Investing

Seoul, South Korea ranked in the top three of the fastest growing destination for digital nomads.
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Company: Samsung C&T (028260.KS)

Business: Samsung C&T Corp is a Korea-based company engaged in the trading of industrial goods. The company operates its business through a group of segments. These include engineering and construction, trading and investment, as well as fashion and resorts. Shares of the company do not trade in the U.S.
Stock Market Value: $15.35 billion ($94.71 per share)

Activist: Palliser Capital

Percentage Ownership:  0.62%
Average Cost: n/a
Activist Commentary: Palliser Capital is a global multi-strategy fund with a bias to Asia and Europe. Founded in 2021 by James Smith, who was previously the head of Elliott Investment Management’s Hong Kong office, Palliser applies a value-oriented investment philosophy to a broad range of opportunities across the capital structure where complexity or distress lead to undervaluation that can be monetized through an effort-intensive process or proprietary catalyst. Nearly the entire senior investment team has had significant activist experience working at Elliott. The firm has experience investing in both Europe and Asia and their activist investment at Keisei has shown the patience, conviction and diplomacy of a top activist.

What’s happening

On Dec. 6, Palliser Capital announced that it took a 0.62% position in Samsung C&T (SCT).

Behind the scenes

Palliser thinks that Samsung C&T (“SCT”) is grossly undervalued by the market due to sub-optimal capital allocation, historic corporate governance issues and a complex corporate structure. The investor suggested short- and long-term measures that could be taken to create $25 billion of shareholder value. On its face, creating $25 billion of shareholder value at a $15 billion company seems ridiculous. However, diving into Palliser’s thesis one could realize that the firm is conservatively underestimating the value that can be created here. SCT is a large industrial South Korean conglomerate controlled by the Lee family through multiple, cross-owned affiliates. SCT has a publicly traded market cap of about $15 billion. Its main assets consist of five publicly traded subsidiaries and an operating business. The post-tax value of SCT’s interest in these five publicly traded subsidiaries are: Samsung Electronics ($13.9 billion), Samsung Biologics ($13.4 billion), Samsung SDS ($1.7 billion), Samsung Life ($1.6 billion) and Samsung Engineering ($300 million). That is a total of $30.9 billion of easily ascertainable and realizable value for a roughly $15 billion company. This does not even count the operating business, which has $30 billion of revenue and $1.55 billion of earnings before interest, taxes, depreciation and amortization. Using a 5.5 times EBITDA multiple, Palliser values this business at $8.4 billion. With net cash of $1.1 billion, that is a company valuation of $40.4 billion.

Why is this company trading at a 63% discount? For three reasons. First, its capital allocation policies and practices have left shareholders and others with little confidence that much of this value will accrue to them. SCT has approximately $1.5 billion of annual cash flow, and only approximately 25% of that is returned to shareholders through a dividend and up to 60% is used for capex. Samsung is an iconic and structurally important Korean company that should be investing and growing. Palliser is not debating that. The firm would like to see a more transparent and disciplined capex plan that uses the backdrop of the return on share buybacks as the benchmark and offers a fair return to shareholders. SCT also has other opportunities to generate cash for capex and shareholder return like taking on some debt (the company has $1.1 billion of net cash) to lower its cost of capital and potentially divesting some of the disparate and non-synergistic businesses that make up the operating company.
Second, SCT’s corporate governance policies do not give shareholders confidence that the board is working for them. In South Korea, boards have a duty to the company, not to shareholders. Absent a charter amendment, there are other things the company can do to give shareholders more confidence. The current board is five independent directors and four management directors. While Korean companies of this size are mandated to have 50% independent directors, “independent” is not defined. That means board independence may not be the way investors would expect it to be in the U.S. Moreover, SCT’s independent directors lack any real C-suite experience, relevant industry experience, proven portfolio management and capital allocation expertise. So, refreshing the board with experienced independent directors would be a great start. The board is also staggered. Three of the four management directors are co-CEOs of the company; these individuals answer to the board and account for one-third of its composition. If SCT named one CEO to whom the other division heads would report, it would simplify decision making. Additionally, more transparent communication with the market and aligning management’s interests with shareholders would also go a long way.
Third, the complex cross-affiliated ownership structure, or “chaebols” as they are called in South Korea, causes a deep discount to value. SCT was formed through a series of M&A transactions that were designed more for the purpose of the family keeping control than efficiency. These chaebols have adversely affected the valuation of these companies. For that reason, South Korean chaebols have been converting to two-layer holding company structures over the past 20 years. Samsung is one of two large companies in South Korea that still has the chaebol structure. This chaebol structure discount permeates the entire organizational structure. Even with the chaebol structure, Palliser estimates a $25 million valuation gap. Converting to a holding company structure would increase the value of all the SCT subsidiaries. Relative to where the stock trades today, it would inflate this valuation gap even more.
The undervaluation is not in doubt here. The key question is what can Palliser, or anyone else, do to close that valuation gap? All Palliser is doing right now is bringing these issues to a public debate to put some pressure on management to make shareholder friendly changes. The firm is not threatening any confrontational actions. Palliser has a history of working with management to effect change. That is good here because winning a proxy fight in South Korea is extremely rare. It has been done before, but not by a non-local activist at an iconic company with a family who owns 30% of the common stock. But the trend is on Palliser’s side as South Korea is getting more shareholder friendly every year. And there is also a good reason why the Lee family might support changes that increase shareholder value. Lee family patriarch and former Samsung chairman, Lee Kun-hee, was South Korea’s richest person at the time of his death on Oct. 25, 2020. Lee’s death triggered the largest inheritance tax bill in South Korean history, exceeding $10 billion. South Korea’s inheritance tax rate of 50% is the world’s second highest after Japan. His heirs have been given five years to pay the inheritance tax, and they could certainly use higher value stock to margin or more capital returned to shareholders.
Palliser is not alone in its thinking. Shareholder City of London Investment Management Company has made two proposals for the 2024 annual meeting: a dividend of roughly $3.42 per ordinary share and a buyback program of $380 million to run until the end of 2024. In South Korea, shareholder proposals are binding if approved by a majority of shareholders, but they rarely are approved. At the very least, enough votes could put pressure on management to do something. A good start would be to retire the 13% of outstanding shares held as treasury shares, which count towards outstanding shares in South Korea and which management has already promised to retire within five years. Doing this would immediately increase earnings per share by 14.4%.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.  More

Adults in their 30s oftentimes have more financial responsibilities on their plate.
“The 30s can be sometimes more stressful because your responsibilities have gone up and you’re still not at your earnings potential of your 40s and 50s,” said certified financial planner Shaun Williams.
Here are three things to do to stay on track with your retirement plans.

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Unlike younger adults, those in their 30s oftentimes have more financial responsibilities on their plate.
“The 30s can be sometimes more stressful because your responsibilities have gone up and you’re still not at your earnings potential of your 40s and 50s,” said certified financial planner Shaun Williams, partner and private wealth advisor of Paragon Capital Management based in Denver. The firm is ranked No. 57 on the 2023 CNBC FA 100 list.

Individuals in their 30s are more likely than those in their 20s to have a spouse, kids or even aging parents who rely on them. However, not everyone follows this path. Some remain as single earners or become dual-income earners with no kids — DINKs, for short.

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While those life changes and choices can have a significant effect on your ability to save, experts say it’s important to keep your retirement plans in focus during this decade — or start if you haven’t yet.
“Have you done what you needed to do to build basic financial security? Have you paid off any high-interest rate debt? Are you staying out of credit card debt? Have you started saving for retirement?” said CFP Sophia Bera Daigle, founder of Gen Y Planning in Austin, Texas. She is also a member of the CNBC Financial Advisor Council.
Here are three things to consider:

1. Revisit your retirement accounts

You may be earning more than you did in your 20s as you’ve progressed in your career. It might be time to switch up retirement accounts.

Opening a Roth individual retirement account can be a smart call as a young worker. You won’t get a tax break on contributions, but that money grows tax-free. Not everyone qualifies to contribute. In 2023, eligibility begins to phase out for individuals with an adjusted gross income of $138,000.
In your 30s, even if you don’t earn too much to use a Roth, opening a traditional IRA may make more sense. A traditional IRA offers an upfront tax break on contributions, and you may find that’s more beneficial, said Williams.

“The tax benefits of traditional IRAs are better the higher your income,” he said. “You’re going to be better off in the long run in most cases.”
With a better income, you might also boost contributions to your employer-sponsored retirement account like a 401(k) plan. You still have decades to go before retirement, so contributing more of your income alongside the company match can make the most of time in the market and compounding.

2. Figure out how new big goals fit in

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Your aspirations may change as you get older. You may want to travel more, become a homeowner, save for a wedding or even have children. Put thought into what your new goals are and how they fit with staying on track for retirement savings. 
“My DINK clients get to talk about things like early retirement because they’re not paying for their kids’ education or child care costs. They get to talk about things like buying a second home,” said Daigle.
Meanwhile, those who become parents might find that early child care costs or saving for a child’s eventual college education come at the cost of contributions for their own retirement. 
“A parent still needs to focus on their own retirement,” said Williams. “A parent should always make sure that their retirement is healthy and sound before considering really setting up their children.”

As first-time parents begin to think about financing their children’s future education, especially college, it may be advantageous to start a 529 plan and “get on track for their kids’ college,” said Daigle.  
Those costs ought to come after you’ve paid yourself first in the form of retirement contributions and maybe cut expenses that are less pressing.

3. Keep an eye on lifestyle creep

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As you increase your earnings, it is easy to fall victim to lifestyle creep, or the phenomenon by which your nonessential expenses tend to rise with your income. This can be a detriment to your savings as you grow accustomed to a higher-cost lifestyle, for DINKs especially.
“A lot of people allow lifestyle creep to come in and start spending more and more,” Williams said.
If you have the ability to spend more in your 30s, it’s smart to assess your financial goals first. Make sure above all that you are on track for retirement before you splurge on discretionary expenses.
“[In] your 30s, you’re solidifying how you’re going to live your life, and that’s just going to continue in your 40s and 50s,” Williams said. “People don’t change that much once they get there.”Don’t miss these stories from CNBC PRO: More

You may be able to finish paying off your student debt sooner than you thought, experts say.
They shared tips on how to make that happen.

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‘Even an extra $5 a month can make a big difference’

Paying just a little more than you owe each month on your student debt can reduce the amount you’ll pay overall and shorten your repayment timeline, said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit.
“Even an extra $5 a month can make a big difference,” Mayotte said. (You’ll want to make sure to tell your servicer to direct the additional money to your principal, so it doesn’t just apply it to future interest and payments.)
To illustrate the impacts of throwing extra cash at your student debt each month, higher education expert Mark Kantrowitz provided an example.
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If someone owed $10,000, and had a 5% interest rate, an additional $50 a month would shave nearly 4 years off of a 10-year repayment timeline. The borrower would also save more than $1,000 in interest.
Kantrowitz’s student loan calculator lets you see how extra payment amounts can shorten your repayment term.
If you’re unsure how to get the extra cash to pay down your debt quicker, consider making a budget, said Douglas Boneparth, a certified financial planner and president and founder of Bone Fide Wealth, a wealth management firm based in New York.
“If paying off student loans is at the top of your list, scrutinize your monthly cash flow to see where you might have room to allocate more money towards them,” said Boneparth, who is a member of the CNBC Financial Advisor Council.

Consider auto-pay, avalanche method

Most student loan servicers offer borrowers a discount on their interest rate when they sign up for automatic payments, Kantrowitz said. An even slightly lower interest rate will help you pay your debt down faster.
Claiming the student loan interest deduction, meanwhile, on your federal income tax return can reduce your taxable income. Your lender reports your interest payments over a certain amount to the IRS on a tax form called a 1098-E, and should provide you with a copy, too. Depending on your tax bracket and how much interest you paid, the deduction could be worth up to $550 a year, Kantrowitz said.
If that results in a bigger refund, you can direct more money toward your education debt each year. You don’t need to itemize your taxes to claim the deduction, which can reflect up to $2,500 in interest payments on all federal and most private student loans.

Yet before you accelerate payments on your student debt, you want to first pay down any higher-interest loans, Kantrowitz said. Undergraduate federal student loans disbursed last summer had an interest rate of 5.5%, while the average interest rate on credit cards is more than 20%.
The tip above is an example of what is called “the avalanche method,” in the world of debt repayment, Mayotte said. It is when you pay the minimum due on all your loans, but send extra payments to the loan with the highest interest rate.
Of course, if your priciest debt is from your education, you can use the strategy on those loans (many student borrowers have multiple loans). You can learn your different interest rates with your servicer or at Studentaid.gov. Private student loans tend to have much higher rates than federal ones.
Unless you truly can’t afford to make payments on your student debt, you’ll also want to avoid deferments and forbearances, particularly if your goal is to get out of the debt sooner than later. These pauses stretch out your repayment timeline, and your balance can swell from interest accrual.
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With property prices in the city down 15-20% since their peak, Peter Churchouse of Portwood Capital said now may be a good time to buy a property in Hong Kong if you’re looking to own a home.
But “Hong Kong is not the place” if investors are looking for good rental yield, he said, adding that Australia and New Zealand markets look attractive.

Hong Kong residential prices could fall by another 10% in 2024, according to DBS Hong Kong.
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Hong Kong’s property market has plunged nearly 20% since its peak, and it may be a good time for homeowners to buy — but investors might want to think twice, according to Peter Churchouse, chairman and managing director of real estate investment firm Portwood Capital. 
With property prices in the city down 15-20% since their peak, Churchouse said now may be a good time to buy a property in Hong Kong if you’re looking to own a home, but investors hunting for yield should look at Australia and New Zealand instead.

Investors and homeowners have different priorities, Churchouse pointed out.
For homeowners looking to buy, “prices down this much is probably not a bad time to look to be buying” if you can afford to pay mortgage and down payment, he said Tuesday on CNBC’s “Squawk Box Asia.”
“There’s still a bit of downside risks … but perhaps the worst is over.”
Home prices in Hong Kong dropped for four months straight. The official housing price index stood at 339.2 in August, down 7.9% from a year earlier and 4.2% lower from April peaks.
“Hong Kong is probably the easiest place in the region to buy, and I would think that Japan is probably a close second,” he said.

Buying elsewhere in the region is “fraught with all sorts of difficulties and legal issues … There are all sorts of banana skins,” Churchouse warned, explaining that home buyers in other countries either have to be a resident, permanent resident or an employee. 
“Often, you can’t own property as an investor,” he added.

Jeff Yau, Hong Kong property analyst at DBS Hong Kong, said prices in Hong Kong are expected to continue plummeting and could fall by another 10% in 2024.
In October, the Hong Kong government cut stamp duties for property buyers to help boost the city’s slumping real estate market. 
Among the relaxed levies, the stamp duty that non-permanent residents have to pay for property and another levy imposed on additional properties purchases by residents will each be halved to 7.5%. 
Despite the positive news for homebuyers, demand may not bounce back in full force as the higher cost of financing will remain a hurdle for potential homeowners, said Henry Chin, Asia-Pacific’s head of research at CBRE.

Best rental yield

For investors looking for high rental yield, “Hong Kong is not the place,” Churchouse said. “The yield today is less than the cost of capital, less than the interest rate you’re paying on your loan.”
Rental yield in Hong Kong is currently below 3%, while the effective mortgage rate exceeds 4.1%, implying a “negative rental carry,” DBS Bank’s Yau said.
“If the investors have their first property, they still need to pay New Residential Stamp Duty of 7.5% if they buy a second property,” Yau said. “It is not a good time to buy property for investment.”
Where can investors find good rental yield?
“The best yield in markets in this region, I tend to think, are Australia and New Zealand,” Churchouse said. Yield for residential property or commercial property there may be as high as between 6-8% — “maybe even higher,” he added.
In Japan as well, it’s common to find rental yields of about 5% or 6%, he added.
In a country where interest rates are “very, very low,” he said, “You can get a rental yield that higher than your interest costs in Japan.”
— CNBC’s Clement Tan contributed to this report. More

It can be easy for adults in their 20s to overlook retirement altogether.
About 66% of Gen Zers say they’re not sure they’ll ever have enough money to be able to retire, according to a recent study.
“Awareness is the first key. Some people have the ‘head in the sand mentality’ for too long for a lot of their 20s,” said Sophia Bera Daigle, a certified financial planner.

A young woman receives help from a financial advisor.
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It can be far too easy for adults in their 20s to overlook retirement altogether.
After all, it’s still decades away, with many other shorter-term goals — such as buying a home or paying off student debt — closer on the horizon.

About 66% of Gen Zers, or those between ages 18 and 25, say they’re not sure they’ll ever have enough money to be able to retire, according to the recent Prosperity Index Study by Intuit.
Yet, for people in their 20s, it’s a powerful time to get started on saving and investing for retirement. With the right moves now, you can harness the power of compound interest and make the most of the decades ahead to set yourself up for success.

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“Awareness is the key. Some people have the ‘head in the sand mentality’ for too long for a lot of their 20s,” said Sophia Bera Daigle, a certified financial planner and the founder of Gen Y Planning in Austin, Texas. She is also a member of the CNBC Financial Advisor Council.
Here are some moves to get started:

1. Make the most of your 401(k)

If you work for a company that sponsors a retirement plan such as a 401(k) or 403(b), the first thing is to check if you’re eligible and if a company match is available, Daigle said.

If you do have access to an account, start contributing as soon as you can and always at least pay yourself what the company matches, said CFP Shaun Williams, partner and private wealth advisor of Paragon Capital Management based in Denver. The firm is ranked No. 57 on the 2023 CNBC FA 100 list.
The company match is almost like “free money” that can help boost your savings faster, especially at a time where you may not be able to set aside much.

2. Open and invest in a Roth IRA

When you open and contribute to a Roth Individual Retirement Account, you don’t pay taxes on the dollars you put into the account, allowing your savings to grow tax-free for decades.
While they may have income limits and other drawbacks, it’s a powerful tool for people in their 20s.
As you begin your career, you will likely have a lower income, putting you in a lower tax bracket. Use this to your advantage and consider opening a Roth IRA, in which your tax payments will be low.
Funds in a Roth account can also be withdrawn at any time without penalties, making them useful for other goals or even for emergencies.

3. Build up emergency savings

It’s smart to have an emergency savings fund, especially as most emergencies can cost hundreds of dollars.
Before you really start paying down debt, get a handle on that emergency fund, said Williams. Building an emergency savings first can help you keep your retirement savings untouched should unexpected expenses arise.
You may want to have about six months of your spending needs in an emergency fund in case you lose your job, said Williams.
Look into products where you can earn more for your savings, said Daigle.

4. Invest with a long horizon in mind

You have four to five decades in your favor, Williams said. Use the markets for what they’re meant for and be fairly aggressive.
It can be strategic to allocate your assets in different investments, and your 20s is the time for you to take the most risk as an investor, such as focusing your portfolio on stocks.
If it seems daunting for you, you can stick to target date funds, which are the default investment vehicle for most employer-sponsored accounts.

5. Take advantage of your human capital

As someone who’s in their 20s, you have the highest amount of “human capital,” said Williams. Continue educating yourself and refining your skills during your 20s to increase your earnings potential, whether through graduate programs or certifications, Williams said.
“They have all the time. Increasing their earnings potential is one of the best retirement readiness things as well,” he said.
Boosting your income will help you keep up with your short-term goals while bulking your retirement savings.
Make yourself more marketable now in your 20s; that’s really going to pay on in your 40s and 50s, he added.

6. Get and stay out of debt

If most of your income is funneled into debt repayment, you might fall behind on saving for retirement. Therefore, the best thing you can do for yourself in your 20s is to stay out of debt, especially from credit cards, said Daigle.
“It’s so much easier to get started on the other things if you’re not starting in a hole,” she said.
However, if you do have debt, pay extra toward the highest-interest loan when you can, and make the minimum payment on the rest, said Williams.
If you have student loans, make sure you are in a repayment plan that works the best for you and don’t make extra payments until you bulked your emergency savings, experts say.
To keep out of debt, credit cards should be paid off in full, as those are likely to have higher interest rates.
“If you let your credit cards get out of hand from living beyond your means, that’s the No. 1 problem,” said Williams.

7. Live within your means

It’s important to understand where your money is going and get a handle on your budget, experts say, that way you can allocate a sustainable amount of your income for retirement.
Would-be investors in their 20s often put off saving for retirement for later on in their lives or when they become higher earners. This idea tends to fall through as “lifestyle creep” takes over.
Social media comparisons also don’t help adults in their 20s. Nearly 2 in 3, or 73%, of Gen Zers say social media makes them feel they’re tracking behind their life goals while peers seem to be succeeding, the Prosperity Index Study by Intuit found.
Don’t be influenced by what you see on social media apps such as Instagram, said Williams.
If you need to say no to certain things because you cannot afford it, say no.
“Laying the groundwork in your 20s is wonderful so that in your 30s, you can really turbocharge your financial goals,” Daigle said.Don’t miss these stories from CNBC PRO: More

GameStop announced Wednesday that company cash can now be used to buy equities instead of just short-term debt, and that Cohen is in charge of the investments.
Cohen became CEO in September after significant turnover among GameStop executives.
Shares of GameStop closed at $14.84 per share on Wednesday.

A GameStop store in a strip mall in Chicago on March 16, 2023.
Scott Olson | Getty Images

Struggling retailer GameStop is giving its CEO and chair Ryan Cohen even more control, including the ability to use company cash to buy other stocks.
In its quarterly report released Wednesday night, GameStop announced two changes to its corporate investment plan: company cash can now be used to buy equities instead of just short-term debt, and that Cohen is in charge of the investments.

“Mr. Cohen directs the investment activity of the Company in public and private markets pursuant to authority granted by the Board of Directors. Depending on certain market conditions and various risk factors, Mr. Cohen, in his personal capacity or through affiliated investment vehicles, may at times invest in the same companies in which the Company invests,” the filing said.
“Such investments align the interests of the Company with the interests of related parties because it places the personal resources of Mr. Cohen at risk in substantially the same manner as the Company in connection with investment decisions made on behalf of the Company,” the filing continued.
The company did not hold a quarterly conference call with Wall Street analysts, but Wedbush’s Michael Pachter called the decision “inane” and “alarming.”
“Investors have a myriad of investment vehicles available to them and therefore do not need GameStop to act as a mutual fund. If GameStop truly believes in the value of its shares, it should use its excess cash to buy back stock,” Pachter said in a note to clients.
The change comes as Cohen’s attempted turnaround at GameStop is floundering.

The company reported net sales of $1.08 billion for the quarter ending Oct. 28, down 9% year over year and off 25% since the same period in 2019. The company’s net loss did shrink year over year, but that was largely due to aggressive cost cuts, including closing stores in Europe.
Cohen, the co-founder of Chewy, bought shares in GameStop in 2020 and joined the board in 2021 as GameStop became one of the key stocks in the WallStreetBets meme trading phenomenon. Cohen’s e-commerce experience fueled hopes that he could help modernize the brick-and-mortar video game retailer.
But the company never released a detailed turnaround plan and has churned through executives. GameStop fired CEO Matthew Furlong in June, and the company’s chief financial officer resigned shortly thereafter. Cohen was appointed to the CEO role in September.
Shares of GameStop closed at $14.84 per share on Wednesday, down more than 80% from their meme-trade high in January 2021. The stock rose 10% Thursday.

Stock chart icon

GameStop’s stock is well below its meme stock era highs.

Cohen’s status as a celebrity investor for the retail trader crowd has extended beyond GameStop, most notably trading in and out of Bed Bath & Beyond. That retailer filed for bankruptcy protection in April.
Cohen’s RC Ventures still owns 12% of GameStop, making him the company’s largest shareholder, according to FactSet.Don’t miss these stories from CNBC PRO: More

Raising the Social Security retirement age was recently suggested at a Republican presidential candidates’ debate.
The retirement age has been raised before. In 1983, the full retirement age went from 65 to 67.
Experts say other adjustments may help beneficiaries wait, and therefore increase their income in retirement.

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There’s renewed focus on the Social Security retirement age, thanks to recent Republican presidential debates.
The Social Security board of trustees projects the program’s combined funds will run out in 2034, when just 80% of benefits may be payable. To prevent that, lawmakers may generally raise taxes, cut benefits or a combination of both.

One possible change — raising the retirement age — was debated when the Republican presidential candidates took the stage in November.
“What we need to do is keep our promises,” Republican presidential candidate Nikki Haley said. “Those who have been promised, should keep it. But for my kids in their 20s, you go and say we are going to change the rules, change the retirement age for them.”
The retirement age has been raised before. In 1983, when Social Security faced similar solvency issues, legislation was passed that made a host of changes, including boosting the full retirement age from 65 to 67. That change is still getting phased in today.
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Full retirement age is when beneficiaries may receive 100% of the benefits they have earned. Those who claim earlier than full retirement age will have their monthly checks permanently reduced.

Those who wait — up until age 70 — stand to receive up to an 8% boost for every year they wait past full retirement age.
“The difference between an age 62 benefit and an age 70 benefit is about a 77% increase,” said Jason Fichtner, chief economist at the Bipartisan Policy Center. “That’s huge.”
If the retirement age is raised again, that may make it so early claimants face a steeper cut.
Despite the benefits of waiting until age 70, almost 90% of today’s retirees claim earlier.
“For the vast majority of people, waiting longer to collect Social Security is your best financial deal, your best investment option,” said Teresa Ghilarducci, professor of economics at The New School for Social Research.
Experts say there are changes that may encourage beneficiaries to wait.

1.  Draw from other funds while delaying Social Security

Financial experts already recommend using other income sources, if possible, while waiting to claim Social Security benefits.
New research argues more can be done to encourage workers to rely on funds from retirement accounts such as 401(k) plans or individual retirement accounts — dubbed a Social Security bridge option — before claiming retirement benefits, according to the Schwartz Center for Economic Policy Analysis at The New School.
If a worker relies on their own savings until age 70, they may be able to boost their Social Security benefits by $1,000 a month from age 62, for a total of $2,480 per month, according to the research. But even waiting slightly longer, until age 63, for example, may result in benefits that are $100 higher per month.
The Social Security bridge option would be ideal for workers who have retirement accounts or extra income they may set aside. However, other policies would be needed to help those without retirement savings, according to the Schwartz Center for Economic Policy Analysis.

Employer-sponsored retirement accounts could incorporate bridge payment plans that would distribute payments as long as the funds last or until a retiree turns 70, according to the Schwartz Center for Economic Policy Analysis. Alternatively, a separate account for bridging may be established by the Social Security Administration.
“Once they do the hard work of accumulating money in their retirement account, there really needs to be an easy, straightforward way for them to decumulate in the way that people want,” Ghilarducci said.
“People want lifelong guaranteed income,” she said.

2.  Make bridge annuities more accessible

When it comes to Social Security, even just waiting a year to three years longer — to age 63, 64, or 65 — can make a big difference, according to economist Fichtner.
To cover income needed while a beneficiary delays their monthly checks, a bridge annuity may help, said Fichtner, who also serves as a senior fellow at the Alliance for Lifetime Income, an educational organization focused on raising awareness of annuities in retirement.
Annuities are financial products that provide a guaranteed stream of income. However, they require consumers to part with a lump sum of money.
But the trade-off may be worthwhile, according to Fichtner, particularly if it lets a retiree access the guaranteed growth delaying Social Security benefits provides.
Consumers who want to pursue this strategy should consult with a financial advisor. Annuity options may also become available within 401(k) or 403(b) retirement plans. However, less than 10% of plans currently offer annuities, according to the Bipartisan Policy Center.
Annuitizing isn’t for everyone, Fichtner noted, especially those who don’t have access to employer-sponsored plans or who don’t have meaningful savings.

3.  Establish a Social Security bridge benefit

Some workers who have physically demanding jobs cannot wait until full retirement age to claim Social Security benefits.
The creation of a bridge benefit, which would start at age 62 and last until full retirement age, may help cushion the cut they may otherwise take to their monthly income, suggested a recent task force report from the National Academy of Social Insurance.
Workers would be able to apply for the bridge benefit based on a history of having physically demanding jobs. The requirements to obtain the benefit would be most stringent at age 62, while this would gradually ease up to full retirement age.
The bridge benefit would provide half the difference between what a worker would receive at full retirement age and their reduced age 62 benefit. For example, if someone is eligible for $1,000 per month in Social Security benefits at full retirement age, and a $700 reduced benefit at age 62, the bridge benefit may raise their income to $850 at 62.
The change would cut the early claiming penalty in half, members of the task force noted during a November presentation of the report. Other countries have implemented similar benefits.

4. Provide more generous minimum benefits

Social Security provides a special minimum benefit to replace more income for workers who have had low earnings for many years.
Yet over time, the value of those special minimum benefits has diminished. While regular Social Security benefits are linked to wages, the special minimum benefit is tied to prices. As wages have grown faster than prices, today’s minimum benefit has become “gradually irrelevant,” according to the Schwartz Center for Economic Policy Analysis.
The special minimum benefit may be improved by raising the benefit levels, re-indexing them or changing eligibility rules, the research suggests.
Creating a strong minimum benefit should coincide with any increases to the retirement age, Fichtner said, to prevent claimants who have no choice but to take retirement benefits at 62 from facing deeper benefit cuts. More

ETF Strategist

For a couple of years, stocks have largely had an inverse relationship with economic data. The better the numbers, the worse the market has performed.
It may take a while for good news to become good again.

Taiwanese woman walking down the city street with umbrella and coffee on a rainy day
Mixetto | E+ | Getty Images

For a couple of years, stocks have largely had an inverse relationship with economic data. The better the numbers have been — whether weekly jobless claims, consumer sentiment or housing starts — the worse the market has performed and vice versa.
The phenomenon showed up last month when manufacturing, services and employment data all undershot expectations within days of one another. That batch of bad news caused bond yields to plummet, and stocks responded by notching their longest winning streak in two years.

It all begs the question: When does good news become good again and bad news bad?
The short answer is that it may take a while.

Markets may cheer ‘slow trickle of slightly bad news’

Indeed, inflation remains elevated, and while there’s been speculation about when the Fed will pivot, most policymakers are committed, at least publicly, to keeping rates “higher for longer.”
Therefore, markets are likely to welcome a slow trickle of slightly bad news in the weeks to come. That will prevent the Fed from hiking rates further, likely prompting additional declines in bond yields, allowing stocks to continue to rally, with utilities and other bond proxies potentially doing well. The same goes for defensive groups like consumer staples and healthcare companies. 

More from ETF Strategist

Here’s a look at other stories offering insight on ETFs for investors.

Nevertheless, bond yields getting too low is a problem because that would mean that the economic data is beginning to suggest that difficult-to-resolve challenges are right around the corner. All of this helps to explain why it’s tough to distinguish between a healthy slowdown (i.e., soft landing) and the initial stages of a recession — and why the next few job reports will be so significant.

The economy added about 150,000 jobs in October, a profound slowdown over the previous month. Nonetheless, investors cheered the report, believing it gave the Fed the ammunition it needed to hold off on further rate increases.

ETFs, small caps can offer buying opportunities

A more meaningful slowdown in new jobs over the coming months — 50,000 or below — would likely flip the bad-news-is-good-news script. Deep cyclical stocks that pay generous dividends would be attractive in such a scenario. But so would small caps.
In 2023, small, publicly listed companies have greatly underperformed, with the Russell 2000 lagging the S&P 500 by 13% year to date. The fact that small companies have struggled this year relative to the rest of the market is hardly surprising.  

Such firms tend to rely on floating-rate debt more than their larger peers, so their margins shrink when Fed policy is more restrictive. Complicating matters further are rising labor costs.
If the job market took a turn for the worse, many small caps — especially cyclically sensitive ones — would crater, eventually creating an attractive buying opportunity. The key would be to move before policymakers do because the market will have already reacted by the time the Fed officially pivots.  
The problem with small caps, however, is volatility: The ups and downs of smaller companies are more frequent and pronounced. That’s why it isn’t easy to feel good about taking individual positions in this segment of the market.
The alternative is to gain exposure via exchange-traded funds. One option is the iShares Russell 2000 ETF (IWM). Another fund that may underperform during a slowdown or recession but jump during the early stages of a recovery is the iShares Russell Mid-Cap Value ETF (IWS). 

Today’s bad-news-is-good-news dynamic might seem unique, but it isn’t. As with most things with the markets, it’s cyclical.
The good news is that a soft landing can happen if core inflation continues to trend toward the Fed’s 2% target and payroll growth remains positive. Yet those are far from sure things.
Indeed, if job creation comes to a screeching halt instead, look for small caps and deep cyclicals to suffer losses. At the same time, they could lead the markets higher during the initial bounce back. 
— Andrew Graham, founder and managing partner of Jackson Square Capital More