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A Low-Tech Retirement Strategy to Make Savings Last

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Advisors might become obsolete if the “Spend Safely in Retirement Strategy” (SSIRS), originally developed by the Society of Actuaries and Stanford Center on Longevity in 2017, attracts older workers and retirees in droves. SOA and SCL recently released a paper on the viability of spending safely in retirement, which helps retirees help themselves.

The “baseline strategy” was developed to “pensionize” retirement income, such as IRAs and 401(k)s, to help older workers and retirees to determine the amount of lifetime income they will have in retirement. The groups now plan to implement the strategy.

The strategy is designed for older workers and retirees who have not accrued significant benefits in defined benefit pension plans, have accumulated meaningful balances in defined contribution retirement plans, IRAs, or other savings, and might not work with financial advisors.

The two key steps to the strategy are optimizing Social Security benefits with a “careful delay strategy,” and generating retirement income from savings using the IRS required minimum distribution rules along with a low-cost index, target date or balanced fund.

“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,” Steve Vernon, one of the study’s co-authors, a fellow of the Society of Actuaries and a research scholar with the Stanford Center on Longevity, said in a statement.

“However, they may still benefit from working with a financial advisor to personalize the plan for maximum financial success.”

The strategy is a low-tech option to some of the recently marketed advanced technology, for example the Cetera/Allianz/Capital Group retirement tool, Setincome, that uses fixed annuities and asset management to generate lifetime income, or Apprise Labs’ soon-to-be-launched retirement software.

Unlike these products, Vernon and his team have gone old school and provide retirees best practices for retirement:

  • Develop a plan to delay Social Security benefits until an “optimal” age. Ways to do that include working part time or deploying “a portion of retirement savings to fund a Social Security bridge payment.”
  • Decide the appropriate asset allocation for the IRS required minimum distribution portion of income. This should 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 include: start with the RMD portion of income before age 70-1/2; adjust the health status of the retiree (and spouse); provide additional guaranteed retirement income if desired; adjust for an uneven flow of living expenses; and accelerate income to the early years of retirement when a retiree might be more active or vital, or adjust for working part time.

Vernon says that this strategy can “help to ensure adequate income throughout the duration of retirement.”

Downsides, the paper acknowledges, include fluctuations in the RMD portion of income due to stock market movement and the fact that it may not reflect the uneven flows of living expenses during retirement.

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