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Retirement in Hard Times

Challenges and solutions facing boomers in the transition years

Mark Miller

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A case of bad timing

• Largest generation of Americans hits retirement during worst economy since Great Depression

• Pre-crash Boomers on retirement planning: “Something will work out.”– Relatively little planning for huge life

transition– Only half of Americans participate in

workplace retirement plan– Average retirement savings: $60,000– Half file for Social Security too early

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The new economic realities

• Damaged stock portfolios and real estate values

• Job security has evaporated– 55+ joblessness rises 339% since 2000

(AARP)

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The new economic realities

• Recovery will be protracted, with sluggish job growth

• Housing won’t bounce back to pre-crash levels

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The great wake-up call

The economy we have now is the economy boomers will retire into!

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What now?

• No magic bullet solutions

• Cutting through the noise to solid strategies

• Focus on basic blocking and tackling

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Challenges and solutions

Financial Career Living

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And, in all three of these areas . . .

Our old concept of retirement will be RETIRED!

Otto Von Bismarck, German Chancellor, 1862-1890

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Two reasons to retire retirement

We’re living much longer

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Two reasons to retire retirement

Source: 2009 Social Security Administration Trustee’s Report

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Two reasons to retire retirement

Boomers don’t want to retire--and they shouldn’t

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Challenge: Financing retirement

• Financing retirement = retirement investing?– 401(k)s, IRAs never

intended to replace pensions-and they have not!

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Challenge: Financing retirement

• 401(k) isn’t getting the job done– 35% of workers don’t have access to a workplace

retirement savings plan– Average contribution rate is 7.5%--about half of

what is needed– Faltering corporate match– Inappropriate allocation (too much risk as

retirement approaches)– Cash-outs, borrowing from accounts– High fees in smaller plans (up to 5 percent of

assets)

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Solution: Automation, expanded access

• Target date funds• Auto-enrollment

– But, you need to drive!• Default enrollment levels• Asset allocations

• Automatic IRA - government sponsored program for small businesses

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Solution: Get Otto out of the closet!

• Social Security will be there

• It will supply at least 1/3 of retirement income for most of us

• Need for greater education to understand benefits

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Solution: Do-it-yourself pension

• Income annuity or longevity insurance– Protects against longevity risk– Use to cover fixed costs

• Single premium - not variable!

• Still a small part of the market– The “wealth illusion”/loss of control of

assets

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Solution: Have a plan!

• Don’t start with 80% replacement rate!

• Rule of Thumb = Rule of Dumb– And, wrong for a hard-

times economy

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Solution: Have a plan!

• Debt reduction may be your best return on an available dollar– Pay off credit card debt– Pay down mortgage debt

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Solution: Have a plan!

• The value of unbiased advice

• Spending a bit for advice now can pay off down the road

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Challenge: Health care risk

• One of the largest components of expense in retirement - even with Medicare!

• Lifetime cost for 65-year-old couple--excluding nursing care: $197,000

• It’s a wild card in the plan

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Solution: Understand Medicare

• Traditional Medicare doesn’t cover everything

• Choices outside basic Medicare complex, difficult

• Part D prescription drug plans• Medicare Advantage• Medigap• Long-term care insurance

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Solution: Health care reform

Time to stop scaring Grandma!

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Solution: Health care reform

• Law adds benefits to Medicare– Closes prescription drug doughnut hole– Adds free preventive care visits

• Reduces Medicare Advantage reimbursements over a period of years– Reimbursed now at 114% of traditional

Medicare rates

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Solution: Health care reform

• Law gives a big boost to older Americans too young for Medicare– 2010: high-risk pools– 2014: insurance companies can’t turn you

away for pre-existing condition– Creates competitive insurance exchange to

help those without group coverage

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Solution: Consider long-term care policy

• Two-thirds will need some form of long-term care after age 65– Average time of care: 3 years

• Best to buy sometime in your 50s

• Stick with the major AAA=rated insurers

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Solution: Working longer

• Critical component of restoring post-crash retirement security

• But working longer doesn’t mean working forever

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Solution: Working longer

Annual Social Security payments rise every year you wait. Example assumes $75,000 annual salary.

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Solution: Working longer

The triple threat1. More Social

Security 2. More years of

401(k) contributions

3. Fewer years drawing down savings

Percentages = increase in annual retirement income over amount collected if retirement occurs at age 62

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Challenge: The workplace

• Employers– Workplace age discrimination

• Employees– Career transition readiness is poor– Technology readiness– Expectation of staying in current

field– Over-valuing own experience

http://tinyurl.com/yjn8jnk

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Solution: Entrepreneurship

• Some will strike out on their own as entrepreneurs

• Some will launch encore careers

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55+: highest rate of business formation

2005: 0.34% of adults age 55-64 started businesses

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Challenge: A life well led

• Hard times call for belt-tightening– But it’s not going to be all about money and

work– Boomers thinking legacy as nation faces

multiple challenges

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Solution: Encore careers

• Redefining the second half of life with meaning

• Transitions to teaching, government, health care, non-profits

• http://encore.org

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Solution: Volunteering

• 30-year high point of activity, especially among 50+

• Boost from Washington: Serve America Act– Expanded funding for

community-based service organizations

• U.S. and international

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Solution: Lifelong learning

• Great way to keep engaged – “Come for the classes,

stay for the community”

• Brain fitness• Lifelong Learning

Institutes, continuing ed, learning-oriented travel

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Retirement in Hard Times

Challenges and solutions for the transition years

Mark Miller