Social Security benefits rise by most in three years


Social Security recipients have a rare surprise to look forward to in 2018: a 2% increase in benefits, the Social Security Administration announced this month. It will be the biggest increase in benefits since 2011, when those collecting Social Security benefits saw a 3.6% increase. Benefit hikes are tied to changes in a measure of prices for food, housing, clothing, transportation, energy, medical care, recreation, and education. The increase of about $27 a month will boost the average retired worker’s benefit to $1,404, Social Security said. That will be a welcome change compared to the last two years: benefits were unchanged in 2016 and went up by just 0.3% this year. Increases in Social Security benefits have been relatively modest since U.S. consumer inflation was tamed in the mid-1980s. Before that there were several double-digit increases, with the biggest being a 14.3% jump in benefits in 1980. Social Security said another change will affect...

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Most stocks don’t even beat Treasury Bills


Stocks outperform bonds over the long-term, right? Isn’t that the message every investing article has been drilling into us for many years? The answer is, yes, it’s true, but only in the aggregate: most individual stocks have not beaten the low, short-term interest rates offered on U.S. Treasury Bills. The stock market has done better than T-Bills over the years, but that’s only because a handful of stocks have had disproportionately spectacular returns, found a study by a professor at Arizona State University. “The entire net gain in the U.S. stock market since 1926 is attributable to the best-performing 4 percent of stocks, as the other 96 percent collectively matched one-month Treasury Bills,” wrote Hendrik Bessembinder, a finance professor in the W. P. Carey School of Business. Unfortunately, some investors draw the wrong conclusion from this research. They argue Bessembinder’s findings suggest that investors should actively search for the few stocks that will...

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The Federal Reserve’s inflation dilemma


The Federal Reserve Board slashed short-term interest rates repeatedly during the 2008 financial crisis, finally reaching an unprecedented low of 0.25% for the post World War II period. The standard theory said that low interest rates would stimulate borrowing and growth, helping the United States to recover from a severe recession. The interest rate cuts and other actions taken by the Fed during that crisis seem to have worked, albeit at a snail’s pace. Ten years after the recession economic output has hit respectable levels, although it remains weak by the standards of previous decades. Unemployment has dropped sharply. The second part of the standard theory of interest rates, economic output, and inflation suggests that the Fed should be raising interest rates steadily at this point in order to keep the economy from overheating and causing out-of-control inflation. But something funny happened along the way: inflation refused to cooperate. It has remained stuck...

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Don’t make these five common estate planning mistakes


Estate planning sounds complicated and forbidding to many people. They sometimes end up rushing the process or ignoring it altogether, leading to one or more of these common mistakes.   Failing to plan: Estate planning is not just for elderly rich people. Anyone over the age of 18 should have something in place. Are you young and single with few assets? You still want to appoint the right person to take care of your pet and decide who gets your car and controls your digital accounts at death (see below). You should make plans for potential disability. If you are a little older and have children, you absolutely need a will to appoint their guardians and a trust to handle assets you leave to them. Do you own a house? You should consider a will or a life estate to pass it on to children or other heirs (joint ownership with someone...

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Retirees get significant tax benefits in New York State


New York State has long been known as the “land of taxes.” Higher-than-average real estate, income, and sales taxes have been a reality for many years. However, New York offers some significant tax breaks to older residents, making it less onerous to retire and remain in the state.   Here are some of the major tax breaks a retiree in New York can look forward to:   Taxes on Social Security: The good news here is that all Social Security income is tax-free in New York, regardless of your income or the size of your Social Security benefit. The federal government may tax some of your Social Security benefit if your income is above certain guidelines, but New York will take a pass. This is an important benefit and a bonus for New Yorkers since 12 other states levy income taxes on Social Security benefits if their residents pay federal income taxes on the...

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Investing in the markets vs. saving at the bank


The difference between putting your money in an insured bank savings account and investing it in the stock market seems obvious. Money at the bank doesn’t fluctuate in value, assuming there are no fees on the account. Money in the stock market fluctuates minute by minute, and there is no guarantee you will get out what you put in. But there is another big difference that savvy investors understand: saving large amounts of money at the bank allows the bank to take advantage of your hard-earned money. Investing in stocks allows you to earn all of the potential profits from your investment, rather than having to share them with someone else. Put your money in the bank and it will guarantee the principal and pay you interest. Sounds like a sweet deal, but you have to realize the banks are not charities. They are profit-making enterprises. They are willing to pay you...

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Interest rates flash a warning


It is a common misperception to think the stock market is a good predictor of things to come. Savvy investors know that the bond market and current bond interest rates are important indicators to monitor. You’ll hear experts talking about the “yield curve,” which is simply the shape of the line on a chart of interest rates, ranging from short-term rates offered on one-month Treasury Bills to those offered on 30-year Treasury Bonds. Normally, short-term interest rates are lower than long-term rates, and the yield curve slopes upward left to right. In that case, investors are betting the economy will grow and prices will rise over time. In order to protect themselves against inflation, longer-term investors demand higher interest rates. This year, that upward curve has been flattening out: even though the Federal Reserve has raised short-term interest rates to 1%, long term rates in recent weeks have dropped slightly, rather than increased....

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Will Rising Higher Interest Rates Hurt the Stock Market?

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After many years of keeping short-term interest rates at zero to help the economy recover from the 2008 recession, the Federal Reserve Board is slowly nudging rates up. It has implemented several quarter-point increases and says it intends to push rates up to the 3% range over the next several years. This is good news for conservative bank savers who may finally get paid some interest on their capital, and potentially bad news for bond holders who may see the value of their bonds fall in the short-term as new bonds with higher interest rates are issued. But what will rising rates mean for stock investors? Accepted wisdom says higher interest rates hurt stocks, because investors now have more choices for guaranteed higher yields on fixed income products like bonds, money market funds, and the bank. Dimensional Fund Advisors decided to test that wisdom by taking a statistical look at what has...

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