1. MN Dept of Human Services Policy Briefing Four: Private and Public Savings Plans Friday, June 4, 2004 Topics Covered: Basics of personal financial planning: saving to self-insure for long- term care Panel of consumer and industry representatives Hawaii's public savings plan for universal coverage of LTC Also, please make sure to pick up an evaluation & fill it out. Thanks!

2. Funding Long-Term Care Into Retirement Presented by: Dave Bergstrom Minnesota State Retirement System June 4, 2004

3. Life Expectancies Source: Hoover Institution MALE FEMALE 1935 59 63 2004 74 81 MSRS Retiree - life expectancy at age 65 81 85

4. Personal Savings Rates 19651993 11.3% 2.7% * Source: National Commission on Retirement Policy

5. ■ Social Security major source of income for 66% of retirees. ■ Social Security only source for 16%.

6. ■ Income from private pensions has grown from 16% to 30%. ■ Fewer than 50% of workers contributing to a pension plan. ■ Only 21% of those eligible contribute the maximum amount the employer would match.

7. RULE OF 72 ■ To determine how long it takes to double money divide 72 by earnings rate. ■ Example: 72 divided by 8% return = 9 years to double money.

8. $750,000 $323,000 Start atAge 25Age 35 - Save $50 per week on a tax deferred basis - Retire at Age 65 - 8% average return

9. Saving Vehicles Tax Deferred Retirement Plans ■ Defined Contribution Plan - Benefit based on account value - 401k - 457 - 403(b) - IRA’s ■ Defined Benefit Plan - Benefit based on years of service and average salary.

10. Saving Vehicles (cont.) Tax free at payout - Roth IRA’s - President’s $7,500 savings proposal * Contributions are made with after tax dollars.

11. Saving Vehicles (cont.) Tax Free Savings Accounts ■ Voluntary Employee’s Beneficiary Association (VEBA) ■ Health Care Savings Accounts ■ Health Care Reimbursement Accounts

12. Post-Employment Health Care Savings Plan ■ Employees can build a tax-free savings account. - Tax free going in - Tax free going out ■ Account dollars can be used to offset employees and/or dependent medical expenses into retirement.

13. Post-Employment Health Care Savings Plan Eligible Payouts Health Insurance Premiums Medicare Part B Dental Costs Long term care premiums Eye care costs Co payments For other eligible expenses, see IRS publication 502 Many over the counter drugs

14. Defined Benefit Plan Health Insurance Proposal for State Employees ■ Employer contribution of ½ of 1% Participants’ years until retirement Monthly Benefit 3 $35 4 $35 5 $40 6 $46 7 $53 8 $61 9 $70 10 $80 11 $91 12 $103 13 $126 14 $140 15 or more $155 ■ Benefits increase at inflation up to 5% per year payable to employees with 15 years of service.

15. Solutions ■ Increase retirement savings ■ More flexible Health Care Savings Accounts and incentives for Long-Term Care. ■ Control Health and Long-Term Care costs ■ Work longer to pay for Health and Long-Term Care Insurance.

16. Panel Discussion Laurie Laner, President, Financial Designs, Inc. Hal Freshley, PhD, Director of Policy, Minnesota Board on Aging

17. Long Term Care Needs Financial Designs, Inc. Laurie I. Laner, CFP

18. Financial Goals and Objectives

20. Retirement Projection

22. In 1990, 1 in 8 Minnesotans was 65 years of age or older. In 2030, 1 in 4 Minnesotans will be 65 years of age or older. Age Shift in Minnesota Newman Financial Services: Aging initiative: Project 2030 Final Report, December 1998

23. Number of Workers per Retiree Trend HCFA Office of Research & Demonstrations, 1994

24. Long Term Care Buy or Invest?

26. Long Term Care Insurance Cost to Wait?

27. Generic Comparison Analysis of Benefits and Policies Prudential versus John Hancock This represents only 2 pages of a 7 page example only – material is dated January 2003.

28. Generic Comparison Analysis of Benefits and Policies Prudential versus John Hancock This represents only 2 pages of a 7 page example only – material is dated January 2003.

29. 5 Minutes for Small Group Discussion Please discuss the presenters’ material Each site should pick the “best” question or two, and be prepared to present it to the group Sites will be called upon in alphabetical order (with St. Paul last) Either the facilitator or the person with the question should be prepared to ask it

30. 5 MINUTE BREAK

31. Marilyn Seely, former Director of the Executive Office on Aging, State of Hawaii

32. Next Briefing: August 6th 9am - Noon Topic: Housing strategies Specific topics covered:  Using housing equity  Reverse mortgages  House-sharing or modifications

33. In Closing... Marlene Stum, PhD, of the University of Minnesota, Extension Service. Her web site: http://fsos.che.umn.edu/stum/financingltc/intro.html