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Don’t Ignore These Retirement Mistakes. Part-2.

Don’t Ignore These Retirement Mistakes. Part-2.

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In Part-1, we explored mistakes investors make due to bad advice, flawed research, and emotional distress.

In Part-2, we continue the journey into a world of COVID and possible economic fallout, much remains unknown. Retirees, and those planning to retire, possess little financial bandwidth for error.

Retirement is not the end of the road. It is the beginning of the open highway.”

Today, retirees face a tremendous challenge: How to generate predictable cash flow with real interest rates on fixed-income investments such as bonds, at zero or negative. As a result, the willingness to take on greater stock market exposure has increased.

Unfortunately, current valuations portend to low future returns for stocks. Furthermore, in the case of a massive correction or bear cycle, older investors don’t have the luxury of time to recover from significant investment losses.

Due to the lingering effects of COVID, retirees are susceptible to unforeseen economic shocks. No longer career-earners, they are unable to replenish investment coffers in the case of adverse events.

If you’re in retirement or planning to be, please consider our Part 2 of the mistakes.

Risk #1: The 4% Portfolio Withdrawal Rule is Full of Nasty Surprises.

At our Right Lane Retirement Class, we discuss how the lifeblood of retirement is a dependable, predictable stream of income. To suggest, investors can consistently withdraw a FIXED percentage every year from VARIABLE portfolio assets such as stocks is borderline fantasy. At the least, it’s unrealistic.

Many retirees should be open-minded to annuities. After all, Social Security is an annuity. Single-premium immediate and deferred products with income riders also provide lifetime guaranteed income. Naturally, stocks can pay dividends, but there’s nothing guaranteed or dependable about them, primarily through times of economic distress.

Bierwith and Bengen Undertake Groundbreaking Research.

In 1994, Larry Bierwith and later William Bengen researched a way for retirees to spend for thirty years with the reasonable assurance their money would last. They modeled a four percent first-year withdrawal followed by inflation-adjusted withdrawals in subsequent years.

Subsequently, a four-percent withdrawal was considered safe as long as a portfolio maintained between fifty and seventy-five percent stocks. Retirees today cannot expect to hold 75% of their portfolios in stocks and adequately sustain bear market losses.

Frankly, with the current Shiller PE at 32X, it’s not practical for even younger investors to maintain an aggressive allocation to stocks unless a strict sell or rebalancing discipline is employed.

Is the 4% Rule Realistic in Today’s Environment?

In a recent interview with ThinkAdvisor, Professor of retirement income at The American College Wade Pfau, weighed in on the topic of withdrawals during the COVID-19 crisis. One of the leading academics in the financial field, Wade believes the stubbornly popular tenet is in peril.

In that interview with Jane Wolman Rusoff dated April 14, 2020, he stated:

I did some updates in mid-March; and for an investor taking a moderate amount of risk, I put out 2.4% as my equivalent of the 4% rule. That’s still about the same today.

Just like that, the holy 4% Withdrawal Rule is cut in half. As of this writing, the stock market has recovered, but that doesn’t mean investor portfolios have followed a similar path.

Keep in mind; academics have questioned the rule for years. In 2008, Jason S. Scott, Nobel-prize winner William F. Sharpe, and John G. Watson revisited it in a paper titled “The 4% Rule – At What Price?”

In the paper, the authors comment:

“We have argued that the major flaw of the 4% is its attempt to support non-volatile spending with volatile investing.”

As a result of a bear market and 20-40% stock losses, how comfortable would you be to stick with the rule? Perhaps you’d reduce future withdrawals to compensate or return to work to prevent further erosion of your nest egg.

A Practical Approach to Portfolio Withdrawals.

Retirees require flexible, customized approaches to portfolio withdrawals. I created general guidelines to jump-start the thought process. Naturally, a strategy should be customized for your situation.

  1. Consider a baseline annual withdrawal rate. A rate you can stick with regardless of portfolio volatility. From experience, I found 2% to be a realistic starting point.
  2. For every 1%, the portfolio increases in value, trim profits, and place the proceeds in cash or spend them (with a modification). For example, let’s say a portfolio increases by 6% for the year. A half-percent for each 1% above the baseline (2%), is 2%. Add the 2% to the base rate to establish a 4% withdrawal rate the following year. Maintain the remaining 2% as a cash buffer for future distribution needs.
  3. With every 1%, the portfolio decreases, limit the following year’s withdrawals to the baseline or plan not to exceed an additional 1%. If losses are 6%, adjust portfolio withdrawals the next year to 3%, or stick with the baseline.
  4. Undergo a distribution checkup every three years. Calculate cumulative net gains minus withdrawals and other costs. In the case of surplus (more gains than withdrawals), by all means, go ahead and spend it. Enjoy. Take that trip. Buy that car. Whatever. Use this time also to assess current trends in inflation, taxes, and fees.

Risk # 2: Retirees: Reset The Inflation Expectation. 

Inflation is unique to each household. An assortment of calculation methods exist; only a few are applied.

Intuitively, inflation should differ for an urban wage earner vs. an older, retired American. The Experimental Consumer Price Index for Americans 62 Years of Age and Older exists for that purpose.

The CPI-E attaches more significant weightings to medical expenses and housing. The share of expenditures on medical care is double that of the CPI-U or W populations. Yet, CPI-E is ignored. Why? Because it would likely result in a budget-prohibitive COLA for Social Security benefits.

Studies show that implementation of CPI-E would result in a 4% greater benefit than currently provided under CPI-W. For that reason, the Social Security Administration uses CPI-W to calculate cost-of-living adjustments for retirement benefits. There’s no reason to believe they’ll change it anytime soon, if ever.

Deflation Now. Inflation Later.

Currently, economic conditions are deflationary. Due to COVID,  I fear imminent price pressures on premiums for healthcare and long-term care costs.

As we age, it’s tough to avoid rising healthcare expenses. Medicare, Medigap, and supplemental Part D Drug Coverage cover a majority of a retiree’s healthcare costs. Even so, inflation has been running close to 6% for Medicare and healthcare insurance premiums. And that’s before COVID.

Also, many retirees are ill-prepared for long-term care expenditures. Generally, long-term care is assistance with activities of daily living like eating and bathing. Medicare does not cover most long-term care costs.

How will Inflation Erode your Retirement?

At RIA, we use an annual inflation factor of 4.5% for additional healthcare expenses (depending on current health of the client), and cost of long-term care. Within three years, I would not be surprised to employ a rate close to or exceeding, 7%.

Inflation is a shapeshifter, a ghost, and on occasion, a boogeyman. Inflation can increase one year, fall the next. It all depends on a household’s unique spending needs.

At RIA, we study inflation trends. As a result, we believe the ongoing cost burden of COVID, along with the rise of global trade barriers and supply chain disruptions, may generate inflationary spikes perhaps not witnessed in over 40 years.

The craft of withdrawals in retirement, along with inflation adjustments, is just as much art as science. Financial plans are as individual as the people who bring the numbers to life!

Financial professionals are sometimes wary of the ‘art’ part, but it doesn’t change the fact that every analysis is a leap of faith. Remember, a financial plan is a comprehensive, educated guess about future outcomes. No plan is perfect.

As a result, a systematic withdrawal strategy requires monitoring and adjustment. COVID inflation is another variable that may impact future cash flow.

Risk #3:  An Emotional Response to Portfolio Positions is Dangerous to Wealth.

In the face of accommodative Central Bank policies, which border on reckless, the emotional state of investors is one of unadulterated greed.

‘Twenty-one-year-old college students think they’re ‘market mavens.” They feverishly trade on platforms such as Robinhood and consider themselves geniuses when the true hero is accommodative monetary policy.

Novice investors conduct little fundamental research and employ narratives, stories, word-of-mouth to buy stocks blindly. The masses are blindly seduced by a Federal Reserve that supports the tailwind in risk assets.

It Bodes a Question: Are Investors Rational? Yes. And No.

A human’s rationality is bounded. Cognitive abilities are limited and emotional biases, plentiful. As a result, few recognize their deficiencies and depend on mental shortcuts to rise above the overload of information.

In a market that only goes higher, investment decisions have become full-on ‘System 1.’ As illustrated in Eugene Higgins Professor of Psychology Emeritus at Princeton, Daniel Kahneman’s bestseller – Thinking Fast, And Slow, human brains operate on two systems.

Consider System 1 the brain on auto-pilot. Fast, emotional, incredibly efficient, but fraught with error. System 2 is the slow, logical, deliberate operator. The one that seeks homework disdains immediate gratification and relishes the long term.

The Fed’ easy cash’ machine has short-circuited our System 2. 

How To Control Your Emotions:

  1. Steer clear of financial television. Financial news is a System 1 overload. Financial news junkies (me included) find it tough to step away from CNBC. Over the years, I’ve learned to be an outsider and a casual observer. I listen to what reporters say and how they say it to understand how a retail investor would interpret the so-called news. It’s fair to watch and generate ideas, but it’s another to trade based on stories blindly.
  2. Establish a PHR. A ‘Personal Hurdle Rate’ is the return necessary to meet financial milestones. An investor with a PHR focuses on the portfolio sufficient return to fulfill goals. Focus is diverted from some arbitrary benchmark like the S&P 500. A holistic financial plan is necessary to determine a PHR. A plan will also help investors understand the portfolio risk taken for a given level of reward.
  3. Avoid the ‘Christmas lights’ investment method. Investors focus on gains and losses tracked in their brokerage accounts. In their minds, winners are green, and losers red. Red and green, just like Christmas lights! To the System 1 brain, green is always good. Red equals bad, but is it? To diversify properly, an astute investor owns investments that react differently to overall market conditions. For example, when the stock market environment is risk-on, bonds go red. Risk-averse conditions cause bonds to go green; stocks go red. Before selling what’s ‘in the red,’ activate your System 2. Do homework, ask questions. Keep in mind, gains and losses do not calculate overall performance or total return. For the most part, the system is designed to help investors get a handle on the tax consequences of liquidation.

The headwind to returns has just begun.

With interest rates lower for longer and stock valuations extended, retiree income remains a challenge. The headwinds have begun. Since early 2018, the RIA planning team has communicated our concerns. Mistakes can make a challenging situation worse.

With objective guidance and planning, you can avoid them.

The post Don’t Ignore These Retirement Mistakes. Part-2. appeared first on RIA.

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Mistakes Were Made

Mistakes Were Made

Authored by C.J.Hopkins via The Consent Factory,

Make fun of the Germans all you want, and I’ve certainly done that…

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Mistakes Were Made

Authored by C.J.Hopkins via The Consent Factory,

Make fun of the Germans all you want, and I’ve certainly done that a bit during these past few years, but, if there’s one thing they’re exceptionally good at, it’s taking responsibility for their mistakes. Seriously, when it comes to acknowledging one’s mistakes, and not rationalizing, or minimizing, or attempting to deny them, and any discomfort they may have allegedly caused, no one does it quite like the Germans.

Take this Covid mess, for example. Just last week, the German authorities confessed that they made a few minor mistakes during their management of the “Covid pandemic.” According to Karl Lauterbach, the Minister of Health, “we were sometimes too strict with the children and probably started easing the restrictions a little too late.” Horst Seehofer, the former Interior Minister, admitted that he would no longer agree to some of the Covid restrictions today, for example, nationwide nighttime curfews. “One must be very careful with calls for compulsory vaccination,” he added. Helge Braun, Head of the Chancellery and Minister for Special Affairs under Merkel, agreed that there had been “misjudgments,” for example, “overestimating the effectiveness of the vaccines.”

This display of the German authorities’ unwavering commitment to transparency and honesty, and the principle of personal honor that guides the German authorities in all their affairs, and that is deeply ingrained in the German character, was published in a piece called “The Divisive Virus” in Der Spiegel, and immediately widely disseminated by the rest of the German state and corporate media in a totally organic manner which did not in any way resemble one enormous Goebbelsian keyboard instrument pumping out official propaganda in perfect synchronization, or anything creepy and fascistic like that.

Germany, after all, is “an extremely democratic state,” with freedom of speech and the press and all that, not some kind of totalitarian country where the masses are inundated with official propaganda and critics of the government are dragged into criminal court and prosecuted on trumped-up “hate crime” charges.

OK, sure, in a non-democratic totalitarian system, such public “admissions of mistakes” — and the synchronized dissemination thereof by the media — would just be a part of the process of whitewashing the authorities’ fascistic behavior during some particularly totalitarian phase of transforming society into whatever totalitarian dystopia they were trying to transform it into (for example, a three-year-long “state of emergency,” which they declared to keep the masses terrorized and cooperative while they stripped them of their democratic rights, i.e., the ones they hadn’t already stripped them of, and conditioned them to mindlessly follow orders, and robotically repeat nonsensical official slogans, and vent their impotent hatred and fear at the new “Untermenschen” or “counter-revolutionaries”), but that is obviously not the case here.

No, this is definitely not the German authorities staging a public “accountability” spectacle in order to memory-hole what happened during 2020-2023 and enshrine the official narrative in history. There’s going to be a formal “Inquiry Commission” — conducted by the same German authorities that managed the “crisis” — which will get to the bottom of all the regrettable but completely understandable “mistakes” that were made in the heat of the heroic battle against The Divisive Virus!

OK, calm down, all you “conspiracy theorists,” “Covid deniers,” and “anti-vaxxers.” This isn’t going to be like the Nuremberg Trials. No one is going to get taken out and hanged. It’s about identifying and acknowledging mistakes, and learning from them, so that the authorities can manage everything better during the next “pandemic,” or “climate emergency,” or “terrorist attack,” or “insurrection,” or whatever.

For example, the Inquiry Commission will want to look into how the government accidentally declared a Nationwide State of Pandemic Emergency and revised the Infection Protection Act, suspending the German constitution and granting the government the power to rule by decree, on account of a respiratory virus that clearly posed no threat to society at large, and then unleashed police goon squads on the thousands of people who gathered outside the Reichstag to protest the revocation of their constitutional rights.

Once they do, I’m sure they’ll find that that “mistake” bears absolutely no resemblance to the Enabling Act of 1933, which suspended the German constitution and granted the government the power to rule by decree, after the Nazis declared a nationwide “state of emergency.”

Another thing the Commission will probably want to look into is how the German authorities accidentally banned any further demonstrations against their arbitrary decrees, and ordered the police to brutalize anyone participating in such “illegal demonstrations.”

And, while the Commission is inquiring into the possibly slightly inappropriate behavior of their law enforcement officials, they might want to also take a look at the behavior of their unofficial goon squads, like Antifa, which they accidentally encouraged to attack the “anti-vaxxers,” the “Covid deniers,” and anyone brandishing a copy of the German constitution.

Come to think of it, the Inquiry Commission might also want to look into how the German authorities, and the overwhelming majority of the state and corporate media, accidentally systematically fomented mass hatred of anyone who dared to question the government’s arbitrary and nonsensical decrees or who refused to submit to “vaccination,” and publicly demonized us as “Corona deniers,” “conspiracy theorists,” “anti-vaxxers,” “far-right anti-Semites,” etc., to the point where mainstream German celebrities like Sarah Bosetti were literally describing us as the inessential “appendix” in the body of the nation, quoting an infamous Nazi almost verbatim.

And then there’s the whole “vaccination” business. The Commission will certainly want to inquire into that. They will probably want to start their inquiry with Karl Lauterbach, and determine exactly how he accidentally lied to the public, over and over, and over again …

And whipped people up into a mass hysteria over “KILLER VARIANTS” …

And “LONG COVID BRAIN ATTACKS” …

And how “THE UNVACCINATED ARE HOLDING THE WHOLE COUNTRY HOSTAGE, SO WE NEED TO FORCIBLY VACCINATE EVERYONE!”

And so on. I could go on with this all day, but it will be much easier to just refer you, and the Commission, to this documentary film by Aya Velázquez. Non-German readers may want to skip to the second half, unless they’re interested in the German “Corona Expert Council” …

Look, the point is, everybody makes “mistakes,” especially during a “state of emergency,” or a war, or some other type of global “crisis.” At least we can always count on the Germans to step up and take responsibility for theirs, and not claim that they didn’t know what was happening, or that they were “just following orders,” or that “the science changed.”

Plus, all this Covid stuff is ancient history, and, as Olaf, an editor at Der Spiegel, reminds us, it’s time to put the “The Divisive Pandemic” behind us …

… and click heels, and heil the New Normal Democracy!

Tyler Durden Sat, 03/16/2024 - 23:20

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Harvard Medical School Professor Was Fired Over Not Getting COVID Vaccine

Harvard Medical School Professor Was Fired Over Not Getting COVID Vaccine

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

A…

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Harvard Medical School Professor Was Fired Over Not Getting COVID Vaccine

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

A Harvard Medical School professor who refused to get a COVID-19 vaccine has been terminated, according to documents reviewed by The Epoch Times.

Martin Kulldorff, epidemiologist and statistician, at his home in Ashford, Conn., on Feb. 11, 2022. (Samira Bouaou/The Epoch Times)

Martin Kulldorff, an epidemiologist, was fired by Mass General Brigham in November 2021 over noncompliance with the hospital’s COVID-19 vaccine mandate after his requests for exemptions from the mandate were denied, according to one document. Mr. Kulldorff was also placed on leave by Harvard Medical School (HMS) because his appointment as professor of medicine there “depends upon” holding a position at the hospital, another document stated.

Mr. Kulldorff asked HMS in late 2023 how he could return to his position and was told he was being fired.

You would need to hold an eligible appointment with a Harvard-affiliated institution for your HMS academic appointment to continue,” Dr. Grace Huang, dean for faculty affairs, told the epidemiologist and biostatistician.

She said the lack of an appointment, combined with college rules that cap leaves of absence at two years, meant he was being terminated.

Mr. Kulldorff disclosed the firing for the first time this month.

“While I can’t comment on the specifics due to employment confidentiality protections that preclude us from doing so, I can confirm that his employment agreement was terminated November 10, 2021,” a spokesperson for Brigham and Women’s Hospital told The Epoch Times via email.

Mass General Brigham granted just 234 exemption requests out of 2,402 received, according to court filings in an ongoing case that alleges discrimination.

The hospital said previously, “We received a number of exemption requests, and each request was carefully considered by a knowledgeable team of reviewers.

A lot of other people received exemptions, but I did not,” Mr. Kulldorff told The Epoch Times.

Mr. Kulldorff was originally hired by HMS but switched departments in 2015 to work at the Department of Medicine at Brigham and Women’s Hospital, which is part of Mass General Brigham and affiliated with HMS.

Harvard Medical School has affiliation agreements with several Boston hospitals which it neither owns nor operationally controls,” an HMS spokesperson told The Epoch Times in an email. “Hospital-based faculty, such as Mr. Kulldorff, are employed by one of the affiliates, not by HMS, and require an active hospital appointment to maintain an academic appointment at Harvard Medical School.”

HMS confirmed that some faculty, who are tenured or on the tenure track, do not require hospital appointments.

Natural Immunity

Before the COVID-19 vaccines became available, Mr. Kulldorff contracted COVID-19. He was hospitalized but eventually recovered.

That gave him a form of protection known as natural immunity. According to a number of studies, including papers from the U.S. Centers for Disease Control and Prevention, natural immunity is better than the protection bestowed by vaccines.

Other studies have found that people with natural immunity face a higher risk of problems after vaccination.

Mr. Kulldorff expressed his concerns about receiving a vaccine in his request for a medical exemption, pointing out a lack of data for vaccinating people who suffer from the same issue he does.

I already had superior infection-acquired immunity; and it was risky to vaccinate me without proper efficacy and safety studies on patients with my type of immune deficiency,” Mr. Kulldorff wrote in an essay.

In his request for a religious exemption, he highlighted an Israel study that was among the first to compare protection after infection to protection after vaccination. Researchers found that the vaccinated had less protection than the naturally immune.

“Having had COVID disease, I have stronger longer lasting immunity than those vaccinated (Gazit et al). Lacking scientific rationale, vaccine mandates are religious dogma, and I request a religious exemption from COVID vaccination,” he wrote.

Both requests were denied.

Mr. Kulldorff is still unvaccinated.

“I had COVID. I had it badly. So I have infection-acquired immunity. So I don’t need the vaccine,” he told The Epoch Times.

Dissenting Voice

Mr. Kulldorff has been a prominent dissenting voice during the COVID-19 pandemic, countering messaging from the government and many doctors that the COVID-19 vaccines were needed, regardless of prior infection.

He spoke out in an op-ed in April 2021, for instance, against requiring people to provide proof of vaccination to attend shows, go to school, and visit restaurants.

The idea that everybody needs to be vaccinated is as scientifically baseless as the idea that nobody does. Covid vaccines are essential for older, high-risk people and their caretakers and advisable for many others. But those who’ve been infected are already immune,” he wrote at the time.

Mr. Kulldorff later co-authored the Great Barrington Declaration, which called for focused protection of people at high risk while removing restrictions for younger, healthy people.

Harsh restrictions such as school closures “will cause irreparable damage” if not lifted, the declaration stated.

The declaration drew criticism from Dr. Anthony Fauci, head of the National Institute of Allergy and Infectious Diseases, and Dr. Rochelle Walensky, who became the head of the CDC, among others.

In a competing document, Dr. Walensky and others said that “relying upon immunity from natural infections for COVID-19 is flawed” and that “uncontrolled transmission in younger people risks significant morbidity(3) and mortality across the whole population.”

“Those who are pushing these vaccine mandates and vaccine passports—vaccine fanatics, I would call them—to me they have done much more damage during this one year than the anti-vaxxers have done in two decades,” Mr. Kulldorff later said in an EpochTV interview. “I would even say that these vaccine fanatics, they are the biggest anti-vaxxers that we have right now. They’re doing so much more damage to vaccine confidence than anybody else.

Surveys indicate that people have less trust now in the CDC and other health institutions than before the pandemic, and data from the CDC and elsewhere show that fewer people are receiving the new COVID-19 vaccines and other shots.

Support

The disclosure that Mr. Kulldorff was fired drew criticism of Harvard and support for Mr. Kulldorff.

The termination “is a massive and incomprehensible injustice,” Dr. Aaron Kheriaty, an ethics expert who was fired from the University of California–Irvine School of Medicine for not getting a COVID-19 vaccine because he had natural immunity, said on X.

The academy is full of people who declined vaccines—mostly with dubious exemptions—and yet Harvard fires the one professor who happens to speak out against government policies.” Dr. Vinay Prasad, an epidemiologist at the University of California–San Francisco, wrote in a blog post. “It looks like Harvard has weaponized its policies and selectively enforces them.”

A petition to reinstate Mr. Kulldorff has garnered more than 1,800 signatures.

Some other doctors said the decision to let Mr. Kulldorff go was correct.

“Actions have consequence,” Dr. Alastair McAlpine, a Canadian doctor, wrote on X. He said Mr. Kulldorff had “publicly undermine[d] public health.”

Tyler Durden Sat, 03/16/2024 - 21:00

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Correcting the Washington Post’s 11 Charts That Are Supposed to Tell Us How the Economy Changed Since Covid

The Washington Post made some serious errors or omissions in its 11 charts that are supposed to tell us how Covid changed the economy. Wages Starting with…

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The Washington Post made some serious errors or omissions in its 11 charts that are supposed to tell us how Covid changed the economy.

Wages

Starting with its second chart, the article gives us an index of average weekly wages since 2019. The index shows a big jump in 2020, which then falls off in 2021 and 2022, before rising again in 2023.

It tells readers:

“Many Americans got large pay increases after the pandemic, when employers were having to one-up each other to find and keep workers. For a while, those wage gains were wiped out by decade-high inflation: Workers were getting larger paychecks, but it wasn’t enough to keep up with rising prices.”

That actually is not what its chart shows. The big rise in average weekly wages at the start of the pandemic was not the result of workers getting pay increases, it was the result of low-paid workers in sectors like hotels and restaurants losing their jobs.

The number of people employed in the low-paying leisure and hospitality sector fell by more than 8 million at the start of the pandemic. Even at the start of 2021 it was still down by over 4 million.

Laying off low-paid workers raises average wages in the same way that getting the short people to leave raises the average height of the people in the room. The Washington Post might try to tell us that the remaining people grew taller, but that is not what happened.

The other problem with this chart is that it is giving us weekly wages. The length of the average workweek jumped at the start of the pandemic as employers decided to work the workers they had longer hours rather than hire more workers. In January of 2021 the average workweek was 34.9 hours, compared to 34.4 hours in 2019 and 34.3 hours in February.

This increase in hours, by itself, would raise weekly pay by 2.0 percent. As hours returned to normal in 2022, this measure would misleadingly imply that wages were falling.

It is also worth noting that the fastest wage gains since the pandemic have been at the bottom end of the wage distribution and the Black/white wage gap has fallen to its lowest level on record.

Saving Rates

The third chart shows the saving rate since 2019. It shows a big spike at the start of the pandemic, as people stopped spending on things like restaurants and travel and they got pandemic checks from the government. It then falls sharply in 2022 and is lower in the most recent quarters than in 2019.

The piece tells readers:

“But as the world reopened — and people resumed spending on dining out, travel, concerts and other things that were previously off-limits — savings rates have leveled off. Americans are also increasingly dip into rainy-day funds to pay more for necessities, including groceries, housing, education and health care. In fact, Americans are now generally saving less of their incomes than they were before the pandemic.

This is an incomplete picture due to a somewhat technical issue. As I explained in a blogpost a few months ago, there is an unusually large gap between GDP as measured on the output side and GDP measured on the income side. In principle, these two numbers should be the same, but they never come out exactly equal.

In recent quarters, the gap has been 2.5 percent of GDP. This is extraordinarily large, but it also is unusual in that the output side is higher than the income side, the opposite of the standard pattern over the last quarter century.

It is standard for economists to assume that the true number for GDP is somewhere between the two measures. If we make that assumption about the data for 2023, it would imply that income is somewhat higher than the data now show and consumption somewhat lower.

In that story, as I showed in the blogpost, the saving rate for 2023 would be 6.8 percent of disposable income, roughly the same as the average for the three years before the pandemic. This would mean that people are not dipping into their rainy-day funds as the Post tells us. They are spending pretty much as they did before the pandemic.

 

Credit Card Debt

The next graph shows that credit card debt is rising again, after sinking in the pandemic. The piece tells readers:

“But now, debt loads are swinging higher again as families try to keep up with rising prices. Total household debt reached a record $17.5 trillion at the end of 2023, according to the Federal Reserve Bank of New York. And, in a worrisome sign for the economy, delinquency rates on mortgages, car loans and credit cards are all rising, too.”

There are several points worth noting here. Credit card debt is rising, but measured relative to income it is still below where it was before the pandemic. It was 6.7 percent of disposable income at the end of 2019, compared to 6.5 percent at the end of last year.

The second point is that a major reason for the recent surge in credit card debt is that people are no longer refinancing mortgages. There was a massive surge in mortgage refinancing with the low interest rates in 2020-2021.

Many of the people who refinanced took additional money out, taking advantage of the increased equity in their home. This channel of credit was cut off when mortgage rates jumped in 2022 and virtually ended mortgage refinancing. This means that to a large extent the surge in credit card borrowing is simply a shift from mortgage debt to credit card debt.

The point about total household debt hitting a record can be said in most months. Except in the period immediately following the collapse of the housing bubble, total debt is almost always rising.

And the rise in delinquencies simply reflects the fact that they had been at very low levels in 2021 and 2022. For the most part, delinquency rates are just getting back to their pre-pandemic levels, which were historically low.  

 

Grocery Prices and Gas Prices

The next two charts show the patterns in grocery prices and gas prices since the pandemic. It would have been worth mentioning that every major economy in the world saw similar run-ups in prices in these two areas. In other words, there was nothing specific to U.S. policy that led to a surge in inflation here.

 

The Missing Charts

There are several areas where it would have been interesting to see charts which the Post did not include. It would have been useful to have a chart on job quitters, the number of people who voluntarily quit their jobs during the pandemic. In the tight labor markets of 2021 and 2022 the number of workers who left jobs they didn’t like soared to record levels, as shown below.

 

The vast majority of these workers took other jobs that they liked better. This likely explains another item that could appear as a graph, the record level of job satisfaction.

In a similar vein there has been an explosion in the number of people who work from home at least part-time. This has increased by more than 17 million during the pandemic. These workers are saving themselves thousands of dollars a year on commuting costs and related expenses, as well as hundreds of hours spent commuting.

Finally, there has been an explosion in the use of telemedicine since the pandemic. At the peak, nearly one in four visits with a health care professional was a remote consultation. This saved many people with serious health issues the time and inconvenience associated with a trip to a hospital or doctor’s office. The increased use of telemedicine is likely to be a lasting gain from the pandemic.

 

The World Has Changed

The pandemic will likely have a lasting impact on the economy and society. The Washington Post’s charts captured part of this story, but in some cases misrepr

The post Correcting the Washington Post’s 11 Charts That Are Supposed to Tell Us How the Economy Changed Since Covid appeared first on Center for Economic and Policy Research.

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