Data & Research October 28, 2010

The Redefining of Retirement Continues

Merrill Lynch's “Affluent Insights Quarterly Survey” finds although affluent Americans are feeling more financially secure this year than last, 61% are expecting to retire later than originally planned.
Reported by

Sallie Krawcheck, President, Global Wealth & Investment Management, Lyle LaMothe, head of U.S. Wealth Management for Merrill Lynch Wealth Management, and Andy Sieg, head of Retirement & Philanthropic Services (RPS) reviewed the results of the quarterly survey on a teleconference this morning.

The overall findings indicate that not only are affluent Americans feeling more financially secure, they believe they will do even better next year. However, the 61% expecting to retire later than originally planned is a huge jump from the 29% who expected to delay retirement just as of January 2010. Seig says this is all a part of the redefinition of retirement.  He says that for Baby Boomers, “retirement” will be more like a second act, rather than completely leaving the workforce as the generation before them did.

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The findings show that 41% of affluent Americans feel better off today than they did one year ago, with 37% feeling the same, and 21% feeling worse.  However, the large majority (78%) believe the coming year will bring more security.   

2010 was challenging for a good percentage affluent Americans along with the rest of the country–20% had to tap into their long-term savings/investments to take care of short-terms needs, for reasons such as covering monthly expenses (35%), paying off excess debt (27%), or compensating for a loss of income within the family (19%).   

The top financial concerns of affluent Americans include, in decreasing order of importance:

  • Rising health care costs and expenses
  • Ensuring retirement assets will last throughout their lifetime
  • Being able to afford the lifestyle they want in retirement
  • Impact of the economy on their ability to meet financial goals
  • Current state of the real estate market
  • Caring for an aging parent

Sixty percent of affluent Americans are concerned about the rising costs of healthcare, and 52% are concerned about the possible impacts of tax reforms in the coming year.  With the majority of affluent Americans having several real concerns about the future, it came as no surprise to Krawcheck, LaMothe, or Seig that affluent individuals are turning to their financial advisers in far greater numbers than prior to the recession.

Primarily, affluent Americans build their financial confidence by being heavily involved in their investment decisions (48%).  The next most popular source of confidence is their relationship with their financial adviser (42%).   As LaMothe sees it, affluent Americans want more of a financial “life coach,” rather than simply a financial adviser.  He said they want assistance with investments, spending, handling debt, deleveraging, cash flow, and healthcare – a package deal.  And the statistics show that the clients are finding value in this close relationship: 51% speak to their financial adviser monthly, which is up from 39% one year ago.   

A final take-away from the survey is that in the wake of the recession, affluent Americans have a “newly grounded realism,” as LaMothe put it.  Thirty-seven percent of those surveyed said they are spending less than they did last year by cutting back on luxury or recreational items, or more closely monitoring day-to-day expenses.  And they want advisers to help them with “both sides of the balance sheet,” said LaMothe.   

Advisers’ interactions with affluent Americans, specifically those nearing retirement, is going to be more about longevity planning, said Krawcheck, LaMothe, and Seig.  The focus will shift from asset growth to solutions for reliable income streams, as well as to exploring the new opportunities retirement will offer.

Compliance October 28, 2010

Maximum Benefit and Contributions Limits for 2002-2011

as published by the Internal Revenue Service
Reported by

 

  

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 2011 

2010 

2009 

2008 

2007 

2006 

2005 

2004 

2003 

2002 

Elective Deferrals (401k & 403b plans) 

$16,500 

$16,500 

$16,500 

$15,500 

$15,500 

$15,000 

$14,000 

$13,000 

$12,000 

$11,000 

Annual Benefit Limit  

$195,000 

$195,000 

$195,000 

$185,000 

$180,000 

$175,000 

$170,000 

$165,000 

$160,000 

$160,000 

Annual Contribution Limit  

$49,000 

$49,000 

$49,000 

$46,000 

$45,000 

$44,000 

$42,000 

$41,000 

$40,000 

$40,000 

Annual Compensation Limit 

$245,000 

$245,000 

$245,000 

$230,000 

$225,000 

$220,000 

$210,000 

$205,000 

$200,000 

$200,000 

457 Deferral Limit 

$16,5000 

$16,500 

$16,500 

$15,500 

$15,500 

$15,000 

$14,000 

$13,000 

$12,000 

$11,000 

Highly Compensated Threshold 

$110,000 

$110,000 

$110,000 

$105,000 

$100,000 

$100,000 

$95,000 

$90,000 

$90,000 

$90,000 

SIMPLE Contribution Limit 

$11,500 

$11,500 

$11,500 

$10,500 

$10,500 

$10,000 

$10,000 

$9,000 

$8,000 

$7,000 

SEP Coverage 

$550 

$550 

$550 

$500 

$500 

$450 

$450 

$450 

$450 

$450 

SEP Compensation Limit 

$245,000 

$245,000 

$245,000 

$230,000 

$225,000 

$220,000 

$210,000 

$205,000 

$200,000 

$200,000 

Income Subject to Social Security 

$106,800 

$106,800 

$106,800 

$102,000 

$97,500 

$94,200 

$90,000 

$87,900 

$87,000 

$84,900 

Top-Heavy Plan Key Employee Comp 

$160,000 

$160,000 

$160,000 

$150,000 

$145,000 

$140,000 

$135,000 

$130,000 

$130,000 

$130,000 

Catch-Up Contributions 

$5,500 

$5,500 

$5,500 

$5,000 

$5,000 

$5,000 

$4,000 

$3,000 

$2,000 

$1,000 

SIMPLE Catch-Up Contributions 

$2,500 

$2,500 

$2,500 

$2,500 

$2,500 

$2,500 

$2,000 

$1,500 

$1,000 

$500 

  

The Elective Deferral Limit is the maximum contribution that can be made on a pre-tax basis to a 401(k) or 403(b) plan (Internal Revenue Code section 402(g)(1)). Some still refer to this as the $7,000 limit (its original setting in 1987). 

The 457 Deferral Limit is a similar restriction, applied to certain government plans (457 plans). 

The Annual Benefit Limit is the maximum annual benefit that can be paid to a participant (IRC section 415). The limit applied is actually the lessor of the dollar limit above or 100% of the participant’s average compensation (generally the high three consecutive years of service). The participant compensation level is also subjected to the Annual Compensation Limit noted above. 

The Annual Contribution Limit is the maximum annual contribution amount that can be made to a participant’s account (IRC section 415). This limit is actually expressed as the lessor of the dollar limit or 100% of the participant’s compensation, applied to the combination of employee contributions, employer contributions and forfeitures allocated to a participant’s account. This limit was increased for the first time since its inception last year. 

In calculating contribution allocations, a plan cannot consider any employee compensation in excess of the Annual Compensation Limit (401(a)(17)). This limit is also imposed in determining the Annual Benefit Limit (above). In calculating certain nondiscrimination tests (such as the Actual Deferral Percentage), all participant compensation is limited to this amount, for purposes of the calculation. 

The Highly Compensated Threshold (section 414(q)(1)(B)) is the minimum compensation level established to determine highly compensated employees for purposes of nondiscrimination testing. 

The SIMPLE Contribution Limit is the maximum annual contribution that can be made to a SIMPLE (Savings Incentive Match Plan for Employees) plan. SIMPLE plans are simplified retirement plans for small businesses that allow employees to make elective contributions, while requiring employers to make matching or nonelective contributions. 

SEP Coverage Limit is the minimum earnings level for a self-employed individual to qualify for coverage by a Simplified Employee Pension plan (a special individual retirement account to which the employer makes direct tax-deductible contributions. 

The SEP Compensation Limit is applied in determining the maximum contributions made to the plan. 

Catch up Contributions, SIMPLE “Catch up” deferral: Under the Economic Growth and Tax Relief Act of 2001 (EGTRRA), certain individuals aged 50 or over can now make so-called ‘catch up’ contributions, in addition to the above limits. 

EGTRRA also added the Top-heavy plan key employee compensation limit. 

   

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