The Finatical

Week of January 31st, 2023 - Pensions, Inflation Slows Home Purchasing, Egg Prices Rise 60%

Finatic

Aditya Bagga

Ksheeraj Sanga

, and 3 others

Jan 31, 2023

Introduction

Most people will retire from their work at some point, so it is important to know how you’ll fund your retirement. One way people fund their retirements is through their employer-provided pension plans. A pension plan is just an employee benefit in which the company decides to make regular payments to a pool of money put aside to finance employees after retirement. Payments are often dependent on the employee's salary and number of years of service. So how do you get a pension? To be eligible for a pension, a person must work for a firm that has a pension plan. Also, in order to qualify for pension plan benefits, workers usually need to have worked for a firm for a particular length of time.

Types of Plans

Now that you understand what a pension is, you also need to understand the two main types of pension plans: the defined benefit and the defined contribution plans. Defined benefit plans provide guaranteed salary-like income and were traditionally used to encourage employees to stay with one company for many years. This type of pension plan is not as common today. A defined contribution plan, on the other hand, does not guarantee a certain amount of pension payments. In these plans, the employee, employer, or both, contribute to the employee's individual account under the plan, sometimes at a fixed rate, such as a percentage of yearly earnings. Although the word "pension plan" is often used to refer to the classic defined-benefit plan, the 401(k) plan is a well-known example of a defined-contribution pension plan.

Importance

So why do so many people consider pension plans to be important? The answer is simple: pensions provide several benefits that will accelerate the growth of your money. A pension is essentially a tax-free long-term fund. Getting tax relief on pensions means that part of the money you would have paid to the government in taxes instead goes toward your pension. Essentially, your pension will help you maintain your quality of life in retirement, and savings will offer valuable extra income for unanticipated emergencies. This is why it is important to consider if your employer offers a pension plan, and understand the benefits of having one.

Financial Trends

Inflation Slows Home Purchasing

In a recent survey from Real Estate Witch, more than 92% of first-time homebuyers that desire to purchase their first home have blamed inflation for hindering them from reaching this goal of theirs. As a result, people are having to delay their purchase of homes (59%), while (36%) of people are spending more than the asking price, adding to the already very competitive housing market. Last year, first-time home-buyers comprised 26% of home purchases, compared to 34% this year. The percentage has increased because of the combination of year-over-year double-digit price jumps for the majority of 2022 and rising mortgage rates causing an affordability problem for many buyers.

However, the future of the housing market is gradually improving with home prices starting to decline. The main reason for this is due to the interest rates imposed on mortgages starting to ease. The average for a 30-year fixed-rate mortgage loan is 6.21% in the month of January, lower than what it was in October, 7.32%. The mortgage rate is important for home-buyers because the higher the interest rate, the more the monthly payment is. According to the chief economist for the National Association of Realtors, Lawrence Yun, “Buyers shouldn't wait for mortgage rates to drop to where they were in 2020 and 2021, below 3%, as rates were that low because of emergency actions taken by the Federal Reserve during the pandemic”. The new normal mortgage interest rate for first-time homebuyers will range from 5 to 6%.

Egg Prices Rise 60%

In 2022, egg prices drastically increased and one group alleges that the trend was something more planned than the normal supply and demand economics. According to CPI (Consumer Price Index), consumers saw the average prices for all types of eggs surge by 60% from last year – among the largest percentage increases of any U.S. good or service. The industry has narrowed its focus on a historic outbreak of avian influenza — which has killed tens of millions of egg-laying hens, the biggest cause of increasing the prices of eggs. However, in a letter to the Federal Trade Commission given by Farm Action, a farmer-led advocacy group, claims that the “real culprit” is a scheme conspired by major egg producers to cheat prices in this struggling and declining economy.

The letter also entails the fact that this plan of production has helped them in earning profits as high as 40%, which is unusual for the egg industry. However, food economists are skeptical that an inquiry would uncover any wrongdoing by major egg producers. The U.S. also suffered their deadliest outbreak of bird flu in the history of 2022. According to the U.S. Department of Agriculture, highly pathogenic avian influenza killed about 58 million birds across 47 states, affecting egg-laying hens the most. Since the demand for eggs has stayed strong throughout this declining economy, bird flu’s impact on hen supply has been the driving force in the increase of egg prices.

Financial Guidance

“Buying real estate is not only the best way, the quickest way, the safest way, but the only way to become wealthy.” — Marshall Field

Real estate is one of the most profitable commodities due to the fact that it’s a finite resource needed for countless personal and professional applications. Real estate is a slow but profitable investment.

Term of the Week

Trade wars: Trade wars are when a country attempts to retaliate against another country by raising various economic sanctions such as tariffs or embargoes. There are many causes behind trade wars, but some key ones include attempts to implement protectionist policies and boost the domestic economy, reduce the trade deficit, or retaliate for sanctions raised against themselves.