3 of 5 Retirees Projected To Outlive Their Savings

[tangomonster]

According to a new study (commissioned by an organization that lobbies "for policies to help Americans retire'), three of five retirees will outlive their savings if they don't cut their spending and live more modestly. People retiring today may face a 24% cut in their living standard; in seven years, 37 percent.

"Baby boomers" may still outlive assets - Yahoo! News

Personally I don't know that I could cut my spending since it's always been so low.

I'm trying not to worry about this too much since they are talking about "typical" people who haven't saved very much; the study cites:

so-called near retirees, at age 58, have an average nest egg of $105,000 if their yearly income is $50,000. Their savings rise to an average of $280,000 if they earn $100,000 a year. New retirees, with an average age of 65, have $175,000 in savings if they earned $50,000, and $585,000 if they earned $100,000 a year


But when I read "The very real possibility of living to age 90 or 100 combined with the volatility of inflation and investment returns means that the risk of outliving one's assets is quite high," I can't help worrying. Words of wisdom from those of you who don't get concerned reading this stuff?

 

[CitricAcid]

Don't worry, Medicare and Social Security will pick up the slack and there is no WAY those are going to ever go under, right?

 

[REWahoo]

Words of wisdom from those of you who don't get concerned reading this stuff?

If 3 of 5 are predicted to outlive their assets, then 2 of 5 (40%) aren't. That could be due to having a large nest egg, investing wisely, LBYM, dying "early", or any combination of those or other factors. I managed to build a large enough nest egg to retire somewhat early (58 ) certainly something 40% of the population isn't willing or able to do. If I can do that, then I'm fairly certain I can maintain myself in the 40% category.

And if not, I always have the option of dying early.

 

[Robert the Red]

Well -- the fact that you read this and worry about it means you are less likely to be in the "outlive savings" category.

I read this article in the Washington Post when it came out a couple days ago and was distinctly unimpressed with its almost complete lack of detail. The best way to inoculate yourself against such information-free worry dispensers is to keep track of your own information and plans.

Quick, look over there! The market is plummeting! We're doomed, horribly horribly doomed! This has never happened before!

 

[MichaelB]

Upon further review

So the study was "commissioned by Americans for Secure Retirement, a lobbying coalition for policies to help Americans retire."

Their web site is named Americans For Secure Retirement | Home but the address is paycheckforlife.com

Clearly a group of concerned citizens and altruistic businesses. I wonder what they propose to resolve this problem.

 

[calmloki]

I'm concerned - and have amassed almost enough social security to keep our cats fed. if they go to that great litter box in the sky early. Not sure being concerned will pay the bills, but i figure stressing over stuff might help me check out early, reducing the need for mass sums of cash, so that is a comfort. How many greeters can Walmart afford - wonder if i should get my application in before the rush?

Calm "want fries with that"? Loki

 

[huusom]

The key point here is to be able to outlive your saving. As long as you are alive, what else do we want?

 

[tangomonster]

Thanks, everyone----I knew you could help me keep this in perspective.

I agree, REW and Robert---there are differences between us and the people they are talking about.

Michael, the agenda that "Americans for a Secure Retirement" have is to make annuities more attractive by the following (appears on their website):

"We believe Congress should create incentives that encourage the use of retirement vehicles that pay a guaranteed lifetime income. Our proposal would work this way: An individual would not pay federal income taxes on one-half of the income payments from annuities that make lifetime payments. No more than $20,000 annually could be excluded. For a typical American in the 25% tax bracket, this would provide an annual tax savings of up to $5,000.
Such an incentive would involve a relatively modest investment of federal revenues. This amount does not reflect cost savings to public social-services programs that would be generated by the greater use of life annuities. Nor does it account for the salutary effects of a guaranteed income stream on the quality of life of millions of seniors"


This group must obviously have some ties to the insurance/annuities industry and think that if this tax reform took place, they would sell more annuities. Think this is the next subprime mortgage/"predatory" lending crisis in the making?


I understand and agree with enticing people to save more---but if the issue is that boomers who are close to or in retirement having saved anything/enough and don't have the ability/experience to save, I don't see how tax free annuity income is going to provide them with what they need/want since most won't have enough assets to buy a sizeable annuity....

 

[rs0460a]

I don't see how tax free annuity income is going to provide them with what they need/want since most won't have enough assets to buy a sizeable annuity....

Hey - I'm not wanting to start an argument but if there is going to be somebody who is going to give me a "bye" on federal taxes on my SPIA income (purchased with tax advantaged funds - and yes, it is "sizeable") I'm willing to take it!

- Ron

 

[cute fuzzy bunny]

Hey, you folks are getting pretty good at looking into who produces all these fun statistics!

Also from their "about us" mission statement:

"Specifically, that means making it easier to secure a guaranteed paycheck for life through products like life-contingent annuities."

As far as the "three out of five", many people are forced to retire due to a medical or other condition that keeps them from working, and we've already seen well established data showing that only a small percentage of people have put aside anything more than a token amount for retirement.

Unfortunately, most of these situations result in people with inadequate savings to even consider purchasing an annuity.

But that wont stop these guys from using it as a stick to try to scare the other 2 out of 5...

 

[tangomonster]

Hey - I'm not wanting to start an argument but if there is going to be somebody who is going to give me a "bye" on federal taxes on my SPIA income (purchased with tax advantaged funds - and yes, it is "sizeable") I'm willing to take it!

- Ron

Yes, Ron, but my point was that you, like most here, do have sizeable assets or are working towards this. How are those who they talked about who are 58 and have an average nest egg of $100,000 going to survive, even if the half the income from an annuity was tax-free?

 

[rs0460a]

Yes, Ron, but my point was that you, like most here, do have sizeable assets or are working towards this. How are those who they talked about who are 58 and have an average nest egg of $100,000 going to survive, even if the half the income from an annuity was tax-free?

If the annuity (specifically an SPIA, as mine is) is purchased with "tax advantaged funds" (as mine is), would result in taxes not being paid on tax deferred funds (like roll-over 401k's and traditional IRA's).

That means that the annuity (again, speaking of an SPIA) would become "tax free" (like a Roth IRA).

It would be an advantage to anybody - even those folks that have "average" savings/investments for retirement. Their annuity distributions would be minumal on an annual basis and probably would put them in a low/no tax basis, anyway.

BTW, I purchased my SPIA at age 59, so I guess I'm within the "target age" of the article...

That what I'm speaking of ...

- Ron

 

[samclem]

That means that the annuity (again, speaking of an SPIA) would become "tax free" (like a Roth IRA).

It would be an advantage to anybody - even those folks that have "average" savings/investments for retirement. Their annuity distributions would be minumal on an annual basis and probably would put them in a low/no tax basis, anyway.
- Ron

- It's not exactly an "advantage to anybody" is it? If the individual's (low) yearly annuity payouts would have resulted in no taxes given today's laws, then he doesn't benefit. So, only those who are above this income level gain an advantage.

- If Congress wants to accomplish the same thing without making the annuity execs rich, then why not just re-write the law so I can withdraw my Traditonal IRA sums tax free? If they want to assure that these payments are spread out in a fiscally responsible way , they could stipulate a max payout % based on expected longevity remaining--above this would be taxed at a high rate.

- And, if they do this, I'd appreciate a rebate on all the taxes I paid to do a Roth conversion years ago, since those taxes I paid would have been for nothing.

 

[Notmuchlonger]

Yes, Ron, but my point was that you, like most here, do have sizeable assets or are working towards this. How are those who they talked about who are 58 and have an average nest egg of $100,000 going to survive, even if the half the income from an annuity was tax-free?

Work till 75?

 

[Independent]

If the annuity (specifically an SPIA, as mine is) is purchased with "tax advantaged funds" (as mine is), would result in taxes not being paid on tax deferred funds (like roll-over 401k's and traditional IRA's).

That means that the annuity (again, speaking of an SPIA) would become "tax free" (like a Roth IRA).

It would be an advantage to anybody - even those folks that have "average" savings/investments for retirement. Their annuity distributions would be minumal on an annual basis and probably would put them in a low/no tax basis, anyway.

BTW, I purchased my SPIA at age 59, so I guess I'm within the "target age" of the article...

That what I'm speaking of ...

- Ron

It looks like even these guys aren't asking for that much.

See paragraph C(i) one page 3. It looks like this change does not apply to qualified money. http://www.paycheckforlife.org/images/1010.pdf

That said, my recollection is that the tax treatment of non-qualified SPIAs is somewhat unfavorable.

 

[Independent]

I understand and agree with enticing people to save more---but if the issue is that boomers who are close to or in retirement having saved anything/enough and don't have the ability/experience to save, I don't see how tax free annuity income is going to provide them with what they need/want since most won't have enough assets to buy a sizeable annuity....

Right, even if you believed the study, it doesn't support their proposal.

 

[rs0460a]

- It's not exactly an "advantage to anybody" is it? If the individual's (low) yearly annuity payouts would have resulted in no taxes given today's laws, then he doesn't benefit. So, only those who are above this income level gain an advantage.

Not quite. I receive a part of my principal (never taxed) as a monthly part of my SPIA payment. That (along with earnings) makes the payment totally taxable (for Federal, but not state/local, where I live).

I could not afford to do any Roth conversions, since I don't have "other funds" to pay the taxes (I could say that's only for the "rich folks", but that might make you mad - sorry!)

Hey - I'm always looking to save taxes ... If some group is going to "tilt windmills" to save me a buck, I'm willing to listen...

- Ron

 

[rs0460a]

Work till 75?

Don't think so...

- ?

 

[Helena]

TPTB have figured out how to keep all those the baby boomers from retiring.


Their fear-mongering has come too late for me.

~

 

[Notmuchlonger]

NM

Annuity talk I should stay out of it

 

[ProspectiveBum]

so-called near retirees, at age 58, have an average nest egg of $105,000 if their yearly income is $50,000. Their savings rise to an average of $280,000 if they earn $100,000 a year. New retirees, with an average age of 65, have $175,000 in savings if they earned $50,000, and $585,000 if they earned $100,000 a year

One thing I always wonder about when reading statistics like these, is how they report savings for married couples? I tend to think of DW and my retirement accounts (and our net worth, for that matter) jointly, rather than individually.

Are the numbers above per person? Because while they're still too low by ER.org standards, $350K + SS for a couple is more liveable than $175K + SS for an individual. I realize that not all retirees are married/coupled, but if they're reporting an average for individuals I wonder if that doesn't skew the numbers down a bit.

 

[Independent]

I was tempted to start a new thread with the title:

Study shows that 80% of households have saved too much for retirement.

But I thought I would put it here.

We find that over 80 percent of HRS households have accumulated more than

their optimal targets. These targets indicate the amounts of private saving households should have acquired at the time
we observe them in the data, given their life cycle planning problem
and social security and defined-benefit pension expectations and realizations.
For those not meeting their targets, the magnitudes of the
deficits are typically small.

The study is in the Journal of Political Economy. The author is connected with the University of Wisconsin and the National Bureau of Economic Research. The data base is 6,322 households in the "Health and Retirement Survey", which seems to get pretty detailed information. ​

I won't claim that I've even scratched the surface on their method, other than it appears they do a calculation for each household individually. The calculation uses information like age, income, and expected social security and pension incomes. They compare their results to various "rule of thumb" approaches, and find that theirs generally calls for less saving.

I expect that they assume retirement at "normal retirement age" of 65 or 66, while many Americans target 62. But I couldn't find that age in a quick scan of the article.

I tried Googling, but couldn't find any references to this paper in the popular press.

http://www.ssc.wisc.edu/~scholz/Research/Optimality.pdf

 

[tangomonster]

One thing I always wonder about when reading statistics like these, is how they report savings for married couples? I tend to think of DW and my retirement accounts (and our net worth, for that matter) jointly, rather than individually.

Are the numbers above per person? Because while they're still too low by ER.org standards, $350K + SS for a couple is more liveable than $175K + SS for an individual. I realize that not all retirees are married/coupled, but if they're reporting an average for individuals I wonder if that doesn't skew the numbers down a bit.

Not sure, PB---all they said about the married versus single issue was:

"Married couples are more likely to outlive their assets than single individuals, the study said."

But I'm not sure what they are basing this on. I agree with you....

 

[Htown Harry]

Google is our friend:

http://www.navanet.org/res/outlook/2004_articles/AmericansSecure.pdf

NAVA OUTLOOK September/October 2004 Volume 13, Number 4 Page 1 of 2
Americans for Secure Retirement

By Mark Mackey and Joe McKeever

Last year NAVA, the Committee of Annuity Insurers, and the American Council of Life Insurers (ACLI) combined to form a coalition to pursue enactment of legislation that would provide a tax incentive for life-contingent annuities. The Coalition, which has adopted the name Americans for Secure Retirement (ASR), now also includes a number of consumer and business organizations, such as the American Corn Growers Association, Financial Services Roundtable, Hispanic Business Roundtable, National Consumers League, National Taxpayers Union, U.S. Chamber of Commerce, Women Entrepreneurs, Inc., and Women’s Institute for a Secure Retirement.

Committees Formed

The Coalition is governed by a steering committee which is comprised of representatives from twenty-two of the largest issuers of non-qualified annuities. Walter Welsh, Hartford, and Harvey Blitz, Equitable, were chosen to serve as chairman and vice-chairman. The Steering Committee has met on a monthly basis since last August. An executive committee, consisting of representatives of the three founding organizations (Joe McKeever on behalf of the Committee of Annuity Insurers, Mike Hunter for the ACLI, and Mark Mackey on behalf of NAVA), and Messrs. Welsh and Blitz, handles day-to-day operations and implements the directives of the Steering Committee. The Executive Committee has also been meeting regularly.

Lobbying Efforts

A government relations task force...

​

Hmmm, somehow they forgot to list support from "twenty-two of the largest issuers of non-qualified annuities" on their website...

 

[Finance Dave]

If the annuity (specifically an SPIA, as mine is) is purchased with "tax advantaged funds" (as mine is), would result in taxes not being paid on tax deferred funds (like roll-over 401k's and traditional IRA's).

That means that the annuity (again, speaking of an SPIA) would become "tax free" (like a Roth IRA).

It would be an advantage to anybody - even those folks that have "average" savings/investments for retirement. Their annuity distributions would be minumal on an annual basis and probably would put them in a low/no tax basis, anyway.

BTW, I purchased my SPIA at age 59, so I guess I'm within the "target age" of the article...

That what I'm speaking of ...

- Ron

Ron, where are you finding this info? The research I'm finding says just the opposite...that if you use tax-deferred funds to buy an SPIA, the payments are fully taxed. See below from Berkshire Hathaway site.

Thanks, Dave

**************
Tax-Favored Income
Under current IRS rules use of after-tax funds to purchase an SPIA results in payments that are only partially subject to federal income taxes. The non-taxable portion of each payment represents the return of your original investment over the life of the annuity.

At the other extreme, if you purchase your SPIA with funds from a tax-qualified plan (IRA, TSA, 401(k) etc.), the payments you receive are generally fully taxable as they represent funds that have not yet been taxed.

However, as SPIA payments are made to you over time, taxes will be payable over time. Therefore, even if you purchase an SPIA with pre-tax funds from a tax-qualified plan, you increase your tax-deferral benefit relative to a lump sum distribution, where the entire amount is taxed in the year of receipt.

Currently, BRK Direct does not offer tax-qualified annuities.
****