May 30, 2013
Layoffs After 50 Cause Severe Losses
For the average older worker who loses his job, his income a decade later is 15 percent lower than if he had escaped the layoff.
It gets worse: His pension wealth is worth 20 percent less, and his financial assets are 30 percent smaller.
The enormous financial hit delivered to older workers who experienced a layoff sometime during the 1990s was reported recently by researchers at the Center for Retirement Research, which supports this blog. First, the researchers pinpointed all workers in the data set who were over age 50 and lost a job between 1992 and 2000. They then examined their financial outcomes – earnings and assets – a decade later and compared them with outcomes for those who avoided layoffs during that time.
If the financial fallout during the 1990s was that dramatic for unemployed older workers, it will be even worse for many of the 3.2 million jobless baby boomers at the peak of the Great Recession, the longest downturn in post-war U.S. history.
The Great Recession hit just as members of the biggest demographic bulge ever were either hitting retirement age or lining up on the runway. Record numbers of them sustained severe hits to their financial security, because the jobless rate for older workers reached record highs.
The research suggests that the recession’s effects may last into old age for many boomers. One key reason for their grim prospects is that older workers have more difficulty snaring new jobs than do young adults. Many boomers never found employment and are being forced to retire grudgingly, simply because they lack options. …Learn More
May 28, 2013
Aussie Employer Mandate Fuels Saving
Consider this: 92 percent of Australian workers have 401(k)-style plans, while less than half of Americans have any kind of pension coverage on their current job.
This yawning disparity exists, because the Australian government requires employers to contribute 9 percent of each worker’s earnings to a personal account, which participants invest much like a 401(k). Under reforms to Australia’s system, employer contributions will rise gradually until 2020 – to 12 percent.
Even though Aussie employers are mandated to make the contributions, economists argue, the money ultimately comes from workers – through lower wages. But U.S. workers, left on their own, have proved to be poor savers, and the fact remains that putting the onus on employers to ensure that retirees have something in savings is working better than our catch-as-catch-can system.
“Australia has been extremely effective in achieving key goals of any retirement income system,” concluded a new report by the Center for Retirement Research, which supports this blog. …Learn More
May 21, 2013
Few Boomers Catch Up on 401(k) Saving
Only 13 percent of older workers take advantage of the “catch-up” contributions to their retirement accounts permitted by the IRS for anyone over 50, according to new data provided by Fidelity Investments.
This is hardly surprising, since prior research has estimated that only about 10 percent of all workers are contributing the maximum $17,500 per year that everyone, regardless of age, is allowed to contribute under IRS guidelines for 2013. Since the vast majority never reach that cap, the “catch-up” 401(k) contribution enacted to encourage people to save more when they hit their 50th birthday – an additional $5,500 per year – is largely irrelevant to them.
But the catch-up contribution data, which Fidelity culled from its 401(k) client database representing some 12 million workers, are yet another reminder of a fundamental problem with the U.S. retirement system: Americans simply are not saving enough to ensure their financial security in old age.
In short, members of the Me Generation don’t seem to be doing a great job of taking care of Me. …Learn More
May 14, 2013
Getting What You Need for Retirement
You can’t always get what you want. But if you try sometimes you just might find you get what you need.
Rolling Stones, 1969.
There is nothing better that most people can do to get what they’ll need in retirement than delaying when they start collecting Social Security.
The recent PBS documentary, “The Retirement Gamble,” sounded the alarm for many viewers who may be ill-prepared for the financial challenge of a long life – and not much retirement savings in the bank.
To address this growing issue, financial advisers often emphasize retirement-survival strategies to their baby boomer clients. These strategies revolve around the complexities of figuring out how much to save, how to invest, or the best way to spend one’s 401(k) assets post-retirement.
But the real problem facing most Americans is that they have meager balances in their 401(k)s – or none at all.
Putting off when one claims Social Security “is the best deal in town,” concluded an analysis by Steven Sass, program director at the Center for Retirement Research, which supports this blog. …Learn More
May 9, 2013
How Good Is Your 401(k)?
When Sanofi froze its defined benefit pension plan last year, the top brass wanted to make sure its 401(k) was seen as a worthy replacement by the company’s 24,000 U.S. employees and retirees.
Sanofi has succeeded, judging by Plan Sponsor magazine’s designation of the U.S. division of the French pharmaceutical giant as 2013 “Plan Sponsor of the Year.”
In corporate America, 401(k) plans are now the norm: in 2012, only 11 of Fortune magazine’s 100 largest companies still offered a traditional defined benefit pension, according to the consulting firm Towers Watson. But Sanofi U.S. had strong motivation for designing a 401(k) that is generous compared with typical 401(k)s.
The company has “highly technical, highly specialized, highly skilled [employees] that we have to recruit for and retain,” said Richard Johnson, senior director of benefits. “We wanted to ensure our employees had adequate retirement income.”
Squared Away recently interviewed Sanofi executives about their plan’s details, shown below, which readers can compare with 401(k) plans in their own workplaces. We hope you’ll post a comment on Facebook and let us know how, or whether, yours stacks up.
Here how Sanofi compares with other 401(k)s:
May 7, 2013
Retirement Countdown: Sheila Downsizes
Sheila Taymore could not afford the $2,200 mortgage and home equity loan payments, the enormous heating bills, and the repairs – so many repairs – on the home she’d owned for decades.
Sheila Taymore, 60, of Salem, Mass.
But selling it was emotional: she and her first husband had raised two sons in that house in the seaside town of Swampscott, north of Boston. Her decision to move was triggered by a recent divorce and came about two years after the death of her mother.
“I walked around and cried and said, ‘Who cares about this house?’ I make all this money, and all my money was going towards my house,” said Taymore, a Comcast Cable salesperson – last year was her best year ever.
She is like millions of U.S. baby boomers struggling, often imperfectly, to prepare financially for their imminent retirement. Wall Street may tout investment savvy as critical to ensuring a comfortable old age, but less lofty decisions can be more helpful to those with too little savings and too few working years left to make it up.
Taymore is also planning to delay her retirement to age 70. That will give her a larger monthly check from Social Security and fewer years of retirement to pay for. That was an easy call, she said, because “I just love my job.”Learn More
May 2, 2013
Health Reform May Impact Your Finances
Getting or keeping health insurance is central to many of the major decisions that working Americans make.
Canadian and European governments provide universal health care to their citizens, but this country has relied heavily on employers for health insurance, and only about two-thirds of them provide it. It’ll be fascinating to see how health care reform changes our decisions about work, starting a business, college, and individual finances when more Americans have access to coverage in 2014.
Research years ago established the influence of employer health insurance on the workplace. When employees are covered at work, job turnover is lower – workers know health care is a big thing to give up. There’s also newer evidence that people on the disability rolls, who receive health care as part of that federal benefit, are more likely to go back to work if they live in a state with better access to health insurance in the private market.
Retirement is another big decision driven by one’s health insurance options. Medicare eligibility at age 65 can trigger the decision, new research shows: people working for employers without any health benefits for their retirees are more likely to retire at 65, according to a paper by economists Norma Coe of the University of Washington’s School of Public Health and Matt Rutledge of the Center for Retirement Research at Boston College, which supports this blog.
“We interpret this finding as evidence that Medicare eligibility persuades people to retire, because they can begin receiving federal health coverage,” Coe and Rutledge write. …Learn More