Archives for June 2018

The income gap between the wealthy and the poor is widening in the U.S.¹ Why does that matter? Because there are studies that indicate a wide swathe of income differentiation is not good for economic growth.

In the years following the Great Recession, we often heard how slowly the economy was recovering. That was true for most Americans, but not for the wealthiest 10 percent. A recent analysis of wealth distribution finds that the richest Americans saw their net worth rise 27 percent between 2007 and 2016. However, the rest of the population saw a decline in net worth, from an average of 5 percent for those in the 80 to 89.9 income percentile to 29 percent for those in the lowest fifth of wealth.²

Perhaps one way to join the group of people who can thrive during economic declines is to be financially prepared ahead of time. That may not be easy to do if your prospects for a good education and a good job are poor. But even for those who don’t come from affluent households, there are ways to help put yourself on the path toward long-term wealth. Start investing early — preferably in an employer-sponsored retirement plan that offers a contribution match. Establish an emergency fund so that an unexpected expense does not drain your investments and savings, taking away the opportunity for compounded interest earnings and potentially adding an extra tax liability. Avoid credit card debt like the plague.

For people who barely earn enough to live on, this can take great sacrifice. Even for people who have ample disposable income, it’s important to learn discipline in order to help maintain one’s financial situation in times of economic decline. If you would like help to establish savings and investment strategies, as well as asset protection strategies using insurance products, please give us a call.

One way to look at the issue of income differentiation is to evaluate where it currently exists, including, for example, between men and women. A recent survey found that 64 percent of women say their top financial priority is meeting daily living costs, compared to 60 percent of men who say that saving for retirement is their top financial priority.³ It seems unlikely that women are less concerned with how to provide for themselves in retirement. Instead, it would appear that many women, whose median annual earnings are $10,086 less than men’s, have more immediate concerns.⁴

Income disparity during earning years can create a big problem during retirement years. Retirees who were born during the Great Depression and World War II need to supplement only 27 percent of their retirement income with their own savings. However, that situation is expected to change dramatically by the time Generation X (those age 37 to 53) retires. Many will be without the “safety net” of employer pension plans, and they are expected to need to provide about 42 percent of their retirement income from their own savings.⁵ That means they must save a larger percentage of their pre-retirement income, which is easier to do if you’re financially stable, but it can be difficult when you live paycheck to paycheck.

There’s no question that the income gap has grown since the days when blue-collar workers could earn a good living at U.S. manufacturing jobs. In fact, from the end of World War II through the early 1970s, the U.S. experienced substantial economic growth and prosperity across all income levels. However, economic growth slowed after that, and the income gap widened, with lower- and middle-income families having sharply slower wage growth but top earners continuing to have strong growth.⁶

Some economists are coming to the conclusion that income inequality hurts growth. Researchers at the International Monetary Fund recently wrote, “If the income share of the top 20 percent (the rich) increases, then GDP growth actually declines over a medium term.” Possible solutions, however, such as welfare programs, higher taxes on the rich and redistribution of wealth, are controversial. Others believe the studies failed to prove the relationship between inequality and lower growth.⁷

There is a bright spot for lower- and middle-class workers: U.S. manufacturing jobs have increased by almost a million since 2010, although there still are 6 million fewer such jobs than in 1980. However, factories are increasing automation — which may threaten the jobs of humans.⁸

And although the “Tax Cuts and Jobs Act” gives most Americans a tax decrease, it’s still the wealthy who may benefit the most. A household making $40,000 a year will receive an average $330 tax cut in 2019, while Americans making more than $3.6 million a year will average an $85,640 tax reduction.⁹

Content prepared by Kara Stefan Communications.

¹ Ryan Vlastelica. MarketWatch. April 6, 2018. “Why income inequality is holding back economic growth, in one chart.” https://www.marketwatch.com/story/why-income-inequality-is-holding-back-economic-growth-in-one-chart-2018-04-05. Accessed April 16, 2018.

² Ibid.

³ Lee Barney. PlanSponsor. March 28, 2018. “Retirement Saving More of a Priority for Men than Women.” https://www.plansponsor.com/retirement-savings-priority-men-women/. Accessed April 16, 2018.

⁴ Sonam Sheth, Shayanne Gal and Skye Gould. Business Insider. April 10, 2018. “6 charts show how much more men make than women.” http://www.businessinsider.com/gender-wage-pay-gap-charts-2017-3. Accessed April 18, 2018.

⁵ Center for Retirement Research at Boston College. March 29, 2018. “Future Retirees Financially Fragile.” http://squaredawayblog.bc.edu/squared-away/future-retirees-financially-fragile/. Accessed April 16, 2018.

⁶ Chad Stone, Danilo Trisi, Arloc Sherman and Roderick Taylor. Center on Budget and Policy Priorities. Feb. 16, 2018. “A Guide to Statistics on Historical Trends in Income Inequality.” https://www.cbpp.org/research/poverty-and-inequality/a-guide-to-statistics-on-historical-trends-in-income-inequality. Accessed April 16, 2018.

⁷ Andreas Becker. Deutsche Welle. April 16, 2018. “Is inequality good or bad for the economy?” http://www.dw.com/en/is-inequality-good-or-bad-for-the-economy/a-43324466. Accessed April 18, 2018.

⁸ April Glaser. Recode. May 26, 2017. “Why manufacturing jobs are coming back to the U.S. — even as companies buy more robots.” https://www.recode.net/2017/5/26/15656120/manufacturing-jobs-automation-ai-us-increase-robot-sales-reshoring-offshoring. Accessed April 18, 2018.

⁹ Reuben Fischer-Baum, Kim Soffen and Heather Long. The Washington Post. Jan. 30, 2018. “Republicans say it’s a tax cut for the middle class. The biggest winners are the rich.” https://www.washingtonpost.com/graphics/2017/business/what-republican-tax-plans-could-mean-for-you/?utm_term=.cb6748a783ac. Accessed April 18, 2018.

Guarantees and protections provided by insurance products including annuities are backed by the financial strength and claims-paying ability of the issuing insurer.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference. 

One of the current administration’s persistent themes has been deregulation — cutting through the red tape in the rules of doing business. In one instance, Donald Trump was filmed standing beside mounds of paperwork to symbolize the amount of regulation the government has implemented since 1960.¹

Perhaps the same can be said for the paperwork associated with our financial accounts, from bank statements to investment prospectuses to insurance policies. It’s important to recognize regulations often have two goals: To protect the consumer, and to protect the company providing the product or service.

We understand that sometimes the paperwork associated with your investments and insurance policies can be overwhelming, so please don’t hesitate to ask questions. We are here to help you fully understand your financial choices.

One such controversial regulation — currently being debated in Congress — is a rollback of the Dodd-Frank Act that was passed in 2010 to tighten rules on the banking system. Now that the economy has recovered from the recession, many legislators are in favor of loosening the banking rules, especially those affecting small community banks. Those who oppose reducing regulations fear the country will fall into the same bad practices and history will repeat itself. ²

Some regulations are so imbedded in our society that the affected industries now believe repealing them could cause more problems than keeping them. The most recent example was the EPA’s announcement to roll back emission standards for U.S. cars. However, the initiative has fallen flat with at least one auto manufacturer, stating it plans to implement the vehicle-emissions rules enacted under Barack Obama to continue addressing global warming considerations. Others think rolling back these regulations would increase their costs, especially if California implements its own emissions standards, which could lead to court battles.³

U.S. farmers are closely watching some of the regulations that have added extensive costs and delays to their businesses. They’re particularly interested in the Waters of the U.S. rule, although the EPA has postponed that rollback for two years. However, the Secretary of Agriculture announced that the USDA has identified 27 final rules that it plans to eliminate, saving $56 million per year.⁴

Content prepared by Kara Stefan Communications.

¹ Michael Kranz. Business Insider. Dec. 17, 2017. “Trump cut literal red tape while standing next to a massive pile of paper to make a point about big government.” http://www.businessinsider.com/trump-stood-next-to-a-huge-pile-of-paper-showing-big-government-2017-12. Accessed April 27, 2018.

² Sylvan Lane. The Hill. April 26, 2018. “House chairman eases demands on Dodd-Frank rollback.” http://thehill.com/business-a-lobbying/385066-house-chairman-eases-demands-on-dodd-frank-rollback. Accessed April 27, 2018.

³ Justin Worland. Time. April 5, 2018. “Scott Pruitt’s Rollback of Emissions Standards Is a Big Deal. Here’s Why the Rollout Fell Flat.” http://time.com/5228979/why-scott-pruitt-rollback-of-emissions-standards-fell-flat/. Accessed April 27, 2018.

⁴ Jacqui Fatka. Farm Futures. March 1, 2018. “Trump keeping regulatory rollback promises.” http://www.farmfutures.com/farm-policy/trump-keeping-regulatory-rollback-promises. Accessed April 27, 2018.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

AE05185053C