WASHINGTON — U.S. lawmakers will scrutinize the Pension Benefit Guaranty Corp.’s ability to continue paying monthly annuities to retirees amid news that the agency’s deficit has tripled to roughly $33.5 billion in the last six months.

The financial update comes at the request of Congress as lawmakers plan to discuss PBGC’s solvency and concern of mismanagement at a Wednesday afternoon hearing held by the Senate Special Committee on Aging.

The $33.5 billion shortfall, up from $11 billion shortfall reported at the close of fiscal year 2008, is a record high for the agency and comes on the backdrop of controversy surrounding former PBGC director Charles Millard, who may have crossed the line with communication he had with potential investment partners.

According to testimony submitted to the committee, PBGC’s Acting Director Vincent Snowbarger attributed the lose to additional pension plans terminations, investment losses, administrative fees and a decrease in the agency’s interest factor — which is a method PBGC uses to value liabilities.

“Economic turmoil poses issues we have never before confronted and that do not lead to easy solutions,” Snowbarger said in written testimony. Snowbarger is expected to reassure committee members that despite the inflating deficit, “PBGC has sufficient funds to meet its benefit obligations for many years’ because the monthly annuity payments are not lump sums.

Still, the agency makes more than $350 million in annuity payments monthly to workers or retirees who are eligible.

The agency receives its funding primarily from insurance premiums that companies pay and from returns on its investment portfolio, which has been scrutinized as well.

The agency’s investment portfolio, as of April 30, had 30% allocation for equities, 68% bonds and less than 2% with alternative investments, such as private equity and real estate. All of PBGC’s alternative investments have been inherited from failed pension plans.

Snowbarger is scheduled to testify alongside PBGC’s inspector general, a representative from the Government Accountability Office, and possibly Millard, the former PBGC head.

The committee hearing will address to some extent Millard’s improper contact with financial firms and the structure of PBGC’s board of directors, which hasn’t met in roughly 15 months, according to written testimony submitted by GAO Associate Director Barbara Bovbjerg.

Apprehension about PBGC’s operational structure and which industries and sectors agency officials believe could pose great fiscal risk are among the other topics expected to be discussed at the hearing.

The agency is closely monitoring financially distressed businesses related to automotive, retail, financial services and health-care industries. Of particular concern is the automotive industry; PBGC estimates that pension underfunding in the entire auto sector is $77 billion, of which $42 billion would be guaranteed.

By Darrell A. Hughes
Of DOW JONES NEWSWIRES

WASHINGTON — Social Security and Medicare trust funds are expected to run out of money sooner than expected, a report released Tuesday shows.

The report, from the programs’ trustees, shows that expenses will exceed tax revenues for Medicare’s hospital insurance fund in 2017, two years earlier than was estimated in a similar report in 2008.

Social Security’s trust fund is expected to be exhausted in 2037, four years earlier than last year’s estimate.

The report “once again reminds us that the longer we wait to address the long-term solvency of Medicare and Social Security the sooner those challenges will be upon us and the harder the options will be,” U.S. Treasury Secretary Timothy Geithner said in response to the data.

The data shows Medicare’s financial problems are larger and more imminent than Social Security’s. Medicare has been hit hard as demand for public health programs increases alongside rising health-care costs.

President Barack Obama has in recent days been lobbying the health-care industry to find ways to cut costs, measures that could make funds held in trust for Medicare go further.

Social Security’s challenges have been exacerbated by the ongoing recession. Still, the fund is expected to continue paying full benefits for almost 30 years while funding about 75% of benefits thereafter.

Last year, the trustees projected Social Security’s trust fund would run dry by 2041, Medicare’s by 2019.

By Meena Thiruvengadam
Of DOW JONES NEWSWIRES

President Obama’s budget proposes to hike the marginal tax rates of the wealthy to 36% and 39.6% beginning in fiscal 2011, and to increase by 5% the capital gains and dividends tax rate for the wealthy - tax changes that market participants say could lead to higher demand for tax-exempt bonds.

“The Obama tax hike [on the marginal rates] would mean that muni investors could buy bonds about 40 basis points richer in yield to achieve the same after-tax yield,” said Matt Fabian, a managing director at Municipal Market Advisors.

Wealthy would be defined as married couples earning over $250,000 and individuals earning $200,000 or more.

However, the administration has abandoned a proposal aired in a budget outline released in February that would have capped the amount of deductions taxpayers could take at 28%, another move that may have pushed wealthier investors into the muni market.

The most recent budget document also shows an even smaller estimate for how much the federal government will pay for the new Build America Bonds program than a document released Thursday.

However, market participants said the discrepancy does not really matter since the higher numbers were already underestimating the amount of payments that will be made under the program.

In an appendix to the budget released last week, the administration estimated that the Treasury Department would spend $91 million in fiscal 2009 and $340 million in fiscal 2010 on BABs, which it said included Recovery Zone Economic Development Bonds

But the Analytical Perspectives document released yesterday estimated just $50 million and $192 million for BABs during those years. Neither administration officials nor market participants could explain the differences in the estimates.

Treasury officials say roughly $9 billion of BABs have been issued during the past two months since the program started. Clifford Gannett, the director of the Internal Revenue Service’s tax-exempt bond office, which is charged with processing the direct payments for those bonds, said Friday that doing “very conservative” math on those numbers indicates $90 million of payments on just those issuances.

It is possible that the budget numbers stem from revenue estimates put together when the BAB legislation was being drafted, well before anyone knew how popular they would become, sources said.

The BAB program, created by the stimulus law, allows governmental issuers to sell an unlimited amount of taxable debt and either receive a cash payment from the federal government or provide investors with a tax credit equal to 35% of the interest rate.

The Recovery Zone Bonds, $10 billion of which were authorized under the stimulus law, also would provide issuers with a cash subsidy, but that payment is equal to 45% of the interest rate, and there is no option to provide a tax credit to investors. The bonds are to be allocated to areas hit hard by unemployment in 2008.

The budget documents also provide some fresh details for the administration’s estimated savings of phasing out the Federal Family Education Loan student loan program and moving to a system in which all federally guaranteed student loans are originated directly by the Department of Education. Many state-level FFEL lenders, who are opposed to the switch, issue municipal bonds backed by their student loans.

By ending “subsidies” paid to FFEL lenders, the budget documents estimate savings of $24 billion over five years and $48 billion over 10 years.

But an appendix to the budget proposal shows that the federal government has historically overestimated the costs of subsidies for FFEL while underestimating the costs of the direct loan program.

For the roughly $811.7 billion of FFEL loans originated since 1992, the cost of each loan averaged about 8.2 cents per dollar, compared to original estimates of about 10 cents. Issuance costs for the roughly $249.8 billion of direct loans were about 4.5 cents for each dollar loaned, compared to estimates of about 0.6 cents.

Almost three quarters of the budget’s proposed $100.5 billion of grants to state and local governments would be used for transportation infrastructure, mostly highways.

The budget proposed some modest changes to transportation and infrastructure funding, including a new user fee that would fund the air traffic control system beginning in 2011.

The administration argued that the current excise tax that is levied on users based mostly on airline ticket prices should be replaced by a tax related to the cost of services provided by the Federal Aviation Administration. If such a measure is taken, it will generate $9.6 billion in 2011 and existing aviation excise taxes could be reduced, according to the budget.

The administration also confirmed in its budget that it hopes Congress will create a national infrastructure bank and fund it at $5 billion in fiscal 2010. However, only a portion of that would be spent in 2010, the budget said.

The budget estimated that the federal government will provide $73.4 billion of transportation in grants to state and local governments in fiscal 2010, up about $11 billion from this fiscal year. Federal transportation grants would reach $102.3 billion in fiscal 2019 under current policy, according to budget documents.

The administration also proposes a five-year, $5 billion high-speed rail state grant program that would add on to the stimulus funding provided for high-speed rail development.

In addition, the budget includes $3.9 billion for the clean and drinking water state revolving funds.

By Peter Schroeder, Audrey Dutton and Andrew Ackerman, Bond Buyer
May 12, 2009

Americans say that despite daunting circumstances, they have developed a more practical attitude toward money and retirement since last year, according to a study by San Francisco-based Age Wave. And that’s good news for financial planners, says Ken Dychtwald, CEO of Age Wave, because Americans know they need planners’ help.

In a new study, Age Wave, a research firm, found that only 4% of respondents strongly agree that Americans behave in a financially responsible manner. An overwhelming 95% of respondents said financial management should be a standard part of high school curricula. Eighty-one percent said that to live within ones means was the most important financial advice that parents could pass on to their children. That figure jumped from 69% a year ago, when the survey was last conducted.

All of these responses underscore the need for guidance and education among financial services clients, and financial planners are positioned to provide those services, said industry professionals. “There has not been a moment in history when more people need to be coached, guided and educated about how to create a long-term plan,” Dychtwald said. “What you’ve got is a population of people who have been spooked. They don’t know who to trust, who’s lying, or what people’s intentions are.”

The study, called “Retirement at the Tipping Point: The Year that Changed Everything,” gathered opinions from more than 2,000 Americans from four generations. The study was conducted with Harris Interactive.

Nearly 60% of Americans lost money in mutual funds, 401(k) plans or the stock market. Respondents believe that it will take about seven years, on average, to recover losses. Among respondents 55 and older, 46% say that medical expenses not covered by insurance is a top financial worry for their retirement phase. Four out of ten respondents said they believe they will have to help support their parents, in-laws or siblings eventually. In light of their financial situations, respondents believe, they might need to postpone retirement by 4.2 years, on average.

Clients might find that they have other reasons for optimism, especially when it comes to the timeline for earning back financial losses. Financial markets typically recover very quickly from recessions, so the U.S. would have to be in a prolonged recession for recovery to take as long as seven years, said Russell Diachok, president and chief executive officer of Centennial, Colo.–based Geneos Wealth Management, Inc., an independent broker dealer. 

“Personally, I think it would be a shorter recovery time, more like three to five years,” Diachok said. Of course, he acknowledged, “that is a significant amount of time if you were planning to retire in two years.”

In the survey, some Americans did express optimistic attitudes about retirement, and even saw working during their retirement years in a positive way. Sixty percent of Americans say that they view retirement as “a new, exciting chapter in life.” That is an increase from the 52% who felt that last year, according to the study. Seventy percent say that working in retirement is a way to remain stimulated and pay bills.    

By Donna Mitchell

WASHINGTON — The U.S. recession appears to be losing steam, with growth likely to resume later this year on the back of firmer household spending, a bottoming housing market and an end to inventory liquidation, U.S. Federal Reserve Chairman Ben Bernanke said Tuesday.

But Bernanke said that the recovery will probably be slower than usual, and warned that the unemployment rate may stay high “for a time” as businesses remain cautious about new hiring.

“We continue to expect economic activity to bottom out, then to turn up later this year,” Bernanke said in prepared testimony to the Congressional Joint Economic Committee.

The “key elements” to that forecast, he explained, “are our assessments that the housing market is beginning to stabilize and that the sharp inventory liquidation that has been in progress will slow over the next few quarters.”

Fiscal and monetary stimulus should support demand, he said.

Last week, in a cautiously upbeat statement accompanying their decision to hold the target federal funds rate for interbank lending near zero, Fed officials said that the economic outlook has “improved modestly” but activity “is likely to remain weak for a time.”

U.S. gross domestic product has contracted in excess of 6%, at an annual rate, in each of the last two quarters, the worst six-month performance in a half century. But Wall Street economists generally expect stabilization around the middle of the year with a gradual recovery thereafter.

That scenario has found support from recent consumer- and business-sentiment surveys as well as housing and construction figures that have helped push equity markets up sharply. However, grim automobile sales for April suggest consumers remain cautious amid rising unemployment.

Still, Bernanke said there are “tentative signs” that household demand is stabilizing, citing a rise in consumer spending during the first quarter.

“The housing market, which has been in decline for three years, has also shown some signs of bottoming,” he added, citing “fairly stable” existing home sales, firmer sales of new homes and a reduced backlog of unsold new homes. Still, sales levels remain “depressed,” he said.

Meanwhile, “some progress” has been made on inventory adjustment, Bernanke said, and as inventories move into better balance with sales, “a reduction in the pace of inventory liquidation should provide some support to production later this year.”

Even foreign economies appear to be stabilizing, he added, and their financial markets appear to have improved somewhat as well.

Still, Bernanke warned that even when the U.S. recovers, growth is likely to remain below its long-run potential for a while. Many economists assume the economy’s noninflationary potential to be between 2.5% and 3%.

“We expect that the recovery will only gradually gain momentum and that economic slack will diminish slowly,” Bernanke said. With firms still cautious, the unemployment rate “could remain high for a time, even after economic growth resumes,” Bernanke said, adding that expects “sizable” job losses “in coming months.”

The unemployment rate is currently at a 25-year high of 8.5%. Wall Street economists expect the April jobless rate, due for release Friday, to hit 8.9%.

There are other headwinds, too, Bernanke warned.

“In contrast to the somewhat better news in the household sector, the available indicators of business investment remain extremely weak,” he said, while conditions in commercial real estate “are poor.”

And while financial conditions appear to have improved, markets and institutions “remain under considerable stress,” he said.

“A relapse in financial conditions would be a significant drag on economic activity and could cause the incipient recovery to stall,” Bernanke said.

With a good deal of slack still in the economy, inflation should remain low and come in below its 2008 pace this year, Bernanke said.

“However, inflation expectations, as measured by various household and business surveys, appear to have remained relatively stable, which should limit further declines in inflation,” he said.

Bernanke told lawmakers that the Fed will soon provide additional information on its lending programs, including breakouts of the types of collateral the Fed is accepting.

Fed Vice Chairman Donald Kohn has been leading a review of the Fed’s disclosure policies.

By Brian Blackstone
Of DOW JONES NEWSWIRES

WASHINGTON — The U.S. recession appears to be losing steam, with growth likely to resume later this year on the back of firmer household spending, a bottoming housing market and an end to inventory liquidation, U.S. Federal Reserve Chairman Ben Bernanke said Tuesday.

But Bernanke said that the recovery will probably be slower than usual, and warned that the unemployment rate may stay high “for a time” as businesses remain cautious about new hiring.

“We continue to expect economic activity to bottom out, then to turn up later this year,” Bernanke said in prepared testimony to the Congressional Joint Economic Committee.

The “key elements” to that forecast, he explained, “are our assessments that the housing market is beginning to stabilize and that the sharp inventory liquidation that has been in progress will slow over the next few quarters.”

Fiscal and monetary stimulus should support demand, he said.

Last week, in a cautiously upbeat statement accompanying their decision to hold the target federal funds rate for interbank lending near zero, Fed officials said that the economic outlook has “improved modestly” but activity “is likely to remain weak for a time.”

U.S. gross domestic product has contracted in excess of 6%, at an annual rate, in each of the last two quarters, the worst six-month performance in a half century. But Wall Street economists generally expect stabilization around the middle of the year with a gradual recovery thereafter.

That scenario has found support from recent consumer- and business-sentiment surveys as well as housing and construction figures that have helped push equity markets up sharply. However, grim automobile sales for April suggest consumers remain cautious amid rising unemployment.

Still, Bernanke said there are “tentative signs” that household demand is stabilizing, citing a rise in consumer spending during the first quarter.

“The housing market, which has been in decline for three years, has also shown some signs of bottoming,” he added, citing “fairly stable” existing home sales, firmer sales of new homes and a reduced backlog of unsold new homes. Still, sales levels remain “depressed,” he said.

Meanwhile, “some progress” has been made on inventory adjustment, Bernanke said, and as inventories move into better balance with sales, “a reduction in the pace of inventory liquidation should provide some support to production later this year.”

Even foreign economies appear to be stabilizing, he added, and their financial markets appear to have improved somewhat as well.

Still, Bernanke warned that even when the U.S. recovers, growth is likely to remain below its long-run potential for a while. Many economists assume the economy’s noninflationary potential to be between 2.5% and 3%.

“We expect that the recovery will only gradually gain momentum and that economic slack will diminish slowly,” Bernanke said. With firms still cautious, the unemployment rate “could remain high for a time, even after economic growth resumes,” Bernanke said, adding that expects “sizable” job losses “in coming months.”

The unemployment rate is currently at a 25-year high of 8.5%. Wall Street economists expect the April jobless rate, due for release Friday, to hit 8.9%.

There are other headwinds, too, Bernanke warned.

“In contrast to the somewhat better news in the household sector, the available indicators of business investment remain extremely weak,” he said, while conditions in commercial real estate “are poor.”

And while financial conditions appear to have improved, markets and institutions “remain under considerable stress,” he said.

“A relapse in financial conditions would be a significant drag on economic activity and could cause the incipient recovery to stall,” Bernanke said.

With a good deal of slack still in the economy, inflation should remain low and come in below its 2008 pace this year, Bernanke said.

“However, inflation expectations, as measured by various household and business surveys, appear to have remained relatively stable, which should limit further declines in inflation,” he said.

Bernanke told lawmakers that the Fed will soon provide additional information on its lending programs, including breakouts of the types of collateral the Fed is accepting.

Fed Vice Chairman Donald Kohn has been leading a review of the Fed’s disclosure policies.

By Brian Blackstone
Of DOW JONES NEWSWIRES

After suffering deep losses in their retirement savings accounts, most Americans appear to be in a state of shock, unsure where to move next.

“People are shell-shocked, paralyzed and afraid to do anything,” said Christopher “Kip” Condron, chairman and CEO of AXA Equitable at a “thought leadership program” last week here. “Their retirement accounts have taken a terrible beating. There’s no question that virtually everyone is being affected in one way or another by one of the most severe recessions in generations.”

Mutual fund companies, insurance providers and banking advocates all want to help and are naturally pushing their own products, but battered and weary investors aren’t sure whom to trust.

About the only thing everyone can agree on is that Americans haven’t been saving enough.

“People start saving too late,” said Pamela Perun, policy director for the Initiative on Financial Security for the Aspen Institute. “We’ve been waiting until midlife to save. We need a saving system that covers people from birth to death.”

Employer-sponsored 401(k)s play a valuable role in getting people to put a little extra aside every month, she said, but the tax-deferred incentive is not enough to convince people to change from being spenders to being savers.

“It’s not just how much we save, but how and where we save,” Perun said. “The problem is bigger than just retirement. Saving needs to mean more than just saving on taxes.” Perun noted that 20% of Americans are not in the banking system at all, and the bottom 40% to 60% of Americans may or may not save, but they certainly do not invest.

For decades, there have been major imbalances between big savers and big spenders, particularly among nations, said Eric Chaney, chief economist at the AXA Group. The savings rate in the U.S. dropped from around 8%, where it hovered for decades, to practically zero in recent years as equities continually pumped up stock portfolios.

The extended bull market created the illusion that equity and real estate growth could take the place of saving for retirement, he said. With equities down 50% and the average defined contribution account balance down 27% in 2008, everyone has been reminded of the bitter truth: markets are volatile, and stocks don’t always go up. Financial advisers may be preaching that everything is on sale and now is a great time to load up on bargains-but most investors just aren’t buying it.

A February survey conducted by AXA Equitable found that 65% of Americans were worried about meeting everyday expenses should they lose their job, up from 54% in a similar study last year.

“Our research showed that paying bills was a middle-of-the-pack concern last April,” Condron said. “The fact that it is now a top priority underscores how the year-long market volatility has shaken Americans’ sense of security about their immediate financial future, most notably as a result of job instability.”

Securing guaranteed income for life remains the top priority for 69% of Americans, particularly among women, who tend to live longer. Approximately 75% of women surveyed said getting guaranteed income payments for life was a top priority, compared to 58% of men.

Annuities can provide that guaranteed income stream later in life, but many cash-strapped investors are hesitant to lock up money they need right now for an uncertain future.

AXA found that 61% of men said they planned to shift the asset mixture of their investments to react to the changing markets, whereas women were less likely to act, with only 51% saying they would make changes. Half the survey respondents said they had taken no action to change their financial situation.

“Women continue to show more concern than men as the period of economic instability lingers on,” said Barbara Goodstein, executive vice president and chief innovation officer at AXA Equitable. “What is troubling is that it appears that their sense of caution has morphed into an inability to take the prudent steps necessary to navigate through this crisis.”

“The fact that people are still concerned about the health of their retirement during the market volatility we are experiencing makes it clear that they still understand the importance of preparing for their financial future,” Condron said. “What is alarming, however, is that so many are still not taking the steps needed to achieve these goals.”

Beyond working longer and spending less, most Americans don’t seem to know how to recover their losses. The fastest way to recover their losses might be to take another risky gamble on equities, but most investors can’t afford to lose any more of the money they have left.

Approximately 40% of men and women within 10 years of retiring said they planned to delay retirement. Among the men surveyed, 40% said they would work an extra three years to retire at 64, while 39% of women said they would work an extra four years, retiring at 66.

Contrary to many reports, Social Security is not doomed, and experts say the program should have no trouble providing retirement benefits to future generations of Americans for the foreseeable future. It might not be much, but Social Security should provide most elderly Americans with enough money to survive. For those who can save a little more, it will provide a steady and reliable income supplement.

Unlike a personal retirement account that has a set period of wealth accumulation followed by an open-ended period of decumulation, the nation’s Social Security program is structured so that the income for the monthly payments to retirees are generated by current members of the workforce. Payments can keep up with inflation because the average income keeps rising.

Since the program began, there have always been more workers than retirees, providing the system with a net surplus, said Peter Brady, a senior economist at the Investment Company Institute. When the Baby Boomer generation begins retiring en masse, this situation will temporarily reverse, causing a deficit, he said.

“The demographic shock of Baby Boomers is a one-time event,” Brady said, but it won’t break Social Security because the income payments from active workers will keep coming in. The Congressional Budget Office estimates payroll taxes will cover at least 80% of benefits.

When the income/payment deficit happens, the government will have to either reduce payments or increase taxes. Others have suggested raising the minimum withdrawal age, but because of its inherently political nature, most experts don’t think older voters would approve of such hardships on themselves.

By John Morgan

WASHINGTON — The slumping U.S. economy barely improved early this year, with businesses slashing spending and inventories, according to a surprising report indicating the recession didn’t ease as much as expected.

Gross domestic product decreased at a seasonally adjusted 6.1% annual rate January through March despite rising consumer spending, the Commerce Department said Wednesday in its first estimate of first-quarter GDP.

The 6.1% drop was much bigger than Wall Street expected and hardly different than a 6.3% plunge in the fourth quarter, when the recession that began in December 2007 deepened.

Economists surveyed by Dow Jones Newswires expected a 4.6% drop in GDP during the first three months of 2009. With a 0.5% drop in the third quarter, GDP has now fallen three consecutive quarters. That hasn’t happened in 34 years, since third-quarter 1974 through first-quarter 1975.

Price indicators within Wednesday’s report suggested inflationary pressures rose in first-quarter 2009, easing fears of deflation. For instance, the price index for personal consumption expenditures fell by 1.0%, a decline much smaller than the fall of 4.9% in the fourth-quarter 2008. The PCE price gauge excluding food and energy rose 1.5%, after increasing 0.9% in the fourth quarter.

Weaker investment in housing combined with the enormous inventory adjustment to pull the economy downward. But the aggressive drawdown of stockpiles of goods, while hurting the economy in the short run, is beneficial because it is an important step toward bringing inventories under control and ending a production freefall. U.S. industrial production retreated a fifth straight month in March, recent data show. Over the past 12 months, output was down nearly 13%. Capacity use by industries receded to 69.3%, a historical low since records began in 1967.

First-quarter GDP would have fallen farther if not for improvement in trade. Exports fell — but imports dropped even more.

GDP acts as a scoreboard for the economy by measuring all goods and services produced. Its biggest component is consumer spending, which accounts for about 70% of GDP. First-quarter spending increased 2.2%, after dropping 4.3% in the fourth quarter.

Purchases of durable goods rose 9.4% in the first quarter, after decreasing by 22.1% October through December. First-quarter non-durables spending climbed by 1.3%. Services spending rose 1.5%.

Overall, consumer spending contributed 1.50 percentage points to GDP; it had dropped 2.99 percentage points in the fourth quarter.

But another component of GDP, housing, took a large bite out of the economy. Residential fixed investment fell by 38.0%, reducing overall GDP by 1.36 percentage points. Fourth-quarter investment had fallen 22.8%, taking 0.80 of a percentage point out of GDP.

International trade boosted the economy early this year, adding 1.99 percentage points to GDP. U.S. exports plunged 30.0% and imports decreased 34.1%. In the fourth quarter, trade deducted 0.15 of a percentage point out of GDP; exports in that period were 23.6% lower and imports fell by 17.5%.

First-quarter business spending dived 37.9%. Investment in structures went down 44.2%. Equipment and software outlays decreased 33.8%. Overall fourth-quarter outlays by businesses retreated 21.7%.

Businesses dumped inventories by $103.7 billion. Inventories fell $25.8 billion in the fourth quarter and $29.6 billion in the third quarter. The big deceleration siphoned 2.79 percentage points out of January-March GDP.

Real final sales of domestic product, which is GDP less the change in private inventories, fell at a 3.4% annual rate in the first quarter. Fourth-quarter sales fell by 6.2%.

Federal government spending decreased 4.0%, after rising in the fourth quarter by 7.0%. State and local government outlays fell 3.9%, after going down by 2.0% in the fourth quarter.

Other price inflation gauges in the report include the price index for gross domestic purchases, which measures prices paid by U.S. residents. It fell 1.0%, after decreasing 3.9% in the fourth quarter. The chain-weighted GDP price index increased 2.9%, after increasing 0.5% in the fourth quarter.

By Jeff Bater
Of DOW JONES NEWSWIRES

A majority of non-retired Americans now doubt they will have enough money to live comfortably once they retire, representing an 18-point drop from just five years ago.

According to the Gallup’s annual Economy and Personal Finance survey, conducted April 6-9, 52% of non-retired Americans believe they will not have enough saved for a comfortable retirement. Only 41% of say that they will have enough money, compared to 59% who said they did in 2002.

This is the first time since Gallup has conducted the survey that the majority of those not retired say they will not have enough money to retire comfortably. The negativity is a reflection of non-retirees lost confidence that their 401(k) and other tax-exempt plans will be able to provide a comfortable retirement.

When Gallup conducted its first survey in 2001, nearly 6 out of 10 non-retirees said that their 401(k), IRAs and Keogh plans would be a significant source of income for them. In the latest poll, only 42% now believe this to be true—the lowest reading that Gallup has measured. Despite the drop in confidence, however, Americans still put their 401(k) and other retirement savings plans at the top of the list of what they believe will be their major source of retirement income.

Not surprisingly, the perceived reliance on a work-sponsored pension plan has also dropped to the lowest measure since Gallup started tracking the market. Just 24% of those surveyed believe this will be a major source of income, compared to 34% in 2001 and 31% two years ago.

Complicating matters, only 30% of Americans say they will be able rely on Social security for a substantial amount of income. According to Gallup, this pessimism I likely owed to all the talk about Social Security eventually going bankrupt.

Results of the survey were based on telephone interviews with 676 non-retirees.

By Editorial Staff, Financial Planning
April 20, 2009

The impact of the market downturn and the recession on Americans’ expectations for retirement is dire, as evidenced by the 2009 Annual Retirement Confidence Survey, the 19th fielded by the nonpartisan Employee Benefit Research Institute. The number of workers feeling very confident about retirement dropped 50% since 2007.

The factors leading to this severe drop in confidence won’t surprise you: economic uncertainty, inflation, the cost of living, job loss and loss of retirement savings. In addition, workers and retirees alike are concerned about medical expenses, with only 13% of working Americans and 25% of retirees feeling very confident about meeting medical costs.

Another important finding in this year’s Retirement Confidence Survey is that Americans are saving more, and are more likely to consider working with a financial professional. In addition, Americans plan to work longer, with 89% reporting that they’ve pushed back retirement plans to increase their financial security. The median survey respondent planned to retire at 65, with 21% of respondents stating that they’d work into their 70s. Today, however, the median retirement age is only 62. Forty-seven percent of retirees report that they retired earlier than they had planned.

By Marion Asnes