Monday, January 4, 2016

August 1, 2012

The Unemployment Dilemma

     The official unemployment rate has been hovering at about 8.2% during 2012, but it's down from its recent peak 10.3% in October of 2009 (Source: National Conference of State Legislatures).
     When you look at how the economy has evolved over the last twenty years, it is amazing that the rate isn't higher.  Consider these trends and events:
·         Technological advances have encouraged American companies to replace human employees with machines (bank tellers vs. ATMs).
·         Outsourcing of manufacturing jobs to poorer countries is a continuing trend.
·         Internet shopping has devastated not just local retail stores, but major corporations (book stores).  As the dominant online sales company continues to expand its product line, it threatens other retail companies, big and small.
·         Internet services have reduced the need for human service providers (travel agents and financial advisors).
·         Government job reductions not only increase the unemployment rate, but it means that fewer workers will spend their money at private businesses.  Think Furlough Fridays in Sacramento.
·         Consumers have never recovered from the economic disaster of 2008.  People in the middle class are afraid to spend for discretionary items.  At our art studio, sales have not come close to what they were before.  While frugality is good, it doesn't stimulate the economy. 
·         Huge corporations continue to consolidate and merge.  This reduces the number of mid-level jobs.  As industries become oligopolies or virtual monopolies, employees with industry-specific skills are less able to bargain for good paying jobs. 
·         Finally, the worldwide recession continues to drag on, reducing demand for American products.
As confidence in the economy grows, businesses and consumers will start to spend more. Job growth will increase and unemployment will decline, but due to fundamental shifts in the type of jobs available, the U.S. economy may never reach that magical "full" employment number again.

The Sixties…Not those Sixties.  It’s a Great Time for Financial Strategizing.
     For most of your adult life, doing wise financial planning is a good idea, but you don’t always have many options.  When you approach your retirement years, usually starting in your Sixties, there are lots of options and the decisions that you make will impact the rest of your life:
·         When should you retire or start working less?
·         When and how should you start taking Social Security?
·         When should you start taking money out of your IRAs and other retirement plans?  Except for Roths, you have to start taking Required Minimum Distributions (RMDs) the year you turn seventy and a half. 
Often these questions are decided by considering all three together.  Sometimes, these decisions are forced upon you by financial or other circumstances.  Your tax bracket and your proximity to a higher tax bracket factor into this equation. 
It may make sense to start withdrawing from your retirement accounts after you retire, but before you apply for Social Security.  Delaying when you start SS can increase your monthly benefits by 32% if you start them at 70 instead of 66, but if you are in financial need, poor health or if longevity is not a strength of your family history, starting earlier may make sense.
It is impossible to generalize here, so if you have some of those decisions on your near horizon, you might consider stopping in for an hourly consultation with me.  Cost is $150 per hour, no minimum time required.  Normally a one to two hour consultation should help put your options into perspective.

The Merry-Go-Round Stock Market
          The Stock Market can be frustrating when it’s in its merry-go-round phase.  It goes up and down, around and around, never go anywhere.  In early September of 2014, the Standard and Poor’s 500 Index was at 2000.  As of December 13, 2015, it was the same.  During the past fifteen months, it has been as high as 2135 (up 6.7%) and as low as 1867 (down 6.7%).  Source:  Yahoo Finance.
          This follows six years of relatively steady growth, up 220% from its low of 667 in February of 2009.  But, if you haven’t forgotten, this followed the disastrous drop of 57.6% starting in October of 2007.
          The economy never really recovered from 2007, though the Stock Market is up 27% since its peak that year.  There are lots of possible causes that may or may not be to blame, but it is what it is.
          With a Presidential Election coming featuring some very peculiar candidates, who knows what the giraffes and zebras on the carousel will do next.