NewRetirement Retirement News Digest : Early Retirement

The case against retirement

jberman — Tue, 17 Nov 2009 10:33:00 GMT

MSNBC, November 15th, 2009

Ah, retirement! Before the 1950s it was something only the wealthy could afford to do. Everyone else needed an income, and most folks struggled to get by in the industrial economy as their faculties deteriorated. Back in the days before 401(k)s—let alone Social Security—older people faced the kind of pressures portrayed by filmmaker D.W. Griffith in his melodramatic 1911 silent film What Shall We Do With Our Old? It's a sad tale of the setbacks endured by an elderly couple, the wife ailing, the husband tossed off the assembly line to make way for a younger worker.

Griffith was one of many social activists calling for a social insurance system to provide an income for the elderly. The social reformist dream became reality with the 1935 Social Security Act, the spread of the corporate defined benefit pension plan, and Medicare in 1965. For most workers the last stage of life became a time of leisure, recreation, and enjoyment.

The Age of Retirement was one of America's most successful social reforms ever. But that era is over. A new vision of old age is emerging from the trauma of the credit crunch and the Great Recession: Forget retirement. Keep working.

A long time coming
Surveys show that a majority of baby boomers say they want to work during their golden years. They're going to get their wish. The key question is no longer "How early can I retire?" It's "Why retire?"

Of course, like all tectonic social and economic shifts, the trend isn't new. It has been building for the past three decades with the move away from traditional pensions with their involuntary contributions and steady payout for 401(k)-type plans with their voluntary contributions and uncertain returns. We're also living longer. That's good news, but it does mean that to maintain their standard of living the elderly have to either earn a paycheck longer or save more—a lot more.

Bristling at Health Plan to Cover Early Retirees

jberman — Thu, 10 Sep 2009 04:06:00 GMT

The New York Times, September 9th, 2009

Within the battle over President Obama’s health care overhaul, critics of organized labor have latched onto a little-noticed provision in the legislation already circulating in Congress. The provision would cost $10 billion in federal money to subsidize employer-sponsored health plans covering early retirees, as a bridge to Medicare.

Labor’s critics assert that the provision, aimed at retirees ages 55 to 64, is a Democratic payback to unions and would further drive up the federal deficit.

“It looks like it’s just a big giveaway of $10 billion to bail out a bunch of unionized companies,” said Gregory Mourad, director of legislation for the National Right to Work Committee, a nonprofit group that often battles organized labor. “It’s part of a Christmas list of giveaways to unions.”

But supporters deny that the provision is a sop to labor, saying it would help stabilize the health insurance system and would benefit union and nonunion retirees alike, as well as their employers. Backers include the United Automobile Workers, the United Steelworkers and the A.F.L.-C.I.O.

Variations of this program have been approved by the three House committees that have adopted health bills, and by the Senate Health, Education, Labor and Pensions Committee.

It is not clear whether the provision will be included in whatever bill the Senate Finance Committee may eventually come up with, under the chairmanship of Max Baucus, Democrat of Montana. Under the provision, the federal government would pay as much as $10 billion to cover 80 percent of the cost of an early retiree’s medical claims of more than $15,000, with a cap at $90,000 — at which point the employer’s plan would pay the rest.

Read more of this article.

About Reverse Mortgages: Learn all about reverse mortgages at NewRetirement.com

Professional Financial Advisors: Find out what a financial advisor can do for you at NewRetirement.com.

NewRetirement Retirement Calculator: Assess your retirement plan with the NewRetirement Retirement Calculator

Strange But True: Claim Social Security Now, Claim More Later

tsaleen — Tue, 28 Apr 2009 20:51:00 GMT

Center for Retirement Research at Boston College - April 27, 2009

Introduction

Under Social Security, married individuals are entitled to a retired worker benefit based on their own earnings and/or to a spousal benefit equal to one half of their spouse’s benefit claimed at the Full Retirement Age (currently 66). If a married individual claims before the Full Retirement Age, the Social Security Administration assumes that the individual is claiming both types of benefits, compares the worker and spousal benefits, and awards the highest. Upon reaching the Full Retirement Age, individuals can choose which benefit to receive. As a result, married individuals can claim a spousal benefit at 66 and switch to their own retired worker benefit at a later date. This approach allows a worker to begin claiming one type of benefit while still building up delayed retirement credits, which will result in a higher worker benefit later.

In the past, providing these benefit options for spouses was not particularly valuable, since those who postponed benefits beyond the Full Retirement Age were giving up expected lifetime benefits. With the recent advent of an actuarially fair delayed retirement credit, lifetime benefits are roughly the same whether claimed at the Full Retirement Age or at age 70. As a result, today the availability of benefit options has real value for couples and therefore inevitably increases the cost of the Social Security program.

This brief describes how the procedure can benefit married couples, estimates how much it could cost the Social Security Administration on an annual basis, and characterizes those most likely to take advantage of the option. The conclusion is that the procedure could cost as much as $9.5 billion per year and a significant amount of that additional money would go to households in the upper portion of the income distribution.

Calculating Spousal Benefits

Under current law, married individuals are entitled to retired worker benefits based on their own earnings or, if they have no earnings, they receive 50 percent of their spouses’ Primary Insurance Amount (PIA). If they have some earnings, the spousal benefit is used to "top up" the worker benefit so that the total equals 50 percent of the spouse’s. The amount can be lower if the individual chooses to receive either the retired worker benefit or the spouse’s benefit before the Full Retirement Age (see Table 1). However, spouses’ benefits are not affected by the age at which the worker-beneficiary claims benefits.

Prior to reaching the Full Retirement Age (FRA), when a married individual files for benefits, he or she is subject to a "deemed filing" provision. Under this provision, it is assumed that the individual is filing for both the spousal benefit and the benefit based on his/her earnings record. The Social Security Administration then compares the two benefits and awards the higher. After reaching the FRA, deemed filing no longer applies, giving the individual the ability to choose which benefit he or she receives.

Originally, we thought that "claim now, claim more later" would involve the wife receiving the spousal benefit in two-earner couples with roughly equal earnings. For example, consider a two-earner couple in which the husband is three years older than the wife (the typical age difference according to the Health and Retirement Study). Both husband and wife had originally planned to delay claiming until age 70 in order to receive the highest possible monthly benefit. But, instead, once the husband claims his benefits at age 70, the wife – now 67 and no longer subject to deeming – can file for just a spousal benefit. The wife then continues working and contributing to Social Security. At age 70, she files for her own retired worker benefit, which has now reached its maximum amount due to the delayed retirement credits, and stops receiving the spousal benefit. In this situation, the wife gains three years of spousal benefits that she would not have enjoyed under the conventional claiming approach.

But it turns out that those most likely to receive a spousal benefit while using "claim now, claim more later" are the husbands in two-earner couples. The reason stems from the results of an earlier study that showed married women will maximize the couple’s expected lifetime benefits by claiming early.1 The intuition for this somewhat counter-intuitive finding is that women’s planning horizon for how long they will receive their own retired worker benefit is from the date of their retirement to their husband’s death. When their husband dies, they are entitled to their husband’s benefit as a widow. Therefore, optimal claiming in most cases has the woman claiming benefits at 62 and the husband delaying until 69.2 As a result, the way an optimizing couple would use "claim now, claim more later" is for the wife to claim at 62 and, once her husband reaches age 66, he would claim a spouse’s benefit based on his wife’s earnings. At age 69, he would claim the maximum amount of his own retired worker benefit due to the delayed retirement credits, and stop receiving the spousal benefit. Of course, if the woman is the higher earner, the story works in reverse.

The Cost of "Claim Now, Claim More Later"

One can get a rough idea of the potential annual cost by considering how many participants are eligible to use this strategy and how much they will gain from it. In 2006, roughly 650,000 husbands had higher earnings’ histories than their wives.3 The typical wife’s Primary Insurance Amount – the unreduced benefit that serves as the basis of the spousal benefit – is about $900, so the husband would have received 50 percent of $900 for 36 months for a total of $16,200. Multiplying the number of men eligible (650,000) times $16,200 yields a total cost of $10.5 billion. Doing the same exercise for the 10 percent of cases – roughly 80,000 – where the wife has higher earnings than the husband yields an additional cost of $1.3 billion. Thus, a rough estimate of the annual cost incurred by households making their joint claiming decisions is about $11.8 billion.4

A more sophisticated approach to estimating the total cost to the program is to compare for each couple their optimal claiming ages and value of benefits under conventional claiming and under a scenario where "claim now, claim more later" is added to their options. This approach allows for couples with different age differences and different ratios of husband’s to wife’s earnings.

See the entire brief in PDF here...

About Reverse Mortgages: Learn all about reverse mortgages at NewRetirement.com

Professional Financial Advisors: Find out what a financial advisor can do for you at NewRetirement.com.

Annuity Advice for Retirement: Evaluate and compare annuities at NewRetirement.com

NewRetirement Retirement Calculator: Assess your retirement plan with the NewRetirement Retirement

U.S. Survey Shows Executives Delaying Retirement

tsaleen — Thu, 12 Feb 2009 22:15:00 GMT

MSNBC - February 5, 2009

As the U.S. economy buckles, executives are delaying retirement, cutting back on their pension savings and trimming contributions to their children's college funds, according to a survey released on Thursday.

A large majority of 86 percent plan to keep working an average of seven and a half years longer due to their shrinking retirement savings, said the poll by TheLadders.com, an online recruiting firm, that surveyed 1,162 executives.

"Nobody's been spared," said Robert Turtledove, spokesman for TheLadders.com, which caters to the job market for those earning $100,000 a year and more.

"This is investment-savvy, smart-managing, high-earning executives. It's not a knee jerk reaction. I think it's saying that wherever you are, this is impacting everybody," he said.

Most executives making more than $100,000 a year have a specific target for retirement and college fund goals and, with Wall Street reeling from the financial crisis, it will take much longer to reach those goals, he said.

Retirement accounts, such as 401k contribution plans and IRAs, lost $2.8 trillion between September 30, 2007 and December 2, 2008, as the U.S. stock market dropped 47 percent, according to the Urban Institute based in Washington.

With equities losses continuing, 58 percent of executives said they stopped contributing to their 401k retirement accounts altogether, the survey found.

Half of the executives said the recession would limit their children's college prospects, and 40 percent said they had stopped investing in their children's college savings accounts.

With job cuts and shrinking bonuses, 40 percent of those polled said they were forced to use retirement savings to weather the recession.

The number of Americans filing for first-time jobless benefits hit a 26-year high last week, while Wall Street has cut its work force in New York more than 10 percent over the last 14 months.

See the full article...

About Reverse Mortgages: Learn all about reverse mortgages at NewRetirement.com

Professional Financial Advisors: Find out what a financial advisor can do for you at NewRetirement.com.

Annuity Advice for Retirement: Evaluate and compare annuities at NewRetirement.com

NewRetirement Retirement Calculator: Assess your retirement plan with the NewRetirement Retirement

CR Retirement Survey: Planning ahead may be just as risky as rewarding

tsaleen — Tue, 13 Jan 2009 22:43:00 GMT

The Press - January 12, 2009

In the wake of big investment losses, many Americans have turned to “Plan B” to strategize and rebuild their retirement nest egg, according to Consumer Reports’ latest retirement survey.

There is a lot of ground to recover - 51 percent of retired readers and 55 percent of those just short of retirement are facing investment losses of at least 20 percent in the past 12 months.

The Consumer Reports National Research Center surveyed more than 19,000 Consumer Reports online subscribers between the ages of 55-75 and found about half have already made strides to generate more cash, including eating out less and cutting back on entertainment. About one-third have cut their credit card use and spent less on groceries and household goods.

“When bad investments happen to good people, they have to work harder to slash debt, cut spending and save more. Switching to Plan B means seizing the reins in every areas of your financial life over which you have control,” said Noreen Perrotta, Consumer Reports Money editor.

The Consumer Reports Retirement Survey also found that consumers who planned ahead were more satisfied with their retirement prospects, even in the current economic climate. Among pre-retirees, 90 percent planned ahead by reading books or articles, consulting professionals, using online software, taking courses or conversing with family and friends. The more planning methods used, the more satisfied the respondents were.

However, pre-retirees who had done more planning reported worse losses, on average, than those who hadn’t planned. Retirement planning strategies encourage investors to diversify beyond safe vehicles such as bonds and CDs. Respondents who had planned were less conservative, in general than those who didn’t. Before the meltdown, this strategy was much more beneficial according to Consumer Reports’ 2007 Retirement Survey. However, it proved punishing during the unusually severe market downturn of recent months.

The 2008 report also found that using financial pros gave planners no edge. Unlike last year’s survey, those who reported using financial planners this year said they were no more satisfied than those who educated themselves. Both groups said they lost money at about the same rate. Respondents who had financial planners had a net worth that was about $230,000 greater than those who didn’t. But CR doesn’t know if they were wealthier to begin with.

Forty-three percent of respondents that did four or more planning activities said they would now delay retirement a year, compared with 28 percent of those who had done nothing. Greater losses might have forced the decision.

Consumer Reports February issue offers a complete guide with 17 moves to help retirees, pre-retirees and younger workers rebuild the nest egg and secure their financial futures in the wake of a down-turn economy. Here are some of the highlights:

Retirees:

•.Consider your withdrawal rate. In general, financial planners say an annual withdrawal rate of about 4 percent from your total investments is optimal to ensure the money lasts as long as you do. However, when your assets fall in value, you’ll have to withdraw at a higher rate to have the same income. The alternative is to withdraw and live on less or invest more conservatively, risking that you will run out of money sooner.

• .Pick up extra money by working. For those with the ability, working even part-time can help mitigate a financial burden. Twenty-two percent of CR’s respondents said they’re working part-time, and 22 percent of those who are fully retired said they wish they could work again. Employers might be willing to hire experienced older workers.

•.Don’t abandon moving plans. Your $400,000 home may have lost $100,000 in value, leaving you with less to spend on housing elsewhere. But values are down in many areas, and moving to a lower-cost area might still be worth that trade-off.

Pre-retirees:

• Reset your retirement clock. If you’re eligible for a pension, and assuming your employer’s plan is healthy, working more years can add to your payout, which is often based on salary and number of years worked. Even those without a traditional pension can use that time to shore up the nest egg. If you’re 50 or older, you can contribute up to $22,000 this year to tax-deferred accounts such as 401(k) plans.

•.Keep on contributing. At the least, put enough in to get the full employer match. If your employer no longer matches, try to contribute at least as much as before. If you’re able, make up for the match with a higher contribution.

•.Borrow with caution. If you are eligible for a reverse mortgage, even stronger caution is urged for younger eligible homeowners. If you live long enough to spend the loan—a possibility if you’re in your 60s—you could be back at square one but with far less home equity. Another option, borrowing from your 401(k), if possible. This also has pitfalls. For one, if you leave your job or lose it, the loan must be repaid in full or it becomes a taxable distribution.

Younger workers:

• Start early and diversify. Survey respondents who said they started saving in their 20s and 30s were far more satisfied with their retirement prospects than were those who started later. They also reported higher net worth. Diversifying savings vehicles also affected satisfaction with retirement plans. Those who used six or more—401(k)s, IRAs, taxable accounts, home equity, CDs, and real estate, for instance—were more satisfied than those who used three or fewer ways to save.

• Stay in the market. With time on their side, young workers can afford to allocate stocks more heavily, ratcheting slowly downward as they age. Indeed, with stocks at their lowest levels in years, long-term investors with guts can bag some bargains now. • Fund retirement before college. It’s never too early to begin saving for your children’s education, but you shouldn’t put all available cash there. Experts recommend giving priority to retirement saving. You can always borrow to pay for college, but not for retirement.

For the complete story including helpful advice for retirees, pre-retirees and younger employees, pick up a copy of Consumer Reports’ February issue, on newsstands now. The full guide is also available at www.ConsumerReports.org.

See the full article...

About Reverse Mortgages: Learn all about reverse mortgages at NewRetirement.com

Professional Financial Advisors: Find out what a financial advisor can do for you at NewRetirement.com.

Annuity Advice for Retirement: Evaluate and compare annuities at NewRetirement.com

NewRetirement Retirement Calculator: Assess your retirement plan with the NewRetirement Retirement Calculator

When to collect Social Security

tsaleen — Tue, 16 Dec 2008 23:25:00 GMT

CNN Money - December 2008

If you can afford to put off collecting your checks for a few more years, you probably should.

Question: I'm 60 years old and in good health. I can afford to put off drawing Social Security until after age 62 to get a higher monthly check, but I'm not sure if I should. What factors should I consider when deciding whether I should hold off collecting Social Security?  Robert Walker, Austin, Texas

Answer: Figuring out whether to take Social Security at 62 -- the earliest age you can collect -- or waiting until you're older has always been one of the most important questions retirees and wanna-be retirees face.

But making this call is even more critical today. The reason: working and saving a few extra years combined with the larger check you would receive by postponing Social Security can help you rebuild retirement accounts that have been devastated by the bear market.

Of course, some people may have no choice but to collect as soon as they can. If you're forced into early retirement by a layoff or health problems before you have a chance to build an adequate nest egg, taking Social Security benefits ASAP may be the only option you have.

But if you're approaching age 62 in good health and you're in reasonable financial shape as well, waiting a few years can significantly boost the size of your monthly check for the rest of your life, not to mention pass on a larger payment to your spouse, if he or she receives a survivor benefit based on your work record.

So the take-it-now-or-later question essentially comes down to this: Will you (and your spouse, if you're married) be financially better off collecting payments for more years even if they're smaller? Or will you come out ahead with payments that may be larger by 25% or more even if you don't start getting them until you're a bit older?

The answer largely depends on how long you expect to live. If you think you'll be around long enough so that the total amount you collect from the bigger but later payments will be larger, then you're better off postponing.

If, on the other hand, you don't think you'll live long enough to overcome the late start in collecting benefits, then you're better off claiming Social Security sooner.

You can get a rough sense what size benefit you would qualify for at three different ages -- 62, your full retirement age and age 70 -- by going to the Quick Benefit Calculator on the Social Security site. For a more accurate estimate that calculates the size of your check using your actual work history, you can check out Social Security's new Retirement Estimator.

By comparing the size of the total amount you would receive year by year by claiming benefits at different ages, you can see how long it would take for you to break even under different scenarios.

Or you can get a very quick and easy estimate of whether you're better off starting at age 62 or your full retirement age by going to Met Life's Social Security Decision Tool.

Just plug in your age, gender and your most recent annual salary, and a neat little graph will pop up that shows your break-even age (76 in the 62 vs. full retirement age scenario), your odds of reaching that age and how much more you'll receive in total benefits if you live until 85 or 92.

This tool doesn't factor in any investment value for your Social Security benefits, however. Why, you may ask, does that matter if you just plan on spending the money anyway? Well, think of it this way. If you receive, say, $1,000 a month in Social Security benefits, that's $1,000 you don't have to withdraw from your retirement investments. Which means that $1,000 can continue to earn a return. If you assume a conservative rate of return on your retirement savings -- say, 4% to 5% after taxes each year -- your break-even period increases by roughly three years. For most people, especially someone in decent health -- that still usually makes postponing a good deal.

Married couples
The analysis gets more complicated for married couples. The idea is to maximize the amount a couple will collect as long as at least one of them is living. Recent research shows that the best strategy for many couples is for the wife to take Social Security at 62 and the husband to wait until he's 66 or older.

The reasoning is that husbands usually earn more than their wives -- which gives them a larger check -- but they die sooner. By having the wife start at an earlier age, the couple can collect more of her benefits while they're both living. And by the husband holding off to a later age for a larger check, the wife can then qualify for a larger survivor's benefit after her husband dies.

The best age for a husband and wife to begin collecting their respective benefits depends on the difference in their ages and earnings. To see what the ideal ages would be in your situation, check out Table 4 in a Boston College Center For Retirement Research paper titled "Why Do Women Claim Social Security Benefits So Early?". Or you can crunch the numbers on your own by downloading the "Start Social Security at 62, 66 or 70" program at the Analyze Now! site.

One final note: Recent research by T. Rowe Price shows that working, saving more and collecting Social Security later can be an especially powerful combination for increasing your income in retirement. For example, if you retire at 65 instead of 62 and save 15% of salary during those three years, you may be able to increase your combined income from investments and Social Security by more than 20%.

Bottom line: If your retirement accounts have taken a big hit in this crisis, you've probably already begun taking a closer look at your investing strategy. That's fine. But since you have little control over the financial markets, you may be able to improve your retirement prospects a lot more by re-thinking when you plan to retire and at what age you'll begin collecting Social Security.

See the full article...

About Reverse Mortgages: Learn all about reverse mortgages at NewRetirement.com

Professional Financial Advisors: Find out what a financial advisor can do for you at NewRetirement.com.

Annuity Advice for Retirement: Evaluate and compare annuities at NewRetirement.com

NewRetirement Retirement Calculator: Assess your retirement plan with the NewRetirement Retirement Calculator

A 73-Year-Old Gives Basketball a Second Shot

tsaleen — Fri, 12 Dec 2008 22:31:00 GMT

The New York Times - December 9, 2008

JACKSON, Tenn. — Before Sunday’s basketball game, Coach Yogi Woods gathered the junior varsity at Lambuth University. Watch out for 73 on the other team, he said. He did not mean the player’s number. He meant his age.

The visitors, Roane State Community College, had a septuagenarian guard, Ken Mink, college basketball’s oldest player, who has started a second career after his first ended a half century ago with a mysterious shaving-cream incident.

If the 6-foot Mink was good enough to play, he was good enough to be guarded, Woods told the Lambuth players. Then he turned to the freshman Kendrick Coleman and said: “If he goes in for a layup, don’t let him have it. If he scores on you, we will never let you forget it.”

This mixture of curiosity and macho dread has greeted Mink all season at colleges throughout Tennessee. After all, how do you defend a guy whose peers are generally pumping iron to supplement their blood levels, not to build their muscles? On Nov. 3, the junior-varsity coach at King College told one of the Roane players, whom he had coached in high school, “If the old guy scores, we’re walking home.”

Late in that game, Mink entered and found himself open in the corner. He gave a pump fake, and the defender ended up draped over him like raccoon coat. Calmly, he hit both free throws. The Hack-a-Mink strategy had failed.

“I thought some teams would play along, humor him,” said Randy Nesbit, the coach of Roane State, located in Harriman, Tenn. “No, they’re not like the Washington Generals. They’re like sharks sensing blood.”

At home games, Mink has been a crowd favorite. Attendance, usually about 100 per game, has on occasion swelled to 400. Mink’s wife, Emilia, 68, wore a retro cheerleader outfit to the season opener, complete with saddle shoes and a poodle skirt. She held up a sign that said, “Ken Can, He’s Our Medicare Man.”

No one has been happier than the guy who runs the Roane concession stand.

“He even put a new item on the menu, polish sausage with peppers and onions,” Nesbit said. “It was just plain hotdogs before.”

For a guy Mink’s age, two-a-days are a likely reference to multivitamins, not double practices. But while shooting around in a neighbor’s driveway in the summer of 2007, he realized he still had his shooting stroke. So he sent e-mail messages to eight tiny colleges near his home in Knoxville, Tenn. Perhaps a small school could use a guy with an old-school push shot.

“You do realize you’re 72?” Emilia Mink asked her husband. “Do you think you can convince someone you’re not?”

Nesbit, the Roane coach, grew intrigued. A former point guard and coach at The Citadel, he kept himself in terrific shape at 50. He was curious about the possibilities of athletic performance at an age when Gatorade has been replaced as the sports drink of choice by Metamucil. Still, he wanted to meet Mink before offering him a spot on the team.

“I think he wanted to make sure Ken wasn’t out on a weekend pass,” Emilia Mink said.

Ken Mink told Nesbit a story of unfinished business: he had played at Lees College in Jackson, Ky., only to be expelled from the then-Presbyterian school in 1956 as his sophomore season began. His crime? Mink said he was accused of soaping the coach’s office with shaving cream, slathering the lights and even the coach’s shoes.

He denied it. “I don’t even shave,” he said he told the university president. Apparently, his alibi was not as smooth as his baby face.

“It’s been eating at him all these years,” Emilia Mink said. “Ken likes to finish what he started.”

Marcus Mullins, a student manager on that Lees team, said he remembered Mink as a “good, hard-nosed player, a big raw-boned kid.” (“I used to be 6-2,” Mink said.) While he was not certain of the facts, Mullins said, the university president at the time was a stern man who did not tolerate prankish misbehavior.

“I know there was an incident, and suddenly he was gone,” Mullins said of Mink. “I’m sure he’s telling the truth.”

Mink said he joined the Air Force in November 1956 and played regularly in military tournaments for four years. He then went on to a career as a newspaper editor, continuing to play basketball in recreation leagues. Since retiring in 1999, he and his wife said, Mink has kept active by playing golf, walking, hiking, skiing, even hang gliding. He has published a book, “So, You Want Your Kid to be a Sports Superstar,” and along with his wife, edits an online travel magazine.

See the full article...

About Reverse Mortgages: Learn all about reverse mortgages at NewRetirement.com

Professional Financial Advisors: Find out what a financial advisor can do for you at NewRetirement.com.

Annuity Advice for Retirement: Evaluate and compare annuities at NewRetirement.com

NewRetirement Retirement Calculator: Assess your retirement plan with the NewRetirement Retirement Calculator

Feds Rethink Rules on Retirement Savings

tsaleen — Thu, 20 Nov 2008 06:31:00 GMT

The Wall Street Journal - November 19, 2008

Amid growing concern over the stock market's severe drop, government officials are considering last-minute relief from rules requiring millions of Americans who are 70½ or older to withdraw money from their retirement accounts.

Among the possible changes: allowing taxpayers to delay taking required withdrawals from their individual retirement accounts, 401(k) plans and other similar accounts this year -- or at least reducing the amount that must be withdrawn. Also under consideration are various ways to provide tax relief for people who already have made their required withdrawals for this year.

Some lawmakers and advocacy groups are urging Congress to pass legislation soon that includes temporary changes in the minimum-distribution rules. Meanwhile, Treasury Department officials are studying whether they can make certain changes on their own by tweaking the regulations.

While it's by no means certain that Congress or the Treasury will act this year, the message for investors is clear: If you haven't already taken your required minimum distribution this year, consider waiting a while longer, says Clint Stretch, managing principal for tax policy at Deloitte & Touche LLP in Washington.

At issue are complex requirements that force millions of people age 70½ or older to withdraw minimum amounts of money from retirement-savings accounts each year. The amount of the distribution is based on the market value of the taxpayer's account as of the last day of the previous year.

Therein lies one of the major problems. This year's distributions are based on Dec. 31, 2007, levels -- a time when market prices generally were far above today's deeply depressed values. As a result, "millions of Americans are forced to withdraw larger-than-anticipated amounts from already-depleted retirement funds," says David Certner, legislative policy director at AARP, an advocacy group that represents nearly 40 million older Americans.

One of the big questions is how much authority the Treasury has to take action on its own. During the presidential campaign, then-Sen. Barack Obama said the Treasury has the authority to "temporarily suspend" required withdrawals this year, and he urged Treasury officials to do so speedily. The Obama campaign said the explicit requirement that withdrawals must continue on an annual basis -- and the requirement that withdrawals must be based on the much-higher 2007 year-end asset values -- is based on Treasury regulations, not the law itself, and thus could be changed administratively.

In addition, because lower-income seniors "may have no choice but to take withdrawals" this year and next year, the Obama campaign endorsed the idea of exempting from tax any withdrawals made up to the required minimum amount. This would "give seniors the flexibility they deserve -- to forgo withdrawals if they choose or take those withdrawals tax-free if they need those resources to pay their bills," a campaign statement said.

In late October, Treasury spokesman Andrew DeSouza declined to comment on "any proposals made by either presidential campaign." This week, he said: "We're certainly aware of the issue and we're looking into it." He declined to elaborate. A Treasury official recently wrote lawmakers to say "we share your concern that because of the required minimum distribution rules in the Internal Revenue Code and the Treasury regulations, many Americans are required to withdraw a higher percentage of their savings than expected."

That letter noted that many investors' account balances are "significantly lower" now than they were on last Dec. 31.

Among the private-sector groups calling for major changes is AARP. Recently, Bill Novelli, AARP's chief executive, sent a letter to Treasury Secretary Hank Paulson urging him to take immediate action to temporarily freeze mandatory retirement-account withdrawals. This week, Mr. Novelli sent a letter to House and Senate leaders urging them to pass a new economic-stimulus package that would include retirement-savings changes.

AARP also called for relief for retirees who have already taken their minimum distributions this year, as well as those who don't have the choice of delaying withdrawals and need to yank money from their accounts to pay bills. "We believe that fairness dictates that we provide relief for individuals who have no other recourse than to use their greatly diminished retirement savings to meet current living expenses," Mr. Novelli said.

"Retirement-savings losses over the past 12 months have been staggering," he said. "Older individuals have disproportionately experienced these losses, and many do not have the luxury to wait for a market rebound."

So what's likely to happen?

"I think they [Treasury officials] have the authority to lessen the amount of the required minimum distribution, but I'd find it hard to think they have the authority to eliminate it completely," says Bill Sweetnam, an attorney at the Groom Law Group in Washington and formerly the benefits tax counsel at the Treasury Department.

"Although it is still possible that Congress could act this week" to provide relief from the minimum-distribution rules, "that hope seems to be fading," says Deloitte's Mr. Stretch. But if Congress doesn't act, "Treasury seems ready to make regulatory changes that would help out taxpayers."

For example, Mr. Stretch says the Treasury could "delay the date" by which minimum distributions must be made in order to "provide the new Congress with time to act." In addition, the Treasury could change how the distributions must be calculated. "Treasury could allow the use of the lower of the value at the end of the prior year or at the end of the current year," he says.

Congress has several options that it could consider right away or next year, Mr. Stretch says. Whatever the case, "the mood on the Hill is very sympathetic, but it may take time for the politics to work themselves out. In the meantime, taxpayers may wish to wait for a couple more weeks to see what relief Treasury can provide by regulation."

* * *

Most married couples file jointly, according to the IRS.

For 2006, the Internal Revenue Service received more than 138 million individual income-tax returns. Of those, more than 53 million returns represented married couples filing jointly.

Only about 2.5 million returns came from married people filing separately from their spouse, the IRS said.

See the full article...

About Reverse Mortgages: Learn all about reverse mortgages at NewRetirement.com

Professional Financial Advisors: Find out what a financial advisor can do for you at NewRetirement.com.

Annuity Advice for Retirement: Evaluate and compare annuities at NewRetirement.com

NewRetirement Retirement Calculator: Assess your retirement plan with the NewRetirement Retirement Calculator

Five Books To Retire By

tsaleen — Tue, 18 Nov 2008 04:46:00 GMT

The Wall Street Journal - November 17, 2008

At times, media coverage of the economic crisis can be too much of a good thing: too much detail, too many experts. Taking a step back can help bring some perspective to the story.

That's where your favorite bookstore comes in.

Store shelves, actual and virtual, are stocked with titles that take a long view of investing and can help you plan for a retirement that could easily stretch 20 or 30 years. While publishers issued dozens of books this year about preparing for later life, the most popular ones proved to be about preserving -- rather than increasing -- one's capital.

"When we had a bull market, folks were looking at books on investing. They were much more aggressive," says Dave Hathaway, a Barnes & Noble Inc. buyer for business books. "Now, in a bear market, people are trying to figure out how they can hang on to what they've accumulated."

Here are synopses of some of the most valuable financial-planning books that came out in 2008. They include, among other topics, strategies for assembling storm-resistant portfolios, and advice about designing a second career.

* * *

The message of "The Little Book That Saves Your Assets," by David M. Darst (published by John Wiley & Sons Inc., $19.95), can be distilled into one word: diversify.

Yes, even well-diversified portfolios have suffered this year. But nest eggs built on the principle of asset allocation -- meaning they contain an array of investments -- have fared better than most. What's more, such portfolios will be better-positioned to take advantage of an eventual economic rebound.

The author, a senior investment strategist at Morgan Stanley, says nest eggs ought to reflect an individual's needs and desires, age, a realistic appraisal of how much one is willing to lose -- loss is inevitable, he says -- a recognition of inflation's bite, and an ability to learn about, and buy, different kinds of assets.

Mr. Darst assumes that far too many investors have little or no diversity in their nest eggs. Besides stocks, bonds and mutual funds, he tells his readers to consider inflation-indexed securities, hedge funds, real-estate investment trusts, commodities and even art. Low-cost instruments, such as exchange-traded funds, are especially attractive, Mr. Darst says. In making choices, investors are advised to pay attention to an asset's fees and tax consequences.

This 208-page, coat-pocket-size book also comments on why people often muff planning their financial futures. "We take eight weeks to buy a new necktie or dress but then make investment decisions that affect our entire life and net worth after an eight-minute phone conversation," the author writes. To help his readers avoid such pitfalls, he includes some probing questions to ask a prospective investment adviser.

* * *

When it comes to annuities, invest with caution, advises Steve Weisman in his thorough yet easy-to-read paperback, "The Truth About Buying Annuities" (FT Press, $18.99). While they may be an appropriate part of one's retirement portfolio, annuities can be difficult to understand and, the author says, are "dead wrong for many people."

Mr. Weisman's book is a series of "truths" about annuities, of which he warns, "there is more misleading and downright wrong information" than for almost any other investment product. In an effort to combat that, this volume covers everything from plain-vanilla annuities to their exotic flavors, such as split, equity-indexed and variable, and how to choose among them -- or not.

Potential buyers would do well to focus on the upfront -- and hidden -- fees that attach themselves to annuities like barnacles. They can "dramatically" reduce the payout, Mr. Weisman cautions.

And while an annuity can be a good fit for some nest eggs, the author suggests that pre-retirees put most of their money into 401(k)s and IRAs. "Frankly, unless you expect to hold your annuity for at least 15 years, you are better off just buying index mutual funds," he concludes. A lecturer at Bentley College in Waltham, Mass., Mr. Weisman hosts "A Touch of Grey," a nationally syndicated radio show aimed at "grown-ups."

* * *

"The Smartest 401(k) Book You'll Ever Read," by Daniel R. Solin (Perigree, $19.95), is a polemic against what the author contends is a "seriously broken retirement system."

A registered investment adviser and financial columnist for the online Huffington Post, Mr. Solin blames numerous villains -- selfish employers, Wall Street brokers, preying salespeople, annuity peddlers and the financial media -- for the paltry returns many current and future retirees can expect.

"There's strong evidence that 401(k) plans as a whole underperform the markets," Mr. Solin says, attributing some of that to their hidden costs and fuzzy performance reports that mislead recipients. The book urges individuals to pay much more attention to the composition and likely payouts of their retirement plans. Besides 401(k)s, it deals with 403(b) and 457(b) plans, designed for teachers and government and nonprofit employees.

The book favors index funds, which carry lower fees than most traditional mutual funds. Over time, the cost difference can be significant. Roth IRAs also have Mr. Solin's blessing, while he uses the term "bloodsucking territory" in addressing many annuities designed for 403(b) plans, because of their high fees. Finally, he suggests that individuals retain "a fully independent advisor who has no interest in selling any product."

* * *

The typical household head approaching retirement has a nest egg of only $60,000 -- far less than one is likely to need, given lifestyle desires, health-care costs and longevity predictions.

"Working Longer: The Solution to the Retirement Income Challenge," by Alicia H. Munnell and Steven A. Sass (Brookings Institution Press, $29.95), offers a prescription that readers may find a bitter pill: keep working. Rather than retiring and drawing Social Security at age 62 -- today's average -- most people should stay on the job until they're around 66, the authors contend.

The pair, who direct Boston College's Center for Retirement Research, have studded their brief, well-organized book with tables, charts and graphs. But some compelling counterarguments that are included undercut some of the authors' advice. Also, at times the text is repetitive.

If the sea change they advocate is to occur, individuals, employers and government all must act. One suggestion from the authors: Congress might let older employees, those with 35 or 40 years of covered earnings, opt out of paying Social Security while still on the job. This would lower employer payroll taxes and, presumably, make retaining older workers more economically attractive.

* * *

For those who want to continue working -- but for themselves -- retired educators Dennis and Martha Sargent have written "Retire -- And Start Your Own Business" (Nolo, $24.99).

It's an extensive how-to workbook that seeks to find the best fit for the would-be entrepreneur. Starting with a detailed self-appraisal that results in a personal motivation and financial profile, the reader is guided through the thicket of business possibilities, either to an appropriate one or to the conclusion that going into business for oneself probably isn't a good idea.

A series of questions, such as "Why do you want to start a business?" "Where will you live?" "How much time do you want to spend working?" and the crucial "Will you have enough money?" make up the book's first half. The answers help navigate the second half -- a compendium of basics that any would-be businessperson would need to master.

Various business models -- partnerships, corporations, dealerships, franchises, etc. -- are explained. Also, there are primers on finance, taxes, contract components, the implications for one's health-care coverage and even how to name your business.

Sprinkled with brief examples of real individuals' success and failures, the book contains "reality checks" to keep the reader from being led astray by unbridled ambition. One such reminder: "There are only 168 hours in a week." The volume comes with a CD-ROM so the user can print out questionnaires, worksheets and forms.

See the article in full...

About Reverse Mortgages: Learn all about reverse mortgages at NewRetirement.com

Professional Financial Advisors: Find out what a financial advisor can do for you at NewRetirement.com.

Annuity Advice for Retirement: Evaluate and compare annuities at NewRetirement.com

NewRetirement Retirement Calculator: Assess your retirement plan with the NewRetirement Retirement Calculator

AMERICANS OVER 60 TODAY’S ECONOMIC STATE WORST EVER

tsaleen — Wed, 12 Nov 2008 21:04:00 GMT

Metlife - September 20, 2008

When asked to compare the current economy to similar situations in the past, 53% of Americans over the age of 60 said today’s economic conditions are worse than those they have experienced in the past, even though unemployment and inflation rates have been higher within the last 30 years. A new poll from the MetLife Mature Market Institute®, conducted by Harris Interactive®, reports that an overwhelming majority of this group is feeling the pinch in today’s current economy and that it has affected the way they spend their money, but not their plans for retirement.

In Feeling the Economic Pinch: A MetLife Poll of Americans 60+, 87% of respondents said they are curtailing their spending; 70% are cutting back on essentials like food and transportation. Eighty-two percent are spending less on non-essentials like dining out and vacation. In addition, 17% report having had to provide more financial assistance to family and/or friends as a result of the current economy.

“There is no doubt that older Americans are being adversely affected by the current situation,” said Sandra Timmermann, Ed.D., director of the MetLife Mature Market Institute. “A closer look at the findings shows that women are tightening their spending habits more than men, and not surprisingly those who earn less are cutting back even more.

“While there have been serious economic downturns in the past, it is clear that this group of people over 60 feel particularly vulnerable during this time of their lives. Yet, it appears that they are not, at this point, changing their longer range retirement plans.” Of those who are working, 73% said they would not postpone their planned retirement date because of the current economy. Only 16% of all respondents are withdrawing or plan to withdraw more from their retirement funds than they originally planned.

Timmermann acknowledged it's a good sign that people are not panicking by withdrawing their retirement funds, but warned that a reassessment of finances and long term planning may be necessary since people can live 30 or more years in retirement.

“We discovered an increased appreciation of Social Security among one in five of the respondents. It is apparent from this data that, as a result of a volatile economy, many older Americans better understand the importance of guaranteed income,” said Timmermann. The MetLife Retirement Income Decisions Study: The Silent Generation Speaks, released in 2005, found that people in their 60s gravitate toward annuities and investments that provide lifetime income, of which Social Security is an example.

Ninety-two percent of those polled classify the current state of the economy as “headed for” or “in the midst of” a downturn and 50% predict the poor economy will linger for an additional 12 months or longer. Sixty-three percent of those polled hold Washington responsible. Democrats polled are far more negative about economic prospects compared to their Republican counterparts with 62% of the Democrats believing that the downturn will last more than 12 months, compared with 34% of Republicans.

Other findings include the following:

• With regard to increased fuel costs, a contributing factor in the economy, 60% of those polled are cutting back on auto transportation.

• More women have cut back on essentials than men (75% vs. 63%).

• Ninety-four percent of those who earn less than $35,000 a year have cut back on spending, compared to 72% of those who earn $75,000 or more a year.

• Twenty-three percent say they are currently taking more positive action over finances (i.e. reading more about finances, seeking help from a financial advisor).

• Fifty percent say what keeps them up at night is money-related.

See the whole study...

About Reverse Mortgages: Learn all about reverse mortgages at NewRetirement.com

Professional Financial Advisors: Find out what a financial advisor can do for you at NewRetirement.com.

Annuity Advice for Retirement: Evaluate and compare annuities at NewRetirement.com

NewRetirement Retirement Calculator: Assess your retirement plan with the NewRetirement Retirement Calculator

Should a demand for change include 401(k) plans?

tsaleen — Sun, 02 Nov 2008 01:31:00 GMT

Forbes - October 30, 2008

The 401(k) retirement savings system has come under considerable scrutiny since the U.S. economic meltdown pushed stocks lower, costing retirement plans an estimated $2 trillion in the past 15 months.

A number of economists are calling for changes to the current 401(k) savings system. Some proposals wouldn't affect workers much while others would force everyone to save and would have broad impact on the retirement planning industry.

Q: With 401(k) plans suffering losses from the down market, I've heard that there are discussions about possibly changing the system. How realistic is it that we will see any major changes to the current retirement system?

A: Those who watch these things closely believe it's unlikely that a complete overhaul will be seriously considered and any reform is likely to wait until a new Congress convenes next year. Similar ideas were floated during the Carter and Clinton administrations without success.

However, in light of the widespread concern that workers have lost large chunks of their retirement accounts, some changes may get serious consideration.

The House Committee on Education and Labor has heard from economists weighing in on both sides of the issue. Some defend the 401(k) as the best opportunity for workers to save for retirement at a time when companies are dumping defined benefit or traditional pensions, which guarantee retirees a specific monthly income for life.

The possibility of 401(k) reform is an important debate because the responsibility of managing retirement accounts has shifted dramatically from the employer to the worker. The number of individuals covered by defined contribution plans - 401(k) type plans - increased from 18.9 million in 1980 to 52.2 million in 2004, the most recent year for which statistics are available. During the same period, the number of workers covered by a defined benefit pension has fallen 30 percent from 30 million in 1980 to nearly 21 million in 2004.

This year even more companies may scale back their traditional pension plans because their investments have suffered steep losses in the market downturn. Dozens of companies, such as Lockheed Martin Corp. (nyse: LMT - news - people ), the nation's largest defense contractor, may see profits fall as they divert millions of dollars into their pension plans to meet government funding requirements. Under the 2006 Pension Protection Act, the government mandates that a company has in its pension fund 92 percent of the money needed to meet its obligations this year. The mandate increases to 94 percent next year, to 96 percent in 2010 and 100 percent by 2011.

That could be even more of an incentive for companies to get out of the pension plan business.

Witnesses before the House committee, including University of Massachusetts professor Christian Weller and UCLA professor Shlomo Benartzi, stated that retirement security has been declining for several years because most people do not make good investment choices and are likely to pull money out of the market in turbulent times.

Jack VanDerhei, a Temple University professor and research director at the Employee Benefits Research Institute, said his recent studies show that 25 percent of workers who are within 10 years of their target retirement date had more than 90 percent of their 401(k) funds in stocks. About half of such workers had 70 percent invested in stocks.

Though no one size fits all, most investment advisers would recommend having significantly less in stocks that close to retirement. For instance, a 40 percent stake would provide greater stability because of the risk that too much could be lost in a volatile market.

Economics professor Teresa Ghilarducci, of the New School for Social Research in New York said the current retirement system is leaving retirees without enough money and poverty among the elderly will rise if nothing is done.

"This will be the first time since World War II that the standard of living of elderly Americans declines while that of prime-age workers increases," she said in a briefing paper for the Economic Policy Institute.

In her House committee testimony, she proposed a plan in which workers would get a $600 tax refund but must set aside 5 percent of their pay into a retirement account managed by the Social Security Administration. The money would be invested in government bonds to earn at least 3 percent interest.

When they begin collecting Social Security, the retirement account would be converted to an annuity, providing a guaranteed monthly check for life. Combined with Social Security, the retirement account of a full-time worker with 40 years on the job retiring at 65 should provide 70 percent of preretirement income, Ghilarducci said.

Critics say the plan moves the nation away from a voluntary system to a mandatory government program, which has been rejected by lawmakers before.

See the full article...

About Reverse Mortgages: Learn all about reverse mortgages at NewRetirement.com

Professional Financial Advisors: Find out what a financial advisor can do for you at NewRetirement.com.

Annuity Advice for Retirement: Evaluate and compare annuities at NewRetirement.com

NewRetirement Retirement Calculator: Assess your retirement plan with the NewRetirement Retirement Calculator

Survey: Baby Boomers Will Claim Social Security at Age 62

tsaleen — Fri, 31 Oct 2008 00:46:00 GMT

US News & World Report - October 28, 2008

Many baby boomers plan to sign up for their Social Security checks as soon as possible. A new survey found that 45 percent of those currently 61 years old will begin getting Social Security at age 62, the first year recipients can apply. Boomers cited financial necessity, health and longevity concerns, and a desire to collect as much as possible from the system as their reasons for early claiming.

But collecting your due at age 62 could be a mistake. Social Security benefits will increase by approximately 7 percent each year this group of boomers delays claiming from age 62 to 66 and by 8 percent per year until age 70. That is almost certainly a better return than investors are getting from their investments right now, and it can insure healthy retirees against the possibility of outliving their savings.

Baby boomers say they can't afford to delay claiming because they need the money now. A Fidelity Investments survey of 300 61-year-olds found that only 10 percent plan to wait until their full retirement age to claim, and an additional 9 percent say they will claim between ages 67 and 70. The baby boomers will use the funds to pay for basic living expenses, such as food, utility costs, and mortgage payments (77 percent). And they expect Social Security to make up as much as half of their retirement income. "Many Americans who are within one year of beginning to collect their Social Security retirement benefits may be planning to rely too much on it, considering Social Security currently only funds a little more than one third, or 37 percent, of an average retiree's income," says Carolyn Clancy, an executive vice president at Fidelity.

Another reason boomers may be signing up for Social Security as soon as possible is a pervasive fear that the government will not pay out the promised benefits. A different survey of 5,000 older employees by consulting firm Watson Wyatt released earlier this month found that 51 percent of workers ages 50 to 64 are not confident about receiving their promised Social Security checks after they retire. "People with less overall confidence in their retirement resources are likely to worry more about Social Security and Medicare because they cannot rely on personal savings," says Alan Glickstein, a senior retirement consultant at Watson Wyatt. "And these fears may be further exacerbated by the recent turmoil in financial markets."

Current market conditions have caused a quarter of the 61-year-olds in the survey to delay their retirement or claim Social Security earlier than planned, Fidelity found. And 38 percent plan to work at least part time after signing up, which could temporarily reduce payments, depending on the amount earned.

The Social Security Administration unveiled an online calculator in July that allows workers to more accurately predict what future benefits will be at various retirement dates.

See the full article...

About Reverse Mortgages: Learn all about reverse mortgages at NewRetirement.com

Professional Financial Advisors: Find out what a financial advisor can do for you at NewRetirement.com.

Annuity Advice for Retirement: Evaluate and compare annuities at NewRetirement.com

NewRetirement Retirement Calculator: Assess your retirement plan with the NewRetirement Retirement Calculator

"Flawed" 401(k) Laws Putting Retirement at Risk

tsaleen — Thu, 30 Oct 2008 23:44:00 GMT

Consumer Affairs - October 29, 2008

Congress needs to reform flawed 401(k) laws that could push back retirement for millions of Americans whose savings have collapsed along with the stock market, a University of Illinois elder law expert says.

Law professor Richard L. Kaplan says 401(k) accounts were meant to supplement traditional defined-benefit pensions, but have evolved into the sole nest egg for the bulk of U.S. workers whose employers offer any kind of savings program.

The shift, he says, has left workers with the illusion of a company-funded pension when in fact it's largely their own money in investments that are generally tethered to the stock market, which has lost $8 trillion during an economic meltdown over the last year.

"People mistakenly think they have an employer pension plan and don't understand that their retirement income, other than Social Security, is in very serious jeopardy right now," said Kaplan, who wrote a 2004 article on the risks of 401(k) plans that appeared in the Arizona Law Review.

He argues that Congress should rewrite laws to allow 401(k) programs only in concert with defined-benefit pensions, even if it means more companies join the roughly half of U.S. employers that offer no retirement savings plan.

"As matters stand currently, workers are being tricked," Kaplan said. "They think they have a pension plan at work when it's really their own money and every aspect of the 401(k) program -- participation, contribution level, investment allocation, withdrawal arrangement -- is problematic when it's the person's only savings plan."

Even the lure of cashing in when employers offer matching contributions is "less than compelling," he said. Matches are typically small, and many employers have reduced or eliminated them in recent years. Beyond that, he says, workers who change jobs after just a few years often lose those employer contributions anyway.

"If people want to save for their retirement, they can always set up an Individual Retirement Account at virtually any financial institution, including their neighborhood bank," Kaplan said. "The dollar limit on contributions is lower for IRAs than for employer-based plans, but the vast majority of 401(k) plan contributions are within current IRA limits and thus would not be impacted by this difference."

When 401(k) laws were adopted in 1978, the new savings accounts were envisioned as part of a three-pronged plan for retirement, a supplement for monthly checks from Social Security and conventional defined-benefit plans, he said.

But as 401(k) plans were being launched, Kaplan said, employers already were veering away from defined-benefit programs because of new costs created by the Employee Retirement Income Security Act, adopted four years earlier.

The act, intended to make worker pensions more secure, also made defined-benefit plans more expensive through new regulations and insurance premiums to safeguard pension funds, he said.

Only about half of employers offer any retirement savings program and, of those, nearly 60 percent offer just a 401(k) plan, Kaplan said. Many provide little or no company contribution, a trend he says has quickened in the last few years.

"We're only now beginning to see a cohort of people on the cusp of retirement who have the bulk of their retirement funding coming from 401(k) plans," he said. "It's a relatively new phenomenon."

Because the stock market plunge has withered savings, many of those workers may have to postpone retirement and keep working, Kaplan said. That, in turn, would reduce job openings for younger workers and boost employer health insurance costs due to an older workforce.

"You might also just have more older people who are poor, which was the historical norm," Kaplan said. "Before Social Security, it was not unusual for older people to be poor or to move in with sons or daughters, not because they couldn't physically get around but because those were the people who had a significant source of income."

In his 2004 law review article, Kaplan argued that flaws with 401(k) plans made a case against efforts afoot then to privatize Social Security, which he said would create the same risks and put future retirees in further financial peril. He doubts the move will resurface any time soon in the wake of the lingering turmoil on Wall Street.

"The cause of Social Security privatization has been set back considerably," said Kaplan.

See the full article...

About Reverse Mortgages: Learn all about reverse mortgages at NewRetirement.com

Professional Financial Advisors: Find out what a financial advisor can do for you at NewRetirement.com.

Annuity Advice for Retirement: Evaluate and compare annuities at NewRetirement.com

NewRetirement Retirement Calculator: Assess your retirement plan with the NewRetirement Retirement Calculator

Reverse-Mortgage Fees Drop, Loan Limit Rises

tsaleen — Tue, 28 Oct 2008 21:39:00 GMT

The Wall Street Journal - October 26, 2008

Recent housing legislation is likely to make reverse mortgages more popular among homeowners in need of cash. But the risks of such loans remain substantial.

The new law, enacted last summer, cuts the fees on reverse mortgages while raising the amount that homeowners can borrow against. "We'll see a surge of applications," says Peter Bell, president of the National Reverse Mortgage Lenders Association. These provisions will take effect Nov. 1.

Generally available to those age 62 and older, reverse mortgages let homeowners convert home equity into cash. Rather than having the homeowner write a check to the bank each month, the process works in reverse: The bank pays the homeowner, who can elect to receive a lump sum, a line of credit or monthly payments.

When the homeowner dies, moves or sells the home, the loan must be repaid. If the sale price doesn't cover the balance, the homeowner doesn't have to make up the difference.

Up to now, those applying for the federally insured loans that make up about 90% of this market could borrow against the lesser of either their home's value or a limit that ranges from $200,000 to $362,790, depending on location. But the limit is slated to rise to $417,000 nationwide under the new rules. The older the homeowner, the more he or she can generally borrow.

Those borrowing more than $200,000 also will see their fees decline. While homeowners currently pay a 2% origination fee on these loans, under the new law they will pay 2% on the first $200,000 and 1% on the rest, with the total origination fee capped at $6,000.

That said, origination fees are only one part of the total cost, which can total as much as 10% of a home's value, says David Certner of AARP, the advocacy group for older people. Of course, it makes little sense to pay such a high fee if you expect to move soon.

Moreover, the arrangements can be risky for those who may need home equity to pay for long-term care. If your home falls in value after you spend the money from a reverse mortgage, you may have little left over once you pay off the loan.

"There is a niche household a reverse mortgage is exactly right for," says Susan Wachter, a professor of real estate at the University of Pennsylvania's Wharton School of Business. "That person knows they want to stay in their home until death, and they really need the cash to allow them to do so."

See the article in full...

About Reverse Mortgages: Learn all about reverse mortgages at NewRetirement.com

Professional Financial Advisors: Find out what a financial advisor can do for you at NewRetirement.com.

Annuity Advice for Retirement: Evaluate and compare annuities at NewRetirement.com

NewRetirement Retirement Calculator: Assess your retirement plan with the NewRetirement Retirement Calculator

Weighing an Investment That Promises No Risk

tsaleen — Tue, 28 Oct 2008 21:34:00 GMT

The New York Times - October 24, 2008

One of the hardest parts about working in (or writing about) the personal finance industry these days is that there are no consoling words to offer up to people in their 60s and older who had a lot of money in stocks.

Work longer? Not attractive. Go back to work? Ditto, or not physically possible. Spend less? No fun. Stay the course in stocks? No guarantee that they’ll come back in time to finance the retirement their owners had been looking forward to for decades.

No, what many of these people want to hear about now is a financial product that promises no more losses but offers the possibility to share in the gains if and when the stock market comes back. So it should not come as a big surprise that the financial services industry, at least, is ready and waiting to push just the thing to soothe them.

It’s called an equity index annuity, or index annuity for short. And if your response to the word “annuity” is to move your eyeballs elsewhere on the page, please at least give me a shot at explaining why this is important.

Yes, annuities are often complicated and laden with fees. The salespeople don’t always have your best interests at heart. And this particular type of annuity has been the subject of lots of regulatory scrutiny and the target of numerous lawsuits.

But given the attractiveness of the no-risk-with-growth pitch at the moment, you’ll probably be hearing a lot about them in the coming months. That makes this an especially good time to review how an index annuity works, what its drawbacks are and whether there are simpler alternatives that can provide better results.

First of all, you don’t need to know much about annuities in general to understand the basic premise of an index annuity. You hand over some money for a particular term, say 10 years, and you earn a guaranteed minimum of 1 or 2 percent a year over that period. Then, if there’s a jump in the stock market, as represented by an index like the Standard & Poor’s 500, you’ll also get a chunk of that gain, though generally not all of it.

Sounds good so far, right? The first big complication comes from how the annuity providers calculate your return on the index and credit it to your account. There are at least a dozen ways this can happen, according to Sheryl J. Moore, president and chief executive of the market research firm AnnuitySpecs.com, though consumers generally select among just three or four of the industry’s most popular options.

The other problem here is that the insurance companies that sell index annuities need to add all sorts of rules and restrictions so they can pay commissions averaging 7 percent to sales representatives, earn a profit and still offer that guaranteed minimum plus upside.

First of all, you may need to keep most of your money locked up in the annuity for several years. If not, you could pay penalties, generally known as surrender charges, and possibly lose interest earned, though there may be exceptions for things like severe illness or job loss.

Then, there are the three main levers that put a lid on what you can earn in an index annuity. There might be an annual cap that keeps you from getting credit for more than, say, an 8 percent rise in the S.& P. 500, even if the index earns 15 percent in a given year. Or instead of a cap, you simply won’t be allowed to collect more than half or two-thirds of whatever the index earns, even during a raging bull market. This is known as the participation rate. Finally, there may be a fee of 6 percentage points (or lower or higher), known as the margin or spread. It is subtracted from the index’s return before any other restrictions come into play.

An index annuity will generally have one of these restrictions or fees, though it could have more.

The list of things to keep in mind continues, practically ad nauseam. The restrictions, like the cap, may change during the time you have your annuity, which creates uncertainty. Unlike a mutual fund that tracks the S.& P. 500 and collects the dividends that are paid out, your annuity doesn’t earn such dividends and thus can’t hand them off to you. And while earnings inside an annuity are tax-deferred, you pay ordinary income taxes on that money once you take it out, not the lower capital gains rate.

Despite a significant amount of shorthand on my part here, this is still an awful lot to take in. Especially if you’re 65, scared and not financially savvy.