MONEY financial advisers

Proposed Retiree Safeguard Is Long Overdue

businessman putting money into his suit jacket pocket
Jan Stromme—Getty Images

The financial-advice regulations pushed by the Obama administration will save retirees, on average, an estimated $12,000.

When you are planning for retirement and ask for advice, whose interest should come first — yours or the financial expert you ask for help?

That is the question at the heart of a Washington debate over the unsexy-sounding term “fiduciary standard.” Simply put, it is a legal responsibility requiring an adviser to put the best interest of a client ahead of all else.

The issue has been kicking around Washington ever since the financial crisis, and it took a dramatic turn on Monday when President Barack Obama gave a very public embrace to an expanded set of fiduciary rules. In a speech at AARP, the president endorsed rules proposed by the Department of Labor that would require everyone giving retirement investment advice to adhere to a fiduciary standard.

The president’s decision to embrace and elevate fiduciary reform into a major policy move is huge.

“The White House knows that this is the most significant action it can take to promote retirement security without legislation,” said Cristina Martin Firvida, director of financial security and consumer affairs at AARP, which has been pushing for adoption of the new fiduciary rules.

Today, financial planning advice comes in two flavors. Registered investment advisors (RIAs) are required to meet a fiduciary standard. Most everyone else you would encounter in this sphere — stockbrokers, broker-dealer representatives and people who sell financial products for banks or insurance companies — adhere to a weaker standard where they are allowed to put themselves first.

“Most people don’t know the difference,” said Christopher Jones, chief investment officer of Financial Engines, a large RIA firm that provides fiduciary financial advice to workers in 401(k) plans.

The difference can be huge for your retirement outcome. A report issued this month by the President’s Council of Economic Advisers found that retirement savers receiving conflicted advice earn about 1 percentage point less in returns, with an aggregate loss of $17 billion annually.

The report pays special attention to the huge market of rollovers from workplace 401(k)s to individual retirement accounts — transfers which often occur when workers retire. Nine of 10 new IRAs are rollovers, according to the Investment Company Institute mutual fund trade group. The CEA report estimates that $300 billion is rolled over annually, and the figures are accelerating along with baby-boom-generation retirements.

The CEA report estimates a worker receiving conflicted advice would lose about 12% of the account’s value over a 30-year period of drawdowns. Since the average IRA rollover for near-retirees is just over $100,000, that translates into a $12,000 loss.

What constitutes conflicted advice? Plan sponsors — employers — have a fiduciary responsibility to act in participants’ best interest. But many small 401(k) plans hire plan recordkeepers and advisers who are not fiduciaries. They are free to pitch expensive mutual funds and annuity products, and industry data consistently shows that small plans have higher cost and lower rates of return than big, well-managed plans.

The rollover market also is rife with abuse, often starting with the advice to roll over in the first place. Participants in well-constructed, low-fee 401(k)s most often would do better leaving their money where it is at retirement; IRA expenses run 0.25 to 0.30 percentage points higher than 401(k)s, according to the U.S. Government Accountability Office. Yet the big mutual fund companies blitz savers with cash come-ons, and, as I wrote recently, very few of their “advisers” ask customers the basic questions that would determine whether a rollover is in order.

The industry makes the Orwellian argument that a fiduciary standard will make it impossible for the industry to offer cost-effective assistance to the middle class. But that argument ignores the innovations in technology and business practices that already are shaking up the industry with low-cost advice options.

How effective will the new rules be? The devil will be in the details. Any changes are still a little far off: TheDepartment of Labor is expected to publish the new rules in a few months — a timetable that already is under attack by industry opponents as lacking a duly deliberative process.

Enough, already. This debate has been kicking around since the financial crisis, and an expanded fiduciary is long overdue.

MONEY Savings

Retirement Savers, Don’t Count on Washington to Protect You

Regulations that would protect the interests of retirement savers are finally gaining traction in Washington. But don't pop the champagne corks just yet.

After years of talk about how to protect retirement savers, the White House has gotten behind a Labor Department proposal that would require financial advisers to put clients’ interests ahead of their own.

Consumer champion Sen. Elizabeth Warren, who says she is not running for president, is doing wall-to-wall media on her view that the government should do more to regulate providers of 401(k) plans, 403(b) plans and individual retirement accounts.

The Supreme Court heard arguments on Tuesday in a case challenging high 401(k) fees.

But savers should not pop champagne corks yet. It takes forever and a day to legislate and regulate in Washington. Even if it ends up on a fast track, the Labor Department’s draft rule is expected to leave a loophole big enough to drive the brokerage industry through.

Labor Department officials have said it would allow retirement advisers to continue selling investments on commission, as long as they disclosed that to clients.

There are several issues involved in regulating retirement investment advice. A primary one is the quality of 401(k) and 403(b) plans. Employers, who have a fiduciary responsibility to provide good plans to their employees, often hand over program management to consultants, who can keep program costs to employers low and jack up investment fees that workers pay when they buy funds in their plans.

A second issue involves the quality of advice investors get on their individual retirement accounts. If the advice is from brokers, there is a possibility investors are being put into mutual funds that carry higher fees than are optimal for them or are in other ways being put into funds that are not right for them. Higher fees may compensate brokers who are paid by commission or may compensate fund companies that spend the extra cash in ways that benefit the brokerage firms that offer their funds. That can result in investment advice that is conflicted.

After years of lobbying by the brokerage industry, the Labor Department is leaning toward a rule that would allow conflicts, such as commissions and fund company payments to brokerages, as long as they were disclosed. So investors take note: you are eventually going to have to read all the small print, so you might as well start now.

Here’s how to protect your retirement savings:

Check your 401(k) plan. Numerous large employers have spent big bucks to settle class action lawsuits focused on mutual fund fees in retirement plans, and fees have fallen. Average annual management fees of 401(k) funds are below 0.5 percent at large companies and below 1 percent at small companies. If your company’s fund choices are out of line, talk to your human resources department. If your only choices are substandard funds and high fees, put only enough in your 401(k) to get the employer matching contributions, and then invest additional funds in a personal IRA or Roth IRA.

Choose inexpensive mutual funds. Investing in low cost index funds instead of costlier actively managed funds will put you ahead. A person earning $75,000 a year who starts saving at age 25 would spend $104,033 in fees over a lifetime if fees were capped at 0.25 percent of assets annually. At 1.3 percent, that same worker would spend $409,202, according to the Center for American Progress. That extra $305,169 could support roughly $1,000 a month for life in extra retirement income.

Separate advice from your investments. If you want help figuring out which funds to invest in, pay a fee-only financial adviser, do not depend on “free” advice from a commissioned broker. You can get inexpensive advice from big fund companies like Vanguard, Fidelity Investments, and T Rowe Price, or from so-called “robo advisers” like Wealthfront or Betterment.

Be especially careful about rollovers. When you leave a job, you typically have the right to keep your money invested in your 401(k), an excellent choice if you work for a company that provides good funds within the plan. Or you can roll it over into a so-called “Rollover IRA” at any brokerage or fund company. Choose a low-fee fund company or discount brokerage that will enable you to choose your own investments from a large pool of individual stocks and inexpensive funds, and buy only the advice you need.

MONEY IRAs

This Innovative Idea Could Improve Your Retirement

State governments are starting to step in to help workers save. Here's why that's a good thing.

A rare innovation in retirement saving is taking shape right now in, of all places, Illinois. In January the state became the first to okay an automatic IRA for workers at certain small businesses that don’t offer retirement plans. Those companies will be required to funnel 3% of their employees’ paychecks into a state-run Roth IRA, though workers can opt out.

It may seem surprising that Illinois is breaking ground in this area—after all, the state’s pension plans are among the worst funded in the nation. But Illinois is actually part of a broad movement. Some 30 states, including California and Connecticut, are developing similar savings programs. Says Sarah Mysiewicz Gill, senior legislative representative at AARP: “We’re reaching a critical mass of states.”

A Local Approach

Why are states taking on retirement planning? Half of private-sector employees don’t have an employer plan—a crucial tool for building a nest egg. In fact, just having access to a retirement plan through work makes a huge difference in whether you save. While 90% of those with a workplace plan have put aside money for retirement, only 20% of those without one have, according to the Employee Benefit Research Institute.

So states will face a huge drain on their budgets as workers with no savings reach retirement and need services such as Medicaid and food assistance. “If Washington were moving faster on this, the states wouldn’t have to,” says Illinois state senator Daniel Biss, who sponsored the new IRA.

No question, Congress has long dodged addressing the looming retirement crisis; it has failed to fix Social Security or create a federal automatic IRA, which President Obama proposed again in his most recent State of the Union address. Obama did introduce the myRA last year, which will allow savers without employer plans to put away as much as $15,000 in Treasury securities. But without auto-enrollment, the myRA’s effectiveness will be limited.

The Illinois program may prove to be an appealing prototype. (First it will need approval by the Department of Labor and IRS.) Still, each state is crafting its own version. In Connecticut, the automatic IRA may be paid out as a lifetime annuity or in a lump sum. Indiana is looking at setting up a voluntary plan with a tax credit. “States are a great laboratory for experimentation,” says Kathleen Kennedy Townsend, founder of Georgetown University’s Center for Retirement Initiatives.

Reason to Hope

Of course, it’s far from certain that state savings plans will make much headway: at 3%, Illinois’s minimum contribution is far below the 10% to 15% of pay that retirement experts generally recommend. And a hodgepodge of state IRAs would be less efficient and more costly than a national plan.

That said, states can sometimes get it right. State-run 529 college savings plans have helped countless families with tuition bills. The Massachusetts health care plan was a model for the national plan that has meant coverage for millions. Perhaps the states’ efforts will push retirement savings higher up the federal government’s priority list. If Illinois can lead the way on retirement, anything’s possible.

 

MONEY Markets

What the Greek Crisis Means for Your Money

Global markets seem safe enough for now, but a so-called “Grexit” could have unpredictable effects.

As government officials in Greece and the rest of the European Union continue to haggle over the terms of its bailout agreement, you may be wondering: Does this have anything to do with me?

If you are investing in a retirement account like a 401(k) or an IRA, the answer is likely “yes.” About a third of holdings in a fairly typical target-date mutual fund, like Vanguard Target Retirement 2035, are in foreign stocks. Funds like this, which hold a mix of stocks and bonds, are popular choices in 401(k)s.

Of those foreign stocks, only a small number are Greek companies. Vanguard Total International Stock (which the 2035 fund holds), for example, has only about 0.1% of assets in Greek companies. But about 20% of the foreign holdings in a typical target date fund are in euro-member countries, and if Greece leaves the euro, that could affect the whole continent.

What’s the worst that could happen? For one, investors and citizens in some troubled economies like Spain and Italy could start pulling their euros out of banks. Also, borrowing costs could go up, and that could hurt economic growth and weigh down stock prices. And if fear of European instability drives investors to seek out safe assets like U.S. Treasuries, then bond yields and interest rates could keep staying at their unusually low levels.

There are some market watchers who see a potential upside to the conflict over Greece, however.

“If you believe the euro is an average of its currencies, it could actually rise if Greece leaves,” says BMO Private Bank chief investment officer Jack Ablin. A higher euro would make European stocks more valuable in dollar terms.

Additionally, he says, if Athens is thrown into pandemonium, then it’s actually less likely other countries will want to follow Greece out of the currency union.

The Greek situation will also have an impact on the bond market. If fear of European instability drives investors to seek out safe assets like U.S. Treasuries, then many bond funds will do well, and yields and interest rates would stay at their unusually low levels.

Perhaps the most insidious thing right now, says Ablin, is uncertainty. Again, a Greek exit from the euro would be unprecedented, and that makes the effect unpredictable—and potentially very scary for the global market. So investors would be wise to keep in mind the possibility of “black swans,” a term coined by statistician Nassim Taleb to describe market events that seem unimaginable (like black swans used to be) until they actually occur.

MONEY IRAs

The Retirement Investing Mistake You Don’t Know You’re Making

The investor rush to beat the April 15 deadline for IRA contributions often leads to bad decisions. Here's how to keep your investments growing.

It happens every year around this time: the rush by investors to make 11th-hour contributions to their IRAs before the April 15 tax deadline.

If you’ve recently managed to send in your contribution, congrats. But next time around, plan ahead—turns out, this beat-the-clock strategy comes at a cost, or a “procrastination penalty,” according to Vanguard.

Over 30 years, a last-minute IRA investor will wind up with $15,500 less than someone who invests at the start of the tax year, assuming identical contributions and returns, Vanguard calculations show. The reason for the procrastinator’s shortfall, of course, is the lost compounding of that money, which has less time to grow.

Granted, missing out on $15,500 over 30 years may not sound like an enormous penalty, though anyone who wants to send me a check for this amount is more than welcome to do so. But lost earnings aren’t the only cost of the IRA rush—last-minute contributions also lead to poor investment decisions, which may further erode your portfolio.

Many hurried IRA investors simply stash their new contributions in money-market funds—a move Vanguard calls a “parking lot” strategy. Unfortunately, nearly two-thirds of such contributions are still stashed in money funds a full 120 days later, where they have been earning zero returns. So what seems like a reasonable short-term decision often ends up being a bad long-term choice, says Vanguard retirement expert Maria Bruno.

Why are so many people fumbling their IRA strategy? All too often, investors focus mainly on their 401(k) plan, while IRAs are an after-thought. But fact is, most of your money will likely end up in an IRA, when you roll out of your 401(k). Overall, IRAs collectively hold some $7.3 trillion, the Investment Company Institute (ICI) found, fueled by 401(k) rollovers—that’s more than the money held in 401(k)s ($4.5 trillion) and other defined-contribution accounts ($2.2 trillion) combined.

Clearly, having a smart IRA plan can go a long way toward improving your retirement security. To get the most out of your IRA—and avoid mistakes—Bruno lays out five guidelines for investors:

  • Set up your contribution schedule. If you can’t stash away a large amount at the start of the year, establish a dollar-cost averaging program at your brokerage. That way, your money flows into your IRA throughout the year.
  • Invest the max. You can save as much as $5,500 in an IRA account in 2015. But for those 50 and older, you can make an additional tax-deferred “catch up” contribution of $1,000. A survey of IRA account holders by the ICI found that just 14% of investors take advantage of this savings opportunity. (You can find details on IRS contribution limits here.)
  • Select a go-to fund. Skip the money fund, and choose a target-date retirement fund or a balanced fund as the default choice for your IRA contributions. You can always change your investment choice later, but meantime you will get the benefits—and the potential growth—of a diversified portfolio.
  • Invest in a Roth IRA. Unlike traditional IRAs, which hold pre-tax dollars, Roths are designed to hold after tax money, but their investment gains and later payouts escape federal income taxes. With Roths, you also avoid RMDs (required minimum distributions) when you turn 70 ½, which gives you more flexibility. Vanguard says nine out of every 10 dollars contributed to IRAs by its younger customers under age 30 are flowing into Roths. Here are the IRS rules for 2015 Roth contributions.
  • Consider a Roth conversion. High-income earners who do not qualify for tax-deferred Roth contributions can still make post-tax contributions to an IRA and then convert this account to a Roth. The Obama Administration’s proposed 2016 federal budget would end these so-called backdoor Roth conversions, which have become very popular. Of course, it’s far from clear if that proposal will be enacted.

Once you have your IRA set up, resist tapping it until retirement. The longer you can let that money ride, the more growth you’re likely to get. Raiding your IRA for anything less than real emergency would be the worst mistake of all.

Philip Moeller is an expert on retirement, aging, and health. His latest book is “Get What’s Yours: The Secrets to Maxing Out Your Social Security.” Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: 25 Ways to Get Smarter About Money Right Now

MONEY retirement planning

Why You Should Think Twice Before Choosing a Roth IRA or Roth 401(k)

two gold eggs
GP Kidd—Getty Images

Sure, Roth plans let your savings grow tax free. But if you're nearing retirement, a traditional pre-tax account may be the best choice.

Even assuming a Republican Congress doesn’t go along with the tax hikes President Obama has proposed, the mere fact that talk of higher taxes is in the air could very well make Roth IRAs and Roth 401(k)s even more popular than they already are. But is that necessarily a good thing?

For years, the conventional wisdom held that you were better off saving for retirement in a Roth IRA or Roth 401(k) rather than the traditional versions, provided you expect to face a higher tax rate in retirement than when you make the contribution. This makes sense because you would be paying tax at a lower rate upfront and avoiding a higher tax bill down the road when you withdraw your contribution and earnings tax-free.

Lately, however, it seems more people are challenging this view, and suggesting that you may still be better off in a Roth even if you end up in a lower tax rate when you withdraw the money in retirement. For example, T. Rowe Price released research last year showing not only that a Roth IRA or Roth 401(k) could generate more income in retirement than a traditional account for people who drop to a lower tax rate; it also showed that even older savers—people in their 50s and early 60s—who fall into a lower marginal tax rate in retirement could come out ahead with a Roth.

But while this can be true—and there may also be other good reasons to fund a Roth—it’s hardly a given. So if you think you may end up dropping into a lower marginal tax rate in retirement, you should be aware of a few important caveats before doing a Roth, especially if you’re nearing retirement age.

The Drag of Taxes

For example, according to T. Rowe Price’s analysis a 55-year-old in the 33% tax bracket today who retires at age 65 would receive 9% more retirement income by making a contribution to a Roth 401(k) or Roth IRA instead of a traditional account, even if he slipped into the 28% tax bracket upon retiring.

How is that possible? Let’s assume this 55-year-old has the choice of contributing $24,000 (the 2015 maximum for someone 50 or older) to a Roth 401(k) or a traditional 401(k). If he does the Roth and the $24,000 grows in a diversified mix of stocks and bonds at 7% a year, he would have $47,212 tax-free after 10 years.

If, on the other hand, he puts the $24,000 into a traditional 401(k) that returns 7% annually, he also would have $47,212 after 10 years. But assuming he drops to a 28% tax rate at retirement, he would owe $13,219 in taxes at withdrawal, leaving him with $33,993 after tax.

But the $24,000 he puts into the traditional 401(k) also gets him a tax deduction, which at a 33% pre-retirement tax rate effectively frees up $7,920 he can invest in a separate taxable account. If that account also earns 7% a year, after 10 years the 55-year-old would end up with $2,361 more in the traditional 401(k) plus the taxable account than he would with the Roth.

But wait. He must also pay taxes on gains in the taxable side account. Assuming he pays tax each year at a 33% rate before retiring, that would effectively reduce his after-tax return in the taxable account from 7% to roughly 4.7%, giving him a total after-tax balance in the traditional 401(k) plus side account of $694 less than the Roth.

In short, it’s the drag of taxes on the money invested in the taxable side account that allows the Roth to come out ahead. Or, to put it another way, the Roth wins out in this scenario because it effectively shelters more of your money from taxes than a traditional 401(k) plus the separate taxable account.

Check Your Time Horizon

But anyone, young or old, hoping to capitalize on this advantage by choosing a Roth 401(k) or Roth IRA over a traditional account needs to be aware of two things.

First, as this example shows, the advantage the Roth gets from this tax-drag effect is relatively small. It can take many years for the Roth to build a meaningful edge in cases where someone slips into a lower marginal tax rate in retirement. In the example above, the Roth account is ahead by only 1.5% after 10 years. And if that 55-year-old were to drop from a 33% tax rate to a 25% rate in retirement, the Roth account would actually still be behind by about 1.5% after 10 years.

So for the 55-year-old to get that extra 9% of retirement income, the T. Rowe Price analysis assumes that the contribution made at age 55 not only stays invested until retirement at 65, but is withdrawn gradually over the course of 30 years (and earns a 6% annual return during that time). Which means at least some of the funds must remain invested in the Roth as long as 40 years.

The second caveat is that to take full advantage of the Roth’s tax-shelter benefits, you must contribute the maximum allowed or something close to it—specifically, enough so that you would be unable to match the aftertax Roth contribution by putting the pretax equivalent into a traditional account.

For example, had the 55-year-old in the scenario above been investing, say, $10,000 in the Roth instead of the maximum $24,000, he could have simply invested the entire pretax equivalent of his Roth contribution ($14,925 in the 33% tax bracket) in the traditional account instead of splitting his money between the traditional account and the separate taxable account. Doing so would eliminate the tax drag of the taxable account as well as the Roth’s 9% income advantage. Indeed the Roth account would provide 7% less after-tax income over 30 years than the traditional 401(k).

The upshot: Unless you’re willing to make the maximum contribution to a Roth IRA or 401(k) or an amount approaching that limit, dropping into a lower tax bracket in retirement could do away with much, if not all, of the expected advantage of going with a Roth. (The Roth might still come out ahead over a very long time since you can avoid required minimum distributions).

Diversify, Tax-wise

There are plenty of compelling reasons to choose a Roth IRA or Roth 401(k), even if you’re unsure what tax rate you’ll face in retirement. For example, I’ve long been an advocate of “tax diversification.” By having money in both Roth and traditional accounts you can diversify your tax exposure, so not every cent of your retirement savings is taxed at whatever tax rate some future Congress sets on ordinary income.

And since (under current law, at least) there are no required distributions from a Roth IRA starting after age 70 ½, money in a Roth IRA can compound tax-free the rest of your life, after which you can pass it on as a tax-free legacy to your heirs. Roth IRA distributions also won’t trigger taxes on your Social Security benefits, as can sometimes happen with withdrawals from a regular IRA or 401(k).

Bottom line: Before doing a Roth IRA or Roth 401(k), take the time run a few scenarios on a calculator like those in RDR’s Retirement Toolbox using different pre- and post-retirement tax rates. Such an exercise is even more important if you think you might face a lower marginal tax rate in retirement, and absolutely crucial if you’re nearing retirement age.

But above all, don’t assume that just because Roth withdrawals can be tax-free that Roths are automatically the better deal.

[Note: This version has been revised to make it clear that the scenario with the hypothetical 55-year-old compares a Roth 401(k) vs. a traditional 401(k), not a traditional IRA.]

Walter Updegrave is the editor of RealDealRetirement.com. If you have a question on retirement or investing that you would like Walter to answer online, send it to him at walter@realdealretirement.com.

More from RealDealRetirement.com

Can You Afford To Retire Early?

The 4 Biggest Retirement Blunders

How To Double The Size of Your Nest Egg in 10 Years

Read next: The Right Way to Tap Income in Retirement

Listen to the most important stories of the day.

MONEY retirement planning

Why Women Are Less Prepared Than Men for Retirement

Women outpace men when it comes to saving, but they need to be more aggressive in their investing.

Part of me hates investment advice specifically geared towards women. I’ve looked at enough studies on sex differences—and the studies of the studies on sex differences—to know that making generalizations about human behavior based on sex chromosomes is bad science and that much of what we attribute to hardwired differences is probably culturally determined by the reinforcement of stereotype.

So I’m going to stick to the numbers to try and figure out if, as is usually portrayed, women are actually less prepared for retirement—and why. One helpful metric is the data collected from IRA plan administrators across the country by the Employment Benefit Research Institute (EBRI.) The study found that although men and women contribute almost the same to their IRAs on average—$3,995 for women and $4,023 for men in 2012—men wind up with much larger nest eggs over time. The average IRA balance for men in 2012, the latest year for which data is available, was $136,718 for men and only $75,140 for women.

And when it comes to 401(k)s, women are even more diligent savers than men, despite earning lower incomes on average. Data from Vanguard’s 2014 How America Saves study, a report on the 401(k) plans it administers, shows that women are more likely to enroll when sign up is voluntary, and at all salary levels they tend to contribute a higher percentage of their income to their plans. But among women earning higher salaries, their account balances lag those of their male counterparts.

It seems women are often falling short when it comes to the way they invest. At a recent conference on women and wealth, Sue Thompson, a managing director at Black Rock, cited results from their 2013 Global Investor Pulse survey that showed that only 26% of female respondents felt comfortable investing in the stock market compared to 44% of male respondents. Women are less likely to take on risk to increase returns, Thompson suggested. Considering women’s increased longevity, this caution can leave them unprepared for retirement.

Women historically have tended to outlive men by several years, and life expectancies are increasing. A man reaching age 65 today can expect to live, on average, until age 84.3 while a woman can expect to live until 86.6, according to the Social Security Administration. Better-educated people typically live longer than the averages. For upper-middle-class couples age 65 today, there’s a 43% chance that one or both will survive to at least age 95, according to the Society of Actuaries. And that surviving spouse is usually the woman.

To build the portfolio necessary to last through two or three decades of retirement, women should be putting more into stocks, not less, since equities offer the best shot at delivering inflation-beating growth. The goal is to learn to balance the risks and rewards of equities—and that’s something female professional money managers seem to excel at. Some surveys have shown that hedge fund managers who are women outperform their male counterparts because they don’t take on excessive risk. They also tend to trade less often; frequent trading has been shown to drag down performance, in part because of higher costs.

Given that the biggest risk facing women retirees is outliving their savings, they need to grow their investments as much as possible in the first few decades of savings. If it makes women uncomfortable to allocate the vast majority, if not all, of their portfolio to equities in those critical early years, they should remind themselves that even more so than men they have the benefit of a longer time horizon in which to ride out market ups and downs. And we should take inspiration from the female professional money managers in how to take calculated risks in order to reap the full benefits of higher returns.

Konigsberg is the author of The Truth About Grief, a contributor to the anthology Money Changes Everything, and a director at Arden Asset Management. The views expressed are solely her own.

Read next: How to Boost Returns When Interest Rates Totally Stink

MONEY retirement planning

Why Obama’s Proposals Just Might Help Middle Class Retirement Security

150122_RET_ObamaHelpRet
Andrew Harrer—Bloomberg via Getty Images U.S. President Barack Obama delivering the State of the Union address to a joint session of Congress at the Capitol in Washington, D.C., U.S., on Tuesday, Jan. 20, 2015.

Congress probably won't pass an auto IRA, and Social Security is being ignored. But the retirement crisis is finally getting attention.

Remember Mitt Romney’s huge IRA? During the 2012 campaign, we learned that the governor managed to amass $20 million to $100 million in an individual retirement account, much more than anyone could accumulate under the contribution limit rules without some unusual investments and appreciation.

Romney’s IRA found its way, indirectly, into a broader set of retirement policy reforms unveiled in President Obama’s State of the Union proposals on Tuesday.

The president proposed scaling back the tax deductibility of mega-IRAs to help pay for other changes designed to bolster middle class retirement security. I found plenty to like in the proposals, with one big exception: the failure to endorse a bold plan to expand Social Security.

Yes, that is just another idea with no chance in this Congress, but Democrats should give it a strong embrace, especially in the wake of the House’s adoption of rules this month that could set the stage for cuts in disability benefits.

The administration signaled its general opposition to the House plan, but has not spelled out its own.

Instead, Obama listed proposals, starting with “auto-IRAs,” whereby employers with more than 10 employees who have no retirement plans of their own would be required to automatically enroll their workers in an IRA. Workers could opt out, but automatic features in 401(k) plans already have shown this kind of behavioral nudge will be a winner. The president also proposed tax credits to offset the start-up costs for businesses.

The auto-IRA would be a more full version of the “myRA” accounts already launched by the administration. Both are structured like Roth IRAs, accepting post-tax contributions that accumulate toward tax-free withdrawals in retirement. Both accounts take aim at a critical problem—the lack of retirement savings among low-income households.

The president wants to offset the costs of auto-IRAs by capping contributions to 401(k)s and IRAs. The cap would be determined using a formula tied to current interest rates; currently, it would kick in when balances hit $3.4 million. If rates rose, the cap would be somewhat lower—for example, $2.7 million if rates rose to historical norms.

The argument here is that IRAs were never meant for such large accumulations; the Government Accountability Office (GAO) looked into mega-IRAs after the 2012 election, and reported back to Congress that a small number of account holders had indeed amassed very large balances, “likely by investing in assets unavailable to most investors—initially valued very low and offering disproportionately high potential investment returns if successful.”

The report estimated that 37,000 Americans have IRAs with balances ranging from $3 million to $5 million; fewer than 10,000 had balances over $5 million.

Finally, the White House proposed opening employer retirement plans to more part-time workers. Currently, plan sponsors can exclude employees working fewer than 1,000 hours per year, no matter how long they have been with the company. The proposal would require sponsors to open their plans to workers who have been with them for at least 500 hours per year for three years.

These ideas might seem dead on arrival in the Republican-controlled Congress. But the White House proposals add momentum to a growing populist movement around the country to focus on middle class retirement security.

As noted here last week, Illinois just became the first state to implement an innovative automatic retirement savings plan similar to the auto-IRA, and more than half the states are considering similar ideas.

These savings programs are sensible ideas, but their impact will not be huge. That is because the households they target lack the resources to sock away enough money to generate accumulations that can make a real difference at retirement.

Expanding Social Security offers a more sure, and efficient, path to bolstering retirement security of lower-income households. If Obama wants to go down in the history books as a strong supporter of the middle class, he has got to start making the case for Social Security expansion—and time is getting short.

Read next: Why Illinois May Become a National Model for Retirement Saving

TIME Innovation

Five Best Ideas of the Day: January 13

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

1. The U.S. could improve its counterinsurgency strategy by gathering better public opinion data from people in conflict zones.

By Andrew Shaver and Yang-Yang Zhou in the Washington Post

2. The drought-stricken western U.S. can learn from Israel’s water management software which pores over tons of data to detect or prevent leaks.

By Amanda Little in Bloomberg Businessweek

3. Beyond “Teach for Mexico:” To upgrade Latin America’s outdated public education systems, leaders must fight institutional inequality.

By Whitney Eulich and Ruxandra Guidi in the Christian Science Monitor

4. Investment recommendations for retirees are often based on savings levels achieved by only a small fraction of families. Here’s better advice.

By Luke Delorme in the Daily Economy

5. Lessons from the Swiss: We should start making people pay for the trash they throw away.

By Sabine Oishi in the Baltimore Sun

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

MONEY IRAs

The Extreme IRA Mistake You May Be Making

A new study reveals that many savers have crazy retirement portfolios. This four-step plan will keep you from going to extremes with your IRA.

When did you last pay attention to how your IRA is invested? It’s time to take a close look. Nearly two out of three IRA owners have extreme stock and bond allocations, a new study by the Employee Benefit Research Institute (EBRI) found. In 2010 and 2012, 33% of IRA savers had no money in stocks, while 23% were 100% in equities.

Many young savers and pre-retirees have portfolios that are either too cautious or too risky: 41% of 25- to 44-year-olds have 0% of their IRAs in stocks, while 21% of 55- to 65-year-olds are 100% in stocks.

An all-bond or all-stock IRA may be just what you want, of course. Perhaps you can’t tolerate the ups and downs of the stock market or you think you can handle 100% equities (more on that later). Or maybe your IRA is part of a larger portfolio.

But chances are, you ended up with an out-of-whack allocation because you left your IRA alone. “It seems likely many investors aren’t investing the right way for their goals, whether out of inertia or procrastination,” says EBRI senior research associate Craig Copeland. An earlier study by the Investment Company Institute found that less than 11% of traditional IRA investors moved money in their accounts in any of the five years ending in 2012.

To keep a closer tab on how your retirement funds are invested, take these four steps.

See where you stand. Looking at everything you have stashed in your IRA, 401(k), and taxable accounts (don’t forget your spouse’s plans), tally up your holdings by asset class—large-company stocks, short-term bonds, and the like. You’ll probably find that the bull market of the past five years has shifted your allocation dramatically. If you held 60% stocks and 40% bonds in 2009 and let your money ride, your current mix may be closer to 75% stocks and 25% bonds.

Get a grip on your risks. An extreme allocation—or a more extreme one than you planned—can put your retirement at risk. Hunkering down in fixed income means missing out on years of growth. Putting 100% in stocks could backfire if equities plunge just as you retire—what happened to many older 401(k) investors during the 2008–09 market crash.

Reset your target. If you also have a 401(k), your plan likely has an asset-allocation tool that can help you settle on a new mix, and you may find that you need to make big changes. That’s especially true for pre-retirees, who should be gradually reducing stocks, says George Papadopoulos, a financial planner in Novi, Mich.  A typical allocation for that age group is 60% stocks and 40% bonds. As you actually move into retirement, it could be 50/50.

Make the shift now. If moving a large amount of money in or out of stocks or bonds leaves you nervous, you may be tempted to do it gradually. But especially in tax-sheltered accounts, it’s best to fix your mistake quickly. (In taxable accounts you may want to add new money instead to avoid incurring taxable gains.) “If you’re someone who’s a procrastinator, you may never get around to rebalancing,” says Boca Raton, Fla., financial planner Mari Adam. And you don’t want a market downturn to do your rebalancing for you.

Get more IRA answers in the Ultimate Retirement Guide:
What’s the Difference Between a Traditional and a Roth IRA?
How Should I Invest My IRA Money?
How Will My IRA Withdrawals Be Taxed in Retirement?

Your browser, Internet Explorer 8 or below, is out of date. It has known security flaws and may not display all features of this and other websites.

Learn how to update your browser