Stock Market Commentary
For the week of July 28, 2008
The Market
Wall Street closed a volatile week with uneven gains Friday after better-than-expected economic numbers calmed the market which a day earlier was dealing with concerns from the housing and the financial sectors. The Dow ended the week down 1.09 percent to 11,370.69. The S&P lost 0.22 percent for the week to finish at 1,257.76, while the NASDAQ rose 1.22 percent to end the week at 2,310.53.
Take Your Order? – The Commerce Department released its durable goods report on Friday, showing a 0.8 percent increase in orders for big-ticket manufactured items such as automobiles, appliances and machinery – the largest increase in four months. The increase beat the 0.4 percent decline that analysts had predicted.
Saving More – Retirement assets held in individual and employer-sponsored defined contribution accounts grew 11 percent last year, according to the Investment Company Institute. At year-end, total U.S. retirement assets stood at $17.6 trillion. Defined contribution plan assets were $4.5 trillion, or 40 percent of employer-sponsored plan assets, including $3 trillion in 401(k) plans, a 10 percent increase over 2006.
Not Much – The maximum Social Security retirement benefit that could be earned by an individual reaching full retirement age in the year 2008 (i.e., at age 65 years and 10 months) is $2,185 a month or an annualized $26,220 (Source: Social Security Administration, BTN Research).
Separate From Medicare – A 65-year old couple would need to set aside $215,000 today (i.e., a present value amount) in order to cover their out-of-pocket health care expenditures over the subsequent 15-year period (Source: Fidelity, Barron’s, BTN Research).
Freddie And Fannie – The Federal Home Loan Mortgage Corporation (aka Freddie Mac) and the Federal National Mortgage Association (aka Fannie Mae) buy mortgages from banks (thus providing banks with new money to loan) and oftentimes resell the purchased loans to investors, providing a guarantee of repayment to the new owners of the mortgages. Freddie Mac and Fannie Mae own or back $5.2 trillion of mortgages, equal to 49 percent of the nation’s $10.6 trillion mortgage market (Source: Federal Reserve, USA Today, BTN Research).
WEEKLY FOCUS – The Importance of Your 401(k)
We have long stressed the importance of a 401(k) or other defined contribution plan to an individual’s overall retirement plan. A new study from Hewitt Associates, a global human resources company, emphasizes just how important 401(k) accounts will be for future retirees.
The study also raised the bar for how much a person needs at the time he retires so as not to outlive his money. Due to greater longevity and rising health care costs, Hewitt estimated that retirees need 126 percent of their salary at retirement to cover their expenses – although the real amount will vary based on age, income and savings rate. Still, the study seems to contradict the common wisdom that says Americans will require less income in retirement than they do during working years.
Using actual data and behaviors of nearly 2 million employees at 72 large U.S. companies, the study found that fewer than one in five Americans will meet their total estimated needs in retirement. Taking advantage of employee 401(k) plans throughout their career, however, increases those odds dramatically. According to the research, “employees who contribute to a 401(k) plan can expect to replace 96 percent of their preretirement income. Those who do not save can expect to replace only 54 percent of preretirement income, with a heavy reliance on Social Security.”
We hope you’re taking advantage of the various retirement plans available to you. We also hope you will spread the word to your children and grandchildren who may be starting their first jobs where they have access to a 401(k). We can help you or a family member build a full retirement plan that takes into consideration your employer-based accounts as well as other sources, and we’ll be here when you retire to help handle the rollover of your plan account. Call us if you would like to review or create a plan for yourself or a family member.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all dividends. Written by Securities America. WMCSAI# 284103
