Retirement Survey Report Key Findings and Issues: 2015 Risks and Process of Retirement Survey

Transcription

1 Retiremet Survey Report Key Fidigs ad Issues: 2015 Risks ad Process of Retiremet Survey

2 ACKNOWLEDGMENTS THIS REPORT WAS PREPARED WITH INPUT AND ASSISTANCE FROM THE PROJECT OVERSIGHT GROUP: Aa Rappaport, Chair Vickie Bajtelsmit Carol Bogosia Barbara Butrica Paula Hoga Barbara Hogg Cidy Leverig Adrea Sellars Cecilia Shier Steve Siegel Lida Stoe Thomas Toale Paul Yakoboski The fidigs portios of the report were writte by Ruth Helma. Idividual perspectives were writte by some oversight group members as oted i the report. The portios of the report that exted beyod the survey were writte by Aa Rappaport with assistace from Cidy Leverig, Carol Bogosia, Barbara Hogg, Adrea Sellars, ad Steve Siegel ad iput from the oversight group. The oversight group is composed of a multidiscipliary team of retiremet experts. Barbara Scott provided admiistrative support i preparatio of the report. The views ad opiios expressed i this report are those of the authors ad do ot ecessarily reflect those of the Project Oversight Group or the SOA as a whole. TO OBTAIN A COPY OF THE COMPLETE SURVEY REPORT The 2015 Risks ad Process of Retiremet Survey report may be obtaied from the website of the Society of Actuaries at 2

3 2015 Risks ad Process of Retiremet Survey Itroductio ad Backgroud More tha oe i three retirees have experieced fiacial shocks that depleted at least 25 percet of their retiremet assets, accordig to a ew study from the Society of Actuaries (SOA). A shock evet is a developmet that ca derail or complicate a retiree s fiacial status. The fidig is oe of several ew retiremet isights to emerge from the SOA 2015 Risks ad Process of Retiremet Survey ad allied research. Other ew isights i the 2015 study address the impact o idividuals of log-term-care evets, parets experieces with retiremet, ad level of icome. The research also looks at idividuals who have bee retired for may years ad how they maage assets ad spedig decisios over the log term. The SOA has published the bieial study of pre-retirees ad retirees for more tha 15 years. I additio to probig ew retiremet territory, the 2015 study cofirms kowledge ad perceptio about retiremet idetified i the earlier studies. The predomiat focus is o middle-icome Americas ad Caadias. As i the past studies, the ew study shows that pre-retirees geerally experiece more cocer about most retiremet risks tha do retirees. But the researchers also foud that actual experiece i retiremet varies i several ways from what may people had origially plaed, or had expected, before they retired. The fidigs may provide valuable isights for retiremet professioals, employmet beefit pla sposors, fiacial advisors, pre-retirees, post-retirees, policymakers ad others who wat ad eed to kow what may lie ahead i a perso s later years. 3

4 INTRODUCTION AND BACKGROUND About the Study ad Related Research Coducted i August 2015 o the behalf of the SOA by Mathew Greewald ad Associates, the 2015 Risks ad Process of Retiremet Survey is the SOA s eighth bieial study o postretiremet risks. This survey provides quatitative data o views of more tha 2,000 older Americas, ages 45 to 80, with pre- ad post-retirees split early 50/50, ad also early 200 widows. The topics covered rage from maagig risks i retiremet to hadlig expeses, icome, debt, caregivig ad may other aspects of pre- ad post-retiremet risks. Ulike may other studies o this topic, this study does ot have a particular focus o high-et-worth idividuals. Oly 6 percet of pre-retirees ad 9 percet of retirees reported havig ivestable assets of $1 millio or more. Participats were selected by usig Research Now s atiowide olie cosumer pael. More detail o the survey parameters appears at the ed of this report. I 2015, the SOA also coducted two research iitiatives o how adults thik ad feel about retiremet risks. These projects geerated qualitative iformatio, icludig the commets show i this report from retirees themselves. The qualitative studies icluded the followig: Focus Groups: I Jue ad July, the SOA coducted a series of 12 focus groups that explored the loger-term cosequeces of retirees fiacial decisios resultig from a lack of retiremet plaig. The focus group participats were log-term middle-market adults of both geders who reported beig retired for at least 15 years. They resided i five locatios: Baltimore, MD; Chicago, IL; Dallas, TX; Kitcheer, ON; ad Edmoto, AB. Each participat s ivestable assets raged betwee $50,000 ad $350,000, ad they had household icome of more tha $2,000 a moth from retal properties ad defied beefit plas. I additio, some groups focused o those who had experieced marital chage durig retiremet. As such, the focus groups reflected people who had some fiacial costraits. Iterviews: The SOA coducted a series of 15 i-depth iterviews i the Uited States ad Caada to gauge views o log-term care. The iterview subjects were people whose paret or spouse eeded log-term care i old age, ad they provided caregivig as well as beig ivolved with fiaces. Now, i 2016, the SOA is publishig a series of four Special Topics Reports that spotlight ad aalyze key fidigs o several risk issues raised i the survey, focus groups ad iterviews. These reports will be released throughout the year. They draw o both the quatitative ad qualitative research doe i 2015, supplemeted with detail from earlier studies, ad iformed by commetary from members of the Project Oversight Group of the SOA s Committee o Post- Retiremet Needs ad Risks, represetatives of orgaizatios that supported the studies ad material from other related research. This, the first of the four Special Topics Reports, examies the domiat, ad sometimes surprisig, treds i the overall data. Subsequet Special Topics Reports will address other oteworthy retiremet issues raised i the 2015 research. Compariso to Previous Surveys Some questios i the 2015 survey were similar to questios asked i the prior surveys, ad they produced similar fidigs as well. Give that the SOA retiremet risks survey series has spaed two major U.S. recessios, the similarity i results betwee surveys suggests that the post-retiremet years may have certai risks ad issues that are commo for pre-retirees ad retirees over time, ecoomic coditios otwithstadig. FINDINGS COMMON TO PRIOR SOA STUDIES Some of the key cosistecies betwee the 2015 fidigs ad those i previous years iclude the followig: Health care costs, log-term care ad iflatio are the top cocers that both pre-retirees ad retirees report havig about post-retiremet risks. Pre -retirees are more cocered tha retirees about most risks. Actual retiree experiece differs from pre-retirees expectatios i two key areas: o Timig of retiremet Retirees retired substatially earlier 4

5 tha pre-retirees said they expect to retire. Health care shocks These icluded the followig: o Workig i retiremet Fewer retirees work durig retiremet tha pre-retirees expect to be the case i their ow work expectatios for retiremet. Retiremet plaig, if doe, is miimal ad ot robust eough to maage the log-term risks i retiremet. Plaig horizos are commoly very short. The top risk maagemet strategies amog those surveyed were icreasig savigs, payig off debt, ad reducig spedig. The use of risk protectio products (other tha health isurace) is ot very commo. The geeral kowledge ad uderstadig of retiremet risk of those surveyed was relatively cosistet with prior studies. Gaps i kowledge cotiue to exist. FINDINGS ON NEW ASPECTS OF RETIREMENT RISKS The 2015 survey ad focus groups probed ew aspects of retiremet risks ot previously explored i the SOA s earlier retiremet risk studies. These ew areas iclude the impact of shock evets, isights gleaed from loger-term retirees, the awareess of log-term-care eeds, the ifluece of parets o perceptio of retiremet risk ad the role of icome level i the retiremet risk experiece. A brief summary of these treds follows. 1. Shocks do occur i retiremet The study foud that shock evets had a material impact o may retirees. These are defied as evets that occur i retiremet that could derail or complicate a retiree s fiacial status. The survey foud that more tha oe i three survey respodets experieced fiacial shocks that depleted at least 25 percet of their assets. I additio, it foud that more tha oe i 10 retirees said they eeded to reduce their spedig by 50 percet or more as a result of shocks. The most commo types of shocks that retirees idetified icluded the followig: o Detal expeses Most retirees do ot have detal isurace, ad detal costs are ot covered by Medicare, so retirees must pay out-of-pocket for this care. o Prescriptio drug costs These become a especially proouced shock if the retiree has ot elected to take Medicare Part D, which provides isurace for may prescriptios. Note: The study foud that isurace programs coverig the health of loger-term retirees were workig well from the idividuals perspectives, with Medicare ad Medicare supplemet plas coverig most health care costs. This was so eve though major health evets may cause chages i capability ad activity. Participats did ote, however, that whe Medicare Parts B ad D plus Medicare supplemet plas are cosidered together, medical premium costs ca be surprisigly substatial. Divorce after retiremet This ca be a much greater problem tha widowhood sice, at the time of divorce, assets are geerally split. 2. Retiremet experiece does t always follow a perso s origial retiremet plas. The focus groups ad iterviews i 2015 foud that idividuals who have bee retired for 15 years or more proved to be very resiliet ad adaptable to chages from their origial retiremet plas, as were shorter-term retirees. Note: These observatios caot be extrapolated to sigificatly older retirees, such as those i their 90s. 3. Those curretly receivig paid log-term care experiece sigificat impact. The survey ad i-depth iterviews with caregivers foud that, whe a perso has a sigificat eed for paid logterm-care services, this is a major problem. That was the case across all ecoomic rages covered by the focus groups ad the iterviews. The focus groups ad iterviews were composed of idividuals with targeted assets ad resources as defied earlier. Home repairs May respodets described these as uexpected. 4. Parets experiece i retiremet does ifluece their childre s view of retiremet risk. 5

6 INTRODUCTION AND BACKGROUND The survey foud that parets experieces have a moderate ifluece o how people perceive retiremet risks ad plaig for those risks. Most pre-retirees ad retirees reported a positive view of their parets fiacial circumstaces i retiremet. Nevertheless, may reported icreased cocer about their ow fiacial security i retiremet as a result of their parets experieces (46 percet of pre-retirees ad 42 percet of retirees). 5. Icome levels make a differece i perceptio of retiremet cocers. The survey looked at retiremet risk cocers of both retirees ad pre-retirees by icome levels. As might be expected, lower icome retirees were much more likely to voice cocer about risks ad to use differet strategies to maage risks. (See pages 29 for further discussio of these fidigs.) Retiremet Plaig Reality Is Reactive The professed goal of retiremet professioals is that idividuals should costruct a well-orgaized pla for retiremet to create retiremet icome that replaces a sigificat portio of pre-retiremet icome. However, the retiremet reality revealed i the research is that the plaig occurs i a more ad hoc way i which idividuals make fiacial decisios i reactig to what happes i their lives. For example: Maitai pricipal: May idividuals said they seek to maitai pricipal rather tha craft a strategy to gradually draw dow their assets. For may, the Required Miimum Distributios from their IRAs ad other qualified retiremet plas, which start after age 70½, defie their icome. The retirees said they seek to limit ay additioal withdrawals from their retiremet savigs. Some said they would prefer ot to have to take these required distributios. particularly if they would otherwise eed to sped dow retiremet accout assets at a higher rate tha plaed. I geeral, retirees prefer adjustig spedig tha icreasig sped-dow, eve if the adjustmet is substatial. For some retirees, ot spedig dow assets appeared to be a much higher priority tha maitaiig livig stadards. Overall, both short- ad loger-term retirees showed similar flexibility ad resiliecy toward makig eeded chages i spedig. The above themes came up repeatedly i the focus groups. The retirees simply deal with chages to their fiacial situatio as they happe. This was true for a variety of uexpected retiremet evets. Oly two potetial situatios emerged as possible causes for takig a more paiful approach; these were trasitioig to log-term care ad experiecig divorce i retiremet. A separate report will explore these ad other fiacial shocks i more depth. Retiremet adequacy measures. Oe sigificat coclusio from the focus groups was that may logerterm retirees were doig better tha the project team had expected, based o covetioal adequacy measures. The retiremet adequacy results appear to vary depedig o which research measuremet is used. For istace, some measuremets show predictios of very large umbers of people who will have iadequate resources for retiremet. Yet the SOA focus group research foud that may retirees are able to make substatial adjustmets i whe ad how they sped their retiremet resources. This variace raises questios about what is the appropriate measure of adequacy for the future. Further research is eeded to uderstad more about these issues. Adjust spedig to ivestmet returs: Whe ivestmet returs chage the value of qualified retiremet accouts, this chage affects the amout of Required Miimum Distributios that retirees must take aually from those accouts. The surveyed idividuals idicated they are willig to adjust their spedig i respose to such chages, 6

7 Retiremet Risk: Fidigs o Top Cocers FINDINGS ON CONCERNS A major takeaway from the 2015 study is that payig for logterm care, dealig with iflatio ad payig for health care are the top-raked retiremet-related cocers for both preretirees ad retirees. I additio, pre-retirees were more likely tha retirees to express cocers about may of the retiremet risks listed i the survey. These iclude payig for log-term care, a cocer for 69 percet of pre-retirees but for oly 58 percet of retirees, ad iflatio, a cocer for 69 percet of pre-retirees but oly for 52 percet of retirees. Similarly, payig for health care was a cocer for 67 percet of pre-retirees versus just 47 of retirees; maitaiig a reasoable stadard of livig for 63 percet versus 45 percet; ad depletig savigs for 62 percet versus 43 percet. The hierarchy of cocers foud i this survey is similar to that foud i previous iteratios of the study. DISCUSSION While curret coditios may move the level of risk cocers up or dow a little from previous SOA studies, pre-retirees have cosistetly bee more cocered tha retirees about most cocers throughout the studies, icludig cocers about health care, log-term care ad iflatio. This suggests that these issues, ad the cocers that people have developed aroud them, have ot abated ad therefore eed cotiuig attetio from the retiremet idustry. The SOA project team oticed that the respodets i the 2015 survey did ot focus much o fraud as a cocer. This is despite the widely reported proliferatio of more ad more sophisticated scams, may of them targetig seiors, icludig retirees. However, there was oe chage of ote. This is that retirees ad retired widows voiced more cocer about fraud tha did pre-retirees. This shift may sigal that awareess amog retirees about their vulerability to fraud is risig compared to those who are ot retired. I additio, the project team oted that sigificat differeces exist i the level of overall fiacial cocer whe respodets are evaluated by icome. Lower icome retirees ad preretirees geerally show a higher level of cocer. (See the variatio by icome discussio o pages 29.) FOCUS GROUP QUOTES I mea, who is goig to go first my moey or me? Female, Baltimore, MD Log-term care isurace, which I ve had for may years for my husbad ad myself, has goe up so much recetly that it scares me. Female, Baltimore, MD My medical keeps goig up ad up ad up. I get a deferred pesio, but they keep takig more ad more out each year out of my pesio for medical. Right ow it s like $400 or $500 a moth out of my pesio. Male, Dallas, TX The taxes are goig up. Whe you have to take the required miimum distributio, it puts you i a sigificatly higher tax bracket. Male, Baltimore, MD 7

8 RETIREMENT RISK: FINDINGS ON TOP CONCERNS THE SURVEY QUESTION: How cocered are you about each of the followig (durig retiremet)? Very Cocered Somewhat Cocered You might ot have eough moey to pay for a log stay i a ursig home or a log period of ursig care at home Pre-retirees (=1,035) Retirees (=1,005) Retired Widows (=282) 22% 47% 19% 38% 17% 35% 58% 51% 69% The value of your savigs ad ivestmets might ot keep up with iflatio Pre-retirees (=1,035) Retirees (=1,005) Retired Widows (=282) 19% 14% 13% 38% 41% 49% 52% 55% 69% You might ot have moey to pay for adequate health care Pre-retirees (=1,035) Retirees (=1,005) Retired Widows (=282) 26% 14% 15% 33% 29% 41% 47% 44% 67% You may ot be able to maitai a reasoable stadard of livig for the rest of your life Pre-retirees (=1,035) Retirees (=1,005) Retired Widows (=282) 20% 15% 12% 30% 31% 44% 45% 43% 63% You might deplete all of your savigs Pre-retirees (=1,035) Retirees (=1,005) Retired Widows (=282) 21% 14% 16% 29% 25% 41% 43% 41% 62% There might come a time whe you (ad your spouse/ parter) are icapable of maagig your fiaces Pre-retirees (=1,035) Retirees (=1,005) Retired Widows (=282) 12% 12% 12% 39% 37% 41% 51% 48% 54% You might ot be able to maitai the same stadard of livig after your spouse/parter s death, if he/she should die first Pre-retirees (=654) Retirees (=598) 12% 10% 35% 24% 34% 47% Your (spouse/parter) might ot be able to maitai the same stadard of livig after your death Pre-retirees (=654) Retirees (=598) 10% 9% 33% 28% 43% 37% The equity you have i your home may ot be sufficiet to support your retiremet plas Pre-retirees (=782) Retirees (=802) Retired Widows (=220) 9% 9% 8% 27% 19% 12% 20% 36% 28% You might ot be able to leave moey to your childre or other heirs Pre-retirees (=1,035) Retirees (=1,005) Retired Widows (=282) 12% 9% 11% 22% 16% 18% 34% 26% 29% You might be a victim of a fraud or scam Pre-retirees (=1,035) 6% Retirees (=1,005) 9% Retired Widows (=282) 7% 22% 24% 24% 28% 33% 31% 8

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10 RETIREMENT RISK: FINDINGS ON 10 SPECIFIC CONCERNS 1 Shock Evets ad Expeses FINDINGS ON SHOCKS The majority of retirees (72 percet) reported havig ecoutered at least oe shock or uexpected expese so far durig their retiremet. These expeses rage from those associated with death of a spouse or divorce to major home repairs, family emergecies ad medical ad detal expeses. While almost three i 10 retirees (28 percet) reported experiecig o shocks or uexpected expeses, 13 percet said they ecoutered three ad 19 percet ecoutered four or more of these types of shocks i retiremet. Oe-quarter of retired widows (24 percet) idicated they have ecoutered four or more. DISCUSSION This is the first SOA risk survey that specifically studied fiacial shocks. Overall, the data showed that retirees seem to adjust quite well to most shocks. The situatio is much more difficult, however, for people who have experieced multiple shocks ad for people havig lower icomes. The shocks that ted to be most devastatig are a major log-term-care evet requirig paid care ad divorce after retiremet. Note: A separate SOA special topics report will provide much more detail o shocks, icludig rakig by severity as well as commets from various idividuals o the impact of shocks. FOCUS GROUP QUOTES I ve had our house upkeep, furace, driveway. I the last moth, I have spet $2,500 o oe expese, $3,600 o aother expese. That s i oe moth. A couple of years ago, my roof wet ad my furace wet. Everythig. Female, Chicago, IL My daughter lives aloe She was o her way to a teacher s meetig ad she crossed the street ad was hit by a car. Sice the she has MS ad they did ot pay aythig. We got othig ad ow she has o job it s very expesive. Female, Baltimore, MD I 2013 I got colo cacer The medical cost ad stuff like that was ureal. I ve had to sped $3,900 had to come out right off the top. Male, Dallas, TX The biggest thig, about 18 years ago, I had a lot of shares of Citigroup, ad they were payig like $17,000 a year divideds. That wet dow to $30. Male, Baltimore, MD 10

11 THE SURVEY QUESTION: How may shocks have retirees experieced so far i retiremet? Noe 13% 28% 1 17% 22% Retirees (=1,005) Retired widows (=282) 2 18% 24% 3 13% 22% 4+ 19% 24% The large majority of retirees who have had to reduce their spedig as a result of shocks idicate they have leared to maage at least somewhat well withi their ew fiacial costraits. The followig chart illustrates this adjustmet by household icome. Ability to Maage withi New Costraits, by Household Icome <$35k (=215) Retirees $35k 74k (=141) $75k+ (=76) (a) (b) (c) Very well 12% 19% 29% a Somewhat well a 64 Not too well 31 bc 15 7 Not at all well 7 b 0 0 Note o differeces by populatio subgroup: Letters i superscript idicate meaigful differeces betwee subgroups. For example, a umber with the superscript a idicates that umber is meaigfully higher tha the correspodig umber i colum (a). Comparisos are ot made betwee pre-retiree subgroups ad retiree subgroups. 11

12 RETIREMENT RISK: FINDINGS ON 10 SPECIFIC CONCERNS 2 Parets Experiece with Retiremet FINDINGS ON PARENT EXPERIENCE For some people, their parets experiece of retiremet has made them more cocered about their ow. For example, early half (46 percet of pre-retirees ad 42 percet of retirees) reported that their parets experieces have made them more cocered. The large majority of these idividuals (84 percet of pre-retirees ad 78 percet of retirees) also reported that those experieces have impacted their ow preparatios for retiremet either a great deal or some. Oly a few (10 percet of pre-retirees ad 8 percet of retirees) idicated their parets experieces have left them less cocered. DISCUSSION This is the first SOA risk survey to look at perceptios about parets experieces ad how these iflueced their childre s risk cocers ad plaig. The overall fidig is that about half of the respodets idicated that their parets experieces had iflueced their cocers. This provides importat isight ito the iflueces that affect how people thik about fiacial risk ad loger term decisios. I view of the major gaps that have bee foud i fiacial literacy ad aalytical approaches to plaig, this uderstadig may help the retiremet idustry better address retiremet educatio. Amog the others, 44 percet of pre-retirees ad half (50 percet) of retirees said their parets experieces i retiremet have ot affected their ow cocer about their fiacial security i retiremet. FOCUS GROUP QUOTES A few years back like whe my dad retired, he did t have ay retiremet. He had Social Security ad that was it Ad that was t aythig for me to look back to ad say, well, that s what I wat i my life. I better get busy right ow. Male, Dallas, TX My mother saved her moey. I mea, she ickeled ad dimed her way. She had left moey for my sister ad I that we really did t eed that she could have used. Female, Dallas, TX I watched my mother i exteded care ad I got lots of bills. It was the worst three years I ve ever bee through i my life ad the moey, jeepers. They re goig to sock it to you if you ve got it. They re goig to take it to help with the guy who has t got it. You re i the same room. You ca t buy aythig oce you get to that poit. Female, Edmoto, AB My father passed away fairly early, but my mom retired ad the oe thig that we leared from her ad from my husbad s parets is pay everythig off ad whatever you buy, buy it with cash ad that way you do t owe aythig. It was just like your utilities. Female, Dallas, TX 12

13 THE SURVEY QUESTION O the whole do you thik your parets experieces made you more or less cocered about your fiacial security i retiremet? Pre-retirees (=947) Retirees (=860) 50% 44% 31% 32% 15% 10% 7% 5% 3% 3% Much more cocered Somewhat more cocered No more or less cocered Somewhat less cocered Much less cocered 13

14 RETIREMENT RISK: FINDINGS ON 10 SPECIFIC CONCERNS Retiremet Risk: Fidigs o 10 Specific Cocers 3 Death of a Spouse FINDINGS ON DEATH OF SPOUSE Amog those who are married, both pre-retirees ad retirees said they believe the death of oe spouse would have little effect o the fiacial situatio of the survivor. However, four i 10 married pre-retirees thik their spouse would be better off fiacially if they were to pre-decease their spouse. Few (fewer tha two i 10 each) thik the survivor would be worse off. DISCUSSION These fidigs are similar to the fidigs of the risk survey coducted i Social Security household icome is reduced whe oe spouse dies. However, uless both worked ad had equal beefits, the reductio should be less tha 50 percet. Pesio icome may be reduced or stopped depedig o the specific situatio. Other icome also may be reduced or stopped after the first death. If assets are left to the survivig spouse, the same assets will be available to oe perso rather tha two people. This is very differet from a divorce situatio where there is likely to be a larger reductio i icome ad assets are geerally divided i varyig ratios amog the parties. For may households, the ecoomic status of the survivor is ot as good as it was before death, but i others it is improved. May households do ot have a good uderstadig of this potetial chage. Also, if there was a log period of illess prior to the first death, ad if the survivor was a caregiver, this is ofte a major strai. Further, the survivor may be left with fewer fiacial resources if assets were spet dow to care for the perso who was ill. The researchers thik that may people are uderestimatig the impact of the death of oe spouse o the survivor. Research shows that people are ot doig a careful aalysis of their loger term fiacial situatio ad of the impact of a death of a spouse, which will differ for each family. The 2015 focus groups icluded some idividuals who had experieced marital chage sice retiremet. These groups seemed to be doig just as well as the other groups. The situatio may be quite differet i secod marriage households. While the spouse will usually retai the assets after the death of the first spouse, this is much less certai after the first spouse dies i a bleded family. Childre ofte do help the survivig paret after the death of oe paret, but it is ot kow how childre of a prior spouse will react whe their paret dies ad a oparet spouse is left, ad whether those childre are as likely to provide help. The bleded family situatio eeds more aalysis ad was ot specifically cosidered i this study. 14

15 56% 12% 18% 13% 3% 4% 2% 3% FOCUS GROUP QUOTES Fiacially, it made half of the pesio come i. With Social Security, he was makig maximum ad I had $800 a moth. Whe he died, they put it together ad I get the max. So I lost o Social Security, ad I lost half of his pesio. So yeah, that made a differece. I did't starve to death, but it did make a det. Female, Chicago, IL Thak goodess my husbad worked for almost 34 years at a job ad he has a ice pesio comig i. I worry ow if somethig would happe to my husbad, because I m livig basically o his retiremet fuds. Female, Baltimore, MD If she [wife] passed away today, I would be up the creek without a paddle, but I kow we ve got a $2,500 draiage problem that is beig fixed today, yesterday ad today ad she got out the check book, so we must have eough moey to pay for it. I have o idea how much moey we ve got. I do t kow where it is. Male, Dallas, TX He [husbad] did't make high-payig jobs. But he worked jobs that all had pesios, ad whe he died, ufortuately he did't live log eough to sped it ad ejoy it. Whe he passed away, I cotiued to get them, ad ow there is oe perso istead of two. Female, Chicago, IL THE SURVEY QUESTION: If you were to pass away before your (spouse/parter), do you thik it would leave your (spouse/parter) fiacially better off, about the same, or worse off? (If married/livig with parter), ad If your (spouse/parter) were to pass away before you (i retiremet), do you thik it would leave you fiacially better off, about the same, or worse off? (If married/livig with parter) Pre-retirees - spouse passes first (=654) Pre-retirees - spouse passes last (=654) Retirees - spouse passes first (=598) Retirees - spouse passes last (=598) 41% 54% 44% 59% 56% 28% 21% 29% Better off About the same Worse off Not sure 15

16 RETIREMENT RISK: FINDINGS ON 10 SPECIFIC CONCERNS 4 Ruig Out of Moey FINDINGS ON OUTLIVING MONEY The 2015 survey foud that almost all pre-retirees ad retirees are likely to try reducig expeditures before turig to other strategies if they are at risk of ruig out of moey due to uforesee circumstaces i retiremet. Nearly 90 percet of both groups (88 percet of pre-retirees ad 85 percet of retirees) said they would likely reduce expeditures sigificatly. How they do this is more varied, however. For istace, relative to reducig spedig, both pre-retirees ad retirees idicated they are less likely to dowsize their housig (65 percet ad 55 percet) or use home equity to help fud their remaiig retiremet years (51 percet ad 44 percet). But as for gettig assistace from various sources, such as family, frieds or commuity agecies, the data show this is amog the least likely sources for emergecy moey. DISCUSSION The strategies likely to be employed i the evet of ruig out of moey are geerally cosistet with overall risk maagemet strategies, icludig reducig spedig, dowsizig ad dippig ito fuds that were iteded to be left to others. Housig equity is a possible source of fuds but ot a preferred choice. May retirees, however, try to stay i their homes ad view dippig ito home equity values as a last resort. The strategies employed are very differet by icome level. Retired widows (ot show i the chart below) were more likely tha other retirees to say they are likely to tur to their childre or other family members for assistace (35 percet versus 23 percet). FOCUS GROUP QUOTES I thik if I had to take moey out of my home i order to live, I would sell my home ad get somethig smaller, which I should do ayway. Female, Chicago, IL [Your home is] that last resort. You always hear about the people that lost to foreclosure. You do t risk your home. Male, Dallas, TX Our daughter, she said she will build us a place i the backyard. I do t wat to live i her backyard. Male, Dallas, TX Would you wat to go i ad live with your childre ad have them take care of you? My childre probably would ad I would hate for them to do that. Female, Dallas, TX 16

17 THE SURVEY QUESTION: If you (ad your spouse/parter) were ruig out of moey (i retiremet) due to uforesee circumstaces, how likely do you thik you would be to do each of the followig? Very likely Somewhat likely Reduce your expeditures sigificatly Pre-retirees (=1,035) Retirees (=1,005) 41% 40% 47% 45% 88% 85% Try to retur to work or icrease the umber of hours you work for pay Pre-retirees (=1,035) Retirees (=1,005) 23% 10% 25% 35% 51% 74% Dowsize your housig Pre-retirees (=1,035) Retirees (=1,005) 29% 22% 36% 33% 55% 65% Dip ito moey that you might otherwise have left to your childre or other heirs Pre-retirees (=1,035) Retirees (=1,005) 21% 27% 36% 33% 57% 60% Use the value of your home to help fud your remaiig retiremet years Pre-retirees (=1,035) Retirees (=1,005) 12% 13% 39% 31% 44% 51% Get assistace from frieds or commuity agecies Pre-retirees (=1,035) Retirees (=1,005) 6% 6% 19 % 17% 25% 23% Get assistace from your childre or other family members Pre-retirees (=1,035) Retirees (=1,005) 4% 4% 19% 16% 23% 20% 17

18 RETIREMENT RISK: FINDINGS ON 10 SPECIFIC CONCERNS 5 Short Plaig Horizos FINDINGS ON PLANNING HORIZONS Both pre-retirees ad retirees said they typically look 10 years (media) ito the future whe makig importat fiacial decisios. But almost three i 10 (28 percet of pre-retirees ad 29 percet of retirees) reported that they have ot thought about their plaig horizo. I additio, oe i 10 (10 percet of pre-retirees ad 11 percet of retirees) said they do ot pla ahead at all. DISCUSSION These results are geerally cosistet with prior studies. The 40 percet who do ot pla or have ot thought about it are particularly vulerable. The relatively short plaig horizo also remais a cocer. However, whe we cosider them together with the asset maagemet strategy of tryig to hold oto assets, the cocers moderate somewhat. While a asset retetio strategy i ad of itself is ot a complete fiacial pla, it is a way of attemptig to provide for the loger term. FOCUS GROUP QUOTES That s oe of the reasos why you have a sudde expese that all you ca do is take it out of the asset, because what s your choice? I would like to build it back up, but about the oly way that there is to build it back up is to, I do t kow, go do a opiio survey or somethig. Male, Dallas, TX Make adjustmets accordig to the chages as they go. Female, Kitcheer, ON I should say whe I retired I felt that I had eough, but the I got ito a situatio, a very uwise oe with my moey ad that took away my security. Female, Chicago, IL I am pretty frugal ad we pretty much live off my checks that I am still gettig from workig. Female, Chicago, IL 18

19 THE SURVEY QUESTION: Whe you (ad your spouse/parter) make importat fiacial decisios (such as whether you ca afford to retire or to purchase a ew home/such as your retiremet fiaces or a large purchase), about how may years do you look ito the future? Less tha 5 years 5% 8% Pre-retirees (=1,035) Retirees (=1,005) 5-9 years 13% 17% years 16% 19% years 5% 6% 20 or more 16% 19% You do t pla ahead 10% 11% Do t kow/have t thought about it 28% 29% 19

20 RETIREMENT RISK: FINDINGS ON 10 SPECIFIC CONCERNS 6 Risk-Poolig Strategies FINDINGS ON RISK-POOLING Few pre-retirees ad retirees use risk-poolig strategies to maage retiremet risks. Cosistet with previous iteratios of this survey, both groups surveyed i 2015 teded to focus o savig ad spedig strategies to maage the risks associated with retiremet. For example, almost all pre-retirees (90 percet) ad most retirees (74 percet) said they have already tried or pla to try to save as much moey as they ca. Close to ie i 10 preretirees (88 percet) ad retirees (86 percet) said they have already elimiated or pla to elimiate all of their cosumer debt. Further, eight i 10 pre-retirees (81 percet) ad threequarters of retirees (76 percet) said they already have, or are plaig to, cut back o spedig. DISCUSSION The SOA surveys have foud a great deal of cosistecy i the risk maagemet strategies that pre-retirees ad retirees have reported over time. Except for health care isurace, fiacial products are ot that popular. The biggest focus is o reducig spedig. The focus groups support that, with the participats idicatig a willigess to make major reductios i spedig. Risk maagemet strategies should also be cosidered i tadem with asset maagemet strategies. May retirees seek to hold o to their assets rather tha sped them dow. Holdig oto assets ca be cosidered a risk maagemet strategy sice those assets remai available for emergecies. Pre-retirees ad retirees are much less likely to tur to riskpoolig strategies to maage retiremet risks (other tha health isurace). Half of pre-retirees (50 percet) ad oe-fifth of retirees (20 percet) idicate they pla to or have already postpoed takig Social Security. Oe-third of pre-retirees (33 percet) ad almost oe-quarter of retirees (22 percet) reported they had purchased, or are plaig to purchase, a auity or choose a auity optio from a employer pla. FOCUS GROUP QUOTES We oce had a fiacial advisor that did a spreadsheet ad said that the moey will last you till this age. I said what happes after? Do I become a bag lady? He said, Well, you ve got to save more. So we did save. I am a saver. Female, Chicago, IL Whe I was workig ad makig a cosiderable amout of moey every year, if I eeded somethig, I would go buy it. I will tell you somethig, my wife ad I have made shoppig ad coupo clippig, of course usig the Iteret, a hobby. Male, Baltimore, MD I do t thik we were smart eough to look dow that road. I kow I was t, you kow? Thigs had goe well after that poit ad you just assume aother moth, aother moth. Female, Chicago, IL You ca do a lot of thigs that do t cost moey, so you have to just sped more time o research ad look for the specials i the stores. You ca still eat well, just ot as much. Female, Edmoto, AB 20

21 THE SURVEY QUESTION: Have you (ad your spouse/parter) doe the followig to protect yourselves fiacially, pla to do it i the future, or have o plas to do it? Already doe Pla to do Try to save as much moey as you ca Pre-retirees (=1,035) Retirees (=1,005) 41% 48% 50% 26% 74% 90% Elimiate all of your cosumer debt Pre-retirees (=1,035) Retirees (=1,005) 30% 50% 59% 36% 88% 86% Cut back o spedig Pre-retirees (=1,035) Retirees (=1,005) 31% 51% 50% 25% 81% 76% Completely pay off your mortgage Pre-retirees (=1,035) Retirees (=1,005) 23% 45% 47% 19% 70% 64% Postpoe takig Social Security Pre-retirees (=1,035) Retirees (=1,005) 7% 13% 7% 20% 42% 50% Buy a product or choose a employer pla optio that will provide guarateed icome for life Pre-retirees (=1,035) Retirees (=1,005) 13% 20% 18% 4% 22% 33% 21

22 RETIREMENT RISK: FINDINGS ON 10 SPECIFIC CONCERNS 7 Iflatio FINDINGS ON INFLATION Most of those surveyed i 2015 said they thik iflatio will have a great deal or some effect o their moey eeds i retiremet. For istace, three-quarters of pre-retirees (76 percet) ad two-thirds of retirees (66 percet) said they thik iflatio will affect the amout of moey they eed each year i retiremet at least somewhat. But some were less cocered about the effect of iflatio o their spedig power i retiremet: Almost two i 10 preretirees (19 percet) ad three i 10 retirees (29 percet) said iflatio will affect them oly a little or ot at all. Three-quarters of pre-retirees (76 percet) ad two-thirds of retirees (66 percet) predicted that iflatio will affect the amout of moey they eed each year i retiremet at least somewhat. But some are less cocered about the effect of iflatio o their spedig power i retiremet: Almost two i 10 pre-retirees (19 percet) ad three i 10 retirees (29 percet) said iflatio will affect them oly a little or ot at all. DISCUSSION Uder govermet rules, Social Security beefits icrease based o icreases i the geeral cost-of-livig. However, retirees are subject to cost icreases i certai categories of spedig that the geeral cost-of-livig idexes may ot emphasize. Premiums for Medicare Part B ad D ad for Medicare supplemet isurace plas also icrease regularly. For private sector idividuals i the Uited States, Social Security is usually the oly icome that icreases with iflatio. I view of that, ad despite recet relatively low total iflatio, retirees have cosistetly expressed a cocer about iflatio. This cocer has bee kept alive for pre-retirees ad retirees by several health-related treds. Oe is that health care costs have icreased more tha overall cosumer prices. Aother is that, for retirees who have employer-sposored retiree health coverage, may employers have bee icreasig the share of the isurace cost they expect retirees to pay. I additio, logterm-care isurace premiums have icreased by a very large amout. These cocers do ot apply to all. Prices ad iflatio affect idividual pre- ad post-retirees differetly depedig o their situatios. For example, a retiree who ows a home ad is ot sellig it is ot affected by chages i housig prices. Ad although all are affected by food ad eergy costs, the impact is differet for differet people. I geeral, however, iflatio especially risig iflatio teds to be a bigger cocer for lower icome retirees tha for upper icome retirees. But eve those who hold iterest-bearig bak deposits ad certai ivestmets are affected by iflatio because, to the extet that low iflatio meas low iterest rates, the icome of such retirees is reduced by iflatio. 22

23 FOCUS GROUP QUOTES The cost of thigs. The risig cost of everythig. I ret ad everythig is goig up, up, up i Alberta. That s because of the oil but ow the oil is dow but oe of the other thigs are dow with it. Ret does t go dow. That s oe of my mai cocers. Female, Edmoto, AB I have Social Security ad [a] pesio, but [I] just worry about risig prices. Male, Dallas, TX The risig cost of everythig ad the small icreases we get i ay of our pesios or ivestmets. The spread keeps gettig bigger ad bigger. Female, Edmoto, AB My pesio does t icrease by half of the rate of iflatio aymore. They just wiped that out. Male, Kitcheer, ON THE SURVEY QUESTION: Over the course of your retiremet, how much do you thik iflatio will affect the amout of moey you will eed each year i retiremet? Pre-retirees (=1,035) Retirees (=1,005) 47% 43% 29% 23% 27% 18% 1% 27% 5% 5% A great deal Somewhat A little Not at all Not sure 23

24 RETIREMENT RISK: FINDINGS ON 10 SPECIFIC CONCERNS 8 Use of Fiacial Advice FINDINGS ON FINANCIAL ADVICE A key fidig i 2015 is that half of pre-retirees ad retirees said they do ot cosult with a professioal fiacial plaer or advisor. About oe i 10 idicated they cosult a fiacial professioal less tha oce a year. However, that s ot the total picture. About oe-fifth (15 percet of pre-retirees ad 20 percet of retirees) reported that they have cosulted with a professioal fiacial plaer or advisor at least oce a year for help with decisios about retiremet ad fiacial plaig. Aother 23 percet said they do so as eeded. DISCUSSION It is well kow that there are major gaps i retiremet kowledge ad fiacial literacy. Meawhile, the combiatio of icreasig logevity ad the shift to defied cotributio plas makes it more importat for pre-retirees ad retirees to be able to pla well. May pre-retirees likely have access to a plaer or a plaig process if their employer s beefit pla provided this service, ad some ca take advatage of the major growth i automated plaig processes, which focus mostly o ivestmet maagemet. However, the 2015 study foud that very few respodets regularly cosult a fiacial plaer or advisor. I additio, the focus groups revealed that the experieces of those who do obtai professioal services has varied, with some people gettig a great deal of beefit ad others feelig they were ot helped or were left worse off as a result. Other research has produced similar results, icludig that coflicts of iterest ca also be a problem i some situatios. The type of advice ad the specific advice eeded varies by idividual situatios. A great deal of advice is focused o ivestmet maagemet ad higher et worth idividuals. But may middle-icome people have a small amout of assets ad are much more i eed of advice about how much to save, whe to claim Social Security, whe they ca afford to retire ad how to maage post-retiremet. The advisors who are positioed to do a good job for higher et worth people are ofte ot well positioed to help middle- ad lower-icome idividuals. This becomes a issues sice good advice must be paid for, but may middle- ad lower-icome idividuals fid it a challege to fit this ito their budgets. Hece, the use of advice varies greatly by ecoomic status. 24

25 FOCUS GROUP QUOTES I had a good fiacial advisor ad he reviewed our portfolio every year. Told us i advace, told us the pros ad cos. Female, Kitcheer, ON I foud out that I did a lot better off whe I just tured it over to [the advisor] ad stayed out of it. Male, Dallas, TX I give it to [my fiacial advisor] ad he does what he does, ad he has ot lost ay moey that I have gotte wid of. He has worked very hard. Eve whe the ecoomy taked, he did very well for me. Female, Chicago, IL I ever had ayoe who ever looked out for my iterest, he [the fiacial advisor] just looked out for his ow. Female, Chicago, IL THE SURVEY QUESTION: About how ofte do you (ad your spouse/parter) cosult with a professioal fiacial plaer or advisor who helps you make decisios about your (retiremet/fiacial) plaig? Pre-retirees (=1,035) Retirees (=1,005) 51% 51% 15% 20% 11% 6% 23% 23% Oce a year or more ofte Less tha oce a year As eeded Never 25

26 RETIREMENT RISK: FINDINGS ON 10 SPECIFIC CONCERNS 9 Delayed Retiremet FINDINGS ON DELAYED RETIREMENT May pre-retirees said they expect to delay retiremet. I fact, they pla to retire at a cosiderably older age tha curret retirees actually retired. Although the typical retiree retires at age 60 (media actual retiremet age), the 2015 survey foud that pre-retirees geerally expect to retire at age 65 (media expected retiremet age). Moreover, almost two i 10 pre-retirees said they pla to work at least util age 68, ad 14 percet idicated they do ot expect to retire at all. However, both pre-retirees ad retirees reported they would prefer to retire at about age 62 (media). This meas that while retirees retired earlier tha they preferred, pre-retirees are plaig to work beyod their preferred retiremet age. For may, this is at least five years loger tha they would like. DISCUSSION The differeces i whe people expect to retire versus whe they actually retired have bee sigificat ad persistet over a umber of years. The 2013 Focus Groups ad Risk Survey focused heavily o decisios to retire ad foud that a great deal of volutary retiremet is actually a pushed retiremet. Big factors cotributig to the push icluded upleasat job eviromets, family eeds ad health problems. Resources eeded durig retiremet are greater for earlier retiremets due to a loger remaiig lifespa ad lack of potetial to accumulate more assets while cotiuig to work. It is ofte difficult for older persos to get work, ad if they ca, it may ot pay very much. This is also a cocer with respect to plaig. If people pla to retire later tha they actually do retire, the their retiremet plas probably will ot work well. FOCUS GROUP QUOTES It was several years too early. I had plaed to cotiue workig. Female, Chicago, IL We were i a big automobile accidet ad we had problems, you kow you ca t teach a subject if your job is goig from room to room ad we had crutches. Female, Chicago, IL I retired whe my husbad did. He was two years older tha I, so I retired at 62 actually. I did t wat him to be home aloe. We wated to do thigs together. Female, Chicago, IL It was pretty well madated at 65. I retired at 65 ad I thik the workforce was such that you felt itimidated. For those that stayed loger, it was like you were takig someoe else s positio. Female, Edmoto, AB 26

27 THE SURVEY QUESTION: At what age (do you expect to/did you) retire or begi to retire from your primary occupatio? Uder 55 3% 24% 55 to 59 6% 20% 60 to 61 7% 10% Retiree media age to 64 13% 24% 65 to 67 16% Pre-retiree media age 65 38% 68 or older Do ot expect to retire 5% 14% 19% Pre-retirees (=1,035) Retirees (=1,005) Do ot cosider yourself retired 1% 2% 27

28 RETIREMENT RISK: FINDINGS ON 10 SPECIFIC CONCERNS 10 Cotiuig to Work FINDINGS ON CONTINUING TO WORK Both pre-retirees ad retirees idicated they typically postpoe retiremet for fiacial reasos. This is because they do ot have eough moey to retire, wat to cotiue buildig their assets or wat to keep employer-provided health beefits. However, pre-retirees were far more likely tha retirees to select each of these reasos for workig loger tha preferred. The pre-retirees especially idicated they are plaig to cotiue workig for fiacial reasos. DISCUSSION Retiremet ages, timig ad the ability to work i retiremet cotiue to be major areas of cocer. This questio was aswered by the less tha 20 percet (173 out of 1,005) of retirees who idicated i their respose that they had waited loger to retire. The resposes of these 173 retirees provide isight ito decisios by those who retired at a later age tha they preferred. The eed to acquire sufficiet assets to retire appears to be the overridig motivator. FOCUS GROUP QUOTES It (retiremet) was several years too early. I had plaed to cotiue workig. Female, Chicago, IL I probably would ot have retired whe I did. Female, Baltimore, MD Our presidet reorgaized the compay Japaese style. But we were well take care of. I was 60. Male, Kitcheer, ON I got a offer that I could t refuse. Male, Kitcheer, ON THE SURVEY QUESTION: To what extet are each of the followig major reasos why you (will wait loger tha you would prefer/waited loger tha you would have preferred) to retire? (if workig loger tha would like) You (will/did) ot have eough moey to retire 37% 71% You (will wat/wated) to cotiue buildig up your assets to esure fiacial security i retiremet 51% 69% You (will wat/wated) the health beefits provided by your employer 34% 50% NA You foud yourself uexpectedly reluctat to retire NA 10% Pre-retirees (=406) Retirees (=173) You received a uexpected job opportuity 3% 28

29 Results by Icome ad Workig Loger Closer Look: Differeces i Icome It is pretty ituitive that perceptios of risk ad how people deal with it would be iflueced by their level of icome. Those with less discretioary icome, fewer assets ad greater reliace o govermet programs eed to face retiremet with a differet fiacial reality. This sectio of the report reviews how low-, middle- ad high-icome retirees ad pre-retirees look at retiremet risk ad strategies. ANALYZING RESULTS BY INCOME I this sectio, the low-, middle- ad high-icome classificatios reflect aual icome. For pre-retirees, this is their curret icome; for retirees this is their retiremet icome the amout of moey they live o from multiple sources icludig Social Security ad retiremet plas. While differet classificatios could be used, this aalysis provides isights ito the effect that icome has o risk perceptios ad maagemet strategies. Pre-Retirees Retirees Icome Number Icome Number Low < $50,000 =370 <$35,000 =375 Middle $50,000 $99,999 =361 $35,000 $74,999 =366 High $100,000 or more =304 $75,000 or more =264 For some of the aalysis, the sample size is smaller. Whe that is the case, it has bee oted i the discussio. MAJOR RISK CONCERNS Across early all types of fiacial risks, the cocers of those with low icome were heighteed compared to those with high icomes. I may cases, those with middle icome were also oticeably higher tha those with high icome. The table below shows the results by icome level across a broad rage of fiacial risks. The percetages represet those who idicated they were very or somewhat cocered. Pre-Retirees Retirees Fiacial Risk/Icome Level Low Middle High Low Middle High Payig for a log stay i a ursig home/ursig care at home 76% 71% 60% 63% 63% 42% Iflatio erodig the value of savigs/ivestmets 75% 73% 59% 59% 54% 38% Payig for adequate health care 75% 70% 57% 57% 47% 31% Becomig icapable of maagig ow fiaces 60% 55% 40% 52% 46% 46% Your spouse/parter maitais the same stadard of livig after your death 1 61% 52% 28% 54% 42% 22% Home equity does ot support retiremet plas 2 50% 42% 23% 41% 28% 15% Not leavig moey to childre or other heirs 41% 35% 26% 33% 23% 17% Becomig a fraud or scam victim 36% 26% 23% 38% 32% 25% 1 Amog those with spouse/parter: Pre-retiree: low (=133), middle (=256), high (=265); Retiree: low (=110), middle (=263), high (=225). 2 Amog those who ow a home: Pre-retiree: low (=209), middle (=293), high (=280); Retiree: low (=228), middle (=326), high (=248). 29