A digest of timely information and insight about finance, investing and retirement
By most accounts, Colorado’s state pension plan is healthy and on track to solvency in the wake of a massive overhaul by lawmakers five years ago.
PERA executive director Greg Smith reported Friday to the Joint Finance Committee that in the past five years, SB 1 reforms have saved PERA about $15 billion in unfunded actuarial accrued liability. Most of the savings, he said, is from decreasing the Annual Increase provisions for current and future retirees – which accounts for 90 percent of the $15 billion in savings.
The news that Social Security beneficiaries won’t receive an inflation adjustment next year has renewed debate about how we measure the cost of living for seniors. A strong case can be made that the current formula driving Social Security’s cost-of-living adjustment (COLA) is out of whack.
The COLA is tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which gauges a market basket of goods and services of working people – who tend to be younger and spend less on health care than seniors. What can you do to hedge against the negative effects of future inflation in retirement?
Some research suggests that the traditional target for retirement income is too high, based on 80 percent of gross earnings in prime career years before retirement. Others say it is too low, given rising out-of-pocket health care costs. But a new study from the Transamerica Center for Retirement Studies shows that planning to work longer as a way to forestall retirement and minimize savings needs may only be wishful thinking.
This year’s results from the annual Retirement Confidence Survey conducted by the Employee Benefit Research Institute (EBRI) are sobering. Only 22 percent of Americans are very confident that they’ll have enough money for a comfortable retirement. And more than a quarter of working Americans have set aside $1,000 or less for their golden years.
Retirement is a transition into a new phase of life that requires changes to your finances and lifestyle. Taking care of a few preparations in the months leading up to retirement can make that adjustment smoother.
An interest rate hike from the Federal Reserve looks to be on the horizon this season. A recent survey found more than half of American investors say the economy is their top financial concern, fueled in part by worries over market volatility and interest rates.
Experts say the first increase in interest rates since 2006 might not have much of an impact, but if interest rates continue to climb seven or eight times in the next three or four years, you’ll start to notice it in your wallet and your investments.
Around Colorado and across the nation, decisions made by the Federal Reserve in Washington have large consequences. William Harris tapped his retirement savings to open A-Town Pizza, a Neapolitan pizzeria, in Aurora three years ago. On a good Friday, his shops sell 1,200 pies. In such stories, the Fed finds evidence that its seven-year campaign to reboot the American economy is succeeding. But Mr. Harris is not ready.
Unfunded actuarial accrued liabilityThe present value of expected benefit payments in excess of the actuarial value of PERA’s assets.VolatilityVolatility of returns is the measurement used to define risk. It describes the variation of price of a financial instrument over time. The greater the volatility, the higher the risk.