The International Foundation financial and security initiative focuses on helping plan sponsors help participants and their families achieve a secure retirement. This article, which references materials developed by the Society of Actuaries (SOA), appears in Benefits Magazine as a part of that initiative. Julie M. Stich, CEBS, Associate Vice President of Content at the International Foundation, is a member of the SOA Committee on Post-Retirement Needs and Risks. Filling in the Gaps: Helping Employees Plan Better for Retirement

by | Anna M. Rappaport and Greg Ward

MAGAINE

Reproduced with permission from Benefits Magazine, Volume 54, No. 12, December 2017, pages 40-45, published by the International Foundation of Employee Benefit Plans (www.ifebp. org), Brookfield, Wis. All rights reserved. Statements or opinions expressed in this article are those of the author and do not necessarily represent the views or positions of the International Foundation, its officers, directors or staff. No further transmission or electronic distribution of this material is permitted.

40 benefits magazine december 2017 The International Foundation financial education and retirement security initiative focuses on helping plan sponsors help participants and their families achieve a secure retirement. This article, which references materials developed by the Society of Actuaries (SOA), appears in Benefits Magazine as a part of that initiative. Julie M. Stich, CEBS, Associate Vice President of Content at the International Foundation, is a member of the SOA Committee on Post-Retirement Needs and Risks.

When planning for retirement, many people fail to consider issues such as retirement age and disability and nonfinancial aspects including health and social engagement. The authors provide insight on those concerns and suggest retirement planning resources that employers may share with employees.

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comprehensive approach to help employees plan Materials to be referenced include a new guide from for and manage their retirement is most effec- SOA and Financial Finesse entitled Retirement Health and tive when it includes a solid foundation of a good Happiness that lays out key issues people face in preparing A employer-sponsored retirement program. This ar- emotionally for retirement and offers tips for emotional ticle focuses on some of the other things an employer can do. and physical health and staying connected to others. SOA There is a growing recognition that while some employees also offers a series of decision briefs to help people focus on have plenty of money to retire well, many people in the Unit- the questions they need to ask. Six of them have just been ed States do not have enough for the retirement that they updated and are now available. These will be mentioned as would like. Society of Actuaries (SOA) research has shown well. that there are persistent gaps in retirement planning. SOA fo- cus groups have repeatedly shown that people plan by look- Challenges Faced in Planning ing at short-term cash flows and fail to consider many issues. These are examples of the challenges and barriers people Research from the Sightlines Project tells us that success in face with regard to retirement planning. retirement depends on more than just the money and entails a combination of financial resources, health management Planning Is About More Than Money and social engagement.1 Many retirement planning systems are primarily focused A new view of retirement planning is emerging. Retire- on financial issues and how much to save. It is important to ment planning is being seen as part of a broader financial bring in a broader set of issues. A review of Retirement Health wellness initiative. There is an increasing recognition that and Happiness is a good way to start people on this path. people who are having difficulty managing their month-to- month finances are not well-positioned to save for retire- Many People Do Not Save Enough ment, and a substantial percentage of U.S. residents—72% Only 18% of workers in the U.S. feel very confident about according to the American Psychological Association Stress having enough money for a comfortable retirement, ac- in America survey2—are under regular financial stress. cording to the Employee Benefit Research Institute (EBRI) This article identifies some key gaps in planning, provides 2017 Retirement Confidence Survey.3 With the shift to de- ideas to fill the gaps and references unbiased consumer- fined contribution plans, personal choices and actions are friendly literature that employers could use to support their increasingly important in facilitating retirement security. financial wellness and planning efforts. Employees without access to employer-sponsored plans are much less likely to have good retirement resources. Those who have access must still make good decisions and be learn more disciplined about accumulating their retirement savings. Education The U.S. Department of Health and Human Services offers Financial Education and Retirement Security Resources these retirement planning resources: www.hhs.gov/aging Visit www.ifebp.org/retirementsecurity for more informa- /retirement-planning-security/index.html. tion. What You Don’t Know in Retirement May Hurt You Retirement Age Really Matters Visit www.ifebp.org/webcasts for more details. The main strategies available for people who do not have From the Bookstore enough saved for retirement as they reach their intended re- Money for Life: Turn Your IRA and 401(k) Into a Lifetime tirement age are to work longer and retire later, work during Retirement Paycheck Steve Vernon. Rest-of-Life Communications. 2012. retirement, claim Social Security later and/or reduce expens- Visit www.ifebp.org/books.asp?8935 for more information. es. It is important to evaluate different options, but the SOA Ready or Not: Your Retirement Planning Guide, 44th Edition focus groups indicate that some people are retiring without Elizabeth M. McFadden. MEI Publishing. 2017. doing the math. AARP offers this retirement calculator to Visit www.ifebp.org/books.asp?9091 for more details. help crunch the numbers: www.aarp.org/work/retirement -planning/retirement_calculator.html.

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People Often Have Too Short of a Huge Gaps in Disability Protection www.consumerfinance.gov/retirement Planning Horizon Only about 30% of U.S. workers /before-you-claim/. Doing the math involves address- have long-term disability protec- ing a lot of different issues, but often tion beyond Social Security. A long- Going Beyond Money some of them are not considered. Re- term disability can derail retirement SOA research has repeatedly shown tirement planning is about making re- security in a variety of ways. When that there are many gaps in retirement sources last for the rest of life, but many people become disabled they need to knowledge and planning—some in- people tend to focus on their ability to replace lost earnings and potentially volving money and some not. At the pay their bills in the next two or three pay for high medical expenses. Not same time, are evolv- years without doing a long-term retire- only could this lead them to stop sav- ing in a manner that makes employee ment calculation that includes risks. ing for retirement, but they also may decision making more important. SOA SOA focus groups have indicated that need to withdraw money from exist- and Financial Finesse recently released short-term cash flow planning is com- ing retirement savings. A disability Retirement Health and Happiness, a mon and that some respondents focus also can affect other income-earning new publication designed to improve on risk by indicating that they will “deal family members who may have to get financial literacy. This is the first in a with it when it happens.” Planning also involved in caregiving. Life Happens, series of educational publications de- is about nonfinancial issues like physi- a nonprofit organization, offers this signed to help Americans do a better cal health, social engagement and com- tool for estimating the income need- of retirement planning. munity service. ed in the event of a disability: www The main message in this publica- .lifehappens.org/insurance-overview tion is that it takes more than money to People Are Living Paycheck /disability-insurance/calculate-your enjoy a successful retirement. The pub- to Paycheck -needs/. lication offers guidance and thought- People who are living paycheck to provoking questions designed to help paycheck often do not have adequate Social Security Claiming Strategies the reader emotionally and physically Are Not Carefully Considered emergency savings. A report from the prepare for a successful transition into Board of Governors of the Federal Re- Social Security is the largest and, in retirement. It attempts to take some of serve System found that 53% of survey some cases, the only source of retire- the same issues that are raised in the respondents indicated that they have ment income for many low- to middle- Sightlines research and bring them not set aside an emergency or rainy-day income people in the U.S. Since the down to actionable steps that people fund that would cover three months age at which a person claims Social nearing retirement can take. For each of expenses.4 The normal challenges Security affects lifetime income, work- topic, it raises issues and provides ideas. people face every year, such as home ers should consider carefully when to In response to the issue of so- repairs, automobile problems or an un- collect their benefit. Retirement ben- cial engagement, the guide raises the covered medical or dental expense, can efits can be claimed as early as the age question, “How do I stay emotionally easily turn into major problems. It is of 62 or deferred until the age of 70. healthy?” Tips include joining a club, difficult for people in this situation to Claimants who defer collecting So- association or religious organization save for retirement. Those who do have cial Security until 70 can receive up to for people looking for an opportunity retirement savings may be tempted to 75% more in monthly benefits than if to connect with others who share in- use their retirement funds to help with they claimed at 62, yet 71% of retired terests. Other tips include current problems. Normal month-to- workers receive reduced benefits be- or engaging in a meaningful hobby. For month cash management and keeping cause they claim their benefit prior to people who do not want to live alone, an appropriate emergency fund are full retirement age.5 The Consumer the guide suggests getting a roommate important steps toward being ready Financial Protection Bureau (CFPB) or a pet. In addition, resources such as to save for retirement and preserving offers the following resource for de- websites are provided to make it easier funds already saved. ciding when to claim Social Security: for the reader to take action. For exam-

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the issues and considerations for each decision. They do not takeaways make specific recommendations, and they are written with- • Research shows that success in retirement depends on out bias toward any specific products or approaches. more than just money and entails a combination of financial The briefs cover both financial and nonfinancial deci- resources, health management and social engagement. sions, including considerations on when to retire, housing, • Only 18% of workers in the United States feel very confident Social Security claiming, taking a lump sum from a quali- about having enough money for a comfortable retirement. fied plan, issues pertinent to women, medical insur- • Some people are retiring without doing the math on the ance choices, how to invest assets and whether to try working impact of actions such as claiming Social Security later or in retirement. All publications can be downloaded and are working during retirement. available to the public free of charge. Here are three examples • When planning for retirement, many people focus on their of the briefs. ability to pay their bills in the next two to three years without doing a long-term retirement calculation. 1. When to Retire • Gaps in disability protection also can derail retirement security. The timing of retirement can have a significant impact on • Employers can play a role in helping employees success- monthly retirement income and the likelihood of outliving fully plan for retirement. In addition to providing retirement retirement savings. Choosing to retire later in life can mean benefits and education, they can offer modeling tools and resources to help employees see the potential effect of their higher Social Security benefits (if claiming is delayed), high- decisions. er pension benefits (if available), more years to accumulate savings, fewer years to distribute saving, and less time before Medicare eligibility (if retiring before the age of 65). ple, readers interested in volunteering can visit a website to search for opportunities in their area. 2. When to Claim Social Security In response to the issue of healthy living, eight tips are pro- Social Security can be the main, or only, source of income vided: four that address activity and four that address healthy for many people. Monthly benefits are about 75% greater if eating habits. Suggestions for activity include gardening and a person claims (i.e., starts to collect a Social Security ben- yard work, joining a gym or yoga class, and outdoor activi- efit) at the age of 70 rather than 62. The claiming age also ties such as walking, jogging or riding a bike. The guide also affects the benefits payable to spouses and surviving spouses. offers suggestions on types of people, such as counselors or Unfortunately, many people claim at early ages, and few ad- personal trainers, who can help. equately evaluate their options. This series is designed for employers to give to employ- ees as part of an employee benefit or retirement planning 3. Where to Live program, as well as for members of the public to use for Housing can be one of the biggest costs in retirement and their own education. The suggestions are designed to be a major factor in happiness. Home equity is frequently the realistic and include a range of ideas to help people focus largest asset in a middle-income retiree’s retirement port- on things they can do. It can be used repeatedly, allowing folio. Housing affects access to transportation, health care readers to work on one or two action steps at a time, since it and community services, and some housing offers support generally does not work well to implement too many things services on site. Most people would prefer to stay in their at once. homes, if possible. There are huge financial and personal issues involved in this choice, and there are many options Support for Retirement Decisions about what to do. SOA has published a series of twelve Decision Briefs6 in response to gaps in consumer knowledge about retirement What Else Can Employers Do issues and risks. Each brief provides information and re- In addition to providing retirement benefits and educa- sources on a specific retirement issue to help facilitate better tion, employers can offer modeling tools and resources that retirement decisions. The briefs offer a broad discussion of allow employees to perform scenario testing so that they

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can see the potential effect of their Anna M. Rappaport, FSA, MAA, decisions before making them. Since is president of Anna problems with cash flow and debt are Rappaport Consulting. She is an actuary, consultant, bios author and speaker and is a nationally and internation- often a barrier to saving for retirement, employers can also assist employees ally recognized expert on the impact of change on with attaining retirement goals by retirement systems and workforce issues. Rappaport sponsoring a financial wellness pro- chairs the Society of Actuaries Committee on Post-Re- gram that extends support to a broader tirement Needs and Risks and serves on the Advisory Board of the range of issues. This includes offering Pension Research Council and the Board of the Women’s Institute For a financial wellness assessment to help A Secure Retirement. She received the Lifetime Achievement Award employees identify potential financial by the Plan Sponsor Council of America this year. For more informa- vulnerabilities. tion, see www.annarappaport.com. Greg Ward, CFP®, is the director of the Financial Well- Conclusion ness Think Tank at Financial Finesse, where he guides the The way employers support retire- think tank team’s research on workplace financial well- ment and lifetime security is evolving. ness best practices and employee financial trends. He’s A good life in retirement is linked to a frequent resource in the media on workplace financial health behavior and social engagement, wellness and employee financial challenges. Ward has as well as financial resources. Major de- developed comprehensive industry standards for designing, deliver- cisions are also important to success. ing and measuring the return on investment of workplace financial There is a growing recognition that wellness programs delivered as an employer-paid benefit. He holds a poor cash flow management and debt B.S. degree from the University of California–Davis and is a certified contributes to financial stress and cre- . ates a barrier to successful saving for retirement. Enhanced education and financial wellness programs can help • Post-Retirement Experiences of Individual Re- 2. American Psychological Association, tired for 15 Years or More, Society of Actuaries, Stress in America: Paying with our Health, www employees and retirees find good paths 2016 .apa.org/news/press/releases/stress/2014 and make good decisions. • The Decision to Retire and Post-Retirement Fi- highlights.aspx. Series includes surveys covering nancial Strategies: A Report on Eight Focus a number of different topics. Groups, Society of Actuaries, 2013 3. Employee Benefit Research Institute, Issue References • Spending and Investing in Retirement: Is There a Brief Number 431, March, 2017. The 2017 Retire- Strategy?, Society of Actuaries, LIMRA and In- ment Confidence Survey: Many Workers Lack Re- ternational Foundation for Retirement Educa- tirement Confidence and Feel Stressed About Re- Note that all of the referenced research reports tion, 2006 tirement Preparations, Washington, D.C. and consumer information from the Society of Society of Actuaries Essays and Papers Available at www.ebri.org/pdf/surveys Actuaries (SOA) are available for download at the • Managing Diverse Risks—Essay Collection, So- /rcs/2017/IB.431.Mar17.RCS17..21Mar17.pdf. SOA website: www.soa.org/research/topics ciety of Actuaries, 2016 4. Board of Governors of the Federal Reserve /aging-ret-res-report-list/. • Financial Wellness Essay Collection, Society of System, Report on the Economic Well-Being of Actuaries, 2017 U.S. Households in 2015, May 2016, Society of Actuaries Employee and Consumer The Sightlines Project—research project from www.federal-reserve.gov/2015-report Information Publications the Stanford Center on Longevity on what -economic-well-being-us-households-201605 • Retirement Health and Happiness, Society of contributes to good, long lives. Available at http:// .pdf (p. 22). Actuaries and Financial Finesse, 2017 longevity.stanford.edu/the-sightlines-project/. 5. Social Security Administration, Annual • Managing Post-Retirement Risk: A Guide to Re- Employee Benefit Research Institute Statistical Supplement, 2016, www.ssa.gov tirement Planning (Risk Chart), Society of Ac- • Retirement Confidence Survey Series /policy/docs/statcomps/supplement/2016 tuaries, 2011 /highlights.html. • Managing Retirement Decisions (decision 6. The Decision Briefs can be found under briefs), Society of Actuaries, various dates Endnotes Managing Retirement Decisions as part of the • AgeWise Infographics, Society of Actuaries, 1. Research from the Stanford Center on Aging and Post-Retirement Risks Research Page. 2016 and 2017 Longevity with support from the Society of Actu- See www.soa.org/research-reports/2012 Society of Actuaries Focus Groups and In- aries. /research-managing-retirement-decisions. Depth Interviews

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