Bob’s Journal for 7/15/21

Some Notable Events That Grabbed My Attention This Week

I recently had the pleasure of being the guest of Stan Haithcock (Stan the Annuity Man) on his podcast “Fun with Annuities.” We discussed tax and retirement legislation being considered in Congress, Social Security, digital currencies, a bit about annuities, of course, and more. You can listen free.

Peter Thiel’s $5 Billion Roth IRA Could Affect Your IRA

The website ProPublica received tax returns, apparently stolen from the IRS, that indicated Peter Thiel, an early investor in PayPal Holdings Inc. (NASDAQ:PYPL), has a Roth IRA with a $5 billion balance.

Congress is using that legal investment as a reason to consider restrictions and limits on all IRAs.

Thiel apparently accumulated his IRA balance in compliance with the tax code. As an early investor, he could acquire shares in PayPal at low cost and had his Roth IRA purchase some of them.

But leaders in Congress are upset that Thiel will be able to cash out the gains tax free.

House Ways and Means Committee Chairman Richard Neal (D-Mass.) said his committee is considering drafting legislation that would limit the amount of money that could be accumulated in tax-favored retirement accounts. They also are looking at other ways of limiting the use of retirement accounts.

Senate Finance Committee Chairman Ron Wyden (D-Ore.) says he plans to introduce legislation limiting the amount of money in Roth IRAs.

I have been warning about such moves for several years. The SECURE Act, enacted in 2019, was the first step in accelerating taxes on retirement account balances.

Among the other changes that have support in Congress are limiting IRA and 401(k) balances, eliminating contributions for those with incomes or account balances above certain levels and accelerating distributions on accounts above certain levels.

Congress also might impose required minimum distributions on Roth IRAs or include Roth IRA distributions in modified adjusted gross income when calculating taxes on Social Security benefits, the Medicare premium surtax and other Stealth Taxes.

I am monitoring the moves in Congress and will let you know when actions are taking place.

Who Will Need Long-Term Care?

The possibility of needing extended long-term care (LTC) is a major concern of most retirees and pre-retirees. One reason for the concern is the uncertainty over who will need LTC and how much it will cost.

While we know some people will need extended, expensive LTC, there’s little data available to guide people on the probability of needing such care.

The Center for Retirement Research at Boston College (CRR) is working to generate more reliable data to help people plan their retirement finances.

The first report from CRR analyzes two decades of data from the long-term Health and Retirement Study to determine who needed substantial LTC in the past.

The report concludes that about one-fifth of retirees won’t need any LTC or similar assistance. About 25% will have severe needs.

Another 22% will have minimal LTC needs, and 38% will have moderate needs.

That means about 58% of retirees will have moderate to severe LTC needs and about 42% will have no or minimal needs.

Diving further into the data, CRR found that LTC needs tend to be lower and more manageable for retirees who are married, better educated, white, or in better-than-average health.

Of course, the broad probabilities can’t predict individual cases. Many people who have profiles matching those with low needs nevertheless end up having moderate or severe LTC needs.

The report is geared toward academics and policymakers, but it is worth reading by anyone who is planning for possible LTC needs or who helps with LTC planning.

The ECB Commits to Higher Inflation

The European Central Bank (ECB) recently announced it joined the Federal Reserve in accepting higher inflation.

The ECB raised its target for inflation over the medium term.

Previously, the central bank said the desirable inflation target was below or close to 2%.

In the latest announcement, the ECB said periods above and below 2% are equally desirable.

The ECB’s new policy isn’t as tolerant of inflation as the Fed’s policy. The Fed said that it wants inflation to average 2% over the long term. Since inflation was below 2% for a number of years, the Fed indicated it would tolerate inflation above 2% until the long-term average is around 2%.

The ECB historically has been more cautious about inflation than the Fed and continues to be so. It is unlikely to tolerate an extended period of inflation above 2% or engage in the long-term averaging approach of the Fed.

But the ECB does recognize that deflation is a serious concern, and it doesn’t want to tighten policy prematurely and push the continent’s economy into a recession.

The Data

The Consumer Price Index (CPI) increased 0.9% in June and 5.4% over 12 months.

The 12-month increase is the highest since August 2008.

Excluding food and energy, the CPI rose 0.9% in June and 4.5% over 12 months. The 12-month increase is the highest since September 1991.

Used car and truck prices increased 10.5% in June and accounted for more than one-third of the CPI’s increase for the month. Over 12 months, used car and truck prices increased 45.2%.

There also were strong price increases in food, energy and housing.

Whole prices, as measured by the Producer Price Index (PPI), also increased. The PPI increased 1.0% in June and 7.3% over 12 months. The 12-month increase is the highest since November 2010, when the index was first issued.

Excluding food and energy, the PPI increased 0.5% in June and 5.5% over 12 months. The 12-month increase also is the highest since the index was first developed.

Business owners were more optimistic in June, according to the Small Business Optimism Index from the National Federation of Independent Business (NFIB). The index increased to 102.5 from 99.6. That’s the first time the index has been above 100 since November 2020.

A record number of small business owners continue to report that finding qualified employees is their biggest problem. There also are supply chain problems that make it difficult for many small businesses to maintain inventory.

There were 373,000 new unemployment claims filed in the latest week. That’s an increase of 2,000 from the previous week, which was revised higher to 371,000 from the 364,000 initially reported. It is the second consecutive week that claims were under 400,000.

Continuing claims decreased by almost 450,000 to 14.2 million. A total of 33.2 million Americans still were receiving some form of unemployment benefits.

The Markets

The S&P 500 rose 0.61% for the week ended with Tuesday’s close. The Dow Jones Industrial Average gained 0.92%. The Russell 2000 lost 1.58%. The All-Country World Index (excluding U.S. stocks) added 0.39%. Emerging market equities are 0.32% lower.

Long-term treasuries lost 1.04% for the week. Investment-grade bonds declined 0.45%. Treasury Inflation-Protected Securities (TIPS) added 0.08%. High-yield bonds fell 0.34%.

In the currency arena, the U.S. dollar rose 0.24%.

Energy-based commodities increased 1.57%. Broader-based commodities added 1.83%. Gold gained 0.67%.

Bob’s News & Updates

My latest book is “Where’s My Money: Secrets to Getting the Most out of Your Social Security.” It tells you clearly what your benefit options are in different situations and how to determine the best choice for you. You can find it on Amazon.com or Regnery.com.

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A recent five-star review of my book on Amazon.com said, “A complete retirement guide! One of the best books on this topic!” Click for more details about the revised edition of “The New Rules of Retirement.”

If you’re interested in my books, check my Amazon.com author’s page.

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