Archive for February, 2011

A new study just published by the Center for Retirement Research at Boston College reveals some interesting statistics about how much impact inheritances  will have on baby boomer’s  finances in retirement. The study concludes that for most boomers inheritance will help make up a savings shortfall – but not entirely.

Due to a changing retirement landscape, many baby boomers are likely to have insufficient resources for a secure retirement. One potential source that could improve their situation is inheritances. This study quantifies the aggregate amount of inheritances that baby boomers – those individuals born between 1946 and 1964 – can expect to receive over their lifetimes, and the distribution of past and prospective receipts by household type.

A new report from the Center for Retirement Research at Boston College gives specifics about how much boomers can count on. The researchers, led by economst Alicia H. Munnell, the director of the center, estimate that two thirds of boomer households will receive (or have received) one or more inheritances, with the windfall averaging nearly $300,000 per recipient household, and totaling $8.4 trillion. Moreover, when life-time gifts boomers have gotten from their parents are included, the wealth transfer could be as high as $11.6 trillion. (And that doesn’t count grandparents paying college tuition bills directly.)

Not surprisingly, this windfall won’t be evenly distributed—most will go to the already well heeled; the median inheritance is projected to be a modest $64,000 per household.

Still, inheritances could make a substantial difference at every wealth level.  In fact, with the exception of the richest 10% of boomers, those who inherit will, on average, receive an amount that exceeds 30% of their current net worth—a significant boost to their ability to live well in retirement and perhaps to pass on something to their own kids or to help those kids repay student loans or make a house down payment.

“I inherited $10,000 when I was in my late 20s,” Munnell says,  “and that allowed us to buy a house and it appreciated and we sold it and sold another and it turned into millions. The difference between having even a little (inheritance) and nothing is big.’’

Munnell  cautions boomers not to take the wrong message from her research—they still need to work longer, save more, and not count on their parents’ savings to bail them out.  Boomers, she adds, should regard these potential inheritances “as a nice bonus. If it happens they will be able to splurge and if it doesn’t happen, they will have to pinch pennies.”

To read the article from Forbes online go to Boomers Inheritance

The standard financial calculators for saving for retirement assume we will save regularly and invest the    savings for 30 years to reach the number we need for retirement.

The problem is that even if you do everything right and save at a respectable rate, you’re still relying on the market to push you to the finish line in the last ten years before retirement.  Here’s why.

Reaching your goal is highly dependent on the power of compounding — or the snowball effect, where your pile of money grows at a faster clip as more interest (or investment growth) grows on top of more interest. In fact, you’re actually counting on your savings, in real dollars and cents, to double during that home stretch.

But if you’re dealt a bad set of returns during an extended period of time just before you retire or shortly thereafter, your plan could be thrown wildly off track. Many baby boomers know the feeling all too well, given the stock market’s weak showing during the last decade. Michael Kitces, director of research at the Pinnacle Advisory Group recently posted an example of how this works at his blog.

Consider the numbers for a 26-year-old who earns $40,000 annually, with a long-term savings target of $1 million. To get there, she’s told to save 8 percent of her salary each year over her 40-year career. (We assumed an annual investment return of 7 percent, and 3 percent annual salary growth, to keep pace with inflation). Yet after 31 years of diligent savings, her portfolio is worth just slightly more than $483,000.

To clear the $1 million mark, her portfolio essentially must double in the nine years before she retires, and the market must cooperate (unless she finds a way to travel back in time and significantly increase her savings).

Should the markets misbehave, however, delivering a mere 2 percent return over the 10 years before retirement (not all that hard to imagine, considering the return of a portfolio split between stock and bonds over the last decade), she falls short by about a third. Her portfolio would be worth only about $640,000. To read the whole article from the Your Money column of the New York Times go to Boomers Retirement

Many of us sit in front of a computer for eight hours a day, and then go home and head for the couch to surf the Web or watch television, exchanging one seat and screen for another. Even if we try to squeeze in an hour at the gym, is it enough to counteract all that motionless sitting?

A mounting body of evidence suggests not. A recent article on the New York Times Health and Wellness blog discussed some surprising and important findings. Hazards of the Couch

Increasingly, research is focusing not on how much exercise people get, but how much of their time is spent in sedentary activity, and the harm that does.

The latest findings, published this week in the Journal of the American College of Cardiology show that sitting in front of a screen can have such an overwhelming, seemingly irreparable impact on one’s health, that physical activity doesn’t produce much benefit.

The study followed 4,512 middle-aged Scottish men for a little more than four years on average. It found that those who said they spent two or more leisure hours a day sitting in front of a screen were at double the risk of a heart attack or other cardiac event compared with those who watched less. Those who spent four or more hours of recreational time in front of a screen were 50 percent more likely to die of any cause. It didn’t matter whether the men were physically active for several hours a week — exercise didn’t mitigate the risk associated with the high amount of sedentary screen time.

The study is not the first to suggest that sedentary activities like television viewing may be harmful. A previous study found that adults who spend more than 23 hours a week watching TV and sitting in their cars were more likely to die of heart disease than those who sat for 11 hours a week or less, even if they exercised.

And when adults  cut their TV time in half, they burned more calories than those who watched five hours or more a day. Even the light activities adults filled their time with, like reading and playing board games, actually burned more calories than watching TV.

In the U.S. on average people are spending three to four hours a day watching television which is more that  20 percent of  their total daily awake time.

The study focused on recreational TV time but indicate that people who work at computers all day should take short walks periodically.