Last month, the Society of Actuaries (a group I was born to belong to!) published a mammoth (84-page) report entitled “Viability of the Spend Safely in Retirement Strategy”. Despite its opaque title, this report (written by Steve Vernon, Joe Tomlinson, and the estimable Wade Pfau) contains some interesting info about planning for retirement income.
On the surface, this report's advice seems stupid simple: To optimize retirement income, delay Social Security and make the most of required minimum distributions from tax-advantaged accounts. Isn't this pretty much what most of us plan to do? Maybe so, but I doubt that anyone else has crunched the numbers like this.
Plus, this strategy provides a specific plan for folks who haven't considered how to approach retirement income. As the authors note, most retirees fall into two camps.
- There are the people who are scared to spend their savings, so they sacrifice current lifestyle.
- There are those who “wing it”, spending without a plan.
The Spend Safely in Retirement Strategy is useful for both groups. It shows the specific steps needed to maximize retirement income. Those steps might seem obvious to those of us who read and write about personal finance every day, but they are not obvious to our family and friends.
Here's a quick overview of the Spend Safely in Retirement Strategy (or SSiRS).
The Spend Safely in Retirement Strategy
Vernon, Tomlinson, and Pfau introduced the concept of the SSiRS in their 2017 report through the Stanford Center on Longevity: “Optimizing Retirement Income by Integrating Retirement Plans, IRAs, and Home Equity”. (You can download a PDF of the paper from Stanford.)
“This strategy has a significant advantage,” they wrote. “It can be readily implemented from virtually any IRA or 401(k) plan without purchasing an annuity.”
That 2017 publication was mostly theoretical. There wasn't a lot of info on how to approach their strategy from a practical perspective. This new project is more about actual implementation.
The SSiRS includes two key steps:
1. Optimize expected Social Security benefits through a careful delay strategy; in this case, many middle-income retirees may have all the guaranteed lifetime income they need.
2. Generate retirement income from savings using the IRS required minimum distribution (RMD) rules, coupled with a low-cost index fund, target date fund, or balanced fund.
The authors stress that the SSiRS is meant to be a baseline strategy, a starting point from which retirees (and/or their financial advisors) can build a more customized plan. It's like a basic bread recipe that yields good results every time. If you want to make fancier bread, you're free to do so. But you don't have to.
Let's look at these two key steps in more detail. [Read more…]