NewRetirement Retirement News Digest

Half of Laid-Off Workers Raid 401(k)s

2009-11-06T02:27:00Z

US News & World Report, November 4th, 2009

Almost half of laid-off workers succumbed to the temptation of spending their retirement stash last year. Some 46 percent of retirement savers who left their job in 2008 cashed out their 401(k), according to a new Hewitt Associates study of 170,000 401(k) participants who terminated employment last year. The rest kept their savings in their prior employer’s 401(k) plan (29 percent) or rolled the money over into an IRA or a new employer’s 401(k) plan (25 percent).

[See 7 Things to Consider Before You Move Your Nest Egg into an IRA.]

Workers with small 401(k) balances were the most likely to raid their retirement account. Some 85 percent of retirement savers with balances under $1,000 cashed out or were forced out of the plan due to low balance provisions and 45 percent of employees with between $1,000 and $5,000 saved for retirement withdrew the cash. More diligent savers generally left their retirement stash to further accumulate, tax deferred. Just 17 percent of workers with between $20,000 and $99,999 in their retirement account requested a cash distribution and only 8 percent of those with 6 figures accumulated cashed out.

[See 5 Ways to Protect Your 401(k) if You're Laid Off.]

Younger employees also tended to withdraw the cash and pay the resulting penalties when they left a job. Some 60 percent of 20-something employees took a cash distribution from their 401(k) compared to 34 percent of those in their 50s. But 20-somethings give up a huge amount of compounding interest when they cash out even small balances. For example, an employee who cashes out $5,000 from a 401(k) at age 25 will receive just $3,500 after paying a 10 percent early withdrawal penalty and income tax, assuming the worker is in the 20 percent tax bracket. If the same worker simply left that $5,000 in a tax-deferred account and earned a 7 percent return annually, he would have $75,000 at age 65, according to Hewitt calculations.

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3 steps to a better retirement

2009-11-05T17:57:00Z

CNN Money, November 3rd, 2009

Question: My husband and I are in our late '50s and haven't put anything away for retirement, although we do own our home. We figure we'll work another 10 years or so before retiring. Do you have any helpful suggestions for us so we won't have to live solely on Social Security? --Peggy, Rockvale, Colorado

Answer: Sure, I've got a few recommendations. But since there are no secret formulas or magical fixes for making up for a lifetime of saving little or nothing (aside from what you have in home equity), I doubt that most of them will come as blinding revelations to you.

What you may find surprising, though, is how much you can still improve your retirement prospects if you really commit, even though you're getting a relatively late start.

1. Save, save, save

The first thing you've got to do is start socking away as much as you possibly can. Ideally, you'll do this saving in 401(k)s, IRAs or other tax-advantaged retirement accounts, although barring that, plain-old taxable accounts will do.

Granted, starting from scratch in your late 50s isn't an ideal position to be in. But it's not hopeless either; you still have time to accumulate enough of a retirement stake to make a difference in your eventual standard of living.

You say that you expect to work about 10 more years. Even if you can manage to save just $250 a month over that period, you would have a nest egg worth roughly $43,000, assuming a 7% annual return. If you can boost the amount you put away to $500 a month, you'll end up with twice that amount, or $86,000, and if you manage $1,000 a month, you'll have $172,000.

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Ways to Ease the Pressure of a Cash Crunch

2009-11-05T02:21:00Z

The New York Times, October 16th, 2009

MANY retirees are in a cash crunch — with a lower income stream from their investment portfolios, personal expenses that are higher than expected, or both.

While most assets can be used to generate liquidity, deciding what to do requires careful deliberation; there are many pitfalls. Here are the most commonly used approaches for people who find themselves coming up short during retirement, and an analysis of their pros and cons.

CASH FROM YOUR HOME Mortgage rates are so low that many financial planners say the best way to raise money is to take out a conventional mortgage or a home equity line. But reverse mortgages, which allow homeowners who are at least 62 to borrow against the equity in their homes and receive regular monthly payments, are often seen as a last resort. Some financial planners even advise retirees to sell their investment portfolios or cash in their life insurance policies before taking out a reverse mortgage.

Unlike traditional mortgages or home equity lines, a reverse mortgage requires no payments until the borrowers die or no longer use the home as their primary residence. Then the mortgage must be paid in full. Closing costs, fees and interest rates are also generally high, reducing the amount of money that borrowers can leave to their heirs. Yet if retirees have exhausted other options, a reverse mortgage may be worth considering, especially for those with high medical expenses, said Alicia H. Munnell, the director of the Center for Retirement Research at Boston College. “If you’re not planning on leaving your house to a child, then this is an option, rather than depriving yourself during your lifetime,” she said.

TAPPING LIFE INSURANCE Retirees often decide that they no longer need life insurance once their children are grown. If they own whole-life policies, which have an investment component, and want to drop them, they can either cash them in with their insurers or sell them to investors, who will pay the premiums until the policyholders die. An advantage of dealing with investors is that you can sometimes get a better deal than from the insurance company.

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For Financial Planners, a Year of Tough Questions

2009-11-05T02:06:00Z

The New York Times, October 16th, 2009

If you think you’ve had a hard time reckoning with your own finances in the last 18 months, try putting yourself in the shoes of the financial planners who’ve been answering to scores of unhappy clients.

The planners, after all, were the ones who were supposed to help their clients avoid trouble in the first place. “I feel like I’m finally able to leave the witness protection program,” said Ross Levin, president of Accredited Investors in Edina, Minn. “There has been a loss of confidence in us and in the world, and a sense of betrayal. They did everything we told them to do, and it seemed like it didn’t work out.”

Though markets have improved, they are still far from where they once were, and that has made for some difficult discussions between financial professionals and their clients.

I wanted to find out more about those conversations. How much were clients pushing back, for example, and what were they saying? That was the main reason I moderated a discussion last Sunday at the Financial Planning Association annual meeting in Anaheim, Calif. (I received no compensation for my role there.)

While the planners were resolved and well rehearsed in front of hundreds of their peers, it was also clear that they had been severely tested in the last year. During the hourlong session, I quizzed five of them about the toughest questions their clients had asked. Here are those questions, along with the planners’ responses.

PREDICTING THE FUTURE So why didn’t most financial planners see all of this coming? Weren’t the signs obvious?

“This question actually presumes that there is something wrong with not having seen this coming,” said Elissa Buie of Yeske Buie, with offices in Vienna, Va., and San Francisco. “We live in a chaotic system, and chaotic systems are not predictable. But we know the range of possibilities, and this was always a possibility.”

Though most clients tend not to remember it years later, good financial planners will generally sit down at the beginning of a relationship, after clients have declared the sort of risk tolerance they think they have, and remind them how bad things can get in a truly outlying year. Well, 2008 into 2009 was one of those years.

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Nearly 65? Time for the Medicare Maze

2009-11-05T01:52:00Z

The New York Times, October 14th, 2009

NOW that you’re about to retire, there’s good news and bad news about your health insurance. The good news: When you turn 65, you’re eligible for Medicare — all in all, a pretty affordable way to get coverage for doctor bills, hospitalizations and, more recently, prescription drugs. The bad news: You’ve got a big job ahead of you, sorting through the Medicare bureaucracy.

For someone new to the system, the hundreds of options Medicare provides can be daunting. “We’ve seen C.P.A.’s get stymied,” said Paul Gada, personal financial planning director at Allsup, a provider of Social Security and Medicare consultation services that is based in Belleville, Ill. “The process can be difficult for even the most savvy individuals.”

More important, the choices you make now as a new retiree may have consequences down the line when your health care and financial needs change. Confusing as Medicare may be, it is better to learn the ins and outs of the system early than to try to figure it out 20 years from now. The newly eligible have a seven-month period to enroll, starting three months before their 65th birthday. And numerous resources are available to help both newcomers and veteran Medicare users.

Not long ago, retirees simply went to their local Social Security office and signed up for Medicare A, which covers hospitalization, skilled nursing facilities, hospice and some home health care. Then they signed up for Medicare B, which provides coverage for doctor’s fees for a premium ($96.40 a month in 2009). That was the end of it.

Big changes in the way Medicare is distributed have made signing up a lot more complicated. In addition to A and B, enrollees can now buy prescription drug coverage under Medicare D. Dozens of private insurance plans offer Medicare D coverage, and the plans can differ widely in both premium costs and the drugs they cover.

The government also allowed private insurers to offer Medicare Advantage plans, which combine A, B and D benefits, often under a network like an H.M.O. or P.P.O. Many offer extras like dental, vision and wellness coverage. Hundreds of different Medicare Advantage plans are sold today, and depending on where you live, you could have dozens of choices.

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65 and Up and Looking for Work

2009-11-04T02:31:00Z

The New York Times, October 24th, 2009

It is well known that during the nation’s gale-force recession, many older Americans who dreamed of retirement continued to work, often because their 401(k)’s had plunged in value.

In fact, there are more Americans 65 and older in the job market today than at any time in history, 6.6 million, compared with 4.1 million in 2001.

Less well known, though, is that nearly half a million workers 65 and older want to work but cannot find a job — more than five times the level early this decade and this group’s highest unemployment level since the Great Depression.

The situation is made more dire because of numerous recent trends: many people over 65 have lost their jobs as seniority protections have weakened, and like most other Americans, a higher percentage of them took on debt than in previous generations.

The expectation once was to pay off your 30-year mortgage before you retired, or come close. Instead, the level of indebtedness among older Americans has risen faster than in any other age group, partly because so many obtained second mortgages to take money out of their homes.

This financial squeeze is one reason President Obama has proposed giving a special $250 one-time payment to all Social Security recipients.

Many out-of-work older Americans complain that they face foreclosure or have had to give up their car.

“It’s a big deal for a lot of these people not to find a job,” said David Certner, legislative policy director for AARP. “That so many of them are still trying to find work shows how bad the economic situation is. A lot of people normally give up at that age.”

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Choosing a Policy to Cover What Medicare Doesn’t

2009-11-04T02:18:00Z

The New York Times, October 14th, 2009

PEOPLE over 65 should buy a Medigap policy, consumer advocates say, but picking a Medigap plan can be difficult, and at least one important health care bill heading for a vote in the Senate could make it even harder.

The plans, which are sold by private insurers, are supposed to help fill the considerable gaps that deductibles and co-payments leave, the difference between what Medicare enrollees receive from the government and what they owe doctors and hospitals. Medigap offerings come in a dozen different varieties, labeled Plans A to L.

Choosing a plan is particularly tricky for consumers because monthly premiums for identical coverage can vary by hundreds of dollars from one company to another. Rates also vary by area of the country and age of the enrollee, and in many cases by gender. Still, the advantages of the coverage, for everyone who can afford it, make the hard work of shopping around a good investment.

Why buy a Medigap policy when you turn 65 and become Medicare-eligible, even if you don’t expect to need it for years? A reason, of course, is that people cannot anticipate what might befall them. Consumer advocates also point out that under some state laws, those who delay end up paying higher monthly rates or being rejected for health reasons.

Adding complexity to the calculation is the possibility that Congress may cut back on the current 100 percent coverage of medical bills for people who wait to buy their first Medigap policy. The Senate Finance Committee, looking ahead to 2015, is calling for new co-pays for doctors’ visits under Medigap. If the provision is adopted, new purchasers might be charged $5 for a visit to a primary care doctor and $15 or $20 for a specialist, committee aides say. The change is intended to discourage medically unjustified visits.

Darlene Mastro, who had retired early, said she “couldn’t wait” to be 65 and eligible for Medicare. But when she telephoned the local offices of several companies to ask about Medigap insurance, she was disappointed by the response.

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Now Is the Time to Weigh Medicare Options

2009-11-04T01:31:00Z

The New York Times, October 31st, 2009

MEDICARE recipients, it’s your turn.

For the last few weeks, my Patient Money colleague Lesley Alderman and I have been giving advice on how to navigate the open enrollment season for employee health benefits. But Medicare enrollees must also do this annual drill, and in some ways their task can be more complicated.

While employees now typically face a dwindling number of options, Medicare recipients may have the opposite problem — a potentially overwhelming welter of choices. They may need to sort through dozens, even hundreds, of choices during the annual enrollment period, which runs Nov. 15 through Dec. 31.

Those already enrolled in Medicare, of course, might not need to do anything. Assuming the coverage they have now is not changing, and it’s working for them, they can probably stand pat. That might be particularly true for the 35 million people whose main coverage comes directly through the government. In that case all they may need to worry about is their Medicare D prescription drug plans provided by private insurers, if they have such coverage; about 17.5 million of these people in traditional Medicare have the separate drug coverage.

But as I explain below, there are various reasons that staying put might not be a good idea. And making a change means coming to grips with an array of Medicare options that has been expanding at a bewildering rate in the past decade.

There is the traditional Medicare A, which covers hospitalizations and is provided at no charge to enrollees, and Medicare B, which covers fees from doctors and other health care providers and requires a monthly premium. (Because there will be no Social Security cost-of-living increase in 2010, premiums for most current B enrollees will stay the same as for 2009, at $96.40 a month. However, most new enrollees will pay 15 percent more than that, $110.50 a month.

Seniors can also choose from a vast number of specialized plans from private insurers. There’s the Medicare D drug coverage, for example. But there are also fuller private-carrier packages called Medicare Advantage, which often bundle Medicare A and B with a drug plan, along with extra benefits like dental, vision and wellness coverage.

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Sleep Disturbances Improve After Retirement

2009-11-02T17:40:00Z

Science Daily, November 1st, 2009

A new study in the journal Sleep shows that retirement is followed by a sharp decrease in the prevalence of sleep disturbances. Findings suggest that this general improvement in sleep is likely to result from the removal of work-related demands and stress rather than from actual health benefits of retirement.

Results show that the odds of having disturbed sleep in the seven years after retirement were 26 percent lower (adjusted odds ratio of 0.74) than in the seven years before retiring. Sleep disturbance prevalence rates among 14,714 participants fell from 24.2 percent in the last year before retirement to 17.8 percent in the first year after retiring. The greatest reduction in sleep disturbances was reported by participants with depression or mental fatigue prior to retirement. The postretirement improvement in sleep also was more pronounced in men, management-level workers, employees who reported high psychological job demands, and people who occasionally or consistently worked night shifts.

Lead author Jussi Vahtera, professor in the department of public health at the University of Turku in Finland, noted that the participants enjoyed employment benefits rarely seen today, including guaranteed job stability, a statutory retirement age between 55 and 60 years, and a company-paid pension that was 80 percent of their salary.

"We believe these findings are largely applicable in situations where financial incentives not to retire are relatively weak," said Vahtera. "In countries and positions where there is no proper pension level to guarantee financial security beyond working age, however, retirement may be followed by severe stress disturbing sleep even more than before retirement."

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Medicare: What to expect, what you should know

2009-11-02T17:34:00Z

Detroit Free Press, November 1st, 2009

QUESTION: What kinds of changes are we seeing in Medicare this fall in Michigan?

ANSWER: There are two primary changes. The first is there are fewer plans being offered and secondly the prices of the plans being offered are increasing.

Q: Without exception?

A: Almost across the board except for a handful of plans with little change.

Q: Why are prices going up?

A: The insurance companies say the prices are going up to reflect increased prices in the marketplace.

Q: What do we know about the Medicare choices seniors in Michigan have made in the past? What percentage is in Medicare Advantage plans and so on?

A: In the past, Michigan was pretty lucky because relatively three quarters of the population were in some type of retiree plan sponsored through their former employer. However, that trend is changing as many of the employers are dropping, reducing or changing the structure of their employee health benefits.

Q: So more people have to purchase their own Medicare plan?

A: Yes.

Q: Is there still a lot of confusion?

A: Yes. There are some people new to this whole process because their retiree benefits are changing. But each year there are changes in the plans, too. Sometimes the plans changing have huge changes or they are exiting the marketplace. I think there was a misconception in the public that 'Once I get into a plan, I'm set, if not for life but at least a few years.' There can be drastic changes.

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This retirement-plan building block is cracked

2009-10-30T20:51:00Z

Marketwatch, October 30th, 2009

The rule of thumb is that you'll need to replace 70% of your pre-retirement income on average once you retire, but evidence continues to mount that this assumption by many professionals and retirement savers is way off base.

Now, a new study by two professors casts further doubt on the idea that the widely used replacement-rate figure is a sound basis for building a retirement plan.

"The rule of thumb that replacement rates should be above 70% to maintain living standards in retirement is conceptually flawed," wrote John Karl Scholz and Ananth Seshadri, two University of Wisconsin-Madison professors, in their paper "What Replace Rates Should Households Use?"

In fact, no more than 15% of the population Scholz and Seshadri studied need to replace 65% to 90% of their pre-retirement income. And almost 50% of the population needed to replace less than 65% of their pre-retirement income.

In short, the authors said: More refined guidance is needed to serve households well.

Costs usually decrease in retirement

Target replacement rates are less than 100% for three main reasons, according to the study published by the Michigan Retirement Research Center.

"First, upon retirement, households typically face lower taxes than they face during their working years, if for no other reason than Social Security is more lightly taxed than wages and salaries. Second, households typically save less in retirement than they do during their working years, so saving is a smaller claim on available income. Third, work-related expenses generally fall in retirement."

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Unsolved Mystery

2009-10-29T23:38:00Z

Retirement Income Journal, October 29th, 2009

The “mystery shopper” is one of the oldest and most effective research tools. You can learn a lot simply by having someone pose as a naïve consumer and catch a seller off-guard.

Journalists use this trick. Industrial spies use it. The Drug Enforcement Agency, obviously, uses it. So do market researchers.

A couple of years ago, the Washington researcher and consultant Mathew Greenwald deployed mystery shoppers to help annuity manufacturers and marketers learn why more Americans don't buy life annuities to finance their old age.

In a two-part experiment, Greenwald first asked a bunch of academic economists whether the typical Boomer retiree should buy an annuity. “We know that annuitization is rarely used, and all kinds of reasons have been given for that, but I wanted get some insights into the desirability of an annuity,” Greenwald told RIJ recently.

In other words, if no one at all vouches for annuities, further research would be pointless. “Game over,” as it were. But all of the academics recommended annuities.

“I interviewed 11 economists and others who are not involved in selling annuities,” Greenwald continued. “They all had different opinions about the circumstances that call for annuities. Some thought you should buy one at retirement. Some thought you should wait until age 70 when the payouts are higher, or that you should buy longevity insurance that starts when you're 85.”

But, small differences aside, the academics unanimously supported annuities.

In the second part of the experiment, Greenwald recruited eight mystery shoppers and assigned each of them to approach an investment advisor and ask for help in creating a financial plan for retirement. “They went to advisers and said, I'm close to retirement, and I'd like your advice on how I should manage money in retirement.”

The mystery shoppers were all real near-retirees with assets of roughly $600,000 to $3 million. The advisors were registered reps at large broker-dealers such as Wachovia, Morgan Stanley or Raymond James. The meetings between clients and advisors were not a sham. The shoppers presented real account statements and, in some cases, financial plans were drawn up and fees were paid.

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Lawmakers Target Medicare and Medicaid Fraud

2009-10-29T17:45:00Z

The Wall Street Journal, October 28th, 2009

The federal government needs to further step up efforts to fight Medicare and Medicaid fraud to generate more savings to help pay for a health-care overhaul, lawmakers said Wednesday.

"The scale of health care fraud in America today is staggering," Senate Judiciary Committee Chairman Patrick Leahy (D., Vt.) said at a hearing. "Now, as health care reform moves through the Senate, I want to make sure we do all we can to tackle the fraud that could undermine efforts to reduce the skyrocketing cost of health care."

Health-overhaul legislation moving through Congress contains provisions to beef up the government's antifraud effort. The U.S. loses at least $60 billion to health-care fraud every year, and some estimates put the cost as high as 10% of the nation's total health-care spending, which exceeds $2 trillion. Medicare, the federal insurance program for the elderly and disabled, and Medicaid, the federal-state program for the poor, are especially susceptible. The government has announced a series of indictments on Medicare and Medicaid fraud in the past two years, including indictments earlier this week involving a Mississippi medical clinic.

Sen. John Cornyn (R., Texas) said government officials still need to figure out why Medicare and Medicaid have a higher rate of fraud than private insurers, especially since Congress is considering creating a public-insurance program. "I'm sure we'll never have enough good guys to outnumber the bad guys in this area." Mr. Cornyn said, asking Health and Human Services and Justice Department officials: "What can you do to reduce it?"

Bill Corr, deputy HHS secretary, said HHS and the Justice Department are making progress, especially by using specialized teams to ferret out fraud. But he agreed that the task is huge. Medicare alone, he testified, receives 4.4 million claims each day, which have to be paid between 14 and 30 days.

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Ask the Experts: Do your homework on reverse mortgages

2009-10-28T17:35:00Z

Sacremento Bee, October 28th, 2009

Our three new "Ask the Experts" writers have been busily answering financial questions this month from online readers.

Here's a sample of their advice on personal finance, wills/estates and investing.

To see more questions or to get advice from our other financial experts on taxes, banking and investment clubs, go to: www.sacbee.com/ask.

Pamela Christensen, Certified financial planner

I expect to retire in about four years and will have a small Sacramento County retirement. We also have about $150,000 in CDs to live on. My parents got a reverse mortgage a couple years ago for the extra cash to live on and to have no mortgage payment. It seems to be working for them and we are considering it as well. Is this type of mortgage safe?

As with most financial planning, these issues are very individual. I like reverse mortgages in some situations, although it's always wise to get lots of counsel on your particular circumstances and the ramifications. For instance, do you have heirs in line to inherit your house? Do they want or need it? How much equity do you have in the home?

Do your homework and learn as much as you can. Start by going to the federal Department of Housing and Urban Development Web site (www.hud.gov) and search for "Reverse Mortgages." There's also information on the state Department of Real Estate Web site (www.dre. ca.gov). Click on "Consumers", then "Home Buyers/Borrowers," then "DRE Publications and Resources." Talk to your estate planning attorney and other financial professionals to get their opinions. Talk with family and friends only if you know they are well educated in reverse mortgages.

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Seniors should be wary of healthcare pitches

2009-10-27T17:27:00Z

Los Angeles Times, October 27th, 2009

Senior citizens should be on their guard against possible fraud when open enrollment for two popular healthcare programs begins Nov. 15.

California Insurance Commissioner Steve Poizner warns that some sales agents for the Medicare Advantage and Medicare Prescription Drug programs may engage in "aggressive or deceptive" sales practices starting from now until open enrollment ends Dec. 31.

To better protect themselves, consumers should consider these tips:

- Make sure the salesperson is a licensed insurance agent.

- Do not respond to "cold calls," which are prohibited by law.

- Don't give out personal information such as Social Security or Medicare numbers.

- Do not accept "free lunches," which are not allowed.

- Don't buy any additional insurance-related products.

- Read and understand the health insurance plan.

- Call the California Department of Insurance with questions or complaints at (800) 927-HELP (4357) or Medicare at (800) MEDICARE (633-4227) with questions or complaints.

For more information, consumers should visit www.insurance.ca.gov or www.medicare.gov.

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