The Retirement Blog

Medicare dying faster?

2010-12-30T14:03:00.002-05:00

According to a recent Associated Press-GfK poll, 43 percent of Americans born between 1946 and 1964 think they will outlive the Medicare program.

And how to fix the problem?

51 percent were against a proposal to replace Medicare with healthcare "vouchers" plan. (Younger respondents favored this fix by a slight margin; older people were vehemently opposed)

61 percent of those polled supported raising Medicare taxes to keep benefits intact. Support for increased taxes over benefit cuts was strong among all segments of those polled (age, political affiliation, etc.)

54 percent of individuals surveyed support higher copayments/deductibles instead of cuts in payments to doctors.

No change to 401(k) contribution limit next year

2010-11-07T23:35:00.002-05:00

The maximum contribution for a 401(k) will be unchanged in 2011. That limit—for those workers who can afford it—is $16,500. Individuals over age 50 can chunk in an additional $5,500 in so-called "catch up" contributions. Same limits apply to 403(b) and 457 plans.

Of course, in the current economy the limits are a moot point for many workers who can't afford (or are unwilling to risk) large contributions to retirement savings plans.

Retirement of older workers, key to jobs for young?

2009-10-31T21:47:00.002-05:00

Economist James Galbraith says that, without retirement of older workers, the young will continue to have problems entering the job market and establishing careers. One solution? Lower the Medicare eligibility age to 62 and lower Social Security full retirement ages so that more older workers can retire.

Seems that yet one more victim of the decline in retirement savings accounts is the unemployed or underemployed young worker including recent college graduates. No, their retirement savings didn't plummet–they don't have retirement savings yet because many of them can't get "real" jobs. The normal turnover in the labor market–older workers retire, younger workers move up–has ground to a near halt.

Don't get sick or take a vacation...and you can retire

2009-09-05T15:41:00.003-05:00

The Obama administration announced new programs to encourage Americans to save more for retirement. Under the plans, workers could convert payments for unused vacation time and sick leave into retirement savings. And your tax refund? Don't spend it, deposit it into retirement accounts or used to buy savings bonds. (Not sure how the latter will help the flagging retail economy though).

No COLA for SSI...

2009-08-23T20:21:00.003-05:00

...and that acronym-laden phrase has got many seniors in an uproar. Misleading headlines, such one from the Associate Press, shout "Millions face shrinking Social Security payments." It's only when you read further that the facts arise: Social Security payments are not "shrinking"--by law they cannot go down--but there won't be a cost-of-living increase added in January 2010.

The issue here is that medical costs, which often hit retirees hard, are going up faster than the core rate of inflation (or deflation, as the case may be). So if a SSI payment stays flat and Medicare prescription drug costs go up, the net amount to recipients may drop slightly.

This probably becomes a political hot potato going into the 2010 congressional election cycle.

Remember those "retention bonuses"?

2009-08-07T13:48:00.002-05:00

Well the poster child for the financial meltdown--AIG--is set to pay $249 million in such bonuses to employees who stayed to help clean up the mess they and their bosses made at AIG. Even the concept of a retention bonus gets stretched pretty far in the current climate.

Never, never, never give up...work

2009-07-30T11:03:00.002-05:00

Failing banks, no credit, high unemployment, layoffs, 401(k) losses....the list of recession woes has become a familiar litany. In addition, an ING Direct study shows that 40 percent of Americans think the recession will mean they must delay retirement and many of them now expect to work 10 or more years longer than planned.

GM out of bankruptcy; GM retirees not so lucky

2009-07-10T11:40:00.000-05:00

Since when is dumping health care responsibilities for thousands of retirees a good thing? What an inhumane strategy for solving a business' financial problems! American business and the government need to get on the same page about the obligations of companies and/or government to follow through on health care promises.

Flying away with retirement benefits

2009-05-24T21:03:00.004-05:00

As if airlines weren't financially struggling enough with fuel prices and worldwide recession. Now (former) Continental Airlines pilots are accused of "sham divorces" to allow "ex-spouses" to collect lump sum pension benefits while the pilots continued flying. Huh?

OK, under law, divorcees are entitled to a portion of the pension benefits of their former spouses. Under the Continental retirement plan, this could be paid in a lump sum. So the couples got divorced, the ex-spouse got a lump sum distribution, and the employee continued to fly and collect a salary. After the lump sum payments were made, the couples remarried.

Continental sued nine pilots who allegedly bilked the airline pension fund for nearly $11 million. Most of the pilots were also fired.

So, what's next? A fee for extra baggage, a fee for pillows and blankets onboard, a fee for drinks/snacks, and a fee to recoup swindled pension funds?

In the year 2037.....

2009-05-14T13:31:00.002-05:00

If man is still alive,
If woman can survive,
they may find...

No Social Security.

That's the new projected bankruptcy date for Social Security, as the program currently stands. It's no great surprise to anyone who has watched his or her 401(k) accounts plummet that Social Security is drying up sooner than previously predicted. And Medicare...well, forget about it...that program flatlines in 2017 according to government actuaries.

So eventually, our elected officials will have to deal with this issue (again). And at least some portion of this social promise will also have to be broken, perhaps with delays or reductions in planned benefits, plus increases in payroll taxes.

What IS a retention bonus and how do I get one?

2009-04-01T22:47:00.002-05:00

LONG AGO IN A GALAXY FAR AWAY...

The Empire routinely paid retention bonuses to highly qualified troopers to keep them from going over to the Rebel Alliance. Then, as the Empire began to crumble, it paid "retention bonuses" to troopers even if they left and joined the Alliance.

What's going on here? Have Darth Vader and the Emperor lost their grip? What are retention bonuses anyway, and why is the Empire, er, AIG paying them?

Well, we can't answer all those questions, but we can explain the (legitimate) use of a retention bonus. As aptly defined on WikiAnswers.com:

A retention bonus is an incentive paid to a key employee to retain them through a critical business cycle. This could be a transitional period (such as mergers and acquisitions) to ensure productivity or to meet a critical milestone. It has proven to be a very good tool in persuading employees to stay.

Let's say your development company is being bought by a competitor and they are going to slowly downsize your company's headquarters staff and take over those functions themselves. They usually cherry pick some knowledgeable staff members from your company and ask them to stay for a while to help close down operations, lay off all those former colleagues, maybe shut down the pension plan and terminate benefit plans. For staying and helping, the competitor pays a bonus to the selected staff who would otherwise be polishing their resumes and looking for new jobs.

That's the legitimate use of a retention bonus. But legitimacy and AIG apparently are oxymoronic.

Pre-retirees can sometimes negotiate a legitimate retention bonus in the period before retirement if they have in-demand skills or knowledge that is vital to an employer.

Risky business

2009-03-04T11:39:00.002-05:00

You need to invest more aggressively, or inflation will eat away your retirement savings.

Don't outlive your retirement nest egg by investing too conservatively.

Even retirees need to keep a sizable portion of their savings in equities.

Ah, the pearls of wisdom imparted by investment gurus of the past! Well, now that the stock market has tanked, many pre-retirees and retirees are bemoaning the perils of risking some or all of their savings in aggressive investments.

Even those who followed the mantra of "diversify, diversify, diversify" have seen their retirement savings evaporate. Yes, all their eggs were not in one basket, but the recent financial earthquake knocked all their baskets off the shelves.

It's time to re-examine the concept of risk. While the risk of inflation is real, the risk of losing principal is also real. Just what exactly are we protecting if we invest to beat inflation, but end up losing our principal too?

So at the risk (!) of being lambasted by some of those investment gurus, we will restate our long-standing belief:

Protect your retirement savings at all costs. Once you reach your nest egg goal--whatever that number is--put it aside and lock it into the most conservative investments possible. Yes, money market funds are paying piddling amounts, Treasury bills carry minuscule interest rates, savings bonds have never been sexy, and CDs are pretty boring....but they don't lose their value (at least so far).

Play it safe, but don't ignore investment fees. Savings bonds and CDs don't pay much, but they usually don't eat up your money with management fees either.

"They're cousins, Social Security eligible cousins all the way..."

2009-01-13T09:07:00.002-05:00

OK, Baby Boomers, you know you're old when...the Social Security Administration hires Patty Duke to pitch its online application system. Meet Patty (aka Cathy), who's now 62-years-old and eligible for benefits!

Phased retirement? Vive la Québec!

2008-07-27T20:35:00.002-05:00

U.S. proponents of phased retirement--gradually cutting back working time in advance of full retirement--should look north for inspiration. The Canadian province of Québec has expanded its laws allowing certain workers to adopt reduced schedules, draw partial pension benefits, but still accrue future pension benefits.

You have been very, very bad

2008-06-12T08:18:00.002-05:00

A new study indicates that baby boomers have ignored what their parents tried to teach them about saving for retirement. The new NAVA study states:

Adult children are not doing as well as the older generation in a number of financial areas, such as staying out of credit card debt, having an emergency fund, and importantly, saving enough for retirement.

The statement is hardly shocking, but it should be noted that NAVA is an interest group promoting annuities and variable life investment products. The full report can be seen on the NAVA website.

What will $17.6 trillion buy?

2008-05-12T09:24:00.002-05:00

A new study by the Investment Company Institute notes that Americans had $17.6 trillion invested for retirement at 2007 year-end. The study says that figure is up $1.1 trillion from 2006, with growth in IRAs and employer-sponsored defined contribution plans.

While increased savings are good, look carefully at that last statement: "growth in...employer-sponsored defined contribution plans" [emphasis added.] What this also indicates is that employer-sponsored defined benefit plans--traditional pensions--have declined. That's not such good news for many Americans looking forward to retirement.

Obviously, the growth in the number and size of individual retirement investment accounts is also good news for another group: the operators of mutual and other funds that the Investment Company Institute represents.

No way out?

2008-04-30T09:37:00.003-05:00

Faced with foreclosure, a number of pre-retirees are borrowing from retirement savings to hold on to their homes. This desperate strategy means that borrowers may have to keep working for many years. But worse, if a borrower defaults on a loan from a 401(k), hefty penalties and taxes come due. This is one way that the current housing crisis may morph into a future retirement crisis.

Houston, we have a problem

2008-04-24T14:06:00.003-05:00

The economy is either in a recession or, as George Bush sees it, the economy has hit "a rough patch." Either way, economic worries seem to be reflected in the latest retirement confidence survey published by the nonpartisan Employee Benefit Research Institute.

Survey shows: only 18 percent of workers are confident that they will have enough money to retire comfortably. Justd last year, 27 percent of workers were financially confident. The crisis of confidence hits retirees hard too: 29 percent are currently resting easy about their financial futures. That's down from 41 percent in the previous year.

Is the decline in confidence rational? Probably not, from an economist's viewpoint. But consumer--or worker/retiree confidence is much more of a bread-and-butter issue. Or, should we say bread, butter, gasoline,and health insurance issue.

Early retirement is selfish and unpatriotic?

2008-04-07T12:49:00.002-05:00

Writing in the Baltimore Sun, Andrew L. Yarrow made this controversial statement:

...there's just something - make that lots of things - wrong, in general, with retiring at 55, 62 or even 65. I would go so far as to call it profoundly selfish and unpatriotic.

He went on to bash baby boomers for dreams of early retirement and a quest for "self-actualization" (his term).

According to Mr. Yarrow, the question is economic--although his caustic comments appear to include a fair amount of the philosophical. He claims that dropping out of the workforce while still in your "prime" means you are draining the nation's tax coffers and exacerbating the country's stagnant labor force growth. Mr. Yarrow does allow "excused absences" from the grindstone for people whose health doesn't allow continued work, or perhaps even for those who are in terrible job situations.

You can read the complete text of Mr. Yarrow's musings on the Baltimore Sun website.

Retirement and Marriage

2008-04-03T12:17:00.002-05:00

Retirement can cause stress in a marriage.

This not-so-earthshaking observation comes from the American Counseling Association. While the statement might seem obvious to some couples, others enter retirement with their eyes closed in this regard. Among the pitfalls noted by the ACA:

Loss of identity—A retiring spouse goes from Susan Bigshot, Vice-President of Operations to plain-old Susan Bigshot. In some individuals and couples, the adjustment to a new identity can be rough.
Money conflicts—Obviously, a retirement often means the end of the biweekly paycheck. Even if retired couples have adequate financial resources, they must now make decisions on how much to draw down in retirement.
Too much together time—In some couples, the adjustment to spending more time together isn't easy. Routines get broken and tensions can result.

Many people manage the adjustment from a working couple to a retired couple with remarkable grace. For those who don't, the American Counseling Association recommends—no surprise—counseling.

If this is Tuesday, it must be retirement

2008-03-14T09:34:00.002-05:00

A new Harris poll compares American and European attitudes towards retirement, with some interesting results:

Both Americans and Europeans believe that pension systems in their countries are failing and that they will have to work longer to compensate.
The majority wants to retire before 60, but believes they will have to work until their mid-to-late 60s. French respondents guessed age 64; Americans thought it was more like 67.
Europeans still retire earlier—about age 60—than Americans, who average about age 64 at retirement.
48 percent of Americans thought they should be personally responsible for their retirement income while only 20-to-30 percent of Europeans agreed with this concept.

Pension maximization

2008-03-07T14:06:00.001-05:00

The pension dilemma: should you take your full pension benefit or a option that continues benefits for your spouse if you die? The reduction in monthly pension benefits for survivor options can be pretty large. That's where the concept of pension maximization comes into play.

At this point we'll acknowledge the obvious: none of this is relevant unless you have a traditional pension. And in the private sector, defined benefit pension plans are an endangered species. But for all you government employees (and a few lucky souls in private industry), keep reading.

Let's say that you are retiring with a pension benefit. If you elect the full benefit, you will get $30,000 a year. But if you die, your spouse gets nothing. If you elect a 100% joint and survivor option, your benefit goes down to $25,000 per year, but your spouse would continue to receive that amount if you die. There may also be a 50% joint and survivor or other options. (All of these numbers are for illustration only.)

So you can take the full $30,000 per year and hope you don't die before your spouse or take $25,000 per year and protect your spouse. But what else could you do with this $5,000 reduction? Pension maximization advocates answer: "Buy life insurance." In effect, take the full $30,000 pension and use some part of the $5,000 to buy life insurance on yourself to protect your spouse from the loss of income if you die.

Does this really work? Sometimes. But the experts are divided. One camp (usually life insurance companies and agents) promotes the concept; another camp (often pension plan administrators) counsels against it. Why? One reason is that life insurance agents/companies make money selling insurance. On the other hand, pension plan administrators really don't want everyone taking full pension benefits. There are other reasons of course, but the obvious conclusion is that you need to carefully consider all the options and seek independent financial advice.

Retirement on a Caribbean Island

2008-02-19T11:26:00.002-05:00

A notable retirement announcement comes today from Cuban leader Fidel Castro. The new retiree received warm greetings from Vietnam's Foreign Affairs Ministry and not-so-warm sentiments from the U.S. White House.

Gloomy view of retirement

2008-02-05T12:12:00.000-05:00

Alert the media: retirement doesn't look so good to many Americans.

That's the result of a new survey of workers and retirees by Axa Equitable Life Insurance Company. Among the findings:

Things aren't getting better. 85% of those surveyed think their standard of living will not improve, or will get worse in retirement.
Nobody likes risk. Most of those surveyed want investments with low risk, even with low returns.
Social Security is sinking. And over half of people expect changes in the system during the next 10 years.
Taking a pay cut. 70% of retirees have lower incomes after retirement.

Target-date funds earn big for T. Rowe Price

2008-01-29T13:17:00.000-05:00

Pre-retirees were pouring money into T. Rowe Price's target-date retirement funds during the last quarter of 2007. The company beat earnings estimates, in part on the back of increased investment in retirement funds. Target-date retirement funds automatically do what experts often advise--shifting investments to lower-risk securities as investors get older and closer to their projected retirement dates.

It will be interesting to see what happened to the trend in the tumultuous period after the last quarter of 2007.

Non-profit workers may save more

2008-01-15T14:10:00.000-05:00

Fidelity Investments has found that nearly one-third of workers in non-profit organizations increased their retirement savings in 2007. But high levels of personal debt is an issue for nearly half of the non-profit employees. Even though many are currently covered by traditional pension plans and/or retiree health benefits, non-profit workers are concerned that these benefits may be reduced in the future.

Social Security goes plastic

2008-01-09T14:15:00.000-05:00

The U.S. Treasury Department is planning to issue a prepaid debit card for Social Security benefits, starting with a test in Texas, Oklahoma, Arkansas, and Louisiana. The card is targeted at individuals who do not have bank accounts and is designed to cut down on issuance and mailing of paper Social Security checks.

In a credit and debit card laden society, there would seem to be plenty of room for misuse. Still, there's something enticing about going out to dinner and saying "Charge it to Social Security."

Consolidating Retirement Accounts – Wisdom or Folly?

2008-01-06T10:43:00.001-05:00

OK, I know what the pros say about this. Consolidate all those different retirement accounts with a single provider or mutual fund “supermarket” for lower fees, easier personal asset management and streamlined administration. I understand their point—really I do—having once been the queen of benefits administration for a Fortune 1000 company. In an ideal world, I’d agree whole-heartedly. But let’s be real. The financial investment marketplace, past, present, and no doubt future, is anything but ideal.

As a boomer, I remember what happened to friends who had their investments consolidated at one bank during the savings and loan debacle. More recently, the impact of the sub-prime loan mess demonstrated that all investment houses are not alike.

Investment advisers are always counseling us not to put all our investment eggs in one basket. So why is it such a good idea to invest all my assets with one investment company? Is this truly “independent” advice?

For now, I think I’ll continue to keep my eggs in a few different baskets, and shop around for good investment deals wherever I can find them, not just take what’s offered from just one marketplace.

Brits bared for pension bust

2007-12-17T09:40:00.000-05:00

We're not sure what to say about the following story except that it is retirement-related. Here goes...

About 140,000 British retirees whose pension plans went bust will benefit from a govermental change of heart. The former workers had faced severely limited pension benefits under a pension guarantee scheme. Activists among the group were know for parading naked to protest their situation. Said a spokesperson: "Finally, the government has recognised it cannot go on getting negative headlines and having naked pensioners following politicians around the country."

"Average Joe"

2007-12-05T21:04:00.000-05:00

In sharp contrast to our previous posting, the average Social Security recipient will receive just under $13,000 in 2008.

Presidential pensions

2007-11-29T15:40:00.000-05:00

Former Presidents George H.W. Bush, Jimmy Carter and Bill Clinton each collect $186,000 per year in federal pension payments. Government pensions aren't all quite so lucrative, the average pension paid to a state or local government employee in 2006 was just under $21,000.

You say you want a revolution

2007-11-26T09:06:00.000-05:00

Is it any surprise that Baby Boomers are redefining retirement? Let’s face it—we should have seen this coming. After all, the Boomer generation has been like the proverbial pig through the python of American culture, redefining each life stage along the way. Education, work, politics, relationships, parenting, consumerism, communications, exercise, entertainment and religion have been “Boomerized,” for better and for worse.

The sheer size of this generation was bound to have an impact. Like a tidal wave, it has accelerated cultural changes on its journey toward the shore. Now Boomers are at the threshold of retirement, and they are beginning to change that, too. But for most Boomers, doing retirement differently than their parents will be driven not by their personal initiative or individual choice as much as by the following four factors:

Actuarially, this generation will, on average, live longer than any previous generation—which means that a period of retirement starting in a person’s 60s could last for 20 to 25 years, nearly double the average retirement of recent generations.

The size of the Baby Boomer generation is expected to strain Social Security and Medicare to the point where these benefits will continue to be reduced.

Employer-provided pensions and retiree medical benefits are already on the decline and will continue to disappear as employers come to terms with their inability to actually pay these benefits to such a large group of retirement eligible employees.

Boomers have done many things well, but accumulating personal savings isn’t one of them. We can blame this on numerous obstacles Boomers have faced, but the driving factor for poor savings behavior is the evolution of credit. Baby Boomers were the first generation to have large amounts of readily available credit at their disposal throughout their adult lives.

The bottom line? The retirement revolution isn’t coming from the inside out, but from the outside in. Longer life, lower benefits and lack of savings will be the real incentives for Boomers to reinvent retirement, no matter how the talk show pundits, authors and experts attempt to dress it up. This retirement revolution isn’t about choice—it’s about necessity.

401(k) Mistakes Case Goes To Supreme Court

2007-11-25T21:07:00.000-05:00

The US Supreme Court will decide whether a 401(k) plan investor can sue a plan manager for failing to follow investment instructions--resulting in lower returns on investments in the individual's account.

At issue is whether the ERISA pension law provides protections to 401(k) participants (it generally applies to pension plans). The Court's decision could have a major impact on 401(k) plans.

Jumping to retire in France

2007-11-21T13:49:00.000-05:00

The battle between French unions and President Nicolas Sarkozy is, among other things, a battle over retirement age. The new president wants to raise the minimum retirement age for public employees to 60. Unions are strong opposed and, in fine French tradition, are on strike.

One fun historical fact on the subject comes from The Wall Street Journal, which reports that French ballerinas can retire at age 40—a perk granted by king Louis the 14th in 1698.

tick..tick...tick...BOOM(er)

2007-11-20T13:59:00.000-05:00

Kathleen Casey-Kirschling was born in Philadelphia on Jan. 1, 1946, at 12:00:01 a.m. Her birth undoubtedly caused a stir among her family members and perhaps some friends. But last month Kathleen caused a much bigger stir when she became the first baby boomer to sign up for Social Security benefits.

If Ms. Casey-Kirschling was an only child (she may be, but give us some license here) the guardians of Social Security and Medicare could sleep easy. But as the class leader for the baby boom generation she is certainly not an only child. She has nearly 80 million "brothers and sisters" who will follow her into retirement age. In 2008, 3.2 million of her pseudo-siblings turn age 62. That's 365 potential Social Security early retirees per hour!

Who’s Driving the Retirement Bus?

2007-02-09T11:12:00.000-05:00

It’s a fact. Baby boomers are beginning to retire. The press on this topic is heating up. Stories about boomers taking charge of retirement are making the news. Retirement coaches like myself are encouraging boomers to follow their dreams and guiding them to approach retirement differently than their parents’ generation. No doubt they will. Boomers are waking up to the fact that it’s a new day in the world of retirement—for better and for worse.

But what about employers? Who is defining their role in this new age of retirement?

With few exceptions, employers have yet to address related workplace issues as baby boomers make decisions about retirement and work. The question for employers is simple: When it comes to workforce management, do you want to drive the bus or chase after it?

In recent years, many employers contributed to the direction the bus was going by reducing or eliminating retiree benefits in order to cut costs, increase profits, please stockholders and present more fiscally attractive balance sheets. What some employers failed to foresee was how their actions would affect the behavior of millions of American workers who would need to continue working beyond normal retirement age, primarily for health care benefits. We have gone from a generation who—before 2001—had planned to retire early, to a generation now resigned to working for as long as possible.

Who’s gauging the impact of this change on employer organizations? Social scientists have been studying it for a while, along with an anticipated shortage in workers when the boomers retire. But it will be employers who will deal with the fallout. The affects will require new workplace dynamics and models. It will be employers who decide what to do with large numbers of post-retirement age employees and job applicants. How will they motivate, reward and eventually retire post-65ers? What does “normal retirement date” mean in the 21^st century? In what roles will older workers add the most value? What tools and policies will be needed to manage this changing workforce?

Benefit packages, hiring practices, leave policies, training, compensation programs and workplace needs will all require re-evaluation and revision. Proactive employers will begin auditing their company policies, plans and programs now. Waiting to begin these discussions until retiring boomers are headed for the exits or overrunning applicant pools could result in a workforce crisis.

Employers can begin this evaluation process by asking two important questions:

· What do pre-retiree workers need and want from their employer to satisfactorily transition into the next phase of their lives?

· What does the employer need and want from these same employees during this important transition period?

For example, one area healthcare provider wanted their retirement-age nursing population to consider returning to work 10 hours per week to train newer nurses and fill schedule gaps. Meaningful discussions with staff helped the employer design a successful program that included relevant incentives.

For many organizations with large numbers of baby boomers in their workforce, this is an opportunity to redefine a workplace model that is ready for change.