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Markets closed out their best week of the year last week, buoyed by higher oil prices and positive economic data that reassured some recession worriers. For the week, the S&P increased 2.84%, the Dow grew 2.62%, and the NASDAQ added 3.85%.1
After tumbling for weeks, oil prices stabilized close to $30/barrel after several major oil producers—including Saudi Arabia, Russia, Qatar, and Venezuela—announced their willingness to freeze production levels to fight low prices. It’s not clear that the deal will go anywhere since other countries are refusing to participate.2 Since cutting production will only work if all or most oil producers commit to collective action, it’s not certain that oil prices have ended their declines. However, the temporary pause was enough to give markets a boost.
A key barometer of prices in the U.S.—the Consumer Price Index—showed that core inflation rose 2.2% over the last 12 months.3 A modest rise is good news because it shows that there is demand pushing up prices. Demand means that the economy continues to grow. However, the increase is small enough that it’s not likely to trigger another interest rate increase by the Federal Reserve any time soon.
On the negative side, the current manufacturing picture is bleak. Two reports released last week show that the manufacturing sector is still contracting, a victim of a decline in global demand for manufactured goods. However, some portions of the sector that depend on domestic demand are doing well.4
The official minutes from January’s Federal Reserve Open Market Committee meeting show that officials are concerned by how global risks may affect the domestic growth picture. This isn’t news to investors, and markets didn’t react very much to the release. Overall, the FOMC intends to be cautious in moving ahead with rate increases, though they are holding to their medium-term positive outlook on the U.S. economy.5 We’re not likely to see a rate increase in March or April. Currently, the latest Wall Street Journal poll of economists shows June as the odds-on favorite for the next rate hike.6 We’re not holding our breath.
The week ahead is packed with important economic data, including the second release of fourth-quarter GDP, consumer sentiment, international trade, and consumer spending.
Not your Father’s retirement
The retirement of today, and that of the future, has changed dramatically from what it used to be – especially over the past 25 years. Gone are the days of working for just one employer, receiving a gold watch and a handshake, and being assured that income will last throughout your “golden years.”
Retirement today isn’t your father’s retirement – and because of that, it has to be planned for differently. What may have worked years ago won’t work today, tomorrow, or years into the future – and the best time to start planning for this new retirement is now.
A Changing Economy Changes the Way We Work
One of the biggest catalysts of this change has to do with the economy itself. Back in the “old days,” more people worked at manufacturing jobs and spent their whole careers with just one employer. Now, we are more service based, and people are much more apt to change jobs more frequently.
In fact, according to the U.S. Department of Labor, the average person in the U.S. who was born between 1957 and 1964, had to go job hunting an average of 17.2 times between the time they were age 18 and age 48.
This changing of jobs – or even of entire career paths – can have a major impact on how, and how much, is being saved for the future. It can also have an effect on when a person is even able to retire at all.
Today, people are also more likely to work after they retire. This could be in the form of volunteering, starting a brand new business endeavor, or moving into a different career that they’ve always wanted to try.
Pensions Are Disappearing
Another key reason that people need to change the way they plan for retirement is the fact that defined benefit pensions are disappearing. In the past, many companies used the defined benefit pension plan as their retirement plan of choice.
These plans, as the name suggests, pay out a set amount of income benefit to their recipient upon retirement. The amount of this benefit is determined by a formula that takes into account the employee’s salary history, as well as his or her length of employment.
For those who participated in a pension plan, the employer would promise to pay out a set, guaranteed amount of retirement income for life – and because of this, the liability of the pension plan rested solely with the employer, not the employee. Oftentimes, 100% of the contributions that went into the pension plan were also made by the employer as well.
Throughout the years, due in large part to the expense of keeping pension plans afloat, many companies have done away with defined benefit pension plans and have replaced them with defined contribution plans. The most popular of these is the 401(k).
In a defined contribution plan, the benefits that accrue are directly attributed to the deposits that are made into an employee’s account – plus any gains. The funds that are contributed will typically come from the employee through salary deferrals, and possibly a small additional amount through an employer’s matching contribution.
For the most part, though, the defined benefit pension plan will soon be long gone. In fact, most people who work outside of government employment cannot count on a defined benefit pension plan at all.
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