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| November 2, 2009 |
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Retirement Planning
Half of Households at Risk During Retirement
Just over half of all households (51%) are at risk of being able to maintain their standard of living during retirement, up from 44% in 2007.
- Approximately three-quarters of the increase in the percentage of households at risk resulted from declines in housing values, reflecting the reality that homes are the most valuable asset for many individuals.
- Lower interest rates are another factor. When a retiree with $100,000 purchases an inflation-indexed annuity with a real interest rate of 3%, the monthly payment is $492. The monthly payment declines to $413 when the real interest rate is 1.5%.
- The percentage of household income replaced by Social Security (after deductions for Medicare) for an average earner retiring at age 65 is expected to decline from 39% in 2002 to 31% in 2030.
The full analysis is available on the Center for Retirement Research at Boston College Web site.
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Consumer Confidence
Americans Still Pessimistic About Economy
The financial pundits in Washington and on Wall Street may have declared an end to the recession, but those on Main Street have a decidedly different opinion about the state of the economy.
- The majority of those surveyed (58%) think the economic slide still has a ways to go. An even greater percentage (64%) said the recent market uptick has had little or no impact on their views of the economy.
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Just 42% believe the economy will get better in the next 12 months, while 22% think things will get worse over that time period.
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Most (63%) said the government has done the right amount of intervention or needs to do more.
More details are available on The Wall Street Journal Web site (subscription required).
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Banking Trends
Small Business Satisfaction Is Key to Increasing Revenue
The J.D. Power and Associates 2009 Small Business Banking Satisfaction Study suggested that with minimal effort banks could increase the satisfaction of -- and improve revenue earned from -- the small-business segment by as much as 20% annually.
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Among the smallest of the small businesses (those with annual sales under $1 million), revenue gains could be realized by reaching out two or three times a year.
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Businesses with between $5 million and $6 million in sales want to hear from their banks five to six times a year.
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The study concluded that such communications need not be conducted by high-level managers. Assistant-level managers who are familiar with consumer banking needs are adequately qualified to satisfy the needs of these populations of small-business clients.
The complete survey results are available on the J.D. Power Web site.
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Retirement Plans
Employer Spending Has Been Declining Since 2002
U.S. employer spending on retirement benefits for workers has declined steadily throughout most of this decade, with the steepest drop-off taking place in companies that switched from defined benefit (DB) to defined contribution (DC) plans.
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Total spending on retirement benefits -- including DB plans, DC plans, and retiree health plans -- fell to 6.9% of pay in 2008, down from 7.8% of pay in 2002.
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Among companies offering DB plans during the entire study period, the overall value of benefits dropped to 8.6% of pay, from 9.4% in 2002, primarily due to cuts in retiree health benefits. But among companies offering only DC plans, the value of benefits rose modestly, to 5.6% from 5.3%, thanks largely to higher employer contributions.
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The biggest drop in retirement benefits funding took place in companies that switched from DB to DC-only plans between 2002 and 2008, where overall spending on retirement benefits dropped to 5.5%, from 8.7%.
More details are available on the Watson Wyatt Web site.
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Quote of the Week
Sam Stovall, Standard & Poor's Chief Investment Strategist, Gives a Bullish Forecast for the Markets
"From a technical perspective, the equity markets have entered a pullback phase, in our view, as recent weakness has been accompanied by an increase in trading volume. Prices are very oversold, in our opinion, so we think there could be a rally very soon. Once this pullback is over, we still see the major equity indices posting recovery highs later this year and into 2010."
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