Planning to Retire
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Economy Has Boomers Rethinking Retirement
Continue reading… 1 CommentAs gas and grocery prices rise, some cash-strapped older workers are rethinking plans to retire. Some 27 percent of older workers say they are putting off retirement because of the recent economic slowdown, according to a recent AARP telephone survey of 1,002 workers over age 45. Almost 25 percent of people between the ages of 45 and 64 are taking money out of their 401(k)'s and other investments. And younger baby boomers between the ages of 45 and 54 say they are even postponing paying bills (27 percent) and cutting back on medications (17 percent).
"Taking money out of your retirement savings has a compounding effect, because that money is not allowed to grow at a time when you have fewer working years to replace the losses," says Tom Nelson, AARP's chief operating officer. "Even more troubling, shortchanging your healthcare can lead to higher healthcare costs down the road."
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Revealed! Cushy Retirement Plans at Fortune 100 Companies
Continue reading… 4 CommentsOnly about half of Fortune 100 companies still offer their employees defined benefit pension plans. An analysis by consulting firm Watson Wyatt found that 54 firms had a defined benefit pension plan for newly hired salaried workers last year. Of those 54 firms, 28 offered a traditional pension that guarantees income for life. The remaining 26 offered hybrid pension plans like cash balance plans, an account that the employer deposits a set amount of money into (such as 5 percent of pay) and also deposits interest (which can be a fixed rate or a variable rate linked to an index such as a one-year treasury bill). But increases or decreases in the market don't directly affect the account, because the employer bears all the investment risks and rewards.
When it comes time to retire, the employee can choose to receive annuity payments until the account balance is used up or take a lump sum equal to the account balance. Sometimes vested employees can also cash out the lump sum when they leave an employer.
Here's how retirement plans at Fortune 100 companies have stacked up over the years.
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'Safe' Target-Date Retirement Funds Have Hidden Risks
Continue reading… 12 CommentsTarget-date retirement funds are designed to automatically shift investors' portfolios to less risky assets as they age. You name your retirement year, and the fund managers change the stock and bond allocation inside the fund to an appropriate risk level for your age, in theory getting a bit more conservative as you approach your ideal retirement date.
Almost 80 percent of large U.S. plan sponsors offered target funds as an investment option through their 401(k) plans in 2007, up from 60 percent in 2006, according to research by consulting firm Greenwich Associates. And even if you don't sign up, you could find yourself automatically enrolled in them unless you specifically opt out. "About 40 percent of funds that have adopted automatic enrollment use target retirement date funds as their default, compared with about a third using money market funds," says Greenwich Associates consultant Rodger Smith.
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5 Retirement Risks and How to Manage Them
Continue reading… 7 CommentsRetiring can be risky business. The Society of Actuaries, a group of professionals who evaluate risk for a living, recently named inflation the top retirement concern among both retirees and people nearing retirement age, according to a survey released this week.
About 57 percent of those already retired and 63 percent of those near retirement age said they were concerned that the value of their savings wouldn't keep pace with inflation, the telephone survey of 801 adults ages 45 to 80 found.
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The Government's Role in Retirement
Continue reading… 0 CommentsAmericans like to think that we can pull ourselves up by our bootstraps to create our own wealth. And this image usually includes financing our own retirement to a large degree. But that's not true everywhere in the world, at least according to a massive survey of 21,000 people in 21 countries by HSBC Insurance and the Oxford Institute of Ageing.
Fewer than a quarter of those surveyed (all between 40 and 69 years of age) in the United States, Japan, Mexico, India, Malaysia, Singapore, Hong Kong, and Saudi Arabia believe that their government should bear most of the financial costs of supporting them in retirement. But in other areas of the world, folks wouldn't mind government help, as in Scandinavia (almost 65 percent), Europe (45 percent), Brazil (50 percent), and China (around 40 percent). You can see the numbers broken down by country and other interesting statistics here.
Tell us, should the government step in by mandating additional private savings, raising taxes, or increasing the retirement age? Or should diligent savers and frivolous spenders alike be left to their own devices in retirement?
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Parents Say Money Isn't the Most Valuable Inheritance
Continue reading… 4 CommentsWould you prefer that your children inherit an unmortgaged house or your jocular sense of humor? Most people might say their children could use the laughter more than the house, suggests an international survey by HSBC Insurance and Oxford University's Institute of Ageing. Both employees nearing retirement (between 40 and 60 years old) and retirees (between 60 and 69 years of age) say they would rather pass on their personality traits than money.
Some 81 percent of respondents in the United States said they want their heirs to inherit personal values like spirit/sense of humor (38 percent), knowledge (20 percent), religion (16 percent), and commitment to supporting the community (7 percent), according to an HSBC Insurance press release. Just 19 percent of Americans surveyed want to leave heirs property (13 percent) or money (6 percent), the release said.
This inclination to distribute values rather than cash or property also is characteristic of Europe, Asia, Africa, and Latin America. "We want to pass on our perspective on life and our knowledge from generation to generation," says Stephen Green, group chairman of HSBC.
Tell us, what do you plan to bequeath to your loved ones?
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The Million-Dollar Question
Continue reading… 0 CommentsMy last post said many millionaires don't think $1 million is enough for a comfortable retirement. But most employees think they will need to save far less. The Employee Benefit Research Institute asked 1,057 workers how much in savings they thought was needed for retirement. Their answers:
Amount of Savings Needed for Retirement
All Workers Men Women Under $250,000 25 percent 22 percent 28 percent $250,000-$499,999 16 17 16 $500,000-$999,999 23 25 21 $1 million-$1.49 million 9 11 7 $1.5 million or more 9 13 6 Don't know/Don't remember 12 6 18 Refused 2 1 3 Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, 2008
Interestingly, men were much more likely than women to say they needed $1 million or more to retire (24 percent versus 13 percent). And many more women admitted they didn't really know how much they need to save for retirement.
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When $1 Million Isn't Enough
Continue reading… 2 CommentsIs a million dollars enough to retire comfortably on? Many baby boomer millionaires don't think so, especially once recession fears come into play. Almost 30 percent of 60-year-old baby boomers with investable assets of $1 million or more say they feel more financial stress now than six months ago, according to a new survey from Bell Investment Advisors and Opinion Research Corp.
The admittedly small survey of 500 boomers born in 1948 found that 40 percent are "downsizing" their lifestyles this year by contributing less to charity (22 percent), canceling, shortening, or postponing vacation plans (21 percent), reducing retirement savings (18 percent), or putting off retirement altogether (11 percent).
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Older Patients Want Specialized Medical Care
Continue reading… 2 CommentsYoung and old people use healthcare differently. While a young person might go to a doctor to get a prescription for new contact lenses or to seek antibiotics for a sinus infection, older people are more likely to see a doctor regularly to help manage and treat chronic conditions like high cholesterol or hypertension. The average 75-year-old American has three chronic conditions and uses four or more prescription medications, according to an April 2008 report by the Institute of Medicine.
A new survey found that baby boomers want medical care specifically geared toward older patients. Both 55- to 64-year-olds (83 percent) and those over age 65 (87 percent) say it is important to see a healthcare provider with specialized training for adults in their respective age ranges, according to the online survey of 3,110 adults over age 55 by Zogby International and the American System for Advancing Senior Health.
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The Greatest Retirement Expense of All
Continue reading… 8 CommentsYou've probably heard the quip: Be nice to your kids because they'll pick your nursing home. But unless your kids do quite well for themselves, they may not be able to afford one. The average U.S. household pulled in $48,201 in 2006, according to the Census Bureau. The average annual cost of a private room in a nursing home: $76,460, or $209 a day.
A new survey of 10,000 nursing homes, assisted living facilities, and home care providers by Genworth Financial found that costs of long-term care have jumped by as much as 25 percent in some areas since 2004. A one-bedroom unit in an assisted living facility costs $36,090 a year. Care by a non-Medicare-licensed home health aide will set you back $19.18 an hour, or $43,884 a year for 44 hours each week. Even the least expensive option, adult day healthcare, will lighten your bank account by $15,236 a year.
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A Loan From Your Retirement Accounts?
Continue reading… 4 CommentsUnexpected 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):
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Dishing About Salary and Benefits With Friends
Continue reading… 28 CommentsMy 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.
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Working Women Fare Better in Retirement
Continue reading… 0 CommentsElderly 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.
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Retiree Health Benefits a Thing of the Past
Continue reading… 5 CommentsA 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.
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401(k) Investing: Buy In for the Long Term
Continue reading… 2 CommentsDear 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:
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A Tricky Number: Your Own Life Expectancy
Continue reading… 0 CommentsSaving 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.
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How Do You Plan to Ride Out the Slowdown?
Continue reading… 6 CommentsI 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.
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Who Has It Harder, Boomers or Their Kids?
Continue reading… 3 CommentsSome baby boomers have spent their entire life working at a single job, only to see health and retirement benefits slashed or even find themselves laid off in middle age. But their children, 20-somethings burdened with unprecedented student loan and credit card debt, often fear they will be the first generation in American history not to do better financially than their parents.
A recent online survey of 1,752 members of generations X and Y, those between the ages of 19 and 39, asked, "To the best of your knowledge, do you think it is easier or harder for people in your generation to do each of the following than it was for your parents 'generation'?" Their answers:
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Boomers Meet Their Match Online
Continue reading… 10 CommentsSingle, divorced, and widowed baby boomers are hitting the dating scene online. A crop of websites have sprung up to connect allegedly mature adults looking for love. Most, like Senior Match, Prime Singles, Seniors Circle, and Senior Friend Finder are aptly named.
"We like to think of it as the Facebook for the over-50s," says John Hatton, cofounder of the eight-year-old website Overfifties, which has about 18,500 members. The free portion of the website allows users to chat, blog, and use message boards. But, as with many dating websites, if you want to E-mail other users, you'll have to pay up—in this case, $49.95.
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Did You Sign Up for Social Security Too Soon?
Continue reading… 9 CommentsThe first baby boomers, born in 1946, can claim Social Security benefits this year, and almost a third of them plan to do so, according to a MetLife Mature Market Institute survey. But filing at age 62 pays out a reduced benefit, compared with holding out until what the Social Security Administration deems their full retirement age—in this case, 66. (Boomers born after 1946 can find their full retirement age here.) Waiting until age 70 produces an even bigger monthly check.
But if you've already signed up and received reduced payments, all hope is not lost—provided you haven't spent all the cash yet. A recent paper by Laurence Kotlikoff, professor of economics at Boston University and a codeveloper of the retirement planning software ESPlanner (Economic Security Planner), explains that you can repay the Social Security dollars you have already received and then reapply for monthly payments that are higher because of your advanced age.
