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S&P Capital IQ: You Need $1 Million to Retire

By    |   Wednesday, 16 December 2015 07:36 PM

Many say you can’t put a price on happiness in your “golden years” of retirement.

But we now have some working numbers of how much cash it might take to keep the lights on in the house.

Retirees now need to save $1 million if they want to get half of their income from relatively low-risk Treasury investments, according to new research from Michael Thompson and his co-authors at S&P Capital IQ.

That's up from the $200,000 to $300,000 they needed to save to reach the same financial goal between 1990 and 1997 in inflation-adjusted dollars, Thompson told USA Today.

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The reason retirees need so much more now? Rock-bottom interest rates on safe investments like Treasurys are to blame, USA Today explained. "It's startling to think like this," says Thompson. "Rates are so low, in order for you to not take exceptional risk to try to have a reasonable retirement portfolio, you need a million dollars in assets."

The Fed on Wednesday lifted its key interest rate by a quarter point to a range of 0.25 to 0.5 percent, up from near zero for the first time since December 2008.

The hike, though, is so late in coming and so gradual it will offer little help for retirees now, USA Today explained. A hypothetical $100,000 retirement account will only generate enough income to cover 3.9% of an average household's income this year, says S&P Capital IQ using inflation adjusted statistics.

A minor bump in short-term interest rates still wouldn't get that anywhere near the 9.6% of average income retirees enjoyed from their investments since 1981, Thompson says. Back in 1981, investors got 31.3% of their average income from their Treasury investments.

To be sure, Fed policymakers have slightly lowered their projections for short-term interest rates over the next three years, a sign that policymakers may move slowly after their first rate increase in seven years, the AP reported.

More Fed policymakers now expect the short-term rate will be 1.38 percent or below at the end of 2016 than in previous projections in September. And they forecast the rate will be 2.38 percent at the end of 2017 and 3.25 percent at the end of 2018, both a quarter-point lower than in September, according to projections released Wednesday.

Still, the Fed's forecasts for the U.S. economy and interest rates have proven too optimistic for most of the recovery from the Great Recession. A year ago, for example, their projection for short-term rates at the end of 2016 was nearly double what it is now.

Peter Morici, an economist and professor at the Smith School of Business, University of Maryland and Newsmax Finance Insider, said in the case of this rate hike, it’s a case of better late than never.

“This interest rate increase should have been done last spring, last summer,” he told Newsmax TV.

Morici said it remains to be seen just how much of a help higher rates will be in helping the economy to fully flourish once again. “If the economy does continue to improve, they're projecting about a 1 percentage point increase each year. That's about half the pace that we would expect in a normal cycle,” he told “The Hard Line.”

“It remains to be seen whether the economy hits the skids next year,” he said. “I will say this, if we have a recession, I surely would like to see it on Mr. Obama's watch for all of the damage he has done to incentives to work and invest in the United States so that it became a constructive issue in the campaign, rather than being landed on the desk of the next man or woman,” Morici said.

(Newsmax wire services contributed to this report).

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Retirees now need to save $1 million if they want to get half of their income from relatively low-risk Treasury investments, according to new research from Michael Thompson and his co-authors at S&P Capital IQ.
retire, million, dollars, rate
Wednesday, 16 December 2015 07:36 PM
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