MONEY mutual funds

Millennials in Target Date Funds Got Hit Hardest by Stock Selloff

Market
Andrew Burton—Getty Images A trader works on the floor of the New York Stock Exchange during the morning of August 27, 2015 in New York City. Dow Jones Industrial Average stocks continued their rally, opening approximately 200 points higher today.

Young investors with 2060 target date funds lost 10% of their savings between July 17 and August 24.

As the stock market has whipsawed over the past two weeks, young workers who have all their retirement funds tied up in long-range target-date funds may have been the hardest hit.

The average 25-year-old fully invested in a 2060 target-date fund series saw a 10% decline in account value from the market’s recent peak on July 17 through Monday’s close, according to Morningstar – close to the 10.96% decline of the S&P 500 over that period.

Meanwhile, the average 65-year-old set to retire this year and invested in a 2015 TDF series saw just a 5% decline.

Even if stocks continue to rebound in the days ahead, the experience of watching value shrink may be an eye-opener to new investors who might not have thought about their risk tolerance before.

Target-date funds are designed to adjust an investor’s risk as retirement age approaches, through what is called a glide path. The farther out the fund’s end date, the higher the stock allocation. Investors in 2060 funds have equity exposure ranging from 83% to 94%, says Janet Yang, director of multi-asset-class manager research at Morningstar. In the 2015 funds, aimed at workers who will be retiring very soon, average equity exposure is just 42%.

The popularity of these funds in retirement plans is surging. Vanguard reports that 88% of the 401(k) plans it serves offered TDFs last year, up 17% from 2009. Four out of 10 plan participants are wholly invested in a single TDF, Vanguard says, and 64% of participants use them to some extent.

Many young workers are now automatically enrolled in 401(k) plans and put into a default allocation that typically is a target-date fund.

On the plus side, especially for young and inexperienced investors, these funds seem to have handcuffed the worst investor behaviors, like frequent trading. Asset-weighted average investor returns in TDFs are 1.1 percentage points higher than the funds’ average total returns, according to a Morningstar study published earlier this year.

“Sometimes, ignoring your investments can be a good thing. You’re less likely to pull your money out after it loses 10%, and then you’re still invested when the rebound comes,” Yang says.

But how will younger auto-piloted investors – now experiencing their first wild market swings – handle the volatility?

“We’re defaulting millennials 90% into stocks without ever finding out what their tolerance for risk might be,” says Michael Kitces, founder of the XY Planning Network, a network of fee-only advisers specializing in serving Gen X and Gen Y clients. (Kitces also is a partner and director of research for Maryland-based Pinnacle Advisory Group, a wealth management firm).

Kitces worries that the current volatility will lead to adverse outcomes for young investors. “We’re taking people who don’t need to be that aggressive and given them more risk than they can tolerate. What we’re going to do is turn them into lifelong bond investors – and that will cause them problems 30 years from now,” he says.

There has been plenty of selling out of target-date funds this week. Aon Hewitt, which administers more than 500 defined-contribution plans covering more than 5.7 million workers in the United States, reports that trading activity on Monday was seven times the normal level, and it was one of the highest trading days on record. 30% of Monday’s selling came from TDFs – equal to the share that came out of large U.S. equity funds.

“That tells us that people are looking at TDFs the same as any other investment,” says Rob Austin, Aon Hewitt’s director of retirement research.

More Options

Default investor options for 401(k) plans, which are regulated by the U.S. Department of Labor under the Employee Retirement Income Security Act, are not limited to target date funds. The Labor Department also allows balanced funds and managed funds, which give workers professional one-on-one portfolio guidance.

Managed accounts also give workers a human being to talk with when things get scary – but just 3% of plan sponsors pick managed account services as a default option, according to a Towers Watson survey.

“When the market gets volatile, you don’t have someone to talk to if you’re in a TDF,” says Wei-Yin Hu, vice president of financial research at Financial Engines, one of the leading firms providing managed account services. “You can’t call your TDF and ask if your allocation is still right for you, or what you should do now that you’ve lost 10% in a downturn.”

Kitces urges target-date investors to assess their comfort with risk by taking a well-designed risk questionnaire like the one offered for $45 by Finametrica. If you are not comfortable with the level of risk in your TDF, consider shifting to a closer-date target series with less equity exposure.

“It’s not too late for young people to dial down their exposure to a level they can tolerate,” he says. “Make a change when things are down 10% instead of 40%. Things can get worse, and then you’ll make really non-rational, emotional decisions.”

MONEY Workplace

Seniors Want in on the Sharing Economy

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Franz Marc Frei—Getty Images

10% of Airbnb hosts are over 60 and nearly 25% of Uber drivers are over 50.

Five dollars may not sound like much pay for doing a job, but do not tell that to Brooke Folk.

At age 67, Folk spends up to 30 hours a week on projects generated through Fiverr.com, a shared-economy website that requires all its vendors to offer something to customers for just $5 and takes a 20% commission on earnings.

Folk, a former radio announcer and small business owner who lives near Pittsburgh, earns approximately $10,000 per year in supplemental income to his Social Security benefits on the site writing short stories and narrating scripts. He also sells – no surprise here – an ebook explaining how to succeed on Fiverr.

“When I first heard about it, I wondered if I should do something for $5, but what happens is you often upsell customers something additional. The most that I’ve billed an account is $1,300, and that’s a far cry from $5.”

More Americans than ever intend to keep working past traditional retirement age – whether it’s just to keep busy or because they need to financially – and entrepreneurship is becoming a more common alternative to full time jobs.

Entrepreneurs age 55-65 accounted for 26% of all startups last year, up from 15% in 1996, according to the Kauffman Index of Entrepreneurial Activity.

Fiverr may be a millennial-dominated platform with just 2% of sellers over the age of 55, but growth in vendors age 55-64 shot up 375% at the end of the second quarter this year compared with a year ago, according to the company.

Starting a business may sound like a risky investment of capital, but it does not have to be. A “micro-enterprise” – or side-gigging – can help retirees generate supplemental income without putting capital at risk and perhaps even enough to stall filing for Social Security or ease the pressure for drawdowns from retirement portfolios.

Folk is participating in an emerging online ecosystem that helps micro-entrepreneurs leverage their accumulated knowledge and experience. Other platforms include retail site Etsy.com (handmade and vintage items), and freelance marketplaces Guru.com and Freelancer.com.

But the action is not limited to the knowledge economy. For example, Airbnb recently noted that 10% of its hosts are over age 60.

Older Drivers

And AARP’s Life Reimagined – a program focused on guiding people through life transitions – recently announced a partnership with Uber aimed at recruiting older drivers. Life Reimagined has 1.4 million members; for Uber, the alliance is part of a strategy to hire hundreds of thousands of drivers as it works to meet surging demand for its service.

If driving strangers around in your own car for hours on end does not sound like an ideal retirement to you, AARP begs to differ. While it is not putting an age limit on applicants, AARP sees the Uber program as ideally suited to the younger end of its constituency – workers over 50 who have been sidelined by economic turbulence.

“The shared economy is offering people an opportunity to follow their hearts, have flexibility in their work, be empowered to make money and be their own bosses,” says Adam Sohn, vice president of strategic initiatives at Life Reimagined.

“And, for millions of people who are doing what they don’t love, or have been pushed out of precarious jobs and are having trouble fighting their way back into the workforce, this kind of work also can provide a transition to whatever is next.”

Microentrepreneurship certainly offers a path around the age discrimination that older workers face.

In an AARP study released earlier this year, more than half of older workers who lost jobs during the Great Recession said age discrimination had a significant impact on their ability to find new work. But in the gig economy, if you can get the job done, no one cares about your age.

Nearly 25% of Uber’s drivers are over age 50, according to a study commissioned by the company recently – and among new drivers with no previous professional driving experience, 39% are over 50. 3% were retired before driving for Uber, and 8% were unemployed; one in five drivers was employed in a temporary job.

Uber does not disclose data about the earnings of its drivers, but the report states that drivers are making $19 per hour on average.

MONEY Small Business

Better IRAs for Small Business Employees Are on the Way

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Luca Sage—Getty Images

Automated payroll deductions will make it easier for workers without access to a company 401(k) to save for retirement.

If you work for a small business that doesn’t have a retirement plan, help is on the way.

Roughly half of the U.S. states are working to create government-sponsored automatic individual retirement account (IRA) plans that would enroll workers without access to employer-sponsored retirement plans.

California, Illinois, Oregon and Washington state have taken the lead, passing legislation to launch Secure Choice Pension programs. California and Illinois both aim to begin enrolling workers in 2017.

Employees would contribute through payroll deductions to Secure Choice Pension accounts. The plan’s investments would be professionally managed, but no employer contributions would be required.

There is a regulatory sticking point, though: Will the plans be governed by the Employee Retirement Income Security Act (ERISA), the federal law that sets standards for private-sector pension plans?

Although IRAs are not covered by ERISA, the payroll deduction feature of Secure Choice Pension plans raises the question. Concerns about regulatory burdens for employers – and their possible fiduciary responsibilities under the plans – led states to include clauses in their enabling legislation stating that these pension plans would not proceed if they were deemed to be ERISA plans.

Now, the White House is getting behind the Secure Choice Pension initiative. President Barack Obama recently directed the U.S. Department of Labor to clear the path for states to create Secure Choice Pension plans by clarifying the ERISA issues. If new Labor Department rules are finalized before Obama leaves office at the end of next year – and that is a major unknown – some states will start offering their new retirement plans as early as 2017, and the ball could get rolling in many more states.

Obama’s move is a clear sign that his national auto-IRA initiative – which he has been asking Congress to approve since 2010 – is dead, and that the administration hopes to help at least a handful of states launch Secure Choice Pension plans before Obama leaves office. Regulatory red tape and foot-dragging could prevent that from happening.

“We’re being told that this is on a fast track, with a proposed regulation by this fall, and a final regulation by the end of this year – but that seems optimistic,” says Dan Reeves, chief of staff for California state Senator Kevin de León, sponsor of the California legislation.

Workers Struggle to Save

A quick execution of new rules is exactly what workers struggling to save for retirement need.

Ownership of various retirement plan accounts has been falling sharply. Just 40% of households owned any type of retirement account – IRA, 401(k) or traditional pension – in 2013, down from 48% in 2007, according to the Federal Reserve Board’s triennial Survey of Consumer Finances released last September.

The Center for Retirement Research at Boston College estimates that at any given point, only half of U.S. private-sector workers participate in a retirement plan. The largest coverage gaps can be found at small employers, who don’t want to deal with the cost or regulatory burden of administering 401(k) plans.

The states argue that fiduciary liability can be taken on by the boards governing the plans, and by third-party financial services companies that are hired to run them. California, the first state to pass Secure Choice Pension legislation, has been waiting for clarification on these issues for nearly three years now.

Labor Department officials have expressed concern about letting the plans proceed without the regulatory protections of ERISA, and the Obama administration preferred to focus on its own national auto-IRA plan.

“The (Department of Labor) has always viewed its job under ERISA as policing employers,” says Joshua Gotbaum, a guest scholar at the Brookings Institution who is the former director of the Pension Benefit Guaranty Corporation, the federally sponsored agency that insures private sector pensions. “So they have resisted moving from policing employers to policing financial service providers. That’s a necessary step in order to get to any Secure Choice plan.”

The nature of the new Labor Department rule will be critical to the success of Secure Choice Pension plans. The regulators could simply state that a payroll deduction plan isn’t subject to ERISA; a much better outcome would be a more expansive approval that gives states a range of options.

The Department of Labor declined to comment.

Says Gotbaum, “What I hope they’ll do is declare that these are multi-employer 401(k) plans, that they can even be defined benefit plans and that the employers won’t be considered fiduciaries just by participating.”

 

MONEY Opinion

Medicare Is Part of the Solution to Rising Health Care Costs

Democratic House Leader Nancy Pelosi Marks 50th Anniversary Of Medicare And Medicaid With Senate And House Lawmakers
Astrid Riecken—Getty Images Seniors listen to Democratic House Leader Nancy Pelosi mark the 50th Anniversary of Medicare and Medicaid on Capitol Hill on July 29, 2015 in Washington, DC. Pelosi was joined by Senate and House lawmakers who oppose any cuts to the important program for seniors.

The health insurance program's massive size gives it the power to set prices that providers will accept.

Medicare turns 50 on Thursday, riding high in the polls but under attack from presidential candidates proposing benefit cuts or even phasing out the U.S. healthcare program for older people.

When President Lyndon Johnson signed the law, half of Americans age 65 or older had no health insurance. Today, just 2% go uncovered.

And the public really, really likes Medicare, which last year covered 54 million Americans. A poll released earlier this month by the Kaiser Family Foundation found strong support across political party lines for Medicare and Medicaid, which insures low-income Americans and became law alongside Medicare.

But Medicare still sticks in the craw of conservatives.

“We need to figure out a way to phase out this program for (people who are not already receiving benefits) and move to a new system that allows them to have something, because they’re not going to have anything,” Republican presidential contender Jeb Bush told an audience of conservatives in New Hampshire last week.

Bush later tried to walk back his comment, but he is not alone in his desire to euthanize Medicare just as it hits midlife.

Fellow Republican presidential candidate Chris Christie has proposed raising the eligibility age for Medicare and Social Security to 69.

Beyond all the noise lies an important question: how to best pay for health care for our aging population.

In 2050, the 65-and-older population will reach 83.7 million, almost double what it was in 2012, according to the U.S. Census Bureau. That, along with rising healthcare costs, means Medicare will account for a rising share of the federal budget in the years ahead.

The line of attack against Medicare is that its finances are not sustainable, but what we really have is a healthcare cost problem, not a Medicare problem.

The program is funded through two trust funds.

The Hospital Insurance fund, which finances Medicare’s Part A hospital benefits, receives money mainly from the 1.45% payroll tax that employees pay and employers match. This fund is projected to run dry in 2030, leaving Medicare able to meet only 85% of that part of the program’s costs.

Meanwhile, the Supplementary Medical Insurance trust fund finances outpatient services and the Part D prescription drug program. It gets 75% of its funding from general tax revenues and 25% from yearly premiums that beneficiaries pay. It will stay solvent because contributions are reset annually to match anticipated spending, but that is expected to put more pressure on government and household budgets in the years ahead, especially if healthcare inflation takes off.

Medicare actually does a better job of restraining spending growth than private health insurance because its massive size gives it the power to set prices that providers will accept. And the Affordable Care Act mandated constraints in provider payments that have been paying off.

Medicare spending has been slowing in recent years. Reflecting that, the annual Part B (outpatient services) premium has been flat at $104.90 for the past three years.

Medicare’s trustees projected last week that the program’s total spending as a percent of the gross domestic product would rise from 3.5% to 5.4% in 2035. That is “not nothing, but neither is it insurmountable,” says Jared Bernstein, an economist and senior fellow at the Center on Budget and Policy Priorities.

The gap can be closed through efficiencies. We could change the law to allow the government to negotiate drug prices with pharmaceutical companies, for example. Or a small increase in the Medicare payroll tax from 1.45% to 1.8% would do the trick.

The conservative plan, however, is to reduce the value of Medicare’s benefits. That can be done by raising the eligibility age, effectively a lifetime benefit cut, or by replacing the program’s set of defined benefits with something called “premium support.”

With that, people would receive a voucher that they could use to purchase private insurance plans. Bush was showcasing that idea in his New Hampshire remarks.

A phase-out or redesign of Medicare will mean higher out-of-pocket costs in a program where the median income of enrollees is just $23,500 per year.

“These folks would unquestionably be worse off in the absence of Medicare,” Bernstein said.

Instead, we should continue working on reforming the delivery of care and negotiate savings with pharmaceutical companies.

And we should wish our most important health insurance program a happy birthday. Medicare, you are part of the solution, not the problem.

Read next: Medicare Turns 50 But Big Challenges Await

MONEY Medicare

Why You Should See a Dentist Before You Retire

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Peter Dazeley—Getty Images

Most seniors pay for dental care out of pocket.

If you plan to retire soon, add this item to your to-do list: a visit to the dentist before your dental insurance disappears.

Retirees transitioning to Medicare are often surprised to learn that the program does not cover routine dental care or more complex procedures.

Overall, 40% of the 65-plus population has some form of dental benefit, according to the National Association of Dental Plans. For seniors who use Medicare Advantage managed care plans, about half offer very limited coverage for cleanings and exams. A small percentage of seniors have dental insurance from a former employer, and Medicaid covers dental care for low-income residents in some states, although benefits vary. Some buy individual commercial plans or have coverage through an association such as AARP.

But most seniors just pay for dental care out of pocket – the mean expense for Americans age 65 and older was $870 in 2012, according to the Agency for Healthcare Research and Quality, a research arm of the U.S. Department of Health and Human Services.

The costs can be far higher for more complex procedures. The average cost of a crown in New York City is $2,500; a periodontal procedure in Los Angeles costs $1,700, according to Fairhealthconsumer.org, a service that tracks prices of healthcare and health insurance.

Those numbers help explain why 34% of seniors had not seen a dentist in two years in 2010, and 22% had gone without care for the past five years, according to the Kaiser Family Foundation (KFF).

“Dental care is conspicuously absent from the health care coverage for older adults,” says Dora Fisher, director of older adult programs at Oral Care America, a nonprofit group that advocates for better oral health.

Medicare celebrates its 50th anniversary later this month, and adding basic dental coverage is on the wish list of many health policy experts reflecting on the program’s future.

Research shows clear links between poor oral health, diabetes and heart disease. One out of four Medicare beneficiaries has edentulism – that is, they no longer have any of their natural teeth, according to KFF; that can cause other health issues, such as nutritional deficiencies and problems with speech.

Pricing Options

Premiums for private plans, are reasonable – PPO plans cost around $15 per month, Ireland says. But individual coverage is not as robust as group dental plans. “Most have waiting periods before coverage for major procedures begins, and the dollar caps on coverage may be lower,” she says.

Ireland adds that dental insurers have been negotiating with the federal government to offer individual standalone dental plans (independent of health insurance) through the Affordable Care Act insurance exchanges, and she hopes expanded offerings will start showing up in 2016 or 2017.

Dental plans are available on many exchanges now, but they can only be purchased along with general health insurance. That effectively cuts out seniors, who are covered by Medicare.

Consumer advocates are pushing for Medicare to pay for dental care made necessary by other procedures that the program does cover. The Center for Medicare Advocacy (CMA), a non-profit legal organization, has filed lawsuits on behalf of cancer patients who have been denied coverage for dental procedures made necessary due to aggressive radiation of the head and neck.

“Medicare covers what happens to the patient’s eyes even though it doesn’t provide routine eye care – but there’s no coverage for this type of extreme dental care, and people are ending up in the hospital with infections,” says Margaret Murphy, an associate director and attorney with CMA. The Centers for Medicare and Medicaid Services did not respond to requests for comment.

The litigation has not been successful so far, but CMA has not given up. “We’re trying to figure out where to go with it next,” Murphy says.

MONEY Opinion

4 Agenda Items Missing From Monday’s White House Conference on Aging

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Getty Images

The agenda for the July 13th conference overlooks some of the most pressing issues facing seniors today.

When presidents call Americans together to talk about aging, major change is possible. The first White House Conference on Aging in 1961 played a midwife’s role in the birth of Medicare; the 1971 conference led to creation of the automatic cost-of-living adjustment for Social Security, which has been in place since 1975.

This year’s conference, set for Monday, July 13, could have similar impact in a country facing the challenges of a rapidly aging population.

Unfortunately, I’m not optimistic that this year’s summit will be as productive as past ones have been. While I’d love to be proven wrong, the agenda overlooks too many important issues: rapid diversification of our older population, retirement inequality and assigning a bigger role to Social Security, and finding a way to protect pensions and Medicare.

Also, a failure by Congress to fund the event forced a sharp downsizing, limiting the number of voices that will be heard.

All in all, it’s shaping up as a missed opportunity at a time when aging in America is a growing challenge. In 2050, the 65-and-older population will be 83.7 million, almost double what it was in 2012, according to the U.S. Census Bureau.

Four broad topics will be considered: retirement security, healthy aging, preventing elder financial exploitation and abuse, and long-term services and supports. All are important, but much of the agenda reads like a rehash of ideas the Obama administration has been promoting for years, especially in the area of retirement security.

“The White House can always get a bunch of people together to talk about its own initiatives, but that isn’t the idea behind the conference on aging,” said Paul Kleyman, a longtime observer of trends in aging who was a delegate to the 1995 aging conference hosted by President Bill Clinton. “They’re using a talking points format to say ‘Here’s what we think and want to do,’ without really taking in and assessing what an aging nation is saying needs to be done.”

On the plus side, the agenda highlights the need to eliminate conflicted financial advice, and includes questions about how to better promote healthy aging.

Also up for discussion is how to help people age in place. A recent report from the National Association of Area Agencies on Aging (n4a) found that the biggest challenges seniors face concern inadequate transportation, living independently and finding affordable housing.

“The most frequent calls for help that we hear concern aging at home and staying in the community,” said Sandy Markwood, n4a’s chief executive officer. “That is the goal of most individuals. Rarely do we hear anyone saying, ‘I just can’t wait to go into an institutional setting.’ ”

But so much is missing. For starters, the rising importance of ethnic, non-white and LGBT elders. Kleyman, who directs coverage of ethnic elders at New America Media, noted that the percentage of ethnic and non-white elderly in the 65-plus population will double by 2050, to 42 percent. LGBT seniors, while smaller in total numbers, face discrimination in housing and healthcare.

Longevity Inequality

Another omitted topic: the pressing moral issue of inequality in longevity. White men with 16 or more years of schooling live an average of 14 years longer than black men with fewer than 12 years of education, according to the Centers for Disease Control.

Racial and gender and racial disparities also are evident in wealth and retirement income, another issue that gets short shrift. Instead, we get a rehash of ideas the Obama Administration has been hawking for years now: auto-IRAs at the federal and state levels, better access to workplace saving plan enrollment and simplified requirement minimum distribution rules.

The discussion of Social Security looks like it will be especially disappointing. The policy brief embraces generalities about “strengthening Social Security” without mentioning the boldest, smartest idea being advanced by the left flank of the President’s own party: expansion of benefits focused on low- and middle-class households. Finding ways to protect traditional pensions? Preserving Medicare as a defined benefit, and defending it against voucherization? Those are nowhere to be found.

The conference should be talking about the upside of aging, along with ways to encourage trends such as encore careers by fighting age discrimination in hiring, getting more employers to support phased retirement and re-thinking how higher education can serve older adults.

Plenty of advocates would like to raise these issues, but most won’t be present due to the funding constraints. Actual delegates will be replaced by an audience of hand-picked dignitaries; everyone else will be relegated to watch parties and submitting questions via social media.

So, let’s get the party started: @whitehouse. Take a wider, more inclusive view of aging in America.

MONEY retirement income

New Annuity Options Let You Plan Around Life’s Biggest Unknowns

Longevity annuities can ensure your money lasts a lifetime—and now they can reduce required minimum distributions too.

How much money you will need to save to enjoy a secure retirement depends on the ultimate unknowable: How long will you live?

The possibility of running short is called longevity risk, and the Obama administration last year established rules to foster a new type of annuity, the Qualified Longevity Annuity Contract, that would provide a steady monthly payment until you die.

QLACs are a variation on a broader product category called deferred income annuities, which let buyers pay an initial premium or make a series of scheduled payments and set a future date to start receiving income. Deferred annuities are less expensive to buy than immediate annuities, which start paying out monthly as soon as you purchase them.

You can purchase the plans at or near your retirement age, typically 70, with payouts starting much later, usually at 80 or 85.

The advantage of these QLAC plans is that they provide some guaranteed regular income until death, so they can supplement Social Security. And the deferred feature allows you to generate much more income per dollar invested.

For example, Principal Financial Group Inc, which introduced a QLAC for individual retirement accounts in February, says an $80,000 policy purchased at age 70 will generate $12,840 annually for a man and $11,490 for a woman at age 80. An immediate annuity would provide $6,144 for the 70-year-old man and $5,748 for the woman, according to Immediateannuities.com.

Despite the benefits, annuities have lagged in popularity. The White House thought it could encourage more people to buy deferred annuities if they could be purchased and held inside tax-deferred IRAs and 401(k) plans.

The problem it had to fix was that required minimum distributions mean that 401(k) and IRA participants must start taking withdrawals at age 70 1/2, which conflicts with the later payout dates of longevity annuities.

The new rules state that if a longevity annuity meets certain requirements, the distribution requirement is waived on the contract value (which cannot exceed $125,000 or 25% of the buyer’s account balance, whichever is less).

That not only makes a deferred annuity possible inside a tax-deferred plan, it also can encourage their use for anyone interested in reducing the total amount of savings subject to mandatory distributions.

Sixteen insurance companies are now selling QLAC variations, up from just four in 2012. At Principal Financial, QLACs now account for roughly 10% of all deferred annuities, with the average buyer close to age 70, according to Sara Wiener, assistant vice president of annuities.

Employer sponsors of 401(k) plans are showing more interest in adding income options to their plans, but they have been slow to add annuity options. Still, MetLife Inc is one insurance company testing this market, with a 401(k) product introduced last month.

“If you go back 40 years to the time when defined contribution plans were in their infancy, they were seen as companion savings plans to pensions,” says Roberta Rafaloff, MetLife vice president of institutional income annuities.

“Plan sponsors didn’t think of them as a plan for generating income streams until recently,” she said. “Now they’re taking a much more active interest in retirement income.”

All this still constitutes a small part of a shrinking pie. Sales for all annuity types have been falling in recent years due in part to persistently low interest rates, which determine payouts.

“It’s going to take time for consumers to understand the value of addressing longevity risk,” says Todd Giesing, senior annuity analyst at industry research and consulting group LIMRA. “But we’re hearing from insurance companies that it’s creating a great deal of conversation in the market.”

Read next: Which Generates More Retirement Income—Annuities or Portfolio Withdrawals?

MONEY Social Security

Can You Pass This Retirement Quiz?

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Carl Smith—Getty Images/fStop

If so, you're in the minority of Americans who know the right answers.

Ready for a quick quiz on how Social Security benefits work?

You should ace it. After all, Social Security is the most important retirement benefit for most Americans, and understanding the rules is critical for getting the most out of the program.

So here we go with a few questions:

  1. At what age can you receive your full benefit?
  2. Can you keep working while collecting a full benefit?
  3. If you are divorced, can you collect a benefit based on your ex-spouse’s earning history?
  4. Can you receive a benefit even if you are not a U.S. citizen?

Only 28% of Americans can give enough correct answers to questions like these to get a passing grade, according to a new survey by Massachusetts Mutual Life Insurance Co.

Just one in 1,500 respondents correctly answered all 12 questions, and only 38% got more than half of the answers right.

The findings are disturbing. 90% of Americans over age 65 receive Social Security benefits, and, for 65%, the program provides more than half of total income, according to the National Academy of Social Insurance. For 36%, Social Security is the entire retirement income ballgame.

“We didn’t expect everyone to get a 100% score, but what shocked us was that only 28% got a passing grade,” said Michael R. Fanning, executive vice president of MassMutual’s U.S. Insurance Group.

The silver lining is that the retirement industry has ramped up efforts to educate workers about Social Security. Information and tools about benefits are cropping up in many workplace 401(k) plans, and much media coverage of the program has shifted of late away from political rants to useful information.

So how did you do? Here are the answers:

Full Benefit Age

Most people got this wrong. Some 71% of respondents think 65 is still the full retirement age for Social Security. But it is 66 for today’s retirees and will be 67 for people retiring in 2022.

Only 57% of respondents were aware that the timing of their claim affects the monthly benefit amount.

Working While Receiving Benefits

Slightly more than half missed this one, believing people can continue to work while collecting a full Social Security retirement benefit. But that is true only if you have reached your full retirement age.

This year, an early Social Security filer with income of more than $15,720 from work (employment or self-employment) will pay a penalty. One dollar will be deducted from benefit payments for every $2 earned above that limit.

Collect From an Ex-Spouse

Just 45% think that it is possible to claim a benefit on the record of an ex-spouse. They are correct, and it does not matter if that ex-spouse has remarried.

This can boost benefits dramatically, since spousal and survivor benefits are among the most valuable features of Social Security.

You can claim half of an ex-spouse’s benefit if you are at full retirement age (currently 66), had been married for at least 10 years, and if that benefit works out to be higher than your own. You are entitled to 100 percent of a deceased ex-spouse’s benefit .

Citizenship

Three-quarters of survey respondents think that being an American citizen is necessary to receive Social Security retirement benefits. But the main eligibility requirement to receive benefits is paying into the system.

You must have contributed payroll taxes for a cumulative total of at least 40 quarters (10 years). Along with citizens, individuals who are “lawfully present” in the United States, including permanent residents, refugees and asylum seekers, are eligible for benefits.

Read next: Why Retiring Early May Be More Affordable Than You Think

MONEY

6 Questions to Ask Before Switching to Medicare

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Robert A. Di Ieso, Jr.

Knowing the answers will help you avoid costly mistakes and coverage gaps.

The hand-off from employer health insurance to Medicare can be one of the trickiest challenges you will face in managing your retirement.

The rules are full of pitfalls that can cost you thousands of dollars in unnecessary premiums or lead to a risky gap in coverage.

Here are the six most frequent questions I get about the work-to-Medicare transition:

1. Is the Medicare enrollment process automatic?

A: Only if you have already claimed Social Security benefits by the time you turn 65, which is the Medicare eligibility age.

If not, Medicare requires you to sign up in a seven-month window before and after your 65th birthday, unless you have employer coverage or through your spouse.

Failing to sign up when required is costly. Monthly Part B premiums, which cover doctor visits and medical supplies, jump 10 percent – lifetime – for each full 12-month period that you should have been enrolled. Penalties also are applied for late enrollment in Part D (prescription drugs).

If you retire after 65, you can take advantage of an eight-month special enrollment period that begins the month after employment ends.

2. Should I enroll in Medicare even if I am offered COBRA health insurance when I leave my job?

A: Yes. Although you might need COBRA to cover a spouse or dependent child, Medicare must be your primary insurance coverage once you are over age 65.

“People often miss that memo and find out about the consequences in a nasty way,” says Katy Votava, president of Goodcare.com, which advises consumers on health plan selection.

Besides leading to penalties, missing the special enrollment window could mean going with nothing but COBRA, which provides limited coverage to retirees, until the next enrollment period, which could be a year away.

3. What if I am still working when I turn 65?

A: If your employer has fewer than 20 insurance-eligible workers, Medicare will be your primary coverage, so go ahead and enroll.

You can stick with your employer’s coverage and forestall Medicare enrollment if your employer has 20 or more insurance-eligible workers. The insurance must be similar to Medicare benefits as measured by a set of standards set by the program.

You also could enroll in Medicare, which would provide secondary coverage to fill gaps in your employer’s plan.

One caveat: Do not enroll if you contribute to a Health Savings Account linked to a high-deductible employer plan. You are prohibited from making further contributions to the HSA once enrolled in Medicare.

4. What if I want to execute a file-and-suspend strategy for Social Security? Could I contribute to an HSA in that situation?

A: No. Claiming Social Security benefits automatically triggers enrollment in Medicare Part A, which covers hospital and nursing home stays. That would still be true if you file and suspend your benefits while still working and participating in a high-deductible employer health insurance plan.

5. Do I sign up for Medicare when I retire if my former employer provides a retiree health benefit?

A: Even if your former employer offers a retiree health benefit, it is important to sign up for Medicare at age 65 to avoid penalties and coverage gaps. Employer-provided benefits usually provide a secondary layer of coverage – often covering co-pays or providing a drug benefit.

The key to coordinating the two insurance plans: “Understand who pays first,” says Votava.

But Votava says retirees should compare the cost of retiree coverage with what is available on the open Medicare market. “I often see people holding on to retiree coverage when it’s not the best value for them.”

This is especially true for with supplemental plans that cap out-of-pocket costs, either Medigap or Medicare Advantage. “I’ve had clients find much less expensive Medigap or Medicare Advantage policies with equal or better coverage,” Votava says.

6. What if I retire, enroll in Medicare and then go back into a full-time job?

A: If your new employer provides health insurance, you can drop Medicare and re-enroll when you finally retire without paying late enrollment penalties.

Call the Social Security Administration (1-800-772-1213), which will send a form to sign that creates a record of what you are doing. The paper trail is important because it helps you avoid late enrollment penalties when you return to Medicare.

MONEY Opinion

How to Use Social Security to Fix Retirement Inequality

Social Security's retirement and disability trust funds are expected to run out in 2033.

Americans need bigger retirement nest eggs, there is no doubt about that. More than half of us have saved less than $25,000, according to the Employee Benefit Research Institute.

Policy experts often point to such figures to underscore the looming retirement security crisis, and proposals have been flying this year from Republicans and Democrats alike for ways to encourage people to sock away more money.

Just one problem: Middle- and lower-income households often do not earn enough to save meaningful amounts due to decades of stagnant wage growth, job insecurity and the rising costs of housing and healthcare.

Only high-income households have managed to build significant savings, and the Center for Retirement Research at Boston College says 52 percent of today’s working-age households face the shock of declining living standards in retirement.

In other words, income inequality is translating into retirement inequality.

Here is a better option: Expand Social Security benefits to help people who need it most.

“If you have a dollar to spend on retirement security, it’s much better to spend it on Social Security than by spreading it out along tax brackets to incent retirement savings,” says Ben Vegthe, research director of the Social Security Works advocacy group.

Vegthe makes the case for using Social Security to address retirement inequality in a persuasive research paper set for publication in the June issue of the journal Poverty and Public Policy. He recommends expanding benefits and funding the cost primarily by scrapping the cap on wages subject to payroll taxes ($118,500 this year).

He would also add a 6.2 percent tax on investment income (equivalent to the current individual payroll tax rate) and restore the estate tax to where it was in 2000. At that time, estates worth $1 million were exempted (compared with $5.4 million this year), and the top marginal tax rate was 55 percent (compared with 40 percent this year).

Those changes would eliminate the funding shortfall now facing Social Security. The combined retirement and disability trust funds are projected to run out in 2033, when retirement benefits would have to be cut by 25 percent across the board.

Vegthe estimates that one-third of the shortfall is due to slow and unequal wage growth in the economy.

By law, Social Security taxes should be levied on 90 percent of the country’s wage base, and that was the case in 1984 after the last round of major reforms were enacted. But today, 17.5 percent of taxable earnings fall above the maximum, according to Social Security Administration data.

Equally important, the tax hikes could also fund expansion. What would that look like? Now-retired Iowa Senator Tom Harkin, a Democrat, last year proposed boosting benefits across the board by about $72 per month, and his proposal is expected to be introduced in the Senate again this year. Social Security Works has called for a 10 percent across-the-board raise, up to a maximum increase of $150 per month.

Either of those plans would primarily help lower- and middle-income workers because the Social Security benefit formula already replaces a larger share of earnings for those households than for high earners. The Harkin plan would give an extra boost to benefits for the lowest-income group.

Some lawmakers are actually aiming to cut Social Security benefits as part of a broader deal to rescue the program’s ailing disability insurance fund. But others are focused on encouraging saving, and some useful ideas have been proposed.

Representative Joe Crowley, a Democrat from New York, has proposed a Roth-style retirement saving account that every child would receive at birth, seeded with a $500 government contribution, and expanded child tax credits for additional contributions by parents.

Republican Senator Orrin Hatch from Utah has proposed a Starter 401(k) for small businesses that would allow employees under age 50 to save up to $8,000, much more than the $5,000 limit on individual retirement accounts.

Senators Susan Collins, a Republican from Maine, and Bill Nelson, a Democrat from Florida, have introduced legislation that would make it easier for smaller businesses to cut administrative costs by forming multiple-employer 401(k)-style plans.

But ideas like these would probably benefit mainly upper-income people.

An analysis of Federal Reserve data by the Center for Retirement Research found that in 2013, pre-retirement households (age 55-64) with annual income below $39,000 had median total retirement savings of $13,000 in 401(k) and IRA accounts; middle-class households (income from $61,000 to $100,000) had median savings of $100,000. Only in the highest-income band ($138,000 or more) were accumulations significant at a median of $452,000.

Perhaps there is a bipartisan deal to be had: Expand savings options and Social Security at the same time.

I am convinced Social Security expansion offers the best path to addressing the retirement crisis, but why not try both approaches and find out which delivers the goods?

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