Atlantic Capital Management

Atlantic Capital Management (79)

Wednesday, 28 October 2015 19:28

Dealing With Sudden Retirement

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How ready are you?

What if you are laid off or forced into retirement before 65, or even before 60? If that happens to you, what do you do in response now that the next phase of your life is starting sooner than you planned?

As a first step, gauge where you stand financially. It could be that the full-time job you just left will be your last. It could be that you have been thinking seriously about retirement. Depending on your outlook, you may see your glass as half-empty or half-full – but no matter your outlook, you need to assess your financial position.

With no income from work, your household will be more reliant on your spouse’s income or savings (assuming you are married at the time). So how big is your emergency fund? Is your cash position strong enough so that you can lean on it for a while until you decide how much you want or need to keep working?

Do you want (or need) another full-time job? Do you see yourself transitioning into part-time work? Or are you looking forward to retirement? Regardless of your employment prospects, you will have to calculate the amount of income you receive (or can potentially receive) from other sources – the pension or termination payout you were (hopefully) given, your investments, and other sources of passive income.

If that income doesn’t appear to be enough, should you apply for Social Security as soon as you can? Many financial professionals will tell you no, and here is why: for each year you delay filing for Social Security benefits, your benefits grow by about 8% (from age 62 to age 70). If you were born in 1954 and you file for Social Security benefits at 62 in 2016, you will reduce your monthly Social Security benefit by 25% as a consequence.1,2

On the other hand, some people really need the money and/or are in poor health, so they would rather have the income sooner rather than later. Your projected lifetime Social Security benefit remains the same regardless of when you first file for benefits, so even healthy retirees sometimes sign up as early as they can. In fact, in a June survey of more than 600 retirees taken by the Nationwide Retirement Institute, 76% of Americans who had been retired less than 10 years and 68% of Americans who had been retired 10 years or longer said that looking back, they felt they applied for Social Security at the right time.1

Nevertheless, a time like this is a great time to examine Social Security claiming strategies with help from a financial professional – especially if you are married or have been married. The wrong move could leave a great deal of money on the table.

Can you take advantage of any benefits as you leave work? Talk to the HR officer. If you have not been informed of your eligibility for severance pay or an early retirement package, ask about it. Depending on the circumstances of your exit, you may also qualify for Social Security disability benefits or unemployment benefits.

It will not be cheap to secure health insurance if you need it. If you are lucky, you worked for a big company, giving you COBRA eligibility. Maybe you are even luckier – perhaps your employer offered you the option of retiree health benefits when you were hired. (Hopefully, that offer still stands.)

See what you can do to reduce spending & taxes. Leaving work early might mean that your retirement is longer than anticipated. This calls for a reassessment of your retirement income strategy and your probable retirement expenses, including your day-to-day spending habits.

What fixed expenses are non-negotiable? What can you trim? If you are married, you and your spouse should be on the same page regarding how much you spend and what you spend money on. Perhaps gifts to children or grandchildren should be ceased. Maybe you could sell the house and move someplace cheaper. Maybe just one car is enough. You could eat out less. Spending less on mere wants is appropriate in your situation.

Every tax dollar you can save is a dollar back in your wallet. So pay attention to investment location and the impact of taxes on your portfolio, as you may be deriving income from investment accounts.

Stay positive. You may not have left work on your own terms, but you have an opportunity I your hands – the chance to change, and perhaps even reconceive, the way you live and work from this moment forward. If you have significant retirement savings, you may even be surprised at the potential your future holds.  

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.      

Citations.

1 - cnbc.com/2015/09/23/when-you-should-file-for-social-security-benefits.html [9/23/15]
2 - ssa.gov/retire2/retirechart.htm [10/22/15]

Thursday, 08 October 2015 16:10

Keeping All This Volatility in Perspective

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These recent ups & downs are reminiscent of past Wall Street swings.

Fall might be anything but calm on Wall Street. Volatility is back, in a big way: the CBOE VIX has risen more than 105% since the end of July. Additionally, 11 of the 15 trading days ending September 9 were “all or nothing” days in which more than 80% of the S&P 500 moved either higher or lower. In the last 25 years, the index has not had a 15-day period like this.1,2

Contrast that with the first 159 trading days of 2015, in which just 13 such days occurred according to Bespoke Investment Group research. In fact, during the first half of 2015 the Dow Jones Industrial Average was never more than 3.5% up or down YTD, on pace for the most placid year in its history.2 

Writing in the Financial Times, the noted economist and portfolio manager Mohamed El-Erian recently identified a few factors driving these market swings – factors that may not subside anytime soon. Fundamentally, he cited the “spreading economic slowdown” in China and other emerging markets “eroding a fundamental underpinning of high and stable asset prices” – and bursting some asset bubbles in the process. Markets can be roiled with the emergence of “major global challenges away from the direct reach of the U.S. Federal Reserve and the ECB,” he adds, as too many (institutional) investors look to central bank activity for either direction or reassurance. Lastly, investors worldwide are wondering if the Fed will raise short-term interest rates next week.3

So, this turbulence may persist for several more weeks or months. How does an investor cope with it? It helps to put all of this recent volatility into perspective.

Remember that historically, the ups of the market have outweighed the downs. If your time horizon is relatively long, this particular fact may provide encouragement: as Ibbotson notes, since 1926 there has never been a 20-year stretch in which a diversified portfolio invested in large U.S. firms has had a negative inflation-adjusted total return. From 1926-2014, such a model portfolio (with dividends encompassing roughly 40% of the total return) yielded approximately 10% a year on average.4 

These recent ups & downs compare to others. On August 24, the S&P 500 lost 3.2% and was down more than 4% during the course of the day. That was quite troubling, but not quite extraordinary: it was the fifty-fifth day since 1983 in which the broad benchmark had dropped 3.5% or more in a trading session.4,5

How has the S&P recovered from days like these? Historically speaking, it has recovered more often than not. Looking at the 12-month periods after the preceding 54 such trading days, there were 45 year-over-year advances and 9 year-over-year retreats.  How far did the S&P fall, on average, during those 12-month retreats? The answer is 7.7%. How high did it rise, on average, during those 45 annualized ascents? A remarkable 27.6%. So while history tells us nothing of tomorrow, it does seem that the S&P has recovered amazingly well from the bulk of its major one-day drops in the last 32 years.4

After a long, steady ascent, it is easy to become lulled into thinking that the market only goes up. We all know differently, but even so it can be a rude awakening when the major indices rollercoaster or plunge. Even so, we should be patient rather than let emotion take over. As the late Paul Harvey said, “In times like these, it helps to recall that there have always been times like these.”6

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment. 

Citations.

1 - investing.com/indices/volatility-s-p-500-historical-data [9/10/15]
2 - cnbc.com/2015/09/10/this-market-is-setting-a-wild-volatility-record.html [9/10/15]
3 - cnbc.com/2015/09/08/why-higher-market-volatility-is-the-new-norm.html [9/8/15]
5 - thestreet.com/story/13263507/1/stocks-end-brutal-week-as-market-nears-correction.html [8/21/15]
6 - content.time.com/time/arts/article/0,8599,1882444,00.html [3/1/09]

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