Best USA Insurance: September 2014

Sunday, September 21, 2014

Social Security Benefits: How Much Do You Really Gain by Waiting?

Source: Moodboard Photography via Flickr.

The decision of whether to take Social Security as early as possible or wait until a later date has created intense debate within the financial community, with many financial planners emphasizing the larger benefit payments you can receive by waiting beyond the early retirement age of 62. But given how complex the Social Security system is, simple rules of thumb about the best time to take benefits don't capture all the nuances involved in the decision.

In reality, each person has a unique combination of factors to consider, such as life expectancy, financial resources, and family situation. But a study from Social Security Choices provides some insight on exactly how much a typical person will gain or lose depending on when they start taking benefits, and the study's analysis sheds some light on how you can make the best decision for your own situation.

The trade-off from delaying Social Security benefits

The decision to forgo taking Social Security at your earliest opportunity involves a simple trade-off: You give up benefits permanently in exchange for larger benefits in the future. Many Social Security experts use a simple breakeven analysis that shows the age at which the total amount of cash received matches up under different scenarios.

The longer you wait, the higher your benefit. Source: Social Security Administration.

But the Social Security Choices study goes further, calculating actual rates of return as if you were actually investing the benefits you give up by waiting. Moreover, the study looks at each age separately, assessing the take-or-delay decision on a year-by-year basis. That leads to some interesting conclusions that simpler analysis can miss.

For instance, using basic assumptions about inflation and life expectancy, the study found that waiting from age 62 until age 63 before claiming benefits produces a return of 4.9% for single men and 6.2% for single women. But waiting from 63 to 64 produces a much larger return -- 7.1% for men and 8.3% for women. The reason: The reduction in Social Security benefits for claiming at age 62 versus age 63 is smaller than the reduction between 63 and 64.

Moreover, the study shows that while waiting beyond the full retirement age of 66 has benefits, you don't necessarily have to wait until the latest possible age of 70 in order to reap most or all of the gains. Overall returns are generally the highest when you wait from age 66 to age 67, and they're actually negative for men who wait from 69 to 70 -- meaning that most single men shouldn't wait, even though the extra year of delayed-retirement credits boosts their monthly payment. The reason is simple, though a bit morbid: As men get older, their shorter life expectancies mean that they don't have enough time to recoup an entire year's forgone benefits through those 8% higher monthly payments.

The big Social Security boon for spouses

Source: Social Security Administration.

Where returns really start getting impressive is when you consider some of the strategies available to married couples. In certain circumstances, taking advantage of popular strategies like the file-and-suspend method to maximize spousal benefits opens up opportunities that have much higher returns than those available to single retirees.

In one example, Social Security Choices found that waiting from 66 to 67 to claim one's own retirement benefits while using file-and-suspend led to a whopping 36.2% return. The return fell only slightly to 27.1% by waiting from 67 to 68, and further delays still saw returns in the upper teens from 69 to 70.

One thing married couples need to understand is that calculating their potential returns involves even more variables than single retirees face. Differences in ages between spouses can make some strategies impractical or reduce the potential benefits of using them, and one spouse's benefit timing decisions can have a dramatic impact on what the other spouse can receive.

Nevertheless, the general conclusion is that while many people earn more in Social Security benefits by waiting, the amount by which benefits increase isn't constant across all ages. Retirees should closely consider all the aspects of their personal situation before making a final decision on when to take their Social Security.

How to get even more income during retirement
Social Security plays a key role in your financial security, but it's not the only way to boost your retirement income. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule that can help ensure a more comfortable retirement for you and your family. Click here to get your copy today.

Monday, September 15, 2014

3 Big Stocks Everyone Is Talking About

BALTIMORE (Stockpickr) -- Put down the 10-K filings and the stock screeners. It's time to take a break from the traditional methods of generating investment ideas. Instead, let the crowd do it for you.

Friday, September 12, 2014

RadioShack: With Bankruptcy Possible, Will Apple Give It the iPhone 6 to Sell?

Usually, we’d expect a company’s shares to fall when it warns that it could be heading for bankruptcy, shares fall. Not RadioShack (RSH). Its shares have surged nearly 20% this morning after it warned that it was running out of cash and could be forced to file.

From RadioShack’s 10-Q:

Given our negative cash flows from operations and in order to meet our expected cash needs for the next twelve months and over the longer term, we will be required to obtain additional liquidity sources, consolidate our store base and possibly restructure our debt and other obligations. We are exploring alternatives and are engaged in discussions with third parties as well as our key financial stakeholders, including our existing lenders, bondholders, shareholders and landlords, in an effort to create a long-term solution. Alternatives include the sale of the company, partnership through a recapitalization and investment agreement, as well as both in and out-of-court restructuring. We presently anticipate announcing a recapitalization alternative, in the near term, which may be our most likely course of action, but we are continuing to evaluate all of our alternatives to restructure existing debt terms and other arrangements to provide additional liquidity. There can be no assurance that we will be able to successfully implement a long-term solution.

If acceptable terms of a sale or partnership or out-of court restructuring cannot be accomplished, we may not have enough cash and working capital to fund our operations beyond the very near term, which raises substantial doubt about our ability to continue as a going concern. As a result, we may be required to seek to implement an in-court proceeding under Chapter 11 of the United States Bankruptcy Code ("Bankruptcy Code"). If we commence a voluntary Chapter 11 bankruptcy case, we will attempt to arrange a "pre-packaged" or "pre-arranged" bankruptcy filing. In a "pre-packaged bankruptcy", we would make arrangements with new and existing creditors for additional liquidity facilities and the restructuring of our existing debt terms, before presenting these arrangements to the bankruptcy court for approval. In the absence of a "pre-packaged" bankruptcy, we would consider a "prearranged" bankruptcy filing, in which we would reach agreement on the material terms of a plan of reorganization with key creditors prior to the commencement of the bankruptcy case. An in-court restructuring proceeding would cause a default on our debt with our current lenders.

You can’t get any more explicit than that. So why are RadioShack’s shares surging? Consider its 10-Q a warning to involved parties to involved parties to get to the negotiating table and get a deal done. Or else.

Janney’s David Strasser and team consider RadioShack’s predicament:

All options are on the table, including debt restructuring, store consolidation/rationalization, and significant cost reductions. However, to avoid bankruptcy, or even to orchestrate some sort of prepackaged bankruptcy, RadioShack needs support from lenders, vendors, shareholders, and landlords. Before this can happen, the company needs to show stabilization, at a time that product cycles are going against it and the economy continues to challenge its core customer. We worry that in its current financial position, the company will struggle to get key product this holiday. For example, we struggle to see a scenario where RadioShack will get iPhone6, with what could be a challenging get for even top retailers like Best Buy (BBY), as Apple (AAPL) more aggressively tries to balance allocation between China and US. A smaller store base could help, but that is going to be expensive, or more likely something that will further accelerate a move into bankruptcy. We see numerous challenges continuing, but ultimately, we believe that it will be tough to get inventory this holiday, as vendors are skittish about getting paid.

After being up nearly 18% earlier today, shares of RadioShack have gained 6.3% to 99 cents at 3:22 p.m. Apple is little changed at $101.05 and Best Buy has advanced 0.3% at $32.42.

Wednesday, September 10, 2014

4 Advantages of Chinese Investment Grade Bonds

Related LQD Fast Money Halftime Report Final Trade From August 8 Falling Interest Rates Boost Bond ETFs

Investment grade Chinese bonds are a relatively new subset of the investment grade asset class. ETFs offer a way to gain easy access.

Before anyone invests in the bonds, they should understand why some allocation could make sense:

Low Duration

Low duration makes for low interest rate risk.

The two more popular ETFs which invest in the space have durations in the 1.6 year-2.6 year range. The most popular U.S. investment grade index ETF has a duration of about 7.5 years!

Thus if interest rates increase 1 percent over the course of a year, the value of the Chinese bonds would go down by only about 1.6 - 2.6 percent, while the U.S. bonds would decrease by 7.5 percent. Even in such a rising rate environment, the overall return on the Chinese bonds would be marginally positive because they have a cash yield of about 3 percent.

Related Link: First Trust Launches Active Strategic Income ETF

A good example of this low duration advantage is 2013. The U.S. investment grade bond index, with the I-Shares Iboxx ETF (NYSE: LQD) as a reference, was down 2.2 percent on a total return basis, while the Chinese renminbi-denominated investment grade index, using the Power Shares Chinese Dim Sum ETF (NYSE: DSUM) as the proxy, was up 6.3 percent!

Little Correlation

Using either DSUM or Market Vectors Renminbi Bond ETF (NYSE: CHLC) for comparison, the Chinese bonds have little to no correlation to U.S. investment grade bonds, and they only have a small correlation to U.S. or foreign high-yield bonds. This lack of correlation helps a lot during periods of rising domestic interest rates.

Again in 2013, despite rising interest rates and domestic investment grade bonds suffering, their Chinese equivalents were unaffected. In addition, since the yield is virtually the same with either LQD or DSUM, the portfolio risk reduction comes without a cash flow sacrifice.

Access To The Renminbi

For better or worse, the bonds give efficient access -- pure exposure -- to the Chinese renminbi. If left to pure market forces, the currency should appreciate versus the U.S. dollar. The renminbi, however, is not left to pure market forces.

The U.S. Government has been pressuring China to let the currency appreciate and to reduce restrictions and regulations that artificially keep the value of the currency low. Over the past four years the value of one yuan (the main unit of the currency) strengthened from 14.7 cents in 2010 to 16.2 cents currently. That move represents a 10 percent-increase in value since 2010, or about a 2.3 percent per year boost to the overall return of the bonds to a U.S. investor.

After a notable, and many say forced "correction" in the Chinese currency during the first half of 2014, China has again allowed the currency to float with the market to some extent and a gradual increase in the yuan's value has resumed.

Reasonable Yield

If you purchase DSUM you obtain a 3.3 percent cash yield on the ETF. On an absolute basis, this yield compares favorably versus many Treasury, investment grade and some municipal bonds, and compares very favorably on a duration relative basis. For a negligible 0.2 percent more yield in LQD, you are exposing yourself to about three times the interest rate risk!

The lower interest rates go, the more attractive these bonds become versus their U.S. counterparts.

Eric Mancini is the Director of Investment Research at Traphagen Financial Group (www.tfgllc.com), which is located in northern New Jersey. Over the past year Traphagen Financial Group has incorporated Chinese investment grade bonds along with its traditional U.S. investment grade allocation.

Posted-In: Long Ideas Bonds Specialty ETFs Emerging Market ETFs Economics Markets Trading Ideas ETFs Best of Benzinga

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Tuesday, September 9, 2014

Gold: Setting Up For Another Fall

In the final months of 2013, I issued multiple warnings for those bullish on precious metals and their ETFs: here, here, here, and here, until prices finally reached my proposed bearish target here. What was most surprising about the series was the fact that there was almost nothing that could be done to convince gold bulls that prices would fall -- even as they continued to plummet. Of course, gold markets closed 2013 in negative territory for the first time in more than a decade. The SPDR Gold Trust ETF (NYSEARCA:GLD) closed just above the 115 target that I initially outlined. Sometimes I wondered if these naysayers even had access to accurate chart data.

If nothing else, the time and effort spent on these articles provided a lesson in the various ways gold bulls will ignore facts, twist arguments and exercise the belief that simply wishing prices higher will help to reverse earlier losses. Of course, the market will never come to you. Any consistent investment strategy requires the ability to trade markets for what they are -- and not what we hope they will be. Unfortunately, investment losses tend to create emotional reactions and delusional responses to facts that are abundantly obvious to those without negative exposure. So, we can't exactly say that any of this was really a major surprise.

Fed finally takes a stance

Most of my arguments have been based on the misunderstood view of the economy that is typically held by those bullish on precious metals and the fact that tapering in quantitative easing programs would be happening sooner rather than later:

"The real driver here is the market's reaction to changing expectations in the Dollar and the apparent [emphasis added] reluctance at the Fed to put its "money where its mouth is" and actually commit to an exit strategy. An end to quantitative easing stimulus is inevitable, and if we see a stronger than expected performance in fourth quarter GDP in the U.S., markets will again be forced to position for that inevitability."

This was written toward the end of October 2013, just after the market received its "no change" surprise at the September FOMC meeting. This period was also marked by a sweeping belief that QE would continue forever, the value of the U.S. dollar would crash to nothing and the economy would never be able to stand on its own without the constant aid of central bank stimulus. If this sounds like I am exaggerating, read the comments in the articles cited above. None of this has come to fruition, and it is time for investors in precious metals to start looking at reality rather than holding onto positions for too long and then justifying those decisions with conspiracy theories.

Now that the Fed has opted to reduce monthly asset purchases on two separate occasions – even in the face of weakening employment data -- it is important for investors to start thinking about the long-term, rather than what might be happening in today's Yellen comments.

Headline results in Non Farm Payrolls have started to weaken for the last two months. But the latest unemployment rate numbers have fallen to 6.6%, which is very close to the 6.5% "line in the sand" that was originally suggested by Ben Bernanke. We can make any argument we want about the relationship between the Non Farm Payrolls and the jobless rate, but the fact is that the Fed has set a clear target and we are likely to see them act on those intentions. The end of Fed stimulus means a higher U.S. dollar, as there will be fewer dollars running through the system. For those holding GLD, this is a flashing red light on your car dashboard telling you your brakes have given out. Precious metals markets are just setting up for another crash.

Chart perspective: GLD

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GLD Chart Source: Yahoo! Finance

In my last article, I recommended closing short positions in GLD. But this had nothing to do with the belief that we are in the early stages of a bull market. The declines into the end of last year were drastic, and extreme market activity like that (in any direction) means it's time to reconsider your decisions. From a chart standpoint, the upside break of 1270 is important and suggests we have not yet reached a peak. The longer-term perspective, however, shows that it is just a matter of time before new sells kick-in.

Currently 0.00/51

Would You Swap Your Usual Coffee for McDonald's If It Was Free?

Small McDonald's cup of Coffee with MCdonald's food bag. USA Michael Neelon(misc)/Alamy If you like to start your day with a cup of a coffee and like the idea of free, McDonald's (MCD) has a deal for you. From Sept. 16 through Sept. 29, the fast food giant is giving customers a free small coffee during its breakfast hours. At participating restaurants only, of course. McDonald's announced earlier this year that it was going to put more effort into growing its coffee business. Even though its brand is hardly built on coffee, the chain has become the top seller of coffee in the country. But there's stiff competition out there, with the likes of Starbucks (SBUX) and Dunkin' Donuts (DNKN) enjoying fierce brand loyalty -- and far stronger associations with java. But free is free, and the idea is to see if any of those who usually head to the other places for their morning Joe could be convinced to give McDonald's brew a try. Even when it's not free, coffee at McDonald's is often a much better deal than its competitors' cups. Many McDonald's outlets offer any size coffee for $1. Those who drink large coffees can expect to pay twice that at Dunkin' Donuts and even more at Starbucks. But if you value caffeine in your coffee, particularly to get you going in the morning, be aware that McDonald's coffee typically doesn't pack the punch of what Starbucks, Panera Bread Co. (PNRA) and Dunkin' are offering. Starbucks coffee has been measured as having more than twice the caffeine of McDonald's coffee, while most of the others were at least 20 percent more potent. Of course, not everyone requires the same amount of jolt. And free is free, even if it's only for two weeks. Freebies First, In Supermarkets Later McDonald's tried to amp up its coffee game in 2009, when is launched its McCafe concept. Now, the company is saying it expects to get into the grocery coffee wars, too, with its branded bagged coffee and single-serve K-cups arriving in stores early next year. This is the second time McDonald's has used a "Free Coffee Event" giveaway to promote its brew. In March, McDonald's said it gave away "millions" of cups of coffee. The chain increasingly is offering a variety of coffee drinks to gain a greater foothold in the coffee market. "We know our guests are busy, especially during the morning, and a free cup of coffee goes a long way in helping get their days started," McDonald's Senior Vice President Greg Watson said in a statement. More from Mitch Lipka
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Sunday, September 7, 2014

Buyer Beware? Lululemon Leaps on Founders Reduced Stake

Shares of Lululemon Athletica (LULU) have popped in after-hours trading on reports that founder Chip Wilson will sell his stake in the company. Reuters has the details:

REUTERS

Chip Wilson, the founder of Lululemon Athletica Inc, has agreed not to wage a proxy contest on the yoga apparel maker, in return for two additional director positions and number of other governance changes, the company said on Thursday.

As part of the agreement, Wilson will sell half of his 27 percent stake to private equity firm Advent International for $845 million. Advent will add two of its senior managers, David Mussafer and Steve Collins – to Lululemon’s board, expanding it to 12 members. Mussafer will take the role as co-chairman alongside existing chairman Michael Casey.

Shares of Lululemon have gained 6.8% to $41.69 at 5:34 p.m. in after-hours trading after dropping 2.4% during regular market hours today.

UPDATE: Belus Capital’s Brian Sozzi interprets Lululemon’s press release:

While the market cheers the news of Chip Wilson selling a part of his stake, theoretically relieving some of the headline risk from the prolonged public board squabbles, buyer beware. Here are two things we decoded from this news bomb:

1. Lululemon is likely to issue a disappointing second quarter and outlook (again) when it announces earnings on September 11. Not only have we been unimpressed with the lack of newness in the assortment, but Under Armour's (UA) growing dominance in women (and increased floor space at Dick's Sporting Goods (DKS) and Macy's (M)) as seen in the second quarter likely was siphoned right from the cash registers of Lululemon.

2. Chip Wilson in not so many words suggested Lululemon, although having ample long-term growth opportunities, does NOT own the female athletic apparel market and does NOT deserve to be valued as such by the market. Barriers to entry have come down, and the fact is rivals are doing a better job getting more versatile product to market quicker than Lululemon.

Wednesday, September 3, 2014

3 Sneaky Things Hurting Your Credit (That You Can Easily Fix)

Jupiterimages.com When it comes to understanding your credit, it can feel as complicated as trying to solve a Rubik's cube. Frustrated by this confusion, many consumers neglect their credit, which can have a devastating impact on their financial futures. A Consumer Action study recently revealed that 27 percent of Americans have never checked their credit report. That's alarming, because it's estimated that a large numbers of consumers have errors on their credit reports that could damage their credit. I found this out several years ago when I found an error -- a canceled account that was being reported as delinquent -- hurting my credit. In my research, I have identified three sneaky things that are hurting other people's credit, too. Surprisingly, they could be fixed in 15 minutes or less. First, you need to get your credit report, and you should go to AnnualCreditReport.com. From this site, you can request your free credit report once a year from the three major credit reporting agencies -- (Equifax (EFX), Experian (EXPGY) and TransUnion). You can also access your credit score there, but you'll have to pay a small fee. To get a free credit score, you can go to Credit.com or Creditkarma.com. Keep in mind that these two as well as a lot of other free sites offer a consumer education score, which isn't your actual FICO (FICO) score. This confused even me when I sought to find my real credit score. Your FICO score changes daily, so getting your credit scores from these free sites will give you a good gauge of approximately what your credit score is. 1. Wrong Information The wrong personal information on your credit report could hurt your credit. This could be things like your name, your home address, where you've worked in the past or even your Social Security number. How does a wrong address hurt your credit? Your information may be mixed up with someone else's, especially if you have a common name, or are a "Jr." or "Sr." Or it could indicate identity theft -- and that could really wreak havoc with your credit. By reviewing your credit report, you'll be able to quickly see if there's any information that needs to be updated or changed. 2. High Balances Compared to Limits Another sneaky thing that could hurt you is your credit card balances -- even those you pay in full. How can a credit card that you pay off hurt your credit? Issuers typically report your balances as of the statement closing date. But then those cards aren't due until about a month later. So in the meantime the balance on your reports may look high in comparison to your credit limits.

Generally you want the balance on each card to stay below 20 percent to 25 percent of your available credit. If you have a retail card with a small limit or a reward card that you use to pay for everything to earn lots of points, then this factor could come back to bite you. So you need to either pay your charges off before the statement closing date or ask for a higher credit limit. Of course, a higher credit limit should not be an invitation to overspend. You won't improve your credit scores if you get in over your head with debt. 3. Outstanding or Delinquent Bills The third sneaky thing that could hurt your credit score could be outstanding or delinquent bills. I canceled a gym membership when I moved, and it wasn't until I checked my credit report several years later that I found out the gym was marking me as being delinquent, which was hurting my credit. You'll want to check your credit report to make sure that you have no outstanding bills or any delinquent bills that you need to get addressed. For my delinquent gym membership, I contacted its home office and explained that I had moved and their closest location was more than hours away. After that short and painless phone conversation, it removed the delinquency, and my credit was repaired. Review your credit report and make sure you're not being marked for anything delinquent that could be damaging your credit. This could be old gym memberships like mine, credit cards or medical bills. "I've seen numerous situations where consumers were shocked to learn that medical bills they thought their insurance had taken care of were on their credit reports as collection accounts, " warns Gerri Detweiler, director of consumer education with Credit.com. "It doesn't matter if the amount is small. Any collection account can drop your credit score 25, 50, even 75 points or more."