Jobs, the Economy and Retirement

Reality is complicated, and beyond the current state of investing software to parse it.

The December jobs report was stronger than expected, showing just over 300,000 people hired last month. The stock market responded by climbing on the day the number was announced, but the advanced immediately faltered. What’s going on?

The labor force participation rate, a better measure than either unemployment or the jobs report, barely budged, moving 0.2%.(2) If the chart below were shown using the full 100 point scale, it would look absolutely flat.

United States Labor Force Participation Rate

Behind the scenes, there are a couple of issues:

  • Short-term: We did  have a stronger Christmas shopping season that we have seen in the past few years. Thus the “seasonal adjustment” to the numbers didn’t really account for the seasonal variation that we actually saw. These jobs are starting to go away, which will dampen the next monthly jobs report.
  • Longer term: There has been no jobs growth for workers under 55 years of age since April 2000. Increased employment has been among seniors, age 55+. Analysts are counting on Baby Boomers retiring to create jobs for younger workers.(1)

However, that’s probably not going to happen, for several of reasons:

  • People are living longer. In a recent Forbes article about stretching savings in retirement, the solutions offered were to cut expenses and keep working. Brilliant. With an average savings of $35,000 at age 65, most Boomers will never be able to retire. That’s why we have 70-year-old school bus drivers.
    • Estimates place the savings required for retirement at between $700,000 and $1 million or more.(5) JP Morgan estimates that if you make $50,000 per year, you should have saved just over $400,000 by age 65. At $100,000 income, you should have more than $1 million saved.(6)
  • Boomers are carrying credit card and mortgage debt into retirement. That may be the recipe for the next mortgage crisis, but it adds to the pressure to keep working.
  • Social Security hasn’t kept up with the real cost of living in the US, and the GOP wants to trim benefits. The average benefit in 2019 will be $1,461, which barely covers the basics of subsistence, and doesn’t if there’s a mortgage or the senior is caring for grandchildren, which many are. Increasingly, financial articles are pointing to moving out of the US as the best way to live on Social Security. It’s possible to have a comfortable life on the benefit amount in places like Costa Rica, Portugal and Mexico. People who don’t want to move will need supplemental earnings. Medicare remains an incentive for staying put.
  • Congress’ raising of the full retirement age for obtaining Social Security benefits adds to the pressure to keep working.

What makes the picture even murkier is the Federal deficit. Trump used deficit spending this year to keep people working up until the midterm elections. Now many of the construction sites are idle and we have the partial government shutdown, with 800,000 people with bills to pay and no income. The tariff war has hurt US exports fairly dramatically. The US may not have the funds to continue spending to keep people working, especially after the tax cuts of last year.

The Federal debt also poses a minor risk to Social Security. The government has borrowed from the Trust fund in the form of issuance of bonds. The magnitude of the debt may make repayment of those bonds questionable in the future — but if that happens, the value of US currency will collapse and we’ll have a lot of other issues with which to contend.

Borrowing isn’t the same thing as  raiding. The Motley Fool argues that the US has never in fact “raided” the Social Security Trust Fund.(4)

So what’s in a December jobs number? Maybe nothing about which to get excited.


Sources:

  1. https://www.benefitspro.com/2019/01/04/disappearing-jobs-dont-worry-early-and-middle-boom/?kw=Disappearing%20jobs?%20Don%27t%20worry%20–%20early%20and%20middle%20boomers%20are%20retiring%20anyway&et=editorial&bu=BenefitsPRO&cn=20190106&src=EMC-Email&pt=BenefitsWeekendPRO
  2. https://tradingeconomics.com/united-states/labor-force-participation-rate
  3. https://www.msn.com/en-us/money/retirement/heres-the-average-social-security-benefit-for-2019/ar-BBOsgw1
  4. https://www.fool.com/retirement/2018/05/20/did-congress-really-steal-from-social-security.aspx
  5. https://www.cnbc.com/2018/04/11/how-to-figure-out-how-much-money-you-need-to-retire.html

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