PLANSPONSOR - April/May 2018 - 79

first place. They just give 'information,'
and so this potential strategy is not being
taken advantage of by this quite vulnerable
population. It's a real shame. "
While the inspector general report
cited widows as one particular group in
need of help and support, most people-
notably retirement plan participants-
would benefit from additional expertise
in maximizing Social Security claiming
decisions.
A Better Way
Meyer is following the issue closely
because his firm is in the process of
rolling out what he hopes will be a groundbreaking
Social Security-claiming optimization
software product that comports
directly with DC retirement plans. Meyer
suggests that, to date, many of the " big,
successful DC plan recordkeepers " have
failed to include any sophisticated Social
Security or tax considerations in what they
offer participants, but says participants
should make withdrawal and claiming
decisions together. " By optimizing Social
Security decisions and better tying these
to the DC plan draw-down and rollover
decisions, a given plan participant can
make his money last between two and 10
years longer, " Meyer says.
" We are coming to market with a
new software product that coordinates
the claiming of Social Security with portfolio
draw-down decisions in the defined
contribution plan arena, " he says. " This
is a topic that I have seen a tremendous
amount of interest in from all of the stakeholders-advisers
and consultants, plan
sponsors and participants. " Pilot clients
have included a range of types of firms
such as Vanguard, Northern Trust and
Financial Engines.
" There are about 3,000 rules and
20,000 pages of explanatory material
that set out all of the different claiming
strategies and possibilities for drawing
Social Security, " he says, adding, " It's an
area where software and artificial intelligence
can really shine. "
Providing guidance for participants
could become less complicated, though.
The recent study " Optimizing Retirement
Income by Integrating Retirement Plans,
IRAs and Home Equity " by the Stanford
Center on Longevity, conducted in conjunction
with the Society of Actuaries, presents
a simplified method that plan sponsors
and retirees can use to compare and assess
strategies for developing lifetime retirement
income.
Steve Vernon, a research scholar at
the Stanford Center and a co-author of
the study, says the strategy suggested is
straightforward and simple to administer:
" We're not suggesting things that
take a lot of expense-the strategy uses
existing tools plan sponsors have, as well
as existing capabilities of providers. "
In short, the authors of the study
recommend " a portfolio-based approach
that integrates Social Security-claiming
decisions, investing and deploying retirement
savings, and utilizing home equity
if necessary. " Under this approach, Social
Security benefits, pensions, annuities,
and tenure payments or lines of credit
from reverse mortgages can be considered
the " bond " or " guaranteed " part of
a retirement income portfolio. If retirees
achieve sufficient, secure income from
these sources, the analysis justifies
investing remaining savings significantly
in equities, which are more volatile but
have the potential for growth.
Meyer believes more sophistication
is needed, however, saying that many of
the Social Security and DC plan withdrawal
optimization tools in the marketplace
right now " are just not sophisticated
at all. " They might consider a small
number of inputs and then pick from
perhaps three or four possible strategies.
Such solutions are just not good enough
to serve real individuals, he says.
" For example, the conventional
wisdom on how someone should draw
down his various assets to maximize
retirement income-used by all of the
big recordkeepers, by the way-is that
you should take all of your taxed money
first until it's gone, and only then do you
take all of your tax-deferred money until
it's gone. Finally you take the tax-exempt
dollars, " Meyer observes. " That rule of
thumb is pervasive, but we can now show,
using our software, how this is actually
typically the opposite approach of what
would maximize lifetime wealth for a
given individual. "
Similar to Meyer's take on the
subject, the Stanford study notes that,
for most middle-income retirees, Social
Security is " the foundation of retirement
income, " providing anywhere from half to
more than three-fourths of it in total.
" Social Security has several desirable
features that, in aggregate, aren't available
with any other retirement income
solution, " Vernon observes. " Therefore,
optimizing Social Security benefits
through delayed claiming is often an
important component of a retirement
income strategy. Risk-averse retirees
should consider drawing from savings,
in order to optimize Social Security
benefits, before purchasing an annuity or
investing in bonds. When middle-income
retirees optimize Social Security benefits,
they might have all the 'annuity' income
they need, particularly if they reduce their
living expenses. " -John Manganaro
KEY POINTS
* When to claim Social Security
is the largest single point-intime
financial decision over an
individual's lifetime.
* Social Security Administration
agents lack the authority to give
advice or recommendations,
and many recordkeepers do not
currently include Social Security
or tax consideration in what they
offer participants.
* Guidance for participants,
whether simple or sophisticated,
can help them maximize how
much they receive from Social
Security and how to align that
with DC plan distributions.
PLANSPONSOR.com April-May 2018 79
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