Ida May Fuller and your financial independence

This Week's Quote

“(Social Security) assures the elderly that America will always keep the promises made in troubled times a half century ago..” ~President Ronald Regan, April 20th 1983


When Ida May Fuller received THE first check from Social Security in January of 1940, she became the living example of the challenge of the program. Ida’s $22.54 check didn’t seem like much, although it was a tidy sum for the day. Miss Fuller, a legal secretary, would receive more than $22,000 in Social Security checks over the last 35 years of her lifetime. She passed away at age 100. In a very real sense, she is your distant financial relative.

We receive questions routinely on when one should take Social Security from our clients approaching retirement. Our younger clients often ask if we think there will be anything there for them. Both questions (and all questions in between) have the same answer. It depends.

For the strong of heart, you can read the report of the trustees for Social Security at http://www.ssa.gov/oact/tr/2012/index.html like we do every year. The Reader’s Digest version in our view is simple. We believe report shows that the program is, or shortly will be, in a position of paying out more than is coming in. Further, it says that by about 2036 the trust fund will be exhausted. The report demonstrates in our view that the fund relies in part on U.S. Government I.O.U.’s, since the Feds currently borrow all of the money going into the program in order to spend it on non-Social Security programs. That’s a bit like borrowing out of your IRA or 401(k) to pay for your current living expenses… every year. When would you pay it back and how?

One thing is certain in our view: change. We believe that the program will undergo significant change and very soon.

We will keep you well informed. You can be sure that every wealth management plan review we conduct will involve the most current estimates that the program offers (today, we are projecting about 76% of program benefits will be paid, which is in line with the Trustees report). And other “what if” calculations.

The landscape for Social Security, indeed for the entire tax and entitlement landscape in the U.S. is rapidly changing. Smart investors like our great clients at JL Davis are paying close attention and responding in the wisest possible fashion—by carefully planning ahead.**


Market Week: June 18, 2012

The Markets

Equities markets seemed to take hope from reports of plans by central banks to help ensure liquidity in the financial markets if necessary after the weekend's Greek parliamentary elections. The large caps of the Dow and S&P 500 fared better than either the Nasdaq or the small-cap Russell 2000, while the Global Dow's gains mean that it has now almost broken even for the year. Meanwhile, the 10-year Treasury yield continued to edge downward.


Last Week's Headlines

• The likelihood of a Greek exit from the eurozone was reduced as the pro-bailout New Democracy party won the most votes in Sunday's elections. It will now try to form a coalition government with another pro-bailout party that received enough votes to give the two parties a majority in the Greek parliament.

• Higher bond yields abroad continued to raise concerns. Despite the promise of eurozone assistance for Spanish banks, Spain's 10-year bond yield hit 6.96% at one point--a new euro-era record for the country--and Moody's cut Spain's credit rating three notches from A3 to Baa3. Concerns about Spain seemed to affect Italy, the eurozone's third largest economy, as Italian 10-year yields also surpassed 6% and rates for other maturities rose substantially at auction.

• The European Central Bank recommended a more centralized European banking system to counteract the potential consequences of interdependence between sovereign nations and banks that have purchased their debt; such a system could oversee lenders and provide Europe-wide deposit insurance.

• Good news, bad news: The silver lining to a slowing global economy was a drop in consumer prices--the first in two years and the largest since December 2008. According to the Bureau of Labor Statistics, May's 0.3% decline was largely the result of lower gas prices; not counting food and energy, prices were up 0.2% for the month and were 2.3% higher than last May. Energy costs also pushed wholesale prices down 1% in May, leaving the Producer Price Index up less than 1% in a year.

• Despite increases in spending on cars and clothing, retail sales fell 0.2% in May. However, the Commerce Department said sales figures, which are not adjusted for price changes, were 5.3% ahead of last May. Nonstore retailers, up 12.4% in a year, saw the biggest gains.

• According to the Federal Reserve, U.S. industrial production slipped 0.1% in May, though it was 4.7% higher than a year ago. Meanwhile, the Fed's gauge of general manufacturing business conditions in the New York region remained positive with a reading of 2.3, but was 15 points lower than the month before.

• The collapse of the housing market helped cut the median net worth of U.S. households by almost 40% between 2007 and 2010, according to the Federal Reserve's 2012 study of inflation-adjusted consumer finances. The Fed said groups for whom housing was a larger share of assets saw even bigger declines in their median net worth than the overall decline from $126,400 to $77,300. The median pretax income fell almost 8%; hardest hit were more highly educated families, those headed by someone younger than 55, and families in the South and West. Median incomes for retirees and other nonworking families were up.

• Rajat Gupta, a former board member of Goldman Sachs and Proctor & Gamble, was convicted of three counts of securities fraud and one count of conspiracy for leaking insider information to hedge fund manager Raj Rajaratnam, while former financier Allen Stanford was sentenced to 110 years in prison for running a Ponzi scheme and defrauding clients.


Eye on the Week Ahead

The week is likely to be dominated by reaction to the Greek election results and the European debt situation, including any reaction from G-20 leaders, and by the Federal Open Market Committee's last meeting before the scheduled expiration of its Operation Twist bond-buying program.

Key dates and data releases: home builders' survey (6/18); housing starts (6/19); Federal Open Market Committee meeting (6/20);
home resales, Philadelphia Fed manufacturing survey (6/21).


Data sources: Includes data provided by Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.
The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.

Prepared by Lee Davis** and Broadridge Investor Communication Solutions, Inc. Copyright 2012