Seven Life Defining Decisions: Things to Think About Special Issues for the Third Age Presented by Anna Rappaport

1. Seven Life Defining Decisions:Things to Think AboutSpecial Issues for the Third AgePresented by Anna Rappaport The Transition Network — Prepared with support from WISER October, 2006

2. Retirement in America: The Puzzle Today Premature Retirement Risk Working in Retirement Decline of DB Plans Less Retiree Health Little Longer Term Thinking Higher Health Costs Longer Life Spans What is Longevity Risk? Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

3. Our Goals Today • Share “Seven Life Decisions” ideas • Understand key data about retirement • Identify key decisions/questions Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

4. Agenda • Seven Life Decisions Project • Key Data and Facts • The Seven Major Areas • Next Step: Decisions in Transition Period Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

5. Seven Life Defining Decisions: A Roadmap for Security • Start Planning • Jobs and Careers • Marriage and Family • Home Ownership, Debt and Credit • Planning for Retirement • Investing for Long-Term Goals • Insurance WISER and Actuarial Foundation Seven Life Defining Decisions project focuses on intersection of retirement and life events Goal today — focus on issues — our stage of life Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

6. Purposes of the Seven Life Defining Decisions Project • To show you how decisions you make in your life, in key areas, can have a big impact on your future • To point out the times in your life when you can take steps to a more secure future • To empower you to take control of your financial future • Use the material and share it! Note: copies can be secured from Wiser or downloaded at: www.wiserwomen.org/pdf_files/wiserrpt_life_rev_feb04.pdf Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

7. Key Data and Facts • Demographics: The Third Age • Probability of Living to 80, 90, 100 • Premature Retirement Risk • Perceptions About Risk Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

8. Demographics: The Third Age • New ways to think about life cycle • Third age: period between full time work and total retirement • During transition period • Some work and more leisure • Supplement earnings with retirement resources • Looks like traditional cyclical life plan • Key trends • Living longer • Healthy longer but not forever Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

9. Probability of Living to 80, 90, 100Projected to 2025 Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

10. Context: Expected vs. actual timing of retirement among retirees Source: EBRI/ASEC/Greenwald, 2000-2004 Retirement Confidence Surveys Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

11. 2003 2001 2005 Retirees(2005 n=302) Pre-retirees(2005 n=300) You might not have enough money to pay for adequate (2003/2001: good) health care You might not be able to keep the value of your savings and investments up with inflation You might not have enough money to pay for [a nursing home/ nursing care at home] You might not be able to maintain a reasonable standard of living [for the rest of your life] Concerns about risk fairly constant How concerned are you that . . . ? (percentage very or somewhat concerned) Source: Society of Actuaries, 2001,2003 and 2005 Risks and Process of Retirement Surveys Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

12. 1. Start Planning • Key Decision Points: Choosing a career, changing jobs, getting married, having children, buying a home, starting to save and invest; having a lifetime financial plan can provide a smoother journey. • In the “Third Age”— where we are — special planning needs • Seeing if we have enough assets/income • Catching up • Deciding what to do in retirement and what retirement means • Fit investment decisions to life stage • Risk management strategies • When to make changes Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

13. Why Worry? • High poverty rate among older women • High poverty rate among retirees, especially people of color • Barriers for women to overcome to achieve financial security — e.g. family care-giving needs may mean working part-time and forfeiting job opportunities • Too much debt in retirement • Poor understanding of many financial issues by Americans Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

14. 2. Jobs and Careers Third Age Issues • Many people fail to recognize premature retirement risk • Four out of 10 retire before they planned to • Working in retirement — key to new retirement for many Issues at All Life Stages • Most job seekers ask about pay, but not about benefits, particularly retirement benefits • Some jobs offer benefits that are worth a good deal of money — health insurance, pensions and retirement savings plans are valuable Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

15. Working in Retirement: Importance of EarningsAges 55 and Over Source: Debra Whitman and Patrick Purcell, CRS Report for Congress, November 7, 2005 Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

16. Choice of Work After Retirement Percentage of Retirees with Various Work Experiences (2004) Source: Society of Actuaries, 2005 Risks and Process of Retirement Survey. Results based on 274 retirees who provided their retirement age. Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

17. Puzzles around longer work • More than 7 in 10 people say they want to work in retirement • About 4 in 10 people retire earlier than planned • Don’t plan for premature retirement risk • Higher age displaced workers take longer to get jobs • Other research indicates that older applicants get fewer call backs • Age discrimination? Will this change as population ages? • Future: unknown effect of longer work on retirement patterns Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

18. Leaving a Job • When leaving a job — what will happen to your retirement plan? • Defined benefit plans — usually vest in 5 years. The longer you stay, the more valuable the benefit • Defined contribution plans — usually vest in 3-6 years/ leave your money in the plan or have it automatically rolled over to another plan or an IRA • Think about keeping your skills and contacts up to date so you can re-enter the workforce Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

19. 3. Marriage and Family • Retirement plan needs to work for you as a couple and for each of you separately • Decisions made at time of marriage, during the marriage and at its end affect your security • Marriage — most assets that you or your spouse acquire during the marriage will belong to both of you • Stay aware of your spouse’s debts — they may become yours some day • When others are depending on you for support, consider life, disability and health insurance • Work through a household budget and who will pay for what before you get married and review it periodically • Both spouses should share responsibility for major financial decisions Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

20. Marriage and Family continued • Divorce can change finances dramatically. To claim a share of an ex-spouse’s retirement benefits, you must obtain a Qualified Domestic Relations Order at the time of your divorce. • Pensions can be the most valuable asset to divide, but are frequently overlooked • Couples living together, but not legally married, do not receive same legal protections or have same access to benefits as legally married couples • Some employers extend health insurance and other benefits to domestic partners, but this is uncommon • Social Security provides spousal benefits to individuals in common law marriages if recognized under state law Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

21. 4. Home Ownership, Debt and Credit • Home is largest asset for many Americans, important in determining retirement options/resources • A reverse mortgage on a home can help give you much needed retirement income • Buying a home is the largest transaction most people make • You may be able to use your home as a source of income later, by trading down for a less expensive home or tapping into equity • Think carefully about mortgage debt in retirement • Views differ as to desirability of having mortgage in retirement Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

22. 4. Debts and Credit • Debt is a factor in financial security in retirement, many Americans get to retirement with significant debt. Try to avoid getting in debt by setting aside 3-6 months of expenses for emergency fund • If you have credit card debt, try to pay off your cards as soon as possible. Pay off the one with the highest interest rate first, then move on to the others • Find out what is in your credit record and check for errors • You can get a free copy of your credit report by calling 1-877-322-8228 or go to www.annualcreditreport.com Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

23. 5. Planning for Retirement • If you want to have adequate funds for the future, you need to save during your working years • One rule of thumb is to save 15% of pay over a long period of time. Don’t get discouraged if you can’t save that much. Save a smaller amount now and try to increase it later • As you near retirement: • Focus on risk management and the distribution phase • Think about how much you need, what you have and how to fill the gap • Think about when you can retire Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

24. Sources of Retirement Income 5 legged stool 1. Social Security 2. Pensions 3. Savings 4. Earnings 5. SSI — Supplemental Security Income Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

25. Pension Basics – Beware of Important Decisions/Traps • Taking money in a lump sum and spending too soon • Not focusing on benefits in divorce • Not saving enough to get the company match • Not participating if the plan is voluntary • Taking benefits too early thereby getting a much smaller benefit • Leaving before you are vested • Not understanding what you will really get and over-estimating benefits • Not considering tax issues • Not considering minimum distribution rules Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

26. 6. Investment Basics –Third Age Issues • Will need to start using retirement funds • Revisit asset mix and way to investment • Think about annuities that guarantee life income as well as traditional investments • “Making Your Money Last a Lifetime” — helping you think about the annuity decision • Consider professional advice but be sure advisor aware of retirement issues • Know how advisor is paid and what issues she will focus on • Asset classes • Stocks, bonds, money market funds, and others • Mutual funds offer means to pooled investments Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

27. 7. Insurance • Health benefits and insurance • Disability protection • Long-term care insurance • Life insurance Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

28. Next Steps: Evaluate, Plan and Decide Evaluate • Have I saved enough? • How can I catch up? • What risks do I face and how do I manage them? • Does my plan work for me as an individual? Plan • When can I retire? • Will work be part of my retirement? How do I make that work? • What funds will I use and how? • How do taxes affect me? Decide Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

29. Have You Saved Enough? • Getting Your Ducks in a Row: • Estimate what you have currently in Social Security, pensions and other sources of retirement income • Convert 401(k) balance and other savings into yearly income from annuity or scheduled withdrawals • Aim to have 100% of your current income in retirement. Calculate the gap between current income and what you have in savings and retirement benefits. • Use WISER’s calculator on the website at www.wiserwomen.org to find out how much to save starting now, to close the gap • Review your savings and expenditures and put a plan in place to save the necessary amount • If you can’t do it all right now, concentrate on eliminating debt and saving something, even a small amount Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

30. Secure Retirement Action Steps • Develop a budget • Determine how you can economize • Develop a Savings and Catch-up Plan • Eliminate your debt first • Set aside a certain amount each month for savings and then don’t touch your savings • Choose Investment Opportunities • Employer offered 401(k) or pension • Traditional or Roth IRA • Mutual Funds • Savings Bonds Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

31. More Helpful Information • What follows is additional information for reference purposes Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

32. Context: The work and retirement experience • People say they want to work longer • Many work after “retirement” • Often part-time or part-year • Of those who are not in labor force at 50-61 • 67% of men are disabled • 40% of women are disabled • Job options and innovative practices are needed Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

33. Context: Major information sources • SOA Research • 2005 Study of Risks and Process of Retirement • Focus groups on investment of retirement assets • Retirement confidence study • Government data • AARP studies • Staying Ahead of the Curve 2003 Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

34. Financial hazards to avoid on the road to retirement Mistakes women make • They quit working too soon • They give up retirement security in exchange for the house in a divorce • They count on returning to work, after child-rearing, at the same or higher pay • They don’t start saving or investing early enough • They save for kids’ college instead of retirement • They invest too timidly • They amass too much debt late in life Source: USA Today with information provided by Judy Shine Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

35. Top Money Mistakes • Not making your finances a priority • Using your hard earned money for items that you do not really need and you could use to put into savings — such as purchases at the grocery and drugstore that you had not planned on purchasing • Not saving for the future because you help everyone else first and you save first for your children or grandchildren’s education • Getting discouraged and not saving at all because you think you don’t have enough money or you think it is too late Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

36. Road Map ▬ for moving through life • Understanding the challenges, and making a plan to overcome them, is key • Best to start planning early in life • Keep records • Review and adjust your financial plan over time. Develop the discipline to stick with a financial plan • Focus on long term goals such as education/home-buying • Look for a job with good benefits • Keep actively involved in financial decisions if you marry or live with someone • Avoid accumulating credit card debt/keep credit record in best possible shape Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

37. Roadmap continued • Learn all you can about saving for retirement — IRAs, 401(k)s and pensions • Learn the investment rules of the road and start saving early in life • Explore options to protect yourself and your family — life, disability, health and long-term care insurance • Understand risks later in life • Plan for using your assets just as you plan for building them Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

38. Job Benefits • Health insurance not only protects your health but may help you from paying out of pocket costs; that will free up more income for saving for the future • Retirement plans lay the groundwork for a secure old age while you are working and able to build and acquire assets • Disability insurance protects you and your family if you are unable to work temporarily or permanently; buy on your own if not provided • Long-term care insurance will pay for services you need when you are unable to care for yourself. Some employers allow you to cover other people in your family Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

39. Caring for Parents • Caring for an elderly parent can complicate financial plans • Talk to your parents ahead of time and find out their wishes and plans • Ask how they have prepared their finances for the future • Talk to your siblings and see if they will help your parents with care • Find out what insurance coverage your parents might have • If you need help, contact Eldercare Locator or your local Area Agency on Aging • Eldercare Locator: www.eldercare.gov or 1-800-677-1116 Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

40. Social Security Retirement Benefits • You can receive full benefits at normal retirement age, age 65 to 67, depending on when you were born • You can receive reduced benefits at age 62, if you want to retire early • You can collect higher benefits if you wait longer. (There is a big penalty for taking early retirement benefits — 20% if you retire 3 years before normal retirement age.) • The amount you will receive is adjusted each year for inflation Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

41. Social Security Benefits for Divorced Women • A divorced woman who was married at least 10 years can receive Social Security based on her ex-husband’s work record. • This has no impact on what he or his current wife receive • You will get the larger of what you would get as a worker and the benefit based on 50% of your former spouse’s benefit • You can also receive a divorced widow’s benefit after a spouse dies Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

42. Social Security Benefits for Widows • A widow/widower receives the full worker’s benefit at retirement age • A widow/widower can receive reduced benefits: • at age 60, or • age 50 as a disabled widow/widower • A widow/widower of any age, caring for children under 16 years old, can receive benefits. The children can receive benefits until they are 18 years old Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

43. Social Security Disability Benefits • Social Security provides lifetime, inflation-adjusted benefits for those with disabilities — equivalent to $200,000 worth of insurance. • You can get disability benefits if you are: • Less than the full retirement age, • Have enough Social Security credits, and • Have a severe medical impairment that prevents your doing “substantial” work for a year+, or a condition expected to result in death. Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

44. Pensions and Retirement Savings Plans Defined Benefit plan: many large company and public sector workers have this type of plan • The employer invests money and pays you a set benefit at retirement • Benefit usually based on years worked and highest average pay level. Most valuable to long-term employees • You must stay until you are vested, usually 5 years, to receive a benefit. Leave before vesting and lose your benefit • Third Age Decisions include: • When to start taking benefits — there may be special provisions for early retirement • Some plans offer a choice of a lump sum — new WISER publication is coming about this choice • Whether to take survivor income Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

45. Pension and Retirement Savings Plans continued Defined contribution: 401(k), 403(b) and 457 plans — these are really savings plans; • Generally, it is up to you to decide to have money taken out of your paycheck to invest in savings account • Some employers will match savings up to a limit • You, the employee, choose from investment options and bear the risk Third Age Issues • Possibility of added “catch-up” contributions in some plans • When to take funds out and how to use them — look for new WISER publication • Making your money last a lifetime Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

46. Pension Basics – Divorce • Under all state laws, a pension earned during marriage is a joint asset, but it is NOT automatically divided • You need a separate court order at the time of the divorce stating your right to a portion of your ex’s pension — a “qualified domestic relations order” or QDRO Remember— • Check to see if the spouse has more than one pension from a current job or previous jobs • Find out how much was earned in pension benefits under each plan • You may want to have the benefits valued by a pension actuary or accountant • Don’t forget to include survivor benefits in the pension order Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

47. Social Security and Pensions –What You Can Do Learn the Facts • Understand the decisions you will need to make and when you can make them • Focus on benefits you earned and those your husband earned • Think longer term — check to see what may happen if you live to ages 80, 90 or even 100 • Know your basic legal rights: at the workplace, as a spouse, widow(er) or ex-spouse • Call 800-772-1213 to ask for your Social Security Statement, an estimate of your future Social Security benefit. Social Security also mails you an estimate of your future benefits each year around your birthday Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

48. Individual Retirement Accounts • Individual Retirement Accounts (IRAs) are accounts you open on your own at a financial institution like a bank or credit union • For 2006, you can contribute up to $4,000 annually — or $5,000 if you are over 50. You contribute before-tax money, and pay taxes when you take the money out • You pay a penalty if you take the money out before age 59½ • You must start taking out money by age 70½ • You can roll over money from an employer sponsored plan Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation

49. Roth IRAs • In 2006, if you are eligible, you can contribute up to $4,000 earned income annually — or $5,000 if you are over 50. You contribute after-tax money • You will not pay taxes when you withdraw your funds after retirement — Roth IRAs grow tax free • Income limits determine eligibility Presentation at The Transition Network, October 2006 Seven Life Defining Decisions – using work of WISER and Actuarial Foundation