Locator: 46941INV.
This has been a common and recurring theme on the blog.
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Re-Posting
Locator: 46855INV.
The US market.
- S&P 500 closes at 5,248, a new all-time record.
- AAPL: up $3.60 today; up over 2%. See if you can connect the dots with this one below.
- This sure doesn't feel like an impending recession. CNBC analysts and talking heads have pushed concerns for a recession out to 2025.
Where's all this money coming from?
- Covid-19 stimulus money;
- my favorite chart;
- IRAs: see below
- southern surge: a $7 trillion gift
- (this would require a stand-alone blog -- but elevator speech: federal and state aid; a new agency within the Department of Homeland Security?)
- TSA: $11 billion budget; 60,000 employees
- Citizenship and Immigration: <$1 billion; 4,000 employees
Baby boomer age wave theory: link here.
- baby boomers: note the size of this demographic at the link;
- who has all the money? who has all their medical care expenses paid for? whose houses are paid off?
- birth years: 1946 - 1964
- ages (2024): 60 years old - 78 years old; mid-range: 69 years old -- today, 2024
- IRS: RMDs -- about 4% annually
- ICYMI: in the box above, it's trillion with a "t." That's even more than Elon Musk's bank account.
Addictions:
- baby boomers: booze, cigarettes, gambling, muscle cars, sports, making money, malls, products,
- big families, extended families (inherited money diluted to "barely enough to live on"))
- millennials, Gen Zers: tech, travel, home delivery, services
- small families (inherited money remains concentrated)
Quick: name a time in the history of the US with the same data points, demographics, and addictions.
Updates
March 27, 2024: one year later ...
- "Max" chart:
Original Post
January 22, 2023
Key dates to remember with regard to IRAs:
- 1970
- 1981
- 1997
When did IRAs truly start to impact the economy? I would argue, 1995, to some extent, but then took off in 2007:
- 1970: traditional IRA introduced
- 1980: folks became comfortable with IRAs
- 1997: IRAs improved by a huge amount with the introduction of Roth IRAs
- 2007: another ten years of traditional IRA / Roth IRA growth in popularity
Now, look at this graph:
Same chart with markers and comments:
Demographics, US:
Look at this, and no one seems to be mentioning this.
Age when one can start taking distributions from one's IRAs: 59.5 years of age.
IRA RMDs by demographic (note, data is somewhat old):
- silent generation: minimal impact on economy with regard to RMDs
- those who have IRAs are probably using RMDs for nursing home expenses
- baby boomers: biggest impact on economy with regard to RMDs
- those born in 1964: turn 78 years of age this year
- those born in 1946: turn 60 years of age
- in other words, every -- repeat, every baby boomer can now take RMDs
- my wife has been taking distributions before they were required and now RMDs for maybe ten years and despite the withdrawals year-after year, her IRA continues to grow
- I start taking my first RMDs this year
- almost all baby boomers can now tap into their social security benefits
- almost
all baby boomers are covered by Medicare. Medicare benefits got even
better in 2024 (thank you, Mr Biden), seniors will spend less money on
healthcare (all things being equal)
- 529s: a lot of baby boomers (GRANDPARENTS) are going to look for tax-advantage accounts to place RMDs they don't need for current expenses
- 529s have vastly improved starting this year (or last year?) making these investment vehicles look even better -- I'm having trouble finding a better place to re-invest my RMDs
- interestingly, one can argue that 529s are even better than IRAs
- generation X: will start to make impact this year but not much, but it will continue to grow every year for the next decade or so
- those born in 1980: turn 44 years old this year; no impact on economy with regard to RMDs but starting to hit max income / max productive years of their lives
- the
younger Xers, now in the best years of their lives, financially, are
now more likely to fund IRAs and that will help set a floor for the
equity market;
- those born in 1965: turn 59 years old this year!
- this is the biggie
- starting
this year, generation X folks can start tapping their IRAs; it doesn't
mean that they will but it means that if they don't, they have enough
other income to offset any need for IRA distribution (meaning strong
financial status for those folks)
- again, this is huge
- Roth IRAs have been around 27 years and the last 27 years have been great for investors, but
- even better: the way the market behaved last year and how the market is now behaving in the second half of January, 2024, a lot of folks are getting excited
- my hunch: a lot of folks are taking some / all of their RMDs this month; if not their entire RMD, taking a fourth to half of their annual RMD
- only a few more years and Xers will also be able to access social security benefits, also
On top of all this, this "RMD story" is not going to go away. Year-after-year RMDs will increase in dollar amounts, but whether they increase or not, they will never quit.
And we haven't even begun to talk about "inherited RMDs":
- "inherited
RMDs"? Reminder, oldest baby boomers turn 78 years of age this year --
IRS life expectancy for IRAs tend to trend toward 100 years of age --
taking only minimal RMDs, the vast majority of IRAs will still be funded
and growing when their own dies.
- unlike owners of IRAs who can spread their RMDs over a life expectancy (26 years or longer), beneficiaries (those who inherit IRAs) must deplete those IRAs in ten years.
- one word: wow.
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