This time last year, President Obama announced a new initiative aimed at helping Americans save for retirement – My Retirement Account, more commonly known as myRA.
A year after the initial launch, we take a look at what’s happened since the announcement and myRA’s progress in its first year.
What is myRA?
MyRA is a retirement savings program targeted toward low and middle-income Americans who don’t have access to employer-sponsored plans, which, according to the Obama Administration, is half of all Americans.
The program provides starter government-guaranteed retirement accounts that follow you from job to job, charge no fees and allow you to contribute directly from your paycheck. Anyone in a household earning $191,000 a year or less can use myRA to plan for their financial future with an initial contribution of as low as $25.
Is MyRA working?
A year later, myRA is off to a slow start and it is still unclear how many Americans have signed up for myRA accounts.
In late December 2014, myRA accounts officially became available for public use, and as part of its launch, the U.S. Treasury department announced it would run a small pilot program.
While anyone who has direct deposit for their paycheck can sign up to start a myRA account, there is no active push to encourage Americans to sign up or to recruit businesses to offer their employees myRA accounts. Additionally, as the program currently stands, the only way to contribute to a myRA account is through payroll deduction.
In the coming year, the Treasury department has said it is working on creating additional ways for Americans to make contributions to myRA accounts and will begin a more robust, broad promotion of the program, according to CNN Money.
Is myRA the solution to America’s retirement crisis?
Though the myRA initiative is a step in the right direction as it encourages Americans to invest in their retirement, for most it will not be enough. The accounts have a maximum limit of $15,000 before they are required to be rolled over into a traditional IRA, proving they are not intended to be Americans’ primary retirement vehicle.
You would likely need 30 years to double your investment in myRA, signifying the importance of a diversified financial plan and one that starts early. Additionally, it is important to think about how to convert your portfolio into income that will last throughout retirement. Fixed indexed annuities can play an important role in strengthening your retirement plan by providing that vehicle of guaranteed income.
On the surface, transitioning to retirement means spending your days on the golf course or on the beach instead of in the office. But failing to prepare for retirement means more complications than leisure.
According to the 2014 Retirement Confidence Survey conducted by the Employee Benefits Institute, more than half of American workers may never achieve their retirement goals, as they haven’t calculated how much money they’ll need in retirement.
When it comes to planning for your “golden years,” there’s a lot at stake – will you have enough to last you your entire life? Will you be able to survive a health care crisis? Flipping the switch from saving to spending is unnerving and complex, but it can be made simpler by avoiding common missteps.
Here are the Top 3 Retirement Mistakes:
1) Not saving early enough. The number of Americans who have student loan debt has risen to more than 40 million, and the average student loan debt in the United States is now around $29,000, according to CNN. These factors make it easy to push off saving for retirement until your late twenties or mid-thirties. In fact, the median Millennial has saved exactly $0 for retirement. Nonetheless, it is crucial to start saving for retirement as early as you can – the earlier you start saving, the more likely you are to meet your retirement goals. Unfortunately, when it comes to saving for retirement, it is difficult to make up lost time, and it will be nearly impossible to catch up if you wait too long. Americans are living longer than ever, making it more important than ever that you start saving early to ensure you don’t outlive your money. Even if you can only contribute 1 percent of your annual salary, anything is better than nothing and it can add up quickly!
2) Lack of diversity in your retirement portfolio. It is important to diversify your savings if you want to reduce risk and improve return. Investing in your company’s 401(k) is a great way to start a retirement portfolio, but putting all of your eggs in one basket is a common mistake when preparing to retire. It’s also important to assess your investment strategy at different stages in your life. For example, a younger professional may have the luxury of putting their money into high-risk investments, whereas the closer you get to retirement, it may be best to have a low-risk portfolio. A fixed indexed annuity is one example of a conservative retirement product that offers opportunities for growing your retirement savings with protection from market volatility, and can provide you with a guaranteed lifetime income stream.
3) Failing to budget properly. Once you have enough money saved up, it’s important to figure out how you want to spend that money. It is essential to realize that the money you have now will no longer be replaced by that regular monthly paycheck, so budgeting is crucial. Remember to take into account that your expenses may increase in retirement. In fact, a recent survey showed that not only does retirement cost more than anticipated, but for 65 percent of retirees surveyed, expenses increased. Expenses that your job may have covered such as healthcare and travel expenses will no longer be covered, and you may have to spend more money on long-term care for yourself or your parents. On top of these necessary investments, retirees often like to cross things off their bucket lists and engage in leisurely activities such as traveling – all of which cost money. Fixed indexed annuities can serve as a solution to budgeting issues, as the product allows you to turn on lifetime income – not only will this help with budgeting monthly expenses, but it can also guarantee that you won’t outlive that income. Using interactive calculators to correctly assess how much your dream retirement may cost and working with a financial planner to project how expenses might rise in the future are other ways to help ensure that you are budgeting properly.
You have to be a spend wisely, though
The old saying that money can’t buy happiness? Not true, it turns out. But you have to spend strategically if you expect the Benjamins to put a smile on your face.
Buy moments, not stuff. According to Dan Gilbert, Harvard University psychology professor and author of Stumbling on Happiness, the key is to spend your money on experiences rather than material things. Material things, even if they’re expensive or you wanted them badly, tend to lose their luster after a while, literally and figuratively. Memories of people, places and activities, however, never get old. In a survey, Gilbert found that 57% of respondents reported greater happiness from an experiential purchase. Only 34% said the same about a material purchase.
Spend on others. In a study published this year, Harvard University researchers conducted experiments and found out that spending money on others (called “prosocial” spending in academic jargon) boosts people’s emotional and physical well-being.
“The benefits of prosocial spending… extend not only to subjective well-being but objective health,” they write. Despite people’s intuitions and inclinations to the contrary, one of the best ways to get the biggest payoff personally from a windfall of $20 is to spend it prosocially.”
Buy small splurges. Dropping a ton of cash on someting extravagent doesn’t give you the same bang for your buck because, no matter how special it is at first, you get used to having it over time and it becomes just another object. “Giving yourself inexpensive indulgences is a clever way to gather up lots of bursts of happiness,” a recent Business Insider article suggests, citing Gilbert’s research.
Buy what you like. No keeping up with the Joneses — that’s not going to make you happy. “There are a lot of reasons someone might buy something… but if the reason is to maximize happiness, the best thing for that person to do is purchase a life experience that is in line with their personality,” Ryan Howell, an associate psychology professor San Francisco State University, tells Forbes. Howell recently co-authored a study finding that when people spend money just to project or uphold a certain image, it doesn’t bring happiness.
Spend with others. You might think spending money on things or activities you do by yourself will make you happy, but a recent study in Psychological Science says that tactic can backfire. “To be extraordinary is to be different than other people, and social interaction is grounded in similarities,” says Gus Cooney , Harvard University research assistant and lead author of the study.
Doing things with friends or family, even if it’s not as exciting, makes you happy because it fosters a sense of togetherness and connection between you and other people. “The guy who had the extraordinary experience had a harder time fitting in,” Cooney tells The Atlantic.
This week Fixed Index Annuities (FIAs) reached a milestone – their 20th anniversary! On February 15th, 1995, Fixed Index Annuities were first introduced to consumers as a key product for helping plan a secure, dependable source of income for retirement.
FIAs were first created as a reaction to the economic volatility that darkened the bond and stock markets in 1994. Despite the economic growth that characterized the 1990s, traditional financial options suddenly looked less dependable and an opening was available for a product that could be depended upon in times of economic turbulence to retain its principal and always provide a certain degree of growth – no matter the market conditions.
Consumers flocked to the new instrument and over the next 20 years FIAs proved to be a key part of a strong, trustworthy portfolio designed to provide confidence in later years. The proof is in the pudding – sales growth of FIAs over the last 20 years has been considerable. As Jack Marrion, president of Advantage Compendium, a financial research and consulting firm, found, “since 1995, roughly $400 billion in fixed index annuities have been purchased by millions of consumers.”
Today, the marketplace bears striking similarities to the conditions that first fostered FIAs. In the aftermath of the Great Recession, growth is once again on an upswing, but mindful of the recent economic decline and shocks, there’s still an appetite among consumers for dependable, safe ways to plan for a fulfilling retirement.
So, what does the future for FIA’s look like?
The customer is changing. Traditionally, FIAs were purchased by those beginning to seriously consider their prospects for retirement. In a phrase – Baby Boomers. But, with the effects of the Great Recession still lingering, FIAs are now increasingly appealing to younger generations, even millennials, who understand the need for financial security and are worried about the future. As a Wells Fargo survey found, that more than a third of Millennials expect to receive 0% of their retirement income from Social Security, and another 21% say they have no idea what to expect. As young people advance in their careers, the purchase point for FIAs looks likely to shift to younger demographics than has conventionally been the case.
FIAs will look different. Fixed Index Annuities have evolved over the years and the evolution is bound to continue. On an ongoing basis companies and agents are finding innovative ways to determine new indexes and annuities that offer consumers greater choice and flexibility. Such forward-thinking is a key reason FIAs have been so successful for both contract owners and their beneficiaries. That innovation is bound to continue.
FIAs will become better known among everyday consumers. Traditional retirement options such as pensions are dwindling. It used to be that you could hold a single job for 25 years and be able to retire comfortably at an early age and on a healthy pension. As Towers Watson, a business consultancy, found, in the last 15 years, the portion of the U.S.’s largest companies offering defined-benefit pensions to new workers has fallen from 60 percent to 24 percent. Further, with individuals switching jobs on a more frequent basis and employers looking for new retirement options to offer employees, FIAs will increasingly become a go-to product for those looking to finance a rewarding, balanced retirement.
It’s been a strong, exciting 20 years for FIAs and the future is bright. Customers who may have never heard of a Fixed Index Annuity in the past will progressively consider them at younger ages and companies will continue to develop new products that reach wider audiences and satisfy the widespread desire for a secure and comfortable retirement. When it comes to considering an FIA, Benjamin Franklin put it best, “Never leave that till tomorrow which you can do today!”
President Barack Obama's Fiscal Year 2016 Budget was unveiled Monday to the American public, along with the Department of Treasury's Greenbook, which provides further explanation and details of the proposals in the president's budget.
In truth, the president's budget is really more of a "wish-list" than anything else, but it's a good indication of where the administration is headed.
This year's version of the budget included a number of provisions targeting retirement accounts. That was no surprise, as provisions aimed at retirement accounts have been a regular feature in budgets in recent years. What was a surprise, however, is how many proposals were targeting retirement accounts, and how many new proposals there were. All told, this year's budget featured over a dozen provisions that, if they were to become law, could directly impact your retirement savings.
Below you will find a complete list of these provisions, as well as some commentary:
1. Eliminate the special tax break for NUA
The proposal — Net unrealized appreciation, or NUA, one of the biggest tax breaks in the entire tax code for some retirement account owners, would be eliminated if this proposal were to become law. To be eligible to use the provision, which allows you to pay tax on some of your retirement savings at long-term capital gains rates, you must have appreciated stock of your employer (or former employer) inside your employer (or former employer)-sponsored retirement plan and follow certain rules. Any plan participant 50 or older by the end of this year (2015) would still be eligible for the special NUA tax break, provided they meet all the rules.
Comment — The tax break for NUA has been around for decades and now, it suddenly finds itself under attack. Although those 50 and over would be exempt, younger savers who invested in the stock of their company within their retirement plan would miss out on the tax break.
2. Limit Roth conversions to pretax dollars
The proposal — After-tax money held in your traditional IRA or employer-sponsored retirement plan would no longer be eligible for conversion to a Roth account.
Comment – For years, many taxpayers that have been restricted from making contributions directly to Roth IRAs (because their income exceeded their applicable threshold) have instead, made contributions — often nondeductible (after-tax) — to traditional IRAs. Then, shortly thereafter, they have been converting those contributions to Roth IRAs. This two-step process, widely known as the backdoor Roth IRA, would be all but eliminated by this provision.
Perhaps the only bit of good news to come out of this provision is that for years some have questioned whether or not such conversions amounted to step transactions. While the administration doesn't explicitly say otherwise, it's inclusion of this provision appears to be a tacit endorsement of that strategy. There is no reason to create a rule to stop something that is already forbidden.
3. ‘Harmonize’ the RMD rules for Roth IRAs with the RMD rules for other retirement accounts
The proposal — To further "simplify" the RMD rules, the administration seeks to impose required minimum distributions for Roth IRAs in the same way they are imposed for other retirement accounts. In other words, this proposal would require you to take distributions from your Roth IRA once you turn 70 ½ in the same way you would for your traditional IRA and other retirement accounts. If, however, you are already 70 ½ at the end of this year (2015), you would be exempt from the changes that would be created by this proposal.
Comment — This is one of the most egregious proposals in the entire budget. Countless individuals made Roth IRA conversions over the last 17 years, and many of them did so, in part, due to the fact that Roth IRAs have no required minimum distributions. To change the rules now, after people have already made these decisions, would be terribly unfair and would constitute a tremendous breach of the public's trust. At the very least, the administration should grandfather any existing Roth IRA money into the "old" rules should this provision ever become law.
4. Eliminate RMDs if your total savings in tax-favored retirement accounts is $100,000 or less
The Proposal — If you have $100,000 or less across all your tax-favored retirement accounts, such as IRAs and 401(k)s, then you would be completely exempt from required minimum distributions. Defined benefit pensions paid in some form of a life annuity would be excluded from this calculation. Required minimum distributions would phase in if your total cumulative balance across all retirement accounts is between $100,000 and $110,000. Those amounts would be indexed for inflation.
Comment — There's really no reason why someone with a $15,000, $20,000 or even $100,000 IRA should be forced to withdraw specified amounts from their retirement account each year. It simply creates complexity without any real benefit. Sure, some will argue that $100,000 amount should be higher, but in the end, a line had to be drawn somewhere. There will always be those on the other side.
5. Create a 28% maximum tax benefit for contributions to retirement accounts
The proposal — The maximum tax benefit (deduction or exclusion) you could receive for making a contribution to a retirement plan, like an IRA or 401(k), would be limited to 28%. Thus, if you are in the 28% ordinary income tax bracket or lower, you would be unaffected by this provision. However, if you are in a higher tax bracket, such as the 33%, 35%, or top 39.6% ordinary income tax bracket, you wouldn't receive a full tax deduction (exclusion) for amounts contributed or deferred into a retirement plan.
Comment — This one is sure to be another politically divisive aspect of the overall budget proposal. If this provision were to become law, it would create a terrible compliance burden for those in the highest tax brackets with respect to their retirement accounts. According to the Greenbook, if a tax benefit for a contribution to a retirement plan was limited by this proposal, it would create basis within a person's retirement account.
6. Establish a ‘cap’ on retirement savings prohibiting additional contributions
The proposal — This proposal would prevent you from making any new contributions to any tax-favored retirement accounts once you exceeded an established "cap." The cap would be calculated by determining the lump-sum payment it would take to produce a joint and 100% survivor annuity of $210,000 a year, beginning when you turn 62. Currently, this would cap retirement savings at approximately $3.4 million. The cap, however, would be a soft cap, as your total tax-favored retirement savings could exceed that amount, but only by way of earnings. Adjustments to account for cost-of-living increases would also apply.
Comment — While I understand the administration's reasoning behind this proposal, I'm not a big fan. I believe we should be inspiring people to save as much as possible for retirement, because as 2008 showed us, you never know when the next rainy day is going to come. Here's the bigger question though, at least for me: What happens if someone is over their applicable limit, but would otherwise be eligible to receive employer contributions, such as profit-sharing contributions, to their retirement account? It would appear that, under the proposal, these amounts would be forfeited altogether. That would be a completely unjust outcome and would be something either Congress or the regulations would have to address.
7. Create a new ‘hardship’ exception to the 10% penalty for the long-term unemployed
Proposal — A new 10% early distribution penalty exception would be created to help those with financial hardships due to being unemployed for long periods. The exception would apply to IRAs, as well as employer-sponsored retirement plans. To qualify, an individual would have to be unemployed for more than 26 weeks and receive unemployment compensation during that period (or less if due to State law). Furthermore, the distribution would have to occur in either the year the unemployment compensation was paid, or the following year.
Finally, the exception would be limited to certain amounts. All qualifying individuals would be eligible to use this exception for at least $10,000 of their eligible retirement account distributions. However, if half of their IRA balance or plan balance exceeded this amount, then that amount, up to $50,000, would be eligible for the exception.
Comment — It would seem pretty hard for either political party to fight against this provision too hard. No one likes to be looked at as kicking someone while they're down.
8. Mandatory five-year rule for non-spouse beneficiaries
Proposal — The overwhelming majority of non-spouse beneficiaries would be forced to empty their inherited retirement accounts by the end of the fifth year after the account owner's death. To be very clear, this provision would effectively mark the death of the "stretch IRA," and all the tax benefits that come along with it. The provision would, however, exempt certain beneficiaries, such as those that are disabled, chronically ill and aren't more than 10 years younger than the deceased retirement account owner from the more restrictive rules. Minor children would also be given a break, but would still be required to distribute their inherited retirement account no later than five years after they reach the age of majority.
The proposal wouldn't impact those who are already beneficiaries, but rather, only those who inherit in 2016 and beyond.
Comment — If retirement accounts are really for retirement, then as much as you may not like this provision (I don't either), it isn't an unreasonable position for the administration to take. Our government is broke and the stretch IRA, by providing tax benefits to individuals the accounts were never really intended to benefit, costs the government a lot of money. In fact, the budget proposal estimates that by implementing this change, it could collect almost an additional $5.5 billion dollars over the next decade.
One thing that some might find particularly irksome is that the proposal is included under the section of the budget entitled "loophole closers." Those beneficiaries who are stretching distributions aren't using any sort of gimmick or trickery to do so. They are following the law and regulations precisely as they were created and were intended to be followed. To claim otherwise casts those smart enough to maximize the value of their inherited accounts by stretching distributions in an unfairly negative light.
9. Allow non-spouse beneficiaries to complete 60-day rollovers for inherited IRAs
The proposal — Non-spouse beneficiaries would be allowed to move money from one inherited retirement account to another via a 60-day rollover, in a similar fashion to the way retirement account owners can move their own savings.
Comment — This proposal has been included in the president's budget for several years now. That it hasn't yet been passed into law is somewhat a testament to Washington's inability to accomplish just about anything constructive. There is absolutely no downside to including such a provision in the tax code, as the budget consequences would be "negligible." This is a provision that should be supported by everyone in Congress, regardless of whether they are blue, red, or somewhere in between, because it would eliminate one of the most common, damaging and irreversible mistakes made with inherited retirement accounts.
10. Require retirement plans to allow participation from long-term part-time workers
The Proposal — Retirement plans would be required to allow participation from workers who have worked at least 500 hours a year for three consecutive years with the sponsoring employer. Employees eligible to participate in a plan because of this provision wouldn't be required to receive employer contributions, however, including employer matching contributions. In other words, this provision would only require qualifying employees to be able to contribute their own funds to their employer's retirement plan.
Comment — While the goal of this provision — encouraging people to save more for their retirement — is certainly laudable, it's hard to imagine employers getting behind it. If they wanted to cover these employees now, they could. Although they're not required to do so, they certainly aren't prohibited from doing so either. A lot of it comes down to expenses. Part-time employees often have lower plan balances, which as the budget proposal points out, "can be costly to administer relative to the size of the balance."
11. Require Form W-2 reporting for employer contributions to defined contribution retirement plans
The proposal — Simply put, this proposal would require companies to report any amounts they contribute to an employee's defined contribution retirement plan (i.e., 401(k)) on the employee's Form W-2.
Comment — Would it be nice for an employee to see this information on the W-2? Sure, but it isn't that big of a deal.
12. Mandatory auto-enrollment IRAs for certain small businesses
The Proposal — Employers in business for at least two years and have more than 10 employees would be required to offer an automatic IRA option to its employees if it doesn't already offer another type of employer-sponsored retirement plan (i.e., 401(k), 403(b), SEP IRA). These automatic IRAs would be funded via payroll deductions. A standard notice would be provided to employees letting them know about the automatic IRA and would give them the opportunity to establish their own contribution rate or to opt out altogether. Employees would also be able to choose between allocating their salary deferrals to a traditional IRA and a Roth IRA. In absence of an election, employees would automatically be enrolled at a default rate of 3%, and contributions would be made to a Roth IRA.
To offset some of the costs associated with establishing the automatic IRAs and to further encourage employers to offer more robust retirement savings options, the proposal would also expand existing tax credits, while establishing some new ones as well.
Comment — One interesting aspect of this proposal is that the default option for the automatic IRA is a Roth IRA. This could lead to some unintended consequences. Unlike traditional IRAs, which have no maximum income limits for contributions (though in some cases deductions may be limited), Roth IRA contributions are prohibited once a person exceeds their applicable income threshold. If a person has exceeded their applicable threshold and errantly makes Roth IRA contributions anyway, those contributions are subject to a 6% excess contribution penalty every year until the problem is corrected.
To be sure, this provision is aimed at those with lower incomes, but there may be certain employees and small businesses making significant incomes. Or an employee with modest income could have a spouse who has high income, pushing the couple above their applicable Roth contribution income threshold. If that were the case, and 3% of the employee's paycheck was sent to a Roth IRA per this provision, it's possible that, without taking any action on their own, an employee's own salary could be diverted to a retirement account they're ineligible to contribute to — ultimately leading to penalties that the IRS has no authority to waive. That doesn't seem fair.
13. Facilitate annuity portability
The Proposal — If an employer-sponsored retirement plan decided to offer an annuity investment within the plan, but at some later point changed its mind and prohibited such an investment from being authorized to be held under the plan, participants would be eligible to roll over the annuity within their plan to an IRA or other retirement account via a direct rollover. This distribution would be allowed even if such a distribution would otherwise be prohibited.
Comment — In recent years, the administration has taken numerous steps to increase annuity options within retirement accounts for savers. This provision seems like the next logical step in that progression. Given that there is no requirement here for employers to offer annuity options, there would be no added expenses and the provision doesn't seem to favor either the wealthy or the poor, it would seem that our lawmakers should be able to get together on this one.
14. Eliminate deductions for dividends on stock of publicly traded companies held in ESOPs
The proposal — In general, publicly traded companies would no longer be allowed to claim a deduction for dividends paid that are attributable to stock held in an employee stock ownership plan, or ESOP.
Comment — Publicly traded corporations (and their employees) may not like this one, but it makes sense as a matter of tax policy. There should be no additional tax incentive for a company to offer stock to its employees via an ESOP than there is to offer them the same stock via a 401(k) or other retirement plan.
Stock markets opened lower on the first day of trading of 2015, and the credit markets that forewarned the 2007 crash are showing signs of strain
The FTSE 100 slid on the first day of trading in 2015. Here are 10 warning signs that the markets may drop further.
Vix fear gauge
For five years, investor fear of risk has been drugged into somnolence by repeated injections of quantitative easing. The lack of fear has led to a world where price and risk have become estranged. As credit conditions are tightened in the US and China, the law of unintended consequences will hold sway in 2015 as investors wake up. The Vix, the so-called “fear index” that measures volatility, spiked to 18.4 on Friday, above the average of 14.5 recorded last year.
Rising US Treasury yields
With the Federal Reserve poised to raise interest rates for the first time in almost a decade, and the latest QE3 bond-buying programme ending in October last year, credit markets are expecting a poor year for US Treasuries. The yield on two-year US Treasuries has more than doubled from 0.31pc to 0.74pc since October.
Along with the increased US Treasury yields, the cost of insuring against corporate credits going bad is also going up. The cost of insuring investment grade US corporate credit against default has become 20pc more expensive, rising from lows of 55 to 66 since July, according to Markit.
Rising US credit risk
The wider credit market is also flashing warning signs. The TED spread, as reported by Bloomberg, is the difference between the rate US banks are willing to lend to each other and the Federal Reserve rate, which is seen as risk free. The TED spread is taken as the perceived credit risk in the general economy, and increased 9pc in December to its highest level since the end of 2013.
Rising UK bank risk
In the UK, a key measure of risk in the London banking sector is the difference between the London interbank offered rate (Libor) and the overnight indexed swap (OIS) rate, also called the Libor-OIS spread. This shows the difference between the rate at which London banks are willing to lend to each other and the Federal Reserve rate which is seen as risk free. On Friday, the Libor-OIS spread reached its highest level since October 2012.
Interest rate shock
Interest rates have been held at emergency lows in the UK and US for around five years. The US is expected to move first, with rates starting to rise from the current 0-0.25pc around the middle of the year. Investors have already starting buying dollars in anticipation of a strengthening US currency, with the pound falling 10pc against the dollar since July to hit 1.538 on Friday. UK interest rate rises are expected by the end of the year.
Bull market third longest on record
The UK stock market is in its 70th month of a bull market, which began in March 2009. There are only two other occasions in history when the market has risen for longer. One is the period leading up to the great crash in 1929 and the other before the bursting of the dotcom bubble in the early 2000s.
UK markets have been a beneficiary of the huge balance sheet expansion in the US. US monetary base, a measure of notes and coins in circulation plus reserves held at the central bank, has more than quadrupled from around $800m to more than $4 trillion since 2008. The stock market has been a direct beneficiary of this money and will struggle now that QE3 has ended.
Overvalued US market
In the US, Professor Robert Shiller’s cyclically adjusted price earnings ratio - or Shiller CAPE - for the S&P 500 is currently at 27.2, some 64pc above the historic average of 16.6. On only three occasions since 1882 has it been higher - in 1929, 2000 and 2007.
Commodity markets have been the lead indicators for a global slowdown, as the prices for oil and iron ore more than halved in value last year. The Bloomberg Global Commodity index, which tracks the prices of 22 commodity prices around the world, fell to fresh five-year lows on Friday at 104.17.
Professional investors exit
Professional investors are already making for the exit. The Bloomberg smart money flow index tracks the market movements at the end of the trading day on the Dow Jones, when professional investors tend to make their move. The index showed heavy buying activity from 2009 onwards as professional investors followed central banks' money into the markets, achieving record gains during the past five years. That trend was reversed from the beginning of 2014 and the smart money is now making for the exit, as the S&P 500 carries on rising to new record highs.
The structure of global capital markets is such that the $68 trillion equity market is riskier and sits on top of a credit market worth more than $100 trillion. As yields have fallen in the credit markets, the excess profits have flowed up to equity, in turn lifting stock markets to record highs.
The reversal of that trend, one of increased risk and rising credit yields will reduce returns to equity and send shockwaves through stock markets. The warning signs are not all flashing red just yet but investors would do well to head these indicators that suggest caution and prepare their portfolio before the crowd flocks to the exit.
LINK TO ACTUAL ARTICLE
Make it a priority to improve your retirement finances.
The new year offers an opportunity to review your retirement finances and make changes that will boost your chances of a secure retirement. Consider these retirement-related new year's resolutions for 2015.
Bump up your savings rate. Try to save at least 1 percent more next year. If you get a raise, redirect part of it to a retirement or investment account. A portion of year-end bonuses, tax refunds or other windfalls can also be used to jump-start your retirement savings. "The earlier you start, the lower your savings rate can be," says Alicia Munnell, director of the Center for Retirement Research at Boston College and co-author of "Falling Short: The Coming Retirement Crisis and What to Do About It."
Prepared for Retirement? Higher Education Professionals Are
According to a new Teachers Insurance & Annuity Association survey, higher education faculty is better prepared for retirement than the general population – setting a great example.
On top of saving in their employer-sponsored retirement plan, 42 percent of higher education employees have saved in an IRA compared to 34 percent of the general workforce. While 36 percent of college faculty and staff say they have seen a financial advisor, only 22 percent of the general population report that they have done so.
Once simply viewed as a safe way to guarantee a lifetime stream of income, fixed annuities have emerged as a balanced instrument that offers the potential for wealth accumulation. This potential has made fixed annuities a top choice for many soon-to-be retirees, and there is no sign of this changing in 2015.
Insurance News Net released the following list of trends for fixed annuities in 2015:
According to recent statistics from the Alzheimer's Association, the prevalence of Alzheimer's is unfortunately on the rise in the United States as baby boomers age. Currently, Alzheimer's is the 6th leading overall cause of death in the United States and the 5th leading cause of death for those aged 65 and older, killing more people than prostate cancer and breast cancer combined.
Alzheimer's disease is also the most expensive condition in the nation. Although Medicare and Medicaid cover some of this cost, the total out-of-pocket spending for individuals with Alzheimer's and other dementias is estimated at $36 billion annually.
As you consider planning for retirement and your old age, it's important to keep in mind that you should hope for the best while preparing for the worst, such as these high, long-term health care costs like those faced by people with Alzheimer's.
One option to consider is investing in a fixed indexed annuity—a tax-deferred product offered by life insurance companies that offer low risk, guaranteed income and protection for market ups and downs.
You can have additional peace of mind by purchasing an annuity with a nursing home or long-term care rider to access your annuity funds free of federal taxes if you need long-term care either at home or in a nursing facility. And if you don't need long-term care or want to redeem your annuity for other purposes, you can still redeem it for its accumulated value when it matures.