A plan to produce retirement income “in virtually any IRA or 401(k) plan” is the subject of a new study from the Stanford Center on Longevity and the Society of Actuaries, “Viability of the Spend Safely in Retirement Strategy.”
The strategy, a plan design innovation that defined-contribution plan sponsors can adopt to help older workers decide such things as when to retire, how to get access to their retirement savings once they have and how much it's safe to spend once they've left the day job behind, is a retirement income menu that complements the investment menu they should already be familiar with.
“DC plan sponsors are in a perfect position to help their older workers who are intimidated by these retirement planning decisions,” says Steve Vernon, FSA, research scholar at the Stanford Center on Longevity and one of the study's coauthors. “We've demonstrated that plan sponsors can move ahead with implementing retirement income options in their plan, which will help them manage an aging workforce. There are effective solutions that are feasible to implement today; there's no need to wait for the 'perfect' solution to be invented, which doesn't exist.”
According to the release, the SSiRS consists of “optimizing Social Security benefits and using the IRS requirement minimum distribution to generate periodic retirement income, coupled with a low-cost stock index, balanced, or target date fund.” It also generates retirement income from savings using IRS required minimum distribution rules, coupled with a low-cost index fund, target date fund or balanced fund.
In addition, the researchers point out that delaying retirement can “significantly increase” retirement income, and while investing in equities during retirement in most cases could also significantly increase retirement income, that's not always the case.
The strategy also describes actions that people can take to accommodate personal circumstances and goals, as well as highlighting the fact that health issues that might spur people to retire earlier than they had otherwise planned should be severe, such as “receiving a diagnosis of a life-shortening illness.” Otherwise, simply tweaking the SSiRS can accommodate such health issues as being overweight or having “poor health metrics.”
And in considering spending during retirement, the SSiRS uses forward-looking projections rather than historical assumptions; while the latter results in “dramatically higher projected incomes,” the former takes into account the current low-interest environment and can spur retirees to use greater caution in spending.
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Marlene Satter
Marlene Y. Satter has worked in and written about the financial industry for decades.
