A reader sent me a link to a tool published by ING. Ingyournumber.com asks for six simple inputs and spits out, with clever animation, your “number,” that is, the dollar amount you will need at the start of retirement.
The six inputs are your current age, martial status, current income, planned age of retirement, desired annual retirement income, and through what age you want to have income. (In other words, how long you expect to live.)
I can immediately see why they need the last three, but the first three are mysterious. My Money Blog wrote about this tool in September and attempted to reverse-engineer the inputs. His theory on the current age input is that it is used to work out how many years you have until retirement, which is then used to adjust your retirement income needs for inflation. Apparently, all inputs are assumed to be in 2010 dollars.
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How much would you pay to lend money to the government? Most of us have this arrogant idea that the government should pay us to borrow our money. And yet, last week a Treasury auction of $10 billion in 5-year bonds resulted in a price that will yield negative 0.55% to their new owners.
It is not quite as crazy as it sounds. These are Treasury Inflation Protected Securities (or TIPS) that will yield inflation plus some stated interest rate. So these bonds are set to return to their owners inflation minus 0.55% over five years. Given that normal unprotected five year bonds are currently paying only 1.18%, this implies a five year average inflation rate of 1.73%.
Annual inflation over the past five years has averaged 1.83% and over the past twenty five it has been 2.82%. If you think inflation over the next five years will be higher than 1.73%, then the TIPS, negative interest and all, are a better bet than the regular Treasurys.
So it is not crazy after all.
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Time to review the latest cutting-edge academic research, as discussed in our country’s leading business newspaper. A report in the Wall Street Journal from Monday brings us two items that expand our understanding of that mysterious beast known as the stock market.
The first item is a recently released report from the Investment Company Institute (the trade group for mutual fund companies) which revealed that the average mutual fund investor’s willingness to take risk is lower now than it was two years ago before the market experienced its well publicized unpleasantness.
It is a report that is just chock full of enlightening insights. A person only needs to skim the chart captions to learn a lot. Turns out, “Tax-Deferred Accounts Are A Popular Way to Hold Mutual Funds.” And “Fund Performance Is the Most Important Factor Shaping Opinions of the Fund Industry.” Further, “Mutual Fund Industry Favorability Rises and Falls with Stock Market Performance.”
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The latest manufactured outrage to fill the media and blogosphere is that Social Security will not have a cost of living adjustment in 2011. This is only the second time this has happened in the 35 years that cost of living adjustments (COLAs) have been in place. The other time was in 2010.
The AP led off its reporting on this tragedy with:
More than 58 million retirees and disabled Americans will have to go another year without an increase in their Social Security benefits, the government is expected to announce this week.
The blog WalletPop, always a little more colorful, started its post thusly:
The prediction from scholars that the Social Security Administration will announce zero cost-of-living adjustment, or COLA, to Social Security recipients in 2011 is a blow that many older and disabled Americans can ill-afford.
I think that they meant that the lack of a COLA, not the prediction of one, is an ill-affordable blow. But apparently, it is an even wider problem.
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The other day The Wall Street Journal introduced me to a new word. From German, it is fremdschämen, meaning “a feeling of cringing embarrassment for the actions of others.” If only to discuss reality TV shows, English really needs 
to adopt this one. We can spell it without the umlauts. It is pronounced something like FREM-shame-in.
I bring this up because there is a minor scandal brewing that has just inspired fremdschamen in me. The Consumerist has taken to calling it the Foreclosure Fracas. Wednesday’s update on it in The New York Times began:
The uproar over bad conduct by mortgage lenders intensified Tuesday, as lawmakers in Washington requested a federal investigation and the attorney general in Texas joined a chorus of state law enforcement figures calling for freezes on all foreclosures.
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The six inputs are your current age, martial status, current income, planned age of retirement, desired annual retirement income, and through what age you want to have income. (In other words, how long you expect to live.)
Investing, Media, PF Blogs | Frank Curmudgeon | 
November 3, 2010 11:59 am | 
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