Yes, Determining How Much You Can Afford to Spend in Retirement is More Difficult than Saving for Retirement

Last week, Thomas Heath, a business reporter for the Washington Post concluded that, “Saving for retirement is hard.  Knowing how to spend it down is harder.”  We agree.  On the other hand, as discussed in our post of August 31, 2014, managing spending in retirement is not rocket science.  In order to get it right, you need to periodically:

Crunching the Numbers on Pension Lump Sums—Part II

This post is a follow-up to our post of February 18, 2015 encouraging individuals who are faced with the decision of electing either a lump sum or a lifetime income form of distribution from a defined benefit pension plan to crunch their numbers in order to make a more-informed decision.  The impetus for this post is the recently released guidance in IRS Notice 2019-18 indicating that the IRS would not issue guidance prohibiting  limited period “windows” offering a lump sum option to retirees who are already receiving their pension benefits, and an excellent article on this subject by fellow actuary, Elizabeth Bauer entitled, “What You Need to Know About Pension Lump Sums.” And, while we don’t necessarily see lots of limited period lump sum windows opening up as a result of this IRS guidance, this post may also be of interest to individuals who are offered a lump sum option from a pension plan on termination of employment or retirement as part of their plan’s normal operations.

Building Your Floor Portfolio with Extra Low-Risk Investments

Our last few posts discussed reasons why individuals may wish to consider building a portfolio of relatively low-risk investments to fund their future expected essential expenses (the floor portfolio) with the remainder of their assets invested in more risky assets to fund their non-essential expenses (the upside portfolio).  While there are a number of investments that can lessen investment risk, there are just few types of investments that can also lessen longevity risk by guaranteeing payment for life.  For purposes of this post, we will focus on these relatively low-risk, lifetime guarantee investments as a way to increase one’s floor portfolio.  These strategies/investments (which we refer to as “Extra Low-Risk Investments”) include: