Actuaries Say Retirement Worries are Increasing

Below is some informative material prepared by Karen DeMasters of Financial Advisor News on 8/16/2012 that talks about retirement views of both pre-retirees over age 45 and retirees.  It is apparent that both retirement income and the need for sufficient financial resources are on the top of retiree’s minds.  We hope this post finds you doing well and off to the beginning of a good Fall season …

Actuaries Say Retirement Worries are Increasing – More than one-third of pre-retirees over age 45 do not expect to be able to retire, an increase of 6% over the number reported in 2009. That pessimistic view comes from the latest survey by the Society of Actuaries, “2011 Risks and Process of Retirement Survey Report.” The society surveyed 1,600 people over the age of 45, including 800 retirees and 800 pre-retirees.

Of those who do not expect to retire, 45% say it is because they lack the financial resources to do so. Of those with financial concerns, three-quarters of retirees and 87% of pre-retirees say they will need extra income. Fifty-nine percent of retirees and 80% of pre-retirees say they need to build more assets. And 33% of retirees and 61% of pre-retirees say they need to keep employee benefits.

“Current trends in retirement indicate that people may need to work longer than they originally planned,” says actuary and retirement expert Carol Bogosian, spokesperson for the Society of Actuaries.

“Individuals often have a difficult time estimating how long they can expect to live, how much they will earn on their investments and how much they can spend each year to avoid running out of money,” she adds. “In fact, many people are just guessing about how much money they will need in retirement.”

The majority of both pre-retirees (89%) and retirees (77%) also say staying active is a reason to keep working in retirement. However, those who do expect to retire often overestimate the amount of time they will be able to keep working. While half of retirees report they retired before age 60, just one in 10 pre-retirees think they will retire that early. Half of pre-retirees expect to work until at least age 65.

“There is a big gap in the age at which pre-retirees expect to retire and actual retirement ages of those who have retired,” says Bogosian. “This may be partially due to involuntary retirement and health problems. This gap, together with the failure of many people to plan for a long enough retirement period, may indicate significant future financial problems for many.

For those retirees who have continued working, half have found employment with a company other than the one they retired from, while 29% have continued to work for the same company. Twenty-two percent have started their own small businesses or become self-employed. Thirty-one percent of pre-retirees who plan to retire say they will also start a small business.”  –Karen DeMasters

Why the Long Face?

Below are some interesting thoughts from First Trust written by their Chief Economist, Brian Wesbury, and his team.  We thought you’d find the information helpful to consider, and hope you and your family are enjoying a good end to the summer…

Why the Long Face?  Back in early 2009, the University of Chicago Booth School of Business and the Northwestern University Kellogg School of Business teamed up to create the Financial Trust Index. The latest readings from July 2012 show that just 21% of Americans trust the financial system and only 15% trust the stock market.

For many, this negativity is understandable. The stock market is still below levels it reached in 2000, housing prices are still down and many people just cannot shake off the fear that was created in the 2008/09 Panic.

But, the lack of trust must be about more than this. Since the bottom for equities on 3/9/2009, when the Booth/Kellogg survey found just 13% trust in the stock market, the S&P 500 is up 120%, with dividends included. More importantly, the S&P 500 index is up more than 1100% in the past 30 years.

In addition, real GDP has been growing now for 12 consecutive quarters, private payrolls have climbed for 29 consecutive months and housing has clearly turned a corner. Yes, there have been slow patches (in 2010, 2011 and 2012), but in each case, even this year, the economy picked up again without falling into recession.

In other words, the negativity (the lack of trust) seems excessive. It is ignoring the good parts of the past and focusing on the bad parts.

Or, maybe there is another explanation. Right now the political fog is so thick that you can cut it with a knife. And, because politicians find it effective to scare people into voting for them over the other guy, our political leaders and their spokesmen and women are very busy trying to find things to make us worry about.

For example, last Friday, it was reported that payroll employment rose 163,000 in July, which was much better than expected and a sign that a recession is still unlikely.

Nonetheless, the political spinmeisters focused on every negative piece of the jobs data they could find. The unemployment rate rose to 8.3% and if we add discouraged workers, it was 15%. The labor force participation rate, which the bears ignored in the past few months, fell in July. The sky is falling they said.

And when the right side of the political equation says all these negative things, the left side says another Great Depression is coming unless the US government spends more money or the Fed prints more money.

So, the average investor reacts with fear when leaders everywhere are bashing the economy and telling everyone that will listen that the world is about to come to an end if their plans aren’t followed immediately.

Don’t get us wrong, our models clearly show that the economy could, and would, do better if government spending were reduced as a share of the economy. Moreover, uncertainty over regulations, new healthcare laws and the potential of future tax hikes are also holding growth down and unemployment up. But that doesn’t mean that the economy is about to fall into recession or the stock market is about to collapse.

We expect the economy will continue to expand, earnings will continue to grow and stock prices will continue to rise.

The reason for our optimism is relatively simple. Technology, driven forward by the relentless spirit of entrepreneurs that don’t let political fears stop them, continues to raise productivity. This is happening despite what we think is wrong-headed fiscal policy.

In addition, the Fed is not tight, which is the number one cause of recession. We do not expect the Fed to pull the trigger on QE3, but quantitative easing was never necessary for growth. The Fed’s near 0% federal funds rate is enough and always has been.

In the end, the way for investors to avoid mistakes in this environment is to watch the data and avoid the political spin. The economy is not great, but with so few people trusting the market and financial system, opportunities abound. If the market can hang in there with so little support, imagine what happens if fiscal policies turn for the better.

Consensus forecasts come from Bloomberg. This report was prepared by First Trust Advisors L. P., and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.