Retirement – Actuarial News

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In this paper I use the 1973 cross-sectional Current Population Survey (CPS) matched to longitudinal Social Security administrative data (through 1998) to examine the relationship between retirement age and mortality for men who have lived to at least age 65 by year 1997 or earlier.¹ Logistic regression results indicate that controlling for current age, year of birth, education, marital status in 1973, and race, men who retire early die sooner than men who retire at age 65 or older. A positive correlation between age of retirement and life expectancy may suggest that retirement age is correlated with health in the 1973 CPS; however, the 1973 CPS data do not provide the ability to test that hypothesis directly.

Regression results also indicate that the composition of the early retirement variable matters. I represent early retirees by four dummy variables representing age of entitlement to Social Security benefits—exactly age 62 to less than 62 years and 3 months (referred to as exactly age 62 in this paper), age 62 and 3 months to 62 and 11 months, age 63, and age 64. The reference variable is men taking benefits at age 65 or older. I find that men taking benefits at exactly age 62 have higher mortality risk than men taking benefits in any of the other four age groups. I also find that men taking benefits at age 62 and 3 months to 62 and 11 months, age 63, and age 64 have higher mortality risk than men taking benefits at age 65 or older. Estimates of mortality risk for “early” retirees are lowered when higher-risk age 62 retirees are combined with age 63 and age 64 retirees and when age 62 retirees are compared with a reference variable of age 63 and older retirees. Econometric models may benefit by classifying early retirees by single year of retirement age—or at least separating age 62 retirees from age 63 and age 64 retirees and age 63 and age 64 retirees from age 65 and older retirees—if single-year breakdowns are not possible.

The differential mortality literature clearly indicates that mortality risk is higher for low-educated males relative to high-educated males. If low-educated males tend to retire early in relatively greater numbers than high-educated males, higher mortality risk for such individuals due to low educational attainment would be added to the higher mortality risk I find for early retirees relative to that for normal retirees. Descriptive statistics for the 1973 CPS show that a greater proportion of age 65 retirees are college educated than age 62 retirees. In addition, a greater proportion of age 64 retirees are college educated than age 62 retirees, and a lesser proportion of age 64 retirees are college educated than age 65 or older retirees. Age 63 retirees are only slightly more educated than age 62 retirees.

Despite a trend toward early retirement over the birth cohorts in the 1973 CPS, I do not find a change in retirement age differentials over time. However, I do find a change in mortality risk by education over time. Such a change may result from the changing proportion of individuals in each education category over time, a trend toward increasing mortality differentials by socioeconomic status, or a combination of the two.

This paper does not directly explore why a positive correlation between retirement age and survival probability exists. One possibility is that men who retire early are relatively less healthy than men who retire later and that these poorer health characteristics lead to earlier deaths. One can interpret this hypothesis with a “quasidisability” explanation and a benefit optimization explanation. Links between these interpretations and my analysis of the 1973 CPS are fairly speculative because I do not have the appropriate variables needed to test these interpretations.

A quasi-disability explanation, following Kingson (1982), Packard (1985), and Leonesio, Vaughan, and Wixon (2000), could be that a subgroup of workers who choose to take retired-worker benefits at age 62 is significantly less healthy than other workers but unable to qualify for disabled-worker benefits. An econometric model with a mix of both these borderline individuals and healthy individuals retiring at age 62 and with almost no borderline individuals retiring at age 65 could lead to a positive correlation between retirement and mortality, even if a greater percentage of individuals who retire at age 62 are healthy than unhealthy. Evidence for this hypothesis can be inferred from the finding that retiring at exactly age 62 increases the odds of dying in a unit age interval by 12 percent relative to men retiring at 62 and 3 months to 62 and 11 months for men in the 1973 CPS. In addition, retiring exactly at age 62 increases the odds of dying by 23 percent relative to men retiring at age 63 and by 24 percent relative to men retiring at age 64. A group with relatively severe health problems waiting for their 62^nd birthday to take benefits could create this result.

An explanation based on benefit optimization follows Hurd and McGarry’s research (1995, 1997) in which they find that individuals’ subjective survival probabilities roughly predict actual survival. If men in the 1973 CPS choose age of benefit receipt based on expectations of their own life expectancy, then perhaps a positive correlation between age of retirement and life expectancy implies that their expectations are correct on average. If actuarial reductions for retirement before the normal retirement age are linked to average life expectancy and an individual’s life expectancy is below average, it may be rational for that individual to retire before the normal retirement age. Evidence for this hypothesis can be inferred from the fact that men retiring at age 62 and 3 months to age 62 and 11 months, age 63, and age 64 all experience greater mortality risk than men retiring at age 65 or older. If only men with severe health problems who are unable to qualify for disability benefits are driving the results, we probably would not expect to see this result. We might expect most of these individuals to retire at the earliest opportunity (exactly age 62).²

Author(s): Hilary Waldron

Publication Date: August 2001

Publication Site: Social Security Office of Policy, ORES Working Paper No 93

Why Not Push Back Retirement?

March 20, 2024March 20, 2024 Mary Pat Campbell

Link:https://www.city-journal.org/article/review-of-work-retire-repeat-by-teresa-ghilarducci

Excerpt:

Before she exited the Republican primary race, Nikki Haley advocated gradually increasing the retirement age to match the growth in life expectancy. Her political rivals swiftly criticized her proposal, but it enjoys widespread support among those looking to rein in soaring entitlement costs. A new book by economist Teresa Ghilarducci, Work, Retire, Repeat, offers reasons to seek an alternative path to reform.

Pay-as-you-go retirement systems such as Social Security or Medicare use taxes on current workers to pay benefits to retirees. Even if individuals on average fully pay for what they later get, such an arrangement will not be sustainable if declining birth rates and rising life expectancy reduce the ratio of workers to retirees. In 1960, there were five workers for each retiree. By 2000, the ratio had fallen to three-to-one. By 2040, there will be only two workers for each retiree. Raising the retirement age would both reduce the cost of benefits and increase payroll tax revenues to pay for them.

But Ghilarducci’s book argues against pushing back retirement. She suggests that, whereas policymaking elites view retirement as boring, low-paid workers typically can’t wait for relief from “heavy lifting, crushing work schedules, arbitrary changes in work duties, and the fear of being laid off.”

Ghilarducci acknowledges that employment can be a valuable source of meaning, personal identity, achievement, social interaction, and structure in people’s lives. But she disputes the claim that the correlation of retirement with declining mental health proves that it is bad for people.

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By allowing younger workers to opt for a lower payroll tax rate for the remainder of their careers, in return for a uniform safety-net benefit when they reach retirement, Social Security could be made more effective at preventing poverty while also being less of a burden on the young. Such a benefit structure would likely also motivate higher-earning workers to retire later than the poor—the arrangement for which Ghilarducci provides her strongest arguments.

Author(s): Chris Pope

Publication Date: 14 Mar 2020

Publication Site: City Journal

Should a Federally Sponsored ‘Pension Dashboard’ Be Established?

February 22, 2024February 22, 2024 Mary Pat Campbell

Link:https://www.napa-net.org/news-info/daily-news/should-federally-sponsored-%E2%80%98pension-dashboard%E2%80%99-be-established

Excerpt:

A “pension dashboard” could be useful in the United States to help participants track their retirement savings when they change jobs, but Congress would need to authorize a federal agency to establish and oversee such a dashboard. It also would have to give the agency the authority to consolidate retirement account information, the GAO stated in its report—“401(k) Plans: Additional Federal Actions Would Help Participants Track and Consolidate Their Retirement Savings.”

GAO was asked to review, among other things, the challenges that 401(k) plan participants have in keeping track of their retirement savings, as well as the challenges they have in rolling over their savings from one plan to another and federal actions that can improve the process.

In fact, this issue is not new, as the dashboard concept was raised in late 2020 in a white paper (A Retirement Dashboard for the United States) by authors David John of the AARP Public Policy Institute, Grace Enda of the Urban-Brookings Tax Policy Center, and William Gale and J. Mark Iwry of the Brookings Institution who called for the creation of a retirement dashboard to help savers better manage and keep track of their savings.

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Consequently, GAO recommends that Congress grant authority to a federal agency to develop and oversee a comprehensive pension dashboard that can provide participants’ information to them in one location. GAO notes this “would reduce the burden on plan sponsors and providers, who must otherwise track or manage lost accounts or missing participants.”

The report also suggests that DOL and IRS establish a system to facilitate automatic plan-to-plan rollovers to help participants maintain consolidated savings as they change jobs. GAO also recommended that the government (PBGC, Labor and Treasury) help 401(k) participants by improving the information they receive about options for their plan savings and the process they must undergo to consolidate their savings after changing jobs.

In its written response, DOL stated that it would consider actions related to GAO’s disclosure recommendation to ensure participants “receive easily understandable, timely, and comprehensive information.” DOL also noted that it is engaged in joint agency efforts and that it would be appropriate for them to consider the recommendation as part of such efforts with Treasury, IRS, and PBGC, as required under the SECURE 2.0 Act. Under the act, the agencies are to study, analyze, and report to Congress on the effectiveness of their reporting and disclosure requirements before the end of 2025.

Author(s): Ted Godbout

Publication Date: 20 Feb 2024

Publication Site: NAPA – National Association of Plan Advisors

The Fed Is Very Concerned Over Spending and Interest on the National Debt

February 13, 2024February 13, 2024 Mary Pat Campbell

Link: https://mishtalk.com/economics/the-fed-is-very-concerned-over-spending-and-interest-on-the-national-debt/

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The current setup is nothing like the situation following WWII. Don’t expect another baby boom.
Instead, expect a massive wave of boomer retirements (already started) that will pressure Medicare and Social Security.
Depending on the kindness of foreigners to increase demand for US treasuries is not exactly a great plan.
Artificial Intelligence (AI) will undoubtedly increase productivity. But that is not going to offset the willingness of Congress to spend more and more money on wars, defense, foreign aid, child tax credits, free education, and other free money handouts, while trying to be the world’s policeman.

Author(s): Mike Shedlock

Publication Date: 12 Feb 2024

Publication Site: Mish Talk

Rudy Giuliani says he regrets not having pension as he faces devastating $148m legal payout

January 3, 2024January 3, 2024 Mary Pat Campbell

Link: https://www.aol.com/news/rudy-giuliani-says-regrets-not-194510062.html

Excerpt:

Former New York Mayor Rudy Giuliani said he regrets not taking a city pension now that he’s facing a $148m civil court payout for defaming a pair of Georgia election workers.

The former mayor has since filed for bankruptcy, according to the New York Post.

Empire Centre for Public Policy, a taxpayer watchdog group in New York, found no evidence of Mr Giuliani ever filing to receive a pension.

Had he applied, he would have been eligible for approximately $26,000 per year once he turned 62.

The former mayor would have an extra $442,000 in his coffers if he had applied for a pension.

When The New York Post asked him why he never took a pension, he suggested he was “giving back to the city I love.”

“Although I would like to take it now,” he added.

The former mayor then admitted that he also didn’t “know how to go about it.”

He also is not receiving a federal pension for the time he spent working as Manhattan’s US Attorney and for other government work he performed.

Author(s): GRAIG GRAZIOSI

Publication Date: 1 Jan 2024

Publication Site: Independent UK via AOL

DOL Inspector General Says EBSA Lacks Resources to Audit Pensions

December 20, 2023 Mary Pat Campbell

Link: https://burypensions.wordpress.com/2023/12/06/dol-inspector-general-says-ebsa-lacks-resources-to-audit-pensions/

Excerpt:

planadvisor.com reports:

Department of Labor Inspector General Larry Turner issued a semi-annual report Tuesday arguing that the Employee Benefit Security Administration lacks both the resources and authority to fulfill its mandate to employee benefit plans. The report particularly emphasized EBSA’s limited authority to conduct thorough audits of workplace retirement plans.

My takeaways from the report:

The OIG remains concerned about the Employee Benefits Security Administration’s (EBSA) ability to protect the integrity of pension, health, and other benefit plans of about 153 million workers, retirees, and their families under the Employee Retirement Income Security Act of 1974 (ERISA). In particular, the OIG is concerned about the statutory limitations on EBSA’s oversight authority and inadequate resources to conduct compliance and enforcement. A decades-long challenge to EBSA’s compliance program, ERISA provisions allow billions of dollars in pension assets to escape full audit scrutiny. The act generally requires every employee benefit plan with more than 100 participants to obtain an audit of the plan’s financial statements each year. However, an exemption in the law allowed auditors to perform “limited-scope audits.” These audits excluded pension plan assets already certified by certain banks or insurance carriers and provided little to no confirmation regarding the actual existence or value of the assets. (page 23)

Author(s): John Bury

Publication Date: 6 Dec 2023

Publication Site: burypensions

A Conversation With Benny Goodman

November 8, 2023 Mary Pat Campbell

Link: https://www.lifehealth.com/a-conversation-with-benny-goodman/

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PEK: Your research reveals a conundrum when comparing a variable annuity with systematic withdrawals from investment accounts (assuming similar investment returns): the annuity will generally outperform. How do we convey this very basic equivalency to our clients?
BG: In my experience, I’ve seen that when some people get to retirement, they may have upwards of a half a million dollars in their accounts. Financial planners owe their clients more than just plans to help them accumulate assets and some well-wishes. Most people do not understand how to generate income from their savings that will last the rest of their lives.
Savings are exposed to market risk that can erode account balances before or in retirement, as we saw in The Great Recession of 2009 and the economic contraction during the coronavirus pandemic. And fifty percent of the population can expect to live beyond the average life expectancy in retirement, exposing them to longevity risk.
The practical reality is that most individuals cannot insulate themselves from risk on their own. Annuitizing a portion of a portfolio’s assets can help mitigate these issues.

PEK: You demonstrate that delaying the start of an annuity by five years may cost 5% in future income, which delaying ten years may cost 15%. Please talk about the time factor and the cost of delay.

BG: The concept is based on something called “mortality credits.” When buying an annuity, you join an annuity pool. Every time someone dies early (before he spent all the money he contributed) the leftover money stays in the pool and is shared by all those still in the pool. The money becomes a mortality ‘credit’ for those who did not die. These mortality credits allow the former to get lifetime income. They start adding value from the day someone enters the pool. Those who purchase the annuity at a later time were not in that pool and do not get that credit. Purchasers only receive mortality credits for those people who died after the purchasers joined the pool. Lower mortality credit means lower lifetime income. Mortality credits have value by adding to income.

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PEK: Likewise, how real is the prospect of outliving one’s assets today?

BG: It’s very real. Data from EBRI indicates that about 40% of Americans face the risk of running out of money in retirement.

Now, not many people continuously spend and then one day look at their account and say, “Oh no! There is no money left!” But well before that day, they will start adjusting their spending downward so as to make sure they don’t outlive their money. And some have to make drastic and painful decisions, like choosing between paying for rent or healthcare; to pay for the electric bill or for medicine. Some retirees will even take half the dosage of their prescribed medicine to conserve it. It may even require that retirees move in with a child rather than live in poverty. In certain family dynamics, living with elderly parents is expected, but it may not be ideal for many.

Author(s): P.E. Kelley, Benjamin Goodman

Publication Date: 30 Oct 2023

Publication Site: Advisor Magazine

Is Social Security’s Website Suddenly Saying the System Owes You Far Less?

October 24, 2023October 24, 2023 Mary Pat Campbell

Link: https://www.forbes.com/sites/kotlikoff/2023/10/20/is-social-securitys-website-suddenly-saying-it-owes-you-far-less/?sh=e3603bc7f679

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Social Security states, at this link: retirement/planner/AnypiaApplet.html, that “(Its) Online Calculator is updated periodically with new benefit increases and other benefit amounts. Therefore, it is likely that your benefit estimates in the future will differ from those calculated today.” It also says that the most recent update was in August 2023.

This statement references Social Security’s Online Calculator. But they have a number of calculators that make different assumptions. And it’s not clear what calculator they used to produce the graphic, see below, that projects your future retirement benefit conditional on working up to particular dates and then collecting immediately. Nor is Social Security making clear what changes they are making to their calculators through time.

What I’m quite sure is true is that the code underlying Social Security’s graphic projects your future earnings at their current nominal value. This is simply nuts. Imagine you are age 40 and will work till age 67 and take your benefits then. If inflation over the next 27 years is 27 percent, your real earnings are being projected to decline by 65 percent! This is completely unrealistic and makes the chart, if my understanding is correct, useless.

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The only thing that might, to my knowledge, reduce projected future future benefits over the course of the past four months is a reduction in Social Security’s projected future bend point values in its PIA (Primary Insurance Amount) formula. This could lead to lower projected future benefits for those pushed higher PIA brackets, which would mean reduced benefit brackets. This could also explain why the differences in projections vary by person.

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Millions of workers are being told, from essentially one day to the next, that their future real Social Security income will be dramatically lower. Furthermore, the assumption underlying this basic chart — that your nominal wages will never adjust for inflation — means that for Social Security’s future benefit estimate is ridiculous regardless of what it’s assuming under the hood about future bend points.

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One possibility here is that a software engineer has made a big coding mistake. This happens. On February 23, 2022, I reported in Forbes that Social Security had transmitted, to unknown millions of workers, future retirement benefits statements that were terribly wrong. The statement emailed to me by a worker, which I copy in my column, specified essentially the same retirement benefit at age 62 as at full retirement age. It also specified a higher benefit for taking benefits several few months before full retirement.

Anyone familiar with Social Security benefit calculations would instantly conclude that there was either a major bug in the code or that that, heaven forbid, the system had been hacked. But if this wasn’t a hack, why would anyone have changed code that Social Security claimed, for years, was working correctly? Social Security made no public comment in response to my prior column. But it fixed its code as I suddenly stopped receiving crazy benefit statements.

Author(s): Laurence Kotlikoff

Publication Date: 20 Oct 2023

Publication Site: Forbes

Working Enrolled Actuaries

October 24, 2023October 24, 2023 Mary Pat Campbell

Link: https://burypensions.wordpress.com/2023/10/23/working-enrolled-actuaries/

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Public and Multiemployer plan actuaries would not be in this listing as there is no actuarial certification for public plans and union plans have their own Schedule MB which I have no incentive to keep track of.
‘One-participant’ plans are not included here since their filings are not publicly available for view so there are far more SBs signed by the small-plan actuarial community. For example, I have 83 SBs signed in 2021 that appear on the DOL website but do another 150 ‘one-participant’ SBs that do not.

Author(s): John Bury

Publication Date: 23 Oct 2023

Publication Site: burypensions

Canadian legislation aimed at protecting pension plans may mean significant changes for lenders, borrowers and employees

June 26, 2023June 26, 2023 Mary Pat Campbell

Link: https://www.nortonrosefulbright.com/en-us/knowledge/publications/e91814ee/canadian-legislation-aimed-at-protecting-pension-plans-may-mean-significant-changes

Excerpt:

On February 3, 2022, Bill C-228 was introduced as a private members bill and has now made its way to the third reading in Canada’s Senate. The purpose of Bill C-228 is to greatly expand the pension liabilities that are afforded super priority status by amending bankruptcy and insolvency legislation. As currently drafted, the Bill will grant priority for a pension plan’s unfunded liability or solvency deficiency claims over the claims of the majority of creditors — including secured creditors — unless specifically enumerated otherwise in the statutes.

The “unfunded liability” is the amount necessary to enable the fund to continuously pay member benefits as they come due, on the assumption that the fund will operate for an indefinite period of time. The “solvency deficiency” includes the amount necessary to ensure the fund meets its obligations if wound up. As these amounts are constantly fluctuating, a fixed value cannot be ascribed to either of these requirements other than through a single point in time calculation by an actuary.

What does this mean for borrowers with pension plans?

Clearly, Bill C-228 would substantially increase the opportunity for recovery of pension entitlements within insolvency proceedings by way of super priority. The issue is whether it remains viable for lenders to provide capital to borrowers with defined benefit pension plans given the increased risk profile that may be created by Bill C-228 expanding the pension claims that take priority over a secured creditor in an insolvency case.

In all likelihood, Bill C-228 will minimally effect borrowers that have defined-contribution pension plans as the employer’s liability is restricted to predefined contributions. As this type of plan is subject only to ordinary course known contribution requirements, and given that the employer does not guarantee a certain amount of income in retirement, the liability afforded super priority in insolvency proceedings should be predictable in most circumstances.

Conversely, Bill C-228 will significantly impact defined-benefit pension plans. These types of plans commit to providing a specified level of income in retirement based on a variety of factors. As such, an employer must diligently manage the pension fund to ensure it is in a position to pay the benefit to the employee for the remainder of their life, once retired. The inherent challenge with these plans is the uncertainty of the liability of the employer at any given time and the potentially large scope of that liability based in part on external factors such as interest rate fluctuations.

Bill C-228 has therefore created a conundrum. Although the intention of the Bill is to protect pension plans, it may potentially cause a shift that results in even more employers moving from a defined-benefit pension plan to a defined-contribution pension plan. Plainly, this shift may be caused by lenders’ concerns regarding the uncertainty surrounding the amount necessary to liquidate an unfunded liability or solvency deficiency at any given time. In other words, a lender will not be able to determine prior to the lending decision, with any great certainty, the amount of the unfunded liability or solvency deficiency in a future insolvency proceeding. At a minimum, a secured creditor wants to know the quantum of obligations that will take priority over their interests. This is essential information in deciding the quantum of a loan, the terms of such loan, any reserves and whether the creditor will agree to loan any money to the borrower.

Author(s): Candace Formosa

Publication Date: 2023Q2

Publication Site: Norton Rose Fulbright

Excess mortality and life expectancy

June 6, 2023June 6, 2023 Mary Pat Campbell

Link: https://ulflorr.substack.com/p/excess-mortality-and-life-expectancy

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Fig. 1: Annual values of life expectancy in Germany with fit (blue). The fit did not respect the values for 2021 and 2022.

Excerpt:

Life expectancy is relatively difficult to calculate. The mortality risk has to be determined from death and population figures for each individual year of life. A hurdle is that data are often only available in age cohorts. So the missing values have to be interpolated. Using the mortality risks, a fictitious newborn cohort is projected forward year by year until all have died. A weighted average value is calculated from those who died each year in this modeled time series, yielding the life expectancy.

Life expectancy in Germany increased for many years until 2020, allthough this trend seemed to be gradually approaching a saturation point, which might be around 82 years (Fig. 1).

Author(s): ULF LORRÉ

Publication Date: 30 Mar 2023

Publication Site: Demographic Data Analysis