Our daily roundup of retirement news your clients may be thinking about.

The public pension funding trap

Shortfalls in contributions have prompted many public pension plans to take enormous investment risks to increase their returns, writes Andrew G. Biggs, an expert with the American Enterprise Institute. However, investment consultants project that the strategies public pensions employ could only result in only 5.9% in median return over 10 years, boosting funding costs by 40% above the current levels that cannot be covered by most governments, Biggs writes. "U.S. state and local governments are required to contribute half as much to their pensions as are private employers, ... If public pensions are indeed back on track, that track may simply be leading the country to more trouble down the road." –The Wall Street Journal

Is a self-employed 401(k) better than a Roth IRA?

A self-employed 401(k) plan and a Roth IRA are options for entrepreneurs and self-employed clients who wish to save for retirement, according to this article on The Motley Fool. Annual contributions to a self-employed 401(k) plan are capped at $24,000 for business owners and entrepreneurs and $53,000 for freelancers this year. Contributions to a Roth IRA, capped at $5,500 this year, are allowed for self-employed individuals if their annual income is lower than $131,000 (for freelancers) or $193,000 (for contractors). –The Motley Fool

Plan for retirement like a pro

The actuarial concept of present value can be used as basis for making important decisions that affect retirement, says Peter Neuwirth, author of the book "What's Your Future Worth?" "Every time you're faced with the decision to save or spend or invest or withdraw money, you need to look at the future consequences of that decision and understand what's important to you now and in the future," Neuwirth explains. Applying the concept in making retirement decisions involves five crucial steps, from defining choices to taking a discount to the value as an effect of inflation or other critical events. –Kiplinger

Retirement: Leaving work leaves some vulnerable

Some 2.5 million seniors face alcohol and drug-related problems, with these problems responsible for between 6% and 10% of elders who are admitted to hospitals, according to this article on USA Today. For some seniors, retirement leads to isolation and depression, pushing them to substance abuse, says Jamie Huysman, clinical adviser at Caron Treatment Centers. "Sometimes the way we leave our job, whether we quit, are phased out or laid off, there is anger and pain. These things lead to events that trigger us. Those things can accelerate alcohol use." –USA Today

It’s OK. Live a little in retirement

Retirees are entitled to splurge a little in retirement especially if they have set aside pleasure to save for retirement during their working years, according to this article on MarketWatch. Retirement is supposed to be a life phase when people are to enjoy their financial independence and explore new opportunities to serve and engage in gratifying activities that are not feasible during their working years. As a report from Morningstar concludes that the cost of retirement could be overestimated, many retirees may have some money to spare for the things and activities they want to do. – MarketWatch

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