May Consumer Price Index, U.S Fertility Rate & Our Economy, Employee 401k, and Signs in the Economy that the Supply Chain is Improving

Harrison Johnson, CFP® Financial Planner: Potential Changes for Social Security

 

May Consumer Price Index Report
Inflation numbers were released, there was no surprise to the upside or the downside with a year over year increase of 8.6% which is the highest since 1981. I believe these numbers will be in the high range for another few months because of the low numbers one year ago. Once we get into August and September, I believe we will see lower increases in inflation numbers, more around the 5 or 6% range because of the higher number they are compounding on and also the effects of higher interest rates. 

U.S Fertility Rate & Our Economy
One major problem for the long-term US economic outlook is the fertility rate. It is now expected that a woman will have 1.66 children over her lifetime. Back in 1960 this rate stood at 3.65 and even as recent as 2007 it was at 2.1. The current rate poses a problem for growing the population as the replacement-level fertility rate which is the rate that would keep the population at a constant size without accounting for immigration stands at 2.1 children per woman. The problem here is this creates an aging population which puts stress on GDP growth and benefit systems like Medicare and Social Security. 

Employee 401k
At my firm we have always recommended that employees contribute to their 401(k) with a 10% contribution as the goal and it seems like people are listening. Currently 70% of US retirement assets are in 401(k)s which is double the 35% the assets made up in 1980. Remember if you’re over 50 you can add an extra $6500 on top of the standard $20,500. Also, there is the bill in congress known as the Secure Act 2.0 with wording that adds an extra $10,000 for those 60 years and older. Invested properly, a 401K is one of the fastest ways to build good solid wealth over the long-term.

Signs in the Economy that the Supply Chain is Improving
There are signs in the economy that the supply chain is improving, and consumers could be cutting back a little bit with a rise in the first quarter retail inventories of 26% from a year earlier. This is not accounting for inflation, however; if there are more items on the shelves retailers must compete more for sales which benefits consumers with lower prices.