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3 Things 2-27

Thing One The Entitlement Reckoning During his State of the Union address a few weeks ago, President Biden made a show of the entitlement debate by claiming that, “…Instead of making the wealthy pay their fair share, some Republicans want Medicare and Social Security to sunset every five years. That means if Congress doesn’t vote to keep them, those programs will go away. Other Republicans say if we don’t cut Social Security and Medicare, they’ll let America default on its debt for the first time in our history…” As Republicans shouted down the claims Biden made as falsehoods, the president quipped, “So folks, as we all apparently agree, Social Security and Medicare is off the books now, right?” Biden, who is prone to misspeaking when he goes off script, most certainly meant to say “off the table”, meaning that there would be no talk of doing anything to any of those programs. While that makes for good television and political grandstanding, it ignores a real problem that has been known for many years. Take a look at an excerpt from an article written around the end of the 2016 election cycle in the Wall Street Journal: “…A new forecast shows that Medicare’s hospital-insurance trust fund will be depleted in 2028, two years earlier than estimated last year, according to a government review released Wednesday. Wednesday’s report also showed that Social Security will exhaust its reserves in 2034, an estimate that is unchanged from last year. After that, beneficiaries would face an across-the-board cut in their monthly payments if Congress doesn’t act. The annual report card from the trustees of both programs contrasts sharply with an election debate that has shifted away from how to restore solvency for Social Security and instead is focusing on whether benefits should be increased. Wednesday’s report shows that both programs’ trust funds see annual outflows exceed income early next decade, making the solvency challenge a more urgent concern for whoever becomes the next president. Social Security’s disability-insurance program, meanwhile, will exhaust its reserve fund in 2023. It was facing depletion this year, but Congress last fall approved funding changes that temporarily restored solvency. More than 49 million Americans collected Social Security retirement benefits last year, 10.8 million received disability benefits and 55.3 million were covered under Medicare." In the days following Biden's SOTU speech, some reporters described the president's intent to veto any attempt at shoring up Social Security or Medicare as a victory for all Americans. But, if it can be called a victory at all, it is a pyrrhic one, and, at some point, dramatic changes will have to be made. Those changes will likely include nearly everything that has been suggested, like significant tax increases, means testing, raising the minimum age of eligibility, rationing of care, etc,. As such, those of us with 10 or more years to retirement would be well advised to give this part of our retirement planning a fresh look. Even if the worst doesn’t happen, it makes sense to look at scenarios where social security and medicare do less of the financial heavy-lifting in our golden years.

Thing Two The Benefits Of Human Advisors The following was taken from an article written several years ago for the Wall Street Journal by Andrew Loo, a professor at MIT’s Sloan School of Management: “At a conference last year, I was approached by an audience member after my talk. He thanked me for my observation that it’s unrealistic to expect investors to do nothing in the face of a sharp market-wide selloff, and that pulling out of the market can sometimes be the right thing to do. In fact, this savvy attendee converted all of his equity holdings to cash by the end of October 2008. He then asked me for some advice: “Is it safe to get back in now?” Seven years after he moved his money into cash, he’s still waiting for just the right time to reinvest; meanwhile, the S&P 500 earned an annualized return of 14% during this period. Investing is an emotional process. Managing these emotions is probably the greatest open challenge of financial technology. Investing is much more complicated than other chores like driving, which is why driverless cars are already more successful than even the best robo advisers. Despite the enthusiasm of tech-savvy millennials—the generation of investors now in their 20s and 30s who are just as happy interacting with an app as with warm-blooded humans—robo advisers don’t take into account the limits of human cognition; they don’t make allowances for emotional reactions like fear and greed; and they can’t eliminate blind spots. Robo advisers don’t do emotion. When the stock market roils, investors freak out. They need comfort and encouragement…” As the last few sentences explain, the benefit of having a human advisor that you can talk to, that you can ask questions of, and who can help you keep to your plan when everything in you is telling you to push the panic (sell) button, can be invaluable. Pass it on.

Thing Three Just A Thought “The good news is that the moment you decide that what you know is more important than what you have been taught to believe, you will have shifted gears in your quest for abundance. Success comes from within, not from without.”― Ralph Waldo Emerson


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