Look at Financial Health Before Jumping In a Pool
The Tradecraft department from May/June 2023 (“When to Join a Retiree Longevity Risk-Sharing Pool”) raises interesting points about the financial consequences of the decision to participate immediately in a longevity pool on retirement, or to delay entry until sometime later.
Examining the decision through the lens of financial well-being can shed additional light. This approach begins with identifying the individual’s priorities. As alluded to in the article, these might be broadly categorized as income, emergency reserve or liquidity, and legacy for heirs.
The retiree’s first priority is having sufficient lifetime income, followed closely by an emergency reserve. If other assets can meet the income need (at least temporarily), then delaying participation can give the retiree a nice bump in income after the delay period. Also, if the reserve need decreases (or is covered by other assets), that provides additional amounts that can be added to the delayed participation.
On the other hand, a less-than-average life expectancy or the desire to leave a legacy (after meeting the other needs) would suggest that the retiree might not want to participate in the longevity pool at all, but as noted at the beginning of the article, the presumption is that an individual has already decided to participate in a longevity pool.
This analysis is similar to the decision on whether to take one’s Social Security benefit at retirement or delay commencement until age 70. In both cases, regardless how good the pure financials are, the ability to have access to those options is heavily dependent on the retiree’s other resources.
Nuclear Plants Are Too Costly to Be Viable in the Long Term
The article by Alyssa Oursler (“Is the World Finally Ready for Nuclear Energy?” May/June 2023) surprised me. She tries to give an appearance of neutrality, but it is evident that she is arguing for more nuclear energy (“oft-maligned power source” and “promises of nuclear power to break America’s addiction to fossil fuels”).
I’m a long-retired actuary who began on the life side in the U.S., but after moving to Sweden in 1972, began working on the non-life side, and then moved on to various management positions. From 1983 through 1991, I was Folksam Insurance Groups’ executive vice president for all commercial insurance—from farms, small shops, factories, commercial vehicles, marine and transport, etc., up to insuring an oil refinery and a nuclear plant.
I don’t pretend to have any particular expertise regarding nuclear power, but I am strongly skeptical of it. A true expert is Tomas Kåberger, professor in industrial technology at Chalmers University of Technology in Gothenburg, and chair of Renewal Energy Institute in Tokyo and of Johannesberg Business Park. Apart from crucial issues of security and nuclear waste disposal, Kåberger in a debate article three months ago (in Swedish) convincingly shows how uneconomical nuclear energy is. It costs four times as much as solar and wind energy, and twice as much as oil.
Kåberger also shows the enormous delays and cost overruns in nuclear reactor projects. From Sweden’s first reactor in the 1960s, completed three years late and five times as expensive as planned; to Russia’s Akademik Lomonosov small modular reactors that were completed nine years late and at more than six times the planned cost: to the recently completed Finnish Olkiluoto nr 3 reactor that was 18 years behind schedule and at a 3× cost overrun. Oursler really should have made reference to at least the Finnish fiasco.
The ‘Challenge’ Was Designed to Inform the General Public
In the May/June issue of Contingencies, Ken Steiner, in a letter to the editor, says he looks forward to taking the Academy’s Social Security Challenge. I hope that he has joined the thousands of Academy members, stakeholders, and members of the public who have journeyed through Townsville and learned about Social Security financing and the reform options to keep the system strong for generations to come.
The app was designed with the public in mind, and so we started with the basics—and used easy-to-understand language. We were positively recognized for this approach in many of the media stories about the Challenge—one of which offered praise since it did not present like a ”dense actuarial report.” For example, in Townsville, there is a discussion about raising the Normal Retirement Age in a clip from the local TV talk show. For those users who want a more nuanced and comprehensive look at this topic, the Academy’s issue brief is available and linked on the Challenge landing page—actuary.org/socialsecurity.
Mr. Steiner challenged a statement I made in a Contingencies article about how Social Security finances got to this challenging state. My response focused on demographics was a broad one, written to explain the current situation to a member of the public. In a system designed so that taxes paid by current workers pay for the benefits of those who are and will be retired, the number of workers “supporting” each retiree being lower than needed and the fact that retirees are living longer is the gist of it.
It appears that he assumed I was referring to what has happened to the system since 1983 where the reforms enacted then were assumed to keep the system in balance during the 75-year projection period, which they clearly have not. The Academy’s Social Security Committee will soon be releasing its issue brief on the 2023 Trustees Report; that document will go into detail on this question for those who are interested.
A few of the press articles took the approach of asking Social Security experts for their reactions to the Challenge and they provided some useful feedback, as did Mr. Steiner and other members. The Challenge was sent to each member of Congress, and we received comments from a member of Congress directly (he was very positive!) as well as some Hill staffers. All of these comments will be considered as we continually look to update and modify the app while ensuring that the app remains accessible and engaging to the general audience it was designed to reach and has been successful in doing.
Linda K. Stone, MAAA, FSA
Senior Pension Fellow
American Academy of Actuaries