America's Retirement System Faces Three Train Wrecks

Mamta Badkar

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Jack Bogle: America's Retirement System Faces Three Train Wrecks (Morningstar)

In an interview with Morningstar Jack Bogle of Vanguard said America's retirement system faces "three train wrecks."  "Social Security—you all know about that.  It’s just underfunded. It could be funded with things that people wouldn’t even notice: a change in the cost of living adjustment, which the administration has proposed. They’re simple things that end up being completely controversial. I’m not proposing reducing the payments, but making the payments appropriate to the circumstances. That, along with a little older retirement age and larger minimum Social Security distributions, and the problem would be solved.

"The defined benefit plan, which is a vanishing kind of figure in the retirement system, is grotesquely underfunded. The states are a bigger problem than the corporations. They’re using an 8% future return. I will say, unequivocally, they are not going to get an 8% future return. Not with bond interest rates around 2%, depending on what you’re looking at, to 2.5%, and stocks likely to return about 7%, and that’s before costs.

"The third leg of this retirement stool is the defined contribution plan. The problem with it is we’ve taken a thrift plan and turned it into a retirement plan. What does it need to be fixed? We need to be much stricter on withdrawals. If we allow people to say, “I’ve got a sick child and my wife wants a new living room rug and I need to take some money out.” How are you ever going to have a good retirement doing that? Social Security wouldn’t amount to anything if you could take your money out whenever you felt like it. It’s just a system that has too much flexibility."

Has 2013 Really Been A Bond Market 'Slaughter'? (Pragmatic Capitalism)

Investors that have loaded up on long-term U.S. government bonds have taken a hit, but all the yelling about a bond market slaughter is overdone according to Cullen Roche of Pragmatic Capitalism. The aggregate bond market though hasn't done too much and the iShares Aggregate Bond Index is down about -2.5%.

"Yes, it’s true.  Parts of the bond market have been pretty beat-up.  The long bond is down 10-15% depending on your duration.  But that’s a slice of the overall bond market.  When we back up and take the big picture view it becomes pretty clear that the bond “slaughter” hasn’t really been anything close to a slaughter, but more like another thing that the media and Wall Street has made a big deal of for no good reason."

Investors Need To Be Skeptical Of What They Hear On Financial Television (Advisor Perspectives)

Rob Isbitts of Sungarden Investment Research, who was named one of the top U.S. wealth advisors four times by Worth magazine reminds investors that "reporters and entertainers are not fiduciaries."

"For years I have been asked what I think of financial television. My typical response: reporters and entertainers are not fiduciaries. That is, they are not in the business of making you more successful. They are in the business of driving higher rates for advertising dollars for the network. That’s the game, that’s it…

"What’s my conclusion? Watch financial television but do so with extreme skepticism. They are not fiduciaries and they have a lot of people running teleprompters to make them look as smart as possible."

There's Been A Massive Plunge In Affluent Investor Confidence (Millionaire Corner)

The Spectrem Affluent Investor Confidence Index (SAICI) fell 9 points to an eight-month low of -9. The SAICI surveys households with investible assets of over $500,000. The Spectrem Millionaire Investor Confidence Index (SIMCI) fell to a five-month low of three. The SIMCI surveys households with investible assets of over $1 million.

The decline in investor confidence was largely driven by poor market performance, notably it was the month in which the market suffered its worst week. "Another factor in the dip in Affluent confidence can be found in the August Affluent Household Outlook, a monthly survey of Affluent attitudes toward four financial factors that impact their daily lives, including household assets and company health. The overall Outlook dropped 12.85 points to its lowest reading in six months."

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