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.
Inflation
According 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 Purposes
Ideally, 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.
Conclusion
Your 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
