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Transcript of AARP_KY_Karen_C_Financial_Security
Financial Securityin
Insecure Times
June 24, 2009Karen Cassidy
President AARP Kentucky
Please begin completing the Financial Literacy Quiz
Answers will be given at the end of the presentation.
Discussion Topics
• Theoretical Framework
• Is Retirement Still Possible?
• “New” Retirement Realities– Background– Retirement Accounts– Employment of Older Workers– Healthcare Cost– Home Prices
• AARP Priorities & Resources– Social Security – Economic Security– Healthcare
Financial Security is Safety
“New” Retirement Realities
• Individuals are more responsible for their retirement security
• Have to bear the burden to save and mitigate their own risk
• 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.
Percentage of 65+ Receiving Income From Specified Source, 2007
89%
53%
23%20%
12%
5% 3% 3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Social Security Asset Income Private Pension Earnings Public Pension SurvivorsBenefits
SSI(Supplemental
Security Income)
Veterans'Benefits
Source: U.S. Census Bureau, Current Population Survey, 2008
Sources of Retirement Income
0
20
40
60
80
100
1979 1983 1987 1991 1995 1999 2003 2007
% P
riva
te-S
ecto
r W
orke
rs
DC Provides Primary Coverage
DB Provides Primary Coverage
Source: U.S. Dept. of Labor, Employee Benefit Security Administration; Center for Retirement Research at BostonCollege; U.S. Dept. of Labor, Bureau of Labor Statistics.
Changes in Retirement Plan Participation (Shift from DB to DC), 1979-2007
Retirement Savings in 401(k)s/IRAs
Sources: Center for Retirement Research, 2007 Survey of Consumer Finance
Percent of 401(k) Participants Making Maximum Contributions
0.6%1.7%
3.0%4.9%
29.9%
7.7%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
20-40 40-60 60-80 80-100 100+ All
Thousands of Dollars
Retirement Savings in 401(k)s/IRAs
401(k)/IRA Assets by Age
29,000
49,000
73,000
35,000
60,000
78,000
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
35-44 45-54 55-64
Age Group
Ass
ets
Acc
um
ula
ted
2004 2007
Sources: Munnell and Sunden, 2007 Survey of Consumer Finance
Retirement Savings in 401(k)s/IRAs
Source: Vanguard 2008
Percent of 401(k) Balances in Equities, by Age
71%
81% 82%77%
67%
55%
73%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
<25 25-34 35-44 45-54 55-64 65+ All
Age Groups
Per
cen
t in
Eq
uit
ies
Losses to Retirement AccountsChange 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
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.
38.70%
21.90%
11.90%8.80%
13.20%
-8.50%
-12.40% -11.70%-15.40%
-19.70% -18.70%-22.00% -21.50%
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
1-4
5-9
10-19
20-29
25-34 35-44 45-54 55-64
Age
Job Tenure (in years)
Recovery Time At 5% equity
rate of return2 - 5 years
At 0% equity rate of return
2.5 - 9.5 years
Working Longer
0%5%10%15%20%25%30%35%40%45%50%
1950
1985
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Labor Force Participation Rates of Persons Aged 55+, 1950, 1985, and 1990-2008
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 Men
Women % Increase Women
1985 18.4 24.4N/A
13.5N/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
3.1% 3.3%3.5%
4.5%
5.1%5.3%
6.0%6.3%
6.7%
5.8%5.4%
3.9%4.3%
5.3%
6.4%
Dec-07 Mar-08 June Sept Dec-08 Jan-09 Feb-09 Mar-09 Apr-09
Men Women All
Number of Unemployed Men and Women Age 55+April 2008 – April 2009
430366
839
1,849
745
1,022
Men Women All
April 2008 April 2009 April 2008 April 2009 April 2008 April 2009
Un
emp
loy
ed(i
n t
ho
usa
nd
s)
Over the past year, one million more unemployed 55+
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.
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
Average Out-of-Pocket Health Care Spending, for All Medicare Beneficiaries Age 65+
$3,455
$5,144
$8,459
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
2003 2011 Estimate 2021 Estimate
Source: The MetLife Market Survey of Nursing Home & Assisted Living Costs, October 2008.
• 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.
Home Prices
42%
35%
43% 43%
55%
43%
14%
47% 46%
29%
23%
38%
50%
0%
10%
20%
30%
40%
50%
60%
All
55-6
1
62-7
1
72-8
182
+W
hite
Black
Hispan
icOth
er 1st
2nd
3rd
4th
Age Race / Ethnicity Income Quartile
Inflation-Adjusted Growth in Median Home Equity: 1998-2006 Home Owners Ages 55+
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.
Redefining Retirement
No-age thinking
Age is no longer the predictor of an individual’s ability to add value. Zinke (2000).
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% of AARP non-members.
• 37% of AARP members identify as Independent or “leaning” voters compared to 32% 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% 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.
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.
Ethel Percy Andrus….
One of the first advocates for financial security
AARP Resources
Consumers:
• www.HealthActionNow.org
• www.AARP.org/RealRelief
• www.AARP.org/NoFreeLunch
Employers:
• www.RetirementMadeSimpler.org
• www.aarp.org/money/work/employer_resource_ctr/
• www.AARP.org/Workforceassessment