Tag Archives: Noel Abkemeier

Can R-Bonds help you save for retirement?

The U.S. Department of the Treasury will begin rolling out retirement bonds (R-Bonds) starting in January 2014. These government-issued savings bonds are aimed at employees working for companies that do not offer retirement programs. In this MarketWatch article, Noel Abkemeier discusses several issues related to R-Bonds:

Noel Abkemeier, a principal and consulting actuary with Milliman, an independent actuarial and consulting firm based in Seattle, had a laundry list of questions and suggestions. Among them:

What would R-Bonds provide that couldn’t already be done with an IRA? If this is taxed the same way as a traditional IRA, does it limit deductibility of the contribution inversely to income, and with the same limits? Or is it possible to have a Roth IRA version of the bonds?

What is the advantage of qualifying for rollover? That seems to fit somewhere between no-advantage and no-big-deal.

Where are the bonds held? Are they in an electronic notional account at the Treasury Department? Are they in your desk drawer at home? Are they at a brokerage account? If at the Treasury Department, there is the ultimate in portability, although that would not mean much.

If the bonds could be purchased with the filing of your tax return, it might add a little convenience to the transaction.

Are the R-Bonds inflation adjusted? Probably not, but that could be a potential advantage, if offered.

Will contributions be limited so it doesn’t benefit the wealthy disproportionately, as usually happens? This is an issue of both tax brackets and quantity of purchases.

What maturity will these have? Will yields vary depending upon maturity chosen?

Are there any reinvestment guarantees?

Will the bonds mature for a lump-sum payout? Or will they have a coupon payout for a fixed income at some point?

It would be better if they offered “lifetime income bonds,” which effectively would be deferred income annuities. They could have a cash-refund design so the purchasers would be trading lost interest for a lifetime income guarantee, while there was no fear of losing principal. This would send a strong message on priorities by merging the accumulation and decumulation challenges of retirement planning.

What will be the yield on the bonds? Will these have low Treasury yields, which is not the best investment for a complete retirement portfolio? Or will it be higher, which means that taxpayers will be funding government debt at a higher rate than is justified? How would the yield compare with a corporate bond no-load mutual fund?

Market dynamics for annuities are shifting

The demand for fixed-income annuities has increased as the volume of variable annuity purchases has decreased. However, in a recent Bloomberg BNA article, Milliman’s Noel Abkemeier discusses the negative affects the recession has left on variable annuity products.

Here is an excerpt:

“During the Great Recession, the cost of hedging the living benefits became very expensive,” which forced the insurance industry to deploy various de-risking measures to try to stabilize the variable annuity business, said Noel Abkemeier, a consulting actuary and principal at Milliman in Chicago.

Insurance companies instituted a number of investment changes and other measures “to control the cost of the living benefit to the customer and, secondly, to limit their own risk,” Abkemeier said during a session on trends in annuity products at the Insured Retirement Institute’s Government, Legal and Regulatory Conference.

Unlike variable annuity sales, purchases of indexed annuities increased slowly but steadily during the same 2007-2012 period, Abkemeier said. “They were maybe the product for the time,” because they were less vulnerable to the fluctuation in interest rates that hurt fixed-income and variable-rate annuities, he said.

For more Milliman perspective on variable annuities, click here.

Retirement landscape series

A team of Milliman consultants has written a series of articles that look at the current retirement landscape and the array of risks facing both retirees and plan sponsors—as well as the solutions available to them. The series includes four parts (so far):

Annuities as a solution to longevity risk

Kiplinger’s Retirement Report picks up on a sound retirement planning concept: Using an annuity to create a regular paycheck. Here’s an excerpt:

Finding a way to provide guaranteed income could be crucial if retirees fear outliving their savings. “Many people do not understand life expectancy,” says Noel Abkemeier, a principal at Milliman. Average life expectancy for a 65-year-old male is 84.2 years, and it’s 86.1 years for a 65-year-old female. But, says Abkemeier, “there’s a 50% chance you could live longer than lif expectancy–and it could be 10 to 15 years more.

No wonder there is so much apprehension from future retirees over outliving their benefits. So what’s a retiree to do? Going back to the Kiplinger piece:

Longevity insurance will maximize your retirement income at a time when you may need money to pay for long-term care and other medical expenses. It is best if you think about it as an insurance against living too long, rather than as an investment that may never pay out. Abkemeier recommends investing no more than 10% of your portfolio in longevity insurance, so you’ll have plenty of money for your other needs.

Of course an annuity is not the only way to go. The key thing is for retirees to recognize the risk and prepare accordingly.

What if you go broke in retirement?

The Street poses a question that may haunt more retirees than you think:

So what happens if, into your retirement, you run out of money? What options are you left with?

“You hope you have good family and good services in your community and that sort of thing,” says Noel Abkemeier — a retirement actuary for Milliman and an active member of the Society of Actuaries. “Of course when your account runs dry, hopefully you still have Social Security coming in your direction.”

One in six older Americans lives below the federal poverty line, according to a recent government analysis.

Seven steps to effective retirement

Market Watch’s Robert Powell weighs in on the seven steps to effective retirement. Here is an excerpt:

There are seven keys to a lot of things in life. There are seven steps to heaven and seven types of intelligence and seven habits of effective leaders.Now we have seven steps to retirement planning courtesy of the Society of Actuaries, which just released a 64-page report with the not-so-consumer friendly title “Segmenting the Middle Market: Retirement Risks and Solutions Phase II Report.”

“Retirement financial planning requires a methodical approach that identifies and quantifies each important component that affects the asset accumulation, income management and product selection/investment decision processes,” according to the report, which was sponsored by the society’s committee on post-retirement needs and risk and written by Noel Abkemeier of Milliman.

Not surprisingly Abkemeier says this approach is especially important for middle income Americans who likely have less than $100,000 set aside for retirement.

Read all seven steps here.