Week In Review
November 2, 2009
Senate Examines Risks Of Target-Date Funds
The Senate Special Committee on Aging held a hearing Wednesday to examine the risks and potential conflicts of interest inherent in target-date funds.
For 401(k) administrators that offer their own target-date funds, comprised of their own offerings, in plans that automatically enroll workers, "it's the easiest money to get and the hardest money to lose," testified John Rekenthaler, vice president of research at Morningstar.
Last year, even as investors redeemed money from nearly every mutual fund category, target-date funds reaped $57 billion in inflows, and they are on pace to attract another $60 billion this year. Nearly 86% of the assets in target-date funds are held in retirement plans.
Because the glidepaths and risk allotment of target-date funds vary so greatly, even for funds with the same retirement target, their performance is all over the map, experts testified. With equity exposure ranging from 26% to 72% in the 2010 target-date group, for instance, those funds lost anywhere between 23% and 38% last year.
46% of Unemployed in '08 Cashed Out of Their 401(k)
Forty-six percent of those leaving a job in 2008 tapped into their 401(k), maintaining an "alarmingly high" rate of people cashing in since 2005, Hewitt Associates said. Sixty-percent of those cashing in were in their 20s, and 33% were in their 50s.
However, those with more money saved tended to appreciate the importance of its purpose, with only 8% of those with balances of $100,000 or more dipping into their 401(k), and 85% of those with balances of $1,000 or less running with the money.
51% at Risk of Struggling in Retirement
The percentage of Americans at risk of having to cope with lower living standards in retirement has risen to 51%, seven percentage points higher than the 44% last measured in 2007, the Center for Retirement Research at Boston College found. And the figures would be even higher if they accounted for healthcare and long-term care, the center said. Among low-income households, the percentage at risk is 60%, among middle-income it's 47%, and for high-income it's 42%.
And Nationwide Mutual Insurance, which underwrote the research for this National Retirement Risk Index, has found that many investors are becoming disengaged about planning for retirement. Twenty-five percent fewer people say they would seek advice before making investment decisions, and 60% less agree that retirement income is important.
"We are clearly facing a retirement crisis, one that will continue to grow as younger workers age," said center Director Alicia H. Munnell. Both the center and Nationwide are calling on investors and their advisers to proactively prepare for retirement, particularly for advisers to empathize with their clients' frustration and cynicism. Specifically, the organizations recommend that people save and invest more, reduce debt and work longer.
6.6 Million Americans Age 65+ Looking for Work
While the recession has forced many Americans to delay retirement, one of the hardest hit are those already retired in search of work. There are 6.6 million Americans age 65 or older who have lost their jobs in the recession, 61% more than the 4.1 million unemployed in this age group in 2000.
This is five times the number of people in this age bracket who were unemployed in the Great Depression. Making matters worse, many older Americans still owe money on their mortgages.
In terms of percentages, 6.7% of older Americans are out of work. While that's below the 9.8% national average, it's far higher than the 1.9% who were unemployed earlier this decade. And among those who successfully find other gainful employ, it takes an average of 36.5 weeks, or more than nine months. That's 40% longer than other unemployed folks.
As AARP Legislative Policy Director David Certner puts it, "It's a big deal for a lot of these people not to find a job. That so many of them are still trying to find work shows how bad the economic situation is. A lot of people normally give up at that age."
According to the Congressional Research Service, the median income for those 65 and older is $18,208, with nearly 25% of this population living on $11,139 or less a year. The average Social Security benefit is currently $12,437 a year.
Franklin's Profit Rises 22% To $367.4 Million
Franklin Resources reported profits for its fiscal fourth quarter ended Sept. 30 rose 22% to $367.4 million, or $1.60 a share, up from $300.5 million, or $1.28 a share, a year ago. That beat analysts' expectations of earnings of $1.32 a share.
While revenue fell 6.3% to $1.2 billion, the firm reduced expenses by 6.1% to $854.2 million.
Assets under management rose 16% to $523.4 billion, up from $451.2 billion as of June 30, with most of the $12.2 billion in inflows going to Franklin's bond funds. That boosted assets in the firm's fixed income funds to 33% of all assets, up from 28% a year ago.
Legg Mason Earns $45.8M In Second Fiscal Quarter