Filed under: Consumer confidence, Inflation, Retirement Investing, Senior Citizen Careful Money, Senior Investing, Slow recovery | Tags: financial security, Income after retirement, Inflation, Norhill Wealth Strategies, Preparing for retirement, setting retirement goals, Warren Elkin
Planning for The “Golden Years”
There’s a saying that if you have your health, you have everything. Well, that’s not exactly true – without adequate resources, you could enjoy a long, healthy retirement at a far lower standard of living than you’d prefer!
When preparing for retirement, it’s vital to keep in mind the importance of money to your quality of life during your “golden years.” And with retirements now stretching as long as 20 to 30 years – and beyond – ensuring your retirement dollars outlive you is a paramount concern.
Failing to Plan, or Planning to Fail?
It’s been said that he who fails to plan, plans to fail. And nowhere is that concept illustrated more starkly than with retirement planning. A sound financial plan can be the difference between the retirement of your dreams and the nightmare of discovering you have too little money, too late to change financial course.
A disciplined retirement preparation plan, diligently followed, will help you develop realistic objectives … assess progress toward your goals … and make periodic adjustments to keep you on track.
How Much Retirement Income Will YOU Need?
Government research has determined that most Americans need between 60 and 80 percent of their pre-retirement income in order to maintain their standard of living during retirement. However, many financial experts have raised this figure to between 80 and 100 percent of pre-retirement income, citing skyrocketing healthcare costs, lengthening life spans, and the ever-present threat of inflation – which can rob a retirement portfolio of purchasing power over time.
Of course, how much you will need in retirement will be a function of your goals, time horizon, and spending habits. Those who want to purchase a second home and travel frequently will obviously need more than those who prefer to stay at home in their paid-off house. Consider these factors when estimating your future retirement income needs:
- Your support of children who will be self-sufficient by the time you retire
- Your current work-related expenses that will be dramatically reduced in retirement, such as commuting costs, daily meal expenses, dry cleaning bills, etc.
- Whether your mortgage will be paid off prior to or early in retirement
- Whether you will need to continue your monthly savings amount or begin to spend that amount for necessities
- Your tax bill in retirement
Sources of Retirement Income
Once you have estimated your target retirement income, you can begin evaluating your potential sources of regular income. In general, your income sources will fall into one of these three categories:
1) Government sources. The Social Security system was inaugurated during the Great Depression to augment retirees’ incomes. Most experts feel that the system will remain solvent throughout much of the 21st century. Even so, a rising retirement age and cuts in benefits could reduce your monthly Social Security check. Benefits are based on the amount you earned during your working years.
2) Employer-sponsored plans. Many employers offer company-sponsored retirement plans, which generally fall into two categories. Defined benefit plans, which are normally funded by the employer and guarantee a retirement benefit based on a formula comprising number of years on the job and employment earnings. For example, a traditional pension is a defined benefit plan. Defined contribution plans, on the other hand – such as 401(k), 403(b), and 457 – rely on funding from employees, matching funds from the employer, or a combination of the two. The employee owns an account balance (subject to company rules regarding vesting) of contributions and earnings. Upon changing jobs, an employee may be able to roll over assets into the new employer’s plan or into an IRA. At retirement, the employee decides how to withdraw the balance he or she has accumulated.
3) Personal savings. This is perhaps the most overlooked aspect of retirement planning. Personal savings include, but aren’t limited to, balances in savings accounts, directly held assets, home equity, shares in a partnership or business, and even collectibles such as artwork and coins.
How to Get – And Stay – On Course
How can you determine whether you’re on track to reach your retirement goals, and to make adjustments if necessary? We can help you develop a sound financial plan based on your specific situation, monitor it regularly to ensure you’re making progress toward your objectives, and recommend occasional adjustments to help you stay on course.
Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Past performance is no guarantee of future results. Diversification does not ensure against loss.
The Real Story Behind Inflation
If the same methodology that was used in 1980 to chronicle the double digit inflation of that era were in use today, we would have an inflation rate of ten percent right now, according to Shadow Government Statistics (http://www.shadowstats.com). ; We are entering a massive era of stagflation which recalls to us our writing in Catastrophe, published two years ago, that “inflation may well be the enduring legacy of the Obama presidency.”
How does the federal government understate the inflation rate?
1. It excludes food and fuel costs from its rate of “core inflation.” Each month, the Federal Reserve calms national inflation fears by pointing to the low rate of core inflation, currently at an annual pace of just 2.1%. It reaffirms that the economy is meeting the goal set for it by the Fed of keeping core inflation around or below two percent.
Claiming that food and fuel are too unstable to be included in the inflation rate, it excludes precisely those areas in which inflation is felt most deeply. In the past year, the cost of commodities from corn to soybeans has doubled and the price of gasoline at the pump is one third higher than it was one year ago. The average American household budget devotes one-third of its cash to food and energy costs. Leaving these elements out of the inflation rate has no justification.
2. It substitutes less expensive products when prices rise. When prices go up, the economists who generate the Consumer Price Index substitute less a expensive alternative product for the one that has risen in price. For example, if the cost of steak goes up, the CPI does not reflect the increase, but simply replaces steak with hamburger in computing the price index.
3. It excludes “hedonistic” products as price rises. The Fed adjusts for price rises by dumbing down the luxury elements of the products whose price it measures. It might, for example, measure the price of cars without air conditioning as a way of avoiding reporting the increase in the cost of automobiles. Even when the luxury features cannot easily be removed from the product, the CPI economists assume that they are.
4. In averaging the price of different commodities, it uses a geometric — not an arithmetic mean. Since the geometric mean, which compares the square roots of product prices, comes out lower, it understates the rate of inflation. See the table below comparing two products’ prices a year apart:
Commodity Start Price Final Price Expenditure Increase
A $1.00 $1.00 $0.00
B $1.00 $1.50 $0.50
Total Expenditure $2.00 $2.50 $0.50
To the layman, an increase in total spending of 50 cents on a base of $2 would represent a 25% increase in price. But that uses the arithmetic mean.
The geometric mean compares the square root of (new price / original price) multiplied by the same for the other commodity. Using this method of calculation, the increase in price would only be 22.5%.
The CPI switched to geometric comparison in 1994. But no matter how the federal economists bend and twist the data, most Americans realize that we are in for a massive bout of inflation.
And this inflation is dramatically different from the last hyper inflation of the late 70s and early 80s. That inflation was caused by too much money chasing too few products. To slow down the economy and tame price increases, the Fed raised interest rates. But this inflation has nothing to do with demand. Rather, it is caused by the upward push of costs like gasoline, taxes, food, health insurance, and, soon, interest rates. This cost-push increase in prices cannot be tamed by cooling off the economy, which is, in fact, so cool already that it is approaching zero growth.
Warren Elkin of Norhill Financial is your safe money strategist. When it comes to your hard earned dollars, he can keep your money secure as it grows. Warren Elkin can be reached toll free at 877-476-5051- or by email at elkininc@aol.com. To learn more about him check out www.warrenelkin.com.
Filed under: Consumer confidence, Consumer Spending, Economic Outlook, Economic Recovery, Foreign Market, Gross Domestic Product, Housing Market Trends, Norhill Wealth Strategies Report, Slow recovery | Tags: economic week ahead, financial advice, housing market, Inflation, investment advice, investments, Market update, Norhill Wealth Strategies Report, Slow economic recovery, Slow growth, Warren Elkin
Emerging Market Unrest
Recent Political Upheaval in the Middle East has raised fears that could have an adverse impact on emerging markets stock prices. While the long-term outlook remains strong, the recent surge in global food and commodity prices has increased concerns that the central banks in developing countries including China, India and Brazil will continue to raise interest rates to combat inflation. This will in turn hurt economic growth as well as US exports.
Worldwide Inflation
Food accounts for roughly 50% of the consumer price index (CPI) in the US. But food accounts for roughly 30% of the CPI in both Brazil and China. In India, food accounts for 47% of CPI inflation. In fact the Central Bank of India has raised interest rates eight times in the past year. While this will have a dampening effect on inflation, it will also decrease economic growth.
While food prices, as measured by the United Nations food and agricultural organizations food price index, have risen 37% in the last year. Oil has increased 27%, and cotton 149%. The Fed has expressed very little concern over inflation pegging core inflation, non-oil and food, at only 2.8%. But as one audience member said to a New York Federal Reserve Board conference, “I can’t eat an iPad”. This was in response to a board member mentioning technology prices have decreased significantly.
QE2
The international monetary fund, IMF, reported recently that the US and Japan face particular challenges in stabilizing their rapidly escalating ratios of debt to GDP. The IMF predicts the US net debt to GDP ratio will reach 86% by 2016, up from 64.8% last year. Japan will reach 164%, up from 117% last year. In comparison France and England will reach a peak of 80.6% in 2013and then gradually declining. The German ratio will peak in 2012 at only 54.7%. If the US ratio does not change soon, borrowing will be crowded out by the US government making capital even more difficult to come by for private industry. This will have a long-term dampening effect on the US economy and maintain unemployment at over 8%.
Nothing easy about this rocky recovery
The U.S. is on the mend from the recession and financial crisis, but while the repairs are evident, the workers aren’t yet ready to pack their tools and take down the scaffolding. The economic situation is serious enough that Fed Chairman Ben Bernanke held the first-ever news conference for the Federal Market Open Committee (FOMC) in addition to releasing a customary statement. Overall, the economic news this week was mixed. Real gross domestic product (GDP) grew at a slower pace in the first quarter than it did in the fourth quarter of 2010. Consumer confidence and the housing market are slowly improving, but still not at levels considered healthy. The stock market surged on good news and shrugged off the bad.
Fed continues course, adjusts forecast
After meeting earlier this week, the Fed amended some of its key forecasts but left its monetary policy unchanged. The central bank voted to keep the target federal funds rate in the 0% to 0.25% range, as it has since December 2008, “for an extended period,” and complete its $600 billion purchase of Treasuries by June. The economic recovery is proceeding at a moderate pace and overall conditions in the labor market are improving gradually,” the Fed’s statement said. The Fed slightly lowered its forecast for economic growth this year and raised its outlook for inflation, which is expected to decline again in 2012 and 2013. It also modified its view on employment, which it sees falling a bit more than earlier projected.
New-home sales limp ahead
Sales of new homes increased more than forecast in March, but the shaky housing industry still remains a glaring trouble spot of the economy. New-home sales rose 11.1% from February to an annual rate of 300,000, and numbers for February and January were both revised higher. Still, sales are down 21.9% from a year ago–when the federal homebuyer tax credit was in effect–as builders deal with competition from foreclosures and the glut of existing homes on the market. Median sale prices climbed 2.9% to $213,800 from February but are 4.9% lower than March 2010. Also, the months of supply dropped to 7.3 from 8.2. Northeast sales were the healthiest, followed by the West and Midwest. Sales in the South dipped slightly.
Personal spending growth slows
Consumer spending rose 0.6% in March, backing off a bit from the previous month. Higher costs for energy and food triggered much of the growth as “real” spending-which removes the effects of price changes-was up just 0.2%. Spending on services outweighed spending on durable goods. Meanwhile, personal income increased 0.5%, a slight improvement. Rental, dividend, and transfer income–the latter from unemployment payments–drove the gains, and wages and salaries climbed more modestly.
The economic week ahead
A fresh batch of data is due next week. Monday brings releases on construction spending and the Institute for Supply Management’s manufacturing index. The wave of reports continues with factory orders Tuesday, the ISM non-manufacturing index Wednesday, and productivity and costs Thursday. News on employment and consumer credit is scheduled Friday.
Indices are unmanaged, do not incur fees or expenses, and cannot be
invested into directly. These returns do not include dividends.
Filed under: Consumer confidence, Consumer Spending, Gross Domestic Product, Industrial Production, Inflation, Norhill Wealth Strategies Report, Safe Investments, Warren Elkin | Tags: business inventories, consumer prices, economic week ahead, Financial consultant, imports and exports decline, Inflation, Market Updates, moderate growth, Norhill Wealth Strategies Report, retail sales, Warren Elkin
Indices are unmanaged, do not incur fees or expenses, and cannot be
invested into directly. These returns do not include dividends.
Filed under: Consumer confidence, Economic Outlook, Economic Recovery, Gross Domestic Product, Inflation, Norhill Wealth Strategies Report, Retirement Investing | Tags: credit demand, Economic crosswinds, economic week ahead, Inflation, Market Updates, Norhill Wealth Strategies Report, service sector slows, Warren Elkin
Warren Elkin of Norhill Financial is your safe money strategist. When it comes to your hard earned dollars, he can keep your money secure as it grows. Warren Elkin can be reached toll free at 877-476-5051- or by email at elkininc@aol.com. To learn more about him check out www.warrenelkin.com.
Filed under: Consumer confidence, Economic Outlook, Gross Domestic Product, Housing Market Trends, Inflation | Tags: commodities, consumer confidence, existing home sales gain, financial and investment advice, Inflation, Market trends, Norhill Wealth Strategies, Warren Elkin
Good GDP news, but trimmed a bit
The U.S. economy grew 2.8% in the fourth quarter, the sixth straight quarterly increase, though the pace was more modest than an earlier estimate. Less spending by fiscally strapped state and local governments was one reason for the downward revision. Consumers also spent less than initially thought.
GDP grows a bit less than expected
Real gross domestic product (GDP) rose at an annualized rate of 2.8% in the fourth quarter, below expectations and slower than the previously estimated increase of 3.2%. Several factors produced a slower pace of growth. Consumer spending–the largest increase since the first quarter of 2006–was nevertheless lower than the previous estimate. And state and local governments, which are still reeling from the recession-induced drop-off in tax revenues, cut spending more than anticipated. A “final” estimate of the quarter’s GDP comes out late next month.
Consumer confidence climbs to a three-year high
For the fifth straight month, The Conference Board’s index of consumer confidence increased and reached its highest level since February 2008. But, at a reading of 70.4, the index remains well below levels associated with strong economic growth.
Existing home sales gain but new home sales slide
Sales of existing homes rose in January, for the third straight month, while sales of new homes declined. Sales of new homes fell by a larger-than-expected 12.6% in January after rising in December, and remain stuck near an historic bottom that was reached in the second quarter of last year. Analysts noted a variety of headwinds: competition from lower-priced distressed homes, high unemployment, tight credit, and (for potential trade-up buyers) negative equity.
Aircraft orders pump up demand for durable goods
Orders for durable goods rose 2.7% in January after declining for three months. The increase was driven by orders for commercial aircraft and other transportation equipment; excluding this category, orders fell 3.6%. Orders for non-defense capital equipment, excluding aircraft, as a gauge of broad business spending plans fell 6.9%.
Inflation
According to Liz Ann Sonders, chief investment strategist for Charles Schwab, there are two kinds of inflation the Federal Reserve is watching. First is headline inflation, prices including food and energy. The second is core inflation which does not include food and energy. It is difficult to believe, considering the dramatic increase in pump prices, that the Fed is unlikely to increase interest rates until core inflation increases more dramatically. Interest rates will stay low for the foreseeable future. But many economists believe that near zero rates will be with us for some time and will increase with “Shock and Awe” unless the Fed times rate increases nearly perfectly to prevent inflation.
A likely reason the Fed is unwilling to raise rates yet is the money multiplier. The theory is when the $800 billion stimulus package was enacted, money would move through the economy causing credit to loosen, helping banks make more loans. The economy was supposed to heat up as private business modernized and created jobs. That did not happen causing the Fed to be more resistant to increasing rates.
Commodities
It is hard to believe that core inflation increases is not on the Fed’s radar screen. Food inflation is a much bigger factor around the world than it is in the US. The percentage of the household budget for food is higher in non-US countries. So that when food prices inflate, which they are in the Middle East, riots occur. In fact oil prices are so high that some oil-producing countries are trading oil for food in an attempt to keep food prices lower avoiding unrest in.
Are Markets Overbought and Overvalued
According to Christopher Pavese, chief investment officer of Broyhill Asset Management, the current market is reminiscent of two other periods in our history with monster rallies. These are periods when the market doubled in a short period of time and then fell. The market is currently nearly 100% above the 2008 lows. There have been only two other times when this occurred. One was in 1934 in the other in 1937. Even though these two dramatic rallies, the result was a secular bear market from 1929 until 1942. Using 102 week rolling returns, Pavese discovered in the market increased 134% through March 6, 1937 and then fell 40.47% over the next 52 weeks. Normal market valuations as measured by cyclically adjusted Price to earnings ratio (CAPE) fell from a peak of 32.6 to a trough of 5.6. In the current market, valuations still stand above a CAPE of 24 significantly higher than any market peak outside of 1929 and 2000. Pavese believes the only way the market will increase furthe r is disregarding a reversion to the mean or that investors will never hold back.
The economic week ahead
A heavy week of reports is in the offing, including personal income and spending (Monday), construction spending and the Institute for Supply Management’s manufacturing index (Tuesday), and the Federal Reserve’s Beige Book (Wednesday). The week concludes with productivity, unit labor costs, and the Institute’s non-manufacturing index (Thursday), and the unemployment rate, non-farm payrolls, and factory orders (Friday).
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Markets Update
For the week end of February 25, the S&P 500 Index fell 1.7% to 1,320 (for a year-to-date total return–including price change plus dividends–of about 5.3%). The yield of the 10-year U.S. Treasury note fell 17 basis points to 3.42% (for a year-to-date increase of 12 basis points).
I hope that you find this report interesting, insightful and informative. If you have any questions, concerns or are looking for a solid, no risk investment strategy, then please call me directly at 877-476-5051 or email me at warren@warrenelkin.com.
Filed under: Economic Outlook, Foreign Market, Norhill Wealth Strategies Report | Tags: Global Economy, Inflation, Norhill Wealth Finanacial Report, Warren Elkin
The Global Economy
The European sovereign debt crisis is still in the news. Greece is likely to face debt restructuring in 2013 while Spanish banks are facing major risks due to a debt crisis contagion affecting all of the euro zone. Even Though the US Dollar is being devalued by the Fed, The Euro is in even worse shape. The global economy is flooded with excess liquidity which is banning the fears of inflation.
Interest rates are likely to be low throughout 2011. But as quantitative easing ends, inflation will increase. The Fed is likely, by the end of 2011, to increase interest rates. This has the danger of slowing the economy. Interest rates that are too high will cause slow growth and possibly even a double dip recession. But rates too low, as they are now, will cause inflation to increase beyond acceptable levels. Right now, business sectors have been able to pass on increased commodity prices down the line to their customers. In one study from the University of Michigan, consumer sentiment is at the highest level since June of 2010. For the last 10 years there has been a 60% correlation between consumer sentiment and real consumer spending. Since 75% of economic growth is based on consumer spending, this is a very good sign of continued economic growth. But does nothing to decrease the worries of inflation.
The Fed is projecting inflation at 2.6% this year. But as the chart shows below, the products and services people buy most are increasing much more quickly. Please print this table and refer to it as you make your three-month client phone calls.
January 2009 | Today | % chg | Source | |
Avg. retail price/gallon gas in U.S. | $1.83 | $3.104 | 69.6% | 1 |
Crude oil, European Brent (barrel) | $43.48 | $99.02 | 127.7% | 2 |
Crude oil, West TX Inter. (barrel) | $38.74 | $91.38 | 135.9% | 2 |
Gold: London (per troy oz.) | $853.25 | $1,369.50 | 60.5% | 2 |
Corn, No.2 yellow, Central IL | $3.56 | $6.33 | 78.1% | 2 |
Soybeans, No. 1 yellow, IL | $9.66 | $13.75 | 42.3% | 2 |
Sugar, cane, raw, world, lb. fob | $13.37 | $35.39 | 164.7% | 2 |
Unemployment rate, non-farm, overall | 7.6% | 9.4% | 23.7% | 3 |
Unemployment rate, blacks | 12.6% | 15.8% | 25.4% | 3 |
Number of unemployed | 11,616,000 | 14,485,000 | 24.7% | 3 |
Number of fed. employees, ex. military (curr = 12/10 prelim) | 2,779,000 | 2,840,000 | 2.2% | 3 |
Real median household income (2008 v 2009) | $50,112 | $49,777 | -0.7% | 4 |
Number of food stamp recipients (curr = 10/10) | 31,983,716 | 43,200,878 | 35.1% | 5 |
Number of unemployment benefit recipients (curr = 12/10) | 7,526,598 | 9,193,838 | 22.2% | 6 |
Number of long-term unemployed | 2,600,000 | 6,400,000 | 146.2% | 3 |
Poverty rate, individuals (2008 v 2009) | 13.2% | 14.3% | 8.3% | 4 |
People in poverty in U.S. (2008 v 2009) | 39,800,000 | 43,600,000 | 9.5% | 4 |
U.S. rank in Economic Freedom World Rankings | 5 | 9 | n/a | 10 |
Present Situation Index (curr = 12/10) | 29.9 | 23.5 | -21.4% | 11 |
Failed banks (curr = 2010 + 2011 to date) | 140 | 164 | 17.1% | 12 |
U.S. dollar versus Japanese yen exchange rate | 89.76 | 82.03 | -8.6% | 2 |
U.S. money supply, M1, in billions (curr = 12/10 prelim) | 1,575.1 | 1,865.7 | 18.4% | 13 |
U.S. money supply, M2, in billions (curr = 12/10 prelim) | 8,310.9 | 8,852.3 | 6.5% | 13 |
National debt, in trillions | $10.627 | $14.052 | 32.2% | 14 |
Warren Elkin of Norhill Financial is your safe money strategist. When it comes to your hard earned dollars, he can keep your money secure as it grows. Warren Elkin can be reached toll free at 877-476-5051- or by email at elkininc@aol.com. To learn more about him check out www.warrenelkin.com.