Bob’s Journal 6/26

Social Security Retirement Trust Fund Continues Toward Insolvency

The Social Security trust funds have $2.72 trillion in assets, but they’re likely to run out of money in less than 10 years, according to the 2025 annual report from the Trustees of Social Security and Medicare.

The Social Security system has two trust funds. The major fund pays Old Age and Survivors Income, better known as retirement benefits. The other fund pays disability income.

The combined trust funds are estimated to run out of assets in 2034, one year earlier than projected last year. The retirement trust fund is forecast to be depleted in 2033, the same as in last year’s projections.

The system started spending down the trust funds in 2021. The cost of the system began exceeding its non-interest income in 2010 and has exceeded its total income since 2021.

Of course, the system’s costs are expected to exceed income each year for the entire 75 years covered by the projections.

Last year, the trustees estimated the deficit over 75 years would be 3.50% of payroll. The latest report increases the deficits to 3.82% of payroll.

It’s important to remember that even if Congress doesn’t act, the exhaustion of the trust funds doesn’t mean Social Security benefits will end.

Each year, Social Security receives contributions from payroll taxes and self-employment taxes. Those amounted to $1.29 trillion in 2024. The system also received $55 billion in taxes on Social Security benefits paid.

Those income sources will continue and could increase, depending on the performance of the economy.

The trustees estimate that after the trust funds are exhausted, the recurring annual revenue will be sufficient to pay 81% of scheduled benefits. If Congress doesn’t act, there will be a 19% across-the-board reduction in benefits.

I don’t recommend beginning Social Security benefits early in reaction to the projection of the exhaustion of the trust funds. That would lock in lower lifetime benefits.

You’d be hurt if Congress takes action to shore up the program in some way. You’d be hurt more if Congress doesn’t act and the across-the-board benefit cut takes effect. I think people would be better off having that cut imposed on the higher benefit received by delaying the start of Social Security benefits.

Another Celebrity Estate is in Trouble

Singer, songwriter and entrepreneur Jimmy Buffett passed away in September 2023. Though Buffett was sophisticated at business and had good advisors, his estate is in turmoil.

Buffett wrote his will more than 30 years before his death and amended it multiple times. The final version was simple. Most of his estate went to a trust for the benefit of his widow, Jane. His three children will receive the trust remainder after Jane passes away.

The complication is that Buffett named two co-trustees, his wife and his longtime business manager, Richard Mozenter. The two have filed lawsuits against each other.

Jane Buffett alleges that Mozenter is refusing to provide her details about trust assets and is openly hostile and adversarial. She also believes Mozenter is charging excess fees to the trust and mismanaging assets.

Mozenter denies those charges and alleges Jane Buffett is interfering in business decisions. He also said Jane is refusing to collaborate in managing the trust and is acting in her self-interest.

As I’ve said before, the people you name to administer and execute your estate plan are key to the plan’s success or failure. Even a plan that is excellent on paper can be a disaster if the wrong people are appointed.

It’s not clear why Buffett’s co-trustees don’t get along or what their relationship was before the singer passed away. Perhaps they had a good relationship that changed after they became responsible for the trust.

Whatever the case, Buffett’s plan needed a process for resolving conflicts without going to court, especially when there are only two co-trustees.

Perhaps there should have been a third co-trustee who is independent of the other two. There are many other options, and the best choice depends on the people involved. But in Buffett’s estate, there is no process other than the two trustees suing each other.

When there’s significant wealth at stake, such as in Buffett’s estate, it’s worth considering a professional trustee as either the only trustee or as co-trustee with friends or family members.

You can’t ensure people will get along and be cooperative. But you can reduce the potential for conflicts and have a process in place for conflicts to be resolved.

The Story of DOGE and Social Security

Soon after it was created, the Department of Government Efficiency (DOGE), led by Elon Musk, quickly identified Social Security as a potential source of significant spending reductions.

DOGE’s efforts made headlines, confused people and caused some people to panic.

Things have calmed down. Musk left his government role, and DOGE appears to be focused elsewhere.

The New York Times pieced together what happened behind the scenes, including the resignation of high-level Social Security employees and the appointment of a mid-level employee as acting commissioner.

In the Times telling, the controversies began with misinterpretations of Social Security data by DOGE workers. They quickly promoted their conclusions and made widespread false allegations, primarily through social media.

The biggest false allegation was that many dead people were receiving Social Security benefits. Another incorrect allegation was that Social Security knew that 40% of calls to the agency were from scammers.

In the course of DOGE’s attempted takeover of Social Security, nearly half of the senior employees and thousands of its total employees left the agency, either voluntarily or involuntarily.

After the DOGE employees made their initial misinterpretation of the data, they found it difficult to drop the idea that it was possible to wring billions of dollars of savings from the agency without cutting benefits. That was one reason DOGE employees sought access to the database of individual records.

The Times article is an interesting read.

Perhaps the biggest damage from these events is that more Americans claimed their benefits before full retirement age than in previous years. They sacrificed higher lifetime earnings when they panicked in response to headlines and social media discussions.

Those who claimed benefits early because of the negative publicity have an opportunity to recover.

Someone who claimed Social Security benefits can change his or her mind without penalty in the first 12 months, contact Social Security and withdraw the benefit application. The benefits received so far have to be repaid, but benefits can be claimed in the future and won’t be reduced for the earlier claim.

The Data

The Consumer Confidence Index from The Conference Board was 93 in June, down from 98.4 in May.

There were declines in consumers’ assessments of both their present situations and expectations. The Expectations Index was 69.0. A level of 80.0 or less usually indicates a recession is ahead.

The lower confidence levels were shared across age and income groups, as well as political affiliations.

The Leading Economic Index from The Conference Board fell 0.1% in May to 99.0. Also, April’s decline was revised lower from the original 1.0% to 1.4%.

The Conference Board said the index now is foretelling a recession, because the index’s 2.7% decline in the last six months exceeds the 1.4% fall in the previous six months.

Even so, The Conference Board said it anticipates a significant reduction in economic growth but not a recession. It is forecasting a 1.6% increase in real GDP for 2025 with lower growth in 2026.

The PMI Services Index fell in the first half of June to 53.1 from 53.7 at the end of May.

The PMI Manufacturing Index was 52 in mid-June, the same as at the end of May.

The PMI Composite Index fell to 52.8 in mid-June from 53 at the end of May.

New home sales dropped 13.7% in May, the biggest monthly percentage decline since June 2022, after rising 9.6% in April.

Existing home sales increased 0.8% in May after declining 0.5% in April.

Home prices increased 0.8% in April following a 1.1% rise in March, according to the S&P Corelogic Case-Shiller Home Price Index.

The index rose 3.4% for the 12 months through April, down from the 4.1% increase through March.

The House Price Index from the Federal Housing Finance Agency fell 0.4% in April after being unchanged in March. The index rose 3.4% for the 12 months through April, down from the 4.1% increase through March.

The Philadelphia Fed Manufacturing Index was unchanged in June at -4.0.

The Richmond Fed Manufacturing Index improved to -7 in June from -9 in May.

New unemployment claims and continuing claims were included in last week’s Bob’s Journal because they were released a day early due to the Juneteenth holiday.

The Markets

The S&P 500 rose 1.85% for the week that ended with Tuesday’s close. The Dow Jones Industrial Average gained 2.10%. The Russell 2000 increased 2.84%. The All-Country World Index (excluding U.S. stocks) added 1.66%. Emerging market equities advanced 2.81%.

Long-term treasuries gained 2.81% for the week. Investment-grade bonds increased 0.88%. Treasury Inflation-Protected Securities (TIPS) added 0.46%. High-yield bonds gained 0.93%.

In the currency sector, the U.S. dollar declined 0.84%.

Energy-based commodities dropped 5.83%. Broader-based commodities lost 4.28%. Gold declined 1.79%.

Bob’s News & Updates

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