Samuelson’s Formula
I’ve made my point: A tidy solution denies the caprice of life and the inherent complexity of retirement income management.
Nevertheless, I will defy H.L. Mencken’s warning about neat solutions with a few of mine that have had a high batting average for households that have saved wisely for retirement:
• Healthy individuals should put off filing for Social Security until age 70. Advisors can help them with ideas about how to do this. Delaying will mean they will collect significantly more Social Security benefits over their lifetimes.
• Healthy individuals should also work as long as they can to shore up their savings and capacity to meet the needs of advanced old age.
• As households transition into retirement, they can take higher account withdrawals while they wait for retirement income from Social Security and RMDs to replace earned income partially.
• Households with tax-advantaged retirement accounts—IRAs, 401Ks and the like—and taxable brokerage accounts can reduce their expected lifetime taxes on IRA withdrawals by aiming to achieve a constant taxable income (corrected for marital status).
• Households with small investment accounts should buy at least one income annuity with survivor benefits but without a long period of guaranteed payments. This will provide a low-cost, reliable retirement income stream and peace of mind.
• Both couple members should understand their investments and retirement income sources because one or the other will have to carry on alone. As an advisor, you can help see to that. If there is a reliable child or other trustworthy relative, include them in the conversations.
Get ready. This year marks “peak 65,” when more boomers turn 65 than in any past year. Retirement is on their minds: the recent Allianz Life 2023 New Year's Resolutions Survey found that more than 1 in 5 workers said they would likely retire in 2024. Among boomers still working, 31% said they will likely retire in 2024.
The work of accumulation can seem easy when compared with decumulation. But your advice is as necessary as ever. Please don’t fall victim to the notion that any of it is neat.
Paul R. Samuelson is the chief investment officer and co-founder of LifeYield.