What’s going on with this rollercoaster stock market?!

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We wanted to write this quick note to you to let you know that the turmoil in the markets since the beginning of the month and specifically over the past week has not gone unnoticed. We have been closely monitoring the rollercoaster ride. At this point, we believe that the current pullback does not accurately reflect the market fundamentals and strength. In addition, you will likely recall that October is historically a very volatile month, especially in years with mid-term elections.

The Nasdaq index (which predominantly tracks technology stocks), is having its worst month since November 2008. November 2008! If you remember, this was a period of time when the whole financial system was failing and coming apart at the seams. Banks were failing and massive layoffs were taking place. Contrast that economic backdrop to today. To be sure, there are some legitimate concerns that we have detailed in previous letters. This earnings season has been disappointing, global growth has been weak and China and Italy are still in the news. None of these are factors that did not exist last week, however.

We believe that this is more than likely a temporary correction, versus the start of a prolonged bear market. The process of the market finding its bottom could, however, still take some time and there could well be more pain ahead, at least in the near-term.

While understanding that this is a normal part of the cycles in financial markets is rational on one hand, we understand that it does not make it any easier to watch your account balances go down. As always, our approach is always one of conservatism and seeking to avoid large losses through diversification. If we see warning signs that any drastic steps need to be taken you can rest assured that we will take those steps, but for now, we suggest staying the course and weathering the storm.

If you would like us to review a specific investment account for you to ensure that you are appropriately allocated and protected, we would be happy to do that. Feel free to reach out anytime.

3rd Quarter Recap and 4th Quarter Outlook:

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The third quarter was the best-performing quarter for markets so far this year. Major U.S. stock indices each hit new all-time highs in September. The broad market gains were driven by strong economic data, solid earnings growth and improved clarity on global trade. Recent volatility has been blamed on rising interest rates and trade concerns.

Many positive factors have been overlooked as news headlines focus on various political firestorms and the continued uncertainty with regard to the U.S. and China trade relationship. But, in what has become a recurring theme for the 2018 market, positive economic and corporate fundamentals once again outweigh unnerving political and geopolitical headlines.

Starting with current economic growth, it’s simply the best we’ve seen in years. The final reading of second-quarter GDP showed growth above 4% annually, and according to the Atlanta Federal Reserve “GDP Now” estimates, we can expect near 4% GDP growth for the third quarter as well. For context, the last time the U.S. economy posted two consecutive quarters of annual GDP growth close to 4% was in mid-2014, and prior to that, it was late 2004!

Corporate earnings growth also remained very strong during the third quarter, as more than 80% of S&P 500 companies reported earnings above consensus expectations. According to financial data firm FactSet, that’s a record high.

Regarding global trade, concerns about the U.S. and Chinese trade relationship remain, but the third quarter also saw important resolution to numerous other trade situations. First, in July, the United States and the European Union reached a trade agreement that would prevent retaliatory tariffs and promised to investigate ways to further promote free trade between the U.S. and the E.U. Then, in August, the United States and Mexico agreed to a trade framework to replace NAFTA, and on the final day of September, Canada and the United States reached an agreement for Canada to join the existing U.S./Mexico deal, settling another potential trade dispute.

So, we started the third quarter of 2018 with four areas of trade-related concerns: The EU, Mexico, Canada and China. Positively, we begin the fourth quarter with just one area of legitimate trade concern: China. And, while the U.S./China trade relationship certainly represents a potential risk to the global economy and markets, it’s important to remember that so far in 2018, a strong U.S. economy and healthy corporate fundamentals have powered stocks higher through multiple periods of trade, political and international uncertainty—and that’s critical context to consider as we enter the final quarter of the year.

Fourth Quarter Market Outlook

Despite the recent market pullback, U.S. economic and corporate fundamentals remain very strong, and those two factors combine to provide firm support for the markets. That is an important fact to remember as those core fundamental positives have helped markets power higher in 2018 despite a return of volatility.

We fully expect continued market volatility in the fourth quarter, as investors face several potentially significant unknowns, including: US/China Trade, continued corporate earnings strength and mid-term elections.

It’s unclear how, or when, these events will be resolved, and what those implications will be for markets.

Markets always face uncertainties at the start of a new quarter, but over the long term, its core economic and corporate fundamentals that drive market returns, not the latest sensational headlines.

At Simmons Capital Group, we understand that volatility, whether it’s related to trade disputes or concerns about government policy, can be unnerving, even if it is historically typical. That’s why we remain committed to helping you navigate this ever-changing market environment, with a focused eye on ensuring we continue to make progress on achieving your long-term investment goals.

In later stages of market cycles like the one that we believe we are in, defense is often more important than offense. Attempting to avoid large losses is an important factor in achieving your long-term goals. Our years of experience in all types of markets (calm and volatile) have taught us that successful investing remains a marathon, not a sprint.

As 2018 has shown us so far, trade conflicts, political dramas and short-term market volatility are unlikely to impact a diversified approach set up to meet your long-term investment goals. Therefore, it remains critical to stay invested, remain patient, and stick to your plan.

Thank you for your ongoing confidence and trust as we navigate this changing market environment. Please feel free to contact us with any questions, comments, or to schedule a portfolio review.

Charitable Giving Awards - 2018

“Our passion is to improve the lives of others locally, regionally, and globally.  Our success is measured by how well we truly improve the lives of our clients."

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This is our 5th Annual Philanthropy Awards Season and we are anxious to see what outstanding charitable organizations you will bring to us for consideration. From your nominations, we will select two (2) organizations that will each receive a donation of $2,500 from Simmons Capital Group for this year.

Previous Winners Include: 

2014: 
ChildVoice International
City Mission of Schenectady
Many Hopes
Refugee and Immigrant Support Services if Emmaus (RISSE)
Wounded Warrior Project

2015:
Heritage Home for Woman
Masoyi Home Based Care
Feed My Starving Children (FMSC)
Koinonia Primary Care
Desert Rose

2016: 
Freedom Business Alliance
Seacoast Family Promise
Schenectady City Mission
I-Tec
Veterns Miracle Center

2017: 
Parent to Parent of NYS
South End Children’s Café
Water for Life Project administered by the Society of African Missions and Bishop Francois
Wellspring
EUMA/Erie United Methodist Alliance
 

If you would like to nominate an organization for our 2018 Awards, CLICK HERE.

Submissions are due by August 25th, and the Awards Event will take place on September 25th!

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Thank you in advance for sharing your nominations and charitable experiences.  We enjoy learning more about the many organizations that exist around the world year after year.  We look forward to working together with you on this annual giving project.
 

"Vodka & Espresso"

We recently attended the Pershing INSITE conference in Orlando Florida, where we had the opportunity to hear from some of the top strategists and economists in the world.  One of the best speakers was the Chief Strategist for JP Morgan, Dr. David Kelly.  He described the current markets using the illustration of “Vodka & Espresso”. 

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What did he mean by this? He relayed a story about some friends from Sweden who would always amaze him with how much espresso they consume during the day after a night of consuming an equally astounding amount of vodka at night.  In this analogy, the espresso is a stimulant, and the vodka is a sedative.  In the current market, he views the ‘stimulants’ as tax cuts, very strong corporate earnings and consumer strength, which all act as positive catalysts for continued growth in the stock market.  The trouble in the short term is the sedative (the vodka).  Negative factors such as tariffs, the threat of trade wars, the threat of rising interest rates and Euro-skepticism from large European countries like Italy and Spain are the dark clouds that are currently counteracting the positive stimulants in the market. 

2018 has been a year-long war between scary policy/political headlines (vodka) and strong market & economic fundamentals (espresso).  The markets have struggled to gain any momentum due to these opposing forces.  We still expect that over the next 6 months, the positive should overwhelm the negative and the market will trend upwards, but in the near-term, volatility looks set to continue until we find some resolution and clarity to some of the biggest issues.

Time will tell how this all plays out, but the reason why we need to take notice of trade negotiations is that if trade worries begin to hurt U.S. corporate earnings, then one of the most important drivers behind this stock market rally will begin to deteriorate.  This would not be good.  We remain comfortable with where your portfolio is positioned.  At the beginning of 2017, we took a fairly defensive position, in anticipation of higher volatility.  So far this year, this has proven to be a prudent approach.  We will continue to monitor these market developments and communicate any changes that we decide to implement.

Sources:

www.sevensreport.com

https://www.linkedin.com/pulse/vodka-espresso-david-kelly/ 

SSA employees asleep at the wheel when advising on widows’ benefits

Employees of the Social Security Administration have been asleep at the wheel when advising widows and widowers of the enhanced benefits that come with delaying claims to full retirement age, according to a report from the agency’s Inspector General.

According to the report, an estimated 11,123 beneficiaries were eligible for higher benefits had they delayed claims until age 70.

The misinformed filings resulted in about $131.8 million in underpayments to beneficiaries age 70 and older, and another $9.8 million in annual payments for those under age 70.

“SSA policy states its employees must explain the advantages and disadvantages of filing an application and the filing considerations so the claimant can make an informed filing decision,” the IG’s report says.

The extra funds overlooked in survivor benefits can mean the difference between living in poverty and relative comfort for many...

But the agency’s employees did not meet those obligations. “We did not find any evidence in the agency’s automated system to support the claimant’s decision to elect to file for retirement benefits, as required,” the report added.

The report also found that SSA did not have controls in place to alert employees as to when delaying benefits was in applicants’ best interest.

The findings in the report were based on a sample of 50 beneficiaries, 82% (41 individuals) of whom were eligible for a higher monthly benefit had they delayed claiming the retirement portion of their benefits until after age 70.

For the seven beneficiaries under age 70 that inadvisably claimed early in the SSA’s sample, the loss in benefits will be substantial. Upon reaching age 70, the average loss in benefits will be $5,185 annually.

When widows or widowers are entitled to benefits that exceed their individual retirement benefits, they have the option of delaying filing for the retirement portion of their benefits until age 70 in order to receive a higher monthly benefit. They can file limited claims that allow access to the widow benefit before age 70.

In one example, a beneficiary was paid retirement and widow’s benefits after filing an application in January 2011, six months before her 66th birthday.

From August 2015, when she turned 70, to September 2017, she was paid total benefits of $39,708. Had she delayed her retirement benefit until age 70, she would have been entitled to another $13,000 in benefits during that period.

“We did not find any evidence that SSA employees informed the widow about her option to delay her retirement application up to age 70 to increase her retirement benefits,” the report says.

The decision when to file for benefits belongs solely to claimants, the report notes. But SSA policy requires employees to electronically document when unfavorable filing decisions are made.

The IG recommends that the agency “take action” regarding the 41 beneficiaries in the sample that received lower benefits due to inaction from agency employees, though it did not say whether that action would include repaying benefits that were lost.

The office also recommends reviewing the remaining 13,514 beneficiaries that are potentially impacted from early filings, and exploring new controls to assure beneficiaries are informed of the option to delay retirement portions of benefits.

Source: www.benefitspro.com

Pro-Active Investments, a better Values Based Investment Strategy

Investors are increasingly interested in seeking to align their portfolios with their values. Whether they are interested in reducing harm to the environment, promoting social justice issues like fair wages or avoiding products and services that offend their moral beliefs, investors desire to make an impact through their investments.  Investing with your conscience may not be your thing, but it's working for people who are seeking a more holistic approach to investing.

“Values-Based" or “Impact” investing is about putting money into companies with strong track records on the environment, social & moral issues and corporate governance. Some investors try to accomplish this by screening out companies that have products or corporate practices that conflict with their own values. For many investors, having an impact with their investments has become just as important as donating to charity.

Surprisingly, our values can be compromised by even the most popular and “plain vanilla” mutual funds. One of the investments that I have owned for years as a core bond holding for safety is the Vanguard Short Term Bond ETF.   In 2017 I received a shareholder proxy with the following request from the board of directors. The board suggested that I vote against the following recommended shareholder proposal which would:

 "…institute transparent procedures to avoid holding investments in companies that in management's judgment, substantially contribute to genocide or crimes against humanity, the most egregious violations of human rights. Such procedures may include time-limited engagement with problem companies if management believes that their behavior can be changed. “ 

So, basically the board of directors is suggesting that I vote against a proposal for the fund to avoid purchasing investments that “substantially contribute to genocide or crimes against humanity, and egregious violations of human rights” I don’t know about you, but I would prefer not to invest in companies that substantially contribute to genocide or other egregious violations of human rights.

In today’s world, technology makes it possible to sift through incredible volumes of data, allowing investors to include or reject specific investments. Investors interested in this type of investing typically buy into a mutual fund that does the sifting for them, matching investment selection with their values. Traditional “responsible” investing focuses on excluding investments that oppose your values. For example, some equity investors exclude all companies that report revenues from tobacco, alcohol, or weapons manufacturing. Other investors may seek to keep their investment portfolio clear of all environmental abusers or fossil fuel producers. Religious investors may wish to create a portfolio that excludes companies whose products or practices contradict with their religious beliefs.

Excluding investments that conflict with your values is a good step, but investors are increasingly interested in taking their portfolio one step further and selecting investments that align with their values. What does it look like to select investments that align with our values, rather than simply trying to avoid investments that conflict with our values? I have found the answer to be something I’ve termed, ”pro-active values based investing”. By this, I mean proactively searching for investments that are positively influencing companies and cultures in ways that align with my values.  Is it possible for an investor to proactively seek and find investment opportunities with like-minded businesses whose values are consistent with his or her own values? In short: absolutely. This kind of pro-active investing is not easy to accomplish, but it is possible. I am passionate about creating sustainable solutions which will alleviate poverty, steward our environment, promote ethical business practices and fair wages for workers, protect human rights and break the cycle of human trafficking in the poorest regions of the world. I want to use my investment dollars to influence communities and cultures in ways that are consistent with these personal values that I hold dear. How can it be done?

Pro-active investing is achievable, but difficult because to accomplish these investment values requires one to pro-actively seek business investment opportunities that are having positive impact in these areas. I cannot simply screen out investments that are tied to alcohol, tobacco or weapons manufacturing. While screening is perhaps a step in the right direction, it falls far short of actually creating positive influence in the companies or cultures that I seek to influence. One of my old mentors used to say, “you can attract more flies with honey than vinegar”. What he meant is that positive influence comes by showing people a better way rather than scolding them for their current behavior.  If I want to influence companies and cultures, I need to align my investments with business people who are proving that business conducted in a just and righteous manner will in itself accomplish renewal, reconciliation and profit.

In Hebrew, two words are used to explain these concepts. “Mishpat” refers to “rectifying justice” which means that bad actions deserve punishment and positive actions deserve to be rewarded. Screening our investments can accomplish some level of rectifying justice. But the Hebrew word “tzedagh” is associated with true social and moral justice. Often interpreted as righteousness, “tzedagh”, when applied to business, brings forth “shalom”, or a peace that when fulfilled, will result in no need for “mishpat” because all will be as it should be, in perfect harmony. Is “righteous business” an oxymoron? I don’t think it needs to be.

You may say, that is pretty idealistic. I agree, but it certainly is a goal worth striving for in contrast to the corrupt, greedy and materialistic ideology which permeates business and investment in the poorest regions of the world.

To accomplish this type of values based investing, investing that truly has the potential to impact culture for good and bring about shalom, requires a very proactive approach and a lot of hard work.  It requires weekly phone and internet calls with business people around the world to find those who are truly like-minded in their approach to business. It requires getting on airplanes and flying to places in the world that you would never choose for vacation, meeting face to face with businesses, vetting their operations relative to multiple bottom lines including environmental impact, social impact and moral /ethical / religious values as well as sustainable and profitable business practices. This usually requires several days “on the ground” eating food that you don’t enjoy and frequently becoming violently ill before returning home. It’s difficult, laborious work, but the fruit of it is the most fulfilling investing that I have ever done in my 30 years as a financial advisor.

To date, I have deployed investment dollars for myself and others into business projects that serve to accomplish a myriad of our shared objectives. An apple orchard project in north Africa is alleviating poverty and facilitating reconciliation between previously warring tribes.  A coconut oil production facility in SE Asia is reducing “coconut slavery” and human trafficking through fair wage employment and vocational training. A biotechnology company on the Indian sub-continent has patented a biological treatment of municipal wastewater by installing its bioremediation process, which takes advantage of the microbes and plants from the local environment to remove toxins and biologically treat wastewater, delivering treated water suitable for non-potable use (i.e. agricultural uses). This is a low-cost, efficient solution to a rapidly growing problem for which conventional mechanical/chemical methods are less appropriate, especially in a developing country. These are merely 3 examples of dozens that I have been privileged to invest in through my pro-active approach to values based investing.

If you are concerned about the abuses and exploitations that have crept into modern business and, consequently, into your investment portfolio, I suggest taking a proactive approach to values based investing. If you don’t have the time or resources to accomplish this on your own, seek an advisor who is already doing it and who can help you align your portfolio with your values.

 

 

2017, A Happy Year for Investors

Dear Friends,

The 4th quarter of 2017 was one of the best quarters for stocks in years, as broad gains were driven by anticipation and passage of the Tax Cut and Reform Bill, acceleration in economic activity, and rising corporate earnings. 

Looking back on the 4th quarter, one of the most important takeaways for investors is to appreciate that while tax cuts dominated headlines, stock gains in the 4th quarter (and most of 2017) were really supported by an accelerating economy and rising corporate earnings. That’s an important distinction to keep in mind as we start 2018 because, while risks remain (as always), this rise in the market has also been driven by strong economic data and strong earnings.

The markets continued to climb the proverbial “Wall of Worry” in the 4th quarter, as they did for all of 2017. Specifically, geo-political concerns in North Korea and Iran weighed on sentiment. In a similar way, there was some trepidation regarding Fed policy with the Federal Reserve continuing it’s historic task of “unwinding” the Federal balance sheet by executing another quarter-point rate hike in December. But none of these situation were enough to offset improving US corporate fundamentals.

For the year, US stocks were buoyed by strong economic data, rising corporate earnings, deregulation, the perceived safety of US assets, a rebound in oil prices, historically low interest rates, and low inflation. Underscoring the resiliency of the markets in 2017, the S&P 500 rose every month of the year, which is the first time that’s happened in history

Outside the US, the story was the same. Actually, the performance was better!  Looking at the MSCI ACWI Index which is composed of 47 developed and emerging market countries, including the US, 32 countries posted higher returns than the US in 2017. In total, 44 of 46 foreign countries recorded gains in 2017 (the only two with negative returns were Pakistan and Qatar).

As a group, international stocks have outperformed domestic stocks over the last year, as gains were driven by strong growth in emerging markets. To start 2018, the outlook for international markets remains positive. Not only do foreign equity markets have momentum, they are also cheaper than US stocks based on multiple valuation metrics. Also lending a helping hand, the International Money Fund recently raised 2017 and 2018 global growth projections.

Almost all major bond categories inched higher in the 4th quarter, and even with the Fed rate hikes, fixed income returns were, for the large part, satisfactory during the full year. The Bloomberg Barclays US Aggregate Bond Index, the leading benchmark for bonds comprised of investment grade government bonds, corporate bonds, and mortgage-related bonds, was up 3.54% in 2017.

2018 Outlook

The market and economy stride into 2018 with a tailwind from the biggest tax overhaul in 30 years. While some of the benefits are arguably baked into current market prices, the aftermath will likely result in US corporations keeping more of the money they make. And, that extra cash can potentially be deployed in numerous stock positive ways: Increased capital expenditures, new growth initiatives, research and development, mergers and acquisitions, dividend increases, and stock buybacks are all on table for corporate America as we start 2018. This along with other positives, such as the continuation of robust corporate earnings, improving economic growth, unemployment near record lows, positive momentum for leading economic indicators, and high consumer confidence levels (based on low household debt interest and highest household net worth), make the outlook favorable for economy as we start the new year.  

Our primary concern lies in the fact that the stock market starts the year over-valued by about 20% based on historic P/E ratios. In addition a terrorist attack or the Fed raising interest rates 3 times or more in 2018 could derail the level of optimism currently built into the stock market.   Other concerns include geo-political tensions with North Korea, disappointing NAFTA renegotiations, or the possible re-introduction of sanctions against Iran. Any one of these could increase market volatility in 2018.

There’s always the chance of a market correction and that’s no different this year. We all know that emotion and surprise can easily spook an over-valued market.  If we learned anything in the later stages of the bull market from 1995 to 1999 and the bubble preceding the great recession of 2008, it is prudent to take profits when you get them.  So, we have been steadily re-balancing portfolios to capture our gains from 2017 and to use hedged equity strategies to reduce risk in your portfolio.

At Simmons Capital Group, we remain optimistic, but are guarded. While the general market set up remains positive, we are cognizant of the fact that markets are due for, at least, a short-term pullback and, the unnatural tranquility could change at a moment’s notice. We continue to believe investors should embrace broad diversification within various asset classes to position for further growth, while defending against uncertainty and risk. We will continue to take a diversified and disciplined approach with a clear focus on your longer-term goals and in delivering competitive risk adjusted returns. Bull markets traditionally end with economic recessions and inverted yield curves, neither of which are present or seem imminent right now.

Thank you for your ongoing confidence and trust. Please feel free to contact us with any questions, comments, or to schedule a portfolio review.

Sincerely,

Donald E. Simmons, CFP            Darren J. Leader, CFA            Audra K. Higgins

Wow, what a week!

Dear Friends,

Wow, what a week!  While January felt a little like we were all aboard Elon Musk’s Tesla that was recently shot into space, investors were brought abruptly down to earth over the course of last week.  All said and done, all 3 major US stock indexes are now slightly negative so far for 2018, erasing all of the strong gains enjoyed throughout January.  A shock like this typically leaves investors searching for answers as to why this happened, and what the exact causes were.  Although we can point to the headline investor fear of the potential of rising interest rates, we would venture a simpler explanation: it was simply time for a breather.  As we have said to any of you that have sat in our offices over the last few months, although the economy is looking robust, the stock market was (and still is, we believe), overvalued.  When a market is expensive and priced for perfection, there is little room for error, and even the smallest reduction in confidence can cause nervous investors with their fingers on the sell button to finally press it.

We have shown you this chart before, but it is especially relevant after a week like this.  Before you take one look at this chart and zone out, believing that it is too complicated for a weekend read, let us explain what it illustrates, and the important take away for all investors. It shows the fascinating statistic that, on average looking back to 1980, the average drop within any given year has been 13.8%.  As an example, in 1980 (far left bar), the red dot showing -17% is the amount that the market dropped within 1980, even though it ended the year with a positive 26% return (the grey bar).  This is a significant range to tolerate as an investor, but it is part of investing in the market.  In fact, out of 38 years, 29 have ended the year positive, despite large drops within the year.  The takeaway: markets drop and correct regularly, and it is a normal and expected part of the stock market’s cycle.

Whatever happens this week, here are some practical tips for reducing stress:

  • Turn off the TV and spend less time on the financial ‘news’ sites.
  • Refocus yourself on your long-term financial goals
  • Recognize that the stock market goes down, as well as up. 
  • Take comfort in knowing that your accounts at SCG are designed to reduce volatility and insulate you against the full wrath of the stock markets’ volatility.
  • Please call us before making any emotional investment changes or decisions

Feel free to contact us at any time, and let’s hope for a better week!

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6 Significant Social Security Changes in 2018

Did you know that beginning this year there are a number of notable changes to Social Security? Here are the 6 most significant social security changes in 2018.

Benefits Jump - Social Security recipients will get a 2 percent cost-of-living adjustment (COLA) in their monthly benefit payments starting in January, the largest increase since 2012. The average recipient will receive $1,404 a month, up from $1,377 in 2017.

Higher Tax Cap - Workers now contribute 6.2 percent of their earnings to Social Security up to an income of $127,200. That ceiling rises to $128,700 in 2018. The change will affect about 12 million of the 175 million workers who pay Social Security taxes.

Full Retirement Age gets older - For those born in 1956, the full retirement age (when recipients can receive full benefits) climbs to 66 and 4 months. That’s up from 66 and 2 months for those born in 1955. (Full retirement will increase two months every year until it reaches age 67 for everyone born in 1960 or later.)

Maximum Benefits to rise - For those retiring at full retirement age, the maximum payout increases 3.7 percent to $2,788 a month, or $33,456 a year. That’s up from $2,687 a month, or $32,244 a year.

New Earning Limits - For beneficiaries who work while collecting Social Security, those younger than full retirement age can earn up to $17,040 in 2018 without being penalized, up from $16,920 in 2017. Above that level, you’ll lose $1 in benefits for every $2 earned. The earnings limit is $45,360 for those who will hit their full retirement age in 2018.

Gone Digital - The Social Security Administration stopped mailing paper statements, which detail past yearly earnings and provide retirement benefits estimates, to most workers in 2017. For those who didn’t get word, you now need an online account. About 36 million people have already gotten one.

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