Data & Research September 8, 2009

Many Americans Plan Retirement Spending Cutbacks

Thirty-seven percent of polled working Americans predicted the recession would force them to constrict their retirement spending.

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A study by Charles Schwab found that 44 million women versus 38 million men are planning to be more mindful of their retirement spending than they were before the current unstable economy. Also, on average, men have secured more funds for their golden years than women ($247,000 versus $180,000).

Findings also show a consistent lack of savings among pre-retirees. The average respondent has saved $219,000, which is nearly $1.8 million less than most commonly believe they will need to retire comfortably, Schwab said.

The poll also picked up significant indications of the growing phased retirement trend, with 35% of workers planning to delay their retirement milestone. Furthermore, almost one in five (17%) retired Americans are considering returning to work at least part-time due to the economy.

Meanwhile, according to Schawb, some 44% of retirees said they financially support a family member; specifically, 53% support children and 37% support grandchildren. In addition, 12% of those rendering family members financial aid said they contributed cash to help their parents’ finances. 

“Whether it’s their children, grandchildren, or their own parents, more and more retirees are finding themselves supporting family members and, simultaneously, witnessing portions of their hard-earned savings disappear,” said Mark Jamison, vice president at Charles Schwab. “This is just the sort of retirement reality that we really encourage clients to prepare for—the unexpected.”



Compliance September 8, 2009

IRS Distributes Final 401(a)(9) RMD Qualification Rule

Federal tax officials have put out a final rule (TD 9459) allowing government plans carrying out 401(a)(9) required minimum distributions to prove their compliance with a reasonable and good faith standard.

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That was the key takeaway from the final mandate released by the U.S. Treasury Department and Internal Revenue Service (IRS) that affects all qualified federal, state, or local government plans including 403(b) contracts that are part of a governmental plan, individual retirement accounts described in 408, and 457(b) eligible deferred compensation plans.

The regulations generally require plans to start distributing each participant’s plan assets by whichever date is later: April 1 of the calendar year after the year in which the plan participant turns 70 1/2 or by April 1 of the calendar year following the year in which the participant retires.

If the entire interest of the participant is not distributed by the required beginning date, then section 401(a)(9)(A) provides that the entire interest of the participant must be distributed beginning not later than the required beginning date, in accordance with regulations, over the life of the participant or lives of the participant and a designated beneficiary (or over a period not extending beyond the life expectancy of the participant or the life expectancy of the participant and a designated beneficiary).

The Pension Protection Act directed the Treasury Secretary to distribute regulations giving government plans the ability to qualify under the reasonable and good faith interpretation standard of 401(a)(9).

The final rules are effective September 8. The rules will apply to all plan years to which Section 401(a)(9) applies, IRS said.

The final rule is available here.

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