Data & Research April 2, 2013

Few Income Goals, But Lots of Worry

Four in ten (44%) Americans polled admit their retirement savings may not last until the end of their life.
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Yet, when it comes to developing a retirement savings goal, only one-fifth (21%) of middle-income retirees and preretirees calculated a monthly retirement income goal number; only one in ten (13%) determined a total savings goal number to reach, according to the latest study released by the Bankers Life and Casualty Company Center For A Secure Retirement (CSR).  

The CSR study finds more than half of middle-income Boomers (55%) have saved less than $100,000 for retirement. Nearly two-thirds (62%) of middle-income preretirees report some level of anxiety about retirement; one in four (28%) report being “anxious” or “very anxious.”  

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Declining health is the number one longevity concern for respondents—nearly four times the concern about inadequate retirement savings (10%) or outliving their money (9%).   

To compensate for the possibility of outliving their savings, middle-income Americans plan to: 

  • Reduce spending (63%); 
  • Get a part-time job in retirement (41%); 
  • Sell house (25%); 
  • Give less money to children/grandchildren (24%); and  
  • Do nothing (15%). 

The good news is that the majority of today’s middle-income Americans are living within their budget. According to the CSR study, seven out of ten (70%) report living comfortably within their budget; only one in ten (9%) admit to living beyond their means.    

The Bankers Life and Casualty Company Center for a Secure Retirement’s study, “Longevity Risk and Reward for Middle-Income Americans,” was conducted in November 2012 among a nationwide sample of 500 Americans ages 55 to 75 who have annual household incomes between $25,000 and $75,000 by the independent research firm The Boomer Project. The full report can be viewed at CenterForASecureRetirement.com.

The Markets April 1, 2013

BDC Stocks Offer High Dividends and Stability

Institutional investors and registered investment advisers (RIAs) are increasingly using business development company (BDC) stocks, according to a source.
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BDC stocks pay a 10% dividend on average and offer easy liquidity, making them a good vehicle to complement a fixed-income stream and remain diversified, Dean Choksi, vice president of finance at Fifth Street Finance—a BDC and alternative investment company—told PLANADVISER. “We’ve definitely seen an increased interest from institutional investors and RIAs,” Choksi said, adding that pension funds invest in BDCs because of their high dividend and stability.

Due to current low-interest rates, fixed income is not as high-yielding as it once was.  However, if interest rates rise, Baby Boomers and investors with short time horizons who are invested in fixed income are at risk of significant principal decay and are looking to supplement their income through high-dividend paying stocks.

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BDCs typically have dozens of companies within their portfolio (e.g., health care, education, technology, etc.). “So it’s generally businesses that have a defensible niche,” Choksi said. About one-quarter of Fifth Street’s portfolio is in health care, and about 16% is in technology, he said.

To be a BDC, a company must pass 90% of their revenue to shareholders, which makes it a great income stream, Choksi added. He estimates there are about 35 to 40 publicly traded BDCs. 

Market Vectors ETF Trust recently launched the Market Vectors BDC Income exchange-traded fund (ETF) (NYSE Arca: BIZD), designed to provide pure-play exposure to BDCs. (See “ETF Focuses on Business Development Companies.”)

“Investing in BDCs provides exposure to private companies that many investors could not otherwise access, allowing for potential growth and yield generation,” Brandon Rakszawski, product manager for Market Vectors ETFs, said when the product launched. 

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