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퇴직연금에 해당되는 글 54건

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연금의 진실

연금시장 2019. 1. 14. 02:12

캐나다 토론토 York 대학교에서 수학 및 통계학을 전공하고 현재 Schulich 경영대 재무전공 교수이신 Moshe A. Milevsky 박사가 “연금 우화(Annuity Fables)”라고 Financial Planing Association에 2018년말에 기고하신 글을 감히 제나름댈 요약해보았습니다. 현존하는 연금분야 최고 석학 중의 한분이셔서 이글이 우리나라에도 많은 교훈이 되리라고 믿습니다.

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고령사회의 진전으로 연금의 중요성이 커졌음에도 연금학은 아직 대부분의 대학에서 재무, 경제, 경영의 정규 과목으로 자리잡지 못하고 있다. 또한 연금과 관련한 소위 가짜 뉴스들, 혹은 오해들이 만연해 있다. 저자는 대학교수로서 상아탑 위에서 연금시장을 7가지 측면에서 관찰해본다.

(1) 절대 연금계약에 가입하면 안된다?

투자회사 CEO인 Ken Fisher가 Steve Forbes와 인터뷰하면서 연금은 불투명한 상품이고, 수수료가 비싸고 해약시 손해가 크기 때문에 구입할 필요가 없다고 이야기한다(youtu.be/o8pEE6XTLV4). 2017년 동안 미국인들은 총 2천억 달러(약 200조원)의 연금을 구입했지만, 이는 ETF에 투자한 금액 4,760억 달러보다는 훨씬 적은 수준이다.

그러나 부유한 사람의 경우 Fisher의 말처럼 연금이 불필요할 수 있지만, 대다수 미국인은 부유하지 않기에 노후준비를 위해 연금이 필요하다. 자동차보험과 같은 보험상품은 소멸성이어서 만기시 돌려받는 것이 없기에 낭비적이라고 생각될 수 있다. 연금과 일반보험상품을 구별하지 못하는 대다수 사람들에게 연금은 금융과 보험이 결합한 것(finsurance)이고 비용을 내서 받아야 하는 서비스가 무엇인지를 충분히 이해시켜야 한다.

 

(2) 모든 연금상품은 똑같다?

누군가 펀드에 투자했다고 하자. 막연한 이야기다. 헤지펀드, 벤처캐피탈펀드, 사모펀드 아니면 ETF인지에 따라서 전혀 다른 상품이 된다. 마찬가지로 연금에 가입하겠다고 얘기한다면 너무 막연하다. 종신연금이라고 할지라도 즉시연금, 거치연금, 변액연금 등 다양하기 때문이다.

단순한 연금(life-only annuity)은 2011년에는 전체 연금 판매량의 25.3%였지만 2018년 2분기에는 14.3%로 줄어든 반면에, 최저환급금보증(GLWB)나 최저소득보증(GLIB) 등 최저보증기능이 있는 다양하고 복잡한 연금상품들이 주로 팔리고 있다. 그리고 이런 과도한 복잡함으로 인하여 수수료가 높아지게 된다.

한편 pension으로 기술되는 연금에 대한 학술적인 연구는 Yale과 Stanford 대학의 교수였던 Menahem Yaari로부터 시작해서 Wharton의 Solomon Huebnerf 교수로 이어져서 꾸준히 진행되어 왔다.

연금은 상당히 다양하고 그 역사가 깊어서 한 단어로 정의되는 것이 아니다. 따라서 소비자에게 어떤 서비스를 해주느냐를 정확히 설명해야 한다.

 

(3) 이미 너무 많은 연금에 가입하고 있다?

은퇴소득은 현금, 주식, 채권, 부동산, 연금 등으로 다양하게 구성된다. 확정급여형 퇴직연금이나 국민연금 등이 충분하다면 다른 연금은 불필요할 수 있을 것이다. 즉 생존연금액이 너무 높게 설정되어 있다고 좋은 것은 아니다. 사망하면 모두 사라지기 때문이다.

 

(4) Warren Buffett은 종신연금이 필요하지 않다?

보험회사의 CEO로서 Warren Buffett은 장수리스크 관리를 누구보다 잘 알고 있을 것이다. 그러나, 그 자신은 장수리스크에 노출될 가능성이 거의 없기 때문에 종신연금을 불필요할 것이다. 즉, 보트를 가지고 있지 않은 사람에게 보트 보험은 관심 대상이 되지 않는 것과 마찬가지이다.

그러나, 종신연금액을 채권자로부터 은닉할 수 있기 때문에 파산한 백만장자들은 더 많은 자산을 종신연금에 할당했어야 했다고 후회할 것 같다.

 

(5) 세금이 연금가입을 방해한다?

연금 보험료의 납입과 투자수익, 그리고 연금지급액의 현금흐름에 대하여 세금이 납부되어야 하는데, 이를 식별하고 계산하는 것은 상당히 복잡한 과정이다. 국가별로 적격이냐 비적격이냐에 따라 상이하다.

따라서, 연금의 경제적, 보험적 특성과 세금의 특성을 혼동해서는 안된다. 개인적으로 세제혜택을 선호하는 것과 장수리스크와는 아무 상관없다.

 

(6) 연금은 노인을 위한 상품이다?

변액연금, 거치연금, 지수연계연금 등 다양한 연금상품이 있는데, 이런 연금들은 부유한 노인이 구입할 가능성이 높다. 즉, 25세의 밀레니엄세대가 가입하는 것이아니라 곧 알츠하이머에 시달리게될 노인들이 구입한다는 것이다. 따라서 연금과 장수리스크를 직접 판매하는 앱을 만들어 연금가입을 유도하려는 사람이 있다면 포기하는 것이 좋다. 노인들은 온라인으로 쉽게 연금을 구입하려하지 않기 때문이다.

 

(7) 수많은 학자들이 연금을 연구해왔다!

1960년대 중반에 Menahem Yaari가 생애주기이론(Life cycle theory)의 기반을 만든 것은 양자역학과 중력을 통찰하는 것과 같은 위대한 작업이었다. 이 이론을 바탕으로 최적 포트폴리오에서 연금의 중요한 역할을 연구한 저명한 경제학자들이 등장한다.

Zvi Bodie, Jeffrey Brown, Shlomo Benartzi, Peter Diamond, Laurence Kotlikoff, Robert Mert Merton, Olivia Mitchella, Franco Modigliani, James Poterba, Willip, Willie Shshinski, Ealer 등이고 다수가 노벨상을 수상한다.

 

출처 : https://www.onefpa.org/journal/Pages/DEC18-Annuity-Fables-Some-Observations-from-an-Ivory-Tower.aspx

 

Annuity Fables: Some Observations from an Ivory Tower

​​​by Moshe A. Milevsky, Ph.D.

Moshe A. Milevsky, Ph.D., is a tenured professor of finance at the Schulich School of Business and part of the graduate faculty in mathematics and statistics at York University in Toronto.

Disclosure: The author is a member of the board of directors of CANNEX Financial, which operates in the annuity business and provided some of the data discussed. The views expressed here are his own and do not reflect the position of this journal, York University, or CANNEX.

Acknowledgment: The author thanks Lowell Aronoff, Gary Baker, Alexa Brand, Faisal Habib, Gary Mettler, Edna Milevsky, Alireza Rayani, and A.J. Tell for comments on prior versions.

Editor’s note: This commentary is being published in lieu of a research paper this month. It is the author’s personal views; it was not peer reviewed by the Journal’s peer review board. It was accepted for publication by the editorial staff.


As investment-focused financial advisers develop an appreciation for the important role of annuities in mitigating longevity risk, I continue to stumble upon annuity myths that permeate the retirement income dialogue. Fables are repeated with increasing frequency in the professional and public arena. And, while the world is awash in so-called fake news, if advisers view themselves as fiduciaries, then getting the facts straight should be more than an exercise in intellectual virtue. This article draws upon a quarter century of my own research to clarify what I see as common misconceptions around annuity benefits as well as unfair condemnation. The appendix at the end of this article provides support for a number of issues noted. — M.M.

Allow me to begin with a personal story that provides a typical example of widespread annuity ignorance. In 1993, when I was a graduate student in finance and economics, I wrote a term paper that eventually became a published (and co-authored) study titled “How to Avoid Outliving Your Money.” In that article I used some fancy mathematics to investigate how a retiree, defined as someone trying to target and maintain a desired standard of living (not necessarily the 4 percent rule), should allocate a portfolio between investments such as stocks and bonds.

The key message in the article—which in the early 1990s might have appeared novel—was that retirees should continue to maintain a substantial exposure to stocks well into their 70s and 80s because they were likely to live a long time. And, as everyone knows by now, in the long run (professor Jeremy Siegel is the messiah and) stocks will outperform bonds. Technically speaking, in the article I “proved” that the lifetime ruin probability (LRP) was minimized with more stocks, assuming certain analytic mathematical properties, etc. Anyway, that was the main thesis and like all budding academics in training, I took the message on the road.

In one of my very first public forays, I presented the above-mentioned paper to a large conference of insurance industry specialists and actuaries. The response from the crowd was tepid at best, partially because of my naiveté and inexperience communicating with non-academic audiences. At the time, 25-year-old me believed that a room full of 50-year-old financial service professionals in Orlando (or maybe it was Las Vegas) would be nothing short of thrilled to experience a compendium of equations early in the morning after a night of social cocktails.

When I completed my symphony of Greek and the patient moderator asked the audience for questions, there weren’t any from the floor. I remember this part clearly, because after a long and awkward silence, someone finally lumbered over to the microphone and declared in a crisp British accent: “Young man, if what you are trying to do is reduce the probability of running out of money, then you should consider purchasing an annuity from a life office.” There were murmurs, nods of approval, and even a few giggles from the audience. At the time, my own mumbled response was that well, thank you for the great comments about annuities, and that I would have to look into that annuity thing carefully and thank you again, blah, blah.

You see, back in 1993, I had absolutely no idea how a life annuity provided insurance against outliving wealth. It wasn’t part of my curriculum in business school or the established cannon in graduate courses on econometrics, microeconomics, and derivative pricing. Even to this day, a proper understanding of annuities is not part of the formal educational curriculum for most college and university students in finance, economics, and business.

Now, fast forward 25 years later, and I personally have atoned for my own ignorance but continue to come across large groups of educated professionals with CFPs, CFAs, MBAs, and Ph.D.s who, similar to mini-me, don’t quite understand the role of annuities in ensuring you have enough money for the rest of your life. So, I have decided to distill my observations into one document and hope this will be useful to financial advisers, planners, and wealth managers who are trying to help their clients manage the financial life cycle, longevity risk, and its associated expenses. Instead of selecting random myths to debunk, this article is a collection of insights, views, and observations on the topic of annuities from my perch in the ivory tower.

Observation No. 1: There’s Nothing to Hate or Love About Annuities

You might have seen the full-page newspaper advertisements funded by a well-known and high-profile registered investment adviser, Ken Fisher, claiming that he hates annuities and that everyone else should hate them too. In fact, there is an amusing video on YouTube where Fisher is interviewed by fellow billionaire Steve Forbes on the topic of annuities (watch it here: youtu.be/o8pEE6XTLV4). When Forbes asks our protagonist why he hates annuities, his response is, “What’s not to hate?” and they both share a laugh. Of course, being billionaires, neither of them really need to worry about retirement income or having enough money to last for the rest of their life. Most Americans don’t have that luxury.

In contrast to both of them (on many levels), I am occasionally classified as a “lover” of annuities or positioned as a previous “hater” who saw the light and converted to become a lover, perhaps while strolling on the Road to Damascus from Jerusalem. To set the record straight, I love my wife, my four precious daughters, and my mother (well, now that she has retired and moved south). But, I neither love nor hate annuities. They aren’t a type of music or literary genre that one can develop strong feelings for or against. Rather, annuities are a type of financial plus insurance instrument (I like the word finsurance) that is absolutely necessary for managing your retirement plan, no different than car insurance for driving a car, or other insurance and warranties.

Do you love the extended warranty on your home furnace? How about your life insurance? Do you love that piece of paper? To repeat, I like my furnace and love my life—but need to protect the financial implications of losing either.

Here are the cold facts. According to LIMRA, in 2017 Americans purchased a total of $200 billion in annuities, which coincidentally was the same amount of money they spent (or invested, depending on your definition) on auto insurance premiums, according to insurance analysts at NASDAQ. Now yes, the $200 billion figure is less than half of the $476 billion invested in exchange-traded funds (ETFs), but an ETF can’t solve all your retirement income problems, and a $200 billion market is worthy of your attention.

Why all the hate and vitriol, then? Well, in Fisher’s and Forbes’ defense, perhaps they associate annuities with opaque products, high ongoing fees, commissions, and infinite surrender charges. Many of those are odious to me as well, and I detest paying for things I don’t need, but it has nothing to do with annuities. It’s about compensation for selling product. And, as far as I’m concerned, as long as it’s disclosed in a pedagogically sound manner so the buyer understands what they are paying and why, then let the free market prevail in the race between commissions and fees.

More often than not, though, people don’t understand what they are paying for service, how an annuity works, or the combined nature of what it’s trying to achieve. This “ignorance” quite naturally leads to caution and trepidation. Also, please remember that most insurance premiums are meant to be wasted. You don’t want to put in a claim on your car insurance, home insurance, or even life insurance. So, what seems like an excessive fee to you might be an insurance premium to me. Bottom line: get the facts first then form an opinion.

Observation No. 2: Not All Annuities Are Really Annuities

With the emotional stuff out of the way, allow me to move on to linguistics. In my professional opinion the word annuity is quite meaningless, perhaps no different from the word fund.

Think about it this way: what are your thoughts about funds? Do you like funds? Do you own any funds? How much of your money is allocated to funds? Well, replies someone with even a remedial understanding of finance, what type of fund? Hedge funds? Venture capital and private equity funds? Exchange-traded funds? Mutual funds? The word annuity without a descriptor isn’t informative. There are life annuities and term-certain annuities, fixed annuities and variable annuities, immediate annuities and deferred (aka delayed) annuities, etc.

To the essence of this article, when an academic financial economist such as myself talks about the benefit of annuities, he or she is likely referring to a very simple product, quite similar to a coupon-bearing bond. The transaction works as follows. You fork over (invest,
deposit, allocate) $100,000 or $500,000 or $1 million to an insurance company. It then promises to pay you a monthly income of $500, or $2,500, or $5,000 for the rest of your life. The basic (academic) annuity differs from a coupon-bearing bond in that there is no maturity or terminal date when the principal is returned.

You never get the original deposit back, but the payments will last as long as you live. That could be 10, 20, 30, or even 100 years if you believe the optimists (or lunatics, depending on your point of view).

Financially speaking, the original investment is amortized and spread evenly over your lifetime. I like to explain it as having a mortgage on your house that never matures. As long as you are still alive, you have to make mortgage payments to the bank. No matter how much you have already paid, it’s never over. This sounds horribly usurious and unappealing, but reverse the image and you will understand how the basic (academic) annuity works. The insurance company has to make payments to you forever; it never ends as long as you are alive. That’s something I can live with.

Now, these basic (academic) annuities aren’t supposed to offer refunds, liquidity, or the ability to change your mind later. Nor do they offer much to your heirs in the form of a so-called death benefit. In fact, if you get hit by a bus tomorrow the money is gone. In exchange for this “risk” you get to enjoy your old age knowing that regardless of how long you (or perhaps jointly with a spouse) live, the check will be in the mail.

Speaking of old and academics, the first economist to advocate and rigorously argue for their use in retirement portfolios was a very distinguished scholar by the name of Menahem Yaari, writing in the 1960s when he was a professor at Yale and Stanford University. Another scholar who deserves credit is Solomon Huebner, who was a professor (nicknamed Sunny Sol) at Wharton. He wrote about and lectured on the benefit of (eventually, at retirement) converting whole life insurance policies into life annuities, back in the 1930s and 1940s. My point is that annuities have an academic pedigree.

This sort of basic (academic) annuity can also be described as a pension, quite justifiably, inasmuch as it’s purchased around the age of retirement and performs the same function. Think of buying more units of Social Security (you can’t) or defined benefit pension (growing extinct). I prefer the phrase income annuity and will stop referring to them as academic or basic.

I am willing to bet my Ph.D. that if these income annuities were the only annuities that most real people purchase, Ken Fisher and Steve Forbes wouldn’t dare belittle them. But, the fact is, these basic income annuities rarely sell and aren’t very popular. In fact, the same academics who—one could say—“love” them have employed teams of psychologists to explain the “hate.” I’ll get to that later, but first some industry background.

There are more than 1,000 life insurance companies in the U.S. that could potentially manufacture and issue income annuities, but the vast majority of sales are via approximately 25 carriers. The average premium for an income annuity in 2017 was $136,000 according to the LIMRA Secure Retirement Institute (referenced earlier). The average age of an income annuity buyer was just shy of 72 (an age I’ll return to later), although 20 percent of sales were to individuals under the age of 65. The gender composition of a typical buyer was balanced 50/50, and half of U.S. sales were in qualified retirement plans, which means that income was taxed as ordinary (I’ll also return to that later.)

Although an income annuity is manufactured by an insurance company, the transaction itself is intermediated via a sales channel, which—according to the CANNEX/LIMRA Secure Retirement Institute 2016 Income Annuity Buyer Study—could be a career agent (32 percent of sales), independent agent (8 percent), broker-dealer (41 percent), bank (17 percent), or direct response (2 percent). It’s interesting to note that the average premium and investment into an annuity were twice as large in the full-service national broker-dealer channel ($164,000) versus the direct response channel ($80,000).

Finally, the CANNEX/LIMRA study also shows that although 81 percent of income annuity sales guarantee a lifetime of income, 41 percent of sales included a period certain, 32 percent included a cash refund, and 10 percent included an installment refund. These guarantees cost extra and/or reduce the lifetime payout. Only 12 percent of income annuity sales were pure life only. Indeed, the product that most financial economists promote (and write about) aren’t very popular. See Table 1 for more on this emerging trend.

 

Notice how in late 2011, approximately 25 percent of income annuity sales (or more accurately, annuity quotes) were life-only annuities that offered no additional guarantees or death benefits. It provided the highest level of income for any given initial investment or deposit. In contrast, by the middle of 2018, that fraction had declined to 14 percent, and the majority of income annuity sales (which aren’t that large to begin with) were associated with a cash or installment refund at death. Nothing is free in life or even death, and these additional guarantees dilute the embedded mortality credits. You get less.

Now, I don’t have a degree in psychology, but I will venture a guess that people have very good reasons for not liking the simple life-only income annuity beloved by most academics. Retirees aren’t quite rational; they don’t always do what’s in their best interest; they want the ability to change their mind, leave money for their heirs, etc.

The old income annuity, which has been around since the 17th century, is perceived as a straightjacket. So, insurance companies in the last century have come to the rescue of consumers by offering—and promoting—guarantees and refunds. Many have gone a step further and created annuity-like investment products that offer a modicum of a pension but aren’t quite the longevity insurance nirvana endorsed by scholars. These would be variable annuities (VAs) with guaranteed lifetime withdrawal benefits (GLWB), guaranteed minimum income benefits (GMIB), equity-indexed annuities (EIA), fixed annuities, structure annuities, etc.

Some of these “annuities’’ grow and mature into a true income annuity. Others have the option to be converted into an income annuity. A few have absolutely nothing to do with either pensions or lifetime income, but for whatever legal and regulatory reason get to masquerade as annuities. These products have many complex (yes, I admit) features and can be quite confusing to understand unless you happen to have a Ph.D. in finance, economics, or mathematics. This isn’t the time or place to explain every annuity product currently available or review the history of their mispricing and the annuity blowups (and bad risk management) around the year 2008. Don’t get me started on annuity buybacks, which have recently hit the Canadian marketplace.

These complex annuities might be the source of the vitriol and fear alluded to earlier. And, to be honest, excess complexity in financial and insurance products is usually associated with shrouding of fees and commissions. In the VA + GLWB case, the shrouding blinded many of the insurance actuaries, and ironically, many were mispriced in favor of the consumer (full disclosure: I happily purchased some of these “underpriced” annuities).

Again, my objective here isn’t to offer an encyclopedic overview of all the different types of annuities available—a universe that continues to grow with every application and filing with the insurance commissioners—but rather to alert readers to appreciate the fact that not all annuities are annuities. More importantly, if you hear of, or plan to quote, research in support of the benefit of annuities, please appreciate that my fellow academics never liked or endorsed products that charge hundreds of basis points in fees for little in benefits.

Don’t stop at the word annuity. Dig deeper. What does it do for your client, exactly?

Observation No. 3: You Might Already Own Too Many Annuities

The U.S. National Academy of Sciences in Washington, D.C. publishes recommended dietary allowances and reference intakes on their website. In addition to the usual vitamins A, B, D, K, etc., they also recommend a number of elements for daily intake. For example, a typical 50-year-old male should consume 1,000 milligrams of calcium (for females it is 1,200) per day, 700 milligrams of phosphorus, and 11 milligrams of zinc (for females 8 is enough.) There are other interesting elements on the list, such as copper, iron, magnesium, and manganese.

Think about the following “allocation” question: should you include phosphorus or zinc supplements in your “portfolio” of daily pills? Well, if your regular diet consists of plenty of peas (phosphorus) and shellfish (zinc), then you are probably consuming more than the recommended milligrams per day. There’s no need for more. But if you don’t (or can’t) enjoy those foods, or other dishes heavy in phosphorus and zinc, you should consider supplements. But remember, 700 milligrams of phosphorus per day is a good idea, 7,000 is unhealthy and 70,000 will incinerate your internal organs and kill you.

My point?

The role of annuities in the optimal retirement portfolio is similar to the role of these minerals and elements. A well-balanced daily diet includes a cocktail of copper, iron, phosphorus, and zinc. All diversified retirement portfolios should consist of some cash, stocks, bonds, real estate, health insurance, long-term care insurance, and some—but not too much—annuities. I like to think of it as a retirement cocktail.

So, if your client already is entitled to annuity income, they don’t need any more. If they receive substantial Social Security payments relative to their income needs, or a corporate defined benefit (DB) pension, they might be over-annuitized. That group of clients (which may be larger than you think) do not need any more. If a couple is receiving $50,000 a year in Social Security benefits and they only have $100,000 in savings, why in the world should it be allocated to (more) annuities? Too much annuities—that is, income that dies with you—could kill you.

Observation No. 4: Warren Buffett Doesn’t Need an Annuity for Longevity Insurance

Consistent with the zinc and phosphorus analogy, some individuals don’t need any annuities because of the nature of their personal balance sheet. They may have very little Social Security or DB pension income (relative to their financial needs), but they have substantial assets and will never exhaust their money, even if they live forever. The longevity of their portfolio is infinite.

I suspect Warren Buffett would be in that category. He is a reasonable man with a savvy eye for investments. As the chairman and CEO of an insurance company, I’m sure he would understand the benefits of risk management. But I doubt he would be interested in purchasing an annuity, because he doesn’t face longevity risk exposure. To be clear, I’m not saying he already has enough zinc and copper. His body doesn’t need it.

Here is a story I enjoy telling undergraduate students when I give my standard lecture on the benefits of insurance:

During the habitable months of the academic year I teach in Toronto on the north shore of Lake Ontario where many people own boats moored at various marinas. A few years ago, I received a phone call during dinner from a salesperson representing one of the large P&C insurers in town. It was close to the end of the year and he wanted to know if I was interested in purchasing boat insurance (which, like car insurance, is mandatory for boat owners). He mentioned that the company was having a sale—something to do with capital and reserves changes—and if I acted within the next 24 hours I could save 40 percent on premiums compared to regular rates.

I thanked him for the call (well, not really), but informed him that I didn’t own a boat and had no interest in purchasing a boat and to please remove me from the calling list. Undeterred, this energetic fellow went on with his script and said something to the effect of “the offer will expire tomorrow,” this was a unique opportunity to take advantage of insurance that was on sale, etc.

“But, I don’t own a boat,” I said again, baffled that this call hadn’t ended yet. On he went. I wondered, what did he want me to do? Buy a boat so I could benefit from cheap insurance? No boat. No need for boat insurance.

Corny (yet true), but it is the essence of a problem with all insurance that also applies to annuities. Many people just don’t need more annuities. Yes, they could be cheap, on sale, and the deal of the century, but if you don’t face the underlying risk, don’t bother getting coverage.

The analogy may not be precise because everyone owns at least a small longevity raft, but they also have government (Social Security) insurance to protect them. So, who falls in the “no boat” category? Well, when someone who is already retired informs me that they are very comfortable financially and could sustain their lifestyle for another 50 years of retirement (albeit rare), they are not a candidate for an annuity—at least from a risk management perspective. They don’t own a “longevity risk” boat and therefore don’t need the coverage. Figure 1 offers another perspective on who needs income annuities and the associated insurance.


Imagine two single 65-year-olds. One is a relatively unhealthy male with an optimistic life expectancy of 15 years. The other is a healthy female who can expect 30 more years of remaining life. Assuming all else is equal on their personal balance sheet (although it never is), who benefits more from the longevity insurance inside income annuities? As you can see from Figure 1, the individual volatility of longevity (iVoL) for the unhealthy male is 60 percent, which is double the 30 percent number for the healthy female. I would argue that he needs the annuity more. It’s not about how long you think you will live. It’s about the risk.

Of course, cold, rational insurance protection is just one dimension of the demand for income annuities. There is also the emotional argument, popular as of late, well founded in the school of behavioral finance economics. However, I worry that approach leads to a slippery slope of justification for almost any financial product that makes your client “feel good.” More importantly, there might be excellent legal and regulatory reasons for owning annuities—namely their ability to shelter assets from creditors—but that has nothing to do with longevity risk and pooling. I suspect many bankrupt ex-millionaires and even billionaires wish more of their assets had been allocated to insurance and annuity products. These ancillary benefits bring me to my next point.

Observation No. 5: Taxes Disfigure Everything, Including Annuities

By construction, almost every annuity involves handing over a sum of money to an insurance company in exchange for the return of those funds over a drawn-out period, often decades. In between the “in” (investment, premium) and “out” (cash flow, lifetime income) the money sits inside the insurance company’s accounts and earns interest and investment returns. This gestation and growth period is important to governments, not only individuals, because someone, somewhere has to pay taxes on those gains. These gains aren’t easy to identify or compute, which leads to another host of annuity considerations and mathematical headaches.

Different countries and jurisdictions have their own unique tax treatment for this (imputed, assumed) growth. Some offer a rather liberal treatment and a very “good deal”—for example, the U.S. decision to approve the Qualified Longevity Annuity Contract (QLAC). Other countries impose disadvantageous and unfair distortions. The tax treatment of the longevity insurance can kill the appeal. Canada is an example of a jurisdiction in which the current tax treatment of deferred income annuities renders them unviable. So, you have a boat in Lake Ontario, need protection, but it’s financially better and suitable to set sail without insurance.

Most of the early academic articles and papers in the annuity economics literature focused exclusively on the benefits of risk-pooling and longevity insurance, and for better or worse shied away from commenting on—or even knowing about—the tax implications, including premium tax and exclusion/inclusion ratios.

As most financial advisers in the U.S. are well aware, if the annuity is sitting inside a tax shelter, such as an IRA or 401(k), the tax treatment is quite simple: all the money you receive (or extract) as cash flow over the course of your life is treated as ordinary income, since you never paid tax on the funds. But if the funds are outside a shelter (i.e., non-qualified) the situation is more complicated and can either help or hinder your tax position depending on specifics.

In other words, the annuity’s unique tax treatment might increase its appeal as an investment instrument for individuals who benefit from the shelter (today), regardless of their insurance attributes. For others, the ordinary income classification of the lifetime of cash flows might actually hurt. Again, it depends on specifics. Generally speaking, I would argue that annuities are better located in tax-sheltered (qualified) retirement accounts because the money is already “tax damaged” and you will be paying (high) ordinary interest income on the gains and withdrawals. But there are exceptions.

In sum, don’t confuse the economic and insurance properties of the annuity with its tax characteristics. You might hate or love the tax treatment, but that has nothing to do with longevity risk and pooling.

Observation No. 6: Annuities and Seniors Go Together

The financial and insurance products I’m discussing here, whether it be a variable annuity, deferred income annuity, or indexed annuity, is likely to be purchased by someone who is older, perhaps senior, and sadly with an increased likelihood of dementia and Alzheimer’s. These aren’t purchased by savvy, 25-year-old millennials. Figure 2, based on more than 5.2 million income annuity sales (or quotes) and described fully in the appendix at the end of this article, provides a graphical illustration of the typical buyer over the life cycle.


Now, to this point in the narrative, I have refrained from presenting any hard-core statistical analysis since most of the points didn’t require such firepower, but the obvious fact is that income annuities are more likely to be purchased by wealthy seniors. The appendix to this article (see page 55) describes a statistical analysis that indicates that between 75 percent and 95 percent of the variation in income annuity sales across the U.S. can be explained by the fraction of the state population above the age of 65 and their relative income. In other words, if you tell me how many seniors you have in a particular region and how wealthy they are, and I can “forecast” annuity sales with 75 percent to 95 percent accuracy. In fact, increasing the size of the population and holding the fraction of seniors constant actually reduces annuity demand. It’s really all about relatively old people.

What all of this means is that yes, these buyers need more protection than most and there should be a heightened regulatory awareness of the transaction, regardless of the type of annuity. It shouldn’t be as easy to buy an annuity online as it is to purchase a stock, bond, or Bitcoin for that matter. These decisions (and purchases) are quite difficult to reverse or undo, which is exactly why it makes sense to have a financial adviser as intermediary in between the manufacturer and end-user. To all you 20-year-old developers contacting me with ideas on how to create an app that sells annuities and longevity insurance directly to the public, please stop for now.

Likewise, I have little sympathy for advisers who lament an ever-growing regulatory burden placed on annuity sales relative to other financial products such as ETFs or mutual funds. They expect one-click annuity shopping on their internal firm’s platform. The compliance folks tell me this will never happen. Indeed, please take a careful look at the audience at your client appreciation events. They need more protection than average.

Observation No. 7: True Annuities Have Many Academic Fans

For readers interested in more than my personal opinions, the sidebar to this commentary (see page 52) is a curated list of 20 scholarly articles and some books that could form the basis of any formal university course on annuity finance and economics. I have assigned most of them as readings to my own graduate students. Although many of these articles are written in the language of mathematical probability, their main message is quite clearly English: annuities are worth considering.

The last article on the alphabetical list was written by the previously mentioned Menahem Yaari in the mid-1960s and should probably be listed first on any formal list. He created the foundation for the field of life cycle economics (and much of the financial planning profession) by “proving” that for rational individuals who were trying to “smooth’’ consumption over their life cycle, there was no other investment asset that could outdo the annuity. Why? The mortality credits and risk pooling. This insight might not seem terribly deep to the typical financial adviser, but in an academic’s ivory tower world, it was like uniting quantum physics and gravity in one big theory.

Other noted academic economists who have written about the important role of annuities in the optimal portfolio and have extended the Yaari model are Zvi Bodie, Jeffrey Brown, Shlomo Benartzi, Peter Diamond, Laurence Kotlikoff, Robert Merton, Olivia Mitchell, Franco Modigliani, James Poterba, William Sharpe, Eytan Sheshinski, and Richard Thaler. Any educated reader of the financial literature and self-respected investment adviser will recognize most of the names on this list, which includes quite a few Nobel laureates.

My point isn’t to convince you with credentials or blind you with science, but rather to alert you that in addition to their many other contributions to modern finance and economics—for which they are better known—all have written favorably about the role of annuities. They recognized long ago that many Americans would face a retirement income crisis as they approach the latter stages of the human life cycle. Your clients need the supplementary phosphorous and the zinc due to an ingrained dietary deficiency. Take the time to acquaint yourself with the science—not the marketing—before forming your own opinion.

A Personal Note

Yaari_Milevsky.jpgTo end on a personal note, I have had the pleasure and honor of calling Menahem Yaari a mentor as well as a family friend. In his mid-80s and retired after teaching economics at Hebrew University, he is also the past-president of the Israel Academy of Sciences and Humanities. I recently had the opportunity to have an informal lunch with him in Jerusalem where, after the usual pleasantries, the conversation turned to economics. Although he wrote the previously noted landmark piece over 50 years ago and has since published many important articles in other areas of mathematical economics and decision theory, he never returned to write about annuities. Some might call it a one-hit wonder, but what a song! My understanding is that he claimed, when asked, that he didn’t think he had much to add to that classic 1965 paper.

When I asked him during our recent lunch what he was thinking about these days (a standard question in our field), he mentioned that now that he was retired, he developed an appreciation for the importance of retiring slowly, versus ceasing work all at once. It’s quite reasonable advice and should resonate with anyone who counsels retirees. Here is his advice: work part-time, never exit the labor force irreversibly, and always maintain a connection to your profession.

We chatted on and I inquired whether this retirement observation was about economics or more of a personal, psychological reflection. His reply, after some thought, was that it likely meant people should also purchase their annuities slowly, versus all at once. And, he was convinced that even without behavioral and psychological considerations, a “neo-classical model of dynamic utility maximization” would lead to gradual annuitization. Ergo, annuities shouldn’t be purchased in one large irreversible transaction. Well, I nearly choked on my hummus as the implication dawned on me.

A follow-up paper? Stay tuned, there might be a sequel to the most famous (1965) academic annuity article ever written. For the time being, the sidebar contains the prerequisites.  


저작자표시 (새창열림)

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은퇴 1년 전에 해야할 20가지

연금시장 2019. 1. 7. 23:16

만약 1년안에 은퇴하신다면 다음의 20가지 단계 준비를 하시는건 어떤지요?

1. Checklist 만들어서 관리하기
2. 직속 상급자와 인사담당자에게 얘기하기
3. 아내에게 말하기
4. 회사컴에서 개인파일 정리하기
5. 비번 정리하기
6. 개인 이력서 업그레이드 해놓기
7. 은퇴후 소비규모 설계하기
8. 사내시스템의 개인 일정표 옮겨놓기
9. 일했던 기록들 복사하기
10. 건강보험 챙기기
11. 퇴직연금 수령방법 결정하기
12. 일은 덜하고, 꿈 많이 꾸기
13. 취미활동 시작하기
14. 은퇴후 장난감 미리 구입하기
15. 은퇴후 주소,연락처 남기기
16. 하드웨어 교체하기
17. 은퇴후 예산 짜서 거기에 맞춰살기
18. 핸드폰에 은퇴 카운트다운 설정해놓기
19. 작별인사 시간 갖기
20. 더 웃고 덜 걱정하기

 

 

출처 : https://www.theretirementmanifesto.com/20-steps-to-take-in-the-year-before-retirement/?fbclid=IwAR3APjXhefHTgx2Jw4KrGON21vXCxpjSlso0NRhKu4KX77-G82IycrzdXEY

 

20 Steps To Take In The Year Before Retirement

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Having just come through it myself, I can assure you that the year before retirement can be hectic. Fortunately, I took good notes and am sharing with you today these steps to take in the year before retirement.

Follow these 20 Steps In The Year Before Retirement to smooth your transition. Click To Tweet

Change Management is hard, and moving from a multi-decade routine of “work” to a new life as “retired” is one of the biggest changes you’ll make in life.  It touches almost every facet of life, and it’s disruptive.  Follow these 20 Steps To Take In The Year Before Retirement to ensure a smooth transition from the working world into the retirement you’ve always dreamed of.

Today, I’m taking a “deeper dive” into the detailed steps we took in the final year of our working careers.  This article is in response to a request from a reader, and I hope it proves valuable to anyone approaching their final year of work.

For most folks, I’d encourage you to start getting serious about retirement when you’re ~5 years away.  I created The Ultimate Retirement Planning Guide to assist folks as they plan for retirement, with specific steps for folks at various stages in their retirement journey (from mid-career, 5+ years out, 2-3 years out, 1 year out and post-retirement).  Today, we’ll look in detail at the final year.

** TIP **  If you’re more than 1 year away from retirement, cut/paste a link to this article on your calendar one year prior to your planned retirement date, then refer to it when the time is right.

20 Steps To Take In The Year You Retire

Think of something as simple as where you keep your calendar.  If you’re like me, you kept it on your work computer, and it was synched on your work cell phone.  Now, imagine that calendar is suddenly taken away from you.

My calendar was taken away from me on June 8th.  As was my address book, my cell phone, my computer, and my paycheck.  Fortunately, it wasn’t a big deal for me.  I’d developed intentional steps to take in the year before retirement, and the transition went smoothly.

Imagine your calendar suddenly disappearing. Mine did, on June 8th. No problem, I took these 20 steps to prepare in my final year of work. Click To Tweet

1. Maintain A Checklist

18 months before retirement, I started a checklist with everything I had to address before retirement.  You can start with the 20 items from this post, then add to it as specific tasks come to mind.  It was a lifesaver for me and became the roadmap that led my tasks as I made my final preparations for retirement.  I listed each month between “now” and “retirement”, then populated various tasks into each month and referred to the list each month to ensure I was on track.   It doesn’t have to be fancy. Here’s an actual screenshot from March, with X’s to confirm the tasks were compete:

2. Talk To Your Boss, and Talk To HR

As I laid out my 12-month checklist, I planned several meetings with my boss and the Human Resources department.  My first meeting was with my boss at the one year mark, as I’d decided I was going to be very transparent about my plans and allow time for a smooth succession.  It was a risk to approach “the boss” so early, but I felt it was important to provide my employer with as much time as possible to plan for my departure.  I have no regrets about my approach, and my employer appreciated my support in the transition planning.

I also had numerous meetings with HR, starting at higher level discussions and branching down into some very specific meetings with “specialists” (COBRA insurance, timing to ensure I maximized my bonus payout, transition deadlines, etc.).  I also clarified the terms of my non-compete agreement, given that I had been offered a Board Of Director role at a company in our industry when they learned of my retirement  (note, I did NOT accept the offer until I had clarified the non-compete with our Senior Management team.  Do it right or don’t do it at all.)

My final meeting with HR was actually my last work-related activity, as I turned in my laptop, company credit card, building security pass, parking permit, etc.  It was a positive experience, enhanced by my transparent approach to my retirement plans.

3. Talk To Your Spouse

It may seem obvious, but retirement doesn’t just affect the person leaving the workforce.  In our case, my wife had been a stay-at-home Mom since our daughter was born, and the adjustment of having me home all of the time was going to be a big change in the way she’d lived her life for 20+ years.  If you’re married, make sure you’re planning retirement together.  Incorporate things that are important to both of you for your retirement dreams, and keep an ongoing discussion about the big changes you’re both going through.

While you’re busy at work in the final year, it’s easy to forget that you won’t be spending time with your co-workers after you retire.  Recognize that your spouse is more important than your work, and treat him/her accordingly.  You’re going to be spending a lot of time together in retirement, it’s important to get it started on the right foot.  Unfortunately, “gray divorce” is a real thing, and I suspect many of these unhappy endings could have been avoided if spouses took the time to talk with each other about their individual desires for retirement.

4. Migrate Your “Personal” Stuff from Work

For years, I used Microsoft for everything.  I had tons of personal files on my work computer (it was my only “real” computer for years, though I did have a personal Chromebook I used for writing my blog).  I didn’t want to pay for Microsoft in retirement, and I was happy with the Google toolbox (Google Drive, Docs, Sheets, etc).  I spent ~12 months migrating my “personal” files from Microsoft on my laptop to my personal Google Drive, converting them from Microsoft to Google formats in the process.  Every time I opened a “personal” spreadsheet or file on my laptop, I either migrated/converted it on the spot, or added it to my checklist of items I needed to migrate.  It took some time, but it was manageable.  

5. Migrate To A Password Manager

I started keeping track of usernames and passwords YEARS before password managers were invented, and I (like many of you, I suspect) simply kept using the system I had developed to keep track of them all.  For me, I “hid” them in my work files, which were kept on a secure server behind my companies firewall.  It worked fine for years, but I knew I’d lose access to them after I retired.  It was time to migrate to a password manager.

It took forever to migrate all of my accounts to a password manager, but it was well worth the effort. Click To Tweet

For a year, every time I logged into a site which required me to “look up” my password, I made sure it was captured in my password manager.  For the record, I chose LastPass and have been happy with it, though I’m sure any of the top shelf password managers would suffice.  LastPass automatically captures a new site and saves it, so most of my sites were captured simply by having it in place “long enough” to ensure I’d signed into most of my important accounts.  In the final few months of work, I went through all other accounts still in my secret “work file” hiding place, and made sure they were captured in LastPass before I walked out the door for the last time in June.

LastPass also has a place to keep “Secure Notes” which I used to save confidential information I’d previously kept “hidden” behind my companies firewall (e.g., my “loyalty card numbers”, and instructions for how to unfreeze my “frozen credit files” should I ever need to apply for credit).

6. Update Your Profile Data

As you work through the various sites via your Password Manager, take a few minutes to ensure your personal profile data is updated on the various sites.  If you’ve listed your work phone/email, make sure you update it to reflect your post-retirement contact information.  If you’ve used your work email to sign up for newsletters, make sure you migrate them to your personal email.

I made a point of watching my work email throughout my final year and taking a few minutes to update any site which sent me emails to my work address.  It’s surprising how many different places you’ve used your work e-mail, and it’s impossible to remember them all.

7. Design & Implement Your Retirement Paycheck

As I wrote in How To Build A Retirement Paycheck, I designed a system where I would keep ~3 years of cash in “Bucket 1”.   I designed a system where ~1 year of these funds would be kept in a separate account at CaptialOne, from which I would set up automated transfers 2X/month into our personal checking account (my “retirement paycheck”).  No other “spending money” would be transferred in retirement (e.g,. I intentionally kept my Vanguard Money Market account “off limits”, for use only in managing my investment portfolio and not funding my retirement expenses). By simply looking at my Jan 1 vs. Dec 31 balance in the CapitalOne account, I could easily quantify my annual retirement expenses which had been funded from my portfolio.

As I worked through the final 12 months, I established and funded the CapitalOne account, and did my final detailed analysis on funding requirements.  For some reason, I was only able to transfer $10k at a time to CapitalOne, so I was happy that I had built sufficient time into my plan to transfer money over several months.

8. Establish And Migrate To A Personal Calendar

I had always used my “work” calendar to track all of life’s activities.  This calendar “lived” on the Microsoft exchange on our company servers and was automatically synced to my work cell phone. I would no longer have access to either of these tools after my retirement and had to develop a personal calendar.

I decided on Google Calendar and began putting all personal items on Google calendar to get familiar with it.  I also entered anything which was scheduled for after my retirement date on the Google calendar, and continue to use it to this day.  No calendar entries were lost in my transition into retirement, but it took a plan and implementation well before my retirement date to ensure nothing was lost.7.

9. Copy Your Work Address Book

Similar to my calendar, I’ve always kept my address book on my work computer.  Since I first had a PalmPilot way back in 1998, I’ve been storing contact information electronically.  Most recently, it was all kept in Microsoft, again on our company server.

Fortunately, I had a friendly IT Help Desk contact who was sympathetic to my cause and invested significant effort on his part to migrate all of my information from my work server to Google Contacts. This was one of the items I worried about as I thought about my retirement, but I was fortunate to find a way to capture over 20 years of contact information and continue to maintain those addresses post-retirement.

Ironically, with Social Media these days, the majority of my post-retirement contact with folks I’ve known over the years has been through the Instant Messaging platform on LinkedIn, Facebook, Twitter, etc.  If you don’t yet have a presence on LinkedIn, I’d suggest you set it up before you retire, it’s a great way to keep in touch with previous colleagues once you’ve retired.

10. Develop a Plan For Health Insurance

As outlined in Health Insurance:  Unsolved, I made the decision after several meetings with HR to extend my company insurance for 18 months under the COBRA plan.  This is not a decision you want to make in your final month of work.  Build it into your monthly checklist (Item #1 above) in various stages.  For example, 12 months out I started doing some preliminary research on COBRA and other options.  As I got closer to my retirement date, I started fine tuning my decision.  I also learned (in another HR meeting) that it’s best, if possible, to avoid scheduling any doctors appointments for ~a month after you retire to ensure the transition to COBRA is implemented with the minimal chance of disruption.

11. Decide On Your Pension Details

As mentioned in Our Retirement Investment Drawdown Strategy, I realize I’m a fortunate dinosaur, and having a pension is rare these days.  My company discontinued pensions for new hires more than 10 years ago, but elected to “grandfather in” existing employees.  Whew, close call.  With 33 years at one employer, the pension is a significant element in our retirement plan, but it has to be managed.  As mentioned in the Drawdown post, I elected to defer the start of my pension.  The process of understanding my options and implications took several months and is something you want to add to your checklist at least 6 months before your retirement date.

For those without pensions, you should add an item to your checklist to ensure you understand any retiree benefits you do have available to you, and optimize them for your situation.

12. Dream More, Work Less

“Work Less” isn’t really what I mean by this point.  Rather, it’s to realize that when you retire your work activity will cease.  Rather than approach retirement as a “Cliff” (see Unprepared For Retirement), be intentional with your mind in your final year of retirement.  I never “worked less” while I was actually at work, but mentally I was changing gears.

Spend time dreaming about what you want your retirement life to be, and spend less time thinking about work-related activity.  Start building a Bucket List of things you want to accomplish in retirement, including things beyond “travel”.  Research has shown that this is one of the most important steps you can take to ensure a smooth transition to retirement, so make sure it’s on your checklist as you work through your final year.  For further details on this topic, read my post “Will Retirement Be Depressing“.

13. Start Some Hobbies

On a similar note, find some time in your final year of work to experiment with a few hobbies that interest you.  Don’t wait until retirement to decide what you’re going to do, but rather spend the final year of work exploring some potential areas so you’ll “hit retirement running”.  Research groups in your area that interest you.  Join a local gym.  Get more active at your church.  Start being intentional in expanding your circle of friends outside of work.

Dream more, and start experimenting with the things you’re dreaming about.

Buy your toys before you retire.

14. Buy Your Retirement Toys

As you think about retirement, think about the “toys” you’ll need to live the retirement you’re dreaming of.  In our case, it was a 5th wheel and a truck to pull it with.  I’ve heard from others who have gone before me that it’s difficult to make these “larger acquisitions” after you retire and that paycheck stops, so build them into your plan for the year prior to retirement.

We built a spreadsheet to help us achieve our “Starting Cash Level” for Day 1 of retirement.  In the year leading up to retirement, we listed all of the projected inflows (e.g., Bonus) and outflows (e.g., RV) to keep ourselves on track to achieve the Day 1 cash level without overspending.

We hit our targeted Day 1 level, and we secured our retirement toys without anxiety.  Now that we’re retired, we have peace of mind that we’ve positioned our retirement to be the best that it can be, without overspending on the “toys” we’ll be using in retirement.

15. Address Your Retirement Housing

Don’t wait until retirement to figure out your post-retirement housing situation.  In our case, we intentionally made The Move From Good To Great while we were still working.  It worked well for us and allowed us to enter retirement all settled into our retirement cabin in the Appalachian Mountains.

A friend of mine retired a month before me and decided to move from Atlanta to Spokane for their retirement.  Since his job was in Atlanta, they decided to wait until shortly before their retirement to put their Atlanta home on the market and made the transition to Spokane via RV shortly after their retirement.

Others decide to retire in place and should consider which upgrades/modifications they’d like to make to their home for retirement.  Planning those upgrades during your last year of work makes sense, as spending for the upgrades is less stressful when there’s still a paycheck flowing.

Do whatever works for you, but make sure you think about your retirement housing options during your final year of work.

16. Replace Your Hardware

Prior to retirement, I never owned a personal cell phone!  Since my employer allowed us to use our company phones for personal use, it never made sense to spend money on something I was able to use for free.  As I approached retirement, I worked with our IT team to understand how I could migrate my cell phone number from my work phone to a personal phone, allowing me to keep the number I’d had for years.  We were able to work it out, and it allowed all of the folks who had my “old” cell number to keep in touch with me after I retired.

Several years ago I decided to migrate to a Chromebook for my blog work when my personal laptop computer wore out.  For retirement, since I’d no longer have access to my work laptop, I decided to buy a “real” laptop for use with video and photography editing, as well as podcast interviews.

17. Make A Retirement Budget, and Live On It

By the one year mark, you should have a pretty good estimate of your annual retirement expenses. Aside from the “one-off” expenses outlined above, attempt to live your day-to-day life within your projected retirement budget.  A year before my retirement date, for example, I stopped buying clothes.  While there are obvious expenses you’ll have while working (commuting, meals), make an effort to replicate your retirement lifestyle and expenses.  If you find yourself spending more than you’ve planned for retirement, it’s good to know while there’s still time to make adjustments.

18. Put A Countdown App On Your Phone

I enjoyed watching my countdown app whittle away throughout my last year of work.  It was a helpful reminder of the reality that retirement was coming, and helped me focus on the important things.  Find a way to distract yourself from the busy-ness of work, and keep your primary effort on ensuring the best possible transition into retirement.

19. Take Time To Say Goodbye

Work life is hectic, and it will remain so until the end.  I was intentional in dedicating my last month of work to saying goodbye, and I’m pleased with the way my career ended.  Plan some business trips to say goodbye to the folks who have meant the most to you through your career, and start letting your successor run the day-to-day business.  After you retire, you’ll no longer have an opportunity to say goodbye the “right” way, so prioritize it while you’re still working.

Carve out some time in your final weeks to write a few personal notes.  Make some phone calls to say goodbye to folks you won’t be able to see.  Plan more lunches out with “friends” over your final months.  Let folks know you appreciate them and have enjoyed working with them. We all think we’ll keep in touch after retirement, but no one really does.  Sad, that.  Realize it’s likely going to happen to you, and take time to say goodbye before it’s too late.

20. Enjoy The Ride

Perhaps most importantly, take time to enjoy the final year of your working career.  You’ve come a long way since you started your career, and you’ve put yourself in a position to be able to retire.  Congratulations!  Enjoy The Ride, and be introspective as you go through many “work-related” things for the final time.

I enjoyed sitting through our final budgeting meetings. 

I smiled as we talked about the need to prepare the dreaded annual strategic plan.  I joked with my boss as we did my final year’s performance appraisal.  Have some fun with your final year at work, and don’t stress about it.  Before you know it, it’s all going to be behind you and you’ll be living an entirely new life.  This is your last year of work. 

Smile more, and worry less.

Conclusion

The transition into retirement is a major life change.  Having a detailed plan to manage that transition was helpful in our retirement, and I recommend you consider developing your own steps to take in the year before retirement.  By using these 20 items as the baseline for your personal checklist, you’ll have less stress through the journey and be able to enjoy your final year of work.

You’ve worked hard to get to this point.  It’s time to reap the rewards.

Enjoy your final year.

You’re going to love retirement.

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DB가 사라져도 연금계리는 남는다

연금시장 2018. 12. 1. 23:47

DB제도가 사라지면 당연히 연금계리(pension actuary)도 사라질 줄 알았는데, DC제도가 번성하면서 오히려 연금계리가 부각되고 있습니다.
요즘 영국 상하원을 뜨겁게 달구고 있는 CDC(집합형 DC) 이야기 입니다.
간단히 말해서 우리나라 계약형 DB제도처럼 사업자(provider)에게 기업이 부담금을 납입하는 구조를 차용한 건데, DC니깐 당연히 자산운용은 근로자가 합니다....
근로자가 아무리 자산운용을 못해도 사업자가 여러 근로자 것을 모아서 일종의 최저보증을 해주는 개념이죠.
어떻게 구현할까요. 연금계리가 답인거죠.

전통적인 두개의 리스크관련 이론,
즉, 리스크이전과 리스크관리중에서 리스크이전의 승리처럼 보입니다.
근로자에게 막연히 자산운용 잘하도록 리스크관리를 하라가 먹히지 않는 걸 인정하고, 리스크를 기업과 사업자와 공유하는 방안을 모색하고 있는 것같습니다.

아무튼 영국은 CDC로 북유럽은 NDC로, 또 IDC로...

세계의 사적연금시장은 숨가쁘게 움직이고 있습니다.

 

출처 : https://www.out-law.com/en/articles/2018/november/uk-government-seeks-views-on-collective-dc-pensions/?fbclid=IwAR2S-KbSu86FsKLjGsn4UNmO32wmqPvV2vC93HS54tCdqdgz3kacEnjt0y0#.W_8pKpjf63g.facebook

 

UK government seeks views on collective DC pensions

The UK government is seeking views on its approach to developing 'collective' defined contribution (CDC) pension schemes, in which pooled contributions are invested with a view to providing a targeted benefit level.07 Nov 2018

 

The 2015 Pension Schemes Act (2015 Act) included provision for collective benefits as part of a range of new 'defined ambition' risk-sharing options for employers and other pension providers. The government does not believe that these provisions, which were never enacted, are suitable for a CDC framework, and is instead proposing new legislation.

The consultation, which closes on 16 January 2019, was prompted by contact from Royal Mail and the Communication Workers Union (CWU), who have recently put forward their own plans for a CDC-style pension scheme for the Royal Mail workforce. In July, the Work and Pensions Committee recommended that the government act quickly to legislate to allow for a scheme along the lines of that proposed by Royal Mail.

The government's preferred scheme design is based on that proposed by Royal Mail, meaning that the first CDC schemes would have to fit within this framework. This would cover occupational trust-based schemes run by a single or associated employers, authorised by The Pensions Regulator (TPR) and regulated on a modified version of the principles that currently apply to standard defined contribution (DC) schemes. CDC schemes would be subject to annual actuarial valuations, and member-borne charges would be capped at 0.75%.

Although the government said that it was "not ruling out the possibility that the regulatory regime might be modified should employers or others come forward with different proposals and designs that are appropriate ... the feedback so far suggests that employers want to see the RM scheme bed in before doing so".

"We also think it is right from a regulatory perspective that we learn from the experience of the RM scheme before we seek to make provision for other types of pooled risk schemes," it said.

In a collective pension, employers and employees pay a fixed contribution but the pension risk is shared between all members of the scheme. The trustees set out a targeted level of member benefits, but this is not guaranteed. By contrast, in a traditional DC scheme, the final value of the pension a member receives depends on the performance of that member's individual contributions, meaning that it is the employee who bears the full risk of the pension losing value.

In its consultation, the government emphasised that the benefits targeted by a CDC scheme should be "realistic". Schemes would therefore be required to undertake an independent review of their actuarial assumptions before seeking TPR authorisation. The targeted benefits would be reviewed on an annual basis as part of the actuarial valuation, and any necessary adjustments made.

The government's view is that CDC schemes will need sufficient scale to allow for pooled longevity risk across the membership. It is seeking views on the required scale as part of its consultation. It is also still considering what minimum quality requirements and accompanying tests should be applied to CDC schemes to enable them to be qualifying schemes for auto-enrolment.

Pensions expert Robin Ellison of Pinsent Masons, the law firm behind Out-Law.com, broadly welcomed the government's proposals. However, he said that the government would have to be careful to balance regulatory burdens with what was necessary for member protection if the new schemes were to be successful.

"It's good news that the government may be in the mood to allow different varieties of pension schemes that can offer better value for members without imposing unwelcome obligations on employers," he said. "Such schemes, if they are simple to administer, will be welcomed by many employers, and offer a better retirement for employees."

"The consultation document contains an unwelcome indication of additional regulation, without evidence that such regulation is required for member protection. It is clear that whatever model that emerges should be guarantee-free," he said.

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세계에서 가장 수명이 긴 나라는 일본이 아니라 스페인!

보험영업 2018. 11. 18. 00:10

22년후에 가장 장수하는 나라는 일본이 아니라 스페인이 될거랍니다. 2040년의 평균 기대수명(life expectancy)를 추정했더니 일본은 85.7세인데 스페인이 이 보다 높은 85.8세를 기록했네요.

미국 워싱턴대학교의 국제건강연구소(IHME: The Institute for Health Metrics and Evaluation)가 발표한 자료인데, 기대수명은 0세가 평균적으로 몇살까지 사느냐를 말하는 것인데 보험계리학(Actuarial Science) 교과서의 한 챕터를 구성하는 재미있는 추정 기법입니다.

출처 : http://www.healthdata.org/news-release/how-healthy-will-we-be-2040?fbclid=IwAR0JvfgqAj0oJxQh1giJJoNE_Ze-s6y8_oSpZ6n7nb2BkATisLLD3oU--KQ

 

How healthy will we be in 2040?

Originally posted October 16, 2018.

 

New health forecasting study: In ‘worse' scenario, half of all nations could face lower life expectancies

‘Better scenario’ finds nearly 50 nations gaining 10 years or more in lifespans

Large shift expected in premature death from communicable to non-communicable diseases and injuries

Huge potential to influence health through tackling high blood pressure, obesity, tobacco, alcohol, and air pollution

 

SEATTLE – How healthy will we be in 2040?

A new scientific study of forecasts and alternative scenarios for life expectancy and major causes of death in 2040 shows all countries are likely to experience at least a slight increase in lifespans. In contrast, one scenario finds nearly half of all nations could face lower life expectancies.

The rankings of nations’ life expectancies offer new insights into their health status.

For example, China, with an average life expectancy of 76.3 years in 2016, ranked 68th among 195 nations. However, if recent health trends continue it could rise to a rank of 39th in 2040 with an average life expectancy of 81.9 years, an increase of 5.6 years.

In contrast, the United States in 2016 ranked 43rd with an average lifespan of 78.7 years. In 2040, life expectancy is forecast to increase only 1.1 years to 79.8, but dropping in rank to 64th. By comparison, the United Kingdom had a lifespan of 80.8 years in 2016 and is expected to increase to 83.3, raising its rank from 26th to 23rd in 2040.

In addition, the study, published today in the international medical journal The Lancet, projects a significant increase in deaths from non-communicable diseases (NCDs), including diabetes, chronic obstructive pulmonary disease (COPD), chronic kidney disease, and lung cancer, as well as worsening health outcomes linked to obesity.

However, there is “great potential to alter the downward trajectory of health” by addressing key risk factors, levels of education, and per capita income, authors say.

“The future of the world’s health is not pre-ordained, and there is a wide range of plausible trajectories,” said Dr. Kyle Foreman, Director of Data Science at the Institute for Health Metrics and Evaluation (IHME) at the University of Washington, and lead author on the study. “But whether we see significant progress or stagnation depends on how well or poorly health systems address key health drivers.”

The top five health drivers that explain most of the future trajectory for premature mortality are high blood pressure, high body mass index, high blood sugar, tobacco use, and alcohol use, Foreman said. Air pollution ranked sixth.

The study is available at www.healthdata.org.

Accompanying collateral materials, including comprehensive listings and supporting data of all nations’ rankings, are available at https://cloud.ihme.washington.edu/index.php/s/AkAfRKXFaKwLpFr

In addition to China, several other nations are expected in 2040 to increase substantially in their rankings in terms of life expectancy, including:

  • Syria is expected to rise most in rank globally – from 137th in 2016 to 80th in 2040 –

likely, according to the authors, due to a conservative model for conflict;

  • Nigeria from 157th to 123rd; and  
  • Indonesia from 117th to 100th

In contrast, Palestine is expected to drop the most in its life expectancy ranking – from 114th in 2016 to 152nd in 2040. Moreover, several high-income nations are forecast to drop substantially in their rankings, including:

  • United States, dropping the most for high-income countries, from 43rd in 2016 to 64th in 2040;
  • Canada from 17th to 27th ;
  • Norway from 12th to 20th ;
  • Taiwan (Province of China) from 35th to 42nd ;
  • Belgium from 21st to 28th ;
  • Netherlands from 15th to 21st  ;

The rankings also find that Spain is expected to place first in the world in 2040 (average lifespan of 85.8 years), a rise from fourth in 2016 (average lifespan of 82.9 years). Japan, ranked first in 2016 (average lifespan 83.7 years), will drop to second place in 2040 (average lifespan 85.7 years).

Rounding out the top 10 for 2040 are:

(3) Singapore (average lifespan 85.4 years) ranked third, as compared to 83.3 years in 2016 and ranking also of third

(4) Switzerland (average lifespan 85.2 years), as compared to 83.3 years in 2016 and ranking of second

(5) Portugal (average lifespan 84.5 years), as compared to 81.0 years in 2016 and ranking of 23rd

(6) Italy (average lifespan 84.5 years), as compared to 82.3 years in 2016 and ranking of seventh

(7) Israel (average lifespan 84.4 years), as compared to 82.1 years in 2016 and ranking of 13th

(8) France (average lifespan 84.3 years), as compared to 82.3 years in 2016 and ranking also of eighth

(9) Luxembourg (average lifespan 84.1 years) as compared to 82.2 years in 2016 and ranking of 10th

(10) Australia (average lifespan 84.1 years), as compared to 82.5 years in 2016 and ranking of fifth.

Among those top 10 nations, even their ‘worse’ scenarios in 2040 remain above 80 years. In stark contrast, the bottom-ranked nations, which include Lesotho, Swaziland, Central African Republic, and South Africa, the “better” and “worse scenarios” in 2040 range from a high of 75.3 years in South Africa (“better” scenario) to a low of 45.3 years in Lesotho (“worse scenario”), a 30-year difference.

“Inequalities will continue to be large,” said IHME Director Dr. Christopher Murray. “The gap between the ‘better’ and ‘worse’ scenarios will narrow but will still be significant. In a substantial number of countries, too many people will continue earning relatively low incomes, remain poorly educated, and die prematurely. But nations could make faster progress by helping people tackle the major risks, especially smoking and poor diet.”

In a “worse” scenario, life expectancy decreases in nearly half of all countries over the next generation. Specifically, 87 countries will experience a decline, and 57 will see an increase of one year or more. In contrast, in the “better” scenario, 158 countries will see life expectancy gains of at least five years, while 46 nations may see gains of 10 years or more.

The future shift toward increased premature mortality from NCDs and injuries and away from communicable diseases is apparent by the changing proportions of the top 10 causes of premature death.

In 2016, four of the top 10 causes of premature mortality were NCDs or injuries; in contrast, in 2040, that number increases to eight. The eight NCD or injury causes in the top ten in 2040 are expected to be ischemic heart disease, stroke, COPD, chronic kidney disease, Alzheimer’s disease, diabetes, road injuries, and lung cancer.

The study is unprecedented in scope, Foreman said, and provides more robust statistical modeling and more comprehensive and detailed estimates of risk factors and diseases than previous forecasts from the United Nations and other population studies institutes.

IHME researchers leveraged data from the Global Burden of Disease (GBD) study to produce forecasts and alternative “better” and “worse” scenarios for life expectancy and mortality due to 250 causes of death for 195 countries and territories.

Researchers produced forecasts of independent drivers of health, including sociodemographic measurements of fertility, per capita income, and years of education, along with 79 independent drivers of health such as smoking, high body mass index, and lack of clean water and sanitation. They then used information on how each of these independent drivers affects specific causes of death to develop forecasts of mortality. 

“The range of ‘better’ and ‘worse’ scenarios enables stakeholders to examine potential changes to improve health systems – locally, nationally, and globally,” Murray said. “These scenarios offer new insights and help to frame health planning, especially regarding long lag periods between initial investments and their impacts, such as in the research and development of drugs.”

In addition to calling attention to the growing importance of non-communicable diseases, the analysis exposes a substantial risk of HIV/AIDS mortality rebounding, which could undo recent life expectancy gains in several nations in sub-Saharan Africa.

Furthermore, while NCDs are projected to rise in many low-income countries, communicable, maternal, neonatal, and nutritional diseases are likely to remain among the leading causes of early death, thereby creating a “double burden” of disease.

The study is entitled “Forecasting life expectancy, years of life lost, and all-cause and cause-specific mortality for 250 causes of death: reference and alternative scenarios for 2016–40 for 195 countries and territories using data from the Global Burden of Disease Study 2016.”

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감독원, DB도입 기업에게 주주배당보다 퇴직연금 적립에 주력하라고 경고

연금시장 2018. 11. 12. 01:50

"확정급여형 제도를 도입한 기업은 주주들에게 높은 배당을 주기 전에  연기금의 적립부족을 빠른 기간 안에 해소해야 한다"고 영국 연금감독원의 Anthony Raymond 수석 감독정책담당자가 이야기 했습니다.

기업은 자신의 고유자산과 연기금을 통합해서 운용하는데, 주주에게 주는 배당금은 커지는데, 연기금 적립부족을 해소하기 위해서 납입하는 퇴직연금 부담금은 그만큼 커지지 않아서 차이가 점점 벌어지는 것을 경고한 것입니다.

물론 이 차이를 측정하는 것은 연금부채를 평가하는 할인율이고 이 할인율은 고유자산과 연기금을 통합해서 운용하는 기업이 선택하는 거죠.

최근 기업들이 연기금의 부담금 책정에는 인색하면서도 주주에게는 넉넉하게 배당을 챙겨주는 통에 재정안정화계획서에 적립부족해소 계획이 실패하는 경향이 있다고 하네요.  

 

출처: http://www.pionline.com/article/20180405/ONLINE/180409915/companies-should-fund-pension-plans-not-pay-big-dividends-pensions-regulator-says

 

Companies should fund pension plans, not pay big dividends, Pensions Regulator says

 

Large plan sponsors should commit to reducing defined benefit fund deficits over a shorter period of time instead of paying out high dividends to shareholders, the U.K. pensions regulator said in its annual funding statement Thursday.

The Pensions Regulator said it was concerned about the increasing gap between dividend payments and deficit-reduction payments, and called on plan sponsors to reconsider the choice of valuation methods and investment strategies to counter these deficits.

"The discount rate should be chosen using integrated risk management principles that are consistent with their long-term funding and investment targets and the view of the employer covenant," the TPR statement said.

 

Related Coverage

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In addition, the regulator warned that intragroup loans and transfers of business assets at less than fair value were as detrimental as dividend payments.

"In our 2018 (report) we are being clearer about our expectations of how trustees should approach their plan valuations. Recent corporate failures have shown the risks of long recovery plans while payments to shareholders are excessive, relative to deficit-repair contributions," Anthony Raymond, interim executive director of regulatory policy at the TPR, said in a news release.

"Trustees should negotiate robustly with the sponsoring employer to secure a fair deal for the pension plan, while employers should balance the interests of participants with returns to shareholders and investors," Mr. Raymond said in the release. "We are working more closely than ever with trustees to support them in this process. However, if trustees fail to act we can intervene to protect participants by using the full range of powers available to us now."

The TPR also asked plan sponsors and trustees to focus on risk management and contingency planning in the context of persisting economic uncertainty.

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퇴직연금 가입자교육의 중요성

연금시장 2018. 11. 3. 00:35

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.

그러나 교육에 불참하는 사람은 가난하고 금융지식이 부족한 사람으로 분석되었습니다.

 교육의 대상과 방법이 맞춤식으로 가야한다는 것을 시사하는 것같습니다.

 

 

출처 : https://www.plansponsor.com/continuous-financial-education-improves-retirement-outcomes/

Continuous Financial Education Improves Retirement Outcomes

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.”

The full report can be downloaded here.



출처: http://cantan.tistory.com/entry/퇴직연금-가입자교육의-중요성?category=810200 [High Thinking, Simple Living]

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생애주기이론의 기원과 현황

연금시장 2018. 10. 20. 16:37

연금쪽에서 일하시다보면 낯익은 분들이 많이 생기게 되는데, 연기금 투자 관련해서 꼭 등장하시는 분이 보스턴대학 Bodie교수님입니다.

유트브에서 라이프사이클 이론(요즘은 초등학생도 아는 생애주기이론)의 기원과 현황을 얘기하는데...
어빙 피셔, 프리드먼, 모딜리아니, 머튼...그리고 자기!

연금관련 수많은 논문을 썼던 분이기에 달변가인줄로 알았는데, TDF 머튼과는 대조적이네요

 

 

https://youtu.be/U59i8d8kA6k

<iframe width="560" height="315" src="https://www.youtube.com/embed/U59i8d8kA6k" frameborder="0" allow="autoplay; encrypted-media" allowfullscreen></iframe>

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국민연금, 기다렸다 늦게 받으면 얼마나 더 받을까요

연금시장 2018. 10. 7. 23:40

미국의 경우 국민연금 수급권이 있는 사람은 만 62세부터 70세까지 기간중에서 연금수령시기를 선택할수 있습니다. 잘 아시다시피 더 늙어서 받으면 일찍 받기 시작한 경우보다 더 많이 받겠죠. 기다렸다가 67세 받기시작하면 62세에 시작한 것과 비교해서 43%를 더 받고 70세까지 기다리면 75%를 더 받는다고 합니다.
그런데 연금재정은 현상태로 정부가 추가조치없이 내버려두면 2030년쯤에 바닥난다고들 합니다.

자! 적은 돈이지만 조금이라도 안정적일 때 빨리 받을까요, 위험하지만 참고 기다렸다 큰 돈으로 받을까요?

미국 와튼스쿨 은퇴연구소(Wharton’s Pension Research Council)의 팟캐스트로 그 이야기를 들어보세요

요즘 미국인들은 은퇴할때 20~30년 전보다 은퇴자들보다 더 빚이 많아졌답니다. 주택담보대출, 신용카드 빚, 각종 자질구레한 대출금들로 은퇴하는 시점에 값아야할 돈이 너무 많고, 그래서 연금 수령대신에 일시불로 받아갈 수밖에 없다네요.

남자보다 여자가 더 일찍 찾아쓰니 여자가 더 빈곤해지고 있구요.

음...미국이야기입니다!

출처 : http://knowledge.wharton.upenn.edu/article/delay-social-security/

 

 

Is Social Security Really Running Short?

 

mic Listen to the podcast:

Wharton's Olivia Mitchell discusses her research on how to convince people to delay claiming Social Security benefits.

 

Many Americans claim Social Security benefits perhaps earlier than they should. Under current rules, eligible individuals can claim retirement benefits at age 62, or they can wait until as long as age 70. Those who wait to take the benefit until age 67 receive around 43% more monthly, and waiting until age 70 can lead to about a 75% increase in lifetime monthly benefits. But how can you get people to delay Social Security – and, potentially, enjoying their retirement? And would more Americans choosing to wait have an impact on insolvency problems facing Social Security? According to many estimates, Social Security will run out of money in the 2030s unless the government takes action.

New research from Olivia Mitchell, a Wharton professor of business economics and public policy, attempts to answer these questions. The paper, “Evaluating Lump Sum Incentives for Delayed Social Security Claiming,” was co-authored with Raimond Maurer, a finance professor at Goethe University in Frankfurt, Germany. Mitchell, who also serves as director of Wharton’s Pension Research Council, recently appeared on the Knowledge@Wharton radio show on SiriusXM to discuss their findings.

An edited transcript of the conversation follows.

Olivia Mitchell: Social Security is one of the main sources of old-age support in America, and it is running short of money. Pretty soon, about a few years from now, we are going to have to raise Social Security taxes by one third, four percentage points at payroll, or cut benefits immediately by 25% for everyone, retirees and future retirees. So the solvency problem is real.

Knowledge@Wharton: What about the issue of people working longer? How much of an impact on Social Security could there be if people waited a few extra years to receive their benefits?

Mitchell: Well right now about 48% of all women claim as early as age 62, and about 42% of men claim that early. This is quite a concern, especially with regards to elderly poverty. If you only waited a few years, in fact if you waited all of the way until age 70, benefits would go up by 75%.

So it can make a huge difference to your cash flow in retirement. Now granted, not everybody can make it that long, but every year you delay, your benefits go up by 8%. You basically can’t earn that on assets without taking normal risk, whereas Social Security is for the future something I think we have to try to fix.

Knowledge@Wharton: Are people already working longer? We heard stories around the time of the Great Recession of retirement accounts being depleted and people having to keep working or go back to work.

“This lump sum could actually help people build their asset position, and let them enter retirement in much better shape.”

Mitchell: Well it is true that women, in particular, have been delaying claiming and working longer, but still if you look at the fraction of Americans working even until 67, it’s less than 10%. So there’s a lot of room for delayed claiming. One of the things we did in the paper was to try to investigate alternative ways to incentivize, to encourage people to delay claiming. Not to punish them by saying, “No you can’t retire,” but by giving them a carrot if they waited to retire.

Knowledge@Wharton: How did you test this?

Mitchell: We started with an experimental survey where we surveyed a nationally representative group of Americans, and we said to them, here is what we compute your Social Security benefit would be based on your earnings to date. When do you think you are going to claim? And they gave us a number, and then we said: What if instead we gave you the same benefit if you delay claiming, the same benefit you would have gotten at age 62, but instead of giving you a higher benefit per month we gave you the increment as a lump sum?

And it turns out these magnitudes are huge. So for example if you were 62, and you had determined that you were eligible for a $1500 a month benefit from Social Security, if you delayed claiming until age 67 you would get the same $1500 a month plus a $109,000 lump sum. If you delayed until age 72 you would get a $178,000 lump sum. This is some real money at this point.

The result we found in our survey is that people said they would delay claiming by one to two years, and they would work about half of that extra time. The consequence of this is that if you gave people the lump sums that we computed, Social Security would not suffer any additional solvency problems because they are computed to be actuarially fair. That is, they basically are equal to the expected value of the benefits you would have gotten, but those would have been doled out as monthly payments instead of as a lump sum. And people love lump sums.

Knowledge@Wharton: Why are lump sums so attractive to people?

Mitchell: One of the things that we have been finding in some other research is that Americans are more and more likely to hit retirement age carrying debt nowadays compared to say, 20 or 30 years ago. They are carrying mortgages, credit card debts, pay day loans, and so this lump sum could actually help people build their asset position, and let them enter retirement in much better shape.

Knowledge@Wharton: How would making this type of policy change impact Social Security as an institution moving forward?

“People today who are retired or nearing retirement should demand … that Congress focus on trying to fix the system before benefits run short.”

Mitchell: The answer to that question consisted of two parts. First, we said, let’s compute the lump sum so that there would be no net cost to Social Security. In other words, it wouldn’t improve it, but it wouldn’t make it any worse. The second thing we did was we built a model that tried to estimate how much less you might be able to give people in the lump sum and still get them to claim later, and potentially work a little bit more.

The only reason we went in that direction is because as we said at the outset there are huge shortfalls that the system is facing. What we learned is that if the lump sum were 13% lower, in other words if the lump sum were 87% of what the benefit should be, it would be actuarially fair, people would still delay claiming, and the system would save a little bit of money and people would be better off….

Knowledge@Wharton: Do you think more attention needs to be paid to fixing Social Security as a whole before we could even consider a plan like this?

Mitchell: I think we have to. Reforming Social Security certainly isn’t on Congress’s front page today; we know other things are. But the reality is that the tax cut made this fiscal situation much more dire, and pretty soon it is going to be very much upon us. People today who are retired or nearing retirement should demand … that Congress focus on trying to fix the system before benefits run short.

Knowledge@Wharton: Why is there such a difference in the claim ages of men and women?

Mitchell: When Social Security was established back in the 1930s, the typical family structure was the working male and the wife that stayed home with the kids — working as well, of course, but not for pay. And so the U.S. Social Security system has a heavy subsidy for women to stay home, because women, especially if they have working husbands, get half of their Social Security benefits even if they never work for pay at all.

So that is one reason that a lot of women claim early. Now that has been changing. Over time, as more women have spent additional years in the labor force, their own benefits grow to be a bigger portion of their retirement income. But the reality is still if you look back at history, the tradition has been to subsidize non-working women, or women not working for pay, and in fact to penalize working women.

“… The people who will delay claiming most [if they were promised a lump sum] are the people from our analysis … who would claim now at age 62.”

So both my husband and I pay Social Security taxes, but one of us won’t get any more for that because the benefits won’t be improved. What I would say is that if you look at this lump sum reform that we propose, it would actually increase cash income for people over the age of 62…. And I think most importantly it would increase the amount of assets older people have, especially low- and middle-income folks. Because right now, middle and low income folks essentially have no assets, or maybe they have a home but not much else.

Knowledge@Wharton: What are the other key takeaways from this research?

Mitchell: The thing that I found very interesting was that the people who will delay claiming most [if they were promised a lump sum] are the people from our analysis … who would claim now at age 62. In other words, those are the folks that would in fact work longer and claim later, because the incentive to them makes a very big difference.

So I think the takeaway that I came out with was that lump sum options can help the system. They will potentially benefit the macro economy because people continuing to work will be paying more taxes. They will definitely benefit people’s personal finances, especially at the middle and the bottom of the income distribution. And delayed [retirement] can actually be good for your mental and physical health.

So all of these features, I think, are factors that make this proposal potentially very, very positive when we get to reform.

Knowledge@Wharton: What’s next for this research?

Mitchell: I have talked to folks in Congress, and we hope that when and if Social Security comes back on the radar, this will be informative. I have also talked to people in China; they seem very interested about a lump sum alternative, which is seen as a reward, a set of incentives rather than a punishment, which is so often how Social Security reform is seen.

“The whole concept of people needing an income stream in retirement is something we have to reintroduce.”

Knowledge@Wharton: What do you think are some of the roadblocks to convincing legislators to implement a plan like this? Do you think the lump sum aspect would worry legislators because they think people might spend it quickly rather than saving it?

Mitchell: Well this is one reason that we continue to make the early retirement benefit payable when you defer claiming. In other words, one proposal, which we didn’t pursue, might have been to lump sum all of Social Security. But the concern then is somebody will go buy a boat or blow all of their money at the casino, or what have you. I think we have paid enough attention to maintaining a minimum poverty income in old age, that we need to keep some retirement income stream.

I think that the whole concept of people needing an income stream in retirement is something we have to reintroduce. In the old days, the original pension plan, the defined benefit plan, paid you a monthly paycheck, and that was what people lived on in retirement. Now that those traditional plans are pretty much gone with the exception of public-sector employees — and even then, they are in trouble — I think we need to go back and say, how much of our consumption can we finance by a lifetime annuity, an income stream if you will. And then how much do we have available to handle other needs and costs and desires in old age? And that discussion is something that I am really pushing.

 

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