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
2
The Big Picture Today
Dec
line
of
DB
Pla
ns
Longer
Life Spans
LittleLonger TermThinking
Wha
t is
Long
evity
Ris
k?
Working in
Retirement
Higher
Health C
osts
Premature
Retirement
Risk
Les
s R
etir
eeH
ealt
h
Presentation at the Retirement Income ConferenceApril 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 ConferenceApril 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 ConferenceApril 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 ConferenceApril 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 ConferenceApril 19, 2007
7
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
Presentation at the Retirement Income ConferenceApril 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 ConferenceApril 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 ConferenceApril 19, 2007
10
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
Presentation at the Retirement Income ConferenceApril 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 ConferenceApril 19, 2007
12
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
Presentation at the Retirement Income ConferenceApril 19, 2007
13
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
Presentation at the Retirement Income ConferenceApril 19, 2007
14
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
Presentation at the Retirement Income ConferenceApril 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 ConferenceApril 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 ConferenceApril 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 ConferenceApril 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 ConferenceApril 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 ConferenceApril 19, 2007
20
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
Presentation at the Retirement Income ConferenceApril 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 ConferenceApril 19, 2007
22
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)
Presentation at the Retirement Income ConferenceApril 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 ConferenceApril 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 ConferenceApril 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 ConferenceApril 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 ConferenceApril 19, 2007
27
Appendix: Early and mid-career issues
Presentation at the Retirement Income ConferenceApril 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 ConferenceApril 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 ConferenceApril 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?
31
Phone: 312-642-4720Fax: 312-642-4330
ANNA RAPPAPORT CONSULTING
STRATEGIES FOR A SECURE RETIREMENTSM