Are You Financially Better Off Today Than You Were on January 1, 2021?

According
to many of the talking heads at Fox and other conservative media
sources, a huge factor in selecting who to vote for in the upcoming
presidential election is whether you are better or worse off financially
than you were at the beginning of the Biden/Harris term. While we don’t
believe that this comparison should be anywhere as important in your
decision process as suggested by members of the conservative media,
let’s take a look at the math involved in answering this question so
that you can estimate the change in your own financial status rather
than simply focusing on how much prices on certain items have increased
since January 1, 2021.At How Much Can I Afford to Spend in Retirement,
we advocate annually comparing household assets with household spending
liabilities to determine a household’s Funded Status. In this post, we
suggest using this relatively straightforward Funded Status metric to
determine whether your household is better off financially today vs. as
of January 1, 2021. While household spending liabilities have generally
increased since January 1, 2021 as a result of significant price
inflation in the U.S., household assets may have also increased during
this period. In our personal situation, our assets have increased more
than our spending liabilities and our estimated Funded Status today is
almost 20% higher than it was as of January 1, 2021. InflationAccording
to inflation by country data published by the World Bank (and an
assumed annual rate of inflation of 2.5% for 2024), total inflation
increased prices in the U.S. by about 20% over the last four years. This
was a bit higher than price inflation during this period in Canada and
France and about the same as inflation in the United Kingdom and
Germany. It was also less than half the rate of inflation experienced in
Hungary, whose Prime Minister Victor Orban is the darling of the
conservative media.Estimating Your Funded Status for Comparison PurposesIdeally,
you would have already determined your Funded Status as of January 1,
2021 and kept a record of it. Therefore, you could just look at your
records to determine your Funded Status as of January 1, 2021.
Practically, you can use the Actuarial Financial Planner (AFP) workbook
from our website and reconstruct the necessary input items for this
purpose. Even if you are not retired, or retired after January 1, 2021,
you can still use the AFP by inputting your wages as employment income
(and adjusting expenses for higher taxes during your period of
employment) to determine your assets and liabilities. To help you
reconstruct your Social Security benefit payments, here are the
cost-of-living increases effective for benefits payable for December
each year for the past 5 years:2020: 1.3%2021: 5.9%2022: 8.7%2023: 3.2%2024: 2.5%To
be conservative, we assumed that all of our inputted expenses have
increased by 25% since January 1, 2021 (as compared with the 20% overall
increase in inflation discussed above). It may be more difficult
to reconstruct your portfolio assets as of January 1, 2021 if that
information is not available and/or withdrawals have been made. It may
be helpful to know that the increase in the S&P 500 index since then
has been about 56% as of the time of writing of this post.As
noted above, our assets (investments plus the present value of future
annuity payments) have increased almost 20% more since January 1, 2021
than our estimated spending liabilities. Much of that increase has been
attributable to the increase in our equity holdings and some is due to
Social Security cost-of-living increases. Since we are retired, we did
not receive any pay increases during this period that would also
increase our assets. ConclusionYour
Funded Status is a snapshot metric that accurately describes your
financial status by comparing your assets at a given point in time with
your liabilities. For many reasons, It is not necessarily a great metric
for determining whether the current President is responsible for
improving or hurting your financial status since becoming President. For
example, your Funded Status could deteriorate from one year to the next
simply because you spent more than your spending budget. It is however a
better metric for this purpose than the rate of inflation since
becoming President, since it also accounts for changes in your assets.If
you haven’t yet voted, we encourage you to think carefully about your
choice and base your decision on facts that are important to you. If you
are still interested in tracking whether your financial status has
improved or deteriorated since January 1, 2021, we suggest you use the
AFP to track the change in your Funded Status from January 1, 2021 to
today