Retire2Enjoy : Dr. Jussi Vahtera Studies Sleep, Wells Fargo Conducts a Retirement Fitness Survey, Is a DB(k) in the Offing?

Dr. Jussi Vahtera: The Best-Sleeping Retirees

Dr. Jussi Vahtera of the University of Turku in Finland conducted a study of 14,714 people who had retired from the French national gas and electric company. Tthe researchers followed the workers for seven years before they retired and for seven years afterwards.

While the percentage of people who reported sleep disturbances crept up gradually as they aged -- from 23 percent seven years before retirement to 25 percent the year before a person retired -- it dropped sharply when a person did retire. One year after leaving the work force, 18 percent of the study participants reported sleep disturbances. But this percentage inched up again, reaching 21 percent seven years after retirement.

DB(k)

The vulnerabilities of the 401(k) plan have cast doubt on whether a voluntary savings plan is the best way for workers to prepare for retirement. There are some possible alternatives in the works. The DB(k) is one of the most promising. It might become available in January 2010 offering a guaranteed pension-like retirement benefit alongside a 401(k).

The 2006 tax code actually created the DB(k). That law allows companies with fewer than 500 workers to start the hybrid plan after Jan. 1, 2010. Some proponents would like to see it available to all workers.

There are two components to the DB(k):

First, companies will be required to establish a pension fund sufficient to pay a worker in retirement up to 20 percent of that individual's average annual pay received during the last few years of work. After three years with a company, a new employee's benefits will be vested. This means the money is theirs even if they leave the company. Their balance in this account would be paid out at retirement in monthly checks like a traditional pension plan. Such plans are called defined benefit plans, which explains the DB part of the DB(k) name.

Second, alongside that benefit, the company will automatically take 4 percent of a worker's pay and put it in a 401(k) plan. The company must match 50 percent of that amount, which would be immediately vested. At retirement, the worker could withdraw additional funds from their 401(k) account to supplement the pension payments. Workers can opt out of their contribution or chose to set aside less.

Retirement Fitness Survey

Wells Fargo has issued the following news release:

When it comes to their retirement, America's 50-somethings seem to be in a state of denial. Although the recent economic downturn has forced pre-retirees ages 50 to 59 to consider working years longer than they had hoped, their current rate of savings is unlikely to fund the retirement lifestyles they expect, according to fifth annual Retirement Fitness Survey from Wells Fargo & Company.

Only 23% of pre-retirees are saving more for retirement than they were a year ago, the survey found. Most -- 57% -- are saving the same amount, and 20% are now saving less. 67% say their expectations for retirement have changed in the past year, and 56% now expect to work longer by an average of three additional years.

Overall, the financial positions and savings habits of this group are insufficient to last for their expected 20-plus years of retirement:

While pre-retirees surveyed expect to need $800,000 for retirement, they have saved only $300,000 (median amounts).

Pre-retirees clearly haven't assessed how long their savings will last in retirement. They expect to live nearly 21 years in retirement, but plan on spending nearly 10% of their savings every year in retirement. The industry recommendation is to withdraw no more than 4% annually.

People have been overly optimistic about their investment returns. When they started saving (typically in their 30s), both pre-retirees and retirees expected the value of their investments to grow by 8.7% each year, on average. In fact, the compound annual growth rate of the S&P 500 from 1958 through 2008 was 6.6%.

Despite their inadequate savings, nearly two-thirds lack any formal plans for retirement savings or spending strategies. Only 35% of the pre-retirees have a written plan for retirement, and of this group, only 52% say they updated it in the past year during the market downturn.

Less than half (40%) wish they had been more proactive about educating themselves about retirement preparation.

Only 34% "wish they had cut back more on their previous lifestyle and saved more" for retirement.

Richard Day Research conducted the Retirement Fitness Survey in conjunction with Wells Fargo. It consisted of 2,108 online surveys of pre-retirees (ages 50 to 59) and young retirees (ages 55 to 70). Those interviewed were relatively affluent, each having at least $100,000 in household investable assets, excluding real estate. Assuming no sample bias, the margin of error would be +/- 3% for each sample (at the 95% confidence level).

Federal Retirement Thrift Savings Plan

The Thrift Savings Plan (TSP) for Federal employees and members of the uniformed services is the largest defined contribution retirement plan in the world. Individual accounts are maintained for more than 4.2 million participants. As of September 30, 2009, the TSP held approximately $234 billion in retirement savings.

The Thrift Savings Plan Budget

In the FY 2010 Thrift Savings Plan budget approved 76%, or nearly $100 million, is allocated to information technology, security, and other record-keeping functions.

Prescription for Financial Security

In a keynote speech to the American Council of Life Insurers today, Roger W. Ferguson, Jr., President and CEO of TIAA-CREF, offered a five-point prescription to help provide all Americans with lifetime financial security.

1. Guaranteed Lifetime Income
2. Full Participation and Adequate Funding
3. Broad Diversification
4. Education and Advice
5. Retirement Health Care Savings

How to Help

A new report from the Principal Financial Group(®) explores how financial professionals can help clients increase the chances retirement income may last despite unpredictable market turbulence. It is entitled Guidance for Sustaining Retirement Income Before and After Market Downturns. The report suggests alternative retirement recovery strategies and tests them against an extreme market period.

The white paper provides:

* An analysis of sequence of returns risk: the risk of poor returns reducing savings early in retirement versus the effect of poor returns later in retirement

* An illustration that shows by maintaining common assumptions across retirement ages, investors who wait longer to retire may be able to absorb more market declines – although ongoing monitoring of retirement savings is critical for most retirees

* An outline of alternative strategies that may help improve the chances of retirement savings will last

Devastation

Nearly $9 trillion of private household financial assets has been wiped out by one of the most devastating financial crises in history. Almost half of these losses have occurred in retirement accounts.

Merrill Lynch Settling in with Bank of America

Trying to move beyond the lawsuits and congressional hearings, Bank of America will finally start using Merrill for what it intended when it bought the beleaguered investment bank in January: to develop wealth management products.

Bank of America recently introduced the first product that uses Merrill's investment management capabilities and the overall firm's banking capabilities. The "My Retirement Income" offering lets customers nearing, or in, retirement automatically transfer, monthly or quarterly, funds from a Merrill cash management account into a Bank of America deposit account.

The product is not unique, but it adds competition to the retirement planning market and is a tangible advance in the much-maligned integration of the two companies.

IRS Guidance

In recently issued Notice 2009-82, the Internal Revenue Service has provided guidance to taxpayers with respect to their ability to roll over, and thereby avoid tax, on any required minimum distributions they have received in 2009 from certain qualified retirement plans and individual retirement accounts. This guidance includes the extension, until Nov. 30, of the statutory 60-day rollover period. The ability to roll over these distributions was enacted as part of the Worker, Retiree and Employer Recovery Act of 2008. It is intended to provide taxpayers with relief from the consequences of the crash of the financial markets in 2008.