Retirement in Brief: A Memory-Loss Trap to Avoid, a Call for National Savings Dashboard, and an Idea to Lessen Longevity Risk
Americans should have access to a free website that tracks all of their retirement benefits, including Social Security, employer-sponsored savings plans, and individual retirement accounts, according to a new paper from the Brookings Institution. In a separate paper, the nonprofit public-policy organization says that "tontines" should be explored as potential savings vehicles for retirement. Meanwhile, a new study shows that seniors who stay engaged in retirement—say by helping to raise grandchildren or volunteering—lessen the likelihood of memory loss as they age.
Here is the latest Barron's roundup of news and research to help you make informed decisions and gauge your relative retirement readiness.
Study: The Engaged Retiree Suffers Less Memory Loss
Seniors should see retirement not as a permanent vacation but as an opportunity to engage in meaningful, stimulating activities, says Dr. Ross Andel, director of the School of Aging Studies at the University of South Florida. He says that seniors taking a long "mental vacation" in retirement are falling into a trap that could lead to significant memory loss.
As part of a study conducted at the Australian National University using data from the Personal and Total Health Through Life project, participants were given a list of 16 words and then were tested to see how many they could remember 20 minutes later. Not surprisingly, older seniors remembered fewer words. At 62, participants remembered an average of 7.18 words, compared with 6.67 for 66-year-olds, 6.15 for 70-year-olds, and 5.64 for 74-year-olds.
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But in each case, seniors who were still working scored better than those who had retired, and the gap between those two groups widened with age. At 74, working seniors could remember an average of 6.79 words, compared with 4.49 for their retired peers. At 62, working seniors had an edge of just 0.13 words, but that advantage climbed to 0.85 words at 66 and to 1.58 at 70.
Andel said the data were weighted to account for variables such as seniors' mental and physical health, reason for retiring and career type. The results illustrate the importance of staying mentally and physically active in retirement, he says, whether that means working, taking an active role in raising grandchildren, taking up a hobby, or reconnecting with old friends.
"They don't have to go back to work necessarily," he said. "But retirement is an opportunity to do other things, to find meaningful stuff that they always wanted to do or something new that they want to try."
Dashboard for Retirement Savers
Americans should have access to a "retirement dashboard" that would give workers a single place to get a comprehensive picture of their retirement plan, the Brookings Institution said in a recent policy paper. Workers who have changed jobs several times could see all of their 401(k) and similar accounts in one place, could recover lost accounts and could consolidate them more easily.
That would help prevent leakage, or the early withdrawal of funds, Brookings says. When workers switch jobs, they often cash out small 401(k) balances or leave them behind rather than rolling them over into their new employers' plans or into an IRA.
A dashboard would allow workers to track their projected monthly Social Security benefits and estimate how much money they will have in their 401(k) accounts when they retire. Savers could determine how much money they could safely withdraw each year from their retirement accounts without depleting their funds. In addition, they would be able to compare account fees and expenses because the dashboard would require a standard format for disclosing them. And a dashboard could provide basic financial education and advice to savers.
Dr. J. Mark Iwry, a nonresident senior fellow at Brookings, said versions of a retirement dashboard exist in Denmark, Sweden, the Netherlands, and Australia and would work in the U.S. too. "There are a number of countries that have done this, and we ought to get one done too," Iwry says.
Brookings says that while the private sector could conceivably establish a national retirement dashboard, it would be more reliable and effective if the website were sponsored or co-sponsored by the federal government and designed exclusively to serve the interests of savers.
'Tontines' for Retirement Savings
If you're concerned about outliving your assets, then perhaps a "tontine" could provide the longevity insurance you need, Brookings says in a new paper, arguing that the once-popular investment vehicle likely would be less costly than a highly regulated annuity.
In a simple example of a tontine, 10 investors each kick in $100,000 to create a $1 million pool. Investments are irrevocable, so members can never withdraw their money or sell their share of the pool. The group purchases a bond with a 4% annual return, guaranteeing them $40,000 a year in interest, or $4,000 each.
When an investor dies, his share of the pool and the interest go to the group, not to that investor's heirs. So, that $40,000 would be divided among nine people, giving each remaining investor an additional $444 a year.
"If I'm one of the first to die, then I'm not going to get too much out of this," Iwry said. "The rest of the people in the pool are going to benefit from my account. But if I'm one of the longer-living people, this will increase my pension in a way that otherwise would not happen."
When the group reaches a predetermined point, such as when there are only three investors still living, it sells the bond, and members split the revenue equally. All members remain anonymous the entire time.
Brookings says tontines are getting attention around the world as retirement savings vehicles, including in Japan, where some workers pay into a tontine-like annuity from their 50s until retirement, then begin receiving payouts to supplement their national pensions. In the U.S., they could be offered as part of 401(k) or similar plans, or a group of private investors could set one up, Iwry said.
Since the group's investments could decrease in value or the group could reach a predetermined termination point, tontines don't necessarily provide guaranteed income for life. But they could provide a lower-cost investment option than annuities, and they could be attractive to people who are concerned about being a financial burden to their children in old age, Iwry said.
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