have just been released by the government which will add yet another layer of regulations and more paperwork on brokerage firms in the business of helping retires roll over their 401(k) accounts into IRA’s. The government suggests the new rules could save investors something approximating 16 billion dollars a year in savings from rogue sales tactics. What this ultimately means, of course, is higher costs to the investor who chooses to work with a bank or brokerage firm due to the added costs heaped on to comply. Next you will probably see a ‘government’ account come into law which will provide ‘lower costs’ and ‘government guarantees’ for investors as an alternative to the high cost brokerage firms…ironic eh?! So, the next time you get that invitation to a ‘free’ steak dinner to talk about retirement income strategies…read annuities… the fine print will be triple the size at the bottom of the invitation to please the government that you have been warned.

Speaking of retirement income, if you haven’t yet done so, go to the social security website, ssa.gov, and set up your personal social security account to be sure your statement looks right and also as a means to protect yourself against identity theft. Since the bureau has gone green and stopped mailing out the paper statements we all used to get it seems identity theft of benefits has been on the rise…especially for those seniors that do not use a computer. Check it out and be sure. Lots of people do worry about social security and the ability of the government to pay future benefits now that we have a 19 trillion budget deficit and climbing. There is a misconception that there has been money set into a special fund for social security and that the fund is now broke as the government has raided the account to pay for things like the Iraq war and entitlement programs. While there is tremendous stress on coverage for future social security payments as the baby boomers retire in ever increasing numbers in the years ahead, the coverage will remain close to 75% of future payment needs from current labor worker’s contributions. It has always been kind of a ‘rob Peter to pay Paul’ type of program as the money collected from wages is simply going into government bonds to fund payments. It was much more viable in years past as there were 4 and 5 workers to pay for each retiree. Soon the ratio is going to be closer to 1 for 1. There may be higher taxes ahead on earnings and who knows what else government may come up with, but the benefits will be paid…at some level.

Markets look to remain volatile over the months ahead as the Federal Reserve does its dance to try and talk about how they can’t remain on the four rate increase schedule talked about last year. (The bottom may or may not be in for the year as stocks continue to be aligned with oil and value of the dollar. We have seen some of the ‘bumps’ talked about in earlier letters, now we see if they re-test the February lows on stocks. The coming fall elections probably won’t help to calm the volatility either). This is all getting kind of comical. The bottom line is how in the world, with the aforementioned 19 trillion dollar deficit, can the government afford higher interest rates on the debt? Janet Yellen has been appointed to be the ‘talker in chief’ to manage expectations and tell us why rates can’t go up even as the ‘data’ she said was the determining factor has been aligned for said increases. The rest of the world is broke as well and they have been lowering rates, even going negative on rates, and using quantitative easing to help inflate their way out of debt and spur growth. Unless we do get a long period of stagflation and deflation, much like the Japanese economy has gone through for twenty years now, if seems future inflation is almost a given as this will help the government to pay down the deficit with cheaper dollars. Perhaps there is hope yet for savers in the years to come as we might see the return of the 10% CD. Let’s hope they are all not broke by the time rates do rise again.

By Joseph Harowski

Published April 7, 2016

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