Retirement Matters

December 2021

We’re rounding the corner with Social Security solvency, double-digit investment returns, and successful defined contribution plans.

Retirement Investing — Three major themes will impact your retirement investments and savings plan next year, according to T. Rowe Price, an investment management firm. They advise you to pay attention to your retirement access and adequacy, financial wellness, and the investment landscape. Despite a booming economy before Covid, the difference between the retirement savings and what is needed for an adequate standard of living continued to grow. This retirement savings gap is now nearly an estimated $4 trillion.

Seniors like you should consider continuing to invest and improve your savings during retirement years. In addition, State employees covered by the defined contribution plan need to consider saving enough to cover retirement costs during recessionary times when returns may be lower than expected. Closing the gap requires that institutions, legislators, regulators, and employers step up their role in a significant way. These policymakers need to address the financial wellness of employees so they can become more successful at investing.

This savings gap isn’t likely to diminish until the financial well-being of employees improves. Success at increasing retirement savings requires a long-term investment strategy. This includes diversifying investments between equities and fixed income to achieve better returns and selecting investments that do well in both high and low return times. Investors need to consider adjusting their plans for the prospect of lower rates of return in the future.

Win-Win for Social Security — The bipartisan infrastructure law recently signed by President Biden is expected to “significantly impact the financial status of Social Security” (SS) according to the Congressional Research Service. Employees building new roads, bridges, and high-speed internet access will earn higher wages, and through the payroll tax, their contribution will improve the soundness of the SS trust fund that was projected to be depleted by 2035. This is a current example of how policymakers had the courage and took the action needed to better fund the primary retirement financing institution. This is a win-win for those of you currently receiving benefits, as well as extending them for future retirees like you. Every day, as 10,000 Americans turn 65 years old, these SS benefits will have a transformational impact on your community.

Investments Reviewed — The State of Michigan Investment Board (SMIB) met virtually this December for its Quarterly Investment Review of the combined State of Michigan Retirement Systems (SMRS). The Board’s review also includes the Michigan State Employee Retirement (MSER) plan for defined benefits as well as the Defined Contribution Plan.

Outperforming Peer Returns — It has been a very good ten years for Michigan state employee retirement returns as declines in interest rates have helped to boost equity and the bond markets. The MSER plan recorded a cumulative ten-year annualized return of 11.4 percent. These MSER returns are significantly higher than peer median returns of 10.1 percent over the same period. Peers are defined as the State Street universe of public pension plans greater than $1 billion. Compounding at higher than peer returns can add significant value.

Defined Contribution (DC) — Given that these plans are participant led investments, the role of the Bureau of Investments is to develop a range of investment options which allow investors enough choice to diversify their individual retirement accounts. Total DC assets increased by 23 percent to $12.4 billion by September 30, 2021, over a year ago. Just think of how successful these DC plans could become as seniors build upon these double-digit returns and benefit from the structural improvements to DC plans now under consideration by Congress.

DC Got Better — Both the U.S. House and Senate have bills to improve upon the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 that expands the potential success of defined contribution plans. There is enough bipartisan support for most of these proposals that expand coverage and increase retirement savings. Selected provisions include:

  • Increases from age 72 to age 73-75 for required minimum distributions
  • Automatically enrolls eligible employees
  • Automatically increases the enrollment amount each year from 3 percent until it reaches 10 percent
  • Allows hardship withdrawals in cases of domestic abuse
  • Indexes the Individual Retirement Accounts (IRAs) Catch-up Limit
  • Increases Catch-Up Limits at age 62 to age 64
  • Permits employers to match for student loan contributions
  • Boosts Small Employer Pension Plan Startup Credit
  • Includes exchange-traded funds (ETFs) in annuity investments
  • Incorporates 403(b) plans to offer collective investment trusts
  • Adds Multiple Employer 403(b) Plans.

Improved Utility Rules — The Public Service Commission (PSC) is scheduled to hold public hearings on December 9 on three types of proposed changes.

  • When an eligible customer is out of power, the proposed rule raises the current $25 credit to $35, plus an additional $2 for every hour a customer is out of power.
  • New requirements are being considered for electric utility and cooperative reporting on outages, for utility line clearing programs, enhancements for electric metering, metering equipment inspections and tests, plus cybersecurity requirements.
  • For electric and natural gas services, new rules improve billing practices to ensure services aren’t stopped without notice and that consumers are not billed for electricity that was not used due to billing problems. The proposal improves customer access to information about their rights to hearings in billing disagreements.

Michigan’s Energy — Michigan’s energy consumption this winter is likely to increase slightly as Michigan consumers return to their usual use patterns compared to their declining energy use during the Covid slow down period, according to a PSC report. Increased demand for most energy sources is likely in spite of higher prices. Demand for residential use natural gas is expected to increase 1 percent this winter with normal temperatures. However, Michigan’s demand for motor gasoline is expected to increase at higher rates, up nearly 8 percent, after a fall of almost 15 percent in 2020 due to the negative impact of Covid on travel activity. As demand rebounds, Michigan gasoline prices have increased to an average of $3.26 a gallon on November 1, 2021, compared to $2.04 a year ago.

Editor’s note: Joanne Bump currently serves as feature columnist for “Retirement Matters.” Joanne can be contacted by phone at (517) 896-2729 or by e-mail at

Return to top of page