Posts Tagged ‘economy’


social_securityWaiting to file for benefits isn’t always the best option
There’s arguably no decision that’s more important for seniors than deciding when to take Social Security benefits. After all, more than 3 out of 5 aged beneficiaries today is reliant on Social Security for at least half of their monthly income.
But deciding when to take benefits isn’t as cut-and-dried as you might think.
Ideally, retired workers who’ve earned the prerequisite 40 lifetime work credits needed to qualify for benefits will wait until age 70 before claiming their payout. The reason is simple: Though workers qualify to begin receiving a benefit as early as age 62, their payout will grow by approximately 8% for each year they hold off on their claim, up until age 70. All factors considered (length of work history, earnings history, and birth year), waiting until age 70 is the way to maximize your monthly Social Security check.
However, waiting doesn’t always make sense. For some people, claiming early, despite the permanent reduction to their monthly check, can lead to a higher lifetime payout than if they were to wait. And the key to success with Social Security is to maximize what you receive over your lifetime, not just per month.
With this in mind, here are seven good reasons claiming Social Security early might make sense.
1. You don’t believe you’ll reach the average life expectancy
Among the many factors to be considered when deciding the right claiming age is your health. 
Imagine for a moment that we had two identical people with the exact same work history, earnings history, and birth year. One claimed their benefit as early as possible at age 62, and the other waited until age 70. Though the one who waited receives a higher monthly payout, the person filing early receives a reduced payout, but for eight years prior to the 70-year-old netting his or her first check. 
Now, imagine we examined the aggregate payout of these two identical individuals over time. What we’d see is that their lifetime payouts from Social Security would be about equal when they reached their late 70s  which is right where the average American life expectancy sits at the moment. 
Therefore, if you have a chronic health condition that could shorten your life expectancy, or if anyone in your immediate family has passed away before reaching the average life expectancy in the U.S. of just under 79 years, then claiming your benefit early might be a smart way to maximize what you’ll be paid over your lifetime.
2. You expect Social Security to play no role in your ability to make ends meet
Another reason claiming Social Security early might make sense is if you’ve done a good job of saving for retirement and you don’t need the income provided by the program to make ends meet. 
Today’s statistics are pretty glaring. According to an April 2018 Gallup poll, 90% of existing retirees are in some capacity reliant on their Social Security income to make ends meet. Meanwhile, a Gallup survey among nonretirees found that a combined 84% expect to lean on the program in some capacity when they retire. This suggests that only around 1 out of 10 working Americans will save enough over his or her lifetime to not need a dime from Social Security.
Should you be among this minority, claiming your benefits early may offer two benefits. First, it could provide icing-on-the-cake income that allows you to vacation or take up hobbies. 
Secondly, by claiming early and reducing your monthly payout, you might, to some small degree, lower your annual federal (and possibly state) income tax bill. 
3. You have no other sources of income or limited earning capacity
Sometimes we may have little choice but to claim Social Security benefits early. For example, if you’re out of work and have no other sources of income, or for whatever reason your earning capacity is limited, it might be in your best interest to claim Social Security benefits early and secure an income stream that’ll allow you to pay your bills. 
However, there is a Social Security do-over clause that seniors (especially baby boomers) who’ve struggled to find work should be aware of. Known as Form SSA-521 (officially, Request for Withdrawal of Application), this request allows an individuals’ benefits claim to be undone if submitted within 12 months of first receiving their entitlement. The catch is that you’ll need to repay every cent you’ve received from the Social Security Administration, and, as noted, you only have 12 months to submit your request once you begin receiving benefits. 
The beauty of Form SSA-521 is that if you regret claiming benefits early, and you happen to land a well-paying job not long after you begin taking benefits, you have the opportunity to undo your claim and allow your benefits to grow once more. 
4. You’re heavily indebted
More and more, debt is becoming a worry for senior citizens. In 2014, the Consumer Financial Protection Bureau released data showing that the percentage of homeowners aged 65 and up that were carrying mortgage debt had climbed from 22% in 2001 to 30% as of 2011. For folks aged 75 and up, the percentage more than doubled to 21.2% in 2011 from 8.4% in 2001. 
Making matters worse, student loan debt is also impacting seniors. According to a Government Accountability Office report from December 2016, the number of student loan borrowers aged 65 and up had increased 385% since 2005. Meanwhile, the aggregate amount of student loan debt these older Americans are lugging around catapulted from $2 billion in 2005 to $22 billion, as of the report. 
The solution to this mess may very well be to claim Social Security benefits early in order to put that income to work by reducing debt. But keep in mind that this may not be a fix-all solution, especially since the retirement earnings test could come into play if you’re working and receiving benefits. This could result in some, or all, of your benefits being withheld until you reach your full retirement age.
5. You’re a lower-earning spouse
Another scenario where claiming early can make a lot of sense is if you’re married and your lifetime earnings are notably lower than that of your spouse. 
Ideally, you and your spouse are going to work out a plan to maximize what you’ll receive from the program over your lifetime. This plan will likely involve allowing the larger of the two incomes to grow as much as possible. Letting the larger payout accrue 8% per year is going to make a bigger difference down the line than if the smaller payout were allowed to grow over time. 
However, married retirees are still going to want some form of income. That’s where the lower-earning spouse comes into play. By claiming benefits early, the lower-earning spouse ensures that the couple is generating at least some income during retirement. 
Obviously this scenario depends on other factors, such as the size of the couple’s nest egg and their health. Nevertheless, it can be a smart way for a lower-earning spouse to contribute, while giving the higher-earning spouse the time to allow his or her benefit to grow. 
6. You’re confident in your ability to grow your money at greater than 8% per year
Claiming Social Security benefits early might also make sense if you believe that you can consistently outpace the 8% return you’d receive each year by holding off on your claim between ages 62 and 70. 
Why would someone believe they can top an 8% annual return with consistency? As an example, since hitting its Great Recession low in March 2009, the broad-based S&P 500 has risen 327%. That’s an annualized return through Aug. 19, 2018 of about 16.6% per year. If you’d taken your Social Security benefits and invested them into stocks since March 2009, there’s a pretty good chance you’d have beaten the 8% annual return you’d get with Social Security. 
However — and this is a very big “however”  the data I provided above involves some serious cherry-picking. Historically, the stock market has returned 7% per year, inclusive of dividend reinvestment and when adjusted for inflation. Since timing investments in the stock market can’t be done with any long-term consistency, the data would suggest that your chances of finding an investment (stock market related or not) that can top 8% annually on a regular basis are pretty slim. 
In other words, this is an option that very few people are going to find attractive or worthwhile. 
7. You worry about Congress’s ability to fix Social Security’s issues
Finally, taking Social Security early could make sense if you foresee trouble ahead for the program and have little faith in lawmakers’ ability to fix it. 
According to the newest annual report from the Social Security Board of Trustees, the program will begin burning through its $2.9 trillion in asset reserves this year. Though this net cash outflow will start off very small  $1.7 billion in 2018 and $0.2 billion in 2019  it’s expected to balloon to $169 billion in 2027. By 2034, the Trustees believe that Social Security’s $2.9 trillion in excess cash will be completely depleted. 
Now, before you panic, Social Security will continue to pay eligible beneficiaries, even without any extra cash in its coffers. Its payroll tax and the taxation of benefits will ensure that happens. 
But the Trust’s net cash outflow is an indication that the current payout schedule isn’t sustainable. The Trustees estimate the need for an across-the-board cut to benefits of up to 21% by 2034. Put in another context, claiming benefits early, even at a reduced rate, may allow you to generate more in lifetime income than if you waited a few years for a higher monthly payout, but were eventually hit with a 21% reduction in benefits. 
Admittedly, though, it’s impossible to predict how long it’ll take Congress to act, or what lawmakers on Capitol Hill will eventually do to amend the program. That makes an early claim based on Social Security’s long-term issues a bit of a gamble.


economyA cursory assessment might find the United States a less than ideal candidate for the job of managing the planet’s ultimate form of money.
Its public debt is enormous $22 trillion, and growing. Its politics recently delivered the longest government shutdown in American history. Its banking system is only a decade removed from the worst financial crisis since the Great Depression. Its proudly nationalist president provokes complaints from allies and foes alike that he breaches the norms of international relations, setting off talk that the American dollar has lost its aura as the indomitable safe haven.
But money tells a different story. The dollar has in recent years amassed greater stature as the favored repository for global savings, the paramount refuge in times of crisis and the key form of exchange for commodities like oil.
The enduring potency of the dollar gives force to President Trump’s mode of engagement. It has enabled his Treasury to find buyers for government savings bonds at enviously cheap rates, even as his $1.5 trillion worth of tax cuts added to the debt. It has reinforced Mr. Trump’s authority in imposing his foreign policies on an often-reluctant world by amplifying the power of his trade sanctions especially against Iran and Venezuela.
Because banks cannot risk jeopardizing their access to the plumbing of the dollar-based global financial network, they have taken pains to steer clear of nations and companies deemed pariahs in Washington.

There is no alternative to the dollar, We’re stuck with the dollar, which gives the United States astonishing structural power.
In a clear indication that the American currency has been gaining power, dollar, denominated lending to borrowers outside the United States, excluding banks, soared between late 2007 and early 2018, according to the Bank for International Settlements. It increased to more than 14 percent of global economic output from less than 10 percent.
This has played out despite a chorus predicting after the financial crisis that the dollar might finally surrender some of its dominance; that, in an age of pushback to American exceptionalism, it was time for someone else’s money to have a turn.
China has sought to elevate the role of its currency, the renminbi, to reflect its stature as a world power. Over the last decade, it has set up foreign-exchange arrangements with scores of countries, including Canada, Britain and Brazil. President Xi Jinping has championed China’s $1 trillion collection of global infrastructure projects, known as the Belt and Road Initiative, in part as a means of expanding worldwide use of the renminbi. Last year, China set up a trading system in Shanghai allowing oil to be purchased in the Chinese currency.
But China’s unfolding economic slowdown, concerns about its soaring debts and unease from neighbors that its investment is really a new form of colonialism have combined to moderate its infrastructure plans.
The Chinese government’s restrictions on taking money out of the country and its alarming detentions of foreigners often in parallel with geopolitical scrapes have tested the appeal of holding money embossed with the image of Chairman Mao.
“What about China?” I could go there and disappear. This doesn’t inspire confidence. Once you start that kind of politics, you cannot be serious as a global currency.
The most formidable competitor to the dollar has long been the euro. In September, the president of the European Commission, Jean-Claude Juncker, devoted part his final State of the Union address to lamenting that the bloc was paying for 80 percent of its energy imports in dollars, though just 2 percent came from the United States.
“We will have to change that,” Mr. Juncker declared. “The euro must become the active instrument of a new sovereign Europe.”
But the most trusted euro-denominated investment, German government bonds, are in chronically short supply. With a deep cultural aversion to debt, Germany has been reluctant to finance spending by selling bonds. As a result, investors seeking ultrasafe places to stash savings have very few options in the euro currency. By comparison, American savings bonds are in virtually limitless supply.
A series of crises within the 19 countries that share the euro has provoked more animosity than unity, revealing a foundational defect: The euro is a common currency lacking a common political structure that can guarantee a robust response when trouble arises.
The problems with the euro are problems with governance, It has been deeply flawed from the outset. It doesn’t look like a very safe haven to go to from the U.S. dollar.

By contrast, the dollar looks like a uniquely rare creature on the global landscape a currency free of existential fears.
In recent years, the Federal Reserve has increased interest rates as it has phased out the cheap money it unleashed to attack the financial crisis. Higher rates have enhanced the appeal of the dollar for investors by lifting the rate of return on dollar holdings. More money has washed up on American shores.
Even with Trump in the White House, and all he has done so far to undermine American leadership in the world, still the dollar is the dominant global currency and doesn’t seem to be waning.
The certain endurance of the dollar has been a foundational truism in global affairs since the end of World War II. Perhaps counterintuitively, that notion was only strengthened by the global crisis that began in 2008.
The conflagration centered on the terrifying possibility that global banks would not be able to find enough dollars to avoid a reckoning with dollar-based debts. The Fed — essentially the central bank for the world, unleashed an unfathomable gusher of dollars. The system survived.
Between the beginning of 2008 and late 2018, the share of reserves that central banks worldwide held in dollars remained roughly constant, dipping to 62 percent of the total from 63 percent, according to the International Monetary Fund. This, at a time when total reserves, the money that central banks hold on their balance sheets, expanded by more than half.
Over the same time, reserves entrusted to the euro have slipped to 20 percent from 27 percent. Much of this shift reflects the euro’s loss of value against the dollar. China’s currency makes up only 2 percent of total reserves, according to the I.M.F.
The supremacy of the dollar has enhanced Mr. Trump’s ability to dictate key foreign policy aims.
His decision to revoke American participation in an antinuclear deal with Iran and resume sanctions has brought consternation from key American allies in Europe. Germany, France and Italy had looked to Iran as a source of new trade, while banking on the deal as a means of preventing its nuclear reach.
Still, Europe abided by the sanctions, for the simple reason that its banks cannot survive the prospect of severing their access to a global financial system dominated by dollars.

For a global bank, the inability to operate in dollars is effectively a death sentence, The United States has been able to leverage that.
A similar power has been applied to Venezuela, as Mr. Trump tries to oust President Nicolás Maduro. The sanctions have been effective, paralyzing oil exports and the banking system in a matter of days.
The supremacy of the dollar has also intensified pressure on Russia. Amid the possible motives for Russian interference in the American election of 2016 was President Vladimir Putin’s eagerness to gain relief from United States sanctions, especially for his cronies. Years of sanctions have restricted their movement of money in the global banking system. The dominance of the dollar has made such limits easier to enforce.
There are no forevers in the global economy, making this era no more permanent than any other. Some see in the Trump administration’s use of the dollar the makings for a backlash.
France, Germany and Britain recently formed a trading company aimed at allowing European and Iranian firms to exchange food and medicine, relying on a barter system to get around sanctions.
In a speech last week, Benoît Cœuré, a member of the governing board of the European Central Bank, accused the United States of wielding the dollar to force its policies on others.
Being the issuer of a global reserve currency confers international monetary power, in particular the capacity to ‘weaponize’ access to the financial and payments systems. Europe had an imperative to raise the “global standing” of the euro, using the currency as “a tool to project global influence.”

China, too, has its own notions about the rightful course of history.
The network of rail, highway and maritime projects it is financing from Asia to Europe is in part about enabling the transport of Chinese goods free of dependence on shipping lanes policed by the United States. Its championing of the Asian Infrastructure Investment Bank is about creating an alternative source of capital.
But while that may be the future, the dollar for now remains what it has long been, the closest approximation to a sure thing in a volatile global economy.