Data & Research October 4, 2016

The Majority of Women Take Social Security Early

Deciding to take lower payments early puts women, who typically live longer than men, at a real disadvantage.
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Eighty percent of women take Social Security early, according to an online survey of 465 women over the age of 50 who are retired or plan to be within the next 10 years, conducted by Nationwide Retirement Institute. This puts women, who tend to live longer than men, at a distinct disadvantage because taking Social Security early locks in lower payments.

Social Security comprises 56% of women’s income in retirement, according to Nationwide. However, 70% of Social Security will go toward women’s health care costs. Only 5% of women wait to collect Social Security benefits at age 70 or later. More than one third (35%) of women said they were not able to do the things they wanted to in retirement, and 24% said health care costs were hindering their retirement dreams.

Looking back, 17% of women wish they had waited to collect Social Security. Among those who decided to begin their Social Security payments early, 39% said it was due to unforeseen life events, and 17% attributed it to unplanned health problems.

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Thirty percent of women said that when they began collecting Social Security, their monthly payments were less than they had expected. Women who have not yet started collecting these payments expect, on average, for it to be $1,527 a month, when, in reality, it averages $1,153, and for those who started early, it’s $1,084.

A mere 13% of women spoke with a financial adviser about a Social Security strategy, and of this group, 86% said their Social Security payment was in line with what the adviser had projected.

“Too many women retirees have no retirement income outside of Social Security,” says Roberta Eckert, vice president at the Nationwide Retirement Institute. “Even for women that do, the fact that they live longer makes maximizing Social Security benefits extremely important.”

It appears that not just women, but even for affluent investors age 55 and older with a net worth between $100,000 and $1 million, Social Security will provide half or more of their retirement income, according to Spectrem Group. However, that may not come to pass, as another survey earlier this year, conducted by the Transamerica Center for Retirement Studies, found that nearly half of Americans, 47%, fear that Social Security may not exist by the time they retire.

The Markets October 4, 2016

Analysis Shows Conservative DB Allocation Fares Better Long-Term

A traditional 60/40 portfolio is up more than 7% so far this year, while a conservative 20/80 portfolio remains up almost 10% through the first three quarters of 2016, according to October Three.
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Pensions enjoyed modest improvement in funded status last month, but remain underwater during 2016 through three quarters, according to October Three.

Both model pension plans it tracks improved by less than 1% in September. For the year, Plan A is down 5% and the more conservative Plan B is down less than 1%.Plan A is a traditional plan (duration 12 at 5.5%) with a 60 equity/40 fixed-income asset allocation, while Plan B is a cash balance plan (duration 9 at 5.5%) with a 20 equity/80 fixed-income allocation with a greater emphasis on corporate and long-duration bonds.

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October Three notes that stocks mostly edged up in September: the S&P 500 was flat, but the NASDAQ added 2%, the small-cap Russell 2000 earned 1%, and the overseas EAFE index was up more than 1%. For the year, the S&P 500 is up almost 8%, the NASDAQ is up 6%, the Russell 2000 is up 11% and the EAFE index is up 2% through three quarters.

A diversified stock portfolio gained less than 1% during September and is now up almost 7% through the first three quarters of 2016.

Interest rates moved up a bit last month, mostly at longer maturities, producing losses of less than 1%, on bond portfolios in September. For the year, bonds remain up 8% to 10%, with longer duration bonds enjoying the best results.

Overall, the firm’s traditional 60/40 portfolio gained a fraction of 1% during September and is up more than 7% so far this year. The conservative 20/80 portfolio was down fractionally last month but remains up almost 10% through the first three quarters of 2016.

The stock market has bounced back from losses in early 2016, posting modest gains so far this year, and bonds have done even better on the strength of lower interest rates. These gains have not kept up with increase in pension liabilities however, which are driven by the same decline in interest rates and remain near record low levels.

However, October Three’s analysis shows its 60/40 plan has a much larger gap in liabilities to assets than the more conservative portfolio.

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