The 2013 budget is already going to have the biggest impact of any budget in decades even if no action is taken in Washington. The fiscal headwind comprised of both tax increases and spending cuts under current policy totals over $500 billion, or 3.5% of GDP.

The 2013 budget changes, primarily consisting of tax increases, are already in the law and would need to be changed to mitigate or restructure them to be less of an economic drag; if not a return to recession may be looming in 2013.

While the United States economy is not likely to see the big declines in government spending that came after WWI and WWII, the United States has never experienced a deficit cut by more than 2% of GDP that did not end in a sharp decline in GDP. The last time the budget deficit was cut by a similar amount to the 3.5% on tap for 2013, it was 1969. In 1969, the deficit narrowed by 3.1% during the year, and GDP ended up shrinking -1.9% in the fourth quarter (and by -0.6% in the following quarter) as the U.S. entered a recession. Despite the recession, the efforts to narrow the deficit in 1969 had one pleasant outcome: they balanced the budget. Unfortunately, the budget changes on tap for 2013 will still leave the federal budget far from balanced.

The further apart the parties in Washington appear to be, even on extending the unemployment and payroll tax cuts that expire this month, may make investors increasingly nervous. This may result in the return of market volatility in February after stocks got off to a strong start to the year.

While the President’s budget is unlikely to get much attention in Congress, the markets may begin to price in a major budget deal taking place in early 2013 for several reasons:

the economic impact of the many scheduled tax increases and spending cuts,

- The debt ceiling will be hit again in early 2013 and require legislative action to approve an increase,

- The rating agencies have warned that they will be watching in 2013 for the United States to take actions to return to a path of fiscal sustainability, and

- The President and a newly elected Congress will have maximum political capital to make it happen in early 2013.

But the risk that a budget deal does not eventually happen should keep markets from moving steadily higher in 2012, as they have done year-to-date, without a reality check. With Congress now back in session and the President’s budget due on February 13, just a week away, the markets may begin to refocus on the risks to the economy posed by inaction in Washington leading to a return of volatility.

IMPORTANT DISCLOSURES

The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

This research material has been prepared by LPL Financial.

The LPL Financial family of affiliated companies includes LPL Financial and UVEST Financial Services Group, Inc., each of which is a member of FINRA/SIPC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial is not an affiliate of and makes no representation with respect to such entity.

Tracking #1-043464 | Exp. 2/13

News Release SOCIAL SECURITY SSA Press Office 440 Altmeyer Building 6401 Security Blvd. Baltimore, MD 21235 410-965-8904 FAX 410-966-9973

The Social Security Board of Trustees today released its annual report on the financial health of the Social Security Trust Funds. The combined assets of the Old-Age and Survivors Insurance, and Disability Insurance (OASDI) Trust Funds will be exhausted in 2036, one year sooner than projected last year. The DI Trust Fund, while unchanged from last year, will be exhausted in 2018 and legislative action will be needed soon. At a minimum, a reallocation of the payroll tax rate between OASI and DI would be necessary, as was done in 1994. The Trustees also project that OASDI program costs will exceed non-interest income in 2011 and will remain higher throughout the remainder of the 75-year period. In the 2011 Annual Report to Congress, the Trustees announced:

• The projected point at which the combined Trust Funds will be exhausted comes in 2036 – one year sooner than projected last year. At that time, there will be sufficient non-interest income coming in to pay about 77 percent of scheduled benefits.

• The point at which non-interest income fell below program costs was 2010. Program costs are projected to exceed non-interest income throughout the remainder of the 75-year period.

• The projected actuarial deficit over the 75-year long-range period is 2.22 percent of taxable payroll — 0.30 percentage point larger than in last year’s report.

• Over the 75-year period, the Trust Funds would require additional revenue equivalent to $6.5 trillion in present value dollars to pay all scheduled benefits.

“The current Trustees Report again reflects what we have long known to be true – we need changes to ensure the long-term solvency of Social Security and to restore younger workers’ confidence in the program,” said Michael J. Astrue, Commissioner of Social Security. “The report also highlights the more near-term shortfall in the Disability Insurance Trust Fund. Our disability programs are complex, and there is a long history of well intended ‘reforms’ causing unintended consequences. The President sent to Congress our Work Incentive Simplification Proposal, which would be a good start for bipartisan debate. I urge the House and Senate to review this proposed legislation carefully and schedule hearings this year.”

Other highlights of the Trustees Report include:

• Income including interest to the combined OASDI Trust Funds amounted to $781 billion ($637 billion in net contributions, $24 billion from taxation of benefits, $117 billion in interest, and $2 billion in reimbursements from the General Fund of the Treasury) in 2010.

• Total expenditures from the combined OASDI Trust Funds amounted to $713 billion in 2010.

• The assets of the combined OASDI Trust Funds increased by $69 billion in 2010 to a total of $2.6 trillion.

• During 2010, an estimated 157 million people had earnings covered by Social Security and paid payroll taxes.

• Social Security paid benefits of $702 billion in calendar year 2010. There were about 54 million beneficiaries at the end of the calendar year.

• The cost of $6.5 billion to administer the program in 2010 was a very low 0.9 percent of total expenditures.

• The combined Trust Fund assets earned interest at an effective annual rate of 4.6 percent in 2010.

The Board of Trustees is comprised of six members. Four serve by virtue of their positions with the federal government: Timothy F. Geithner, Secretary of the Treasury and Managing Trustee;

Michael J. Astrue, Commissioner of Social Security; Kathleen Sebelius, Secretary of Health and Human Services; and Hilda L. Solis, Secretary of Labor. The two public trustees are Charles P. Blahous, III and Robert D. Reischauer.

The 2011 Trustees Report will be posted at www.socialsecurity.gov/OACT/TR/2011/ by Friday afternoon.

The result is yet another summer soft spot for the global economy, which like a bruise on an apple is unsightly but does not render the rest of the fruit rotten. For the global economic “apple,” there remain many signals that the recovery from the worst recession since the Great Depression continues. Business and consumer spending remain solid, jobs are being created (albeit at a slow pace), and some companies are in line for record profits by the end of the year.

That said, the global economic “apple” still faces a significant bruise, which happens to be the same pesky soft spot that the markets had to deal with last year—namely Southern Europe, and more specifically, Greece. Saddled with debts that it cannot repay and austerity measures that are not fully embraced, Greece appears headed for a showdown with creditors and a potential default on its loans. The real question is why does the market care so much about Greece? Can Greece really cause enough disruption to halt the global recovery in its tracks? The truth of the matter is that the market does not really care about Greece; it cares about the potential contagion of Greece’s troubles to the rest of the world.

Here is a possible scenario: should Greece not make good on its debt burdens, significant impacts could ripple through the markets. Investors in Greek bonds, which are largely other banks and financial institutions, would lose significant money on their investments. More importantly, the default could cause banks to not trust other borrowers. These banks could be “once bitten, twice shy”, which would create a reduction in global lending and worst case, a freeze-up of capital markets.

While these outcomes are certainly possible, it is a huge stretch for the market to be making comparisons of Greece to Lehman Brothers, which was the “poster child” for the financial crisis that resulted in the Great Recession of 2008-2009. Greece is not new news and investors, particularly the banks that own Greek debt, have taken great steps over the last year to mitigate the potential negative effects of that ownership. More importantly, Greece and Lehman Brothers are as different as is cause and effect. Lehman and its huge bets on sub-prime housing debt was a cause of the financial crisis. Greece’s poor fiscal management, on the other hand, is merely an effect. Stated more appropriately, Greece’s situation is a consequence of what happens when a country has too much debt and not enough growth–one causes a financial crisis (Lehman Brothers), the other is just a by-product of a financial crisis (Greece).

With respect to Greece, the market is being realistic and does not require a solution, but simply a resolution. Greece is not “too big to fail,” but the financial institutions that own the Greek debt are. Once the Greece situation is under control, or at least the market gains comfort that the impact will not result in a contagion that could weaken the global recovery, it is likely that the economic data and corresponding market performance will improve. The collective global efforts to coax a resolution are underway and I anticipate a resolution, maybe not a solution, to be forthcoming in the next few weeks.  In the meantime, current conditions support a cautious stance through this economic soft spot. However, we expect this soft spot to be transitory. As the summer unfolds, we anticipate that investors will realize that the economic growth “apple” is just bruised, not rotten, which will transform volatility and fear into investment opportunities.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult me prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

Stock investing may involve risk including loss of principal.
Past performance is no guarantee of future results.

This research material has been prepared by LPL Financial.

The LPL Financial family of affiliated companies includes LPL Financial and UVEST Financial Services Group, Inc., each of which is a member of FINRA/SIPC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial is not an affiliate of and make no representation with respect to such entity.
Not FDIC or NCUA/NCUSIF Insured | No Bank or Credit Union Guarantee | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit Member FINRA/SIPC
Tracking #740006 | (Exp.05/12)

But what do you do if, after retiring, you realize your calculations were wrong and you can’t manage on your monthly stipend? Or if you realize that the extra cash you would have had in your Social Security check by delaying retirement would help you (and your spouse) live a little more comfortably?

Aside from re-entering the workforce — which could adversely affect your benefits if you are not yet at full retirement age and earn over an annually adjusted income limit — you could instead pay back the money you’ve received from Social Security and either reapply immediately or wait until you are a few years older. Not many people took advantage of this rule in the past. However, its popularity has started to rise after the recent market collapse wiped out billions from retiree investors’ nest eggs. And Social Security responded by changing the rules to allow recent retirees only a 12-month window to change their minds once they file for benefits.

Among the benefits:

You don’t have to pay penalties or interest on the amount you pay back. In fact, in most situations, the money you refund the government can be deducted from your income taxes or taken as a tax credit.You can reapply for a higher payment based on your current age or even delay longer to accrue a higher benefit. A delay until age 70 or older can result in an additional premium above full benefits.

Potential drawbacks:

The money you owe Uncle Sam must be returned in full — there is no installment plan and you can’t pay back only a portion of your benefit.As referenced above, you have just 12 months from the day you originally applied for benefits to request the application withdrawal.Once you file (IRS Form 521, “Request for Withdrawal of Application,” is available at www.irs.gov), your benefits will stop immediately and you’ll have to wait for the IRS to inform you of the total repayment amount due. The process can take months.If your spouse also receives benefits, his or her payments will stop immediately as well.If you and/or your spouse are not in good health, requesting a withdrawal of application could potentially jeopardize your benefits.

Your tax professional and financial planner can help you determine if a repayment scenario would be beneficial to you.
1Source: Social Security Administration, July 2010.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.Stock investing may involve risk including loss of principal.Past performance is no guarantee of future results.This research material has been prepared by LPL Financial. The LPL Financial family of affiliated companies includes LPL Financial and UVEST Financial Services Group, Inc., each of which is a member of FINRA/SIPC.To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial is not an affiliate of and make no representation with respect to such entity.Not FDIC or NCUA/NCUSIF Insured | No Bank or Credit Union Guarantee | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit Member FINRA/SIPCTracking #718427 | (Exp.04/12)