MONEY Pensions

What Retirees Need to Know about the New Federal Pension Rules

Only a small percentage of retirees are directly affected by the new rule. But future legislation may lead to more pension cutbacks.

The last-minute deal to allow retiree pension benefit cuts as part of the federal spending bill for 2015 passed by Congress last week has set off shock waves in the U.S. retirement system.

Buried in the $1.1 trillion “Cromnibus” legislation signed this week by President Barack Obama was a provision that aims to head off a looming implosion of multiemployer pension plans—traditional defined benefit plans jointly funded by groups of employers. The pension reforms affect only retirees in struggling multiemployer pension plans, but any retiree living on a defined benefit pension could rightly wonder: Am I next?

“Even people who aren’t impacted directly by this would have to ask themselves: If they’re doing that, what’s to stop them from doing it to me?” says Jeff Snyder, vice president of Cammack Retirement Group, a consulting and investment advisory firm that works with retirement plans.

The answer: plenty. Private sector pensions are governed by the Employee Retirement Income Security Act (ERISA), which prevents cuts for retirees in most cases. The new legislation doesn’t affect private sector workers in single-employer plans. Workers and retirees in public sector pension plans also are not affected by the law.

Here are answers to some of the key questions workers and retirees should be asking in the legislation’s wake.

Q: Cutting benefits for people who already are retired seems unfair. Why was this done?

A: Proponents argue it was better to preserve some pension benefit for workers in the most troubled plans rather than letting plans collapse. The multiemployer plans are backstopped by the Pension Benefit Guaranty Corp (PBGC), the federally sponsored agency that insures private sector pensions. The multiemployer fund was on track to run out of money within 10 years—a date that could be hastened if healthy companies withdraw from their plans. If the multiemployer backup system had been allowed to collapse, pensioners would have been left with no benefit.

Opponents, including AARP and the Pension Rights Center, argued that cutting benefits for current retirees was draconian and established a bad precedent.

Q: Who will be affected by the new law? If I have a traditional pension, should I worry?

A: Only pensioners in multiemployer plans are at risk, and even there, the risk is limited to retirees in “red zone” plans—those that are severely underfunded. Of the 10 million participants in multiemployer plans, perhaps 1 million will see some cuts. The new law also prohibits any cuts for beneficiaries over age 80, or who receive a disability pension.

Q: What will be the size of the cuts?

A: That is up to plan trustees. However, the maximum cuts permitted under the law are dramatic. Many retirees in these troubled plans were well-paid union workers who receive substantial pension benefits. For a retiree with 25 years of service and a $25,000 annual benefit, the maximum annual cut permitted under the law is $13,200, according to a cutback calculator at the Pension Rights Center’s website.

The cuts must be approved by a majority of all the active and retired workers in a plan (not just a majority of those who vote).

Q: How do I determine if I’m at risk?

A: Plan sponsors are required to send out an annual funding notice indicating the funding status of your program. Plans in the red zone must send workers a “critical status alert.” If you’re in doubt, Snyder suggests, “just call your retirement plan administrator,” Snyder says. “Simply ask, if you have cause for concern. Is your plan underfunded?”

The U.S. Department of Labor’s website maintains a list of plans on the critical list.

Q: How quickly would the cuts be made?

A: If a plan’s trustees decide to make cuts, a notice would be sent to workers. Snyder says implementation would take at least six months, and might require “a year or more.”

Q: Am I safe if I am in a single employer pension plan?

A: When the PBGC takes over a private sector single employer plan, about 85% of beneficiaries receive the full amount of their promised benefit. The maximum benefit paid by PBGC this year is $59,320.

Q: Does this law make it more likely that we’ll see efforts to cut other retiree benefits?

A: That will depend on the political climate in Washington, and in statehouses across the country. In a previous column I argued that the midterm elections results boost the odds of attacks on public sector pensions, Social Security and Medicare.

Sadly, the Cromnibus deal should serve as a warning that full pension benefits aren’t a sure thing anymore. So having a Plan B makes sense. “If you have a defined benefit pension, great,” Snyder says. “But you should still be putting money away to make sure you have something to rely on in the future.”

Read next: This Is the Toughest Threat to Boomers’ Retirement Plans

MONEY Pensions

Congress’ No-Bailout Pension Plan Is No Solution for Retirees

The cuts to promised benefits for current retirees would roll back a landmark law protecting pensions—and opens the door to further cutbacks.

Wall Street banks, automakers and insurance giants got bailouts during the economic meltdown that started in 2008. But when it comes to the pensions of retired truck drivers, construction workers and mine workers, it seems that enough is enough.

The $1.1 trillion omnibus spending bill moving through Congress this week adopts “Solutions Not Bailouts,” a plan to shore up struggling multiemployer pension funds—traditional defined benefit plans jointly funded by groups of employers in industries like construction, trucking, mining and food retailing.

A bailout, it is not. The centerpiece is a provision that would open the door to cutting current beneficiaries’ benefits, a retirement policy taboo and a potential disaster for retirees on fixed incomes.

Developed by the National Coordinating Committee for Multiemployer Plans (NCCMP), a coalition of multiemployer pension plan sponsors and some major unions, the plan addresses a looming implosion of multiemployer pension plans. Ten million workers are covered by these plans, with 1.5 million of them in roughly 200 plans that are in danger of failing over the next two decades. Two large plans are believed to be much closer to failure—the Teamsters’ Central States fund and the United Mine Workers of America fund.

The central premise is that Congress won’t—and shouldn’t—prop up the multiemployer system.

“The bottom line is, we’ve been told since the start of this process that there isn’t going to be a bailout—Congress is tired of bailouts,” says Randy DeFrehn, executive director of the National Coordinating Committee for Multiemployer Plans (NCCMP).

The problem is partly structural. Multiemployer pension plans were thought to be safer than single employer plans, owing to the pooling of risk. As a result, the level of Pension Benefit Guaranty Corporation (PBGC) insurance protection behind the multiemployer plans is lower. But many industries in the system have seen declining employment and have a growing proportion of retirees to workers paying into the pension funds. And many of the pension funds still have not fully recovered from the hits they took in the 2008-2009 market meltdown.

These problems pose a major threat to the PBGC. The agency reported recently that the deficit in its multiemployer program rose to $42.2 billion in the fiscal year ending Sept. 30, up from $8.3 billion the previous year. If big plans fail, the entire multiemployer system would be at risk of collapse.

The fix moving through Congress would revise the Employee Retirement Income Security Act (ERISA) to grant plan trustees broad powers to cut retired workers’ benefits if they can show that would prolong the life of the plan. That would mark a major change from current law, which calls for retirees to be paid full benefits unless plan assets are exhausted; then, the PBGC steps in to pay benefits, albeit at a much lower level. The bill also would increase PBGC premiums paid by sponsors, from $13 to $26 per year.

The legislation does prohibit benefit cuts for vested retirees over 80, and limited protections for retirees over 75—but that leaves plenty of younger retirees vulnerable to cuts. And although workers and retirees would get to vote on the changes, pension advocates worry that the interests of workers would overwhelm those of retirees. (Active workers rightly worry about the future of their plans, and many already are sacrificing through higher contributions and benefit cuts.)

The big problem here is that the plan fails to put retirees at the head of the line for protection. When changes of this type must be made, they should be phased in over a long period of time, giving workers time to adjust their plans before retirement. For example, the Social Security benefit cuts eneacted in 1983 were phased in over 20 years and didn’t start kicking in until 1990.

“It’s a cruel irony that in the year we’re celebrating the 40th anniversary year of ERISA, Congress is trying to reverse its most significant protections,” said Karen Friedman, executive vice president of the Pension Rights Center (PRC), an advocacy group that has been battling with NCCMP on some of the proposed changes to retired workers’ benefits.

Friedman’s organization, AARP and other advocates reject the idea that solvency problems 10 to 15 years away require such severe measures. They have pushed alternative approaches to the problem; one that is included in the deal, DeFrehn says, is an increase in PBGC premiums paid by sponsors, from $13 to $26 per year. Advocates also have called for other new revenue sources, such as low-interest loans to PBGC by the once-bailed-out big banks and investment firms.

There are no easy answers here. But cutting the benefits of today’s retirees should be the last solution we try—not the first.

Read next: 401(k)s Are Still a Problem, But They’re Getting Better

MONEY retirement planning

Flunking Retirement Readiness, and What to Do About It

red pencil writing "F" failing grade
Thomas J. Peterson—Alamy

Americans don't get the basics of retirement planning. Automating 401(k)s and expanding benefits for lower-income workers may be the best solution.

Imagine boarding a jet and heading for your seat, only to be told you’re needed in the cockpit to fly the plane.

Investing expert William Bernstein argued in a recent interview that what has happened in our workplace retirement system over the past 30 years is analogous. We’ve shifted from defined benefit pension plans managed by professional financial pilots to 401(k) plans controlled by passengers.

Once, employers made the contributions, investment pros handled the investments and the income part was simple: You retired, the checks started arriving and continued until you died. Now, you decide how much to invest, where to invest it and how to draw it down. In other words, you fuel the plane, you pilot the plane and you land it.

It’s no surprise that many of us, especially middle- and lower-income households, crash. The Federal Reserve’s latest Survey of Consumer Finances, released in September, found that ownership of retirement plans has fallen sharply in recent years, and that low-income households have almost no savings.

But even wealthier households seem to be failing retirement flight school.

Eighty percent of Americans with nest eggs of at least $100,000 got an “F” on a test about managing retirement savings put together recently by the American College of Financial Services. The college, which trains financial planners, asked over 1,000 60- to 75-year-olds about topics like safe retirement withdrawal rates, investment and longevity risk.

Seven in 10 had never heard of the “4% rule,” which holds that you can safely withdraw that amount annually in retirement.

Very few understood the risk of investing in bonds. Only 39% knew that a bond’s value falls when interest rates rise—a key risk for bondholders in this ultra-low-rate environment.

“We thought the grades would have been better, because there’s been so much talk about these subjects in the media lately,” said David Littell, who directs a program focused on retirement income at the college. “We wanted to see if any of it is sinking in.”

Many 401(k) plans have added features in recent years that aim to put the plane back on autopilot: automatic enrollment, auto-escalation of contributions and target date funds that adjust your level of risk as retirement approaches.

But none of that seems to be moving the needle much. A survey of 401(k) plan sponsors released last month by Towers Watson, the employee benefit consulting firm, found rising levels of worry about employee retirement readiness. Just 12% of respondents say workers know how much they need for retirement; 20% said their employees are comfortable making investment decisions.

The study calls for redoubled efforts to educate workers, but there’s little evidence that that works. “I hate to be anti-education, but I just don’t think it’s the way to go,” says Alicia Munnell, director of Boston College’s Center for Retirement Research. “You have to get people at just the right time when they want to pay attention—just sending education out there doesn’t produce any change at all.”

What’s more, calls for greater financial literacy efforts carry a subtle blame-the-victim message that I consider dead wrong. People shouldn’t have to learn concepts like safe withdrawal rates or the interaction of interest rates and bond prices to retire with security.

Just as important, many middle- and lower-income households don’t earn enough to accumulate meaningful savings. “We’ve had stagnant wage growth for a long time—a lot of people can’t save and cover their living expenses,” says Munnell, co-author of “Falling Short: The Coming Retirement Crisis and What to Do About It” (Oxford University Press, December 2014).

Since the defined contribution system is here to stay, she says, we should focus on improving it. “We have to auto-enroll everyone, and auto-escalate their contributions. Otherwise, we’re doing more harm than good.”

Munnell acknowledges that a better 401(k) system mainly benefits upper-income households with the capacity to save. For everyone else, it’s important that no cuts be made to Social Security. And she says proposals to expand benefits at the lower end of the income distribution make sense.

“Given all the difficulty we’re having expanding coverage with employer-sponsored plans, that is the most efficient way to provide income to lower-paid workers.”

Read next: The Big Flaws in Your 401(k) and How to Fix Them

MONEY year-end moves

3 Smart Year-End Moves for Retirement Savers of All Ages

golden eggs of ascending size
Getty Images

To give your long-term financial security a boost, take one of these steps before December 31.

It’s year-end, and retirement savers of all ages need to check their to-do lists. Here are some suggestions for current retirees, near-retirees, and younger savers just getting started.

Already Retired: Take Your Distribution

Unfortunately, the “deferred” part of tax-deferred retirement accounts doesn’t last forever. Required minimum distributions (RMDs) must be taken from individual retirement accounts (IRAs) starting in the year you turn 70 1/2 and from 401(k)s at the same age, unless you’re still working for the employer that sponsors the plan.

Fidelity Investments reports that nearly 68% of the company’s IRA account holders who needed to take RMDs for tax year 2014 hadn’t done it as of late October.

It’s important to get this right: Failure to take the correct distribution results in an onerous 50% tax—plus interest—on any required withdrawals you fail to take.

RMDs must be calculated for each account you own by dividing the prior Dec. 31 balance with a life expectancy factor (found in IRS Publication 590). Your account provider may calculate RMDs for you, but the final responsibility is yours. FINRA, the financial services self-regulatory agency, offers a calculator, and the IRS has worksheets to help calculate RMDs.

Take care of RMDs ahead of the year-end rush, advises Joshua Kadish, partner in planning firm RPG Life Transition Specialists in Riverwoods, Ill. “We try to do it by Dec. 1 for all of our clients—if you push it beyond that, the financial institutions are all overwhelmed with year-end paperwork and they’re getting backed up.”

Near-Retired: Consider a Roth

Vanguard reports that 20% of its investors who take an RMD reinvest the funds in a taxable account—in other words, they didn’t need the money. If you fall into this category, consider converting some of your tax-deferred assets to a Roth IRA. No RMDs are required on Roth accounts, which can be beneficial in managing your tax liability in retirement.

You’ll owe income tax on converted funds in the year of conversion. That runs against conventional planning wisdom, which calls for deferring taxes as long as possible. But it’s a strategy that can make sense in certain situations, says Maria Bruno, senior investment analyst in Vanguard’s Investment Counseling & Research group.

“Many retirees find that their income may be lower in the early years of retirement—either because they haven’t filed yet for Social Security, or perhaps one spouse has retired and the other is still working. Doing a conversion that goes to the top of your current tax bracket is something worth considering.”

Bruno suggests a series of partial conversions over time that don’t bump you into a higher marginal bracket. Also, if you’re not retired, check to see if your workplace 401(k) plan offers a Roth option, and consider moving part of your annual contribution there.

Young Savers: Start Early, Bump It Up Annually

“Time is on my side,” sang the Rolling Stones, and it’s true for young savers. Getting an early start is the single best thing you can do for yourself, even if you can’t contribute much right now.

Let the magic of compound returns help you over the years. A study done by Vanguard a couple years ago found that an investor who starts at age 25 with a moderate investment allocation and contributes 6% of salary will finish with 34% more in her account than the same investor who starts at 35—and 64% more than an investor who starts at 45.

Try to increase the amount every year. A recent Charles Schwab survey found that 43% of plan participants haven’t increased their 401(k) contributions in the past two years. Kadish suggests a year-end tally of what you spent during the year and how much you saved. “It’s not what people like to do—but you have a full year under your belt, so it’s a good opportunity to look at where your money went. Could you get more efficient in some area, and save more?”

If you’re a mega-saver already, note that the limit on employee contributions for 401(k) accounts rises to $18,000 next year from $17,500; the catch-up contribution for people age 50 and over rises to $6,000 from $5,500. The IRA limit is unchanged at $5,500, and catch-up contributions stay at $1,000.

MONEY Health Care

Why Obamacare Is Making Medicare Open Enrollment More Confusing

Tangle of Stethoscopes
Comstock Images—Getty Images

The time to sign up for an individual health insurance plan overlaps with the annual window for switching your Medicare plan. Here's how seniors can navigate this tangle of health care choices.

This is enrollment season for two huge public health insurance programs: Medicare and the Affordable Care Act health insurance exchanges. For older Americans, the overlapping sign-up periods can lead to confusion and enrollment errors.

Insurers offering Medicare and ACA policies have big money at stake, and consumers are subject to a blizzard of marketing messages. Annual enrollment for Medicare prescription drug (Part D) and Advantage (Part C) plans began Oct. 15 and runs until Dec. 7; shopping for healthcare policies in the marketplace exchanges created under the ACA began Nov. 15 and ends Feb. 15.

Consumer assistance groups report that some Medicare enrollees mistakenly think they must also enroll in the ACA exchanges. And for people with ACA plans who are turning 65, the transition to Medicare can be tricky. Here are some common questions about enrollment overlap, and answers aimed at helping older Americans keep things straight.

Q: What should I do about the ACA marketplaces if I’m already on Medicare?

Nothing. The policies sold on the exchanges are for Americans who don’t have coverage through an employer. And it is illegal for someone to sell you an exchange plan if the provider knows you are covered by Medicare. You can’t buy a Medicare Advantage, Medigap or Part D drug plan through the ACA marketplaces; to enroll in these plans, visit the federal government’s Medicare Plan Finder website.

Q: I bought health insurance this year on my state’s exchange, but I’m turning 65 in December. Do I need to shift to Medicare then?

It’s critical that you move to Medicare as soon as you are eligible. The enrollment window starts three months before your 65th birthday and ends three months afterward.

Failure to enroll will saddle you with expensive premium penalties. Monthly Part B premiums jump 10% for each 12-month period that you could have had coverage but didn’t—for life. That can add up: A senior who fails to enroll for five years ultimately would face a 50% Part B penalty—10% for each year. Penalties also are applied for late enrollment in Part D, under a different formula.

Q: When I shift into Medicare, can I just stick with the company that insures me in the ACA exchange?

You probably could do that; many of the nation’s biggest health insurers operate in both Medicare and the ACA exchanges. But brand loyalty isn’t advised here. Even if you’ve been satisfied with your provider, that company’s Medicare prescription drug plan may not offer the same coverage you had in the exchange. And the Medicare Advantage plan may not include the same network of providers or level of benefits.

Treat Medicare sign-up as a new shopping exercise. For starters, think about whether you want traditional fee-for-service Medicare or Advantage, a managed care alternative. Traditional Medicare allows you to see any health provider that participates in Medicare, but you’ll probably want to add a standalone prescription drug plan and a Medigap supplemental policy. With Advantage, you’ll be limited to in-network providers, but most plans have built-in prescription drug coverage and cap out-of-pocket spending.

Q: I qualified for tax subsidies in the ACA exchanges. Will those continue when I go into Medicare?

No. The ACA subsidies offset premium costs for households in a wide band of income, from 100% to 400% of the federal poverty level. This year that worked out to an annual income of between $11,490 and $45,960 for an individual, and $23,550 to $94,320 for a family of four.

Medicare enrollees can get assistance with premiums if they meet certain income and asset tests through the Medicare Savings Program. Another program, called Extra Help, can offset most or all prescription drug costs. The Medicare Rights Center’s website has a summary of these programs.

MONEY retirement planning

Five Takeaways on Retirement from the Midterm Elections

With Republicans controlling Congress, expect a push to cut Social Social and Medicare benefits—and maybe new ideas to encourage savings.

Retirement policy wasn’t on the ballot in last week’s midterm elections. But the new political landscape could threaten the retirement security of middle-class households.

With Republicans in full control of Congress, expect efforts to cut Social Security and Medicare benefits. And more Republican-controlled statehouses mean more efforts to curtail state and local workers’ pension plans. One positive note: Congress and the White House could find common ground on some promising ideas to encourage retirement saving.

Here are five policy areas to watch that could affect your retirement security.

SOCIAL SECURITY

The midterm results boost the odds that Social Security cuts will be in the mix if the brinkmanship over the federal debt ceiling or budget resumes.

Social Security does need reform. Its retirement trust fund will be exhausted in 2034, when revenue from payroll taxes would cover just 77% of benefits. Meanwhile, the disability program will be able to pay full benefits only through 2016. If Congress doesn’t act, 9 million disabled people will see their benefits cut by 20%.

Republicans have advocated higher retirement ages, less generous cost-of-living increases and means-testing of benefits. Some Democrats have fought for expansion of benefits and revenue for the program but haven’t been backed by President Obama or congressional party leaders.

How deeply could benefits be slashed? If previous conservative proposals are any guide, anywhere from 15% to 20%, with young people taking the biggest hit.

MEDICARE

The GOP has pushed Medicare reform plans that would “voucherize” the program, replacing defined benefits with a set amount of cash that beneficiaries could use to shop for coverage in a Medicare exchange. That would raise premiums for seniors in traditional Medicare by 50% in 2020 over current projections, according to the Congressional Budget Office.

AFFORDABLE CARE ACT

The ACA isn’t a retirement program, but it has helped older Americans by beefing up Medicare benefits covering older people who had trouble obtaining insurance and were too young for Medicare. This year the rate of uninsured 50- to 64-year-old Americans fell from 14% to 11%, according to the Commonwealth Fund.

The percentage would be smaller if the U.S. Supreme Court hadn’t given states an opt-out option on Medicaid—it has been expanded in only 27 states and the District of Columbia. Meanwhile, congressional Republicans continue to threaten funding, and the ACA faces a new Supreme Court threat. If the court rules that tax subsidies on marketplace premiums can’t be offered on the federal exchange, exchange insurance marketplaces will be on life support in all but 13 states with their own exchanges.

PENSIONS

Republicans will control 31 governors’ offices and 30 state legislatures, the most since the 1920s. That means we can expect the attack on public sector pension benefits to accelerate.

The National Association of State Retirement Administrators and the Center for State & Local Government Excellence reviewed pension reforms by 29 states this year and found reductions in annual benefits ranged from 1.2% (Pennsylvania) to 20% (Alabama); the average across all states was 7.5%.

RETIREMENT SAVING

A grand bargain on the federal budget could limit pre-tax contributions to 401(k) accounts, an idea floated regularly in tax reform discussions. And ideas aimed at helping lower-income households save for retirement could gain ground. The Obama Administration has asked Congress to create a national automatic IRA option and is rolling out a limited version called the MyRA.

Meanwhile, Senator Marco Rubio (R-Florida) has called for a government-sponsored 401(k)-style account for Americans who don’t have a plan at work. He would like to open up the federal Thrift Savings Plan to private-sector workers. That’s attractive because the TSP boasts low costs, a short and easy-to-understand set of investment choices and options to convert savings into an annuity stream at retirement.

Another idea I like: the “baby Roth.” The plan’s architect projects that an initial contribution of $500 to an infant’s Roth IRA, with subsequent annual contributions of $250, would grow to $131,800 at age 65, versus $35,300 for an account started at age 25.

It’s disappointing that few candidates campaigned on ideas that would help the middle class build retirement security. Democrats could have boasted about how the ACA is helping older Americans. And polls show that expanding Social Security and keeping Medicare strong are winning issues across partisan divides and demographic groups.

MONEY retirement planning

What Are the Biggest Surprises in Retirement? The Experts Weigh In

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David Clapp—Getty Images

Retirement is a major transition—and not just financially. Here are some lifestyle changes you may not be planning for.

The Great Recession served up some nasty financial surprises to people approaching retirement—the housing crash, job loss and shrunken 401(k)s, for starters.

But retirement can bring lifestyle surprises, too. It’s one of life’s biggest transitions, and a major leap into the unknown. Hoping to lessen the guesswork for people who aren’t there yet, I asked experts who work with people transitioning to retirement about the surprises they hear about most often.

“Time freedom” is a shock for many, says Richard Leider, an executive career coach and co-author of Life Reimagined: Discovering Your New Life Possibilities (Berrett-Koehler Publishers, 2013).

“Without the time structure of working, folks often go on autopilot, the default position of repeating old patterns,” he says. “However, there is no status in the status quo. So, at about the one-year mark, they realize that time is their most precious currency. Often a wake-up call—health, relationships, money or caregiving—forces reflection and helps them to say ‘no’ to the less important things that simply clutter up a life and ‘yes’ to the more important things that define a purposeful life. They choose fulfilling time.”

Wealth psychology expert Kathleen Burns Kingsbury also sees people struggling to structure their new lives. “One of the biggest surprises retirees face is the adjustment to not working full-time,” says Kingsbury, author of How to Give Financial Advice to Couples (McGraw-Hill, 2013). “While people typically fantasize about what life will be like without a job, the reality is sometimes it’s a bit of a shock to the system.

“Work provides structure, social connections and a sense of purpose. It is important for pre-retirees who are not going to work in retirement to consider how they will meet these needs outside of a work environment,” she adds.

Sometimes, that leads to greater spirituality, says Carol Orsborn, editor-in-chief of FiercewithAge.com and author of 21 books about the baby boomer generation.

“The heightened search for meaning in the face of mortality comes as no surprise,” she says. “The bigger surprise is that as it turns out, many of the things we most fear—loss of identity, erosion of ego, increased marginalization—hold the potential to transform aging into a spiritual path.

“Many retirees report that they are achieving levels of fulfillment, peace and joy not despite the things that happen to them as they age, but because of them. This transcends individual experience, with sufficient mass to constitute what is being termed ‘the conscious aging movement.’ “

Not that there aren’t earth-bound worries. “The biggest surprise is about money,” says Helen Dennis, a specialist in aging, employment and retirement. “This is true particularly among women who have earned a good income and find that eight or 10 years into retirement, they fear running short and need to change their lifestyle, all within an uncertain economy. Add to this their surprising initial discomfort in spending their retirement income without depositing a work-earned check.”

Changing housing needs also can surprise, especially for single retirees. “For single retirees, recognizing that their current home or location no longer ‘works’ is a common surprise,” says Jan Cullinane, author of The Single Woman’s Guide to Retirement (AARP/John Wiley, 2012). “Upon leaving a primary career, the daily social support built into a job is yanked away. Pairing that with becoming suddenly single through divorce or widowhood, the home that served them well may no longer be appropriate.”

For married couples, the surprise might be a desire to get away from one another. “Many retirees end up bored with too much free time and often discover, if they’re in a relationship, that they get on each other’s nerves and want some space and time apart,” says Dorian Mintzer, a coach and co-author of The Couple’s Retirement Puzzle: 10 Must-Have Conversations for Creating an Amazing New Life Together (Lincoln Street Press, 2012).

“They often haven’t thought about the role work played—providing structure, self-esteem, time together and time apart from a partner as well as connection engagement and purpose and meaning. Each partner may experience the transition differently, and they may be ‘out of sync’ with each other. For example, one may want to travel and the other wants to start an encore career.”

I received many more comments about retirement surprises than fit here. You can find thoughts from a broader array of experts on my website.

More on retirement:

Can I afford to retire?

Should I delay my retirement?

Should I work in retirement?

MONEY Second Career

The Secrets to Launching a Successful Encore Career

These prize-winning social entrepreneurs built non-profits that make a difference.

“You must do the thing you cannot do,” Eleanor Roosevelt once wrote. It’s the only way to overcome the fears we all face in doing something new, she thought, and take a leap into the unknown.

Kate Williams quoted Roosevelt earlier this week here when she accepted a $25,000 Purpose Prize, one of the awards given annually by Encore.org, a San Francisco-based nonprofit that works to engage baby boomers in “encore careers” with a social impact. The awards, now in their ninth year, recognize trailblazers over age 60 who have tackled social problems creatively and effectively. Cash prizes range from $25,000 to $100,000.

Williams, 72, lost her eyesight to a rare degenerative disease after a long career as a corporate human resources professional. She overcame her own fears, first by moving away from friends and family in Southern California to start over in San Francisco and later by starting an employment training program for the blind. Today, she runs a similar, larger program for the national non-profit organization Lighthouse for the Blind.

Encore.org’s mission is to promote a game-changing idea: Greater longevity and the graying of America present opportunities, not problems. This year’s Purpose Prize winners underscore that point. They’re rock stars in the world of social entrepreneurship, having started organizations that work on issues like sex trafficking, disaster relief, autism and education in impoverished neighborhoods.

The idea of second careers with social purpose has broad appeal. Millions of older Americans want to stay engaged and work longer, sometimes out of economic need but often out of a deep motivation to give back. An Encore.org survey this year found that 55% of Americans view their later years as a time to use their experience and skills to make a difference, though just 28% say they are ready to make it happen.

Many people have trouble figuring out where to start—which brings us back to Roosevelt. Fear of the unknown is a key hurdle in starting down a new path later in life, and I had the chance to ask some of the encore experts gathered for the awards about how they would advise others seeking to begin.

The juices get flowing when people connect their experiences and knowledge with a problem they are passionate about. But first they have to make the leap.

“I had been in the corporate world, not part of the blind community,” Williams says. “I was frightened, but what I thought would be overwhelming turned out to be a beautiful thing. As soon as we started our training classes, I was hooked.”

Accurate, real-time salaries for thousands of careers.

The Lighthouse for the Blind program has worked with 100 blind job seekers over the past three years, and has placed 40% of them.

David Campbell, winner of a $100,000 prize this year, wanted to help after the Indian Ocean tsunami that devastated parts of Southeast Asia in 2004. A senior executive at several software and Internet technology companies, he figured he could help by creating a Web-based tool to organize volunteer tsunami relief efforts. That led him to start All Hands Volunteers, which has worked on 45 disaster relief projects in six countries and dozens of U.S. locations. The non-profit uses the Internet to route volunteers to places where they can be put to work effectively.

“People just want to know that if they go, they’ll have a place to sleep that won’t be a burden to the local people, and a contact to start with,” he says. “We give you exact instructions on how to get there, and assure that you’ll have a bunk bed, food and someone will have organized work and that you’ll have the right tools to be productive.”

Campbell talks often with people looking to get started on encores. “I always advise people to start by volunteering with some organization with social purpose – it’s an easy, great way to start. But the question many people have is, ‘Which one, and what might I do?’ “

Campbell suggests people consider geography and the focus of the work. “Do you want to work locally, nationally or internationally? Do you care about health, education or some other thing? That starts the conversation and helps people narrow it down.”

Then, he says, visit a non-profit that interests you, and take the time to understand its needs.

“Be willing to help understand the mission, and do whatever it is they need help with. And don’t treat volunteering as a casual activity. You need to commit to a certain number of hours of work a week as though it were a paying job, and take responsibility for it.”

To paraphrase another famous Roosevelt, the only thing you have to fear is fear itself.

Related:

Can I afford to retire?

Should I work in retirement?

Does working affect my Social Security benefits?

 

MONEY Social Security

Why Your Social Security Check Isn’t Keeping Up With Your Costs

Next year retirees will see their benefits rise by the inflation rate. But that may not be the best measure of seniors' true spending.

Social Security’s annual inflation adjustment is one of the program’s most valuable features. But it’s time to adjust the adjustment.

Retirees will get a 1.7% bump in their Social Security benefit next year, according to the Social Security Administration, which announced the annual cost-of-living adjustment (COLA) on Wednesday. Recipients of disability benefits and Supplemental Security Income also will receive the COLA.

That reflects continuing slow inflation in the economy—the COLA has averaged 1.6% over the past four years—but it’s not enough to keep up with the higher inflation retirees face.

My in-box fills up with angry e-mail messages about the COLA every year. So if you’re gearing up to accuse Washington politicians of conspiring against seniors, please note: By law, the COLA is determined by a formula that ties it to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is compiled by the U.S. Bureau of Labor Statistics (BLS).

There is good news about this year’s COLA: Beneficiaries will keep every penny. There won’t be any offset for a higher Medicare Part B premium, which typically is deducted from Social Security payments. The premium will stay at $104.90 for the third consecutive year.

Still, the COLA formula should be revised as part of the broader Social Security reform that Congress must tackle. Many economists and policymakers say the CPI-W doesn’t measure retiree inflation accurately.

“From an ideal math perspective, what you want is a calculation based on an index that matches retirees’ cost of living,” says Polina Vlasenko, a senior research fellow at the American Institute for Economic Research. “The CPI-W is constructed to measure spending patterns of urban wage earners, and it’s pretty clear that retired people spend differently than wage earners.”

A recent national survey by the Senior Citizens League illustrates the cost pressures seniors, especially those living on fixed, lower amounts of income, face. Half of retirees said their monthly expenses rose more than $119 this year, while an even higher percentage (65%) said their benefits rose by less than $19 per month.

Other research by the group, based on BLS data, shows that Social Security beneficiaries have lost 31% of their buying power since 2000. Among big-ticket items, the largest price hikes were for property taxes (104%), gasoline (160%), some types of food and healthcare expenses.

Low COLAs also cut into future benefits for Americans who are eligible for benefits (ages 62 to 70) but haven’t yet filed. When you delay taking benefits until a later age—say, full retirement age (66)—you get full benefits increased by the COLAs awarded for the intervening years.

COLAs are prominent in the debate over Social Security reform that is likely to be rekindled in the next Congress. COLA reform could involve more generous adjustments – or a benefit cut. A cut would be achieved by adopting the “chained CPI,” which some say more accurately measures changes in consumer spending by reflecting substitution of purchases that they make when prices rise. The Social Security Administration has estimated the chained CPI would reduce COLAs by three-tenths of a percent annually.

A more generous COLA would come via the CPI-E (for “elderly”), an alternative, experimental index maintained by the BLS that is more sensitive to retirees’ spending. That index generally rises two-tenths of a percent faster than the CPI-W.

Congress has been gridlocked on Social Security, but public opinion is clear. The National Academy of Social Insurance (NASI) released a national poll Thursday that shows 72% support raising benefits. The survey also asks Americans to say how reform should be paid for. The most popular options (71%) included a gradual elimination of the cap on income taxed for Social Security ($117,000 this year, and $118,500 in 2015) and a gradual increase over 20 years on the payroll tax rates workers and employers both pay, from 6.2% to 7.2%.

Poll respondents also backed adoption of a more generous COLA, such as the CPI-E.

“Seniors are noticing the very small COLAs, and they just have a feeling that prices are going up more than that,” says Virginia Reno, NASI’s vice president for income security policy. “If you measure the market basket separately for seniors, average inflation has been a bit higher because they spend a larger share of their money on healthcare, and for things like housing and heating.”

Read more from the Ultimate Retirement Guide:

MONEY Medicare

Some Medicare Advantage Plans Have Hidden Risks—Here’s How to Avoid Them

hands using measuring tape
Nils Kahle

Although they promise quality care at lower cost, some Medicare Advantage plans fall short. Before you enroll, here are key questions to ask.

Seniors have flocked to Medicare Advantage in recent years, attracted by savings on premiums and the convenience of one-stop shopping. But as the annual Medicare enrollment season began this week, a memorandum from federal officials to plan providers surfaced that serves as a big red warning flag.

The upshot: Assess the quality of any Advantage plan before you sign up.

The memorandum, first reported by the New York Times, described ongoing compliance problems uncovered in federal audits of Advantage and prescription drug plans. These include inadequate rationales for denial of coverage, failure to consider clinical information from doctors and failure to notify patients of their rights to appeal decisions. The audits also uncovered problems with inappropriate rejection of prescription drug claims.

Advantage is a managed care alternative to traditional fee-for-service Medicare. It rolls together coverage for hospitalization, outpatient services and, usually, prescription drugs. Advantage plans also cap your out-of-pocket expenses, making Medigap supplemental plans unnecessary.

The savings can be substantial. Medigap plan premiums can cost $200 monthly or more, and stand-alone drug plans will average $39 a month next year. Enrollees have been voting with their wallets: 30% are in Advantage plans this year, up from 13% in 2005, according to the Henry J. Kaiser Family Foundation.

Advantage plans are subject to strict rules and regulations, and must cover all services offered in original Medicare, with the exception of hospice services. Some offer extra coverage, such as vision, hearing, dental and wellness programs.

And there is evidence that the quality of these plans is rising. Medicare uses a five-star rating system to grade plan quality, and plans can earn bonus payments based on their ratings. Average enrollment-weighted star ratings increased to 3.92 for 2015, from 3.86 in 2013 and 3.71 in 2013, according to Avalere Health, an industry research and consulting firm. Avalere projects that 60% of Advantage enrollment will be in four- or five-star plans next year, up from 52% this year.

But the Medicare memorandum focuses on problems outside the rating system. “It’s about basic blocking and tackling and whether a plan adheres to the program’s technical specs,” says Dan Mendelson, Avalere’s chief executive officer. “These are the basic functions that every plan should be able to handle.”

Nevertheless, consumer advocates say they deal with these compliance problems regularly, and more often with enrollees in Advantage than in traditional Medicare.

“The most typical problems have to do with plans that are making it difficult or impossible for people to get their medications,” says Jocelyn Watrous, an advocate for patients at the Center for Medicare Advocacy. “They impose prior authorizations or other utilization management rules that they make up out of whole cloth.”

Consumer advocates urge Medicare enrollees to restrict their shopping this fall to four- and five-rated plans, of which plenty are available in most parts of the country. “If a plan consistently gets four or five stars, all other things being equal it will be a high performer,” says Joe Baker, president of the Medicare Rights Center.

Few Medicare enrollees roll up their sleeves to shop, however. A study by Kaiser found that, on average, just 13% of enrollees voluntarily switched their Advantage or drug plans over four recent enrollment periods. And focus groups with seniors conducted by the foundation last May found that few pay attention to the star ratings.

“Seniors said they don’t use the ratings because they don’t feel they reflect their experiences with plans,” said Gretchen Jacobson, associate director of the foundation’s Medicare program. “Even when we told them that their plan only has two stars, many just wanted to stay in that plan.”

Advocates say the star ratings are just a starting point for smart shoppers.

They say you should check to make sure health providers you want to see are in a plan’s network. You should also consider how you would react if any of those providers disappeared during the 12 months that you are locked into the plan. Advantage plans can—and do—drop providers. UnitedHealth Group, the industry’s largest player, made headlines last year when it dropped thousands of doctors in 10 states. Advantage plans in Florida, Pennsylvania, California and Delaware also terminated provider relationships.

Also be sure to examine the prescription drug “formularies” in your plan—the rules under which your medications are covered. And talk with your doctors about any plan you are considering, especially if you see specialists for a chronic condition.

The Medicare memorandum to plans also underscores the importance of appealing denied claims, Baker says. “Appeal, appeal, appeal—it’s like ‘location, location, location’ in real estate.”

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