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.”
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).
4% 법칙은 1994년 MIT의 William Bengen이 Journal of Financial Planning에 투고한 것이다.
누구나 매년 은퇴자산 포트폴리오에서 4% 이내로 인출해서 쓴다면, 적립해 놓은 은퇴자산의 원금을 너무 일찍 써버리는 곤궁한 상황을 피할 수 있다는 것인데, 이 만병통치약 같은(ubiquitous) 이야기의 전제는 해당 포트폴리오의 40% 정도를 주식형 자산에 배분하여 운용하는 것이다.
물론 최근의 저금리로 인해 반신반의하는 의견들이 분분하지만, 다시금 4% 법칙에 힘을 얻는 연구결과가 나왔다.
Atlanta's Capital Investment Advisors의 대표인 Wes Moss는 주식의 수익률을 5%, 채권은 2% 그리고 인플레이션을 3%로 가정하고 1929년부터 2009년까지 82개의 퇴직시점에서 시나리오를 토대로 4% 법칙이 여전히 유효하다는 주장을 하고 있다.
Extending Bengen's research on the proper rate at which to draw down retirement assets using 25 more years of data shows the rule can still work
Feb 4, 2019 @ 3:59 pm
By Wes Moss
Those of us who have been in the financial advisory business for years can sometimes take established rules of thumb for granted – so much so that the nuances of such guidelines may get lost.
Take the 4% rule. When I started talking more about this ubiquitous rule last year, I performed my own informal survey. Over the course of a month, I asked several financial advisers if they knew the rule. Most indicated that they were indeed familiar with this guideline. But when pressed, many of those money "pros" were unable to articulate the rule's details and intricacies.
Although it sounds as though it should be simple, in practice there are complexities of the 4% rule that can lead to confusion over time. Still, it is a rule that I believe all financial advisers should fully understand.
The 4% rule was originally developed by William Bengen, a financial planner from MIT. Mr. Bengen published his study in 1994 based on data through 1992 in the Journal of Financial Planning.
Through his research, Mr. Bengen found retirees can take 4% of their initial retirement assets and increase that amount every year to account for inflation, assuming a 50% to 75% portfolio allocation to stocks. In Mr. Bengen's study, applying the 4% rule led to a worst-case scenario of an investor's money lasting 35 years. Thus, the 4% rule was born.
Of course, there is debate over whether the 4% rule remains a useful and pragmatic tool. Last year, The Wall Street Journal published an article entitled "Forget the 4% Rule: Rethinking Common Retirement Beliefs." The piece touted the opinion of Wade Pfau, a professor at the American College of Financial Services, who believes, based on his research, that the 4% rule is obsolete and should be replaced with a more conservative 3% rule.
The article prompted me to research the state of the 4% rule. As a financial professional, I wanted to arrive at my own conclusion about the continued viability of this landmark rule.
I couldn't find research that extended beyond Mr. Bengen's groundbreaking study's original dates. So I took it upon myself to update the study's figures with an additional 25 years of data to bring it into the present day.
My team's work recreated the study with retirement withdrawals beginning every year from 1929 to 2009 — 82 separate retirement starting points. We used actual market data until 2017 and ran multiple simulations with historically conservative average return estimates thereafter: 5% for stocks, 2% for bonds and 3% for inflation.
What I found was that 70% of the time (58 of the 82 scenarios), retirement funds lasted 50 years or more. The remaining 30% of the time, the money "ran out," with the worst-case scenario in our study being 29 years.
So, my answer is yes, the 4% rule can still work.
I also added a few important pieces to my study that would hopefully assist other financial advisers in speaking to their clients about withdrawal rates.
We all know that hard-line rules and scolding don't work in the real world. I developed some guidelines around the rule to offer buffers, or safety zones, that give high-end (the danger zone at 6%) and low-end (the "Buffett" zone at 2%) parameters for ongoing conversations with clients.
The primary goal of this research and the accompanying safety zones is to help financial advisers understand the nuances of the 4% rule and be able to explain these intricacies to their clients cogently and pragmatically.
If, for instance, you sit down with a couple who are spending "too much," perhaps now you can simply remind them that the spending level isn't sustainable, and that they need to move into a middle- or low-safety zone of withdrawals soon.
Our bottom line is to ensure that our clients are in a safety zone within the 4% rule. Understanding the rule, its implications and the buffers I have identified are a great way to have that conversation.
미국 와튼스쿨의 연금연구소( the Pension Research Council)가 발표한 “Assessing the Impact of Financial Education Programs: A Quantitative Model"의 연구결과에 의하면 꾸준히 금융교육을 받은 40대의 경우 은퇴시점에 퇴직연금자산이 10% 이상 증가한다고 합니다. 반면에 일회성 교육을 받은 경우는 단기적으로는 효과가 있어도 장기적으로는 의미가 없다고 합니다.
연구소는 가입자교육의 성과를 측정하고자 재산, 재무지식, 주식투자여부 등을 가지고 패널자료를 만들어 분석하였습니다. 가입자교육에 가장 관심이 많은 연령층은 40~60대 층이었고, 고등교육을 받은 사람일 수록 참여도가 높았습니다.
A research report says "financial education delivered to employees around the age of 40 will optimally enhance savings at retirement close to 10%. By contrast, programs that provide one-time education can generate short-term but few long-term effects.”
By Lee Barney
However, the council says that people between the ages of 40 and 60 are the most likely to participate in workplace financial wellness programs, since this is when they tend to save the most in their working lives.
“Furthermore, we find that program participation is higher for the better-educated, due to the larger gain in investing in knowledge for these individuals,” the council says. “Conversely, the least educated are less likely to partake of the program offering. The uneducated optimally save less, both as a result of their greater reliance on the social safety net, and their shorter life expectancies.” Additionally, higher-cost financial wellness programs have lower participation rates.
The council found that those who participate in a financial wellness program “have higher earnings, more initial knowledge and more wealth, while nonparticipants are poorer, earn less and have little financial knowledge at baseline. This occurs regardless of the age at which the program is offered.”
The council says it is important to offer financial wellness programs consistently: “After the program expires, we see that those who participate in the program cut back on their investment. Along with the depreciation in financial knowledge, this leads to a dampening of the program’s effect when it is offered. After the initial ramp-up in financial knowledge, the marginal effect on behavior is quite small. The net effect of a one-year program offered at age 30 is quite small, particularly by the time the worker attains age 65. In other words, a one-time financial education program may have little effect, as expected, but the long-term effects of a persistent financial education program can be quite sizable.”
