The federal government spent $676 billion on national defense in FY 2019, or about 15% of total federal expenditures, compared to nearly 50% in the 1960s. Over time, a larger share of spending has been towards Social Security, Medicare, and Medicaid. Tax Policy Center

The United States needs to ensure that it maintains a healthy and vibrant economy, and strong National Defense and Security.

A healthy and vibrant economy is what fuels job creation, raises the standard of living and creates opportunity for those who are hurting, while positioning us to invest in education, technology and infrastructure – in a programmatic and sustainable way — to build a better and safer future for our country and its people.

And in a world with so many security threats and challenges, we need to maintain the best military and strongest economy. America’s military will be the best in the world only as long as we have the best economy in the world.

With all of America’s exceptional strengths, it’s apparent that something is holding us back. As it has been pointed out, the country’s economic growth has been anemic. The economy has grown approximately 20% in the last eight years, but this stands in contrast with prior average recoveries where growth would have been more than 40% over an eight-year period.

The real problem with the fiscal deficit is the uncontrolled growth of the federal entitlement programs, states Jamie Dimon, Chairman and CEO of JP Morgan Chase & Company. You cannot fix problems if you don’t acknowledge the reasons for the problems .

The extraordinary growth of Medicare, Medicaid and Social Security is jeopardizing the nation’s fiscal situation and global economic standing.

We have to address these issues. Such as Social Security, fixing it is within our grasp and by changing the qualification age and means testing, among other things.

When President Franklin Delano Roosevelt created Social Security in 1935, American citizens would work and pay into Social Security until they were 65 years old. At that time, when someone retired at age 65, the average life span after retirement was 13 years.

Today, the average person retires at age 62, and the average life span after retiring is just under 25 years. The core issue underpinning the entitlements problem is healthcare in the United States. There are a few places where the U.S. can do better:

• The U.S. has some of the best healthcare in the world, including its doctors, nurses, hospitals and clinical research. However, we also have some of
  the worst – in terms of some outcomes and costs.
• Administrative and fraud costs are estimated to be 25% to 40% of total healthcare spend.
• Chronic disease accounts for 75% of spend concentrated on six conditions, which, in many cases, are preventable or reversible.

While solutions fix to this problem are not agreed upon, the process that will help country fix it are. The country needs to form a bipartisan group of experts whose direct charge is to fix the  healthcare system. This can be done, and if done properly, it will actually improve the outcomes and satisfaction of all American citizens.

There are several obstacles holding the country back, and, just as it took many years for these obstacles to develop, it is going to take sustained effort over many years to right the course.

When you look at this list in totality, it is significant and fairly shocking. Most of these areas have become consistently worse over the last 10 to 20 years, and it is hard to argue that they did not meaningfully damage the country’s economic growth. More importantly,  there has never been an economic model that accounts for the extremely damaging aspects of these items. This is not secular stagnation — this represents senseless and misguided policies.

• We had a hugely and increasingly uncompetitive tax system driving companies’ capital and brainpower overseas.
• Excessive regulations for both large and small companies reduced growth and business formation. The ease of starting a business in the United States worsened, with small business formation dropping to the lowest rate in 30 years.
• Bank credit growth was tepid during this recovery. Remember, bank credit growth directly relates to economic growth, although it’s often difficult to figure out the cause and effect. But there is no question that the things that reduce credit availability, in turn, reduce growth. One area where we know this happened was in the mortgage market. Household formation has been slow because many young adults have had a difficult time finding work and, with the help of their families, have gone back for more schooling. The inability to reform mortgage markets has dramatically reduced mortgage availability. In fact, our analysis shows that, conservatively, more than $1 trillion in mortgage loans might have been made over a five-year period.
• Labor force participation — particularly among men aged 25-54 — dropped dramatically. An estimated 2 million Americans are currently addicted to opioids (in 2016, a staggering 42,000 Americans died because of opioid overdoses), and some studies show this is one of the major reasons why men aged 25-54 are permanently out of work. Even worse, 70% of today’s youth (ages 17-24) are not eligible for military service, essentially due to a lack of proper education (basic reading and writing skills) or health issues (often obesity or diabetes).
• Our schools are leaving too many behind. In some inner city schools, fewer than 60% of students graduate, and of those who do, a significant number are not prepared for employment. Additionally, many of our high schools, vocational schools and community colleges do not properly prepare today’s younger generation for the available professional-level jobs, many of which pay a multiple of the minimum wage.
• Infrastructure is a disaster. It took eight years to get a man to the moon (from idea inception to completion), yet it now can sometimes take a decade to simply get the permits to build a bridge or a new solar field. The country that used to have the best infrastructure on the planet by most measures is now not even ranked among the top 20 developed nations according to the Basic Requirement Index.
• Our immigration policies fail us in numerous ways. Forty percent of foreign students who receive advanced degrees in science, technology and math (300,000 students annually) have no legal way of staying here, although many would choose to do so. Most students from countries outside the United States pay full freight to attend our universities but many are forced to take the training back home. From my vantage point, that means one of our largest exports is brainpower.
• Our nation’s healthcare costs are twice the amount per person compared with most developed nations.
• Our litigation system is increasingly arbitrary, capricious, wasteful and slow.

Economic analysis provides a sense of the costs associated with misguided policies. The Congressional Budget Office estimates the cost of failing to pass immigration reform earlier this decade at 0.3% of GDP a year. An International Monetary Fund study suggests that a 1% of GDP rise in infrastructure investment in 2013 would have delivered a similar boost to advanced economy GDP over the subsequent decade. J.P. Morgan analysis indicates that the cost of not reforming the mortgage markets could be as high as 0.2% of GDP a year. Taken together with the costs of excessive regulation and a depressed prime age labor participation rate, it is easy to conclude that corrections in policy could add more than 1% of GDP annually. And this does not account for many of the items I mentioned in the prior list.

The end result is that our economy is still leaving many behind. Much of this is probably self-inflicted. While a job used to provide a ticket to the middle class, today more people are getting stuck in low-wage work.

Historically, we’ve thought of these jobs as providing the first rung on a career ladder — a chance for workers to prove themselves and develop skills before moving on to other, better paying jobs. But a growing number of Americans are left hanging on this first rung: During the mid-1990s, only one in five minimum-wage workers was still at minimum wage a year later. Today, that number is nearly one in three.

References:

1. https://reports.jpmorganchase.com/investor-relations/2017/ar-ceo-letters.htm

Remember the 3 A’s for retirement saving: amount, account, and asset mix.

Key takeaways

• Amount: Aim to save at least 15% of pre-tax income each year toward retirement.
• Account: Take advantage of 401(k)s, 403(b)s, HSAs, and IRAs for tax-deferred or tax-free growth potential.
• Asset mix: Investors with a longer investment horizon should have a significant, broadly diversified exposure to stocks.

No one needs to tell you that you need to save for your future—hopefully, you’re already doing it. After all, no matter your age and how far away retirement is, you want to be able to enjoy retirement

“It’s important to focus on 3 main things during your working years:

• the amount you save,
• the accounts you save in, and
• your asset mix,”

says Ken Hevert, Fidelity senior vice president of retirement. “Of the 3, of course, the first is the most important, as no account or asset mix can make up for not saving enough.”

1. Amount: How much and how long

We suggest starting as early as possible and consider saving at least 15% of pre-tax income each year toward retirement to help ensure enough in savings to maintain your current lifestyle in retirement.

The good news: That 15% savings rate includes any matching or profit sharing contributions from your employer to your 401(k) or other workplace savings account, like a 403(b) or governmental 457(b) plan. An employer match can make saving 15% easier.

Of course, the longer you wait to start saving, the more important it is to take advantage of every opportunity to contribute the maximum to your 401(k)—which may be more than 15% of income.

In 2022, you can contribute up to $20,500 pre-tax to your 401(k). If you’re at least age 50, you can add a catch-up contribution of $6,500 pre-tax.

In 2022, the annual contribution limit for IRAs, including Roth and traditional IRAs, is $6,000. If you’re age 50 or older, you can contribute an additional $1,000 annually.

Health savings accounts (HSAs) are another type of tax-advantaged account. To open an HSA, you usually need to be enrolled in an HSA-eligible high deductible health plan (HDHP).

The 2022 IRS contribution limits for health savings accounts (HSAs) are $3,650 for individual coverage and $7,300 for family coverage.

If you’re 55 or older during the tax year, you may be able to make a catch-up contribution, up to $1,000 per year. Your spouse, if age 55 or older, could also make a catch-up contribution, but will need to open their own HSA.

Even if you can’t contribute 15% of your income right now, try to contribute enough to get the entire employer match in a workplace account, which is effectively “free” money, and then try to step up your savings as soon as you can.

2. Account: Where you save

Be sure to make the most of retirement savings accounts like 401(k)s, 403(b)s, and IRAs. If you have an high deductible health plan (HDHP), consider taking advantage of health savings accounts (HSAs), which can offer one of the most effective means of saving for qualified medical expenses now and in retirement. Depending on the type of account, your contributions can grow tax-deferred or tax-free.

With a traditional 401(k) or IRA, your contributions are pre-tax, which means that they generally reduce your taxable income and, in turn, lower your tax bill in the year you make them. Your contributions won’t avoid taxes entirely; you’ll pay income taxes on any money you withdraw from your traditional 401(k) or IRA in retirement.

A Roth 401(k) or IRA works the opposite way. Contributions are made after-tax, with money that has already been taxed, and you generally don’t have to pay taxes when you withdraw from your Roth 401(k) or Roth IRA.

So how does a person determine which type of 401(k) or IRA to contribute to: a traditional or Roth account? There are several things to consider, but for many, the answer comes down to a simple question: Am I better off paying taxes now or later? For those who expect their tax rate in retirement to be higher than their current rate, tax-free withdrawals from a Roth 401(k) or IRA might be a better choice. On the other hand, for those who expect their tax rate to go down in retirement, a traditional 401(k) or traditional IRA may make more sense.

For those who can, it may make sense to contribute to both a traditional and a Roth account. That can provide the flexibility of taxable and tax-free options when it comes time to take withdrawals in retirement, which can help manage taxes. Those who aren’t sure of their future tax picture could choose to make both types of contributions.

It’s important to note that if you get an employer match or profit-sharing contribution from your employer, those contributions are always to a traditional 401(k), even if you are making only Roth 401(k) contributions. So you may already be contributing to both types of accounts.

Alternative saving options to consider:

If you’re self-employed or a small-business owner, then small-business retirement plans like a self-employed 401(k) or SIMPLE or SEP IRA allow you to set aside a certain percentage of your income.

You may be able to contribute to an IRA even if you aren’t working. As long as one spouse works, the non-working spouse can have a spousal IRA and contribute to their own traditional IRA or Roth IRA. You must file a joint federal income tax return. Spousal IRAs are also eligible for catch-up contributions.

If you have an HSA-eligible health plan, money contributed to an HSA is tax-deductible.2 And withdrawals for qualified medical expenses—now or in the future—are tax-free (that includes the money contributed as well as any earnings).

The cost of health care in retirement will likely continue to increase, so it can be a good idea to prepare specifically for those expenses.

According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple age 65 in 2021 may need approximately $300,000 saved (after tax) to cover health care expenses in retirement.

Saving in an HSA can reduce the amount you need because contributions, earnings, and withdrawals are tax-free when used to pay for qualified medical expenses.

If you have an HSA, consider contributing money above and beyond the amount you think you’ll need for the current year’s health care expenses. If you’re able to invest some of it for the future, you may have some of your future health care expenses covered.

3. Asset mix: How you invest

Stocks have historically outperformed bonds and cash over the long term. So when investing for a goal like retirement that is years away, it can make sense to have more invested in stocks and stock mutual funds. But higher volatility also comes with investing in stocks, so you need to be comfortable with the risks.

We believe that an appropriate mix of investments should be based on your time horizon, financial situation, and tolerance for risk. As a general rule, investors with a longer investment horizon should have a significant, broadly diversified exposure to stocks.

Take a look at our 4 investment mixes3 (see chart) and how they performed historically over a long period of time. As the chart illustrates, the conservative mix has historically provided much less growth than a mix with more stocks, but less volatility too. Having a significant exposure to stocks that’s appropriate for your investing time frame may help grow savings.

Choose the amount of stocks you are comfortable with

Data source: Fidelity Investments and Morningstar Inc, 2020 (1926-2019). Past performance is no guarantee of future results. Returns include the reinvestment of dividends and other earnings. This chart is for illustrative purposes only and does not represent actual or implied performance of any investment option. See below for detailed information.

Think ahead

When retirement is years away and you have many other financial demands, it may be hard to focus on the future, but saving for retirement with the 3 A’s in mind can help.

References:

1. https://www.fidelity.com/viewpoints/retirement/successful-saving