Friday, August 13, 2010
8/14/10 Steamrolled/ Maximizing Social Security
It was a good week- that is, it was good to see the bulls get steamrolled for a change.
tof- Threw my hat in the ring and bought a starter position in REDF @ 2.05.
For those of us born between 1943-54, consider this:
Age 66 is the magic number. Although you can begin collecting Social Security benefits as early as age 62, your benefits will be reduced by 25% or more. Better to hold out for full benefits at your normal retirement age — 66 if you were born between 1943 and 1954; older if you were born later. Once you reach your normal retirement age, you can continue to work while collecting benefits without fear of bumping up against the dreaded earnings cap, which trims $1 in benefits for every $2 you earn over the prescribed limit. In 2010, the earnings cap is $14,160. If you're willing to wait until age 70, you can collect the maximum retirement benefit for you and your surviving spouse.
Reference link: http://tinyurl.com/26h2mx9
Here's the real question: Does one maximize return by waiting an additional 4 years? Not necessarily. As of my 2009 statement, I'm projected to be eligible for 'full benefits' of 2325/month beginning at age 66. If I wait until age 70, it jumps to 3207/month. So it's simple, right? Defer benefits until age 70.
But wait. I'm foregoing 2325/month x 48 months = 111,600 in income between the ages of 66 and 70. What if I were to invest that stream of income? Let's say the DJIA crashes when I turn 66. Were I to plow 2325/month into a recovering index fund over the next 4 years, the returns may far outweigh the benefits of higher monthly payments beginning at age 70. Alternatively, a real-estate crash coincides with my eligibility for full benefits, enabling me to plow 2325/month into an income property mortgage- that could pay off big over the next 10 years, as the returns would be leveraged. And if I end up kicking the bucket at age 74, well..no contest.
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Worth keeping an eye on....
ReplyDeleteAugust 13, 2010 21:31 ET
WASHINGTON, Aug 13 (Reuters) - Plains Exploration & Production Co paid nearly $900,000 in civil penalties for failing to
submit monthly reports on the company's energy production on federal government leases, the U.S agency that oversees oil
and natural gas drilling said on Friday.
It is one of the biggest financial penalties collected by the Interior Department's new Bureau of Ocean Energy
Management, Regulation and Enforcement, which was formed in response to the BP oil spill in the Gulf of Mexico.
The new bureau replaced the department's Minerals Management Service, which was dismantled for being too cozy with
the oil companies it was supposed to regulate.
The BOEM said it issued the civil penalty to Plains Exploration after it repeatedly failed to comply with requests to submit
monthly oil and gas operations reports for Pogo Producing Company, which Plains merged with in November 2007.
The company has now submitted all the required monthly production reports.
"We will aggressively pursue every dollar due from energy production on federal and American Indian lands," said BOEM
Director Michael Bromwich. "BOEM auditors are continuing to closely examine all reports from companies to ensure that
they are accurate and submitted on time, with no exceptions."
Plains Exploration is based in Houston and the company primarily explores and produces oil and natural gas. Its core
operations are in California, Texas, Louisiana and the Gulf of Mexico. (Reporting by Tom Doggett; Editing by Gary Hill)
I wasn't happy about being steamrolled, I'm becoming increasingly concerned about the viability of the global economy.
ReplyDeleteConsidering the uncertain future, I'm certainly glad I'm not raising children.
PXP - Begging for forgiveness as opposed to asking for forgiveness is commonplace for corporate America and probably considerably more profitable.
ReplyDeleteCP- I kinda thought the same thing.... NOW that's a co. I'd be interested in!
ReplyDeleteAs opposed to asking for permission, that is.
ReplyDeleteYea, it's a recurring theme. I see people waiting for months for permission to build a dock or retaining wall on the lake while others just throw one out there without a permit. They're never told to tear it out b/c the county doesn't really know what's there in the first place, they're asleep at the wheel.
ReplyDeleteRe: Maximizing Social Security> Surviving Spouse newSubmitted by 2nd_ave (4477 comments) on Sat, 08/14/2010 - 09:04 #67281 (in reply to #67278)
ReplyDeleteGrym- Thanks for reminding me about the surviving spouse (as my wife would say, 'it's not all about you'). Going back to the choice between taking 2325/month at age 66 or 3207/month age 70- if I die at 70 (as kaimu kindly includes as an alternative), then my wife may well be better off with the higher guaranteed payout (as opposed to actively managing a stock portfolio or income property).
2nd- I know a lot of people who take the early retirement and then decide if they want to pay it back and receive the higher payment. This allows one the use of the money and the option to re-evaluate their income status and health issues.
ReplyDeleteIt's really just a game of chicken with the grim reaper :)
WDC - Looks pretty good right about here.
ReplyDeleteWNR - Has tested this lower ascending trend line five times since January and hasn't failed. Will it fail this time?
Wow, not trying to point out the obvious but DOW is down now well over 400 points in 3 days... Perhaps some relief coming in the near future?
ReplyDeleteQCOM - Rang the $40 dinner bell without us.
ReplyDeleteLet's review again the words of SD's CEO Tom Ward in the latest earnings call (http://seekingalpha.com/article/218905-sandridge-energy-q2-2010-earnings-call-transcript):
ReplyDelete"What we did was, as you know, we did not have hedges in place post-2010 but did feel that the market was overly bearish on natural gas and even, for a short period of time, oil and pulled off hedges on natural gas early through the rest of 2010. The reason to do that is just that we're making a long-term call on natural gas being higher, but we were making a short-term call that, looking out through the August through December period, when we pulled some gas off of June, that the prices would be higher than what they were in June when we thought it was an overly bearish situation. We still believe the market is overly bearish, and therefore we have not hedged any of our 2011 gas yet. That doesn’t mean that sometime this year, we won't hedge 2011 gas. We think that there is still, in the market today, a perceived thought that gas supply will be higher than we think we’ll be end of October."
When they pulled off their NG hedges in June, UNG was trading between $8 and $8.80. Let's say it was at $8.50. Now it is at $7.29. So it looks like Tom was fooled by that NG rally, believing that it was sustainable. That is probably a large part of the reason for the recent severe drop in SD. Their latest quarterly data shows that they sold around 19MMcf of NG for $6.06/Mcf (because of their NG hedges), receiving $117M for it. They also sold 1433 MBbl of oil for around $67/Bbl, receiving around $86M for it. Now that they took off their hedges, their NG revenue can be reduced by 30% during the fall quarter if NG stays at around $4/Mcf. No wonder their stock has tanked.
However, let's recall the latest lesson from Hussman. He wrote last Sunday: "Just a note - if there is one weekly comment that I hope that regular readers of these comments will not miss, it is last week's piece - Valuing the S&P 500 Using Forward Operating Earnings." The main lesson from that piece was:
"It is impossible to properly estimate long-term cash flows based on a single year of earnings, regardless of whether one uses actual net earnings or projected operating earnings. It is impossible to properly value the stock market based on a single year of earnings, regardless of whether one uses actual net earnings or projected operating earnings.
Writing each of these sentences only once is woefully inadequate. If I had my way, investors would have to write them over and over five days a week. Wall Street analysts would have to write them a hundred times a day, immediately upon arriving to work."
Thus, if Mark's MOG is correct and SD's purchase of Arena will help them in the long term (since they will start deriving much more of their revenue from oil, which is priced much better than NG), then the current "blues" in SD (due to their unlucky decision of removing NG hedges during the June bump in NG) is just a "blip on the radar," and we have a great buying opportunity here.
Naturally, one should not open a 100% position in SD right now, since NG can easily drop another 10-20% before October, which will bring SD's stock even further down. But some long-term position in SD is probably warranted now.
Below is an interesting excerpt from
ReplyDeletehttp://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2010/08/10/gavekal-five-corners.aspx
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However, while we think further asset purchases [by the Fed] are warranted, we are of the belief that they should take the form of more private assets—e.g., securities backed by mortgage, auto or consumer credit; unfortunately, recent comments by the Fed would seem to convey no further scope for such ‘credit easing’ (see Lessons from Bernanke’s Testimony). And Bullard’s comments seemed to suggest that not only should the Fed stop ‘credit easing’, it should move straight on to outright ‘quantitative easing’ (which is what the purchase of further UST would likely be, depending on how they are financed).
Thus, unless or until commercial banks are in a position to increase their claims on the private sector, or the private non-bank sector decides to increase its claims on itself (the shadow banking system), the Fed needs to fill the void by increasing its claims on the private sector. In other words, the Fed needs to change course, and discussions revolving around a lower rate paid on excess reserves, on asset sales, on the purchase of UST… are nothing but counter-productive noise.
Once again, if there is no growth in broad money, no increase in velocity and no increase in Fed credit (hybrid money), then the only source to finance growth in the real economy will remain the sale of risky assets [of private investors to the Fed]. When confidence seems to be stuck in a low plateau and talk of reigning in fiscal deficits is growing louder, a policy of undermining the value of risky assets couldn’t be more counterproductive to growth.
****
If the above view is correct (and it is supported so far by the data, since the stock market made its high in late April just when the Fed stopped purchasing MBS securities), the we should not see any growth in the stock market in the near future because the Fed so far is not set on resuming its MBS purchases...
Coming back to SD, I'll probably put one half of my IRA and all my children's (small) Coverdell ESA accounts into SD if it drops below $4. I'll be even more nimble in my trading accounts, probably placing a buy stop order at $4.5 if SD drops below $4.4 (I have already purchased 500 shares on Friday at $4.62). I have also just placed buy limit orders on SD for 500 shares at $4.25 and $4.
ReplyDeleteI think SD might play out just like TCK, as the context is almost identical: a good acquisition at the wrong time and a temporary plunge in the stock price because of debt concerns and because the main commodity that was being sold to pay off the debt has temporarily plunged in price. For TCK, however, the debt was due at the end of 2009, while for SD the debt payments will not start for the next 3.5 years. That should be plenty of time for NG to rise sustainably due to the reduced rig count.