Are retirees better off than we think? - By Alicia H. Munnell

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Some experts claim that retirees are better off financially than many think, partly because most retirement income from 401(k) plans and Individual Retirement Accounts (IRAs) is not captured in the Census Bureau’s widely-used Current Population Survey (CPS), Annual Social and Economic Supplement. In the extreme, the Internal Revenue Service reported about $229 billion of defined contribution income in 2012, while the CPS reported $18 billion. Such an enormous discrepancy undermines confidence in the survey. Because low-and middle-income households have little in 401(k)/IRA assets, the under-reporting is minimal for these groups; the main problem occurs in the upper quintiles.
Census has responded by testing a redesign to certain income questions in the 2014 CPS, retaining the old methodology for 60 percent of participants and introducing the new procedures for the rest.
Note that reported income from retirement accounts can fall short of potential for two reasons. First, individuals may not withdraw the money available to them. In fact, studies show that most retirees do not withdraw money until their early 70s when they become subject to the IRS’ required minimum distribution rules. Second, the income that individuals actually do withdraw may not be captured by the survey. Census efforts have focused on the second problem.
The redesign asks about pension and retirement income from retirement accounts separately, whereas the old procedure combines questions about receipt of pension and retirement income. The redesign also asks about withdrawals and distributions from 401(k) and other retirement accounts that are not limited to “regular income.” In addition, respondents over 70 are instructed to include any “distributions [they] have been required to take” and follow-up questions on whether withdrawals were rolled over or reinvested help exclude rollovers from income calculations. (For details, see Figure 1 below for a somewhat simplified explanation.)
The redesign resulted in higher levels of retirement income – a 1.9 to 3.6 percent increase for the bottom three quintiles and a 7.9 to 10.4 percent increase for the top two quintiles (see Table). The new version of the survey is undoubtedly more accurate. And while the redesign significantly increases income in the top two quintiles, it does not change the basic picture for the typical household.

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The 2015 CPS adopted the redesign for all respondents. The redesign, however, still focuses only on income and asks about assets in 401(k) retirement accounts only if respondents do not know how much interest or dividend income they receive from these accounts. Thus, the questions do not try to address “potential” income. A question about assets in 401(k)/IRA plans seems much easier to answer than one targeting income. Having asset data would also make it possible to estimate “potential” defined contribution income, which may become an increasingly relevant metric if households fail to draw down their accumulations until the required minimum distribution rules kick in.

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Culled from MarketWatch

Obama's MyRA Retirement Savings Plan Goes Nationwide -By Suzanne Woolley

President Barack Obama speaks about raising the minimum wage, Wednesday, Jan. 29, 2014, at a Costco store in Lanham, Md., the morning after his State of the Union address. The president was promoting his newly unveiled plans to boost wages for some workers and help Americans save for retirement _ no action from Congress necessary. (AP Photo/Charles Dharapak)

MyRA, the Obama administration's free, guaranteed-return starter retirement account, launched nationwide on Wednesday. 

The government-backed plan is an option for the tens of millions of U.S. workers whose employers don't offer a retirement savings plan. MyRA accounts are open to anyone earning an annual salary of less than $131,000, or $193,000 if they are married and file taxes jointly. There is no minimum to open an account, as with an IRA, and no fee to open one. Payments can go into the plan automatically, directly from a checking or savings account, or from an employer's payroll system, via direct deposit. Any or all of a federal tax refund can be directed into a MyRA account, which is portable from employer to employer.

A MyRA (My Retirement Account) won't return nearly what a stock fund is likely to return over time, but workers face no risk of losing their nest egg. MyRAs will invest only in a U.S. Treasury security guaranteed never to lose value. Users can access the money for emergencies. In short, it operates a lot like a 401(k)—albeit without that crucial match that companies may make on employee contributions—but is effectively a Roth IRA with contributions of after-tax money that can be withdrawn, tax-free, in retirement. 

The myRA.gov website notes that "interest earned is the same rate as investments in the Government Securities Fund, which earned an average annual return of 3.19% over the ten-year period ending December 2014." Over the past five years, that rate has dropped to a little over 2 percent, said Treasury officials, noting that"the rate is dramatically higher than what people are able to earn on savings accounts."
Savers can put away up to $5,500 a year, and those who are at least 50 by yearend can contribute as  much as $6,500. The guaranteed return lasts until they accumulate $15,000 in the plan or have been in MyRA for 30 years, when they will need to move the money into a private sector product such as a Roth. They're also free to move the money out of MyRA and into an outside retirement product at any prior time.

"This has been a long time in coming," said Olivia Mitchell, professor of business economics and public policy at the Wharton School and director of the Pension Research Council. "Yet it's just a first step, and more needs to be done to enhance retirement security for an ever longer-lived population."

David John, a senior strategic policy adviser at retirement organization AARP's Public Policy Institute, said MyRA is a good tool but not the solution to a “desperate need for additional ways to save for retirement.” MyRA will help many people get started in saving, he said, “but people also need to be able to roll over money into a regular retirement plan, whether it’s a state-sponsored plan or that of an employer." And only about half of U.S. employers, especially in the small business area, offer such a plan. 

Treasury Secretary Jack Lew noted in a news conference that "we have been very clear that this is a start, not a finish. People will never build up the retirement savings they need if they don't start." 

Treasury officials also noted that "the goal of the program is continuous improvement" and that additional features are planned.

The plan to start MyRA (My Retirement Account) was announced by the administration in the president's State of the Union Address in 2014 and has been in a pilot program with a small group of employers since late last year.

Culled from bloomberg

6 reasons to remain in your current home in retirement - By Tom Sightings

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The typical retirement dream involves riding off into the sunbelt, golf clubs and beach umbrella in hand. However, the reality is that the majority of retirees never leave home. Most people opt to age in place, or if they do move, they find a smaller house near their old neighborhood.

Only about 7 percent of older Americans move every year, according to a long-term study by the Center for Retirement Research at Boston College. And even though more people have recently been relocating with the improving economy, an AARP survey found that most people approaching retirement hope to remain in their current residence as long as they can.
Here's why retirees resist the siren call of the beach and tropical breezes:
Home is where the heart is. Many people feel attached to their home towns. Whether they grew up there or moved there to raise a family, they still enjoy going to the park where they took their kids as toddlers. They feel comfortable knowing about the best hardware store and the best pizza place. Many old-line suburbs have developed programs and amenities for their older population. Another benefit: urban centers in the north provide better public transportation than the retirement meccas of the sunbelt. There's no subway in San Diego or T in Tampa.
Home is where your friends are. You go to the library and see familiar faces. Maybe you belong to a book club, or regularly meet friends for lunch, tennis or golf. All the research says that a strong social network is crucial for successful aging. Friends not only supply emotional support, but sometimes offer practical benefits like loaning you a book or DVD, helping with a project at home or giving you a ride. Why should you uproot yourself, move a thousand miles away and then be faced with the sometimes difficult challenge of finding a new group of like-minded friends?

People retire in the last place they land. Some people never settle down to live in one place for 20 or 30 years to raise their kids in a single community. Many baby boomers have moved around for work, or just because they're restless, and then finally put down roots when they're in their 40s or 50s. For example, my sister-in-law grew up in New Jersey, then moved to Michigan, Texas and finally in her late 40s settled down in Pennsylvania. She's pretty adamant that she's not moving again.

You don't necessarily save much money. It costs a lot to move. You give up about 10 percent of the selling price of your house in real estate commissions, legal fees and taxes. Then there's the cost of buying, moving and resupplying your new house. If you're moving a long distance there are additional expenses involved in traveling and researching your new location. You might need to rent for a while or store some furniture. It's not worth it if you only save a couple thousand dollars a year in your cost of living.

It doesn't have to cost a lot to age-proof your home. Of course you can spend a lot of money if you want to remodel your entire house. But many of the safety issues involved in age-proofing a home involve modest expenses. Improve the lighting in stairways and outdoor areas. Change out doorknobs for lever handles that are easier to manipulate. Install bathroom grab bars and raised toilet seats. Get rid of scatter rugs, and put down colorful traction strips on the front edge of your stairs to help prevent falls. None of these changes costs much money. Depending on the layout of your home, it may even be possible to turn a study or den on the first floor into a master suite, converting the upstairs rooms into guest quarters.

Visit a virtual village. Virtual retirement villages can help seniors access resources to make it easier to age in place. A virtual village is a local non-profit organization that posts information online, providing referrals to member-recommended service companies and volunteers available to help out with dog walking, yard work and other homeowner needs. Some villages host social activities such as concerts, restaurant gatherings and group trips. Check out Village to Village Network at vtvnetwork.org to find out more information on what villages do and how they work.

Culled from US News

To solve the retirement crisis, we should work six years and take the seventh offBy Pascal-Emmanuel Gobry

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Developed countries around the world face a retirement crisis. A spiritual practice from the second millennium BC just might be the answer to our problems.
Most people are aware that the Ten Commandments order people to work for six days and rest on the seventh. A far less commonly known feature of the commandments is that in the original plan delivered to Moses on Mount Sinai, man wasn’t supposed to take just one day out of the week to rest. His entire community was supposed to take one whole year of rest out of every seven. In other words: ancient Israelites were supposed to take a sabbatical year. (The Jewish year that just ended in September was just such a shmita, or sabbatical, year.)

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A sabbatical year could be the solution to our increasingly fragile pension and retirement systems. People are living longer, which means they keep withdrawing funds from the pool, draining reserves intended for future generations. Meanwhile, birth rates and economic growth have been too low to support the Western world’s aging populations.

The problem is not only about dollars and cents. Our pension systems were conceived in a different era, when people could be reasonably expected to spend their entire working lives at a single job—often an arduous one that would enfeeble them in old age. So it made sense to dedicate one big chunk of our lives to work, and then another big chunk to doing nothing.

Today the nature of work has been vastly altered by globalization and technological change, as well as by emerging trends like the gig economy. And thanks to modern medicine and changes in lifestyle, most of us are still spry at age 65. In fact, a growing body of research suggests that too many years in retirement can make you less mentally sharp, not to mention socially isolated.

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What we need is a way to reform retirement so it is both economically sustainable and ensures that we have a better relationship with work throughout our lives.
Enter the Jewish spiritual practice of keeping Sabbath.
Today, sabbatical years are a privilege primarily reserved for academics, high-skilled employees and those wealthy enough to afford twelve months’ worth of soul-searching.

But it doesn’t have to be that way. Companies that offer their employees a chance at sabbaticals, such as software company VMWare and management consulting firm BCG, tend to report that they come back refreshed and full of good ideas.

A yearly sabbatical would also give us a stretch of uninterrupted time to work on our personal passion projects, whether that means building a cabin in the woods, writing a novel or finally mastering Mandarin. Parents would be able to take time to focus on their families while their young children still live at home, rather than delaying leisure time until their children are grown. Those of us who feel restless or dissatisfied with the state of our lives would be able to step outside the daily grind to take stock and decide on a new direction—starting a new business, say, or going back to school.

Given that the modern era demands that people reinvent their skills cyclically in order to achieve and maintain success, this kind of freedom would have a positive ripple effect on the economy, boosting productivity as well as personal happiness.

The point here isn’t to completely abolish retirement. People who are truly elderly, as well as people who have some sort of disability, shouldn’t be forced to work.

But a sabbatical year would make the entire retirement system stronger. People’s preferences tend to be skewed to the short term. This means that most people would be happy to take one year’s worth of retirement money now, even if it means they have to retire later. So pension systems would pay people less money over the course of their lifetimes, helping the systems to remain solvent. This approach would also help sell a politically fraught issue, providing people a tangible benefit in exchange for painful reforms.

Most importantly, the sabbatical year would give all of us a healthier attitude towards work. We all need work to flourish. But while unemployment plagues some members of modern society, those of us privileged to have ample work too frequently become addicted to it, to the detriment of our well-being and, often, that of our families.

Nowhere is it written in the laws of the universe that we must first work for 40 years straight in order to achieve 20 years of rest. We need a mechanism that will restore balance and flexibility to our lives. We need the Sabbath—not just week after week, but also over our lifetimes.

Culled from Quartz: