Tuesday, August 28, 2012

Well-known columnist warns consumers about 401(k) fees


Michelle Singletary, whose column appears in the Washington Post Sundays, has also warned seniors about 401(k) fees, in her piece Aug. 26, “Retirement fund fees, if ignored, will eat into your nest egg”, link (wesbite url) here. 

She gives some mathematical examples, based on compound interest concepts (well known from Algebra I), where a nest egg, where a 1% increase in fund fees reduces a final nest egg by about 25% (out of about $225000). 

Here is the three-minute AARP short film, “Understanding 401(k) Fees”:


You can do sample calculations at this link

 Another good site is BrightScope, link  

My own fee from Merrill Lynch was around $125 a year for about a decade (out of $60000 balance, about 0.25%).

Sunday, August 26, 2012

Bankrupt firms employees get frozen out of their own 401(k) accounts -- can this really happen?


A lot is said today about ownership of retirement accounts (as in the social security debate), and 401(k) is supposed to offer the future retiree control.

When a company goes bankrupt, the 401(k) assets of employees are supposed to go to them immediately.
But here is a story in the Business Day section of the New York Times by Gretchen Morgensen, “When a 401(k) is locked in the freezer”.

A company Penn Specialty Chemicals in Memphis TN went under (with a Chapter 7 liquidation), was partially acquired by a French company, and employees were given the choice of transferring to the acquirer or letting the old management company, Vanguard, manage the accounts. 

Some employees  who left the money at Vanguard have found themselves not able to use it for three years, although they could switch accounts among it.

The link for the story is here

Thursday, August 23, 2012

"Younger seniors" (55-64) hit much harder by economy than older seniors


The New York Times has an interesting “Economix” story by Catherine Rampell, “Big income losses for those near retirement”, link (website url) here

The average income for Americans 55-64 is about 10% less than it was in 2009, when the “recovery” supposedly began. However, for Americans over 65, incomes seem to have increased, and this appears especially to focus on income from employment.

But older seniors may be relatively better off than “younger seniors” because their wealth was accumulated in a more prosperous time, when home and other asset values were reliably increasing.

The report with these findings comes from Sentier Research, which says it focuses on income and demographics.  It seems to be a relatively new site.  It particularly uses a Census-executed survey called the American Community Survey. The press release PDF is (website url) here

The numbers may play into GOP strategies claiming that Obama’s policies actually favor the “well off” among seniors and don’t help “average” seniors.  

Wednesday, August 22, 2012

More men are involved in "hands on" Alzheimer's caregiving, as women outlive them


Janice Lloyd has a story on p 3A of US Today on Aug. 22, “Men take over Alzheimer’s care: Male caregivers step up as the ‘insidious’ disease affects more women in the USA”, titled online bluntly “Men’s role in helping women with Alzheimer’s dementia soars”, link here

The example in the news story portrayed a married couple, both 68.

However, the main reason that Alzheimer’s is becoming a “female” disease is that women tend to live longer.  The news story says that about two-thirds of those over 65 with Alzheimer’s are women.

When I was looking at assisted living facilities with regard to my mother (in late 2009), I was told by an Emeritus assisted living facility that about 70% of the Alzheimer’s residents were women.

Some forms of dementia occur outside of Alzheimer’s pathology, mostly because of vascular problems associated with strokes and heart disease.  Apparently these might affect women more often, as women may live longer with advanced circulatory disease. My own mother died at the end of 2010 at age 97 with vascular-associated dementia, which was mild compared to what sometimes happens. 

Saturday, August 18, 2012

Washington Post readers debate whether seniors are really "well off"; where is breakpoint year for social security?


The Washington Post ran some “letters to the editor” on p A20 Friday (Aug. 17), with the caption, “A closer look at seniors’ wealth”, with the basic link here.  The letters look back to an Aug. 14 piece, “don’t feel sorry for America’s elderly”.

It’s true that many of today’s retirees amassed their nest eggs when the economy was more stable and when, particularly, their homes were appreciating. People in their 50s who are working today (or struggling for re-employment) have no such luxury.  That point is well taken.

There is a comment that people who retired as late as 2010 might recover the actuarial value of what they (and their employers and spouses) had poured into FICA.  I’ve read other pieces that say that the breakaway year was something like 1997. In my own case, the “end” came at the end of 2001, shortly after 9/11, and it appears that for me, the breakeven year occurs when I am about 78.

Even Paul Ryan, with his sudden appeal Saturday to momism, seems to be vocal now about protecting everyone now over 55. 

The link for all the Post stories is here.  

Friday, August 17, 2012

Should retirees stay heavily into bonds?


On Thursday, August 16, the New York Times carried a couple of important stories for retirees who depend heavily on bonds.

Mary Williams Walsh offers “Muni Bonds Not as Safe as Thought”.  Actually, the rated market, reported by Moody’s, is pretty safe, but a Federal Reserve report on all bonds shows over 36 times as many defaults as generally stated by advisors. The link is here

The Business Day section also had a big story by Peter Lattman on the growing risk of junk bonds, given the low yields. 

Wednesday, August 15, 2012

NBC reports on caregivers: now 42 million in the US., a majority female; the "sandwich generation" may become an outmoded concept


On Wednesday, Aug. 15, NBC Nightly News (with Brian Williams) covered the issue of caregiving, saying that now 42 million people are involved in caring for elderly or disabled parents.  A majority of caregivers are women, and 63% spend more than ten hours a week (hands on). 

The broadcast ask, who will care for the cargivers?

When I was growing up, people did not live a long time once they were seriously ill as they can today. So filial responsibility was not conceived (in an intellectual fashion) as a potential moral issue the way it can be today – as was noted with an important case in Pennsylvania (May 23). The increase in Alzheimer's Disease with longer life spans will drive a lot of the need for hands on caregivers.  

There is often talk of the “sandwich generation” – heads of families caring for their parents, and enlisting grandchildren to do so – but in the past most caregivers were never married women.

Visit NBCNews.com for breaking news, world news, and news about the economy

NBC gave an important resource from AARP, here.

Thursday, August 09, 2012

More debate on the PBGC and interest rates


There is a debate going on about the way Congress and the Fed “manage” corporate pension contributions by manipulating the “discount rate”, a very technical subject for professional actuaries. At least Robert C. Pozen, at Harvard Business School, and Brookings  (book is “Extreme Productivity had said that Congress was still “kicking the can down the road” on the PBGC issues, something Obama had said must stop even before his inauguration.

The Post had run an editorial way back on April 15 supporting the president’s idea that the PGBC charge employers variable premiums based on their own stability.

Today, James Klein, president of the American Benefits Council, in a letter called “A pension picture that’s misleading” in print and “A better way to view pension guarantees” online. The brief letter supports allowing the use of lower interest rates to compute pension liability projections.

The link (leading to all other materials) is here

Monday, August 06, 2012

AP opinion piece shows where Social Security benefits stop breaking even


The Washington Times is carrying an Associated Press op-ed by Stephen Ohelmacher, “Social Security is not a good deal”, link (August 5) here

According to the writer, most  middle to upper class people who retired from the mid 1990s on will not recover the actuarial value of their (and their employers’) FICA contributions.  That’s partly because Social Security benefits, while based on personal or couple earnings, are still somewhat progressive for low income people, and in earlier times, FICA taxes were much lower, relatively speaking, to the point that many wage earners maxed out during the year and did not have to pay any FICA in the fall months.

Also, Social Security is a better deal for one-earner couples.  

Wednesday, August 01, 2012

Are many Social Security beneficiaries drawing more benefits that they actuarially "deserve"?


The double talk on Social Security income as an “entitlement” continues, in the Commentary section of the July 31 Washington Times, “Are we all dependents now: Growth of entitlements attacks self-reliance”, by Rob Schwarzwalder, link here . 

He writes, “if you work 40 years and pay into the Social Security system the entire time, you’re only getting back what you put in, right? It’s called an ‘entitlement’ for a reason.”

Later he notes criticizing food stamps but feeling “guiltless about taking Social Secuirty – even though what they take out of that shell game of a system far exceeds what they ever put into it?”

Is what the columnist says actuarially true?  Social Security benefits are calculated based on total contributions over covered quarters (including those of a legal spouse, and including employer FICA contributions).

If you start benefits early (at 62) you get less for the rest of your life.  The break even point for me is 77.  I have about 30 years of covered employment (18 months in the Navy Department in the early 70s was not included).

Edward Lotterman of Chanarambie Consulting has a piece, written in 2009, about the actuarial fairness. He does provide some discussion of what the premiums would be for private "annuities certain" to provide the same benefits (especially with spousal survivorship). Apparently many older retirees are making a killing, given the very low FICA taxes when they started working. The link ("Real World Economics") is here