High Earning Healthy Women – Delay Claiming Social Security

One of the biggest retirement decisions facing Americans is when to start collecting Social Security. Each person’s situation is different, but many people would benefit from delaying claiming beyond age 62. That allows their benefits to continue to grow 7%-8% per year (a return that is hard to match with a balanced portfolio). A recent study by Duffy, Finke, and Blanchett (The Value of Delayed Social Security Claiming for Higher-Earning Women), found one group that can really stand to benefit from delaying claiming Social Security – higher earning, healthier women.

Social Security payouts starting at age 62-70 increase based on average life expectancy. You get paid more at age 63 than 62 because you’ll be receiving benefits for one less year of your life. The average American woman, at age 65, is expected to live over two years longer than the average American man. Yet, Social Security payouts treat men and women as if they have the same life expectancy. The math says heathy women can afford to delay the start date of their benefits because they can expect to collect those higher payments for two years longer than males on average. Higher earning women have higher Social Security benefits, and thus benefit the most from this.

Every situation is different, but the math here gives an obvious advantage to females. Take advantage of it if you can.

About the Author:

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2020.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.

How to earn more on your cash – hold less

Are you looking to earn more on your cash? Are you tired of earning pennies of interest on thousands of dollars that you have sitting idle each month? Okay…take more risk. That’s the only way to do it. There are many products that have been created to offer better interest rates than money market funds. These products, often called ultra short-term bond funds or short maturity bond funds, take more risk. How much more? Let’s do a quick comparison.

  • Savings accounts and money market funds offer price stability and pay very little interest today. Most pay 0.01%, although you can find online savings accounts offering as high as 0.40%-0.50% (yawn) for now if you open a new account. My experience is that most of those are teaser rates that go down over time. Yet, all these options are likely to protect your money from losses in the next crisis.
  • Ultra short-term bond funds stay stable in good times (moving a penny or two in price most days). However, when the pandemic hit last year, they dropped 2%-3%. Your $1,000 became $975. In return for taking some variability, you can earn close to that same 0.50% you can find on a high yield savings account today (yawn again).

If you want to earn more than 0.50%, you need to take even more risk. Given how low all bond yields are, you might consider recalculating how much cash you really need. Money that’s needed for upcoming purchases and for emergency needs should remain in cash/money markets. Beyond that, you might want to take more risk – like in a diversified portfolio. That’s more promising than chasing incremental yield on short-term money today. Simply hold less short-term money. How much? I can help you calculate it.

About the Author:

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2020.

The Only Constant in the Tax Code is Change

For the second time in four years, we find ourselves with a president whose party holds a narrow majority in both houses of Congress. Both presidents took the opportunity to try to pass big changes to the tax code. The narrow majority tends to limit their reach. How do they get around that? They enact changes that are temporary, hoping that the changes become popular enough to be made permanent. Ultimately some things stay, and some go. The result is an ever-changing tax code.

I’m starting to view the current tax code like a quarterly earnings report. It’s useful, but it’s hard to base a long-term decision on it. How should you plan in an environment like this? Stay flexible. Be knowledgeable about the current laws and understand what might change over time. Don’t act on anything until it becomes law, and even then, consider how it actually impacts your situation.

It will be interesting to see what of Biden’s proposals become law and for how long. Then we can determine whether it should change our plans. Call me if you need help with that.

Also, this reminds me of one my fundamental investing beliefs. Never invest in something based on its tax treatment. That favorable tax treatment may change.

About the Author:

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2020.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.

What is a SPAC?

I got a call from a client the other day. Our quarterly client letter listed several speculative investments we would avoid, among them SPACs. He wanted to know what a SPAC was. SPACs have been around for a while but have become increasingly popular in the past year. Now everyone talks about them like you should already know what they are.

A SPAC (Special Purpose Acquisition Company) is a creative way for a private company to publicly list its stock. First someone creates the SPAC, which is a company formed for the sole purpose of publicly listing its shares and then looking to merge with an existing company. Let’s say I want to create a SPAC. O’Connor Acquisition Company is born. I tell all the major financial companies that I’m going to raise $2 billion and sometime in the next two years I’ll tell them what company I’m going to buy. People love gambling in the stock market today, so I raise my money and my stock starts trading.

Now I’d better find some company to merge with. If I don’t merge with a company within two years, I must give my investors their money back. Lucky for me, there are plenty of private companies looking to cash out while valuations are high. I find a widget manufacturer and announce the terms of the deal. The widget manufacturer is happy because they avoided the hassle of doing a traditional IPO (Initial Public Offering) and they can be a bit rosier about their prospects in public statements because they aren’t yet a publicly traded company.

My investors who trusted me with a blank check do get some say in the deal. They get to vote for whether the merger should happen. They also get a warrant to buy more shares at a specified price.

What do I get as the SPAC sponsor? I get a bunch of shares at a very steep discount. I hate to tell you that this will dilute the value of my investors’ shares. I also get a lot of nice fees paid to me by the investors in the SPAC.

It’s clear SPACs work out well for the sponsor. How have these deals worked out for the investors? SPAC stocks in aggregate have underperformed a small company index fund. On average you are giving up returns for the excitement and hype. If you’re here for entertainment, go ahead and invest in one. If you’re here to make money, skip them.

About the Author:

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2020.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.

A Debt Collector’s Dream

Did I ever tell you about the time I got a notice from a debt collector? No, this wasn’t a mistake in my youth. It was last May. I was quite surprised. I always pay my bills on time. My family lives below our means. I’m the one who pays all the bills in our family. I would know if I missed one, right?

My first thought was that this letter must be a scam. I went to the internet and independently verified that the company was a legitimate business. I called them to get more details on the bill I supposedly never paid.

It was an even bigger surprise to learn that I had a legitimate medical debt from almost two years earlier. You see I fell off my bicycle in rather spectacular fashion back then. This resulted in an ambulance ride, a four-hour surgery in the ER, multiple follow-up appointments and physical therapy. Somewhere along the line one of the providers never got paid.

I honestly don’t remember ever seeing a bill, but that’s okay. The debt collector offered to settle it for pennies on the dollar. I was happy to pay it and move on. I hope I made that debt collector’s day – easiest payment ever.

This unexpected expense was easily covered by the rainy-day fund. That’s why I have a rainy-day fund. It builds a little margin for error into my family’s finances. I hope you have one too. It should cover 6-9 months’ spending. Build up to that over time if you need to.

About the Author:

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2020.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.