Author: Minich MacGregor Wealth Management

How are you feeling about work these days?
Are you a boss struggling to fill roles and retain your people? (You’re in good company.)
America is going through a pretty major reconfiguration of the labor market.
Headlines are calling it the “Great Resignation” but we think it’s deeper than that.

The pandemic threw many assumptions out of the window. It caused us to think long and hard about a lot of things.
Where we work. How we work. What work means. What we want out of life.

That existential crisis is visible on the supply side of the labor market:
Folks retiring ahead of schedule (not all by choice).¹
Folks quitting their jobs.²
Folks (primarily women) caring for kids and family instead of going back to work.³
Folks striking over pay and working conditions.⁴
Folks starting new businesses.⁵

And it’s visible on the demand side as well:
Restaurants struggling to staff up.⁶
Shipping ports clogging up because there aren’t enough truckers to haul goods away.⁷
Employers offering higher wages and perks to attract job seekers.⁸

At its most basic level, employment is a transaction: a certain amount of work for a certain amount of pay.
But it’s really much more than that.
For many of us, who we are as a worker…
A business owner…
A boss…
Is central to our identity. 
And the ground is shifting under our feet. That makes folks anxious.
High-anxiety times like these bring plenty of judgment, blame, and dramatic headlines.

Are workers who don’t want to take low-paying, high burnout jobs lazy?
Of course not.
Are business owners worried about keeping their doors open evil capitalists?
Nope.
Are employees organizing strikes or leaving for better opportunities disloyal?
No way.
We’re all doing the best we can every day.
When we see talking heads griping about “entitled” workers or “greedy” businesses, let’s remember that behind the numbers are real people with real struggles.
A parent with a medically fragile kid who is afraid to go back to work.
A business owner who worries the staffing shortage will put her out of business.
A laid-off worker who doesn’t have the skills needed to get a different job.A manager who is doing two jobs because he can’t fill a key role.

Let’s be compassionate toward one another.

What does the labor market upheaval mean for the economy?
That’s hard to say.
It could cause a slowdown in some sectors if businesses struggle to fulfill demand.
It could lead to increased inflation if higher wages get passed on as higher prices.
It could be a factor in a market correction.
It could also accelerate trends toward automation, remote work, and offshoring.

Bottom line: Like most major events in history, the overall consequences won’t be fully visible for a long time.

We’ll close by asking: what’s your take on all this?
Are you pondering any big work or life changes?

---

P.S. What else do you think the pandemic will change? Any thoughts to share?

¹https://www.economist.com/the-economist-explains/2021/09/28/why-are-americans-retiring-earlier

²https://news.yahoo.com/why-american-workers-are-quitting-in-record-numbers-151116968.html

³https://www.pbs.org/newshour/economy/the-pandemic-was-a-breaking-point-for-caretakers-will-it-be-a-turning-point

⁴https://www.reuters.com/world/us/enoughs-enough-tight-us-job-market-triggers-strikes-more-pay-2021-10-18/

⁵https://www.gspublishing.com/content/research/en/reports/2021/10/04/be005ed1-1b6b-42f7-af9b-fb209077ca35.html

⁶https://www.wboy.com/news/health/coronavirus/restaurants-continue-to-face-staffing-shortages/

⁷https://edition.cnn.com/2021/10/14/business/supply-chain-ports-biden-inflation/index.html

⁸https://www.retaildive.com/news/retailers-are-betting-on-wage-hikes-perks-to-woo-workers-ahead-of-the-holi/607815/

As financial advisors, our passion centers around helping our clients build and preserve the wealth that will carry them into retirement.

October is National Breast Cancer Awareness Month. It is a month to reflect on and remember the women in our lives who have lived with or lost their battle with breast cancer.

It is also that time of the year to support those women who may need encouragement to make that appointment and attend their annual screening. In many places, this is a taboo subject And because of this prohibition, too many women have died from a disease that can be treated when caught in the early stages.

Deaths from breast cancer have dropped over time, it is still the second leading cause of cancer death among women.  According to BreastCancer.org, about 13% of women will develop it over the course of their lifetime.[i] That is one in eight women. 43,600 women are expected to die in this year alone. There are 3.8 million women in the US who have breast cancer or have recently completed treatment for it. And depending on where they are in their journey, this may or may not be a death sentence for them.

But the women you love don’t have to be another statistic.

You see, there is hope for those with breast cancer when it is caught early enough for treatment. In fact, the survival rates are quite spectacular. Today, mammography is the most effective weapon we have in detecting breast cancer.  So, this October, we encourage you to support the women in your lives by urging them to get this screening done. That support can be anything from wearing a pink ribbon to providing the time and space they need to get screened. Whatever shape your support takes, it will be appreciated. And who knows, perhaps it will even save the life of someone you love.

Let’s be frank – breast cancer is a killer. Unless, of course, we catch it and treat it early. So, let’s spread the word and remind our loved ones that this is the month to take care of business if they haven’t done so already. 

As Benjamin Franklin once said, “An ounce of prevention is worth a pound of cure!”[ii]

So, let’s do our best to prevent this from affecting your future…so we can keep working to make your future everything you want it to be!

_{[i] https://www.breastcancer.org/symptoms/understand_bc/statistics}

_{[ii] https://founders.archives.gov/documents/Franklin/01-02-02-0002}

In the 245 years since the signing of the Declaration of Independence, the United States has never once defaulted on its debt.  But all that could change on October 18 if Congress does not raise the debt ceiling.  Should that happen, there’s a very real possibility that the U.S. would be unable to pay its bills – or at least, have to prioritize which bills it pays and which it does not.   

Now, we know what you’re thinking.  “The debt ceiling?  This again?”  And yes, it’s true.  Just like in 2011, and again in 2013, our legislature is once again confronted with a debt ceiling crisis of its own making.  Unfortunately, the debt ceiling is not some arcane Congressional procedure.  If the US were to default on its debt – more on that in a minute – then it would likely have a very real impact on the stock market, the economy, and even people’s individual finances. 

This is a story that will likely dominate the news more and more in the coming weeks.  And as we get closer to that October 18 deadline we mentioned, it may prompt more uncertainty in the markets, which have already been volatile of late.  But as we always like to say, nothing in life is to be feared, just understood…and planned for.  So, to help you prepare for the spate of headlines coming our way, let’s do a Q&A on the debt ceiling.  Here are some of the most common questions we’ve been getting from clients on the subject. 

1.  What is the debt ceiling? 

Many people think that the debt ceiling is a cap on how much total money our government can spend, but it’s not.  This is actually an important point.  In truth, the debt ceiling is “the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations.”¹

Now, what are these existing legal obligations?  It’s a massive list, including everything from Social Security and Medicare benefits to tax refunds, interest payments on our national debt, military salaries, and debt to anyone who owns U.S. government bonds. 

The debt ceiling, then, is the legal limit to what the government can borrow to pay for money it has already spent (or committed to spending).  In this case, Congress needs to raise the debt ceiling to pay the bills it has incurred over the past several years. 

2.  Why doesn’t the debt ceiling limit government spending? 

To understand this, we must understand the difference between government spending and government borrowing.  The two are not interchangeable.

First, let’s look at what government spending actually is.  When Congress passes a law, the government must spend money to enact it.  There are two types of legislation used to get that money.  Sometimes Congress authorizes a law, but the authorization doesn’t contain provisions to fund the law.  A separate piece of legislation, known as an appropriations bill, is required.  This is where Congress separately appropriates money for the new law.  These appropriations must be renewed, usually on an annual basis, for the law to remain funded.  This sort of thing is known as discretionary spending because Congress decides upon its own discretion whether to continue funding the law. 

Other laws fall under the umbrella of mandatory spending.  When a new law is enacted that does contain the authority for funding, then Congress is required to fund the law perpetually until the law expires (assuming the law has an expiration date).  Social Security and Medicare, for example, fall under mandatory spending. 

Now, here’s the important part.  Sometimes Congress doesn’t have the money to pay for the laws it previously enacted, especially the larger mandatory programs.  But Congress can’t simply not pay for them.  A law is a law, and Congress is legally obligated to find the money to fund them.  So, in those cases, Congress must borrow the money it is compelled to spend.  That’s the difference between borrowing and spending, and the debt ceiling only applies to the former.  It limits how much the government can borrow to cover what it has already spent.   

3.  This seems so complicated and unnecessary!  Why do we even have a debt ceiling anyway?

The United States is one of the few countries to have a debt ceiling.  Ours originated in 1917, during World War I.²  To put it simply, Congress was tired of having to approve borrowing every time the government needed money.  (Think of it like having a massive family meeting every time someone in your extended family wants to borrow a few bucks.)  So, Congress decided to grant approval to any borrowing so long as it didn’t exceed a specified amount.  Thus, the debt ceiling was born. 

For most of the past hundred years, raising the debt ceiling was a fairly uncontroversial process.  In fact, the ceiling has been raised or suspended nearly 80 times since 1960 alone.³  But over the decades, as Congress has become more partisan, and politics has become more of a blood sport, the debt ceiling has transformed into a political football.  At various times, both Republicans and Democrats have tried to delay raising the debt ceiling or block it altogether.  They do this to either wring political concessions or paint the other party as being fiscally irresponsible. 

We know.  It’s frustrating. 

4.  Okay, so what’s happening on October 18? 

This is the date that Janet Yellen, the Secretary of the Treasury, has indicated the government will run out of money.  After that point, per her recent testimony to Congress, “…we expect Treasury would be left with very limited resources that would be depleted quickly.  It is uncertain whether we could continue to meet all the nation’s commitments after that date.”⁴ 

This essentially gives Congress four options:

• Drastically raise taxes to make up the difference in spending and revenue, so that the Treasury no longer needs to borrow money.  This is politically impossible and will not happen.    
• Drastically cut spending to make up the difference.  (Not going to happen either, for the same reasons as above.  Furthermore, neither of these two actions could be done before the October 18 deadline.)
• Raise the debt ceiling.
• Default on what it owes.

As of this writing, the Democrats, being in power, want to raise the debt ceiling.  The Republicans do not and are essentially daring Democrats to do it on their own.  To do this, though, Democrats would have to use an extremely complicated procedure called budget reconciliation.  Normally, it requires 60 votes to raise the debt ceiling, meaning some Republicans would have to sign on.  Using reconciliation, Democrats could do it with their simple 50 vote majority.  But this would be an untested and extremely time-consuming process.  It also wouldn’t look good politically.

To be clear, most experts expect the debt ceiling to be raised some way, somehow, before the October 18 deadline.  Either Republicans will cave, or Democrats will, but it will get done.  That’s what happened in 2013 and 2011, despite all the 11^th hour drama – because both parties know the ramification of not acting.  On the other hand, as we say in the financial industry, past performance is no guarantee of future results.  So, let’s look at what the ramifications would be if the US were to default on its debt. 

5.  What happens if the debt ceiling isn’t raised and the government defaults? 

To be honest, no one entirely knows for sure.  That’s because it’s never happened before.  However, we can make some educated guesses.  To be honest, they don’t look good.

Deep breath here… 

For starters, seniors could stop receiving Social Security payments, or at least experience delays.  Families could stop receiving Child Tax Credit Payments, or at least experience delays.  Members of the US military would stop receiving paychecks, as would federal employees.  Veterans’ benefits would be delayed.  Food assistance for the hungry, homeless, poor, and malnourished could stop.  Funding for victims of the recent hurricanes and wildfires could stop.  Funding to combat the COVID-19 pandemic could dry up.⁵ 

As if those aren’t bad enough, the effects of a default would also extend to the broader economy – and the markets.  The country’s credit rating would probably be downgraded, as it was in 2011.  Because bondholders wouldn’t be paid, the value of their bonds would drop, leading to simultaneously higher yields. This could lead to dramatically higher interest rates, which would make it harder for people to pay their mortgages and credit card payments.  All this would shock the stock market, too.

Earlier in September, Moody’s Analytics, one of the top economic researchers in the world, estimated that the country would fall into another recession if the debt ceiling weren’t lifted.⁶  Up to six million jobs could be lost.  Unemployment would skyrocket back to 9%.  $15 trillion in household wealth could be wiped out.  All while we are still recovering from the last recession. 

There are no two ways about it.  It’s a grim picture. 

Now, again: Most experts, and politicians for that matter, do not expect this to happen.  But it could.  Right now, Congress is playing a game of “chicken” – and that’s not what we elected our legislature to do. 

That means that we, as private citizens and responsible investors, need to be what Congress is not: Prepared.

6.  So, what do we do about this? 

What you can do, is simple.  First, prepare yourself mentally and emotionally for a spate of scary-sounding headlines.  Second, remember that our team is always available to help if you need anything. 

Right now, uncertainty dominates.  No one knows exactly what will happen.  But we don’t believe in making decisions based off uncertainty.  We don’t believe in making decisions based on fear.   Again, we’ve heard this song and dance before.  Rather than assuming the worst, we’ll just keep paying attention.  Currently, our team is monitoring our clients’ investments and Washington as closely as possible.  If you would like a second opinion on your portfolio, please let us know!  We’d love to talk with you and put your mind at ease.  Or feel free to reach out if you have any questions about what we do. 

We hope you found this message to be informative.  Please let us know if there is ever anything we can do for you!            

¹ “Debt Limit,” U.S. Department of the Treasury, https://home.treasury.gov/policy-issues/financial-markets-financial-institutions-and-fiscal-service/debt-limit

² “United States debt ceiling,” Wikipedia, https://en.wikipedia.org/wiki/United_States_debt_ceiling

³ “Statement by Janet L. Yellen before the Committee on Banking, Housing, and Urban Affairs,” United States Senate, September 28, 2021.  https://www.banking.senate.gov/imo/media/doc/Yellen%20Testimony%209-28-21.pdf

⁴ “Yellen warns Oct. 18 could be breaking point for U.S. debt,” Politico, September 28, 2021.  https://www.politico.com/news/2021/09/28/treasury-janet-yellen-debt-limit-514472

⁵ “What the debt ceiling is and why you should care about it,” ABC News, September 29, 2021.  https://abcnews.go.com/Politics/debt-ceiling-care/story?id=80288518⁶ “Playing a Dangerous Game With the Debt Limit,” Moody’s Analytics, September 21, 2021.  https://www.moodysanalytics.com/-/media/article/2021/playing-a-dangerous-game-with-the-debt-limit.pdf

When you’re a kid, there are certain birthdays you can’t help but look forward to.  When you’re sixteen and can drive, for example.  When you turn eighteen and can vote.  When you turn twenty-one and can…well, you know. 

As adults, we typically don’t see ages the same way that kids do.  But some ages are particularly important.  Why?  Because they have significant implications for your finances.  Here are three of those milestones:

Age 59.5:  When you turn 59.5, the early withdrawal penalty on your IRA and 401(k) will end. It is also the age at which many plans allow you to roll your balance into an IRA.

Having the penalty removed means you can withdraw money from your retirement accounts without facing a 10% penalty. That’s good news if you ever need a quick infusion of cash!

However, there are a few things to keep in mind before deciding whether to take advantage of this. First, it’s important to understand that, while the 10% early withdrawal penalty will no longer apply, any withdrawals you make from your retirement accounts will still be taxed as regular income. So, it’s hardly free money. Second, you should know that it’s often a good idea to leave that money in a retirement account.  That’s because the money inside these accounts should ideally go to one thing: your retirement! That way you’ll have the means to do what you want to do, go where you want to go, and live the life you want to live.

Many pre-retirees roll their 401(k) balance into an IRA to get access to professional management and often more investment choices.  There are many things to consider when looking at this option, cost being one of the biggest.  While you do pay fees within a 401(k), costs can rise if using professional management.  It’s important to consult with a professional to determine whether this option makes sense for you.

Age 66-67:  Depending on when you were born, this is when you reach your Full-Retirement Age – the age at which you can begin taking Social Security benefits without any reduction.  Below is a handy table that shows the Full Retirement Age for every birth year, starting with 1955.¹

Year of Birth	Full-Retirement Age
1955	66 and 2 months
1956	66 and 4 months
1957	66 and 6 months
1958	66 and 8 months
1959	66 and 10 months
1960 and later	67 years of age

While waiting until your Full-Retirement Age means you can take Social Security without any reductions, you can potentially increase your payments if you wait even beyond your Full-Retirement Age! In fact, your Social Security benefits increase by 8% for each year you wait to start your payments up to age 70. After you turn 70, there’s no additional benefit to waiting.

Age 72:  From a financial standpoint, turning 72 is one of the most important birthdays you can have.  That’s because it’s now time to start rewarding yourself every year with a special kind of present called Required Minimum Distributions. 

You see, once you reach age 72, you must begin taking annual withdrawals from any 401(k)s, 403(b)s, or traditional IRAs you have.  (Roth IRAs don’t require withdrawals until after the death of the owner.)  These withdrawals are called Required Minimum Distributions, or RMDs.  RMDs are essentially the government’s way of ensuring people use tax advantaged accounts for what they were designed – to fund retirement.  And yes, RMDs are usually taxed as ordinary income. 

What happens if you don’t take distributions?  Simple: The IRS will hit you with a 50% penalty based on the amount you should have withdrawn.  The penalty also applies if you don’t take out at least the minimum amount required. 

How RMDs are calculated:  So, how much will you have to withdraw when you take out your annual distributions?  Here’s the formula in a nutshell.  To calculate your RMD, first take the balance of your IRA (or other retirement plan) as it stood on December 31 of the previous year.  Then, divide that balance by your life expectancy factor, which is determined by the IRS every year.  You can find the factor that’s specific to you by consulting with the proper calculation tables on the IRS website², but we have a better idea.  As you get nearer to age 72, let’s sit down together and create an RMD schedule for you!  We’ll create a plan so you know exactly when to take each RMD, how much to withdraw, and even what areas of retirement each dollar should be applied to.  This way, we can do the “heavy lifting”, so you don’t have to.

If you have any questions about these milestone ages or how they’ll impact your finances, please let us know.  And be sure to contact us with any questions about RMDs.  RMDs are a particularly important part of retirement planning, so we should definitely talk about them early.   

¹ “Retirement Benefits,” Social Security Administration, https://www.ssa.gov/benefits/retirement/planner/agereduction.html

² “Publication 590-B (2020), Distributions from Individual Retirement Arrangements (IRAs),” Internal Revenue Service, https://www.irs.gov/publications/p590b

If you think about it, almost every major holiday centers on gratitude. 

With New Years, we express gratitude for new opportunities and a fresh start.  With Valentine’s, we express gratitude for our significant other.  Mother’s and Father’s Day, gratitude for our parents.  Memorial Day, gratitude for those who gave their lives for our country.  Independence Day, gratitude for our country itself.  Thanksgiving, gratitude for everything.  You get the idea. 

It should come as no surprise, then, that Labor Day is also about gratitude. 

Of course, gratitude probably isn’t what most people think of when it comes to Labor Day.  But it should be.  Because with Labor Day, we have an opportunity to give thanks for some indispensable rights and privileges – and the men and women who risked everything to win them for us. 

As you probably remember from history class, the late 1800s and early 1900s were a time of great social upheaval in the United States.  Workers around the country marched, protested, and went on strike in order to secure safer working conditions, fairer pay, and a higher quality life for themselves and their children.  Many lost their livelihoods in the struggle; some even lost their lives. 

But their efforts were not in vain.  Many of the rights and privileges we enjoy today – rights we too often take for granted – were thanks to the Labor Movement.  For example:

8-hour Days, 40-hour Work Weeks.  For much of our country’s history, Americans were forced to perform backbreaking labor for 12 hours per day or more.  From sunup until sundown, men and women gave every ounce of blood, sweat, and tears they had just to survive.  Thanks to the Labor Movement, 40-hour work weeks became standardized – and eventually codified into law.  The time we have to see our families, engage in hobbies, read a good book, or even just enjoy a beautiful sunset is thanks to the Labor Movement.

Weekends.  As you know, Labor Day is the first Monday of September.  That means we get to enjoy a three-day weekend.  But the very concept of a weekend is thanks to the Labor Movement!  Huge, nationwide strikes and marches around the turn of the century gained Americans the right to a shorter workweek.  Let’s all remember that the next time we sleep in on Saturday or go golfing on Sunday.  TGIF?  Workers had to fight for those letters to mean anything. 

Sick Leave.  Have you ever had a nasty bout of the flu?  Ever needed surgery?  If so, we imagine you took time off to recover.  We also imagine you didn’t worry about whether you’d still have a job by the time you were better.  Without paid sick leave, most Americans wouldn’t have the means to heal from their illnesses, injuries, and accidents.  Nowadays, we consider this a basic human right – a right we wouldn’t have without the Labor Movement. 

Paid Vacations.  Ever visited Yellowstone National Park?  Disneyland?  Ever gone on an iconic fishing trip, or just took a few days off to finish a project around the house?  Vacations are something none of us could live without.  They help us recharge our batteries.  They help enrich our lives.  They form the core of some our most cherished experiences and memories. 

We have Labor to thank for vacations, too. 

Safe Working Conditions.  On March 25, 1911, a fire broke out at the Triangle Shirtwaist Factory in New York City.  The factory’s owners escaped.  Most of the factory’s workers, mainly women, did not.  Due to locked doors, blocked fire escapes, and flammable surroundings, 146 laborers never returned home that day.¹  The youngest were only 14 years old.¹ 

In the 21^st century, none of us would want to work in a place that was fundamentally unsafe.  None of us would want to work where disease and disaster were rampant. 

In the 19^th century, most workers had no choice.  Thanks to their sacrifice, we do. 

Childhood.  At the turn of the 20^th century, more than 1.75 million children labored in mills, mines, factories, and farms.²  They spent 10-14 hours every day in dangerous conditions for very little money.  Most never received an education.  As a result, many grew up with callused fingers, poor eyesight, rotting lungs – and unrealized potential.  But the workers and protestors of the Labor Movement didn’t just fight for their own rights.  They fought for their children’s, too.  That’s why it became illegal for most industries to employ children under 14, and why there are so many protections in place to prevent older children from working long hours in dangerous jobs. 

These days, most kids spend their days going to school, romping on the playground, riding bikes, or any of a thousand other fun activities.  In other words, they are allowed to be children.  That’s something we should never take for granted – and it’s largely thanks to the Labor Movement. 

As you can see, Labor Day is all about gratitude.  Just as we give thanks to the Founders for our country, soldiers for our safety, and parents for our lives, so too should we thank the workers and laborers who came before us.  The men and women who, thanks to their efforts, made life more worth living.  

On behalf of everyone at Minich MacGregor Wealth Management, we wish you a happy Labor Day weekend!

¹ “Triangle Shirtwaist Factory fire”, Wikipedia, https://en.wikipedia.org/wiki/Triangle_Shirtwaist_Factory_fire

² “Exploring 19^th-Century Child Labor in the United States,” United States Census Bureau, https://www2.census.gov/programs-surveys/sis/activities/history/hh-14_teacher.pdf