Posts Tagged ‘retirement’

The Truth About Those Unemployment Numbers

Monday, October 29th, 2012

The nation’s unemployment rate fell to 7.8 percent in September, the lowest level reported since January of 2009.  That is a 0.4 percent decline from the 8.1 percent reported for the previous month, yet represents a slight hiring slowdown after the Department of Labor revised the July and August numbers upwards by 86,000.  A total of 114,000 jobs were added in September.

Despite the good news, the fact remains that the American work force is now down six million individuals from its 2007 levels. After adding those six million to the total, the unemployment rate rises to 11 percent.  These individuals are also known as “underutilized workers. Approximately one-third of that six million are actively looking for work; the rest have left the work force due to retirement, disability or another reason.  All told, 161.79 million American are currently employed.

Most people don’t realize that the jobs report actually collects data from two separate surveys.  In one, 140,000 employers report how many people are on their payrolls; in the second, 873,000 households report the number of members who have jobs.  While the employer-generated statistic reported in September was expected by economists, the household survey results were a surprise.  It reported the highest number of jobs filled since June of 1983.  It is not uncommon for the surveys to deviate from each other.   Here is how the household survey works is taken: an individual in the chosen household is asked if they own a business; do they work for pay; are they self-employed; do they work part time or full time.

Additionally, suggestions that the federal government had “cooked the books” are “nonsense”, according to New York Time s columnist and Nobel Price-winning economist Paul Krugman. “Job numbers are prepared by professional civil servants at an agency that currently has no political appointees,” Krugman wrote in a recent column.  “Furthermore, the methods the bureau uses are public – and anyone familiar with the data understands that they are ‘noisy,’ that especially good (or bad) months will be reported now and then as a simple consequence of statistical randomness.  And that, in turn, means that you shouldn’t put much weight on any one month’s report.”

Median Family Wealth Slid 40 Percent During Recession

Tuesday, June 19th, 2012

While the American public was bailing out Wall Street, those same taxpayers saw their families’ net worth decline by nearly 40 percent. The recession took roughly 20 years of Americans’ wealth, according to government data, with middle-class families faring the worst.  According to the Federal Reserve, the median net worth of families plummeted by 39 percent in just three years, from $126,400 in 2007 to $77,300 in 2010.  That means that American families median worth has reverted to 1992 levels.

The study is one of the most comprehensive examinations of how the economic downturn altered family finances.  Over three short years, Americans watched progress that took a generation to accumulate fade away.  The dream of retirement that relied on the expected rise of the stock market proved deceptive.  Homeownership, once viewed as a source of wealth, became a burden because the market collapsed.  The findings emphasize how deep the wounds of the financial crisis are and how healing is impossible for many families.  If the recession set Americans back 20 years, economists say, the road ahead is certain to be a long one.  And so far, the country has experienced only a halting recovery.  “It’s hard to overstate how serious the collapse in the economy was,” said Mark Zandi, chief economist for Moody’s Analytics.  “We were in free fall.”

Net worth is defined as the value of assets like homes, bank accounts and stocks, minus mortgage and credit card debt. The Fed found that median home equity declined from $95,300 in 2007 to $55,000 in 2010, a 42.3 percent drop.  Home equity is defined as the home’s value minus how much is owed on the mortgage.  According to the Fed, median incomes fell from $49,600 in 2007 to $45,800 in 2010, a 7.7 percent drop.

Additionally incomes fell the most among middle-class families.  The wealthiest 10 percent saw their median income decline 1.4 percent over the three years, while families in the second and third quartiles experienced a drop of 12.1 percent and 7.7 percent.  The lowest-income Americans saw their paychecks fall by 3.7 percent.  Families were less confident about how much income they could expect in the future.  In 2010, slightly more than 35 percent said they did not “have a good idea of what their income would be for the next year,” an increase over the 31.4 percent reported in 2007.

Although declines in the values of financial assets or business were important factors for some families, the decreases in median net worth appear to have been driven most strongly by a broad collapse in house prices,” according to the Fed.  The survey’s findings cast a harsh light on the damage done to the economy by the recession and which helps to explain the exasperatingly slow pace of recovery.  The housing market’s collapse was at the core of the recession, during which the economy contracted approximately 5.1 percent between the 3rd quarter of 2007 and the 2nd quarter of 2009, and the unemployment rate soared 4.5 percent to 9.5 percent.  “Housing was of greater importance than financial assets for the wealth position of most families,” the Fed said.  “A substantial part of the declines observed in net worth over the 2007-10 period can be associated with decreases in the level of unrealized capital gains on families’ assets.”

Incomes improved in late 2011 but have begun falling again this year,  said Gordon Green, cofounder of Sentier Research.  The decline is larger and more unrelenting than in the recovery after the 2000 recession, when family incomes returned to previous levels within 18 months, Green said.  “Incomes went down more during two years of this recovery than during the recession itself,” he said.  “I don’t think we’ve seen anything like this.”

The impact a given family felt depended on where they live, how much they earn and what kind of investments they had, said Scott Hoyt, an economist at Moody’s.  “Richer people owned more bonds that didn’t get killed,” Hoyt said.  “For middle-income households, their primary asset is their house at the low end and the government stimulus backstopped incomes.”

Household net worth reached a high point of $66 trillion before the recession hit in December 2007 and sank to just $54 trillion in 2008, according to the Fed.  It was $63 trillion in the 1st quarter this year, but that doesn’t reflect the stock market’s volatility since then.  The Fed estimates Americans lost $7 trillion in home equity because of the housing bust that followed a significant increase in mortgage defaults after 2006.

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”.

Illinois Ranks Dead Last in List of Retirement Paradises

Wednesday, December 29th, 2010

retirement_imageIllinois ranks as the nation’s worst state to retire in,  according to a study by The nine other losers include California, New York, Rhode Island, New Jersey, Ohio, Wisconsin, Massachusetts, Connecticut and Nevada.  John Brady,’s president, says the 10 states belong on this list because of their fiscal health (poor), taxation (high) and climate (the majority have cold, snowy winters).  The Pew Center for States has described six of the 10 as being in “fiscal peril”.  These states include Arizona, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island, Wisconsin and California.

Illinois’ position at the bottom of the list is due to the state’s grim fiscal health, which Brady describes as possibly the worst of any state.  The report, entitled “Beyond California:  States in Fiscal Peril”, demonstrates that “some of the same pressures that have pushed California toward economic disaster are wreaking havoc in a number of other states, with potentially damaging consequences for the entire county.”  Regarding Illinois, Brady notes that “It even borrowed money to fund its pension obligations.”  In terms of California, Brady notes that although it has an enviable climate, the cost of living is expensive and the state’s finances are a shambles – even paying some bills with vouchers.  Although New York state’s finances are in fairly good condition, it has the nation’s second-highest tax burden and the fifth-highest property taxes, as well as a “dysfunctional state legislature.”

One surprising finding was that – despite its affordable housing prices, due in part to a high number of foreclosures – Nevada was deemed the 10th worst state for retirement.  As the nation’s home foreclosure capital, Nevada in 2010 saw one in every 79 homes in foreclosure,  according to RealtyTrac.  Although Brady admits that the state has some financial problems, the positive news for retirees is that Nevada does not have a state income tax.

“Every individual has to consider his or her own criteria for selecting a list of the worst or best states to retire,” Brady concluded.

Getting By on $250,000 a Year

Monday, October 11th, 2010

University of Chicago law professor complains about $250,000 yearly income.Todd Henderson is a University of Chicago law professor; his wife is a physician at the prestigious university’s hospital.  Although the family earns more than $250,000 a year, lives in a pricey house in the upscale Kenwood neighborhood, employs a nanny and sends their children to private schools, Henderson is upset with President Barack Obama’s plan to end Bush-era tax cuts on high-income families. Writing recently on the “Truth in the Market” blog, Henderson said that “A quick look at our family budget, which I will happily share with the White House, will show him that, like many Americans, we are just getting by despite seeming to be rich.  We aren’t.”

The blog entry, which Henderson hoped would spark a debate about taxes, turned into a firestorm in which he was accused of being out of touch and arrogant.  It also kicked off a discussion of what being rich means, especially in an economy where many people are unemployed and hurting financially.  Eventually, Henderson deleted the blog entry and says he will no longer contribute to “Truth in the Market”.  One of the people angry with Henderson is Michael O’Hare, a professor of public policy at University of California – Berkeley, who said “It’s just rude to be worrying in public about whether you have to fire the maid.  That didn’t used to be acceptable behavior, for people who were that much better off than the rest of us to complain about their misfortunes.”

Geoffrey Stone, a former University of Chicago law school dean, offered this criticism, “People are reasonably focused on the view that this is absurd for somebody who lives a relatively privileged life to define himself as not rich because there are people who are richer.  The way he wrote it opened him up to that.”  Even Nobel Prize-winning New York Times columnist and Princeton economist Paul Krugman got in on the act, calling Henderson the “whining Chicago professor.”

This story leads to the question of exactly what is the definition of being rich?  According to the Tax Policy Center, defining rich is a matter of analyzing income distribution.  Roberton Williams, senior fellow, said the top three percent of Americans have gross incomes in excess of $250.000.  That is the income bracket that President Obama is targeting with the tax increases.  As to the Hendersons, Williams said “They are spending what they are making.  They don’t feel like there is any fat in the budgets.  But the average person would take a look at their budget and say ‘Wow’.”

Americans Are Slow to Fill Their Retirement Nest Eggs

Thursday, April 22nd, 2010

25 percent of Americans have saved less than $1,000 for their retirement.  One-fourth of American workers have saved less than $1,000 for their retirement, according to a report from the Employee Benefit Research Institute (EBRI).  The EBRI survey reveals that 27 percent reported saving less than $1,000 for retirement, not counting the value of their home or defined-benefit plans.  A similar percentage reported saving between $1,000 and $24,999 for retirement.  An additional 23 percent had saved between $25,000 and $99,999; just 11 percent saved more than $250,000.

Younger employees have time to build their nest eggs, but the 11 percent may be the only group who have saved adequately to live out their retirement in comfort.  The last three years has seen a sharp decline in the percentage of people who said they were “very confident” about their financial security in retirement.  That statistic fell to 16 percent compared with the 27 percent reported in 2007.  In the survey, 38 percent said they are somewhat assured they will be able to live comfortably after retirement.  Less than 50 percent expressed concern about their readiness for retirement.

Even with the lack of personal savings, the survey found that the majority of respondents planned to rely on retirement income from sources like Social Security or company pensions.  The increase in 401 (k) programs and decline in defined-benefit plans assures that more people will have to rely on their own savings to see them through retirement.

Two-thirds of survey respondents reported that they felt they were doing a good job of preparing for retirement, while two thirds were very or somewhat confident of their efforts.

Lou Dobbs Is Wrong: America’s Melting Pot a Job Creation Engine

Tuesday, December 29th, 2009

Job-creation research proves that Lou Dobbs is wrong about immigrants’ impact on the United States economy.  Lou Dobbs’ resignation from CNN after 27 years  has led to speculation about his future plans — whether in politics or a possible move to Fox News.  Dobbs, known for his controversial opinions on immigration, went so far as to question the validity of Barack Obama’s Hawaiian birth certificate and suggested that the president was actually born in Kenya.

Countering Dobbs’ divisive opinions, recent research has found that thousands of immigrants who come to America looking for work end up starting entrepreneurial businesses, some of which employ thousands.  Consider these statistics from a study by the U.S. Small Business Administration:

  • Approximately 1.5 million immigrants own their own business, generating $67 billion in annual revenue.
  • In Illinois, 14.5 percent of all businesses are immigrant-owned; approximately 28 percent of the state’s engineering and technology companies were started by immigrants, according to a Latino Technology Alliance study.
  • Immigrants are 30 percent more likely to start business than native-born Americans, according to the SBA study cited above.
  • Businesses owned by immigrants are more likely to have paid employees.

One example is Jai Shekhawat, who left India to pursue a corporate career in America.  After stints at Burroughs Corp., Syntel, Inc., and McKinsey & Co., Shekhawat started Quinnox, Inc., a Naperville-based IT outsourcing company.  Later, he started Fieldglass, Inc., a Chicago business that has yearly revenues of $30 million and employs 150, primarily in the metropolitan area.  In addition to India, entrepreneurs who have started successful Chicago-area businesses include immigrants from Ukraine, Greece, Ireland, Poland, Nigeria and Ethiopia.

S. Jafer Hasnain is a Managing Partner of Lifeline Assets, a Chicago-based real-estate private equity firm which he co-founded in 2008. Mr. Hasnain was previously a portfolio manager and analyst at Alliance Bernstein for 14 years with stints at Merrill Lynch, Citibank and Goldman Sachs prior to that.