November 2023

The 4% Rule for Retirement Withdrawals Might Finally Be Safe to Use Again, Says Morningstar

There's been an ongoing debate about whether retirees should abandon the "4% rule" for withdrawals from retirement accounts, a retirement income rule of thumb for decades. The market volatility of recent years made that rule suspect for many new retirees, but a new study from Morningstar finds that the rule can still apply. What Is the 4% Rule? Created in 1994 by a financial planner named William Bengen, the 4% rule posits that retirees can make a well-structured retirement fund last 30 years...

Aging, Healthcare System, and Interest Rates

By Reona Hagiwara Over the past few decades, the Japanese economy has experienced the widening gap between returns on liquid bonds and illiquid capital (i.e., the liquidity premium) due to a secular decline in the real interest rate and a slight increase in the capital return. This paper explores the role of the health or medical expenditure risk in the increase in the premium, using a general equilibrium overlapping generations model with heterogeneous agents that differ in health status and...

October 2023

Time Consistency in Optimal Retirement Planning

By Frank Bosserhoff, An Chen & Manuel Rach We study time consistency in optimal consumption problems of annuities and tontines. We find the annuity problem to be time-consistent, hence delivering the same optimal consumption at each time. The tontine problem, however, is found to be time-inconsistent, opening the possibility for individuals to increase or decrease their overall expected utility by changing the ex ante fixed consumption profile. However, such an increase in the utility of the tontine cannot lead to...

Why we often struggle to pivot from saving to spending

Here's the retirement quandary for many Americans. They spend years building good financial habits so, if all goes well, they have sufficient funds by the end of their working years. Then, when it’s time to transition, they often struggle in the shift from saving to spending their nest egg. The no-stress years suddenly become the all-stress years. "It's disappointing to get to your first couple of years of retirement, and just constantly be stressed out about your income generation strategy from...

South Africa. Some pensioners are still queuing for hours for their grants

Pensioners still had to wait hours to collect their grants at some places in Cape Town, though on the whole the payments seemed to be going more smoothly. Last month, thousands of social grant beneficiaries did not receive their money on time due to a technical glitch with PostBank. When GroundUp arrived at noon on Tuesday, about 80 people were waiting at the Gatesville Post Office to receive their pension. Elizabeth Fredericks, 75, waited for five hours before receiving her grant. She arrived...

US. SEC proposes changes for registered index-linked annuities

The SEC proposed rule amendments that would customize the registration form and disclosure requirements for registered index-linked annuities, also known as RILAs. The move comes after Congress passed a law in December directing the SEC to do so. "Given the complexity and growing popularity of RILAs, it is important that investors receive the information they need — in plain English — to make informed investment decisions," SEC Chair Gary Gensler said in a news release Sept. 29. "Implementing Congress' mandate, today's...

September 2023

Kenya. 11,000 Retired Teachers Yet to Be Awarded Their Pension 27 Years Later

Treasury Cabinet Secretary Njuguna Ndung'u on Wednesday assured teachers and lawmakers that the government is entering homestretch when it comes to clearing dues owed to some 11,000 retired teachers who are yet to be paid their pension 27 years later. While appearing before MPs, the Treasury Cabinet Secretary told lawmakers that although the government released Ksh16 billion in May to settle unpaid teachers' pensions dating back to 1997, the funds were insufficient to pay all the claims. According to Prof. Ndung'u,...

Nigeria: ‘Benue Owes Pensioners 120 Months Arrears’

Pensioners on the payroll of the Benue state government and those of the local governments have received four and three months payments respectively since the beginning of Governor Hyacinth Alia's administration. The payments covered the months of May to August 2023 for state pensioners while local government pensioners received payments from June to August 2023. The State Chairman of Nigeria Union of Pensioners, NUP, Michael Vember, who made this known in a chat, noted that the government's mode of payment had...

Solving the Puzzle within the Annuity Puzzle: Incorporating Irrevocability Aversion into Annuity Choice

By Spencer Look, Tao Guo & Yuanshan Cheng  Researchers have found that annuities provide substantial benefits to retirement investors. Income annuities, which require the purchaser to irrevocably exchange an insurance premium for future income, are typically considered the most efficient vehicle to generate lifetime income. However, the Life Insurance Marketing and Research Association (“LIMRA”) estimated that the actual sales of income annuities only accounted for 12% of income-focused annuity sales (LIMRA, 2022a). Most of the sales are attributable to deferred...

July 2023

Mortality Regressivity and Pension Design

By Youngsoo Jang, Svetlana Pashchenko & Ponpoje Porapakkarm How should we compare welfare across pension systems in presence of differential mortality? A commonly used standard utilitarian criterion implicitly favors the long-lived over the short-lived. We investigate under what conditions this ranking is reversed. We clearly distinguish between the redistribution along mortality and income dimensions, and thus between mortality and income progressivity. We show that when mortality is independent of income, mortality progressivity can be optimal only when (i) there is...