The new year is off to a roaring start. In the US, markets appear to be in the beginning of what analysts call a melt-up. The economy is close to booming: as analyst Ed Yardeni points out, GDP is rising at an annual rate of about 3% and the phrase "secular stagnation" has barely been mentioned since Donald Trump's election.
In the UK things are far from perfect, but most people have accepted (and begun to be bored by) the Brexit process; Theresa May has started the process of replacing herself with someone electable by promoting lots of people we have never heard of to the cabinet. GDP looks like it rose 0.6% in the last quarter of last year. Manufacturing is having its best run since 1997. Productivity in the UK is finally showing some signs of picking up. And the FTSE keeps heading for new highs. All good news.
But amid all the excitement and the money-making (I bet most MoneyWeek readers are pretty thrilled with their returns at the moment), there are a few things anyone hoping for a secure financial future might like to bear in mind. First, melt-ups usually turn into meltdowns. Second, while your finances might look fabulous (for now), the government's most definitely do not.
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The Government Actuary Department says that, thanks to the rising dependency ratio in the UK (the fall in the number of workers relative to pensioners) and the generosity of our welfare system, the state pension is entirely unaffordable.
To keep the show on the road, national insurance will have to rise by five percentage points (or some other tax by enough to raise the same amount), say the number crunchers. That's obviously politically tricky, something that should force us to think about the possible alternatives. Could all pension tax relief be abolished so that savings can be funnelled into the payment of state pensions (see my blog for more on this)? Should the state pension age be pushed back even further? Or should the state pension end up being means-tested?
These are all things that could have a material impact on your wealth in retirement. Note that on current annuity rates the lifetime income offered by the state pension is "worth" around £280,000. That's tough to replace even if you get out of a melt-up at the right time.
So you might turn to the personal finance page in this week's magazine to be sure you are minimising your tax bill (assuming you want to the support for neo-socialism in the UK suggests not everyone does); pensions to see that you are making the most of all the pension tax relief available to you while it lasts; and the Analysis pages for our contributors' investment tips on how best to invest in 2018. The aim is to get to a level of personal financial security that means you won't ever be reliant on the state pension system continuing as it is. Because it very probably won't.
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Beat the cost of living crisis – go on holidayEditor's letter As inflation rages, energy bills soar and the pound tanks, what’s a good way to save money this winter? Go on holiday, says Merryn Somerset Webb.
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How capitalism has been undermined by poor governanceEditor's letter Capitalism’s “ruthless efficiency” has been undermined by poor governance, a lack of competition and central banks’ over-enthusiastic money printing, says Andrew Van Sickle.
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Don't be scared by economic forecastingEditor's letter The Bank of England warned last week the UK will tip into recession this year. But predictions about stockmarkets, earnings or macroeconomic trends can be safely ignored, says Andrew Van Sickle.
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The biggest change in the last 17 years – the death of the “Greenspan put”Editor's letter Since I joined MoneyWeek 17 years ago, says John Stepek, we’ve seen a global financial crisis, a eurozone sovereign debt crisis , several Chinese growth scares, a global pandemic, and a land war in Europe. But the biggest change is the death of the “Greenspan put”.
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The wolf returns to the eurozone’s doorEditor's letter The eurozone’s intrinsic flaws have been exposed again as investors’ fears about Italy’s ability to pay its debt sends bond yields soaring.
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Things won't just return to normal – that's not how inflation worksEditor's letter You might think that, if inflation is indeed “transitory”, we just need to wait and everything will return to “normal”. But this is a grave misunderstanding of how inflation works, says John Stepek.
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Car hire and the strangeness of the post-pandemic economyEditor's letter A global shortage of hire cars and unusually high hotel occupancy rates sum up the post-pandemic global economy in a nutshell, says Merryn Somerset Webb, with enhanced demand meeting restricted supply.
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Why we need to get a grip on our governmentEditor's letter Our government is trying to do too much, enacting policies that are destructive to the private sector. It needs to drop the the feel-good nonsense and create policies that lead to long-term wealth, says Merryn Somerset Webb.
