Many potential retirees welcomed the end of the bear market in 2002 and breathed a sigh of relief that market gains would once again increase their retirement account balances. After a rapid run up in the 1990s, the stock market had declined suddenly starting in the spring of 2000 and many investors lost half or more of their savings. In hindsight, many future retirees with the assistance of their financial planners decided they had been investing too aggressively and some decreased their exposure to the badly beaten down tech stocks. Of course those were the stocks that delivered strong gains for the next five years. A closer look at the “irrationality” of the markets In 2007, many investors were relieved to see their retirement account balances growing again and returning to ...

In August, the Consumer Price Index (CPI) increased by 0.6 percent. Not surprisingly, higher energy prices were the biggest driver of the higher CPI. Retail gasoline prices rose by 9.0 percent and that alone was responsible for about 80 percent of the inflation reported in August. Also not surprisingly, experts said this gain was only temporary – economists disregard changes in gas and food prices because they are so volatile. This month, they cited increasing tensions in the Middle East and reduced refining capacity as a result of Hurricane Isaac as the primary factors behind higher prices at the pump. What the rest of the CPI data shows The food and beverage index, a component of the CPI, was up 0.2 percent in August, a little more than the 0.1 percent gain seen in July. Consumer food ...

Most financial planning models assume that retirees will spend less than they did while they were working. A commonly cited figure is that retirees will face expenses that are only about 80 percent of their pre-retirement needs. This is an average figure and specifics will vary by individual, but this 80 percent rule offers a valuable starting point to think about retirement income needs. In the past, other research has found that spending decreases with age. A recent article in Morningstar explained that, “Households led by people age 65-74 spent, on average…12% less than those in the 55-64 age band. Those age 75 and above demonstrated an even sharper drop-off in spending: Their average expenditures…were 24% lower than those of the 65-74 cohort.” This means a couple making $50,000...

Financial planners are finding that many people are approaching retirement without being fully prepared financially. There are a number of reasons retirees may have inadequate assets under traditional financial planning guidelines. To begin with, planners suggest starting retirement with very large accounts, a goal which is not possible for everyone. Because retirement in many cases can last for decades, planners usually advise retirees to withdraw only 4 percent of their account balances per year. This means someone who has saved $1 million dollars will withdraw $40,000 in their first year of retirement, while someone with $100,000 would receive only $4,000 in income under these guidelines. Because planners suggest that you want to have enough retirement income to replace 80 percent of yo...

Recently The Wall Street Journal reported that many small business owners are being forced to delay retirement as they struggle with the slow sales market for their businesses. The number of businesses being sold and the prices for businesses are both down and that is forcing changes to retirement plans for those who relied on access to the business equity to fund their retirement. In a survey the newspaper conducted, they found that 38 percent of business owners have delayed their retirement plans because of the slow economy. Unique challenges for small business owners facing retirement Small business owners are facing a number of issues that affect their retirements. Business has slowed because of the economy and that has led to lower incomes for a number of small business owners. That l...

There are some investment experts that are worth paying attention to. Bill Gross is one of them. Gross is responsible for managing over $1 trillion dollars at Pacific Investment Management Co. and has become known as the “King of Bonds” based on his track record. His investors have enjoyed returns that often beat stock markets while holding less risky bonds. For now, Gross is pessimistic. Why we should listen to Bill Gross when he’s pessimistic He believes that inflation will present problems for investors in the years ahead. He recently said he believed that the “cult of equities” is dead, meaning investors should no longer expect to see double digit average annual gains in the stock market. While most experts believe inflation will remain low, Gross is not as optimistic. He...

Every month, consumers are asked what they think about the economy and the results are compiled in the Thomson Reuters/University of Michigan sentiment survey. The latest reading presents a more positive outlook among consumers than other recent data suggests. The Michigan survey’s index of current conditions, which reflects American’s perceptions of their financial situation and whether they consider now to be a good time to buy big-ticket items like cars or houses, improved to 87.6 from 82.7 the prior month. This is the highest value for this index since January 2008. In another question, the index of consumer expectations six months from now, which analysts believe more closely projects trends in consumer spending, fell to 64.5, an eight-month low. Also included in the confidenc...

Home prices have fallen in many parts of the country over the past five years or so. This makes home ownership seem risky to some and fear of future declines will keep some families from buying homes. This behavior is commonly seen in stock markets where investors sell shares during a decline, the exact time when they should be adding to their holdings (commonly speaking). In the long-term, stocks work out to be a good investment and homes have also been a good, inflation-beating investments for the long-term. But is home ownership losing popularity? But, according to Bloomberg, many younger workers are bypassing home ownership in favor of renting despite the fact that the economics favor purchases. The article noted that, “In 2011, the smallest percent of first-time home buyers purchase...

Facebook shares have been crushed since it's IPO In May, investors fought each other for the right to purchase shares of Facebook, the social media company that was “changing the world”. The company was worth about $100 billion after the stock began trading and it has been falling ever since. Three months later, Facebook was recently worth a little over $51 billion and has lost about $40 billion in market value since the first day of trading. This makes it the worst performer among all large stock offering in history, according to data compiled by Bloomberg. After a drop of nearly 50 percent, many analysts are warning investors that further declines lie ahead. Learning from Facebook’s catastrophic IPO failure Nothing has changed in the past three months. Investors hav...

A reverse mortgage allows home owners who are at least 62 years old to take the equity out of their homes without having to sell. The loans are repaid in full when the home owner leaves their home, which can be because of a move to a different home, a move to an assisted-living facility, or death of the home owner. There are protections for the surviving spouse that ensure the survivor can remain in the home, assuming the reverse mortgage is properly completed. Another protection built into reverse mortgages for home owners is that these loans are government-guaranteed and the home owner will never owe more than the amount they borrowed along with the interest and fees on that amount. Even if the property value crashes and must eventually be sold for less than the loan amount, the home own...