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ISSUES IN THE PAYOUT PHASE

This workshop discusses various payout options in the retirement phase, including lump sum distributions, periodic payouts, and life annuities. It also examines the advantages and disadvantages of each option.

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ISSUES IN THE PAYOUT PHASE

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  1. ISSUES IN THE PAYOUT PHASE Gary Hendricks Regional Pension Workshop Majuro, Republic of th Marshall Islands April 25-29, 2016

  2. Issues in Payout Phase (DC):Payout Options • Lump sum distribution at retirement • Periodic payout for fixed term • Guaranteed life annuity

  3. Payout Options: Lumpsums • Withdraw entire account balance upon retirement • De minimus accounts • Risk aversion • Invest in alternative form of retirement security • Withdraw part of balance • Reduce cost of living (debt reduction) • Moderate risk • Remaining balance available for other options • Disadvantages of withdrawals • May lose ability to smooth income over lifetime • Exposes worker and family to poverty in future

  4. Payout Options: Payments over Fixed Term Option: Worker select to receive monthly payments over a fixed period (5,10, 20 years) after which funds will be exhausted. • Advantage: Higher monthly pension than under annuity • Disadvantage: May exhaust savings too soon

  5. Payout Options: Life Annuities • Major advantage: Pension is guaranteed for life • Disadvantage: • Pension ceases when worker dies • Adequacy can be compromised if there are survivors • Adding survivors is expensive and reduces worker’s pension

  6. Annuity Options • Single life annuity • Joint and survivor annuity • Fixed term annuity with guaranteed benefit thereafter

  7. Single Life & Period Certain Annuities(Immediate Income on $100,000 for Age 65 Male)

  8. Joint Life & Period Certain Annuities (Immediate Income on $100,000 for Male Age 65 with Female Age 50 )

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