Planning to Retire
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Target-Date Funds Have Hidden Risks
Continue reading… 3 CommentsTarget-date funds automatically provide age-appropriate investments that grow more conservative as you approach your designed retirement date. But asset allocation varies widely among funds with similar retirement years.
The Senate's Special Committee on Aging sent letters this week to the Department of Labor and Securities and Exchange Commission asking them to establish regulations governing the composition and advertising of target funds. “Despite their growing popularity, there are absolutely no regulations regarding the composition of target-date funds,” said Herb Kohl, a Wisconsin Democrat and chairman of the committee, at a senate hearing about retirement security. “With more and more Americans relying on 401(k)s and other defined contribution plans as their primary source for retirement savings, we need to make sure their savings are well-protected with strong oversight and regulation.”
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Social Security Administration Reaches Out to Young Workers
Continue reading… 4 CommentsThe Social Security Administration is reaching out to 20 and 30-somethings. Beginning this month, workers between the ages of 25 and 35 will receive a new insert with their Social Security statement. “This two-sided supplement provides younger workers with information about ways to save and invest, and also shows how saving even a little bit can make a big difference over time,” says Jason Fichtner, acting deputy commissioner of the Social Security Administration.
One aim of this mailing is to educate young people about the power of compounding interest. One example provided: $25 a week invested at 5 percent interest will grow to about $165,000 over 40 years. It also highlights Social Security’s disability benefits paid to injured workers and their families. A 20-year-old worker has a 3-in-10 chance of qualifying for disability benefits before reaching retirement age, the supplement points out.
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House 401(k) Hearing: 4 Ways to Fix the Retirement System
Continue reading… 12 CommentsThe House Education and Labor Committee held a hearing today to examine the shortcomings of the U.S. retirement system. The two-and-a-half hour discussion largely highlighted the weaknesses of the current 401(k) retirement savings system. “For too many Americans, 401(k) plans have become little more than a high stakes crap shoot. If you didn’t take your retirement savings out of the market before the crash, you are likely to take years to recoup your losses, if at all,” said Chairman George Miller, a California Democrat, in an opening statement. “As a result, we are realizing that Wall Street’s guarantees of predictable benefits and peace of mind throughout retirement was nothing more than a hallow promise.”
Four invited retirement experts also offered their ideas to fix the retirement system. Excerpts:
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Recession-Related Money Worries are Worse Than Reality
Continue reading… 9 CommentsThere are plenty of recession-related money worries to keep you awake at night. Just the thought of job loss, an unexpected medical bill not covered by insurance, or stock market losses could easily rob you of a peaceful slumber. But Stephen Brobeck, executive director of the Consumer Federation of America, says you may be worrying too much. “For most Americans, to date recession-related financial concerns have been greater than financial losses,” he said at a press conference yesterday promoting America Saves Week. “But tens of millions who still have their jobs and have suffered little or no loss of retirement savings worry that a deepening recession will eventually cost them income or even their jobs.”
A new survey indicates that the majority of Americans are engaging in behaviors that will help them weather the recession. Some 72 percent of Americans currently say they have an emergency fund to pay for unexpected expenses such as car repairs or a doctor’s visit, according to a telephone survey of 1,001 adults in February by the American Savings Education Council and Opinion Research Corporation. And 73 percent of those surveyed wisely don’t spend all of their income and save the difference. “Even in a severe recession the overwhelming majority of Americans remain employed, receiving income… the damage that families suffer is typically less than the damage that families think they are going to suffer,” says Brobeck. “The percentage of families who think or worry that they are going to be losing their jobs increases.”
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The Top 4 Money Worries
Continue reading… 2 CommentsThe recession has many people worrying about money. But saving for retirement is being trumped by other more immediate financial worries including unemployment, healthcare costs, and stock market performance, according to a recent survey. Here are the top 4 money worries and who is fretting most about each one.
Job insecurity. Some 38 percent of Americans rank unemployment as their biggest money concern, according to the telephone survey of 1,000 adults this month by financial services firm Edward Jones and Opinion Research Corporation. Younger Americans are considerably more nervous than their elders about job security (50 percent vs. 22 percent).
Stock market and health care. Older Americans are more stressed about stock market performance (37 percent) and the cost of healthcare (33 percent) than their younger counterparts (17 percent and 18 percent respectively). Women are also more concerned than men about health costs (23 percent vs. 18 percent).
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Coca-Cola Bottling Co. Suspends 401(k) Match
Continue reading… 4 CommentsNote to Coca-Cola Bottling Co. employees: Get your 401(k) match while you still can. The second largest bottling company in the U.S. will suspend matching contributions to its 401(k) plan on April 1, according to a Friday regulatory filing. The company currently contributes one dollar for each dollar saved by the employee, up to five percent of the worker’s pay.
Coca-Cola Bottling Co. joins over 90 other companies that have eliminated on changed their 401(k) match since October 2008, according to the Pension Rights Center, including UPS, Macy’s, and Motorola. Human resources consulting firm Hewitt Associates believes that upwards of 10 percent of companies could potentially suspend or reduce their match in the coming 12 to 18 months.
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Do You Trust Your Broker?
Continue reading… 4 CommentsReading the daily financial news about bailouts and scandals makes it difficult to know where to get accurate and unbiased financial advice. A recent survey found that investors are unlikely to trust financial information from any source.
Only about half (54 percent) of investors who own stock value the advice of financial experts and professionals when making investment decisions, according to a Zogby International survey of 1,077 U.S. stock owners. Investors also frequently tune in to the opinions of family, friends, and colleagues (35 percent), information found on financial news web sites (32 percent), and the financial print media (14 percent). Only 11 percent of investors said they found financial information obtained from company announcements worthwhile in helping to make profitable investment decisions, ranked only slightly above online financial communities (10 percent) and blogs (3 percent).
Online brokerages, which offer the valuable perk of not having to wait in long teller lines or spend time on hold in call center queues, didn’t fair much better. Customer satisfaction with the online brokerage industry fell more than 6 percent since last year and is at its lowest point since 2002, according to a separate e-commerce report released this week by the University of Michigan and ForeSee Results, an Ann Arbor, Mich. firm that measures customer satisfaction on the Web. “The convenience of managing your investments online doesn’t mean much when you see your portfolio take such huge hits,” says Larry Freed, president and CEO of ForeSee Results.
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The 10 Best National Parks for Retirees
Continue reading… 16 CommentsNational parks are beautiful and affordable places for active seniors to spend time in retirement. Yellowstone was the world's first national park, but the concept of preserving nature and culture for future generations to enjoy has now been expanded upon by many countries on almost every continent. All parks are not created equal, however. The Coalition of National Park Service Retirees recently released a list of their picks for the 10 best foreign national parks. The areas were selected based on a survey of their 700 members who are former career employees of the National Park Service, including park managers, rangers, and other employees. The retiree’s favorite international parks include:
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Annie Lennox: Enjoying Life Now that the Children are Older
Continue reading… 0 CommentsSome baby boomers say they are enjoying a period of intense creativity and inspiration now that their children are largely raised. There is more time to reflect on your life and reengage in activities you enjoy.
Singer and songwriter Annie Lennox appears to be throughally enjoying this period in life. “Of course now I'm in that middle-age place, age-wise, and youth is no longer really something that I'm a part of anymore. And that started happening for me when I was about 40, to be honest with you. I had my kids and my focus went elsewhere. And I think I've changed so much through having children ... inside myself. It's been a kind of evolution and a maturity,” Lennox told CNN.
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Industries With the Most Unemployed Older Workers
Continue reading… 63 CommentsAmericans laid off after age 55 often aren’t yet financially prepared to retire, but many are having difficulty finding new jobs. The unemployment rate for adults age 55 and older was 5.9 percent in January, the highest level since 1983, according to the Bureau of Labor Statistics. Although lower than the overall employment rate of 7.6 percent last month, 1.7 million adults age 55 and older were unemployed, twice as many as in November 2007, just before the recession began.
Older men are considerably more likely to lose their jobs than older women, with unemployment rates of 6.4 percent and 5.5 percent respectively in January. Experienced workers in male-dominated industries have been hit especially hard. Unemployment rates tripled in agriculture and doubled in construction and manufacturing between November 2007 and December 2008, according to an Urban Institute analysis. The finance industry also experienced a substantial increase in unemployment. The most modest job losses among older workers were in the health services, education, and public administration sectors – professions women are often more likely to choose.
Education provides some insulation from unemployment. Older men who did not complete high school have experienced a 6 percentage point spike in unemployment since the recession began compared to only a 1.4 percentage point increase for male college graduates. These industries have seen the most job loss among older workers since the recession began:
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3 Ways the Stimulus Bill Will Help Retirees
Continue reading… 70 CommentsRetirement is something that can happen when you are making other plans. A layoff or buyout often becomes an unplanned retirement if you can’t find a new job within a reasonable amount of time. The unemployment rate for adults age 65 and older grew to 5.7 percent in January, a 31-year high. But there are a few provisions in the American Recovery and Reinvestment Act, the giant $789 billion stimulus bill signed yesterday by President Obama, that could help retirees, especially if they have recently been laid off. Here’s a look at some of the provisions that could help retirees the most.
Social Security. Social Security beneficiaries, railroad retirees, veterans, and state government retirees will get a one-time extra payment of $250. The Social Security Administration will also get $500 million for a new computer facility and $500 million to reduce processing backlogs.
[See Long Lines for Social Security Recipients]
Enhanced unemployment benefits. The average weekly unemployment payment will be increased by $25 and expanded an additional seven weeks on top of the 13 weeks laid off workers currently receive. The first $2,400 of unemployment insurance benefits will also be exempt from federal income taxes in 2009.
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Long Lines for Social Security Recipients
Continue reading… 6 CommentsBaby boomer retirement and a “retirement wave” of experienced Social Security Administration (SSA) employees could create long lines and unanswered phone calls, according to a recent report. The Government Accountability Office (GAO) found that staffing in Social Security field offices dropped 4.4 percent from 2005 to 2008. To keep up, the staff deferred some lower priority work. But field office work produced still fell by 1.3 percent during the same period and customer satisfaction dropped from 84 percent to 81 percent.
More than 3 million customers who went to a field office to apply for Social Security cards, sign up for retirement and disability benefits, or establish direct deposit waited for over 1 hour to be served in fiscal year 2008, including approximately 405,000 people who waited more than 2 hours for service. Those with appointments waited significantly less time. Many customers also reported poor office phone service. SSA’s Field Office Caller Survey found that 51 percent of customers calling selected field offices had at least one earlier call that had gone unanswered. That number could be even higher because only customers who eventually got through to the field office were included in the survey.
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Finding Love Online in a Recession
Continue reading… 2 CommentsThe stock market slump may be contributing to a surge in online dating. “On days when the Dow went down by 100 points we found an increase in our site usage relative to when the Dow increased by 100 points,” says Gian Gonzaga, a senior research scientist for dating website eHarmony. That site also saw a 20 percent spike in users between September 2008 and January 2009 compared to the same time period a year prior. “People may not always immediately make the connection between an external stressor, such as the state of the economy, and their close relationships, but our survey shows that people who are stressed about the economy may be drawn to long-term relationships even if they are not aware of it,” Gonzaga says.
Long-term relationships where couples share living expenses often save both parties money, but Gonzaga says that is not what is fueling this trend. “Companionship, not financial stability, is what appeals to them most about being in a long-term relationship,” he says. “Close relationships help people cope with stress, so we gravitate toward finding and maintaining them when times are tough.”
Another popular dating website, Match.com, has also seen business boom as most other sectors of the economy slump. Membership grew 17 percent in December. Interestingly, Match.com’s fastest growing demographic is Americans age 50 and older, who currently make up 20 percent of all members. “People say they are using online dating because the economy is so bad,” says Whitney Casey, a relationship insider (yes, that is really her job title) for Match.com and author of The Man Plan: Drive Men Wild... Not Away. “You can e-mail rather than having to go spend money on a drink.”
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401(k) Fee Disclosure Bill Introduced to Senate
Continue reading… 8 CommentsIt is incredibly difficult to avoid 401(k) fees. Even if you’re a savvy enough investor to know you should be on the lookout for fees that eat away at your investment returns, tracking them down often means pouring over fine print and firing off questions to your plan administrator.
Choosing investments with lower expenses, however, is well worth the trouble. A 35-year-old who invested $20,000 in a 401(k) plan over 30 years, earned a 6.5 percent return, and paid 0.5 percent in fees would end up with $132,287 at retirement, according to a 2007 AARP study. If fees increased to 1.5 percent, only $99,679 would be left for retirement – 25 percent less.
“It is absurd that millions of Americans rely on 401(k) plans for their retirement security and yet they aren’t told what fees they are paying to maintain these accounts,” says Senator Tom Harkin (D-IA). Harkin and Senator Herb Kohl (D-WI), chairman of the U.S. Senate Special Committee on Aging, introduced a bill this week that would require 401(k) plan providers to disclose all fees. “In an economy with more and more defined benefit plans being slashed or frozen everyday, it is vital that employees have access to all the information they need to maximize their retirement savings,” says Harkin.
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What Makes Retirees Happy
Continue reading… 10 CommentsA large nest egg won’t guarantee a happy retirement. Yes, wealth does increase retirement contentment, but not as much as you might think.
While retirees with $1 million or more in household investable assets are the most likely to feel satisfied with their retirement, those with between $750,000 and $999,999 saved are among those most likely to be disappointed, even more so than respondents with $500,000 to $749,999, according to a recent survey of retirees by money management firm MFS Investment Management. “This may reflect the fact that this group in the middle, with three quarters to a million dollars in assets, has higher expectations but not quite the assets to realize them,” says William Finnegan, senior vice president and director of global retail marketing for MFS.
The survey of retirees between ages 55 and 75 with at least $500,000 in investable assets who retired in 2003 or earlier also found that those who said they were satisfied with their retirements citied that they:
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Retirement Regrets
Continue reading… 1 CommentIf you could go back to the beginning of your career and begin planning for retirement again, would you do anything differently? Would you start saving at age 20? Choose different investments?
A recent survey asked affluent seniors who retired in 2003 or earlier to describe what they wish they had done differently, both before and after the financial crisis began. Not surprisingly, the retirees between ages 55 and 75 with at least $500,000 in investable assets had more financial regrets after the market downturn. The retirees wish they had:
August October
Taken fewer risks with investing 9 percent 17 percent
Invested in principal protection or income guarantee products 9 percent 12 percent
Spent less in retirement 6 percent 11 percent
Invested less in company stock 6 percent 9 percent
Source: MFS Investment Management
Tell us, if you could go back and plan your retirement over again, what would you do differently?
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How Supreme Court Justices Decide When to Retire
Continue reading… 1 CommentThere is a possibility that one or more Supreme Court Justices could retire during President Obama’s administration. Six Justices are at least 70 years old. The Court’s oldest Justice is John Paul Stevens, 88. And Ruth Bader Ginsburg, 75, underwent surgery for pancreatic cancer last week to remove a one centimeter tumor. (She currently intends to return to the court in time for oral arguments beginning Feb. 23.) Will these two liberal justices or the two remaining Reagan appointees, Anthony Kennedy and Antonin Scalia, both 72, try to time their retirement to enable party allies to appoint like-minded replacements?
Supreme Court Justices are free to stay in office as long as they like. Some Justices have, indeed, timed their retirement to insure a compatible successor. But a new analysis by Terri Peretti and Alan Rozzi, two political scientists at Santa Clara University, found that a Supreme Court Justice’s retirement decision is motivated more by their sense of power and position within the Court, than by the current political climate. They write:
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Executives Plan to Delay Retirement
Continue reading… 4 CommentsTop executives who have been paid lavish bonuses, even as their companies flounder, have been making headlines this week. But some executives complain they will have to delay retirement plans and struggle to pay for their children's college expenses due to their diminished portfolios.
Approximately 86 percent of executives say they plan to work longer before retiring to compensate for the losses in their retirement accounts, according to an online survey of 1,162 executives who use TheLadders.com, a job search website for executive level positions with salaries of $100,000 or more. (A subscription costs $30 for one month of full access to the site, although some parts are free.) On average, the executives expect to work 7.5 years longer than they had initially planned.
It’s not difficult to see why these executives plan to delay retirement when you look at their savings habits. Many have stopped contributing to their 401k accounts in the last three months (58 percent) and dipped into their retirement savings to help weather the current economic crisis (40 percent).
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Jimmy Buffett, 62, is Cashing in on Margaritaville
Continue reading… 7 CommentsAt age 62, Jimmy Buffett is old enough to retire to his front porch swing and begin collecting Social Security. Instead he’s cashing in on his accessible fantasy of a retirement or extended vacation to a tropical paradise and drinking margaritas.
Buffett’s Summerzcool tour kicks off on February 24 in Maui, Hawaii and he will traverse the country and Canada until November. Even with ticket prices well over $100 in some areas, Parrot Heads flock to his concerts. But his revenue stream goes far beyond traditional tickets, T-shirts, and poster sales.
The title of Buffett’s 1977 hit song has shown up on items as diverse as restaurants, flip-flops, casinos, salsa, tequila, and Radio Margaritaville on Sirius. He is associated with two restaurant chains named after his two most popular songs, Margaritaville and Cheeseburger in Paradise. Anheuser-Busch’s Landshark Lager and Seagram’s Margaritaville Tequila sponsor his concerts. Buffett’s even written several best selling novels. The Chicago Tribune estimates that Buffet has an annual income of more than $40 million.
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How Much Does Long-Term-Care Cost?
Continue reading… 6 CommentsLong-term-care is the largest expense Americans could potentially face in retirement. Medicare only covers long-term-care expenses under specific and limited circumstances. I spoke with Nightly Business Report on Monday night about the various forms of long-term-care and how much each arrangement is likely to cost. You can watch the video here.
The average annual costs for different forms of long-term-care include:
