America’s Ten Best Financial Advisors

Barron's seventh annual list of America's top 100 financial advisors:

1. Brian Pfeifler of Morgan Stanley, New York, NY
2. Roger Coleman of Morgan Stanley Smith Barney, Garden City, NY
3. Ric Edelman of Edelman Financial Services, Fairfax, VA
4. Ira Walker, UBS Financial Services, Red, Bank, NJ
5. Steve Lockshin, Convergent, Los Angeles, CA
6. Gregory Vaughan, Morgan Stanley PWM, Menlo Park, CA
7. Jeff Erdmann, Merrill Lynch, Greenwhich, CT
8. David Zier, Convergent Wealth Advisors, Rockville, MD
9. Ron Carson, Carson Wealth Management, Omaha, NE
10. Andy Chase, Morgan Stanley Smith Barney, Menlo Park, CA

New Jersey Teacher Retirement Age

Rethinking Texas Credit Union Retirement Plans

The following information was released by the Credit Union National Association (CUNA) and is quoted verbatim here:

The economic meltdown has prompted credit union plan sponsors to rethink how retirement plans are offered to their employees, attendees of the Texas Credit Union League Annual Meeting were told Friday.

The financial crisis has prompted many credit union plan sponsors to move from processed-based to outcome-based retirement planning, said Scott Knapp, director of investment strategy for CUNA Mutual Group.

"In a process-based scenario, plan sponsors exclusively focus on seeking high investment returns and low fees. Both are important, but they are not ends to themselves," Knapp said.

"The economic crisis exposed the limits of this process-based orientation. As many as 60% of plan participants ages 56 to 65 had most of their retirement-plan assets in stocks. They got crushed, and many have been forced to postpone their retirements. Something has to change if the 401(k) plan is to continue to be the nation's primary retirement savings vehicle," he added.

Knapp said many sponsors are finding an outcome-based strategy a better option for helping their employees achieve retirement security. "Outcome-based plans make it easy for participants to save enough for retirement and avoid the huge investment mistakes that often occur under a process-based scenario. Investments offered in an outcome-based plan are often not the best performing, but they support better decision making among participants. Ultimately, they can end up more financially secure during retirement."

In outcome-based planning, Knapp said, achieving retirement security is contingent on an employer offering a quality plan, the employee's decision to save--and save enough--and the employee's decision to invest properly.

It's important for the employer to address the employee's decision to save in order for any plan to be successful, Knapp said. "First, credit unions need to show strong support for 401(k) plans and create a 'culture of saving.' Enrollment in those plans must be made simple, whether face to face or online, and auto enrollment should be considered."

And it's especially important for the employer to adopt and support Target-Date Funds, Knapp said. "Target-Date Funds take the guesswork out of investing for your employees. Essentially, all the employees need to know is when they'll retire. If they know that, the Target-Date plan works to achieve success based on that timeframe."

Why is such a framework important for credit union employees? Knapp cited alarming statistics about workers' lack of confidence in attaining a financially secure future.

According to 2008 data from Employee Benefit Research Institute:

• Only 13% of workers feel very confident they will have enough money for retirement--a 50% decline from 2007;
• More than 28% of workers say they have adjusted their retirement age;
• Only 44% of workers have calculated retirement savings needs;
• And 22% of current retirees feel confident about their retirement security.

Asian Americans on the Road to Retirement

Asian Americans on the Road to Retirement, an online survey, polled 656 Asian Americans who were sole or joint financial decision makers, between the ages of 25 to 65 and had total household income of $50,000 or more.

The conclusion: Most Asian Americans are not ready for retirement and are not seeking professional guidance. Asian Americans were hit hard by the recent economic turmoil, with approximately 8 in 10 indicating their savings and investments were impacted by the sharp market downturn of 2008 and 2009. Only 27 percent have a formal written plan in place for retirement. While 98 percent of those surveyed think retirement success depends on their ability to plan well, only 18 percent have engaged in a conversation with a financial professional.

How Good Is Your Retirement Planning?

Take this retirement IQ quiz from the Naples Daily News to test your knowledge:

1. What percentage of your savings are you generally considered to be able to withdraw annually in retirement without risk of running out of money?

(a) 3 percent; (b) 4 percent;

(c) 7 percent; (d) 10 percent

2. About how much money does a person need to have saved to ensure a comfortable retirement?

(a) 2 to 3 times one's annual salary; (b) 4 to 7 times annual salary; (c) 8 to 10 times annual salary; (d) more than 10 times annual salary

3. What percentage of salary should most people set aside each year to adequately save for retirement?

(a) 3 to 5 percent; (b) 6 to 10 percent; (c) 11 to 15 percent; (d) 16 to 20 percent

4. By how much will your Social Security checks be reduced if you start taking benefits as soon as you are eligible at age 62, rather than waiting until full retirement age a few years later?

(a) 5 percent; (b) 10 percent;

(c) 25 percent; (d) 33 percent

5. How much extra can workers age 50 or older contribute to their 401(k) retirement plans in 2010?

(a) $6,000 extra, for a maximum $21,000; (b) $5,500 extra, for a maximum $22,000; (c) $7,000 extra, for a maximum $24,000; (d) $7,500 extra, for a maximum $25,000.

6. The typical person age 50 and older with a 401(k) account with his or her current employer holds about how much in the account?

(a) $25,000; (b) $125,000;

(c) $225,000; (d) $325,000

7. Which of the following approaches to retirement savings would produce the larger nest egg by age 65?

(a) Saving regularly from age 22-32; (b) Saving regularly from 32-65

8. How much of your Social Security benefits do you lose if you go back to work before full retirement age?

(a) none; (b) all; (c) $1 for every $2 earned above $14,160; (d) everything if you earn $14,160 or more

9. A job layoff in one's 50s or 60s typically reduces total household wealth by what percent?

(a) 11 percent for couples and 23 percent for single people; (b) 16 percent for couples and 28 percent for single people; (c) 21 percent for couples and 33 percent for single people; (d) 31 percent for couples and 43 percent for single people

10. What percent of U.S. workers are covered by traditional corporate pension plans?

(a) 7 percent; (b) 17 percent; (c) 27 percent; (d) 37 percent

Answers

1. (b) The 4 percent rule advocated by many financial planners holds that if you withdraw no more than 4 percent of your portfolio in the first year of retirement and then increase that amount for inflation each year, your money should last at least 30 years. That rough guideline takes into consideration the role of expected earnings on your portfolio as well as inflation.

2. (b) According to a 2008 study by Aon Consulting and Georgia State University, men need to have saved 4 to 6.8 times their annual salary from the years just before retirement by the time they retire. Women should aim to have 4.5 to 7.5 times salary because they tend to live longer.

3. (c) Saving 11 percent to 15 percent of your salary over a 40-year career can lead to an account balance that, combined with income from Social Security, has a good chance of supporting you through retirement, according to the Principal Financial Group. Sticking with 15 percent is a good idea.

4. (c) Social Security checks are about 25 percent less for the rest of your life if you retire at 62 instead of full retirement age, which now ranges from 66 to 67 depending on your year of birth. Financial planners generally recommend holding off on taking benefits if possible.

5. (b) Employees age 50 and up can make up to $5,500 in catch-up contributions in 2010, added to a base contribution limit of $16,500 for a maximum $22,000.

6. (b) $124,520 as of  April 1, according to an estimate by the Employee Benefit Research Institute. Whether you're ahead or behind your neighbors and peers in retirement savings, don't lose sight of the long term – keep saving.

7. (a) Thanks to the power of compounding, saving for only 10 years at a younger age can generate more retirement income than saving for 33 years when older, according to investment management company T. Rowe Price. This assumes the same amount contributed to a tax-deferred account each month.

8. (c) In 2010, half of your earnings above $14,160 are deducted from your Social Security benefits if you are younger than full retirement age for the entire year. Once you reach full retirement age, there is no limit on earnings.

9. (c) 21 percent for couples and 33 percent for single people, according to a 2007 report by the Urban Institute. These statistics serve as a warning to build up emergency savings and not cut things too close in case of an unexpected job loss late in your working career.

10. (b) AARP says only 16.7 percent of workers had defined-benefit pensions as of the most recent data from 2007, meaning most individuals will have to look after their own finances with retirement accounts, such as 401(k)s and IRAs for their nest eggs.

Scoring system

0-3: Better bone up fast or you'll have to keep working till you drop.

4-5: You need to study some more.

6-7: Not bad, but the road to retirement affluence could still be bumpy for you.

8-9: If your planning matches your knowledge, you should be in good shape.

10: Congratulations! May you live long and prosper.

The Prepared and Ill-Prepared in Canada

Canadians who prepared for their retirement are going to be responsible for taking care of a "sizable" part of the population who didn't prepare warns federal Finance Minister Jim Flaherty.

The minister and some of his provincial colleagues have been crisscrossing the country tackling national pension reform and discussing other ways of beefing up retirement income, as part of a two-day summit.

New Jersey Exodus

According to the New Jersey Education Association, as many as 30,000 New Jersey teachers may soon retire if new rules are put in place that would require future retirees to pay a portion of their health benefits.

Missouri Public Retirement Changes

The following information was released by the Missouri State Senate and is quoted verbatim here:

Significant changes could be in store for certain public retirement systems in the state after a bill moved forward in the Senate yesterday.

Senate Bill 714 contains several provisions relating to retirement, including a measure that would allow the state auditor to audit any state or local public employee retirement system at least every three years.

The bill would also create a different retirement plan for any person who becomes a state employee on or after January 1, 2011. To be eligible for normal retirement under this plan, employees must be at least 67 years old and have at least 10 years of service, or reach age 55 with the sum of the employee’s age and service equaling at least 90.

Uniformed members of the highway patrol would be required to reach age 60 or age 55 with 10 years credited service to be eligible for regular retirement.

Employees, except for uniformed members of the highway patrol, would be eligible for early retirement at age 62 with 10 years of service, and must work for the state for 10 years to gain ownership of their benefits. Members of the new retirement plan would also be required to contribute 4 percent of their pay to the retirement system.

The bill would also create a different retirement plan for new judges, as well as create the Missouri State Retirement Investment Board, which would be authorized to manage the investment of the assets of the Missouri State Employees Retirement System (MOSERS) and the Missouri Department of Transportation and Highway Patrol Employees Retirement System (MPERS). Other Missouri public pension systems, except for the Public School Retirement System (PSRS), the Public Education Employee Retirement (PEERS), and the Missouri Local Government Employees Retirement System (LAGERS), may, upon approval of the system or plan and approval of the board, enter an agreement with the board to provide investment oversight and management.

Senate Bill 714 needs one more “yes” vote from the Senate before moving to the House for similar consideration.

U.S. Railroad Retirement Board History

The following information was released by the U.S. Railroad Retirement Board and is quoted here verbatim:

The 75th anniversary of the enactment of the Railroad Retirement Act of 1935 is being observed during 2010. Part of President Franklin Delano Roosevelt's New Deal legislation, the Act was signed into law on August 29, 1935.

It was in the rail industry that the first formal industrial pension plan in North America was established in 1874. By 1925, more than three-fourths of all railroad workers in the United States were covered by pension plans. However, relatively few employees actually received benefits under these plans, and during the Great Depression of the 1930s the plans had difficulty meeting their obligations. Older workers consequently exercised seniority rights to continue working, and accounted for a disproportionate number of the industry's employees. Railway labor sought legislation to continue railroad pensions as part of a reliable and equitable national program.

Legislation was enacted in 1934, 1935 and 1937 to establish a railroad retirement system separate from the social security program enacted in 1935. The social security program would not credit past service and was not scheduled to begin monthly benefit payments until the 1940s. Legislation taking into account the particular circumstances of the rail industry was not without precedent. Numerous laws pertaining to rail operations and safety had already been enacted since the Interstate Commerce Act of 1887. Since passage of the Railroad Retirement Acts of the 1930s, numerous other railroad laws have been enacted.

The 1934 Act was declared unconstitutional by the Supreme Court and the 1935 Act was also challenged in the Courts. Nonetheless, the Railroad Retirement Board (RRB) made its first annuity payments 11 months after passage of the 1935 legislation. While an appeal was pending, railroad management and labor, at the urging of President Roosevelt, resolved their differences in a memorandum of agreement which led to the Railroad Retirement and Carriers' Taxing Acts of 1937. In July 1937, the benefit payments of almost 50,000 pensioners were taken over by the RRB and by the end of 1938, almost 100,000 employees had retired under the system.

This legislation set up a staff retirement plan providing annuities based on an employee's creditable railroad earnings and service. Annuities could be paid at age 65 or later, regardless of length of service, or at ages 60-64 (on a reduced basis) after 30 years of service. Disability benefits were payable after 30 years of service or at age 60.

Numerous amendments after 1937 increased benefits and added benefits for dependents. Amendments enacted in 1946 and 1951 added survivor and spouse benefits, liberalized disability benefit requirements and established jurisdictional coordination with the Social Security Administration.

In addition, a financial interchange was established between the two systems to equitably apportion the costs of benefits and taxes based on rail service. This financial interchange, which ensures that the Social Security Trust Funds neither gain nor lose from the existence of the railroad retirement system, became an integral source of railroad retirement funding in subsequent decades. In 1965, the financial interchange served as an operating vehicle through which the Medicare program was extended to railroad retirement beneficiaries.

The recurring inflation and recession in the national economy during the 1970s and 1980s created formidable actuarial problems for pension systems, particularly those providing substantial cost-of-living protection for beneficiaries. Railroad retirement annuities, like social security benefits, were increased by an aggregate of 52 percent between 1970 and 1972 alone. The cost of these increases jeopardized the solvency of the system and Congress directed that a Commission on Railroad Retirement study the system and its financing for the purpose of recommending changes that would ensure adequate benefit levels on an actuarially sound basis.

Following the Commission's study, railway labor and management proposed a restructuring of the railroad retirement system that was enacted into law as the Railroad Retirement Act of 1974. The 1974 Act provided a two-tier system with a first tier formula yielding amounts equivalent to social security benefits, taking into account both railroad retirement and nonrailroad social security credits. A second tier formula, based on railroad service exclusively, provided benefits comparable to those paid over and above social security benefits by other industrial pension systems. The Act eliminated duplications in dual railroad retirement-social security benefits for new hires and individuals not vested as of December 31, 1974, under both programs, but protected the equities of employees vested for dual benefits before 1975. It was anticipated that the changes in the benefit formulas, the reduction in dual benefits, higher investment earnings, plus provisions for additional funds from the Federal Government to pay the phase-out costs of dual benefits would place the railroad retirement system on a reasonably sound basis.

However, neither industry nor government at that time anticipated the resurgence of double digit inflation in the latter part of the 1970s and the recession of 1981. Financial amendments were subsequently enacted in 1981 as part of the Omnibus Budget Reconciliation Act and in 1983 under the Railroad Retirement Solvency Act. These amendments raised retirement taxes, deferred cost-of-living increases, reduced early retirement benefits, limited future vested dual benefits, and subjected annuities to Federal income tax. These amendments also simplified benefit formulas, provided protection for divorced spouses and remarried widow(er)s, liberalized the current connection requirement for career employee benefits, and increased benefits for disabled widow(er)s and employees with military service.

Legislation in 1988 liberalized work restrictions and the crediting of military service in certain cases. It also provided more equitable treatment of separation or severance pay for railroad retirement purposes.

In 2001, the Railroad Retirement and Survivors' Improvement Act, the most significant railroad retirement legislation in almost 20 years, and the first in almost three decades not to involve tax increases or benefit reductions, was signed into law. The benefit and financing provisions of the legislation, like those of most previous railroad retirement legislation, were based on joint recommendations negotiated by a coalition of rail freight carriers and rail labor organizations.

The Act liberalized early retirement benefits for 30-year employees and their spouses, eliminated a cap on monthly retirement and disability benefits, lowered the minimum service requirement from 10 years to 5-9 years, if at least 5 years were after 1995, and provided increased benefits for some widow(er)s. Financing sections in the law provided for adjustments in the payroll tax rates paid by employers and employees, and the repeal of a supplemental annuity work-hour tax.

The legislation also created the National Railroad Retirement Investment Trust, which manages and invests railroad retirement funds in non-governmental assets, as well as in governmental securities.

The railroad unemployment insurance system was also established in the 1930s. While the State unemployment programs first provided in 1935 generally covered railroad workers, railroad operations which crossed State lines caused special problems.

Unemployed railroad workers were denied compensation by one State because they became unemployed while working in another State or because their employer had paid unemployment taxes in another State. Although there were cases where employees appeared to be covered in more than one State, they often did not qualify in any.

A National Security Commission reporting on the nationwide State unemployment plans recommended that railroad workers be covered by a separate plan because of the complications their coverage had caused the State plans. Congress subsequently enacted the Railroad Unemployment Insurance Act in 1938, which established a system of benefits for unemployed railroad workers, plus a free placement service, financed by a payroll tax payable by employers. Benefits became payable on July 1, 1939.

Amendments enacted in 1946 increased the maximum daily benefit rate and the maximum duration to 26 weeks. They also provided sickness benefits; at that time, only two States, Rhode Island and California, had sickness plans.

Amendments enacted in the 1950s raised the maximum daily benefit rate in stages, provided extended unemployment benefits for 13 weeks to employees with at least 10 years of service and 26 weeks of extended benefits to 15-year employees. In 1968, legislation increased the daily benefit rate and provided extended benefits for sickness on essentially the same basis as for unemployment.

Amendments in 1975 increased the maximum daily benefit rate and liberalized the basic eligibility requirements for new employees by lowering the 7-month base-year service requirement to 5 months. In addition, the 1975 amendments mandated a 7-day waiting period for benefit payments resulting from strikes. The tax rate schedule was increased, starting in 1976, depending on the balance in the account, in order to finance the increased benefits. This legislation also lowered the waiting period for sickness benefits.

The national economic recession of the early 1980s caused large-scale railroad layoffs. The layoffs increased unemployment benefit payments to record levels which far exceeded unemployment tax income and necessitated high levels of loans from the Railroad Retirement Account. The Railroad Unemployment Insurance Account owed the Railroad Retirement Account a peak amount of over $850 million at the end of fiscal year 1986. Financial measures to assist the Railroad Unemployment Insurance Account were included in the Railroad Retirement Solvency Act enacted in 1983.

The Solvency Act raised the taxable limit on monthly earnings and the base-year qualifying amount. The waiting period for benefits during strikes was increased from 7 to 14 days. A temporary repayment tax on railroad employers was scheduled to begin July 1, 1986, to initiate repayment of loans made by the Railroad Retirement Account. Sickness benefits, other than those resulting from on-the-job injuries, were made subject to Federal income tax. The legislation also mandated the establishment of a Railroad Unemployment Compensation Committee to review the unemployment and sickness benefits programs and submit a report to Congress.

Legislation in 1986 amended the repayment tax and provided for an automatic surtax on rail employers if further borrowing took place.

In 1988, the most significant railroad unemployment insurance legislation in decades was enacted. Based on the recommendations of the Railroad Unemployment Compensation Committee, the Railroad Unemployment Insurance and Retirement Improvement Act of 1988 increased the railroad unemployment and sickness daily benefit rate, and indexed future benefit rates and qualifying earnings requirements to national wage levels. This legislation improved the railroad unemployment insurance system's financing by indexing the tax base to increased wage levels, experience rating employer contributions and assuring repayment of the system's debt to the Railroad Retirement Account. In June 1993, the $180 million loan balance was repaid in its entirety from cash reserves in the Railroad Unemployment Insurance Account and the loan repayment tax was terminated.

The 1988 amendments also required the RRB to make annual financial reports to Congress on the status of the unemployment insurance system. The reports have been favorable.

Legislation enacted in 1996 increased the railroad unemployment and sickness insurance daily benefit rate and revised the formula for indexing future benefit rates. It also reduced the waiting period for initial benefit payments and eliminated duplicate waiting periods in continuing periods of unemployment and sickness. In addition, the legislation applied an earnings test to claims for unemployment and reduced the duration of extended benefit periods for long-service employees.

By the beginning of the 2010 anniversary year, railroad retirement benefits of $281 billion had been paid by the RRB to 2,000,000 retired employees, 1,100,000 spouses and 2,400,000 survivors; unemployment and sickness benefits had totaled some $8 billion. The first retirement annuities awarded under the 1935 Railroad Retirement Act averaged $60 a month and no monthly benefits were payable to spouses or survivors. Currently, employee annuity awards average about $2,700 a month, annuities for spouses average over $900 a month, and annuities to aged and disabled widow(er)s just over $1,700 a month.

In 2010, nearly 600,000 beneficiaries will receive retirement and survivor benefits of about $11 billion, and about 42,000 persons will receive unemployment and sickness benefits of about $300 million.

Originally headquartered in Washington, D.C., the RRB was moved during World War II to the railroad crossroad of the nation, Chicago, Illinois. Since 1942, the agency's headquarters have been at 844 N. Rush Street, just north of the Chicago Loop. The RRB also maintains field offices across the country in railroad localities.

An Epidemic of Underfunding

Nearly 100 state-run public employee pension systems in the United States are under-funded. Some in the most dire straits include:

• South Carolina Police with only 63.3 percent of the money needed to send out future paychecks
• West Virginia Teachers with only 43.3 percent
• Rhode Island with 58 percent

Thanks to the Center for State and Local Government Excellence for this information