Month: March 2017

Surveys find Coloradans, most Americans, worried about economic security in retirement

Posted on by planeteria

When it comes to saving for retirement, Coloradans are anxious, and so are most Americans. The National Institute on Retirement Security recently released results from a study of 400 Colorado adults age 25 or older to better understand their attitudes and opinions about retirement savings.

Along with a similar survey of adults across the country, the studies show that saving for retirement continues to be a daunting challenge for workers and that they would support policies to strengthen savings in retirement plans.

Retirement in crisis

Most Coloradans (82 percent) believe that the nation faces a retirement crisis, with both older (age 55 and over) and younger (ages 25-54) residents expressing similar levels of concern.

Younger Coloradans are more anxious about retirement than older residents of the state, and they are more willing to increase their savings as a way to ensure greater retirement security. When asked about their own retirement, 31 percent of older Coloradans and a near majority – 44 percent – of younger Coloradans reported feeling unprepared, unsettled, frightened or concerned about being prepared.

[Read more from The Dime about how younger and older Coloradans’ views about retirement security differ, and where they are similar.]

Working to save…

Coloradans are working hard to prepare for retirement, with 80 percent planning to stay in their current job as long as possible before retiring. Seven of 10 plan to or are already cutting spending in retirement, and almost as many – 58 percent – say they plan to increase their savings a little in order to ensure a financially secure future.

…but falling behind

But at the same time, today’s economic conditions are concerning, say 72 percent of Coloradans. And 78 percent believe that it will get harder in the future for Americans to save for retirement.

Increasing costs along with debt and slow salary growth are particularly worrisome. The rising cost of long term care was the most troubling challenge, with 80 percent of Coloradans calling it a major factor in making retirement difficult, along with 79 percent who said salaries not keeping up and increasing debt are major factors as well.

Coloradans place a high value on retirement benefits, with nearly seven in 10 (69 percent) regarding retirement benefits as an extremely or very important job feature, and nearly two-thirds (65 percent) saying they’d be willing to sacrifice pay for guaranteed retirement income.

More than three-fourths (76 percent) believe that the average worker cannot save enough on their own to guarantee a secure retirement, and two-thirds (66 percent) say employers do not contribute enough money for a secure retirement for their workers. Even more respondents (82 percent) agree that the average retiree does not know enough about managing investments to ensure their savings will last.

Searching for solutions

When it comes to leadership from Washington, most Coloradans (84 percent) agree that leaders do not understand how hard it is to prepare for retirement. And almost as many (82 percent) agree that ensuring more Americans can have a secure retirement should be a higher priority.

With nearly nine out of 10 Coloradans (87 percent) holding favorable views of traditional pension plans, pension-style savings plans may be a part of the solution to the retirement security problem. In fact, large majorities see pensions bringing security, with 83 percent agreeing that government should make it easier for employers to offer traditional pension plans, and 79 percent saying that pension disappearance is harming their ability to achieve the American Dream.

Pension benefits should be available to all workers, according to more than three quarters (78 percent) of Coloradans. But for workers who do not have access to a retirement plan through their employer, 69 percent agree that a new retirement plan facilitated by the state is a good idea.

Good for Colorado, good for the country

Similar research of Americans across the country also conducted by NIRS found that almost 76 percent of those polled worry that economic conditions might hurt their chances for a secure retirement.

Nationally, 55 percent of those surveyed “strongly agreed” that the country faces a retirement crisis and 80 percent said the average worker “cannot save enough on their own to guarantee a secure retirement.” That’s up from 73 percent in 2015.

Pensions beat 401(k)s for living comfortably, according to 71 percent of Americans.

Preparing for Retirement in Colorado Infographic

Public pensions are in better shape than you think

Posted on by planeteria

Retirement Roundup: A digest of timely information and insight about finance, investing, and retirement.

Public pensions are in better shape than you think | The Week

A new paper from Tom Sgouros at UC Berkeley’s Haas Institute makes a compelling argument that the crisis in public pensions is to a large degree the result of accounting practices. Sgouros argues that the typical debate around public pensions revolves around accounting rules, which were designed for the private sector – and their specific mechanics both overstate some dangers faced by public pensions and understate others.

Baby Boomers adjusted retirement expectations post recession | PlanSponsor

A decade after the recession of 2007, more than half of Baby Boomers feel they have not benefitted from any recovery, according to a new survey by the Center for a Secure Retirement (CSR), “10 Years After the Crisis: Middle-Income Boomers Rebounding But Not Recovered.” Throughout the decade, many Boomers have readjusted retirement expectations to meet this situation.

Workers are working longer – and better | The New York Times

According to the Pew Research Center, in the year 2000, just under 13 percent of Americans 65 and over reported being employed full or part time. By May 2016, that figure had jumped to 18.8 percent – meaning that nearly nine million Americans 65-plus were gainfully employed. Over the next five years, that number is expected to increase to 32 percent. Of course, working past traditional retirement age is neither desirable nor feasible for some.

23 years of personal finance wisdom distilled into one final column | St. Louis Post-Dispatch

After writing a column since 1994, there are a few things about how people and money mix that a personal finance writer can leave with you, including: Don’t read this column.

College loans are making it harder for parents to retire | MarketWatch

It’s no secret that student debt can challenge millennials looking to start careers and launch into young adulthood. Increasingly, however, college loans are also making it harder for their parents to wind down their working lives. The dollar volume of Parent Plus loans – the loan the government offers parents – has doubled in the past decade, according to an analysis of federal student loan data by Mark Kantrowitz, publisher of college scholarship and search site Cappex.com.

Retirees should look carefully before leaping into a relocation | CNBC

Many people dream of fleeing to cheaper and warmer climates in their retirement. (Margaritaville, anyone?) Advisors caution, however, to watch for unexpected financial and non-financial consequences.

Fordham Institute Gets it Wrong

Posted on by planeteria

The Thomas B. Fordham Institute recently issued a report critical of many teacher retirement plans across the country. (The Fordham Institute, with offices in Ohio and Washington D.C., is an education reform policy think tank and should not be confused with Fordham University in New York.) You may have seen this report’s conclusions reported on as fact lately in the New York Times, and education reform-oriented bloggers have echoed the report’s findings.

The report gets a number of facts wrong when it comes to understanding how Colorado PERA works, and indicates that a Jeffco teacher would need to remain in the PERA system for 21 years to receive ANY return on retirement contributions.

But in fact, any teacher (or PERA member) leaving PERA-covered employment is eligible for:

  • a refund/rollover of their contributions plus interest at any point; or
  • a 50 percent on match on contributions plus interest after earning five years of service credit;* or
  • a 100 percent match on contributions plus interest or a lifetime monthly benefit once retirement eligible.

For PERA members, benefits paid out always exceed contributions put in, regardless of vesting status or years of service.

Public school teachers in Colorado PERA – including Jeffco teachers – participate in a hybrid defined benefit retirement plan, meaning that their plan includes features of both a traditional pension-type retirement plan and a 401(k) style plan. (We’ve written before about some advantages of hybrid defined benefit plans on PERA on the Issues.) One of these features is the option for any member to refund or rollover their contributions at any point after leaving PERA – whether that’s after one day of work or 10,000.

Members who have five years or more of service credit and choose to refund or rollover their account also receive a 50 percent match on their contributions plus interest. Members who are retirement eligible and choose to refund or rollover their accounts receive a 100 percent match on their contributions plus interest. And all members who leave PERA-covered employment but choose not to refund or rollover their contributions become eligible for a monthly PERA benefit at age 65.

A study commissioned by the Colorado General Assembly in 2015 showed that the PERA hybrid plan provides the most income replacement at retirement at the lowest cost compared to other types of retirement plans in use today, including 401(k)-type defined contribution plans. The study concluded that regardless of age or length of service, no plan “provides a more effective level of benefits than the PERA Hybrid plan.” (Read more about the independent Gabriel, Roeder, Smith & Company report on PERA on the Issues.)

*Refund and rollover provisions are somewhat different for DPS Division members who began membership prior to January 1, 2010. For details, see the Refund/Rollover Request: Terminating PERA-Covered Employment brochure.

More Americans can’t afford medical care

Posted on by planeteria

Retirement Roundup: A digest of timely information and insight about finance, investing, and retirement.

More Americans can’t afford medical care  Squared Away Blog

While the majority of insured adults still can afford their health care, the minority who say it’s “difficult” to pay their monthly premiums, doctor and prescription copayments, and deductibles is growing. The Center for Retirement Research (CRR) at Boston College in their most recent Squared Away blog post confirms what most of us already know.

It’s getting harder to maintain a standard of living in retirement  Center for Retirement Research

Also noteworthy from the CRR, a new analysis of employee savings in 401(k) plans concludes that “employer plans are providing less retirement income today than in the past.” Read the report here.

Gender differences result in different investment outcomes  Wall Street Journal

Men and women have different investment styles and could learn from each other according to an article in the Wall Street Journal.

Did you turn 70½ in 2016?  Internal Revenue Service

It’s tax time again. The Internal Revenue Service reminds taxpayers who turned age 70½ during 2016 that, in most cases, they must start receiving required minimum distributions (RMDs) from Individual Retirement Accounts (IRAs) and workplace retirement plans by Saturday, April 1, 2017.

Get the facts on investment return assumptions  NASRA

The investment return assumptions used by public retirement plans are in the news a lot. Read more from the National Association of State Retirement Administrators about how these assumptions are determined and why the investment return assumption is the single most consequential of all actuarial assumptions in terms of its effect on a pension plan’s finances.

Money purchase feature of the PERA plan design explained

Posted on by planeteria

PERA is classified as a “hybrid” defined benefit plan which means it has characteristics of a traditional pension plan as well as some additional features that are more commonly associated with defined contribution plans, such as 401(k) plans. One of the least understood elements of the hybrid plan is PERA’s Money Purchase Benefit option – (C.R.S. § 24-51-605.5).

The Money Purchase Benefit is available to every member of PERA but generally is applied to members who work less than a full career with a PERA employer. Here is how it works:

  • Every dollar contributed by a member (8 percent of every check, 10 percent for State Troopers) is placed in an account of the individual participant.
  • The contributions are credited with interest at a set annual rate that cannot exceed 5 percent by law (currently 3 percent).
  • So long as a member has left their member account with PERA (i.e. does not refund and take out their money) until they have reached the age of retirement eligibility, they are eligible to receive the Money Purchase Benefit.
  • The Money Purchase Benefit amount is calculated by taking the member account balance (contributions plus interest), adding a 100 percent match to that balance, and calculating the monthly amount that can be paid out for life assuming a 7.25 percent (currently) earnings expectation.

The following table shows the how the PERA plan design works for a PERA member who begins work at age 25 and then works three different career lengths. As indicated below, whether the member chooses to refund their account when they leave public service or leave their contributions in the plan until retirement eligibility, the member always receives more in benefits than the accumulated member contributions.

Money Purchase

 

 

 

 

 

 

 

 

 

Money Purchase Examples