401(k) Specialist Issue 1 - 2023 - 17

quite a bit deeper to come away with a more
concise expectation about individual longevity.
Using a variety of studies combined with a
few questions for the participant, he is able to
come up with a much more individualized
estimation of mortality.
The questions include where the participant
lives, if they smoke or not at age 65, and
then the most impactful question: " Do you
consider yourself in poor, average, good, very
good or excellent health? "
The difference between " poor " and " excellent "
is 7 years, Fraser noted. Armed with
this information from a participant and using
Benartzi's PensionPlus strategy, an advisor can
tell the participant what his or her retirement
paycheck should be based on their 401(k)
account balance and their ability to delay
claiming Social Security.
" It's about helping people create a personalized
plan, " Benartzi said. " It's helping you
realize what the possibilities are for you. "
Fraser explained that at age 65, a participant
might start getting a retirement check of
$2,600 a month from their 401(k). But if they
agree to wait until age 70 to begin claiming
Social Security, that check can be increased
from $2,600 to $3,000 right now.
" You'll start getting that at age 65. But
what's going to happen is that we're going to
start to draw down your 401(k) to get you
there. Which people don't get, " Fraser said,
adding that many people still mistakenly want
to claim Social Security as soon as possible.
" The media has talked about the fact that it
may not be there for you. So we've scared
them into taking it early. "
He told the story of " Gus, " a participant
in Oregon with a heart condition who has
worked at a wood manufacturing company
for 47 years, never making more than
$35,000 a year. But he still has a nice 401(k)
balance thanks to his work over the past 20
years with Fraser. Based on Benartzi's PensionPlus,
Fraser was able to show Gus that
he could retire right then if he wanted to,
instead of waiting another 2 years.
" There's a reason that we do this stuff, and
it goes beyond pure finance and numbers. It's
about changing lives, " Fraser said.
The Low-Income 20-Year-Old
Fraser has several stories about real life scenarios he likes to share. For example,
say a 401(k) participant is a 20-year-old who will never make more
than $25,000 a year.
" Most people would agree that person can't save $100, " he said. But
here's how the Pennies on the Dollar approach could work for them:
" If you start by saving one penny of every dollar at age 20, increase it
by a penny per year to six pennies of every dollar by age 26, and maintain
that six-penny rate from age 26-65, that person will have saved $63,875
by age 65. If that were to grow at 6% on an annual basis, that person
would have $296,413 by age 65. So does that make sense to providers
who are looking for average account balances that are bigger? "
In retirement, that person could withdraw the equivalent to 80% of their
monthly salary, or roughly $1,667. Combine that with a Social Security
benefit of as little as $1,400, and that person who never made more than
$25,000 per year is drawing over $3,000 per month or $36,000 per year.
Why Academics Need Advisors
The model of an advisor in the field (like
Fraser) working with an academic (like
Benartzi) to advance research is critical to the
process, Benartzi said, because that partnership
can speed up the implementation of
game-changing innovations.
" People might not remember-it took one
advisor to get 'Save More Tomorrow' to the
field back in 1998, " Benartzi said. The advisor,
Brian Tarbox, passed away and didn't get to
see the program's huge success, " but without
that advisor it would have taken us a few more
years to get the auto-escalator to the field and
it would have taken us longer to get it into [the
Pension Protection Act of 2006], " Benartzi said.
Save More Tomorrow, designed by Benartzi
and Thaler, is now offered by more than
half of the large retirement plans in the U.S.
" Advisors often don't realize the power
they have if they are implementing new ideas
in the field, and I think George with the
pennies and our joint work also on decumulation-if
he didn't help me test the decumulation
tools in the field it would have taken me
a bit longer. Eventually I would have found a
way to do it, but we need speed. People need
help, " Benartzi said.
" If there's one big message I want to leave
the readers with, it is that every advisor who
reads the magazine could be the next one
with the big idea to transform the industry. "
By the way, coming soon is Fraser's next
great idea-one he says " will change the
way the average American thinks about
and prepares for income and lifestyle in
retirement. "
ISSUE 1 2023 | 401kSpecialist.com
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401(k) Specialist Issue 1 - 2023

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