Enlightenment - A Herold & Lantern Investments Podcast

Are Tariffs Becoming America’s New Income Tax?

• Keith Lanton • Season 7 • Episode 30

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August 4, 2025  | Season 7 | Episode 30

The financial landscape shifted dramatically last week as markets processed a surprisingly weak jobs report amidst record highs for major indices. Friday's employment data revealed not just lower-than-expected job growth but massive downward revisions to previous months, sending markets tumbling despite stellar earnings from tech giants. This unexpected weakness has resurrected concerns about stagflation – that dreaded combination of sluggish growth and persistent inflation.

President Trump's tariff policies are reshaping America's revenue structure in ways reminiscent of the 19th century. Currently generating around $30 billion monthly – triple the pre-Liberation Day figures – these tariffs could offset roughly two-thirds of recent tax cuts over the next decade. This structural change creates an interesting political dynamic where future administrations may find abandoning tariffs politically difficult, regardless of ideology.

Meanwhile, Silicon Valley's power balance faces potential disruption as Meta's Mark Zuckerberg declares subtle war against Apple's dominance. His vision of AI-powered smart glasses could eventually replace smartphones as our primary computing interface – seeing what we see, hearing what we hear, and creating seamless digital interactions throughout our day. With engineers receiving compensation packages up to $100 million, Meta is positioning itself to lead this potential post-smartphone revolution.

The Federal Reserve itself stands at a crossroads, with President Trump poised to significantly reshape the institution. Beyond simply pushing for lower rates, potential changes include reexamining the Fed's fundamental mission, altering its approach to inflation, reducing staff numbers, and potentially reorganizing the entire Federal Reserve system. These structural changes could introduce new market volatility as investors adjust to a different monetary policy framework.

For retirement planners, healthcare costs remain a critical challenge often underestimated in financial preparations. A 65-year-old today can expect to spend approximately $173,000 on healthcare throughout retirement – excluding long-term care expenses. With traditional pensions becoming rare, annuities are emerging as potential solutions for creating guaranteed income streams, particularly as higher interest rates make their payouts more attractive than they've been in years.

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Alan Eppers:

And now introducing Mr Keith Lanton.

Keith Lanton:

Good morning. Today is first Monday of August 2025, august 4th. As we begin the month, we will talk about what took place last week in financial markets. We had a Fed decision. We had some economic data on Thursday, then we got some more economic data on Friday, which showed that the job market was not as robust as had previously been anticipated, and we'll talk about some of the ramifications and repercussions of that. We'll talk about tariffs. We will talk about Meta and their bullseye that they currently have on Apple and how the businesses of Meta and Apple may be converging more than we think and how that could have broad ramifications for technology perhaps broad ramifications for you and how you use technology. We'll talk about the news of the day and then we'll talk about what's taken place for retirees health care costs continue to rise and then we'll talk about some solutions, some things you can do about it to hopefully help offset some of those rising costs, and what you can do to plan appropriately. Especially if you've got some time to plan and working with a financial professional, there are things you can do to at least set up some alternative sources of income to help during that retirement period. Obviously, you want to make sure that you've got the best health care you can so that you can enjoy those later years.

Keith Lanton:

So last week we saw markets sell off. On Friday news-heavy week Dow and Nasdaq and S&P all lower. The S&P was down about 2.5%, dow down just shy of 3% and the Nasdaq about 2% in the red. That's despite the fact that we had some blowout numbers from some technology participants, microsoft and Meta in particular, posting really strong earnings Participants, microsoft and Meta in particular posting really strong earnings. Apple also posting a blowout quarter, but some concerns with respect to Apple about pulling some of their sales forward Lots of sales perhaps due to folks jumping ahead of tariffs and perhaps picking up an iPhone a little sooner than they would have and there's some concern that Apple pulled some of those revenue figures forward. We'll see going forward if that's in fact correct Under normal market conditions. If we had seen numbers from the big three there in tech moving us higher, we probably would have seen a continuation of Thursday, which saw record highs, and then Friday we saw markets sell off significantly.

Keith Lanton:

At the moment it's looking like these large tech stocks are more like outliers than bellwethers. If you're looking at the overall market, we're seeing breadth, not strong. We're seeing a weakness in lots of consumer-related sectors, as individuals are contending with some of the effects of inflation, perhaps somewhat induced by tariffs, some also suggesting that what we may see going forward is some more price increases. And that's not just anecdotal. That's from what some of the companies themselves have said on their earnings calls that they are assessing the market and that they initially absorbed some of the costs and now planning on passing along at least some of those costs. And we'll talk about tariffs. We'll talk about the pass-on effect and the possibilities of seeing greater inflation. So we're seeing some shakiness to the economy outside of tech.

Keith Lanton:

And let's talk a little bit about what was the result of Friday's jobs report, which came in a lot weaker than expected. Nonfarm payrolls rose 70,000 in July, about 30,000 shy of the consensus guess from economists. But the real shock on Friday was the massive 258,000 down revision in the prior two months. As a result of that, some are suggesting that President Trump killed the messengers. After that weak employment report, he terminated the head of the Bureau of Labor Statistics and relegated her to the ranks of the unemployed. Now, this isn't to suggest the softer job markets are a portent of recession, but some are getting concerned that they could be somewhat indicative of a weaker job market, the potential for higher inflation due to tariffs, and that brings back the word that we thought that we had hidden away and wouldn't be seeing for quite some time, and that brought back the word stagflation and whether or not we may see a weaker or slower economy and higher inflation. Now you could take perhaps some satisfaction or comfort to perhaps the markets this morning, which are rebounding or feeling a little bit better, perhaps thinking over the weekend that Chairman Powell now is more likely to cut interest rates, which is, in effect, something that President Trump has been significantly clamoring for. Perhaps we will get Chairman Powell and President Trump a little bit on the same page At the same time, perhaps some folks thinking that we are seeing some significant tariff revenue come in. Perhaps there's a silver lining to tariffs. We'll talk a little bit about that and also the fact that President Trump chose to, let's say, go after the messenger here, the head of the Bureau of Labor Statistics, and didn't focus his ire as strongly as some may have anticipated that Chairman Powell, perhaps Powell, perhaps markets taking some solace in that President Trump was a little bit more muted, or perhaps it's just that President Trump knows that Chairman Powell's days are numbered, just based on his tenure, and that he will be out of the role of chair of the Fed not necessarily out of the Fed We'll talk a little bit about that but out of the role of the chair of the Fed come May of next year.

Keith Lanton:

Now, putting it all in perspective, you may say to yourself how could they get these numbers so wrong? How could they have such big revisions? And you really have to take a look at this and think about the size of the job market. We have a labor force of 170 million people, so we're talking about a revision of 258,000 in two-. The fact that we're talking about such a broad pool is that we are seeing a lower response rate to the Bureau of Labor Statistics surveys, so less folks are responding and therefore the data is becoming a little bit less accurate. Bit less accurate, but even in the best of times, the confidence interval meaning, when you're looking at the statistics and some of you may have taken a statistics course in college or even high school and when you're thinking about the statistics of such a big number of 170 million and you're talking about a big data pool, even with some lower responses. You are talking about a possibility of a variation of 136,000 either way. So plus or minus 136,000 each month based on just statistician models, and 136,000 out of 170 million is not a very big margin of error. So the numbers appear to be still fairly accurate when you've got such a small band on such a big number. So while this revision was bigger, it's not super shocking that you're going to get revisions when you're talking about such big numbers.

Keith Lanton:

Now, that said, the main number to watch now is the unemployment rate. The main number to watch now is the unemployment rate. Powell said Wednesday at his news conference that there was no change in the Fed funds rate. But what he did say he was going to be keeping a close eye on the unemployment rate. And the jobless rate did take up by one-tenth of 1 percent, the 4.2%. At the same time, we are aware and Chairman Powell is certainly aware that inflation is measured by the Fed's favorite inflation measure.

Keith Lanton:

The PCE has picked up running at 3.2%. That's up from 2.2% in the fall, and that is one of the reasons why the markets were, at least before the jobs report, anticipating that we were going to see the Fed on hold for longer, in fact in September. If you look at after Chairman Powell's commentary, markets are expecting just a 37% chance of a Fed rate cut in September and then, following the unemployment rate on Friday, that has ticked up all the way to 81% and that's perhaps some of the reason we're seeing some uptick in the markets today, some hopes for that rate cut. We'll see if this optimism at the outset gets carried forward when you're taking a look here at the other metrics, average hourly earnings have picked up to 3.9%. That's up from 3.6% in the last quarter. Again, some concern about rising wages. That means rising inflation. And also, if you look at some of the commentary from some of the companies, procter Gamble, on their earnings call, said that they are seeing a squeeze on their profit margins. But what they did say is they plan on hiking prices on about 25% of their household products. So we are seeing the potential here that we will see higher prices for all of us when we show up at the local stores over the next few months.

Keith Lanton:

Now, taking a look at the treasury market and treasury yields, which saw a steep decline, especially in the two-year on Friday, the two-year this morning is down about another. Well, let's take a look here about another three basis points, almost four to a 366. We're seeing the 10-year down to a 420. It was down about 15 basis points on Friday and the 30-year is pretty much unchanged at about a 480. We've talked before the 30-year. Really important to keep an eye on the 30-year and the 10-year. But perhaps the 30-year is the best bellwether because it gives us some sense of how investors and how much investors are willing to hold our debt for long periods of time Really a good gauge on how worried they are about the deficit. So Fed can affect the short-term interest rates easily by changing the Fed funds rate, but the longer-term rates factor of a lot of different inputs and one of them is that confidence input. So the 30-year is something that you really do need to keep an eye on if you're a market watcher, to understand the dynamics here in the United States and what not just domestic investors are thinking but also international investors starting to generate meaningful revenue, and that perhaps tariffs will be hard to quit even if you have a change of administration, even if you potentially have a change of administration.

Keith Lanton:

To the Democrats, let's talk about tariffs. It's interesting to note tariffs being talked about by the administration in one way and by the press and the Democrats in another way. But if you think about the broader strategy here and this is me talking, not the New York Times If you take a look and see what the administration has in effect done here assuming that they keep tariffs in place at a modest rate and assuming that this perpetuates for a long period of time the current administration, the Trump administration, what they did was they passed the big beautiful bill. The big beautiful bill continued lower taxes, made them permanent, also put in place even some additional tax cuts that make some changes to some of the entitlement programs like Medicaid. But relative to what would have happened if the tax cuts had expired and some of these other changes hadn't taken place, office of Management and Budget saying that over the next 10 years, that the Big Beautiful Bill is going to add $3.4 trillion to the deficit, but, but, but. But.

Keith Lanton:

There is, in effect, another revenue source that is not being factored into the math on the big beautiful bill, and that is the math having to do with tariffs, which are arguably three things One, a charge to manufacturers outside the United States, depending on how much they are going to absorb some of those partners for US companies or importers, how much they're going to absorb tariff costs, as well as the companies that are selling the products? How much are they're going to absorb tariff costs? As well as the companies that are selling the products, how much are they not going to pass along? And then there's ultimately, how much are you, the consumer, going to pay? So there's three constituents here on this tariff, which is arguably a tax. The question is, who is paying the tax? The American consumer is paying some, companies are paying some and the foreign companies are paying some, and that mix may change over time, but nevertheless it's all generating revenue for the US Treasury.

Keith Lanton:

Now, how much revenue are we generating from tariffs? Well, recent numbers indicate that we are looking at $30 billion last month. Now take a look at what a year ago looked like, and we were hovering at around $10 billion a month in tariff income or revenue pre-liberation day. Now we're at about $30 billion. So we're talking about an uptick of about $20 billion a month. That's about $240 billion a year. You take that out over 10 years and you're talking about real money here, talking $2, $2.5 trillion of tariff revenue. If we maintain the status quo, that offsets two-thirds of the $3.4 trillion of the big beautiful bill. So you could think of the big beautiful bill as a tax cut. You could think of the tariffs as somewhat of a tax increase, although not as much as the tax cut, so still stimulus here, but some of that stimulus was already in place. So when you look at this holistically, depending on what the game plan is and depending on what the strategy is, you may not be adding as much to the deficit as you previously thought about.

Keith Lanton:

Now let's talk about tariffs. Let's go back in history. If we go back to America, back in the 19th century, that's the 1800s, that's before America was the economic powerhouse it is today, but it was an ascending power, and President Trump has talked about this as well. Is that back in the late 1800s there were no income taxes here in the United States of America, and what did the government rely on predominantly for its income? Well, it was predominantly relying on tariffs, and that's the model that perhaps President Trump is seeking to replicate here, perhaps not turning it into the primary source of revenue as it was then, although I am not privy to what the overall strategy is, but perhaps some sort of hybrid strategy is what's taking place Now, going back, this all holistically comes together.

Keith Lanton:

Going back to what we were talking about with interest rates. Chairman Powell, what's he going to do? Bureau of Labor Statistics? Well, the one thing that we can't get away from is that if we do put taxes on imported products, regardless of who's paying for it, to a large extent, unless the foreign country that's producing this is paying for it all, it will raise the cost of those goods. We don't know how much will be transmitted, but we know that there's a good chance that some of it will be transmitted, and what that does mean is that we are moving towards more of a tax system, perhaps more of a, you know, similar to Europe. We have evaluated tax and some would suggest that, well, this may be a political decision. Nevertheless, it is somewhat regressive, meaning that those who have lower incomes, who need to consume a larger percentage of their income, are going to feel more of the pain because these taxes are being applied. This revenue is being generated when you do consume items. If you consume more of your percentage of your income, meaning you're not able to save these taxes affect you more than otherwise.

Keith Lanton:

Now, if you think about these changes that President Trump has brought about with tariffs and now with us relying potentially on tariffs to fund our government. What this does mean is it does make it harder, whether Republican or Democrat, to roll back the tariffs, because that would mean a further addition to the federal debt load which is already raising alarms and replacing the tariff revenue with another type of increase. Well, that would cause Congress to have to act, and we see how effective Congress is in acting, at least at the moment. So the tariffs, at least from Congress's perspective, whether Republican or Democrat Congress going forward, and whether a Republican or Democratic president going forward, they could always point and look back at the tariffs and President Trump and say that was a legacy political decision, not my decision, so it's a lot easier to leave it in place. So Congress may not be excited about taking a politically risky move, meaning to raise taxes when they didn't have to vote on tariffs in the first place. And one thing Democrats may do when they come to power again, when and if they may face a temptation to use those tariffs to fund, let's say, a new social program, especially if raising taxes in Congress proves as challenging as it has in the past. So, going forward, it may be that maintaining the status quo, which is what President Trump has brought to our political system, and that is tariffs. May be easier to maintain the status quo than to change it going forward.

Keith Lanton:

All right, well, before I get to the morning news, I'm just going to get to another story. This one was in the Wall Street Journal, and I think this is something that all of us, as investors need to think about, and all of us as consumers may need to think about that, and that is whether or not your smartphone, your iPhone, your Android phone, in the next several years, will continue to be the device through which you access the world. Now it seems quite almost logical or natural that we envision a future where our smartphone, which we use consistently to manage our lives, will continue to be the device that we use going forward. But perhaps the most energetic CEO in Silicon Valley, mark Zuckerberg, last week whether you were watching the headlines and saw the subtle declaration of war that he has launched against the iPhone Now, zuckerberg didn't use Apple's name the other day when he was laying out his vision for marrying super intelligent AI and his hardware at Meta. We'll talk about that hardware, but he may as well have so. The Meta chief is the latest person in Silicon Valley to put the bullseye on iPhone's role as a gatekeeper to the digital world, but he might be the one that's most relevant because he has the most potential to unseat it and he has a vision of how to accomplish it Doesn't mean that he will. It's something that he's been trying to do for quite some time, but a journal saying arguably, his probabilities are increasing, although nobody's predicting success for sure.

Keith Lanton:

With artificial intelligence advancing at the rate that it is Now, zuckerberg is betting that advanced artificial intelligence, near emergence, will finally open the door to a post-smartphone world. And how does he seek to do that? Well, personal devices, especially like glasses, and don't forget, he made an investment in Luxottica. He's been working on those Ray-Ban glasses. These glasses, he says, will understand our context because they can see what we see, hear what we hear and interact with us throughout the day. He says these could become our primary computing device. The day he says these could become our primary computing device, he's long dreamed of unseeing Apple as his user's primary computing device. He's offering artificial intelligence engineers pay packages of up to $100 million to bring the best and brightest over to meta. And while he may have the best, let's say probability of success. He isn't alone in believing that the time is right for a new pecking order among tech platforms.

Keith Lanton:

Amazon recently announced a deal to acquire a company called BEE. That's B-E-E. They are a wearable startup offering a bracelet that records users throughout the day so AI can then create to-do list reminders and other functions for them, amazon looking to incorporate that technology into their devices. But Zuckerberg thinks the winning form will be glasses. Meta is already selling smart glasses. They look like regular glasses. They have a tiny camera, microphone and speaker to allow for snapping photos and videos and collecting audio recordings. But Meta's roadmap envisions not just this but screens built into the lenses we're talking about, like what you currently see on your monitor. That will allow a visual user interface Once you get the display in there. He said that's going to unlock a lot of value where you can just interact with an AI system throughout the day in this multimodal way, and Zuckerberg said this to analysts on his call Wednesday. He's saying these glasses and this technology can see the content around you. It can generate a user interface for you, which is those screens show you information and be helpful. For now, meta's glasses are used in conjunction with a smartphone, one can imagine a world where that will not be the case, and that's obviously the world that Mr Zuckerberg is trying to create.

Keith Lanton:

All right, let's take a look at what we've got going on here this morning, taking a look at futures markets trying to recover. We're looking at a higher opening after we saw the major averages close the week in negative territory S&P 500 and NASDAQ, which reached record high levels on Thursday but faced that selling pressure we talked about on Friday. We are seeing Dow futures up about 200, s&p futures up 36, nasdaq futures up 184 points. We're seeing modest strength in the treasury market. We're seeing oil down this morning about $1.60 a barrel to $65.75 an ounce. Oil is a barrel, sorry. No major developments on the trade front this morning following the announcement of higher rates for several key trading partners last Thursday evening, that's tariff rates. Financial Times reporting that Canada is hopeful it can strike a deal with the US. President Trump and Canadian Prime Minister Mark Carney are set to speak this week.

Keith Lanton:

While this week will be heavy with earnings reports, it will not feature any mega cap companies which were a key driver of last week's action. Individual companies in the news Apple saying they are developing an AI in-house answer engine to rival OpenAI's ChatGVT, according to Bloomberg. Stocks up about $1.60 or 0.7%. Spotify in the news this morning. Perhaps good news for the stock. Maybe not such good news if you're a user of the product they are announcing they will raise their premium subscription prices in September. Stocks up about 5% this morning.

Keith Lanton:

Over the weekend, berkshire Hathaway announced earnings on Saturday, stocks dipping about 1% pre-market after. Berkshire's operating profit fell 4% year over year, impacted by a decline in insurance underwriting. Buffett's cash hoard of $344 billion remained near a record. Berkshire was a net seller of stocks for the 11th quarter in a row and was not a purchaser of their shares, which is something that they typically do when they believe that their stock is undervalued. Tesla up about 2% this morning after their board approved the compensation package for Elon Musk, consisting of 96 million shares of restricted stock, valued at a total of about $29 billion.

Keith Lanton:

Boeing slipped 1% after 3,200 machinists in the St Louis area went on strike. The St Louis area went on strike. Overseas European markets trading mostly in the green One European company, bp announced it made its largest oil and gas discovery in 25 years off of the coast of Brazil. Equity indices in the Asia-Pacific region began the week on a mostly higher note, although Japan's Nikkei fell 1.3 percent, its lowest level in nearly two weeks. Wall Street Journal reported that China is holding back the supply of critical minerals to Western defense contractors, officials from Japan and South Korea saying the trade deals with the US are not on paper yet and that details still need to be ironed out.

Keith Lanton:

Some other news this morning. We have National Economic Council Director Kevin Hassett in an interview over the weekend saying that recent trade deals are the quote-unquote final and will not be changed based on market reaction. He says President Trump wants his own people at the Bureau of Labor Statistics following the termination there of the woman who gathers the statistics. He cited larger visions, provided no evidence that the numbers were incorrect. That's according to NBC News. Wall Street Journal reporting that two Fed officials say labor market weakness is part of a gradual cooling of the economy rather than a worrying decline. New York Times reporting that India will keep purchasing Russian oil despite threats from President Trump. And the New York Times talking about Texas Democrats' plan to leave the state to prevent Republicans from redrawing the congressional map. Times saying that, even at its most successful, that this tactic will likely only delay the passage by a few weeks.

Keith Lanton:

All right, let's talk a little bit about the Fed. Over the weekend, barron's headline story talked about the Federal Reserve and the impact that President Trump will have with his opportunity to remake the Federal Reserve. Barron's saying that achieving lower rates is just part of the broader strategy. Last week, president Trump said he wants one thing from the Fed, and it's very simple. He says he wants interest rates to come down and he wants them to come down a lot and quickly. Barron's suggesting that he will get that with the next Fed chair, although the magnitude of the decline is uncertain. But he thinks more rate cuts will be provided with a new Fed chair, although the magnitude of the decline uncertain, but he thinks more rate cuts will be provided with a new Fed chair. But what they say? There is possibly more that President Trump wants to do other than just see lower rates, and that is a overhaul of the Fed on a scale that has not been seen in decades. Changes on the table include reexamining the central bank's fundamental mission, changing the way it thinks about inflation and interest rates, cutting staff and reorganizing or even reducing the number of Federal Reserve banks. How these changes will affect markets and the economy is difficult to project, in part because each of these candidates, if elected Fed chair, would put their own spin on the plans. Talked a little bit about this already, but the Fed Governor Coogler's decision to step down does give President Trump an immediate opening on the Fed's board and he will act quickly to replace her in her role.

Keith Lanton:

Now the Fed's criticism, partially being driven by some of the actions that the Fed took, especially actions during the pandemic, when the Fed initiated giant asset purchases which held down bond yields and enabled more government spending, some suggesting the Fed kept these rates too low. Inflation, we know, wasn't transitory and perhaps these low rates encouraged the the government to borrow more than it would have, and this, therefore, is one of the lingering effects that we are now dealing with here. In a post-COVID economy, what the Powell Fed sees is institutional nimbleness and intellectual flexibility Its critics see as poorly disciplined thinking and a over-reliance on a powerful research staff. Some are suggesting that the Fed's balance sheet, which has been reduced from $9 trillion to $6.7 trillion, remains swollen, others also suggesting that the number of people working at the Fed is swollen. It's grown to 25,000 as of 2024. That's up about 20% since 2010. Other federal agencies in the same time period have seen a decline of 9%. Over the weekend, larry Kudlow was questioning what the 25,000 economists or workers at the Fed are doing. Why do we need so many? And some suggesting that perhaps that we have too many at the Fed. Even Powell himself said he seeks to reduce the number of folks working at the Fed by about 10 percent, but his plans are to do it through attrition.

Keith Lanton:

Now, how the Fed thinks about inflation and conducts monetary policy is very consequential and significantly affects its determination in how it sets interest rates. If we were to see some sort of change in the methodology at the Fed between its dual mandate, which is to keep inflation under control, at the same time it is to promote job growth and full employment promote job growth and full employment If that were to change, that could certainly have a significant impact on how the Fed operates. So President Trump's choice of a new Fed chair not only ushers in reforms to the Fed's mission and structure, as we just talked about it, but it could also potentially disrupt operations which the market might view as instability or sources of concern and therefore it could lead to market volatility. Now the chair of the Fed has a lot of power because what they do is they set the agenda for FOMC meetings. And when you set the agenda for the meetings you're able to express your view and seek consensus. It is possible that that next Fed chair would be able to change the thought process of some of the other Fed governors or at least influence them. But at the same time it's also possible that you could have existing Fed voting members not see eye to eye with the new Fed chair.

Keith Lanton:

One unusual scenario that Barron's laid out. This from ex-Fed Governor Blinder talking about the fact that the Senate confirmed Fed chair. So whoever the Fed chair is, they act as the CEO of the Fed's board of governors, but technically that position is distinct from the chair of the FOMC. The FOMC is the committee that sets interest rates. So right now, if you're Fed governor, you are the CEO of the board of governors, but you're also chair of the FOMC. The FOMC chair currently is the chair of the Fed. But it doesn't have to be that way, mr Blinder points out. It's not in the law, it's not in the rules. Were the Fed chair to be consistently in the minority on monetary policy decision, the other board members could seize power for themselves and appoint a new FOMC chair, mr Blinder says. I think there are very few people in the markets who know that fact. How it would play out is impossible to predict, but what we do see taking place at the Fed is perhaps something similar to what we saw at the Supreme Court, which is an institution that we, at least, didn't view as polarized, or at least the mainstream didn't view as polarized, as being viewed more and more as polarized and becoming more and more of a political structure from something that we viewed as more independent, and that is something that does not look like it's going to change going forward and that could lead to uncertainty and volatility. So all these different scenarios, we'll see how they unfold at the Fed, but hopefully we have the education and the context to know what we're seeing and be able to assess the implications of some of those policy mandates and their ramifications.

Keith Lanton:

All right, let's turn gears here. We've got a few more minutes and then we're going to wrap up. Let's talk about individual investing, individual planning. Let's talk about retirement, and one of the biggest expenses, if not the biggest expense in retirement is health care. One in five Americans say they have never considered health care needs during retirement. Yet retirees are going to probably spend a large amount of their finances in retirement. 65-year-old today can expect to spend about $173,000 on health care throughout retirement. That's up 4% from last year. That is according to Fidelity's 2025 retiree health care cost estimate.

Keith Lanton:

Some people mistakenly believe that Medicare, the government insurance program for people 65 and older older is free. Medicare imposes monthly premiums and out-of-pocket costs and it doesn't cover everything. Long-term care costs aren't factored into Fidelity's estimates, not even included in that $172,000. So if you need long-term care, that would be in addition to that $172,000, $173,000 figure. Fidelity assumes men and women go with traditional government-run Medicare, which includes premiums for Part B outpatient coverage and Part D coverage. That accounts for about 44% of spending. The other 9% of spending that you're going to do in retirement is likely on drugs and another 47% are on co-pays, co-insurance and deductibles. Perhaps you take out a Medicare Advantage plan. This spending also factors in only a little bit of spending on dental, vision and hearing needs, so your costs may even be higher because only accounting for a limited amount of funds for that.

Keith Lanton:

So what's someone to do? Perhaps someone who is looking for some assurity on cash flow? Perhaps you know what your social security income is going to look like. Not as many Americans have a supplemental guaranteed income like a pension, but if you don't, what you potentially could do is you could set aside a portion of your retirement savings and you could put it into something that will pay you an annual income like an annuity. Now that annuities aren't for everyone, but they are coming in new shapes and sizes and with interest rates higher and sustainably higher, annuity payouts are looking much more attractive than they have in many years. So if you worry about outliving your nest egg, some annuities will guarantee you when I say guarantee based on the health of the insurance company that's doing the guaranteeing you lifelong income, you lifelong income. So let's take a look at some of these products that will keep in mind.

Keith Lanton:

Annuities come at a cost, either in the form of annual fees or by giving up liquidity or some upside performance in the stock index, or a combination of all of those factors. They are designed as long-term retirement accounts. Assets and annuities often grow tax-deferred, can't be accessed before 59.5 without a 10% penalty. Many annuities come with surrender periods between 5 and 10 years and you will, in many cases, pay a penalty if you take out more than 10% of your assets, and that penalty can be quite steep. I've seen penalties as high as 10%. So think long and hard before making this decision.

Keith Lanton:

But just to give you some sense of opportunities in the marketplace that may or may not make sense for individual investors, I'll give you an example of a single premium immediate income annuity. What does that mean? It means you put down a certain amount of money and you instantly start receiving cash flows from that point forward. So we're going to assume that you have $200,000 to place into a single premium annuity, that you're a male who's age 70 and your spouse is aged 65. If you were to take that $200,000 and you would put it into an immediate annuity, well, you would be able to generate income for the life of yourself and your spouse in this example of $13,975, for the life of either of you. So as long as either of you are alive, you put down $200,000, you're age 70, male, your spouse is age 65. As long as either of you are alive, you will earn $14,000 a year.

Keith Lanton:

Now, if you're thinking a little bit further out, you could think about a deferred income annuity. This is something that's not going to pay you immediately, so it's the same scenario as before, except now, in this situation we are talking about a 60-year-old male and a 55-year-old spouse, and we are not going to turn this annuity on for 10 years. So in the male is 70 and the female is 65. So same as before, except we're waiting 10 years. In this example, instead of basically receiving $14,000 for life by the fact that you're waiting those 10 years, your money is just sitting idly for those 10 years. But the benefit comes when you start collecting that annuity. Instead of collecting $14,000, you collect roughly $24,000. So this is annual income. It's a supplement. If you're earning $25,000, $26,000, let's say in Social Security, getting another $24,000 through a deferred annuity, you'd have a fixed income of $50,000 plus whatever other income your other investments are generating. In this example, that's everything I've got.

Alan Eppers:

Thank you for listening to Mr Keith Lanton. This podcast is available on most platforms, including Apple Podcasts, Spotify and Pandora. For more information, please visit our website at www. heraldlantern. com.

Sophie Cohen:

Opinions expressed herein are subject to change and not necessarily the opinion of the firm. Past performance is no guarantee of future results. The information presented herein is for informational purposes only and is not intended to provide personal investment advice. It is important that you consider your tolerance for risk and investment goals when making investment decisions. Investing in securities does involve risk and the potential of losing money. The material does not constitute research, investment advice or trade recommendations.