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Tag: personnel issues

  • Dow ends up 200 points, stocks score back-to-back gains

    Dow ends up 200 points, stocks score back-to-back gains

    U.S. stocks scored back-to-back gains on Monday in an attempt to claw back ground in a rough August for equities. The Dow Jones Industrial Average
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    +0.62%
    rose about 213 points, or 0.6%, ending near 34,560, according to preliminary data from FactSet. The S&P 500 index
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    +0.63%
    closed 0.6% higher and the Nasdaq Composite Index
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    +0.84%
    gained 0.8%. Investors kicked of the final week of August on an upbeat note, while largely focusing on Thursday’s inflation data and Friday’s monthly jobs report to help inform the Federal Reserve’s path on interest rates and its inflation fight. The 10-year Treasury yield
    TMUBMUSD10Y,
    4.203%
    eased back to about 4.20% late Monday after its sharp rise a week ago to its highest level since 2007. The Dow still was off about 2.8% so far in August, while the S&P 500 index was 3.4% lower and the Nasdaq was down 4.5%, according to FactSet.

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  • UPS workers vote to approve ‘historic’ five-year contract

    UPS workers vote to approve ‘historic’ five-year contract

    UPS employees approved a new five-year union contract with the delivery giant Tuesday, about a month after reaching a tentative deal that averted a strike of 340,000 United Parcel Services workers.

    The Teamsters said 86.3% of members voted for the “historic” deal, saying it was “the highest vote for a contract in the history of the Teamsters at UPS.”
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    “Teamsters have set a new standard and raised the bar for pay, benefits and working conditions in the package-delivery industry,” Teamsters General President Sean O’Brien said in a statement. “This is the template for how workers should be paid and protected nationwide, and nonunion companies like Amazon
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    better pay attention.”

    Among the parts of the contract the union highlighted were $2.75-an-hour raises for existing full- and part-time union members this year, and a total of a $7.50-an-hour raise over five years. All existing part-timers will earn at least $21 an hour starting immediately per the contract, according to the Teamsters.

    The union also noted that the pay increases for full-timers will keep UPS Teamsters as the highest-paid delivery drivers in the country, with the average top rate rising to $49 an hour. In addition, the Teamsters said the new contract ends what it called the two-tier wage system at the company, with all UPS Teamster drivers currently classified as “22.4s” — or hybrid drivers and warehouse workers who were paid less than full-time drivers — to be reclassified immediately as RPCDs, or regular package car drivers.

    A UPS spokesperson sent the following statement from the company: “Our Teamsters-represented employees have voted to overwhelmingly ratify a new five-year National Master Agreement that covers more than 300,000 full- and part-time UPS employees in the U.S.”

    Amazon did not immediately respond to a request for comment.

    One local supplemental agreement that affects 174 workers in Florida will be renegotiated, the union said. The national master agreement will go into effect as soon as that supplement, which is one of 44 local supplements, has been renegotiated and ratified, the union said.

    See: UPS blames ‘late and loud’ Teamsters talks for revenue miss, outlook cut

    Also: Actors, writers, hotel housekeepers and grad-student workers are all striking for the same reason

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  • Housing market has hit ‘rock bottom,’ says Redfin CEO Glenn Kelman

    Housing market has hit ‘rock bottom,’ says Redfin CEO Glenn Kelman

    Housing market has hit ‘rock bottom,’ says Redfin CEO

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  • How much would a strike cost the Big Three automakers? Wall Street thinks it has an answer.

    How much would a strike cost the Big Three automakers? Wall Street thinks it has an answer.

    Wall Street got busy Monday calculating the impact of a strike on the Big Three automakers amid increasingly fraught labor negotiations between union workers and companies, and a  “greater likelihood” of a walkout next month.

    Also on Monday, President Joe Biden weighed in, urging the United Auto Workers and Ford Motor Co.
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    General Motors Co.
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    and Stellantis NV
    STLA,

    to “to work together to forge a fair agreement.”

    Negotiations so far have been tense, and the contract expires in one month.

    Citi analyst Itay Michaeli estimated that a strike at GM lasting about two weeks impacting roughly about 100,000 vehicles would result in an impact of around $1.3 billion before interest and taxes; a five-week one, impacting about 280,000 vehicles, would result in a $3.4 billion impact EBIT. That would be a similar hit as GM’s 2019 strike, he said.

    Recent headlines are “pointing to increasingly challenging labor negotiations and a greater likelihood of a strike next month,” Michaeli said.

    A longer stoppage would result in shrinking dealer inventory and possibly start to impact sales sometime during the second half of October.

    For Ford, Michaeli calculated an impact of about $1.6 billion EBIT for a two-week strike affecting about 130,000 Ford vehicles, growing to $4 billion in the case of a five-week strike affecting 330,000 Ford cars and trucks. Like GM, sales would be hobbled roughly by mid-October in the case of a longer strike.

    “For both companies, the exact volume impact will in part depend on the extent of any Canada/Mexico downtime, and to that, GM appears somewhat better positioned than Ford due to GM’s higher exposure to Mexico production (including for pickup trucks) and other supply-chain considerations,” the analyst said in his note Monday.

    Both companies likely can keep their guidance intact in the case of a brief, one-week strike, but a strike beyond the two-week mark “likely triggers a [fiscal-year guidance] cut, though it would set 2024 up with reduced inventory and greater volume/price recovery prospects,” Michaeli said.

    A big question is whether a strike targets one specific automaker, as it was the case with GM in 2019, or all three at the same time — with more industry volume loss but also potentially a shorter strike, Michaeli said.

    “To that, Ford is generally viewed to be the least likely to be selected as a target,” he said.

    Deutsche Bank analyst Emmanuel Rosner said in his note Monday that he estimates an impact on earnings of about $400 million to $500 million for every week of production for each automaker, for a total of about $1.4 billion.

    GM’s 2019 strike lasted almost six weeks, with a loss of about $3.6 billion EBIT; GM North America lowered revenue estimates as nearly 300,000 fewer vehicles were delivered.

    Extrapolating the same $13,000 per unit in EBIT hit, Ford, GM and Stellantis could see [$550 million, $480 million, and $400 million] in weekly profit impact, reaching that $1.4 billion-a-week estimate, Rosner said.

    “In a bad-case scenario with 8 weeks of strike against all 3 automakers, which would bring the UAW strike fund to very low levels, this could cause $11.2 billion in lost profits for the [Detroit 3],” Rosner said. “While this is considerable, it would still be considerably less than the impact from the lifetime of the 4-year contract,” which would create “a permanent raise in the OEMs’ cost,” he said.

    The analyst also quantified the cost of UAW’s demands, focusing on the union’s “higher-probability asks” such as converting temporary employees into full-time workers, the elimination of a tiered-wage system, and about 40% base wage increase over the four years of the life of the contract. He left out “unlikely” to be met demands around pensions and post-retirement healthcare benefits.

    “Our analysis suggests accommodating these demands would likely constitute a large but not destructive headwind to OEMs’ earnings in year 1, with incremental costs stepping up even further in subsequent years,” Rosner said in the note.

    If these demands are granted with cost-of-living raises on top, Rosner estimated costs to all three automakers around $3.6 billion in the first year of the contract, amounting to $23 billion in total for the four years, “with highest hit to Stellantis, followed by GM and then Ford.”

    “Specifically, we estimate that the conversion of temporary employees to full-time workers would cost D3 a total of $1.4 billion, not yet factoring in wage increases, with the highest impact to Stellantis given the higher [percentage] of temporary employees used currently relative” to GM and Ford, the analyst said.

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  • Why have frozen fruit and vegetable prices soared by almost 12% — but the cost of fresh produce has not?

    Why have frozen fruit and vegetable prices soared by almost 12% — but the cost of fresh produce has not?

    What’s going on with frozen fruit and vegetables?

    Food prices rose 0.2% on the month in July after remaining unchanged in June, and they rose 4.9% on the year, while the cost of food at home rose 3.6% on the year, government data released Thursday showed. Prices of fresh fruits and vegetables rose just 1.2% year over year.

    However, there were some big — even alarming — outliers: Frozen fruit and vegetable prices increased by 11.8% in July over last year, frozen vegetable prices rose 17.1% and frozen noncarbonated juice and drink prices rose 16.3%.

    Those price rises are at odds with overall inflation figures. U.S. consumer prices rose to 3.2% in July from 3% in the prior month, the Bureau of Labor Statistics said this week. It was the first increase in 13 months.  

    Why have the prices of frozen fruits and vegetables shot up over the past 12 months, while the cost of fresh fruits and vegetables has increased so little? 

    Climate change and extreme weather conditions — from heavy rainfall to drought, particularly in California — have led to big problems for farmers. This has been compounded by issues related to the war in Ukraine and an ongoing increase in the cost of labor, experts said.

    As a result, a large proportion of the fruits and vegetables grown were destined to be sold as fresh produce — which led to a shortage of ingredients for frozen goods, said Brad Rubin, sector manager at Wells Fargo Agri-Food Institute. “Because of the late crop, lots of produce is being pushed to the fresh market to keep up with demand,” he said.

    California weather

    California has experienced some drastic weather conditions over the last 12 months. Some 78 trillion gallons of water fell in California during winter 2022 and early spring 2023, according to data from the National Weather Service, delaying planting. And all that snow and rain was followed by a months-long drought in the region.

    What happens in California is felt by consumers across the country. 

    “California produces nearly half of U.S.-grown fruits, nuts and vegetables,” according to estimates from the Sciences College of Agriculture, Food & Environmental Sciences at California Polytechnic State University in San Luis Obispo. “California is the only state in the U.S. to export the following commodities: almonds, artichokes, dates, dried plums, figs, garlic, kiwifruit, olives, pistachios, raisins and walnuts,” it says.

    The subsequent price rises hit ingredients like strawberries and raspberries especially hard, Rubin added. Inventories of frozen berries are “near five-year lows” after winter storms in Watsonville flooded agricultural fields, damaging and delaying the strawberry crop. Most of the strawberries in the U.S. are grown in California. 

    Labor costs

    Frozen fruits and vegetables have a longer supply chain than fresh produce, which can make them more vulnerable to disruptions in inventory, experts say. Rising energy prices are also pushing up the cost of cold storage. 

    In addition to those issues, U.S. farmers are dealing with increased labor costs and fewer migrant workers, partly due to changes in government policies and the closure of borders during the COVID-19 pandemic, according to a February 2023 report from the Federal Reserve Bank of San Francisco. 

    “Immigration has traditionally provided an important contribution to the U.S. labor force,” the report said. “The flow of immigrants into the United States began to slow in 2017 due to various government policies, then declined further due to border closures in 2020-21 associated with the COVID-19 pandemic. This decline in immigration has had a notable effect on the share of immigrants in the U.S. labor force.”

    Russia’s invasion of Ukraine also continues to affect agricultural production in the U.S., said Curt Covington, senior director of institutional business at AgAmerica Lending, a financial-services company providing agricultural loans. Because the war disrupted supplies of commodities like wheat and corn — also pushing up prices for those goods — farmers have been prioritizing planting those crops over vegetables. 

    “These escalating frozen-vegetable prices present a challenge for farmers as they grapple with increased production costs and labor pressures,” and that presents a long-term challenge for farmers, “potentially impacting their profitability,” Covington said. 

    All of these factors — from international supply chains to extreme weather conditions — will have an effect on the cost of frozen goods in U.S. supermarkets. Ultimately, experts said, consumers will end up paying the price.

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  • State and local pensions look healthier — even with asset market turbulence

    State and local pensions look healthier — even with asset market turbulence

    My colleagues JP Aubry and Yimeng Yin just released an update on state and local pension plans. Their analysis compared 2023 to 2019 – the year before all the craziness began. Think of the unusual events that have occurred in the last few years: 1) the onset of COVID; 2) the subsequent COVID stimulus; 3) declining interest rates; 4) rising inflation; and then 5) rising interest rates. 

    Despite the volatility of asset values over this period, the 2023 funded status of state and local pension plans is about 78%, which is 5 percentage points higher than in 2019 (see Figure 1). Of course, the numbers for 2023 are estimates based on plan-by-plan projections, but these projections have an excellent track record.   

    While the aggregate funded ratio provides a useful measure of the public pension landscape at large, it also can obscure variations in funding at the plan level. Figure 2 separates the plans into thirds based on their current actuarial funded status. The average 2023 funded ratio for each group was 57.6% for the bottom third, 79.5% for the middle third, and 91.1% for the top third.

    The major reason for the improvement in plans’ funded status is that, despite the turbulence in the economy, total annualized returns, which include interest and dividends, have risen noticeably for almost all major asset class indexes over the 2019-2023 period (see Figure 3). The exception over this short and volatile period is fixed-income assets, which have declined in value.

    The effect of fixed income’s decline on overall portfolio performance has been modest because, since 2019, fixed income has averaged only about 20% of pension fund assets (see Figure 4).

    So, things are looking a little better for state and local pensions. Yes, the funded ratios are biased upward because plans use the assumed return on their portfolios – roughly 7% – to discount promised benefits. That said, trends are important, and the trend is good. 

    Moreover, annual state and local benefit payments as a share of the economy are approaching their peak for two reasons. First, most pension plans do not fully index retiree benefits for inflation, which lowers the real value of benefits over time. Second, the benefit reductions for new hires – introduced in the wake of the Great Recession – have started to have an impact.

    With liabilities in check and solid asset performance, maybe we can all relax a bit about the future of the state and local pension system.

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  • $1.8 million to retire? Are you kidding?

    $1.8 million to retire? Are you kidding?

    This time it’s in the latest Charles Schwab Retirement Survey. Among 1,000 people surveyed, the average respondent figured he or she needed to save $1.8 million to retire. (That figure is up from $1.7 million in the same survey a year earlier.)

    Touchingly, 86% also told Schwab they were either “somewhat” or “very” likely to achieve their goals.

    Er, no.

    If the numbers show anything, it’s that most people don’t understand math, don’t understand finance and are wildly out of touch with reality.

    Some simple calculations will show that these figures are all wrong.

    First, let’s start with the bad news. There is no way 86% of people should be “very” or “somewhat” confident that they are going to hit that $1.8 million target, or anything like it. Let alone that 37% think they are “very” likely to hit it.

    Median retirement-account balance at the moment? Try $27,000 and change, says 401(k) giant Vanguard.

    Even that’s overstating the picture. The Federal Reserve’s most recent triennial Survey of Consumer Finances says the median American household has $26,000 in total financial assets, including savings accounts, life insurance, 401(k) plan and the like. Among those aged 45 to 54, the figure is $37,000, and among those 55 to 64 it’s $47,000. How anyone thinks they are getting from there to $1.8 million by retirement age is a mystery. Magic carpets? Magic beans?

    Granted, the survey is from 2019, but the intervening pandemic period won’t have changed the picture that much — in either direction.

    It’s not clear from the survey whether those polled included the value of the equity in their homes. Throw that in, and the median household’s total net worth rises to $122,000. Among those aged 45 to 54 it rises to $169,000, and among those 55 to 64 to $213,000. COVID policies helped drive up average U.S. home prices by about 30%, so those figures will have risen since 2019.

    But again we are not nearing $1.8 million.

    Not even close.

    The good news, though, is that you don’t actually need this amount or anything like it to retire.

    Naturally if someone hasn’t figured life out by the time they retire, and they still think that buying yet more stuff is the route to happiness, no amount is going to be enough.

    How much we’d like and how much we need are very different things.

    A $1.8 million balance would buy a 65-year-old couple an immediate annuity paying a guaranteed lifetime income of $9,500 a month, or just over $110,000 a year.

    The average Social Security benefit on top of that for a retired couple is just under $3,000 a month, or $36,000 a year. So in total you’d be on about $146,000 a year. What are these people planning to do in retirement?

    Even with a 3% annual rise, to account for inflation risk, that annuity will pay out $83,000 a year, and that’s for a couple, not just for one person. The money continues until both of you have gone.

    How much do we really need? Well, while acknowledging that each person and each person’s situation is going to be different, let’s do some simple math.

    Actual seniors are living on median annual incomes of around $45,000 to $50,000, says the Federal Reserve. And most of them say they are either reasonably satisfied with retirement or actually happy. So, at least, they tell Gallup and the Employee Benefit Research Institute.

    Meanwhile, a new survey from Schroders finds that the average person thinks a comfortable retirement can be had on around $5,000 a month, or $60,000 a year.

    The average Social Security benefit for a retired couple is $36,000 a year. To bring that income up to $50,000 you’d need an annuity paying $14,000 a year.

    Current cost in the annuities market: $225,000.

    To bring that up to $60,000 the annuity would cost $385,000.

    For $350,000 you can get an income of $18,000 with a 3% annual increase to deal with inflation.

    For $800,000 you can double your Social Security income, bringing in another $36,000 a year — with a 3% annual increase to deal with inflation.

    The cost of housing is a major component for retirees. No, someone doesn’t have to move to Iowa to be able to retire in comfort. But they can move the dial by cashing in their home in an expensive neighborhood — especially the kind of location they may have moved to for a high-paying job or the best schools — and moving somewhere cheaper. Away from coastal California or the “Acela” corridor in the Northeast, a lot of U.S. homes are really cheap.

    Retirement savings generally are grossly inadequate, and many people face genuine hardship in their senior years. And, of course, pretty much everyone could use more money. On the other hand, you can retire in comfort with a lot less than $1.8 million.

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  • Debt-ridden trucking giant Yellow reportedly shuts down

    Debt-ridden trucking giant Yellow reportedly shuts down

    Yellow Corp., one of the largest trucking companies in the country, shut down Sunday as it prepares to file for bankruptcy, the Wall Street Journal reported.

    According to the Journal, Yellow
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    alerted employees and customers Sunday that it would cease all operations by midday. The move does not come as a big surprise — Yellow has seen customers flee in recent years and a bankruptcy filing has been widely expected, with liquidation likely to follow.

    Yellow did not reply to a request for confirmation or comment.

    Yellow’s collapse imperils the jobs of about 30,000 people, including about 20,000 Teamsters, according to the Journal. Many of the company’s non-union workers were reportedly laid off Friday.

    Yellow and the Teamsters last week were able to avert a strike. In June, management sued the union, claiming it was unnecessarily blocking restructuring plans, a charge the union denied while blaming poor management.

    In 2020, Yellow received a $700 million loan from the government to stay afloat during the pandemic, but has repaid only about $230 million, government documents show. Overall, the company reportedly has about $1.5 billion in debt.

    According to the Journal, Yellow’s closure should not cause many disruptions for customers, as most shifted their cargo shipment to rival companies in recent weeks.

    Yellow shares have sunk 72% year to date, and have collapsed 85% over the past 12 months.

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  • ‘I was outraged’: Our restaurant bill was $35 each, but our friend wanted to pay $22 for a gluten-free dish. Who’s right?

    ‘I was outraged’: Our restaurant bill was $35 each, but our friend wanted to pay $22 for a gluten-free dish. Who’s right?

    Dear Quentin,

    I went for dinner with six friends last weekend, and we each ordered entrees and desserts, and some side orders. One of our group only eats gluten-free food, so he ordered two starters. We split the bill, and it worked out at $36 each. But our gluten-free friend cried foul, and asked for a separate check to pay $22 for his gluten-free dish. I was outraged — and almost felt physically sick. I kicked my husband under the table, and said under my breath, “Can you believe that?’

    Can you believe it? Do you think he should have just paid the $35 instead of asking for a separate check? Adding insult to injury, he left the waiter a $10 tip. Why not just pay $35 like everyone else? I told my husband I was never going for dinner with him again. Don’t you think he should have just paid $35 like everyone else? It was a big crowd. If everyone did that, you’d need a forensic accountant to figure out how many breadsticks someone ate. 

    We otherwise had a nice evening, and it was a bring-your-own-bottle restaurant. I work as a teacher and my husband works in tech. We own a home together and have three kids. Our gluten-free friend is a freelance consultant, and is divorced with two kids. He had a very privileged upbringing. I worked hard for everything I have. I’m not saying any of us are rich, but when we go out to eat, we like to share and share alike, and split the bill down the middle. 

    When did eating out become so full of these cringeworthy moments?

    Equal Bill Splitter

    Dear Equal,

    I’m sorry to say that the most cringeworthy moment here happened when you kicked your husband under the table. I’m not a big fan of under-table communication in a group, and while we could debate the pros and cons of asking for a separate check for a $13 difference, I don’t think there’s much of a gray area when it comes to calling someone out at the dinner table, especially when your eye-rolling and disapproval could be picked up by the other guests.

    As far as your friend is concerned, $13 is a lot of money to pay when you did not eat all the food that was ordered by the table. Maybe it doesn’t seem like it to you or anyone reading this column, but your friend is divorced with two kids, and works as a freelancer — so let’s assume his income is not always stable. Could he have just split it down the middle and paid $35 and another 15% or 20% for a tip? Sure. But he has good financial boundaries. I applaud him.

    The real issue here may go back to your respective upbringings, and could explain your dramatic — and I would argue disproportionate reaction — to your friend asking for a separate $22 check. You’ve worked hard, and maybe your friend had an easier start in life, but that doesn’t mean he’s not entitled to pay for what he ate, and watch every dollar. Divorce is like a recession. You can end up struggling to get back on your financial feet for years.

    Perhaps your friend had always intended to pay $22 for his gluten-free dish, and tip the server 50%, or perhaps he has a well-trained side eye and caught your reaction to his paying for his own order, and he decided to pay closer to what everyone else had paid. But ordering separate checks, I suspect, will become more common as prices continue to rise, even at a slower pace, and people feel uncertain about spending money in restaurants. 

    You believe in equality of bill splitting. I suggest you apply that equality to all dinner guests, regardless of upbringing and dietary restrictions, and allow them to make their own choices about what they pay for at dinner. People often have problems — financial or otherwise — that we are not aware of, so try to leave space for that. And if your friend did see your eye-rolling and under-the-table antics? I’d like to think he made space for your behavior too.

    Readers write to me with all sorts of dilemmas. 

    By emailing your questions, you agree to have them published anonymously on MarketWatch. By submitting your story to Dow Jones & Co., the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.

    The Moneyist regrets he cannot reply to questions individually.

    More from Quentin Fottrell:

    I had a date with a great guy. I didn’t drink, but his wine added $36 to our bill. We split the check evenly. Should I have spoken up?

    ‘I’m living paycheck to paycheck and I feel drained’: My fiancé said he would pay half of the mortgage. Guess what happened next?

    ‘We live in purgatory’: My wife has a multimillion-dollar trust fund, but my mother-in-law controls it. We earn $400,000 and spend beyond our means.

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  • As food prices rise in June, analysts warn of a ‘tipping point’ for Americans

    As food prices rise in June, analysts warn of a ‘tipping point’ for Americans

    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.

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  • UPS’s stock snaps win streak after Teamsters say talks collapse due to ‘unacceptable’ contract offer

    UPS’s stock snaps win streak after Teamsters say talks collapse due to ‘unacceptable’ contract offer

    Shares of United Parcel Service Inc. dropped for the first time in seven sessions Wednesday, after the union representing more than 340,000 employees said the delivery giant “walked away” from the bargaining table after its labor contract offer was unanimously rejected.

    The International Brotherhood of Teamsters said, following “marathon” negotiations, that UPS UPS refused to give the union a “last, best and final offer,” as the company said it had nothing more to give.

    “This…

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  • The unexpected group the Supreme Court’s student-loan decision will impact

    The unexpected group the Supreme Court’s student-loan decision will impact

    Student loan borrowers aren’t just the freshly graduated and mid-30s working generations — millions of Americans in their retirement years have student debt to pay back, too. 

    There are six times as many borrowers ages 60 and older now than there were in 2004, but their debt has increased “19-fold,” according to a report from New America, a public policy think tank. About 3.5 million Americans in this age bracket carry $125 billion in student debt, the report found. 

    Overall, Americans hold $1.75 trillion in student debt, the World Economic Forum found. The president’s student loan forgiveness plan, which was announced last August and is now in the midst of legal battles in the Supreme Court, would alleviate $10,000 for qualifying borrowers, or $20,000 for those with Pell Grants. At the time of the announcement, the White House said 20 million borrowers would see their debt washed away, and a total of 40 million would find benefit from cancellation.

    See: What you need to know about the student-loan cases before the Supreme Court as the decision looms

    Student debt has been especially problematic because of “stagnant wages and soaring tuition prices,” AARP said in another report highlighting older borrowers. Around 3% of families headed by someone who was 50 or older had student debt in 1989, with an average balance of $10,000, but by 2016, that figure rose to 9.6%, with an average of $33,000, AARP said. 

    Whether student debt forgiveness will happen or not is still to be determined. Borrowers have been anxiously awaiting an answer from the Supreme Court over two cases linked to the plan — one that argues whether or not the president had the legal authority to forgive loans, and another case about whether the program has standing. The Supreme Court is expected to release its decision on Friday, the last day of the court’s term before summer break. 

    Older borrowers have various reasons to carry debt. Some are paying off their own education, while others have taken on student debt for their loved ones. Federal PLUS loans, for example, allow parents to take loans out for their children’s education. Older Americans may have also taken on debt to refine their skills for a promotion, AARP noted in its report. 

    Also see: Elizabeth Warren: ‘President Biden has the legal authority to cancel student-loan debt’

    Student loans can have a rippling impact on retirement savings — not just in allocating a portion of retirement income toward this debt, but also in accruing enough wealth for old age. Graduates with student loans had 50% less in retirement wealth by age 30 than the graduates without this debt, a Boston College Center for Retirement Research study found.

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  • Are the robots coming for us? Ask AI.

    Are the robots coming for us? Ask AI.

    As we enter artificial intelligence’s brave new world, humans have naturally come to fear what the future holds.  Do computers like HAL from 2001: A Space Odyssey pose an existential threat? Or in an incident not from Hollywood fiction, an Air Force official’s recent remarks implying that a drone had autonomously changed course and killed its operator, only to be later declared a hypothetical, certainly raised alarm.

    Closer to home for most of us, the release of large language models like ChatGPT have renewed worries about automation, reminiscent of earlier fears about mechanization. AI has advanced far beyond rote data-storage tasks and can even pass the bar exam, or write news, or research papers, leading to fears of massive white-collar unemployment.

    But, as new research looking at data of job churn over the past two decades finds, the impact of automation on workers and industries is, in fact, pretty hard to predict given the complexity of the labor market, requiring carefully crafted policies that take these nuances into account.

    First, changes in exposure to automation are not intuitive: they do not easily mesh with “blue-collar” and “white-collar” jobs, as typically defined. Instead, automation is more closely linked to the tasks and characteristics of each job, such as repetitiveness and face-to-face interactions. That translates to the three most automation-exposed jobs: office and administrative support, production, and business and financial operations occupations.

    Meanwhile, the three least automation-exposed jobs are in personal care; installation, maintenance and repair occupations; and teaching. In other words, even with the Internet of Things controlling your HVAC system, it cannot fix itself when it needs new refrigerant, but its smart-panel interface can help the technician diagnose the problem remotely quickly and know what equipment to bring for a repair. But back-end accountants in that company may not fare as well in the AI jobs sweepstakes.

    While automation can displace workers, history suggests that new technology also tends to boost productivity and create new jobs. Consider the automobile: while horses and buggies are outdated, we still need humans to drive (at least until autonomous vehicles come to full fruition), and the assembly line helped automate manufacturing with entire new classes of jobs created for every part of a car and all its electronic systems, with almost 1 million U.S. workers in auto manufacturing today.

    But automation has continued in the auto industry over the decades, with robots helping to make hard and heavy physical labor tasks easier, without fully displacing workers.  So there is a push-pull with automation, and the relative sizes of these countervailing effects remains an area of active scholarly debate.

    “ It is rare for an entire job class to disappear overnight; changes mainly take place over generations ”

    Second, it is rare for an entire job class to disappear overnight; changes mainly take place over generations. The research shows that newer generations of workers, perhaps deterred by the job insecurity observed in earlier generations and lured by high wages in the technology sector, are less inclined to enter automation-prone jobs than those before them. However, after embarking down those career paths, workers tend to stay in their fields, even if the prospects of automation loom large, likely because reskilling is time-consuming and expensive. It is relatively easy for recent high school graduates to opt for tech-centric college degrees like computer science, but learning new skills like coding is more difficult for mid-career professionals in automation-susceptible fields like manufacturing.

    Adjustments to automation can be slow on the business side as well. Incorporating automated technology takes time because modern production tasks tend to be so intertwined that automating one part of a business can affect all other operations. For example, when AT&T, once the country’s largest firm, began replacing telephone operators with mechanical switchboards, they found that operators had become central to the complex production system that grew around them, which is why there are fewer operators today, but some still exist.

    Third, the research found that the share of workers in highly automation-exposed occupations tends to be clustered, ranging from about 25% to 36% across commuting zones. The least-exposed areas in the U.S. are across the Mountain West, thanks to the area’s high shares of workers in management, retail sales and construction (which hasn’t had much automation or productivity improvement in decades but additive manufacturing may be a game-changer), as well as those on the East and West coasts, with their more innovative finance and tech industries.

    On the other hand, those most exposed to automation tend to be located in the Great Plains and Rust Belt, namely due to agriculture. In spite of the fact that U.S. agriculture has been exposed to automation for over a century (more efficient machines and advances in biotechnology), it has become even more technology-driven recently, making ag workers more likely to be impacted by automation.

    Read: How artificial intelligence can make hiring bias worse

    So will the robots take over your job soon?  More likely, they will make our jobs easier and more efficient. Trying to slow the adoption of technology is both futile and counterproductive: taxing or overregulating tech adoption may backfire, especially given global competitiveness and other countries who may not pause. While the advent of a new era of automation is likely to be both gradually incorporated and result in complements to human labor rather than full replacement, thoughtful policies can help disrupted workers transition to new and better opportunities, ensuring we can harness the transformative power of automation and foster a future of work that benefits all.

    Eric Carlson is associate economist at the Economic Innovation Group; DJ Nordquist is EIG’s executive vice president.

    More: AI is ready to take on menial tasks in the workplace, but don’t sweat robot replacement (just yet)

    Also read: ‘Make friends with this technology’: Yes, AI is coming for your job. Here’s how to prepare.

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  • ‘The war on remote work is not over.’ But one group in particular is heading back to the office.

    ‘The war on remote work is not over.’ But one group in particular is heading back to the office.

    As the fight between bosses and workers over returning to the office keeps entering new rounds, new data show how much in-office attendance ramped up last year — especially for white-collar workers with high levels of education.

    But even still, the return to the office has been two different stories for men and women. From 2021 to 2022, men spent more time at the workplace while women spent the same amount of time working from home year-over-year.

    Last year, 34% of workers said they worked from home at least part of the time, according to the annual Bureau of Labor Statistics survey of how Americans spend their time.

    That was down from the 38% of employed people who said the same in 2021 — and a deeper look into Thursday’s data reveals an even more pronounced, but uneven, reduction in the number of people who are working remotely.

    More than one quarter of men in 2022 said they spend at least some of their working time at home, while 41% of women said they had work-from-home in their job schedule. One year earlier, it was a different story for men, but not for women. Over one-third of men, 35%, said working from home was part of their routine while 42% of women said the same.

    It may be a reminder of the juggle that women face between their personal and professional lives. For example, in homes with children under age 6, women spent just over an hour each day caring for their children while men in those households spent half that amount. That breakdown was unchanged between 2022 and 2021, the data showed.

    Meanwhile, the return-to-office trend accelerated for more educated workers from 2021 to 2022. In 2021, 60% of people with at least a bachelor’s degree said they did some of their work from home. In 2022, the share fell to 54% doing some work from home.

    When the pandemic shut down offices and other workplaces, people with higher levels of education often had greater chances of being able to stay home while they worked.

    That dynamic is still at play now, although the differences between groups are becoming less stark. Last year and in 2021, the share of people with no college degree who said they worked from home at least some of the time stayed below 20%.

    It’s unclear what was driving highly-educated workers to spend more time in the office between 2021 and 2022, said Stephan Meier, a Columbia Business School professor who chairs the school’s management division. Some of it could be attributed to return-to-office policies, but it might also be due to growing comfort with vaccination and public-health measures as the pandemic continued, he said.

    “What I would care about is who goes to the office and who doesn’t want to go to the office,” he said.

    The overall change in numbers is not “a major shift,” said Meier, who teaches students and executives about the future of work. “What those numbers show to me is that the war on remote work is not over.”

    The year-over-year decline fits with the trends that Nicholas Bloom, a professor of economics at Stanford University, is seeing in his own research analyzing where people say they are working these days. Even if there’s less remote work happening, Bloom said, his research shows the “rate of decline is itself declining.”

    Bloom thinks the rate of remote work may bottom out next year. “I predict longer-run, from 2025 onwards, this will start to rise again as remote-work technology — hardware, software, [virtual reality, augmented reality], etc. — gets better and continues the long-run rise of [working from home].”

    Between May and December 2020, Bureau of Labor Statistics research showed, 42% of employed people said they spent least some of their time working from home as COVID-19 upended daily life.

    As a whole, the BLS survey on how Americans use their time paints a picture of a slow return to the office — but not necessarily a return to the way things were before COVID-19.

    Before the pandemic, 24% of workers said they spent some of their time working from home, according to the Bureau of Labor Statistics.

    This year, office foot traffic has edged higher, but the rise is incremental and uneven. Earlier in June, average weekly office occupancy surpassed 50% for the first time in three months, according to an ongoing gauge from Kastle Systems, a security-technology provider.

    One week later, the company’s barometer of average occupancy across 10 major cities dropped back below 50%. In the data from early June, Tuesdays tended to be the busiest days for offices, and Fridays were the slowest.

    Meier said he wouldn’t be surprised if next year’s time-use survey reveals even less time spent working from home. But this is a transitional moment in which businesses are figuring out the particular version of hybrid work duties and office setups that work for them, he said.

    “Personally, I do think there is something magical about being in person,” Meier said. “Does it need to be five days a week? Absolutely not.”

    See also: Salesforce is trying a ‘cute gimmick’ to get workers back to the office, but it may fall flat

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  • We’re 54, have $4.5 million in savings but don’t know how to withdraw it in retirement. What should we do?

    We’re 54, have $4.5 million in savings but don’t know how to withdraw it in retirement. What should we do?

    My wife and I are both 54 years old and have accumulated a taxable account totaling $2.3 million, and retirement assets totaling $2.2 million. We hope to retire at 55, and we are wondering about the best way to take our distributions. Clearly we will not touch the qualified money until we reach 59½.  

    I understand the 4% rule, but when it comes to taking the money, is it better to have a set monthly, quarterly, or annual withdrawal, or is it better to take a lump sum? I can see myself going crazy trying to time market tops in order to take distributions. I was planning to take money off the table after the peak in 2021. I purposely held out until 2022 for tax purposes and that backfired.  

    Is the best course of action to set it and forget on a monthly, quarterly, or annual basis?

    See: I’m 54 and the primary earner but ‘professionally, I am exhausted’ — we have $2.18 million but what about healthcare?

    Dear reader, 

    You touch on a really common issue retirees have: the distribution phase. 

    For decades, Americans are told to save, save, save for retirement, but then they get to the point where they need to start using the money…and that can be a complicated process. Retirees need to have an idea of how much to withdraw, what that distribution’s impact will be on the rest of their nest egg, what to expect come tax time and how not to use that money too quickly. 

    Like so much in personal finance, the answer to your question is highly dependent on individual circumstances. I’ll get to that in a minute. 

    First, a note about the 4% rule. This rule is meant to be a guideline. For some people, 4% is too much, while for others, it isn’t enough. Experts have argued its applicability, too — Morningstar, for example, said retirees could use a rate of 3.3% and would have a 90% probability of not running out of money in retirement. 

    Want more actionable tips for your retirement savings journey? Read MarketWatch’s “Retirement Hacks” column

    Before you commit to the 4% rule (which, of course, you can always adjust as the years go on), do a few quick calculations on how much you expect to spend in retirement — with a buffer included — and see what the percentage of your total retirement savings actually is. You may be able to retain more in your retirement assets than you expected. 

    If you’re still not sure on how much to take out, perhaps start a bit more conservatively in an effort to preserve your investments. The less money you take out, the more in your accounts that can continue to grow.

    Also, be aware of something called the “sequence of returns” risk, which is when your portfolio value drops too quickly at the beginning of your distribution journey. The result could be less than ideal for your account.

    Read: The Decumulation Drawdown: How spending became the big dilemma in retirement

    Pay attention to the tax implications of your decision, and consider consulting a qualified financial planner and/or an accountant to help you run the numbers. There are plenty of factors you have not included in your letter, such as if any of that money is in Roth accounts, and even then, a qualified financial planner can get into the granular details to help you make the most of your retirement spending and savings. You might find making Roth conversions to be beneficial as your taxable income drops — it’s also a way to avoid required minimum distributions down the road. 

    Also, you’re right not to touch your retirement assets until you’re 59 ½ years old (and for readers who are unaware, that’s when most retirement account assets become available without incurring a penalty). There are exceptions, such as the “55 rule,” which is when you are allowed to withdraw from your retirement account after separation from service if you are 55 or older. The account you can withdraw from must be linked to the job from which you’re separating, and there may be other stipulations attached. Check with your employer about what you are and aren’t allowed to do with your retirement plan. 

    Now, how often to distribute. This will depend on your comfort level, but some advisers suggest pulling six to 12 months’ of monthly expenses in a money-market account and then creating a paycheck effect. “Setting up monthly or biweekly distributions will create the feel of still working and help you stay within your budget,” said Brian Schmehil, a certified financial planner and managing director of wealth management for The Mather Group. 

    Also see: At 55 years old, I will have worked for 30 years — what are the pros and cons of retiring at that age? 

    Make sure the accounts you’re drawing from have shorter investment horizons and are in less risky investments, which will help you “continue to spend what you want to spend and accomplish your goals without having to be overly mindful of market volatility,” Schmehil said. This is in line with the bucket approach, which is when your assets are divided into various investment horizons. The least risky is in your shorter-term “bucket,” whereas the investments with the most risk are earmarked for the long term. 

    Having a monthly distribution schedule might help keep you in check. “I like to use monthly for most people,” said David Haas, a certified financial planner and owner of Cereus Financial Advisors. “It keeps them thinking about a monthly budget if they have a propensity to spend too much.” 

    Keep in mind how many variables can change over the course of your retirement. For example, if you switch up where your retirement money comes from — your taxable account, your retirement accounts, Social Security, etc. — your tax liabilities could change. Also, inflation might have an impact on your spending, or how quickly you draw down your distribution. Your risk tolerance may also transform, especially as you get older and you see your nest egg dwindle or you face market volatility. The frequency in which you take your money might change too, and if it does, that’s OK.

    Readers: Do you have suggestions for this reader? Add them in the comments below.

    Have a question about your own retirement savings? Email us at HelpMeRetire@marketwatch.com

    Source link

  • We’re 54, have $4.5 million in savings but don’t know how to withdraw it in retirement. What should we do?

    We’re 54, have $4.5 million in savings but don’t know how to withdraw it in retirement. What should we do?

    My wife and I are both 54 years old and have accumulated a taxable account totaling $2.3 million, and retirement assets totaling $2.2 million. We hope to retire at 55, and we are wondering about the best way to take our distributions. Clearly we will not touch the qualified money until we reach 59½.  

    I understand the 4% rule, but when it comes to taking the money, is it better to have a set monthly, quarterly, or annual withdrawal, or is it better to take a lump sum? I can see myself going crazy trying to time market tops in order to take distributions. I was planning to take money off the table after the peak in 2021. I purposely held out until 2022 for tax purposes and that backfired.  

    Is the best course of action to set it and forget on a monthly, quarterly, or annual basis?

    See: I’m 54 and the primary earner but ‘professionally, I am exhausted’ — we have $2.18 million but what about healthcare?

    Dear reader, 

    You touch on a really common issue retirees have: the distribution phase. 

    For decades, Americans are told to save, save, save for retirement, but then they get to the point where they need to start using the money…and that can be a complicated process. Retirees need to have an idea of how much to withdraw, what that distribution’s impact will be on the rest of their nest egg, what to expect come tax time and how not to use that money too quickly. 

    Like so much in personal finance, the answer to your question is highly dependent on individual circumstances. I’ll get to that in a minute. 

    First, a note about the 4% rule. This rule is meant to be a guideline. For some people, 4% is too much, while for others, it isn’t enough. Experts have argued its applicability, too — Morningstar, for example, said retirees could use a rate of 3.3% and would have a 90% probability of not running out of money in retirement. 

    Want more actionable tips for your retirement savings journey? Read MarketWatch’s “Retirement Hacks” column

    Before you commit to the 4% rule (which, of course, you can always adjust as the years go on), do a few quick calculations on how much you expect to spend in retirement — with a buffer included — and see what the percentage of your total retirement savings actually is. You may be able to retain more in your retirement assets than you expected. 

    If you’re still not sure on how much to take out, perhaps start a bit more conservatively in an effort to preserve your investments. The less money you take out, the more in your accounts that can continue to grow.

    Also, be aware of something called the “sequence of returns” risk, which is when your portfolio value drops too quickly at the beginning of your distribution journey. The result could be less than ideal for your account.

    Read: The Decumulation Drawdown: How spending became the big dilemma in retirement

    Pay attention to the tax implications of your decision, and consider consulting a qualified financial planner and/or an accountant to help you run the numbers. There are plenty of factors you have not included in your letter, such as if any of that money is in Roth accounts, and even then, a qualified financial planner can get into the granular details to help you make the most of your retirement spending and savings. You might find making Roth conversions to be beneficial as your taxable income drops — it’s also a way to avoid required minimum distributions down the road. 

    Also, you’re right not to touch your retirement assets until you’re 59 ½ years old (and for readers who are unaware, that’s when most retirement account assets become available without incurring a penalty). There are exceptions, such as the “55 rule,” which is when you are allowed to withdraw from your retirement account after separation from service if you are 55 or older. The account you can withdraw from must be linked to the job from which you’re separating, and there may be other stipulations attached. Check with your employer about what you are and aren’t allowed to do with your retirement plan. 

    Now, how often to distribute. This will depend on your comfort level, but some advisers suggest pulling six to 12 months’ of monthly expenses in a money-market account and then creating a paycheck effect. “Setting up monthly or biweekly distributions will create the feel of still working and help you stay within your budget,” said Brian Schmehil, a certified financial planner and managing director of wealth management for The Mather Group. 

    Also see: At 55 years old, I will have worked for 30 years — what are the pros and cons of retiring at that age? 

    Make sure the accounts you’re drawing from have shorter investment horizons and are in less risky investments, which will help you “continue to spend what you want to spend and accomplish your goals without having to be overly mindful of market volatility,” Schmehil said. This is in line with the bucket approach, which is when your assets are divided into various investment horizons. The least risky is in your shorter-term “bucket,” whereas the investments with the most risk are earmarked for the long term. 

    Having a monthly distribution schedule might help keep you in check. “I like to use monthly for most people,” said David Haas, a certified financial planner and owner of Cereus Financial Advisors. “It keeps them thinking about a monthly budget if they have a propensity to spend too much.” 

    Keep in mind how many variables can change over the course of your retirement. For example, if you switch up where your retirement money comes from — your taxable account, your retirement accounts, Social Security, etc. — your tax liabilities could change. Also, inflation might have an impact on your spending, or how quickly you draw down your distribution. Your risk tolerance may also transform, especially as you get older and you see your nest egg dwindle or you face market volatility. The frequency in which you take your money might change too, and if it does, that’s OK.

    Readers: Do you have suggestions for this reader? Add them in the comments below.

    Have a question about your own retirement savings? Email us at HelpMeRetire@marketwatch.com

    Source link

  • GameStop fires CEO, elects Ryan Cohen as executive chairman; stock plunges

    GameStop fires CEO, elects Ryan Cohen as executive chairman; stock plunges

    GameStop Corp. fired Chief Executive Matthew Furlong on Wednesday and said that its board had elected activist investor Ryan Cohen as its executive chairman, effective immediately.

    Shares of the videogame retailer and meme stock sank 19% after hours following the brief press release detailing the move. That release did not offer a reason for Furlong’s firing and was made shortly ahead of the chain’s quarterly results.

    GameStop
    GME,
    +5.75%    ,
    in its earnings release, said it would not be holding a conference call to discuss those results. But in a filing detailing those financials, the company said Cohen’s leadership would be good for shareholders.

    “We believe the combination of these efforts to stabilize and optimize our core business and achieve sustained profitability while also focusing on capital allocation under Mr. Cohen’s leadership will further unlock long-term value creation for our stockholders,” GameStop said.

    Cohen, the co-founder and former CEO of online pet-supplies retailer Chewy Inc.
    CHWY,
    -4.10%    ,
    became GameStop’s board chairman in 2021, after joining the board that year and building up a stake in the company earlier. His influence at the company, as the Wall Street Journal reported in 2021, led to feuding with management and an explosion in popularity among the meme traders who helped launch GameStop’s stock higher. He also amassed and then sold off a stake in Bed Bath & Beyond, the home-goods retailer that is in the process of closing up shop.

    GameStop announced the move on Wednesday as it struggles to put up a consistent profit and tries to cut costs. Under Cohen’s control, the company has redoubled its focus on physical stores — as more of the gaming industry becomes more online and mobile — after initially making a bigger push toward e-commerce.

    GameStop, in a separate filing on Wednesday, said Cohen’s responsibilities would include “capital allocation, evaluating potential investments and acquisitions, and overseeing the managers of the company’s holdings.”

    In that filing, GameStop said that Furlong was fired without cause. According to his offer letter in 2021, Furlong is due any unvested stock that would have vested in the next six months. According to the terms outlined in that letter, Furlong would have been eligible to receive nearly $2.5 million in stock in August. He’ll also receive $100,000 in base salary. The filing also said Furlong had resigned as a company director.

    The company also said it appointed Mark Robinson as its general manager and principal executive officer. Robinson has worked as vice president and general counsel at the company since January 2022, and held other roles at GameStop since 2015, the filing said.

    GameStop also said it appointed Alain Attal as the lead independent director of the board and dissolved the Strategic Planning and Capital Allocation Committee.

    For its first quarter, GameStop reported a net loss of $50.5 million, or 17 cents a share — far narrower than the $157.9 million, or 52 cents a share, in the same quarter last year. Net sales were $1.24 billion, down from $1.38 billion in the prior-year quarter. GameStop ended the quarter with cash and cash equivalents of $1.06 billion.

    Popular videogames, such as “The Legend of Zelda: Tears of the Kingdom” and “Hogwarts Legacy,” seem likely to help GameStop’s sales up ahead. And the company has cut costs in an effort to improve profitability.

    The company reported a profit in the prior quarter, helped by holiday-season demand. Still, the two analysts polled by FactSet don’t expect another profitable quarter until this year’s holiday quarter.

    Wedbush analyst Michael Pachter, in a note last week, noted that broader challenges for the retailer include “a shift towards digital, mobile and subscription software (and away from the traditional packaged business).”

    GameStop shares are down 29% over the past 12 months. By comparison, the S&P 500 Index
    SPX,
    -0.38%
    is up 2.7% over that period.

    Jeremy Owens contributed to this story.

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  • What you should do right now to prepare for a debt-ceiling breach

    What you should do right now to prepare for a debt-ceiling breach

    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.

    Portfolio protection

    The Dow Jones Industrial Average
    DJIA,
    -0.77%    ,
    the S&P 500
    SPX,
    -0.73%
    and the Nasdaq Composite
    COMP,
    -0.61%
    closed sharply lower in volatile trading on Tuesday and opened lower and have stayed lower in Wednesday trading.

    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.”

    Read also: BlackRock’s Rick Rieder sees ‘epic’ cash on sidelines as he takes lead role on new ETF

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  • 3 changes to Social Security benefits we could see in the future

    3 changes to Social Security benefits we could see in the future

    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.

    Read: Does it matter if Social Security checks are delayed?

    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.

    Read: What happens to Social Security payments if no debt-ceiling deal is reached?

    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.

    Also see: This is what’s most likely to knock your retirement off course

    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.

    Read: This lawmaker’s ‘big idea’ could fix most—but not all—of the Social Security crisis

    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.

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  • Elon Musk says he’s hired new CEO for Twitter; is it NBCUniversal’s Linda Yaccarino?

    Elon Musk says he’s hired new CEO for Twitter; is it NBCUniversal’s Linda Yaccarino?

    Twitter Chief Executive Elon Musk says he’s found a new CEO to run Twitter and its parent company, X Corp., and “she” starts soon.

    “Excited to announce that I’ve hired a new CEO for X/Twitter. She will be starting in ~6 weeks!” Musk tweeted Thursday afternoon. “My role will transition to being exec chair & [chief technology officer], overseeing product, software & sysops.”

    Musk did not offer any clues as to the identity of Twitter’s incoming CEO, but late Thursday, the Wall Street Journal reported Linda Yaccarino, NBCUniversal’s head of advertising, was in talks to become the CEO.

    Yaccarino has worked at Comcast’s
    CMCSA,
    +1.28%
    NBCU for more than a decade, and has been an industry advocate in finding better ways to measure advertising’s effectiveness, according to the Journal.

    Yaccarino oversees global, national and local ad sales, partnerships, marketing, ad tech, data, measurement and strategic initiatives, according to her bio, which says she and her team have generated more than $100 billion in ad sales.

    “She knows metrics in advertising, and has played in different media,” Timothy Hubbard, assistant professor of management at the University of Notre Dame’s Mendoza College of Business, said in an interview. “I don’t know much about her, but she can balance Musk somewhat with her flexibility in advertising.”

    She and Musk appeared in a keynote conversation at a conference in Miami last month, according to Dateline, before NBCU and Twitter inked a major ad pact for the 2024 Olympics.

    Wedbush analyst Dan Ives said the move is good for the stock of Tesla Inc.
    TSLA,
    +2.10%    ,
    where Musk is also CEO.

    “Musk stepping down as Twitter CEO sooner than thought is clearly good news overall for Tesla investors,” Ives said on Twitter. “Less time focused on Twitter platform and more time around Tesla SpaceX…balancing act too difficult and needed to make this move sooner rather than later.”

    In a note, Ives added: “With the tweet this afternoon, Musk’s reign as CEO of Twitter has finally come to an end and thus will be a positive for Tesla’s stock starting to finally remove this lingering albatross from the story,” and maintained Tesla’s outperform rating.

    Tesla shares advanced 1.6% in after-hours trading.

    After Musk acquired the social media giant for $44 billion, he posted a Twitter poll in December that asked if he should step down as CEO. A majority (57%) said yes, and he responded saying: “I will resign as CEO as soon as I find someone foolish enough to take the job! After that, I will just run the software & servers teams.”

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