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Sep 14, 2012

Is new wave pension plan “California dreamin’”?

CHICAGO, Sept 14 (Reuters) – Is California about to set the country’s retirement saving system on its ear?

The state has often set trends for the country in areas ranging from the environment to food and popular culture. Now, California is moving toward launching an innovative new approach to retirement saving that addresses two key problems facing Americans: the lack of workplace pension programs among small businesses and the structural shortcomings of 401(k) plans.

The state’s legislature recently passed a bill laying the groundwork for the California Secure Choice Retirement Savings Program (SCP) – a government-sponsored retirement-savings vehicle that would be offered to employees of every California company that doesn’t have a workplace retirement plan.

Employees would contribute through payroll deductions to SCP accounts; the plan’s investments would be professionally managed, and would be geared to produce conservative returns tied to Treasury bond rates. At retirement, the individual account would be converted to a pension-style annuity.

The plan is still a long way from implementation. It faces opposition from the California business community on concerns about the cost of implementing payroll deduction systems and potential legal liability issues for employers.

The mere fact that California lawmakers decided to push forward with the plan at all underscores growing worry in policy circles about the nation’s looming retirement savings gap and the need to do something about it.

NATIONAL PROBLEM

Sep 12, 2012

For seniors, entitlement worries extend to the grandkids

CHICAGO, Sept 12 (Reuters) – Possible changes to Medicare and Social Security have become the top political concern for older U.S. voters this year – and not just because of the effect on their own pocketbooks.

This is national Grandparents Week, a good time to ask how the presidential candidates’ reform plans would affect not just today’s older people but also their children and grandchildren.

In the political battle raging over the two programs, both Democratic President Barack Obama and Republican challenger Mitt Romney say they would “preserve,” “protect” and “strengthen” Social Security and Medicare. But those words leave plenty of room for cutting benefits as part of broader approaches to shoring up the programs’ finances.

In the wake of the Great Recession, older Americans, especially in middle-income and lower-income brackets, are relying on these programs more than ever. A July poll by AARP of voters over age 50 found that 76 percent with annual income below $50,000 will rely more heavily on Social Security and Medicare in retirement than they had previously planned.

About 65 percent of Americans over 50 oppose changing Social Security or Medicare to help reduce the federal deficit – much higher than any other age group, according to polling by the Pew Research Center for the People & the Press, which has surveyed Americans extensively on entitlement programs.

Older people’s direct experience with both programs helps explain the strong support, according to Michael Dimock, Pew’s associate director of research. But older generations also tend to think about Social Security and Medicare in terms of their children and grandchildren.

“Most older people who get involved in protecting Social Security will tell you they want to make sure it’s there for their children and grandchildren,” said Donna Butts, executive director of advocacy and public policy group Generations United.

Sep 7, 2012

Don’t look to Ryancare to cut health care costs

CHICAGO, Sept 6 (Reuters) – Here’s the $64,000 question on the Republican plan to voucherize Medicare: Can consumer choice and market competition drive down Medicare costs?

The Romney-Ryan presidential campaign ticket thinks so. If they are right, seniors might not have to pony up thousands of additional dollars per year for the cost of Medicare beyond the voucher’s value. If wrong, there will be a massive cost shift to seniors to make up for the market’s failure.

Fortunately, we don’t have to implement Paul Ryan’s premium support plan to get an answer. That’s because there’s already plenty of competition in Medicare and it has not resulted in lower costs, according to recent evidence. In addition, the competition hasn’t pushed seniors to shop effectively for low-cost options.

So, unless some market magic is around the corner, seniors would have to dig deep into their wallets under a Ryancare plan.

COMPETITION

Everyone enrolled in a Medicare prescription drug plan shops in a marketplace of private insurance plans, which offers plenty of competition to ostensibly keep prices low. And one-quarter of Medicare beneficiaries get their care from private Medicare Advantage managed care plans – private offerings that they shop for, as they would under Ryan’s premium support plan.

Advantage has been offered in its current form for two decades as an alternative choice to traditional fee-for-service Medicare, and the Part D drug program started in 2006.

Jul 26, 2012

Time not on the side of older Americans in housing slump

CHICAGO (Reuters) – Prior to 2008, many baby boomers assumed they were set for retirement. They would fund those golden years by tapping into their homes if they hadn’t saved enough in their 401(k) plans.

But home equity no longer looks like a safe Plan B for a fast-growing group of pre-retirees and seniors.

About 3.5 million homeowners are “underwater” on their mortgages, meaning they owe more than their properties are worth, according to a report released last week by the AARP Public Policy Institute. The rate of foreclosures is lower for homeowners under age 50, while the 50+ population experienced a much higher rate of growth in foreclosures from 2007 to 2011.

At the end of last year, 2.92 percent of mortgage loans to 50+ households had been foreclosed – a whopping 873 percent increase from 2007, AARP reported. By contrast, 3.48 percent of loans to younger households had been foreclosed, with a corresponding growth rate of 729 percent.

The study adds to the growing mountain of evidence that the economy has shredded retirement possibilities, especially for low and middle-class households. Lower home values are especially devastating for these demographic groups.

The Federal Reserve Bank reported recently in its triennial Survey of Consume Finances that housing accounted for 51 percent of household wealth for middle-income households, compared with just 19 percent for households in the top ten percent of income.

HIGHEST ACTIVITY

Jul 12, 2012

How one model state is implementing healthcare reform

CHICAGO (Reuters) – Now that the U.S. Supreme Court has ruled on healthcare reform, the front line of the battle moves to the states. Some are vowing to resist implementation of the Affordable Care Act (ACA), while others are moving full speed ahead. And the stakes for uninsured Americans are enormous.

In states that do not implement their own public insurance exchanges, the federal government will step in. Federally sponsored exchanges will provide access to insurance for middle-income residents without employer-provided health insurance to buy policies with costs offset by subsidies.

The outlook for lower-income people is less certain, because the ACA aims to cover them through Medicaid – a program that currently serves mainly adults with very low incomes and seldom adults with children. The new ACA funding will serve all households with income near the federal poverty level – about $30,000 in annual income for a family of four.

The Urban Institute estimates that 15.1 million Americans fall into this category. The federal government will pay 100 percent of the cost of expanding Medicaid for the first three years and 90 percent afterwards.

OPTING OUT

But the Supreme Court’s ruling gives states the option not to participate in the expansion and low-income residents in states that opt out would be left high and dry. For example, the Urban Institute estimates that Florida, whose governor is on record as unwilling to expand Medicaid, has 1.3 million residents who could be covered under the law. Texas, whose governor is also against expansion, has 1.7 million potential beneficiaries.

In the public exchanges, applicants will be eligible for federal subsidies on the cost of coverage if they make less than 400 percent of the federally defined poverty level – currently $92,000 for a family of four. For this group, the subsidy uses a sliding scale to hold costs as a share of income between 2 percent and 9.5 percent. Those subsidies will be available even to residents of states such as Florida and Texas through the federally sponsored exchanges that are offered there.

Jul 6, 2012

More red flags on reverse mortgages

CHICAGO, July 6 (Reuters) – Consumer advocates, government regulators and watchdogs have been warning seniors for several years about the risks associated with reverse mortgages. Now, the red flags are being hoisted significantly higher.

The new federal Consumer Financial Protection Bureau (CFPB) has issued a report signaling a likely tightening of regulations for reverse loans. Regulation of all mortgages was transferred to the CFPB under the Dodd-Frank reform law. Congress also instructed the agency to produce a detailed study on the reverse loan market – and to issue new regulations if its research uncovered unfair, deceptive or abusive practices.

The CFPB’s report confirms earlier warnings that reverse mortgages have become an increasingly risky business for borrowers and would-be borrowers. A growing number of borrowers are taking on reverse mortgage loans at younger ages in return for large lump payouts that carry high fixed rates of interest. And a growing percentage of outstanding loans are at risk of default.

While it is clear CFPB will be considering new regulations, the agency, and the industry, are taking steps to educate consumers on how to avoid problems with reverse loans.

“We’re going to continue to follow this, and work to get answers to our questions,” says Hubert H. (“Skip”) Humphrey III, who heads up CFPB’s Office of Older Americans.

CURRENT RULES

Reverse mortgages, available to homeowners over age 62, allow seniors to turn equity in their home into cash while staying in their homes. Unlike a forward mortgage, where you use income to pay down principal and increase equity, a reverse mortgage pays out the equity in your home as cash; your debt level rises and equity decreases.

Jun 28, 2012

Why upheld Obamacare is great news for older Americans

CHICAGO, June 28 (Reuters) – The Supreme Court’s decision to uphold Obamacare is great news for everyone over age 50. If you’re over age 65 and on Medicare, the Affordable Care Act (ACA) improves your benefits. If you’re over 50 and don’t have insurance through an employer, your options for health coverage will be improved greatly starting in 2014, when the new state health exchanges are launched.

Yet polling data says older Americans oppose the ACA by much wider margins than younger people. Forty-four percent of baby boomers and 46 percent of seniors favor repeal of the law, according to a Pew Research Center survey last November. By contrast, just 27 percent of millennials – and 37 percent of GenXers – favored repeal, the survey found.

Here’s why older Americans should reconsider their opposition.

AGE 50 to 65

The U.S. Census Bureau reports that 15.3 percent of Americans age 50 to 64 were uninsured in 2010. That is a whopping 8,987,487 people and the number has been rising dramatically since the 2008 financial crisis and ensuing economic downturn, which cost millions of older workers their jobs and employer-provided insurance.

The exchanges will provide a simplified process for getting coverage for anyone who is not covered at work. You start with an application for insurance submitted to your state exchange. Depending on your income, you will be eligible to buy a policy in the exchange – or receive coverage under Medicaid.

Middle-class insurance shoppers will be able to buy an individual commercial policy with a government subsidy to assure affordability. But this marketplace will not be anything like the current individual insurance market, where applicants can be denied based on pre-existing conditions, prices are high and coverage is weak. Especially important for those over 50, the ACA forbids insurance companies from charging higher premiums or denying coverage based on health or age, and insurance companies will no longer be permitted to disqualify applicants based on pre-existing conditions.

Jun 26, 2012

How high fees for mutual funds whack retirees

CHICAGO, June 26 (Reuters) – Mutual fund costs will be Topic A this fall around many kitchen tables when workplace retirement savers start receiving the new government-mandated quarterly statements spelling out exactly what they are paying for their 401(k)s. But a kitchen table chat is also in order for retirees.

After all, smart portfolio management is important in retirement, too. Retirees draw down assets to pay living expenses. Fees are still being levied on those accounts – and they can have a much larger impact on retirement lifestyles and portfolio longevity than most people understand.

“There’s a portion of your assets that are being spent to pay the investment managers” says John Ameriks, who heads up investment counseling and research at Vanguard. “And there’s a portion of the assets that are being spent to pay you. When we do drawdown analysis, we just look at aggregate spending. But to the extent the expense ratio is higher, that cuts into what you can spend.”

Ameriks ran the numbers recently to demonstrate the impact that investment costs can have on retirees. The results suggest many retirees could get more mileage from their nest eggs by paring costs – either by jumping ship from a former employer’s high-cost 401(k) plan, or by ditching high-cost actively managed funds.

Ameriks started with some basic assumptions. An investor retires at age 60 with a $100,000 portfolio, and plans to spend 4 percent of her portfolio balance at the beginning of each year thereafter. She can choose one of three identical portfolios to generate 5 percent before-cost total investment return; the only difference among the three is investment cost – 0.25 percent, 1 percent or 2 percent. For purposes of simplicity, Ameriks assumed reinvestment of all dividends and distributions and no taxes on the returns.

The three portfolios each start with the same $4,000 withdrawal, but diverge sharply from there. By the time our retiree hits 65, the high-expense portfolio is generating a withdrawal 8.3 percent lower than the amount for the low-expense portfolio. After 15 years, the gap widens to more than 20 percent – a huge reduction in spending power.

“The differences sound small to most people,” he says. “I’m going to withdraw 4 percent, and I’m going to pay 1 percent in fees. But that 1 percent is equivalent to 25 percent of what you’re paying yourself. And what people seem to forget is that expense ratio hits over and over again – year in and year out. It hits the base of your portfolio, and since you’re withdrawing a fraction of the base, it’s also going to hit your income.”

Jun 21, 2012

Retirement planning checklist for LGBT Americans

CHICAGO (Reuters) – June is Gay Pride Month in the United States. And you can tell the times they are a changing when U.S. Secretary of Defense Leon Panetta salutes the event by taping a video personally thanking gay members of the military for their service.

But when it comes to retirement security, LGBT Americans still have a long way to go. The federal Defense of Marriage Act (DOMA) is a core obstacle to equality for a range of important benefits and legal protections, because it defines the word “spouse” as applying only to different-sex married couples for any purpose involving interpretation of federal law.

The ground is shifting quickly, though. Legal challenges related to DOMA and same-sex marriage are making their way toward the Supreme Court. And the workplace is changing quickly as companies reshape their benefit programs to ensure equality.

But LGBT individuals and couples also can take action on their own to improve their retirement security. Here’s a checklist of five key areas LGBT Americans should be sure to address.

401(k) BENEFICIARIES

Until 2010, it wasn’t possible for a workplace retirement saver to name a non-spouse beneficiary. That changed starting in 2010 due to provisions of the Pension Protection Act of 2006. Non-spouse beneficiaries, including employees’ partners, are permitted to roll their inherited retirement benefits directly to an individual retirement account or an annuity.

Gay workers who started with their employers before 2010 should re-visit their beneficiary designations. But they also should check to make sure their employers are complying with the new law. Only 86 percent of corporations that have rollover provisions have made the adjustments needed to extend benefits to same-sex partners, according to the 2012 Corporate Equality Index, an annual survey of corporations by the Human Rights Campaign Foundation (HRC), a non-profit research, education and advocacy group.

Jun 20, 2012

Five things to consider before cutting pension benefits

(The writer is a Reuters columnist. The opinions expressed are his own.)

By Mark Miller

CHICAGO, June 20(Reuters) – The message from voters about public pension plans is clear: They’re ready to cut the retirement benefits of police, firefighters, teachers and other state and municipal workers.

The latest indicators include the failed recall of Gov. Scott Walker in Wisconsin – which started with his efforts to cut pensions – and referendums in San Jose and San Diego, where voters overwhelmingly backed pension reform measures.

A recent study by the U.S. Government Accountability Office found that 35 states have reduced pension benefits since the 2008 financial crisis, mostly for future employees. Eighteen states have reduced or eliminated cost-of-living adjustments (COLA) – and some states have even applied these changes retroactively to current retirees.

This week, the Pew Center on the States reported that states are continuing to lose ground in their efforts to cover long-term retiree obligations. In fiscal year 2010, the gap between states’ assets and their obligations for retirement benefits was $1.38 trillion, up nearly 9 percent from fiscal 2009. Of that figure, $757 billion was for pensions, and $627 billion was for retiree health care (see link.reuters.com/xyh88s).

Pensions are, no doubt, consuming a larger share of some state and local budgets. The bill has come due for years when plan sponsors did not make their full plan contributions; in the years leading up to the 2008 financial crisis, many papered that over by relying on strong stock market returns. Many plans also took major hits in the 2008 crash, and returns have since been hurt by low interest rates.

    • About Mark

      "Mark Miller is a journalist and author who writes about trends in retirement and aging. He has a special focus on how the baby boomer generation is revising its approach to careers, money and lifestyle after age 50. Mark is the author of The Hard Times Guide to Retirement Security: Practical Strategies for Money, Work and Living (John Wiley & Sons/Bloomberg Press, 2010) and edits RetirementRevised.com. Mark is the former editor of Crain’s Chicago Business, and former Sunday editor of the Chicago Sun-Times. The opinions expressed here are his own."
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