Social Security Tips From An Expert (me)

Jul 26, 2021 David Kennon

I’ve been teaching Social Security classes for over 8 years now.  In addition to that, hundreds of attendees have requested one-on-one strategy sessions.  I’ve seen the whole spectrum from those of you with no assets, all the way up to multi-multi millionaires.  Many of the strategies are the same.   This week let’s take a look at important Social Security facts and strategies.  Social Security for the vast number of you is the most important financial asset.  It’s more important than your pension or 401k or real estate. Let’s look at an example:   Mary and John are both retired. Mary’s S.S = $1500/mo John S.S = $2000/mo That equates to $3500/mo or $42,000 a year.   The life expectancy for a healthy 65-year-old is around 90 years old.  It is distinctly possible for you to collect your benefits for thirty years.  So let’s do the math.   $42,000 a year x 30 years =  Over a million dollars! Maybe it doesn’t say at the top of your statement, “this benefit is worth a million dollars.”  But it is. Feeling rich yet?   Next…Social Security is not going insolvent.  I discussed recently how cutting S.S. benefits would create complete chaos throughout our society.  The benefits cannot and will not be cut for those nearing retirement or retired. Do my kids have something to worry about?  Maybe. But anyone reading this article is fine. Don’t believe me? Check this out.   Your “full retirement age” is based on your birth year.  This is the age whereby you are eligible for the full benefit listed on your statement.   Born before 1954 = Your full retirement age is 66. 1955 = 66 and 2 months 1956 = 66 and 4 months 1957 = 66 and 6 months 1958 = 66 and 8 months 1959 = 66 and 10 months 1960+ = 70   Is your Social Security taxed?  Maybe. The simplest formula is this:  If you are married bringing in less than $5000/mo of income once retired, your Social Security is not taxed.  For singles, the number is $3000 or less.   Anyone can take their benefits as early as age 62 (restrictions apply).  If you take them early you get a permanent 25% penalty. You can also wait all the way until 70 giving you 32% more That’s 80% more compared to age 62.   The average benefit amount I see is around $1800/mo (at full retirement age). The maximum benefit is a little over $3000/mo, but you’d have to make six figures for years to qualify.   If you make around $30,000 a year, your benefit will be around $1400 a month . If you make $60,000 a year your benefit does not double.  That is not how the system works. You would receive around $2200/mo.   Still working while receiving Social Security?  Beware! If you are not yet at your full retirement age, you cannot earn more than $18,240 a year.  This only applies to earned income. i.e. You go to a job and get a paycheck. It does not include IRA withdrawals, pensions, rental income, etc.   Once you arrive at your full retirement age there is no limit to your earnings.  Go ahead and make $100,000 a year. The world is your oyster! (What does that even mean?  Why would I want my world to be my oyster?)   Divorced?  Believe it or not, if your ex dies, you become a widow/widower and you are entitled to 100% of your ex’s benefit.  This does not work if you are remarried. Not sure where your ex is located? You better make sure he’s still alive.  You might be missing out on some cash.   Widowed?  You can begin receiving benefits as early as age 60.  Remember that the income limits still apply. You can’t make more than $18,240/yr and receive survivor benefits.   There is also an interesting quirk in the system that allows you to collect benefits from your deceased spouse while your own benefit is growing in the background.  You can then switch to your own benefit at age 70. If you become remarried then you can no longer apply for these kinds of benefits.   If you go on Social Security disability the amount you receive is the same as your full retirement age.  Let’s say you become disabled at age 50 and begin to receive $2000/mo. That is the same amount that you would have received at your full retirement age.   Social Security contains cost of living increases that grow lock-step with inflation.   If your spouse dies, and they were getting a higher payment, you will begin to get the new, higher payment.  Your own payment would stop.   I hope that helps.  Social Security is a huge part of your financial future.  It pays to be informed.   Be Blessed,   Dave

 

Hot Stock Pick? (Or Cold)

Jul 19, 2021 David Kennon

For those of you who know me, you realize by now that I am a passionate guy. I passionately want people to live their best-retired lives possible, and that all starts with sound financial planning. One thing that really gets my blood boiling is anything that derails my clients from living their best life.   And oftentimes, my anger is directed toward the financial media.   Don’t get me wrong, the financial media is not innately evil or working against you. But here is an ugly truth they don’t want you to think about: they only exist is to sell advertising.   It takes a lot of content to fill all those hours on TV and radio programming, and much of the time the financial media is propagating ideas that are not only wrong but harmful to your financial health.   In fact, I find myself spending a lot of my time helping people tune out 95% of the noise out there that does nothing to help their financial futures.  If anything, the overload of superfluous information costs you money.   5 myths the financial media wants you to believe. And why you shouldn’t. Myth #1: If you don’t pay attention to the markets, your investments will suffer.   Of course CNBC wants you to believe that following the markets on a minute-to-minute basis is important—how else can they keep you watching all day?   I think Warren Buffett put it best: “I would tell (people) don’t watch the market closely… The money is made by investing and by owning good companies for long periods of time. If they buy good companies, and buy them over time, they’re going to do fine…If they’re trying to buy and sell stocks, and worry when they go down a little bit … and think they should maybe sell them when they go up, they’re not going to have very good results.”   Myth #2: You need to listen to the “super-smart Wall Street guys” in order to be a successful investor.   Nope. Not remotely true.   In fact, the longer I manage money for clients, the less I listen to anyone’s “opinion” on the markets. Here is an article I found from a couple of years ago titled, “It’s Going to Collapse: 5 Scary Stock Market Predictions For Smart Investors.”   What is so comical is the fact that this article was written in 2017. The markets have doubled since then. If you were one of the poor souls who read this article you would have missed out on a big run in the markets.   Nobody knows when the stock market is going to go up or down. There has not been a single human being in history who has been able to consistently predict the ups and downs of the markets.   Every once in a while one of these guys gets lucky and guesses right. They then proceed to promote that fact for the rest of their lives. If you are right once and wrong 100 times, why does the financial media keep interviewing you? (Spoiler alert: It’s about filling air time.)   Myth #3: Market experts know why markets go up and down.   I hear it all the time … the market drops a few hundred points and the media has all kinds of rationales. “Bad unemployment numbers came in.” “Chinese currency fluctuations are affecting exports.” “Instability in the Middle East is unnerving investors.”   I have a counter-cultural truth for you here. The vast majority of the time, nobody, not even after the fact, truly knows why the markets went up or down.   They can hypothesize as to some reasons why it might have fluctuated, but at the end of the day, no one ever knows for sure. The reality is, most movements in the market come from irrational human fear and greed. And human behavior is notoriously hard to predict.   Myth #4: It is important to continually buy and sell stocks inside your portfolio to maximize returns.   Here they go, filling air time again.   If Jim Cramer were honest, he would say, “These stocks might go up or might go down. Nobody really knows. But what we do know is that a long-term, disciplined strategy has proven to be incredibly effective at building wealth.”   Of course, if he actually admitted that, there would no longer be any reason for him to have a show. Bad for Cramer, bad for advertisers.   Better for you.   By the way, people have been tracking Jim Cramer’s picks for years, and according to studies, you would have been better off putting all of your money in the S&P 500 and just letting the money sit. “Cramer Picks” underperformed the market as a whole. Not to mention the cost of trading and the impact of taxes can be substantial when you are constantly buying and selling stocks.   Myth #5: Financial advisors watch the financial media to get the information they need to help their clients.   No, we don’t.   I can’t speak for everyone in my field, but I can say that I have never met a fellow advisor who buys and sells stocks based on what some guy on Fox News Business says.   With the advent of the internet, a universe of information is readily available at the fingertips of anyone with a cell phone. Nobody is going to say something on TV that hasn’t already been revealed and researched by thousands of investors on the internet.   This is a big reason why the concept of a “hot stock tip” seems so antiquated. There really is no such thing anymore. Now, if anything, my main job is to help my clients determine what they need to save and what they can spend. It’s about planning, not frantic buying and selling.   The other part of my job is sifting through the deluge of information my clients (and all of you) are subjected to, and discern what is actually relevant. Ninety-five percent of the financial information you receive is just noise.  The rest just pushes you off course.   It’s important to recognize what the financial media is: Entertainment. Nothing more and nothing less. Don’t let them derail you from sound planning and long-term investing.   Be Blessed,   Dave

 

Don’t Be Like Joe

Jul 6, 2021 David Kennon

Joe and Frank: A Fairy Tale with a Moral

 

Here’s a story about two guys named Joe and Frank.

 

They both retired 25 years ago (1995) at age 65 with $1,000,000 in savings. Two different people in two different parts of the country except for one big difference—Joe made his decisions based on fear, and Frank based his decisions on realistic expectations.

 

When Joe retired he went to the local bank and said, “I’m retired now, I can’t afford to lose anything. I want to put all my money in a money market.” In 1995 money markets were paying an average of 3.9 percent, and Joe felt pretty good about that. Joe was fearful. “I don’t want to spend any of this money unless I HAVE to. I know my wife has been bothering me about getting a new kitchen, and I would love to visit the grandkids in Rhode Island, but… I’m not making a salary anymore. I have to be very careful with this.”

 

Over the next 25 years, Joe scrimped and saved; he never took anything out of his savings beyond a few thousand dollars here and there. When he died in 2020, there was quite a bit of money still there. Over 25 years of compounding interest inside the money market account had turned his $1,000,000 into $1,800,000. Joe and his wife never actually got to enjoy any of his savings, but at least they didn’t run out of money, right?

 

Now Frank looked at things completely differently. “I’ve worked my whole life so that I could enjoy the fruits of my labor in retirement. We are going to put a pool in the backyard. Both Mary and I love to swim and it will keep us active and healthy. We are going to travel as much as we can, especially in our sixties and seventies.”

 

Frank went to a local advisor and said, “I want to invest in a diversified portfolio of stocks and bonds. I want my money to keep working for me even though I am no longer making a salary.”

 

So Frank put 60 percent of his savings into stocks and 40 percent into bonds– a very common portfolio asset mix.

Frank then started taking out $70,000 a year from his portfolio; or 7 percent of the original value. His friends called him crazy. “You are too old for investing,” they would say. “You are going to run out of money!”

 

So Frank spent the $70,000 each year on things that made him and his wife happy. They spent an entire month in Australia. They traveled up north for each of their grandkids’ birthdays. Frank even bought himself a 1969 cherry-red Chevy Camaro.

 

When Frank died in 2020 his kids gathered and looked at his investment statement. How much money did Frank have left over in 20120 He had taken out $1,750,000 over those 25 years? His kids smiled at each other as they remembered all the crazy adventures their parents had with that money.

 

At Frank’s death $3,480,000 remained. He started with $1,000,000, took out $1,750,000, and ended up with over three times the amount he started with. He also ended up with twice as much as Joe.

 

The Moral of the Story: Life is meant to be lived!

 

Other valuable lessons:

 

You may be able to spend more money each month than you realize.

 

Being “safe” with your money may not actually be safe at all!

 

A well-diversified and balanced portfolio of stocks and bonds is a powerful wealth creation tool.

 

Be Blessed,

 

Dave