Benefits November 5, 2013

Preparing for Spending in Retirement

November 5, 2013 (PLANSPONSOR.com) – Plan sponsors need to educate their participants about how to prepare for spending once they retire.
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That was one of the conclusions reached by the authors of a new paper, “A More Dynamic Approach to Spending for Investors in Retirement,” from investment and retirement services provider Vanguard.

The paper, authored by Colleen Jaconetti, Francis M. Kinniry, Jr. and Michael A. DiJoseph, examines two common post-retirement spending strategies and recommends a third approach. The first strategy is termed as “dollar amount grown by inflation,” where the retiree chooses an amount of spending in the initial year of retirement and the amount is increased annually to account for inflation.

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The second strategy is called “percentage of portfolio” and bases the retiree’s annual spending on a stated proportion of their portfolio’s value at the end of the prior year. The third approach, called “percentage of portfolio with ceiling and floor,” advocates relatively consistent post-retirement spending, while remaining responsive to the financial markets’ performance to help sustain a retiree’s portfolio.

The paper recommends flexibility as a prudent spending strategy. Periodically evaluating their income strategies, assessing their portfolios and considering whether alterations are needed can help people with their long-term financial planning.

Both retirement plan sponsors and plan advisers can assist people in carrying out strategies related to their post-retirement spending.

“One way that plan sponsors can help out participants is to talk to them about how much they can spend once they retire,” Jaconetti, senior investment analyst for Vanguard’s Investment Strategy Group, told PLANSPONSOR. “Help them to create a paycheck for life.” In addition to helping participants determine how much they can spend annually once they retire, plan sponsors can also help educate participants about how to set up a portfolio and the asset allocation of that portfolio.

“If participants can accept fluctuations in spending due to the changing performance of the markets, they can figure out how to adapt their spending, cutting back in certain areas, for example, if the markets don’t do well that year,” said Jaconetti. She added that by putting guardrails around annual post-retirement spending, in order to factor in the aforementioned fluctuations, participants will have a cushion that will hopefully maintain adequate retirement income over the long term.

There are several things for participants to consider when it comes to both preparing for retirement and then for post-retirement spending, said Jaconetti. Maintaining a broad diversification of investments is helpful, as is taking a realistic look at life expectancy and working. “While life expectancy is something that people can’t control, they can look into working longer, which give them time to save more and ultimately result in a higher amount that can be spent during retirement,” she said.

As for retirement plan advisers can do, Jaconetti said once a participant is retired, advisers can help them with the logistics of rolling over their retirement plan balance and actually setting up a post-plan portfolio from which they can draw retirement income.

“Advisers can work with the new retirees to establish spending rules and figure out a schedule for reviewing and updating their portfolio, perhaps every six months or a year,” said Jaconetti. One approach to consider, said Jaconetti, is creating a money market account for the retiree and directing his or her Social Security, required minimum distribution and portfolio gains there.

A copy of the paper can be found here.

Benefits November 5, 2013

Employers Recount Memorable Sick Day Excuses

November 5, 2013 (PLANSPONSOR.com) – Not all employees use sick days to recover from an illness.
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An annual survey from CareerBuilder found that during the past year, nearly one-third (32%) of employees called in sick when not actually ill, up slightly from the previous year (30%). However, 30% of employees say they have gone to work sick in order to save their sick days.

Apart from actual illness, the most common reason employees take sick days is they just don’t feel like going to work (33%), or because they need to relax (28%). Others spend their sick days going to the doctor (24%), catching up on sleep (19%) or running personal errands (14%).

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The survey asked employers for the most memorable excuses for sick days. These included:

  • Employee’s false teeth flew out the window while driving down the highway;
  • Employee’s favorite football team lost on Sunday, so needed Monday to recover;
  • Employee was quitting smoking and was grouchy;
  • Employee said someone glued her doors and windows shut so she could not leave the house to come to work;
  • Employee bit her tongue and could not talk;
  • Employee claimed a swarm of bees surrounded his vehicle and he could not make it in;
  • Employee said the chemical in turkey made him fall asleep and he missed his shift;
  • Employee felt he was so angry he was going to hurt someone if he came in;
  • Employee received a threatening phone call from the electric company and needed to report it to the FBI;
  • Employee needed to finish Christmas shopping;
  • Employee’s fake eye was falling out of its socket;
  • Employee got lost and ended up in another state; and
  • Employee could not decide what to wear.

Thirty percent of employers say they have checked on employees who called in sick to make sure the excuse was legitimate. Of those who verified employees’ excuses over the past year, 64% required a doctor’s note, 48% called the employee, 19% checked the employee’s social media posts, 17% had another employee call the sick employee, and 15% drove past the employee’s house.

While some employers may be flexible about how employees use their sick days, 16% said they have fired employees for calling in sick with a fake excuse.

The survey also found that, due to technological advances, taking a sick day no longer always means taking a day off. Twenty percent of employees said that, in the past year despite calling in sick, they still ended up doing work from home.

In addition, the survey found cold weather and holiday stress can take a toll on attendance rates. Three in 10 (30%) employers say they notice an increased number of sick days among their employees around the holidays. Nineteen percent of employers say December is the time of year that employees call in sick the most, followed by January (16%) and February (15%).

The survey was conducted online by Harris Interactive on behalf of CareerBuilder. It was conducted within the United States among 2,099 hiring managers and human resource (HR) professionals, and 3,484 U.S. workers (employed full-time, not self-employed, nongovernment) between August 13 and September 6.

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