MS. DIANE REHMThanks for joining us. I'm Diane Rehm. Even in the best of economic times, figuring out how to plan well for retirement can be tough. Today, a panel of experts offer some advice. Joining me here in the studio to talk about strategies for retirement planning in an uncertain economy: Mary Beth Franklin of Kiplinger's, Dallas Salisbury at the Employment Benefit Research Institute and Wilhelmina Leigh of the Joint Center for Political and Economic Studies.

MS. DIANE REHMJoining us by phone is Alicia Munnell of the Center for Retirement Research at Boston College. And throughout the hour, we do invite you to join us. We'll try to take as many calls as possible. I know so many of you -- of us are concerned about what's happening to our retirement funds if we already have them or how to make them and then make them grow. So give us a call, 800-433-8850.

MS. DIANE REHMSend us your email to drshow@wamu.org. Join us on Facebook or Twitter. Good morning to all of you.

MR. DALLAS SALISBURYGood morning.

MS. MARY BETH FRANKLINGood morning.

MS. WILHELMINA LEIGHGood morning.

REHMDallas Salisbury, a large percentage of adults in the U.S. have no idea what their retirement needs will be. How does one begin calculating what it is you will need in retirement if, say, you're 45 years old?

SALISBURYWell, there's -- the Web these days is filled with calculators that offer that opportunity. We have one at www.choosetosave.org, the ballpark estimate. And in a handful of questions, somebody can put in what they need to give them that type of answer, is it allows them to put in, if they're lucky enough to have an old pension plan, what their Social Security will be, what they may or might have in a defined contribution plan, like a 401 (k) plan.

SALISBURYAnd if one doesn't even want to go to that step, then the easiest thing for people to think about is that they actually need a multiple of their final amount they want to spend -- the money they want to spend that first year in retirement -- of at least 25 times that amount saved. And if they don't save that, then the best advice one can give them is if you have a job, keep it. And don't take your Social Security until you're hitting the maximums at age 70.

SALISBURYAnd that's one of the things with individuals today who are healthy. They haven't done the calculation, so they frequently retire too early.

REHMDallas Salisbury, he's president and CEO of the Employee Benefit Research Institute. Wilhelmina Leigh, would you go along with those recommendations?

LEIGHYes, I would. I think that's very solid advice. I think the unfortunate part here, though, is that there are many people who have had intermittent work histories, who have been unemployed often or who have been out of the labor force because they had to care for children or elders. And when they get to the age of 60 or 65 and start thinking about, okay -- and that's the unfortunate part, too, that many people don't start thinking about it until...

REHMThey wait too long.

LEIGH...they get to the age of 60 or 65, and they start thinking about well, what are my options? Their options are not looking so great at that point.

REHMWhat is the age of which they should begin to think about?

LEIGHWell, you know, I can only speak from my own personal experience, but at age 80 -- I mean, at -- sorry...

LEIGHNot at age 80. I haven't gotten there yet, no. In 1980, for some reason, I became fixated on, you know, my God, I'm working, but I'm not able to save money. And I'm not going to be working for the rest of my life. So how can I live when I stop working? And at that point -- and, I guess, I was, like, in my early 30s.

LEIGHAnd I started thinking about it, started reading about it, asking questions and signing up for every option that I had, every place that I worked. Now, what I wound up with was a lot of little dribbles of 403 (b) plans, you know, from the various jobs I had.

REHMExplain what a 403 (b) is.

LEIGHOh, I'm sorry. A 403 (b) is a tax deferred, defined contribution plan that an employee in the nonprofit sector generally can pay into. You're able to pay a certain amount of your earnings into that plan, and you're not taxed on it when you put it in.

REHMNow, that's in the nonprofit sector only?

LEIGHCorrect. 403 (b) is what it's called there.

REHMRight.

LEIGH401 (k) is what it's called in the corporate world generally.

REHMOkay. And you were in your early 30s?

LEIGHI was in my early 30s. I started putting in little bits and pieces there. And I just -- and because they were such a little bits and pieces, when I changed jobs, I just left them there. And that was good because 20 years later when I went back to try to find -- okay, what did I have where -- and figure out all those papers that came coming in the mail to me quarterly or whatever. I had reasonable sums of money that I could then roll over into an IRA.

LEIGHAnd then, you know, it's sitting there now as opposed to little dribs and drabs. But I think if you can focus on it, if you can set aside money earlier rather than later and not think about it, that's the important thing. Often, we think about that money and want to do something with it. If you can just put it there, leave it there and change jobs and do whatever else you're doing with the rest of your life, you know...

REHMAs many people did, Mary Beth Franklin, with their home equity, they saw all that money and then began taking it out. Is 33 or 35 early enough to start thinking about retirement?

FRANKLINWell, I actually think you should think about retirement from the first day of your first job. And I tend to be an optimist despite very difficult times. And I think our current crop of young workers may be in much better shape going forward than their boomer parents. A lot of that is because of landmark legislation, the 1996 Pension Protection Act, which encouraged employers to automatically enroll new workers into their 401 (k) plans.

FRANKLINNow, those workers can always say no and opt out. We encourage them not to because if you are in the habit right from the beginning of having a portion of your paycheck dedicated to a retirement savings account, you'll never miss it. And in many cases, those accounts have a default investment. If you don't choose how to invest the money, it will go into an age-appropriate target date retirement fund that's geared to your 30 years or more of retirement savings.

FRANKLINAnd also, the best plans have something called an automatic escalation feature, so that each year, a little bit more of your pay goes into that account. It's a wonderful combination.

REHMMary Beth Franklin of Kiplinger's Personal Finance magazine, Wilhelmina Leigh, she's an economist for the Joint Center for Political and Economic Studies. Turning to you, Alicia Munnell, you're particularly concerned about baby boomers who are not prepared for retirement.

MS. ALICIA MUNNELLYes. Our center puts out something called the National Retirement Risk Index, which projects the number of working households that are going to end up at retirement and not being able to maintain their standards of living, and that number has come out to be around half of all households. So I'm very worried, not only about boomers, but the group behind them and the group behind them.

MS. ALICIA MUNNELLI really want to reinforce one of Dallas' points on this issue of working longer. We can't control anything. God knows that's going on in the stock market. But that is one area where people who are employed can do something, can actually plan to work longer. And it has a huge benefit in terms of your Social Security benefit that you get, what allows your 401 (k) balances to build up.

MS. ALICIA MUNNELLAnd it really shortens the period over which you have to support yourself in retirement.

REHMBut you've been cautioning that, overall, America's retirement system is just too small. Explain what you mean.

MUNNELLI definitely have. I think it is too small. Basically, the base of our retirement system is Social Security. That is going to be -- pay less relative to pre-retirement earnings over time, even under current law, as Medicare takes a bigger bite out of the benefits as the full retirement age goes to 67 and more households are subject to taxation on those benefits.

MUNNELLSo the backbone is going to get smaller. 401 (k) plans are -- have shifted all the responsibilities and the risks to the individuals. Balances in those plans are relatively modest, still. People are going to be disappointed if they think they can really enhance their Social Security benefit by these balances. And then, people do not save on their own. On the other...

REHMSo are you suggesting the creation of something else?

MUNNELLI do. I think that we need a new tier of retirement saving that is between Social Security and 401 (k) s. We don't -- we want to keep the 401 (k) system. It's there. A lot of infrastructure's been built. But I think we need a new tier, both for those who have a 401 (k) and for the significant portion of the population who has nothing else but Social Security.

REHMAlicia Munnell, she's director of the Center for Retirement Research at Boston College. She's formerly a member of the president's Council of Economic Adviser, senior vice president at the Federal Reserve Bank of Boston. We'll take a short break. I see our lines are filled with many of you having questions. We'll try to get to you as quickly as possible. Stay with us.

REHMAnd welcome back. We're talking about our retirement, that is, all of us, you, me, the baby boomers, even those younger just coming up, perhaps even as young as in their teens realizing, as they watch their own parents struggle, that they have to begin planning. That's all there is to it. Here is someone who, I think, in his question, represents a great many people around the country.

REHMHe is Larry, here in Washington, D.C. He identifies himself as a federal worker. He says, "In the run-up to the debt ceiling deadline, I moved all my retirement funds out of stock and into the government equity fund, where it sits today. If you had a large sum of cash today, would you move it into stocks now or wait? If you wait, what signal would you look for to return to equities?"

REHMI think you have to be a fortune teller to have an answer to that, Mary Beth.

FRANKLINYes. That's called market timing, and it really is a loser's game 'cause no one has a crystal ball. I think the fact that you were prescient and realized you were concerned about your risk level, moving a portion to cash was probably a good idea. But you don't want all of your money in a stable, secure investment because while market risk is a major concern, so is longevity risk.

FRANKLINYou are probably going to live a very long time, and a portion of your money should be invested for growth. And, by definition, that's in the stock market. So depending how far away you are from retirement, you may want to keep a portion of your money in something very secure without a market risk, even CDs, which are paying very low amounts, or a stable value fund if you have a 401 (k) plan.

FRANKLINBut the rest of the money should be invested for long-term growth. And for people who are really concerned about that, there are ways to invest your money with some downside protection as well.

REHMDallas.

SALISBURYMy wife and I are far more conservative than what has just been described. Our life has always been you save enough so that you don't have to be in a high-risk portfolio, so that you do not have to fear losing the money you've worked so hard to save. So another option for individuals is there are high-return funds, like (word?). There are inflation-indexed bonds.

SALISBURYThere are ways to make sure you have a real rate of return without the principal risk, if that's what you want. So the easiest thing to say to this individual is figure out how willing you are at any point to lose your principal. Can you afford to lose it? And if you can afford to lose it, then you can afford to follow the approach of counting on equities as your only approach to growth.

SALISBURYBut there are clearly other asset classes that can grow. Inflation-indexed bonds are a good example.

REHMWilhelmina.

LEIGHI think -- excuse me. I think the answer would have to be pegged somewhat to the age of the caller, and I don't think I heard that in the question. But as a general response, I would say hold on to the money for a while in cash form and then invest some portion of it in equities. But invest most of it in a more fixed yield, not in a low yield or not in a low risk, but in something else, like a bond that might give a more stable return.

REHMAlicia, I want to turn to you and ask you why it is that 401 (k) plans seem to now be falling so short of people's needs.

MUNNELLThese are relatively new plans. They really came in in the early '80s. Things looked good during the stock market boom of the '80s and '90s. But then we've been hit by two financial crises. But also, it took us a while to figure out that they weren't working very well, that a large percentage of the people didn't sign up. A large percentage of people didn't diversify their portfolios.

MUNNELLA large percent of people didn't roll over their balances from one to another, one job to another. And, increasingly, public policy has recognized these problems. And, as someone else said, we've introduced automatic enrollment, so people are put in a plan and then have to opt out. Automatic escalation, default rate so that you go into a plan at 3 percent, but your employer can increase it to 4, 5, 6, 7, up to 10 percent.

MUNNELLWe have, now, target date funds that really force people to diversify and change your allocation over time. But all that took a while, and so that people approaching retirement today, the typical household really has less than $100,000 in those accounts, which, when you turn that into a monthly income, is just not very much.

REHMWe had an earlier recipe for planning for retirement, Alicia. How would you outline that plan?

MUNNELLSo I -- there's no easy answers here. And I was interested in Dallas' response to how people should invest. It would be nice to invest conservatively, but the problem is then you need to save a lot. And people are not good savers. But if I had my way, I would really make sure we don't cut Social Security very much at all when we go into these negotiations to restore solvency to the program. I think that's the base.

MUNNELLI think everybody needs it, not just lower income people, but middle income people, and even people on the top third. I then would do everything to make 401 (k) s' plans work more effectively. If I were in charge, I would say that if you want a 401 (k) plan, you had to have automatic enrollment and you had to have automatic escalation in the default rate. I think the idea of target date funds is good. These plans need to be easy and automatic.

MUNNELLWe also need to think what people are going to do when they take money out of these plans. You know, do you spend it -- how fast do you spend it? It's a really hard decision. And then I would have a new tier, which is basically -- that would replace, basically, 20 percent of pre-retirement earnings. But nothing comes free. And so it requires thought of how that's going to be paid for, what that should be invested in.

MUNNELLSo I don't want to spend time on specific details. People need to think that all out. But I would argue that we need more than we have now.

REHMSure. The one detail I would ask you to explain is that new tier of 20 percent. Where would that go?

MUNNELLSo I would think that that 20 percent should be structured in a way that has the best attributes of both defined benefit and defined contribution plans, so that it would -- people would have accounts that were portable, so that they could move from one place to another. But they shouldn't have access to the money before retirement. The money should be paid out as an annuity.

MUNNELLPrecisely how -- the tradeoff in terms of how you invest that is just what we were talking about in terms of Dallas' notion of, you know, invest securely. If you want higher returns, you get higher risks. And so the question is whether to put risky assets there, or -- I personally think we could actually handle some risky assets in the Social Security system. That was an old proposal that met with a lot of concern. But Canada does it, and they're not crazy.

REHMNow, just for clarity's sake, Mary Beth, explain the difference between defined contribution and defined benefit.

FRANKLINI'll start with defined benefit, which is the old traditional pension plan, in which case you worked for a company for X amount of years. You were rewarded for your service with a defined benefit, a set amount of money that you would receive every month for the rest of your life.

REHMAnd is that decided based on your salary?

FRANKLINIt's usually a combination of your top earning years of salary and your last three or five years of work times the formula of the years of work. So you have an idea, going into retirement, how much money you could count on every month for the rest of your life.

REHMOkay.

FRANKLINNow, the defined contribution plan is what most workers have today. We know them mainly as 401 (k) plans in the corporate world or 403(b)s in the education and nonprofit worlds, where you defer a portion of your salary each paycheck. You are not taxed on that as the money is contributed and grows. If you're lucky, your employer contributes a matching contribution. And it was designed for a more mobile workforce.

FRANKLINPeople don't tend to stay in their jobs for 20 or 30 years, but more like three or five, as Dallas will tell you. And the idea is that they could take that money with them, either rolling it over to an IRA or to another employer plan. Unfortunately, a lot of people, when they have short job tenures, haven't built up a large balance, so it doesn't look like a lot of money.

FRANKLINAnd they tend to think of that as a savings account to tap. Oh, I'll pay off that credit card bill. I'll, you know, put a roof on the house, or I'll buy a new car. And you lose not only the current value of that, but all that potential future growth. And it's that kind of leakage, I think, that has been a major problem in our retirement system.

REHMTell me, Dallas Salisbury, how much can someone save, for example, in health insurance costs by staying on the job until 65 or beyond?

SALISBURYWell, at least under current law -- and we're a small employer, so don't look at us. But look at national averages -- is the value of individual health insurance is a minimum of $9,000 a year and can be as much as $16,000 a year. And family coverage would range from $12,000 to $28,000 per year in the value you're getting. And if you're paying 25 percent of that, but your employer is paying 75, you are saving a great deal up until age 65.

SALISBURYOver age 65, there still is -- if the employer is providing coverage, you can defer beginning to pay Medicare premiums and the employer plan as primary under the law. And so, again, you can add a lot to savings by continuing to work even beyond Medicare eligibility age.

REHMWhat do you think of that approach, Wilhelmina?

LEIGHYou mean, of keeping on the...

REHMKeeping on the job. And...

LEIGH...on the job and therefore not having to pay your health benefits, you know, out of pocket? I think it's a great idea. I think, though, that there are lots of people who aren't physically able to. And I think that's one thing that we need to look at.

LEIGHWe need to look at how can we help people who are either not able to keep working as long as they need or people who are not in the labor force for long enough periods of time to have paid into the Social Security system to get back the most they could. And the system for the individual retirement accounts, the IRAs, that doesn't seem to be meeting that need fully.

LEIGHI think there sort of needs to be some other bridge system, as sort of has been mentioned, but a bridge system that is targeted toward people who are not necessarily in the labor force because 401(k)s, 403(b)s and Social Security are paid directly...

REHMTo employment.

LEIGH...to being employed.

REHMYeah, and if one is not employed, as many people are at this point in time, it's truly a problem. Wilhelmina Leigh is an economist at the Joint Center for Political and Economic Studies. You're listening to "The Diane Rehm Show." And it's time to open the phones, 800-433-8850. First to Cambridge, Mass. Good morning, Robbie. You're on the air.

ROBBIEGood morning, Diane, and good morning to your panel. I'm calling because this discussion is so timely for us. We're mid-'50s baby boomers. We are caught in the sandwich generation. We're paying college tuitions, for which we've saved. But we're also needing to be involved in the care of my husband's 81-year-old mother who lives in North Carolina and whose health and cognition is declining. We purchased a long-term care policy for her.

ROBBIEAnd she has some, you know, Depression-era baby savings, you know, pinched those pennies all these years, and she's going to run through those. And we've discovered that the social safety net in North Carolina is shredded. Her Social Security check is inches above the Medicaid qualification level in North Carolina. So she will not qualify for Medicaid when she runs out of her money.

ROBBIEAnd we will find ourselves contributing to her costs, or they will put her out on the streets. They will discharge her with 30-days notice from any assisted living. So that's a cost that we hadn't planned for in our budget. And at the same time, we are right on the age cusp where, you know, one of your panelists said earlier, plan for Social Security, plan for what your Medicare payments are going to be, and then you can see what you need in retirement.

ROBBIEHow on earth, in these changing fiscal times -- and we understand that these entitlement programs need to change. But we are going to be directly affected with about the minimum amount of time to react. How on earth do we plan for this?

REHMDallas.

SALISBURYWell, I think that you raise a terrific point because long-term care is a just a devastating potential expense. And in our retirement readiness rating that we've been publishing since 2003, we find that that factor, which pushes the most people from being ready for retirement to not being ready, is the prospect of unexpected long-term care expenses or major medical expenses. The dynamic for all of us is thinking about these things.

SALISBURYWe, at this point, have saved, my wife and I, 33 times what we think we will want to spend our first year in retirement. So, by my own calculation, I could afford to retire. I have not. I have no plans to do so. Why?

SALISBURYBecause, in these uncertain economic times, there is absolutely nothing to substitute for a paycheck. So my primary recommendation would be for you to keep working as long as you can keep working, most particularly given the nature described in -- of taking care of an elderly family member.

REHMMary Beth.

FRANKLINI agree that long-term care, either for yourself or for an elderly parent, is the wildcard of retirement planning. It's almost impossible to plan for. You had mentioned long-term care insurance, I think. Did you -- is that what your mother has? And is that what's paying for her assisted living now?

ROBBIEYes. And she'll run through that. And then this is -- and, you know, we're not going to let her be put out on the street. We're going to be contributing to her care. The real question I'm asking is how to deal with the uncertainty about these entitlements that have been part of our long-term plan. We've been planning forever. (unintelligible) we're one of those assiduous savers. And we've been planning forever.

ROBBIEBut between now, supporting my mother-in-law, it's like paying college tuition forever and ever. We don't wish her gone, but we'll be paying it until she is gone.

LEIGHYeah.

REHMIt's tough.

LEIGHYou know, it's very tough. And the only possible thing that hasn't been mentioned is perhaps to move her to your state. That might help. I don't know.

REHMWilhelmina Leigh, she is with the Joint Center for Political and Economic Studies.

REHMAnd just one last comment on that last caller from Massachusetts, Wilhelmina. You were saying move her to your state because?

LEIGHYes. Yeah, I was thinking that moving her to your state might be easier because at least she would be closer. Perhaps you could put her in your home. I don't know all the circumstances. But perhaps you could put her in your home and bring services to her, which would be considerably cheaper than having her in a nursing home.

REHMThat's true. All right. Let's go to Birmingham, Ala. Good morning, Sue. You're on the air.

SUEGood morning. I listen to -- I've been listening to a lot of these shows lately because I find myself in the position where I'm in my early 60s and I had started planning for my life. But then, the accidental death of my daughter sent us into a tailspin...

REHMOh, I'm so sorry.

SUE...all the medical expenses involved in it. We ended up divorcing and losing all our savings, and I started to get back on my feet. And then my father had a stroke and multiple heart attacks, and I had to take care of him. So in, essence, I lost everything I owned. And in 2007, I started to get back on my feet, but I'm one of those people who -- what can I do? I mean, I have very little money in the bank. I have managed to buy a small apartment.

SUEI'm working at a company that I have to pay my own health insurance, $250 a month. And it's very poor health insurance. I feel lucky to have a job. But when I listen to all the investment shows, I don't hear anyone talking about what my demographic can do at this late stage...

REHMAll right. Alicia, I wonder if you have any thoughts.

MUNNELLYes. I mean, I -- first of all, my heart goes out to...

REHMIndeed.

MUNNELLBut then I think she's doing the exactly right thing, which is to get back in the labor force and try to work as long as you can. And I know it's a challenge, and I don't think employers love older people. I think it's a constant challenge to say to your employer, I'm going to be here for a long time. You know, consider me for promotion. I'm part of the team. But I think being in the workforce is the best possible thing she could do.

MUNNELLThe other thing is that if she has a house, which is something we really haven't talked about -- but that is really a major asset for a lot of people. And to the extent that once she retires that some sort of reverse mortgage might be, also, a source of income for her.

REHMNow, I've seen mixed messages about reverse mortgages. Dallas.

SALISBURYAnd we've done three different versions of our retirement readiness rating related to what people should do with their home equity. And, interestingly, if you look at three different options: sell it and invest the money, do a reverse annuity mortgage, or keep the home in order to have reduced living expenses until you absolutely need the money.

SALISBURYFor example, because you need to go into a nursing home, which one of those three strategies is the most beneficial for the largest number of people? And the most beneficial is actually for individuals to keep the home, stay in the home and preserve the equity and then sell the home at the point that they actually need the money.

REHMGo ahead, Mary Beth.

FRANKLINBecause to keep the mind with the reverse mortgage, to continue getting those monthly payments, you must be in the home, so if you take a reverse mortgage and then you go into a nursing home with the idea that you're not coming back, that loan is due in full at that point. And it was probably a very expensive loan. If I could jump back to that caller for one minute...

REHMSure.

FRANKLINI wanted to offer Sue another piece advice. Sue, if you continue working until 66, which is probably your normal retirement age, you might want to look into collecting benefits as a divorced spouse only. If you wait until your normal retirement age of 66, you can restrict your claim to spousal benefits only, meaning your own retirement benefits will continue to grow up to age 70 which is the maximum.

FRANKLINAnd once you reach that normal retirement age, you can also continue to work without any reduction in Social Security benefits. So think of that as a possible help with your income.

REHMAll right. And Sarah Jane from Beaverdam, Va., hasn't heard us talk about working people who have no benefits. There are lots of people trying to plan without jobs and offer these kinds of benefits. What do you say to them, Wilhelmina?

LEIGHYeah, that's a real, real challenge because, very often, working people will earn just enough money to not qualify for Medicaid. So they don't get any access to health insurance without paying for it out of pocket or, you know, going into the individual insurance market, which is not so great at this point.

LEIGHThe major thing that people who don't have benefits can do is to consider taking out or consider opening an IRA, which is the Individual Retirement Account. Many banks offer them now, and it's a way that you can put aside money. There are several forms of it now.

REHMWhat about just putting money in the bank?

LEIGHThat, too, but I think in some ways, putting it into an instrument that is a little harder for you to get at it makes it a little more likely it's going to stay there. It's fairly easy to put money in the bank and also fairly easy to take it out of the bank.

REHMAll right. Let's go to Richmond, Va. Good morning, Joe. You're on the air. Joe, are you there? No? I guess he's not. Let's go to Liam in Jacksonville, Fla. Hi, there.

LIAMGood morning. My question is, why isn't there more personal education starting very early on about personal finance, the very basics, and standardized?

LEIGHGreat question.

LIAMYou know Einstein made a quote...

LEIGHGreat question.

LIAMI don't remember it exactly, but it is about the power of compound interest. And even very modest amounts put away, starting very early, grow, and they grow dramatically, you know, later on in life.

REHMAlicia, what's happened to our education regarding savings? Oh, dear. Alicia, I'm afraid she -- okay. Go ahead, Wilhelmina. You were saying it's such a great question.

LEIGHYeah, one of the problems with that is, you know, there are lots of people who say exactly what your question is. Why don't we just start teaching people at an early age, have -- and, in fact, there have been efforts made to make it a mandate throughout the school systems. There are several states that actually do mandate it, you know, starting in lower grades and having something all the way through the 12th grade.

LEIGHBut in this era of No Child Left Behind and trying to teach for the tests, et cetera, et cetera, and school systems not having money to even keep up their gym classes, things such as financial instruction fall by the wayside, and that's unfortunate. There are some exceptions. There's a charter school in Chicago that's run by Ariel Investments, and they start at, you know, grade one.

LEIGHThey give their students a certain amount of money that they can invest over their tenure there, so they're learning mathematics. They're learning investment. And then they get to keep what they earn, but the money that they were given initially stays there and goes back to the next class. And those young people are certainly learning more than most of us as grown-ups had to learn.

REHMExactly. Dallas.

SALISBURYThe JumpStart Coalition for Youth Financial Literacy, jumpstart.org, has been working on these programs since 1995. They have extensive teacher training programs across the United States. There is now, after two years, a national strategy on bringing these programs into the schools. And what was mentioned as the teaching to testing is actually out of the Education Department.

SALISBURYThere are now requirements in the testing that have financial questions. So we're beginning to see this expand and have seen it expand over the last five years. I think you're going to see more expansion in the years ahead. But it's a superb point.

REHMI remember that we got checking accounts for each of our children as soon as we could because we wanted them to know the power of writing a check, the power of having a bank account and what that was going to mean to each of them as they grow older. Mary Beth.

FRANKLINWell, I think the issue of financial literacy should start at kindergarten. You can have one cookie today, or you can have two cookies next week if you wait. The concept, of course, of food police probably wouldn't like that analogy.

FRANKLINBut I think this is something that parents, because of the uncertain times, are more aware of these basic rules. If they don't feel comfortable talking about money, there are many sources on the Internet. They could start with the JumpStart or the Ballpark E$timate or Choose to Save and get those basic concepts that they can translate to their children at home. You can't lay everything on the school system. Some of it just starts at home.

REHMAll right. Let's go now to Charlestown, W. Va. Good morning, Mike. You're on the air.

MIKEGood morning, all. It's a great discussion this morning. But all of this uncertainty regarding our financial times now and the changes in the investment strategies that you've all been describing tell me that the preservation of the fundamental security -- Social Security system is absolutely necessary. You know, there are so many people who just work for a living by the hour who don't have these financial benefits.

MIKEAnd, you know, those folks are going to be retiring. And if we slash Social Security, as been suggested by many people in Washington, it's just going to exponentially multiply poverty among old people.

REHMAnd, Alicia, I'm sure you would second that motion.

MUNNELLOh, yes. I -- Mike, I can't agree with you more. I mean, it is the backbone of our whole retirement system. And the idea that this can be cut without doing harm to a lot of low and middle-income people is just silly.

MUNNELLI do worry that younger people believe that it's not going to be there for them. That is wrong. But it also means that they're not going be concerned if something is done to it. So I think those of us who know how valuable it is really need to speak up as you are. And are you for preserving it in any way we can? There's no magic bullet.

MUNNELLIt means more money in if we're going to keep the same level of benefits out. But I think that it's a good for savings mechanism that everybody needs when they get to retirement.

REHMOf course, that really isn't up to us, considering these fights that are going on in the Congress, Alicia.

MUNNELLI know. But we -- that's our job, right, to let our Congressman know what we think.

REHMGood point. And you're listening to "The Diane Rehm Show." I see that Joe in Richmond, Va., is back on the line. Good morning to you.

JOEGood morning. Can you hear me now?

REHMSure can.

JOEOkay. Well, hi to Wilhelmina and Dallas. I enjoy your show. Listen, I had Valerie Jarrett, one of the president's advisers, on the phone about a month a half ago. She agreed with me that if everyone built their home as I did, we wouldn't be in the mess we're in now. And my question is -- they're sucking $300 of my money out, which my income has been decimated by this economy.

JOEI've had to take out $3-, $4-, $500 monthly out of my retirement account just to make ends meet. And my question to the panel is, how do we get -- you know, there's a law in place that demands that to maximize assistance to homeowners I'm being disallowed refinancing on my home, which is causing me to take this money out every month. I'd like to know what can we do to get the government to do the right thing up there.

REHMDallas.

SALISBURYI -- luckily, I'm not a lobbyist, and getting the government to do the right thing is above my pay grade. But I wish you luck.

REHMWhat about the high taxes that someone like Joe is going to have to take as he takes money out of that IRA, Mary Beth?

FRANKLINThe thing to realize is that IRAs and other retirement accounts are basically a bargain with the devil. You get a tax break going in, but when you start pulling that money out, you pay taxes at your ordinary income rate. And, generally, if you're under 59 1/2, you'll also pay a 10 percent penalty on top of that. The idea is to preserve those savings as long as possible.

FRANKLINBut for people like Joe who have to tap them and perhaps early, there's a pretty stiff tax penalty.

REHMAll right. And, finally, to Penny in Harrisville, N.H. Quick call, Penny. Go right ahead.

PENNYOh, hi, Diane. Thank you so much for taking my call.

REHMSure.

PENNYI'm 68. I teach full-time as a teacher in a small school in New Hampshire. And I've been trying to follow the rules all my life, and I do have savings. I have some -- I have a Roth IRA, but I'm single. And I'm very healthy. I don't have any medical problems. And yet -- so I'm saving my money. But I don't really know what to do with it.

PENNYI don't want to put it into the stock market. I'm so disillusioned by the corruption and the up and down of our corporate world. So people have suggested municipal funds, real estate -- I -- you know, I'm not really in that position to purchase real estate. I'm really frustrated 'cause I don't know -- I've researched high-yield savings at 1 percent...

REHMSure. Sure. Let's see what Alicia has to say.

MUNNELLWell, I think that Penny highlights one of the real dilemmas of the financial market. Not only do we have stock gyrating wildly, we have all the safe securities, the Treasury instruments yielding almost nothing. So you're faced with this very stark choice between earning almost zero on your assets or risking the stake fluctuations. And so I'm where Penny is. I don't know what to do, and so I do a little of everything.

REHMAll right. Mary Beth, where would you go?

FRANKLINPenny, you may want to look into an annuity for a portion of your retirement income. That's basically a contract with an insurance company that you give them a chunk of money, and they promise to pay you X amount for the rest of your life, based on your age and interest rates. So if you can have your fixed costs covered between, perhaps, Social Security and an annuity, then you might feel a little more comfortable to keep the rest of your money invested.

REHMAnd I'm sure we could go on with this discussion for hours. But thank you all so much: Mary Beth Franklin of Kiplinger's Personal Finance Magazine, Dallas Salisbury of the Employee Benefit Research Institute, Wilhelmina Leigh of the Joint Center for Political and Economic Studies and Alicia Munnell of the Center for Retirement Research at Boston College. Thanks for listening, all. I'm Diane Rehm.

ANNOUNCER"The Diane Rehm Show" is produced by Sandra Pinkard, Nancy Robertson, Susan Nabors, Denise Couture, Monique Nazareth, Sarah Ashworth, Lisa Dunn and Nikki Jecks. The engineer is Tobey Schreiner. A.C. Valdez answers the phones. Visit drshow.org for audio archives, transcripts, podcasts and CD sales.