Author Archives: admin

Passive Income Ideas | Bankrate

Posted on by

JAMES ROYAL, BANKRATE 8:00 PM ET 5/19/2020

Passive income can be a great supplementary source of funds for many people, and it can prove to be an especially valuable lifeline during a economic recession or during other tough times, such as the government lockdown imposed which has throttled the economy and exponentially increased unemployment in response to the coronavirus pandemic. Passive income can keep some money flowing when you lose a job or otherwise experience some type of financial hardship.

If you’re worried about being able to earn enough to pay essential living expenses or to save enough of your earnings to meet your retirement goals, building wealth and building retirement savings through passive income is a strategy that might appeal to you, too.

What is passive income?

Passive income includes regular earnings from a source other than an employer or contractor. The Internal Revenue Service (IRS) says passive income can come from two sources: rental property or a business in which one does not actively participate, such as being paid book royalties or stock dividends.

In practice, passive income does involve some additional effort upfront or labor along the way. It may require you to keep your product updated or your rental property well-maintained, in order to keep the passive dollars flowing.

Passive income ideas for building wealth

If you’re thinking about creating a passive income stream, check out these strategies and learn what it takes to be successful with them, while also understanding the risks associated with each idea.

1. Selling information products

One popular strategy for passive income is establishing an information product, such as an e-book, or an audio or video course, then the cash from the sales. Courses can be distributed and sold through sites such as Udemy, SkillShare and Coursera.

Opportunity: Information products can deliver an excellent income stream, because you make money easily after the initial outlay of time.

Risk: “It takes a massive amount of effort to create the product,” Tresidder says. “And to make good money from it, it has to be great. There’s no room for trash out there.”

Tresidder says you must build a strong platform, market your products and plan for more products if you want to be successful.

“One product is not a business unless you get really lucky,” Tresidder says. “The best way to sell an existing product is to create more excellent products.”

Once you master the business model, you can generate a good income stream, he says.

2. Rental income

Investing in rental properties is an effective way to earn passive income. But it often requires more work than people expect.

If you don’t take the time to learn how to make it a profitable venture, you could lose your investment and then some, says John H. Graves, an Accredited Investment Fiduciary (AIF) and author of “The 7% Solution: You Can Afford a Comfortable Retirement.”

Opportunity: To earn passive income from rental properties, Graves says you must determine three things:

  • How much return you want on the investment.
  • The property’s total costs and expenses.
  • The financial risks of owning the property.

For example, if your goal is to earn $10,000 a year in rental income and the property has a monthly mortgage of $2,000 and costs another $300 a month for taxes and other expenses, you’d have to charge $3,133 in monthly rent to reach your goal.

Risk: There are a few questions to consider: Is there a market for your property? What if you get a tenant who pays late or damages the property? What if you’re unable to rent out your property? Any of these factors could put a big dent in your passive income.

3. Affiliate marketing

With affiliate marketing, website owners, social media “influencers” or bloggers promote a third party’s product by including a link to the product on their site or social media account. Amazon might be the most well-known affiliate partner, but eBay, Awin and ShareASale are among the larger names, too.

Opportunity: When a visitor clicks on the link and makes a purchase from the third-party affiliate, the site owner earns a commission.

Affiliate marketing is considered passive because, in theory, you can earn money just by adding a link to your site or social media account. In reality, you won’t earn anything if you can’t attract readers to your site to click on the link and buy something.

Risk: If you’re just starting out, you’ll have to take time to create content and build traffic.

4. Invest in a high-yield CD

Investing in a high-yield certificate of deposit (CD) at an online bank can allow you to generate a passive income and also get one of the highest interest rates in the country. You won’t even have to leave your house to make money.

Opportunity: To make the most of your CD, you’ll want to do a quick search of the nation’s top CD rates. It’s usually much more advantageous to go with an online bank rather than your local bank, because you’ll be able to select the top rate available in the country. And you’ll still enjoy a guaranteed return of principal up to $250,000, if your financial institution is backed by the FDIC.

Risk: As long as your bank is backed by the FDIC, your principal is safe. So investing in a CD is about as safe a return as you can find. Over time, the biggest risk with fixed income investments such as CDs is rising inflation, but that doesn’t appear to be a problem in the near future.

5. Peer-to-peer lending

A peer-to-peer (P2P) loan is a personal loan made between you and a borrower, facilitated through a third-party intermediary such as Prosper or LendingClub.

Opportunity: As a lender, you earn income via interest payments made on the loans. But because the loan is unsecured, you face the risk of default.

To cut that risk, you need to do two things:

  • Diversify your lending portfolio by investing smaller amounts over multiple loans. At Prosper.com, the minimum investment per loan is $25.
  • Analyze historical data on the prospective borrowers to make informed picks.

Risk: It takes time to master the metrics of P2P lending, so it’s not entirely passive. Because you’re investing in multiple loans, you must pay close attention to payments received. Whatever you make in interest should be reinvested if you want to build income. Economic recessions can also make high-yielding personal loans a more likely candidate for default, too.

6. Dividend stocks

Dividends are payments that companies make to shareholders at regular intervals, usually quarterly. Dividends and compounding may be a strong force in generating investor returns and growing income.

Many stocks offer a dividend, but they’re more typically found among older, more mature companies that have a lesser need for their cash. Dividend stocks are popular among older investors because they produce a regular income, and the best stocks grow that dividend over time, so you can earn more than you would with the fixed payout of a bond, for example.

Shareholders in companies with dividend-yielding stocks receive a payment at regular intervals from the company. Companies pay cash dividends on a quarterly basis out of their profits, and all you need to do is own the stock. Dividends are paid per share of stock, so the more shares you own, the higher your payout.

Investors looking to boost the income generated by their portfolio may want to consider high quality dividend paying stocks. Profitable dividend paying companies have the ability to maintain and even grow dividend payments to their investors. This is demonstrated by the growth in dividends per share paid by the companies in the S&P 500. From 2010 through 2019 the dividends per share paid by the companies in the S&P 500 have more than doubled, a growth rate of nearly 11% per year.

Opportunity: Since the income from the stocks isn’t related to any activity other than the initial financial investment, owning dividend-yielding stocks or focusing on a quality dividend investment strategy can be one of the most passive forms of making money.

While dividend stocks tend to be less volatile than growth stocks, don’t assume they won’t rise and fall significantly, especially if the stock market enters a rough period. However, a dividend-paying company is usually more mature and established than a growth company and so it’s generally considered safer. That said, if a dividend-paying company doesn’t earn enough to pay its dividend, it will cut the payout, and its stock may plummet as a result.

Risk: The tricky part is choosing the right stocks. Graves warns that too many novices jump into the market without thoroughly investigating the company issuing the stock. “You’ve got to investigate each company’s website and be comfortable with their financial statements,” Graves says. “You should spend two to three weeks investigating each company.”

That said, there are ways to invest in dividend-yielding stocks without spending a huge amount of time evaluating companies. Graves advises going with exchange-traded funds, or ETFs. ETFs are investment funds that hold assets such as stocks, commodities and bonds, but they trade like stocks.

“ETFs are an ideal choice for novices because they are easy to understand, highly liquid, inexpensive and have far better potential returns because of far lower costs than mutual funds,” Graves says.

Another key risk is that dividend stocks or ETFs can move down significantly in short periods of time, especially during times of economic uncertainty and high market volatility, as in early 2020 when the coronavirus crisis shocked financial markets. Economic stress can also cause some companies to cut their dividends entirely, while diversified funds may feel less of a pinch.

7. Savings or Money Market accounts

It doesn’t get any more passive than putting your money in a savings or money market account at the bank or in a brokerage account offering high yields. Then collect the interest.

Opportunity: Your best bet here is going with an online bank or a brokerage account, since they typically offer the highest rates. Online bank and brokerage account rates can often be higher.

Risk: If you invest in an account insured by the FDIC, you have almost no risk at all up to a $250,000 threshold per account type per bank. However, money market accounts are not FDIC insured. The biggest risk is probably that interest rates tend to fall when the economy weakens, and in this case, you would have to endure lower payouts that potentially don’t earn enough to beat inflation. That means you’ll lose purchasing power over time.

8. REITs

A REIT is a real estate investment trust, which is a fancy name for a company that owns and manages real estate. REITs have a special legal structure so that they pay little or no corporate income tax if they pass along most of their income to shareholders.

Opportunity: You can purchase REITs on the stock market just like any other company or dividend stock. You’ll earn whatever the REIT pays out as a dividend, and the best REITs have a record of increasing their dividend on an annual basis, so you could have a growing stream of dividends over time.

Like dividend stocks, individual REITs can be more risky than owning an ETF consisting of dozens of REIT stocks. A fund provides immediate diversification and is usually a lot safer than buying individual stocks – and you’ll still get a nice payout.

Risk: Just like dividend stocks, you’ll have to be able to pick the good REITs, and that means you’ll need to analyze each of the businesses that you might buy – a time-consuming process. And while it’s a passive activity, you can lose a lot of money if you don’t know what you’re doing.

REIT dividends are not protected from tough economic times, either. If the REIT doesn’t generate enough income, it will likely have to cut its dividend or eliminate it entirely. So your passive income may get hit just when you want it most.

9. A bond ladder

A bond ladder is a series of bonds that mature at different times over a period of years. The staggered maturities allow you to decrease reinvestment risk, which is the risk of tying up your money when bonds offer too-low interest payments.

Opportunity: A bond ladder is a classic passive investment that has appealed to retirees and near-retirees for decades. You collect interest payments, and when the bond matures, you “extend the ladder,” rolling that principal into a new set of bonds. For example, you might start with bonds of one year, three years, five years and seven years.

In a year, when the first bond matures, you have bonds remaining of two years, four years and six years. You can use the proceeds from the recently matured bond to buy another one year or roll out to a longer duration, for example, an eight-year bond.

Risk: A bond ladder eliminates one of the major risks of buying bonds – the risk that when your bond matures you have to buy a new bond when interest rates might not be favorable.

Bonds come with other risks, too. While Treasury bonds are backed by the federal government, corporate bonds are not, so you could lose your principal. And you’ll want to own many bonds to diversify your risk and eliminate the risk of any single bond hurting your overall portfolio.

Because of these concerns, many investors turn to bond ETFs, which provide a diversified fund of bonds that you can set up into a ladder, eliminating the risk of a single bond hurting your returns.

10. Rent out a room in your house

This straightforward strategy takes advantage of space that you’re probably not using anyway and turns it into a money-making opportunity.

Opportunity: You can list your space on any number of websites, such as Airbnb, and set the rental terms yourself. You’ll collect a check for your efforts with minimal extra work, especially if you’re renting to a longer-term tenant.

Risk: You don’t have a lot of financial downside here, though letting strangers stay in your house is a risk that’s atypical of most passive investments. Tenants may deface or even destroy your property or even steal valuables, for example.

11. Advertise on your car

You may be able to earn some extra money by simply driving your car around town. Contact a specialized advertising agency, which will evaluate your driving habits, including where you drive and how many miles. If you’re a match with one of their advertisers, the agency will “wrap” your car with the ads at no cost to you. Agencies are looking for newer cars, and drivers should have a clean driving record.

Opportunity: While you do have to get out and drive, if you’re already putting in the mileage anyway, then this is a great way to earn hundreds per month with little or no extra cost. Drivers can be paid by the mile.

Risk: If this idea looks interesting, be extra careful to find a legitimate operation to partner with. Many fraudsters set up scams in this space to try and bilk you out of thousands.

How many streams of income should you have?

There is no “one size fits all” advice when it comes to generating income streams. How many sources of income you have should depend upon where you are financially, and what your financial goals for the future are. But having at least a few is a good start.

“In addition to the earned income generated from your human capital, rental properties, income-producing securities and business ventures are a great way to diversify your income stream,” says Greg McBride, CFA, chief financial analyst at Bankrate.

© Copyright 2020 Bankrate, Inc. All rights reserved

Source: https://www.bankrate.com/investing/passive-income-ideas/

References:

  1. https://oshares.com/research-paper-dividend-investing-ousa-ousm/

Wealth accumulation can create estate tax issues

Posted on by

Financial security is a goal for us all, but with wealth comes complexity. An increase in wealth not only typically causes an increase in annual income taxes, but it may also beget estate and gift taxes. Current federal law allows each citizen to transfer a certain amount of assets free of federal estate and gift taxes, named the” applicable exclusion amount.

cancun beach

In 2020, every citizen may, at death, transfer assets valued in the aggregate of $11.58 million ($23.16 million for married couples), free from federal estate tax. For gifts made during one’s lifetime, the applicable exclusion amount is the same. Therefore, every person is allowed to transfer a total of $11.58 million during their life or at death, without any federal estate and gift tax. (This does not include the annual gift exclusion, which applies as long as each annual gift to each recipient is less than $15,000.)

Therefore, generally, only estates worth more than these amounts at the time of death will be subject to federal estate taxes. But this wasn’t always so. From 2001 to 2009, the applicable exclusion rose steadily, from $675,000 to $3.5 million. 2010 was a unique year, in that there was no estate tax, but it was brought back in 2011 and then made permanent (unless there is further legislation) by the American Tax Relief Act of 2012 at an exclusion amount of $5 million, indexed for inflation. The Tax Cuts and Jobs Act passed in December of 2017 doubled the exclusion amount to $10 million, indexed for inflation ($11.58 million for 2020). However, the new exclusion amount is temporary and is scheduled to revert back to the previous exclusion levels in 2026.

Outdated estate documents may include planning that was appropriate for estates at much lower exemption values. Many documents have formulas that force a trust to be funded up to this applicable exclusion amount, which may now be too large or unnecessary altogether, given an individual’s or family’s asset level.

Take the time to review the formulas in your estate documents with your attorney and tax professional to determine whether the planning you have in place is still appropriate.

https://www.fidelity.com/insights/personal-finance/estate-planning-pitfalls?ah=1

USG Ordered 100M Doses of Experimental Covid-19 Vaccine | Barron’s

Posted on by

U.S. Government has ordered from Pfizer and BioNTech 100M Doses of Experimental Covid-19 Vaccine.

The U.S. government has put in an order for enough doses of Pfizer and BioNTech experimental Covid-19 vaccine to inoculate nearly every American.

Pfizer and BioNTech said that the companies are selling 100 million doses of the vaccine to the U.S. Department of Health and Human Services and the Department of Defense for $1.95 billion, a deal that prices each dose of the experimental vaccine at $19.50.

The deal allows the U.S. government the option of buying an additional 500 million doses.

Americans would receive the vaccine free, according to the companies. Pfizer and BioNTech would provide the doses after the vaccine receives approval or emergency authorization from the Food and Drug Administration, and the government will make the payment after the first 100 million doses are delivered.

Read more: https://www.barrons.com/articles/pfizer-covid-19-vaccine-price-government-deal-51595425522?mod=bol-social-fb

Pfizer and BioNTech announced that two of the companies’ investigational COVID-19 vaccine candidates have received “Fast Track” designation from the U.S. Food and Drug Administration (FDA). Fast Track is a process designed to facilitate the development, and expedite the review, of new drugs and vaccines that are intended to treat or prevent serious conditions that have the potential to address an unmet medical need.

Emotional Well-Being and Gratitude During COVID-19

Posted on by

“Your personal experiences make up maybe 0.00000001% of what’s happened in the world but maybe 80% of how you think the world works… We’re all biased to our own personal history.” Morgan Housel, Ideas That Changed My Life

COVID-19 Stressing You Out

According to the CDC, everyone reacts differently to stressful situations such as a pandemic and lock down. As Americans experience the effects of the COVID-19 pandemic such as worry about job loss, concern for your health or that of a loved one, the need to social distance, confining yourself to your home or apartment, changing your routine, spending more screen time than normal, it’s important to practice some degree of emotional self-care.

Finding ways to practice self-care can help reduce your stress and enhance your emotional well-being during the COVID-19 pandemic. Healthy ways to cope with stress include:

  • Taking daily walks
  • Practicing meditation
  • Making time to pray and to express gratitude
  • Knowing where and how to get help
  • Taking breaks from watching, reading, or listening to the sensationalized news stories and coverage about COVID19, protests, and political rancor
  • Reading novels and writing in journals
  • Learning a new skill or hobby
  • Eating healthy foods and getting enough sleep
  • Avoiding or reducing eating processed foods, foods high in refined sugars and carbs, and fried foods
  • Exercising and prioritizing time to unwind by doing activities you enjoy
  • Connecting with others (while social physical distancing measures are in place, consider connecting online, through social media, or by phone or mail)

Gratitude

Gratitude is recognizing the “value for favorable things or positive life experiences for which we did not actively work towards or ask for”, according to Sadhguru. Gratitude is important because it helps us see a world that is much bigger than ourselves. When we have gratitude, we can help ourselves and each other grow personally or professionally.

Psychologists find that, over time, feeling grateful boosts happiness and fosters both physical and psychological health, even among those already struggling with mental health problems. Ways you can foster gratitude by keeping a journal to write about the little joys of daily life or by writing down “three good things” that have gone well for you and identify the cause. Additionally, you can also foster gratitude by writing thank-you notes to others or going out of your way to be kind to others, according to Psychology Today Magazine.

Sources:

  1. https://www.psychologytoday.com/us/blog/hope-relationships/202004/overcoming-depression-and-desperation-in-the-time-covid-19
  2. https://www.psychologytoday.com/us/basics/gratitude

The Ultimate Growth Stock – Amazon

Posted on by

Amazon’s stock price continues to soar since the company first sold shares to the public on May 15, 1997. 

The initial public offering (IPO) was priced at $18 per share. There have been three stock splits*, all between 1998 and 1999. Two of the splits were 2-for-1, while the other was a 3-for-1 split, according to Motley Fool (Fool).

If you invested $1,000 at the IPO price of $18, you would have purchased 55 shares. You would now have 660 shares after the three stock splits. Those shares would be worth $1,985,280 at today’s high price of $3,008 per share making you an Amazon millionaire. The total return from that initial $1,000 investment would be about 36% compounded annually, or a total return of about 198,000%.

Investors who stuck with Amazon’s stock through the harrowing market volatility and the bursting of the dot-com bubble around the end of 1999 and 2000 would have been handsomely rewarded for their patience and long term perspective.

The stock soared from a split-adjusted IPO price of $1.50 per share to $106.69 per share on Dec. 10, 1999. From there, it proceeded to fall 96% until it bottomed on Sept. 28, 2001, at $5.97 per share, according to Fool. 

If you invested $10,000 in Amazon 11 years ago on March 9, 2009, when the S&P 500 hit its closing low during the financial crisis and the Amazon’s stock closed at $60.49 per share, the value of that investment would be approximately $467,000, today, for a total return of 4,570%. In the same time frame, by comparison, the S&P 500 earned a total return of around 255% according to CNBC.

References:

  1. https://www.fool.com/investing/2019/11/24/if-you-invested-500-in-amazons-ipo-this-is-how-muc.aspx
  2. https://www.cnbc.com/2019/12/12/what-a-1000-dollar-investment-in-amazon-would-be-worth-after-10-years.html?__source=iosappshare%7Ccom.google.Gmail.ShareExtension

*The way splits work is that you receive more shares, but the stock price is adjusted accordingly so the value of your investment stays the same.

Stock Market Reaction to Expiring COVID-19 Programs | Charles Schwab

Posted on by

Key Points

  • Stock markets around the world welcomed the COVID-19 fiscal stimulus programs; but now those programs are starting to expire.
  • If not extended or replaced, the fading support for the unemployed raises the risk of weakening economic momentum, turning the V-shaped recovery into a W. 
  • As investors seem to be discovering with international stocks outperforming in recent weeks, there are very different implications for U.S. and European workers.

Stock markets around the world welcomed the COVID-19 fiscal stimulus programs; the passage of the CARES Act in the U.S. in late March coincided with the start of the market rebound.

But now these programs are starting to expire. Key support for the unemployed in the U.S. and Europe is set to fade, raising the risk of weakening economic momentum and turning the V-shaped recovery into a W.

In the United States, an additional $600 per week for the unemployed expires July 31. The average unemployment payout without the CARES Act benefit is only $333 per week. Losing the extra $600 a week is like a two-thirds cut to income for 17 million Americans receiving state unemployment benefits. 

Investing implications

International stocks have outperformed U.S. stocks during six of the past eight weeks, including last week. One of the reasons may be the looming expiration of labor support programs and the different impact this could have on the unemployed in the U.S. compared with Europe.

https://www.schwab.com/resource-center/insights/content/stock-market-reaction-to-expiring-covid-19-programs

Social Security and Retirement

Posted on by

Enjoying a comfortable retirement is everyone’s dream.  Social Security’s purpose is to help you secure your retirement dream.

According to the Social Security Administration, 9 out of 10 people over age 65 receive Social Security benefits. On average, Social Security counts for about 39% of total income during retirement. Thus,  as you can see, Social Security can’t cover all your financial needs and expenses during your retirement years.

pexels-photo-1377070

Furthermore, Social Security rules and decisions are complex.  And, it is a challenging task deciding when to claim your benefits.  When claiming benefits, it’s important to determine if it’s more financially beneficial to have income sooner by claiming it at early retirement age or wait as long as possible to receive a bigger benefit.

Social Security is part of the retirement plan for almost every American worker. It provides replacement income for qualified retirees and their families.  Social Security replaces a percentage of a worker’s pre-retirement income based on their lifetime earnings. The portion of your pre-retirement wages that Social Security replaces is based on your highest 35 years of earnings and varies depending on how much you earn and when you choose to start benefits.  However,  you can becoming eligible for Social Security benefits in retirement working for only 10 years.  You only need to accumulate 40 “credits” during your working life, and you can collect up to four credits each year.

Beach mimosaThe Social Security system works like this: when you work, you pay taxes into Social Security.  Social Security Administration (SSA) uses the tax money collected to pay benefits to:

  • People who have already retired.
  • People who are disabled.
  • Survivors of workers who have died.
  • Dependents of beneficiaries.

The money you pay in taxes isn’t held in a personal account (or lock box) for you to use when you get benefits. We use your taxes to pay people who are getting benefits right now. Any unused money goes to a Social Security trust fund that pays monthly benefits to you and your family when you start receiving retirement benefits.

There are advantages and disadvantages to taking your benefit before your full retirement age. The advantage is that you collect benefits for a longer period of time. The disadvantage is your benefit will be reduced. Each person’s situation is different.

You can start receiving Social Security benefits as early as age 62 or any time after that. However, you are entitled to full benefits when you reach your full retirement age.  Full retirement age refers to the age when a person can receive their Social Security benefits without any reduction, even if they are still working part or full time. In other words, you don’t actually need to stop working to get your full benefits. If you delay taking your benefits from your full retirement age up to age 70, your benefit amount will increase.

If you start receiving benefits early, your benefits are reduced a percent for each month before your full retirement age.  The longer you wait, the higher your monthly benefit will be, although it stops increasing at age 70. Your monthly benefits will be reduced permanently if you start them any time before your full retirement age.

Create a retirement plan

Planning is the key to creating your dream retirement. You’ll need to plan and save for years to achieve your retirement goals. While many factors affect retirement planning, it is important to understand what Social Security can mean to you and your family’s financial future.

On average, retirement beneficiaries receive 35% to 40% of their pre-retirement income from Social Security. As you make your retirement plan, knowing the approximate amount you will receive in Social Security benefits can help you determine when to claim benefits and how much other retirement income you’ll need to reach your goals.

Although the are thousands of options, you can consider the below three basic strategies for claiming Social Security benefits.  When and how you file for Social Security can significantly impact your retirement income.  You can take Social Security benefits between ages 62–70 but it makes a big difference in the amount of money you get. At 62, you receive 25% less than if you wait for full retirement age. Also, this would affect you down the road since your annual cost of living adjustments will be based on a smaller figure. For those who wait until they are 70, they would receive 32% more than at full retirement age (based on 66 years young).

  • Full Retirement Age:  Full retirement age is the age when you will be able to collect your full retirement benefit amount. The full retirement age is 66 if you were born from 1943 to 1954. The full retirement age increases gradually if you were born from 1955 to 1960, until it reaches 67. For anyone born 1960 or later, full retirement benefits are payable at age 67. You can find your full retirement age by birth year in the full retirement age chart.
  • Early Retirement Age:  You can get Social Security retirement benefits as early as age 62. However, your benefit is reduced if you start receiving benefits before your full retirement age. Understand how claiming retirement benefits early will affect your benefit amount.
  • Delayed Retirement Age:  When you delay collecting benefits beyond your full retirement age, the amount of your retirement benefit will continue to increase up until age 70. There is no incentive to delay claiming after age 70.

Types of Social Security Benefits

Social Security offers three distinct types of benefits for retired workers and/or their spouses.  In general, claiming strategies for couples will work to intentionally maximize each of the three types of benefits.

  • Retired Worker Benefit (which is based on his or her own earnings record) – Retirement benefits may be available as early as age 62. Your benefit amount is calculated based on a formula that incorporates your highest 35 years of earnings. If you claim benefits at Full Retirement Age, which varies from 66 to 67 based on your year of birth, you will receive your full benefit, which is known as your “Primary Insurance Amount” (PIA). If you claim early, you will receive a reduced benefit and if you delay, your benefit will be increased by 8% per year (pro-rated by months) of delay up to age 70.
  • Auxiliary Benefit (which provides a worker’s spouse or children with a benefit once the worker has claimed his own benefit) – The most common Auxiliary benefit for a married couple is the Spousal Benefit. Spousal benefits are generally available to the spouse of a worker who has been married to the worker for at least one year. The amount of the Spousal benefit is 50% of the worker’s Primary Insurance Amount if claimed at Full Retirement Age. Spousal benefits are reduced if claimed prior to Full Retirement Age, but do not increase if delayed past Full Retirement Age. When an individual is simultaneously entitled to both a Spousal benefit and a Retirement benefit, the Spousal benefit is reduced by the greater of the Retirement benefit or if a reduced Retirement Benefit is taken, the PIA.
  • Survivor Benefit (which provides a surviving spouse or certain other dependents with a benefit after a worker’s death) – The Survivor benefit is unique in that it is based both on when the deceased filed for benefits and when the Surviving spouse claims benefits. For example, if a higher wage earning spouse elects early, then dies, their spouse will be faced with a permanently reduced Survivor benefit, regardless of when they claim. If the higher wage earner delays claiming Retirement benefits, the available Survivor benefit is also increased.

Retirement Earnings Test for Social Security Benefits

pexels-photo-342945

You are able to work and receive Social Security retirement, spousal, or survivor’s benefits. However, you may be subject to a reduction in benefits if you haven’t attained full retirement age.

The Social Security Administration (SSA) will withhold benefits during the year in which you work assuming that you provide an estimate to the Social Security office about your expected earnings. If you do not report estimated earnings, the SSA will withhold your monthly payments in the following year until all benefits that should have been withheld are paid in full.

Social Security benefits can be withheld and taxed

Social security (SS) benefits are subject to taxes. For retirees who are still working, a part of their benefit is subject to taxation. The IRS adds these earnings to half of your social security benefits; if the amount exceeds the set income limit, then the benefits are taxed.

In 2020, you are allowed to earn up to $18,240 before benefits are withheld. For every $2 you earn above the exempt amount, $1 dollar will be withheld. This applies to all years leading up to the year in which you attain your full retirement age. During the year you attain full retirement age the exempt amount increases to $48,600 and for every $3 you earn over the exempt amount $1 will be withheld.

Even though your benefits are withheld they are not completely lost. Once you reach full retirement age, your benefits will be increased to account for the number of months that you did not receive a benefit. For example, if your full retirement age is 66 and you filed for benefits at 62 you received a reduction in benefits for taking benefits 48 months early. If 12 payments are withheld due to the earnings test, your benefits will be adjusted at your full retirement age and it will be as if you elected at age 63, or 36 months early.

What  SSA considers income

If the retiree earns an income that exceeds the annual earnings limit, then the social security benefits are reduced until they attain the full retirement age. Note that investment income is not included in the annual taxable earnings. The only income involved comprises of wages or a salary earned from self-employment or when working for someone. For people who are self-employed only net earnings count. It is important to note that employee contributions to pension or retirement plans are included in gross wages.  Income that is not counted as earnings include:

  • Government benefits,
  • Investment earnings,
  • Interest,
  • Pensions,
  • Annuities; and
  • Capital gains

are allowed to withdraw your Social Security benefits after enrolling.

Beach mimosa

If you start taking Social Security benefits before full retirement age, you can withdraw your benefits within the first year of claiming Social Security, no matter what your age. You must pay back any money you received; the Social Security Administration then treats it like you never enrolled, and your monthly check can continue to grow until you start taking benefits again.

Early retirement age to claim Social Security benefits is 62.  Full retirement age is 66 for people born from 1943 to 1954 and gradually rises to age 67 for people born after that. You’ll earn an extra 2/3 of 1% for each month you delay after your birthday month, adding up to 8% for each full year you wait until age 70.

Every year you delay taking your Social Security benefits after age 62, you get a bump of 8% in your benefit until age 70.

Dependent children under the age of 18 or disabled before age 22 may be able to claim 50% of their living parent’s primary insurance amount (PIA} or 75% of their deceased parent’s PIA.

Social Security earnings are calculated the same way for most American workers  The maximum Social Security benefit depends on the age you retire. For example, if you retire at full retirement age in 2020, your maximum benefit would be $3,011. However, if you retire at age 62 in 2020, your maximum benefit would be $2,265. If you retire at age 70 in 2020, your maximum benefit would be $3,790.

Social Security Problems

Social Security is facing funding challenges, largely because people are living longer. Currently, the average 65-year-old American is expected to live approximately 20 more years, so Social Security has to support people for longer.

Also, Social Security works because people currently working pay into the trust fund from which retirees are paid. Over time, the ratio of contributing workers relative to collecting retirees has shrunk.  Because people are living longer and the ratio of people paying in has shrunk, the Social Security program will soon stop running a surplus, leading to potential problems down the road.

When you start collecting Social Security benefit checks may not make a significant difference with respect to the total benefits received. The system is designed for those who live average-length lives.  This means that the total sum you collect will be roughly the same no matter when you start collecting benefits. Thus, if you delay receiving benefits until full retirement age, you will collect fewer benefit checks than someone who starts collecting smaller checks early.

References:

  1. https://nationwidefinancial.com/nationwide-retirement-institute
  2. https://www.ssa.gov/benefits/retirement/planner/agereduction.html
  3. https://blog.ssa.gov/when-is-a-good-time-to-start-receiving-social-security-benefits/
  4. https://aginginplace.org/7-best-retirement-plan-options/
  5. https://aginginplace.org/are-there-taxes-on-social-security-for-seniors/
  6. https://www.fool.com/retirement/2020/06/13/7-hard-to-believe-social-security-facts.aspx

 

A Moral and Economic Imperative to End Racism

Posted on by

The U.S. “has both a moral and economic imperative to end these unjust and destructive practices” of institutionalized racism. Raphael Bostic, President and CEO, Federal Reserve Bank of Atlanta

“Over the course of American history, the examples of such institutionalized racism are many, and include slavery, federal law (consider the Three-Fifths Compromise our founding fathers established to determine federal representation), sanctioned intimidation during Reconstruction, Jim Crow laws in southern states, redlining by bankers and brokers, segregation, voter suppression, and racial profiling in policing.”

Dr. Raphael W. Bostic, Federal Reserve Bank of Atlanta

“These institutions hurt not only the African Americans they’ve targeted, but the systemic racism they’ve codified also hurt, and continues to hurt, America and its economy. By limiting economic and educational opportunities for a large number of Americans, institutionalized racism constrains this country’s economic potential. The economic contributions of these Americans, in the form of work product and innovation, will be less than they otherwise could have been. Systemic racism is a yoke that drags on the American economy.”

“To be fair, we have made some progress. Legal reforms have erased many of those historical institutions that caused so much pain and violence, and further reform essential for helping end harmful practices is under way in many places. But the legacies of these institutions remain, and we continue to experience misguided bias and prejudices that stem from these stains on our history. These have manifested in the worst way possible—in the deaths of George Floyd, Breonna Taylor, Ahmaud Arbery, Dana Martin, and, sadly, so many others.”

“It is time for this cycle to stop. It is time for us to collectively embrace the promise of an inclusive America, one where everyone can participate fully. We are each being challenged to rise to this occasion through education and action. All of us, especially our white allies, must learn the history of systemic racism and the ways it continues to manifest in our lives today. Furthermore, we all must reflect on what we can do to effect change at every turn.”

“A commitment to an inclusive society also means a commitment to an inclusive economy.”

To read the entire text: https://www.frbatlanta.org/about/feature/2020/06/12/bostic-a-moral-and-economic-imperative-to-end-racism

Dr. Raphael W. Bostic is president and chief executive officer of the Federal Reserve Bank of Atlanta. He is a participant on the Federal Open Market Committee, the monetary policymaking body of the Federal Reserve System.

COVID-19 Precautions

Posted on by

Health experts continue to urge Americans to take precautions against spreading and contracting coronavirus disease 2019 (COVID-19) more seriously.

As of July 20, 2020, more than 3,784,900 people in the United States have been infected with the coronavirus and at least 140,300 have died, according to a New York Times (#NYT) database.

As COVID-19 infection numbers are surging throughout most of the United States, everyone, especially older adults over the age of 65 and others with pre-existing conditions, should take steps to protect themselves from getting and spreading COVID-19. In general, your risk of getting severely ill from COVID-19 increases as you get older. In fact, 8 out of 10 COVID-19-related deaths reported in the United States have been among adults aged 65 years and older.

Since there is currently no vaccine to prevent COVID-19, the best and most effective way to prevent contracting the illness is to avoid being exposed to this virus. There are more than 160 vaccines being researched, developed and tested against the coronavirus, and 26 vaccines are in human trials. Four (4) potential vaccines are currently in large scale phase III efficacy trials according to the New York Times.

Everyone is at risk for getting COVID-19 if they are exposed to the virus. The virus spreads primarily through respiratory droplets produced when an infected person coughs, sneezes or talks. These droplets can land in the mouths, noses or eyes of people who are in close contact with one another (within about 6 feet).

Recent studies have shown that #COVID-19 can spread by people who are asymptomatic (not showing symptoms). To arrest the community spread of COVID-19, you should:

  • Wear a cloth face mask to cover your mouth and nose in public settings and when around people who don’t live in your household.
  • Keep 6 feet (2 meters) of distance between yourself and people who don’t live in your household. It’s important to remember that infected people without symptoms are able to spread virus.
  • Avoid touching your face, specifically your mouth, nose or eyes.
  • Wash your hands often with soap and water for at least 20 seconds especially after you have been in a public place, or after blowing your nose, coughing, or sneezing.
  • Prioritize outdoor venues over indoor spaces if you must go out,
  • Clean and disinfect frequently touched surfaces daily.
  • Monitor your health daily and be alert for COVID-19 symptoms such as fever, cough, shortness of breath, fatigue, headache, or loss of smell.

How well a community as a whole does all of that could dictate how bad things get during the current resurgence.

References:

  1. https://www.cdc.gov/coronavirus/2019-ncov/prevent-getting-sick/prevention.html
  2. https://www.cdc.gov/coronavirus/2019-ncov/need-extra-precautions/older-adults.html
  3. https://www.nytimes.com/interactive/2020/science/coronavirus-vaccine-tracker.html

Long-Term Care Insurance and Aging

Posted on by

Chances are that as you age, you may need long-term care at some point … one viable option: hybrid long-term care insurance.

Unfortunately, there is a stealthy stalker that could raid a retiree’s savings and destroy their financial security.  It’s the cost and expenses of extended long-term care — the assistance many retirees will need as they age to manage the tasks of everyday life, such as bathing, dressing and personal care. For those less ambulatory, this may also include transferring to and from a bed to a chair.

Long term care is care that you need if you can no longer perform everyday tasks by yourself due to chronic illness, injury, disability, or the aging process. It isn’t care that is intended to cure you; it’s ongoing care that you might need for the rest of your life. This means you may need help with activities of daily living, such as bathing, dressing, continence, eating, toileting, and transferring.  In general, traditional health insurance plans do not pay for the chronic, ongoing assistance with daily living that is most often associated with long term care.

The need for long term care can happen to anyone at any time. It can occur because of an extended illness such as cancer, a disabling event such as a stroke, a chronic disease such as multiple sclerosis or Alzheimer’s, or a permanently disabling automobile or sporting accident.

In many cases, however, retirees need long term care due to aging. As we live longer, into our 80s, 90s, and even beyond, health conditions that we’ve managed successfully for years may become worse. We may lose our ability to function independently on a day-to-day basis, resulting in the need for assistance.

Everyone should have a plan for long-term care. This could mean needing some extra help with everyday activities as you age. The benefits of long-term care insurance go beyond what your health insurance may cover by reimbursing you for services needed to help you maintain your lifestyle if age, injury, illness, or a cognitive impairment makes it challenging for you to take care of yourself.

According to AARP, 52% of people who turn 65 today will develop a severe disability that will require long-term care at some point in retirement.  The U.S. Department of Health and Human Services reports that 70% of people over 65 will need long-term care at some point in their lives.

“The older you are, the more likely you’ll need long term care.”

U.S. Department of Health and Human Services

A 2019 study by Georgetown University Medical Center reported: “Nursing home care is arguably the most significant financial risk faced by the elderly without long-term care insurance or Medicaid coverage.”

2019, the annual Genworth Cost of Care Survey found that the median monthly cost in the U.S. for long-term care was $7,513 for a semi-private room at a nursing home, $4,385 for a home health aide, and $4,051 for an assisted living facility.  Cost of care can be expensive and it’s important to understand the financial impact a few years of long-term care can have.

  • Nursing Home Care: The average cost of a year’s care in a private Medicare-certified long-term nursing home room is $104,000.4
  • Home Care: The average in-home care costs $49,920 a year for 40 hours of help per week.4
  • Assisted Living Care: A year in a 1-bedroom assisted living care facility averages $57,000 per year.4

long term care insurance claims paid for home care

Medicare and Medicaid

Many think that government programs such as Medicare and Medicaid will pay for all of their future long-term care needs. Surprisingly, they may only pay for some of these services and have many restrictions.

Medicare: May cover a maximum of 100 days of services after a hospital stay.2 Coverage is designed to assist people during a short-term recovery and doesn’t include personal care or supervision services.  Medicare won’t pay for what it calls “custodial care” unless you require skilled services or rehabilitative care, and even then, there are limits.

Medicaid: If you have limited assets and income and are relying on Medicaid, the state may make key care decisions on your behalf, including where you receive the care you need.  Medicaid won’t kick in unless your income is below a certain threshold and you meet minimum state eligibility requirements.

Traditional long-term care policies are becoming increasingly difficult to qualify for coverage. Premiums, which are lower if you buy in when you’re young, can increase and become unmanageable when you’re older. And, just like car, health or homeowners insurance, if you end up never needing the policy, you lose all the money you’ve paid in.

Hybrid Insurance

A hybrid insurance policy, also referred to as asset-based long-term care, combines long-term care insurance with permanent life insurance. A policy of this sort provides both living and death benefits.

You can purchase this type of policy with a single upfront premium, with a set of premiums for a fixed term or with ongoing premiums. If you need long-term care (due to age, illness, etc.), you can withdraw the funds from your life insurance policy, and when those funds run out, the insurance company will pay. If you don’t need care, or if you have some money left over after receiving care, your heirs will receive the remaining insurance benefit 100% tax-free.

Like all financial strategies, hybrid policies have pros and cons. The premiums can be higher compared to a traditional long-term care policy, and it’s important to be clear about what types of care will qualify under the policy you choose. But the underwriting process is typically less rigorous for a hybrid policy, and a couple can share one policy. This can make obtaining coverage easier and more affordable than a traditional policy.

As long as you pay your premiums, you’ll have a contractually guaranteed death benefit, guaranteed cash value and a guaranteed amount of long-term care coverage. And if, for some reason, you decide to cancel the policy, you can get most of your premiums back — once you pass a designated surrender charge period. That’s a way out that traditional long-term care insurance doesn’t offer.

Long term care insurance (LTCI) provide benefits to cover services you may need if you’re unable to care for yourself or your family, due to chronic mental or physical conditions.  Because there is no one-size-fits-all when it comes to long term care insurance, people must choose among policy options such as daily benefit amount, benefit period, and inflation protection options

One of the largest providers, the Federal Long Term Care Insurance Program (FLTCIP) is one of the largest LTCI programs and is available to all federal employees and military service members.  The Federal Long-Term Care Insurance Program is designed to reimburse for long-term care services at home or in a facility such as assisted living, adult day care or a nursing center.

Long term care insurance may be a smart way to protect your income and assets and remain financially independent should you need long term care services at home, in a nursing home or an assisted living facility, or in other settings.

References:

  1. https://www.kiplinger.com/retirement/long-term-care/long-term-care-insurance/601056/even-in-good-times-a-silent-stalker-can
  2. https://journals.sagepub.com/doi/abs/10.1177/1077558719857335?journalCode=mcrd&
  3. https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html
  4. New York Life Cost of Care Survey, 2018
  5. https://www.genworth.com/aging-and-you/finances/cost-of-care.html
  6. https://www.military.com/military-report/long-term-care-insurance.html
  7. U.S. Department of Health and Human Services. “The Basics,” https://longtermcare.acl.gov/the-basics/
  8. https://www.brownleeglobal.com/ltc-daily-benefit-amounts/