Test Your Financial Prowess

How much do you know about retirement security? Find out by taking this quiz from the Wall Street Journal:

1) What percentage of surveyed workers said that—in the wake of the financial crisis—they still plan to retire on their original schedule?

a. 21%
b. 31%
c. 41%
d. 51%

(ANSWER: b. Only about one-third of workers, according to a survey in September by Bankrate Inc., said the recession hasn't affected their planned retirement date. One in five said they anticipated leaving the office between one and five years later than planned.)

2) An analysis of trading behavior over a two-year period in 401(k) plans found that the greatest percentage of workers made a change in their accounts:

a. Once during the two years
b. Twice during the two years
c. Once each quarter
d. Twice each year
e. Never made any change

(ANSWER: e. Looking at a group of 1.2 million workers in more than 1,500 retirement plans, a report from the University of Michigan found that 80% of workers initiated no trades in their accounts during the two-year period. Eleven percent made only one trade."For the overwhelming majority of retirement savers," according to the report, "there is no evidence of portfolio rebalancing, shifts in risk tolerance with age, or tactical portfolio changes.")

3) What percentage of participants age 55-64 in employer retirement programs made the maximum contribution to their accounts in 2008—and what percentage of workers age 50-plus took advantage of catch-up contributions?

Maximum Catch-up
a. 10%a. 13%
b. 20%b. 23%
c. 30%c. 33%
d. 40%d. 43%

(ANSWERS: B (maximum) and A (catch-up). Vanguard Group, in a survey of its defined-contribution plans, with more than three million participants, found that only one in five workers approaching retirement made the maximum contribution to their employer savings accounts—and only one in seven workers took advantage of catch-up contributions. )

4) What percentage of workers and/or their spouses have tried to calculate how much money they will need to save for a comfortable retirement?

a. 34%
b. 44%
c. 54%
d. 64%

(ANSWER: B. Fewer than half of surveyed workers in 2009, according to the Employee Benefit Research Institute, had put pencil to paper—a fundamental step in any effective retirement plan. The same percentage said they simply guessed at how much money they will need in later life.)

5) In retirement, Social Security will likely replace what percentage of your pre-retirement income?

a. 23%
b. 33%
c. 43%
d. 53%

(ANSWER: b. Thus, the question: If Social Security, according to the agency's board of trustees, will provide approximately one-third of the amount needed for retirement, will your savings and assets be sufficient to generate the balance?)

6) The single best cure for a battered nest egg is to:

a. Invest more aggressively
b. Save more money
c. Work longer
d. Plan to withdraw less money from retirement savings

(ANSWER: c—for many people. There is, of course, no single best answer for patching a nest egg. A combination of two or more of these tactics probably would help many current and would-be retirees.)

* WISER has many resources to help you plan for your secure retirement, including a worksheet to help you add up your sources of retirement income as well as a general budget sheet to help you get on track today!

Source: Ruffenach, Glenn. “Have You Learned Your Lessons?” 14 Nov. 2009. The Wall Street Journal, Personal Finance. .

No COLA this year??

The Social Security Administration’s announcement that it will not be providing Cost of Living Adjustment increases to its beneficiaries has caused quite a stir among seniors, nonprofits, and members of Congress. Here are some basic facts about the COLA itself, the implications of not having an increase, and the possibilities for other funding for Social Security beneficiaries.

Social Security benefits are adjusted each year to fit the cost of living increase measured by the Consumer Price Index. Because there has been inflation every year since 1975, there has also been an increase in social security benefits to help elders with the increased costs of living. This year, however, as a result of the economic crisis, the cost of living actually decreased. Thankfully, Social Security benefits are never smaller than they were the year before, but that means this year benefits will be the same as last year (no COLA/increase).

Even though the CPI measurement shows that the cost of living did not increase in the past year, elder advocates remind Congress that the economic crisis has hit seniors, as they pay high costs for healthcare and prescription drugs, and have few, if any, years of work to rebuild lost retirement savings. Because women live longer than men and have lower incomes due to time out of the workforce to provide caregiving and other duties, elder women are at a high risk of poverty.

President Obama is supporting a bill to provide $250 to seniors, veterans, and individuals with disabilities to make up for the lack of a COLA. The bill is called the Emergency Senior Citizens Relief Act of 2009 (H.R. 3597, S. 1685). President Obama’s proposed legislation would cost between $13 and 14 billion, but Social Security Commissioner Michael Astrue believes this payment is necessary to protect elders against medical costs that have increased “at a rate of inflation much higher than any other commodity.”

Opponents of the bill maintain that giving elders money even though the cost of living has not increased, will begin to transform the Social Security system into a welfare program. The COLA was designed precisely to increase only when inflation increased, and since that did not happen, seniors technically can purchase more with their benefits this year than last year. It is not Social Security’s responsibility to make up for the shortcomings of the overall economy, and beginning to compensate seniors in this way transforms the entire program from an earned benefit program to a welfare program. Finally, the country’s deficit is already large enough, without adding billions of dollars to the national debt. For these reasons, to opponents, Obama’s bill is unjustified and unnecessary.

Regardless of whether you support or oppose Obama’s bill to provide funding for seniors this year, those are the basic facts about the COLA in our Social Security program. Check back for updates on the bill!