Last week, we examined the Republican and Democratic parties’ platforms regarding Social Security. The Republican position would allow us to invest some of our Social Security savings in the stock market. The Democrats advocate higher taxes on the wealthy to ensure Social Security solvency.
This week, I offer my own platform, a list of proposals that I think provide common sense solutions to the real problems that the Social Security system faces, while offering some new benefits.
One of my first assignments as a junior actuary was to analyze a new program that helped students to afford college. It was a public-private loan program that varied students’ repayment responsibilities based on how much money they made after graduation. For each $3,000 borrowed, a student-borrower committed to paying the loan back with 1% of their earnings. So if four years of college cost $24,000, the student committed 8% of their earnings.
The loan had a market rate of interest and you kept paying until the balance was paid off.
If you had a well-paying job, you paid down the loan quickly. If you were teaching poetry to prison inmates, you might only pay off the interest and never repay too much of the principal. My job was to look at the “actuarial aspects” of the loan program and price the insurance cost of paying off the loan in the case of death, disability or unemployment.
That project has influenced my position on paying for college ever since. More
The first Baby Boomers turned 70½ on July 1, which means most of them have to figure out how to pay more taxes to the U.S. government. It takes a little edge off the half-birthday celebration, doesn’t it?
The oldest Boomers can still take advantage of strategies to minimize taxes, but the best approach might involve (as Boomers used to say) an attitude adjustment.
These taxpayers have been diligently putting savings in 401(k), IRA and other retirement accounts to pay for retirement. When they reach 70½ they must begin to take money out of those accounts to meet the statutory minimum of Required Minimum Distributions, or “RMDs” for short. More
Anyone who has taken the time to fill out the input required for more than one retirement calculator will know the output results vary dramatically. Recent studies by financial and academic institutions, in fact, show that the numbers you get could vary by 60 percent or more!
No matter how much careful skepticism you apply, there is no way you can use those calculators to help you reliably plan for retirement. As I wrote in a blog post earlier this year, such calculators fail to account for several factors while determining the “magic number” you seek. In fact, calculators don’t even give you a reliable range of numbers to choose from.
Not only do calculators each use different algorithms and assumptions, they also often leave important factors, like taxes or late-in-retirement expenses, out of the equation. Also, if one calculator assumes your return on investment will be 5%, and another predicts 7%, the results will be impossible to compare. More
Planning for old age is good. That is why I like income annuities as part of a retirement plan: because they guarantee income through your entire life, no matter how long you live.
It turns out, though, one reason people don’t buy income annuities is that they don’t like thinking about old age (and especially the end of old age). Several studies that looked into why more people don’t buy these products found that the language to describe income annuities caused potential buyers to close their computers, walk away from their desks, and promise to think about retirement another day.
Emotionally, I get it. I want to live forever, too. But the evidence is overwhelming that I will have to settle for a long and happy life, not an endless one. More