BFSG Blog - Benefit Financial Services Group

By:  Michael Allbee, CFP®, Senior Portfolio Manager

Last week, we tackled one of America’s largest mandatory spending programs, Social Security (forecasted to account for 21% of total government spending in 2023) and answered the question, Is Social Security on life support? However, did you know Medicare and Medicaid are projected to account for 26% of total government spending in 2023? Together, Social Security and Medicare programs will be responsible for nearly 80% of the deficit’s rise between 2023 and 2032, according to Congressional Budget Office (CBO) projections.

Absent any reforms, Medicare’s Hospital Insurance Trust Fund will be insolvent by 2031, two years before the insolvency of Social Security (2033). If this were to happen, Medicare hospital insurance payments would be cut by more than 10%. The 2023 Trustees Report shows that a significant payroll tax hike of 4.2% would be required to close the current funding gap for Social Security’s Old Age, Survivors, and Disability Insurance (OASDI) and Medicare.

Just as with Social Security, many options have been proposed and combining some of these may help soften the impact of any one solution to solve the funding of Medicare. For too long politicians on both sides of the aisle have chosen to ignore the problem. The risks to our economy will only continue to grow the longer we wait to address them.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

BFSG’s CERTIFIED FINANCIAL PLANNER™ professionals, Michael Allbee, CFP® and Paul Horn, CFP®, CPWA®, were invited to be guest speakers for the “It’s Your Money!” workshop series. For the “Investment World” session, Mike and Paul focused on how the investment world gets compensated. Learn the differences between brokers versus advisors, what does the word “fiduciary” mean, how to find an advisor, and most importantly how certain products are sold, and the way brokers/dealers are paid. Watch the replay by clicking here.

The “It’s Your Money!” workshop series is hosted by Peter Kote for his not-for-profit Financial & Estate Literacy. These workshops educate seniors to take control of their #financial, #estate, and #charitablegiving decisions. You can check out the entire spring series here.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

By:  Michael Allbee, CFP®, Senior Portfolio Manager

Social Security isn’t in danger of going broke since it’s financed primarily through payroll taxes, but the financial health of the Social Security trust fund is declining, and benefits may eventually be reduced unless Congress acts. The Social Security Board of Trustees has estimated that its trust fund has reserves to pay all scheduled benefits only until 2033. If Congress fails to act to shore up the system, benefits could be cut indiscriminately by 23%. This would equate to a $420 monthly reduction in the average monthly Social Security check ($1,827) for a retired worker.

The basic problem with the financing of Social Security is one of demography. Beneficiaries are living longer, while low fertility rates mean that fewer people have been entering the labor force over time. If there is a will by Congress to engage in serious discussions, there is a path to putting worries about the long-run viability of the program behind us. It was done before in 1983 with the support of both political parties – Congress enacted changes that fixed about two-thirds of the long-run funding requirements estimated at the time.

Many options have been proposed and combining some of these may help soften the impact of any one solution. For example, the Committee for a Responsible Federal Budget (CRFB) estimates that raising the retirement age by two years to age 69, and then indexing it to longevity, would close 39% of the 75-year funding shortfall. Or the CRFB has estimated that if, instead, all wages were subject to the Social Security payroll tax (instead of the first $160,250 in wages), 63% of the long-run funding gap could be closed. Here is an interactive tool to see how you can fix Social Security.

Tampering with Social Security has always been considered political suicide because of the political clout of seniors, but consider this: those considered Millennials and younger (born after 1980) will outnumber the rest of the older voting population (mostly baby boomers) around the 2028 election and will subsequently get relatively bigger and bigger. With intergenerational inequality at near record highs, Congress may want to stop kicking the can down the road sooner than later.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

By:  Paul Horn, CFP®, CPWA® Senior Financial Planner

For most couples, the leading cause of fights is over finances. To best handle finances it is best to have open and honest communication and to work with a Certified Financial Planner™ professional who can be a neutral third party. In my experience, many fights over finances are over minor things that can be easily avoided. Below is a solution I have utilized for many clients that works because it eliminates the likelihood of fights over these smaller items. Take a look at the steps below to see if it may be a good solution to help you and your spouse better manage finances and reduce fights.

The first step is to establish the budget.

For this exercise, we will look at Hector and Helena Dominguez. Hector thinks that Helena spends too much on dining out and shopping while Helena feels Hector spends too much on golfing and cigars. They would like to save more but blame the other spouse for them not saving enough. We took a look at the budget, to begin with, and listed all their monthly expenses like mortgage, utilities, insurance, and car payments. After adding up the expenses their monthly total was $6,800. We then looked at their take-home pay from their jobs and this totaled $9,200 a month. They also have to save and invest each month, and this is another $1,000 a month. This meant after bills are paid and money is saved, they have $1,400 a month left over ($9,200 Income – $6,800 for bills – $1,000 Savings = $1,400). From here Hector and Helena discussed how much they want to have for discretionary expenses and they both agreed they each get a $500 a month “allowance”. The key to making the allowance work is that they get to spend that money on anything they want (within reason) and the other spouse cannot hassle them on how the money is spent. The key though is once the money is gone, they cannot spend any more until the next payday.

The second step is to set up proper accounts.

To make sure that all the bills are paid, their paychecks are direct deposited into a joint checking account. All the monthly bills are set up to be automatically paid from this account. Both Hector and Helena have to agree that they will not take any money out of this account. From the bills account, 3 additional transfers are set up:

1. $1,000 transfer to the savings account
2. $500 transfer into a checking account in Hector’s name only
3. $500 transfer into a checking account in Helena’s name only

Why this system works.

The whole point of this system is to automate budgeting and reduce the potential for arguments. Putting the money into the bills account and not allowing anyone to spend from that account ensures that everyone sticks to the budget and ensures bills are paid on time each month. Having the monthly transfers into savings helps them achieve future financial goals. Each spouse has a separate “allowance” account that is their money to spend until it is gone. This can help avoid spouses fighting over money since everything is automated and it works beautifully as long as each spouse does not overspend from their spending account.

While this system may not be for everyone, it is important to have some system in place to reduce the chance of overspending and make sure there is proper savings. If you are struggling with budgeting or if finances are a challenge in your relationship, please reach out so we can help. Please contact us at finanicalplanning@bfsg.com.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

All major market indices finished the quarter with positive returns. Equity markets, as measured by the S&P 500 Index, rose by 7.5% during the first quarter after finishing 2022 down 18.1%.

Seven of the eleven S&P 500 sectors finished the first quarter with a positive return. The three top performers during the quarter were the three worst performing sectors in 2022. Communication services was one of the best performing sectors in the first quarter due to strong gains from internet-focused tech stocks, as lower rates and the rotation to mega-cap tech companies pushed the sector higher. Consumer discretionary, which has larger weightings towards tech-based consumer companies such as Amazon, also posted positive gains as the labor market remained more resilient than expected, improving the prospects for consumer spending in the months ahead.

By market capitalization, large caps outperformed small caps, as they did throughout 2022. Concerns about sources of funding should the banking crisis worsen, and higher interest rates, weighed on small caps as smaller companies are historically more dependent on financing to maintain operations and spur growth.

From an investment style standpoint, growth outperformed value which was a reversal from 2022. Tech- heavy growth funds benefited from the decline in bond yields and a late-quarter “flight to safety” amidst the regional banking crisis. Value funds, which tend to have larger weightings towards financials, were plagued by concerns about a potential broader banking crisis.

Foreign markets performed in line with domestic markets in the first quarter. Foreign developed markets outperformed the S&P 500 Index during the quarter as economic data in Europe was better than expected and European banks were viewed as mostly insulated from the U.S. regional bank crisis, with the exception of Credit Suisse which was forced to sell to UBS. Emerging markets produced slightly positive returns during the quarter but underperformed the S&P 500 Index largely due to elevated geopolitical stressors (e.g., US – China tensions) and projected weaker global growth in 2023.

U.S. consumer inflation rates continued to slow after reaching a multi-decade peak of 9.1% in 2022. Cooling inflation allowed the Federal Reserve to ease up on raising interest rates; however, the regional banking crisis raised concerns about a recession which fueled a broad bond market rally in the first quarter.

Inflation, as measured by the Consumer Price Index (CPI-U), grew at a pace of 5% for the past 12-month period ending March 31, 2023, marking the smallest 12-month increase since May 2021. The core inflation reading, which excludes food and energy, rose 5.6%. The energy index decreased 6.4% offsetting the increase in the food index of 8.5% over the last year. 

Both the unemployment rate at 3.5% and the number of unemployed U.S. workers at 5.8 million remained basically the same in March, and have shown little movement since the beginning of 2022. The labor participation rate trended upward in March to 62.6%.