Just one quick post this week as I’m just back from a quick trip on Monday and we’re leaving for our Florida place today.
I saw this article in The Atlantic yesterday that talked about an issue we’ve been discussing for the last 12-18 months: How retirees are getting wealthier – not drawing down their large retirement nest eggs.
Link: Americans Aren’t Spending Their Retirement Savings
The article breaks out the phenomenon in quite a bit of detail with supporting data from a few research studies. It finds that there is a significant “consumption gap” between what retirees are earning from their investments and what they are spending. As a group, the wealth is piling up under the proverbial royal mattress.
The article has a couple issues with it, in my mind. First, it doesn’t call out very explicitly that the retiree largesse is largely the result of a very extended bull market. Investment returns over the last 10 years have been pretty phenomenal. That said, the wealth of this group can turn the other way quickly when the bears return to Wall Street. The P/E of the S&P 500 is frightenly-high right now by any historical measure.
In addition, it’s problematic that the author says “this is a problem” and is “causing the US economy to suffer”. Since when does saving cause the economy to suffer? Doesn’t it help interest rates to have that money in the bank and benefit people wanting to buy a house or start a business? I thought affordability was an issue because of high rates?
Still, the points made by the author dovetail nicely into the conversation around Boomer wealth. A Federal Reserve recently published a study showing that those of us over 55 years old control 70% of the wealth in the country. Political pundits from both sides of the aisle are now beating the drum-beat of cutting entitlement benefits to the “most selfish generation” to give the next generation an economic boost.
Related: Hero or Villain?
I’m not sure where this will all end, but with Social Security and Medicare funding at a crossroads in a few years, it will have to come to some political decisions. It may, in fact, shape the 2028 Presidential election as politicians run out of room to keep kicking the can down the road.
What do you find interesting about this discussion? What ideas aren’t being considered? What will you do differently to plan for change?
Image: ChatGPT AI
The photo reminds me of the Scrooge McDuck cartoons of him diving into his money vault filled with currency. This is the politics of envy. I agree that the envious do not consider that we are investing in stocks of companies that provide employment opportunity and our consumption often provides work opportunities for small business people.
Reshoring manufacturing and doing away with illegal immigration and H1-b’s will bring opportunity to our young people. Per Peter Schweizer’s book “The Invisible Coup” many of the immigrants that have been allowed in the country since Slick Willy are Communist leaning and are here to strip our wealth. It takes time to ramp up the new factories. A big part of Trump’s rallies is visiting areas that have been decimated by globalism and announcing new steel plants and shipyards and the number of jobs the new plant will bring. I am expecting higher wages for people who have been left out for the past four decades and less competition for housing.
Last week’s post really got me looking at tax rates. My strategy for retirement so far has been flying right underneath the radar of IRMAA which is estimated that married income falling between $224K and $228K this year will trigger higher Medicare Payments in 2028. IRMAA can raise the per person monthly fee for Medicare to as high as $860 per person. Your income starts drifting above this range and you end up in the 32% bracket, Commie-fornia 9.3% bracket, capital gains have an extra 3.8% Net Investment Tax added on, and the Bonus Senior Tax $6,000 will be fully phased out.
The envious crowd also villainize couples who are receiving over $100K between them in Social Security payments. The Social Security bend points for 2026 are $1,286 and $7,749. These points determine how much of your average indexed monthly earnings is used to calculate your benefits, with different percentages applied to earnings below and above these thresholds. The Social Security formula applies different rates to earnings below and above these points: 90% of the first $1,286 of AIME, 32% of AIME between $1,286 and $7,749 and 15% of AIME above $7,749. The couple making over $100,000 in Social Security had both working hard for at least 30 years. Instead of being celebrated, we villianized.
Here’s a crazy thought, why not take out all the tax traps that tax a punitive level. I bet that would free up more Senior spending.
LikeLike