There used to be two guys from The Wall Street Journal who did a weekly segment on CNBC called “The Five Dumbest Things on Wall Street This Week”. I don’t know what ever happened to them but I can’t imagine that they ran out of material. Here are three I came across in my reading this week;
1. Recently published research revealed that retirement planning was cited as a top reason that people obtain life insurance. The research showed one in four Americans incorporating life insurance into their retirement planning efforts. The most likely group to cite retirement planning over other reasons for buying life insurance was age 55+.
First, there is no reason to purchase life insurance if you’re age 55+ and putting together a retirement plan. Life insurance should be bought to create an estate to cover obligations where no estate currently exists. It is a poor investment vehicle and an even worse income creation tool.
Want to guess who sponsored the study?... A major U.S Life Insurance Company. Why it is that research findings tend to match the hopes and expectations of the people that paid for it?
2. According to a new poll commissioned by CIBC Bank, about 25% of retiring baby boomers will carry some debt into retirement. More importantly 80% of pre-retirees with debt indicate that they have no plans to pay off their debt anytime soon and would stay in debt throughout retirement. U.S. Government statistics indicate that in the U.S., almost 82% of households age 55-64 are carrying housing and consumer debt.
Our parents’ generation believed strongly that an important part of preparing for retirement is eliminating debt. Apparently we have forgotten this. An important question to ask yourself if you are one of these people who plan to enter retirement burdened with debt is, how am I going to pay it back? Last I checked the definition of retirement did not involve having a paycheck. An important question for our regulatory authorities is why do we continue to encourage lending to those whose remaining years of work are not sufficient to pay back the funds they are borrowing?
3. A brokerage firm announced plans to open a chain of shopping mall locations. The company says that it is targeting “mom and pop Americans”. The company president said that in addition to the usual brokerage products “clients may be offered index-linked annuities, non-public REITs, or business development companies”
You’ve got to be kidding me... Those last three products are very complicated, relatively expensive and illiquid. Wasn’t pushing these types of financial products to an unwitting public the cause of our most recent financial crisis? Why not offer to place their hard earned IRA and 401(k) funds in cost effective index funds?