Is A Big Step-Up Coming For Social Security Benefits In 2019?

Retirees may get a much-needed boost next year.

According to a report from The Citizens League, an advocacy group for retirees, the Social Security cost-of-living-adjustment (COLA) could exceed +3% in 2019. This would be a nice bump from the current year's +2% increase and would be the biggest jump since 2011. Here is a look at past COLAs:

I say this is much needed because both inflation and interest rates have been rising. This adjustment will give Social Security recipients additional income to help accommodate rising gas prices, housing costs and medical expenses (among others), as well as rising financing rates. It might not be much but it's something, because while higher interest rates are less of a concern to retirees, everyday expenses are. Take a look at how average costs have trickled higher over the past three years, up nearly +3% per-year:

It is no coincidence that both inflation and the estimated Social Security increase are both +3%. After all, the two should mirror each other. This is noteworthy because inflation was stagnant for the better part of a decade, post-recession, until this recent surge.

For eligible Social Security recipients who have reached age 67 but have chosen to postpone taking benefits, this 3% increase is unrelated to those "delayed retirement credits". For reference, your normal/full Social Security benefit will increase by +8% for each year you delay taking benefits past your normal retirement age, up until age 70. So, if your normal retirement age is 67 (as it is if born after 1959) and you delay taking benefits until age 70, your monthly payment will increase by +24% compared to what you would receive at 67. There are other factors in play too, so if you have any questions feel free to contact Gale or myself.

In The Market...

The S&P 500 gained +1.6% this past week. Let's look under the hood:

(price data via stockcharts.com)

It was a very nice week for the growth-oriented areas of the market. Nine of 10 sectors moved higher, led by Consumer Discretionary (XLY) and Materials (XLB). Utilities and more conservative bonds (Corporates and Treasury) finished in the red.

I routinely mention that new highs are necessary in order to really push the market higher in the long run. This week's gains were another nice step toward that, but the S&P 500 remains some -3% below its previous high, as highlighted below:

(chart created in stockcharts.com)

The S&P index has risen nicely in weeks, but will have a showdown as the price gets closer to that previous high. One positive development that favors a rally is that Relative Strength (RSI, charted above) is strengthening as prices rise. RSI is a momentum indicator that we use in conjunction with evaluating price trends. It can help confirm or refute the price trends we think are developing.

We sold our Technology position (XLK) across all accounts this past week. You might be wondering why, considering all of the positive analysis I have given about the Tech sector in recent months. This was a more short-term decision based on opportunity cost and the fact that we made the gain that I sought when we originally purchased it. We still like Tech long-term, however there are other sectors that I believe present better buying opportunities over the next few weeks.

One of those sectors, Consumer Discretionary, we already own. Another sector, Materials, looks poised to rally and is in our crosshairs. Many accounts already own Materials (XLB), so we would be adding it to those accounts that now have available cash following the sale of the Tech fund. I would not be surprised if the Tech sector flattens out in the coming days/weeks, which is another reason that explains the move.

In Our Portfolios...


What's New With Us?

I read a neat story the other day that I thought I would share, about this Kindergarten class down in Texas. Every day the teacher assigns one student as the "greeter" who welcomes each classmate individually to school with a handshake. With all the negativity in the news, particularly the violence that is occurring at schools, it's nice to read a story like this. It's even something I would like to instill in our daughter, especially given how much time kids (adults?) spend looking at their phone, tablet or TV screen. It seems to teach small lessons about being respectful and how to communicate with others.

Random, I know. But I just thought this was worth sharing.

Have a great weekend,

Brian E. Betz, CFP®
Principal