Americans concerned about retirement but do nothing

So when we are concerned and worried, what do Americans do? They go party or tune in to see what Michael Jackson is up to. But should we not be dealing with the issue instead and figure out a solution? Well, it is hard to do so, particularly when it comes to saving and planning for retirement. (Related article: Retirement planning tips for baby boomers)

According to a survey by the National Association for Variable Annuities (NAVA), hold your breath, as many as 95% of Americans have financial concerns about retirement. The rest 4% were probably drinking beer while watching Michael Jackson trial and the remaining 1% probably includes George Bush, Dick Cheney, Bill Gates, and Donald Trump.

The only good news is that Americans have overwhelmingly rejected private retirement accounts and Social Security privatization initiatives because both of them in their current form will literally drive Americans into poverty.

Retirement Income-Related Fears First with Future Retirees

Future retirees worry most about retirement income-related issues. In previous surveys, Americans have clearly shown preference for stable retirement income over wealth, and no matter how noble the idea of an ownership society appears to be, Americans want a guaranteed (even if small) retirement income. The financial fear weighing heaviest on the minds of those ages 18-34 is the premature depletion of retirement savings. Possibly reeling from the recent bear market and contemplating the possible changes in the Social Security system, 24 percent of respondents in this age group are afraid that their retirement assets will not last their lifetime. It seems that young Americans have recently come to know of the horrors of private retirement accounts because just a couple of weeks ago they were its more enthusiastic supporters.

Moreover, an uncertain job market makes for an uncertain future. Part-time workers across all age groups show a heightened concern for running out of money during retirement, almost 40 percent more than the full-time workers surveyed. With companies not adding many jobs in the US and instead offshoring jobs overseas, Americans have enough reasons to be concerned about old age. (Related article: Poor saving habits hurt Americans during retirement)

In addition, middle age Americans with full-time jobs worry about their retirement lifestyles. Thirty-seven percent of Americans aged 35-54 rank the inability to maintain their current standard of living as one of their top two retirement fears. (Related article: Even millionaires worry about retirement income)

Greatest Fear Among Educated Americans: High Healthcare Costs

While the study revealed that a majority of Americans are concerned about high healthcare costs, the greatest level of anxiety in this regard is found among retired Americans with at least some level of college education. Respondents least worried about healthcare costs are between the ages of 18-34, have only a high school diploma, and are employed in part-time jobs. That is not because these Americans have healthcare; actually almost 35 million Americans have no coverage (the highest in any developed country and definitely an embarrassment for the richest country in the world). The reason is that since they have never had any coverage they just don't even realize that it is an issue.

Social Security Anxiety Ranks Low

Despite the increased attention surrounding Social Security reform, only 16 percent of respondents are worried about their future Social Security payments. Americans seem to understand that Social Security payments will not completely cover their retirement costs since the study shows that they realize the need for other sources of guaranteed income to help cover retirement expenses. So the propaganda by President Bush has clearly helped in lowering expectations of Americans and that was part of the strategy - create a false sense of crisis and then destroy Social Security as Americans have known it. No wonder AARP is horrified.

Inflation Comes in Last

Only nine percent of respondents were concerned that inflation could negatively impact their retirement savings. The study shows that respondents across all age groups and demographics are less worried about inflation eroding the value of their retirement assets than they are about other issues. Given the relatively low inflation rates in recent years, this lack of concern is not surprising. What if this survey was conducted not in January but in March 2005? With record gas prices, the answer would have been totally different.

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Source: NAVA

Young Americans run away from private accounts

We were shocked a few weeks ago when some polls showed that younger Americans were supporting creation of personal retirement accounts. In fact, our financial advisor was advising all Americans of all ages to stay away from personal retirement accounts since there was no net gain for even younger Americans. Latest research from Yale University further confirms that all Americans, including those under 30, will be better off if they opted out of the personal retirement accounts proposed by President Bush. (Related article: Always make a financial decision based on your personal financial situation)

Looks like as younger Americans learn more about them, they are realizing what they were getting into. Initial support that was based on lack of interest and not reading the fine print has now disappeared. According to Pew Research Center, "While public opinion on private investment accounts has not changed much in the past month, support for the idea among younger Americans - who up to this point have been the most reliable backers of the proposal - has weakened significantly. In February, people age 18-29 favored the idea of private accounts by a 66%-19% margin. Today, just 49% favor private accounts, while 25% are opposed, and nearly as many (26%) say they don't know how they feel about the issue." (Related article: Financial advisors are key to retirement planning since it can be quite complex for most Americans to keep up with all the changes in the tax laws)

As we had said before, the more you learn about the dirty secrets of the private retirement accounts the more you hate them. So President Bush is doing a great service to American people by campaigning so hard. It gives more Americans a chance to find out his real agenda and how it does not favor American people at all. According to the Pew survey, opposition to the plan to allow private accounts is much higher among people who have heard a lot about it than among those who are less familiar with it. Overall, people who have heard a lot about the plan oppose it by 52%-41%, while those who have heard little or nothing favor it by a 47% to 30% margin. This pattern is significant even when age is taken into account. In particular, people under age 30 who have heard a lot about the proposal are more than twice as likely as their less engaged peers to oppose the idea (45% vs.19%). And among older age groups, where opposition is higher even among people who have not heard much about the private accounts proposal, those who have heard a lot express the most opposition. (Related article: So who does privatization help then?)

The George Washington University Battleground 2006 Poll confirms Pew research. It also identifies Social Security as the leading response on an open-ended question about the top problem for President and Congress. However, a majority of Americans oppose private accounts - no matter how they are described. (Related article: Tips on guaranteed retirement income)

But the sad news is that Americans are still not paying much attention to privatization of Social Security as Michael Jackson trial and Terry Schiavo case take center stage. Despite the White House effort to keep Social Security reform on the front burner, public awareness of the issue has not increased substantially over the past month, the Pew survey finds. 46% say they have heard a lot about the proposal to add private accounts to Social Security, up only slightly from 43% in mid-February. About one-in-five (22%) say they have heard nothing at all about the proposal, unchanged from 21% a month ago. (Related article: How to make personal financial decisions?)

There continue to be significant age differences in attentiveness to the president's plan. Just 24% of those under age 30 say they have heard a lot about private accounts; those age 30-49 are more aware (41% have heard a lot). By comparison, 60% of people age 50-64, and 65% of those age 65 and older have heard a lot about the proposal. No wonder the AARP is fiercely opposed to the plan.

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Financial services industry to benefit

As national discussion rages over Social Security reform, Wall Street is at odds on whether the creation of personal retirement accounts would be a boon to the securities industry or a non-event. There is also a theory that somehow Social Security privatization will help the financial services industry (which has contributed millions of dollars in campaign contributions to President Bush and the GOP). The theory has become more credible because it is no longer a secret that Bush's privatization plan does nothing to ensure the solvency of Social Security and is definitely going to hurt almost all Americans if they opt for personal retirement accounts. Then who is it going to benefit? Quick comes the answer that it must definitely benefit someone aligned with Bush. (Related article: Who does privatization help then?)

Debates over personal accounts have centered largely on the servicing costs they could represent. New research from TowerGroup explores the potential impact of personal accounts on the financial services industry -- and how costs such as account administration could best be minimized. Highlights of the research include:

1. The use of "life cycle" products -- where the risk profile and investment mix automatically adjust with an account holder's age -- is the most effective way to minimize costs associated with supporting personal accounts. Under this model, valuation could be done monthly, the need for transactions support is eliminated, and account updates could be sent annually along with the current Social Security statement. (Related article: Does privatization amount to gambling?)
2. Yet even assuming a relatively modest median servicing cost structure of $15 per account per year, TowerGroup projects the total servicing bill for personal accounts would exceed $1.5 billion annually (excluding asset management fees). A significant portion of those expenses would be spent on the technology infrastructure required to support record keeping for 100 million accounts.
3. The potential of adding $1 trillion to the US financial markets over the first six years personal accounts are implemented (and upward of $2 trillion over 10 years), would almost certainly impact the industry in a positive way. Yet, the specific benefits of personal accounts to the securities and investment industry are complicated. Contrary to some reports, TowerGroup expects that revenue from investment management fees associated with personal accounts would be relatively modest -- with actual management of these assets to be all but given away. (Related article: Fed governor opposes privatization plan due to debt concerns)

"This is not to say that there are limited revenue opportunities," said Little-Gill. "An overall increase in assets will drive aggregate management fees on the more than $35 trillion in worldwide managed assets. But the real benefits of personal accounts will be a more complex array of opportunities for trading, securities lending and the markets overall than has been discussed to date."

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Source: TowerGroup

Private retirement accounts produce negative returns

Workers who opt to invest in the personal retirement accounts outlined in President Bush's Social Security privatization plan are likely to earn less to retire on than those who stay in the traditional system, according to a new study by Yale University economist Robert J. Shiller. The research finds that on the date of retirement, the personal accounts would have negative values 71 percent of the time. This is in line with the analysis by Peter Foss in which he recommended that Americans stay away from personal retirement accounts even if these become available. (Related article: No net gain for young Americans from private retirement accounts)

The paper "Estimating the Returns to Life Cycle Personal Accounts for Social Security" evaluates the risk and return of investing in a "life cycle portfolio," the centerpiece of the President's personal account plan that all workers would automatically be invested in after age 47 unless they opt out. Life cycle portfolios invest aggressively in the stock market when the worker is young, and gradually shift to more conservative investments as the worker ages. (Related article: Raising wage cap better than private retirement accounts)

Shiller simulated the future returns of the personal accounts using historical U.S. stock, bond, and money market data from 1871-2004. The analysis is based on a worker born in 1990 who starts participating in the accounts in 2011, retires in 2055 at age 65, and contributes the full 4 percent of earnings into the personal account. He ran 91 simulations of the data over six portfolio allocations.

The results show that a baseline personal account portfolio would be in the red at retirement 32 percent of the time and yield a median rate of return of 3.4 percent. However, Shiller considers these results, based on U.S. data alone, to be overly optimistic. When the data is adjusted to reflect the average international returns of 15 countries, including the U.S., over the same time period-a more realistic gauge of future performance according to Shiller-the personal accounts lose money 71 percent of the time and yield a median return of 2.6 percent. (Related article: What is an ownership society?)

"To say that there is a money machine in the stock market, that it can be tapped to yield great wealth without significant risk if one uses life-cycle investment methods, is a big mistake," said Shiller. He argues that the poor performance of the accounts is largely a result of the 3 percent real interest rate, or offset value, that workers would "pay back" to the government at the time of retirement.

"The most important reason for the disappointing performances of the life cycle portfolio is just that the returns of the safer assets are below the 3 percent real rate used to compute the offset. The returns on the stock market are not high enough to make the life cycle portfolio a good investment. While the plan is described as a way of 'fixing' Social Security, in effect, the new personal accounts are nothing more than a plan to encourage people to buy stocks and bonds on margin, that is to borrow money to buy stocks, with the Federal government as the lender offering a 3 percent real interest rate on the loan," according to Shiller.

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Retirement planning is central to privatization debate

A panel of behavioral finance, economics, tax, and capital markets experts gathered recently to discuss a range of issues facing investors, including privatization of Social Security, tax reform, the national deficit, single stock concentration, capital markets performance, inflation, retirement readiness, and other personal finance issues. The panel was moderated by noted personal finance columnist Jane Bryant Quinn, and the dialogue was based on the results and implications of Eaton Vance's (Boston-based investment management firm) sixth annual survey, a detailed study of attitudes and practices about investing. Here are some of the key messages from the panel discussion that should be of interest to all Americans:

1. Too often, investors' self-assessments are overly exuberant. Eaton Vance's latest survey was no exception; retirement savings readiness, true diversification, and tax-smart choices were a few areas showing major gaps between perception and reality. But what investors do--not what they say--is more reassuring. For example, last year, two in three dollars being added to stock and bond mutual funds were captured by some kind of asset-allocation program. This secular shift away from 'shooting-the-moon' selections should protect the nation's retirement savings during the next bear market from again suffering hundreds of billions in losses, as it had experienced in the early 2000s. (Related article: Not all Americans are ready for the stock market)
2. Americans are increasingly required to make investment decisions that will determine their security and comfort in retirement. The trouble is many Americans lack an elementary understanding of sound investment practices, as the results of the Eaton Vance survey illustrate. If we are to become a nation of investors, we need to teach people basic investing principles early in life and implement retirement plans designed to encourage sound investments and adequate savings. (Related article: Basics of 401(k))
3. Social Security is not in crisis, but saving is. Americans just don't save enough, either individually or as a nation. Instead, we are consuming beyond our means, running up huge debts to foreign nations and endangering our economic future. To fix this problem, we need to cut the federal deficit, add individual accounts on top of social security, and shift more of the tax burden onto consumption.
4. Within the next several years, the confluence of three events will require policy makers to make some of the most important fiscal and social policy decisions of our time: the beginning of the retirement of the baby boomers, the application of the alternative minimum tax to some 40 million middle-income individuals, and the potential expiration of over a trillion dollars of individual tax cuts. Policy makers will be forced to rein in the growth in entitlement spending and identify alternative revenue sources.
5. Surveys suggest there is a wonderful opportunity for investment professionals to add value by helping clients with investment and tax basics. 24/7 availability of financial news and now several years of improved disclosure and new regulations have done little to save typical investors from themselves. If given to our children before they enter the work force, a "No Investor Left Behind" course that covers some basic principles to follow and potholes to avoid could improve each investor's chance of lifetime success.

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Source: Eaton Vance

Retirement needs of Baby Boomers are different

Baby Boomers have different investment needs depending on their "retirement savings profile," but share some common regrets when it comes to money: they are uneasy about the extent to which they have saved for retirement. Despite this -- and the fact that most will carry debt into retirement -- they have expectations of a comfortable lifestyle in retirement. These are some of the key findings from the OppenheimerFunds Investing for Retirement Survey released by OppenheimerFunds, Inc., a leading asset manager. The nationwide survey examined the financial behaviors and attitudes of 1,000 retirees and pre-retirees, most of whom are baby boomers. (Related article: Americans ready for a working retirement)

"Most of the Boomers we talked to have mixed emotions when it comes to money, feeling both regret and contentment," said Jim Ruff, President of OppenheimerFunds Distributor, Inc. "Many feel they could have planned better and saved more responsibly, but did not for various reasons." The survey findings revealed that both workers and retirees are uncomfortable with how much they have accumulated during their pre-retirement years. Ninety-seven percent of workers surveyed say that they regret how they and their spouse spent their money considering how much more savings they could have accumulated; 98% of retirees regret how they spent their money before retiring. Still, both groups continue to overspend and many are not concerned about rising costs for critical expenses such as healthcare. (Related article: Americans badly need help with retirement planning)

"According to our survey, self awareness, being realistic and proper planning are some of the keys for Boomers to achieve a successful retirement," said Ruff. "Boomers need to take a step back and evaluate how they've saved so far, gain a true understanding of future expenses and either formulate a plan or re-evaluate an existing one." (Related article: Retirement planning tips for Baby Boomers)

Boomer Profiles: Four Retirement Savings Personalities

To help boomers better plan for retirement, OppenheimerFunds, Inc. and Matthew Greenwald & Associates identified four "retirement savings profiles" based on levels of confidence and preparedness among non-retired boomers: smooth sailors (21% of respondents); nervous nellies (27% of respondents); hopeful idealists (29% of respondents) and pensive procrastinators (23% of respondents). (Related article: Are you prepared for retirement?)

"It's time to stop thinking of baby boomers as a single group and start addressing their specific financial needs," said John V. Murphy, Chairman, President and CEO of OppenheimerFunds, Inc. "Advisors can help boomers identify which segment they fit into and work with them to develop goals and plans to address their specific needs." (Related article: Always make your own financial decisions based on your personal situation rather than be guided by polls or politicians)

Smooth Sailors (Prepared and Unconcerned) 21% of non-retirees

This group is the most prepared of the four. They are the most likely to have an exact dollar amount in mind as their accumulation goal for retirement (50% do) or as their retirement income goal (42% do). They are more likely than the unprepared groups to have a written financial plan. Despite this, they will carry some debt (i.e. car loan, credit card debt) into retirement. This group is less likely than Boomers in other groups to expect to have a mortgage in retirement (15% expect to). (Related article: Americans still careless about retirement planning)

Some other characteristics of Smooth Sailors:

• They are most likely to say that, considering their age, they are very prepared for retirement (87%);
• They have saved more than others -- 22% have at least $1 million;
• They enjoy investing (43%) and consider themselves excellent or good investors (82%). (Related article: Not all Americans ready for the stock market)

"Like good sailors, this group seems prepared for nearly any situation," said Ruff. "This group enjoys investing and considers themselves successful at it, giving them confidence in their ability to cruise into a comfortable retirement."

Nervous Nellies (Prepared and Concerned) 27% of non-retirees

This group of non-retirees has taken many steps to achieve a secure retirement and believe they are prepared, but are worried that events beyond their control might compromise their ability to attain financial security. They are most likely to have a written financial plan (75%) and half have done a great deal of financial planning in the past year.

Some other characteristics:

• The majority (87%) are very or somewhat concerned about the possible effects of a market downturn and 80% are concerned about rising medical costs;
• They are more likely than any other group other than the Smooth Sailors to have accumulated a high amount in savings and investments (12% have at least $1 million).

One reason for this group's higher concern may be that they lack trust in their own investing abilities. They are the most likely to have a financial advisor, perhaps as a result of their lack of confidence in investing. "While it is impossible to control things such as market downturns and rising medical costs, people who worry a lot would benefit from incorporating these "potential" events into their plans," said Ruff. "Whether it is saving more, spending less or investing in specialized financial products that can help address specific needs, it is important for this group to take steps to ease their concerns." (Related article: Even millionaires concerned about retirement income)

Unrealistic Optimists (unprepared/unconcerned) 29% of non-retirees

These investors are not prepared yet are optimistic about their prospects for a comfortable retirement. Very few (15%) consider themselves very prepared for retirement and 72% say that, considering their age, they are only somewhat prepared for retirement. Yet 99% say they are looking forward to a comfortable retirement. (Related article: Personal finance tips for retirement)

Following are some other characteristics of Unrealistic Optimists:

• 60% have done little or no financial planning for retirement in the past year; 65% do not have a written financial plan;
• 20% admit to dipping into their retirement accounts for current needs;
• 32% do not have a retirement accumulation goal and 21% do not have a retirement income goal. Those who do have goals are more likely to have a general goal in mind vs. a specific dollar amount in mind.

Unrealistic Optimists expect to work for pay in retirement (58%) and are more likely to expect that they will need to spend less money in retirement to support their lifestyle than before retirement (59%). Boomers in this group are more likely than others to expect to carry credit card debt into retirement. "This group faces the biggest hurdle as they are living for the here and now rather than thinking long term," said Ruff. "They are making assumptions about retirement that are bolstering their carefree attitudes toward retirement planning."

Pensive Procrastinators (Unprepared/Concerned) 23% of non-retirees

The pensive procrastinators have not planned well and are worried about it. They do not consider themselves well prepared for retirement and are concerned that they will be unable to save enough money for a secure retirement. Despite this, 76% of this group say they expect to live a comfortable retirement.

Some other characteristics:

• 71% say they are somewhat prepared but only 6% consider themselves very prepared;
• 28% have dipped into retirement accounts;
• 59% expect to supplement their retirement income by downsizing their homes;
• 60% expect to work for pay in retirement;
• 56% expect they will spend less money in retirement than before they retired.

The low average income levels of this group may explain why they are more likely to have lower amounts in savings and investments (40% have less than $200,000). This group is also most likely to carry debt into retirement and almost half expect to have a mortgage and car loan in retirement.

"It's encouraging that this group is self-aware enough to realize that they need to do things to make up for their lack of financial planning," said Ruff. "They are realistic about their need to compensate for low savings and ongoing debt through other sources of retirement income such as downsizing their homes or working for pay."

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Source: Oppenheimer Funds

Baby Boomers clueless about retirement planning

Many Boomers are unrealistic about the real cost of living in retirement and how their plans to exit the workforce will mesh with their savings plans. For example, Boomers appear to be underestimating the impact that debt will have on their retirement, especially as many expect to enter retirement owing more than previous generations. Higher costs of living driven by more expensive homes, purchasing luxury items and excessive use of credit cards prevent debt pay down. (Related article: Retirement planning tips for baby boomers)

"There is a substantial disconnect between what Boomers expect their retirement expenses will be and what retirees are actually spending," says John V. Murphy, Chairman, President and CEO of OppenheimerFunds, Inc., sharing the insights from their retirement survey. "Boomers appear to be significantly underestimating their future income needs given today's longer retirements and the real cost of living in retirement which is constantly increasing due to factors such as rising medical costs and declining social security benefits." (Related article: Are you financially prepared for retirement?)

A lot can be learned from current retirees. Knowing what they believe they have done right and believe they could have done better can help Baby Boomers with planning and saving for retirement. Boomers anticipate that they'll have to work longer than their current retiree counterparts. When asked at what age they think they'll retire, only a small portion of Boomers said before they reach 60. Yet over half of the retirees surveyed left the workforce before that age. Also, the majority of Boomers say they will continue to have some form of paid employment after they "retire." On the contrary, a quarter of current retirees said they never had to work in retirement. Regardless of when they think they will retire, Boomers should have a plan in place in case they are not able to work as long as they expect. (Related article: Will Baby Boomers be hurt by privatization?)

When it comes to saving, less than half of the Boomers surveyed wish they had saved more. Yet when asked to consider their saving and investing habits, 98% of retirees had regrets about pre-retirement spending. Boomers believe they will need to save less than ten times their current income for retirement, yet the average life expectancy in retirement is twenty years. Also, while they perceive that their expenses will decline once they stop working, almost 70% of retirees said they now spend the same or more as when they worked. (Related article: Financial advisors key to retirement planning)

"When it comes to Baby Boomers and financial planning, there is a striking contrast between perception and reality," said Murphy. "The overriding lesson is clear: The earlier you start planning, the less likely it is that you will have to compromise your retirement dreams and plans. Make planning a priority now, not when retirement is imminent."

The survey was conducted between September and October 2004 among Americans ages 45 to 75 with household incomes of at least $75,000 or household savings and investments of at least $300,000 (not including primary residence). It measured the views and attitudes of working boomers and retirees regarding retirement, preparations for retirement and confidence in retirement planning. Six hundred workers and 401 retirees were surveyed. The telephone interviewing was conducted by Matthew Greenwald & Associates, a leading market research firm focused on retirement planning based in Washington D.C. The margin of error (at the 95% confidence level) for the total number of respondents in this study (1,001) is a plus or minus 3.2 percentage points.

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Source: Oppenheimer

Poor saving habits hurt Americans

The MetLife Mature Market Institute Demographic Profile of Americans 65+ shows an aging population of 36 million people, some with few assets and relatively low income; 10% live below the poverty line. The publication reports the segment of the population between 65 and 69 has a median net worth of just $114,000, including the equity in their homes, but $27,588 without it. For those between 65 and 74, the average before-tax income is $35,118 with most coming from Social Security. Of the entire 65+ population, 80% own their own homes and 20% are renters. Not surprisingly, the lion's share of the 65+ age group's expenditures are for basic necessities such as housing, food, transportation and health care. Those over 75, for example, spend just $896 per year on entertainment. No wonder the AARP is so strongly opposed to privatization of Social Security. The organization is concerned that if the benefits to retirees are dropped, many more American seniors will fall into poverty.

"This is alarming data, particularly with regard to the future," said Sandra Timmermann, Ed.D., director of the MetLife Mature Market Institute. "Our report shows that the 65+ population comprises 12.6% of the current population -- one in eight people -- and that the ranks will double to about 71.5 million people by 2030; by 2050 there will be 86.7 million people over 65...As we consider increased longevity rates, coupled with the low savings patterns of the baby boomers, we can anticipate that the older population of the future will not fare any better financially than this 65+ generation," said Timmermann. "In addition, the fastest growing population group is those age 85 and over -- the group most likely to be frail and in need of care. These facts point to the pressure that will be placed on our economy, particularly our health and long term care systems, and the need to help individuals plan for their economic security." (Related article: Social Security privatization to hurt baby boomers)

For the current 65+ age group, the following statistics are notable:

• Credit card debt grew slightly from $3,919 in 1998 to $4,014 in 2001.
• 42% are male and 58% female.
• Non-married persons were more likely to live in poverty (16.9%) than married persons (4.7%).
• More men (71%) than women (34%) were married.
• 28% live alone, more women (40%) than men (17%).
• Almost half (49.4%) of women 75 and older live alone.
• 72% of people 65 and older report that their health is good to excellent.
• The states with the greatest percentages of older Americans are: Florida (17.6%), West Virginia (15.6%), Pennsylvania (15.3%), Iowa (14.9%), North Dakota (14.7%) and Rhode Island (14.5%).
• The racial and ethnic composition of the 65+ age group is as follows: White (75.1%), Hispanic or Latino (12.5%), African American (12.3%), Asian (3.6%), Two or More Races (2.4%), American Indian or Alaska Native (.9%), Native Hawaiian & other Pacific Islander (.1%).

"Women, because they live longer than men and are more likely to be living alone, are at the greatest disadvantage in this profile," said Timmermann. "While more women are working and the earnings gap with men is decreasing, women, nevertheless, earn only 75 cents to every dollar men earn. These points have implications for financial and long term care planning for women in the future."

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Source

Metlife

Make your own financial decisions without the polls

In the near future you will not only be bombarded by sales pitches from supporters of Social Security privatization (through advertisements, town hall meetings, phone calls, etc.) but you will also hear a lot about polls. Unfortunately, these polls can be very misleading depending on who is behind them (and to find that out is a difficult task these days since many so-called supporters and opponents of privatization do not have to disclose their identity). For instance, if Fox News is conducting a poll you can almost always expect that Americans overwhelmingly support personal retirement accounts. Similarly, other organizations will make their own claims based on their polls. There are truly no unbiased polls. (Related article: Personal retirement account debate highly politicized)

So how is this possible that in two different polls, Americans can say entirely opposite things? The secret is in the way questions are asked and then how the results are interpreted. Let us look at a poll conducted by Coalition for the Modernization and Protection of America's Social Security (CoMPASS). Compass is a conservative organization working closely with the Bush administration to privatize Social Security. What do they say on the basis of their poll? They use the data to attack AARP that is strongly opposing privatization. Similarly, another poll by United States Chamber of Commerce, a business group closely aligned with conservative groups and Bush administration, finds that there is strong support for the Bush proposal. (Related article: Americans want retirement security, not politics)

The reality may be quite different. According to a Washington Post/ABC News poll, just one in three Americans actually wants personal retirement accounts and the number is declining rapidly. In fact, the more the president talks about privatization, the lower the support as the fine print becomes clear to more Americans. This survey, and others that show only modest support for privatization, ask the questions more directly. The polls commissioned by conservative groups talk in more general terms about problems with Social Security and completely ignore the issue of Bush's current proposal.

So what can you do? Make up your own mind and do not be guided by what polls are saying. The way you would do your own financial planning and budgeting, you should also do your own research to find out if personal retirement accounts make sense for your situation. Look at your lifestyle, savings, age, commitments, etc. and then figure out if you would be better off with or without personal retirement accounts.

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Financial advisors key to retirement planning and security

The recently completed OppenheimerFunds Investing for Retirement Survey demonstrates the value of professional advice for Baby Boomers. Investors who use an advisor benefit from their expertise and guidance, while for those surveyed who do not, an advisor could help get them started on the right track. (Related article: Americans need retirement planning help)

"Our study points to the need for Boomers to work with advisors who can create workable plans that enable them to simultaneously save for the future and take care of everyday bills and expenses, " said Jim Ruff, President of OppenheimerFunds Distributor, Inc. "Advisors can help clients live more efficient financial lives."

Despite a high level of confidence in their own investing abilities, 67% of Smooth Sailors (Prepared and Unconcerned) have a professional financial advisor. Respondents in this group say using an advisor makes them even more confident in their investing abilities and about their retirement preparation. (Related article: Are you prepared for retirement?)

Nervous Nellies (Prepared and Concerned) are the most likely group to have a financial advisor (85% do) and are less likely than others to make the majority of their investment decisions on their own. Only 39% of Unrealistic Optimists (unprepared/unconcerned) have a financial advisor and few regularly use their financial advisor's help. Three-quarters of this group say they make more than half of investment decisions themselves. (Related article: How to make personal financial decisions?)

"When it comes to financial planning, the 'me generation' needs to become the 'we generation,'" said Murphy. "Many boomers are trying to put together their own plans, but lack the skills and resources financial professionals offer to properly assess risk and define specific goals."

In looking at financial planning and goals, one of the biggest factors detracting from boomers' ability to realize their retirement dreams is debt. Advisors should help investors factor debt reduction and living within means into retirement planning early on.

"Boomers will continue to redefine retirement as they expect to work longer and work for pay in retirement," said Murphy. "This will likely result in major changes for the role of financial advisors."

Recommended article: How to get started with retirement planning?

The survey was conducted between September and October 2004 among Americans ages 45 to 75 with household incomes of at least $75,000 or household savings and investments of at least $300,000 (not including primary residence). It measured the views and attitudes of working boomers and retirees regarding retirement, preparations for retirement and confidence in retirement planning. Six hundred workers and 401 retirees were surveyed. The telephone interviewing was conducted by Matthew Greenwald & Associates, a leading market research firm focused on retirement planning based in Washington D.C. The margin of error (at the 95% confidence level) for the total number of respondents in this study (1,001) is a plus or minus 3.2 percentage points.

Source: Oppenheimer

Americans smarter than their president

Americans are definitely smarter than what President Bush thinks of them. While they have clearly indicated that they do not like his version of privatization of Social Security or personal retirement accounts, they understand what is happening to the economy and where they stand. In a survey by Principal Financial Group, when workers were asked to weigh in on current domestic initiatives being addressed by the Bush administration, and their possible impact on the pocketbook, they said the initiatives most impacting their financial well-being are Social Security reform (41%), reforming the tax code (32%) and cutting the national deficit (27%). Respondents clearly see a connection between the national debt and their long-term financial health. An overwhelming 73 percent said they "strongly" or "somewhat agreed" that the national debt has or will have a direct negative impact on their personal financial security.

Contrary to existing research and conventional wisdom showing that American workers continue to unrealistically plan on Social Security to fund the significant portion of their retirement income, the newest Principal Financial Well-Being Index reveals that Americans are indeed listening to the public debate over Social Security and they appear to "get it" when it comes to Social Security's true place in their retirement security picture. This latest installment of the Well-Being Index, released twice annually by the Principal Financial Group, polls employees at growing businesses (firms with 10-1,000 employees). (Related article: Americans ready for a working retirement)

According to industry expert Larry Zimpleman, president of Retirement & Investor Services at the Principal Financial Group, much of the former research on this subject reports that most Americans believe Social Security will replace all or most of the income they need to live in retirement, while new data from The Principal Financial Well-Being Index paints a picture of a more knowledgeable set of American workers today. The vast majority of respondents (77%) said they expect Social Security to provide about 50 percent or less of their income replacement in retirement, which Zimpleman validates as being on target. At the same time the public debate continues to rage over Social Security, the Index reveals growing satisfaction by workers for their employer-sponsored benefits, particularly health insurance and retirement plans, than in past quarters -- showing a possible connection between Americans' growing concern over the future of Social Security and their own long-term financial futures. (Related article: Retirement planning tips for under-30 Americans)

"These findings are a healthy sign that the message is finally getting through to American workers that Social Security was never meant to be the sole source of retirement funding, rather a supplement to personal savings and employer-sponsored benefits," Zimpleman said. "At the same time, the Index provides evidence of Americans' growing satisfaction with their employee benefits while they are increasingly concerned about the long term amid rising benefit costs, especially health insurance. When you put the whole puzzle together, it looks like this: employers are clamping down on growing benefit costs; workers are getting the message that these benefits are extremely important to their future, yet not an entitlement; and growing concern about the future is causing Americans to pay more attention to these issues as a whole."

Does it mean that Americans are smarter than their own president?

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Personal retirement account debate politicized

Since President Bush began his marketing campaign to convince American people that there is a crisis in the Social Security (Related article: The crisis found to be a made-up story to sell the personal retirement accounts), he has used all tricks available to him. Interestingly enough, American people are not buying any of his stories. While retirement planning and personal finance should not be partisan, political or emotional decisions, that is what is happening right now. And what is worse is that government agencies and taxpayer dollars are being used for what is clearly a political issue.

John Gage, national president of the American Federation of Government Employees (AFGE) today called on Thomas Saving to resign his position as public trustee of Social Security and Medicare. Saving, as announced in a 2/23/2005 press release put out by Progress for America, is advising the group. Progress for America is an issue advocacy organization committed to advancing "a conservative legislative agenda to reform Social Security."

Thomas Saving has testified before the House Ways and Means Committee on the future of Social Security. The Ways and Means Committee web site describes Saving as "Public Trustee, Social Security and Medicare Trust Funds."

"Thomas Saving should resign as a public trustee of Social Security and Medicare because of his severe conflict of interest," said Gage, a former employee of the Social Security Administration who worked for the agency for nearly 30 years. "When a trustee testifies before Congress, there should be no question about who that trustee speaks for. But who does Thomas Saving speak for, the people who rely on Social Security or the partisan political organization Progress for America?"

Gage also called on Social Security Commissioner Jo Anne B. Barnhart to clean up the ethics mess that is growing within the Social Security Administration. From enrolling career employees in a PR campaign to sell the public on privatizing Social Security, to the participation of SSA deputy commission James B. Lockhart III in pro-privatization events held by congressional Republicans, to the alignment of Social Security Trustee Thomas Saving with an organization that holds a blatantly partisan position on Social Security, Gage said situations within SSA are raising serious ethics questions.

Recommended article: Bush fails in marketing his privatization plan

Does privatization amount to gambling?

As the President travels around the country talking up his plan to privatize Social Security, he remains noticeably silent on the two issues that matter most to people: how deeply will private accounts require benefits to be cut, and where will the money to privatize come from? The proposals of his hand-picked privatization Commission, which he says he's using as his model, give us a glimpse of some answers. (Related article: Who does privatization really help?)

The first point that becomes glaringly clear is that privatization isn't a plan to save Social Security at all; it's a plan to dismantle Social Security. That's because private accounts, by themselves, do nothing to address Social Security's solvency, a point which the White House has reluctantly acknowledged. In fact, because private accounts are financed by taking money out of Social Security, privatization actually increases the program's funding gap and causes an almost immediate cash-flow problem. (Related article: There is no Social Security trust fund; it has all been spent)

In addition, privatization results in huge cuts in Social Security benefits with no guarantee that private investment can replace those lost benefits. In the future, both workers who decide to take the investment gamble and those who decide against risking their retirement in the stock market will see their guaranteed Social Security benefit reduced over time by nearly 50 percent. Those who opt for a private account will have their guaranteed benefit reduced even further. This already reduced Social Security benefit will be cut by one dollar for every dollar that they have put into their private accounts, plus about 3 percent interest. (Related article: Raising wage cap better than personal retirement accounts)

Non-partisan organizations such as the Center on Budget and Policy Priorities have calculated that, in future years, for the average worker the combination of private account balances and what little is left of the traditional Social Security benefit will be about one-half of today's promised benefit, and about one-third below what retirees would receive even if Congress never again made any changes to strengthen Social Security. (Related article: Social Security crisis is a made-up story)

Those who support privatizing Social Security have planted the seeds of uncertainty about the system's long-term solvency for over a decade, and the President feeds that misimpression by claiming the program will be 'bust' or 'flat broke' by the time the younger generation is ready to retire. The words he uses have been carefully selected to imply the retirement of the baby boomers will drain Social Security of all its resources. Yet projections show Social Security will be able to pay full benefits for decades (until 2042 by its own Trustees, 2052 by the non-partisan Congressional Budget Office) and between 70 and 80 percent of benefits thereafter, even if Congress never again makes any changes to the program. (Related article: Americans advised to avoid personal retirement accounts)

Because so many young people have bought into the argument that Social Security won't be there for them when they retire, they may not be as troubled by privatization as they should be. What they don't realize is the extra burden the creation of private accounts will place on them. Young workers will not only be pre-funding their own retirement, but they'll also be paying for the costs of benefits already promised to those aged 55 and older. These are known as the costs of the "transition" to a new system and will be multi-trillions of dollars in new debt.

The Administration has attempted to mask the cost of privatization, but the staggering debt burden of privatization will be all too real to our children and grandchildren. The President argues we should tackle Social Security now because it's not right to pass the problem along to future generations. But borrowing trillions of dollars, to be paid off by future generations, is the ultimate in irresponsible buck-passing. (Related article: Americans prefer retirement security over wealth)

Seniors worry about the unprecedented borrowing that will be required to convert from a guaranteed benefit to private accounts. They are leery of Administration promises to protect future benefits that may become unsustainable in the face of massive new debt, and they shudder at the heavy burden it will impose on their children and grandchildren. Having lived through both good times and bad, seniors understand the value of Social Security's safety net, and are loathe to trade a program that has successfully lifted so many of them out of poverty for the unpredictable fortunes of the stock market. (Related article: Widows, women, children, and disabled to be hurt by privatization)

Those who support privatization would have us believe we live in an idealized world where markets never go down, workers never die or become disabled, the safety net has become superfluous, and Wall Street's financial advisors manage billions of taxpayer's dollars with nothing but their best interests at heart. Those of us who live in the real world know better, and would rather see Congress strengthen the existing program than gamble with our children's future.

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- Barbara B. Kennelly is president and CEO of National Committee to Preserve Social Security and Medicare.

Bush's crisis found to be a made up story

So it is becoming clear day by day that President Bush has been trying to create a phony "crisis" in the Social Security, more or less on the lines of weapons of mass destruction (WMD) crisis in Iraq. In fact, since Bush has failed miserably, now he is asking Vice President Cheney to help out. But it seems that there is only so much spin possible. American people have made up their minds and can see where it is going.

David M. Walker, head of the non-partisan Office of Comptroller General, has told Congress that there is no crisis and the president is wasting American people's money by pushing personal retirement accounts that do nothing to help the solvency of Social Security or the American people. (Related article: Only those Americans who are poorly informed support Bush' privatization plan)

And for the first time in recent years, American people have demonstrated that they are not as clueless as many Republicans like to think of them. Despite aggressive advertisements from several conservative interest groups and serious efforts by the president, Americans are actually turning against the personal retirement accounts. In other words, the more the president tells them they are good, the more people find out that they are actually worse than he told them before.

This is exactly what happened to young Americans who have been the only group to somewhat support the personal retirement accounts. While financial advisors have pointed out that all Americans should stay away from personal retirement accounts and stay with guaranteed benefits, the details leaked to AP indicate that retirement benefits of all Americans will be cut whether they opt for personal retirement accounts or not. Or in other words, even those Americans who do not understand the complexities of stock market and would rather have the current simple system no longer have a choice. It is now only a matter of time when this fine print reaches younger Americans that they too will turn against it.

So why does President Bush continue to beat a dead horse?

No one knows but it seems that he is being pushed real hard by the conservatives who are hoping against hope that American people might actually be successfully misled once more if enough advertising and marketing is done. Plus, Bush is also probably seriously hurt that no one believes what he says, and instead of simply bowing to the wishes of American people, he continues to treat them with disdain by saying the same things over and over again. Americans are more intelligent than Bush thinks.

Related article: Bush's real reasons for privatizing Social Security

There is no Social Security trust fund

The long-kept secret of the empty Social Security trust fund is no longer a secret, says economist Allen W. Smith who has been trying to alert the public to the trust fund fraud for the past five years. Smith, the author of "The Looting of Social Security: How The Government Is Draining America's Retirement Account," first stumbled onto the fraudulent way Social Security contributions were being handled in early 2000 while doing research for a previous book. (Related article: What happened to the Social Security trust fund?)

"When I first discovered that the Social Security surplus was being used just like general fund revenue, I was shocked," Smith said. "I wanted to tell the whole world about it, but nobody would listen. So I set out to convince Al Gore to take a stand against the looting, hoping it would then become a major campaign issue in the 2000 presidential campaign." Smith sent advance copies of his forthcoming new book, "The Alleged Budget Surplus, Social Security, and Voodoo Economics," along with many other research findings to Gore through multiple channels to make sure that at least some of the material got to him. When Gore announced his Social Security lockbox proposal Smith knew the message had gotten through. During the campaign, Bush also pledged to put the surplus in a lockbox so Smith thought the looting was about to end no matter who became the next president.

Allen Smith's findings are very interesting because a lot of Americans think that the Social Security trust fund is some kind of a bank account in which all their contributions are deposited. The reality is that there is no such thing and that is why the current rush to privatize Social Security since in recent years, a series of tax cuts, a lousy economy, millions of unemployed Americans (or Americans who are making much less than they did in the 90s), and the Iraq war means that the government is simply burning too much money too fast. "Bush broke his promise and kept right on spending the Social Security money. He is currently spending approximately $400 million of Social Security money each and every day," Smith points out. (Related article: What is an ownership society?)

Until very recently Smith was almost the only person trying to alert the public to the looting and the empty Social Security trust fund. But suddenly major newspapers and other news media are beginning to cover the story. Smith says the first major story on the trust fund was Dan Froomkin's "The Amazing Disappearing Trust Fund," in the February 11, Washington Post in which Froomkin reported that President Bush himself was now admitting that all the money in the trust fund has been spent. He quoted Bush as making the following statement in a Pennsylvania speech the previous day: "Every dime that goes in from payroll taxes is spent. It's spent on retirees, and if there's excess, its spent on government programs. The only thing that Social Security has is a pile of IOUs from one part of the government to the next." (Related article: So who does privatization help then?)

In the February 14 issue of Newsweek, Allan Sloan wrote, "The money isn't being saved. Instead, one part of the government, the Treasury, is writing IOUs to another part, Social Security...The trust fund's irrelevant, folks. It's an accounting entry, not real money. How the Democrats can cling to the trust fund with a straight face is beyond me?" (Related article: Raising wage cap better than personal retirement accounts)

On March 4, Scripps-Howard columnist, Jay Ambrose's column, "The Big Lie About Social Security," appeared. Ambrose wrote, "The money -- the so-called trust fund -- has not been saved. It has been spent on other programs. When it comes time to lay its hands on it, the government will not open a vault somewhere and haul the dollars out. It will have to tax or borrow of some combination of the two, and the implications are far reaching, very far reaching, trillions of dollars worth of far reaching." (Related article: Fed governor opposes Bush's approach)

On March 6, Richard Halicks of The Atlanta Journal-Constitution titled his column, "Basically It's a Promise Bound to Bonds." Halicks wrote, "The Social Security trust fund is worth about $1.6 trillion. So where's all that money? Stacked in neatly banded $100 bills in secret government warehouses? Stashed in the gold vaults under the Federal Reserve Bank of New York? Actually, the government has already spent it. Economists talk about Social Security running into the red in 2018, and they say that the agency can dip into its trust fund to make up the shortfall through about 2042. But they're talking about money that doesn't technically exist." (Related article: Only poorly informed Americans currently support Bush's plan)

Also on March 6, Joel Havemann, staff writer for the LA Times wrote, "Everyone agrees...that the government has been spending money from the fund -- money raised through the Social Security tax and that is intended for future retirees. But debate has escalated over whether the government has the ability -- or even a reliable intent -- to repay that money to the retirement system. As Bush battles his critics over his plan to restructure Social Security, both sides are characterizing the trust fund and the IOUs it holds in sharply different ways. Bush, in arguing that the system needs major changes, has portrayed the trust fund as an unreliable source of money for retirees." (Related article: Bush fails to convince American people of the phony crisis)

On March 7, USA TODAY reported in an editorial, "...The cost of paying benefits to the first wave of retiring baby boomers will begin exposing the accounting gimmickry that is the true driver of the Social Security 'crisis.' ... For years the government has collected more in Social Security taxes than it needed to pay current benefits...But there is no actual money in the fund. Instead, the government spends the money for other purposes and issues the fund IOUs. In 2009, the shell game begins to end. The amount by which Social Security taxes exceed benefits starts to shrink. By 2018...the flow reverses ... Absent large tax hikes or spending cuts, already astronomical deficits will skyrocket. The problem could have been avoided, and it still could be reduced ... The bottom line is that Washington, through profligate borrowing and policies that lock in red ink for years to come, is passing the burden to future generations. And the problem is getting worse." (Related article: Americans prefer retirement security over wealth)

Also on March 7, David E. Rosenbaum wrote in the New York Times, "All tax receipts go into the same pot in the Treasury and are spent at the discretion of Congress; for years, excess Social Security taxes have been used to pay for other programs. The government has made promises to retirees it cannot keep without raising taxes, imposing deep cuts in other programs or borrowing loads of money." (Related article: Transition costs of privatization to hurt US economy)

Smith believes that enough details about what he calls, "The greatest fraud ever perpetrated against the American people by their government," have now broken through the shell of government secrecy that it will be impossible to keep the full story from gradually making its way out. "When it all comes out, I think it will be a much bigger scandal than Watergate," Smith says, "because it involves both political parties and has been going on for more than two decades."

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