Tag: retirement income

A Conversation With Benny Goodman

Mary Pat Campbell

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

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Excerpt:

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.

….

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?

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.

….

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.

….

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.

….

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

15 Cities Where Retirees Are Most Reliant on Social Security

Mary Pat Campbell

Link: https://www.thinkadvisor.com/2023/04/26/15-cities-where-retirees-are-most-reliant-on-social-security/

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A new report from SmartAsset finds that Social Security benefits comprise 41.7% of a retiree’s total income of $50,780, on average. That percentage is even higher for retirees in some cities, where benefits can make up half of overall retirement income.

To find out where retirees rely most on Social Security, SmartAsset examined data for Social Security income as a percentage of overall retirement income in the 100 U.S. cities with the largest population of residents ages 65 and older.

Author(s): Michael S. Fischer

Publication Date: 26 Apr 2023

Publication Site: Think Advisor

Late-in-Life Decisions Guide

Mary Pat Campbell

Link: https://www.soa.org/resources/research-reports/2022/2022-lil-decisions-guide/

report: https://www.soa.org/497f1c/globalassets/assets/files/resources/research-report/2022/lil-decisions-guide.pdf

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Much of retirement planning focuses on financial, investment, and estate planning needs. Earlier research,
such as the SOA’s Retirement Health & Happiness brief, showcases how this retirement planning overlooks some challenges of late-in-life retirees.


Retirees have access to more than 200,000 personal finance professionals, 10,000 senior centers, and
approximately 28,000 assisted living facilities. Still, do retirees have all the information they need to make
critical decisions throughout retirement, particularly in the latter stages of retirement?

In collaboration with Financial Finesse, the SOA Aging and Retirement Strategic Research Program
prepared this guide as a resource to help older retirees and those who assist them. This guide will
help the reader ask impactful questions to make informed decisions.

Author(s): SOA Aging and Retirement Strategic Research Program

Publication Date: 2022

Publication Site: Society of Actuaries

Why Retirement Isn’t Necessarily the Same as Not Working

Mary Pat Campbell

Link: https://www.thinkadvisor.com/2022/03/07/why-retirement-isnt-necessarily-the-same-as-not-working/

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If you claim Social Security at age 70 instead of 62 the sum total of your accrued benefits will be 17% higher if you make it to age 82 (which is the male life expectancy at 62). And remember that’s low risk, inflation-indexed income; there’s no better deal on the market.

Of course, delaying benefits means fewer years collecting them, but if you end up living to your early 80s you’ll come out ahead. The figure below plots how much you’ll get from Social Security (inflation-adjusted and discounted using today’s TIPS curve) at each age depending on when you retire.

And if you already claimed Social Security you can still change your mind and get higher benefits.

But if you are already retired (or resolved on it this year) and the market is down, it may seem like delaying Social Security isn’t an option. After all, you still need to eat.

Author(s): Allison Schrager

Publication Date: 7 Mar 2022

Publication Site: Think Advisor

Income Sources of Older Households: 2017

Mary Pat Campbell

Link:https://www.census.gov/library/publications/2022/demo/p70br-177.html?utm_medium=email&utm_source=govdelivery

PDF: https://www.census.gov/content/dam/Census/library/publications/2022/demo/p70br-177.pdf

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This report examines older households’ sources of income, the amounts of this income, and how much each source of income contributes to total income. Older households receive income from a variety of sources, including social programs, private retirement savings, and earnings. Estimates from the 2018 Survey of Income and Program Participation (SIPP) show that in 2017, lower-income households relied on Social Security to a large degree, while higher-income households received a larger share of their income from private retirement savings and earnings. 

Author(s): DANIEL THOMPSON AND MICHAEL D. KING

Publication Date: Feb 2022

Publication Site: U.S. Census

Revisiting The ‘Retirement Crisis’ And Retirement Legislation In 2022 – What’s In Store In The New Year?

Mary Pat Campbell

Link: https://www.forbes.com/sites/ebauer/2021/12/31/revisiting-the-retirement-crisis-and-retirement-legislation-in-2022whats-in-store-in-the-new-year/

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First, we need to keep a distinction in mind between efforts to ensure the elderly do not suffer actual material deprivation, whether that’s lack of nutritious food or adequate housing or medical needs, for instance, and efforts to help Americans plan for retirement and alleviate their expressed worries about the unknowns of retirement.

Second, issues of well-being, such as social isolation, and larger questions of the “right” form of provision of long-term care assistance, are not simple issues of finances but are nonetheless important as Americans age, and these topics should not be drowned out by a “retirement crisis” narrative. It should also go without saying that we will urgently need to turn our attention to the Medicare system as well.

And, third, in one crucial respect our models may fail us: experts have worked out a set of recommendations for asset allocation and income spend-down in retirement, and a set of projections for building those models, which fall apart if our new low-interest world continues, Japan-like, rather than being a temporary situation that resolves itself as we recover from the pandemic. Whether this is a result of government policies or an inevitable consequence of the changing economy, this could upend both Biggs’ projections of retiree well-being and the path to retirement security envisioned by legislation like the SECURE Act 2.0.

Author(s): Elizabeth Bauer

Publication Date: 31 Dec 2021

Publication Site: Forbes

Do You Get Your Money’s Worth From Buying An Annuity?

Mary Pat Campbell

Link: https://www.forbes.com/sites/ebauer/2021/07/08/do-you-get-your-moneys-worth-from-buying-an-annuity/?sh=380f33612082&fbclid=IwAR1dlxEjlWlmPSetMplHWU6BdPjzzo7ju983c73QKr5KKKn29PjurCq_YmA

Excerpt:

But measuring the value of annuities, generally speaking, does tell us whether consumers are getting a fair deal from their purchases, and here, a recent working paper by two economists, James Poterba and Adam Solomon, “Discount Rates, Mortality Projections, and Money’s Worth Calculations for US Individual Annuities,” lends some insight.

Here’s some good news: using the costs of actual annuities available for consumers to purchase in June 2020, and comparing them to bond rates which were similar to the investment portfolios those insurance companies hold, the authors calculated “money’s worth ratios” that show that, for annuities purchased immediately at retirement, the value of the annuities was between 92% – 94% (give-or-take, depending on type) of its cost. That means that the value of the insurance protection is a comparatively modest 6 – 8% of the total investment.

But there’s a catch — or, rather, two of them.

In the first place, the authors calculate their ratios based on a standard mortality table for annuity purchasers — which makes sense if the goal is to judge the “fairness” of an annuity for the healthy retirees most likely to purchase one. But this doesn’t tell us whether an annuity is a smart purchase for someone who thinks of themselves as being in comparatively poorer health, or with a spottier family health history, and folks in these categories would benefit considerably from analysis that’s targeted at them, that evaluates, realistically, whether annuities are the right call and whether their prediction of their life expectancy is likely to be right or wrong.

Author(s): Elizabeth Bauer

Publication Date: 9 July 2021

Publication Site: Forbes

The Time Has Come To Talk About Senior Poverty In America

Mary Pat Campbell

Link: https://www.forbes.com/sites/nextavenue/2021/07/09/the-time-has-come-to-talk-about-senior-poverty-in-america/

Excerpt:

If 40 million Americans were suffering from the same severe problem, you might think it would be the subject of considerable media attention, a host of government programs, infusions of business capital and a hot topic of national conversation.

That is certainly what I thought several years ago when I began researching the reality that nearly half of all people of over 55 — one in seven Americans — had no money saved and risked heading into poverty or certainly into dire conditions that would make their lives desperate for decades to come.

…..

The average Social Security check is a meager $1,543 a month and about 40% of older Americans rely entirely on Social Security for their income.

Author(s): Joe Seldner, Next Avenue

Publication Date: 9 July 2021

Publication Site: Forbes

U.S. Retirees’ Experience Differs From Nonretirees’ Outlook

Mary Pat Campbell

Link: https://news.gallup.com/poll/350048/retirees-experience-differs-nonretirees-outlook.aspx

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The differences in reliance on income sources between those who are already retired and those who are not yet retired are likely attributable, at least in part, to apprehension about the Social Security system, as well as the rise of 401(k)s accompanied by a decline in work-sponsored pension plans.

57% of retired U.S. adults say they rely on Social Security as a major income source, and 38% of nonretirees expect it to be a major source for them.

Likewise, 36% of retirees and 19% of nonretirees say a work-sponsored pension plan is or will be a major income source.

Nonretirees are most likely to say a 401(k) or other retirement savings account will fund their retirement (49%). Meanwhile, 35% of retirees mention 401(k)s as a major funding source of their retirement.

Author(s): Megan Brenan

Publication Date: 18 May 2021

Publication Site: Gallup

NJ Retirees – Politicians

Mary Pat Campbell
NJ Retirees – Politicians

Excerpt:

Public servants often spend multiples of what their salaries will be in the jobs they seek in order to get those jobs since they have other incentives. One of those is likely the pension, even for part time employment, that comes with the job.

Though job-hopping makes it impossible to finger all the mayors or council people who game the system, here are some whose last employer was the Office of the Governor, Senate, or General Assembly who, based on data on retirees in the New Jersey Retirement System taken from the the state pension website are getting over $50,000 annually – along with some other familiar names.

Author(s): John Bury

Publication Date: 1 February 2021

Publication Site: Burypensions

NJ Retiree Update – December, 2020

Mary Pat Campbell
NJ Retiree Update – December, 2020

Excerpt:

Based on state pension data updated through December, 2020 there are 358,277 retirees getting annualized pensions of $12,024,013.

Through December, 2019 there were 352,416 retirees getting annualized pensions of $11,675,297,749 .

There are now 4,195 retirees getting over $100,000 annually. Of those 91 are getting pensions of over $150,000 annually:

Author: John Bury

Publication Date: 26 January 2021

Publication Site: burypensions