Michael Finke’s Post

John Manganaro does an excellent job of digging into my License to Spend paper with David Blanchett, focusing not just on the evidence of higher spending from annuitized assets but also explaining why this is exactly what theory would predict. Well worth a read if you'd like a clear synopsis of the main themes of article.

Will a retiree with $500,000 in a savings account spend as much as a retiree who has a $35,000 pension? Our findings were even more dramatic than I'd expected.🧐 Economic theory predicts that a retiree with a pension will spend more because they don't have to worry about running out of money. We find that retirees with financial wealth vs. annuitized wealth spend even less than theory predicts. This means that not only is there a rational explanation for underspending in the DC era, but also a behavioral barrier to spending from savings. This phenomenon has important implications for how we provide retirement advice for those whose primary goal is income, for how QDIAs are designed for distribution, and even how we can increase national spending among seniors by giving retirees the license to spend their savings. #RetirementIncome #Research #FreedomToSpend #401k #ERISA David Blanchett Alliance for Lifetime Income IncomePath

Last Thursday, the O. Alfred Granum Center for Financial Security at The American College of Financial Services held its annual advisory board meeting at the beautiful Morningstar office in Chicago. This is a unique opportunity for executives in wealth management from across the profession to get together in a small forum to discuss new ideas and share insights with some of the most important thought leaders in financial planning. Thanks to Christine Benz and Ben Johnson, CFA for speaking and hosting, and to Jeffrey Levine, Fred Reish, Brooke Juniper and others for leading discussions on retirement income planning, embracing advanced tax-informed advising, understanding the implications of potential regulatory changes in IRAs, and a primer on how AI will impact the industry. Getting together with this group is always one of the highlights of my year and this year's meeting didn't disappoint.

Are older investors capable of "fending for themselves" when they invest in private equity, venture capital and hedge funds through Regulation D offerings of unregistered securities? This morning I'll be presenting my article with Tao Guo, Ph.D., CFP®, CFA®at the AICPA Engage conference which was selected as the Editor's Choice by the CFP Board's Financial Planning Review. We show that older investors are more likely to meet the accredited investor wealth threshold, and accredited investors in their 80s have lower financial sophistication scores than younger non-accredited investors. This creates opportunities for abusive sales to investors who don't possess the ability to evaluate complex securities, particularly in the defined contribution era. Stephen Horan, Ph.D., CFA, CIPM, CAIA Copy of the article on the SEC website: https://lnkd.in/gXHPnDUa

The graph below shows the percentage of respondents who plan to claim Social Security income benefits before age 65 by how long they believe a 65-year old man will live in retirement from the recent The American College of Financial Services retirement literacy survey. Those who incorrectly believe that an average man will live to age 75 were 27% more likely to plan to claim Social Security early. They were also far less likely to anticipate a need to plan for spending into their 90s. Recent studies on longevity literacy by Annamaria Lusardi and the TIAA-CREF Institute point to the importance of understanding longevity to make better retirement income planning decisions. Our data suggest that we need to do more to improve longevity knowledge. https://lnkd.in/gZE6udUs

This conversation with Bobby Samuelson is one of my favorite podcast episodes. Bobby demystifies index products in this fast-paced episode that covers how they’re created, what they do, and what advisors need to consider when looking at product features. For investment types it’s a fascinating discussion of how options and bonds are blended to create customized distributions that don’t exist in long only investments. It’s an info packed 30 minutes with one of the smartest people in the business.

Would workers have been better off saving in traditional or Roth accounts? For 93% of workers in a 2003 cohort of retirees, they'd have more money in traditional. Access to traditional tax-sheltered accounts increased after-tax wealth by 73% compared to saving in a brokerage account and 46% in a Roth. But that may not be the case in the future. A new study by Treasury Department researchers looks at 800,000 retirees in 2003 and estimates whether they would have had more money saving in traditional or Roth accounts vs. a brokerage account. Nearly all would have been better off in traditional style accounts, but mainly because marginal tax rates fell during their working years. The estimated traditional benefit would have all but disappeared under the 2019 tax code. The reason is that the traditional advantage is driven by higher tax rates during accumulation than distribution. Others have pointed out that, all else equal, we should prefer Roth because it gets rid of an important risk factor - tax rate variability. Roths are also more efficient for transferring wealth at death (especially with the 10-year stretch). #retirementincome #definedcontribution #taxplanning