Our daily roundup of retirement news your clients may be thinking about.
Retirees, especially those on fixed incomes, should be concerned about inflation as what they invest in valuable dollars today, they will get back in less valuable dollars in the future, according to this article on Forbes. One way to mitigate the impact of inflation on savings and investments is by diversifying into alternative investments. Another way is to shorten the duration of bond portfolios so that re-investment at higher rates can be done in the future. A Treasury Inflation Protected Securities (TIPS) can be added to a fixed-income portfolio.
A survey confirms that the primary goal for retirement is to provide guaranteed money to cover living costs, but the same survey shows that only 23% of the respondents own or plan to buy an annuity, according to this article on Money. Many people find annuities too complex although there are annuities that are straightforward. They also think annuities are not good investments compared to a portfolio of stocks and bonds when one considers the availability of funds for emergencies or for leaving money to heirs. “But if you’re going to eliminate annuities from your retirement income strategy, just be sure you’re doing it for a good reason, not because of some misconception.”
Michael Kitces’s ratcheting rule for retirement spending, which he proposed in 2015, is based on constant inflation-adjusted spending with the option to increase by an additional 10% if the portfolio is 50% above its initial level. This increase is allowed once every three years while the portfolio remains above 150%. This ratcheting rule provides a systematic mechanism for managing spending increases during retirement, according to this article on Forbes.
Mandatory retirement still exists in the workplace, according to this article on Marketwatch. While for many jobs, the 1986 Amendment of the Age Discrimination in Employment Act of 1967 eliminated the cap of 70 years, there are still a few jobs with an enforced timeline, such as pilots, air-traffic controllers, and federal law enforcement and firefighters. There may be destructive physical and emotional effects on people who are forced to retire. Some desire to work due to financial reasons, but others simply want to stay engaged and productive.
A person whose work history includes both Social Security-covered and non-covered employment, with the non-covered employment also providing pension coverage, is covered by Windfall Elimination Provision (WEP), according to this article on USA Today. The WEP reduces the amount of Social Security benefits. Government Pension Offset (GPO) also affects payment of Social Security benefits paid to spouses or survivors when the spouse or survivor earned a pension from a government job that was not covered by Social Security.
