Retirement of baby boomers at risk –

Salient to Investors:

Baby boomers are retiring at the worst time in a generation or more, as bond yields and stock dividends have tumbled to 2 percent, and the cohort never saved like their parents and grandparents. Pension plans have largely disappeared from the private sector, home values are the same as 10 years ago, and Medicare is a perennial target of budget cutters in Congress.

David Blanchett at Morningstar Investment Mgmt said it will cost more to retire and retirees face more risks today than in past generations. Blanchett said that in 1990 an annuity guaranteeing a lifetime income for a 65-year-old man required an investment of $9 for every $1 it paid back, versus $15 for every dollar in 2010.

Research Affiliates said someone retiring in 1980 with $355,000 in 60 percent stocks and 40 percent bonds would have received an average annual return of 6.9 percent over 30 years. Withdrawing 4 percent every yea, the portfolio would still have grown to $1.3 million by 2010. That portfolio today would run out of money in 25 years; sooner if inflation and interest rates rise as they did from the 1960s to the early 1980s.

Jack VanDerhei at the Employee Benefit Research Institute said a sudden hospitalization or extended stay in a nursing home will take down most couples and make them short on money. VanDerhei says the growing gap between what people are saving for retirement and what they actually need, including income to pay for uninsured health care costs, grew from $4.6 trillion in 2010 to $4.8 trillion in 2012.

The Bureau of Economic Analysis said the personal savings rate has been on the decline for the past 30 years: to 4 percent of disposable income today versus more than double that in the 1970s and 1980s.

Chris Brightman at Research Affiliates said the baby boom generation spent almost entirely what they earned during their peak earning years, and face 30 years of retirement and a drop-off in lifestyle.


  • Retire a few years later. The Center for Retirement Research at Boston College estimates that 65-year-olds will need to stay at work for another 5 years to ensure a successful retirement.
  • Take advantage of catch-up contributions.
  • Diversify away from the same low-risk investments that everyone else is chasing. Blanchett says to invest beyond stocks and bonds and add REITs and commodities and foreign bonds.
  • Talk to your kids, they may have to take care of you.
  • Get financial professional help in deciding on whether to retire

Read the full article at

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The Ethical Investor: Wall Street Ripoff #10 – Recommending Products With Enormous Sales Commissions – Huffington Post 11-09-12

Salient to Investors:

John R. Talbott writes:
Total costs of 2% per year in a fund earning a 3 percent real return is tantamount to giving Wall Street two-thirds of the profits. ETF’s that cost a half a percent to 1 percent per year can end up costing as much as one-third of total profits over time.

More complex products can cost investors sales commissions of 5 to 12 percent. Usually the more complex and complicated a financial product is, the higher its cost to investors. Insurance companies have excelled at complex products.

Most insurance products, especially those that pretend to be investment products, have very high costs. Variable annuities pretend to be a combination of investment products with an insurance guarantee but cost much more than simply buying insurance and investing in the stock market. Sales commissions exceed 5 percent, and annual costs are greater than even a mutual fund – you pay the insurance company and the fund administrator.

Only buy insurance for events that are so unpredictable and destabilizing that your family could not get by without it. Avoid whole life or cash value policies, and universal life or variable life policies. Buy term insurance only for the shortest time period you absolutely need it.

Reverse mortgages are enormously complex and combine the worst attributes of mortgage products, insurance and annuities. Many reverse mortgage companies have come under scrutiny recently by regulators who find their sales practices and operations fraudulent and deceptive.

The “guaranteed” return is a myth since when times get tough, the institutions making it will face insolvency. And there is little value in guaranteeing a 4 percent annual yield in dollars if inflation returns to 10% per year.

Read the full article at

The Suze Orman Show 03-27-11 – CNBC

Salient to Investors:

Suze Orman says:

  • There is only one way to pay down credit card debt, from the highest interest rate down and pay the minimum on every card. Asking banks to lower the interest rate doesn’t work anymore. If you have a good FICO score then do a balance transfer to a credit union credit card – if federally chartered the maximum rate they can charge is 18 percent.
  • Avoid immediate annuities under most circumstances because they are calculated using current interest rates which are at record lows, so wait a few years for rates to rise . Most Financial advisors earn at least 4% commission when they sell you an immediate annuity.  The only way an immediate annuity makes sense is if you live to 100 or 150 or 120. You can easily get an 8-9 percent return yourself.
  • You can’t be happily married if you argue over money. All that matters is how you feel on the inside.

View the full episode at