Retirement Issues

Facing Shortfalls, Pension Managers Turn to Risky Bets

The graying of the American employee is a math drawback for Farouki Majeed. It’s his job to take a position his means out. Mr. Majeed is the funding chief for an $18 billion Ohio college pension that gives retirement advantages to greater than 80,000 retired librarians, bus drivers, cafeteria staff and different former staff. The issue is that this fund pays out extra in pension checks yearly than its present staff and employers contribute. That hole helps clarify why it’s billions in need of what it must cowl its future retirement guarantees.

“The bucket is leaking,” he mentioned. The answer for Mr. Majeed—in addition to different pension managers throughout the nation—is to tackle extra funding threat. His fund and plenty of different retirement programs are loading up on illiquid belongings resembling personal fairness, personal loans to corporations and actual property.

So-called “various” investments now comprise 24% of public pension fund portfolios, in response to the latest knowledge from the Boston School Middle for Retirement Analysis. That’s up from 8% in 2001. Throughout that point, the quantity invested in additional conventional shares and bonds dropped to 71% from 89%. At Mr. Majeed’s fund, alternate options had been 32% of his portfolio on the finish of July, in contrast with 13% in fiscal 2001.

This technique is paying off in Ohio and throughout the U.S. The median funding return for all public pension programs tracked by the Wilshire Belief Universe Comparability Service surged to almost 27% for the one-year interval ending in June. That was one of the best consequence since 1986. Mr. Majeed’s retirement system posted the identical 27% return, which was its strongest-ever efficiency primarily based on information courting again to 1994. His private-equity belongings jumped almost 46%.

A majority of these blockbuster positive aspects aren’t anticipated to final for lengthy, nevertheless. Analysts anticipate public pension-fund returns to dip over the subsequent decade, which is able to make it tougher to cope with the core drawback dealing with all funds: They don’t have sufficient money to cowl the guarantees they made to retirees. That hole narrowed in recent times however remains to be $740 billion for state retirement programs, in response to a fiscal 2021 estimate from Pew Charitable Trusts.

This public-pension predicament is the results of many years of underfunding, profit overpromises, unrealistic calls for from public-employee unions, authorities austerity measures and three recessions that left many retirement programs with deep funding holes. Not even the 11-year bull market that ended with the pandemic or a fast U.S. restoration in 2021 was sufficient to assist pensions dig out of their funding deficits utterly.

Demographics didn’t assist, both. Prolonged lifespans brought about prices to soar. Wealthy early-retirement preparations and a wave of retirees world-wide additionally left fewer lively staff to contribute, widening the distinction between the quantity owed to retirees and belongings available.

Low rates of interest made the pension-funding drawback much more tough to unravel as a result of they modified long-held assumptions about the place a public system might place its cash. Pension funds pay advantages to retirees via a mixture of funding positive aspects and contributions from employers and staff. To make sure sufficient is saved, plans undertake long-term annual return assumptions to mission how a lot of their prices can be paid from earnings. These assumptions are at present round 7% for many funds.

There was a time when it was potential to hit that concentrate on—or larger—simply by shopping for and holding investment-grade bonds. Not anymore. The extremely low rates of interest imposed by central banks to stimulate development following the 2008-09 monetary disaster made that just about inconceivable, and shedding even just a few share factors of bond yield hindered the purpose of posting regular returns.

Pension officers and authorities leaders had been left with a vexing resolution. They may shut their funding gaps by decreasing advantages for current staff, chopping again public companies and elevating taxes to pay for the bulging obligations. Or, since these are all tough political decisions and courts have a tendency to dam any efforts to chop advantages, they may take extra funding threat. Many are selecting that possibility, including dollops of actual property and private-equity investments to the once-standard guess of bonds and shares.

This shift might repay, because it did in 2021. Beneficial properties from private-equity investments had been an enormous driver of historic returns for a lot of public programs within the 2021 fiscal yr. The efficiency helped enhance the combination funded ratio for state pension plans, or the extent of belongings relative to the quantity wanted to satisfy projected liabilities, to 85.5% for the yr via June, Wilshire mentioned. That was a rise of 15.4 share factors.

These bets, nevertheless, carry potential pitfalls if the market ought to fall. Illiquid belongings resembling personal fairness usually lock up cash for years or many years and are far more tough to promote throughout downturns, heightening the danger of a money emergency. Various belongings have tripped up cities, counties and states prior to now; Orange County famously filed for chapter in 1994 after losses of greater than $1.7 billion on dangerous derivatives that went bitter.

The heightened concentrate on various bets might additionally end in heftier administration charges. Funds pay about two-and-one-half share factors in charges on various belongings, almost 5 occasions what they pay to spend money on public markets, in response to analysis from retired funding marketing consultant Richard Ennis. Some funds, consequently, are avoiding various belongings altogether. One of many nation’s best-performing funds, the Tampa Firefighters and Police Officers Pension Fund, limits its investments to publicly traded shares and bonds. It earned 32% within the yr ending June 30.

It took some convincing for Mr. Majeed, who’s 68 years outdated, to change the funding mixture of the Faculty Workers Retirement System of Ohio after he turned its chief funding officer. When he arrived in 2012, there was a plan below technique to make investments 15% of the fund’s cash in one other kind of other asset: hedge funds. He mentioned he thought such funds produced lackluster returns and had been too costly. Altering that technique would require a feat of public pension diplomacy: Convincing board members to roll again their hedge-fund plan after which promote them on new investments in infrastructure initiatives resembling airports, pipelines and roads—all below the unforgiving highlight of public conferences. “It’s a tricky room to stroll into as a CIO,” mentioned fund trustee James Rossler Jr., an Ohio college system treasurer. It wasn’t Mr. Majeed’s first expertise with politicians and fractious boards.

He grew up in Sri Lanka because the son of a distinguished Sri Lanka Parliament member, and his preliminary funding job there was for the Nationwide Growth Financial institution of Sri Lanka. He needed to consider the feasibility of factories and tourism initiatives. He got here to the U.S. in 1987 along with his spouse, received an M.B.A. from Rutgers College and shortly migrated to the world of public pensions with jobs in Minneapolis, Ohio, California and Abu Dhabi. In Orange County, Calif., Mr. Majeed helped persuade the board of the Orange County Workers Retirement System to cut back its reliance on bonds and put more cash into equities—a problem heightened by the county’s 1994 chapter, which occurred earlier than he arrived.

His 2012 transfer to Ohio wasn’t Mr. Majeed’s first publicity to that state’s pension politics, both; he beforehand was the deputy director of investments for one more of the state’s retirement programs within the early 2000s. This time round, nevertheless, he was in cost. He mentioned he spent a number of months presenting the board with knowledge on how current hedge-fund investments had lagged behind expectations after which tallied up how a lot the fund paid in charges for these bets. “It was not a reasonably image at that time,” he mentioned, “and these paperwork are public.” Trustees listened. They lowered the hedge-fund goal to 10% and moved 5% into the real-estate portfolio the place it might be invested in infrastructure, as Mr. Majeed needed.

What cemented the board’s belief is that portfolio then earned annualized returns of 12.4% over the subsequent 5 years—greater than double the return of hedge funds over that interval. The board in February 2020 signed off on one other request from Mr. Majeed to place 5% of belongings in a brand new kind of other funding: personal loans made to corporations. “Again once I first received on the board, in case you would have instructed me we had been going to have a look at credit score, I might have instructed you there was no means that was going to occur,” Mr. Rossler mentioned. The private-loan guess paid off spectacularly the next month when determined corporations turned to non-public lenders amid market chaos sparked by the Covid-19 pandemic. Mr. Majeed mentioned he added loans to an airline firm, an plane engine producer and an early-childhood schooling firm impacted by the widespread shutdowns. For the yr ended June 30, the newly minted mortgage portfolio returned almost 18%, with greater than 7% of that coming in money the fund might use to pay advantages.

The system’s whole annualized return over 10 years rose to 9.15%, effectively above its 7% goal. These positive aspects closed the yawning hole between belongings available and guarantees made to retirees, however not utterly. Mr. Majeed estimates the fund has 74% of what it wants to satisfy future pension obligations, up from 63% when he arrived. Mr. Majeed is now eligible to attract a pension himself, however he mentioned he finds his job too absorbing to think about retirement simply but. What he is aware of is that the pressures forcing a cutthroat seek for larger returns will make his job—and that of whoever comes subsequent—exponentially tougher. “I believe it’s going to be very robust.”

By: Heather Gillers

Heather Gillers is a reporter on The Wall Street Journal’s investing team. She writes about pensions, municipal bonds and other public finance issues. She previously worked at the Chicago Tribune, the Indianapolis Star, and the (Aurora, Ill.) Beacon-News. She can be reached at (929) 384 3212 or heather.gillers@wsj.com.

Source: https://www.wsj.com/

Related Contents:

“Location Selector”. Willis Towers Watson. “Asset Management 2020 – A Brave New World” (PDF). Retrieved March 3, 2021. OECD For examples, see “Local Government Law Library”. Archived from the original on 6 September 2012. Retrieved 15 May 2011. “The 20 largest pension funds of the globe”. http://www.consultancy.uk. 27 October 2017. Retrieved 2018-03-11. [1] Top 100 Largest Public Pension Rankings by Total Assets Budget of the United States Government, FY2022, published May 28, 2021. Value as of September 30, 2020 Office of Management and Budget Retrieved June 13, 2021 Superannuation Statistics, March 2021. Value as of June 1, 2021. Retrieved June 1, 2021 2020年度第3四半期運用状況 GPIF “Annual Survey of Large Pension Funds and Public Pension Reserve Funds” (PDF). OECD. 2016-04-21. Retrieved 2016-10-28. Budget of the United States Government, FY2022, published May 28, 2021. Value as of September 30, 2020. Office of Management and Budget Retrieved June 13, 2021 Budget of the United States Government, FY2022, published May 28, 2021. Value as of September 30, 2020. Office of Management and Budget Retrieved June 13, 2021 Financial Statements of the Thrift Savings Fund December 31, 2020 and 2019. As of December 31, 2020. Thrift Savings Fund. Retrieved May 14, 2021 “Default”. Retrieved 2020-07-04. “CPP Fund Totals $317 Billion at 2017 Fiscal Year-End”. http://www.cppib.com. Retrieved 2018-02-24. “Page d’accueil”. Caisse de dépôt et placement du Québec | Investisseur institutionnel de long terme | Gestionnaire d’actif. “CalPERS Reports Preliminary 4.7% Investment Return for Fiscal Year 2019-20”. Retrieved 2021-03-03. “The world’s 300 largest pension funds – year end 2014”. Willis Towers Watson. “Performance – Ontario Teachers’ Pension Plan”. http://www.otpp.com. “Current Investment Portfolio – CalSTRS.com”. Retrieved 2021-03-03. https://www.pfzw.nl/over-ons/pers/paginas/kwartaalberichten.aspx http://www.emol.com/noticias/economia/2015/01/23/700604/donde-estan-invertidas-las-platas-de-los-trabajadores-en-chile.html Asher, Mukul (22 January 2021). “How the EPFO can improve as India’s largest social security provider”. Moneycontrol. “Annual Announcement of Financial Statements 2020”. “OMERS – 2020 Annual Report Highlights”. Retrieved 2021-03-03. Official WebSite of PREVI – English Version “STRS Ohio’s Impact”. “Assets Under Management & No.of Subscribers | NPS Trust”. “FRR 2012 Annual Report” (PDF). “NPRF”. Archived from the original on 2017-02-10. Retrieved 2020-05-03. “Choose an Industry SuperFund”. Industry Super. http://www.previ.com.br Official Website of PREVI “ΜΕΤΟΧΙΚΟ ΤΑΜΕΙΟ ΠΟΛΙΤΙΚΩΝ ΥΠΑΛΛΗΛΩΝ | Μ.Τ.Π.Υ.”“Official website of Mandatory Provident Fund Schemes Authority”. EPF PFRDA [2]Archived November 2, 2010, at the Wayback Machine http://www.csspp.ro http://pio.rs/eng/“Armed Forces Pension Fund”. 29 USC § 1002 – Definitions | Title 29 – Labor | U.S. Code | LII / Legal Information Institute. Law.cornell.edu. Retrieved 2013-07-18. Federal Reserve Statistical Release, Financial Accounts of the United States, Fourth Quarter 2016 Archived 2018-01-04 at the Wayback Machine, see pp.94-99. Values as of December 31, 2016. Federal Reserve Board of Governors. Reported March 9, 2017. Retrieved May 18, 2017

IRAs For All? Mandatory Retirement Accounts Part Of $3.5 Trillion Budget Plan

Retirement Issues

Do Americans need a nudge from their employers—and a handout from Washington—to get them to save for retirement? That’s the premise behind draft retirement language in the the House Ways and Means Committee mark up of the $3.5 trillion budget reconciliation package.

Under the proposal, starting in 2023, employers with five or more employees would have to offer a retirement plan and automatically enroll employees, diverting 6% of their pay to a retirement account. An automatic escalation clause would increase the automatic contribution to 10% of pay by year five. The default plan would be a Roth IRA invested in a target-date fund, a mix of investments based on your expected retirement year.

For employers, it’s a mandate. They would have to offer the plans. Employees would be able to opt out.

“We’re not trying to put an undue burden on the small employer. We’re trying to help the employee who works for a small employer be a lifetime saver,” Ways and Means chairman Richard Neal (D-Mass.) said at the hearings.

The retirement section of the Build Back Better Act is expected to dramatically expand retirement savings. It would create 62 million new retirement savers and would add an additional $7 trillion in retirement savings over a 10-year period, according to the Employee Benefit Research Institute. Nearly all—98%—of these new savers would be folks who earn less than $100,000 per year.

“We know that people are far more likely to save for retirement if they have access to a retirement plan at work (12 times more likely), but there’s a real access problem – small businesses just never quite seem to get around to setting these up,” says Nevin Adams, chief content officer for the American Retirement Association.

To offset administrative costs for employers, the proposal includes a tax credit to employers for setting up the plans. And a tax penalty of up to $900 per employee per year if they don’t comply.

“Main Street now faces an onerous new mandate from Washington and a tax penalty if you don’t comply. Small business owners know this is yet another, or feels like another, war on work,” Rep. Kevin Brady (R-Texas), the top Republican on the Ways and Means Committee said at the hearings.

The small business lobby is crying foul. The National Federation of Independent Business (NFIB) says the tax credits provided to employers for setting up plans are temporary and limited, and that the cost of compliance amounts to a “hidden tax.”

There is evidence that auto-IRAs work for both employers and employees. Rep. Earl Blumenauer of Oregon noted how a similar state-mandated auto-IRA program mandated for all employers in his state has generated $120 million of savings “in our little state” so far. And a Pew survey found that 73% of employers were either satisfied or neutral about the Oregon program.

Hand-in-hand with the auto-IRA provision is a change to the Saver’s Credit. Lower-income Americans, even those who don’t owe taxes, would get a newfangled Saver’s Credit—a government match on their savings—$100 to $500 per person per year from the U.S. Treasury paid into their individual retirement account. The $47 billion cost of the retirement proposal is evenly split between the Saver’s Credit provision and the auto-IRA provision.

This auto-IRA proposal is different from the one that is in pending bipartisan retirement legislation known as SECURE 2.0, which would not mandate that employers offer these accounts but rather make them voluntary. SECURE 2.0 contains other important provisions, such as allowing employers to provide matching money to retirement accounts when workers pay off student loan debt.

Representative Neal said that SECURE 2.0 is “getting over the goal line this year” too. Some of the revenue raisers for the Build Back Better Act under discussion relate to retirement, and Representative Neal said that they could be released this weekend.

Follow me on Twitter or LinkedIn.

Ashlea Ebeling

I cover personal finance, with a focus on retirement planning, trusts and estates strategies, and taxwise charitable giving. I’ve written for Forbes since 1997. Follow me on Twitter: @ashleaebeling and contact me by email: ashleaebeling — at — gmail — dot — com

Source: IRAs For All? Mandatory Retirement Accounts Part Of $3.5 Trillion Budget Plan

Related Contents:

Asset Management 2020 – A Brave New World

Superannuation Statistics, March 2021

Financial Statements of the Thrift Savings Fund December 31, 2020 and 2019

Britons opt for Pre-tirement over Total Retirement

Pre-European Exploration, Prehistory through 1540

Police and firefighter pension plans

When It Comes to Work, How Old Is Too Old

Planning Your Time in Retirement: How to Cultivate a Leisure Lifestyle to Suit Your Needs and Interests

Planning for Retirement Needs

Healthy ageing from the perspective of older people: A capability approach to resilience

Retire Early’s Safe Withdrawal Rates in Retirement

Determinants of Retirement Status

Local area unemployment, individual health and workforce exit

IRS Retirement Plans Community site

West’s Law Encyclopedia entry on pension at www.enotes.com

Different Types of Retirement Plans Comparison

The Current Controversy Over Cash Balance Plans

The last private industry pension plans: a visual essay

Can You Beat Inflation With A Monthly Annuity?

Retirement Issues

A century ago, money from Andrew Carnegie created Teachers Insurance & Annuity Association to pay pensions to schoolteachers, professors and other people who work at nonprofit organizations. In the early days, these pensions were backed by bond portfolios and paid fixed monthly sums. Then, in 1952, TIAA invented the variable annuity.

Payouts from this novel product were tied to the return on a collection of stocks called the College Retirement Equities Fund. Don’t put all your money in this risky thing, a retiring prof would be told, but put in some in order to keep up with the rising cost of living. Your payouts from Cref will be unpredictable but still very likely, over time, to greatly outpace payouts from a fixed annuity. That’s because stocks, over time, outpace bonds.

With the variable annuity, TIAA married the high returns on equities with the classic annuity benefit of longevity pooling. Longevity pooling means that people who die young collect less over their lifetimes than their colleagues who live long. Pooling is a bet worth making because it allows you do live well off a pot of savings without taking a risk that you will exhaust those savings. Pooling is how all monthly pensions work. It’s how Social Security works.

Cref was a hit. It now has $279 billion under management.

Is it a good buy? It looks that way to me. The graph displays the monthly payouts for a 67-year-old female who invested $100,000 25 years ago in the main stock account, which is akin to a global index fund with a 30% foreign allocation. She rode a roller-coaster, with payments cut in half during the crash of 2007-2009, but if she’s still breathing at 92 she’s now getting $2,146 a month, better than triple her $610 starting pension.

For the index fund, the combined fee (for salesmen, annuity administrators and portfolio managers) comes to 0.24% a year. In the world of annuities that counts as a bargain. Variable annuities sold by stockbrokers can cost eight times as much.

It helps that TIAA is a nonprofit and its annuity pools are run on a mutual basis—meaning, pensioners share in the gains and losses that arise from unexpected mortality. Thus, if too few emeritus professors take up skydiving, there will be more than the expected number of mouths to feed and the growth in payouts will be less than hoped for. Conversely, a pandemic boosts payouts.

Now, a mutual form of organization is no guarantee of either efficiency or wisdom, but in this context it means that the insurance company does not have to pad its prices in order to cover the risk that retirees will live too long.

Nor does the nonprofit status mean an advisor won’t be tempted to steer a pensioner into products considerably more costly than an index fund (read this New York Times story). But if you stick to the cheap portfolio options you’ve got a good deal. Proviso: You should be in excellent health if you’re buying any kind of annuity.

Alas, not everyone can get in the door at Cref. You can acquire a TIAA annuity only if you or a fairly close relative works or worked in the nonprofit world—such as for a government agency, hospital, school or college.

What variable annuity is there for retirees in the corporate sector? Nothing that I would recommend. The insurance industry has responded to TIAA’s invention with a slew of convoluted and costly products that make price comparisons next to impossible.

You will probably see some kind of “mortality” charge in the prospectus (that padding I was talking about); you will probably not be able to discern what kind of worse damage is built into the formula that connects your payout to the return on the stock market; your salesman will probably be buying a new sports car right after you sign.

If you are not eligible for TIAA, and if an advisor mentions variable annuities, flee. Find a better solution at Do-It-Yourself Income For Life.

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William Baldwin

I aim to help you save on taxes and money management costs. I graduated from Harvard in 1973, have been a journalist for 45 years, and was editor of Forbes magazine

Source: Can You Beat Inflation With A Monthly Annuity?

References:

“Laboratory of Actuarial Mathematics”

“From Commercial Arithmetic to Life Annuities: The Early History of Financial Economics, 1478-1776 Archived

Wayback Machine“

Seminar Series on Quantitative Finance

Stephen Hawking God Created the Integers: The Mathematical Breakthroughs That Changed History,

Longevity Insurance: A Missing Market

“FINRA Publishes Guidance, Text for New Rule Governing Deferred Variable Annuity Transactions”

“Finance Bill to scrap compulsory annuity age” Archived

Annuity Markets

“NCPA: Baby Boom Retirement Could Cause Annuity Market Explosion Archived

“An Income Stream to Last a Lifetime“

Math and spreadsheet for purchase and deferral decision

Various kinds of annuities

Variable Annuities Interview- Legal Perspective

Could you retire without Social Security?

Do You Get Your Money’s Worth From Buying An Annuity?

Finance Study/Strategy, Money/Personal Finance, Personal Finance/Savings, Retirement Issues

Coin Stacks And Chart Graphs On A Chessboard

Once upon a time, in the (somewhat mythical) past of traditional defined benefit pensions, your employer protected you from the risk of outliving your money in retirement, by acting, more or less, as an insurance company providing an annuity. With that benefit receding into the past, many experts have been hoping that Americans with 401(k) plans would avail themselves of annuities on their own, to give themselves the same sort of protection, and, indeed, the SECURE Act of 2019 made it easier for those plans to offer their participants an annuity choice, and, when surveyed, 73% of those participants said they would “consider” an annuity at retirement.

At the same time, though, Americans distrust annuities — in part because traditional deferred annuities had high fees and expenses and only made sense in an era predating IRAs and 401(k)s, when they were attractive solely due to the limited tax-advantaged options for retirement savings. But that’s not the only reason — annuities, quite frankly, aren’t cheap.

How do you quantify the value of an annuity? In one respect, it’s subjective and personal: do you judge yourself to be in good health, or does family history and your list of medications say that you’ll be one of those with the early deaths that longer-lived annuity-purchasers are counting on? Do you want to be sure you can maintain your standard of living throughout your retirement, or do you figure that you won’t really care one way or another if you have to cut down expenses once you’re among the “old-old”?

But measuring the value of annuities, generally speaking, does tell us whether consumers are getting a fair deal from their purchases, and here, a recent working paper by two economists, James Poterba and Adam Solomon, “Discount Rates, Mortality Projections, and Money’s Worth Calculations for US Individual Annuities,” lends some insight.

Here’s some good news: using the costs of actual annuities available for consumers to purchase in June 2020, and comparing them to bond rates which were similar to the investment portfolios those insurance companies hold, the authors calculated “money’s worth ratios” that show that, for annuities purchased immediately at retirement, the value of the annuities was between 92% – 94% (give-or-take, depending on type) of its cost. That means that the value of the insurance protection is a comparatively modest 6 – 8% of the total investment.

But there’s a catch — or, rather, two of them.

In the first place, the authors calculate their ratios based on a standard mortality table for annuity purchasers — which makes sense if the goal is to judge the “fairness” of an annuity for the healthy retirees most likely to purchase one. But this doesn’t tell us whether an annuity is a smart purchase for someone who thinks of themselves as being in comparatively poorer health, or with a spottier family health history, and folks in these categories would benefit considerably from analysis that’s targeted at them, that evaluates, realistically, whether annuities are the right call and whether their prediction of their life expectancy is likely to be right or wrong.

In the second place, the 92% – 94% money’s worth calculation is based on the typical investment portfolio of insurance companies, approximated by the returns of BBB-rated bonds. This measures whether the annuity is “fair” or not, in that “moral” sense of whether the perception that the company is “cheating” is customers is real (it’s not).

But these interest rates are very low. The authors, in addition to their calculations of “money’s worth,” back into the implied discount rate from the annuity costs themselves. For men aged 65, that interest rate is 2.16%; for women aged 65, 2.18%.

Now, imagine that you compare this annuity to an alternative plan of investing your money in the stock market, earning 7% annual returns, and believing you can predict your death date (or not really caring if you fall short or end up with leftover money for heirs).

The cost of the protection offered by the annuity, the guarantee that you will never run out of money, and that you will not suffer from a market crash, is very expensive indeed — when you compare apples to oranges in this manner, the money’s worth ratio is, according to my very rough estimates, more like 60%, meaning that about 40% of your cash is spent to purchase the “insurance protection” of the annuity.

And, again, that’s not because insurance companies are cheating anyone; that’s solely because of the wide gap between corporate bond rates and expected returns when investing in the stock market— a gap which was particularly wide in the summer of 2020 when this study was competed, but remains nearly as wide now.

As it stands, Moody’s Baa rates are in the 3% range; in the 2000s, they were in the 6% range, and in the 1990s, from 7% – 9%. Although this drop in bond rates is good news for American homebuyers because this marches in tandem with mortgage rates, it makes it far harder for retirees to manage their finances in ways that protect them from the risks that they face in their retirement.

Perhaps interest rates in general, and bond rates specifically, will increase as we leave our current economic challenges, but there’s no certainty, and as long as this gap between bond rates and expected stock market returns remains so substantial, retirees will be challenged to find any sort of safe investment that makes sense for them. Which means that what seems like a great benefit for Americans looking to borrow money — for mortgages, car loans, credit cards — can pit the elderly against the young in a generational “us vs. them” contest.

As always, you’re invited to comment at JaneTheActuary.com!

Follow me on Twitter. Check out my website.

Elizabeth Bauer

Yes, I’m a nerd, and an actuary to boot. Armed with an M.A. in medieval history and the F.S.A. actuarial credential, with 20 years of experience at a major benefits consulting firm, and having blogged as “Jane the Actuary” since 2013, I enjoy reading and writing about retirement issues, including retirement income adequacy, reform proposals and international comparisons.

Source: Do You Get Your Money’s Worth From Buying An Annuity?

Critics:

An annuity is a series of payments made at equal intervals.^[1] Examples of annuities are regular deposits to a savings account, monthly home mortgage payments, monthly insurance payments and pension payments. Annuities can be classified by the frequency of payment dates. The payments (deposits) may be made weekly, monthly, quarterly, yearly, or at any other regular interval of time. Annuities may be calculated by mathematical functions known as “annuity functions”.

An annuity which provides for payments for the remainder of a person’s lifetime is a life annuity.

Variability of payments

Fixed annuities – These are annuities with fixed payments. If provided by an insurance company, the company guarantees a fixed return on the initial investment. Fixed annuities are not regulated by the Securities and Exchange Commission.
Variable annuities – Registered products that are regulated by the SEC in the United States of America. They allow direct investment into various funds that are specially created for Variable annuities. Typically, the insurance company guarantees a certain death benefit or lifetime withdrawal benefits.
Equity-indexed annuities – Annuities with payments linked to an index. Typically, the minimum payment will be 0% and the maximum will be predetermined. The performance of an index determines whether the minimum, the maximum or something in between is credited to the customer.

References

Kellison, Stephen G. (1970). The Theory of Interest. Homewood, Illinois: Richard D. Irwin, Inc. p. 45
Lasher, William (2008). Practical financial management. Mason, Ohio: Thomson South-Western. p. 230. ISBN 0-324-42262-8..

Jordan, Bradford D.; Ross, Stephen David; Westerfield, Randolph (2000). Fundamentals of corporate finance. Boston: Irwin/McGraw-Hill. p. 175. ISBN 0-07-231289-0.

Samuel A. Broverman (2010). Mathematics of Investment and Credit, 5th Edition. ACTEX Academic Series. ACTEX Publications. ISBN 978-1-56698-767-7.
Stephen Kellison (2008). Theory of Interest, 3rd Edition. McGraw-Hill/Irwin. ISBN 978-0-07-338244-9.

Why You May Be Overly Optimistic About Your Social Security Benefits

Benefit/Conversion, Retirement Issues

Frank and Joan Shortland

As humans, we tend to be overoptimistic on everything from our driving ability to investment prowess. It’s perennial problem when it comes to money and retirement management.

A recent study found that people routinely over-estimate their Social Security benefits. Two researchers from the University of Michigan found that “Americans face the challenges of retirement with varying degrees of preparation. Evidence indicates that that many individuals may not be making the best possible choices with respect to their Social Security and retirement savings.”

Why do people expect more than what they actually receive in benefits? Here’s what the researchers found:

Most retirees find that the amount of Social Security retirement benefits they receive is lower than what they had expected before claiming.
Not appropriately adjusting for early or delayed claiming could contribute to expectation biases about retirement benefits. In particular, this would be most relevant for those with lower levels of education.
Current workers recognize that they do not have a good idea of what their future retirement benefits will be. Forty-nine percent of our survey respondents declare having no knowledge about their benefit amount.
The average expectation bias for monthly retirement benefits in our sample is $307, which equals 27% of the average forecasted benefit for this sample (in current dollars).
Men display lower expectation bias and are less likely to overestimate their retirement benefits.

How to avoid these misconceptions? You need to estimate benefits based on the age you intend to claim them and your earnings record. A good place to start is Social Security’s benefits estimator tool.

Since people are living longer and are generally healthier in older age, the Social Security Administration raised the full retirement age to 67 for people born in 1960 or later, up from 65. You can apply for benefits as early at 62, although your benefit would be reduced by 30%. On the other hand, if you can wait until age 70, you will get 124% of the monthly benefit because you delayed getting benefits for 36 months.

Consider how each scenario might impact your retirement planning. Preparing for different outcomes now is the best way to help protect your savings – and peace of mind – down the line.

Planning today can make a big difference in your retirement lifestyle tomorrow. Once you leave the workforce, the years that follow can be all that you want them to be—if you pave the way with a comprehensive financial plan that includes your Social Security income.

Your plan should be based on what you know today and flexible enough to adapt to any changes—like unforeseen personal circumstances or developments that come out of Washington.

Social Security can be a valuable tool to help bridge any gap you may have between your expected sources of income and your expenses.

POINTS TO KNOW

Social Security has features for retirees that other retirement savings plans don’t have.
When creating your retirement plan, be sure to include your Social Security benefits as an income source.
It’s important to have a retirement budget: Itemize your income sources and expected expenses.

Follow me on Twitter or LinkedIn. Check out my website or some of my other work here.

John F. Wasik

Source: Why You May Be Overly Optimistic About Your Social Security Benefits

Citations:

^{1, 5, 7, 8} AARP: “How is Social Security funded?” February 11, 2021 https://www.aarp.org/retirement/social-security/questions-answers/how-is-social-security-funded/

² SSA: “Your Retirement Benefit: How It’s Figured” by Social Security Agency, January 2021 https://www.ssa.gov/pubs/EN-05-10070.pdf

³ SocialSecurity.gov: “My Account” information collected from www.socialsecurity.gov/myaccount

⁴ AARP: “How much longer will Social Security be around?” September 22, 2020 https://www.aarp.org/retirement/social-security/questions-answers/how-much-longer-will-social-security-be-around/

⁶ Statista: “Number of retired workers receiving Social Security in the United States from 2010 to 2020” by Statista Research Department, January 19, 2021 https://www.statista.com/statistics/194295/number-of-us-retired-workers-who-receive-social-security/

⁹ SSA: “Retirement Benefits: Retirement Age Calculator” by Social Security Agency https://www.ssa.gov/benefits/retirement/planner/ageincrease.html

¹⁰ SSA: “Retirement Benefits: Starting Your Retirement Benefits Early” by Social Security Agency https://www.ssa.gov/benefits/retirement/planner/agereduction.html

¹¹ SSA: “Retirement Benefits: How Delayed Retirement Affects Your Social Security Benefits” by Social Security Agency https://www.ssa.gov/benefits/retirement/planner/1960-delay.html

¹² IRS.gov: “Are Social Security Benefits Taxable?” February 13, 2017 https://www.irs.gov/newsroom/are-social-security-benefits-taxable

^{13, 14} SSA: “Retirement Benefits: Income Taxes And Your Social Security Benefit” by Social Security Agency https://www.ssa.gov/benefits/retirement/planner/taxes.html

¹⁵ Investopedia: “Do Earnings from a Roth IRA Count Toward Income?” By Denise Appleby, April 8, 2021 https://www.investopedia.com/ask/answers/05/iraearningsmagi.asp

Sell Stocks Or Cash In An IRA?

Retirement Issues

You’re retired, and living off two piles of assets—a taxable brokerage account and a tax-deferred IRA. Which should be cashed in first?

For a lot of people, the answer is simple: Use up the taxable assets first. This rule applies if you expect to need both piles to cover your living expenses from now to age 100.

For some people—retirees who have a lot of giving in their plans—the answer is more complicated. Those fortunate enough to fall in this category need to do some calculations. I have on hand a spreadsheet that does the work for you. It spells out which kind of asset should be used up first.

Before delving into the calculations, let’s get some basic assumptions on the table. One is that you are at least 59-1/2, so there’s no penalty for invading the IRA. Next: If you are 72 or older, you have already taken the required minimum distribution from your retirement accounts.

The third assumption is that you have long since sold any loss positions in the taxable account. You should always be attentive to harvesting losses, no matter what your age or retirement plans. What you have left, then, are winning positions burdened with potential capital gain taxes.

If you were sure that, over the course of your retirement, you would eventually sell off all those taxable assets to cover your own spending, then the optimal strategy would be to use up them up, starting with the ones that have appreciated the least. You’d preserve the tax shelter of the IRA as long as possible.

This looks counterintuitive, given that stocks held outside the IRA get somewhat favorable tax treatment while IRA withdrawals are taxed at higher ordinary rates. But it’s how the arithmetic of compounding and tax sheltering works. For an explanation, turn to Guide To Income For Early Retirees, chapter 3.

But what if you’re not sure you’ll be using a taxable asset for yourself?

Consider taxpayer Harry, who wants to spend $100,000 on a boat. He could dip into his IRA, or he could sell off stock at $100 a share that he bought years ago at $80. If he sells the stock he’ll owe some capital gain tax. If he hangs onto it, he figures, there’s a 50-50 chance that the capital gain tax will be bypassed.

There are three ways for that bypass to happen. One is if Harry uses the stock for charitable contributions. Another is if he gives it to a low-income relative whose tax rate on long-term gains is 0%. The third is if he leaves it in his estate and heirs cash it in.

Now the question gets more interesting. Does ducking the capital gain justify invading the IRA? The answer depends on tax rates, the cost basis of the stock and the odds of avoiding capital gains.

To follow along, download my calculator here. Make a copy of this Google spreadsheet file, and play with the copy. (You need to be on Google Chrome to get in.)

I’ve put Harry down for a 24% federal tax bracket, which applies to joint returns with roughly $200,000 to $350,000 of adjusted gross income. His state tax rate is 6%. He qualifies for the 15% rate on dividends and long gains. If his adjusted gross is below $250,000 he won’t owe the 3.8% surcharge on investment income.

To pay for the boat, he needs to either sell off $104,000 of the stock or take $143,000 out of the IRA. He chooses one of those moves.

Time passes. At some point later—12 years later, using the default values in the calculator spreadsheet—there’s a second cash-out.

If it was stock that Harry cashed out at the beginning, he or his heir is left with an IRA that has grown to $257,000 in year 12 and is good for $180,000 of spending money after tax.

If, however, Harry had chosen to use IRA money on the boat and hang onto the stock, the stock would have grown in value. But, absent some way to duck the capital gain tax, it would have yielded only $164,000 on liquidation. Taxes hit dividends along the way and, at the end, they hit the appreciation on the original shares from their $80 cost and the appreciation on shares acquired with reinvested dividends.

In this case the choice of preserving the IRA instead of the stock is a clear winner, to the tune of $16,000.

Harry might, however, escape the capital gain at the end. Perhaps he uses the stock for charitable giving, or he’s still holding onto it when he dies. In that case, the strategy of preserving the stock would leave Harry ahead, but only by a small amount.

The calculator allows for a roll of the dice. Putting in a 50% probability that the capital gain will be ducked, Harry finds that preserving the IRA is the better move.

Insert your own assumptions in your copy of the spreadsheet. You can change tax rates, the waiting time until there’s a second cash-out and other variables. You’ll probably find the arithmetic steering you to the strategy of selling taxable stock to pay for today’s living expenses.

There are circumstances, though, in which it would make sense to hold onto the stock. That can happen if both of these things are true: the stock in question has a low cost basis, and you have a fairly high degree of confidence that you or your heirs will be ducking the capital gain tax.

When using this calculator to plot your moves, follow these steps:

—Apply the decision-making to your highest-cost stock positions first.

—Don’t waste any time pondering whether to sell bonds in a taxable account. They should always be sacrificed before damaging an IRA. If this leaves you with too high an allocation to equities, correct that problem inside the IRA.

—Don’t withdraw from the IRA just because you expect your tax rate to go up in later years. If you are in this situation, do a Roth conversion, paying tax now to make a portion of your IRA permanently tax-free. Sell enough of your taxable assets to pay for both the boat and the conversion tax.

—Keep an eye on the proposal from Democrats to deny wealthy families a capital gain bypass on bequests and gifts. (There is at present no threat to take away the exemption on appreciated property given to charity.) You might need to scale back your odds of benefiting from the bypass.

Play what-if with the calculator by altering the numbers in the yellow cells. You’ll find that the biggest swings in outcomes come from the cost basis of the appreciated shares you may be selling. The length of the holding period and the assumed return on the stock market are less important.

The federal tax rate on ordinary income, which includes IRA distributions, determines how big a withdrawal you would need for your boat. But it has no impact on the wisdom of preserving the IRA. If this perplexes you, I again recommend Guide To Income For Early Retirees. That essay explains how an IRA is best understood not as a tax-deferred asset, but as a shrunken asset that is completely tax-exempt.

For simplicity, my calculator assumes that your spouse or other heir will be in the same tax bracket as you are. It doesn’t allow for a change in your bracket over time, but if such a change is in the cards, follow these rules:

—If your bracket is likely to go down, don’t invade the IRA.

—If your bracket is likely to go up, do a partial Roth conversion right now.Follow me on Twitter.

William Baldwin

I aim to help you save on taxes and money management costs. I graduated from Harvard in 1973, have been a journalist for 45 years, and was editor of Forbes magazine from 1999 to 2010. Tax law is a frequent subject in my articles. I have been an Enrolled Agent since 1979. Email me at williambaldwinfinance — at — gmail — dot — com.

Source: Sell Stocks Or Cash In An IRA?

Critics:

An individual retirement account is a type of “individual retirement arrangement” as described in IRS Publication 590, individual retirement arrangements (IRAs). The term IRA, used to describe both individual retirement accounts and the broader category of individual retirement arrangements, encompasses an individual retirement account; a trust or custodial account set up for the exclusive benefit of taxpayers or their beneficiaries; and an individual retirement annuity, by which the taxpayers purchase an annuity contract or an endowment contract from a life insurance company.

There are several types of IRAs:

Traditional IRA – contributions are often tax-deductible (often simplified as “money is deposited before tax” or “contributions are made with pre-tax assets”), all transactions and earnings within the IRA have no tax impact, and withdrawals at retirement are taxed as income (except for those portions of the withdrawal corresponding to contributions that were not deducted). Depending upon the nature of the contribution, a traditional IRA may be a “deductible IRA” or a “non-deductible IRA”. Traditional IRAs were introduced with the Employee Retirement Income Security Act of 1974 (ERISA) and made popular with the Economic Recovery Tax Act of 1981.
Roth IRA – contributions are made with after-tax assets, all transactions within the IRA have no tax impact, and withdrawals of contributed funds are tax-free. Named for Senator William V. Roth Jr., the Roth IRA was introduced as part of the Taxpayer Relief Act of 1997.
- myRA – a 2014 Obama administration initiative based on the Roth IRA
SEP IRA – a provision that allows an employer (typically a small business or self-employed individual) to make retirement plan contributions into a Traditional IRA established in the employee’s name, instead of to a pension fund in the company’s name.
SIMPLE IRA – a Savings Incentive Match Plan for Employees that requires employer matching contributions to the plan whenever an employee makes a contribution. The plan is similar to a 401(k) plan, but with lower contribution limits and simpler (and thus less costly) administration. Although it is termed an IRA, it is treated separately.

References:

- See subsection (a) of 26 U.S.C. § 408 and the Treasury regulation at 26 C.F.R. sec. 1.408-2.
- See paragraph 37 of subsection (a) of 26 U.S.C. § 7701.
- See 26 C.F.R. sec. 1.408-4.
- “Publication 590: Individual Retirement Arrangements (IRA)” (PDF). Internal Revenue Service. 2012. p. 8.
- See, generally, subsection (b) of 26 U.S.C. § 408 and 26 C.F.R. sec. 1.408-3.
- “Traditional IRAs”. Internal Revenue Service website. Retrieved 2012-12-10.
- “Self Directed IRA Custodians (IRS Compliant)”. SelfDirected.org. Retrieved March 15, 2017.
- “Major Provisions of the Pension Bill Signed by Ford”. The New York Times. September 3, 1974. p. 24. ProQuest 120028769.
- Eisenberg, Richard (December 16, 1981). “IRAs Congress’ big gift to working Americans”. The Daily Oklahoman.
- Buck, Richard (October 5, 1986). “Tax Bill Prompts Questions, Questions, and Answers”. The Seattle Times. p. D1.
- “Retirement Topics – Catch-Up Contributions”. Internal Revenue Service. Retrieved August 22, 2014.
- “Retirement Plans FAQs regarding IRAs”. Internal Revenue Service. Retrieved December 21, 2006.
- “Are Non-traded REITs a Safe Bet?”.
- “72(t) Basics – Potential Pitfalls of Early Retirement Withdrawals”.
- “Publication 590-B (2019), Distributions from Individual Retirement Arrangements (IRAs)”. http://www.irs.gov. 2019. Retrieved 2020-04-27.
- “26 CFR 1.408-4, Treatment of distributions from individual retirement arrangements”. Cornell Law Library. 2013-04-01. Retrieved 2013-04-01.
- “Publication 590 (2005), Individual Retirement Arrangements (IRAs)”. Irs.gov. 2011-12-20. Archived from the original on December 13, 2012. Retrieved 2012-12-10.
- “Rousey Et Ux. v. Jacoway” (PDF). Supreme Court Of The United States. October 2005. Retrieved December 21, 2006.
- See subsection (n) of 11 U.S.C. § 522.
- 11 USC section 522(n); see also Internal Revenue Code of 1986 sections 408 and 408A. See Willis v. Menotte (In re Willis), 424 F. App’x 80, docket no. 10-11980 (11th Cir. 2011) (per curiam).

If You’re In Your 50s or 60s, Consider These Moves To Avoid Higher Taxes In Retirement

Retirement Issues, Tax/Tarrifs

If you are working with an eye toward retirement or even semi-retirement, you are probably (hopefully) saving more than you could in the past in your retirement accounts. You may have paid off the mortgage and paid for college and other heavy expenses of raising children. That all sounds like you are on your way, except for one big problem I call the “ticking tax time bomb.”

I’m referring to the tax debt building up in your individual retirement account, 401(k) or other retirement savings plans. And, as I wrote in my newest book, “The New Retirement Savings Time Bomb,” it can quickly deplete the very savings you were relying on for your retirement years. But there are a few ways you can avoid this problem.

While you may be watching your savings balances grow from your continuing contributions and the rising stock market, a good chunk of that growth will go to Uncle Sam. That’s because most, if not all, of those retirement savings are tax-deferred, not tax-free.

The funds in most IRAs are pretax funds, meaning they have not yet been taxed. But they will be, when you reach in to spend them in retirement. That’s when you quickly realize how much of your savings you get to keep and how much will go to the government.

The amount going to the Internal Revenue Service will be based on what future tax rates are. And given our national debt and deficit levels, those tax rates could skyrocket, leaving you with less than you had planned on, just when you’ll need the money most.

So, that’s the dire warning. But you can change this potential outcome with proper planning and making changes in the way you save for retirement going forward.

You can begin by taking steps to pay down that tax debt at today’s low tax rates and begin building your retirement savings in tax-free vehicles like Roth IRAs or even permanent life insurance which can include cash value that builds and can be withdrawn tax-free in retirement.

In addition, if you are still working, you can change the way you are saving in your retirement plans. If you have a 401(k) at work, you could make contributions in a Roth 401(k) if the plan offers that. A Roth 401(k) lets your retirement savings grow 100% tax-free for the rest of your life and even pass to your beneficiaries tax-free too.

Learn more: All about the Roth IRA

For 2021, you can contribute up to $26,000 (the standard $19,500 contribution limit plus a $6,500 catch-up contribution for people 50 and older). With some Roth 401(k) workplace plans, you might be able to put in even more.

Then, see if you can convert some of your existing 401(k) funds either to your Roth 401(k) or to a Roth IRA. Once you do this, you will owe taxes on the amount you convert. The conversion is permanent, so make sure you only convert what you can afford to pay tax on.

Also read: We have $1.6 million but most is locked in our 401(k) plans — how can we retire early without paying so much in taxes?

Don’t let the upfront tax bill deter you from moving your retirement funds from accounts that are forever taxed to accounts that are never taxed.

Similarly, you can convert your existing IRAs to Roth IRAs, lowering the tax debt on those funds as well. The point is to not be shortsighted and avoid doing this because you don’t want to pay the taxes now. That tax will have to be paid at some point, and likely at much higher future tax rates and on a larger account balance.

It’s best to get this process going now, maybe even with a plan to convert your 401(k) or IRA funds to Roth accounts over several years, converting small amounts each year to manage the tax bill.

If you have been contributing to a traditional IRA, stop making those contributions and instead start contributing to a Roth IRA. Anyone 50 or over can put in up to $7,000 a year ($6,000 plus a $1,000 catch-up contribution) and you can do so for a spouse even if that spouse is not working.

If one of you has enough earnings from a job or self-employment (and you don’t exceed the Roth IRA contribution income limits), each of you can contribute $7,000, totaling $14,000 in Roth IRA contributions each year. That will not only add up quickly, it will add up all in your favor because now you are accumulating retirement savings tax-free.

Once the funds are in a Roth IRA or other tax-free vehicles (like life insurance), those funds compound tax-free for you.

The secret is to pay taxes now. It’s so simple, but also so counterintuitive that most people don’t take advantage of this and end up paying heavy taxes in retirement that could have all been avoided.

Ed Slott is a Certified Public Accountant, an individual retirement account (IRA) distribution expert and author of “The New Retirement Savings Tax Bomb.” He is president and founder of Ed Slott and Company, providing advice and analysis about IRAs.

Source: If you’re in your 50s or 60s, consider these moves to avoid higher taxes in retirement – MarketWatch

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401(k) Early Withdrawals Have Become Easier: Be Careful!

Tips for Couples to Manage Their 401(k) Plans

I’m 49, my wife is 34, we have 4 kids and $2.3 million saved. I earn $300K a year but ‘lose a lot of sleep worrying about tomorrow’ — when can I retire?

‘Retirement? How?’ I’m 65, have nothing saved and am coming out of bankruptcy.

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Your 401(k) fees could cost you half a million dollars in retirement

Delaying Required IRA Distributions Again Would Largely Help Only The Wealthy

IRS/IRA News, Retirement Issues

Senior couple on a sailing cruise.

The House Ways & Means Committee is once again tinkering with the law that requires retirees to take minimum distributions from their individual retirement accounts (IRAs) and 401(k)s. Each time, Congress eases the required minimum distribution (RMD) rules at great cost to the federal government. Yet the beneficiaries would overwhelmingly be wealthy retirees and their future heirs.

The committee bill, approved today, would make two big changes to RMDs. It would allow retirees to wait until age 75 before taking required minimum annual distributions and paying tax on them. Currently, they must begin taking distributions at age 72. And it would make it easier for older adults to avoid taking required distributions by investing their retirement funds in annuities.

The new RMD rules are included in the Securing a Strong Retirement (SECURE) Act of 2021. To be sure, the measure would make some beneficial changes, including provisions that encourage more employers to auto-enroll workers in retirement plans, an important tool to encourage participation. But it also includes some clunkers, and the RMD rules are high on the list.

Fiddling

Congress can’t help fiddling with the RMD rules.

In December, 2019, Congress allowed workers to delay taking RMDs from age 70.5 to age 72. Last year, Congress waived minimum distributions entirely in response, it said, to the pandemic. Lawmakers felt it would not be fair to require retirees to take distributions after the stock market plunged in March, 2020. Except, whoops, the S&P index rose 16 percent for the year.

Now SECURE would gradually extend the delay to 75. It would rise to 73 in 2022, then 74 in 2029, and finally 75 in 2032. But don’t be surprised if a future Congress accelerates the timetable.

Remember, the purpose of tax-free retirement plans is to help older adults save for their, um, retirement. It was not supposed to be another tool for bequests to family members. RMD rules are intended to make sure that these assets are taxed during a person’s expected life. Without the rules, rich retirees could simply stash assets in tax-advantage accounts until they die, then pass them on to heirs.

Not cheap

Delaying RMDs again would have major consequences, some unintended. And it would not be cheap. At a time when lawmakers say they are worried about growing deficits, delaying RMDs would reduce federal revenue by almost $7 billion over 10 years. But the real cost would begin once the age phases up to 74 in 2029. At that point, revenue would fall by about $1.4 billion annually.

But its biggest problem is that delaying RMDs would be so regressive.

In 2015, the roughly 17 percent of taxpayers with adjusted gross incomes of $100,000-plus took more than half of the $253 billion in IRA distributions. Those making $50,000 or less took only about 20 percent.

In 2019, the median retirement account balance was only about $65,000, according to the latest Federal Reserve’s Survey of Consumer Finances. Another survey found that nearly one-third of people in their 60s or older had less than $100,000 in defined contribution plan assets.

No help to many

Many low-income retirees with such limited retirement assets already take more than the required minimum annually to pay routine bills. Delaying required distributions would not benefit them in any way.

Keep in mind, as well, the life expectancy for low income people is far lower than for the wealthy. The RMD delay also is of no benefit for those who die before age 73.

It is the same story with enhanced annuities. Retirees with relatively little wealth receive few benefits from these investment. Someone investing that median $65,000 at age 65 would get an average payout of only about $250 a month.

Unintended losers

Charities may be unintended losers from these changes. They benefit from another complicated provision called qualified charitable distributions (QCDs). By contributing required distributions to charity, seniors can avoid tax on mandatory withdrawals. And QCDs have become a popular way for wealthy seniors to donate to charity.

It appears that these gifts fell sharply in 2020, largely in response to the temporary waiver of RMDs. And it would be no surprise if they continue to fall if wealthy seniors can delay distributions until age 75.

Some heirs are required to close, and pay tax on, their inherited IRAs within 10 years, although spouses and minor children and exempt from that requirement. Even for those subject the 10-year rule, the long deferral can be extremely valuable.

The Biden Administration is proposing a major shift in the tax treatment of assets held outside of retirement accounts by taxing at death unrealized capital gains in excess of $1 million. By doing so, it would prevent wealthy people from passing on a large share of their wealth tax free.

The RMD change in the SECURE Act, by contrast, would make it easier for wealthy seniors to pass on retirement plan assets, with any tax liability delayed for years.

Howard Gleckman

I am author of the book “Caring for Our Parents” and senior fellow at The Urban Institute, where I am affiliated with the Tax Policy Center and the Program on Retirement Policy. I also write a tax and budget policy blog, TaxVox, which you may read at Forbes.com or at http://taxvox.taxpolicycenter.org/ Before joining Urban, I was a senior correspondent in the Washington bureau of Business Week.

Source: Delaying Required IRA Distributions—Again— Would Largely Help Only The Wealthy

For more information on IRAs, including required withdrawals, see:

These frequently asked questions and answers provide general information and should not be cited as legal authority.

How is the amount of the required minimum distribution calculated?

Generally, a RMD is calculated for each account by dividing the prior December 31 balance of that IRA or retirement plan account by a life expectancy factor that IRS publishes in Tables in Publication 590-B , Distributions from Individual Retirement Arrangements (IRAs). Choose the life expectancy table to use based on your situation.

Joint and Last Survivor Table – use this if the sole beneficiary of the account is your spouse and your spouse is more than 10 years younger than you
Uniform Lifetime Table – use this if your spouse is not your sole beneficiary or your spouse is not more than 10 years younger
Single Life Expectancy Table – use this if you are a beneficiary of an account (an inherited IRA)

See the worksheets to calculate required minimum distributions and the FAQ below for different rules that may apply to 403(b) plans.

The Economics of Aging and the Frailty Index

Economy/Business News, Retirement Issues

photograph of a younger female nurse sitting with an older female patient as her vitals are read

Measuring health is important for many reasons. It can help doctors and scientists understand the risk of medical problems and develop prevention strategies that can improve patient care. Monitoring health status can also help economists understand financial outcomes and help policymakers identify the likelihood of people needing caregiver assistance or retiring early, life events that can have implications for programs such as Social Security, Medicare, and Medicaid. Further, measuring health is essential for assessing the return on U.S. health care spending which is large—close to one fifth of U.S. gross domestic product—and growing.

In the United States, people usually take surveys that allow assessment of physical well-being. Self-assessments of health can help forecast life expectancy and functional ability, and whether a person may require medical care at some point in the future. However, in some cases, a better measure of health than self-assessments might be necessary.

Enter the frailty index

In June 2019, the Atlanta Fed published a working paper cowritten by Karen Kopecky, a Federal Reserve Bank of Atlanta research economist and associate adviser. Kopecky and her coauthors discussed the frailty index, an alternative method of evaluating health. This measure, pioneered by researchers at Dalhousie University in Halifax, Nova Scotia, focuses on the total number of health ailments a person has and the nature of those problems.

Kopecky worked with researchers Roozbeh Hosseini, a visiting scholar at the Atlanta Fed who is also an assistant professor at the University of Georgia, and Kai Zhao, associate economics professor at the University of Connecticut, to create frailty indexes using three surveys of Americans that include a host of questions on various aspects of health conditions.

NPT Reports

In this edition of Aging Matters, Nashville Public Television examines the costs and financial impact of aging and hears from people navigating financial decisions now. Have we saved and planned enough so our finances will last as long as we do? The average person turning 65 this year will live to be 85 years old. But one in five will live to be 90. One in ten will live to be 95. Will we be able to afford the quality of life we want? The future is always uncertain, but what is important is that we take time to look ahead, discuss and prepare for the economics of aging.

A key finding of the researchers’ work was that the proportion of individuals in the U.S. population in good health decreases faster as people age when well-being is measured with the frailty index rather than with individual self-assessments. “For this reason the frailty index is an especially good measure for studying how health evolves with age,” Kopecky said.

The architecture of the frailty index helps explain why it can be a better predictor of health during aging. The index combines information from a range of questions about an individual’s specific health ailments to provide a summary of the person’s overall well-being. Kopecky and her colleagues used 27 health variables to construct a frailty index for a sample of more than 18,500 Americans who responded to the Panel Study of Income Dynamics (PSID) from 2003 to 2015.

The survey includes questions on specific medical conditions and activities of daily living. The variables the researchers looked at include difficulty with activities such as eating, dressing, walking, managing money, and getting in and out of bed, as well as the presence of conditions including cancer, diabetes, heart attack, stroke, and loss of memory.

The researchers derived the index by adding the total number of variables reported as ailments by an individual, then dividing that sum by the total amount of variables observed for that person overall in the year. The index captured expected variation in health: frailty was higher in older age groups compared with younger ones. Further, the sample showed that increases in frailty over time were three times more common than decreases.

Kopecky and her coauthors also compared the state of health over time using the frailty index with self-reported health status by making calculations based on the percentage of respondents in the PSID survey who self-reported their health as “excellent,” “very good,” “good,” “fair,” or “poor.” Their analysis found that when health is measured by frailty, the proportion of individuals with excellent or very good health declines faster with age.

They set cutoff values for frailty based on the distribution of self-reported health of 25- to 29-year-olds. When the cutoff values and frailty were used to determine individuals’ health categories as opposed to self-reported health, the researchers observed that health deteriorated much more rapidly with age.

In other words, the analysis showed that the fraction of people with poor self-reported health status rose with age, but when they measured health by frailty, they observed a much faster rise than with the self-reports (see the charts). For example, only 17 percent of people aged 70 to 74 had a frailty index low enough to fall into the “excellent” or “very good” health category. That compares with 39 percent of 70- to 74-year-olds who self-reported their health as “excellent” or “very good.”

“We interpret these patterns as evidence that self-reported health status underestimates the decline in observable health,” the paper says. The researchers also found that the frailty index was a better predictor than self-reported health of mortality and the probability that a person would enter a nursing home or become dependent on Social Security Disability Insurance.

Individuals’ self-assessments not always reliable

One reason frailty may be a better gauge of health than self-assessments has to do with the subjective nature of individuals’ judgments of their well-being, Kopecky said. “People tend to compare themselves to others their age” in self-reporting their health condition rather than considering how their present medical status compares with their past state, she said. “People seem to be readjusting their self-reported health. So if you really want to map out how health evolves as people age, subjective measures don’t work well.”

That isn’t to say that self-reported health information doesn’t have value. It can play a role in helping researchers understand the variation of health within an age group, Kopecky said. She added that self-reported data can also help uncover private medical information that a frailty index would not easily discern, such as hereditary conditions that may put individuals at risk for certain diseases.

Frailty measures gaining traction

Frailty measures as a tool to gauge health are growing in use. Dalhousie University notes that they have been used in studies such as the American National Health and Nutrition Examination Survey, the Beijing Longitudinal Study of Aging, and the Survey of Health, Ageing and Retirement in Europe.

Kopecky said the frailty index model holds much potential in economics. It can provide insight into such matters as the effect of health on a person’s earnings over time, a country’s labor supply, and individual consumption patterns. “It’s a step in the right direction in terms of improving our way of measuring health and as a result being able to understand how health interacts with economic variables and models,” she said.

Karen Jacobs

Staff writer for Economy Matters

Source: The Economics of Aging and the Frailty Index – Federal Reserve Bank of Atlanta

More Contents:

A powerful way to keep retirees out of poverty is to tackle this workplace problem (and it has nothing to do with retirement accounts)

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Re-examining female labor supply responses to the 1994 Australian pension reform | SpringerLink

link.springer.com – April 15

[…] Author information Affiliations Munich Center for the Economics of Aging, Max Planck Institute for Social Law and Social Policy, Amalienstrasse 33, 80799, Munich, German […]

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Long-Term Care Expert David Grabowski: Home-Based Care Versus Nursing Homes Is a ‘False Dichotomy’

homehealthcarenews.com – April 14

[…] A professor in the department of health care policy, Grabowski’s work is concentrated on the economics of aging, with a focus on post-acute care and long-term care […]

In Focus: Using Behavioral Economics to Advance Population Health and Improve the Quality of Health Care Services | Commonwealth Fund

http://www.commonwealthfund.org – April 12

[…] Wise, Perspectives on the Economics of Aging (Cambridge, Mass […]

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CROss-National Online Survey (CRONOS) Panel | European Social Survey (ESS)

http://www.europeansocialsurvey.org – April 12

[…] Fabra Eric Balster at CentERdata Annette Scherpenzeel and Julie Korbmacher at the Munich Center for the Economics of Aging […]

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AMDA On-The-Go | SNFs in the post-COVID World

paltc.podbean.com – April 10

[…] His research examines the economics of aging with a particular interest in the areas of long-term care and post-acute care […]

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John PHILLIPS

http://www.nia.nih.gov – April 7

[…] John’s current portfolio at NIA focuses on the economics of aging and the development of international comparators to the US Health and Retirement Study to suppor […]

Opinion: A powerful way to keep retirees out of poverty is to tackle this workplace problem (and it has nothing to do with retirement accounts)

http://www.marketwatch.com – April 6

[…] The economics of aging is forcing many older Americans to work beyond traditional retirement age […]

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A conversation with ‘superhero’ health policy researcher David Grabowski – The World According to Dr. El

http://www.mcknights.com – March 30

[…] Grabowski has studied the economics of aging for decades and, due in large part to the pandemic-related attention thrust upon long-term care […]

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Gender Differences in Financial Advice by Tabea Bucher-Koenen, Andreas Hackethal, Johannes Koenen, Christine Laudenbach :: SSRN

papers.ssrn.com – March 29

[…] Economic Research; Max Planck Society for the Advancement of the Sciences – Munich Center for the Economics of Aging (MEA) Andreas Hackethal Goethe University Frankfurt – Faculty of Economics and Busines […]

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Speakers – MGS Conference

mgsconference.org – March 26

[…] Her research area is in the economics of aging– investigating how structural discrimination and racial inequities shape the experiences and health […]

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The Survey of Health, Ageing and Retirement in Europe (SHARE): Influence of the COVID-19 pandemic on private care networks in Europe

http://www.share-project.org – March 26

[…] A new study by Bergmann & Wagner from the Munich Center for the Economics of Aging (MEA) focuses on how the pandemic influences the situation of informal care across Europe durin […] Munich: Munich Center for the Economics of Aging (MEA) […]

The Division of Behavioral and Social Research (BSR) of the (NIA) is hiring!

http://www.nia.nih.gov – March 25

[…] Successful candidates will also initiate research in other areas of the economics of aging including how economic factors (e […]

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Newton City Council approves $4.2 million grant toward renovating Coleman House – The Boston Globe

http://www.bostonglobe.com – March 25

[…] Advertisement “The economics of aging is pretty bleak,” Heyer said […]

Post-doctoral Researcher (m/f/div) in Economics – Max Planck Institute for Social Law and Social Policy, Munich

http://www.eurosciencejobs.com – March 23

[…] As a candidate, you will have expertise or an interest in the economics of aging and complement the research interests and skills of other members of the unit […] – and willingness to collaborate with other members of the research unit – on projects related to the economics of aging (see below); Strong knowledge of economic theory, econometrics and/or expertise in structura […]

Who Shall Live?

http://www.worldscientific.com – March 19

[…] This second expanded edition also includes recent papers by Fuchs on the economics of aging, the socio-economic correlates of health, the future of health economics, and his polic […] to Woodcock: The “Irrational” Pursuit of National Health Insurance (133 KB) “Provide, Provide”: The Economics of Aging (122 KB) The Dedicated VAT Solution (99 KB) Request Inspection Copy Contents: Health and Economic […] Thoughts on Health Economics and Health Policy: The Future of Health Economics “Provide, Provide”: The Economics of Aging Reflections on the Socio-Economic Correlates of Health A Comprehensive Cure: Universal Health Car […]

Life-histories in Finland

http://www.vaestoliitto.fi – March 11

[…] Munich: Munich Center for the Economics of Aging […] Mannheim: Munich Center for the Economics of Aging […]

Life-histories in Finland

http://www.vaestoliitto.fi – March 11

[…] Munich: Munich Center for the Economics of Aging […] Mannheim: Munich Center for the Economics of Aging […]

Post-doctoral Researcher in applied Economics (m/f/div) [Nr. 05-21] | Max-Planck-Institut für Sozialrecht und Sozialpolitik – MPISOC

http://www.mpisoc.mpg.de – March 3

[…] As a candidate, you will have expertise or an interest in the economics of aging and complement the research interests and skills of other members of the unit […] – and willingness to collaborate with other members of the research unit – on projects related to the economics of aging (see below) Strong knowledge of econometrics and/or expertise in structural estimation are an asset […]

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Growth and Globalization after the Pandemic | Events | HKUST Institute for Emerging Market Studies

iems.ust.hk – March 3

[…] on firm performance, poverty and inequality, migration and employment, health and education, and the economics of aging in China […]

What drives different treatment choices? Investigation of hospital ownership, system membership and competition | Health Economics Review | Full Text

healtheconomicsreview.biomedcentral.com – February 25

[…] In: Analyses in the Economics of Aging […]

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Harvard Public Policy Professor Dr. David Grabowski on COV19 in Nursing Homes on Seniors Straight Talk | Feb 24, 2021 – ReleaseWire

http://www.sbwire.com – February 24

[…] His research examines the economics of aging with a particular focus in the areas of long-term care and post-acute care […]

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Population Aging as a Global Issue

oxfordre.com – February 20

[…] ), Developments in the economics of aging (pp […]

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K. N. Raj Library: Titles on display from 12-02-2021 to 19-02-2021 «

knrajlibrary.wordpress.com – February 19

[…] Themes in the economics of aging […]

Research Scientist | Population Europe

population-europe.eu – February 6

Study and Career Research Scientist The ‘Munich Center for the Economics of Aging’ (MEA) at the Max Planck Institute for Social Law and Social Policy offers one full-time positio […]

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Student Research Assistant (30-40h/month) [Nr. 03-21] | Max-Planck-Institut für Sozialrecht und Sozialpolitik – MPISOC

http://www.mpisoc.mpg.de – February 5

[…] 03-21] The Munich Center for the Economics of Aging (MEA) is a department of the Max Planck Institute for Social Law and Social Policy, which conduct […]

Brigitte Madrian – Directory – BYU Marriott School of Business

marriottschool.byu.edu – February 3

[…] Volume 116, Pages 2-16, 2014 “Who Uses the Roth 401(k), and How Do They Use It?”, Discoveries in the Economics of Aging, Pages 411-440, National Bureau of Economic Research, Cambridge, MA, 2014 “Simplification an […] Volume 5, Pages 347-373, 2013 “The Availability and Utilization of 401(k) Loans”, Investigations in the Economics of Aging, Pages 145-72, University of Chicago Press, Chicago, IL, 2012 “$100 Bills on the sidewalk […] Employer Matching on Savings Plan Participation under Automatic Enrollment”, Research Findings in the Economics of Aging, Pages 311-327, University of Chicago Press, Chicago, IL, 2010 “The Regulation of Consume […]

Research Scientist (m/f/div) [Nr. 02-21] | Max-Planck-Institut für Sozialrecht und Sozialpolitik – MPISOC

http://www.mpisoc.mpg.de – January 2

[…] 02-21] The ‘Munich Center for the Economics of Aging’ (MEA) at the Max Planck Institute for Social Law and Social Policy offers one full-time positio […]

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Visionary Biologist Says: Reversing Ageing Won’t Just Be for the Rich | Core Spirit

corespirit.com – December 24, 2020

[…] ” Then there are the economics of aging […]

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Crwe World | Clearlake Portfolio Company Janus International to List on New York Stock Exchange through Business Combination with Juniper Industrial Holdings

crweworld.com – December 22, 2020

[…] – Best-in-class platform serves as the “one-stop-shop” to revitalize, enhance, and improve the economics of aging assets – Proven track record of strong, high-margin growth with an organic compounded annual growth […]

Clearlake Portfolio Company Janus International to List on New York Stock Exchange through Business Combination with Juniper Industrial Holdings

http://www.janusintl.com – December 22, 2020

CLEARLAKE PORTFOLIO COMPANY JANUS INTERNATIONAL TO LIST ON NEW YORK STOCK EXCHANGE THROUGH BUSINESS COMBINATION WITH JUNIPER INDUSTRIAL HOLDINGS

clearlake.com – December 22, 2020

[…] Best-in-class platform serves as the “one-stop-shop” to revitalize, enhance, and improve the economics of aging assets Proven track record of strong, high-margin growth with an organic compounded annual growth […]

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Clearlake Portfolio Company Janus International to List on New York Stock Exchange through Business Combination with Juniper Industrial Holdings | Business Wire

http://www.businesswire.com – December 22, 2020

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CREATE Appoints Four New Research Fellows – CREATE

create.usc.edu – December 19, 2020

[…] to future Alzheimer’s therapies, and is building a multidisciplinary research portfolio related to the economics of aging, access to innovation, health system preparedness, and resilience […]

Jakub Hlávka’s Christmas Greetings from Los Angeles / Česká centra – New York

new-york.czechcentres.cz – December 18, 2020

[…] He works in the intersection of the economics of aging, biotechnology innovation, and public-private partnerships across different sectors […]

Janus International to List on New York Stock Exchange • Radius+

radiusplus.com – December 18, 2020

Centre for Research on Aging

http://www.concordia.ca – December 12, 2020

[…] Aging; Community, Care and Connectivity; Health, Wellbeing and the Lifecourse; Politics, Policy and the Economics of Aging […]

Expression of Interest: Junior Assistant Professor in Economic Policy at the University of Padova

inomics.com – December 11, 2020

[…] Experience in the economics of aging, micro-econometrics, survey design and interdisciplinary research projects is also important […]

Expression of Interest: Junior Assistant Professor in Economic Policy | Department of Economics and Management “Marco Fanno” | Università di Padova

economia.unipd.it – December 9, 2020

[…] Experience in the economics of aging, micro-econometrics, survey design and interdisciplinary research projects is also important […]

Active Longevity Institute on LinkedIn: The Economics of Living to 100 – Wharton Magazine

http://www.linkedin.com – December 7, 2020

[…] Sharing an interesting article on the economics of aging from the last Wharton magazine, describing the means for financing longevity […]

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Kyall Walker on LinkedIn: The Economics of Living to 100 – Wharton Magazine

http://www.linkedin.com – December 6, 2020

[…] Sharing an interesting article on the economics of aging from the last Wharton magazine, describing the means for financing longevity […]

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Xianhua (Emma) Zai

emmazai.github.io – December 6, 2020

[…] I am an applied microeconomist with interests in the economics of aging, education and health economics […]

A new vision for the Population Aging Research Center

penntoday.upenn.edu – December 3, 2020

[…] ” For Coe, who studies the economics of aging and has been a PARC member since she arrived at Penn in 2017, the expansion made perfect sense […]

Fourth edition of the Social Innovation Awards – Fundación MAPFRE

http://www.fundacionmapfre.org – November 30, 2020

[…] The economics of aging: Ageingnomics […]

Webinar Registration – Zoom

us02web.zoom.us – November 28, 2020

[…] His award-winning research examines the economics of aging with a particular interest in the areas of long-term care and post-acute care […]

Advancing Excellence in Long-Term Care Collaborative :: Virtual Summit on Mitigating Racial Inequities in Post-Acute & Long-Term Care

aeltcc.org – November 28, 2020

[…] His award-winning research examines the economics of aging with a particular interest in the areas of long-term care and post-acute care […]

Advancing Excellence in Long-Term Care Collaborative :: Virtual Summit on Mitigating Racial Inequities in Post-Acute & Long-Term Care

http://www.aeltcc.org – November 28, 2020

[…] His award-winning research examines the economics of aging with a particular interest in the areas of long-term care and post-acute care […]

The Medicare Part D open enrollment period: What you need to know

journalistsresource.org – November 19, 2020

[…] of medicine and public health sciences at the University of Rochester, whose research focuses on the economics of aging […]

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Calls for Fellowship Applications

http://www.nber.org – November 19, 2020

[…] Fellowships are available for graduate students working on dissertations on the economics of aging, behavioral macroeconomics, energy economics, gender in the economy, health economics, and o […]

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Social network type and subsequent cognitive health among older Europeans | International Psychogeriatrics

http://www.cambridge.org – November 7, 2020

[…] Mannheim: Mannheim Research Institute for the Economics of Aging (MEA) […]

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Research

jrgoldstein.com – November 3, 2020

[…] Vogt, The Journal of the Economics of Aging, 2019 13:45-54 […]

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Post-doctoral Researcher in applied Economics (m/f/d)

inomics.com – October 29, 2020

[…] – and willingness to collaborate with other members of the research unit – on projects related to the economics of aging (see below), Strong knowledge of econometrics and/or expertise in structural estimation ar […]

Aging-in-Place Home Modifications

agesafeamerica.com – October 8, 2020

The economics of aging-in-place home modifications are compelling, especially in comparison to the cost and trauma of […]

What Can Economics Say About Alzheimer’s Disease? – Harvard Business School Working Knowledge

hbswk.hbs.edu – September 28, 2020

[…] While there is overlap with the economics of aging, the defining features of the “economics of Alzheimer’s disease” is an emphasis on cognitiv […]

What can economics say about Alzheimer’s Disease?

http://www.aei.org – August 31, 2020

[…] While there is overlap with the economics of aging, the defining features of the ‘economics of Alzheimer’s Disease’ is an emphasis on cognitiv […]

The 38DL PLUS™ Ultrasonic Thickness Gauge Is an Asset to Asset Reliability Inspections | Blog Post | Olympus IMS

http://www.olympus-ims.com – August 22, 2020

[…] According to “The economics of aging infrastructure” article published in IEEE Power and Energy Magazine, an effective infrastructur […]

COVID-19, Technology, and Polarizing Jobs

aric.adb.org – August 1, 2020

[…] on firm performance, poverty and inequality, migration and employment, health and education, and the economics of aging in China […]

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The Survey of Health, Ageing and Retirement in Europe (SHARE): Home

http://www.share-project.org – June 16, 2020

[…] at the Munich Center for the Economics of Aging (MEA), Max Planck Institute for Social Law and Social Policy […]

GBO NEWS: New Long-Term Care Database; Playing the COVID Nursing Home Card; Elder Despair and Suicide; 1991 Book’s “Crisis of 2020” Had Ageist Agenda; Pandemic in Cape Cod and Latinx LA; & More | Generations Beat Online

http://www.gbonews.org – June 11, 2020

[…] by Fay Lomax Cook and Elaine Weiss, The Hill (May 1, 2020): The writers, leading experts on the economics of aging, summarized findings in a report they helped develop for the National Academy of Social Insurance […]

Retirement in Georgia: 3 reasons you might want to keep working

http://www.ajc.com – May 22, 2020

[…] ”Nicole Maestas, an associate professor of health care policy at Harvard Medical School who studies the economics of aging, health, and disability, told HHP you should continue working past age 65 if you can and want to […]

WEBINAR: The Economic Costs of the Pandemic: Catholic Social Teaching and Economics in Dialogue

http://www.lumenchristi.org – May 1, 2020

[…] capital and labor taxation, the gender wage gap, health economics, Social Security, voting and the economics of aging […]

WEBINAR: The Economic Costs of the Pandemic: Catholic Social Teaching and Economics in Dialogue

lumenchristi.org – May 1, 2020

[…] capital and labor taxation, the gender wage gap, health economics, Social Security, voting and the economics of aging […]

Post-Acute Care Policy Expert: PDGM May Support COVID-19 Treatment

homehealthcarenews.com – March 19, 2020

[…] Grabowski’s work is concentrated on the economics of aging, with a focus on post-acute care and long-term care […]

Reducing Exclusionary Attitudes through Interpersonal Conversation: Evidence from Three Field Experiments | American Political Science Review

http://www.cambridge.org – February 3, 2020

[…] ” In Insights in the Economics of Aging, ed […]

Postdoctoral Specialized Training Program in the Demography and Economics of Aging | Center for Health and the Social Sciences

chess.uchicago.edu – February 3, 2020

[…] Candidates must be interested in demography or the economics of aging and have a PhD or equivalent graduate degree […] Previous research in demography or the economics of aging is not necessary; however, a future commitment is […]

Explaining disability trends in the United States, 1963-2015]Prévalence de l’incapacité aux États-Unis, 1963-2015 : évolution et déterminants

http://www.niussp.org – January 20, 2020

[…] 161-179 in Analyses in the Economics of Aging, edited by David A […]

Top Gerontology Schools: List of the Top Schools in the U.S.

study.com – January 10, 2020

[…] units of coursework in topics such as aging and public policy, social and ethical issues in aging, the economics of aging and aging and dementia […]

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Is Great Information Good Enough? Evidence from Physicians as Patients

http://www.nber.org – December 25, 2019

[…] 26038 Issued in July 2019 NBER Program(s):Program on the Economics of Aging, Program on Children, Health Care Program, Health Economics Program, Public Economics Progra […]

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voxeu.org – December 23, 2019

[…] ), Advances in the Economics of Aging, 241–68, Chicago, IL: University of Chicago Press […]

COLUMN: Why am I still working at age 95? | Life | kelownadailycourier.ca

http://www.kelownadailycourier.ca – December 16, 2019

[…] Nicole Maestas, an associate professor of health policy at Harvard studies the economics of aging, health and disability […]

Health Insurance and Mortality: Experimental Evidence from Taxpayer Outreach

http://www.nber.org – December 15, 2019

[…] 26533 Issued in December 2019 NBER Program(s):Program on the Economics of Aging, Health Care Program, Health Economics Program, Public Economics Program We evaluate a randomize […]

GIFFORD-JONES: Why I’m still working at age 95

torontosun.com – December 14, 2019

[…] Nicole Maestas, an associate professor of health policy at Harvard, studies the economics of aging, health and disability […]

How can France best reform its pensions system? | Euronews

http://www.euronews.com – December 10, 2019

[…] in the 1940s, when the French welfare was first introduced, Melissa Petit, a sociologist studying the economics of aging and pensions, told Euronews […]

More than a quarter of young Canadians aged 15 to 19 are caregivers, research shows

phys.org – November 25, 2019

[…] disability or aging, said lead researcher Janet Fast, a U of A family economist who specializes in the economics of aging and the paid and unpaid care work of family members […]

More than a quarter of young Canadians aged 15 to 19 are caregivers, research shows

http://www.folio.ca – November 25, 2019

[…] disability or aging, said lead researcher Janet Fast, a U of A family economist who specializes in the economics of aging and the paid and unpaid care work of family members […]

Does One Medicare Fit All? The Economics of Uniform Health Insurance Benefits

http://www.nber.org – November 24, 2019

[…] 26472 Issued in November 2019, Revised in December 2019 NBER Program(s):Program on the Economics of Aging, Health Care Program, Public Economics Program There is increasing interest in expanding Medicar […]

FSI | Shorenstein APARC – Pricing the Priceless: Measuring the Value of Healthy Aging

aparc.fsi.stanford.edu – November 7, 2019

[…] At a time when the economics of aging is inseparable from the economics of healthcare, successful adaptations to older population ag […]

The effect of old-age pensions on health care utilization patterns and insurance uptake in Mexico | BMJ Global Health

gh.bmj.com – November 1, 2019

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Asian Economic Integration Report, 2019/2020: Demographic Change, Productivity, and the Role of Technology

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Soft Skills Research Paper ⋆ Research Paper Examples ⋆ EssayEmpire

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[…] In addition, studies in the economics of aging emphasize the importance of soft skills as an instrument to compensate for the decline in cognitive […]

Caring for aging parents as an only child

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Revolutionary Memes Extreme’s guide to Leftism Version 4.5

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[…] range of issues you may find interesting from how water and oceans are treated under capitalism, to the economics of aging: https://www […]

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[…] of studies demonstrating the benefits of experience, including several from the Munich Center for the Economics of Aging […]

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Pensions vs Lifetime Isas: Eight Ways To Work Out Which Is Best

Pension/Salary, Retirement Issues, Tax/Tarrifs

Savers under the age of 40 can open a pension or a Lifetime Isa, and use them to save for retirement with help from the taxpayer. In an ideal world, having both would be the best option, but if savings are limited there are clear advantages in maximizing workplace pension savings first.

Higher rate taxpayers will also get a bigger bonus from pension saving. That said, savers should consider both options. There are a number of important factors to take into account when choosing how best to boost retirement savings with taxpayer handouts.

What to weigh up when deciding how to save for retirement

1. Free money from your employer

For employees, joining a workplace pension offers the added advantage of a tax-free employer contribution. Employees earning over £10,000 a year, between the age of 22 and 66, must be offered a pension scheme, with the employer paying 3 per cent of earnings. The employee pays 4 per cent and tax relief adds a further 1 per cent.

Many employers offer more generous schemes and not joining or opting out is giving up ‘free money’. Employers cannot pay into a Lifetime Isa.

2. Higher earners benefit from pensions

Those paying tax at a higher rate get a bigger bonus from pension savings. A higher rate taxpayer sees £6 saved grow to £10, and for a top rate taxpayer, £10 saved costs just £5.50.

Should you open a Lifetime Isa?

How they work, and what’s on offer to young savers hoping to get on the housing ladder? Read a This is Money guide here. Taxpayers resident in Scotland can gain an extra 1p in the pound as they pay tax at 21 per cent if income is over £25,159, 41 per cent if income exceeds £43,430, and 46 per cent if income is over £150,000.

For nil or basic rate taxpayers, the Lifetime Isa and pension offer the same taxpayer bonus of 20 per cent, so that £8 saved is worth £10 invested. Both offer the same tax-free roll up of funds, with no tax to pay on fund growth or income.

When the money is paid out the Lifetime Isa has the advantage of offering a tax-free income, whereas 75 per cent of the pension paid out is treated as taxable income.

3. Pending (and possible) rule changes

There is speculation the Budget on 3 March could end higher rate tax relief for pension savers. Should this happen then or in the future it will increase the attraction of the Lifetime Isa, which pays a tax-free income in retirement.

Meanwhile, a Treasury consultation, published on 12 February, looks at the best way to implement an increase in the age from which pensions can pay out from 55 to 57, effective from April 2028.

This may increase further in line with the rising state pension age 10 years later. Lifetime Isas can pay out from the age of 60. A narrowing gap between the age at which savers can gain penalty-free access makes the choice less clear, especially as Lifetime Isas pay out tax-free but pensions are partly taxable.

4. What if you have no earned income

Those without earnings can save £4,000 a year into a Lifetime Isa. However, if they have no earned income, they can save only £2,880 into a pension, so the taxpayer subsidy is up to £720 a year in a pension but up to £1,000 in a Lifetime Isa.

5. What if you do earn income or profits

Where more than £4,000 is available for saving long term, those with earnings or self-employed profits can save in a pension the lower of their earnings/profits in the year or £40,000 into a pension, but only £4,000 into a Lifetime Isa.

6. Age restrictions

Lifetime Isa savers can pay in and earn the bonus only between the age of 18 and 50. Pension savers can start at birth and continue until 75. Starting a Lifetime Isa before the age of 40, then funding a pension from the age of 50, could provide a good combination of tax-free income from the Lifetime Isa and taxable income from the pension.

If the pension and other sources of income fall below the personal allowance for income tax (currently £12,500), all the income could be tax-free.The Lifetime Isa offers access before the age of 60, with a lower penalty than applicable if a pension was accessed prior to age 55 (57 from April 2028).

7. Leaving funds to loved ones

Lifetime Isas cannot be continued beyond death and form part of the taxable estate.Pension funds can be left to others to continue, with tax-free investment, and do not usually form part of the taxable estate.

8. Choice of products

It is easy to open a pension, or simply not opt out if your employer auto enrolls you into one. Choice of Lifetime Isa providers is more limited and most offer only a cash deposit option. For long term saving for retirement a stocks and shares Lifetime Isa has more potential to maintain its purchasing power alongside inflation, but could go down in value in the short term.We run down what’s available here.

By Kay Ingram For This Is Money

Source: Pensions vs Lifetime Isas: Eight ways to work out which is best | This is Money

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The Economics of Aging and the Frailty Index

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Pensions vs Lifetime Isas: Eight Ways To Work Out Which Is Best

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Variability of payments

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References

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POINTS TO KNOW

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What the News Means for You and Your Money

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How is the amount of the required minimum distribution calculated?

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Like this:

Enter the frailty index

Individuals’ self-assessments not always reliable

Frailty measures gaining traction

Share this:

Like this:

What to weigh up when deciding how to save for retirement

Should you open a Lifetime Isa?

More gems from Pensions…

Latest from Pensions

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