Category Archives: Consumer behavior

How did you respond to recent volatility?

When the financial markets closed on Aug 15th, the stock market had recouped all of its losses from the previous horrific week of volcanic volatility.  Three-year and five-year Dow Jones and S&P500 returns were either flat or negative.

The Investment Company Institute reported that over $50 billion moved into money market funds in the week ended August 10, but the cumulative change in the prior three weeks was a $130 billion outflow from money market funds.

The Wall Street Journal reported that the wealthy no longer have an appetite for the risk of equities and are “hunkering down with cash, gold, farmland and other safe-haven investments.”

Many financial advisors recommend staying the course with a diverse portfolio including, among other investment options, target date funds.

Retirement benefits breakdown

We’ve been asking for your thoughts on defined benefit (DB) pension plans and defined contribution (DC) 401(k) plans over the past couple of weeks and, as we covered in the most recent Retirement Town Hall rewind, there are some interesting trends coming out of the answers to our poll questions. This week we’re following up on a question we posed a while back. We’re wondering who prefers which benefits. So…

Inspiring employees

With a title like “Inspiring employees” you might have guessed that this post would be the incredible story of how one man climbed the corporate ladder and went from the mail room to the board room. Sorry to disappoint you, but we’re actually using “inspiring” as a verb, not an adjective. We want to know how you inspire your employees to use the retirement planning tools you offer.

Unlike previous poll questions, this time we’re leaving an open-ended “other” section where you can write in what methods you’ve used to get employees to enroll in a 401(k) plan. And if that’s not enough space to tell your story, leave a comment on this post.

App helps women to plan for retirement

Denise FosterRecently I wrote in this blog about educating Generation Y and X women on retirement and I suggested that the Department of Labor create an app to go along with its Wi$e Up financial literacy website for young women. After further digging, I came across a a few iPhone apps (titled Women, Wealth and Wisdom) that help young women envision their retirement and start planning today. So I thought I’d give one of them a test drive.

The app is Women, Wealth and Wisdom Retirement Income Calculator created by AXA Equitable Financial Services back in 2009 as part of a suite of financial apps for women. The app does what it’s supposed to do, nothing more and nothing less. Users can type in some basic information about their retirement savings and the calculator spits back some estimated answers to questions like “How much money will I have to spend each month of my retirement?” Users can adjust things like rate of return and years of retirement.

Although not particularly specific to women, I found this app to be functional and generally helpful in answering the basic questions. There was one minor oddity, though. The default answer for the “current age” section of the form is 60. Yikes! I thought we were trying to get women to start planning for retirement early? Still, unlike your real retirement numbers, the defaults in this app can be easily changed.

Basic questions and answers about lump-sum distributions

Bart Pushaw

The ins and outs of lump sum distributions, and whether to take them or not, are among the most common conundrums facing new retirees. Here are a few questions about the basics that I hear frequently and the answers I offer to them.

Q: Shouldn’t I take a lump sum distribution when I retire?

A: In general, people and their spouses should review what’s best for them. If a retiree has sufficient income to live without using their savings immediately, the lump sum can provide flexibility in spending and a potential estate. Or if a monthly income is most advantageous, then an annuity makes more sense.  Everyone needs to think what’s best for them and their family. From a purely mortality-neutral point of view, the answer for most of us is NO.

Q: But I’m told I can beat the returns and have more flexibility if I take a lump sum. What’s that about?

A: If you take a lump sum, you still need to earn monthly income from it. How to go about getting that monthly income is the problem. You can buy an annuity, self-annuitize by withdrawing some amount each year, or hire a financial planner and work out a plan. More often than not, these are suboptimal alternatives that can sometimes lead directly to personal financial crises.

Continue reading

Making the most of the draw-down period

Human Resource Executive looks at innovations in how retirees draw-down their savings and what role employers can play in communicating these options to employees. Here is an excerpt:

To help employees plan for retirement, many HR leaders and retirement experts focus on increasing 401(k) savings rates, but they should also focus on the way employees draw-down their savings when they retire, experts say. “I think it is absolutely an issue that HR professionals need to be paying attention to,” says Brad Kuebler, a principal in the Minneapolis office of Milliman, an actuarial and consulting firm. “There really is a lack of options for [workers] when they get into the drawdown phase. … That is a pretty critical time to start doing research and figuring out what to do.” Assets in 401(k) plans reached $3.075 trillion in 2010, according to the latest Marketplace Update report by the Society of Professional Asset-Managers and Record Keepers (SPARK) and the SPARK Institute, based in Simsbury, Conn. At the same time, 27 percent of American workers say they are “not at all confident” they will have enough money for a comfortable retirement — the highest level ever measured in the Retirement Confidence Survey by the Employee Benefit Research Institute. Continue reading

Tax day

Charles Clark

Happy tax filing day, if you haven’t filed an extension. 

There have been reports from many different credible sources that the average federal refund will be close to $3,000 per filer. Given the competing needs to save for retirement, pay health insurance costs, and put gasoline in your car, what actions might Americans take with that refund?

What is somewhat problematic is that there have been competing arguments from the investment community. Some believe that the best gains of the year have already been made in the financial markets and others do not.

(And is that news?)

Annuities as a solution to longevity risk

Kiplinger’s Retirement Report picks up on a sound retirement planning concept: Using an annuity to create a regular paycheck. Here’s an excerpt:

Finding a way to provide guaranteed income could be crucial if retirees fear outliving their savings. “Many people do not understand life expectancy,” says Noel Abkemeier, a principal at Milliman. Average life expectancy for a 65-year-old male is 84.2 years, and it’s 86.1 years for a 65-year-old female. But, says Abkemeier, “there’s a 50% chance you could live longer than lif expectancy–and it could be 10 to 15 years more.

No wonder there is so much apprehension from future retirees over outliving their benefits. So what’s a retiree to do? Going back to the Kiplinger piece:

Longevity insurance will maximize your retirement income at a time when you may need money to pay for long-term care and other medical expenses. It is best if you think about it as an insurance against living too long, rather than as an investment that may never pay out. Abkemeier recommends investing no more than 10% of your portfolio in longevity insurance, so you’ll have plenty of money for your other needs.

Of course an annuity is not the only way to go. The key thing is for retirees to recognize the risk and prepare accordingly.