Tag Archives: Retirement

Updates from Chicago Booth

Can we save retirement?
What the US and other countries can learn about social security reform
By Alex Verkhivker – When it comes to pension crises, American workers are not alone. In the United Kingdom, many of the country’s almost 6,000 employer-sponsored, defined-benefit programs are underfunded.

In Greece, Poland, and across the European continent, a demographic mismatch means there are not enough incoming taxes to fund promised payouts.

Privatization is often suggested as a solution to pension crises. Rather than have governments or employers fund workers’ retirements, why not give retirees more control over funding their retirements, with private individual accounts?

Many critics of privatization are quick to point to Chile as a cautionary tale. The Chilean government privatized its pension system in 1980, its secretary of labor and social security inspired by Milton Friedman’s book Capitalism and Freedom.

In Mexico, money is automatically deducted from workers’ wages and placed in individual accounts. Then individuals choose from a menu of assets in which to invest and work through regulated, professional money managers, each of which offers a single investment product.

But competition did not materialize as the government had hoped it would. Hastings, Hortaçsu, and Syverson looked at where investors lived, which fund managers they invested with, how much money they saved—and earned after fees. They find that while many people expected competition to drive down costs, the average asset-weighted load was a steep 23 percent, and balance fees were another 0.63 percent. Those fees ate away—a lot—at returns. more> https://goo.gl/usSmNP

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The income annuity puzzle: Why don’t more people use them?

By Mark Miller – Economists have long argued that there’s a perfect financial product for retirement: the humble immediate income annuity.

But economists also talk about an “annuity puzzle.” Namely, if SPIAS are such a perfect retirement vehicle, why do so few people buy them? Sales totaled $7.7 billion last year, according to LIMRA, the insurance industry research and consulting group. That’s a drop in the bucket compared with IRAs and workplace retirement plans, where $5.3 trillion were invested last year, according to the Investment Company Institute.

“To me, the paper points to the value of pairing an annuity with a long-term care insurance policy,” Michael Kitces says, partner and director of research for Maryland-based Pinnacle Advisory Group.

Insurance companies – start your engines. more> http://tinyurl.com/kw8xnrq

Retirement Heist: How Firms Plunder Workers’ Nest Eggs

BOOK REVIEW

Retirement Heist: How Companies Plunder and Profit from the Nest Eggs of American Workers
, Author: Ellen Schultz

By Steve Denning – Two decades ago, pensions were well funded, due to laws and regulations passed in the 1970s and 1980s. By 2000, pension plans at many large companies had large surpluses that would have covered all current and future retirees’ pensions without them having to contribute anything.

Yet US firms found ways to siphon off billions of dollars in assets from the pension plans. Verizon used assets to finance downsizings. GE sold pension surpluses in restructuring deals, indirectly converting pension assets into cash. Many firms clandestinely cut benefits, using “actuarial sleight of hand to disguise the cuts.” more> http://tinyurl.com/65nhjtc