Political Calculations
Unexpectedly Intriguing!
September 21, 2017

How much do you need to save for retirement to maintain your pre-retirement lifestyle?

It's an easier question to ask than to answer because there are a multitude of factors that can affect what the right answer to the question will be for you. And that assumes that whatever answer you come up with turns out to be the right answer!

Still that doesn't stop people from asking and firms offering their retirement planning services from attempting to answer in the simplest ways they can.

The latest firm to do so is Fidelity, where they've developed the concept of using age-based savings factors to help you determine if you've saved enough at various points of your life. For the simplest estimate, all you need to get started is find the appropriate savings factor that applies for your age, multiply it by your annual income, then see how the balance of your retirement savings account compares to it. The following chart is one that they have provided for that simple math.

Fidelity: Savings Factors To Help You On Your Journey to Retirement

Seems pretty simple, right? And to be fair, the math involved is pretty simple. In the following chart, we've started with the median income earned by a typical American between the ages of 25 and 29 in 2016, then showed the inflation-adjusted savings that such an individual would have to accumulated at different points throughout their life to meet Fidelity's savings targets. The income trajectory shown for the individual is also one that Fidelity assumes, which we've listed along with a number of additional assumptions Fidelity is making....

Estimated Savings Needed to Maintain Your Pre-Retirement Lifestyle (According to Fidelity)

Will all those assumptions apply to you? Maybe yes, maybe no. Just for fun, we decided to play with just one of those assumptions, where instead of Fidelity's assumed 1.5% annual inflation-adjusted raise, we wondered how differently the chart would look if the individual to whom it applied was simply earning 2016's median income for the indicated age. After all, since it is the median, 50% of Americans have annual incomes above that level and 50% of Americans have annual incomes below it, so that particular income trajectory might be considered to be more representative of what a typical lifetime income trajectory for an American randomly plucked from the population at large might have, so here that chart is.

Estimated Savings Needed to Maintain Your Pre-Retirement Lifestyle (According to Fidelity) for a Median Income Earning American

It's quite a lot different from Fidelity's assumed lifetime of annual faster-than-the-rate-of-inflation raises. So the real question is which chart better represents the kind of pre-retirement lifestyle that an American looking to retire would want or be able to maintain?

We'll leave other questions that might come up about Fidelity's assumptions, such as "can someone with this income really afford to set aside 15% of their annual income for their retirement at Age 67?", as an exercise for our readers!

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September 20, 2017

What are the differences between the Congressional Budget Office's estimates of income inequality among U.S. households and the annual estimates produced by the U.S. Census Bureau?

We've taken a stab at answering that question in a visual format through the following infographic! Please click the image to access a larger, more readable version of the chart to get the quick run-down on what makes each of the indicated estimates different from one another, while also checking out over 50 years worth of U.S. household income inequality data as measured by the estimable Gini ratio.

GINI Ratio of U.S. Households, Comparison of CBO and U.S. Census Bureau Estimates, 1967-2016

As for Item 4, we'll have more information soon, but as a quick indication of what we can do with the Census data that cannot be done with the CBO's data, check out our tool What Is Your Income Percentile Ranking?

Data Sources

Congressional Budget Office. The Distribution of Household Income and Federal Taxes, 2013. [PDF Document]. Supplemental Data [Excel Spreadsheet]. June 2016.

U.S. Census Bureau. Current Population Survey. Annual Social and Economic Supplements. Historical Income Tables: Households Table H-4. Gini Ratios for Households, by Race and Hispanic Origin of Householder. All Races. [Excel Spreadsheet]. 10 August 2017.


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September 19, 2017

The pace of dividend cuts in 2017-Q3 has decelerated from what we were observing a month ago, where suddenly, 2017-Q3 is perhaps shaping up to be the best quarter to date in 2017. The following chart compares where the cumulative number of dividend cuts announced in 2017-Q3 stack up against similar points of time in the two preceding quarters of 2017-Q1 and 2017-Q2.

Cumulative Announced Dividend Cuts in U.S. by Day of Quarter in 2017, 2017-Q1 vs Q2 vs Q3, Snapshot on 2017-09-18

Despite having the potential to be the best quarter in 2017, the pace of dividend cuts for the third quarter is at a level that is consistent with recessionary conditions being present in the U.S. economy. Based on our near-real time sampling of dividend cut declarations, those conditions are largely concentrated in the oil and gas industry, which has accounted for 23 of the 37 dividend cuts announced since 1 July 2017. The financial and real estate industries rank second, accounting for 10 of dividend cuts that have been announced so far during 2017-Q3.

Compared to a year ago however, we see that 2017-Q3 is faring slightly worse than 2016-Q3.

Cumulative Announced Dividend Cuts in U.S. by Day of Quarter, 2017-Q3 versus 2016-Q3

We'll wrap up the stories for dividend cuts in September 2017 and for 2017-Q3 on 3 October 2017.

Data Sources

Seeking Alpha Market Currents. Filtered for Dividends. [Online Database]. Accessed 18 September 2017.

Wall Street Journal. Dividend Declarations. [Online Database]. Accessed 18 September 2017.

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September 18, 2017

U.S. stock prices during the second week of September 2017 were largely driven by two news events:

  1. Actual damage from Hurricane Irma in Florida proved to be considerably less than had been projected.
  2. Inflation data put rate hikes back onto the Federal Reserve's table in the near future.

By "near future", the likelihood that the Fed would next hike short term U.S. interest rates went from last week's zero percent chance of happening anytime soon to a greater than 50% probability that they will act to make it happen in December 2017, where the CME Group's FedWatch Tool indicates that the market expects no change in rates to be announced at the Fed's meeting this week.


Probabilities for Target Federal Funds Rate at Selected Upcoming Fed Meeting Dates (CME FedWatch on 15 September 2017)
FOMC Meeting Date     75-100 bps 100-125 bps 125-150 bps 150-175 bps 175-200 bps 200-225 bps
20-Sep-2017 (2017-Q3) 1.4% 98.6% 0.0% 0.0% 0.0% 0.0%
13-Dec-2017 (2017-Q4) 0.6% 41.6% 55.6% 2.2% 0.0% 0.0%
21-Mar-2018 (2018-Q1) 0.4% 31.7% 52.0% 15.0% 0.8% 0.0%
13-Jun-2018 (2018-Q2) 0.3% 22.6% 45.9% 25.6% 5.1% 0.3%

The effect of this new information on stock prices can be seen in our alternative futures "spaghetti" chart.

Alternative Futures - S&P 500 - 2017Q3 - Standard Model - Snapshot on 15 September 2017

With investors shifting their forward-looking focus from 2018-Q2 to 2017-Q4, the S&P 500 rose to reach a record high during Week 2 of September 2017, although right now, the data suggests that investors are splitting their attention between 2017-Q4 and 2018-Q2, where stock prices are reaching toward the very top of the echo effect-adjusted range we indicated for 2018-Q2 just last week.

The thing to pay attention to this week that might more fully cement investor focus onto 2017-Q4 is the statement that will be issued by the Federal Reserve's Federal Open Market Comittee at the conclusion of its upcoming meeting on Wednesday, 20 September 2017, as well as the statements of individual Fed officials in the following days.

Looking backwards, here are the more signficant market moving headlines that caught our attention during Week 2 of September 2017.

Monday, 11 September 2017
Tuesday, 12 September 2017
Wednesday, 13 September 2017
Thursday, 14 September 2017
Friday, 15 September 2017

Meanwhile, Barry Ritholtz succinctly summarized the positives and negatives for Week 2 of September 2017.

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September 15, 2017

A 1977 classic short on the relative scale of everything in the universe.

HT: Quanta's Robbert Dijkgraaf, who linked the Charles and Ray Eames' film while discussing reductionism and emergence as the tools for solving the biggest mystery in physics today.

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