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Clearing the Way for Financial Security in Retirement

Longevity generally is increasing. But some of those rays of golden sunshine can be clouded due to the instability of the retirement saving atmosphere. A recent blog entry offers some ideas on how those clouds may be dispelled.

In “Income to Last a Lifetime,” the April 2018 edition of its Essential Elements newsletter, the American Academy of Actuaries makes a variety of suggestions concerning how to help enhance plan participants’ financial security in retirement.

The academy sets the table with mixed news from “Retirement Readiness: A Comparative Analysis of Australia, the United Kingdom & the United States,” a study it conducted with the U.K.’s Institute and Faculty of Actuaries and Australia’s Actuaries Institute and which was released in October 2017. The study reports that among Americans, more than 60% reported having retirement savings and that they have planned for the possibility that they will live longer than expected — 64% and 61%, respectively. But at the same time, 40% said they know how long their assets will last and 31% said they know how much they need to save.

Why the mixed results and instability in the retirement savings atmosphere? Says the academy, “Americans planning for retirement today face more individual responsibility and risk for their retirement incomes than prior generations experienced, partly due to the decline of traditional defined benefit pension plans that pay lifetime monthly benefits.” And the academy argues that the onset of retirement for a famously large population segment — the Baby Boomers — brings that into sharper relief, noting that “many are discovering they may have not taken sufficient steps to manage the challenges that come with replacing their former paychecks with adequate monthly income during retirement.”

So what can be done to address this instability and let in the warmth and light of financial stability and security? The academy offers some ideas.

Federal Retirement Policy

The academy suggests that some existing federal retirement security mainstays be bolstered and ages adjusted. Specifically, it argues for:

  • strengthening Social Security and the Pension Benefit Guaranty Corporation by addressing their long-term funding problems and stability, and by boosting confidence them;

  • increasing the maximum ages for delayed retirement for purposes of Social Security and for required minimum distributions (RMDs) so as to better account for increased longevity;

  • pursuing regulatory and legislative changes to allow longevity annuities to satisfy RMD rules, provide safe harbors in defined contribution plans, and allow flexible plan design; and

  • expanding initiatives by the U.S. Department of Labor and other public entities that disseminate objective retirement information.

Lifetime Income Options

The academy suggests that lifetime income options can help address instability and increase retirement security by increasing the availability of lifetime income options. This, it argues, can be accomplished by:

  • encouraging employers to offer them;

  • offering tax incentives;

  • providing information to individuals that shows benefits in terms of lifetime monthly income;

  • educating workers about lifetime income;

  • allowing plan design to facilitate the availability of lifetime income options and their use; and

  • providing lifetime income products when workers receive, or could receive, lump sum distributions.

Education

The academy suggests improving the information provided to workers to increase their financial literacy and understanding of retirement preparation.

No Time to Waste

“Securing income throughout retirement is important for all Americans as they plan and save for retirement and ultimately manage their accumulated funds,” the academy says in the blog. It argues that there is no time to lose, saying, “The sooner retirement income security issues can be brought to the forefront and addressed, the more our rapidly aging population will benefit.”