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A new study by the Investment Company Institute (ICI) found that only about 3% of accumulated defined contribution plan account assets were spent immediately at retirement. The study, Defined Contribution Plan Distribution Choices at Retirement, is based on a 2007 survey of more than 600 recent retirees, and found that the few retirees who spent their entire DC plan lump sums generally had received small distributions and, on average, derived a sizable portion of their household incomes from defined benefit plans and Social Security payments. “Even of those who spent their entire lump sum, most used the proceeds sensibly, for example, to buy a primary residence, make home repairs, repay debt, or pay for healthcare,” the study reports. The research takes a detailed look at how retirees handled their DC balances at retirement–whether through lump sums, installment payments, annuity payments, or deferrals.

The study found that more than half of DC plan participants received their distribution as a lump sum. Of these, 86% reinvested all or some of the proceeds, usually in rollover IRAs; 62% reinvested the entire amount. The greater the value of the lump-sum distribution at retirement, the more likely recipients were to reinvest the proceeds.

The Internal Revenue Service has announced increased deductibility levels for long-term care insurance policies purchased in 2009. “Tax advantaged long-term care insurance is one of the few remaining significant tax-savings benefits for small business owners,” says Jesse Slome, executive director of the American Association for Long-Term Care Insurance (AALTCI). “In certain situations, the cost of long-term care insurance can be fully tax deductible for the business,” he says. “Even spouses can be covered under a tax-advantaged plan.”

Sloame says there is still time to tax advantage of tax deductions in 2008 and also benefit from the increased deductible limits next year.

Morningstar Investment Services, Inc., the RIA subsidiary of Morningstar, Inc. recently introduced Morningstar Managed Portfolios Retirement Income Series, a managed account service consisting of three actively managed portfolios designed to generate retirement income over specified time horizons and risk levels. This fee-based discretionary investment management program is offered exclusively through advisors, Morningstar says. Each retirement income portfolio is designed for investors in a different stage of retirement–short range, mid range, and long range–and aims to support annual cash flows of 4%, 5%, and 6% of the client’s initial assets. Similar to the asset allocation in an endowment, the portfolios are diversified across various alternative asset classes, including global fixed income, high-yield bonds, commodities, and absolute return strategies.


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