• Could Social Security Really Go Away?

    Just how gloomy does its future look?

     

    Provided by MidAmerica Financial Resources

     

    Will Social Security run out of money in the 2030s? For years, Americans have been warned about that possibility. Those warnings, however, assume that no action will be taken to address Social Security’s financial challenges.

     

    Social Security is being strained by a giant demographic shift. In 2030, more than 20% of the U.S. population will be 65 or older. In 2010, only 13% of the nation was that old. In 1970, less than 10% of Americans were in that age group.1

     

    Demand for Social Security benefits has increased, and the ratio of retirees to working-age adults has changed. In 2010, the Census Bureau determined that there were about 21 seniors (people aged 65 or older) for every 100 workers. By 2030, the Bureau projects that there will be 35 seniors for every 100 workers.1

     

    As payroll taxes fund Social Security, the program faces a major dilemma. Actually, it faces two.

      

    Social Security maintains two trust funds. When you read a sentence stating that “Social Security could run out of money by 2035,” that statement refers to the projected shortfall of the Old Age, Survivors, and Disability Insurance (OASDI) Trust. The OASDI is the main reservoir of Social Security benefits, from which monthly payments are made to seniors. The latest Social Security Trustees report indeed concludes that the OASDI Trust could be exhausted by 2035 from years of cash outflows exceeding cash inflows.2,3

      

    Congress just put a patch on Social Security’s other, arguably more pressing problem. Social Security's Disability Insurance (SSDI) Trust Fund risked being unable to pay out 100% of scheduled benefits to SSDI recipients this year, but the Bipartisan Budget Act of 2015 directed a slightly greater proportion of payroll taxes funding Social Security into the DI trust for the short term. This should give the DI Trust enough revenue to pay out 100% of benefits through 2022. Funding it adequately after 2022 remains an issue.4

      

    If the OASDI Trust is exhausted in 2035, what would happen to retirement benefits? They would decrease. Imagine Social Security payments shrinking 21%. If Congress does not act to remedy Social Security’s cash flow situation before then, Social Security Trustees forecast that a 21% cut may be necessary in 2035 to ensure payment of benefits through 2087.3

       

    No one wants to see that happen, so what might Congress do to address the crisis? Three ideas in particular have gathered support.

     

    *Raise the cap on Social Security taxes. Currently, employers and employees each pay a 6.2% payroll tax to fund Social Security (the self-employed pay 12.4% of their earnings into the program). The earnings cap on the tax in 2016 is $118,500, so any earned income above that level is not subject to payroll tax. Lifting (or even abolishing) that cap would bring Social Security more payroll tax revenue, specifically from higher-income Americans.3

     

    *Adjust the full retirement age. Should it be raised to 68? How about 70? Some people see merit in this, as many baby boomers may work and live longer than their parents did. In theory, it could promote longer careers and shorter retirements, and thereby lessen demand for Social Security benefits. Healthier and wealthier baby boomers might find the idea acceptable, but poorer and less healthy boomers might not.3

     

    *Calculate COLAs differently. Social Security uses the Consumer Price Index for Urban Wage Workers and Clerical Workers (CPI-W) in figuring cost-of-living adjustments. Many senior advocates argue that the Consumer Price Index for the Elderly (CPI-E) should be used instead. The CPI-E often gives more weight to health care expenses and housing costs than the CPI-W. Not only that, the CPI-E only considers the cost of living for people 62 and older. That last feature may also be its biggest drawback. Since it only includes some of the American population in its calculations, its detractors argue that it may not measure inflation as well as the broader CPI-W.3

     

    Social Security could still face a shortfall even if all of these ideas were adopted. The Center for Retirement Research at Boston College estimates that if all of these “fixes” were put into play today, the OASDI Trust would still face a revenue shortage in 2035.3

     

    In future decades, Social Security may not be able to offer retirees what it does now, unless dramatic moves are made on Capitol Hill. In the worst-case scenario, monthly benefits would be cut to keep the program solvent. A depressing thought, but one worth remembering as you plan for the future.

     

    MidAmerica Financial Resources may be reached at 618.548.4777 or greg.malan@natplan.com. www.mid-america.us

     

    This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

       

    Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Adviser.
    MidAmerica Financial Resources and Malan Financial Group are separate and unrelated companies to NPC.

     

    Citations.

    1 - money.usnews.com/money/retirement/articles/2014/06/16/the-youngest-baby-boomers-turn-50 [6/16/14]

    2 - fool.com/retirement/general/2016/03/20/the-most-important-social-security-chart-youll-eve.aspx [3/20/16]

    3 - fool.com/retirement/general/2016/03/19/1-big-problem-with-the-3-most-popular-social-secur.aspx [3/19/16]

    4 - marketwatch.com/story/crisis-in-social-security-disability-insurance-averted-but-not-gone-2015-11-30 [11/30/15]

     

  • Weekly Economic Update

    ­MidAmerica Financial Resources Presents:

     

    WEEKLY ECONOMIC UPDATE

     

     

    WEEKLY QUOTE

                 

    “Forever is composed of nows.”    

    - Emily Dickinson

          

      

    WEEKLY TIP

                 

    If you are thinking of adopting a child, you should know that some employers offer adoption assistance programs, through which you can offset some or all of those costs with a tax-free reimbursement. In addition, you may be eligible for a federal credit with a $12,150 limit to counter any adoption expenses not reimbursed by an employer subsidy.

         

      

    WEEKLY RIDDLE

               

    You contact it in the street, and lie above it in the night. It may shake as if it is angry, but it will never bite. What is it?

      

     

    Last week’s riddle:

    You use your hand to write; you use me to keep the writing neat and make a point. Every once in a while, you empty me out. What am I?

         

    Last week’s answer:

    A pencil sharpener.

     

     

     

     

    September 12, 2016

      

    SERVICE SECTOR SEES WEAKEST GROWTH SINCE 2010

    The Institute for Supply Management’s non-manufacturing purchasing manager index came in at a disappointing 51.4 in August, 4.1 points below its July level. While American service industries expanded for a 79th consecutive month, the pace of expansion was the slowest since February 2010, and the monthly drop in the ISM index was the largest recorded since November 2008.1

        

    BEIGE BOOK SHOWS LITTLE WAGE PRESSURE

    If the economy is near full employment, it is not seeing the strong wage and inflation gains usually linked with that situation. The Federal Reserve’s latest summation of economic activity in its 12 districts stated that wage growth was “fairly modest” with little improvement expected in the near term. While wages increased in many districts for highly skilled workers, the Fed also noted that employers had been hard-pressed to fill job vacancies in the IT, engineering, and construction fields.2

        

    OIL, GOLD PUSH HIGHER

    WTI crude advanced 3.2% last week, even with a 3.7% Friday slip. Crude settled at $45.88 a barrel on the NYMEX Friday. Gold ended the week at a COMEX price of $1,334.50, up 0.6% in five days.3

      

    VOLATILITY RETURNS

    Boston Fed President Eric Rosengren created some market turbulence Friday, warning that the economy could overheat if the central bank waits much longer to raise interest rates. His remarks came just a day after European Central Bank president Mario Draghi indicated a reduced possibility of further stimulus efforts for the European Union. A sharp Friday selloff sent the major indices significantly down for the week – the S&P 500 fell 2.39% to 2,127.81; the Nasdaq, 2.36% to 5,125.91; and the Dow, 2.20% to 18,085.45.4,5

       

    THIS WEEK: Nothing major is scheduled on Monday or Tuesday. On Wednesday, Analogic and Cracker Barrel Old Country Store announce earnings. The data stream picks up on Thursday, when investors consider August retail sales numbers, August industrial production, the August Producer Price Index, a new initial claims report, and earnings from Oracle and Progressive. On Friday, the August Consumer Price Index arrives, along with September’s preliminary University of Michigan consumer sentiment index.

     

    % CHANGE

    Y-T-D

    1-YR CHG

    5-YR AVG

    10-YR AVG

    DJIA

    3.79

    11.27

    12.91

    5.88

    NASDAQ

    2.37

    7.77

    21.54

    13.67

    S&P 500

    4.10

    9.57

    16.87

    6.38

    REAL YIELD

    9/9 RATE

    1 YR AGO

    5 YRS AGO

    10 YRS AGO

    10 YR TIPS

    0.17%

    0.65%

    -0.03%

    2.35%

     


    Sources: wsj.com, bigcharts.com, treasury.gov - 9/9/165,6,7,8

    Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year TIPS real yield = projected return at maturity given expected inflation.

     

     

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    Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Adviser.
    MidAmerica Financial Resources and Malan Financial Group are separate and unrelated companies to NPC.

     

    This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world's largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

     

    Citations.

    1 - tinyurl.com/zho9nnp [9/6/16]

    2 - foxbusiness.com/markets/2016/09/07/beige-book-wage-increases-restricted-to- highly-skilled-jobs.html [9/7/16]

    3 - 247wallst.com/investing/2016/09/09/verizon-coca-cola-tank-djia-on-friday/ [9/9/16]

    4 - bloomberg.com/news/articles/2016-09-09/u-s-futures-little-changed-with-s-p-500-stuck-in-two- month-lull [9/9/16]

    5 - markets.wsj.com/us [9/9/16]

    6 - bigcharts.marketwatch.com/historical/default.asp? symb=DJIA&closeDate=9%2F9%2F15&x=0&y=0 [9/9/16]

    6 - bigcharts.marketwatch.com/historical/default.asp? symb=COMP&closeDate=9%2F9%2F15&x=0&y=0 [9/9/16]

    6 - bigcharts.marketwatch.com/historical/default.asp? symb=SPX&closeDate=9%2F9%2F15&x=0&y=0 [9/9/16]

    6 - bigcharts.marketwatch.com/historical/default.asp? symb=DJIA&closeDate=9%2F9%2F11&x=0&y=0 [9/9/16]

    6 - bigcharts.marketwatch.com/historical/default.asp? symb=COMP&closeDate=9%2F9%2F11&x=0&y=0 [9/9/16]

    6 - bigcharts.marketwatch.com/historical/default.asp? symb=SPX&closeDate=9%2F9%2F11&x=0&y=0 [9/9/16]

    6 - bigcharts.marketwatch.com/historical/default.asp? symb=DJIA&closeDate=9%2F8%2F06&x=0&y=0 [9/9/16]

    6 - bigcharts.marketwatch.com/historical/default.asp? symb=COMP&closeDate=9%2F8%2F06&x=0&y=0 [9/9/16]

    6 - bigcharts.marketwatch.com/historical/default.asp? symb=SPX&closeDate=9%2F8%2F06&x=0&y=0 [9/9/16]

    7 - treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx? data=realyield [9/9/16]

    8 - treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx? data=realyieldAll [9/9/16]