7 Reasons You May Never Retire

If you ran out of money at age 80 what would you do? Sobering but true, below are only 7 reasons you may never retire. These items should alarm you but it won’t. That’s because unless you study this stuff, and I do, you won’t see the problem or what it means to you.

I’m not a doomsday sayer. I’m just a guy watching this story unfold, and watch it get bigger. I do like the image of politicians, “kicking the can down the road.” But, really, aren’t we all kicking it down the road?

So, listen up, here’s the list of 7.

1) 10,000 Americans reach age 65 every day.
2) Companies offering Pensions has dropped from 112,000 to 23,000
3) 45% of workers cannot access employer-sponsored 401k or pensions.
4) Medicare and Social Security will run out of money by 2028 and 2034.
5) $300 Trillion dollars are owed for unfunded public pensions
6) Americans don’t save, in fact, Americans have a negative savings rate.
7) Politicians have too many competing interests, so they kick the can.

The earlier one starts to save, the easier it is to accumulate sufficient wealth at retirement. The corollary to this is that the longer a country (or an individual) waits to address these issues, the fewer options there will be for solutions, and the options that remain will become more and more difficult to successfully implement (source noted below).

The authors of the article I quote grade our current 401k system as a letter grade of “D+.” I’m not sure what the plus sign means, but I can tell you many individuals are not prepared to retire because so few have pensions (that’s what your Grandpa or Grandma had), and those with a 401k have put too little in it.

Work for a City or other governmental unit?

There is a combined $300 Trillion in unfunded liabilities for employees of these places of work. And, these employees are going to look for their retirement check and receive something like what Detroit retirees received, which was pennies on the dollar.

Your parents and grandparents retired with a pension. They received a check each month for as long as they lived, that, plus social security, made a very comfortable retirement for many people. With the list of 7, you can hopefully see you’re unlikely to retire the way you might be thinking.

You can save now, try closing your Amazon account. Or, find any other way to save. Whether you’re by yourself or at a company or government, the time to do something is now. Make saving and asking questions to protect retirement important to you. After all, I have a friend who says;

“What gets attention, gets done.”

I love these conversations, either to help you as an individual, or your employer. I am happy to help or steer you to better resources.

Building a Strong Retirement Program: One for the AGES, Benefits Quarterly, International Society of Certified Employee Benefit Specialists, Brookfield, Wisconsin; www.iscebs.org.

SSI – Claiming age 62 or later, What Does It Cost You?

Maybe a minute now will give you an 8% return per year in retirement?

Life and Economics are full of choices. Here’s one, “when should you claim Social Security?” As early as age 62, or as late as age 70? The research article reviewed here has many detailed tips but here are the basics.

The optimal claiming decision in the research “minimizes the risk that the individual will exhaust his or her retirement savings and be forced at some point to limit consumption to what is provided by Social Security.”

When to Claim?

  1. Claiming late can add as much as 10 years to the life of the retirement
    nest egg. (Meyer and Reichenstein, 2012)
  2. Claiming early (age 62) was optimal for those with low incomes and retirement savings of less than $300,000.
  3. Claiming later, or delaying the start of Social Security benefits, was better for wealthier households with retirement savings greater than $700,000.

Basic Research Assumptions:

Assumed the Maximum Social Security Income possible, retiree paid into the system for 35 years, has a life expectancy with a 50% chance for men to obtain age 85, and age 88 for women and income earnings before retirement (2016) was the maximum of $118,500. Plus, savings at retirement was between a $100,000 and $3,000,000; the 90th percentile was reported as $718,000. In case you’re wondering this range represents 95% of Americans with retirement savings. It does not include those with pensions or those without savings at all.

Monthly Income Assumed To Be:

In this study, monthly income works out to be the amount social security pays you plus equal payments from your retirement savings over your expected lifetime. There’s no negative spending available in retirement.

Let’s Try a Scenario:

Let’s use a made-up scenario. If you’re married, and you and your spouse claim SS at age 62 and you earned the average household income of $70,000 your SSI should be about $3500/month combined, plus $1,700 from savings. That means you would live on $5,200/month for the remainder of your life and you would expect your savings to last to age 85 for men, and age 88 for women. If returns are better than 4% over all and inflation remains at under 3% then your retirement savings will provide income beyond Social Security beyond the average age of death for men 85, women 88.

This assumes you have at retirement $500,000 in retirement, and you take 1/25th each year, the math looks like this ($500,000/25 years / 12 months = $1700/ month).

Don’t know How SSI works?

Social Security Basics, The dollar amount of the retirement benefit available from Social Security is a function of career earning history and the age at which benefits are claimed. The current full retirement age is 66 ($2,639/month) and benefits may be claimed as early as age 62 ($2,102). A benefit reduction is assessed in relation to the full retirement age amount for each month that benefits are claimed prior to attainment of age 66.

Deferred claiming credits increase the benefit for each month that claiming occurs after age 66. An individual claiming at the earliest possible time (age 62) will receive an annual benefit that is 25 percent lower than the full retirement age (66) amount. Claiming at age 70 ($3,576) when the deferred credit stops accruing results in a benefit increase of 32 percent. The authors show how this represents an 8% return for waiting from age 62 to 70 for married couples.

Married individuals are eligible for the greater of the spousal benefit or the
benefit attributable to their own career earnings. Upon the death of a spouse, a married individual is entitled to the entire benefit earned by the spouse, if it is higher. Delayed claiming is therefore equivalent to purchasing a deferred joint and survivor life annuity, with the higher deferred benefit purchased by relinquishing near-term benefits.

Reference the Research here:

Much of the reference for this post comes from this research article, “Does the Benefit of Deferring Social Security Offset the Opportunity Cost to Do So?” by Michael J. Alderson, Ph.D.; and Brian L. Betker, Ph.D., Journal of Financial Planning, September 2017; This article found in the 2018 ISCEBS Fellowship Study Materials, here.

Annuities, also labeled personal pension, longevity insurance, or retirement risk transfer, should be considered in specific circumstances to guarantee income. They also propose other techniques to preserve assets for the remainder of life. The research is detailed, but it comes up short describing more about the value of annuities to protect from living beyond average age. I’ll see if I can find an article on that topic.

As a Benefits Specialist, I follow retirement topics in order to help you with choices you have while you’re planning for retirement or are in retirement.

Fiduciary Double Speak, Owners Watch Out; Rules Change 4-8-2017

I’m that guy who loves details and actually reads things like the Fiduciary rule changes coming in April 2017. But, the 70 pages I just read have just been put on hold by President Trump (the article was written in election season). But, the industry leaders and bankers have acknowledged they may impose the spirit of the regulations.

I write my notes below knowing much of this or all of it may be deleted. So, stay tuned for more.

Breaking Fiduciary rules puts people in jail. Cool? Well, not so much. The rules have been revised, here’s the DOL statement about the new rules coming April 2017: Continue reading “Fiduciary Double Speak, Owners Watch Out; Rules Change 4-8-2017”

How is it financial firm doesn’t understand it’s own fees?

It is remarkable that a financial institution like Citigroup is being sued by it’s own employees, who should have known they had fees included in their own 401k’s. How is it that employees who build these plans for use by small business accepted the practice of excessive fees in their customers plans.

Where was the outcry, education to their own customers?

Nearly seven years after their awsuit was filed, the plaintiffs in a “self-dealing” case against Citigroup will be allowed to move ahead with their claims.

On Sept. 30, U.S. District Judge Sidney Stein denied Citigroup’s motion for summary judgment, which would have thrown the case out of court based on Citigroup’s assertion that the statute of limitations had passed.

The suit, brought by former Citigroup employees Marya Leber and Sara Kennedy, is one of a number of excessive-fee cases filed in recent years.

It alleges that Citigroup breached its fiduciary duty by including its own fund options, and those of its affiliates, in the company’s 401(k) plan despite having higher fees than competing funds of equal

Specifically, the plaintiffs allege that Citigroup’s funds “charged higher fees than those charged by comparable Vanguard funds— in some instances fees that were more than 200 percent higher than those of comparable funds.”

Court documents show that in 2003 Citigroup’s investment committee eliminated 10 unaffiliated funds and added the new funds, including three of Citigroup’s own options. Participant assets were then automatically transferred to the new or remaining funds, four of which were Citigroup’s own or Citigroup-affiliated.

Citigroup’s motion to dismiss the case was rooted in the claim that the plaintiffs were aware of both the affiliated status of

the funds in question and their fees more than three years prior to the suit’s filing.

Under the Employee Retirement Income Security Act, if plaintiffs have “actual knowledge of the breach,” then they must

bring their claim to court within three years of acquiring that knowledge.

Stein wrote that the plaintiffs did not have “actual knowledge,” as Citigroup claimed, because Citigroup failed to prove that

the plaintiffs were given data on the fees of comparable funds.

In denying the motion, Stein said Citigroup had “not even attempted to offer evidence that plaintiffs possessed the fee data

“Citigroup employees could have earned millions more for their retirement if Citigroup had followed the law,” alleged Greg

The plaintiffs are expected to ask the court to certify theirs as a class-action claim.

Benefits Pro; link: http://www.benefitspro.com/2014/10/08/judge-rejects-citigroup-bid-to-dismiss-401k-fee-ca

Gabriel Roeder sued by Detroit Pensioners

This is a good article bringing into focus the struggles of Cities and governmental units who have unique decision making processes that influence the decisions of pension plans. This phrase is a quote from the article, “We just got blindsided,” it sounds like the actuaries didn’t do their job and omits the board that made decisions.

Whether the actuary did or didn’t do their job; the phrase implies the actuaries made decisions to bankrupt the retirement plan. In addition, it makes it sound like the retirement plan board had nothing to do with the decisions.

Gabriel Roeder’s job was to help Detroit’s pension trustees run a sound plan, she says, but instead the firm covered up a growing shortfall and encouraged the trustees to spend money they did not really have. Her complaint contends that the actuaries did this knowingly, “in concert with the plan trustees to further their self-interest.” The lawsuit seeks to have the pension plan made whole, in an amount to be determined at trial, and to have Gabriel Roeder enjoined “from perpetrating similar wrongs on others.” New York Times, , October 28, 2014; Link:http://dealbook.nytimes.com/2014/10/28/lawsuit-contends-consultant-misled-detroit-pension-plan/?_php=true&_type=blogs&_php=true&_type=blogs&_php=true&_type=blogs&emc=edit_dlbkpm_20141028&nl=business&nlid=66184561&_r=2&

There is a difference between being “blind sided” and blaming someone else, as quoted, and accepting the decision made as city and other governmental units have done. There needs to be a recognition that the board made decisions they should not have.