Moving Rapidly into the Red

Federal entitlement programs are critical to retirement security, but these programs are rapidly moving into the red. New projections by the trustees of the Social Security and Medicare trust funds released May 11 indicate that both funds will run out of money even sooner than estimated in last year's report.

The Social Security trust fund is in better shape than Medicare. Revenues still exceed benefits by a comfortable amount. But the wave of baby boomer retirements will change that picture. The new trustees report still expects the surplus to continue until 2015 but move into deficit thereafter. This report projects that by 2037, revenues will be only 75% of benefit payments.

Doom and Gloom for Retirement

The findings of a new report indicate that the decline in the stock market in the last six months of 2008 dramatically worsened the retirement outlook for middle-class Americans. The analysis, conducted by Americans for Secure Retirement, finds that the retirement assets of recent and near retirees decreased between 14% and 17% in the last six months of 2008. The decline significantly reduces the likelihood that middle-income retirees will have enough financial resources to last them through their lifetime.

The study also determined that many Americans will be forced to reduce their standard of living, some by as much as 51%, to avoid outliving their financial assets and that households with a guaranteed source of retirement income outside of Social Security, such as a lifetime annuity, showed the greatest chance of financial success. Conversely, the study found that households with no guaranteed retirement income outside of Social Security are most vulnerable to outliving their financial assets.

 Americans for Secure Retirement

The Americans for Secure Retirement coalition has applauded the Retirement Security Needs for Life Act introduced by Representatives Earl Pomeroy (D-ND) and Ginny Brown-Waite (R-FL).

Retirement Security Needs Lifetime Pay Act

Congressman Earl Pomeroy (D-ND) and Rep. Ginny Brown-Waite (R-FL)  have introduced bipartisan legislation that will promote lifetime income security by providing incentives for workers to annuitize part of their retirement savings. The Retirement Security Needs Lifetime Pay Act, H.R. 2748, would encourage workers to annuitize some of their retirement savings by providing a 50% tax exclusion for up $10,000 of lifetime annuity payments each year. Additionally, the bill would exclude from taxes, 25% of lifetime income payments from Individual Retirement Accounts (IRAs), qualified plans, and similar employer-sponsored retirement savings plans other than defined benefit plans.

Family Feuds over Retirement

More couples disagree over their retirement plans. In a survey conducted by Fidelity Investments, only 38% of couples said they make decisions together about their retirement finances, and only 15% of couples are confident that either spouse is prepared to assume financial responsibility if one spouse dies.

401(k) Withdrawal Stats

A study by AARP shows that 13% of Americans forty-five and older took cash from their 401(k)s and other plans between September 2007 and 2008, while also spending less on retirement savings and planning to work longer before retiring.

Dropping Balances

The global financial crisis helped wipe away more than one fifth of assets held in retirement plans in the United States last year. Assets held in retirement plans declined 22% to $14 trillion last year, from $17.9 trillion in 2007, according to data released by the Investment Company Institute, an industry trade group.

Individual retirement account assets fell 24% percent while defined contribution plan assets fell 22%. Assets in state and local pension plans fell 27%, as did assets in private-sector defined benefit plans. Total federal government pension assets grew 2% last year.

The Obama Administration Explores ‘R Bond’ as an Option for Retirement Accounts

Officials in the Obama administration are moving to develop the investment infrastructure behind the president’s proposal for mandatory automatic enrollment in individual retirement accounts, which could be supported by the creation of Treasury-issued retirement bonds.

J. Mark Iwry, Deputy Assistant Secretary for Retirement and Health Policy at the Department of the Treasury, said that administration officials are exploring some “conservative” options for investing the assets of 78 million Americans that he estimates could be automatically enrolled in this “universal” workplace retirement system.

He said that officials have discussed the possibility of making a low-risk life-cycle or target date fund the default investment option for these auto-IRAs, which would be mandatory for employers if they don’t offer a retirement plan to their workers. The key would be a new form of bond—the “R bond”—as the basic building block for the auto-IRA.

There are two reasons that R bonds could be an attractive default investment option for auto-IRAs. First, many of the individuals who would be automatically enrolled in these accounts could be people who had never saved for retirement. Second, the bonds would also address a second potential problem in getting the auto-IRA program off the ground.

R bonds could serve as the “training wheels” that would allow workers’ auto-IRAs to grow to the point where they would be more attractive to the financial services community. The  bonds would serve as the bridge between the public and private sectors in the auto-IRA program.

The Administration, which included an auto-IRA provision in its 2010 budget, has gained some bipartisan support for the proposal,

Retirement Years May Not Be As Comfortable As Many Americans Have Expected

The Center for Retirement Research (CRR) at Boston College estimates that 43% of Americans are "at risk," meaning unable to maintain their current standard of living in retirement. Most Americans seem to understand their situation. Only 19% of the population responds that they are prepared when they really aren't, according to the CRR survey. Many Americans don't seem to be doing much about it, whether through saving, paying off debt, or taking advantage of preretirement investment opportunities available to them.

The Parade of Retirement Homes

Six retirement communities in Colorado Springs were open for tour last weekend in the city’s Parade of Retirement Homes. The event is the first of its kind in the nation. In it, people get to see what kind of retirement communities are available and learn more about the lifestyle they provide. The Parade targets active seniors who are looking for a fun and relaxed lifestyle.