장수리스크는 우리가 측정할 수 없을 정도의 속도로 가속화되고 있다. 몇몇 인구학자들의 말에 따르면 지금 태어나는 사람은 200세까지 생존한다고 한다. 2008년 금융위기때 깨진 자금이 회복되지 못한 상태에서 나날이 증가하는 생활비를 감당할 만큼 충분한 은퇴자금을 모으지 못했고, 회사가 내주는 건강보험료 등의 혜택을 유지하고 싶어하기에 많은 사람들이 55세 이후에도 은퇴를 늦추며 계속 일하려고한다.
이런 상태임에도 미국의 35세 이하의 젊은 세대들은 리스크 회피적이어서 주식투자 등에 소극적이다.
와튼스쿨 연금연구소(Wharton School Pension Research Council) 사람들의 이야기입니다.
Living Longer, Saving Less: What it Will Mean for Retirement
Jul 22, 2019
To ponder preparing for retirement in the U.S. these days depends very much upon who is doing the pondering. On the one hand, there is great freedom over the when and how of it. Some retire and find a second career, or shift into a public-service phase of life. Others are choosing to never retire at all.
On the other hand, many never get the luxury of choice. Age discrimination makes finding or keeping a job after 55 harder than ever, and a surprisingly large slice of the population hasn’t set aside an adequate nest egg.
Many might be ready for retirement, but it’s not at all clear that retirement is ready for them.
“Longevity is increasing around the world faster than many of us can fathom. In fact, demographers say the baby who will live to be 200 has already been born. This perspective can make insurance and health care providers blanch, as most are not yet thinking about how to manage truly consequential longevity risk,” says Olivia S. Mitchell, Wharton professor of business economics and public policy, and executive director of the school’s Pension Research Council.
Moreover, the mechanisms intended to gird Americans retiring now are already under considerable strain: Social Security is inadequately funded; defined benefit pension plans have all but disappeared; and the government’s insurance program meant to take over for failed defined benefit pension plans is itself under-capitalized.
“I do think there is a lot more uncertainty,” says Dara Smith, a litigation attorney for AARP. “Many workers are waiting longer to retire,” she says, either because they haven’t saved enough, are facing cost of living increases, haven’t yet recouped 2008 losses in their retirement funds, or need to hang onto their employer medical insurance.
“But people also want to work longer,” she says. “They just want to be productive and be employed longer.”
“All these challenges are resonating against the background of a U.S. equity market that has reached new heights and in fact has extended the highest run for equities in history,” he says. “In addition, if you look at the pattern of attitudes toward risk, it’s been quite time-varying, and we know it’s time-varying especially for those in the youngest cohort, 35 and under. In fact, what we’ve seen in the data and received wisdom suggests, it looks like today young people have a higher risk aversion than people of the same age did in the late 1990s.”
So the question for many regarding preparing for retirement, he says, remains: “How are we going to get there?”
The Enduring Age of Age Discrimination
Just work longer. That’s the answer for a lot of workers who can’t afford to retire. Many, though, don’t have that option. Between 1992 to 2016, 56% of older workers reported being either laid off or pushed out of a job at least once, according to a study by ProPublica and the Urban Institute that analyzed data from the Health and Retirement Study. Only one in 10 workers reported earning as much in their new jobs as their old ones.
Even in a tight labor market, many employers want to get rid of older workers and are hesitant to hire older ones, says Peter Cappelli, management professor and director of Wharton’s Center for Human Resources.
What would it take for age discrimination to become a thing of the past?
“All these challenges are resonating against the background of a U.S. equity market that has reached new heights and in fact has extended the highest run for equities in history.”–Christopher Geczy
“It takes a belief among the leaders that this is a priority,” says Cappelli. “The odd thing is that executives who are themselves older may feel pressure to show that they do not fit the negative stereotypes of aging by being disproportionately negative about older candidates.”
Some of the interest in getting rid of older employees is because it saves more money, he says, “and some of it is because people who have been stuck in positions for a long time are bored and disengaged — those are also older. In hiring, though, none of that is an explanation.”
The bad news about age discrimination comes by way of recent court decisions that inexplicably conclude that protections against it do not apply to job seekers, only to current employees, Cappelli notes.
Protections for older workers were put into place long ago. The Age Discrimination in Employment Act of 1967 prohibits age discrimination against workers 40 and older, but a 2009 Supreme Court decision weakened that act, putting a higher level of burden on older workers to prove discrimination than on those claiming discrimination because of race, religion or gender.
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In situations where workers are being laid off to cut costs among the ranks of the higher paid, just because those workers happen to be older does not prove age discrimination, the Supreme Court has found.
“Culturally, we just don’t take age discrimination as seriously as other civil rights. People see it as an economic issue, not a civil rights issue,” says the AARP’s Smith. Stereotypes persist that older worker are checked out, slowing down or resistant to learning new skills. “Those assumptions are so baked in, and we see in this country the idea that younger workers should have their turn now.”
For older workers who may have been pushed out, it’s “very easy to blame yourself, to lose confidence,” says Stew Friedman, director of the Wharton Work/Life Integration Project and author of Total Leadership. But when considering a second act, it’s important to do an inventory of “what you know, what you’re good at, what you’ve accumulated in terms of the value you have,” he says. “One good way to do that is to talk to people who know you about what they see as your strengths. That can be really helpful and affirming. We know from research on social capital and leadership that the more you can reveal about who you are and the help you need, as well as what you can contribute, the easier it is for other people to be helpful to you. It starts with knowing what you need and being willing to ask for help. Nobody is going to hand it to you. At 55, you know that.”
Shaky Pillars of Retirement
If the timing and concepts around preparing for retirement are shifting, so are the financial tools for getting there. Workers in the U.S. saw the rise of various retirement innovations in the 20th century — Social Security, defined benefit plans, the now-ubiquitous 401(k) — and each has proven to have its vulnerabilities. One in three Americans has less than $5,000 in retirement savings, with one in five reporting no retirement savings at all, according to a 2018 Northwestern Mutual survey of more than 2,000 adults.
There is Social Security, but the system is threatened by a shortfall that currently exceeds $14 trillion in the next 75 years, and $43 trillion over the long haul, says Mitchell. Moreover, the Trust Fund will run dry in just 15 years, by 2034.
In her view, what’s needed to fix Social Security is a set of solutions sharing the burden across generations — reducing benefits, raising retirement ages and increasing taxes to pay for longer lives. “In fact, it’s actually more straightforward to restore Social Security to solvency than to fix Medicare, which is also running short of money,” says Mitchell. “Nevertheless, we still have to persuade the requisite number of politicians to go along with a reform package.”
This can be done, Mitchell argues, as it was done before. In 1983, she points out, “the system was three months from running out of cash to pay benefits, so it may take a cash crunch like that again, unfortunately.”
“Executives who are themselves older may feel pressure to show that they do not fit the negative stereotypes of aging by being disproportionately negative about older candidates.”–Peter Cappelli
At the same time, it’s no secret that defined benefit plans have dwindled. These pension plans in the U.S. peaked at more than 112,000 in 1985, declining to 47,000 in 1996 and to 25,607 by 2011, according to the Pension Benefit Guaranty Corp. Many of the remaining plans have obligations that far outstrip assets, and when they cease to be solvent their obligations may be taken over by the PBGC. The agency paid $5.8 billion to more than 861,000 retirees from 4,919 failed single-employer plans, and paid $153 million in financial assistance to 81 insolvent multi-employer plans, according to its 2018 annual report.
It claims responsibility for insuring the pensions of nearly 37 million people, whose benefits are valued at $3 trillion. But the PBGC’s own finances are underwater. The agency’s risk of insolvency is rising rapidly and is likely to occur by the end of FY 2025, according to the 2018 report.
The crisis is getting attention. Pension consultant David Blitzstein has written that the only hope would be a recapitalization of the PBGC with a minimum of $50 billion that would allow troubled plans to partition and spin off their “orphan” liabilities — the accrued liabilities of employers no longer contributing to the plans. Surviving plans might consider mergers, he wrote in a Wharton Pension Research Council post on Forbes.com.
One proposed piece of legislation, the Butch Lewis Act, recommends shoring up underfunded multiemployer pensions by lending them money at a low interest rate. Mitchell, though, calls this rescue plan “fatally flawed.” The act calls for the money to be repaid in 30 years with interest, but Mitchell says if the pension plan cannot do so, the bill permits loan forgiveness or refinancing of some as-yet-unforeseen obligation, leaving taxpayers on the hook. “A better solution would be to shut down this system now and deal with it today, while stopping the plans from underfunding further,” she says.
Another is the first substantial piece of retirement legislation in more than a decade. The Setting Every Community Up for Retirement Enhancement Act of 2019, or SECURE Act, was passed by the House and appears poised to clear the Senate at some point.
It would provide for tweaks in retirement law, but also some real changes. Among them: delaying the required minimum distribution to age 72 from the current 70½; making it easier for small employers to set up and offer 401(k) plans and allowing the creation of “open” Multiple Employer Plans; removing age limitations on IRA contributions; eliminating the 10% penalty tax to pay for a qualified birth or adoption; and opening up more options for annuities within retirement plans.
Annuities: Complex and Critical
This last change is being seen by many as the addition of an important tool in the transition to retirement, but not all annuities are created equal.
“It starts with knowing what you need and being willing to ask for help. Nobody is going to hand it to you. At 55, you know that.”–Stewart Friedman
“It makes sense as long as it’s optimal,” says Geczy about annuities, “but there is a lot of controversy about where and how and why, and that is because the annuities space is complex more generally and in some cases potentially more costly, although that definitely varies across products and features. But think about what you are asking for — for someone to give you in advance in essence a long-dated put contract or a hedge, and that can be a useful, if costly, proposition. The thing is, there is at some point annuitization, but most academics will tell you that at some point and in some form, it’s the optimal strategy for many or most investors.”
The vast majority of the act is positive, says David F. Babbel, Wharton professor emeritus, whose teaching and research at Wharton was split between the finance and insurance departments. The new rules regarding annuities are generally a good thing, he said, as annuities are the only financial products designed to provide income throughout one’s remaining lifetime. But the problem with annuities, he says, “is that they are long-term products that gradually erode in value if inflation picks up again. Even if the annuities include an escalation feature, these are usually pre-fixed and may not track the cost of living closely and, more importantly, an individual’s own cost of living,” he notes.
The erosion can be considerable. Babbel points out that if you look at every 20-year period since 1971, the dollar lost between 36% and 70% of its purchasing power by the end of the 20 years, depending on the period. This means that $10,000 per month at the outset of retirement would, 20 years later, have the purchasing power of only $3,000 to $6,400, depending on when you happened to retire.
“Looking to the future, the value erosion might be much less, but may even fall beyond these bounds,” he says.
Babbel advocates an innovative strategy to hedge against the rising cost of living needs by using what he calls a “staggered annuitization” (rather than the commonly understood concept of “laddered annuitization”) approach. He recommends putting a significant portion of one’s savings as one approaches retirement into a variety of deferred fixed annuities. At retirement, some are “activated” or annuitized to provide monthly income, while the others remain gaining value and are annuitized, as needed, depending on the rise in one’s own cost of living. While the deferred annuities are held in abeyance, they not only grow in tax-deferred value but each year as you age their payout rates per dollar of deferred value rise substantially. His personal approach is easy to implement, he says, and structured to guard against insolvency risk.
Of course, preparing for retirement also requires a certain amount of financial literacy, not to mention an awareness that the only constant is change — in legislation, retirement products, inflation rates, performance of the markets, and the economy.
“It’s actually more straightforward to restore Social Security to solvency than to fix Medicare, which is also running short of money.”–Olivia S. Mitchell
Many Americans may understand the general concept of shifting the balance of retirement assets as retirement draws near, but they have put much of their faith in target date funds that start out in a risk and growth mode at the beginning of a career and gradually shift to less risk approaching the draw-down phase. In 2018, assets of this kind in mutual funds and collective investment trusts had grown to more than $1.7 trillion, according to Morningstar.
Among the findings: “Smoothing the returns on individual assets by simple absolute momentum or trend following techniques is a potent tool to enhance withdrawal rates, often by as much as 50% per annum,” the paper states.
Can the average worker really be expected to approach preparing for retirement with such attention to detail?
“In the last two decades, the financial system has become disintermediated,” says Mitchell. “By that I mean that people must increasingly manage their own finances, instead of their employers handling their needs via health insurance and defined benefit pensions, or the government taking care of them. At the same time there has been substantial deregulation of financial products, and more complex financial products have come to market.”
As a result, plotting out one’s own retirement, she says, is getting tougher.
“People must increasingly manage their own finances, instead of their employers handling their needs via health insurance and defined benefit pensions, or the government taking care of them.”–Olivia S. Mitchell
And don’t expect robo-advisors to come to the rescue — at least, not anytime soon. Mitchell and Julie Agnew have a forthcoming volume on computerized financial advice models entitled The Disruptive Impact of FinTech on Retirement Systems. The book shows that services that use computer algorithms to provide financial advice and manage customers’ investment portfolios aren’t quite ready for retirement prime time yet.
“While many of these services try to help consumers save more or manage their budgets, they tend to ignore the fact that people have complex financial lives,” says Mitchell. “Does your partner have savings or a business? Do you need to put aside money for a disabled child? Additionally, few online financial algorithms help people spend down their money in retirement, or how to buy an annuity so as not to run out of money in old age. Fewer still tell you whether you should buy long-term care insurance, or whether to move to or out of a state that taxes your pension.”
Retirement, in the end, is as individualized as people. The answer? Says Mitchell: “Since retirement planning is so nuanced and complicated, it would behoove many to work longer, save more, and expect less.”
이전 세대들은 주택관련 부채를 모두 갚고나서 은퇴에 들어선 반면에 최근 세대들을 여전히 빚을 갚지 못한 상태이다. 노벨경제학상 수상자인 시카고대학 세일러(Thaler)교수가 이런 은퇴자들의 은퇴자금운용 관련하여 직면한 문제를 두개로 설명하고 있다. 첫째는 얼마나 효율적으로 은퇴자금을 조성하느냐이고, 둘째는 그렇게 조성한 자금을 어떻게 살아있는 기간동안 유지해 나갈거냐이다. 빈곤하게 백세까지 사는 것을 걱정해야 한다는 것이다. 당연히 보험계리사의 산법에 따른 과학적이고 합리적인 값(actuarially fair)들이 필요하다.
Nobel laureate and behavioral economist Richard Thaler has proposed letting individuals use their 401(k) plans to increase the size of their Social Security checks.
The result would be the only indexed annuity that’s guaranteed by the federal government, according to Thaler, and would help solve the income dilemmas many of today’s retirees face.
But experts warn that such a plan would need to be carefully crafted so that it does not increase the financial strain on Social Security.
Nobel laureate Richard Thaler has put forward a new idea to allow individuals to use their 401(k) savings to increase their Social Security benefits.
Thaler, a behavioral economist and professor at the University of Chicago Booth School of Business, discussed the idea at an event hosted by the Brookings Institution, a non-profit public policy organization, last week.
According to Thaler, retirement savers face two problems when it comes to managing their money: how to effectively save for their golden years, and then how to make that pot of money last for the rest of their lives.
“You have to worry about getting unlucky and living to 100,” Thaler said.
U.S. economist Richard Thaler won the 2017 Nobel Economics Prize
Scott Olson | Getty Images
That retirement income problem is amplified by a cultural change for today’s retirees. While previous generations entered retirement with their mortgages paid off, today’s retirees typically have high debts and insufficient savings, Thaler said.
That’s where Thaler said his new idea regarding Social Security benefits would come in.
The plan would let you take a portion of your 401(k) benefits — say, $100,000 or up to $250,000 — and send it to the Social Security Administration.
What you would get in return would be the only indexed annuity that’s guaranteed by the federal government at a fair actuarial value, Thaler said.
“This may seem like a wild and crazy idea, but actually all the math has already been done by the Social Security Administration,” Thaler said.
That is because the system already adjusts your benefits for your age, for each year you work and the income you take in while receiving benefits, he said.
But Social Security experts do not necessarily think the plan is that simple.
Boston University economics professor Laurence Kotlikoff said he thinks Thaler’s plan is “dicey” and worries how it would impact the future of Social Security.
As it stands, Social Security will only be able fund about 80% of promised benefits by 2035, provided Congress does not intervene, it was announced on Monday.
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Social Security projected to be depleted in 2035: Report
Adding such a plan to the system could further strain it, said Kotlikoff, who also provides Social Security and retirement planning tools through his company, Economic Security Planning.
That is because people who know they are healthy and likely to live a long time would be more likely to opt in, which would be more costly.
“In general, the Achilles’ heel of social insurance programs is once you get everyone in on the same boat, you get problems,” Kotlikoff said.
But there is room for a solution, Kotlikoff said. “But it has to be done carefully so Social Security doesn’t lose money,” he said.
By forcing everyone to put $50,000 to $100,000 of their 401(k) funds in a Social Security annuity that’s actuarially fair, that would avoid adverse selection and get everyone in the same pool, Kotlikoff said.
“With that caveat, I do like this plan,” Kotlikoff said. “It has to be compulsory and everybody has to be bought in.”
Joe Elsasser, president and founder of Covisum, a provider of Social Security claiming software, also said the plan needs to account for longer life spans and adverse selection. Otherwise, “it could easily end up being the thing that accelerates Social Security benefit cuts or political backlash,” Elsasser said.
One important point for individuals to remember: You can already use your retirement funds to increase your Social Security benefits.
“The easy way to ‘buy more’ Social Security today is to use one’s own IRA money to finance your retirement while delaying Social Security benefits,” Elsasser said.
By doing that, you can dramatically boost the size of your benefits.
At full retirement age — 66 or 67 for most, depending on the year of your birth — you can get 100% of your retirement benefit. But by waiting until age 70, you can get a 32% bigger check.
Yet, fewer than 10% of people delay claiming beyond full retirement age, Elsasser said. Most opt to start receiving checks as early as possible — either at 62 or when the earnings test is no longer relevant, he said.
2019년2월 미국 재무부가 확정급여형 퇴직연금제도를 도입한 민간기업의 경우 은퇴 근로자에게 퇴직급여를 일시금으로도 지급할 수 있도록 제도를 변경하였다. 따라서 근로자는 일시금으로 받을지 현재처럼 연금으로 나누어받을지 선택할 수 있게 된다. 그간 낮은 적립비율 상태였던 기업들에게는 희소식일 수 있다.
그렇다면 퇴직연금을 일시금으로 받는 것과 연금과 같은 형태로 나눠서 받는 것 중에서 무엇이 은퇴한 근로자들에게 유리할까?
와튼스쿨의 Olivia S. Mitchell 교수가 미 재무부의 퇴직연금 일시금 지급정책에 대한 견해를 팟캐스트에서 생생하게 이야기하고 있다.
결국 금융지식을 갖춘 자들의 경우 일시금으로 받아서 스스로 운용하는 것이 나쁘지는 않다. 그러나 금융지식이 없는 사람들의 경우 상황이 틀리다고 한다.
The U.S. Treasury department’s move last month to allow private companies to pay lump-sum pension payments to retirees and beneficiaries, instead of monthly payments, is good news for companies that do not want to be saddled with long-term pension obligations – particularly for private sector employers who have underfunded pension plans.
However, lump-sum pension payments may not work out well for retirees who opt for them. While a debate has ensued on the merits and risks of lump-sum pension payments for employees, there are also wider concerns about the long-term impacts on the entire economy when retirees do not have sufficient financial resources to support themselves. Those concerns are assuming a new importance because of the rapid growth of the so-called gig economy with temporary workers and freelancers who don’t enjoy employer-sponsored retirement benefits.
The Treasury department’s latest move reverses an Obama-era pledge to bar employers from offering lump-sum payments. The fear was that those receiving a lump-sum payment might be shortchanged and also might be tempted to spend the money sooner. Around 26.2 million Americans receive pensions right now, though that number has been declining as businesses favor 401(k) plans instead.
How Companies Gain
Defined-benefit plans are pensions that provide beneficiaries with a monthly benefit check for as long as they live. Defined contribution plans stipulate only the contributions to an employee’s account each year. “The concern with companies offering defined-benefit plans is that they need to manage carefully around future mortality, around investment fluctuations, and so forth,” said Olivia S. Mitchell, executive director of the Pension Research Council at Wharton and director of the Boettner Center on Pensions and Retirement Research. Mitchell is also a professor of insurance and business economics at Wharton.
“Many companies have had a hard time making sure their plans remained fully funded, and probably most corporate defined-benefit plans today are not fully funded,” Mitchell continued. “By offering both workers and retirees a lump sum, corporations could take the defined-benefit obligation off their books.” The move could help companies like General Electric, which has an approximately $30 billion shortfall in its defined-benefit pension plan.
Elizabeth Kennedy, professor of law and social responsibility at the Sellinger School of Business at Loyola University in Maryland saw the Treasury’s move hurting wider sections of society over time. “I see this as a shift not only of risk from the employer to the employees, but also to all of us collectively, as the question arises of what happens when folks don’t manage [their lump-sum pension payments] well — certainly not as well as their employers,” she said. “The rest of the social safety net is even further strained when [retirees’] defined-benefit plan runs out.”
Mitchell and Kennedy shared their insights on lump-sum pension payments, underfunded plans and the hidden costs of the Treasury department’s action on the Knowledge@Wharton radio show on SiriusXM. (Listen to the podcast at the top of this page.)
To Lump Sum or Not?
Lump-sum payments might be the right option in some cases. “What used to be seen as the golden method of caring for people in retirement — namely defined-benefit plans — is long gone,” Mitchell said. “Many financially cogent people might say, “Gee, I work for a company which is only 80% funded. Maybe I should take the lump sum and run, while the getting is good.”
“The whole defined-benefit edifice is in ruins. I don’t see any way to fix it easily.”–Olivia S. Mitchell
Mitchell said she understands why a lump-sum payment is attractive, “not just for people who make mistakes, but for people who are smart about it.” However, lump-sum payments may not be the best option if an individual uses the money as monthly income. She pointed to what she called the “lump-sum illusion.” Somebody who gets a lump sum of say, $100,000, might think they are suddenly rich, but that money doesn’t go very far, she noted. Based on annuity estimates, a $100,000 payment would provide a monthly income of $560 for a 65-year-old male, and $530 for a female, because women live longer than men, she said. Even $500,000 is not a lot of money, she added.
But a lump-sum payment could help many older people who are entering retirement with far more debt than they did in the past, said Mitchell. “Baby boomers are getting into retirement not having paid off their mortgages, and not having paid off their credit cards,” she added, citing research conducted using the Health and Retirement Study (sponsored by the National Institute of Aging and the Social Security Administration), where she is a co-investigator. “A lump sum in such cases could really help older people pay off their debt and move into retirement less exposed to interest rate fluctuations.”
The Impact of the Gig Economy
Kennedy noted that the composition of the workforce has changed in recent years. She referred to the gig economy, the sharing economy and the rise of independent contractors, who tend to work in temporary jobs throughout their careers.
“While the defined contribution plan from a single employer perspective looks perhaps like a thing of the past, the burden is on us collectively to think about the solution for the future,” she said. “How do you have workers who are going to be making perhaps low wages over a course of their lifetime with a variety of employers in any meaningful way accrue meaningful, defined contribution plans that result in something more than just a few hundred dollars a month later on?”
Kennedy said that if many among the 26.2 million people that currently receive monthly pensions are lured by “the dangling of the shiny lump sum,” the so-called “gold standard” of retirement income is diminished even further. She wondered about how that would affect those dependent on employer-sponsored 401(k) plans and Social Security. Workers who have high incomes or are “incredibly savvy” contribute substantially to their 401(k) plans and get matching employer contributions would of course be better off that those who are not, she noted.
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According to Mitchell, the “defined contribution” 401(k) model has been “exceptionally positive” for those who did not have an opportunity to be in defined-benefit plans that required them “to stay for life and never leave your employer.” Although she found defined contribution plans “much more appealing,” she said they fell short in that they did not have a way to protect against “longevity risk at the point of retirement…. So, I favor putting an annuity back into a defined contribution plan, so that people can, in fact, protect against living too long.”
“A lump sum in such cases could really help older people pay off their debt and move into retirement less exposed to interest rate fluctuations.”–Olivia S. Mitchell
An Overhang of Underfunding
Retirees may have dwindling options in securing their future incomes as defined-benefit plans have failed to provide the protections they were designed for. Mitchell noted that the 1974 Employee Retirement Income Security Act sought to ensure that defined-benefit plans are fully funded to make good on the promises offered to retirees.
“Unfortunately, in the establishment of the act and some of the institutions surrounding that, they didn’t quite get it right,” Mitchell said. For example, while it established the Pension Benefit Guaranty Corporation (PBGC) to back up corporate defined-benefit plans if the corporations go bankrupt and there’s not enough money in the plans, “the premiums weren’t set right,” both for single employer plans and multiple-employer, unionized plans, she added. “As a consequence, not only are corporate plans troubled financially now, but the backup entity that’s supposed to be insuring the defined-benefit plans also is in dire straits.”
According to Mitchell, the multiple employer system is within a few years of running insolvent, and the single employer plan will be unable to pay all it should pay by 2025. “So, the whole defined-benefit edifice is in ruins. I don’t see any way to fix it easily.”
To be sure, the offer of lump-sum payouts comes with riders. If a single employer plan is not at least 80% funded, retirees cannot get the full lump-sum payment, and if it is less than 60% funded, they cannot get any lump-sum payment. “Notwithstanding the Treasury department’s willingness to allow more lump sums, it’s going to depend on the funding status of the plan,” Mitchell said. “So, I don’t think people should book the trip to Las Vegas just yet.”
According to Mitchell, a significant number of corporate pension plans are likely to be funded to levels near 60%. Also, over the last 40 years, many corporations have frozen and/or terminated their defined-benefit plans, she said. “The insolvency of the PBGC, I think, is driving many people’s interest in taking that lump sum, and I sympathize with that.”
Data compiled by Bloomberg found that in 2017, 186 of the 200 biggest defined-benefit plans in the S&P 500 based on assets weren’t fully funded to the tune of $382 billion, according to a report by the news agency.
Who Manages Money Better?
Retirees taking lump-sum pension payments instead of annuity payouts could potentially lose between 15% and 20% of what they would have received over a 20- or 30-year period, according to some estimates. They are shortchanged in that way “because of complicated formulas including interest rates and mortality tables,” according to Forbes.
“Who is bearing that cost ultimately? The worker, for sure – but then all the rest of us, for whom, those social benefit programs are means-tested, and taxpayers pay for.”–Elizabeth Kennedy
Generally speaking, corporations have opportunities to manage retirement plans more efficiently than individuals can. “Typically, employers manage retirement plans less expensively — they pay fewer fees, fewer commissions, et cetera,” said Mitchell. “They can buy life annuities or pay life annuities for their workers much cheaper than what the workers could get on their own.”
Those who get a lump-sum payment could maintain tax protection if they roll it over into an individual retirement account (IRA), Mitchell continued. “But then you have to be very careful that the money that you’re investing in that IRA is not frittered away in expenses.”
Those who put their lump-sum monies in an IRA could also use it to buy themselves an annuity, said Mitchell. Here again, she had advice for both men and women, drawing from the fact that women live longer. “If you’re female … and if you’re in a pool with men, you’re going to get a higher benefit than you would if you went out and bought [a pension plan] on your own,” she said. “Conversely, if you’re a man, then you should take out [the pension], buy an annuity on your own, and you’ll get a higher benefit.”
Whither Social Security?
Social Security, too, is facing insolvency, Mitchell noted. “Within about 12 years, benefits will probably have to be cut for everyone by maybe 30%, or else taxes will have to go up 60% to 80%,” she said. “Social Security benefit payments are currently partly subject to income tax. In the future, benefits may become means-tested to help correct the system’s insolvency problems.” Given that, “it’s completely rational for many people in the bottom third of the wage distribution not to save at all,” she said. “If we look at the retirement picture, we have to understand the incentives we are putting in peoples’ way — or the disincentives to save.”
According to Kennedy, society at large may end up bearing the costs when corporate pension plans fail to deliver sustainable long-term benefits for their employees. “When we’re replacing a system because [large] institutions are unable to invest in ways that yield real, tangible benefits for their workers long-term, it’s hard for me to imagine that that is not replicated when many, if not most, individuals are now in that same position of managing their retirement,” she said.
“Who is bearing that cost ultimately?” Kennedy asked. “The worker, for sure — but then all the rest of us, for whom, those social benefit programs are means-tested, and taxpayers pay for. Are we just shifting the costs of mismanagement from the individuals who originally held the money to those of us who are taxpayers, who will pay for the health insurance, the care, the housing costs and all of that for folks who can no longer afford it themselves?”
Mitigating Financial Stress
Employers are sensitive to the financial difficulties of their employees, and for good reason, because financially healthy employees are more productive. “Some employers are starting to pay much more attention to what they’re calling ‘financial wellness,’” said Mitchell.
“The reason that they are working to try to help people manage their debt better, save better and budget better is that they find that it reduces employee stress,” Mitchell explained. “For example, if you’re having the credit card company or the debt collector calling you at work several times a day, that’s obviously going to make you a less productive worker.”
Some firms, especially those in the financial services sector, are integrating financial wellness features into their employee benefit packages, such as subsidies for gym memberships or fees for health wellness programs, she added. Added Kennedy: “Employers want to see their workers in many instances either succeed long-term, or at least remain with them, because the cost of turnover is so great. They want to be able to make informed decisions about workplace policy that hopefully are consistent over time.”
“If we look at the retirement picture, we have to understand the incentives we are putting in peoples’ way — or the disincentives to save.”–Olivia S. Mitchell
In order to facilitate companies and employees in those efforts, she called for the federal government and Congress to weigh the long-term implications of the latest move to allow lump-sum pension payments.
The Public Pension Fund Mess
Although the Treasury department notice covers only private sector pension funds, the problem of underfunding plagues public sector pension funds as well. According to estimates by The Pew Charitable Trusts, state pension funds would have had a total pension liability of $4.4 trillion in 2017, and a funding gap of $1.7 trillion.
However, favorable investment returns in fiscal 2017 and 2018 are expected to lead to a decline in pension liabilities for the next two fiscal years, according to a report in August 2018 by Moody’s Investor Services.
“Every year that goes by leads to more red ink and more concern because the state and local plans across the country have clearly not done what they should have done to contribute the right amounts, to invest their assets in their pension plans carefully and thoughtfully,” Mitchell told Knowledge@Wharton for a report on that issue.
Even as state and local government pension funds are in trouble, Mitchell did not expect them to move towards lump-sum payments. They have attempted to mitigate that financial stress in other ways. “Over the 20 years, many states have realized their defined-benefit plans are in deep trouble, and so they’ve put in place a hybrid system,” Mitchell said. That hybrid is a mix of a defined-benefit plan and a defined contribution plan, she explained. “That’s a nice mix, so that people do get the benefits of both.”
Policy Challenges
The funding crisis in pension plans will affect not just baby boomers, but also the workers who served baby boomers, such as domestic workers including nannies, housekeepers and elder-care providers, said Kennedy. She noted that home health aides and hospice care workers are part of a fast-growing segment, but independent contractors among them have few options in planning for post-retirement income. “For them, the struggle is how to save when your income is so low, in the absence of any employer contribution,” she said.
“That has impacts going up the chain to these same retirees and baby boomers who now will also have less money themselves, individually, to pay for this kind of care,” said Kennedy. She saw that crisis developing at “the intersection between retirement, savings, solvency, and the ability to meet the basic human needs of the baby boomer generation.”
Kennedy said policy makers have to focus also on workers who are “vulnerable as low-wage workers in nontraditional workplaces” in their calculations on the long-term risks they would face.
Retirement Insecurity 2019: Americans’ Views of the Retirement Crisis
Diane Oakley
Kelly Kenneally
ReportsMar 2019March 2019
New public opinion research finds that Americans are united in their concern about retirement. In overwhelming numbers, Americans say the nation faces a retirement crisis, with Democrats at 80 percent, Republicans at 75 percent, and Independents at 75 percent.
These findings are contained in a new research, Retirement Insecurity 2019: Americans’ Views of the Retirement Crisis, published by the National Institute on Retirement and based on research conducted by Greenwald & Associates.
The key research findings are as follows:
In overwhelming numbers, Americans are worried about their ability to attain and sustain financial security in retirement.
Even as the nation remains deeply politically polarized, Americans are united in their sentiment about retirement issues.
Americans see government playing an important role in helping workers prepare for retirement, but lawmakers in Washington, D.C. just don’t get it. And the new tax law has not helped.
In contrast to the sentiment about Washington, D.C., efforts by state lawmakers to expand access to retirement accounts for all workers is widely supported by Americans.
Americans are highly positive on the role of pensions in providing retirement security and see these retirement plans as better than 401(k) plans.
There is strong support for pension plans for state and local workers, and Americans see these retirement plans as a tool to recruit and retain public workers.
Millennials are the most concerned about financial security in retirement, and are more willing than other generations to save more.
사람을 태우고 태양 주위를 돌고 있는 우주선이 지구와 다른 궤도를 돌고 있다면, 지구의 나이로 우주선에 있는 사람의 나이를 세도 되는걸까?
이미 우리는 수명이 늘어난 장수사회라는 우주선에서 살고 있는데, 과거 지구인들이 지구의 궤도에 따라 만들어 놓은 기준으로 나이를 세고, 은퇴하고 사회보장제도를 운영해간다. 이제는 우리 우주선에 사는 사람들의 생체연령(Biological age)에 맞게 제도를 만들어야 할 때다.
캐나다 York 대학교 Moshe Milevsky교수가 팟캐스트에서 이를 자세히 설명하고 있다.
Protect Against Longevity Shock: An Interview With Moshe Milevsky (Podcast)
Mar. 28, 2019 9:28 AM ET
by: SA For FAs
Senior Editor, FA Content
(4,786 followers)
Summary
York University Professor Moshe Milevsky, today’s foremost authority on retirement finance, discusses his new book, “Longevity Insurance for a Biological Age”.
The book asks: “What if the number of years planet earth has circled the sun with you as a passenger is the wrong metric?”.
Milevsky thinks chronological age is indeed a poor metric, which distorts one’s work strategy, asset allocation and everything else that in actuality keys off one’s biological age.
He says a shift to biological thinking will help make longevity risk as salient as mortality risk, which will one day make annuities as “legitimate” as life insurance now is.
He recounts his rationale for purchasing a deferred income annuity, the strong negative reaction it induced, and explains the difference between investment and insurance, and why both are needed.
York University Professor Moshe Milevsky, today's foremost authority on retirement finance, discusses his new book, "Longevity Insurance for a Biological Age," which provocatively asks: "What if the number of years planet earth has circled the sun with you as a passenger is the wrong metric?"
In this fascinating podcast interview (20:50), Milevsky argues that someone who is chronologically 50 years old may actually be biologically 38, with the implication being that we need to align the longevity of our portfolios with our own longevity. Or as he puts it: "Buy some insurance today because tomorrow you might find out you're younger."
Listen on the go! Subscribe to the SA for FAs podcast on iTunes, Stitcher and SoundCloud (click the highlighted links).
다양한 연령대의 사람들이 자신의 여명이 얼마일지에 대하여 오판하고 있다. 평균적으로 50대와 60대의 경우 자신이 75세까지 살 확률이 약 20%이고 85세까지 살 확률이 5%에서 10%라고 과소평가하고 있다. 분석에 따르면, 65세 때 인터뷰 한 1940년대에 태어난 남성의 경우 75세까지 생존할 확률을 65%라고 봤는데, 이는 공식적인 확률인 83% 보다 훨씬 낮았다. 여성도 마찬가지로, 객관적 수치인 89% 보다 낮은 65%를 예상했다.
이 연구는 IFS(Institute for Fiscal Studies)의 연구자들은 개인들이 예상하는 기대여명을 Office for National Statistics의 공식 생존율과 비교한 결과이다.
이 분석이 중요한 이유는 더 많은 사람들이 살아있는 동안 자신의 은퇴 생활에 필요한 소득을 만들어야 하기 때문이다. “50대, 60대 및 70대에 여명을 너무 짧게 예상하면 실제 생존기간 동안 쓸 돈을 빨리 쓸 수 있다.”라고 IFS의 경제학자이자 보고서 작성자인 David Sturrock는 말한다. 반면에 최고령대임에도 여명을 과대 평가하는 사람들은 여생이 얼마남지 않았음에도 남은 재산을 소비하는 것을 지나치게 꺼리는 경향이 있다. 여명을 잘못 판단하면 은퇴생활의 수준이 낮아질 위험이 있다.
60세의 미망인과 홀아비를 포함하는 일부 그룹은 여명에 대해 다른 사람들보다 더 짧게 예상했다. 80세까지 생존할 수 있는 객관적인 확률은 각각 77%와 67%였지만, 이 그룹의 응답은 49%와 39%로 상당한 차이를 보였다. 이는 미망인과 홀아비들은 은퇴 소득을 조기에 소진하기 쉽다는 것을 뜻한다. 반대로, 70대와 80대 노령자들은 평균적으로 90세 이상으로 살 가능성에 대해 지나치게 낙관적인 것으로 나타났다. 따라서 이들은 훨씬 더 오래 살 것을 예상해서 너무 적게 소비하게 된다.
최근의 정책 변화로 인해 퇴직후 소득을 제공하는 종신연금상품의 판매가 침체되었다. 대신, 55세 이상의 대부분 사람들은 퇴직소득을 현금 저축계좌 또는 주식시장 기반의 인출 프로그램(drawdown plan)에 넣어서 퇴직후 생애소득을 조달하고자 한다. 연금사업자 AJ Bell의 선임 분석가인 Tom Somby는 다음과 같이 말한다.
"기대여명을 과소 평가하면 일찍 은퇴자산을 소비할 위험이 있다. 연금강제 전환 폐지(pension freedom)로 사람들이 퇴직자산을 낭비했다는 명백한 증거는 없지만, 몇몇 사람들은 비용을 차감한 실질수익률이 5%로 예상됨에도 매년 10% 이상을 인출하고 있다. 기대여명에 대한 과소 평가, 은퇴자산의 투자수익에 대한 과대 평가와 과잉 지출은 은퇴자들의 미래에 대재앙이 될 것이다."
Older Britons pay the price for underestimating lifespans
Josephine Cumbo
April 17, 2018
What does the chart show?
It shows the extent to which people in various age groups are misjudging how long they are likely to live.On average, those aged in their 50s and 60s underestimated their chances of survival to age 75 by about 20 percentage points and to 85 by around 5 to 10 percentage points.According to the analysis, men born in the 1940s who were interviewed at age 65 reported a 65 per cent chance of making it to age 75, far lower than the official estimate of 83 per cent. For women, the equivalent figures were 65 per cent and 89 per cent.
How was the work carried out?
Researchers from the Institute for Fiscal Studies, a think-tank, compared individuals’ reported expectations of survival with official survival rates from the Office for National Statistics.
Why is this analysis important?
It matters chiefly because many more people are shouldering responsibility for making their retirement income last as long as they live. “When people underestimate their chances of surviving through their fifties, sixties and seventies they may save less during their working life, and spend more in the earlier years of retirement than is appropriate given their actual survival chances,” says David Sturrock, an IFS research economist and author of the report.“In contrast, people who overestimate their survival chances at the oldest ages may show an undue reluctance to spend their remaining wealth near the end of life. By misjudging their longevity, individuals risk having a lower standard of living in retirement than would otherwise be possible.”
What else did the analysis find?
Some groups were gloomier than others about their survival chances, including widows and widowers at age 60. While their official chances of surviving to age 80 were 77 per cent and 67 per cent respectively, responses from these groups found they thought they had a 49 per cent and 39 per cent chance of reaching 80 — a huge gulf in both cases.This implies that widows and widowers could be more prone to prematurely exhausting their retirement income.Conversely, the analysis found older people in their 70s and 80s were, on average, overly optimistic about the likelihood of living to age 90 and beyond. This could mean they spend too little of their income in the belief it will have to stretch out much longer.
Should policymakers take notice of these findings?
Recent policy changes have led to a slump in sales of annuities — products which provide a secure retirement income for life. Instead, most over-55s choose to put their pension cash into cash savings accounts, or stock market-based “drawdown” plans, where they have to make decisions about how to make their money last.Tom Selby, a senior analyst with AJ Bell, a pension provider, says if large numbers of people significantly underestimate their life expectancy they risk running out of money early.There was no clear evidence that savers were squandering their pension pots in the wake of the pension freedoms, he said. “However, our own research shows a significant minority are making annual withdrawals of 10 per cent or more, with the average person expecting post-charges investment returns of 5 per cent.
“The combination of underestimating life expectancy, overestimating investment returns and overspending could create a perfect storm for future retirees,” added Mr Selby.
인구통계학적 연구에 따르면 19세기 초 세계에서 40년 이상의 기대수명을 가진 나라는 없었다.
세계의 거의 모든 사람들이 극심한 빈곤 속에 살았고, 우리는 의학지식이나 질병에 대한 이해가 거의 없었기에 모든 국가의 선조들은 조기 사망을 준비해야했다.
이후 150년 동안 세계의 일부 지역에서는 괄목할만한 건강 증진이 달성되었다. 국가간 차이가 발생하였다. 1950년에는 유럽, 북미, 호주, 일본 및 일부 남미 지역에서 신생아의 기대수명은 60세를 넘었다. 그러나 그 이외의 지역에서는 신생아는 약 30세 정도 밖에 살 수 없을 것으로 예상되었다. 건강에 있어서 국가간 불평등은 1950년에 가장 극심했다. 노르웨이 사람의 기대수명은 72세였지만 말리는 26세였다. 아프리카 전체의 기대수명은 겨우 36세였기에 다른 지역의 사람들은 이들보다 2배 이상 오래 살 것으로 예상되었다.
아동 사망률의 감소뿐만 아니라 모든 연령대에서 기대여명이 증가함에 따라 기대수명은 연장되었다. 특정 국가에만 국한되어 있을지 몰라도, 이러한 기대수명의 연장은 인류 역사상 최초로 전 인류의 건강 상태를 개선시킨 획기적인 발전이었다. 수천년간 지속되었던 끔찍한 건강 상태가 마침내 종지부를 찍은 것이다.
한편, 1950년 이후에도 세계는 여전히 국가별로 차이가 나는 것처럼 보이지만, 건강 및 다른 많은 측면에서 세계는 급속히 진보했다. 오늘날 세계 대다수 국가의 사람들은 1950년의 가장 부유한 국가의 사람들만큼 오래 살 것으로 예상할 수 있다. 오늘날의 세계의 평균 기대수명은 북유럽을 제외하고는 1950년 어느 나라보다 높습니다.
이 그림은 지난 2세기 동안의 기대수명의 세계사를 요약한다. 1800년경에 신생아는 태어난 곳이 어디이든 기대수명이 짧았다. 1950년 신생아는 운이 좋아 좋은 나라에서 태어났다면 더 오래 살 수 있는 기회가 있었다. 최근 수십 년 동안 세계의 모든 지역이 상당히 진전되었으며, 1950년 최악의 지역이었던 곳이 가장 큰 진전을 이루었다. 1950년의 국가간 차이는 상당히 좁아졌다.
전 세계적으로 기대수명은 30세 미만에서 70세 이상으로 증가했다. 2 세기 동안의 진보 이후 우리는 조상보다 2배 이상 오래 살 것으로 예상 할 수 있다. 그리고 이 진전은 일부 지역이 아니라 전세계 모든 국가에서 우리는 이제 2배 이상 오래 살 것으로 예상할 수 있다.
The three maps below show the global history of life expectancy over the last two centuries.1
Demographic research suggests that at the beginning of the 19th century no country in the world had a life expectancy over 40 years.2 Every country is shown in red. Almost everyone in the world lived in extreme poverty, we had very little medical knowledge or understanding of disease burden, and in all countries our ancestors had to prepare for an early death.
Over the next 150 years some parts of the world achieved substantial health improvements. A global divide opened. In 1950 the life expectancy for newborns was already over 60 years in Europe, North America, Oceania, Japan and parts of South America. But elsewhere a newborn could only expect to live around 30 years. The global inequality in health was enormous in 1950: People in Norway had a life expectancy of 72 years, whilst in Mali this was 26 years. Africa as a whole had a life expectancy of only 36 years. People in other world regions could expect to live more than twice as long.
Such improvements in life expectancy — despite being exclusive to particular countries — was a landmark sign of progress. It was the first time in human history that we achieved improvements in health for entire populations.3 After millennia of stagnation in terrible health conditions the seal was finally broken.
Now, let’s look at the change since 1950. Many of us have not updated our world view. We still tend to think of the world as divided as it was in 1950. But in health — and many other aspects — the world has made rapid progress. Today most people in the world can expect to live as long as those in the very richest countries in 1950. Today’s global average life expectancy of 71 years is higher than that of any country in 1950 with the exception of a handful in Northern Europe.
The visualization summarizes the global history of life expectancy over the last two centuries: Back in 1800 a newborn baby could only expect a short life, no matter where in the world it was born. In 1950 newborns had the chance of a longer life if they were lucky enough to be born in the right place. In recent decades all regions of the world made very substantial progress, and it were those regions that were worst-off in 1950 that achieved the biggest progress since then. The divided world of 1950 has been narrowing.
Globally the life expectancy increased from less than 30 years to over 70 years; after two centuries of progress we can expect to live more than twice as long as our ancestors. And this progress was not achieved in a few places. In every world region we can now expect to live more than twice as long.
The global inequalities in health that we see today also show that we can do much better. The almost unbelievable progress the entire world has achieved over the last two centuries should be encouragement enough for us to realize what is possible.
