Friday Financial Five – September 18th, 2015
Friday, September 18, 2015
The Federal Reserve opted for a cautious approach, following the path many experts predicted by delaying a rate hike in September citing “recent global economic and financial developments”. The decision to keep rates steady resulted in some volatility, but overall there weren’t huge losses or gains. The Fed did indicate there will be a hike before year’s end, either in October or December. There was one dissenting vote belonging to Jeffrey Lacker, who favored a quarter point hike.
Report cites wide gender gap for retirement readiness
A new report from Financial Finesse suggests there’s still a significant gap between men and women when it comes to funding retirement. While both genders face retirement shortfalls in general, the comparison of a median 45 year old man and woman shows the woman faces a much higher shortfall when it comes to funding 70% of working income plus healthcare costs. The shortfall is 26% higher and is attributed to longer life expectancy, lower Social Security payments, and lower retirement savings. The study focuses on the challenges women face to increase savings while increasing confidence to address and better understand financial concerns.
Democrats continue pushing fiduciary rule
The responsibility of an advisor to act in a client’s best interest continues to split party lines. Democrats favor the new rule and recently asked the Department of Labor for compensation flexibility as long as the fiduciary standard is upheld. Republicans remain obstinate while backing financial groups who believe any new rule will cause the cost of advice to skyrocket. There hasn’t been an alternate solution proffered that will remedy the problem of people receiving unnecessarily expensive or poor advice.
Longevity annuities for retirement accounts
The fear of running out of money during retirement, or longevity risk, is driving innovation to find ways to provide guaranteed lifetime income. A relatively new product, the Qualified Longevity Annuity Contract, provides deferred income for retirement account holders. Investors use money from IRAs or 401(k)s to create a stream of payments at a future date. A big hurdle is meeting requirements to avoid the Required Minimum Distribution rule once hitting the age of 70 ½. While immediate annuities have been largely accepted by those wanting predictable income payments, the QLAC has been less popular so far. That may be attributable to the mortality factor, where a 70 year old simply doesn’t believe he or she will be around at age 80 to collect payments.
SEC punishes another advisor to NFL players
The extensive and disturbing trend of professional athletes being misled by unscrupulous financial professionals continues. A Denver advisor misused millions of dollars from thirty athletes, including very prominent National Football League players and has been barred by the SEC from the securities industry. The players, including Ray Lewis and Terrell Owens, believed they were investing $40 million in a casino project in Alabama. Instead, the SEC contends the advisor used part of the money to purchase a Lamborghini and a home worth nearly $3 million.
Dan Forbes is a regular contributor on financial issues. He is a CFP Board Ambassador. He leads the firm Forbes Financial Planning, Inc in East Greenwich, RI and can be reached at [email protected].
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