Planning to Retire
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Audio: Retirement Resolutions
Continue reading… 0 CommentsAs we finish up the last of the holiday cookies, it is time to reform our bad habits for the New Year. Many resolutions this year will undoubtedly involve getting personal finances in order. Over the weekend, I spoke with WTOP in Washington about New Year's resolutions for retirement. Here is a look at some ideas to get your 401(k) and IRA balances back up to where they were a year ago.
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Retirement Investments Are the Top Employee Concern
Continue reading… 1 CommentEmployees could be kept awake at night by any number of legitimate fears: job loss, declining home values, and ever increasing health costs. But retirement account losses topped workers' current list of significant woes.
A recent Mercer survey of 1,028 human resource and finance professionals found that 54 percent of respondents said that employees expressed a significant level of concern about the impact of economic turmoil on their retirement investments. Considerably fewer respondents said workers were worried about the health of the company (37 percent) or anxious about job security (34 percent).
The survey also found that 17 percent the human resources professionals surveyed say their company is considering reducing the level of employer contributions to 401(k) or similar retirement accounts.
As for traditional pensions, companies are considering changing investment strategy (46 percent), changing funding policies (31 percent), and cutting back or stopping accruals (24 percent).
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Starbucks May Cut 401(k) Match
Continue reading… 2 CommentsCurrent Starbucks Corp. employees get a gradually increasing 401(k) match, depending on how long they have been with the company. Matches begin at 25 cents for each dollar contributed up to the first 4 percent of pay for workers with less than 36 months on the job and gradually perk up until they max out at $1.50 for each dollar saved after 120 months or more of service. The coffee company plans to spend about $15 million on 401(k) matches this year.
But, like most 401(k) plans, Starbucks reserves the right to change, modify, or terminate these benefits at any time, with or without notice. And 2009 may be the year that the coffee company does so. The Seattle-based giant told employees the company won't guarantee that it will make a company match to their “future roast” 401(k) accounts next year. And if they do provide a matching contribution, it may be at a different rate.
The Wall Street Journal obtained and confirmed a letter Starbucks sent to employees last week:
“The coffee giant said it will switch to a ‘fully discretionary match’ from a ‘fixed employer match’ starting Jan. 1 for employees ‘future roast’ retirement savings plans. That means the company can decide whether or not to make matching contributions to participants in the retirement plan for future years.”
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Unisys Corporation Cuts 1,300 Jobs, Suspends 401(k) Match
Continue reading… 3 CommentsUnisys Corporation is the latest company to ax jobs and retirement benefits. The company announced Monday that it will eliminate approximately 1,300 positions worldwide and consolidate facilities.
The information-technology services firm will also suspend company matching contributions to the U.S. 401(k) plan. Cutting the match will save the company about $50 million annually, the company said.
The Blue Bell, Pa.-based company plans to forgo 2009 salary increases for most employees as well. All the cost cutting measures led by new Unisys Chairman and CEO Ed Coleman are expected to save more than $225 million.
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President Bush Signs Pension Relief Bill
Continue reading… 4 CommentsPresident Bush signed legislation today that offers a measure of tax relief to retirees next year. The Worker, Retiree, and Employer Recovery Act was also passed by both houses of Congress earlier this month.
The bill allows retirees to avoid making withdrawals from depleted 401(k)s, IRAs, and 403(b)s in 2009. But seniors over age 70 ½ need to take withdrawals this year by December 31 or face an excise tax of 50 percent of the amount that should have been withdrawn plus income tax. The Treasury Department and Internal Revenue Service also considered suspending the penalty for 2008, but ultimately decided against it.
Businesses will also get temporary relief from their pension funding requirements under the Pension Protection Act. “We did have some concerns with this bill because we think it will increase the cost of near-term claims on the Pension Benefit Guaranty Corporation -- the PBGC -- and could also result in some benefits lost to workers over the long term,” says White House spokesperson Tony Fratto. “Our concerns with the legislation remain, but we do believe that in this current economic environment and current economic circumstances, that the benefits of the legislation outweighed our objections.”
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New Year's Resolutions for Retirement
Continue reading… 1 CommentBuck up: Your New Year's resolutions are going to require more sacrifice than usual this year. Layoffs, benefit cuts, and disappearing 401(k) balances have lashed workers in 2008. Yet everyone still has to provide for retirement. Here are some ways you can resolve to get your retirement plan back on track in 2009. Please share your retirement tips below.
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Delay Retirement
Continue reading… 1 CommentThe best way to recoup market losses is to work longer. That gives your retirement accounts time to recover before you begin to draw them down. "Even before the financial crisis, people should have been considering working longer because they are going to live longer," says Alicia Munnell, director of the Center for Retirement Research at Boston College and coauthor of Working Longer: The Solution to the Retirement Income Challenge. "After the financial crisis, you need to work three to five years longer."
A recent AARP survey found that 65 percent of workers ages 45 and over are considering delaying retirement and working longer unless the economy improves significantly. Continuing to work allows you to tuck more cash into your accounts, lets your account accrue returns and work its way up to where it was a year ago, and shortens the length of the retirement you will have to finance. How long will you have to work to recoup market losses? For employees who have worked for 20 to 29 years and leave their 401(k) invested in a mix of stocks and bonds, it will take, on average, one year, nine months of work to resuscitate their 401(k)'s, the Employee Benefit Research Institute calculates. If you pull your nest egg out of stocks, that bumps up the recovery time to two years, one month in the working world, EBRI says.
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Put Off Claiming Social Security
Continue reading… 1 CommentYou can sign up for Social Security beginning at 62. But waiting until 70 to claim your due will produce bigger payouts if you're in good health and expect to live a long time. Your Social Security benefit increases by 7 percent until your full retirement age and by 8 percent afterwards, says Laurence Kotlikoff, a Boston University economics professor and coauthor of Spend 'Til the End: The Revolutionary Guide to Raising Your Living Standard—Today and When You Retire. That's a far better return than most people are getting in the stock market right now. "You can potentially spend more now because you will have this higher income coming in when you are older," Kotlikoff says.
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Get Your 401(k) Match
Continue reading… 0 CommentsThe most common 401(k) match is 50 cents per dollar up to the first 6 percent of pay. If you make $50,000 a year and manage to tuck away $3,000, you can get an extra $1,500 added to your nest egg tax free (until retirement). But some financially struggling companies like General Motors, Kodak, and Frontier Airlines have suspended their 401(k) matches this year. Plus, 4 percent of companies plan to eliminate the match next year, according to a Watson Wyatt survey of 248 companies in October. So, it's particularly important to get the match while you can.
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Avoid Early Withdrawals
Continue reading… 0 CommentsAs unemployment rises and healthcare costs skyrocket, it's more tempting than ever to borrow from your retirement savings to make ends meet. About 18 percent of Americans have prematurely made withdrawals from their retirement accounts because of the recession, according to a Bank of America survey. The top reasons were to pay off credit card debt (26 percent), pay down a mortgage (22 percent), and cope with job loss (22 percent). "Do all that you can to cut expenses and find other sources of cash before breaking the lock on your retirement piggy bank," advises Beth Almeida, executive director of the National Institute on Retirement Security.
Catching up with those early withdrawals will be difficult. "When the money is out of your retirement account, you rob yourself of compounded investment returns. And if you don't pay the loan back, you'll have to pay Uncle Sam taxes on the loan and a whopping 10 percent penalty," Almeida says. Plus, if the worst-case scenario should strike and you're forced to file for bankruptcy, your retirement savings in a pension, 401(k), or IRA are protected from creditors, while most other assets are not.
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Scrutinize 401(k) Fees
Continue reading… 0 CommentsAll sorts of fees—including administrative, transaction, and investment management charges—can whittle away your nest egg over time. If a worker invests $5,000 annually in a 401(k) over a 35-year period and pays 1.5 percent of the account balance in fees (using constant 2008 dollars and assuming an after-inflation return of 4.9 percent annually), he will have $345,000 at retirement. If the same worker can cut expenses to 0.5 percent of the account balance, his nest egg will be $423,000 at retirement—$78,000 more. But keeping costs low can be difficult because not all 401(k) fees are fully disclosed. Many financial advisers think a reasonable rate to aim for is an expense ratio of 1 percent or less. Low-cost index funds are typically a good way to invest in stocks at rock-bottom prices.
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Determine Your Risk Tolerance
Continue reading… 0 CommentsAfter losing $2 trillion in their retirement accounts this year, consumers have a right to feel a little spooked about keeping their nest eggs in the stock market. The key to weathering this financial crisis is to find a level of risk in your portfolio that you can live with that also helps you build wealth for retirement. "People in this environment tend to invest to extremes—too much risk or too little risk—and you pay a price both ways," says Jonathan Pond, a financial planner and author of You Can Do It! The Boomer's Guide to a Great Retirement. "If you have gotten out of stocks, get back into stocks gradually. If you are 90 percent invested in stocks, don't sit there with a decimated portfolio and hope for the best. I would get back to a more reasonably diversified portfolio—about 50 percent in stocks. That way, at least you will mitigate future losses."
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Rebalance Your Portfolio
Continue reading… 0 CommentsIf you were invested 50 percent in stocks and 50 percent in bonds at the beginning of the year, your portfolio almost certainly doesn't have those proportions anymore, because you have probably taken big losses in stocks. "The temptation this year is going to be to stay where you are or get rid of stocks. Most people today should probably buy stocks," says Andrew Biggs, a resident scholar at the American Enterprise Institute and a former deputy commissioner for policy at the Social Security Administration. "Whatever ratio people have, people should think about where they want to be and be proactive about getting their portfolio back where it should be."
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Evaluate Your Target-Date Fund
Continue reading… 0 CommentsTarget-date funds are designed to automatically shift investments to become more conservative as you age. But these fix-it-and-forget-it funds are hardly one size fits all. A Watson Wyatt analysis of various target-date funds showed that allocations to equities for employees 10 years from retirement varied widely—from 40 percent to 80 percent. And on the day of retirement, equity allocations ranged from 20 to 65 percent. Ask your plan administrator how much of your fund is invested in the stock market at various ages. If that's not a level of risk you can live with, pick a different fund.
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Pay Off Your Mortgage
Continue reading… 4 CommentsThe benchmark interest rate on a 30-year fixed-rate mortgage has dipped as low as 5.17 percent, according to Freddie Mac. If you're getting a significantly higher return in the stock market (very doubtful right now), it might make sense to keep your mortgage going into retirement. But if you're not an investment wizard or don't want to take the risk, start prepaying your mortgage principal as you approach retirement. "You get an absolutely safe return by paying off your mortgage," says Laurence Kotlikoff, a Boston University economics professor and coauthor of Spend 'Til the End: The Revolutionary Guide to Raising Your Living Standard—Today and When You Retire. "If you have a 7 percent mortgage and 3 percent deflation right now, that means that you are paying 10 percent on your mortgage. Every dollar you pay [down on your mortgage principal] now is giving you a 10 percent real return."
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For Retirement Security: Get a Pension
Continue reading… 2 CommentsSimply finding a job in 2009 will be challenging for many people. “But if you can, seek an employer offering a traditional pension,” advises Beth Almeida, executive director of the National Institute on Retirement Security. “Pensions offer what Americans are looking for: the security and peace of mind of a regular monthly check that lasts as long as you do with payments continuing to your spouse even after you're gone. It’s a much better solution than on your own retirement that is subject to the wild volatility of the financial markets and can run out.” The average pension and annuity income for retirees over age 50 was $16,989 in 2007, according to the Employee Benefit Research Institute. Public sector pensions were considerably higher, averaging $23,721, while the typical private sector worker got $12,721. If you add Social Security and a little bit of personal savings to those pension amounts, you should have a fairly comfortable retirement in most parts of the country.
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Downsize Expenses
Continue reading… 0 CommentsEvery year Americans make resolutions to skip the daily latte and pack a lunch for work. Cutting small expenses can, indeed, add up over time. A bigger immediate bang for your efforts can be found by downsizing from two cars to one, moving into more inexpensive housing, or relocating to a part of town or an area of the country with a lower cost of living. Check out these low cost and low tax places to retire.
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Bump Up Your Contributions
Continue reading… 0 CommentsFace it. Without a traditional pension, the only paths to a secure retirement are to save more, cut expenses, or both. That's not easy to do when immediate expenses are demanding a portion of your paycheck before it even clears the bank. If you do manage to get a raise next year, consider diverting it to your retirement account. Says Jonathan Pond, a financial planner and author of You Can Do It! The Boomer's Guide to a Great Retirement,: "The only sure way to create wealth is to save regularly and to regularly increase the amount of money you're saving, or live beneath your means."
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Money-Related New Year’s Resolutions
Continue reading… 0 CommentsMany Americans will try to save extra cash and develop better money habits next year. I asked Olivia Mitchell, director of the Boettner Center for Pensions and Retirement Security at the University of Pennsylvania’s Wharton School, what her New Year’s resolutions will be. Her response:
1. Convince my twenty-something daughters that they really must start saving for retirement right away.
2. Set up mental accounts earmarked for specific purposes: the rainy day fund, the education fund, and the try to pay off the mortgage soon fund. Each will have a separate identity, so any spare pennies get put out of the way and removed from temptation.
3. Work on building skills so that I am still employable into my 70s.
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More Companies are Planning to Cut 401(k) Matches
Continue reading… 0 CommentsFinancially stressed companies are trying to eliminate employee benefit costs, increasingly by reducing or axing 401(k) company contributions. FedEx and Motorola both announced that they were suspending their 401(k) matches last week. They joined the ranks of General Motors and Kodak and many other financially struggling companies that are trimming their 401(k) employer contributions in an effort to free up cash. And more companies are planning to thin their 401(k) match next year.
A Watson Wyatt survey conducted in October found that 2 percent of companies had already reduced their employer 401(k) or 403(b) match and another 4 percent planned to do so within 12 months. A recent update to that survey conducted this month found that 3 percent of the companies surveyed have now slimed their 401(k) match and another 7 percent of firms will begin their retirement contribution diet next year.
But the 401(k) weight reduction plan won’t be the only cause of scrawnier nest eggs next year. The number of employees taking loans from retirement accounts has jumped from 19 percent in October to 27 percent in December, Watson Wyatt found. And 59 percent of employees have moved their 401(k) or 403(b) investment mix out of equities, compared with 53 percent in October. If only dieting were as easy as slimming down your nest egg.
