Admittedly, some 401(k) accounts have not bounced back as quickly as others.  As Karen points out, younger workers with smaller balances have fared better than older workers with large balances.  The reason is younger workers were able to make up more of their losses through their contributions since they are a large part of a younger worker’s account.  Since there is a contribution limit of $16,500 to a 401(k), older workers with large accounts were not able to make up their losses as easily through contributions.  ‘

But all in all, account balances are improving.  This is great news, but I must beg to differ with the Wall Street Journal headline: this should not be a surprise.  This is simply the ebb and flow of the stock market.  What goes down must come up and vice versa, so the best bet is to stay put in your retirement account. 

I might add, we here at NCPA also noticed the upswing in the market, which prompted me to address the pitfalls of suspending contributions to a retirement account (yes, a small percentage of people got the willies and started withholding contributions last fall).  See the NCPA brief analysis  on why the mattress is better for sleeping than for investing.

Happy saving!

Medicare and Social Security, however, have largely relieved children of this primary role.  Even though filial support laws remain on the books in 30 states, only Pennsylvania and South Dakota have recent track records enforcing these laws. 

A Wall Street Journal article states that presently:

Each generation of workers pays for the retirement benefits of the generation ahead of it.  The system is powered by babies, who grow up to become productive little FICA contributors.  But even if you never have children, someone else’s kid will eventually pay for your Social Security benefits.

The government now takes the primary role in caring for aging adults in many cases.

Then came the voice of reason from Chuck Blahous at the Hudson Institute.  In his Washington Post piece from today, Mr. Blahous noted that this year, Social Security benefit checks increased 5.8 percent – the largest increase since 1982.  When one considers the fact that the Consumer Price Index has dropped due to the recession and falling prices, benefit payments are keeping pace well above inflation.  Furthermore, although Medicare Part B premiums increase as benefit checks increase, for most seniors, this will not be the case, due to a "hold harmless" provision.  Bottom line:  Seniors will be no worse off next year than they are this year; in fact, they will be better off.

But without a full understanding of how COLA works, many advocates and politicians will see this as a reason to increase benefit payments regardless of reality.  This would mean growing an already massive unfunded liability in senior entitlement programs that would be passed on to younger workers.  Let's hope the voice of reason prevails.    

I came across an informative article in Monday's Dallas Morning News, "Retirement Readiness."  (This article is also available in the New York Times). Two financial advisors in North Carolina put their pre-retiree clients through a "boot camp" designed to prepare them for what it will feel like when they retire. It helps people determine if they will truly be ready to retire at the age they plan to do so.  It got me to thinking about what retirement is really all about. 

On the surface, retirement sounds great.  No more of the 9 to 5, the lengthy commute, the irritating coworkers and plenty of time to do what you want, when you want and how you want.  But as financial advisors Marcia Tillotson and Joy Kenefick note, "Retirees suddenly have no place to be each day, which may not be as blissful as it seemed beforehand.  The paychecks stop coming…after years of dutifully putting money into savings, retirees have to get used to watching their accounts dwindle."  Thus, in exchange for my waking up and leisurely sipping my coffee, watching infomercials, shopping, volunteering, gardening or just hanging out in the 80s clothes that I could never wear to work, I no longer get to watch my retirement account fill up (or not, depending on the market) with my hard earned paychecks.  Instead, I must start relying on those accounts as income, not savings, and hope they will last me until I live to be 100 (and yes, that is likely since two of my relatives were cenetarians). 

After about a year of going through Tillotson's and Kenefick's retirement boot camp, about 80 percent of pre-retirees decide to work longer than they planned, according to the article.  In other words, the income target is more important than the age target. 

George Foreman couldn't have said it better.

The trigger was passed in 2003 as part of the Medicare Modernization Act.  In simple terms, it is a "red flag" that forces Congress and the President to act if 45 percent or more of the Medicare program's funding comes from general revenues over two consecutive years.  (Medicare is also funded with payroll taxes and seniors' premium payments).  Last year was the second year that Medicare's funding exceeded the 45 percent limit.  Thus, President Bush was required to submit legislation to Congress to reduce Medicare spending over a seven-year period.

As I think about it, the Medicare trigger could be compared to dieting.  When I step on the scale and it tells me that I have exceeded my desired weight (for the purpose of my dignity, I won't disclose what that weight is), that information "triggers" me to deal with excess poundage by devising a plan.  It may include a few more hours on the  bike or fewer trips to the candy jar on my coworker's desk.  But with persistence, that plan will hopefully help me to get my weight back under control.  If I ignore my scale, I do so at my own peril and face possible health problems down the road, as well as a wardrobe that no longer fits.

But Congress is doing more than ignoring the trigger; they are eliminating it.  Medicare currently has an unfunded liability of nearly $89 trilliion.  If Medicare were human, a gastric bypass would most certainly be in order.  But as it stands now, Congress will stuff it with wasteful spending and watch it grow sicker and sicker. 

For a single person, probably the most important question is how long do you plan to live?  If you are "in poor health and probably won't live past 78," you might want to take benefits at early retirement, says the Times.  Ideally, if you expect to live a long time and can work past retirement, then 70 is the best time to take benefits.  

If long life is the expectation, but you can't work till 70, then 66 seems to be the magic number.  This option is best even if a retiree has to use retirement savings to make it to 66 to file for Social Security benefits.  That's because the increase in benefits gained by retiring at 66 instead of 62, eventually makes up for the savings used to make it to 66.  Waiting any longer than 66, seems to exhaust savings too much to make up for higher Social Security benefits.

For married couples, according to the Times, experts advise the following:

In many cases, the higher-earning spouse should delay his or her benefits until age 70, while the lower earner begins to collect at age 62.  This ensures that the surviving spouse will end up with the maximum amount of benefits for the rest of his or her life.

If you have already taken early retirement benefits but wish you hadn't, you can pay them back to the government, interest-free, and reapply for benefits at age 70.  Economist Laurence Kotlikoff explains how this "do over" works, and it can increase your standard of living by as much as 60 percent!

But a new study from the Employee Benefit Research Institute finds that depending on gender, those costs could be much higher.  For instance:

• A 65-year-old woman today would need as much as $450,000 during her retirement years for health care costs if she wants to have a 90 percent chance of having enough money for health care.
• A 65-year-old man would need as much as $378,000 during his retirement years in order to have the same 90 percent chance of having enough money for health care.

For men and women who want to have a 50 percent chance of having enough money, the amounts are lower.

At first glance, it would seem that this study is about health care costs.  But I take a slighty different twist:  this study is also an indictment on some of the age-old "wisdom" about seniors and investments that typically goes unchallenged, such as:

• "Seniors should move all their money to 'safe' investments when they retire."
• "Stocks are too risky and only for young people or the wealthy."
• "Annuities are always a good choice because they provide a lifetime stream of income."

While this type of thinking may be somewhat true, it is also somewhat false.  Consider: one of the many reasons that seniors will pay so much for health care costs is because they are living longer.  Furthermore, health care costs are increasing faster than inflation and individual health care costs will rise as you age.  So consider yourself a long-term investor – think about setting aside some money in investment options that will pay a greater dividend over the long run.  Also, don't forget the long-term care insurance.

Certainly in some markets, housing values have appreciated tremendously (at least they did for awhile), but according to author Brett Arends, once the cost of borrowing, closing costs, and the paltry tax benefits are factored in, the rate of return on housing is – well – not exactly enough to make one rich.  Arends points out that the annualized rate of return on housing since 1987 has been 4.1 percent.  Compare that to the annualized return of 8.67 percent on the S&P 500 during the same time.

This does not mean that a pop-up camper should replace the single-family home as a dwelling of choice.  But it might be a good use of money to forego the McMansion-style home as an investment vehicle and allocate those funds to other assets.