Permanent Value

Week in Review 5/23/2016

Bruce Doole
May 23rd, 2016

Why the housing market is getting stronger
Steady job growth, rising wages and low interest rates have helped prop up housing demand. Friday’s positive report on U.S. existing-home sales underscored this. And even with the specter of another Fed rate increase looming, perhaps as soon as next month, housing’s foundation isn’t likely to be shaken.

There are a few worries after three consecutive months of declines in new-home sales, but government data and quarterly results from luxury home builder Toll Brothers Inc., out Tuesday, should ease concerns. Economists polled by The Wall Street Journal estimate sales of newly built homes rose 2.3% in April from a month earlier.

Meanwhile, home builders are feeling pretty optimistic about current conditions, which should bode well for Toll. A gauge of home-builder sentiment, released last week, held firmly in positive territory, according to the National Association of Home Builders. Perhaps more important, expectations for sales in the next six months jumped to the highest level of the year.

Rates also remain favorable. The average 30-year fixed-rate mortgage was 3.61% in April, the lowest monthly average since May 2013, according to Freddie Mac. Of course, rates didn’t stay low for long back then as the taper tantrum roiled the market. This time, an actual Fed rate increase likely wouldn’t provide as much shock value to markets as the mere hint of tapering bond purchases did then.

And a factor that has held housing back—affordability—might give buyers a breather. On the surface, rising home values have made it more difficult to buy a home, particularly for first-time home buyers. But a measure of housing affordability, compiled by the National Association of Realtors, tells a different story.

The Realtors’ group, assuming a 20% down payment, measures a typical mortgage payment for the median priced home and compares it with median household incomes. By this measure, housing has actually been getting more affordable since the summer, a reflection of rising wages and low interest rates.

It isn’t last call yet for this house party.

Source: The Wall Street Journal, Steven Russolillo

This Week’s Economic Data:

  • U.S. CPI rose 0.4% in April due to a nearly 10% jump in gas prices.
  • U.S. Housing Starts rose a moderate 6.6% in April to 1.172 million. The year-on-year rate sunk to minus 1.7%.
  • U.S. Jobless Claims dropped a sharp 16,000 the week of May 14 to settle at 278,000.
  • U.S. Existing Home Sales rose 1.7% in April and are up a solid 6.0% from April 2015.
  • Great Britain CPI rose 0.1% in April, putting the annual inflation rate at 0.3%.
  • Great Britain Retail Sales rebounded 1.3% in April to stand a healthy 4.3% increase for the year.
  • Japan GDP increased 0.4% in the first quarter but unchanged from the same quarter a year ago.
  • Canada CPI rose 0.3% in April, marginally softer-than-expected.
  • Canada Retail Sales struggled in March and fell a steeper-than-expected 1.0%.
    Source: Ivy Funds

Week in Review 5/16/16

Bruce Doole
May 16th, 2016

How Can I Get the Most out of Social Security?

If you’re not asking yourself, “How can I get the most out of Social Security?” perhaps you should be. Here are some tips to help you get as much as you can out of the program.

Work the formula

The formula used to calculate your benefits is based on the income you earned in your 35 highest-earning working years. So if you have only 31 years of work when you retire, the formula will be plugging in four zeros for four years. That’s not ideal. One way to get the most out of Social Security is to be sure and have 35 years of earnings. Remember, too, that the greater those earnings are, the fatter your Social Security checks will be. So it can pay off to boost your earnings as much as possible, perhaps via a temporary part-time job, or by seeking raises more aggressively, or even changing jobs.

Consider delaying starting to collect
The most obvious way that people boost their Social Security benefits is by delaying when they start collecting them. For every year beyond your full retirement age that you delay (up to age 70), your benefits will increase in value by about 8%. If you delay from 67 to 70, you can make your checks fully 24% bigger. That’s enough to turn a $2,000 monthly benefit ($24,000 per year) into a $2,480 one (nearly $30,000 annually).
That’s an effective strategy, but it’s not quite as powerful as it seems — because as the Social Security Administration has explained, “If you live to the average life expectancy for someone your age, you will receive about the same amount in lifetime benefits no matter whether you choose to start receiving benefits at age 62, full retirement age, age 70 or any age in between.”

Make Social Security part of your overall plan
Be sure you incorporate Social Security in your overall retirement plan. Figure out how much you’ll get from Social Security if you retire at 62, and perhaps 64 and 67, too. Figure out how much income you’re likely to need in retirement and where it will come from. You might find that you’ll have enough to get by on even if you start collecting benefits at age 62. If so, give some serious thought to retiring then, in order to maximize your happiness. You may not need to delay retirement too much.

Stretch benefit dollars further
If you’re collecting Social Security checks and find that you have money left over each month, consider socking some or all of the excess away in investments instead of spending it.

Make the most of death, disability, and divorce benefits, too.
If your spouse passes away, you may be able to claim survivor benefits — and your children may receive them, too, through age 17. Many divorcees don’t realize that they may be able to claim benefits based on their ex-spouse’s earnings — even if that ex has remarried. Social Security offers disability benefits, too, to people of all ages who qualify.

Learn about claiming strategies

Much about Social Security is relatively straightforward. But it can get tricky, too, especially when you start learning about claiming strategies. That’s because your decision regarding when to start collecting isn’t as simple as deciding between small checks at age 62 or much bigger ones at age 70. If you’re planning to start collecting benefits before your full retirement age and want to work some then, too, learn how much you can earn before your benefits start getting reduced.

The best answer to the “How can I get the most out of Social Security?” question is to learn a lot more about Social Security. Don’t be afraid to consult a financial professional, too. The cost of that could be more than made up for via a smarter claiming strategy and increased benefit checks.


Source: The Motley Fool, Selena Maranjian

This Week’s Economic Data

  • China CPI was up 2.3% on the year and down 0.2% on the month.
  • France CPI report for April confirmed a 0.1% rise on the month and 0.2% decline on the year.
  • Italy GDP expanded 0.3% versus Q42015 when it grew 0.2%

Source: Ivy Funds

Week In Review 5/10/16

Bruce Doole
May 10th, 2016

6 Secrets to Saving More for Retirement (2/2)

4. Review fees

Here’s the good news: 401(k) fees, including investment management fees and administrative costs, have declined over the past few years. A recent report by BrightScope and the Investment Company Institute showed that the average cost of a 401(k) plan had dropped from 1.02% of assets in 2009 to 0.89% in 2013.

Fee disclosure rules have also changed the way plan sponsors — that is, employers — calculate admin­istrative fees, making them fairer and easier to understand, says Austin. In 2011, 83% of companies charged administrative fees as a percentage of assets. Now, 39% impose a flat-dollar amount per account. The median flat fee per person was $64 in 2015, according to NEPC, an investment consulting firm. Not only does the change mean that savers are paying equally for the same services, says Austin, but it “also gives participants a clear line of sight on fees.”

If all else fails, you could invest in a traditional or Roth IRA outside your 401(k), after contributing enough to the 401(k) to meet the match. In 2016, you can contribute up to $5,500 (plus $1,000 if you are 50 or over) to a traditional IRA or a Roth.

5. Put the pedal to the metal

If you’re in your late forties or early fifties, you may have fallen off the savings track — say, to cover college bills or buy a bigger house. Contributing less to your 401(k) for a few years won’t devastate your retirement prospects, especially if you started saving early. But remember that retirement is your first priority, says David Meyers, a certified financial planner in Palo Alto, Calif. “You can’t fix that. It’s harder to retire on less than to live in a smaller house.”

Carving an extra $50 or $100 out of your budget to beef up your 401(k) is helpful, but ideally your earning power is now at a point that you can contribute the max, including the catch-up contribution. And if you have a high-deductible health plan that qualifies you for a health savings account, you can also save $3,350 a year if you’re single ($6,750 for families) in 2016, with a $1,000 catch-up amount if you’re 55 or over. Maxing out those two savings vehicles alone gets you almost $30,000 in pretax savings a year. “If you can do that for five or 10 years, you can really catch up,” says Ready. “It’s never too late.”

By this age, you probably have a decent idea of whether your income — and thus your tax rate — will go up or down in retirement. If your employer offers a Roth 401(k), consider contributing to it now, if you haven’t funded it already.

6. Enlist the experts

Enter managed accounts, offered by more than half of employers as an option in their 401(k)s, according to the Aon Hewitt study. With these accounts, a professional advisory service will discuss your financial circumstances, perhaps both online and over the phone, and tailor a portfolio accordingly, periodically monitoring and rebalancing it. Managed accounts offer a high degree of personal advice, so they’re most appropriate for investors who have complex finances — say, multiple 401(k)s, a pension or company stock outside their retirement account, says Sangeeta Moorjani, senior vice president of Fidelity’s Professional Service Group. “They realize they can’t do it on their own.” For that help, you’ll pay a fee of about half a percentage point of your assets; some employers pick up the tab.

If you don’t have access to a managed account or want more face-to-face advice, schedule a few sessions with a financial adviser. Advisers streamline your accounts, coordinate your income and assets with those of your spouse, and assess your retirement readiness.
Source: Daily Finance, Jane Clark

This Week’s Economic Data

  • U.S. New Home Sales in March came in on the low side of expectations at an annualized rate of 511,000.
  • U.S. Durable Goods Orders rose 0.8% in March, following a revised downswing of 3.1% in February.
  • Australia CPI was down 0.2% on the quarter.
  • Bank of Japan announced it was leaving its interest rate at minus 0.1% at its monetary policy board meeting

Source: Ivy Funds