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The RFG Weekly Wealth Report

November 02, 2020

The Week on Wall Street

Stock prices dropped last week as hopes for a fiscal stimulus bill faded and investors focused on rising COVID-19 infections, here and abroad.


November 2nd, 1898 was a date worth cheering about as it was the day football fan Johnny Campbell of the University of Minnesota became America's first widely-acknowledged cheerleader.

Other universities followed by example across the nation, and for the next quarter-century, America's cheerleaders, considered as honorary cheerleaders, made up of groups of men exclusively. "The reputation of having been a valiant 'cheerleader' is one of the most valuable things a boy can take away from college," The Nation magazine wrote back in 1911. "It ranks hardly second to that of having been a quarterback."


The Dow Jones Industrial Average slid 6.47%, while the S&P 500 tumbled 5.64%. The Nasdaq Composite Index lost 5.51% for the week. The MSCI EAFE Index, which tracks developed overseas stock markets, slumped 5.02%.

A Difficult Week for Stocks

Stocks opened the week lower as lawmakers failed to pass a fiscal stimulus bill and a pick up in the number of new COVID-19 cases in the U.S. and Europe. The hardest hit were companies most exposed to pandemic-related economic impacts, including energy, travel and leisure, and industrials.

Losses accelerated mid-week on reports of rising COVID-19-related hospitalizations, along with news that Germany and France were reinstating partial shutdown restrictions. Stocks attempted to recover on Thursday but took another leg lower on Friday as earnings reports from the mega-cap technology companies failed to impress investors.

Positive Economic News

There were several positive economic reports during the week, but investors paid little attention. Among the highlights were durable goods orders, which rose for the fifth consecutive month, a sharp drop in initial jobless claims that were the lowest since March 14th, and a 33.1% annualized jump in economic growth during the third quarter. Investors also ignored a strong start to earnings season, which has seen 85% of reporting companies in the S&P 500 beating earnings estimates by an average margin of 19%.


Social Security and Payroll Taxes, What You Need to Know Today

Recently, Congress passed a law offering a payroll tax holiday. The payroll tax pays for Social Security. Here are the top 10 things you need to know about Social Security retirement income benefits and the payroll tax deductions.

Who Gets Social Security?

Social Security Retirement Income (SSRI) provides income for 54 million retired Americans. These expenditures added up to $1 trillion in 2019. The average paycheck is $1,502.85 per month, and most of these checks go to women. Some 54 percent of SSRI recipients under the age of 85 are female, and 63 percent of SSRI recipients over 85 are women.

Who Pays Payroll Taxes?

Employees pay 6.2 percent of every paycheck into FICA (Federal Insurance Contributions Act). Also, employees pay another 1.45 percent Medicare tax. Employers also pay the same amount on behalf of their employees. Self-employed people pay both employer and employee portions of payroll taxes, 12.4 percent plus 2.9 percent. In other words, if you're self-employed, you pay twice as much payroll tax.

SSRI taxes are not due on income above that amount. Medicare, however, is taxed on every dollar earned regardless of the income level. In other words, there is no cap on the income for the 2.9 percent Medicare tax.

A Payroll Tax Holiday in 2020

A payroll tax holiday began on September 1, 2020, and runs through the calendar year's end. Optionally, employers may give employees a boost to their paychecks of 6.2 percent, equal to the employee's portion of the Social Security tax. However, it is a temporary benefit because, in January 2021, employees will be subject to a double-withholding to pay back the short-term loan.

The payroll tax holiday could be made permanent with an act of Congress. It is widely expected that many employers will not participate in the payroll tax holiday because either their software or payroll company does not allow for it. The IRS has not issued guidance on how they will handle changes to payroll taxes.

Bankrupt in 2032 or 2034?

Most Americans are at least a little bit worried about the future of Social Security. Only 18 percent of Americans are confident they will receive SSRI. SSRI expenditures are expected to grow to nearly $2 trillion by the year 2030. As a percentage of America's gross domestic product, SSRI is expected to increase from just under 5 percent to over 6 percent of GDP by 2030. 

Americans spend more on income tax and Social Security than any country in the world outside of Europe or Australia. Despite that, the Congressional Budget Office (CBO) regularly makes dire predictions for Social Security solvency. On the other hand, a new school of economics — called "Modern Monetary Theory" — posits that the U.S. government can afford SSRI pay. It's best to build a solid personal financial plan to carry you through retirement and not worry about things outside our control, like national politics and the federal budget.

Full Retirement Age

Full retirement age is when a person receives the maximum Social Security Retirement Income (SSRI) benefit. For people who have not already started taking SSRI, the full retirement age ranges from 66 and 67. People born in the year 1960 or later reach full retirement at age 67. People born before 1960 will start SSRI sometime during period 66, depending upon what year they were born.

Taking it Early is Expensive!

For many reasons, people start SSRI early. Some people cannot wait until full retirement age before taking benefits for financial reasons. Others take SSRI for political reasons, afraid that the government may not pay the full promised benefit. If a person pulls SSRI early, she will permanently reduce her income and surviving spouse's income for life. The earliest a person can make a withdrawal is age 62.

For someone who has a full retirement age of 65 but who started SSRI as early as possible, she is receiving only 80 percent of her full benefit. For someone who has an average retirement age of 66, he will receive 75 percent of his full advantage at age 62. A 70 percent benefit goes to someone who starts SSRI at age 62 but has a normal retirement age of 67. The benefit increases 5/12th of one percent per month until full retirement age.

Maximum Income at Age 70

If a person waits until age 70, he receives the maximum SSRI. Each year he waits from Full Retirement Age until age 70 gives him another 8 percent income per year. Many people choose to work longer and delay SSRI. They may pull income from other sources, like a retirement account, if they are healthy and can afford to wait. Talk with a professional to find out the right decision for you.

Health Insurance in Retirement

SSRI and Medicare go hand-in-hand, but the years do not line up. A person may start SSRI at age 62 and age 70, but Medicare does not begin until age 65. An early retiree faces the dilemma of paying for health insurance before starting Medicare. The costs of individual insurance plans can be prohibitive. Working with a CFP® professional can help you decide how to pay for it and determine the benefits you may receive. For example, you might qualify for subsidized insurance rates.

40 Quarters and 35 Years

Anyone who works 40 quarters is entitled to Social Security. The amount of payment is based on the highest 35 years of income. People who work for the federal government, or other governments, may have their SSRI benefits reduced. Generally, Social Security benefits are reduced by two-thirds of the non-FICA-taxed government pension.

Survivor Benefits

Spouses are entitled to one-half of the highest-earning spouse's Social Security benefits while both are alive. A surviving spouse loses the lower-income stream after the first spouse passes away. She keeps the higher of the two Social Security payments, but not both. If monthly payments are processed automatically, then the surviving spouse should stop income quickly by reporting the death to the Social Security Administration.

Social Security Retirement Income is an important income source for retirees. The laws are confusing, and the choices may seem overwhelming. In today's world, information is omnipresent and often partisan. Emotions can run high, making it difficult to make a prudent, long-term decision. A financial professional can help you decide what is best for you and your unique situation.

As always, please contact my office with any questions or financial concerns you may have.