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Retirement Plans Need A Facelift, Financial Services Company Concludes

January 21, 2010 by  

Retirement plans need a facelift, financial services company concludes The current recession has revealed significant and dire shortcomings in the nation’s approach to retirement savings, TIAA-CREF has said.

The organization recently reported on research conducted by McKinsey and Company which found that the average American couple will fall $250,000 short of their necessary savings and will only have approximately two-thirds of the income that they will need at the time of retirement.

"It’s time to think of 401(k)s as income in retirement accounts, and to begin with the end in mind, by asking how much income in retirement people need," said Roger Ferguson, TIAA-CREF’s chief executive.

Ferguson recommends a holistic system where incentives are offered to employees and employers to encourage contributions of between 10 and 14 percent of annual income to help people reach the target of replacing 70 percent of pre-retirement revenue.

He also believes that companies should offer a wider variety of 401(k) investment options to provide appropriate diversification in order to properly manage risk.

Moreover, Ferguson feels that the U.S. should provide opportunities for people to begin saving for medical expenses associated with retirement.

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  • Kirk

    If you have not been planning for retirement far in advance making late adjustments will not help in today’s economy. I was recently forced to take an early retirement. My eleventh supervisor in thirteen years read a book Five Dysfunctions of a Team and followed the script to perfection. The book is about 5 executives in a dot com company. I was a technician in a cellular company. I was the first to be pushed out the door after years of receiving awards for above and beyond duty. The second was let go soon after. My retirement has come at an earlier age 6 months short of 401k penalty time.
    My advantage is I was downsized thirteen years earlier working for a company that published a letter stating the goal of the CEO was to have the majority of the workforce minorities by the year 2000. I am a white male who had to apply for a position that I had been working for three years and I was not qualified.
    This experience rewarded me with a commitment to become debt free. My wife and I now have an income that will pay our bills without government or family aid. The job market for people of my age seems to be the toughest I have experienced. I have realatives formerly employeed in HR and they cannot discriminate they just don’t hire older employees.
    My point is no matter what all the experts try to say being debt free is a goal that has been lost. If you’ve been in the market for the last ten years buying the total market itself you realize how much other than your own money you’ve made. Using the same mony to pay off debt would have gained you not only money but peace of mind.
    For a class of people not listed in government statistics good luck to all and with Massachusetts the future looks brighter.

  • Robert

    The real reason why people are finding it hard to survive during retirement is taxes. When you take into account all the income taxes and hidden taxes imposed on us by Federal, State and local governments, more than 65% of our income is seized. Look at a phone bill, or a utility bill or a cable bill or what amount of a gallon of gasoline represent taxes. So it’s not that most people aren’t planning prudentley for their retirement. Government is taxing us into a life of poverty when we retire.

  • Kirk

    Proof-read. Last line second to last paragraph. Mony should have been money.

  • Kirk

    Thanks Robert. My property taxes went up over 9% in Wisconsin. My last increase in wages before there were no wages was 1-1/2%. We called our town chairman who referred us to the assessor who informed us that his friends were moving out of state. I also wrote our Governer Doyle who responded in letter explaining all he has done to control property tax. Our government employees retire at 85% of their wages with their time in requirements met. There is no calculation applied to realize what one would need in a 401k plan to realize the amount of money paid to a government employee at age 55 to acheive 85% of their wage. If this were applied to all business there would be no jobs available.

  • Kirk

    My last response is not to belittle anyone who has put their time in and paid their union dues to achieve the benefits they have been rewarded. Their employer has been the elected officials that oversee that these rewards are prudent and reasonable. If I were in their shoes I would not be refusing the benefits and rewards they receive. I also receive a retirement benefit after twenty one years of service for a regulated monopoly of 15% of my wages at that time. I am grateful for this benefit which I contributed part of my wages to accumulate this sum for fifteen of the twenty one years.
    This all being said. The employer of government employees may want to think more seriously about prudent and reasonable rewards.

    • Robert

      At one time, many years ago, government needed to entice people to work in public service. Salaries were far below that of the public sector and benefits were miniscule as well. In order to attact talent, government had no choice to be competitive with the private sector. However, government being government, they did not rely on productivity of their workers to maximize profits. They had the ability to levy taxes to make up for any shortfalls. Today, government employee salaries and benefits far exceed the private sector. I say, turn over the role of the private sector in providing goods and services to the government and turn over taxation to the private sector. Then let’s see what happens.

  • Robert

    I meant the private sector. DUH.

  • http://Don'thaveone Sally

    You are right Robert. In the past I have worked for the Army, Navy, Air Force and the Panama Canal Company ending in the late 60′s to work in the Private Sector. What a difference in pay that was. I thought it was te same way still that government employees made less than the private sector, that is until 2 years ago, I was a tax preparer for Liberty Tax Service, I couldn’t believe the difference – Wow. Since 40$ of private industry pays for all the government employees, local, state, federal, military, etc. etc. etc., sooner or later if more are put on the payroll as Obummer wants, there won’t be any body left to pay the piper.

  • Norm

    I always believed in the “3 legged stool” retirement analogy. The legs are personal savings/investments, company retirement plans, and social security. The legs are not equal of course. Social Security, even at the max level, is not much more than bare survival. And the feds tax 85%(max) of that plus whatever your state may or may not add. Company 401ks and pension plans vary from excellent to non existant. The only sure thing in the equation is your own personal investments.
    This is the area that needs to be maximized, starting at an early age. As a recent retiree, raised by parents who lived during the depression, I and my wife of 40+ years played by the rules and are now enjoying the fruits.
    Many younger people don’t seem to get it. They not only don’t save, but they borrow to what I would consider obscene levels. At a time when many companies are cutting retirement participation, and social security is uncertain over the long term, many of these kids are buying huge homes, cars, boats, etc that they don’t need and can’t afford. Where will it end? I don’t know.

  • http://none Phyllis

    Real estate is the best investment. Renters pay the mtge. Holding a mtge when selling makes you the bank! Using a 1031 to upgrade (no capital gains) and it just keeps getting larger with good interest rates. Dodd and Franks put a dent in it but it is still the best. I think they will put another bigger dent in it when they get through ruining our industries.


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