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In order to properly plan for the 20 to 30 years after one retires, it is necessary to consider numerous issues 10 to 15 years BEFORE retirement so that your entire situation is adequately addressed.

Unfortunately, there are three major areas where retirees universally fail. The first and most important is the fact they do not complete a realistic budget. Time and time again, most people have no idea of what they have spent in the past (or are currently spending prior to retirement) and therefore little conception of what to anticipate in the future. It is not unusual to find retirees actually spending MORE after retirement than while working since they have more time to travel, see relatives, give gifts or simply enjoy themselves.

The second problem is the fact that many retirees immediately put all of their investment savings in CD's or similar money market instruments under the assumption that once one retires, no further risk of any type should be undertaken. While less risk is generally recommended, a no risk scenario usually means that the after tax returns are being continually offset by inflation- in some cases producing negative returns. With many retirees using fixed non-adjustable income streams such as annuities, their lifestyle may go down by well over 50% during their retirement years. A 6% inflation rate reduces a value of an income stream by 50% in just 12 years.

And the third area which impacts the first two, is the fact that retirees think they are only going to live to 70 or 75 years of age. A healthy retiree should figure on living to around 85 and MUST budget for that period of time. (Admittedly, some minorities have lifetimes shorter than whites and should adjust their budget and time frame accordingly.) A 1996 actuary noted that a male age 65 should expect a lifetime to 80.3 years of age. A female age 65 should plan for 83.5. But I almost invariably add a "fudge factor" for generalized planning and suggest 85. Note that I said "generalized"- when speaking to groups. If, however, I am doing work directly for some clients and, for example, the man smokes, hasn't exercised in years and has high blood pressure, I will NOT project him living a very long time- even to age 80- and will plan my numbers and the estate planning accordingly (though other ages may be added as contingencies).

Looking again at an annual 6% inflation therefore, if there are 24 years to live after age 60, an income stream at age 84 will only be 25% of its original purchasing power. Unfortunately the thoughts of a wonderful, stressless and comfortable retirement can turn into an economic and emotional nightmare. I've seen it happen. Maybe you will be the lucky one where everything goes right, but if not.............

Obviously in the retirement process, there are a myriad of issues that MUST be covered. The following is a list of some of the concerns that the retiree must analyze in order to make the proper projections.


1. How long till you retire?

a. The longer the period for investing prior to retirement, the greater the retirement kitty you can build up. Further, the more growth investments may be used at that time- which historically have had a much greater return than pure income investments.

2. What is life expectancy?

a. Remember men should plan till early 80's and women till mid 80's.

b. Recognize that when article mention longevity, they are discussing people born TODAY, not necessarily those already at age 65. That definitely causes confusion with many retirees. For example some census statistics show ages to 75 for whites and 6 years less for blacks. But unless there are some mitigating circumstances (some addressed below), it is always better to err on the conservative side and plan for the longer period of time. Further, as the ages progress, there is less difference between sexes and races and by the time you hit the mid/last 70's the differences are supposedly almost nil.

3. What is health condition of you and your spouse?

a. Obviously poor health of either party can alter your life expectations. Your lineage is also important- how long have/did your parents and siblings live? What are their past and current health problems?


1. How much do you spend currently and what lifestyle do you anticipate after you retire?

a. A formal budget is absolutely invaluable. But also consider your proposed lifestyle. If you are going to travel, see relatives, etc., etc., it can be fairly costly and these significant expenses must be reflected.

2. What are current expenses and how will they change in retirement?

a. While statistics (generally erroneous or at least misleading) from major mutual fund "free retirement brochures" and other simplistic services tend to state that you simply need to take 60% to 80% of current expenses (some say 50% to 90%), many retirees spend close to 100% (or MORE!) of pre- retirement expenses. If you do not know your current expenses, then the percentages of a poorly estimated number are a waste of time. Even if the current expenses are correct, do you take 60% or 80% as a guide to future costs? Remember, if you pick 60% expenses where they should have been 80%, you may run out of money 5 to 10 years before you die. Then what????? Probable welfare and Medicaid, that's what. I cannot stress the absolute necessity of securing current expenses as accurately as possible and then analyzing a future budget as closely as possible.

Don't underbudget.

3. Where will you live?

a. One of the major determinants here is health. From my own family's history, it was apparent that while they did not wish to move from the Northeast where they had lived their entire lives, the cold winters were taking a toll on personal health. It was therefore necessary to consider a warmer climate- at least for the winter months. But economics entered a the picture too. They could not afford to have a home in both areas, so they used the equity in their old residence to purchase mobile homes in the Northeast and Florida. They traveled back and forth each year. The situation is not perfect, but it is one they have to live with.

4. Will you pay off the mortgage and other obligations.
a. Owning a home free and clear and having a mortgage burning ceremony still remains the wishes of many retirees. If one has owned a home for many years and there exists a small mortgage remaining, the payoff is not a major issue, if at all. However, in the situations where the old residence may be sold and a new home purchase made, or paying off a very large mortgage is considered, several issues must be explored.

1. Paying all cash for the new home or paying off a large mortgage simply to have no mortgage payment is, in most cases, fraught with problems. The one most prominent is whether there are sufficient funds left for investment liquidity. Being real estate rich and cash poor may mean that, sooner or later, the cash will run out. The owner may be forced to sell the property or possibly seek reverse mortgages which will cost more overall than an original mortgage. HEAR THIS: Reverse mortgages generally relate to bad planning and are considered as last ditch survival.

2. If the property is purchased all cash, what happens should the value of the property decrease? While many people in the 80's felt there was no way this could happen, the subsequent recession brought with it significant reduction in real estate values. Admittedly, commercial properties were the hardest hit, but many residential properties suffered as well- particularly Denver, many portions of Texas, the Northeast and parts of Arizona and southern California as well. Or what about the problem where a home is purchased in a new tract that, for a myriad of reasons, is unable to go forward? Should the lender have to take the rest of the development back under foreclosure, it could be many MANY years before the tract is completed. Previous purchasers will watch their equity drop dramatically. With a small down payment- say 10%- any major loss will be borne by the lender, not the purchaser.

Undoubtedly almost all these properties will increase- but WHEN? Will you get back your initial investment in the next five, ten or twenty years??? A retiree canNOT afford the risk that real estate always increases while he/she owns it.

As to the issue of paying a mortgage at 8%, remember that most retirees will have incomes in the 28% range (add state tax if applicable) and therefore the after tax rate is about 5.5%. Municipal bond funds, though require monitoring, would pay, say 5+-%, and therefore yield a break even point. So keeping the money elsewhere might be good planning because of the liquidity aspect of the investments. And as you will see, retirees may also need growth investments as part of their investment strategy. These have provided returns up to historically of 10%. The point to this strategy is that the alternatives that are available may be more desirable than tying up all principal in a, for the most part, non-liquid asset.

The same scenario exists with paying off other types of notes or obligations. There is certainly no issue in NOT paying off such items as credit cards since they charge horrendously high interest rate (18%) that no reasonable investment is going to match with certainty. However, other obligations with more realistic rates must be analyzed to see if there is a break even point anywhere available. Remember, regardless of any payoffs, there must be emergency cash available of at least six months expenses. Don't pay off anything and leave this kitty barren.

5. Will you own or rent?

a. Owning a home free and clear has already been addressed. The issue really relates to selling the home and taking the equity to rent a house presumably in another area with low rents. This is not a simple decision because it is based on the amount of inflation one anticipates on the rent over the next 10, 20 or 30 years. Only by completing a formal budget and by increasing the rent "X%" each year can an objective decision be reached.

6. What will be the cost of health care?
a. This is on the minds of almost all retirees. With the cost of medical procedures continually increasing, employers are cutting back on their commitment to health care to even current employees. By the time retirement rolls around, retirees are going to find, if they have not already, a significantly reduced health policy for both themselves and their spouse. Additionally, Medicare's costs have already outstripped their projected budgets. Unquestionably there has to be a reduction in the benefits Medicare offers. Employees may bargain for continual health care coverage by reducing the amount of payments to be received on a pension plan. There may be no alternative because they may be able to find NO economical policy available to them upon retirement.

Another option that employers have considered is the use of an HMO (Health Maintenance Organization) to keep policy costs manageable. Retirees, though they may want to keep their own personal physician, may have little option, assuming an HMO is even available, in using this form of medical care. Good HMO policies cost less than almost all other individual policies and usually cover 100% of the medical work. Admittedly the choice of physicians is limited and a non affiliated physician will rarely be utilized. But remember, it is cost, not personal psychological comfort, that is the reason for use.

Assuming a retiree must still be covered under Medicare, there is also the use and the cost of Medicare Supplemental Policies (MediGap). These policies cover extra costs and procedures not covered under the Medicare requirements. Until most recently, there was a vast difference in policies types- leading to confusion on the public's part and to abuse by agents. New governmental restrictions now limit policies to essentially 10 different types. It is now significantly easier to compare features and price of the various policies. The problem here is that due to the extensive cost increases of the last few years, Medigap policy prices have soared to the point where many retirees cannot afford them. (This increase will cause significant movement to the sole use of Managed Care Plans.)

And lastly, one must consider the use of a long term nursing home care policy. No one likes to think of confinement in an institution for a long period of time, but due to the lengthening of lifetime through medical procedures, it is a reality and a cost that must be addressed. The costs in California now run about $35,000 a year. Costs may range from the low $20,000 to over $100,000 in certain metropolitan areas (NY). How will these costs be covered- out of one's own pocket, becoming destitute and using Medicaid, or possibly purchasing a separate independent policy that would cover such costs? In the first instance, $35,000 can quickly deplete a small portfolio leaving little for a surviving spouse or other beneficiaries as desired. However, if you have a substantial net worth- some experts say $1,000,000 or more, then self funding may be acceptable. And if you have assets under $200,000, they suggest the use of MediCaid since the purchase of a long term health care policy maybe excessive to the budget. However, with assets above that amount, a unilateral acceptance (desire?) for Medicaid means many of your assets will be depleted before the state picks up the rest of the tab (at home spouses are able to retain assets for their use however- house, car, about $70,000 in assets, etc.). But there is unquestionably a social stigma attached to such use and statistics show that some Medicaid patients do not receive the same level of care. The most reasonable position for the middle class is the purchase of a long term health care policy designed according to a particular budget and the desires of the individual.

7. Will your income tax bracket drop? (Probably not in many cases- only a full budget can accurately determine)


1. Will either you or your spouse work part time? How many hours?

What is the impact on your social security payments?

2. What is available from social security and other government plans?

3. What is the income from employer sponsored plans? Are there inflation adjustments?

4. Are there other assets providing income?


1. What assets are available at retirement?

2. Will the home be sold at retirement?

3. What assets will be depleted during retirement and which assets will be retained?


1. What is the anticipated inflation factor to be used for the next 10, 20 and even 30 years?

2. Is social security indicated to be available for the entire retirement period? With an annual 0, 1%, 2%, 3%, 4% inflation adjustment?

3. What is the actuarial lifetime expected?

4. What are the anticipated before and after tax returns on investments?

5. What is the your risk acceptance? Are both you and your spouse in agreement? Are both of you well versed in financial matters?

6. Will savings continue in retirement?

7. Are there any inheritances expected?

8. If there are assets requiring constant monitoring, who will do it?

Do you or they have the expertise? What if you travel?

As indicated, you must do a budget. Use your checkbook, save receipts, review your annual taxes, do whatever it takes to get this right since your economic life depends on it. After you put down your current expenses, try to figure out what you would spend at retirement. Notice that some expenses remain level throughout retirement- such as many life insurance policies where the premiums stay constant. Most of your payments however are going to be for goods that will continue to rise with inflation- food, clothing, utilities- almost everything.

RETIREES: Researchers say retirees live on five income streams- Government assistance (42%), personal wealth (20%), pension income (20%), wage earnings (15%) and other sources (3%).


Average social security benefit for retired workers:

1976- $2,698

1996- $8,688

Percentage of retirees who rely on social security for half or more of their income- 66%

Percentage of the elderly who would fall below the poverty line without social security benefits- 54%

Number of baby boomers who will turn 65 between 2011 and 2029- 76 million

Number of workers per retiree in 1960- 5.1

Projected in 2020- 2.4

Year that social security trust fund will begin to lose money - 2012

Year it will be completely depleted - 2029

Percentage of Americans who are almost deliberate in their refusal to deal with retirement- 19%

Percentage of young adults who believe that social security will exist when they retire- 28%

PENSION PLANS: (1998) The National Commission on Retirement Policy reported recently that only half of American workers are covered by a pension plan. And defined benefit plans (which guarantee payments upon retirement and now cover perhaps just 38% of workers) have given way to defined contribution plans (the amount of the payments are not guaranteed but depend on the ability to the employee to invest money over their lifetime).

Yet much of this is lost since, should they change jobs, about 66% do NOT roll the money over to another plan- they simply spend it.

The study indicated that only 45% considered an annuity for providing retirement income for life and said that workers need to be educated about them. While that is viable, such education has almost universally voided the problems with annuities- an almost complete lack of control and an unbelievably dismal return. As stated herein, returns might approximate an acceptable yield of a Treasury Bond only if the annuitant were to live 10 to 15 years after his/her actuarial lifetime.

RETIREE MEDICAL CARE: 1998 (Kaiser Family Foundation) Employer-sponsored retiree health benefits from large companies has declined since 1991.

Their study also showed "that the number of big businesses charging premiums, tightening eligibility requirements, encouraging use of managed care, and placing dollar caps on coverage increased". In addition, the report concluded that potential changes in the Medicare program, such as a higher eligibility age, could accelerate the decline in retiree benefits by shifting additional health care costs to employers and retirees and thus encouraging companies to scale back or eliminate retiree plans.

"For retirees age 65 and older, the percentage of all large firms offering health benefits declined from 80% in 1991 to 71% in 1996.

For retirees age 65 and older, the percentage of employers requiring retirees to pay premiums for health coverage increased from 72% to 88%.

The percentage of employers placing dollar caps on future obligations for retiree health coverage rose from virtually zero to 39%.

More large employers are imposing stricter eligibility requirements for retiree health coverage such as a greater number of years worked.

And proposed Medicare reform could exacerbate the problem. If Medicare was not available till age 67, "a typical large company with a predominately older workforce would pay about 18% more in lifetime retiree health benefits for its employees, while a company with a younger workforce would pay about 16% more." Call 800 656-4533 for more info.

PENSIONS: The PBGC helps employees protect their rights. They suggest that you retain a copy of the summary plan description which outlines your company benefits Obtain, review and file your statements that show your work history Notify the pension office of any change of marital status, change of address, divorce, death of a spouse

You can get info by calling the Pension Benefit Guarantee Corporation at 202 219-8776. Advisers also take calls at 15 regional offices

Atlanta- 404 562-2156

Boston- 617 565-9600

Chicago- 312 353-0900

Cincinnati- 606 578-4680

Dallas- 214 767-6831

Detroit- 313 226-7450

Kansas City- 816 426-5131

Los Angeles- 818 583-7862

Miami- 305 651-6464

New York- 212 399-5191

Philadelphia- 215 596-1134

St. Louis- 314 539-2691

San Francisco- 415 744-6700

Seattle- 206 553-4244

RETIREMENT PLANNING: 1998 (ReliaStar) A survey of 400 Americans age 65 indicates that many of them are heading into retirement with a false sense of security. Many respondents apparently base their expectations of future financial security on gains made in the recent bull market-and do not for see a correction or downturn eroding those gains in the future (remember 1973 and 1974???). Only 10% percent of those polled viewed retirement as a time of financial worry and 8 in 10 sixty five year olds expect to be at least as financially well of during retirement as during their working years. The administration on aging reports that Social Security accounts for 42% of retiree income, while pensions assets and wages now account for 55% of retiree income.

Of Americans age 65, 71% had no written financial plan. 44% who said that they were worried about retirement security admitted that they waited too long to establish the retirement savings program.

Seventy percent of those 65 year olds considered themselves optimistic about retirement and their retirement security, even though the Census Bureau reported that 40 percent of those 65 and older live alone are poor. About 25% of 65 year olds trusted their employers more than anyone else to give them financial advice (Shoot me!)

MEN AND RETIREMENT: (1999) Many men have problems once the retire since work was everything they did and were. Gail Sheehy suggest that man review the following issues

1. Are you preparing to make the crossroads of midlife

2. Are you ready to search for a new direction leading to more meaning.

3. How do you plan to prolong your physical health

4. Do you know how to maintain your sexual potency

5. What things can you do to nourish your spirit

6. Are you willing to risk deeper intimacy that will offer you a buffer against the inevitable losses of middle and later life.

Why People Retire- (1999) Californians age 45 to 70

Wanted to do other things 31.1%
Health Reasons 28.2
Didn't like job or expected to lose their job 12.6
Poor Health of Family member 5.2
Age 5.2
Other 17.2

OLDER AND BETTER: (SBNC 1999) "Small businesses suffering from acute labor shortages should consider recruitment strategies geared to older workers. Workers aged 50 to 60 stick with their jobs an average of 15 years, with better attendance than most other age groups. Mature workers 55 and older are also less apt to be involved in accidents on the job. Although they make up 14% of the U.S. labor force, they account for just 9.7% of workplace injuries. Moreover, a recent survey shows that workers aged 55 years have the lowest health care costs. Even in companies where health costs rise with age, the lower absenteeism and turnover rates more than offset the additional health costs."

ARE RETIREES REALLY WEALTHY?: (Prof. Edward N. Wolff, a New York University 2000)  "Four out of five working-age Americans essentially have no wealth, except for equity in their homes, while in 1997 the top 1 percent owned 48.6 percent of all financial assets like stocks and bonds. That is the greatest concentration in the nation's history. The most important division among today's retirees is between those who own their own homes and those who don't: homeowners retire with an average net worth of $115,000, while nonhomeowners have $800. Baby boomers are expected on average to live a bit more than 17 years after reaching age 65, with those with more money enjoying better health and longer lives because of generally better medical care and diet and more healthful life styles.

PBGC: (2000) The Pension Benefit Guaranty Corp., established to protect the benefits of participants in failed corporate pension   plans, reported a $5.01 billion surplus in 1998, as compared to a $3 billion deficit in the early 1990s. While substantial, this   $5 billion surplus is dwarfed by the PBGC's potential $15-$17 billion exposure in unfunded liabilities in pension plans maintained by financially weak companies.

Characteristics of person in the labor force without pensions (GAO 2000) pdf format The U.S. General Accounting Office was asked by the House Committee on Education and the Workforce to provide information concerning (1) the proportion of the labor force without pension coverage and how that proportion has changed over the past decade, (2) the characteristics of workers in that labor force, and (3) the proportion and characteristics of retired people who lack pension income or pension assets.

HOUSING EQUITY BY THE ELDERLY: (National Bureau of Economic Research Working Paper) Housing equity is the principle asset of a large fraction of older Americans. Indeed many retired persons have essentially no financial assets, other then Social Security and, for some, employer-provided pension benefits. Yet we find that housing wealth is typically not used to support non-housing consumption during retirement. Based on data from the Survey of Income and Program Participation, and the Asset and Health Dynamics Among the Oldest Old, we consider the change in home equity as families age. The results are based in large part on families aged 70 and older. We find that, barring changes in household structure, most elderly families are unlikely to move. Even among movers, those families that continue to own typically do not reduce home equity. However, precipitating shocks, like the death of a spouse or entry to a nursing home, sometimes lead to liquidation of home equity. Home equity is typically not liquidated to support general non-housing consumption needs. The implication is that when considering whether families have saved enough to maintain their pre-retirement standard of living after retirement, housing equity should not be counted on to support general non-housing consumption. These conclusions seem to correspond closely with the results of a recent American Association of Retired Persons survey, which found that 95 percent of persons 75 and older agreed with the statement: What I'd really like to do is stay in my current residence as long as possible.'

Never retire (USA Today 2000): Most Americans want to retire early from their full-time jobs but continue working in a different capacity, according to a recent survey. Only 10% want to stop working altogether when they retire. And 70% would continue to work in some capacity even if they had enough money to live comfortably for the rest of their lives; 42% would like to work part-time for enjoyment; 11% would do volunteer work; 10% would work part-time primarily for the income; and 19% would like to start their own businesses.

Driving: (2000) Last year, 4,934 drivers age 70 and older died in car crashes, according to new data from the National Highway Traffic Safety Administration. That's a 33% jump from 1989, when 3,719 older motorists were killed. At the same time, overall fatalities dropped from 45,582 in 1989 to 41,345 last year, a 9% decrease.

Retirement Plan Beneficiary (2000)the choice of beneficiary will depend on a number of factors, such as options available under the plan, the participant's and spouse's (and other possible beneficiary's) health and financial needs, the degree of the spouse 's dependence on plan distributions, and the desire to pass assets on to the participant's heirs.

Inherited IRA's and Pension Funds (2000)

Savings: (Consumer Federation 2001) A survey indicated that 53 percent of respondents said they often lived from paycheck to paycheck. The percentage rose to 64 percent for households with annual incomes of $20,000 to $50,000 and to 79 percent for those with incomes of less than $20,000.

Over all, 60 percent said they needed to save more.

The typical American household had total net assets of $71,700 — most of it in home equity. But net financial assets, or assets minus debt, totaled only $9,850 per household, including money in retirement savings plans. Among low- and moderate-income households, the median net financial assets amounted to less than $1,000.

Older Individuals Will Work More in the Future:  The core dilemma that many economists are projecting for America is a very large drop in the percentage of adults who are working, a scenario that translates into a very large drop in the number of taxpayers supporting not just Social Security but education, defense, Medicare, and every other public program. The Urban Institute's Eugene Steuerle and Adam Carasso argue that older persons will actually work more in the future. Excerpt: "Economists argue that as a society grows richer, citizens will opt for more free time. However, the broad data indicate a rise in labor force participation rates, or reduced leisure, among all adults in recent decades. Conceivably, individuals in a well-developed society might demand goods and services that provide similar benefits to leisure rather than leisure per se. Certainly, people aren't content to do nothing in retirement. In our  view, as people's real resources grow, they do not necessarily want more free time as much as they want better living conditions, more exciting work, more stimulating recreation, and more freedom. These expectations, especially in today's relatively flexible workplace, can be met through jobs as well as through leisure activities. If we are right and the labor force participation of older workers grows in response to demand, then society's adjustment to the aging of the population may not be as tough as anticipated."

Retirement: (WSJ 2001) According to the U.S. Census Bureau, only about 4.5% of Americans 65 or older moved during 1999, down from about 5.3% a decade earlier. (Census data on mobility for 2000 won't be available until later this spring at the earliest.)

Across the country, older Americans appear to be rethinking where they retire. Many are simply buying a second home while holding on to their original house. Others are staying put entirely, and some that moved to states like Florida years ago are moving back to the places where they raised their children.

The American Association for Retired Persons in Washington says its surveys show 89% of respondents more than 55 years old desire to "age in place," up from 84% in 1992.

Drug costs: (National Institute for Health Care Management Foundation 2001)  As an aging population coped with arthritis, diabetes and high cholesterol, spending on prescription drugs  rose 18.8 percent last year, to $131.9 billion. Two dozen products accounted for half the increase, which occurred not just because drugs are becoming more expensive but because doctors are writing many more prescriptions for higher-cost drugs. The average price for a prescription for one of the top 50 drugs was $67.15, while the average for other drugs was $36.

The elderly will face more and more increases. Unless you have a lot of money, retirement for many will be difficult indeed if you are in poor health.

Retirement (Employee Benefit Research Institute and the American Savings Education Council 2001)  Americans are less optimistic about retirement, and fewer believe they will have enough money to live comfortably. At the same time, fewer are saving to do something about it as the economy has sagged, a survey shows. Sixty-three percent of workers say they feel confident they will have enough to live comfortably in retirement, down from 72% in 2000.

Seventy-one percent of those polled said they have saved for retirement, down from 75% last year.

Among minorities, 54% of blacks, 50% of Hispanics and 78% of Asians said they have saved for retirement.

Better Retirement: (WSJ 2001) AARP found that today's retirees and people preparing for retirement are in better shape financially than those in the same age group 20 years ago. Median net worth for this age group, which starts at 50 years old, increased 36% between 1983 and 1998, to $134,000, adjusting for inflation. Net worth is the amount by which assets, such as homes or stock portfolios, exceed debts and other liabilities. Total wealth of people 50 years and over increased to $20 trillion in 1998 from $7.6 trillion 15 years earlier.

Meanwhile, inflation-adjusted family income grew by 17% during the past two decades and the poverty rate for retirees fell to an all-time low of less than 10%. Minorities made some of the largest strides

The report also cites rising health-care costs as an increasingly important financial constraint on many retirees.

Income rich and poor (NY Times) the Congressional Budget Office found that the share of pretax income going to the top 20 percent of households rose to 53.2 percent in 1997 from 45.9 percent in 1979. In that period, the share of income going to the bottom 60 percent fell to 26.9 percent from 32.2 percent. For the bottom 20 percent, the share of income fell to 4 percent in 1997 from 5.3 percent in 1979.

Average pretax income for all households rose to $62,400 in 1997 from $48,500 in 1979, an increase of 28.7 percent. For the middle 20 percent, income rose to $45,100 from $41,400, a gain of 8.9 percent.

As they have earned more, upper- income households have assumed a larger share of total federal tax liabilities. The top 20 percent of households paid 64.7 percent of taxes in 1997, up from 57.1 percent in 1979.

The top 1 percent of households — about one million of them — paid 23 percent of total federal taxes in 1997, up from 15.5 percent in 1979.

The top 1 percent of households, representing 15.8 percent of pretax income, paid 32.9 percent of individual federal income taxes in 1997. In 1979, the top 1 percent, representing 9.3 percent of pretax income, paid 18.7 percent of income taxes.

The poorest households benefited from changes in tax policy that reduced their tax bills and in many cases provided larger cash payments to working families through the earned-income tax credit. The share of tax payments of the bottom 20 percent of households declined to 1 percent in 1997 from 1.9 percent in 1979.

Old parents (Census bureau 2001) 5.6 million grandparents live with their grandchildren; 42% (2.35 million) of those grandparents are responsible for the youngsters. More grandmothers (62%) are on full-time duty than grandfathers (38%). Almost one-fifth (19%) of grandparents responsible for their grandkids live below the poverty level. "The real surprise was the extremely large proportion of grandparents who are doing this . . . for three, four, five years or more," said Martin O'Connell, chief of the Census Bureau's Fertility and Family Statistics Branch. "It's clearly a situation where this is really a growing and developing family."

Workplace Report on Retirement Planning: Key Findings (Cigna pdf 2001)

Transamerica retirement poll: The 2001 Transamerica Retirement Survey, as well as a follow-up poll taken after Sept. 11, reveal nearly nine in 10 think most Americans do not salt away enough money to live comfortably throughout their retirement years. More than half the employees polled say they are somewhat or very likely to trim their lifestyles to set aside more for retirement. The polls indicate that retirement programs like 401(k) and profit-sharing plans are extremely popular benefits, poll data also show many small businesses still don't offer them, and many employers do not realize how important these benefits are to employees. While less than one-quarter of workers say they are familiar with the recent tax law changes regarding retirement savings, when asked about specific retirement provisions, many workers express an interest in the enhanced retirement savings opportunities.

two out of three employers who are familiar with the increased contribution limits and catch-up provisions think these new opportunities will have an impact on their companies and their employees. However, the survey data also show that many employers are not yet aware of the enhanced pension provisions, less restrictive requirements and tax credits offered through recent tax legislation to small businesses setting up new retirement plans.

the vast majority of workers (86 percent) surveyed report they do have some retirement savings and half started saving before age 30. Seventy percent report that their company offers a retirement savings plan, such as a 401(k) or profit-sharing plan, and among workers whose company offers a plan, 80 percent say they participate. In addition, six out of 10 workers currently save for retirement outside of work, such as in an IRA or mutual fund.

Credit (Financial ENews 2001) "The IRS is reminding qualifying employees to begin making plans now to benefit from the new Saver's Credit, which will become available in 2002. This tax credit, which will be available from 2002 through 2006, will help offset the cost of the first $2,000 contributed to IRAs, 401(k)s and certain other retirement plans. The Saver's Credit is available to individuals with incomes up to $25,000 and married couples with incomes up to $50,000. The available credit ranges from 10% to 50% of the contribution amount, depending on income. Participants in 401(k) plans may want to set up their deferral elections prior to January in order to spread their contributions throughout the year."

Simple IRA"s

Pension Plan Options for Small Firms

Retirement Planning After New Tax Law

METLIFE study of Employee Benefit Trends (PDF 2001) Vital information to everyone involved in employee benefits / voluntary employee benefit plans.

Not saving enough: (Allstate 2001) Baby Boomers have saved, on average, only 12 percent of what they believe they will need to meet basic living expenses during retirement. Seventy-six million strong, Baby Boomers (ages 37-55) make up 29 percent of the U.S. population. By the year 2030, there will be 70 million people aged 65 and older -- more than twice the population for that age group in 1999, according to the U.S. Bureau of Labor Statistics.

Fully 78 percent of the Baby Boomers surveyed believe they are prepared to meet the financial aspects of retirement, and 69 percent say they are confident that they know how much money they need to save in order to maintain the retirement lifestyle they want.

those surveyed said they would need $30,000 per year for basic living expenses during retirement. To have $30,000 per year, Baby Boomers will need approximately $1 million upon retirement, factoring in an 8 percent return on savings and an average 4 percent rate of inflation. But surveyed Baby Boomers have saved an average of approximately $120,000 -- a mere 12 percent of what they'd need for a 20-year retirement, spending $30,000 a year (adjusted for inflation).

And listen to this- sixty percent of Baby Boomers anticipate that, in their retirement, they will have more financial obligations than their parents' retirement, and nearly three out of five Baby Boomers (58 percent) surveyed will be in debt during retirement. -- Twenty-seven percent expect to pay on a mortgage, 37 percent on car payments, and 25 percent on credit card debt during retirement. -- Many Americans expect to be responsible for some kind of financial support for family members during retirement. Fifteen percent of those surveyed will provide for elderly parents and/or in-laws, and 29 percent will be financially responsible for children or grandchildren over 18 years old.-- One in five Baby Boomers surveyed expects to pay tuition for one or more of their children during retirement.

Social Security only replaces approximately 40 percent of the average person's salary.

Large Pension Plans: (Committee on the Investment of Employee Benefit Assets (2001) DB plan benefit payments continued to represent about six percent of year-end assets for the sixth consecutive year, while DC plan benefit payments represented nine percent of year-end assets, exceeding contributions for the sixth consecutive year. - Both DB and DC plans were substantially invested in equities. DB plans had 60 percent allocated to equities; DC plans had approximately 70 percent in equity investments of all types. - At year-end, 17 percent of DB plan and 16 percent of DC plan assets were managed internally. Most DB plan assets (81 percent) were actively managed, while 42 percent of DC plan assets had active management. - DC plan contributions averaged almost $6,000 per active employee with 30 percent provided in employer match. - Participation in DC plans by eligible employees continued to increase, reaching 85 percent in 2000. - The percentage of plan sponsors using Web sites to communicate with plan participants increased significantly -- from 66 percent in 1999 to 86 percent in 2000. - While more than 80 percent of plan sponsors provided some type of investment education, access to investment advice was limited. Less than 30 percent of the surveyed companies make individual financial planning available and only 21 percent provided some type of interactive software advisory program.

Virtually all (99 percent) of CIEBA's members offer both DB and DC plans, and DB plans continue to represent the primary plan type for CIEBA members. These types of plans had 66 percent more assets, covered 74 percent more participants and paid out 18 percent more in benefits compared to DC plans. Although DB plans continue to be the dominant plan type for CIEBA members, the number of participants in DC plans continues to increase at a significantly faster rate than in DB plans. Under a DB plan, the employer commits to provide a specified level of benefits to plan participants. In the private sector generally, plan sponsors pay for these benefits, directly manage investment of plan assets and bear any investment risk. (Basic benefits in DB plans are federally insured.)

Under most DC plans -- particularly 401(k) plans -- employees provide much or all of the funding, although the employer may and commonly does provide a match for employee contributions. In many 401(k) and other DC plans, plan participants direct the investment of their accounts among a number of investment choices.

No more benefits?: (USA Today 2001) Employers, battling recession, are saving millions of dollars by slashing employee benefits such as life insurance and retirement plans. Many are eliminating their matching contributions to 401(k) plans; others are eliminating life insurance.  There will be a lot more of this as companies struggle for profits.

And per the NY Times and William M. Mercer , Employers nationwide are requiring workers to pay a larger share of their medical costs. Forty percent of large employers, those with 500 or more employees, said they would require workers to pay a higher portion of the total cost in 2002. Cost increases averaged 11.2 percent, to $4,924 for each employee in 2001. Company officials expected an even steeper increase, 12.7 percent, in 2002. For large employers, costs rose 12.1 percent, to $5,162 for each employee.

In the most popular type of managed care, preferred provider networks, at least half the nation's smaller employers had deductible charges of $500 or higher this year, double the $250 median in 2000. Workers at one in six small companies faced even higher deductibles: $1,000 or more.

Retirement 2002:

* For defined benefit plans, the maximum benefit increases from $140,000 to $160,000.

* The defined contribution maximum increases to $40,000 from $35,000 this year.

* 401(k) limits increase from $10,500 to $11,000, SIMPLE limits increase to $7,000 from $6,500 and maximum 457 plan contributions jump to $11,000 from $8,500 in 2001.

* employees over age 50 will be able to contribute an additional $1,000 to 401(k) plans and an additional $500 to IRAs in 2002.

Retirement: (Allstate 2002) Baby Boomers who already feel sandwiched between financial obligations to children and aging parents can look forward to more of the same, plus unprecedented levels of debt for themselves in retirement. Findings indicate that 37 percent will be financially responsible for parents or children during retirement and 7 percent will be responsible for both. The survey also revealed that Baby Boomers have saved an average of only 12 percent of the total they will need to meet even basic living expenses in retirement.

Some parents may be on Social Security before their children get out of high school. Consider: In 1999 over 14,000 women over age 40 had babies; the 1989 the figure was just over 9,000; 11% of all newborn babies in 1999 had a father age 40 or over; the 1989 the figure was under 8%. This report is from Prudential, Plc. via Sweden. The numbers may be even higher in the U.S.

Retirement (NY Times, Stephen F. Venti and David A. Wise 2002) It has long been known that most Americans do not save much. What is more remarkable is that even a substantial fraction of relatively wealthy people do not save much. The bottom 20 percent of every income group has zero or negative wealth, with the only exception being the households with the highest lifetime income.

Households were generally aware that their savings were inadequate: over three-fourths of the respondents said they had saved too little, and virtually none said they had saved too much. Most people were worried by their minimal savings: only a quarter of them thought that "Social Security or employer pensions would take care of my retirement income."

Retirement Plans (EBRI 2002) In February 2001, 67.8 percent of wage and salary workers ages 21-64 worked for an employer that sponsored a pension plan, up 4.6 percentage points from February 1995, and 54.8 percent participated in a pension plan, up 3.8 percentage points from February 1995.

The percentage of workers who said they did not participate in a pension plan because of ineligibility decreased from 63.3 percent in February 1995 to 56.6 percent in 2001. The percentage of workers who chose not to participate in a plan for which they were eligible increased from 25.1 percent to 31.1 percent over the same period.

The percentage of both male and female wage and salary workers participating in a pension plan increased from 1995 to 2001. However, the percentage of male participants remained higher (56.3 percent in 2001) than that of females (53.2 percent in 2001), although their rates of working for an employer that sponsored a plan were virtually identical. A reason for this difference may be that more females who were working for an employer that sponsored a plan were not eligible to participate in the plan.

In 2001, 71.7 percent of whites worked for an employer sponsoring a plan, compared with 47.2 percent of Hispanics. While all demographic groups experienced increases in the percentages of workers participating in a pension plan from 1995 to 2001, the increases were smaller among minority groups. A leading factor in this discrepancy seems to be an increase in the percentage of eligible Hispanics and blacks who chose not to participate. In 1995, 32.4 percent of blacks and 32.2 percent of Hispanics who worked for an employer that sponsored a plan and did not participate in the plan reported that they had chosen not to do so. By 2001, these percentages had increased to 38.2 percent for blacks and 39.8 for Hispanics.

Younger working Americans (ages 21-34) had faster increases in participation than older working Americans (ages 35-64) from 1995 to 2001. However, in 2001 the percentage of workers ages 45-54 who participated in a plan was more than twice the percentage of workers ages 21-24 (65.4 percent compared with 27.3 percent).

Among full-time workers, 59.2 percent participated in a pension plan in 2001, while 37.2 percent of part-time workers did so. Among full-time workers who worked for an employer sponsoring a plan, 36.6 percent choose not to participate in the plan, compared with 19.9 percent of part-time workers.

Among public-sector workers, 81.6 percent participated in a pension plan in 2001, compared with 49.4 percent of private-sector workers. However, the percentage of private-sector plan participants increased from 44.5 percent in 1995 to 49.4 percent in 2001, while the percentage of public-sector plan participants increased from 80.1 percent to 81.6 percent.

2002 Retirement Plan Contributions
401(k) Limits
401(k) Elective deferrals $11,000
Annual Defined Contribution Limit 40,000
Annual Compensation Limit 200,000
Catch Up Contribution limit 1,000
Highly Compensated Employees 90,000
Other limits
403(b)/457 Elective Limits 11,000
403(b)/457 |Catch up Deferral 1,000
Simple Employee Deferrals 7,000
Simple Catch Up Deferral 500
SEP minimum Compensation 450
SEP Annual Compensation Limit 200,000
Social Security Wage Base 84,900

OLD (NY Times 2002) The 50-plus age group is the fastest growing segment of the population.

• Seniors control 48 percent of all discretionary spending; 43 percent of new cars are bought by seniors.

• The net worth of seniors is five times that of other Americans; people over 50 had a total net worth of $20 trillion in 1998, up from $7.6 trillion 15 years earlier, according to data from AARP, an organization of retired people and those approaching retirement.

Retirement?: (NY Times 2002) While their parents stopped working at 65, the children are finding that they must stay on the job until their late 60's or early 70's if they want to live as well in retirement. Forty percent of the people who have saved for their retirement and are now 67 are still on the job. That's compared to only 20 percent of the 67-year- olds with company-financed pension plans.

The employer-financed pensions, combined with Social Security, produced a retirement income at age 65 equal to nearly 60 percent of a typical worker's preretirement pay.

Part of the reason is this- Life expectancy for 65- year-old Americans is 84 years, up one year since the 1970's. To collect 60 percent of preretirement income through age 84, people will have to continue working, and saving, to age 69.5. "You lose 4.5 years of leisure but you gain a year of life expectancy, so the net loss is 3.5 years of leisure." That's the reason I focus so heavily on the actuarial lifetime with about 5 years extra depending on health. Then you have to add in for long term care costs, etc. And medical bills will keep piling up until the U.S. has a national plan. Even if it finally does, only the most indigent will get it for free so figure that medical care will still be quite costly for anyone now age 50 forward. (Frankly, I think it will always be this way).

Unprepared: (2002) A recent survey found that 70 percent of Baby Boomers are relying on their own resources to take care of their long term care needs. In addition to this often inadequate approach, Boomers were found to be misinformed and unsure about the basics of long term care planning.

Boomers appear to be confused or procrastinate in planning for long term care needs in their old age, even as most of them (71 percent) admit to a fear of not having enough money as they grow older. Among the Baby Boomer population findings:

-- 70 percent believe that they, themselves, should be most responsible for taking care of their long term care needs; -- 75 percent have no idea how much long term care insurance actually costs, with most overestimating the cost of premiums by more than 300 percent; -- Only 7 percent have actually purchased long term care insurance and 76 percent have not had anyone recommend the purchase of long term care insurance; -- 71 percent fear not having enough financial resources for retirement and 85 percent are highly concerned with maintaining control over care options and where they live.

Seventy-seven percent, for example, say that their children should play a minimal or no role in providing financial support for long term care. Specifically, less than one percent cited their children and only 14 percent cited the government as being most responsible for taking care of their long term care needs.

Retirement Savings Becoming Risky Business (2002)  - In the past, through traditional defined benefit (DB) pension plans, many employees were guaranteed a steady stream of income in retirement. Employers assumed the longevity and investment risks, hiring experts to manage these risks. In recent years, with the rising popularity of defined contribution (DC) plans, such as 401(k) plans, most employees must bear the burden of their retirement security. In fact, in 1978, 38 percent of American workers were covered by DBs and only 7 percent participated in DCs as their primary retirement plans. By 1997, the numbers had shifted with 21 percent participating in DBs and 25 percent participating in DCs as their primary plans.(1)

71 percent of retirees who reported having had a financial advisor five years earlier say they are very satisfied with their retirement vs. 59 percent of those who did not have an advisor. Similarly, when asked if they ever attended any meetings on retirement planning, 71 percent of those who had attended meetings report being very satisfied with retirement vs. 55 percent who did not.

Sixty-five-year-olds today will on average live 4 years longer than those in 1960. Since people tend to retire younger today than they did in 1960, their period in retirement is more than 4 years longer and longevity of Americans continues to rise.

the study found health and long-term care played a significant role. When asked what the chances are that medical expenses will use up all of their savings in the next 5 years, the average response was nearly one-third (31 percent). Similarly, when asked the chances they will move into a nursing home in the next 5 years the average response was 15 percent. In fact, 71 percent of those with long-term care insurance coverage vs. 57 percent of those without this coverage reported being very satisfied with retirement. ``With the rise in health related costs, particularly driven by prescription drugs and long-term care, many retirees today struggle to fit these expenses into already tight budgets or find their assets quickly deleting.

2002 Retirement Confidence Survey (RCS). The new results show that 82% of respondents access those resources for guidance. Sixty-eight percent of employees turn to newsletters or magazines. Seminars (66%), financial planners (61%) and workbooks or worksheets (58%) round out the top five.

By age, 40-59 year olds are more likely to read newsletters and magazines for financial advice than those aged 20-39 (72% vs. 58%). And those in the 20-39 age group are more likely to obtain financial information through online services than persons aged 40-59 (57% vs. 38%).

Here's Met Life's survey

And a GE study that gives a grade of "F" to consumers.

Challenges Ahead for an Aging Population

Retirement: (Labor Department 2002) Roughly half the workers on private payrolls don't have any employer-sponsored retirement plans at all. About 74% of the best-paid fifth of American workers participate in some form of pension plan on the job, but only 17% of the worst-paid fifth do,  

In 1980, 64% of all retirement-savings money went into old-style pension plans (defined benefit). In 1999, 85% went into accounts over which workers had control (defined contribution).

Try not to get old: (2002) As the estimated 76 million baby boomers born between 1946 and 1964 become elderly, Medicare, Medicaid, and Social Security will nearly double as a share of the economy by 2035. Estimates suggest the future number of disabled elderly who cannot perform basic activities of daily living without assistance may be double today's level.

Spending on long-term care services just for the elderly is projected to increase at least two-and-a-half times and could nearly quadruple in constant dollars to $379 billion by 2050

Over 60 percent of expenditures for long-term care services are paid for by public programs, primarily Medicaid and Medicare. Individuals finance almost one-fourth of these expenditures out-of-pocket and, less often, private insurers pay for long-term care. . . . In 2000, Medicaid paid 45 percent (about $62 billion) of total long-term care expenditures. . . . In 2000, nursing home expenditures dominated Medicaid long-term care expenditures, accounting for 57 percent of its long-term care spending. . . . In 2000, nursing home expenditures dominated Medicaid long-term care expenditures, accounting for 57 percent of its long-term care spending. . . . Expenditures for Medicaid home-and community-based services grew ten-fold from 1990 to 2000-from $1.2 billion to $12.0 billion."

• Individuals' out-of-pocket payments, the second largest payer of long-term care services, accounted for 23 percent (about $31 billion) of total expenditures in 2000. The vast majority (80 percent) of these payments were used for nursing home care. • Medicare spending accounted for 14 percent (about $19 billion) of total long-term care expenditures in 2000. While Medicare primarily covers acute care, it also pays for limited stays in post-acute skilled nursing care

Retirement numbers: (2002) Method for determining retirement calculation

Guessed 39%
Completed Worksheet, did calculation 20
Read/Heard that this is how much needed 10
Amount calculated for respondent by financial adviser 10
Estimated based on my current living expenses 7
Expected earnings on investments 5

Changing retirement: AIG SunAmerica Re-Visioning Retirement Survey 2002

"Ageless Explorers" (27%) personify a new ideal for retirement. Retirement can be seen as an exciting new phase in their lives as they would rather be too busy than risk being bored. These retirees have high levels of education and the highest net worth. They have saved for retirement an average of 24 years, feel prepared financially for retirement, and appear psychologically prepared to make the most out of this stage of their lives.

Comfortably Contents" (19%) seek to live the traditional retirement life, where they relax and enjoy their golden years. They aren't as interested in work or in contributing to society, and are less willing to risk feeling stressed in retirement. They saved an average of 23 years and spend their time on travel and other recreational activities.

"Live for Todays" (22%) aspire to many of the same new retirement ideals laid out by Ageless Explorers, and, in fact, they may be even more interested in personal growth and reinvention. Unfortunately, they appear to have been focused on living for the "here and now" and are burdened with worry that they did not adequately prepare financially for retirement. This group saved an average of only 18 years and they are likely to continue working in retirement.

"Sick & Tireds" (32%) are living the worst possible retirement scenario. Less educated and with fewer financial resources, they have low expectations for the future. They are more likely to have been forced into retirement by poor health, took few steps to prepare for retirement, and saved very little for the least number of years - 16. Of all the groups, this segment is less likely to travel, visit family, participate in community events, or tap into their human potential.

The concept of retirement as a "winding down" or "extended vacation" is obsolete. Less than a quarter (22%) of those surveyed agree at all with the idea of relaxing and doing nothing in their retirement years. Rather, they see retirement as a whole new life (38%) or a continuation of life as it is (40%).

Retirement no longer means the end of work. Approximately 95% of pre-retirees expect to work in some capacity during their retirement, either by choice or necessity. Nearly half (49%) said they would work in retirement even if they were paid little or nothing at all.

Satisfaction is positively related to the number of years one saves for retirement. More than 60% (61%) of those who saved for 25 years or more reported being extremely satisfied with retirement. Half (51%) of those who saved for 15 to 24 years were extremely satisfied, and only 46% of those who saved for less than 15 years were extremely satisfied.

Sometimes these are good and then sometimes....... (USA Today 2002) Series EE savings bonds issued on or after May 1997 will now earn 3.96%, down from 4.07% that had been in effect since November 2001.

The rates are market-based and are adjusted on May 1 and Nov. 1. The rate is 90% of the average of five-year Treasury note yields for the preceding six months.

The government's inflation-indexed Series I bonds earnings rate fell to 2.57% from 4.40%. The indexed bonds are meant to protect investors from the ravages of inflation.

"Beneficiaries May Take Distributions Over Oldest's Life Expectancy" (2002)

The Service has ruled that designated beneficiaries of a trust may take minimum required distributions out over the oldest beneficiary's life expectancy. The Service concluded the distribution to the charitable entities would not affect the required distributions to the other beneficiaries and that the minimum required distributions would be calculated based on the life expectancy of the wife, as the oldest beneficiary.

New Required Minimum Distribution Rules (National Underwriter) 2002

Single and joint life expectancies are longer. For instance, under the uniform table that governs most lifetime distributions, the distribution period for participants at age 70 is increased from 26.2 to 27.4 years. The age 70 single life factor increased from 16.0 to 17.0 and the joint life expectancy for two individuals who are both age 70 increased from 20.6 to 21.8. These changes are the result of a directive by Congress in EGTRRA 2001 that the tables used for RMD calculations be amended to take into account the longer life expectancies indicated by the most recent census figures.

The 2001 regs indicated a change of position by stating that a surviving spouse had to be the sole beneficiary of an IRA in order to treat the IRA as his or her own. Since this contradicted a number of private letter rulings, some commentators speculated that it was a mistake. But the new regs make it clear that the Treasury meant what it said, adding that the surviving spouse must "have an unlimited right to withdraw amounts from the IRA" and that if a trust is named as beneficiary, this requirement is not met, even if the spouse is sole beneficiary of the trust

The regulations state that the new method can be used to calculate substantially equal periodic payments under Section 72(t).

Marital status of participants will be determined as of January 1 each year. Thus, if the participant marries, or becomes widowed or divorced during the year, the change in status will not affect his distributions until the following year.

Following the death of a participant, the date for determining the identity of the designated beneficiary will be September 30 (of the year after the year the decedent died) instead of December 31. This allows a 3-month period for calculating and making the required distribution by December 31.

Under a transition rule, many beneficiaries who defaulted to the 5-year rule under the 1987 regs will be able to switch to a life expectancy payout. However, any missed distributions will have to be taken by the earlier of December 31, 2003 or the end of the fifth year following the decedent's death. This will be a great planning tool for some participants who missed the chance to stretch out distributions under the old rules.

In calculating an individual's first distribution (generally due by April 1 of the year after he reaches age 70½), the account balance will no longer be reduced for distribution amounts received from January 1 to April 1.

A new deadline has been added for the documentation requirement that applies when a trust is named as beneficiary. The documentation required under prior law must be provided by October 31 of the year after the decedent's death. (Since this deadline is new, a transition rule applies through 2003.)

New reporting requirements that appeared in the 2001 regs for IRA custodians and trustees were clarified. Instead of being required to report to the IRS the amount of the individual's required distribution to the IRS (as was stated under the 2001 rules), IRA custodians will be required to identify each IRA for which a minimum distribution is required. However, the custodian will be required to calculate the individual's required distribution, upon a request by the individual.

Regulations were issued in temporary and proposed form for annuity payouts from defined benefit plans, since these were not addressed in the 2001 regulations. Changes include an expanded number of options for providing increasing payments (such as cost of living adjustments).

Overdosing on options (Employee Benefit News 2002)A second year of disappointing stock market returns has left employees at many of the largest public corporations holding worthless stock options, forcing companies to reassess compensation plans that hinge on a constantly rising stock price.

Women and retirement: (2002) Only about 12 percent of the elderly are below the poverty line, but fully 74 percent of those below the poverty line are women


Over two out of three working women earn less than $30,000 per year.

Nearly nine out of ten working women earn less than $45,000.

Half of all women work in traditionally female, relatively low paid jobs without pensions.

Women retirees receive only half the average pension benefits that men receive.

Women's earnings average $.73 for every $1 earned by men - a lifetime loss of over $300,000.

Women and pension rights in a divorce (2002) Women's Institute for a Secure Retirement. Good oversight on retirement, widowhood and divorce

The 12 worst mistakes lawyers make in preparing pension orders are:

1. The lawyer doesn’t ask for the important information about the husband’s pension and retirement benefits soon enough.

Long before you sign a property settlement agreement or go to court, your lawyer should obtain the plan document (that is, the full set of rules) or the summary plan booklet for each pension plan. The attorney should also ask for the plan’s procedures for "domestic relations orders." Among other features, the plan may have certain options or restrictions about when the former spouse’s share can be paid to her under a domestic relations order. These sorts of details can make a difference in your negotiations with your husband.

Note: The rules for most government retirement plans (federal, state, and local) are usually found in publicly-available statutes and regulations rather than a "plan document." Your lawyer should be familiar with these laws.

2. The lawyer fails to prepare any pension order.

If you are entitled to a share of your ex-husband’s retirement benefits, it is important that your lawyer makes sure the court signs a pension order at the time of your divorce. Otherwise, years later, you may have to pay another lawyer to finish the job. In the worst case, if your ex-husband has died, retired, or remarried, you may lose some of the benefits you could have received if a pension order had been prepared beforehand.

3. The lawyer fails to obtain information about every retirement benefit of the husband’s that might be marital property.

These days, many employees are covered by more than one pension or retirement plan at the same time. For example, an employee in a large company may be covered by a pension plan, a "401(k)" savings plan, and an employee stock ownership plan (ESOP). Benefits under all of these plans may be marital property, and your lawyer needs information about each of them. Also, your husband may still have benefits coming from previous jobs. If necessary, your lawyer should ask the court to issue a subpoena (an order to provide certain documents or information) to each employer or former employer asking for details about all retirement benefit plans.

4. The lawyer fails to obtain information about all the features of a particular pension plan.

Benefits under different pension and retirement plans vary widely, with some plans paying more than one type of benefit. For example, some plans provide cost of living increases to retirees. Others will pay specially-enhanced benefits to employees who agree to retire early, meaning that your husband’s benefit might suddenly increase when he reaches a certain age or number of years of service. If your pension order doesn’t specifically name each type of benefit, the plan administrator may not be obligated to pay you a share of them.

5. The lawyer fails to ask for a survivor benefit or doesn’t advise the wife that none is available.

Be sure to ask whether your former husband’s death will have any effect on your benefit. What if he dies before he starts collecting his own benefit? In many situations, a former spouse will share in her husband’s pension only as long as he is living, unless the court has also specifically awarded her a survivor pension. Also, some state and local government plans won’t pay survivor pensions to divorced spouses under any circumstances.

You need to know how your retirement income will be affected. If you learn that pension benefits won’t continue after your husband’s death, you may want to try to get him to buy a life insurance policy with you as beneficiary to protect your retirement income.

6. The lawyer fails to explain to the wife how retirement benefits are usually divided under state law.

State marital or community property laws usually specify how pension and retirement benefits are to be divided at divorce. How is your marital share figured? When can it be paid? Your lawyer should explain to you how these laws apply to your situation. If state law isn’t very helpful to divorcing women, could you negotiate something better? For example, even if state law says you have to wait to collect your pension share until your husband actually retires, you may be able to work out an agreement with your husband that will let you collect your benefits right away, if that would be more favorable to you.

7. The lawyer fails to explain to the wife what the former husband might do in the future that would reduce or eliminate her share of the benefits.

What if your ex-husband never applies for his own pension? What if he is injured on the job or disabled? What if he waives his rights to his pension? Would these or other acts affect your benefits? If so, what legal recourse would you have? Make sure that your property settlement agreement allows you some options if the worst happens. As an example, you may want to be able to ask the court to require your former husband to pay you alimony or other property if he interferes with your right to the pension benefits.

8. The lawyer fails to explain what effect your remarriage may have on your benefits.

Some federal, state, and local government employee benefits will stop if the former wife remarries. For example, both federal civil service and military survivor pensions terminate if the former spouse remarries prior to age 55. Also, any pension benefits that have been awarded to you as alimony or spousal support, rather than marital property, will likely terminate upon your remarriage since alimony and support payments are usually cut off when the former spouse remarries.

9. The lawyer is unaware of unusual requirements or loopholes in the law that could result in the pension order being rejected by the plan administrator.

Some pension and retirement plans are not required to accept any court order transferring benefits to a former spouse. These include many benefit plans for highly-paid company executives as well as certain "deferred compensation" plans for state and local government employees. Likewise, federal government retirement systems have many unexpected requirements for paying pensions to former spouses.

For example, the government won’t pay you a share of military retirement benefits awarded as marital property unless you were married for at least ten years of your husband’s military service. Also, a federal civil service survivor pension is usually not available if the pension order is signed by the court after the divorce is final and the employee has retired.

10. The lawyer fails to have the proposed pension order pre-approved by the plan in advance of being sent to court.

You can not get your pension money until the plan administrator has officially accepted the pension order signed by the court. But if the order does not follow the rules of the plan, it will likely be rejected and your lawyer will have to go back to court to get an amended order that the plan will accept. You can avoid unnecessary delay and legal fees if your lawyer will ask the plan administrator to tell you in advance whether the proposed order will be acceptable.

Most company pension plan administrators as well as many state and local plan officials will informally review a proposed pension order before it has been signed by the divorcing couple or the judge. Federal government plans, unfortunately, usually will not review pension orders in advance.

11. The lawyer fails to follow up after the divorce to make sure that the final pension order is sent to the plan and officially accepted by the plan administrator.

Your pension order should be signed by the judge at the time of your divorce, or as soon as possible afterward. Then your lawyer should mail a copy of the final order to the pension plan administrator – but that’s not the end of it. Sometimes a pension plan will lose a pension order or just let pension orders pile up for months without looking at them. It is very important to follow up to make sure that the plan receives your pension order and notifies you or your lawyers promptly in writing that the order has been accepted, even if you were not expecting to receive your benefits until years later.

12. The lawyer fails to explain to the wife her right to Social Security benefits.

Social Security benefits are usually not treated as marital property by state divorce courts, but if you were married at least ten years, then you may be automatically eligible under federal law for Social Security benefits as a divorced spouse. For this reason, it might be a good idea for your lawyer to ask your husband to provide you with a benefit estimate that he can get from the Social Security Administration.

Older Women Receive Less Pension Income Than Men (2002) Older women have lower incomes and fewer economic resources than their male counterparts, but the difference in income from pensions is especially pronounced. In the 65 plus age group, women are only about half as likely as men to receive income from pensions (including from their husbands' pensions). And the half who do, get about half as much as men. Among today's working women, women are participating in pension plans in greater numbers. For women who work full-time, near equality in participation rates has been achieved. Part-time workers, who are disproportionately women, however, are much less likely to participate in employer-sponsored pension plans. And over their lifetimes, women spend more time out of the labor force than men. This also contributes to the lesser likelihood of older women receiving pension income. And because women still earn less than men, their pensions will continue to be smaller. These findings are from a newly released study by the Institute for Women's Policy Research in Washington, D.C., funded by the U.S. Department of Labor, "The Gender Gap in Pension Coverage: What Does the Future Hold?"

Motivating People to Save for Retirement (Michigan Retirement Research Center (Apr 2002, posted May 2002) This Issue in Brief describes an exploratory investigation that suggests people are not very well informed about their pensions and Social Security, but that their retirement and saving behavior are not very much affected by whether they have been overly optimistic or pessimistic. Even as people approach retirement age, they do not correct their saving strategy or revise their retirement goals to better attain their desired level of consumption in retirement. Rather than save more or retire later, those who have overestimated their benefits are content to accept whatever consumption level their saving will permit in retirement, leaving their behavior unchanged from that planned using earlier misinformation.

How Wealthy Nations Can Avoid a Looming Retirement Crisis (2002) The rapid aging of the world's industrialized nations poses problems for consumer and capital markets, including the risk that individual and government retirement plans will come up short over the next two decades. But the retirement boom will also have implications for the developing world. The global aging problem and the prospect for globally-based solutions were outlined several weeks ago during a conference sponsored by Wharton's Pension Research Council and The Financial Institutions Center.

Aging:  (2002) A Dilemma for Parents and Kids WHERE WILL ELDERLY PARENTS LIVE? WHO WILL PAY FOR THEIR CARE? BOSTON-Adult children and their parents are not thinking the same thing when it comes to planning for how parents will be cared for as they get older, or how their care will be financed. Results from the "Long Term Care Partners Survey of American Parents and Adult Children," conducted by Zogby International, show that America's older parents (between the ages of 54 and 84) do not want to move in with their children. A higher percent of adult children, however, feel it is likely their parents will move in with them when they are unable to care for themselves. And both recognize there is a high likelihood adult children will be tapped to help finance their parents' future long term care needs.

Results of the survey showed that parents have a strong desire not to move in with their children should they need care; nearly two-thirds (64%) of parents with children over age 34 stated they would not want to move in with their children in their later years should they need care. Adult children, however, aren't quite so sure. Nearly half (44%) stated they felt their parents would want to move in with them should they need care. And an overwhelming majority (82%) of adult children between the ages of 34 and 65 are prepared to take care of their parents' day-to-day needs if they could not do so themselves.

Additionally, both recognize parents may need financial help with their long term care needs. Nearly one third (32%) of parents believe they'll need financial assistance from their children, while just under half (44%) of adult children expect to help their parents financially. However, children are not advising their parents to purchase long term care insurance (only 23% would consider doing so) and only 12% of parents polled say they have purchased long term care insurance for themselves.

"This study highlights that parents and adult children aren't having conversations about future care needs and/or don't fully understand their options," said Paul Forte, Chief Executive Officer, Long Term Care Partners, LLC. "Parents and children need to talk about these issues before they become crises. Planning before care is needed can help both parties achieve a better outcome in the long run."

Nursing homes are not a popular choice for parents or their children. Almost half (47%) of seniors say it is unlikely they will spend some time in a nursing home or assisted living facility. Adult children agree, with 53% stating their parents will not spend time in a nursing home. Overall, six out of every 10 Americans who reach age 65 will need long term care services. And care can be expensive. According to a 2002 study by the MetLife Mature Market Institute, the average national cost of care in a nursing home is $143 per day for a semi-private room and $168 a day for a private room. Care at home is expensive as well, according to the Institute. The average cost of a home health care aide averages $18 per hour nationally, or $158,000 for round-the-clock care.

"Clearly, children expect to take responsibility for their parents' care and to assume some of their financial obligations," said Forte. "There's a big question, though, as to how they will pay for the care that may be necessary. They ought to be thinking about long term care insurance as a means to help provide more options for them and their parents should care be needed in the future."

Dying: (2002) 10 tips from David Woods, president of the Life and Health Insurance Foundation for Education (LIFE) to make your dying a little less trying for your loved ones.

1. Have a will and update it periodically. The will designates executors, guardians and trustees, which are all important to review periodically. Your executor's first task is to locate your will, and you can help by keeping the original in a fairly obvious place. A good start is to put your will in an envelope on which you have typed your name and the word "Will." You should then place the envelope in a fireproof metal box, file cabinet or home safe. An alternative is to put it in a safe deposit box.

2. Have health care directive (living will). A living will is a medical directive written in advance that sets forth your preference for treatment in the event of your inability to direct care. The document may be drafted to include when the directive should be initiated and who has the decision-making responsibility to withdraw or withhold treatment.

3. Have a power of attorney. You should name your spouse or a close friend or relative to have power of attorney for you. Whoever you designate will be authorized to manage your affairs, typically financial ones, if you're not able to handle them yourself.

4. Have life insurance. Purchase adequate life insurance for yourself now to help your family avoid financial pitfalls later. Having the right amount of coverage will help ensure that the dreams you have for your family will be realized even if you're not there to witness them. Determining how much life insurance to buy can be complicated, so it often helps to seek assistance from an insurance agent or other financial advisor.

5. Review beneficiary designations for your various financial accounts (retirement, life insurance - both personal and through work). Check annually to ensure those named in your insurance policies, 401Ks and the like are still relevant to your needs and wishes. Many people are under the misconception that if they have a will, they are covered. This is not true - beneficiaries designated in documents generally fall outside the scope of a will so it is critical that you keep your records updated.

6. Specify where important financial account information is located (savings, retirement, college funding, mortgage, insurance). It may sound like an obvious thing to do, but few people keep a list of their important records, and fewer still could name them all quickly in an impromptu quiz. Keep a master list and review it annually. Include bank accounts, mortgages, retirement plans, health care plans, investments, creditors etc.

7. Specify where important non-financial information and valuables are located (marriage certificates, birth certificate, titles/deeds for the house/cars, passports, jewelry, safe deposit box key, items in storage facilities)

8. Specify your final arrangements (burial or cremation, where you want to be buried, whether you want to be an organ donor)

9. Have a list of professionals who assist you with your family's legal and financial affairs (insurance agent, attorney, accountant, etc)

10. Explain to heirs how your trust works. Trusts are often a useful legal and estate-planning device for protecting assets from estate taxes and providing a vehicle to be sure survivors gets proper administrative and investment advice and counsel. An attorney is the best source of information about the proper use of trusts and whether one would be appropriate for you.

New retirees:  "The research found that traditional notions of what retirement means are pretty much out the window. 'Even the language of retirement is changing,' said Dr. Dychtwald, who is also the author of 'Age Power:

"Here are the four categories of retirees found in the study, which was based on a telephone survey 2001 of 1,003 people 55 and older:

"THE AGELESS EXPLORERS These retirees represent 27 percent of those surveyed and are the leaders in creating a new definition of retirement. They see themselves in an exciting new phase of life and would rather be too busy than risk being bored. They have the highest level of education and have saved for 24 years, on average, for retirement. They have an average household income of $64,800 and an average net worth of $469,800.

"THE COMFORTABLY CONTENTS This group (19 percent) aims to live the traditional retirement life of leisure; its members aren't as interested in work or contributing to society. They have saved, on average, for 23 years and spend their time on travel or other recreational activities. Their average income is $61,200; their average net worth is $367,500.

"THE LIVE FOR TODAYS These people (22 percent) aspire to be Ageless Explorers and may be even more interested in personal growth and reinvention. But they have always focused on the present and didn't devote much time to retirement planning - having saved for only 18 years, on average. They have a great deal of anxiety about their finances and are likely to continue working during retirement. Average income is $46,300, and average net worth is $222,600.

"THE SICK AND TIREDS The largest of the four groups - 32 percent - its members are in the worst circumstances. They are less educated, have fewer financial resources and have low expectations for the future. They are more likely to have been forced into retirement by poor health and are less likely to travel, participate in community events or tap into their potential. They have saved for, on average, just 16 years; averÐ"

Retirement Budget: When first surveyed by Charles Schwab and Co., 64% of Americans ages 45-65 with household incomes of at least $75,000 said they were confident they will have enough money for a comfortable retirement. However, after having their retirement needs assessed by Schwab's Center for Investment Research, confidence levels plummeted by half, to 32%.

Schwab analysts estimate workers need to save $230,000 for every $1,000 in monthly retirement income. According to these calculations, $1 million in savings provides $50,000 in annual retirement benefits. At an average age of 52, 56% of survey respondents have less than $250,000 saved, and 31% have banked less than $100,000.

Boomers are also increasingly worried about the cost of health insurance coverage in retirement, according to Allstate Insurance Co.'s second "Retirement Reality Check" survey. The number of respondents concerned about health care costs soared from 39% in 2001 to 67% in the latest poll. The survey also found that 52% of women and 45% of men worry about getting sick, concerns aggravated by the costs associated with obtaining health care coverage and long-term care in retirement years.

Retirement Value (NY Times, Institute for Social Research at the University of Michigan) Since 2000, retirees' portfolios have shrunk by about $678 billion.

William Rodgers, an economics professor at the College of William and Mary in Williamsburg, Va., and a former chief economist for the Labor Department estimated that retirees who ranked in the top 20 percent in earnings during their careers typically have more than one-third of their assets tied up in the stock market, and another 20 percent in pension funds. Those who were in the bottom 20 percent are less likely to need to return to work, because about 80 percent of their income comes from Social Security. "It's the higher-income retirees who are out seeking jobs."

The number of people 55 and older in the work force rose by more than 7 percent, to around 20 million, in the 12 months ending in July, according to the Bureau of Labor Statistics, while the number of workers in all other age groups declined.

Spouse May Roll Over Decedent's IRA Left to His Estate: (2002) Even though the deceased spouse left his IRA payable to his estate, because his wife was the executrix and the sole beneficiary of his estate, the Internal Revenue Service ruled in this Private Letter Ruling that the new required minimum distribution regulations released last year do not preclude her from rolling amounts distributed from his IRA into her IRA, provided she do so within 60 days from the date she receives the distribution.

Retirement : (2002) A majority of Americans are unprepared for retirement, even though they may have done a good job of accumulating assets, according to survey results released today by ING's U.S. financial services. And, successfully planning and preparing for a comfortable retirement has become a sensitive issue for many Americans, given challenging equity markets and weakened economies. This sensitivity is likely heightened for those who are quickly approaching the retirement phase of their lives.

69%(2) of 50-70 Year-Olds Do Not Have a Plan for Their Retirement Paycheck - According to ING's research, approximately 75 percent(1) of respondents either do not understand, or haven't considered, how to successfully plan for the withdrawal of their retirement savings -- and maximize the options available to them to best meet their personal needs. And, even more alarming, ING's research reveals that most pre- and post-retirees (69 percent(2) of 50 to 70 year-old Americans) have no plan in place for their 'retirement paycheck.'

"Americans have become conditioned to think that by building a retirement nest egg they are financially prepared to retire, but there's more - a comprehensive retirement plan does not end there. "The retirement paycheck is a monumental issue because according to our research, 86 percent(1) of Americans expect to have a comfortable retirement."

They emphasized that individuals need to plan how to best convert their nest egg into a long-term income stream they won't outlive. The consequences of careless decisions stemming from inadequate planning can undermine years of successful scrimping and saving.

Baby Boomers Need A Wake-Up Call on Retirement Readiness - "Roughly a decade ago, Baby Boomers heard the wake-up call about the need to take personal responsibility to accumulate savings for retirement. However, if Boomers think that saving is all they need to do to retire ready, then it's time for another wake-up call. Individuals also need to take responsibility for planning their retirement paycheck."

Industry data shows that there are approximately 14 million households in the U.S. with between $100,000 and $1 million in investable assets(3) with many of those households nearing retirement and looking for a helping hand.

Insufficient planning and consideration for the impact of taxes, accessibility, and diminished growth potential can significantly compromise an individual's retirement experience. "Mistakes can be costly and painful -- consider a person who retires at 62, transfers $250,000 to a bank savings account in a lump sum from their 401(k) plan and unwittingly suffers a major tax penalty -- and loses a sizeable portion of their life's savings. It likely took that person many years to accumulate those assets, but they would likely lose more than a quarter of their savings because of one uninformed decision. Americans need to plan and get the help they need to prepare for their retirement readiness."

Major change in retirement budgets- (USA Today) By 2031, companies are expected to pay less than 10% of total medical expenses for retirees. Large employers now typically pay more than half of total retiree medical expenses. About 20% of employers studied have eliminated retiree medical plans for new hires and 17% will require new hires to pay the full premium for coverage.

45% of employers cap contributions for new hires while 39% do so for current employees. Only one in four employers cap contributions for current retirees. The median employer contribution cap of $2,000 for current post-65 retirees — that is those who have Medicare coverage — drops to $1,740 for future retires. The median of $4,450 for current pre-65 retirees drops to $3,900 for future retirees.

Nine of 10 large employers that offered retiree medical benefits to supplement Medicare for workers over age 65 in 1984 required service of five years or less. Last year, only about a quarter offered that benefit 

Near Elderly Increased Health Coverage in 2000: New figures from the U.S. Census Bureau show that 2000 was a pretty good year for health coverage for the "near elderly." The percentage of U.S. residents between the ages of 55 and 64 who had some kind of public or private health coverage in 2000 increased to 86.3%, from 85.5% in 1999. The percentage of near elderly residents who were completely uninsured fell to 13.7%. That was the lowest level since 1995, according to an analysis by Paul Fronstin of the Employee Benefit Research Institute. But Fronstin warns in the analysis that the good times for the near elderly might be ending. "The currently slow economy, combined with erosion in retiree health benefits for future retirees and lack of a Medicare prescription drug benefit, will have profound implications for public policy,"

Retirement survey (American Express 2002) 30 percent did not invest for retirement in their company's 401(k) plan. Of the 2,000 adults interviewed for the random telephone survey, one out of four had experienced a job transition in the last five years.

The survey revealed that young workers, by a wide margin, were the least likely to be saving for retirement. Almost half of those who didn't invest in their 401(k) plan were between the ages of 18 and 24, and 30 percent were between the ages of 25 and 34. Income was another contributing factor. More than half of those surveyed, who were not saving for retirement earned less than $25,000; another one-third reported an annual income between $25,000 and $50,000. Another key finding in the American Express survey revealed that one out of every four workers who invested in their 401(k) left their retirement assets in their former employer's plan after they left their job, despite a number of other options that may have been more financially beneficial.

The survey also revealed that 16 percent of workers who left the workforce rolled their money into an IRA, and the overwhelming majority of those who rolled their assets said they would make the same decision again. Eleven percent of those surveyed said they cashed out of their retirement plan because they needed the money to pay off debt or for everyday living expenses - a decision half said they regretted.

But I bet it still will not include 'diversification by the numbers'. (WSJ) The Treasury Department is proposing new regulations that would give workers more information about their pension choices, a change that could benefit millions of employees by spelling out which option would pay them the most money after they leave a company. 

The article also noted, "Typically, pensions are structured so lump sums are worth far less to most workers than when the pension is taken as a monthly payment -- as much as 50% less. However, 90% or more of departing employees choose the lump sum, rarely realizing it has a far lower value because they lack adequate information to compare the choices, according to lawmakers who have studied the issue. "

Wanna know how to do that? Financial Calculator. Nobody should even remotely try to figure out what to do unless they or an advisers has, and can use, an HP12C or similar

"Employees as a result often receive 20% to 50% less from their pensions than they otherwise would. Those most likely to be affected are long-term employees in their 40s to mid-50s."

"The letter cited an industry publication that encouraged employers to "Ask a few employees, 'At age 65, would you rather have $100,000 or $1,200 a month for life?' You'll likely find far more takers for the lump sum" even though the lump sum is 50% less valuable than the monthly payment. The industry publication also noted that "most American workers are clueless about the financial aspects of retirement," and that "given this massive naivete, it's little surprise that [most] employees who had a choice took lump sum payouts."

The Economic Policy Institute (EPI 2002), a nonprofit, nonpartisan economic think tank, reports that "when the stock bubble burst, it left the average family facing the prospect of having only 43 percent of the income they need for an adequate retirement."

In its study, "Retirement Out of Reach," EPI made several startling discoveries. Among them:

- Most households used the new wealth gained from the stock market to increase debt and consumption.

- Between 1992 and 2000, while the stock market grew by 13.9 percent per year, households increased their debt more than they raised their assets. The ratio of total household debt to income grew from 72 percent at the end of 1992 to 83 percent by March 2001.

- It will take the average household over 30 years to recover the wealth lost in 2000 and 2001.

"One of the saddest things about this situation," says George J. Kourpias, President of the Alliance for Retired Americans, "is that retirees who had their 401(k) funds invested in the stock market do not have the luxury of 30 years to rebuild their so-called wealth. Most of them needed their funds to help pay the ever increasing costs of their prescription drugs."

Health Plans: (2002) The Employee Benefit Research Institute recently released findings on how and why employers make decisions regarding the health care benefits offered to employees.

Retirement: Employed people may put up to $11,000 in a 401(k) or 403(b) plan; those 50 and older can put in an extra $1,000 under new catch-up provisions. Contribution limits for Individual Retirement Accounts are now $3,000, or $3,500 for those 50 and older, up from the long-established $2,000.

many self-employed people could put away more for retirement because the income limits upon which the contributions are calculated have risen this year. For a form of I.R.A. known as a SEP, or simplified employee pension, the limit is $200,000.

Retirement Plan Limits for 2003

Retirees (Ernst and Young) a majority of pre-retirees (adults 55 plus who are still working full-time) are neglecting to account for basic economic conditions and lifestyle changes. According to the survey, 66 percent failed to consider market fluctuations or debt repayment needs (loans, mortgage, etc.), 53 percent did not factor in the impact of taxes on retirement investments and 47 percent did not account for inflation. Even more surprising, 81 percent did not consider the possibility of their parents getting ill, and over half did not account for personal illness (54%) or a sick spouse (53%). Additionally, only one-third (33%) expect to spend more than 20 years in retirement.

, only 17 percent of pre-retirees are very confident their monthly income will sustain their desired lifestyle in retirement and only 16 percent are very confident they have enough assets to meet retirement objectives. Those who do not identify themselves as "very confident" say unexpected lifestyle changes (54%) and negative stock market fluctuations (45%) contribute to their lack of self-assurance. Other factors that shake confidence include a feeling that retirement products are too confusing (28%) and that they lack the inform°

Only 13 percent of pre-retirees say they have changed their expectations as a result of the downturn -- making no financial adjustments and acknowledging and accepting they will have less money to use during retirement. Eight percent say they are actively managed

What would they have done differently- * Forty-nine percent say they would become better educated about retirement products and services * Forty-six percent would develop a better budget to determine exactly how much money they would need to live comfortably during retirement * Forty-six percent say they would plan earlier * Forty percent would take advantage of employer sponsored programs * Over one third (34%) would purchase more guaranteed return products * Nearly a third (31%) would seek counsel from a financial advisor

Ernst & Young Actuarial's Next Generation Retirement Planning Survey  (20030 finds that a majority of pre-retirees (adults 55+ and still working full-time) are neglecting to account for basic economic conditions and lifestyle changes. For example, 66% failed to consider market fluctuations or debt repayment needs, 53% did not factor in taxes on retirement investments, 47% did not account for inflation, 81% did not consider the possibility of their parents getting ill, over half did not account for personal illness or a sick spouse. Also, only 16-17% of pre-retirees are very confident they can maintain their desired lifestyle in retirement and only 16 percent are very confident they have enough assets to meet retirement needs.

Big obstacles? Unexpected lifestyle changes (54%) and negative stock market fluctuations (45%).

Here are the percentages of Americans who have saved: (2003)

Current Savings Over $100,000 18%

Current Savings Between $50,000 - $99,999 10%

Current Savings Between $25,000 - $49,999 11%

Current Savings Less Than $25,000 34%

No Current Savings 27%

Retirees (Allstate 2003) When asked to rate their top fears about retirement in Allstate's "Retirement Reality Check" survey, 67 percent of Baby Boomers cited rising health care costs, up from 39 percent in 2001. It also revealed that Boomers' fears of failing health are on the rise: while only a quarter (27 percent) admitted this concern in 2001, almost half (49 percent) now worry that they will get sick during retirement. Surveyed Hispanic Boomers are even more worried, at a rate of 58 percent. Other retirement fears revealed by the survey include not having enough money (52 percent) and Social Security no longer being around (47 percent). Only 10 percent of those surveyed said they had no fears at all. Most of those were probably drinking.  

Retirement: About 20% of workers ages 40 to 59 have less than $10,000 in retirement savings, according to a survey 2002 year by the Employee Benefit Research Institute.

Over there, over there...... -- A tremendous tidal wave of new retirees is splashing down across Asia and Europe, creating new opportunities for U.S. financial services firms to sell retirement-savings products abroad. "Aging populations and financial pressures on public and private pension systems across Asia and Europe are creating dramatic needs for retirement products such as variable annuities and 401(k) plans

"The need for older citizens to save and invest for retirement is, in many instances, even greater in Europe and Asia than in the United States. "Japan has the highest percentage of adults aged 65 and older in the world. Italy, Germany, France and Great Britain are not far behind. Populations are aging and people are living longer, putting a premium on the need for retirement savings."the U.S., Japan and Europe account for 86 percent of the world's life insurance and pension markets, which means they offer the best opportunities for sales of supplementary retirement products.

Retirement (Congressional Research Service2003)  more than half of workers ages 25 to 64 don't own any retirement savings accounts. About a third work for employers who don't offer retirement benefits.

The 401(k) accounts were the most popular form of retirement savings, with one in three workers participating, the report said. About 19 percent owned an IRA or a Keogh account for self-employed workers. Almost 42 percent owned one or more retirement accounts.

For the 47.1 million workers with at least one retirement savings plan, the average account balance for a single employee was $45,960. For households, it was $71,040.

Of older workers ages 55 to 64, three out of four lived in households with retirement savings of zero to $56,000.

For older workers with savings, the average single-account balance was $71,910 and the household balance was $107,040.

Social Security is projected to start paying more in benefits than it receives from payroll taxes by 2016 because the large baby boom generation begins retiring

National Health Interview Survey's Disability Supplement. Highlights from the report, titled "Trends and Differential Use of Assistive Technology Devices: United States, 1994," include:

An estimated 7.4 million persons in the U.S. household population use assistive technology devices for mobility impairments, the most frequent reason for using an assistive device. Almost 5 million people use canes, the single most utilized assistive device.

Another 4.6 million use assistive devices such as back braces and artificial limbs to compensate for orthopedic impairments.

4.5 million use hearing aids, amplified telephones, closed caption television, and other assistive devices for hearing impairments.

500,000 use these devices for vision impairments.

The majority of persons using these devices were over 65 years of age. Sixty-two percent of persons using mobility devices, 69 percent of persons using hearing devices, and 51 percent of persons using vision devices are over 65 years of age.

Use of assistive devices has increased dramatically over the past decade, in part due to the aging of the population but also due to technological advances, public policy initiatives, and changes in the delivery and financing of health care.

MetLife survey (Financial ENews 2003) , 79% of employees surveyed "admit being concerned that they will outlive their retirement savings" and 55% of those with children estimate that they are "significantly behind in their education savings goals."

Pension Plans:  (2003) investments by the pension funds have fared poorly in recent years. As the prices of stocks and other investments have fallen, so has the return on the money set aside for the more than 44 million current and future private-sector retirees who qualify for traditional pensions.

At the same time, unusually low interest rates are further undermining pension plans. The effect of the bond rates is on the financial calculations used to determine the present value of the pension liabilities, not on the pension funds' return. Falling rates make future pension obligations look bigger on current balance sheets. To meet their obligations to workers, and to stay in compliance with pension laws, companies have been forced to set aside more money.

Retirement plans (WSJ)

Here's a look at retirement savings plan contribution limits that were raised under the Economic Growth and Tax Relief Reconciliation Act of 2001.

Tax Year   401(k), 457(b), 403(b)     401(k), 457(b), 403(b) Catch-Up (Age 50+)        IRA/Roth IRA      IRA/Roth IRA Catch-Up (Age 50+)

2002         $11,000                   $1,000                                                  $3,000             $500

2003          12,000                    2,000                                                    3,000                500

2004         13,000                     3,000                                                    3,000                500

2005          14,000                    4,000                                                    4,000                500

2006         15,000                     5,000                                                    4,000               1,000

2007         15,000*                   5,000*                                                  4,000               1,000

2008         15,000*                   5,000*                                                  5,000                1,000

2009         15,000*                   5,000*                                                  5,000                1,000

2010         15,000*                    5,000*                                                  5,000                1,000

* Amounts will be adjusted for inflation.

Required distribution for retirement; (IRS)

Retirement planning: (2003) Assume a portfolio in existence for 30 years ending in 1998. Over that period, if the average return of 11.7% had been earned each year, an individual who retired in 1968 with $250,000 could have withdrawn 8.5% or $21,250 annually pretax. That amount could even have been increased by 3% each year with the resulting income being maintained through 1998, at which point the assets would have been depleted.

However, a rather sizeable surprise materialized—the rather nasty bear market of 1973-1974. The consequences of that downturn could not have been, and in fact were not considered in the above portfolio planning process. Consequently, over the first 13 years, the "actual" portfolio performance averaged only a 6.9% return. While this was offset to a degree by a 15.3% average annual return during the 1982-1998 stage, the earlier, unexpectedly weak performance did irreparable damage. So much so, that had the original 8.5% withdrawal rate been maintained, the portfolio would have been drained of all assets by the thirteenth year.

using those same percentage numbers, had the timing been reversed, with the stronger return performance beginning in 1968 and the mediocre performance applying to the later years (sustaining the same average return of 11.7%), the actual performance would have been more than satisfactory. Using that scenario, the same 8.5% withdrawal rate would have left a pretax balance of $1.2 million at the end of the 30-year period.

According to Business Week, using traditional methods, a 40 year old with a $300,000 portfolio in a 401(k) matching market returns, can easily achieve a goal of retiring on $120,000 a year. These results, typically recommended by a financial advisor using the traditional forecasting system, will imply a 100% probability success rate. However, a Monte Carlo simulation calculates that the worker has only a 40% chance of realizing that target retirement income. To the average intelligent investor, those odds would be unacceptable.

Pensions: (2003) 44 million employees still covered by traditional defined benefit pension programs.

Pensions (NY Times 2003) about half of the Fortune 100 companies offer their employees a traditional pension with the sole option of lifetime monthly payments, compared with almost 90 percent of such companies in 1985. Of the remaining half, about 30 percent offer defined-benefit plans that let employees choose between lifetime monthly payments and a lump-sum payment. (Some companies allow retirees to take part of the pension as a lump sum and the rest in reduced monthly payments.)

Given the choice, most employees will turn down an annuity in favor of managing their own funds. This is partly due to widespread misunderstanding about the annuity as a financial instrument, according to AARP. They noted that when people chose a lump sum over an annuity, "Most are not even sure of the value of what they're choosing between."

Retirement: (2003) The slumping stock market has destroyed the nest eggs of millions of people in the last three years -- erasing at least $678 billion in U.S. retirees' savings, according to the University of Michigan's Health and Retirement Study.

Retirement: (2003) 93% of those surveyed believe it is up to individuals to ensure their own financial security during retirement. The problem is that 70% of this same group say they are unable to save as much as they would like and only 8% indicated they could/would save more by reducing expenses.

Pensions: (Watson Wyatt 2003) The percentage of employers with fully funded pension plans declined from 84 percent in 1998 to 37 percent in 2002. In 1992, 57 percent of companies were funding their plans at the ERISA minimum, compared to 30 percent in 2002.

Elderly health: (Journal Psychosomatics 2003) How much an elderly person complains about pain, gastric symptoms and other body problems may be tied more to overall well-being and life satisfaction than to actual physical health, says new research published in the . A German team of psychosomatic and gerontology researchers assessed 251 general hospital inpatients' body complaints and how those complaints related to demographic factors (such as age and marital status), age-related changes, life satisfaction and doctors' ratings of problems. Body complaints studied included exhaustion, gastric symptoms, pain, cardiovascular complaints and other symptoms. The patients' average age was 75 years, and more than two-thirds (68.1 percent) of the patients were women.

The researchers found that only three factors were significantly associated with the elderly persons' body complaints: self-assessment of life satisfaction; self-assessment of age-related changes related to activities, cognitive performance and state of health; and doctors' ratings of somatization -- that is, patients' physical complaints that cannot be explained by a bodily cause. Age, gender, marital status, living arrangements and objective health-related variables were not associated with the level of subjects' body complaints. "Complaints of psychosomatic symptoms in elderly patients have been receiving increased attention," Dr. Schneider and colleagues write. "Our results confirm those of other studies that have shown a correlation between subjective body complaints, subjective well-being, depressive mood and psychiatric disorders."

Bad retirement: (2003) nearly one-quarter, 24%, of workers ages 45 or older say they plan to postpone their retirement — up from 15% in 2002, according to the annual Retirement Confidence Survey released Friday. And 16% of workers say they are not at all confident that they will have enough money saved for retirement — up from 10% a year ago.

the percentage of workers who say they are somewhat confident or very confident that they're saving enough for retirement remained relatively high at 66%, vs. 70% last year. But that may simply be an indication that many workers don't really know or don't want to think about how much they need to save for retirement.

many workers remain unaware that the eligibility age for full Social Security benefits is gradually increasing from 65 to 67. As a result, about half of all workers think they will be eligible for full benefits before they actually will.

Retirement budget: (2003) Medicare beneficiaries are expected to spend $1.8 trillion on prescription drugs over the next decade. Seniors enrolled in Medicare HMOs are facing more cost-sharing and tighter limits on supplemental benefits like prescription drugs.

Nearly 82 percent of enrollees this year, for instance, have some sort of cost sharing for being admitted to the hospital. Ninety-one percent have to pay more than $40 for a trip to the emergency room. Sixty-three percent must shell out more than $15 to see a specialist. Even for some routine services, seniors have to dip into their own cash, the study shows. About one in six seniors has a co-payment on x-rays. About one in eight is charged a co-pay for lab services.

And another deficit: (2003) The Pension Benefit Guaranty Corp deficit has swelled to around $5.4 billion in the first six months of its fiscal year, from $3.64 billion in 2002.The PBGC which backs the pensions of 44 million Americans, said it had already absorbed most of the troubled plans in the steel industry and now faced exposure to underfunded airline and auto industry pensions.

Of the $300 billion-plus in underfunding, $60 billion was attributed to the auto industry -- defined as automakers, autoparts producers and tire and rubber makers. Airlines accounted for another $26 billion in underfunding, adding that large network airline pension plans were only about 50 percent funded, on the average.

The PBGC had started fiscal 2002 with a $7.73 billion surplus but burned through that and more under the weight of large pension bailouts in the steel industry. Low interest rates have dealt a particularly heavy blow to pension plans, which have been required to use the 30-year U.S. Treasury bond to calculate how much money is needed to guarantee future benefit levels. But Treasury ended sales of the 30-year bond in October of 2001, and Congress last year gave companies temporary leeway to use an interest rate as high as 120 percent of the 30-year Treasury yield to determine plan funding requirements.

Retirement  (Allstate)- Retirement savings dropped form $120,000 in 2001 to $93,000 in 2002.

The survey said that 66% of retirees were comfortable making their own financial decisions. But I submit that 0.05% know what diversification is by the numbers. So most of them are just kidding themselves.

Retirement (Pru 2003) found that 79 percent of pre-retirees are not as financially "fit" as they should be at a critical stage of preparing for a secure retirement. "Too many of those polled are not financially ready to retire comfortably," said Judy Rice, president of Prudential Investments. "In fact, when rating their financial health, a mere 21 percent are considered to be in 'excellent' shape. The rest are not as fit as they should be, including a significant 34 percent in outright 'frail' financial health." The study, using a 16-question behavioral assessment tool, revealed other worrisome trends, including: -- 76% of pre-retirees have either not established or not updated a formal investment plan. -- Half of those polled have not set clear goals on how much they will need to save to retire comfortably. -- Slightly more than one in four pre-retirees between the ages of 50 and 54 do not contribute regularly to retirement savings programs. -- Almost half of those polled worry they may have to work at least part-time during retirement to make ends meet.

Nearly two-thirds find today's investment information confusing and often contradictory, and 45 percent admitted that they feel less comfortable making investment decisions in today's market than a few years ago. "We also found that people often don't seek help from a financial professional because either they think they can go it alone, or that professional advice is only for the wealthy.

Still working: (Census Bureau 2003) The Older Population in the United States: March 2002, also shows that among married-couple households with a householder 55 to 64, more than three-quarters (77 percent) had an income of $35,000 or more in 2001.

The report also found that more than 1-in-8 people age 65 and over (4.5 million) were either working or looking for work in 2002. Among those ages 60 to 64, the proportions were 57 percent for men and 44 percent for women.

On the education front, the profile of the older population shows that in 2002, among people 55 and over, three-fourths had at least a high school diploma. Older men and women in most age categories were equally likely to be high school graduates.

Overall, 6-in-10 people age 55 and over were married and living with their spouse, with the percentage much higher for men (74 percent) than for women (50 percent).

The older population was less racially and ethnically diverse than the younger population. While non-Hispanic whites comprised 66 percent of the population under 55, they made up 81 percent of those age 55 and over

Other highlights of the report:

- Among people 85 and over, 58 percent of men, but only 12 percent of women, were married and living with their spouse.

- Among those 55 to 64, 31 percent of men and 22 percent of women had a bachelor's degree or more education.

- In 2001, women 65 and over were more likely than men in this age group to be poor: 12.4 percent versus 7.0 percent.

The report and accompanying tables present the latest data on the civilian population age 55 and over not living in institutions, such as nursing homes and correctional institutions. Characteristics, which are shown by age and sex, include race and Hispanic origin, marital status, educational attainment, labor force participation, family income and poverty status.

Retirement (2003) A Hartford Financial survey reveals that most Americans with annual household incomes of $100,000 or more lack sufficient life insurance to permanently replace their salaries, yet say they have sufficient coverage. The study found that 64.6% of all respondents had less than $500,000 in life insurance and 10.6% had less than $100,000 in coverage. Many financial professionals recommend buying a minimum of between 7 and 10 times annual salary to replace income and adequately protect a family. Few surveyed expressed concern with their coverage gap...nearly 70% stated that their coverage is adequate. Most respondents owned term life insurance (37.3%) as compared to permanent coverage (24.8%) and many people owned both types of policies (34.8%).

Retirement (2003) According to the annual Retirement Confidence Survey conducted by the Employee Benefits Research Institute, Americans' overall confidence in their ability to retire comfortably has decreased only slightly from last year. One interesting finding: many workers simply do not know how much money it takes to live comfortably in retirement.

And most planners do not know how to figure this out.

Poverty: (Thomas L. Hungerford) in 1999 the U.S. poverty rate for persons 65 years or older was 9.7 percent compared to a poverty rate of 16.9 percent for children under 18 years of age. The poverty rate for the elderly is essentially the same as that for working age persons (i.e., between the ages of 18 and 64).

But even those numbers are deceptive for the elderly. in 1999 the poverty rate for persons aged 65 to 74 years was 8.9 percent, was 9.8 for persons aged 75 to 84, and was 14.3 percent for persons 85 years or older.

Shaw and Yi (1997), however, find that for unmarried elderly women poverty tends to be a long-term affair. Furthermore, several researchers have documented that many but not all poor widows were also poor or near-poor before the death of their husbands (see, for example, Choudhury and Leonesio 1997 and Hungerford 2001). Coe (1988) finds that elderly poor women were about twice as likely as elderly poor men to experience a poverty spell lasting 10 or more years (31 percent versus 16 percent) but notes that most completed elderly poverty spells last 2 years or less. Ellwood and Kane (1990) examined income dynamics and life events of the elderly. Their simulations show that most poor 80 year old widows were also poor at age 65.

Corporate Pension Plans: (2003) Corporate Pension Plans: Milliman USA, a benefits consulting firm, completed its third annual survey of the annual reports of the nation’s 100 largest corporations. It found that asset losses in the last two years have wiped out all of the pension plan gains from the 1990’s.

Collectively, the companies’ pension plans went from a surplus of $183 billion at the end of 2000 to a deficit of $157 at the end of 2002. The decline is attributed to weak or negative investment returns in 2000 through 2002. The survey does note that although the funded status has declined significantly, the situation has not yet reach the level at which benefit security for plan participants is an issue. It further notes that the overfunded pension plan levels of the 1990’s was a ‘temporary anomaly.’

Education: Of American workers surveyed, the vast majority (89 percent) describe their personal knowledge of investing or saving for retirement as less than comprehensive, and nearly half (43 percent) state they possess no better than limited knowledge.

In response to the survey question: How confident are you that you (and your spouse) are doing a good job of preparing financially for your retirement? - Only 24 percent replied they are "very" confident, while 29 percent are either "not too (confident)" or "not at all (confident)." Despite this lack of confidence, the survey points out that workers feel compelled to make their own financial choices - 74 percent say they will most likely make their own choices whether or not they consult a financial professional for advice. Yet, 79 percent of those polled prefer help from a financial professional. Only 21 percent say they will do it all on their own.

The survey of American workers also found: -- They expect to rely on savings to fund retirement, yet only six in 10 are currently saving -- Only three in 10 believe retirement savings is their most important savings goal -- Only 37 percent have attempted to do a retirement savings need calculation -- Only one in 4 used a financial professional to assist in determining retirement savings needs -- 83 percent use advice from a spouse for savings/investment advice -- 30 percent admit the advice from a financial professional is most helpful, while only 14 percent of workers stated that advice from a spouse is most helpful

Retirement: (Olivia S. Mitchell, executive director of the Pension Research Council and Wharton professor of insurance and risk management 2003). “In most aspects of life, people do best at tasks with known deadlines, especially those that offer immediate and certain gratification.” Sadly, saving for retirement doesn't offer quick and positive reinforcement, and the rewards are far from certain. Indeed, it's a wonder that some people manage to save at all, given the obstacles.”

Workers, for example, don’t easily buy the idea of payoffs in the distant future, and the payoff of retirement investing is seen as uncertain. “saving for pleasure tomorrow means pain today, since setting aside even a few dollars each month is most painful when the need for cash is greatest – in the years of raising children, buying a home, preparing for the kids’ education.”

Retirement Savings:  “Decision-Making under Uncertainty: Implications for Pensions.” (2003) Good professional article

Worth repeating: (2003) The Employee Benefits Research Institute's (EBRI) latest Retirement Confidence Survey demonstrates the need for financial advisers among workers trying to save for retirement.

According to the annual survey, more than 60% of workers have not calculated how much they need to save before they retire. Moreover, 16% of employees do not feel at all confident they will have enough saved, while only 24% claim to be very confident. But that will not stop the three-quarters of respondents who say they plan to make their own retirement plan choices, with or without a financial professional, even though 43% say they possess limited knowledge of retirement planning and 79% would prefer help from a financial adviser.

Retirement?: (Putnam survey) 85% of those polled said that saving for retirement was their top financial goal, but less then 15% contributed the maximum amount to their 401(k) plans. Of course, one in three also expressed concern about losing their jobs over the next year, which may contribute to the lack of 401(k) participation!

True and False: True- The fact that women aged 45 to 60 are far less confident about achieving their retirement saving goals is alarming," said Vivian Banta, vice chairman of Prudential. "When you consider that the financial responsibility of today's women is expanding and evolving rapidly, more must be done to help build women's financial confidence."

In addition, the study found that the breakdown across gender lines is not confined to investor confidence. It also found that women are more concerned about delaying retirement than the men polled and that they feel much less knowledgeable about asset allocation. Many men and women pre-retirees polled, however, do seem to agree that much of today's investment information is confusing and often contradictory. When you lack the confidence that your investments are on track, an overall level of uncertainty is bound to emerge," added Banta. "By achieving a heightened level of knowledge, women can better understand the information and be empowered to take charge of their financial future."

Some of the gender-specific findings from Prudential's Survey of America's Pre-Retirees include: -- 73% of men are confident their investments are on the right track, compared to just 57% of women. -- Just 48% of women are confident of their ability to achieve their retirement goals, compared to 7 out of 10 of their male counterparts. -- 47% of women polled are worried about having to postpone retirement, while just 32% of men share that sentiment. -- 56% of women feel they have a good understanding of asset allocation, while 71% of men do. -- Two-thirds of men are happy with their current level of household savings, compared to 52% of women.

The study, using a 16-question behavioral assessment tool, also revealed that the level of financial health of many women pre-retirees is a cause for concern. Specifically: -- 39% of women polled are considered to be in "frail" financial health, having yet to take many of the necessary steps to plan, monitor and seek advice on their investments, retirement planning and protection needs. -- 41% of women pre-retirees are in "fair to good" financial health, while just 20% have "excellent" financial health. As a follow-up to the study findings, Prudential is continuing to develop an educational strategy for local markets designed to empower women and, in doing so, help raise the level of their financial health.

"We've found there are a lot of women who are seeking guidance when it comes to their retirement," said Priscilla Myers, chief marketing officer at Prudential.

False:  "By providing our licensed financial professionals with the tools needed to educate and empower women in general, we hope to help women pre-retirees improve their financial health and secure a comfortable retirement."

Unless the professionals (a series7??) are taught the fundamentals of investing, thee tools are suspect. Unless these professionals (CFP??) use a financial calculator, the reports will be suspect.

And somebody wanna tell me how you can decipher anything by a 16 question behavorial assessment tool? Everything starts with a budget. Everything for retirement.

Pensions: In the past four years, the pension funds of companies in the Standard & Poor's 500 index lost $173 billion in value as shares in the index fell 25 percent, according to Credit Suisse First Boston. Interest rates, as measured by the Federal Reserve's key overnight bank rate, fell from 5 percent to 1.25 percent, reducing returns on plan investments and raising the companies' obligations by $289 billion. The combined $462 billion swing is equivalent to two- fifths of annual capital investment

Retirement: (2003) Congressional Research Service analysis of Census Bureau data (12/02) More than half the paid workers ages 25 to 64 don’t own retirement savings accounts of any kind. Of older workers ages 55 to 64, three out of four lived in households with retirement savings of zero to $56,000

RETIREMENT: A report by the Employee Benefit Research Institute (EBRI) concludes that a 65-year old retiree without employment-based insurance may require up to nearly $1.5 million to prefund lifetime medical expenses (assuming death at age 100 and medical inflation of 14 percent annually). For those with employment-based insurance, the maximum figure exceeds $500,000

The estimates do not include potential long-term nursing home care, which now often costs more than $50,000 per year

Elderly and working: (2003) the number of Americans age 65 or older who are either working or looking for jobs has risen by 50 percent since 1980. According to the study, about 3 million people -- 12.6 percent of those 65 and older -- were working in 1980. By March 2002, the number of seniors working or looking for a job had grown to almost 4.5 million -- 13.2 percent of the 65 and older group.

Employers Passing Larger Share of Drug Costs to Workers

MetLife Retirement Income IQ test, (2003) A survey by the MetLife Mature Market Institute and the American Savings Education Council finds that workers vastly underestimate their own longevity and the amount of income needed for retirement. More remarkable, they don't even consider the associated financial risk a significant factor in retirement planning.

Fewer than 40% of respondents believe someone who reaches 65 has a 50% likelihood of living more than the next 20 years. What's more, only 23% realize that the chance of outliving your nest egg is the greatest financial risk facing retirees.

It appears financial advisers must also underscore that retirees need at least 70% to 80% of pre-retirement income once they stop working, as opposed to the 40% to 50%, or even the 20% to 30%, that many survey respondents think is sufficient. They may be among the 82,000 centenarians currently living in the U.S., almost four times as many as what respondents believe.

Generation Xers: (Best Review 2003) A New York Life survey shows that members of Generation X--ages 22 to 36--saw their median net worth fall from March 2002 to March 2003 by more than 16.2%, to $77,200 from $92,200. The percentage losses were spread about evenly among wealth strata ranging from $50,000 to more than $500,000. Also, fewer Gen Xers were employed, with net employment falling to 76% from 86%. Full-time employees suffered sharper job losses, to 61% from 73%, while part-time employment rose to 8% from 6%.

Gen Xers have now become more conservative investors than even the older baby boomers and seniors.

only 59% of participants owned nonretirement assets, down from 70% in 2002. Nearly one-third reported a distrust of Wall Street. Over the 12-month period, 11% of Gen Xers stopped investing, up from 4% in the previous period.

Insurance and real estate products, meanwhile, have grown in popularity. Insurance, in fact, was the most popular financial product, with 75% of survey respondents buying it, up from 62% a year earlier. Mutual funds fell to 71% from 85%, and real estate as an investment rose to 55%, up from 43%. Securities fell sharply to 47% from 69%. About half of Gen Xers added to cash positions and money-market products.

fully 75% of Gen Xers surveyed said they should have a comprehensive financial plan. But Moore said only about a third have such a plan, and half acknowledged that they need the help of professional advisers, up from 44% in 2002.

Among the survey's other findings are that:

-- Some 58% of Gen Xers felt they don't have enough money to invest, up from 45% in 2002.

-- Most believe that neither the government nor their company plan will support them in retirement. Some 76% had reservations about Social Security playing a significant role in funding their retirement, and 48% were bearish about company retirement plans.

Despite the big drop in employment in this year's figures, Moore said that only 1.6% of survey respondents were laid off or downsized. The number of homemakers rose to 19% of respondents from 11%, and the number of students rose slightly to 3% from 2%. Moore said the increase in homemakers might reflect more parents deciding to stay home with children.

Strategy + Business: Consumers Take Charge: Defined-Contribution Health Plans (2003) After twenty rocky years, employers, physicians, patients, and politicians are growing more and more frustrated with managed care, and are supporting a new consumer-driven system. The goal is to temper rising costs and improve service quality by giving consumers better information and greater control over how they spend their health-care dollars. Defined-contribution plans won’t replace managed care plans, but they will be the next dominant form.

Ignorance is bliss??: A survey of 1,000 Americans by the financial professional association Million Dollar Round Table found that while three-quarters of respondents said they feel comfortable with their retirement knowledge, 35% do not even contribute to a retirement vehicle such as a 401(k) or an IRA.

Meanwhile, Nationwide Financial has found that, while 80% of small business owners claim to be confident about meeting their retirement plan responsibilities, most cannot answer basic questions about said responsibilities.

That's life: Men have a one in two lifetime risk of developing some form of cancer. For women, the risk is one in three.*

One in three men will develop some major cardiovascular disease before age 60. For women, the risk is one in 10.

75 percent of healthy individuals over 40 will become critically ill at some time in their lives.

Pensions: (NY Times 2003) In April, the Pension Benefit Guarantee Corporation disclosed that its deficit had grown to $5.4 billion and that it had "reasonably possible claims" of $35 billion at the close of its last fiscal year. Almost a third of those claims, or $11.4 billion, involved the pensions of airline employees.

The agency measures "reasonably possible" insurance claims as the total deficit of all insured pension plans whose corporate sponsors have bond ratings below investment grade. Such claims are thought to have grown significantly since the agency took its most recent measure in September.

Pensions: (2003) Defined benefit plans were the primary plan for more than 80 percent of workers with private pensions in 1980. By 1998, the share had fallen to less than 45 percent. The Pension Benefit Guaranty Corp. insured about 114,000 plans in 1985; today, it backs about 32,500.

its biggest role is taking over plans of companies in distress. In 2002, the PBGC was responsible for the pensions of 783,000 participants in terminated plans. There were 144 plans terminated last year alone.

But by statute, PBGC benefits are capped. Currently, those who retire at age 65 can receive a maximum of $43,977.24, and that figure is scaled back for earlier retirements. Those who retire at 60, the mandatory age for most pilots, get a maximum of $28,585.20.

Health coverage: In a 2003 survey, 50% of respondents indicated that the employer had, over the past three years, absorbed all or most of the increasing medical costs while 37% indicated that the cost had been evenly shared between the employee and employer. Only 5% of respondents reported that employees had paid all or most of the cost. The final 8% had avoided cost increases by reducing their benefit coverage.

HMO: More than 85% of the 72 participating HMOs predicted rate hikes of at least 10%, which researchers believe can be attributed to such factors as an aging population, high medical malpractice litigation cost, a rise in conditions such as obesity and diabetes and a move away from managed care.

$1.4 trillion: (Center for Long Term Care 2003) Of 17,513,000 owner-occupied elderly households in the U.S., 73 percent or 12,792,000 are owned free and clear, i.e. no mortgage. Median home value (the Census tables do not provide the mean) is $107, 398. If we assume the mean average is at least as large as the median, which is a safe assumption because the really huge home equities get washed out when calculating the median, then total home equity of elderly households is at least $1.37 trillion (12.8 million unmortgaged households times $107,398). We say "at least," because (1) the mean home equity is probably considerably higher than the median and if we knew the mean, that would be our value multiplier for total unmortgaged homes and (2) of the 4,721 mortgages on elderly households (some elderly households have more than one mortgage), most have been paid down considerably so that, while the equity is not 100%, it would still be substantial, and is not included in the $1.4 trillion estimate. Based on this, we conclude that $1.4 trillion in senior home equity is probably a low estimate.

Pensions: Only half of the nation’s workers are covered by any kind of pension plan.

Pension Benefit Guaranty Corp., the federal pension agency, covers about 33,000 pension plans for a total of 44 million workers, down from l00,000 in the mid-1980s.

The number of 401(k) type retirement savings plans rose from just over 200,000 in 1975 to nearly 700,000 in 1998.

Who can you trust?: (2003) Phony health insurers are pocketing millions of dollars in premiums while leaving their victims with huge, unpaid medical bills.

"Unauthorized health insurance companies intentionally fail to comply with state and federal law regarding insurance regulation; they collect premiums for nonexistent health insurance; they do not pay claims and, ultimately, they leave patients with millions of dollars in medical bills. Since 2001, four unauthorized plans left nearly 100,000 people with $85 million in medical bills. "Most victims have been small businesses and self-employed people.

Retirement: within the next five years,  (2003) 70-80 percent of all airline pilots will retire and by 2005 – just two years from now – 50 percent of all federal workers will be eligible for retirement. That will be part of bigger trend in which 76 million baby boomers are scheduled to retire, while only 44 million “GenX’ers” will join the workforce.

Pensions (2003) Underfunded pension liabilities at troubled U.S. companies doubled this fiscal year, and could exceed $80 billion with airlines accounting for nearly a third of the deficit. And yet the market continues to rebound.

The Pension Benefit Guaranty Corp. also told Congress its deficit has grown to $5.7 billion as of July 31. The deficit for the entire fiscal year ending Sept. 30 last year was $3.6 billion. This gives the U.S. agency less money to bail out any troubled company retirement plans.

Many experts believe that the quasi-public Pension Benefit Guaranty Corporation (PBGC) may require a massive bailout by US taxpayers.

Pension Funds: Public pension funds, which have a total more than $2 trillion in assets, gained more than 9 percent on average in the first half of 2003, mostly because of a 15 percent jump in U.S. stock prices in the second quarter.

Public pensions hold about 44 percent of their funds in U.S. stocks, down from 49.5 percent in 1999, the last year of the bull market, according to Greenwich Associates, a consultant to institutional money managers. The equity allocation grows to 56 percent when foreign stocks are included.

Rising interest rates that began in June will boost returns marginally in the second half of the year as pension funds trade in maturing bonds for new ones with higher yields. Pension funds use bond yields to project future returns, although public pensions generally use a fixed rate at or near 8 percent.

The previous three years were particularly unkind to pension funds. The Standard & Poor's 500-stock index fell 14.4 percent annually on average. Bond yields generally declined.

Retirement (NY Times 2003) In a nationwide survey of 500 people aged 35 to 55, and with household annual incomes of $50,000 to $125,000, more than half said they expected their primary source of income in retirement to be their employer-sponsored plans. Other, less significant sources included personal savings, Social Security and inheritance.

The difficult economy and stock-market losses in recent years have forced many of them to re-evaluate the age at which they will be ready to retire. The average age at which respondents would like to retire is 55, but a majority do not expect to be financially prepared to do so until they are nearly 62.

"Boomers are finally realizing that they will have to work longer than they ever thought."

Terribly sorry about all that, but any boomer than thinks they understand the numbers with retirement have got a screw loose.

Retirement stupidity: (2003) GE Financial reports that 68% of survey participants believed they would need at least 75% of today's income when they retire, but fewer than 25% have more than $100,000 in retirement savings; 45% didn't know what an annuity is; and 41% were unfamiliar with the concept of retirement planning. "

I simply cannot comprehend that 45% don't know what an annuity is. But, by the same token, it's close to 50% that think Medicare covers for LTC, so ..................

412(i) pension plan  commentary:  (Roccy DeFrancesco, JD) These have been oversold

They will have to keep working because they didn't know what they were doing (nor did the advisors): (WSJ 2003) Many older workers are planning to push their final retirement dates into their 70s, or in some cases their 80s largely because of deep nest-egg losses. The AARP findings quantify a significant shift in older Americans' retirement goals, resulting largely from the combination of the stock-market downturn, historically low interest rates on conservative investments favored by retirees, and widespread cutbacks in retiree health benefits.

Forty-five percent of the combined groups said they expect to work into their 70s or beyond, with 27% expecting to quit sometime before age 80, and 18% planning to work after that. The numbers are even higher among preretirees, with 34% expecting to work into their 70s, and 23% expecting to keep at it into their 80s.

The need for money was named as the primary motivation for older workers' decision to stay on the job, with 22% of people who haven't retired giving it as their top reason for staying on the job, along with 35% of people working in retirement.

Though the bulk of older workers plan to stay in their current professions, 27% expect to do something entirely different, with 16% planning to work for themselves or start their own business. Of those planning to work for hire, 6% are considering teaching.

Medicare Premiums for 2004:

Part A: (Hospital Insurance) Premium

Most people do not pay a monthly Part A premium because they or a spouse has 40 or more quarters of Medicare-covered employment.

The Part A premium is $189.00 for people having 30-39 quarters of Medicare-covered employment.

The Part A premium is $343.00 per month for people who are not otherwise eligible for premium-free hospital insurance and have less than 30 quarters of Medicare-covered employment.

Part B: (Medical Insurance) Premium

$66.60 per month.

Medicare Deductible and Coinsurance Amounts for 2004:

Part A: (pays for inpatient hospital, skilled nursing facility, and some home health care) For each benefit period Medicare pays all covered costs except the Medicare Part A deductible (2004 = $876) during the first 60 days and coinsurance amounts for hospital stays that last beyond 60 days and no more than 150 days.

For each benefit period you pay:

· A total of $876 for a hospital stay of 1-60 days.

· $219 per day for days 61-90 of a hospital stay.

· $438 per day for days 91-150 of a hospital stay (Lifetime Reserve Days).

· All costs for each day beyond 150 days

Skilled Nursing Facility Coinsurance

$109.50 per day for days 21 through 100 each benefit period.

Part B: (covers Medicare eligible physician services, outpatient hospital services, certain home health services, durable medical equipment)

· $100.00 per year. (Note: You pay 20% of the Medicare-approved amount for services after you meet the $100.00 deductible.)

About 95 percent of Medicare's 41.7 million beneficiaries are enrolled in the optional Part B, which helps pay for physician services, hospital outpatient care, durable medical equipment and other services, including some home health care. Nearly 90 percent also have some form of supplemental coverage (such as Medigap, Medicaid, or Medicare+Choice) to help reduce out-of-pocket medical costs.

Society of Actuaries 2001 Retirement Risk Survey

Retirement: Nearly three-fourths (74%) of employees at large organizations say they are satisfied with their total benefits package – a level of satisfaction that drops to 60% at medium-sized firms (those with 100 to 499 employees), and slides to just 47% at small organizations, according to the Society for Human Resource Management (SHRM)/CNNfn Job Satisfaction Series:

They have a right to be afraid: (met Life 2004) Forty-eight percent of employees rank “outliving their savings” as the greatest retirement fear. Almost as many (43%) are concerned that during their own retirement they will need to provide for the long-term care needs of others, such as a spouse or relative. Consequently, nearly half (48%) of workers believe they will have to take on full- or part-time jobs to maintain financial stability during retirement.

Despite the fear of outliving their assets, more than one out of four employees (26%) have not done any specific retirement planning, while only 57% have done some research on their own. This lag in planning has left half of the respondents either somewhat (30%) or significantly (23%) behind their retirement savings goals. “Alarmingly, among employees in the 41 to 60 age group, many of whom are on the brink of retirement, only 4% have reached their goals.

The Need for “Retirement: 101” in the Workplace - The lack of employee preparedness for retirement is exacerbated by a scarcity of workplace education programs. Thirty-nine percent of employees are unable to estimate their annual income needs for retirement while even more (44%) do not know how many years they need to plan for living beyond retirement. Women are less likely than men to be able to estimate these needs. Regardless of the low levels of planning and education, about half (49%) expect to retire between the ages of 61 and 70.

While offering retirement planning services remains one of the top four most important HR strategies for employers this year, it is down from 28% in 2002 to 25% in 2003. Investment education on 401(k) plans is also down from 28% in 2002 to 21% in 2003. This drop is disconcerting considering that many people express an interest in having access to investment education offered at the workplace

Retirement: (2004) Average American age 55-64 has cash assets of only about $47,000; throw in a house and a retirement plan and you're maybe in the very low six figures. Average IRA/Keogh account has about $30,000. Baby Boomers will outlive their assets. Their parents money won't be available to help the Baby Boomers. Why not? Because Ma and Pa's money is being consumed for nursing home care and medical care. With a return on investment of 0.50% or 0.75% a year, retirees will go broke in about 2 1/2 years..

America's saving rate is only 2% today--our saving rate is one of the worst in the world.

Australia requires 9% of their take home to be saved (mandatory).

Chile requires 10%.  

PGBC: (2004) Pension Benefit Guaranty Corporation (PBGC): The PBGC announced that its insurance program for pension plans sponsored by a single employer suffereda net loss of $7.6 billion in fiscal year 2003. As a result, the program’s fiscal year-end deficit worsened to a record $11.2 billion, three times larger than any previously recorded deficit. Overall, including the assets of terminated plans for which PBGC took responsibility during the year, the single-employer program had $34 billion in assets to cover $45.3 billion in liabilities. The PBGC also announced a new investment policy in-tended to better manage its financial risk. The agency will reduce its stock holdings from the current level of 37 percent to between 15 and 25 percent and increase its bond holdings. The plan is to reduce the PBGC’s exposure to stock market fluctuations and earn smaller but more predictable returns that can be more easily matched to its obligations.

Sweden Retirement: (2004) Due to the past retirement programs were running their economy into the ground (much faster than our social security would do to the U.S.), Sweden had to institute a new program to get employees to do some investing on their own. But evidence shows that people still did not want to get involved.

Personal investment accounts were established until 2000, with a bewildering array of funds to choose from. Some 456 funds participated initially, and the number has since grown to around 600. Most funds invested in stocks, with a quarter primarily in Swedish stocks. Workers could choose up to five funds.

Anyone who did not choose a fund was automatically assigned to the default fund, which was set up by the government. The default fund must invest 80 to 90 percent of its assets in stocks.

A central pension agency records all the accounts and fund values. The agency also ran an ad campaign to discourage people from going into the default fund.

Nonetheless, a new study by Henrik Cronqvist and Richard Thaler of the University of Chicago finds that a third of Swedish workers did not make an active choice when the system started in 2000, and were therefore assigned to the default fund. Since 2000, fully 92 percent of new enrollees have not made a choice and have been added to the default fund.

Apparently, the large number of funds to choose from paralyzed many individuals from making a choice. This has also been the experience of many 401(k) plans that have a default option in the United States: the default option, whatever it may be, is chosen by a high proportion of investors. People are also reluctant to switch once they are in a fund, a tendency that the economists William Samuelson and Richard Zeckhauser have called status quo bias.

Another bias that Mr. Cronqvist and Mr. Thaler documented is home bias, a tendency to pick funds composed of Swedish companies, as opposed to a diversified portfolio of companies from around the world. Nearly half the money actively invested was in Swedish stocks. The default fund, by contrast, was better diversified: only 17 percent was in Swedish stocks.

They also found that people tended to pick funds in sectors that had done well recently, and to pick funds with low fees. The average fee for active choosers was 77 basis points, or 0.77 percent of the funds invested. For the default fund it was just 16 basis points.

Do Baby Boomers Save:  From AARP

World Economic Forum: (2004) The Pension Readiness Initiative of the World Economic Forum released a study entitled “Living Happily Ever After: the Economic Implications of Ageing Societies”, which provides an analysis of the macroeconomic implications of population ageing in developed countries. The report examines the relationships between population ageing, public retirement systems, labor supply, economic growth, and standards of living. It highlights that one significant issue confronting many nations is an impending labor shortage, which could adversely affect national economies and the general upward trend in living standards that nations have enjoyed. The report discusses the importance increasing labor supply as a way to address the upcoming gap in productive capacity due to demographic changes, and outlines several scenarios for increasing the labor force participation of older persons, women, and young adults. This will help nations adapt to an ageing population by promoting continued economic growth and standards of living.

Retirement (Thrivent 2004) More than half of non-retired adult Americans have either not begun saving or report having saved less than $10,000 for retirement. Thirty-six percent have not yet begun to save for retirement and another 16 percent have saved less than $10,000. In addition, the survey also found that 62 percent of Americans have never estimated how much money they will need for retirement. Seventeen percent of non-retired Americans have saved $10,000 to $49,999, 9 percent have saved $50,000 to $99,999, and 6 percent have saved $100,000 to $249,999, 2 percent have saved $250,000 to $499,999, 1 percent have saved $500,000 to $999,999, and 1 percent saved $1 million or more.

Met Life's 2003 Employee Benefits Trend Study reveals that 48% of employees rank "outliving their savings" as the greatest retirement fear.

Almost as many (43%) are concerned that during their own retirement they will need to provide for the long-term care needs of others, such as a spouse or relative. Consequently, nearly half (48%) of workers believe they will have to take on full- or part-time jobs to maintain financial stability during retirement. Despite the fear of outliving their assets, more than one out of four employees (26%) have not done any specific retirement planning, while only 57% have done some research on their own. This lag in planning has left half of the respondents either somewhat (30%) or significantly (23%) behind their retirement savings goals. "Alarmingly, among employees in the 41 to 60 age group, many of whom are on the brink of retirement, only 4% have reached their goals."

2004 Retirement Confidence Survey

OUTLIVING RETIREMENT SAVINGS - According to the 14th annual national Retirement Confidence Survey, one-third (34%) of workers believe they may outlive their retirement savings.Among individuals who make less than $25,000, 54% believe they run the risk of outliving their retirement savings. Men are slightly more confident than women (65% vs. 61%) when it comes to believing they will not outlive their retirement savings, and married people are more confident than non- married individuals (66% vs. 58%). Surprisingly, when it comes to long-term care (LTC) in retirement, 51% of workers are confident that they will have enough money to pay for LTC expenses.

Employee Benefit Research Institute's annual Retirement Confidence Survey. (2004) Almost a third of workers have not saved for retirement at all, about 40 percent are not saving currently and 45 percent have less than $25,000 in total savings and investments (excluding their home), according to the survey of about 1,000 workers and retirees.

But many Americans are not worried, seeming to hold in their mind's eye a retirement lifestyle that is increasingly rare: that their years of hard work will be rewarded with traditional pensions and other benefits. For instance, about half of workers who haven't saved at all are at least somewhat confident they'll have enough money to retire.

And 52 percent of workers overall expect they or their spouse will receive a traditional pension -- the same rate of retired households which currently receive those pensions -- even as employers nationwide cut back on these benefits.

Retirement?: (CIGNA 2004) Tomorrow's workforce will be older, heavier and unable to retire.

Per capita spending among Americans aged 30-50 rose more than 75 percent between 1987 and 2000.* Boomers are more at risk for chronic disease and are in the throes of a national obesity epidemic, with 61 percent of Americans overweight.

In 2006, baby boomers will begin to turn 60. By 2008, 40 percent of labor force will be 45 or older***, with older workers up to five times more likely to submit claims for short or long-term disability, and absent longer than the younger employee.**** Older workers will also work longer due to lack of savings for retirement, and increased age limits to qualify for Social Security benefits. A recent American Association of Retired Persons (AARP) study showed that nearly 70 percent of workers who have not yet retired report that they plan to work into their retirement years or never retire.

"Tomorrow's workforce is saving less for retirement, working into its advanced years, putting in longer hours at work, and picking up more of the tab for health care costs and other benefits,"

(EEOC 2004): The EEOC issued a rule that will permit employers, under the Age Discrimination in Employment Act (ADEA), to lawfully coordinate retiree health benefit plans with eligibility for Medicare or a comparable state-sponsored health benefit. The intent is to allow companies to offer health benefits to early retirees, and then reduce such benefits when they become eligible for Medicare (i.e. many companies then help provide Medigap-type coverage). This had been common practice until a court ruling in 2000 threatened the legality of the policy, creating fears that companies would drop such insurance for both types of retirees. The rule clarifies that health benefits can be changed for Medicare-eligible retirees without violating the law that such coverage be identical to non-eligible retirees. Regardless of the EEOC’s ruling, companies do not have any legal obligation to provide health benefits to retirees, and many are scaling back or eliminating such benefits.

Credit Protection: What to Consider Before You Buy  FDIC Lenders offer insurance or similar products that would make your loan payments if you die, become ill or unemployed, but there are costs and limitations. Here's a guide for evaluating this coverage.

Reinventing Retirement Income in America ,  2004 Brooks Hamilton and Scott Burns.  Extensive research article worth reading.

Funding: (Wilshire Associates’ 2004 Corporate Funding Survey on Pensions) The funding ratio for corporate defined benefit plans in the S&P 500 jumped to 89% on the back of a $139 billion growth in pension assets. Wilshire, though, points out that the median corporate funding ratio has declined steadily from 120% at the end of 1999 – the height of the bull market – to 78% at the end of 2002, improving to 82% at the end of 2003.

Cash Balance Plan: (2004) Cash balance plans are defined benefit plans that in some ways resemble defined contribution plans. Like other defined benefit plans, cash balance plans are obligated to pay a specified amount at retirement, are insured by the federal government, and the employer bears all investment risk. However, like a defined contribution plan, the benefit promised to an employee at retirement is based on an account balance (often called a hypothetical account balance) that typically reflects pay-based credits and interest credits made annually over the employee's working career. This hypothetical account balance allows an employee to easily track the retirement benefit that he or she has accrued. In addition, benefits in a cash balance plan are portable. Employees who leave employment can generally opt to receive lump-sum distributions of vested account balances. These funds can then be rolled over to individual retirement accounts (IRAs) or to new employer retirement plans.

Cash balance plans have been controversial, however, with critics charging that these plans discriminate against older, longer-service employees. In December 2002, the Treasury Department and the IRS issued proposed regulations offering guidance on age-discrimination rules for all qualified plans. These proposed regulations specified conditions under which cash balance plans (as well as the conversion of other defined benefit plans to cash balance plans) would not be considered to violate age-discrimination rules. Since the proposed regulations were issued, though, the controversy has escalated, with legislative and judicial actions regarding cash balance plans further complicating the matter.

As a result, the Treasury Department and the IRS announced on June 15, 2004 that the proposed regulations issued in December 2002 were being withdrawn. Further, Treasury and the IRS have stated that they do not intend to issue any further guidance on the issue while Congress is considering the matter, and will not process any requests for technical advice on cash balance plan conversions.

Pensions: (NY Times, Edward N. Wolff, an economist at New York University  2004) More than two-thirds of older households - those headed by people 47 to 64 - had someone earning a pension in 1983. By 2001, fewer than half did.

When the holdings of more typical households are tracked instead, today's near-retirees turn out to be a little poorer, in constant dollars, than the previous generation was when it approached retirement in 1983. The sweeping change in employee compensation appears to be the reason.

Wolff found that the average net worth of an older household grew 44 percent, adjusted for inflation, from 1983 to 2001, to $673,000. But much of that growth was in the accounts of the richest households, which pushed the averages up. When looked at the net worth of the median older household - the one at the midpoint of the economic ladder, a better indicator of what is typical - the picture changed. That figure declined by 2.2 percent, or $4,000, during the period, to $199,900

Traditional pension plans were part of a system that reduced the poverty rate among the elderly to just 1 in 10 in 2002, the lowest in half a century.

The advent of self-directed retirement plans, by contrast, is giving rise to an elite minority who are well prepared for retirement, and a majority who are falling behind

In 1985, about 115,000 American companies had traditional pension plans. As of last year, only about 31,000 did. Of those, many are thought to have frozen the benefits, pension specialists say, so that additional years of service no longer build a bigger pension. Others have closed their plans to new employees, or reduced their benefits formulas.

In 1983, only a tiny fraction of households had 401(k) accounts. But by 2001, about 62 percent of older households had one.

More debt: (NY Times 2004) One in four families headed by someone 65 or older still had a mortgage to pay in 2001, the most recent data available. In 1989, just one in six still had house payments to make.

As a group, people over 65 have the distinction of having not only the fastest-growing home debt, but also the fastest-growing share of personal bankruptcy filings and the biggest growth in demand for credit counseling.

Mortgage debt owed by older households nearly quadrupled between 1989 and 2001, even after accounting for inflation. In 2001, the typical household headed by someone 65 or older had $44,000 in mortgage debt, compared with $12,000 in 1989. The mortgage debts of younger homeowners, though still considerably larger at $75,000 on average, grew barely a fifth as quickly.

While home loans are usually their biggest payment, the elderly have been rapidly accumulating other debt as well. Credit card bills - to cover everything from minor emergencies to ongoing essentials - have risen sharply. All told, the debt burdens of borrowers between the ages of 65 and 74 doubled between 1992 and 2001, compared with an increase of 83 percent for the general population,

More and more of the elderly are in outright financial distress. One in seven households headed by someone 65 or older was considered heavily indebted in 2001 - devoting at least 40 percent of their incomes to debt payments. That compared with one in 10 among all households with debt.

Those in the worst shape file for bankruptcy protection. From 1997 to 2001, bankruptcies among the elderly tripled to 82,000. The number of people 65 or older grew only 3 percent during that time.

How Closely Do Spouses Coordinate Their Retirement Decisions?” , (2004) Richard W. Johnson of the Urban Institute.

Lack of health benefits in retirement can discourage workers from leaving the labor force (though just about everyone knew that)

DCR:  (2004) Defined contribution retirement plans, which include 401(k) plans, generally do not create incentives for workers to retire early. These plans, which have been growing in popularity and now cover almost twice as many households as traditional employer-sponsored plans (Munnell and Sundén 2004), function essentially as tax-advantaged retirement savings accounts to which both employers and employees generally contribute. Workers receive at retirement the funds that have accumulated in their accounts, generally as lump-sum distributions. Because account balances typically increase steadily over time, participants do not generally forfeit future benefits by delaying retirement. As a result, workers in defined contribution plans appear to work longer than similar workers in traditional retirement plans (Munnell, Cahill, and Jivan 2003).

Pension Plans: (2004)Frank Armstrong- In a specialized economy, most of us can do several things well, fake our way through a few other things, and are completely clueless about lots of other things. We can't be good, or even competent at everything.

So, when I tell you that many retirement plan fiduciaries are completely clueless, I'm not saying that they are bad people, stupid, or irresponsible. But, they have as little business overseeing pension plans as I might have overhauling a jet engine.

Success as a business owner, physician, attorney, accountant, or HR director does not translate into competent retirement plan administration. Notice I didn't say that success in these other fields precluded competence as a plan administrator. But, except for a few very rare exceptions, those particular skill sets are not found in the same people.

The footprints of clueless-ness are easy to spot:

High total expenses

Funds that reliably underperform their appropriate indexes

No process in place to monitor costs or performance

No investment policy statement

Funds with duplicate and/or overlapping investment objectives

Insufficient representation of critical asset classes

Inappropriate asset allocation

Deficient participant education

Inappropriate plan design to meet the firm's objectives

Cross testing, reporting and compliance problems

Low plan participation

In short the fiduciaries are simply failing to do their job as required by the law and good common sense.

So, how do responsible, successful professionals and business owners end up with such terrible plans? It's not like they set out to provide an awful fringe benefit for their participants. Few of them understand the issues enough to even ask the right questions, and there is a huge difference between just providing a plan, and providing a great plan.

There is one step down from completely clueless. That's a person that is completely clueless, but never-the-less thinks he knows it all. It's hard to know if most plan administrators fall into this lower category. Or perhaps they just trust the wrong people. No matter, the results are the same: grossly expensive, cumbersome, and ineffective retirement plans.

Because many plan sponsors are completely clueless they are easy pickings for Wall Street's sales machine. They are hopelessly outclassed, outgunned, and outmaneuvered on an uneven playing field.

Armstrong's comments should be mandatory reading for anyone interested in financial planning. I admit that consumers initially might not know the right questions to ask to find a planner, but in this day and age, it is almost inconceivable that anyone that has money could not do a search on the internet. Unfortunately, it still won't work. Why's that? Because, for the most part, journalists are clueless. Invariably they say to get a referral. Garbage. Or go to a major B/D. Garbage. Or use a CFP. Garbage. Or use only a fee only planner. Garbage. The problem? When you look at Armstrong's criteria for a physician or attorney, they at least have degrees in their field. Not so with financial planning. The entire industry has been established on the marketing of competency little more than a single college course (series 7) or college semester (CFP). You are not getting even a rudimentary level of competency with such little education- and no real life residency.

Just one reason why you need a whole mess of money for retirement: (National Underwriter2004)

How much will a boomer who retires in 2013 at age 65 need to pay for health care Medicare Part B premiums, medicare supplemental insurance and out of pocket expenses. They assumed the retiree will earn a 4% after tax rate of return on investments and face a 7% annual increase in overall Medicare and out of pocket medical costs due to inflation and aging. Age at death        80           $158,000

                            85             223,000 

                            90              297,000

                            95              382,000

                          100              479,000

Executives and retirement plans: (The Todd Organization 2004) America’s 50 largest financial institutions each use one or more supplemental retirement plans (a.k.a. “nonqualified plans”) to help retain and attract key employees.

· 96 percent of institutions offer one or more voluntary deferred compensation plans;

· 74 percent of institutions have a defined contribution matching program;

· 80 percent of institutions offer a supplemental executive retirement plan that will pay a defined benefit.

The study also found that 44 of the institutions, or 88 percent, also offer at least one type of enhanced insurance benefit to executives. The most common benefits offered are post-retirement medical coverage (offered at 76 percent of the institutions studied), supplemental term life insurance (30 percent), and supplemental disability coverage (18 percent).

MORE: The population over 60 is expected to grow to 82,501,033 by 2025 up from up from 44,158,531. In 2025, that group is expected to account for 24.6% of the population up from 16.5% in 1997.

Replacement Ratio Study, A Measurement Tool For Retirement Planning (2004) "Since 1988, the Aon Consulting/Georgia State University study on benchmarking retirement income needs has been a premier source of information for retirement planning. … this booklet presents the results of our 2004 analysis, the sixth update to the study. In this most recent iteration, we recognize changes that are occurring in the retirement income delivery system in the United States." (Aon Consulting/Georgia State University) pdf.

The statistical facts are valuable. But if you want real life, do a budget.  

Understanding Retirement Plan Fees And Expenses

This booklet will help retirement plan sponsors better understand and evaluate their plan's fees and expenses. While the focus is on fees and expenses involved with 401(k) plans, many of the principles discussed in the booklet also will have application to all types of retirement plans.

Selecting An Auditor For Your Employee Benefit Plan (2004)

Federal law requires employee benefit plans with 100 or more participants to have an audit as part of their obligation to file the Form 5500. This booklet will assist plan administrators in selecting an auditor and reviewing the audit work and report.

Why people save: (2004)

Reason               1992         1995        1998          2001

Education            9.1%         10.8%     11.0%       10.9%

For the family      2.6%           2.7%        4.1%        5.1%

Buying own home 4.0%         5.1%         4.4%        4.2%

Retirement          19.4%       23.7%       33.0%       32.1%

Workers (2004) The number of US workers between the ages of 65 and 74 will increase 48% by 2012 to 5.4 million from 2.8 million in 2002 and the number who are at least age 75 will increase 24% over that period to 1 million form 760,000

Projected growth in Senior Labor Force Number of workers in thousands
1982 1992 2002 Estimated 2012  Projected

Projected Change 2002- 2012
65- 74 2,566 2,932 3,665 5,411 48%
75+ 464 542 804 1,000 24
All ages 112,204 128,105 144,863 162,269 12

Retirement: (Kaiser  2004) people over age 65 are spending an average of 98% of their after tax income.

Chronic Disease: Chronic diseases account for seven of the 10 leading causes of death in the United States, including the three leading causes of preventable death (tobacco use, improper diet and physical inactivity, and alcohol use). In addition, 70% of health-care costs in the United States are for chronic diseases. Seven of every 10 U.S. residents who die each year (>1.7 million persons) do so as a result of a chronic disease. Chronic diseases affect the quality of life of 90 million U.S. residents (1), and the cost of medical care for persons with these diseases accounts for 70% of total medical care expenditures

Although chronic diseases are among the most common and costly health problems, they are also among the most preventable. Adopting healthy behaviors (e.g., eating nutritious foods, being physically active, and avoiding tobacco use) can prevent or control the effects of these diseases. In addition, quality of life is enhanced when chronic diseases are detected and treated early. Regular screening can reduce morbidity and mortality from cancers of the breast, cervix, colon, and rectum. Clinical preventive services can prevent the debilitating complications of diabetes and cardiovascular disease.

the Council of State and Territorial Epidemiologists has released these revised indicators for chronic disease surveillance. Of the 92 indicators, 24 are for cancer; 15, cardiovascular disease; 11, diabetes; 7, alcohol; 5 each, nutrition and tobacco; 3 each, oral health, physical activity, and renal disease; and 2 each, asthma, osteoporosis, and immunizations. The remaining 10 indicators cover such overarching conditions as poverty, education, life expectancy, and health insurance.

: “Will Health Care Costs Erode Retirement Security?” by Richard W. Johnson and Rudolph G. Penner

Major article/ well researched and presented.

                                                                            2000              2010              2020                2030

Before-Tax Family Income                                   ($) 36,800      42,380          47,400              50,690

Federal Taxes                                                            ($) 710        1,190            2,990                3,910

After-Tax Income                                                 ($) 36,090      41,180           44,410             46,780

Out-of-Pocket Health Care Spending                   ($) 5,760           9,810           12,950            16,400

After-Tax Income Net of Health Spending          ($) 30,330         31,370            31,450            30,380

Health Spending as Share of After-Tax Income    (%) 16.0               23.8                  29.2                 35.1

Table 1. Median Income and Health Care Spending for Older Married Couples, 2000-2030

Table 2. Median Income and Health Care Spending for Older Unmarried Adults 2000-2030

                                                                         2000                2010                  2020                     2030

Before-Tax Family Income                                ($) 15,380        17,690               20,320                   23,130

Federal Taxes                                                       ( $) 20                 40                      40                            90

After-Tax Income                                            ($) 15,360          17,650               20,270                    23,040

Out-of-Pocket Health Care Spending                 ($) 2,660            4,180                 5,300                     6,970

After-Tax Income Net of Health Spending         ($) 12,700         13,480               14,970                    16,070

Health Spending as Share of After-Tax Income (%) 17.3                23.7                    26.2                         30.3

Source: Authors’ estimates.

Retirement: Lincoln Long Life(SM 2004) Institute recently conducted a national survey that provides Baby Boomers with advice from a truly experienced source: affluent Americans in their 70s. Below are some of the retirement tips offered to boomers from the inaugural Lincoln Long Life(SM) Survey:

Stay active and independent. Ninety-four percent of "successful seventies" say independence is a major source of satisfaction in their lives. In the past year or two, 87% report they have traveled, 86% made a significant charitable contribution, 73% helped out family members financially and 64% have done volunteer work.

Plan for a lengthy retirement. Before retiring, 54% of "successful seventies" never thought about how many years they would spend in retirement. Those who did often underestimated, guessing 22 years. Research shows that most people actually need to plan for a 25-35 year retirement.

Seek professional advice when you need it. Fifty-six percent of those surveyed realized that managing their money in retirement is complex, leading them to hire professional financial planners. This is an increase over the 39% who used financial planners during the accumulation phase of pre-retirement.

Rely on yourself to fund retirement; inheritances might not meet your expectations. Only 46% of those surveyed say leaving an inheritance or legacy is very important to them, suggesting that independent-minded "successful seventies" expect their children to achieve financial success on their own. It's interesting to note that one in four predicts the next generation will be worse off in retirement than they are today.

Retirement: (MFS Retirement Services 2004) 72% of 39 plan sponsor and financial advisor respondents ranked retirement income generation as one of their plan participants' two greatest financial concerns. Post-retirement (31%), college savings (30.8%), and outliving retirement assets (25.6%) all also ranked as significant worries for future 401(k) retirees. Survey respondents devote a third (35.5%) of their current education efforts to increasing plan participation, a fifth of their time on asset allocation and account rebalancing (21.4%), and another fifth on increasing the deferral rate (21%).

Retirement Survey: Survey after survey shows that Americans -- for all their desire to collect a gold watch -- know little about retirement. There's the broad understanding, of course, that retirement typically involves less work, or at least moving beyond one's current job. And most people recognize the need for (if not the required size of) some type of nest egg.

1. What are the average ages at which men and women retire in the U.S.?

Men Women

a. 61 a. 61

b. 62 b. 62

c. 63 c. 63

d. 64 d. 64

Answers: B (men) and A (women). The exact figures, based on labor-force data for 1999 to 2004, are 61.6 for men and 60.8 for women, according to research by Murray Gendell at Georgetown University. While those ages have fallen significantly in the past five decades (men and women in the early 1950s stopped working at age 67, on average), the percentage of adults age 60-plus in the nation's labor force has been increasing in recent years. That change suggests that average retirement ages may be starting to bottom out and could begin to rise in the near future.

2. What percentage of current workers say they plan to retire after age 62?

a. 47 percent b. 57 percent c. 67 percent d. 77 percent

Answer: B. That figure has increased steadily in the past six years, accord-ing to a series of retirement surveys by the Gallup Organization for UBS AG. In 2002, 47 percent of current workers said they planned to retire after 62; in 1998, only 36 percent of respondents said they planned to wait until age 62 to leave their jobs.

3. If you retire at age 65, what percentage of your life can you expect to spend in retirement?

a. 16 percent b. 18 percent c. 20 percent d. 22 percent

Answer: D. An American who reaches the age of 65 has an average additional life expectancy of 18 years. Thus, if you retire at 65 and die at 83, you would have spent 22 percent of your life in retirement. And remember, 18 years is the average life expectancy; half of those who reach age 65 can expect to live longer than 18 years. The point: Many people continue to significantly underestimate their life expectancy -- and the risk that they will outlive their retirement savings.

4. What is the most important factor in Americans' decision to retire?

a. Employer pressure

b. Health decline

c. Family reasons

d. Qualify for Social Security benefits

Answer: D. In a study by the National Council on the Aging, 72 percent of those surveyed said qualifying for Social Security was their most important reason for retiring.

Retired ... Working ... or Something in Between?

5. What percentage of Americans age 65-plus consider themselves completely retired?

a. 58 percent b. 68 percent c. 78 percent d. 88 percent

Answer: A. In a survey by the National Council on the Aging, slightly more than half of older adults considered themselves "retired" in the traditional sense. Twenty-three percent said they are retired and working, and 19 percent said they aren't retired.

6. How many people age 65-plus are in the labor force?

a. 2.5 million b. 3.5 million

c. 4.5 million d. 5.5 million

Answer: C. In 2002, more than 2.5 million men and 1.9 million women age 65-plus were working or actively seeking work. Labor-force participation rates among older adults dropped steadily during the 20th century, reaching a low in 1985 of 15.8 percent for men and 7.3 percent for women. By 2002, the rates had climbed back to 18 percent for men and 10 percent for women.

7. What percentage of current workers say they expect to work for pay in some capacity after they retire -- and what percentage of current retirees say they have, in fact, worked for pay at any given point in retirement?

Current workers Current retirees

a. 38 percent a. 32 percent

b. 48 percent b. 42 percent

c. 58 percent c. 52 percent

d. 68 percent d. 62 percent

Answers: D (current workers) and A (current retirees). Although two-thirds or more of current workers regularly tell researchers that they plan to earn a paycheck in later life, only about one-third of current retirees actually have done so. The point: "It is unlikely that all of the workers who would like to work in retirement will be able to do so," concludes the Employee Benefit Research Institute. "Many will find themselves unable to work for health reasons."

8. What percentage of the total work force -- and what percent of workers age 50-plus -- are self-employed?

All workers Workers age 50-plus

a. 10.2 percent a. 10.4 percent

b. 12.2 percent b. 12.4 percent

c. 14.2 percent c. 14.4 percent

d. 16.2 percent d. 16.4 percent

Answers: A (all workers) and D (workers age 50-plus). Among workers age 51 to 69 who are self-employed, fully one-third made the jump to self-employment after turning 50, according to a study by AARP and Rand Corp.

Saving and Spending

9. What percentage of workers in the U.S. say they or their spouses are currently saving for retirement?

a. 48 percent b. 58 percent c. 68 percent d. 78 percent

Answer: B. Put another way, about four in 10 workers currently aren't saving for retirement. Those figures have remained fairly constant in recent years, according to the Employee Benefit Research Institute, "despite efforts at educating the American public about the importance of saving for retirement."

10. What percentage of workers age 55-plus report having $100,000 or more in savings and investments (not including the value of their primary residence)?

a. 16 percent b. 26 percent c. 36 percent d. 46 percent

Answer: B. Only about one-quarter of older workers have $100,000 or more in savings and investments, according to the Employee Benefit Research Institute. More than one-third (34 percent) of workers age 55-plus report having less than $50,000 in savings and investments.

11. What percentage of workers or their spouses have calculated how much money they are likely to need in retirement?

a. 42 percent b. 52 percent c. 62 percent d. 72 percent

Answer: A. Estimating financial needs in retirement is among the most fundamental of planning steps for later life. But almost six out of 10 workers, according to the Employee Benefit Research Institute, haven't made the attempt.

12. What percentage of baby-boomer households are estimated to be accumulating sufficient assets to maintain their current standard of living in retirement?

a. 40 percent b. 50 percent c. 60 percent d. 70 percent

Answer: B. About half of baby-boomer households, according to the Congressional Budget Office, are currently on track to continue their working-age standard of living in later life. Roughly one-quarter of boomer households "have accumulated very few assets thus far and are likely to find themselves largely dependent on government benefits in retirement," the CBO states.

Many of the remaining one-quarter of boomer households "appear likely to face relatively modest shortfalls that could be offset by increasing (personal savings) and by working for a few more years."

13. What percentage of Americans age 65-plus are living in poverty?

a. 6.4 percent b. 8.4 percent c. 10.4 percent d. 12.4 percent

Answer: C. After reaching an all-time low of 9.7 percent in 1999, the poverty rate for older Americans crept back to 10.4 percent in 2002, a total of 3.6 million people.

Lifestyles and Leisure

14. What percentage of men and women age 65 or older are married and living with their spouses?

Men Women

a. 43 percent a. 40 percent

b. 53 percent b. 50 percent

c. 63 percent c. 60 percent

d. 73 percent d. 70 percent

Answers: D (men) and B (women). In 2003, almost three out of four older men lived with their spouses, while only half of older women did. In contrast, according to the National Institute on Aging, women were twice as likely as men to live alone in later life (40 percent and 19 percent, respectively).

15. What percentage of people age 65-plus change residences in later life?

a. 18 percent b. 23 percent c. 28 percent d. 33 percent

Answer: B. From 1995 to 2000, 23 percent of older adults moved, compared with 48 percent of people under age 65, according to the Census Bureau. Among those moves, 60 percent were within the same county, 21 percent were to a different county in the same state, and 19 percent were to a different state.

16. What percentage of adults age 65-plus participate in volunteer activities?

a. 24 percent b. 44 percent c. 64 percent d. 84 percent

Answer: A. About one-quarter of older Americans did volunteer work in the year ended September 2003, according to the Bureau of Labor Statistics. That was the second-lowest participation rate among all adult age groups.

Older adults, however, devoted the most time to volunteer activities: a median of 88 hours during the year. Religious organizations were the biggest beneficiaries of older adults' charitable efforts; 47 percent of volunteers age 65-plus devoted their time to religious groups.

17. What is the most popular sports activity among Americans age 65-plus?

a. Golf

b. Exercising with equipment

c. Swimming

d. Exercise walking

Answer: D. About 9.4 million older adults are involved in exercise walking at least six times a year, according to the National Sporting Goods Association. The next most popular activities are swimming (3.4 million participants), exercising with equipment (3.1 million) and playing golf (2.5 million).

Health and Caregiving

18. What percentage of Americans ages 65 to 74 say they engage in "vigorous physical activity" (lasting 10 minutes or more) at least three times a week?

a. 16 percent b. 22 percent c. 28 percent d. 34 percent

Answer: A. Only about one in six older Americans exercises with any frequency. Fully 77 percent of this age group said they "never" engage in vigorous physical activity.

A study published in November by the University of Michigan Medical School and the VA Ann Arbor Health Care System found that adults in their 50s and early 60s who were regularly active were about 35 percent less likely to die in the next eight years than those who were sedentary.

19. What percentage of men and women age 65-plus are overweight?

Men Women

a. 43 percent a. 46 percent

b. 53 percent b. 56 percent

c. 63 percent c. 66 percent

d. 73 percent d. 76 percent

Answers: D (men) and C (women). Almost three-quarters of older men and two-thirds of older women are considered to be overweight, according to the most recent federal surveys. In July, Medicare for the first time designated obesity as a disease and said it would pay for anti-obesity interventions.

20. How many grandparents age 50-plus in the 2000 census had primary responsibility for their grandchildren who lived with them?

a. 600,000 b. 1.6 million

c. 2.6 million d. 3.6 million

Answer: B. In all, about 4.1 million grandparents age 50-plus live with grandchildren.

21. What is the approximate average annual cost of residing in an assisted-living facility or a semiprivate room in a nursing home?

Assisted living Nursing home

a. $30,000 a. $30,000

b. $40,000 b. $40,000

c. $50,000 c. $50,000

d. $60,000 d. $60,000

Answer: A (assisted living) and D (nursing home). When asked what source they would use to pay the bulk of long-term care costs, 31 percent of respondents in a study by MetLife Inc. listed Medicare, health insurance or disability insurance -- none of which actually cover the cost of long-term care.

Estate Planning And Inheritance

22. What percentage of adults in the U.S. have a will?

a. 22 percent b. 42 percent c. 62 percent d. 82 percent

Answer: B. That figure, from a survey this year by legal resource Martindale-Hubbell, is down from 47 percent in 2000. Some Americans appear to be postponing various aspects of estate planning, including wills, because of uncertainty about estate taxes. The estate tax is set to phase out in 2010 -- and return in 2011 unless there's a permanent repeal.

23. To date, what is the median amount of money that baby boomers have inherited from their parents?

a. Less than $50,000

b. $50,000 to $100,000

c. $100,001 to $150,000

d. $150,001 to $200,000

Answer: A. According to a study by AARP based on the Federal Reserve Board's Survey of Consumer Finances, the median inheritance as of 2001 is $47,909 (in 2002 dollars). The research also showed that only 15 percent of baby boomers now expect to receive an inheritance, down from 27 percent in 1989. "For most people," the study concludes, "inheritances will remain an elusive, or small, contributor to their retirement security."

24. Life insurance can be subject to:

a. Income taxes

b. Estate taxes

c. All of the above

d. None of the above.

Answer: B. Life insurance is free from income tax. If the policy, however, is owned by the insured (instead of his or her beneficiaries or a trust), the proceeds will be included in the insured's estate -- and, thus, possibly subject to estate taxes.

25. What is the current estate-tax exemption?

a. $1.5 million b. $2 million

c. $2.5 million d. $3 million

Answer: A. The figure will increase gradually to $3.5 million in 2009, before the estate tax disappears altogether for 2010. The exemption represents the amount of money that can be transferred to beneficiaries (during life or at death) free of taxes. Any funds distributed beyond that amount currently are taxed at 50 percent.

Nest Eggs

26. What percentage of households in the U.S. have pension coverage that relies solely on a defined-contribution plan, such as a 401(k)?

a. 38 percent b. 48 percent c. 58 percent d. 68 percent

Answer: C. In 2001, more than half of all households were dependent solely on defined-contribution plans for pension coverage, up from 37 percent in 1992, according to Alicia Munnell and Annika Sunden at the Center for Retirement Research at Boston College, and authors of "Coming Up Short: The Challenge of 401(k) Plans."

In contrast with traditional pensions (also known as defined-benefit plans), 401(k)s and related retirement accounts "shift the risks and responsibilities associated with providing retirement income from the employer to the employee," Prof. Munnell and Ms. Sunden observe. "The employee decides whether or not to participate, how much to contribute, how to invest the assets, and how to withdraw money at retirement."

27. Among individuals age 50 to 59 -- people approaching retirement -- what is the average balance in their 401(k)s?

a. $88,000 b. $188,000

c. $288,000 d. $388,000

Answer: A. That figure, for 2002, according to research cited by Prof. Munnell and Ms. Sunden in their book, was 15 percent below the average balance in 1999, reflecting the downturn in the markets in the intervening period.

28. What percentage of workers rebalance their 401(k)s at least once a year?

a. 17 percent b. 27 percent c. 37 percent d. 47 percent

Answer: A. According to a study by Hewitt Associates, only one in six workers who contribute to their 401(k) plans made any transfers in their accounts in 2003. Most financial planners recommend rebalancing a portfolio at least once a year.

29. What percentage of workers age 50-plus are taking advantage of "catch-up contributions" in retirement savings plans at work?

a. 14 percent b. 24 percent c. 34 percent d. 44 percent

Answer: B. In 2001, Congress raised the contribution limits for retirement savings plans -- and made special provisions for workers 50 and older. This year, for instance, individuals age 50-plus can put an additional $3,000 into 401(k)s on top of the $13,000 maximum for younger workers.

About 95 percent of corporate retirement plans now permit catch-up contributions, according to the Profit Sharing/401(k) Council of America. Last year, however, only about one-quarter of eligible workers made such contributions.

30. What percentage of workers cash out of their 401(k) plans when changing jobs?

a. 22 percent b. 32 percent c. 42 percent d. 52 percent

Answer: C. Almost half of workers -- and fully 33 percent of those age 50 to 59 -- withdraw all the assets from their 401(k)s when changing jobs, according to Hewitt Associates. Doing so results in a huge tax bite and can seriously erode an individual's retirement security.

31. What is considered a prudent rate of withdrawal when first tapping retirement savings?

a. 4 percent b. 6 percent c. 8 percent d. 10 percent

Answer: A. Research has indicated that a safe rate of withdrawal -- so as not to outlive one's nest egg -- is about 4 percent a year. Thus, a person who has $500,000 in savings could withdraw $20,000 during the first year of retirement and increase that withdrawal each year by the amount of inflation.

A recent study in the Journal of Financial Planning suggests an initial rate of as much as 6 percent could be safe -- so long as investors are willing to limit withdrawals after a down year in their portfolios.

32. What percentage of current retirees say their income needs in retirement are roughly equal to their income before retirement?

a. 9 percent b. 19 percent c. 29 percent d. 39 percent

Answer: D. Many current workers seriously underestimate how much of their pre-retirement income will be needed in later life, according to the Employee Benefit Research Institute.

Fully four in 10 retirees say their current income needs are about equal to their pre-retirement income -- but fewer than one in 10 workers think they will need that much money.

Social Security

33. At what age do Americans qualify for full Social Security benefits?

a. 65 b. 66

c. 67 d. Varies by year of birth

Answer: D. Uncle Sam is gradually increasing the age at which individuals become eligible for full Social Security benefits. For those born in 1939, full retirement age is now 65 years and four months; for those born in 1940, full retirement age is 65 years and six months. Eventually, full retirement age will level off at age 67 for people born in 1960 and later.

That said, almost one-third of today's workers, according to a survey earlier this year by the Employee Benefit Research Institute, still believe they are eligible for full Social Security benefits at age 65 -- and one in five believe they qualify for full benefits before 65.

34. What percentage of eligible Americans begin collecting reduced Social Security benefits at age 62?

a. 29 percent b. 39 percent c. 49 percent d. 59 percent

Answer: C. Almost half of workers grab Social Security at 62, the earliest age at which benefits are available.

35. True or false: If you begin collecting benefits from Social Security at age 62, a portion of those benefits could be withheld if you have earned income.

Answer: True. Between age 62 and the year in which a worker reaches his or her full retirement age, Social Security benefits currently are reduced $1 for every $2 earned over $11,640. (That cap increases slightly each year, and the rules change in the year an individual reaches full retirement age.) After full retirement age, there is no reduction in benefits tied to earnings.

36. What is the average monthly Social Security payment for retired workers?

a. $950 b. $1,450 c. $1,950 d. $2,450

Answer: A. In 2005, the average monthly benefit, including a new 2.7 percent cost-of-living adjustment, will total about $950.

37. What percentage of people age 65 and older depend on Social Security for at least half their income?

a. 36 percent b. 46 percent c. 56 percent d. 66 percent

Answer: D. About two-thirds of Social Security beneficiaries age 65-plus rely on their monthly check from Uncle Sam for more than half their income. For about 20 percent of Americans age 65-plus, Social Security is their only source of income.

Thus, the question: With Social Security's resources stretched increasingly thin as the population ages -- and with some type of change to the system seen as a given -- will current or future beneficiaries see their benefits reduced?

And if so, will those cuts be felt across the board, including those who are dependent on Social Security for much or all of their income, or will the reductions target more affluent families?

Signing Off

38. What is the leading cause of death among Americans age 65-plus?

a. Stroke b. Cancer c. Heart disease d. Respiratory disease

Answer: C. In all, 584,000 older adults died of heart disease in 2001, according to the National Center for Health Statistics, followed by cancer (390,000), stroke (145,000) and respiratory disease (108,000).

39. What is the average cost of a funeral in the U.S.?

a. $2,500 b. $4,500 c. $6,500 d. $8,500

Answer: C. That figure includes what the funeral industry calls an "outer burial container" -- but not cemetery costs.

40. Among all deaths in 2003, what percentage involved cremation?

a. 14 percent b. 19 percent c. 24 percent d. 29 percent

Answer: D. Cremation is the "method of disposition," according to the National Funeral Directors Association, for more than one in four deaths in the U.S. That's triple the percentage in 1980.

RETIREMENT PERCEPTION VS. REALITY - (2005) Two studies underscore the seriousness of individuals' inaccurate perceptions of their retirement readiness. According to Allstate's "Retirement Reality Check" survey, the vast majority (74%) of baby boomers believe that they are somewhat or very prepared financially for retirement. However, only 8% have completed ten basic steps for retirement preparation. Genworth Financial's "Retirement Income Readiness Survey" also highlights the discrepancy between perception and reality. It revealed that while 90% of respondents believe it is somewhat or very likely they will achieve their retirement goals, 60% were surprised to learn that $1 million in savings will only safely provide roughly $40,000 in annual retirement income.

* Average life spans are increasing - Once a married couple reaches the age of 65, there is a 97% chance one of them will live to 75, a 72% chance one will live to 85.

* Poor national savings rates - 50% of all workers and 34% of workers age 55 and older report that their total savings and investments, excluding the value of their homes, are less than $50,000.

* Unrealistic expectations for Social Security - 90% of older Americans say they expect to rely on Social Security as their top source of retirement income. Yet, in 2001 Social Security supplied only 39% of retirement income for individuals 65 or older.

* Decline of employer-sponsored pension plans - The number of individuals covered solely by an employer-sponsored defined benefit plan decreased from approximately 58% in 1981 to 12% in 2001.

* No plans for retirement income - 71% of workers do not have a plan to transform their retirement savings into a steady stream of retirement income.

* Inadequate retirement planning - Prior to reaching retirement, 54% of current retirees had never thought about how many years they would spend in retirement, and 43% had underestimated the amount of time they would spend in retirement.

UNDERSTANDING EXPENDITURE PATTERNS IN RETIREMENT, Barbara A. Butrica, Joshua H. Goldwyn, and Richard W. Johnson, Center for Retirement Research at Boston College. Good article- pdf, 41 pages. 2005

Among married adults, including those living with nonspouses, the median value of per capita household expenditures falls with age, declining from $17,409 at ages 53 to 64, to $15,414 at ages 65 to 74, to $13,678 at ages 75 and older. Likewise, the median value of per capita before-tax income for married people declines from $30,898 at ages 53 to 64, to $20,023 at ages 65 to 74, to $15,800 at ages 75 and older. The median level of expenditures declines by 21 percent between the youngest and oldest age groups, whereas the median value of income before taxes declines by 49 percent. The estimated decline in financial resources narrows when we account for taxes and assets. The median value of after-tax income plus annuitized assets is only 25 percent less for married adults aged 75 and older than for married adults aged 53 to 64.

Compared with married adults, nonmarried adults tend to have higher per capita expenditures (except for the youngest age group) but lower per capita incomes. In contrast to married individuals, median expenditures among nonmarried people are slightly higher at ages 65 to 74 than at ages 53 to 64, and then are lower at ages 75 and older. However, similar to married individuals, median income declines with each successive age group. Between the youngest and oldest age groups, expenditures decline by only 10 percent but after-tax income plus assets declines by 19 percent.

The median value of per capita household expenditures for married adults ages 65 and older stands at $14,792 (see table 2). Housing is the largest spending category overall, followed by health care, food, transportation, entertainment and gifts, other consumer durables, and clothing. Specifically, typical married individuals devote 29 percent of their total expenditures to housing. They devote another 20 percent to health care, 13 percent to food, and 12 percent to transportation. Entertainment and gifts represent 10 percent of total expenditures. Other consumer durables, such as appliances, account for 4 percent of total spending, and clothing accounts for 2 percent. Interestingly, housing and health care alone account for close to half of total household expenditures for typical older married adults. One reason for the relatively steep housing expenditures is that the aged are increasingly likely to hold mortgages on their homes (Gist and Figueiredo 2002), which tend to raise housing costs. Indeed, our data show that 25 percent of married adults ages 65 and older are homeowners with mortgages.

For nonmarried adults, the median value of per capita expenditures is $16,178, higher than the level for married adults. Relative to married adults, nonmarried adults allocate larger shares of their spending to housing (39 percent), food (15 percent), and clothing (3 percent), but smaller shares to health care (16 percent), transportation (9 percent), entertainment and gifts (7 percent each), and other consumer durables (3 percent). Similar to married adults, housing and health care account for more than half of total household expenditures for typical nonmarried adults.

Men vs. women (2005) More men than women, 14% vs 2% say they are unprepared to cook for themselves

36% of women view their spouses as less able to handle finances alone compared to 26% of men.

When it comes to managing health care, women don't have much  confidence in their husbands. 9% think men can handle it own their own as opposed to  to 26% of men who think their wives can manage

Women are also more concerned  about he  upkeep of the house and yard after after they die, 34% vs 18%.

Retirement(2005) The sixth annual Transamerica Small Business Retirement Survey indicates that while 92% of small business employees view employee-funded retirement plans as an important benefit, more than a third (35%) of small business employers do not yet provide this type of benefit. Only 75% of small business employers thought their workers would feel that way about having a retirement plan benefit, and just 34% of small businesses believed their workers would choose retirement benefits over salary..

That gap could be significant, since more than half (54%) of small business employees say they would choose a job that provides excellent retirement benefits but meets only their minimum salary requirements, versus one that provides an excellent salary but fewer retirement benefits. Of the small business employees who don't have plan access, over half are at least somewhat likely (26%) or very likely (29%) to consider leaving their current company in order to take a nearly identical position for a similar firm with a plan.

However, reversing an upward trend from the previous year, small business workers this year are less likely to be very involved in monitoring and managing their retirement savings (70% in 2004 versus 79% in 2003 and 67% in 2002). In addition, fewer workers this year feel the need to receive more information and advice from their company on how to reach their retirement goals (57% versus 65% in 2003).

While the worker security may be false at small companies, larger companies appear to put in extra effort to get employees more involved with their plans: They are more likely to offer a company match, tend to provide employees with more investment choices, and spend more time reviewing investments with employees than small businesses. Workers at larger firms are more likely to participate in their company's 401(k) plan (79% versus 72%) and contribute at slightly higher levels (8.6% versus 8.1%) than are their small-business counterparts. They also spend more time monitoring their retirement accounts (an average nine hours versus five hours per year)..

Retirement expenditures: (2005) There is tremendous variation in spending patterns by personal characteristics, for both married and nonmarried adults. In general, household spending varies directly with socioeconomic status, reflecting differences across groups in average income levels. Groups with the highest expenses include whites, those who completed college, those in excellent and very good health, those with employer-sponsored health insurance, homeowners with mortgages, and those living in urban settings. In contrast, groups with the lowest expenses include Hispanics, high school dropouts, those in fair or poor health, Medicaid recipients, renters, and those living in rural settings. As expected, we also find that disadvantaged groups tend to devote significantly highe shares of their total expenses to essential items, such as housing, and smaller shares to nonessential items, such as entertainment and gifts.

Retirement expenditures: (2005)total expenditures increase with income. Married adults in the highest income quintile consume 2.5 times more than their counterparts in the bottom income quintile. The gap in expenditures between the highest and lowest income quintiles is even wider for nonmarried adults.

AXA Retirement Scope Key Findings of AXA’s Global Retirement Survey (2005)

More than 9,200 people in 15 countries participated in AXA Retirement Scope, a unique survey of global retirement trends and insights. Both workers and retirees were surveyed about their financial preparations, quality of life and views on retirement. Surprising results came from the U.S. survey, where 800-plus people in four regions participated. Key findings include:


a. Americans lead the world in preparing for their retirement, saving more than in any other country and beginning preparations earlier than most.

i. More than 75 percent of U.S. respondents are saving money for retirement, and 73 percent say they are “prepared.”

ii. Nearly 80 percent have a plan for where they want to live, what they want to do, and how much money they’ll need.

iii. People are starting to prepare for retirement in their 30s. Retirees started preparing at 36 years old, while working people say 34 is the age to begin to get ready for retirement.

iv. Working people are saving, on average, $687 per month toward retirement. Retired people said they had saved $535 per month, on average. Both are the highest amounts of any country surveyed.

b. American workers are among the best informed about retirement. This appears to be due to Americans emphasizing individual responsibility when it comes to retirement.

i. More than 50 percent of working adults are contributing to an employee-sponsored plan.

ii. Nearly 90 percent said retirement funding is their responsibility, rather than the government’s or their employer’s.

iii. Financial advisors, employers, banks and insurance companies are the leading sources for retirement planning information, cited by nearly 70 percent of working respondents.

1. Conclusions: U.S. workers, as the retirees did before them, think about retirement very early on. The majority have prepared for it psychologically as well as financially, and many seek out financial advisors for information. Preparing consists of life insurance policies, saving plans with tax incentives andother savings. They are realistic about their future retirement and its potentially reduced income, but expect an equal or better standard of living.


a. Working people surveyed are looking forward to their retirement, while most retirees are very much enjoying being retired.

i. 37 percent of U.S. retirees travel, 19 percent enjoy a hobby, 18 percent participate in sports, and 16 percent volunteer.

ii. 88 percent of working U.S. adults expect to become involved in community life when they retire.

iii. New Zealand retirees lead the world in gardening, sports, cultural interests, walking/hiking and visiting the family.

iv. 92 percent of U.S. retirees are living in their own home, and an equal percentage feel staying at home or moving to another region or country would be ideal. Only 2 percent of retirees want to move in with their children.

b. The ideal retirement age in the U.S. is 58 years old.

i. Most retired people surveyed were able to retire when they wanted to, but people currently working might not be so fortunate. The working people surveyed desire to retire at 55, but expect they will retire around age 63.

c. “Old” is not a term used by working or retired people.

i. Most U.S. respondents said 75+ would be considered “old”.

ii. More than 50 percent say health problems, such as loss of mobility, illness or pain, signify when someone is getting old.

1. Conclusions: People have a positive image of retirement. The U.S. stands out with a more positive perception from retirees than from people who work, which is the opposite view in most countries. People wish to retire early in the U.S., and are prepared to do so. The individual is considered as being responsible for arranging for his or her own retirement.


a. In the U.S., the standard of living in retirement is nearly equal to the standard of living while working.

i. 72 percent of U.S. retirees feel their standard of living has remained the same or improved.

ii. Two out of three U.S. workers feel their standard of living will improve or remain the same when retired. More than 50 percent of workers in Germany expect their standard of living to decrease.

b. Income decreased for retired people, but this did not drastically affect their standard of living.

i. More than 60 percent of working and retired people in the U.S. feel their retirement income is sufficient; nearly 10 percent feel it will be completely sufficient.

ii. American retirees enjoy a relatively high retirement income compared to their expenses, and compared to other countries. In Italy, Japan and Hong Kong, expenses far outweigh retiree’s incomes.

1. Conclusion: Americans live an active retirement with traveling being the number one activity. However, they are least likely to have a hobby or do some gardening. Most retirees are involved in their community, and working people expect to stay involved when retired.

Conclusions Retirement is an active and positive stage in life!

•People who work have a positive image of retirement. They imagine retirement as a  period during which they have more time for themselves and to do what they enjoy.

For this reason, workers dream of retiring at an earlier age than their elders, at 55 years old. Despite this wish, they are well aware that they will not be retiring until the age of 63.

•Retirees have an even more positive attitude toward retirement. It is an active period richly spent in physical and manual activities: travel, hobbies, sports, volunteering, gardening and DIY projects.An important way in which retirees take advantage of this free time is by helping out their children and grandchildren: workers and retirees alike agree that one role of the elders is to transmit knowledge and experience to younger generations.

A watershed: people think about retirement early on and prepare for it financially.

•Workers, as the retirees did before them, think about retirement very early on. The majority have prepared for it psychologically (early in life, they think about what they will do and where they will live) as well as financially.

•They are very realistic about their future retirement, which they understand will certainly be graced with fewer financial resources, but which will offer an equivalent or better standard of living.

•In the end, thanks to the complementary measures, taken individually in a country where the government offers minimal social security, Americans have widely accepted individual savings as the primary source of financing for retirement. Six of ten Americans believe their retirement income is and will be sufficient.

•For workers and retirees alike, preparing for retirement consists in significant use of life insurance policies, savings plans with tax incentives, and “generic” precautionary savings, in a country where the government is not in any way the cornerstone of the system.

•For information about retirement, workers would turn to private sources first:  advisers specializing in retirement issues, banks and the employer. In fact, employers play a key role in this economy, where retirement benefits are dictated by private businesses.

What about tomorrow?

•For four out of ten workers/retirees, retirement is expected to be the subject of a reform, even if they do not expect major change and even if Americans rely primarily on their own savings to pay for their retirement.

•The U.S. is one of the countries where people wish to retire early and where the desired retirement age limit is one of the lowest.

•Like elsewhere, people have a positive image of retirement. In particular, U.S. retirees are distinguished by a more positive perception than retirees elsewhere.

•Americans live an active retirement with travelling being the number one activity – contrary to numerous countries where travelling is the dream of those who work and barely carried out by retirees. American retirees are those who take the longer vacations. However, they are the least likely to have a hobby, do some gardening, a DIY activity, or a cultural life, etc....

•As everywhere else, in the U.S. there is a consensus on the social role of transmitting knowledge and experience from retirees to the generations after them; Americans particularly emphasize their role as grandparents. \

•On the material level, they are more optimistic than elsewhere on changes to their income, and their retirement lifestyle and retirement income are considered sufficient.

•Americans, along with the Dutch and Germans, are best informed about their retirement conditions. And just like in the other English-speaking countries, the UK and the Pacific region countries, Americans turn to financial advisers for information about retirement. They also appear to be highly prepared for retirement. A significant majority of working Americans invests in various financial products; the U.S. is the country where workers and retirees alike invest in various types of financial products to prepare for their retirement.

•Lastly, Americans are the first to make arrangements to ensure their independence in case of illness.

•These attitudes are consistent with the Anglo-American culture of individual responsibility: just as in former Commonwealth countries, the individual is considered as the first to be responsible for arranging his/her pension. Pension funds and company pension plans also play an important role for Americans while the Government’s role is more minimal.

•Against this background, Americans do not expect any reform to their retirement system in the coming years.

Retirement?: (Wharton 2005) "Today, less than 2% of American workers are in agriculture, and manufacturing employs only about 13% of American workers, adding that as the economy has shifted away from hard, physical labor and agriculture, "brains and learned skills have dominated, if not completely replaced, brawn and endurance." The result? A move to the knowledge economy, to which older workers with their added experience and wisdom are ideally suited and which increasingly makes the notion of a set "retirement age" obsolete. "

According to the Census Bureau, between 1998 and 2000 the number of workers between the ages of 65 and 74 increased by one-seventh, to nearly four million. In 2002, the total workforce in the U.S. increased in size by 720,000 workers, and workers over the age of 55 accounted for nearly all of that increase. And according to the Bureau of Labor Statistics, by the end of the current decade 20% of the workforce will be over 55.

Retirement: (2005) Nearly nine out of 10 Americans were worried about saving enough for retirement even before President Bush began his recent campaign to change Social Security .

Fifty-seven percent admitted they often or sometimes felt worried about how well prepared they will be for retirement, and 32 percent said they worried occasionally, according to a survey released Tuesday by Wachovia Corp., the No. 4 U.S. bank.

Only 11 percent expressed no such concerns. And half of those polled worried about making mistakes with their retirement investments.

In the survey, 36 percent said they felt particularly intimidated, fearful and helpless about saving for retirement and admitted they weren't saving enough. Another 11 percent were similarly worried but felt they were on the right track.

Twenty-six percent said they were relatively unprepared and in a sense appeared "overconfident" about retirement savings, while the remaining 27 percent generally felt comfortable and in fact thought they were on the right track.

Women were more concerned about retirement than men, and people who were worried were more likely to consider themselves inexperienced investors.

3/29: Eric T. Sondergeld, ASA, CFA, MAAA; Mathew Greenwald, Ph.D.













Retirement: (2005) The MetLife Mature Market Institute Demographic Profile of Americans 65+ shows an aging population of 36 million people, some with few assets and relatively low income; 10% live below the poverty line. The publication reports the segment of the population between 65 and 69 has a median net worth of $114,000, including the equity in their homes, but $27,588 without it. For those between 65 and 74, the average before-tax income is $35,118 with most coming from Social Security. Of the entire 65+ population, 80% own their own homes and 20% are renters. Not surprisingly, the lion's share of the 65+-age group's expenditures is for basic necessities such as housing, food, transportation and health care. Those over 75, for example, spend just $896 per year on entertainment. "This is alarming data, particularly with regard to the future. Our report shows that the 65+ population comprises 12.6% of the current population -- one in eight people -- and that the ranks will double to about 71.5 million people by 2030; by 2050 there will be 86.7 million people over 65."

the list of retirement regrets were (2005)

21% did not create a budget,

19% did not determine an asset allocation strategy

18% did not develop an income source withdrawal strategy (18%), and

19% did not develop an understanding of 401(k) plan payout options.

68% (Two thirds of pre-retirees) have not completed a budget of anticipated income and expenses, while just under three quarters (74%) have not yet worked out an asset allocation strategy for managing their income in retirement while seeking continued growth for their savings.3/13: Remember the tech bubble (NY Times) The second five years after a historic high can produce some big gains, but they can also produce losses that wipe out those gains. Technology investing in the next five years may be more exciting than profitable.

Retirement: Boomers may have different investment needs depending on their "retirement savings profile," but nearly all (97%) regret how they and their spouse spent their money, and 98% of retirees regret how they spent their money before retiring. None of that disappointment appears to be weighing on their expectations

Older workers: (USA Today 2005) Since the March 2001 recession, there has been a 3.7 percentage-point increase in the labor-force participation rate — the proportion of the population in the workforce — of people 55 and older, reflecting demographic and economic changes and lifestyle choices.

workers 55 and older account for more than half the job gains in the past year under the Labor Department's monthly household employment survey, filling 918,000 jobs compared with an 892,000 gain for younger workers.

Further, the number of employed men 55 and older has risen nearly 20% since March 2001, seasonally adjusted, while the number of employed women in that age group has risen 26.3%.

the percentage of individuals 65 and above in the workforce is the highest since 1970.

Retirement withdrawals: (2005) Trinity University in Texas created one of the first studies on taking withdrawals in retirement, using data from 1926 through 1995. The findings: If you don't increase your withdrawals for inflation, you can spend 7% of your portfolio every year for 30 years in an all-stock portfolio and have a 15% chance of running out of money.

Split your portfolio between stocks and bonds, and your chance of dying destitute falls to 10%.

But inflation will erode the buying power of your withdrawals. If you take out more money each year to offset inflation, your chances of dying broke increase precipitously: 41% if you have an all-stock portfolio and withdraw 7% a year. (See chart).

Other studies have come to similar conclusions. The Baltimore mutual fund company T. Rowe Price used Monte Carlo analysis — named after the European casino — to see the odds of running out of money under thousands of potential market scenarios. Its conclusion: If you want to adjust for inflation, a 4% withdrawal rate over a 30-year retirement is about the most you can handle.

Clark Consulting Executive Retirement Report, December 31, 2004

                                                            Asset class % of total assets       Dollars allocated (estimated to the nearest 100)

Balanced Funds                                   4.2                                              $39,162,400

Fixed Income                                       9.9                                               92,307,600

Fixed Rate                                         26.3                                             244,327,700

Foreign                                                4.6                                               43,143,600

Large-cap                                         24.9                                              231,379,100

Mid-cap                                            5.1                                                 47,545,200

Small-cap                                         10.9                                              101,171,900

Money market                                   6.0                                                56,098,600

Company stock                                 5.3                                                49,064,200

Specialty                                            1.5                                               13,628,900

World                                               1.2                                                 11,513,900

Final numbers were derived from automated feeds of data of more than 17,000 executives, between the ages of 20 and 80 who have accounts in nonqualified retirement plans through Clark Consulting. In user testing, individual client reports were run and those results were compared against an automated feed. For accuracy, extract queries and comparisons of the automated feed were made. Those queries matched the automated feeds in sums by year, as well as aggregated totals.

Retirement: (Thrivent Financial 2005) While more than two-thirds of Americans say they are confident or hopeful about their retirement finances, and most (four of five) report taking steps to prepare for their retirement years, less than half (47%) have estimated how much money they will need – though 49% claim they regularly monitor their retirement needs and assets. Twenty-six percent of Americans have personally saved less than $5,000 for retirement, with young adults age 18 to 34 (39%) and those with incomes of less than $35,000 (43%) being most apt to be under this threshold. Still, one in five pre-retirees age 50 to 64 and one in seven of those with incomes of at least $75,000 have saved less than $5,000.

"Disability Testing and Retirement"  (2005) This Paper studies the design of retirement and disability policies. It illustrates the often observed exit from the labor force of healthy workers through disability insurance schemes. Two types of individuals, disabled and leisure-prone ones, have the same disability for labor and cannot be distinguished. They are not, however, counted in the same way in social welfare. benefits depend on retirement age and on the (reported) health status. We determine first- and second-best optimal benefit levels and retirement ages and focus on the distortions that may be induced in the individuals' retirement decision. Then we introduce the possibility of testing which sorts out disabled workers from healthy but retirement-prone workers. We show that such testing can increase both social welfare and the rate of participation of elderly workers; in addition disabled workers are better taken care of. It is not optimal to test all applicants, nor to apply testing to all types of benefits. Surprisingly, the (second-best) solution may imply later retirement for the disabled than for the leisure prone. In that case, the disabled are compensated by higher benefits.

Social security:

Retirement: (MET Life 2005) nearly half of young workers and one-third of GenXers haven't even begun to plan or save for retirement. Young workers between the ages of 21 and 30 are the most unprepared, with nearly half (40%) lacking retirement goals and/or savings. GenXers between the ages of 31 and 40 are also significantly behind, with nearly one-quarter (23%) admitting that they haven't started to save, and an additional 8% saying they have no retirement savings goals.

the majority of full-time U.S. workers (64%) are either behind in their retirement savings goals, or haven't yet started saving. Particularly likely to be behind in retirement savings are women--23% of whom haven't yet started to save for retirement (compared with 15% of men)--and widows--26% of whom have no retirement savings goals and 70% of whom say they live "paycheck to paycheck."

Nearly half (49%) of full-time employees surveyed rated outliving their retirement money as a high concern--with women (55%) being more concerned than men (44%). However, nearly as many respondents (45%) have not factored their longevity into their retirement savings plans. Even those that have factored in longevity are not safe--many underestimate how long retirement will last. For instance, most (59%) younger workers age 21 to 30 anticipate needing at least 20 years of income post-retirement, yet 66% plan to retire before the age of 60. According to the 2003 National Vital Statistics Reports from the Centers for Disease Control and Prevention, the average American 60-year-old can expect to live to be 82.3, and the average American 70-year-old can expect to live to be 85.

Of particular concern are those nearing retirement--39% of baby boomers in their 50s and 24% of respondents in their 60s admit they have never calculated how much income they will need in retirement.

Younger workers age 21 to 30 are less apt to save in general--only 6% own annuities (versus 11% of employees overall) and 62% participate in a 401(k) or other retirement plan (versus 70% of employees overall). Yet, nearly half (46%) are interested in having their employers provide them with access to financial planners.

The survey found that middle-age workers age 41 to 50 tend to have 401(k)s or other retirement plans more often than their counterparts (75% versus 70% of employees overall). And, interest in annuities rises with age--14% of 41- to 50-year-olds own one, whereas 18% of 51- to 60-year-olds and 27% of 61- to 69-year-olds own annuities.

Married respondents are more likely to have a 401(k) plan (73%) or an annuity (11%) than single respondents (67% and 9%, respectively) or those in domestic partnerships (60% and 9%, respectively). Respondents with children under the age of 18 were less likely to own a 401(k) plan (66%) or annuity (10%) than those without (72% and 11%, respectively).






Defined benefit: A survey of law firm retirement plans shows that, as in a large number of other industries, defined benefit plans have become less frequent as defined contribution plans have increased in popularity among employers. Since 1993, defined benefit plan offerings for legal and paralegal staff have declined from 54% to 28% among the 43 firms polled in Segal's Survey of Retirement Benefits at Large Law Firms. Of the DB plans offered to staff, one-third were currently frozen. For partners, however, the story is slightly different. For these higher-level employees, the rate of DB offerings has actually risen since 1993 from 30% to 37%. Only one in sixteen of these plans is currently frozen.


4/20: Straight line returns versus real world  2000 article by Professor Sam Savage

Funds remaining with annual withdrawal of $32,000 , assuming 14% return every year

Start: 1973 Avg. Return 14% Tanks in 8 yrs.

Start:1974 Avg Return 15.4% Goes the distance.

Start: 1975 Avg. Return 15.4% Tanks in 13 yrs.

Start: 1976 Avg. Return 15.3% Tanks in 10 yrs 

Real easy to see why flat rate reruns by most software programs simply don't work.

Retirement Programs Face an "Aging-Population Tsunami"  (Wharton 2005) good article

Retirement: over the last couple of years, researchers from fields as disparate as economics, psychology and neuroscience have come together to shed new light on the problem. Armed with brain scans and economic models, they are finding that the reluctance to set aside for tomorrow may be rooted in traits that were carved by evolution, hard-wiring our brain to prefer immediate gratification. The research also suggests that, when properly re-engineered, our behavioral peculiarities can be harnessed to make us save more.

by 2001, the last time the Federal Reserve Board conducted its broad survey of consumer finances, a typical worker 55 to 64 years old had $42,000 in his 401(k) and I.R.A.'s, about enough for an annuity payment of $200 a month.

What's wrong with everyone? Many people are simply befuddled by the arithmetic of retirement saving, clueless about how much they need to save. But the complexity of the decision cannot alone explain such procrastination. Indeed, new research suggests that we are just less rational than we have been led to believe.

The life-cycle theory of savings, a mainstay of standard economics, says that we act rationally to even out our consumption - saving when we're young to consume when we're old - coolly maximizing our economic well-being over our lifetimes.

Well, the life cycle of lving says that you also get exercise when your young, middle aged and old. Ain't happenin. The difficulty with numbers does exist. Logically, no one would end up fatter than a pig. But they do. The Low Carb craze went bye bye and Burger King puts out a huge Breakfast sandwich that would choke a horse. The study on money is little different than the study of health. Lots of people talk about it but few practice what is necessary to have good health (finances). And when something goes wrong, they want a pill, a quick fix. Unfortunately, the quick fix for bad health is obesity. The quick fix for bad finances is 2000- 2002. You don't need a PhD to figure this out.

ENOUGH FOR RETIREMENT?: (2005) Under the standard articles and statistics, it traditionally shows you may not need too much money for retirement. For example, assume you need $40,000 a year at retirement. Using a 3% inflation; a 7% return on investments and you were going to live another 20, the kitty (excluding social security) would need to be $570,000. But that reflects a flat rate of return- it does not reflect the volatility of the marketplace. In other words, it doesn't work. If you do account for the real life volatility, you would need approximately $1,000,000 in order to have a 95% probability of lasting your lifetime. It is generally conceded that if you take out no more than 4% annually, it can work. But $1,000,000 is just not realistic for effectively all retirees. It reflects a buy and hold- just do some minor rebalancing and that is it. In short, neither will work. It certainly will not work with 99% of all advisors. They are ingrained with the buy and hold (think 2000- 2002). The "only" way to make this work is to adjust portfolios for risk. Therefore most of the losses sustained in 2000- 2002 would not have happened. Simple to say- extremely difficult to implement. But nobody says life would be easy.

BOOMER SPENDING – (MetLife) the estimated annual spending power of the baby boomers is more than $2 trillion. Younger boomers (born 1956-64) spend most of their money on their children and the mortgage. Older boomers (born 1946-55), many of whom are empty nesters, put their money into upgrading their homes and on clothing, spending 13% and 11% more than average on women's and men's apparel, respectively. The poverty rate for boomers was 7.3% in 2000, lower than any other segment of the population and a significant decrease from 1993 when 9.6% of boomers were below the poverty line. The average annual household after-tax income of boomers is $58,275 for those 35-44, $64,080 for those 45-54 and $55,844 for those 55-64.

Retiring in the 21st Century: A National Retirement Agenda

Selecting And Monitoring Pension Consultants - Tips For Plan Fiduciaries Addresses a lot of conflicts of interest

Retirement Fund Sources: (2005) The Social Security Administration says Americans who are 65 and older get their money from the following sources:

Social Security: 39%

Work earnings: 24%

Employer Plans: 18%

Personal Savings: 16%

Other: 3%

Understanding Expenditure Patterns in Retirement Understanding the consumption needs of retirees is critical to assessing the adequacy of retirement income and the possible impact of Social Security reform on the well-being of older Americans. This study uses data from the Health and Retirement Study, including a recent supplemental expenditure survey, to analyze spending patterns and consumption needs for adults ages 65 and older. Results indicate that typical older married adults spend 84 percent of after-tax household income, and nonmarried adults spend 92 percent of after-tax income. Even at older ages individuals devote a larger share of their expenditures and income to housing than any other category of goods and services, including health care. Fully 8 percent of married adults report after-tax incomes that fall short of our estimated basic-needs threshold, consisting of housing, health care, food, and clothing. By comparison, only 3 percent of married adults have incomes below the official poverty level.

Pensions: (2005) The combined assets of the world's largest pension funds, both public and private, grew by 27%, to reach $8.4 trillion during 2004 from $6.6 trillion in 2003, according to a survey of the top 300 global retirement plans by consultants Watson Wyatt and Pensions & Investments. While all countries posted over 10% growth in pension assets in dollars, Japanese funds showed the strongest expansion at 54%, followed by Australia (26%), Denmark (23%), the Netherlands (20%), and the UK (18%). US pension funds dominated the list, but saw their overall market share slip almost 8% to 44.7%. The largest US pension fund on the list was the California Public Employees' Retirement System (CalPERS), whose $168 billion total ranked third. The Government Pension Investment Japan topped the list at $1.06 trillion, followed by ABP Netherlands at $231 billion..

What Makes Older Women Work?





When asked, "What steps have you taken in preparation for yourself getting older," 22% of respondents 55 and over said none. (WSJ)

14% of respondents age 55 and over have long-term care insurance but 43% do not have a will. (WSJ)

25% of current retirees rely totally on Social Security for their income and in 2004, the median income level of Americans age 65 and over was $15,043. (Employee Benefit Research Institute)

The median balance in 401(k) plans is $18,000. The average balance for workers in their 60s with more than 30 years of service is $168,000. (Employee Benefit Research Institute)

Pensions going bye bye:  (2006) Employees' first line of defense against losing retirement benefits is the PBGC, which oversees the benefits of 44.1 million workers. The agency bails out insolvent funds using premiums earned from healthy plans. Last year it took in premiums of $1.5 billion from 30,300 plans. The PBGC currently charges companies a flat-rate premium of $19 per participant per year. Under-funded pension plans pay an additional variable-rate charge of $9 per $l,000 of unfunded vested benefits. Current proposals in Congress call for an increase of the flat-rate fee to $30.

Americans Still in the Dark About Retirement Planning: (2006) less than half (49%) of Americans polled even know how to define net personal wealth. After being told how to calculate net worth, more than half the respondents (54%) had no idea as to their own number. Behind the public’s disinterest, according to the survey, lies a general sense that acquiring any substantial wealth is largely impossible. Indeed, only one quarter of those polled believe they could save $200,000 or more in their lifetime. Dig further, as the survey did, and reality grows bleaker. One fifth (21%) of Americans now believe winning the lottery is the best way to accumulate several hundred thousand dollars. For those making less than $25,000 per year, that number increases substantially to 38%.

Bad retirement?:  (2006) U.S. life expectancy has hit an all-time high at 77.6 years. But half of Americans in the 55-to-64 age group have high blood pressure, and two in five are obese. That means they are in worse shape in some respects than Americans born a decade earlier were when they were that age. The health of this large group of the near elderly is of major concern to American taxpayers, because they are now becoming eligible for Medicare and Social Security.

THE STATE OF PRIVATE PENSIONS: (2006) Exceptional material from the Center for Retirement Research. They always got some good stuff.

During the late 1980s and 1990s, a combination of growing asset values and regulatory constraints allowed defined benefit plan sponsors to make little or no contributions to their pension funds. After 2000, the decline of the stock market and the rapid  drop of interest rates dubbed by analysts as "the perfect storm" brought an end to this contribution holiday.

As assets in the pension funds plummeted and projected liabilities increased, funding rules required many plan sponsors to inject a significant amount of cash into their pension funds. The sudden increase in contributions after 2000, from an average annual contribution between 1980 and 2000 of about $30 billion per year to $45 billion in 2001, and to about $100 billion in 2002 and 2003.

RETIREMENT WORRY - (Wachovia 2006) most Americans fear they will not save enough money for retirement, and nearly half are not counting on the Social Security system to provide the money they need to retire comfortably. 90% say they worry how well prepared they are for retirement and 85% said they are no better than "somewhat confident" that they are saving enough. 48% fear that Social Security will not provide enough for them. AND

Employee Benefit Research Institute reports "retirees" over age 70 are getting more income from working and far less from earnings on assets than they did back in the 1980s. The share of total income coming from work increased to 37% in 2004 from 26% in 1987 in the 65-69 age group; to 14% from 7% in the 75-79 age group; and to 3.4% from 2.4% in the 85 and over age group.

Uncovering and Understanding Hidden Fees in Qualified Retirement Plans good article. (2006)

WHY ARE HEALTHY EMPLOYERS FREEZING THEIR PENSIONS?  (Alicia H. Munnell, Francesca Golub-Sass, Mauricio Soto, and Francis Vitagliano 2006) Very, VERY good article. This brief reviews the major pension freezes during the last two years and explores the impact on employees at different stages in their careers. It then offers four possible explanations why employers are shutting down their plans. The first is that some U.S. companies are cutting pensions to reduce workers’ total compensation in the face of intense global competition.

The second explanation is that employers have been forced to cut back on pensions in the face of growing health benefits to maintain existing compensation levels. The third explanation, by contrast, points to the finances of the plans themselves — specifically, their market risk, longevity risk, and regulatory risk that make defined benefit pensions unattractive to employers. The final explanation is that with the enormous growth in CEO compensation, traditional qualified pensions have become irrelevant to upper management who now receive virtually all their retirement benefits through non-qualified plans. Each of these explanations contains a kernel of truth, and they all help explain the current trend.

Impact of Pension Freezes on Employee Benefits

In most cases, companies that have frozen their defined benefit pensions have introduced a 401(k) plan as a replacement. In some cases, these 401(k) plans have provided large employer contributions for employees in transition. The following tables can be used to determine the net impact of a pension freeze and introduction of a new plan for employees at various ages.

Table 2 shows replacement rates — defined as benefits as a percent of earnings at age 62 — under a typical defined benefit plan, where the accrual rate per year of service is 1.5 percent, and under a typical

401(k) plan, where the typical contribution is 6 percent by the employee and a 3-percent match by the employer.4 Note that the two plans are roughly equivalent in that the employee entering either plan at 35, who contributed the required amount and did not change jobs, would end up with about 45 percent of pre-retirement earnings at 62 (43 percent for the defined benefit plan and 44 percent for the 401(k) plan).

The two panels of Table 2 can show the impact of a freeze on workers at different stages in their career . Suppose an employee joins the company’s defined benefit plan at 35; by 62 that employee would be entitled to a benefit equal to 43 percent of final earnings. Now suppose that the company freezes the pension when the employee is 50 and offers a 401(k) to the employee.

At age 62 the employee would be entitled to 13 percent of final pay (enters the plan at age 35, exits plan at age 50) from the defined benefit plan and 15 percent from the 401(k) plan (enters plan at age 50, exits plan at age 62). The total replacement rate after the freeze is 28 percent, compared to 43 percent if the defined benefit plan had not been frozen. Alternatively, consider an employee who joins the company’s defined benefit plan at age 35, who sees his defined benefit plan frozen at age 40. In this case, the employee is entitled to 3 percent of final pay from the defined benefit plan (enters plan at age 35, exits plan at age 40) and 33 percent from the 401(k) plan (enters plan at age 40, exits plan at age 62), for a total of 36 percent.


The simplest reason for freezing pensions is the desire to cut total compensation. Shifting from a defined benefit plan to a 401(k) plan will reduce required employer contributions from 7 to 8 percent of payrolls to the 3-percent employer match.

While freezing pensions is likely to hurt employees caught mid career with significant years of service (as discussed above), younger workers may not see anything negative about a shift from a defined benefit plan to a 401(k). Many young workers do not expect to spend a lifetime with one employer and relish the portability of the 401(k) plan that companies introduce to replace their frozen defined benefit pension. Thus, in all likelihood, freezing pensions has little adverse impact on the company’s ability to retain and hire younger workers. In theory, young mobile workers could come out ahead with a 401(k) plan, although actual 401(k) accumulations often fall short of projected.

Concern about Financial Implications of Defined Benefit Plans

Sponsors of defined benefit plans bear significant costs and risks.9 The employer is responsible for setting aside contributions on a regular basis to fund the employee’s future benefits; the employer bears the investment risk as it invests accumulated contributions over the employee’s working life; the employer bears the risk that interest rates will be very low — and therefore the price of liabilities very high; and the employer bears the risk that the retiree will live longer than projected, thereby significantly increasing the cost of lifelong benefits.10 In addition to these economic and demographic risks, the employer bears the risk that accounting or legislative changes may make sponsoring a defined benefit plan more difficult.

Economic Risk: The main risk faced by sponsors of defined benefit plans is that the gap between assets on hand and promised benefits will increase dramatically requiring a significant increase in contributions. During the late 1980s and 1990s, a combination of growing asset values and regulatory constraints allowed defined benefit plan sponsors to make little or no cash contributions to their pension funds. In fact, many companies were able to take “contribution holidays” as capital gains on their equity holdings helped fund their pensions. After 2000, the decline of the stock market and the rapid drop in interest rates dubbed by analysts as “the perfect storm” brought an end to these contribution holidays.11 As assets in the pension funds plummeted and projected liabilities increased, funding rules required many plan sponsors to inject a significant amount of cash into their pension funds. Figure 2 shows the sudden increase in contributions after 2000, from an average annual amount of about $30 billion per year between 1980 and 2000 to $45 billion in 2001, and to about $100 billion in 2002 and 2003. Thus, market volatility can suddenly make defined benefit plans considerably more expensive with major implications for cash flow and financial condition.


Demographic Risk: An integral component of a defined benefit pension is the commitment to pay benefits for life. As shown in Figure 3, life is getting longer and longer.

In 2005, the average man at age 65 was expected to live another 17.0 years; for women expected life was 19.7 years. By 2055, men at 65 are projected to live another 19.9 years and women another 22.5 years. Life expectancy is strongly related to socio-economic status, so those with pensions, who tend to be higher earners, should be expected to live even longer. Rising

longevity translates directly into higher employer costs.12 The real concern, however, is that the life tables turn out to be too pessimistic. That is, people live considerably longer than anticipated. Indeed, a number of prominent demographers suggest that this may be the case.13 If the beneficiaries of defined benefit plans end up living considerably longer than expected, plan sponsors will suffer a serious financial loss.

No knowledge: (Seventh Annual Transamerica Retirement Survey 2006) The nation's retirement confidence is lagging, highlighting the need for employees to have improved access to investment advice. Survey data shows that only 53 percent of employees surveyed in 2005 agree they are building a large enough retirement nest egg. Confidence is even lower among employees with household incomes of less than $50,000 (38 percent).

Fueling employees' lack of confidence is their lack of knowledge: 71 percent of survey respondents agreed that they don't know as much as they should about retirement investing. When estimating how much they'd need to save in order to retire comfortably, 35 percent of employees admitted to guessing while only 6 percent indicated that they have used a professional advisor.

One-half of the survey respondents agreed that they would like to receive more information and advice from their employers on how to achieve their retirement goals. Lower income employees expressed the highest level of interest with 62 percent in agreement. These employees typically have fewer means and less access to professional investment advice than higher-wage employees.

Overall, one-half of survey respondents agreed that they would prefer to rely on outside experts to monitor and manage their retirement savings, with the highest sentiment among lower- and middle-income employees (54 percent and 53 percent, respectively).

 RETIREMENT SECURITY LINK:  (Boston College 2006) Excellent article on the potential losses in retirement. Many people in their 50s and 60s experience negative shocks that threaten retirement security. Job layoffs, divorce, and the onset of work disabilities near retirement substantially erode retirement savings. The findings highlight the limitations of the safety net when things go wrong in late midlife.

Health problems can also trigger out-of-pocket medical spending, forcing people to dip prematurely into retirement nest eggs or to tap money earmarked for saving. In a recent survey, 39 percent of terminally ill patients reported that health care costs caused moderate or severe financial problems.5 Medical costs were a contributing factor in at least 17 percent of individual bankruptcies in 2001.6 Unlike Americans age 65 or older, nearly all of whom receive health insurance coverage through Medicare, 13 percent of adults age 55 to 64 were uninsured in 2004, compounding the financial risk from serious illness or injury. Home health aides charged $19 per hour on average in 2004.8 For the typical user of paid home care services who receives 60 hours of paid care per month, annual home care costs total nearly $14,000.9 Nursing home care is much more expensive. In 2005, the average daily private pay rate for a semi-private room in a nursing home was $176, or more than $64,000 per year.

In 2000, 17 percent of widowed women and 20 percent of divorced women age 65 or older received incomes less than the federal poverty line, compared with just 4 percent of married women.

About 7 in 10 adults who were age 51 to 61 in 1992 develop health problems, lose their jobs, or lose spouses to death or divorce during the 10-year period ending in 2002 (see Table 1). More than 4 in 10 are diagnosed with major new medical conditions, including heart problems, cancer, serious lung problems, diabetes, strokes, and psychiatric problems.15 About one-third develop work disabilities — health problems that curtail employment — and about 7 percent develop disabilities severe enough to limit bathing, dressing, or eating. Nearly one-fifth are laid off between 1992 and 2002. More than 3 percent enter nursing homes. Nearly 10 percent of married adults become widowed; another 3 percent divorce.



married blacks and Hispanics are more than twice as likely as married whites to develop limitations in bathing, dressing, or eating.18 Married blacks are also significantly more likely to receive new diagnoses of major medical conditions, especially diabetes, than married whites, and are more likely to become widowed. Married men are just as likely as married women to experience some type of negative shock in late mid-life, but women are more likely to become widowed or severely disabled.

health problems, job layoffs, and marital dissolution in late mid-life significantly reduce household wealth. For example, the onset of work disabilities among people in their 50s and 60s reduces wealth by 42 percent for single people and 16 percent for married people, holding constant such other personal characteristics as education, race, gender, age, and baseline health status (see Figure 4).19 Median 2002 wealth is about $9,000 lower for single people who develop work disabilities than for similar people who do not report any work disabilities. The onset of medical conditions that do not necessarily limit work has smaller but still significant effects, reducing household wealth by 23 percent for single people and 17 percent for married people. Job layoffs shrink wealth by 33 percent for single people and 21 percent for married people. Health problems and job loss are especially serious for single people, because they cannot fall back on the economic resources of their spouses when adversity strikes.


15 percent of married women age 51 to 61 become widowed over a 10-year period, compared with only 5 percent of married men. Married men, however, are more likely to develop medical conditions than married women. Over a 10-year period, 45 percent of married men ages 51 to 61 are diagnosed with major medical conditions, compared with 36 percent of married women. Gender differences are especially dramatic for heart problems, which begin to afflict 20 percent of men but only 12 percent of women. Layoff rates are also higher for men than for women.

Retirement: ¶There are 35 million people in this country who are 65 and older; there are 60 million over age 55. According to Census projections, those numbers will nearly double over the next two decades, while the youngest age groups in society will increase by single-digit percentages in that time. But among the older set, some continue to work either full time or part time, confusing the "retiree" label.

¶The retirement age at most companies, nonprofit groups and government institutions has been falling. "Actually, for much of the century, the age for retirement has been plummeting," said Sarah Zapolsky, a senior research adviser for AARP, the lobbying group for older people. "Now it's just starting to creep up, though more among men. But it is complicated because you have people retired, but back working; people who've stopped working; people who retired from the military at an earlier age."

¶More companies offer so-called early retirement because there is often pressure to reduce costs by replacing the most senior employees. And Social Security's records tracking initial payments to recipients — that is, when they leave full-time work — reflect a dropping median age. In addition, more folks are dropping out of the work force by choice.

¶Some geographic patterns are surprising: Most older Americans prefer not to move if they can avoid it, according to both AARP and government studies. Most movement among people over 60 is local, seemingly motivated by physical needs and disabilities among retirees who are living longer despite infirmities. Studies indicate that from 1995 to 2000, almost 90 percent of older residents either stayed in their own home or moved within the county — as compared with just more than half of all Americans.

Retirees today are disproportionately female, married and American-born. A majority is white. Two of five retirees say they have a disability.

Half have not worked since 1994, though more retired women are working than men. Just under half of retirees collect Social Security, and a third receive retirement income. About 1 in 10 is under the government's poverty line.

Retirement (2006) 1) Many people do not realize that mutual fund fees are important in making an investment decision. Therefore, it is unlikely that their search effort is directed towards finding fees. In our index fund experiment, college students in the control group ranked fees as only the eighth most important factor in their decision out of eleven factors. Their mean fee was 122 basis points above the possible minimum. In the actively managed fund experiment, expense ratios were also ranked eighth by the control group, whose mean fee was 56 basis points above the possible minimum.

2) The subset of investors that realizes fees are important often cannot accurately identify the fee information in the prospectus. The MBAs in the index fund experiment control condition ranked fees as the most important factor in their decision. However, despite the disparity in how the MBA and college students ranked the importance of fees, the MBAs’ average fee was only 10 basis points below the college students’ average, a statistically insignificant difference.

3) Making fee information transparent reduces allocations to high-cost funds. In both the index fund experiment and the actively managed fund experiment (where higher fees could signal greater stock-picking skill), subjects in the fee transparency treatment selected lower-cost portfolios than control subjects. Fee transparency caused MBA portfolio fees to drop more than college portfolio fees, consistent with MBAs’ placing more importance on fees. Making fees transparent also causes subjects to report that fees are more important.

4) Even when fee information is transparent, investors do not invest in the lowest-fee fund. In the index fund experiment, providing the fee summary sheet does not drive the chosen portfolios to the minimum-cost boundary, even among the MBAs. Therefore, search costs alone do not fully account for the willingness to hold high-fee index funds. Subjects instead seem to value non-fee attributes of index funds. However, in our experiment, services should not matter, since the subjects do not receive any services. Hence, subjects may be attracted by brand names, even when the brands are stripped of any service differential.

5) Investors are swayed by salient but irrelevant returns information. Providing the returns summary sheet to index fund experiment subjects caused them to chase historical returns. College subjects responded more to the returns summary sheet than the MBAs, consistent with college students placing more importance on past returns. Because we had selected funds such that annualized returns since inception were positively correlated with fees, returns-chasing behavior decreased expected returns. The historical returns of funds are the focus of much mutual fund advertising and media coverage

6) Investors in high-cost index funds have some sense that they are making a mistake. In the index fund experiment, higher fees are paid by subjects who report having less confidence that their choice is optimal for them, a higher likelihood of changing their portfolio in response to professional investment advice, and less general investment knowledge.

*  Our results support a growing body of evidence that individual investors are not well equipped to make optimal asset allocation choices

* policymakers should consider not only what information is disclosed, but also how it is disclosed. If important information such as a fund’s expense ratio and load were required to be made salient/transparent, rather than being buried in a long prospectus, we anticipate that there would be a significant aggregate reallocation of assets towards low-cost funds. This, in turn, would generate pressure for high-fee funds to lower their fees. Of course, such a measure would not have its desired effect if funds remain free to hide their fees in other ways, such as through soft-dollar agreements with their brokers.

* subjects who pay higher fees tend to be less sure that they are maximizing their own utility. Developing reliable ways of eliciting agents’ confidence in their own actions may prove to be a fruitful way of identifying the areas in which optimization errors play an economically important role. Students in math classes seem to know when they probably got an answer wrong on an exam. Our evidence suggests that economic agents also know when they probably made an error in a utility maximization problem. Unfortunately, knowing that your choice is wrong does not necessarily tell you how to fix it.



Retirement (Merrill Lynch 2006) 76 percent of all baby boomers had no intention of seeking a "traditional" retirement. The scope of people surveyed in the 2006 study was expanded considerably to include feedback from U.S. companies as well as a broad spectrum of individuals. "Not only is the new model of retirement here, but it transcends many different age groups. "Multiple generations report cycling in and out of work and pursuing a new career in later life as the retirement ideal. This important study shows us that companies need to be aware of this new concept of retirement in order to prepare for the new work force realities."

The study sheds a revealing light on this changing model of retirement and the potential for a growing gap between employers and employees. It's the first of its kind - offering a comprehensive look into the retirement landscape from both sides of the coin.

Key findings include:

-- The New "Retirement Career." The ideal retirement for 71 percent of adults surveyed is to work in some capacity. In fact, almost half of all adults who do plan to work during retirement, do not plan to ever stop working completely. Among those who expect to work in retirement and eventually stop, the average tenure of their "retirement career" is over nine years and the average age at which they stop working completely is over 70.

-- Working equals longevity in the New Retirement. Among all of the individuals surveyed, the most frequently cited reason for working during retirement was to stay mentally and physically active. As life expectancy increases, both current and future generations of retirees plan to use their longevity bonus to create a freedom-filled and fulfilling "new retirement." Concerns about health insurance and financial realities were also cited.

-- Gaining control over debt. Paying down debt was ranked as the single most important thing to do toward securing a financial future in the coming year (33%), followed by saving more (21%). More than half (53%) of the individuals surveyed were concerned about the amount of debt in their households, yet most (63%) expected to have less debt when they retired and expected to be eventually debt-free (74%).

-- Rejecting pre-retirement rigidity and seeking out new opportunities. When asked about their ideal work arrangement during retirement, the most popular option was "cycling" between periods of work and leisure. More than half of the adults surveyed would like to change their line of work and have already taken steps to plan for this new career by attending classes or training sessions and researching other careers.

-- Boomers want to give back and prefer to pursue "retirement careers" where they can share or pass on knowledge to others such as consulting and teaching. Volunteering was also ranked very highly. Despite concerns over ageism in the workplace, only one-fourth of individuals over age 60 said they had difficulty finding work if they wanted to.

-- Working and retired. Those who are in the midst of their "retirement career" are more satisfied than those who are retired and not working. In addition, working retirees are less likely to fear not being able to afford healthcare and feel they have less debt.

-- Are you ready? Less than one-third of individuals who are not already retired, feel adequately prepared for their retirement. However, three-quarters of boomers feel healthier, are more open to taking on new challenges and believe their work prospects are better than when their parents' generation turned 60.

-- Companies are not completely in the dark, and while they recognize the shift toward the desire to work in retirement, they are more likely to assume that employees want to work a regular part time schedule than to cycle between periods of work and leisure. They also have not responded to individuals' overwhelming desire to pursue a completely new line of work in their "new retirement."

-- Highly skilled professionals are the most valued and most at risk for a shortage. However, many companies are not responding to this threat. Only one in four employers said that they are on track with preparing for the boomer outflow from the workforce and almost one-third (31%) say there has not been much thought about it. Employers who have taken steps to prepare for future labor shortages focus on recruitment, but tend to focus on younger workers, not recruitment and retention of older, skilled workers.

-- Concerns over the increasing cost of benefit programs rank as the most pressing human resource and benefits issue that employers are facing. Well over half (65%) of the companies surveyed considered this a very serious issue - almost ten times as many as those companies that considered retaining older workers as a serious problem (7%).

-- The bottom line - competitive and economic pressures continue to be the primary driving factors behind corporate benefit decisions and greatly outweigh concerns about work force shortages. Until personnel shortages hit the bottom line, there is little impetus for action. Forty percent of the companies surveyed reported that the wave of retiring boomers retiring is not an important priority at the HR level or at the senior management level.

-- The common denominator. Like their employees, most companies do not believe that the majority of workers are well prepared for retirement. While the new retirement is on most company radar screens, the challenges that it brings have not been adequately addressed.

Rethinking Conventional Approaches to Retirement - The Individual and Employer

As individuals continue to reject traditional retirement and the wave of people seeking "retirement careers" comes crashing in, some companies have already begun to embrace the changes ahead. Those leading the pack realize first and foremost the importance of attracting and retaining older and talented workers.

One of the most notable findings is that awareness, recognition, understanding and a willingness to address the issues head-on is what is necessary for companies to manage boomer outflow and to be prepared for the next generations of "career retirees." "The pioneers on the employment front are those companies that have already realized that the 'new retirement' is here. "By permitting telecommuting and more flexible schedules, providing coaching and mentoring services, as well as offering increased access to health insurance, these companies have demonstrated that they are already thinking about the new approaches they can take to leverage a very valuable work force segment that still has the desire to work."

A New Twist - The Gender Divide

The Couple's Survey focused on how the two genders view retirement. "When people are thinking about their retirement dreams and goals, there is often someone else who is figuring into their plan. "And although most married couples agree that they would like to continue working, they often have very different views about their ideal retirement plan."

While about two-thirds of spouses report common goals, over one-fourth report not having ever discussed several key retirement considerations - and men and women don't even agree on this. Husbands were significantly more likely to say they share common goals with their wives, while women were more apt to say they haven't ever discussed the issue. One third of the spouses surveyed disagree about whether or not they have a viable financial plan. "This segment of our survey is important because it reflects the potential disconnects among married couples when it comes to their attitudes and expectations about retirement; it underscores need for couples to communicate their views and plan their retirement together

NATIONAL RETIREMENT RISK INDEX LINK: The length of retirement is increasing as the average retirement age hovers at 63 for men and at 62 for women and life expectancy rises. At the same time, the amount of money people will have in retirement relative to their pre-retirement earnings is declining for a number of reasons.

First, at any given retirement age, Social Security benefits will replace a smaller fraction of pre-retirement earnings as the Normal Retirement Age rises from 65 to 67.2 Second, while the proportion of the workforce covered by a pension has not changed over the last quarter of a century, the type of coverage has shifted from defined benefit plans, where workers receive a life annuity based on years of service and final salary, to 401(k) plans, where individuals are responsible for their own saving. In theory 401(k) plans could provide adequate retirement income, but individuals make mistakes at every step along the way and the median balance for household heads approaching retirement is only $60,000.3 Third, most of the working-age population saves virtually nothing outside of their employer-sponsored pension plan. And fourth, bond yields have declined over the past two decades and many observers believe that stock returns will also be lower than they have been in the past, so a given accumulation of retirement assets will yield less income.

In addition to a rising period of retirement and falling  replacement rates, out-of-pocket medical expenses are projected to consume an ever greater proportion of retirement income.











The 'Crisis' in Defined Benefit Corporate Pension Liabilities: Current Solutions and Future Prospects   (2006)While there remains considerable debate over the ability of financial markets to adequately price DB liabilities, there is a growing industry devoted to estimating their long-term risks with respect to longevity, inflation and cost. In this paper, we survey the nature and significance of the problem, focusing upon UK and US private employer sponsored plans. It is suggested that the crisis was apparent, for those willing to look, a decade ago. Its significance was papered-over by the 1990s stock market bubble and high interest rates but has returned through what many analysts identify as a perfect storm. Having documented the nature and scope of the perfect storm, we also evaluate proffered solutions to the crisis, such as financial engineering, government intervention, and private sector negotiation.

Defined benefit (DB) pensions are present-day corporate burdens, inherited from a past generation of employees and managers that, in severe cases, jeopardize the very solvency of their sponsoring firms. The DB pension model in the private sector is at great risk, as highly publicized instances of underfunding and the prospect of plan failures threaten an entire institution that was once thought inviolate.

The strength of the equities market and relatively high interest rates (at different moments) made each benefit increase or contribution holiday appear sustainable at a given point in time. In addition, UK and US governments facilitated DB pension growth via tax breaks for most categories of employment. Trends such as these deflected the urgency of a solution, allowing plan sponsors and their advisors to deny the existence of a problem.costly. Second, inflation risk can be serious for those firms that index pension benefits since it complicates the task of estimating liabilities over the long term.5 Third, cost risks, which refer to the vulnerability of the plan sponsor to wage inflation and regulatory changes, have proven significant over the past few decades. These “unhedgeables” are key variables within DB benefit plans and render the sponsor particularly vulnerable to their volatility. Ultimately, when the stock market bubble burst in 2001 and real interest rates dropped, the “brick-by-brick” additions of costs and risks were finally exposed to be a huge burden on plan sponsors: firms found themselves up against a brick wall.

In fact, close-at-hand but largely ignored, were three difficult-to-hedge risks that have proven devastating to DB pensions. First, mortality experience directly influences a company’s cash payouts since improving life expectancy increases the number of retirees entitled to benefits. Failure to anticipate future improvements in longevity have proven.

With pension assets averaging double-digit returns in the 1990’s, pension plan trustees focused on pension asset management to the detriment of their pension liabilities. Meanwhile, they took advantage of high asset values and returns by taking contribution holidays and increasing net income by reporting pension asset income as corporate income. In addition, rocketing asset values enabled benefit increases for employees and the introduction of cost-of-living adjustments for some retirees without triggering additional contributions by the sponsor. In fact, from 1995 to 2002, roughly 2/3 of the largest US plan sponsors made no cash contributions to their pensions due to accounting credits.12 Managing assets without regard to liabilities was comprehensible given the context but precarious. Experts contend both that the equity risk premium has shrunk with little confidence of the gap re-opening in the future and that pension fund trustee competence with respect to capital investment strategies remains suboptimal (Shiller, 2002).13 Undeniably, our rosecolored glasses have come off and asset-liability management strategies have moved to reverse gear. An often cited trend among today’s DB plan sponsors is “risk immunization”, which takes liability management and matching to the extreme. Those that rode asset values and interest rates in the 90’s are now seeking long-dated government bonds in markets saturated by demand.

Actuarial Shortcomings. Plan sponsors’ shortsighted behavior during the bubble years was made possible, in part, by obscure and opaque funding rules.

There were several reasons why even the “best practice” guidelines for providing funding targets were ineffective.14 Actuarial advice often incorporated expected returns on the backing pension assets when determining funding targets – or, more precisely, when determining the assets necessary to fully fund obligations. This meant that a riskier investment with a higher expected return could in fact lower the size of the funding contributions. Amplifying this concern, Cowling, Gordon and Speed (2005), in a paper to the UK Institute of Actuaries, expressed unease over “an element of self delusion within the actuarial profession; regardless of the reference to expected returns, using a higher discount rate is simply a way of reducing the pace of funding, i.e. advising lower contributions now (at the expense of potentially higher contributions later and lower member security).” This practice is the opposite of what would occur in the insurance industry, where riskier investments require more assets in order to secure the liability.

This is a professional paper but the last comment seemed most appropriate.

Will we work forever?: (2006) The average retirement age is 63.1. If people continue to retire at 63, they are going to face a severe decline in living standards at retirement for a number of reasons. First, at any given retirement age, Social Security benefits will replace less of pre-retirement earnings as the Normal Retirement Age rises from 65 to 67. Second, Medicare premiums, which are deducted before the Social Security check goes in the mail, are slated to rise dramatically. Third, taxes on Social Security benefits will also rise. In addition, pension coverage in the private sector has shifted from defined benefit plans, where workers receive a life annuity based on years of service and final salary, to 401(k) plans, where individuals are responsible for their own saving and the median balance for individuals approaching retirement is only $60,000.




If the average retirement age remains at 63, people will suffer a serious drop in their standard of living when they stop working. One way to solve the dilemma is for people to work longer. But how much longer? The purpose of this brief is to bound that prescription by quantifying how much longer people in 2030 will have to work to duplicate today’s replacement rates. The very simple results reported above show that the answer is not “forever,” but about three and a half years for those without 401(k) assets and slightly more than two years for those with significant 401(k) accumulations. Unfortunately, those who will have to work the longest are the lower paid and typically more vulnerable members of society.

Older Adults and their housing:  (2006) Excellent professional article- older adults do not run down their assets in later life, although the dynamics are different for married couples than for singles. These data show, however, that people do reduce their housing equity when facing major changes such as death or moving into a nursing home

Low Yield and retirement (WSJ 2007)

"Low interest rates, together with growing longevity, are a big problem. "It means individuals have to rethink how they will finance their old age, and it's an issue for institutions and the whole society."

One study projects that the amount of money institutional investors sink into hedge funds will grow to more than $1 trillion by 2010 from $360 billion last year, with roughly two-thirds of the increase coming from retirement plans.

Ten- and 30-year U.S. government bonds currently pay an annual yield of less than 5%. The yield on the 10-year Treasury note has averaged 4.4% over the past five years, well below its 8%-plus average over the prior 25 years.

These bonds are a staple in the retirement plans of people in the U.S. and elsewhere, anchoring the portfolios of pension funds, insurance companies, individuals and governments themselves. Meantime, the average life expectancy in the U.S., at 78 years, is way up from 57 in a little more than four generations

Low rates are particularly annoying for U.S. corporate pension funds, Mr. Quirk said, because new accounting rules are prodding them to do a better job of matching the durations of their assets and liabilities. With retirees living longer than ever, 10- and 30-year Treasurys would be ideal tools for helping to pull this off -- if only their sub-5% yields weren't so disappointing.

The largest 100 corporate pension plans projected as of 2005 that they needed an average annual return of 8.47% to keep up with their liabilities

Fortunately for pension managers, rising stock prices have helped reduce the stress of low bond yields. In the U.S., pension funds are in better shape today than they were after taking big hits during the 2000-to-2002 bear market. But some still face shortfalls that threaten their ability to meet their obligations over the long haul. A study of 1,000 companies by Watson Wyatt Worldwide found their pension plans were about 91% funded in 2005, up from just above 80% in 2002. Larger companies seem to be closer to fully funded.

WHAT HAPPENS TO HOUSEHOLD PORTFOLIOS AFTER RETIREMENT?(Boston College 2007) Households’ ability to manage their assets in retirement is becoming more important over time, as the shift towards defined contribution pension plans means that households are more likely to receive their pension as a stock of assets at retirement rather than as a flow of monthly benefits.

The results show large changes in asset holdings with age. The ownership rates for homes and vehicles fall dramatically, while the share of assets invested in bank accounts and Certificates of Deposit (CDs) rises. Health shocks play a key role in explaining these changes in household portfolios. Experiencing a health shock like widowhood is a strong predictor of selling one’s home, vehicle, and business or other real estate and of shifting money into bank accounts and CDs. Poor physical or mental health amplifies these responses. These findings suggest that factors other than standard risk and return considerations weigh heavily in the portfolio decisions of many older households.






Households make substantial changes to their portfolios

as they age and experience health shocks. In response to both aging and health shocks, the most common and important changes to the household portfolio are to sell one’s home, vehicle, or business and real estate and to move assets into bank accounts and CDs.

These results suggest that factors other than standard risk and return considerations may weigh heavily in many older households’ portfolio decisions. For example, the fact that widowed households put more assets in bank accounts and CDs when they have physical or mental difficulties indicates that liquidity or ease of portfolio management may be more important to these households than high returns. With households facing growing responsibilities to manage assets during retirement, portfolio decisions like these may have important implications for the well-being of vulnerable groups, such as elderly widows.

DC versus DB ( Mercer's 2006 Retail Industry Benefits Survey)   41% of retail organizations provide retirement benefits solely through DC plans rather than traditional pensions, or defined benefit (DB) plans, compared with just 19% of the S&P 500 companies. Nonqualified DB plans for executives are offered by fewer than 20% of the retail companies surveyed, compared with 50% in general industry. Retail employers are more likely to offer "mini-med" programs that provide basic health care but limit total expenses for inpatient care and catastrophic coverage, and they are also far less likely to offer post-retirement medical benefits than other large employers,

Old:  (2007) People 60 and older account for about 15 percent of the U.S. population, but they comprise an alarmingly higher proportion of financial fraud victims. A survey of state regulators done for NASAA found that 45 percent of financial fraud complaints filed with those regulators are filed by senior citizens. In Florida, according to Don Saxon's office, it's 75 percent.

And these numbers are by no means static. Every day in the United States, 10,000 people turn 60. That's about 3.7 million new 60-year-olds every year. When these Baby-Boomers start swelling the ranks of the 65-and-over population in five years, the term "target-rich environment" is going to take on a whole new meaning.

Today, people 65 and over hold about 29 percent of the nation's net worth. By 2040, they are projected to hold 42 percent of it.

Retirement- (2007) The Pew Research Center has published a report “Working After Retirement: The Gap Between Expectations and Reality,” which finds a disconnect between the 77% of current workers who expect to work even after they retire and those who are currently retired, just 27% of whom have ever worked for pay while retired. It also finds a disparity between the age at which today’s workers say they plan to retire (age 61) and the age at which today’s retirees actually did retire (57.8). The study concludes that the findings from the survey suggest that retirement is a phase of life about which public attitudes, expectations and experiences are in a period of transition.

Some 79% of white collar workers say they expect to do some kind of work for pay after they retire, while just 73% of blue collar workers say this. Also, people who work in a school setting are a bit more inclined (85%) than others to say they expect to do some sort of work for pay after they retire.

The expectations that today's workers have about working after retirement are sharply different from the actual experiences of today's retirees. The survey finds that just 12% percent of people who are currently retired report that they are currently working, either full-time (5%) or part-time (7%). Also, a survey taken earlier this year by the Employee Benefit Research Institute found that just 27% of today's retirees report that they have ever worked for pay after retirement.

What a future!: (2007) 2 out of 3 Americans will fail to realize one of their major life goals of either owning a home, providing a college education for their children, or retiring on enough income because of poor money management skills.

56% of Americans think things will be worse for their own children or for future generations.

80% of parents believe that their children are being taught personal money matters in school, yet 90% of high school students and 87% of college students say that whatever they know about money they learn from their parents.

Most children merely imitate the saving and spending habits they see modeled at home.

56% of parents believe high school graduates are totally unprepared to manage their personal finances responsibly.

78% of parents said their high school student does not have a budget.

Among parents with children 5 and older, only 26% felt well enough prepared to teach their kids about personal finances.

55% of college students acquire their first credit card during their first year in college, and 83% have at least one credit card.

Bankruptcy filings reached all time highs in 2005 exceeding more than 2,000,000 individuals. This represented an increase of more than 28% from the previous year.

Today, 18-24 year olds represent the fastest growing age group filing for bankruptcy.

The personal savings rate in the U.S. has declined sharply from 7.6% in the mid-80s to less than 1% in 2006. At several times during late 2005 and early 2006, the rate actually fell below zero to a negative 0.6%.

70% of Americans worry about money issues on a daily basis.

66% say they tend to live from paycheck to paycheck.

Worries about personal money problems are now the leading cause of stress in the family as well as in the workplace.

40% of Americans currently live on 110% of their monthly income. This is leading to greater amounts of family debt and or a depletion of already scarce personal savings.

American households with debt have an average of nine credit cards and carry about $11,000 in revolving debt.

The average credit card debt among those university students who carry debt is $7,800.

Graduate students accumulate more than twice the average balance of final-year undergraduate students; $7,800 vs $3,260.

Poor money management skills usually translates into a poor credit rating which can seriously impact the following:

The ability to get a job or be promoted

The ability to rent an apartment

Insurance premiums for home, life, or car

Obtaining a utility hookup without a cash deposit

Borrowing money for a car, home, or education

Being targeted by predatory lenders

Potential loss of hundreds of thousands of dollars in additional interest costs

With today’s trends, only 1% of the population at the age of 65 will become wealthy, 4% financially independent, 15% will have modest savings, while the remaining 80% will be financially broke or dependant on others for survival.

Family Business (Blackman Kallick Family Business Center 2007)

1. It starts with a good plan: While strategizing is important to any business, it is doubly important to the family business. Proper planning involves everything from grooming and developing the next generation of leaders well in advance to formulating a succession plan that works for the business and the family.

2. Boundaries are essential: This is an issue that came up repeatedly in our discussions. There have to be clear distinctions between family issues and business issues. Business cannot be discussed whenever the family gets together; not only can it burn-out the business members of the family, but it is unfair to the kin who are not part of the day-to-day operations of the business. So it is essential that boundaries between family and business are set and enforced.

3. Communication is critical: If you plan on grooming your son to take over the business, employees and new hires must be told that. But, any family member who is promoted must be qualified and not "anointed" as the latter will hurt the business.

4. Don't kill the goose that lays the golden egg: The important thing with a family business, I was told, is the word "business." Treat it and run it as a business. Of course take family considerations into account where appropriate, but don't let family issues get in the way of the entity that provides everyone's livelihood.

Moreover, remember that "being fair is not the same as being equal." Say you have two daughters in the business. While you might want to treat them both equally, if the younger one is more competent, the fair thing for the business is to promote her, even at the expense of her older sister. Being fair is more important than being equal. Similarly, even though it might be "equal" to pay all family members the same, or even the same as non-family members, it is unfair and unwise.

5. Get some outside perspective: Finally, when intractable conflicts do arise it is usually a good idea to either take it to a third-party mediator or to your independent, non-family, board of advisers. Getting an outsider's perspective can be invaluable.

Retirement:  (2007) One in three affluent retirees (with at least $100,000 in investable assets, excluding retirement accounts and real estate) has no formal retirement income plan, but many have already begun dipping into their nest eggs. A bare majority (52%) of pre-retires age 55 or older do not have an income plan in place, and over a third of these do not plan to even discuss an income plan with their advisor for another six or more years, if ever. The expected retirement age for pre-retirees is 66 (mean), while 17% of pre-retirees plan to work beyond 70. In contrast, retirees reported on average that they stopped working at 59. More than 70% of retirees rank pensions as a source of income compared with only 54% of pre-retirees. Conversely, nearly three-quarters of pre-retirees rank 401(k) plans as a source versus just a third of retirees.

Retirement (USA 2007) most of today's middle-age workers who want to continue working after 60 or even 65 will need to find a new source of income. While nearly half of baby boomers expect to work past 65, only 13% of current retirees surveyed this year by consulting firm McKinsey & Co. actually worked until that age. Forty percent of current retirees were forced to stop working earlier than they had planned, the survey found. The average age when current retirees left the workforce: 59.

As of 2005, just 60% of 60-year-olds, 32% of 65-year-olds and 19% of 70-year-olds were employed, according to the Bureau of Labor Statistics. Current retirees cited two primary reasons for quitting sooner than planned:

•Illness. About 47% of current retirees who retired earlier than planned were forced to stop working because of health problems, according to McKinsey & Co. Less-affluent retirees were far more likely to cite health problems as the reason for forced retirement than higher-income workers were, the study found. "At lower-income levels, many of these people have jobs that require physical labor," says David Hunt, a senior partner at McKinsey. As they age, some are no longer able to handle the demands of their jobs, he says.

•Unemployment. Forty-four percent of current retirees who retired earlier than planned blamed job loss or downsizing. Unemployment was the most frequently cited reason for early retirement among retirees with more than $250,000 in investments

Savings Between Cohorts: The Role of Planning1 Good stuff