Week of May 21, 2007

The Markets
 
Like an eighteen foot skiff sailing faster than the wind, the markets hit new highs last week.

Economic data—often the wind that fills the markets sails—was mixed last week, but that didn’t stop the Dow from reaching a new all-time high, or the Standard & Poor’s 500 Index from coming close to its record high, which was set in March of 2000, according to Barrons.com. Inflation, as measured by the Consumer Price Index, eased (from up 2.8% year-to-year in March to up 2.6% in April). It didn’t quite reach the Federal Reserve’s target zone, though, and higher food and energy prices threaten to push it up once again. Information on the American housing market was mixed, too, with housing starts increasing and permits dropping.

The markets mostly focused on the good news, driving blue chips higher. Smaller company stocks and technology stocks lagged, causing the NASDAQ to lose ground while other indices gained. Looking forward, Yahoo! Finance says that merger and acquisition activity could drive markets higher next week, although rising oil prices and weaker retail sales could slow gains.

Source: Yahoo! Finance, Barrons Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly. Three-, 5-, and 10-year returns are annualized.  Assumes dividends are not reinvested.

The national retirement risk index (NRRI) was created by the Center for Retirement Research at Boston College. The June 2006 Index found that 43% of all households may be at risk of being unable to sustain their current standard of living after retirement—even if they work to age 65 and annuitize all of their financial assets. That’s a 12% increase since 1983.

Why has the NRRI increased? According to the Center’s research, the primary reasons for the shift in the Index are that:

• Social Security benefits will replace a smaller portion of pre-retirement income as the Normal Retirement Age increases from 65 to 67.
• More workers will rely on savings accumulated in 401(k) plans for retirement income rather than receive lifetime income payments from defined benefit pension plans. In theory, 401(k) plans could provide adequate retirement income, but individuals make mistakes investing and distributing their savings, and just don’t save enough.
• Annuity payments may be lower than in the past because interest rates have fallen significantly.

Who is most at risk? According to the Center, the first wave of baby boomers, born between 1946 and 1954, are the least at-risk group (39%) because they are likely to be covered by traditional employer pension plans. The second wave of boomers (born between 1955 and 1964) has a 44% risk of being unable to maintain their standard of living after retirement. They will be more reliant on 401(k) plan assets, and will also receive less replacement income from Social Security. Generation X faces the greatest risk (49%) because their youth often means they have accumulated fewer assets, and they will also receive less replacement income from Social Security.

If you would like to make sure you’re saving enough for retirement, discuss distribution options, or receive other assistance, please give us a call. We would be happy to help.

Weekly Focus – The National Academy of Engineering has posted a list of the greatest engineering achievements of the 20th Century at www.greatachievements.org. Here are a few of the items on the list that you may use regularly:

Electrification                                                             Telephones
Automobiles                                                                Air conditioning and refrigeration
Water Supply and Distribution                                   The Internet
Electronics                                                                  Radio and Television
Computers                                                                   Household appliances
Highways                                                                    Laser and fiber optics

Best regards,

Fredrick J. Livingston, CLU, CFP

Securities offered through LPL Financial, Member NASD/SIPC

* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

* The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. 

* The Nasdaq Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.