The market downturn has led many to examine the “new” retirement realities. I argue that the issues related to our retirement system have been around for some time. The downturn heightened our awareness of it. In our current retirement system, individuals are forced to be in the driving seat.
In 2007, 50 percent of workers had pension coverage at their current job; 17 percent had DB coverage and 41 percent had DC coverage (including 8 percent with both). Over a third of workers (36 percent in 2007) had no pension coverage from their current or any former job, and no IRA. Nearly 60 percent of DC and IRA assets were invested in equities in 2007, and these accounts are estimated to have lost about $2 trillion, or 22 percent of their nominal value.2 Even older workers and retirees are estimated to have had 50 to 60 percent of their individual retirement savings in stocks.  AARP Public Policy Institute tabulations of the 2007 Survey of Consumer Finances.  Calculations based on the 2007 Survey of Consumer Finances and S&P 500 returns from July 2007 to May 2009.
In summary, given the shortfalls in the current retirement savings system: Underscores the need for Social Security – guaranteed foundation Need for greater access Solutions to help individuals save adequately Solutions are needed to help individuals manage risk – market risk and longevity risk
In EBRI’s most recent Retirement Confidence Survey, 47% of the retirees surveyed said that they left the workplace before they planned.
Though people age 55+ have lower rates of unemployment than other age groups, the recession has hit them hard. There are more than twice as many unemployed men and women age 55+ today (April 2009) than there were a year ago. More than one million more unemployed 55+ in April 2009 than in April 2008.
COLUMNIST DISCUSSES GROWING NUMBER OF AGE DISCRIMINATION COMPLAINTS BY OLDER WORKERS (CHT). In the Chicago Tribune (5/28, 498K) Careers Now column, Joyce Lain Kennedy writes that, &quot;as jobs melt away, a record number of birthday-related complaints are pouring in to the Equal Employment Opportunity Commission: Age bias charges jumped 29 percent in 2008.&quot; In addition, &quot;analysts speculate that the number of age-discrimination complaints filed by laid-off baby boomers is likely to soar even higher this year. Here's the rationale: As laid-off workers over 55 find themselves searching longer than their younger counterparts to find new employment, they understandably fear financial disaster. With savings emaciated by the stock market decline and the loss of home equity, more boomers are turning to legal action as a way to protect themselves.&quot; Kennedy advises older workers to &quot;present a contemporary image,&quot; and make use of the latest tools, such as Twitter, LinkedIn, and VisualCV. She also recommends going to AARP 's website for more information about age discrimination claims, and to view the AARP Age Discrimination Fact Sheet. Given the issues in our retirement savings system, older individuals need to rely more and more on employment to ensure their retirement security.
17-28% of 50-64 private insurance applicants were rejected for coverage (Dec 2007, AHIP survey)
MEDICARE PREMIUMS EXPECTED TO RISE FOR MANY SENIORS, ANALYSIS FINDS (CQ). CQ Today (5/28) reports that a Kaiser Family Foundation analysis found that &quot;new Social Security recipients and upper-income seniors could face a steep increase in their monthly Medicare premiums for the next two years.&quot; Also, &quot;millions more will see their finances squeezed if their premiums for Medicare Part D prescription drug coverage go up during that period.&quot; The study &quot;points out that Social Security and Medicare trustees project no cost-of-living adjustment (COLA) to Social Security benefits in 2010 and 2011, and only a tiny one in 2012. The COLA is pegged to an inflation index, and the economic recession has erased increases in the relevant index.&quot; However, for the next two years, &quot;monthly premiums for Medicare Part B coverage will increase sharply under existing law. ... The 2009 premium for most beneficiaries is $96.40 per month.&quot;
Managing the increasing cost of healthcare is also another critical issue in securing the concept of retirement.
Founded in 1958 by Ethel Percy Andrus, a retired educator from California. After her retirement, Dr. Andrus spent time helping other retired teachers. One day she tried to look up a Spanish teacher at an address given to her by a concerned shop owner in town. A young woman came to the door and said, “No, no one by that name lives here.” Dr. Andrus was about to leave when a neighbor told her, “Oh, you must mean the poor old woman who lives out back.” Well, “outback” turned out to be a literal renovated chicken coop where this retired Spanish teacher lived on her miserable pension with her cats. She couldn’t afford to pay rent and pay for her medicines as well. For Dr. Andrus this was the moment. She began to visit 46 insurance companies who all refused to do busy with her—all refused to offer health insurance to retirees. Until the last one AARP has grown to over 39 million members and has offices in all 50 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands. AARP is a non-profit, non-partisan membership organization that helps people 50 and over improve the quality of their lives as they age. As the nation’s largest membership organization for people 50+, AARP is leading a revolution in the way people view and live life after 50. AARP is governed by a 21 member volunteer board of directors.
AARP believes the federal government should act sooner rather than later to avoid more difficult choices down the road. AARP recognizes that any Social Security solvency package will involve a mix of changes to the program, including some elements that AARP might oppose. AARP will evaluate such packages in light of the overall balance of their impact on current and future beneficiaries, their consistency with AARP principles, and their effect on continued public support for Social Security.
Talking Points Social Security is critically important to the retirement security of virtually every American—that’s both by design and by default. By design because its creators intended it to provide an essential foundation of retirement income. But also by default because the other pieces that deliver retirement savings and income have never added up to a comprehensive or coherent retirement system on top of Social Security. AARP’s economic security priorities in addition to Social Security speak to retirement security and workforce issues (and the strong connections between those two issue areas). We believe government, business and individuals each have an important role in achieving financial security. On the policy front, AARP is leading the push to expand workplace access to retirement savings for the 75 million workers without a retirement plan on the job—particularly through Auto IRA’s, an idea that the Obama Administration has adopted—and to improve retirement savings incentives and rewards for low and middle income people—including through expansion of the so-called Saver’s Credit. We also are working to strengthen retirement investor protections through such things as requiring adequate, plain language disclosure of 401(k) fees and expenses at the federal level and instituting annuity sales suitability standards in the states. We are working with the business community to promote the adoption of more effective 401(k)s, particularly through automatic 401(k) features….RMS….. Working to influence industry practices through Free Lunch Monitor program….. Individual education….behavior changes Workforce issues are very important to AARP members. For those 50 and older, work is an increasingly important component of building and maintaining financial security. AARP has more than 40 years of experience on workforce issues. AARP does extensive work with employers to raise their awareness of the aging workforce, promote and recognize employer best practices, and encourage adoption of 50+ worker-friendly policies and practices. For example: AARP Award Program: Best Employers for 50+ Workers Information and tools to help employers understand their evolving workforce needs: On-line workforce assessment tool Much of our work with employers is framed around our five-part employer agenda: Age-friendly workplace (free of discrimination) Benefits that meet individual needs (health, retirement) Flexibility (flexible work arrangements, short time off) Training and development opportunities Accommodating work environment (accommodates disabilities and other needs) The AARP Foundation also is a leading provider of direct service to 50+ workers: With the largest Senior Community Service Employment Program (SCSEP) in the country And an innovative program called WorkSearch targeting more middle income workers
Financial Security in Insecure Times June 24, 2009 Karen Cassidy President AARP Kentucky Please begin completing the Financial Literacy Quiz Answers will be given at the end of the presentation.
“ New” Retirement Realities <ul><li>Individuals are more responsible for their retirement security </li></ul><ul><li>Have to bear the burden to save and mitigate their own risk </li></ul><ul><li>Impact of the market downturn: </li></ul><ul><ul><li>Retirement Accounts </li></ul></ul><ul><ul><li>Employment of Older Workers </li></ul></ul><ul><ul><li>Healthcare Cost </li></ul></ul><ul><ul><li>Home Prices </li></ul></ul>
Different Age Groups, Different Recessions <ul><li>The recession’s impact has been felt by all: </li></ul><ul><ul><li>Workers and their families (both young and old) </li></ul></ul><ul><ul><li>Retirees </li></ul></ul><ul><li>Adults 65 and older—“who have already retired and downsized their lifestyles—have escaped its full fury.” </li></ul><ul><li>Younger adults have taken the worst lumps in the job market, but remain relatively upbeat about their financial future. </li></ul><ul><li>Adults in late middle age (50-64) “have seen their nest eggs shrink the most and their anxieties about retirement swell the most.” </li></ul>Source: Pew Research Center, Older Adults and the Economy Survey, April 2009.
Middle Aged Workers Feeling the Squeeze <ul><li>50 – 64 year olds </li></ul><ul><li>75% say that the nation’s current economic problems will make it more difficult for them to afford retirement. </li></ul><ul><li>66% say they lost money in mutual funds, individual stocks or 401(k)-type accounts. </li></ul><ul><ul><li>Of those with losses, 2 in 10 say they lost more than 40% of their investments value. Nearly 4 in 10 say they lost 20% to 40%. </li></ul></ul><ul><li>59% cut back on spending in the past year. </li></ul><ul><li>21% had trouble affording medical care in the past year. </li></ul><ul><li>22% are “very satisfied” with their financial condition. </li></ul><ul><li>58% say recession has caused stress in the family. </li></ul>Source: Pew Research Center, Older Adults and the Economy Survey, April 2009.
Adults Age 65+ <ul><li>26% of retirees say their retirement income declined in the past year [71% said it did not] </li></ul><ul><ul><li>Retirees with higher family income more likely to report that their income declined [35% of those with income of $50,000 or more vs. 20% of those with family income of $20,000 or less] </li></ul></ul><ul><li>Older adults less likely to have cut back on spending than younger adults and are more likely to be confident that they have enough to live on in retirement. </li></ul><ul><li>But there is a significant race gap among older adults [that does not exist among younger adults] </li></ul><ul><ul><li>Percent of adults age 65+ who have cut spending in the past year because money was tight: whites 34%, blacks 42% </li></ul></ul><ul><ul><li>Percent that are confident they have enough to live on in retirement: whites 75%, blacks 59% </li></ul></ul>Source: Pew Research Center, Older Adults and the Economy Survey, April 2009.
DC Provides Primary Coverage DB Provides Primary Coverage Source: U.S. Dept. of Labor, Employee Benefit Security Administration; Center for Retirement Research at Boston College; U.S. Dept. of Labor, Bureau of Labor Statistics. Changes in Retirement Plan Participation (Shift from DB to DC), 1979-2007
Retirement Savings in 401(k)s/IRAs Sources: Center for Retirement Research, 2007 Survey of Consumer Finance
Retirement Savings in 401(k)s/IRAs Sources: Munnell and Sunden, 2007 Survey of Consumer Finance
Retirement Savings in 401(k)s/IRAs Source: Vanguard 2008
Losses to Retirement Accounts Change in Average Account Balances From Jan. 1, 2008–April 10, 2009, By Age and Tenure, Among 401(k) Participants With Account Balances as of Dec. 31, 2007 Sources: 2007 Account Balances: Tabulations from EBRI/ICI Participant-Directed Retirement Plan Data Collection Project; 2008 and 2009 account balances: EBRI estimates. The analysis is based on all participants with account balances at the end of 2007 and contribution information for that year. <ul><li>Recovery Time </li></ul><ul><li>At 5% equity rate of return </li></ul><ul><ul><li>2 - 5 years </li></ul></ul><ul><li>At 0% equity rate of return </li></ul><ul><ul><li>2.5 - 9.5 years </li></ul></ul>Job Tenure (in years)
Working Longer Labor Force Participation Rates of Persons Aged 55+, 1950, 1985, and 1990-2008 Source: U.S. Bureau of Labor Statistics, Handbook of Labor Statistics, 1985; Employment and Earnings , January issues, 1986-2009.
Working Longer Labor Force Participation Rates of Persons Aged 65-69, 1985-2008 (in percentages) Source: Bureau of Labor Statistics
Working Longer <ul><li>Workers say that they expect to continue working in retirement—upwards of 69% depending on the survey. </li></ul><ul><ul><li>Making ends meet and need access to health care (for pre-retirees) are cited as the most important reason for continued work. </li></ul></ul><ul><li>A substantial proportion of workers end up retiring or leaving the labor force earlier than anticipated due to reasons beyond their control. In the end, more workers say they expect or want to work in retirement than actually do. </li></ul>
Unemployment Rate, Men and Women Age 55+ December 2007-April 2009
Number of Unemployed Men and Women Age 55+ April 2008 – April 2009 April 2008 April 2009 April 2008 April 2009 April 2008 April 2009 Unemployed (in thousands) Over the past year, one million more unemployed 55+
Other Employment Indicators <ul><li>Older workers are not just experiencing higher rates of unemployment, more are: </li></ul><ul><ul><li>Working part-time for economic reasons </li></ul></ul><ul><ul><ul><li>Working part-time for economic reasons has more than doubled among older workers since the start of the recession. In April 2009, 5% of workers age 55+ were working part time because they could not find full-time work, compared to only 2.4% in December 2007. </li></ul></ul></ul><ul><ul><li>Discouraged and exiting the labor force </li></ul></ul><ul><ul><ul><li>People age 55+ represent 18.7% of the labor force, but 20.7% of discouraged workers (not actively looking for work in the prior 4 weeks because: thinks no work available, could not find work, lacks schooling or training, employer thinks too young or old, and other types of discrimination.) </li></ul></ul></ul><ul><ul><li>Experiencing longer periods of unemployment </li></ul></ul><ul><ul><ul><li>Once unemployed, older workers continue to remain out of work longer than their younger counterparts. In April, the average duration of unemployment was 26.6 weeks for the unemployed aged 55 and over and 22.9 weeks for those under age 55. </li></ul></ul></ul>
Healthcare Coverage for People Age 50-64 <ul><li>45.7 million (15.3%) people of all ages were uninsured and 7.1 million adults (13%) age 50-64 were uninsured in 2007. </li></ul><ul><li>1.9 million more 50-64 uninsured than in 2000, representing a 36% increase. </li></ul><ul><li>Baby Boomers represent nearly 20% of the population within the next 7 years, finding a common-sense solution for this group is critical to holding down costs and improving health and financial security. </li></ul>
Medicare Coverage <ul><li>Medicare provide health coverage to 44 million people 65 and older, people with disabilities and people with end stage renal disease. </li></ul><ul><li>People on Medicare spend about 30% of their incomes, on average, on out-of-pocket health costs – six times more than people with employer coverage. </li></ul><ul><li>Medicare rarely covers the costs of long-term care, which is very expensive. The average cost of a semi-private room in a nursing home is almost $70,000 per year. For assisted living facilities, the yearly cost is over $36,000. </li></ul>
Out of Pocket Healthcare Cost Source: The MetLife Market Survey of Nursing Home & Assisted Living Costs, October 2008. <ul><li>Healthcare costs continue to rise when key sources retirement income remain flat or decrease. Social Security benefits will receive no COLA increases in 2010, 2011 and a modest increase in 2012. </li></ul>
Home Prices Inflation-Adjusted Growth in Median Home Equity: 1998-2006 Home Owners Ages 55+ Source: Zedleswski, Cushing-Daniels, and Lewis (2008), Health and Retirement Study Data
Is Retirement Still Possible? <ul><li>The financial downturn has undermined retirement security for many, especially those near retirement and recently retired. </li></ul><ul><li>It has exposed the inadequacy of our current retirement income system. </li></ul><ul><li>Retirement is possible, but solutions are needed to prevent further erosion. </li></ul>
Redefining Retirement <ul><li>No-age thinking </li></ul><ul><ul><ul><li>Age is no longer the predictor of an individual’s ability to add value. Zinke (2000). </li></ul></ul></ul>
About AARP <ul><li>Nonprofit, nonpartisan membership organization for people 50+ </li></ul><ul><li>Over 40 million members (approximately 50% of the membership are still working) </li></ul><ul><li>Offices in all 50 states and the District of Columbia, Puerto Rico, and the U.S. Virgin Islands </li></ul><ul><li>Vision: A society in which everyone ages with dignity and purpose, and in which AARP helps people fulfill their goals and dreams. </li></ul>
AARP Members <ul><li>78% of AARP members report that they “always” vote in presidential elections compared to 68% of AARP non-members. </li></ul><ul><li>37% of AARP members identify as Independent or “leaning” voters compared to 32% of AARP non-members. </li></ul><ul><li>78% of AARP members report being most interested in economic and social issues (such as jobs and health care) than other issues (such as morality issues and foreign affairs) compared to 74% of AARP non-members. </li></ul><ul><li>92% of AARP members think the President should “work in a bipartisanship manner to get things done, even if it means some compromise will be necessary” compared to 85% of AARP non-members. </li></ul>
AARP Priorities: Healthcare <ul><li>AARP Six Overarching Goals for Healthcare Reform: </li></ul><ul><ul><li>Guaranteeing access to affordable coverage for Americans age 50-64; </li></ul></ul><ul><ul><li>Closing the Medicare Part D coverage gap or “doughnut hole”; </li></ul></ul><ul><ul><li>Preventing costly hospital readmissions by creating a follow up care benefit in Medicare to help people safely transition home after a hospital stay; </li></ul></ul><ul><ul><li>Increasing federal funding and eligibility for home and community based services through Medicaid so older Americans can remain in their homes and avoid more costly institutions as they age; </li></ul></ul><ul><ul><li>Creating access to generic versions of biologic drugs used to treat cancer and other serious diseases to reduce the price of these costly treatments; and </li></ul></ul><ul><ul><li>Improving programs that help low income Americans in Medicare afford the health care and prescription drugs they need. </li></ul></ul>
AARP Priorities: Social Security <ul><li>Social Security solvency package should provide: </li></ul><ul><ul><li>Guaranteed benefits for life </li></ul></ul><ul><ul><li>Adequate guaranteed benefit for future generations </li></ul></ul><ul><ul><li>Protection from lost wages resulting from death, disability and retirement </li></ul></ul><ul><ul><li>Benefits linked to pay and tenure </li></ul></ul><ul><ul><li>Universal participation </li></ul></ul><ul><ul><li>Progressive benefits to replace greater share to lower-wage earners </li></ul></ul><ul><ul><li>Inflation adjustments for beneficiaries </li></ul></ul><ul><ul><li>Adequate early retirement benefits </li></ul></ul><ul><ul><li>Financial integrity by requiring contributions from both employers and employees </li></ul></ul>
AARP Priorities: Economic Security <ul><li>Retirement Security </li></ul><ul><ul><li>Enact reforms to expand access, improve adequacy and security, and strengthen protections </li></ul></ul><ul><ul><li>Promote the development and adoption of more effective retirement plans by the financial services industry and employers and influence industry practices toward 50+ investors </li></ul></ul><ul><ul><li>Deliver information, education and guidance that leads to better retirement financial decisions by individuals </li></ul></ul><ul><li>Workforce </li></ul><ul><ul><li>Encourage the adoption of employer policies and practices that afford 50+ workers more and better workplace options. </li></ul></ul><ul><ul><li>Ensure that 50+ workers have the skills needed and the opportunities available for fulfilling employment. </li></ul></ul>
Ethel Percy Andrus…. One of the first advocates for financial security