This paper is intended to help you select your target asset allocation. The target audience of this paper is retirees.  The choice of a target asset allocation is an important investment decision. Thus, before making this decision, you should consult your financial advisor to discuss the ideas expressed in this paper. But the bottom line is that it is your decision to select the asset allocation that is appropriate for you.

Financial Preparedness for Retirement

Before retiring, you should be both mentally and financially ready to retire. Some people are not mentally prepared to retire. They would rather work than retire from the workplace.

Even if someone is mentally prepared to retire from the work force, he or she should consider whether he or she is financially prepared for retirement. The key question concerning your financial preparedness for retirement is whether you will have sufficient funds to meet your retirement needs. To assess this issue, you need to examine your sources of income in retirement. For many retirees, including what I and others have called “typical retirees,” the only sources of income in retirement will be 1) their financial portfolio and 2) Social Security benefits.  Later in this paper, I will present a range of recommended asset allocations by professionals at mutual fund families for typical retirees by age.  As we shall see, there will be more agreement than disagreement about what the asset allocation should be for a typical retiree in his or her mid-60s –often assumed to be the age of retirement – and for a retiree well into his or her retirement years.

However, many retirees are not typical retirees in the sense that have other income-producing assets that will provide funds to help meet their retirement needs. These assets may include defined-benefit pension plans, payout annuities, income-producing real estate like rental housing, and income-producing natural gas wells. I refer to these other sources of income as extended assets. Furthermore, some retirees work part time, and the after-tax value of future wages is also an extended asset. In addition, the extended portfolio may include other assets that the retiree would be willing and able to sell to provide income to meet retirement needs, such as a vacation home. In Jennings and Reichenstein (2008)[1], we reviewed several studies and concluded that “there is now broad agreement among academics and professionals that private wealth managers should manage a client’s extended portfolio that includes the financial portfolio and, at a minimum, Social Security, defined-benefit plans, and payout annuities (page 39).”

An example will help clarify the idea of an extended portfolio. The Smith and Jones families have a lot in common. Both pairs of married couples are in their mid-60s. They both have $1,000,000 of financial assets in their 401(k)s, which is the entirety of their financial portfolios. They both receive $40,000 per year in Social Security benefits, an amount that will increase with inflation. Both couples have $250,000 houses that are owned free of debt.  Neither couple has debt (outside of monthly credit card bills that are paid in full). It sounds like they could each afford to spend comparable amounts per year in retirement. But that is not the case, because the Smiths have no extended assets, while Mr. and Mrs. Jones are both retired officers of the U.S. navy.  Their military retirement payments will pay each of them $45,000 per year. Furthermore, after the death of the first spouse the surviving spouse will collect both pensions worth $90,000.

Clearly, the financial position of the Jones family is materially different from that of the Smith family. Moreover, as I will explain later, the Jones’ military retirement plans, which are defined-benefit pension plans, are like owning a large portfolio of Treasury Inflation-Protected Security (TIPS) bonds. These TIPS bonds are inflation-linked bonds issued by the U.S. Treasury.  As I will explain later, I believe this large bond-like extended asset should affect the asset allocation of their financial portfolio.

 

Typical Retirees and a Range of Asset Allocations for such Retirees by Age

Typical retirees meet the following conditions.

  1. They will attain all of their funds to meet their retirement needs from two sources: their financial portfolio and Social Security benefits. Thus, they have truly retired and do not have future wages and salary to support their needs. In addition, they have no extended assets in their extended portfolios.
  2. All resources are intended for their retirement needs. If they die with funds remaining in their financial portfolio then someone – probably their children – will inherit these remaining funds. But they are managing their financial portfolio to meet their financial needs.

Table 1 presents the recommended asset allocations for a typical new retiree, which is usually considered to be a 65-year-old retiree, by professionals at Fidelity and Vanguard. In addition, Table 1 shows the final lowest-risk recommended asset allocation for an older retiree and at what age that asset allocation should be attained. Vanguard and Fidelity are, respectively, the largest and second largest mutual fund families. So, Table 1 presents the thinking of teams of investment professional at two leading mutual fund families.

For typical new retirees age 65, Fidelity recommends a 55% stock-45% fixed-income asset allocation. In addition, based on the June 26, 2017 asset allocations of the Fidelity 2015 Fund, which is designed for individuals who will retire approximately in 2015, the professionals at Fidelity recommended that 35% of the stock portion of the portfolio be allocated to international stocks. For the Fidelity Income Fund, which is the most conservative portfolio and is expected to be reached “10-19 years after the target date,” the target stock allocation is 24%. As of June 26, 2017, about 39% of the stock portion of this fund was allocated to international stocks.

For typical new retirees age 65, Vanguard recommends a 50% stock allocation, including 40% of the stock portion of the portfolio being allocated to international stocks. Vanguard’s target asset allocation falls to 30% for retirees seven years or more past normal retirement age. The professionals at Vanguard recommend that 40% of the stock portion of the portfolio being allocated to international stocks for all of its Target Retirement Funds. That is, for typical retirees from age 22 to 99, they recommend that 40% of the stock portion of the portfolio be allocated to international stocks.

There are important lessons that can be gleaned from the asset allocations recommended by Fidelity and Vanguard. First, a typical new 65-year-old single retiree should have a stock allocation of approximately 50% or higher. This typical new retiree may live 25 more years, but she should plan for perhaps a 30-year horizon to provide reasonable assurance that her financial portfolio will last her lifetime. A new retiree who spends money equally over a 30-year retirement period will have an average investment horizon of 15 years for his financial portfolio. Thus, even though she is retired, the investment horizon can be relatively long – and thus there is a need for a healthy dose of stocks in the asset allocation. If a new retiree has a short life expectancy, perhaps because of a terminal illness, then I (and I assume Fidelity and Vanguard), would recommend a more conservative portfolio for this new retiree.

There is one point in which I disagree with Fidelity and Vanguard. Consider my situation. My wife is six years younger than me and the bulk of our wealth is in my retirement plans. Suppose I retired at 65. Fidelity and Vanguard recommend that I make plans based on the year I retire and thus on my life expectancy.[2] I believe I should make plans based primarily on my wife’s life expectancy. These funds are intended to meet retirement needs for the rest of our joint lives.  Thus, everything else the same, if I was retired and 65 then I should have an even heavier stock allocation. In short, my 59-year-old wife’s life expectancy should dominate my thinking when selecting an asset allocation for our joint financial portfolio.

 

Table 1: Fidelity and Vanguard’s Recommended Asset Allocations by Age for Typical Retirees  

Fidelity Stock allocation Int’l stk/

Total stk

Vanguard Stock allocation Int’l stk/

Total stk

22 year old     22 year old    
65 year old 55% 35% 65 year old 50% 40%
75-84 year old 24% 39% 72 year old 30% 40%

 

Second, prudent investment management requires not putting all your eggs in the same basket, even if that basket is the U.S. Thus, professionals at these leading mutual fund families (and others not listed here) generally recommend that approximately 30% to 40% of the stock portion of the portfolio be allocated to international stocks. Some individual investors may not be familiar with international stocks, and thus feel uncomfortable making such as sizable allocation to this asset class. But, based on the history of returns, the more knowledgeable professionals at these and other mutual fund families recommend a healthy dose of international stocks.

Third, as a typical retiree ages, the recommended stock allocation decreases but it should never reach 0%. Historically, the lowest-risk portfolio, as measured by standard deviation, is not a 100% bond portfolio. Rather, depending upon the choices of the stock and bond return series, the lowest-risk portfolio may contain 20% stocks. Furthermore, as the stock allocation increases slightly beyond this lowest-risk portfolio, the additional average return per unit of risk is high. For example, moving from say 20% to 30% stocks may appreciably raise the average return for a minor increase in risk.  Thus, this risk-return tradeoff suggests that even older retirees with limited life expectancies should maintain some stock allocation – perhaps 25% to 30%.

For example, Ibbotson Associates has produced return series beginning in 1926 on several asset classes. Using Ibbotson’s 1926-2014 annual returns for U.S. large-cap stocks (S&P 500 since 1957) and 20-year Treasury bonds, the lowest-risk portfolio (in 5% stock increments) contains 20% stocks and 80% bonds. This 20% stock portfolio has a standard deviation of 8.91% and a geometric average return of 6.9%. For comparison, the 25% and 30% stock portfolios have standard deviations of 8.99% and 9.20% and geometric average returns of 7.2% and 7.5%, respectively. For 1926-2014, the 30% stock/70% bond portfolio is about 3% riskier than the 20% stock/80% bond portfolio, [0.29%/8.91%], but it offers an about 9% higher geometric average return, [0.6%/6.9%]. Thus, moving from the lowest-risk portfolio to a portfolio containing a slightly higher stock allocation has historically offered an especially attractive risk-return tradeoff. And since the correlation coefficient between high-grade bond and stock returns should remain low, this attractive risk-return tradeoff is expected to continue.

To repeat, Fidelity’s recommends that typical mid-60s retirees move to their lowest-risk portfolio containing 24% stocks 10 to 19 years into their retirement. Interpreting this 10-19 year periods as 15 years, they recommend that the typical retiree decrease his stock allocation about 2% per year until it reaches 24% at about age 80.  Vanguard recommends that the typical new retiree decrease his stock allocation by about 3% per year until it hits 30% at age 72.  However, the 30% stock allocation is Vanguard’s most conservative portfolio for typical retirees.

In summary, although there are some differences in Fidelity and Vanguard’s recommended asset allocation for typical investors, there is more agreement than disagreement in their recommendations. They each recommend an approximately 50% stock allocation for the typical 65-year-old retiree. They and other mutual fund families recommend that 30% to 40% of the stock portion of the portfolio be allocated to international stocks. They each recommend that the target stock allocation contain at least 24% stocks even for elderly retired individuals.[3]

 

How Extended Assets Might Affect the Target Asset Allocation

As noted earlier, typical retirees are assumed to receive funds to meet their retirement needs from only two sources: their financial portfolio and Social Security benefits. However, many retirees have extended assets from which they will receive additional funds to meet their retirement needs. Naturally, such non-typical retirees should manage their extended portfolios, which include not only their financial portfolio but also their extended asset(s). This section explains how these extended assets might affect these non-typical retirees’ target asset allocation for their financial portfolio.

Defined-benefit plan: A defined-benefit plan pays a retirement income that is usually based on year of service and average income perhaps in the highest three or five years. It is important to distinguish between a retiree with a defined-benefit plan but no (or very limited) Social Security benefits and a retiree with both a defined-benefit plan and a healthy Social Security benefit.

For example, Mr. and Mrs. Jones, the retired Navy officers in a prior example, each receive a stable real income from their defined-benefit plan (that is, their military retirement) and they each receive or will receive a healthy Social Security check because their jobs were part of the Social Security system. For such retirees, the defined-benefit plan is like having a large bond held outside their financial portfolio. They should manage their extended portfolio, which contains both their defined-benefit pension plans and their financial portfolio.  Due to their pensions being bond-like extended assets, everything else the same, their financial portfolio should be more heavily allocated toward stocks. The Jones’ inflation-adjusted $90,000 annual pension benefit allows them to allocation more of their financial portfolio to stocks.  If the Jones’ pension benefits plus their Social Security benefits meet all of their retirement needs then they could, if they choose, allocate all of their financial portfolio to stocks.

Let us change the example. Consider Julie, a single retired Texas public-school teacher. Based on years of service and average income in her highest three years, the state of Texas owes her a retirement income of $2,500 per month or $30,000 per year. However, because her teaching career was at a job that was not covered by Social Security taxes, she will receive minimal, if any, Social Security retirement benefits.[4] Julie’s defined-benefit pension plan should be viewed as a substitute for Social Security benefits, and not as a benefit in addition to Social Security benefits. Thus, like the typical retiree, Julie may depend on only two sources of income to meet her retirement needs: her financial portfolio and her pension plan. Since the pension plan is a substitute for Social Security benefits, the recommendations for typical retirees may be appropriate for her financial portfolio

Payout annuity: A payout annuity is an annuity that promises a monthly payment usually for the rest of your life. A payout annuity may pay say $1,500 per month for the rest of your life. A deferred payout annuity may pay say $2,500 per month beginning at age 80 for the rest of your life. If you die before 80 then the deferred annuity would pay nothing. Both payout annuities promise payments that can help finance your retirement needs. They are both extended assets. Like the defined-benefit pension plan, the payout annuity is like a bond. Thus, everything else the same, retirees with a payout annuity might allocate a larger portion of their financial portfolio to stocks.

Generalizing on the bond-like themes, everything else the same, a retiree with a bond-like extended asset should consider holding a larger stock allocation in his financial portfolio than a typical retiree. Although defined-benefit pension plans and payout annuities are the most common bond-like extended assets, they are not the only ones. I knew a retiree who had a winning lottery ticket that paid him several hundred thousand dollars per year for 20 years.  Another example comes from Cases in Portfolio Management by Peavy and Sherrerd (1991), which is a book used to prepare candidates for the CFA exam.[5]  The authors presented a case were a retired individual is a beneficiary of a trust that would pay him $50,000 per year for the next 25 years. The authors concluded that this income stream was essentially a bond and, therefore, recommended that the financial portfolio be invested entirely in common stocks and equity real estate. In short, these authors agree with me that, when an extended asset is bond-like, the financial portfolio should be allocated more heavily in stocks.

Non-flexible human capital: As mentioned above, human capital can be defined as the after-tax present value of future wages and salary. Suppose an individual retires from full-time work, but signs a contract to provide part-time consulting services for $50,000 for each of the next three years. After these three years, this income stream will cease. This income steam is essentially bond like. As such, compared to an otherwise similar retiree without this human capital stream, this retiree may choose to allocation a larger portfolio of his financial portfolio to stocks.

Flexible human capital: This extended asset is like the prior one, except the retiree receiving a part-time income has flexibility with respect to the length of this work. This retiree may expect to quit the part-time position in say three years. But suppose the stock market experiences a bear market in the next three years.  Then she could continue to work longer. That is, if necessary, she is willing and able to substitute work for leisure. Compared to the retiree with non-flexible human capital, this retiree could allocate and even larger portion of her financial portfolio to stocks than the retiree with non-flexible human capital. If the bear market develops then the income she would earn in the next three years and beyond would help offset the decline in her financial portfolio.

Wealth: Recall that typical retirees are assumed to be managing their financial portfolio for their retirement needs. For most retirees, this is clearly the case. But some retirees recognize that some, perhaps a lot, of their financial portfolio is really being managed for their heirs, which is probably their children.

Consider two retired couples: the Smith and Rich couples. The Smith couple has $2 million. This $2 million plus their Social Security are intended to provide all of their financial needs. Unless they have a long life expectancy and perhaps major medical expenses such as needing nursing home care, they expect to have some funds remaining after their death for their children to inherit. Nevertheless, they are managing their money for their needs and thus fit the description of typical retirees.

The Rich family is a 65-year-old couple that has $5 million in financial assets. This $5 million plus their Social Security will provide more than all of their financial needs. Even if one of both partners live long lives and need nursing home care, they are confident that $2 million of their funds are, in essence, being invested for their children. Target retirement date funds usually recommend about a 90% stock allocation for individuals saving for retirement who are in their early 40s or younger. The Rich family has two children ages 37 and 40. If $2 million is being invested for the eventual use of their children after both parents death, then the appropriate asset allocation for this $2 million should be much more heavily weighted toward stocks. Suppose the first $3 million of their financial portfolio is intended for their financial needs and has a 50% stock allocation, while the other $2 million is intended for their children’s long-term needs a has a 90% stock allocation. Then the target asset allocation of their financial portfolio would be 66% stocks. In short, the target asset allocation for some wealth retirees can be more heavily weighted toward stocks than the target asset allocation recommended for typical retirees.

My recommended asset allocations are designed for typical retirees, meaning retirees who will obtain funds to finance their retirement needs from two sources: 1) their financial portfolio and 2) Social Security benefits. However, as just discussed, there are many non-typical retirees. And the target asset allocation of these non-typical retirees can vary appreciably from the target asset allocation of typical retirees. To repeat, it is your job to select your target asset allocation.

 

Target Asset Allocations for Typical Retirees by Risk Tolerance Level

Table 2 shows the target asset allocations for typical retirees by risk tolerance level. For a typical 65-year-old retiree, the recommended target asset allocation at Fidelity and Vanguard in their target retirement date funds contain 50% to 55% stocks. As the typical retiree ages, Vanguard recommends that the target asset allocation be reduced to 30% stocks about seven years past normal retirement date. In contrast, Fidelity recommends that the target asset allocation be reduced to 24% stocks 10 to 19 years past normal retirement date. That is, as the typical retiree ages both families of mutual funds recommend that the financial portfolio becomes less risky. Stated differently, the typical retiree becomes more conservative through his or her retirement years.

I recommend that two-thirds of the stock portion of the portfolio be allocated to U.S. stocks and one-third be allocated to international stocks. Of the international portion, I recommend that approximately 20% of the international stock exposure come from emerging markets stocks (e.g., Latin America, Eastern Europe, China and India) and 80% from developed market stocks (e.g., Europe including Great Britain, Japan, Australia).

For the fixed-income portion of the portfolio, I make the following recommendations. First, approximately half of the funds should be allocated to short-term debt with the other half allocated to intermediate-term debt. Second, I recommend that most of the bond portion of the portfolio be allocated to corporate bonds and mortgage-backed securities instead of Treasury bonds. Third, I recommend that approximately 15% of the fixed-income portion of the portfolio be allocated to inflation-linked bonds. Finally, I recommend that the fixed-income portion or the portfolio avoid speculative-grade (a.k.a., junk bonds, high-yield bonds). Let me explain my thinking on these issues.

 

Table 2: Target Asset Allocations for Typical Retirees by Risk Tolerance Level

  Conservative Moderately Conservative Moderate Moderately Aggressive Aggressive
Stocks 30% 40% 50% 60% 70%
REITs 5% 5% 5% 5% 5%
Fixed Income 65% 55% 45% 35% 25%
           
U.S. Stocks 66.7% 66.7% 66.7% 66.7% 66.7%
Int’l Stocks 33.3% 33.3% 33.3% 33.3% 33.3%
           
Short-term  Corporate 35% 35% 35% 35% 35%
Interm-term Corporate 50% 50% 50% 50% 50%
Short-term TIPS 15% 15% 15% 15% 15%

 

Historically, the average return has risen appreciably as maturity increases from short-term to intermediate-term debt. However, historically the average return has not risen substantially as maturity increases from intermediate-term to long-term. For example, based on Ibbotson Associates’ returns series for 1926-2016, the geometric average return increased from 3.4% for short-term Treasury bills to 5.1% for intermediate-term Treasury notes. By comparison, the average return on long-term (20 year) Treasury bonds is only 0.4% higher than the average return on intermediate-term (5 year) Treasury notes. Since long-term bonds are much more price sensitive to changes in interest rates (that is, riskier) than intermediate-term bonds, the additional return per unit of risk in moving from intermediate-term to long-term bonds in not particularly attractive. In contrast, the additional return per unit of risk in moving from short-term to intermediate-term bonds has been much more attractive.

I expect the risk-return tradeoff to remain relatively attractive in moving from short-term to intermediate-term bonds compared to moving from intermediate-term to long-term bonds because of institutional features of the bond market. In particular, the liabilities of defined-benefit pension plans and some liabilities for life insurance companies are very long-term in nature. Since investments in long-term debt obligations better match their liability structure (and are thus less risky for them) they do not demand a higher expected return before they are willing to buy long-term instead of intermediate-term bonds. These institutional investors are important players in the long end of the bond market. It follows that the additional return on high-grade long-term bonds will probably not be much higher than the average return on high-grade intermediate-term bonds despite the long-term bonds much higher risk.

Second, I recommend that most of the bond portion of the portfolio be allocated to corporate bonds instead of Treasury bonds. One reason to favor corporate bonds is the taxation of interest on Treasury debt.  As we all know, due to the tax-free status of interest at the federal tax level on most state and local government municipal bonds, their yields and thus returns are lower. Thus it does not make sense to hold tax-free municipal bonds in tax-deferred accounts like a 401(k) or rollover IRA or tax-exempt accounts like a Roth IRA.  Similarly, due to the tax-free status of Treasury interest at the state and local income tax level, Treasury yields and thus returns are lower. Since state and local tax rates are lower than federal taxes, the impact on yield and returns is smaller on Treasury bonds than on municipal bonds. However, the same argument holds. In general, it does not make sense to hold Treasury bonds in tax-deferred accounts or tax-exempt accounts like a Roth IRA.

Third, the U.S. Treasury issues Treasury Inflation Protection Security (TIPS) bonds that pay a low real (inflation-adjusted) return plus whatever the inflation rate turns out to be.  These TIPS bonds provide some protection to the fixed-income portion of the portfolio in case inflation turns out to be higher than expected. Despite begin Treasury securities subject to the tax-based argument discussed above, I recommend that some portion of the fixed-income portfolio be allocated to TIPS.

Finally, although not evident from Table 2, I recommend that the bond portion of the financial portfolio include only investment-grade or better bonds, that is, what I call high-grade bonds. Speculative-grade bonds – also called junk bonds and high-yield bonds – have significant probabilities of default. Returns on these speculative-grade bonds tend to move with the stock market. For most individual investors, the purpose of investing in bonds is to remove stock-market sensitivity from that portion of their financial portfolio. Investments in speculative-grade bonds do not achieve this goal. For example, when the S&P 500 lost 37% in the bear stock market of 2008, Merrill Lynch’s High-Yield Bond index lost about 26%. In contrast, Ibbotson Associates reported that high-grade corporate bonds earned 8.78% and intermediate-term Treasury notes earned 13.11% in 2008. Thus, unlike speculative-grade bonds, returns on high-grade (a.k.a., low default risk) bonds have historically provided protection against stock market risk.

Summary

In this paper, I have presented some of my thoughts to help retirees select the target asset allocation for their financial portfolio. Based on the advice embedded in target date funds at Fidelity, Vanguard, and other mutual fund firms, there is reasonable agreement about what the target asset allocation should be for typical retirees in their mid-60s. Furthermore, there is reasonable agreement that these typical retirees’ portfolios should become more conservative and they advance through their retirement years. There is even reasonable agreement that their stock allocation should not fall below perhaps 24% even if they are in their advanced retirement years.

But perhaps the major contribution of this paper is to note underlying assumptions behind these recommended asset allocations.  In particular, the recommended portfolios are for typical retirees, that is, retirees who will finance their retirement needs from two sources: their financial portfolio and Social Security benefits. Many retirees are not typical in this sense. In contrast, many retirees will receive funds from other sources to help finance their financial needs. In Jennings and Reichenstein, we reviewed several academic and professional articles that conclude that retirees should manage their extended portfolios that includes not only their financial portfolio, but also any extended assets they may have. These extended assets may include future funds from defined-benefit pension plans and payout annuities. Another extended asset that affects a large portion of retirees is their future wages and salaries from part-time work.

To repeat, it is your job to select the target asset allocation that you believe is appropriate for your financial portfolio. I hope this paper has provided you with thoughts that can help you make an informed decision.

 

 

[1] William W. Jennings and William Reichenstein. 2008. “The Extended Portfolio in Private Wealth Management,” Journal of Wealth Management, Summer, 36-45.

 

2Fidelity writes “For instance, the Fidelity Freedom 2020 Fund is designed for investors who plan to make contributions until about the year 2020, at which point they expect to retire …” Vanguard writes, “The year in the fund name refers to the approximate year (the target date) when the investor in the fund would retire and leave the work force.”

 

3 Although not discussed, Fidelity and Vanguard each recommend at least some of the fixed-income portion of the portfolio be allocated to international bonds. However, the investment profession has not reached anything near a consensus about the portion of the fixed-income portfolio that should be allocated to international bonds. For example, the Fidelity Freedom 2015 Fund has 1.7% of the fixed-income portion of the portfolio invested in international bonds, while Vanguard Target Retirement 2015 Fund has 24.4% of its fixed-income assets in international bonds. So, I do not provide advice on this issue.

 

4 If Julie worked at least 40 quarters in jobs covered by Social Security then she would receive some, but likely greatly reduced Social Security benefits, based on these jobs. However, her salary as a public-school teacher and at any other jobs not covered by Social Security, would not count when calculating her Social Security retirement benefits. If married, special rules would apply to Julie’s Social Security spousal and survivor benefits, that is, her benefits based on her spouse’s earnings record.  In general, her spousal and survivor benefits would be reduced by 2/3rds of her non-covered pension amount. Assuming a $2,500 pension, this would wipe out her spousal benefits and eliminate much of her survivor benefits.

 

5 John W. Peavy and Katrina F. Sherrerd, “Profit-Sharing Advisory, Inc. (B),” Cases in Portfolio Management, Association for Investment Management and Research, 1991.

 

[4] If Julie worked at least 40 quarters in jobs covered by Social Security then she would receive some, but likely greatly reduced Social Security benefits, based on these jobs. However, her salary as a public-school teacher and at any other jobs not covered by Social Security, would not count when calculating her Social Security retirement benefits. If married, special rules would apply to Julie’s Social Security spousal and survivor benefits, that is, her benefits based on her spouse’s earnings record.  In general, her spousal and survivor benefits would be reduced by 2/3rds of her non-covered pension amount. Assuming a $2,500 pension, this would wipe out her spousal benefits and eliminate much of her survivor benefits.

[5] John W. Peavy and Katrina F. Sherrerd, “Profit-Sharing Advisory, Inc. (B),” Cases in Portfolio Management, Association for Investment Management and Research, 1991.

After you have typed in some text, hit ENTER to start searching...

Get more, keep more of the retirement income you’ve worked so hard to save with Income Strategy.