Retirement Plan Blog

That 2% cut in Social Security taxes (from 6.2% to 4.2%) was supposed to stimulate the economy.

But according to Martin Crutsinger's and David Pitt's recent article on Blomberg BusinessWeek, the tax cut has little impact on the economy in January. Consumers increased spending by only 0.2% in January, the smallest increase since last June.

It's a big number, an estimated $110 billion that workers will receive from the Social Security tax cut. That means about $1,000 to $2,000 in additional income for most families and approximately $4,000 or more for families with two high-income earners.

So what's it going be, pay down credit card bills, deal with higher gas prices, more personal spending, or use the tax savings to put more away for retirement? Some of that $110 billion with perhaps an employer match plus the tax deferral can help close the retirement income gap.

And yes, it is effective only in 2011, but you gotta take advantage of the opportunities when they're available. 

Posted In 401(k) Plans , Social Security
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The Employee Benefit Research Institute (EBRI), an independent non-partisan research organization, in their annual Retirement Confidence Survey (RCS) has been asking workers how confident they are in having enough money for a comfortable retirement since 1993.

And in today’s economy, it should be no surprise that EBRI reported The 2009 Retirement Confidence Survey: Economy Drives Confidence to Record Lows; Many Looking to Work Longer. The Executive Summary stated

Workers who say they are very confident about having enough money for a comfortable retirement this year hit the lowest level in 2009 (13 percent) since the Retirement Confidence Survey started asking the question in 1993, continuing a two-year decline. Retirees also posted a new low in confidence about having a financially secure retirement, with only 20 percent now saying they are very confident (down from 41 percent in 2007).

The 2009 RCS reports that workers who have lost confidence in their ability to secure a comfortable are responding as follows:

• 81% have reduced their expenses
• 43% are changing the way they invest
• 38% are working more hours or a second job
• 25% are saving more money , and
• 25% are seeking advice from a financial professional

Sounds reasonable, yes? But here’s the rub. The RCS concludes that faulty assumptions and a lack of planning still hinder the ability of many Americans to realistically assess the preparations they need to take to ensure a financially secure retirement.

And that’s the problem that Frank Armstrong, III and Paul B. Brown address in their new book, Save Your Retirement: What To Do If You Haven’t Saved Enough or If Your Investments Were Devastated by the Market Meltdown.

So what’s so special about this book amidst the glut of books about retirement planning? Simply this. It reflects the real life experience of the authors in contrast to the media-created “investment experts” for many of whom the current recession is their first.

Frank Armstrong has more than 35 years of experience in the securities and financial services industry and is the founder and principal of Investor Solutions, Inc., a fee-only registered investment advisor, based in Miami. Paul Brown is a longtime contributor to the New York Times and co-author of the best selling retirement plan guide Grow Rich Slowly. He is a financial expert for ThirdAge.com, the popular website devoted to the concerns of people over age 40.

There’s nothing magic in their book. It’s just basic, old-school financial management in which Armstrong and Brown respond directly to what I call the “new financial realities” by showing battered investors

• Where to move their savings
• How to recalculate what they’ll really need to retire
• How to assess when they can now afford to retire
• How they should change their approaches to investing
• How to use the federal tax system to save more
• What to expect from Social Security now

So if you’re one of those people worried about how and when you can afford to retire, then this book can be an excellent guide. Here's a link to Amazon if you want to purchase the book, and you can also subscribe to Frank's companion blog, Sink or Swim.

You can also check out other book reviews I’ve done: Josh Itzoe's timely Fixing The 401(k); Fran Hawthorne's controversial Pension Dumping: The Reasons, The Wreckage, The Stakes for Wall Street; and Christian Jarrett’s and Joannah Ginsburg’s This Book Has Issues - Adventures in Popular Psychology.

Posted In 401(k) Plans , Book Reviews , Defined Benefit Pension Plans , Social Security
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Most annual retirement plan limits are indexed to inflation; and because of the decline in the Cost of Living Index in 2009, many of the limits remained unchanged for 2010.

Following are the key retirement plan limits for 2010 as announced by the Internal Revenue Service.

• 401(k) and 403(b) Deferrals: $16,500.
• Catch-Up Limit (Age 50 and Older: $5,500.
• Defined Benefit: $195,000.
• Maximum Compensation: $245,000.
• Highly Compensated Employee: $110,000.
• Social Security Taxable Wage Base: $106,800.

Click here to download our chart for a list of all the retirement plan limits for 2010 compared to 2009 and 2008.

It may be good news for employees, many of whom expected reductions, but not good news for 50 million Social Security recipients. The negative inflation rate meant that they will not get a cost of living increase next year – the first time since 1975.

But while by law, Social Security benefits can't decline, premiums for the Medicare drug program are expected to increase next year by 11%. Social Security recipients who have these premiums deducted from their benefits will receive reduced checks.

And what are the implications of this deflation beyond 2010? Here is a link to J.P. Morgan’s article, Deflation and the Effect on Benefit Plan Limits, that discusses its impact on both private and public retirement plans.

Posted In 401(k) Plans , 403(b) Plans , Cash Balance Plans , Defined Benefit Pension Plans , Employee Stock Ownership Plans , Individual Retirement Accounts , Social Security
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That’s Dr. Eli Peli, pictured on the right. Dr. Peli is Senior Scientist and the Moakley Scholar in Aging Eye Research at Schepens Eye Research Institute, and Professor of Ophthalmology at Harvard Medical School. And the device that Dr. Peli is wearing is an augmented-reality system he invented.

In reporting on his research, the New Scientist magazine says, “augmented reality techniques can dramatically improve the sight of people with tunnel vision” , a condition, which narrows a person's field of view.

That’s tunnel vision in the context of medicine. We have our own tunnel vision in our political economy. I define it as the inability for us to deal with more than one public policy issue at the same time. The reasons why are beyond the scope of my expertise, but here is a striking example of tunnel vision in the benefits world in which I reside.

It’s that while the health care debate rages (and I use that word intentionally) on, resolving the Social Security system’s long-term funding shortfall is apparently out of sight, out of mind. In Dr. Peli’s terms, the issue is in our peripheral vision.

According to the 2009 and latest Social Security Trustees’ report, the program’s long-term funding shortfall currently amounts to negative 2.00% taxable payroll. This means that the program would need additional revenues equal to 2 percent of taxable payroll for each year over the next 75 years to match the projected future current-law costs over that time frame. Without changes, the program ultimately will be able to pay only about 75% of benefits promised under current law.

The options are described in new research conducted by the Employee Benefit Research Institute (EBRI), an organization about which I have previously written. EBRI is a private nonprofit research institute based in Washington, D.C. that focuses on health, savings, retirement, and economic security issues. EBRI does not lobby or take policy decisions.

EBRI’s research study, Social Security Reform: How Different Options Might Affect Future Funding, discusses a range of possible reform options, all of which have been part of various reform proposals over the last two decades, and draws upon data presented in the annual Social Security Trustees’ report referenced above.

The options are basic:

1. Reduce benefits (by lowering the scheduled increase in future benefit levels by changes to the benefit formula, or by raising the normal retirement age), or
2. Raise taxes (by changing the amount of earnings that are taxable and used for the calculation of benefits under Social Security) and changes in benefits taxation.

The degree to which any of the options presented in the study would improve the long-term funding status of Social Security depends on how much emphasis policymakers might place on a specific provision. And when they do so.

Dr. Peli, we need you.

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With a new Administration and a new Congress about to take over, we’re going to start to see the think tanks and not-for-profit organizations issuing research and recommendations regarding public policy for retirement plans.

One of those organizations is the National Institute on Retirement Security (NIRS), a not-for-profit organization whose stated mission is to “encourage the development of public policies that enhance retirement security in America”.

Last week the NIRS released a national public opinion survey that reveals widespread retirement insecurity among Americans. More than eight out of ten Americans are worried about their ability to retire, and 71% indicated they feel it is harder today to retire as compared to previous generations.

No surprises and caused no doubt by current economic conditions and the current state of employer sponsored retirement plans, i.e. the demise of defined benefit plans and the large declines in 401(k) balances.

The survey, Pensions & Retirement Security: A Roadmap for Policy Makers (PDF, 39 pages), was commissioned by the NIRS and conducted by Matthew Greenwald and Associates, the public opinion and market research company.

Public policy considerations aside, there was some important information regarding what Americans want from a retirement plan. The survey indicated that

• Americans want portability, followed by employer contributions, continuation of benefits for a spouse after death, and a regular check that cannot be outlived.
• Respondents are less interested in managing investments.
• Americans want to take individual responsibility/control over their retirement savings and trust themselves most, but they tend to be less interested in managing their investments and often say 401(k) savings are a “gamble.”
• Americans are divided as to whether retirement plans should allow loans against retirement savings.

Are you listening plan sponsors and retirement industry?

Posted In 401(k) Plans , 403(b) Plans , Cash Balance Plans , Defined Benefit Pension Plans , Individual Retirement Accounts , Public Employee Plans , Publications , Social Security
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A while back I wrote that there's been a Social Security "early bird special" taken by most married men. Recent experience has been that approximately 50% of those eligible for taking Social Security at age 62, the earliest possible age do so. The financial implications can be huge. If you're a married man and have been the primary wage earner. Then, your decision to take early Social Security benefits can result in a reduction in your wife's survivor benefits.

But taking Social Security sooner can also result in a reduction in benefits - for anyone - of approximately 25% if you're one of the Boomers. Here's a chart  published by the Women's Institute for a Secure Retirement (WISER) who also maintain a blog. The chart illustrates the percentage of reduction in benefits for those retiring at age 62 and the percentage increase in benefits for those working beyond full retirement age.

That is, if you can afford to do that.

Picture above, Waiting in Repose, by artist Dale Wicks.

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Over the last several years, the Social Security Administration (SSA) has been faced with staffing reductions and an increased demand for services challenging its field offices to manage work while continuing to deliver quality customer service.  Now consider that the first wave of approximately 80 million baby boomers is reaching the age of retirement eligibility, and the SSA has a massive challenge ahead of it.

So how is the SSA going to manage this challenge? That's what Congress wants to know and the Senate Finance Committee asked the U.S. Government  Accountability Office (GAO) to find out. The GAO is an  independent, nonpartisan agency that works for Congress. The GAO investigates how the federal government spends our taxpayer dollars and has often been called the "congressional watchdog,".

The GAO’s recent report, Social Security Administration Field Offices: Reduced Workforce Faces Challenges as Baby Boomers Retire, assesses how the SSA is managing these challenges to determine:

1. The effect that reduced staffing levels may be having on field office operations
2. The challenges that SSA faces in meeting future service delivery needs

This statement is drawn from GAO’s ongoing study on field offices for the Committee which is expected to be issued later this year. But for now, here is what the the GAO found:

Growth in claims from the nation’s baby boomers and a retirement wave of its most experienced staff may pose serious challenges for SSA if the agency does not have a clear plan. The first wave of approximately 80 million baby boomers is reaching the age of retirement eligibility, and SSA estimates that retirement and disability filings will increase the agency’s work by approximately 1 million annual claims by 2017. To further compound this challenge, SSA projects that 44 percent of its workforce will retire by 2016. Because retirements will occur among the agency’s most experienced staff, this will have a serious impact on field offices’ institutional knowledge. SSA is planning on hiring an additional 2,350 new employees this fiscal year for regional and field office operations, almost all of whom will go to the field offices. Agency officials stated, however, that it typically takes 2 to 3 years for staff to gain the experience they need to function independently. SSA is using various strategies to recruit new employees to fill knowledge gaps. SSA is finalizing its Annual Strategic Plan which will describe the agency’s strategies for addressing these issues.

Here is a link to the full report (PDF, 26 page).

Photo above by Maya Hasson via flickr.
 

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The elderly are the fastest growing part of our population. They’re more active and living longer than every before, and as a result they have legal needs and concerns that prior generations haven’t faced. And a new field of the law is evolving to address those needs and concerns.

It’s called Elder Law and it combines estate planning, wills and trusts, guardianship, elder rights, health care planning, and Social Security. And one of the elder issues on the minds of virtually every Boomer becoming eligible for Social Security is “when should I start taking Social Security benefits?”

I addressed a part of that issue recently in my post, Social Security "early bird special" taken by most married men. The decision to take early Social Security benefits would result in a reduction in a wife’s survivor benefits.

Someone who has, however, addressed the totality of the Social Security decision is Richard Kaplan, a law professor at the University of Illinois College of Law, who teaches elder law. Professor Kaplan, a prolific author on elder law issues, has just had published, A Guide to Starting Social Security Benefits, that appeared in the July-August, 2008 issue of the Journal of Retirement Planning. Here is the Abstract of his article:

When a person should begin taking Social Security retirement benefits is a critical question for planning one's retirement. This article explains the various factors at play in determining the optimum starting point, including: longevity considerations; spousal implications, whether for a previously employed or a previously unemployed spouse; the impact of post-retirement employment; the availability of health insurance prior to Medicare eligibility for the worker and the worker's spouse; alternative sources of retirement income, including distributions from retirement savings plan assets and lifetime liquidation of nonretirement assets (and the pertinent income tax ramifications); and anticipated investment strategies.

Here is a link to download Professor Kaplan's complete article from the Social Security Research Network (free but registration required).

Hat tip to Rick Bales, my fellow blogger, one of the Editors at Workplace Prof Blog.

Posted In Social Security
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Lost in the ocean of billions of dollars from the recent financial scandals and disasters has been the illegal practice of banks garnishing Social Security and disability payments for third party creditors.

Social Security beneficiaries have had the above-mentioned $171.4 million taken from their account that received direct deposits, plus $6.3 million more from accounts that contained only Social Security benefits.

There was been very sparse media coverage of the findings of an investigation conducted by the Inspector General (IG) of the Social Security Administration (SSA). Those findings were published earlier this month in the CONGRESSIONAL RESPONSE REPORT: Financial Institutions Deducting Fees and Garnishments From Social Security Benefits (PDF, 45 pages).

The fee reference, by the way, was the IG's finding that in some cases banks would freeze accounts and charge penalty fees after the freezes - in excess of $1 million just between September 2006 and September 2007.

It’s just a drop in the bucket of the billions mentioned above, but not if you were one of the Social Security beneficiaries affected. And as mentioned above it's illegal.

The Social Security Act (Act) provides that

The right of any person to any future payment under this title shall not be transferable or assignable,7 at law or in equity, and none of the monies paid or payable or rights existing under this title shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law.

There are five exceptions, however, which does not include the garnishments currently being done. The Act:

1. Allows the enforcement of child support and/or alimony for the support and maintenance of a child subject to, and in accordance with, State or local law.
2. Allows the Internal Revenue Service to collect unpaid Federal taxes.
3. Allows beneficiaries to elect to have a percentage of their benefits withheld and paid to the Internal Revenue Service to satisfy their Federal income tax liability for the current year.
4. Allows benefits to be withheld and paid to another Federal agency to pay a non-tax debt the beneficiary owes to that agency.
5. Authorizes the Internal Revenue Service to collect beneficiaries’ overdue Federal tax debts by levying up to 15 percent of each monthly payment until the debt is paid.

So how is the Act enforced? Not very much. The SSA interprets the Act such that its responsibility ends when it pays the beneficiary. And there are very few states that do offer protection: California and Connecticut. The Governor in New York is expected to sign a bill that is similar to the one in those two states. It would protect up to $2,500 of a depositor’s account from being frozen if benefits are being received via direct deposit.


My suggestion to fix the problem? Impose that same standard of non-alienation or assignment of benefits as is required under ERISA. Beneficiaries should be treated as beneficiaries!

Postscript:: One of the few financial writers to pick up on the IG's report was Laura Rowley who wrote in her July 16, 2008 column for Yahoo!(R) Finance that Banks Continue to Prey on Social Security Recipients. She was also way ahead of other financial reporters in her November 15, 2007 column, Unholy Alliance Fleeces Social Security Recipients. Ms. Rowley's column is called Money & Happiness, the same name as her blog and book. And finally, a hat tip to My Retirement Blog (no relation) for their post on this subject.
 
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Social Security, it seems, is always in the news. And with the Presidential election process starting to heat up, it is, of course, a major campaign issue. So if you're interested  in this issue (and you should be), how do you sort your way through all the clutter, the smoke, the mirrors, and the rhetoric? In the words of George Harrison, if you don't know where you are going, any road will take you there.

So here's a starting point. It's an exceptionally well written four-part series on Social Security written by Glen Barr that focuses on how the system actually affects retirees. Mr. Barr's articles appeared in the Crestline Courier News, a small newspaper serving Lake Arrowhead, California and surrounding communities. (In the "for-what-its-worth-department", Lake Arrowhead is also the Official Home of American Idol Camp).

Mr. Barr writes:

1. SOCIAL SECURITY: Golden Years or Fool's Gold? How and why the system got started and its long-term prospects.
2. SOCIAL SECURITY: PART TWO Politicians Clash. What government, as well as leading presidential candidates, would do to fix the problem, and how much of their Social Security checks future benefit applicants can expect to keep.
3. "Windfall' Rule Enriches Feds in Name of 'Fairness'. Possible benefit cuts for individuals also receiving state or government benefits.
4. Can Retirees Afford to Work? The cost of losing Social Security benefits by going back to work.

History Matters Mug available from the Minnesota Historical Society.

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If you happen to be near a Texas Roadhouse (and there's 300 locations in 44 states from which to choose) on any Monday to Friday from 3:00PM - 6:00PM, you can enjoy their Early Bird Special. That’s two hand-cut USDA Choice 8oz. sirloins and 4 made-from-scratch side items - all for only $16.99. Pretty good deal, and you don’t even have to be a senior citizen to take advantage of it.

Folks joke about these early bird specials at restaurants and the geriatric crowd they attract. But the Social Security "early bird special" is no joke if you happen to be one of the oldest baby boomers who are turning 62 this year. That "early bird special" is when you can start taking retirement benefits at this earliest eligibility age.

And about 50% of the Social Security eligibles are expected to claim their benefits as soon as they resulting in an estimated 25% reduction in benefits compared to waiting until full retirement age. If you're a single male, then your decision only affects you. But if you're married and have been the primary wage earner, then your decision to take early Social Security benefits can result in a reduction in your wife's survivor benefits.

It's a serious matter, and goes beyond the pop psychology of Men Are From Mars and Women Are From Venus. Recent academic research has focused on Why Do Married Men Claim Social Security Benefits So Early? Ignorance or Caddishness? I'm pleased to report on behalf of my gender that the reason was neither. Here's how the researcher phrased it: 

Regression results found no association between early claiming and caddishness or the ability of husbands to make claiming decisions independently. The one statistically significant finding is the association of college education and later claiming, which cautiously take to indicate greater financial awareness.

It's a public policy issue that needs addressing. It's not going to happen overnight. So if you're a married man eligible for Social Security (or for that matter anyone who is eligible), don't make this important decision on your own. There are qualified financial professional out there who can help.

Posted In Social Security
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