How do you ensure income from a 401k, IRA or similar-style defined contribution plan will last as long as the individual?
The “Spend Safely in Retirement Strategy (SSiRS),” first explained in 2017 by the Society of Actuaries (SOA) and Stanford Center on Longevity, seeks to do just that by helping older workers and retirees understand the amount of lifetime income they can expect in retirement.
The strategy includes two key steps:
- optimizing expected Social Security benefits through a careful delay strategy, and
- generating retirement income from savings using the IRS required minimum distribution rules, coupled with a low-cost index fund, target-date fund or balanced fund.
“This strategy can help older workers make critical retirement planning decisions, such as when to retire, whether to work part-time for a few years, and how to deploy and invest savings in retirement,” Steve Vernon, a Fellow of the Society of Actuaries and a research scholar with the Stanford Center on Longevity, said in a statement.
He added that older workers and retirees can implement SSiRS on their own, using funds that exist today in IRAs and 401k plans, and without needing to work with a financial advisor. However, they may still benefit from working with a financial advisor to personalize the plan for maximum financial success.
Recommended strategy steps
The researchers recommend the following best practices for implementing the Spend Safely in Retirement Strategy:
- Develop a plan to enable delaying Social Security benefits until the optimal age, either by working part-time or by deploying a portion of retirement savings to fund a Social Security bridge payment.
- Decide the appropriate asset allocation for the IRS required minimum distribution (RMD) portion of income, to achieve a reasonable compromise between growth and volatility in retirement income.
- Refine and adjust the baseline strategy to reflect a number of possible individual goals and circumstances. These refinements include starting the RMD portion of income before age 70-1/2; adjusting for the health status of the retiree (and spouse if married); providing for additional guaranteed retirement income if desired; adjusting for an uneven flow of living expenses; accelerating income to the early years of retirement when a retiree might be more active or vital; or adjusting for working part-time for a few years.