The AARP provides their annual list of companies that may offer better work environments for older workers.

A recent study by the AARP and human-resources consultants Towers Perrin says that employees age 50 and over will account for 20% of the workforce by the year 2012, up from 13% now.

We've mentioned some of the big changes to 401k, 403b and other employer plans due to Pension Protection Act of 2006.  

This legislation should also be great news for many non-profits and charities.   It does allow seniors over 70 1/2 to take IRA monies and contribute directly to their favorite charity.  These distributions which are normally taxable at your ordinary income tax rate will be "tax-free" distributions.

SmartMoney gives a great summary of some of these changes and explains the charitable distributions.

Fidelity released its annual report on 401k balances.  In 2005 the average balance in their 401k plans was $62,500 which represented a 3% increase from 2004 levels.   Fidelity is one of the largest providers of 401k plans with over 9 million participants.

Earlier this week the average balances were released for the Thrift Savings Plan (TSP) which is used by over 3.5 million employees of the federal government.  It's interesting  the averages are so close- the average balance for participants covered by FERS was $61,221 and $52,356 for employees covered by the Civil Service retirement System (CSRS).

The 401khelpcenter.com provides the report.

We mentioned the hike in Medicare Part B several weeks ago.  If you're getting closer to age 65 it might be a good time to do a little Medicare homework.  We have a lot of resources and links on ours site to explain some of the basics.  Here's a good refresher from Investors Business Daily this week.

Coverage starts with Part A, which is free for most U.S. citizens. This pays most hospital bills.

Part B, which covers other costs such as doctor bills, costs $88.50 a month. In 2007, the projected cost is $98.20 a month, reflecting rising health care costs. So you'll pay about $1,200 per year for basic Medicare insurance.

One way to cover the holes in Medicare is to buy additional insurance from private carriers. Many insurers sell supplementary coverage known as Medigap policies.

Several people have e-mailed us recently for information on average retirement plan balances.  Those balances are often released by many of the larger plan providers.and we've included those studies on our website.  The federal government equivalent of the 401k, the Thrift Savings Plan (TSP) recently released some balances:

As of June 30, the average TSP account balance was $61,221 for participants covered by FERS, a spokesman said. The average account balance was $52,356 for employees covered by the older CSRS.

The Washington Post (Aug 15) provided the information.

We've mentioned several of the changes likely inside your 401k plan,  but here's the downside to the new pension legislation.  The bill will raise PBGC insurance premiums and require increased contributions by employers to fully fund their plans.   It really could put many plans in jeopardy-its doubtful employers will create new defined benefit plans and existing ones may be frozen or converted into cash-balance plans. 

Marshall Loeb explains the freeze.

Just this year alone, steady-Eddie companies such as Coca-Cola Bottling Co., Consolidated, IBM, Nissan and Alcoa have said they would totally or partly freeze their plans. Why? To stay competitive.

If you work at a large corporation with a pension plan, you should assume a freeze is going to happen to you, too.

USAToday explains the cash-balance plan.

If you've ever had a discussion with a financial planner, a common question will be "do you have longevity in your family?"  Good question, many of us have parents or relatives in their 80's or 90's.  Americans are living much longer these days.  According to the American Academy of Actuaries, the average 65-year-old man will live to age 84; the average woman, age 87.   

So several insurance companies are introducing "longevity insurance" in the form of an annuity.  

Kiplingers explains the Metropolitan Life Retirement Income Insurance.

For example, if you make a one-time $25,000 investment in Metropolitan Life's basic Retirement Income Insurance fixed-rate annuity at age 60 and are still alive at age 85, you'll receive $24,300 a year for the rest of your life. If you invest at age 55, you'll receive $38,000 a year starting at age 85. But if you die before age 85, you don't get anything. If that doesn't appeal to you, you can add a feature that pays a death benefit to your heirs if you die before the designated payout date. The death benefit would equal the amount you paid in, plus 3% a year since the date of your investment.

This pending legislation will alter existing pension plans and 401k plans. President Bush is expected to sign this legislation.  Here's some of the changes to your employer sponsored 401k.  The Baltimore Sun provides an update.

 These are the guidelines Congress spells out:

• Workers must have 90 days to opt out of automatic enrollment without penalty.

• Employee contributions under automatic enrollment must be 3 percent of pay the first year, and gradually rise 1 percentage point a year until reaching 6 percent in the fourth year. Contributions can stay at 6 percent, or employers have the option of increasing worker contributions all the way up to 10 percent.

• The 401(k) must offer at least three diversified investment options, and none of the three can be employer stock. One of those options is likely to be a lifecycle fund - a type of fund that automatically shifts the investment mix as a worker ages, said policy analyst Moore.

• Companies must provide a matching contribution. The formula calls for a dollar-for-dollar match for the first 1 percent of pay that workers contribute. Thereafter, it's 50 cents for every dollar, up to 6 percent of worker's compensation. That boils down to a 2 percent match the first year, with the match gradually rising to 3.5 percent.

• Or employers can set aside 3 percent of compensation for all workers, whether or not they contribute.

• Workers would be vested in the plan after two years.

The Senate voted 93-5 Thursday to clear the measure, which was identical to a bill approved last week by the House.  The Act would require auto enrollment and allow investment advice to be given inside of your employer plan.   It would also have a huge impact on existing defined benefit pension plans. 

CNNMoney provides an update.

Make plans fully funded The law would require companies managing single-employer traditional pensions - so-called defined-benefit plans that offer a fixed and secure benefit at retirement - seven years to fully fund them beginning in 2008. Nationwide, promised benefits in corporate defined benefit pension programs covering nearly 35 million workers and retirees outpace assets in those plans by $450 billion, government figures show.

Extension for airlines Airlines get substantially more time to meet their obligations, a provision sought by bankrupt carriers Delta Air Lines and Northwest Airlines.

We've gotten several questions recently on ways to buy stocks or other investments inside a 401k.  Some plans provide a "self-directed brokerage" account.  This account actually links to your 401k and contributions are placed in  account.  It certainly does expand your investment options however,  this arrangement is not very common-so talk with your benefits office or plan administrator to see if this is available.   Morningstar explains some of the advantages and disadvantages.

"Good Reasons to Use Self-Directed Brokerage
It could make sense to venture outside your plan if your lineup is fraught with funds with poor long-term records or high expenses. You might be able to find some good choices in your plan, such as an S&P 500 Index fund, and then use your brokerage option to fill out the rest of your portfolio, focusing on those with strong long-term records, experienced management teams, and moderate costs".

It should be fairly easy to buy CD's inside of most brokerage IRA accounts now days.  Many brokers offer FDIC insured CD's in just about any maturity.  The Federal Reserve has been hiking interest rates all year so most yields should be over 5%.   We've mentioned some retirement income strategies in the past month and a "CD ladder" is a common method of generating income inside of an IRA.  Humberto Cruz provides some details.

As part of the fixed-income portion of a diversified portfolio, I have CDs maturing each of the next six years. If rates rise, I don't have to wait too long to renew at a higher rate. If rates fall, my longer-term CDs will continue to pay a higher yield.