Ben Stein once again gives a retirement wake-up call.  Here's the article.

To make the situation worse, retirees and those who will soon retire are far from financial safety (see "Living Hand to Mouth -- and Barely Getting By"). I recently calculated that the Baby Boomers need to have saved -- on average -- $400,000 per household to even start to come up with what they need to live on. Instead, they have saved about $50,000 per household if they have a rental home and about $110,000 if they own their home.

We get a lot of e-mails regarding the average 401k balance.  Vanguard and Fidelity manage a lot of 401k plans and provide updates on these plans each year.  Here's Fidelity's  update on our retirement savings.  The 401khelpcenter provided this information.

Below are some interesting Fidelity statistics on the current state of retirement savings for Baby Boomers (Born between 1946-1964). These stats were release on the eve of the 2006 National Summit on Retirement Savings.

• Boomers have $35,000 in median total household personal retirement savings.
• Boomers typically save $2,750 annually for retirement.
• Boomers are on track to replace 59% of their pre-retirement income.
• Boomers who save in a 401k have an average 401k account balance of $80,000.
• 57% of Boomers expect to receive a pension (either own or spouse's).
• 22% of Boomers will rely on the sale of their primary home for income in retirement.
• 69% of Boomers will rely on working at least part-time for income in retirement.
• Of the 69% of Boomers expecting to work in retirement:
  • 68% will do so to cover basic expenses.
  • 52% will do so to receive employer health benefits.
  • 23% will do so because they want to stay busy (not to cover expenses

A recent Wharton study looked at participants who use Vanguard 401k plans.  It appears the average 401k investor isn't very active with their plan and may not take advantage of all the investment choices.

With $2.5 trillion invested in 401(k) retirement accounts, 60 million Americans control a powerful chunk of cash. So how much attention do investors pay to this vast pool of savings?

Not much.

According to a new Wharton analysis of retirement accounts managed by The Vanguard Group in 2003 and 2004, participants in 401(k) plans made little effort to tend their defined-contribution plans once they were set up: 80% of participants made no trades at all in the time period, while another 10% made only one trade.

The average plan reviewed in the study has 776 active participant accounts with assets of $38.4 million; while it offers over 17 investment choices, plan participants use only 3.5 of the available options. Almost all participants have access to equity index funds (99%) and international funds (98%), but only half of the workers (53%) actually invested in equity funds and only one-fifth (20%) chose international options.

We've received several e-mails recently regarding Medicaid planning.  Medicaid pays the bills for many seniors in nursing homes right now.  We'll do some homework and add more information on our site.

The Wall Street Journal (Sunday Edition) gives us some of the changes.

The Deficit Reduction Act, which President Bush signed on Feb. 8, changed the rules for qualifying for Medicaid assistance for long-term care. That means people could find it harder to leave their assets intact for their children and still get government help with the costs of long-term care.

The new law tightens rules involving "Medicaid planning." Currently, individuals become eligible for Medicaid after using up all but $2,000 of their cash and investments. (There are exceptions that vary from state to state, but you generally get to keep your house and car.) One way of reaching that threshold -- without exhausting your savings -- is to transfer assets to someone else, often your children, before entering a nursing home.

The Department of Labor (DOL) has some very helpful retirement planning resources on their website.  This site is featured as one of our links.  They recently put together helpful worksheets for tracking your personal savings and investments and preparing for retirement.

Although targeted to individuals approaching retirement, the booklet is also useful for recent retirees. The publication includes worksheets that allow the user to evaluate current assets and expenses; project future assets and expenses, and determine what additional resources are needed to meet their retirement lifestyle. There also are discussions on methods of saving, investment options, expense considerations and how to make your assets last throughout retirement. An extensive resource section provides other sources of information on retirement, savings and investment issues.

Taking The Mystery Out of Retirement Planning

The Roth IRA has a lot of advantages.  Remember, your contributions can come out at any time-and can be used for any purpose.  Bankrate.com gives us the details.

The Roth IRA is a terrific investment vehicle. Your contributions to the account can be distributed tax-free at any time, for any purpose. And the earnings can be distributed tax-free after you reach age 59½, provided the first Roth IRA account you opened was established more than five years before. The ordering rule in Roth IRAs is that earnings come out only after you've withdrawn all your contributions, making it possible for you to withdraw contributions for college and leave the earnings in the account to grow tax-free for your retirement.

Pension plans for executives can be drastically different.  Bankrate.com explains that pensions are being eliminated at many companies, however executive pensions can be extremely attractive,

Most top executives have so-called "supplemental executive retirement plans," or SERPs, that are governed by a different set of rules, because they're nonqualified plans.

As it stands now, shareholders rarely get wind of just how generous executive retirement packages can be until it's too late -- when the executive already starts drawing payments. This information is not included in the summary compensation tables required under current law that are readily available to the public.

Only 11% of Employers Offer Retiree Health Care

If you didn't notice what General Motors Corp. did to its retiree health benefits this week, you should.

It's part of a trend that's making it more expensive to retire, and requiring Americans to be smarter than ever about saving and investing before they leave their jobs.

The bottom line: You may need $200,000 or more in savings than you imagined--simply to pay for retirement health insurance costs you never calculated.

The Chicago Tribune article.

We mentioned last week several publications are helping us crunch "The Number".  This is the amount we'll need for a secure retirement.  This magic amount is often debated by financial planners and can be a lofty goal for most of us trying to prepare for retirement. This month's Kiplinger Magazine presents their savings plan.

It's complicated.

The tax on Social Security benefits is triggered when a senior's wage, pension, investment and dividend income exceeds a set threshold. At that point, a senior who fills out a return by hand must complete an 18-line worksheet that ultimately determines how much of his or her otherwise tax-free Social Security benefits will become taxable. (Most tax software programs do the calculation automatically, so those who file that way may not even notice the extra tax.) 

For a single senior, each dollar of income over $25,000 makes 50 cents of his or her Social Security benefits taxable. For married couples, that threshold is $32,000.

Here's the article.

Many people are just not aware they can use their employer plan (401k, 403b, 457, TSP),  and still contribute to an IRA each year.  They fund their employer plan and completely miss out on the IRA.  They key to retirement will be to fund both of these plans each year.  Remember the Roth IRA does have income restrictions ($95,000 single, $150,000 married filing jointly), but a traditional IRA can be used at any income level!  The Investment Company Institute released a report this week that indicated only 17% of households contributed to IRA accounts in 2004.  

If you're above age 50 you can take advantage of the "catch-up" provision.  This allows you to contribute an additional $500 for 2005 and $1,000 for 2006.  Only 6% of eligible households made these contributions in 2004.

The IRA is much more flexible than any 401k so please take advantage of this account!

Read the Invesment Company Institute report.

The Role of IRA's in American's Retirement Preparedness

Last year the focus was on Social Security, this year the highlight of the State of the Union address is expected to be the expansion of Health Savings Accounts.  Unfortunately, there are an estimated 45 million Americans without health-care coverage right now.

Passed into law in 2003, HSAs allow consumers to save pretax dollars for health care expenses as long they are enrolled in a high-deductible plan. This year, people can either deposit up to the amount of their deductible or $2,700 for individuals and $5,450 for families--whichever is lower. Bush wants to lift this limit and let consumers pay their deductibles with tax-free HSA dollars.

Forbes gives us an update.