Food prices grew at a slower pace in June, but economists remain concerned that prices will reach a level where consumers will make dramatic changes in their behavior.
Food prices rose 3% in June compared to a year ago, according to the latest data from the Bureau of Labor Statistics. After a year of price hikes, consumers continued to see food prices rise, but at a slower rate.
Grocery prices were 5.7% higher in June compared to a year ago, and dining out was 7.7% more expensive. That’s significantly lower than the 13.5% peak inflation for grocery prices last August and the 8.8% peak inflation for dining out.
“Overall, there continues to be a similar narrative of extended upward pressure on food prices as we try to discern whether this stress has led to a tipping point where consumers are struggling to buy the foods that they want,” said Jayson Lusk, the head and distinguished professor of Agricultural Economics at Purdue University.
Reported food insecurity across households of different income levels reached 17% in June, the highest level since March 2022, according to the monthly Consumer Food Insights Report from Purdue University. Although it didn’t deviate too much from the normal range — food insecurity hovered at 14% two months ago — Lusk said the increase is concerning given the amount of pressure on more financially vulnerable consumers.
“Reported food insecurity across households of different income levels reached 17% in June, the highest level since March 2022, according to Purdue University. ”
The pandemic-era expansion of the Supplemental Nutrition Assistance Program ended in March, meaning SNAP recipients are now receiving $90 less on average every month, according to the Center on Budget and Policy Priorities, a progressive policy think tank based in Washington, D.C.
The recent rise in food insecurity could be a lag from households adjusting to the policy change, Lusk said. On average, consumers are spending about $120 per week on groceries and $70 per week on dining out or takeout, the report found.
Middle-income households earning $50,000 to $100,000 a year and low-income households earning less than $50,000 a year cut weekly spending on groceries and dining out by about $10 a week, Purdue found. The average weekly grocery expenditure for low-income households was $103 in June; for middle-income households, it was $118. Households earning more than $100,000 a year spent $141 a week on groceries in June.
Around 47% of low-income households — those earning less than $50,000 a year — said they relied on SNAP benefits in May, up from roughly 40% in February, according to a recent Morning Consult report.
For low-income households, rising food insecurity is often coupled with juggling bills such as utilities and rent, which has also led to rising eviction rates in recent months, according to Propel, an app that aims to help low-income Americans improve their financial health. Propel surveys SNAP users on insecurity around food, finance and their housing situation.
Nearly half of the survey respondents said they cannot afford the food they want. “We were unable to pay bills because we had to buy food. We’re about to lose our home,” a South Carolina user named Anna told the Propel survey.
The share of surveyed households that paid their utilities late rose 11% from May to June, and only 27% of respondents paid their utility bills on time and in full, according to Propel’s June survey.
Chinese regulatory authorities are fining Ant Group 7.123 billion yuan ($985 million), claiming the financial technology provider violated laws related to corporate governance and consumer rights
FILE – In this Friday, Oct. 23, 2020, photo, an employee walks past a logo of the Ant Group at their office in Hong Kong. Chinese regulatory authorities are fining Ant Group 7.123 billion yuan ($984 million), claiming the financial technology provider violated laws related to corporate governance and consumer rights. The People’s Bank of China imposed the fine on Friday, July 7, 2023. (AP Photo/Kin Cheung, File)
The Associated Press
Chinese regulators are fining Ant Group 7.123 billion yuan ($985 million), claiming the financial technology provider violated laws related to corporate governance and consumer rights.
The People’s Bank of China imposed the fine on Friday.
“We will comply with the terms of the penalty in all earnestness and sincerity and continue to further enhance our compliance governance,” Ant Group said in a prepared statement.
According to the Bank of China, Ant violated laws and regulations related to corporate governance, financial consumer protection, participation in business activities of banking and insurance institutions, payment and settlement business, and attending to anti-money laundering obligations.
The company, which was founded by Jack Ma, is an affiliate of e-commerce giant Alibaba, which Ma also founded.
In January, it was announced that Ma would give up control of Ant Group. The move followed other efforts over the years by the Chinese government to rein in Ma and the country’s tech sector more broadly. Two years ago, the once high-profile Ma largely disappeared from view for 2 1/2 months after criticizing China’s regulators.
The government at the same time also forced Ant Group to call off a highly-anticipated IPO that would have raised over $3 billion, just days before it was to launch.
Yet Ma’s surrender of control came after other signs the government was easing up on Chinese online firms. Late last year Beijing signaled at an economic work conference that it would support technology firms to boost economic growth and create more jobs.
Also in January, the government said it would allow Ant Group to raise $1.5 billion in capital for its consumer finance unit.
U.S. stocks closed higher Friday, ending the month and the first half of 2023 with robust gains as a long-anticipated economic recession failed to materialize. The Dow Jones Industrial Average DJIA, +0.84%
rose about 283 points on Friday, or 0.8%, ending near 34,405, according to preliminary FactSet data. It gained 4.6% in June and 3.8% over the year’s opening six months, its best first half since 2021, according to Dow Jones Market Data. Stocks have been in rally mode in 2023 as inflation continued to retreat under a regime of sharply higher interest rates. The bullish tone, especially for a select few technology stocks, has endured even as Fed Chairman Jerome Powell repeatedly said a few more interest-rate increases look likely this year, and that rates will likely stay high for awhile. Yet the U.S. economy hasn’t tipped into a recession, suggesting the Fed might have room to pull off a “soft landing” for the economy, or at least only a mild recession, as it fights to bring down the cost of living to its 2% annual target. On Friday, the personal-consumption expenditures price index, a key inflation gauge, eased to a 3.8% annual rate in May, the slowest level since April 2021. Against that backdrop, the S&P 500 index SPX, +1.23%
rose 1.2% on the session, 2.3% in June and 15.9% in the first half, its best start to a year since 2019. But the Nasdaq Composite Index was the standout, gaining 1.5% on Friday and 31.7% in the first half of 2023, which was its best first half since 1983, according to Dow Jones Market Data.
Student-loan payments are poised to resume this fall without smaller balances now that the U.S. Supreme Court has blocked President Joe Biden’s loan cancellation plan.
The Biden administration’s loan forgiveness initiative would have canceled up to $10,000 of debt for eligible borrowers, and in some cases up to $20,000.
But the Supreme Court’s conservative majority ruled on Friday that the executive branch overstepped its authority by trying to wipe out billions in student loan debt on its own.
“Six States sued, arguing that the HEROES Act does not authorize the loan cancellation plan. We agree,” Chief Judge John Roberts said, writing for the 6-3 majority.
Now it’s time for more than 40 million borrowers with federal student loans to figure out their next move. They are staring at more than $1.6 trillion in student loan debt. Add on private student loans, and the number climbs to $1.7 trillion.
Federal student loan payments have been on hold since March 2020.
On Friday, the Department of Education filed notice saying it would embark on a regulatory process that would seek an alternative pathway to student-debt relief. Activists have focused on a provision in the Higher Education Act, allowing the Department of Education to “compromise, waive, or release,” any right to collect on student loans.
Approximately 26 million people had either applied for loan forgiveness or were already eligible for the relief as of late last year, the White House said.
Here’s what to know.
When do student-loan payments restart?
In October, according to the Department of Education. Expect more specifics soon on those payments. “We will notify borrowers well before payments restart,” the department said.
While payments start coming in October, interest starts accumulating on the loans in September. Loan balances have not been accumulating interest since the payment pause started in March 2020, during the pandemic’s early days.
“We will also be in direct touch with borrowers and ramping up our communications with servicers well before repayment resumes to ensure borrowers and their families are receiving accurate and timely information about the return to repayment,” an Education Department spokesperson said.
There’s a range of estimates on how much student-loan borrowers typically pay each month on their loans.
According to Bank of America data, $180 was the median monthly student-loan payment as of January 2020. Federal Reserve research before the pause said the average monthly payment was $393, while the median payment was $222.
Can I lower my payments?
Possibly yes, with a range of income-driven repayment plans through the Education Department. These plans are supposed to make repaying loans more affordable by letting borrowers modify their monthly payments based on their income.
While these plans already exist, the department is reworking them. As a result, more monthly income will be shielded from the calculations on what a person could repay for student loans each month, meaning payments will become more affordable. While the revised plans are not in effect yet, the existing plans are up and running.
Many people will likely struggle to fit a student-loan bill back into their budget — the question is how far that financial hardship will go. Student-loan payments would be hitting at a time when car loan and credit-card delinquencies are already rising from their pandemic lows, according to the Federal Reserve Bank of New York.
Part of the Biden administration’s Supreme Court arguments pointed to the possible economic consequences of resuming student-loan payments without canceling some of the debt.
Without cancellation, there will be a “surge” of loan defaults and delinquencies once payments resume, Solicitor General Elizabeth Prelogar told the justices during oral arguments earlier this year.
When deciding which debts have to get paid first, a student-loan bill might fall behind other monthly debts like a mortgage or a credit-card bill.
Anywhere from roughly one-third to three-quarters of borrowers could miss their first student-loan bill when payments resume, according to projections from the credit score company VantageScore.
A missed first payment — in theory — could eventually lead to an average 49- to 82-point reduction in a credit score ranging from 350 to 850, VantageScore researchers said.
However, President Biden on Friday announced a temporary “ramp-up” — a 12-month grace period for borrowers who miss student-loan payments. If borrowers miss payments during this time, they won’t be reported to any of three main credit bureaus — Equifax EFX, +0.37%,
TransUnion TRU, +1.06%
and Experian EXPGF, +0.80%
— and they won’t go into default.
The ramp-up will run from Oct. 1, 2023 through Sept. 30, 2024.
“This is not the same as the student-loan pause, but during this period — if you miss payments — this ‘on ramp’ will temporarily remove the threat of default or having your credit harmed,” Biden wrote in a tweet Friday.
Prior to the payment pause and Biden’s ramp-up announcement, loan servicers waited for a borrower to miss three straight payments before they reported it to the credit reporting bureaus, according to Scott Buchanan, executive director of the Student Loan Servicing Alliance.
In the meantime, brace for potentially long call hold times, curtailed hours and loan servicer glitches, borrower advocates say. It stems back to Congressional cuts on the funding for vendor contracts that handle the day-to-day details of student-loan repayments.
Costco Corp. plans to take a tougher line on the sharing of membership cards.
The bulk retailer intends to ask customers to show photo identification in addition to a Costco COST, +1.32%
membership card when going through the self-checkout process. The Dallas Morning News first reported on the development last week.
A Costco spokesperson emphasized that the company’s policy isn’t changing, as the it always required membership cards at checkout. With the rise of self checkout, however, the company has noticed non-members using cards that don’t belong to them.
“We don’t feel it’s right that non-members receive the same benefits and pricing as our members,” a Costco spokesperson said.
The company indicated on its last earnings call that it was likely to hold off on increasing its membership fees, even as an analyst suggested Costco would appear to have room for a hike.
“Our view right now is that we’ve got enough levers out there to drive business,” Chief Financial Officer Richard Galanti said on the earnings call, although his view is that Costco would be able to increase fees if it wanted to without meaningfully crimping renewal or signup rates.
Costco offers Gold Star and Business memberships for $60 each annually, as well as an Executive membership that costs $120. That higher tier of membership gives consumers a 2% reward on qualifying purchases from the company, among other benefits.
Costco joins Netflix Inc. NFLX, +0.27%
in clamping down on what the companies see as an abuse of membership privileges. The streaming service has moved recently to rein in account-sharing by viewers in different households, requiring either that freeloaders pay for their own accounts or that account holders pay extra to add additional viewers.
The INFORM Consumers Act, which went into effect Tuesday, aims to limit the sales of stolen and counterfeit products on e-commerce platforms.
The measure, which requires e-commerce sites to verify and disclose information about their high-volume third-party sellers, was passed into law following a lobbying campaign to address counterfeit products after being left out of the bipartisan Chips and Science Act last year.
All online marketplaces, including eBay, Etsy, Poshmark and Amazon’s third-party sales platform, will now be required to collect information from high-volume sellers, defined as those selling 200 items or more totaling at least $5,000 over the previous 12 months. These third-party sellers must submit information such as a government-issued ID, a bank-account number, a working email address and phone number, and a taxpayer identification number.
Customers will also be able to find the verified contact information for bigger third-party sellers — those with sales of over $20,000 a year — and to get in touch with them outside of the e-commerce platform. In the past, consumers often had to engage within the platform operator in order to communicate with a seller.
Those bigger sellers will also have their full names and physical addresses listed on their product pages in addition to their contact information, according to the Federal Trade Commission’s business guide.
“This is a game changer,” said Teresa Murray, director of the consumer watchdog office at U.S. PIRG, a nonprofit that lobbies on behalf of the public interest. “For bad guys, stealing items has generally been the difficult part. Selling things online once you’ve stolen them is easy. We hope that with the INFORM Act, it’s not nearly as easy in the future.”
“‘The only people opposing this may be thieves.’”
— Teresa Murray, U.S. PIRG
The act goes into effect just weeks before Amazon Prime Day, when the world’s biggest e-commerce site rolls out discounts for Prime members. This year, Prime Day will be held over two days, on July 11 and 12.
Several e-commerce platforms, including Amazon and eBay, supported the INFORM Consumers Act. TechNet, a national network of technology CEOs and senior executives representing what it calls the innovation economy, wrote to leaders in Congress last December, saying the law would improve consumer safety and increase transparency.
In a statement provided to MarketWatch, eBay EBAY, +2.32%
said it “fully supports transparency and is committed to a safe selling and buying experience for our customers. We were proud to support” the law “to protect consumers from bad actors who seek to misuse online marketplaces, while also ensuring important protections for sellers. We are fully prepared to comply with the new law.”
Etsy ETSY, +3.45%
said it “has long been supportive of the INFORM Act passing into law, as a balanced and thoughtful approach to make the ecommerce landscape safer for both consumers and sellers.” In a statement provided to MarketWatch, the company said, “We are taking appropriate steps to comply with the INFORM Act requirements.”
Amazon AMZN, +1.45%
and Poshmark, owned by South Korea–based Naver Corp. 035420, -0.59%,
did not immediately respond to MarketWatch requests for comment.
Some analysts, however, said the new law lacks stronger protections that were included the SHOP SAFE Act, an earlier bill that did not get passed by Congress. The INFORM Act, they noted, does not hold online platforms liable when a third party sells harmful counterfeit products or when the platform has not followed certain best practices.
“Notably, the legislation is supported by Amazon and other marketplaces as it’s seen as a watered-down bill that would head off more stringent legislation like the SHOP SAFE Act,” Ben Koltun, director of research at Beacon Policy Advisors, wrote in a note last year.
So how can consumers spot counterfeit or stolen items? A guide from PIRG has tips, such as keeping an eye out for products with suspiciously low prices or featuring misspellings or mislabeling or low-quality, photoshopped photos in their listings.
PIRG also cautions consumers about purchasing medications online. Always check the legitimacy of online pharmacies, it says.
“Many online marketplaces haven’t been doing enough to protect consumers from sellers who appear to be peddling stolen or counterfeit goods,” Murray said. “The only people opposing this [new law] may be thieves.”
Home-equity lines of credit (HELOCs) and second-lien mortgages have been staging a notable comeback as U.S. homeowners look for liquidity and ways to monetize the pandemic surge in home prices, according to BofA Global.
It used to be that borrowers sitting on an estimated $33 trillion pile of equity built up in their homes could simply refinance and pull out cash, until the Federal Reserve’s rapid rate hikes began squelching the option.
Now, with mortgage rates above 6%, and the Fed penciling in two more rate hikes in 2023, cash-strapped homeowners have been seeking out alternatives to extract cash from their properties.
While cash-out refinances tumbled 83% in the fourth quarter of 2022 from a year before, HELOCs rose 7% and home-equity loans grew 31%, according to the latest TransUnion data.
“Borrower demand remains high, particularly given household budgets have been pressured by rising food and energy costs,” a BofA Global credit strategy team led by Pratik Gupta’s, wrote in a weekly client note.
Risky loans to subprime borrowers and home equity products helped precipitate the 2007-2008 global financial crisis and the era’s wave of devastating home foreclosures.
At the time, households had more than $1.2 trillion of home equity revolving and available credit (see chart), whereas the figure was closer to $900 billion in the first quarter of this year.
Home equity products are making a big comeback as households seek liquidity
BofA Global, New York Fed Consumer Credit Panel/Equifax
The pandemic saw home prices surge, giving a big boost to home equity levels. The Urban Institute pegged home equity in the U.S. at $33 trillion as of May, up from a post-2008 peak of about $15 trillion.
BofA analysts argued this time home equity products look different, with roughly $17 trillion of tappable equity across 117 million U.S. homeowners, and most borrowers having high credit scores and low rates.
“The vast majority of that — $14 trillion — is from the cohort of homeowners who own their homes free & clear,” Gupta’s team wrote.
Another $1.6 trillion of equity could be available from Freddie Mac and Fannie Mae borrowers, according to his team, which pegged an estimated 94% of all outstanding U.S. first-lien home mortgages now below 4% rates.
Major banks own the bulk of home equity balances (see chart), led by Bank of America Corp. BAC, +1.23%,
PNC Bank PNC, +0.57%,
Wells Fargo, WFC, -0.05%,
JPMorgan Chase JPM, +0.24%
and Citizens CFG, +0.35%,
according to the team, which notes several other major banks appear to have hit pause on their programs.
A smaller portion of HELOCs and second-lien mortgages have been securitized, or packaged up and sold as bond deals, while nonbank lenders have been offering the products as well.
Stocks closed lower Monday, taking a pause from a recent rally, as investors monitored weekend tumult in Russia. The Dow Jones Industrial Average DJIA, -0.04%
was less than 0.1% lower, while the S&P 500 index SPX, -0.45%
was off 0.5% and the Nasdaq Composite COMP, -1.16%
fell 1.2%, according to FactSet.
Signing up for Amazon Prime is as easy as 1-2-3. Canceling it, not so much.
For years, up until this past April, the online retail giant made customers trying to quit its signature service navigate an odyssey through a labyrinthine system called the “Iliad Flow” named after the epically long and complex masterwork by the Greek poet Homer.
According to a civil lawsuit filed Wednesday by the Federal Trade Commission, Amazon customers were required to make their way through a four-page, six-click, 15-option process to stop paying for the service. One wrong click, and they were sent back to the beginning, the lawsuit said.
The FTC noted that Amazon AMZN, +3.69%
maintained the multistep process even though new subscribers in the U.S. to $14.99-a-month or $139-a-year Prime accounts needed only one or two clicks. And even though subscribers could sign up on a multitude of devices, they could only cancel using their desktop computer or mobile phone or by calling customer service.
The FTC suit also accused Amazon of manipulating millions of customers into inadvertently signing up for Prime and then hitting them with automatic renewals without warning.
Amazon has dismissed the charges as misguided, adding that the lawsuit is legally and factually inaccurate. It has vowed to fight the FTC.
The FTC said in court papers that Amazon created the complex “Iliad Flow” exit strategy in 2016 and kept it in place until April of this year, when it caught wind that the agency was preparing to file a lawsuit about the practice.
During that time frame, Amazon quadrupled the number of global Prime subscribers from around 50 million to more than 200 million. The program brings around $25 billion into Amazon’s coffers every year.
The suit described an allegedly maddening process for a customer to actually cancel a subscription.
To start, a subscriber first had to find the “Iliad Flow,” which was not made easy, the FTC suit said. A customer had to select the “accounts and list” dropdown menu, navigate to the third column and then select the eleventh option there: Prime Membership.
That would bring the customer to the Prime Central page. There, one would have to click the “manage membership” button to trigger options that finally included an “end membership” button. But that was only the beginning.
Only after clicking “end membership” would the customer enter the “Iliad Flow” process. From there, a customer would need to navigate three more pages, each with a multitude of options, to finally complete canceling the subscription.
This is one of several web pages a Prime customer would need to navigate in order to cancel the service, the FTC said.
Federal Trade Commission
On the first page, customers were forced to “take a look back at [their] journey with Prime” — a kind of greatest-hits reel of Prime services used over the years. The page was also loaded with marketing material for a multitude of Prime services, with links reading: “Start shopping today’s deals!” and “You can start watching videos by clicking here!” or “Start listening now!”
One wrong click would knock the subscriber out of the “Iliad Flow.”
If the subscriber managed to navigate to the bottom of the page, he or she would finally find a “continue to cancel” button. That would take them to Page 2.
According to the FTC, that page would present the customer with a number of discount options, such as switching from monthly to annual payments, or taking advantage of student discounts or discounts for people on government assistance. The page also included warning icons and links stating: “Items tied to your Prime membership will be affected if you cancel your membership,” and “By canceling, you will no longer be eligible for your unclaimed Prime exclusive offers.”
Clicking on any of those would take the subscriber out of the “Iliad Flow.”
At the bottom of that page was another “continue to cancel” button, which would take the user to Page 3.
If you managed to get to this page, you were only six options away from actually being able to quit Amazon’s Prime service, the FTC suit said.
Federal Trade Commission
On this final page, a customer was presented with five options, only the last of which — “end now” — would actually allow the subscription to be canceled. The other options included pausing the subscription or canceling its auto-renewal function. Pressing any of the four other choices would bring the user out of the “Iliad Flow.” They would have to start over if they wanted to continue.
Only after successfully navigating this maze of web pages would the customer be allowed to actually cancel the service.
The suit said this process caused cancellations to drop significantly.
President Joe Biden is hosting executives from Live Nation, Airbnb and other companies at the White House to highlight his push to end junk fees that surprise consumers
President Joe Biden speaks at the League of Conservation Voters annual capital dinner in Washington, Wednesday, June 14, 2023. (AP Photo/Susan Walsh)
The Associated Press
WASHINGTON — President Joe Biden is hosting executives from Live Nation, Airbnb and other companies at the White House on Thursday to highlight his administration’s push to end so-called junk fees that surprise consumers.
Biden prioritized the effort to combat surprise or undisclosed fees in his State of the Union address and has called for legislation, regulation and private sector action to end them. Biden, at Thursday’s event, was set to announce actions by companies that have eliminated or plan to eliminate those surprise fees.
The consumer advocacy push is part of the Democratic president’s pitch to voters ahead of his 2024 reelection bid that government can help improve their lives in big and small ways.
At the White House, Live Nation, which is based in Beverly Hills, California, is announcing that it will provide customers with upfront all-in pricing for its owned venues by September and that Ticketmaster will give consumers the option to view all-in pricing up front for other venues on the live-entertainment tickets platform. SeatGeek, based in New York, will also unveil features to make it easier to browse for tickets with the true cost displayed.
Airbnb, based in San Francisco, rolled out its all-in pricing tool in December, after Biden first called on companies to stop hiding fees.
“President Biden has been working to lower costs for hardworking families by bringing down inflation, capping insulin prices for seniors, and eliminating hidden junk fees,” National Economic Council director Lael Brainard said in a statement. “More companies are heeding the President’s call so that Americans know what they’re paying for up front and can save money as a result.”
Shares of UnitedHealth Group Inc. UNH took an 8.8% dive toward an 18-month low, as the health insurer said it was facing higher costs from pent-up demand for surgeries. That put the stock on track for the biggest one-day decline since it tumbled 11.1% on March 18, 2020. The insurer’s stock is the highest priced component of the Dow Jones Industrial Average DJIA, which is a price-weighted index, unlike the S&P 500 SPX, which is a market-capitalization weighted index. UnitedHealth’s stock’s $43.06 price decline was shaving about 284 points off the Dow’s price. The Dow was down 162 points, or 0.5%, while the S&P 500 was…
Amazon will pay more than $30 million to settle alleged privacy violations involving its voice assistant Alexa and its doorbell camera Ring
FILE – Amazon Echo and Echo Plus devices, behind, sit near illuminated Echo Button devices during an event by the company in Seattle, Sept. 27, 2017. In a vote Wednesday, May 31, 2023, the Federal Trade Commission is ordering Amazon to pay more than $30 million in fines over privacy violations involving its voice assistant Alexa and its doorbell camera Ring. (AP Photo/Elaine Thompson, File)
The Associated Press
WASHINGTON — Amazon will pay more than $30 million to settle alleged privacy violations involving its voice assistant Alexa and its doorbell camera Ring.
The Federal Trade Commission voted to file charges in two separate cases Wednesday that could also force the company to delete certain data collected by its popular internet-connected devices.
In the Alexa case, the FTC said Amazon had deceived users of the voice assistance service for years. It retained children’s recordings indefinitely unless a parent requested the information be deleted, the agency said, and even when it deleted those recordings, Amazon often kept the transcripts.
The FTC ordered the company to delete inactive child accounts as well as certain voice information and geolocation data.
In imposing a $25 million fine, the agency said Amazon had violated the Children’s Online Privacy Protection Act and FTC Consumer Protection Chief Samuel Levine accused the tech giant of sacrificing “privacy for profits” in “flouting parents’ deletion requests.”
FTC Commissioner Alvaro Bedoya said Amazon kept kids’ data indefinitely to refine its voice recognition algorithm. In a separate statement, he said the Alexa ruling sends a message to all tech companies who are “sprinting to do the same” amid fierce competition in developing AI datasets.
“Nothing is more visceral to a parent than the sound of their child’s voice,” tweeted Bedoya, the father of two small children.
In the Ring case, the FTC accuses Amazon’s home security camera subsidiary of allowing its employees and contractors to access the private videos of consumers and providing lax security practices that enabled hackers to take control of some accounts.
Amazon bought California-based Ring in 2018, and many of the violations cited by the FTC predate the acquisition. The FTC’s order would require Ring to pay $5.8 million that would be used for consumer refunds.
Amazon said it disagreed with the FTC’s claims about the two devices and denied violating the law. But it said the settlements “put these matters behind us.”
“Our devices and services are built to protect customers’ privacy, and to provide customers with control over their experience,” the Seattle-based company said.
The proposed orders must be approved by federal judges.
FTC commissioners unanimously voted to file the charges against Amazon in both cases. In addition to the fine in the Alexa case, the proposed order prohibits Amazon from using deleted geolocation and voice information to create or improve any data product. The order also requires Amazon to create a privacy program for its use of geolocation information.
Bud Light’s recent troubles should worsen in the summer, to the benefit of its competition’s brands, enough to turn Roth MKM analyst Bill Kirk bullish on the stocks of Constellation Brands Inc. and Boston Beer Co. Inc.
Kirk raised on Tuesday his rating on Modelo, Corona, Pacifico beer parent Constellation Brands to buy, after being at neutral since January 2021, while boosting his stock price target to $270 from $216.
Kirk said a lot of the market share Anheuser-Busch InBev SA’s Bud Light lost, amid backlash from the beer brand’s partnership with trans influencer Dylan Mulvaney, went to other premium light products, but he expects that to shift to Constellation’s favor.
“As the weather warms, we expect the share gains for Modelo Especial and Corona to accelerate,” Kirk wrote in a note to clients.
Constellation Brands’ stock STZ, +1.79%
rose 1.5% in afternoon trading Tuesday toward the highest close since Dec. 12, 2022, while Anheuser-Busch shares BUD, -4.71%
slumped 4.5% toward the lowest close since Nov. 10.
He noted that weekly scanner data has shown that Constellation’s beer portfolio outperformed the broader beer market by seven percentage points in early 2023, and that outperformance improved to 10 percentage points at the beginning of Bud Light’s market-share losses in April.
“With temperatures warming and substitutability with Bud Light increasing, recent weeks have seen 13 [percentage points] of outperformance,” Kirk wrote. “This trend should continue as Bud Light [declines/peak] over summer holidays.”
For Samuel Adams, Truly, Twisted Tea parent Boston Beer, Kirk raised his rating to buy, after being at neutral for at least the past three years. He raised his stock price target to $386 from $274.
Boston Beer’s stock SAM, +5.37%
jumped 6.8% toward the highest close since Feb. 15.
Earlier this year, Kirk was concerned that Truly hard seltzer’s weakness continued, offsetting Twisted Tea’s success, and that gross margins weren’t improving even after moving more production in-house.
“Now, we believe seltzer and Truly will benefit in the summer from Bud Light share losses (occasion overlap increases with warmer weather) and gross margin lift from production shift will be realized in 2Q (given inventory days timing),” Kirk wrote.
He believes that will shift investor focus away from Truly’s weakness and toward Boston Beer’s brands that are growing.
And while Wall Street expects the trends Boston Beer saw in the first quarter to continue throughout 2023, Kirk now believes the company will beat expectations for shipments and depletions, and sees opportunities for margins to also beat forecasts.
“While we had written at 1Q that the ‘timing of upside surprises remains unclear,’ we now believe the timing is Summer 2023,” Kirk wrote.
Constellation Brands’ stock has gained 5.7% over the past three months and Boston Beer shares have advanced 4.8%, while Anheuser-Busch’s stock has dropped 10.1% and the S&P 500 index SPX, +0.00%
has gained 5.9%.
Traveling this Memorial Day Weekend? Put some deep breaths on your checklist.
Americans should brace for jammed highways and long airport lines with more people projected to drive and fly this holiday weekend compared to last year, experts say.
Gas is $1 cheaper than it was at the same point last year and airline passengers aren’t flinching from pricey tickets, still powered by the pent-up demand to see family and friends as the pandemic recedes.
“The roads are going to be pretty packed,” said AAA spokeswoman Aixa Diaz. “The bottom line is, the later you wait in the day, the worse it is — unless you drive at night.”
“If there ever was a time you wanted to get to the airport early, it’s this one,” she added.
“Whether driving or flying, pack your patience and prepare for heavy traffic on the road and at the airport,” said Erika Richter, spokeswoman for the American Society of Travel Advisors.
“AAA is projecting that 37.1 million people will be driving at least 50 miles this upcoming weekend. That’s 2 million more people traveling by automobile compared to last year.”
AAA is projecting that 37.1 million people will be driving at least 50 miles this upcoming weekend. That’s 2 million more people traveling by automobile compared to last year.
They’ll be driving on cheaper gas. Nationally, a gallon of gas averaged $3.57 on Thursday, down from $4.59 one year ago, AAA said.
Meanwhile, nearly 3.4 million airline passengers are projected to fly this weekend, according to AAA. That would surpass pre-pandemic levels, when 3.2 million people flew over the Memorial Day Weekend in 2019.
All together, 42.3 million people are expected to travel this weekend via cars, planes, buses, trains, according to AAA estimates. That’s higher than the 39.6 million who traveled last Memorial Day Weekend, and just under 2019 levels.
Three major airlines, American Airlines AAL, +4.20%,
United UAL, +1.76%
and Delta Air Lines DAL, +2.35%,
are expected to handle nearly 60% of the flights, according to a Thursday note from TD Cowen.
Like others, analysts at TD Cowen, a division of TD Securities, say it’s going to be a brisk summer travel season.
“We continue to see strong demand for air travel, with this summer’s focus on international [travel]. Remember, the U.S. government did not eliminate testing until mid-June last year, after most people planned their vacations,” they wrote.
Friday is the day when roads and airports are going to be the busiest.
On the roads, congestion is going to peak that day from 3:00 p.m. to 6:00 p.m., according to INRIX, a traffic-data analytics firm.
Inside airports, approximately 2.6 million people will pass through Transportation Security Administration checkpoints that day, the agency said.
During last year’s Memorial Day Weekend, 2.38 million people passed through TSA checkpoints, the agency’s data showed.
Teens, aged 13-17, can now go with TSA PreCheck-enrolled parents and guardians, when they are on the same reservation and when the TSA PreCheck indicator shows on the child’s pass. Children ages 12 and under can still walk through checkpoints with their enrolled parents or guardians.
Once getting on the plane, don’t count on having a nearby spare seat. Seating capacity is currently slated to be 17% higher than last Memorial Day Weekend, according to the travel app Hopper.com.
This weekend, last-minute tickets are averaging $273, and that’s around $100 less than ticket-price averages at the same point last year and slightly cheaper than 2019 levels, Hopper.com’s data said. International travel is a different story. Fares to Europe, for example, are more than 50% higher than last year, according to Hopper.com.
What happens after Friday?
On the roads, there’s little extra traffic expected on Saturday and Sunday, according to projections from INRIX, a transportation analytics company. On Monday, the worst traveling time is 12 p.m. to 3 p.m. The window for less traffic that day is before 10 a.m., INRIX noted.
As for flights, Richter said airlines and operators “are obligated to share the latest information if it impacts your travel.”
Downloading smartphone apps for your airline, activating the notifications and opting for text and email alerts will also help keep you abreast of any last-minute changes, she said.
Through March, less than 2% of scheduled domestic flights have been canceled, the U.S. Department of Transportation said Tuesday. That’s below last year’s 2.7% cancellation average and the 4.1% rate for the first three months of 2022, the department noted.
A Transportation Department dashboard shows which airline carriers have committed to passenger-friendly accommodations when delays and cancellations occur. For example, some — but not all — airlines will rebook your flight with a partner airline at no additional cost.
But Richter said the volume and potentials for travel snags this Memorial Day Weekend could be a preview for the months to come. “Travel delays will be inevitable this summer, so make sure you are planning ahead,” she said.
If the U.S. government cannot pay all its bills because of a debt-ceiling impasse, household borrowing costs could soar, the job market could shed millions of jobs and stock-market valuations could shrink, according to forecasts.
The consequences of a prolonged default could be grim, according to Moody’s Analytics. The projected fallout from a brief default is less severe but still enough to push an “already fragile” economy into a mild recession, Moody’s says.
On Wednesday, Treasury Secretary Janet Yellen said it’s “almost certain” that the Treasury will run out of resources in early June. She also said she would provide a new update on the debt-limit deadline “pretty soon.”
For all the uncertainties, financial experts say there are ways individuals can prepare. Start by making sure your deposits are in accounts backed by the Federal Deposit Insurance Corp., and think hard about rate-sensitive purchases like a car or a house.
It’s important for people to have a plan in case there is a default, said Rob Williams, managing director of financial planning, retirement income and wealth management at the Schwab Center for Financial Research, a division of Charles Schwab Corp. SCHW, -1.34%.
“On Wednesday, Treasury Secretary Janet Yellen said it’s ‘almost certain’ that the Treasury will run out of resources in early June.”
“Having a financial plan in place that looks at the long and short term is the best way to prepare for the debt ceiling or any other crisis,” he said.
There is still widespread expectation that Congress will strike a political deal that lifts the federal government’s $31 trillion borrowing limit. President Joe Biden and House Speaker Kevin McCarthy met again on Monday, and more talks are planned.
McCarthy on Wednesday said he “firmly believe[d]” the sides would reach a deal avoiding default.
But the window of time in which to act is getting smaller. It’s “highly likely” that the government will get to the point where it cannot pay all its bills and debt obligations in early June — possibly as early as June 1, Yellen said this week.
Meanwhile, new Federal Reserve figures offer a reminder that Americans’ personal finances over the last year have been under pressure, even as inflation rates retreat slowly.
More than one-third of people in the U.S. (35%) said they were worse off in 2022 than in 2021, according to the Fed’s annual look at economic well-being, released Monday.
That’s the largest percentage of people saying they were worse off since central bank researchers started asking the question nearly a decade ago.
“If there ever was a time for a rainy-day fund, this is it. But it’s not going to be able to help a lot of consumers,” said Rachel Gittleman, financial services outreach manager for the Consumer Federation of America.
For example, Social Security payments and payments to veterans could be delayed in the event of a default, she said. “There will be a lot of consumers who will be in an impossible financial situation,” Gittleman said.
If the government does not raise the debt ceiling, household borrowing costs could soar, the job market could shed millions of jobs and stock-market valuations could shrink, according to forecasts.
Getty Images/iStockphoto
Make sure your money is safe
The FDIC guarantees deposits up to $250,000 on accounts including checking, savings and certificates of deposit. That won’t change in the case of any default, an FDIC spokesperson told MarketWatch.
Deposit-insurance coverage came into hard focus in early spring when Silicon Valley Bank and Signature Bank failed, putting other regional banks under pressure as many customers moved their money into bigger banks.
If economic conditions deteriorate after a default, Gittleman said, people will want assurance their money is safe. If you haven’t taken any of the recent bank failures as a sign to put money in an FDIC-insured account, “this would be the time,” she said.
Start cutting costs quickly
During the early days of the pandemic when there were millions of job losses, many people had to quickly cut back on or delay regular expenses.
If a default puts people in an economic vise, Gittleman said they may need to be ready to shut down nonessential recurring payments and talk with their lenders and credit-card companies. “It’s thinking holistically about all of your financial expectations and where you can possibly either get forbearance or some leniency and ask for some help,” she said.
Credit-card debt reached $986 billion in the first quarter, according to the Federal Reserve Bank of New York, and delinquencies on credit cards and car loans continued to move higher after pandemic lows.
Rate-sensitive purchases
After more than a year of rising interest rates, it’s already a tough time to finance a major purchase. On Tuesday, the 30-year fixed mortgage rate climbed higher than 7% for the third time this year.
Any default lasting at least a month would push the 30-year mortgage up to 8.4% in September and price out hundreds of thousands of buyers, according to Zillow Z, -0.83%.
But that is no reason to speed up a home purchase, said Daniel Milan, founder and managing partner of Cornerstone Financial Services.
“Any default lasting at least a month would push the 30-year mortgage up to 8.4% in September and price out hundreds of thousands of buyers, according to Zillow.”
The Federal Reserve doesn’t set mortgage rates, but its policies influence their direction. The big questions are when the central bank will stop increasing its benchmark rate and when it will begin to reduce the rate.
“The odds of a rate cut outweigh the fear or the rush into buying a home now because of the debt-ceiling crisis,” Milan said.
But the Schwab Center’s Williams noted that trying to time a major financial decision around market and political events is a difficult task.
Financial decisions are a mix of math and emotions, even though many people tend to focus more on the math, he said. That’s why it’s important to figure out a financial plan. Often the best course is to stick to your plan and say, “I’m not going to make major changes in the face of market news,” Williams said.
Tuesday marked the Dow’s third straight trading-day loss. By Wednesday afternoon, the index had shed more than 200 points.
The yields on short-term Treasury debt TMUBMUSD01M, 5.666%
maturing in early June are pushing toward 6% amid continued uncertainty about whether a debt-ceiling resolution can come together fast enough to avoid a government default. Bond prices and yields move in opposite directions, reflecting less investor appetite for debt.
There’s no one rule for preparing an investment portfolio for a debt default, financial advisers said. But older retired investors are in a trickier spot — especially in relation to the prospect of delayed Social Security checks — compared with younger investors who have more time to bounce back from adverse events.
“‘We continue to urge clients to make sure we know about any short-term cash needs so that those funds are not at risk.’”
— Lisa A.K. Kirchenbauer, founder and president of Omega Wealth Management
Cash investments have proven attractive in rocky times. But the risk of a debt default could make a heftier cash allocation even more important for older investors, financial advisers said.
“We continue to urge clients to make sure we know about any short-term cash needs so that those funds are not at risk,” said Lisa A.K. Kirchenbauer, founder and president of Omega Wealth Management.
Kirchenbauer said she’s starting to hear from clients about debt-ceiling concerns. “I am making sure that larger [required minimum distributions] are in cash for 2023 now, before anything bad happens in the markets.”
Required minimum distributions are the minimum yearly amounts that have to be pulled out of qualified retirement accounts once the owner reaches a certain age, currently 73.
Preparing for any default is a mental exercise as much as asset allocation, said Amy Hubble, principal investment adviser with Radix Financial. If there’s been no change in a person’s personal circumstances, like job status, income needs or retirement timeline, they should avoid getting sidetracked by short-term issues, she said.
“There are only a small handful of things we can actually control when investing,” Hubble added. “So my advice is always to focus on that: keeping costs low, staying diversified, managing tax-recognition timing and avoiding stupid emotion-driven actions.”
Americans’ discontent with the size of their federal income-tax bill is at a two-decade high, according to a new poll — even though Congress hasn’t passed any direct income-tax increases in recent years.
One month after the 2023 tax season’s conclusion, 51% of respondents in a newly released Gallup poll said their income taxes were not fair. That’s up from 44% last year and marks a record high since 1997, when Gallup’s pollsters started asking how people felt about their income-tax bills.
Meanwhile, 46% of people said they were paying a fair amount of income tax. That basically matched the dim mood over two decades ago, in in 1999, when 45% said that they were paying a fair amount.
Six in 10 poll participants said their federal income taxes were “too high,” pollsters said. 2001 was the last time that share of people felt the same way, Gallup said.
Gallup pollsters spoke with more than 1,000 people, doing their field work through most of April.
The poll comes during a fierce debate about whether the wealthiest taxpayers, as well as corporations, are paying enough in taxes. The Biden administration has been pressing for higher tax rates on high earners. A Democratic-controlled Congress last year passed a law with an $80 billion funding infusion for the IRS over a 10-year span in part to launch more audits of rich individuals and corporations.
Many Americans walked away from tax season with income-tax refunds that were smaller than a year ago. That’s due, at least in part, to the end of pandemic-era boosts to certain credits, tax experts have previously told MarketWatch.
Both backdrops might be at play in the public mood on taxes, observers noted, and political affiliation could have something to do with these changes, Gallup said. Only one-third of Republicans said their income taxes this year were fair, for example — that’s down from 63% in 2020, the last full year of the Trump administration.
The change in Republican sentiment could be why there was a heavy swing since 2020, when 59% said their taxes represented a fair number. In 2020, 56% of political independents said their taxes were fair, and that percentage fell to 45% a few years later. Among Democrats, meanwhile, the 63% saying their taxes were fair was virtually unchanged over that span.
Republicans “are certainly more frustrated now with Biden in office,” said Jeff Jones, senior editor of the Gallup poll. “But they are even more frustrated than they were when Obama was in office.”
Democrat Joe Biden campaigned in 2020 on pledges to raise taxes on corporations and households earning over $400,000 a year and not on those making less than that. So far, the president has not been able to turn proposals like a billionaire’s minimum tax or a higher top tax rate into law.
The real tax-policy fight brewing in the background is the 2025 expiration of Trump-era tax cuts, experts have said.
In the sweeping 2017 tax-code overhaul, Congress reduced five of seven income-tax brackets and boosted commonly used features of the tax code, including payouts for the child tax credit and the standard deduction. But some of those tax cuts were scheduled to sunset, while others were permanent.
Another potential shaping the mood on taxes is the broader economy and recent tax season, Jones said. One possibility, he noted, is that some people are getting pushed to higher tax brackets with pay raises meant to keep up with inflation. (Tax brackets are adjusted annually to account for inflation.)
While inflation is still pinching wallets, tax refunds are lower than they were a year ago.
Refunds averaged just over $2,800, and that’s down more than 7% from a year earlier, according to IRS data through May 12.
For his part, Lawrence Zelenak, who teaches tax law at Duke University, thinks the current darkening public mood “is largely a response to the disappearance of all the temporary pandemic-related tax relief,” he said.
In 2020 an estimated 60% of households ended up with no federal income-tax liability because they were making less and bringing in more through direct cash assistance from the federal government, according to Tax Policy Center estimates.
By 2022, an estimated 40% of households wouldn’t face any federal income tax, according to the nonpartisan think tank — which is more in line with levels seen before the pandemic.
Refunds during 2022 got a kick from extragenerous payouts including the child tax credit, the child- and dependent-care credit and the earned-income tax credit.
Most taxpayers also got a chance to shave their tax bill with a temporary change that let them take the standard deduction and also write off a portion of their charitable donations. But the credits reverted to their prepandemic size, and the deduction on cash donations subsequently went away.
“With the end of the pandemic tax relief, many people have seen their income-tax liabilities go up, and it’s not surprising they see that as unfair,” Zelenak said. “So it may be the change more than the absolute level of tax.”
Social Security has been a vital safety net for retirees, disabled individuals, and surviving family members for decades. However, the program is facing financial challenges that may necessitate changes in the coming years. Let’s explore three potential ways Social Security benefits could change in the future.
Adjustments to the full retirement age
One possible change could involve adjusting the full retirement age (FRA), which is the age at which individuals can receive full Social Security benefits. Currently set at 67 for those born in 1960 or later, some experts argue that increasing the full retirement age could help address the program’s funding shortfall. However, this change could mean longer working lives for future retirees and careful consideration of how it impacts individuals with physically demanding jobs or limited job opportunities later in life.
This change would also result in a smaller benefit for the earliest filers at age 62, since the reductions are based on the amount of time between your filing age and the Full Retirement Age. If the FRA is increased to 68, for example, filing at age 62 would result in a benefit that is only 65% of your Full Retirement Age benefit amount.
In addition, unless the maximum filing age is adjusted, Delayed Retirement Credits (DRCs) would also be limited under such a scenario. Currently when your FRA is 67 you have the opportunity to increase your benefit by 24% (8% per year for DRCs), but if the FRA is 68, the increase would only be 16% at maximum.
Means-testing benefits
Another potential change is means-testing Social Security benefits. Means-testing would involve adjusting benefit amounts based on an individual’s income or assets. Supporters argue that this would ensure benefits are targeted to those who need them most, potentially reducing the strain on the program’s finances. However, critics express concerns about the potential impact on middle-income earners who have paid into the system throughout their working lives and rely on Social Security as a significant part of their retirement income.
An interesting concept I’ve recently seen bandied about involves a trade-off between Social Security benefits and Required Minimum Distributions (RMDs) from retirement plans. Essentially an individual could forgo Social Security benefits (at least partially if not fully) in exchange for looser restrictions on RMDs – allowing for further deferral of taxation on retirement accounts.
Benefit reductions
In order to sustain the Social Security program, benefit reductions might be considered. This could involve various approaches such as adjusting the formula used to calculate benefits or implementing a scaling factor to reduce benefit amounts. While benefit reductions would aim to preserve the long-term viability of Social Security, they could pose challenges for retirees who rely heavily on those benefits to cover essential living expenses.
Most benefit reduction proposals in the pipeline are in concert with expanding the tax base, while at the same time limiting benefits to the upper echelons of earnings levels. In these cases the taxable wage base is either expanded or removed altogether, and the amounts above the current wage base are credited for benefits at a minuscule rate.
It’s important to note that any changes to Social Security benefits would likely be accompanied by broader discussions and careful consideration from policy makers. The goal would be to strike a balance between ensuring the program’s financial stability and protecting the well-being of current and future retirees.
As an individual planning for retirement, it’s crucial to stay informed about potential changes to Social Security benefits. Keeping track of legislative proposals and staying engaged in the conversation can help you adapt your retirement plans accordingly. Consider consulting with a financial adviser who specializes in retirement planning to assess the potential impact on your retirement income and explore other strategies to supplement your savings.
Social Security benefits may undergo changes in the future as policy makers grapple with the program’s financial challenges. Adjustments to the full retirement age, means-testing benefits, and benefit reductions are among the potential changes that could be considered. By staying informed and seeking professional guidance, you can navigate these potential changes and make informed decisions to secure your financial well-being during retirement.
The head of the Internal Revenue Service acknowledged Monday that Black taxpayers appear to be audited at outsized rates, months after a study pointed at disparities and the prospect that audit-selection algorithms could be at fault.
“While there is a need for further research, our initial findings support the conclusion that Black taxpayers may be audited at higher rates than would be expected given their share of the population,” IRS Commissioner Danny Werfel said in a letter.
As an IRS review continues, Werfel said he’s “laser-focused” on making changes before the start of the 2024 tax-filing season.
The IRS doesn’t collect information about race on tax forms — and it doesn’t consider race as a factor on which cases it picks for audits, Werfel emphasized Monday.
But researchers turned their focus on the algorithms helping the IRS pick cases for review when tax returns claim the Earned Income Tax Credit. The credit is a long-standing provision aimed at low- and moderate-income working households.
The IRS has come into $80 billion in funding over a decade due to the Inflation Reduction Act, and more than half the money is dedicated to more tax enforcement for rich taxpayers and corporations. Audits for households making under $400,000 will increase compared to recent levels, Werfel and other Biden administration officials have said.
“The ongoing evaluation of our EITC audit selection algorithms is the topmost priority” in a review to spot uneven treatment in how the IRS administers the tax code, Werfel said in his letter to Sen. Ron Wyden, D-Ore., who chairs the Senate Finance Committee.
Werfel said he’s “committed to transparency” as the research continues.
Certain conclusions were already clear for Wyden.
“The racial discrimination that has plagued American society for centuries routinely shows up in algorithms that governments and private organizations put in place, even when those algorithms are intended to be race-neutral,” he said in a statement.
Wyden said he’ll be re-introducing legislation that would require reviews of private-sector algorithms to spot racial bias. “And I’m interested in requiring similar protections against bias in government systems,” he added.
Werfel’s letter was “an important step,” according to a statement from Chye-Ching Huang, executive director of New York University Law School’s Tax Law Center. But there are other questions that still have to be answered, she said.
“The IRS should shed more light on these issues in future updates, and Congress should continue pressing it to do so,” Huang said.
U.S. stocks ended mostly lower on Thursday, with the Dow booking a fourth day in a row of losses, as selling pressures returned to shares of regional banks. The Dow Jones Industrial Average DJIA, -0.66%
shed about 221 points, or 0.7%, ending near 33,310, according to preliminary FactSet data. The S&P 500 index SPX, -0.17%
fell about 0.2%, while the Nasdaq Composite Index COMP, +0.18%
closed 0.2% higher. Disappointing earnings from Disney Co. DIS, -8.73% tied to its streaming business helped drag down the blue-chip Dow, while shares of PacWest Bancorp PACW, -22.70%
fell more than 20% after it disclosed a 9.5% decline in deposits in recent weeks. Short-term rates remained volatile on Thursday as investors hoped for progress on the debt-ceiling stalemate in Washington D.C. The 2-year Treasury TMUBMUSD02Y, 3.891%
was pegged at 3.906%, up four of the past five trading days, according to Dow Jones Market Data. The 6-month Treasury bill was at 5.11%.
There’s a lot of numbers to weigh when it comes to retirement—but what’s your number?
Working Americans think they need $1.1 million to retire, according to the Schroders 2023 U.S. Retirement Survey, but how does each individual really figure out what they will need in a retirement that could last decades?
“It is very difficult for someone at 35 to have any comprehension about what life at 65 will cost,” said Robert Gilliland, managing director and senior wealth adviser with Concenture Wealth Management. “You have no comprehension what $100 will buy in 30 years. It gets easier to imagine as you get closer to retirement but you need to start planning.”
“We have people call us on a weekly basis to ask ‘do we have enough to retire?’ Yes, but it depends on what lifestyle you want,” Gilliland said. “We sit down with them, talk about the lifestyle they’re living now and the lifestyle they want to live if working was optional.”
Start with a budget
In the information gathering phase, you want to start with a budget. Look at your current expenses for everything from housing, food, utilities and transportation to extras like travel, gifts, and entertainment. You can keep a simple log or use more sophisticated budgeting software, but the key to the process is honesty, said John Leonard, vice president, client adviser with Spinnaker Trust.
“Be honest with yourself on what you really spend. It may surprise you,” Leonard said. “And think about your goals or what lifestyle do you want to live? Do you want to travel, move to a different state? What do you want your retirement to look like?”
By retirement, you’ve likely paid down all or most of your debt and you’re no longer saving for retirement. So that will free up those funds. There will be some reduction in expenses, such as commuting costs or clothes costs associated with work, and you’ll likely be in a different tax situation with lower earnings, said Matt Fleming, wealth adviser executive with Vanguard.
Plan for the long haul
Plan for retirement to last several decades and base your budget around living to age 100.
“You don’t want to plan for the average life expectancy. You want to plan conservatively and plan for expenses through age 100,” Fleming said.
Next, look at what potential sources of income you might have in retirement. That includes your 401(k), IRAs, pensions, savings and Social Security, plus any additional income streams such as rental properties, annuities or inheritance. Also, this is a good time to check on your insurance policies. To figure out your Social Security benefits, use the Social Security website at SSA.gov.
“Get to know your inflows and outflows,” said Fleming said.
Vanguard estimates people should expect to have 75% to 85% of their preretirement income for retirement years, Fleming said.
Another rule of thumb is the 4% rule, but that has evolved over time and may be lower now—as low as 2.5% to 3%, according to Gilliland. The original 4% benchmark suggested that a $1 million in savings and investments would allow you to spend an inflation-adjusted $40,000 each year in retirement with minimal odds of outliving your money.
As far as whether to include Social Security in your planning, it depends on your age, experts said.
“For those close to retirement, Social Security confidence is higher. For early accumulators just starting out in their retirement savings, we have little confidence Social Security will exist in a meaningful way,” Fleming said. “It’s better to overfund your plan than underfund.”
Social Security’s combined trust funds will become depleted in 2034, with 80% of benefits payable at that time. The issue of how to “fix” Social Security has grabbed headlines in recent months with President Biden vowing to protect Social Security and Medicare and some politicians suggesting changes to the system.
“For those 45 and older, they will likely have Social Security. Generally, for those 35 and younger, we don’t talk about Social Security,” Gilliland said. “There will always be some form of Social Security. Politicians will want to be re-elected. Some form of Social Security will always be there—but how meaningful it will be, I don’t know.”
Other factors to consider in budgeting include healthcare costs, travel expenses or helping with college tuition for grandchildren.
“People end up spending more in the first five to 10 years of retirement than they though they would—they’re active, traveling, involved with grandkids. They have an active lifestyle. Then spending goes down a bit until healthcare costs kick in,” Gilliland said
“People need to be aware and conscious of spending in this time,” Leonard said. “Put your expenses in buckets in terms of needs, wants and wishes.”
Healthcare costs
Weigh factors such as getting Medicare at 65, and the impact of long-term care costs and the estimated $315,000 the average couple is expected to spend on healthcare alone in retirement, according to Fidelity Investment’s 2022 report.
Gilliland said to plan for healthcare costs to grow at about 7% a year. Family history and your own health should also shape how you budget for healthcare, he said.
For those who haven’t started saving for retirement—don’t wait. Start now, no matter how small. Eventually, work toward a goal of putting 12% to 15% of your pay toward retirement, said Fleming.
“The earlier you start, the better. Stick to a plan and revisit it on an annual basis. Keep checking in and rein in your spending if you’re not on track,” Leonard said. “Be conservative and lean on the side of caution.”
Loneliness is more than a bad feeling. It’s as deadly as smoking up to 15 cigarettes a day and is associated with a greater risk of cardiovascular disease, dementia, stroke, depression, anxiety, and premature death, according to an advisory by the U.S. Surgeon General.
The mortality impact of being socially disconnected is greater than that of obesity and physical inactivity, U.S. Surgeon General Vivek Murthy said in an 81-page report called “Our Epidemic of Loneliness and Isolation.”
Social isolation among older adults alone accounts for about $6.7 billion in excess Medicare spending a year, largely due to increased hospital and nursing facility spending, the report said.
Loneliness and isolation also are connected with lower academic achievement and worse performance at work. In the U.S., stress-related absenteeism attributed to loneliness costs employers an estimated $154 billion annually, according to the report.
“Given the profound consequences of loneliness and isolation, we have an opportunity, and an obligation, to make the same investments in addressing social connection that we have made in addressing tobacco use, obesity, and the addiction crisis,” the report said. Still, no federal funding or programming will be provided to combat the issue.
Essentially, social connection is a significant predictor of longevity and better physical, cognitive, and mental health, while social isolation and loneliness are significant predictors of premature death and poor health, the report said.
The Surgeon General’s advisory is intended as a public statement that calls the people’s attention to an urgent public health issue and provides recommendations for how it should be addressed. Advisories are reserved for significant public health challenges that require the nation’s immediate awareness and action, the report said.
“Each of us can start now, in our own lives, by strengthening our connections and relationships. Our individual relationships are an untapped resource—a source of healing hiding in plain sight. They can help us live healthier, more productive, and more fulfilled lives,” the report said. “Answer that phone call from a friend. Make time to share a meal. Listen without the distraction of your phone. Perform an act of service. Express yourself authentically. The keys to human connection are simple, but extraordinarily powerful.”
Americans have become less connected to houses of worship, community organizations and their own families and have reported an increase in feelings of loneliness. The number of single households has also doubled over the last 60 years.
About half of U.S. adults report experiencing loneliness, with some of the highest rates among young adults. People cut their circles of friends during the Covid-19 pandemic and reduced time spent with those friends, according to the report.
Americans spent about 20 minutes a day in person with friends in 2020, down from 60 minutes daily nearly two decades earlier. Among young people, ages 15 to 24, time spent in-person with friends has reduced by nearly 70% over almost two decades, from roughly 150 minutes per day in 2003 to 40 minutes per day in 2020, the report said.
Technology has made loneliness worse. People who used social media for two hours or more daily were more than twice as likely to report feeling socially isolated than those who used such technology for less than 30 minutes a day, according to the report.
Murthy called on technology companies, employers, community-based organizations, parents and individuals to tackle the problem.
“We are called to build a movement to mend the social fabric of our nation. It will take all of us…working together to destigmatize loneliness and change our cultural and policy response to it.
It will require reimagining the structures, policies, and programs that shape a community to best support the development of healthy relationships,” Murthy said.
