Future Retirement Liabilities

This has been another interesting week for an investor with a large move in the stock market on Monday and then concern about the jobs number on Friday. What would happen if the number was not good enough, would the stock market have a big drop? The jobs number was reported on schedule and the private sector grew by 71,000 and the public sector shrunk for a net loss during the month not meeting expectation and investors held their breath. At the end of the day the stock market did drop a little, the VIX also dropped, and we made it through this lagging indicator once again.

What does all of this mean? We are still in a consolidation phase in the economic business cycle and at the end of the fear, VIX, cycle. Let's relax a little already. Now is a great time to refinance a home as well as purchase a home as interest rates are at low levels not seen in 50 years with a 15 year mortgage below 4%.

This newsletter contains the weekly recap from Vanguard, followed by a section on Future Retirement Liabilities, and lastly a short trivia section for your enjoyment. The middle section presents data from www.usdebtclock.org website on the current shortfall for Social Security and Medicare to pay future benefits to us.

Vanguard Weekly Recap

The economy has continued to struggle, shedding 131,000 jobs in July. While the unemployment rate remained at 9.5% last month despite the job losses, this was most likely due to a drop in the number of people seeking work. Most of the other economic news that came out this week was also negative, as factory orders fell, the manufacturing sector lost momentum, and personal income was flat. Two exceptions to the otherwise disappointing news were construction spending and the service sector, both of which showed signs of recovery. For the week, the S&P 500 Index rose 1.8% to 1,122 (for a year-to-date total return—including price change plus dividends—of about 1.7%). The yield of the 10-year U.S. Treasury note fell 8 basis points to 2.86% (for a year-to-date decrease of 99 basis points).

Unfunded Future Retirement Liabilities

The website www.usdebtclock.org provides data on the national debt and other categories. While I can not attest to the validity of the data, it does give a person something to think about concerning our future. The data covered is the future liabilies for Social Security, Medicare Prescription Drugs, and Medicare.

This a calculation of how much money needed today to cover all future liabilities, or a math exercise. It gets a number based upon assumptions like population growth rate, retirement age, longevity, inflation rate, rate for increasing medical cost, and so on. Here are the numbers:

Social Security Liability: $14.5 Trillion
Medicare Prescription Drug Liability: $19.2 Trillion
Medicare Liability: $76.2 Trillion
Total Liability: $109.9 Trillion
Total Liability per US Citizen: $354,530

So what does this mean?
* Things are going to be changing
* The amount of funding going into Social Security and Medicare are going up
* The amount of benefits are going down
* The recently passed health care bill probably is going to be around with little changes
* Experts talk about our debt problems have to do with paying for entitlements. I think that the word entitlement really means these retirement benefits that we are counting on for the future.
* You need to be saving lots more for retirement, it would be good for each of us to have $354,530 set aside at retirement. If you do not, what is your back-up plan?

Trivia

1. The dial tone of a normal telephone is in the key of "F".
2. A group of unicorns is called a blessing. A group of owls is called a parliament.
3. In 1963, baseball pitcher Gaylord Perry remarked, "They'll put a man on the moon before I hit a home run." On July 20, 1969, a few hours after Neil Armstrong set foot on the moon, Gaylord Perry hit his first home run.
4. Kermit the Frog is left-handed.
5. The word "pound" is abbreviated "lb." from the Latin "libra pondo", meaning weight or balance, where the constellation got its name.
6. Mel Blanc, the voice of Bugs Bunny, was allergic to carrots.
7. One of the reasons marijuana is illegal today is because cotton growers in the 30s lobbied against hemp farmers (they saw it as competition).
8. Maine is the only state in the United States whose name has one syllable.
9. At latitude 60 degrees south you can sail the entire way around the world.
10. Isaac Asimov is the only author to have a book in every Dewey-decimal category.