The FIDx Five: Second Edition
Retirement, Annuity, and Fintech Insights
In this week's edition, we're sharing insights about an increase in annuity payouts, the future of Social Security, Medicare, and relevant topics within the retirement planning environment.
Annuity Payouts Climb
The average payouts from an immediate annuity reportedly increased by more than 11% for men and 13% for women since the beginning of 2022. Insurers offered the average man $616 a month at the end of April as opposed to $553 a month at the beginning of 2022 for immediate annuities. For longevity annuities, payouts have jumped 42% for both men and women since the start of the year. The climb in annuity payouts has been attributed to increased interest rates which generate higher yields for insurers. (Gregg Iacurci, May 19th, 2022, Climbing interest rates means good news for annuity buyers, Link)
The U.S Department of Labor reports that if you save $6,000 each year and earn a 7% return on your investment, you will have $150,774 after just 15 years. Add another 10 years of savings, and that $150,774 increases to $379,494. These numbers show that the earlier you start, the better at saving for retirement. (Tony Drake, May 24th, 2022, Education is Key: 3 Financial Lessons for Retirees Nearing Retirement, Link)
Benefits & Taxes
More people are paying taxes on their benefits over time. Currently, the amount of taxes beneficiaries pay depends on their combined income as it relates to the combined income thresholds. Individuals with combined incomes between $25,000 and $34,000 will pay tax on up to 50% of their benefits, along with couples with combined incomes between $32,000 and $44,000. Individuals with combined incomes of more than $34,000 and those with combined incomes over $44,000 may pay tax on up to 85% of their benefits. With such a high number of people paying taxes on their benefits, Congress is considering raising the income threshold levels, so fewer beneficiaries closer to the cutoff are taxed. The flip side of that is that higher earners would pay more taxes. (Lorie Konish, June 2nd, 2022, Social Security's funds have a new, later-projected depletion date of 2035. How Congress may shore up the program, Link)
Social Security & Medicare Concerns
Both Social Security and Medicare are projected to grow faster than GDP through the mid-2030s. As a result, both programs' reserves will be diminished by 2035, meaning only 80% of scheduled benefits will be paid out through tax income after 2035. The program's projected growth is attributed to the rapid aging of the U.S. population. The eventual shortcoming of both Social Security and Medicare is a significant problem when it comes to long-term financing for U.S. citizens. (Lorie Konish, June 2nd, 2022, Social Security's funds have a new, later-projected depletion date of 2035. How Congress may shore up the program, Link)
Starting in a few weeks, 401(k) statements will include "lifetime income illustrations," which estimate the monthly retirement income generated by a lump sum. The illustrations are based on an individual's current 401(k) balance and aim to help Americans gain a better perspective on the funds needed to retire comfortably. For example, individuals with $125,000 in savings through their 401(k) may feel they have sufficient retirement savings. However, the new "lifetime income illustrations" will show this individual that the $125,000 only translates into $500-$600 per month throughout retirement. Overall, these illustrations are intended to help individuals make better decisions regarding future planning, show just how vital lifetime income is, and open the eyes of those who aren't quite prepared for retirement. (Greg Iacurci, June 13th, 2022, 401(k) savers will see a 'wake up call' in their following statement, says law professor. Here's what to look for, Link)
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