Date: June 21, 2019
Author: Marty Moore, CFP®
Estimated Read Time: 2 minutes
April Showers Bring May Flowers ???
Nope, not for the market anyway. The S&P 500 was down a little over 6% for the month of May… nothing to sneeze at, for sure. For a growth portfolio that’s a $30,000 decline from a $500,000 account.
Test your knowledge: Over the last 70 years, since 1950, how many years has the market (S&P 500) NOT experienced at least a 5% decline during the course of the year?
(Answer at the end of this post.)
Pretty good deal
The average American worker who retires next year (in 2020) will have paid $36,000 in Medicare taxes during his/her working lifetime, far less than the $229,000 in Medicare benefits they are projected to receive. The benefit amount is net of the Medicare premiums paid by the retiree. (Source: Urban Institute)
For Social Security benefits, the average American worker will have paid $135,000 in Social Security taxes during his/her lifetime, less than the $193,000 in retirement benefits they are projected to receive. (Source: Urban Institute)
What a deal! The first recipient of a monthly Social Security retirement benefit in 1940 was 65-year old Ida May Fuller of Vermont. During the 3 years before Fuller retired, she paid $24.75 in Social Security taxes (in total, not per year). Fuller lived another 35 years before dying at age 100 in 1975. During her retirement, Social Security paid Fuller $22,289 in retirement benefits. So, she was paid $925 for every dollar she paid into the program. (Source: Social Security)
Media vs. Reality
I think we all know that our reality is shaped by the media, and also to some extent by what we search for in Google. But how much is that reality distorted from what is actually happening around us?
An interesting survey by Our World in Data found that there is a significant disconnect in one area of our lives: causes of death. As you can see from the graphic, the organization compared the actual causes of death, in percentage terms, with the number of Google searches, and the number of mentions in the media.
The difference is striking. Look, for example, at the media coverage in two major news publications of terrorism (red), homicide (gray), and suicide (light blue), compared with the actual deaths that are generated by the events. Meanwhile, the number one killer – heart disease – is hardly ever mentioned. In Google searches, meanwhile, terrorism and homicide are disproportionately represented, but the difference is not as extreme.
The point here is that there can be a significant disconnect between what we read and what actually happens in real life. Chances are, you knew that, but you may not have realized how striking the difference can be.
Applying this to the world of investing, the media plays upon our fears knowing that what scares us draws our highest attention… (and increases their readership and ratings). A big down day in the market, the President threatening to fire the Fed Chairman, political tensions that unnerve the financial markets – you can be sure these kind of things will be front and center. Things that really matter most – consistent savings, an investment plan based on your age and goals, and a realistic spending plan in retirement – are, in reality, somewhat boring and receive little play. Something to think about.
How’d you do?
So, how many years since 1950 has the market been so calm and stable that not so much as a 5% decline occurred during the course of the year? The answer is just 5 years – 1954 (-4.4%), 1958 (-4.2%), 1964 (-3.5%), 1995 (-2.5%), and 2017 (-2.8%).
So far in June (as of 6/19), the S&P 500 is back up a little over 6%. Normal market volatility. Not necessarily rational, but normal.
In the end…
Success comes not from being better than the guy next to you; success comes from being better than the guy you were yesterday.
- Wes Barry, Pastor of Waypoint Community Church, Charlotte
As always, thanks for reading.
MartyHealthcare, Market Volatility, Social Security