The Committee specifically asked the companies to estimate how much their health insurance premiums would increase next year for individuals who need to purchase health coverage. Internal cost estimates from 17 of the nation’s largest insurance companies indicate that health insurance premiums for individuals will rise an average of 100% under Obamacare, and that some will soar more than 400%, crushing the Obama administration’s stated goal of healthcare affordability.

New regulations, policies, taxes, fees and mandates are the reasons for the unexpected “rate shock,” according to the House Energy and Commerce Committee, which released a report Monday based on internal documents provided by the insurance companies.

The report found that individuals will face “premium increases of nearly 100 percent on average, with potential highs eclipsing 400 percent. Meanwhile, small businesses can expect average premium increases in the small group market of up to 50 percent, with potential highs over 100 percent.”

One company said that new participants in the individual market could see a premium increase of 413% when new requirements on age rating and required benefits are taken into account, according to the report. “The average yearly cost for a new customer in the individual market grows from $1,896 to $3,708 — a $1,812 cost increase,” it added.

The key reasons for the surge in premiums include providing wider services than people are now paying for and adding less healthy people to the rolls of insured, said the report.

The report cites two main and entirely predictable reasons for the skyrocketing premiums. First is Obamacare’s pre-existing conditions mandate. I understand that this sounds like a good idea, but it indicates a profound misunderstanding of the purpose of insurance. Forcing a health insurance company to cover a pre-existing condition is no different than forcing a casualty insurance company to provide fire insurance after the fire has burned the building down. It throws the whole concept of risk, which is what insurance is based on, out the window.

A second reason for the premium spikes is the wide array of services Obamacare mandates health insurance plans cover in order to comply with the law. Consider what would happen if the government required my auto insurance plan to cover routine expenses such as gasoline, mufflers, tires, oil changes, etc. How much would that “insurance” cost?

And let’s not forget the perverse incentives such a system fosters. If people are getting lots of new services, medical tests, etc. – which are perceived to be free – then they’re going to request more and more services and testing, and more frequently as well.

The practical effect of mandating that insurance companies cover all of these additional services is that it puts further upward pressure on prices and incentivizes people to over-use the system. Nobody should be surprised, then, when such a scheme leads to 100-400% increases in premiums.

The report concluded: “Despite promises that the law will lower costs, [Obamacare] will in fact cause the premiums of many Americans to spike substantially. The broken promises are numerous, and the empirical data reveal that many Americans, from recent college graduates to older adults, will not be able to afford the law’s higher costs.”

Remember Obama’s promises: “If you like your doctor, you can keep your doctor. If you like your plan, you can keep your plan. A family of four could save over $2,000 a year under my plan.” Etc., etc.

Finally, if these preliminary premium estimates from the largest insurance companies are remotely accurate, there’s going to be a revolution in this country in January of next year! We all know that Obama desperately wants to move to a “single-payer” system, but if premiums explode as discussed above, this will be one hell of a risk to get there.

You have to wonder if this coming revolt was created by design or incompetence. It is simply impossible to know at this point – it could be either, or both!

Obama wants to prevent people from accumulating too much money in their tax-advantaged retirement accounts, or trusts for heirs, adding even more tax burdens on the wealthy – this after raising tax rates in January.

The plan caps the amount people can amass in tax-deferred individual retirement accounts at $3.4 million. Amounts above $3.4 million would be taxed. The plan also requires those who inherit IRAs to take taxable distributions within five years instead of over their lifespan.

Obama’s 2014 budget proposal, released in early April, would increase estate taxes and limit techniques used by the wealthy to transfer assets through trusts. What, you haven’t heard about all of this? Let’s dig a little deeper today.

While politicians and pundits bicker about “tax reform” and a possible Internet sales tax, President Obama appears to be serious about bagging the biggest trophy of all – a “wealth tax.” He doesn’t say this, of course, so most people don’t see this coming. Should it happen, though, it will be very difficult to protect yourself.

As noted above, the plan to impose a wealth tax first saw the light of day with the president’s 2014 budget, which proposes to limit tax-deductible savings to an amount that will provide an annual benefit of $205,000. Apparently, the Obama administration believes that anyone – including the super-rich – can live comfortably on $205,000 a year.

The budget document states that “the maximum accumulation that would apply for an individual at age 62 is approximately $3.4 million.” Obama’s minions estimate that $3.4 million would provide a benefit apprx. $205,000 annually to live on, based on the average life expectancy after age 62. How do they know this? And do they think they can really pull it off?

If an individual’s tax-qualified wealth – both defined contribution and benefit plans – reaches $3.4 million, then future tax-deductible contributions would not be allowed. If the level drops below $3.4 million, say because of poor market returns, then additional contributions would supposedly be allowed.

If your tax-qualified wealth is already above $3.4 million, it is not clear how, or if, the excess would be taxed. At the moment, only tax-qualified wealth is targeted.

Let’s say one is 62 and has no tax-qualified wealth, but has financial assets of $5 million. That level, according to the president’s own calculations, would provide retirement income greater than $205,000. This starts the slippery slope. Is it fair that one retires with more wealth than is necessary to provide $205,000 per year?

Apparently not, according to the Obama administration. Maybe you should be required to pay a “wealth tax” on the amount above $3.4 million. Never mind that you already paid taxes on this money. While this idea hasn’t been proposed yet, it is a growing mantra among liberals. How many times have you heard Obama and other liberals ask:

“Shouldn’t higher-income folks contribute just a little more?”

Answer: Over and over and over. Don’t be surprised if that mantra soon morphs into:

“Shouldn’t wealthier folks contribute just a little more?”

Now you’re probably thinking: The government doesn’t know how much wealth I have, so how could they tax me on it. With the exception of IRAs (Form 5498), the government currently doesn’t know what other wealth you may have. However, it wouldn’t take much for Uncle Sam to get that information.

Each year, investors receive 1099 forms from banks and other custodians, which report dividend and interest income. Investors don’t currently receive the sum total of their assets on the 1099s, but they do in their periodic statements. If the federal government required those data, it would be a relatively trivial software application for custodians to provide year-end financial asset levels on the 1099s.

The federal government could then attempt to levy a tax on financial wealth that exceeds some threshold. The political argument has already been well tested when related to income. The American public accepts progressive tax rates, and many believe that higher-income folks should pay proportionally more.

The debate is only how much, or what marginal tax rates should apply. As it relates to financial wealth, the president could then argue that the concept is the same. It may only be a matter of time. That time could well come if the Democrats retake the House in 2014 (not likely).

With high budget deficits, frightening levels of government debt and unfunded liabilities in the tens of trillions of dollars, politicians’ appetite for additional revenue sources will not be satisfied. Obama knows this. I’ll keep you posted on this in the weeks to come.

So what’s expected in tomorrow’s jobs report for April? The consensus estimate is that the headline unemployment rate will remain unchanged from March at 7.6%, although a good number of forecasters think it could jump back up to 7.7%.

As for the number of new jobs created in April, the consensus is a number around 150,000. It remains to be seen if we’ll get another disappointing jobs report tomorrow. Whatever the numbers are in the morning, everyone will continue to ask the same basic question: Why aren’t more companies hiring more workers?

I ran across some interesting data this week that helps answer the question of why companies are not hiring more. As you know, this is earnings season for public companies. So far, about half of the companies in the S&P 500 have reported 1Q earnings. Of those, 69% reported that profits were better than Wall Street expected. That’s the good news as you can see in the chart below.

Source: FactSet.com

The bad news is that revenues have been falling over the last year as you can see above. Only 43% of companies that have reported so far had better than expected revenues.  Normally that number should be 62%. So in terms of revenues, the 1Q was a dismal time. You might be asking: How can companies with falling revenues report better than expected earnings?

The answer is that the CEOs who run these big S&P 500 firms are cutting spending on just about everything, including new workers hired, to keep profits high. Most of these CEOs own a lot of their company’s stock and they want to keep Wall Street happy, and hope the investing public is not paying attention to falling revenues.

As noted above, analysts are looking for a new jobs number around 150,000 tomorrow, but as we saw last time, the consensus can be way off. It is estimated that it takes 200,000 to 250,000 new jobs a month just to keep up with population growth, so 150,000 will be better than in March but still disappointing.

Also, April is one of those months when the BLS adds a generous amount of new jobs that it believes are being created by small businesses that it does not survey. Last year in April, the BLS added 206,000 of these so-called “phantom jobs” that it can’t prove were actually created. It remains to be seen what this number will be tomorrow.

The government did report last Friday that GDP increased 2.5% in the 1Q (annual rate). But most of that growth occurred in January when consumers had more money to spend, and then tapered off in February and March. No one knows what the economy will do the rest of the year.

Nevertheless, Wall Street is forecasting a huge increase in corporate earnings for all of 2013, based on the assumption that economic growth will continue to rebound. But if growth remains slow, I think it’s safe to assume that most CEOs will continue to limit new hiring. There could even be more layoffs. Let’s hope not.

Finally, in case you missed it, be sure to read this week’s E-Letter on the upcoming significant revisions to how GDP is calculated. It may be the most interesting thing I’ve written this year.

Have a great weekend everyone!

Now that analysts have had a few days to drill down into Obama’s 10-year budget forecast, we are learning some really surprising facts. According to an analysis released by the nonpartisan Tax Policy Center in Washington on Monday, the top 1% of US taxpayers would pay 67% of the higher taxes called for near the end of President Barack Obama’s latest 10-year proposal.

You may recall that Obama’s new budget would raise various taxes by more than $1 trillion over the next decade, and that money has to come from somewhere. If Obama’s budget is approved, almost all of that tax increase would come from the “rich.” No surprise there, really.

According to the Tax Policy Center, households making between $500,000 and $1 million would pay an average of $13,474 in higher federal taxes by 2023. That means that those households would be paying more than two-thirds of all new federal tax increases proposed in Obama’s new 10-year budget!

Households making more than $1 million a year would be paying even more. Top earners would be subject to a minimum tax rate of 30%, limits on their deductions and an increase in the estate tax rate from 40% to 45%.

That compares to households earning $30,000 – $40,000 that would pay an average of only $54 more in federal taxes if Obama’s budget is approved.

As this new study from the Tax Policy Center was making the rounds in the media over the last several days, some took it to mean that the tax bracket for those making $500,000 to $1 million or more would rise to 67%. That is not what the study is saying. Rather, it is merely pointing out that 67% of the new federal tax increases included in Obama’s 10-year budget proposal would be paid by the top 1% of taxpayers.

The good news, possibly, is that Obama’s 10-year budget proposal appears to have almost zero chance of passing either the House or the Senate. Even if it were passed, Obama is only in office until 2016. Future presidents always change the budget proposals, for better or worse.

While Obama’s latest 10-year budget proposal is not likely to be passed into law, it does give us a picture of where the Democrat Party intends to go over time: radically higher tax rates on top wage earners. What else is new?

Unfortunately, recent trends in demographics paint an increasingly alarming picture for the Republican Party in the years to come. But that is a lengthy discussion I’ll have to save for an upcoming E-Letter, which I am not looking forward to writing.

But just to give you a hint, here’s what the Democrats are salivating over – an article this week from the left-leaning POLITICO (warning to conservatives – this is tough to read).

Lunch/Seminar With Hanlon Investment Management

We are hosting a lunch seminar in Austin on May 8^th featuring Hanlon Investment Management, a Registered Investment Advisor managing apprx. $3.5 billion in assets. As I noted in my January 8 E-Letter, Hanlon’s Managed Income Strategy is an innovative approach with the potential to increase your returns with an eye on capital preservation.

If you live in the Austin area, or will be in Austin on May 8th, call Joanne at 800-348-3601 to reserve your spot. The lunch seminar will be at the Westin Hotel in The Domain at 11:30 AM. This is also an opportunity for me to meet you personally – I always love to meet my readers and clients. Seating to this event is limited, so I urge those in the Austin area to reserve your spot as soon as possible. I hope to meet some of you there.

Have a great weekend everyone!

Anyway, I tried to warn her about investing in commodities, in this case silver, and pointed out that there had recently been a historic bull market in precious metals, and more importantly, that gold and silver have a history of “falling off a cliff” after big bull markets. I strongly suggested that she hold off, at least until there was a significant downward correction in silver prices. I told her I would suggest a reputable coin dealer whenever it might be a good time to buy.

Fast forward to this month. As you probably know, gold and silver prices have crashed recently. Silver prices, after bottoming around $9 per ounce in October 2008, soared to a record high near $50 per ounce in late 2011 – a rise of 420%. Since then, it’s been mostly downhill for silver prices, culminating with a severe plunge this year, and especially in the last week or so. Spot silver is trading just above $23 per ounce as this is written. That’s a decline of more than 50%!

Late last week, as silver prices were plunging, I thought about my friend who wanted to buy silver coins. I thought this might be a time for her to start accumulating. So I called the coin dealer I have recommended for over 25 years – Camino Coin Company in California (800-348-8001) to check on the prices of “junk silver” coins (pre-1965 coins) and one-ounce silver “Eagles.” To my surprise, they said:

“We don’t have any junk silver or silver Eagles, and we don’t know when
we’ll get more. So we’re just not taking orders for any silver coins.”

I was stunned! So, I called another well-known coin dealer – David Hall Rare Coins – and they basically said the same thing, although they said that if I was willing to pay upfront with cleared funds, they would attempt to deliver the coins within a month. Not what I wanted to hear.

Mystified, I started to research this topic. It turns out that retail demand for silver coins started to explode in late 2012. In mid-December last year, the US Mint shut down the sales of silver Eagles for about three weeks. They resumed selling Eagles on January 7, and investors and dealers ordered almost four million of the coins in just that one day! By January 20, sales had topped six million coins, and the Mint again suspended sales of the coins in order to catch up.

Demand for silver Eagles has continued at record levels so far this year. As of April 6, the Mint reported that it has sold an unheard of 15.87 million one-ounce Eagles this year alone. The Mint also announced recently that it is rationing sales of Eagles to primary dealers only, and that they should expect continued delivery delays.

So what is causing this massive jump in demand for silver coins? I have a couple of theories. Silver has long been called “the poor man’s gold.” So it’s not surprising that retail investors are clamoring for silver coins as opposed to the much more expensive gold coins. But why the explosion in demand that began late last year? Two thoughts…

One, the explosion in demand started to escalate shortly after the Fed announced last September that it was increasing its QE purchases to a record $85 billion per month “INDEFINITELY.”  I believe that those inclined to own hard assets are convinced that this Fed policy will lead to significantly higher inflation in the future, and they are snatching up as many Eagles and junk silver coins as they can.

Two, I believe that the re-election of President Obama has caused many more investors to buy physical silver, especially silver Eagles which sell for about $3-$4 above the spot price of silver (just above $23 per ounce as this is written). Eagles are thus relatively inexpensive, and people are hoarding them (along with guns & ammo) in case there is another crisis.

That is, IF they can even find them!

Caution: with demand like this and widespread shortages, the premiums for these coins can be huge, especially at smaller or unreputable dealers. So be very careful if you feel you must buy silver coins in this environment.

Have a great weekend everyone!

Since the movie “2016: Obama’s America” was released last fall, I have repeatedly urged clients and readers to see this documentary film  It’s still not too late to see this very alarming movie on DVD. It is not a “hit piece” on President Obama as many have assumed, but it does suggest that the president intends to significantly reshape America over the next four years.

One of the main tenets of the movie is Obama’s quest to greatly reduce America’s nuclear arsenal. In 2010, Obama signed the New Strategic Arms Reduction Treaty which required the US and Russia to reduce their deployed nuclear warheads from around 2,200 each to 1,550.

It is widely expected that Obama will soon announce yet another nuclear weapons reduction that would take our nukes down to only 1,000 warheads, this according to published reports. Sources say the president was prepared to make such an announcement in his February 12 State of the Union address, but it was delayed after North Korea conducted its third nuclear test earlier that day.

While this unilateral announcement could occur any day now, it is expected to meet stiff resistance in Congress. Let’s hope so! If Obama gets his way, Russia will be the supreme nuclear power in the world.

The following article appeared in The Wall Street Journal last Sunday, and it is nothing less than chilling. Obama’s plan to disarm the United States by reducing or eliminating our nuclear arsenal – in an effort to encourage other nations to do the same – has backfired. As you will read below, the world is moving ever closer to a dangerous new era of nuclear proliferation.

Read this and pass it along. And be sure to rent 2016: Obama’s America. As the movie’s subtitle says, “Love Him, Hate Him – You Don’t Know Him.” Liberal or conservative, you need to see this documentary.

QUOTE:

The Coming Nuclear Breakout

As the U.S. deterrent fades, atomic weapons are poised to proliferate.

President Obama came to office in 2009 promising to negotiate with America’s enemies and create a world without nuclear weapons. Four years later, North Korea is threatening America with nuclear attack, Iran is closer to its own atomic arsenal, and the world is edging ever closer to a dangerous new era of nuclear proliferation. The promises and the reality are connected.

The latest talks between the West and Iran failed this weekend, with no immediate plans for another round. The negotiations by now follow a pattern in which the U.S. makes concessions that Iran rejects, followed by more concessions that Iran also rejects, and so on as Tehran plays for time.

North Korea, meanwhile, has moved medium-range missiles to its east coast in preparation for what is expected to be another launch as early as this week. This follows its third nuclear test and an explicit government authorization to strike U.S. targets with nuclear weapons. South Korea and Japan are in the direct line of fire.

The U.S. responded at first with a modest show of deterrent force (B-2 bombers, Aegis cruisers), but lately it has downplayed the threat and even cancelled a U.S. missile test lest it discomfit the North’s young dictator Kim Jong Eun. U.S. policy now seems to be to beg China one more time to do something about its client state. This is worth trying given that China has a new senior leadership, but the public nature of U.S. pleading (see the weekend’s newspapers) also projects weakness.

This anti-proliferation failure, in turn, has friends and allies increasingly wondering if they need their own nuclear deterrent. Chung Mong-joon, a prominent member of South Korea’s ruling party, has called for the U.S. to return tactical nuclear weapons to the peninsula. George H.W. Bush withdrew them from South Korea in 1991 in a gesture to stop North Korea from going nuclear.

“Some say that the U.S. nuclear umbrella is a torn umbrella. If so, we need to repair it,” Mr. Chung said in February, adding that if the U.S. refuses South Korea should develop its own nuclear weapons. A recent poll found that 66% of South Koreans support a home-grown deterrent.

The South Korean government says it has no such plans, but it’s no coincidence that it is now pressing the U.S. for permission to produce its own nuclear fuel. While the supposed rationale is civilian use, the ability to enrich uranium and reprocess spent fuel is also a step toward making a bomb if South Korea ever chooses to.

That kind of talk is watched closely in Japan, which has refrained from getting its own bomb under the U.S. umbrella and the legacy of World War II. Few politicians are making the case for a Japanese bomb other than the nationalist Shintaro Ishihara, but that will change if the North keeps expanding its arsenal or the South goes nuclear. Japan already has a reprocessing facility that will soon be producing tons of weapons-usable plutonium.

Likewise in the Middle East, Iran’s march to the bomb has other countries preparing the ground for their own nuclear breakout. Saudi Arabia has announced plans to build 16 reactors—precisely the number that nuclear inspectors say it would need for both civilian and military use. The world’s largest oil exporter does not need nuclear power for electricity.

Neither does the United Arab Emirates, which is nonetheless building a nuclear power plant only a few hundred miles from Iran. The UAE has promised not to enrich uranium or reprocess spent fuel, and in return the U.S. is providing technical advice on the plant. But few expect that promise to stand if Iran gets the bomb.

Elsewhere in the region, Syria tried to import a nuclear-energy capacity until Israel blew it up in 2007 (despite the disapproval of then Secretary of State Condoleezza Rice). Turkey and Egypt are also likely to seek their own nuclear deterrent if Iran isn’t stopped.

All of this is occurring even as Mr. Obama has pursued the most aggressive nuclear arms control agenda since the 1970s—or more likely because of it. In April 2009, the President famously declared that reducing U.S. nuclear stockpiles “will then give us a greater moral authority to say to Iran, don’t develop a nuclear weapon; to say to North Korea, don’t proliferate nuclear weapons.”

Mr. Obama has since cut the U.S. arsenal in the Start treaty with Russia and he’s negotiating more reductions that he may not submit for Senate ratification. None of this “moral authority” has had the least deterrent effect on Iran or North Korea.

The truth is the opposite. The world can see the U.S. has acquiesced in North Korea’s weapons program and lacks the will to stop Iran. It can see the U.S. is shrinking its own nuclear capacity through arms control, even as rogue threats grow. And it can see the U.S. is ambivalent about its allies getting nuclear weapons even as it does little to shore up the U.S. umbrella or allied defenses.

Above all, the world can hear Mr. Obama declare for domestic American audiences that “the tide of war is receding” despite the growing evidence to the contrary. On present trend, the President who promised to rid the world of nuclear weapons is setting the stage for their greatest proliferation since the dawn of the atomic age.

END QUOTE

Have a great weekend everyone!

The latest poverty figures are the worst since the 1960s when President Lyndon Johnson launched the so-called “War On Poverty” campaign, which failed miserably. You may recall that President Obama’s $800+ billion stimulus package – the American Recovery and Reinvestment Act – enacted in early 2009 was hailed as a powerful anti-poverty measure, among other things. Yet the US poverty rate is now at the highest level in a half century.    

According to the Census data, over 20% of our nation’s children are living in poverty, and it may even be worse. According to one recent study, only Romania has a higher child poverty rate than the US among developed nations, as shown in the table below.

The United States is considered the richest, most economically competitive country on the planet. So how is it possible that it has the second highest rate of child poverty in the developed world? The answer, as you might expect, would take volumes to explain. However, I think it is safe to say that our current economic and fiscal policies aren’t helping, but it’s more complicated than that.

Food Stamps: The number of Americans who are enrolled in the Supplemental Nutrition Assistance Program (SNAP) has increased by 70% since 2008 to 47.8 million as of December 2012, according to recently published figures.

This means nearly 50 million people – over 19% of the American population – are receiving food stamps, which is almost double the rate of 1975. Last year, the US government spent a record $74.6 billion on the program, this according to the Department of Agriculture which administers the food stamp program.

Even though the economy has been creating net new jobs each month for the last few years, the number of enrollees in the SNAP program continues to grow. Currently, three out of every four households benefiting from the SNAP have at least one member who is working.

Again, how can this be happening in America? At least part of the reason is the Great Recession. You can see in the chart above that the explosion in the food stamps program began in 2008. But as I noted above in the poverty discussion, the real reason for record high food stamps is much more complicated than most Americans realize.

Conclusions: It is unthinkable and unforgivable that poverty in the US has grown to the point that only Romania has a worse standing than America among developed nations. Likewise, it is equally unacceptable that nearly 20% of US families are dependent on food stamps. Worse yet, both of these trends are on the rise and little is being done to reverse them.

I apologize for bringing up two very alarming and controversial topics – poverty and food stamps, both of which are exploding – in the Blog without space to go into more detail about each.  I will address them more thoroughly in upcoming issues of my weekly E-Letter.

For now, just ponder the possibility that these trends and others may not be random occurrences.

Have a great weekend everyone!

EBRI recently conducted its annual “Retirement Confidence Survey” and the results are alarming. The survey found that 57% of respondents had less than $25,000 in savings and investments. Even worse, over half of those (28%) have less than $1,000 in savings.

Among workers age 55 and older, 33% have less than $10,000 in savings and/or investments. In addition, the percentage of workers currently saving for retirement has continued to decline to 57% from 65% recorded in 2009.

As a result, worker’s confidence in their ability to live comfortably throughout retirement remains low, with 28% of workers reporting they are not at all confident. This is an increase of 5% from last year and the highest level recorded in the 23 years the EBRI has been conducting the survey.

“The recent low levels of retirement confidence may be, at least partly, the result of the increasing awareness of the challenges many Americans face in trying to achieve a financially secure retirement,” says Jack VanDerhei, EBRI research director, and co-author of the report.

VanDerhei notes that immediate financial needs are increasingly taking precedence over saving for retirement. Day-to-day living expenses and too much debt hinder workers’ ability to save for the future. Even worse, EBRI notes that even with this low level of savings, one in three workers withdrew money from their savings to pay current expenses.

Many workers cite an inability to determine just how much money they will need for retirement as a reason for not saving more. Almost half of workers age 45 and older have not tried to calculate how much money they will need to have saved for a comfortable retirement, according to EBRI. Those that did complete a retirement-savings-needs-calculation had more confidence about their ability to put money aside and had higher savings goals than those who had not done the calculation.

If you happen to be among those who have not run a calculation showing how much you will need for a comfortable retirement, here are links to two professional retirement calculator programs (both are free):

From CNN Money -
http://cgi.money.cnn.com/tools/retirementplanner/retirementplanner.jsp

From AARP -
http://www.aarp.org/work/retirement-planning/retirement_calculator/

To compensate for their lack of retirement funds, many workers plan on delaying retirement. Thirty-six percent expect to wait until after age 65 to retire. This is a significant increase from the 11% of workers who expected to retire after age 65 when the survey was first conducted in 1991. Additionally, 69% of respondents said they plan to find paid employment once retired from their primary job. That is easier said than done in this weak economy!

In 1970, the national savings rate was near 10%. But by 1990, the savings rate had fallen to around 6.5%. By 2000 it had plunged below 2%. There was a surge in the savings rate during the Great Recession as you can see above. But by late 2010, the national savings rate was back down to 5.5%. In 2011 and 2012, the rate fell even further. In January of this year, the national saving rate was only 2.4%.

The point is, most Americans are not saving nearly enough for retirement. Period. As I pointed out in my March 19 E-Letter, real inflation is significantly higher than the 2% number we are being fed by the government.  Prices rising, savings plunging – not a good combination. I think we all know how this movie ends.

Have a great Easter weekend everyone!

QUOTE:

Most Workers Have Less Than $25,000 For Retirement, Says Survey

March 20, 2013 • Kathy Lynch

Thirty-six percent of workers aged 55 and older surveyed by the Employee Benefit Research Institute (EBRI) report having less than $10,000 in savings and investments.

Excluding the value of their homes and any defined benefit pension plans, 57 percent of all respondents that participated in EBRI’s Retirement Confidence Survey report less than $25,000 in total household savings and investments, and almost half of those (28%) have less than $1,000 saved.

In addition, the percentage of workers currently saving for retirement has continued to decline to 57 percent from 65 percent recorded in 2009.

As a result, worker’s confidence in their ability to live comfortably throughout retirement remains low, with 28 percent of workers reporting they are not at all confident. This is an increase of 5 percent from last year and the highest level recorded in the 23 years the EBRI has been conducting the survey.

“The recent low levels of retirement confidence may be, at least partly, the result of the increasing awareness of the challenges many Americans face in trying to achieve a financially secure retirement,” says Jack VanDerhei, EBRI research director, and co-author of the report.

Immediate financial issues take precedence over saving for retirement. Day-to-day living expenses and too much debt hinder workers ability to save for the future.

Workers cite an inability to determine just how much money they will need for retirement. Almost half of workers age 45 and older have not tried to calculate how much money they will need to have saved for a comfortable retirement, according to EBRI. Those that did complete a retirement-savings-needs-calculation had more confidence about their ability to put money aside and had higher savings goals than those who had not done the calculation.

“Even with this low level of savings, in the past 12 months, one in three workers withdrew money from their savings to pay for current expenses,” says Mathew Greenwald, president Greenwald & Associates.

To compensate for their lack of retirement funds, workers plan on delaying retirement. Thirty-six percent expect to wait until after age 65 to retire. This is a significant increase from the 11 percent of workers who expected to retire after age 65 when the survey was first conducted in 1991. Additionally, 69 percent of respondents said they plan to find paid employment once retired from their primary job.

However, there is substantial risk in this strategy since many current retirees were forced into retirement earlier than they expected due conditions that were out of their control, such as health problems or a company downsizing. So working longer may not be an option for many respondents, according to Greenwald.

Employer-sponsored retirement savings plans are the primary way workers save, with 82 percent of employees contributing to a plan, if it is offered.

If those respondents not currently offered a retirement savings plan were automatically enrolled into one, most would continue the contribution, according to the survey. Forty-two percent report they would continue the contribution as is, and 35 percent would increase it.

Workers who participate in an employee-sponsored plan are considerably more likely than those who don’t to have saved at least $50,000, according to the survey.

“Knowing how much to save for retirement is a complex calculation, and the Retirement Confidence Survey shows the difficulty workers have in deciding how much to save and the risks they are subjecting themselves to if they don’t. More effective actions by employers can help a great deal in getting workers to save and encouraging them to save more,” says Greenwald.

The survey was conducted in January 2013 with 1,254 individuals age 25 and older in the United States, The RCS is co-sponsored by the Employee Benefit Research Institute (EBRI), a private, nonprofit, nonpartisan public policy research organization, and Mathew Greenwald & Associates, Inc., a Washington, DC-based market research firm.

END QUOTE

Have a great weekend everyone!

Not to mention that the Fed could incur huge losses if it has to unload these bonds and mortgages in a higher interest rate environment.

The current thinking is that the Fed will halt its monthly purchases of $85 billion worth of Treasury bonds and mortgages sometime late this year or next year, as I discussed last week. Then at some point, presumably when the economy is stronger, the Fed would begin to sell off these same securities, which would be at least $4 trillion or more by that point.

However, a couple of my Blog readers raised a question that I frankly had not thought about. That thought was: What if the Fed decides to hold all these securities to maturity and never has to sell them? Honestly, I feel a little embarrassed that I had not thought of that possibility. The thought of the Fed holding 30-year mortgages and 30-year Treasury bonds to maturity did not cross my mind.

KUDOS to my subscribers who I have always maintained are more sophisticated than the average e-mail/newsletter reader! (Editor’s Note: I always read your responses; please keep them coming. Positive or negative, you make me think.)

Well, guess what. In his congressional testimony on February 27, Fed Chairman Ben Bernanke asserted that the Federal Reserve doesn’t ever have to sell assets, period. The Fed may decide to hold the bonds and mortgages on its balance sheet to maturity, he told lawmakers.

Of course, while there are legitimate questions about whether or not the Fed will still be around in 30 years (for better or worse), there are some potentially negative issues with the Fed holding $3+ trillion (soon to be $4+ trillion) in bonds and mortgages to maturity. For one, many believe that if the Fed does not reduce its balance sheet, it will lead to higher inflation.

Bernanke admitted in his testimony last month that no country has ever had a comparable increase in the size of its central bank’s portfolio and unwound it “in the precisely analogous way.” That’s Fed-speak for, don’t assume we will liquidate this unprecedented debt portfolio in the same way we accumulated it.

He also assured lawmakers that the Fed isn’t planning an immediate exit and continues to add to its stimulus, buying $85 billion of mortgage-backed securities and Treasuries each month. So the duration and size of the QE is open-ended. Thus, we have no idea when it will end.

The point is, Bernanke has raised the possibility that the Fed may never sell its unprecedented securities holdings, and just hold them to maturity (up to 30 years). This raises a lot of new unanswered questions. I’ll have more to say on this subject after I research it further.

Have a great weekend everyone!