National Retirement Risk Index On the Rise

The Center for Retirement Research at Boston College has published the results of recent research under the title The National Retirement Risk Index: After The Crash. It examines measures to help determine what percentage of Americans are "at risk of being unable to maintain their pre-retirement standard of living in retirement." The index has risen over the past two years.

Reasons for the rise include:

First, while the age for full Social Security benefits is increasing, the average age for retirement remains at 63. This means that Social Security benefits will replace less pre-retirement income because of the benefit reduction for earlier retirement. Meanwhile, life expectancy continues to increase.

Second, and perhaps the most important factor, the types of retirement plans covering workers has shifted in recent decades, from defined benefit plans to defined contribution plans.

Furthermore, people have failed to save outside of their retirement plans to any meaningful extent.

The exploding cost of medical care is also pushing the Retirement Risk Index upward.

Upping the Estonia Retirement Age 

The government of Estonia is passing a bill that would increase the Estonia retirement age to 65 years as of 2026. Currently, the retirement age for men is 63 years and for women 60 years and 6 months. By 2016, the retirement age for women will be increased to 63 years. As of 2017, the retirement age would gradually increase for everyone, that is, by three months a year, and by 2026, it will be 65 years for both women and men.

There are two reasons for raising the retirement age. First, the future pensioners must be sure that their pension would not be lower than it currently is and that, if possible, it would even increase. The second reason is to alleviate the labor shortage accompanying the decrease in the active population on the labor market.

Long-Term Trends for the National Retirement Risk Index

Some stats show that the National Retirement Risk Index has been increasing over the long-haul. For example, during the period from 1983-2009 on an almost steady basis, beginning at 31 percent and rising to 44 percent in 2007. But from 2007 to 2009, the index took a big jump — to 51 percent.

Free Retirement Planning Workshop

The following information was released by the U.S. Department of Labor, the Employee Benefits Security Administration (EBSA):

The U.S. Department of Labor's EBSA will host a free retirement planning workshop on Jan. 13, 2010, at the Oxon Hill Public Library in Oxon Hill, Md., to help the public understand how much they will need for a financially secure retirement and ways to close the retirement savings gap. Department of Labor representatives will be joined by a representative from the Social Security Administration.

The workshop is targeted to people who are approximately 10 to15 years from retirement.

• Topics will include:
• Savings, 401(k) plans, home equity and other assets.
• Social Security benefits.
• Current spending and expenses.
• Expenses in retirement.
• Steps to fill the gap in retirement savings

Pleas for Retirement Education

According to MetLife’s Seventh Annual Employee Benefits Trends Study for 2008, more than half of all employees surveyed wanted employers to provide them with retirement education at work, up from 44% in 2007 and just 29% in 2006.

Top Executives

One-quarter of top executives at major U.S. companies had gains in their supplemental executive retirement-savings plans in 2008.

Turning Savings into Steady Paychecks

After years of getting people to save for retirement, financial-services firms are launching more products designed to help investors turn those savings into steady paychecks.

For example, in November, Allianz SE's Pacific Investment Management Co., or Pimco, launched two Real Income Funds that invest primarily in government-guaranteed Treasury inflation-protected securities (TIPS) as a way to provide inflation-protected retirement income and avoid some of the principal erosion that other managed-payout funds faced during the market downturn. The firm hopes to add deferred annuities as an option to the funds next year.

Regarding 401(k)s, the insurance industry has been launching products that combine annuities with an investment portfolio. Prudential Financial Inc.'s IncomeFlex Target, which adds an income guarantee to Prudential's target-date funds, is being offered across 190 workplace retirement plans.

Meanwhile, BlackRock Inc., in partnership with MetLife Inc., expects to launch a SponsorMatch retirement-income product early next year. For 0.50% a year, SponsorMatch's target-date index funds hold deferred fixed annuities instead of the typical bond-and-cash allocation, gradually moving into more annuities the closer the participant gets to retirement.

The Automatic IRA

Congress is expected in 2010 to reintroduce and pass two bills that would require small- and medium-sized businesses to automatically enroll their employees into an IRA. The Senate bill, sponsored by Senator Jeff Bingaman (D-New Mexico), and the House bill, sponsored by Rep. Rich Neal (D-Massachusetts), are both called the Automatic IRA Act of 2007.

The proposed bills would extend retirement coverage to many who don’t currently have any, but the logistics of putting a plan in place, not to mention the cost of so doing to small- and medium-sized businesses, has sent a frisson throughout that community, which according to Mark Gutrich, president of Denver -based ePlan Services, has been grossly underserved by the retirement finance industry.

Initiatives for the auto IRA first came to the fore in 2007, and have been in discussion since then. If the bills become law, employers at any company that is at least two years old and has 10 or more employees would be allowed to take a small amount from employee paychecks and deposit it into an IRA. Employers would select investments but employees would have the right to change mutual funds, or decide to pocket all their pay and skip saving altogether. The auto-IRA debate has been overshadowed by the frenzy surrounding healthcare reform, Gutrich says, but it will likely come back into the spotlight soon.

The Fearsome Knowledge Drain

Despite evidence that older workers are delaying retirement and staying in the workforce longer, employers remain deeply concerned and anxious about the impact of the knowledge drain on their organizations.

In a recent MetLife Emerging Retirement Model Study, when employers were asked which of two retirement-related issues – delayed retirement or the knowledge drain – are of greatest concern today, three in four employers (74%) said they are primarily concerned about experiencing a knowledge drain as older workers retire; only one-quarter (26%) said they are primarily concerned about the impact on their overall workforce as older employees delay retirement. Employers’ concerns are virtually the same when asked to look ahead 3-5 years.

Wal-Mart’s Two Worlds

The 1.2 million employees in the Wal-Mart's 401(k) retirement plan lost 18% last year. But the story was much different for top executives. Because of a guaranteed 6.6% return, the Wal-Mart CEO enjoyed gains of $2.3 million in a supplemental retirement-savings plan. That gain brought his total savings to $46.7 million.

The Real Threat: Disability Risk

Corporate Compensation Plans (CCP) released its new White Paper on Health Related Events that can Devastate Retirement Plans. The real threat to individuals' retirement security, according to CCP, is not market risk but disability risk, the risk of becoming disabled before retirement and the risk of being disabled after retirement and needing long term health care.