Bob’s Journal for 5/16

I recently was interviewed by Josh Jalinski for his “The Financial Quarterback” podcast and radio show on WOR-AM in New York. We began by discussing some of my background and the history of Retirement Watch.

Of course, we also delved into the top financial issues of the day, including likely upcoming changes in taxes and the topics my readers ask about the most.

Listen on the WOR website or Apple podcasts.

Pandemic Savings Have Been Spent

U.S. consumers improved their balance sheets during the pandemic, thanks to the fiscal stimulus programs.

But the extra savings might be depleted, according to research by two Federal Reserve economists.

Last year, the economists issued a study of recent household savings patterns that concluded households accumulated unprecedented excess savings during the pandemic. Excess savings are actual savings that exceed the pre-recession trend.

Typically, households save more during a recession. But in the pandemic recession, U.S. households saved far more than in previous recessions.

The economists then established a monthly tracker that estimated how rapidly households were spending the excess savings.

The tracker found that households maintained their pandemic spending levels by reducing their savings, and that in March 2024, all the excess savings had been spent.

The excess savings were accumulated over 18 months and peaked at $2.1 trillion in August 2021. Over the next two-and-one-half years, the excess savings were spent at an average rate of about $70 billion per month.

The excess savings were one reason consumer spending remained robust the last two years despite higher interest rates and inflation.

The depletion of excess savings doesn’t mean households will slash spending and we’ll tumble into a recession.

The pandemic stimulus created economic growth that appears to be sustained. The labor market remains strong, creating compensation increases that allow consumers to maintain their spending.

In addition, prices of stocks and houses have increased. Those gains provide additional sources of support for retail spending.

Physical Gold vs. Gold Mining Company Shares

The gold market has been different than usual in the last year, and we can see a major change in the difference between the prices of physical gold and gold mining company shares.

In the past, there were two simple rules. The first rule was that physical gold and gold mining company shares move in the same direction. When gold rises, so do the prices of mining shares. When gold’s price falls, the shares follow.

The second rule is the prices of mining shares move more than the price of physical gold. When the price of physical gold rises 10%, prices of mining shares rise 20% or more.

The share prices move more than physical gold primarily because the mining companies have overhead and leverage.

The price of gold has to be a minimum amount for the mining companies to be profitable. Once gold reaches the minimum, most of each additional dollar in gold’s price goes to the bottom line.

The companies were mining the same amount of gold but being paid more for it. That made the shares exponentially more valuable as the price of gold increased.

The interplay made gold mining company shares more volatile than physical gold. Investors willing to take more risk would buy mining shares when they expected the price of gold to rise.

But the historic rules were broken for most of the last 12 months.

Over the last 12 months, a major ETF of gold mining company shares, VanEck Gold Miners (GDX), is up only 5.71%. For the year to date, it is up only 12.71%.

The iShares Gold Trust (IAU), which owns physical gold, gained 15.98% over 12 months and 13.25% for the year to date.

Physical gold earned a higher return than the mining company shares.

But more recently, the historic rules seem to have been restored.

GDX is up 34.99% over three months and 3.52% over four weeks. IAU is up 17.27% over three months and is down 0.23% in the last four weeks.

The old rules weren’t followed until the beginning of March for several reasons.

Higher interest rates are bad for mining company shares, because many of the companies have debt. Higher rates also are bad for stocks in general because the shares must compete for investor dollars with lower-risk investments that now are paying higher yields.

But the major influence probably was that most of the gold purchasers of the last year wanted the physical metal.

They weren’t buying as an investment in anticipation of short- or medium-term profits.

Gold buyers wanted a safe haven from paper currencies and financial assets. They wanted physical gold, not shares of mining companies.

Central banks were buying to diversify their reserves. China has been an especially strong buyer of gold over the last 18 months, as I’ve discussed in the recent past. The central banks are buying and storing physical gold.

The most recent price moves indicate the old relationships might have returned.

An investor who followed the traditional rules over the last 12 months would have earned lower returns in mining shares than anticipated, while taking more risk than a buyer of physical gold.

Of course, there’s no way to be sure the most recent trend will continue and that the old rules will prevail going forward.

How Much Money Do You Really Need to Retire?

Most people are confused about how much money they need to retire comfortably, and financial services firms often add to the uncertainty.

Two recent surveys show such confusion, especially when compared with other data.

Americans who are near retirement say, on average, they now need $1.46 million to retire, according to the Northwestern Mutual 2024 Planning & Progress Study. That’s 15% higher than a year earlier and a 50% increase since 2020.

The increase is significantly more than the roughly 5% annual inflation during that period.

In another survey, about 49% of workers said they needed more than $1 million, according to the 2024 Retirement Confidence Survey from EBRI. Of the total workers responding, 21% said they needed $2 million or more.

These surveys point to a significant retirement crisis in the making, because the Northwestern Mutual survey found the average worker has less than $100,000 saved for retirement.

But other information tells a different story.

In the EBRI survey, of those already retired, 33% said they needed less than $500,000 to support their spending. Only 41% said they needed $1 million to $2 million. And only 12% said they needed more than $2 million.

Retirees also reported needing considerably less money than in the two surveys of pre-retirees, according to the Survey of Household Economics and Decisionmaking by the Federal Reserve.

In that survey, many who reported “doing OK” or “living comfortably” in retirement had less than $250,000 in savings.

One reason for the discrepancy between retirees and pre-retirees could be that most pre-retirees have no idea how much money they’re spending now and how much their planned retirement lifestyle would cost.

Most pre-retirees also don’t realize that data show most retirees reduce their spending (after adjusting for inflation) as they age. Most financial plans, however, assume spending steadily increases with the inflation rate each year.

Another possibility is that pre-retirees underestimate how much they’ll receive from Social Security and many probably assume they’ll receive little or nothing from the program.

Student loans, plus rising housing costs and the recent stickiness of inflation, probably scare a lot of people into overestimating their retirement spending needs.

But the record of current retirees indicates that most Americans will be secure in retirement if they save steadily, invest reasonably and make good decisions about Medicare, Social Security and the other retirement finance issues we discuss each month in Retirement Watch.

The Data

The Consumer Price Index (CPI) rose 0.3% in April, down from 0.4% in March. Over 12 months, the CPI was up 3.4% through April and 3.5% through March.

The core CPI (which excludes food and energy prices) increased 0.3% in April and 0.4% in March. The core CPI increased 3.6% for the 12 months through April and 3.8% for the 12 months through March.

The Housing Market Index from the National Association of Home Builders (NAHB) declined for the first time since November 2023 in May and fell to the lowest level in four months, 45.0. It was 51.0 in April.

The Consumer Sentiment Index from the University of Michigan tumbled in the first half of May to 67.4 from 77.2 at the end of April.

The mid-May number is the lowest in six months. It is no coincidence that inflation expectations for both the next 12 months and the next five years increased to the highest levels in six months.

Retail sales were unchanged in April, and March’s increase was revised lower to 0.6%. In April, sales declined in seven of the 13 categories with the biggest dip coming in non-store retailers.

Excluding autos and gas, retail sales declined 0.1% in April after rising 0.7% in March.

Retail sales increased 3% over the 12 months ending in April after rising 3.8% for the 12 months through March.

Consumer inflationary expectations jumped to 3.4% in April 2024 from 3.0% in each of the previous four months, according to the New York Federal Reserve Bank.

The Small Business Optimism Index from NFIB increased to 89.7 in April from 88.5 in March, which set a 12-year low.

Inflation remained the top concern, identified by 22% of business owners as their primary challenge. About 40% of business owners said they had job openings they could not fill, an increase of three points from March.

The Empire State Manufacturing Index declined to negative 15.60 in May from negative 14.30 in April. The index has been negative for six consecutive months and eight of the last 10 months.

The Producer Price Index (PPI) was 0.5% in April, following a negative 0.1% reading in March. The March number was revised lower from the initial reading. Over 12 months, the PPI increased 2.2% through April and 1.8% through March.

The core PPI, which excludes food and energy, also increased 0.5% in April. March’s number was revised down to a 0.1% increase.

Over 12 months, the core PPI increased 2.4% through April and 2.1% through March.

New unemployment claims jumped by 22,000 to 231,000 in the latest week. That’s the highest level since August 2023, but still below the long-term average and the three-year high of 261,000 in June 2023.

Continuing claims, which lag a week behind new claims, increased to 1.785 million from 1.768 million.

The Markets

The S&P 500 rose 2.44% for the week ended with Tuesday’s close. The Dow Jones Industrial Average gained 4.19%. The Russell 2000 increased 4.11%. The All-Country World Index (excluding U.S. stocks) added 4.83%. Emerging market equities advanced 6.22%.

Long-term treasuries gained 0.97% for the week. Investment-grade bonds increased 0.96%. Treasury Inflation-Protected Securities (TIPS) added 0.82%. High-yield bonds rose 1.35%.

On the currency front, the U.S. dollar declined 0.59%.

Energy-based commodities fell 3.22%. Broader-based commodities rose 1.05%. Gold advanced 0.61%.

Bob’s News & Updates

A recent review on amazon.com of my latest book said, “Carlson is a unique national Asset while alive! Get the book, dude!” Look for “Retirement Watch: The Essential Guide to Retiring in the 2020s” (Regnery Capital: 2023) at amazon.com, barnesandnoble.com, booksamillion.com and regnery.com.

My previous book, “Where’s My Money: Secrets to Getting the Most out of Your Social Security,” is receiving mostly five-star reviews on Amazon for telling 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.

The number of regular viewers for my Retirement Watch Spotlight Series continues to increase. You should sign up because I make in-depth presentations of key retirement finance topics. You can watch these online seminars from the comfort of your home or office at times you choose. To learn more about my new Spotlight Series, click here.

A recent five-star review of my book, “The New Rules of Retirement” 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.

I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.