THE WEEK ON WALL STREET
Stocks advanced last week despite mixed inflation data, lurching oil prices, and lingering anxiety about the Middle East. The S&P 500 Index gained 1.11 percent, while the Nasdaq Composite rose 1.13 percent. The Dow Jones Industrial Average picked up 1.21 percent. The MSCI EAFE Index, which tracks developed overseas stock markets, added 0.23 percent.
FACT OF THE WEEK
Bavarian Crown Prince Louis, later King Louis I of Bavaria, marries Princess Therese von Sachsen-Hildburghausen. The Bavarian royalty invited the citizens of Munich to attend the festivities held on the fields in front of the city gates. These famous public fields were named Theresienwiese—”Therese’s fields”—in honor of the crown princess; although locals have since abbreviated the name simply to the “Wies’n.” Horse races in the presence of the royal family concluded the popular event, celebrated in varying forms all across Bavaria.
The decision to repeat the festivities and the horse races in the subsequent year gave rise to the tradition of the annual Oktoberfest, which now begins in late September and lasts until the first Sunday in October. Alcohol consumption is an important part of the modern festival, and more than 1 million gallons of beer are consumed annually at Oktoberfest.
MARKET MINUTE
Up And Down Week
Stocks slipped on Monday as oil continued to rise but moved higher on Tuesday as the technology sector showed the way. Oil prices fell back as investors took a wait-and-see stance concerning Middle East tensions.
The S&P 500 and Dow Industrials hit fresh record highs on Wednesday but dipped Thursday morning after the latest Consumer Price Index (CPI) data showed inflation was warmer than expected.
Earnings season kicked off Friday, and update reports from a few money center banks injected some enthusiasm into markets. Also, the Producer Price Index (PPI) report showed wholesale prices stayed flat last month, a welcomed update for investors. All three averages closed higher for the fifth consecutive week.
Inflation Moves Markets
Despite news that showed retail inflation continued to decelerate in September, anxious investors focused on the fact that CPI came in slightly warmer than economists expected for September. Meanwhile, Friday’s PPI reading came in slightly better than economists expected, adding a layer of complexity for the Fed as it evaluates the inflation story.
FINANCIAL STRATEGY OF THE WEEK
How Will Working Affect Social Security Benefits?
In a recent survey, 73% of current workers stated they plan to work for pay after retiring.
And that possibility raises an interesting question: how will working affect Social Security benefits?
The answer to that question requires an understanding of three key concepts: full retirement age, the earnings test, and taxable benefits.
Full Retirement Age
Most workers don't face an "official" retirement date, according to the Social Security Administration. The Social Security program allows workers to start receiving benefits as soon as they reach age 62 – or to put off receiving benefits up until age 70.
"Full retirement age" is the age at which individuals become eligible to receive 100% of their Social Security benefits. Individuals born in 1960 or later can receive 100% of their benefits at age 67.
Earnings Test
Starting Social Security benefits before reaching full retirement age brings into play the earnings test.
If a working individual starts receiving Social Security payments before full retirement age, the Social Security Administration will deduct $1 in benefits for each $2 that person earns above an annual limit. In 2024, the income limit is $22,320.
During the year in which a worker reaches full retirement age, Social Security benefit reduction falls to $1 in benefits for every $3 in earnings. For 2024, the limit is $59,520 before the month the worker reaches full retirement age.
For example, let's assume a worker begins receiving Social Security benefits during the year he or she reaches full retirement age. In that year, before the month the worker reaches full retirement age, the worker earns $65,000. The Social Security benefit would be reduced as follows:
Earnings above the annual limit $65,000 – $59,520 = $5,480
One-third excess - $5,480 ÷ 3 = $1,826.67
In this case, the worker's annual Social Security benefit would have been reduced by $1,826.67 because they are continuing to work.
Taxable Benefits
Once you reach full retirement age, Social Security benefits will not be reduced no matter how much you earn. However, Social Security benefits are taxable.
For example, say you file a joint return, and you and your spouse are past the full retirement age. In the joint return, you report a combined income of between $32,000 and $44,000. You may have to pay income tax on as much as 50% of your benefits. If your combined income is more than $44,000, as much as 85% of your benefits may be subject to income taxes.
There are many factors to consider when evaluating Social Security benefits. Understanding how working may affect total benefits can help you put together a strategy that allows you to make the most of all your retirement income sources – including Social Security.