Diversions December 13, 2012

The Cost of Christmas

Every year, PNC compiles a price index for that famous list that includes golden rings and drummers drumming.
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As part of its annual tradition, the wealth management firm calculates the “True Cost of Christmas”:  the total cost of items gifted by a True Love who repeats all of the song’s verses. This holiday season is the most expensive year ever: very thoughtful True Loves must fork over $107,300.24 for all 364 gifts, an even more generous jump of 6% increase compared with last year.

Part of the reason for the increase was an improving economy coupled with a drought that caused increased feed costs for large birds.

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Much like the government’s consumer price index, the PNC CPI also measures a core index, up a modest 3% this year, excluding the swans, which tend to be the most volatile in the index. (Swans rose by 11%, continuing the momentum of last year’s 12.5 % increase, to $7,000.)

Other key components include:

  • Six items—the partridge, two turtle doves, four calling birds, eight maids a-milking, nine ladies dancing and 10 lords a-leaping—remained at the same price as last year;
  • Sounding an increase: the prices for 11 pipers piping ($2,562.00) and 12 drummers drumming ($2,775.50) advanced this year, both up 5.5%;
  • Pear tree: Economists report that housing prices may have bottomed and this trend is reflected in the PNC index as the home to the partridge jumped 12%, to $189.99;
  • The three French hens were up 10%, and the five golden rings, which soared 16%, played catch-up with the dramatic rise in gold prices in 2011; and
  • Maids a-milking: As the only unskilled laborers in the PNC CPI, the price for the eight maids a-milking is represented by the minimum wage.  With the minimum wage flat at $7.25 per hour, hiring the maids this year will not increase labor costs.

The PNC CPI’s sources include retailers, the National Aviary in Pittsburgh and the Philadelphia-based Philadanco and Pennsylvania Ballet Company.

The entire index and related information are online.

Data & Research December 12, 2012

Pre-Retirees Can Correct Retirement Insecurities

Working with an adviser and performing key retirement planning activities improve pre-retirees’ outlooks, a study suggests.
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Only 48% of U.S. pre-retirees (non-retired ages 55 to 70) believe they will be able to live the lifestyle they wish in retirement, according to LIMRA’s study, “The Pre-Retiree Market: Surveying the Landscape.” The study found three in 10 pre-retirees have not started any basic retirement planning. Looking at five retirement planning activities identified as critical for retirement, no single activity had been accomplished by the majority of pre-retirees surveyed.

“Pre-retirees are feeling insecure about their retirement future, in part because they have not yet taken the steps to plan for retirement,” said Matthew Drinkwater, LIMRA associate managing director of Retirement Research. “Our research indicates that retirement preparedness is strongly linked to the completion of key retirement planning activities like determining your income and expenses, calculating your assets and how long they will last, and identifying the things you want to do in retirement and how much they will cost.”

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Similar to other LIMRA studies, this one found those who worked with advisers were twice as likely to have accomplished at least some planning activities, particularly the more complex aspects of planning, such as calculating future assets available in retirement and estimating how long those assets will last.

Only 15% of all pre-retirees have a formal written retirement plan. Even among pre-retiree households with higher incomes, just about half have such plans in place.  Meanwhile, 62% of pre-retirees working with an adviser have written retirement plans.

“[O]ur research shows that working with an adviser to plan for this major stage in life is not only wise but has measurable positive results on retirement planning,” Drinkwater said.

When asked to identify which services offered by advisers are most valuable, pre-retirees’ responses mirrored those of advisers surveyed by LIMRA earlier this year. Both agree that creating an income plan and minimizing the risk of running out of money are critically important. 

These results also align with findings from LIMRA’s study of recent deferred annuity buyers; the majority of recent deferred annuity buyers said the two most important reasons they bought an annuity were to facilitate retirement planning and to ensure their assets lasted throughout their and their spouses’ retirements. (See “Individuals Seek Guaranteed Income Outside Retirement Plans.”)

“The challenge for the retirement industry is to convince more pre-retirees that sound planning truly can boost the likelihood that they will live the lifestyles they have imagined. Some of these activities can be difficult, but they are essential—and help is available,” Drinkwater concluded.

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