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

ANNA RAPPAPORT CONSULTING

STRATEGIES FOR A SECURE RETIREMENTSM

Framing the Issues: Retirement Income Questions People Need to Ask

Presentation by Anna Rappaport

Retirement Income Conference

April, 2007

Presentation at the Retirement Income ConferenceApril 19, 2007

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The Big Picture Today

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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


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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


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Agenda

For each life stage at age 50+, we will discuss:– What we know– Questions to be asked


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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


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46%

52%

46%

57%

48%

46%

43%

55%

47%

43%

51%

NA

75%

61%

79%

78%

66%

71%

58%

63%

54%

59%

65%

NA

How concerned are you that . . . ? (percentage very or somewhat concerned)

You might not have enough money to pay for adequate

(2003/2001: good) health care

You might not be able to maintain a reasonable standard of living [for

the rest of your life]

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]

Source: Society of Actuaries, 2001,2003 and 2005 Risks and Process of Retirement Surveys

Retirees(2005 n=302)

Pre-retirees(2005 n=300)2005 2003 2001

Concerns about risk fairly constant


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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?


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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?


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Gaps and What to Do

Gap What to Do

Many unanswered risk management questions

Balance risk management with investment management

Many people think short-term Help people focus on the longer term

Look at important risks Walk through options

Many people don’t have enough money

Encourage longer work


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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


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What we know: Importance of earningsages 55 and over

Age Group% with

EarningsMean Annual

EarningsMedian Annual

Earnings

55-64 66.5% $44,673 $32,000

65-69 32.6% 32,792 19,428

70-79 16.2% 27,256 12,000

80 + 5.1% 21,101 10,000

Source: Debra Whitman and Patrick Purcell, CRS Report for Congress, November 7, 2005


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What we know:Pre-retirees expect to work longer

How old were you when you retired/began to retire from your primary occupation?/At what age do you expect to retire from your primary occupation? (Among retirees and employed pre-retirees)

Age CategoryRetirees (%) Pre-retirees (%)

2005 (n=302) 2005 (n=253)Under age 55 34 2

55 to 61 29 12

62 to 64 20 18

65 5 21

66 or older 8 20

Will not retire -- 13

Doesn’t apply 3 --

Don’t know 2 15

Source: Society of Actuaries, 2005 Risks and Process of Retirement Survey


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Expected vs. actual timing of retirement among retirees

39%37%

40%38% 37%

48%52%

50%52%

55%

5% 6% 5% 5% 5%

2003 2004 2005 2006 2007

Earlier than planned About when planned Later than planned

Source: EBRI/ASEC/Greenwald, 2003-2007 Retirement Confidence Surveys


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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


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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?


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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?


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Common Gaps

Risk management programs Longer term thinking Plan to prevent outliving assets Plan to provide for help if needed for long-term care


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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


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What we know: Probability of Living to 80, 90, 100 Projected to 2025

Projection to 2025 – 1983 Mortality projected 40 years

Survival Age Female

65Male 65

Both Survive

Either Survive

survive to 80 0.84 0.69 0.58 0.95

survive to 90 0.52 0.30 0.16 0.67

survive to 100 0.14 0.04 0.01 0.18


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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


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What we know: Work After Retirement

Source: Society of Actuaries, 2005 Risks and Process of Retirement Survey. Results based on 274 retirees who provided their retirement age.

Did not work for pay, 60%Worked full-

time, 15%

Don't Know, 1%

Worked part-time, 13%

Full-time or part-time part

year, 12%

Percentage of Retirees with Various Work Experiences (2004)


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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?


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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?


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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?


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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


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Appendix: Early and mid-career issues


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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


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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


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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?

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[email protected]

Phone: 312-642-4720Fax: 312-642-4330

ANNA RAPPAPORT CONSULTING

STRATEGIES FOR A SECURE RETIREMENTSM

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

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