Data & Research May 20, 2014

Retirement Readiness Not Accurately Gauged

American's retirement readiness levels are not as bad as some predictions make them out to be, according to a Towers Watson report.
Reported by

The analysis, “Retirement Security: Helping Workers Set Realistic Savings Goals,” examines workers’ income, consumption and savings patterns over their lifetime, revealing “undue overestimates of earnings to be replaced in retirement and misperceptions about workers’ own responsibility for securing their retirement prospects.” The authors of the analysis, Gaobo Pang and Sylvester J. Schieber, believe American workers are “generally better equipped for retirement than depicted in some studies.”

Pang and Schieber say recent assessments of workers’ retirement readiness are inaccurate because they do not recognize the fact that workers’ patterns of income, consumption and savings are not consistent throughout their careers.

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One problem, says Pang and Schieber, is that such assessments ignore the fact that workers can catch up saving after children leave home and the mortgage is paid off. The authors note that “most retirement income models do not account for the presence of children in the household [at all].” The authors say that a number of studies show while consumption rates are greater for these parents/workers when they have children living at home, once the children grow up and leave the home, the consumption levels of the parents/workers tend to decrease. The analysis also notes that ages of the children can affect the savings rates and accumulated savings of their parents.

The analysis notes home equity can also be overlooked in assessments about workers’ retirement readiness. The authors cite data that shows among households headed by those ages 65 to 74, 60% owned a house that was mortgage free. With one less expense to worry about, such workers do not need to save as much for retirement.

Pang and Schieber also observe that many measures of pre-retirement income and consumption are overstated due to inappropriate indexing, leading to overestimates of earnings replacement targets and underestimates of the income replacement capacity of Social Security. According to their calculations, “medium earners would not need eight or 11 years’ worth of earnings to replace 65%, 75% or even 85% of their pre-retirement income by most measures.” Instead, a worker would need about six years’ worth of earnings to meet the 75% target and four years for 65%.

“Many workers who saved eight times earnings would have significantly higher spendable income in retirement than they did while working,” say the authors. “Social Security would enable very low earners to maintain their pre-retirement income levels without any supplemental savings.”

The analysis concludes that although some workers need to improve their retirement readiness, the situation is less dire than many studies suggest. The authors of the survey recommend that standards of how much workers will need as they approach retirement will need to be improved, as will models of retirement savings behavior and existing savings programs, in order to more accurately determine how many workers are really retirement ready and how to help those that are not.

The Towers Watson report is here.

Compliance May 20, 2014

Utah Man Defrauded IRA Investors Out of $22M, SEC Says

Curtis L. DeYoung squandered more than $22 million of investor funds on high-risk investments, the Securities and Exchange Commission (SEC) said in a statement.
Reported by

The SEC announced fraud charges and an asset freeze against DeYoung, a retirement plan administrator in Salt Lake City, who defrauded investors in self-directed individual retirement accounts (IRAs) and caused them to lose millions of dollars of savings.

DeYoung is the founder, president and CEO of American Pension Services. He is accused of hiding losses from misappropriated funds by issuing inflated account statements. The false statements allowed DeYoung to continue collecting fees and further victimize his customers, the SEC said.

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The scheme dates back to at least 2005, the SEC said, and targeted customers with retirement accounts that held non-traditional assets typically not available through traditional 401(k) retirement plans or other IRA custodians.

American Pension Services has no authority to direct customer trades, but DeYoung allegedly used forged letters and signatures to purchase investment products on behalf of customers, including questionable promissory notes issued by a friend whose businesses never turned a profit. DeYoung continued to recommend that American Pension Services customers invest in the notes, and he sent customer funds to the friend until at least April 2013 without disclosing to investors that the friend had defaulted on the notes in 2010 and that DeYoung had forgiven the debt.

The SEC alleges that investments in other bankrupt ventures, including an office building in Wichita, Kansas, caused customers of American Pension Services to lose even more money. The firm concealed those losses and issued account statements that inflated the value of customer holdings, the SEC said, allowing American Pension Services to levy fees based on the full value of the holdings even when they were worthless.

DeYoung invoked his Fifth Amendment right to remain silent, and did not answer questions from the SEC about a multi-million-dollar gap between actual holdings and those showing on account statements, the SEC said in its complaint.

“This misconduct jeopardized retirement security for thousands of APS (American Pension Services) customers,” says Karen L. Martinez, director of the SEC’s Salt Lake Regional Office.

The SEC’s complaint was unsealed in federal court in Salt Lake City in April.

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