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  • Writer's pictureJulie Skye

This 1st Week of September 2021 Thoughts

This is a developing news story this week. Watch this space.

Social Security’s costs in the form of monthly payments to retirees now exceed the income it takes in from U.S. workers. Projected to soon to operate in the red, the program’s reserve fund would be depleted around 2033. If Congress does not act by that time, Social Security law would cut benefit checks for retirees by about 20% across the board. For a demographic that has planned on those payments, and usually has few other avenues of income, a 20% reduction could prove disastrous and threaten to throw many Americans into poverty.

Social Security has long known it faces a simple math problem: With thousands of baby boomers retiring every day, there is an insufficient number of younger people entering the workforce to offset the cost.

To make matters worse, Americans’ life expectancy is increasing, and birth rates are declining. The U.S. birth rate is now so low that the nation is “below replacement levels,” meaning more people die every day than are being born, the CDC said. By Social Security’s estimates, the number of Americans 65 or older will increase to more than 79 million by 2035, up from the current 54 million, according to Census data. Immigration reform is one solution I know Congress will be considering.

I can not imagine this being the reality we face...but with the current new cycle, expect there to be headlines about this: know I’ll feature this issue regularly. It is about the most nerve-wracking event I can imagine. I don’t even need to ask; “Why does this matter to you!

Why am I spending so much time talking about risk, volatility, downside protection and what your risk capacity is? This is your portfolio on inflation…a far cry away from the traditional 60% stock and 40% bond allocation.

😲 Why does this matter to you? Not your traditional portfolio, so don’t expect to see this allocation! If inflation continues at this pace your portfolio will need a different “tilt.” I do not anticipate a 29.5% allocation to Commodities…but we have renewable energy, water / infrastructure, green real estate projects and stocks.

If inflation and interest rates look like they are going higher…is there anything we should be worried about? This chart says a lot! During the market sell-off in 2013 when Fed Chief Bernanke moved up rates, we had a negative rate of return on bonds. 2013 was the last time rates move higher, and the market cried like a baby.

😲 Why does this matter to you?When “real” interest rates are negative…that means you won’t keep up with inflation. This is how it works: you earn 1.3% (today’s 10-bond yield) but inflation is now 5.12%. That means you are losing 3.82% in your purchasing power…TODAY. We won’t be “well” til we have a yield that outpaces inflation…6%!

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