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Bob’s Journal for 5/9/2019

Last update on: Aug 10 2020

More Americans than ever are confident they will be able to live comfortably in retirement, but many of them could be fooling themselves.

The percentage of retirees who are confident they’ll be able to live comfortably throughout retirement rose significantly from 2018 to 2019, according to the annual Retirement Confidence Survey from the Employee Benefits Retirement Institute (EBRI). The percentage rose to 82% from 75% in one year and matches highs recorded in 2005 and 2017.

Further, 23% said they are “very confident” they’ll be able to live comfortably, compared to 17% last year. The current level is back to the average recorded in the late 1990s and early 2000s before the financial crisis.

But people aren’t always objective and well-informed when self-reporting in such surveys. For example, 93% of people say their driving skills are above average according to a 2011 survey that is consistent with other surveys.

That’s why the EBRI survey is at odds with a survey from Fidelity released the same week.

The Fidelity survey found that a written retirement plan isn’t a priority for most Americans, especially baby boomers. About 75% of boomers don’t have a written retirement plan. That’s better than for the following generations. More than 80% of them didn’t have a plan. Overall, only 18% of Americans have a written retirement plan, according to the survey.

People offered the expected reasons for not having retirement plans. The most common (23%) was they hadn’t thought about having to prepare a plan. About 22% said they didn’t know where to begin and 20% said they were too far behind to make a difference.

It is hard to understand how people can be confident about their retirement security, as reported in the EBRI survey, when so few of them have written retirement plans, as reported in the Fidelity survey. It could be that many of the people in the EBRI survey are fooling themselves or don’t really understand their financial positions.

There are several reasons why people should develop written retirement plans and review them every year or so during retirement.

A retirement plan gives you a good view of your finances. It forces you make key decisions and to make them while taking a comprehensive look at your finances.

A plan also gives you confidence throughout retirement. You know that you looked at the important issues and made the numbers work.

Surveys of those already retired show that those who entered retirement having developed some sort of retirement plan were more satisfied than those who didn’t. That’s likely because those with plans entered retirement with realistic expectations and confidence in their futures.

You don’t need a plan hundreds of pages long like those you’ll receive from some financial planners.

But to have a successful, low-stress retirement, you need an estimate of your annual spending. You need to know where your cash will come from and how much it is likely to be each year. You need an estimate of how much money you safely can spend each year without risking running out of funds. You also need to map out key decisions such as what type of Medicare plan you’ll have and how you’ll pay for any long-term care you might need.

When you address these and other issues early in retirement (or, better yet, before retirement) and review them regularly, you’ll be more confident and secure during your retirement years. Unlike some of those in the EBRI survey, your confidence will be realistic.

The Data

Consumers reduced their use of credit in March, indicating they were less inclined to spend. Revolving credit, which generally is credit card debt, decreased by 2.5% during the month. Student and vehicle loans increased. Revolving credit increased only 1.4% over 12 months, while other credit increased 5.3% over 12 months.

The service sector of the economy might be slowing.

The PMI Services Index declined to 53.0 from 55.3. New orders were at a two-year low in the report, and confidence in the future was near a three-year low.

Likewise, the ISM Non-Manufacturing Index declined to 55.5 from 56.1. New orders declined, but export orders increased sharply.

Inflation remains stable, according to the Producer Price Index. It increased 0.2% for April, compared to a 0.6% increase for March. After subtracting food and energy, the PPI increased only 0.1%. Over 12 months, the measure increased 2.2% and 2.4%, respectively.

Last week’s Employment Situation reports were stronger than expected. They show the labor market still is the strongest it has been in decades and is likely to remain that way for a while.

Probably the big news in the report is the steady increase in average hourly earnings. They rose 0.2% in April to bring the 12-month increase to 3.2%. So far, businesses have been able to absorb the higher labor costs by investing in equipment or finding other ways to increase productivity. It is unlikely they would be able to pass higher costs to consumers through higher prices. At some point, higher labor costs are likely to reduce profit margins.

The JOLTS (Job Openings and Labor Turnover Survey) report also showed a strong labor market. The JOLTS report lags the Employment Situation reports by one month. Job openings increased sharply by 4.8%. Yet, hiring declined by 0.6%. The gap between job openings and hires is at a record of more than 1.8 million. Job openings increased 8.6% over 12 months, but hires increased only 0.6%.

This gap between openings and hires could lead employers to offer even higher wages to obtain qualified workers.

New unemployment claims decreased 2,000 to 228,000. The four-week average increased to 220,250 from 212,500. This reflects the increase of 37,000 in weekly claims a few weeks ago that hasn’t been reversed. We could be moving to a higher level of new claims despite the recent strength in the Employment Situation and JOLTS reports.

The Markets

The S&P 500 declined 1.47% for the week ended with Wednesday’s close. The Dow Jones Industrial Average fell 1.70%. The Russell 2000 lost 0.02%. The All-Country World Index (excluding U.S. stocks) tumbled 2.05%. Emerging market equities gave up 2.75%.

Long-term treasuries rose 0.41% for the week. Investment-grade bonds fell 0.13%. Treasury Inflation-Protected Securities (TIPS) gave up 0.19%. High-yield bonds lost 0.20%.

On the currency front, the U.S. dollar increased 0.04%.

Energy-based commodities declined 2.20%. Broader-based commodities fell 2.09%. Gold rose 0.41%.

Bob’s News & Updates

The number of regular viewers for my Retirement Watch Spotlight Series continues to increase. You should sign up because I make in-depth presentations of key retirement finance topics. You can watch these online seminars from the comfort of your home or office at times you choose. To learn more about my new Spotlight Seriesclick here.

A recent five-star review of my book on Amazon.com said, “A complete retirement guide! One of the best books on this topic!” Click for more details about the revised edition of “The New Rules of Retirement.”

I’m a regular contributor to the Forbes.com blog. You can view my contributor page here.

Do your heirs know how to handle an inherited IRA? If not, they’ll join the long list of heirs who made simple mistakes that triggered additional taxes and penalties. To avoid this result, be sure your heirs have a copy of Bob Carlson’s Guide to Inheriting IRAs.

 

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