Society of Actuaries and Stanford Center on Longevity Collaborate to Help Pre-Retirees and Retirees Develop Lifetime Retirement Income
SCHAUMBURG, Ill., July 16, 2019 – The Society of Actuaries (SOA) and Stanford Center on Longevity released a report exploring the feasibility of implementing the “Spend Safely in Retirement Strategy,” (SSiRS) an approach originally developed in a joint research project in 2017.
SSiRS is a baseline strategy to ‘pensionize’ IRAs and defined contribution retirement plans to help older workers and retirees understand the amount of lifetime income they can expect in retirement. The strategy includes two key steps: (1) optimizing expected Social Security benefits through a careful delay strategy, and (2) generating retirement income from savings using the IRS required minimum distribution rules, coupled with a low-cost index fund, target date fund or balanced fund.
“This strategy can help older workers make critical retirement planning decisions, such as when to retire, whether to work part-time for a few years, and how to deploy and invest savings in retirement. It can help to ensure adequate income throughout the duration of retirement,” said Steve Vernon, one of the study’s co-authors. Vernon is a Fellow of the SOA (FSA) and a research scholar with the Stanford Center on Longevity. “We developed the strategy to enable older workers and retirees to implement it on their own, using funds that exist today in IRAs and 401(k) plans, and without needing to work with a financial advisor. However, they may still benefit from working with a financial advisor to personalize the plan for maximum financial success.”
The researchers recommend the following best practices for implementing the Spend Safely in Retirement Strategy:
- Develop a plan to enable delaying Social Security benefits until the optimal age, either by working part-time or by deploying a portion of retirement savings to fund a Social Security bridge payment.
- Decide the appropriate asset allocation for the IRS required minimum distribution (RMD) portion of income, to achieve a reasonable compromise between growth and volatility in retirement income.
- Refine and adjust the baseline strategy to reflect a number of possible individual goals and circumstances. These refinements include starting the RMD portion of income before age 70-1/2; adjusting for the health status of the retiree (and spouse if married); providing for additional guaranteed retirement income if desired; adjusting for an uneven flow of living expenses; accelerating income to the early years of retirement when a retiree might be more active or vital; or adjusting for working part-time for a few years.
“Actuaries are experts in assessing financial risk in retirement,” added Joe Tomlinson, Fellow of the Society of Actuaries and one of the study’s coauthors. “The SOA will continue to work with the Stanford Center on Longevity, and other organizations, to develop best practices for retirement risk mitigation.” The study’s other co-author was Wade Pfau, PhD., professor of retirement income at The American College of Financial Services.
This research is the latest from the SOA’s Aging and Retirement Strategic Research Program, which focuses on understanding the societal impact of aging populations and providing solutions for mitigating retirement risk. To view the full “Viability of the Spend Safely in Retirement Strategy” report, visit https://www.soa.org/resources/research-reports/2019/viability-spend-safely/.
About the Society of Actuaries
With roots dating back to 1889, the Society of Actuaries (SOA) is the world’s largest actuarial professional organization with more than 30,000 actuaries as members. Through research and education, the SOA's mission is to advance actuarial knowledge and to enhance the ability of actuaries to provide expert advice and relevant solutions for financial, business and societal challenges. The SOA's vision is for actuaries to be the leading professionals in the measurement and management of risk. www.SOA.org.