Delaying Social Security, refusing to cash out of retirement plans with lump-sum payments, and buying annuities to provide income for retirement essentials topped the list of expert retirement recommendations in a new report from the Government Accountability Office (GAO).
[See 10 Steps to Fine-Tune Your Retirement Plan.]
This was the consistent advice from a broad range of retirement experts sought out by the GAO. Yet it found that older Americans regularly seek current income at the expense of much larger benefits that they would receive if they waited. This short-term focus is at odds with increases in longevity, and makes it more likely that people will outlive their retirement assets.
"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," said Sen. Herb Kohl, a Wisconsin Democrat who commissioned the report as chair of the Special Senate Committee on Aging.
The report's expert advice included specific retirement recommendations for five actual pre-retiree households selected to be broadly representative of different income, work, health, and family situations:
1. A 58-year-old single woman in fair health with three children, who earns $22,000 a year, has no pension, and $2,000 in net wealth. She will receive annual Social Security benefits of $11,000 at full retirement (age 66).
Expert Advice: Continue working and accumulating assets, if possible. Delay Social Security.
[See Seniors Don't Pay Full Medicare, Social Security Share.]
2. A two-earner married couple, each age 57, in very good health with two children. They earn $111,000 a year and have $349,000 in net wealth, including $141,000 in retirement plan assets, $50,000 in other financial assets, and $152,000 in home equity. They will receive annual Social Security benefits of $24,000 and $14,000 at full retirement (age 66).
Expert Advice: Purchase annuity and systematically draw down the balance of financial assets. Delay Social Security. Continue working and accumulating assets, if possible.
3. A two-earner married couple, each age 57, in good health with two children. They earn $57,000 a year (including $34,000 from employment earnings and $22,000 from a defined benefit pension), and have $373,000 in net wealth, including $128,000 in retirement assets, $10,000 in other financial assets, and $153,000 in home equity. They will receive annual Social Security benefits of $12,000 and $6,000 at full retirement (age 66).
Expert Advice: Take defined benefit annuity income, purchase additional annuity income, and systematically draw down the balance of financial assets. Delay Social Security. Continue working and accumulating assets, if possible.
[See Older Populations Soar as Age Trend Accelerates.]
4. A two-earner married couple—a 59-year-old man in very good health and a 57-year-old spouse in good health—with no children. They earn $106,000 a year, with a defined benefit pension that has a present value of $492,000. They have $1,597,000 in net wealth, including $625,000 in IRA assets, $145,000 in other financial assets, and $300,000 in home equity. They will receive annual Social Security benefits of $22,000 and $16,000 at full retirement (age 66).
Expert Advice: Take defined benefit annuity income and systematically draw down financial assets. Delay Social Security.
5. A one-earner married couple—a 57-year-old non-working woman in poor health and a 60-year-old man in good health—with two children. They earn $119,000 a year (including $52,000 in employment earnings and $65,000 in capital income, including gross rental income, dividends, interest, and other asset income). They have a defined benefit pension with a present value of $29,000, a defined contribution plan with a present value of $30,000, and $1,518,000 in net wealth, including $140,000 in IRA assets, $380,000 in other financial assets, and $1,064,000 in real estate equity (a $700,000 primary residence and $364,000 in other real estate). They will receive annual Social Security benefits of $18,000 and full retirement (age 66).
Expert Advice: Liquidate some real estate, take defined benefit annuity income, and systematically draw down financial assets. The spouse in poor health should take Social Security early and the spouse in good health should delay Social Security.
Twitter: @PhilMoeller
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