Retirement plan milestone approaching January 31, 2012
Posted by forwardfinancialplanning1 in 401k plans, Pensions, Retirement Savings.add a comment
State Street Global Advisors projects that 2012 will be the year that defined contribution plans such as 401k’s become the predominant form of retirement plan offered by employers. SSGA estimates that 2012 will the first year that more employees will be enrolled in these defined contribution plans than are participating in company sponsored defined benefit plans, such as traditional pensions.
Historians of the future will surely look back at this as an “accidental social experiment” with far reaching implications. Ted Benna, the retirement plan consultant credited with having “invented” the 401k (via a creative interpretation of an obscure section 401k of the tax code, which the IRS subsequently blessed) most likely never envisioned such widespread adoption. And, report after report has been published lamenting how employees have mismanaged their accounts. It will be interesting to see how all of this plays out over the next 50 years.
Regardless of one’s feelings on defined contribution plans (adding 403 and 457 type plans to the group), no one can deny that “they are here to stay.” This fact highlights the need to improve the financial literacy of our population, since individuals are responsible for managing these accounts. Our schools are being challenged to improve by meeting No Child Left Behind guidelines. Perhaps they need to add a section entitled “No Retiree Left Behind………………..”
The wrong people own life insurance January 22, 2012
Posted by forwardfinancialplanning1 in Estate Planning, Life Insurance.add a comment
There are a lot of things in life that don’t make sense. Often, one would expect a certain pattern to prevail, when in reality, things are exactly the opposite. A recent study by the Aite Group entitled “The Elusive Life Insurance Purchaser” identifies one of those anomalies.
Aite conducted an on-line survey of 1,024 consumers. Thirty seven percent of the respondents reported having no life insurance while five percent were unsure (….now there’s a group that could benefit from financial planning!!). Only two age groups reported ownership rates at or above 50 percent —-65 to 69 year olds at 50% and aged 75+ at 62%.
When considering that the most common and logical reason to own life insurance is to protect those who depend on one’s income, this is surprising . Clearly, people who have young children should constitute what the marketing world refers to as “the heavy user segment” for life insurance. Yet, obviously this is not the case.
And, why such a high rate of ownership in the 75+ segment? While it’s true that some life insurance is appropriately held by this age group to provide liquidity for handling estate taxes, this is a tiny fraction of the total. How many families are depending on the regular income of a septegenarian??
Some things in life just don’t make sense!!!
2012–a year of disclosure January 17, 2012
Posted by forwardfinancialplanning1 in 401k plans, Bond Mutual Funds, Equity Mutual Funds, Retirement Savings.add a comment
New regulations coming into effect in 2012 will make this an interesting year in the financial markets. New IRS requirements regarding cost basis information for mutual funds become effective in 2012. In a nutshell, mutual funds must now provide cost basis information to the IRS on form 1099B when account holders sell “covered” shares. ”Covered” shares are any mutual fund shares that an account holder purchases after January 1, 2012. This requirement does not apply to the sale of mutual fund shares acquired prior to this effective date—these still fall under the “honor system” that has been the norm prior to these new regulations. Tax preparers (and the IRS) have known for years that many tax filers didn’t always keep very good records to substantiate their cost basis, especially for funds held for long periods of time. So, they’ve put the onus on the fund companies to track the information for their account holders, but to disclose it to both the account holder and the tax authorities. Since trillions of dollars of previously acquired mutual fund shares don’t yet fall under the requirement, the new rules most likely won’t immediately yield additional revenue to the US Treasury. More probably, there will be countless reporting snafus due to the variety of possible accounting methods that are eligible for use when tracking cost basis of mutual fund shares.
A second interesting 2012 disclosure requirement concerns 401k retirement plans. Without getting too specific, employers will now be tasked to provide additional cost and expense information to their employees participating in such retirement plans. The requirements dictate more direct and specific disclosure of the numerous expenses that 401k plan participants absorb simply by joining the plan. Industry insiders have long understood arcane expenses such as Sub-Transfer agency fees and other “revenue sharing” arrangements. However, the average plan particpant has had no idea concerning these costs. In fact, numerous academic studies have found that many plan participants believe that they pay no expenses whatsoever, since they never actually “receive an invoice” for investment management fees, recordkeeping expenses, auditing fees and the like. These new disclosures are to be made in actual dollars absorbed, which should be a real “eye-opener” for a lot of participants.
Stand back and watch the fireworks…………………….
Economic Happiness January 11, 2012
Posted by forwardfinancialplanning1 in Financial Planning.add a comment
What does it take to generate financial satisfaction? A University of Georgia study of 28,000 Americans suggests that having an emergency fund was key. Having such a “rainy day” fund was deemed even more satifying than owning a home or paying off a credit card. Apparently the peace of mind of not living paycheck to paycheck is invaluable!
More evidence that others are “fearful” January 10, 2012
Posted by forwardfinancialplanning1 in Economic Conditions, Investing-General.add a comment
Recent posts on this blog (January 2, December 14) have noted the extreme degree of “fear” currently pervading the investing world. And now, from Europe we have still further evidence that perhaps risk aversion has reached an extreme. On Monday, Germany auctioned $3.9 billion Euros of 6 month sovereign notes at a yield of -0.0122% (yes, that is a negative number!). This signifies that the investors in this German debt are willing to ”pay” a small amount for the perceived assurance that they’ll receive the face value of the debt back at maturity. They’re also willing to lock in a negative return in the process.
Germany is considered one of the “safe havens” among European governmental issuers of debt and as such, is viewed as a “risk-free” borrower. A little further research revealed that Switzerland (September) and the Netherlands (December) have also recently issued sovereign debt at negative yields. And, yields on US T-bills dipped into negative territory in the financial markets (i.e., during financial market trading activity but not at auction) during October. So, once again, we’re seeing further evidence that others are “fearful”. This would be a signal to become “greedy” according to investing genius, Warren Buffet.
With all of the bad news coming out of Europe these days, it’s not surprising that investors are fearful. Perhaps that’s why Buffet has been so successful—-he’s comfortable being a true contrarian.
More evidence that “others are fearful” January 2, 2012
Posted by forwardfinancialplanning1 in Bond Mutual Funds, Equity Mutual Funds, International Equity Funds, Investing-General.add a comment
Our December 14 posting suggested that “others” may becoming “fearful” as evidenced by mutual fund flows. This trend was reinforced recently as the Investment Company Institute reported that long term mutual funds experienced outflows of $1.98 billion for the week ended December 21. Equity mutual funds had net outflows of $4.57 billion with $2.69 billion exiting domestic stock mutual funds and $1.88 billion leaving non-US equity mutual funds. Net inflows into bond, and balanced mutual funds reduced the overall outflows to the $1.98 billion total (money market funds are excluded from the “long term” fund totals).
These continued equity fund outflows come at a time when stocks are seemingly becoming “less expensive”. As of the final week of the year, the trailing P/E ratio of the S & P 500 had fallen to 14.48 compared to 18.05 a year ago. Likewise, the equivalent statistics for the P/E based on forecasted 2012 earnings is currently 12.58 versus 14.56 a year earlier. Clearly, this year’s volatility has made investors less enamored with the stock market.
A famous 1980 Time Magazine cover story entitled “The Death of Equities” ushered in an unprecedented 20 year bull market. As people become increasingly disenchanted with the gyrations of the stock market, we may want to keep our eyes on the newstand headlines………………………..
