Last Week’s Question of the Week: If you are not yet full retirement age in 2020, and you are drawing Social Security benefits, what is the income limit you can earn, before your Social Security benefit will be affected? Is it $25,000 or $18,240?
HOST: I know when people are talking about their finances, the conversations start revolving around the word guarantee. Can you discuss what guarantees people can look for or expect with regards to money that people are saving, or investing?
KLAAS FINANCIAL: Yes, everyone wants the same thing, they want the greatest return and basically no risk. And yes, everyone loves the word guarantee. So, we thought this was a great program to start talking about what types of guarantees are available for your money in banks, credit unions and investments.
Beginning with FDIC guarantees, what does this mean? What is the FDIC?
- The FDIC (Federal Deposit Insurance Corporation) is an independent agency of the United States government that protects you against the loss of your insured deposits if an FDIC-insured bank or savings association fails. FDIC insurance is backed by the full faith and credit of the United States government.
- The FDIC was created in 1933 in response to the thousands of bank failures that occurred in the 1920s and early 1930s. Since the start of FDIC insurance on January 1, 1934, no depositor has lost a single cent of insured funds because of a failure.
- FDIC deposit insurance covers the depositors of a failed FDIC-insured depository institution dollar-for-dollar, principal plus any interest accrued or due to the depositor, through the date of default, up to at least $250,000. Prior to 2008, FDIC coverage was at $100,000 per depositor, but was permanently changed to $250,000 in 2010.
- Depositors do not need to apply for FDIC insurance. Coverage is automatic whenever a deposit account is opened at an FDIC-insured bank. If you want your funds insured by the FDIC, simply make sure you are placing your funds in a deposit account at an FDIC-insured bank and that your deposit does not exceed the insurance limit for that ownership category.
- To determine if a bank is FDIC-insured, you can ask a bank representative, look for the FDIC sign at your bank, or call the FDIC at 877-275-3342.
HOST: What if I keep money in a Credit Union versus a bank? Any guarantees there?
KLAAS FINANCIAL: Actually, many of them do offer a guarantee. The National Credit Union Share Insurance Fund is the federal fund created by Congress in 1970 to insure members’ deposits in federally-insured credit unions. It is administered by the National Credit Union Administration (NCUA), and provides members with at least $250,000 of insurance at a federally-insured credit union. The Share Insurance Fund is backed by the full faith and credit of the United States. Credit union members have never lost a penny of insured savings at a federally insured credit union.
Is your credit union a member? Federally-insured credit unions are required to indicate their insured status in their advertising and to display the official NCUSIF insurance sign in their offices and branches. For a complete directory of federally-insured credit unions, visit the NCUA’s agency website at ncua.gov.
The $250,000 FDIC and NCUA Share insurance limit applies per depositor, per insured bank, for each ownership category. The ownership category refers to how an individual’s or family’s accounts are titled at the insured bank or savings institution.
It is very important to know that FDIC and NCUA Share insurance does not cover funds held in investments such as stocks, bonds, mutual funds, life insurance policies, annuities or municipal securities, even if they were purchased from an FDIC or NCUA insured bank or savings institution.
HOST: What about protection for my investments? Is that SIPC?
KLAAS FINANCIAL: Yes, SIPC stands for the Securities Investor Protection Corporation which came into being in the late 1960’s.
- Between 1968-1970 there was very high trading volume accompanied by steep declines of stock prices with a lot of broker dealers that had merged or went out of business and could not meet obligations to customers and went bankrupt. Hence, public confidence in the U.S. securities markets was tenuous.
- As a result of those extreme times, Congress passed the Securities Investor Protection Act of 1970 with the purpose to protect customers against certain types of loss resulting from broker dealer failure and to promote investor confidence in the markets.
- Bottom line, if your brokerage firm goes out of business and is a member of the SIPC, then your cash and securities held by the brokerage firm may be protected up to $500,000, including a $250,000 limit for cash. If a SIPC member becomes insolvent, SIPC will ask a court to appoint a trustee to supervise the firm’s liquidation and to process investor claims.
- SIPC covers most types of securities; stocks, bonds, and mutual funds.
- SIPC does not protect you against losses caused by a decline in the market value of your securities, nor does it offer protection from investment contracts not registered with the SEC.
- Since the creation of the SIPC; they have recovered $141 billion in assets for 773,000 investors.
HOST: Sometimes we hear that certain insurance products like annuities are guaranteed. Should we consider having those for a source of guarantees?
KLAAS FINANCIAL: With regards to insurance products such as annuities, we have devoted entire shows on this subject. First of all, to be clear, annuities are not investments, but rather long-term policy contracts between you and an insurance company. They are insurance contracts that can provide guaranteed income over a specified time.
Insurance products can offer “guarantees” but you should completely understand any insurance product or investment that you find yourself considering. In most cases insurance products such as annuities will be charging you for that guarantee in ways such as long surrender periods, penalties, and higher internal charges. Those products that are sold to you are usually providing commissions to the insurance broker that is selling this to you.
HOST: Mike from our Money in Motion Listener Corner asks: “Was there a COVID-related increase in Social Security benefits in 2020?”
KLAAS FINANCIAL: Thanks for the question Mike! As far as we know, there have been no announced changes to Social Security benefits because of COVID-19 and the related stimulus package.
While many Social Security recipients were eligible for a stimulus plan payment as part of the CARES Act that passed in March of 2020, whether they received the full amount ($1200) depended on certain income thresholds: an adjusted gross income of $75,000 for single filers and $150,000 for married filers with no children. The stimulus amount declines above those thresholds and stops completely at $99,000 and $198,000, respectively.
Cost of living increases which came in at 1.6% this year, may subside if we are going through a recession and decreasing inflation into the new year.
This Week’s Question of the Week: In 2020, the FDIC insures a depositor against loss in a bank of up to how much per depositor, per bank, per ownership category? Is it $100,000, or $250,000?