From the July 2006 issue of Investment Advisor • Subscribe!

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Hoping to serve as a "catalyst for change," the Center for Retirement Research at Boston College has some bleak news for Americans. Alicia Munnell, director of the Center, says she wanted the new National Retirement Risk Index (NRRI) to "focus a laser" on the fact that many Americans are "ill prepared" for retirement so that they might change their behavior. The overall NRRI stands at an inaugural 43%, that number being the percent of people whose income in retirement is more than 10% below the level needed to maintain their pre-retirement standard of living (which normally stands at 70% of pre-retirement income). The index is based on data from the Federal Reserve's Survey of Consumer Finances and includes income from Social Security, DB and DC plans, other savings, and housing. The index is also broken into age ranges and income levels; the full report can be downloaded at www.bc.edu/crr/nrri.shtml.

In a teleconference on June 6 relating the findings of the index, Munnell noted that "early boomers," those baby boomers closest to retirement (born between 1946 and 1954) are in the best shape relatively speaking, but she cautioned that even that population cohort should expect to work until age 65. Just working two more years before retiring or saving an additional 3% can substantially improve the odds of financial security for retirees, she argued, but still Munnell called for a "national retirement income policy" to address the challenge.

The Risk Index takes a fairly conservative approach to the amount of income that people can expect in retirement--it assumes that homeowners will monetize their homes through reverse mortgages, for instance, and will annuitize their wealth in retirement--James J. Green

MassMutual recently unveiled the Retirement Management Account (RMA), which the Springfield, Massachusetts-based firm says is akin to a pension plan in that it's an "innovative advisory program and rollover IRA" that helps clients turn their qualified retirement savings into inflation-protected monthly payouts that last a lifetime. The RMA is unique in that it offers mutual fund model portfolios containing OppenheimerFunds that are available at net asset value, as well as an immediate annuity called the Flexible Benefits Annuity.

A new study by the Employee Benefits Research Institute (EBRI) found that of today's younger workers--those age 21 to 30--about one-third participate in any retirement plan at work, with 401(k)s the most commonly used. EBRI used 2003 data, the latest available, and found that 60.6% of these young workers are employed at a firm sponsoring a retirement plan; 36.6% of them are participating in plan; 32.3% are vested in a plan; of participating workers, 26% are in a defined benefit plan only, while 58.7% are putting their money is a defined contribution plan only. Of the participating workers, 13.5% participate in both a DB and DC plan.

Rep. Clay Shaw (R-Florida) introduced a bill May 9, the 401 Kids Family Savings Act of 2006, which allows parents to set up savings accounts for their children at birth for the purposes of financing college, buying a home, or saving for retirement. Up to $2,000 can be contributed annually to these accounts, and the money for the accounts is contributed after taxes, but interest may accumulate tax free and withdrawals for approved purposes would also be tax free. The measure has been referred to the Ways and Means Committee.

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