photos courtesy of Gary Morrison

Retirement Confidence Improves, But ….

by Steve on April 17, 2014

According to the latest report from the Employee Benefits Research Institute (EBRI), 18% of workers are “very confident” about their financial future in retirement. (Question: How confident are you?) This is an improvement from the 2013 results when 13% of those surveyed reported that they were optimistic. It seems that the improvement in the balances of 401(k) plans, IRAs and other savings vehicles is buoying confidence.

While these results are better than last year’s, the optimism occurred only with those with a formal retirement plan (401(k) plan, IRA, etc.) and it still leaves 72% of workers in some state of mind less than “very confident”. The other warning signs of a coming retirement crisis have not abated. For example:

  • 60% of workers have less than $25,000 in total savings and investments
  • More than one in three workers have not save ANY money for retirement
  • Only slightly more than half (57%) are actively saving for retirement (meaning 43% are not!)

How do today’s workers plan to cover retirement living expenses? They will keep on working beyond age 65 it seems. In 1991, 16% of workers planned to work beyond age 65; in 2014, that number soared to 50%. This is the biggest shift that EBRI has recorded in 24 years of this survey.

Every year when the annual EBRI Retirement Confidence survey results are published, I am disturbed by the lack of retirement savings among workers. One final statistic: only about 40% of workers have even tried to figure out how much they need to save for retirement. Please be among the 40% who know how much they need to save in order to retire comfortably. Use an on-line calculator from EBRI, T. Rowe Price or Fidelity. Or give us a call so we can do a full-fledged Retirement Readiness Check-up for you. Please do something so your only plan for retirement is to work as long as you can. That’s not a plan worth following.

Check out the full survey results and other information at the EBRI website.

In the last two blog posts, we noted that the latest figures from the SPIVA® scorecard show that passive beats active investing in the short and long term. Only intermediate term bonds (both corporate and government) active mutual fund managers provided better results than their passive counterparts on average over five years. So why does this matter?

First, because you cannot tell which active manager is going to fall below or above the benchmark in advance, how would you choose an actively managed mutual fund? You would be guessing or taking a chance and the probability is that you would choose a mutual fund that will end up doing poorly compared to a passive approach. Why would you want to choose a mutual fund that has a mathematical probability of failing?

Second, let’s assume that you choose an active mutual fund that is lucky and beats its benchmark in a year. Or even two years in a row. Then it falls below its benchmark in year three. What do you do? Most people would wait another year to see if the underperformance continues. But let’s say that this mutual fund falls below its benchmark again in year four. Then what? Do you stay or do you go? And if you choose to go, with what do you replace the now under-performing fund? You’re back to guessing which fund will do better in the future and the chances of that are poor (see point #1).

This is my favorite argument when someone tells me that their mutual fund beat its index last year. I give them this “what will you do when it doesn’t beat its index” speech and I usually get a blank stare. Most people don’t know what they would do if their fund underperforms and hope their current fund continues to outperform the index and hope that they don’t have to choose. But as I like to remind investors, hope is not a plan. Creating a diversified portfolio of passively managed mutual funds (or ETFs) is a plan. One that has consistently and over the long term provided superior returns for portfolios.

Passive Investing Beats Active for 2013 Part II

April 3, 2014

The Standard & Poors Company (S&P) created the S&P Indices Versus Active Funds (SPIVA®) Scorecard in 2003. Its purpose is to track the results of the most intriguing philosophical debate in investing: which is better, active or passive investing? As a neutral party, S&P is well-positioned to report on results without bias. Last time, we […]

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Passive Beats Active Investing (Again)

April 1, 2014

As long-time readers of this blog and our newsletters know, the topic of passive investing is a cornerstone of our overall personal financial philosophy. As a result, we love to talk about how passive investing beats the heck out of active investing over a reasonable timeframe. Well, it’s that time of year again when we […]

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Biggest Fear: Outliving Money in Retirement

March 27, 2014

According to a recent study by Allianz, 77% of Americans between the ages of 44 and 49 feared outliving their retirement money more than dying. That number rose to 82% for those in their late 40s who had dependents.

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Chicago Fed: Economic Activity Picks Up

March 24, 2014

My favorite economic report from the Chicago Federal Reserve Bank came out today. The press release stated: “Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) increased to +0.14 in February from –0.45 in January. Three of the four broad categories of indicators that make up the index increased from January, […]

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College Costs Continue to Climb

March 20, 2014

This will be no surprise to anyone with college age children, but college costs continue to rise, albeit at a slower rate than a few years ago. According to the College Board, over the last decade, the average annual rise in tuition, room and board at public four-year schools has been the rate of general […]

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Common Tax Filing Mistakes Even Smart People Make

March 18, 2014

I saw this list at and thought it might help you if you prepare your own taxes. According to one group of tax experts, here are the most common tax return mistakes: Entering the wrong Social Security number Putting the right information on the wrong line Forgetting to sign and date forms before mailing […]

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Five Investing Mistakes Even Smart Beginning Investors Make

March 14, 2014

We receive this question all the time from clients: “How should my son/grandson or daughter/granddaughter go about investing her/his IRA?” We tell parents and grandparents to first make sure their beginning investor is saving in her/his employer’s savings plan at least up to the level that is matched by their employer. Then the investor can […]

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Bull Market Lives

March 10, 2014

You probably have seen or heard in the media that the latest bull market has now run for five years as of yesterday. According to “Investopedia” a bull market: “… is when everything in the economy is great, people are finding jobs, gross domestic product (GDP) is growing, and stocks are rising. Things are just […]

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