Posts Tagged "nest egg"

Future Retirees Financially Fragile

Retirement contributionsThe scary thing about fully retiring is the obvious thing: the ability to earn stops cold.

Most retirees live on what they get from Social Security and what they can spend from their savings, if they have any.  So how many older Americans with fixed incomes can accurately be described as being in difficult straits financially?

Only about 10 percent of retired people today are being forced to cut back on food and medications to pay their other bills, concludes a summary of recent studies on retirement income by the Center for Retirement Research (CRR), which supports this blog.

Tomorrow’s retirees have a more troubling outlook, in part because they will be dramatically more reliant on 401(k)s.

The typical middle-income worker in Generation X, who ranges in age from 37 to 53, can expect his savings to supply 42 percent of his total income when he retires.  Savings are necessary for just 27 percent of the total income of current retirees born during the Great Depression and World War II, according to one of the studies summarized by CRR and conducted by the Urban Institute and U.S. Social Security Administration. …Learn More

stock market chart

Stock Market Jitters, Millennials? Relax

Back in December, the Vanguard Group predicted a stock market that would “remain placidly subdued” in 2018.   What a difference two months has made.

A Morgan Stanley analyst, echoing many on Wall Street, has now declared, “The long-anticipated return of [stock market] volatility has arrived.”  The Standard & Poor’s index of 500 stocks slid 10 percent in a few days in late January and early February, bounced back, and then dropped again last week: the S&P declined another 2 percent, and the Dow index was down even more, by 3 percent.

No one can predict the future, of course – not Vanguard or Morgan Stanley.  “Time will tell,” the analyst said.  But while baby boomers have been thrown around by the stock market and witnessed a recovery in their portfolios, young adults might not be so chill.

Here are some earnest words of comfort, Millennials: you are truly the lucky ones. …Learn More

Businessman carrying white mask - business fraud and faking concept

Cautionary Tale of Defrauding the Elderly

Two Morgan Stanley investment advisers agreed last week to plead guilty to stealing nearly $500,000 in a set of schemes that took particular aim at their elderly or retired clients, the U.S. Department of Justice charged. One client is in his mid-80s.

Multiple allegations detailed in the federal complaint demonstrate the creative ways that trusting older individuals might be deceived. For example, the Justice Department (DOJ) indicated that college tuition may have been the auspice or motivation for adviser and broker James S. Polese’s alleged fraud to obtain $320,000 from the client in his 80s – labeled Client B in the complaint.

The allegations included that Polese, age 51, knew a $50,000 loan from Client B for his children’s college expenses was prohibited by Morgan Stanley and was “a conflict of interest between the client and his adviser,” said the complaint, which was filed last week in U.S. District Court in Boston.

Polese and Cornelius Peterson, who both live in the Boston metropolitan area, also worked together to divert money from Client A and also a Client B to a failed wind farm investment without their knowledge, the complaint said. A third client allegedly paid inflated fees.

The brazen allegations in this case come amid reports that financial fraud against the elderly is on the rise. Retired people with nest eggs can be enticing targets for scam artists, and the elderly are “likely financially vulnerable” if they are experiencing cognitive decline, one study said. Further, a trusting senior might have more difficulty detecting financial deceptions that involve complex transactions. (Little detail about the clients’ personal situations was disclosed in the court documents.)

Morgan Stanley said that it fired Polese and Peterson in June 2017 immediately after uncovering the fraudulent activities and “referred the misconduct to regulatory and law enforcement agencies.” The two are registered brokers, and the Securities and Exchange Commission was involved in the investigation. The brokers agreed to plead guilty, said a statement from the U.S. Attorney in Massachusetts. A plea hearing is scheduled for February 15.

Client A and Client B were involved in the wind farm investment, the complaint said: Client A lost $100,000 after Peterson made “false statements” to his employer “when he signed a form stating that Client A had verbally authorized the $100,000 [wind farm] investment.” Client B, a businessman, was unaware that his funds were being used to support the wind farm, in the form of a loan account that could be used as a collateral backstop to the project, according to the charges. Although the funds were never used, Client B’s money was nevertheless put at risk, DOJ said, and he paid $12,000 in fees associated with the transaction.

Boston attorney Carol Starkey said her client, Peterson, age 28, was a “minor participant” and noted that Polese, who is 23 years his senior, was Peterson’s supervisor. Polese’s attorney did not respond to requests for a comment. …Learn More

The Big Freeze Immobilizes Boomers

“The Big Chill” was the iconic movie for baby boomers in their prime in 1983.  Perhaps The Big Freeze is the best way to describe where we’ve ended up.

 
Two recent reports based on in-depth interviews with retirees and pre-retirees arrived at the same conclusion about how we are approaching the dreaded retirement: paralysis.

A report commissioned by Boston College’s Financial Security Project, which sponsors the Squared Away blog, found that the baby boomers and pre-retirees felt “immobilized in retirement planning efforts by a combination of practical and emotional factors.”

These emotions include fear and confusion about not having enough money, not knowing how much they’ll need, and not knowing how or where to get information or help.Learn More

Are you a STOCK or a BOND? Book Cover.

Nature of Job is Key to Investing

Toronto finance professor Moshe Milevsky has written a new book, so this seemed like a good excuse to revisit his favorite question: are you a stock or a bond?

Milevsky believes financial advisors should ask their clients this question before making any asset-allocation decisions. If someone has a risky job, he argues – if they are a stock – then their portfolio should emphasize bonds.

“If a financial advisor says you have a lot of stocks [in your investment portfolio] and should buy bonds, the response should be, ‘My job is a bond,’ “ he said.

Milevsky is adding another layer to the risk formula usually promoted by financial planners, who typically advise clients to lower their risk as they age. Milevsky wants people to avoid the double jeopardy dramatized by Enron Corp. employees, who had high-risk jobs in energy speculation and put their money into high-risk stocks – even worse, they were Enron stocks.

In a recent interview, he rated a few professions on the stock-bond continuum to demonstrate how his theory works. …Learn More

Retirees: Focus on the Monthly Check

To help retirees choose the best way to spend down the 401(k) savings they have built up over a lifetime, Nobel Prize laureate William Sharpe urged them to focus on a single outcome: the size of their monthly check.


This video was created by Professor William Sharpe of Stanford University.

Financial advisors should say to their clients, “Don’t worry about the strategy or model. Look at the outcomes that matter: what you can spend year by year in retirement,” he said.

Speaking at a conference this week at Boston University’s School of Management, which brought financial practitioners together with top minds in academic finance and Washington think tanks, Sharpe said advisors should present clients with various payout schedules and then explain the probability of success for each one they’re considering. Learn More