Opinions on longevity annuities

[athena53]

FCAS or ACAS?

FCAS.

 

[nun]

A big difference between longevity insurance and SPIAs is that the SPIA is immediate, no deferral. Also most annuity purchases at done inside IRAs etc and even if a deferred annuity is purchased RMDs will require income to be taken at 70.5 whereas true longevity insurance is just that, insurance that pays out at say age 85

 

[pb4uski]

That is why I qualified it with the term "deferred start". And I think of longevity insurance as that which does start at say age 85 and am aware that you could buy a SPIA that starts at RMD age in an IRA and it gets carved out of the RMD calculation.

 

[Chuckanut]

The lack of inflation protection makes me leery of these things. Like others, I am buying my longevity insurance from Uncle Sam by taking SS at 70.

 

[Big_Hitter]

FCAS.

congrats - not many of you guys

 

[Big_Hitter]

The lack of inflation protection makes me leery of these things. Like others, I am buying my longevity insurance from Uncle Sam by taking SS at 70.

Have you factored in that the fund will run dry in 15 years?

Without legislation, payouts will be limited to about 75% of the current promise. I wouldn't be surprised if some of us get a big negative SS COLA.


The low hanging fruit would be the actuarial increase factors for late commencement or increasing SSNRA.

 

[2B]

Have you factored in that the fund will run dry in 15 years?

Without legislation, payouts will be limited to about 75% of the current promise. I wouldn't be surprised if some of us get a big negative SS COLA.


The low hanging fruit would be the actuarial increase factors for late commencement or increasing SSNRA.

I have no doubt that everyone will get their full SS check. I just expect that the taxes on SS will increase and we'll have Medicare and SS payroll tax increases to cover what's needed.

I suspect the typical pol would not want to be blamed for slamming the seniors' SS. It's too active a voting block and it has always voted its pocket book.

 

[Big_Hitter]

Are you a "senior" if you were born in the 60s or 70s?


That's who they are going to stick it to. Simply raising the FICA tax rate won't be easy, they will have to cut payouts, somehow.

 

[aja8888]

Are you a "senior" if you were born in the 60s or 70s?

That's who they are going to stick it to. Simply raising the FICA tax rate won't be easy, they will have to cut payouts, somehow.

It will be easier to gradually raise FICA tax than cut current SS payments. Extending full retirement age may also be a way to cut future payouts.

There are a basket full of tricks that creative politicians can use to make SS payments get reduced. They could also means test the process. Right now, payouts are taxed, but not at 100% yet, I believe.

 

[Independent]

It will be easier to gradually raise FICA tax than cut current SS payments. Extending full retirement age may also be a way to cut future payouts.

There are a basket full of tricks that creative politicians can use to make SS payments get reduced. They could also means test the process. Right now, payouts are taxed, but not at 100% yet, I believe.

Yep, and the SS actuaries have calculated the financial impact of many of them.

Individual Changes Modifying Social Security

(and, yes, the current maximum taxable amount is 85% of the benefit)

 

[pb4uski]

The shame is that there are a combination of various actions that they could take now that would save SS and while they would be unpopular with certain constituencies, they could be done without a lot of hardship. However, our politicians lack courage and just keep ignoring the problem but the longer that they fail to act the more extreme the impacts will be. Sad.

For example, when I was working I would have grumbled some but not been too upset if they lifted the taxable maximum particularly in exchange for a more financially strong SS for all.

I found this "game" interesting. http://www.actuary.org/content/play-social-security-game

 

[Big_Hitter]

^ I solved 100% of the problem.

 

[aja8888]

^ I solved 100% of the problem.

I got 100% too..big deal? Not...

 

[pb4uski]

I was very surprised that eliminating the cap alone solved 100% of the problem... I suspect because it is really banging those with very high incomes compared to the current approach.

But my point is that there are some things that could be done that are relatively modest in the whole scheme of things but the longer they wait the more difficult it will be.

 

[Big_Hitter]

breaking the cap violates one key principle of social insurance programs - the relationship between benefits and earnings


I got 100% by slashing benfits

 

[nun]

That is why I qualified it with the term "deferred start". And I think of longevity insurance as that which does start at say age 85 and am aware that you could buy a SPIA that starts at RMD age in an IRA and it gets carved out of the RMD calculation.

I'm thinking in terms of my TIAA-Traditional annuity. I made contributions to it back in the late 1980s and I haven't touched it since. It's simply sat as part of an old 401a account and compounded over the years with a guaranteed minimum of 3%, but the annual average has been 6% and this year the declared interest rate is 4.7%. I can only defer taking income up to 70.5 when RMDs have to be satisfied. So it's sort of half way between an SPIA and longevity insurance.

 

[Chuckanut]

The shame is that there are a combination of various actions that they could take now that would save SS and while they would be unpopular with certain constituencies, they could be done without a lot of hardship. However, our politicians lack courage and just keep ignoring the problem but the longer that they fail to act the more extreme the impacts will be. Sad.

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IIRC, former Senator Simpson claimed that the SS problem could be solved into the foreseeable future by gradually raising the full retirement age to 69 over a period of 20 years.

Given how much longer we are living, I don't see that as a problem, but...... we would need to find a way to keep older people working and avoid age discrimination. Perhaps a phased reduction in hours?

My fear is that people would be laid off in their 50's or early 60's and be forced to drain their retirement accounts in order to survive until they get SS. I saw that situation occur for several acquaintances a few years back. It's not pretty.

 

[Independent]

I was very surprised that eliminating the cap alone solved 100% of the problem... I suspect because it is really banging those with very high incomes compared to the current approach.

But my point is that there are some things that could be done that are relatively modest in the whole scheme of things but the longer they wait the more difficult it will be.

I was surprised, too.
Then I went to the SS website and found this Long Range Solvency Provisions

I can't explain the discrepancy.

 

[nun]

IIRC, former Senator Simpson claimed that the SS problem could be solved into the foreseeable future by gradually raising the full retirement age to 69 over a period of 20 years.

Given how much longer we are living, I don't see that as a problem, but...... we would need to find a way to keep older people working and avoid age discrimination. Perhaps a phased reduction in hours?

My fear is that people would be laid off in their 50's or early 60's and be forced to drain their retirement accounts in order to survive until they get SS. I saw that situation occur for several acquaintances a few years back. It's not pretty.

I remember Sen. Simpson. When I was a Green Card holder and had 11 years of FICA payments he suggested reducing SS benefits for non citizens...not popular with me.

You might be interested to read about the new flat rate SS system the UK has just introduced. Along with increasing retirement age all connection to earnings has been eliminated. It only depends on the number of contributing years you have, not the amount you pay. This is being implemented by a Conservation government.

The Flat Rate State Pension: FAQ | money.co.uk

 

[gauss]

breaking the cap violates one key principle of social insurance programs - the relationship between benefits and earnings

I don't think so. The way the current law is written is that the payout is a function of your lifetime contributions.

If you remove the cap on contributions, then your payout will also increase. It will not be 1:1 of course, but the payout is still tied to the contributions.

-gauss
p.s. I agree with you that it is very important to maintain the relationship between benefits and earnings to sustain the program long term.

 

[nun]

I don't think so. The way the current law is written is that the payout is a function of your lifetime contributions.

If you remove the cap on contributions, then your payout will also increase. It will not be 1:1 of course, but the payout is still tied to the contributions.

-gauss
p.s. I agree with you that it is very important to maintain the relationship between benefits and earnings to sustain the program long term.

SS is currently progressive so you get proportionally less as a high tax payer than a lower rate tax payer.

You should talk to the UK about maintaining the connection between earnings and benefits because they just remove that from the UK system.

 

[Big_Hitter]

I don't think so. The way the current law is written is that the payout is a function of your lifetime contributions.

If you remove the cap on contributions, then your payout will also increase. It will not be 1:1 of course, but the payout is still tied to the contributions.

-gauss
p.s. I agree with you that it is very important to maintain the relationship between benefits and earnings to sustain the program long term.

if they continue to base benefits on the uncapped wage base (or some much higher limit) I might be okay with it

 

[Independent]

I don't think so. The way the current law is written is that the payout is a function of your lifetime contributions.

If you remove the cap on contributions, then your payout will also increase. It will not be 1:1 of course, but the payout is still tied to the contributions.

-gauss
p.s. I agree with you that it is very important to maintain the relationship between benefits and earnings to sustain the program long term.

We're talking about changes to the current law. People have proposed both:

E2.1 Do not provide benefit credit for earnings above the current-law taxable maximum.
and
E2.2 Provide benefit credit for earnings above the current-law taxable maximum.

The SS actuaries have calculated the financial effect of each: Long Range Solvency Provisions

 

[Big_Hitter]

E2.1 would make SS (more of) a demogrant program, not a social insurance program.

 

[Independent]

I was very surprised that eliminating the cap alone solved 100% of the problem... I suspect because it is really banging those with very high incomes compared to the current approach.

I was surprised, too.

I took this question to another forum where some pension actuaries hang out. The short answer is "The 'Social Security Game' hasn't been updated in years".

Something like "immediately eliminate the taxable income cap" has a bigger impact on the Trust Fund if you do it sooner. Apparently it really was enough at one time, but not any more.