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In a rare display of compromise and cooperation in Washington, Congress passed the Bipartisanship Budget Act of 2015 which settled the budget battles for the next two years and raised the debt ceiling until the spring of 2017. It adds $80 billion to the budget during that time, split evenly between defense and social programs. It also repeals the auto enrollment provision under ObamaCare and limits the Medicare Part B premium increase to a maximum of 15% which was set to go up as much as 50% for some. In order to pay for these provisions, under sequestration rules, Congress had to either find new sources of revenue or cut expenses. They chose the latter and cut into Social Security by eliminating two popular planning strategies that have been around since the early days of the Clinton administration.

The first of these strategies was known as “file and suspend”. In utilizing this approach one of the spouses would file for benefits at age 66 (full retirement age today) and then immediately suspend the benefit. Two things would happen as a result. The other spouse would then be able to apply for a spousal benefit (if married to the spouse for a minimum of 10 years in order to qualify) which is equal to 50% of the first spouse’s benefit and is often higher than his/her own benefit. Meanwhile, the spouse who filed and suspended would have his/her benefit continue to increase at 8% per year (non-compounded) for the next four years, topping out at age 70. This was a very popular strategy for those who were still working past full retirement age, and it added as much as $1,200 per month to a family income. This “loophole” is now modified effective April 29, 2016. Anyone who has already implemented this strategy may continue under the previous provision. There is still a small window available to take advantage of this. For those who reach age 66 within six months of enactment of the law it may still be possible to trigger the “file and suspend” method. After this date, however, if one person files and suspends, then all other recipients must also suspend which effectively makes this strategy moot.

The other strategy was to make a claim at full retirement age (66) for Social Security, but restrict the claim to just a spousal benefit rather than make a claim for your own benefit. By making a claim for the spousal benefit (50% of the spouse’s Social Security benefit) rather than your own, your benefit would continue to increase to age 70 and at that age you would file for your own benefit forgoing your spouse’s benefit. Again, if you have implemented this strategy you may continue with it as may anyone who reaches age 62 by the end of 2015. However, anyone who has not reached the age of 62 by the end of 2015 loses the right to use this strategy. Future claimants will receive their own benefit or the spousal benefit, whichever is higher.

These changes are very significant – especially for those near the ages of 66 and 62. If you would like to discuss this in greater detail, please do not hesitate to call us.

· There are many ways to measure whether the United States has recovered from the financial crisis of 2008 and 2009. From an employment standpoint, we are almost there. From a wage increase standpoint, we still have a ways to go. Counting the number of households with $1 million in net worth, we are way ahead. According to Tiburon, in 2007 there were 9.2 million households in America with a net worth of $1 million, but by 2008, it had fallen to 6.7 million. In 2014, the number stood at 10.1 million households. Obviously, both the equity markets and a better real estate market helped dramatically.

· On November 9th, the bull market which began when the S&P 500 Index bottomed on March 9, 2009 reached 80 months in length making it the 3rd longest bull market since 1950. (Source: BTN Research)

· The gender gap comes in many shapes and sizes, including when it comes to retirement. The average female is going to live five years longer than her male counterpart, according to the US Census Bureau. Good news for the ladies, except for the fact that they have saved less for retirement in spite of having a higher participation rate in 401(k) plans. In short, as a percentage, more women participate than men, but because of lower pay over the course of their careers and due to the fact that many women take time out from their careers to devote to family, their balances are substantially less than the men’s. Data from Fidelity Investments indicates that the average male has a balance in his 401(k) plan of $98,700, while the average female has a balance of only $67,400. Interestingly, however, women at the lower end of the wage scale are saving a higher percentage than the men. In other words, give women equal pay and more will participate and do so at a higher contribution percentage than men. Most of the disparity in 401(k) fund balances is at the higher wage levels.

· With the weak September employment numbers on top of a dismal August report, there were many who were concerned about the economy slowing down, especially after getting the preliminary third-quarter GDP numbers. Much of Wall Street was relying on these factors along with the problems overseas, especially in China and Brazil, as reasons that the Federal Reserve Board would not raise interest rates in December. While no one can say with certainty what will happen when the Fed meets next month, it is still likely the Fed will finally raise interest rates for the first time in almost ten years marking the first change since December 2008 when they took the rate to its present level. The 271,000 non-farm jobs created in October certainly give the Fed space to do so. The employment number was 100,000 above the consensus of most economists and was as big a shock as were the low numbers in the previous two months. The Fed will get one more look at a jobs number the first Friday in December before it meets in the middle of the month, and assuming that the jobs number is somewhere north of 200,000, it is hard to believe that they won't raise rates. The unemployment rate is now 5% which is the unofficial number for “full employment". On top of this, wages have gone up three months in a row and, on an annualized basis, increased by 2.5% last month. We have not seen wage inflation yet, but it could be coming. An offset to consider regarding wage inflation, however, is that as the higher cost baby boomer retires they are being replaced by people at a lesser salary/wage. One last thing to keep in mind is that consumer borrowing increased by a record $28.9 billion in September and in large measure was due to auto loans and student loans ($22.2 billion). While credit card borrowing increased it has still not reached the pre-recession levels.

As always, we encourage you to give us a call if you would like to discuss anything further. We will visit again soon. Proudly and successfully serving our clients for over 29 years.

RAY, ERIC, KIM, BRUCE, LOU, NANCY, TINA, JON, STEVE, DOROTHY and PAUL

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