Life expectancy has been rising since the earliest humans walked the Earth. Only in the last 30,000 years or so did the concept of a living grandparent become a reality. People just didn’t live long enough to see their own children give birth. Overall, Americans are enjoying lengthier life spans and improved quality of life. This is largely due to advances in medicine, vaccinations, and nutrition. Your own life expectancy was determined at birth, measured across the population of births in that time period.
Clouding this picture is the increased flow of Fentanyl across our unprotected borders and onto American streets everywhere. This scourge is so powerful, especially coupled with the COVID-19 pandemic, that it is statistically altering American data. Life expectancy is still rising (for all the right reasons), but many individual life spans are falling, due to avoidable deaths at all ages. This alters the average life span in specific age groups. Life expectancy and life span should not be confused. One is collective and the other personal. If you avoid COVID and Fentanyl, your prospect for outliving prior generations is fantastic.
Recognizing the challenges of increased life expectancy, Congress passed the S.E.C.U.R.E. Act (now dubbed “SECURE 1.0”) in 2020. Among other provisions, the Act increased the age for Retirement Account Required Minimum Distributions (RMDs), from the (arcane) 70-1/2 to a more reasonable 72. Increasing the RMD age helped align the law to reality, but recognized only part of actual longevity gains.
Recognizing that SECURE 1.0 was insufficient to reflect reality, several members of Congress are now supporting SECURE 2.0, which would further raise the RMD age. Immediately, the RMD age would go to 73, and every 5 years thereafter, for a decade, the age would be bumped up another year, until attaining age 75 in 2033. Absent any unseen future detrimental effects to our longevity, this protects younger generations from excessive erosion of their retirement savings.
There are many more provisions in SECURE 2.0, including many unknown and some unwelcome, but overall, it appears to be reasonable. Further, various proposals being integrated into a final SECURE 2.0 Bill have been receiving overwhelming majority support in both Houses of Congress.
Passage of SECURE 2.0 is required before the end of the year, or the entire package will need to be renegotiated. No one seems to have any tolerance for delay, and it appears that the final Bill will sail through Congress in 2022. President Biden would not hesitate to sign on to a Bill with nearly unanimous support of Democrats. Look forward to some (mostly) good news in a few weeks.
Van Wie Financial is fee-only. For a reason.
America’s much-maligned Millennial Generation (born between 1981 and 1996) have taken a lot of guff from media, parents, and comedians. Frankly, much of it was earned, as they attended expensive colleges, received some essentially worthless degrees, went heavily into debt, and moved back into their parents’ homes.
Somehow, time heals most wounds, people grow up, and priorities change. So, it seems with Millennials, who have quietly been acting more like their ancestral generations. We welcome the evolution.
When COVID-19 altered the lifestyles of people worldwide, Americans rekindled an interest in agriculture, but on a personal level. Personal food production caught fire and provided some relief for all uncertainties of where our purchased food had been, how it had been grown, and what may have touched the surfaces. Back yard gardens provided not only safe but high-quality food and people everywhere established their own producing plots. Online gardening purchases saw an increase of 100% during the pandemic. COVID-19 alone created almost 18.3 million new gardeners, most of whom were millennials.
At-home gardening has also played a role in mental health. While being cooped up for almost two years, people had to find new ways to fight feelings of isolation, anxiety, and depression. With online therapy helping in a professional sense, gardening gave people a reason to go outside more and socialize at a safe distance.
Inflation’s onset added a new dimension to personal food production, as seeds cost a fraction of store-bought food. Millennials apparently recognized all the benefits, including getting out of their parent’s basements, and into the outdoors. Demand has not slowed with the lessening prominence of COVID. In fact, America’s seed producers are having trouble with their own supply chains. With April 2022 having the largest price increase in Food at Home purchases since April 1979, people are looking for any way to save money on their food.
Today, personal food production has many reasonable and productive options, both for outdoor and indoor (hydroponic and other) production. There are many choices for the start-up gardener, ranging from various levels of involvement in at-home gardening, as well as the ability to rent plots or participate in a community garden in the area. An average home garden costs around $70 dollars and can produce on average $600 worth of food. Indoor systems are a great option for those living in apartments or homes that have very little outdoor space. Gardening supply companies can be relied on for both simple and sophisticated gardens, offering a variety of in-ground or above-ground gardening beds. One of the items perfect for use in Florida is the bug and critter barrier for your produce, as the staple for most gardens, the tomato, is often preyed upon by such creatures.
Welcoming the Millennial Generation to the world of personal agriculture by no means excludes Gen-X or Baby Boomer participants. From a Personal Financial Planning viewpoint, nothing makes more sense than lowering food costs while controlling your own freshness and quality.
Special thanks to our own Megan Todd, a Millennial herself, for her insight and assistance in constructing this week’s Blog.
Van Wie Financial is fee-only. For a reason.
Options for claiming Social Security benefits are as numerous as individual personal financial situations. Explaining all the options is not possible in a single Blog. Today, we look at people who are still earning income, but contemplating filing for Social Security benefits as well.
Simple rules of thumb can assist people in making “now or later” Social Security benefits filing decisions. Certain obscure exceptions exist, but you will not be likely to encounter any that apply to you. Most importantly, filing early results in a permanent reduction of monthly benefits. Filing decisions should be predicated on a participant’s age and financial situation, and with a serious eye to the future.
Full Retirement Age (FRA), also called Normal Retirement Age (NRA), is a moving target, based on year of birth, but every individual only has one. Delayed filing can take place any time after reaching FRA, up to age 70, whereafter no further benefit increase can be realized by further postponements. Early filing is available beginning on an individual’s 62nd birthday, and then may be executed any time up to FRA.
FRA filing means you will receive your original targeted monthly benefit payment for life, along with accumulated Cost-of-Living Adjustments (COLAs). Delayed filing produces a larger monthly benefit for life, up to age 70, at which time the individual’s maximum monthly payment is reached.
Most people have heard that Social Security will reduce monthly payments for people who are working while collecting. This is true, but must be clearly understood. Prior to FRA, Social Security benefits will be reduced by $1 for every $2 or $3 earned over certain thresholds, depending on proximity to FRA. These reduced benefits are not lost, as they are actuarily applied to future benefits. Beginning at FRA, no earnings-based reductions apply.
Annual benefits reductions are applied to payments “up front.” No monthly payment will be received until the entire annual reduction is covered, at which time regular monthly payments complete the year.
As with any complex financial decision, advance planning is critical to an optimal outcome. Unlike most decisions, however, there is one chance to execute a do-over. At any time during the first year of receiving benefits, a participant is allowed to pay back 100% of the money received, cancel the filing completely, and start over with a clean slate. All future benefits will be increased as if a later filing had been chosen.
Van Wie Financial routinely assists clients with Social Security filing decisions as part of their overall financial plan.
Van Wie Financial is fee-only. For a reason.
Adam was recently featured on Stan The Annuity Man’s podcast!
Click the link above to check it out!
For the past several months, we have watched gasoline prices rise by a few cents each week, with each recent new price eclipsing all-time records. Most of us are downright angry, but Washington, D.C. policymakers don’t seem to hear us, or don’t care. Instead, the Administration repeatedly tells us how good we are feeling, how economically sound we are, and that it is really just Putin causing rampant inflation in our food and energy costs. This reeks of a classic gaslighting scheme.
Lies and excuses are thrown at us daily, presented in a tone that seems intended to make us sympathetic to our hapless “leaders.” We’re not buying it. This week, in a blue-checked Tweet, President Biden claimed, “At the time I took office about 16 months ago, the economy had stalled and COVID was out of control. Today, thanks to the economic plan and the vaccination plan that my Administration put into action, America has achieved the most robust recovery in modern history.” Consider the change in your own financial situations since 2021. Although 2022 is not even half over, public sentiment is crashing on a daily basis, directly opposite of the rise in gas and food prices.
Positive outlooks are not all we are asked to believe. Among other concepts we are supposed to accept are certain untenable premises, including:
- Banning assault weapons is necessary to stopping school shootings,
- Illegal border crossing should not be a criminal offense,
- Masks should continue to be worn on public transportation and elsewhere,
- Job creation is the most robust in history,
- Spending capacious amounts of fiat money will reduce inflation, and
- Men can get pregnant and have babies.
While never a huge fan of TV’s Judge Judy, I do think she has a way of being direct with people who often don’t understand anything else. Her 1997 book was called, “Don’t Pee on My Leg and Tell Me It’s Raining.” That sure sounds and feels like a gaslighting situation.
As to the future of inflation and gasoline prices, who would you believe; an inept and out of touch President, Vice President, and Cabinet, or such experienced and proven leaders in the fields of economics, energy, and manufacturing, like Larry Kudlow, Stephen Moore, Rick Perry, Elon Musk, and countless others? These people understand that our current crisis is one of our own making and that we could fix it quickly. Unfortunately, it will require sweeping political change.
Since the November election is still 5 months off, and apparently no policy change is expected before that, I am offering all challengers a quick and easy campaign platform. Two mantras for November, assuming Republicans are smart enough to adopt them (a somewhat dubious proposition), should be, “Drill, Baby, Drill” and “Build That Wall.” Both were proven successful a mere few months ago, when Americans actually were feeling financially comfortable and optimistic. Politicians ignore us at their own political peril. That low rumble we hear the awakening of the Sleeping Giant.
Van Wie Financial is fee-only. For a reason.
Recently, on economist Larry Kudlow’s popular Fox Business Channel TV program, he referred to a government bond that would yield nearly 10%. That rate is an eye-opener in these days of low-interest rates. He was referring to U.S. Government Series I Savings Bonds, or simply I-Bonds, in which the I stands for inflation protection. With a recent surge in actual and reported inflation, I-Bonds have logically been receiving increasing attention.
I-Bonds pay interest in two ways. First is the fixed interest portion, which has been pegged at 0.00% for some time. This has been a disincentive for income investors of any age. The second interest payment is variable and changes with inflation. Only recently has the inflation protection rate been raised high enough to rekindle interest among buyers. For the 6-month period that began May 1, 2022, I-Bonds’ variable interest portion is set at 4.81% for 6 months. Should that rate stay steady through the November 1, 2022, adjustment, the annual payout rate would be 9.62%.
I-Bonds can be purchased in paper form, electronic format, or a combination of both. These purchases are generally made through an account set up by the investor at the government website treasurydirect.gov. Also available is an option to purchase I-Bonds with income tax refunds, up to a $5.000 limit per person per year. These I-Bonds can be purchased in any amount up to that limit.
Logically, above-market interest rates carry some restrictions, and I-Bonds pose no exception. The most obvious is the variable-rate adjustment every 6 months, which could drastically reduce payouts when inflation subsides, and the variable portion is lowered. Next is the holding period, as the minimum hold is one year. Between 1 and 5 years of ownership, the penalty for selling is forfeiture of 3 months of interest. After 5 years, I-Bonds may be sold back to the Treasury without penalty, but all interest paid or credited during the holding period will be taxable immediately.
Favorability of I-Bonds to any individual is dependent on actual circumstances and their personal inflation outlook. In the short term, current rates are very attractive. Should inflation rates return to low levels of recent years, I-Bonds yields will fall dramatically.
Alternatively, Treasury Inflation-Protected Bonds (TIPS) may also be purchased by individuals, and annual limits are very high. TIPS are marketable and can be bought and sold at will. While current TIPS also carry a fixed interest rate of 0.00%, inflation adjustments are applied monthly to their principal value, thereby adjusting the market price for inflation. Ask your financial advisor for a further explanation.
Van Wie Financial is fee-only. For a reason.
Americans are concerned about their futures, far more so than any time in the past several years. Much of today’s economic environment reminds me of the 1970s, and if there is any period of my life that I do not care to revisit, it would be the Richard Nixon through Jimmy Carter era. In far too many respects, today’s America evokes bad memories from that period.
Ronald Reagan summed it up better than I ever could when he made this memorable observation; “Recession is when your neighbor loses his job. Depression is when you lose yours. And Recovery is when Jimmy Carter loses his.” Food for thought, to be sure, as today’s similarities are uncanny.
Recessions were prevalent in the 1970s and 1980s. The Oil Embargo of 1973 (thanks, OPEC) began the longest slump, which ran from November 1973 to March 1975. It was exacerbated by Richard Nixon’s Wage and Price Controls, from which emanated the pejorative term stagflation (rising prices without economic growth).
1980 brought another, albeit short, recession, from January to July. This one was triggered by the Iranian Revolution, which Carter bungled badly. Things went from bad to worse in July of 1981, when the so-called “Double Dip Recession” launched an era of prolonged contraction. This long economic downturn ended thanks to Reagan’s conservative economic policies. Unfortunately, Congress delayed the implementation of Reagan’s policies, extending the misery for many months.
Recessions occur naturally every so often in a large and complex economy. Despite efforts by the Federal Reserve (FED) to keep our economy on a growth path, and contrary to Bill Clinton’s claim that he repealed the business cycle, ups and downs are inevitable. It remains the responsibility of elected officials to react by implementing policy changes as needed to limit the depth and duration of bad economic times. Today, that is NOT happening.
Most of us were caught off guard when the First Quarter of 2022 GDP growth was reported as negative. Few of the classic signs of recession were evident, despite supply chain problems and accelerating inflation. But, the accepted definition of a recession is negative GDP growth for two consecutive calendar quarters. Will Q2 of 2022 produce a second negative number and confirm a recession? Does it really matter?
Whatever we call this period, when we look back at record gas prices, falling real wages, and general unrest, it will matter very little in the history books. All we know, and all we need to know, is that Americans are frustrated and angry. This will doubtless be reflected at the polls in November. Recession or not.
Van Wie Financial is fee-only. For a reason.
Any and all personal beliefs aside, the U.S. has arrived at a time and place wherein Social Security’s viability is financially threatened. So far, all proposals to address the System’s financial problems have been met with the coldest of Congressional shoulders.
Social Security is predicated on an ever-increasing number of young workers shoring up a growing population of benefit recipients. This “Ponzi-like” design has worked for decades, but the corner has been turned. Demographics are now working against us, and Congress, in its infinite wisdom, squandered the “Social Security Trust Fund” that, by design, had accumulated over many successful years.
Those halcyon days are gone, at least for now, and Social Security faces the real possibility of not being able to pay all promised benefits to future participants. Clearly, something must be done. Proposals abound, but none have been able to demonstrate viability, neither financially nor politically.
To make matters worse, COVID-19 and its variants reduced overall employment at a time when 10,000+ Baby Boomers daily were filing for eligible benefits. The strain on the financial system is obvious, and in certain circles that is raising concerns.
Easy and obvious methods of salvaging the failing system include reducing future benefits and/or raising Payroll Taxes. Unfortunately, no elected official will seriously entertain either option, as unpopular proposals are politically suicidal.
Perhaps acceptable to participants and elected officials would be to postpone payment of benefits to a later age, similar to what the Reagan Administration did in the 1980s. It was well-planned, took years to phase in, and added many years to the viability of Social Security. Unfortunately, it did not solve the problem on a long-term basis, as modern medicine simultaneously kept raising life expectancies.
There are other inherent problems. Notable is the current inflationary environment, which induced a Cost of Living (COLA) benefit increase for 2022 of 5.9%. For 2023, the projected COLA is currently 8.6%, adding insult to injury for the System. The actual 2023 increase will be announced in October, but regardless of the final number, wages (hence, Payroll Taxes) will rise more slowly than benefit payouts.
Certain members of Congress have recognized that older Americans are being squeezed by escalating Medicare costs, taxes, and our everyday cost of living. Congressman Bill Posey (R-IL) has introduced a bill dubbed “Senior Citizens Inflation Relief Act,” which would allow recipients to earn more income before incurring a reduction in monthly Social Security benefits. This applies to recipients who have not yet attained their Full Retirement Age, or FRA.
One does not need a degree in economics to understand that helping a particular group of Social Security recipients, while simultaneously doing nothing about increasing funding for the System in general, does very little to preserve future benefits for all. That said, we support Congressman Posey in his efforts to provide some relief for older working adults.
What will Congress do? Stay tuned.
Van Wie Financial is fee-only. For a reason.
Elon Musk is a one-man entertainment bonanza, and the pursuit of Twitter is keeping his legend alive. Despite stiff headwinds from some of the company’s Board of Directors, owners, and employees, Musk charged ahead, all the while sporting his trademark, “I know something you don’t know,” grin. According to recent news, Musk has succeeded in his negotiations. The deal has yet to close, but the components are in place.
Confusion and mystery surround “Big Business” and “Big Finance.” In today’s world, it doesn’t get much bigger than Elon Musk, who has attained the coveted title of “world’s richest person.” The usual whiners decry people like Musk as bullies and oligarchs, able to say and do “anything they want.” This is, of course, ridiculous.
Private companies are generally owned by one or more founders, officers, or investor groups. No shares are publicly available for purchase or sale. Public companies have some ownership (shares of stock) listed on exchanges, where shares are bought and sold (“traded”) electronically.
There are benefits to each form of ownership, and ownership forms are changeable. Public companies may go private when an individual or group buys up sufficient shares from public shareholders. Private companies may go public through an IPO, or Initial Public Offering. In fact, Musk recently announced his intention to take Twitter public about 4 years after taking it private.
Many false perceptions exist in the public and the media. One that is heard everywhere in the media, claims that “XYZ is a private company, so they can do whatever they want.” No, they can’t!
It is true that private company owners have far more control and flexibility than do their public counterparts. However, every company is subject to rules and regulations, including Federal and State Wage and Hour laws, environmental laws, and the grandaddy of all, “fiduciary responsibility.”
What is a fiduciary? Simply stated (thanks to Investopedia.com), “a fiduciary is a person or organization that acts on behalf of another person or persons, putting their clients’ interests ahead of their own.” Fiduciaries can be involved in finance, money management, financial advising, banking, insurance, or accounting, plus serving as executors, board members, and corporate officers.
Now that Twitter will be a private, closely held corporation, Musk will have a far greater amount of control, along with vastly reduced reporting requirements. However, he most certainly cannot do “whatever he wants.”
Love him, hate him, respect him, or disdain him, Elon Muck is an American original (he was born a citizen of both South Africa and Canada, and was naturalized as an American citizen in 2002). And we haven’t even discussed his major accomplishments in technology, space, electric vehicles, and other ventures he has promoted.
Further, we already mentioned that, while doing good work, he has made himself the world’s richest man. Isn’t capitalism grand?
Van Wie Financial is fee-only. For a reason.
Back in 2019, we reported on a spreading phenomenon known as F.I.R.E., an acronym for “Financial Independence, Retire Early.” According to the “movement,” making certain current lifestyle adjustments would allow young workers to retire at age 40 and live happily ever after. Our comments at that time were very skeptical, as the idea seemed to have little redeeming social or practical value. Looking back, it appears that our comments were both timely and spot-on. Since then, the “movement” has been perpetuated.
Naturally, the emphasis for F.I.R.E. believers is on saving more money than they do now. That means cutting back on almost every aspect of lifestyle, including, if necessary, living in their parents’ basements. Cutting out, or at least reducing, Starbucks and certain other luxury items, makes sense (for everyone), but it won’t add up to retirement at 40. Maxing out 401(k) contributions is a great idea, but compounding investments requires decades to create real wealth.
Unless the young F.I.R.E. follower is an. Unusually high earner, such as certain physicians and attorneys, etc., making ends meet is enough of a challenge without having to save 80% of income. Many highly trained professionals also graduate with substantial student debt. Also, they contribute to society through developing and practicing skills. Most derive great satisfaction from their careers.
But all that is paltry compared to the inevitable conclusion from F.I.R.E. gurus that critical to the early retirement plan is earning extra money. “Do something you love,” they say, “write books, do whatever it takes to provide income.” In a word, “Work.” So, the secret to retiring is to work. Who knew?
We should mention health care, health insurance, Medicare, and Social Security, as well. Those require years of contributions in order to provide useful future benefits. Retiring prior to vesting, or missing the largest contribution years, will curtail the availability and value of later benefits.
Our bottom line is that taking shortcuts in life frequently results in disaster. Retiring at an age when most people have a very limited understanding of the world is a formula for failure. Are those braggarts who tout their own success stories doing something for mankind? Or, do you think that, just maybe, they are selling their books for a profit?
Some of the more recent F.I.R.E. supporters are actually raising the targeted age to 50, or even 59. While perhaps not totally practical, at least a planning case could be made for the possibility of success at those ages.
Van Wie Financial is fee-only. For a reason.