Banking Crisis, Mortgage Crisis, Financial Crisis and the Great Recession. How did these all happen? Did they all happen at once? Did one crisis play a greater role than the others? Join me this Saturday as I talk with John Tatom, author of “Crises and the Great Recession.” We’ll be discussing the factors that led to these crises and their impacts on the economy.
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Crises and the Great Recession
John A. Tatom
The United States economy suffered in 2007-10 from crises in mortgage foreclosures and in financial markets, as well as a long recession that some have referred to as the Great Recession. The links between these events, or more broadly their causes, extent and effects are sources of continuing controversy and uncertainty. This paper attempts to disentangle the links between the mortgage foreclosure crisis, the financial crisis, a possible banking crisis and the Great Recession, at least in terms of timing, and also to provide an alternative view to the conventional wisdom, especially for the links of the crises to the recession and to each other.
Keywords: Foreclosure crisis, banking crisis, financial crisis, recession
JEL codes: G01, E32, E44
Crises and the Great Recession
John A. Tatom
From 2007 to 2010, and some would say for longer, the United States economy suffered from crises in mortgage foreclosures and in financial markets, as well as a long recession that is often called the Great Recession. The links between these events, or more broadly their causes, extent and effects, are sources of continuing controversy and uncertainty. The foreclosure crisis began in late 2006 when housing starts and housing prices peaked and began a steep decline. The broader financial crisis has been variously dated from the beginning of the foreclosure crisis, to spring 2007, when several hedge funds and single issue mortgage and bond insurers either failed or had their own credit quality seriously downgraded; to summer 2008, when Bear Stearns failed and Fannie Mae and Freddie Mac were put into government conservatorship; or to September 2008, when Lehman Brothers and Merrill Lynch failed, Wachovia was forced into a takeover ultimately by Wells Fargo, and American International Group (AIG) almost failed before a federal and Federal Reserve bailout injected some $180 billion into the firm through a variety of loans and equity infusions. Regardless of when it began, it appears to have been a follow-on to the mortgage foreclosure crisis because the failures were largely associated with the direct holdings of mortgages or mortgage backed securities. Wallison (2011) argues that the mortgage finance Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac, had policies and practices that created the mortgage foreclosure crisis and this created the financial crisis. The majority of the Financial Crisis Inquiry Commission (2011) does not share this view, although they do not directly address it.
The financial crisis presumably ended in late 2008 with some return to normalcy, or at least an end to mortgage related failures of investment banks. Some would argue, however, that the financial crisis has not ended because the market for securitized lending has not recovered. The recession began in the fourth quarter of 2007, a year or more after the onset of the mortgage foreclosure crisis and before the financial crisis began. The recession ended in mid-2009, after the financial crisis, but well before the end of the mortgage foreclosure crisis.
In the next section, the key characteristics of the mortgage foreclosure crisis are developed, especially the timing and changing composition of the crisis and its extended length well beyond the recession, the recovery and well into the subsequent expansion. Section II analyzes the financial crisis and its precedents in the mortgage foreclosure crisis, as well as the connection between the mortgage and financial crises and the Great Recession. Section III examines the link between the crises and whether the financial crisis was a banking crisis and it considers the debate over the effects of a banking or financial crisis on the duration of the recession and weakness of the recovery and expansion. Section IV briefly takes up the issue of other factors that contributed to the recession, especially monetary policy actions. Section V summarizes the conclusions.
I. The Changing Face of the Mortgage Foreclosure Crisis
Initially (2006-08), the surge in foreclosures was driven by foreclosures on adjustable rate subprime loans. Many of these borrowers came late to the mortgage interest rate cycle when the mortgage rate outlook was deteriorating and informed borrowers knew that adjustable rates loans were set to re-price upward, making adjustable rate loans unaffordable. Some of these borrowers were more speculative and took out such loans anyway, planning to sell their houses and repay the loans before their loans were re-priced. When the recession began, the situation changed, as individuals with relatively high credit ratings and fixed rate loans began to lose their jobs and income, and, as a result, enter the foreclosure process.
Chart 1 shows the explosion in mortgage foreclosure inventory for various types of mortgages from 2002 to the second quarter of 2012, except for the prime loans series which are shown here beginning in the third quarter of 1996. The foreclosure inventory includes all mortgages at any stage of the foreclosure process. The mortgage inventory rate has declined little, except for subprime adjustable rate loans (ARM), which led the explosion of foreclosures in 2007-08. The subprime ARM crisis shifted to a fixed rate and prime crisis during the first year of the economic recovery as subprime problem loans began to decline and the recession and high unemployment led to more loan defaults among previously highly rated and employed borrowers. The foreclosure crisis began a year before the recession and continued through the recession, the recovery and well into the economic expansion.
Foreclosure Rates Have Declined Little since the Great Recession
Source: Mortgage Bankers Association
Chart 2 shows mortgage foreclosure starts for the same groups as used in Chart 1 for the period I/2005 to II/2012. Foreclosure starts are the new filings for foreclosure in each quarter and are a leading indicator of the foreclosure inventory. There has been a marked improvement in new subprime adjustable rate mortgage loans since II/2008, about two quarters into the Great Recession. This is also reflected in the new starts for all subprime loans. Both remain quite high, however. Prime loan and all loan foreclosure starts remain near their peaks in 2009. Despite improvements, the data in Chart 2 suggest that the mortgage foreclosure crisis will continue.
Foreclosure Starts, Except for Subprime, Show Little Improvement since the Great Recession (Percent in each class)
Source: Mortgage Bankers Association
II. Were the Mortgage and Financial Crises Part of a Banking Crisis?
While the mortgage crisis did not cause the recession, it certainly did create, or morph into, the financial crisis. The mortgage foreclosure crisis began about a year before the Great Recession
downturn in real GDP. The share of real residential investment in real GDP was only 4.4 percent at the cyclical peak in IV/2007 and real residential investment only fell enough to account for a decline in real GDP in the last quarter of the recession (II/2009). The financial crisis also did not cause the recession: its worst manifestation was in September 2008, nine months after the onset of recession, and nine months before its end, but it and the mortgage foreclosure crisis could have made the recession longer and deeper. Barofsky (2012, p. 226), and no doubt others, hold a popular view that the financial crisis caused the recession and was primarily due to banking problems, despite his own evidence to the contrary. An earlier banking crisis, the Savings and Loan (D&L) crisis, also was accompanied by a large failure of an investment bank, Drexel Burnham Lambert, in 1990, but there is no record of research attributing a financial crisis as a cause of the 1990-91 recession. In fact, the principal authority on financial crises, Kindleberger (2000), does not include the early 1990s US banking and financial experience in the list of financial crises. The mortgage crisis arose because of the growth of subprime mortgages, aided by an inadequate regulatory structure for bank holding and investment banks. More important, significant pressures from Congress, supported by mandates and federal subsidies to foster homeownership, accelerated the development and growth of subprime products.
As a result of the expansion of securitized lending promoted by Fannie Mae and Freddie Mac and the reduced and zero capital requirements for large investment banks, investment banks faced a very favorable environment to promote the growth of subprime mortgage loans and securitized assets. These new subprime loans were often created by nontraditional companies and marketed outside of traditional regulatory structures. These new products included subprime-based mortgage backed securities, collateralized debt obligations, collateralized loan obligations, auction rate securities and credit default swaps. While some of these products were sound, many were complex and confusing creating a misunderstood risk profile. During the crises, the large failures of institutions occurred among non-bank financial conglomerates such as Bear Stearns, Lehman Brothers, Merrill Lynch and American International Group (AIG). In short, the mortgage and financial crises were largely and proximately the result of poor regulation of new financial products created largely outside the traditional bank regulatory structure. Except perhaps for monetary policy (see below), other factors may have worsened the situation by worsening overall macroeconomic performance, but they did not cause the foreclosure and financial crises.
One of the ironic policy responses to the financial crisis was the notion that it was a banking crisis. The Treasury Secretary and the Chairman of the Federal Reserve teamed up to convince Congress of precisely this point and to pass the Troubled Asset Relief Program (TARP), a $700 billion program, originally intended to purchase troubled assets from supposedly failing financial institutions. TARP began by forcing nine banks and non-bank financial institutions to accept government funds without public evidence that they were confronting any meaningful liquidity or solvency problems. Most of them paid back these funds as soon as they were allowed. Citigroup was an exception, with the government recouping its injections by selling off the warrants it obtained from Citigroup recouping the $45 billion TARP injection and by early 2011. Only about $111 billion went to banks that voluntarily requested TARP funds. This includes $20 billion each that was requested later by Citigroup and Bank of America after their initial mandatory disbursements. About $20 billion is expected to be lost due to failure of commercial banks. The notion of a banking crisis requiring massive bailouts of bad assets of commercial banks was never justified by capital or liquidity data.
The TARP bailout was largely a bailout of investment banks, two large auto companies and GMAC. According to a December 2012 report from Propublica, of the total bail-outs of about $605 billion, $187.4 billion went to Fannie Mae and Freddie Mac. These were not part of TARP, however. Table 1 shows the major categories of TARP disbursements.
TARP ($700 billion authorized)
||Percent of Total
|Large Investment Banks
| –Initial Recipients (10/14/08)
TARP bail-out disbursements totaled $417.0 billion, of which $72.2 billion went to AIG ($67.8 billion) and two other insurance companies, $61.9 billion went to auto companies and $22.4 billion to financial services companies, including GMAC ($16.3 billion). Funds totaling $180.7 billion that went to non-bank firms where there are expected to be large losses to the taxpayer. Of the remaining $236.2 billion, the initial disbursements that were mandatory included $20 billion that went to Goldman Sachs and Morgan Stanley, and $105 billion that went to six of the largest banks and that paid back very quickly. Two of these banks later received $40 billion and other banks voluntarily requested funds and received about $71 billion. Recall that the TARP program had authority to disburse $700 billion, but only $417.0 was disbursed. Commercial banks received about half of the funds disbursed and only about half of that was voluntary (26 percent of the total disbursed, 16 percent of the TARP authorization).
Most of the large losses and failures were concentrated among investment banks, especially Bear Stearns, Merrill Lynch, Lehman Brothers, and Wachovia Securities, and thrifts that specialized in mortgages and mortgage backed securities (MBS), including Washington Mutual, Countrywide, and IndyMac. U.S. bank capital was relatively high before the crises or recession and remained so throughout due to changes in requirements adopted following the Savings and Loan crisis. Capital requirements at the five largest investment banks, in contrast, were zero after 2004 [see Labaton (2008)] and were near zero at the GSEs. About half of the losses associated with the foreclosure crisis and losses on MBS occurred abroad at financial institutions and private investors, converting the U.S. foreclosure and financial crises into global crises.
Another perspective on whether there was a bank-induced financial crisis is that the failure experience of depository institutions (banks and thrifts) has not risen to the level of the last real crisis, the savings and loan (S&L) crisis of the late 1980s and early 1990s. In a new broad historical review of financial crises, Carmen Reinhart and Kenneth Rogoff (2009) refer to the S&L crisis as a “bank-centered financial crisis” and they include it in their comparison of the subprime crisis to such crises. It must be noted that they use the term “mild,” and not their terms “severe” or “systemic,” in referring to the S&L crisis, and they conclude that the subprime crisis was worse than other banking crises in advanced countries or than the five crises that they call the “Big Five” severe and systemic crises. Certainly this suggests that the subprime crisis was the worst since at least Great Depression, but one natural indicator that Reinhart and Rogoff do not review, the number of bank failures, suggests otherwise.
Chart 3 shows the bank failure experience since 1969. In 2008-12 there were 465 failures (there were only three in 2007, the first year of the mortgage crisis), and it is likely that failures will fall into single digits in 2013, down from about 51 in 2012. But a total of 465 in the five years of large numbers of failures pales in comparison with the over four times larger number during the worst five years of the S&L crisis (1919 in 1987-91) or with the full 13-year period of elevated bank failures from 1981-93, when there were 2,898 failures, more than six times as many as are likely in and following the recent subprime/financial crisis. Two of the largest thrift failures on record (Washington Mutual and IndyMac) occurred during the Great Recession, but bank failures have generally been much smaller than in the last banking crisis. At least for this indicator of banking crisis, the recent banking component of the mortgage and financial crisis is hugely dwarfed by Reinhart and Rogoff’s so-called “mild” S&L bank-centered financial crisis.
Bank Failures since 1969
Source: Federal Deposit Insurance Corporation
Some analysts argue that bank failures in 2008-12 were reduced by the aggressive intervention of the Treasury’s Troubled Asset Relief Program. Indiviglio (2011) suggests that 12 of 13 major banks were on the brink of failure in 2008, based on an oral remark by Fed Chairman Ben Bernanke to the Financial Crisis Inquiry Commission in September 2010. The comment by the Chairman was not in his prepared public statement Bernanke (2010). In the latter, there is reference to the Lehman Brothers failure and the “near-failure of several other large, complex firms significantly worsened the crisis and the recession…,” in a discussion of the “too-big-to-fail policy problem, but there is no mention of banks or a number close to failure. Bair (2012) has insisted that only Citigroup might have been insolvent on the eve of the mandatory TARP and that both the Federal Reserve and Office of the Comptroller of the Currency said all the initial TARP recipients were solvent, a requirement for the TARP capital purchase program. See Bair (2012, p. 115-6). The fact that the largest nine banks in the country were forced to take TARP funds on October 18, 2008 and paid back those funds as rapidly as possible suggests that the attempt to blame banks for the financial instability in fall 2008 was a political blame game aimed at showing that policymakers were on top of the problem and a confidence building tactic. The firms initially required to take TARP funds were ordered to hold these funds for three years, but were allowed to repay in summer 2009, less than a year later. Gorton (2012) also puts banks center stage in the financial crisis, indicating that a loss of confidence in bank debt is the cause of all financial crises. The failures of Fannie Mae, Freddie Mac, AIG and two auto companies account for most of the funding offered by TARP, as well as TARP losses, not banks. These failures presumably had no effect on public confidence in bank debt, which was, as usual, insured. Nonetheless, Barofsky (2012, p. 200) also puts banks at the center of the bailout, from a Treasury point of view, despite the fact that banks did not receive the majority of TARP funds, especially after accounting for the initial mandatory disbursements to the largest banks.
Whether there was a U.S. banking crisis is important because Reinhart and Rogoff find that banking crises lead to very long periods of recession and recovery, much longer than the six quarters of the recent recession and slow recovery. Their study of crises suggests that the real economic effects of the recent crisis would last far longer, supporting the notion of a “double dip” recession with the economy slumping back into recession and subsequently experiencing very slow growth for several years. Indeed, their work forms the basis for the widely held notion that the recession end in mid-2009 was a fluke and then as recovery continued, that the economy would return to recession in 2010. When that failed to happen, proponents of the view argued that it would do so in 2011, and then in 2012. Carmen Reinhart and Vincent Reinhart (2010) argue that even severe economic dislocations over the past 75 years show the same very slow recovery and subsequent slow growth as banking crises. The evidence from the Great Recession does not support such a dire view of the prospects for the economy, however. This should not be surprising, however. The bank failure data indicate that any banking component of the recent financial crisis paled in comparison to the what Reinhart and Rogoff call the “mild bank-centered banking crisis” associated with the S&L crisis.
III. Did the Slow Cyclical Rebound Support the Financial Crisis Hypothesis?
While the evidence that the U.S. economy failed to slide back into recession over at least the first three years decisively rejects the hypothesis, a second component of the Reinhart and Rogoff hypothesis, a weak rebound of real GDP, could offer some mild support. Real GDP growth reached only a 2.5 percent growth rate over the six quarter rebound (II/2009 to IV/2010) following the six quarter recession. But it does not support the Reinhart-Rogoff hypothesis because the basic empirical claim is factually incorrect. The Reinhart-Rogoff claim that economies grow slowly for several years following a banking crisis has been criticized recently. Bordo and Haubrich (2012) argue that the Reinhart- Rogoff slow growth hypothesis is refuted by U.S. experience in the past 27 financial crises since 1872. They find that U.S. financial crises are followed by faster recoveries, with only three exceptions, the early 1930s, the early 1990s and the latest recovery. Dwyer, Devereux and Baier (2013) find that about 25 percent of banking crises do not lead to recessions and that, where they do, the recession is followed by faster growth in proportion to the recession decline.
Bordo and Haubrich argue that the three exceptional slow-growth recoveries may be related to delayed and weak recoveries in the housing sector. However, housing accounts for only a small share of real GDP (about 4.4 percent at its recent peak in 2007). What is striking in light of Chart 3 is that the last two exceptions were followed by large number of bank failures, and the bank failure experience in the early 1930s is well known as the worst in U.S. history, far worse than in the 1980s and 1990s. Bordo and Haubrich do not investigate this connection. Chart 3 shows that bank failures in 1981-85 and associated with a slightly less severe recession than the Great Recession, were actually worse than in 2008-12. Bank failures totaled 531 banks (versus 466 in the latest case), but growth in the earlier recovery and expansion was very rapid.
Wolf (2012) argues that Bordo and Haubrich are wrong. He claims that they are incorrect to focus only on U.S. crises and also to include several crises that are not comparable. Wolf argues that the 2008 financial crisis and 2007-09 recession were very mild compared with a few earlier U.S. crises and that when compared with the 2008 crises in other countries, the rebound in growth following the recession was quite strong. Apparently Wolf now concludes that the 2008 U.S. financial crisis was minor, if it even was a crisis, and that the rebound was in fact unusually strong. Bordo and Haubrich do not focus on whether the 2008 U.S. financial crisis was stronger or weaker than earlier U.S. crises. However, they do address the strength of the U.S. rebound, not those abroad. Knowing the foreign nations had even slower rebounds does not indicate whether their recent rebounds were slower or faster than their earlier ones.
Wolf suggests that the Bordo-Haubrich conclusion that faster rebounds follow deeper crises depends on including the 1973-75, 1981-82 and 1991-92 recessions in the sample. He prefers to focus only on four recessions related to financial crises: 1893, 1907, 1929, and the most recent one. Selective use of data, reducing the 27 cases studied by Bordo and Haubrich to four, is extreme data mining. Moreover, throwing out three of the last four recessions, all of which were accompanied by a number of banking failures and which were preceded by appreciation of house values and by housing and credit booms, is hardly appropriate. Two of those recessions rivaled the latest one in both severity and length and were comparable in terms of in terms of the extent of unemployment at the end. At the trough of the recent recession, the unemployment rate registered 9.5 percent, lower than it had been at the trough of the 1981-82 recession (10.8 percent) and not much above the 8.6 percent registered at the trough of the 1973-75 recession. The highest unemployment rate associated with the 1973-75 recession came two months after the trough in May 1975, when the unemployment rate was 9.0 percent. The worst performance in the latest recession was four months after the recession trough when the unemployment rate hit 10 percent, almost as high as in 1981-82.
Wolf’s view that the rebound from the last recession was rapid, is unique among economic analysts. He does not compare the 2.5 percent rate of real GDP growth in the latest rebound with the 9.3 percent growth rate in the comparable rebound from the 1981-82 recession, or the 5.9 percent rebound from the 1973-75 recession. Dropping these two rebounds from the analysis of 27 rebounds has little impact on the average rate of rebound for the 27 crises (0.6 percent), but omitting 21 others is likely to have done so. The difference in the latest rebound is poor economic policy, especially compared with the nearly four times larger 1982-83 rebound that was reinforced by favorable fiscal policies.
IV. If not a Banking or Financial Crisis, What Caused the Great Recession?
There are other factors that could have caused the Great Recession. For example, there were large surges in energy prices in late 2007 and in the summer of 2008 that were larger than the energy price increases before the two earlier great recessions in 1973-75 and 1981-82; these recessions lasted only two months less than the recent recession. One of the most important recession indicators is the sharp slowing in monetary growth leading up to the recession. By the end of 2007, when the recession began, the monetary base, a measure of Federal Reserve actions to influence monetary aggregates, spending and economic activity, had slowed to 1.4 percent over the previous year, insufficient to support the existing inflation rate, not to mention normal economic growth. Subsequent monetary stimulus pushed this growth, after removing the sterile surge in excess bank reserves, to 12.1 percent over the next year (March 2008 to March 2009). The trough in the recession occurred three months later in June 2009. Unfortunately, this measure of the monetary base slowed, falling to a 3.4 percent rate in the year ending in July 2010, contributing to the unusually slow and prolonged recovery.
The mortgage foreclosure crisis and its related financial crisis, may have contributed to the recession in its worst phase at the end of 2008 and early 2009, but dramatic and continuing shifts in economic policy could equally have explained the recession developments from October 2008 to June 2009. Since the foreclosure crisis began far earlier than the recession and the financial crisis came half way through it, the Great Recession was not caused by the mortgage foreclosure crisis or its ugly child, the financial crisis. Many analysts believe that the financial crisis was a banking crisis and as such is likely to have led to an extended recession, including a “double dip,” and relatively slow growth for several years. The absence of a double dip and the continuing recovery, as well as bank failure evidence, do not support that view, however, and suggest that the financial crisis, especially the banking crisis variant of the story, has been overstated. It is more likely that poor economic policy, especially monetary policy and inept temporary tax stimulus and temporary spending on programs that had broad substitutes from other governmental units and from the private sector, accounted for the weakness of the recovery and subsequent expansion.
Bair, Sheila (2012). Bull by the Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself, New York: Free Press.
Barofsky, Neil (2012). Bailout: An Insider Account of How Washington Abandoned Main Street While Rescuing Wall Street. New York: Free Press.
Bernanke, Ben S. (2010). Statement Before the Financial Crisis Enquiry Commission, Washington D.C., September 2.
Bordo, Michael and Joseph G. Haubrich (2012). “Deep Recessions, Fast Recoveries, and Financial Crises: Evidence from the American Record,” Federal Reserve Bank of Cleveland Working Paper 12-14, June.
Dwyer, Gerald P., John Devereux and Scott Baier (2013). Growth, Recessions and Banking Crises,” paper presented at the Association for Private Enterprise Education meetings, Maui.
Gorton, Gary (2012). Misunderstanding Financial Crises: Why We Don’t See Them Coming, Oxford University Press.
Indiviglio, Daniel (2011). “Why Were 12 Out of 13 Major Banks on the Brink?” The Atlantic, www.theatlantic.com/business/archive/2011/01/why-were-12-out-of-13-major-banks-on-the-brink/70421/
Kindleberger, Charles P. (2000). Manias, Panics, and Crashes: A History of Financial Crises, Fourth Edition. New York: John Wiley and Sons.
Labaton, Stephen (2008). “Agencies ’04 Rule Lets Banks Pile Up New Debt,” New York Times, October 2.
National Commission on the Causes of the Financial and Economic Crisis in the United States (2011). The Financial Crisis Inquiry Report, New York, NY: Public Affairs, January.
Reinhart, Carmen and Vincent Reinhart (2010). “Beware those who think the worst is past,” Financial Times, August 31.
_____________, and Vincent Rogoff (2009). This Time is Different: Eight Centuries of Financial Folly, Princeton University Press.
Wallison, Peter J. (2011). Dissent from the Majority Report of the Financial Crisis Inquiry Commission, American Enterprise Institute for Public Policy Research, January 14.
Wolf, Martin (2012). “A Slow Convalescence under Obama,” Financial Times, October 24.
Retirement in 2014: It’s Your Number that Counts
By BlackRock, December 26, 2013, 09:00:16 AM EDT
2013: Yes, There is a Retirement Crisis
If there was a theme to the year, it was the recognition that there is a brewing retirement crisisand that we need to do something about it as a society and as individuals. The numbers here bear that out and give us a sense of the problems to be solved.
- $6.6 trillion: That’s what the Center for Retirement Research has estimated as the gap between what people will need in retirement and what they have saved.
- 20 years : A generation ago, when most of the current retirement system was created, life expectancy at 65 was 5 to 7 years. Today, it’s closer to 20 years , meaning if you retire at age 65, retirements are three times as long.
- 65% : Building on the last point, a couple at age 65 has a 65% chance of one of them reaching their 90th birthday.
2014: It’s Your Number That Counts
Here’s one more number: 77% of 401(k) plan participants would save more if they knew how much they needed to save to generate retirement income, according to the 2013 BlackRock Retirement Survey . That’s cause for optimism; clarity drives action.
You can’t solve the retirement crisis. But you can solve, prevent or mitigate your retirement crisis. Here are three small steps you can take in 2014:
Expect a Raise? Consider saving it . Boosting your deferral rate into your defined contribution plan by investing your raise is a relatively painless way of paying your future selffirst. Spend time to be clear about your savings goals, even to the point of specifying where you want to be this time next year.
Review Your Retirement Wellness . Every year you review and renew your workplace health coverage and other benefits. Why not do the same for your retirement plan? Some steps to consider each year include reviewing your investment allocation, paying back 401(k) loans, and reviewing your company’s policies to see if there are savings options you’ve ignored. Also review your non-employer retirement planning as part of your overall Retirement Wellness Review.
Find Your Number . Determine a target goal. I think the best approach is to understand how your savings will translate into retirement income – after all, you are saving now so you can spend it later. If you are 55 or older, BlackRock’s CoRI tool can give you a quick estimate of how much you need to save to reach an income target. If you are younger, try the Department of Labor’s Income Calculator or some similar tool. The point is to have specific milestones to work toward.
Chip Castille, Managing Director, is head of BlackRock’s US & Canada Defined Contribution Group. You can find more of his posts here .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.
Read more: http://www.nasdaq.com/article/retirement-in-2014-its-your-number-that-counts-cm314220#ixzz2qac7giKv