I sure was hoping to send this September newsletter and begin with, “Now that the weather has cooled off…” but I certainly can’t write that, can I? The entire country has been as hot as a biscuit right out of the oven! Etna and I worked remotely from Knoxville for the month of July and part of August to escape the Houston heat, which almost worked. So let’s get into the meat of this newsletter since we can’t do anything beyond complaining about the heat…

A burning question on the minds of clients when we initially meet is whether or not their money will last through retirement and when they can safely quit their jobs. As Etna and I age, these are issues we’ve dealt with as well. To me, these aren’t the only challenges you will face in retirement. There’s a much greater issue with which to grapple that I can’t answer for you, but I want you to read this next section slowly and reflectively…

What’s more important than your money when it comes to retirement planning?
It’s developing a strong, motivating and guiding sense of purpose. Let me clarify: perfecting your golf game or owning that dream retirement home on a lake is certainly worth pursuing, but these are personal goals, not a compelling purpose that makes the world a better place for others.

During our work years, it’s easy to put our nose to the grindstone and work, save, invest, and plan for a comfortable future. In fact, it’s so easy that we work throughout our adult lives without a purpose other than to remain employed and provide for our families.

Now fast forward to retirement. Working at a job is no longer necessary, or your health (or your spouse’s health) has forced you to stop working. Assuming you were a good saver and invested your savings, you aren’t worried about paying the bills or not being able to enjoy your retirement years. But you made your career your purpose and now you don’t have a career… or a purpose!

What motivates you to serve others with purpose? Could you share your purpose with passion if I asked you?
I have more than one friend that retired and pursued a hobby with a passion. They made the hobby their purpose in retirement….and it left them feeling empty inside. After a while, they stopped enjoying the hobby, which was a great diversion from work years ago. Now they just watch TV all day. Research has shown that retirees without a guiding purpose in life have shorter lifespans*…and I would wager that a shorter lifespan is not filled with happiness and a sense of fulfilment… but boredom and depression.

Years ago Etna and I read a daily devotional by Rick Warren called The Purpose Driven Life. This book confirmed something important for both of us: Knowing and living out one’s purpose in life beyond jobs, careers, and hobbies is something most people learn far too late in life or not at all, which is sad. I highly recommend reading it if you’ve not read it yet.

My hope for you when we meet to review investments and plug numbers and dates into the planning software is that you’ll share with me your motivating passion in life beyond your personal hobbies and interests and money-related goals. By doing this, I will get a sense of the direction you want to walk after you quit your job. I will then help you get creative with your money to make the best use of it for fulfilling and even expanding your purpose.

Biblically Responsible Investing
Here at Kingdom Wealth, we practice BRI or Biblically Responsible Investing for ourselves personally and our clients. Simply stated, we choose investments that make God smile and make the world rejoice.

Few investors understand that if they own shares of a company stock (which every investor does, even if they purchase an ETF or a mutual fund) they are part-owners of a company. As a shareholder, you may not be legally responsible for poor practices, but you should feel morally responsible for what the company produces, provides, how it treats factory workers, and the charitable organizations to which the company makes donations.

For example, you can easily guess the name of the company with a well-known search engine on the internet. This company, like many others, shows pages of links for sexually explicit websites. If you owned shares of this company directly or through a fund, you would be supporting these damaging businesses whether you realize it or not. However, we do! We know that these websites ruins lives in many ways. So, we screen those companies out of your investments and find information technology companies that are aligned with our mandate.

While I was working remotely in Knoxville, I met with several pastors for lunch. They asked me what I do for a living, and when I told them I was a faith-driven financial advisor, they all said, “My advisor is also a believer.” This required a bit of delicate explanation differentiating a believing advisor from a believing advisor who recommends investments that reflect Biblical values. The nationwide firms who provide money management for these pastors have portfolios that are sensitive to environmental concerns, but they do not have BRI portfolios. It just takes too much time and effort for a small number of their clients.

In one aspect, these firms are not wrong. Creating and maintaining BRI portfolios is challenging, time consuming, and a bit of a moving target. Companies change practices and charitable contributions and their employee manuals regularly. Promising new companies go public and must be vetted. Then we research their current and future profitability and leadership to make sure they are financially sound and fundamentally a wise choice for inclusion. We make the effort because it’s our mandate and it’s how we manage other people’s life savings.

If you have friends and family who don’t want to support negative things in this world, challenge them to start looking at their retirement investments differently and invest in ways that make the world a better place. Be sure to tell them we are doing this for you now with no effort on your part, and we would be happy to visit with them! This is the primary way our business expands…introductions from existing clients.

The future of Social Security and Medicare
The Social Security Retirement Trust Fund is projected to be depleted in the fourth quarter of 2032. At that point, if Congress does not act, projected ongoing payroll-tax revenue would only cover 78% of scheduled benefits, implying roughly a 22% across-the-board reduction.

Medicare Part A (Hospital Insurance) has a depletion date of the second quarter of 2033. At that point, if Congress does not act, projected benefits would only cover 89% of Part A benefits.

Medicare Part B and D are structured differently, and don’t face the same trust-fund depletion problems.

Is Congress doing anything?
Yes, but there’s no bipartisan solution yet. There are several proposals circulating. One particularly interesting development is a bipartisan effort led by Sen. Bill Cassidy (R-LA) and Sen. Dick Durbin (D-IL). They proposed creating a formal process to develop legislation that would keep Social Security solvent for at least 50 years. The idea is essentially to force Congress to confront the issue rather than continue postponing it.

What could Congress do about it?
There are proposals to do a combination of things to “kick the can down the road” and extend full coverage:

• Raise or eliminate the Social Security payroll tax-cap. Annual earnings above $184,500 are not subject to the 6.2% employee tax. If Congress raised or eliminated this, a lot more money would flow into the trust fund.
• Raise payroll taxes. Another straightforward solution would be to raise the total combined employer/employee deduction beyond the current 12.4%.
• Increase the retirement age. Although this is frequently proposed, it’s politically difficult as elected officials would be accused of making their constituents work longer.
• Reduce future benefits: Congress could modify the benefit formula, particularly for higher-income retirees, rather than cutting everyone equally.
• Tax benefits or investment income differently. There are proposals to increase taxes paid by higher-income households or broaden the sources of revenue supporting Social Security.

The big political problem
The irony is that there are plenty of mathematically viable solutions. The problem is that almost every solution creates a group of winners and losers. This is why Congress is reluctant to act.

My take on the situation
I’m often asked in planning meetings about this potential reduction in Social Security. While I don’t have a crystal ball, I do know that if we were shopping for an issue that could unite the citizens of the USA against ALL elected officials red and blue, it would be cuts to Social Security and Medicare. These entitlements (and we are indeed entitled to them because we’ve paid into them) if reduced, would create an environment where liberals and conservatives alike would lock arms and march on Washington and demand that every elected official resign from their office. After all, “the enemy of my enemy is my friend.”

What makes me quite frustrated is that we’ve seen life expectancy rise for centuries with modern advances in medicine, the elimination of disease, and a reduction in infant mortality. Frances Perkins, Edwin Witte, and Arthur Altmeyer designed the program, and President Roosevelt made it a central part of the New Deal. 

The designers knew that life expectancy in the mid 1800’s was 40-45 years of age at birth. In 1935 when Social Security was announced, life expectancy was in the low 60’s, not the 40’s a hundred years earlier. Why wasn’t the Social Security Full Retirement Age (FRA) tied to life expectancy? And what about birth rates? Social Security should have been tied to rising or falling birth rates as well. It just goes to show that not enough forethought and forecasting went into the Social Security funding mechanism with automatic adjustments written into the program for best- and worst-case scenarios.

Surplus Cash
Now before you read my thoughts above and think, “If they had left the surplus in the trust fund and didn’t “raid it” for other purposes, we wouldn’t have this problem!” you should know “the math doesn’t math” on this. Not “raiding” it is not the sole reason there’s a shortfall. Social Security has a structural problem that was problematic from the first day. Congress modified the Full Retirement Age in 1983, but that didn’t go far enough to permanently correct the structural issues.  

Will it be fixed in time? Now I could be wrong, but I do believe Congress will wait until 11:59 pm on the day of the deadline (which is not yet determined) and pass something that will be the least painful for their constituents and push out the shortfall date by ten or hopefully twenty years. I do not believe Congress will put structural changes into it to fix it for good though, because it would probably smell like a lost re-election if they did what they need to do. Self-sacrifice for the greater good for future generations is not how most elected officials think or operate.

Until next time
I hope you’ve enjoyed this extra-long newsletter and found it worth reading. Do share it with someone who needs to find a purpose, invest differently, or who has questions about the future of Social Security. And as always, I’d love to visit with you about these topics or anything else on your mind. I remain available every day for conversations about most anything…and if you want to call just to complain about the heat we can commiserate about that as well.

God bless,

Randall Neighbour, RICP® APMA®

 PS – If you found this interesting, please share the web link! Don’t keep us a secret 🙂

*Purpose in life and mortality: A meta-analysis of the published literature and individual-participant data of 488,765 participants followed for up to 32 years – PubMed

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