After a tumultuous March and April that saw US stocks tumble nearly 20%, the S&P 500 has clawed its way back to where it began the year—an outcome that seemed nearly unthinkable just five weeks ago.
While the index remains about 4% below its late-February highs, the rebound to early-year levels is a welcome development for investors. However, more volatility may lie ahead, as the full impact of tariffs—both direct and indirect—has yet to be reflected in corporate earnings reports.
US–China Tariff Truce – The US and China have agreed to a 90-day tariff reprieve, cutting steep import duties in a move aimed at reducing trade tensions and encouraging economic growth. The US slashed tariffs on Chinese goods from 145% to 30%, while China lowered its own from 125% to 10%. Markets responded positively, though key national security-related tariffs remain in place and long-term trade terms are still up in the air. WSJ Reuters
Tax Bill Proposal – The current tax law, enacted under the Tax Cuts and Jobs Act of 2017, is set to expire at the end of this year if no new legislation is passed. Last Friday, House Republicans released their first proposal, offering insight into potential tax changes on the horizon.
A few highlights of proposed changes include:
- A $1,000 increase to the standard deduction for single filers and a $2,000 increase for married couples, effective for tax year 2025
- An increase in the maximum Child Tax Credit to $2,500
- Increase State and Local Tax (SALT) deduction limit to $30,000
- Permanently extending the current tax rates and income brackets
- Raising the estate, gift, and generation-skipping transfer tax exemption to $15 million and making it permanent
Just as important as what the bill includes is what it leaves out. Notably absent are provisions addressing several highly debated topics: capital gains tax rates, taxation of tips, overtime pay, or Social Security benefits, higher tax rates for high-income earners, and clean energy tax credits.
Initial estimates suggest that Friday’s bill would reduce federal revenue by $4.9 trillion over the next decade, compared to allowing the tax code to revert to 2016 law. The bill’s details are likely to change significantly in the coming months as Republicans work to advance it through the House and then the Senate. WSJ Bloomberg RSM US
Financial Planning Corner:
Social Security – Funding Update and Benefits of Delaying
Recent cuts to government spending, policy changes, and growing concerns about the future of the Social Security Administration have contributed to an increase in retirees claiming their Social Security benefits early. WSJ Many cite fears of future benefit reductions—or even the potential loss of benefits entirely—as their primary reason for signing up early. While everyone’s situation is unique, claiming Social Security benefits early is a permanent decision that can significantly affect long-term financial security.
The current state of Social Security funding – The Social Security Administration publishes an annual report (SSA.gov) on the status of the trust funds used to pay benefits. The latest report, released in May 2024, highlighted a growing deficit and a concerning long-term outlook for the trust fund reserves. In 2023, total benefit payouts exceeded income from payroll taxes and interest by $41.1 billion, bringing the year-end trust fund balance to $2.788 trillion. Based on current projections, this annual shortfall is expected to continue indefinitely, ultimately leading to the depletion of the trust fund reserves by 2035.
So, what does 2035 and beyond look like? The Social Security report projects that once the trust fund reserves are depleted, the program will still be able to pay about 83% of scheduled benefits, with that percentage gradually declining to around 73% by 2098. While this outlook raises valid concerns, it’s important to note that a complete loss of benefits is not expected. Even under a worst-case scenario with no policy changes, retirees could see a reduction of roughly 17% to 27% in benefits. While it’s impossible to predict the exact outcome, I believe reforms are more likely than benefit cuts as the pressure to act increases.
The case for delaying your benefit – Retirees can begin claiming Social Security benefits as early as age 62, but they won’t receive their full benefit amount until they reach full retirement age—67 for anyone born in 1960 or later. Claiming before full retirement age results in a reduced benefit: starting at age 62 locks in a 30% reduction, while starting at age 65 results in a 13.33% cut.
On the other hand, delaying your benefits beyond full retirement age increases your monthly payments. For each year you wait past 67, your benefit grows by 8%, up until age 70. This can lead to a total increase of up to 24%, significantly boosting your lifetime income.
Larger monthly payments can offer greater financial stability later in life, particularly as healthcare expenses rise and other income sources may decrease. Delaying benefits also helps protect against longevity risk—the possibility of outliving your savings. For married couples, this strategy is especially important: if one spouse passes away, the surviving spouse will receive the higher of the two benefit amounts. Maximizing benefits means better financial security for you and your partner in the future.
You might wonder, “If I delay taking Social Security, how long will it take to make up for the payments I’m postponing?” While the break-even point varies depending on cost-of-living adjustments and your income if you're still working, most retirees who delay benefits until age 67 instead of 62 break even by around age 77 or 78. Those who wait until age 70 typically break even by age 80. In other words, if you expect to live beyond 80, delaying until age 70 can be a financially sound choice.
Quick Hits:
- The Giro d’Italia (Italy’s version of the Tour de France) is winding its way through Italy. Here are some of the beautiful Italian landscapes the Peloton will be racing through Italia
- With all this rain, we better have beautiful May flowers. Here are the best public gardens to explore in New Hampshire NHMagazine
- And in Maine Green & Healthy Maine
- Backcountry take on new challenges - Burro Races AP
Quote: “You can't connect the dots looking forward; you can only connect them looking backwards.”
— Steve Jobs
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