Will Social Security be there for you when you are old enough to claim it? Notable Number one in this week’s Weekly Market Review details a statistic that shows a lot of pessimism related to the future of Social Security payments.
I can understand why so many millennials don’t think the system will be there for them; after all, the Social Security system no longer sends you annual statements (remember the green ink), a change that is saving the administration a ton of money. Sure, you can register on the Social Security Administration website and view your statement, but how many millennials are doing that? My two cents for the suggestion box is that you should be able to register an email address with the Social Security Administration so that your annual statement gets sent to you. Click HERE to be directed to the page where you can sign in or create your access to view your annual statements.
Back to the WMR stat – what many millennials may not realize is that the Social Security system is a pay as you go system. In other words, those of us that are paying in to the system with a portion of each paycheck are providing the cash flow for the monthly income to those already drawing Social Security. There are some long-term funding shortfalls that need to be addressed, but so long as the millennials can get the future generations to work and pay into the system, there should be funding for their Social Security checks.
As detailed in the third paragraph of the WMR, the Treasury Department is going to auction a record $126 billion of debt this week. The current annual yields on the safe debt is just .09% (2 year), 1.19% (10 year), and 1.97% (30 year). Who will line up to bid on the purchase of those notes and bonds issued by the US government that pay so little relative to historical rates? Most likely, the largest bidder will be other governments and foreign banks whose own interest rate environment is even lower than ours, as hard as that is to imagine. Relatively speaking, these very low, but secure interest yields, are better than they can find from other credit worthy issuers. That is good news for the US government to be able to finance and “refinance” debt at low rates. Those low interest rates will make paying off debt easier, if and when, our government decides it is prudent to stop going deeper into debt and start clawing out of the giant debt hole that we are in.
Speaking of low rates and debt. Most economists agree that those two factors will contribute to eventual higher inflation. While the Federal Reserve has kept inflation largely at bay over the last ten or fifteen years, higher inflation is almost certainly coming. Inflation is the often forgotten about variable when it comes to retirement income planning (our specialty). While I’d like for inflation to stay low, retirees and future retirees must plan as if inflation will be more rapid in the future. Notable Number two details how wages in the private sector grew by more than inflation in 2020. This is great, but expecting wages to outpace inflation year after year is a high hurdle, and most retirees don’t even have wages.
As always, we hope you find the Weekly Market Review both interesting and informative.
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Have a great week!
Trevor N. Coe, CFP®