Nevin's Data "Points"

Last week Beloit College released the Beloit College Mindset List, as it has each August since 1998. Originally created as a reminder to faculty to be aware of dated references, the list provides a “look at the cultural touchstones that shape the lives of students entering college.” For example, this year’s freshman class, born in 1994, have never known a time when history didn’t have its own channel, when there were tan M&Ms (or when there weren’t blue ones), or when “It’s A Wonderful Life” was shown more than twice during the holidays. They grew up talking about “who shot Mr. Burns?” not “Who Shot J.R.?” and while for them there’s always been an NFL franchise in Jacksonville, they’ve never known one in Los Angeles. That floppy disk icon for “save” in the word processing document is as anachronistic to them as the “CC” reference to “carbon copy” likely was to their parents’ email. And, perhaps most significantly, they have never lived in a world without the World Wid...

I was recently asked about the so-called 4 percent “rule.” That’s the rule of thumb(1) that many financial consultants rely on as a formula for how much money can be withdrawn from retirement savings every year (generally adjusted for inflation) without running out of money. Of course, like so many of the “assumptions” about retirement, certainly in the aftermath of the 2008 financial crisis, that withdrawal rule of thumb has drawn additional scrutiny.(2) At the time, my comment was that the 4 percent guideline is just that—a guideline. What’s not as clear is whether adhering to that guideline produces an income stream in retirement that will be enough to live on. How much are people actually withdrawing from their retirement accounts? At a recent EBRI policy forum,(3) Craig Copeland, senior research associate at the Employee Benefit Research Institute, explained that the median IRA individual withdrawal rates amounted to 5.5 percent of the account balance in 2010, thoug...

As a teenager, I remember the occasional visits to the local swimming pool. I also remember that about once an hour, the lifeguards on duty would periodically clear the pool, ostensibly to clean out debris, to enforce a certain rest break on the swimmers (and doubtless for the lifeguards), and perhaps to assure that all the swimmers were still able to get out of the pool. Then, after what seemed to my teenage senses like an eternity, the lifeguards would blow a whistle—the “all-clear” signal for everyone to jump back in the pool. They were very strict about this—and kids were routinely banned for an hour, or even the rest of the day for jumping in “early.” As a result, even after the whistle, most of us would hesitate and look around to make sure that we weren’t the only ones going in. With the Supreme Court’s recent decision on the constitutionality of the Patient Protection and Affordable Care Act (PPACA) behind us, industry surveys suggest that employers are turning ...

An acquaintance of mine recently described to me the challenges of trying to help a family member rebalance their retirement portfolio, which at the moment was split between a 401(k), 403(b), and an IRA. Curious, I asked him how the funds in the IRA were invested. He laughed and said, “Which one?” The data suggest that my friend’s family member isn’t alone in that regard; the average IRA balance is about a third higher and the median (mid-point) balance almost 42 percent larger when multiple individual retirement accounts (IRAs) owned by an individual are taken into account, according to a recent Employee Benefit Research Institute (EBRI) analysis based on its unique EBRI IRA Database.™ 1 In fact, according to a recent EBRI report 2 , in 2010 the average IRA individual balance (all accounts from the same person combined) was $91,864, while the median balance was $25,296. By comparison, the average and median account balance of all IRAs was $67,438 and $17,863, re...

A recent opinion piece by Teresa Ghilarducci in the New York Times took on what she termed a “ridiculous approach to retirement,” drawn from what appears to be a series of “ad hoc” dinner conversations with friends about their “retirement plans and prospects.” Most of the op-ed focused on the perceived shortfalls of the voluntary retirement savings system: People don’t have enough savings, don’t know how much “enough” is, make inaccurate assumptions about the length of their lives and their ability to extend their working careers, and aren’t able to find qualified help to help them make more appropriate savings decisions. In place of the current system, which Ghilarducci maintains “will always fall short,” she proposes “a way out” via mandatory savings in addition to the current Social Security withholding. Consider that, just three sentences into the op-ed, she posits the jaw-dropping statistic that 75 percent of Americans nearing retirement age in 2010 had less than...

A couple of months back, my wife noticed a water spot on the ceiling of our dining room. Now, it didn’t look fresh, but considering that that ceiling was directly underneath the master bath, she had the good sense to call a plumber. Sure enough, there was a leaky gasket—and from the look of it, one that had been there for some time before we took ownership. Fortunately, the leak was small, and the damage was minimal. Even more fortunately, we took the time to have the plumber check out the other bathrooms, and found the makings of similar, future problems well before the “leakage” became serious. Homes aren’t the only place with the potential for problems with leakage. A recent report on 401(k) loan defaults suggests that “leakage”—the money being drawn out of retirement plans prior to retirement —is a lot larger than a number of industry and government reports have indicated. In fact, the report ( online here ) claims that “the leakage could be as high as $37 billion per...

A recent paper from the Center for Retirement Research at Boston College was titled “401(k) Plans in 2010: An Update from the SCF.” The SCF 1 (perhaps better known to non-researchers as the Survey of Consumer Finances) is, as its name suggests, a survey of consumer households “to provide detailed information on the finances of U.S. families.” It’s conducted every three years by the Federal Reserve, and is eagerly awaited and widely used—from analysis at the Federal Reserve and other branches of government to scholarly work at the major economic research centers. The 2010 version was published in June. As valuable as the SCF information is, it’s important to remember that it contains self-reported information from approximately 6,500 households in 2010, which is to say the results are what individuals told the surveying organizations on a range of household finance issues (typically over a 90 minute period); of those households, only about 2,100 had defined contribu...

By some accounts, inertia has long been the bane of the voluntary retirement system—and a great deal of money and time has been spent overcoming the reluctance of workers to become savers, and of savers to do so at levels sufficient to achieve their retirement goals.   That same inertia likely accounts for the fact that, once set on a savings course, or better still, set on one that improves on that initial setting, 1   participants in overwhelming numbers appear to “stay the course”—and do so through good times and times that aren’t as good.   So, what happens to those participants who stay the course, those “steady,” consistent participants?    The Employee Benefit Research Institute (EBRI), through the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project, has long tracked the changes in consistent participant accounts in a database that is the largest, most representative repository of information about individual 401(k) plan parti...

There’s been a lot of talk lately about the need to fix the “broken” 401(k) plan.   Some say it disproportionately benefits higher-paid workers, some claim it can’t provide a level of retirement income sufficient to meet lower-income needs, and still others maintain it can’t provide that level of security for anyone .   And, as often as not, those sentiments arise as part of a discussion where folks wistfully talk about the “good old days” when everybody had a defined benefit pension, and people didn’t have to worry about saving for retirement.   Only problem is—those “good old days” never really existed, nor were they as good as we “remember” them. Consider that only a quarter of those age 65 or older had pension income in 1975, the year after ERISA was signed into law.   The highest level ever was the early 1990s, when fewer than   4 in 10 (both public- and private-sector workers) reported pension income, according to EBRI tabulations of the 1976–2011 Cu...

A mainstay of multiple-choice test instruction is the admonition to select the “single best answer.” Now, generally there really is only one valid answer, but there are times when the questions posed are sufficiently imprecise, or the potential answers specific, that more than one response is viable. That’s where the test architect can always fall back on their notion of “best” answer– because, even if a credible argument can be made for an alternative, it’s a lot easier to grade when there’s only a single, pre-determined result. When it comes to projecting possible outcomes in situations where there might be hundreds, perhaps thousands, or even millions of different results, it’s not uncommon to pick a single point to focus on. For example, projections in financial analysis might use the most likely rate of claim, the most likely investment return, or the most likely rate of inflation, whereas projections in engineering analysis might use both the most likely rate and the most cri...

Last week, Senate Finance Committee Chairman Max Baucus (D-MT) outlined his overall goals for comprehensive tax reform, noting that he planned to use both the Domenici-Rivlin debt reduction plan and the fiscal recommendations of the president's Simpson-Bowles Commission(1) as the “starting points for full-scale tax reform,” citing the former in commenting that “‘Everything must be on the table' when it comes to tax and entitlement reform."   The New York Times last Monday reported a “Push for a Fiscal Pact Picks Up Speed, and Power,” even as other published reports suggested that lawmakers would look to defer those votes until after the November elections. Those headlines echoed the sense that EBRI CEO and President Dallas Salisbury outlined last month to the EBRI board of trustees at their spring meeting—a sense that broad-based tax reform would be the focus of Congress, with fiscal issues driving a focus on the macro impact of policies rather than the micro outcome...

An acquaintance of mine once remarked, “you can’t solve a savings problem with investment returns.”   Yet, participants frequently focus on the returns of their retirement savings investments. Consider that during the month of May, major stock indexes like the Dow Jones Industrial Average and the S&P 500 were off 6 percent. But, according to an EBRI analysis, the estimated average 401(k) account balance 1 was down less than 3 percent during that same month, both due to the inflow of ongoing contributions and more diversified portfolio holdings. That determination is based on estimates from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project—the largest, most representative repository of information about individual 401(k) plan participant accounts. In fact, as of December 31, 2010, the EBRI/ICI database included statistical information on about 23.4 million 401(k) plan participants, in nearly 65,000 employer-sponsored 401(k) plans, representing $1.41...

As a growing number of Americans near and enter retirement, concerns about the cost of post-retirement health care expenses loom larger.   In fact, worker confidence about their ability to pay for medical expenses after retirement was just half what they expressed about their ability to pay for basic retirement expenses (see EBRI’s2012 Retirement Confidence Survey ).   Little wonder, since a recent EBRI Issue Brief noted that health-related expenses are not only the second-largest component in the budget of older Americans, they are the only component which steadily increases with age (see “ Expenditure Patterns of Older Americans, 2001 ‒ 2009 ”).    Recognizing the potential financial impact, recent industry surveys have put a figure on the cost of post-retirement health care expense 1 —a figure above and beyond that of merely living in retirement.   EBRI has gone to great lengths to model the major risks to retirement income adequacy all the way back ...

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...