April 16, 2020
Fewer Choosing Annuities in TIAA Plan
In a 401(k) world, purchasing an annuity is one way to turn retirement savings into a reliable source of income. But annuities have never been popular.
Now, a new study finds they are losing appeal even among some employees who historically purchased annuities at much higher rates than the general public: members of the TIAA retirement savings plan – one of the nation’s largest. Until 1989, TIAA required that retirees convert their savings into annuities.
Even in 2000, one out of two participants putting money in TIAA would eventually take their first withdrawal in the form of one of the annuity options the plan offers to retirees.
But by 2017, this number had dropped to about one in five, according to an NBER study for the Retirement and Disability Research Consortium that followed some 260,000 employees with careers at universities, hospitals, and school systems.
The researchers identified two distinct groups in terms of their annuity activity.
The first group tended to have smaller account balances and started tapping annuities in their retirement plans prior to the age when retirees are subject to the IRS’s required minimum distribution (RMD), which was, at the time of the study, 70½. Over the period studied, annuity selections by the first group fell from 57 percent to 47 percent.
The second group – people who had larger balances and didn’t touch their retirement accounts until after the RMD kicked in – saw their annuitization rate plummet from 37 percent to just 6 percent of the participants. …Learn More
August 1, 2019
A Proposal to Fill Your Retirement Gap
David and Debra S. both had successful careers. In analyzing their retirement finances, the couple agreed that he should wait until age 70 to start his Social Security in order to get the largest monthly benefit.
But he wanted to sell his business at age 69 and retire then, so the North Carolina couple used their savings to cover some expenses over the next year.
Waiting until 70 – the latest claiming age under Social Security’s rules – accomplished two things. In addition to ensuring David gets the maximum benefit, waiting guaranteed that Debra, who retired a few years ago, at 62, would receive the maximum survivor benefit if David were to die first.
Other baby boomers might want to consider using this strategy. As this blog frequently reminds readers, each additional year that someone waits to sign up for Social Security adds an average 7 percent to 8 percent to their annual benefit – and these yearly increments spill over into the survivor benefit.
Delaying Social Security is “the best deal in town,” said Steve Sass at the Center for Retirement Research, in a report that proposes baby boomers use the strategy to improve their retirement finances.
Here’s the rationale. Say, an individual wants a larger benefit. Instead of collecting $12,000 a year at age 65, he can wait until 66, which would increase his Social Security income to $12,860 a year, adjusted for inflation, with the increase passed along to his wife after his death (if his benefit is larger than his working wife’s own benefit). The cost of that additional Social Security income is the $12,000 the couple would have to withdraw from savings to pay their expenses while they delayed for that one year.
Social Security is essentially an annuity with inflation protection – and the payments last as long as a retiree does. So the $12,000 cost of increasing his Social Security benefit can be compared with cost of purchasing an equivalent, inflation-indexed annuity in the private insurance market. An equivalent insurance company annuity for a 65-year-old man, which begins paying immediately and includes a survivor benefit, would cost about $13,500. …Learn More