Is Retirement Still Possible?

June 1, 2009

Jean Setzfand
Director, Financial Security
AARP
Discussion Topics
• About AARP
• New Retirement Realities
– Background
– Retirement Accounts
– Employment of Older Workers
– Healthcare Cost
– Home Prices
• AARP Priorities & Resources
– Social Security
– Economic Security
– Healthcare
About AARP

• Nonprofit, nonpartisan membership organization for people 50+

• Over 40 million members (approximately 50% of the membership
are still working)
• Offices in all 50 states and the District of Columbia, Puerto Rico,
and the U.S. Virgin Islands
• Vision: A society in which everyone ages with dignity and
purpose, and in which AARP helps people fulfill their goals and
dreams.
AARP Members
• 78% of AARP members report that they “always” vote in presidential
elections compared to 68% percent of AARP non-members.

• 37% of AARP members identify as Independent or “leaning” voters

compared to 32% percent of AARP non-members.

• 78% of AARP members report being most interested in economic and social
issues (such as jobs and health care) than other issues (such as morality
issues and foreign affairs) compared to 74% percent of AARP non-members.

• 92% of AARP members think the President should “work in a bipartisanship

manner to get things done, even if it means some compromise will be
necessary” compared to 85% of AARP non-members.
New Retirement Realities

• Individuals are more responsible for their retirement security

• Experience with the realities of risk exposure

• Impact of the market downturn:

– Retirement Accounts
– Employment of Older Workers
– Healthcare Cost
– Home Prices
Different Age Groups, Different Recessions
• The recession’s impact has been felt by all:
– Workers and their families (both young and old)
– Retirees
• Adults 65 and older—“who have already retired and
downsized their lifestyles—have escaped its full fury.”
• Younger adults have taken the worst lumps in the job
market, but remain relatively upbeat about their financial
future.
• Adults in late middle age (50-64) “have seen their nest
eggs shrink the most and their anxieties about retirement
swell the most.”

Source: Pew Research Center, Older Adults and the Economy Survey, April 2009.
Middle Aged Workers Feeling the Squeeze
50 – 64 year olds
• 75% say that the nation’s current economic problems will make it more
difficult for them to afford retirement.
• 66% say they lost money in mutual funds, individual stocks or 401(k)-
type accounts.
• Of those with losses, 2 in 10 say they lost more than 40% of their
investments value. Nearly 4 in 10 say they lost 20% to 40%.
• 59% cut back on spending in the past year.
• 21% had trouble affording medical care in the past year.
• 22% are “very satisfied” with their financial condition.
• 58% say recession has caused stress in the family.

Source: Pew Research Center, Older Adults and the Economy Survey, April 2009.
 Adults Age 65+
• 26% of retirees say their retirement income declined in the
past year [71% said it did not]
– Retirees with higher family income more likely to report that their
income declined [35% of those with income of $50,000 or more vs.
20% of those with family income of $20,000 or less]
• Older adults less likely to have cut back on spending than
younger adults and are more likely to be confident that they
have enough to live on in retirement.
• But there is a significant race gap among older adults [that
does not exist among younger adults]
– Percent of adults age 65+ who have cut spending in the past year
because money was tight: whites 34%, blacks 42%
– Percent that are confident they have enough to live on in retirement:
whites 75%, blacks 59%
Source: Pew Research Center, Older Adults and the Economy Survey, April 2009.
Sources of Retirement Income

Percentage of 65+ Receiving Income From Specified Source,

2007

100%
89%
90%

80%

70%

60% 53%
50%

40%

30% 23%
20%
20%
12%
10% 5%
3% 3%
0%
Social Security Asset Income Private Pension Earnings Public Pension Survivors SSI Veterans'
Benefits (Supplemental Benefits
Security Income)
Source: U.S. Census Bureau, Current Population Survey, 2008
Wealth of a Typical Household Approaching Retirement

Source of Wealth Amount in Dollars Percent of Total

Social Security $ 298,800 44%
Primary House 138,600 20%
Defined Benefit 122,100 18%
401(k)/IRAs 50,500 7%
Financial Assets 29,600 4%
Other Non-Financial Assets 21,000 3%
Business Assets 15,900 2%
Total $ 676,500 100%
Sources: Center for Retirement Research, 2007 Survey of Consumer Finance
Changes in Retirement Plan Participation
(Shift from DB to DC), 1979-2007

100

80
% Private-Sector Workers

60

40
DC Provides Primary Coverage
20

0 DB Provides Primary Coverage

1979 1983 1987 1991 1995 1999 2003 2007

Source: U.S. Dept. of Labor, Employee Benefit Security Administration; Center for Retirement Research at Boston
College; U.S. Dept. of Labor, Bureau of Labor Statistics.
Retirement Savings in 401(k)s/IRAs

Percent of 401(k) Participants Making Maximum Contributions

35.0%
29.9%
30.0%

25.0%

20.0%

15.0%

10.0% 7.7%
4.9%
5.0% 3.0%
1.7%
0.6%
0.0%
20-40 40-60 60-80 80-100 100+ All
Thousands of Dollars

Sources: Center for Retirement Research, 2007 Survey of Consumer Finance

Retirement Savings in 401(k)s/IRAs

401(k)/IRA Assets by Age

90,000
78,000
80,000 73,000
70,000
Assets Accumulated

60,000
60,000
49,000
50,000
40,000 35,000
29,000
30,000
20,000
10,000
-
35-44 45-54 55-64
Age Group

2004 2007

Sources: Munnell and Sunden, 2007 Survey of Consumer Finance

Retirement Savings in 401(k)s/IRAs

Percent of 401(k) Balances in Equities, by Age

90%
81% 82%
77%
80% 73%
71%
70% 67%
Percent in Equities

60% 55%

50%

40%

30%

20%

10%

0%
<25 25-34 35-44 45-54 55-64 65+ All
Age Groups

Source: Vanguard 2008

Losses to Retirement Accounts
Change in Average Account Balances From Jan. 1, 2008–April 10, 2009,
By Age and Tenure, Among 401(k) Participants With Account Balances as of
Dec. 31, 2007
50.00%

38.70%
40.00%
Recovery Time
30.00%  At 5% equity
21.90%
rate of return
20.00% Job Tenure
13.20% 11.90% (in years) 2 - 5 years
10.00%
8.80%
1-4  At 0% equity
5-9
0.00% 10-19
rate of return
20-29 2.5 - 9.5
-10.00%
-8.50%
-11.70%
years
-12.40%
-15.40%
-20.00%
-19.70% -18.70%
-22.00% -21.50%

-30.00%
25-34 35-44 45-54 55-64

Age

Sources: 2007 Account Balances: Tabulations from EBRI/ICI Participant-Directed Retirement Plan Data Collection
Project; 2008 and 2009 account balances: EBRI estimates. The analysis is based on all participants with account
balances at the end of 2007 and contribution information for that year.
Working Longer
Labor Force Participation Rates of Persons Aged 55+, 1950, 1985,
and 1990-2008
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
50

85
90

91

92

93

94

95

96

97

98
99

00

01

02
03

04

05

07

08
06
19

19

19

19

20

20

20

20

20

20
19

19
19

19

19
19

19

19

20

20

20
Source: U.S. Bureau of Labor Statistics, Handbook of Labor Statistics, 1985; Employment and Earnings,
January issues, 1986-2009.
Working Longer

Labor Force Participation Rates of Persons Aged 65-69,

1985-2008 (in percentages)
Year Both Sexes Men % Increase Women % Increase
Men Women
1985 18.4 24.4 N/A
13.5 N/A
1995 21.8 27 10.7% 17.5 29.6%
2005 28.3 33.6 24.4% 23.7 35.4%
2008 30.7 35.6 6.0% 26.4 11.4%
Source: Bureau of Labor Statistics
Working Longer

• Workers say that they expect to continue working in

retirement—upwards of 69% depending on the survey.
 Making ends meet and need access to health care (for
pre-retirees) are cited as the most important reason for
continued work.
• A substantial proportion of workers end up retiring or
leaving the labor force earlier than anticipated due to
reasons beyond their control. In the end, more workers
say they expect or want to work in retirement than
actually do.
Unemployment Rate, Men and Women Age 55+
December 2007-April 2009

Men Women All

6.7%
6.3% 6.4%
6.0%
5.8%
5.3% 5.3% 5.4%
5.1%
4.5%
4.3%
3.9%
3.5%
3.3%
3.1%

Dec-07 Mar-08 June Sept Dec-08 Jan-09 Feb-09 Mar-09 Apr-09

Number of Unemployed Men and Women Age 55+
April 2008 – April 2009

1,849
(in thousands)

Over the past year,

Unemployed

one million more

1,022
unemployed 55+
839
745

430
366

Men Women All

April 2008 April 2009 April 2008 April 2009 April 2008 April 2009
Other Employment Indicators
• Older workers are not just experiencing higher rates of unemployment, more
are:
– Working part-time for economic reasons
• Working part-time for economic reasons has more than doubled among
older workers since the start of the recession. In April 2009, 5% of
workers age 55+ were working part time because they could not find full-
time work, compared to only 2.4% in December 2007.
– Discouraged and exiting the labor force
• People age 55+ represent 18.7% of the labor force, but 20.7% of
discouraged workers (not actively looking for work in the prior 4 weeks
because: thinks no work available, could not find work, lacks schooling or
training, employer thinks too young or old, and other types of
discrimination.)
– Experiencing longer periods of unemployment
• Once unemployed, older workers continue to remain out of work longer
than their younger counterparts. In April, the average duration of
unemployment was 26.6 weeks for the unemployed aged 55 and over and
22.9 weeks for those under age 55.
Healthcare Coverage for People Age 50-64

• 45.7 million (15.3%) people of all ages were uninsured and

7.1 million adults (13%) age 50-64 were uninsured in 2007.
• 1.9 million more 50-64 uninsured than in 2000, representing
a 36% increase.
• Baby Boomers represent nearly 20% of the population within
the next 7 years, finding a common-sense solution for this
group is critical to holding down costs and improving health
and financial security.
• 45% of workers lack confidence that they will have enough
money to pay for medical expenses during retirement.
Medicare Coverage

• Medicare provide health coverage to 44 million people 65

and older, people with disabilities and people with end stage
renal disease.
• People on Medicare spend about 30% of their incomes, on
average, on out-of-pocket health costs – six times more than
people with employer coverage.
• Medicare rarely covers the costs of long-term care, which is
very expensive. The average cost of a semi-private room in a
nursing home is almost $70,000 per year. For assisted living
facilities, the yearly cost is over $36,000.
Out of Pocket Healthcare Cost
• Healthcare costs continue to rise when key sources
retirement income remain flat or decrease. Social Security
benefits will receive no COLA increases in 2010, 2011 and a
modest increase in 2012.
Average Out-of-Pocket Health Care Spending, for All
Medicare Beneficiaries Age 65+

$9,000 $8,459

$8,000

$7,000

$6,000
$5,144
$5,000

$4,000 $3,455

$3,000

$2,000

$1,000

$0
2003 2011 Estimate 2021 Estimate

Source: The MetLife Market Survey of Nursing Home & Assisted Living Costs, October 2008.
Home Prices
Inflation-Adjusted Growth in Median Home Equity: 1998-2006
Home Owners Ages 55+
60%
55%

50%
50% 47% 46%
42% 43% 43% 43%

40% 38%
35%

29%
30%
23%

20%
14%

10%

0%

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62

72

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Age Race / Ethnicity Income Quartile

Source: Zedleswski, Cushing-Daniels, and Lewis (2008), Health and Retirement Study Data
Change in Income from Reverse Mortgages
Potential Median Change in Income from Reverse Annuity Mortgages
Homeowners 62+, 2006
40%
37%
36%
35%

30% 28%

25%
20% 20%
19%
20% 18% 18%

15%
12%
11%
10%
10%

5%

0%

h
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Age Race / Ethnicity Income Quartile

Source: Zedleswski, Cushing-Daniels, and Lewis (2008), Health and Retirement Study Data
Is Retirement Still Possible?

• The financial downturn has undermined retirement security

for many, especially those near retirement and recently
retired.
• It has exposed the inadequacy of our current retirement
income system.
• Retirement is possible, but solutions are needed to prevent
further erosion.
AARP Priorities: Healthcare
• AARP Six Overarching Goals for Healthcare Reform:
– Guaranteeing access to affordable coverage for Americans age 50-
64;
– Closing the Medicare Part D coverage gap or “doughnut hole”;
– Preventing costly hospital readmissions by creating a follow up care
benefit in Medicare to help people safely transition home after a
hospital stay;
– Increasing federal funding and eligibility for home and community
based services through Medicaid so older Americans can remain in
their homes and avoid more costly institutions as they age;
– Creating access to generic versions of biologic drugs used to treat
cancer and other serious diseases to reduce the price of these costly
treatments; and
– Improving programs that help low income Americans in Medicare
afford the health care and prescription drugs they need.
AARP Priorities: Social Security
• Social Security solvency package should provide:
– Guaranteed benefits for life
– Adequate guaranteed benefit for future generations
– Protection from lost wages resulting from death, disability and
retirement
– Benefits linked to pay and tenure
– Universal participation
– Progressive benefits to replace greater share to lower-wage
earners
– Inflation adjustments for beneficiaries
– Adequate early retirement benefits
– Financial integrity by requiring contributions from both employers
and employees
AARP Priorities: Economic Security
• Retirement Security
– Enact reforms to expand access, improve adequacy and
security, and strengthen protections
– Promote the development and adoption of more effective
retirement plans by the financial services industry and
employers and influence industry practices toward 50+
investors
– Deliver information, education and guidance that leads to better
retirement financial decisions by individuals

• Workforce
– Encourage the adoption of employer policies and practices that
afford 50+ workers more and better workplace options.
– Ensure that 50+ workers have the skills needed and the
opportunities available for fulfilling employment.
AARP Resources

Consumers:
• www.HealthActionNow.org
• www.AARP.org/RealRelief (June 11th Consumer Webinar)
• www.AARP.org/NoFreeLunch

Employers:
• www.RetirementMadeSimpler.org
• www.aarp.org/money/work/employer_resource_ctr/
• www.AARP.org/Workforceassessment