Railroad Retirement vs. Social Security

Employers and employees covered by the Railroad Retirement Act pay higher retirement taxes than those covered by the Social Security Act. As a result, Railroad Retirement benefits remain higher than Social Security.

The average age annuity being paid by the Railroad Retirement Board (RRB) at the end of fiscal year 2008 to career rail employees was $2,510 a month. The average age retirement benefit being paid under Social Security was over $1,085 a month. Spouse benefits averaged $740 a month under railroad retirement compared to $520 under social security.

The Railroad Retirement Act became effective in 1935. It provides retirement benefits to retired railroad workers and families from a special fund separate from the Social Security fund.

Uncertainty among the Wealthy

PNC Wealth Management has released its fifth annual Wealth and Values Survey, a poll of 1,263 wealthy Americans who have at least $500,000 in investible assets. Among these wealthy, one-third are uncertain about attaining their retirement goals; half are confident they will achieve their goals; one-sixth feel they are surpassing the wealth they need for their retirement dreams.

Respondents envision themselves retiring at a median age of 62.3 years. Nearly one-eighth see themselves working past age seventy.

How to Salvage Your Non-Financial Retirement Plan

The Seattle Post-Intelligencer has published an article on the non-financial transition into retirement. The article points out that the day you retire, more things vanish that just your paycheck. After all, While working, you typically have structure in your day and a sense of purpose. “You exert influence, earn praise and have a sense of identity.” You also develop friendships from your world of work.

The Post-Intelligencer suggests some simple steps as you prepare and execute your "nonfinancial" retirement plan:

• Plan ahead
• Talk, communicate with your partner
• Be willing to compromise in retirement
• Arrange for a place to go such as a shop, office, or community center
• Get a life

Stock Market Impact on Retirement Savings

A new analysis by Hewitt Associates, a global human resources consulting company, highlights the severity of the Stock Market collapse on employees’ retirement savings. According to Hewitt, the gap between the amount of money U.S. employees currently have saved and what they need to save in order to maintain their standard of living in retirement has increased significantly.

In July 2008, Hewitt predicted that employees needed to replace, on average, 126% of their final pay at retirement. After factoring in the effects of the recent market downfall—where average 401(k) accounts decreased 18% during 2008—the new Hewitt analysis shows that most workers are now on track to replace only 81% of their income. As a concrete example of the implications, take a typical fifty-five-year-old employee with a current average 401(k) savings rate of 10% of pay. He or she will need to save an additional 12% each year until age sixty-five, or work for two more years, to replace what was lost in 2008.

The Unbearable Intent of the 401(k)

Take Advantage of What Your Employer Is Doing for Your 401(k)

First, don’t give up free money. If your employer matches your 401(k) contributions, those matches are free to you, all the more reason to keep up your contributions.

Second, diversify your assets. Rebalance your savings to make sure they are invested in the right mix of funds. This is particularly true during volatile markets. For employees who are not financially literate, choosing target-date funds or taking advantage of automatic rebalancing tools puts these tasks on autopilot. According to Hewitt research, 77% of employers now offer target-date funds and about half offer automatic rebalancing.

Third, take advantage of advice. Many companies offer services and tools that can help workers make informed investment choices based on their particular needs. According to Hewitt, 38% of companies offered online, third-party investment advisory services in 2008 while another 43% plan to add these services in 2009. In addition, one-fifth of companies currently offer managed accounts that allow employees to delegate the overall management of their accounts to an outside professional.

401(k) Matches On Hold

Approximately 3% of employers have suspended their match of employee contributions to their 401(k)s.

The Push to Push Back Withdrawal

Congress should permanently push back the age at which retirement savings account holders must take withdrawals according to Paul Stevens, the head of the Investment Company Institute (ICI). The age for required distributions was set at 701/2 in 1962, but life expectancy has increased "markedly" since then, Mr. Stevens told the House Education and Labor Committee, which held a hearing February 24 on retirement security.

The rules apply to 401(k)a, IRAs, and similar investment vehicles. They were originally put in place to ensure that retirees do not use their accounts as estate planning tools while the amount that must be withdrawn is based on a formula determined annually by the Internal Revenue Service. Required minimum distributions were suspended for the 2009 tax year in the Worker, Retiree and Employer Recovery Act of 2008 as a way of helping retirees cope with the market downturn.

The ICI is the American mutual funds association.

Retirement Equity in Hawaii

Congress has passed the Non-Foreign Area Retirement Equity Assurance Act to ensure pay and retirement equity for federal employees in Alaska, Hawaii, and the U.S. territories.

Federal workers in Hawaii, Alaska, and the U.S. territories currently receive a locality pay cost of living allowance (COLA) based on the increased costs of living in those areas as compared to the District of Columbia. But a similar COLA is not factored in for retirement purposes.

The recent act of Congress would phase in locality pay over the next three years for Federal workers retired in the designated areas.

California Retirement Fairs

The California Public Employees Retirement System (CalPERS) hosts a series of retirement planning fairs throughout California each year. Its 2009 series will include twenty fairs in seventeen cities.  For more details and the full schedule logon to the CalPERS website at  http://www.calpers.ca.gov/retirementplanningfairs.