Friday Top Five – Retirement Related News for 2/28/14

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From The New York Times: Panel Seeks Greater Disclosures on Pension Health
A panel of risk experts sees a teachable moment in Detroit’s bankruptcy and pension woes.

blue-ribbon panel of the Society of Actuaries — the entity responsible for education, testing and licensing in the profession — says that more precise, meaningful information about the health of all public pension funds would give citizens the facts they need to make informed decisions.
A bill that would place Kansas government employees and teachers hired after Jan. 1, 2016, into a defined contribution plan died in the Kansas House Pensions and Benefits Committee when it did not receive enough votes to move on to the full House.

The bill did not apply to firefighters and police officers. Current employees would have had the option of joining the DC plan as well.

In 2012, Gov. Sam Brownback signed into law a bill that put state employees and teachers hired after Jan. 1, 2015, into a new cash balance plan within the $14.4 billion Kansas Public Employees Retirement System, Topeka. That law also does not apply to firefighters and police officers.

PHOENIX -- The Arizona Supreme Court ruled Thursday that the Legislature can't cut cost-of-living increases promised to judges and state elected officials.

The court unanimously upheld a Superior Court judge's ruling in favor of retired judges who challenged the Legislature's 2011 decision to cut benefits increases for retirees in the state plan for judges and other elected officials.

Victoria Stilwell’s article from Bloomberg News in your Business section Sunday claims that baby boomer retirements could hinder economic recovery. 

It is not a surprise that many baby boomers (76 million born 1946-1964) are retiring rather than remaining in the labor force past age 65. Most people have realized for decades that this event (boomers retiring) has been oncoming inexorably.

Ms. Stilwell cites numerous statistics but does not explain how these boomer retirements prevent younger workers age 25-54 from taking over those boomer jobs and thus maintaining higher consumer spending. She also fails to discuss the unemployment and underemployment rates for workers 25-54, especially those age 22-24, including young veterans.

This article was written in response to “How should John Arnold approach pension reform?” (February 16) by Felix Salmon.

Felix Salmon’s recent post about my involvement in pension reform and Mayor Chuck Reed’s efforts in California contains serious mischaracterizations.

Salmon repeatedly claims that my wife, Laura, and I and our foundation, LJAF, “support plans making it easier for governments to default on existing promises.” Nothing could be further from the truth. We strongly believe that pension reform should not aim to cut or eliminate benefits, and we believe equally strongly that workers deserve to be a part of a fiscally sound, responsibly managed retirement savings system that provides a path to retirement security. Our communities need a simple, transparent system that holds governments accountable to pay for promises to workers. The current system falls far short of this goal. State and local governments have accrued at least a trillion dollars in pension debt, which has led to benefit cuts in 48 out of 50 states. It is unfair to workers to place them in a system where governments’ failures to fully fund retirement promises can necessitate unexpected benefit changes. For the past three years, we have worked to protect workers by encouraging governments to responsibly address their pension problems through reforms that are comprehensive, sustainable, and fair.
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Putting the Pieces Together Part 3: What can you do right now?

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Getting ready for retirement often means collecting pieces of information from multiple agencies so that you can begin to envision your life post-retirement.  This is the final installment of a 3-part series:
Part 3: What can you do right now?

Track your spending

Regardless of what you currently have in savings, small lifestyle changes can make a huge difference. To start with, you may want to keep track of all your purchases for 3-6 months to determine what your money is going towards.
If you find that you spend more than your finances allow, consider budgeting and immediately separating your income into envelopes or accounts. This will help you avoid spending money outside of your budget, and the leftovers can go into your savings.
Additionally, consider cutting back on small expenditures. Substitute buying a coffee or bringing your own instead of choosing a more expensive coffee drink. The $4 you could spend can add up fast!
$4 x 20 work days = $80 saved a month
$80 x 12 months = $960 saved in a year
Instead of eating out for lunch at work, bring your own! You’ll not only save money on gas, but you’ll also spend less on food.
$7 lunch time savings x 20 work days in a month = $140 saved per month
$140 x 12 months = $1,680 saved per year
 Want to learn more ways you can save? Check out America Saves’ 54 Ways to Save Money or test out your own situation with the Small Change, Big Savings calculator.

Save for retirement

As a state of Missouri employee, saving for retirement is easy! Simply set up automatic payroll deductions through the State of Missouri Deferred Compensation Plan.  You may choose to save up to $17,500* annually with both pre- and after-tax (Roth) money. Since July 1, 2012, new members are automatically enrolled at a 1% contribution. However, if you have opted out or never participated, you may enroll at any time of the year and at any point in your career. The State of Missouri Deferred Compensation Plan offers low-cost investment options, including the custom Missouri Target Date Funds. Target date funds are an all-in-one strategy that takes some of the guesswork out of investing. You will also have access to a stable income fund, the MOSERS Investment Portfolio (MIP) fund and a brokerage window. An added bonus to saving with the Plan is access to FREE financial seminars and one-on-one consultations with local education specialists.
If you are age 50 or older, you may take advantage of the Plan’s catch-up provision, which will allow you to defer up to $5,500* beyond the normal IRS limits.
If you are three years from reaching “normal retirement age,” you may choose to defer up to $35,000 (twice the regular IRS limit) for each year. At retirement, you can also choose to roll your BackDROP lump sum into your deferred compensation plan account, even if you’ve never participated in the Plan.
Learn more about the deferred compensation plan at or by calling 800-392-092.
*Contribution amounts reflect 2014 tax year limits.

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Friday Top Five - February 21, 2014

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From the Los Angeles Times: How PBS sold its soul to a billionaire donor
A few days ago the Public Broadcasting Service announced it was returning a $3.5-million grant it had received from a Texas billionaire to fund a series of documentaries about the "pension peril" -- the costs to cities and states of their public employee retirement obligations. PBS took the action after a report in the tech news website PandoDaily exposed the conflict of interest underlying the original donation.
 That was the good news. The bad news was that PBS had accepted the funding from a self-interested billionaire in the first place. The worse news is that this sort of fundraising from the rich has undermined what originally set PBS apart -- its independence from vested interests.

From the Arizona Capitol Times: Arizona pension system still best for public workers, taxpayers 
Glaring headlines about Arizona’s public worker retirement system suggest that your typical retired teacher, firefighter or police officer is sipping margaritas on a beach somewhere enjoying a six-figure pension. Meanwhile the state’s pension funds are running out of money, leaving you, the taxpayer, stuck with the bill.
Contrary to that alarmist image, Arizona’s retirement system provides only modest retirement security to public workers. When properly managed, this system represents the most efficient use of state dollars to help retired teachers, first responders and other public servants earn a level of security and economic certainty – a reliable retirement that eludes all too many people with 401(k) plans.

From The Washington Post: 401k balances rise with record gains on Wall Street 
Wall Street’s historic gains in 2013 have boosted the value of Americans’ retirement accounts to record highs, according to several plan managers, restoring a critical component of household wealth.
 Fidelity Investments, the nation’s largest provider of retirement plans, said the average balance in its accounts at the end of last year was $89,300 — nearly double the amount during the depths of the recession . Vanguard, another major fund manager, said its plans clocked in at $101,650, the highest level since it began tracking the data in 1999.

From PensionDialog: Pension Trusts and Municipal Bankruptcy
As anticipation mounts that Detroit will file a plan to adjust its debt with the U.S. Bankruptcy Court next week and with the ongoing confusion of public pensions, bond holders, and in the case of Detroit, art, PensionDialog spoke with Mr. Robert D. Klausner to better understand the basics of municipal bankruptcy.
Mr. Klausner’s firm, Klausner, Kaufman, Jensen & Levinson, represents state and local retirement systems in more than 20 states. He has assisted in the drafting of many state and local laws on public employee retirement throughout the United States. Following is a recap of our conversation.

From Forbes: Income As The Outcome: Reframing the 401(k) Plan
When the 401(k) plan was created approximately 35 years ago, it was envisioned as a supplemental savings plan rather than as a retirement plan. What is the difference? In a word: “income.”
The defined benefit (DB) pension plans of yesteryear provided guaranteed lifelong income, much in the same way that the Social Security system does. In contrast, fewer than one in five 401(k) plans offer participants an opportunity to convert their accounts into guaranteed lifelong income.
That is a shame.

Bonus: 2014 Facts - State and Municipal Bankruptcy, Municipal Bonds, State and Local Pensions

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Financial Security Peace of Mind

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Chris Rackers was our manager of investment policy and communication until her retirement from MOSERS in March 2014.

No matter how young or old you are, you never know what life will bring, what opportunities will become available, what challenges you will face, or what decisions you will make along the path of life.

In 1977, as a young woman looking for employment and upon the advice of an older friend, I took several state merit exams. Shortly after, several official looking letters arrived with my scores on those examinations. One interview later, I was hired by a state agency. At that time, I was excited about one thing - I had a job with the promise of a monthly paycheck. That was all I knew of state government and as a young person, it was enough. My goal was simple - perform well on the job and look for opportunities for advancement. Retirement was definitely not on my mind.

For nearly two decades, I paid little attention to information about the Missouri State Employees’ Retirement Plan. Yes, I knew it existed, but what I didn’t know then is the very thing that, now, provides me a lot of peace of mind.

Every business day, of every month, of every year, there are about 70 people working to ensure that I have financial security for the rest of my life. The staff of the Missouri State Employees’ Retirement System (MOSERS) is dedicated to providing outstanding customer service and investment performance for every state of Missouri employee and retiree, including me!

After 27 years in a variety of positions with two state agencies, I had the opportunity to accept a job with MOSERS, where I worked for nearly nine years. The commitment to providing the best possible customer service and solid long-term investment performance is the very foundation of the work culture at MOSERS. “Excellence” is not a word on a motivational poster on the wall at MOSERS. Excellence is the basis for every task, each day, for each person working at MOSERS.

I could wax on and on about the professionalism of the benefit counselors, the expertise of the investment professionals, the dedication of the administration, the attention to risk controls and data security, the quality of the technology, and the results of the investment portfolio. However, it all comes down to one important fact: MOSERS is here for your benefit, providing financial security for its members.

I’m honored to have been a part of the MOSERS team as part of my varied state government career.

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Is there a bill to lower the Rule of 80?

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I keep hearing rumors a bill has been brought forward to lower the DOC retirement to 70 and out for a short time to encourage immediate retirement. This makes sense for them to do this because the state can save money by paying the replacement employees less. Is this true?
We are not aware of any such retirement incentive proposal for this legislative session. You can track any bill during any legislative session by going to the Missouri General Assembly’s Joint Bill Tracking website. Once there, click on “Joint Bill Tracking” and then enter your search criteria. As always, we will monitor all legislation that impacts MOSERS members and notify you of anything that might pass.
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Putting the pieces together part 2: Your monthly income

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Getting ready for retirement often means collecting pieces of information from multiple agencies so that you can begin to envision your life post-retirement.  This is part 2 of a 3-part series:
Part 2: Where will your monthly income come from?

How much will retirement cost me?

You've begun finding out in Part 1 how much your retirement will cost. Most financial planners agree that the average individual will need between 70% and 90% of his or her pre-retirement income to live comfortably. You will have to anticipate your own income needs, which will include inflation. For the last 25 years, inflation has averaged 2.76% (Source).

Not only will inflation affect your future household income, but it will also affect your purchasing power. Let’s assume that you have $10,000 today and there will be an average of 4% inflation in the coming years. That money will be worth $6,756 in 10 years, $4,564 in 20 years, and $3,083 in 30 years if it is not earning any interest.

Also consider your anticipated retirement age and the longevity of your life. Thanks to modern medicine and other breakthroughs, life expectancy has risen through the years. According to data compiled by the Social Security Administration, a man turning 65 today can live (on average) until age 84. Women can expect to live until 86. Are you curious to know how long an individual of your generation might live? Here’s a convenient life-expectancy calculator to plan for the average numbers of years a person can expect.

What are your sources of income?

Most people realize that no one source will provide all their income in retirement. Diversifying your income is one way you can plan to meet the needs of a longer, more active retirement.
Your sources of income may include:
  • Social Security
  • Personal savings and/or investments
  • Re-employment
MOSERS provides all members an annual, personalized benefit statement that will project a pension benefit based on your salary, service history, and a retirement multiplier. If you have not yet received it, you may find it on our Secure Site under Estimates.

The Social Security Administration provides both a Quick Retirement Calculator, a Retirement Estimator, as well as your official social security statement online. In order to access your online statement, you will have to create an account with a valid email address, social security number, and US mailing address.

Your personal savings and investments may come from a number of sources. If you were hired after June 1, 2012, you were automatically enrolled into Missouri’s Deferred Compensation plan (check your balance here) You may also have savings and investments from other plans, such as previous employers or your own IRA.

Re-employment is another option. Many view their retirement as a chance to pursue another career dream. Your MOSERS benefit will not be affected by full-time employment unless you begin working at a MOSERS benefit-eligible position with the state of Missouri.

Putting it together:

Let’s use some real numbers for a bit and look at an average retiree if he or she were retiring this month under the MSEP 2000:
  1. $2,500 monthly Final Average Pay
  2. Will retire at age 62
  3. 23 years of credited service at retirement.
  4. 1.7 (0.017) multiplier for MSEP 2000*
Using the estimate that an individual will need roughly 80% of his or her income during retirement, we can determine that the member will need $24,000 a year or $2,000 per month. Using the MOSERS Retirement Benefit Estimate Formula, we’ve found out that his or her retirement benefit will be $977.50 a month.

As you can see, our example member will need an additional $1022.50 a month to meet his post-retirement income goal. Social security can help fill that gap, but that amount varies depending on when the member chooses to start receiving that benefit. You may start drawing social security at age 62, but at a reduced rate. For convenience, we’ve included an early retirement social security estimate below:
You will have to determine your own individual sources of income, but we recognize that it might be difficult to navigate each website. We recommend that state employees use MO Deferred Comp’s RetiremenTrack tool, which is specifically designed for state of Missouri employees. Simply enter your income, pension, and savings information and the calculator will reveal if you’re on track for your retirement goals.
*If you would like to complete your own formula, please use the following multipliers:
MSEP = 1.6% (0.016)       MSEP 2011 = 1.7% (0.017)
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Friday Top Five: February 14, 2014

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From PandoDaily: The Wolf of Sesame Street: Revealing the secret corruption inside PBS’s news division
On December 18th, the Public Broadcasting Service’s flagship station WNET issued a press release announcing the launch of a new two-year news series entitled “The Pension Peril.” The series, promoting cuts to public employee pensions, is airing on hundreds of PBS outlets all over the nation. It has been presented as objective news on  major PBS programs including the PBS News Hour.
However, neither the WNET press release nor the broadcasted segments explicitly disclosed who is financing the series. Pando has exclusively confirmed that “The Pension Peril” is secretly funded by former Enron trader John Arnold, a billionaire political powerbroker who is actively trying to shape the very pension policy that the series claims to be dispassionately covering.
 From Reuters: Pension Politics
David Sirota has a very important scoop today: the PBS series “Pension Peril” has secretly* been funded by John Arnold, a billionaire powerbroker with an aggressively anti-pensions political agenda. This looks very bad for PBS — but it’s also bad for Arnold, who generally gets glowing press, and who would seem to have no good reason to have insisted on secrecy when writing the $3.5 million check that made the series possible.
The PBS series in question seems to fall uncritically into line with the beliefs of Arnold and other Very Serious People — that pension liabilities are a huge problem, and that the only way to fix them is to reduce the amount that pensioners get paid. But of course it’s not nearly as simple as that.
From Bloomberg Businessweek: Why Aren't There More Female Hedge Fund Managers?
Why aren’t there more women running hedge funds? The money’s good, and the lifestyle would seem to lend itself better to balancing family demands than more traditional Wall Street jobs, with less face time and greater emphasis on money-making rather than bonding on the golf-course. What’s more, research has proven that women, on average, make more prudent investors—a recent report by Rothstein Kass found that women-owned hedge funds performed better than both the S&P 500-stock index and the Global Hedge Fund Index over the last six-and-a-half years, as female investors proved more cautious and less prone to overconfidence than men.
From Cypen & Cypen: Taxation of Social Security Benefits
Your Social Security benefits may be taxable; about one-third of people who get Social Security have to pay income taxes on their benefits:
  • If you file a federal tax return as an "individual,” and your combined income is between $25,000 and $34,000, you may have to pay taxes on up to 50% of your Social Security benefits. If your combined income is more than $34,000, up to 85% of your Social Security benefits is subject to income tax.
  • If you file a joint return, you may have to pay taxes on 50% of your benefits if you and your spouse have a combined income that is between $32,000 and $44,000. If your combined income is more than $44,000, up to 85% of your Social Security benefits is subject to income tax.
  • If you are married and file a separate return, you probably will pay taxes on your benefits.
At the end of each year, Social Security will mail you a Social Security Benefit Statement (Form SSA-1099) showing the amount of benefits you received. You can use this statement when you complete your federal income tax return to find out if you have to pay taxes on your benefits. Although you are not required to have federal taxes withheld, you may find it easier than paying quarterly estimated tax payments. Note: on the 1040 tax return, your “combined income” is the sum of your adjusted gross income plus non-taxable interest plus one-half of your social security benefits. For more information, call Internal Revenue Service’s toll-free number, 800.829.3676, to ask for Publication 554, Tax Guide for Seniors.
From Advisor.CA: How to Plan for Solo Retirement
In Canada 43% of seniors 65 or older are single, says Statistics Canada, and those who didn’t plan to be alone in retirement could be facing financial hardship, says BMO.
Divorce later in life is one factor contributing to more people finding themselves alone during retirement. About 4,000 Canadians 65 years old and over get divorced every year, shows data from Statistics Canada. Other factors leading to a single retirement include an increasing number of Canadians who never get married and higher life-expectancy rates among women. Print Friendly and PDF

Friday Top Five - February 7, 2014

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The Friday Top Five: A collection of the top five news articles, blog posts, or other retirement related information from the past week.

From PensionDialog: Are We Ready to Retire?

Retirement savings—and the lack thereof—for private sector employees were in the news last week as President Obama launched myRA and Senator Tom Harkins (D-IA) put forth his bill, the Universal, Secure, and Adaptable (USA) Retirement Funds Act of 2014.

While typically this space is focused on public employee retirement plans, given the media attention, it’s important to be aware of the conversation and understand what’s being proposed.

From Connecticut News Junky: Connecticut Wants to Take Obama's Retirement Idea Further

It received a brief mention in President Barack Obama’s State of the Union address earlier this week, but Connecticut union officials and the Working Families Party want to take the idea of creating retirement savings accounts for all Connecticut residents even further.

From My Retirement Paycheck: Special Situations to Consider before Starting Social Security

There are a few situations in which making the decision to start Social Security retirement benefits may need some extra thought. In addition, if you have already started receiving Social Security benefits, particularly before your Full Retirement Age, you should be aware of the several points.

From Next Avenue: A Helpful New Site for the Financially Insecure

President Obama tonight will likely make the case that the U.S. economy is in the best shape in years. Indeed, many forecasters predict that 2014 will be a “breakout year” for growth, according to The New York Times.

But not everyone is feeling it. Overall, workers’ pay has been stagnant or falling and roughly 1.7 million people 55 and older are unemployed. That’s why I’d like to recommend a new site I've tried out that's geared to Americans over 55: EconomicCheckUp from the National Council on Aging (NCOA), the nation’s leading nonprofit service and advocacy group representing older adults and organizations that serve them. (Full disclosure: NCOA has also provided content for Next Avenue.)

From NixaXpress: Zweifel Announces Support of Pension Forfeiture Legislation

State Treasurer Clint Zweifel Feb. 6 announced his support for a bill that would prohibit public employees convicted of certain felonies directly in connection with their job from collecting a pension. Senate Bill 823, sponsored by Sen. Dixon, R-Springfield, and co-sponsored Sen. Sater, R-Cassville, is consistent with Treasurer Zweifel’s continued push to make government more accountable to Missouri citizens.

“As State Treasurer it is my duty to ensure that Missouri tax dollars are used responsibly and that public pensions are going only to citizens who have earned them,” Zweifel said in a press release. “This legislation protects the state and taxpayer dollars ensuring that anyone convicted of the felonies laid out in Senate Bill 823 will forfeit their public pension. I thank Sen. Dixon and Sen. Sater for working with me to sponsor this commonsense legislation and I look forward to working with members of the General Assembly to get this bill passed.” Print Friendly and PDF

Putting the Pieces Together Part 1: Your Health Care Premium

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Getting ready for retirement often means collecting pieces of information from multiple agencies so that you can begin to envision your life post-retirement. Although MOSERS no longer provides health insurance for state employees (and hasn’t since 1994), we understand that navigating the system is sometimes frustrating. This is part 1 of a 3 part series:
Part 1: Gathering estimates for your health care premium

Your retirement health care insurance can come from multiple sources, such as Medicare, MCHCP, or another employer-provided health care plan.

Why does it matter?

It is a common misconception that Medicare will cover all of your costs. However, dentures, eye care, hearing aids, and diabetic supplies are not regularly covered by Medicare Part-A or Part-B. You can find out more about what Medicare will cover here.

Employer-provided health insurance can range from $500-800 in premiums per month, which can be deducted from your retirement benefit. It’s important to note how much of your benefit will be earmarked for health insurance costs.

You may believe you don’t need many health insurance services now, but you may want to consider your potential needs. You may cancel your employer-provided health insurance at any point, but you cannot add it after your retirement.

Where to find your estimates:

Medicare: eligibility, premium calculator, program costs

Medicaid: eligibility

Program of All-inclusive Care for the Elderly (PACE): eligibility

PACE is a Medicare and Medicaid program that helps people meet their health care needs in the community instead of going to a nursing home.

MCHCP: calculator

Department of Conservation Health Care: Employee Benefits. Premiums are available in the 2014 Benefits Offering Booklet. Print Friendly and PDF