Several Retirement Problems

An article in the St. Louis Post-Dispatch points out that the United States does not have a retirement problem. It has several:

• Social Security and Medicare are unsustainable in their current form.

• Traditional pensions are going away.

• A vicious bear market has eroded 401(k) accounts.

• The number of unemployed people between ages fifty-five and sixty-four has risen 143% in the past year, and the number of jobless over sixty-five is up 73%.

• Medical costs may gobble it up whatever nest egg is left.

One Reason to Keep Money in Your 401(k) upon Retirement

Upon retirement, your financial adviser might recommend rolling your 401(k) into an IRA. If, though, you ever expect problems with bills that could lead to creditor judgment, you might be better off leaving your money in your employer’s 401(k). The reason is the Employment Retirement Income Security Act, which keeps qualified retirement plans such as 401(k)s safely out of reach of creditors.

Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, in the event of a bankruptcy, traditional and Roth IRAs derived from contributions are protected from creditors for amounts of up to $1 million. But these protections apply only to bankruptcy.

The Rule of $20

Russell Investments has invented the new "Retirement Rule of $20" as an alternative to traditional wisdom that retiree’s need 80% of their pre-retirement income to maintain an equivalent standard of living in post-career. According to the Rule of $20, it is not a question of how much income replacement is needed but rather how much you will need to collect from investments, benefits, and pensions to help combat market volatility and longevity risk.

The Rule provides an estimate of the amount of investment income you can expect to earn annually over the rest of your lifetime. Basically, for every $1 of annual income you expect to need over your retirement, you will need $20 saved at the day of your retirement (with inflation indexing).

The $20 Rule is based on current data regarding average life expectancies and the long-term rate of return from a balanced retirement portfolio consisting of 35% equities and 65% bonds.

An Erosion of Retirement Confidence

Older workers are much less confident about their retirement security than they were two years ago on account of the current financial crisis, according to a new survey by Watson Wyatt, a leading global consulting firm. The survey also found that workers with defined benefit (DB) plans are much more confident in their retirement prospects than those who participate only in a defined contribution (DC) plan

In its survey, Watson Wyatt found the percent of workers aged 50-64 who are very confident about having enough resources to live comfortably five years into retirement dropped to 44% from 63% in 2007. The numbers for expecting a comfortable lifestyle fifteen years into retirement are even bleaker. Only 18% think they have sufficient resources to be comfortable for this long, compared with 34% who felt that way in 2007. The survey includes responses from more than 2,200 full-time workers.

Retirement Plans for Small Businesses

Only 20% of U.S. businesses with fewer than twenty-five employees have retirement plans. Yet, 85% of them feel having a retirement plan is “really important” according to a survey by ING Direct.

The Importance of Beneficiary Designations

A recent U.S. Supreme Court case demonstrates the importance of ensuring that beneficiary designations are current on 401(k) accounts and other company-sponsored retirement plans.

Retirement Planning Tools

The following summarizes nine retirement planning tools available on the market:

• Brentmark Retirement Plan Analyzer evaluates strategies of taking distributions from traditional IRAs, Roth IRAs, Roth 401(k)s, and other qualified retirement plans. Its "quick calculators" tab allows a side-by-side comparison of conversion of the retirement plan to a Roth IRA. There is also a new "quick start" menu for faster access to client set-up and functions.
• Also from Brentmark is a Retirement Income Navigator. It uses an asset allocation approach for optimizing retirement income during the income drawdown period of retirement.
• The Retirement Plan Analyzer remains Brentmark’s most popular tool among accountants for its simple but effective blend of economy, flexibility and tax considerations.
• Brentmark Kugler Estate Analyzer is designed to give estate planners flexibility in creating advanced financial positions for their clients through 18 inter-related estate-planning techniques.
•  BNA Wealth Manager is a wealth management solution designed especially for accountants. Aimed at the mid-to-upper end of the planning market, from mass affluent to ultra-high-net-worth clients, it simplifies complex planning processes and equips the practitioner to deliver actionable advice to clients.
• The J&L Retirement Planner is a specialized version of the company's financial planning system, expanded to include reverse mortgages, asset allocation withdrawals, minimum distributions and scenario event groups.
• Money Minders Financial Planning Spreadsheets operates on the Microsoft Excel platform with a variety of twenty-five templates for retirement that will strongly appeal to accountants who craft their own plans and presentations but want stronger calculation and scenario comparison capabilities.

2009: A Re-Do Year

The Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001will command the attention this year of everyone who works with retirement plans. The reason is that the law makes 2009 a "re-do" year for most retirement plans.

In June 2001, EGTRRA introduced significant enhancements to retirement plans to permit employees to save more in employer plans and IRAs, ease portability among various plans and provide significant administrative and fiduciary relief to employers who sponsor retirement plans.

EGTRRA also included measures like the saver's credit, which benefits low-income savers, and catch-up contributions that permit older workers to save more under the plans.

All retirement plans were required to comply with EGTRRA and adopt interim EGTRRA amendments.

Employers must now amend and restate their written plan documents to conform to the way the plan has been operated, by incorporating the changes made by EGTRRA.

Top Retirement Center Offerings

Corporate Insight, a leader in competitive intelligence in the financial service industry, has announced the release of a new series of research reports that will focus on retirement-related offerings in the annuities, credit cards, mutual fund, banking and brokerage sectors. The series launches with an initial, first-of-its-kind report that examines the top dedicated Retirement Centers offered by brokerages. Corporate Insight carefully evaluates the breadth and accessibility of information that fourteen leading brokerages are providing to customers.

Three firms—E*Trade Financial, Fidelity, and TD Ameritrade—earned top honors from Corporate Insight for providing an overall complete retirement center offering while Charles Schwab stood out for its comprehensive public and private site offerings. Its public site allows prospective clients to use planning tools and educational resources with the option to enroll in the firm’s services prominently available.

Military Retirement Pay after Divorce

Under current Oklahoma law, when a couple divorce, the non-military spouse gets a percentage of military retirement pay when the service member retires. A new law will take effect in July to require judges to consider the length of the marriage and the military person's rank at the time of the marriage when dividing the military retirement pay. Another provision that takes effect July 1 requires an ex-spouse to file a legal document within two years of the divorce stating they intend to pursue legal proceedings to get a portion of a spouse's military retirement pay. The proposed changes in Oklahoma law mirror a national movement to address issues of veteran pay.