blog16mar2008

Hot Off the Web
In Financial Post’s “Inflation can bite seniors’ budgets hardest”  William Hanley discusses how inflation can have significant impact on retirees, and not just when the published CPI rises. Retirees’ lifestyle can be affected also when their personal CPI diverges from the published ones. He also quotes Malcolm Hamilton who disagrees on inflationary risk to retirees, because “he says about 50% of the income of Canadian seniors comes from fully CPI-indexed government programs such as Guaranteed Income Supplement, Old Age Security and the Canada Pension Plan. The rest comes from fully indexed public service pensions, partly indexed private-sector pensions and savings plans like RRSPs”. But Hanley seems sceptical (and so am I). Coincidentally, my in depth blog this weekend is also on Senior Inflation. Another story related to retirees’ income was the Financial Post’s report that “Retirees maintain lifestyle” . However, on reading the story the message was that while those in the bottom 20% of income distribution at age 55 maintained essentially 100% of the disposable income by age 75, those in the top 20% at age 55 only retained 70% by age 75. (Doesn’t sound like the lifestyle is maintained).
WSJ’s Glenn Ruffenach reports in “Stretching out long-term care insurance” that financial planner Charles Farrell advises clients to select “long and thin” rather than “short and fat” long-term care insurance. For example for a couple it costs the same to buy a 3 year $40,000/year and a 10 year $30,000/year policy, because while most people don’t end up staying in nursing homes for more than 3-4 years, the purpose of insurance is to prevent “financial disaster—you can’t cover yourself” (i.e. in case you end up being in the nursing home longer than you expected).
Daisy Maxey of the WSJ reports in “Sellers of annuities make buying easier” that Fidelity and others offers on-line annuity purchases, some even allow the option “to dollar cost average into an annuity by making small purchases over a long period of time”. The author discusses diametrically opposite perspectives on the advisability of such an offering. Against the online offering are arguments such as mine in the next sentence, while others argue that if you have decided to buy an annuity, why not buy it cheaper by eliminating the middle-man. (For my two cents, while the averaging into the annuity is a possibly a good development, the very idea of people buying such complex, and usually expensive, products like annuities online without adequate education and advice seems to be one of the strangest developments. I am not familiar with specifics of the evolving products being offered, but readers of these blogs Annuities I, Annuities II, Annuities III, and Annuities IV would know that annuities are recommended only in very limited circumstances. To allow/encourage people to make such a large and usually difficult to reverse decision without adequate analysis/advice does not seem to be prudent. The only form of annuity that I would consider for broad applicability (still not for everyone) would be the Longevity Insurance or Delayed Payout Annuity products which are starting to emerge).
In “Saying goodbye to your money guy” BusinessWeek’s Benjamin Levisohn discusses the difficulties of firing your financial adviser. He also identifies the key warning signs to look in an incompetent or unethical adviser: overtrading (to earn fees), opaque fee structure (you can’t understand how adviser gets paid or, he can’t or doesn’t want to explain it to you), performance (how is your performance against appropriate benchmarks), unavailability (can’t get to your adviser), incoherent strategy (can’t explain an investment strategy consistent with your financial context).
Donna Kardos in WSJ’s “Older homeowners cautioned on use of reverse mortgages” warns that seniors must take special care before tapping their home equity via reverse mortgages. (This should be no news of readers of this website; see in depth analysis at Reverse Mortgages)
And finally Jonathan Chevreau in “Online resource for fixed income”  reports that Perimeter Financial Corporation has a new website to “ shop the bond inventories of multiple investment dealers in a single location in real time”. The lack of transparency in the fixed income market is an impediment for getting access to competitive pricing in the bond market.
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