Should retirees have received a stimulus check? Is is going to hurt them in the long run?
In this show we talk about the good and the bad of the recent government stimulus. We touch on deflation and inflation and, most importantly, the debt our country has undertaken to save our economy.
Watch Video Version:
Tony Shore Wow. So retiree should not have gotten a stimulus check? That didn’t anger me. It just shocked me that you’d say something like that. I know you like to look at things from different angles, and you’d like to get us thinking. So we’ll see where you go with this. And if that’s what you really believe, I would be surprised. But that does sound interesting. So this whole stimulus check in the economy. I know we’re gonna dig into all that a little bit today, and I’m looking forward to it honestly. Because I know you usually have a different take not the status quo. You like to try to kind of come at it from different angles. Why would you say that retirees shouldn’t be getting a check?
Daniel Wendol Because it’s true. Think about this. Okay? So retirees, what do they have in common? They’re not working anymore, right? And if they’re on Social Security, they’re getting a check from the government already. So the idea of this whole Coronavirus, epidemic problem pandemic, whatever you want to call it, the crisis…the government’s trying to help those that are struggling as a result of the virus. And who are those people? They’re the ones that lost their job. They’re the ones that are no longer working, they have reduced hours, so forth. So you can see why they would give them a check. They’ve given them extra unemployment benefits. But why are retirees receiving a check? Was their income impacted in any way? Was Social Security stopped due to layoffs? No. So, to me, retirees and those on Social Security are just getting a freebie. Am I right or wrong?
Tony Shore Maybe you are right, but don’t they still need a little extra help right now or no?
Daniel Wendol Why? Why do they need extra help right now?
Tony Shore That’s a good point, I guess because they still have their social security. They still have their retirement funds. So they should be this shouldn’t have affected their finances. What’s going on right now – the unemployment, the Coronavirus, unless healthcare becomes an issue…but they should have Medicare and supplemental setup already to do that. I mean, they should be fine without it. But yet they’re still a part of it and they still get it. Is that what you’re saying?
Daniel Wendol Yes. So the question is, do they need it and why are they getting it?
Tony Shore Yeah, but seniors and those who aren’t seniors yet, we’re gonna have to pay it back. I think that’s what people don’t realize. Right?
Daniel Wendol All right. You are getting ahead of yourself, Mr. Economist. I’m just being practical. Actually, the government’s being practical by sending it to seniors. If you think about someone that’s on Social Security, and that’s their only form of income, and they’re just plodding along, there’s no effect on their income. So why are they getting a stimulus check? Well, because it’s a stimulus check and not an unemployment check. That’s the key. So when I say the stimulus check is bad for retirees, I’m saying it not because it’s bad getting money. I mean, that’s not it doesn’t hurt right? But wouldn’t it have been better if it was sent to those who actually needed it? Those that lost their job? But think of the logistics of figuring out who should get it. They already had the Means Test the earnings test. So if a couple makes less than $150,000 in a year, then they get it. So people are saying, Well, why didn’t I get a check? I made $170,000 as a married couple, and we live in Manhattan. I mean, that’s not a lot of money, relatively speaking. Why do I get blocked? Why did the retiree that’s on Social Security and that’s been retired for 20 years get a check when they’re not even working? There’s this unfairness, in a way. But then if you think about it, everyone getting a check is very fair. And it’s pretty simple to do. If you had to sit and determine who lost a job, who’s actually infected with the virus, the reasons why you’d want to get money to somebody, that it’s just not possible. It would take years for the government to figure out who these people are. They’re really struggling to get the check to everybody. Can you imagine them trying to drill down the actual need?
Tony Shore And then who’s going to set those financial need barriers? We would have to wait until the end of the Earth, they’d never get the bill passed.
Daniel Wendol Right. Then it comes down to “deserving.” Do the retirees deserve that check? Some might say they don’t. My opening statement suggests that they don’t deserve it, but I’m not really saying that because they put in taxes their whole life, and this is basically a refunding of taxpayer money. It’s money from people that pay taxes. It’s our money, right? So you could easily make the case that retirees earn their keep over the course of a lifetime and are getting money back tax money. Here’s the big thing, Tony, this stimulus check, and I’m only talking about the $1,200 dollars per person, $500 per kid, I’m talking about that. That is different than the bailout of the small business, right? The Payroll Protection Program. This is specifically just a cash donation to citizens that make less than so much. And that is different than a bail out. This is a true stimulus check. And the idea of it is to lift the economy. So giving it to people that don’t necessarily need it might actually make sense and here’s why. So I’m now counter arguing myself.
Tony Shore You’re arguing with yourself. At this point you’re going stir crazy.
Daniel Wendol That was a good movie! Stir Crazy with Gene Wilder.
Tony Shore We are officially off the rails. I just took it off track.
Daniel Wendol What we’re facing now, besides the virus, I’m not going to get into the politics, which shouldn’t be political, or the science behind the virus. But let’s talk about the money that’s coming in. The government spent…I don’t even know how much we’ve spent now. 2 trillion plus? I mean, it’s crazy.
Tony Shore It is two trillion. When the whole thing is said and done, it could add up to 6 trillion.
Daniel Wendol Think about that! How many households are there in America? I don’t know. Maybe 125 million households, roughly. Let’s call it 125 million. So if you have a trillion dollars, oh my goodness. How many zeros are in a trillion? I’m doing the math.
Tony Shore A lot of zeros there. I don’t know. I don’t even know.
Daniel Wendol Got it. Wow, there’s a lot. All right. It makes 125 million look small. That’s $8,000 per household. Wow. 8,000. So you said it could go up to 6 trillion eventually? So that’s $48,000 per household. Just give me a check for $48,000. That’ll make me happy. I’ll send it on my kids. I promise. Now you see what I’m saying?
Tony Shore “I’ll spend it on my kids, I promise.” I love the sincerity.
Daniel Wendol Think about that. Give me a check for $50,000. Give every household a check for $50,000. Would that be more efficient than all this stuff that we’re going through here? That’s fundamentally what’s happening here.
Tony Shore The way they do it is, they’re giving stimulus to the businesses to cover payroll, right? So they’re giving businesses money so they can keep paying their employees so these people have money to live on. And if they just gave everybody 40 or $50,000, then they wouldn’t have to give the stimulus package. That’s the $1,200. They wouldn’t have to give the business package. They could just give everybody 50 grand.
Daniel Wendol Right. But part of the bailout is the Small Business bailout. Because if you give me $50,000, and I’m an employee at a small store, I’m not going back. That’s two years of salary. Why would I go back? Then then the business would fail. So the future of the business is at stake. It’s not easy.
Tony Shore It isn’t easy. You’re right.
Daniel Wendol But, again, a $50,000 check would probably solve a lot of problems. Because here’s what the checks are designed to do. It’s not designed to be fair. It’s not designed to help the retiree go back to work or pay the bills, because they shouldn’t have any issue paying their bills. If they’re on Social Security, pension, fixed income, they shouldn’t have. But here’s why the stimulus check is bad for retirees because what happens when you throw $6 trillion into the economy? You’re going to start having inflation. Potentially, potentially.
Tony Shore Yes. It’s going to devalue money. Right?
Daniel Wendol Well, it could. It could. That’s the thing. So we have inflation and then we have deflation. So what we’re seeing is, is potentially deflation first. And what that means is there’s lower demand. The stock market crashed, okay. A lot of people don’t talk about how that decreases wealth, but it really does. And, yes, the wealthy are the ones that have money in the stock market. Most Americans don’t have money in stock market, but when the stock market crashes 30%, that’s a decrease in wealth for those that have stocks. And that’s means that they’re less inclined to go and spend money because they’re looking at their statements saying I just lost 30%. So we’re not going to buy that yacht today, we’re not going to go on the trip. So they’re going to spend less money. They’re going to slow down the speed of money or the velocity of money at the same time. You have people not spending as much. People are staying home. Do you think people are buying cars? I have a few friends at work in the auto industry- car sales are down. Restaurant sales are down big.
Tony Shore People are not even driving cars right now!
Daniel Wendol Right? So you see that the demand for new cars is going down. So what does that do to car prices? It brings them down. So we have deflation. Pricing deflation. The speed of money decreases because people aren’t spending as much. So that’s what deflation is. And when you when the GDP, the gross domestic product of the of the country, at 20 trillion. If the gross domestic product of our country decreases 10% because people aren’t working, we’re not building, we’re not selling stuff. That’s $2 trillion right there. So there’s the stimulus, you know, so it balances out. So we have deflation one side, then we have inflation. Now what is inflation? A lot of people assume price inflation, things go up in price, like toilet paper. That’s hyperinflation when something goes up by 50% over a short time. Toilet paper prices are hyperinflation right now, because there’s a huge demand. So what happens is when you give people money, the idea is they spend it. The retirees getting this check don’t necessarily need it. So what should they do with the money? Well, the financial planner in me says pay off higher debts, save for a rainy day, but that doesn’t help us. That doesn’t help the economy if you take that money and pay off your credit card bill or you put it aside for the next Coronavirus outbreak. You’re not helping and that’s not the point of the stimulus check. But I’m not going to tell you not to do those things because I’m a financial planner. Keep your house in order. But if you start spending that money, then you’re going to increase the velocity of money, you’re going to get the money out there, and you’re going to stimulate the economy, which is the whole point of it. So you’re going to counterbalance the deflation. What the government’s trying to do is play a little balanced game here and say, we don’t want to have the economy of the country go in a recession. We want people to keep spending, but we don’t want them to spend too much or else we’ll have inflation, and that will hurt retirees more than anyone else. Because inflation means prices will go up. And if someone’s retired, they’re on a fixed income. We all know Social Security payments don’t go up that fast because the way they calculate Social Security increases are based on a very tiny small piece of goods. We did a show on that. Then I factor in healthcare costs and things that go crazy high. So there’s this really, really tricky balance that the government has to figure out and I don’t have the answer. I’m not going to pretend I’m an economist. But it’s very tricky. It’s a balance between deflation and inflation, recession and growth. Stocks are going down, money’s slowing down, but we will try to speed it up. So there’s a huge balance that’s trying to be struck here and I don’t know if we’re going be able to do it. The only thing I will say, though, Tony, is I believe, that overall, the stimulus check is bad for retirees. Actually, I’m going to take that back.
Tony Shore So you’re saying it’s outright bad for retirees?
I’m going to say it’s outright good for retirees. But it’s bad for the rest of the country because we are increasing our debt dramatically. This money doesn’t grow on trees. It’s going to have to be paid back eventually. If the economy doesn’t bounce, reasonably, then we’re just saddling the country with debt for the future generations. My generation and younger are going to get hit with this. Yeah, retirees, they’re going to be okay because they’re not going to be around necessarily long enough to get this debt squeeze, maybe they will, you just never know. We don’t know how long this debt is going to be able to be kicked down the road. When we’re adding more and more to the debt, eventually, it’s going to come home to roost. I don’t know if we’re going to be able to thread the needle on this one. The government is really playing a game of chicken here. And retirees are probably better off because they already have their income, their spending is going to go down over time, as we’ve talked about, so they may not feel it as badly as the younger generations, who are going to have this ridiculous amount of debt to contend with. And it’s not going down.
Yeah, that is gonna be a problem. I mean, economically, it’s interesting, the balancing act. They’re trying to keep too many plates in the air or balls in the air, whatever terminology you want to use. I just think that the Fed and the government are trying to throw throw this up and are trying to keep the economy strong throughout this crisis. But in doing so, they’re going to kill the economy.
Daniel Wendol We’re sacrificing the future in a way now.
Tony Shore Yeah, we’re robbing Peter to pay Paul. We’re gonna pay for this later, right?
Daniel Wendol Right. But the theory is if we stimulate the economy and get us back growing again, the GDP will grow and we’ll be able to pay off these debts. But if you grow too quickly…if the market was to have a V shaped recovery, which is what everyone hopes for, that wouldn’t be good. We’d have way too much money back in the system and we’d have inflation. If the economy sputters, then we’ll have deflation and we’ll have recession. So we’re trying to get the economy going again, but not too much. We’re pumping money in and then the government’s going to do some stuff to try and get the money to come back out later. If we get too crazy, too heated, or frothy it’s going to be this seesaw or a roller coaster. Plus, on top of all this, we have the Coronavirus, which is deadly contagion. Maybe it’s overblown. I’m in the camp that thinks that our reaction may have been too draconian, too much. But at the same time, I’ve had some friends lose family members to it. So I see the downside. It’s just really, really terrible. No one can win in this. Everyone’s going to blame Trump. No one’s going blame Trump. It’s going to be a blame game. No one’s going to take ownership and it’s really going to be tough to say it’s anyone’s fault because it is kind of weird situation. But I do know we’re going to be adding to the debt, which is not good. I’m against that. And retirees are going to be facing a different type of economic situation than the younger generations and it might cause even more of a battle.
Tony Shore Okay Boomer.
Daniel Wendol We have some big debt in our future and I’m not sure how it’s going to all play out. I did see a study recently on the news. It was a local news station and said about 37% of people surveyed said they’re going to delay retirement now due to the pandemic. That has to be people that lost a job because if it’s someone that’s within five years of retirement, saying now I’m going to delay my retirement, unless they lost their job, they’re doing something wrong. Just like I said in the beginning, retirees should not have been economically impacted by this unless they actually got Coronavirus or loved one did. If you were just retired going about your business, this shouldn’t really impact you financially enough to say I have to delay my retirement or I’m going to have to come out of retirement. I don’t I just don’t see that. And if it is, then you did you didn’t create a good retirement income plan.
Tony Shore Yeah, you weren’t working with a financial professional, who you trust, who’s a fiduciary who’s looking at the big picture for you. And I think if you’re in that position, then whether you get a check or not won’t matter. And you’ll be fine even through this. You’ll have your balance of assets in different areas. So I think that’s important to have a plan in place. And that’s a great way to wrap up today.
Daniel J. Wendol is the owner of the Dolphin Financial Group. He is a CERTIFIED FINANCIAL PLANNER™, licensed as an Investment Advisor Representative, and also has an insurance license. He combines the investing and insurance worlds with a focus on retirement. ‘
Each week Dan hosts Dolphin Financial Radio, a podcast about the wide-ranging issues people face leading up to and through retirement.
Dolphin Financial Group acts in a fiduciary capacity to help people make life’s toughest financial decisions.