BOOMER EXPECTATIONS FOR RETIREMENT EIGHTH ANNUAL UPDATE ON THE RETIREMENT PREPAREDNESS OF THE BOOMER GENERATION INSURED RETIREMENT INSTITUTE

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1 BOOMER EXPECTATIONS FOR RETIREMENT 2018 EIGHTH ANNUAL UPDATE ON THE RETIREMENT PREPAREDNESS OF THE BOOMER GENERATION INSURED RETIREMENT INSTITUTE APRIL 2018

2 ABOUT THE INSURED RETIREMENT INSTITUTE: The Isured Retiremet Istitute (IRI) is the leadig associatio for the retiremet icome idustry. IRI proudly leads a atioal cosumer coalitio of more tha 30 orgaizatios, ad is the oly associatio that represets the etire supply chai of isured retiremet strategies. IRI members are the major isurers, asset maagers, broker-dealers/distributors, ad 150,000 fiacial professioals. As a ot-for-profit orgaizatio, IRI provides a objective forum for commuicatio ad educatio, ad advocates for the sustaiable retiremet solutios Americas eed to help achieve a secure ad digified retiremet. Lear more at IRI All rights reserved. No part of this report may be reprited or reproduced i ay form or used for ay purpose other tha educatioal without the express writte coset of IRI. Isured Retiremet Istitute 2

3 OVERVIEW IRI bega the Baby Boomer research series i 2011, ad o Jauary 1 of that year the first Boomer tured 65. Aroud the same time, a statistic from Pew Research Ceter oted that 9,999 other Baby Boomers would tur 65 that Jauary 1, ad every day thereafter for the ext 19 years. Assumig that statistic is accurate, approximately 26 millio Boomers have tured 65 sice the first IRI report o the retiremet readiess of the Boomer geeratio was published, ad aother 50 millio or so will follow over the ext 10 years. Boomers will shape retiremet i America for years to come, as they ve shaped every other life stage they ve passed through, their presece ad sheer umbers alterig the experiece for those that follow i ways that may ot be clear yet. Oe thig is certai: they will eed fiacial resources to ejoy a digified retiremet, ad guidace i how to efficietly use those resources to reach their goals. This year s Boomer study demostrates yet agai the marked differece betwee Boomers who have egaged fiacial professioals to help them build comprehesive ad effective retiremet plas, ad those who have ot. 5 THINGS TO KNOW ABOUT BOOMERS AND RETIREMENT READINESS 25% Oly 25 percet of Baby Boomer are cofidet their savigs will last throughout retiremet. 7 i 10 Seve i 10 Boomers say it is very importat for retiremet icome to be guarateed for life, yet oly 14 percet pla to purchase a auity with a portio of their 401(k) or IRA ad oly 3 percet have doe it. 4 i 10 Four i 10 Boomers pla to withdraw from their 401(k) as eeded to pay for their basic expeses, but oly half as may (22 percet) cosider their 401(k) to be a major source of retiremet icome. 84% Eighty-four percet of Boomers with fiacial advisors have had icome from a auity icluded i their fiacial pla by their advisor (43 percet), or their advisor has discussed usig auities for retiremet icome with them (41 percet). MONTHLY GUARANTEED INCOME is the most importat sigle trait Boomers look for i a retiremet ivestmet, raked umber oe or umber two i importace by 41 % 1 Boomer Expectatios for Retiremet 2018

4 SUMMARY OF FINDINGS Overall life ad ecoomic satisfactio rose for the secod straight year, with 55 percet of Boomers satisfied with how thigs are goig i their lives versus 47 percet i 2017 ad 43 percet i The percetage of Baby Boomers with retiremet savigs rose to 58 percet, from 54 percet i While sigificatly lower tha earlier study years (i percet of Boomers idicated they had at least some moey saved for retiremet), a uptick may be idicative of more aggressive savig by employed Boomers. Amog Boomers with retiremet savigs, 43 percet have $250,000 or more saved, as compared to 32 percet havig this level of savigs i This was offset by the group with $100,000 to $250,000 saved droppig from 29 percet to 19 percet. Seve i 10 Boomers have $5,000 or less i a emergecy fud, creatig risk that a sigificat uplaed expese could egatively impact their retiremet or retiremet preparedess. Fortuately, at the same time their credit card debt is low; six i 10 Boomers carry credit card balaces of $1,000 or less. Despite improvig measures of retiremet readiess, retiremet cofidece is still very low: oly 25 percet of Boomers believe they will have eough moey i retiremet, ad oly 28 percet believe they are doig (or did) a good job fiacially preparig for retiremet. Workig with fiacial professioals cotiues to be highly correlated with retiremet preparedess: 79 percet of Boomers who have a relatioship with a fiacial professioal have at least $100,000 saved for retiremet, versus oly 48 percet of those who do ot work with a fiacial professioal. Auity owership is also a idicator of retiremet readiess; 80 percet of auity owers have at least $100,000 saved for retiremet, as compared to oly 53 percet of o-owers. Eighty-four percet of Boomers who work with fiacial professioals report that their advisors have either icluded retiremet icome usig auities i their writte fiacial pla (43 percet), or have discussed the use of auities to provide retiremet icome with them (41 percet). Nie i 10 Boomers who work with fiacial professioals believe their advisor works i their best iterest. Isured Retiremet Istitute 2

5 Boomers are lackig i egagemet with their 401(k) plas; 80 percet check their accout balaces o at least a quarterly basis, but more tha oe-half rarely or ever rebalace their ivestmets. Despite the prevalece of auity strategies i retiremet plas, the most commo approach Boomers pla to take whe usig their 401(k) plas for icome is to withdraw moey as eeded to pay expeses (38 percet). Oly 14 percet say they pla to use a portio of their balace(s) to purchase a lifetime icome auity, ad oly 3 percet have doe so. About oe-half of Boomers have ot take ay actio regardig their defied cotributio plas. Amog those who have, the most commo actio (21 percet) is to have reviewed distributio optios. Seve i 10 Boomers say it is very importat for retiremet icome to be guarateed for life, ad eight i 10 Boomers believe that 401(k) plas should provide a optio to take a portio of pla balaces as guarateed lifetime retiremet icome. Seve i 10 Boomers believe employers should be required by law to offer a 401(k) or similar defied cotributio pla to employees. Forty-five percet of Boomers say they expect to receive a retiremet pesio from a private employer, but oly 28 percet say that a employer pesio represets a major source of retiremet icome. This puts pesios a distat secod behid Social Security, which 69 percet of Boomers expect to be a major source of icome durig retiremet. Oly 22 percet of Boomers say their defied cotributio pla represets a major source of retiremet icome. Despite modest retiremet icome expectatios, 53 percet of Boomers expect to maage their basic expeses durig retiremet ad have at least some moey left over for travel ad leisure activities. Chages to Social Security that may reduce their icome (76 percet) ad health care expeses (69 percet) are the top two cocers of Boomers regardig their later retiremet years. Mothly guarateed icome is the most importat sigle trait Boomers look for i a retiremet ivestmet, raked umber oe or umber two i importace by 41 percet. Rate of retur is secod with 37 percet rakig it oe or two, followed by guaratee of pricipal at 34 percet. 3 Boomer Expectatios for Retiremet 2018

6 REPORT AND EXHIBITS BOOMERS IN THE NOW After decliig i 2014, 2015, ad 2016, the overall satisfactio Boomers feel regardig their fiacial lives improved i 2017 ad agai this year. Figure 1 shows 55 percet of Boomers feelig satisfied with their lives, versus 47 percet last year ad 43 percet i Iterestigly, the percetage of Boomers feelig fiacially satisfied is just about the same as the percetage with retiremet savigs. This should ot be surprisig give the proximity of eve the yougest Boomers to traditioal retiremet age approachig the ed of workig life with little or othig saved is ot calculated to egeder positive feeligs about oe s fiaces. Figure 1: Life/Ecoomic Satisfactio 100% 90% 80% 76% 79% 77% 70% 65% 60% 55% 50% 48% 43% 47% 40% 0% Isured Retiremet Istitute 4

7 Despite almost oe-half of Boomers feelig less tha satisfied with their lives from a ecoomic ad fiacial stadpoit, Figure 2 shows that most empirical measures of fiacial health i the study improved i 2018 relative to Fewer Boomers suspeded retiremet accout cotributios, foud it more difficult to pay mortgages or rets, or took early withdrawals from 401(k) or IRA accouts. New measures added this year iclude decreasig (as opposed to fully haltig) 401(k) or IRA cotributios, withdrawig fuds as retiremet icome (icreasigly importat to moitor as the Boomers age), ad whether fuds i a 401(k) or IRA were used to purchase a auity. This last measure will be iterestig to tred over time, as the percetage sayig they ve egaged i such a trasactio is curretly far lower tha the percetage who say they either pla to do so or would cosider it. Figure 2: Chages i Fiacial Life i Past 12 Moths Stopped Addig to 401(k), IRA, etc. 19% 21% 22% More Difficult to Pay Mortgage or Ret 22% 24% Early 401(k)/IRA Withdrawal 9% 11% 13% 16% Icreased 401(k), IRA CotribuPos 9% 8% 8% 15% Postpoed RePremet 21% 25% 24% New IRA/Roth IRA 6% 4% 5% 4% 5% Lump Sum Withdrawal From IRA/401(k) 7% 7% 9% 8% 7% IRA Rollover 5% 3% 4% 4% 4% Decreased 401(k), IRA CotribuPos Withdraw from 401(k) or IRA for repremet icome 13% 14% Used 401(k) or IRA Fuds to Purchase a Auity 3% 0% 5% 15% 25% Boomer Expectatios for Retiremet 2018

8 Life ca throw all maer of wreches ito the best laid plas. It is cocerig that i Figure 3 early seve i 10 Boomers maitai a emergecy fud of $5,000 or less; a expesive car or home repair, serious illess or job loss could rapidly exhaust a small fud, potetially forcig premature withdrawal from a retiremet accout or a icrease i credit card debt. 11% 9% Figure 3: Emergecy Fud Balace 13% 45% 22% $1,000 or Less $1,000 - $5,000 $5,000 - $10,000 $10,000 - $25,000 $25,000+ Fortuately, Boomers seem to be carryig very little revolvig debt, with Figure 4 showig six i 10 carryig balaces of $1,000 or less o their credit cards. Figure 4: Credit Card Debt 8% 4% 11% 57% $1,000 or Less $1,000 - $5,000 $5,000 - $10,000 $10,000 - $25,000 $25,000+ $1,000 or Less $1,000 - $5,000 $5,000 - $10,000 $10,000 - $25,000 $25,000+ Isured Retiremet Istitute 6

9 RETIREMENT SAVING, PREPARATION AND CONFIDENCE The ages at which Boomers still i the workforce pla to retire have ot shifted much i the past few years. The most sigificat chage is the icrease i those who pla to retire prior to age 65, which Figure 5 shows grew from 20 percet of Boomers i 2017 to 25 percet i A small shift ad give the state of savigs ad retiremet cofidece amog Boomers it is more likely the icrease is associated with o-volutary retiremet, such as for health reasos or impedig loss of employmet. Figure 5: Plaed Retiremet Age 40% 35% 35% 33% 32% 25% 21% 25% 28% 28% 28% 29% 27% 17% 18% 21% 15% 5% 0% Prior to Age 65 Age 65 to 69 Age 70 or Older Do't Kow Boomer Expectatios for Retiremet 2018

10 As i prior years, Boomers cofidece i their ability to avigate retiremet, ad i the effectiveess of their preparatio, is low. Figure 6 reveals that oly oe i four Boomers are cofidet they will have eough moey to last throughout retiremet or that they are doig (or did) a good job preparig fiacially for retiremet, ad oly oe-third believe they will be more fiacial secure i retiremet tha their parets. Boomers also display a low level of cofidece i maagig health related costs, with oly 29 percet cofidet they ca maage health care expeses, ad fewer tha oe i five cofidet they will be able to pay for log-term care should they eed it. Figure 6: Cofidece I Retiremet Preparedess Will Have Eough Moey i Re=remet 24% 23% 25% 27% 33% Doig a Good Job Fiacially Preparig for Re=remet 22% 23% 25% 28% 35% Will Have Eough Moey for Health Care Expeses 28% 27% 28% 29% 36% Will Have Eough Moey for Log-Term Care 16% 16% 19% 19% 23% Will Be More Fiacially Secure Tha Parets i Re=remet 32% 36% 37% 36% 39% 0% 5% 15% 25% 35% 40% I Figure 7 the lack of adequate retiremet preparatio amog Boomers is brought ito sharp relief. While 58 percet have retiremet savigs, up a bit from the past few years, oly 38 percet have tried to calculate how much they eed to save to successfully retire, ad oly oe i four have cosulted a fiacial professioal. About oe-half have added to their retiremet savigs i the past 12 moths, which is i fact a positive fidig as 43 percet of respodets classify themselves as fully retired ad are far less likely tha workers to cotiue cotributig to retiremet accouts. Isured Retiremet Istitute 8

11 Figure 7: Positive Retiremet Plaig Behaviors 90% 80% 80% 70% 60% 50% 40% 64% 58% 58% 58% 55% 54% 53% 54% 49% 55% 38% 39% 42% 38% 44% 27% 27% 0% Have Moey Saved for Re:remet Added to Re:remet Savigs i Past 12 Moths Have Calculated Amout Needed to Re:re Have Cosulted a Fiacial Professioal Figure 8 shows sigificat improvemet i retiremet accout balaces relative to the past few years. While the percetage of Boomers with less tha $100,000 saved is virtually uchaged from 2017, over four i 10 Boomers with retiremet savigs ow have savigs of $250,000 or more versus less tha oe-third last year, as strog market performace helped propel may from the middle to the upper rage of savigs. The spike i the top category i 2014 is likely a statistical aomaly i the sample give the treds that have developed sice. Figure 8: Amout Saved for Retiremet 60% 54% 50% 40% 22% 24% 40% 25% 35% 42% 39% 29% 29% 29% 32% 38% 19% 43% 0% Less tha $100,000 $100,000 to $250,000 $250,000 or More 9 Boomer Expectatios for Retiremet 2018

12 Figure 9 shows the ituitive relatioship betwee retiremet savigs ad workig with a fiacial advisor. A Boomer with o retiremet savigs is far less likely to egage with a fiacial professioal so oe would expect this correlatio. Figure 9: Retiremet Savigs with Fiacial Advisor Guidace Compared to Self-Directed 100% 90% 80% 70% 60% 80% 58% 55% 54% 58% 94% 93% 91% 91% 95% 68% 50% 40% 46% 42% 41% 43% 0% Have Re2remet Savigs (All) Have Re2remet Savigs (Use Fiacial Advisor) Have Re2remet Savigs (No Advisor) Beyod Boomers beig more likely to simply have retiremet savigs whe they work with a fiacial professioal, they are also much more likely to have higher levels of savigs. I Figure 10, amog all Boomers with retiremet savigs, 62 percet have saved $100,000 or more. However, oly 48 percet of Boomers have reached this level of savigs o their ow, while 79 percet of Boomers with fiacial advisors have retiremet savigs of at least $100,000. Auity owership is also highly correlated with higher savigs levels, with 80 percet of auity owers havig $100,000 or more saved, versus 53 percet of o-auity owers. Figure 10: $100,000 or More Saved For Retiremet, All Savers Versus With/Without Advisors ad Auities All Boomers 60% 58% 61% 62% 78% With Fiacial Advisor 78% 79% 75% 79% 86% Without Fiacial Advisor 40% 46% 48% 49% 65% 84% 70% Auity Ower 68% 64% 80% 72% 52% No-Auity Ower 50% 59% 53% 0% 40% 50% 60% 70% 80% 90% Isured Retiremet Istitute 10

13 It is ot surprisig that those with savigs are more likely to have a relatioship with a fiacial professioal, ad that they have saved more. Fiacial advisors ca help Boomers with may areas of their fiacial lives, but ivestig ad retiremet plaig are the topics Boomers are mostly likely to say their advisors have discussed with them. I Figure 11, eight i 10 Boomers say their advisor has discussed retiremet, ad 69 percet have discussed ivestig. Beyod these two importat topics the percetages fall dramatically, sigalig a opportuity for advisors to egage more deeply with Boomer cliets. Alteratively, iformatio o these other topics may i may cases have bee preseted, but did t stick i the cliet s mid, idicatig a opportuity to improve commuicatio ad egagemet. Hads-o exercises ad gamificatio, for example, ca help cemet cocepts that may be misuderstood or igored whe preseted passively through discussio, brochures, or static website pages. Figure 11: Plaig Topics Discussed with Fiacial Professioal Re/remet 80% Ives/g 69% Fiacial Maagemet 53% Isurace Coverage 27% Tax Plaig Estate Plaig 23% 0% 40% 50% 60% 70% 80% Figure 12 goes ito detail about the specific plaig areas Boomers say have either bee icluded i the fiacial or retiremet pla give to them by their advisors, or that their advisor has discussed with them. I additio to ivestmet selectio, which usurprisigly is almost uiversal, 84 percet of Boomers who use advisors say their advisor has either give them a pla to use auities for retiremet icome (43 percet), or discussed usig auities for icome (41 percet). This falls just below systematic withdrawal, preseted or discussed by 89 percet of advisors. Other aspects of retiremet plaig that are less traditioal, icludig supplemetal Medicare isurace, log-term care plaig, plaig for the possibility of cogitive declie, ad prevetio of elder fiacial abuse are topics Boomers are much less likely to say their advisors have discussed. This is a real opportuity for advisors to add value for their cliets, as plaig for health care ad log-term care expeses are key areas where Boomers have low cofidece i their preparedess. 11 Boomer Expectatios for Retiremet 2018

14 Figure 12: Retiremet Plaig Areas Icluded i Pla or Discussed by Advisor Ivestmet Selec7o Re7remet Icome Usig Systema7c Withdrawals Re7remet Icome Usig Aui7es Social Security Claimig Estate Plaig Household Budge7g Other Isurace Log-term Care Spousal Icome Medicare Supplemetal Isurace (Medigap) Plaig for Cogi7ve Impairmet Preve7o of Elder Fiacial Abuse Debt Repaymet 12% 15% 18% 24% 45% 44% 43% 41% 43% 36% 32% 41% 36% 34% 27% 40% 24% 43% 34% 27% 29% 28% 36% 42% 27% 38% 54% 57% 61% 70% 73% 70% 67% 67% 79% 84% 89% 94% 0% 40% 50% 60% 70% 80% 90% 100% Icluded or Discussed Icluded Discussed As a example of what Boomers have doe to address some of these less straightforward aspects of retiremet plaig, Figure 13 breaks dow specific steps Boomers have take to pla for the possibility that they may experiece cogitive declie to a extet that they would eed help maagig their fiacial affairs. Relatively few have take ay steps to deal with this possibility, despite the icreased risk of makig serious fiacial mistakes or becomig a victim of a fiacial scam or fraud. Oe-third of Boomers say they have writte dow their wishes i the evet they ca o loger maage their affairs, but fewer tha oe i four have take more cocrete steps like creatig a writte pla for a trusted family member or fried to follow or appoitig a coservator. Figure 13: Steps Take to Prepare for Possibility of Cogitive Declie Wri.e Wishes 34% Wri.e Pla 23% Appoited Coservator 22% Created Accout Alerts 9% Shi@ed Assets to a Auity 6% Other 36% 0% 5% 15% 25% 35% 40% Isured Retiremet Istitute 12

15 Reflectig the value that fiacial professioals provide to Boomers i or workig toward retiremet, Figure 14 shows that they overwhelmigly believe that their advisors are workig i their best iterest. Figure 14: Fiacial Professioal Works i My Best Iterest 7% 2% 91% Agree or Strogly Agree Neutral Disagree or Strogly Disagree MANAGING AND OPTIMIZING RETIREMENT SAVINGS Give the importat role retiremet savigs is playig, or will play, i supplemetig retiremet icome from other sources such as Social Security ad pesios, it is importat for Boomers to stay egaged with their retiremet accouts, moitorig accout balaces ad alterig their ivestmet allocatio as they age, ad/or their risk tolerace or fiacial situatios chage. Ufortuately, while Figure 15 shows that 80 percet of Boomers say they check their retiremet accout balaces o at least a quarterly basis (most likely because they receive a quarterly statemet), fewer tha oe-third say they rebalace their ivestmets o at least a aual basis, ad 51 percet say they rarely or ever rebalace. This ca create risk i retiremet portfolios, for example after a exteded period of very strog equity market performace, as has bee the case i recet years ad especially recet moths, a portfolio that was 60 percet equity ad 40 percet fixed icome might ow be 80/20. Figure 15: Maagig DC ad IRA Accouts Moitorig Accout Balace(s) At Least Quarterly 82% 78% 80% Semi-Aually/Aually 7% 8% 7% Rarely or Never 11% With Advisor 1% 3% 3% Rebalacig Frequecy At Least Aually 27% 29% 27% Every Few Years 12% 13% Rarely or Never 51% 56% 54% 0% 40% 50% 60% 70% 80% Boomer Expectatios for Retiremet 2018

16 Despite sub-optimal egagemet, employer sposored defied cotributio plas are a importat part of the overall retiremet picture for Boomers. So much so that i Figures 16 ad 17 most Boomers are show to feel strogly that employers should be legally required to offer 401(k) plas to employees (68 percet), ad that they should be offered a optio i their plas to take a portio of their balace i the form of guarateed lifetime icome (80 percet). Figure 16: Should Private Employers be Legally Obligated to Offer 401(k) Plas? Figure 17: Desire Optio to Take Portio of 401(k) as Guarateed Lifetime Retiremet Icome 32% 68% 80% Yes Yes No Yes No The ability to take a portio of their retiremet pla balace as guarateed lifetime icome may save Boomers from becomig their ow worst eemy whe it comes to optimal use of the savigs they worked a lifetime to accumulate. I Figure 18, Boomers were asked how they pla to use the moey i their 401(k) plas durig retiremet. It is worrisome that while this has treded dow a bit from 2017, four i 10 Boomers pla to simply withdraw fuds o a as eeded basis, which does ot ecessarily cotemplate maagig withdrawals to miimize the risk of ruig out of moey before death, ad oe i four simply do t kow how they will access their savigs. However, a ecouragig developmet is the ear doublig i the percetage of Boomers plaig to use a portio of their balace to purchase a guarateed lifetime icome auity, from 8 percet i 2017 to 14 percet this year. Still quite low but movig i the right directio for improvig Boomers retiremet security. Isured Retiremet Istitute 14

17 Figure 18: Plas for Usig 401(k) Balace(s) Withdraw As Needed For Basic Expeses 38% 43% Withdraw For Emergecy Or DiscreDoary Needs 21% 24% Trasfer a PorDo to a LifeDme Icome Auity 8% 14% Trasfer Pla(s) to a IRA 14% 12% Trasfer a PorDo to a IRA 4% 7% Do't Kow 25% 24% 0% 5% 15% 25% 35% 40% 45% Itet is oe thig, actio aother. Figure 19 explores the steps Boomers have take to use their savigs, or eve to fid out how they would go about it. More tha oe-half of Boomers with employer sposored retiremet plas have doe othig. Ecouragigly, however, for those that have ivestigated how they would go about tappig their fiacial resources i retiremet cosultig a fiacial professioal is the secod most commo aswer. Figure 19: Actios Take With Regard to Employer Sposored Retiremet Plas Noe Reviewed Distribu<o Op<os Cosulted a Fiacial Professioal to Discuss Rolled Over to a IRA Cosulted Family/Frieds Systema<c Withdrawals Researched IRA Rollovers Requested IRA Rollover Iformatio Respoded to IRA Rollover Solicitatio 2% 1% 6% 6% 7% 7% 8% 7% 7% 11% 15% 14% 17% 19% 21% 0% 40% 50% 48% 52% Boomer Expectatios for Retiremet 2018

18 I Figure 20 Boomers idetify their expected sources of icome durig retiremet that is guarateed to cotiue for their lifetimes. Usurprisigly, Social Security is the most commo, with ie i 10 Boomers expectig to receive beefits. Private pesios are the ext most commo, with 45 percet expectig icome from a pesio pla provided by their employer. Boomers ad GeX are arguably the last two geeratios that will realize icome from private pesios i sigificat umbers, as defied beefit plas are disappearig at a brisk pace. Over oe i four also expect to receive lifetime icome from a auity, which reflects both the icrease i Boomers itet to purchase auities expressed i Figure 18, ad the importace to Boomers that retiremet icome be guarateed for life show i Figure 21. Figure 20: Expected Sources of Guarateed Lifetime Icome Social Security 89% Private Pesio 45% Public Pesio 28% Auity 28% Disability 11% Noe 1% 0% 40% 50% 60% 70% 80% 90% Figure 21: Importace of Retiremet Icome Beig Guarateed for Life Very Importat 66% Somewhat Importat 19% Neutral 12% Not Very Importat 2% Not At All Importat 1% 0% 40% 50% 60% 70% Isured Retiremet Istitute 16

19 Whereas Figure 20 shows where Boomers thik their guarateed lifetime retiremet icome will come from, Figure 22 shows the relative importace of all their potetial sources of icome ad whether they thik each will be a major source of icome, a mior source, or ot a source of icome at all. Iterestigly, for example, while Figure 20 shows 45 percet of Boomers expectig lifetime icome from a private (employer provided) pesio, oly 28 percet cosider the amout to be sigificat i terms of beig a major compoet of their retiremet icome. Social Security, o the other had, is expected to be a major source of icome by seve i 10 Boomers. Defied cotributio plas ad IRAs are at the other ed of the spectrum, with oly about oe i five lookig at those fiacial assets as a sigificat source of icome. There are may potetial reasos for this outlook. May may have low balaces, isufficiet to produce meaigful, ogoig icome. Some may be loath to tap those resources for fear of depletig their accouts early i retiremet. But as Figure 18 shows, for may it may be a withdraw as eeded midset rather tha a view of the pla balace as a icome source. This is aother opportuity for fiacial professioals to educate ad illumiate, showig Boomers how their balaces ca geerate icome without fear of depletio by allocatig a portio to a guarateed lifetime auity. Figure 22: Relative Importace of Expected Icome Sources Social Security 3% 2% 69% Employer Pesio 5% 17% 28% 50% Defied CotribuCo Pla 4% 18% 22% 56% Persoal Ivestmets (other tha workplace recremet or IRA) 5% 22% 47% Ividual ReCremet Accout (IRA) 5% 21% 25% 49% Persoal Savigs 4% 29% 47% 0% 40% 50% 60% 70% Major Source Mior Source Not A Source Do't Kow 17 Boomer Expectatios for Retiremet 2018

20 RETIREMENT EXPECTATIONS AND FEARS Ultimately, all but the wealthiest Americas will be challeged with recocilig their expeses to their icome whe they fully retire from the workforce ad adjustig the two such that they ca maitai their stadard of livig o matter how log they might live. To that ed, it is istructive to examie Boomers expectatios as to the icome they thik they will eed ad compare that to the icome a average Boomer ca expect. Figure 23 shows that 46 percet of Boomers expect they will eed $45,000 (i curret dollars) or more i aual retiremet icome. Igorig iflatio for simplicity ad assumig the curret average Social Security beefit of $16,848 1, this meas a idividual would eed to geerate at least $28,152 i aual icome from a combiatio of pesio beefits ad retiremet savigs. At curret rates, a life auity payig $28,152 i aual guarateed lifetime icome would cost approximately $430,000 2, far more tha most Boomers have saved. Of course, dual earig households will receive higher Social Security beefits, ad for the fortuate few with meaigful pesio icome there will be less pressure to use savigs. But, recall from Figure 7 that oly 38 percet of Boomers have tried to calculate the amout they eed to have saved to retire; if they have t tried to calculate how much they eed to save, they likely have ot calculated their aual icome eed, i.e. they are guessig. Figure 23: Expected Aual Retiremet Icome Need* $25,000 or Less 18% 24% $25k - $45k 32% $45k - $75k 28% 29% $75k or More 17% 21% 0% 5% 15% 25% *2018 Dollars 1 Social Security Admiistratio 2 Despite a uecouragig tapestry of potetial icome sources ad the lack of cofidece i the adequacy of their retiremet savigs ad preparedess, Figure 24 shows that more tha oe-half of Boomers evisio a retiremet where they pay their bills ad ca travel ad ejoy leisure activities, at least to some extet. With the yougest Boomers oly 10 years away from beig the last of the 10,000 daily 65th birthdays, they had better put pe to paper, or fid fiacial advisors, if they wat to realize this visio. Isured Retiremet Istitute 18

21 Figure 24: Budget Expectatios i Retiremet Basic Expeses, Extesive Travel/Leisure 23% 22% 24% 25% Basic Expeses, Some Travel/Leisure 28% 32% 34% 38% Basic Expeses, LiAle or No Travel/Leisure 11% 11% 14% 15% Very/Somewhat Worried About Basic Expeses 19% 18% 21% 24% Do t Kow 12% 0% 5% 15% 25% 35% 40% Perhaps the sigle most treacherous wild card Boomers may face i retiremet is the trajectory of their persoal health care expeses. Some may sped relatively little, while others may face fiacial devastatio. Cotrary to what may believe, Medicare does ot cover may expeses commoly icurred at older ages hearig aids, visio care, ad detal care to ame a few. For a give idividual, ay of the resposes i Figure 25 may be the correct respose as to the percetage of icome health care will cosume, with perhaps the majority fallig ito the 10 percet or less category. However, just as most houses will ot bur dow but ay oe of them may, it is a sigificat retiremet risk that ca be mitigated usig Medicare supplemetal isurace, log-term care isurace, Health Savig Accouts (HSAs), ad lifestyle modificatio. Fiacial professioals are uiquely equipped to help those i ad plaig for retiremet put plas ad policies i place to maage the risk that health care related expeses pose to the best iteded of retiremet plas. 70% Figure 25: Estimate of Health Care Cost as a Percetage of Retiremet Icome 60% 50% 60% 57% 51% 54% 56% 40% 25% 21% 28% 14% 22% 19% 18% 14% 0% or Less Betwee ad More tha Boomer Expectatios for Retiremet 2018

22 Figure 26 shows Boomers top cocers as they cotemplate their later retiremet years. Naturally their top cocers are those evetualities which would threate to destabilize their fiacial security, such as Social Security modificatios that might lower the icome they receive, icurrig sigificat health care expeses, loss of purchasig power due to iflatio, ad of course ruig out of moey. Figure 26: Top Cocers Late i Retiremet Chages to Social Security 65% 68% 76% Health Care Expeses 58% 61% 69% Above Average IflaFo 55% 58% 68% Ruig Out of Moey 55% 53% 60% Havig Eough Moey for Basic Expeses 41% 45% 50% CogiFve Declie 38% 41% 52% 0% 40% 50% 60% 70% It is a ucomfortable thig to cotemplate, but what if the uthikable were to occur ad a Baby Boomer retiree ra out of moey what do they pla to do? Figure 27 shows that most Boomers believe they would simply dowsize so that they ca get by o Social Security aloe. Easy to say, but much harder to do; such dowsizig may be quite drastic, resultig i substadard livig coditios or the eed to move i with adult childre. The secod most commo aswer, returig to the workforce, is also problematic as it assumes both the physical ability to do so, ad the availability of employmet. Figure 27: Cotigecy Plas If Fiacial Resources Exhausted i Retiremet Dowsize to Live o Social Security 71% 71% 72% 72% Retur to Work 46% 49% 46% 54% Seek Assistace from Church, Social Services, etc. 15% 22% 23% 28% Rely o Childre or Family 8% 17% 19% 22% 0% 40% 50% 60% 70% Isured Retiremet Istitute 20

23 The thread that weaves through this eighth editio of the Baby Boomer study, ad ideed through the prior studies, is the view of a geeratio that has doe limited or o retiremet plaig, has ot saved eough to cofidetly retire, is fearful of the fiacial risks they will face durig retiremet, ad has little isight ito how they will optimally utilize their fiacial resources durig their retiremet years. Therefore, it is ot at all surprisig to see i Figure 28 that mothly, guarateed icome is the top trait that Boomers say they would look for i a retiremet ivestmet. Figure 28: Most Importat Ivestmet Traits* Mothly Guarateed Icome 41% Rate of Retur 37% Guaratee of Pricipal 34% Past Performace 21% Recommeded by Advisor 12% 0% 5% 15% 25% 35% 40% 45% *Percetage rakig trait first or secod i importace As a last word o Boomers outlook o retiremet, ad perhaps as a cautioary tale for the millios of GeXers ad Milleials with much more time to prepare, Figure 29 looks at the retiremet plaig steps Boomers wish they had take i other words, their regrets. The top aswers are both simple ad poigat: they wish they had started earlier, ad they wish they had saved more. Millios of America workers ca start today, if they have t already, ad savig more is just a foregoe latte a day away. Figure 29: Top Plaig Steps Boomers Wish They Had Take Started Savig Earlier 64% 67% 65% 66% Saved More 62% 68% 69% 68% Maximized Employer Pla Beefits 17% 19% 21% 27% 0% 40% 50% 60% 70% Boomer Expectatios for Retiremet 2018

24 TAXES AND TAX DEFERRAL Tax deferred ad tax advataged ivestig has bee a corerstoe of retiremet savig for decades. Beeficial tax policies ca help promote retiremet savig, while policies ad chages that are perceived egatively or that costrict idividuals ability to save ca damage the effort to better prepare Americas for a retiremet that is likely to be loger tha that of ay previous geeratio. Figure 30 shows the impact Boomers believe various potetial chages to tax law would have o either their ability or desire to save for retiremet. A icrease i icome taxes would be the most damagig, with 49 percet sayig this would make them less likely to save for retiremet, but i geeral tax icreases or reductios i tax icetives to save, for example reducig or elimiatig the deductibility of retiremet pla cotributios, hurt retiremet savig, while positive chages such as icreasig cotributio limits drive higher savig rates. Figure 30: Expected Impact of Tax Chages o Ability or Desire to Save for Retiremet Reduc2o/Elimia2o of Tax Ice2ves 15% 28% 31% Icrease i Social Security Payroll Tax 15% 29% Icrease i Icome Tax 8% 23% 49% Icrease i Capital Gais Tax 29% 31% Icrease i IRA Cotribu2o Limit 7% 34% 33% Icrease i 401(k) Cotribu2o Limit 8% 29% 33% 0% 40% 50% More Likely No Impact Less Likely Not Sure Fially, ad further emphasizig the importace of tax deferred ivestig, Figure 31 shows that 9 i te Boomers cosider tax deferral to be a importat aspect of a retiremet ivestmet product. Figure 31: Importace of Tax Deferral i a Retiremet Ivestmet Product 90% 90% Importat Not Not Importat Importat Isured Retiremet Istitute 22

25 CONCLUSION Te years from ow, 76 millio Baby Boomers will be age 65 or older. Will they fudametally alter the workforce, fidig or formig ew or iche occupatios to supplemet their retiremet icome? Will they redefie the home, pioeerig or expadig alterative arragemets like micro housig ad commual livig? Will they form huge ex-pat commuities i foreig coutries to take advatage of lower costs of livig? Whatever happes over the years the Boomers are retiremet-aged, it will almost certaily ot be the retiremet of the Silet Geeratio ad will chage i ways that may be difficult to imagie today. But whatever paths the Boomers take, fiacial security ad soud retiremet plaig will clear the brush ad facilitate the jourey, ad most eed a lot of work, ad assistace, to get there. METHODOLOGY The Isured Retiremet Istitute (IRI) commissioed Woelfel Research, Ic., to coduct a survey of idividuals broadly defied as members of the Baby Boomer Geeratio. The research was coducted by meas of iteret iterviews with 806 Americas ages 55 to 71. Data were weighted by age ad geder to the 2016 America Commuity Survey. Data was collected from March 13 through March 16, The margi of error for the sample of 806 was ± 3.5%. 23 Boomer Expectatios for Retiremet 2018

26 Isured Retiremet Istitute (IRI) 1100 Vermot Aveue, NW 10th Floor Washigto, D.C P F /18