How Republicans Can WIN on Social Security

The Bear FINALLY Roared!

For years now, we’ve been hearing the market was too pricey, the Shiller CAPE ratio proves that. Or the debt was out of control. Or we’ve never had this long of a bull, etc. etc.  And yet the markets kept marching along, on the basis of continued corporate earnings growth and dividends.  As always.

Suddenly, something  NO ONE predicted called Coronavirus hits and there is no more toilet paper to be had and the markets FINALLY fall.   The doomsdayers were right, no?

BWHAHAHA. I laugh at the doomsdayers.  if anyone was invested without the slightest thinking of a bear market happening, they were either newbies or were living in a fantasy land of linear rates of return.  (A well known commentator, who I will not name here, offers retirement withdrawal advice off of the idea of linear rates of return which infuriates me something wicked).

Linear rates of return mean the market averages say 10% a year, thus, in EACH year, I expect a 10% rate of return.  That thinking is silly for investors, and it’s dangerous for advisors.

To prove my point, I always use the Vanguard paper, “When Will We Get Back to Normal” and I even did a video of that here.

Facts are, on any given year, the markets hardly EVER give you the average rate of return. Just read the Vanguard paper to see for yourself.  How a professional doesn’t know this boggles my mind.

So, now that the doomsdayers can finally gloat and say “I told you so!” what comes next?

Seems pretty clear to me, a HUGE growth spurt.  When exactly will that happen? I’ve no clue.  But empty shelves should tell you one thing and one thing only, inventories need to be replenished.

That is growth.

People having their trips canceled and sitting on their hands for weeks on end will mean growth once this thing clears up.

Mortgages being refinanced, at historically low rates, freeing up more cash flow.

Growth.

Or you can think about it like this.  You go to the store.  Are the streets empty of traffic? Are the aisles free of consumers? The gas stations?  Etc.

Nope. At least not in my little part of North Fulton County, GA.  It’s nuts out there!

Companies that were making money before, will have a slow down, indeed.  Once this insanity is behind us,  the pent-up demand will be a sight for sore eyes and KABOOM!  It’s going to be fun to watch.

When will this happen? I’ve no clue. You’ve no clue.  The silly “experts” in the media, our educational establishment, politicians and government officials have none either.

Trump doesn’t know. Biden doesn’t know. But it’s coming.  Actually, with Bernie out of the way, the risk of socialism is gone, at least for the next 4 years, meaning growth.

So what do you do? As I’ve said a million times to Sunday you follow the great Louis Rukeyser and “Don’t Just Do Something. Sit There!”

For a fascinating take on the insanity and mass hysteria that was October 1987 watch his Wall St. Week episode here.   How eerily similar no?

So, when the growth comes back, will the doomsdayers take their ball and go back to the caves from which they came? Of course not!

There’s money to be made in being a doomsdayer.  Just look at Paul Ehrlich, James Hansen, Michael Mann, et al. We’re all supposed to be dead by now.  Yet here we are living the greatest time in human history in the greatest nation ever, by Divine Intervention of course.

But how do you deal with the doomsdayers? Laughter and mockery.  Always just laugh. Not to see the bounty we have as Americans today is be deliberately be living in a black cloud. Forget all that!  If that is you, please unsubscribe.  I personally have no time for that stuff.

It’s a great and wonderful world. God is good and forever will be. And there is no reason not to rejoice.

Blessings,

Josh

P.S.

I’m getting a number of inquiries about folks concerned on their retirement plans who say they’d like to hire me but my fee is too high.

So, instead of letting them go off into the wilderness of financial planners who don’t think, I’m offering my Retirement Planning Course at a 50% discount for the next month.

Yes, if people buy it, I get paid.  I don’t deny that. Hopefully, your purchase will prove to be a win/win arrangement.

If not, there is a 30 day 100% money back guarantee. I’ve only had to make 1 refund so far, I’m happy to say. And the lady who asked was very apologetic.  She didn’t need to be though. As the course wasn’t what she was looking for.

Go here and at check out use the coupon code 50.

Republicans have an issue ready-made for them that will secure their legacies for a generation: Social Security (and Medicare for good measure). But until Trump came along no Republican had the political sense to actually see this issue for what it is, a huge potential to expand their voting base. 

Other than some teachers in a few counties, and pre-FERS government employees, everyone receives Social Security.  A huge amount of retirees rely on Social Security for the vast majority of their retirement income. It doesn’t take a rocket scientist to see the huge importance of this issue for voters.

Add the fact that the older voter actually votes in a much higher proportion than younger voters you can quickly see why abandoning the Social Security issue is bad politics. Go to where the votes are, after all.

Okay, first off, let’s establish the fact that Social Security is NOT a welfare benefit. Since 1990, every single worker pays 6.2% of his salary into Social Security.  That 6.2% is matched by the employer’s contribution. So, 12.4% of pay is being allocated to Social Security.    

Secondly, the Social Security Administration only takes the top 35 years of INDEXED earnings into calculation to determine one’s benefit.  This means the lowest years of your earnings years are most not likely included into your benefit, yet, you did pay taxes in those years.  

For instance, in 1989 I was a Private in the Army.  I paid FICA tax on my $7,854 of earnings that year. However, because I was all of 19 then, and didn’t make much income, it’s safe to assume that year of taxation will not be used to calculate my benefit. Again, the Social Security Administration only takes the highest 35 years of indexed earnings to determine your benefit.  This means that if you had earned income for 45 years, 10 years of those earnings are not included in your benefit. 

So, let’s just nip in the bud once and for all that Social Security is a “transfer” payment similar to other welfare programs like Food Stamps. It’s not. One could make an argument about Medicare because we don’t pay nearly as much into Medicare as we do into Social Security but I’d challenge that too, as both employee and employer are paying 1.45%. (Medicaid is a whole different thing which we won’t discuss here.)

Hopefully, we’ve established that not only is Social Security important to most Americans but to treat it as a welfare benefit is not only disingenuous it is demeaning too to the voting population. Don’t do that!

However, Social Security, like most pension programs, is not on financially secure ground. It’s not nearly as bad as naysayers claim, though. Just read the Trustees report for Heaven’s sake!  The system’s projections are based on three scenarios; Low-cost, high-cost and intermediate.  The low-cost could be looked at as the best case scenario; the high-cost, the worst case and Intermediate is what we hear about when the media reports on Social Security “running out of money in year 2034.” 

Now, there is a lot that goes into the projections of Social Security; Interest rates, labor force, GDP, but probably most important is the actual unemployment rate.  The unemployment rate used in the low-cost, i.e., best case scenario, is 4.6% until 2030 and 4.5% from then until 2095. The intermediate scenario, which again, is what is reported, is 5.5% each year for the next 70 years. 

Wanna guess what unemployment is now?  3.6%.   Think that’s an anomaly? Well, let’s take a look at Japan. It’s 2.4% and it’s been under 4.5% since 2012.  Does anyone actually think Japan’s unemployment rate will breach 5% anytime soon? I don’t.  In fact, I argue our economy is likely to follow the Japanese model, low unemployment, low inflation, low interest rates and low GDP as opposed to the insanity of the Nixon years, with high interest rates, unemployment and inflation. 

What we can take away is that Social Security, in my opinion, is not insolvent by any stretch. But it can be strengthened and expanded. 

Let’s talk about how Trump and the Republicans can cement their legacies for a generation, similar to how FDR did for the Dems.  Strengthen Social Security in order to INCREASE the payout to middle and lower income retirees. It’s so easy to do this too. 

You need to understand how Social Security calculates your payout.  They take your top 35 years of Indexed Earnings, add those together and then divide by 420 to get your Averaged Indexed Monthly Earnings (your AIME).

They then divide your AIME by 3 separate bend points.  The first bend point you get 90% of your first $960 of your AIME.  The second bend point you get 32% of the next $4,825 of your AIME. Anything above $5,785 you get 15%. 

To show you how this works let’s say over the course of your top 35 years of earnings you made an index-adjusted $50,000 a year.  In that case, your total indexed earnings are $1,750,000. You then divide that amount by 420 to get an AIME of $4,166.

You will receive 90% of the first $960 of that AIME. And 32% of the remainder.  So, $960 *.90 = $864. $3,206 * .32 = $1,025. $1,025+$864 = $1,889. That $1,889 is your monthly Social Security benefit at your Full Retirement Age which will be between 66 and 67 depending on the year you were born. 

In this example, Social Security will replace about 45% of your gross income.  Given how much you and your employer actually contributed to the program over the course of your decades in the workforce $1,889 a month is not a great amount of retirement income. 

Oh yes indeed, I know “Social Security was never supposed to be the sole source of retirement income…” etc… Yeah, and that was when the taxes paid into Social Security was all of 1.5% of pay. It’s since MORE than quadrupled. In fact, for many workers FICA is the biggest tax they pay. 

So save your sanctimonious cries of people should have saved more.  They DID save! In this program called Social Security and now they aren’t getting out a reasonable benefit for the amounts they put in. 

The simple way to rectify this is to increase the 2nd bend point from 32% to 50%.  This would increase the benefit of that $50,000 worker by 30% to $2,467 a month. Social Security would then provide a much more reasonable replacement rate of nearly 60% which is actually right in line with what most people will need in retirement.  If they were able to save more, fantastic. If not, at least they’ll have a bit more comfort for all the years they labored and paid taxes into the system.

How will this be paid for? One way would be to incorporate Social Security taxation on all those with annual income over $1 million. Not just earned income but all income. Qualified Dividends and Long Term Capital Gains are still taxed preferably to Ordinary Income, by the way. So, while the extra Social Security tax would be new it won’t eliminate the huge benefit in QDI and LTCG tax rates. 

How to pay for it is something actuaries can number-crunch and the devil is always in the details anyway.  However, to focus solely on cost while avoiding the huge political benefit of the increase is just bad politics. The middle class is rapidly becoming the GOP base. /it’s the middle class who will benefit most by this proposal and that includes many groups of voters who for generations have not even given the GOP the time of day, primarily black voters. 

If the GOP were to move just 10% of black voters to, all the while retaining their grasp on middle class whites, the left would be done for. 

And how glorious that would be? To debate technical issues of a Social Security benefit increase rather than having to defend from such nonsense as “they’re gonna put you back in chains.”

It’s time the GOP take it to them. Social Security is the way to do it. Do not walk away from this opportunity. Grasp it and win, bigly. 

 

 

 

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