1. ANNA RAPPAPORT CONSULTING STRATEGIES FOR A SECURE RETIREMENT SM Framing the Issues: Retirement Income Questions People Need to Ask Presentation by Anna Rappaport Retirement Income Conference April, 2007

2. Presentation at the Retirement Income Conference April 19, 2007 1 The Big Picture Today Decline of DB Plans Longer Life Spans Little Longer Term Thinking What is Longevity Risk? Working in Retirement Higher Health Costs Premature Retirement Risk Less Retiree Health

3. Presentation at the Retirement Income Conference April 19, 2007 2 Our Goals Today  Understand retirement planning today  Think about individual responsibility and future patterns of retirement  Focus on key questions by life stage  Share opinions on gaps Note: presentation will focus on age 50 and above; Appendix includes issues for earlier life states

4. Presentation at the Retirement Income Conference April 19, 2007 3 Life stages for retirement planning  Before age 50 –Early and mid-career  Late career—50 to near retirement  At retirement  After retirement –Active years—a lot of choice (go-go) –Slowing down (slow-go) Repeating themes—savings, investment, risk management

5. Presentation at the Retirement Income Conference April 19, 2007 4 Agenda  For each life stage at age 50+, we will discuss: –What we know –Questions to be asked

6. Presentation at the Retirement Income Conference April 19, 2007 5 What we know Nearing retirement (Age 50+)  Many people start to focus on retirement  Pension plans become major driver of work and retirement decisions  About 50% of people have not made retirement calculations  Decisions are often made intuitively  About 40% of people end up retiring earlier than planned  Health benefits are often a driver of work/retirement decisions  Significant gaps in knowledge about risks

7. Presentation at the Retirement Income Conference April 19, 2007 6 How concerned are you that... ? (percentage very or somewhat concerned) You might not have enough money to pay for adequate (2003/2001: good) health care You might not be able to maintain a reasonable standard of living [for the rest of your life] You might not be able to keep the value of your savings and investments up with inflation You might not have enough money to pay for [a nursing home/ nursing care at home] Source: Society of Actuaries, 2001,2003 and 2005 Risks and Process of Retirement Surveys Retirees (2005 n=302) Pre-retirees (2005 n=300) 200520032001 Concerns about risk fairly constant

8. Presentation at the Retirement Income Conference April 19, 2007 7 Questions to be Asked; After age 50 and Before Retirement  When would I like to retire and/or start to phase down?  Do I want to work in retirement, and if so, what should I be doing to create options and opportunities?  Where do I stand with respect to having enough money to retire and at what age?  Do I need to increase my savings?  Do I have adequate protection in case I become disabled or a family member needs help?  What risks will I need to be concerned about in retirement, and how do I get a risk management program in place?

9. Presentation at the Retirement Income Conference April 19, 2007 8 Questions to be Asked: After age 50 (continued)  Do I understand the tax issues that affect me, and the actions I am taking to make my strategy tax effective?  When do I plan to claim Social Security?  Do I have a back-up plan if my job is phased out before I plan to retire?  Do I expect to relocate at retirement?  Do I have access to enough information and advice? Should I secure additional advice?  Do I have a will and power of attorney for financial and health decisions, and are they up-to-date?

10. Presentation at the Retirement Income Conference April 19, 2007 9 Gaps and What to Do GapWhat to Do Many unanswered risk management questions Balance risk management with investment management Many people think short-termHelp people focus on the longer term Look at important risksWalk through options Many people don’t have enough money Encourage longer work

11. Presentation at the Retirement Income Conference April 19, 2007 10 What we know: At time of retirement  Work is part of retirement plans for a growing number of people  Wide range of reasons why people decide to retire—about 4 in 10 do not choose timing  For many people, time of most important financial decisions of their lives—particularly if they get a lump sum  New challenges—people who depended on employer provided assistance and benefits often completely on their own

12. Presentation at the Retirement Income Conference April 19, 2007 11 What we know: Importance of earnings ages 55 and over Age Group % with Earnings Mean Annual Earnings Median Annual Earnings 55-6466.5%$44,673$32,000 65-6932.6%32,79219,428 70-7916.2%27,25612,000 80 +5.1%21,10110,000 Source: Debra Whitman and Patrick Purcell, CRS Report for Congress, November 7, 2005

13. Presentation at the Retirement Income Conference April 19, 2007 12 What we know: Pre-retirees expect to work longer How old were you when you retired/began to retire from your primary occupation?/At what age do you expect to retire from your primary occupation? (Among retirees and employed pre-retirees) Age Category Retirees (%)Pre-retirees (%) 2005 (n=302)2005 (n=253) Under age 55342 55 to 612912 62 to 642018 65521 66 or older820 Will not retire--13 Doesn’t apply3-- Don’t know215 Source: Society of Actuaries, 2005 Risks and Process of Retirement Survey

14. Presentation at the Retirement Income Conference April 19, 2007 13 Expected vs. actual timing of retirement among retirees Source: EBRI/ASEC/Greenwald, 2003-2007 Retirement Confidence Surveys

15. Presentation at the Retirement Income Conference April 19, 2007 14 What we know: Demographics  New ways to think about life cycle –Third age: period between full time work and total retirement –During transition period  Some work and more leisure  Supplement earnings with retirement resources  Looks like traditional cyclical life plan  Key trends –Living longer –Healthy longer but not forever –Boomers: better education than groups before

16. Presentation at the Retirement Income Conference April 19, 2007 15 Questions at Retirement from Major Career  What methods of payment will I choose from employer provided pension benefits? What about any nonqualified plans?  How will employer provided defined contribution funds be paid to me?  Do I have plan for addressing post-retirement risks?  Should I plan to annuitize some of my money? How much and how? How do I decide what the right amount is? Is my spouse protected in the event of my death?  Do I have health coverage in retirement? If not, how can I get it?  How should I invest my money?  Do I have a method of keeping track of how I am doing year by year?

17. Presentation at the Retirement Income Conference April 19, 2007 16 Questions at Retirement from Major Career (cont’d)  Are my strategies tax effective?  Do I have the right information and advice?  Do I have a will and power of attorney for financial and health decision, and are they up-to-date?  Is my spending level aligned with lifetime financial resources? Do I have a budget?  Do I have significant amounts of debt? How can I reduce and manage it?

18. Presentation at the Retirement Income Conference April 19, 2007 17 Common Gaps  Risk management programs  Longer term thinking  Plan to prevent outliving assets  Plan to provide for help if needed for long-term care

19. Presentation at the Retirement Income Conference April 19, 2007 18 What we know: After retirement  Big increase in our responsibility  Employer often no longer available to provide benefits, security  Wide range of activities—many people seeking to reinvent themselves today  A lot of unknowns lie ahead

20. Presentation at the Retirement Income Conference April 19, 2007 19 What we know: Probability of Living to 80, 90, 100 Projected to 2025 Projection to 2025 – 1983 Mortality projected 40 years Survival Age Female 65 Male 65 Both Survive Either Survive survive to 800.840.690.580.95 survive to 900.520.300.160.67 survive to 1000.140.040.010.18

21. Presentation at the Retirement Income Conference April 19, 2007 20 What we know: The work and retirement experience  People say they want to work longer  Many work after “retirement” –Often part-time or part-year  Of those who are not in labor force at 50-61 –67% of men are disabled –40% of women are disabled  New job options and innovative practices are needed –Relationship alternatives –Restructuring of duties –Scheduling alternatives –Place alternatives

22. Presentation at the Retirement Income Conference April 19, 2007 21 What we know: Work After Retirement Source: Society of Actuaries, 2005 Risks and Process of Retirement Survey. Results based on 274 retirees who provided their retirement age. Percentage of Retirees with Various Work Experiences (2004)

23. Presentation at the Retirement Income Conference April 19, 2007 22 Questions for the early years of retirement (go-go)  What should I do to meet my retirement dreams?  How should I update my invest strategy in light of the emerging time horizons?  If I need to use some of my savings to live on, what account should I withdraw from first, and how much can I safely withdraw?  Do I have a plan for addressing post-retirement risks?  Is my risk protection program working, and does it need fine-tuning?  Am I meeting my goals with regard to working, and do they need fine-tuning?

24. Presentation at the Retirement Income Conference April 19, 2007 23 Questions for the early years of retirement (go-go)  What is working well for me, and what is not?  Do I want to relocate?  How are my assets progressing from period to period?  What measures have I taken to be sure that I will not outlive my assets?  What provisions are in place to pay for unexpected medical costs and for long-term care costs?  Is my spouse provided for?  Have I claimed Social Security or determined when I plan to claim it, or how do I plan to evaluate the decision?  Should I move into a CCRC? If so, which one?  Should I take a reverse mortgage?

25. Presentation at the Retirement Income Conference April 19, 2007 24 Questions for the later years of retirement (slow-go)  Do I have advisors or family members in place to help me manage my money and provide daily assistance should I need it? Do I have a transition plan if I need it?  Does my designee understand and know my wishes?  Are necessary legal documents in place?  Do I need to move or will I need to move? Have I evaluated the options available to me, their cost and my preferences so that I can choose where I want to go?  Do I have adequate financial resources and a contingency plan?

26. Presentation at the Retirement Income Conference April 19, 2007 25 Conclusions  Many gaps in planning and risk management today  Big problem—not enough longer term thinking  Focus today heavily on investment rather than balanced focus including risk management and investment  People stay in defaults  Best solutions are those that work without employee action

27. Presentation at the Retirement Income Conference April 19, 2007 26 Appendix: Early and mid-career issues

28. Presentation at the Retirement Income Conference April 19, 2007 27 What we know: Early and mid-career  Fewer people have traditional pensions  In 401(k) plans, many people choose default options  People are not saving enough  Retirement is often not “on the radar screen”  Debt is an issue for many people  Priorities are housing and raising families  Risk protection is heavily linked to employment

29. Presentation at the Retirement Income Conference April 19, 2007 28 Questions to be Asked: Early Career  When do I need to start saving?  How much should I save?*  How do I effectively take advantage of employee benefit plans? What is a 401(k) (or 403(b)) plan and how should it be used?*  What should I think about with regard to pensions when I take or leave a job?*  Should I set up an IRA?  Should credit card debt be repaid before I start saving for retirement?  How do I manage debt?* *Questions that carry through during all work

30. Presentation at the Retirement Income Conference April 19, 2007 29 More Questions to be Asked: Mid-career  How do I invest my savings when I have choices?  How do I effectively take advantage of employee benefit plans?  When should I look at long-term care insurance, and should I buy it?  Where do I stand with respect to having enough money to retire and at what age?  Do I have adequate protection in case I become disabled or a family member needs help?  Do I have a method of keeping track how my assets change year by year and what progress I am making in meeting my goals?  Do I understand the tax issues that affect me, and the actions I am taking to make my strategy tax effective?  Do I have access to enough information and advice? Should I secure additional advice?

31. anna@annarappaport.com Phone: 312-642-4720 Fax: 312-642-4330 ANNA RAPPAPORT CONSULTING STRATEGIES FOR A SECURE RETIREMENT SM 30