jump to navigation

Does this seem stupid to everyone else too???? February 25, 2015

Posted by forwardfinancialplanning1 in Bond Index Funds, Bond Mutual Funds, Economic Conditions, Intermediate Term Bond Funds, Long Term Bond Funds, Short Term Bond Funds.
add a comment

Read where Germany has just sold 5 year government debt securities at a yield of -.08%. In January, they sold the same securities at -.05%. Also saw where Finland recently issued some government debt at a negative yield. My question for all readers is, “How can this make sense??”

A negative yield on a newly issued bond essentially means that the German/Finnish governments actually GOT PAID to borrow money!!! Some of the explanations for this perverse behavior cite the requirement for commercial banks to hold these high quality debt securities to meet regulatory capital requirements. That is, the banks in a fractional reserve system have to hold something of value to protect their depositors. This makes sense, but wouldn’t the banks accomplish the same thing (and avoid an expense) by simply holding on to their cash? Purchasing an investment that’s guaranteed to lose money is totally illogical. Just the same, I wish I could get paid to borrow money………..


Boy, that’s a deep hole…………. February 20, 2015

Posted by forwardfinancialplanning1 in Retirement Savings.
add a comment

The Employee Benefit Research Institute (EBRI) publishes a good deal of research material regarding the level of retirement preparedness in the United States. While much of their output might be characterized as “exciting only to academics”, a recent analysis produced a number of mind boggling significance.

The EBRI calculated that the aggregate national savings deficit is over $4.1 TRILLION for all US households between the ages of 25 and 64. It’s even more stunning when one considers that this figure is the present value of all of the future shortfalls. This means that the EBRI discounted future retirement savings needs due to the time value of money. In other words, the $4.1 trillion estimate is actually far less than the nominal dollars that will be required.

So who will make up this shortfall? The analysis assumes Social Security will continue to be funded, but an even more threatening prediction is that this deficit increases to $4.38 trillion if the forecasted pro rata reductions to Social Security benefits actually take place in 2033. If Social Security ceased to exist tomorrow, the EBRI savings shortfall leaps to $7.87 trillion.

Looks like there won’t be a future shortage of WalMart greeters…………..

Occasionally, they do something right in D.C. February 14, 2015

Posted by forwardfinancialplanning1 in Bond Mutual Funds, Economic Conditions, Intermediate Term Bond Funds, Long Term Bond Funds, Short Term Bond Funds.
add a comment

It’s usually pretty easy to find something to complain about when one considers what’s going on in Washington DC. If not, many in the media would be out of work. However, some recent reading led me to conclude that occasionally, they do something in Washington that could actually be described as “smart”.

It’s no secret that interest rates around the world are at rock bottom levels. U.S. banks and credit unions are paying depositors virtually pennies in interest on substantial balances. The interest yields in Europe and Japan are even lower, which makes US Treasury debt look very favorable to foreigners. Due to this substantial worldwide demand, the US government is able to finance its borrowings at very favorable rates.

How favorable? A year ago, 30 year US Treasury securities yielded about 4%. As of January 30, 2015, this figure was 2.2%. And, the term structure of the US government’s borrowings has lengthened. Treasuries maturing in three years or less comprise only 48% of US government debt compared to 58% six years ago. The portion of debt coming due within the next year is approaching levels last seen in the 1950’s. The government now pays less interest than it did in 2008, despite the fact that the amount of outstanding US debt has more than doubled to $12.5 trillion during this time period.

These circumstances might be akin to an astute household which refinances its mortgage debt when 30 year fixed rates have fallen greatly. Perhaps they lock in a home equity loan to pay off some higher cost debt while interest rates are way down (For the sake of argument, we’ll ignore the fact that they may be collateralizing a previously unsecured debt). And while it must be conceded that excessive debt is never a good thing, it’s highly unlikely that the US government is going to run a budget surplus any time soon. Similarly, it’s a rare household that can buy a house without a mortgage. So, if we accept the notion that the US government is going to borrow (and that the household will borrow for a home purchase) locking in historically low rates for longer periods of time is actually pretty smart behavior.

We’re going in the wrong direction… February 4, 2015

Posted by forwardfinancialplanning1 in 401k plans, Pensions, Retirement Savings, Retirement Spending, Roth IRA, Traditional IRA.
add a comment

The Center for American Progress has just released a study that can hardly be deemed as “progress”.

About 31% of Americans have nothing saved for retirement and also lack a defined benefit plan, such as a traditional pension. Among the age group closest to retirement (55-64 year olds), about one fifth (19%) reported no savings at all.

Of the 55-64 year olds who have saved something for retirement, the median retirement account balance was only $14,500. If you strip out the households who have saved nothing, the median retirement account balance of this age group rises only to $104,000.

While $104,000 is not an insignificant sum, it’s not going to support the life style that most of these households expect. Using the withdrawal rule of thumb which allows annual distributions of about 4%, we’re still only projecting about $5,000 per year. And income taxes will eat up a portion of this as well!!

Looks like a lot of people are going to be working well into their 70’s—or depending on the government. Neither of these outcomes look like progress to me.