What's in Your Plan?

The essence of the word plan suggests that you need to formulate a strategy ahead of time. According to BusinessDictionary.com a plan is a "Written account of intended future course of action (scheme) aimed at achieving specific goal(s) or objective(s) within a specific timeframe. It explains in detail what needs to be done, when, how, and by whom, and often includes best case, expected case, and worst case scenarios."

In retirement planning, it means constructing an investment strategy that will help you meet the needs of a time when you no longer want to work - or at least work in the same capacity you have for most of your life. You make assumptions about that period of time and incorporate those into the plan: accumulating wealth, managing debt, staying healthy, paying off mortgages are just a few of the examples of acting to ensure that those assumptions have a chance of coming to fruition.
You approach retirement planning with a certain degree of optimism. Otherwise, why bother? But adulthood can leave us far more pragmatic and because we know things can go wrong - investments can sour, housing can lose value, our health can take a turn for the worse, and debt can be created with the simplest of financial mishaps - and all with unforeseen results.

So we insure. We insure our property against lose, our health against illness and sometimes our investments as well. And we insure our personal contribution to the rest of the people in our lives with life insurance.

Insurance, particularly life insurance is bought when we feel responsible for those around us in a way that we can't really explain. We want these loved ones to continue on without us but to do so without financial hardship that our lives have prevented. We want them to continue on with their lives allowing our children to reach their potential (such as college) and our spouses to be able to live in a way that is supportive of our children.

There is no clear answer to how much is enough. If you were asked how much you would need to live comfortably without ever having to work again, say through a lottery winning, you would probably answer $2-3 million. Yet when we shop for insurance, we often think in terms of a fraction of that.

Insurance is part of a good retirement plan. Too much or the wrong type of insurance can put pressure on your ability to invest enough to get to a comfortable retirement. Not enough, and your family will not be able to survive financially should your income suddenly disappear.

The least expensive insurance is term insurance. It offers the most coverage for the smallest premium but comes with one caveat: it ends after a certain period of time. In other words, if you never use it (and both you and the insurer hope this is what happens), you lose it. Often sold in 20-year increments, it does what it is supposed to do and if you are fortunate, it will never be needed.

Whole life insurance is exactly that: it is a policy that lasts a lifetime provided you keep it long enough and pay the premiums. It builds up a cash value which acts as an investment of sorts and will, after a period of time, begin to pay the premiums for you. But the coverage for the same amount as a term life policy is often much lower and if you want a lot of coverage, the premiums are much higher.

If you are contemplating buying whole life do so only if you are on firm financial footing and can keep your retirement accounts fully funded. Buy term if you are younger, building a family and are likely to face financial hurdles in the coming years. The vast majority of those who buy whole life insurance end up selling the policy after a certain period and if they buy insurance again, they buy term.

Term life insurance is the least expensive when you are young and you can get the most coverage as a result.

You do need to keep two things in mind when buying any insurance product: be truthful and forthcoming with as much information as possible when buying the policy. Although, according to the insurance industry, almost all claims are paid without question, 0.05% of the remaining claims are challenged.  In all cases, be prepared for the fight that might ensue (an example can be found here) if the policy you are using was recently bought. And, always buy from a company whose name you recognize, is rated highly and will be around for the term of the policy.

Paul Petillo is the managing editor of BlueCollarDollar.com and Target2025.com and a fellow Boomer

Retirement then, Retirement now

Boomers should take note: had you retired 35 years ago, you would have done so with a pension. Fast forward to 2009, that pension has been more or less replaced by 401(k) plans. And according to the ICI, you are richer because of it.

Despite the metaphors surrounding what retirement planning is supposed to be: a three legged stool, a three pronged approach, whatever visual cue you need to make sense of the process, your retirement is or at least should be, a lopsided financial affair. It should be something that works as a part of whole but not in any sort of equal sense. Social Security and the state of your financial affairs at the time you decide to quit working is really only supposed to be a small part of the retirement plan. In truth, the most prudent people who plan their retirement do so without any consideration of income from any outside source.

Not so in the years following the Great Recession. The vulnerabilities are now something we have seen first hand and many of us have recoiled in horror. Instead of relearning where we went wrong, we looked for the safest rock to hide under. Perhaps that is why, when the latest report from the Investment Company Institute was released this past November, your defined contribution plan or for most of you, your 401(k) was given equal stature amongst the other two "legs" of the retirement stool.

Social Security was designed to help keep those without from becoming destitute in retirement. Not surprisingly, the report points out this use of the program by those who are the least fortunate, the lower paid worker, as more reliant on those benefits than the higher paid worker. As they look at a post-ERISA world (the 401(k) actually came nto being in 1981), they conclude that this has always been the case and if it has, then so be it.

But the study wasn't designed to be much more than a good-old-boy pat-on-the-back. The ICI sees the distance between the demise of the pension as the sole means for retirement among workers in 1974 as a trip worth traveling. Coming out on the other end of that journey finds the lobby arm of the mutual fund industry rather satisfied. they point out that the median income from a defined contribution plan per person in 2009 was $6,000; in those same 2009 dollars, the same median was $4,500 in 1974.

It is not surprise that many of the remaining firms in the private sector still maintain them. But these plans are not considered a reason to work at these companies when it comes to the younger workforce. Pension breed company loyalty while 401(k)s allow workers to shift jobs when a better offer is available. On the other hand, pensions often leave this same group of workers with no retirement benefits, essentially, at least according to the ICI report, when vesting rules and the timing of benefit accural are used as a rodbloack to getting those benefits for time worked.

But during the time frame they used to conduct the comparisons (1975 to 2009), Social Security now makes up a larger share of retirement income even among those who had assets and other income sources. Based on per capita income at either end of the spectrum, with the lowest income group using just 2% of what the study calls asset income with an 85% reliance on Social Security compared with what the higher income group employs (20% assets and 33% of income from Social Security).

While the ICI celebrates the success of the defined contribution plan that replaced the private sector pension and they point out that those with DC plans are doing better than DB plan recipients in the past, one simple fact remains: we aren't doing enough.

While the answers seem clear: you need to invest more - probably much more than you would be comfortable in making, live smaller now while you are working, and hope that your health, inflation or taxes doesn't take a toll on those accumulated finances. In the face of such daunting news, you could expect a pull back. Instead of increased focus, we would get more ennui. Instead of an emphasis on better educated investment and financial decisions, we should expect more use of what we assume of are set-it-and-forget-it investments such as target date funds.

To answer the question in the title: was your 401(k) intended to be complimentary for retirement? I believe the answer was no. It should have been the investment savior, a Wall Street miracle. Trouble is, now many people. financial professionals included are looking for a way to provide the same guaranteed income that those long-shunned pensions provided. And when they do, we will wish it was 1975 all over again because it will come at a much higher cost than we imagined.

Paul Petillo is the managing editor of Target2025.com/BlueCollarDollar.com and a fellow Boomer.

Retirement Good News - and Some not-so-good News

We want, even crave some good news from the retirement industry. Something that suggests that we are doing the right thing. And while there seems to be nothing but bad news - increased withdrawals, lower participations rates, to name a few, it is isn't all doom and gloom.

There is good news out there. But according to a survey done by Mercer, a company who promotes itself as a global leader for trusted HR and related financial advice, products and services, we have yet to internalize this information. We are still cautious, anxious and worried, more than we should be about the continued level of unemployment. These fears are showing up in our approach to retirement, how we treat the investments in our defined contribution plans, and the expectations we have for those accounts.

It's really not much of a surprise that, according to the survey "these fears are amplified among older workers, most of whom realize they are running out of time." The question is: should this be the case in a time of what appears to be economic growth, job stabilization and in spite of the volatility attached to the stock market, improvements worth noting?

This survey reflects on past results suggesting that when the economy does well, the people they surveyed usually express the same feelings. Not so much this time around and the survey suggested this anomaly was unexpected.

Corporate profits are doing well and compared to a similar survey done last year, the outlook for the economy has improved dramatically. The improvement (21% did not think the economy was doing so hot last year at this time compared to 77% this year) puts the positive outlook at at pre-Great Recession levels.

And despite that, they found some remarkable trends still in place. People still think of retirement the same way - even if they predict they will work longer to get there. They still contribute to their 401(k) type plans - seeing them as the primary source of their income in retirement followed by Social Security and account held outside of the company sponsored plans such as IRAs.

The anxiety reaches much higher levels when it comes to confidence in replacing current income. Most don't feel as though they are doing enough or worse, are capable of doing more. The expectations of replaced income, once at 80% has fallen somewhat as workers have watched the continual erosion of the remaining private sector pensions. Keep in mind, companies have been steadily jettisoning pensions over the last several decades in favor of 401(k) type plans. What was once the promise of a retirement income they could calculate and the employee loyalty needed to get to that point shifted to a plan that was portable and could be used to lure prospective talent.

But those that still have these sorts of defined benefit plans have given their employees the impression that counting on these long awaited benefits may not be the smartest thing to do. In fact, only 19% actually expect the promise to be fulfilled, their companies to remain profitable enough to fund what are widely expected to be shortfalls, or worse, even still be around to keep those promises.

So why do only six out of ten workers suggest that they are not putting enough money away for a retirement they still idolize, even anticipate? They lament the late start. Fifty-seven percent think that they will be able to catch-up. Older workers are now leaning on Social Security as a more important source of income, with some even suggesting that their defined contribution plan will only contribute 26% of their retirement income.

And according to the survey, we are contributing less, across all age groups including the 50-plus worker, than we did in prior years. If we cite this worry about having enough to retire on as the primary reason we lose sleep, it would seem the answer would be obvious - contribute more. But we don't. This may have to do with lackluster company matches or company matches that fly in the face of good advice, such as matching only when the employee buys company stock or a prolonged vesting period that does not actually give the match until the worker has been in the plan for as long as five years.

There have been marginal drops in the amount contributed and participation. Add that to a more cautious approach and you have a retirement recipe for disaster - not just for the worker but for the companies who sponsor these plans. Andrew Yerre, Mercer’s U.S. business leader, says the findings “should cause concern for any plan sponsor who offers a pension plan.”

Are there simple fixes for all of these age groups? Possibly. Ignoring the requirement for matching contributions, even if there is none, should not stop you from embracing the plan and attempting to put as much as is financially possible into it. Understanding that this is not a test, and your retirement is in your hands, more so than it has ever been, should be enough of a catalyst. There needs to be an improved level of aggressive investment among younger workers and some added to older worker's portfolios.

Paul Petillo is the Managing Editor of Target2025.com/BlueCollarDollar.com and a fellow Boomer.

Retirement Doubts

There is absolutely no doubt that the retirement planning horizon is as diverse as those who are attempting to navigate it. In other words, there is no set formula for one group that can be used for another. On one side of the equation, we have those who can see the chance that they might retire and on the other, are those with doubts.

Those doubts exist in both groups. Older workers have seen the deterioration in their defined contribution account balances, the gradual and systematic elimination of pensions and the growing pressures that being sandwiched between both children and parents who are beginning to accept what they see as inevitable. That inevitability has been translated into simply working longer than they had previously anticipated to get the retirement that resembles that of a generation prior.

This group knows that they will need to invest more for their future at a time when they can't seem to free up any extra income to do so. They run calculations. They do math. And then, with all of this somewhat depressing information in front of them, they seem to be doing what would be counterintuitive: they become conservative in those investments.

The younger group, the college graduate, the young workers just entering the workplace and those who have been struggling with new families have a unique opportunity that has long since past the other group. They have time.

Many of these workers will enter the workforce where there is no pension, where they anticipate the benefits of Social Security will be limited and attainable farther away than that of their older cohorts and a marketplace that served the older workers with longer bull markets that are not likely to exist in the future. That bull market, a term defined as positive movement in the stock market, helped their parents in ways that will not be there for them.

From 1982 to 2000, most of those in 401(k) plans saw balances rise without limit - or so it seemed. Since that point, we have seen two bubbles burst, stock market returns become more volatile and faith that this investment vehicle has stalled.

Yet those 401(k) plans still offer the best opportunity to do better than their parents at battling the potential of increased taxes, rampant inflation and that volatility. these 401(k) plans are shifting, often in dramatic fashion. Matching contribution are less than in those bull market years and for this group, they can expect that they will stay that way. But there are some changes taking place that could help this group more so than their older counterparts.

These changes include the increased presence of Roth 401(k)s in those defined contribution plans. Whereas older workers would need to calculate their taxes when making a change into these sorts of plans from a traditional 401(k), younger workers can begin at this point. The Roth 401(k) allows for after-tax contributions, which for most younger workers means that earning less (being taxed less) is a hidden benefit. Rollovers from a traditional plan comes with a tax bill. Beginning at this point, as younger workers can do, will not have any taxable impact.

But the best way for younger workers to avail themselves of this opportunity should be done in a tandem approach to the plan. If you contribute 5% of you pre-tax income, you will not in most instances, impact a dime of your take-home pay. At this point, finding an additional 5% to put in the Roth 401(k) side of the plan not only hedges against taxes in the future but gives you the ability to know this money is yours, the taxes you paid at a younger age will be less than at rate you might receive as you age, get pay increases and promotions.

This group should also know that this should be the time of your most aggressive investment strategy. Yes it will be a rough ride. But having time to recover is worth the risk. You have to contribute and stay in it through thick and thin to benefit. You can retire doing this even if you have no idea what your retirement will look like.

Paul Petillo is the managing editor of Target2025.com/BlueCollarDollar.com and a fellow Boomer

Boomers International Web Site Stats

Daily Summary

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This report lists the total activity for each day of the week, summed over all the weeks in the report.

Each unit () represents 2,000 requests for pages or part thereof.

day	#reqs	#pages
Sun	229641	54980
Mon	243767	62726
Tue	251395	67686
Wed	267458	72459
Thu	197278	51919
Fri	225978	58829
Sat	233320	60477

Hourly Summary

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This report lists the total activity for each hour of the day, summed over all the days in the report.

Each unit () represents 500 requests for pages or part thereof.

hour	#reqs	#pages
0	80038	19019
1	75848	19592
2	65520	18144
3	53322	16480
4	46641	16704
5	45701	16929
6	44852	17371
7	46057	17617
8	47546	17018
9	56331	18146
10	71863	19511
11	80208	21304
12	88738	19296
13	92352	19345
14	93452	20386
15	87729	18664
16	85709	17894
17	80257	18082
18	69806	15889
19	70766	16823
20	68454	16779
21	66323	15930
22	63760	16020
23	67564	16133

Host Report

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This report lists the computers which requested files.

Listing the top 50 hosts by the number of requests, sorted alphabetically.