Retirees: What You Should Watch in 2018
January 9, 2018 by Mark Miller
Mark Miller: Remaking Retirement
The economy is strong and the stock market is surging. Interest rates are rising a bit, but inflation looks steady. That should mean smooth sailing in 2018 for retirees and people planning for retirement, right? Even the new tax law didn’t do much to impact retirement: The final legislation dropped earlier proposals to sharply curtail tax-deferred 401(k) contributions and deductibility of high medical costs.
But at the same time, there’s good reason to worry about possible efforts to change our two most important retirement programs–Social Security and Medicare. Further, the fiduciary rule governing retirement advice could be undermined. And higher interest rates actually could be a double-edged sword for retirees.
So let’s assess the landscape for the year ahead for retirees and for those nearing retirement
Fiduciary Rule
It’s worrisome that the U.S. Department of Labor is delaying implementation of some provisions of the fiduciary rule governing advice on retirement investments until July 2019. But the heart of the rule is in place, and already having a major impact on retirement investing.
“The delay can make things seem like doom and gloom, but I’m very happy that the impartial conduct standards are in full effect,” says Kate McBride, former chair of The Committee for the Fiduciary Standard, a group of industry practitioners and experts. “If firms don’t live up to them, they are going to be in trouble.”
The advice business is shifting away from commission to fee-based models at an astonishing clip. One small sign of this is the growth in assets under management at custodial firms working with RIAs. Charles Schwab and TD Ameritrade pulled in roughly $200 billion combined in net new assets last year, most of which was parked there by RIAs.
The change also is reflected in annuity sales. The LIMRA Secure Retirement Institute reported recently that total annuity sales fell 13% during the third quarter last year, driven mainly by a drop in contracts sold within IRAs. Variable annuities–which have been a poster child for the expensive products that often don’t meet the rule’s best interest standard–recorded a 16% drop in sales.
“The drop-off in IRA sales was substantial compared with non-qualified sales,” says Todd Giesing, the LIMRA Institute’s director of annuity research.
Kitces suspects no-load annuity products could lead the industry to new growth.
“The annuity industry has insisted that it is doomed if it cannot compensate agents to sell annuities, which reminds me of the mutual fund industry saying the same thing 20 years ago. But when you strip out the commissions, the products get so much cheaper and better that more people want to buy them. Could no-load annuities follow the same path?”