live long & prosper!

Retirement Issues in the 21st Century by Steve Vernon

National Press Foundation personal retirement
1
May 22, 2006 actuary 2

sobering reality for sobering reality - another look

the average American

$100,000
average 401(k) balance for 50 and 60 year-olds

$5,000
annual draw to minimize chances of outliving money

3 4

how much is enough?

5 6

1
 happiness
health
wealth
7 8

rest-of-life www.restoflife.com

9 10

there’s a lot of life left! getting it right can add five to seven years
average remaining years of life of life to the average, for males

35 40
35
30
30
25
25
20 20
men 15
15 r
women 10
10
5
5 0
ag

ag

ag

ag

ag

0
e

e
50

55

60

65

70
ag

ag

ag

ag

ag
e

average getting it right

50

55

60

65

70

source: RP-2000
source: RP-2000
mortality table
11 mortality table current age 12

2
 getting it wrong can subtract five or six there’s an 11 to 13 year spread between
years of life from the average, for males getting it right, and getting it wrong!

40 40
35 35
30 30
25 25
20 20
15 15
10 10
5 5
0 0
ag

ag

ag

ag

ag

ag

ag

ag

ag

ag
e

e
50

55

65

65

70

50

55

65

65

70
getting it wrong average getting it right getting it wrong average getting it right

13 source: RP-2000 mortality table 14 source: RP-2000 mortality table

getting it right getting it right

15 16

getting it wrong getting it wrong

17 18

3
 average remaining hours of life

current age females males not being unhappy

50 298,716 274,188
55 257,544 233,892
60 218,124 194,472 does not equal
65 180,456 158,556
70 146,292 126,144
75 115,632 97,236 happiness!

19 20

life satisfaction
does money buy happiness?
USA vs. 28 countries
USA vs. 28 countries
Scale: 1 to 10
10 10
9 9
8 8 USA
7 7
happiness

6
6
5
5
4
4
3
3 2
2 1
1 0
0 0 20 40 60 80 100
B ia

La us

Hu ania

Ja y

Nig n

S. ia

Ire erla
Bu

R aria

Ro

Es nia
Li nia

Tu ar y

In re a

Po

Sp ga

A an

Ch ntin

Ita a

No
Fin ay

U nd

Ne

C d

De da

Sw ar
ela

hil
us

rg

ra

SA

an
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pa
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to

ly
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ain l

th

nm
lg

in a

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itz
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purchasing power relative to USA

a

er
la
k
y

nd
s

21 22
from Authentic Happiness, by Martin Seligman from Authentic Happiness, by Martin Seligman

does money buy happiness?

USA vs. 28 countries meaningful life
10
9
8 USA
7
good life
happiness

6
5
4
3
2
1
0
0 20 40 60 80 100
pleasurable life
purchasing power relative to USA

from Authentic Happiness, by Martin Seligman

23 24
from Authentic Happiness, by Martin Seligman

4
 resources
happiness, money, and work

• Aging Well, by George Valliant

phase down earlier in life….
do this longer in life …
• Successful Aging, by Rowe and Kahn
• Authentic Happiness, by Martin Seligman
• The Art of Happiness, and The Art of Happiness at
Work, by the Dalai Lama and Dr. Howard Cutler
• If I Live to be 100, by Neenah Ellis
• The Soul of Money, by Lynne Twist

25 26

parting advice

… cultivate the richest social network you

possibly can. your life will be better for it.

George Valliant, from Aging Well happiness

HEALTH
wealth
27 28

healthy interest

healthy fear
29 30

5
 present value of lifetime
out-of-pocket medical expenses

$160,000
$140,000
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$0
55 60 65
retirement age, retire in 2011
31 32

the main message…

medical insurance is a
know the difference between piece of paper that
• medical insurance, and pays for some medical
services
• health insurance

get both!!

but it won’t guarantee

your health!
33 34

most expensive conditions

heart disease
cancer
trauma
most of these
mental disorders can be delayed,
pulmonary conditions mitigated, or
diabetes prevented
hypertension
through a
cerebrovascular disease (stroke) healthy lifestyle!
osteoarthritis
pneumonia
back problems
endocrine disorders
health insurance!! skin disorders
kidney disease
infectious disease

35 36 source: Health Affairs.

6
 health soundbites
chronic illness accounts for 75% of the nation’s
annual health care costs; many of the conditions
driving these costs are preventable.

Journal of the American Medical Association,

2002

annual health care costs are 49% lower for

individuals who are non-smokers, not obese and
who participate in physical activity three days per
week.

Journal of the American Medical Association ,

37 38
1999.

health soundbites health soundbites

for every patient who chooses our program rather
90% of heart disease patients have one or
than undergoing bypass surgery, approximately
more of following risk factors
$50,500 is saved (1996). last year, at least $18
• smoking billion was spent on coronary bypass surgery in
the United States. over $6 billion was spent on
• diabetes
coronary angioplasty. intensive lifestyle
• high cholesterol modification is much less costly. and, of course,
these patients are spared the trauma of having
• high blood pressure
their chests and legs cut open.
Journal of American Medical Association
Dr. Dean Ornish, in Reversing Heart Disease
(JAMA)

39 40

health soundbites health soundbites

if I perform bypass surgery on a patient, the
insurance company will pay at least $30,000 (1996 only 10 to 20 percent of cancers are genetically
dollars). if I perform a balloon angioplasty on a determined.
patient, the insurance company will pay at least
$7,500. if I spend the same amount of time teaching Dr. Roy Walford in Beyond the 120 Year Diet
a heart patient about nutrition and stress
management techniques, the insurance company will
pay no more than $150. if I spend that time teaching
a well person how to stay healthy, the insurance
company will not pay at all.
Dr. Dean Ornish, in Reversing Heart Disease

41 42

7
 fat intake correlates to
health soundbites deaths from breast cancer
USA vs. 38 other countries

25
30% to 40% of cancers directly linked to dietary

death rate ( per 100,000 population)

choices. 20
USA
American Institute for Cancer Research
15

10

0
0 20 40 60 80 100 120 140 160
average dietary fat intake (GM./Day)

43 44

fat intake correlates to

deaths from prostate cancer health soundbites
USA vs. 38 other countries
25
…consumption of at least five servings a day of
vegetables and fruits was associated with an
death rate ( per 100,000 population)

20
approximately 50% reduced risk for cancer
compared to the risk associated with consuming
USA
only one or two servings.
15

World Cancer Research Fund

10

0
0 20 40 60 80 100 120 140 160
average dietary fat intake (GM./Day)
45 46

health soundbites health soundbites

it (osteoporisis) kills 300,000 citizens annually,

and costs the nation $3.8 billion a year in medical …patients who were classified as being socially
bills. …osteoporosis is almost unknown in isolated and having a high degree of life stress
societies in which continued high levels of had more than four times the risk of death from
physical activity are customary. heart disease and from all other causes when
compared with men who had low levels of both
Dr. Roy Walford in Beyond the 120 Year Diet stress and isolation.
New England Journal of Medicine

47 48

8
 so what should we do? so what should we do?
start with the two fives
do these… count these …
• get at least a catastrophic medical insurance policy
1. adopt healthy diet and 1. body mass index (bmi)
nutrition 2. blood pressure
2. exercise 3. cholesterol counts
• save for retiree medical expenses, preferably in a
3. manage stress 4. daily servings of fruits
health savings account (HSA) if eligible
4. don’t smoke and vegetables
5. don’t abuse alcohol or 5. number of days per
other substances week you exercise for
30+ minutes

49 50

resources on health insurance and

medical insurance
• health insurance
investments in your health are just as
– By Harvey and Marilyn Diamond
• Fit for Life
important as investments in stocks and
– By Dr. Andrew Weil
bonds.
• 8 Weeks to Optimum Health
• Eating Well for Optimum Health
• www.drweil.com

– By Dr. Darma Khalsa yours truly

• Brain Longevity
• Food as Medicine

• medical insurance
– www.aarp.org
– www.medicare.gov
– www.ehealthinsurance.com

51 52

the magic formula

happiness
health
I>E
WEALTH
53 54

9
 run out of money at 75?
sources of I
maybe it’s time for….

• social security

• draw from 401(k)/savings

• pensions

• work

55 56

social security – as good as it gets social security – as good as it gets

single person earning $94,200 during 2006 married worker earning $94,200 per year (max covered)
(assumes maximum covered pay for all years) spouse same age, doesn’t work
year of retire at
birth FRA
year of retire at 62 retire at 65 retire at retire at 70
retire at 62 retire at 65 retire at 70
birth FRA
1945 $1,543 $1,963 $2,103 (66) $2,836
1945 $2,262 $2,944 $3,154 (66) $4,254

1950 $1,595 $2,017 $2,156 (66) $2,871

1950 $2,338 $3,025 $3,234 (66) $4,307

1955 $1,612 $2,018 $2,179 $2,865

(66+2mo)
1955 $2,363 $3,027 $3,268 $4,297
(66+2mo)
1960 $1,536 $1,912 $2,199 (67) $2,738
1960 $2,251 $2,868 $3,298 (67) $4,107

1965 $1,548 $1,926 $2,213 (67) $2,754

1965 $2,269 $2,889 $3,319 (67) $4,131

estimated benefits as of 2006; cost-of-living increases benefits in future years estimated benefits as of 2006; cost-of-living increases benefits in future years
57 58
assumes 35 years of social security coverage assumes 35 years of social security coverage

methods to draw from all types withdrawal percentages

of retirement accounts 1:10 chance of outliving money
• income only retirement single single married
age male female couple
– easy solution: invest in balanced
mutual fund, withdraw 3% 50 3-1/2% 3-1/4% 3%
• immediate annuity 55 4% 3-3/4% 3-1/4%
• income plus principal 60 4-1/2% 4-1/4% 3-3/4%
65 5% 4-3/4% 4-1/4%
70 6% 5-1/4% 4-3/4%
75 7% 6-1/4% 5-1/2%
59 60
source: Live Long & Prosper, by Steve Vernon (John Wiley & Sons)

10
 example of annual income how much does the average
generated by account balance American spend?
• assumptions age group average expenditures
– $100,000 balance in 2002
– 65 year old male 55-64 $44,330

65-74 $32,243
• income method: $3,000, ‘indexed’
• income plus principal: $5,000, ‘indexed’
• immediate annuity: $7,800, not indexed 75+ $23,759

• typical DB plan: $9,500, not indexed all retired $27,575

61 62 average ‘consumer’ unit, from US DOL

one example: how much is enough? one example: how much is enough?
married couple, same age
married couple, same age
E = $50,000 E = $50,000

social security = $27,000 social security = $38,000

(at age 62) (at NRA, age 66)

gap = $23,000 per year gap = $12,000 per year

need at least $575,000 in retirement accounts need at least $280,000 in retirement accounts

63 64

what do we get for our money?

one example: how much is enough?
insights from utility theory
married couple, same age
E = $50,000

social security = $51,000

perceived value

(at age 70)

gap = none!

but still might need savings to cover

emergencies
amount of money spent
65 66

11
 what do we get for our money? what do we get for our money?
insights from utility theory insights from utility theory

perceived value
perceived value

amount of money spent

amount of money spent
67 68

when you let go of trying to get more of

what you really don’t need, it frees up
just enough oceans of energy to make a difference
with what you have.

Lynne Twist, in The Soul of Money

69 70

how much should we save?

• as much as you can, plus 1% contributing less than the maximum
• the maximum matched by your employer matched?

• 10% of pay you are actively

– contributing for a full career might enable retirement at 65
walking away from
• sophisticated method: money your company is
– I>E analysis, pick a target retirement age, use worksheets or
software to determine how much to save
trying to give you!

71 72

12
 the retiree savings menu

save this much … and you’ll be eating and drinking…

• 2% of pay spam, tap water

• 4% macaroni and cheese, koolaid
• 6% big mac and fries, cola
• 8% t-bone steak, beer
• 10% seafood, California wine
• 12% sushi, imported wine
• 14% filet mignon, brandy
• 16% caviar, champagne

73 74

resources on saving and investing

for retirement
• Live Long & Prosper!, by Steve Vernon

• Your Money or Your Life, by Dominguez and Robin

?? questions ??
• Websites:
– www.smartmoney.com
– MSN Money – www.moneycentral.msn.com
– www.fidelity.com
– www.vanguard.com
– www.morningstar.com
– www.aarp.com

75 76

www.restoflife.com

77 78

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