Flexible Income Programming: Authors' Reply

In the opening paragraph of her comment on Flexible Income Programming (FIP) [1], Professor Gustavson includes the statement that ". . . several changes should have been made before it [FIP] was presented to the public . . . " It is the understanding of the authors that one of the functions of an academic journal is to provide a forum for the exchange of ideas. The intention of the authors was to present the concept to the readers of this journal and establish a basis for further research by interested colleagues. Patently, the article serves as a first step in the process of developing a more useful tool for the programming of survivors' income needs. Gustavson perceives a problem in the relatively high amounts of life insurance needed (as calculated in the FIP model) in comparison to the current average amounts of coverage owned. Undoubtedly, buyer resistance could cause some marketing problems which should be left to the marketing people. Buyer resistance, however, presents no conceptual problem. The emphasis in our article was conceptual. FIP can be used to create awareness of the extent of unfilled coverage needs. Real income changes that follow a breadwinner's death can have a severe adverse effect on survivors. Breadwinners should be congnizant of post-death needs when making a purchase decision. Even if they choose not to provide survivors with adequate post-death resources, they should know the extent of the problem. Further, the statement cited concerning the propensity to cover post-death needs clearly refers to the extremes and is not an all or nothing proposition [1, p. 59]. The authors, however, recognize that an improvement could result from a breakdown of protection requirements by type of need, as suggested by Gustavson. Gustavson's first specific program suggestion deals with social security and its impact on FIP. As the laws governing these benefits are subject to frequent change, most of the preliminary calculations are made outside the FIP computer model. The computer program makes the final calculation in the determination of the primary insurance amount. Maximum allowable benefits, after reduction for any excess earnings (over $3,480 annually for recipients under age 65 in 1979) are used to calculate post-death benefits available to survivors. Her suggestion to include allowable earnings adjustments in the program is a good one and should be incorporated in any revision of FIP. Her second suggestion deals with the specification of retirement benefits. No attempt was made during these early development stages of FIP to handle