Bidenomics, Mixed Messages and Your Ten Year Plan

Lewis Walker |

In late June, President Biden was in Maine touting the benefits of his economic plan, proclaiming that Bidenomics is driving an American manufacturing boom and is helping workers and innovators invent and make more goods here at home. On the same day, speaking in Iowa, Vice-President Kamala Harris said, “Most Americans are a $400 expense away from bankruptcy.” So which is it? Joe says his plan is benefiting workers while his veep says most Americans are broke. Talk about “mixed messages!”

At the household level, economics is about income and expenses. Incomes are rising and jobs are plentiful. But is your income keeping pace with inflation? Does your net after-tax income exceed your monthly expenses, allowing you to save for future expenses, say, big ticket items like buying a first home or a vacation home, upgrading your existing home, raising children, paying for educations, weddings, career advancement, ultimate retirement?

According to the Bureau of Labor Statistics, on a net after-tax basis, it takes $118.27 as of June, 2023, to equal the buying power of $100 in January, 2020. That’s inflation! Years ago, Milton Friedman, the acclaimed economist and educator at the University of Chicago, told students that inflation, pure and simple, is a monetary phenomenon. “It’s always and everywhere, a result of too much money, of a more rapid increase in the quantity of money than in output.” In other words, “too much money chasing too few goods.”

We know what happened. During the height of the Covid-19 epidemic, people stayed home, factories shut down, and the supply chain was interrupted. President Biden poured trillions of dollars into the economy, and while some folks saved money and paid down debts, most of the created and borrowed money found its way into increased spending midst shortages of goods. Why was surging inflation a surprise?

Long range forecasting is an exercise in guesswork. But suppose you are in your mid- to late-50s, and in ten short years, by 2033, you want to retire, or just be economically self-sufficient to the point where work is optional. According to the Alliance for Lifetime Income, 51% of consumers age 45 to 75 don’t have sufficient retirement savings to last their lifetime. What would a thirty-year non-working time frame look like? Pensions are increasingly rare and distributions from tax-qualified retirement accounts are taxed at ordinary income rates. If your total annual income is more than $25,000 for an individual or $32,000 for a married couple filing jointly, you must pay federal income taxes on your Social Security benefits. Also, depending on your total taxable income, which can include interest from savings or from bond portfolios, dividends from stocks or other income producing assets, and capital gains from asset sales, you may pay more for Medicare Part B premiums. Premiums for a current year are based on your tax return filed two years ago. For 2023, for example, Part B premiums range from $164.90 per month, up to $560.50 per month for top earners. Medicare is not free!  Tax planning is important in preparing for retirement, especially if major asset sales involving a closely-held business or other property are contemplated as prelude to retirement or financial independence.

According to “The Wall Street Journal,” as of August 3, 2023, since June, 2022, “All Items” inflation is up by 3%. “Core Inflation” which measures the change in the costs of goods and services, excluding food and energy, is up by 4.8%. Use the latter figure in thinking about your next ten years, especially if you plan to eat and move around.

Suppose you and your significant other want to take a quality dream trip in 2034 in comfort, say an eleven-day European sojourn featuring Switzerland and a Rhine River cruise on a top-tier ship with a highly rated tour operator, upper deck with a French balcony. The 2024 fare for a couple is $22,790, air transportation not included. In ten years at a mere 2.50% annualized inflation and cumulative inflation of 28.01%, the price for our happy couple would approach $30,000. With Congress fighting over federal budget restraint, and with continued borrowing and money printing required to support federal spending, what’s your outlook as to tax rates and inflation rates going forward?

Some tour operators and cruise lines proclaim, “air fare is included from select cities.” That normally is for basic economy, not upgraded economy, or first or business class. Always look for the “tour only” price and then compare that with what you could book on your own, especially if you can use airline points. An experienced travel agent can help you sort out options and make good choices.

What do your “next ten” years look like, in terms of basic necessities compared to higher style dreams and comfort? What about needs for other family members or grown children or grandchildren that you may be called on to fund? What about your health care needs or that of loved ones?

Planning can tax the mind. But “someday” is not a time frame. Procrastination is not a strategy. Your “next ten” can get complicated fast. Start planning now!