Home Equity Insecurity according to the Retirement Risk Index

More than 60 percent of households are 'at risk' of being financially unprepared for retirement, according to the National Retirement Risk Index (NRRI), formulated by the Center for Retirement Research (CRR) at Boston College. 

In the analysis of how failing to take full advantage of housing equity affects the share of U.S. households 'at risk,' the result is a 10 percentage-point rise in the Index compared to a seven-point increase from the 2008 stock market crash.

The NRRI is a percentage measurement of how many working Americans are 'at risk' of being unable to maintain their standard of living in retirement. It relies on conservative assumptions in its baseline scenario. One of those assumptions is that consumers access their home equity through a reverse mortgage and invest the proceeds in an inflation-indexed annuity to help generate retirement income. The new research removes that assumption.

According to the CRR: "The impact of home equity on the percent of households 'at risk' is greater than that of the recent stock market crash. How baby boomers and future generations decide to use their home equity could determine how well many fare in retirement."

401(k) Rollovers: New Findings from Charles Schwab

Workers have four choices with their 401(k) savings when they leave a job.

They can:

1. leave money in a previous employer’s 401(k) plan unless the employer requires a distribution
2. roll the money into an IRA
3. move the money into a new employer’s plan if available
4. take the money as a cash distribution

New data from Charles Schwab shows that more people are rolling 401(k) savings into an IRA when leaving a job. According to the data, 69 percent of assets held by 401(k) participants who left their job in the fourth quarter of 2008 had been distributed from former employers’ plans one year later by the end of 2009. An overwhelming majority of those assets was rolled over into IRAs.

Of the distributed assets:

• 80 percent were rolled over into IRAs
• 10 percent were taken in cash distributions
• 8 percent were moved into new employer plans
• 2 percent were taken in other forms of distributions

A prior analysis conducted by Schwab from the beginning of 2008 to the beginning of 2009 found that 57 percent of 401(k) assets held by workers who left their job had been distributed one year later. Three-quarters (75%) of those distributed assets were rolled over into IRAs.**

Pennsylvania Retirement Incentives

The Pennsylvania state university system has reached an agreement with five of its unions on a voluntary retirement incentive that will help control the system's future labor costs.

About 400 employees are eligible to take the retirement incentive ranging from $6,000 and $30,000, depending on their years of service, to leave this summer. Savings derived from the retirement initiative could reach several millions of dollars, a savings that would have been higher had the offer been accepted by the system's largest union, the Association of Pennsylvania State College and University Faculties, which represents about 7,000 faculty and coaches.

Employees taking the retirement incentive must be at least 60 years of age or have at least 35 years of service and qualify for post-retirement health benefits, by June 18, he said. They must declare their intention to take this offer between March 29 and May 28, and must leave between June 18 and Aug. 27.

The Pennsylvania State System of Higher Education's schools are Millersville, Shippensburg, Bloomsburg, California, Cheyney, Clarion, East Stroudsburg, Edinboro, Kutztown, Lock Haven, Mansfield, Slippery Rock and West Chester universities and Indiana University of Pennsylvania.

Retirement Industry Conference

LIMRA, LOMA and the Society of Actuaries (SOA) will host their annual Retirement Industry Conference in Washington, D.C. on April 11-13, 2010. The conference theme, Rejuvenate: Strategies to Help Your Business Thrive, focuses on providing information and ideas to help retirement industry professionals of all disciplines understand the issues facing the industry; learn about cutting-edge market research; and discover best practices about management, operations, and marketing.

More than 300 retirement industry professionals from companies across the globe will attend the Retirement Industry Conference.

Retirement Wealth Know-How

Many Americans who are nearing retirement have seen their investments drop significantly in the market turmoil of the past few years.  Others are more comfortably set for their retirement, but could still be derailed by swindlers, catastrophic medical expenses, and other threats.  Some Americans are already retired and worry about how to properly manage their money to last throughout their golden years.

Americans nearing retirement will benefit from a major new resource being made available from the nonprofit Alliance for Investor Education (AIE). It highlights twelve Web-based resources for older investors looking to grow and protect their retirement savings.  Headlined "Retirement Wealth Know-How:  Investor Education for Seniors," it is available at http://www.investoreducation.org/retirementwealth.  

It features these resources:

1. Understanding Your Retirement Paycheck - http://tinyurl.com/yjbes6s, National Endowment for Financial Education.
2. Take Charge Before a Bad Deal Takes You - http://tinyurl.com/yhjacsk, Investor Protection Trust.
3. SaveAndInvest.org for Seniors - http://tinyurl.com/yzro6p6, FINRA Investor Education Foundation.
4. Senior Investor Resource Center - http://tinyurl.com/yzxsu9l, North American Securities Administrators Association.
5. Investor Info for Seniors - http://tinyurl.com/yjj3e4f, Securities and Exchange Commission.
6. Top Ten Ways to Beat the Clock and Prepare for Retirement - http://tinyurl.com/yg7xuc9, Employee Benefit Research Institute/Choose to Save.
7. Retirement - Reinvent Yourself – http://tinyurl.com/yjtckk6, Certified Financial Planner (CFP) Board of Standards Inc.
8. Surviving A Loss: Smart Steps for Coping With Widowhood - http://tinyurl.com/yhdr3jr, American Association of Individual Investors.
9. Protecting and Strengthening Retirement Savings - http://tinyurl.com/yhbv3ft, Retirement Security Project.
10. Retirement Issues to Watch in 2010 - http://tinyurl.com/ykje8a3, American Institute of Certified Public Accountants/360 Degrees of Financial Literacy.
11. Ensuring Retirement Years Are Golden - http://tinyurl.com/yjnqk2g, CFA Institute.
12. Planning for Retirement - http://tinyurl.com/yha4524, Investment Company Institute Education Foundation.

Retirement Income Generation

Financial professionals are enhancing their understanding of how to help clients transition from asset accumulation to income generation in retirement. According to research from the Financial Planning Association, more than 89 percent of financial professionals say they are likely to obtain more training on ways to generate retirement income.

The Alzheimer’s Epidemic

Some 5.3 million people now have Alzheimer's, according to a recent report issued by the Alzheimer's Association, roughly the number of people who live in Colorado. The prevalence of Alzheimer's is expected to grow by more than 80% from 2000 to 2025 in at least nine states. By 2050, some 19 million Americans will have the disease.

Multiple Small Employer Plans

With nearly half of America’s workforce—some 78 million workers—lacking access to a workplace-provided retirement savings plan, recommendations are in the offing before Congress.

One such recommendation comes in the form of a white paper released by Prudential Financial entitled “Leveraging Multiple Small Employer Plans to Close the Retirement Coverage Gap.” It addresses the more than 30 million uncovered workers employed by businesses that have fewer than 100 employees. The solution, according to Prudential, is the Multiple Small Employer Plan. It would enable small employers to join together to offer a single retirement program.

AAA “How-To”

The American Automobile Association (AAA), the largest paid-membership organization in North America, is offering consumers advice on constructing a sound savings strategy through a series of "how-to" videos on the Internet.  The videos include an emphasis on saving money for retirement. They cover three common investment types: money markets, certificates of deposit, and individual retirement accounts.

Five Steps To Get on the Right Retirement Path

Kathryn Canavan, writing in USA Today, outlines these five steps to get on the right retirement path customized by age group, taken here verbatim from her article:

If you're 25

1 Make a budget.

Download step-by-step instructions at SmartAboutMoney.org or use the home budget calculator at MindYourFinances.com.

Don't have sufficient cash to cover expenses and savings? You have two options: Slice spending or increase income by working more hours or getting a second job. It's easier to work extra hours before you have family obligations. Saving 15% for retirement annually is a good goal to shoot for. People who set a goal are more likely to reach that goal, says Ken McDonnell, program director for the American Savings Education Council.

2 Consider moving in with Mom and Dad.

Doing so allows you to stockpile cash for retirement and the major life events that are on your horizon, such as purchasing a home, planning a wedding and having kids. Thirteen percent of families with grown children said an adult son or daughter moved home last year, according to a Pew Research Center survey.

3 Pay down debts.

If you're paying interest on college loans and on your credit card balance, paying those debts off first is a no-brainer. To see how long it'll take, try the credit card pay-off calculator at Feedthepig.org.

4 Make the match.

If your employer offers to match contributions to your pretax retirement account, contribute enough to get that match. If you don't, you're passing up free money, something no one would do under any other circumstance, says Jordan Amin, financial literacy chair for the American Institute of Certified Public Accountants. To see how increasing your current contributions now will buoy your retirement later, try the 401(k) Savings Calculator at AARP.org.

5 Invest in the stock market.

"At 25, you have the ability to handle ups and downs and fluctuations in the market, because you don't really need that money for 40 years," Amin says.

If you're 45

1 Plan ahead.

Begin looking at long-term care insurance and other insurance coverage befitting your needs. Long-term care policies get pricier as you age, and you may be better off locking in a lower price now. Also, make certain you have sufficient life insurance or savings to provide for your dependents in case you don't make it to retirement.

Keep in mind that in five more years you can make catch-up contributions to your 401(k), 457 or 403(b) plan. Those 50 and older can contribute an additional $5,500 each year, McDonnell says, for a total maximum pretax annual contribution of $22,000.

2 Rebalance your assets.

If you're still investing like a 25-year-old, shift some of those investments to less-volatile fixed-income funds, Amin says. If you haven't been a good saver, he says, you may have to sacrifice more now and invest slightly less conservatively. In either case, you should have a higher percentage of your assets in fixed-income funds than you had when you were 25, he says.

3 Carefully consider spending decisions.

Is it really a good idea to take a second 30-year mortgage to cover your child's college tuition or to renovate your kitchen? Will you be able to make mortgage payments at 75?

4 Save whatever you can.

Amin says it's not too late to get serious about saving at 45, but the tremendous competition for your money -- family, health costs, mortgage, educational planning and elder planning -- can make it very tough. Get it done, anyway.

One note: If your employer reduces or drops the match to your 401(k), that's not a signal to reduce contributions. Keep them level or increase them, McDonnell advises.

5 Take ownership of your finances.

Whether you are a do-it-yourselfer or you hire a financial professional, watch your nest egg.

"Understand what you're signing and what you're agreeing to," Amin says. "Be certain you understand what the fees are. Monitor your investments. Read your monthly statements. Ask questions if you don't understand something. Don't sign anything that you don't understand, and don't invest in anything that you don't understand. It's OK to ask questions -- repeatedly.

"It's your money, and you should understand and be comfortable with what you're doing with it."

If you're 65

1 Figure out your funding source.

Know exactly how much money you'll need to live on and where you are going to get it -- retirement accounts, IRAs, 401(k)s, pensions, individual savings, Social Security or part-time work, for example.

If your financial picture is bleak, consider delaying your retirement. If you work five more years and save aggressively during that time, you can change your retirement picture. "Don't think of work as an evil thing," McDonnell says. "Staying active means a healthier life. Work can be a component of what you do."

2 Roll over your 401(k) properly.

Otherwise, you could lose 20% of your investment. If your intention is to move your money from one account to another, make sure you don't wind up with a check instead of a monthly statement.

"You want to make sure that you're rolling it over directly to a qualified investment account like an IRA so the money's not touching your hands," Amin says. "When it comes to you, it becomes taxable, so there's a mandatory federal withholding of 20%."

3 Decide on withdrawals.

The goal is to make your capital last as long as possible and pay no unnecessary taxes. For help, go online to 360financialliteracy.org, SSA.gov and AARP.org.

4 Exit the job carefully.

Make sure you make the right moves when you sign your retirement papers. Read everything and ask questions to ensure that you understand what insurance coverage, investment rollovers and spousal benefits are in store for you, your dependents and your beneficiaries.

Be sure you understand options for tapping your pension or retirement plan. Decide if you want to let your 401(k) stay put or roll it over to an outside plan that may offer more investment options.

5 Seek help if nearly broke.

Explore local and state programs that assist older citizens. They range from free lunch programs to time banks, where, for every hour you spend doing something for someone in your community, you can earn a "time dollar" to hire someone to do something for you.