THIRD ANNUAL REPORT ON RETIREMENT PREPAREDNESS OF … · Each year the Insured Retirement Institute (IRI) conducts a survey to measure the retirement preparedness of the Baby Boomer

BOOMER EXPECTATIONS2013FOR RETIREMENT

THIRD ANNUAL REPORT ONRETIREMENT PREPAREDNESS OFTHE BOOMER GENERATION

APRIL 2013

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2 | Insured Retirement Institute

About the Insured Retirement Institute: The Insured Retirement Institute (IRI) is a not-for-profit organization that for more than twenty years has been a mainstay of service, commitment and collaboration within the insured retirement industry. Today, IRI is considered to be the authoritative source of all things pertaining to annuities, insured retirement strategies and retirement planning. IRI proudly leads a national consumer education coalition of nearly twenty organizations and is the only association that represents the entire supply chain of insured retirement strategies: Our members are the major insurers, asset managers, broker-dealers/distributors, and 150,000 financial professionals. IRI exists to vigorously promote consumer confidence in the value and viability of insured retirement strategies, bringing together the interests of the industry, financial advisors and consumers under one umbrella. IRI’s mission is to: encourage industry adherence to highest ethical principles; promote better understanding of the insured retirement value proposition; develop and promote best practice standards to improve value delivery; and advocate before public policymakers on critical issues affecting insured retirement strategies and the consumers that rely on their guarantees. Visit www.IRIonline.org today to experience the vast resources of the Insured Retirement Institute for yourself.

©2013 IRIAll rights reserved. No part of this book may be reprinted or reproduced in any form or used for any purpose other than educational without the express written consent of IRI.

3 | Boomer Expectations for Retirement 2013

[ OVERVIEW ]Each year the Insured Retirement Institute (IRI) conducts a survey to measure the retirement preparedness of the Baby Boomer generation. This report, the third in our annual series, summarizes the results of the 2013 survey and, where applicable, analyzes the key changes that have transpired in the past few years.

The continuing slow recovery from the economic recession is having a prolonged effect on Boomer confidence levels. Added to the financial challenges presented by this slow recovery, Boomers are finding themselves sandwiched between the financial obligations of caring for aging parents and funding college education for their children. Boomers also will be the first generation in which defined contribution plans are a major source of retirement income. The challenge posed by this shift toward defined contribution plans is much more responsibility for managing the assets, accumulated during a lifetime, in retirement will rest with Boomers themselves.

Because of these economic and lifecycle challenges, coupled with the increased personal responsibility of managing their retirement assets, Boomers should consider working with a financial advisor. Confidence levels in being able to manage these challenges and achieve a comfortable retirement greatly increase for Boomers who work with a financial advisor.

[ KEY FINDINGS ] ■ Boomer confidence in doing a good job preparing financially for retirement declined seven percentage points from 44% in 2011 to 37% in 2013. ■ Working with an advisor makes a significant difference in Boomer confidence regarding financial preparation for retirement.

◆ 48% of Boomers who work with an advisor were extremely or very confident with their financial preparations for retirement compared with 28% who do not work with an advisor.

■ Boomers who work with an advisor are more engaged in their retirement plans. ◆ 94% of Boomers who work with an advisor have savings for retirement compared with 64% who do not work with an advisor. ◆ 71% of Boomers who work with an advisor have calculated a retirement savings goal compared with 34% who do not work

with an advisor. ■ Rebalancing of a retirement plan’s asset allocation is a good measurement of long-term engagement with retirement plans. Boomers

who work with an advisor are more likely to rebalance their portfolios: 45% of Boomers who work with an advisor rebalance their portfo-lio once a year compared with 24% who do not work with an advisor.

■ Boomers continue to experience financial difficulties: ◆ 24% of Boomers have trouble paying their mortgage/rent. ◆ 22% of working Boomers have stopped contributing to a retirement savings plan. ◆ 21% of Boomers have postponed their plans to retire.

■ Boomers have competing financial demands, beyond saving for retirement. The costs of college education for their children and caring for aging parents are also important considerations.

◆ 69% of Boomers are not confident they will have enough money to pay for their children’s college education. ◆ 75% of Boomers are not confident they will have enough money to pay the long-term care expenses of their parents.

■ 79% of working Boomers stated employment in retirement will be a source of income, an increase of 12 percentage points from the 2011 survey. ■ Among Boomers who have decided on an age to retire, the trend over the past three years is planning on retiring at later ages. In 2011,

11% of Boomers stated they were planning on retiring at age 70 or later. By 2013, this increased to 18%. ■ Of those Boomers who do not know at what age they will retire, the most common reason given was insufficient savings, stated by one

quarter of respondents in 2013. ■ Retired Boomers have higher levels of confidence in meeting their financial needs in retirement. This is attributed, in part, to different retire-

ment income sources for retired Boomers compared to working Boomers, who will more likely need an alternative source of lifetime income. ◆ 48% of retired Boomers state a traditional defined benefit pension plan is a major source of income in retirement, and 34%

state a defined contribution plan is a major source. ◆ 38% of working Boomers expect a traditional defined benefit pension plan to be a major source of income in retirement, and

45% expect a defined contribution plan will be a major source.


[ CONFIDENCE IN RETIREMENT ]Measurements of Boomer confidence in their retirement preparations have declined since 2011. Most noticeable is a decline of seven percentage points regarding whether Boomers believe they are doing a good job planning financially for their retirement.

CONFIDENCE IN RETIREMENT EXPECTATIONS

0

10%

20%

30%

40%

50%

37 3737 3741 44

34 34 36

2013 2012 2011

The decline in confidence levels is understandable when considered with Boomers’ perceptions of their current and future financial situations. During this prolonged and slow economic recovery, IRI data shows Boomers are experiencing financial difficulties: 24% of all Boomers have difficulty paying their rent or mortgage; 22% of working Boomers stopped contributing to retirement savings; and 21% of working Boomers postponed their plans to retire.

IRI data also shows that Boomers expectations of their financial situation in five years have changed little since 2012. The bulk of Boomers, 42%, think their financial situation in five years will remain the same as today. There was no noticeable change between 2012 and 2013 in those who believe their financial situation will be better or worse in the next five years.

BOOMERS’ EXPECTED FINANCIAL SITUATION IN FIVE YEARS

0 10% 20% 30% 40% 50%

8%10%

25%22%

42%42%

12%13%

7%7%

4%6%

2013 2012

You are doing/did a good job of preparing financially for your retirement.

You will have enough money to take care of your medical expenses during your retirement, such as paying for doctors visits, prescription drugs, or hospital stays.

You (and your spouse) will have enough money to live comfortably throughout your retirement years.

Greatly Improved

Somewhat Improved

About the Same

Somewhat Worse

Significantly Worse

Don’t Know

Percent of respondents stating “extremely” or “very” confident



Competing financial needs also have an impact on Boomers level of confidence in their retirement plans. Boomers are at a point in their lives where they are sandwiched between the costs of college education for their children and the costs of long-term care for their parents. IRI data shows Boomers lack confidence that they will be able to meet these financial costs. Sixty-nine percent of Boomers say they are not confident they can pay for their children’s higher education, and 75% are not confident they can afford to pay for their parents’ long-term care costs.

LACK OF CONFIDENCE IN MEETING THE COSTS OF COLLEGE EDUCATION FOR CHILDREN AND LONG-TERM CARE FOR PARENTS

0

10%

20%

30%

40%

50%

60%

70%

80%

69 70 75 74

[ WORKING WITH AN ADVISOR ]Boomers can increase their confidence levels and achieve their retirement goals with the assistance of a financial advisor. IRI found that working with an advisor can significantly improve Boomers’ confidence levels. For example, 48% of Boomers who work with an advisor stated they were “extremely” or “very” confident in their financial preparations for retirement compared with only 28% of Boomers who did not work with an advisor.

CONFIDENCE IN RETIREMENT EXPECTATIONS, BY WORKING WITH AN ADVISOR, 2013

0

10%

20%

30%

40%

50%

28

48

29

42

3238

21

32

Without Advisor With Advisor

You will have enough money to pay for the costs of higher education for your children.

You will have enough money to pay for long-term care for your parents.

2013 2012

You (are doing/did) a good job of preparing financially for your retirement.

You (and your spouse) will have enough money to live comfortably throughout your retirement years.

You will have enough money to take care of your medical expenses during your retirement.

You will have enough money to pay for long-term care.

Percent of respondents who are not confident



Boomers who work with an advisor are more likely to have savings for retirement: 94% compared with 64% who do not work with an advisor. IRI also has found that Boomers who work with an advisor are more engaged in their retirement plans. Among Boomers who work with an advisor, 71% of Boomers calculated how much they will need to save for their retirement compared with only 34% of Boomers who did not work with an advisor.

RETIREMENT SAVING BEHAVIORS BY WORKING WITH AN ADVISOR, 2013

0

20%

40%

60%

80%

100%

94

64

34

71


Another measure of long-term engagement with retirement plans is how often Boomers rebalance their portfolios. Over time, due to market performance, the asset allocation within a retirement account will change. This can expose an investor to more risk than they intended. By rebalancing a portfolio, an investor can ensure that the account will remain within their risk tolerance. This requires more ongoing management of their retirement savings. IRI has found that Boomers who work with an advisor are more likely to rebalance their savings than those who do not work with an advisor.

HOW OFTEN REBALANCE RETIREMENT SAVINGS, BY WORKING WITH AN ADVISOR, 2013

0

10%

20%

30%

40%

50%

45

2420

10

20

31

11

30

5 5


This data shows that working with an advisor not only increases the level of confidence among Boomers that they can achieve their retirement goals, but helps them stay engaged in their retirement plans.

Have retirement savings Figured out how much to save

At least one year Once every few years Rarely Never Don’t know/refused

Percent of respondents stating “yes”


[ EXPECTED SOURCES OF INCOME IN RETIREMENT ]Employment-based sources play a key role in providing income for retirement. Thirty-nine percent of Boomers identified a defined contribution/401(k) plan as a major source of income in retirement. Because of the prevalence of lump-sum distributions, which can occur during a working career and at retirement, Boomers need to be aware of the need to preserve the assets accumulated by rolling over a distribution into another tax-deferred investment such as an annuity. As the Boomer investor nears retirement, they should engage their financial advisor in conversations about how to turn those assets into a steady stream of income throughout their retirement.

EXPECTED SOURCES OF INCOME IN RETIREMENT, 2013

0 10 20 30 40 50 60

46%43%

24%39%

19%38%

39%22%

37%24%

48%17%

52%16%

23%9%

23%5%

17%2%

Minor Source Major Source

Expectations of sources of income do not always match-up with actual experience. It is important when planning for retirement that Boomers have realistic expectations about sources of income in retirement and focus their retirement plans around reliable sources of retirement.

IRI data shows that 46% of Boomers believe that Social Security will be a minor source of income in retirement. Yet Employee Benefit Research Institute (EBRI) tabulations on sources of income for the population age 65 and over reveals four-fifths of retirees receive 45% or more of their income from Social Security. In addition, IRI data shows 22% of Boomers have no savings for retirement, and of those Boomers who have savings for retirement, 41% have less than $100,000 saved. This data indicates Social Security will be a significant source of income for many Boomers by default.

IRI data also shows that 79% of working Boomers believe that employment in retirement will be a source of income during their golden years. Yet only 45% of retirees stated that work is a source of income in retirement. When planning for their retirement, Boomers need to be aware that they may not be able to work in retirement and therefore should focus on saving more or delay retirement if they have insufficient savings.

Social Security

Defined Contribution/401 (k)

Traditional Employer-Provided Pension

Individual Retirement Accounts

Personal Investments

Employment During Retirement

Personal Savings

The Sale or Refinancing of Home

An Inheritance

Support From Children Or Other Family


EMPLOYMENT AS A SOURCE OF INCOME IN RETIREMENT, WORKER EXPECTATIONS AND RETIREE EXPERIENCE, 2013

3

1820

59

36 53

93

Major Source Minor Source Not A Source Don’t Know

[ WHEN WILL BOOMERS RETIRE? ]There has been a significant decline in the number of Boomers who do not know at what age they plan on retiring. The percentage of those who do not know has declined nine percentage points from 2011 to 2013. This could be a result of nearing normal retirement age and gaining more clarity regarding when they will retire.

Among Boomers who have decided on an age to retire, the trend over the past three years is planning on retiring at later ages. In 2011, 11% of Boomers stated they were planning on retiring at age 70 or later, by 2013 this increased to 18%. On the opposite side of the age spectrum fewer Boomers are planning on retiring in their 50s, declining from 9% of Boomers in 2011 to 6% in 2013. Still less than 10% of Boomers say they are planning on retiring at ages 66 or 67, the ages of full Social Security eligibility for Boomers.

ANTICIPATED AGE OF RETIREMENT

05%

10%15%20%25%30%35%

9 7 6 8 7 9

2 3 3

15 14

5

17

9 8

17

10 10 1116 18

3531

26

2011 2012 2013

(By Percentage)

WORKER RETIREE

50-6150-61 62 63-64 65 66-67 68-70 Older than 70 Don’t Know


While the percentage of Boomers who do not know at what age they will retire has declined, nearly one-quarter still do not know. Of those who do not know at what age they will retire, the most common reason given was insufficient savings, stated by one-quarter in 2013.

Some Boomers stated they were uncertain about when to retire for positive reasons, with 13% stating they enjoy working and 3% stating they do not want to be bored. Potential early indicators suggest that Boomers will be transforming what it means to be retired as they have transformed all other stages of life.

REASONS WHY UNCERTAIN TO RETIRE

05%

10%15%20%25%30%35%

26

32

25

4 58

1916

711

6

13

3 3 3

84

13

5 59

4

107 7

5

1511

14

2011 2012 2013

[ RETIRED BOOMERS ]When IRI began researching Boomers’ retirement expectations in 2011, 19% of the respondents stated they were retired. By 2013, 23% of surveyed Boomers stated they were retired. In this section, the report will present data on retired Boomers.

IRI data shows that retired Boomers are doing fairly well in their golden years. ■ 26% of retired Boomers stated their retirement is much more comfortable than their parents, and 27% stated it was somewhat more comfortable. ■ 74% of retired Boomers see their financial position in the next five years improving or remaining the same.

IRI data shows that retired Boomers confidence levels regarding their preparations for retirement are considerably higher than that of working Boomers. For example, 46% of retired Boomers stated they were extremely or very confident that they did a good job preparing financially for their retirement, compared with only 32% of working Boomers who are extremely or very confident they are doing a good job preparing financially for retirement.

CONFIDENCE IN RETIREMENT EXPECTATIONS WORKING VS. RETIRED BOOMERS, 2013

0

10%

20%

30%

40%

50%

46

32

44

33

46

32 35

23

Retiree Worker

Insufficient savings

The economy

Plan to work at

least part timeEnjoy Working

Don’t Want to be

bored

Won’t retire unless

unable to work Disabled

Health reasons/

need insurance OtherNot sure

You are doing/did a good job preparing financially for your retirement.

You will have enough money to take care of your medical expenses during your retirement, such as paying for doctors visits, prescription drugs, or hospital stays.

You will have enough money to pay for long-term care, such as nursing home or home health care, should you need it during your retirement.

You and your spouse will have enough money to live comfortably throughout your retirement years.



Early Boomers, who are retired today, spent their working careers in a different workplace environment than younger Boomers. The first Boomers, born in 1946, were eligible to enter the work force in 1964, the year they turned 18. By comparison, the last Boomers, born in 1964, were eligible to enter the work force in 1982, the year they turned 18. As a point of reference, 401(k) plans were established in 1978 under the Revenue Act of 1978. 1989 marked the first year in which more private-sector workers participated in a defined contribution plan than a defined benefit plan, a trend that continues to this day.

This difference in career experiences explains some of the difference between the expected sources of income in retirement for workers with the actual sources of retirees. Most notable is the employment-based sources, a traditional defined benefit pension plan and a defined contribution 401(k) type plan. Almost half of retired Boomers (48%) stated that income from a defined benefit pension plan is a major source of income compared with 38% of working Boomers who expect a defined benefit pension plan to be a major source of income in retirement. The inverse happens when asked if a defined contribution 401(k) type is a source of income in retirement. Here 45% of working Boomers stated the 401(k) type plan will be a major source of income in retirement compared with 34% of retired Boomers who stated a 401(k) type plan is a major source of income in retirement. As a result of these different retirement income sources, working Boomers will more likely need an alternative source of lifetime income to ensure that retirement funds last throughout the duration of their retirement years.

EXPECTED SOURCES OF INCOME IN RETIREMENT: WORKING VS. RETIRED BOOMERS, 2013

0 10% 20% 30% 40% 50%

3749

3848

4534

2519

2333

1817

209

107

12

56

Worker Retiree

[ CONCLUSION ]Retirement is not an age, but an ongoing stage of life. As such, retirement preparation is essential for every American, most urgently for the Baby Boomer Generation as they are on the threshold of retirement. Boomers are still facing financial challenges and trying to balance competing needs

Social Security

Defined Benefit Plan

401(k)

IRA

Personal Investments

Personal Savings

Employment

Sale/Refinancing House

Family Support

Inheritance

Percent of respondents stating “major source”


for their financial resources. Despite these challenges, it is possible for Boomers to achieve their retirement goals. Working with an advisor is a major factor in achieving those goals. As this report has shown, working with an advisor increases levels of confidence and helps Boomers stayed focused and engaged with their retirement plans.

Planning for retirement is a complex undertaking that takes years to unfold. Given the right tools and professional assistance, Boomers can achieve their retirement goals.

[ METHODOLOGY ]The Insured Retirement Institute (IRI) commissioned Woelfel Research, Inc. to conduct a survey of individuals approaching retirement or who have recently retired. The research was conducted by means of telephone interviews with 802 adult Americans aged 50-66. The sample was selected from a list of households in this age group, developed by Accudata, Inc. by compiling data from available sources such as motor vehicle records. Results were weighted by age and gender to the 2011 American Community Survey population from the United States Census Bureau. Data was collected from January 25 through January 31, 2013. The margin of error for the sample of 802 was ±3.5%.

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THIRD ANNUAL REPORT ON RETIREMENT PREPAREDNESS OF … · Each year the Insured Retirement Institute (IRI) conducts a survey to measure the retirement preparedness of the Baby Boomer