Retirement Reform Blog

Desperate times call for desperate measures, as an increasing number of people are taking hardship withdrawals from their retirement plans (see WSJ’s “How to Tap Retirement Funds Responsibly“).   For some, these withdrawals can make the difference between paying down debt or getting harrassed by collection agencies, keeping up the with mortgage or moving in with the in-laws.  

But before desperation and panic set in, consider all options with the goal in mind of accessing the exact amount of money you need as cheaply as possible.  Although I have pontificated before about the pitfalls of borrowing against a 401(k), this could be an alternative to taking a costly distribution, provided that you are certain of being able to pay the loan back.  See the NCPA publication, “401(k) Loans = Retirement Insecurity.”  Also, check out our 401(k) Borrowing Calculator to get an idea of how much a loan could cost you in the long run.

I figured by the time I  read an article about government employers taking a page from the private sector, I would be too old to read the small print and too senile to care.  But low and behold, the Wall Street Journal (see Jeannette Neumann, “States Shift to Hybrid Pensions“) reports that states are waking up to the fact that their  pension funds are sorely lacking the money needed to pay retirees’ generous benefits.  Utah and Michigan have begun “hybrid” plans for newly hired public workers.  These plans are a combination of defined benefit (the state contributes to the worker’s pension) and defined contribution where the worker contributes his or her own money to the pension – similar to a 401(k) plan.

As Neumann notes, six other states have hybrid plans as well…not enough, in my opinion, but hey, it’s a start.  If I am a bit enthusiastic about this undertaking of pushing workers to fund more of their retirement plans, it is not for a lack of compassion.  Indeed, hybrid plans are compassionate, progressive  and environmentally responsible.  Let me explain: Read the rest of this entry »

Beginning in 2013, the recently passed health care reform bill will impose new Medicare  taxes on unearned income for single filers with adjusted gross incomes of  $200,000 a year or more and joint filers with AGIs of $250,000 a year or more.  The new 3.8 percent will apply to any rent, royalties, dividends or capital gains above those income thresholds.  This is in addition to regular capital gains and dividends taxes.  In a new brief analysis, I show the implications of the Medicare tax as well as Obama’s proposal to raise the capital gains tax for high-income earners (better known as the “wealthy”).   The bottom line is that these taxes will have the potential to reduce the after-tax rate of return on an investment by nearly one percentage point, or more than 10 percent. Read the rest of this entry »

It’s about time…the good news about 401(k)s has finally surfaced, thanks to an article from the Wall Street Journal.   After all the hand-wringing over 401(k) balances that took a tumble last fall, and ideas proposed by some in Congress over what to do about it (mainly nanny-state schemes of allowing the government to manage retirement accounts), it has been noticed that balances are bouncing back.   (Thank you to WSJ’s Karen Blumenthal) Read the rest of this entry »

Do you want to pay the piper now, or later?  Currently, only households making less than $100,000 a year or spouses filing jointly can convert their traditional Individual Retirement Account (IRA) into a Roth IRA.  But as noted in a recent Wall Street Journal article those restrictions will be lifted in 2010, so that workers of any income level can convert their traditional accounts to a Roth.  Traditional IRAs allow workers to save money tax free now and pay taxes when they withdraw their money during retirement.  Roth IRAs, on the other hand, allow workers to pay taxes on retirement savings now and withdraw it tax free later.   If you're not sure whether a Roth IRA is right for you, check out the NCPA publications "To Roth or Not" and "Would You Benefit from a Roth IRA?"  

A recent article in the Wall Street Journal confirms what I pointed out in a recent NCPA study, "Ten Ways to Wreck Your Retirement."  Tapping into retirement accounts is not the best option!  Certainly, desperate times can call for desperate measures, but it's important to bear in mind the true cost:  penalties, taxes and the lost opportunity of reaping a market comeback. 

A recent article on Forbes online discusses the benefits of "pensionizing" one's 401(k) as a way to dam up the flood of money leaching from the ever downward-spiraling market:

"Seeing how well most 401(k) plans have done in the past year, the answer still seems to be that for many, added flexibility is no replacement for steady, guaranteed returns. But those days are long gone for many. But that doesn't mean that even in a down market that you can't try to trim your losses. How? Do like the pensions do and re-balance your portfolio ever six months or so, selling off your winners and bumping up your losers. This way you're always selling high and buying when things are cheap. "The only way that the investor is going to be able to respond accordingly is if they are aware of what is happening in their portfolio," says Roseman."

Read the rest of this entry »

Fresh from the Employee Benefit Research Institute, a new survey found that many people plan on postponing retirement and working longer than they originally anticipated.  The reasons?  A bear market, economic worries, and less confidence in how much they have saved for retirement.

Read the rest of this entry »

An interesting article appeared in the Wall Street Journal entitled, "What Do I Do Now?"  The article lists five Do's and 5 Don'ts to help readers keep their heads during the recession.  Similarly, the NCPA released a study two weeks earlier called "Ten Ways To Wreck Your Retirement" giving the same sort of recommendations.

"Don't stop saving" seems to be the name of the game when it comes to staying on top of the downward slope.  Of course, this goes along with other practices as well, such as reigning in excess spending, living within your means, taking advantage of employer's matching funds and staying in the market if you're already in so that you don't incur more losses by selling off your stocks.  Whether or not the bottom is near, the advice echoing from all corners of the financial sector is the same: Protect your retirement– don't stop saving!

See NCPA Senior Policy Analyst discuss, "Ten Ways to Wreck Your Retirement."

To readers who are having misgivings about the stock market, the bond market, your 401(k) or IRA accounts and retirement savings in general:  Take a look at the new NCPA policy report, "Ten Ways to Wreck Your Retirement."  While some of the ways seem obvious, the recent economic turmoil have left some savers tossing common sense out the window.  So think carefully before you cash out and stick your money under the mattress or invest in ostrich farms of dubious value (remember those from the 1980s?).