Will Your Retirement Income Last Your Lifetime?

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Schwartz Financial Weekly Commentary 6/24/13

 

The Markets

 

It was like watching a game of telephone where one child speaks into another child’s ear and that child speaks into another child’s ear and, by the time the last child repeats the original statement, it has transformed into something completely different.

 

Chairman Ben Bernanke stepped up to the microphone at the press conference after the Federal Open Market Committee’s policy meeting and said:

 

“As I mentioned, the current level of the federal funds rate target is likely to remain appropriate for a considerable period after asset purchases are concluded. To return to the driving analogy, if the incoming data support the view that the economy is able to sustain a reasonable cruising speed, we will ease the pressure on the accelerator by gradually reducing the pace of (bond) purchases. However, any need to consider applying the brakes by raising short-term rates is still far in the future. In any case, no matter how conditions may evolve, the Federal Reserve remains committed to fostering substantial improvement in the outlook for the labor market in a context of price stability.”

 

His statements filtered through analysts and managers, through blogs and media outlets and, by the time it reached investors, they heard this: sell. The message rippled through stock, bond, and other markets around the world. As markets fell, interest rates rose, particularly in countries like Indonesia, Brazil, Mexico, Turkey, Russia, and Poland. A Bloomberg report cited in the Washington Post stated the People’s Bank of China injected about $8.2 billion into China’s financial system in an effort to keep interest rates low.

 

Investors’ fears were reflected in the CBOE Volatility Index (VIX), which is also known as the investor fear gauge. It measures the market's expectations for volatility during the next 30-day period. It started the week at 10.2 percent and finished the week at 19. According to a Citigroup equity strategist who was quoted in The Wall Street Journal, “…there are much higher probabilities for market gains when the VIX is sitting between 10 and 15 than when it is in the 20-25 range...” Will markets settle? Or, will volatility continue? Time will tell.

 

Data as of 6/21/13	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	-2.1%	11.7%	20.1%	12.7%	3.9%	5.0%
10-year Treasury Note (Yield Only)	2.5	N/A	1.6	3.2	4.2	3.4
Gold (per ounce)	-6.9	-23.5	-18.1	1.1	8.0	13.8
DJ-UBS Commodity Index	-2.4	-8.5	-0.4	-0.3	-11.2	0.9
DJ Equity All REIT TR Index	-5.1	1.5	10.0	13.4	6.2	10.8

Notes: S&P 500, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

there’s Another housing bubble? really? The housing market in the United States isn’t just recovering – it’s RECOVERING. Tight inventories, fewer foreclosures, low mortgage rates, and rising demand have helped push home prices significantly higher. Year-over-year sales data shows home prices increased by about 15 percent through the end of May, according to the National Association of Realtors (NAR). That’s the strongest year-over-year improvement since October 2005, and it marks the 15th month of gains in a row. In many cases, cities that had experienced the biggest declines in prices during the housing crisis realized some of the biggest gains.

 

Double digit price gains have some believing the housing market is getting frothy and a new housing bubble may be forming. Fitch, a ratings service, recently said home price gains in some markets are outpacing improvements in underlying fundamentals, which could cause prices to stagnate or fall again.

 

So, is it a bubble? It depends on who you ask, but credible sources suggest otherwise. According to an article in an early June issue of The Economist:

 

“To qualify as a bubble, an asset must not simply appreciate; it must decouple from its intrinsic value. For houses, The Economist each quarter compares the ratio of prices to household income and rents against their long-run average in 20 countries. We have now done the same for the 20 metropolitan areas in the Case-Shiller index. The verdict: in most markets, houses are at or near their long-run values, but none looks bubbly.”

 

One thing that’s keeping home prices high is limited supply. The Chief Economist for the NAR recently said one way to moderate future price growth is to create additional supply by building more new homes.

 

It seems clear from the markets’ response to the Fed Chairman’s comments during last week’s press conference and speculation about bubbles – investors are feeling a lot of fear and uncertainty.

 

Weekly Focus – Think About It

 

“It is evident that skepticism, while it makes no actual change in man, always makes him feel better.”

--Ambrose Bierce, American Journalist

 

Value vs. Growth Investing (6/21/13)

Name	1-Week	YTD	4-Week	13-Week	1-Year	3-Year	5-Year
US Market	-2.93	12.54	-4.65	2.08	20.36	15.09	6.42
Large Cap	-2.95	12.18	-4.45	2.55	19.06	14.96	5.88
Large Core	-3.03	16.37	-4.25	4.38	25.11	16.57	7.86
Large Growth	-2.84	7.30	-5.58	0.79	12.06	14.20	5.15
Large Value	-2.98	13.53	-3.49	2.66	21.00	14.27	4.59
Mid Cap	-2.80	13.67	-5.31	1.15	24.19	15.46	7.29
Mid Core	-2.90	11.87	-6.38	-0.48	22.14	16.94	8.04
Mid Growth	-2.55	11.28	-5.19	1.06	19.40	14.43	4.60
Mid Value	-2.96	17.95	-4.39	2.83	31.43	14.85	9.33
Small Cap	-3.10	13.05	-4.69	-0.04	23.46	14.99	8.70
Small Core	-3.18	13.03	-5.38	-0.06	24.31	13.94	7.58
Small Growth	-2.27	13.52	-2.98	1.92	21.58	16.47	7.65
Small Value	-3.78	12.64	-5.53	-1.84	24.53	14.60	10.95
US Core	-3.01	15.17	-4.78	3.00	24.40	16.50	8.02
US Growth	-2.74	8.47	-5.34	0.92	14.08	14.46	5.25
US Value	-3.03	14.35	-3.81	2.39	23.28	14.40	5.98

 ©2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) is not warranted to be accurate, complete or timely. Morningstar is not responsible for any damages or losses arising from any use of this information and has not granted its consent to be considered or deemed an “expert” under the Securities Act of 1933. Past performance is no guarantee of future results.  Indices are unmanaged and while these indices can be invested in directly, this is neither a recommendation nor an offer to purchase.  This can only be done by prospectus and should be on the recommendation of a licensed professional.

 

Office Notes:

Important Retirement Dates

Many people think that retirement decisions don’t begin until you actually retire.  Nothing could be further from the truth.  There are important dates to keep in mind—some fall long before you decide to stop working, while some come after.  Here’s a brief summary. 

Turning 55

If you separate from your employer the year you turn age 55 or older (age 50 or older for qualified public safety employees), you can begin taking IRS penalty-free withdrawals from that employer’s qualified plan. Keep in mind that you do have to pay income taxes on any taxable amount you withdraw, unless you roll the funds over into another type of retirement account within 60 days.¹

Turning 59½

Remember when we were little, how we used to count half-birthdays?  Once you turn 59 years and 6 months, it’s time to start doing it again.  This is the earliest age at which you can make IRS penalty-free withdrawals from certain retirement accounts unless you meet an exception to the penalty.

Turning 62

62 is the minimum age to collect Social Security benefits.  However, think long and hard about doing this, because your benefit amount will be significantly reduced from the amount you could have received if you had waited till your full retirement age.  Here’s how it works if you take your Social Security benefit early (assuming your full retirement age is 67):²

—  Collecting Social Security at 62 reduces your benefit amount by 30 percent.

—  Collecting Social Security at 63 reduces your benefit amount by 25 percent.

—  Collecting Social Security at 64 reduces your benefit amount by 20 percent.

—  Collecting Social Security at 65 reduces your benefit amount by 13.3 percent (if you were born before 1960).

—  Collecting Social Security at 66 reduces your benefit amount by 6.7 percent (if you were born before 1960).

Turning 65

This is when most people normally become eligible to receive Medicare benefits.  Make sure, however, to apply for benefits 3 months before your 65^th birthday.  Otherwise, you might end up paying higher premiums.³ 

Turning 65–67

If you were born in 1937 or earlier, your full retirement age starts at 65.  This is your minimum age to receive full Social Security benefits.  If you were born between 1943 and 1954, your full retirement age is 66.  People born in 1960 or later have a full retirement age of 67.  And if you delay your retirement benefits until after full retirement age, you also may be eligible for delayed retirement credits that would increase your monthly benefit.  Please check out the chart located on the Social Security Administration’s website for a full, and more detailed, breakdown: http://www.ssa.gov/retire2/retirechart.htm. 

Turning 70½

At age 70½, you must begin withdrawing from any tax-advantaged retirement accounts you own.  These withdrawals are mandatory.  If you don’t timely take at least the required minimum amount (called a Required Minimum Distribution), the IRS will levy a 50% penalty on the amount of the shortfall.

Conclusion

This list is a very general one, because it would be impossible for me to go into all the details in a single article.  The point is, there are a lot of dates to keep in mind when planning for retirement, and each one comes with rules, exceptions, and special circumstances.  If you’d like to learn more about each of these dates, and how exactly they apply to you, please give me a call at 215-886-2122.  I’ll be happy to go over each one in detail so that you can prepare for them well in advance.

 

Regards,

,

Michael L. Schwartz, RFC®, CWS®, CFS

 

P.S.  Please feel free to forward this commentary to family, friends, or colleagues.  If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added. 

 

Michael L. Schwartz, RFC®, CWS®, CFS, offers securities through First Allied Securities, Inc., A Registered Broker/Dealer,  Member FINRA-SIPC.  Advisory Services offered through First Allied Advisory Services, A Registered Investment Advisor.

Schwartz Financial Service is not an affiliate of First Allied Securities, Inc.

 

This information is provided for informational purposes only and is not a solicitation or recommendation that any particular investor should purchase or sell any security. The information contained herein is obtained from sources believed to be reliable but its accuracy or completeness is not guaranteed.  Any opinions expressed herein are subject to change without notice.  An Index is a composite of securities that provides a performance benchmark.  Returns are presented for illustrative purposes only and are not intended to project the performance of any specific investment.  Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly.  Past performance is not a guarantee of future results.

 

* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

 

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. 

 

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

 

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

 

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

 

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

 

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

 

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

 

* Past performance does not guarantee future results.

 

* You cannot invest directly in an index.

 

* Consult your financial professional before making any investment decision.

 

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