The first quarter of 2013 is in the books and it’s time to look back and see what progress we made, if any. First up: net worth. Read more
I spent some time this weekend looking back at 2012. The number one statistic I evaluate is our net worth because that is what will be generating our retirement income when the time comes. Investment performance is also important but not as important to me as net worth. For example, our retirement portfolio could increase in value by 20% over the year but if we offset that with more debt or spending that depletes our cash, we really haven’t accomplished much. It’s about accumulation.
Once again Congress put a temporary fix on a long term budget problem. The markets reacted positively but with continued uncertainty. Volatility remains and it is still too much for us. We continue to add to our retirement accounts at a significant rate. Therefore, to maintain a positive trend until some reasonable level of market stability is found, we are staying heavy in cash.
The Federal Reserve announced a policy change this week that baby boomers should pay close attention to. For the past few years, the Fed has told the public that the interest rates it controls would be maintained at or near 0% until at least 2015. That has now changed because the Fed has instead tied its interest rate policy to the unemployment rate. On Wednesday, the Fed said it would maintain interest rates near zero if the unemployment rate remained above 6.5 percent, further provided that inflation does not rise above 2.5 percent.
Intriguing title to this post, don’t you think? I thought so when I read the Money magazine article with a similar title. So what is the worst investment mistake that a retiree can make? Taking risk when you don’t have to.
Insurance companies have pushed hard to sell variable annuities with guaranteed lifetime income riders. These products were attractive to baby boomers who were attempting to build their own “pension.” Sadly, many of these same insurance companies are trying to undo and undercut the vary products that they sold. A recent case in point: Prudential.
Single premium immediate annuities have become more popular as a tool for generating lifetime retirement income. However, immediate annuities are insurance policies that do not make sense for everyone, despite the appeal of having income security. Two circumstances come to mind when you should probably not buy one.
The title of this post – when saving beats investing – may provoke controversy and/or complaints of “it can’t be done.” That’s OK – it is a topic I am interested in pursuing anyway. What I will argue here is primarily for those who are close to retirement and are highly risk averse. These are the folks that have managed to put away a decent sized nest egg that, with a few more years of work and avoidance of losses – can allow them to retire with reasonable safety and a decent standard of living. We are in that category. So what do I mean by asserting that saving can beat investing?
Many retirees are turning to annuities to provide income and/or growth with no downside risk. Let’s forget for the moment the costs and other problems associated with variable annuities in particular. The question I want to briefly address is – assuming that an annuity is part of your retirement planning – whether you should wait to purchase one.
I would love to accurately claim to be a successful market timer but I can’t. I haven’t even tried. My view is that successful market timers are more lucky than good.
I have made asset allocation moves in recent years based on a combination of (a) current economic conditions and (b) consensus expectations for how those conditions are likely to change in the near term. Given the conditions that arose in 2008 and which remain substantially unchanged today, finding negativity in the markets is not rocket science. I don’t buy and sell based on hunches, guesses, or gambles.