Trustees Report: Social Security Reserves will be Depleted in 2034

Social Security reserves will be depleted in 2034, according to the 2017 Trustees report to Congress. Social Security Disability Insurance will be depleted even earlier in 2028.

Projected Social Security cost will increase more rapidly than projected non-interest income through 2037 because as baby boomers retire, there will be more beneficiaries than covered workers.

The Trustees say when Social Security runs out in 2035, OASI income will be able to cover 75 percent of OASI scheduled benefits.

In their report, the Trustees say Social Security can continue to protect future generations, if Congress addresses, “the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust to them.”

3 Key Retirement Planning Tips

Preparation is key to a comfortable retirement. Here at Retirement News Today we’re always looking to pass on information that might help you get there.

We found a Forbes article that lists essential principles of planning for retirement. The first one on the list is to plan for the long run. Your retirement goals should be made based on planning to live, not to die -- that means spending less and being patient with spending decisions.

Number two is don’t leave money on the table. You should be able to spend money during your retirement, but also leave behind a legacy. Some examples of ways to enhance your retirement efficiency are taking IRA distributions or harvesting capital gains.

Number three is to set reasonable expectations for portfolio returns -- don’t expect them to match the historical average. Lately interest rates have been low, which means at least bond returns will be lower in the future. The article says at the very least, dismiss any retirement projection based on eight or 12 percent returns, as the reality will likely be less.

If all of this has you concerned about your retirement plans, it is strongly suggested you look for an established retirement planning professional to help you get organized and set effective and realistic goals.

The Trend Toward Fee-Based Annuities

There’s been a trend toward fee-based annuity sales --  driven by the Department of Labor Fiduciary rule. And there’s no sign the trend will go away. So that’s why annuity agents need to get up to speed on this trend and annuity buyers need to work with a qualified professional so they make the right decisions for their financial goals. Scott Stolz, Senior Vice President of Private Client Group Investment Products, Raymond James, takes an took an in-depth look into the move away from the commission-based model to a fee-based model in a ThinkAdvisor article.

According to Stolz, the Department of Labor Fiduciary rule allows financial institutions to continue to recommend commission-based products under the Best Interest Contract Exemption (BICE), but in the end will lead to more compliance oversight and paperwork than fee-based sales.

Stolz reports advisors are wary of the fee-based model because they can’t fathom rationalizing the cost of a fee-based product plus an advisory fee to a client. At the same time, advisors are worried about complying with the DOL rule when they recommend either fee-based or commission-based annuities to their clients. 

According to Stolz, the problem is some advisors can recommend BOTH fee-based and commission-based annuities, but advisors offering ONLY fee-based products aren’t faced with the same conflict. That means every annuity they suggest to a client will have the same asset fee. Stolz says for example advisors can recommend a mutual fund or bond fund and a fee-based variable or indexed annuity. 

According to Stolz’s ThinkAdvisor article, advisors who think the commissionable annuity net of fees is more cost effective are usually assuming a 1.00%-plus asset fee in their analysis. Technology and fee compression will make it difficult for advisors to justify that fee, he says.

Stolz says when you use a 0.50% fee rather than a 1.00% fee in your cost analysis, you reach a totally different conclusion.

According to Stolz’s ThinkAdvisor report, advisors poorly document their unbillable services in fee-based accounts  -- for example assisting clients with deciding which health care plan to go with or whether or not to take a pension buyout. Stolz believes the SEC will focus less and less on the number of transactions in a fee-based account as advisors begin to better document their unbillable services.

Stolz says he believes annuity sales will drop dramatically over the next two to four years as advisers adjust to the new fee-based model. He says once the adjustment is made, annuity sales will potentially rise again. Stolz cautions, advisors should relearn the story of tax-deferred growth. He says the majority of growth will come from fixed and indexed annuity sales as baby boomers become more financially conservative. He says overall, the annuity industry is “faced with a rough road ahead.”