Enhancing Retirement Success Rates in the United States

Successful retirement per prior research is not outliving or outspending the portfolio of financial assets. Background and introduction to the enhanced retirement strategies of home ownership conversion to income stream and increases in social and human capital assets as they facilitate successful retirement are provided. Three research models (baseline, HECM, delayed Social Security and/or continuing employment) are introduced. Scaling factors, research questions, significance of the study, delimitations, and implications for financial planning practitioners are discussed.

Prior research examining demographic and socioeconomic cohorts within household assets are reviewed. The method used by the Trinity study to determine success rates is discussed. Also, prior research examining withdrawals, retirement length, and assets is reviewed. In addition, background information regarding qualifications for HECMs is discussed. The chapter then focuses on the gains and incentives for delaying Social Security claiming and then reviews sample calculations of the PIA.

Household survey data is the basis for this research rather than a fixed portfolio amount. The primary dataset, Survey of Income and Program Participation (SIPP), is administered by the U.S. Census Bureau to gather information and track program performance. Other datasets include Consumer Expenditure Survey (CES), Morningstar, and the Social Security Period Life Table of 2014. Various calculations are made with the data to arrive at the success rates and scaling factors. For the base model, these include end of period portfolio values, annual withdrawal amounts, annual income, annual cost of living, survival probabilities, success rates of each retirement length rolling period, probabilities weighted average of household success rates, and weighted population average success rates of a cohort group. There are additional calculation steps for the HECM model and for Social Security delayed claiming and continued work.

The descriptive statistics for the base model are described in the following areas: social capital assets, investment assets and new worth, age and status, and demographic cohorts of couples and singles households, states of residence, and age groups. Data is further analyzed using scaling factors by state of residence, age and marital status, and socioeconomic cohort groups of net worth ranges, home ownership, mortgage debt, business ownership, and earned income.

The descriptive statistics for the model adding HECM to the base success rates and eligibility are discussed. Data is further analyzed using scaling factors by states of residence, age cohorts by gender, net worth ranges, and socioeconomic cohort groups of business ownership, mortgage balances, and rental incomes.

The descriptive statistics for the model examining effects of delaying claiming Social Security benefits and continuing to work are discussed in terms of nine scenarios for determining annual income. The scenarios are: (a) claiming Social Security retirement benefits at FRA; (b) claiming Social Security retirement benefits at age 70; (c-1) claiming Social Security retirement benefits at current SIPP age and one year of earned income; (c-3) claiming Social Security retirement benefits at current SIPP age and three years of earned income; (c-5) claiming Social Security retirement benefits at current SIPP age and five years of earned income; (d) claiming Social Security retirement benefits at FRA and HECM tenure qualified; (e) claiming Social Security retirement benefits at FRA, one year of earned income, and HECM tenure qualified; (f) claiming Social Security retirement benefits at age 70 and HECM tenure qualified; and (g) claiming Social Security retirement benefits assumed at age 70, one year of earned income, and HECM tenure qualified. Combined strategy (d, e, f, g) success rates are compared to those of single strategies, and the strategies are ranked. Data is further analyzed using scaling factors by states, age cohorts, net worth cohorts, and socioeconomic cohort groups of business ownership, mortgage balances, and rental incomes.

General summary discussion describes noticeable differences from Trinity study and conclusions drawn from success rate and scaling factor data for the base model. For the HECM research model, improved results over the base model are discussed by state, age, net worth range, and socioeconomic cohort groups. Then, the success of single and combined strategies involving Social Security delayed claiming and continuing to work after retirement and other strategies are analyzed for their contributions to annual income for the various cohort groups. Finally, five sample case studies are presented to demonstrate how the research can be used in actual retirement planning scenarios. Situations presented include downsizing by migrating to another state, pension payout options, delayed claiming of Social Security retirement benefits plus continuing to work, and using HECM as a backup.