Planning to Retire
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5 Ways Retirement Savers are Reacting to 401(k) Declines
Continue reading… 1 CommentWe call our retirement savings a nest egg because we are emotionally attached to that money. That account is earmarked for comfort and security. And that's why watching retirement account balances decline is particularly heartbreaking.
Here are five ways investors are currently reacting to this emotional rollercoaster.
Assessing losses. Some people are able to put declining retirement accounts out of their mind and focus on the long term. But other retirement savers feel compelled to dwell on their gruesomely declining account balance. The average 401(k) plan balance has dropped 14 percent in 2008 to $68,000, down from $79,000 in 2007, according to an analysis of 2.7 million U.S. employees released yesterday by the human resources consulting firm Hewitt Associates. In the past two months, employees lost an average of approximately 18 percent of their 401(k) plan savings, and some lost more than 30 percent.
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GM Pensions Are Fully Funded
Continue reading… 26 CommentsEven during a financial downturn it may be possible for companies to continue to provide workers traditional pensions. General Motors, a company that recently asked for taxpayer funds, appears to have enough money in the pension fund to pay its more than 400,000 retirees their promised benefits for many years.
"G.M. says it will be paying retirees about $7 billion a year for the next 10 years," the New York Times reports. "The fund's assets were worth $104 billion at the end of 2007, more than enough to cover its obligations of $85 billion."
To produce adequate investment returns while also preserving the pension fund's surplus, only 26 percent of G.M.'s pension fund is invested in stocks — well below the typical pension fund’s allocation.
Health care for retirees is another story. The Times reports: “The total cost of these benefits in today’s dollars was estimated at $60 billion at the end of 2007, and G.M. had set aside only about $16 billion to cover the cost.”
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Target Date Funds: Retirement Timing Is Everything
Continue reading… 1 CommentFor an individual planning to retire, the 15-year period leading up to retirement has the biggest impact on financial security. Stock returns have varied from negative numbers in 1920 and 1980 to annual returns in excess of 12 percent for 15-year periods ending in the mid-1930s, the 1960s, and the 1990s, according to a recent paper from the Center for Retirement Research at Boston College.
The calculations were made using a hypothetical person—let's call him Joe Retirement Saver—who did everything that retirement experts say you should do to prepare for retirement:
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Where Old and Young People Voted Differently
Continue reading… 0 CommentsPresident-elect Barack Obama won 28 states and Washington, D.C., in the presidential contest. Among voters age 50 and older, Obama and Sen. John McCain carried 25 states each, with D.C. going to Obama, according to AARP, an advocacy organization for those 50 and up. The three states where the majority of older voters went for McCain while the rest of the population didn't: Indiana, Nevada, and North Carolina.
Check out this AARP map of how the 50-plus vote compares with that of the general population. And here's a look at how baby boomers and seniors voted.
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President Bush Jokes About His ‘Forced Retirement’
Continue reading… 0 CommentsPresident Bush was in Lima, Peru, over the weekend, attending the 21-nation Asia-Pacific Economic Cooperation forum. This is likely to be his last global summit before leaving office.
On Saturday, Bush spoke with Canadian Prime Minister Stephen Harper. "Laureen and I certainly wish Laura and you all the best if I don't see you again before the 20th of January," Harper said to Bush, the Agence France-Presse, a global news agency, reports. In response, Bush quipped: "Before forced retirement."
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3 Reasons Baby Boomers Are the Richest Generation in History
Continue reading… 5 CommentsBaby boomers may not feel rich right now, but they're still the wealthiest generation in U.S. history. Boomers have collectively earned $3.7 trillion, more than twice as much as the $1.6 trillion that members of the silent generation did at the same age, according to a new McKinsey Global Institute report. The researchers found that only 20 percent of that difference was due to economic growth. A whopping 80 percent of the increased earnings were due to three factors specific to the baby boomer generation:
Size. The exceptional size of the baby boomer generation—which is made up of 79 million people born between 1945 and 1964—raised output and growth rates. The baby boomer cohort is 50 percent larger than the preceding silent generation, and at birth, they represented a larger share of the population than generation X and the millennials did at their birth.
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The Best Places to Find a Retirement Plan
Continue reading… 0 CommentsJust over half of full-time workers participated in an employer's retirement plan last year. But where you live could play an important role in the likelihood that you will be offered and participate in a retirement plan.
Employees in the upper Midwest and Northeast had the highest levels of participation in retirement plans in 2007, according to an Employee Benefit Research Institute analysis released today. Wisconsin topped the list with approximately 68 percent of full-time workers preparing for retirement. Workers in the South, West, and Southwest had the lowest participation levels. Florida bottomed out the list with 42 percent of workers partaking in an employer's plan.
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Who Is Targeting Your 401(k)?
Continue reading… 7 CommentsA Wall Street Journal editorial published Friday suggests that congressional Democrats have plans to eliminate 401(k) tax breaks and are "entertaining dreams of state-managed retirement accounts."
Rep. George Miller, the California Democrat who chairs of the House Education and Labor Committee, shot back with a statement the same day. "The Wall Street Journal is needlessly creating fear among Americans rightly worried about their retirement security by misrepresenting my efforts to strengthen workers' retirement savings—attacks that have no basis in fact. I do not support 'abolishing' 401(k)'s, moving these plans, or changing their tax status, plain and simple," Miller said.
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IRA Debit Cards Offer Convenience With Hefty Fees
Continue reading… 1 CommentThe highly criticized 401(k) debit card now welcomes a new member of the family: the IRA debit card. This new form of plastic also allows quick access to your retirement stash but, unlike the 401(k) debit card, this card prohibits loans from retirement accounts.
The IRA debit card, launched yesterday by the Entrust Group, an administrator of self-directed retirement plans, allows cardholders to take required minimum distributions from their retirement accounts or purchase IRA assets. But, like any financial product, fine print applies. Here are some things to consider about the IRA debit card.
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How the Wealthy Are Allocating Their Portfolios Now
Continue reading… 0 CommentsEven wealthy Americans are feeling gloomy about the future. More than half of affluent investors say they are pessimistic about stock market performance over the next year, according to a new survey.
Specific worries include a recession (61 percent), inflation exceeding portfolio returns (59 percent), having enough money to support their desired lifestyle (50 percent), and affording family healthcare costs (47 percent), an online survey by PNC Wealth Management and Harris Interactive found. Respondents included 781 workers with at least $150,000 of annual income and $500,000 or more in investable assets and 482 retirees with at least $1 million in investable assets.
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3 Things That Could Go Wrong With Your Pension
Continue reading… 4 CommentsWorkers lucky enough to have pensions generally have a better shot at a secure retirement than their pensionless peers with depleted 401(k)'s. But when companies face hard times, the future benefits workers expect to accrue in their pension plans are at risk. Private-sector pensions have lost almost $1 trillion in equity value over the past year. Individual pension participants are guaranteed to get the benefits they have already accrued because they're insured by the government. But the financial crisis could convince some companies that they no longer want to bear the risks of providing pension plans to employees, according to a recent paper from the Center for Retirement Research at Boston College. Here's a look at the major things that could go wrong with your pension:
Job loss. Financially strapped companies are laying off workers in nearly every industry. Pensions, which are often calculated based on your final salary, will be much lower if you are laid off in middle age. For example, if a pension pays out 15 percent of final salary in retirement, a 50-year-old employee with 10 years at the company who earns $48,000 would be entitled to $7,200 a year at age 65 if he or she was laid off this year, the Boston College researchers calculated. If the same worker continued his or her job until age 65 with a final salary of $60,000, he or she would get $1,800 more, or $9,000 annually, for the rest of his or her life. It's also extremely difficult for workers laid off in middle age to find a new job with a pension and put in enough years to qualify.
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Companies Ask Congress for Pension Relief
Continue reading… 6 CommentsRoughly 300 companies are lobbying congress to temporarily loosen pension-funding rules. The companies, which span multiple industries and include DuPont, Ford, IBM, GlaxoSmithKline, Kraft, Northrop Grumman, Pfizer, and Verizon Communications, say that fully funding their pensions under current economic conditions will lead to widespread job losses and benefit reductions.
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Cashing Out Your Retirement Account
Continue reading… 21 CommentsThe typical employee with a 401(k) or similar retirement plan gets a choice on how to distribute the nest egg at retirement. Most workers take the lump-sum option and then reinvest all or some of the proceeds, typically in an IRA. Only about 7 percent of workers spent the entire retirement account immediately upon retiring, according to a recently released 2007 survey by the Investment Company Institute of 600 workers who retired in 2002 or later.
About 70 percent of the retirees reported having a choice of distribution options. Other commonly offered choices include annuities, installment payments, or deferral of the distribution, and some employers allowed a combination of withdrawals. Retirees who chose installment payments often cited strong needs for current income as their reason for doing so. Those seeking a steady stream of income over their lifetimes often chose to annuitize their assets. Here's a look at the most popular retirement fund distribution options:
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Reader: What Will Happen to My Pension if My Company Tanks?
Continue reading… 14 CommentsDear Planning to Retire,
I am a Ford salaried retiree. Can you tell me in general terms how the U.S. Pension Benefit Guaranty Corp. (PBGC) would take over if Ford dumps their pension liabilities on PBGC? I am sure many specifics would be needed to reply with any specificity, but I am trying to get basic information as to what would happen to my pension if Ford cannot pay. Are there limits to what might be paid out by PBGC? I am 82 and have a pension of about $55,000 now.
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General Motors Cuts Healthcare for Retirees
Continue reading… 18 CommentsNote to retirees: Don't count on your retiree health insurance from your company. Even if you have the agreement in writing, many retiree health insurance agreements include clauses giving the company the right to modify, suspend, revoke, terminate, or change the program at any time. And for many employers, that time has come.
General Motors plans to eliminate retiree healthcare coverage for approximately 100,000 white-collar retirees at the end of this year. Former factory workers, however, have union contracts that prevent the company from revoking coverage.
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Study: Too Many 401(k) Choices Can Lead to More Risky Investments
Continue reading… 0 CommentsThe typical 401(k) plan offered 18 funds choices last year. Savvy investors often relish the array of options and seek out the lowest fees and best returns. But for an inexperienced retirement saver, confusing terms, fine print, and seemingly indecipherable differences between mutual funds can seem daunting. And new research indicates that too many choices in a 401(k) may even lead inexperienced investors to take on more risk than they would with fewer options.
A Rutgers School of Business, University of Texas-Austin, and University of Pittsburgh study found that many employees without extensive investment knowledge will choose a heavier concentration of stocks in their portfolio when confronted with more fund options. A large fund assortment more than doubled investment in stocks among those less knowledgeable, from 29 percent to 60 percent of the portfolio, and decreased bond fund investments from 46 percent to 26 percent. But more investment options had no significant affect on people who said they had investing knowledge.
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Obama's Plans for Your Retirement
Continue reading… 26 CommentsThe leading edge of the baby boomers will hit age 65 during Barack Obama's administration. Legislation enacted over the next four years will be key to boomers' economic security in retirement, especially as investors frantically try to recover from massive stock market losses before they retire. Here's a look at the president-elect's major retirement proposals:
Income tax for seniors. Obama plans to eliminate all income tax for seniors making less than $50,000 annually. Obama's advisers estimate this will save 7 million seniors an average of $1,400 apiece annually.
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Survey: Retirees Voted for McCain
Continue reading… 4 CommentsBy now, you've probably heard that young people overwhelmingly voted Barack Obama into the White House. But the majority of baby boomers and generation X also voted for Obama. In fact, the only age group that didn't prefer Obama were those age 65 and older, according to final pre-election estimates of likely voters by Gallup released today.
Age 2004 2004 2008 2008 Kerry Bush Obama McCain Under 30 60 40 61 39 30-49 43 57 53 47 50-64 48 52 54 46 65 plus 52 48 46 54 Source: final pre-election Gallup Poll of 3,050 likely voters
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Does Anyone Still Want Private Social Security Accounts?
Continue reading… 14 CommentsMany retirees who have reduced spending power because of depleted 401(k) accounts are thankful that President Bush's plan to partially privatize Social Security was never realized. But the debate over personal Social Security accounts rages on.
The success of private retirement accounts is dependent on the amount a worker contributes, the investment strategy, and the unpredictable whim of the market. Workers who contribute more and get better returns will have more retirement income than those who tuck away less and achieve smaller gains. Social Security benefits, on the other hand, depend on lifetime wages and the age at which benefits are claimed. Workers who retire at the same age with the same earning record generally receive similar benefit amounts regardless of the year in which they claim benefits and the ups and downs in the financial markets.
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Maximize Your 401(k) Match While You Still Can
Continue reading… 2 CommentsEmployer matches to 401(k) contributions are an important retirement savings incentive. Many employees contributed the exact amount necessary to receive their employer's full match from 2004 to 2007, according to recently released data about Charles Schwab-serviced retirement plans.
As most businesses have flourished over the past four years, more employers began offering 401(k) matches or increased the amounts of matching contributions. The percentage of large employers with more than 2,500 participants in their retirement plans providing matches, for example, jumped from 78 percent in 2004 to 88 percent in 2007, reports Schwab, a company that has 1.3 million retirement plan participants.
