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More Grim News for Aspiring Retirees

On September 4, 2010, in Our Culture, by Tim

As if Americans don’t have enough to worry about, U.S. News offers up this story about how they are woefully unprepared for their golden years. To make matters worse, the survey results likely understate the problem across the U.S. population as a whole because, as I read the report(.pdf), respondents were limited to larger companies with retirement plans and excluded the many small  businesses where individuals are on their own.

Workers Fear Savings Won’t Last in Retirement

Most workers are worried that their retirement savings won’t last the rest of their life. Only 40 percent of current workers say they will have enough money to finance a 25-year of retirement, according to a new Towers Watson survey of 3,099 full time employees in the private sector. Just 62 percent of the survey respondents think their retirement savings will last even 15 years.

“Despite some signs of an economic recovery, many employees remain apprehensive about the future of their retirement,” says Kevin Wagner, a senior retirement consultant at Towers Watson. “The financial crisis hit employees hard and eroded both their savings and confidence in being able to retire comfortably.”

Employees with a traditional pension are considerably more likely to feel satisfied with their financial situation than those with only a 401(k) plan. Over half (52 percent) of workers with a traditional pension are confident that they will have enough resources for a comfortable 25-year retirement, compared to a third (34 percent) of employees with a 401(k) or similar type of retirement account.

Understandably, there is growing fear that traditional pension plans will not be able to deliver on their promises and, at some point, the same will be true for government workers.

Also, see 5 Ways to Calm Your Retirement Fears and pay particular attention to items 2 and 3 that, in my view, are key - Increase your financial planning knowledge and Start changing your lifestyle now. More emphasis on understanding spending – not just retirement income – would have been nice, but this is a good start for most people.

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Savings Set Back During “Peak Earning Years”

On August 20, 2010, in Stocks, by Tim

Reuters reports on the recent rise in hardship loans at Fidelity Investments as an increasing number of workers take money out of their retirement savings instead of putting money in during their peak earning years in a weak (and getting weaker) economy.

A record number of U.S. workers are tapping into their retirement accounts to make it through the economic downturn, Fidelity Investments found in a survey released on Friday.

Among the 11 million workers whose 401(k) plans are run by Fidelity, 11 percent took out a loan from their plan during the 12 months ended June 30, the company said, up from 9 percent at the same point a year earlier.

By the end of the second quarter, plan participants with loans outstanding against their 401(k) accounts had reached 22 percent versus 20 percent a year earlier.
…
Loans and withdrawals were highest among workers between 35 to 55 years old, Fidelity found, peak earnings years.

Fidelity, the Boston mutual fund giant, is also the country’s largest administrator of retirement savings plans like 401(k)s, making its quarterly survey a closely watched barometer of saver behavior.

As more companies end traditional “defined benefit” plans like pensions, workers are relying more on “defined contribution” plans like 401(k)s to carry them through retirement.

How well these “defined contribution” plans carry workers through retirement remains to be seen. So far, based on the relatively low number of six figure 401k balances, expectations shouldn’t be too high. The fact that 401k holders have to manage their own money – investment choices, withdrawal rates, etc. – makes the chances of success even slimmer.

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Retirees and Baby Boomers Cut Back

On August 16, 2010, in Consumerism, Economy, Our Culture, by Tim

A report in today’s Wall Street Journal reminds us how unlikely it is that the baby boomer-led U.S. economy as we once knew it will ever be restored. Incomes, savings, investments, and consumption are now entering a new and very different era where all four seem to be going in the same direction – down. The decline in spending by retirees is clear to see in the chart below and baby boomers will probably have to cut back even more.

The diminishing work prospects will require many older folks to make do with less -  a discouraging outlook for firms hoping to sell them everything from dinners to cars.

As of 2008, the latest data available, people aged 65 to 74 were spending 12.3% less than they did ten years earlier, in inflation-adjusted terms. They cut spending on cars and trucks by 46%, household furnishings by 35% and dining out by 27%. At the same time, they spent 75% more on health care and 131% more on health insurance.

That’s a pretty remarkable shift in spending – from cars, clothes, and dinners out to monthly meds. Sadly, the health care industry is likely to be about the only “engine” for economic growth in the U.S. for some time to come.

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Confidence Rebounds … from 11-Month Low

On March 31, 2010, in Consumerism, Economy, Our Culture, by Tim

It’s funny how headlines for yesterday’s consumer confidence report left out a few critical words (appended above) about the exact nature of the rebound. The March reading for the Conference Board’s consumer confidence index made back about half of the February plunge that had taken this important gauge of the American mood back to the  level of last April, just after the worst of the financial market crisis. There’s more in this AP report.

Since so much of the U.S. economy is based on “confidence” – more specifically, both the ability and desire of Americans to spend freely when maybe they really shouldn’t – it’s hard to imagine how the pre-2008 mode of U.S. economic growth can be restored after what happened in 2008, yet, that seems to be what everyone wants.

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Biderman: Bond Inflows “Scary”

On March 5, 2010, in Bonds, Stocks, by Tim

Charles Biderman of TrimTabs was on CNBC yesterday to talk about the most recent fund flow data and he characterized the continuing movement of money into bond funds as “scary”, noting that many retail investors don’t realize that bond funds aren’t a one-way bet.

Yes, it’s yet another unintended consequence of ZIRP (Zero Interest Rate Policy) where investors look at money market and CD yields of less than one percent and go searching for yield – after being burnt by stocks in 2008, the logical alternative is bonds.

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What’s Behind the Rising Museum Attendance

On March 1, 2010, in Economy, by Tim

America’s finest news source, The Onion, tries to answer the question that’s on the minds of many people in this country regarding the rising attendance at museums.
IMAGE Here’s a link to the official Andrew Wyeth website and, after a quick look around, it seems that the staff at The Onion was being a bit generous in the “bleak” characterization.

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