E-briefing:
Retirement at Risk

That's because the golden years are changing in many ways for retiring Americans. And they're likely to continue to do so. Economic uncertainty will continue to be a certainty. About 60 percent of Americans are at "retirement risk," meaning they may not be saving enough or they're not computing coming retirement costs - especially health care - as they should. The need and desire to continue working - combined with strong employer demand due to the baby bust that followed the Boomer generation - will change the face of "retirement" in the years to come.

Table of contents:

1. A history lesson

A. Retirement: A recent invention
B. Women still paying for the past

2. Who's really secure?

A. Who will be the top 20 percent?
B. Economy's bottom 20 percent will also do well
C. Where does that leave the rest of us?

3. Coming up with a plan: The good, the bad and the ugly

A. Going for the gold
B. Fuzzy math will cost you
C. Lump sum recipients better die young

4. For women only: The weaker sex financially

A. What women overlook
1. Outliving your man
2. Comparing paychecks
3. The cautious advisor
4. Divorce
5. The mommy factor

5. The high cost of health care

A. Retirees paying thousands out-of-pocket each year
B. Employer and union retirement health plans are dying
C. Choosing between buying medicine or food

6. Sudden detour for older workers: Postponing retirement

A. Changing the plan
B. Why they're delaying

7. The silver lining in the Boomers' golden years

A. A "booming" job market to come for retirees

1. A HISTORY LESSON

A. RETIREMENT: A RECENT INVENTION
UC economic historian Erwin F. Erhardt says the blue-collar worker really didn't see retirement benefits before World War II. Instead, those benefits were restricted almost entirely to white-collar workers. "During the Great Depression, FDR and the federal government intervened. In 1935, the Social Security Act was passed, providing pensions for people over age 65. Following World War II, unions, which had strengthened themselves during the wartime era, began to win concessions from employers in the area of retirement benefits. Leading the way was the United Auto Workers Union. They became the model for other unions to follow in pursuing retirement benefits for their workers. Today, this is one of the main battlegrounds in union negotiations--retaining retirement benefits."
Contact: 513-556-2624

B. WOMEN STILL PAYING FOR THE PAST
UC historian Terri Premo says historically, retirement has not been considered a women's issue, and even today, most women will not recognize the dire straits they could be in when it's time to retire. "Social Security and retirement pensions were established in a way that perpetuated women's dependency on men, and that was perceived as an acceptable norm in the 1930s when Social Security was created. Back then, it was thought that the wage-earning role of the male bread winner needed to be protected. At that time, the women working for wages were mostly immigrants and African American women who did not have the luxury of retirement or were not in jobs covered by Social Security or pension plans."

That antiquated Social Security system is still hurting women today. "A female worker could stay in the work force all of her life and at retirement, find out that her spousal benefits are greater than a retirement based on her own earnings."
Contact: 513-556-6612

2. WHO'S REALLY SECURE?

A. WHO WILL BE THE TOP 20 PERCENT?
Dallas Salisbury, president and CEO, Employee Benefit Research Institute, likens the future shape of retirement to a barbell with weights on either end. At one end of the barbell are the 20 percent of today's workers who will likely have comfortable retirements: Those who spend their careers within the public sector, i.e., government positions, and those who spend their careers with very large employers or with unionized employers. "These employers provide a defined-benefit plan along with a defined- contribution program plus group health-care purchasing for retirees," he said.
Contact: 202-659-0670

B. ECONOMY'S BOTTOM 20 PERCENT WILL ALSO DO WELL
On the other end of the barbell are those 20 percent of the U.S. labor force who are currently low-wage workers and spend most of their work lives in that status. They will also likely retire and continue to live much as they are accustomed to now. "Their Social Security benefits will cover 80- to 100 percent of their final income. Importantly, for the lowest income sectors, Medicaid will cover their health-care needs."
Contact: 202-659-0670

C. WHERE DOES THAT LEAVE THE REST OF US?
The remaining 60 percent of American workers will receive Social Security payments that cover 30- to 50 percent of their final income if they wait until they can get full benefits (which will be age 67 in future years) to retire. Those who retire at an earlier age could conceivably receive only 15 percent of their final income as a result of early retirement benefit reductions. In fact, future retirees who do opt for retirement at age 62 will forego nearly 40 percent of the monthly benefit they would have received by working until age 67.
Contact: 202-659-0670

3. COMING UP WITH A PLAN: THE GOOD, THE BAD AND THE UGLY

A. GOING FOR THE GOLD
A key rule of thumb for everyone to keep in mind when planning for retirement, says Susan B. Kotler, an independent certified financial planner, is to begin a plan as early as possible. "You may think, 'I don't have enough to put away now, so I'll start later and save more.' But due to the time value of money, you can't catch up. Let's say a woman puts away two thousand dollars a year for eight years and then stops. Another woman decides to wait the first eight years but then contributes $2,000 a year for the next 22 years, a total of $44,000. Both get 10 percent on their money. Guess who comes out ahead? The woman who saved less, earlier will outperform the one who put away more by almost twice as much."
Contact: 513-936-8081

B. FUZZY MATH WILL COST YOU
Thirty-nine percent of workers who plan to retire think they can live comfortably on less than 60 percent of their current income. However, many financial experts say that retirees will need up to 80 percent of their pre-retirement income to live comfortably, and high health expenses could move that figure to about 100 percent. Among married couples, 25 percent of retirees coming from the tail end of the baby boom will have difficulty covering more than their basic expenses for housing and food. About 40 percent of single-women retirees (which includes widows) will have enough to cover these basic expenses. About 24 percent of single-women retirees can expect to do more than just afford the basics of food and housing.
Contact: 202-659-0670

C. LUMP SUM RECIPIENTS BETTER DIE YOUNG
Part of the challenge, according to Dallas Salisbury, president and CEO, Employee Benefit Research, is that about 95 percent of current workers are taking lump-sum payments when they move between jobs or retire. "We work all our lives paycheck to paycheck. One would think we would realize in retirement that we would be best off with a similar stream of payments to help us achieve money discipline." However, whether still working or retiring, recipients often spend that lump-sum payment fairly rapidly. Said Salisbury, "If you have $10,000 of capital, you can only spend three percent of that (about $300) in a year's time in order to maintain the capital. Currently, on average, retirees spend 12- to 15-percent of their lump-sum buyouts per year. Doing that, you'd better hope you die young."
Contact: 202-659-0670

4. FOR WOMEN ONLY: THE WEAKER SEX FINANCIALLY

A. WHAT WOMEN OVERLOOK
Suzan B. Kotler is an independent certified financial planner and president of her own financial-planning firm. She developed a personal-finance program and has been teaching this class as part of the University of Cincinnati's non-credit Communiversity program. Kotler says women often overlook several key factors when it comes to their personal financial planning:

1. Outliving Your Man: Women typically outlive men by about seven years. Also, women tend to marry a mate who is older than she. They often don't consider this a factor in their financial planning.

2. Comparing Paychecks: Women as a group typically do not earn as much as their male counterparts in the work force. "Since company retirement plans allow women to contribute a percentage of her income, her income determines how much she can save and invest. This may impact her ability to contribute enough for retirement. Studies have shown that women tend to invest later and less than men."

3. The Cautious Advisor: Many times financial professionals, in an effort to protect female clients, erroneously assume that women cannot take risk. Consequently, they may recommend low-risk, conservative investments that don't provide much in the way of growth. Kotler says this can be devastating over time, especially considering that women outlive men. "The reality is, a woman probably needs growth more than her husband, because she's probably going to outlive him. Women aren't any more at risk or averse than any other category of investor, especially when the risks are explained in advance. And the risk of running out of money often foreshadows the risk of short-term losses.

4. Divorce: Women tend to fare worse financially following a divorce. With a 50-percent divorce rate in the U.S., this is a major issue that is often ignored, says Kotler. Although a wife may receive half of the assets, many times she's ill-equipped to handle her own finances and make wise investment decisions since she may not have participated in this process during the marriage. Another problem in divorce is that she may find out that 'Our accountant (or broker, agent, etc.)' becomes HIS when these professionals gravitate toward the 'deep pocket partner' which may not be the woman. If she hasn't developed a relationship with these financial advisors, she may find herself faced with making key financial decisions on her own, with no one to help.

5. The Mommy Factor: Kotler says women with children have a harder time reaching their ultimate work potential. "They may not take that better job if it requires her to travel and be away from her family. This can translate into lower income and retirement benefits." Furthermore, Kotler says in her later years, the woman is often the one responsible for caring for her aging mom and dad. As a result, women may feel the need to retire earlier.

5. THE HIGH COST OF HEALTH CARE

A. RETIREES PAYING THOUSANDS OUT-OF-POCKET EACH YEAR
Health-care costs began to have more of an impact on retirees when hospitals, and later medical practices, became privatized. Erwin F. Erhardt, UC economic historian, says by the year 2000, senior consumers were spending an average of $3,000 out-of-pocket on health care needs. "This represents a 35 percent increase from 1990. That means the elderly were spending 12 percent of their total expenditures on health care."
Contact: 513-556-2624

B. EMPLOYER AND UNION RETIREMENT HEALTH PLANS ARE DYING
For all workers well off enough financially that they do not qualify for Medicaid, Medicare will only cover about 50 percent of their health-care costs if current policy remains in place. "Those workers in this group who are not saving will, certainly, not be 'fine.' They will likely have to dedicate limited income to health-care costs. In the past, over 40 percent of workers could expect to have employer- or union-sponsored health care in retirement. Right now, that figure is 12 percent of the workforce, and it is heading south."
Contact: 202-659-0670

C. CHOOSING BETWEEN BUYING MEDICINE OR FOOD
UC social work associate professor Ruth Anne Van Loon points out that the current generation of seniors are often reluctant to ask for help. This presents a special challenge to their offspring, who may not be aware of the financial difficulties their aging parents are facing. "Do you buy meds or food? There are older people who are having to make those choices."
Contact: 513-556-4628

6. SUDDEN DETOUR FOR OLDER WORKERS: POSTPONING RETIREMENT

A. CHANGING THE PLAN
Americans are planning to work later into life and work after retirement. In fact, 45 percent of middle-aged Americans changed their plans just this past year in regard to their retirement date, planning to work later. Right now 75 percent of Americans claim they will work in retirement. It remains to be seen if they do so. Currently, only 28 percent of retirees actually work for pay upon retiring. Despite the apparent necessity for retirement planning and saving, most Americans don't. "We don't like bad news so we don't calculate how much we need to save."
Contact: 202-659-0670

B. WHY THEY'RE DELAYING
A 2002 survey by AARP, the nation's largest senior advocacy organization, finds that nearly 70 percent of workers aged 45-56 -- the first wave of the baby boom -- expect to work during their retirement. Thirty-five percent plan to work part time out of interest or enjoyment, but 18 percent cite financial need. Sara Rix, an AARP senior policy advisor, says there are a number of reasons why older workers are likely to push up the average retirement age: Increases in life expectancy, improved health status of older ages and the desire to remain active all play a role. But the weak economy, inadequate savings and cutbacks in retiree benefits are also on the minds of boomers as they approach retirement age.
Contact: 202-434-3870

7. THE SILVER LINING IN THE BOOMERS' GOLDEN YEARS

A. A "BOOMING" JOB MARKET TO COME FOR RETIREES
The Baby Boomers, born between 1946 and 1964, represent the largest generation in the United States. According to Sara Rix, senior policy advisor for AARP, slower labor growth resulting from the smaller cohorts following the Boomers points to labor shortages that should open up employment opportunities for older workers. As Boomers reach retirement age, employers may find too few younger workers to take their place. The public sector in particular may be especially hard hit by the large number of retiring Boomers, whose skills and institutional memory will not easily be replaced. Employers in both the public and private sectors should be looking now at how to retain their older workers.
Contact: 202-434-3870

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