In its July 6, 2018 letter to Senator Johnny Isakson, sponsor of the Lifetime Income Disclosure Act, the American Academy of Actuaries (AAA) suggested several “improvements” to Senator Isakson’s act applicable to hard-copy defined contribution plan statements provided to plan participants. As opposed to the relatively simple and straight-forward requirement proposed by the senator that at least one participant statement per any 12-month period contain “the lifetime income stream equivalent of the total benefits accrued with respect to the participant,” the AAA would like to see plan sponsors provide significantly more information to their participants. Needless to say, this additional information would make the hard-copy benefit statement required by law much more complicated to prepare and potentially more confusing to participants.
Wednesday, July 11, 2018
Saturday, June 30, 2018
Sequence of Return Risk (SORR) is a common retirement planning risk discussed by financial advisors, academics and other retirement experts. It is the risk of running out (or seriously depleting your) assets by continuing to spend constant amounts from those assets while experiencing an unfavorable sequence of investment returns. In its unsmoothed form, the Actuarial Approach and Actuarial Budget Benchmark (ABB) advocated in this website is a dynamic approach that will avoid SORR. It automatically recalculates the annual spending budget to maintain the balance between the market value of the retiree’s assets and the market value of the retirees’ spending liabilities. As discussed many times in this website, if some other approach is used to develop a spending budget (because of a desire to smooth fluctuations, to establish a rainy day fund or for whatever reason), calculating the ABB annually can still serve as a valuable “data point” in the budget setting process. At a minimum, it can tell you how much you need to reduce your spending in a down investment market to avoid SORR. This post is a follow-up to our posts of June 27, 2016 and April 20, 2017, and its intent is to simply demonstrate mathematically why we make the claim that using the Actuarial Approach will avoid SORR.
Wednesday, June 27, 2018
Every year, the Social Security trustees release a new report discussing the financial status of the system and every year, the American Academy of Actuaries (AAA) releases their “Actuarial Perspective” issue brief explaining the new report. In an effort to provide our readers a slightly different perspective on the system’s finances, this post will discuss some of the issues we have with the AAA issue brief (and to a lesser degree, with the Trustees’ report). This post updates our post of August 3 from last year which discussed the 2017 Trustees report/AAA issue brief. Clearly, our post from last year had very little effect on the AAA, as most of the language in their 2018 Actuarial Perspective remains unchanged from their 2017 issue brief. Before diving into our issues this year, however, we will attempt to provide just a little background.
Monday, June 25, 2018
With tongue planted firmly in cheek and with apologies to David Lettermen’s top ten lists, this post will discuss the top ten reasons why you shouldn’t be saving now for your retirement. Before jumping right into these reasons, however, we are going to attempt to build your excitement level a little by providing a brief background on how retirement finances actually work.
Saturday, June 23, 2018
In our ongoing effort to simplify the present value calculations involved in the Basic Actuarial Equation used to help you develop a reasonable spending budget that is consistent with your financial goals, we have updated our ABC workbooks for:
- Single Retirees
- Single Pre-retirees
- Retired Couple
- Pre-retired Couple
Tuesday, June 19, 2018
On June 5th, the Social Security Trustees released their annual Trustees Report summarizing the financial status of the system. In the press release announcing the new report, the Acting Press Officer of the Social Security Administration noted that the expected year of depletion of the system’s trust fund assets (under best estimate assumptions) remained at 2034, the same projected year of depletion as in the previous year’s report. So, another year goes by and most of us simply shrug at this news and go about our business.