Have you ever dreamed of being a half-millionaire? It’s got a nice ring to it, doesn’t it? Well, the fact is, if you are retired or are nearing retirement, thanks to Social Security, you can probably make this claim!

Social Security is just like – actually, even better than – having a pension or owning a private annuity. For a retiree to receive an inflation-indexed monthly benefit of $2,000 it would require an investment of about $500,000. Knowing that, people receiving Social Security benefits of that size can rightfully declare themselves to be a half-millionaire.

For millions of our oldest citizens, Social Security literally secures their financial independence and helps to keep them out of poverty. Given its importance, understanding your filing options, the program’s features, rules and quirks is a wise move.

As a small preview into what’s quickly becoming a perennial topic of the Front Street Foundation’s Money Series, here are just two features of Social Security we’ll discuss at our next program on Wednesday, January 10th.

First, waiting to collect can pay dividends. While the earliest you can file is age 62, for each year you delay in filing, you get a lifetime benefit boost of 8%. That annual boost can build all the way until age 70. The benefit difference between a person filing at age 62 and age 70 is huge.

A sad reality is that a large proportion of Social Security beneficiaries file at the earliest possible moment. That decision results in 32% less each month compared to filing at age 66, the current official full retirement age.

Of course, don’t forget, if you don’t think you will survive for at least 12 more years – and your spouse won’t either, if you’re married – giving up a year’s worth of Social Security benefits won’t pay off.

For example, if you are 65 and decide to wait another year to file, that 8% benefit boost will finally make up for your one year’s worth of forgone benefits by the time you reach your upper 70s. While that’s a pretty solid bet for many readers, it is certainly not a sure bet for everyone.

Second, an old trick that couples use to maximize their combined Social Security benefits is slowly expiring. If you are age 64 or older at the start of 2018, when you file at your official full retirement age you are still allowed to restrict your filing to receive just your spousal benefit. This restricted application allows your own benefit – the one based on your own life’s work – to remain untapped and growing. If you happen to be under age 64 at the start of 2018, the trick is long gone.

To learn more about Social Security, listen to Jason P. Tank, CFA present and answer questions for the non-profit Money Series on Wed., January 10th at 6:30pm in the McGuire Rm. at the Traverse Area District Library. To register, visit www.FrontStreetFoundation.org or call (231) 714-6459.

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With year-end tax planning underway, now is the perfect time to bring up a perennial tax trick; making a charitable donation directly from your IRA. This is known as a qualified charitable distribution.

Perhaps you’ve already received that annual letter from your favorite charity where it says you can support your cause while simultaneously satisfying your required minimum distribution from your IRA. Better yet, you can pull off this feat and lower your tax bill!

To begin to understand this pitch, we need to first quickly review what a required minimum distribution is and how it typically affects your tax bill.

When you reach the magical age of 70.5, the IRS expects you to start paying some taxes on your tax-deferred accounts. These include all of your IRAs, 401(k) accounts and any other accounts that were funded with pre-tax earnings.

For example, if you’ve saved $500,000 across all of your tax-deferred accounts, at age 70.5 the government expects you to distribute a minimum of close to $20,000 that very first year. It’s normally considered taxable income to you.

Now, when you make a donation to a qualified charity directly out of your IRA, the government says it’s okay to count it against your required minimum distribution and it’s also okay to not count it as taxable income. It’s as if the IRS officially turns a blind eye to the whole transaction. None of that IRA distribution has to be reported by you as income and, of course, no charitable deduction will be allowed by you either. It looks like a wash.

This begs the question, how can making the donation from your IRA be better than simply writing a normal check to your charity and taking the normal charitable deduction on your tax return? The short answer is, it may or may not. It depends on your tax situation.

There are two primary deductions on your tax return that are affected by your level of income, including IRA distribution income. They both reside on Schedule A, where you itemize your various deductible expenses.

First, you can deduct your out-of-pocket medical and dental expenses. However, only the amount that exceeds 10% of your income is deductible. Second, you can similarly deduct various miscellaneous expenses, such as the fees you pay your accountant and investment adviser. That deductible threshold is 2% of your income.

Naturally, if you make a donation directly from your IRA, being able to ignore that income on your tax return lowers those thresholds and allows an incrementally greater amount of your medical expenses and professional fees to qualify as deductible. Alas, you see a lower tax bill, however slight it might be.

But, what if your typical income is already so high – even before considering the income from your IRA distributions – that you aren’t allowed to deduct any of your medical expenses and professional fees anyway?

If this is your situation, going through the hassle of making a charitable donation directly from your IRA is no better than writing a check. If this is still confusing to you, just ask your investment adviser or tax preparer. Beware, they might charge you a fee, non-deductible, of course!

Any program impacting over 55 million people is worth reviewing at least once a year. This is so obvious that even our divided government officials can agree!

With its annual open enrollment deadline fast approaching, your window to learn about your choices in Medicare coverage is closing quickly.

In total, Medicare costs around $700 billion a year and it’s growing. Together with Social Security’s greater than $900 billion in annual distributions, these two critical social safety nets make up a whopping 40% of our federal budget. This is one reason the Front Street Foundation’s Money Series is holding educational programs on each topic over the next few months.

To kick it off, Fred Goldenberg of Senior Benefit Solutions will be discussing all facets of Medicare. This will include the specifics of Medicare’s coverages, its costs and how to handle your out-of-pocket responsibilities.

Medicare and the choices you face unfortunately sound like a bland bowl of alphabet soup. For example, within basic Medicare, there is Part A for hospital services, Part B for medical services, like doctor visits, and Part D for prescription drug coverage.

However, you should know that Medicare leaves you with a gap of financial risk because it will only pays for 80% of your service costs. Without the protective layer of a private Medigap policy, it’s possible unreimbursed medical expenses could eat up a big chunk of your life savings. In his upcoming presentation, Mr. Goldenberg will discuss the options you have to help protect your nest egg.

Predictably, this means you have more letters to consider! Medigap policies come in the enticing government-standardized flavors of Plan A to Plan N. Don’t ask about the missing letters, E, H, I and J!

Curiously, despite their standardization, monthly premium levels for Medigap policies do vary from insurance company to insurance company. As always, shopping around is important. However, switching around can get complicated. While you can always renew your current Medigap policy, there’s no guarantee you’ll pass the medical underwriting standards of a new insurer.

To simplify things, among other reasons, the government created Medicare Part C. This allows for a bundled package of the basic parts of Medicare along with the standardized elements of a Medigap policy and more. Part C is better known as a Medicare Advantage plan. Take note, it’s the only thing named with some marketing flair behind it.

Like anything else, choosing the one-stop shopping experience of a Medicare Advantage plan does minimize the number of moving parts. On the flip side, given the fact that bundled products do create less transparency, it does require a little more thought.

The good thing is the annual enrollment period for Medicare opened only two short weeks ago. This still provides you enough time to learn more by attending the upcoming Money Series presentation on Thursday, Nov. 9 at 6:30pm in the McGuire Rm of the Traverse Area District Library. To register, visit FrontStreetFoundation.org or call (231) 714-6459.

With trillions of dollars of collective wealth embedded in the value of their homes, it’s no wonder people ask about how they might someday access their real estate to help support their retirement years. This question often leads to a conversation about a little understood product, the reverse mortgage.

Reverse mortgages are somewhat complex and definitely counterintuitive. As opposed to the traditional “forward” mortgage, where you borrow money and then slowly pay back the loan, a “reverse” mortgage is an entirely different beast.

With a reverse mortgage, you borrow against your home’s value with no scheduled repayment. You either start out a reverse mortgage by receiving a lump sum, getting a monthly check, opening a line of credit or choosing a combination of these options.

Unlike a typical mortgage where each monthly payment you make builds equity in your home, a reverse mortgage produces just the opposite; a drawing down of the equity you have in your home. Your net worth literally heads in reverse.

Your reverse mortgage’s growing debt load – invisible, almost, with no payment obligation – will only come due when you move out of your home and it’s eventually sold. Your move may be by choice, by necessity or by death. At least one of those triggers is under your control!

Let’s dig further into the growing and invisible nature of the loan. With each check sent to you by your reverse mortgage, your principal and interest piles up. And, with each passing month, your new borrowing plus your unpaid interest speeds up your debt accumulation. It’s all by design, of course.

HUD, the government agency, closely regulates how much equity a person can tap with a reverse mortgage. Depending on your age and various other factors, only about 50% to 75% of your home’s equity is initially available to you. The reason for the limit is crystal clear.

If your debt pile grows to exceed your home’s value, the federal government is stuck with any shortfall after your home is sold. In fact, HUD’s current shortfall with reverse mortgages recently prompted them to increase the fees they charge borrowers in order to protect the government against future losses.

To get a sense of the fees involved with reverse mortgages, imagine your home is worth $250,000, you’ve reached age 62 – the youngest age allowed – and you currently have no mortgage. If you chose to borrow your initial maximum of around $125,000, your startup loan fees would likely exceed $10,000. This helps to explain why HUD requires all would-be borrowers to complete financial counseling before getting a reverse mortgage.

Join Jason P. Tank, CFA for the Money Series’ season opening presentation on reverse mortgages to be held on Wed., September 13 at 6:30pm in the McGuire Rm. at the Traverse Area District Library. To see the Money Series’ season lineup, visit www.MoneySeries.org

We certainly live in a brave new world. Welcome to the age of passive investing where almost half of all dollars are now invested in index fund strategies with the singular goal of “tracking the market.” That is double the level seen a decade ago and quadruple the level seen only two decades ago.

And, most actively-managed mutual funds – those run by human beings making decisions – are tightly hugging as close as possible to their market-based yardstick. This practice is known as “closet indexing.” Their marketing departments basically demand this lemming-like behavior.

For all intents and purposes, this means the vast majority of money is blindly following, not leading. The question is, to where is it leading?

Let’s examine what a typical balanced portfolio made up of index funds really looks like for the average passive investor.

Within the stock segment, a conventional approach would call for you to own a big dollop of large company stocks along with smaller helpings of mid- and small-sized companies and some international stocks. Within the bond portfolio, a conventional approach would lead you to own a mixture of risk-free government-backed bonds, corporate bonds and some mortgage-backed bonds.

Using the index funds created by Vanguard – the North Star of the indexing movement – the following is precisely what you’d actually own as an investor.

You’d own truly tiny pieces in 506 large companies, 348 mid-sized companies, 1,438 smaller companies and minute slices of 6,176 international companies. On top of that, you’d also own infinitesimally small pieces of 8,174 bonds. Together, you’d own 16,642 individual stocks and bonds.

Viewed another way, for a hypothetical $500,000 balanced portfolio, your biggest stock holdings would be in Apple, Microsoft, Facebook and Amazon and these big bets would represent only about $3,000 each. In addition to these well-known success stories, you’d also have thousands of other investments with an average size of $50 each.

As absurd as this portfolio diversification sounds, it’s important to highlight the primary benefit of the passive, index fund approach. Since no single human being is expending any thought on the investments being made or the risks being taken, the cost of investing in index funds is basically zero. Think about it, you get to invest in over 16,000 securities and it costs you nearly nothing.

Let’s now examine the state of the investment markets. Our current bull market phase is now in its ninth year. Stock prices are at levels only seen at market peaks. Bond yields rest at near-historic lows. And, we live in a world that’s increasingly drawn to artificial intelligence and automation, including entrusting it to manage a person’s life savings. Hmm…

We do live in a brave new world.

As this year has unfolded, investors have been treated to a highly unusual level of financial market calm amidst an equally unusual stretch of political volatility. It’s been eerily calm, in fact.

To put this in perspective, on only two trading days this year has the stock market ended up or down over 1%. In comparison, the number of such wide swings averaged nearly 40 trading days over the past nine years.

Predictably, investors now appear to expect continued calm. One common way of measuring their expectations is through a volatility index, known as the VIX. Today, the VIX index has touched 15-year lows on seven days in the past six weeks alone.

Prior to this, the VIX has only seen readings this low on four occasions, dating all the way back to another very calm period in late 2006 to early 2007. While not predictive, that prior period preceded extreme market volatility and the onset of a both a recession and a bear market.

It almost goes without saying that this lack of volatility has been surprising given the unpredictable political backdrop, a Federal Reserve that has now raised interest rates three times since last December and a US economy that has generally been disappointing relative to the high hopes at the start the year.

Within all of this calm, the first half of 2017 still produced continued gains for investors. Broadly speaking, the US stock market produced a first half return of roughly 6% to 8%. Broken down, the S&P 500 index (big company stocks) rose about 9% and the Russell 2000 index (smaller company stocks) provided a first-half return of about 5%.

Given that most investors are balanced to some degree, it’s important to note that the bond market’s year-to-date total return was about 2%.

Viewing stocks and bonds together, balanced investors willing to simply accept the gyrations of both good markets as well as bad markets experienced returns of about 4% to 6% for the first half of 2017. It’s fair to describe the year so far as a slow-and-calm upward grind.

In the face of these surprisingly solid results for passive investors, my advice is to not let this quiet calm breed an imprudent complacency in your portfolio.

With the Fed hell-bent on raising interest rates in the face of still-low inflation and still-tepid economic growth, with near-peak employment and near-peak auto production, with an historically high-priced stock market relative to company earnings and, finally, with our politicians soon shifting into full-campaign mode with little legislative action to accelerate their big plans for growth, I believe a very discriminating portfolio strategy continues to be both prudent and justified.

If history holds any predictive power – and it only loosely does! – we may average 1% daily swings in stock prices every few trading days before 2017 comes to a close. Now, that would make for one interesting ride, I must say!

It is my belief that honesty is always the best policy. Given that, I am happy to pass along some recent news from the world of finance that helps to tilt things in your favor.

This past Friday, the long-awaited Department of Labor “fiduciary duty” rule finally sprang to life. Despite the Trump administration’s immediate executive order to delay the Obama-era rule (a move with the likely aim to later squash it entirely), the wait is over.

In a nutshell, essentially all financial advisers must now place your interests above their own.

While it may sound like a common sense requirement, you’d be surprised at how pitched the battle has been to impose a robust and uniform fiduciary duty standard across the entire investment industry.

As a result of the new rule, all advisers who choose to provide advice on retirement plans, such as 401(k) accounts and, more expansively, all IRA accounts, now legally owe their clients a duty of good faith, honesty and trustworthy conduct.

It should be noted that this fiduciary duty certainly isn’t new to all types of financial advisers. Registered investment advisers who are strictly compensated on a fee-only basis have always operated as legal fiduciaries to their clients.

However, for professionals who sell financial products on a commissioned basis, such as annuities, insurance or some mutual funds, the new code of conduct now applies. Life just got a big tougher for them and a bit easier for the public.

As a key part of this new, uniform fiduciary duty rule, financial professionals must now operate by what’s known as an “Impartial Conduct Standard.” This standard has three parts that deserve mention.

First, financial advisers must now provide advice that reflects their clients’ personal circumstances, is prudent in its implementation and consistently reflects their underlying duty of loyalty to their clients. As part of their duty of loyalty, any advice they provide must also openly disclose any professional conflicts of interest that might exist.

Next, advisers must receive no more than “reasonable compensation” for the services they provide. Despite the clearly subjective nature of the word, reasonable, in my opinion its inclusion helps to impose a healthy gut-check on overall fee levels in our industry. This is a very good development, especially in a relationship where technical knowledge is so clearly in the hands of the professional.

Finally, to fulfill their duty, financial advisers must also avoid making misleading statements to their clients. While this is obviously a base-level expectation of all clients, it spotlights honesty as the cornerstone of any client-adviser relationship. After all, acting with professional integrity is essentially what it means to have a fiduciary duty.

Unsurprisingly, it likely took many hundreds of pages of government rule-making to codify what we’ve always known; honesty is the best policy. Nevertheless, I am quite pleased it is now the law of the land for many more financial professionals. The public will be better served as a result.

Note: This post was originally published on Frontstreetfoundation.org

It is my professional opinion that today’s stock market and bond market are both generally overpriced. If I am correct, future returns for passive investors will be lower than hoped-for and the implications will be quite large.

The US is facing a substantial pile of age-related liabilities. I am not talking about the tens of trillions in federal government debt. I am also not talking about the many trillions more in mortgage, auto, student loan and credit card debts either.

Instead, I am talking about the very real funding shortfalls in government, corporate pension plans and the critically thin level of household retirement savings we see across the nation.

According to one study by the Economic Policy Institute and another by the Government Accountability Office, retirement readiness for most pre-retiree households in the US is downright alarming.

For the cohort of people age 55-64, the average retirement savings is about $100,000. However, this doesn’t paint the whole picture. To provide further perspective on a widening wealth gap, about 10% of this age group have retirement savings of at least $500,000, while nearly half have zero saved for retirement. The situation is clearly about the few haves and the many have-nots.

Further, at the corporate pension plan level, a glance at these plans’ funding status shows a shortfall totaling hundreds of billions of dollars.

In addition, layering on the officially estimated shortfalls in both state and local government pension plans, their funding deficits alone add up to yet another $1.5 trillion.

Everywhere you look, our increasingly aging population appears poised to expose what has been decades of looming financial issues.

What do these trillions of dollars have to do with the stock and bond market? Plenty.

Using the longer term measure of the stock market’s price level today relative to companies capacity to earn profits – measured by the Shiller Price-to-Earnings ratio, among multiple other reputable, value yardsticks – today’s stock market ranks in history as one of the most expensive ever.

The same can be said about most forms of bonds as well. Interest rates around the globe are hovering at rock bottom low levels. This means bond prices are likewise hovering near all-time highs.

A truism of investing is the higher price you pay today, the lower your returns will be over time. Price acts like gravity; silently pulling down future returns.

Given this, it’s nerve-racking to realize that the trillions of funding deficits across government, corporate and private households widely use the assumption of future investment returns in the range of 7% to 8% per year. Let me non-eloquently say, fat chance!

In contrast, it’s much safer to assume that passive stock market investors will earn, at best, low single digit annual returns over the next decade. Of course, with currently very low interest rates and some irrefutable math, bonds are slated to do no better.

As a result, the longer-term implications are big and our retirement system’s dependency on high returns grows ever larger. We certainly do live in interesting times!

Jason P. Tank, CFA is the owner of Front Street Wealth Management, a fee-only wealth advisory firm located in Traverse City. He encourages questions and comments about future columns. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

Retirement is a process, not a single point in time. Clearly, it’s one that’s best navigated only once.

Reading the key signposts of success along the way will certainly help keep you on the path to a fulfilling retirement. These include aligning your career choice and earnings potential with your natural-born talents and having the discipline to right-size the cost of your lifestyle with that of your income. These are simple, but tough, things.

Beyond strictly financial-related signposts, there are also qualitative pitfalls to avoid. These may include the personal choices you make to avoid a costly divorce or even actions you take to strengthen your biggest asset, your own health.

At the upcoming Front Street Foundation Money Series presentation on Wednesday, May 17th, we’ll work to guide attendees along the pathway of what I call, The Big Transition, and highlight some tangible planning tools for success before and after retirement.

As a preview, I remember a key investing lesson of Warren Buffett’s that I think is worthy of deeper thought for both near- and current-retirees. As many know, Buffett is famous for loving to buy stocks when the market falls. The reason, he explains, is that he’s always a “net buyer” of stocks over time. In other words, he’s always got new money to invest.

His advice for investors is very logical. When you’re constantly investing your savings – like a person does in a 401(k) plan – it’s great to see bargain stock prices. Counterintuitively, bad news is good news.

However, it’s important to note that Buffett’s publicly-stated “long run” is, as he repeatedly says, forever. In this way, his advice is clearly best suited for the younger investor still early on their path to retirement.

What about for the not-so-young? Those nearing or already in retirement inherently know they are not quite like Warren Buffett. And, I’m not talking about relative intellect here.

Those approaching the end of their wealth accumulation phase and pondering the distribution phase may need to rethink some of Buffett’s universal nuggets of investing wisdom.

As you transition between these phases, your years of methodically investing new dollars in the stock market are steadily shrinking. Simultaneously, your years of consistently drawing from your life savings is ever approaching. Like your body, your recovery time for market losses just isn’t the same!

Your likely transition in thinking ironically reminds me of wisdom handed down by Buffett’s not-as-famous, but equally fascinating investor sidekick, Charlie Munger. His advice, when faced with a vexing problem, is to turn an especially tough question on its ear, “Invert, always invert!”

When you apply this advice to your own possibly vexing transition toward retirement, some new thoughts are bound to emerge.

Join Jason P. Tank, CFA for his Money Series presentation on “The Big Transition Toward Retirement” held on Wed., May 17 at 6:30pm in the McGuire Room at the Traverse Area District Library. Register at frontstreetfoundation.org or call (231) 714-6459.

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Attention to all parents and grandparents of a college-bound high school student: our next Front Street Foundation Money Series event will provide your young loved ones with financial lessons that are certain to save them emotional anguish and money for years to come!

That’s quite a claim, but I’ll stand behind it. In fact, for the most enterprising high school students with a willingness to learn from the mistakes of others, we’ll put some money on it.

For the first fifteen students who attend our April 19th event, whether you drag them to it or not, we’ll award a $10 gift card to Brew located in downtown Traverse City.

Our upcoming Money Series presenter, Pam Boyce, is both my colleague and a former MSU instructor of personal finance for over fifteen years. She will share her financial survival tips for college students gleaned from the personal insights and experiences of her many former students.

With the cost of college rising unabated, with student loan debt hitting record levels and with the growing need for a college degree in an increasingly competitive economy, today’s students simply need more personal finance know-how than any previous generation. The stakes are higher than they’ve ever been.

Understanding the benefits and pitfalls of credit is a prime example. Without the ability to borrow money and manage debt responsibly, many doors in life remain closed or only open up much later in life. The lessons of debt often start with the funding of a college education.

Given this, establishing a sound credit rating from the get-go is important. For many, that process starts in college when many students are issued their first credit card. If used wisely, it can be a benefit later in life. If used unwisely, as far too many do, it can lead to serious financial hardship.

Student loans are a particularly complex form of credit that deserves thoughtful consideration from students.

I remember reading an astounding statistic during the Great Recession of ‘07-’09. When the nation’s official jobless rate peaked at 10% – matching the unemployment rate of those with only a high school diploma – college educated workers were less than half as likely to be jobless.

This proved definitively that not only does a college degree allow for significantly greater earnings over a lifetime, importantly it also increases the stability of those earnings during the tougher times.

However, borrowing significant sums to get that valuable college degree – without regard for the type of job you are seeking, without consideration of the lower cost routes available and without establishing basic budgeting habits while in college – can often lead to decades of financial struggle.

In fact, stretching too far financially for your degree or unconsciously burning through borrowed money during those college years can cause serious delays in many of life’s natural milestones; getting married, buying a home, starting a business or even starting a family.

Pam Boyce’s upcoming Money Series presentation is designed to speak directly to high school students; admittedly a demographic that’s less-than-likely to actually read this column!

Do your part by taking your child or grandchild out on a rare date on Wednesday, April 19th at 6:30pm to the McGuire Room at the Traverse Area District Library. They might even thank you by treating you to a cup of coffee at Brew! Register at frontstreetfoundation.org or call (231) 714-6459.

With the Federal Reserve starting in earnest to raise interest rates, it’s all the rage to worry about bonds. Why all the hand-wringing? It boils down to a tendency to over simplify the math.

To start, bond investors expect two things; getting their money back at some known point in the future and receiving interest income while they twiddle their thumbs.

Investors are imprinted at birth with the notion that rising interest rates are bad news for bonds, and vice versa. Like a teeter-totter; on one end sits bond prices, and on the other end sit interest rates. When rates rise, bonds fall in value. When rates fall, bond prices rise.

Of course, this basic math of bonds isn’t all there is to know. Let me necessarily complicate the matter.

The first thing to know is that maturity matters. I’m talking about the length of time a bond investor agrees to wait to get their money back. The shorter they agree to wait, the less worried they should be about rising interest rates.

The closer to maturity, the smaller the ups-and-downs they’ll feel. Think of it as “scooching” closer to the center of that teeter-totter. In fact, if you scooch in really close, the ride can get awfully boring, no matter how many headlines Janet Yellen and the Fed are making.

The second thing to know is interest rates come in many flavors. There are interest rates for bond investors who don’t want to wait long for their money. And, there are interest rates for the very patient bond investor. And, of course, there’s a full spectrum of rates in between. This spectrum is known as the “yield-curve.”

It’s the changing shape of the yield curve that really matters. The short, middle and the long-end of the yield-curve might behave very differently. As a bond investor, there are lots of teeter-totters on the playground to hop on. Some are slow and some are fast. Some produce a wild ride. Others are boring.

The third thing to know is not all bonds carry the same risks. You might choose to lend to a sure-bet borrower or to a dead-beat debtor. The sure-bet naturally pays less interest and the dead-beat pays more.

To bond investors, everything is a game of comparison. The difference in the interest you’ll earn by lending to the highest quality borrower – the US Treasury with its power to tax and to print money – and to the mere mortal borrowers, are known as the “credit spread.” Credit spreads pay you for taking a risk.

The level of credit spreads changes with the ebb-and-flow of investor confidence. On one hand, “wide” credit spreads can protect investors like an airbag when the teeter-totter hurls you downward. On the other hand, “tight” credit spreads can lead to a sore rear-end or worse.

Yes, it’s true the Fed appears hell-bent on raising short-term interest rates. But, clearly there’s more to know than just that fact alone. Your choice of maturity, your assessment of the shape of the yield-curve and your focus on the level of credit spreads will all play a factor in how your bond portfolio will perform. Be sure to pick your teeter-totter wisely.

The more things change, the more they stay the same. That was never more true than with the recent unveiling of the Republicans’ long-awaited “Repeal and Replace” plan, called the American Health Care Act (AHCA). To the surprise of many, under their plan large swaths of the existing Affordable Care Act (ACA) would remain.

Given the likely continuity of key provisions of the Affordable Care Act, the upcoming Money Series presentation by Laverna Witkop of Ford Insurance Agency couldn’t be better timing. For those interested in learning more about ways to access today’s health insurance market, Laverna’s grasp of both the current ACA’s rules as well as her knowledge of the Republicans’ proposed changes under AHCA will be on full display.

To begin, let’s first describe a few major similarities between the proposed AHCA and the existing ACA.

The ban on denying insurance coverage for those with pre-existing conditions will remain unchanged. In addition, the rule allowing young adults to stay on their parents’ health insurance policy until age 26 would also remain. And, perhaps most controversially for some GOP members, the AHCA maintains the granting of health insurance premium subsidies through tax credits.

Of course, there are also major differences between the ACA and the proposed AHCA.

Where the ACA provides premium subsidies based solely on income, the Republican’s AHCA instead bases its subsidies on age alone. This change favors those with greater income and those who are older. Additionally, health savings account contribution limits would also rise substantially, a change that mostly benefits those with higher incomes.

Further, many of the new taxes created under ACA would disappear under AHCA. Among others, gone are the taxes on some medical devices and the extra tax applied to investment income for very high income households. Finally, penalties imposed on certain employers for failing to offer “affordable” insurance plans are eliminated too.

Aside from the loud critique that the proposed AHCA simply looks too much like the existing ACA, the new plan’s decision to maintain many of the same benefits along with the repeal of taxes may have created a tall political hurdle for certain Republicans; a possible widening budget deficit.

Leaping this hurdle may prove difficult and might add some political intrigue. Passing the law may require the Republican leadership to either make the new AHCA more palatable to the conservative wing or require them to convince enough Democrats to vote for it. Democrats might pragmatically view the new AHCA as just close enough to the old ACA. After all, their acronyms alone look awfully similar! That’s politics for you.

Moving beyond the politics and into the realm of financial education, join Laverna Witkop at the Front Street Foundation’s Money Series on March 22 at 6:30pm in the McGuire Room of the Traverse Area District Library where she’ll speak about the nuances of the Affordable Care Act and your health insurance choices. Register at frontstreetfoundation.org or call (231) 714-6459.

Not too long ago, retirement planning was built on the concept of a three-legged stool. One, a pension, negotiated by you and promised by your employer. Two, your own investments, saved by you and supported by an ever-growing economy. Three, Social Security, provided by you and your employer and mandated by your government.

With this secure and sturdy stool in place, a solid retirement plan was once likely, if not probable. For many today, retirement security is based not on a concept of a stool, but rather a pogo stick, where Social Security plays a huge role for those who struggle to save and invest.

Given its importance, the next Money Series event will delve into Social Security; how the program works and the rules you should understand to get the most out of it.

To highlight Social Security’s impact on our lives, a few facts speak volumes.

Approximately 60 million people receive almost $1 trillion in benefits every year. On average, the program provides about one third of household income for the elderly. Yet, even those statistics don’t properly paint the full picture.

Digging deeper, about half of all retired married couples and three out of four retired single people receive more than half of their income from Social Security. Shockingly, almost half of retired singles rely on Social Security for over 90% of their income.

Social Security is a big deal. Even so, its various rules and options remain a mystery to most. It literally pays to know them better.

Far too many fail to realize the advantages of simply waiting to file for benefits. As a result, millions leave billions of dollars on the table by choosing to file at their earliest possible age of eligibility. In fact, just less than half file for benefits at age 62. Astonishingly, waiting until age 70 to file for benefits results in nearly 80% more per month.

In an age of constant medical advancements, longevity can be both a friend and foe. Earning Social Security’s delayed-retirement credits, earned by waiting to file for as long as possible, is just one tool tilting things in your favor.

For married couples, it’s important to understand that lower-earning spouses may be entitled to receive additional benefits – called, spousal benefits – in exchange for supporting the careers of their higher-earning spouse and/or choosing to raise the children.

Many people also fail to understand that even after a divorce or the death of a spouse they are entitled to benefits connected to their former married status. Spousal benefits for divorced retirees and survivor benefits are yet another wrinkle that deserves a deeper education.

Finally, since April is just around the corner, it’s also important to understand how your Social Security benefits are taxed. From the limits on what you are allowed to earn when you are under age 66 to the amount of income allowed before Social Security starts to tax away your benefits, various strategies do exist to help you minimize the taxman’s bite.

To hear more on Social Security’s rules and options, join me on Wednesday, Feb 15th at 6:30pm for the Front Street Foundation’s Money Series held in the McGuire Room at the Traverse Area District Library. Visit MoneySeries.org

A client of mine, but more importantly a family friend of four decades, recently passed away. As I sat down with her loved ones, I immediately recognized the gift she provided them. Her gift was the overall simplicity of her estate plan. It’s something everyone should strive to leave behind. It all starts with a purposeful conversation.

While it’s true the duties assumed by an estate’s personal representative or a trustee still require time – often spent in the midst of grieving – your thoughtful planning can ease their workload considerably.

Upon reflection, I view my client’s well-organized affairs as a model to follow. So much so, I now consider it one of my professional New Year’s resolutions to help all of my clients review their plans. I strongly suggest readers do the same.

To help spur your own review, attorney Diane Kuhn Huff of Stephen & Anderson will be speaking this month on estate planning at the Front Street Foundation’s Money Series. Her goal is to help you begin your own meaningful conversation on a topic too many neglect.

Her presentation will help uncover and better define your wishes about the type of health care you really want, where and in what manner you’d like to live your later years and the various resources you’d like to provide your chosen personal representatives to help fulfill your life plan.

In my client’s case, she had expressed a deep desire to remain at home in the final months of her life. The steps she took in her planning – through a combination of her financial set up and open conversations with her family members – allowed her to access the support she needed to achieve that goal.

Your own conversation might begin with a review of the choices you can make now to either remain at home or to gradually transition to other living environments with built-in levels of support. Your conversation might also enhance your understanding of the complex eligibility rules for Medicaid or VA benefits and how you can plan accordingly. In addition, you could discuss the trade-offs created by strategic asset transfers to your spouse or your heirs.

To close, I’d like to add a special note: As is often the case during difficult moments in life, positive things emerge. For my client’s family, a lasting impact was made by the wonderful care provided by the people at Hospice of Michigan. We are very fortunate to have available such high quality resources in our community.

To learn more, join Diane Kuhn Huff on Wednesday, January 18 at 6:30pm for the Front Street Foundation’s Money Series held in the McGuire Room at the Traverse Area District Library.

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Sentiment is a peculiar thing. It can turn on a dime. Recently, those dimes have piled up quickly. Since early November, significant new paper wealth has been created from rising stock prices.

The big shift in investor sentiment over the past eight weeks undoubtedly centers around Trump’s victory and the anticipation of Republican control of all three levers of the federal government.

Since the election, the broad stock market has leapt about 7% and stock indexes of smaller, domestic companies have popped about 15%. Is this supportable?

Perhaps it’s true plans for fewer regulations and coming tax cuts may explain some of it. Possibly it’s true that plans for increased infrastructure spending has had some effect. Maybe it’s also true the president-elect’s cabinet appointments foreshadow even more pro-business policies to come.

Yet, these factors alone are difficult for me to explain such a sudden mood shift. Change often happens slowly and, as a result, markets often overshoot expectations.

Here are a few things that concern me with investors’ recent – almost instant – positive reaction to the election.

First, tax cuts aren’t all created the same. Much depends on who receives the tax cuts and what they choose to do with the extra money.

When tax cuts accrue to the wealthiest households, they tend to spend less of their windfall than do the poor. The Bush tax cuts – also heavily weighted to the wealthy – were an example of a lower “multiplier” effect on economic growth. Similarly, if the currently anticipated tax cuts end up sitting in the bank, the effect on the economy may be far smaller than many now anticipate.

While it’s true some will invest back in the economy, that decision will be driven only by a clear-eyed assessment of unmet demand for goods and services. Absent that new demand, many businesses may choose to instead increase dividends, buy back their own stock, or pay down debt. These actions aren’t nearly as impactful on growth as hiring new workers, investing in research and development, building new factories or even raising wages for workers.

Second, given the importance of global trade, it’s troubling to hear the chatter of imposing tariffs, watch the strengthening of the US dollar or read threatening tweets about trade wars. The notion that it’s all just tough talk may be unwise to assume. In response, large multinational corporations will flex their well developed lobbying muscles. But, it may prove quite difficult to put the protectionist genie back in the bottle.

Finally, stocks are trading at all-time highs. Reputable measures of the stock market’s value, such as the Shiller Price-Earnings metric, should not be waived off so readily. An immutable law of finance is the higher price you pay, the lower your future return.

The past two months of 2016 reminds me of something Warren Buffett once said, “Investors pay a very high price in the stock market for a cheery consensus.” If today’s sentiment on Wall Street can be described in a single word, cheery, most certainly fits the bill.

While the end of the year is admittedly busy, I feel compelled to add to your to-do list!

I was recently reminded of a clever habit of one of my newer clients who hold their very own financial “State of the Union” around their kitchen table each year. For them, this serves as a structured time for them to reflect on the past year and to help them financially plan forward.

In preparing for our upcoming Money Series joint presentation, where we will each share tips regarding year-end financial planning ideas, local attorney Greg Luyt of Bowerman, Bowden, Ford, Clulo & Luyt introduced me to an expanded and robust version of this same disciplined habit.

For those who have been left behind to piece together the puzzle of another person’s life, being handed a cheat sheet is truly welcome. Mr. Luyt’s important idea is to encourage you to create what he calls a Family Guidebook to make things much easier for your loved ones after you are gone.

This essentially entails the creation of a set of communications that may encompass an inventory of – among other important items – your various financial accounts, the location and your intentions for your cherished personal belongings and even a narrative reflecting your final wishes with regard to your funeral arrangements.

Luyt stresses that, regardless of your financial means, your Family Guidebook can cost you next to nothing to create. All it takes is your time to reflect, review and routinely renew your intentions. Add this one to your list of soon-to-be-successful New Year’s resolutions.

Now, I’ll move on to time-sensitive things that you probably shouldn’t put off until next year. As I mentioned a couple weeks ago, it might actually save you money.

If we assume the nearly identical tax plans of the House Republicans and President-elect Trump will actually be implemented, your ability to deduct charitable donations, property taxes, state income taxes, and in most cases, even your mortgage interest, may be long gone.

Even if the contemplated changes fail to materialize, we absolutely know we can still deduct these expenses in 2016. So, your proactive planning has no downside.

To ensure your ability to deduct these expenses, consider paying early your winter property tax bill, your next estimated state income tax payment and even your January mortgage payment before the end of the year. Under most scenarios, and for most taxpayers, this will result in lower taxes.

Importantly, for those with charitable intent, talk to your adviser soon about storing up multiple years of your charitable donations by opening a “donor-advised” fund. It’s extraordinarily easy, anyone can do it and there’s still time. To add to your pressure, there are only twenty six days left to plan. Start now!

For more tips on year-end financial planning, join Jason P. Tank, CFA and local attorney, Greg Luyt, on Wednesday, December 14 at 6:30pm for their joint presentation for the Front Street Foundation’s Money Series held in the McGuire Room at the Traverse Area District Library. Visit FrontStreetFoundation.org or call (231) 714-6459 to register.

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Thanksgiving is not normally the time to talk taxes. Yet, here we are. With single party rule coming to Washington, expect to see real tax policy changes ahead. With these changes, you should consider a few steps before the new year begins.

Let’s review the possible – I’d say, very probable – tax law changes for households.

First, expect to see fewer tax brackets. The current 10% and 15% brackets will collapse into a single, new 12% tax bracket. And, in place of the current 25% and 28% brackets, expect a new, wider 25% tax bracket. You are right if you feel these changes appear inconsequential.

The more interesting changes will be for taxpayers in the current 33%, 35% and 39.6% tax brackets. If you fall into this slice of households, you should expect only the lower 33% bracket to survive, among other tax cuts.

Next, instead of keeping track of your various deductible expenses – a practice called, itemizing – you will no longer need to account for things quite so closely. Most people will fall into the camp that uses the “standard” deduction as it is slated to double in size.

If you stay in the camp of taxpayers who will still itemize, it’ll only be because you have a very large mortgage or you donate a lot of money. All other deductible expenses – property taxes, state income taxes, medical expenses and professional fees – will be a concern of the past.

This will make things much simpler, but not necessarily more lucrative to most households – here’s why.

The current plans also call for you to lose all of your personal exemptions. This will work to hike your taxable income. For most, the doubling of your standard deduction will only work to offset this hike. For most households, the final result of these changes will be a wash.

As Shakespeare once said, for most people, these changes will feel like “much ado about nothing. “ The substantial changes will be for high earners.

With the lower tax rate on higher income, a far lower, special tax rate on self-employment and small business income, the elimination of the extra tax on investment income, the possibility of higher earners now getting to claim the larger standard deduction and with a possible elimination of the estate tax, the proposed changes beginning in 2017 are, indeed, consequential for high earners.

As with any changes in tax law, proactive moves can help to lower your tax bill before the start of next year. For many households who will no longer be able to itemize, these moves may include paying your winter property taxes early and making planned charitable donations now. Pausing now to anticipate these possible changes before year-end could very well put money in your pocket.

For more tips on year-end financial planning and beyond, join Jason P. Tank, CFA and local attorney, Greg Luyt, on Wednesday, December 14 at 6:30pm for their joint presentation for the Front Street Foundation’s Money Series held in the McGuire Room at the Traverse Area District Library. Visit FrontStreetFoundation.org or call (231) 714-6459 to register.

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As the holidays approach, it’s a natural time to reflect on the meaning of generosity. While today’s needs should rightfully capture our immediate attention, it is inevitable that tomorrow’s needs will make an equally compelling case. Like most things in life, there is a place for striking a balance between these competing interests. In the world of philanthropy, this balance is achieved through the use of legacy giving.

What is legacy giving? How does it work? Can anyone do it? These are a few of the questions I considered as I thought about the upcoming Money Series presentation by Phil Ellis, Executive Director of the Grand Traverse Regional Community Foundation on how people can create a plan that supports the causes that have shaped their lives or those of their loved ones.

Legacy giving is about extending into perpetuity your passions and causes in ways that can benefit those who will inexorably follow in your footsteps. When legacy giving is done well, it’s a wonderful thing to see.

Compelling stories of legacy giving jumped off of our community foundation’s website as I perused the long list of local charitable funds. In a world of unfiltered cynicism, it was frankly a refreshing exercise to undertake.

For example, Andrew Shotwell, attorney with Smith & Johnson, recounts his experience from the planning through the giving stage of the Ernest B. Isaacsen Scholarship Endowment. Mr. Isaacsen was awarded our local Chamber of Commerce’s distinguished citizen award 67 years ago. His story certainly shows the power of legacy giving. So much so that Mr. Shotwell’s musings about how those charged today with choosing scholarship recipients often say, “What would Ernie think of this application?”

Other stories include those of Cleo Purdy of Central Lake, who had a passion for providing enriching experiences for young children and their families. Following her death, her planned giving now supports playgroups, preschool and the literacy of young children in our region. In another example, following the passing of Karolina Holtrey in 2000, her legacy giving still provides ongoing support for Frankfort’s library, senior care, and various other educational opportunities in her former community. Finally, Traverse City’s own Dr. Ken Taylor believed in the need for excellent and available health care for everyone. Since his passing, his daughters have worked to ensure that his guiding vision extends well beyond his lifetime.

To learn about legacy giving, join Phil Ellis on Wednesday, November 16 at 6:30pm for his presentation for the Front Street Foundation’s Money Series held in the McGuire Room at the Traverse Area District Library. Front Street Foundation is a nonprofit with a commitment to provide open-access to financial education, for all. Visit FrontStreetFoundation.org.

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The problem of financial fraud and exploitation of seniors continues to grow day by day. With many billions of dollars stolen from retirees each year, more must be done to help minimize the damage inflicted by financial scammers.

This effort will take a combination of public awareness through education and a concerted effort to protect the most financially vulnerable among us.

In my career, I have personally witnessed two financial frauds involving my own clients. In both cases, the perpetrator used popular scams, known as the IRS scam and the Grandparent scam.

Most financial frauds have a common thread. The crook probes for a targeted victim’s emotional vulnerabilities – from outright memory loss to a general limitation in understanding financial concepts – and then expertly exploits it.

Studies have shown that a person’s ability to grasp semi-complex financial situations “on the fly” – known as fluid intelligence – tends to steadily diminish with age.

Interestingly, as people grow older, their fluid intelligence can begin to diverge markedly from their overall mental skills and knowledge built-up in other important areas of their life. This divergence helps to explain why otherwise intelligent people fall for seemingly obvious scams. It also explains why many victims keep the crimes a secret due to their embarrassment and shame.

Through increased public awareness – not only for the elderly but also for their loved ones and caregivers – I believe we can help to combat scammers and to arm future victims and their families before a crime is committed.

To begin raising that awareness, here are some tell-tale signs a potential scam is underway.

The first sign is the con artist will pressure the victim to either act quickly or they will downright scare the victim, such as the threat of imminent arrest or even the revocation of their driver’s license.

In addition, the scammer may impersonate someone in a position of authority, pretend to be a loved one in need of financial help or will fake romantic interest in order to gain the victim’s trust.

Certainly, the challenge of prevention is complicated given advances in technology that allow criminals to easily mask their true identities and to avoid prosecution. Given this, developing proactive strategies and practices is our best line of defense to help protect the most vulnerable among us.

To learn more about how to better protect yourself or your loved ones against financial fraud, join Jason P. Tank, CFA, on Wednesday, October 19th at 6:30pm for his presentation for the Front Street Foundation’s Money Series held in the McGuire Room at the Traverse Area District Library. Front Street Foundation is a nonprofit with a commitment to provide open-access to financial education, for all. Visit MoneySeries.org.

With summer now in the rear-view mirror, the process of closing down the family cottage in Northern Michigan is underway. This inevitably sparks thoughts of next year’s plans and family travel schedules. But, for some, it also sparks lingering thoughts about the need to develop a plan to ensure your cottage will remain in the family for decades to come.

The decision to embark on estate planning for your cherished cottage is often less about financial maneuvering than it is about emotional considerations. After all, the memories made on the lake or on the banks of the river are no doubt deeply engrained in your family’s culture.

The importance of this was summed up nicely by Dan Penning, a local attorney with expertise in succession planning for family cottages, ”One client showed me a large oak tree in the side yard of his family’s cottage, which had a peculiar pronounced branch protruding about halfway up the trunk. A tire swing on a chain hung from the branch.”

”Through the years, the chain became embedded into the branch and my client told me that the swing had been there when he was a child and that he had played on it just as his children, grandchildren and now great-grandchildren were playing there 75 years later!”

Mr. Penning continued, “Stories like these are not at all uncommon over my career in assisting families in their planning for the protection and continued use and enjoyment of their family cottages by themselves and future generations.”

The unique factors involved in a successful cottage plan often requires honest, self reflection. For example, not all families are great candidates for cottage succession planning. It may simply be that the kids don’t share the same affinity you have for your cottage. In addition, the financial means necessary to maintain a robust cottage succession plan may not exist. If this is the case, there is no point in trying to fit a square peg into a round hole.

However, when your family’s structure points to both the desire and the means to ensure continued enjoyment of the family cottage for generations to come, the legal planning to create a lasting success naturally takes on the flavor of business planning.

Beyond the final legal structure chosen to transfer the ownership of your family cottage, the nuts and bolts of business operations must also be explicitly defined. These operational considerations take the form of shared financial responsibilities, cooperation on usage for each family member and their guests as well as the legal protection of the asset against future creditors or divorce, and many more.

To learn more about planning for your family cottage, join Dan A. Penning, founding member of The Penning Group on Wednesday, October 12th at 6:30pm for his presentation for the Front Street Foundation’s Money Series held in the McGuire Room at the Traverse Area District Library. Front Street Foundation is a nonprofit with a commitment to provide open-access to financial education, for all. Visit FrontStreetFoundation.org.

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Today’s annuities are so complex, it’s safe to say most people who’ve been sold one have little understanding of how they work. To help, let’s cover some general and specific features of both indexed and variable annuities, the types sold about 80% of the time.

During the accumulation phase, before you start to draw out money, variable annuities basically allow you to invest in mutual funds that rise and fall with the markets.

With an indexed annuity, your return is very loosely linked to a chosen stock market index. When stocks rise, you often receive just a small portion of the gain. In exchange, when the market drops, you don’t lose.

In essence, indexed annuities equip investors with training wheels along with knee, elbow, wrist pads and a helmet. All that protection can leave little to be desired. Often, indexed annuities give you only a small return, even in a good year for the market. While you might not lose, there simply isn’t much upside offered.

Becoming an educated investor in indexed and variable annuities requires you to decipher terms like, participation rate, cap, spread, crediting rate method, step-up feature, premium bonus, roll-up period, accumulation value, protected benefit base, living benefits, contingent deferred sales charge and guaranteed minimum rate, among many others. It’s like learning a whole new language.

Within many annuities, insurance companies also offer add-on insurance features that provide protections, at a cost, sometimes significant. These riders are designed to sweeten the annuity for the income phase, but they do require you to keep the product for a set number of years.

The most popular riders available for variable and indexed annuities are generally referred to as, living benefits. They often go by names that include the word, guaranteed. Put simply, among your normal annuity account balance, living benefit riders present you with a steadier “phantom” account balance that you cannot tap into unless you are willing to accept installment payments. These riders frankly make you feel a bit schizophrenic as you must follow multiple alternative account balances – both real and phantom – at the same moment.

Despite the sheer complexity of today’s annuities – whether you already own one or you don’t – gaining a working knowledge is a wise move. Based on the fact that about $250 billion of these annuities were sold last year, there are a lot of sales pitches to handle.

To learn more about annuities, join Jason P. Tank, CFA on Wednesday, September 14th at 6:30pm for his presentation for the Front Street Foundation’s Money Series held in the McGuire Room at the Traverse Area District Library. Front Street Foundation is a nonprofit with a commitment to provide open-access to financial education, for all. Visit FrontStreetFoundation.org.

Annuities are not typically purchased. They are most often sold. While annuities can be a valid solution for some, they can be entirely inappropriate for others. In my experience, annuity sales are too often sold to people who fear for their financial future. This is about to change and it couldn’t come a day too soon. Given the complexity of annuities, this is the first of two installments.

The Department of Labor, under their new and expanded fiduciary duty rules, clearly agrees with me. Once fully implemented, their new rules will subject many annuity salespeople to a much thicker layer of regulatory scrutiny. This will undoubtedly mean more objective advice is given to people facing important retirement decisions.

With that, let’s first define what an annuity is by describing the trade you’re making when you purchase one.

When you buy an annuity, you hand over your money to an insurance company. In return, you are promised a set of payments in the future. The point in time you begin receiving those payments can range from right away to decades later.

Let’s next categorize annuities by the way your money grows after you hand it over to the insurance company. Your return is either fixed or it’s variable.

With a fixed annuity, the insurance company promises you a set return on your money, like you’d get with a CD or a bond. With a variable annuity, your return is linked to stocks and bonds, like your typical investment account.

What makes annuities hard to evaluate are the extra features insurance companies build in. These features are often band-aids designed to soothe the real pain inflicted by your separation from your money – “Will I still have access to my money, if I really need it?” Or, annuity contracts contain bells and whistles designed to sweep away your pre-existing worries – “You no longer have to gamble at the stock market casino.”

Of course, the more flexibility and protections you desire in an annuity, the higher its cost and the lower your benefits. As much as they’d like you to believe it, the annuity industry has not yet discovered financial alchemy, unless you count their ability to consistently turn your fears into their fortunes. With a little education, your personal annuity decision – yes or no – will end up being what’s best for you alone, as it always should be.

To learn more, join Jason P. Tank, CFA on Wednesday, September 14th at 6:30pm for his presentation on behalf of the Front Street Foundation’s Money Series held in the McGuire Room at the Traverse Area District Library. Front Street Foundation is a nonprofit with a mission to provide open-access to financial education, for all. Visit FrontStreetFoundation.org to learn more.

I found this chart to be kind of comical in the sense that it signifies almost nothing. Yet, it’s been cited by a big bank and it’s hit the CNBC newsfeed. Could a 2.5% swing in the level of current cash holdings in mutual funds mean all that much? Seems like an insignificant squiggly line to me. 

After reading dovish remarks from Fed chair Janet Yellen last week, these comments from another Fed governor stand in stark contrast. 

It begs the question if the Fed believes that its primary tool is its ability to manipulate expectations for interest rates in the future through the power of its words, this type of cross-talking between officials certainly doesn’t help in that policy tool. 
Rosengren to markets: You have it all wrong on rate hikes http://www.cnbc.com/id/103518094

More goes into planning for and sustaining a retirement than meets the eye. On the surface lies plenty of generic advice from the financial planning industry. Yet, beneath the surface are a slew of assumptions about a largely unknown future. To understand how to manage your sustainable retirement clearly takes more than simple rules-of-thumb.

It should come as little surprise that your retirement decision may be dominated as much by feelings of insecurity as it is by feelings of excitement. Thankfully, the balance between these two emotional poles can be tilted in your favor with pre-retirement planning.

For example, one critical first step for a soon-to-be retiree is to develop a deeper understanding of your post-retirement budget. During your working years, budgeting is all-too-often dismissed. However, when your income becomes more-fixed and less-active in nature, spending choices take on a new sense of importance.

During meetings with soon-to-be-retired clients, my early fact-finding focuses on gaining a better understanding of the true cost of their lifestyle. Without that understanding, retirement planning – and the day-to-day services that follow from that planning – can feel like stumbling in the dark.

With your lifestyle’s financial obligation defined, the traditional survey of your assets and debts and the review of your various sources of income begin to take on the deeper purpose of building financial sustainability.

Of course, the financial obligation that springs from your choice of retirement lifestyle must be met by sustainable income. For most retirees, at the base rests Social Security and, for a shrinking number, pension income. Together, these are just two legs of the proverbial three-legged financial stool.

The final leg of a sustainable retirement is built from income earned from your personal savings. While some might be generated from real estate or even business interests, it often must be earned from traditional sources, such as IRAs or after-tax savings and investments.

It is here, within this portion of private savings, where you may have a lack of confidence of how much you can safely spend from private savings each year.

This central question about your safe spending rate, known in the industry as the sustainable withdrawal rate, is where financial planners toss around overly-simplistic rules-of-thumb. In reality, the assumptions that underpin rules, like the “4% Rule”, are complex and debatable. For good reason, this subject dominates the thoughts of many financial planners. Honestly, it rarely strays far from my mind when managing my clients’ investment portfolios.

As we enter the new year, it would be wise for you, a current or soon-to-be retiree, to establish your own personalized safe spending rate. Only then will a confident retirement – and, yes, a worthwhile New Year’s resolution – be sustained.

Jason P. Tank, CFA of Front Street Wealth Management will hold a free educational workshop on “Finding Your Safe Spending Rate” on Jan 13th at 6:30pm in the McGuire Room at the Traverse Area District Library. Call (231) 947-3775 with questions.

The Fed did it! After nine years since the last rate hike, and following seven years of near zero interest rates, the Fed and Janet Yellen last Wednesday finally raised short-term rates by a whopping one quarter of one percent. The financial markets, which had been displaying concern and worry during the decision’s build-up, largely sloughed it off.

Listening to Yellen during her follow-on press conference, what strikes me is the Fed’s propensity to represent the consensus view. As economic cheerleaders, this is quite natural for the Fed, of course. What else could they say and how else could they feel other than believe the near-term future will resemble the recent past? The past trend is always the future trend to consensus thinkers. This is precisely why the majority of investors fail to anticipate a change in the trend.

For example, as the calendar turns, many will read market prognostications for the year ahead. Already I have noticed news stories that indicate stock market returns will be in the range of 5% to 10%. For as long as I can remember, I’ve seen this range of returns anticipated time and time again. Not coincidentally, that range fits the long-term historical return of stocks in the US.

Published along with the news release of the Fed’s decision last Wednesday, Fed governors made public their own individual projections of economic growth, inflation expectations and unemployment over the next few years along with their long-range expectations of these same measures. What’s striking about this report is their consistent lowering of economic growth and inflation relative to their prior projections. The Fed has consistently been too optimistic.

Like many economists and investors, the Fed has looked for inflation to rise back to its long range target of 2% per year. Today, that measure sits closer to 1%. The consistent undershoot of inflation is not a phenomenon of the US alone. Many of the largest economies in the world are also experiencing what’s known as disinflation – a decrease in the rate of inflation. This was true prior to the drop in oil prices and does raise questions about possible structural issues for the global economy that may lead to continued subdued inflation rates.

It’s fair to say that the largest concern of all central bankers is for disinflation to morph into deflation – that is, an outright drop in prices. This is what Japan struggles with today following their own financial crisis many decades ago. Global central bankers, through zero interest rates and asset purchases, responded to this prospect with an unparalleled monetary experiment.

The question is, did the experiment work? With the Fed finally raising interest rates off the floor, the largest impact may be in the confidence “signaling” impact for investors. In other words, if the Fed feels it’s safe to finally raise rates after seven years in credit crisis-recovery mode, they must feel the trend is their friend. Outside of asset price appreciation and a now-larger pile of low-cost debt, a definitive answer to the question remains unanswered.

In this second segment of in my series on the new rule changes within Social Security, I will delve into other aspects worthy of deeper analysis.

Where my previous column highlighted the late April 2016 deadline faced by a 66 year-old couple planning on using Social Security’s “file-and-suspend/restricted application” trick to maximize their benefit, this week focuses on how the new law affects two younger demographic groups; those age 62 to age 65.5 and those younger than age 62.

Over the next four years, Congress is winnowing down the filing options that Social Security now offers. As time passes, the available choices for retirees will become fewer and fewer. The upside of this narrowing of choices is the beauty of simplicity for future retirees. The downside, as you might have guessed, is your Social Security benefits over your lifetime will likely be less than those received by the prior generation.

To begin, if you won’t reach age 62 by the end of this year, you will not be allowed to restrict your filing to just your spousal benefits. If you fall into this younger group, Social Security will simply pay you the greater of your own earned benefit or the benefit you’re entitled to receive as the spouse of another then-collecting worker.

With these simplified rules, for the youngest among you, Congress just took away your ability to begin collecting your spousal benefit – which can begin at age 66 – while also simultaneously deferring the benefit you may have earned yourself. That “restricted application” trick is over for you.

This ability to collect only your spousal benefits – and watch your own benefits based on your work record grow year after year after year – is now only available to those who are at least age 62 by the end of 2015.

For this slightly older group – let’s call them the middle demographic – you will still have the right to collect your spousal benefit at your full retirement age, to continue to let your own benefit grow 8% per year until age 70 and then, finally, to switch over to your bigger benefit. But, there’s a catch to remember with this strategy.

Unlike the older retirees profiled last week, for this middle demographic to be allowed to restrict their filing to only their spousal benefit, their spouse must also be collecting their own benefit.

With deadlines approaching and with the key role Social Security plays in retirement income planning, understanding the rules has gained importance.