April 15, 2010 Edition
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BOOMERS MAY BREAK US - Federal Reserve Chairman Ben Bernanke says retiring baby boomers may break the budget by putting unprecedented demands on the Medicare and Social Security systems. The Fed chief says the U.S. is on a path of unsustainable spending being made worse by these programs, and that the government-run entities could exhaust funds before 2050. "Unless we, as a nation, demonstrate a strong commitment to fiscal responsibility, in the longer run we will have neither financial stability nor healthy economic growth."
 
DEBT CRISIS - In the past we have had a symbiotic relationship between free enterprise and government, but there is a "tipping point" when symbiotic becomes parasitic. We may not be there yet, but you really have to think we may be approaching a bridge too far to cross:
  1. When nearly 50% of taxpayers pay no federal income tax
  2. When government workers are averaging nearly $100,000 per year, while their free enterprise counterparts are making less than $50,000.
  3. When every citizen in our country has a $350,000 unfunded liability for just Social Security, prescription drugs and Medicare. (See this and other "staggering stats" on our government debt at www.usdebtclock.org.)
  4. When virtually every municipal, state and federal retirement and retiree health plan is grossly underfunded.
  5. When the CBO says we will have a national debt of 90% of GNP in ten years.
  6. When major political contributors include "public unions" and most of the contributions are going to a party that wants even bigger government. www.opensecrets.org
APRIL 15 FACTBOOK – Where does it come from and where does it go?

How much from:
  • In 2010, our government will spend a record $31,406 per household.
  • In 2010, it will collect $18,276 per household in taxes.
  • The $13,130 difference between spending and revenue is our budget deficit per household...on top of all prior government debt.
  • Since 2008, government spending has increased by $5,000 per household. 
  • Over the last decade, government spending has increased $10,000 per household.
Where to:
  • Social Security/Medicare: $9,949 per household
  • Defense: $6,071 per household
  • Antipoverty programs: $5,466 per household
  • Unemployment benefits: $1,640 per household
  • Interest on the federal debt: $1,585 per household
  • Veterans' benefits: $1,052 per household
  • Federal employee retirement benefits: $1,018 per household
  • Education: $914 per household
  • Highways/mass transit: $613 per household
  • Health research/regulation: $550 per household
  • Mortgage Credit: $470 per household 
  • All other: $2,078 per household
In eight years, the number of people with no income tax liability increased by 59%, from 32.6 million in 2000 to 51.6 million in 2008. (Thanks, George W!) Currently 47% of U.S. households pay no income tax.

REAL INCOME DROPS - Personal income for Americans, exclusive of government payouts, has fallen by 3.2% since January 2009, according to the Commerce Department's Bureau of Economic Analysis. "This is hardly surprising," said Douglas Holtz-Eakin, an economist and former director the CBO. "...only federal spending is going up; jobs, business startups, and incomes are all down. It is proof that the government can't spend its way to prosperity."

WHEN DID THE RECESSION END? - The National Bureau of Economic Research, the panel of economists responsible for officially deciding the length of recessions, says that it is "premature" to say when the recent downturn ended. WHEN? We and the unemployed didn't even know it was over.
 
MOST JOBS IN THREE YEARS - The U.S. economy gained more jobs in March than any other month in the last three years but the unemployment rate is still nearly 9.8%.

BANKERS' PAY TREATENS FINANCIAL SYSTEM - The chairman of the FDIC defended the agency's move to cut down on excessive banker pay, saying the stability of the financial system is at stake. "The stability of our financial system requires that the interests of management be aligned with all financial stakeholders in the firm -- including debt and equity holders -- in order to prevent the type of excessive risk-taking that led to this crisis."

FINANCIAL REFORM - With health care reform behind it, the Senate is taking up financial reform legislation.  For a summary of where things stand on that front, click here.  

SUMMARY OF WHAT IS GOING RIGHT AND WRONG – With the avalanche of opinions and statistics, it is hard to know what is happening in the economy. Here is the U.S. News & World Report view:
 
•    Corporate profits. Status: Strong
•    Productivity. Status: Strong.
•    Interest rates. Status: Strong. Meaning low.
•    Housing affordability. Status: Strong. Meaning cheap. See Housing prices below
•    Inflation. Status: Strong. But, as always, healthcare and college costs are rising.
•    The stock market. Status: Strong.
•    GDP growth. Status: So-so.
•    Consumer spending. Status: So-so.
•    Savings. Status: So-so.
•    Energy prices. Status: So-so. But gas is rising at the pumps.
•    The trade balance. Status: So-so.
•    Income. Status: Weak.
•    Wealth. Status: Weak.
•    Credit. Status: Weak.
•    Housing prices. Status: Weak.
•    Foreclosures. Status: Weak.
•    Commercial real estate. Status: Weak.
•    Corporate spending. Status: Weak.
•    Confidence. Status: Weak.
•    Jobs. Status: Weak to terrible.
•    The national debt. Status: Terrible.
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IT IS THE DEFICIT, STUPID – A Pew's poll says there is bipartisan agreement among Democrats and Republicans on the deficit as a top priority and reducing middle-class taxes as a mid-level one.

WHAT DOES $1 TRILLION LOOK LIKE - According to a slideshow available at www.cnbc.com, "This stack of cash - in $1 bills would measure 67,866 miles, stretching approximately 2.72 times around the Earth's equator. If denominated in $100 bills, $1 trillion would be enough to fill 4.5 Olympic-sized swimming pools, with a total volume of 398,000 cubic feet. For comparison, there is only about $625 billion worth of $100 bills currently in circulation, according to the US Treasury bulletin. The mounting US National debt, growing by billions every day, has recently topped the $11 trillion mark."

DO THEY HAVE WHAT IT TAKES? - Does Congress have the will to cut spending?  "With Congress having passed an expensive new health care plan, it is a good time to ask whether our political system is capable of undertaking major entitlement and tax reform to put the nation on a sustainable fiscal path."  To read more on this critical issue, click here.

MAYBE THERE'S HOPE? - The Citizens Against Government Waste reported in its "2010 Congressional Pig Book Summary," that "the 9,129 projects in the report represent a 10.2 percent decline from the 10,160 projects identified in fiscal year 2009, and the $16.5 billion in cost is a 15.5 percent decrease from the $19.6 billion in pork in fiscal year 2009." 

THERE BETTER BE HOPE! - According to "Earthshaking ways to fix U.S. debt," reducing the deficit strictly through tax increases would require income tax rates to increase by a third across the board.  Want to raise rates on only high income earners?  Get ready for a top rate approaching 77%. 

OIL PRICES UP - The price per barrel for oil is hovering around $85, but dropped slightly after the European Union pledge of nearly $40 billion to aid the Greek economy.

DOW CLOSES OVER 11,000 - The Dow Jones industrial average closed above 11,000 for the first time in 18 months, seemingly based on relief of the fear of an eminent default of Greek bonds. One comment, "There is a huge stockpile of cash on the sidelines earning virtually nothing. Maybe this can help shake a few people into the market."

33 STATES OUT OF UNEMPLOYMENT FUNDS - With unemployment still at a severe high, 33 states have drained their jobless benefit funds, forcing them to borrow billions from the federal government to help out-of-work Americans.

BUSY HURRICANE YEAR – The hurricane predictions for 2010 are out. Expect it to be "an especially busy hurricane season in 2010 due to record warm water." The Colorado State University (CSU) forecast predicts 15 named tropical storms this year in the Atlantic basin, which includes both the Caribbean and Gulf of Mexico. Of the 15, eight will become hurricanes, with sustained winds reaching 74 mph. Meanwhile, four are expected to be become major hurricanes, which include Categories 3, 4, or 5, with maximum wind speeds of 111 mph or higher. The questions remain, how did "land-locked" professors from CSU ever become hurricane experts and have their predictions ever been correct?

TAX FREEDOM DAY - Tax Freedom Day, the date by which most of us have earned enough money to pay our federal, state and local taxes, is April 9 this year, one day longer than last year's 98 days.

YOU MAKE IT. THEY TAKE IT – High-earning Americans and very profitable small businesses can expect tax increases soon.  Reasons: When the Bush tax cuts expire, people earning $200,000 a year or more can expect their tax bracket to rise from 35% to 39.6%. Estate tax will jump in 2011 from 0% to 55% for estates between $1 million and $10 million. Taxes on investment income will be going up in 2013 from the current 15% nearly 24%.

'WE SIMPLY SHOW UP' - Thank Bernie Madoff for this...the SEC has dropped its goal of inspecting registered investment advisors on a scheduled basis in favor of surprise exams based on tips and complaints received by a new SEC office - the Office of Market Intelligence.

SCARY! - According to a poll conducted by the Employee Benefit Research Institute (EBRI), about a quarter of all respondents felt they needed between $500,000 and $999,999 in order to retire.  The biggest slice of respondents (32% of women and 27% of men), however, said that they could retire with less than $250,000 in savings.  Wow!  Those folks either have their heads in the sand or they're planning on a really low retirement standard of living.

RETIREMENT PLANNING PYRAMID - The Insured Retirement Institute (IRI) is using its National Retirement Planning Week campaign to announce its new IRI Retirement Planning Pyramid concept. Major tenet is the idea of putting annuities and guaranteed income at the base of any retirement pyramid. See more at www.retireonyourterms.org.

FIVE QUESTIONS - According to a recent LIMRA report, advisors should be prepared to provide clients with answers to these five retirement planning questions:
1. When should I retire?
2. How do I plan for my expenses and income?
3. Which funds should I draw from first?
4. What required minimum distributions do I need to perform and when?
5. What risks should I plan for when I retire?

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RETIREMENT REFORM - According to a speaker at MetLife's National Benefits Symposium, the health care reform legislative process has "sucked the air" out of retirement reform legislative proposals.  Don't plan on legislation allowing tax incentives for annuity distributions any time soon.  We could, however, see reform allowing Roth IRA conversions to take place inside of 401(k), 403(b) and 457 plans.

YOUNG INVINCIBLES - One of the biggest risks to the success of health care reform comes not from the sick, but from the young and healthy. According to a former head of the Center for Medicare & Medicaid Services, "There are 47 to 50 million uninsured Americans and 14 million of them are young invincibles. (You would think by now we would at least have a consistent number of uninsured.) These are individuals 30 or younger who can afford insurance but typically choose not to have it. The one critical question that I have is 'Will they now sign up [for insurance coverage] or do nothing?'" The legislation mandates that all Americans will have to buy health care insurance or pay a fine. The aim is to prevent people from waiting until they are sick to buy coverage. Beginning in 2014, the fine will be $95 for an individual and increases each year until 2016, topping out at $695 or 2.5% of an individual's annual income. Per family, fines are capped at $2,250 as of 2016. But will the penalties be sufficient to convince younger uninsured Americans to buy year-round coverage.  "Without these young invincibles, the health care system could be in big trouble." No kidding.

POSITIVE TRENDS – Reports from Northwestern Mutual and Citigroup reveal an upward trend in the positive outlooks among Americans, despite the near-term challenges of the current economic climate. Among the more striking findings, the Northwestern Mutual data reveal a 60% year-over-year jump in people who scored at the high end of its "optimism scale."

CONSUMERS STILL WORRIED – According to a Citigroup survey of American consumers, 44% rate the economy as fair, 36% rate it as poor and 52% say their financial conditions are about the same as this time last year. Some improvement in that 36% believe the economy has hit bottom, compared to 33% last September.

LONG-TERM HOME CARE - The American Association for Long Term Care Insurance (AALTCI) says that nearly 60% of those receiving privately paid for care at home are females.  Over age 75 and the percent jumps to over 80%.

ADVISOR DISTRUST – According to Oechsli Institute, an alarming 85% of affluent investors report that they are so dissatisfied with their current advisor they would consider changing and that only 20% of advisors increased the time they spent with clients during the financial crisis. Reasons are many, but it does create an opportunity for advisors who meet the challenge by meeting their clients.

HSAs NOT THE SOLUTION – The Employee Benefit Research Institute has concluded that health savings accounts are likely to play only a minor part in savings for health care costs in retirement. Reasons: Statutory contribution limits and currently low interest rates prevent HSAs from generating the "big bucks" needed to pay for retiree health expenses.

PENSION REDUCTIONS PERMANENT – A Buck Consultants survey reveals that few employers that cut their traditional pension plans in 2009 will reverse the changes soon. About 77% of the employers that changed defined benefit pension plans are either expecting to keep the changes or are uncertain about what they will do.

MORE EARLY RETIREMENTS? – Any hopes of extending Medicare retirement age to help correct the funding shortfall is off the table. Why increase the qualifying age after passing a trillion dollar plan to subsidize coverage for those 64 and under? Also, you can expect more to retire at age 62.

CLENTS POSTPONING RETIREMENT – A survey conducted by MainStay Investments reveals advisors saying that about 61% of their clients are not concerned with covering basic needs in retirement, but rather being forced to give up luxuries such as traveling and dining out. Therefore, they are not retiring early.

NEW HEALTH CARE FRAUD - Enactment of the new healthcare reform law has already spawned fraud schemes in which individuals are seeking to sell bogus policies through 1-800 numbers and by going door to door. Hey, this is being done by the "lower roller" con artist. Just wait until the white collar crooks figure out how to "milk the system." Medicare fraud is now estimated at $60 billion...pretty hard to make that going "door to door."

LIFE SETTLEMENT FUTURE – The Insurance Studies Institute predicts the life insurance secondary market (LISM) will start expanding again soon. 2009 was the first year of contraction for the LISM after 15 straight years of expansion, but "we expect that with this next wave of expansion, the LISM will become more sophisticated and create valuable investment structures. We expect the LISM will continue to demand higher standards, fairer laws, consumer protections and consumer notifications. Investors will return. The life insurance secondary market is here to stay and will continue to provide a valuable option to seniors who do not want or need their life insurance policies."

NET NEUTRALITY - In a legal victory for broadband service providers, a federal appeals court ruled that federal regulators didn't have the authority to intervene in the Internet management practices of Comcast, the nation's largest cable company. In a statement, the FCC said the court decision does not "close the door to other methods" of "preserving a free and open Internet." That is George Orwell's "newspeak" for "we will control the Net sooner are later."

HOSPITAL CHARGES FOR UNINSURED - According to the Agency for Healthcare Research and Quality (whoever they are), the amount that hospitals charge the uninsured for inpatient care climbed 88% between 1998 and 2007 from $11,400 in 1998 to $21,400 in 2007 and the number of uninsured hospital stays during the same period climbed by 31%, far higher than the 13% overall increase in hospital stays. The top reason for uninsured hospital stays was childbirth; followed by depression and bipolar disorder; chest pain with no observed cause; skin infections; and alcohol-related disorders.

STEALING FAT - Sierra Morgan, a 31-year-old respiratory therapist from Modesto, CA, was billed $12,000 on her health-care credit card for liposuction, a procedure she never requested or had. "It's depressing to know that someone used my name and knows so much about me." Medical ID theft is becoming more commonplace and comes in a variety of forms. Thieves may impersonate a patient or criminals can set up fake clinics to bill for phony treatments. 


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