Anomaly Explains Puzzling Interest Rates for Series I Savings Bonds

In the first quarter of this year, prices went back the other way, more than enough, but only slightly more, to offset the previous quarter's decline. That left the overall net gain for the six months at 0.5 percent.

I Bonds issued before now benefited from the hurricane spike and related factors. Those bonds carried a fixed rate of only 1 percent and inflation rate of about 5.7. Rates on them will thus be even lower than new ones for the next six months, after which, barring further gyrations, the inflation component is likely to return to some level more in line with what's really happening.

Public Debt officials noted that older I Bonds, many of which carry much higher fixed rates, will decline, too, but not as much. An I Bond carrying, for example, a 3.5 percent fixed rate, would pay 4.5 percent for the next six months.

They say that over the long run, despite short-term ups and downs, I Bonds are doing what they are meant to: protect bondholders' money from erosion due to inflation.

For more information, go to http://www.publicdebt.treas.gov/sav . On that page, you can click on "savings bonds" at the top for general information about both I and EE issues. Or, you can click on "I Bonds" at the right where EE and I rates are shown, and that will bring up a discussion of the new rate. At the bottom of that, you can click on "Savings Bonds Earnings Report" to bring up tables of rates and values for older bonds.

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Assets in individual retirement accounts, 401(k) plans and other retirement investment/savings accounts now exceed those in traditional pension plans, and together the value of all these retirement assets now totals a record $14.3 trillion, according to the Investment Company Institute, a trade group for the mutual fund industry.

Assets in IRAs, including rollovers from 401(k) and other employer-sponsored plans, rose 10 percent last year to $3.7 trillion. Money in 401(k) plans themselves rose 8 percent to $2.4 trillion.

Retirement assets are now more than a quarter of the average household's net worth.

The ICI's findings suggest that today's workers and retirees are, in the aggregate at least, better prepared financially for old age than earlier generations were, despite the alarms being sounded about the condition of traditional pensions.

ICI experts said they view the growth of IRA, 401(k) and similar assets as a good sign for retirement security, but they cautioned that inside the aggregate numbers there are many workers doing very well and many whose accounts may turn out to be inadequate.

"There will be a range of outcomes" among individual workers, said ICI chief economist Brian Reid.

The challenges remain daunting. A new paper by the HR Policy Association, an organization of human-resource executives, urges Congress and other policymakers to simplify what it calls the "complex web of savings vehicles" offered to workers. For example, the paper notes that there are "at least 17 different tax-advantaged employment- or individual-based vehicles available to save for retirement and health care expenses," with "a dizzying array of eligibility requirements, contribution limits and tax treatments." It recommends allowing consolidation of those into a single retirement income/retiree health income account.

It also suggests creation of a Social Security add-on account to boost retiree income. That could be in the form of an investment account indexed to stock-market performance, which at retirement would be turned into an annuity based on the account balance. Funding could come in part from mandatory worker contributions and in part from the Social Security system. Investing through the Social Security system would eliminate the "leakage" common in purely private retirement accounts, though the extra contributions might be hard on some low-income workers, the paper says. "Yet the tradeoff -- having a greater percentage of [pre-retirement] income in retirement -- makes this option worthy of consideration," it concludes.

At the same time, proponents of 401(k) and similar accounts note that if Congress does not act, the annual contribution limits on those vehicles will drop back to their pre-2001 levels because the law that raised them expires at the end of 2010. That is not universally regarded as a bad thing, however; critics of the accounts argue that they have made it too easy for employers to drop their traditional pensions and turn the risk over to the workers.

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The cost of automobile insurance is expected to rise 0.5 percent this year, the smallest increase in six years, according to an industry group.

The nationwide average cost of auto insurance this year is estimated at $867 -- an increase of $4 per vehicle from last year, according to the Insurance Information Institute Inc., despite record vehicle-related losses during last year's hurricanes. The projected increase represents a continued slowdown from 2005, when auto insurance costs rose 2.5 percent.