Permanent Value

Week In Review – 08/22/2016

Bruce Doole
August 22nd, 2016

 

Why Save For Financial Independence In Your 20s?

When you’re in your 20s, financial independence seems like such a distant goal that it hardly seems real at all. In fact, it’s one of the most common excuses people make to justify not saving for financial independence.

But anyone nearing financial independence will tell you that the years slip by and that building a sizable nest egg becomes much more difficult if you don’t start early. Also, you’ll probably acquire other expenses you may not have yet, such as a mortgage and a growing family.

You may not earn a lot of money as you begin your career, but there’s one thing you have more of than richer, older folks – time. With time on your side, saving for financial independence becomes a much more pleasant (and exciting) affair.

You’re probably also paying off your student loans, but even a small amount saved for financial independence can make a huge difference in your future. We’ll walk through why your 20s are the perfect time to start saving and investing in your own financial independence.

Compound Interest Is Your Friend

Compound interest is the number-one reason it pays to start early with retirement planning. If you’re unfamiliar with the term, compound interest is the process by which a sum of money grows exponentially due to interest more or less building upon itself over time.

When you’re young, it is important to invest into high cash flow assets that help pay for monthly expenses.  When high cash flow investments (such as real estate) produce enough monthly cash flow to cover monthly expenses one is known to be financially independent.  Because monthly expenses are so low in your 20’s, it is better to focus on your high cash flow investments during your 20’s and pay off student debt in your 30’s.

The Bottom Line

The sooner you begin saving for retirement, the better. When you start early, you can afford to put away less money a month since compound interest is on your side.

Source: Steven Richmond

THIS WEEK’S ECONOMIC DATA

  • China CPI was up 0.2% for the month in July.
  • The Reserve Bank of India announced no changes to its monetary stance in its Bi-monthly Policy Statement.
  • Canada Housing Starts fell 9.1% monthly to a 198,395 seasonally adjusted annualized unit rate, which left the level of starts a little firmer than expected.
  • U.S. Jobless Claims edged 1,000 lower in the Aug. 6 week to 266,000 with the 4-week average up 3,500 to a 262,750 level that shows very little change over the last several weeks.
  • China Industrial Production in July was up a less than expected 6.0% from a year ago. Expectations were for an increase of 6.2%.
  • EU Flash GDP rose only 0.3%, matching the weakest gain since the second quarter of 2014.
  • EU Industrial Production rose by a better than anticipated 0.6% in July, but the annual rate of 0.4% is far short of expectations of a 0.7% annual increase.
  • U.S. Retail Sales retail sales slipped 0.3% when excluding auto sales for the first decline since March.

Source: Ivy Weekly

 

Week in Review – 08/08/2016

Bruce Doole
August 8th, 2016

401(k), IRA Account Balances Increase in Q2: Fidelity

– Balances for long-term millennial 401(k) savers reached record levels

Individual retirement account and 401(k) balances increased quarter over quarter in the first half, but fell from the year-earlier period, Fidelity Investments reported Tuesday.

The average 401(k) balance stood at $88,900 at the end of the second quarter, up nearly 2% from the end of the first quarter, but down 2.5% year over year.

The average IRA balance increased slightly from the end of the January-to-March period to $89,700, but was 7% lower than in the 2015 second quarter.

Fidelity based its analysis on 22,000 corporate defined contribution plans and 14.2 million participants, as of June 30. It said these figures included the advisor-sold market, but excluded the tax-exempt market as well as nonqualified defined contribution plans and plans for Fidelity’s own employees.

Fidelity’s IRA analysis was based on 8.2 million IRA accounts.

At the end of the second quarter, a record of some 45% of Fidelity retirement customers had all of their 401(k) assets in target-date funds and managed accounts.

Fidelity said these investors were less likely than others to react to market swings and economic events.

Its analysis showed that among savers with all of their 401(k) savings in a target date fund, only 1% had made an investment change within their account over the past 12 months. This compared with 13% of 401(k) investors with a “do it yourself” approach to retirement savings.

Fidelity’s second-quarter report said the average balance for millennial investors who had been continuously active in their 401(k) plan for 10 years reached a record $92,900, up almost 10% from $84,700 one year ago.

The overall balance for long-term savers reached $241,300 at the end of the second quarter, compared with $231,500 one year ago.

“Most retirement savers are accustomed to market volatility, but the swings in the second quarter were especially dramatic, including a 600-point drop followed by a nearly 800-point increase,” Doug Fisher, Fidelity’s senior vice president for workplace investing, said in a statement.

“It can be tempting for investors to have a knee-jerk reaction to market volatility, so it’s encouraging that more people are tapping professional guidance to help keep their retirement savings and investing on track.”

Source: Michael S. Fischer

THIS WEEK’S ECONOMIC DATA

  • U.S. new home sales rose to a much higher-than-expected 592,000 annualized rate in June following a 572,000 rate in both May and April (both revised).
  • Australia consumer price index for second quarter was up 0.4%, a 1.0% increase from a year ago.
  • Great Britain’s economy advanced 0.6% for second quarter, higher than a 0.4% expansion in the previous period and better than market expectations of 0.4%.
  • U.S. durable goods orders proved very weak for the factory sector for a second straight month in June, down 4.0% and outside Econoday’s low estimate

Source: Ivy Weekly

 

Week in Review – 8/1/2016

Bruce Doole
August 2nd, 2016

Social Security Bill Would Raise Retirement Age, Slow COLAs

Rep. Ribble’s S.O.S. bill seeks to ensure Social Security remains solvent for the next 75 years

While grappling with Social Security’s solvency will continue to be a controversial priority for the next administration, regardless of who wins the White House, Rep. Reid Ribble, R-Wis., recently offered up his own remedy to ensure the government program remains solvent for the next 75 years.

The Save Our Social Security (S.O.S.) Act, introduced in early July, uses a combination of revenues, benefit adjustments and raising the retirement age while preserving early retirement to fill the funding gap.

“Social Security is the single biggest step we have taken to reduce senior poverty, and if we do nothing, seniors will see their benefits cut by 21% in 2034,” Ribble said in a statement announcing the bill. “The problem gets worse the longer we wait.”

The trustees of the combined Old Age and Survivors Insurance and Disability Insurance trust funds reported to Congress in late June that they project the OASI fund will be depleted by 2034 (the same as projected last year), with the disability fund depleted by 2023.

Ribble’s bill would increase the contribution rate and benefit base to 34% by 2022, with the breakdown as follows.

Increase payroll subject to taxes over 5 years to 90%, then index to 90% (current cap is $118,500):

FY2017: $156,550

FY2018: $194,600

FY2019: $232,650

FY2020: $270,700

FY2021: $308,750

FY2022: shall be determined by the commissioner – “such that the percentage of the total earnings for all workers that are taxable is equal to 90% for each calendar year.”

The bill would also increase the retirement age from 67 to 69, starting in 2022. The bill preserves the early retirement age of 62, which Ribble noted that 34% of workers currently take.

A recent Spectrem Group report, Social Security: When and Why?, found that for more than 60% of investors who are receiving Social Security benefits, the payments represent between 10% and 50% of their current monthly retirement income. For 32% of those with a net worth between $100,000 and $1 million, it represents at least 50%.

Cost of living adjustments under Ribble’s S.O.S. bill would move from the current Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to the Chained Consumer Price Index for all Urban Consumers (C-CPI-U), which accounts for how people switch their purchases as relative prices change.
Source: Melanie Waddell

THIS WEEK’S ECONOMIC DATA

  • U.S. new home sales rose to a much higher-than-expected 592,000 annualized rate in June following a 572,000 rate in both May and April (both revised).
  • Australia consumer price index for second quarter was up 0.4%, a 1.0% increase from a year ago.
  • Great Britain’s economy advanced 0.6% for second quarter, higher than a 0.4% expansion in the previous period and better than market expectations of 0.4%.
  • U.S. durable goods orders proved very weak for the factory sector for a second straight month in June, down 4.0% and outside Econoday’s low estimate

Source: Ivy Weekly