA will be 6.3%.

If Inflation continues growing at the same monthly trend of 1% per month and the CPI-W monthly trend of 1.2% per month as reported in the 10 June CPI Report, the Social Security and CSRS COLAs will be 11.2% and the FERS COLA will be 10.2%.

US inflation by the end of the year could be as high as 12.6%.

Wilbert tracks these statistics monthly, volunteers to help seniors in his community, and is highly knowledgeable about our federal retirement benefits.

I-Bonds yields should also rise again this November in this invironment, they already pay 9.62%!

SUMMARY

Is the stock market keeping you up at night?  With inflation on the rise and costs increasing across the board, a recession is surely on the horizon. As the Fed raises rates, Treasury yields will follow suit and provide viable options for our cash.

Financial analysts on the major networks suggest a recession is coming our way in 2023 or beyond. It may be much sooner than they think.

A recession is defined as a significant decline in activity across the economy, lasting longer than a few months. Two consecutive quarters of negative economic growth, measured by a country’s gross domestic product (GDP), is the technical indicator of a recession. The country isn’t fighting on one front in this battle, we are surrounded with conflicts, all with significant negatives for our economy and well being.

The DOW and S&P are down more than 20% signaling a bear market. Many issues are driving this trend: skyrocketing inflation along with the highest gas prices in history, supply chain problems, food shortages including baby formula, COVID lockdowns in China, rising interest rates, out of control spending, the war in Ukraine, lawlessness, and the open borders and fentanyl drug crisis that killed 108,000 Americans last year, to name a few. We’ve lost more people to fentanyl overdoes than guns, suicides and traffic accidents combined last year!

Adding to our problems, electric utilities are warning of rolling blackouts this summer across the country. The early retirement of fossil fuel plants has accelerated the destabilization of the grid. Ten coal fired power plants closed in Pennsylvania in the past ten years; two more are scheduled to close this year. Maybe, just maybe we should restart a few of those plants until we have sufficient alternate power sources available!

Hopefully our leaders will wake up, rise to the occasion, and not end up like Nero, Rome’s emperor who fiddled while Rome burned.

Helpful Retirement Planning Tools

• Retirement Planning for Federal Employees & Annuitants
• The Ultimate Retirement Planning Guide – Start Now
• TSP Guide
• TSP Considerations
• Medicare Guide
• Medicare and FEHB Options – What Will You Do When You Turn 65? (Part 1)
• Budget Work Sheet
• Social Security Guide

Disclaimer: The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, investment, and benefit information are subject to change. To ensure the accuracy of this information, contact relevant parties for assistance including OPM’s retirement center. Over time, various dynamic economic factors relied upon as a basis for this article may change. The information contained herein should not be considered investment advice and may not be suitable for your situation. This service is not affiliated with OPM or any federal entity. You should consult with a financial, medical or human resource professional where appropriate. Neither the publisher or author shall be liable for any loss or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

Posted in ESTATE PLANNING, FINANCE / TIP, RETIREMENT CONCERNS, SURVIVOR INFORMATION

Comments (2)|  Print This Post

Posted on Friday, 3rd June 2022 by Dennis Damp

The Thrift Savings Plan (TSP) has updated their site and requires all account holders to establish a new login to regain access to their account. I was able to sign into my new TSP account on Thursday June 2^nd without incident. Their updated site is now up and running. However, you may have problems accessing the site at peak times due to the large number of TSP participants attempting to regain access to their accounts.

SIGN ON SCREENS

The following screens will familiarize you with the new sign in process.

FIND YOUR ACCOUNT

To gain access to your new account click on “Set up new login for my account” and then enter the personal information the TSP needs to find your account and connect it to the new system.

UPDATE YOUR ACCOUNT

You will be asked to select a preferred multi-factor authorization (MFA) and then set up a new user ID and password. I selected text message (SMS) which I use for most other accounts. The TSP also requires account holders to create a PIN that can be used to quickly identify yourself when calling the ThriftLine. 

SUMMARY

The new signup process takes about 10 minutes tops; the site is easy to navigate and use. I viewed current holdings and visited each area including the beneficiary election page. There is new Mutual Fund Window that you can explore and determine if you are interested in moving a part of your account to over 5,000 publicly traded mutual funds.

To access this new feature, select “Change Investments” on the main page and then select “Set Up a Mutual Fund Window Account.”  You can invest up to 25% of your savings plan in your MFW account. Your initial transfer into a MFW account must be $10,000 or more. This means that you are required to have a balance of $40,000 or more in your savings plan to open a MFW account. After your initial investment, there is no minimum for each individual transfer.

There are additional fees to consider. I intend to review this new feature in an upcoming article. There are pros and cons to this new investment option.

Visit www.tsp.gov to regain access to your account. I was pleasantly surprised just how easy the new sign in process was. Especially after spending hours on the phone this past Thursday working with customer support to update my business accounting program!

Helpful Retirement Planning Tools

• Retirement Planning for Federal Employees & Annuitants
• The Ultimate Retirement Planning Guide – Start Now
• TSP Guide
• TSP Considerations
• Medicare Guide
• Medicare and FEHB Options – What Will You Do When You Turn 65? (Part 1)
• Budget Work Sheet
• Social Security Guide

Disclaimer: The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, and benefit information are subject to change. To ensure the accuracy of this information, contact relevant parties for assistance including OPM’s retirement center. Over time, various dynamic economic factors relied upon as a basis for this article may change. The advice and strategies contained herein may not be suitable for your situation and this service is not affiliated with OPM or any federal entity. You should consult with a financial, medical or human resource professional where appropriate. Neither the publisher or author shall be liable for any loss or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

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

Comments (2)|  Print This Post

Posted on Friday, 27th May 2022 by Dennis Damp

Retirees use OPM Services Online to start, change or stop federal or state income tax withholdings; download 1099-R forms, change your mailing address, start or change direct deposits and view annuity payments. This system is available to those under the Civil Service Retirement System (CSRS), Federal Employees Retirement System (FERS), FERS Special, or the Organization Retirement and Disability System (ORDS).

OPM is switching to multilevel authentication procedures for their online services to prevent others from gaining unauthorized access to our accounts.

The new procedures may create confusion for some, especially for older retirees that are unfamiliar with computers and internet protocols. Once you create a new or use your existing login.gov account, and pair it to your original OPM Services Online account, it won’t be so daunting.

LOGIN.GOV ACCOUNT

OPM is deploying enhanced security protections for accessing your servicesonline.opm.gov account on May 26^th. Login.gov provides an extra layer of security by using multi-factor authentication and stronger passwords to protect your account. Other government agencies, such as the Small Business Administration and the Social Security Administration, already use this process to provide secure access to their services.

I logged into my Social Security account to check this out. They now allow access using Login.gov or you can still use your original access user name and password. If you use your original access credentials, Social Security now requires a second level of verification, either a text message code sent to your cell phone or email address that you have on file with them.

When I read OPM’s email announcing this change, I set up my www.login.gov account. This saves time and confusion when first visiting OPM’s online services starting on May 26^th. If you already have a login.gov account there is no need to set up a new one.

LINK SERVICES ONLINE ACCOUNTS TO LOGIN.GOV

The following screen is what I encountered at Servicesonline.opm.gov on the morning of May 26^th. Since I already created my LOGIN.GOV account, I simply clicked on “Sign in with LOGIN.GOV” and entered my LOGIN.GOV user name and ID. If you haven’t set up your new login.gov access, you will be prompted to do so.

After signing up for this service, and using it to enter your servicesonline.opm.gov account, you will be prompted to enter a code, prior to gaining access to your account. The code is sent to either your cell phone or email address that verifies you are the one accessing your account.

The next screen advises account holders to click on “Connect to servicesonline.opm.gov” and the following screen popped up asking me to enter the code that was sent to my cell phone.

After entering the code and clicking on “Submit” I was redirected to my account and home page.  I logged in and out of my site several times to ensure it was working properly. The only change that I encountered was the login process, all other features of my original account were the same as before. If you encounter problems, use OPM’s step-by-step guide and you will be back online in no time.

I use OPM’s online services frequently. It is difficult getting through to OPM by phone and with their online services you often are able to download what is needed or make changes to your account online instantly in many cases. If you already have access to this service, follow the guidance when you first enter after May 26^th to keep your account active. For those who don’t currently use this site, this is a good time to sign up.

Helpful Retirement Planning Tools

• Retirement Planning for Federal Employees & Annuitants
• The Ultimate Retirement Planning Guide – Start Now
• TSP Guide
• TSP Considerations
• Medicare Guide
• Medicare and FEHB Options – What Will You Do When You Turn 65? (Part 1)
• Budget Work Sheet
• Social Security Guide

Disclaimer: The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, and benefit information are subject to change. To ensure the accuracy of this information, contact relevant parties for assistance including OPM’s retirement center. Over time, various dynamic economic factors relied upon as a basis for this article may change. The advice and strategies contained herein may not be suitable for your situation and this service is not affiliated with OPM or any federal entity. You should consult with a financial, medical or human resource professional where appropriate. Neither the publisher or author shall be liable for any loss or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, RETIREMENT CONCERNS, SOCIAL SECURITY / MEDICARE, SURVIVOR INFORMATION

Comments (0)|  Print This Post

Posted on Friday, 13th May 2022 by Dennis Damp

The TSP is updating their website and adding new investment choices. A short summary follows along with steps to take now that will familiarize you with the pending changes. If you were planning to initiate a new withdrawal or any changes to your investments from May 26^th through the first week of June, you won’t have access to your account.

TSP TRANSISTION DATES

Mark the following dates on your calendar. Full access under the new system will be available the first week of June.

• May 16 to the first week of June: Certain My Account transactions, online tools, and forms will be temporarily unavailable. You can sign in to your account through May 25^th using your original username and password.
• May 26 to the first week of June: All transactions will be unavailable, including changes to investments. My Account and the ThriftLine will also be unavailable during this time.
• First week of June: Full TSP service returns with new features, expanded support options, efficient online transactions, a new My Account with convenient navigation, and much more.

When the new website is launched in early June you will be required to initiate a new login for your account.

During the transition period, your savings will remain invested in the TSP funds you’ve chosen. Your payroll contributions and loan payments will continue. Installment payments scheduled to be paid May 24 – May 31 will be disbursed early on May 23.

These changes were designed to provide account access flexibility, additional investment choices, more options to contact TSP representatives for help, and additional secure online transactions.

NEW FEATURES

These features will be on par to those offered by most private sector retirement plans and adds more investment options. When you run into problems a virtual assistant will be available online and the new TSP Mobile App can connect you to a live-chat with a TSP Representative during normal business hours. The TSP phone line (877-968-3778) remains an option as before.  Here is a brief summary of what to expect:

• New My Account interface including additional security steps to verify login credentials.
• A TSP Mobile App for use on your cell phones and tablets.
• Complete forms and more transactions online, sign your name electronically, and make loan payments.
• Invest a portion of your account in mutual funds through their new Mutual Fund Window. Certain restrictions apply.

TAKE THESE STEPS NOW

Once the new system goes live you won’t have online access to your historical records. Documents and messages currently available in My Account will not transfer to the new system. You can download your historical statements and save any messages for your records. After the move you can request copies from the TSP and they will send them in the mail.

I went online to search for any historical records of interest that I may want to download. The TSP posted this notice on my beneficiary election page:

” You will not be able to access this wizard as of 11:59 p.m. eastern time on 05/16/2022 while we make enhancements to the TSP. If you are in a situation where you need to complete a TSP-3 form to designate a beneficiary, call the ThriftLine to request a paper form. Once the TSP enhancements are in place the first week of June, you’ll be able to complete most transactions entirely online, and most paper forms will no longer be necessary.” 

I printed out my beneficiary elections for my estate planning binder and downloaded my annual statements from 2018 through 2021, previous years 1099-Rs, and the most recent quarterly statement. You can also download a copy of your official Account Balance Letter. This letter is often required by banks and other lending institutions. If you are closing on a new property while the system is offline, download this letter to take to your lender. Note the following:

• Any transactions that you were planning to make from May 26 through the first week of June would have to made before or after these dates.
• Review your investments and make any changes to ensure you have them allocated in the funds desired before May 26^th.

The TSP will be sending out more information as they progress through the update. They also provide a detailed summary of these changes on their website.

Helpful Retirement Planning Tools

• Retirement Planning for Federal Employees & Annuitants
• The Ultimate Retirement Planning Guide – Start Now
• TSP Guide
• TSP Considerations
• Medicare Guide
• Medicare and FEHB Options – What Will You Do When You Turn 65? (Part 1)
• Budget Work Sheet
• Social Security Guide

Disclaimer: The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, and benefit information are subject to change. To ensure the accuracy of this information, contact relevant parties for assistance including OPM’s retirement center. Over time, various dynamic economic factors relied upon as a basis for this article may change. The advice and strategies contained herein may not be suitable for your situation and this service is not affiliated with OPM or any federal entity. You should consult with a financial, medical or human resource professional where appropriate. Neither the publisher or author shall be liable for any loss or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

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

Comments (0)|  Print This Post

Posted on Friday, 6th May 2022 by Dennis Damp

Wild stock market swings and volatility in all sectors is causing investors to pause. Our retirement accounts are on the block and as inflation continues on its rampage, investors seek safe harbors to wait out the storm. Unfortunately, we are in for quite a ride.

Our recent trip down south was an eyeopener every time we stopped to fill up along the way. Locally I paid $4.28 a gallon for gas this week!

There are a few bright spots that will at least help to alleviate some of the pain. Our COLA next year is expected to be one of the highest in decades and I-Bond yields are increasing dramatically as well. Treasury bills and notes are also rising as the Federal Reserve increased interest rates another .5% last week.

Banks are flush with cash due to their savings account owner’s inability to find better rates of return. They issue loans based on these dormant funds; banks and credit unions get away with paying us almost nothing for that privilege.

Investing in I-Bonds and Treasuries provide ways for all of us to earn a substantially higher rate of return on a portion of our savings and fixed income investments. The current I-bond rate is 240 times greater than my local banks .04% rate and the recent 8-week Treasury Bill’s rate of 0.721% rate is 18 times higher.

I-BOND COMPOSITE RATE

As of May 1^st, I-Bond owners are now receiving the new Composite Rate of 9.62%. You will receive this rate for a full six months from the date of purchase resulting in an 8.37% rate over a twelve-month period. The previous six-month rate was 7.12%. There are few places today where you can earn high yields guaranteed by the US Government.

A $100,000 investment in I-Bonds will earn $8,370 for this 12-month period compared to just $40 at my local bank that is paying a meager .04% yield! Banks aren’t inclined to pay fair and reasonable rates. This is why I moved much of our savings to Treasury Bill ladders this year.

I started buying I bonds in 1999 and purchased my first $1,000 I-Bond in May of 2000. It is now worth $3,408 and earning 10.64%!  A comparable EE bond that I purchased in January of that year, at half face value, is worth $1,078 and earning .77%. I stopped buying EE bonds that year.

My article on I-Bonds discussed the limits and options that you have to purchase these investment gems.

PAPER I-BONDS

I was able to purchase additional paper I-Bonds this year! Yes, you can still buy up to $5,000 a year in paper I-bonds but only with your income tax refund. Last year I purposely overpaid my estimated quarterly federal income taxes with the intention of taking advantage of this loophole. It worked; the Treasury sent me 12 paper bonds in the mail! They sent a mix of bonds ranging from as low as $50 to as high as $1,000.

I was expecting one to five bonds, not 12 all sent in a separate envelope through regular mail. They may be using the paper bonds they had on hand and sent whatever was available.

TREASURY BILL LADDERS

There are ways to Ditch Your Bank’s Low Rates and earn considerably higher yields. I use Treasury Bill ladders to ensure I have sufficient cash available when needed and am earning a reasonable yield. Treasury Bill ladders are an excellent option when interest rates are increasing.

A Treasury Bill ladder is a savings strategy where you invest in several Bills with staggered maturities to take advantage of higher yields. They also provide cash, if needed, at recurring intervals. With the Federal Reserve set to raise rates several more times in 2022 this strategy is a viable and attractive option.

Four or eight-week bills can be used for funds that need to be available at recurrent intervals. A 4-week bill ladder consists of dividing the amount available by four and investing that amount weekly for four weeks. Short term bills are auctioned every Thursday with a settlement date the following Tuesday.

One fourth of your invested amount will be available weekly. Four-week bills can be reinvested through Treasury Direct for up to two years (24 times). You can stop reinvestments at any time and at maturity the full amount will be electronically deposited back into your designated bank account.

An 8-week bill ladder consists of investing half of your available funds in an 8-week bill and on the fifth week purchase another of equal value. Half of the funds would be available every four weeks at the new rate. Another option is to use 8 instalments, divide the available amount by eight and buy an 8-week bill each week for eight weeks. If you have $40,000 to invest, purchase a $5,000 bill for eight consecutive weeks. After the initial 8-week investment you will have $5,000 available each week. The 8-week notes pay a higher yield.

• NOTE: Check with your bank to see if there is a maximum number of monthly withdrawals and deposits from your savings and money market accounts. Regulation D, a Federal Reserve Board rule limits withdrawals and transfers to six each statement cycle. This rule was waived by the Federal Reserve during the pandemic. Many banks maintained the limit, while others increased the number of withdrawals and transfers permitted. Withdrawals through tellers at branch offices don’t count toward the six transfers or withdrawal limits each statement cycle.

TRESURY NOTES

Treasury Bills are a good way to earn a higher yield for a portion of your immediate savings that must be available for emergencies. Treasury Notes are longer term investments with 2, 5, 7, and 10-year durations. The 2-year note issued on 5/2/2022 yielded 2.5%! Just try getting that rate for a CD at any bank, an impossible task today. As the Federal Reserve raises rates Treasury yields typically follow suit.

Notes are purchased direct from the Treasury or through your stock brokerage account and interest is paid semiannually. If purchased through a broker, you can sell it on the secondary bond exchange before maturity, there is market risk and commissions to deal with when doing so. If interest rates are higher on new Treasury Notes when you sell, you could take a loss. If held to maturity, there is no market risk. Notes purchased through Treasury Direct must be transferred to a broker if you wish to sell them before maturity.

There are other considerations when buying notes. Read the detailed Treasury Note information available on their website.

I-BONDS VERSES TIPS

I-bonds can only be purchased direct from the Treasury and have a fixed and variable inflation rate. They protect us from inflation by adjusting their variable inflation rate semiannually based on changes in CPI. Interest is earned on the bond every month and is compounded semiannually, twice a year. The interest the bond earned in the previous six months is added to the bond’s principal value; then, interest for the next six months is calculated using this adjusted principal.

Purchases of I-bonds are limited to $10,000 per person yearly through Treasury Direct and an additional $5,000 in paper bonds if you have an income tax return due at the end of the years.

The interest rate on TIPS stays constant for the life of the bond. The face value of TIPS is adjusted based on CPI and the fixed interest rate of the bond at issuance is then applied to the adjusted face value.

The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. When TIPS mature, you are paid the adjusted principal or original principal, whichever is greater.

TIPS can be bought and sold through your stock broker without any purchase limits. They are also available via mutual funds and ETFs.

TREASURYDIRECT.GOV

Many are hesitant to purchase Treasury Bills and Notes online through TreasuryDirect.gov. I understand the hesitation, unlike brokerage accounts they don’t send out monthly statements; you have to print the website screens to have documents for your files and estate plans. Tax forms are also downloaded from the site and not sent via regular mail. However, you are buying direct from the government and eliminating the middleman; there aren’t any fees charged for purchases. Here is more information on the Treasury’s programs:

• Treasury Bills In-depth
• Treasury Notes In-depth
• Treasury rates (Yields)
• Auction schedule

Helpful Retirement Planning Tools

• Retirement Planning for Federal Employees & Annuitants
• The Ultimate Retirement Planning Guide – Start Now
• TSP Guide
• TSP Considerations
• Medicare Guide
• Medicare and FEHB Options – What Will You Do When You Turn 65? (Part 1)
• Budget Work Sheet
• Social Security Guide

Disclaimer: The information provided may not cover all aspect of unique or special circumstances. Over time, various dynamic economic factors relied upon as a basis for this article may change. The information contained herein should not be considered investment advice and may not be suitable for your situation. This service is not affiliated with OPM or any federal entity. Consult with a financial, medical or human resource professional where appropriate. Neither the publisher or author shall be liable for any loss or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

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

Comments (2)|  Print This Post

Posted on Friday, 29th April 2022 by Dennis Damp

We can expect another significant COLA increase in 2023 if inflation continues on its current path or if we move to what economists call stagflation. According to the Senior Citizens League, the 2023 COLA could be as high as 8.9%; the largest increase since 1981 when it was 11.2%; in 1980 it was 14.3%!

There are many variables in the annual COLA calculation and the final number can change dramatically before the announcement this October.

Stagflation takes hold when the inflation rate is high, economic growth rate slows, and unemployment is high. Most actions that government takes to lower inflation raises unemployment, and policies designed to decrease unemployment often spur inflation. We aren’t there yet, but many economists fear this scenario that is initiated by a supply shock and poor economic policies.

A supply shock occurs when there is a sudden increase or decrease in the supply of a commodity or service, such as the significant increases at the gas pump. The higher prices raise production costs, profits fall, and the economy slows. Many products and materials are suffering the same plight. Have you tried to buy a new car lately?>

The situation we find ourselves in today was compounded by pandemic deficit spending that dramatically increased the money supply driving inflation even higher.

Last year, my article on the projected 2022 COLA quoted Kiplinger Magazine’s projection of 3%. I anticipated a much higher rate then and believe inflation could exceed our expectations again this year. Prices continue increasing across all sectors unabated. A measure of just how things are going will be the Treasury’s I-Bond interest rate announcement due next month. It should be north of 9%!

_________________________________________________________________

Once inflation takes hold the economy spins out of control; things don’t revert back to the mean afterwards, when it settles down.

The median cost of a home in 1980 unadjusted for inflation, according to the US Census Bureau, was $47,200 dollars. My wife and I purchased a new 3 bedroom, two bath Ryan ranch home in 1979 for $47,750! The median household income was approximately $17,000 dollars and a gallon of gas was $1.25! Today, the median cost of a home now exceeds $350,500 dollars.

Hold on to your hats again this year, we have quite a ride ahead.

Helpful Retirement Planning Tools

• Retirement Planning for Federal Employees & Annuitants
• The Ultimate Retirement Planning Guide – Start Now
• TSP Guide
• TSP Considerations
• Medicare Guide
• Medicare and FEHB Options – What Will You Do When You Turn 65? (Part 1)
• Budget Work Sheet
• Social Security Guide

Disclaimer: The information provided may not cover all aspect of unique or special circumstances. Over time, various dynamic economic factors relied upon as a basis for this article may change. The information contained herein should not be considered investment advice and may not be suitable for your situation. This service is not affiliated with OPM or any federal entity. Consult with a financial, medical or human resource professional where appropriate. Neither the publisher or author shall be liable for any loss or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

Posted in ANNUITIES / ELIGIBILITY, FINANCE / TIP, RETIREMENT CONCERNS, SOCIAL SECURITY / MEDICARE, SURVIVOR INFORMATION

Comments (0)|  Print This Post

Posted on Friday, 8th April 2022 by Dennis Damp

It’s impossible to time the market. One of the financial advisers I talked with years ago asked me this question: “Who are you investing for?” He suggested being more aggressive if you don’t require your investments to live on in retirement or investing primarily for your heirs. The market ultimately increases over time.

The S&P 500 index has returned a historic annualized average return of approximately 10.67% from 1957 through 2021. THRIFT Plan participants that held the C fund (S&P 500 index fund) from its inception did very well to say the least. Yet, retirees must weigh the risk associated with continuing an aggressive investment strategy in retirement.

Over the past 120 years there were many recessions and the great depression that started in 1929. From the early 1900s on there were 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 until the Corona Virus recession of 2020 was six years from 2009 to 2015.

What most have experienced since 1985 is a bull market interrupted with two recessions, one running six years from 2009 to 2015, and the Corona Virus recession that lasted only two months in early 2020. The following charts show how long it took to recover to former levels.

S&P 500 1957 – 2021

DOW 1900-2021

Many would see their retirement nest egg decrease dramatically during an extended recession, panic, and sell. It doesn’t matter whether or not they need their savings to live on, it’s human nature. We’re elated when markets rise and despondent during downturns. It takes a steadfast disposition to stay the course and ignore severe market gyrations no matter what the age.

Retirees can’t dollar cost average on the way down like those still employed and contributing to their retirement account. Plus, they don’t have time on their side.

Regardless of who we are investing for, it makes sense for many retirees to protect what they’ve worked a lifetime accumulating. I’d rather have one in the hand than two in the bush, my former boss related this sage advice when I was contemplating his job offer.

It’s impossible to predict when the next major market correction or recession is coming. Yet, they are inevitable after extended periods of excesses. Our national debt now exceeds this country’s GDP for the first time since WW II, considering seven proposed Federal Reserve interest rate hikes this year, skyrocketing inflation, world unrest, excessive government spending, chaos at our southern border, pandemic related supply chain issues, fuel and potential pending food shortages, how much will it take to tip the scales one way or the other?

__________________________________________________________________

I’m not a clairvoyant, alarmist, or a financial planner, just a casual observer and seasoned conservative investor.

It may be a good time for retirees and those approaching retirement to assess their risk tolerance and portfolios. Federal annuitants often have more latitude with their investment choices. Even though many live comfortably off their monthly annuity, Social Security, and TSP withdrawals: inflation, health issues, and other factors could require additional retirement savings withdrawals down the road. Will the funds be there when needed?

According to Charles Schwab, “The conservative allocation is composed of 15% large-cap stocks, 5% international stocks, 50% bonds and 30% cash investments. The moderately conservative allocation is 25% large-cap stocks, 5% small-cap stocks, 10% international stocks, 50% bonds and 10% cash investments. The moderate allocation is 35% large-cap stocks, 10% small-cap stocks, 15% international stocks, 35% bonds and 5% cash investments.”

THRIFT plan participants can mirror these allocations with existing funds. A mutual fund window will soon be offered by the TSP that allows us to purchase thousands of mutual funds including one-decision and balanced funds. The L Income Fund allocations are between the moderately conservative to conservative portfolios listed above with an annual return of 2.99% as of February 2022, the 10-year average return is 4.71%.

The Vanguard Wellesley Income Fund (VWINX) allocation is moderately conservative and it achieved an 8.5% total return in 2021 with a 10-year average total return of 7 percent. The target allocation is two-thirds bonds and one-third stocks. It has a 5-Star Morningstar rating and their management fee is only .22%. They focus on value dividend paying stocks and investment grade bonds. VWINX seeks to provide long-term growth of income and a high and sustainable level of current income, along with moderate long-term capital appreciation. This fund fully recovered in less than one year during the 2008 to 2015 recession.

Another conservative balanced fund is Vanguard’s Wellington Fund (VWELX). It invests approximately two-thirds in stocks and one-third bonds. It has a moderate allocation and a 10.49% total return in 2021 with a 10-year average total return of 9.55% percent. This 5-Star (GOLD) Morningstar rating fund’s management fee is only .24%. VWELX has been around since 1929 and seeks to provide long-term capital appreciation and reasonable current income. It dropped 22% in 2008 and recovered eighteen months later to its previous high.

These funds may be available when the TSP’s mutual fund window becomes available this June.

With conservative portfolios, the challenge is to find a decent rate of return on your fixed income. Treasury Bills and notes are now offering decent returns as interest rates scontinue to rise. The balanced funds mentioned above manage their equities and bond investments to maximize yield and capital gains. They are professional money managers; their past performance is a measure of just how effective they have been over the years. There are many one decision conservative funds; it takes research and time to find the one right for you.

Professionally managed bond funds are also available such as the Dodge and Cox Income Fund (DODIX) and Fidelity’s (FTBFX), both have a Morningstar GOLD 4-star ratings. However, as interest rates increase bond funds generally go in the opposite direction; the shorter duration the bond fund has the less downside risk. Individual bonds held to maturity don’t have the market risk bond funds have.

If you purchase a Treasury, corporate or municipal bond of any duration, and don’t sell it on the secondary market before maturity, you will receive the principal and all interest due. You can buy individual bonds through your broker and Treasuries at TreasuryDirect.gov. There is minimal market risk with investment grade bonds. The TSP G Fund is one of the only bond funds that I’m aware of that is guaranteed not to decrease in value, it yielded 1.52% last year with a 10-year average yield of 1.94%.

I-Bonds are now paying 9.62% interest and the ones issued back in 1999 pay over 13%. Even EE Savings bonds offer a 3% yield if you hold them for at least 20 years. Currently short-term treasuries are paying considerably more than most bank savings accounts and CDs.

Conservative portfolios usually seek to provide both capital appreciation and income for the investor. Could I miss out if the market continues to power ahead? Certainly, but that is a tenable outcome that I can easily live with and preferable to experiencing a dramatic decrease during an extended recession. Here are several articles that may help you perform your assessment:

• Is the Stock Market Keeping You Up at Night?
• I Bonds Yield 9.62% While the Sky is Falling!
• How to Keep What You Worked a Lifetime Accumulating
• Have You Considered Hiring A Financial Advisor

All portfolios that include stocks, mutual funds, ETFs, and bonds are impacted by market volatility. The more conservative the mix the less downside risk.

The information contained herein should not be considered investment advice and may not be suitable for your situation.

Helpful Retirement Planning Tools

• Retirement Planning for Federal Employees & Annuitants
• The Ultimate Retirement Planning Guide – Start Now
• TSP Guide
• TSP Considerations
• Medicare Guide
• Medicare and FEHB Options – What Will You Do When You Turn 65? (Part 1)
• Budget Work Sheet
• Social Security Guide

Disclaimer: The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, investment, and benefit information are subject to change. To ensure the accuracy of this information, contact relevant parties for assistance including OPM’s retirement center. Over time, various dynamic economic factors relied upon as a basis for this article may change. The information contained herein should not be considered investment advice and may not be suitable for your situation. This service is not affiliated with OPM or any federal entity. You should consult with a financial, medical or human resource professional where appropriate. Neither the publisher or author shall be liable for any loss or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

Posted in ANNUITIES / ELIGIBILITY, EMPLOYMENT OPTIONS, ESTATE PLANNING, FINANCE / TIP, RETIREMENT CONCERNS, SURVIVOR INFORMATION

Comments (0)|  Print This Post

Posted on Friday, 25th March 2022 by Dennis Damp

Investment Rates Updated 5/22/2022

Currently, even after the recent Federal Reserve’s interest rate hike, my bank reduced their savings rate from .05% to .04%!  Makes no sense except for the banks, they loan our money out at much higher rates and we fund their huge profits. Bank CEOs brag about their astronomical client deposits and pay us a negative rate of return after factoring inflation into the equation.

In all fairness, most fixed income investments short of I Savings Bonds and junk bonds pay an effective negative return with skyrocketing inflation as noted in the following chart.

*The composite rate is derived by adding the previous 7.12% six month rate and the new six month rate of 9.62% and dividing that figure by two.

Cash accounts are required for emergencies and enough to keep us afloat for three months or more; a portion of it could be put to better use.

The Treasury holds weekly Bills, Notes, Bonds and TIPs auctions that are guaranteed by the full faith of the US Government. One of the safest investments you can make. The above chart shows how much you can earn by investing in short term Treasury Bills opposed to the exceeding low bank rates offered today.

Treasury yields vary with interest rate movement. When rates go up, as they are scheduled to do over the next year, the returns for Treasury securities generally follow suit. Rates do vary auction to auction and are driven by multiple factors.

The yearly earnings reflected in the above chart assume the reinvested amounts, for bills with terms of less than one-year, will equal or exceed the previous auction yields on average for the remainder of this year. With additional rate hikes scheduled, there is a good chance that total yearly earnings will exceed the amounts listed.

The Federal Open Market Committee (FOMC), a branch of the Federal Reserve that decides on the monetary policy of the United States, holds 8 regularly scheduled meetings per year. They raised rates a quarter point on March 16^th and anticipate raising rates 6 more times this year to rein in the highest inflation in 40 years.

When the Fed Rate increases, short term bills can yield more than traditional savings accounts and CDs. Banks aren’t as quick to increase savings account and CD yields after the Federal Reserve moves rates higher.

The 4-week bill’s investment rate increased from .051% on the March 3^rd auction to .193% at their March 24^th auction. You can elect to have them reinvested for up to two years or in this case 24 times. As rates rise, you earn more with each reinvestment. You can cancel reinvestments at any time; the cash is returned to your bank account at the end of the investment period. Many investors ladder different terms to increase their earnings so that a set amount of cash is available at whatever interval you choose.

Treasury Bills are sold at discount (below face value); when the bill matures the investor receives face value. Review their tentative auction dates and recent auction rates for more information.

Sign up for Treasury Direct online and use their “Buy Direct” feature to purchase any of their offerings including I Savings Bonds. It’s easy to set up and they transfer funds from your bank account for the purchases and deposit your interest and principal back to your account.

I purchase short term Treasury Bills when private sector savings and CD rates are unrealistically low. When interest rates start to fall you may find the opposite, your bank could be paying more. Review the upcoming rates with each reinvestment and compare them to your local savings and CD rates.

Helpful Retirement Planning Tools

• Retirement Planning for Federal Employees & Annuitants
• The Ultimate Retirement Planning Guide – Start Now
• TSP Guide
• TSP Considerations
• Medicare Guide
• Medicare and FEHB Options – What Will You Do When You Turn 65? (Part 1)
• Budget Work Sheet
• Social Security Guide

Disclaimer: The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, investment, and benefit information are subject to change. To ensure the accuracy of this information, contact relevant parties for assistance including OPM’s retirement center. Over time, various dynamic economic factors relied upon as a basis for this article may change. The information contained herein should not be considered investment advice and may not be suitable for your situation. This service is not affiliated with OPM or any federal entity. You should consult with a financial, medical or human resource professional where appropriate. Neither the publisher or author shall be liable for any loss or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

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

Comments (0)|  Print This Post