volume 39 issue 4 · 2018-10-23 · of 30 companies maintained and reviewed by the editors of the...
TRANSCRIPT
Fall 2018
More of the Same
Stay the Course
Social Security Taps Trust Fund; Should You Be Worried?
www.SullivanInternet.com
Volume 39Issue 4
A wealth management practice providing tailored solutions through a collaborative client experience for over 35 years
Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered Raymond James Financial Services Advisors, Inc. and Sullivan & Associates. Sullivan & Associates is not a registered broker/dealer and is independent of Raymond James Financial Services, Inc.
The Financial Advisor Newsletter
CONTENTEconomic Snapshot More of the SameStay the CourseDid You Know.... Resources for a Long and Lively RetirementSocial Security Taps Trust Fund; Should You Be Worried?Is a Financial Plan Enough?
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Front cover photo taken by Patrick L. Sullivan
Nasdaq
Russell 2000
S&P 500 Barclay’s Agg.
DJ Global ex USDJIA
16.6 %
10.5 %
9.0 % -0.96 %
-5.2 %7.0 %
ECONOMIC SNAPSHOT
Source: WSJ, October 1, 2018. Inclusion of these unmanaged indexes is for illustrative purposes only. Keep in mind that individuals cannot invest directly in any
index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor results will vary.
Past performance does not guarantee future results. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing the stocks
of 30 companies maintained and reviewed by the editors of the Wall Street Journal. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally
considered representative of the U.S. stock market. The Nasdaq composite is an unmanaged index of securities traded on the Nasdaq system. The Dow Jones
Global ex US is a stock market index measuring equity securities traded globally in 64 countries, excluding the U.S. The Barclays Capital US Aggregate Bond Index
is a benchmark index composed of US securities in Treasury, Government-related, Corporate, and Securitized sectors. The Russell 2000 index measures the per-
formance of the 2000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index.
YTD
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PAT’S VIEWMORE OF THE SAME
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“we expect the U.S. economy to continue to do well and grow, leading to continued gains in the fourth quarter”
It was an unusual quarter as the U.S. stock market ignored most of the political controversy and reached for new highs as the economy continued to grow, and corporate America generally continued to do well. After being in a trading range for several months, major U.S. stock market indexes hit a series of new highs during the last quarter. This is despite major political issues which seem to be holding the world’s and media’s attention. In the meantime, the Federal Reserve increased interest rates again as it moves to better prepare itself for when inflation picks up and the economy starts to
overheat. While this will eventually happen, we are not seeing any indications of it yet. If there is a substantial major event or as new in-formation becomes available, our expectations are subject to change.
We expect in the fourth quarter we will see more of the same with potential for volatility in both directions, as we work our way through trade discussions interna-tionally, relating to tariffs. In
the meantime, we expect the U.S. economy to continue to do well and grow, leading to continued gains in the fourth quarter. We also blieve interest rates will increase potentially, in December, and possibly two to four times next year. It should be noted that while our economy and mar-kets have been doing very well, the international markets have not done nearly as well, but in our opinion, appear to have substantially more value than the U.S. market. One of the significant issues for European markets is the effect Brexit will have on their economy.
As always, maintaining reasonable asset allocation and diversification will help to minimize some risk. It is important to review and update your goals and risk tolerance level at our periodic meetings in order to, hopefully, minimize negative surprises. We know that at some point in the future we will have another recession and slowdown in our economy. Although no one knows when this will happen, we need to prepare for it.
If you have questions on any of these issues, please feel free to bring your questions up at our meetings or contact us at any time so we can discuss them.
KEVIN’S VIEWSTAY THE COURSE
As we enter the fourth quarter of 2018, I continue to see strength in the United States’ economy. Unemployment claims continue to trend down to levels not seen in a very long time. Consumer confidence and corpo-rate profits are either nearing or at all-time highs. Finally, Gross Domestic Product growth topped 4% in the second quarter of the year. These are very positive numbers for our economy.
The U.S. stock market reflected this growth, finally moving higher at the end of the quarter. While not as strong as the year 2017, the stock market indexes in 2018 are still well into positive territory. We expect that trend to continue for the rest of the year. Of course, this is barring any unforeseen events that would change the economic outlook.
The Federal Reserve has continued to slowly increase interest rates in the United States. The “Fed” has been very explicit in their view that rates will continue to increase as long as economic data supports the picture of an expanding economy. I think this is the proper thing to do from an eco-nomic point of view. It is the equivalent, in some ways, of building up an emergency fund to use if you ever lose your job.
There are a couple of concerns to the current economy. The first is the current trend towards tariffs and trade wars. We have seen a little positive movement on some fronts but we are still concerned by the increasing tar-iffs and retaliatory measures. The second threat is also of a political nature, the election this upcoming November. The American electorate has be-come increasingly difficult to predict. This has increased uncertainty sur-rounding the election. Markets tend to not like uncertainty. So, depending on what happens at the start of November, we could see a visceral reaction in the markets. We think that reaction will be temporary, as in our view, the markets move on emotion in the short term and economic data in the long term.
International markets have been negatively impacted by both the tariff sit-uation and a strong U.S. dollar. We still believe that an international com-ponent is appropriate for most portfolios, as there are many excellent firms headquartered outside of our boarders.
If we do end up with a choppy fourth quarter, please do not hesitate to give us a call with questions or concerns.
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Make the Most of Medicare’s Open Enrollment Period
Medicare’s open enrollment season is upon us. That means from now until December 7, you are able to make changes to your Medicare Advan-tage and prescription drug coverage. If you’re happy with your coverage, you don’t have to do anything. Even if you’re satisfied, open enrollment presents a great opportunity to make sure you’re getting the most out of Medicare.
Here are some tips to help you get started.• Ask yourself some important questions: Have your needs changed? Is your current coverage adequate? Will the cost of your current plan be going up? Are there comparable, lower-cost plans available?• Review the annual notice of change from your current plan provider. You should have received this in September.• Compare plans using medicare.gov’s Medicare Plan Finder.• Get one-on-one assistance from the State Health Insurance Assistance Program.• Call the Medicare Rights Center at 800.333.4114 for free counseling.
DID YOU KNOW...Investor Access is Becoming Client Access
- Overall look and feel update, including more prominent summary bal- ances, more legible fonts throughout, and responsive design so clients can easily view the full site on mobile devices such as phones and tablets.- Value Over Time and Asset Growth charts will be added to the Summa- ry page, with a link to a new “Analysis” tab offering more detailed views. - Portfolio page enhancements including: • Account selector list located in a dropdown menu at the top of the page. • Unrealized gains and losses will be viewable on the Current Value tab. • A new sort feature allowing clients to view holdings by type or by ac- count. • Balances and other summary level information available above the hold- ings detail. • Ability to click an arrow to the left of the quantity to view more detailed information including tax lots, dividend payments, market information, and recent news articles and/or Raymond James research (when appli- cable).- Updated market information screen for more convenient at-a-glance information with simpler access. *If you are not yet using online access, please reach out to us to learn more.
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RESOURCES FOR A LONG AND LIVELY RETIREMENT
Raymond James is not affiliated with these organizations
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There’s a lot to consider about how you will live in your retirement years – from choosing the rightMedicare plan, to the possibility of a healthcare episode, to finding a ride to the grocery store.
Raymond James has collaborated with the above services to help navigate this phase of life.
Source, Raymond Jameswww.SullivanInternet.com
Raymond James is not affiliated with these organizations
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SOCIAL SECURITY TAPS TRUST FUND; SHOULD YOU BE WORRIED?For the first time since 1982, Social Security is dipping into its trust fund to pay benefits. What does this mean for future recipients?
The board of trustees for Social Security recently issued their 2018 an-nual report. Once again, this year’s report provided a dark reminder that the fiscal health of the program has further deteriorated. Like last year’s report, Social Security’s trustees said the program’s trust fund would be depleted in 2034. However, unlike last year, for the first time since 1982, Social Security has to dip into the fund to meet its obligations. Treasury Secretary Steven Mnuchin said in a statement that “lackluster economic growth in previous years” and an aging population have contributed to the shortage.
What Does This Mean for You?First of all, it’s important to understand what all this dire talk really means. Over the years, as Social Security has collected more in taxes than it has paid out in benefits, the surplus has been put into a separate trust fund. The trust fund buys special U.S. Treasury bonds that earn interest for the fund. Up until this year, the payroll taxes plus the interest on the trust fund bonds have exceeded the amount needed to be paid out in ben-efits. This year’s report showed that Social Security has now reached the
point where benefits paid out to Social Security recipients exceeded total revenues collected from employee Social Security taxes plus the interest earned on its bonds. Now that the crossover point has been reached, the trust fund will begin to deplete, ultimately projected to run out in 2034.
While it’s true that the Social Security trust fund could essentially go “bankrupt” in 2034 if no changes are made to the current system, the majority of Social Security benefits would still be funded through the ongoing Social Security tax system. Approximately three-fourths of the benefits paid out for Social Security are funded from tax revenues collect-ed from current workers. The only purpose of the trust fund is to pay the difference when committed benefits exceed collected revenue.
So, if no changes are made to the system and the trust fund is totally depleted by 2034, what happens? The good news is that the system can continue to pay benefits from ongoing tax revenue and that revenue will cover most of the benefits. Social Security trustees continue to reiterate that the system should be able to pay approximately 75% of its benefits in 2034 even if the trust fund is completely exhausted. Therefore, while the headlines about Social Security continue to be scary, it’s important to realize that the system going “bankrupt” does not mean all payments will
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stop; it actually means that 75% of benefits are still fully funded.
What Adjustments Can Be Made?The big question on people’s minds is whether their benefits will be cut. Current projections assume no changes to the system will be made; how-ever, in reality, there are several potential adjustments that could extend the viability of the trust fund for many more years. It’s important to note that these proposals do not suggest cutting benefits for recipients ages 55 years or older. For everyone else, potential adjustments include:• Raising the percentage taken out of paychecks for Social Security pay- roll taxes (currently 6.2% for Social Security and 1.45% for Medicare paid by both employee and employer). Research has indicated that gradually raising the payroll tax by just two percentage points would be enough for Social Security to be solvent for the next 75 years.• Raising the limit on the amount of pay that is taxed for Social Security (currently $128,400).• Raising the age of retirement at which people start to receive full ben- efits (currently age 67 for those born in 1962 and after).• Lowering the annual adjustment for cost of living.• Cutting benefits. Many believe that actual cuts to benefits would be means tested so that those with limited income and assets would not be impacted. Politically, this would be the most difficult change for Con- gress to make.
The Bottom LineWhile the long-term viability of Social Security is definitely a concern, bankruptcy of the Social Security trust fund does not mean everyone’s benefits will go to zero. Even when the trust fund is depleted, the system can still pay approximately 75% of benefits from then-current tax reve-nues. Most believe that benefits paid to older Americans – those age 55 and above – will not be affected. And even for younger workers, relatively minor changes to the system could extend the system’s viability for their lifetimes.
With more and more people retiring without pensions, Social Security plays a crucial role in most people’s retirement plans. We encourage you to have a conversation with your financial advisor about where you stand for retirement, how much Social Security you plan on receiving, and fac-tors you can control to help you reach a financially successful retirement.
Source, Raymond James
9 Source, Raymond James
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To live well in retirement, individuals have to embrace change – and longevity planning.As people get older, their circumstances will continue to change, sometimes rapidly. What doesn’t change is their desire to be independent, to have social connections that enrich their lives and to participate in activities that bring them joy. Financial planning that can meaningfully address these quality of life issues can make all the difference.By embracing the realities – and rewards – of longevity in your financial plans, you can sort through your possibilities and look beyond your typical retirement goals. Here are some topics to help you start the longevity planning.
HOUSINGEven in retirement, housing remains the largest spending category. Most retirees want to age in place. In a recent AARP survey, 89% of those 50 and older said they want to con-tinue living in their homes indefinitely. However, there are a number of other options in retirement, and it’s best to encourage clients to think about the issue before it becomes an immediate need.
HEALTH CAREAs clients age, health care costs tend to add up. Consider that the average couple at age 65 can expect health care costs of $266,000 over a 20-year retirement – and that number doesn’t include any chronic conditions or health emergencies, according to the Employee Benefit Research Institute. An important part of financial planning is to help ensure that health care costs don’t become a drain on clients’ quality of life.
TRANSPORTATIONIt may come as a surprise, but transportation is the second largest expense for individuals older than 65 and accounts for about 15% of their annual expenditures, according to the Bureau of Labor Statistics. That’s why advisors should make sure to account for it as part of your long-term financial plans.Maintaining quality of life throughout increasingly long retirements is becoming a grow-ing challenge for millions of Americans. With expanded longevity comes a whole new set of challenges, and you may find sorting through all of the choices to be overwhelming.Your relationship with your financial advisor is integral. Working with your retirement funds in tandem with helping you manage your life is of ultimate importance. Have a quality-of-life conversation with your advisor and ask about individualized solutions for your retirement goals.
CAREGIVINGIt’s a sobering statistic: 70% of Americans age 65 (in 2014) will need some kind of long-term care during their lives, according to the Department of Health and Human Services. At some point, you may be providing or receiving care, so this must be taken into account in long-term financial planning. Of the 10 million adults age 50 and above caring for ag-ing parents today, those leaving their job to do so will be affected by lost wages and future Social Security benefits.
IS A FINANCIAL PLAN ENOUGH?
Privacy Notice:Sullivan & Associates is committed to protecting confidentiality of the information furnished to us by our clients. We are providing you this information as required by Regulation S-P adopted by the Securities and Exchange Commission. Information about you that we collect: We collect nonpublic personal information about you from the following sources: information we receive from you on applications or other forms or through our web site; information about your transactions with us, our affiliate or others; and information we may receive from a consumer reporting agency. Our use of information about you: We may share information about you with other companies in the Raymond James family - that is, companies that are owned by Raymond James Financial. In certain rare cases, we may share information with professional designation oversight bodies if an investigation is being conducted. Otherwise, we do not disclose any nonpublic personal information about you to anyone except as permitted by law. We follow the same policy with respect to nonpublic information received from all clients and former clients. How we protect your confidential information: Sullivan & Associates has policies that restrict access to nonpublic personal information about you to those employees who have need for that information to provide investment alternatives or services to you, or to employees who assist those who provide investment alternatives or services to you. We maintain physical, electronic and procedural safeguards to protect your nonpublic personal information. Opt-Out Procedure: If you prefer that Sullivan & Associates does not take your nonpublic personal information and use it at a nonaffiliated firm, you may direct us not to make or permit such disclosures by contacting us at the following toll-free number: 1-866-423-7237.
Disclosures:The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary of statement of all available data necessary for making an investment decision and does not constitute a recommendation. Some material created by Raymond James for use by is advisors. Any opinions are those of Patrick Sullivan and Kevin Sullivan and not necessarily those of RJFS or Raymond James. Investments mentioned may not be suitable for all investors. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise. You should discuss any tax or legal matters with the appropriate professional. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Please note that internation-al investing involves risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. Investing in emerging markets can e riskier than investing in well-established foreign markets. Companies engaged in business related to a specific sector are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with in-vesting in an individual sector, including limited diversification. Investing involves risk and investors may incur a profit or loss regardless of strategy selected. Diversification and asset allocation do not ensure a profit or protect against a loss. Dividends are not guaranteed and must be authorized by the company’s board of directors. Re-balancing a non-retirement account could be a taxable event that may increase your tax liability.
Sullivan & Associates is registered with the Securities and Exchange Commission as an Investment Advisor. Pursuant to rule 204-3 © we are required to offer you a copy of our current Disclosure Statement (Part II of the Regis-tration Form ADV) upon your request. If you would like to receive a current copy of the disclosure statement, please write to: Sullivan & Associates, 1229 Lake Plaza Drive, Colorado Springs, CO 80906
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Patrick L. Sullivan, CFP®Wealth Manager, Sullivan & Associates Founder
Kristin MaksimowiczClient Service Manager
Kristin. [email protected]
Jennifer Malmstrom, FPQP ™Client Service Manager
Jessica McAllisterClient Service Manager
Kevin P. Sullivan, CFA, CFP®Wealth Manager, Branch Manager
Jane JacobsOffice Manager
Maryann Fulop, CRPS® Marketing Communications Manager
Katelyn MeeksAdministrative Assistant/Receptionist
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