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The Stark Reality of Social Security: Someone Has to Take a Pay Cut

My Comments: As a financial planner focused on retirement, I counsel people about where the money is going to come from when they’re 85 and still have bills to pay. And 85 is simply a symbolic number.

A critical source for most of us is Social Security. And it’s under attack by those we’ve elected to represent us in Congress. These words appeared some 20 months ago and since then the pressure has grown stronger.

We need to take a hard look at those we vote for and make sure we’re not shooting ourselves in the foot.

By Sean Williams Published January 22, 2017

According to the November update from the Social Security Administration, nearly 61 million people are receiving monthly Social Security benefit checks, roughly two-thirds of whom are retired workers. For these retirees, more than 60% rely on their Social Security check to account for at least half of their monthly income. In other words, without Social Security there would likely be widespread poverty among the elderly.

The stark reality of Social Security: Someone’s going to lose

Unfortunately, the program that so many seniors have come to rely on is on the decline, so to speak. Two major demographic shifts — the ongoing retirement of baby boomers and lengthening life expectancies — are expected to turn the program’s cash inflow into an outflow by the year 2020, according to the Social Security Board of Trustees 2016 report. By 2034, it’s estimated that the more than $2.8 trillion currently held in special issue bonds and certificates of indebtedness will have been completely exhausted, at which point an across-the-board cut in benefits of up to 21% may be needed to sustain the program for future generations.

The silver lining throughout Social Security’s imminent decline is that there are a bounty of possible fixes — more than a dozen, to be precise. Some of the Social Security solutions tackle the problem by boosting revenue into the program, while others examine the possibility of cutting benefits in a variety of ways. Thus far, an agreeable solution to fix Social Security has eluded lawmakers on Capitol Hill.

However, there’s a stark reality that these lawmakers, Social Security recipients, and working Americans need to understand: There is no “perfect” fix. If Social Security does have a “best solution,” it’s going to mean that someone has to take a pay cut. In order for the program to serve future generations of retirees, there’s going to have to be some give somewhere. The big question is where it’ll come from.

Should all workers take a pay cut?

One solution that offers a presumed-to-be-bonafide fix is an immediate, across-the-board payroll tax increase on all working Americans. According to the aforementioned Trustees report from 2016, the researchers estimated a 75-year actuarial deficit of 2.66%, down two basis points from the previous year. In English, this means enacting a 2.66% increase in the payroll tax should allow the program to generate enough revenue that no benefit cuts would be needed until the year 2090.

As a refresher, the payroll tax for Social Security is 12.4%, and responsibility for this tax is often split down the middle between you and your employer, 6.2% each. If you’re self-employed, you pay the entire 12.4%. In 2017, the payroll tax applies to every dollar earned between $1 and $127,200. However, wages earned above and beyond $127,200 are free and clear of the payroll tax.

Lifting the payroll tax by 2.66% would mean an aggregate tax of 15.06% on the income of self-employed individuals and a cumulative tax of 7.53% of employees and employers. Workers would have to do with less in their take-home pay, but seniors would more than likely not have to worry about a cut to their Social Security benefits.

Do the rich need to fork over more?

Another solution (and this one is by far the most popular among the public) would be to focus on wealthier Americans and have them pay a larger portion of their income into Social Security. This would be done by tinkering with the payroll tax earnings cap — the aforementioned $127,200 cap at which wages no longer become taxable by the payroll tax.

During her campaign, Hillary Clinton had suggested raising the payroll tax earnings cap to $250,000. By doing so, there would be a payroll tax moratorium on wages between $127,200 and $250,000, but any wages over $250,000 would be subject to the 12.4% tax. The reason lifting the payroll tax earnings cap is so popular is that it would only affect about one in 10 Americans. Since most working Americans are paying into Social Security with every dollar they earn, it would only make sense to most Americans to see the wealthy have to do the same. It would also wind up eliminating a good portion but not all of the budgetary shortfall in Social Security through 2090.

The downside? Other than the fact that the well-to-do would be taking home less income, they also wouldn’t see commensurate benefits from Social Security when they retire, despite paying so much extra into the system.

Do future retirees need to make do with less?

The other side of the equation is to leave the revenue aspect of Social Security alone and tinker with the benefits being paid. Most lawmakers wouldn’t dare suggest reducing the benefits of current retirees, but the idea of adjusting the payouts to future retirees is very much on the table, especially for Republican lawmakers.

The most effective way to reduce benefits for a future generation of retirees without using the words “reduce benefits” would be to raise the full retirement age. Your full retirement age is determined by your birth year (you can find yours with this SSA table), and it marks the age at which the SSA determines you’re eligible to receive 100% of your monthly benefit. File for benefits before reaching your full retirement age, and you’ll take a cut in pay from your full retirement benefit. Wait until after your full retirement age and your benefit will grow beyond 100%.

Raising the full retirement age to 68, 69, or 70 would mean that all brand-new and future retirees would either have to wait longer to receive 100% of their benefit, or they’d have to accept an even bigger reduction in their monthly payout if they claim benefits before reaching their full retirement age. Raising the retirement age could encourage healthy seniors to stay in the workforce longer, thus adding to payroll tax revenue in the process. On the flip side, seniors in poor health or those who can’t get a job could be forced to file for benefits at age 62, taking a big cut in lifetime benefits in the process.

Should current retirees deal with reduced income?

It’s certainly not a popular solution, but cutting benefits for current retirees is another possible answer to fixing Social Security.

One such example was recently touted in the Social Security Reform Act of 2016, introduced by Rep. Sam Johnson (R-Texas), the chairman of the Ways and Means Social Security subcommittee. Among the many fixes offered by Johnson, one involved switching from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to the Chained CPI when it comes to calculating cost-of-living adjustments (COLA).

The difference between the two is that the Chained CPI factors in “substitution,” which is the perception that consumers will trade down to lesser expensive goods and services if the price of another good or service rises too much, while the CPI-W does not. Because the Chained CPI factors in substitution, it grows at a slower pace than the CPI-W. The implication being that going with a Chained CPI will result in lower COLAs for retirees.

Which solution is best is really up to interpretation, but one thing is very clear: If Social Security is going to be fixed for the generations to come, someone is going to take a pay cut.

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3 Myths About Your Social Security Filing Age

My Comments: Social Security benefit payments are critical for millions of Americans. When you apply and the amount of money you are entitled to is a decision fraught with uncertainty.

Since none of know how our life is going to play out, all we can do is develop an understanding of our choices so that we can at least make an informed decision, even if life ultimately throws us a curve ball. Just know that you are going to get about the same amount of money regardless of when you apply.

That’s because payments will end when you die. In the meantime, you can opt for a smaller check for a longer period of time or wait and get a larger check for a shorter period of time.

Know too that if you are the higher earner of the two, and you die first, then you are providing your survivor with more money per month if you wait. There is no real way to know the best answer.

July 30, 2018 by Jim Blankenship, CFP, EA

Figuring out when to claim your Social Security benefits is a tricky question, and people wrestling with the decision often rely on several widely followed rules of thumb. Unfortunately, doing that can potentially lead you astray, because these are generalities, not rules, and they aren’t as clear-cut as you might think.

Let’s take a long, hard look at three “facts” about Social Security filing age and the real math behind them. All three are only true to a point — and as you’re planning your Social Security filing age, you should understand the truth behind these three principles.

First, let’s look at the concept of delaying benefits.

1. You Should Always Delay Your Social Security Filing Age to 70

This one is the easiest to understand why it’s wrong — but the component of truth in it can be important, because it could work in your favor to delay. Of course, an absolute like this is going to be proven incorrect in some circumstances.

Most people know that if you start taking benefits early — as young as age 62 — your Social Security check will be lower than if you had waited until your full retirement age (FRA). And once you pass your FRA, your benefit grows each year beyond that until age 70, when it tops out. So, if you happen to be able to delay your Social Security filing age and you live a long time after age 70, over your lifetime you may receive more from Social Security than if you filed early. However, if you need the cash flow earlier due to lack of other sources of income or expect a shortened life span, filing early may be your only choice.

Filing earlier can provide income earlier, but depending on your circumstances you may be short-changing your family. When you file early, you are permanently reducing the amount of benefit that can be paid based on your earnings record. Your surviving spouse’s benefits will be tied to the amount that you receive when you file, and so if you delay to maximize your own benefit and your spouse survives you, you’re also maximizing the benefit available to him or her. This is assuming that your surviving spouse’s own benefit is something less than your own.

To see how this all works, consider this example. John, who is 62, will have a benefit of $1,500 available to him if he files for Social Security at age 66, his full retirement age. His wife, Sadie, will have a benefit of $500 available at her FRA. If John files at age 62, his benefit would be reduced permanently to $1,125 per month. When John dies, assuming Sadie is at least at FRA at the time, Sadie’s benefit would be stepped up to $1,237 (the minimum survivor benefit is 82.5% of the decedent’s FRA benefit amount).

On the other hand, if John could delay his benefit to age 68, he would receive $1,740 per month, because he would have accrued delayed retirement credits of 16%. Upon John’s death, Sadie would receive $1,740 in survivor benefits. By delaying his benefit six years, John would have improved his surviving spouse’s lot in life by over $500 per month. Of course, this would require him to come up with the funds to get by in life in the meantime, and so if he did have the funds available this would make a lot of sense. If he didn’t have other funds available, one thing that can help matters is if Sadie filed for her own benefit at age 62 — that would provide them with $375 per month while John delayed his benefits.

What to remember: The key here is that it’s often wise for the member of a couple who has the larger benefit to delay benefits for the longest period of time that they can afford, in order to increase the survivor benefit available to the surviving spouse. But it’s also often necessary to file earlier due to household cash flow shortages. As we’ll see a bit later, only the question of surviving benefits makes the idea of delaying benefits to age 70 a truism. Otherwise, it could be more beneficial to file earlier.

2. Increase Your Benefits by 8% Every Year You Delay Filing

This one again comes from a partial truth: For every year after FRA that you delay your Social Security filing, you will add 8% to your benefit. But the year-over-year benefit differences are not always 8%, and often the difference is much less.

It is true that if you compare the benefit you’d receive at age 66 to the benefit you’d receive at age 67, it will have increased by 8%. However, if you compare your age 67 benefit to your age 68 benefit, it will have increased by 7.41%. This age 68 benefit is 16% more than the age 66 benefit, but only 7.41% more than the age 67 benefit. This is because the benefit increase is based on your FRA benefit amount (age 66 in this example), not the amount you could have received at age 67.

What to remember: Don’t be distracted by the differing percentage changes over the years. The bottom line is, Social Security benefit amounts themselves do increase by approximately 8% per year overall every year you wait – but often the year-over-year percentage increase is less. An increase of 8% is an approximation, but in reality, your increase will often be less.

3. The Break-Even Point is 80 Years of Age

I’ve often quoted this as a generality — rarely pinning it down to a specific year but giving the range of around 80 years old. It’s not that simple, though, when you consider all the different ages that an individual can file. The break-even point is the age at which your lifetime payment amount would be equal, whether you claim Social Security early or late, and if you live beyond that, you would come out ahead by waiting. And if you don’t live to the break-even age, it’s better to claim earlier.

For example, when deciding between a Social Security filing age of 62 versus filing at age 63, your break-even point occurs at age 76 (when your FRA is age 66). But when deciding between age 63 and age 64 (with FRA at 66), the break-even occurs at age 78.

On the other end of the spectrum, when choosing between filing at age 69 versus filing at age 70 (FRA of 66), the break-even occurs at age 84 — considerably later than age 80. The break-even for the decision to file at age 68 versus age 69 occurs at age 82.

What to remember: The year-over-year break-even point varies, depending on which Social Security filing age you’re considering. If the two options are earlier (before FRA) the break-even point occurs before age 80. If they are both at or around FRA, then the break-even occurs right around age 80. But if the Social Security filing age you’re considering is near age 70, count on the break-even point being much later, as late as age 85.

We’re nearly at zero: The US just passed another flashing-red indicator on the way to recession

My Comments: Anyone of you who has money invested or is dependent on cash flow from your investments to pay your bills needs to be concerned. What follows is a very good explanation for anyone who whose time horizon for retirement is less than 10 years.

Uncertainty is the biggest driver of global pullbacks in interest rates and growth numbers. Right now, not only from a normal cyclical ebb and flow of economic activity but from the uncertainty generated by the confusion promoted by Trump, we are on the cusp of a significant pull back.

Me, I’m moving my money into cash over the next few weeks. If not sooner… One reason is that people tend to anticipate what will happen to their money before it becomes obvious. Which means that a market crash will precede the economic downturn.

By Jim Edwards, July 16, 2018

The yield on 10-year US Treasury notes declined for a fifth consecutive week, taking the US economy yet another step toward recession. A contraction in America would hurt growth across the planet.

Treasury yields don’t automatically trigger recessions, of course.

But there has been a worrying historical correlation between the moment that the percentage yield on the two-year Treasury becomes greater than the yield on the 10-year note. That phenomenon is called a “yield curve inversion,” and it means that investors are so worried that they’re much less likely than normal to bet on short-term assets.

In layman’s terms: Bonds are about safety for investors. If you buy a two-year note, you can be reasonably sure that you’ll get your money back in two years’ time. Two years isn’t very far away, after all. The near-term is easier to predict than the long-term. So yields (the amount you get back) are lower for short-term notes, because the risk is lower, and thus the reward is lower too.

Ten-year notes represent the opposite bet. They are riskier because who knows what will happen in 10 years’ time? So yields on long-term notes are higher because there is more uncertainty until you get your money back.

When the opposite happens — and investors signal that the short-term feels riskier than the long-term — something must be wrong. If investors say they have less idea of what’s going to happen in two years than 10 years, then they must be very worried about the near-term — and that is a pretty good signal of an impending recession.

When the two-year exceeds the 10-year, recessions tend to follow in short order.

This chart from FRED shows it best. We’re closer to an inverted yield curve than at any time since 2005-2007, which was right before the great financial crisis of 2008:

At the moment, we’re still above the zero-percent-difference line. But only just. The yield curve is flattening, not inverted. We’re trading at 25 basis points on Monday, the flattest since 2007.

There is one reason not to panic. The yield curve doesn’t say that a recession will come imminently. Just … sometime soon. Macquarie analyst Ric Deverell and his team told clients recently that even if the curve was inverted, a recession might not show up until 2019, based on the historic record:

“Historically, the term spread has been one of the best indicators of a forthcoming recession … Indeed, each of the five most recent recessions were preceded within two years by an ‘inverted’ yield curve, with only one false signal (the yield curve very briefly dipped into negative territory in mid-1998, during the Russia crisis and the collapse of Long Term Capital Management, around 33 months before the cyclical peak).”

“On average, the lag between yield curve inversion and the onset of a recession is around 15 months. … Even if the current trend pace of flattening since 2014 were to persist, the curve would not invert until the middle of 2019.”

The global economy doesn’t look like it’s facing a recession — there is widespread GDP growth in the US, Europe, Asia and China. Nonetheless, the current expansion is one of the longest on record, and the economy tends to move in boom-bust cycles. We’re due for a bust, frankly.

There is another big difference between today and 2005: Central banks the world over have been buying bonds like crazy for nearly 10 years to keep interest rates down and to fuel the economy via so-called “quantitative easing.” That has artificially depressed bond yields, and it means that this time around the yield curve is not the reliable predictor of recession it used to be. That’s the position of UBS economist Paul Donovan, for instance.

Of course, when smart people start saying a recession won’t happen because “this time it’s different” — that’s also an indicator of impending recession.

The market will crash this year — and there’s a good reason why

My Comments: Frankly, I have no idea if it will or not, but I tend to pay attention when people smarter than I start talking about stuff that is clearly an existential threat to my financial well being and that of my clients, family and friends.

If the money you have saved is critical in terms of being able to pay your bills in the future, there are ways to protect yourself against downside risk and still participate in the upside promise of the markets.

Thomas H. Kee Jr. / President and CEO of Stock Traders Daily / April 25, 2018

The market is going to crash this year, and there is a very good reason why. The amount of money chasing stocks is drying up considerably, natural conditions are prevailing, and it is happening on the heels of the most expensive bull market in history.

The stimulus efforts of global central banks created a fabricated demand for stocks, bonds, and real estate, ever since the credit crisis, but as of April 2018 those combined efforts are now a drain on liquidity. As recently as last September the combined effort of the ECB and the FOMC was infusing $60 billion per month into these asset classes, like they had almost every month since the credit crisis — but now they are effectively selling $30 billion of assets per month. That is a $90 billion decline in the monthly demand for assets in seven short months.

Central banks are now a drain on liquidity, and it is happening when natural demand levels are significantly lower than where current demand for stocks, bonds, and real estate appears to be.

According to The Investment Rate — an indicator that measures lifetime investment cycles based on ingrained societal norms to identify longer term stock market and economic cycles in advance — we are currently in the third major down period in US history. The rate of change in the amount of new money available to be invested into the U.S. economy declines every year throughout this down cycle, just like it did during the Great Depression and stagflation. This down cycle also started in December of 2007.

Although the market began to decline directly in line with The Investment Rate’s leading indicator, the declines did not last very long. The Investment Rate tells us that the down period lasts much longer than just the credit crisis, and the declines The Investment Rate suggests are rooted in material changes to natural demand levels based on how we as people invest our money, so it identifies natural demand. The natural demand levels identified by The Investment Rate are much lower, and they decline consistently from 2007.

As much as The Investment Rate serves to identify natural demand levels, when stimulus was introduced by Ben Bernanke a second source of new money was born. The stimulus efforts by the FOMC and the ECB added new money to the demand side of stocks, bonds, and real estate, with the intention of spurring prices higher to induce the wealth affect. The policies were successful, asset prices have increased aggressively, but there are repercussions.

Asset prices increased so much that the valuation of the S&P 500, Dow Jones industrial average, Russell 2000, and NASDAQ 100 at the end of last year made them more expensive than in any other bull market in history. In other words, we just experienced the most expensive bull market in history, and the PE multiple of 25 times earnings on the S&P 500 was driven by the constant capital infusions coming from central bank stimulus programs.

Not only were these programs unprecedented given their size, but they also told us what they were going to buy, when they were going to buy it, and how much they were going to buy, every month, in advance, every year since the credit crisis. At no time in history has Wall Street been able to identify when buyers were going to come in like they have during this stimulus phase.

However, now the stimulus phase is over and not only are these central banks no longer a positive influence on liquidity, but they are now removing liquidity from the financial system as well.

This is happening at a time when natural demand levels as those are defined by The Investment Rate are also significantly lower than where demand currently seems to be, and that creates a double whammy on liquidity. The demand for equities this year is far less than it was last year as a result of these two demand side factors. Because price is based on supply and demand, and because demand is cratering, prices are likely to fall. This applies to stocks, bonds, and real estate.

Beliefs vs Reality

My Comments: These are strange times. I’m having a hard time coming to terms with my beliefs and values as a human and the values and beliefs as expressed by others.
Mine have evolved over the past 76 years and encompass everything that defines me as a member of society. I’m comfortable in my own skin and will move on eventually to the next state of being. Meanwhile, others increasingly refute the values that I’ve considered ‘normal’ for my entire life.

So, this article has been helpful in my understanding of the disconnect that I now have with so many people who until recently I considered as being on the same planet as I am. My fervent hope is that life will soon return to at least a semblance of normality and I can live out my days without too much stress. If you too are stressed by how all this is playing out these days, I encourage you to read these words by Daniel DeNicola.

You don’t have the right to believe whatever you want to believe by Daniel DeNicola on June 6, 2018.

Do we have the right to believe whatever we want to believe? This supposed right is often claimed as the last resort of the willfully ignorant, the person who is cornered by evidence and mounting opinion: “I believe climate change is a hoax whatever anyone else says, and I have a right to believe it!”

But is there such a right?

We do recognize the right to know certain things. I have a right to know the conditions of my employment, the physician’s diagnosis of my ailments, the grades I achieved at school, the name of my accuser, and the nature of the charges, and so on. But belief is not knowledge.

Beliefs are factive: to believe is to take to be true. It would be absurd, as the analytic philosopher G E Moore observed in the 1940s, to say: “It is raining, but I don’t believe that it is raining.” Beliefs aspire to truth—but they do not entail it. Beliefs can be false, unwarranted by evidence or reasoned consideration. They can also be morally repugnant. Among likely candidates: beliefs that are sexist, racist, or homophobic; the belief that proper upbringing of a child requires “breaking the will” and severe corporal punishment; the belief that the elderly should routinely be euthanized; the belief that “ethnic cleansing” is a political solution, and so on. If we find these morally wrong, we condemn not only the potential acts that spring from such beliefs, but the content of the belief itself, the act of believing it, and thus the believer.

Such judgments can imply that believing is a voluntary act. But beliefs are often more like states of mind or attitudes than decisive actions. Some beliefs, such as personal values, are not deliberately chosen; they are “inherited” from parents and “acquired” from peers, acquired inadvertently, inculcated by institutions and authorities, or assumed from hearsay. For this reason, I think, it is not always the coming-to-hold-this-belief that is problematic: It is rather the sustaining of such beliefs, the refusal to disbelieve or discard them that can be voluntary and ethically wrong.

If the content of a belief is judged morally wrong, it is also thought to be false. The belief that one race is less than fully human is not only a morally repugnant, racist tenet; it is also thought to be a false claim—though not by the believer. The falsity of a belief is a necessary but not sufficient condition for a belief to be morally wrong; neither is the ugliness of the content sufficient for a belief to be morally wrong. Alas, there are indeed morally repugnant truths, but it is not the believing that makes them so. Their moral ugliness is embedded in the world, not in one’s belief about the world.

“Who are you to tell me what to believe?” replies the zealot. It is a misguided challenge. It implies that certifying one’s beliefs is a matter of someone’s authority. It ignores the role of reality. Believing has what philosophers call a “mind-to-world direction of fit.” Our beliefs are intended to reflect the real world—and it is on this point that beliefs can go haywire. There are irresponsible beliefs. More precisely, there are beliefs that are acquired and retained in an irresponsible way. One might disregard evidence, accept gossip, rumor, or testimony from dubious sources, ignore incoherence with one’s other beliefs, embrace wishful thinking, or display a predilection for conspiracy theories.

I do not mean to revert to the stern evidentialism of the 19th-century mathematical philosopher William K Clifford, who claimed: “It is wrong, always, everywhere, and for anyone, to believe anything upon insufficient evidence.” Clifford was trying to prevent irresponsible “overbelief,” in which wishful thinking, blind faith, or sentiment (rather than evidence) stimulate or justify belief. This is too restrictive. In any complex society, one has to rely on the testimony of reliable sources, expert judgment, and the best available evidence. Moreover, as the psychologist William James responded in 1896, some of our most important beliefs about the world and the human prospect must be formed without the possibility of sufficient evidence. In such circumstances (which are sometimes defined narrowly, sometimes more broadly in James’s writings), one’s “will to believe” entitles us to choose to believe the alternative that projects a better life.

In exploring the varieties of religious experience, James would remind us that the “right to believe” can establish a climate of religious tolerance. Those religions that define themselves by required beliefs (creeds) have engaged in repression, torture, and countless wars against non-believers that can cease only with recognition of a mutual “right to believe.” Yet, even in this context, extremely intolerant beliefs cannot be tolerated. Rights have limits and carry responsibilities.

Unfortunately, many people today seem to take great license with the right to believe, flouting their responsibility. The wilful ignorance and false knowledge that are commonly defended by the assertion “I have a right to my belief” do not meet James’s requirements. Consider those who believe that the lunar landings or the Sandy Hook school shooting were unreal, government-created dramas; that Barack Obama is Muslim; that the Earth is flat; or that climate change is a hoax. In such cases, the right to believe is proclaimed as a negative right. That is, its intent is to foreclose dialogue, to deflect all challenges, to enjoin others from interfering with one’s belief-commitment. The mind is closed, not open for learning. They might be “true believers,” but they are not believers in the truth.

Believing, like willing, seems fundamental to autonomy, the ultimate ground of one’s freedom. But, as Clifford also remarked: “No one man’s belief is in any case a private matter which concerns himself alone.” Beliefs shape attitudes and motives, guide choices and actions. Believing and knowing are formed within an epistemic community, which also bears their effects. There is an ethic of believing, of acquiring, sustaining, and relinquishing beliefs—and that ethic both generates and limits our right to believe. If some beliefs are false, or morally repugnant, or irresponsible, some beliefs are also dangerous. And to those, we have no right.

The 1 Retirement Expense We’re Still Not Preparing For

My Comments: Those of us who live long enough to enter the final stages of our lives get to confront something that rarely happens to those not retired.

I often refer to this as ‘becoming goofy’, though it’s not always a mental affliction. (My mother had Alzheimer’s and needed constant attention for over nine years.)

As you have long since discovered, being alive can expose you to a double edged sword. Yes, we’re still on this side of the grass but with that comes new challenges.

As a financial planner now focused on retirement planning, not dying quickly comes with a cost. And costs often come with price tags, many of which we’re unprepared to pay.

These words from Maurie Backman are a necessary read. It’s unrealistic to expect bad things won’t happen to us, and to the extent we can be ready if they happen, it will be good for us and our children to take some necessary steps in advance to reduce or eliminate the inevitable financial pain.

Maurie Backman | May 24, 2018

No matter what sort of lifestyle you lead, retirement is an expensive prospect. And while you can cut back on certain expenses like housing and leisure when circumstances require you to do so, there’s one expense you may not have a choice about: long-term care. And unfortunately, new data from the Society of Actuaries shows that Americans still aren’t preparing for it as they should be.

In a recent study of retirees 85 and older, most respondents who have not yet needed long-term care expect that if they do, they’ll get by with the help of paid home aides and family support. Most of those who are currently getting long-term care, however, have had no choice but to pack up and move to nursing homes or assisted living facilities, thus significantly adding to their costs.

The study also underscores the importance of having a financial backup plan for those who don’t have family to rely on to provide elder care. Currently, 32% of seniors 85 and over receive logistical support from family members with regard to physical activities such as transportation, meals, and household chores. To hire a home aide to provide those services, however, is an expense many seniors are in no position to bear.

If your goal is to maintain a level of financial security throughout retirement, then you’ll need to not only assume you’ll require long-term care at some point in time, but also save and plan for it. Otherwise, the latter end of your senior years might end up being more stressful than you ever could’ve bargained for.

There’s a good chance you’ll need long-term care…
It’s easy to think of long-term care as somebody else’s problem, but in reality, 70% of seniors 65 and over end up needing some type of long-term care in their lifetime. Among those, 69% end up requiring that care for a three-year period or longer.

And if you’re counting on Medicare to pick up the tab, you’re out of luck. The average Medicare-covered stay in a nursing home is a mere 22 days. That’s a meaningless tally in the grand scheme of a three-year period or more.

…and it’ll cost you
So how much might an extended stay at an assisted living facility or nursing home cost you? Probably more than you’d think. The average assisted living facility in the country costs $3,750 per month, or $45,000 per year, according to Genworth Financial’s 2017 Cost of Care Survey. The average nursing home, meanwhile, costs $235 per day, or $85,775 per year, for a semi-private room. Want your own room? It’ll set you back $267 per day, or $97,455 per year.

Even if you don’t require a nursing home or assisted living facility in your lifetime, there’s a good chance you’ll reach a point when you just plain need help functioning independently. And if you don’t have family around to assist, you’re going to have to pay for that help. Currently, the average cost of a non-medical home aide is $21 per hour. This means that if you wind up needing assistance for 10 hours a week, you’re looking at close to $11,000 per year.

All of this means one thing: You should be saving for these eventual costs during your working years rather than assuming you’ll cut corners to pay for them later on. And the sooner you do, the more secure you’ll be going into retirement.

The good news? If you still have a number of working years ahead of you, boosting your savings rate modestly could increase your nest egg substantially. For example, socking away an additional $250 a month on top of what you’re already saving for the next 20 years will give you an extra $123,000 in retirement, assuming your investments generate an average annual 7% return during that time. (That’s more than doable with a stock-heavy portfolio, by the way.) That’s enough to cover an assisted living facility for almost three years.

Another option? Look into long-term care insurance. The younger you are, the more likely you are to not only get approved for a policy, but also snag a health-based discount on your premiums. Having that insurance to defray the cost of long-term care could lift a major burden when you’re older and at your most vulnerable.

Finally, if you’re counting on family to provide any type of care or support when you’re older, have that conversation in advance rather than assume that help will be a given. You never know when your adult children might choose to pick up and relocate abroad or when a stay-at-home adult child of yours might opt to go back to work. Knowing what to expect assistance-wise will help you avoid a potential financial shock (not to mention an emotional one) down the line.

Guggenheim investment chief sees a recession and a 40% plunge in stocks ahead

My Comments: We can argue ‘till we’re blue in the face about when this is going to happen and none of us will be right. Just know it will happen.

There’s a reference in Scott Minerd’s comments below about the Fed raising interest rates. Here is a chart I found some time ago that shows interest rate trends since 1790. 225 years and there have been only FOUR points that define the end of a downward interest rate trend. The last one is where we are today.

The last uptrend ran from 1946 through 1981. What this tells me is that for the rest of my life, interest rates are going to trend upward, and with that trend we’ll see all kinds of consequences. Like before, some will be good and some will be bad. Good luck.

Scott Minerd, Guggenheim Partners, April 6, 2018

Guggenheim’s head of investing sees a tough road ahead for the market and economy, with a sharp recession and a 40 percent decline in stocks looming.
Scott Minerd, who warned clients in a recent note that the market is on a “collision course with disaster,” expects the worst of the damage to start in late 2019 and into 2020.

Along with the decline in equities, a rise in corporate bond defaults is likely as the Federal Reserve raises interest rates and companies struggle to pay off record debt levels.

“For the next year … equities will probably continue to go up as we have all these stock buybacks and free cash flow,” Minerd told CNBC’s Brian Sullivan in a “Worldwide Exchange” interview. “Ultimately, when the chickens come home to roost and we have a recession, we’re going to see a lot of pressure on equities especially as defaults rise, and I think once we reach a peak that we’ll probably see a 40 percent retracement in equities.”

One of the main problems is that Congress and President Donald Trump have pushed through aggressive fiscal policies at a time when the Fed is looking to control growth with higher interest rates and less accommodative monetary policy.

Corporate debt currently stands at a record $8.83 trillion, according to Securities Industry and Financial Markets Association data. Higher rates will make it harder for companies to refinance and will put pressure on them once the stimulative effects of tax cuts wear off, Minerd said.

Once short-term rates hit 3 percent, that will be enough to drive up defaults and cause a recession, he added.

“As interest rates keep ratcheting higher, with record levels of corporate debt it’s going to be harder and harder to service,” Minerd said. “At some point, as the economy starts to mature and as cash flows start to stabilize and decline, it’s going to be difficult for everybody to pay this interest.”

“Defaults are going to be concentrated in corporate America, where in the past downturn they were basically focused in areas of consumer activity,” he added.

From there, Minerd figures the Fed will get involved, going back to the quantitative easing policies that helped pull the economy out of the last recession and pushed a surge in stock market prices but also coincided with lackluster economic growth.

“All that will do is defer the problem into the future and allow excesses to continue to build and the collision course that we’re on will just come later and probably be worse,” he said.