Author Archives: Edward Brownlee

Retirement Isn’t An Age

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Retirement isn’t an age. It’s a point at which your finances are where you can permanently leave the workforce. ~ USAToday

Retirement refers to the time when someone permanently leaves the workforce, usually in their later years.

Retirement is often synonymous with the idea of financial independence, which is when your savings and investments are sufficient to cover your living expenses and support you for the rest of your life.

Many Americans think of retirement as a certain age. And certain retirement benefits are indeed associated with a specific age. For example, the minimum age to start collecting Social Security benefits is 62, but you’ll have to be 66 or 67 to collect your full benefits.

However, retirement isn’t an age. It’s a point at which your finances (the magic number) are where you can more than cover your monthly living expenses and permanently leave the workforce.

The “magic number” rule of thumb for retirement is to have 25 times your annual expenses or to spend only 4% of your portfolio per year during retirement.

Source:  https://www.usatoday.com/money/blueprint/retirement/what-is-retirement/

The Magic Number Rises

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More Americans say they don’t feel financially secure…rising inflation and incomes that aren’t keeping pace get most of the blame. ~ Northwestern Mutual

The “magic number” for retirement has surged in recent years thanks to high inflation. According to Northwestern Mutual’s 2024 Planning & Progress Study, Americans now believe they need $1.46 million in savings and investments to retire comfortably.

Yet, this number reveals more about Americans’ anxiety than precise planning. We often overestimate our financial needs

This ‘magic number’ figure has leaped 15% in a year and an astonishing 53% since 2020. Meanwhile, retirement savings have dwindled to a mere $88,000.

The “Silver Tsunami” of retirement approaches, with millions of Baby Boomers riding the waves into retirement.

Track and prioritize your spending is vitally critical. This involves prioritizing the spending that’s most important to you and letting things that are less important fall off. You’re saying no to some things so that you can say yes to others. You might even want to employ loud budgeting.

Loud budgeting gives you permission to say no to social engagements by saying you don’t have the money for it. To put loud budgeting to work, you commit yourself and share that you’re doing it. Loud budgeting lets you spend money on true priorities while skipping things that won’t really provide or align with your values and priorities.

Loud budgeting can be a simple way to push back when you’ve spent too much. But it works best when it starts with a solid budget and a financial plan that helps you balance future goals with what you need for today. The idea isn’t to say no to everything, but loud budgeting should help you say no when needed.

Ultimately, your financial goal is to have more income coming in each month than expenses going out.

But make sure that you’re thoughtful about your spending so that you feel good about what you’re getting when those dollars leave.

Source:

  1.  https://news.northwesternmutual.com/planning-and-progress-study-2024
  2. https://www.northwesternmutual.com/life-and-money/what-is-loud-budgeting/

Changing Retirement

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“The traditional idea of retirement, where Americans stop working altogether, is more the exception than the rule these days. The majority of Americans continue to work in some capacity, whether or not they get a paycheck. They’re active, involved, and full of things they want to do for themselves and for others.” ~ Carrie Schwab-Pomerantz, SVP, Charles Schwab & Co., Inc.

Retirement Planning

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Planning for retirement is a way to help you maintain the same quality of life in the future.

You should start retirement planning as early as financially and emotionally possible, like in your early twenties or thirties. The earlier you start, the more time your money has to grow.

That said, it’s never too late to start retirement planning, so don’t feel like you’ve missed the proverbial boat if you haven’t started.

Keep in mind, every dollar you can save now will be much appreciated later. Strategically investing could mean you won’t be playing catch-up for long.

Additionally, retirement planning isn’t merely about counting the days until you hang up your work boots and calculating your magical financial number.

It’s about ensuring that your golden years exudes comfort, financial security, personal relationships, meaning and purpose. Here are five financial steps to guide you as you prepare for career and life transition:

  1. Know When to Start: Determine when you want to retire. Will it be an early retirement at 62 or a grand finale at full Social Security benefits age (around 67)? Remember, the earlier you claim Social Security, the less you will receive monthly, but delaying it can enhance your benefits.
  2. Calculate Your Magic Number: Calculate how much wealth or nest egg you need to sustain your desired lifestyle. Consider living expenses, healthcare costs, and the joys you wish to indulge in during retirement.
  3. Prioritize your financial goals: Pay off debts, build your savings, downside if necessary, and calculate your monthly expenses.
  4. Choose Your Accounts: Explore retirement accounts. Will it be a 401(k), an IRA, or both? Each has tax advantages, contribution limits, and investment options. Mix and match wisely.
  5. Invest Wisely: Your investments must propel you toward your financial destination. In your youth, invest aggressively. As you approach the retirement, dial back to a more conservative mix.

Whether you’re a few decades or a few years away from retirement, having a plan can help you feel confident that you’ll be prepared when the time finally arrives.

Source: https://www.nerdwallet.com/article/investing/retirement-planning-an-introduction

IRS Tax Refunds: Interest Free Loan to Federal Government

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“We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.” – Winston S. Churchill

Most Americans perceive a tax refund as a government benefit, rather than recognizing it as an interest-free loan they provided to the government.

According to the IRS, “If you paid more in federal taxes throughout the year than you owe in tax, you may get a refund after you file your tax returns. Even if you didn’t pay tax, you may still get a refund if you qualify for a refundable credit.”

Tax refund, or a refund of overpayment of taxes, are often a source of joy for many U.S. households. For calendar year 2023, the average refund check is expected to be approximately $3,050 according to the IRS.

People use these refunds to pay bills, start emergency funds, or treat themselves to something special. However, it’s essential to understand that these refund checks aren’t free money from the government. Instead, they represent reimbursements from the IRS for overpaid income taxes throughout the year. In fact, last year alone, taxpayers overpaid by a staggering $360 billion.

Essentially, a tax refund isn’t free money. Here’s why:

  • Overpaid Taxes: Throughout the year, you pay income taxes based on your earnings. Sometimes, due to various factors (like incorrect withholding or changes in income), you end up paying more than your actual tax liability.
  • Refund Process: When you file your tax return, the IRS calculates your actual tax liability. If you’ve overpaid, they issue a refund—sending back the excess amount you paid.
  • Interest-Free Loan: Essentially, the refund represents an interest-free loan you provided to the government. Instead of having that money in your pocket throughout the year, you lent it to the IRS without earning any interest.
  • Financial Implications: From a financial perspective, it’s better to adjust your withholding so that you receive more in your paycheck each month. This way, you can use the extra funds for savings, investments, or other financial goals.

Interest-Free Loan Perspective:

Many experts caution that tax refunds essentially represent interest-free loansgiven to the federal government. When you overpay your taxes, you’re effectively lending money to the IRS without earning any interest.

Financially, it’s better to have that money in your paycheck throughout the year. For instance, if the average tax refund is $3,079, that’s equivalent to a $3,000 interest-free loan you’ve provided to the government. Instead, you could have had an extra $250 per month in your budget.

Enforced Savings Perspective:

Some financial professionals argue that receiving a refund can serve as an enforced savings plan. For individuals who struggle to save money, having a lump sum at tax time can be helpful.

However, it’s important to note that adjusting your withholding during the current tax year can impact next year’s refund. If you want to avoid overpaying, consider adjusting your withholding with your employer.

In summary, while tax refunds may feel like a windfall, it’s financially wiser to have that money in your paycheck throughout the year. Ultimately, the choice between a refund and a net-zero tax return depends on individual circumstances and financial goals.

When to expect your refund 

To process your refund, it usually takes:

  • Up to 21 days for an e-filed return
  • 4 weeks or more for amended returns and returns sent by mail
  • Longer if your return needs corrections or extra review. However, you’ll receive interest for delayed tax refund.

References:

  1. https://www.irs.gov/refunds

Small-Cap and Micro-Cap Stocks

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Small-cap and micro-cap stocks outperform large-cap counterparts in the long term but show particular strength after economic shakiness

A small-cap stock is defined as shares of a company with a market capitalization between $300 million and $2 billion.

Small-cap stocks offer an attractive risk-reward profile, as these companies usually have a higher growth potential than large-cap stocks. Although small-cap stocks have a high amount of volatility, they appear to be lucrative bets when the economy is expected to boom.

Micro-cap stocks represent companies with a market capitalization between $50 million to $300 million. Micro-cap stocks have a world of potential. Often they are in niche markets with emerging business ideas or technologies, so there’s a massive growth window for a company that can manage to it its stride.

Also, micro-cap stocks aren’t nearly as well-known as the blue-chip names. If you’re an astute investor, you can get in early before the average investor buys in.

Small-cap and micro-cap stocks are inherently more volatile than those blue-chip established names. That means potentially greater reward and greater risk. To invest in these micro-cap stocks, you should have a pretty high risk tolerance and be ready to ride the waves.

Most companies start out as small-caps or micro-caps, but by continually growing their earnings, their share prices appreciate. This can increase the market capitalization (share price times shares outstanding) of the company to large, or even mega-sized, while investors along for the ride reap the profits.

Big names like Microsoft, Apple and Amazon were all small-caps at one point. But not all small-caps flourish like those giants have. Many fail or stop growing, which means losses or little profit for investors. Great companies reveal themselves over many years and decades by continually producing quality earnings and sales growth.

You can find the best small-cap stocks by looking for companies with strong earnings and sales growth. Analysts must also be forecasting continued growth into the future. In addition, weed out companies with erratic earnings or that are issuing shares excessively, which dilutes earnings and shareholders’ equity.

All stocks should trade on U.S. exchanges, have a share price above $2, a market cap between $250 million and $2.5 billion and have three-month average daily volume of at least 200,000 shares.

Expected EPS growth. Companies are only included if analysts predict at least 7.0% yearly average growth over the next five years. Current-year EPS growth is also expected to be positive (above 0%).

Recent EPS and sales growth. Earnings and sales have increased an average of at least 7.0% per year over the last five years. Earnings were also higher than the prior year for each of the last three years.
Profitable. All stocks on this list have had positive earnings for the last three years.
This methodology focuses on companies that are already profitable. While unprofitable companies can see their share prices rise too, profitable and growing companies have already proven they can do it. It is a less speculative way to play this segment of the market, as opposed to hoping a struggling company can eventually turn it around.

investing in stocks is all about returns, the next step when analyzing small cap stocks is to see how their performance differs from large or mega cap behemoths.

Humana TRICARE and Medicare

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Tricare for Life coverage will be effective when your Medicare is effective. Medicare Part A is free for eligible beneficiaries, but there will be a premium for Medicare Part B. The premium amount varies yearly and may be based on your income.

Humana TRICARE and Medicare are two programs that play crucial roles in providing health coverage to different groups of individuals. Here’s what you need to know:

  1. TRICARE and Medicare Interaction:
    • TRICARE is the health care program for uniformed service members, retirees, and their families. It provides comprehensive coverage for medical services, prescriptions, and more.
    • Medicare, on the other hand, is a federal health insurance program primarily for people aged 65 and older, as well as certain younger individuals with disabilities or specific medical conditions.
  2. Becoming Medicare-Eligible:
    • At Age 65:
      • If you’re age 65 and entitled to Medicare, you are automatically covered by TRICARE For Life (TFL). TFL acts as a wraparound coverage, paying your out-of-pocket costs in Original Medicare for TRICARE-covered services.
      • You are not eligible to enroll in other TRICARE health plans.
    • Under Age 65:
      • If you’re under age 65 and Medicare-eligible, you have options:
        • Enroll in a TRICARE Prime option or use TRICARE For Life.
        • TRICARE-eligible family members under 65 can also enroll in different TRICARE health plans.
        • Request enrollment changes within 90 days of the Medicare-eligible family member’s Medicare effective date.
  3. Medicare Basics:
    • Original Medicare (Parts A and B):
      • Part A: Hospital insurance (financed by payroll deductions during working years).
      • Part B: Medical insurance (primarily covers outpatient services; you pay a premium based on income).
    • Medicare Supplement Insurance (Medigap):
      • Optional coverage that pays out-of-pocket costs in Original Medicare.
    • Medicare Advantage (Part C):
      • Offered by private companies, it provides all Part A and Part B services, often with Part D pharmacy coverage.
    • TRICARE For Life:
      • Coordinates with Medicare, eliminating the need for you to file claims.
  4. Important Considerations:
    • Medicare Part B Requirement:
      • To maintain TRICARE coverage, you must have Medicare Part B, even if you live overseas.
      • Failure to have Part B may result in losing TRICARE coverage.
      • Sign up for Part B during your Medicare Initial Enrollment Period.
    • Veterans and Medicare Advantage Plans:
      • Humana Medicare Advantage (MA) plans complement VA coverage.
      • They offer additional benefits, affordable costs, and options for care closer to home.

Medicare Part B

For 2024, the standard monthly premium for Medicare Part B enrollees will be $174.70, which is an increase of $9.80 from the 2023 premium of $164.901. Additionally, the annual deductible for all Medicare Part B beneficiaries will be $240 in 2024, up from $226 in 20231.

If your income is above a certain threshold, you may be subject to an Income-Related Monthly Adjustment Amount (IRMAA), which is an additional charge on top of the standard monthly premium. The IRMAA affects individuals with an income of more than $103,000, or couples filing jointly with an income above $206,0002. The exact amount of the IRMAA depends on your income level.

Please note that these figures are based on the information available as of now and could be subject to change. It’s always a good idea to check the latest details from the official Medicare website or contact Medicare directly for the most current information.

Understanding the intricacies of TRICARE and Medicare is essential!

Purchasing Power Risk

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“Inflation is taxation without legislation.”

Inflation reduces the value of money held by the public, similar to a tax. The impact of inflation on purchasing power acts as a hidden cost on consumers’ wealth.

Inflation functions like a tax because it diminishes the real value of money. When prices rise, the same amount of currency buys less, effectively reducing people’s wealth if their income doesn’t increase at the same rate. This erosion of purchasing power affects everyone who holds money, making it a universal ‘tax’.

However, unlike traditional taxes imposed by governments, which are debated and legislated, inflation can occur without any direct legislative action. It’s often the result of complex economic factors, including monetary policy decisions by central banks, supply and demand dynamics, and changes in production costs.

Purchasing power risk, also known as inflation risk, refers to the potential decrease in the value of money over time due to inflation. When inflation occurs, the general price level of goods and services rises, meaning that each currency unit can buy fewer items than before. This risk is particularly relevant for investors holding cash or fixed-income securities, as the real return on their investments may be reduced when inflation is high.

In simpler terms, if you have a certain amount of money today, you might be able to buy a basket of goods with it. However, if prices increase over time due to inflation, that same amount of money will buy you a smaller basket of goods in the future. This erosion of purchasing power can affect not only personal finances but also investment returns and overall economic health.

Central banks often adjust interest rates to try to control inflation and maintain the currency’s purchasing power. One common measure of purchasing power in the U.S. is the Consumer Price Index (CPI), which tracks the average price change over time for a basket of goods and services, including transportation, food, and medical care3. Monitoring CPI and other economic indicators can help individuals and policymakers understand and mitigate the impact of purchasing power risk.

Source:  https://haikhuu.com/education/purchasing-power-risk

Short Interest and Short Selling

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Short interest provides investors a sense of the degree to which investors are betting on the decline of company’s stock price.

It’s easy for investors to understand that you can make money after buying shares of a stock when the stock price increases (going long).

Traders can also profit from a declining market by using a strategy called shorting stock.

Short selling is when a trader sells shares of a company they do not own, with the hope that the price will fall. Traders make money from short selling if the price of the stock falls and they lose if it rises.

Shorting a stock first involves borrowing the stock you wish to sell at a market-determined interest rate and then selling the borrowed equities to take advantage of a future market decline.

You profit by selling the borrowed stock at a higher price and subsequently buying it back at a lower price if the stock price falls.

The profit consists of the difference between the price at which the trader sold the stock and the price they buy it back at less any borrowing and transaction costs.

To successfully short sell, you need to identify stocks that are likely to decrease in value. Look for companies with weak financials, negative news, or a downtrend in their stock price.

When short selling, market timing is crucial. You want to enter the trade when the stock price is likely to decrease, and exit before it rebounds. Pay attention to technical indicators and price action to make informed decisions.

Why Short Interest Matters

Short interest is the number of shares that have been sold short but have not yet been covered or closed out.

Short interest is important to track because it can act as an indicator of market sentiment towards a particular stock. An increase in short interest can signal that investors have become more bearish, while a decrease in short interest can signal they have become more bullish.

Source:

  1.  https://www.benzinga.com/insights/short-sellers/24/03/38010258/pypl-analyzing-paypal-holdingss-short-interest
  2. https://www.benzinga.com/money/how-to-short-a-stock