2015 had many twists and turns, but from a financial market perspective, it was effectively a road to nowhere when looking across a variety of asset classes. In U.S. equity markets, large company stocks (large cap) barely moved as just a few sectors and stocks were big winners. In the broad market, many stocks performed far worse than the large cap averages and gave investors the false impression that the market was generally flat. On the contrary, a broader measure of the market which consists of 1700 equally weighted stocks was down roughly 7% on the year, and helps to highlight how skewed the major indices were, due to just a few large companies that had good years.
With the new year upon us, it’s a good time to make sure your plans for the future are up to date and you have the proper tools in place. With that in mind, we encourage you to consider the five estate planning tips below.
The S&P 500 Index is down over 12% from its high last May, which qualifies as a market correction but not a bear market. In fact, it’s been quite a while since we experienced our last bear, although it may not feel that way. From April to October of 2011, the stock market declined by 19.39% on a closing basis. While experts can debate whether this meets the definition of a bear market (which are typically defined as 20% declines), those who remember it will recall how scary it was. By the time the market bottomed in October, many were recalling the 2007–2009 bear market, which was gut wrenching for everyone. During that excruciating market decline, the S&P 500 Index fell by 55% and the economy tumbled into a deep recession. It is only in hindsight that we can see that both the market bottom in 2009 and the October low in 2011 marked important market bottoms. Since October of 2011, the S&P 500 Index rallied 94% to its eventual high set in May of last year.
The decision of whether to delay Social Security benefits is a trade-off: give up benefits now, in exchange for higher payments in the future. If the higher payments are received for enough years – dubbed the “breakeven period” – the retiree can more than recover the foregone benefits early on, even after adjusting for inflation and the time value of money.
With couples, however, the decision to delay is more complex. Earning 8%/year delayed retirement credits can not only boost an individual’s own retirement benefit, but increases the potential survivor benefit as well… which means the breakeven can be reached as long as either member of the couple remains alive long enough! In turn, this makes delaying benefits even more appealing, as the odds of at least one member of a couple remaining alive is better than the single life expectancy of either member in particular.
While 2015 had its share of volatility and ended with virtually no gains in stocks, 2016 sprinted to the downside with volatile global markets, a bifurcated U.S. economy, and the first rate hike in a decade.
Last week, the House Ways and Means committee came to an agreement for key legislation to renew the so-called “Tax Extenders,” a series of tax provisions that have lapsed and been reinstated (i.e., “extended”) repeatedly over the past decade. The new legislation, entitled the Protecting Americans from Tax Hikes Act of 2015 (PATH), will once again retroactively reinstate for 2015 the tax extenders that were renewed for and then expired at the end of 2014.
If you were hoping to execute a ‘File and Suspend’ collection strategy of your Social Security benefits, you only have a few months remaining. Under this week’s budget legislation, Congress is killing off the various “File and Suspend” and “Restricted Application” strategies to allow spousal and dependent benefits to be paid while still earning delayed retirement credits, with just a 6-month window before the limitations start to take effect.
The File and Suspend strategy was originally passed by Congress as part of the Senior Citizens Freedom to Work Act in 2000 to allow those who had already started Social Security benefits to stop their payments and earn delayed retirement credits. In the process, however, the new voluntary suspension rules unleashed several additional Social Security claiming strategies, including various “claim now, claim more later” tactics that involved File-and-Suspend and Restricted Applications for spousal benefits.
The third quarter came in like a lamb and went out like a lion, as the return of volatility hit risk assets hard across the globe. As in previous quarters, emerging market stocks and commodities suffered double digit declines as markets continue to deal with the end of the commodity super-cycle and the mix of structural and cyclical problems reverberating throughout the emerging market complex. But the big news of the quarter was a catch up in developed markets that had previously appeared impervious to the problems that were festering in the developing world.