The economy is doing very well. We are seeing companies beat earnings and are optimistic about future earnings estimates. 1st quarter GDP was up +6.4%.1 The stock market is doing great! The jobs number however, was a huge disappointment.
In April, the unemployment number ticked up to 6.1% as only 266,000 jobs were added (1 million was expected). We are still down 8.2 million jobs since February 2020.
But wait you say, “I see now hiring signs everywhere! What gives?” Many are accusing the last round of stimulus as the issue. That there is too much incentive not to work. Is there any validity to this statement? On May 10th, President Biden responded to the calls that unemployment was disincentivizing work. He stated,
“The law is clear: if you’re receiving unemployment benefits and you’re offered a suitable job, you can’t refuse that job and just keep getting the unemployment benefits.”
If Americans are slow going back to work, this could be a problem for the recovery. But it will cause another economic problem, that is inflation.
The stimulus spending has placed enormous money into the economy. Due to the lockdowns and supply chain issues, there are not enough ‘goods’ to purchase. Commodity prices, like lumber, are up 377% since May 4th 2020. CPI for the last 12 months is +4.2%.5 Many economists are not concerned with inflation because wage inflation is still low. So, we only need to worry about ‘wage inflation’?
But if businesses have to pay more for people willing to work, (I read of a Burger King offering sign on bonuses, let that sink in.) then wage inflation is coming, if it isn’t already here.
Warren Buffett stated at his annual meeting, “We’re seeing very substantial inflation – it’s very interesting.” Interesting? Rising costs hit the middle class and the poor the hardest. Warren Buffet thinks that is interesting.
“Inflation expectation” is the biggest risk and is what drives inflation the most. This is a monster that’s very difficult to contain. Do not underestimate it.”
The Federal Reserve plans to let inflation run hot before raising interest rates. So, instead of slow gradual rate increases we could see a panic button response, raising rates significantly to control inflation. This is not a good thing.
So here is the deal. We are probably not going to see a bubble crash. The economy will continue to open, and stocks will be volatile as businesses struggle to gain footing and direction. We believe inflation can benefit the right kind of stocks.
We have been investing cautiously but are now committing more investments to undervalued areas of the markets and in inflation hedges.
As always, call us to discuss your portfolio.
Tax Day Cometh
Federal tax return deadline for 2020 was extended to May 17th, 2021 unless, (there has been a lot of ‘unless’ lately) you live in Oklahoma, Louisiana, or Texas. Then the tax deadline is June 15th, 2021. This extra time was given due to the winter storm in February.
If you are planning to contribute to a Roth, Traditional, SEP, or Simple IRA for the 2020 tax year, then you have until June 15th to do that.
If you are a sole proprietor and extend your tax return until October 15th, you have until then to fund your SEP or Simple IRA for 2020.
For your contribution to be considered ‘timely’, it must be postmarked by the deadline date and the check clearly marked on the memo line “2020 contribution.” If it gets hung up in the mail, you will be ok. If you are that close to the deadline when sending it in, I would send it registered mail.
Some custodians are particular about this issue, so call us if you are down to the wire. Also, remember my office is not the custodian. Meaning if you mail it to us, you might miss the deadline. Again, call us to confirm where and how to contribute.
Social Security Hacks – Benefits For You and Your Family
The single best way to secure your retirement is to wait on filing for Social Security until 70 years old. This single action will increase your benefits 76%!9 There are many factors that go into what age you should start receiving Social Security Benefits. Martha Shedden, RSSA President and Co-Founder, list the following:10
• Your maximum life expectancy,
• Whether you are single, married, divorced, widowed,
• If you are still working,
• If you have other sources of income,
• If you have a younger spouse and/or minor children,
• If you or your spouse are disabled,
• If you have an adult disabled child
Some believe that their life span isn’t going to be long enough to benefit from waiting until 70 to collect. The fear of losing money from dying too soon is a serious concern.
What you may need to consider is who benefits from your social security when you die? Social Security at times acts as life insurance. Your spouse, ex-spouse, children, and even dependent parents can claim benefits on a deceased person’s social security earnings record.
Here is the rub, the sooner you claim retirement benefits, the less your family receives in survivor benefits. Your wife, for example, will get 100% of your retirement benefit if you never claimed (assuming your benefit is more than her SS retirement). But she will only get 75% if you are already collecting social security retirement when you die.
Remember, there are no hard and fast rules here. There are numerous externalities11 to consider when making the claiming decision. Give us a call to work out a social security and retirement plan.
This way you are sure to make the smart retirement decisions.
Sources Citations Bibliography:
⦁ www.bea.gov 2021 GDP 1st Quarter
⦁ https://www.epi.org/indicators/unemployment/
⦁ NY Post Biden says people able to work must take jobs May 10, 2020
⦁ https://www.visualcapitalist.com/visualizing-explosion-lumber-prices-50k/
⦁ CPI- Consumer Price Index
⦁ Seeking Alpha Yellen Admitts: Inflation Is Coming May 5th, 2020 by Rida Morwa
⦁ Quote from Financial author Rida Morwa
⦁ See next months article on what to do when interest rates go up.
⦁ 2016 Edition “Get what’s yours, Social Security.” –Kotlikoff, Moeller, and Solman.
⦁ https://rssa.com/resources/best-age-to-collect-social-security-benefits/
⦁ Externality is a cost or benefit that is imposed on a third party who did not agree to incur that cost or benefit. I used this word so you will think I am smart.
Supplemental Disclaimers:
This article is informational only and is not investment advice. This is not an offer to buy, hold, or sell investments like securities or insurance products.
Securities and Investment Advisory Services are offered though Toro Bravo Investment Advisors, LLC. Life Insurance and Annuities sold as an insurance broker are not a fiduciary relationship and are not offered by Toro Bravo Investment Advisors, LLC.
Life Insurance and Annuities are not fiduciary products and are not offered or sold by Toro Bravo Investment Advisors, LLC but rather offered by the Advisor as an agent. Please review our ADV 2a for further details.
Securities or Insurance are not FDIC/SIPC insured and investments contain risk plus could be subject to loss.
Losses could be short term or permanent. Numbers and figures illustrated are hypothetical in nature and past performance is not a guarantee or indication of future results/performance.
We are not affiliated with the Social Security Administration (SSA), Internal Revenue Service (IRS), or any Governmental Agency.
Do not rely solely on the Legal, Tax, or Financial information presented for it may not be suitable for your individual situation.
Consult your legal, tax, and/or financial professional before acting on any strategy or recommendation (i.e. major changes or before initiating the purchase, hold, or sale of any investment or investment strategy). Every individual’s strategy can differ depending on current circumstances and goals.