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CRS — Traditional and Roth Individual Retirement Accounts (IRAs): A Primer (February 12, 2015)

March 5, 2015 Comments off

Traditional and Roth Individual Retirement Accounts (IRAs): A Primer (PDF)
Source: Congressional Research Service (via Federation of American Scientists)

This report describes the primary features of two common retirement savings accounts that are available to individuals. Although the accounts have many features in common, they differ in some very important aspects. Both traditional and Roth IRAs offer tax incentives to encourage individuals to save for retirement. Contributions to traditional IRAs may be tax-deductible for taxpayers who (1) are not covered by a retirement plan at their place of employment or (2) have income below specified limits. Contributions to Roth IRAs are not tax-deductible and eligibility is limited to those with incomes under specified limits.

Older Women Workers and Economic Security

March 3, 2015 Comments off

Older Women Workers and Economic Security (PDF)
Source: U.S. Department of Labor, Women’s Bureau

How and why does the gender wage gap vary by age? How do earnings for older women differ by race and ethnicity? What is the impact of the gender wage gap and caregiving responsibilities on women’s lifetime earnings and their retirement savings? What can be done to tackle the gender wage gap and improve women’s lifetime earnings?

Success Strategies for Well-Funded Pension Plans

February 26, 2015 Comments off

Success Strategies for Well-Funded Pension Plans
Source: Center for State and Local Government Excellence

The Center for State and Local Government Excellence examined the public pension systems in four states with a long tradition of being well-funded to determine what they have in common. The plans studied are: Delaware Public Employees’ Retirement System, Illinois Municipal Retirement Fund, Iowa Public Employees’ Retirement System, and North Carolina Retirement Systems.

While each of the defined benefit plans has a unique history and legal framework, they share these practices:

+ a commitment to fund the annual required contribution in both good and bad financial times;
+ conservative, realistic assumptions that are adjusted based on experience; and
+ changes to benefit levels and contribution rates as needed.

The funded ratio for the plans studied ranges from 87.6 percent to 99.8 percent.

The Effects of Conflicted Investment Advice on Retirement Savings

February 24, 2015 Comments off

The Effects of Conflicted Investment Advice on Retirement Savings (PDF)
Source: Council of Economic Advisors
From blog post (Whitehouse.gov):

Americans’ retirement income is derived from many sources, including Social Security, traditional pensions, employer-based retirement savings plans such as 401(k)s, and Individual Retirement Accounts (IRAs). While this landscape is familiar today, it reflects a dramatic change from the landscape 40 years ago. The share of working Americans covered by traditional pension plans—which offer a guaranteed income stream in retirement—has fallen sharply. Today, most workers participating in a retirement plan at work are covered by a defined contribution plan, such as a 401(k). Importantly, the income available in retirement from a defined contribution plan depends on both the amount initially saved and the return on those savings. The shift from traditional pensions to defined contribution plans raises important policy issues about investment responsibilities and the roles of individual households, employers, and investment advisers in ensuring the retirement security of Americans.

Defined contribution plans and IRAs are intricately linked, as the overwhelming majority of money flowing into IRAs comes from rollovers from an employer-based retirement plan, not direct IRA contributions. Collectively, more than 40 million American families have savings of more than $7 trillion in IRAs. More than 75 million families have an employer-based retirement plan, own an IRA, or both. Rollovers to IRAs exceeded $300 billion in 2012 and are expected to increase steadily in the coming years. The decision whether to roll over one’s assets into an IRA can be confusing and the set of financial products that can be held in an IRA is vast, including savings accounts, money market accounts, mutual funds, exchange-traded funds, individual stocks and bonds, and annuities. Selecting and managing IRA investments can be a challenging and time-consuming task, frequently one of the most complex financial decisions in a person’s life, and many Americans turn to professional advisers for assistance. However, financial advisers are often compensated through fees and commissions that depend on their clients’ actions. Such fee structures generate acute conflicts of interest: the best recommendation for the saver may not be the best recommendation for the adviser’s bottom line.

CEA’s new report The Effects of Conflicted Investment Advice on Retirement Savings examines the evidence on the cost of conflicted investment advice and its effects on Americans’ retirement savings, focusing on IRAs. Investment losses due to conflicted advice result from the incentives conflicted payments generate for financial advisers to steer savers into products or investment strategies that provide larger payments to the adviser but are not necessarily the best choice for the saver.

Retirement Savings Shortfalls: Evidence from EBRI’s Retirement Security Projection Model®

February 20, 2015 Comments off

Retirement Savings Shortfalls: Evidence from EBRI’s Retirement Security Projection Model®
Source: Employee Benefit Research Institute

Executive Summary

• EBRI previously published extensive analysis that focused on the EBRI Retirement Readiness RatingsTM —the probability that households will not run short of money in retirement. This Issue Brief expands the earlier analysis by providing similar analysis of the EBRI Retirement Savings Shortfalls (RSS)—the size of the deficits that households are simulated to generate in retirement

• The Retirement Savings Shortfalls show that for those on the verge of retirement (Early Baby Boomers), the deficits vary from $19,304 (per individual) for married households, increasing to $33,778 for single males and $62,734 for single females.

• While these RSS values may appear to be relatively small considering they represent the sum of present values that may include decades of deficits, it is important to remember that less than half of the simulated lifepaths modeled are considered to be “at risk.” Looking only at those situations where shortfalls are projected shows that the values for Early Boomers vary from $71,299 (per individual) for married households, increasing to $93,576 for single males and $104,821 for single females.

Accenture Survey Shows Digital Investing Tools Are Disrupting the European Investor-Advisor Relationship

February 19, 2015 Comments off

Accenture Survey Shows Digital Investing Tools Are Disrupting the European Investor-Advisor Relationship
Source: Accenture

Digital investing tools are changing the ways financial advisors connect with investors and will impact how investors use their advisors in the future, according to an Accenture report based on a survey of 1,200 middle- and high-income, digitally savvy European investors, which Accenture refers to as “Generation D.” The study found that investors value digital financial planning tools that offer investment education, advanced planning and scenario analysis, suggesting that wealth management firms that provide these tools and alter their business models to better serve both traditional and autonomous investors will come out on top.

According to the survey, 27 percent of investors have switched firms to receive a new digital tool or service. The survey also showed that digital tools that offer education on long-term goals, retirement planning, estate planning, auto asset allocation and a 360-degree account view are considered “difference makers” that may drive an investor’s decision on which firm to select. Among the high-net-worth investors who were surveyed, 25 percent said they would consider switching their institution if they did not receive a desired online tool or service.

Lifetime Job Demands, Work Capacity at Older Ages, and Social Security Benefit Claiming Decisions

February 18, 2015 Comments off

Lifetime Job Demands, Work Capacity at Older Ages, and Social Security Benefit Claiming Decisions
Source: Center for Retirement Research at Boston College

We use Health and Retirement Study data linked to the Department of Labor’s O*Net classification system to examine the relationship between lifetime exposure to occupational demands and retirement behavior. We consistently found that both non-routine cognitive analytic and non-routine physical demands were associated with worse health, earlier labor force exit, and increased use of Social Security Disability Insurance. The growing share of workers in jobs with high levels of cognitive demand may contribute to growth in DI use.

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