Tag Archives: EBRI

How Much Financial Advice Do You Need? (Hint: Less Than You Think)


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How much financial advice do we need? It’s a question we all ask ourselves, whether we pay a certified financial planner handsomely or go it alone.

But with a troubling national shortfall in retirement savings and the lingering effects of a foreclosure crisis, policymakers and researchers are asking the same question in the hope of coming up with low-cost ways to keep people on the right track.

The answer, to judge from a rash of recent studies, is not much.

The credit-rating agency Experian recently conducted a study with Neighborworks, a nonprofit that helps lower-income families buy homes, measuring the effectiveness of Neighborworks’ weekend workshops. It showed that as little as eight hours of counseling on real estate basics reduced mortgage delinquencies by more than a third.

The study included experienced homeowners as well as first-time buyers, and Experian was careful to control for those who required remedial advice.

“The study looked at pre-home ownership credit behavior, so you didn’t only have people who already had bad credit,” said Douglas Robinson, a Neighborworks spokesman. He added that middle- and even high-income buyers could also benefit from a brief acquaintance with what to expect from home ownership.

“We reduce the ‘unknown knowns,’ ” Robinson said.

Other studies have shown that the unknowns can be reduced with far less effort.

At Stanford University’s Institute for Economic Policy Research, a group looking for ways to spur higher retirement savings found that employees who got occasional, customized projections from their employer of how much income their IRAs and 401(k)s would provide them responded by increasing their annual contributions.

Similar results can be realized simply by using an online retirement calculator. A recent paper from the Employee Retirement Research Institute showed that those who figured their retirement needs with a Web tool increased the adequacy of their savings targets as much as 18 percent. In fact, those who used an online calculator ended up with more realistic savings targets than people who relied on a financial adviser.

That evidence raises another question: What kind of financial advice do we need?

Jack VanDerhei, research director of EBRI and co-author of the paper about online calculators, suspects that most people seek out advisers for guidance on other investment matters, such as asset allocation. “That tells me nothing as to what my overall savings targets should be,” VanDerhei said.

And it does little to connect our picture of home ownership or retirement with reality.

“All of us sort of dream in color,” said Anna Behnam, a financial adviser with Ameriprise Financial Services in Rockville, Md. “When we think about buying a

From: http://www.dailyfinance.com/2013/04/18/how-much-financial-advice-do-you-need/

Why Social Security Cuts Are Inevitable

By Dan Caplinger, The Motley Fool

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For decades, people have predicted that Social Security won’t be able to meet the demands of an aging population without cuts in benefits. But now that those pessimistic calls have become the majority view, it has paradoxically become easier for lawmakers and other government officials to consider making those cuts, thereby turning dire predictions into self-fulfilling prophecies.

Confidence in Social Security is falling
The recent Retirement Confidence Survey from the Employee Benefits Research Institute examined a number of the financial aspects involved with retirement issues. One area of the survey focused on attitudes that workers and retirees have about Social Security and Medicare.

The results of the survey show that opinions of the health of entitlement programs are at their most pessimistic levels in 15 years. Asked how confident they are that Social Security will provide them with equally valuable benefits as it provides them today, 41% said they were not at all confident, with another 28% claiming they were not too confident. Only 5% said they were very confident that Social Security could continue at current levels.

Even more alarming, more than one in five respondents said that they didn’t expect Social Security to be a source of income at all when they reached retirement. On the other hand, a rise in those expecting Social Security to be their major source of income isn’t necessarily good news either, as it reflects trends that have left workers increasingly reliant on government programs to replace the substantial reduction in employer-provided pension benefits that’s been occurring gradually for decades. Decisions in the past year from General Motors and Verizon to outsource their pension liabilities to insurance giant Prudential mark just the latest in a long series of moves that employers have made to reduce their exposure to the risks involved with providing employee pensions, and newer employees at most companies don’t have any access to a traditional pension plan at all.

Medicare is equally endangered
Survey respondents weren’t any more confident about Medicare, with 32% feeling not too confident in its prospects for maintaining current benefit levels for their retirement, and 37% being not at all confident of Medicare’s prospects. The latter figure is the worst showing since 1996, with only 6% feeling very confident about Medicare sustaining current benefits.

Even current retirees aren’t very confident about Medicare’s chances of surviving in its current form. A majority, 56%, of retirees are not at all confident or not too confident of Medicare’s ability to keep current levels of benefits. Recent threats of cuts to Medicare Advantage plan reimbursements have greatly affected health-insurance companies UnitedHealth and Humana , and with the ongoing need for federal-budget cost-control measures, similar cuts could pop up at any time.

When cuts become politically expedient
Clearly, the EBRI survey reflects the informed views of people who stand to gain or lose a great deal depending on the fate of …read more
Source: FULL ARTICLE at DailyFinance

Wealthy Workers Are Seriously Underestimating Their Retirement Needs

By Business Insider

Wealthy Workers underestimate

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A lot of wealthy workers could be missing a vital flaw in their plans for retirement, a new survey shows.

More than 80 percent of workers earning $115,000 say they are prepared for retirement — but they think they’ll only need $66,000 per year to live on, Charles Schwab (SCHW) found.

Sure, it’s possible to survive on $66,000 a year — plenty of people would be glad to earn half that much in a year — but chances are high-earners won’t be prepared for that kind of lifestyle change, let alone unexpected costs that could come up down the road.

Most experts agree consumers should plan on at least saving enough of a nest egg to maintain their current lifestyle in retirement. Otherwise, the only answer is to find ways to minimize costs and trim household budgets.

That starts with figuring out what age you plan to retire, and these days, workers are planning on working well past the typical 65th-birthday benchmark.

Couple that with the fact that we’re living longer than ever as well, and retirees could wind up spending 15 to 20 years living off just their nest egg alone.

The biggest hurdle retirees will almost certainly face is the rising cost of health care.

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“Even with Medicare benefits, a 65-year-old couple could need nearly $400,000 to cover out-of-pocket health care costs during retirement, according to research by the Employee Benefit Research Institute,” noted Carrie Schwab-Pomerantz, Charles Schwab senior vice president. “The bottom line for everyone is that health care costs need to be carefully factored into retirement plans.”

No one can predict whether they’ll need long-term medical care in the future, but there are steps people should take now to mitigate those issues as early as possible.

First, review your retirement goals with your spouse or partner and think about running it over with a financial advisor. Fee-only financial planners have a fiduciary duty to work in the best interest of clients, and you won’t have to worry about commissions or other hidden fees that could sneak up on you.

Just half of Americans said they’re saving through a retirement plan like a 401(k) or IRA, according to a recent survey by the EBRI. While not everyone might be able to max out a retirement plan contribution each year, even contributing a small portion of each paycheck to a retirement account could be a big difference in the long run.

“Especially for those looking to catch up on savings, we recommend maximizing contributions in a 401(k) at least up to the employer match, considering other tax-advantaged retirement accounts such as an IRA, and finding ways to automate savings,” Schwab-Pomerantz says.

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Source: FULL ARTICLE at DailyFinance

Market rebounds, but retirement confidence doesn't

Workers appear to have little faith that the economic recovery and the stock market‘s climb have left them better-prepared for retirement.

Confidence in the ability to afford a comfortable retirement remains at the same record low level recorded in 2011, and is slightly lower than last year, according to the Employee Benefit Research Institute, which has conducted the study the past 23 years.

Nearly half of workers surveyed in January had little or no confidence that they’ll have a financially comfortable retirement, EBRI said Tuesday. Twenty-eight percent were not at all confident — the highest level recorded since the survey began in 1991 — with 21 percent saying they were not too confident.

About 13 percent were very confident and 38 percent somewhat confident, figures that weren’t substantially greater than the record lows in the 2011 survey.

If there’s any positive takeaway, it’s that researchers believe workers who are the least prepared for retirement have become increasingly aware that they need to save more.

In 2007, for example, confidence numbers were substantially higher before the economy sank into a recession. Seventy percent were either somewhat confident or very confident that year.

The decline in confidence in recent years suggests “a much higher degree of realism” about the need to increase savings rates, said Jack VanDerhei, EBRI‘s research director, and co-author of the report.

That could explain why confidence remains low, despite the economy’s gains since the recession and a market rally that lifted the Dow Jones industrial average to a record high two weeks ago.

Despite the realization that they’re not saving enough, short-term financial needs are so pressing that long-term goals become secondary.

“Job security and financial security continue to be Americans’ major concerns, not retirement,” VanDerhei said.

In addition to worrying about their retirement savings, workers “lack confidence in their ability to pay for medical expenses, and even basics such as food, clothing and shelter,” he said.

The survey was co-sponsored by EBRI, a private nonprofit research organization, and Matthew Greenwald & Associates, a market research firm. Two-dozen public and private organizations, including financial services companies, provided funding. About 1,000 U.S. workers …read more
Source: FULL ARTICLE at Fox US News

2013 Retirement Confidence Survey: Retirement Confidence Remains at Historic Lows as Americans Grasp

By Business Wirevia The Motley Fool

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2013 Retirement Confidence Survey: Retirement Confidence Remains at Historic Lows as Americans Grasp Reality of Savings Need

WASHINGTON–(BUSINESS WIRE)– Despite signs of economic recovery, a new survey says Americans’ confidence in their ability to afford a comfortable retirement remains at historic lows as workers appear to be grasping the realities of what they need to save.

The 2013 annual Retirement Confidence Survey, released today by the nonpartisan Employee Benefit Research Institute (EBRI) in Washington, and co-sponsored by the Principal Financial Group®, finds overall confidence levels are essentially unchanged since the record lows set in 2011. Only 13 percent are very confident they will have enough money for a comfortable retirement. A full 28 percent1— the highest number recorded during the 23 years of the survey—are not at all confident.

Workers have growing doubts about their ability to pay for basic expenses in retirement and are least confident about being able to afford medical costs and long-term care.

The lack of confidence may also stem from a finding that workers seem to be realizing just how much they may need to save. Nearly 70 percent say they need to set aside 10 percent or more of total household income to fund a financially secure retirement. Four in 10 put the target at 20 percent or more.

Despite those projections, the survey finds less than half are taking steps to prepare and total savings remain modest. Saving and planning for retirement are overshadowed by immediate worries about job certainty, daily expenses and debt.

“Especially in the face of current financial challenges, Americans need a plan for saving and spending so they can manage short-term needs and better prepare for the long-term,” said Greg Burrows, senior vice president of The Principal®, a long-time underwriter of the Retirement Confidence Survey. “Using an online calculator or working with a financial professional to assess savings needs helps with setting realistic goals and getting on track toward a more secure future.”

The survey shows overall retirement confidence is 20 – 40 percent higher among workers who take positive financial actions including calculating retirement savings needs, saving in an employer-sponsored plan and getting advice from a financial professional.

Among other key findings available on the EBRI website at www.ebri.org :