Planning to Retire
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Retirement Often Happens Unexpectedly
Continue reading… 4 CommentsWe like to think that if we plan and save throughout our working lives, a secure retirement is within reach. But retirement often happens unexpectedly. A lay off, health problem, or the illness of a relative can derail retirement plans in an instant.
Few people make it to age 40 without a sudden event shocking their finances. A new survey of 1,200 adults between ages 40 and 79 found that 57 percent had already experienced a major life crisis such as a job loss (18 percent), divorce (29 percent), death of a spouse or life partner (10 percent), a serious illness or long-term disability for you or a spouse (24 percent), or the illness or disability of a child (7 percent). Only about 43 percent of those surveyed made it to middle age or older unscathed, AARP Financial Inc. and Boston Research Group found.
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The 30 Companies With the Best 401(k) Matches
Continue reading… 10 CommentsMany companies are suspending their 401(k) match in an effort to improve their bottom line. But some employers still offer a generous contribution to retirement accounts. U.S. News asked BrightScope, an independent data analysis firm that launched the nation's first online 401(k) rating system in January, to sift through its data about 401(k) matches. Here's a look at the employers who give their worker's nest eggs the biggest boost.
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Fidelity: Retired Couples Need $240,000 for Medical Expenses
Continue reading… 8 CommentsBaby boomers who have lost their health insurance coverage often speak of trying to find a way to make it to Medicare. But even after you reach age 65 and finally qualify for the government health insurance program, you’re still likely to face significant costs.
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Social Security Recipients Will Get $250 in May
Continue reading… 84 CommentsThe federal government will distribute $250 payments to Social Security recipients in May 2009. The money will be sent separately from regular Social Security monthly distributions. No action is required to get the extra cash by check, direct deposit, or loaded onto your Direct Express debit card.
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The GOP’s Plans for Your Retirement Accounts
Continue reading… 7 CommentsPresident Obama released his 2010 government budget in February. In it, he proposed that all employees who don’t have access to workplace pension plans be automatically enrolled in a direct-deposit IRA. For families that earn less than $65,000, a 50 percent match on the first $1000 would also be provided. Employees who don’t wish to participate may opt out.
The GOP, however, has different plans to try to help retirement savers, which include blocking efforts to introduce government-run retirement accounts. The GOP Savings Recovery Solutions Group, a House Republican group led by John Boehner of Ohio, yesterday released a blueprint for the Savings Recovery Act, which includes ideas such as:
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AARP Suspends 401(k) Match
Continue reading… 1 CommentAARP, a giant advocacy group representing the interests of older Americans that used to be called the American Association of Retired Persons, suspended its 401(k) match, effective this week. Employer contributions will be eliminated for at least for the remainder of this year. AARP is one of over 145 employers who have eliminated or changed their 401(k) match since October 2008, according to the Pension Rights Center, including Xerox, Morningstar, and Fossil, Inc.
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House Evaluates 401(k) and IRA Financial Advice Rules
Continue reading… 5 CommentsThe House held a hearing this morning to review the rules that govern how financial advice is dispensed to 401(k) and IRA participants. The debate was largely in response to a Labor Department rule, finalized in January, that would allow financial advisers affiliated with mutual funds and brokerage firms to give investment advice to IRA and 401(k) account holders, as long as they disclose how the company earns fees and the computer models used. The rule is currently scheduled to take affect May 22.
Critics of the rule say it will allow investment companies to offer advice that benefits financial services firms and not employees. “During a time where American workers have already lost $2 trillion in assets due to last year’s market downturn, exposing their hard-earned retirement savings to greater risk by allowing advisers to offer them conflicted advice is irresponsible and imprudent,” said Rep. Robert Andrews, a New Jersey Democrat who heads the House subcommittee on pensions, in his opening statement.
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How to Increase Your Retirement Income
Continue reading… 0 CommentsSome retirees are trying to come up with a way to recoup last year’s investment losses. Bonds are an attractive choice for retirees because they’re less risky than stocks while still providing higher returns than CDs. Government bonds provide the most security, but also generally the lowest interest rates. And municipal bonds are attractive for their tax-free status when held outside of retirement accounts. But bonds promising high returns do carry some risks, especially junk bonds. On Monday night I spoke with Nightly Business Report about how to balance the risks and rewards of choosing different types of bonds. You can watch the video here.
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Edging Out the Baby Boomers
Continue reading… 11 CommentsThe sheer size of the baby boomer generation made them a group to be watched and analyzed. More children were born in 1957, the peak of the postwar baby boom, than in any other year recorded-- until now.
Approximately 4.3 million children were born in 2007, the highest number of births ever registered in the United States in a single year, according to estimates released yesterday by the National Center for Health Statistics. The record number is largely due to an increase in the U.S. population overall, including women in the child bearing years. The average woman today has 2.1 children, far fewer than 50 years ago.
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A Free Loan From Social Security
Continue reading… 13 CommentsA little-known law allows Social Security recipients who are already collecting benefits to change their mind and start over. An individual can claim Social Security at age 62 and then reclaim again for an enhanced payout at age 70, provided he or she pays back every cent already received. No interest is charged on this “loan” from Social Security. So, an individual who doesn’t need to spend their Social Security income on immediate expenses could feasibly invest the money and keep the interest. Upon paying back the principal, these investors will get higher Social Security checks for the rest of their life.
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The Oldest and Youngest Baby Boomers Have Different Retirement Plans
Continue reading… 47 CommentsThe oldest baby boomers have already begun to retire. But retirement is still decades away for the youngest members of this large generation, who seem to be quite distinct from their elders. Many of the youngest members of this cohort don’t even think of themselves as baby boomers, preferring to call themselves generation X, according to a recent study. Here’s a look at how retirement will be different for the oldest and youngest baby boomers.
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Countries With the Longest Life Expectancy
Continue reading… 5 CommentsThe population of the United States is certainly graying. But when it comes to living the longest, the mainland U.S. isn’t even in the top twenty. Men who make it to age 60 in Iceland are likely to live an average of 22.5 years more, compared to just 20 years for American men. U.S. men came is 30th just behind Panama and slightly ahead of Belgium. The U.S. women placed 26th internationally between the Republic of Korea and the Netherlands. American women are likely to live 24 years past age 60, well behind Japan’s graying women who are likely to live nearly 28 years. Here’s a look at how the top countries stack up.
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Retirement Accounts Have Now Lost $3.4 Trillion
Continue reading… 3 CommentsIn October 2008, the Congressional Budget Office reported that stock market turmoil wiped out roughly $2 trillion of Americans' retirement savings over just 15 months. Since then, the stock market has continued to shudder and retirement savers have lost even more.
A new estimate found that retirement accounts, including 401(k)s and IRAs, have lost $3.4 trillion between September 30, 2007 and March 6, 2009. Assets in retirement accounts were valued at approximately $8.5 trillion on September 30, 2007 (expressed in constant 2009 dollars), according to calculations by Mauricio Soto, a research associate at the Urban Institute, but have since plunged 40 percent to $5.1 trillion. About 70 percent of these assets were invested in stocks. During the same period the stock market overall lost 56 percent of its value, a decline of about $13 trillion.
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Baby Boomers are Changing Their Retirement Plans
Continue reading… 22 CommentsDo you remember 2007? Baby boomers, although they were never prolific savers, were optimistic about their retirement prospects. The stock market was trending upward nicely and home values were inflating fast. Baby boomers have certainly changed their retirement plans since then.
The MetLife Mature Market Institute surveyed 910 1946-born baby boomers in 2007, when they were approximately age 61, about their retirement plans. Then they managed to track down 562 of them again in late 2008 to see if they followed through. Many didn’t. Here’s a look at how one extraordinary year altered baby boomer’s retirement plans.
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How Much Should Retirees Allocate to Equities?
Continue reading… 13 CommentsIt’s common investing wisdom that you should reduce your exposure to equities as you age and gradually move your nest egg into less risky investments. But experts disagree about exactly how conservative your portfolio should be in retirement. Retirees need growth because they could live 20 or even 30 years in retirement. But it can also be catastrophic for retirees to lose principal they have no way of replacing. Over the past two weeks I have spoken with a number of investing experts about how much retirees should allocate to equities. Excerpts:
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Most Medicare Part D Enrollees Don’t Choose the Lowest Cost Drug Plan
Continue reading… 22 CommentsMedicare beneficiaries have a choice between over 40 prescription drug plans in each state. Some counties even have over 70 different offerings. Seniors can shop among the plans and choose the one with the best coverage of their prescription drugs. But a new study found that most Medicare Part D enrollees don’t choose the best priced option.
Only 6 percent of seniors chose the lowest cost plan offered in their area in 2006, according to an analysis of 55,000 individuals who had a Part D claim in 2006 by Jonathan Gruber, a Massachusetts Institute of Technology economist, and the Kaiser Family Foundation. Enrollees who didn’t choose the lowest priced plan could have saved an average of $520 on their monthly premiums and out-of-pocket expenses if they had done so. And only 10 percent of seniors chose one of the five percent of plans with the lowest costs, which would typically have resulted in $400 in savings. About half of part D beneficiaries (53 percent) did enroll in one of the lowest cost 25 percent of drug plans. Other seniors could have saved an average of $220 by following suit.
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How Much Longer Will You Need to Work to Recoup 2008 Losses?
Continue reading… 7 CommentsEven before the recession began, Americans should have been considering working past the average retirement age, 63, because of increasing life expectancy. But the 18 percent hit the average 401(k) participant took in 2008 has made retirement prospects even worse.
The average 40-year-old with a 401(k) savings rate of 7 percent must work one more year or save an additional 1 percent of pay per year until age 65 to recoup 2008 market losses, according to recent calculations by human resources consulting firm Hewitt Associates. People closer to retirement age will have an even tougher time replenishing depleted retirement accounts. A typical 55-year-old employee with a 401(k) savings rate averaging 10 percent of pay will need to save an additional 12 percent each year until age 65, or work for two more years.
Other research has found similarly large numbers. The Employee Benefit Research Institute calculated in December that employees with between 20 and 29 years on the job will have to work an extra 1 year and 9 months to recoup stock market losses. If workers pull their remaining cash out of the stock market it will take even longer to recover: 2 years and 1 month, EBRI calculated.
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6 Ways to Make Your Retirement Accounts Last Longer
Continue reading… 3 CommentsOnce you retire, you have to make sure your nest egg lasts the rest of your life. It takes shrewd calculations and a even bit of luck to fund your own 30-year retirement in the best of times. But the stock market dive has thrown the delicate balance of managing your own retirement accounts off kilter. If market losses or an unexpected expense has bruised your nest egg, here are some ways to make it last longer.
Postpone withdrawals. Seniors over age 70 1/2 will not be required to take distributions from 401(k)s, IRAs, and 403(b)s in 2009. This will allow retirees who don’t need immediate access to their retirement accounts an opportunity to avoid selling low.
[See House Passes Bill to Change 401(k) Requirements for Retirees]
Reexamine withdrawal rates. If you withdrew 4 percent for your portfolio last year, the same amount of money could be a significantly bigger chunk of this year’s account balance. For example, a 67-year-old recently retired couple with $750,000 could have withdrawn $30,000 annually, which is generally considered sustainable over the long term. But if their account balance dropped to $630,000, the same $30,000 in income now requires almost a 5 percent withdrawal rate, which means their nest egg won’t last as long. Consider withdrawing 4 percent of the new account balance this year. “Your withdrawals should be 4 percent, and that is designed to have a high probably of making your money last over a 20 to 30 year retirement,” says Rande Spiegelman, senior vice president of the Schwab Center for Financial Research.
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Putting Faith But Not Money in Stocks
Continue reading… 10 CommentsIt’s easy to pay lip service to stocks being a good long-term investment, but few investors plan to actually buy them during a month when the Dow Jones Industrial Average plunged below 7,000. About half of Americans (53 percent) and 67 percent of stock owners agree that stocks remain a sound long-term investment, according to a Gallup Poll conducted March 4.
But that doesn’t mean Americans intend to scoop up more stocks while many are bargain priced. Only 21 percent of stock owners plan to continue to acquire more equities in the next month, Gallup found. Another 73 percent plan to hold their stocks, but not buy any more. Only 4 percent of investors plan to take all their money out of the market.
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After a 401(k) Match is Cut, Do Workers Stop Saving For Retirement?
Continue reading… 7 CommentsA company match to your 401(k) contributions is a valuable incentive to save for retirement. New research confirms that employees are more likely to participate in a 401(k) plan when a match is offered.
An employer contribution of at least 50 cents for each dollar a worker saves up to 6 percent of pay increases employee participation in plans by as much as 9 percentage points, according to an analysis of 7,000 Fidelity retirement plans. Immediate vesting, which means workers get to keep the employer 401(k) contribution as soon as it is deposited, was found to increase worker participation by another 2 percentage points. “This research shows that the very existence of any company match, even a small one, incents employees to participate more in their workplace plans, and those participation rates increase further in plans with more generous match programs,” says Scott David, president of workplace investing for Fidelity Investments. About 30 percent of employees enrolled in their workplace retirement plan deferred exactly the amount necessary to get the full employer match.
