Entries for April 2008

Unexpected expenses like medical bills or a death in the family can happen to anyone. And mortgage payments and credit card balances can creep up on you. When you're strapped for cash, the amount you've accumulated in your retirement accounts can look mighty tempting. And it's easy to pay the fee and borrow some cash from your retirement stash.

Some 27 percent of employees planning to retire have withdrawn funds early from retirement investments, according to a recent Wall Street Journal Online/Harris Interactive online survey. The reasons for withdrawing funds before retirement include (with share of all employees who have tapped accounts as a result):

My friends and I do talk about our salaries when someone changes jobs or gets a promotion, as the New York Times reported this weekend that many younger workers do. It described talking about money as a taboo for older workers that doesn't apply to the under-35 crowd. But I think the trend goes further than that.

We talk about the entire compensation package, from the nitty-gritty of what our health plans cover and how much we shell out for deductibles and copays to exactly how our 401(k) works. In this confusing era of do-it-yourself retirement (I have yet to meet a 20-something like me who has a defined-benefit retirement plan), it's the only way we can parse investment choices and 401(k) fees and find out if our retirement savings are on track compared with other people our age who have similar incomes.

Elderly women are nearly twice as likely to be poor as elderly men, and the risk of poverty increases as women age. Not only do women earn less money over their lifetime and work more frequently interrupted careers than men, but they also live longer, which means that they need to finance additional years of retirement.

Employment, health, and marital status are the critical factors that influence whether older women will become or stay poor during their retirement years, according to AARP. Divorce, widowhood, or never having married typically reduce women's retirement nest egg.

A Wall Street Journal article by Paul Fronstin and Stephen Blakely of the Employee Benefit Research Institute says we are past the tipping point when health benefits were available for retirees. They write:

Most active workers will never be eligible for health insurance in retirement through a former employer. The Agency for Healthcare Research and Quality (AHRQ) reports that only 13 percent of private-sector establishments offered health benefits to early retirees in 2005, down from 22 percent in 1997. Furthermore, 13 percent of private-sector establishments offered health benefits to Medicare-eligible retirees in 2005, down from 20 percent in 1997. The trend among large employers—those most likely to offer health benefits—has been down as well.

Dear Planning to Retire,

As a 25-year-old watching my 401(k) balance heading in the wrong direction, should I be stuffing money in my mattress?

Having a 401(k) in your 20s already puts you on the right track. If you're a 20-something, you have the most to gain from the effect of compounding over time. But making your investment grow can be tricky, and there are plenty of pitfalls to trip you up. I posed five questions about 401(k) investing in your 20s to Brian Jones, a certified financial planner and author of Getting Started: The Financial Guide for a Younger Generation. Excerpts:

Saving for retirement is largely a matter of figuring out the slippery number of how many years you will live and accruing enough assets to live comfortably until that day arrives, plus any inheritance you want to leave behind. The National Center for Health Statistics puts the average American life expectancy at 77.8 years. But, of course, the elusive number varies by gender, race, health, genetics, lifestyle choices, and even socioeconomic status, the New York Times reports.

Many financial advisers will tell you to conservatively plan for 30 years in retirement. But Dean Foster, a professor of statistics as the University of Pennsylvania's Wharton School, contends he can predict your life expectancy using the information you enter and statistics about Americans, as does Thomas Perls, a geriatrician at the Boston University medical school who studies centenarians. Armed with the age at which you're expected to die, you can more accurately plan when to sign up for Social Security and how much you need to save.

You can also take a short Longevity Alliance online quiz that promises to tell you "your attitude toward longevity and money, along with tips and ideas to help you make sure your health and wealth match your longevity expectations." Although no numbers are involved, the seven-question survey will get you thinking about how long you might live and give you a little insight into your financial personality. But if you're looking for a retirement savings goal, you should try an online calculator.

I hesitate to use the "R" word. But it's easy to lose sleep if your nest egg is wrapped up in the stock market at a time when every politician and poll says the economy is ailing. Although most financial advisers won't recommend this (because selling low is not a good idea), I often think of putting my savings in something nice and conservative—even an FDIC-insured account—just in case, until things get better. (It breaks my heart to look at downward trend lines on financial statements.)

Many baby boomers are making changes to their retirement plans. A recent Longevity Alliance and Harris Interactive survey found that 39 percent of baby boomers with retirement savings have changed or plan to alter their retirement allocations as a direct result of current economic conditions. Their changes include seeking the counsel of a financial adviser (43 percent), moving funds from stocks to more conservative investments (31 percent), investing in value-priced stocks (20 percent), buying long-term-care insurance (13 percent), and purchasing an annuity (12 percent). If you have a winning strategy for riding out the downturn, please tell us about it below.

But whatever you do, don't invest your entire nest egg in one company—even if it's the one you work for. Avoid the fate of Bear Stearns and Enron employees by diversifying retirement funds outside the company.