Effective Actions in an Uncertain World: Part Five of Our Special Five Part Series
There are a number of factors that we need to predict in order to come up with saving and investing strategies for retirement. The values that we assign to these factors will have a huge impact on whether or not we will be able to meet our goals. First, there is the expected return that investors will make on their retirement savings. Second, there is the common estimate that people will need about 85% of their pre-retirement income to support them once they stop working. Finally, there is the potential impact of behavior on savings rates, investing, and spending. Continue reading →
Last week, we posted an article from Michael Lewitt, Vice President and Portfolio Manager at Cumberland Advisors called “The Pension Dilemma” that talked about how America’s largest pension fund, the California Public Employees Retirement Systems (CALPERS) reported an abysmal 1% return on its investments for the past year (ending June 30, 2012).
CALPERS has been in the news lately for several reasons:
The California state pension is a bellwether for other state-run retirement systems across the U.S. that are also forced to face one of the most challenging periods in history: low interest rates, volatile markets and slow economic growth.
CALPERS missed their own internal targets by more than 7.2% and then blamed their underperformance partly on picks made by individual investment managers (which CALPERS declined to name).
The CALPERS underperformance has shaken the confidence that many investors have in their own pension funds.
What Does This Means for the Average Investor?
Retirement planning is a passion for us here at the Portfolioist. Yes, go ahead and laugh at the use of the word “passion” if you must—but that’s how we truly feel—especially in these turbulent economic times. Continue reading →
Well-known financial columnist Robert Powell has a recent article in MarketWatch titled, “Retirement in America is ‘Endangered.” The motivation for this piece, he writes, is that retirement preparedness is a crucially important topic that was missed in the recent State of The Union address by President Obama.
Powell goes on to list the key problems with the current ‘state of retirement’ in the United States:
1) Under-funding of Social Security 2) Low savings rates 3) Poor market returns over recent years 4) Inadequate levels of financial literacy 5) Half of American workers have no employer-sponsored retirement plan
All of these issues are critically important. In just one or two generations, we have shifted from a society in which employers provided lifetime retirement income via traditional pension plans, to one in which individuals now must manage every aspect of their financial futures, including how much to save and how to invest their retirement savings. The good news is that each of these five issues can be solved if we have the will to solve them. Continue reading →
The study starts with an assumed target “replacement rate” that represents the fraction of pre-retirement income that an individual will be likely to need to maintain their lifestyle in retirement. A long-term project at Georgia State to estimate required replacement rates provides the numbers that serve as the foundation of the CRR paper. The Georgia State research suggests Continue reading →
The last several years have been hard for many people. There are unique challenges for different segments of the population. In this article, I am going to focus on the issues specific to people who are approaching retirement and will soon be living on investment income and other forms of non-wage income such as pensions, social security, etc.
There is no question that the promises made by state government pension plans are a major challenge to the future financial health of U.S. states. Many states pensions are already dramatically under-funded. A recent study suggests that the aggregate under-funding in state budgets, including pensions, is over $4 trillion. A 2010 analysis, the definitive research to date, finds that the unfunded state pension promises amount to $2.5 trillion.
Remember those kids from grammar school who were always top of the math class? They grew up to become actuaries. According to the web site of the American Academy of Actuaries, an actuary is an expert in “putting a price tag on risk.” They use math, statistics, economics and finance to predict the likelihood of future events and then try to come up with solutions.
They also appear to be the only people in the world who really understand pension plans.
Risks in Retirement
The Society of Actuaries (SOA) recently did an in-depth analysis of its 2009 study of the key risks in retirement. Since these guys are all about risk, it seems worth paying a little attention to the issues they highlight. Continue reading →