Americans are freaking out about their personal retirement savings – and for good reason.

Americans are freaking out about their personal savings – and for good reason. A recent Gallup poll found that 59 percent of those surveyed were very or moderately worried they won’t have enough money for retirement – by far their biggest concern.

Many people once counted on a triad of support for retirement – Social Security, personal savings, and employer-sponsored pensions. Yet in the wake of the Great Recession and a long stretch of high unemployment and stagnant wages, the once-dependable foundation has been crumbling.

Employers have phased out generous defined benefit pension programs in favor of 401(k)s and other workplace-based retirement accounts. Personal savings have taken a dive as many people have tapped retirement savings to pay the rent or help make ends meet. And many young people seriously question whether the Social Security trust fund will be able to pay them anything by the time they retire.

The latest National Retirement Risk Index from the Center for Retirement Research (CRR) at Boston College says that more than half (53 percent) of households risk falling more than 10 percent short of the retirement income they’ll need to maintain their standard of living. More than 40 percent of retirees are also at risk of running out of money for daily needs, out-of-pocket spending on health care or long-term care, according to the Employee Benefit Research Institute (EBRI).

Even more alarming, the National Bureau of Economic Research recently concluded that nearly one-quarter of Americans could not come up with $2,000 in 30 days if necessary, and another 20 percent would have to pawn or sell possessions to do so. That would mean nearly half of all Americans are financially stressed.

“The graying of Americans, a growing retirement population, rapid changes in the private employer pension programs, projected insolvency in public pension funds, fiscal pressures at both the federal and state level – all this and more requires policymakers to renew their focus on ensuring existing programs support individuals and families in their twilight years,” said Bill Hoagland, a senior vice president of the Bipartisan Policy Center.

The mounting crisis over retirement savings and investment underscores a key facet of the evolving national debate over income inequality: While many households are well prepared for retirement, only 17 percent of people in the lowest income quartile will have sufficient resources to avoid running short of money by the end of their lives, according to EBRI’s 2014 metric.

The Bipartisan Policy Center on Monday is launching a “personal savings initiative” to begin formulating a series of innovative proposals to try to increase national savings, improve income security in retirement, and guard against the potential costs of long-term care. While Congress is unlikely to take up any meaningful tax or financial services legislation before November, a new commission chaired by former senator Kent Conrad (D-ND) and former Social Security Administration official James B. Lockhart III hopes to outline an action agenda for the coming year.

The group will look for ways to beef up the defined contribution retirement system by increasing personal savings for retirement and improving the effectiveness of tax-advantaged savings vehicles, according to a sum of the initiative.

The commission will also examine the impact of federal policies on private savings, the finances and operation of Social Security Disability Insurance, the interaction of Social Security with personal savings, the impact of long-term care needs on retirement security, and the role of homeownership and student debt.

The reasons for shortfalls in retirement savings are complicated, but three stand out, says the BPC:

•             A Sea Change in Workplace Retirement Plans

Over the past two decades, the workplace retirement landscape has dramatically shifted to defined contribution plans, in which a worker and in some cases the employer contribute to an account managed by the employee. These have largely replaced defined benefit plans, which specify a benefit – often a percentage of the average salary during the last few years of employment – once the worker retires.

Since 1998, the number of companies offering any sort of defined benefit plan plummeted from 71 to 30 – and an increasing number of those are hybrid plans, where workers accumulate an account balance rather than an annuity. When 401(k)s were created in 1978, they were meant to be a supplement to traditional defined benefit pensions, not a stand-alone retirement account. But over time, they have evolved to serve that purpose – although they typically provide far less in long-term benefits than the old plans.

•             Dismal Personal Savings

The reasons for the long decline in personal savings are difficult to pinpoint, but they likely include stagnant real incomes for many workers, rising standards of living and higher consumption, and a weaker dollar than in the past. The savings rate is the percentage of money that one deducts from his or her personal disposable income for retirement.

America’s savings rate fell steadily from the early 1980s through the mid-2000s, ticking up only during or after recessions, according to a Washington Post analysis. It topped 11 percent during President Ronald Reagan’s first term. From 2005-2007, the annual rate averaged 3 percent. The savings rate essentially doubled during the Great Recession, and stayed there, averaging nearly 6 percent from 2009-2012. By early 2013, the rate had dipped to 2.6 percent, before rising again to 4 percent by mid-2014.

A Capital One ShareBuilder survey this year found that 72 percent of Americans are saving – while many more than that know they should be – and only one-fifth of them are saving 10 percent or more. On average, people are saving only 6.4 percent of their annual income, the survey found.

•             Taking the Money Out

For those with defined contribution retirement accounts, carefully managing withdrawals is part of the challenge. Many people are shocked to discover that their account balances, when they need them, are smaller than they anticipated because of cash-outs during job changes, hardship withdrawals, or expensive 401(k) loans. Moreover, those who do not use their savings to purchase lifetime annuities face the risk of outliving their savings.

Individuals without long-term care insurance face impoverishment, having to spend almost all of their financial assets and income on care before they can qualify for long-term support benefits through Medicaid, the federal-state safety net program.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®


HSAs: An unconventional retirement planning tool


When it comes to retirement income planning for most clients, less is not more, and the contribution limits placed on traditional tax-preferred retirement vehicles have many of these clients searching for creative ways to ensure a comfortable retirement income level. Enter the health savings account (HSA), which, though traditionally intended to function as a savings account earmarked for medical expenses, can actually function as a powerful retirement income planning vehicle for clients looking to supplement their retirement savings. For the strategy to work, however, it is important that your clients understand the rules of the game, and the potential penalties that can derail the substantial tax benefits that an HSA can offer.

The HSA income strategy

HSA funds are withdrawn tax-free if they are used to cover medical expenses, so clients can maximize the tax-preferred treatment of the HSA if the funds are eventually spent on qualified medical expenses. Despite this, there is actually no requirement that HSA funds be withdrawn for this purpose.

In fact, upon reaching age sixty-five, the client can withdraw the funds for any purpose without penalty. The income will be taxable as ordinary income, just as funds withdrawn from a traditional IRA are taxed. However, it is important for clients to understand that funds withdrawn to cover nonmedical expenses before the client reaches age sixty-five are subject to a 20 percent penalty in addition to the ordinary income tax rate that otherwise applies.

Because unused funds in the HSA never expire, your clients’ annual contributions can be left in the account to grow on a tax-deferred basis for years if the funds are not needed to cover medical expenses. As a result, many clients can accumulate substantial account balances that can serve to supplement traditional retirement savings vehicles.

Despite the fact that HSA funds can be used for any purpose after age sixty-five, most clients are actually likely to incur medical expenses on the road to retirement that can make tax-free withdrawals from an HSA an attractive option. These clients can still take advantage of the tax-deferred growth on the account value, however, because HSA funds do not have to be withdrawn in the year the expense was incurred in order to be withdrawn tax-free.

As a result, clients have the ability to contribute to the HSA, pay for medical expenses with after-tax dollars, and simply save the receipts and withdraw the HSA funds at some point in the future when the account balance may have grown considerably. As long as the client did not claim the medical expense as an itemized deduction on a prior tax return, the HSA funds can be withdrawn tax-free even years later.

Unless HSA funds are used to pay for qualified medical expenses by a surviving spouse, the funds are taxable income to the client’s beneficiaries.

HSA basics: Who can contribute?

In order to open an HSA, the client must be covered by a high-deductible health insurance plan (one with a deductible of at least $1,250 for self-only coverage or $2,500 for family coverage). In 2014, clients with self-only coverage can contribute up to $3,300 annually to an HSA (the limit is increased to $6,550 if the plan also covers the client’s spouse or other dependents).

Clients fifty-five or older are eligible to make an additional $1,000 catch-up contribution annually (each spouse is eligible to make a separate $1,000 catch-up contribution). When client begins receiving Medicare coverage, they are no longer eligible to contribute to the HSA.


HSAs can be a powerful retirement income planning tool for clients looking to supplement their income later in life — knowing the rules of the game, however, is critical to maximizing the value that these accounts have to offer.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®



Taxes a Surprise Expense in Retirement

Taxes a Surprise Expense in Retirement

Rebecca Moore, June 9, 2014, Plan Advisor Magazine

Retirees significantly underestimated the impact taxes would have on them during retirement years, according to a recent Lincoln Financial Group survey. —

When asked what they expected their top expenses to be before they retired, the majority of retirees surveyed for the “2013 — Expense Challenges of Age 62-75 Retirees” survey anticipated home and mortgage, health care and travel/leisure to be the most significant expenses during retirement. However, these retirees found their actual top expenses included taxes, rather than health care.

On average, when reviewing all household expenses paid on an annual basis, retirees reported spending the most on federal income tax. Additionally, 36% of retirees said taxes were a larger expense than they had anticipated, while 23% did not even consider planning for taxes as an expense prior to retirement.

“Given the current environment, with taxes at a 30-year high, it is critical that advisers help their clients understand all factors—including taxes—when developing a plan to help clients protect their legacies,” says Richard Aneser, chief marketing officer for Lincoln Financial Group Distribution. “Advisers who offer this type of wealth protection expertise will demonstrate their value and unique understanding of their clients’ needs.”

Underestimating the role of taxes was not based on a lack of knowledge among those responding to Lincoln’s study. When participants were asked if they were aware of recent tax law changes, 62% said they were, while only 16% were unaware of tax law changes. Fifty-seven percent of survey participants said their advisers regularly discussed tax changes with them and shared the impact those changes could have on retirement. However, 43% said their advisers did not take that initiative.

Other key survey findings included:

  • Women had higher levels of concern, especially as it related to the health of their spouse, health care expenses and receiving full Social Security and Medicare benefits throughout retirement;
  • Reinforcing the need for wealth protection, individuals in the 62 to 65 age range have more intense anxiety than other age segments about major retirement concerns, such as leaving an inheritance, generating enough income, and having assets to last throughout retirement; and
  • About 43% of retirees ages 62 to 65 indicated they would like to pass on a financial legacy to children, grandchildren or a charity, yet nearly half of survey participants indicated they had not worked with a professional to establish an estate plan.

The survey is based on interviews with 750 individuals, with an annual household income of $100,000 or more. The survey included individuals who worked with a financial adviser, as well as those who did not.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®


A Realistic Debt-Reduction Plan for Retirement

By Cliff Goldstein

Debt is a pest that feeds on your retirement assets, draining the resources meant to sustain you for the rest of your life.

Whether it’s the mortgage on the vacation home you rarely visit, or the boat that hasn’t seen a drop of water since the last rain, liabilities will keep buzzing around you and prevent you from kicking back and finally relaxing.

A realistic plan to reduce your debt is the fly swatter you need for a worry-free retirement.

Decide what to pay off first

“Debt can rob a retiree of valuable income when they are no longer able to earn money to pay it,” says Guy Baker, a financial planner in Irvine, Calif. “It is important to manage debt before retirement while at the same time not negatively impacting the capital that has been reserved for producing retirement income.”

But reducing debt before or during retirement isn’t a simple matter, and will likely require budgeting and planning. Most advisers recommend first paying off the debt with the highest interest rate, but Baker suggests a different approach: Starting small.  “The best way to attack debt is to pay off the lowest debt amount first while paying minimum payments on the rest,” he advises. “Upon completion, take the money used to make those payments and apply it to the next smallest debt. You will be surprised how fast the debt mountain will disappear.”

It isn’t enough to plan — you have to want it

Gary Alt is a financial adviser in Pleasanton, Calif., and he believes it isn’t just the debt reduction plan — it’s the desire.  “Nothing reduces debt faster than a burning desire to be financially free,” he says. “Once the desire is there, any number of debt reduction methods will work.”  For investors with a high net worth, Alt believes it can make sense to retain a mortgage if it has a low-interest rate and a favorable housing market allows a return on investment higher than the after-tax cost of the loan. Considering a mortgage as part of your overall investment strategy offers a unique perspective. As Alt says, “All the equity in [a] home won’t buy groceries or pay property taxes.”

Consider what you own, and what you owe

Taking an objective view of the scope and magnitude of debt can offer a complete understanding of its impact on your retirement. A comprehensive financial plan will provide an overview of where you stand now and how future plans might be affected.

A typical financial plan includes a snapshot of your net worth: What you own and how much you owe, as well as a cash flow statement of current income and expenses. “Then their situation is projected forward with consideration for how their income and expenses will ebb and flow over time,” says financial planner Andy Tilp of Sherwood, Ore. “At that point, the burden of the debt will be clear.”

Then comes the development of a strategy to reduce expenses.

“An obvious assumption is [that] the acquisition of new debt ceases,” Tilp says. “When a person is getting close to retirement, increasing income most often translates to working a few additional years. But often equally important, the client needs to make an honest assessment of where their expenses can be reduced. As a side benefit, reducing their spending while still employed is good practice in preparation for a possibly reduced spending rate in retirement.”

An adviser can assist in implementing the plan, to the point of even recommending changes to a client’s current spending behavior. Most important, a financial planner will monitor a client’s progress to ensure the debt reduction plan is on target and determine if any further adjustments are needed.

Mind over money

While much has been written about the impact of human behavior on the process of investing, emotions drive our spending habits as well. Robert Riedl, a wealth manager in Milwaukee, believes it’s a discussion well worth having—on a regular basis.

“It seems most debt options are lifestyle decisions which need to be revisited,” Riedl says. “Do I need the multiple vacation properties, cars and boats, or can I simplify my life and sell off some underutilized assets and reduce my debts? Identify your long-term needs versus wants, and determine what can you afford to maintain and will use in the future. Sell the assets that are too expensive to maintain and underutilized to reduce your retirement debt burden—and enjoy the rest.”

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®