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August 31, 2015

Posted by forwardfinancialplanning1 in Retirement Savings.
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There’s a biblical question, “Am I my brother’s keeper?”   And  while the spiritual learning intended from this question is aimed at pointing out the need to help our fellow man, I’m not sure that we’re supposed to help those that won’t help themselves.  Some discouraging statistics from Nielson Global Consumer Insights: (1) One out of four families making more than $150k per year lives “paycheck-to-paycheck”.  (2) The corresponding ratio is 1 out of 3 for annual incomes between $50K and $100k.  (3) The ratio is 1 out of 2 for incomes below $50k.

And we don’t stack up well versus the rest of the world as 22% of American households have no spare cash.  This percentage is 21% in the Middle East, 20% in Europe, 15% in Latin America and 8% in Asia Pacific.  There’s a truism that “nobody will care more about your money than you will.”  But, it appears that many Americans think somebody else is going to handle the job for them……………..

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There’s no such thing as a “silver bullet” for retirement August 11, 2015

Posted by forwardfinancialplanning1 in Annuities, Retirement Savings.
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This country has a looming retirement crisis which will become more evident as more baby boomers (and eventually Gen X and Gen Y’ers) retire.  People are living much longer than previous generations yet many have nowhere near enough accumulated wealth to carry them through a potentially lengthy retirement.

Our so-called “leaders” in Washington talk about this issue frequently and like most politicians, they love to propose “painless” solutions to the problem.  Many, including our current President have suggested that more widespread availability of annuities would solve the problem.  And not surprisingly, purveyors of these products have chimed in as well.  A recent quote from Cathy Weatherford, President of the Insured Retirement Institute (the annuity provider’s trade group) claimed that a current Department of Labor proposal to amend the definition of “fiduciary” (as it relates to financial advisors) would, “limit access to annuity products at a time when we should be encouraging and promoting lifetime income strategies as a source of retirement income that cannot be outlived.”

Well, it is very obvious that “having a source of lifetime income that can’t be outlived” is a wonderful thing.  However, the proponents of these clean and simple solutions never tell you the whole story.  Purchasing an annuity that will cover the spending requirements of the average American household will require a great deal of money—far more than has been accumulated by the vast majority of American workers.  The average 401k balance is well under $50,000 and even the segment aged 50-60 averages less than $200,000.  A quick check at http://www.immediateannuities.com illustrates that $200,000 utilized by a 65 year old female to purchase an immediate annuity generates the princely sum of $1088 each month.  And, of course, using the entire $200,000 for the annuity purchase would leave the average 401k (aged 50-60) holder with nothing else in reserve and many years to live.

So, take a jaundiced view of these proposed “silver bullet” solutions to the impending national retirement challenge.  We would all be better served if we heard the truth.  Fidelity Investments Senior VP, Doug Fisher told it like it really is when he said, “Annuities are meaningless if savings are ‘practically zero””.

Why won’t people ask for help?? June 23, 2015

Posted by forwardfinancialplanning1 in Financial Planning.
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As a financial planner, it never ceases to amaze me when I consider the number of people who are approaching retirement without having ever done any analysis.  Many Americans are simply floating along day-to-day and have never taken the time to consider two fundamental questions regarding their preparedness for retirement.  (1)  Do I have enough financial resources to retire? and (2)  What will I do with my time in retirement?

A recent study puts this into perspective for the academic niche that TIAA CREF serves.  The TIAA CREF Faculty Career and Retirement Survey grouped respondents (all were age 50 or older) into three categories: (1) “Traditional retirees”—those planning to retire at normal retirement age (comprising 35% of respondents).  (2) “Reluctantly reluctants”–those who want to retire at normal ages, but expect to be working longer (16% of respondents) and (3) “Reluctant by choice”–those who simply expect to work past normal retirement ages (49%)

One of TIAA-CREF’s most perplexing findings is that of the “Reluctantly reluctants”, 50-67% had never done any analysis.to determine if they were financially capable of retiring.  Likewise, of the “Reluctant by choice” group, 60-90% had never engaged in any serious consideration regarding how they would use their time in retirement.

We need to  also keep in mind that these survey respondents are some of the most highly educated people in the country!  Yet, so many don’t t attempt to answer those two fundamental questions or seek help in finding the answers.  One can’t help but be reminded of the famous Yogi Berra quote,  “If you don’t know where you are going, you might wind up somewhere else………..”

Government ineptitude strikes again May 29, 2015

Posted by forwardfinancialplanning1 in Retirement Spending.
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All of us rely on government statistics to some degree as we make decisions in life.  Of course, central to that decision making process is the belief that the data spewing out of Washington is accurate.  At the risk of being labeled as “cynical”, I’ve always wondered how accurate these number really are.

A recent analysis by the non-profit Employee Benefit Research Institute (EBRI) highlights the validity of my concerns.  We often read about doomsday predictions based on aging baby boomers’ collective lack of retirement preparedness.  Many of these forecasts lament that while a large portion of today’s elderly population has exhausted their retirement resources (and thus, rely solely on Social Security), it’s going to be even worse for the baby boomers.  Yet, somehow, we Americans seem to muddle through and we don’t hear stories of widespread deprivation of the elderly.  I expect that the baby boomers will do likewise.

The EBRI estimates that the US Census Bureau’s “Current Population Survey” (CPS)  has been underestimating the income of Americans aged 65 and older by $133 billion.  Phrased another way, the CPS was under-reporting IRA and 401k income by more than 250%!!  The Annual Social and Economic Supplement to the CPS is a widely cited source of income data for those 65 and older.  The survey questions misclassified income because they had not been adjusted to reflect the change in the nature of private sector retirement plans from primarily defined benefit plans to defined contribution plans.

So, here’s a heads-up to the government workers who still overwhelmingly have generous defined benefit retirement plans (which are bankrupting many states, and eventually the federal government).  Wake up!!  The people who pay your salaries and your pension benefits don’t have the same sweet deal that you do.

What, me worry….?? April 22, 2015

Posted by forwardfinancialplanning1 in Retirement Savings.
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Those words were memorialized by Mad Magazine in my youth, but it’s a very good synopsis of the approach many Americans are taking to preparing for their retirement. The non-profit Employee Benefits Research Institute (EBRI) conducts an annual survey of Americans’ retirement confidence.  The 25th annual Retirement Confidence Survey found that 37% of workers are “very confident” of their ability to achieve a comfortable retirement and 36% are “somewhat confident”.  The 37% reading for “very confident” represented a doubling of the percentage reporting similar confidence in 2013.  Certainly, the financial markets’ performance during this time period made a positive contribution to this increase

But are these increases warranted?  Not so, according to Jack Vanderhei, Research Director for the EBRI who stated, “There’s probably a lot of false optimism, there.”  And when you look at the hard data supporting Jack’s belief, it’s pretty easy to agree with him.

For instance, 57% of workers report that the total value of their household savings and investments (not counting home equity and any defined benefit pension entitlement) was less than $25,000.  Of that group, 28% have saved less than $1,000.  Older workers fare somewhat better with 23% aged 45 and older reporting accumulated retirement assets of $250,000 or more.  Yet, for those holding $250-300k as available for retirement, the traditional 4% withdrawal rule of thumb suggests that they will be generating less than $1,000 per month on a sustainable basis.

When one also considers increasing medical costs, the financial predicament of Medicare and long term care costs (the majority of which are not covered by Medicare), it’s hard to be as optimistic as the “confident” respondents.  Vanderhei did not suggest any explanations, but my professional opinion is that most people never take the time to forecast “their number” needed for a successful retirement.  In our planning business, most people tell me that they simply “guessed” at a figure, or never bothered to try to make such an estimate.  And as the famed philosopher, Yogi Berra once said, “If you don’t know where you’re going, you might wind up somewhere else.”

Tax Refunds April 20, 2015

Posted by forwardfinancialplanning1 in Retirement Savings.
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The 22nd quarterly Allstate/National Journal Heartland Monitor poll of 1000 adults recently uncovered some data that tells us a great deal about human behavior and one’s attitude about “financial windfalls”.   Respondents who said they have poor credit scores are more likely than those with excellent credit scores (46% to 33%) to agree that a tax refund should be used for a “fun purchase”. Likewise, this same group would rather buy something for themselves or a loved one than pay off debt (51% vs 20%).  Finally, 39% of the low credit score group consider a tax refund check as a bonus to be used to buy something for themselves as opposed to paying off debt.

One has to wonder if it is this same approach to personal finance that has led to four in ten baby boomers reportedly not having saved anything for retirement?

Averages versus medians March 16, 2015

Posted by forwardfinancialplanning1 in 401k plans, Retirement Savings.
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It’s been said that “the data will say anything if you torture it enough”. Unfortunately, there’s no way to torture this distressing information on America’s collective preparedness for retirement. We often see reports of average 401k balances approaching six figures. While these amounts will only sustain about $4,000 annually to supplement Social Security benefits, the picture is far worse when median balances are considered.

According to the National Institute of Retirement Security, the 2014 median retirement account balance was only $2,500. This figure is so low because roughly a third of households have saved nothing for retirement. When all of those $0’s are included in the calculation of a median, it quickly becomes obvious that we have a major national calamity brewing.

The big question is: “Who’s going to support these millions of people when they can no longer support themselves???”

It’s no better up north March 2, 2015

Posted by forwardfinancialplanning1 in Investing-General, Retirement Savings.
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Frequent readers have seen us cite statistics and surveys depicting how much our American populace struggles with finances and financial literacy. A recent study of Canadians completed by BMO Global Asset Management shows our friends to the north have similar challenges.

They noted that 56% of Canadian respondents needed assistance in deciding which investments best suited their needs. A full 53% wanted help in understanding how retirement portfolios will react in certain markets, while the same percentage wanted help in making portfolio adjustments because of market conditions. Further, 51% wanted assistance in ensuring that their portfolios were diversified while a similar number stated that they needed help in determining how much they’ll need to retire.

Different country—same problems.

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

Posted by forwardfinancialplanning1 in Retirement Savings.
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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…………..