Changes in Retirement Handling the Expected and Unexpected

Transcription

1 Changes in Retirement Handling the Expected and Unexpected Presenters: Ruth Helman, Greenwald & Associates Anna M. Rappaport, FSA, MAAA July 1, 2015

2 Reference Documents Society of Actuaries 2014 Report: Experiencing Change in Retirement (research-2014-exper-changing-retire- 2.pdf) Society of Actuaries 2008 Report: The Phases of Retirement and Planning for the Unexpected(research findings-phases-2.pdf) Note: These two documents report on findings from the Society of Actuaries 2013 and 2007 Post Retirement Risk Surveys special areas of emphasis on what changes during retirement. All of the Society of Actuaries Post-Retirement Risk Research can be found at 2 2

3 Agenda Background Research Results The Start of Retirement and Overall Perspectives on Planning Changing Capabilities During Retirement Housing and Moving Planning for Retirement / Financial Planning Addressing Issues with Clients Future Directions 3 3

4 Changes Affecting Retirement Sudden unplanned change Loss of spouse Catastrophic personal or family illness Major financial losses and loss of employment Gradual change Aging including cognitive decline Chronic disease Inflation Illness of spouse/partner Deliberate and planned change Retirement or gradual reduction in work Moving to new location including senior housing, CCRC Marriage, divorce, caring for grandchildren, other family changes Steps to improve health 4 4

5 Recent Research 5 5

6 Experiencing Change in Retirement 2014 Society of Actuaries Report combines perspectives and essays with analysis of data and focus group findings Underlying data selected from results of from two studies 7 th biennial Society of Actuaries post-retirement risk survey Online survey of retirees and pre-retirees Represents American population aged at all levels Areas of concentration: how people decide to retire, risk management, what changes during retirement, differences between men and women Focus groups: resource-constrained retirees who retired voluntarily Goal to understand decision to retire and rationale for money management, inform survey structure Both studies conducted in 2013, build on work done in 2007 survey 6 6

7 Financial Planners Perspective on Phases of Retirement Highlights Essay by Paula Hogan and Rick Miller (p. 40 of report) Go beyond the financial issues many life issues are difficult to discuss and think about Long term care discussion may be repeated several times May gradually annuitize small amounts each year Evaluates housing options for later in life complex issue Small step experiments on path to retirement are desirable Involve family in discussions about what may change 7 7

8 Report Includes Other Essays Also Expected and Unexpected During Retirement (page 46) Gender Differences during Phases (page 38) Most of the very old are women Women much more likely to be alone, to be caregivers, have lower resources Link Between Retirement Security and Long Term Care (page 42) Failure to include long term care very dangerous Think about caregiver issues also Expectations about Housing and Moving (page 44) 8 8

9 Methodology SY Online Survey Sample size: 2,200 total (1,000 pre-retirees, 1,000 retirees, 200 oversample of retired widows) Ages 45 to 80 Conducted online for first time in 2013 FG Focus Groups Eight focus groups with people who retired voluntarily Baltimore, MD; Chattanooga, TN; Chicago, IL; and Phoenix, AZ Half of the groups were male; half were female Half of the groups had assets between $50,000 and $150,000; half had assets between $200,000 and $400,000 No participant had household defined benefit guaranteed lifetime income exceeding $2,500 per month 9 9

10 The Start of Retirement and Overall Perspectives on Planning 10 10

11 FG Process of Retiring I was on the road constantly. I found that I was getting less and less enjoyment out of it It was just too much. Female, Baltimore I don t mind saying this...that one accident, too many fires, too many house-calls, the red phone ringing. Over a period of time you begin to think it s time to go. Male, Chattanooga When the company reorganized and showed that they weren t interested in people my age and opportunities came and went. Opportunities came to younger people and to me it was a sign that you d better start thinking about it. Female, Chicago 11 11

12 SY Most common financial reason for retiring is determination of ability to pay monthly bills How much do you think each of the following financial issues will (did) affect your decision to retire when you do (did)? (Gave a retirement age, n=847; n=946) Percent Responding A Great Deal or Somewhat Determining you would be able to pay your monthly bills Determining that you had accumulated enough money to last for your full retirement Becoming eligible for Social Security Becoming eligible for Medicare or retiree health benefits from your employer Becoming eligible for benefits from your traditional pension or defined benefit plan Receiving a financial incentive to retire from your employer Financial advisor informing you that you are financially able to retire Becoming eligible for benefits from an annuity 21% 23% 19% 87% 73% 87% 59% 76% 42% 73% 36% 69% 51% 64% 53% 48% 12 12

13 FG Phases of Retirement: Changing Needs During Retirement We re staying now. We may move in the future, but right now we like where we re at. Male, Chicago For me, how tired I got at doing the things that I thought I would really spend a lot of time doing. I thought would be still enjoying it at the same level that I did when I first retired. Male, Phoenix I'm in a relationship, and I thought I was downsizing. But being with him, he's looking at a retirement property. Things I haven't thought about, because I've been alone for four years. Female, Phoenix 13 13

14 FG Focus group participants seek to maintain asset levels throughout retirement Effort to live on interest, dividends and capital gains, as well as Social Security and pension income Rejection of idea of systematic spend down Most believe that exposure to equities should be reduced as people age Concern about financial costs at end of life, especially health care Inflation often causes financial pressure, although there is some substitution behavior Effort to remain in house and not use equity in home Rejection of reverse mortgage concept 14 14

15 FG Planning for Retirement/Financial Planning Things change. [A financial plan is] only as good as long as it lasts. Male, Chicago Another thing is, I control my own finances, and if I see something has gone up, I will cut down somewhere else. I don't worry about it. I just live one day at a time, be happy and go on. Female, Chattanooga You never know, really, when enough is enough. You don t. You can consult or you can talk to people and advisors or whatever, but that s just opinions. Male, Chicago 15 15

16 Changing Capabilities During Retirement 16 16

17 Changing Capabilities Focus groups provided insights to thinking: deal with things as they happen Earlier work (2008 report) looked at extent of planning for later phases Majority expected some limitations About half expected expenses would increase with limitations Big opportunity: Help people plan for period of limitations, many people do not plan for this period New focus: What is likely to change and how are we planning for it? 17 17

18 SY A quarter of retirees expect to never be physically unable to work or less able to move around People s abilities and needs often change over the course of their retirement. When do you think you, yourself, will begin to experience the following changes, if ever? ( n=1,000; n=1,000) Less than 20 yrs into retirement 20+ years into retirement Never Less able to provide caregiving to relatives / friends 33% 49% 37% 36% 30% 15% Physically no longer able to work 45% 35% 41% 40% 23% 16% Less able to do household chores 31% 42% 41% 40% 18% 28% Less able to move around 29% 40% 47% 45% 15% 25% 18 18

19 SY Over half of retirees and two in five pre-retirees expect they will never lose the ability to manage their money Changing Abilities Over Time, Cont. Less than 20 yrs into retirement 20+ years into retirement Never Mentally no longer able to work 19% 32% 35% 35% 46% 34% Loss of a spouse / partner* 17% 30% 51% 47% 23% 32% No longer able to drive 16% 28% 51% 52% 33% 19% Less able to manage money 12% 25% 33% 36% 54% 38% * n=709; n=

20 SY Only one in four pre-retirees in relationships made plans to cope with loss of spouse/partner Have you considered and planned for how you (and your spouse/partner) would respond if the following changes were to occur (in retirement)? ( n=1,000; n=1,000) Considered, and made plans Considered, but no plans You lost your spouse / partner* 23% 31% 42% 45% 66% 76% You were physically no longer able to work 15% 29% 52% 40% 66% 70% You were less able to move around 10% 24% 53% 50% 62% 74% You were less able to manage your money 15% 31% 43% 36% 58% 68% * n=709; n=

21 SY A majority have considered how they would respond to major life changes, but too few have made specific plans Planning for Changes in Retirement, Cont. Considered, and made plans Considered, but no plans You were less able to do household chores 10% 23% 48% 48% 58% 72% You were mentally no longer able to work 9% 20% 44% 39% 53% 59% You were no longer able to drive 9% 19% 44% 47% 53% 65% You were less able to provide caregiving 9% 18% 44% 41% 53% 59% 21 21

22 Housing and Moving 22 22

23 Planning for Housing Prior SOA work identified the importance of housing assets: for many families, far larger than financial assets Prior SOA research showed little planning for use of housing assets SOA research on the link between Retirement and Long Term Care discusses housing options that are linked to care Most people prefer to stay in their homes, but is this realistic? New focus: Explore reasons people may move and learn more about housing Observations for planners: These issues combine financial, family, lifestyle and capability issues 23 23

24 SY Strong majority wish to stay in primary home How important is it for you (and your spouse) to keep your current primary home so that you can (Owns home, n=810; n=888; Retired widows n=218) Very important Somewhat important Stay in a place that time has made comfortable and familiar Retired widows 42% 55% 66% 36% 30% 78% 85% 22% 89% Use the money from your home as an emergency fund, if necessary Retired widows 24% 20% 28% 36% 38% 32% 56% 62% 59% Leave your home as an inheritance to your children or other family members Retired widows 23% 24% 32% 23% 24% 31% 46% 48% 63% 24 24

25 SY Reduced responsibility to maintain home a likely reason for people to leave Which of the following do you think might be reasons why you eventually leave your current home? ( n=1,000; n=1,000; Retired widows n=271) (Major or minor reasons shown) Retired widows Reduced responsibility for upkeep and maintenance Health or physical disability Changed needs if you lose your spouse / partner* Reduced housing expenses More suitable lay out 77% 74% 63% 76% 78% 58% 75% 78% 75% 61% 71% 70% 60% 70% * n=709; n=

26 SY Climate, being closer to family or better access to friends and services less compelling Reasons for Leaving Current Home, Cont. Retired widows Better climate Being closer to family Better access to services / transportation / support Better access to friends or activities Tapping into the equity in your home 61% 45% 76% 59% 51% 63% 56% 52% 70% 52% 42% 69% 47% 38% 77% 26 26

27 Planning for Retirement / Financial Planning 27 27

28 Planning for Retirement/Financial Planning For many, short-term cash flow is main focus Consistent with past research: Planning horizon for both retirees and pre-retirees continues to be only about 10 years, with roughly 1 in 10 saying they don t plan ahead and about 3 in 10 saying they haven t thought about it New focus: What types of expenses can we plan for? 28 28

29 SY Three in ten have not thought about how far to look ahead in planning finances When you (and your spouse/partner) make important financial decisions, such as when you think about whether you can afford to retire (your retirement finances) or to purchase a new home (or a large purchase), about how many years do you look into the future? ( n=1,000; n=1,000) 17% 4% <5 years 5 to 9 8% 15% Median: 10 19% 10 to 14 17% Median: 10 8% 15 to 19 5% 17% 20 or more 18% 27% 7% You don t plan ahead Haven t thought about it 8% 29% 29 29

30 SY Except for day-to-day expenses, few think planning for key issues is very possible How possible do you think it is to plan for the following in retirement? ( n=1,000; n=1,000; Retired widows n=271) Very possible Somewhat possible Day-to-day expenses 45% 58% 45% 35% 90% 93% Changes in your finances resulting from the death of a spouse/partner* 27% 35% 54% 46% 81% 81% Only 47% of retired widows think it possible to plan for changes from the death of a spouse/partner Expenses associated with living longer than you thought you would 18% 25% 56% 54% 75% 79% * n=709; n=837) 30 30

31 SY Only a third of retirees think planning for health care expenses is very possible Possibility of Planning for the Following, Cont. Very possible Somewhat possible Health care expenses 22% 33% 49% 47% 71% 80% Long-term expenses 19% 27% 49% 45% 68% 72% Financial assistance you provide to others 14% 15% 38% 31% 47% 53% 31 31

32 SY Many retired widows did not plan for issues that arose after death of a spouse To what extent have you and your spouse/partner planned for the following issues that often arise in retirement after the first person in a couple dies? (Has spouse/partner, n=731; n=837; Retired widows n=271) Percent Responding A Great Deal or Moderately Retired widows Adequate assets and income Ability to manage day-to-day finances Adequate, affordable and manageable housing Availability of family and friends Investment management and estate planning issues 62% 79% 62% 52% 73% 66% 50% 68% 59% 45% 63% 54% 44% 63% 49% 32 32

33 Addressing Issues with Clients 33 33

34 Helping Clients Plan for Changes: Questions for Clients to Consider Do we have adequate financial assets and a plan for managing them and for a regular income? Have we put a risk protection plan in place? Do we have a support network in place? Will we need to buy support services in the marketplace? Can we afford them and find them? If we can t drive, how will we manage? Under what circumstances will we need to move? Will we recognize it if we have trouble making decisions and do we have a back-up plan in place? Have we considered the possibility of fraud and how are we guarding against it? 34 34

35 How Will We Help Clients: Questions to Ask About Our Business What types of help is our firm positioned to provide? What expertise do we need? How do we get it? Do we wish to partner with other experts? Are there any professional liability issues if we expand the scope of our practice and how do we manage them? How will we manage the quality of work? Are we willing to recommend community resources or make referrals? Would we help clients locate care managers? How do we get paid if we expand the scope of our work? How hands on are we willing to be when there are problems? 35 35

36 Checklist for Clients Maintain an adequate emergency fund Prepare for change and recognize areas of uncertainty Consider risks broadly Have a support system in place personal and professional Have legal documents in place including for back-up decision makers Include spouse/partner and appropriate family members in conversation Adjust expenses if funds not adequate or retire later Evaluate housing and whether need to move Safeguard against fraud 36 36

37 Future Directions 37 37

38 Observations about Research Focus group participants did not conceptualize retirement as having distinct phases hope for continuity and adjust to change Spending maintained as long as possible, although inflation can lead to reductions Activities maintained as long as possible, although many notice decreased physical ability Strong desire to stay in primary home No expectation, or planning for, loss of cognitive abilities Little or no planning for the financial consequences of natural aging process 38 38

39 Change: Major Area for Planning: Anna s Suggestions Key to remember that a lot changes during retirement Mix of gradual change, planned change and shocks Timing and what will happen are hard to know Importance of multi-faceted focus Consider finances, family, life portfolio, health Concern: How do we get people to plan for change and shocks Lot of opportunity to improve planning process But many people don t have money for risk protection Preserving assets/house are fall back plan But many people will need to move or use money Issues regarding widowhood Big opportunity for more planning; many people are poorly prepared 39 39

40 Opportunities for advisors: Anna s Ideas More focus on change what happens later in life Increase breadth of planning Seek out partners Think holistically Don t forget human capital and social capital Recommendation: Build a checklist of issues to be covered and gradually add more to discussions Recommendation: If there is an important area outside of comfort zone, use partners to help expand scope of discussions 40 40

41 Appendix: Methodology and Background re Research 41 41

42 Background re Research Sponsor Society of Actuaries post-retirement risk research now more than 15 years old Overall program goal: understand and improve postretirement risk management Focus on middle market Housing value is greater than financial assets for many in middle market Many lack adequate assets to maintain living standard Balance focus on understanding public action, solutions Focus on multiple-stakeholders 42 42

43 Two studies linked to the Experiencing Change in Retirement Report 7 th biennial post-retirement risk surveys Surveyed on-line: and pre-retirees; widows oversampled Represents American aged population at all levels Goals: understand perceptions about risk management and concerns about risk Areas of concentration: how people decide to retire, risk management, what changes during retirement, differences between men and women Focus groups: resource constrained retirees who retired voluntarily Goal to understand decision to retire and rationale for money management, inform survey structure 43 43

44 Comparison of Survey and Focus Groups Survey included Yes No Asset constrained No Yes DB income available Home ownership 73% of have DB income 35% of and 57% of own with Mortgage: 53% of own with no Mortgage Focus Groups Limited to $2,500 per month Vast majority own with no mortgage 44 44