The Retirement Crisis

1. Hottest News This Week

PCE

📣 PCE

This week, all eyes are on a series of economic reports that could signal shifts in the economic landscape, particularly regarding inflation and growth. On Friday, the Personal Consumption Expenditures (PCE) index for May will be released, a key indicator watched by the Federal Reserve to gauge inflation. This data will be critical as the Fed decides its next move on interest rates, which are currently at their highest levels in 20 years. Investors are eager to see if inflation is indeed on a downward path, following a notable rise of 2.7% year-over-year in April. The recent softer Consumer Price Index (CPI) for May has already sparked some hope.

📣 Artificial Intelligence

This week is set to be significant for the AI market, with several major companies providing crucial updates that could influence investor sentiment. On Thursday, Salesforce will be in the spotlight during its shareholder meeting. Despite recent setbacks, including lower-than-expected guidance for the second quarter, the company remains committed to driving growth through its AI initiatives. Investors will be keen to hear how Salesforce plans to navigate these challenges and capitalize on AI opportunities. Wednesday will see Micron Technology releasing its quarterly earnings report. This comes on the heels of an optimistic upgrade from Bank of America, which highlighted the potential of Micron's AI products. The market will be watching closely to see if the company’s performance aligns with these positive expectations. Nvidia, another key player in the AI space, will hold its annual shareholder meeting on Wednesday.

2. Matt Allen’s Corner

The Retirement Crisis

Larry Fink's annual letter got me thinking about a critical issue—the retirement crisis. People are living longer, which is great, but it means our savings need to last much longer too. AI is set to revolutionize healthcare, promising advancements that could extend our lifespans significantly. While most people plan to live to the age their grandparents did, the reality is we might live much longer due to these innovations.

The problem? Most people aren’t saving nearly enough. According to the Federal Reserve’s latest Survey of Consumer Finances, only about 10% of American retirees have managed to save $1 million or more. If you use the 4% rule, which suggests withdrawing 4% of your retirement savings annually, $1 million translates to $40,000 per year. Adding Social Security benefits can help, but it still may not be enough for a comfortable retirement.

Public pension systems are also under strain. The U.S. Social Security Administration has warned that by 2034, the trust funds could be depleted, and payroll taxes will only cover about 79% of benefits, leading to potential cuts. Consider this: The Employee Benefit Research Institute (EBRI) estimates Americans have a retirement savings deficit of $3.83 trillion. This massive shortfall means many will face financial insecurity in retirement.

One solution is extending working years by at least two years. Research from the Center for Retirement Research shows that working one additional year can increase retirement income by 9%. Two extra years can boost it by nearly 20%, thanks to more savings, delayed withdrawals, and increased Social Security benefits.

Investing in the markets is also crucial. The power of compound interest is significant. For example, starting at age 25 and investing $5,000 annually with a 7% return can grow to over $1 million by age 65. Starting ten years later, at 35, reduces this to about $500,000. The earlier you start, the greater the benefits.

The retirement crisis is real, and while the solutions might not be easy, they are necessary. Extending working years and investing wisely are crucial steps we must take. By doing so, we can ensure a more secure and financially stable retirement for ourselves and future generations.

Cheers,

Matt Allen

3. Comin’ Up

EARNINGS AND ECONOMIC DATA

💰 Earnings:

Monday: 3D Systems

Tuesday: FedEx, Carnival

Wednesday: Micron, Paychex, General Mills

Thursday: Nike, Walgreens

Friday: N/A

📈 Major Economic Events:

Monday: N/A

Tuesday: Consumer confidence

Wednesday: New home sales

Thursday: Initial Jobless Claims, GDP revision

Friday: PCE

The author of this newsletter owns ETF’s (exchange traded funds) that may hold ownership interests in the companies discussed in this newsletter as of the published date of this newsletter.