Weekly Market Update by Retirement Lifestyle Advocates

          I spend a lot of time talking about retirement and sharing with you the obstacles and hindrances that may stand between you and a comfortable, stress-free retirement.  With each passing day, it seems there are more signs that the notion of a comfortable, financially secure retirement is more of an elusive dream than an eventual reality for many Americans.

          Many retirees depend heavily on Social Security benefits for some of their retirement income.  The average monthly benefit paid by Social Security now stands at $1,907.  (Source:  https://www.foxbusiness.com/money/more-retirees-consider-returning-work-high-inflation-squeezes)

          While Social Security benefits do increase based on the US Government’s estimate of inflation, these cost-of-living adjustments fall woefully short when it comes to keeping pace with the real inflation rate.

          The cost-of-living adjustment that Social Security recipients received in 2024 was 3.2%.  Any of us that have purchased items at the grocery store or the hardware store over the past year know first-hand that actual costs have increased at a much faster rate than 3.2%.

          The Motley Fool recently conducted a survey of American retirees.  Get this – 44% of survey respondents stated that they are considering a return to the workforce since their retirement incomes are not keeping pace with inflation.

          61% of survey respondents stated that they are struggling financially day-to-day.

          19% of non-retired survey participants stated that they are planning on working longer due to inflation and an economy that feels shaky.

          In today’s economy, inflation is enemy number one for an aspiring retiree.  Higher prices have created significant financial pressures for many US households, forcing them to pay more for necessities like food and rent.  According to FOX Business’ inflation calculations, grocery prices are up more than 21% from the start of 2021, shelter costs have risen 18.37%, and energy prices are up an eye-popping 38.4%.  (Source:  https://www.foxbusiness.com/money/more-retirees-consider-returning-work-high-inflation-squeezes)

          When one digs into the retail sales numbers, this economic inflation drag is confirmed.  Mike Maharrey commented in a piece he published last week (Source:  https://www.moneymetals.com/news/2024/06/18/sagging-retail-sales-another-sign-americans-may-be-tapped-out-003264):

“it’s starting to get difficult for the most optimistic cheerleader to pretend this economy is “robust.”

We got more evidence today that the American consumer is tapped out.

And that’s really bad news for an economy that depends on consumers buying stud to keep rolling along.

Retail sales grew at a tepid 0.1 percent in May.  That was below the expectation for a somewhat less tepid 0.2 percent gain.  And if you factor out autos, retail sales fell by 0.1 percent.

Meanwhile, April retail sales were revised down from flat to a decline of 0.2 percent.

On an annual basis, retail sales have increase by just 2.3 percent.

You might look at that number and think, “Well, that’s great.  People are still buying more stuff.”

But that raw retail sales data doesn’t tell the whole story because it isn’t adjusted for price inflation.  In reality, Americans are forking out more money that they were last year, but they’re buying less stuff.

Retial sales always reflect rising and falling prices, along with the volume of stuff consumers buy.

When price inflation is high, retail sales tick higher, unless consumers cut back spending enough to offset rising prices.  During deflationary periods (falling prices), retail sales fall, all things being equal, unless people up their volume of purchases enough to offset falling prices.

In other words, just because dollar widget sales increase doesn’t mean people bought more widgets.  It could be they bought fewer widgets but paid a lot more for them.  Conversely, falling sales could reflect price drops and don’t necessarily mean people purchased fewer widgets.

When you factor in an annual CPI of 3.3 percent, it’s clear that Americans aren’t even keeping up with rising prices.

Looking at the internals, it appears Americans are cutting back on discretionary spending.  Sales at bars and restaurants fell by 0.4 percent.  Home furnishing retailers saw sales fall by 1.1 percent.

          Maharrey goes on to make another salient point in his piece.  He notes that consumer debt increased at a very fast rate until a couple of months ago.  Credit card balances in particular fell by $500 million in April, which is a statistically insignificant 0.4 percent decline.

          That could well mean that Americans collectively are starting to max out their credit cards.

          As I’ve noted here in prior commentaries, credit card deby was increasing at a trajectory that was not sustainable.  Since consumer credit card debt is approaching $1.4 trillion, more than the entire annual outlay for Social Security, it would follow that Americans may have indeed maxed out their credit cards.

          Undoubtedly, many of these Americans with large credit card balances are retirees who turned to their plastic as their last alternative to make ends meet.

          During the pandemic, Americans who received stimulus money used the windfall to pay down their credit cards and add to their savings.  Then, as a result of currency creation by the Federal Reserve to fund the stimulus, prices began to surge.

          Americans, including retirees, blew through their savings to make ends meet.  The San Francisco Federal Reserve estimated that the aggregate savings of Americans stood at $2.1 trillion in August of 2021 and had fallen to $190 billion by June 2023.

          That means Americans went through $1.9 trillion in savings in just two years.

          Then, at least according to the numbers, they turned to their plastic.

          Now, perhaps they have maxed out their credit cards according to the latest data.

          They have nowhere left to turn except going back to work if they’re retired or taking on another job if they’re working.  Or perhaps delaying retirement.

          Another survey (Source:  https://www.foxbusiness.com/money/more-retirees-consider-returning-work-high-inflation-squeezes) found that the average retiree spent $4,818 monthly in 2022.  That means that the average Social Security monthly benefit would cover less than half of the average monthly expenses of the average retiree.

          The same survey found that the typical US household needed to pay $227 more a month in March than one year prior because of inflation.

          Comparing March of 2024 with March of 2022, the average American household spent $784 more a month to purchase the same goods and services.

          And, looking back three years, another $1,069 per month is required to buy the same items and services.

          It’s no wonder that nearly 1 in 2 retired Americans are considering returning to the workforce.

          So, if you aspire to a comfortable retirement, what should you do?

          I’d suggest three things.

          One, have an income plan designed that will easily replace your current level of working take-home pay.  In today’s economy, it’s fantasy to believe some of the old retirement ‘rules of thumb’ like you’ll need only two thirds the pay during retirement that you had when you were working.

          Two, use the Revenue Sourcing™ planning process to allocate some assets to provide you with a steady, safe retirement income in addition to Social Security and to also allocate some assets to an inflation hedge to potentially allow you to increase your income during retirement as inflation continues (which it will have to do unless the US Government begins to operate with a balanced budget).

          Three, while income tax rates remain lower for the next two tax years, I’d look seriously at tax reduction strategies on your retirement accounts like IRA’s and 401(k)’s.  When it comes to maximizing retirement income, reducing taxes can be one of the most effective methods to use to get more income in your pocket.

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          This week’s RLA radio program features an interview that I conducted with Mr. Karl Denninger of market-ticker.com.

          The radio program is available now by clicking on the "Podcast" tab at the top of this page.  The weekly Headline Roundup newscast is also posted.  If you haven’t yet done so, check out the free resources available on this website.

 

“I spent seven hours in a beauty shop – and that was for the estimate.”

                                                               -Phyllis Diller