Newsletter Volume 8 | January 2017

The Patient and Disciplined Investor…  

Ruminations on long-term wealth building and retirement- income strategies          

written by Todd M. Kirsch         

Volume 8/Issue 1 January 2017

“Permanent loss in a well –diversified equity (or stock) portfolio is always a human achievement, of which the market itself is incapable.” – Nick Murray, author and speaker

The Year 2016 Provided a Tutorial on Investing

The year 2016 certainly brought surprises that rattled investment markets. But there are some valuable lessons to be gleaned that might help you going forward. Consider how we started 2016 a year ago. The S&P 500 closed at 2044 on December 31st, 2015. It closed on February 11th, 2016 at 1829 – a 10.5% drop.[1] Headlines from early last year seem rather amusing now. CNN Money’s headlines included: “The crash in oil prices continues to ruin your portfolio.”[2] Ruin? Business insider: “Chaos on Wall Street: Here’s what you need to know”[3] Chaos? “Recession watch, 2016” Recession watch? “Investors are nervous” Nervous? It was a buying opportunity. Bloomberg was still running hyperbolic headlines into May: “Bank of America Strategist Warns of Imminent ‘Vortex of Negative Headlines’ to Send U.S. Stocks Plummeting.”[4]   So was CNBC: “This bank thinks the S&P could fall 15% this summer.”[5] Do these people actually get paid to write these things?

Whenever stock prices drop like this, the media trots out the usual suspects who make a living peddling fear. There is wringing of hands and gnashing of teeth. Bad news sells, and some market “experts” have figured out that they can make more money selling fear than reminding readers that the capitalist system, though imperfect, has historically been, and continues to be, a juggernaut of wealth creation.

But 2016 wasn’t finished – another buying opportunity arrived in late June. The Brexit vote caused the S&P 500 to drop 5.3%. Then the overnight futures the evening of the election were also off about 6% when it started to become clear that Donald Trump would be elected president.[6]

So what have we learned? Well, it’s essential to realize that basing your investment decisions on headlines is a mistake. And I don’t think I would take politics into consideration, either. Headlines and political issues tend to be fugacious – i.e., sensational and here today, gone tomorrow. Principles, on the other hand, tend to endure. Speculators (i.e.. gamblers) might be basing decisions on headlines. But you, my dear reader, are an investor. As such, you should be basing your investment decisions on a financial plan whereby you (and your spouse) have set a variety of very important personal and family goals, most of which are long-term.

With these thoughts in mind – and 2016 presenting an obvious learning example – we turn our thoughts as to some general principles:

Principle #1 – Most clients are working on a financial plan that covers multiple decades, if not multiple generations. For this reason, investment decisions are based on client goals – and what gives them the best chance of reaching those goals….not on the transitory, hyperbolic media headlines of today.

Principle #2 – I do not and cannot forecast the economy – much less what stock prices will do if and when people get emotional around buying or selling stocks. I don’t believe anyone can consistently predict these things. My greatest value to clients is to be the calm, steady voice that tells you everything will be okay in the midst of uncertainty.[7] Clients hire me to help them separate their emotions from their investment decisions. Consider this: the GDP of the U.S. contracted 4.1% in the 2007-2009 so-called Great Recession – yet the S&P 500 plunged a whopping 57% from October 2007 to March 2009.[8] Yes, you read that correctly – 4.1% vs. 57%! Think of the regret you would have if you had sold out in March of 2009 when the S&P bottomed around 670. I have personally heard some of these stories, and it’s near impossible to recover from those mistakes. In a nutshell, I am a planner, not a fortune teller. You will want me on your side – and in your ear – when the spaghetti hits the fan the next time.

Principle #3 – My approach to portfolio management consists of essentially three objectives (1) what type of investment portfolio gives you the best chance of reaching your goals, (2) benchmarks, such as the S&P 500, are mostly irrelevant – the only benchmark we should be measuring is your progress towards your financial goals (one can “beat” the S&P 500 over a given time period and still run out of money in retirement), and (3) volatility of stock prices isn’t risk (the media tells you otherwise) – risk is that you, based on fear or panic, will sell part – or heaven forbid – all of your portfolio at exactly the wrong time thereby permanently impairing your capital and your ability to reach your financial goals.

Principle #4 – Once we have painstakingly developed a comprehensive financial plan for clients, I rarely suggest that we make changes to the investment portfolio unless client goals have changed.[9] The media is constantly urging, nudging even begging you to “do something!” My rather unscientific sense – though verified in various ways by a number of scholarly sources – is that investment performance is negatively correlated to activity within the portfolio. In other words, the more you “tinker” with your investments, the worse it generally does. Or think of investments as soap – the more you handle them, the smaller they get. There have been plenty of studies suggesting that women are better investors than men because of this. Sorry fellas, tinkering is in our DNA, but it doesn’t help us as investors.

Principle #5 – Going back to 1980, the average intra-year decline in the S&P 500 is 14.1% – that’s average! This means that, at some point during the year, stock prices – on average – have dropped 14.2% from a previous high.[10] Many years – like 2008 – it’s been much more. Yet, the S&P 500 ended positive 27 of those 36 years. The S&P 500 has gone from 106 in 1980 to about 2250 as of the date of this writing – and that doesn’t include dividends. The lesson is simply this: leave….your…. portfolio…..alone. Let it do the heavy-lifting and go live your life without pretending that you’re smarter than the market. I like the quote from Warren Buffet: “Our favorite holding period [for stocks] is forever.” That might be overstating it a bit, but you get the point. Finally, consider that stock prices since 1926 have, on average, hit a new high a mere 3.3 years after a bear market begins.[11] I have no way of predicting that the future 37 years will be as good as the last 37, but I certainly favor the idea of placing stocks in portfolios for long-term goals – and then let the money managers and stocks do their job.

Principle #6 – We can never, ever, EVER be certain of a rate of return by owning stocks (or bonds). The only thing asked of us is to be rational in a relentlessly uncertain world. The world can be an ugly place. You might have noticed the name of this newsletter – the Patient and Disciplined Investor. I could have named it the “Irrational, Reactive, Time-the-Market, Cutting-Edge, Psychotic Investor” – but that doesn’t fit my practice. Patience, discipline – and faith in capital markets is, by definition, RATIONAL. And it is based on the last 225 years of market returns since a collection of 24 men began trading stocks under a buttonwood tree in New York City that eventually became the New York Stock Exchange. Acting rationally under generally uncertain and sometimes completely irrational conditions is the hallmark of truly successful investors. We’re not here for a quick kill – or the right to brag to your neighbors at the block party how you got out of the way of the 2007-09 crash (only to, uh-um, still be in cash). We are investing to reach real life, tangible, family-oriented goals that we can look back on and say: We did it! It was tough to maintain the faith during those difficult times, but look at what we have now – and what our kids, our grandchildren, and perhaps a charity have as a result of our hard work, prudence, and rational approach to investing.

Rationality will continue to be the building block that I will base my practice on going forward.

Observations for 2017

“Looking ahead to 2017, with U.S. markets appearing to be reasonably undervalued (in our view from an accelerating earnings, free cash flow and dividend perspective-three of the most important measures) on most fronts.” – David Schaffer, Managing Director, Institutional Equity Sales, Raymond James (12-29-30)

Observation #1 – As mentioned above, investment markets put on a tutorial for investors last year. After the initial 10.5% drop, we ended 2016 around 2,250 – that’s about a 23% increase from mid-February and about a 10% gain on the year. Throw in about a 2% gain due to dividends, and those numbers increase to 25% and 12%. Not bad for such an allegedly slow-growth economy.[12] The lesson is don’t invest based on politics, headlines, or – as much as I would like to – the Chicago Cubs. Though, wait just a second, the Cubs won the World Series on November 2nd when the S&P closed at 2097 – and markets have really done well since the Cubbies won the World Series, so doesn’t that mean that…..nope, don’t go there. There is no correlation between the two, but heaven knows – somewhere, somehow, someone is making a case for such an “investment strategy”.

Observation #2 – Participants in the trading of common stocks – aka “the market” – don’t like uncertainty. Bad news – which can be digested and accounted for – is better than uncertainty. The uncertainty surrounding the presidential election is over and voila, stock prices increased. My sense is that stocks would have also bounced up had Hillary won the election – though perhaps the bounce would have looked different. There will always be uncertainty, but don’t let “bad news” dictate your investment decisions. It could be good news for stock prices.

Observation #3 – It is almost comical how the financial media is constantly classifying the market as “overvalued”. But then again, if it wasn’t overvalued, then it wouldn’t be at imminent risk of “crashing” – and well, not as much nonsense journalism could be vomited out to the public. A common approach to measuring the value of stocks is to compare the prices of stocks to the earnings for that company – otherwise known as the Price/Earnings (P/E) multiple. But remember that there is a past P/E and a future or anticipated P/E. Based on past (12 months) earnings, I agree that an argument could be made that perhaps stock prices are a bit high, at least historically. But included in the last 12 months are some very poor earnings from a now relevant and significant energy sector. If we look to future, anticipated earnings, stock prices are quite consistent with historical averages. This is especially true considering that the 10-year U.S. Treasury bond is only yielding about 2.45%…not exactly stout competition for stocks.

Observation #4 – It’s possible that we are only at the beginning to mid-stage of an epic bull market run. That might sound naïve and trite to a pessimist – and I understand that. But when you carefully consider how bull markets in stocks have ended historically, you might reconsider. Bull markets generally end when there is a general feeling of euphoria around stock prices. People lose sight of investment risk, and unsophisticated investors are lured into the market thinking they can make easy profits. Demand overwhelms supply – it’s good until it isn’t and then bam! – the market begs for – and sometimes gets in brutal fashion – a correction that knocks some “sense” back into the market. Stocks are then returned to their rightful owners – the long-term accumulators of ownership in America’s companies. The media shrieks about the end of the world and how much money “investors” lost, and well, the process starts over. Consider the euphoria before the housing bust in 2007 – consider the bust in 2000 – and consider the Granddaddy of them all – the bust of 1929 that didn’t end until 1932 (for an outstanding review of the euphoria during the 1920s, pick up Rainbow’s End, the Crash of 1929 by Maury Klein.)

History certainly does not have to repeat itself – and this bull market, since March of 2009, could certainly end in different fashion. There could be a significant terrorist act or some other major act of aggression by another nation that changes things quickly. But I sure don’t sense any euphoria going on in investment markets. Company earnings are beginning to accelerate on a sound base of financial stability within corporate America. We might be transitioning from an interest-rate driven bull market to an earnings-driven bull market. It could be good for some time, yet.

Observations #5 – The U.S. still has the world’s most vibrant, resilient, innovative economy in the world. Stock returns in other parts of the world for 2016 were not near as good as the U.S. Once again, it appears that the U.S. is going to have to lead the way out of a relatively sluggish world economy going forward.

Observation #6 – All things being equal, rising interest rates cause bond prices to fall. With rates most likely on the rise going forward, a reasonable investor might reevaluate how much money to commit to bonds – which have, for over 35 years, been considered a relatively “safe” asset class. This could be good for stocks – or at least be an underpinning of strength for stock prices. Another source of strength could be a lower tax rate on U.S. corporations and tax-relief for funds held overseas by U.S. corporations.

Observation #7 – Let’s hope our newly elected leaders do not engage in tariff legislation that causes other nations to retaliate with substantial tariffs on our products. Trade wars don’t end well – consider the 1930s.

Bottom Line: There are many reasons to be hopeful for 2017 and beyond. Don’t sell your investments based on politics, headlines, or rising interest rates, – and certainly don’t sell on the “news”. Stay invested, my friends.

The Firm

We transitioned to Raymond James over 3 years ago – but it seems like yesterday. We would not be enjoying our success without the hard, diligent work of the ladies in my office. I am very appreciative of their efforts. Let’s hear it for Kelly, who has been here nearly 11 years, Crystal 3.5 years, and Jericha 5 years. Thank you, ladies! We make a great team, and I am very thankful for your efforts.

On a Personal Note…

My son Ryan is now a junior at CSU studying civil engineering. I’m glad someone in the family understands those topics – too hard for me! My two daughters, Zoe and Julia, are 16 and 14 and are both attending Mountain Vista High School. Zoe has become an extremely skilled violin player (I’ve always liked those string musicians!), and Julia is playing volleyball for both the high school and club. They all make Papa Bear very proud. 🙂

For those of you who have trusted me with your money, thank you – I am deeply moved and grateful for the confidence you have shown in me and Raymond James. While money is important, it doesn’t mean much without our health and relationships. I have gotten to know many of you and your family members over the years, and that is one of the greatest joys of my work. I probably have the best “job” in the world! Happy New Year for 2017, and as the French say, “à votre santé!” – to your health!


Todd M. Kirsch, CFP®, JD, CHFC®, CLU®

Kirsch Wealth Advisors, an independent firm

8191 Southpark Lane, Suite 110

Littleton, CO 80120



Securities offered through Raymond James Financial Services, Inc.


Todd’s Background

Todd has been serving clients since 1993. Prior to that time, he attended Boston University School of Law and obtained his law degree in 1989. He practiced law with a large international law firm in the areas of taxation, securities, and corporations. He graduated from Kansas State University in 1986. He obtained the prestigious Certified Financial Planner® (CFP®) designation in 2002 and also holds the well-respected Chartered Life Underwriter and Chartered Financial Consultant designations from the American College.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Inclusion of these indexes is for illustrative purposes only. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material and does not constitute a recommendation. Any opinions are those of Todd M. Kirsch and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Investing involves risk. You can lose your principal. There is no assurance any strategy will be successful. Please consult your financial advisor before implementing any investment strategy. Past performance is not a guarantee of future results.






[6] And these are not insignificant events. Consider that the U.S. has a total stock market capitalization of about $25 trillion. And we’re only talking about the U.S. here. That’s a loss of $125 billion – with a B – that was lost in the emotional knee-jerk reaction to headlines.

[7] I am also the calm, steady voice that will tell you to be careful when the “next, big thing” captures the imagination of the investing public. We haven’t seen this in some time, but most of you remember the dot-com craze of the late 90’s. Many investors lost sight of their goals paid the price in the recession of 2000-02.

[8] Congressional Research Service: – see page 6.

[9] Please keep in mind that the money managers we hire are making many of these decisions as to when to buy/hold/sell various securities – and in what percentages.

[10] See page 13.

[11] The study measured returns after inflation and dividends – which is the correct way to conduct the study.   Ned Davis Research, Robert Shiller; Eugene Fama & Kenneth French; Hulbert Financial Digest; The Wall Street Journal, March 7, 2014, Mark Hulbert, Don’t Fear the Bear.

[12] To be sure, international markets are not doing near as well, but market leadership has a funny way of rotating around.

Posted in Uncategorized

Newsletter Volume 7 | January 2016

The Patient and Disciplined Investor…  

Ruminations on long-term wealth building and retirement income strategies

written by Todd M. Kirsch | Volume 7 | Issue 1 January 2016

“Growth is an erratic forward movement: two steps forward, one step back. Remember that, and be very gentle with yourself.” – Julia Cameron, American author

Investment Markets Remain Volatile

At times, it can be very difficult to stay the course as an investor, because we must periodically endure retreating and sideways securities prices. U.S. stock prices “corrected” about 12% from May to August-September, and – as of this writing – are retreating again. Stocks have struggled this year, and there are many areas that look like they will finish substantially down for 2015. Those areas include emerging markets, “value” and dividend-paying stocks (especially utilities and transportation), certain areas of the bond market, gold mining stocks, and the energy sector, which has really been hit hard. While corrections are painful when they are happening, we should be thankful that they do, in fact, occur because if investment prices did not periodically correct, then you could not reasonably expect to earn a higher return over time versus holding investments (or savings) that have little or no volatility.


Remember that the financial media is not your friend when stocks are correcting. The media is always eager to stir up your emotions. Given the “collective car crash” that markets endured in 2008, you can be excused if your emotions have been pulling at you lately to lose sight of your long-term goals and satiate the short-term need “do something” with your investments. The media likes to use terms like “soar” and “plunge” when referring to stock prices – and lately, oil prices. Stocks on any given day might move 1-2%, sometimes more, but do they really “soar” and “plunge”? I could perhaps understand the use of the term “plunge” if stock prices dropped, say, 30% in a day…but 1-2%?? Can you imagine getting on an elevator, and your button choices are “plunge” and “soar”?

The financial media doesn’t know you, isn’t familiar with your financial goals, and certainly doesn’t care about you. You will be a better investor if you tune out the media and stay focused on matching your investments to your goals in a financial plan. What they care about is selling you more media by keeping you addicted to the next news “event” that they believe is moving markets. Have you ever wondered why they always provide a reason why stock prices go up or down each day? Maybe there were simply more sellers than buyers that day. Maybe more college tuition bills came due that day, or more cars and homes were purchased, or retirees needed a little more money to fund their retirement lifestyle. Why is it that “investors” would be “dumping” shares of American companies because of “growth concerns” in China or the Federal Reserve raising the short-term interest rate, gulp, a whopping ¼ of 1 percent? Some traders undoubtedly are doing this, but investors tune out this garbage.[1]

Despite the media hyperbole, the correction to U.S. stocks prices last summer was tame by historical standards. Peak to trough from May 21st to August 25th, the S&P 500 was down 12.4%.[2] The average intra-year decline since 1981 in the S&P 500 is 14.2%.[3] If you are still saving for retirement, then periodic stock price declines work to your advantage because you are buying more shares for the same amount of money when they “go on sale”. On the other hand, if you have retired, more caution must be exercised. But there are retirement strategies to protect against such difficult periods…a topic for another time.

Stock prices are up about three times where they were in March of 2009 – a very steep increase. It’s hard to know when a bull market like this will end, but in general, bull markets typically end when investors feel euphoric and lose sight of risk. This isn’t happening. The week of August 25th (when stocks were correcting the most), we saw the greatest one-week outflow of funds from equity investments on record.[4]  That is clearly not an indication of euphoria – investors still feel plenty of fear, most likely from 2008. Surprises happen, and I could be wrong in the short-term.   But interest rates remain low, energy is cheap, the labor force continues to expand, S&P 500 dividends have increased 10.6% January through September this year versus 2014,[5] and investors appear to be fairly risk averse. As such, by historical metrics it seems this bull market should have more room to run.

In the meantime, consider what opportunities might arise the next time stocks prices go down. What additional funds or cash might you contribute to your long-term financial goals? Would it make sense to convert a traditional IRA to a Roth IRA? – remember you will pay less tax on a lower valuation when converting. Thereafter, as markets recover, stock prices recover inside a tax-free vehicle. Lastly, don’t forget to consider taking losses inside taxable accounts this year on areas that have performed poorly – and rebalance inside your IRAs.

Bottom Line: Stay invested, my friends – but we might continue to see difficult markets into 2016.

Social Security Claiming Strategies – and Congress Just Changed the Rules

When to claim your Social Security benefits has become a popular topic the last few years, and for good reason – too many people leave money on the table and/or file for benefits too soon. Social Security plays a surprisingly big role in lessening the risk of running out of money – and thereby whether retirees will enjoy a more tranquil retirement. Unfortunately, Congress recently amended the law terminating a couple of advantageous options.[1] Despite these changes, however, when and how to claim will remain very important within the context of a financial plan. The rules are more complex for married couples, but singles should pay attention, too. I will go over the basics, but please call the office if you would like us to take a closer look at your individual situation.


Let’s review the Social Security basics:

  • Your Social Security old-age benefits (i.e., retirement benefits) are based on your earnings record. In general, you need 40 quarters or 10 years of work subject to Social Security withholding to file for old-age benefits. Social Security uses the highest 35 years of wages, indexed to a wage inflation formula.
  • You can collect Social Security retirement benefits as early as age 62 and as late as age 70. You also have an age known as your “full retirement age” (FRA). Your FRA depends on your date of birth, but people born from 1943 to 1954 have a FRA of age 66. Your “primary insurance amount” (PIA) is the amount you can expect to receive from Social Security at your FRA. Claim prior to FRA, your benefit is reduced. Claim later than your FRA, your benefit is increased.
  • Once you begin receiving benefits, they are increased each year based on the consumer price index (cost of living adjustment – or COLA).
  • Social Security pays you to wait. Your individual benefits will increase 8% per year that you delay claiming. For example, if you wait four years, then you will receive a 32% higher benefit.
  • You can claim your benefits on your own record (assuming you have the required credits) or claim on a spouse’s record. You can even claim on an ex-spouse’s record (assuming you were married at least ten years and are not currently remarried).
  • Social Security is “use it or lose it”. You must be alive to collect either your own benefit, your spouse’s benefit, or a survivor benefit.


Social Security is Longevity Insurance

One of my roles is to represent the elderly version of you when financial planning decisions are being made, and Social Security is a good way to reduce the risk of running out of money late in retirement. It is an annuity that will pay you for as long as you live. Moreover, your benefits increase with inflation (i.e., cost-of-living adjustment). As such, you cannot outlive Social Security, and your benefits maintain their purchasing power. Assuming inflation averages the long-term rate of 3% per year going forward, then your Social Security benefits will double in approximately 24 years. Annuities paid from private-employer pension plans generally do not increase with inflation – that is what we call a “fixed income”. People underestimate Social Security, but it is a very valuable retirement income source for the overwhelming majority of Americans.

When Should I Claim?

In general, if you don’t need the money AND you’re in good health…then you should consider waiting to claim your benefits. The government will pay you 8% per year to wait. As noted above, if you wait just four years, then your benefits will increase 32%, plus cost-of-living adjustments.

Unfortunately, most people claim their benefits early.[2] I understand the emotional tug towards claiming: you’ve been paying into the system for decades, and now you want your money. Plus, people have heard that the system is underfunded, and they are concerned that the system will not be there in later years to pay benefits. While the system has its challenges, it’s still relatively solvent, and it’s hard to see the government changing the rules for people who are either in or near retirement. Lastly, there is this misguided idea that you can collect Social Security, invest the proceeds and earn a better return than the government. With today’s low interest rates, you cannot do this without taking outsized investment risk.


If you are single – and many women are single due to longer life expectancies – then the general rules apply: it’s best to wait to collect as long as you don’t need the money and are in good health.

There are a couple of additional considerations. Even if you decide to wait until age 70, you should file and suspend your benefit at your FRA.[1] That way if, for example, you are diagnosed with a terminal disease just prior to age 70, you can collect your benefit back to your FRA. Also, you can collect a spousal benefit (50% of your ex-spouse’s “PIA” – primary insurance amount) on your ex-spouse’s record if you were married over 10 years and have not remarried. It can make sense to collect a spousal benefit while you delay filing a claim on your own record.

If your ex-spouse passes away while you are collecting a 50% spousal benefit, you can increase the benefit to 100% survivor benefit. (Interestingly, this would seem to create a bit of “moral hazard” if you have a financial incentive for your ex-spouse to pass away, but I digress.) If you are widowed, you can collect a survivor benefit as early as age 60. Neither survivor nor spousal benefits increase after FRA. If it otherwise makes sense, then it’s best to claim them at that time.


John and Jane were married for 18 years but recently divorced. John is 68, and Jane is 66. Jane has not remarried. John’s PIA is $2,200/month, and Jane’s PIA is $2,000/month. If she waits until age 70, she can collect $2,640, plus COLAs. In the meantime, Jane can claim a 50% spousal benefit on John’s record for $1,100/month. When she turns 70, she can then collect her own benefit of $2,640. Let’s assume John then passes away shortly thereafter while Jane is collecting $1,100. Jane would then be able to collect $2,200/month (a 100% survivor benefit) until she turns age 70 – and then claim on her own record and increase her benefit to $2,640.

Married Couples

Married couples have more to consider, and the recent legislation will substantially affect some couples’ options. The correct claiming strategy can get complicated, so it’s important to take the time to get it right. Let’s review the married-couple basics.

  • Because Social Security is terrific “longevity insurance”, it’s generally best to maximize at least one Social Security benefit in case one spouse lives a very long time….women are generally more at risk due to longer life expectancies. A joint life expectancy is the average date of death for the second spouse to pass away. When you are in your mid-60s, your individual life expectancy is your 80s, but the joint life expectancy for a couple in their mid-60s is in their 90s. In other words, there is a 50% chance that one of you will live into your 90s, so maximizing at least one Social Security check is generally smart.
  • Upon the death of a spouse, the surviving spouse will continue to receive the higher of the two Social Security amounts that were being paid to the couple – (please note: and surviving spouse will end up in a single-filer tax bracket – a tax consideration).
  • You can claim on your spouse’s record as long as the other spouse has filed for benefits. By doing this, you can claim income now (i.e., the spousal benefit) while delaying your own benefit and growing it to a larger amount that you can claim later. (This, too, is going away under the new legislation unless you are turning 62 by the end of 2015).
  • At FRA, you can “file and suspend” your own retirement benefits (under the new legislation, this terminates April 30, 2016). This means that you have technically filed, but you wish to delay collecting your benefits. It’s a legal fiction, but it’s been important and allows your spouse to file a claim for spousal benefits on your record.
  • Social Security is “tax-friendly” – it’s not tax-free (tax-free status went away in 1983), but for couples claiming income from $60,000 to $120,000, the tax savings can be significant if they wait until age 70 to claim their benefits.
  • Spousal benefits do NOT receive delayed retirement credits after FRA. In other words, if you have reached FRA and plan on filing for a spousal benefit later, don’t do this…because you will NOT be rewarded for waiting.

For couples who are in their late to mid-60s, you have until April 30, 2016 to work under the old rules that allow you to collect a spousal benefit on another spouse who has filed-and-suspended his or her benefits.


Bob and Ann both turned age 62 four years ago at the same time (in 2011). Unlike their neighbors who filed for benefits at age 62, Bob and Ann met with their really sharp financial planner four years ago, who told them about the different Social Security claiming strategies. Bob’s PIA is $2,200/month and Ann’s PIA is $2,000/month. After careful consideration, they decided to wait until age 66 to file for benefits. At age 66, Ann will file for spousal benefits on Bob’s record (i.e., 50% of $2,200/month = $1,100/month spousal benefit). By doing this, Ann’s individual benefit will continue to grow to $2,640, plus COLAs. In order for Ann to file for spousal benefits, however, Bob will have to file, too. But they want him to delay his benefit to age 70. Instead of filing and collecting his benefit, Bob can “file and suspend” his benefit. He has technically filed – therefore, Ann can claim a spousal benefit of $1,100/month for four years until she turns age 70.[2] (Again, this favorable provision terminates late April of 2016.)

The new law will add some twists into financial planning. Let’s assume the same example above. In the future, Bob will have to file and receive his benefits before Ann can collect a spousal benefit. If Ann was a low-income earner, then the 50% spousal benefit will provide her more money than claiming on her own record. However, Bob must file first before Ann can claim that spousal benefit. The choice could be difficult – do they wait for four years for Bob’s relatively larger benefit to increase 32% and then file? This would certainly protect the longer-living spouse. Or do they file now because Ann’s spousal benefit will not increase past age 66 (but Bob’s will). These are difficult decisions that should be made carefully with the help of a Certified Financial Planner®.

Bottom Line: Call us today to schedule some time to review your situation and help you get the most from Social Security.


Todd M. Kirsch, CFP®, JD, CHFC®, CLU®

Kirsch Wealth Advisors, an independent firm

8191 Southpark Lane, Suite 110

Littleton, CO 80120



Securities offered through Raymond James Financial Services, Inc.



Todd’s Background

Todd has been serving clients since 1993. Prior to that time, he attended Boston University School of Law and obtained his law degree in 1989. He practiced law with a large international law firm in the areas of taxation, securities, and corporations. He graduated from Kansas State University in 1986. He obtained the prestigious Certified Financial Planner® (CFP®) designation in 2002 and also holds the well-respected Chartered Life Underwriter and Chartered Financial Consultant designations from the American College

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material and does not constitute a recommendation. Any opinions are those of Todd M. Kirsch and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Investing involves risk. You can lose your principal. There is no assurance any strategy will be successful. Please consult your financial advisor before implementing any investment strategy. Past performance is not a guarantee of future results. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index.


[1] More noteworthy news is that earnings of U.S. companies – the most important driver of stock prices – are under pressure and most likely will be for the next 6-12 months. The energy sector is arguably in depression given that the price for oil has dropped about 60% over the last 18 months. But capital markets have a wonderful way of healing – if the government stays out of the way. One concern is that banks continue to lend to oil producing companies at a surprisingly robust rate thereby keeping some otherwise moribund companies afloat. The sector probably needs some “creative destruction” by washing out the inefficient and leveraged producers. But excessive lending tends to happen when money is cheap and easy – dictated by the Federal Reserve’s monetary policies. Readers of this newsletter know that I consistently argue that distorting the price of money in an economy (i.e., the interest rate) has hard-to-predict and unintended consequences, and it appears this has happened in certain areas of the energy market.


[3], page 12.


[5] Moreover, they have increased



[8] It appears that the new legislation passed November 2, 2015 will be taking this away on April 30, 2016.

[9] You might be wondering if John can then do the same thing and claim a spousal benefit on her record….sorry, the law does not permit filing for two spousal benefits when you’re married.

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Have an Employer Pension Plan? Then It’s Decision Time…

Most employers have transitioned over to 401(k) plans, but many people in their 50s and 60s still have the older defined-benefit pension plans. And they’re understandably confused when it comes time at retirement to decide which option to select. Unfortunately, I’ve seen some inaccurate, unhelpful, and even misleading information from respectable sources on this topic. If the alleged experts are confused, one can easily imagine that pension participants are confused, too.

There are a couple of key concepts to consider up front. First, are you married? If so, then you have to think about the financial security of your spouse if you die early in retirement. Second, do you have a lump sum option or must you receive your pension benefits in the form of monthly payments?

In general, pension participants can receive benefits in one of two ways: either a monthly payment or a lump-sum option. If a monthly payment is elected – and if you are married – then you and your spouse must decide whether to elect a joint-and-survivor option, but this means that your pension payments will be reduced.

Various options are offered to protect a spouse in case you die first. For example, if a $3,000/month payment is offered for your life (“Life-Only Option”), you might also have the option of reducing this amount to $2,700/month, but your spouse would continue to receive 50% of your pension – or $1,350/month ($2,700 x .5). This is called a joint-and-survivor option (“J&S Option”). In my experience, most people elect the J&S Option. But oftentimes purchasing an individual life insurance policy and electing the Life-Only Option from your pension plan may be a better choice. The lump-sum option might even make sense.

Whether a Life-Only option or taking a lump sum is a better choice will depend heavily on a family’s financial situation, health of the parties involved, and their financial goals. It’s important to get this decision right, because there generally are no “do-overs” once you start receiving monthly pension payments.

Lump Sum or Monthly Payments?

The first decision that must be made is whether to elect a lump-sum payment or monthly payments. More plans are offering lump-sum payments to reduce liabilities on balance sheets. Every situation is unique and must be considered with great care. Consider:

  • Can you take the lump sum and buy an annuity in the marketplace that contains different – even better – benefits and guarantees?
  • How financially sound is your employer? Will your company be able to meet all of its pension obligations?
  • Do you need the money now? Most people do, but if you don’t – it might be best to take the lump sum option.
  • Monthly Payments – Life-Only or J&S Option

    If you decide that monthly payments are best – and you are married – now it’s time to consider which monthly payment option to select. Protecting your spouse with a J&S Option is called a joint-and-survivor benefit, but in my opinion, it might as well be called the “cheap, low-quality life insurance option.” This option will protect your spouse, but there might be better ways to do it.

    In general, there are four basic ways your life expectancy in retirement will play out:

    1) You both live your normal life expectancy – the most likely scenario, if you’re healthy.
    2) You both die early in retirement – unlikely, but something to consider.
    3) Only your spouse dies early in retirement (does your plan have a “pop-up” provision?)
    4) Only you die early in retirement – hence the need for spousal protection.
    Let’s examine each scenario.

    You Both Live Your Normal Life Expectancy

    Assuming you are both healthy, the most likely scenario is that you and your spouse live your normal life expectancy. Even if you elect a J&S Option, your pension plan will only pay income if either of you are alive. But this income stops when you both pass away. Fair enough. But what if it’s important to you to leave some money to the kids, grandchildren, or a charity? Then your pension will not help you with this goal. You could fund this goal with other assets, but a life insurance policy – properly structured and funded – would pay a death benefit and satisfy this goal. In this case, we might take the extra pension benefits received from a Life-Only Option (instead of a J&S Option) and use those benefits to purchase life insurance.

    You Both Pass Away Early in Retirement

    The analysis here is similar to the analysis immediately above. You both die, the pension payments stop. Again, your family or a charity generally receive nothing from the pension plan.

    Your Spouse Dies Early in Retirement

    Many plans contain a “pop-up” provision, but many don’t. A pop-up provision allows the pension participant to “pop up” to the original Life-Only amount in case the spouse of the participant dies early in retirement. To use our example above, if you elected a 50% JS Option at $2,700/month instead of $3,000/month, then your pension payment would be increased back to $3,000/month if your spouse dies before you. Plans generally terminate the pop-up protection after a pre-determined number of years…i.e., 5 years. In other words, if your spouse dies in year 6, you will be stuck at $2,700/month for the rest of your life.

    You Die Early in Retirement

    This is precisely why you elect a J&S Option – to protect your spouse. You die, and your spouse continues to receive income. The death benefits from a life insurance policy, however, can be used to supplement income or buy an annuity at the time of your death. A little homework must be done up front to determine the amount of life insurance that is needed to purchase the same annuity (i.e., $1,350/month to continue our example). But this can easily be calculated by a financial professional familiar with these issues, if appropriate.


    Whew, that’s a lot to consider. This is an important decision. We’re here to help, if you have an upcoming pension election.

    Bottom Line: Carefully consider your options with a financial professional and do not automatically elect the J&S Option.

    Posted in Uncategorized

    What is Your Financial Advisor’s Net Worth?

    Potential clients rarely ask me about my own financial situation.  This has always surprised me.  During the initial due diligence process, I ask them very detailed questions about their goals, assets, income, liabilities, etc.  I’m sure they would feel a bit awkward asking me the same questions, but it’s a relevant and appropriate topic.  I actually appreciate and respect the courageous individual who asks me for this information because they will see that I’m doing everything I’m asking of them and that I’m invested in many of the same investments which I am recommending to them.    

    The last time a client asked me for this information was about 6 months ago.  I had met with this couple multiple times, and this meeting had the air of “decision time” to it.  She started off asking me detailed questions about the benefits and compensation I offered to my employees (this was also important to her) and then asked me whether she could see a copy of my net worth statement.  I walked back to my office and printed it out – I keep this on my computer and update it quarterly.  The entire conversation on both topics took maybe 10-15 minutes, but that gave her and her husband the comfort they needed to move forward.  There was a sense of “we’re in this together, and we share similar values.”    

     You might be uncomfortable asking for this information, but why would you invest your lifetime of savings with someone who was not also successfully working towards their own financial goals?  On what authority could they possibly make recommendations for financial success when they haven’t followed their own advice?  How can they know your emotional ups and downs during market volatility if they are not invested, too?  Finally, it might simply prompt a better discussion with your advisor – for example, what advantages do see with Money Manager ABC over Money Manager XYZ? 
    Ask the questions.  You’ll do it in a tactful way.  And your financial advisor – if they’re worth entrusting your life savings to – will appreciate the opportunity to share his or her success with you.


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    Investing in 2014

    My inner contrarian investor gets nervous when I begin to see such optimism about investment markets, and I’ve certainly noticed a positive change in investor sentiment lately.  A year ago in early 2013, clients and prospective clients were still voicing a lot concern.  You might recall that the “fiscal cliff”, sequestration, tax hikes, etc. dominated the media.  That seems to have mostly faded from investors’ minds, and stock indexes are powering to record highs as I write.         

     For those of you who read this newsletter, you know that I’ve been relentlessly optimistic on stocks for the last five years, and I remain so for longer-term goals.  But given the recent highs and improving sentiment, I’m feeling the need to calm client expectations for 2014.  I will, however, lay out both sides on how stocks might perform this year.  

    My job is to keep clients focused on their longer-term goals and away from the latest noise in the news.  As always, consume the caterwauling media at your own risk.  But we’ll talk 2014 because it might be best to temper expectations going forward.  We haven’t seen euphoria in a long time, and we’re not likely collectively there, yet.  But given the tremendous rise in equity values since March of 2009, it’s important to remember that euphoria can destroy an investment strategy as easily as fear.  

    I don’t believe U.S. stocks in general are overvalued.  Looking at historical metrics, they appear fairly valued.  Earnings are strong, inflation is low, there doesn’t seem to be any “irrational exuberance” in most markets, the U.S. is becoming a major force in energy production[1], the emerging middle-class megatrend continues, U.S. government debt is coming down (as a percentage of GDP), and gridlock in Washington is restraining the government from trying anything too stupid – well, mostly anyway.   

    International stocks actually look cheap in ways.  Emerging market stocks lagged all year, and it appears that opportunities for bargains are emerging  in Europe. 

    Many investors argue that QE is driving the U.S. stock market and that stock prices are artificially inflated.  Perhaps to a degree, but stop and break that argument down.  First, most of the QE money is not making its way into the economy.  It’s hard to push a string, and most of the QE funds still sit on bank balance sheets as reserves (in other words, it’s not being loaned).  Second, it’s primarily earnings and dividends that drive stock prices, and these numbers look solid.  Third, companies have become very lean and cost conscious and are sitting on a tremendous amount of cash.  Companies could be well-positioned to take advantage of near-term opportunities. 

    The concern going forward is that a large percentage of earnings growth is still coming from cost-cutting, stock buy-backs, and low interest rates…QE has helped large companies refinance debt to lower rates.  And it is here that QE has helped publicly-traded companies.  How will the “taper” affect things?  QE is truly unprecedented, and nobody – I repeat nobody – knows for sure how the Fed withdrawal from QE will play out.  

    I believe QE has done its job – and QE could now be harming the economy by distorting markets and restraining banks from lending.  Remember that interest rates are simply the price of money over time periods, and the Federal Reserve is distorting the price of money by forcing this price lower.  Negative, real interest rates (“real” – meaning, after inflation) have traditionally caused inflation and misallocated capital to projects and investments that otherwise would not get presently funded.  Many economists believe that this “malinvestment” ultimately results in a lower U.S. standard of living.  Low interest rates and over-regulation of banks are causing tighter lending standards than we would normally see in a recovery – thereby perpetuating a stubborn, though improving, unemployment problem.  In the last newsletter I argued that long-term interest rates probably need to increase more before banks are properly incentivized to lend money to small businesses, which are the primary job creators in the economy.  (A huge segment of the homeowner population – with good, but not spectacular – credit could also benefit from this.)  Small businesses must rely on bank financing because they do not have access to capital markets.[2]  Let’s use an example of how government pricing might distort markets:  what if the government, pursuant to some larger, benevolent public policy goal, ordered dairy farmers to lower the price of milk to 50 cents per gallon?  How would dairy farmers respond?  Considering the costs of production and running a business, I imagine they would stop producing milk and look to other farming activities for income.  Less milk would be available and perhaps more meat would show up in grocery stores – all distortions caused by the government pricing of milk. Banks are responding in similar fashion.

    [2] For example, your local bakery cannot issue stocks or bonds to raise cash for expansion. 

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    Which Political Party Has Been Best for Stocks?

    The answer might surprise you…it surprised me.  This chart came from an e-mail to me from Oppenheimer as part of a larger article.  Interestingly, stocks have performed poorly under a Republican president with a Republican Congress.  Political stalemates appear to have worked best for stocks when a Democrat was in charge of the White House with Republicans in charge of Congress.  I wouldn’t read too much into this chart, but I also wouldn’t automatically assume one political party is best for markets.

    S&P 500 Index Annualized Returns/1928 through July 31, 2012[1]

    President       Congress        Return

    Republican      Republican      2.1%

    Republican      Democrat        8.6%

    Republican      Split                 13.4%

    Democrat        Split                 13.9%

    Democrat        Democrat        14.1%

    Democrat        Republican      18.2%

    Stay invested, my friends.

    [1] Bank of American Merrill Lynch, “Election 2012” August 16, 2012.  Standard & Poor’s 500 Composite Index is a market-capitalization-weighted index that tracks the stocks of 500 primarily large-cap U.S. companies chosen for market liquidity and industry group to represent U.S. equity performance.  Indexes are unmanaged.  Their results include reinvested dividends and/or distributions but do not reflect the effect of any sales charges, commissions, or expenses.  Past performance is not an express or implied guarantee of future results.  Individuals may not invest directly in any index.

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