Recently Congress announced that it is making changes to the Social Security filing strategies that many couples have used for years to add thousands of dollars to their retirement incomes. Before you read any further, please note that if you are already receiving Social Security benefits based on your own record, or by using one of the strategies that will soon go away, your benefits will not change or be interrupted by the legislation.
The legislation in question, the Bipartisan Budget Bill 2015, was passed by the Senate last week and will likely become law once signed by the President. The two strategies under fire – known as file-and-suspend and a restricted application for spousal benefits – have made it possible for couples to delay claiming Social Security benefits based on his or her own earning record, each taking advantage of their eventual benefit growing by 8% per year for each year deferred, while one spouse can claim ½ of the other spouse’s benefit until switching to their own (often age 70). To do this, typically the higher earner files for benefits and suspends them, while the other files a restricted application for spousal benefits.
Convert, De-convert, Re-convert…The stock market’s recent drop has no immediate tax impact on traditional or Roth IRAs invested in stocks and ETFs. That’s because neither losses nor gains are recognized within IRAs. However, in today’s market, if there is a silver lining, there are some tax strategies for IRA owners to consider:
Most of our clients know we are big believers in low cost investing with passive investment vehicles. Although it is easy to grasp the concept of paying lower costs, it is harder to grasp that you can pay lower costs and also outperform most other investments.
The most recent SPIVA report, published by Standard & Poor’s, is now available. In 2014, over 86% of mutual fund managers (large cap) underperformed their benchmarks. Although this makes a pretty good case for investing in indexes (ETFs), mutual funds still outnumber ETFs by 10 to 1, based on assets under management.
Pundits used to argue that inefficient asset classes could outperform the market, but as you can see in the report, it is pretty standard across the board, active management loses over nearly every time period and asset class!
