retirement savings
Retirement Benefits Savings Reduced in the Last Year
Though there are many attempts being initiated to help the U.S. people save more for their retirement via the retirement benefits savings, the amount of savings actually went down in the last year. The key factor behind this change was the unpredictable economic atmosphere. Many Americans accept that they are not saving enough for the kind of life they planned to live after retirement.
The Reduced Retirement Benefits Savings
The reduced retirement benefits savings were highlighted in the Fidelity Analysis done in the month of June. The analysis involved about 14.2 million people. It showed that the 401(k) balance fell by 2.5 percent for the three months ending in June when compared to the same timeframe last year. The Individual Retirement Account (IRA) balance has also reduced by 7 percent when compared to the same quarter of the year 2015. The conclusion is based on studying 8.2 million IRA accounts.
The Atmosphere
These figures were highlighted in today’s atmosphere that has low-interest rates that depress the bond yields and somewhat flat S&P 500 since the last 12 months ending in June. The Swings in the market were also a result of major shocks such as the Brexit referendum and Shanghai Composite in 2015. These shocks also relegated a bunch of investors to the sidelines.
The Dramatic Swings
A Senior Vice President at Fidelity, Doug Fisher has stated that the retirement savers are always adapted to the market volatility but the swings that occurred in the second quarter were very dramatic. These dramatic swings included 600 point drop that was followed by an 800 point increase.
Fewer Changes
There was not much change in the accounts of Fidelity investors during the 12 month period ending in June. Only 8 percent customers made changes to their accounts in the specified timeframe.
The Shortfall
It was also revealed that about 32 percent Americans have accepted that their retirement savings are not enough. They feared that the retirement savings would not be enough to allow them to live a life they always wanted to in retirement.
The Hard Fact
Another hard fact worth mentioning here is that the nation is facing about 1 trillion pension shortfall. This is due to two vital factors, aging population and continually stretched state budgets. People’s inability to save enough towards the retirement benefits in such a scenario is a very bad news.
States Taking Action to get Retirement benefits for People
Many studies have found that people are not saving enough for retirement these days. To rectify the situation, the states have come to the forefront and have launched many programs where the employees get to save some money towards their retirement benefits. Some programs have already been launched and some are to come soon. These programs seem to be a ray of hope for people who don’t have any retirement saving funds.
The Shocking Fact about Retirement benefits
A recent federal report has uncovered a shocking fact about retirement benefits. It states that about 55 percent of households that have workers between the ages of 55 to 64 have less than $25,000 saved up towards their retirement benefits savings.
States’ Initiatives
Seven American states have initiated a program to help people save up for retirement. In Massachusetts, the treasurer has the responsibility of handling the investments and contributions for the voluntary programs that are for small nonprofit organizations.
States such as Maryland, Oregon, Connecticut and Illinois have begun several mandatory programs where a small percentage of an amount is automatically reduced from the employee paycheck and the same amount is added in an IRA in a financial establishment. In this system, a person has the complete liberty to back out from the program. In this program, the employers only have a small role to play, they educate employees on the program and send the payroll deductions to the respective states. The employers are not asked to contribute financially.
The Marketplace Model
Washington and New Jersey have adopted an innovative marketplace model in which the states create an online portal of retirement plans and any employee can get himself or herself enrolled into it. The state sets the basic standards and quality parameters for each of the retirement plan provider.
Making Employers Responsible
Some states are aiming towards making employers responsible for ensuring that the employees have a retirement benefits account. In a program launched by Maryland, if the employer doesn’t enroll its employees in a program, the employer needs to pay a standard filing fee of $300.
Illinois aims to launch a new program in June 2017. The businesses that have 25 or more employees and offer no retirement benefits plans would be required to participate in the program. Employees would be automatically enrolled when an employer joins but the employees have the option to opt out of the program. When the employees are enrolled 3 percent of their salaries/wages would be placed in Roth IRA and this percentage can be changed by the employee.
States Helping Private Sector Employees to Save Towards Retirement Benefits
Saving towards retirement benefits has become a huge concern for public sector employees as well as private sector employees. As private sector employees have got fewer options for retirement savings, the states are thinking about adopting some methods to ensure that the employees get access to more retirement saving options. Many of the state governments are adopting 3 crucial approaches as per the information shared by Pew Research.
Why there is a Need for Better Retirement Benefits Options?
The information shared by Pew Research indicates that most of the private sector employees accumulate a hefty part of their retirement funds in the plans that are employer-sponsored. It also mentions that just 58 percent of employees have access to a retirement savings plan and just 49 percent participate in a plan. Only fewer than 10 percent of all workers are contributing to a retirement plan that’s not job-based. It is pertinent to add here that the failure to save or save enough for retirement has a negative impact on the life of workers later in life.
Seeking the Right Programs
To help the private sector employees, several states are seeking programs that would help private sector employees to save for their later years. Pew Research analyzed the efforts made by 25 U.S. states and found that the objectives of all these states were consistent.
The states seeking programs that aim to increase the retirement savings and reduce poverty among retirees so that the social assistance spending that is straining the budget can be reduced. The policymakers also want to ensure that the new programs have the potential to be implemented successfully, that are sustainable and cost effective. The programs must also place minimal burden on an employee and protect the retirement savings.
The Three Vital Programs
The states are taking help of three approaches. The first approach is to administer and sponsor a plan that is governed in accordance with and under the Employee Retirement Income Security Act (ERISA). The next option is to work within the existing voluntary employer-based system and the final option is to create a state-based plan that is not subject to any federal pension law.
It is a fact that all of the above-mentioned approaches have the potential to help the private sector employees to get better retirement savings options and hence they would have access to better retirement benefits after they retire.
Investment Firm Seeks to Expand Access to Retirement Benefits
State Street Global, an investment giant of Boston seeks government help to ensure that all the private sector employees to get better access to retirement benefits. The company has asked the government to make some laws that will increase the retirement benefits coverage of private sector employees. The company does not wish the government to launch an expensive retirement plan and applauds the steps taken by the government to boost retirement saving opportunities.
The Open Letter Seeking Better Retirement Benefits
The Boston Investment giant released an open letter to the government recently and insisted on ensuring that steps to boost retirement benefits for private sector employees are taken soon. The letter suggested steps like making it mandatory for employers to enroll all employees in 401(k)-type savings plans. The letter also proposed that the private employers must offer default investments like target-date funds that include some stock and some bond funds. These basic investments should be based on the risk appetite and age of the employee.
Tax Credits
The company also expects the government to offer some tax credits to small employers. It will allow them to cover the administrative costs related to the retirement plans. It was also suggested that businesses must be allowed to group together to offer retirement plans.
The Need
Ron O’Hanley, who serves as the State Street Global’s Chief Executive recently stated that the problem of lack of retirement funds for the private sector employees is a direct threat to the overall society and the well-being of future generations. He also shared that the company does not want the government to launch any other expensive plan but just wishes for better access to retirement benefits to the private sector workers.
The Plan
O’Hanley also revealed that the company planned to seek the help of other investment managers so that the concept can be pushed at the lawmakers.
Seeking Betterment
O’Hanley has appreciated the efforts made by the Congress and the White House for expanding the retirement savings opportunities. But the company also thinks that there is a need for a national and bipartisan answer that promises workplace coverage in a retirement savings plan.
The Progress
It is pertinent to mention that as per the latest report of the Government Accountability Office on retirement security about 40 percent of working households don’t have any means to access an employer-sponsored defined-contribution retirement benefits plan.
Many Americans Lack Access to Retirement Benefits Plans
A new study has revealed that many Americans lack access to a retirement benefits plan. The study also showed that Americans prefer retirement plans offered by their employer when compared to the 401(k) like plans. The study also found out how living in a state or working in a particular sector impacts the access to retirement plans. Recommendations to correct the situation were also given to the policymakers.
Americans Don’t Have Access to Retirement Benefits Plans
Over 40% of Americans have admitted that they don’t have access to an employer-based retirement savings plan or a pension in the study conducted by the Pew Charitable Trust. The study analyzed Census Bureau data and found that about 49% of Americans take part in the 401(k) through the workplace or a pension plan. It also found that 58% Americans have access to a plan through their employer.
The Location Impacts Retirement Plans
The study also revealed that access to retirement plans varied more in the metropolitan areas than across the states. The report found that the access rate for employees living in McAllen, Texas was just 23% while it was 71% in Grand Rapids, Michigan. The study also exposed the fact that metropolitan area with the lowest rate of retirement plans access are heavily concentrated in the states as the bottom 25% belong to Texas, Florida, and California.
Other Factors Impacting Retirement Plans
The report of the study also stated that factors like workers’ race, ethnicity, employer size, employee earnings and sector are among the key factors that can decide on the availability of retirement plans. This was proven by adding in relevant data that states about 69% of workers in the manufacturing sector have access to a retirement plan while just 34% of workers in the leisure and hospitality industry have that access.
Challenges of the Policymakers
The Pew Charitable Trust stated that the study clearly points out the fact that the state, city and federal level policymakers need to deal with complex challenges such as increasing the availability of workplace retirement benefits plans. The policymakers need to ensure that the retirement plans are customized as per the local needs.
The policymakers also need to create effective policies by understanding the existing gaps in retirement benefits savings. The study concluded by adding that the policymakers need to understand the nature of taxpayers, workers, and businessmen working in the metropolitan areas.
Americans Improving at Saving towards Retirement Benefits
A recent survey has revealed that Americans are becoming more aware of contributing towards retirement benefits savings. The people of Britain are also becoming more vigilant in this regard. The survey further reports that the retirement readability of the Americans has increased since the last survey that was conducted in the year 2012.
Main Reason Behind Better Retirement Benefits Contributions
The key reason behind the increased retirement benefits savings done by people of America and Britain is that in both nations, more people got automatically enrolled in retirement plans. In Britain, the legislation makes it mandatory to participate in the automatic enrollments and in America, the employers are playing a key role in ensuring the same. All these details were highlighted in the study done by Aegon Center for Longevity and Retirement and Transamerica Center for Retirement Studies.
Retirement Readiness
The researchers asked six questions with regard to retirement readability. It included questions related to responsibility for retirement security, income replacement in retirement, and the quality of people’s retirement plans. The answers to the questions were mapped on a scale of one to 10.
The Improvement
The study revealed that the retirement readiness of the people all across the world improved from 5.2 in 2012 to 5.5 in 2016. The retirement readiness of the Americans saw a great improvement in these 4 years. It now stands at 6.7 while it was 5.6 in 2012.
The Executive Director of the Aegon Center, Catherine Collinson shared the fact that the U.S. respondents improved on all six questions regarding retirement readiness while most of the other nations offered a mixed result. She also added that the country is among the topmost while gauging by the need to save for retirement and the level of personal awareness.
Quality of Retirement
According to Aegon, the high score is not such a big achievement as the country still ranks as medium in the quality of retirement readiness. The survey also pointed out that even with the automatically enrolling in retirement plans the default contribution rate is just 3 percent, lower than what people generally need to save in order to attain retirement security.
It was also highlighted that many Americans were sticking to the 3 percent rate. Many Americans (75 percent) also acknowledged that they were agreeable to the automatic enrollment at 6 percent of their salary to get better retirement benefits.
Retirement Benefits and Stress are interlinked: Study
A recent study has revealed that people are very stressed about retirement and yet many of them haven’t started to save up for it by investing in a retirement benefits plan. The reasons why people are doing so are different from not having enough money or not having their priorities sorted out. The study also pointed out that fewer people feel bored after retirement and many of them continue to work because they want to.
Retirement Benefits and Savings
The study was conducted by Franklin Templeton. It was named fifth annual Retirement Income Strategist and Expectations (RISE) study. It revealed that 41 percent of respondents admitted that they are not saving up for retirement. This percentage was 35 percent in 2014.
About 70 percent of the respondents admitted that they were stressed about retirement benefits, savings and investment. This percentage was 67 percent in 2015. 70 percent of people who were within 11 to 15 years closer to retirement were stressed. It demonstrates that when people get closer to retirement, they start taking its stress.
The Problem
The Vice President of Retirement Marketing for Franklin Templeton, Michael Doshier said that though the study didn’t ask people why they were not saving up for the retirement but the general opinion of people is that they can’t afford to or they don’t have their priorities straight. He further explained that retirement savings are similar to diet and exercise. People know that dieting and exercising would keep them fit and yet they find it hard to stick to it.
The study also pointed out that people who take the assistance of a financial expert are saving up for retirement and hence their stress levels are reduced.
Boredom and Retirement
The study also found out that though many people think boredom will be a problem after retirement, it rarely happens. About 34 percent people said that boredom was among the top three concerns related to retirement when they were preparing for it. But when the retirees were asked about it, only 6 percent were worried about getting bored. Most of the retirees were satisfied with their life.
Job after Retirement
About 30 percent of those people who are still working beyond the age of 65 said that they are working because they love their job and they want to work. They were not forced to work due to lack of funds coming in from the retirement benefits or any other reason.
Investment Fees Cutting Down on Retirement benefits of the Millennials
The Millennial Generation is often encouraged to invest more towards retirement benefits in order to get higher benefits when they retire. But things don’t seem to be as simple as that. A recent analysis has revealed that a lot of money invested by the millennials towards retirement savings often ends up towards investment fee.
Retirement benefits Fee too High?
The analysis of retirement investments was done by NerdWallet. The analysis revealed that if millennials pay just 1% towards the investment fee, they would end up losing more than $590,000 as it will be counted as lost returns. The figure is based on the entire course of their savings lifetime.
The Benefits and The Loss
Time seems to give a big benefit to the generation Y. They have the advantage of at least three or four decades to create their own nest egg as compared to their precursors. This time is also an enemy because the investment fees grow with time. The analysis has exposed that the impact of constantly rising investment fees can cut down the retirement benefits of a millennial by over 25%.
The Instances
The analysis was done on a subject who was a 25-year-old person depositing $10,000 in the retirement savings fund every year. The savings account already had $25,000. The subject earned an average annual return of 7%. The person planned to retire after reaching the age of 40 years. Only 1% investment fee snowballed over time as the portfolio of the subject grew.
In one scenario it was seen that a mid-cap mutual fund that had the ratio of just over 1% was to earn $1.77 million after a time span of 40 years. The ETF also grows at a rapid pace. The index-based exchange-traded fund that had the fee of 0.09 percent was to grow to $2.3 million in the span of 40 years.
Fees in Other Vital Plans
A very similar analysis has revealed that a target date fund which is commonly used in the 401(k) plans that had a 0.75% fee were to grow to $1.9 million within the time span of 40 years. A robo-advisor portfolio was to grow to $2.2 million in the same time span.
Impact on Overall Reduction
The analysis also found out that every dollar deducted in the form of investment fee would be one dollar less left to invest in the retirement benefits.
How to make your retirement savings last
The government has always been very keen on encouraging the citizens of the country to save for retirement. The president has recently introduced another way to make Americans believe that saving for their post-retirement lives is an absolute must. The new myRA accounts allow employees to save up to around 15 thousand dollars in an investment plan that doesn’t even have any substantial fee and guarantees the payee, the principal too. There might be retirement crisis awaiting us in the longer run but this could prove to be a step in the right direction.
Manage your retirement savings properly:
As soon as 2020, the number of elderly officials that earn a meager income will increase rapidly as the retiree population reaches a gigantic figure of around 56 million. This means that there are going to be more poor people as the employees who reach 65 won’t have any place to go.
This is all because we don’t have a fulfilling plan available at our disposal. We need a plan that encompasses all our needs. As proposed by the New York Times, a guaranteed retirement account could be the way to go. According to this plan, all the officers will be able to make regular additions to this account which will then continue to add up until they reach their retirement age. It subsequently can pay out a great deal of money until the person or any of their beneficiaries dies.
The current system does have some good retirement savings plans but unfortunately none is good enough to match and cover the needs of each and every single employee. In this regard, if this proposed plan is given attention, and subsequently implemented, then it can go a long way in making sure that people save their retirement funds a lot more effectively.
Democrats push for more Retirement Benefits Coverage
Many democrats are asking the Obama government to ensure that more government contractors are covered under the retirement benefits plans. Those workers who do not have employer-sponsored retirement savings plans must be given the opportunity to invest in government-backed plans.
Who Wants More Retirement Benefits Coverage?
About 65 Democrat leaders want more retirement benefits coverage according to a letter sent to the White House. This group is led by Joe Crowley, who serves as the Democratic caucus Vice Chair. This group wants Obama to ensure that all federal contractors enroll employees working for them in the retirement plans of the company.
The Demands
The Democrats want Obama to create a requirement according to which the full and part-time workers who are not covered under 401(k) options should get access to a new government-run retirement savings plan that was started by the administration recently.
The Unsuitable Trend
Crowley recently made a statement in which he said that about half of the American workers don’t have access to a retirement benefits plan through their respective employers. He added that many more people don’t know about these plans or are ineligible for it. This has led to an unsuitable trend, which shows that less than 10 percent of such workers make a steady contribution to a savings account on their own. Crowley wants steps to be taken to reverse this trend.
The Government’s Role
The Democrats want the government to take some vital steps to solve the problem of retirement plans coverage offered to fewer workers. They want Obama to start with his own employees and capitalize on his executive branch power so that other companies could follow his lead.
The Employers’ Role
The Democrats also want the government to make it mandatory for employers to auto-enroll their employees in the new government-run savings plan if they don’t have any retirement benefits of their own. The new government-run savings plan was started by White House recently and it is known as “my Retirement Account.” It is a platform to invest money for the workers who don’t have access to any other retirement savings option.
The Main Goal
The main goal of all these steps required by the democrats is to ensure that all the U.S. citizens have some savings stored up that can serve them and offer them retirement benefits when they are too old to work.
New Federal Budget Will Be Good For Federal Retirement Savings
President Obama has always been one for focusing on federal retirement savings and recent news arriving from the White House indicate that the President will focus on the same matter in the coming budget as well. It’s expected that some new proposals will be put forward that will aid in the expansion of the access to retirement savings accounts provided to the employees. Also, some previous provisions are also expected to be looked at.
President Obama to expand access to federal retirement savings:
It’s common knowledge that the multitude of the American working class doesn’t care about retirement plans. Around 1/3rd of the population haven’t got a savings or pension available for their post-retirement life and let’s just say that this is a stat that we would like changed sooner than later. Thankfully, the President’s proposals, if accepted, would go a long way in enabling millions of people access to retirement savings accounts.
This increase will occur the most from the legislation that requires the employers that currently don’t have any workspace retirement plan to make the enrolments on the behalf of their employees in an IRA. The employers that would do this would be compensated by 3 thousand dollars in their tax credit. This proposal was part of last year’s budget as well but the Congress didn’t approve it.
This step is destined to make the post-retirement lives of millions of Americans a lot better than they would turn out otherwise. It’s worth mentioning that even though the initiative has been taken by the President, the final approval lies in the hands of the Congress and while the excitement went in vain last year, this year it’s hoped that things might just turn out for the good. This particular plan, once approved is probably going to stay for quite some time.
How the Government is making it easy to make retirement savings
If you are somebody who lives from paycheque to paycheque, then it’s really hard to save for retirement. The US Government with the never ending urge to help the society is trying to make it a little easier for you to make retirement savings.
Retirement savings made easier:
The retirement savings contributions’ credit is not given much attention most of the times. The credit, the objective of which is to provide the low earning workers to make voluntary contributions to their 401(k) or IRA plans. This has been indicated by the Internal Revenue Service.
This credit will be given in addition to the income on tax returns’ reduction for all the contributions to the retirement plans.
Just like the deductions or the tax credits, the credit phases as the incomes become higher in amounts. The credit phases out at around 30 thousand dollars for all the single taxpayers and for married couples (that file jointly) it amounts to around 61 thousand dollars. It’s just over 45 thousand dollars for the head of the households. It’s worth mentioning that the person needs to be at least 18. In order to claim the credit you would have to fill the form 8880.
The treasury department insists that the contributions can be made through a bank account, via an employer or by navigating all or some of their tax refund to the myRA account.
The Story of Federal Retirement Savings Getting A Bump
Slight Bump in Retirement Savings
Recently an announcement was made according to which there would be no cost of living adjustment made in the retired federal officers’ benefits. This has only been done for the third time in over a span of 40 years. The retirees will thereby not be seeing an increase in their benefits which is something that’s really striking to say the least. Having said that, compared to this, the pay raise that the Federal employees got (from 1 percent to 1.3 percent) looks very handsome.
This is a matter that has divided the community and people are having polar remarks about this move. The congress has been keen to stress on the fact that they are not being ignorant to the financial demands and request of the federal employees. The senate has recently agreed to pass a bill that is going to make the collection of federal officer retirement payments by anybody other than the employee themselves illegal. This prohibits the misuse of money and prevents any further liquidations of the fund money to cash.
This is a step that can be looked at positively and the head of the Senate’s security department, James Lankford said that according to him, now people will at-least have to think twice before they actually go ahead and commit identity fraud on a federal employee that has retired. When you look at it that way, he does make sense but there have been large voices being made heard by many critics who are stressing on the fact that even though the government hasn’t increased the percentages for the plans of the retired officers, they have claimed to make identity fraud a lot harder when in truth it is still achievable.
There are two sides to each story and we just presented you with both. Believing and forming an opinion is strictly down to the readers.
