In a recent SOA White Paper, Wade Pfau, Joe Tomlinson, and Steve Vernon presented a wide-ranging review of the many retirement income generators (RIGs) available to retirees. Included among the RIGs considered were the obvious and most prevalent ones, i.e., defined contribution plans (most commonly the 401(k) account and rollover IRA), and the less obvious (but equally prevalent) one, home equity.Read more
As more and more people react to what I’ve written, it seems that by far the most controversial aspect (particularly among actuaries) of “What’s Your Future Worth?” has been the notion of a “personal rate of discount” and the proposition that each individual (rather than an expert) should decide how the relative value of amounts that will be received in the future versus those that are received (or paid) in the present is determined. The challenges to the concept have been less about whether or not we all have personal rates of discount (research in behavioral economics over the last 30 years on “time preference” has demonstrated this compellingly) but rather whether we should rely on our own internal time preferences to make important life decisions.
“The work of science is to substitute facts for appearances, and demonstrations for impressions.” — John Ruskin (motto of the Society of Actuaries)
The Actuarial Perspective
As our economy opens up and the issues around the risk of becoming infected and dying from COVID-19 get more complicated and confusing, it becomes harder and harder for individuals and organizations to make well-informed decisions. I believe, at least with respect to one key aspect of these decisions, the actuarial perspective can be extremely useful. Read more
COVID Mortality and the state of the Life Insurance Business
Having been around the Insurance Industry for over 40 years, I have learned a few things about the business model that has kept large carriers alive and profitable for decades and sometimes centuries (several of the big ones have been around since the 19th century).
One of the key principles I have seen in operation is that hazards almost never turn out as bad as policyholders fear – except when they turn out much, much worse. As a result, insurance companies are able to charge premiums that will generate a profit but do need to attend to the possibility of a “black swan event” that could be truly catastrophic.Read more
Decumulation and Silver Divorce: “Spike Expense Risk” and 3 other risks
In 2020, I wrote a series of short essays expanding on each of the 6 principles of Holistic Financial Wellness that I outlined in my book, “Money Mountaineering.” These essays were intended to help readers understand how each principle might operate in practice as well as give me a chance to update what I had written for how the world and my thinking about these principles had changed in the months between the submission of my manuscript to the publisher and the day that the book became available to the general public. Read more
The Actuarial Approach and Recommended Financial Planning Process for Retirees and Near Retirees: Ken Steiner’s 3 Principles to Accomplish Your Financial Goals
A Note from actuary and author Peter Neuwirth, FSA, FCA: It is a pleasure to feature actuary Ken Steiner in the June episode of Money Mountaineering. As mentioned in our interview, Ken has created a list of 3 principles and a 7-step process to help accomplish financial goals. He calls it the “Annual Actuarial Valuation Approach” and has been kind enough to share those with us in the essay below. Thank you, Ken! We know our audience will benefit from this insight.
