transformation in progress: a report from the trenches - mark miller

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Mark Miller, author of the forthcoming The Hard Times Guide to Retirement Security and editor and publisher of RetirementRevised.com spoke on the challenges and solutions facing boomers in the transition years.

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1

Retirement in Hard Times

Challenges and solutions facing boomers in the transition years

Mark Miller

2

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

3

The new economic realities

• Damaged stock portfolios and real estate values

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

(AARP)

4

The new economic realities

• Recovery will be protracted, with sluggish job growth

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

5

The great wake-up call

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

6

What now?

• No magic bullet solutions

• Cutting through the noise to solid strategies

• Focus on basic blocking and tackling

7

Challenges and solutions

Financial Career Living

8

And, in all three of these areas . . .

Our old concept of retirement will be RETIRED!

Otto Von Bismarck, German Chancellor, 1862-1890

9

Two reasons to retire retirement

We’re living much longer

10

Two reasons to retire retirement

Source: 2009 Social Security Administration Trustee’s Report

11

Two reasons to retire retirement

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

12

Challenge: Financing retirement

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

intended to replace pensions-and they have not!

13

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)

14

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

15

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

16

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

17

Solution: Have a plan!

• Don’t start with 80% replacement rate!

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

times economy

18

Solution: Have a plan!

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

19

Solution: Have a plan!

• The value of unbiased advice

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

20

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

21

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

22

Solution: Health care reform

Time to stop scaring Grandma!

23

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

24

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

25

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

26

Solution: Working longer

• Critical component of restoring post-crash retirement security

• But working longer doesn’t mean working forever

27

Solution: Working longer

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

28

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

29

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

30

Solution: Entrepreneurship

• Some will strike out on their own as entrepreneurs

• Some will launch encore careers

31

55+: highest rate of business formation

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

32

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

33

Solution: Encore careers

• Redefining the second half of life with meaning

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

• http://encore.org

34

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

35

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

36

Retirement in Hard Times

Challenges and solutions for the transition years

Mark Miller

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