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Market & Economic Brief

November 19, 2008

WORLD MARKETS
After attempting a rally earlier in the month, U.S. stocks broke recent support levels and established fresh lows. Commodities and World REITs have also found new lows. Many international stock markets are still maintaining previous support levels. Intermediate term U.S. treasuries continue to rally in a flight to quality. The near term bias has again turned negative for stocks.

WORLD ECONOMY
The weekly leading and monthly coincident indexes we follow continue to weaken, suggesting more trouble ahead for the U.S. economy. Many European countries continue to report deteriorating economic conditions as well. China reported a dip in October retail sales but consumer spending has held up better than many other parts of their economy.

INFLATION DATA
Producer costs fell a record 2.8% in October, led by a huge decline in energy prices. Future inflation indicators we track also continue to decline.

U.S. RESIDENTIAL HOUSING
The Nat’l Association of Home Builders fell to its lowest level since 1985 in November. Home prices declined in 4 out of 5 cities during Q3. The FDIC has proposed using $24 bil. of the TARP funds to help stem foreclosures. The leading home price index we track rose slightly for August (the latest data available). Additional increases may signal a bottom in housing prices.

Creating Retirement Income

Generating Income
We spend the first part of our life accumulating assets and earning income. When retirement arrives we shift to a strategy designed to generate income from our investments to support our lifestyle. Moving from the accumulation phase to the distribution phase creates additional challenges and may require a major change in the way investors manage their portfolios. The most recent bear market of 2000-2002 is a good reminder of just how challenging financing a comfortable retirement can be.

The added complexity created by drawing down on savings raises the stakes for making good financial planning and investment management choices. Once in retirement you cannot count on long-term averages to correct mistakes because you now depend on current returns from your portfolios to support your income distributions.

Five key risks to consider when planning your retirement income include:

Longevity Risk - We are living longer healthier lives then previous generations.

Inflation Risk - Long-term our money loses purchasing power.

Asset Allocation Risk - There is a balance to strike between how our investments are allocated and market conditions.

Excess Withdrawal Risk - The amount of money you plan to withdrawal will have a direct impact on how long your money will last.

Health Care Expense Risk - Longer life spans, rising medical cost, a decrease in medical coverage, and possible shortfalls with government programs are likely to pose a significant challenge to retirees.

With a wise approach to investment, income and insurance needs, strategies can be crafted that should help retirees reliably meet their retirement lifestyle needs.