[RunItUpTheGut]

Literacy and confidence

Sometime in March, the Employee Benefit Research Institute will release the 22nd annual Retirement Confidence Survey and will likely show that only a few Americans are very confident about having enough money for retirement. In 2011, just 13% were very confident.

Reynolds suggests that there’s a correlation between financial literacy and confidence. To solve the confidence problem, we must solve the literacy problem. According to Reynolds, it’s time to provide the education and tools required to help people understand how much to save and how to invest, how much they will need to accumulate for retirement, and how to make their money last a lifetime once in retirement. Knowledge will lead to action, and action will lead to confidence.

Others agree. “Financial literacy and awareness are key components in helping Americans prepare for retirement,” said Suzanna de Baca, the vice president of wealth strategies at Ameriprise Financial. “Any American looking ahead to retirement can benefit from a written financial plan that will help them define their retirement goals and objectives, and guide them in creating a realistic plan to create a more confident financial future.”

Rachel McTague, a spokeswoman for the Investment Company Institute (ICI), also said education is needed. “ICI research finds that the system of saving for retirement in 401(k) plans and IRAs is a success, based on such survey data and modeling of potential savings over a full career with 401(k) plans,” she said. “Nonetheless, we believe there is room for improvement. Among other priorities, we support efforts to provide retirement savers with information and tools to help them use the system to accumulate assets and understand and navigate the distribution phase as well.”

Read the ICI research at this website.

In the absence of such education and planning, however, there are those who say policies that force people to save on their own for retirement hurt more than help. “Too much responsibility has been shifted to individuals, and they are not well prepared to handle them,” said Rappaport. “Financial literacy creates major challenges and we need systems that work without people having initiative.”

Outliving one’s assets

Right now, there’s much ado about outliving one’s assets. Experts are worried that average Americans don’t understand longevity risk and might draw down their assets too quickly during retirement. According to experts, many Americans should consider adding investments that insure against the risk of outliving one’s assets. But that’s unlikely to happen anytime soon. Most Americans are distrustful of such products. Nonetheless, it’s worth adding this opinion to the mix.

“Striking the right balance between growth and income to keep from outliving one’s retirement savings is an even more daunting task than it was before the current period of market volatility and low interest rates,” said Chris Winans, a spokesman for AXA Equitable. “The problem is that 401(k)s and plain-vanilla savings accounts without downside protection are exposed to the vagaries of the market. You wouldn’t think of not spending whatever it costs to insure from losing your house in a fire. Why wouldn’t you want protection on a portion of your retirement nest egg, too? Our challenge is to help people understand this value for themselves and their families. You hope your savings appreciate and nothing bad happens, but a lifetime income guarantee reduces some of the risk. That’s worth something.”

Tax breaks and retirement

Efforts to eliminate the so-called tax breaks Americans get for saving money in a 401(k) or other plans where they can to save on a pre-tax basis could affect adversely the state of retirement in the U.S.

According to Reynolds, 401(k) plans and the like are not tax breaks. Rather they are tax-deferred plans. At some point in the future, Americans will pay ordinary income taxes on the money distributed from those plans. Efforts to eliminate or reduce incentives to save might backfire and reduce further the poor state of retirement in the U.S., not improve it.

Egan is of the same opinion. “Tax incentives must be preserved for retirement savings,” she said. “Our defined contribution system reflects ‘the American way.’ There’s a balance among government endorsement and oversight, corporate and plan sponsor fiduciary responsibility, individual responsibility, and free market competition among service providers.”

The good news — sort of

“As more and more baby boomers retire, the discussion on retirement, on retirement income, will become a national topic,” said Reynolds. “And I think it will spark the interest of retirement to all age groups.”

Let’s hope that’s the case because the problem is real. “America is facing an unprecedented retirement challenge as the U.S. population undergoes a radical demographic shift,” said Michael Falcon, head of retirement at J.P. Morgan Asset Management. “Twenty percent of the population will be over 65 years old by 2020 and, despite impressive aggregate asset growth, many Americans are still significantly short of the savings they will need for a dignified retirement and are unprepared for the complex financial choices they will need to make.”

http://finance.yahoo.com/news/retirement...27175.html