Nevin's Data "Points"

Last week we published 1 the results of an update of EBRI’s Retirement Readiness Rating from the Retirement Security Projection Model® (RSPM). That model, which has been modified over the years to take into account certain structural and market changes, 2 projects that more than half (56 percent) of Boomers and Gen Xers will be able to retire with enough money to cover the cost of basic retirement needs as well as uninsured health care costs, including stochastic expenses from nursing home and home health care. 3 On the other hand, that same model projects that about 44 percent won’t have “enough” to cover those expenses. It’s worth noting that the trends are positive. Even after the toll of the 2008 financial crisis, the 2012 number of those at risk of running short is some 5−8 percentage points “better” than what was found in 2003. Moreover, the analysis is able to point to some important trends; eligibility for a workplace retirement plan remains a significant factor in reduci...

I recently had the opportunity to attend The National Financial Capability Study Roundtable, where a variety of researchers (including EBRI’s Sudipto Banerjee) presented, discussed, and challenged a variety of research papers on topics ranging from financial literacy and retirement planning to financial advice, and from financial literacy and financial behavior to “Prohibition, Price Caps and Disclosure”.   Taken as a whole, the day’s discussions focused on ways to better understand and measure the factors that appear to influence individual behaviors regarding their finances.   Simply stated, financial literacy is generally described as the ability to understand finance.   More recently, some have begun to focus on financial capability 1 .   Research has shown that people with higher levels of financial literacy approach retirement with much higher levels of wealth.   However, a growing body of research also suggests that most Americans have limited kno...

When I was 16, my family moved from a small town in Southern Illinois to the suburbs of Chicago.   It was a move that was to change my life in ways I could not have even imagined at the time.   Had that move not occurred, I’d likely have wound up at a different university, might well have chosen a different major, and almost certainly would never have stumbled across the college internship doing pension accountings that has, many years later, brought me here today.   As you might expect, those possibilities were not obvious to me at the time of that move.   But looking back, the reality is that that move greatly expanded the life choices—and thus, the opportunities—available to me at a particularly critical point in my life. At EBRI’s Research Committee meeting this past week, Research Director Jack VanDerhei shared the updated findings of the EBRI Retirement Readiness Rating (RRR), which will be published later this month.   The Retirement Readiness Rat...

Last week, House Ways and Means Committee Chairman Dave Camp (R-MI) released a report that included responses from more than 70 percent of America’s Fortune 100 companies—a report that indicated that those employers could “save hundreds of millions of dollars a year under the new health care law by simply terminating health insurance for their workers and dumping these employees into taxpayer-funded health care exchanges.”   This, of course, follows recent arguments challenging the constitutionality of the Patient Protection and Affordable Care Act (PPACA) before the United States Supreme Court—with a ruling anticipated by the end of June.   At which point, regardless of the outcome, healthcare reform seems likely to remain an issue for the 2012 political campaign.   What remains to be known is what that will mean for employment-based health coverage (1) —and American’s confidence in their health care system.      Last year, EBRI’s Health Confiden...

In just a couple of weeks, tens of thousands of students (including a daughter of mine) will graduate from college.   For most, it’s a journey of joys, trials and tribulations, an education, not just from a textbook or a professor’s wisdom, but the insights that one can only get from actually living through a different stage of life.   Those students set out upon that journey years ago, and, doubtless following careful deliberation and the counsel of friends, families, and a few trusted advisors, a course was set.   A course that many “adjusted” – by choice and sometimes of necessity – over the course of the last few years, but a course for their future, nonetheless. Now the question is – what will they do next? As parents, we spend a lot of time, energy, and money trying to help our children make good choices, but at a certain point, most of us step back, grit our teeth (and sometimes close our eyes), and hope that they do.   Those decisions aren’t always th...

Last week, EBRI Research Director Jack VanDerhei testified [i] before the House Ways & Means Committee on the subject of “Tax Reform and Tax-Favored Retirement Accounts”, a hearing described as considering “…the current menu of options for retirement savings—both with respect to employer-based defined contribution plans and with respect to IRAs.”   According to Committee Chairman David Camp (R-MI), the hearing was to “…explore whether, as part of comprehensive tax reform, various reform options could achieve the three goals of simplification, efficiency, and increasing retirement and financial security for American families.” That hearing preceded by just a day Senate Budget Committee Chairman Kurt Conrad’s (D-North Dakota) unveiling of his Fiscal Commission Budget Plan (see link here ).    That plan [ii] referenced the original Bowles-Simpson Fiscal Commission’s “Illustrative” Tax Reform option under which the exclusion for employer-provided health insuranc...

This weekend marks the 100th anniversary of the sinking of the now iconic RMS Titanic, at the time the world’s largest ocean liner. Its passengers included some of the wealthiest people in the world, as well as a large number of emigrants seeking a new life in North America. On the ocean liner’s maiden—and only—voyage, it carried 2,244 people, 1,514 of whom would perish as a result of a decision to carry only enough lifeboats to accommodate about half those on board. Despite that, the tale of Titanic’s closing hours is generally one of an orderly, “women and children first” evacuation, with the band playing on while passengers stood in line and waited their turn. In an NPR report this week titled “ Why Didn’t Passengers Panic on the Titanic? ” David Savage, an economist and Queensland University in Australia, compared the behavior of the passengers on the Titanic with those on the Lusitania, another ship that also sunk at about the same time. Both involved luxury liners, both had...

April is Financial Literacy Month, and National Retirement Planning Week, sponsored by the National Retirement Planning Coalition (of which EBRI’s America Savings Education Council (ASEC) is a member) is April 9–13. Both events serve to remind us all of the importance not only of saving, but of establishing specific goals for saving. I was pleased, therefore, this past month to help one daughter set up her first SEP-IRA—and even more pleased to about the same time learn that my other daughter was, of her own volition, making a conscious effort to set aside what seemed to her father to be a fairly substantial portion of her modest income in savings. These are things I knew to do when I was their age, of course, but things I must admit took me a few years to act on. It’s easy, in the normal press of life, to put off thinking about retirement, much less thinking about saving for a period of life many can hardly imagine. We all know we should do it—but some figure that it will take...

If you think it’s complicated trying to determine an individual’s retirement funding needs, imagine trying to do so for all American workers. That was the topic of a Senate Banking subcommittee hearing last week titled “Retirement (In)security: Examining the Retirement Savings Deficit,” at which EBRI Research Director Jack VanDerhei was asked to testify.(1) When EBRI modeled the retirement savings gap of Baby Boomers and Gen Xers earlier this year, we found that between 43 and 44 percent of the households were projected to be at risk of not having adequate retirement income for BASIC retirement expenses plus uninsured health care costs—though that was 5–8 percentage points LOWER than what we found in 2003. That’s right: In terms of that retirement savings gap, American households are better off today than they were nine years ago—even after the financial and real estate market crises in 2008 and 2009. Measuring retirement income adequacy is an extremely important and complex topic,...

When one considers the impact of changes in tax policy on retirement plan savings, it is perhaps natural to assume that those who pay more taxes would respond to changes in the taxation of their contributions and/or savings. However, what’s probably not as obvious to many is that lower-income workers could also be significantly impacted. Indeed, as noted in the March 2011 EBRI Notes, “…behavioral economics has shown that the reaction of employees in situations similar to this are often at odds with what would have been predicted by an objective concerned simply with optimizing a financial strategy.” (1) As part of the 2011 Retirement Confidence Survey, workers were asked about the importance of tax deferrals in encouraging them to save for retirement. Quoting from the November 2011 EBRI Issue Brief, “If one were to look at this from a strictly financial perspective, one would assume that the lower-income individuals (those most likely to pay no or low marginal tax rates and ther...

Last week the Employee Benefit Research Institute (EBRI) and Mathew Greenwald & Associates, Inc., unveiled the 22nd annual Retirement Confidence Survey (RCS) . Among the things we have learned after doing this survey for more than two decades: People’s confidence about retirement frequently seems out of line with the financial resources they indicate they have on hand to fund it. Of course, most (56%) of this year’s respondents admit neither they nor their spouse have made even a single attempt to determine how much they need to achieve that comfortable retirement—so it shouldn’t be too surprising that, asked how much they think they need to have saved in order to provide for a comfortable retirement, many hold forth a number that seems lower than some might expect. While we spent a fair amount of time this week discussing the results with reporters, one question that came up repeatedly was “Why do you do this survey? What do you hope people take from it?” The survey itsel...

On March 13, (1) the Employee Benefit Research Institute (EBRI) and Mathew Greenwald & Associates, Inc., will unveil the 22nd annual Retirement Confidence Survey (RCS)—the longest-running annual retirement survey of its kind in the nation. Indeed, the RCS is unique in offering a perspective on retirement that is now as long as the retirement of those living to average life expectancy at 65. Consider that back in 1996, the sixth annual RCS found that 24 percent of retirees were not confident that they would have enough money to live comfortably throughout their retirement years, and more than 1 in 5 said their lifestyles were worse than when they first retired (with nearly 1 in 10 calling them "a lot worse"). The report noted that “[t]wo-thirds of those working then predicted they would work after they ‘retire,’ and nearly 40 percent of those say they think they'll need to for financial reasons, to pay the bills and make ends meet.” Five years later, the 2001...

In response to concerns that tomorrow’s retirees will run short of money, we are often told to save more, to work longer, or – as often as not these days – to work longer AND save more. Certainly working and saving longer can do wonders in terms of stretching your retirement nest egg. However, the timing of the retirement decision is often not within an individual’s control. In fact, the Retirement Confidence Survey has consistently found that a large percentage of retirees leave the work force earlier than planned. In fact, nearly half (45 percent) of retirees reported that they were in this situation in 2011 (see EBRI Issue Brief No. 355, March 2011, The 2011 Retirement Confidence Survey: Confidence Drops to Record Lows, Reflecting “the New Normal” ). Real-world data have shown (and shown for some time now) that the median retirement age for Americans is not even as old as 65 (it’s been 62). Still, EBRI research has shown that working longer – even working past the age of 6...

The bad news is that times are still tough for many Americans—and surveys suggest that even those with jobs are nervous about their prospects for the future. The good news is that the current level of economic uncertainty seems to have brought about—at least for some—a heightened awareness of the need to set money aside for a rainy day, perhaps even those rainy days in retirement. That said, the weak economy has certainly constrained the ability of many to save. In fact, a recent national survey found that an increasing number of Americans are having difficulty saving to meet goals ranging from meeting emergencies to affording retirement. The survey—released as part of America Saves Week(1)—noted that over the past three years, there has been a decline in the number of people who spend less than their income and save the difference, are building home equity, have adequate emergency savings, and think they are saving enough for retirement. However, the survey also revealed that havi...

In this business you are frequently asked “how much should people save for retirement?” Some try to answer that question with a degree of specificity that can be somewhat simplistic. Let’s face it, even if those close enough to retirement to have a sense of what their pre-retirement income level is (and, flawed as that can be, most projections start from that assumption as a baseline for what you’ll want/need to spend in retirement—see “Replacement” Window ), most struggle to turn that into a real savings figure. Ultimately, of course, a reliable answer to that retirement savings question requires an understanding of the individual’s goals and/or financial needs—and, predicated on certain assumptions, there are any number of tools that can help individuals set a target and (based on that) establish a savings plan. However, the planning question that almost never gets asked is: “And how certain do you want to be of achieving that target?” Asked that question, I suspect most ind...

The Senate Finance Committee is positioned to pass a highway bill, funded at least in part by changing the tax treatment on retirement accounts. Specifically, the modified chairman’s mark of the proposed Highway Investment, Job Creation and Economic Growth bill would require that age 70-1/2 account distributions be treated, for tax purposes, as distributed within five years of the death of the account holder (unless the beneficiary is the account holder’s age, a child with special needs, or older than 70). Under current law, holders of IRAs and 401(k)-type accounts are required to begin taking taxable distributions from those accounts once they reach age 70-1/2, though if the account holder dies, the taxation of the account is spread over the life of the beneficiary. According to a Senate Finance Committee press release , this particular provision is estimated to raise $4.648 billion over 10 years. The bill’s prospects in the Senate remain unclear, and the Wall Street Journal no...