Maria Margaret Powers

This bill aims to keep Social Security beneficiaries out of poverty. Here’s where efforts to improve the program stand

Maria Powers — Thu, 19 Aug 2021 22:55:52 +0000

Many Americans have trouble covering their costs of living with income solely from Social Security.

Now, a bill has been reintroduced in Congress aimed at reducing the risk that older Americans, women and people of color will live in poverty despite receiving their monthly checks.

The proposal, called the Social Security Enhancement and Protection Act, was put forward by Rep. Gwen Moore, D-Wis., this week.

The measure aims to improve benefits in three ways.

First, it would update what is called the special minimum benefit — a floor for low earners — to 100% of the current poverty level. This would apply to individuals who have paid into Social Security for at least 30 years and claim benefits when they reach full retirement age (typically 66 or 67, depending on when they were born). Benefits would be adjusted so that workers with at least 10 years of work but fewer than 30 would also be eligible.

In addition, Moore calls for applying childcare credits toward future program eligibility for parents of children under age 6. Those parents would receive a credit for each year a child under that age is in the home, for a maximum of five years. That time would count toward the 30 years required for the special minimum benefit.

The bill also proposes increasing monthly checks for all beneficiaries by 5% once they have been retired for 20 years. That increase would be gradually phased in starting when beneficiaries have reached 16 years of eligibility.

Student benefits would be expanded for children of deceased and disabled workers so that they would be able to continue to collect money up to age 26 as long as they are students in college or vocational schools. Currently, benefits are only paid for those children up to age 18.

Moore’s plan also calls for changes to help pay for the expanded benefits.

That includes phasing out the Social Security payroll tax cap, which currently only applies to wages up to $142,800.

At the same time, the plan also calls for gradually raising the rate at which both employers and employees pay that tax to 6.5%, from the current rate of 6.2%, over six years.

“My proposal would help us ensure that Social Security does what it was intended to do: protect all older Americans from spending their retirement living in deep poverty,” Moore said in a statement.

Social Security reform challenges

zimmytws | iStock | Getty Images

Other Social Security proposals from Democrats have also sought to establish a minimum benefit to help keep people out of poverty.

That includes five of the Democratic presidential candidates’ platforms from the most recent election: President Joe Biden, Transportation Secretary Pete Buttigieg, Sen. Amy Klobuchar of Minnesota, Sen. Bernie Sanders of Vermont and Sen. Elizabeth Warren of Massachusetts.

Those plans were more fully fleshed out than those in the previous presidential election, where Hillary Clinton’s platform was limited to establishing caregiver credits, said Karen E. Smith, senior fellow at the Urban Institute, a Washington, D.C., think tank.

Rep. John Larson, D-Conn., has also put forward a bill aimed at increasing benefits.

Notably, those other proposals mostly set the minimum benefit at 125% of the federal poverty level, rather than 100%.

No matter how you want to redistribute benefits, you can eliminate poverty and still have future cohorts end up with higher benefits than current beneficiaries.

Karen E. Smith

SENIOR FELLOW AT THE URBAN INSTITUTE

One issue with the proposals is how well they actually address poverty, Smith said. For example, only new beneficiaries might be able to access the higher minimum benefits. At the same time, if a 20-year bump up is put in place, it might be biased towards higher-income people because they tend to live longer, she said.

While those plans call for increasing benefits for some beneficiaries, they also aim to address the program’s solvency issues, though to different degrees.

Because Social Security’s trust funds have about 10 years left — at which point benefits will be reduced — “they have to deal with it,” Smith said of Washington leaders.

“It’s really a debate in Congress that we need to have and hasn’t been happening,” Smith said.

Meanwhile, steps to eliminate poverty can be done at a relatively low cost.

“No matter how you want to redistribute benefits, you can eliminate poverty and still have future cohorts end up with higher benefits than current beneficiaries,” Smith said.

Admittedly, passing Social Security legislation in the near future may be out of reach.

But one other change — Supplemental Security Income benefit reform — would be easier for Congress to pass now and would inevitably help the poor whom those benefits target, Smith said.

In 2021, the maximum monthly SSI benefit is $794 per individual, or $1,191 per married couple where both individuals qualify for the program.

One Senate bill calls for raising those monthly benefits to 100% of the federal poverty level, which would result in a 31% income boost.

“Increasing SSI benefits really helps poor people,” Smith said. “That would be a big improvement.”

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Cryptocurrency traders seek damages from Binance after a major outage cost them millions

Maria Powers — Thu, 19 Aug 2021 22:51:42 +0000

When Canadian cryptocurrency trader Fawaz Ahmed saw the price of ethereum dropping, he knew it was time to get out. Unfortunately for him, he couldn’t.

Ahmed was trading on Binance, the world’s largest digital currency exchange by trading volume. And on May 19, Binance experienced a major outage which meant that, for about an hour, he was unable to exit his position.

That day, bitcoin and ethereum posted their biggest one-day drops since March 2020, with the entire crypto market losing roughly $1 trillion in value. When prices fell below a certain point, Ahmed’s position got wiped out. His personal losses came to about $6 million.

“This loss was not fair,” Ahmed, a 33-year-old who trades full-time, told CNBC. “This is something which was out of my control.”

Binance’s customer service team gave Ahmed an “absurdly” low offer of compensation, he said.

Ahmed is one of hundreds of investors expected to take part in arbitration proceedings against Binance, seeking damages for the money they lost when the cryptocurrency exchange went offline.

Binance said it was unable to comment on “pending legal matters.”

“Our policy is fair in that we compensate users who experienced actual trading losses due to our system’s issues,” a spokesperson for the firm told CNBC. “We do not cover hypothetical ‘what could have been’ situations such as unrealized profits.”

Binance has experienced several outages over the years in times of heightened volatility for virtual currencies. That can be costly for traders, especially when prices are plunging.

And those losses can balloon to millions of dollars when investors make risky bets using leverage, or borrowed money, to augment trades — which, on Binance, is something users do often.

Binance recently cut the maximum leverage customers can take on futures — financial derivatives that oblige investors to buy an asset at an agreed-upon price at a later date — to 20 times from a previous limit of 125 times.

Binance wasn’t the only crypto exchange to face disruption to its service on May 19. Coinbase users were also temporarily unable to access its site. Bitcoin plunged as much as 30% to nearly $30,000 that day. It has since recovered to $45,790.

No headquarters

Changpeng “CZ” Zhao, Binance’s boss, has previously said the exchange has no official headquarters. That makes it extremely difficult for investors to figure out how, and where, to take the company to court.

A group of crypto traders hopes to change that. With the help of Liti Capital, a little-known Swiss private equity firm providing litigation financing, nearly 1,000 people are expected to join arbitration proceedings in Hong Kong to seek damages from Binance.

“This is a landmark case for the industry,” David Kay, chief investment officer of Liti Capital, told CNBC.

Binance is “the first company that has ever grown to any size in any industry — much less the financial industry — where there is no regulation,” he said. “They have no home, they have no headquarters, they have no office.”

“The only place where Binance has said they have jurisdiction is in a Hong Kong international arbitration court,” Kay added. “This will be the largest consumer international arbitration in history.”

Kay said that Liti Capital began working on the Binance case after receiving a call from Aija Lejniece, an independent lawyer working with a group of crypto traders in France. Lejniece specializes in international arbitration cases.

Binance’s terms of use say that any legal dispute must be resolved through arbitration at the Hong Kong International Arbitration Centre. Arbitration proceedings, unlike class action lawsuits, aim to settle disputes out of court.

The format makes it harder for the average consumer to make a claim, Kay said, as claimants have to pay arbitration fees and additional costs — for instance, traveling to Hong Kong. Individually, that could set each claimant back an estimated $65,000. To cover those costs, Liti Capital has promised to provide a minimum of $5 million in funding.

White & Case, a New York-based law firm, has been hired to represent the claimants. Abby Cohen Smutny and Darryl Lew, two White & Case partners based in Washington, D.C., and Hong Kong-based partner Melody Chan, will serve as their lawyers.

Crypto crackdown

Crypto, a nascent industry, is still largely unregulated. While some firms in the space, like Coinbase, have sought to build rapport with regulators, Binance and many others operate mainly outside the purview of established rules.

That hasn’t gone unnoticed by regulators, who are racing to catch up with new innovations in financial services. Two main concerns with crypto are a lack of protections for consumers and the risk of money laundering and other illicit activity.

Binance, in particular, has attracted attention from authorities in multiple countries. Britain’s Financial Conduct Authority recently banned the firm’s U.K. subsidiary after finding it failed to meet anti-money laundering requirements. Meanwhile, financial watchdogs in Japan, Canada and Italy have issued warnings saying Binance does not have the authority to operate in the countries.

To add to Binance’s woes, the company lost its U.S. chief Brian Brooks, who was formerly acting head of the Office of the Comptroller of the Currency, a U.S. banking regulator.

The company, which was founded by Zhao in China four years ago, recently said it was pivoting to become a regulated institution, with plans to obtain licenses in multiple jurisdictions and set up regional headquarters. Zhao has said he is willing to step down from the exchange to hand the baton to someone with more regulatory experience.

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The stock market is falling. Here’s what to do, and what to avoid

Maria Powers — Thu, 19 Aug 2021 22:46:56 +0000

The U.S. stock market is hitting choppy waters, again.

This week, U.S. indexes slid on concerns that the Federal Reserve would begin to taper its monthly bond purchases before the end of the year. The S&P 500 and Dow Jones Industrial Average suffered their second-straight day of losses Wednesday, with the Dow falling more than 380 points for its worst performance in more than a month.

Some analysts are concerned that the market could be in for a correction – meaning a slump of 10% or more – after the Dow and S&P 500 earlier this week rallied to record highs. Currently, the S&P 500 sits about 2% below its all-time high, and the Dow is about 2.5% below its own record.

Still, both indexes are up roughly 17% and 14% on the year, respectively, through Wednesday’s close.

While volatility can be troubling for investors, experts caution against any hasty selling when markets fall or trying to time a market correction. In addition, slumping stock prices can be a prime buying opportunity that investors should take advantage of.

Volatility is common

First, accept market volatility — which is relatively common — as a normal part of the process of investing and the best way to outrun inflation, said certified financial planner Brad Lineberger, president of Carlsbad, California-based Seaside Wealth Management, which manages about $165 million in assets.

“Embrace the volatility, because it’s why investors are getting paid to own stocks,” he said.

This means investors should stay calm even through extreme movements. As stocks have gyrated in recent months, long-term market returns are still based on the same things: dividend yields, earnings growth and change in valuation, according to Zach Abrams, a CFP and manager of wealth management at Shaker Heights, Ohio-based Capital Advisors, which manages around $800 million in assets.

Movements up and down can also be a good time to review your asset allocation. If you’re worried about a big drop, you could rotate part of your portfolio into some less-risky stocks to protect from a potential market correction.

Volatility can be your friend

In addition, sharp moves down can also be opportunities to buy more stocks and set yourself up for future gains, according to Abrams.

This is because when stocks fall from recent highs, they’re trading at a discount and will likely rebound at some point, which sets investors up for larger returns.

Continuing to put money in the market when it’s down as opposed to selling is a great way to make sure you don’t miss out on a rebound. Data shows that selling when the market goes down can take you out of the game for some of the strongest rebounds.

For example, if you missed the best 20 days in the S&P 500 over the last 20 years, your average annual return would shrink to 0.1% from the 6% you’d have earned if you’d stayed the course.

Make a plan and stick to it

Sticking with your overall plan is generally the best thing you can do through a market slump, instead of panicking and selling too soon.

For investors who may be in or near retirement and more worried about a market fall, it’s important to shift investment thinking to protecting their assets from growing them or aiming for the highest return, which can mean taking outsized risks.

“Managing the risk is a really important part,” said Leyla Morgillo, a CFP with Madison Financial Planning Group in Syracuse, New York, which oversees about $200 million in assets. “It’s not about trying to shoot for the highest rate of return you can; it’s about protecting what you have.”

To stay committed to this goal, advisors recommend making a plan or road map for retirement investing long before you leave the workforce. This will act as a safeguard against making bad emotional decisions with your investments during extreme market events.

“Have the discipline to stick to your plan even when it doesn’t feel like the right thing to do,” Lineberger said. “Checking your emotions at the door is the hardest aspect of being a successful investor, but it’s the most important thing to do.”

Have an emergency fund

Of course, even if you know that stock market volatility can benefit you in the long-run, financial advisors still recommend having a cash emergency fund on hand so that you can make it through a market meltdown without selling.

If the stock market falls, it’s better to spend the money in your emergency fund than sell assets at a loss that can’t be recouped, according to Tony Zabiegala, chief operations officer and senior wealth advisor at Strategic Wealth Partners, an Independence, Ohio-based firm with more than $500 million in assets under management.

This also keeps stock investments in the game for big rebounds, which generally come shortly after market corrections or even smaller dips.

For example, an investor would have only needed three months to six months of living expenses in an emergency fund to avoid taking losses during the March 2020 meltdown, said Lineberger at Seaside Wealth Management.

This approach would have also kept investments in the market for the record-breaking rally stocks enjoyed after the pandemic slump.

Have an emergency fund

This also keeps stock investments in the game for big rebounds, which generally come shortly after market corrections or even smaller dips.

This approach would have also kept investments in the market for the record-breaking rally stocks enjoyed after the pandemic slump.

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Charles Schwab to give most employees 5% raise, pushes back return to office

Maria Powers — Thu, 19 Aug 2021 22:44:35 +0000

Brokerage Charles Schwab is giving most of its employees a special 5% pay raise as record stock market levels propel the industry’s earnings.

CEO Walt Bettinger said Thursday in a press release that he wanted to reward employees “for their contributions and their relentless commitment to see the world through clients’ eyes, even during the most challenging times.”

Schwab, one of the biggest U.S. brokerages along with competitors like Fidelity, Interactive Brokers and upstart Robinhood, has benefited mightily from rising stock markets and increased retail participation during the pandemic. Schwab said that in the first half of the year, clients opened 4.8 million new accounts and new assets totaled $257 billion, double the year-earlier amount.

The raises “will be applied to the vast majority of the company’s employees, effective late September 2021,” the company said. “It will not include the company’s Executive Council or colleagues participating in Schwab’s incentive compensation plans.”

The Westlake, Texas based firm also said that it was pushing back its return-to-office plans until January 2022 at the earliest because of the more contagious delta variant of the coronavirus.

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