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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
