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When You Retire Without Enough

Start your “second act” with inadequate assets, and your vision of the future may be revised.

How much have you saved for retirement? Are you on pace to amass a retirement fund of $1 million by age 65? More than a few retirement counselors urge pre-retirees to strive for that goal. If you have $1 million in invested assets when you retire, you can withdraw 4% a year from your retirement funds and receive $40,000 in annual income to go along with Social Security benefits (in ballpark terms, about $30,000 per year for someone retiring from a long career). If your investment portfolio is properly diversified, you may be able to do this for 25-30 years without delving into assets elsewhere.1

Perhaps you are 20-25 years away from retiring. Factoring in inflation and medical costs, maybe you would prefer $80,000 in annual income plus Social Security at the time you retire. Strictly adhering to the 4% rule, you will need to save $2 million in retirement funds to satisfy that preference.1

There are many variables in retirement planning, but there are also two realities that are hard to dismiss. One, retiring with $1 million in invested assets may suffice in 2018, but not in the 2030s or 2040s, given how even moderate inflation whittles away purchasing power over time. Two, most Americans are saving too little for retirement: about 5% of their pay, according to research from the Federal Reserve Bank of St. Louis. Fifteen percent is a better goal.1

Fifteen percent? Really? Yes. Imagine a 30-year-old earning $40,000 annually who starts saving for retirement. She gets 3.8% raises each year until age 67; her investment portfolio earns 6% a year during that time frame. At a 5% savings rate, she would have close to $424,000 in her retirement account 37 years later; at a 15% savings rate, she would have about $1.3 million by age 67. From boosting her savings rate 10%, she ends up with three times as much in retirement assets.1

   

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Strong Q3 GDP, Mixed Housing Indicators, Retreat for Equities

FIRST ESTIMATE OF Q3 GDP: 3.5%

A 4.0% gain in consumer spending and a 3.3% advance in government spending helped strengthen the economy in the three months ending in September. Bureau of Economic Analysis data shows that the past two quarters represent the best 6-month period for U.S. growth since 2014. It appears likely that the economy will expand more than 3% this year; if that happens, 2018 will enter the history books as the best year for the economy since 2005.1

NEW HOME SALES SLUMP, BUT PENDING HOME SALES IMPROVE

According to the Census Bureau, new home buying decreased 5.5% last month, even as the number of new homes on the market hit a nine-and-a-half-year high. The median sale price of $320,000 was 3.5% lower than it was in September 2017. Pending home sales surprised to the upside in September: they rose 0.5%. Economists polled by Briefing.com expected the National Association of Realtors to announce a housing contract activity decline of 0.3%.2,3

A SLIGHT DIP FOR CONSUMER SENTIMENT

Friday, the final University of Michigan consumer sentiment index for October appeared, bearing a reading of 98.6. This was 0.4 points below its preliminary October mark, but little cause for concern.3

MORE TURBULENCE ON WALL STREET

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Higher Rates, Home Sales Slow, Market Volatility Continues

HOMES MOVE AT THE SLOWEST PACE IN 3 YEARS

Existing home sales slumped 3.4% in September as the annualized sales rate decelerated to a degree unseen since November 2015. In reporting this, the National Association of Realtors cited the usual factors: climbing mortgage rates, tight inventory, and ascending prices (the median sale price in September was $258,100, up 4.2% in 12 months). The NAR’s chief economist, Lawrence Yun, now projects a 1.6% reduction in resales for 2018; economists at Fannie Mae are forecasting a 2.0% retreat. In other real estate news, the Census Bureau said that housing starts fell 5.3% last month, while building permits declined 0.6%.1,2

AGAIN, RETAIL SALES RISE JUST 0.1%

The Census Bureau said that the overall gain for September matched that of August. With fuel and auto sales factored out, retail sales were flat last month. Core sales retreated 0.1%.2

FED MINUTES NOTE POSSIBILITY OF FURTHER GRADUAL RATE HIKES

The Federal Reserve released minutes from its September policy meeting Thursday, and they relayed the consensus opinion that a “gradual approach” to tightening monetary policy will be warranted if inflation, labor, and GDP readings keep indicating a thriving economy. Policymakers noted that raising rates too quickly could prompt “an abrupt slowing in the economy and inflation moving below the committee’s objective.” Then again, the minutes also acknowledged “the risk of moving too slowly, which could engender inflation persistently above the objective and possibly contribute to a buildup of financial imbalances.”3

A POSITIVE WEEK FOR EQUITIES

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