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 spoke on the challenges and solutions facing boomers in the transition years.

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  • Darkest line at top if 55-64 group. Other lines indicating high rates represent 45-54 (solid blue) and 35-44( dotted gray). Lowest rate (blue at bottom) is 65+.
  • Transformation in Progress: A Report from the Trenches - Mark Miller

    1. 1. Retirement in Hard Times Challenges and solutions facing boomers in the transition years Mark Miller
    2. 2. A case of bad timing <ul><li>Largest generation of Americans hits retirement during worst economy since Great Depression </li></ul><ul><li>Pre-crash Boomers on retirement planning: “Something will work out.” </li></ul><ul><ul><li>Relatively little planning for huge life transition </li></ul></ul><ul><ul><li>Only half of Americans participate in workplace retirement plan </li></ul></ul><ul><ul><li>Average retirement savings: $60,000 </li></ul></ul><ul><ul><li>Half file for Social Security too early </li></ul></ul>
    3. 3. The new economic realities <ul><li>Damaged stock portfolios and real estate values </li></ul><ul><li>Job security has evaporated </li></ul><ul><ul><li>55+ joblessness rises 339% since 2000 (AARP) </li></ul></ul>
    4. 4. The new economic realities <ul><li>Recovery will be protracted, with sluggish job growth </li></ul><ul><li>Housing won’t bounce back to pre-crash levels </li></ul>
    5. 5. The great wake-up call The economy we have now is the economy boomers will retire into!
    6. 6. What now? <ul><li>No magic bullet solutions </li></ul><ul><li>Cutting through the noise to solid strategies </li></ul><ul><li>Focus on basic blocking and tackling </li></ul>
    7. 7. Challenges and solutions Financial Career Living
    8. 8. And, in all three of these areas . . . <ul><li>Our old concept of retirement will be RETIRED! </li></ul>Otto Von Bismarck, German Chancellor, 1862-1890
    9. 9. Two reasons to retire retirement <ul><li>We’re living much longer </li></ul>
    10. 10. Two reasons to retire retirement Source: 2009 Social Security Administration Trustee’s Report
    11. 11. Two reasons to retire retirement <ul><li>Boomers don’t want to retire--and they shouldn’t </li></ul>
    12. 12. Challenge: Financing retirement <ul><li>Financing retirement = retirement investing? </li></ul><ul><ul><li>401(k)s, IRAs never intended to replace pensions-and they have not! </li></ul></ul>
    13. 13. Challenge: Financing retirement <ul><li>401(k) isn’t getting the job done </li></ul><ul><ul><li>35% of workers don’t have access to a workplace retirement savings plan </li></ul></ul><ul><ul><li>Average contribution rate is 7.5%--about half of what is needed </li></ul></ul><ul><ul><li>Faltering corporate match </li></ul></ul><ul><ul><li>Inappropriate allocation (too much risk as retirement approaches) </li></ul></ul><ul><ul><li>Cash-outs, borrowing from accounts </li></ul></ul><ul><ul><li>High fees in smaller plans (up to 5 percent of assets) </li></ul></ul>
    14. 14. Solution: Automation, expanded access <ul><li>Target date funds </li></ul><ul><li>Auto-enrollment </li></ul><ul><ul><li>But, you need to drive! </li></ul></ul><ul><ul><ul><li>Default enrollment levels </li></ul></ul></ul><ul><ul><ul><li>Asset allocations </li></ul></ul></ul><ul><li>Automatic IRA - government sponsored program for small businesses </li></ul>
    15. 15. Solution: Get Otto out of the closet! <ul><li>Social Security will be there </li></ul><ul><li>It will supply at least 1/3 of retirement income for most of us </li></ul><ul><li>Need for greater education to understand benefits </li></ul>
    16. 16. Solution: Do-it-yourself pension <ul><li>Income annuity or longevity insurance </li></ul><ul><ul><li>Protects against longevity risk </li></ul></ul><ul><ul><li>Use to cover fixed costs </li></ul></ul><ul><li>Single premium - not variable! </li></ul><ul><li>Still a small part of the market </li></ul><ul><ul><li>The “wealth illusion”/loss of control of assets </li></ul></ul>
    17. 17. Solution: Have a plan! <ul><li>Don’t start with 80% replacement rate! </li></ul><ul><li>Rule of Thumb = Rule of Dumb </li></ul><ul><ul><li>And, wrong for a hard-times economy </li></ul></ul>
    18. 18. Solution: Have a plan! <ul><li>Debt reduction may be your best return on an available dollar </li></ul><ul><ul><li>Pay off credit card debt </li></ul></ul><ul><ul><li>Pay down mortgage debt </li></ul></ul>
    19. 19. Solution: Have a plan! <ul><li>The value of unbiased advice </li></ul><ul><li>Spending a bit for advice now can pay off down the road </li></ul>
    20. 20. Challenge: Health care risk <ul><li>One of the largest components of expense in retirement - even with Medicare! </li></ul><ul><li>Lifetime cost for 65-year-old couple--excluding nursing care: $197,000 </li></ul><ul><li>It’s a wild card in the plan </li></ul>
    21. 21. Solution: Understand Medicare <ul><li>Traditional Medicare doesn’t cover everything </li></ul><ul><li>Choices outside basic Medicare complex, difficult </li></ul><ul><ul><ul><li>Part D prescription drug plans </li></ul></ul></ul><ul><ul><ul><li>Medicare Advantage </li></ul></ul></ul><ul><ul><ul><li>Medigap </li></ul></ul></ul><ul><ul><ul><li>Long-term care insurance </li></ul></ul></ul>
    22. 22. Solution: Health care reform Time to stop scaring Grandma!
    23. 23. Solution: Health care reform <ul><li>Law adds benefits to Medicare </li></ul><ul><ul><li>Closes prescription drug doughnut hole </li></ul></ul><ul><ul><li>Adds free preventive care visits </li></ul></ul><ul><li>Reduces Medicare Advantage reimbursements over a period of years </li></ul><ul><ul><li>Reimbursed now at 114% of traditional Medicare rates </li></ul></ul>
    24. 24. Solution: Health care reform <ul><li>Law gives a big boost to older Americans too young for Medicare </li></ul><ul><ul><li>2010: high-risk pools </li></ul></ul><ul><ul><li>2014: insurance companies can’t turn you away for pre-existing condition </li></ul></ul><ul><ul><li>Creates competitive insurance exchange to help those without group coverage </li></ul></ul>
    25. 25. Solution: Consider long-term care policy <ul><li>Two-thirds will need some form of long-term care after age 65 </li></ul><ul><ul><li>Average time of care: 3 years </li></ul></ul><ul><li>Best to buy sometime in your 50s </li></ul><ul><li>Stick with the major AAA=rated insurers </li></ul>
    26. 26. Solution: Working longer <ul><li>Critical component of restoring post-crash retirement security </li></ul><ul><li>But working longer doesn’t mean working forever </li></ul>
    27. 27. Solution: Working longer <ul><li>Annual Social Security payments rise every year you wait. Example assumes $75,000 annual salary. </li></ul>
    28. 28. Solution: Working longer <ul><li>The triple threat </li></ul><ul><ul><li>More Social Security </li></ul></ul><ul><ul><li>More years of 401(k) contributions </li></ul></ul><ul><ul><li>Fewer years drawing down savings </li></ul></ul>Percentages = increase in annual retirement income over amount collected if retirement occurs at age 62
    29. 29. Challenge: The workplace <ul><li>Employers </li></ul><ul><ul><li>Workplace age discrimination </li></ul></ul><ul><li>Employees </li></ul><ul><ul><li>Career transition readiness is poor </li></ul></ul><ul><ul><li>Technology readiness </li></ul></ul><ul><ul><li>Expectation of staying in current field </li></ul></ul><ul><ul><li>Over-valuing own experience </li></ul></ul>
    30. 30. Solution: Entrepreneurship <ul><li>Some will strike out on their own as entrepreneurs </li></ul><ul><li>Some will launch encore careers </li></ul>
    31. 31. 55+: highest rate of business formation 2005: 0.34% of adults age 55-64 started businesses
    32. 32. Challenge: A life well led <ul><li>Hard times call for belt-tightening </li></ul><ul><ul><li>But it’s not going to be all about money and work </li></ul></ul><ul><ul><li>Boomers thinking legacy as nation faces multiple challenges </li></ul></ul>
    33. 33. Solution: Encore careers <ul><li>Redefining the second half of life with meaning </li></ul><ul><li>Transitions to teaching, government, health care, non-profits </li></ul><ul><li> </li></ul>
    34. 34. Solution: Volunteering <ul><li>30-year high point of activity, especially among 50+ </li></ul><ul><li>Boost from Washington: Serve America Act </li></ul><ul><ul><li>Expanded funding for community-based service organizations </li></ul></ul><ul><li>U.S. and international </li></ul>
    35. 35. Solution: Lifelong learning <ul><li>Great way to keep engaged </li></ul><ul><ul><li>“ Come for the classes, stay for the community” </li></ul></ul><ul><li>Brain fitness </li></ul><ul><li>Lifelong Learning Institutes, continuing ed, learning-oriented travel </li></ul>
    36. 36. Retirement in Hard Times Challenges and solutions for the transition years Mark Miller