ISSUES IN THE PAYOUT PHASE

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Presentation transcript:

ISSUES IN THE PAYOUT PHASE Gary Hendricks Regional Pension Workshop Majuro, Republic of th Marshall Islands April 25-29, 2016

Issues in Payout Phase (DC): Payout Options Lump sum distribution at retirement Periodic payout for fixed term Guaranteed life annuity

Payout Options: Lumpsums Withdraw entire account balance upon retirement De minimus accounts Risk aversion Invest in alternative form of retirement security Withdraw part of balance Reduce cost of living (debt reduction) Moderate risk Remaining balance available for other options Disadvantages of withdrawals May lose ability to smooth income over lifetime Exposes worker and family to poverty in future

Payout Options: Payments over Fixed Term Option: Worker select to receive monthly payments over a fixed period (5,10, 20 years) after which funds will be exhausted. Advantage: Higher monthly pension than under annuity Disadvantage: May exhaust savings too soon

Payout Options: Life Annuities Major advantage: Pension is guaranteed for life Disadvantage: Pension ceases when worker dies Adequacy can be compromised if there are survivors Adding survivors is expensive and reduces worker’s pension

Annuity Options Single life annuity Joint and survivor annuity Fixed term annuity with guaranteed benefit thereafter

Single Life & Period Certain Annuities (Immediate Income on $100,000 for Age 65 Male) Option Estimated Monthly Income Annual Cashflow rate Single Life Only $549 6.59% Single Life with 5 Years Certain $551 6.61% Single Life with 20 Years Certain $495 5.93% 5 Year Period Certain $1,719 20.63% 10 Year Period Certain $917 11.01% 15 Year Period Certain $666 7.99% 20 Year Period Certain $546 6.55% 25 Year Period Certain $488 5.85%

Joint Life & Period Certain Annuities (Immediate Income on $100,000 for Male Age 65 with Female Age 50 ) Option Estimated Monthly Income Annual Cashflow Rate Joint Life Only $388 4.65% Joint Life with 5 Years Certain Joint Life with 10 Years Certain $387 4.64% Joint Life with 15 Years Certain $384 4.61% Joint Life with 20 Years Certain $381 4.57%