Category Archives: Retirement

Fund Balance New and Improved

Source: Stephen J.Gauthier, Government Finance Review, April 2009

There is probably no single item in a typical state or local government’s financial statements that attracts more attention than fund balance. In February 2009, the Governmental Accounting Standards Board (GASB) issued GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions.This latest GASB standard will not affect the calculation of fund balance,but will fundamentally alter the various components used to report it.

Patience is a Virtue: Asset Allocation Patterns of DB & DC Plans

Source: Ilana Boivie and Beth Almeida, National Institute on Retirement Security, Issue Brief, July 2008

From the summary:
We examine whether the move from DB to DC plans has had an impact on the way retirement assets are invested. Individual investors, for instance, may have a shorter term investment horizon than DB plans. This raises questions about the risk exposure and investment performance of DC plans relative to DB plans. The shift from DB plans to DC plans may have reduced the supply of patient capital over time, meaning that businesses may have a harder time than in the past getting the financing for long-term productive investment projects.

Living Longer on Less: The New Economic (In)Security of Seniors

Source: Jennifer Wheary & Thomas M. Shapiro, Tatjana Meschede, Dēmos, January 28, 2009

Economic security for seniors was built on the three-legged stool of retirement (Social Security, pensions, and savings) at the core of the social contract that rewards a lifetime of productivity. Economic security of seniors, however, is being challenged by two simultaneously occurring trends: a weakening of the three legs of retirement security income and dramatically increasing expenses, such as for healthcare and housing.

Financial Hardship Before and After Social Security’s Early Eligibility Age

Source: Richard W. Johnson and Gordon B.T. Mermin, Center for Retirement Research at Boston College, WP#2009-8, March 2009

From the abstract:
Although poverty rates for Americans ages 65 and older have plunged over the past half century, many people continue to fall into poverty in their late fifties and early sixties. This study examines financial hardship rates in the years before qualifying for Social Security retirement benefits at age 62 and investigates how the availability of Social Security improves economic well-being at later ages. The analysis follows a sample of adults from the 1937-39 birth cohort for 14 years, tracking their employment, disability status, and income as they age from their early 50s until their late 60s. It measures the share of older adults who appear to have been forced into retirement by health or employment shocks and the apparent impact of involuntary retirement on low-income rates. The study also estimates models of the likelihood that older adults experience financial hardship before reaching Social Security’s early eligibility age.

The results show that the likelihood of experiencing financial hardship increases significantly as people approach Social Security’s early eligibility age. The increase in hardship rates is concentrated among workers with limited education and health problems. For example, among those who did not complete high school, hardship rates increase from 23 percent at ages 52 to 54 to 31 percent at ages 60 to 61, a relative increase of 36 percent. Hardship rates decline after age 62, when most people qualify for Social Security retirement benefits. These findings highlight the fragility of the income support system for Americans in their fifties and early sixties.

The Disappearing Defined Benefit Pension and its Potential Impact on the Retirement Incomes of Boomers

Source: Barbara A. Butrica, Howard M. Iams, Karen E. Smith, and Eric J. Toder, Center for Retirement Research at Boston College, WP#2009-2, January 2009

From the abstract:
The long-term shift in coverage from defined benefit (DB) pensions to defined contribution (DC) plans may accelerate rapidly as more large companies freeze their DB pensions and replace them with new or enhanced DC plans. This paper uses the Model of Income in the Near Term to simulate the impact of an accelerated transition from DB to DC pensions on the distribution of retirement income among boomers. A scenario in which employers freeze all remaining private sector DB plans and a third of all state and local plans over the next five years will on balance produce more losers than winners among boomers and reduce their average incomes at age 67. Income changes will be largest among higher-income boomers, who have the highest DB coverage rates and projected pension incomes. Furthermore, the numbers of winners and losers and net income changes are much greater for the last wave of boomers (born between 1961 and 1965) than for earlier boomers. Younger boomers are most likely to have their DB pensions frozen with relatively little job tenure and to lose their high accrual years for DB pension wealth, but also to have relatively more years to accumulate DC pension wealth before retirement…

The Wealth of the Baby Boom Cohorts After the Collapse of the Housing Bubble

Source: David Rosnick and Dean Baker, Center for Economic and Policy Research, February 2009

From the summary:
Turmoil in the housing and stock markets now threatens the retirement security of tens of millions of baby boomers who looked to their houses and investments as sources of retirement wealth. A new report from the Center for Economic and Policy Research (CEPR) shows that due to the collapse of the housing bubble, the vast majority of near retirees have accumulated little or no wealth. This means that they will be almost completely reliant on Social Security and Medicare to support them in their retirement years.

The Structure of State and Local Government Retirement Benefits, 2008

Source: William J. Wiatrowski, Bureau of Labor Statistics, February 25, 2009

New data from the National Compensation Survey show that 92 percent of government workers have access to one or more types of retirement benefits; 84 percent have access to a traditional defined benefit plan, and two-thirds of those with any retirement benefits have access to more than one plan.

An Update on 401(k) Plans: Insights From the 2007 SCF

Source: Alicia H. Munnell, Francesca Golub-Sass, and Dan Muldoon, Center for Retirement Research at Boston College, IB #9-5, March 2009

From the summary:
The maturation of the 401(k) system and the enactment of the Pension Protection Act of 2006, which made 401(k) plans easier and more automatic, were expected to enhance the role that 401(k)s played in the provision of retirement income. So, originally, the release of the Federal Reserve’s 2007 Survey of Consumer Finances (SCF) seemed like a great opportunity to re-assess 401(k)s. The SCF is a triennial survey of a nationally representative sample of U.S. households, which collects detailed information on households’ assets, liabilities, and demographic characteristics.

Of course, the 2007 SCF reflects a world that no longer exists. Interviews were conducted during the late summer and early fall when the Dow Jones was at 14,000 (the peak was October 9, 2007) and housing prices were only slightly off their peak. While the economic crisis had already begun, its effects were not yet visible. Since the time of the interviews, the stock market has imploded, reducing the value of equities in 401(k) and IRAs by about $2 trillion. Housing prices have fallen by 20 percent. And the crisis has spread to the real economy, throwing 3.6 million people out of work…
See also:
data on companies suspending or reducing 401(k) contributions