As the US enters an election year, the news media has become filled with talking heads and opinion pieces either excoriating the President Biden as worse than Hitler, or the best president to have ever done the job. Both extremes are exaggerated to get clicks, of course, but whether Joe Biden’s been a good or bad president really depends on who you ask.
Every president passes policies that benefit one group of people at the expense of others. That’s the nature of the game. Depending on which group you happen to be in, you’ve seen those policies benefit, or hurt, your bottom line, and that will determine whether you like him or hate him.
Today, I thought it would be interesting to look back at Joe Biden’s first term from the prospective of the FIRE community.
Has Joe Biden’s policies made it easier or harder to retire?
Let’s find out!
One of the biggest issues that have screwed over Millennials trying to achieve FIRE in the US is student debt. I regularly get case study requests from readers who have more than $100k in student loans, which is just nuts. No other developed country has student loan balances this large.
The reason for this is twofold. One, secondary education is just way too expensive, which obviously means bigger loans. And second, if you don’t earn enough money to pay these loans off, the problem just gets worse and worse. There are programs for federal loans like the PAYE, IBR, and IDR that cap your minimum payments to a percentage of your discretionary income, but that just keeps your loans from going into default. The interest from that loan still compounds, so the balance continues to grow.
The people that are the most screwed by this system are people who enroll in expensive degrees, like law, medicine, or a PhD program, go through most of the program, but they don’t finish it. Either they drop out, fail out, or some family/medical emergency forces them to stop. These people are stuck with all of the debt, but no degree to show for it, and they get hammered. They’re stuck working low-wage jobs, they can’t cover the interest on their debt, and the balance keeps going up. For these people, fleeing the country and never coming back is an actual possibility that they contemplate. Usually you have to murder someone before you consider fleeing the country, but nope. Student debt is making them run for the border. Bizarre.
Thankfully, this situation should not happen anymore. In 2023, the Biden administration announced the creation of the Saving on a Valuable Education, or SAVE program. Wow, these guys really go out of their way to name things so they have a catchy acronym, don’t they.
Anyway, it’s a new income-based repayment plan that theoretically operates alongside existing ones like PAYE and REPAYE, but in practice it’s just so much better that the others are irrelevant now.
When SAVE was first rolled out, most of the media attention was centered around how it lowered monthly payments by changing the way they calculated your discretionary income. However, by far the more important change was this:
If you make your full monthly payment, but it is not enough to cover the accrued monthly interest, the government covers the rest of the interest that accrued that month. This means that the SAVE Plan prevents your balance from growing due to unpaid interest.
This eliminates that “debt spiral” problem I described above, because now your loan’s interest won’t compound. Under this plan, your loan’s balance can only go down, but never up.
Everyone who has a student loan should enroll in this plan immediately even if you could easily afford the loan payments, because it protects you from getting into this “debt spiral” situation if you were to ever lose your job. Even if your loan has already defaulted, you can apply for it via the Fresh Start Initiative, which is free and gets your loan back into good standing.
Go to the Department of Education’s website on this program for more information, and instructions on how to apply.
Another huge headache that American early retirees have to contend with is health care. Because health insurance is still primarily provided by employers there, quitting your job means that you have to buy health insurance on your own. This use to be a retirement-killing proposition since you could be denied coverage for having a pre-existing condition. But in 2010, then-President Obama passed the Affordable Care Act into law, and Obamacare was born.
Obamacare changed the health care landscape and basically made early retirement possible, since it closed off the ability for health insurance companies to deny coverage, as well as providing government subsidies that tied the cost of health insurance to your income. Now, early retirees could leave their job and know that health insurance would be available to them at a reasonable price.
That being said, Obamacare wasn’t without its issues. The Obamacare subsidies were tied to your gross family income, and ended when that income was at 400% of the Federal Poverty Level (FPL). Early retirees don’t have literally $0 income, they still report income in the form of interest and dividends in their investments, money withdrawn or converted from a 401(k) plan, as well as any side hustles or passion projects, and this requirement meant that early retirees had to be very careful in managing that income. If you made even $1 over this 400% FPL number, your Obamacare subsidies went away and your health insurance costs could skyrocket by hundreds or thousands of dollars per month, depending on where you lived.
This effect was dubbed the “Obamacare subsidy cliff”, and our friend and fellow blogger Jeremy from GoCurryCracker wrote about all the stuff he has to do to avoid this on his site.
But now, this issue has been solved.
President Biden fixed this as part of the American Rescue Plan, which was a $1.9 trillion stimulus plan designed to help get America out of the pandemic. Now, health insurance premiums (of the benchmark Silver plan) are capped to 8.5% of household income. It no longer matter whether that amount was relative to the FPL, so the Obamacare subsidy cliff disappeared.
Again, this is a huge relief to the FIRE community, because now you can make as much (or little) income as you wanted in early retirement without worrying about making a math error that resulted in a big hit to your budget.
One big caveat though. This change is temporary. It was renewed in the 2022 Inflation Reduction Act, which makes it effective until 2025, but after that this protection expires, so whoever wins the next election will determine (among other things) whether the FIRE community has to worry about health insurance costs once again.
And finally, a little thing called the stock market.
The FIRE community draws their retirement income from index funds that track the overall stock market, so the performance of the economy, and by extension the stock market, affects us all.
So how has the economy done under Joe Biden?
Pretty damned well, actually.
Inflation has been the demonic ghost that has haunted the US economy throughout Biden’s term, and killing inflation is super tricky. The government basically has one weapon, and that’s interest rates. If you raise interest rates, inflation falls, but raise it too much, and a recession happens.
So that’s why Biden and central bank chairman Jerome Powell have had to engage in an incredibly delicate balancing act, essentially pinning Biden’s economic legacy on whether they can achieve a mythical “soft landing,” where they raise interest rates just enough to kill off inflation without triggering a recession.
I didn’t think they could actually do it, because it’s literally never been done successfully before. But sitting here in 2024, those crazy sons of bitches actually seem to have pulled it off!
Inflation has fallen from a record nosebleed level of 9.1% in June 2022 to a much more manageable level of 3.4% as of December 2023. While this has happened, jobs have continued to be added, with the latest Bureau of Labour statistics showing a stunning 353,000 jobs being added last month, and a record-low unemployment rate of 3.7%, which is considered full employment by economists.
“The fact that the unemployment rate has been below 4% for 24 months straight for the first time since 1967 is truly remarkable,” Joe Brusuelas, chief economist and principal at RSM US, told CNN. “And that’s the word I keep saying as I look through this report: ‘This is remarkable.’ ‘Remarkable,’ is the takeaway here.”
The result has been a steadily increasing level of consumer confidence, which has resulted in increased consumer spending, and has powered the S&P 500 to a gain of a whopping 24% in 2023, as well as an additional 5% gain so far this year.
This is how the US has fared against the rest of the G7 countries in terms of real GDP growth.
No other country in the G7 has recovered from the pandemic as strong or as fast as America, and Joe Biden deserves a lot of credit for that.
So regardless of your personal take on this president, from the perspective of the FIRE community, Joe Biden has really helped us out a lot. Not only as he and his team managed to fight inflation without triggering a recession (a feat which, again, has never been pulled off before), his policies have removed two major roadblocks facing FIRE seekers: Large student loan balances that grow if you can’t make the minimum payments, and the Obamacare subsidy cliff.
Put it all together and it’s never been easier to early retire in the US. Thanks Joe!
What do you think? Do you think Biden’s policies have made it easier or harder to retire? Let’s hear it in the comments below!
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