Among the rather obscure websites and periodicals I glance through for data that help identify looming pain points and investible opportunities are the U.S. Debt Clock and the Employee Benefit Research Institute (ERBI). In many ways, the U.S. Debt Clock is one of the scariest websites I have ever encountered, largely because its shows what a financial mess the U.S. is in still to this day.
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Washington will talk about how things are getting better, and while that is true in a number of cases, we can't ignore that each U.S. citizen's share of the U.S. debt is more than $55,000. Each taxpayer's "fair share" is $152,000! And yes, there are more eye-opening statistics on that page, which really puts the national debt into context ... and context is key when making business or investing decisions.
Now I'm not looking to shock you with those figures, but I would draw your attention over the right-hand side of the debt clock where you will find an assortment of population, worker, retiree and other statistics. The current population reading puts the domestic population at nearly 319 million with the workforce size at roughly 146 million and roughly 49 million retired persons. Given current demographics and the sheer number of people retiring over the next several years, we will see that retirement category growth further.
Now here comes the scary stuff -- according to the Federal Reserve Board, nearly a third of U.S. adults said they had no savings or pension to help them afford retirement. Even more alarming, 19% of those very close to retirement age, between the ages of 55 and 64, said they had no savings. Is it any surprise then the Employment Benefit Research Institute's (EBRI) 2014 Retirement Confidence Survey found that 33% of workers expect to retire after age 65, and 10% don't plan to retire at all? That's a very different picture compared to 1991, when just 11% of workers expected to retire after age 65. Taking a slightly different view, the percentage of workers expecting to retire before age 65 has decreased to 27% in 2014 from 50% in 1991.
Sifting through the EBRI's findings is this nugget of information: In addition to Social Security, 36% of current retirees cite pensions as a major source, and 18% say they are a minor source, but 43% of current retirees say those are not a source of retirement income at all and 53% say employer-sponsored retirement savings plans are not a source of retirement income. Other data from the EBRI points to 57% of American having less than $25,000 in household savings and investments (excluding their home and pension benefits). American households are so strapped that only half could come up with $2,000 in cash if an unexpected need arose in the next month.
Some of this data helps explain the pick-up in the savings rate over the last several years. The sad reality is socking money away in savings accounts and CDs, even if they get back to more favorable levels from a decade or so ago, means many will continue to fall short of their retirement needs, particularly if they live longer than expected or experience a severe illness, particularly if they continue to do nothing about it. It's not hard to imagine the growing number of articles describing impoverished retirees in a few years and the realization of this looming pain point could spur many to enter or re-enter the stock market with individual stocks, exchange-traded funds or even mutual funds.
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Already Investment Company Institute data show net inflows into equity and bond investments every month for the last eight months. That's good news for asset managers like Calamos Asset Management (CLMS), Waddell & Reed (WDR) and Artisan Partners (APAM) as well as online brokerage firms like TD Ameritrade (AMTD), Charles Schwab (SCHW) and others. If the last several months become a longer-term and sustainable trend, not only will asset managers and online brokerage firms benefit, but also odds are it could propel the stock market even higher. Should more money flow into the stock market on a sustained basis, it means investment managers at mutual funds and hedge funds will need to put that capital to work. As we’ve seen in the past, inflows like this have tended to drive the overall stock market higher as securities get bid up in the process – simple supply and demand.
Near term as the manufacturing economy continues to hum and interest rates remain at current levels for the next two to few quarters, these catch up investing inflows should propel the S&P 500 and other stocks higher. Some common sense advice ahead of that would be to watch out for stocks that have extended or stretched valuations and favor those with solid business prospects and reasonable valuations.
Chris Versace owns no shares in any companies mentioned.