Berko: Social security blunder and other issues
Thursday, March 20, 2014 7:00 AM
Dear Mr. Berko:
You made a big mistake in your column about Social Security last January. You said that a man who gets $2,300 a month at age 66 would get $3,300 a month if he waited till age 70 to collect his benefits. You also said that his wife, who gets $1,700 a month, would get $3,300 a month when her husband dies. Both comments are wrong. My neighbor is a lawyer who specializes in Social Security, and he says that wives are not entitled to a husband’s stepped-up benefits and that she’d just get $2,300, which is her husband’s benefit at age 66.
Now I have two questions: Do you think I should sell my 500 shares of JPMorgan Chase & Co., which I bought in 2008 at $48? Lawyers are claiming that the company should have known about Bernie Madoff, which frightens me. If the Justice Department continues suing JPMorgan Chase, will it keep the stock from going up? I’d also like your thoughts on buying $25,000 worth of Puerto Rican municipal bonds coming out soon. Do you think they are safe?
Mea culpa. I have mud on my face and egg on my shoes. I goofed big-time. You’re as right as a trivet; the wife would not be entitled to her husband’s stepped-up Social Security benefits.
Back in 1953, when Social Security took $21.41 from my summer paychecks that totaled about $1,100, I was as mad as a bear and grouched to my dad, who said: “Consider it a forced savings. You’ll get it all back plus some when you retire.” In 1953, the Social Security Administration had only a few thousand employees, and the rules and regulations were as simple as salt. Today, my wife and I get almost $4,000 a month. But I’m still as mad as a bear because the amount is embarrassingly excessive; we feel as if we’re stealing. And you know what? If we had an honest Congress, we’d give it back. Today’s Social Security Administration has 66,000 (and growing) employees. Its regulations and interpretations cover hundreds of thousands of pages (think of tax law), and I erred in accepting information from a semi-big shot (political appointee) rather than a real employee. The truth is always in the trenches.
I don’t like JPMorgan Chase (JPM-$57.81), whose villainous officers and directors are too big to jail, but I think you should keep the stock. It’s an excellent investment bank. Though the reduction of the Federal Reserve’s stimulus removes a few hundred billion dollars of support from the economy, JPM is an ought-to-own in most long-term growth and income portfolios. JPM held up well during the recession and trades at less than nine times 2014 earnings. Meanwhile, revenues plus dividends are expected to rise this year, as well as in 2015. But JPM has unfairly become the Justice Department’s whipping post for our profligate investment banking system, and JPM paid out $2.5 billion to settle the Madoff claims. Arthur Levitt, chairman of an inutile Securities and Exchange Commission, was frequently warned about Madoff between 1993 and 1998; however, Bernie was too smart for him. But be mindful that the people working for the SEC are among the dullest colors on the rainbow. Between 1999 and 2007, the feckless SEC investigated Madoff five times and again found nothing wrong. Frankly, the Justice Department ought to sue the SEC for dereliction of duty and return the $2.5 billion to JPM. But dumb is as dumb does. I think JPM’s legal problems are over, though the Justice Department may find JPM at fault for the attack at the U.S. Consulate in Benghazi, Libya.
That $2 billion tax-free Puerto Rican issue will be a gold mine for investors with the guts to buy it at the initial offering, which may be a 10 percent coupon. These are general obligation bonds rated Baa3, meaning “speculative” and “unlikely to meet future financial commitments.” Puerto Rico is a fiscal and financial fiasco. It’s run by a legislature of thieves (familiar?), though the U.S. Treasury will ensure that the commonwealth has enough cash to meet its obligations. And because the U.S. is an implied guarantor, I’m only mildly uncomfortable with the risks of owning Puerto Rican bonds.
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