Quick Update – Part Deux

Last week I provided updates on a couple of timely developments in Social Security and bitcoin. This week I’m following up on the same topics.

Social Security COLAs –

We learned recently how the Social Security Administration is bumping payment amounts in 2021 by 5.9%, an increase not seen in decades. The SSA is doing so in response to a spike in inflation that’s becoming more apparent every day.

But this raises an obvious question that I should have included in my post last week.

If you’re planning to wait on starting Social Security until 67, or even 70, should you start drawing your benefits early to take advantage of the big cost-of-living adjustment, or COLA?

This is a good question with a short answer. No, you shouldn’t file early to take advantage of the 5.9% bump because you’re effectively getting an 8% bump per year by waiting.

Of course, if you need the money to live on you might want to start early, ideally after doing some planning work to review your options. Instead, waiting grows your benefit base and this base receives future COLAs, so you want it to be as large as possible. And waiting is the simplest way to grow your base, short of working longer and paying more and higher taxes into the system. This waiting zone currently maxes out at age 70.

If you draw your benefits before your Full Retirement Age, often 66 and some months or an even age 67, your base shrinks by a fraction of a percentage point for each month you’re early. That’s a dramatic reduction if you started your benefits at the earliest possible age of 62. The bottom line for retirees is that since the filing decision can be made any time after you turn 62, try to wait as long as possible. If you can hold out long enough, each month you wait beyond your FRA incrementally adds to your base at the rate of 8% per year.

How do you get by in the meantime? Ideally you’d tap into cash savings, or even sell investments in a non-retirement account. Doing either usually saves you on taxes and could even create some planning opportunities like doing Roth Conversions or realizing additional capital gains for “free” if you’re in a low enough tax bracket.

Deciding when to start taking Social Security benefits can be difficult and definitely goes beyond the straightforward financial stuff. Many folks are concerned that the program will run out of money and won’t be around for them when the time comes. This is a rational fear given the hyperbolic headlines we see from major news outlets. The reality is more complicated, however, and hopefully not as dire as it often seems. Try not to let fear drive a decision like this.

Here’s an article from Investment News with more information on this topic.

Continue reading…


Faux Bitcoin –

As we discussed last week, the U.S.’s first bitcoin ETF (ProShares Bitcoin, ticker symbol BITO) began trading this past Tuesday. I cautioned against the fund because it’s built primarily with bitcoin futures contracts and suggested that if you invest in this area, it’s better to just buy the coins directly through a variety of online methods that keep getting easier.

I also suggested it would be interesting to watch how investors plow money into this thing as an indicator of animal spirits surrounding crypto. The fund took in over $1 billion in its first two days of trading and it’s price wasn’t tracking bitcoin very closely because of this rapid asset growth. This was a structural issue with the futures markets, but the fund managers seem to have figured it out. Since then the fund has done a better job of tracking the price of bitcoin, as you’ll see in the chart below.

We’ll have to watch this tracking issue over time. Ideally, a longer-term version of a chart like this would show the two lines almost on top of each other, with the only difference being the fund’s fee. The other issue will be how the managers deal with bitcoin’s tendency for bouts of extreme volatility over a 24hr trading day, whereas BITO has more typical trading hours (the yellow dashes in the chart above reference non-trading hours like evenings and weekends).

Interest in bitcoin and other digital assets seems likely to grow and competing funds will be popping up in the weeks and months ahead. I’ll try to keep you updated as relevant information presents itself. But again, this is a perfect example of why it’s better to simply buy the coins directly. You’ll always be tracking the price of bitcoin because that’s exactly what you own, not a pretender.

Have questions? Ask me. I can help.

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