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Show 1 DAILY HERALD July 17, 2008 Thursday, Oil Study warns 'near retirees' of need for frugality Diane Stafford ing economic indicators that forecast a leaner lifestyle for many Americans. Wage earners overall are feeling the KANSAS CITY, Mo. Thinking about pinch. Real average weekly earnings retirement? Think hard. have fallen by 2.4 percent over the last A new study warns that about 75 per12 months when inflation, as measured cent of "near retirees" those ages 5&65 by growth in the consumer price index, will outlive their savings unless they is factored in. Overall inflation in June reduce their fueled largely by soaring energy prices standard of living by more than posted its second-biggemonthly For many though certainly not all jump since 1982, the Department of Labor Americans, that may mean downsizing reported Wednesday. Yearover-yea- r their home, selling one of their cars, not consumer inflation of 5 percent is at its eating out as often and giving up planned highest level since 1991. vacations. The Ernst & Young report reinforced The latest alert about prospects for a commonly accepted fact that Social retirement comes from a new study Security provides, on average, only 40 by the Ernst & Young accounting firm percent of retirement income. undertaken for Americans for Secure An example from the report that Retirement, a coalition of interest groups shows why savings beyond Social Secuconcerned about retirement affordability. rity are necessary: Recent retirees are in only slightly bet"While married couples with guaranter financial shape. About 60 percent of teed retirement income beyond Social Semiddle-clas- s "new retirees" are likely to curity making $75,000 at retirement have outlive their assets, the study said. a 31 percent chance of outliving their To reduce their likelihood of retirement assets if they retain their "failure" to only 5 percent, recent retirees standard of living, those with Social Secuneed to reduce their standards of living rity as their only guaranteed income have h a 90 percent chance of outliving their asby about "It's very, very scary," said Sara Rix, sets during retirement." AARP's strategic policy adviser. "Middle-ageThe Employee Benefit Research Instiand older Americans tell us they're tute recently reported that 72 percent of American workers said they were saving already having trouble making ends meet." for retirement. But 49 percent said their The study comes amid a wave of sober personal retirement savings, excluding the KANSAS CITY one-thir- st boom-to-bu- about the economy's problems, including a housing slump, financial turmoil, credit troubles and high energy and food prices. And, employers have cut jobs for sixth straight months. "Families are facing hardships ... this is clearly a rough time," Bernanke said. "It is clear (economic) growth has been slow and the labor market is weak. So conditions are tough on average families." Rep. Barney Frank, chairman of the Financial Services panel, said: "I think conditions clearly call for a second stimulus." He's among the Democrats in Congress exploring more economic stimulus efforts to follow up on the $168 billion package, including tax rebates, enacted earlier this year. Bernanke said it was a too soon to go that route, but he didn't rule out such a course of action. "On the fiscal stimulus, I believe the one that was done is having some effects, but it is somewhat early to make that judgment, and so, you know, I certainly think that we should consider all options. At the moment, I think it's a bit premature," Bernanke said. He repeated his call for Congress to take action to shore up the housing market. When asked about what st FREE 3D Custom Deck Design (By i two-third- expected. Testifying before Congress for the second day, Federal Reserve Chairman Ben Bernanke said central bank policymakers are facing "significant challenges" in righting the troubled U.S. economy, which is being buffeted by weak growth and inflation driven largely by rapidly rising food and energy prices. "This is clearly a rough time," Bernanke said. "It is clear (economic) growth has been slow and the labor market is weak. So conditions are tough on average families." American Airlines and Delta Air Lines, two of the three biggest U.S. carriers, each reported a loss of more than $1 billion in the second quarter, largely because of higher fuel costs. "With each passing day, we are reading about more car companies cutting back on Industry observers cautioned that prices could still production, airlines slashing bounce back, just as they have flights, and consumers driving following large drops in recent less," said Edward Meir, an anweeks. alyst at MF Global. "Of course, "I do expect this bubble to these are not new factors, and burst. Is this is it? It might be energy markets have ignored them for several months now ... but I'm not ready to say so as they have relentlessly yet," analyst and trader Stephen Schork said. pushed higher, but we suspect A number of market particithat as the pace of demand destruction accelerates it will be pants speculated that at least f some of the week's harder to ignore." d was the result of The dollar strengthened banks selling energy contracts against the euro, giving tradto raise money for other needs. ers less reason to go bargain And widely used computers shopping in the suddenly discounted energy market. programed to sell once prices fall to certain thresholds can A weaker dollar has enticed investors to buy oil and other accelerate declines, much as commodities as hedges against an avalanche gains steam the inflation and a weakening further it slides. "It absolutely adds a cascaddollar, but that incentive diminishes when the dollar ing effect," Schork said. Yet concerns are growgains ground. It will be some time before ing that high energy prices are leading to real shifts in assuming they any declines hold show up at the gas consumer behavior that could cause demand to.shrivel pump, where prices continued to advance. concerns. The labor force participation rate for that age group in 1985 was 18.4 percent. a more In 2007 it was 29.7 percent than 50 percent increase. "The Ernst & Young findings are troubling," Rix said. "We know that about half of the work force has private pensions. But those are giving way to defined contribution savings plans. And we know what the market recently has done to those. I know I'm nervous when I open my quarterly statements." d clawed back some ground on Wednesday, however, when Wall Street got a lift from a Continued from C6 dip in oil prices. Fannie shares The Fed has offered to let the gained 30.8 percent to close at $9.25. Freddie shares rose companies draw emergency loans. Those pledges of aid 29.9 percent to $6.83. have raised concerns on CapiTreasury Secretary Henry tol Hill and elsewhere about Paulson told Congress on the government's role in inter- Tuesday that he hoped the provening to ease such financial posed lifeline won't need to be troubles and the risk posed to used. He said the pledge was aimed at restoring confidence taxpayers. The Fannie and Freddie in the companies. troubles came on the heels of Bernanke said the "best solution" is to keep Fannie and the failure of IndyMac Bank, which was taken over last Freddie "in their current form" as opposed to having the govFriday by the Federal Deposit ernment take them over. It Insurance Corporation. is also vital for Congress to Earlier this year, a run on investment bank Bear Stearns boost regulatory oversight on the two companies. Such powpushed the company to the edge of bankruptcy and into a ers are contained in a sweeptakeover by JPMorgan Chase, ing housing-rescu- e package. backed financially by the Fed. Congressional leaders plan to add to the bill the provisions Seeking to strike a note of Paulson is seeking to aid Fanconfidence, Bernanke said nie and Freddie. Fannie and Freddie are. "adequately capitalized. They are Spencer Bachus of Alain no danger of failing." bama, the panel's most senior Republican, said of the housHowever, "the weakness situation: in market confidence is having "Fortunes were made on the ing real effects as their stock way up and pain will be felt prices fall, and it's difficult on the way down." for them to raise capital. If With the bust, banks and their debt spreads widen, it'll increase the borrowing costs," other financial companies have racked up huge losses due to he said. The companies' shares have soured mortgage investments. Foreclosures have risen to replunged .as losses from their threatened cord highs. mortgage holdings The Fed chief was upfront their financial survival. They options contracts this week. "I think anyone you talk to would have to be surprised by the magnitude of these huge price swings. This is extreme price volatility that no one can predict," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates. Such large swings, he added, can indicate the market is nearing its top. Sharply increased crude and gasoline supplies were the immediate cause of Wednesday's decline. The Energy Information Administration reported that U.S. crude oil supplies rose by 3 million barrels, or 1 percent, last week. That is the opposite of the 3 million barrel draw analysts surveyed by energy research firm Platts expected. Gasoline supplies also leapt unexpectedly. "The numbers were decidedly bearish on just about all fronts," Ritterbusch said. 65-6- one-fourt- Bernanke Continued from C6 value of their homes and any defined ben efit plans, amounted to less than $50,000. About a quarter of workers arid retirees said they had no savings of any kind "Unless workers aged 55 to 59 increase their saving substantially or work beyond age 65, they will be unable to maintain their current standard of living and will have to reduce their standard of living significantly more than today's retirees to minimize the risk of exhausting their financial assets," the Ernst & Young study concluded. More workers 45 and older are reporting in AARP surveys that they intend to work beyond traditional retirement age. But, AARPs Rix noted, illness, disability and other factors beyond individuals' control often prevent that from happening. Still, she said, the percentage of workers 9 has mushroomed in recent years, primarily because of economic STAR The Labor Department said consumer prices shot up 1.1 percent last month, the second fastest pace in 26 years. Rising energy prices accounted s of that increase, for which was far worse than the government can do to lift the sagging dollar, which has contributed to the rise in both oil prices and inflation, Bernanke replied that getting the economy back to good health would help the currency. "Market intervention is a policy that's been undertaken a few times; I think it's something that should be done only rarely. But there may be conditions where markets are disorderly, where some temporary action might be justified," Bernanke said. 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