Weekend Reading January 11, 2013
Social Security’s Old Forecasting Method Hides New Time Bomb, Researchers Say
This article has an interesting take on the already beleaguered Social Security trust fund. The forecasters mentioned in the article believe that the Social Security trust fund will become depleted a full two years before the current 2033 estimate. Their belief is due to the Social Security Administration’s methods of forecasting the trust fund’s value, which date back to the 1930’s.
Despite the worries that an article of this nature can cause for Baby Boomers, I am not very worried about Social Security meetings its obligations to Baby Boomers retiring in the next 10-12 years. The measures that are likely to be enacted will decrease the base benefits for future generations of retirees (who, once the trust fund is depleted, are likely to receive 75% of promised benefits) and possibly decrease the annual cost of living increases for current retirees (known as chained CPI.) Chained CPI would not have an immediate impact on retirees, but instead decrease the benefits over time, allowing retirees to consider other options to make up the decrease in income.
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Is the Bond Bear Market Finally Here?
While the Fed is likely to continue quantitative easing for the next few years, the bond market reacted to the news that some on the Board of Governors are unsure about the future of the program. This led to a decrease in the value of Treasuries in the end of 2012. Bond interest rates have been at historic lows for several years now, which leads many bond analysts believe that we are set to see an increase in rates in the near future. My own research makes me cautious about the strength of the bond markets, which is one reason why we have shortened the duration of our bond portfolios. I’ll post more about my research into the bond markets in the coming weeks and my thoughts about what investors should do to prepare.
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If you missed my post on the Fiscal Cliff deal, (ATRA) I recommend you give it a look, as there have been plenty of changes made to the tax code.