The Height of Absurdity ... Who Needs Things Like the Keystone Pipeline's Approval and the Middle Class High Paying Jobs It will Bring to America? .... Government Has an "Easier" and "Quicker" Way to Create More Jobs and Middle Class Taxpayers ... Union Dues, Income Taxes and Football Playing Employees

By now you've heard about the NLRB ruling that college athletes are employees and entitled to union representation should they so elect to be so represented.


Well, that means paying union dues, but it also means paying income taxes. At least that's the logical outcome of such a silly and ridiculous change in the status of athletes from students to employees.


NU ruling could lead to taxes on scholarships says this:


"Northwestern University football players could one day have to pay federal and state taxes on athletic scholarships following a ruling that the student-athletes are employees of the school, but experts say it is too soon to make them worry.


In a decision issued Wednesday, Peter Sung Ohr, the regional director of the National Labor Relations Board, wrote that players' scholarships are "compensation for the athletic services they perform for the employer throughout the calendar year."


NU athletes have been cleared to proceed in the union organizing process because of the historic vote that is likely to spur similar moves at other college campuses around the country. But the school has already said it plans to appeal the ruling, and it has led to speculation about whether the football players will eventually have to pay taxes just as professors and other employees do.


"I think it’s unlikely anything would happen immediately," said Amy C. McCormick, a professor emeritus at Michigan State University College of Law who specializes in tax law.


McCormick said that under the Internal Revenue Service code, scholarships are exempt from being taxed unless they are compensation for services required as condition for receiving the aid. However, she said, the IRS has not considered athletic scholarships as income.


In order to do so, the IRS, the Department of Treasury or Congress would have to change their position and acknowledge that athletic scholarships are compensation in return for services, McCormick said.


Northwestern, which opposes the idea of unionized athletes, said Wednesday it would appeal the NLRB decision to its Washington, D.C. headquarters. The union question eventually could be resolved in the federal court system.


Athletic scholarships at Northwestern are worth as much as $76,000 per academic year."


Summing Up


Now that's the way to expand the middle class taxpayer base and get more revenues for both labor unions and the government.


No word yet on how the women's basketball or volleyball teams will like the idea.


There's also no word yet on whether the bench warmers will receive less money and therefore incur fewer taxes on income received than will the players that make All-American or even all conference.


Politics sucks! And this absurdity really makes that abundantly clear.


By the way, have you heard about the crooked mayor/politician from Charlotte or the gun bashing/illegal gun running bribe taking politician in California?


And several other political parasites in the news just this week?


Thanks. Bob.

Individual Choice and the Government

Let's get down to basics and contrast the different way our economy works when control is in the hands of either (1) government sponsored producers or (2) individual consumers.


Here are a few examples -----

In education it's the government "establishment" vs. individuals and the right to have school vouchers.


In health care it's ObamaCare vs. individual choice.


In communications it's the U.S. Postal Service and all that entails with respect to costs vs. private sector based risk taking entrepreneurialism (FedEx, UPS and the internet based e-mail and such).


And for retirement funding, it's largely an issue of taxpayer guaranteed and unaffordable public sector pension benefits vs. private sector individual 401(k)s.


In brief, more and more our economy is now centered around government mandates, inefficiency and bureaucratic control instead of market based individual choice, productivity and risk taking.


As a result, we get the lack of customer focused service, low cost and the high quality that market economies provide to consumers.


Notable & Quotable captures the essence of how a market economy works best in contrasting the difference between producer control (government) and consumer control (individuals) succinctly and accurately:


"Ludwig von Mises, "Nation, State, and Economy" (1919):

One of the great ideas of [classical] liberalism is that it lets the consumer interest alone count and disregards the producer interest. No production is worth maintaining if it is not suited to bring about the cheapest and best supply. No producer is recognized as having a right to oppose any change in the conditions of production because it runs counter to his interest as a producer. The highest goal of all economic activity is the achievement of the best and most abundant satisfaction of wants at the smallest cost. . . .

Preferring the producer interest over the consumer interest, which is characteristic of antiliberalism, means nothing other than striving artificially to maintain conditions of production that have been rendered inefficient by continuing progress. Such a system may seem discussible when the special interests of small groups are protected against the great mass of others, since the privileged party then gains more from his privilege as a producer than he loses on the other hand as a consumer; it becomes absurd when it is raised to a general principle, since then every individual loses infinitely more as a consumer than he may be able to gain as a producer. The victory of the producer interest over the consumer interest means turning away from rational economic organization and impeding all economic progress."

Summing Up

Now what's so hard to understand about that?

It's pretty simple.

And its effects are quite profound.

Just look at the Russians.

Thanks. Bob.

It's Tough Being Young These Days

My peer group came of age in the 1960's. It was a time of plenty in America, and we were taught that the future was ours.


Today times are different for young people coming of age. It's definitely a different and much tougher time for the young.


How tough? Retirement: 36% have saved $1,000 or less has this to say about that:


"The widely watched annual Retirement Confidence Survey was released yesterday, and one particularly confidence-eroding number has been capturing a lot of attention. According to the Employee Benefits Research Institute (EBRI), which conducts the survey, 36% of current workers say they’ve saved $1,000 or less for retirement. But as grim as that number is, it also merits some broader context. A deeper dive into the numbers suggests that it tells a story about the struggles of the young and underpaid, rather than the irresponsible savings habits of the middle-aged.

The first big issue to consider is the plight of the under-35 workforce. The slow economy has been particularly tough on younger workers, thanks to the lethal combination of high unemployment and soaring student debt. One piece of data in the EBRI survey shows the impact of this trend particularly dramatically: In 2004, 63% of workers ages 25 to 34 said they started saving for retirement; by this year, that figure had dropped to 48%.


It’s not coincidental, then, that about half of people in this age group have less than $1,000 in savings, according to this supplemental EBRI fact sheet. That number steadily declines as survey respondents age (though of course it’s undesirably high for any age group). Among savers over 55, only 24% have saved less than $1,000; in contrast, 42% of workers over 55 say they’ve saved at least $100,000, and 23% have saved at least $250,000.


The second issue has to do with retirement plan access: As we’ve often discussed on Encore, people who have access to a 401(k) or similar plan tend to use it; those who don’t are likely to save relatively little. And having a retirement plan is often a proxy for economic stability—if you’ve got a 401(k), chances are that you have full-time rather than part-time work, and that you’re at a stable larger firm rather than a riskier small business. And sure enough: Among people with no workplace plan, a whopping 73% had saved $1,000 or less, according to EBRI; among those who had one, the figure was only 11%.


Another issue: Savings aren’t a retiree’s only asset. EBRI’s survey doesn’t track the value of Social Security, home equity or defined-benefit pensions, but plenty of people still rely heavily on those sources to fund retirement. About 30% of retirees say they have less than $1,000 in savings. But the poverty rate among the elderly is only about 9%: other income sources are clearly sustaining some retirees. . . .


Last but not least: Do you have to be a bleeding heart to believe that it’s hard to save money when you aren’t making money? Among survey respondents who earned less than $35,000 a year, EBRI says, 68% had saved less than $1,000. It’s tough, but not impossible, to sock a lot of money away on a salary that amounts to less than $700 a week before taxes. But if you’re a wage earner, there’s one retirement system that you’re paying into with every paycheck: That’d be Social Security."


Summing Up

While many oldsters have saved too little, the problem is especially acute for young people.

Student debt, a lack of good and well paying jobs, including a lack of full time employment with an accompanying retirement plan, and a clear switch toward 401(k) plans from defined benefit pension plans over the past few decades, all combine to present a very difficult challenge for our young people.

And the current lousy economy and weak prospects don't provide them with a comforting picture of the future either.

That's my take.

Thanks. Bob.

Memo to Individual Investors ... Warren Buffett Says Own Low Cost Index Funds for the Long Haul

We've advocated the S&P 500 index fund route as the most prosperous and single best investment vehicle for most individual investors.


No less an expert than Warren Buffett agrees with this approach as revealed in Warren Buffett to heirs: put my estate in index funds:


"If you follow the career of billionaire investor Warren Buffett, you likely have kept up on the succession chatter of late.


After all, Buffet is 83 now. Sooner or later, someone will take the reins at his firm, Berkshire Hathaway, and that person will pick up the mantle of his amazing performance over the years.


They will be tough shoes to fill. Buffett racked up nearly a 20% annualized return through 2012 from 1965, turning a foundering textile mill into a holding company for ventures that span the globe and run the gamut from consumer goods and newspapers to industrial giants and railroads.


That compares to a 9.4% return on the Standard & Poor’s 500 — quite a run. And while investors have long made the pilgrimage to Berkshire headquarters in Omaha to hear Buffett and his managers speak, they probably weren't prepared for his latest remarks on investing....                                      


Put your money in index funds and move on, he told them. Seriously, you'll do better. In fact, he said, that's what I plan to do with my own money once I am gone.


Here's the quote, from page 20 of his most recent annual letter to Berkshire shareholders , dated Feb. 28. After all of his Berkshire shares are distributed to charity, take the cash, Buffett says, and just buy index funds:
 
My advice to the trustee couldn't be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S & P 500 index fund. (I suggest Vanguard's.) I believe the trust's long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions or individuals — who employ high-fee managers. . . . 


Again, from the letter: . . . "largely, there's nothing to do. Like crops in the field, a long-term, mostly stock investment cannot help but produce a reasonable return — assuming you don't overthink it and don't spend willy-nilly in a vain attempt to make it grow faster.""


Summing Up


What Buffet says makes perfect sense to me.


But you already knew that.


Invest for the long term the easy way.


And don't pay "experts" for value they don't provide and that you won't receive.


Let more of your money grow over time by not wasting it needlessly and foolishly on the "experts," and don't panic when the fit hits the shan from time to time in the market.


That's my take.


Thanks. Bob.

Social Security Test

Eight simple questions about Social Security should be answered correctly by most people.


Unfortunately, however, only 1 of 20 adults taking the test can do so.


Can you pass a Social Security test? has the questions and correct answers:


"How much do you know about Social Security? If you’re like most Americans, the answer is: not much.

This pessimistic conclusion comes from Financial Engines, a Sunnyvale, Calif. company that manages 401(k) accounts and IRAs on behalf of people who want investment help. When the company administered an eight-question quiz about Social Security to about 1,000 people ages 55 to 70 in October, almost three-quarters got a grade of “C” or lower (meaning they got six answers or fewer correct) and only 5% received perfect scores.


(You can test your knowledge by taking the quiz here.)


The takeaway: “Americans aren’t very well informed about how Social Security works,” says Chris Jones, chief investment officer at Financial Engines. And the stakes are high, since these benefits comprise 90% or more of the retirement income of a quarter of all American couples and half of single individuals. . . .


Picking the right strategy can make a big difference in a retiree’s wealth. For a single individual, a wise choice can inflate lifetime retirement income by as much as $100,000. For couples, an optimal strategy can add $250,000 or more of benefits over a lifetime. Given that the average 401(k) balance for a worker in his or her 60s is only about $125,000, maximizing Social Security is key, notes Jones.


For many people, it pays to defer Social Security. For every year you wait between age 62 (when you first become eligible) and age 70, benefits rise by 6% to 8%. Because Social Security benefits are also adjusted for inflation, delaying “is a screamingly good deal,” says Jones. “The government is giving you a 6% to 8% guaranteed real return” for every year you delay claiming, “which is vastly higher than the return rates we see in the economy today” for investments with a comparable low risk, he says. (For some people, including those who are single and have a short life expectancy, it may not pay to wait.)


While delaying taking benefits until age 70 is optimal, “delaying Social Security for even one or two years can make a big difference in household retirement income, and especially for the surviving spouse,” he says."


Summing Up


I hope you answered each of the eight questions correctly and received 100 on the test.


But even more important, I hope that you will make the effort to become sufficiently knowledgeable and 'financially literate' to save and invest responsibly for your retirement years.


DIY is the absolute best way for each and all of us, but first we need to acquire the requisite knowledge to make good financial decisions on behalf of ourselves and our families.


Thanks. Bob.

Why Low Cost "Unmanaged" Index Funds Are the Winners for Individual Investors and How They Came Into Being

I'm a big proponent of low cost passive S&P 500 index funds for most individual 401(k) plan investors. The reason is simple: Stocks beat inflation over time by about 3+% annually, whereas bonds, real estate and money market funds have a hard time showing any real gains at all.


But stock investors should pay no heed to the "experts" who compete to manage their investments. They charge too much for adding no real value. Besides, their interests are opposed to the best interests of individuals saving and investing for the long term.


And the evidence for DIY passive index fund investing for the long haul is clear and unmistakable.


Consider this from The inspiration for John Bogle's great invention:


"This is the first installment of a series called "Things Written Long Ago That I Wish I Had Read Long Ago."


Let's look at the article "Challenge to Judgment" by Paul A. Samuelson which appeared in The Journal of Portfolio Management in 1974. "Challenge to Judgment" was cited by Vanguard founder John Bogle as the inspiration behind his decision to create the first index fund in 1976.


Paul A. Samuelson was professor of economics at the Massachusetts Institute of Technology and in 1970 he became the first American to win the Nobel Prize in Economic Sciences. He was the author of the best-selling economics textbook of all time — Economics: An Introductory Analysis . He served as an adviser to Presidents Kennedy and Johnson and was a consultant to the U.S. Treasury and the President's Council of Economic Advisers.


The point Samuelson wished to make in the article was written as a debate challenge:                                        
 
"Resolved, that the best money managers cannot be demonstrated to be able to deliver the goods of superior portfolio selection performance. Any jury that reviews the evidence, and there is a great deal of relevant evidence, must at least come out with the Scottish verdict: superior investment performance is unproved."


Under Scottish law, a criminal trial can end with one of three verdicts — conviction, acquittal or not proven. The not proven verdict isn't an acquittal; it is a statement that insufficient evidence has been presented to the court to gain conviction. Hence, the phrase "Scottish verdict" means "unproved.”


Samuelson claimed that insufficient evidence exists to support the assertion that skilled managers can beat the market over the long term. He acknowledged that there may be a small subset of managers possessing what he called "flair" — the ability to repeatedly outperform market averages. But he insisted that if such managers exist, they are remarkably well hidden.


One reason for the relatively poor performance of active managers is that their buying and selling activity produces “deadweight transaction costs” that “suck economic resources out of useful GNP activities.” He maintained that most pension and trust fund managers could better serve their clients by trading less and holding more broadly diversified portfolios.


”But I suppose the fees to be earned by such sensible and prosaic behavior are less than from essaying to give it that old post-college try. What logic can demonstrate is that not everybody, nor even the average person, can do better than the comprehensive market averages. That would contradict the tautology that the whole is the sum of its parts. I would like to believe otherwise. But a respect for evidence compels me to incline toward the hypothesis that most portfolio decision makers should go out of business.”

“At the least, some large foundation should set up an in-house portfolio that tracks the S&P 500 Index — if only for the purpose of setting up a naive model against which their in-house gunslingers can measure their prowess.”

Paul A. Samuelson

He longed for a no-load, no management fee, low transaction, low turnover fund: “ At the least, some large foundation should set up an in-house portfolio that tracks the S&P 500 Index — if only for the purpose of setting up a naive model against which their in-house gunslingers can measure their prowess.”


It seems only logical that hardworking, intelligent money managers should be able to find stocks that will outperform the market? After all, there is always someone who has outperformed the market in the recent past. But he insists that this proves nothing because, “Alas, anecdotes are not science.


In summary he states: “What is interesting is the empirical fact that it is virtually impossible for academic researchers with access to the published records to identify any member of the subset with “flair”. This fact, though not an inevitable law, is a brute fact. The ball, as I have already noted, is in the court of those who doubt the random walk hypothesis. (That stock prices change in a random, unpredictable manner in response to new information.) They can dispose of the uncomfortable brute fact in the only way that any fact is disposed of — by producing brute evidence to the contrary.”


Forty years later, we're still waiting for some brute evidence to the contrary. The evidence continues to validate Samuelson's position in "Challenge to Judgment.” Passive, index investors are grateful that John Bogle accepted Samuelson's challenge. Bogle started an investing revolution which today offers individual investors the opportunity to own low-cost, tax efficient, diversified index funds for almost every imaginable asset class.




After reading the prospectus of the Vanguard 500 Index Fund, Samuelson wrote, " sooner than I dared expect, my explicit prayer has been answered ." Speaking before an audience of investment professionals in Boston in 2005, Samuelson declared, “I rank this Bogle invention along with the invention of the wheel ...."                                        





Summing Up


That's the history and rationale underlying index investing, and it's absolutely the proper thing to do for most individuals.


And it has been true for a very long time.


When investing, the 'deadweight transaction costs' charged by the "experts" and brokers are avoidable and should be avoided by individual investors.


These non-value added deadweight transaction costs over time merely serve to enrich the 'expert' while dramatically reducing, if not eliminating, the real inflation adjusted investment returns which would otherwise accrue to the benefit of the 'amateur' individual saver and investor.


Admittedly, I'm an amateur and a happy one at that.


Thanks. Bob.

An Energy War with Russia that WE Can and Should Win .... Use Your Phone and Pen, Mr. President

John Boehner hits the nail on the head with an editorial today in the Wall Street Journal.


Since I agree with what it says completely, here's what it says in its entirety:

Counter Putin by Liberating U.S. Natural Gas

The de facto ban on exports should have been stopped long ago. Now world events demand it.

 By        

John Boehner (U.S. speaker of the House of Representatives) 

                       

  

"Russia has been playing a much more intricate game than the United States in recent years. The resulting imbalance has created a growing threat to global stability, as evidenced last week by Vladimir Putin's invasion of neighboring Ukraine. The ability to turn the tables and put the Russian leader in check lies right beneath our feet, in the form of vast supplies of natural energy.

Under Mr. Putin, Russia has expanded its military and tightened its grip on its neighbors by aggressively making the most of its vast resources, exporting oil, coal and natural gas in massive quantities to Europe and elsewhere. Russia's neighbors need large quantities of natural gas—and, currently lacking a better option, they buy much of it from Russia. This dependence has diplomatic repercussions, making them more reluctant to challenge some of Mr. Putin's arrogant actions.

Mr. Putin's scheme assumes that the U.S. will continue to sit on its own natural resources instead of engaging Russia in the global energy marketplace.

The U.S. has abundant supplies of natural gas, but in stark contrast to Russia, the amount of natural gas we produce and export barely scratches the surface of its potential. That's attributable in large part to the U.S. Department of Energy, which maintains an approval process that is excruciatingly slow and amounts to a de facto ban on American natural-gas exports—a situation that Mr. Putin has happily exploited to finance his geopolitical goals.

According to the Energy Department's own website, only six applications for U.S. exports of liquefied natural gas (LNG) have been approved over the past three years, while 24 applications are pending. This means Washington is doing as little as possible in an area in which we should be doing the opposite. Consequently, our allies in Europe and elsewhere have little choice but to turn to Russia for their energy needs.

These policies have amounted to our nation imposing economic sanctions on itself—sentencing consumers in the U.S. and abroad to higher prices and slower growth while ceding the international energy marketplace to countries such as Russia, Venezuela and Iran.

In response to Mr. Putin's aggression in Ukraine, President Obama should announce a series of steps that will dramatically expand production of American-made energy, beginning with lifting this de facto ban on exports of U.S.-produced liquefied natural gas. Taking this step would also create American jobs and lower prices for our consumers and small businesses when coupled with other moves that would bolster energy production in North America. These include construction of the Keystone XL oil pipeline, ending the Obama administration's embargo on our supplies of oil and gas from federal lands and waters, and halting the effort to take coal out of America's electricity generation mix.

The president doesn't need legislation from Congress to make these changes. This is something the commander in chief can do right now in the face of Mr. Putin's aggression. It would also provide much-needed evidence that the president's State of the Union commitment to an "all of the above" energy strategy is real, and not just poll-driven rhetoric.

America not only has a right to develop and market its natural resources. In the face of rising danger, it has an obligation to do so."

Summary

Economic growth, good jobs, national security and common sense all support American energy independence as a national goal which should be pursued immediately and fully.

We've wasted enough time and energy already.

Let's start an energy war.

That's my take.

Thanks. Bob.

Individual Investors ... Double Your Money the Easy Way ... Otherwise Pogo Rules Apply (We Have Met the Enemy and He Is Us)

Investing in stocks isn't as hard as we make it.


Investing in stocks is more profitable for us when we make it easy on ourselves.


As a general rule, the paid "experts" make money off the risk taking and money providing amateur individual investors. We're the amateurs.


But it need not work that way.


All we have to do is stop feeding the "experts" and keep the money for ourselves.


And one more thing. Invest for the long haul and avoid unnecessary fees and expenses along the way to a successful and profitable amateur performance.


The Best Investment Strategy? Getting Out of Our Own Way tells it like it is, or in the case of most individuals, at least could be, because as the wise old sage comic strip character Pogo says, we have met the enemy and he is us:


"We’re still making the same old mistake of buying investments when prices are high and selling them once their prices have fallen. . . . the behavior gap still exists. The behavior gap is what I refer to as the difference between what the average investment returned and what the average investor earned.

What’s the difference? Pretend for a minute that we have a mutual fund with a 10-year-average return of 10 percent per year. That’s the investment return. If you put your money in the fund, kept it there for the entire 10 years, and didn’t add or take out any money, then your investor return would also be 10 percent. So in this very hypothetical example, the investment return and the investor return were the same.

The problem is that few people invest this way. Who would buy a long-term investment and actually hold on to it for the long term? That would be silly!

Most people buy and sell. . . . Today, we hold our stock investments for about six months. We’re clearly not what anyone would think of as long-term investors.

It’s easy to understand why we behave this way. We’re hard-wired to get more of those things that give us pleasure or security, and to run away from things that cause us pain. That trait has kept us alive over thousands of years, but it makes us terrible investors. When we follow our natural instincts, we end up buying things after they’ve gone up. Then, when they go down, which they always do at some point, we sell. . . .

But this well-intentioned behavior has a cost. . . . the average equity mutual fund in the United States had a 10-year average return at the end of 2013 of 8.18 percent. The average investor only earned 6.52 percent. That’s a difference of 1.66 percentage points. It may seem like a small number, but it makes a big difference when you think of it in terms of dollars.

Imagine 10 years ago that you put $100,000 in an average American equity mutual fund. If you just sat there, you’d have $219,517 in your account at the end of 10 years. But because we’re human, you more likely only earned the 6.52 percent return of $188,066. That equals losing more than $30,000, a 17 percent difference.

The numbers are even more depressing in other investment types. Balanced mutual funds are designed to help us manage our behavior by including both stocks and bonds. They provide a cushion in down markets in exchange for not hitting it out of the park on the way up. It seems like that would help us behave. Well, the average balanced fund returned 6.93 percent, but the average investor only managed 4.81 percent.

It’s critical to understand that none of this is the investment’s fault. The average investment did its thing, but our behavior determines what we actually get. What makes this so frustrating is that we’re talking about an average American equity fund, not the best one, just the average. In other words, all we had to do to improve our return by over 1.5 percentage points was pick a mediocre (by definition, average) equity fund and then just sit there. . . .


The past is the past, and there’s nothing we can do about it now. But here’s the key: The next 10 years start today. If the past is any indication of the future, we need to do something different if we want a different result. The hard part of investing isn’t picking the best investment. Instead, it’s sticking with the one we’ve picked. Only then will we have a shot at closing the behavior gap over the next 10 years.

The best part about this is that once you design a portfolio, the only thing you have to do is nothing, aside from some occasional rebalancing when some investments rise and others fall. It reminds me of my favorite Warren Buffett quote: “Benign neglect, bordering on sloth, remains the hallmark of our investment process.” As he’s demonstrated more than once, investing is one place where we are rewarded for being lazy."

Summing Up

Don't pay "experts" to try to beat the market. For individual investors, it's a loser's game.

All that happens is that the experts take your money and reduce what the amateur would have earned.

S&P 500 low cost passive index funds work best for the vast majority of amateur individual investors.

That's all the expertise required, because money not spent on experts is money made by us amateurs.

And money made compounds into lots more money made over time. In fact, an extra 2% annual return (see above examples of individuals who actively trade and try to beat the market) will become twice as much money in 36 years than it would have been had it been invested by the traditional "experts."


That's the 'doubling' rule of 72 at work (2% rate of additional annual return multiplied by 36 (number of years invested) = 72.

And that's my amateurish take.

Thanks. Bob.

We're Getting Older, But We're Still Not Saving Enough ... Crisis Ahead!

Demographics is not a word commonly used in casual discussion about aging. It should be.


That's because the negative and rapidly developing impact of demographics is perhaps as important and as predictable as anything impacting our future prosperity, both as individuals and as a nation.


Our next big crisis will be a retirement crisis is a story worth reading and heeding for both the young and oldsters alike. Here's what it says:


"Everybody sensible knows we are facing a looming retirement crisis. Tens of millions of baby boomers are starting to retire. They are going to live in old age far longer than previous generations. . . . Yet so few people or families have saved anywhere near enough. And our public safety net is poorly managed, ill-thought-out, and threadbare. . . .                                       
                                                                               
The Boston College Center for Retirement Research has just updated its “National Retirement Risk Index,” a measure of just how many people can expect to be financially comfortable in retirement.                                        


It doesn’t make for happy reading. According to Boston College, based on current projections, about half the country is at risk of being unable to maintain their standard of living in retirement. Among low-income workers that rises to 60%. But it’s 40% even among the higher-income workers. . . . 
                                     
One of the stark issues that comes out of the report is how little the stock market boom has helped. As the Boston College researchers note, citing data from the Federal Reserve’s 2010 Survey of Consumer Finances, most people don’t own many stocks. Equities account for just 17% of the wealth of high earners, 6% of middle earners and 2% of low earners. Far more important is the value of housing — which has recovered much less dramatically than the stock market.                                        


Meanwhile, by suppressing short-term interest rates, the Fed has effectively levied a harsh tax on savers who need income from short-term deposits…like retirees.


The picture is similar in a new study by the Employee Benefits Research Institute, a Washington, D.C.-based think-tank. Their Retirement Readiness Rating says that 43% of Boomers and “Generation Xers” are at risk of running out of money in retirement. Among the poorest half of the country, that number rises sharply. Among those in the poorest 25%, EBRI estimates a stunning 83% are at risk.


Do the math: According to an EBRI survey conducted last year, 66% of workers have saved less than $50,000 for their retirement. And 28% have saved less than $1,000. Good luck with that.


The most alarming news, though, is in the fine print. Even these bleak numbers are based on the most rosy financial scenarios. EBRI assumed no changes in Social Security or Medicare. It also assumed wacky financial returns: It estimated people would earn about 8% above inflation each year on their stocks and about 2% above inflation on their bonds — net of fees! . . . most people don’t even understand the problem. For example, 89% of Americans (believed) they were on track to reach their retirement goals — but 54% of them didn’t even have a plan, and 45% of them couldn’t even define those goals.                                        


(The report warn(s): “The only way out of this box is for people to save more and/or work longer.” No kidding."


Summing Up


We're living longer. That's the good news.


We're not saving nearly enough to properly enjoy those 'extra' years. That's the bad news.


More individuals working, saving and investing those savings in stocks is the answer to perhaps the biggest demographic and behavioral challenge facing future Americans. That's the non-news.


And government programs like Social Security and unaffordable public sector pensions won't solve our problems for us. That's also non-news.


That's my take.


Thanks. Bob.