Findings From the 2015 Society of Actuaries Retirement Risk … · Findings From the 2015 Society of Actuaries Retirement Risk Survey Cindy Levering, ASA, MAAA Consultant Baltimore,

Findings From the 2015 Society of Actuaries Retirement Risk SurveyCindy Levering, ASA, MAAAConsultantBaltimore, MD

Andrew Peterson, FSA, EA, MAAASenior Staff FellowSociety of ActuariesSchaumburg, Illinois

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Agenda

• Background• Methodology• Results and Observations

– Managing Risks– Income and Spending– Shocks and Unexpected Expenses

• Conclusions• Resources of Interest to Plan Sponsors

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Background

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BackgroundCommittee on Post-Retirement Needs and Risk (CPRNR)

• Society of Actuaries post-retirement risk research: Nearly 20 years of work

• Overall program goal: Understand and improve post-retirement risk management– Focus on middle income market age 50 and older– Housing value is largest asset for many (excluding value of Social

Security)– Many lack adequate assets to maintain living standard– Decisions will require trade-offs on living standards

• Focus on multiple stakeholders• Started biennial Risk Survey in 2001 and added focus groups in

2005, 2013 and 2015

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Big Picture: What We Learned

• Findings from surveys, focus groups and interviews (including prior years)– Top risks—Inflation, health and long-term care– Pre-retirees more concerned than retirees– Major methods of risk management—Reduce spending, pay off

debt, save more– Gaps in knowledge persist– Planning horizons are too short

• Pre-retiree expectations differ from retiree experience in some areas• Lot of consistency over time and between longer term retirees and

shorter term retirees, but longer term retirees seem more self assured

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Big Picture: What We Learned

• RMDs are most common method of asset draw down; retirees do not want to take more than the RMD—The RMD is usually spent

• Planning process based on near-term expected cash flows• Housing often biggest asset and underutilized in planning• Women more concerned than men• Planning for long-term care needs or diminished mental capacity is

not being considered

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Questions for Plan Sponsors

• What happens when our employees can’t retire or retire too early?• How can current programs be modified to improve risk options?• Can we communicate more effectively to our various constituencies

by considering the different ways they perceive and approach planning?

• What products or plan features can we offer that better meet retiree needs? Can we offer unbiased education on these products?

• Are we doing enough to help our employees plan for the post-retirement as well as the pre-retirement period?

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Methodology

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Methodology in 2015 Online Survey• Sample size: 2,233 total (1,035 pre-retirees, 1,005

retirees, 193 oversample of retired widows)• Ages 45 to 80; U.S. only• Conducted online for first time in 2013

Focus Groups• 12 focus groups with people retired 15+ years• Chicago, IL; Baltimore, MD; Dallas, TX;

Kitchener, ON; Edmonton, AB• Half of groups were male; half were female• Participants had assets between $50,000 and

$350,0001

• No participant had household defined benefit guaranteed lifetime income exceeding $2,000 per month

1U.S. and Canadian dollar figures are treated as equal

SY

FG

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Methodology in 2015

In-depth Interviews• Conducted to better understand the impact long-term

care has on finances of long-term retirees• 15 in-depth interviews: 10 American and 5 Canadian

participants• All participants served in financial management role for

a parent or spouse in need of long-term care• 5 men and 10 women interviewed

IDI

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Managing Risks in Retirement

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Managing Risks in Retirement

I’ve thought about it for myself and my wife. It can be disastrously expensive, but then when you looked a little bit at maybe even buying the insurance for that, it’s not cheap either. It’s a rock and a hard place.

FG

It’s not a structured thing, but you have an idea. You know what you got to spend and you put your money in those places and you work towards that goal. And if you don’t use it, then you got to build something else that you can use.

Male, Health Decline Group in Dallas

Female, Health Decline Group in Baltimore

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Not Having Enough Money To Pay For Long-Term Care and Inflation Are The Top Concerns

How concerned are you about each of the following (WORKER ADD: in retirement)?

You might not have enough money to pay for long stay in nursing home/long period of

nursing care at home

The value of your savings and investments might not keep up

with inflation

You might not have enough money to pay for adequate health

care

Concerns in Retirement

SY

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Maintaining Standard of Living, Depleting Savings, and Mental Incapacity Are Also Concerns

How concerned are you about each of the following (WORKER ADD: in retirement)?

You may not be able to maintain a reasonable

standard of living for the rest of your life

You might deplete all of your savings

There might come a time when you are incapable of

managing your finances

Concerns in Retirement

SY

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Pre-retirees Are More Likely Than Retirees to Think Inflation Will Impact The Amount of Money They Will Need Each Year in Retirement

Over the course of your retirement, how much do you think inflation will affect the amount of money you will need each year in retirement?

Expected Effect of Inflation

SY

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Trying To Save As Much Money As Possible and Eliminating Consumer Debt Are Top Risk Management Strategies

Below is a list of things that some people do to protect themselves financially (WORKER: after they retire/RETIREE: as they get older). For each, please indicate whether you (and your spouse/partner) have done that, plan to do that in the future, or have no plans to do that.

41%

48%

30%

50%

31%

51%

23%

45%

50%

26%

59%

36%

50%

25%

47%

19%

90%

74%

88%

86%

81%

76%

70%

64%

Pre-retirees (n=1,035)

Retirees (n=1,005)


Retirees (n=1,005)


Retirees (n=1,005)


Retirees (n=1,005)

Alreadydone

Plan to do

Try to save as much money as you can

Eliminate all of yourconsumer debt

Cut back on spending

Completely pay off yourmortgage

Risk Management Strategies

SY

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Few Plan To Use Lifetime Income Annuity Options or Products To Manage Retirement Risk

Below is a list of things that some people do to protect themselves financially (WORKER: after they retire/RETIREE: as they get older). For each, please indicate whether you (and your spouse/partner) have done that, plan to do that in the future, or have no plans to do that.

9%

17%

7%

13%

11%

9%

13%

18%

41%

29%

42%

7%

36%

20%

4%

50%

46%

50%

20%

46%

12%

33%

22%


Retirees (n=1,005)


Retirees (n=1,005)


Retirees (n=1,005)


Retirees (n=1,005)

Already done

Plan to do

Risk Management Strategies Continued

Move to a smaller or less expensive area

Postpone taking Social Security

Postpone retirement

Buy a product or choose an employer plan option that will

provide guaranteed income for life

SY

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Only 2 in 5 Retired Widows Planned For The Possibility of The Loss of Their Spouse

Did you (and your spouse) consider and plan for how you would respond if you lost your spouse? (Filter: retired widows)

Planning for Loss of Spouse

SY

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More Than 8 in 10 Would Reduce Their Expenditures Significantly If They Were Running Out of Money In Retirement

If you (and your spouse/partner) were running out of money (WORKER: in retirement) due to unforeseen circumstances, how likely do you think you would be to do each of the following?

41%40%

23%10%

29%22%

21%27%

12%13%

6%6%

4%4%

47%45%

51%25%

36%33%

36%33%

39%31%

19%17%

19%16%

88%85%

74%35%

65%55%

57%60%

51%44%

25%23%

23%20%

Pre-retirees (n=1,035)Retirees (n=1,005)







Very likely

Somewhat likely

Reduce your expenditures significantly

Try to return to work or increase the number of hours you work for pay

Downsize your housing

Dip into money that you might otherwise have left to your children or other heirs

Use the value of your home to help fund your remaining retirement years

Get assistance from friends or community agencies

Get assistance from your children or other family members

Likely Strategies if Running out of Money

SY

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Many Underestimate Life Expectancy

SY 20

Knowing how long you can expect to live can be important for retirement planning. Until what age do you think the average person your age and gender can expect to live?

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SY 21

Until what age do you think that you can expect to live?

Many Underestimate Life Expectancy

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Observations

• Same top concerns (order changes) year by year: Long-term care, inflation, health care costs

• Few have long-term care insurance• Few buy annuities with guaranteed lifetime• Few have thought out an asset allocation plan• Few do formal planning• Basic approach is to adjust to events . . . three primary strategies

. . . reduce spending, eliminate debt, save as much as possible• Retirees know how to do short-term budgeting, but many struggle

with (or ignore) long-term budgeting and planning

22

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Income and Spending in Retirement

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Income and Spending in Retirement

I can tell you, in my case, keeping it the same, because I know where the income comes from. I'm assured of that income. I know where it is coming from. I know the kind of lifestyle my wife and I like to live. That income matches our lifestyle, and I would be really happy if it stays kind of constant like that.

FG

Of course raise it, because it just seems to keep going down and these emergencies keep coming up and nothing to really help boost them up. The only thing I really have of any value is if I was forced to sell my home. That’s about it. I really have nothing now.

Male, Lower Asset Group in Baltimore


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Additional Focus Group Findings

• Main effort is to maintain or grow asset level• Many cut back spending significantly • Most adjust spending after a major expense to make up

the difference • Many spend Required Minimum Distribution (RMD) • Reduction of spending from “wants” to “needs”

FG

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Just 2 in 10 Plan To Spend Down Their Assets; Another 2 in 10 Have No Plan For Managing Their Assets

Which one of the following best describes how you plan to manage your financial assets (WORKER: in retirement)?

Managing Financial Assets

SY

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Nearly Half of Retirees and Retired Widows Have About the Same Level of Assets They Expected To Have At This Point In Time

Compared with what you expected when you first retired, would you say your current level of savings and investments at this point in time is…

Level of Financial AssetsRetirees (n=1,005)

4%

17%

47%

18%14%

Much higher thanexpected

Somewhat higherthan expected

About the same asexpected

Somewhat lower thanexpected

Much lower thanexpected

SY

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More Than 3 in 5 Pre-Retirees and 2 in 5 Retirees Do Not Have a Plan For Spending and Income

Do you currently have a plan for how much money you will spend each year in retirement and where that money will come from?

Plan for Income and Spending

38%

62%60%

40%

Yes No

Pre-retirees (n=1,035) Retirees (n=1,005)

SY

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The Majority of Retirees and Retired Widows Spend “About What They Can Afford”

At the end of the year, do you generally find you (and your spouse/partner) have spent…

Level of Spending in RetirementRetirees (n=1,005)

11%

72%

17%

More than you can afford About what you can afford Less than you can afford

SY

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The Areas Where Retirees and Retired Widows Most Often Attempt To Spend Less Are In Their Purchases,

Eating Out, And Travel

What actions did you take to decrease your spending? Please select all that apply. (Filter: made an effort to reduce spending)

Actions Taken to Decrease SpendingRetirees (n=354)

90%

70%

56%

44%

17%

11%

9%

Spend less on purchases

Eat out less often

Spend less on travel

Reduce gift or charitablegiving

Moved to less expensivehousing

Refinanced your mortgage

Something else

SY

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About a Fifth Would Be Unable To Spend More Than $1,000 In An Emergency Without Jeopardizing Their Retirement Security

Suppose something unexpected were to happen to you (or your spouse/partner) (IF WORKER: in retirement) that forced you to dip into your savings and investments to pay for it. What is the maximum amount you could afford to spend on the event, without jeopardizing your retirement security?

Maximum Amount Could Spend in an Emergency

SY

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Observations

• Regular spending managed carefully by many retirees• Try to live from regular income and withdraw RMD from savings• Carefully manage regular expenses—Short term cash flow; but do

not expect, or budget for, items such as dental and home repairs• Seek to not withdraw more than RMD—Focus on preserving assets;

often not viewed as drawing down assets• Often reduce spending if needed, to preserve assets

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Shocks and Unexpected Expenses in Retirement

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Shocks and Unexpected Expensesin Retirement

• Shocks with major impact– Long-term care

– Child who cannot support himself/herself

– Divorce during retirement

– Some home repairs

– Some dental care

• Shocks with (usually) minor impact– Health care costs (except if do not have Medicare supplement insurance)

– Widowhood

– Inflation

• Most unexpected expenses are manageable, though they can occasionally be significant

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I’ve had – our house upkeep, furnace, driveway. In the last month, I have spent $2,500 on one expense, $3,600 on another expense. That’s in one month. A couple of years ago, my roof went and my furnace went. Everything.

FG

I had a very expensive dental bill that I had not planned. I’ve paid already $3,000 and I’ve just begun.

Female, Marital Change Group in Chicago



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FG

He [son] has an apartment, but when he gets sick he always comes to stay with us to calm him down. He is there right now at the house. He gets better and then he goes back and lives his life as best he can and we are his support and not only monetarily, but to encourage him to go on.Male, Higher Asset Group in Dallas

I built a house. The eleventh year after I built it, of course their warranty was 10 years, on the eleventh year there was a leak in my bathroom and I didn’t know it. I am highly allergic to mold and it cost me $13,000.

Female, Lower Asset Group in Dallas

That was $8,000 for the shingles. And I’m going to have to replace the furnace one of these days. 1980 furnace is still blowing.

Male, Higher Asset Group in Edmonton


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Caregiving

IDI

They don't have massive amounts of savings. I bet I spent three years researching assisted living and the places that were closer to us, where we could get back and forth to them. At first, my mom seemed open to it, until she decided to do it, and then she got the actual cost of it… Then she backed out, because she knew it wasn't going to last that long, and she was afraid of running out of money.

[Asked about how much her mother had left after her father needed long‐term care] None. That’s why she’s doing a reverse mortgage.

Female Assisting Father

Female Assisting Father

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The Most Common Shocks in Retirement are Major Home Repairs/Upgrades, Major Dental Expenses, and

Out-of-Pocket Medical Expenses

And have you (or your spouse/partner) experienced any of the following during retirement?

Shocks in RetirementRetirees (n=1,005)

SY

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Just Over 1 in 10 Retirees Report Going on Medicaidor Experiencing a Family Emergency


SY

Shocks in Retirement, continuedRetirees (n=1,005)

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Divorce During Retirement and Loss of Capacity Are Among The Least Frequently Experienced Shocks in Retirement


SY

Shocks in Retirement, continuedRetirees (n=1,005)

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Around 1 in 5 Retirees and 1 in 4 Retired Widows Have Experienced 4 Or More Shocks During Retirement


Number of Shocks in RetirementRetirees (n=1,005)

SY

29% of retirees with income under $35,000 experienced 4 or more shocks compared to 10% of retirees with income of $75,000 or more

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More Than 1 in 3 Experiencing Shocks Had Reductions in Assets of 25% Or More as a Result of The Shocks They Experienced in Retirement

By approximately how much, if at all, did these events reduce your level of assets? Please consider the combined effect of these events. (Filter: experienced shocks in retirement)

Effect of Shocks on AssetsRetirees (n=733)

SY

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More Than 1 in 10 With Shocks Had To Reduce Their Spending By 50% Or More As a Result of The Shocks They Experienced

By approximately how much, if at all, did these events reduce the amount of money you (and your spouse/partner) are able to spend each month? Please consider the combined effect of these events. (Filter: experienced shocks in retirement)

Effect of Shocks on SpendingRetirees (n=733)

SY

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About 3 in 4 Retirees Feel They Have Been Able to Manage Within Their New Financial Constraints at Least Somewhat Well

How well have you been able to manage within these new financial constraints? (Filter: reduced spending due to shocks)

Ability to Manage within New ConstraintsRetirees (n=432)

SY

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Around 3 in 5 With Shocks Believe They Could Not Have Done Anything to Lessen Financial Impact

To what extent do you agree or disagree that there was something you could have done ahead of time to lessen the financial impact of these events? (Filter: experienced shocks in retirement)

Ability to Protect Against ShocksRetirees (n=733)

SY

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Additional Focus Group and In-Depth Interview Findings

• The most devastating expenses in retirement are long-term care and divorce, followed by child with severe needs

• Most retirees absorb and adapt to unexpected costs• Some reduce spending to try to restore asset levels• Loss of health and significant problems of children tend to have a

much greater impact on retirees than the loss of asset level caused by unexpected expenses

• Many unexpected expenses can be planned for, but people often do not plan for predictable large expenses

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Additional Focus Group Findings: Caregiving

• Very few have long-term care insurance• Many care for someone who lived at home until the

burden of care became too high • Care costs can run in the hundreds of thousands of

dollars

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Observations

• Retirees in survey are doing better than the research team expected, but 3 in 10 have been severely impacted by shocks

• 2015 vs. 2013 focus groups—Long-term retirees seemed more confident and less anxious than short-term retirees

• Some areas of “unexpected expense” are quite predictable—But timing is not and 60% of those experiencing shocks think nothing could have been done to lessen the financial impact

• Two very difficult areas—Divorce and major long-term care events• Health coverage protects retirees from health shocks but only if they

have Medicare supplement. Dental is usually not included.• Retirees are often very resilient, with 75% reporting they have

managed the impact of shocks well or very well

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Conclusions

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Concluding Thoughts: What is Often Working Well

• Adapting to some retirement financial shocks• Adjusting spending to preserve assets• Using parental retirement experience to recognize risks and plan for

those events• Planning for routine annual spending needs• Limiting the draw down of assets in retirement

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Concluding Thoughts: Areas for Improvement

• Planning by pre-retirees for retirement needs and income sources• Planning for the impact of death on the surviving spouse/partner• Planning for longevity• Planning to work during retirement to supplement income• Planning to postpone retirement to accumulate greater assets• Budgeting for unexpected, yet predictable, shocks• Avoiding debt and its impact on one’s ability to save for retirement• Using insurance products to mitigate risks in retirement

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Concluding Thoughts: Opportunities for Plan Sponsors

• Gap analysis of current programs re: post-retirement needs

• Evaluate opportunities to align expectations and reality• Address gaps in planning• Help employees manage assets in post-retirement• Consider risk protection opportunities• Evaluate desired retirement timing

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Resources of Interest to Plan Sponsors

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5

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Actuaries Longevity Illustrator

• Online tool to illustrate longevity risk• Focuses on range of outcomes, not single life expectancy• Provides results for individuals and couples• Joint project created by the American Academy of Actuaries and the

Society of Actuaries • http://www.longevityillustrator.org/

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Optimal Retirement Income Solutions in DC Retirement Plans

https://www.soa.org/Research/Research-Projects/Aging/optimal-retirement-income-solutions.aspx

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Investment and Retirement Advice: A Guide for Employers https://www.soa.org/Research/Research-Projects/Pension/2015-investment-retirement-advice.aspx

Lump Sum or Monthly Pension: Which to Take?https://www.soa.org/Files/Research/Projects/research-2016-lump-sum-mrd.pdf

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For More Information

• All of the reports discussed (including detailed results by question) are available on the Society of Actuaries website at:– http://www.soa.org/research/research-projects/pension/research-post-

retirement-needs-and-risks.aspx

• For more information about SOA Research or use of resources, contact SOA staff actuaries: Steve Siegel at [email protected] or Andy Peterson at [email protected]

• For information about the Committee on Post-Retirement Needs and Risks – contact Anna Rappaport, Chair at [email protected], or SOA staff actuaries listed above

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Questions and Discussion

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Findings From the 2015 Society of Actuaries Retirement Risk … · Findings From the 2015 Society of Actuaries Retirement Risk Survey Cindy Levering, ASA, MAAA Consultant Baltimore,

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