Nevin's Data "Points"

The title of a new report by the Society of Actuaries poses an intriguing question: “Retirement Adequacy in the United States: Should We Be Concerned?” When all is said and done, the answer from the report’s authors seems to be “it depends.” And, as it turns out, it depends on a lot of things: who is asking the question, who you are asking the question about, and what you think the answer should be. And that doesn’t even take into account the questions about the assumptions one makes to come up with the answers. The SOA report draws some conclusions: The current system of voluntary employment-based retirement plans has been largely successful from the perspective of companies sponsoring plans for individuals with long-term employment covered by such plans. The mandatory Social Security system has done much to reduce poverty in old age, though adequacy studies using replacement ratios may overstate the success of this safety net for those in the lowest-income grou

In response to concerns that tomorrow’s retirees will run short of money, we are often told to save more, to work longer, or – as often as not these days – to work longer AND save more. Certainly working and saving longer can do wonders in terms of stretching your retirement nest egg. However, the timing of the retirement decision is often not within an individual’s control. In fact, the Retirement Confidence Survey has consistently found that a large percentage of retirees leave the work force earlier than planned. In fact, nearly half (45 percent) of retirees reported that they were in this situation in 2011 (see EBRI Issue Brief No. 355, March 2011, The 2011 Retirement Confidence Survey: Confidence Drops to Record Lows, Reflecting “the New Normal” ). Real-world data have shown (and shown for some time now) that the median retirement age for Americans is not even as old as 65 (it’s been 62). Still, EBRI research has shown that working longer – even working past the age of 6

In this business you are frequently asked “how much should people save for retirement?” Some try to answer that question with a degree of specificity that can be somewhat simplistic. Let’s face it, even if those close enough to retirement to have a sense of what their pre-retirement income level is (and, flawed as that can be, most projections start from that assumption as a baseline for what you’ll want/need to spend in retirement—see “Replacement” Window ), most struggle to turn that into a real savings figure. Ultimately, of course, a reliable answer to that retirement savings question requires an understanding of the individual’s goals and/or financial needs—and, predicated on certain assumptions, there are any number of tools that can help individuals set a target and (based on that) establish a savings plan. However, the planning question that almost never gets asked is: “And how certain do you want to be of achieving that target?” Asked that question, I suspect most ind

There is an old adage that cautions about the consequences “when you assume…” And yet, the business of retirement planning is replete with any number of so-called “common wisdom” rules of thumb. Doubtless many have well-intentioned origins – to make complicated concepts easier to grasp, and thus to address. One of the more pervasive notions is that a realistic target for retirement savings can be determined by accumulating a sum that will provide an income stream equal to a percentage of one’s pre-retirement earnings – a sum that is generally expressed as 70-80% of what you earn prior to retirement. This starting point - generally called a "replacement ratio" - includes any number of imbedded assumptions, perhaps most significantly that the individual will need to spend less post-retirement, generally understood to be on things such as taxes, housing, and various work-related expenses (including saving for retirement). Moreover, the replacement rate approach represent