JustCare

Tag: Retirement

  • New White House rules help promote retirement security, but you should still beware

    New White House rules help promote retirement security, but you should still beware

    Earlier this month, the U.S. Labor Department finalized rules for financial advisers regarding retirement investments, which are intended to promote retirement security in America. The rules impose a fiduciary duty on investment advisers towards their clients’ retirement accounts and help ensure that retirement advice serves the best interests of people. But, you should still beware of advice from financial advisers.

    Shockingly, the old rules permitted advisers to recommend retirement investments that served their financial interests  even when the investments may not have been in the best interest of their clients. Financial advisers have been able to steer clients rolling over their 401(k) accounts to retirement products for which the advisers were paid to promote the products.

    The White House study of the issue determined that Americans lose up to $17 billion a year from conflicted retirement advice, “tens of thousands of dollars” a household. In particular, middle and working class Americans see an average loss of one percent in returns on retirement savings each year resulting from the conflicted advice their financial advisers provide them. Now, most advisers will need to meet a fiduciary standard, putting their clients’ interests ahead of their own and can be sued if they do not.

    However, even once these new rules take effect, financial advisers still can receive commissions from the companies whose investment products they promote, creating a conflict of interest. To address this conflict, they must simply disclose their financial interest to their clients.

    The White House analysis suggests that a worker who moves 401(k) funds into an IRA at age 45 typically loses about 17 percent in income in that account over the next 20 years because of conflicted advice. Put differently, $100,000 in retirement savings at age 45 only grows to an average of $179,000 over 20 years because of conflicted advice; with the new rules in place, it would grow to an estimated $216,000, $37,000 more.

    The rule is a long time coming because of massive opposition from the financial industry and from some members in Congress, including House Speaker Paul Ryan. Arguments against the rule suggest that it will hurt the financial industry and access to “expert” advice for people with fewer assets. Of course, if the advice is not in people’s financial interest, it’s likely to have negative value.

    As Labor Secretary Thomas Perez said to opponents of the new rule, “Are you for consumers, putting their best interests first, or do you think that the only way financial advisers can provide advice is to put their financial interests first?” The Consumer Federation of America considers this a big win for consumers.

    The new rules do not go fully into effect until 2018. But most people pay too high fees for financial products, even if their adviser is not conflicted. So, even when the rules go into effect, it’s wise to invest in index funds as well as to ask any prospective financial advisers if their personal income depends on the decisions you make about your investments. If the answer is yes, the prospective adviser is conflicted and getting commissions from the retirement investment advice you receive.
  • In retirement, income gap worsens for women

    In retirement, income gap worsens for women

    We know that women earn 79 cents for every dollar men earn. A new report from the Institute on Retirement Security reveals that in retirement the gap in income widens.  And, over time, the retirement income gap only worsens for women. As a result, women are much more likely to suffer financially in retirement than men.

    Older women live on just three-quarters of the retirement income of men. As a result, they are 80 percent more likely to be impoverished than men. And, by the time women are 80, the income gap widens, with their median income just 70 percent that of men, $26,470 to $38,040.

    Women receive one third less in retirement income from a pension, $12,000, than men, $17,856.  And, they save 34 percent less in their 401(k) type retirement plans, $24,446, than men, $36,875.  Because they have a longer life expectancy than men, they are at greater risk of depleting all their retirement savings.

    On average, women receive lower Social Security benefits than men. Yet, for women with annual incomes under $80,000, Social Security is a key source of income. Without Social Security, almost half of all older women would be living in poverty. Social Security represents the majority of income for single, widowed and divorced women over 70.

    Almost two out of three older adults living in poverty are women.

    What do we do about it? The authors suggest increasing Social Security benefits for women. (There was no increase in Social Security benefits in 2016. The U.S. offers stingy Social Security benefits as compared to other countries. To be sure, there is strong support for Social Security across a broad swath of Americans. And, here, you can watch Robert Reich explain that we can afford to expand Social Security.)

    The authors also recommend auto-IRAs to increase retirement plan coverage, expanding use of the Saver’s Credit and state-sponsored savings plans, which could help make up for the fact that 68 million working people do not have access to a retirement plan through their jobs. (Teresa Ghilarducci argues for a Guaranteed Retirement Account, a federally managed savings plan.)

    For more:

  • Is it fair to say we have a retirement crisis?

    Is it fair to say we have a retirement crisis?

    It is easy to find policymakers and thought leaders who deny we have a retirement crisis. But there’s no denying that the overwhelming majority of people face a sharp drop in income at retirement. The Economic Policy Institute, a Washington think tank, has a new report that highlights how middle-income families have lost significant assets since the Great Recession.

    The EPI analysis shows that today fewer people have defined benefit pensions to rely on.  And Social Security payments are not replacing as much of people’s working income as it once did.  Moreover, 401k-style defined contribution plans and IRAs, are not growing nor anywhere near making up for these losses.  They have “failed most American workers.”

    Rather, EPI reveals that the households near retirement during the Great Recession took a significant financial hit. On average, they lost nearly a quarter of their savings. But, these losses hurt the wealthiest Americans far less than everyone else, contributing to greater retirement inequality. Median families (those in the 50th percentile) lost more than half of their retirement savings between 2007 and 2010. Families in the 90th percentile only lost 5 percent.

    Other notable findings from EPI:

    • Total wealth has shrunk for 80 percent of people over the last several decades. So, they do not have as much available to spend for retirement.
    • Most people at the bottom half of the income distribution have no retirement savings; since 2000, fewer working age families have retirement savings except among top income earners.
    • Single women are particularly vulnerable because they tend to earn less, have less savings and live longer than men, often outliving their savings.
    • Half of near-retirees have no retirement savings at all and those with savings have median savings of $17,000. Before the recession, they had more than twice that amount, about $36,000.
    • Retirees are also seeing cuts to Social Security benefits, which were passed in 1983 but are still taking effect in the form of a slowly rising retirement age, from 65-67.

    And, because older adults and people with disabilities typically can count on Medicare to cover only about half of their health care costs, their expenses can be very high. Medicare does not cover nursing home care or other long-term services and supports.  

    What’s the solution? Here are three ways government can help promote retirement security.  Expanding Social Security benefits would help a lot, particularly for people with low incomes and in poor health.Teresa Ghilarducci explains the value of Guaranteed Retirement Accounts here. People who are in good health and who can find work are best off if they continue working and put off collecting Social Security until age 70. Their benefits will increase substantially.  

  • Social Security: It’s time to build on its success

    Social Security: It’s time to build on its success

    Social Security is a model government program, financed by and supporting working families in the event of retirement, disability, and death. It is administered in a wise and cost-effective manner. Social Security can only pay out what it has in its coffers. It cannot spend more than it has.  Now, it’s time to build on its proven success.

    In August 1953, President Eisenhower proposed an expansion of Social Security, telling Congress that “Retirement systems, by which individuals contribute to their own security according to their respective abilities . . .are but a reflection of the American heritage of sturdy self-reliance which has made our country strong and kept it free . . . The Social Security program furnishes, on a national scale, the opportunity for our citizens, through . . .self-reliance, to build the foundation for their security.”

    Contrary to what you might hear from some pundits, our nation can afford our current level of Social Security. In fact, we can afford a greatly expanded Social Security. America is the wealthiest country in the world.  The question of whether to expand Social Security is simply about our priorities, not about whether we have the funds to do so.

    Congress and the President should agree with President Nixon that “the retired, the disabled and the dependent [beneficiaries of Social Security] never again bear the brunt of inflation. The way to prevent future unfairness is to attach the benefit schedule to the cost of living.” And, in 1972, Congress passed legislation to index Social Security in order to prevent inflation from eroding its earned benefits.  Unfortunately, while in theory Social Security’s benefits should not erode over time, in practice they do.

    The inflation adjustment measure for Social Security does not comport with the spending patterns of older adults and people with disabilities.  People who receive Social Security tend to spend more on health care, whose costs have been rising far faster than overall inflation.  As a result, while costs for Social Security beneficiaries have risen in the last year, there is no Social Security cost of living adjustment in 2016. The formula needs to change.  And, there are some bills in Congress that would change it.

    Historically, Republicans and Democrats alike have worked together to improve and expand Social Security.  President Reagan signed into law the Social Security Amendments of 1983 and spoke about “our nation’s ironclad commitment to Social Security.”  It’s time that Congress pass Social Security legislation which expands benefits while requiring the wealthiest among us to pay their fair share.  That should, reassure Americans, as Reagan said, “that America will always keep the promises made in troubled times a half a century ago.”

    It is time for Social Security beneficiaries to receive a raise and for the wealthiest Americans to start paying their fair share. If you agree, sign this joint Social Security Works and Credo Action petition.

    Watch Robert Reich explain why we can afford to expand Social Security. Click here to learn about why claiming Social Security benefits early disproportionately hurts people with low incomes. Click here to read why higher Social Security benefits helps memory and mental functioning for older adults.

  • What’s a Guaranteed Retirement Account?

    What’s a Guaranteed Retirement Account?

    We all need to be saving for retirement.  But, the options for many of us are slim.  Some of us have 401(k) plans, which have their own limitations.  Labor economist, Teresa Ghilarducci proposes we all have a federally managed savings plan which, like Social Security, can weather the ups and downs of the financial marketplace and deliver secure returns in retirement at low-cost. A Guaranteed Retirement Account guarantees the investment, an annual rate of return and an annuity (annual payment) in retirement.

    Federal Government Retirement Accounts would be retirement plans administered by the Social Security Administration that all employers would be required to offer their employees to better assure that Americans can retire with dignity. Ghilarducci sees the 401(k) retirement savings program as failing to allow for a good retirement because it does not guarantee enough savings or retirement income and does not cover enough workers.  Income and savings for workers in retirement are far lower than most people realize.

    Today, taxpayers are subsidizing 401(k) plans for the wealthiest Americans to the tune of $110 billion, but most Americans are not saving enough for retirement. The Government Retirement Accounts would require a 2.5 percent payroll contribution by employers and workers on top of Social Security and Medicare contributions up to the $118,500 Social Security cap. The federal government also could make a contribution through a revenue neutral $600 tax credit.

    Other countries such as Britain, Australia and New Zealand have mandatory savings programs.  Their goal is to ensure higher savings rates, especially in light of people living longer and saving too little. These programs all supplement public pension programs.

    Australia requires employers to contribute 9.5 percent of pay, up from 3 percent in 1992, when the program launched. In 2025, the contribution is set to go up to 12 percent of workers’ pay. New Zealand and Britain have newer programs and require lower contributions for now.  Of note, the British program was launched by the Conservative government and is supported by conservatives because it is not a tax.

    Recently, the U.S. federal government began offering myRA, which is a toe in the door for a more robust federal retirement savings program.  And, some states are working to establish their own mandatory savings plans, which creates further impetus for federal action.

    Social Security replaces less than 40 percent of a typical worker’s income in retirement.  People should be saving in order to replace another 30 to 40 percent of income. The question becomes why not simply expand Social Security, a much simpler solution than Guaranteed Retirement Accounts, as Nancy Altman proposes.

    What are your thoughts on Government Retirement Accounts?  Add a comment below.  Click here to read three ways the government could help promote retirement security.

  • MyRA, a new retirement savings option from the U.S. Treasury

    MyRA, a new retirement savings option from the U.S. Treasury

    Most older adults have limited savings. But, it’s estimated that seven out of ten older adults will need long-term services and supports at some point in their lives, typically for three years. If family and friends are unable to provide care services, the costs can be high. Beginning this month, the U.S. Treasury offers people myRA, a new way to save for retirement.

    What is myRA? MyRA is a retirement savings account that allows you to save up to $15,000. Your money is invested in a U.S. Treasury retirement savings bond.

    What does it cost to set up myRA? There are no enrollment, money management or other costs or fees and no risk of losing money.

    Can I lose money if I invest in myRA? You cannot lose money in myRA. Your savings are guaranteed by the U.S. Treasury and will grow over time. You will earn the same interest as federal employees who invest in the Government Securities Fund, which was 2.14 percent in 2014 and 3.19 percent over the ten years ending December 2014.To understand how your savings will grow, visit the U.S. Treasury MyRA site, here.

    Who is eligible for myRA? MyRA is designed for people who do not have access to a retirement savings plan through their jobs.

    How much money can you put into your myRA? MyRA gives you flexibility to save as little as you’d like and up to $5500 a year if you’re under 50 and $6500 a year if you’re 50 and over. You can save up to $15,000 in your myRA.  After your account reaches $15,000 or after 30 years, your savings will be transferred to a private-sector managed Roth IRA.

    How do you put money into your myRA? You can have your employer automatically deduct money from your paycheck for your myRA. Or, you can write a check whenever you’d like to your myRA account. You can also ask that a federal tax refund go to your myRA.

    What happens if you leave your job? If you leave your job, your myRA leaves with you.

  • Social Security a godsend for millions of older adults with no retirement savings

    Social Security a godsend for millions of older adults with no retirement savings

    A new report by the Government Accountability Office reveals that Social Security provides critical financial support in retirement.  As it is, most adults 55 and older have no retirement savings. And, those with retirement savings have so little savings that they will need to depend heavily on Social Security income.

    Today, 52 percent of households 55 and older have no retirement savings. More than half of those without retirement savings, 29 percent, also do not have a defined benefit plan.

    When you break down the numbers, it turns out that 27 percent of both the households with people between 55 and 64 and those with people between 65 and 74 have neither retirement savings nor a defined benefit plan. Because of Social Security benefits, median annual income for the 65 to 74 year olds is $47,000, more than twice that of people between 55 and 64–Social Security benefits represent 44 percent of income or $19,000. Median annual income for the younger 55 to 64 cohort is around $21,000.

    Households with people over 75 rely on Social Security for the better part of their income. About 35 percent of them have neither retirement savings nor a defined benefit plan. Social Security represents about 61 percent of household income, averaging $17,000 a year.

    The vast majority of households over 65, 86 percent, receive Social Security benefits. And 96 of U.S. workers have jobs for which they are eligible to receive these benefits. Social Security benefits represent an average of 52 percent of income for people 65 and older.

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  • Long-term care is unaffordable for middle-income families

    Long-term care is unaffordable for middle-income families

    Where you live matters, for all kinds of reasons, including because it affects the long-term services and supports that may be available to you and the people you love. The big headline, though, is that long-term care is too often unaffordable for middle-income families no matter what state you live in.

    As more and more boomers begin to need long-term services and supports, new policy solutions become critical. Today, Medicaid provides the only real safety net for older adults, people with disabilities and caregivers.  But, the adequacy of Medicaid supports varies considerably among the states.  And, long-term care insurance is not meeting people’s needs.

    If you’re interested to know how your state ranks in providing long-term services and supports, AARP has developed a scorecard.  The scorecard looks at how states fare in five areas (1) cost and access, (2) care providers and settings, (3) quality of life and quality of care, (4) support for family caregivers, and (5) effective transitions.

    Based on the scorecard, when it comes to long-term services and supports, Minnesota and Washington are the two best states to live in, and Alabama and Kentucky are the two worst states. South Dakota, New York and Montana rank 24, 25 and 26th respectively.

    For simple tips on how to plan for long-term care, click here.

  • Three ways government could help promote retirement security

    Three ways government could help promote retirement security

    In a report on our retirement crisis, the National Institute on Retirement Security puts forward a series of proposals to address the heavy retirement savings burden most Americans face and promote retirement security. With 40 million working age households (45 percent) lacking a retirement account altogether, retirement policy needs to change. Experts recommend that people’s savings should be between 8 and 11 times income if they want their standard of living to remain unchanged in retirement. The three big policy proposals are 1. Strengthen Social Security, 2. Increase people’s ability to get good retirement plans; and 3. Help people save for retirement.

    1. Strengthen Social Security: Most people rely on Social Security and Supplemental Security Income (SSI) for a big share of their income in retirement. The bottom 25 percent of earners rely on them for more than 90 percent of income, And people with incomes in the 25th-75th percentile rely on Social Security for about 70 percent of their retirement income. Not surprisingly, about 15 percent of older adults are living in poverty, up significantly. Proposals to remove the payroll tax cap, increase minimum benefits for low-wage workers and help women who often receive lower Social Security benefits because they often give up their income to work as caregivers have been advanced by Senator Tom Harkin, in collaboration with many organizations, including Social Security Works. Benefits in the United States are stingy relative to most other wealthy countries.
    2. Increasing access to good retirement plans: After Social Security, people rely on employer plans to help them in retirement. But that system is voluntary and eroding. Most low and middle wage workers do not enjoy these benefits. Some companies automatically enroll workers in savings plans as a way to help them ensure retirement savings, Retail IRAs, however, are often the only option for lower-wage workers; and they bring with them high fees and low returns generally. Congress could make funding requirements for defined benefits plans more predictable and make it easier for companies to sponsor them. Or, Congress could offer universal retirement plan coverage. And, it could ensure availability of a lower-risk lower-cost IRA for workers who don’t have a savings plan through their jobs as well as an automatic savings system. In a public opinion survey, the NIRS found that 71 percent of people support a retirement savings solution through their state that they can move around and that generates a monthly income they can rely on.
    3. Help people save: The federal government currently incentivizes people to save through the tax system, offering a deduction for retirement savings. That is of far less benefit to low and middle-income workers than to high-income workers. Not surprisingly, 70 percent of the tax benefits go to the top 20 percent of income earners. In 2001, the federal government passed the Saver’s Credit for people with low incomes. But, it hasn’t been effective with an average credit of $172 in 2006. Congress needs to increase income limits and credit rates for this Saver’s Credit to be helpful for people with low-incomes to save for retirement.

    Note that increasing the minimum wage would strengthen Social Security.

    And, if you want to understand what your Social Security benefits will be when you retire, click here. 

  • Should you get COBRA benefits when you leave your job?

    Should you get COBRA benefits when you leave your job?

    If you are leaving your job, along with your health insurance, you can get insurance through COBRA. But, should you get COBRA? Your state health insurance exchange is now another way to get health insurance if you don’t get it through work. And, it will likely be a far less costly option. But, it may not offer as good benefits.

    What does COBRA do? COBRA allows workers and their spouses and dependents to keep their health insurance coverage from their jobs for 18 to 36 months, so long as the workers pay the full premium.  (Often employers charge an additional 3 percent for administrative costs.) COBRA offers a great protection for people leaving their jobs who don’t want to give up good insurance.  The biggest problem with it for most people, however, is that the full cost of health insurance can be unaffordable.

    COBRA protection is usually available to people who work in companies with 20 or more employees, generally including people who work for state and local governments, but excluding people who work for the federal government. People with costly health care needs benefit most greatly from COBRA since it tends not to be possible to buy individual coverage that is as generous as what insurers offer in the marketplace.  And, when that good coverage is available it tends to be even more costly than the cost through COBRA.

    Even if you have COBRA, you should sign up for Medicare once you become eligible for it.  Medicare becomes your primary insurance.  If you have costly health care needs, COBRA can become your secondary insurer; it may cover services that Medicare does not cover.  (Note: If you do not sign up for Medicare when you become eligible, you will likely end up without any coverage since your COBRA coverage will no longer be primary.)

    For more information, visit Medicare Interactive.