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2/25/2013 0 Comments

Increased Debt Impacts Retirement Savings

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Increased debt among older population could impact leisure travel as well.
The Employee Benefit Research Institute (EBRI) reports that debt is becoming more of a challenge for the elderly (age 65+) and near-elderly (ages 55-64) segments. EBRI finds vulnerability when it comes to housing-related debt, where many are at or near the 40% debt-to-income threshold that is often considered a cause for concern. EBRI is particularly worried that many households will have to sell their homes out of necessity - leveraging housing debt "at this point in their lives may leave them without a major resource to finance an adequate retirement." 


EBRI points out that increased debt may or may not be a problem in and of itself. If income and assets were growing faster than debt, then one could be improving his or her finances by taking on added debt. The reason EBRI is concerned is that this has not been the case recently. In fact, EBRI notes that from 2004 to 2010, the ratio of debt to income rose significantly for the three lowest income quartiles. There were some slight improvements between 2007 and 2010 in that the group above the 40% threshold became smaller, although above 1992 levels (even higher for those age 75+). Credit card debt also showed some signs of improvement.


According to EBRI, " Older families that take on higher housing debt may well have difficulty avoiding a major lifestyle change in living arrangements for the remainder of their retirement, certainly if they plan to rely on their home as a financial asset." EBRI notes that the declining home values since 2008 will make it very difficult for many to achieve the retirement security that they hoped for. 

One can assume that this lifestyle change likely will impact many parts of the economy, including travel, restaurants, and others in the hospitality industry, for example.
An interesting follow-up to this report would be to study the impact that a rebound in housing prices or a further decline might have on retirement security and lifestyles. Additionally, what role will inheritances from those who were less impacted have on retirement security of those currently struggling? The EBRI note is available on its website.







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2/20/2013 0 Comments

Caution Despite Record High 401(k) Balances

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Sydney Harbour Bridge? No, Staten Island view of Bayonne Bridge.
Fidelity Investments' latest update to its 401(k) participant trends shows very positive news, with participant accounts reaching record high levels. According to Fidelity, the average account balance for participants it services was $77,300 at the end of 2012, a 12% increase over the prior year. Fidelity attributes about two-thirds of the increase to market activity and the remaining third to participant contributions. Fidelity reports that the average participant saves 8% of salary in 401(k) plans,. When you factor in the employer match, this rises to a 12% savings rate for the typical participant. Fidelity also finds that those with Roth accounts have even better savings rates. 


While this trend is, of course, very encouraging, many individuals are still struggling to save for retirement. This was noted by Research Director Jack VanDerhei of the Employee Benefit Research Institute (EBRI) in testimony before the Senate Committee on Health, Education, Labor and Pensions (HELP). According to EBRI, about 44% of Baby Boomers and Gen X households are believed to be at risk of running short of money in retirement, although this can be by as little as one dollar or well into the tens of thousands of dollars. This factors in housing equity and other financial resources. Including uninsured healthcare costs in the equation, EBRI projects a $4.3 trillion retirement income deficit just among Baby Boomers and Gen X'ers. EBRI adds that the challenge is even greater for women because of longer life expectancies than men, shorter tenures in the workforce, and differences in pay. EBRI also testified that the presence of a defined benefit (DB) plan has a positive impact on retirement income adequacy, by reducing the at-risk group of Baby Boomers and Gen X'ers, particularly among low- and middle-income participants. EBRI urges an increase in the typical default deferral rate from 3% to 6%.


More details can be found in Fidelity's news release and in EBRI's submitted testimony to the HELP committee.

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2/11/2013 0 Comments

Shoe Phones & Retirement Savings

If you are a fan of the TV series Get Smart, whether the original or in reruns, you might say that the famous shoe phone was ahead of its time as a mobile device. Even the Statue of Liberty, let's not forget, is holding a tablet (not an iPad) in addition to the torch. Today, smartphones and tablets are everywhere, and they are making impacts way beyond anyone's expectations, sometimes in unexpected ways. When you look at an iPhone, you can easily forget that it started out primarily as an iPod with a phone. Today, there is an ever-expanding universe of mobile apps to add to the phone, whether playing games, taking photos or video, social networking, reading, shopping, checking the news, finding directions, and so much more.

In the retirement space, the 1990s was perhaps the era of the IVR, or interactive voice response. The past decade, participants have been flocking to the internet in growing numbers, with the IVR fading from view. According to Vanguard, 81% of all transactions are done via the internet, with 16% using a call center representative, and a minimal 3% using the IVR. (See Figure 104 in Vanguard's How America Saves 2012) Principal reports that mobile technology is helping to produce positive outcomes for participants by driving increased engagement and interest in one's own account - whether in the form of mobile apps, mobile websites, or text messages. (See page 24 of Principal's The Total View 2011)

OneAmerica has done some digging into generational differences in using technology. Key findings in its online survey of 6,300+ participants include:
  • >60% of participants <age 40 found online retirement calculators most helpful, versus 51% for ages 41 to 50, and 41% for those >age 50
  • 67% of those >age 50 found articles most helpful, versus 45% in the age 20 to 30 bracket
  • 24% of those age 20 to 30 found mobile apps most helpful, versus 12% for those between ages 40 and 50, and 7% for those >age 50
  • Blogs and social media are similarly preferred more by the younger groups

Additional details from the OneAmerica report are available in its news release.

It will be interesting to continue to follow these trends in the coming months and over the next few years. While the smartphone market is slowing down a but, it is still growing. Tablets continue to pick up steam in their growth, so for the foreseeable future, it is likely that we will see even greater usage of online and mobile tools by retirement plan participants.

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2/4/2013 0 Comments

Study Looks At In-Plan Guarantees

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New Jersey Sunset
The Insured Retirement Institute (IRI) has released a report that provides an overview of the advantages and the challenges associated with offering guaranteed lifetime income streams through employer retirement plans. The decline of defined benefit (pension) plans, coupled with the inexperience of most people  in managing lump sums received from 401(k) and other defined contribution plans, has meant that there is an opportunity for creative solutions to provide retirement security on a steady basis. The IRI study reaches the following conclusions:
  • An overwhelming nine out of ten participants like the idea of income-generating options within their employer's plan.
  • Although modest in numbers, Baby Boomers show increased preference for guaranteed income as they get older. 
  • In-plan guaranteed income options protect against market volatility as retirement approaches.
  • Group purchases lower fees.
  • Better participant outcomes make for a happier workplace.
  • Fiduciary concerns are a significant barrier to greater acceptance of in-plan guaranteed lifetime income solutions.
  • Less control of retirement assets also is a concern.

The full report, Guaranteed Lifetime Income Options within Employment-Based Plans: Leveraging Advantages and Overcoming Challenges. is posted on the IRI website.

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    Blog Author - Ken Felsher

    With over 25 years of writing, editing, and research experience. I enjoy sharing with my readers my love of working with content on a variety of subjects.

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