The former nurse and hospital executive recently won a
10-year battle to get the IRS to reverse a ruling that would
have cost her and her husband, Riz Corpuz, $2,500 a month in
pension benefits from their former employer, the now-defunct
Hospital Center at Orange (HCO) in New Jersey.

HCO had become the poster child in a broader, contentious
battle over special exemptions to federal pension law granted by
the IRS to plans claiming affiliation with churches.

The exemption allowed 85 pension plans to avoid funding
requirements under the Employee Retirement Income Security Act,
and to drop out of the Pension Benefit Guarantee Corp (PBGC), an
insurance program that backstops private-sector plans. When
plans go belly up, PBGC takes them over and makes payments, and
most participants receive 100 percent of promised benefits.

HCO went bankrupt and shut down a year after winning its
2003 “church-plan” exemption, leaving the pensions of Rich and
more than 800 other former employees at risk.

The IRS revoked HCO’s church-plan status last month after a
highly unusual collaboration between pension rights activists
and Josh Gotbaum, director of the PBGC.

Gotbaum led a successful effort to engineer an IRS reversal,
and he promptly announced that PBGC would bring the HCO plan
back under its wing.

It came just in time: the plan was on course to run out of
money at the end of this year, leaving about 400 pensioners
without their benefits, Rich says.

“I call these deathbed conversions,” says Gotbaum. “I’m
about to die, so I’m joining the church. HCO went out from under
the safety net one year before their employees actually needed
it. It’s like dropping your car insurance just before you hit
the wall.”

The HCO pension rescue is energizing efforts by pension
advocates to reverse other exemptions they believe were granted
improperly by the IRS over the past three decades.

Four lawsuits, filed recently, allege at least $2.1 billion
in improper pension-plan underfunding – and other unspecified
damages – at four other large Catholic non-profit hospital
conglomerates, according to an analysis by Thomas E. Clark Jr.,
chief compliance officer of pension consulting firm FRA
PlanTools, and a former ERISA litigator.

“I think we’ll see more cases like this,” says Clark. “Given
the amount of money at stake and the dramatic story of harm to
participants, you can see this is picking up speed quickly.”

The Employee Retirement Income Security Act (ERISA) has
always exempted plans operated directly by churches for their
clergy and employees.

That makes it easier for the churches to operate their
plans, and to guard against potential unwarranted government
intrusion into the affairs of church organizations. A 1980
amendment to the act clarified that the exemption also applies
to church pension boards, which administer group pension plans
for church employees.

Since then, a growing number of plan sponsors with
less-direct ties to religious organizations have declared
themselves church plans and asking the IRS to issue
private-letter rulings confirming the exemptions, which free the
plans from ERISA.

HCO, for example, was a freestanding, non-profit hospital
from its founding in 1873 up until its affiliation in 1998 with
Cathedral Healthcare System, a Catholic hospital system
controlled by the Archdiocese of Newark. The deal wasn’t an
outright merger or sale, but Cathedral nonetheless used the
affiliation to file for church plan status.

“The IRS has been misinterpreting the law for 30 years, and
there’s no indication yet that they will say they were wrong,”
says Karen Ferguson, director of the Pension Rights Center, a
non-profit advocacy group that has championed the church-plan
issue.

PBGC will inherit a $30 million shortfall in the HCO plan -
and the rescue comes at a time when PBGC faces its own financial
problems. The agency doesn’t receive taxpayer dollars, and is
funded entirely by insurance premiums paid by pension plans, and
assets and recoveries from failed plans. This year, plans pay a
flat rate of $42 a year, plus another $9 a participant for every
$1,000 of underfunded assets in the pension plan.

PBGC is operating with a deficit of $34 billion, the largest
in its 38-year history. The agency has been chronically
underfunded due to a mismatch between the premiums charged and
the risks it manages. Premium levels are set by Congress, and
PBGC has no control over the type of risk it insures.

The Obama administration has been lobbying Congress to give
the PBGC power to set its own premiums, much as the Federal
Deposit Insurance Corp does. No luck on that so far, but perhaps
lawmakers will get around to the question when it’s done
grilling the IRS.

(Editing by Frank McGurty and Bernadette Baum)

A growing number of 401(k) plans are including investment choices that can help savers convert nest eggs into retirement income. Participants can buy insurance annuities or other products designed to spread funds over a lifetime.

These programs aim to make 401(k)s more like traditional pensions. That’s laudable if it helps retirees cope with “longevity risk” – that is, the risk of exhausting savings in a retirement of unpredictable length.

But the new retirement income initiatives have disadvantages too, so savers should proceed carefully. Here are some points to consider if one of them shows up in a 401(k) plan near you.

THE ANNUITIES PUSH

Insurance companies are salivating at the opportunity to sell annuities into 401(k) plans. They want a piece of the $5.1 trillion in assets that the Investment Company Institute says was in workplace retirement plans last year.

The latest example: Prudential Retirement recently announced plans to distribute its variable annuity, called IncomeFlex, to more than 3,000 workplace 401(k) plans administered by Wells Fargo & Co. Prudential already markets IncomeFlex – which has a guaranteed minimum withdrawal feature – through several other large plan administrators and those plans it runs.

Currently, only 16 percent of employers offer in-plan annuities, according to a Metlife survey. Employers worry about the complexity of administering an annuity option and the fiduciary responsibility of picking an insurance company, since retirees would need to rely on that underwriter to make payments for decades to come.

The industry is pushing two annuity types for the workplace market – fixed and variable. A fixed annuity allows you to purchase a specified amount of guaranteed income for life, with the payments determined by the amount you invest, prevailing interest rates at the time of purchase (higher is better) and when you want to start receiving the income. The payout on a variable annuity can vary, depending on the earnings of the investments within the annuity.

Either option can be immediate, meaning you don’t buy it until you’re ready to collect the income stream, or deferred, meaning that you buy it years in advance and let it grow before you tap it.

A popular type of variable annuity for retirement plans is the guaranteed minimum withdrawal benefit annuity, or GMWB, like Prudential’s. Here, you invest in a portfolio of stocks and bonds for 10 years prior to retirement; the initial withdrawal amount is linked to the amount in the account. Payments can rise in subsequent years if the portfolio investments beat certain pre-agreed benchmarks.

The advantage over other annuities is the guarantee: if you die before the assets have been used up, your heirs get what’s left. Other annuities, in contrast, require you to surrender control of the invested funds when you start taking payouts, though they tend to offer higher payoffs.

A $100,000 investment in a GMWB might yield annual retirement income of $5,000 for someone retiring at 65, according to calculations from Josh Cohen, defined contribution practice leader at Russell Investments. If the portfolio performs really well, the annual income amount could rise to $5,750 at age 85, but the odds of that aren’t good, Cohen says.

The same investment in a fixed deferred annuity would get the retiree $6,360 in annual income. Or, he could take a bit less initial income ($4,836) but get a 2.5 percent annual inflation adjustment that would spin off $7,900 annually at age 85.

Some companies are offering another option: A pre-set portfolio designed to generate income for the long haul. For example, Financial Engines, which works with workplace plans, has a product called Income+ that splits a retiree’s account into buckets for bonds, stocks and cash that can be used to buy a deferred annuity that kicks in at age 85.

GUARANTEED DRAWBACKS

GMWBs “can be mind-numbingly complex to understand, and it’s difficult to figure out what they really cost,” says David Blanchett, head of retirement research at Morningstar. They can be pricey, but those tucked inside 401(k)s benefit from lower institutional pricing. Prudential, for example, says its IncomeFlex GMWB costs $1,500 per year for every $100,000 invested.

Blanchett worries that putting annuities in 401(k)s could prompt some workers to purchase them prematurely. Because of the annual insurance costs, it only makes sense for older workers within a decade or so of retirement to jump in.

Even insurance sellers caution retirees not to annuitize all of their savings, so there are liquid assets left for large and unexpected expenses.

(The writer is a Reuters columnist. The opinions expressed are his own.)

(Follow us @ReutersMoney or here. Editing by Linda Stern)

By Mark Miller

CHICAGO, May 21(Reuters) – A job and a paycheck – they go
together like coffee and cream. But when you retire from your
regular job, does that mean you have to give up the cream?

A growing number of 401(k) plans are including investment
choices that can help savers convert nest eggs into retirement
income. Participants can buy insurance annuities or other
products designed to spread funds over a lifetime.

These programs aim to make 401(k)s more like traditional
pensions. That’s laudable if it helps retirees cope with
“longevity risk” – that is, the risk of exhausting savings in a
retirement of unpredictable length.

But the new retirement income initiatives have disadvantages
too, so savers should proceed carefully. Here are some points to
consider if one of them shows up in a 401(k) plan near you.

THE ANNUITIES PUSH

Insurance companies are salivating at the opportunity to
sell annuities into 401(k) plans. They want a piece of the $5.1
trillion in assets that the Investment Company Institute says
was in workplace retirement plans last year.

The latest example: Prudential Retirement recently announced
plans to distribute its variable annuity, called IncomeFlex, to
more than 3,000 workplace 401(k) plans administered by Wells
Fargo & Co. Prudential already markets IncomeFlex – which has a
guaranteed minimum withdrawal feature – through several other
large plan administrators and those plans it runs.

Currently, only 16 percent of employers offer in-plan
annuities, according to a Metlife survey. Employers worry about
the complexity of administering an annuity option and the
fiduciary responsibility of picking an insurance company, since
retirees would need to rely on that underwriter to make payments
for decades to come.

The industry is pushing two annuity types for the workplace
market – fixed and variable. A fixed annuity allows you to
purchase a specified amount of guaranteed income for life, with
the payments determined by the amount you invest, prevailing
interest rates at the time of purchase (higher is better) and
when you want to start receiving the income. The payout on a
variable annuity can vary, depending on the earnings of the
investments within the annuity.

Either option can be immediate, meaning you don’t buy it
until you’re ready to collect the income stream, or deferred,
meaning that you buy it years in advance and let it grow before
you tap it.

A popular type of variable annuity for retirement plans is
the guaranteed minimum withdrawal benefit annuity, or GMWB, like
Prudential’s. Here, you invest in a portfolio of stocks and
bonds for 10 years prior to retirement; the initial withdrawal
amount is linked to the amount in the account. Payments can rise
in subsequent years if the portfolio investments beat certain
pre-agreed benchmarks.

The advantage over other annuities is the guarantee: if you
die before the assets have been used up, your heirs get what’s
left. Other annuities, in contrast, require you to surrender
control of the invested funds when you start taking payouts,
though they tend to offer higher payoffs.

A $100,000 investment in a GMWB might yield annual
retirement income of $5,000 for someone retiring at 65,
according to calculations from Josh Cohen, defined contribution
practice leader at Russell Investments. If the portfolio
performs really well, the annual income amount could rise to
$5,750 at age 85, but the odds of that aren’t good, Cohen says.

The same investment in a fixed deferred annuity would get
the retiree $6,360 in annual income. Or, he could take a bit
less initial income ($4,836) but get a 2.5 percent annual
inflation adjustment that would spin off $7,900 annually at age
85.

Some companies are offering another option: A pre-set
portfolio designed to generate income for the long haul. For
example, Financial Engines, which works with workplace plans,
has a product called Income+ that splits a retiree’s account
into buckets for bonds, stocks and cash that can be used to buy
a deferred annuity that kicks in at age 85.

GUARANTEED DRAWBACKS

GMWBs “can be mind-numbingly complex to understand, and it’s
difficult to figure out what they really cost,” says David
Blanchett, head of retirement research at Morningstar. They can
be pricey, but those tucked inside 401(k)s benefit from lower
institutional pricing. Prudential, for example, says its
IncomeFlex GMWB costs $1,500 per year for every $100,000
invested.

Blanchett worries that putting annuities in 401(k)s could
prompt some workers to purchase them prematurely. Because of the
annual insurance costs, it only makes sense for older workers
within a decade or so of retirement to jump in.

Even insurance sellers caution retirees not to annuitize all
of their savings, so there are liquid assets left for large and
unexpected expenses.

A 65-year-old couple retiring this year will need $220,000 to pay for healthcare for the rest of their lives, an amount that is eight percent less than a year ago, according to a Fidelity Investments report issued Wednesday. Fidelity has been forecasting the cost of healthcare in retirement since 2002, and has forecast lower lifetime costs only once before – an eight percent drop in 2011.

Experts are hesitant to call a long-term downward trend, but lower healthcare inflation is a boon to retirees, since healthcare costs are one of the largest single expenses they face in retirement.

“It’s good news, because it means healthcare inflation is below the cost of overall inflation – and that doesn’t happen often,” says Sunit Pate, senior vice president of Fidelity’s benefits consulting group.

The bright forecast is closely tied to spending in the Medicare program, where per enrollee spending increased by just 0.4 percent last year, and just 1.9 percent between 2010 and 2012- far below the seven percent annual increases that were the average between 1985 and 2009. Lower Medicare spending can pass through to retirees in the form of lower coinsurance and deductible payments, and reduced pressure on premiums.

Other recent signals also have pointed toward a moderation of healthcare inflation. Overall U.S. healthcare spending has been rising at a 3.9 percent annual rate for three consecutive years; that’s slightly higher than the 3.2 percent increase in the U.S. Consumer price Index in 2012 and an improvement from recent years. In 2009, healthcare spending jumped 6.6 percent.

The moderation in Medicare inflation has been even more striking. The Congressional Budget Office said earlier this year that Medicare per-beneficiary spending rose only 0.4 percent in fiscal 2012, and overall Medicare spending was up just three percent.

GENERIC DRUGS AND OBAMACARE CREDITED

The weak economy may be holding down healthcare utilization, experts suggest. But in the Medicare program, several other factors are at work:

- The cost of prescription drugs has moderated as many of the most common brand name drugs have gone generic.

- Obamacare has reduced the rate of payment increases to hospitals, physicians and health plans.

- The Medicare population is getting younger. While Washington debates raising the eligibility age of Medicare, the swelling wave of baby boomers now entering the program actually is bringing down per-enrollee costs and premiums. Younger retirees are healthier and their care is less costly, but they are contributing premium dollars to the program’s risk pool.

Fidelity’s forecast assumes a couple age 65 using traditional Medicare, with no retiree coverage from employers. It also assumes average life expectancy from age 65 to be 17 years for men and 20 years for women. About one-third of the forecast costs are Medicare part B and D premiums; the remainder covers an assortment of Medicare co-pays and cost-sharing costs. The estimate doesn’t include costs of any long-term care that a couple might need, or out-of-pocket expenses for dental services or over-the-counter medications.

And the forecast is expressed in today’s dollars – a dedicated amount of savings that few retirees likely have set aside.

RESULTS MAY VARY

The Fidelity numbers are just national averages; individual spending is influenced by several factors, including medical condition and geography – Medicare B and D premiums don’t vary nationally, but private Medigap premiums are set and regulated at the state level and vary substantially.

Age, expected years in retirement and gender all are factors that can help predict healthcare costs. For example, the Society of Actuaries has estimated that a couple that expects to live until age 90 would need an average of $441,200 to meet out-of-pocket healthcare costs.

It is a bit early to proclaim victory in the fight to tame healthcare costs. For example, per capita expenditures for claims filed through employer-sponsored insurance plans rose 4.6 percent in 2011, according to the Health Care Cost Institute. And final implementation of Obamacare this year has some experts forecasting big increases in commercial health insurance premiums as the market adjusts to a big increase in medical claims under the law’s universal coverage feature. Notes Patel, “the jury is still out on the long-term trend.”

(The writer is a Reuters columnist. The opinions expressed are his own.)

(Editing by Linda Stern and Andrew Hay)

It is a little-known fact: If you’re divorced, it’s possible to claim Social Security spousal and survivor benefits from your ex. It is a strategy that can dramatically boost your benefits – and it will be important for more retirees in the years ahead.

Brewton is vice president of client services at SocialSecuritySolutions.com, which advises clients on benefit strategies. One client, whom Brewton declined to name to keep her privacy, saw her monthly benefit rise to $2,200 from the $900 she’d anticipated when Brewton alerted her about the divorced spouse rules.

Her client was a divorced senior who never earned much money during her working years. At retirement, she was set to file for her meager $900 monthly Social Security benefit – until she learned she could claim for a survivor benefit on her deceased ex-husband’s earning record.

That turned out to be the difference between living in poverty and a much more comfortable retirement: the client’s late ex was a high-earning physician, and she is collecting a $2,200 monthly benefit.

The Social Security Administration reports that in 2011, 6.7 percent of all beneficiaries receiving spousal benefits were divorced; 10.4 percent receiving survivor benefits were divorced. But the divorce rate among adults ages 50 and older doubled between 1990 and 2009, according to a study published last year by the National Center for Family & Marriage Research at Bowling Green State University.

“Many older people who go through a divorce think that once it’s final, they have no claim to any Social Security benefit from their ex-spouse,” says Brewton. “Women, especially, will be able to have higher benefits and enjoy a better standard of living if they make the call to the Social Security Administration and ask about their eligibility for a divorced spouse benefit.”

Spousal and survivor benefits are among Social Security’s most valuable features for married couples. You can claim half of a spouse’s benefit if you are at full retirement age (currently 66), assuming that is higher than your own full benefit. And, you’re entitled to 100 percent of a deceased spouse’s benefit.

If you’re divorced, you can take advantage of most of those same benefits, if you are currently single, and have been married to your ex at least ten years; at least 62 years old, which is the minimum Social Security eligibility age; and not already receiving a benefit greater than the divorced spouse’s benefit.

You can file for spousal benefits even if your ex isn’t receiving his or her own benefits – so long as your divorce has been final for two years. Eligibility for an ex’s benefit is lost if you remarry, and you can’t file for benefits on your new spouse’s earning record until you’ve been married to that person at least one year.

Filing for a divorced spouse benefit is a completely private affair between you and the Social Security Administration. The Social Security Administration doesn’t report to your spouse that you’ve inquired – or filed for benefits – on his or her record.

You’ll need to prove you were once married by visiting your local Social Security office with paperwork in hand. Be prepared to show a birth certificate; proof of citizenship; W-2 forms or self-employment tax returns for the last year; your final divorce decree; and your marriage certificate.

The story of Brewton’s client illustrates the most simple example of how can the divorce rules help boost benefits. Here are two hypothetical examples of ways the rules can benefit a divorced spouse, provided by SocialSecuritySolutions.com; all the amounts are shown in today’s dollars without cost of living adjustments.

GROW YOUR OWN BENEFIT

Vicky divorced at age 58, and is projected to have a monthly Social Security benefit of $1,094 at full retirement age. Her ex-husband’s full retirement benefit is $2,410. At age 66, Vicky can claim a spousal benefit of $1,205 each month until age 70. When she reaches age 70, Vicky’s own benefit will have grown to about $1,444 through delayed filing; at that point she can switch to her own higher benefit. Assuming Vicky lives to age 90, the cumulative lifetime difference between starting her own benefit at age 66 and this strategy is $89,328.

(This strategy won’t work if Vicky filed for the spousal benefit before her own retirement age; in that situation, she wouldn’t be able to choose which benefit to collect; she’d automatically receive whatever benefit is higher at that point – which is her own.)

SPOUSE SWAPPING

Diane was married to Phil for 15 years and to Jim for 21 years. Phil was the higher earner, with a full retirement benefit of $2,442. Jim’s full retirement benefit was $2,136. Diane’s own full retirement benefit was only $963.

Diane began by collecting half of Phil’s benefits at age 66 – $1,221. Her plan was to switch to her own benefit at age 70 when it would have grown to $1,271.

But before she reached age 70, Jim passed away. He had waited until age 70 to begin his own benefits, meaning they had grown to $2,819. Diane was eligible to collect the surviving divorced spouse benefit of $2,819 – an increase in monthly benefits of $1,598 over what she was collecting on Phil’s earnings record. That is a lifetime difference of more than $383,000, if she lives to be 90.

“You can switch back and forth with multiple ex-spouses,” says Jim Blankenship, a financial planner who specializes in Social Security benefits. “It’s sort of the Elizabeth Taylor scenario.”

The Hollywood star actually stayed married to just one of her seven husbands long enough to meet Social Security’s ten-year rule – Richard Burton. Their 1964 marriage did last more than ten years – and they tied the knot a second time for about 9 months in 1975.

Both of those marriages could have been added together under the Social Security rules.

(The writer is a Reuters columnist. The opinions expressed are his own.)

(Follow us @ReutersMoney or here; Editing by Tim Dobbyn) For more from Mark Miller, double-click: link.reuters.com/qyk97s

It is a little-known fact: If you’re divorced, it’s possible
to claim Social Security spousal and survivor benefits from your
ex. It is a strategy that can dramatically boost your benefits -
and it will be important for more retirees in the years ahead.

Brewton is vice president of client services at
SocialSecuritySolutions.com, which advises clients on benefit
strategies. One client, whom Brewton declined to name to keep
her privacy, saw her monthly benefit rise to $2,200 from the
$900 she’d anticipated when Brewton alerted her about the
divorced spouse rules.

Her client was a divorced senior who never earned much money
during her working years. At retirement, she was set to file for
her meager $900 monthly Social Security benefit – until she
learned she could claim for a survivor benefit on her deceased
ex-husband’s earning record.

That turned out to be the difference between living in
poverty and a much more comfortable retirement: the client’s
late ex was a high-earning physician, and she is collecting a
$2,200 monthly benefit.

The Social Security Administration reports that in 2011, 6.7
percent of all beneficiaries receiving spousal benefits were
divorced; 10.4 percent receiving survivor benefits were
divorced. But the divorce rate among adults ages 50 and older
doubled between 1990 and 2009, according to a study published
last year by the National Center for Family & Marriage Research
at Bowling Green State University.

“Many older people who go through a divorce think that once
it’s final, they have no claim to any Social Security benefit
from their ex-spouse,” says Brewton. “Women, especially, will be
able to have higher benefits and enjoy a better standard of
living if they make the call to the Social Security
Administration and ask about their eligibility for a divorced
spouse benefit.”

Spousal and survivor benefits are among Social Security’s
most valuable features for married couples. You can claim half
of a spouse’s benefit if you are at full retirement age
(currently 66), assuming that is higher than your own full
benefit. And, you’re entitled to 100 percent of a deceased
spouse’s benefit.

If you’re divorced, you can take advantage of most of those
same benefits, if you are currently single, and have been
married to your ex at least ten years; at least 62 years old,
which is the minimum Social Security eligibility age; and not
already receiving a benefit greater than the divorced spouse’s
benefit.

You can file for spousal benefits even if your ex isn’t
receiving his or her own benefits – so long as your divorce has
been final for two years. Eligibility for an ex’s benefit is
lost if you remarry, and you can’t file for benefits on your new
spouse’s earning record until you’ve been married to that person
at least one year.

Filing for a divorced spouse benefit is a completely private
affair between you and the Social Security Administration. The
Social Security Administration doesn’t report to your spouse
that you’ve inquired – or filed for benefits – on his or her
record.

You’ll need to prove you were once married by visiting your
local Social Security office with paperwork in hand. Be prepared
to show a birth certificate; proof of citizenship; W-2 forms or
self-employment tax returns for the last year; your final
divorce decree; and your marriage certificate.

The story of Brewton’s client illustrates the most simple
example of how can the divorce rules help boost benefits. Here
are two hypothetical examples of ways the rules can benefit a
divorced spouse, provided by SocialSecuritySolutions.com; all
the amounts are shown in today’s dollars without cost of living
adjustments.

GROW YOUR OWN BENEFIT

Vicky divorced at age 58, and is projected to have a monthly
Social Security benefit of $1,094 at full retirement age. Her
ex-husband’s full retirement benefit is $2,410. At age 66, Vicky
can claim a spousal benefit of $1,205 each month until age 70.
When she reaches age 70, Vicky’s own benefit will have grown to
about $1,444 through delayed filing; at that point she can
switch to her own higher benefit. Assuming Vicky lives to age
90, the cumulative lifetime difference between starting her own
benefit at age 66 and this strategy is $89,328.

(This strategy won’t work if Vicky filed for the spousal
benefit before her own retirement age; in that situation, she
wouldn’t be able to choose which benefit to collect; she’d
automatically receive whatever benefit is higher at that point -
which is her own.)

SPOUSE SWAPPING

Diane was married to Phil for 15 years and to Jim for 21
years. Phil was the higher earner, with a full retirement
benefit of $2,442. Jim’s full retirement benefit was $2,136.
Diane’s own full retirement benefit was only $963.

Diane began by collecting half of Phil’s benefits at age 66
- $1,221. Her plan was to switch to her own benefit at age 70
when it would have grown to $1,271.

But before she reached age 70, Jim passed away. He had
waited until age 70 to begin his own benefits, meaning they had
grown to $2,819. Diane was eligible to collect the surviving
divorced spouse benefit of $2,819 – an increase in monthly
benefits of $1,598 over what she was collecting on Phil’s
earnings record. That is a lifetime difference of more than
$383,000, if she lives to be 90.

“You can switch back and forth with multiple ex-spouses,”
says Jim Blankenship, a financial planner who specializes in
Social Security benefits. “It’s sort of the Elizabeth Taylor
scenario.”

The Hollywood star actually stayed married to just one of
her seven husbands long enough to meet Social Security’s
ten-year rule – Richard Burton. Their 1964 marriage did last
more than ten years – and they tied the knot a second time for
about 9 months in 1975.

Both of those marriages could have been added together under
the Social Security rules.

(Follow us @ReutersMoney or here;
Editing by Tim Dobbyn)

Those observations became the inspiration for Care-to-Go, a company he launched with his wife, Beth, in 2009, which provides a caregiver to make the trip with an elderly passenger or others who have special needs when they travel. The couple also launched a sister company that provides in-home care to seniors.

“We looked at a lot of opportunities, but thought there was huge upside in a business helping aging baby boomers, especially in Florida and Arizona,” says the 69-year-old, who is now based in Phoenix, Arizona.

The companies launched by the couple are typical of the small businesses started by older entrepreneurs, who often leverage years of work experience, combined with an insight into the needs of older consumers.

The aging of the population is creating market demand for new products and services at an unprecedented pace – and the numbers are startling. In 2010 there were 375 million people over age 60 in the United States, Northern Europe, Japan, China and India, according to Dick Stroud, a UK-based marketing consultant and author specializing in the 50-plus market.

By the end of 2030, that number will have nearly doubled. And the growth in their spending power will outpace that of every other age group, Stroud says.

OPPORTUNITIES ABOUND

The challenge for would-be entrepreneurs lies in identifying the right market opportunities. For wealthier seniors, that means a focus on luxuries and improving quality of life; among lower-income seniors, services will focus more on cutting costs.

“The U.S., like Europe, is going to have a large group of older people who will be forced to make substantial changes to their living standards because they lack the necessary pension and investments to maintain anything like their pre-retirement standard of living,” Stroud says. “There will be ultra-fragmentation – some products and services aimed at the wealthy, and others where price is a dominant factor.”

Stroud is co-author of a recently published book, “Marketing to the Ageing Consumer: The Secrets to Building an Age-Friendly Business” (Palgrave Macmillan, January 2013). His book lays out the case that older people will be the primary drivers of consumer spending over the next two decades in the world’s most important economies.

The best startup opportunities in the U.S. market are in wellness, healthiness, fitness and medical self-help, Stroud says. “My guess is that this only applies to about 20 percent of the older age group, but they will be the most affluent and informed about the issue affecting their bodies,” he says.

Stroud also sees entrepreneurial opportunities in fields including vision and hearing care – for example, technology and design that improve the appearance of hearing devices, or that boost the audio of devices like telephones and smartphones.

There also are some less-obvious opportunities, including products that can generate familiar and reassuring smells or change the way food tastes – aimed at people who suffer from memory loss.

TRAVEL HELP

When Bates retired at age 60 from American Airlines, he had plans to focus on entrepreneurial opportunities and spent some time investing in real estate and consulting in Florida. But after the real estate crash of 2008, he and wife Beth started from scratch again.

That is when they hit exactly what Stroud defines as the sweet spot, supported by Gary’s experience in the airline industry, and Beth’s 30 years as a caregiving professional. Care-to-Go serves older people with mental or physical impairments. It charges a day rate ranging from $200 to $400, and customers pay all of the travel companion’s expenses. “We’ll fly Grandma to the East Coast and back for Christmas,” Gary says.

The company also helps seniors who are moving to assisted living facilities to be closer to family members.

“A lot of people think they can put someone like this on a plane at one end, and have someone pick them up at the other end,” Bates says. “That’s fine if everything works out. But when I was flying, we might have a flight cancellation or a weather problem that forced us to land at a different airport. Now you’ve got a senior who can’t fend for himself sitting at the wrong airport all by himself.”

Although Bates declined to discuss the companies’ success in terms of revenue and customers, he says the ventures are growing. He is looking to add more cities for the home-care business, and possibly franchise it.

While the strategy can bring success, Stroud has a word of caution for boomers who get the urge to start an age-related business based on their own experience: be careful.

There is nobody more evangelical about a product or service than someone who has a very deep personal involvement. “But sometimes people don’t think through the hard commercial issues to see if there really is a profitable business,” Stroud says.

(The writer is a Reuters columnist. The opinions expressed are his own.)

For more from Mark Miller, see (link.reuters.com/qyk97s)

(Editing by Beth Pinsker, Lauren Young and Matthew Lewis; Follow us @ReutersMoney or here)

But it’s a debt trap, according to a recent expose by The New York Times, a “pension advance” loan charging sky-high interest rates. A Times analysis of these deals found effective interest rates ranging from 27 percent to as high as 106 percent.

The companies that market these loans like to target unsuspecting military veterans, teachers, firefighters and police officers.

Pension advances are part of a bigger picture of rising debt burdens carried by a growing number of older Americans in the wake of the Great Recession.

Credit cards pose the most serious threat, with interest rates not much lower than the predatory pension loans – average monthly interest rates ranging from 11 percent to 16 percent, according to Bankrate.com.

A recent AARP Public Policy Institute report found that average credit card balances for households over age 75 jumped 31 percent during the recession. A separate AARP report found that boomers – households over age 50 – now have higher overall credit card debt than younger people – a reversal of previous trends.

The average combined balance on all cards in 2012 was $8,278.

The study found the key causes of debt included medical expenses, car and home repairs and basic living expenses. “The popular image is people going wild at the mall, but we found that it’s more about making ends meet,” said Amy Traub, senior policy analyst at think tank Demos, who wrote the AARP report.

Howard Krooks, a Florida-based elder law attorney, has numerous clients “on the doorstep of retirement” who have relied on credit cards due to recession-damaged portfolios and lost home equity. “Not just one, but multiple cards to keep things afloat. For many of them it became a matter of pride, because they didn’t want to be dependent on their kids to meet monthly living costs,” Krooks said.

Bradley Frigon, an elder law attorney in Denver, frequently has seen the opposite problem: older people who fall into a debt trap after bailing adult children out of a financial bind.

“Parents are either advancing money to their children or co-signing loans,” Frigon said. “I’ve seen parents borrow against their home equity to help adult kids get out of trouble or personally guaranteeing loans for them. They’re putting themselves at financial risk for the sake of their kids.”

Florida-based financial planner Douglas Eaton often works with clients struggling with debt. Eaton offers this checklist for righting the financial ship:

– Start with a financial inventory. Eaton works with clients to identify assets and liabilities, income and expenses. “We identify the expenses that are absolutely necessary to run the household, and which are not. But that’s a discussion point,” Eaton said. You might want to stop paying a long-term care insurance premium because it’s not a necessity, but then you’re taking a risk that could hurt you down the road.

– Target low-hanging fruit. Before going to an austerity plan, Eaton looks for recurring costs that can be jettisoned and are not really necessary. “Maybe there’s a redundant life insurance policy, or an expensive Medigap insurance policy that can be dropped,” he says. Some clients have extra cash sitting in the bank earning a low interest rate while they’re paying 15 percent on a credit card, for example.

– Reallocate investments for income. Retirees who have Individual Retirement Accounts or 401(k) portfolios can pare debt by restructuring investments to generate dividend income. “If you have $500,000 in an IRA, and you’re only taking the required minimum distribution, that could be generating $27,000 in dividends that can be used to pay off debt without losing principal,” Eaton said.

– Don’t panic. “Older people facing a debt problem get so frightened that they’re not thinking clearly,” Eaton said. In many cases they just want to be good citizens and pay their debts and bills. Sometimes they’ll make decisions quickly without consulting anyone – “big decisions that can be a mistake,” he notes.

That’s the point where people are vulnerable to predatory practices – like signing away a pension at a 30 percent interest rate.

For more from Mark Miller, see link.reuters.com/qyk97s

(The writer is a Reuters columnist. The opinions expressed are his own.)

(Follow us @ReutersMoney or here. Editing by Lauren Young and Dan Grebler)

But it’s a debt trap, according to a recent expose by The
New York Times, a “pension advance” loan charging sky-high
interest rates. A Times analysis of these deals found effective
interest rates ranging from 27 percent to as high as 106
percent.

The companies that market these loans like to target
unsuspecting military veterans, teachers, firefighters and
police officers.

Pension advances are part of a bigger picture of rising debt
burdens carried by a growing number of older Americans in the
wake of the Great Recession.

Credit cards pose the most serious threat, with interest
rates not much lower than the predatory pension loans – average
monthly interest rates ranging from 11 percent to 16 percent,
according to Bankrate.com.

A recent AARP Public Policy Institute report found that
average credit card balances for households over age 75 jumped
31 percent during the recession. A separate AARP report found
that boomers – households over age 50 – now have higher overall
credit card debt than younger people – a reversal of previous
trends.

The average combined balance on all cards in 2012 was
$8,278.

The study found the key causes of debt included medical
expenses, car and home repairs and basic living expenses. “The
popular image is people going wild at the mall, but we found
that it’s more about making ends meet,” said Amy Traub, senior
policy analyst at think tank Demos, who wrote the AARP report.

Howard Krooks, a Florida-based elder law attorney, has
numerous clients “on the doorstep of retirement” who have relied
on credit cards due to recession-damaged portfolios and lost
home equity. “Not just one, but multiple cards to keep things
afloat. For many of them it became a matter of pride, because
they didn’t want to be dependent on their kids to meet monthly
living costs,” Krooks said.

Bradley Frigon, an elder law attorney in Denver, frequently
has seen the opposite problem: older people who fall into a debt
trap after bailing adult children out of a financial bind.

“Parents are either advancing money to their children or
co-signing loans,” Frigon said. “I’ve seen parents borrow
against their home equity to help adult kids get out of trouble
or personally guaranteeing loans for them. They’re putting
themselves at financial risk for the sake of their kids.”

Florida-based financial planner Douglas Eaton often works
with clients struggling with debt. Eaton offers this checklist
for righting the financial ship:

– Start with a financial inventory. Eaton works with
clients to identify assets and liabilities, income and expenses.
“We identify the expenses that are absolutely necessary to run
the household, and which are not. But that’s a discussion
point,” Eaton said. You might want to stop paying a long-term
care insurance premium because it’s not a necessity, but then
you’re taking a risk that could hurt you down the road.

– Target low-hanging fruit. Before going to an austerity
plan, Eaton looks for recurring costs that can be jettisoned and
are not really necessary. “Maybe there’s a redundant life
insurance policy, or an expensive Medigap insurance policy that
can be dropped,” he says. Some clients have extra cash sitting
in the bank earning a low interest rate while they’re paying 15
percent on a credit card, for example.

– Reallocate investments for income. Retirees who have
Individual Retirement Accounts or 401(k) portfolios can pare
debt by restructuring investments to generate dividend income.
“If you have $500,000 in an IRA, and you’re only taking the
required minimum distribution, that could be generating $27,000
in dividends that can be used to pay off debt without losing
principal,” Eaton said.

– Don’t panic. “Older people facing a debt problem get so
frightened that they’re not thinking clearly,” Eaton said. In
many cases they just want to be good citizens and pay their
debts and bills. Sometimes they’ll make decisions quickly
without consulting anyone – “big decisions that can be a
mistake,” he notes.

That’s the point where people are vulnerable to predatory
practices – like signing away a pension at a 30 percent interest
rate.

The public affairs show turned its investigative eye to the financial services industry this week with “The Retirement Gamble.”

The program is an expose on the two biggest flaws in 401(k) accounts and the rest of the self-directed retirement savings marketplace: high investment fees that sap long-term returns, and conflicts of interest that allow financial services companies to stock those plans with products that earn the most money for them, rather than what’s in the best interest of unsuspecting investors.

PBS did a real public service in highlighting these problems for a broad television audience, even though there was little news for those of us who have been talking about these issues for years.

Millions of Americans hold retirement investments that cost too much and eat into their long-term returns. And they have no understanding that far too many plan “advisers” have a conflict of interest between what’s best for the investor and what’s best for the adviser’s own bottom line.

Here’s the latest evidence on conflict of interest – and it’s a statistic you didn’t hear on Frontline. A study released in January of thousands of 401(k) plans found that mutual fund companies administering 401(k) plans are three times less likely to drop their own poorly performing funds from investment menus than they are when a fund is run by a competitor.

Most workplace plans these days are what is known as “open architecture.” That means they offer not only proprietary funds from the financial services company that administers the plan, but also from competing firms. In this study, a trio of academic researchers explored what they call a “favoritism hypothesis” about the companies that run 401(k) plans for employers. They analyzed 401(k) menus of 2,645 plans from 1998 to 2009.

The home-grown funds in question underperformed by 3 percent on a risk-adjusted, after-fee basis. That may not sound like a big gap, but it’s huge when compounded over decades of retirement investing. “If you lose 3 percent per year, over the lifespan it can add up to a really huge number,” says Veronika Pool, co-author of the report and an assistant professor of finance at the Indiana University Kelley School of Business.

Are workers forced to invest in those funds? Of course not. But many plan menus force participants to navigate dozens of choices – an average of 25, research firm Brightscope reports – and Pool’s analysis turned up no evidence that investors are able to weed out losers when they pick funds.

The favoritism hypothesis addresses today’s hottest regulatory fights in the financial services industry: should all the people offering investment products have fiduciary responsibility – that is, requiring them to put your best interests ahead of their own?

The battle is being fought on two fronts: At the Securities and Exchange Commission, which regulates stockbrokers and broker-dealer representatives, the U.S. Department of Labor, which is expected to propose tougher fiduciary responsibilities this summer for anyone who provides advice to workplace plans.

Investment cost is the other key issue raised by Frontline – and it caused the most squirming by Wall Street execs who went on-camera to bravely defend high-cost actively managed funds.

The evidence is clear that simple low-cost index funds, which serve as a proxy for the entire market or subcategories of it, beat high-cost actively managed funds, almost always. Even Morningstar, the Chicago research firm that makes its living rating fund performance, finds that low-cost funds offer much better returns than high-cost funds across every asset class. In a study of fund performance from 2005 through 2010, the lowest-cost domestic equity funds returned an annualized 3.35 percent, compared with 2.02 percent for the most expensive group.

The industry counters by noting that mutual fund investors already tend to hold lower cost funds with below-average portfolio turnover. Research from the Investment Company Institute, a fund trade group, shows the average total expense ratio among 401(k) investors in equity funds last year was 0.63 percent. But that’s the average, which means some investors are in funds far higher than that number, while index fund investors often pay 0.20 percent or less.

“Employers and participants can seek out lower-cost funds because the 401(k) market is highly competitive, with many types of providers, including index funds and actively managed funds, vying for market share,” said an ICI spokesperson.

Many top-rated 401(k) plans already offer simplified menus and stress low-cost index funds – something that Frontline omitted. A growing number of plans also are adding independent third-party financial advisory services that offer reasonably priced investment guidance.

Those advisers are fiduciaries, but workplace retirement savers should understand that the financial services companies providing the plans may not be. So, it’s a buyer beware situation. All workers now receive detailed information about mutual fund fees in improved quarterly reports from plan sponsors, as mandated by new Department of Labor rules.

If your plan offers low-cost index funds, use them instead of active funds. If it doesn’t, ask your plan administrator – why you don’t have those plans on the menu.

Also ask if the plan offers a “brokerage window” – an option that allows you to buy and trade whatever stocks, mutual funds or exchange-traded funds offered by your plan’s vendor. The privilege typically comes with an annual fee around $150, but that price can be more than offset if you shed high-cost funds in your plan.

And do catch “The Retirement Gamble.” If you missed it, it’s available online at to.pbs.org/12GLyi2.

For more from Mark Miller, see link.reuters.com/qyk97s

(The writer is a Reuters columnist. The opinions expressed are his own.)

(Follow us @ReutersMoney or here. Editing by Linda Stern and Steve Orlofsky)