Nevin's Data "Points"

Participant education meetings have long touted the “magic” of compounding; that apparent miracle of finance whereby income earned on investments becomes part of an account balance, and earns more income that in turn adds to the account balance, which earns more income, and so on. The net result, of course, is that at the end of a savings career, you wind up with a lot more money than you ever thought possible. The funny thing is, I’ve known about this magic for so long, I had almost forgotten how impressive the results could be. Or had, until Russell Investments published a short paper with a long title— “ The 10/30/60 Rule: Where Do Defined Contribution (DC) Plan Benefits Come From? It’s Not Where You Think .” This paper wasn’t about compounding per se—if it had been, I doubt that I would have taken the time to read it. In fact, now that I’ve brought up the subject of compounding, you may have already gone on to other things—but stick around. We all know that compounding is a go...

I spent some of my precious three-day weekend perusing Teresa Ghilarducci’s When I’m Sixty-Four, an intriguing title for a book about pensions–or, as the subtitle suggests, “The Plot against Pensions and the Plan to Save Them.” To her credit, Ghilarducci, an economics professor at Notre Dame, actually offers a serious proposal to provide a more secure retirement income stream for Americans, certainly for lower-income individuals. It is unfortunate, IMHO, that she devotes but a single chapter of the 300-page book to exploring the “plan to save them,” leaving the bulk to “the plot.” A “plot” that includes the complicity and outright scheming of employers, advisers, providers, and even the federal government (well, at least the Bush Administration). The plan? Well, she gets there by imposing a mandatory 5% FICA-like withholding (yes, in addition to the current one) into a “Guaranteed Retirement Account (GRA),” imposing mandatory annuitization of those benefits (no lump sums, and no abi...

Last week, AARP published a report on how economic worries are impacting Americans. The report, aptly titled “ The Economic Slowdown’s Impact on Middle-Aged and Older Americans" , "revealed” what seems obvious to most—that a large majority of Americans think the economy is in trouble (even though most respondents’ personal lives seem largely unaffected) and that, as a result, some are making adjustments in lifestyle (things like vacations and eating out), saving, investing, and retirement plans. In fact, the headlines—including ours—tended to focus on the fact that more than one out of four (27%) workers age 45-64 say they postponed plans to retire, and nearly as many reported they are prematurely taking money out of their 401(k)s and other investments (see “ Delayed Retirement, Early Withdrawals Result from Economic Downturn ”). Another interesting data point was that 27% said that recent stock market losses had led them to start putting less in their retirement accounts. ...

Last week, the Connecticut legislature didn’t get around to voting on a bill that would have effectively set up a state-sponsored 401(k) plan for small businesses (see CT State 401(k) Plan Proposal Dies as Session Ends ). Proponents—which included AARP—claimed that the legislation would save businesses with fewer than 100 workers a lot of money, basically by allowing them to pool their plan investments—a pool large enough to provide the negotiating power that small businesses generally lack on their own (workers would have individual accounts and be able to choose from various investment options, while employers could contribute a percentage or set up a program to which employees would contribute). Opponents—which included the Connecticut Business and Industry Association (CBIA), the Connecticut Bankers Association, the Insurance Association of Connecticut, the American Society of Pension Professionals and Actuaries (ASPPA), the Council of Independent 401(k) Recordkeepers (CIKR), and ...

There’s been a lot of talk about tax policy of late. It’s an election year, after all—and while most of the rhetoric revolves around targeting only “the wealthiest Americans,” it’s hard to shake a sense that the impact will be less than precisely targeted. There’s talk of raising the tax rate on capital gains and dividends, for example—as though only the rich invest in stocks and mutual funds. A prominent presidential candidate talks openly about the fairness of increasing the amount of income subject to FICA withholding, and while it certainly sounds “fair,” that could represent a pretty big tax increase for some decidedly unwealthy families (worse, unless the benefit calculations are adjusted—and it would certainly be most unfair to do so—the move won’t even help the Social Security deficit; we’ll just pay out more in benefits to the people from whom we have now taken more FICA). Another prominent presidential candidate wants to sever the tie between employment and health insurance...