U.S. Government Accountability Office: Report to Chairman Herb Kohl, U.S. Senate Special Committee on Aging by Charles Jeszeck, June 7, 2011; Report Meant to Help Prevent Retirees from Outliving Savings
The U.S. Government Accountability Office's Charles Jeszeck reported to Chairman Herb Kohl of the U.S. Senate Special Committee on Aging on June 7, 2011 about Retirement Income and Ensuring Income throughout Retirement Requires Difficult Choices.
The new federal report on retirement security requested by U.S. Senator Kohl finds that most American workers will face difficult financial choices and challenges in retirement.
“As workers near retirement they not only have to focus on saving money but on closely managing their investment throughout their retirement years,” Kohl said. “This report shows that many Americans will need to save much more or work longer in order to avoid the very real risk of outliving their savings.”
The report on how best to ensure income throughout retirement was undertaken by the independent and non-partisan Government Accountability Office (GAO) at the request of Kohl, the chairman of the Special Senate Committee on Aging. To complete the 79-page study, GAO interviewed financial experts and used input from the Department of Labor, Internal Revenue Service, Securities and Exchange Commission, Social Security Administration and the National Association of Insurance Commissioners.
Kohl said the report was requested to see what experts advise people to do to ensure they have income throughout their retirement and to see if most retirees are following that advice.
In the study, GAO found that while most retirees rely primarily on Social Security, most Americans fail to maximize their benefits. An estimated 72.8 percent took benefits before age 65, and only 14.1 percent took benefits the month they reached full retirement age. By taking the benefits on or before their 63rd birthday, nearly half – 49.5 percent – passed up at least 25 to 33 percent in additional monthly inflation-adjusted benefits that would have been available had they waited until full retirement age.
Overall, GAO found that experts recommended that retirees systematically draw down their savings and covert a portion of their savings into an income annuity to cover necessary expense or opt for the annuity provided by an employer-sponsored defined benefit pension instead of a lump sum withdrawal. GAO also found that given the difficult economy and life expectancy increase, experts recommend that most workers continue to work and save well beyond age 62, if possible.
And, while an immediate annuity can protect retirees from the risk of outliving one's savings, only about 6 percent of those with a 401(k)-type plan purchased one at retirement, the GAO said.
According to experts consulted by GAO, the report includes the following recommendations:
*Many retirees should delay taking Social Security to increase payments for life.
* Depending on net worth, households also should consider buying a life annuity, particularly if they don't have a traditional pension that guarantees sufficient income.
*High-net wealth households generally don't need life annuities.
*Middle-income households, such as those with $191,000 in financial assets and without a traditional pension, should consider using a portion their savings to purchase an inflation-adjusted annuity.
*Delaying Social Security is more cost effective than purchasing an annuity to enhance retirement income because the money that a retiree would forego by waiting until age 66 is less than the amount needed to purchase the contract.
*Retirees should make withdrawals from their investment portfolio at a rate of no more than 3 percent to 6 percent annually at retirement, with adjustments for inflation, to help ensure they won't run out of money.
The report also offers several policy options for improving consumer understanding of retirement income and for increasing access to lifetime retirement income products, such as annuities. Among the policy options to increase access to annuities, some experts suggest requiring defined contribution plans, such as 401(k)s, to offer annuities as a choice to plan participants, or by making tax law modifications that would make deeply deferred annuities, or longevity insurance, more financially attractive.
To view the full report, click on the hyperlinks below:
http://www.gao.gov/products/GAO-11-400
Highlights Page (PDF) Full Report (PDF, 79 pages) Accessible Text Podcast
As life expectancy increases, the risk that retirees will outlive their assets is a growing challenge. The shift from defined benefit (DB) pension plans to defined contribution (DC) plans also increases the responsibility for workers and retirees to make difficult decisions and manage their pension and other financial assets so that they have income throughout retirement.
The GAO was asked to review (1) strategies that experts recommend retirees employ to ensure income throughout retirement, (2) choices retirees have made for managing their pension and financial assets for generating income, and (3) policy options available to ensure income throughout retirement and their advantages and disadvantages. GAO interviewed experts about strategies retirees should take, including strategies for five households from different quintiles of net wealth (assets less debt); analyzed nationally representative data and studies about retirees' decisions; and interviewed experts and reviewed documents about related policy options.
Financial experts GAO interviewed typically recommended that retirees systematically draw down their savings and convert a portion of their savings into an income annuity to cover necessary expenses, or opt for the annuity provided by an employer-sponsored DB pension instead of a lump sum withdrawal. Experts also recommended that individuals delay receipt of Social Security benefits until reaching at least full retirement age and, in some cases, continue to work and save, if possible. For example, for the two middle net-wealth households GAO profiled with about $350,000 to $375,000 in net wealth, experts recommended purchase of annuities with a portion of savings, drawdown of savings at an annual rate, such as 4 percent of the initial balance, use of lifetime income from the DB plan, if applicable, and delay of Social Security. To navigate the difficult choices on income throughout retirement, they noted strategies depend on an individual's circumstances, such as anticipated expenses, income level, health, and each household's tolerance for risks, such as investment and longevity risk. Regarding the choices retirees have made, GAO found that most retirees rely primarily on Social Security and pass up opportunities for additional lifetime retirement income. Taking Social Security benefits when they turned 62, many retirees born in 1943, for example, passed up increases of at least 33 percent in their monthly inflation-adjusted Social Security benefit levels available at full retirement age of 66. Most retirees who left jobs with a DB pension received or deferred lifetime benefits, but only 6 percent of those with a DC plan chose or purchased an annuity at retirement. Those in the middle income group who had savings typically drew down those savings gradually. Nonetheless, an estimated 3.4 million people (9 percent) aged 65 or older in 2009 had incomes (excluding any noncash assistance) below the poverty level. Among people of all ages the poverty rate was 14.3 percent.
To help people make these often difficult choices, policy options proposed by various groups concerning income throughout retirement include encouraging the availability of annuities in DC plans and promoting financial literacy. Certain proposed policies seek to increase access to annuities in DC plans, which may be able to provide them at lower cost for some individuals. However, some pension plan sponsors are reluctant to offer annuities for fear that their choice of annuity provider could make them vulnerable to litigation should problems occur. Other proposed options aim to improve individuals' financial literacy, especially to better understand risks and available choices for managing income throughout retirement in addition to the current emphasis on saving for retirement. Proposed options include additional federal publications and interactive tools, sponsor notices to plan participants on financial risks and choices they face during retirement, and estimates on lifetime annuity income on participants' benefit statements.
For more information about a Miami-Dade, Broward and Palm Beach County home health care agency for seniors and other family members, contact Brian Gauthier at A Family Member HomeCare (954) 986-5090 or www.afamilymemberhomecare.com. Serving Coconut Creek Cooper City Coral Springs Dania Beach Davie Deerfield Beach Fort Lauderdale Hallandale Beach, Hillsboro Beach Hollywood Lauderdale Lakes Lauderdale-by-the-Sea Lauderhill Lazy Lake Lighthouse Point Margate Miramar North Lauderdale Oakland Park Parkland Pembroke Park Pembroke Pines Plantation Pompano Beach Sea Ranch Lakes Southwest Ranches Sunrise Tamarac Weston Wilton Manors Aventura Sunny Isles Beach Hialeah Miami Lakes Boca Raton Delray Beach Home health care agencies home health care agency home health care services in home health care senior home health care home health care providers health care agency home health care jobs at home health care home health care agencies in florida home health care florida medicare home health care health care agencies home health care elderly home health agency home health care service home care agencies home health care companies home health care agency florida private home health care home health agencies elderly home health care home care agency what is home health care home health care agencies in broward county home health services home health care cost accessible home health care florida home health care home health aide agencies in home health care services home health care business home health aide home health care nursing home health care provider home health care employment in home health care jobs home health aide jobs home health aides home health care medicare in home health care agencies home health care seniors
The new federal report on retirement security requested by U.S. Senator Kohl finds that most American workers will face difficult financial choices and challenges in retirement.
“As workers near retirement they not only have to focus on saving money but on closely managing their investment throughout their retirement years,” Kohl said. “This report shows that many Americans will need to save much more or work longer in order to avoid the very real risk of outliving their savings.”
The report on how best to ensure income throughout retirement was undertaken by the independent and non-partisan Government Accountability Office (GAO) at the request of Kohl, the chairman of the Special Senate Committee on Aging. To complete the 79-page study, GAO interviewed financial experts and used input from the Department of Labor, Internal Revenue Service, Securities and Exchange Commission, Social Security Administration and the National Association of Insurance Commissioners.
Kohl said the report was requested to see what experts advise people to do to ensure they have income throughout their retirement and to see if most retirees are following that advice.
In the study, GAO found that while most retirees rely primarily on Social Security, most Americans fail to maximize their benefits. An estimated 72.8 percent took benefits before age 65, and only 14.1 percent took benefits the month they reached full retirement age. By taking the benefits on or before their 63rd birthday, nearly half – 49.5 percent – passed up at least 25 to 33 percent in additional monthly inflation-adjusted benefits that would have been available had they waited until full retirement age.
Overall, GAO found that experts recommended that retirees systematically draw down their savings and covert a portion of their savings into an income annuity to cover necessary expense or opt for the annuity provided by an employer-sponsored defined benefit pension instead of a lump sum withdrawal. GAO also found that given the difficult economy and life expectancy increase, experts recommend that most workers continue to work and save well beyond age 62, if possible.
And, while an immediate annuity can protect retirees from the risk of outliving one's savings, only about 6 percent of those with a 401(k)-type plan purchased one at retirement, the GAO said.
According to experts consulted by GAO, the report includes the following recommendations:
*Many retirees should delay taking Social Security to increase payments for life.
* Depending on net worth, households also should consider buying a life annuity, particularly if they don't have a traditional pension that guarantees sufficient income.
*High-net wealth households generally don't need life annuities.
*Middle-income households, such as those with $191,000 in financial assets and without a traditional pension, should consider using a portion their savings to purchase an inflation-adjusted annuity.
*Delaying Social Security is more cost effective than purchasing an annuity to enhance retirement income because the money that a retiree would forego by waiting until age 66 is less than the amount needed to purchase the contract.
*Retirees should make withdrawals from their investment portfolio at a rate of no more than 3 percent to 6 percent annually at retirement, with adjustments for inflation, to help ensure they won't run out of money.
The report also offers several policy options for improving consumer understanding of retirement income and for increasing access to lifetime retirement income products, such as annuities. Among the policy options to increase access to annuities, some experts suggest requiring defined contribution plans, such as 401(k)s, to offer annuities as a choice to plan participants, or by making tax law modifications that would make deeply deferred annuities, or longevity insurance, more financially attractive.
To view the full report, click on the hyperlinks below:
http://www.gao.gov/products/GAO-11-400
Highlights Page (PDF) Full Report (PDF, 79 pages) Accessible Text Podcast
As life expectancy increases, the risk that retirees will outlive their assets is a growing challenge. The shift from defined benefit (DB) pension plans to defined contribution (DC) plans also increases the responsibility for workers and retirees to make difficult decisions and manage their pension and other financial assets so that they have income throughout retirement.
The GAO was asked to review (1) strategies that experts recommend retirees employ to ensure income throughout retirement, (2) choices retirees have made for managing their pension and financial assets for generating income, and (3) policy options available to ensure income throughout retirement and their advantages and disadvantages. GAO interviewed experts about strategies retirees should take, including strategies for five households from different quintiles of net wealth (assets less debt); analyzed nationally representative data and studies about retirees' decisions; and interviewed experts and reviewed documents about related policy options.
Financial experts GAO interviewed typically recommended that retirees systematically draw down their savings and convert a portion of their savings into an income annuity to cover necessary expenses, or opt for the annuity provided by an employer-sponsored DB pension instead of a lump sum withdrawal. Experts also recommended that individuals delay receipt of Social Security benefits until reaching at least full retirement age and, in some cases, continue to work and save, if possible. For example, for the two middle net-wealth households GAO profiled with about $350,000 to $375,000 in net wealth, experts recommended purchase of annuities with a portion of savings, drawdown of savings at an annual rate, such as 4 percent of the initial balance, use of lifetime income from the DB plan, if applicable, and delay of Social Security. To navigate the difficult choices on income throughout retirement, they noted strategies depend on an individual's circumstances, such as anticipated expenses, income level, health, and each household's tolerance for risks, such as investment and longevity risk. Regarding the choices retirees have made, GAO found that most retirees rely primarily on Social Security and pass up opportunities for additional lifetime retirement income. Taking Social Security benefits when they turned 62, many retirees born in 1943, for example, passed up increases of at least 33 percent in their monthly inflation-adjusted Social Security benefit levels available at full retirement age of 66. Most retirees who left jobs with a DB pension received or deferred lifetime benefits, but only 6 percent of those with a DC plan chose or purchased an annuity at retirement. Those in the middle income group who had savings typically drew down those savings gradually. Nonetheless, an estimated 3.4 million people (9 percent) aged 65 or older in 2009 had incomes (excluding any noncash assistance) below the poverty level. Among people of all ages the poverty rate was 14.3 percent.
To help people make these often difficult choices, policy options proposed by various groups concerning income throughout retirement include encouraging the availability of annuities in DC plans and promoting financial literacy. Certain proposed policies seek to increase access to annuities in DC plans, which may be able to provide them at lower cost for some individuals. However, some pension plan sponsors are reluctant to offer annuities for fear that their choice of annuity provider could make them vulnerable to litigation should problems occur. Other proposed options aim to improve individuals' financial literacy, especially to better understand risks and available choices for managing income throughout retirement in addition to the current emphasis on saving for retirement. Proposed options include additional federal publications and interactive tools, sponsor notices to plan participants on financial risks and choices they face during retirement, and estimates on lifetime annuity income on participants' benefit statements.
For more information about a Miami-Dade, Broward and Palm Beach County home health care agency for seniors and other family members, contact Brian Gauthier at A Family Member HomeCare (954) 986-5090 or www.afamilymemberhomecare.com. Serving Coconut Creek Cooper City Coral Springs Dania Beach Davie Deerfield Beach Fort Lauderdale Hallandale Beach, Hillsboro Beach Hollywood Lauderdale Lakes Lauderdale-by-the-Sea Lauderhill Lazy Lake Lighthouse Point Margate Miramar North Lauderdale Oakland Park Parkland Pembroke Park Pembroke Pines Plantation Pompano Beach Sea Ranch Lakes Southwest Ranches Sunrise Tamarac Weston Wilton Manors Aventura Sunny Isles Beach Hialeah Miami Lakes Boca Raton Delray Beach Home health care agencies home health care agency home health care services in home health care senior home health care home health care providers health care agency home health care jobs at home health care home health care agencies in florida home health care florida medicare home health care health care agencies home health care elderly home health agency home health care service home care agencies home health care companies home health care agency florida private home health care home health agencies elderly home health care home care agency what is home health care home health care agencies in broward county home health services home health care cost accessible home health care florida home health care home health aide agencies in home health care services home health care business home health aide home health care nursing home health care provider home health care employment in home health care jobs home health aide jobs home health aides home health care medicare in home health care agencies home health care seniors
0 comments:
Post a Comment