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Framing the Issues: Retirement Income Questions People Need to Ask Presentation by Anna Rappaport

Framing the Issues: Retirement Income Questions People Need to Ask Presentation by Anna Rappaport. Retirement Income Conference April, 2007. The Big Picture Today. Premature Retirement Risk. Working in Retirement. Decline of DB Plans. Less Retiree Health. Little Longer Term

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Framing the Issues: Retirement Income Questions People Need to Ask Presentation by Anna Rappaport

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  1. Framing the Issues: Retirement Income Questions People Need to AskPresentation by Anna Rappaport Retirement Income Conference April, 2007

  2. The Big Picture Today Premature Retirement Risk Working in Retirement Decline of DB Plans Less Retiree Health Little Longer Term Thinking Higher Health Costs Longer Life Spans What is Longevity Risk? Presentation at the Retirement Income Conference April 19, 2007

  3. Our Goals Today • Understand retirement planning today • Think about individual responsibility and future patterns of retirement • Focus on key questions by life stage • Share opinions on gaps Note: presentation will focus on age 50 and above; Appendix includes issues for earlier life states Presentation at the Retirement Income Conference April 19, 2007

  4. Life stages for retirement planning • Before age 50 • Early and mid-career • Late career—50 to near retirement • At retirement • After retirement • Active years—a lot of choice (go-go) • Slowing down (slow-go) Repeating themes—savings, investment, risk management Presentation at the Retirement Income Conference April 19, 2007

  5. Agenda • For each life stage at age 50+, we will discuss: • What we know • Questions to be asked Presentation at the Retirement Income Conference April 19, 2007

  6. What we knowNearing retirement (Age 50+) • Many people start to focus on retirement • Pension plans become major driver of work and retirement decisions • About 50% of people have not made retirement calculations • Decisions are often made intuitively • About 40% of people end up retiring earlier than planned • Health benefits are often a driver of work/retirement decisions • Significant gaps in knowledge about risks Presentation at the Retirement Income Conference April 19, 2007

  7. 2003 2001 2005 Retirees(2005 n=302) Pre-retirees(2005 n=300) You might not have enough money to pay for adequate (2003/2001: good) health care You might not be able to keep the value of your savings and investments up with inflation You might not have enough money to pay for [a nursing home/ nursing care at home] You might not be able to maintain a reasonable standard of living [for the rest of your life] Concerns about risk fairly constant How concerned are you that . . . ? (percentage very or somewhat concerned) Source: Society of Actuaries, 2001,2003 and 2005 Risks and Process of Retirement Surveys Presentation at the Retirement Income Conference April 19, 2007

  8. Questions to be Asked;After age 50 and Before Retirement • When would I like to retire and/or start to phase down? • Do I want to work in retirement, and if so, what should I be doing to create options and opportunities? • Where do I stand with respect to having enough money to retire and at what age? • Do I need to increase my savings? • Do I have adequate protection in case I become disabled or a family member needs help? • What risks will I need to be concerned about in retirement, and how do I get a risk management program in place? Presentation at the Retirement Income Conference April 19, 2007

  9. Questions to be Asked: After age 50 (continued) • Do I understand the tax issues that affect me, and the actions I am taking to make my strategy tax effective? • When do I plan to claim Social Security? • Do I have a back-up plan if my job is phased out before I plan to retire? • Do I expect to relocate at retirement? • Do I have access to enough information and advice? Should I secure additional advice? • Do I have a will and power of attorney for financial and health decisions, and are they up-to-date? Presentation at the Retirement Income Conference April 19, 2007

  10. Gaps and What to Do Presentation at the Retirement Income Conference April 19, 2007

  11. What we know:At time of retirement • Work is part of retirement plans for a growing number of people • Wide range of reasons why people decide to retire—about 4 in 10 do not choose timing • For many people, time of most important financial decisions of their lives—particularly if they get a lump sum • New challenges—people who depended on employer provided assistance and benefits often completely on their own Presentation at the Retirement Income Conference April 19, 2007

  12. What we know: Importance of earningsages 55 and over Source: Debra Whitman and Patrick Purcell, CRS Report for Congress, November 7, 2005 Presentation at the Retirement Income Conference April 19, 2007

  13. What we know:Pre-retirees expect to work longer Source: Society of Actuaries, 2005 Risks and Process of Retirement Survey Presentation at the Retirement Income Conference April 19, 2007

  14. Expected vs. actual timing of retirement among retirees Source: EBRI/ASEC/Greenwald, 2003-2007 Retirement Confidence Surveys Presentation at the Retirement Income Conference April 19, 2007

  15. What we know: Demographics • New ways to think about life cycle • Third age: period between full time work and total retirement • During transition period • Some work and more leisure • Supplement earnings with retirement resources • Looks like traditional cyclical life plan • Key trends • Living longer • Healthy longer but not forever • Boomers: better education than groups before Presentation at the Retirement Income Conference April 19, 2007

  16. Questions at Retirement from Major Career • What methods of payment will I choose from employer provided pension benefits? What about any nonqualified plans? • How will employer provided defined contribution funds be paid to me? • Do I have plan for addressing post-retirement risks? • Should I plan to annuitize some of my money? How much and how? How do I decide what the right amount is? Is my spouse protected in the event of my death? • Do I have health coverage in retirement? If not, how can I get it? • How should I invest my money? • Do I have a method of keeping track of how I am doing year by year? Presentation at the Retirement Income Conference April 19, 2007

  17. Questions at Retirement from Major Career (cont’d) • Are my strategies tax effective? • Do I have the right information and advice? • Do I have a will and power of attorney for financial and health decision, and are they up-to-date? • Is my spending level aligned with lifetime financial resources? Do I have a budget? • Do I have significant amounts of debt? How can I reduce and manage it? Presentation at the Retirement Income Conference April 19, 2007

  18. Common Gaps • Risk management programs • Longer term thinking • Plan to prevent outliving assets • Plan to provide for help if needed for long-term care Presentation at the Retirement Income Conference April 19, 2007

  19. What we know: After retirement • Big increase in our responsibility • Employer often no longer available to provide benefits, security • Wide range of activities—many people seeking to reinvent themselves today • A lot of unknowns lie ahead Presentation at the Retirement Income Conference April 19, 2007

  20. What we know: Probability of Living to 80, 90, 100 Projected to 2025 Presentation at the Retirement Income Conference April 19, 2007

  21. What we know: The work and retirement experience • People say they want to work longer • Many work after “retirement” • Often part-time or part-year • Of those who are not in labor force at 50-61 • 67% of men are disabled • 40% of women are disabled • New job options and innovative practices are needed • Relationship alternatives • Restructuring of duties • Scheduling alternatives • Place alternatives Presentation at the Retirement Income Conference April 19, 2007

  22. What we know: Work After Retirement Percentage of Retirees with Various Work Experiences (2004) Source: Society of Actuaries, 2005 Risks and Process of Retirement Survey. Results based on 274 retirees who provided their retirement age. Presentation at the Retirement Income Conference April 19, 2007

  23. Questions for the early years of retirement (go-go) • What should I do to meet my retirement dreams? • How should I update my invest strategy in light of the emerging time horizons? • If I need to use some of my savings to live on, what account should I withdraw from first, and how much can I safely withdraw? • Do I have a plan for addressing post-retirement risks? • Is my risk protection program working, and does it need fine-tuning? • Am I meeting my goals with regard to working, and do they need fine-tuning? Presentation at the Retirement Income Conference April 19, 2007

  24. Questions for the early years of retirement (go-go) • What is working well for me, and what is not? • Do I want to relocate? • How are my assets progressing from period to period? • What measures have I taken to be sure that I will not outlive my assets? • What provisions are in place to pay for unexpected medical costs and for long-term care costs? • Is my spouse provided for? • Have I claimed Social Security or determined when I plan to claim it, or how do I plan to evaluate the decision? • Should I move into a CCRC? If so, which one? • Should I take a reverse mortgage? Presentation at the Retirement Income Conference April 19, 2007

  25. Questions for the later years of retirement (slow-go) • Do I have advisors or family members in place to help me manage my money and provide daily assistance should I need it? Do I have a transition plan if I need it? • Does my designee understand and know my wishes? • Are necessary legal documents in place? • Do I need to move or will I need to move? Have I evaluated the options available to me, their cost and my preferences so that I can choose where I want to go? • Do I have adequate financial resources and a contingency plan? Presentation at the Retirement Income Conference April 19, 2007

  26. Conclusions • Many gaps in planning and risk management today • Big problem—not enough longer term thinking • Focus today heavily on investment rather than balanced focus including risk management and investment • People stay in defaults • Best solutions are those that work without employee action Presentation at the Retirement Income Conference April 19, 2007

  27. Appendix: Early and mid-career issues Presentation at the Retirement Income Conference April 19, 2007

  28. What we know: Early and mid-career • Fewer people have traditional pensions • In 401(k) plans, many people choose default options • People are not saving enough • Retirement is often not “on the radar screen” • Debt is an issue for many people • Priorities are housing and raising families • Risk protection is heavily linked to employment Presentation at the Retirement Income Conference April 19, 2007

  29. Questions to be Asked:Early Career • When do I need to start saving? • How much should I save?* • How do I effectively take advantage of employee benefit plans? What is a 401(k) (or 403(b)) plan and how should it be used?* • What should I think about with regard to pensions when I take or leave a job?* • Should I set up an IRA? • Should credit card debt be repaid before I start saving for retirement? • How do I manage debt?* *Questions that carry through during all work Presentation at the Retirement Income Conference April 19, 2007

  30. More Questions to be Asked: Mid-career • How do I invest my savings when I have choices? • How do I effectively take advantage of employee benefit plans? • When should I look at long-term care insurance, and should I buy it? • Where do I stand with respect to having enough money to retire and at what age? • Do I have adequate protection in case I become disabled or a family member needs help? • Do I have a method of keeping track how my assets change year by year and what progress I am making in meeting my goals? • Do I understand the tax issues that affect me, and the actions I am taking to make my strategy tax effective? • Do I have access to enough information and advice? Should I secure additional advice? Presentation at the Retirement Income Conference April 19, 2007

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