Alabama Town’s Failed Pension Is a Warning

Alabama Town’s Failed pension Is a Warning

The New York Times, December 22nd, 2010

This struggling small city on the outskirts of Mobile was warned for years that if it did nothing, its pension fund would run out of money by 2009. Right on schedule, its fund ran dry.

Then Prichard did something that pension experts say they have never seen before: it stopped sending monthly pension checks to its 150 retired workers, breaking a state law requiring it to pay its promised retirement benefits in full.

Since then, Nettie Banks, 68, a retired Prichard police and fire dispatcher, has filed for bankruptcy. Alfred Arnold, a 66-year-old retired fire captain, has gone back to work as a shopping mall security guard to try to keep his house. Eddie Ragland, 59, a retired police captain, accepted help from colleagues, bake sales and collection jars after he was shot by a robber, leaving him badly wounded and unable to get to his new job as a police officer at the regional airport.

Far worse was the retired fire marshal who died in June. Like many of the others, he was too young to collect Social Security. “When they found him, he had no electricity and no running water in his house,” said David Anders, 58, a retired district fire chief. “He was a proud enough man that he wouldn’t accept help.”

The situation in Prichard is extremely unusual — the city has sought bankruptcy protection twice — but it proves that the unthinkable can, in fact, sometimes happen. And it stands as a warning to cities like Philadelphia and states like Illinois, whose pension funds are under great strain: if nothing changes, the money eventually does run out, and when that happens, misery and turmoil follow.

It is not just the pensioners who suffer when a pension fund runs dry. If a city tried to follow the law and pay its pensioners with money from its annual operating budget, it would probably have to adopt large tax increases, or make huge service cuts, to come up with the money.

Current city workers could find themselves paying into a pension plan that will not be there for their own retirements. In Prichard, some older workers have delayed retiring, since they cannot afford to give up their paychecks if no pension checks will follow.

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Who Thrives After Surgery?

Who Thrives After Surgery?

The New York Times, December 27th, 2010

Martin A. Makary, a surgeon and public health researcher at Johns Hopkins Hospital in Baltimore, had a long talk with a patient last week. The man had a tumor in his pancreas that was probably benign but might not be. Should Dr. Makary remove it? Or should the man have regular scans to see whether it grew?

“If you’re 25, the decision is easy — get rid of that risk,” Dr. Makary told me afterward. But this patient was 89.

Let’s pause for a moment to consider the changing surgical landscape. When Dr. Makary was in training, he recalled, surgeons were just starting to offer elective procedures to patients in their 70s. Now, with better techniques, safer anesthesia and, of course, more old people — half of all operations in the United States are performed on those over age 65.

“It’s become acceptable to do major procedures on very old patients,” he said. “We routinely do elective surgery on people in their 80s and 90s.”

That doesn’t mean it’s always a good idea, or that it’s easy to calculate the costs and benefits. How very old patients respond to surgery has proved unpredictable. “There are some people you worry won’t do well, and then they fly,” Dr. Makary said. “And some people you are confident will do well have a cascade of symptoms that lead to their demise or permanent disability — and everybody is shocked.”

Surgeons eyeball their patients all the time to try to evaluate whether they can recover well from the stress of an operation, but it’s an inexact science. “You can be thrown off by hair or teeth or wrinkles, things that don’t have much to do with physiologic reserve,” Dr. Makary said.

The usual tests surgeons use to try to predict how older patients will fare are crude, Dr. Makary added, mostly based on cardiovascular strength. And standard estimates of mortality and length of hospitalization for specific operations are all but useless for patients who might be 30 or 40 years older than the norm.

But thanks to a rather elegant piece of research by a Johns Hopkins team, recently published in The Journal of the American College of Surgeons, surgeons can give more informative answers when elderly patients in this situation, or their families, wonder what to do.

Read more of this article.

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How to plan for a richer retirement

Fancy surviving ice-cold winters without heating? Or rummaging through value ranges at the supermarket for cheap reconstituted meat every week? Didn't think so.

Unfortunately, that's the prospect for millions of Britons who reach retirement and have to make do on the measly £97.75 a week state Pension, having failed to plan effectively.

The stark reality is that putting something aside for old age has become an unavoidable necessity these days.

As life expectancy rises, many of us can expect 45 years in employment followed by 30 years of retirement, possibly living on until we're in our nineties.

So, how can you make sure you're not left out of pocket for three whole decades? Simple answer: plan effectively.

How, exactly, to do this is a tricky question. After all, it varies greatly depending on how far you've journeyed through life.

So to make things a little simpler, we've put together this easy-to-follow guide on making sure your golden years are rich and fulfilling.

We've recruited the help of two highly-regarded pensions experts, to keep you on track.

One is Mike Morrison, a man with a treasure trove of experience in the pensions industry and currently head of pensions development at Axa Wealth. The other is Martin Bamford, the managing director of award-winning IFA, Informed Choice.

Follow our decade-by-decade guide below...

›› IN YOUR 20s

Key points:

• Focus on clearing your debts
• But make sure you open an Isa.
• Then save what you afford.

In your twenties you probably have your first proper job with a proper salary. But retirement will seem a long way in the future. At this stage, it's reasonable to allow other financial objectives to take priority.

According to Mike Morrison, those in their 20s should first look into repaying any student debt, especially more expensive bank and credit card debt, cover all living costs, and then see if there's enough left to squirrel some away.

- How to pick the best Isa

Martin Bamford says that saving something, however small, is better than nothing: 'Starting a Pension this early is a great way to build up a bigger retirement fund for later in life, as you add more contributions over your lifetime and they have longer to grow. Even if you can only afford a small amount, this is about forming a healthy savings habit.'

One of the best places for younger adults to put savings is a tax-free Isa.

'It might be better practice to save using an Isa where you are still building financial resources for the future but have greater flexibility in terms of access to the money,' says Bamford.

At this stage, a Pension is by no means a necessity.

Pension TOOLS & HELP

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›› IN YOUR 30s

Key points:

• Reassess your debts and outgoings
• Join your company Pension scheme as soon as possible
• Think long-term with your investments.

So you're in your 30s. This can be a busy decade from a financial perspective. All of us face new challenges, with the costs to go with them. You may be getting married, starting a family or buying your first house. Or a combination of the three.

First things first, then: re-establish what debt you have and find ways to address it. Once you've done this, says Mike Morrison, you should ask yourself a set of questions: 1. Do you now have your own family to consider? 2. Do you have sufficient 'rainy day' savings? 3. Have you bought / are you looking into buying a house?

Marriage? Young couples in their 30s are faced with myriad financial concerns

This should help you establish a overview of your key financial outgoings. There is a fine balance to be struck between saving for the future and paying off debt, particularly expensive unsecured debt such as credit cards and personal loans.

Once this is done, there's no time to waste. Explore your retirement saving options as soon as you can. Your first point of call should be to find out if your company offers a Pension scheme. If so, they'll make contributions on your behalf. This is effectively a pay rise – if you don't take it, you're turning down free money.

Martin Bamford says: 'Make sure you are a member of your company Pension scheme if one is offered and take an interest in how this money is being invested. Too many Pension scheme members select the default investment option rather than something tailored to your own financial objectives'

Take a long term view on your Pension investments. You can afford to take on more risk – in the form of shares - as there is a high chance this will pay off in 30 years' time. The old adage, 'shares outperform savings accounts in the long run', still rings true.

But remember, adds Bamford, that retirement planning is about more than just building a big Pension fund - make sure your budget is under control and clear debts where possible.

›› IN YOUR 40s

Key points:

• If you haven't started saving, do something about it!
• Keep building your Isa
• Your earnings should be peaking - dedicate some to a Pension

Ideally, by the time you reach your 40s you'll already have built up some retirement savings, whether in the form of Isas or a company or personal scheme.

But if you haven't already started, it's not too late. It will just require more effort. This is a very crucial time for your retirement planning, and it's imperative that you act now. Your earnings are likely to be approaching their highest during this decade, and you should now be on top of your debts. All in all, you should be in a good position to start dedicating some real money towards planning for the future.

Try our Pension pot calculator to get a better picture

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'Make the most of pay rises and bonuses to boost your retirement savings, rather than simply increasing your expenditure each time,' says Martin Bamford. 'This is the time to take your retirement planning seriously, and that means having a target retirement age and understanding what your lifestyle will look like in retirement. You might not be able to paint an accurate picture of your retirement just yet, but you should be thinking about it in broad terms and making sure your financial plans are on track to deliver.'

The least you should have is an Isa, says Mike Morrison. Keep contributing to this over the years and try to build up your tax-free savings. Crucially you'll need to start planning the sort of income you expect to receive in retirement. If you plan to pack it all in early, then factor this into your thinking and make sure you increase your savings contributions.

›› IN YOUR 50s

Key points:

• Maximise your contributions
• Remove risk from your Pension investment plan
• Consider using a Sipp for greater control

Right, it's time to get serious. This decade is perhaps the most important of all when it comes to retirement planning.

Big 50: When you hit the half century, it's time to get serious about your Pension

Firstly, do you have a retirement date in mind? It might not be definitive, but it should serve as a guide. Then calculate the sort of income you want. 'Perhaps work out a minimum and a 'nice to have',' says Mike Morrison.

Next, take a detailed look at your Pension and where it's invested. You'll need to be positioning your Pension fund for your choice of retirement income option.

'If you are likely to purchase an annuity when you retire, you should be phasing out volatility from your Pension fund so there is less risk of a big dip in value a short time before you take benefits,' says Bamford. Take money out of risky equities and put it into safer cash investments. There could be nothing worse at this time than seeing a stock market lurch take a chunk out of your pot just as you're about to dig in.

Hopefully, you'll have accumulated a sizeable Pension fund by this age. If this is the case for you, consider using a Self Invested Personal Pension (Sipp) to exercise greater control over the way in which it is invested.

- How to find the cheapest Sipp

Consider maximising your contributions, too. Particularly if you are a higher rate taxpayer (remember that pensions can be tax-efficient). You may have grown up children you wish to support financially, but try to strike the balance. As much as you can should go towards your pot - you won't have many other chances to maximise the size. If, and when you purchase an annuity, this can make a serious difference to your annual income.

PENSIONS: COMPARE & APPLY

Annuity tablesCompare the best rates

Free guidesFree guides to pensions and annuities

Equity releaseCompare equity release schemes and get expert advice

Life insuranceCompare providers to get the best policy

›› IN YOUR 60s

Key points:

• Check that all your debts, including mortgage, are in order
• Decide on whether you'll buy an annuity immediately or take drawdown
• Talk to an IFA before you take any action.

You're almost there. During this decade you will be making important decisions about how your Pension fund produces cash and income in retirement.

'These are often lasting decisions that can have a major impact on your finances in later life, so it is the time to seek expert independent financial advice,' says Bamford.

This is particularly true in the case of annuities, where the options are varied. Essentially annuities are like insurance in reverse - you hand over a large lump sum (your Pension pot) to an annuity provider, and they give you regular monthly payments in return for the rest of your life.

You may qualify for a higher annuity rate if you are a smoker or have an illness. This is called an enhanced annuity.

- Deals: Find the best annuity rates

- Forecast: What next for annuity rates?

Relax: If you've planned carefully, your retirement truly can be your golden years

Martin Bamford says: 'Making choices at retirement is about so much more than simply choosing the most competitive annuity rate. It is becoming increasingly popular to use an Unsecured Pension to have greater control over income flexibility in retirement, often phasing the payment of tax-free cash over several years to reduce income tax bills. This is a more complicated strategy than buying an annuity but can really pay off over the longer term.'

Mike Morrison says that it's important to make sure all your debts are in order. Hopefully you will have been able, or are close, to paying off your mortgage, but what about children on your payroll? Are you still supporting them and their young families? These are important issues to discuss with an IFA before you sign up to an annuity.

Additionally, you may be fit and able and want to keep working. This is now possible because the government is set to prohibit employers from forcing their staff to retire at 65. It may be beneficial to keep working for a period and top up your pensions as much as you can.

'Don't forget,' says Morrison, 'pensions contributions get tax relief, so any immediate contribution gets an uplift from the taxman.'

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Last updated in October 2010 by Dan Hyde

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Boomers Recognize Need for Long-Term Care, But Fail to Obtain Coverage

Boomers Recognize Need for Long-Term Care, But Fail to Obtain Coverage

Reverse Vision, December 19th, 2010

A recent study of Baby Boomers finds that while the Boomers have experienced the struggle their parents are facing with long-term care, few are doing anything to acquire their own coverage. The results of the survey show that more needs to be done to educate and motive Baby Boomers to seek long-term care coverage sooner, rather than later.

The online survey, conducted by the research firm of Mathew Greenwald & Associates, was taken by 1,073 Americans between the ages of 46 to 64. The survey revealed that personal experiences, such as the current economic hardship or watching their parents age, have inspired many Boomers to take hold of their financial future, including seeking out long-term care coverage.

“This study explored the influence a parents’ long-term care experience can have on their Boomer children,” said Mathew Greenwald, of Greenwald & Associates. “Boomers overwhelmingly say they learned the consequences of being unprepared, however very few currently have long-term care Insurance. Even though Baby Boomers face a more than seven in ten chance that they will have some long-term care needs later in life, many haven’t connected the risk to their own personal situation.”

The survey’s findings exposed powerful recognition of the benefits of having long-term care Insurance among Baby Boomers – mainly for financial and emotional benefits such as protecting their families from paying, providing peace of mind, ensuring retirement savings remain, and helping with the ability to leave an inheritance.

Approximately 72 percent of Baby Boomers whose parents had used long-term care Insurance said it was a “good value” for reasons such as increasing quality of life, preserving the parents’ nest egg, and lessening the family’s financial contribution to care. Of those Boomers whose parents did not have long-term care coverage and needed it, 71 percent think that coverage would have benefited their families.

The study found that while more than half of the surveyed Boomers worry that they will need long-term care themselves, only 9 percent of these Boomers have actually purchased long-term care coverage. Many signs point to the fact that Boomers do not fully understand how long-term care financing works and do not grasp the concept of paying now and benefiting later on in life.

Read more of this article.

Long Term Care Insurance:  Long Term Care coverage is a more and more critical portion of any serious retirement plan, and the lack of it can absolutely destroy not only your retirement plan, but those of your relatives and loved ones.  While not everyone should purchase it, everyone should at least consider it.  Find out more at NewRetirement.com

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Interactions cause seniors to drop antidepressants

Interactions cause seniors to drop antidepressants

Yahoo News, December 17th, 2010

More than half of older Americans taking an antidepressant for the first time were already taking another drug that could interact with it and cause side effects, researchers reported on Friday.

And a quarter of patients who suffered side effects stopped taking antidepressants altogether, the study by a team at Thomson Reuters, the University of Southern California, Sanofi Aventis and elsewhere found.

"We found a concerning degree of potentially harmful drug combinations being prescribed to seniors," Dr. Tami Lee Mark of Thomson Reuters, parent company of Reuters, said in a statement.

Other studies have found that older adults are often taking dangerous combinations of prescription drugs, but doctors are not getting the message, the researchers report in the American Journal for Geriatric Psychiatry.

The research team used a Thomson Reuters database of claims for Medicare, the federal health insurance plan for people over 65.

They found more than 39,000 patients who started antidepressants between 2001 and 2006. "Twelve commonly reported antidepressant side effects were identified in the month after drug initiation," Mark's team writes.

More than 25 percent of the patients were prescribed antidepressants and another drug that could cause a major interaction. Another 36 percent had potential moderate interactions.

"The most common side effects were insomnia, somnolence and drowsiness, which occurred in 1,028 (2.6 percent) patients. The next most common side effect was dizziness, which was documented in 416 (1.1 percent) patients," the researchers report.

The side effects meant patients often dropped the drug they were taking. Only 45 percent of those with documented side effects refilled the prescription for the same antidepressant, and a quarter quit taking antidepressants altogether.

Many adults are at risk of this problem, the researchers point out -- other studies show that 25 percent of older adults with chronic illnesses such as arthritis or heart disease also have depression, and they have also been shown to be helped by antidepressants.

Read more of this article.

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Scottish Eq savers due Ј60m rebate

Scottish Equitable has been fined and ordered to make the repayments by the financial Services Authority (FSA) after it owned up to 300 separate errors, affecting over 200,000 people.

It says around 150 of these errors left customers short of a total £60m they should have received.

So far 181,500 pensioners and savers are known to have been overcharged, under-paid or are missing income altogether.

Around £30m – half the total amount – will have been handed back to them by end of this month.

Aegon, the parent company of Scottish Equitable, is on track to repay the rest of the lost MONEY by 'the end of 2011'.

However, both the number of affected customers and the £60m figure could rise as investigations continue, the company admitted.

A spokesperson for Aegon said it will endeavour to 'return affected customers, wherever possible, to the financial position they would have been in had the issue not occurred'.

If this cannot be done, it will 'pay them appropriate compensation', instead.

In all, Aegon has written to 280,000 people – around one in ten of its total customer base – to advise them of the errors.

'If customers don't hear from us, there is nothing to worry about,' Aegon told This is MONEY.

The FSA today fined the company £2.8m for the errors, in addition to the order to repay customers.

The problems were discovered in May 2009 when Scottish Equitable began a review of systems. It immediately began repaying the lost MONEY and then brought the issue to the attention of the FSA in December 2009. An investigation was launched and finally concluded today.

According to the FSA, around 238,000 people did not receive policyholder documents and a further 774 customers had their guaranteed minimum Pension payments and future benefits calculated incorrectly.

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Meanwhile, Aegon failed to rebate charges on 25,000 policies.

Aegon also failed to trace around 200,000 policyholders who had moved without informing the insurer of their new address.

Margaret Cole, FSA managing director of enforcement and financial crime, said: 'The redress package is significant news for the customers of Scottish Equitable and I am pleased that £30m will already have been paid back by the end of the month.

'This case shows the importance of getting customer administrative procedures right and fixing them quickly when they go wrong. This is a key part of treating customers fairly.

'By letting the issues build up over such a long period Scottish Equitable made it even more difficult to fix the problems and this led to delays in getting compensation to customers.'

A statement from Aegon said: 'Aegon brought the programme to the FSA's attention last year as part of its ongoing dialogue with the regulator.

'It fully accepts the FSA's findings and sincerely regrets that some customers have suffered financial loss or inconvenience as a result.

'The immediate priority of the programme has been to deal with issues that resulted in financial detriment and to return affected customers, wherever possible, to the financial position they would have been in had the issue not occurred and, if not, to pay them appropriate compensation.'

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Wealth Questions - How can 55% tax be attractive?

Are pensions really becoming more attractive for inheritance tax (IHT) planning? I have always thought that building up my pension fund was more attractive than wasting money on life insurance: if I die, my partner would receive a six-figure sum from the value of my retirement savings, free of all taxes including IHT. And, of course, if I don’t die, we get to enjoy the pension.

But following last week’s government announcement on retirement flexibility, FT money tells me that pensions will become the “estate planning vehicle of choice”. However, while there will be no IHT on pensions that remain invested in the stock market, there will be still be a hefty 55 per cent tax charge. This doesn’t sound particularly attractive – what am I missing?

Laith Khalaf, pensions analyst at Hargreaves Lansdown, the financial adviser, confirms that up until the point you draw any pension benefits – and so long as you are under 75 – your entire pension fund would be passed on free of all tax including inheritance tax (IHT). So, yes, a substantial pension fund could take the place of life insurance for someone yet to retire.

But bear in mind that with life insurance you get full cover from day one – rather than the value needing to be built up.

This tax-free status of pensions on early death does not change under the latest proposals.

Also, many retirement savings schemes provide a dependant’s pension, with the income taxed solely at the recipient’s marginal rate, or other death-in-service benefits – so reducing the need for separate life insurance.

However, where you have started drawing on your pension via an income drawdown plan – including taking the tax-free lump sum – or have reached 75, then the residual capital can be passed on but is subject to a tax charge.

Previously, this charge has been 35 per cent on death before age 75 and up to 82 per cent on death after age 75. Under the new proposals from April 2011 there will be just one charge of 55 per cent, irrespective of your age on death.

While this might still sound steep, it is a great improvement for the over-75s – hence the talk of estate planning benefits. Also bear in mind that all the government is trying to do here is recoup the tax relief it has paid on your pension fund, leaving the money you have saved yourself to be passed on to your heirs.

So the size of the tax charge simply reflects the generosity of the tax relief paid on your pension in the first place. The government has estimated that for a higher-rate taxpayer, 55 per cent of their pension fund at retirement is made up of tax relief, hence this level of tax should be charged on death to recoup these monies. The remaining fund can then be passed directly to the beneficiary, without IHT.

A slightly different treatment applies to “Protected Rights”, the money that has built up in your pension as a result of contracting out of the State Second pension (S2P). When you die, these funds must provide a pension income for a surviving spouse or dependant. If no spouse or dependant exists, they can then be paid out as a lump sum. However, these special rules are set to be abolished from April 2012.

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