Archive for the ‘Retirement’ Category

Pension Plans: Who’s Funding Who?

Wednesday, September 7th, 2011

 

According to studies by the Government Accountability Office (GAO), a growing number of DFP’s (Defined Benefit Plans, better known as pension plans) are funding their obligations by purchasing Hedge Funds and Private Equity Funds. While the prevalence of this usage funding is constituted in larger pension funds, their usage is not forbidden in smaller plans.

 

So, you might be thinking, “Thanks for the tidbit Kurt, who cares?” I’ll tell you exactly ‘who’: anyone. This affects any and every person who has a pension plan.

 

Hedge & Private Equity Funds

 

Stories of hedge fund disasters are regular features on the news, the most notable of which involved the former head of NASDAQ, Bernie Madoff. This is not to say that every Hedge Fund and Private Equity Fund are being run fraudulently, because the vast majority are ethical and well run. However, the valuation issues stemming from the lack of a regular market for these issues, combined with the challenge of transparency further magnifies their unpredictable nature.

 

Due to the rapid increase in the usage of these types of investments, (60% of large pension plans used hedge funds in 2010 compared to only 11% which used them in 2001), further scrutiny of their attributes is necessary. Private Equity Funds, which typically provide working capital for expansion, product development and restructuring to other entities, were utilized by 92% of large pension funds in 2010, up from 71% in 2001. This is a trend that shows no signs of reversing anytime soon.

 

Equally prevalent in the news these days are the horror stories regarding underfunded pension plans. Scads of separatist managed plans for fire, police and even now, teachers, are coming to light as being incapable of living up to the payout demands promised to their populations. And that is, scary – very scary.

 

The lack of transparency and illiquid nature makes overseeing these kinds of investments also more laborious (and perhaps neglected?) versus the management of stocks, bonds, cash and other easily valued asset portfolios in kind. Hedge Funds and Private Equity Funds often fly under the radar.

 

Diversify, Diversify, Diversify!

 

Today, perhaps more than ever before, alternative pension planning is imperative. We need to plan for the possibility that full pensions may not be received as expected whether due to fund performance, mismanagement or any other unforeseen factors. Alternatively, look to the following: 1) Additional funding to an IRA, Roth IRA, annuity or any other tax qualified product. 2) Investing additional funds in stocks, bonds, mutual funds, CD’s, etc.

 

There is safety in diversification. If you count on your pension 100% and it is no longer there or not to the extent expected, you will have serious problems. If, on the other hand, there are problems with your pension but you have done alternative planning with provisional investments in other asset classes, the impact will be lessened.

 

Kurt Rusch CLU, ChFC

 

The Top 2 Things You Can Do To Battle Market Fatigue

Monday, August 22nd, 2011

 

You need only turn on the TV, radio, or skim a newspaper to realize we are right in the middle of some challenging economic times. The BIG question is what can we do when our individual abilities to change the quagmire we’re stuck in is minimal? Here is the shortlist.

 

#1 Look at your personal situation and choose the best plan of action

 

If you are trying to accumulate funds for retirement, do you really want to retreat to the safety of CD’s or money market funds when returns are struggling to yield 1% on your money? Yes, you would at least have a guaranteed return of your money but at these rates, even the slow but sure tortoise would give up the race.

 

Historically, the market is a very predictable and much higher yielding place to be. That being said, the number one prerequisite of market investing will be your ability to weather the volatility that is inherent in equity investments. Simply put: don’t be a jack rabbit about it.

 

Investors who cycle through euphoria and misery only to jump in and out of the market typically do so at precisely the wrong times. The scenario plays out something like this:

When the market is doing well, investors feel renewed confidence it is the place to be. They plunge wholeheartedly in, at a point that reflects a price that is much higher after two years of outstanding returns. The market may or may not continue on its upturn for a while. However, at some point, the market will sour and begin a hasty retreat. These same people who got in at or near the top begin to panic. They decide they can no longer stomach the volatility and opt out after the market has been in a free fall for some time.

 

This is a recipe for disaster and one reason why we see such a roller coaster of reports in the news each day. If you lack the fortitude to invest in the market and weather the vacillations, don’t jump in and out – stay out. Buying high and selling low is not the way to go.

 

#2 Consider alternative strategies for investing in the market

 

An example of a strategy that may take some of the trepidation out of investing in the market is using the strategy of dollar cost averaging. This is already inherent in payroll deduction retirement plans. Since the funds are invested on an ongoing and regular basis, investors will automatically get the benefit of purchasing more of the investment when prices are low and less when they are high.

 

This same strategy would work in investing non-qualified money. Instead of investing it all at once, take the sum to be invested and invest a certain portion each month over a period of time instead of plunging it all in at once. This way, if the market does go down, you will be able to capture a lot more shares or units at the lower price.

 

Kurt Rusch CLU, ChFC

Segregated Planning for Life and Death

Thursday, June 9th, 2011

 

Death and dying is definitely one of those subjects none of us likes to talk about; equally so with funeral planning. I will admit, it hadn’t been on my radar until my wife and I recently went through the process of shopping for and pre-paying my in-laws’ funerals. It was an eye-opening experience both emotionally and financially.

 

Documenting our personal wishes is a gift to those we leave behind – for adult children, spouses, family and friends. This is but the first hurdle; an emotional ashes to ashes tug of war. Most people I have talked to have some inkling as to their parents’ burial wishes – not so much for themselves. Whether an actual plan is paid for, is entirely another matter. In our case, my in-laws had purchased burial plots; that summed up the wish part pretty well. So, what about the cost of funerals? In one word, ASTRONOMICAL!

 

The Billion Dollar Funeral Industry


Funeral Services are a ten plus billion dollar industry. It is also an industry that can expect a guaranteed raise in revenues over the next 30 years or so due to the boomer generation. How do you think the law of supply and demand will play into that?

 

To give you a feel for cost, the National Funeral Directors Association (NFDA) published a report of  national averages last fall. Here’s how the numbers played out in a five year period between 2004 and 2009 for basic funerals:

 

 

On the surface, these numbers don’t look too bad; $6,560 for an average funeral; $7,755 with a vault. (The vault is the cement box the casket goes in.) What these numbers don’t reflect are the following costs: Flowers, ($200 – $800), Hair Setting, ($75-$125), Death Notice in Paper, ($200-$275), Death Certificates ($15 for the first one and $5 for each additional – you’ll need 5-6), Opening & Closing fees per Grave, (we were quoted $2,085), Grave Markers, ($700-$1,800+, depending on what you want), Marker Setting Fees, ($200-$300+), Funeral Luncheons, ($500- $2,500+) and Sales Tax on the casket, vault and marker.

 

When these additional fees are added in (on the low end), the average funeral cost comes in around $12,000. Cremation can be cheaper, but if you want to have a wake before cremation, the cost is close to the same. (The Dignity Memorial funeral chain charges $1,400 to “rent” a casket for wakes before cremation.) You may also consider buying your “tangible property” items elsewhere than from the funeral home. Believe it or not, you can buy caskets online (by law, the funeral homes must accept these types of purchases), with free 24 hour turn around shipping at significant discounts. We investigated Best Price Caskets online and found that some $2,500-$4,000 funeral home caskets were available for $1,200 and less.

 

The biggest fixed amount reflected in this chart is the “non-declinable basic services fee”. This is where every funeral home starts their pricing – an arbitrary figure that’s non-negotiable – kind of like the sticker price at a car dealership. And, “car shopping”, is exactly what you’ll feel like you’re doing when you sit down and start banging out all the “extras” you’ll need to put together an entire funeral from start to finish.

 

Funeral Funding


The most glaring item in the chart above is the accelerated rate of inflation the funeral industry sustains – almost 18% on average – far beyond the national rate of inflation.

 

The funeral industry’s high rate of inflation is an extremely important factor to keep in mind for planning purposes. For example, let’s say I took out a $12,000 funeral policy today at the age of 51. In five years, at the industry average rate of inflation of 17.9%, the average funeral will be $14,148, a difference of $2,148 beyond my policy. In 10 years, my funeral would cost $16,680; another $4,680. In 15 years, $19,665; in 20 years, $23,185, almost double the original $12,000 I planned for.

 

Naturally, I’m hoping I’ll live to 91, at least. In that case, an average funeral 40 years from now could cost more than $45,000, making that initial $12,000 policy of little help to my loved ones. Pre-pay is the way to go – no pun intended.

 

Veteran Planning


Those familiar with Veteran benefits know there are reduced rate funeral programs. In Illinois, that means any honorably discharged vet (and their spouse) can get a complete church funeral and burial (net of a luncheon) for $3,985 at a “national cemetery”.  The closest ‘national cemetery’ in the Chicago area is Lincoln Memorial in Joliet.

 

In the Chicago area, the local Veterans organization provides alternatives for simple funerals at lesser costs, cremation and waking at a Vet sanctioned funeral home on the northwest side of the city. Though burial in Joliet was not an option for our family, we were still able to utilize cost reduction Vet benefits in our pre-payment plan.

 

NOTE: To receive veteran rates, you must go through the Chicago area website: www.chicagoveteranscare.com. Veteran funeral benefits also differ by state; search your “state name + veteran funeral benefits” to find local contact info.


Next Step


Funeral funding is executed through life insurance. Many people look at life insurance solely as an instrument to pay for their funeral; this can be a costly mistake. While there are some types of policies that factor in inflation, they do so at the national average rate of inflation – far less than the funeral industry standard.

 

There are several options you can take to secure a solid funeral plan. You can work directly with a funeral home to execute a pre-pay funeral in the form of a designated trust or funeral life policy. While this option would lock in today’s rates, it will not provide for your loved ones.

 

Alternatively, segregated planning may be your best option: work with a funeral home to lock in today’s prices with a small funeral specific policy (via payment plan) and work with your financial advisor to protect your estate and provide for your family. Boomers, in particular, should seriously consider this approach due to today’s extended work life and mortality rates.

 

Kurt Rusch, CLU, ChFC

The Most Costly Mistake

Thursday, May 12th, 2011

 

According to a new report, “The cost of long-term care services continues to rise”. I don’t think any of us would consider that to be a newsflash by any means; quite the contrary really. Rising healthcare costs are and have been a nationwide topic du jour for quite some time. Why would long term healthcare costs be any different?

 

This latest study, published by John Hancock, incorporated “11,000 U.S. providers, including nursing homes, assisted living facilities and home health care agencies” into the mix. It was the fourth such study done by Hancock in the years, 2002, 2005, 2008 and 2011. Using a 9 year average to produce this year’s reported cost figures, results provided the following:

 

Average cost for a home health aide ($20 hourly/$37,440 annually) has risen an average 1.3%  per year.

Average cost for a month in an assisted living facility ($3,270 a month/$39,240 annually) has risen an average 3.4% per year.

Average cost of a semi-private nursing home room ($207 a day/$75,555 annually) has risen an average 3.2% per year

Average cost of a private nursing home room ($235 a day/$85,775 annually) has risen an average 3.5% per year.

 

Just for kicks I searched for the 2008 study to see how the numbers flowed – I would have preferred looking at the ‘02 or ‘05 report, but Hancock’s website did not provide archives that far back. In the same categories, and true to form, here are the 2008 figures:

 

Average cost for a home health aide ($19/hourly) has risen an average of 1.4% per year since 2002

Average cost for a month in an assisted living facility ($2,962 a month/$35,544 annually) has risen an average of 4% per year since 2002

Average cost of a semi-private nursing home room ($183/day/$66,795 annually) has risen 2.7% per year since 2002

Average cost of a private nursing home room ($204/day /$74,460 annually) has risen an average of 3.2% per year since 2002.

 

What neither of these studies provide is the average cost of long term care premiums per annum or month. This is due to the fact that long term care policies are extremely customizable offering a robust benefit menu of options to pick and choose from. Most people are surprised to learn they can personalize cost effective plans to fit their needs. Think: Cadillac vs. Chevy vs. Used Car; that’s how diverse it is. When you factor in inflationary, actuarial and other industry factors, creating an average cost across any year cannot provide realistic comparatives.

 

To provide a better grasp for value, understanding how and when long term care comes into play is essential. The following scenarios will give you a feel for how long term care works using simple round numbers:

 

Jean buys a long term care policy at the age of 55. The annual premium is $3,500; she can pay the premium semi-annually, quarterly or monthly. At age 65, Jean suffers a physically disabling stroke and needs to bring daily help into her home to assist her with ADL’s (Activities of Daily Living). She exercises her policy benefits and meets her elected 90 day “elimination period”, (deductible requirements), to avoid using her monthly pension income to cover home care costs.


Up until this point, Jean has paid in a total of $38,500 in annual premiums; now is when she will begin to reap the benefits of her long term care investment by putting her premium dollars to work for her. She hires 4 hours of help 7 days a week at $20/hour for a cost of: $2,427 per mo / $29,120 annually. She will recoup 56% of what she paid in over 10 years within the first 12 months of care: $38,500 Total Premiums Paid for 10 years – $29,120 Total First Year of Home Help Cost – the 90 Day Deductible total of $7,281. By the end of the second year, the benefits paid out for home care will be higher than the total premiums she paid in.


NOTE: When long term care benefits are activated, premiums are no longer due. The amount of total benefit payout is chosen by the policyholder at the time of purchase between maximum and unlimited amounts.

 

The next scenario illustrates what Jean’s self care cost would be without long term care insurance:

 

Jean receives a monthly pension of $2,000 plus another $1,000 in social security income providing her a tidy sum of $3,000 per month / $36,000 per year. Her annual fixed costs are as follows: $6,000 Property Taxes (her home is paid for), $ 1,800 Supplemental Health Insurance, $600 Prescription Drug Coverage, $700 Auto/Home Insurance, $ 3,000 Estimated Tax Payments, for an annual total of $12,100 / $1,008 per month. Her monthly daily living expenses for food, gas, electric, entertainment, dental, clothing, gifts and miscellaneous is budgeted at $500. Her monthly retirement income minus her total monthly expense of $1,508 leaves her with $1,492 a month for home care expense. Given her monthly home care expense is $2,427, she will have to tap into her retirement savings to cover the $935 deficit each month, $11,220 annually, to keep up with her expenses.


Realizing she will have to begin to drain her assets to pay for home care, Jean looks for ways to tweak her budget. She can’t drive herself anymore, but she needs to keep her car for care-giving services. Selling her home and moving into a single bedroom condo could pay off but she hesitates to do so in the event she’ll need a second bedroom for live in care down the road; at 65, she knows she can easily live another 15-20 years. She decides to live frugally and hope for the best.


Does Jean have enough retirement savings to draw upon for the next 15-20 years? In just 10 years she will liquidate $112,200 of assets, paying out $73,700 more than if she had a long term care plan – just to cover part time help.

 

How will Jean cover her costs if she needs to up the amount of home care to 8 hours a day or more? She may not, and outlive her retirement savings. If that happens, she will then need to go on Medicaid, which means she will have to live in a nursing home because neither Medicaid, nor Medicare, as many people mistakenly think, do not pay for home care expenses in the long term.

 

Conversely, the most costly mistake people make about long term care insurance is the assumption that the money spent on long term care premiums won’t pay off unless they need long term care whether in a facility or at home. Why would you pay in $3,500 a year for 10 years or more for something if you never need the benefit?

 

The correct answer to this question is: leveraged amounts are an available contract option. Simply stated, people can tailor their policies to execute the following actions if they do not use their benefits: 1) The balance can be transferred as a tax free death benefit to their heirs. 2) The contract can be cancelled and most or all of the paid premium dollars are refunded. This is known as a “liquidity” feature.

 

Jean’s scenario succinctly demonstrates why long term care plans should be a part of planning for retirement. When care is needed, policy holders will not have to worry about tapping into, nor bleeding dry, their investment/retirement accounts to cover expensive care out of pocket. If care isn’t needed, optioned policy values can be transferred tax free to their heirs or recouped upon contract cancellation. For people with little or no retirement savings; long term care becomes a crucial planning tool.

 

Kurt Rusch, CLU,ChFC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Planning for Safety, Security & Sanity with Senior Parents

Thursday, May 5th, 2011

 

Brian Tracy, veteran motivational and business guru, writes often about the 80/20 Rule which provides that 20% of virtually all of our activities provides 80% of our results. (Make that link a must read if you haven’t seen it before.) Recently I read a post about the 40/70 Rule which provides: if you’re an adult child age 40 or if your parent is 70, it’s definitely time to have “the conversation”.

The article provided a quick overview of the challenges we face as adult children when our parents begin to fail – hence, ‘the conversation’ – and how difficult it is for so many of us to think about these things, let alone start a conversation about them. (Check out this free guide for tips on how to approach the subject.) There were several other help sites linked in the article, one in particular struck a major personal chord: caregiverstress.com.

 

 

Last April, everything changed for my wife’s parents due to a fall. They were residing in an “independent living” building; daily help for my mother-in-law, who was failing physically and mentally, had been added to ease the strain on my father-in-law. We were holding it together with Band-Aids to keep them independent.

 

Safety

 

Falls had become matter of fact ending up in numerous visits to the ER and several hospital stays over a course of several years leading up to this point. My wife had been told well over a year prior that her Mother needed to be at a higher care level – try having that conversation with your parents. Naturally they resisted, and looking back we now see the two of them were also in cahoots about the matter. My mother-in-law, still cognizant enough to sustain the marital power she had over my father-in-law, knew if she kicked up a stink he’d give in to appease her because for him, that’s the only thing he thought he could/should do. We also found out they hid numerous mishaps from us along the way keeping secrets about lost valuables, additional falls and other things in kind. Add to that their natural resistance to giving into the foibles of old age, and you have a recipe for disaster.

 

The fateful fall occurred on our daughter’s 10th birthday. We received a call at 7 in the morning from their caregiver telling us she arrived at their apartment to find my wife’s father on the floor, unable to get up and her mother hanging over the side of the bed incapable of helping him; they had been there all night. What ensued over the following weeks? Duel visits to the ER, interviewing and hiring a 24/7 caregiver, buying furniture to set up a second bedroom for the caregiver and unexpected back surgery for my father-in-law. This was the proverbial turning point; the live in caregiver started on a Monday, my wife’s father was admitted to the hospital two days later complaining of pain, and the caregiver gave notice on Thursday.

 

To say that we were unprepared and ill-equipped to handle a five alarm medical-care-giving-estate-management fire at a moment’s notice is an understatement. One saving grace was that my in-laws had executed medical and property power of attorney to my wife which empowered her to hire two 12 hour shifts to watch her mother while riding shot gun over her father’s morphine induced antagonistic pre and post surgery hospital stay.

 

The ultimate blow was delivered post-op week in rehab at a nursing facility; her father was diagnosed with vascular dementia. 36 days had now passed since the fateful fall and major changes had to be made; my wife was forced to do what no child wants any part of – place their parents permanently into nursing care – at the same time. As if that emotional struggle wasn’t tough enough, the next 7 months became a whirlwind of sorting through and giving away their independent belongings, finding space to store things we kept, managing their facility care and creating a strategic plan for expenses and long term needs.

 

Security

 

In addition to the power of attorneys, my in-laws had executed wills, DNR statements and held a deed for cemetery plots. At first glance, we thought we were okay having heard stories from so many other people who loomed in kind but were unarmed with the tools necessary to step in when needed. It was a good start; but not an adequate one.

 

Right out of the gates, $17,000 had already been paid out to round the clock care-giving for my mother-in-law before she joined my father-in-law in nursing care and $8,900 went to the Elder Care Attorney for estate planning. This is one of the top things that troubled my wife the most; being responsible for spending her parents’ money. In my experience, the perception of money in hand and future need is a tough nut to accept and plan for which only magnifies with the effects of aging.

 

The most important takeaway piece of advice I can offer to all parents and adult children is this: unless your family is abundantly wealthy, it is imperative to plan ahead for “spend down. Hundreds of thousands of dollars will fly out the window the moment you step into higher level care needs; whether help is brought into the home or paid to facility care. In death, arrangements must be made, there is no choice; with health directed living, there are choices upon choices to consider, shop for and execute.

 

Timing is the key; how much money will your parents need to exist? Over one year? Over two years? Or longer? What will happen if your parents outlive their money? The average nursing home stay is several years; my wife’s paternal grandmother lived the last 15 years of her life in a nursing home. I say this not to invoke fear but to lay emphasis on the crucial need for pre-crisis financial and estate planning.

 

In our case, ‘spend down’ began when home care was added. My wife liquidated small assets at first; a CD here and there and small mutual funds. A total liquidation of all assets ensued for estate and Medicaid planning. Some people were surprised to hear we were planning for Medicaid; my wife’s family wasn’t wealthy, but certainly not indigent. Herein lies the second most valuable piece of advice: apply for Medicaid before your parents’ funds runs dry to insure they’ll be taken care of.


 

Extended living options have grown leaps and bounds over the last decade. There are facilities which offer multi-level care opportunities from single family homes to nursing care accommodations all within the same campus area. These are the type of plans that typically require handing over the total value of one’s estate up front. Alternatively, whether your parents are still in their own home, living in independent senior housing or in assisted living, there is no extended living luxury; if/when their money runs out, they will ultimately have to evacuate. That is the fear factor; who/where/how will your parents be taken care of then?

 

Equally important is the fact that nursing homes want residents to enter on a “private pay” basis for a prerequisite time period before they are forced to accept lesser rates paid by Medicaid. Some homes we researched required as much as three years’ private pay for new residents. This makes seeking pre-approved Medicaid status extremely time sensitive, especially if you are already in spend down mode. Every piece of financial and health related documentation from your parents’ desk drawers, storage closets, safe deposit boxes, and via microfiche request if need be (it was) for a period of 3-5 years is required for Medicaid review. This process can turn around in as quick as 90 days and take as long as 18 months; it was a six month endeavor for us.

 

If you are thinking to yourself about now that ‘no way in hell will my parents ever leave their home’, there is one alternative option: long term care insurance. Yes, it’s not cheap, but in comparison to medical living expenses it is the only way to ensure staying at home.

 

Ten years ago, my father-in-law wanted to get long term care; my mother-in-law freaked at the $5,000 annual premium rejecting the idea. The difference between what would have cost $5,000 a year for the last ten years vs. the $13,000 a month they spent living independently with day time care giving, which now goes to nursing home expense, is astronomical. Without long term care, the costs to stay at home as opposed to facility living are more lateral than you would think.

 

When you do get to the point of crunching numbers, please enlist the help of financial and legal advisors. The plethora of medical and money issues will be overwhelming without the help of  seasoned professionals to aid in tax, estate, medical and daily expense planning. There is also a wealth of established senior referral and help centers available to assist families with finding reputable care givers and living accommodations; most of which are freely offered.

 

Sanity

 

A recent survey provides that a third of Boomers say they’ve never been able to grow beyond the role of child with their senior parents to begin with. For these adult children, talking about and planning for their parents’ long term needs is even more challenging. Conversely, while many Seniors are routinely vocal about not wanting to be a “burden on their kids”, they retreat when it comes to pencil pushing the subject.

 

My wife and I wouldn’t wish our experience on anyone – a little lead time would have saved our sanity – but we are very thankful we had enough time to secure my in-laws’ living needs. Would we have been able to move things along quicker/easier had we been more Sherlock Holmes like with my in-laws at the first signs of failing independence? Possibly, yes; probably, we’ll never know for sure.

 

In retrospect, the birds and bees talk is way easier to deal with than the conversation. Please share our story with your siblings and your parents; sometimes it’s easier to example others first to get the ball rolling.

 

Kurt Rusch, CLU, ChFC

 

Economic Rebounding: Use the Rule of 72

Thursday, March 17th, 2011

 

The economy is slowing turning around, albeit much slower than most of us would like to see. Rebounding from devalued investment, savings and/or retirement accounts  continues to be a challenge. Learning The Rule of 72 is one of the best tools you can embrace for help in putting a rebound plan together.

 

Simply put, The Rule of 72 is a quick and easy formula that will give you the number of years it will take to double your money. Using a simple interest rate of 1%, which varies above and below the current bank rates being paid on savings accounts, it would take you approximately 72 years to double your money using the Rule of 72: 72 divided by the rate of return; 1%. Accordingly, a 2% return rate would double your money in 36 years.

 

A Googled search du jour on CDs, provides for the current average interest rate somewhere between 1.06% for one year CDs on the low end, leveling off at 1.86% for three year CDs. At 1.86%, it will take 38.7 years to double your money. FYI: IRA CD returns were even less.

 

Discover and Capital One are currently offering a ten year CD at 3% for minimums of $2,500 and $5,000 respectively. It will take 24 years to double your money in this case. Conversely, an invested mix of stocks and bonds with a hypothetical return of 6% would cut that time period in half to 12 years: 72/6 = 12. It is a simple formula to wrap your head around.

 

The chart to the right (double click to enlarge) further illustrates the relationship between the hypothetical rates of return and the number of years it takes to double an initial investment with  all earnings reinvested.

 

While CD rates are fixed and may be insured by the FDIC, they offer relatively low returns. On the other hand, stocks and bonds tend to offer higher rates of return, but come with higher risks of loss. Similarly, fund yields and returns may fluctuate and fund shares are not insured. Still, you may be risking the possibility of NOT reaching your goals if you strictly stick to low yielding investments such as CDs.

 

Consider further, the current annual rate of inflation; 2.11% last month. Economic rebounding is slowed when inflation rates are higher than invested rates of return. The Rule of 72 may provide that a mix of investment vehicles tailored to your own return thresholds and timing needs could be the best plan to work toward.

 

Kurt Rusch, CLU, ChFC

 

Retirement Confidence Survey

Tuesday, March 8th, 2011

 

Up three percentage points up from an all time low in 2009, the percentage of American workers who feel “very confident” that they will have enough money for a comfortable retirement is 16%.

Not to play Devil’s Advocate, but we really need to rephrase that: 84% of the American workforce doesn’t think they’re going to have enough money to retire comfortably.


When the Employee Benefit Research Institute (EBRI) sent out a press release on the 20th Annual Retirement Confidence Survey last week, the headline read “New Research from EBRI”: Between 4–14% More U.S. Households “At Risk” of Running Short of Money in Retirement Due to 2008–2009 Recession.

 

Choosing their copy wisely, EBRI notes that: the likelihood of becoming “at risk” because of the economic crisis depends to a large extent on the size of the retirement account balances the household had in 401(k)-type plans and/or individual retirement accounts, as well as their relative exposure to fluctuations in the housing market.

 

No matter how you slice it, way more than the majority of us working folk have little confidence life will be grand after we stop working. This is not a good thing. Further workforce results provide:

Covering Basic Expenses 29% are very confident they will be able to cover their basic needs

Unaware of  Goals 46% don’t know how much money they will need to retire comfortably

Not Enough Savings 54% say the total value of their savings and investments excluding their home and any defined benefit plans is currently less than $25,000

No Savings At All 27% say they have less than $1,000 in savings (up from 20% in 2009)

 

In 2010, 33% workers were polled as saying they expect to retire after the age of 65. For workers who fall into some of the categories above, the amount of money they will need to save from unpreparedness and unawareness will be overwhelming to say the least. But what of the people who did/do have good plans in place? How much will these workers need to save to recoup their losses from the economic crisis?

 

“Early Boomer households, will generally need to save between 1 and 4 percent of compensation  more each year between now and retirement age”,  provides EBRI. (These amounts will vary to the personal and market profile of each worker.) While another 1-4% may not sound that bad, it may become quite challenging in a climate of increased taxes, higher employee benefit deductions and every changing inflation rates.

 

When it comes to providing for retirement, overall confidence may not be high, but it is changeable. Decide what you would like to have, try out some online tools such as, retirement calculators, to get a feel for your  goals and sit down with a professional advisor to construct the best plan for you.

 

Kurt Rusch  CLU, ChFC