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The Retirement Pogo Stick
Tweet Share on Facebook February 5, 2009 Comment (6)The metaphor most often used to describe retirement security is a three-legged stool consisting of Social Security, pensions, and personal savings. In theory, all three legs are needed to provide stable income security in retirement. AARP has since amended the stool metaphor to include continued earnings from employment and health insurance coverage as equally necessary to making your retirement stool stand.
Peter Brady, a senior economist at the Investment Company Institute, said this week that most Americans don’t have and never had all three legs of the stool. “It primarily applies to the highest income,” says Brady. For most people, “Instead of a stool we have a pogo stick: Social Security.”
It seems to me that many retiree's income streams might more closely resemble a patchwork quilt, perhaps consisting of income from 401(k)s, IRAs, personal savings, a pension, Social Security, a part-time job, and rent or royalty income. Some retirees even start small businesses.
Tell us, which metaphor suits your retirement? And can you think of a better one?
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Taking Up Video Games in Retirement
Tweet Share on Facebook February 5, 2009 Comment (2)Retirees have long enjoyed playing golf, tennis, and bowling. But increasingly they are playing these sports and others games digitally. Some 13 million retirees now play video games, according to market research firm Packaged Facts. And women are equally as likely as men to take up the hobby. “Among the senior population, video games are being used to boost brain power and encourage physical activity,” says Tatjana Meerman, publisher of Packaged Facts.
Nintendo’s Wii has the most popularity among retirees. Andrew Carle, director of the Assisted Living/Senior Housing Administration program at George Mason University, estimates that between 10 and 20 percent of retirement and assisted living communities currently have a Wii. “These games fall under a new industry I call Nana technology, as in technology for your Nana,” says Carle, who was a spokesperson for Nintendo during the release of Brain Age2, a game heavily marketed to graying gamers worried about losing their mental sharpness. “I've defined this as any microchip based technology designed, intended, or that can otherwise be used to improve quality of life for older adults."
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Fidelity 401(k) Balances Down 27 Percent
Tweet Share on Facebook February 3, 2009 Comment (5)Fidelity Investments, the world's biggest mutual fund firm, began a round of job cuts today as part of a plan to reduce its work force by 7 percent. Company revenue dropped sharply because of last year’s stock market plunge. Some customers also shifted funds into safer investments with lower fees.
Interestingly, the giant 401(k) provider reported 10 percent retirement plan growth last year. The number of participants in 401(k)s, 403(b)s, and other workplace savings plans increased by 5 percent to over 14.2 million customers in about 19,000 plans. Here’s a look at how the average Fidelity 401(k) participant fared last year.
Still saving. Participants contributed an average of $5,600 to their 401(k) accounts last year and 96 percent continued to contribute during the difficult 4th quarter, according to an analysis of Fidelity’s 17,095 corporate 401(k) plans representing over 11 million participants. Yet, the average account balance dropped 27 percent from $69,200 in 2007 to $50,200 in 2008, due to market declines.
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5 Ways Your 401(k) Will be Changed in 2009
Tweet Share on Facebook February 3, 2009 Comment (9)Employers have already largely shifted from providing workers with traditional pensions to 401(k)s. But now, even 401(k)s are proving too costly for some employers to sponsor and manage. “The continued bleak economic outlook is forcing many companies to make difficult decisions with respect to their retirement benefits,” says Pamela Hess, director of retirement research at Hewitt Associates. “Companies are increasingly focusing on less expensive initiatives to encourage their employees to stay in the plan and contribute in a way that minimizes future risks.”
Here is a look at how your employer is likely to alter your 401(k) this year.
Automatic saving. Employees are more likely to participate in 401(k) plans when they are automatically enrolled. But the number of companies automatically enrolling workers in their retirement plan may have reached a plateau. About 51 percent of middle and large sized employers now automatically enroll workers in their plan, according to a survey of 150 companies by human resources consulting firm Hewitt Associates, up from 44 percent in 2008. Some firms (53 percent) also automatically up the ante by having employees commit in advance to increasing the percentage of their salary deferred into a 401(k). But only one-quarter of employers without automatic enrollment are likely to add it for new hires, and just 15 percent are likely to adopt it for existing employees in 2009. The reason: When companies automatically enroll workers in 401(k) plans they pay out more in company matches than if they don’t actively promote employee involvement. Some 55 percent of companies cited the increased cost of the employer match as the primary reason why they did not plan to offer it.
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Retailers Macy’s and Saks Cut Jobs and Retirement Benefits
Tweet Share on Facebook February 2, 2009 Comment (1)Major employers who cut jobs often reduce or eliminate retirement benefits for the workers who remain. Macy's, Inc., for example, announced today that 7,000 positions are being trimmed from the company's workforce in offices, stores, and other facilities. Employees who make the cut will face a smaller 401(k) match in 2009.
Executive merit salary increases in 2009 will also be eliminated at Macy’s. And management is recommending a reduction in executive perks such as merchandise discounts, company cars, company-paid life insurance, and financial counseling. The retail chain estimates that these cuts will reduce expenses by approximately $250 million in 2009 and $400 million per year beginning in 2010.
“In the short and long term, the actions being announced today will make us a more lean and efficient company and a stronger competitor," says Terry Lundgren, chairman, president, and CEO. “Especially in the current challenging economy, we must operate in a responsible manner that allows us to maximize the value we offer to our customers and enhance our profitability. That includes reducing expenses and conserving cash so we can remain financially healthy.”
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International Funds Were the Biggest Losers in 2008
Tweet Share on Facebook February 2, 2009 CommentIt’s no secret that many investors pulled their money out of the plunging stock market last year. A total of $6.3 billion was moved out of equity investments within 401(k)s during 2008.
International funds were the biggest losers in 2008, with $1.9 billion shifting out of this asset class, according to the Hewitt 401(k) Index, which tracks the transfer activity of about 1.5 million 401(k) plan participants with approximately $90 billion in collective assets. Large U.S. equities weren’t far behind with an outflow of $1.7 billion, the largest movement since the beginning of the index. Both balanced and lifestyle funds had large declines as well. Investors transferred out approximately $1 billion and $529 million respectively.
As expected, somewhat safer asset classes received the largest inflows last year. GIC/stable value funds grew by $5.3 billion during 2008, bond funds received $1.2 billion, and money market funds saw $459 million transferred in.
