Logic behind single parent asset protection amount

calmom
Sun, 10 Feb 2013 06:58:04 +0000

Go back to the formula I quoted in post #4:



Such revised table shall be developed by determining the present value cost, rounded to the nearest $100, of an annuity that would provide, for each age cohort of 40 and above, a supplemental income at age 65 (adjusted for inflation) equal to the difference between the moderate family income/u, and the current average social security retirement benefits.



Here’s my guess.

The economy has been weak for the past 4 years with high unemployment. Therefore, “moderate family income” probably has gone down with the weak economy.

“Current average social security retirement benefits”, however, probably have remained relatively stable, because they are calculated based on average pay over the 35 years in which the retiree earned the most money. If a retiree has worked more than 35 years and gets laid off during the bad economy, the benefit is still calculated based on all the good years.

So let’s just make up some pretend numbers to do the math.

Let’s say that “moderate family income” in past years was $40,000 and "average social security benefit was $20,000. That leaves a $20,000 difference that needs to be covered by the hypothetical annuity.

Now now lets say that “moderate family income” drops to $36,000 because of an 8% unemployment rate. Social security benefit stays the same. So now instead of $20K difference, there’s a $16K difference. Cheaper to buy an annuity to pay $16K annually than one to provide $20K.

The whole thing is really stupid anyway. Obviously a piece of legislation written by rich investors who have no clue how real people live. If you are a single person age 45 and all you’ve got is $10K in the bank… you aren’t going to use that money to buy an annuity. You’re hanging on to that money and sweating bullets worrying about making ends meet, not shopping the financial markets.

I mean, aren’t we supposed to try to accumulate enough in savings to last us 6 months if we lose our regular source of income? You can’t go around buying annuities unless you have a lot bigger nest egg than the asset protection allowance allows.

(I am so, so glad that my kids are grown and I’m off the hook these days.)