The New Normal 3 Legs of the Retirement Planning Stool
“I work for the government”" Really?” ” That’s my business”
A quiet exodus of government employment has been occurring along with a massive increase in the three new legs of the retirement planning stool. At one time workers could rely on the rock-solid legs of a pension plan, social security and savings. Now recent evidence shows that workers are increasingly dependent upon the crumbling legs of Medicare, Medicaid and Social Security. In fact, the government has refused to comment on the status of Medicare for 3 years which is due to go broke as early as 2024. These entitlement programs provide the ideal opportunity for workers to see supplemental sources of savings and investment income through Guaranteed Lifetime Withdrawal Benefits or GLWBs. Despite the publicity of $77 billion flowing into U.S. stock funds last month for the first time since 2007 and pushing the broad market past 1500, investors poured $150 billion into higher yielding money funds because of the expiration of insurance guarantees on balances over $250,000. There is now $2.7 trillion in money market funds some of which is invested in non investment grade commercial paper.
On the other hand, government has turned into a giant entitlement machine while reducing the ranks of local firefighters and police and the programs they serve or administrate. State and local governments are balancing budgets, slashing payrolls and lowering taxes from New Mexico to Ohio. As these workers walk, there is evidence they are turning to personal pension plans, like annuities, and private plans to make lifetime income needs work. State and local spending has declined five times as much as the federal level since government spending peaked in 2006.
Conversely, the bad news is that mandatory spending on entitlements is going through the roof, more than making up the difference in savings. When this debt, when takes up 60% of the federal debt or 14% of the economy roll-over and are refinanced at higher interest, that debt will skyrocket. The Fed has promised an orderly withdrawal from buying Treasuries but that defies gravity and has never been done before. Simply said that when bond supply exceeds demand from the Fed and investors , rates will go higher so we could have a classic” liquidity trap:” as investors wait for higher expected yields from the Feds inability to sell bonds. Recently the IRS said that average family in America will spend $20,000 in premiums for health care in the next few years. This is good news for many annuity and life buyers who will increasingly rely upon continued work, paying down debt, and living benefits in the form of long term care from their as a personal pension plan or three legs of the retirement stool. Now is the opportune time to utilize retirement income adviser locators to nail down an annuity specialist who can help rebuild the three legs of the stool, one ounce of tax deferred interest at a time?