Category: Retirement

The approach of baby boomers’ retirement age has awakened HR experts’ strong concerns about the lack of workforce, knowledge and talent that may appear in the nearest future. Educational institutions that employ a big number of representatives of the baby boom era are also under threat. The strategies described below aim to mitigate the consequences of baby boomers’ mass retirement.

Retaining Baby Boomers

After expressing strong concerns about loss of talents connected with baby boomers’ retirement, experts suggested that the scale of the “catastrophe” was somewhat exaggerated. Particularly, representatives of the baby boom generation do not show eagerness to farewell their workplaces: according to AARP survey, about 69 per cent of baby boomers between 45 and 74 plan to continue working after reaching the retirement age (The Talent-Shortage Myth).

Therefore, a program aimed at retaining baby boomers at the workplace may become a great help for educational institutions that want to avoid the workforce deficit. Firstly, the program should motivate baby boomers to continue working – this can be reached by offering suitable working conditions and comfortable workforce arrangement (Aging Workforce – 10 Key Points on Training), as well as providing psychological support. Secondly, it should prepare aged employees to work after reaching the retirement age: this includes guidelines of maintaining productivity, taking care of health, getting familiarized with new technologies etc.

Maintaining Continuity

Many baby boomers have valuable knowledge that is necessary to retain within the institution. It is reasonable to provide conditions for transferring this knowledge to youngsters (Schaefer). Thus, the management should develop a program including seminars, training and joint projects to stimulate the exchange of knowledge and skills within the institution. It is important to motivate baby boomers’ students to stay within the institution as employees, as they already have learned valuable information from their aged teachers.

Increasing Productivity

Considering the current technological development, it is now possible to increase the productivity of educators. Using the internet and multimedia applications in the educational process, as well as organizing distant education may help educational institutions meet the demand for their services.

References

Aging Workforce – 10 Key Points on Training. CEOConsultant.com. Web.

Schaefer, P. (2006). Baby-Boomer-Caused Labor Shortage: Ideological Myth or Future Reality. Business Know-How. Web.

The Talent-Shortage Myth. (2007). Workforce.com. Web.

Compensation is a human resource tool that allows organizations to manage their employees. Organizations have to ensure that their compensation systems are not islands. Therefore, aligning the compensation system of the organization with the human resource strategy is essential. This is important to achieve success in the organization. A deferred compensation program (DCP) is an agreement that allows the state to postpone a portion of the employee’s income (Green 86). The origin of the DCP traces back to the need for a retirement savings plan for employees.

The deferred compensation board (DCB) manages the plan, which is instituted under the Internal Revenue Code. The participation is voluntary, with employers given the opportunity to choose from different fund strategies that allow for a rebalance of a portfolio. The DCPs differ for employees who work full time, half time or in regular partial employment such as nine or ten months. There are investment options, from which employers and employees are able to choose (Green 86). The current investment options, which depend on the close management of a portfolio such as market index, bond, and international funds, are bound to grow in future. Employees are intent on making more savings, meaning that DCBs will continue growing.

Today, most employers no longer offer compensation plans to support retired workers, preferring to offer the 401-k plan instead. The plan leaves employees in charge of their own retirement accounts. The 401-k plan issues its participants with plan information such as vesting rights, company match or participation rates [The Investment Company Institute (ICI) 1]. Compensation plans set minimum participatory standards as well as frequent change of investments by employees. An employee’s account is valuable depending on the amount contributed and the performance of investment options. Under the 401-k plan, employees are able to diversify their planned investments. Employees choose from the broad portfolio of investments that is available to them (Meeting Your Fiduciary Responsibilities n.d.). Job tenure is an important aspect of the 401-k plan, because it defines the vesting rights of employers.

The vesting rights influence how employees comprehend the compensation plan. Employees are unable to access the contribution that employers make immediately. Thus, a minimum number of years that employees work to gain vested rights to a portion or all of their benefits are instituted. For instance, a plan may require a two or three year service before achieving vesting rights. 401-k plans have distinct investment features such as available loans, which determine the employees choice of the plan. Additionally, contribution limits give employers 100 percent vested rights. Companies often require that employees are no less than twenty-one years old before they become members of a specific plan and vest their own interests. They should also have worked with the company for over a year (Meeting Your Fiduciary Responsibilities n.d.). Although a 401-k plan has several investment options for private sector employees, these factors govern their participation.

Employers are often challenged to take on the rewarding position of giving their employees retirement plans. Both the employer and the employee accrue benefits when such plans are in place (Meeting Your Fiduciary Responsibilities n.d.). To administer and manage the assets associated with the plan; employers have to take on particular responsibilities. Employers require knowledge of the rules associated with the plan, if they are to handle the responsibility of being a sponsor. Employers have to meet outlined standards of conduct if they are to manage the plans. Additionally, the employer takes on the position of a trustee tasked with handling different responsibilities (Meeting Your Fiduciary Responsibilities n.d.). For instance, employers must designate a trustee to ascertain that all contributions are met.

Where salary deductions cater for the retirement plans, employers are tasked with the responsibility of making timely deposits of the contributions. Employers only take on this responsibility if they are able to handle them. This responsibility falls on the trustee, if the rules are silent on who should handle the task. Another responsibility of employers is the expectation to report the activities of the plan to relevant government agencies. The retirement plans require employers, who are the administrators, to give plan information to the participants as well as their beneficiaries. The employer communicates and gives annual reports to participants (Meeting Your Fiduciary Responsibilities n.d.). Employers communicate any disclosures to the participants as well as the public since those who fail to file reports face penalties.

Similarly, the employee has different responsibilities towards a retirement plan. The employee is tasked with contributing money to the retirement plans, in options where there contributions are not deducted from salaries. Employees also have the responsibility of contributing money from their paychecks before they are taxed (ICI 1). The employees have the responsibility of deciding the investment for their share of contributions. Employees choose investments depending on the offerings of retirement plans. They have the option of diversifying their investments in a particular investment category before making decisions on the available alternatives (Meeting Your Fiduciary Responsibilities n.d.). Employees change investments based on investment information that they receive from service providers or their employers.

Employees retain the responsibility to select and monitor investment alternatives in a plan. They are also responsible for following a formal review process to determine their replacements or to use the existing service providers (ICI 1). Employees are to follow the guidelines of the plan and to make sure that they understand their responsibilities regarding the plan. Another important responsibility is evaluating the levels of fees if they are reasonable, before agreeing to contribute. Employees monitor the fees and expenses of the plan where laws fail to specify the required level of fees (Meeting Your Fiduciary Responsibilities n.d.). Monitoring allows employees to compare the services offered and those the estimated fee covers. Since all services have costs, employees have to specify the services, in which they would like to participate. Last, employees have to read the provided reports, to gain knowledge of the actual fees charged, their policies, and practices.

Last, as the administrator, it is important to inform you of the saddening low rates of participation in the 401-k plan. Most of the employees have completed more than one year of service with the company but are reluctant to joining the plan. The management, through the administrator, urges you to increase your participation in the plan, given the numerous investment opportunities that are available today. All the contributions of the employees are 100% vested and when employees leave employment, they remain entitled to deferrals. The investment gains on the deferrals means that all employees have to make significant contributions according to the vesting schedule. The company is carrying out the annual test on contributions, and this is the opportunity for each employee to know which 401-k plan is a safe and healthy investment. Questions, which relate to the accounts, are answered in each employee’s copy of the annual reports. The company urges each employee to consider their fiduciary responsibilities towards the 401-k plans.

Bibliography

Green, Scott. Sarbanes-Oxley and the Board of Directors: Techniques and Best Practices for Corporate Governance, New York, US: John Wiley & Sons, 2005. Print.

Meeting Your Fiduciary Responsibilities 2015. Web.

The Investment Company Institute 2006, The Federal Thrift Savings Plan: A Model for the Private Sector? PDF file. Web.

Introduction

The purpose of this project is to gain an understanding of the effect of start date, rate of return, inflation and taxes on what it will take to save a set amount of money by the time I retire at age 65. Different starting ages are explained: 25, 35, 45 and 55.

Effect of Start Date and Investment rate of Return

The table below summarizes the effect of start date and investment rate of return on the retirement savings and lifestyle.

The dollar amounts that I have to save if I earned either 8% or 10% return on my investments are given in table 1 on the ‘Savings/Year’ column. The percentages of my pay that I would have to save are given on the ‘% of Income’ column on the same table.

Effect of Taxes on the Retirement Savings

The present value (PV) is $1,000,000 while the future value (FV) is 0. The rate is 0.005 (6%/12) and the number of payment per annuity is 360 (30 *12) months. Using Excel’s PMT function, I determined that the amount that I can withdraw annually from my investment savings and still have it last 30 years is $71,946.06 (12 * $5,995.51).

The following are the calculations, subtracting federal tax of 20% from the annual amount: $71,946.06 – (20% *71,946.06) = $71,946.06 – 14,389.212 = 57,556.848. Therefore, the actual amount available annually to buy my retirement lifestyle is 57,556.848.

I can live comfortably in retirement on this amount of income as long as my needs remain basic. However, some factors might affect my ability to live comfortably on the calculated amount. The factors include inflation, unfavorable government policy, and emergency needs such as high medical bills. Inflation decreases the value of the money. Government policies can cause inflation and negatively affect prices of items. Emergency needs such as huge medical bills means using more money than expected.

Effects of Inflation on Savings Goal

The real rates of return are as follows: 10% – 3% = 7% and 8% – 3% = 5%. The table below summarizes the effect of inflation on the retirement savings and lifestyle.

The amounts that one would need to save annually (for the different starting age) to have an amount of retirement saving that has the same purchasing power at age 65 as $1000000 today are shown in the ‘Savings/Year’ columns of table 2.

Conclusion

It is best to begin investing for retirement as early as possible. In my case, I would begin investing at 25 years of age. A higher investment rate of return allows one to save lesser amount to attain a specific saving goal than a lower investment rate of return does. Inflation increases the amount of money that is required to be saved to achieve a particular investment goal. This project has indeed helped me understand the significance of having goals and planning to achieve those goals.

Annotated bibliography

Auerbach, A. J., Kotlikoff, L. J., Koehler, D., & Yu, M. (2017). Is Uncle Sam inducing the elderly to retire? Tax Policy and the Economy, 31(1), 1-42.

Auerbach et al. (2017) approached the topic of forced retirement from the point where older workers could be perceived as a valuable asset and not an obsolete, malfunctioning cohort of employees. Their idea was that the current fiscal system might be damaged by the willingness of businesses to get rid of elderly employees early, causing a collapse linked to the lack of younger yet experienced workers. The key finding presented in the article is that tax calculations could also be affected by forced retirement, making it harder for the government to find the right solution to the problem.

Chen, G., Lee, M., & Nam, T. Y. (2020). Forced retirement risk and portfolio choice. Journal of Empirical Finance, 58, 293-315.

In the article written by Chen et al. (2020), the issue of portfolio choice was discussed from the point of view where elderly employees do not get equal opportunities despite having more experience and area-specific knowledge. According to the authors of the article, that could signify plenty of concurrent risks linked to forced retirement and even market fluctuations (Chen et al., 2020). Throughout their discussion, the researchers implemented the lifecycle portfolio choice model and proved the value of investing in risky assets such as elderly employees.

Gettings, P. E. (2018). Discourses of retirement in the United States. Work, Aging and Retirement, 4(4), 315-329.

According to Gettings (2018), it is also important to consider the age of potential retirees, as millennials and baby-boomers could be significantly different in terms of how they would react to their forced retirement. The problem is that there are multiple constraints associated with taxes and budgets that avert companies from supporting elderly employees and evading economic downturns. The course of retirement, therefore, should depend on how the retirees themselves see their future.

Sheppard, F. H., & Wallace, D. C. (2018). Women’s mental health after retirement. Journal of Psychosocial Nursing and Mental Health Services, 56(7), 37-45.

Sheppard and Wallace (2018) proved with their research project that mental health outcomes could be much worse in employees who had been forced into retirement. These mental health issues could be displayed in the form of cognitive impairment and depressive episodes. Sheppard and Wallace (2018) specifically focused on women to show that forced retirement could be a decision causing more bad than good, especially for minority populations.

References

Auerbach, A. J., Kotlikoff, L. J., Koehler, D., & Yu, M. (2017). Is Uncle Sam inducing the elderly to retire? Tax Policy and the Economy, 31(1), 1-42.

Chen, G., Lee, M., & Nam, T. Y. (2020). Forced retirement risk and portfolio choice. Journal of Empirical Finance, 58, 293-315.

Gettings, P. E. (2018). Discourses of retirement in the United States. Work, Aging and Retirement, 4(4), 315-329.

Sheppard, F. H., & Wallace, D. C. (2018). Women’s mental health after retirement. Journal of Psychosocial Nursing and Mental Health Services, 56(7), 37-45.

Introduction

When a person earns interest from a retirement account, one is paid money for keeping their cash deposited in the savings account. The interest is calculated by multiplying the money in the savings account, referred to as the principal amount, by the interest rate expressed as a decimal by one year. In this case, after saving for 30 years, I expect to earn $130,000 per annum interest calculated at an interest rate of 4.7% from the money that will have accumulated. However, the task is not to find interest but the amount of money accumulated after 30 years. Following is a list of vital information about the question.

Important Information about the Question

• P = Principal amount (account balance accumulated in 30 years)
• N = Number of the period (one year)
• I = Interest amount earned in one year
• R = Interest rate expressed as a decimal

A simple interest in a savings account is calculated by multiplying the account balance by the interest rate by the period the money is in the account. In this question, I will calculate the amount of money I expect the account to have accumulated within 30 years, earning $130,000 each year as interest. The formula used to calculate interest = P x R x N. This formula makes it easy to find the formula for calculating the principal amount by simply dividing each side by (R x N).

Therefore, the formula will be P =

Question to be answered

I am finding the amount of money the account needs to have accumulated in 30 years.

My Reasonable Answer (1 point)

If my account earns $130,000 per year at an interest rate of about 4%, I expect the principal amount to be $3,250,000. The value is estimated when the principal amount is calculated within one year. I have made this guess because the interest amount represents 4% of the principal amount. Therefore, to get the Principal amount, one needs to find the value 100% represents. By using the cross-multiplication method

If 4% = $130,000

100% = P

P =

P = $3,250,000

The solution to the question

• P =? (Principal amount)
• N = 1 year (period)
• R = 4.7% (annual interest rate)
• I = $130,000 (interest earned in one year)

Using the formula: P =

and replacing the values,

P =

P = 2,765,957.45

Therefore, the amount of money that my retirement account would have accumulated in my retirement account in 30 years will be $2,765,957.45.

Although my guess answer was reasonable, it was an estimate of what the price will fall. The guess answer did not agree with my final answer because I used an interest rate of 4% instead of 4.7%. My solution is sound because I have replaced the right values in the formula. I have also confirmed my answer using an online calculator. Therefore, I am confident this is the correct answer to the question.

Conclusion

In conclusion, since I will receive an interest amount of $130,000 per annum at an interest rate of 4.7%, the question required me to find the principal amount. After solving the question, I found the principal amount to be $2,765,957.45. Therefore, this is the amount my retirement account needs to have accumulated in 30 years.