March 4, 2014

70 Has Become The New 65

The Investment View from Prescott, Arizona

Due to increases in Social Security’s delayed-retirement credit, the real retirement age is now 70, according to  a  recent research paper from the Center for Retirement Research at Boston College. “Social Security benefits increase to 132% of the full retirement age amount if collected at 70.”

Although eligible workers can still claim benefits as early as 62, their benefits are reduced by 25%, trimming a $1,000 monthly benefit at 66 to just $750 if claimed at 62. Waiting until 70 to collect benefits increases the monthly amount to $1,320, plus any intervening annual cost-of-living adjustments.

That difference is similar to earning 8% per year on your money while waiting.  That is a good rate of return considering that the stock market earned a little over zero after 13 years of losses through the summer of 2013.

POSTPONE CLAIMING

“Given that Social Security is a particularly valuable type of income — inflation-adjusted and lasts for a lifetime — it generally makes sense for workers to postpone claiming as long as possible to get the highest monthly amount, assuming they are in good health for their age.” Alicia Munnell, the center’s director, wrote in the paper.

“The level of monthly benefits at 70 appears appropriate given the increased deduction for Medicare premiums, the greater taxation of benefits, the declining importance of the spouses’ benefit and the diminished sources of other retirement income,” Ms. Munnell wrote. “In that regard, 70 has become the new 65.”

LOW INTEREST RATES

The authors also noted that low interest rates available from other income sources actually increase the present value of delayed retirement benefits.  “Primary earners with average life expectancy should delay benefits to age 70 to maximize expected present value,” they wrote.

Maximizing the retirement benefit of the primary earner has an added advantage: It locks in a substantial survivor benefit for the remaining spouse. “Thus, delaying the primary earner’s benefit is equivalent to purchasing a second-to-die or joint-life annuity,” they wrote.

You may get details on the spousal benefits of social security at www.ssa.gov.

A Slice of Life

One of the best parts of my work is that I can do it from anywhere.  I’m writing this newsletter while sitting next to the beach at Sanibel Island, Florida and the placid waters of the Gulf of Mexico while visiting my brother. I’ll be back in Prescott  tomorrow, a day before you receive this newsletter, but I just love the freedom technology gives me.

If you have never been to Sanibel, I’d suggest you put it on your bucket list.  There is a small town feel, great fishing in both protected, lake-like waters or the open ocean, and world class beaches renowned for the shells that seem to be everywhere.

 How’s The Market Doing?

The month of February has come to a close and the major stock market indexes staged a strong comeback after a weak start in January.

Two of the three stock market drivers remain bullish.
 
1) The Federal Reserve Board continues to pump liquidity into the banking system through its monthly purchases of U.S. Treasury securities and mortgage securities.  Although Fed buying is injecting about $11 billion less than it was at its peak last Fall, there is still a lot of money being added to the economy.

2) Market trend and momentum indicators remain strong, with favorable historic patterns suggesting a continuation of the strong price performance for a little while longer.
 
3)  The 3rd leg of the troika which we watch, sentiment indicators, are telling a different story. Investors, advisers and newsletter writers are bullish, perhaps overly so, meaning many investors are already fully invested, leaving fewer potential buyers.  Since the market’s success or failure is determined by the balance of buyers and sellers, this imbalance can be significant.   Smart money indicators are stretched to levels where market reversals to the downside have occurred in the past.

Gold seems to have finally broken out from its 2 ½ year decline.  Time will tell if this is a dead cat bounce or the beginning of a new longer-term uptrend.

College Classes Coming

Advanced Investment Analysis Using Charts

If a picture is worth 1,000 words, a chart is worth 1,000 numbers.  Most of us find it easier to relate to pictures than pages full of numbers. And by using charts you can feel better about your investment decisions and perhaps become a better investor, too.  Topics will include use of moving averages, trend-line analysis, relative strength analysis, ulcer indexes, breadth and volume indicators and more.  We will also explore several web based charting services available to the public.

The class will be on Thursdays, 1-3 p.m. March 20 – April 3, 2014.  Call the College at (928) 717-7755 to register for class #WS14-149. Tuition is $65, payable to Yavapai College.

 What’s Going On In Your Portfolio?

With both the stock and bond markets settling down after the rocky start to the year that January presented, we are again fully invested for rising markets in both our Flexible Income* and Shock Absorber Growth* model portfolios.

The growth portfolio’s shock absorber hedging worked as designed in January, keeping our maximum drawdown in model account values to about ½ the stock market average, and helping us to outperform the market in January.  

A hedge is an investment that moves opposite to your other investments, dampening fluctuations in the value of the portfolio as a whole.  

Since we sold weaker performing stocks to buy the hedge, when we sold the hedge, that money was reinvested into the new market leaders, weeding and improving the portfolio and allowing us to have another good month in February.

Growth model* portfolios currently hold health care, aerospace and defense, and electronics stocks, plus gold, German and US diversified stock funds.

Flexible Income* models now also hold gold, along with high yield and floating rate bond funds.

Municipal* accounts are also fully invested.

 Scottsdale Office Date

Please call the office to make an appointment if you would prefer to meet with Will in Scottsdale.  (928) 778-4000.

 Mental Floss

The planet Neptune has barely completed one orbit since it was discovered in 1846.

Free Services for Non-Profits

For over 25 years now, Prescott has been very good to me and to Hepburn Capital Management.  

One way I express my gratitude and give a little back to our town is to manage money for local churches and non-profit organizations for free.  I already do this for several churches and charities, and would be happy to do the same for yours.

If you know of a local board that is not pleased with the earnings rate on their savings, I would be happy to speak with them to see if my lower-risk strategies might provide better results.   Just call the office to schedule an in-office meeting or to have me address a board meeting.  (928) 778-4000

1099s Finally Available

1099s are finally out. Whew!   

If you have not received yours in the mail, they are available on MyStreetscape.com.  

If you don’t yet have online access codes to your account, please contact the office and the staff will arrange to get you access codes.

Our Spotlight Strategy

With our Shock Absorber Growth Strategy we strive to provide acceptable returns while experiencing one half of the risk of the S&P 500 Stock Index*, using primarily equity investments.

Our Stock Market Exposure Indicators are used to determine a market exposure that adapts to the strength or weakness of the market. The HCM Safety Net indicator is designed to warn of potentially sudden declines in which case stock market exposure may be quickly reduced.

If you would like a current copy of our SEC Form ADV, Part 2, or our Privacy Policy  they are on our website at www.hepburncapital.com/PR/Form_ADV.pdf  and www.hepburncapital.com/images/PrivacyPolicy.pdf respectively.

*    The model accounts mentioned in this article are hypothetical examples of how the strategy may work as designed.   Activity in client accounts may be different from that in the model in amount of each investment, specific timing of trades, and actual security used, which may vary from account to account.  Not all trades are profitable.  It should not be assumed that current or future holdings will be profitable.   A list of all trades in these accounts for the past 12 months will be provided upon written request.

**  The S&P 500 and Nasdaq Indexes are unmanaged lists of stocks considered representative of the broad stock market.  Investors cannot invest directly in an Index.

Flexible Income
Adaptive Balance
Adaptive Growth
Shock Absorber Growth

This newsletter may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Information in this newsletter may be derived from sources deemed to be reliable, however we cannot guarantee its accuracy.  Please discuss any legal or tax matters with your advisors in those areas.  Neither the information presented nor any opinions expressed herein constitute a solicitation for the purchase or sale of any security.