Reuters Money

One man’s retirement crusade to help Detroit and baby boomers

Randal Charlton has had a long, colorful career with plenty of ups and downs. In his 71 years, he’s done everything from tending dairy cows for a Saudi sheik to starting a jazz club in Florida. And as a lifelong entrepreneur, he has bought and sold 14 different companies.

Charlton’s last venture was a Detroit-based biotech company called Asterand, which he co-founded and then merged in 2006 with a U.K.-based competitor. He was 67 years old after the deal closed – a time when many would hang up their spikes and take it easy.

Instead, Charlton took on a daunting new challenge: fighting Motor City’s economic blight by building a successful business incubator for entrepreneurs called TechTown. Charlton raised $24 million from foundations and government, gathered together an impressive array of resources for training and start-up funding and recruited a small army of start-ups that have created a total of more than 1,800 local jobs.

TechTown is located in an old five-floor automotive plant with 130,000 square feet. When Charlton took over, just one floor was built out, and the center was running on loans guaranteed by nearby Wayne State University. Since then, the incubator has been home to 250 companies, and more than 2,200 entrepreneurs have graduated from its training programs. Last year, 14 TechTown companies received capital infusions totaling more than $1.35 million. The incubator has invested $700,000 directly in early-stage businesses and helped clients raise $14 million in follow-on funding.

Charlton’s work has just been recognized with a 2011 Purpose Prize, announced today. The award, given annually by the Encore Careers campaign, recognizes older career trailblazers who have demonstrated creative and effective work tackling social problems. Now in its sixth year, the prize was created to promote and encourage civic engagement among baby boomers. It’s a program of Civic Ventures, a nonprofit that works to engage boomers in encore careers combining personal meaning, income and social impact.

Each prize winner receives $100,000. The other winners this year include a San Francisco-area screenwriter who adopted two daughters from China in her fifties, then found a way to partner with the Chinese government in efforts to transform the care of 800,000 orphans there; an Oregon woman who produces and distributes low-cost, safe, fuel-efficient cookstoves in Latin America; and a Santa Fe, New Mexico architect working to improve energy efficiency and reduce emissions in buildings.

A native of England, Charlton started his career after college as an agriculture journalist, and then worked for an agricultural export company. His work has taken him to 40 countries and many adventures, including living for weeks in a Saudi Arabian desert nursing a sheik’s herd of cows back to health. Later he acted as a consultant for cattle breeding associations and for the European Development Fund, and as an executive for several global biotechnology companies.

Zap zombie funds within your portfolio

Do you have zombie index funds within your portfolio?

Instead of eating up your brains, they devour your nest egg with high expenses and walking dead performance. They may be lurking within your 401(k)-type plan or individual retirement account.

I like index funds because they generally can track nearly any kind of asset class. As such, they are the white bread of investing and should cost about the same from fund to fund. The cheaper the better. Why pay Nieman-Marcus prices for the same thing you can get at Costco or Sam’s Club for less?

You can vanquish these funds without overtly violent acts, but first you have to identify them. Unfortunately, mandated fee disclosure is still pending, so you have to take the initiative.

So how do you identify a zombie fund? First you need a reliable benchmark for comparison purposes. The easiest way is to look at the index that the fund is supposed to be tracking. A good proxy for the U.S. bond market, for example, is the Barclays Capital Aggregate Bond Index. It’s a basket of listed bonds. If a fund tracks the index return within 0.20 percentage points or less, then that’s pretty good and not expensive.

A low-cost bond index fund would look like the Fidelity Spartan Intermediate Term Bond Index investor class fund, with a 0.20 percent expense ratio. You’d need at least $10,000 to get into this fund, though.

You want to pay a manager more to get less return on bonds? The ING US Bond Index portfolio charges a hefty 0.95 percent annually, meaning it will lag the index by nearly a full percentage point every year.

Medicare Part B premium hike will be smaller than expected

Seniors caught a break Thursday when the Obama Administration announced that Medicare Part B premiums won’t rise as much as expected in 2012.

The premium for Part B – which funds doctor and other outpatient services – will be $99.90 in 2012, up just 3 percent compared with this year. And the Medicare Part B deductible will be $140, a decrease of $22 from 2011.

The official government 2012 Part B premium forecast had been $106.60 – an increase that would have taken a significant bite out of Social Security’s cost-of-living adjustment (COLA). Although Social Security beneficiaries will receive a 3.6 percent raise next year, the average beneficiary’s increase would have been shaved to 2.95 percent if the larger Part B increase had been implemented. Part B premiums are deducted from most seniors’ Social Security benefits.

Today’s news means that seniors receiving the average monthly Social Security benefit ($1,177) will see a net 3.3 percent gain in payments – just under $39 per month.

In 2010, the Part B premium jumped to $110.50 from $96.40, and it rose to $115.40 in 2011. The rate is determined partly by healthcare inflation — but also the number of seniors who actually are subject to higher premiums. By law, the premium cannot rise in any given year by a greater amount than the Social Security COLA – a “hold harmless” provision aimed at preventing Social Security payments from ever falling. About 75 percent of beneficiaries were exempted in this way from Part B premium increases in 2010 and 2011 – years in which no Social Security COLA was made.

Medicare enrollees cover 25 percent of projected Part B program costs; in 2010 and 2011, that projected cost was borne by a much more narrow base of beneficiaries. This year’s Social Security COLA means that beneficiaries’ portion of Part B cost will be spread across a much broader pool of seniors, resulting in the more modest premium hike.

The new premium will mean a decrease for seniors who enrolled in Medicare for the first time this year, and have been paying the $115.40 rate. It should also lead to decreases for high-income seniors, who were subject to the higher base premium, along with additional income-related surcharges.

Retirement confidence falls, especially in Social Security: Poll

Talk about a race to the bottom: Which institution do you think is losing the trust of Americans to provide future retirement benefits most quickly – government, or private employers?

The winner is . . . private employers, but not by much. A new national poll on retirement sentiment by Sun Life Financial Inc. finds worker confidence in the future value of employer-provided benefits plunged 32 percent in the past year. Meanwhile, confidence in the government’s ability to provide Social Security and Medicare benefits fell 22 percent.

Sun Life’s fourth annual Unretirement Index points to a sharp deterioration in Americans’ overall confidence about their ability to retire. The survey’s overall retirement confidence index fell nearly 20 percent to an all-time low compared with a year ago. Like several other surveys this year, the poll underscores the national mood of deep worry about financial security, especially in old age.

Along with worries about workplace and government benefits, only 23 percent of working Americans said they are very confident that they will be able to meet basic living expenses in retirement — plunging from double that number (42 percent) last year. And one in five workers said they will never retire.

The falling confidence in employers to provide benefits such as defined benefit pensions or health insurance “reflects a sense people have that an employee benefit is discretionary,” said Wes Thompson, president of Sun Life Financial.

“But the broader underlying trend is a shifting of responsibility to the individual – whether it’s from government or employers. That starts with the shift in recent years from defined-benefit to defined contribution plans, and much greater dependence over the last 10 or 15 years on employees to contribute more for their health care. Now it’s spreading to other areas of employer-paid benefits, such as life insurance and disability benefits.”

Thompson thinks falling confidence in Social Security and Medicare stems from the “public policy debate in Washington.” Indeed, we’ve seen repeated calls this year for a higher Social Security retirement age, reduced cost-of-living adjustments and a higher eligibility age for Medicare.

Target date funds get better and bigger, report finds

Target date funds are getting better – and that’s good news, because they’re also becoming the 800-pound gorilla of the workplace retirement saving scene.

The use of these funds, which invest in a mix of assets with the aim of reducing equity exposure as participants approach retirement, has accelerated sharply in recent years, due in large measure to the growth of auto-enrollment options in workplace plans.

Brightscope/Target Date Analytics reports that the TDFs account for 10 percent of total invested assets in retirement plans, a figure that is expected to hit over 28 percent by 2020. And Vanguard reported recently that 79 percent of the plans it administers offered TDFs last year, up from 13 percent as recently as 2004. Likewise, 42 percent of Vanguard plan participants used TDFs last year, up from just 2 percent in 2004.

But they’ve been criticized for maintaining levels of equity exposure too high for older investors, and for steep fees. Yet a study released Tuesday by Brightscope and Target Date Analytics reveals target date funds are improving their performance in both of those areas.

The study finds that the industry is moving toward a more conservative posture on the critical issue of fund series glidepaths – that is, the year targeted for the lowest exposure to equities. “Funds can take very different approaches to the glidepath,” explained Brooks Herman, Brightscope’s head of research. “Sometimes the landing date can be many years past the target date in the fund name.”

The Brightscope/Target Data Analytics study finds that 40 percent of TDFs are now using a “to versus through” approach to glidepath, up from 30 percent as recently as 2007. That means the most conservative asset allocation is reached in the year of the fund series name. “We like that, because it’s truth in advertising,” Herman said. “As an investor, I know what I’m getting.”

The study’s glidepath findings are consistent with an analysis by Morningstar for Reuters Money back in August, which found that losses during the summer market meltdown were far less severe for 2010 and 2015 TDF series than losses were for those funds in 2008.

What next for long-term care after CLASS act folds?

The federal government threw in the towel on creating a public option for long-term care coverage last week, and that would seem to be definitive for now.

In defeat, Health and Human Services (HHS) Secretary Kathleen Sebelius was doing the right thing in admitting the concept’s flaws and cutting the government’s losses of the proposal, which was a lesser-known component of the new health reform law. It was an attempt to expand the number of Americans with long-term care coverage by providing a basic, inexpensive LTC option deployed mainly through the workplace as an opt-out choice in benefit plans.

Republicans were overjoyed with the decision, obviously, since they have always seen CLASS as a budget trick to pump up the health law’s revenue and make the law seem less expensive than it is. (CLASS had been projected to generated $86 billion in revenue in the early years from premium payments made by policy holders whose coverage had not yet vested.)

But there is still the problem to solve about how we’ll care for our frail elderly in the years ahead, and it’s unclear what the path to a solution will be. After the shouting subsidies, we’re still left with an inadequate, patchwork system for funding long-term care in the U.S.

The Center for Retirement Research at Boston College (CRR) says about one-third of Americans turning 65 this year will need at least three months of nursing home care sometime during their lives.

Medicare covers only a small portion of long-term care needs, and the cost of a semi-private room averages $79,000 per year. CRR calculates that the mean lifetime exposure to long-term care costs for a 65-year-old couple is $260,000, with a five percent risk of a $570,000 expense.

Meanwhile, Medicaid remains the nation’s largest LTC funder, paying for more than 40 percent of all care. And the market for private LTC insurance continues to limp along, the victim of collective national denial and expensive policies.

Surveys say: Retirees are getting very nervous

Reference librarians are nothing if not precise, and Kevin Davey plotted his exit from the Chicago Public Library system with all the exactitude of a veteran fact-finder. His last day was Sept. 30 — just 48 hours after his 55th birthday and first day of retirement eligibility.

With his wife still working and the couple’s finances under control, Davey figures that he has the ideal plan in place. All that remains is to land a part-time job with another library to put the icing on the cake. But after submitting close to 20 resumes, Davey hasn’t fielded a single interview.

“I’ve looked for work in bad economies before, but this seems to be more difficult now than it’s been in the past,” he says. “What’s baffling me is that my resume hasn’t floated to the top with all the experience I have.”

If Davey is starting to feel anxious, then no wonder other retirees report financial jitters of historic proportions. The latest Well-Being Index from the Principal Financial Group reveals that 36 percent of retirees — up 15 percentage points from last year — are pessimistic regarding the economic outlook for the rest of 2011.

How do you feel about the economic outlook for the rest of 2011?

• Optimistic
• Pessimistic

How cuts to Social Security Administration will hurt you

“Starving the beast” is a favorite conservative strategy for forcing cuts in federal spending. The idea is to deprive the government of revenue in order to force spending cuts – and resistance to new taxes is a central feature of the current Super Committee deliberations in Washington.

Advocates for older Americans are watching closely to see how the committee’s work might lead to retirement benefit cuts via a higher Social Security retirement age, smaller cost-of-living adjustments or higher Medicare eligibility ages. Meanwhile, a separate starve-the-beast exercise goes mostly unnoticed: a big squeeze on the administrative budget of the Social Security Administration (SSA).

The SSA is funded through the same Federal Insurance Contributions Act (FICA) tax that pays benefits, so it doesn’t compete for general revenue to meet its costs. But Congressional appropriators — who oversee its budget — have been squeezing the agency anyway.

In fiscal 2011, Congress provided the SSA with about $1 billion less than requested by President Obama. Those cuts forced the agency to make cuts that beneficiaries have noticed. It suspended mailing of the annual statement of benefits, and it shelved plans to open eight new hearing offices to handle the backlog of disability claims, which has soared during the recession.

SSA had planned to restore the statement mailings in fiscal 2012 to people over age 60 not yet receiving benefits  – but that won’t happen “if Congress doesn’t provide adequate support,” says SSA spokesman Mark Hinkle. (The agency currently is operating under the second continuing budget resolution for FY 2012, which expires Nov. 18.)

This may sound insignificant, but it’s not. The benefit statement provides a valuable annual reminder of what you can expect to receive and how benefits are calculated – and it prompts us all to make Social Security part of our long-range retirement plans. For now, the alternative is to use the SSA’s online Retirement Estimator, which gives you a personalized projection of future benefits.

Hinkle says the SSA also has responded to the tight budget by reducing employee overtime by 80 percent. That has cut into the amount of time available to help people who come into SSA local field offices for face-to-face services. The agency also lost about 1,600 workers last year who can’t be replaced due to a hiring freeze.

Some Medicare plans drop prices: time to shop is now

If you’re a senior on Medicare – or if you help out aging parents with their money matters  – it’s time to get ready to shop. The annual enrollment period for Medicare prescription drug and Advantage managed care plans is about to begin, and it’s one of the best opportunities of the year for seniors to save money.

The new healthcare reform law is reshaping certain parts of the Medicare marketplace, for the most part in ways that benefit seniors. Although the law gradually reduced subsidies to Medicare Advantage — a change that critics derided as “slashing” Medicare– the Advantage and prescription drug markets are doing just fine. The number of plan offerings for 2012 are stable and average prices are steady or falling slightly.

Re-shopping your plan annually makes sense, especially Medicare Part D drug plans. Insurance companies often change their offerings year-to-year in ways that can increase drug costs by thousands of dollars, or make it more difficult to get certain drugs. At the same time, your drug needs may have changed since the last plan selection period in ways that make a plan less beneficial for you.

And this year, it’s important to get started on that process earlier than usual—because the enrollment period is earlier this year. The 2010 health reform law moved up the annual enrollment period by several weeks, starting this year. Enrollment will be open from Oct. 15 to Dec. 7—a sensible move intended to get this time-consuming chore away from the busy holiday season.

You’ve got two basic choices: traditional, fee-for-service Medicare alongside a stand-alone Part D prescription drug plan, or a privately managed Medicare Advantage all-in-one option (including hospitalization, outpatient services and prescription drugs).

You’re free to make as many changes as you want before Dec. 7; your changes take effect on Jan. 1. There’s also a so-called “dis-enrollment” period that runs from Jan. 1 to Feb. 14, that can be used by seniors who pick an Advantage plan but then change their minds. During that period, you can switch back to traditional Medicare but not to a different Advantage plan. And, if you do leave Advantage, you can add a stand-alone drug plan during that period.

Avalere Health, a health policy consulting firm, projects that average premiums for both prescription drug and Advantage plans will fall 4 percent for 2012. But the enhanced competition doesn’t mean prices are coming down across the board. Although some of the top 10 drug plans, which cover 77 percent of enrollees, are cutting premium prices, six are raising prices.

Here’s the real Social Security Ponzi scheme

Gov. Rick Perry wants to have a conversation about means-testing entitlements. This is a softer, gentler version of the governor’s earlier assertions that Social Security is an un-Constitutional Ponzi scheme.

And Perry is hardly the only conservative floating the idea that wealthy seniors should get less Social Security — or none at all.

Last week, we looked at the means testing of Medicare, where wealthy seniors have paid higher premiums for nearly a decade. Now, let’s get going on that conversation about means testing Social Security — starting by untangling some badly twisted political language.

The phrase “means testing” has always referred to a measure of financial adequacy to determine eligibility for welfare — that is, a test of inadequate means or poverty — not wealth. That’s an important distinction because Social Security’s retirement and disability programs aren’t welfare at all — they are entitlement programs that we pay into, and they are made available to seniors up and down society’s spectrum of wealth.

Just to be clear, when I talk about Social Security as an entitlement, I’m referring to the Old-Age, Survivors, and Disability Insurance program (retirement) and also the disability insurance program. In order to qualify for either, you must have paid FICA taxes into the system and worked long enough to be eligible. (Note to Social Security conspiracy theorists: Yes, I know about Supplemental Security Income, which is run by the Social Security Administration and doesn’t require beneficiaries to have paid into the system; instead, it relies on general tax revenue to assist the disabled, blind and some elderly who have little or no income to meet basic needs for food, clothing etc.)

Perry and others who hope to take down Social Security like the phrase “means testing” because it sounds so much more reasonable than calling Social Security a Ponzi scheme (which it is not) or a “bad disease,” the description Perry used in his recent book Fed Up! Our Fight to Save America from Washington. That book gives us Perry’s full-blast view of Social Security:

Social Security is something we have been forced to accept for more than 70 years now. Because of that, as Nobel laureate economist Milton Friedman wrote, the program is one of those things on which the tyranny of the status quo is beginning to work its magic. Despite the controversy that surrounded its inception, it has come to be so much taken for granted that its desirability is hardly questioned any longer.

And there stands a crumbling monument to the failure of the New Deal, in stark contrast to the mythical notion of salvation to which it has wrongly been attached for too long, all at the expense of respect for the Constitution and limited government.