Our daily roundup of retirement news your clients may be thinking about.
Index funds beat active 90% of the time. Really?
Investors can gain from both active and passive management, and, contrary to common belief, there is no substantial proof that 90% of active managers don't beat the S&P 500 index, according to a professional investor writing for MarketWatch. In addition, no index has been found that posts a better performance than its active peers under more favorable market conditions, his study found. Clients who are trying to plan what type of management to use should determine a number of things before making any decision, such as their goal for their investment portfolio and their personal performance benchmark. MaketWatch offers a different opinion in the article Index funds superior to high-priced active management. It says that investors are unlikely to benefit from active management as the long-term prospects of a company are difficult to predict given today's fast global economy. Stock picking, which is a primary component of active management, changes so easily that it becomes merely a short-term strategy. While many highly literate investors are confident of their skills and choose active management, retirement investors should heed Warren Buffett's advice to own common stocks through an index fund. -- MarketWatch
Not so golden: Wealth gap lasting into retirement
The retirement savings gap between high-income households and those in the lower-income group is increasing and may worsen the existing wealth gap, according to an article from the Associated Press. As traditional pensions offered by the private sector decline, employer-sponsored retirement plans are becoming less accessible to lower-paid employees. The trend could have an impact on government services and could force retirees to work. This is especially the case for baby boomers, many of whom have limited retirement funds. --Yahoo Finance
Social Security Q&A: Will my federal retirement wipe out my Social Security?
Clients who expect to receive federal retirement will not lose their Social Security benefits if they have had 40 quarters of covered Social Security earnings, according to a Forbes contributor. The Windfall Elimination Provision cannot wipe out the Social Security benefits that people working in the federal government expect to receive if the 40-quarter earnings requirement is met, although the benefits may be reduced, the expert says. -- Forbes
Summer job? Time to start a Roth I.R.A.
Parents should encourage their teenage children to start saving for retirement through a Roth IRA, as their money will grow over time and withdrawals will be tax-free, according to The New York Times. For example, a 19-year-old worker, who starts saving $5,000 annually in a Roth IRA and maxes out on yearly contributions until age 67, will receive $330,000 more than what a person who starts saving at age 25 will receive. Funding children's college education may pose a problem for some parents, but that concern is nothing compared with what their children will face if they retire with inadequate nest eggs. -- New York Times
How are Social Security benefits calculated?
Although the value of monthly Social Security benefits is based on the total amount of workers' contributions and earnings, clients cannot expect their benefits to be commensurate with their contributions, according to Motley Fool. The IRS has special formulas and rules to compute the benefits. Read about the factors that are considered in determining workers' Social Security benefits, the requirements to qualify for retirement benefits, and steps taken to calculate these benefits. -- Motley Fool
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