Posts Tagged ‘Labor Department’

Nearly Half of Americans Have Saved Only $25,000 For Retirement

Wednesday, April 13th, 2011

Americans’ confidence in having adequate money to retire on has hit a 20-year low, according to a survey by the Employee Benefits Research Institute (EBRI).  “We’re getting the most pessimistic results we’ve ever seen,” said Jack VanDerhei, EBRI’s research director and the study’s co-author.  “Those that are not well prepared are finally starting to get it.  The bad news is they’re not really reacting to it yet,” VanDerhei said.  “Hopefully this will be something that in the future will generate more savings.  People were shell shocked to some extent by what was going on in 2008 and 2009,” said VanDerhei.  “Many people wouldn’t even open their 401(k) statements when they came every quarter because they were too afraid to look.”  Now these same people are determining if they have adequate money saved.  This pessimism is despite the fact that the average balance of a 401(k) account rose to $71,500 at the end of 2010, an increase of approximately 11 percent when compared with 2009, according to Fidelity Investments.

Approximately 27 percent reported that they have little confidence about the amount of their retirement savings, an increase over the 22 percent reported last year.  The increase was driven by people with less than $100,000 in savings, according to the report.  The percentage of those with less than $25,000 in savings who lack confidence about having enough money in retirement soared to 43 percent in 2011, an increase from the 19 percent reported in 2007.  Five percent reported that their savings totaled more than $100,000, about the same as 2007.  Nearly 1,000 workers and 250 retirees aged 25 and older were interviewed for the survey.  EBRI has conducted the survey since 1990.

High unemployment rates, the size of the federal deficit, rising healthcare costs, lower returns on investment and worries about Social Security and Medicare funding have forced Americans to redefine retirement, VanDerhei said.  Regulators and legislators are examining the risk of Americans outliving their savings as life expectancies increase and funds have shifted from traditional pension plans to defined-contribution plans such as 401(k)s.  The Labor Department is examining whether it should be easier for employers to add annuities to retirement accounts.  Senator Jeff Bingaman (D-NM) re-introduced legislation that would require 401(k) plan sponsors to inform workers of the projected monthly income they can expect at retirement based on their current account balance.

Not all the news in the EBRI study is bad. “In the past, investors in general were clueless about how big of a nest egg it takes to accomplish their goals,” said Harold Evensky, a Coral Gables, FL, financial planner.  “The silver lining of going through a bad economy is that people are substantially more realistic about what they need to do.”  Although the majority of people have not yet made major changes, at least 62 percent say it is possible for them to save $25 a week for retirement. One expectation may need to be adjusted.  Among the 1,004 workers surveyed, 74 percent plan to work in retirement to supplement their savings, but just 23 percent of the 254 retirees surveyed say they have worked in retirement.

Tools are available online to help Americans saving for retirement determine how far they are on the road to financial stability.  Generally speaking, financial planners suggest putting away between 11 and 15 percent of each paycheck for retirement.  Additionally, the Department of Labor’s website has a section called “Top 10 Ways to Prepare for Retirement”.

Is the Fed About to Hike Its Federal Fund Rates?

Wednesday, May 12th, 2010

Economists can’t decide if inflation will force the Fed to raise its interest rate.  The recent release of minutes from the Federal Reserve’s March meeting may hint that the nation is experiencing a sustainable recovery and is possibly facing upwards inflationary pressure.  The yield on 10-year Treasury notes has already surpassed four percent for the first time since last June; oil and copper traded at their highest prices in 18 months.

With Labor Department data showing increased private-sector hiring (the fourth time in five months), some traders are betting that the Fed will have to raise its target federal-funds rates to 0.5 percent by November.  Even so, Fed Chairman Ben Bernanke doesn’t appear to be in a hurry to increase interest rates too quickly for fear of putting the brakes on the economic recovery at a time when the unemployment rate is hovering around 10 percent.  Job openings climbed in several sectors of the economy in February, including retail, manufacturing, transportation, restaurants and hotels, according to the Labor Department.

“In the market’s mind, the Fed is always about to hike,” said Ethan Harris, chief economist at Bank of America Merrill Lynch.  “But the Fed is in a very different mindset right now.”  Harris expects the Fed will raise its interest rate to one percent at the end of 2011.  Doug Roberts, chief investment strategist at Channel Capital Research, agrees.  “Concern with unemployment, which is expected to decrease slowly at best, indicates rates may remain low for much longer than people anticipate unless we get inflationary pressures,” Roberts said.

Fed Governor: U.S. Faces “Significant Economic Challenges”

Thursday, April 29th, 2010

With unemployment “stubbornly” high and government deficits rising, Fed warns of upcoming dangers.  The United States still faces “significant economic challenges”, with unemployment at “stubbornly” high levels and businesses that are reluctant to spend as government deficits rise.  This is the opinion of Federal Reserve Governor Kevin Warsh, who said “Taking account of the broad range of economic and financial conditions, there is no wonder that the electorate in the United States and abroad is unnerved.”  Nevertheless, Warsh feels “much better about the state of the real economy” than he did at this time last year.

Speaking at a symposium hosted by the Shadow Open Market Committee, Warsh, a former Morgan Stanley banker, noted that “Unemployment remains high and stubbornly so.”  Fed policymakers “still have tough times ahead” as they work to prove that their long-term goals are not being compromised.  The Senate Banking committee, under the leadership of its Chairman Christopher Dodd (D-CT), has proposed a financial rules overhaul that would result in the most significant restructuring of Wall Street oversight since the 1930s.  The Senate bill would limit the Fed to supervising bank holding companies with assets in excess of $50 billion.  Smaller and mid-sized banks would be regulated by other agencies.

According to Warsh, the Fed must act with “consistency” to protect its credibility.  “The Federal Reserve must do its utmost to stay foursquare within its role as liquidity provider,” Warsh said.  “The Fed, as first responder, must strongly resist the temptation to be the ultimate rescuer.”  Warsh believes that even though securitization has become a dirty word, the financial vehicle ultimately will return to the market.

Increased Worker Productivity Putting Brakes on New Hires

Wednesday, April 28th, 2010

Employee productivity is at an eight-year highWorker productivity increased 3.8 percent in 2009, the best record since 2002. Writing in the Washington Post, Neil Irwin notes, “That means high-level gains in productivity – which in the long run is the key to a higher standard of living but in the short run contributes to sky-high unemployment.  So long as employers can squeeze dramatically higher output from every worker, they won’t need to hire again despite the growing economy.”

Federal Reserve chairman Ben Bernanke called the increase in productivity “extraordinary” and admitted that he had not seen it coming.  “It is an episode that we’re going to – we, economists in general – are going to want to understand better and look at for a long time.”

Irwin wonders why companies didn’t achieve those gains when the economy was strong.  He believes the answer is with the employees themselves.  “Workers were in a panic of their own in 2009.  Fearful of losing their jobs, people seem to have become more willing to stretch themselves to the limit to get more done in any given hour of work.  And they have been tolerant of furloughs and cutbacks in hours, which in better times would drive them to find a new employer.”

James Manyika, a director at the McKinsey Global Institute, sees it this way:  “Companies are taking a fresh look at how to organize people, at how people actually work.”