The Independent Investor: Are Americans Saving Enough for Retirement?
If you simply read the headlines, you would assume that over half of Americans aged 55 and over, have no savings as they approach retirement. That's a dramatic statement, but is it true?
Most statisticians derive that data by adding up those who have an IRA or similar tax-deferred savings account such as a 401(k). The latest data compiled by the Federal Reserve Bank's Survey of Consumer Finance indicated that 53 percent of households, age 55 to 64, had some savings in those tax-deferred accounts. So, yes, by that standard, almost half of all Americans fail the savings test.
But what about all the people who work for the government? There are 22 million workers toiling away within the ranks of federal, state and local government, and all of them have traditional defined benefit pensions.
That's 14 percent of the labor force! Those pensions have amassed
anywhere from hundred thousand (maybe less) to $1 million or more.
While corporate pension funds have been seen a multi-decade decline among workers, there are around 13 percent of private sector workers who are participating in defined benefit pension plans. In fact, roughly 40 percent of all workers between 55 and 64 years of age are expected to receive a traditional pension benefit in retirement.
When you add all those segments together, the outcome is entirely different. Almost 75 percent of workers in the U.S. either have a tax deferred savings account or a pension account. That still leaves a goodly portion of Americans coming up short. However, all is not as bleak as it looks for those people.
Let's talk about the low-wage earners making around $10,000 per year over their lifetime. When they retire, they will receive Social Security benefits. Those benefits could equal as much as 84 percent of their yearly salary. Almost 19 percent of Americans fit within that category, according to the Social Security Administration,
Can some one in retirement live on $10,000 a year? Not likely. Remember that Social Security was never intended to be a retirement account. It was simply unemployment insurance that could help a worker feed his family until he found a new job during the Great Depression. Today, given that we now have unemployment insurance in addition to Social Security, the population has come to think of it as a retirement benefit.
As you can see, most Americans have and are saving for their retirement. That's not the question. How much you are saving is the critical variable in this equation. How much should I save, you might ask, to see me through my golden years? My answer is, whatever you might think, most of us are not saving enough.
The way to begin answering this question accurately is to find out how much you and your family are spending per year. For every household who can answer that, I see at least 20 families who have no idea what their yearly expenses are. It should be obvious that without knowing your expenses, there is no way you can know how much you might need once you retire.
My advice is to find out now, while you are young or at least middle-aged, and set up an appointment with a Certified Financial Planner. Few people have the ability and financial education to create a lifetime play of savings all alone. Make sure that the CFP is a fiduciary and spend the money.
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@the Market: Stocks Look Ready to Reach New Highs
The S&P 500 Index had its best week in two months. All the averages made good gains and investor sentiment numbers are improving. We could see a return to the January highs before summer unless something comes out of left field.
Left field has become a familiar place for the markets under the present political regime, but not all the news has been negative on that front. Take the release of three American prisoners by North Korea as an example. Kudos to the president for that one. Then there is the Iran nuclear deal — another campaign promise kept. Why are these important?
An American politician willing to keep his campaign promises is a historical event, in my opinion. The June 12 meeting between Kim Jong Un and President Trump is another fabulous breakthrough. Those remarkable actions can and have impacted investor sentiment in ways that have lifted hopes and with them the markets.
The jury on bowing out of the Iranian nuclear deal is still out. Readers may recall that back in 2015, Iran agreed to curb its nuclear development efforts in exchange for the lifting of severe economic sanctions. The U.S., U.K., Russia, China, Germany and France all signed the agreement.
At the time, many Americans felt it was the best deal that could be had. Suspicions remained, however, that Iran, despite the treaty and its denial that it ever had a nuclear weapons program, would and could continue to develop that effort secretly. Just days before the president's decision to back out of the deal, Israel released a mountain of documents detailing what they believe was Iran's clandestine, decade-long nuclear weapon program.
Whether it was the Israeli documents that decided the president, or something else, the deed was done. Why is this important to investors? Oil.
Iran is the world's fifth-largest oil producer, pumping 1.5 million barrels/day in an already tight energy market. Taking that supply off the market via new sanctions provides additional fuel stoking the already-accelerating price of oil. For my view of oil prices and where they are going, please read my column "What's up with oil?"
However, it is not always what it seems in geopolitics. The other signatory nations are steadfastly opposed to America's unilateral departure from the treaty. As such, it is a distinct possibility that the remaining treaty nations will simply ignore our departure, disregard the sanctions, or, in some cases, give lip service to sanctions but direct their companies to simply carry on as usual. If so, that sanctioned oil will be re-routed to China, India, or parts of Europe, leaving the U.S. decision ineffectual and the Iranians free to continue along their nuclear path.
As for the gains in the stock market this week, credit goes to the president's actions and a stellar earnings season. The average earnings gain was 25 percent (18 percent minus the tax savings). Thursday's consumer inflation data also helped. The Consumer Price Index (CPI) came in lower than expected, leaving traders to believe that inflation is still reasonably under control. In which case, the Federal Reserve Bank need not raise rates any higher than the market expects this year.
As for all this worry about "peak earnings," the historical data somewhat contradicts those concerns. Seventy percent of the time since WW II after peak earnings were reported on the S&P 500 Index, the markets were higher nine months later. I hope that helps. I'm thinking we go higher, after some profit-taking in the coming week. The S&P 500 Index should hit 2,800 soon. From there, it is only a hop, skip and jump to record highs of 2,872 made back on Jan. 26.
I'm not quite sure we will get there this month and there will be pullbacks galore, but we are heading in the right direction.
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The Independent Investor: What's Up With Oil?
Two years ago, the experts were telling us that the price of oil would continue to fall. Twelve-dollar oil was a real possibility. The end of OPEC was nigh as well as their ability to influence geopolitics. It appears those predictions were premature.
The price of oil has more than doubled over that time, from roughly $30 a barrel in the spring of 2016 to over $71 a barrel today for West Texas Intermediate crude. Those same experts now expect the price could gain further, but there is no agreement on how much higher it can go.
The "swing" factor in that equation is firmly in the hands of American shale producers. They are the culprit of the past three-year decline in oil prices and will likely be the key determinant of future prices in the short-term.
In November, U.S. crude production exceeded 10 million barrels a day. We haven't seen that since I came home from Vietnam back in 1970. There is a real possibility that America could become the world's largest oil producer by the end of this year. That would put us ahead of both Saudi Arabia and Russia. What a change that has been since the days of the OPEC-instigated oil embargos, long lines at U.S. gas stations, and rationing!
The impetus for this astounding change in our fortunes has been the developing technology, which was largely government-funded, that has allowed U.S. entrepreneurs to explore and develop enormous oil and natural gas-rich shale deposits throughout the country. But that's only the beginning of this saga.
These producers, unlike traditional oil companies, can turn their energy spigot off and on at the drop of a hat. Typically, the oil majors such as Exxon or Saudi Arabia's Aramco, require five to 10 years to develop conventional oil reserves. Once in place the oil flows and it is difficult to change course quickly, whereas these unconventional players have developed their drilling and fracturing techniques to the point that they can respond to price changes within a few months.
At the same time, these modern-day wildcatters have cut their cost of production dramatically. They now represent half of all U.S. production and are increasingly profitable. For the first time, many of them will be able to fund future drilling and exploration through their own cash flow. The Permian Basin in Texas and New Mexico is the favorite target of future expansion.
However, that is not the whole story. It appears that even with a dramatic increase in shale oil production, the demand for oil in the short-term will outstrip supply. The world's economies have been growing and organizations such as the IMF are forecasting further growth in the years to come.
Oil and its derivatives, you see, are still needed to fuel this growth, despite advances in alternative energy. Every year, roughly four million barrels are consumed by the world's furnaces and engines. Oil analysts expect an additional one million barrels per annum will be necessary to satisfy future world demand.
That means energy producers will need to replace about 40 percent of this year's oil production over the next decade or so. The most logical and cost-effective approach to this challenge would be to exploit global reserves of shale oil. These deposits are abundant in just about every corner of the world. The problem will be in extracting it. Other countries are far behind our own energy producers. They will need to develop their shale ecosystem and supply chains from scratch.
Since most of these nations are either traditional oil producers/exporters or importers of oil, they will need to spend billions of dollars in new investments to gather, treat, transport and store these new shale oil deposits. As for their existing oil fields, oil majors will require a great deal of time and effort, as well as investment in new technologies, to compete with low-cost shale producers.
While longer-term demand for oil will likely remain robust, in the short-term, we can expect to see continued price volatility in the markets. That's because shale producers will be quick to jump-start new production as prices spike higher, and turn off the spigot when prices fall. It is no longer an OPEC-controlled market where Middle Eastern dictators and kings set prices and the world adjusts. Today's wild and wooly free market will require a strong stomach and an even stronger capacity to absorb sudden and sharp changes in price.
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@theMarket: China Worries Dominate Markets
You would think an unemployment rate that hit 3.9 percent in April would have cheered the market. It was, after all, the lowest such rate in 18 years. But no, all eyes were focused on the first round of China/U.S. trade talks, which conclude today.
The American team includes Commerce Secretary Wilbur Ross and two, hardline China hawks: Robert Lighthizer, our trade rep, and the administration's trade and manufacturing adviser, Peter Navarro. U.S. Treasury Secretary Steven Mnuchin heads the team that is trying, according to the President 's tweet, "trying to negotiate a level playing field."
What we would like to see from the Chinese is a commitment to increase their U.S. imports by as much as $200 billion by 2020. That's in addition to an agreement that would finally protect our intellectual property rights, while allowing American companies greater access to their markets.
As for China, the fact that Chinese Vice Premier Liu He, is heading the Chinese team indicates that the Chinese are more than willing to address the issues. Over the last two days, the Chinese media has remained cautious in reporting the talks while international trade experts warn that there will be no "grand" bargain" struck this time around.
The Chinese, however, are entering the talks softly, while following our own President Teddy Roosevelt's admonition to carry a big stick. That stick is soybeans. Over $14 billion were exported to China last year, but over the last month China has suddenly canceled several shipments of U.S. soybeans — about 133,700 metric tons. They have, instead, turned to Brazil to fill their demand and that country is happy to oblige.
The Chinese also slapped anti-dumping tariffs on American sorghum, used as animal feed and in making whiskey. Although that market only amounts to a little over $1.1 billion in exports, the action was big enough to cause Archer-Daniels Midland, a big agricultural processor, to announce a $30 million hit to its business.
Farm-belt politicians, who recognize that the soybean states had delivered a double-digit victory to the president, are already demanding relief for their constituents. As in all tariff actions, those who are not economically impacted by changes in tariffs support our new "get tough" trade policy — until those policies impact them personally.
Predictably, farmers are already grumbling that there are better ways of getting a level playing field without upsetting their apple (or soybean) cart. It also happens to be planting season. Farmers have no idea how much to plant, given the trade talks. The concerns for what this might mean for them personally is growing rapidly.
My own two cents is that the U.S. and China will come to an agreement of sorts. Our negotiators know that $200 billion in additional imports is a "big ask" of the Chinese. They simply don't need our imports, outside of those in sophisticated technology and in defense. There is no way we are going to export any kind of armaments, and the administration has already cracked down on technology transfers, so what's left?
Autos are a big-ticket item, and the Chinese have already promised to open their market to more foreign-made imports. There is also liquefied natural gas (LNG) which we produce in abundance. That could work if they have the necessary ports to accept delivery of that volatile energy product.
However, there is enough on-going uncertainty over the trade talks to have driven the stock market down to its 200-day moving average for the fourth time. Today's unemployment number barely made a dent in investors' consciousness. The last time unemployment was below 4 percent for any length of time was in the 1960s (when I was in high school). I think it is a big deal and one of the reasons I want you to remain fully invested.
Since there is absolutely no way to handicap the string of political events — Stormy Daniels, Mueller, Iran, Syria, etc. — we simply need to hold-on, and let the market barrel through this period of consolidation.
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The Independent Investor: Financial Scams Targeted at Elderly Are Epidemic
As Baby Boomers age, the volume of reported financial scams directed against them continues to escalate. By some estimates, more than $37 billion a year is now being stolen from America's elderly. And those are only the reported cases.
It is estimated that 5 million Americans are bilked by con artists every year. Some financial firms believe the total can exceed $37.5 billion annually. The Office of Children and Family Services in New York begs to disagree. They say that in their state alone $1.5 billion a year is stolen. And for every case that is reported, 44 are not.
Aside from the impact of losing their entire savings, elder fraud victims are dying at triple the death rate of other elderly adults. That is understandable when you realize the physical and emotional devastation that results from this type of fraud. Rarely, if ever, do the victims get their money back. The stress and time required to pursue the criminals increases the impact on senior victims' health and well-being.
"I'm a trusting person," says Dorothy, my 89-year-old, widowed, mother-in-law, who was a victim of a computer scam. Fortunately, she did get her money back, thanks to her adult childrens' quick response to the incident. Asked why she would give her credit card information to a total stranger, she shrugged and said, "I never expected that people would do things like that."
Last month, the Justice Department announced the largest nationwide investigation of elder fraud cases. This incident victimized over one million people with estimated losses of over $500 million. In this case, the perpetrators used mass mailings and telemarketing to ensnare innocent and trusting victims such as Dorothy.
What makes matters worse is Americans are living longer and many of them will suffer some form of dementia. Roughly half the population over 89, show some signs of impaired memory or other cognitive problems. That makes the scam artist's job even easier. And the more money you have, the higher the chance that you will be targeted. These criminals do their research carefully, identifying just the right set of circumstances that would make their victims an easy mark.
At my firm, which is small compared to the billions many of our competitors manage, I have seen several attempts of financial fraud among our clients. Fortunately, because of our size, we have been able to identify and thwart these efforts. The facts are that advisors like ours may be your best protection against these scammers. You see, many states now mandate that resident advisors notify authorities if they suspect that one of their clients may be the victim of financial fraud. Here in Massachusetts, there is no such rule, but that doesn't matter to us. We believe it is our duty and obligation as fiduciaries to report any such actions.
It has happened to me personally. I detected monthly withdrawals from an elderly client's portfolio that was above and beyond her normal monthly withdrawals. After questioning her, I contacted elder services in the area, who in turn brought in the police. It turned out that her "trusted" personal assistant, who had access to her account, her credit cards, and everything else financial, had a gambling problem. She was financing her addiction by stealing from her client's checking account. Even though she was caught red-handed, she eluded jail time because she argued that she had "permission" to take what she needed from the account.
Trusting your advisor in this day and age, where one in every 13 financial advisors has been disciplined for some sort of misconduct, may seem like an oxymoron. It boils down to being sure that your advisor is, first and foremost, a fiduciary, who you trust and can supply the background and credentials to warrant that trust. Second, that he or she has a limited number of clients. The more clients, the more difficult it is to be able to spot and report instances of financial fraud.
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