Retirement Facts

"In the United States today we are facing a crisis in “retirement readiness.” ... Individually, many Americans have failed to plan for two key retirement income risk factors that may cause their retirement resources to run out well before their retirement objectives are fulfilled. ... To address the retirement readiness crisis, it is imperative that all Americans develop a personal retirement plan. Americans need to understand that they must take personal responsibility for their financial futures." 

 

Retirement Planning
66% of workers believe they will reach their savings goals by the time they retire. Employee Benefit Research Institute www.ebri.org

42% of workers have actually tried to calculate how much money they will need for retirement. Employee Benefit Research Institute

35% lie to themselves, in a poll of households with $50,000 or more in income, about their financial reality by not thinking about it, refusing to look at personal financial statements, putting off paying bills, ignoring financial news, or avoid working with a financial advisor.
Journal of Financial Planning, July 2005, Money magazine poll, www.fpanet.org/journal/index.cfm

 

Social Security
Under the intermediate assumptions, the OLD-AGE AND SURVIVORS INSURANCE AND DISABILITY INSURANCE (OASDI-known as Social Security) cost rate is projected to decline slightly during 2005 through 2007 and then increase up to the current level within the next 3 years. It then begins to increase rapidly and first exceeds the income rate in 2017, producing cash-flow deficits thereafter. Despite these cash-flow deficits, beginning in 2017, redemption of trust fund assets will allow continuation of full benefit payments on a timely basis until 2041, when the trust funds will become exhausted. This redemption process will require a flow of cash from the General Fund of the Treasury. Pressures on the Federal Budget will thus emerge well before 2041. Even if a trust fund's assets are exhausted, however, tax income will continue to flow into the fund. Present tax rates would be sufficient to pay 74 percent of scheduled benefits after trust fund exhaustion in 2041 and 68 percent of scheduled benefits in 2079. Source: 2005 OASDI Trustees Report, PROJECTIONS OF FUTURE FINANCIAL STATUS http://www.ssa.gov/

Pensions
While the number of companies required to file such reports grew only modestly, the amount of under funding reported by the 4010 filers grew by 27 percent as compared to a year ago - from $279 billion to $354 billion. These 1,108 plans covering 15 million workers and retirees had $786.8 billion in assets to cover over $1.14 trillion in liabilities, for an average funded ratio of 69 percent. Source: Testimony of Bradley D. Belt Executive Director Pension Benefit Guaranty Corporation before the Committee on Finance United States Senate June 7, 2005 http://www.pbgc.gov/

 

The Congressional Budget Office (CBO) estimates that the present value of PBGC’s net costs for defined-benefit pension insurance for single-employer plans over the next 10 years is about $86.7 billion. That total consists of two distinct components: $23.3 billion of losses from insurance claims for plans that have already terminated or whose termination is imminent, and $63.4 billion of prospective losses over the next 10 years for terminations that have not yet occurred, net of future premiums. Total costs (“sunk”—for plans that have been terminated—and prospective) for 15- and 20-year horizons are $119 billion and $141.9 billion, respectively.

Several policy options are available to the Congress to induce plan sponsors to more fully absorb the costs of their pension commitments and thus to reduce prospective losses. Effective options fall into two broad categories: increasing premiums to better reflect the value of insurance; and increasing sponsor resources by tightening the rules that govern investment, accounting, and funding. Although such changes would tend to reduce the financial shortfall of the defined-benefit pension system, they also
would affect the incentives of plan sponsors, both with respect to taking risks and continuing to offer defined benefit pensions. Raising the costs to sponsors would
tend to push some employers toward lower-cost options, such as defined-contribution plans, which shift investment risk to employees, or toward other forms of compensation. Excerpts source: A Congressional Budget Office Paper, September 2005, THE RISK EXPOSURE OF THE PENSION BENEFIT GUARANTY CORPORATION. www.cbo.gov

 

 

 

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