Opinion: Retirement is one of the most complicated things we do. This will facilitate


Forget about buying a house or paying for college. In terms of complexity and cost, nothing comes close to retirement, a topic that encompasses saving, investing, taxes, social security, health spending, and countless other financial issues.

Fortunately, there is a growing body of research to guide us, and some of the best studies come from the Center for Retirement Research (CRR) at Boston College. Here is some of the information I recently gathered from the CRR studies:

Valuing annuities. Many retirees question the value of immediate fixed annuities that pay a lifetime income and, in a sense, they are right. The present value of these annuities is around 80 cents for every dollar invested, which means the typical retiree would not get the full amount of their investment back plus interest. On top of that, of course, there is also the risk that you will lose the life expectancy lottery and get back well under 80 cents.

Yet for wealthy people who have taken care of their health, the return on investment will likely be well over 80 cents. Moreover, as a recent CRR study notes, the value of income annuities goes beyond gross dollars. There is also an insurance component. The idea: Retirees can generate more income from their nest egg if they buy annuities because they don’t have to worry so much about outliving their money. This is one of the reasons I intend to put a significant portion of my retirement savings into fixed immediate annuities. One more reason: The resulting large and predictable income stream will allow me to invest a large chunk of my remaining money in stocks and, fingers crossed, this should translate into greater wealth in the long run.

Claim social security. Like many others, I lamented the number of retirees claiming Social Security benefits at 62, which is the earliest possible age, rather than delaying benefits so that they receive a larger monthly check. . But it looks like retirees are waking up.

There are two main ways of looking at the data. The usual method: calculate the percentage of those who claim benefits each year are 62 years old. This number has tended to decline since 2005, and in 2019 was 34% of women and 31% of men.

But as CRR researchers note, the number of people turning 62 each year has grown rapidly over the past few decades and this skews the data. Why? It’s been over 62 years than, say, 68 years. This is why the CRR researchers propose another way of approaching the question: they calculate the percentage of those who reach the age of 62 each year who choose to claim social security at that age. That number is even lower, with just a quarter of the 62-year-old in 2019 choosing to claim immediately.

In a separate study, the CRR examined whether Social Security’s actuarial adjustments are correct. In other words, based on current life expectancies and interest rates, are you, on average, likely to do as well whether you claim benefits at, say, 62, 66, or 70? It seems not.

CRR researchers concluded that cutting benefits for claims at 62 rather than 65 is too large given today’s longer life expectancy and lower interest rates. (These lower interest rates also mean you’re less likely to get away with claiming benefits earlier and then investing the money in bonds.) Higher income people, who tend to live longer than the average.

Need care. Many retirees end up needing assistance with daily living, but the amount varies widely. Some may need help with routine tasks like shopping or preparing meals, while others may need help because they have dementia or have trouble, for example, dressing and to wash.

CRR researchers looked at what percentage of people aged 65 end up needing help with at least one activity of daily living (thinking about bathing, dressing, using the bathroom, etc.) for three or more years. more. This amounted to 24%. At the other end of the spectrum, 17% of retirees did not need any help. The rest fell somewhere in between: their retirement care needs were modest or lasted less than three years.

If it looks like a mixed bag, it is. But here’s an intriguing data point: Among those 65 to 70 who describe their health as “excellent” or “very good,” the odds of not needing help was 30%, compared to 5% for those who did. said their health was “fair”. ”Or“ poor ”.

Work longer. We know that working longer is financially beneficial: it gives us more time to save and collect returns on investment, which allows us to increase our nest egg. It also allows us to defer Social Security and any annuity purchases, which translates into more retirement income.

Read: How To Extend Your Life For Up To Two Years

According to a CRR 2021 study, there is an added bonus: It seems that those who work longer also tend to live longer. The study in question involved men in the Netherlands who chose to remain in the labor market in response to what turned out to be a temporary change in tax law. The result: Those who worked between 62 and 65 were less likely to die in the next five years than those who didn’t. The long-term impact is not yet known, but the researchers suggest that the improvement in life expectancy could be as much as two years.

This column originally appeared on Humble Dollar. It has been republished with permission.

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