Morningstar Advisor - December/January 2010 - 4

morningstaradvisor.com New on the Web New Blog Contributors Recent Top Articles r A Trio of New IRA Developments December Sales Idea Free Download: A Penny Saved The slate of contributors to the Markets & the Economy blog on Morningstaradvisor.com continues to grow. New to the scene: Cathy Curtis, CFP, is a member of the National Three important pieces of news have hit the IRA scene. r Roth Conversion Before Age 59½ The table shows suggested savings rates for A Penny Saved prospective retirees delineated by age, gross income, and the amount already saved. Are you saving enough for retirement? Savings rates by age and income level Even the best and the brightest get muddled up on Roth conversions before age 59½. r PIMCO’s Big Cash Haul Association of Personal Financial Advisors. She is the principal of Curtis Financial Planning, which is based in Oakland, Calif. Kent Grealish, CFP, AIF, is a partner in Quacera The latest flow trends, plus a top manager takes a break. r October 2009 Mutual Fund Red Flags These three funds are beseiged by outflows. r Six International-Stock Manager of the Capital Management, LLC and has been an advisor for more than 35 years. Grealish has an MBA from Santa Clara University and an undergraduate degree from the University of San Francisco. For 30 years, Curtis A. Smith, CFP, has served as principal of a comprehensive financial planning and investment management practice. Year Candidates Three of the six leading candidates have won the award before. r As Rally Continues Two Strong Funds Say, Confidence for a comfortable retirement has fallen sharply Lately, both workers and retirees have expressed record low confidence over having a financially secure retirement. The percentage of workers who say that they are very confident they will have enough money to retire comfortably plunged to 13% recently, compared with an all-time high of 27% just two years ago. Only 20% of current retirees expressed confidence. ‘No Mas’ A number of different factors fueled the fall in confidence, including the recent economic uncertainty, inflation, job loss, pay cuts, erosion of retirement savings, and/or an increase in debt. Amid all of this uneasiness, a guiding light would be most welcome—namely, assistance in calculating your target savings rate. An 80% replacement of pre-retirement income is assumed. For example, a 45-year-old with no current savings and gross income of $80,000 per year needs to save 24% of his gross income. Enjoy your golden years by planning accordingly The table shows suggested savings rates for prospective retirees delineated by age, gross income, and the amount already saved. An 80% replacement of pre-retirement income is assumed. For example, a 45-year-old with no current savings and gross income of $80,000 per year needs to save 24% of his gross income. If, however, he already saved $200,000, the savings rate should be cut by 9% (0.45% x 20), equating to a revised savings rate of 15%. By postponing the retirement-saving process, you are potentially digging yourself a bigger and bigger hole. The sooner you start putting aside money for retirement, the more you might have once that highly-anticipated day arrives. Plus, Vanguard adds a board member, American Century news, and more. 09.09 The analysis was conducted using Monte Carlo simulation that estimates the range of possible outcomes based on a set of assumptions including expected return, standard deviation (risk), and correlation for stocks and bonds. Projections generated regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Results may vary over time and with each simulation. The asset class investment returns are the December 2005 Ibbotson Associates estimated long-term expected returns. The risk and return of each asset class, cross-correlation, and annual forecasted inflation follow. Stocks: risk 20.22%, return 10.96%; Bonds: risk 7.20%, return 4.59%; Correlation 0.203; Inflation: return 2.5%. Note that other investments not considered may have characteristics similar or superior to those being analyzed. Two thousand simulations for each one of the combinations of age, income level, and savings rate were run in this study to extract needed results. While simulation can produce results that show probabilities of an outcome, the analysis included herein is presented as the 90% confidence level. A 90% confidence level indicates that there is a 90% chance of the outcome being as shown or better. Higher confidence levels are chosen in order to view tougher market conditions. The study also takes into account Social Security income, inflation and expected salary increases (limited to the expected inflation rate), but does not consider late-in-life medical costs. In addition, a retirement age of 65 at full Social Security benefits is also assumed, and a probability mortality rate model is used to calculate life expectancy. Mortality rates calculated as the average of female and male mortality rates from the Society of Actuaries’ 2000 mortality table. Total amount of assets needed in the retirement portfolio was calculated as the purchase price of an inflation-indexed lifetime payout annuity that would generate an annual income equal to annual income deficit (post-retirement income needed minus estimated Social Security benefits). If, however, he already saved $200,000, the savings rate should be cut by 9% (0.45% x 20), equating to a revised savings rate of 15%. Source: Savings rate guidelines from “National Savings Rate Guidelines for Individuals,” Journal of Financial Planning, April 2007. Confidence numbers from the Employee Benefit Research Institute, 2009 Retirement Confidence Survey. ©2009 Morningstar, Inc. All rights reserved. Used with permission. Morningstar Advisor December/January 2010

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Morningstar Advisor - December/January 2010

Table of Contents for the Digital Edition of Morningstar Advisor - December/January 2010