Retire2Enjoy : 401(k) Debate, Senior Poverty, Retirement USA Proposals, Hispanic Retirement

Debate Over the 401(k)

Some consumer advocates say the 401(k) is a failure that should end. Others, especially financial industry representatives, think such plans are still the best retirement option and they simply need shoring up.

Senior Poverty: How the U.S.Compares

United States, Ireland, South Korea and Mexico have the highest senior poverty rates among the 30 member-countries of the Organization for Economic Co-operation and Development (OECD).

Hispanic Retirement

Only 41% of Hispanic workers say they save money for retirement, and only 25.6% are covered by employer-sponsored retirement plans, according to a new study of Hispanic retirement conducted by the non-profit Hispanic Institute.

Retirement USA Proposals

Retirement USA has unveiled a number of proposals for a new retirement system. They include:

Guaranteed Retirement Accounts that mandate a 5% contribution of workers' earnings -- half from the employer and half from the worker. The 2.5% employee pretax contribution would be offset by a $600 refundable tax credit. GRA would provide a guaranteed 3% annual rate of return, adjusted for inflation—guaranteed by the Federal Government. Surplus earnings could be returned to participants if investment returns are consistently higher. Account balances would be converted to inflation-adjusted annuities upon retirement.

Pension & Community Investment account plans, collectively invested, to which employers and employees would contribute 5% of wages, with tax credits offsetting part of the contributions. Seventy percent of workers' accounts would go into conservative investments. The remainder would be invested in the community. Participants would receive guaranteed lifetime annuities when age plus service equals 100.

Retirement USA Plus would be a universal, mandatory defined-benefit plan (such as a pension) that would provide benefits to workers covered by Social Security. Like Social Security, the plan would pool assets nationally, offer complete portability and mandate employer contributions. Participants would have the option to convert personal savings and employer-sponsored plan savings into a supplemental annuity purchased through the Social Security Administration.

Defined Contribution Insurance would be a government-sponsored insurance program that would require defined-contribution plans to conform to appropriate portfolio diversification standards to limit risk. The insured benefit would be payable in the form of a single or joint life annuity, depending on the participant's marital status.

Employers would have the option of sponsoring their own plan or contributing to a national or regional clearinghouse. The plan would be funded by employer and employee contributions, with a public subsidy for low- and moderate-income workers.

Guaranteed Benefit (GB) is part of a proposal called the New Benefit Platform for Life Security, which calls for competitive, independent benefit administrators who would offer employers an alternative method of providing employee retirement and health benefits. Employers and individuals would share funding responsibility. The GB would combine elements of defined-contribution and defined-benefit plans and would shield employees from a net investment loss. It would pay guaranteed lifetime benefits.

Variable Defined Benefit would guarantee a minimum benefit but a potential for sharing upside investment performance. Plan assets would be pooled, and investments would be professionally managed. Benefits would be paid in the form of a lifetime stream of income. The plan could be funded by either the employer or a combination of the employer and employee, with public assistance for low- and moderate-income employees.

Senior Poverty

Nearly 24% of Americans older than 65 have incomes below the poverty threshold, according to the OECD, which measures senior poverty in 30 nations.

Automatic 401(k) Enrollment

About half of midsize-to-large employers provide automatic enrollment to 401(k) plans, up from 44% in 2008, according to a 2009 Hewitt Associates survey.

Negative Retirement Contributions

A recent AARP survey found that 29% of workers ages 45 to 64 had stopped making retirement contributions. About 18% of workers in the same age group have withdrawn funds from their 401(k) plans in the past year, either taking loans or cashing out.

Will the Upcoming Wave Of Boomer Retirement Sink Canadian Small Businesses?

A Bank of Montreal survey reveals that 50 per cent of small business owners over the age of 45 plan to retire over the next 10 years. While this trend might significantly threaten the Canadian economy, three mitigating factors are at play to reduce the threat.

1. An emphasis on succession planning by small businesses
2. The recession, which has prompted many business owners to delay their exit
3. Other Canadian retirees are gearing up to start businesses themselves

We're No. 6!

The Melbourne Mercer Global Pension Index measures countries based on the adequacy, sustainability and integrity of their public and private pension systems. The Netherlands topped the rankings, followed by Australia, Sweden, Canada, the U.K. and the U.S. Chile was No. 7 on the list, followed by Singapore, Germany, China and Japan.

Adequacy refers to whether projected retirement benefits will provide a reasonable standard of living in old age, and sustainability regards whether a country's pension programs will pay benefits over the decades to come as current workers retire and life expectancy improves, including such factors as the ratio of productive workers to retirees, the funding status of pension plans, and the level of government debt.

Mercer gives the U.S. a high grade for the sustainability of its pension plans but low marks for the adequacy of retirement income, particularly at the lower income levels, After all, U.S. companies are freezing or closing their defined-benefit plans and cutting or eliminating their 401(k) matches.

What's more, Americans aren't saving enough for retirement and a large percentage won't have enough assets and income to maintain their lifestyle in retirement.

So what would it take for the U.S. to become No. 1? According to Mercer, the following changes could help improve the U.S. retirement-income system:

• Raise the minimum pension for low-income pensioners.
• Adjust the level of mandatory contributions to increase the net replacement for median-income earners.
• Introduce a minimum access age so that it's clear benefits are preserved for retirement.
• Introduce a requirement that part of the retirement benefit must be taken as an income stream.