Unemployment sits under 4%, and wages are inching higher.
Home prices are almost 7% above where they were this time last year, have marched up 5% to 7% per year for several years, and the S&P CoreLogic Case-Shiller Home Price Index has reached new highs.
The Dow and S&P sit just below record highs, while the Nasdaq is in record territory. That all sounds fabulous!
We should be dancing in the streets. But there’s a problem.
Most Americans aren’t getting rich. In fact, compared with the mid-2000s, things look downright depressing.
The Federal Reserve conducts the Survey of Consumer Finances every three years. The data they compile is catnip to number nerds like me. The Fed publishes the results about a year after the data is collected, so the 2016 figures came out at the end of 2017.
The survey asks questions about retirement accounts, savings accounts, debt, pensions, income, and a host of other things. It’s easy to get lost in the weeds. But if we focus on just one big number – assets – we can put the issue of wealth in perspective.
Considering six age ranges, under 35, 35-44, 45-54, 55-64, 65-74, and 75 and over, wealth increased in only one age group between 2004 and 2016.
Only the oldest set made headway, improving their lot by 27.7%. The next oldest group, those 65 to 74, went backward by 7.3%. Everyone else took a bath.
Those under 35 dipped 38.3%, the 35 to 44 set lost 32.3%, and the 45 to 54 group gave up 32.8%. Those closest to retirement, ages 55 to 64, took the biggest hit. They had 41.4% less in 2016 than they did in 2004.
We can debate why or how we got here, but it won’t change the fact that we’re here. Now what?
How do millions of Americans pay their way – from education through retirement – if they aren’t accumulating assets?
Another good question along the same line is, how do we provide the benefits these Americans have earnrned and will demand when our entitlement programs go broke?
The answer to both is simple. With our current financial structure, they won’t pay their way and we as a nation won’t support them in retirement.
As the old economist Herbert Stein said, “If something cannot go on forever, it will stop.” If a situation can’t continue, it won’t. Something will have to change.
In this context, the change is obvious. The governrnment will step in with greater force, adjusting the levers of financial incentives and distributions. That’s a fancy way of saying, get ready for higher taxes.
Just as with the Survey of Consumer Finance, there are a million different ways to look at taxes, but I’m only interested in the ultimate question.
Will I pay more, or less? For me to pay less, or just stay even, we’d have to tell tens of millions of Americans that they don’t get the benefits they’ve earnrned, much less any additional assistance.
Given the structure of wealth and income in the U.S., and the size of the promises we’ve made, the most likely outcome isn’t to let benefits fade away.
When the governrnment starts looking for a way to shore up its finances, it will look in the most obvious place – your pocketbook.
The time to start preparing is now.
You can build your own streams of income to protect against the governrnment cutting your benefits because it determines you have too much already.
You can create your own assets.
And you can minimize your taxes to thwart higher payments in the years ahead.
We’ve covered this territory often, using everything from Charles’ Peak Income newsletter to the new Instant Income Alert offering from Lee Lowell.
No matter how you choose to approach it, the key is to make a plan and get going as soon as possible.
Because something will have to change.