U.S.
Representative Bruce Westerman, R-Arkansas, introduced legislation (H.R. 1230)
that would adjust the calculation of federal civilian pensions.
“This
bill would simply change the formula for determining pension benefits for
civilian federal employees from the best-earning three years to the
best-earning five years of service,” Westerman says. “The bill ensures that the
program employees of the federal government have paid into for their careers is
available in retirement and sustainable for future generations.”
According
to Westerman’s website, the Congressional Budget Office estimated that H.R.
1230’s formula change would save taxpayers a total of $3.1 billion over 10
years. The change would go into effect January 1, 2017.
As a part of the
proposal, all federal civilian employees—including members of Congress and
their staffs—would be impacted by the change. The only exemption to the
proposed legislative action is active duty and retired military personnel.
Affluent May Need Savings Other Than Employer Plan
A recent Legg Mason survey finds affluent U.S. investors predict their average net retirement expenses could top $2.5 million without significant lifestyle changes.
A
strong majority of U.S. respondents (72%) to Legg Mason’s Global Investment
Survey said their primary goal of investing was to “maintain my current
lifestyle later in life,” including throughout retirement.
To
do this, survey results suggest, affluent Americans on average will need to save
at least $2.5 million before they retire. Asked if they were making progress on
this challenging goal, almost four in 10 (38%) said they were not doing well
or only doing “somewhat well.” Taking all retirement readiness factors
together, Legg Mason finds just 40% of those surveyed said they were confident
in their ability to “retire at the age I want to,” while 60% were either not
confident or somewhat confident.
Legg
Mason finds its sample has an average retirement plan savings of $385,000 and
is close to age 58. Seventy percent of respondents said they had a defined
contribution (DC) plan holding substantial portions of their net savings, Legg Mason
says.
“Given
their ambitious goals, investors hopefully have considerable savings elsewhere,
such as significant equity in their home or other investment accounts, where
their asset allocation is designed to help them achieve their long-term goals,”
says Matthew Schiffman, global head of marketing for Legg Mason. “Otherwise,
reaching their $2.5 million goal could be extremely challenging.”
Legg Mason restricted
the U.S. portion of the Global Investment Survey to more affluent investors
with a minimum of $200,000 in investable assets, not including their homes.
Most of these individuals identify retirement preparation as a top reason they
are saving.
The
survey finds that the top issues investors fear could prevent them from living the
lifestyle they want to later in life are: having a catastrophic event that uses up
retirement funds; living longer than retirement assets last; and income unable to keep up with inflation.
Given
investors’ ambitious financial goals, Legg Mason says, it is encouraging that 72% of
them “are happy to sacrifice now to have enough money later in life.”
Other key findings show:
42%
expect to cut back on their lifestyle in retirement so they do not outlive their
assets;
31%
think they will need more money in retirement but are afraid to take the
investment risk to get there;
30%
can save more, they just do not; and
26%
have more debt than they should.
Legg
Mason says investors are showing a jump in self-confidence regarding their
abilities as investors. According to the survey, more investors said they were
“very confident” in their ability to achieve overall financial goals (up 8%),
to manage investments (up 8%), to read the markets effectively (up 9%) and to
understand complex financial instruments (up 4%).
“Having
income-producing investments” is a priority for more than 80% of investors,
with most investing in equity income funds, investment-grade bonds and
high-yield bonds to meet their income needs.
“Despite
low levels of inflation, the challenges of generating income in an uncertain
rate environment are weighing on investors,” Schiffman says. “To help alleviate
this concern, we recommend that investors look beyond traditional fixed-income
and equity asset classes to enhance the diversification and resilience of their
income-producing assets.”
The U.S. portion of
the Legg Mason Global Investment Survey was conducted among 458 affluent
investors with a minimum of $200,000 in investable assets not including their
home. The online survey was conducted by Northstar Research Partners from
November 2014 to January 2015.