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Report of Findings AARP and American Council of Life Insurers (ACLI) December 2007 What Now? How Retirees Manage Money to Make It Last Through Retirement

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Page 1: What Now? How Retirees Manage Money to Make It … Now? How Retirees Manage Money to Make it Last Through Retirement TABLE OF CONTENTS EXECUTIVE SUMMARY 1 DETAILED REPORT OF FINDINGS

Report of FindingsAARP and American Council of Life Insurers (ACLI)

December 2007

What Now? How Retirees Manage Money to Make It Last Through Retirement

Page 2: What Now? How Retirees Manage Money to Make It … Now? How Retirees Manage Money to Make it Last Through Retirement TABLE OF CONTENTS EXECUTIVE SUMMARY 1 DETAILED REPORT OF FINDINGS

WHAT NOW? HOW RETIREES MANAGE MONEY

TO MAKE IT LAST THROUGH RETIREMENT

REPORT OF FINDINGS

AARP and AMERICAN COUNCIL OF LIFE INSURERS (ACLI)

December 2007

Copyright © 2007 AARP and American Council of Life Insurers

Reprinting with Permission This report is jointly owned by AARP and ACLI. The report and its findings may not be used by any person or entity for commercial activities, including but not limited to, advertising, promotion or solicitation in connection with the sale of any financial services product. AARP 601 E Street, NW Washington, D.C. 20049 http://research.aarp.org AARP is a nonprofit, nonpartisan membership organization that helps people 50+ have independence, choice and control in ways that are beneficial and affordable to them and society as a whole. AARP produces AARP The Magazine, published bimonthly; AARP Bulletin, its monthly newspaper; AARP Segunda Juventud, its bimonthly magazine in Spanish and English; NRTA Live & Learn, its quarterly newsletter for 50+ educators; and its website, www.aarp.org. AARP Foundation is an affiliated charity that provides security, protection, and empowerment to older persons in need with support from thousands of volunteers, donors, and sponsors. AARP has staffed offices in all 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. American Council of Life Insurers 101 Constitution Avenue, NW, Suite 700 Washington, D.C. 20001 www.acli.com The American Council of Life Insurers (ACLI) is a Washington, D.C.-based trade association whose 373 member companies account for 93 percent of the life insurance industry's total assets in the United States, 91 percent of life insurance premiums and 95 percent of annuity considerations. In addition to life insurance and annuities, ACLI member companies offer pensions, including 401(k)s, long-term care insurance, disability income insurance and other retirement and financial protection products, including reinsurance. Mathew Greenwald & Associates of Washington, D.C., conducted the survey on behalf of AARP and the American Council of Life Insurers (ACLI). Subject matter expertise was provided by AARP as well as ACLI. All media inquiries about this report should be directed to AARP’s Jim Dau or Alejandra Owens at (202) 434-2560 or ACLI’s Jack Dolan at (202) 624-2418 or [email protected]. All other inquiries should be directed to AARP’s Colette Thayer at (202) 434-6294.

Page 3: What Now? How Retirees Manage Money to Make It … Now? How Retirees Manage Money to Make it Last Through Retirement TABLE OF CONTENTS EXECUTIVE SUMMARY 1 DETAILED REPORT OF FINDINGS

What Now? How Retirees Manage Money to Make it Last Through Retirement

TABLE OF CONTENTS

EXECUTIVE SUMMARY 1

DETAILED REPORT OF FINDINGS 5

RETIREMENT RISKS AND CONCERNS ................................................. 5

SATISFACTION WITH STANDARD OF LIVING........................... 5

CONCERNS ABOUT MAINTAINING STANDARD OF LIVING..... 8

FINANCIAL PEACE OF MIND..................................................... 15

LOSS AVERSION........................................................................ 18

CONFIDENCE ABOUT MANAGING MONEY............................. 19

EXPECTED LONGEVITY............................................................ 21

CURRENT FINANCIAL SITUATION....................................................... 24

MONTHLY EXPENSES............................................................... 24

GUARANTEED MONTHLY INCOME.......................................... 26

COMPARISON OF MONTHLY GUARANTEED INCOME AND EXPENSES......................................................................... 28

CURRENT EMPLOYMENT......................................................... 31

HOUSEHOLD ASSETS............................................................... 33

INVESTMENT IN EQUITIES ....................................................... 35

REACTION TO STAGNANT OR DECLINING INVESTMENT VALUES....................................................................................... 36

PRESENCE OF FINANCIAL ADVISOR...................................... 39

SOURCES OF FINANCIAL INFORMATION............................... 40

FINANCIAL APPROACH......................................................................... 43

PRESERVATION OF PRINCIPAL............................................... 43

APPROACH TO WITHDRAWING MONEY................................. 46

IMPORTANCE OF FACTORS WHEN WITHDRAWING MONEY ...................................................... 49

DIFFICULTY OF FACTORS WHEN WITHDRAWING MONEY .. 55

ANNUITY PRODUCTS............................................................................ 62

TRADEOFFS FOR LIQUIDITY.................................................... 62

INTEREST IN ANNUITY PRODUCT WITH RETURN OF PRINCIPAL GUARANTEE .................................................... 68

Page 4: What Now? How Retirees Manage Money to Make It … Now? How Retirees Manage Money to Make it Last Through Retirement TABLE OF CONTENTS EXECUTIVE SUMMARY 1 DETAILED REPORT OF FINDINGS

What Now? How Retirees Manage Money to Make it Last Through Retirement

IMPACT OF PRODUCT ON PEACE OF MIND........................... 71

REASONS FOR PURCHASING PRODUCT............................... 74

INTEREST IN LEARNING MORE ABOUT PRODUCT ............... 80

FAMILIARITY WITH ANNUITIES ................................................ 82

CONCLUSION AND IMPLICATIONS 85

PROFILE OF SURVEY RESPONDENTS 87

APPENDIX A: METHODOLOGY AND WEIGHTING PROCEDURES 90

METHODOLOGY .................................................................................... 90

WEIGHTING............................................................................................ 90

APPENDIX B: CLUSTER ANALYSIS 92

METHODOLOGY .................................................................................... 92

MANAGEMENT STYLE CLUSTERS ...................................................... 93

CHARACTERISTICS OF INVESTORS....................................... 94

CHARACTERISTICS OF MANAGERS ....................................... 95

CHARACTERISTICS OF THRIFTYS .......................................... 96

CHARACTERISTICS OF UNDISCIPLINEDS.............................. 97

CHARACTERISTICS OF TROUBLEDS...................................... 98

ATTITUDINAL CLUSTERS ..................................................................... 99

CHARACTERISTICS OF HIGHLY CONCERNEDS.................. 100

CHARACTERISTICS OF CONCERNEDS ................................ 101

CHARACTERISTICS OF UNCONCERNEDS ........................... 102

ATTITUDE CLUSTERS BY MANAGEMENT STYLE ................ 103

REACTION TO ANNUITIES.................................................................. 104

MANAGEMENT STYLE CLUSTERS ........................................ 104

ATTITUDINAL CLUSTERS ....................................................... 111

APPENDIX C: ANNOTATED QUESTIONNAIRE 118

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What Now? How Retirees Manage Money to Make it Last Through Retirement 1

EXECUTIVE SUMMARY

A great deal of attention has been focused on the accumulation phase of retirement planning—how much money needs to be saved and how this money should be invested for a secure retirement. Much less attention has been paid to how people should manage this accumulated savings once they retire. Yet, with the increased emphasis on personal responsibility, the decline of employer-provided pensions, people living longer, and the increased likelihood of retiring with large balances in 401(k)-type plans and individual retirement accounts, this issue has never been more important.

How do retirees set about managing their accumulated savings so that it produces adequate income for the remainder of their lives? How open are they to solutions that can help them achieve this objective by providing them with lifetime guaranteed income? With these questions in mind, AARP and the American Council of Life Insurers (ACLI) commissioned Mathew Greenwald & Associates to conduct a survey of 800 retirees (200 with employer-provided pensions and 600 without) to examine issues relating to income management in retirement. The following pages present a brief overview of some of the findings from the study.

On the whole, affluent retirees are satisfied with their standard of living.

Almost all retirees (95%) who are age 60 to 75 and have household assets of $50,000 or more report they are satisfied with their current standard of living. Moreover, the vast majority (91%) say they currently have peace of mind about their financial situation.

Still, retirees express some concerns about factors that might put pressure on their ability to maintain their standard of living. Three-quarters (76%) say they are very or somewhat concerned about inflation, while almost two-thirds each are concerned about a decline in the stock market (64%) and paying for health care and prescription drugs (63%). Half (49%) express concern about using up most of their savings and investments and one-quarter (26%) are concerned about not being able to work for pay, if necessary.

Few find it difficult to cover their monthly expenses.

Almost nine in ten retirees (86%) say it is very or somewhat important to obtain a dependable amount of money each month to pay their expenses, but just 17% of these individuals find this is very or somewhat difficult to accomplish. In fact, one-third of retirees (33%) claim the guaranteed income they receive from

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employer-provided pensions and/or Social Security is sufficient to cover their monthly expenses and one-quarter (26%) indicate their monthly guaranteed income and expenses are approximately equal. Although four in ten (41%, 64% of those without pension income) say their guaranteed income is lower than their monthly expenses, the retirees in this group are comparatively well off and half (51% of those reporting asset amount) have household financial assets of $500,000 or more.

Although retirees worry about a stock market decline, few would find it necessary to drastically reduce expenses if an investment loss occurred.

Four in ten retirees (41%) are heavily invested in the stock market, with 50% or more of their total savings and investment currently invested in stocks or stock mutual funds. Only 13% report they have no stock investments.

Yet only a little over one in ten with stock investments (12%) would sharply curtail their spending if next year the value of their investments decreased by 5%. Approximately half (52%, 46% without pension income) think they would reduce their expenses by a little, while more than one-third (35%) would not feel it necessary to change their spending at all.

Retirees are cautious, perhaps overly cautious, when managing their savings and investment principal.

More than nine in ten retirees each say it is very or somewhat important to consider capital preservation (93%) and keeping enough for their needs later in life (91%) when withdrawing money. Substantial minorities indicate they find each of these objectives very or somewhat difficult to achieve (35% say keeping enough for needs later in life is difficult; 29% say preserving principal is difficult), however few find them very difficult.

Reflecting this determination to maintain their principal, many retirees are highly loss averse. Half (49%) would be unwilling to risk even $10 in a bet that offers a 50% chance of losing and a 50% chance of winning $100. Just 6% would be willing to risk $100 in this bet.

The financial approaches used by many retirees reflect these objectives. Nearly four in ten each report they have built up their savings and investment principal (37%) or kept it intact (38%) over the last year. Less than one-quarter (23%, 30% of those without pension income) state they have dipped into their savings and investment principal. Furthermore, sizable portions of retirees use somewhat primitive withdrawal tactics to preserve their principal for as long as possible. Almost one-quarter (23%) withdraw money only in emergencies, 14%

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take only gains, dividends, or interest, and 13% do not withdraw money from savings and investments at all.

Retirees must feel that their money management strategies are likely to be successful, because very few express doubts about their ability to manage their savings and investments so that they last the rest of their (and their spouse’s) life. Instead 45% are very confident they will be able to make their assets last and 48% are somewhat confident. Even retirees who do not receive income from a pension are overwhelmingly confident in their ability to make their savings last (87% very or somewhat confident).

Almost half of affluent retirees find an annuity attractive.

When a basic annuity with a return of principal guarantee is described to retirees, one in ten (11%) respond by saying they would be very likely to consider purchasing the product and approximately one-third (35%) indicate they would be somewhat likely to consider purchasing it. Somewhat surprisingly, retirees who do not receive guaranteed income from a pension appear as likely as those with such income to express interest in the product.

About half of retirees also believe this type of product would increase their peace of mind if they had recurring monthly expenses that were not covered by Social Security or other guaranteed income. Fifteen percent think it would add a great deal and one-third (34%) think it would add a fair amount to their peace of mind.

Only 4% would be very interested in investigating further products that provide guaranteed income for life (5% without pension income, 4% with pension income), although one-quarter would be somewhat interested (24% each without and with pension income).

Certain groups of retirees are especially receptive to annuities. These include:

• Retirees very concerned about using up most of their savings and investments (22% very interested in considering purchase),

• Those reporting they and/or their spouse are currently working for pay (22%)

• Those finding it very or somewhat difficult to obtain a dependable amount of income each month (21%)

• Those with household assets between $50,000 and $149,999 (21%)

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• Those who withdraw money from their savings and investments on an emergency basis only (18%)

• Those who have added to their principal in the past year (18%), and

• Those who are less than very satisfied with their current standard of living (18%).

Protection against loss appears to be an annuity’s strongest draw.

When retirees are asked about features of a guaranteed income product, they most often say they would be very likely to give up the ability to withdraw their money whenever they want in exchange for certainty that they would not lose any money (13%). Three in ten (29%) are somewhat likely to make this exchange. Retirees are slightly less likely to express willingness to exchange their ability to withdraw money on demand for protection against a large drop in the stock market (40% very or somewhat likely), certainty about the rate of return (38%), and certainty about how much money they will get each month (34%).

Furthermore, the message retirees are most likely to find very convincing as a reason for purchasing an annuity product is “this product can help you remain independent because the money will never run out” (26%). Two in ten (19%) think the message “this product gives you peace of mind because the payments will continue for as long as you (and your spouse) live” is very convincing. Retirees are somewhat less likely to find messages about annuities helping them manage their budget because it provides a predictable amount of money each month (16%) and getting a larger amount of money each year from this product than from just withdrawing investment gains (15%) very convincing.

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What Now? How Retirees Manage Money to Make it Last Through Retirement 5

DETAILED REPORT OF FINDINGS

RETIREMENT RISKS AND CONCERNS Satisfaction with Standard of Living

Virtually all retirees (95%) ages 60 to 75 with household assets of $50,000 or more indicate they are satisfied with their current standard of living (Figure 1). Two-thirds are very satisfied with their standard of living and three in ten are somewhat satisfied. Although very few (4%) are not satisfied, retirees without pension income are slightly more likely than those with such income to be not too or not at all satisfied with their current standard of living (6% vs. 2%).

Figure 1: Satisfaction With Standard of Living

"How satisfied are you with your current standard of living?"

66%

29%

3% 1%

65%

27%

4% 2%

66%

30%

2% <.5%

Very satisfied Somewhat satisfied Not too satisfied Not at all satisfied

Total Without pension income With pension income

Base: Total (n=800); without pension income (n=600); with pension income (n=200) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

As shown in Figure 2, satisfaction with current standard of living tends to increase with household income, assets, and/or education. Moreover, retirees whose guaranteed monthly income is greater than or lower than their monthly expenses are more likely to be very satisfied with their current standard of living than are retirees whose guaranteed monthly income is the same as their current expenses. This is likely due to the fact that retirees whose guaranteed income is insufficient to cover their monthly expenses tend to have substantial assets from which to draw additional income.

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There is also evidence that retirees’ satisfaction with their standard of living is related to their approach to financial management, with those building or preserving their principal over the past year more likely to be very satisfied than those dipping into their principal.

Figure 2: Satisfaction With Standard of Living, by Selected Characteristics

“How satisfied are you with your current standard of living?” Base

Size Very

Satisfied Somewhat Satisfied

Not Satisfied

Household Income (a) Less than $35,000 147 41% 49 b,c 8 (b) $35,000-$74,999 298 65% a 31 3 (c) $75,000 or more 188 73% a 23 4 Household Assets (d) $50,000-$149,999 155 50% 41 f 8 f (e) $150,000-$499,999 198 66% d 30 3 (f) $500,000 or more 210 78% d,e 20 2 Education (g) High school graduate or less 201 59% 35 i 5 (h) Some college/technical school 240 54% 40 i 5 (i) Bachelors’ degree or higher 350 75% g,h 22 3 Respondent or Spouse Working (j) Yes 168 57% 41 k 2 (k) No 632 69% j 26 4 Monthly Guaranteed Income Compared with Expenses (l) Income higher 138 72% m 24 2 (m) Income about the same 156 50% 46 l,n 4 (n) Income lower 371 72% m 22 5 Treatment of Principal in Past Year (o) Built up 288 73% q 25 1 (p) Kept intact 278 67% q 30 3 (q) Dipped into 217 52% 38 o 9 o,p Approach to Withdrawals (r) Take investment gains only 124 68% t 27 2 (s) Take constant amount 130 65% 27 8 u (t) Emergency only 173 52% 42 r,s,v,w 5 (u) Other approach 73 67% 32 1 (v) No specific approach 200 72% t 25 3 (w) Don’t make withdrawals 88 76% t 20 3

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Figure 2: Satisfaction With Standard of Living, by Selected Characteristics (continued)

“How satisfied are you with your current standard of living?” Base

Size Very

Satisfied Somewhat Satisfied

Not Satisfied

Respondent or Spouse Expect to Live Until Age 90 (x) Yes 286 74% y,z 23 2 (y) No 405 62% 34 x 4 (z) Don’t know/Refused 109 58% 33 8 Concern About Using Up Savings (aa) Very concerned 183 38% 49 ac 11 ab,ac (ab) Somewhat concerned 236 58% aa 39 ac 2 (ac) Not concerned 378 82% aa,ab 16 2 Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 8

Concerns About Maintaining Standard of Living

Although retirees are generally satisfied with their standard of living, they have some concerns about factors that might put pressure on their ability to maintain it. In particular, three-quarters of retirees are very or somewhat concerned about the impact of inflation (Figure 3). Nearly two-thirds each think a decline in the stock market or having to pay for health care and prescription drugs are causes for concern. Half express concern about using up most of their savings and investments. Of the five factors mentioned in the survey, retirees are least likely to feel concern about not being able to work for pay, if needed.

Figure 3: Concerns About Maintaining Standard of Living

"How concerned are you about…?"

31%

22%

38%

9%

45%

42%

24%

27%

17%

76%

64%

63%

49%

26%

22%

Very concerned Somewhat concerned

Note: Netted percentage may not equal sum of components due to rounding. Base: Total (n=800) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Inflation

Not being able to work for pay, if needed

Using up most of your savingsand investments

Having to pay for health care and prescription drugs

A decline in the stock market

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Retirees without guaranteed income from a pension are more likely than those with pension income to say they are very or somewhat concerned about using up most of their savings and investments and not being able to work for pay, if necessary (Figure 4). In addition, they are more likely to report they are very concerned about a decline in the stock market.

Figure 4: Concerns About Maintaining Standard of Living, By Presence of Pension Income

"How concerned are you about…?"

29%32%

19%

38%38%

24%20%

13%6%

45%44%

37%45%

26%23%

31%25%

18%16%

74%76%

64%64%

65%61%

55%45%

31%22%

26%

WithoutWith

WithoutWith

WithoutWith

WithoutWith

WithoutWith

Very concerned Somewhat concerned

Note: Netted percentage may not equal sum of components due to rounding. Base: Without pension income (n=600); with pension income (n=200) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Concern about each of these factors except a stock market decline is inversely related to satisfaction with standard of living (Figures 5 through 9). Concern about using up most of their savings is also highly correlated with each of the other concerns.

The following groups of retirees are generally more likely to indicate concern about each of these factors: those with lower household income (compared with those having higher income), those with fewer financial assets (compared with those having higher assets), those with less education (compared with those with more education), those who report they or their spouse are currently working (compared with those not working), and those who

Inflation

Not being able to work for pay

Using up savings/ investments

Paying for health care/ prescription drugs

Decline in stock market

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What Now? How Retirees Manage Money to Make it Last Through Retirement 10

dipped into their principal in the past year (compared with those building or maintaining it). Additionally, women are more likely than men to express concern about inflation, a decline in the stock market, and paying for health care and prescription drugs.

Figure 5: Concern About Inflation, by Selected Characteristics

“How concerned are you about inflation?” Base

Size Very

ConcernedSomewhat Concerned

Not Concerned

Gender (a) Male 446 25% 46 29 b (b) Female 354 39% a 43 18 Household Income (c) Less than $35,000 147 53% d,e 31 16 (d) $35,000-$74,999 298 29% 45 c 26 c (e) $75,000 or more 188 22% 49 c 29 c Household Assets (f) $50,000-$149,999 155 45% g,h 31 24 (g) $150,000-$499,999 198 26% 50 f 24 (h) $500,000 or more 210 16% 51 f 32 Education (i) High school graduate or less 201 49% j,k 30 21 (j) Some college/technical school 240 35% k 42 22 (k) Bachelors’ degree or higher 350 21% 52 i 27 Percentage of Assets in Stocks (l) Nothing 110 38 n 33 29 (m) 1%-49% 255 35 n 42 23 (n) 50% or more 342 24 51 l 25 Satisfaction with Standard of Living (o) Very satisfied 524 21% 51 p,q 29 p,q (p) Somewhat satisfied 226 48% o 35 q 16 (q) Not satisfied 43 76% o,p 12 11 Concern About Using Up Savings (r) Very concerned 183 66% s,t 22 12 (s) Somewhat concerned 236 36% t 53 r 11 (t) Not concerned 378 14% 50 r 37 r,s Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 11

Figure 6: Concern About Stock Market Decline, by Selected Characteristics

“How concerned are you about a decline in the stock market?” Base

Size Very

ConcernedSomewhat Concerned

Not Concerned

Gender (a) Male 446 17% 47 b 34 (b) Female 354 26% a 37 37 Household Income (c) Less than $35,000 147 32% d,e 24 43 (d) $35,000-$74,999 298 18% 48 c 33 (e) $75,000 or more 188 19% 45 c 36 Respondent or Spouse Working (f) Yes 168 23% 50 27 (g) No 632 21% 40 38 f Monthly Guaranteed Income Compared with Expenses (h) Income higher 138 11% 50 39 (i) Income about the same 156 25% h 39 36 (j) Income lower 371 22% h 46 32 Treatment of Principal in Past Year (k) Built up 288 17% 45 37 (l) Kept intact 278 19% 42 39 (m) Dipped into 217 31% k,l 41 28 Percentage of Assets in Stocks (n) Nothing 110 7% 21 69 o,p (o) 1%-49% 255 17% n 44 n 39 p (p) 50% or more 342 25% n 49 n 26 Concern About Using Up Savings (q) Very concerned 183 44% r,s 33 23 (r) Somewhat concerned 236 22% s 55 q,s 23 (s) Not concerned 378 12% 39 48 q,r Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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Figure 7: Concern About Paying for Health Care, by Selected Characteristics

“How concerned are you about having to pay for health care and prescription drugs?”

Base Size

Very Concerned

Somewhat Concerned

Not Concerned

Age (a) 60-64 178 47% b 24 29 (b) 65-75 622 35% 25 40 a Gender (c) Male 446 34% 27 40 (d) Female 354 44% c 22 34 Household Income (e) Less than $35,000 147 46% g 25 28 (f) $35,000-$74,999 298 42% 23 35 (g) $75,000 or more 188 30% 31 39 Household Assets (h) $50,000-$149,999 155 46% j 19 35 (i) $150,000-$499,999 198 40% j 29 31 (j) $500,000 or more 210 27% 30 43 Education (k) High school graduate or less 201 50% m 25 25 (l) Some college/technical school 240 46% m 21 34 (m) Bachelors’ degree or higher 350 28% 26 45 k,l Respondent or Spouse Working (n) Yes 168 48% o 23 29 (o) No 632 35% 25 40 n Treatment of Principal in Past Year (p) Built up 288 34% 22 44 r (q) Kept intact 278 37% 23 40 r (r) Dipped into 217 47% p 28 24 Satisfaction with Standard of Living (s) Very satisfied 524 30% 26 43 t,u (t) Somewhat satisfied 226 51% s 22 27 u (u) Not satisfied 43 78% s,t 16 6 Concern About Using Up Savings (v) Very concerned 183 74% w,x 15 11 (w) Somewhat concerned 236 47% x 24 30 v (x) Not concerned 378 19% 28 v 52 v,w Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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Figure 8: Concern About Using up Savings, by Selected Characteristics

“How concerned are you about using up most of your savings and investments?” Base

Size Very

ConcernedSomewhat Concerned

Not Concerned

Age (a) 60-64 178 29% c 24 45 (b) 65-69 309 22% 29 48 (c) 70-75 313 16% 27 57 Household Income (d) Less than $35,000 147 32% f 39 e,f 29 (e) $35,000-$74,999 298 25% 25 50 d (f) $75,000 or more 188 17% 24 57 d Household Assets (g) $50,000-$149,999 155 40% h,i 26 34 (h) $150,000-$499,999 198 20% 36 i 42 (i) $500,000 or more 210 11% 16 73 g,h Education (j) High school graduate or less 201 31% l 32 36 (k) Some college/technical school 240 29% l 33 l 38 (l) Bachelors’ degree or higher 350 13% 22 64 j,k Monthly Guaranteed Income Compared with Expenses (m) Income higher 138 18% 30 50 (n) Income about the same 156 32% m,o 27 41 (o) Income lower 371 18% 26 56 n Treatment of Principal in Past Year (p) Built up 288 17% 23 59 r (q) Kept intact 278 21% 29 49 r (r) Dipped into 217 30% p 34 36 Respondent or Spouse Expect to Live Until Age 90 (s) Yes 286 18% 24 57 (t) No 405 23% 30 47 Satisfaction with Standard of Living (u) Very satisfied 524 12% 24 63 v,w (v) Somewhat satisfied 226 36% u 36 u,w 28 (w) Not satisfied 43 63% u,v 14 23 Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 14

Figure 9: Concern About Working for Pay, by Selected Characteristics

“How concerned are you about not being able to work for pay, if needed?” Base

Size Very

ConcernedSomewhat Concerned

Not Concerned

Household Income (a) Less than $35,000 147 24% b,c 25 c 50 (b) $35,000-$74,999 298 7% 18 75 a (c) $75,000 or more 188 8% 13 79 a Household Assets (d) $50,000-$149,999 155 15% 23 f 61 (e) $150,000-$499,999 198 10% 17 73 (f) $500,000 or more 210 8% 10 83 d Education (g) High school graduate or less 201 13% i 21 65 (h) Some college/technical school 240 13% i 14 72 (i) Bachelors’ degree or higher 350 4% 17 79 g Respondent or Spouse Working (j) Yes 168 13% 22 65 (k) No 632 7% 16 77 j Treatment of Principal in Past Year (l) Built up or kept intact 566 8% 16 76 m (m) Dipped into 217 12% 23 64 Approach to Withdrawals (n) Take investment gains only 124 7% 16 77 p (o) Take constant amount 130 14% q,r,s 17 69 (p) Emergency only 173 18% n,q,r,s 21 61 (q) Other approach 73 3% 23 74 (r) No specific approach 200 3% 14 83 o,p (s) Don’t make withdrawals 88 3% 15 82 p Satisfaction with Standard of Living (t) Very satisfied 524 4% 11 85 u,v (u) Somewhat satisfied 226 17% t 29 t 55 (v) Not satisfied 43 34% t 28 38 Concern About Using Up Savings (w) Very concerned 183 26% x,y 37 x,y 37 (x) Somewhat concerned 236 7% y 20 y 72 w (y) Not concerned 378 2% 7 91 w,x Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 15

Financial Peace of Mind

Not only are affluent retirees satisfied with their standard of living, the vast majority also report they (and their spouse) currently have peace of mind about their financial situation (Figure 10). Retirees with pension income are slightly more likely than those without this type of income to say they have peace of mind.

Figure 10: Financial Peace of Mind

"Would you say you (and your spouse) currently have peace of mind about your financial situation?"

Percentage saying yes

91% 87%93%

Total Without pension income With pension income

Base: Total (n=800); without pension income (n=600); with pension income (n=200) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Financial peace of mind is strongly related to retirees’ satisfaction with their current standard of living (Figure 11). Although this report generally does not present significant differences by presence of peace of mind, it can be assumed throughout that results showing a relationship with standard-of-living satisfaction also have a relationship with peace of mind.

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What Now? How Retirees Manage Money to Make it Last Through Retirement 16

Figure 11: Financial Peace of Mind, By Satisfaction with Current Standard of Living

"Would you say you (and your spouse) currently have peace of mind about your financial situation?"

Percentage saying yes

98%

81%

41%

Base: Those very satisfied with standard of living (n=524); somewhat satisfied with standard of living (n=226); not too or not at all satisfied with standard of living (n=43) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Wealthier or more-educated retirees are more likely to have peace of mind about their financial situation, as are those whose guaranteed income exceeds their monthly expenses (Figure 12). Perhaps because they also tend to have higher levels of assets, a larger share of retirees with stock investments than those without report having peace of mind.

The propensity toward financial peace of mind increases as concern about using up savings and investments lessens. Therefore, it is not surprising that retirees who built up their savings and investment principal or kept it intact in the past year are more likely to have peace of mind than are those who dipped into their principal. Moreover, among retirees without pension income, those who withdraw money in emergencies only are more than twice as likely as those who use other withdrawal strategies to say they do not have financial peace of mind (21% vs. 8%).

Very satisfied with standard of living

Somewhat satisfied with standard of living

Not satisfied with standard of living

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What Now? How Retirees Manage Money to Make it Last Through Retirement 17

Figure 12: Financial Peace of Mind, by Selected Characteristics

“Would you say you (and your spouse) currently have peace of mind about your financial situation?”

Base Size Yes

Household Income (a) Less than $35,000 147 81% (b) $35,000 or more 486 92% a Household Assets (c) $50,000-$149,999 155 76% (d) $150,000 or more 408 95% c Education (e) High school graduate or less 201 85% (f) Some college/technical school 240 88% (g) Bachelors’ degree or higher 350 95% e,f Monthly Guaranteed Income Compared with Expenses (h) Income higher 138 97% i,j (i) Income about the same 156 89% (j) Income lower 371 87% Treatment of Principal in Past Year (k) Built up 288 92% m (l) Kept intact 278 95% m (m) Dipped into 217 82% Percentage of Assets in Stocks (n) Nothing 110 80% (o) 1%-49% 255 93% n (p) 50% or more 342 93% n Respondent or Spouse Expect to Live Until Age 90

(q) Yes 286 95% r (r) No 405 88% Concern About Using Up Savings (s) Very concerned 183 76% (t) Somewhat concerned 236 91% s (u) Not concerned 378 97% s,t Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 18

Loss Aversion

Retirees tend to be highly loss averse. Half are unwilling to take a 50% chance of losing as little as $10 in exchange for a 50% chance of winning $100 (Figure 13). One-third of retirees would risk losing $10 for the chance to win $100, while one in ten would risk $50. Fewer than one in ten would risk $100 for a 50% chance of winning $100. Retirees with and without pension income appear equally loss-averse.

Figure 13: Willingness to Risk 50% Chance of Losing A Given Amount for a 50% Chance of Winning $100

"Suppose you were offered an opportunity where you had a 50% chance of winning $100 and a 50% chance of losing $x.

Would you take that opportunity?"

6%

9%

10%

9%

33%

31%

33%

49%

47%

49%

2%

5%

3%

5%

7%

Willing to lose $100 Willing to lose $50 Willing to lose $10Not willing to lose $10 Don't know/ Refused

Base: Total (n=800); without pension income (n=600); with pension income (n=200) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Men are generally more willing than women to take a financial gamble. They are more likely to say they are willing to risk $10 (38% of men vs. 26% of women) or $50 (12% vs. 6%) for the chance of winning $100. Women are more apt to state they would not risk even $10 (60% vs. 39% of men).

Interestingly, retirees with financial peace of mind are less willing to risk money than those without peace of mind and are more likely to state they would not risk $10 in the gamble (50% vs. 32% without peace of mind). A larger share of retirees who think they or their spouse will live into their 90s than those who do not are also unwilling to take even a $10 bet (53% vs. 42%).

Total

Without pension income

With pension income

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What Now? How Retirees Manage Money to Make it Last Through Retirement 19

Confidence About Managing Money

Affluent retirees appear to have no more than moderate reservations about their ability to manage their savings and investments so the money lasts for the rest of their lives. In fact, more than nine in ten retirees (93%) are very or somewhat confident that they can manage their savings and investments so it lasts their lifetime (Figure 14). Although retirees without pension income are more likely than those with this type of income to be not too or not at all confident about their ability to manage their money over the long-term, the proportion not confident is still small (12% vs. 4%).

Figure 14: Confidence About Managing Money

"How confident are you that you will be able to manage your savings and investements so that they last for the rest of your

life/your and your spouse's lives?"

45%48%

5%2%

41%46%

8%4%

47% 48%

3% 1%

Very confident Somewhat confident Not too confident Not at all confident

Total Without pension income With pension income

Base: Total (n=800); without pension income (n=600); with pension income (n=200) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Virtually all (99%) retirees who are very satisfied with their standard of living feel very or somewhat confident in their money management abilities (Figure 15). Less than nine in ten of those somewhat satisfied (86%) and only four in ten of those not satisfied (41%) indicate the same level of confidence. Similarly, retirees who are not concerned about using up their savings are more likely than those who are concerned to be very confident in their ability to manage their money so it lasts throughout their life.

The likelihood of expressing confidence about their ability to manage their savings and investments so the money lasts increases steadily with household income or assets. Others more likely to feel very confident include men

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What Now? How Retirees Manage Money to Make it Last Through Retirement 20

(compared with women), married retirees (compared with those not married), those who retired before age 65 (compared with those who retired at age 65 or later), and those who have built up or kept their investment principal intact over the past year (compared with those who dipped into principal).

Figure 15: Confidence in Managing Money, by Selected Characteristics

“How confident are you that you will be able to manage your savings and investments so that they last for the rest of your life/you and

your spouse’s lives?” Base

Size Very

Confident Somewhat Confident

Not Confident

Gender (a) Male 446 56% b 38 5 (b) Female 354 32% 59 a 9 Married (c) Yes 549 48% d 46 6 (d) No 251 38% 52 9 Household Income (e) Less than $35,000 147 37% 40 21 f,g (f) $35,000-$74,999 298 41% 54 e,g 5 (g) $75,000 or more 188 58% e,f 35 7 Household Assets (h) $50,000-$149,999 155 34% 49 17 i,j (i) $150,000-$499,999 198 42% 52 j 6 (j) $500,000 or more 210 63% h,i 35 2 Retirement Age (k) Before 60 256 52% m 41 7 (l) 60-64 328 46% m 48 6 (m) 65 or later 197 33% 57 k 9 Treatment of Principal in Past Year (n) Built up 288 53% p 45 2 (o) Kept intact 278 46% p 49 5 (p) Dipped into 217 29% 53 18 n,o Satisfaction with Standard of Living (q) Very satisfied 524 57% r,s 42 1 (r) Somewhat satisfied 226 21% 65 q,s 14 q (s) Not satisfied 43 23% 18 58 q,r Concern About Using Up Savings (t) Very concerned 183 22% 57 v 20 u,v (u) Somewhat concerned 236 29% 64 v 6 v (v) Not concerned 378 63% t,u 35 2 Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 21

Expected Longevity

On average, affluent retirees appear to have a reasonable understanding of their likely life expectancy. About six in ten (57%) expect to live to age 85 or longer, with one-third (34%) expecting to live to age 90 or longer (Figure 16). While almost four in ten retirees (38%) with pension income report that they expect to live to at least age 90, just one-quarter (24%) of those without this type of income report the same life expectancy.

Figure 16: Expected Longevity

"Based on what you know about your health, your family history, and other factors, until what age do you expect to

live?"

10%

19%

23%21%

6% 6%

12%11%

21%

25%

16%

5%3%

16%

9%

18%

22%24%

6%8%

10%

Before 80 80 - 84 85 - 89 90 - 94 95 - 99 100 orlonger

No idea/Don't know

Total Without pension income With pension income

Base: Total (n=800); without pension income (n=600); with pension income (n=200) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

As might be expected, the life expectancy cited by retirees increases with household income and education (Figure 17). However, women and men report similar life expectancies, on average, as do married and unmarried retirees. Retirees who kept their principal intact over the past year say they will live into their 90s more often than do those who dipped into their principal.

The life expectancy offered by retirees seems to decrease as satisfaction with current standard of living decreases. Further, those who are not concerned about running out of money tend to offer higher estimates of life expectancy than to those who are concerned. This suggests that there may be some interplay between how long retirees think they can afford to live and the age they cite as their life expectancy.

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What Now? How Retirees Manage Money to Make it Last Through Retirement 22

Figure 17: Life Expectancy, by Selected Characteristics

“Based on what you know bout your health, your family history, and other factors, until what age do you expect to live?”

Base Size Age 85+ Age 90+

Gender (a) Male 446 56% 32% (b) Female 354 57% 35% Married (c) Yes 549 56% 34% (d) No 251 58% 33% Household Income (e) Less than $35,000 147 41% 18% (f) $35,000-$74,999 298 56% e 30% e (g) $75,000 or more 188 69% e,f 45% e,f Education (h) High school graduate or less 201 45% 27% (i) Some college/technical school 240 50% 29% (j) Bachelors’ degree or higher 350 67% h,i 39% h Treatment of Principal in Past Year (k) Built up 288 61% 36% (l) Kept intact 278 57% 39% m (m) Dipped into 217 55% 25% Approach to Withdrawals (n) Take investment gains only 124 59% 31% (o) Take constant amount 130 49% 23% (p) Emergency only 173 58% 37% q (q) Other approach 73 51% 19% (r) No specific approach 200 56% 37% q (s) Don’t make withdrawals 88 68% o 48% o,q Satisfaction with Standard of Living (t) Very satisfied 524 64% u,v 39% u,v (u) Somewhat satisfied 226 43% 23% (v) Not satisfied 43 31% 20% Concern About Using Up Savings (w) Very concerned 183 47% 30% (x) Somewhat concerned 236 50% 29% (y) Not concerned 378 64% w,x 37% Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 23

About six in ten married retirees (58%) think their spouse will live to age 85 or longer, and one-third (34%) think their spouse will live to age 90 or longer (Figure 18). Married retirees with and without pension income generally expect their spouses to live to similar ages, except that those with pension income are more likely than those without this type of income to state their spouse will live until at least 100.

Figure 18: Spouse’s Expected Longevity

"Until what age do you expect your spouse to live?"

8%

19%

25%

4%7%

12%10%

17%

22%

6%4%

15%

8%

20%

24%

3%

9%11%

22%

26%

22%

Before 80 80 - 84 85 - 89 90 - 94 95 - 99 100 orlonger

No idea/Don't know

Total Without pension income With pension income

Base: Married respondents (n=549); married without pension income (n=404); married with pension income (n=145) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Younger retirees are more apt than older retirees to expect their spouse to die young. Fourteen percent of those currently ages 60 to 64 and 10% of those ages 65 to 69 cite a life expectancy for their spouse that is under age 80, compared with 3% of those ages 70 to 75. On the other hand, spousal life expectancy rises as satisfaction with current standard of living increases.

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What Now? How Retirees Manage Money to Make it Last Through Retirement 24

CURRENT FINANCIAL SITUATION Monthly Expenses

Many affluent retirees ages 60 to 75 have fairly modest levels of spending. Half (51%) report average monthly expenses of under $3,000 (Figure 19). Nevertheless, 16% say their monthly expenses average $5,000 or more. Retirees without pension income report average expenses of under $2,000 more often than do those with pension income (31% vs. 23%).

Figure 19: Monthly Expenses

"On average, about how much money do you (and your spouse) spend each month?"

6%

19%

25%

18%

6%10%

6%10%

8%

23%21%

15%

9% 8%6%

10%

5%

17%

26%

19%

5%

11%

6%9%

Less than$1,000

$1,000 -$1,999

$2,000 -$2,999

$3,000 -$3,999

$4,000 -$4,999

$5,000 -$7,499

$7,500 ormore

Don'tknow/

Refused

Total Without pension income With pension income

Base: Total (n=800); without pension income (n=600); with pension income (n=200) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Reported expenses tend to increase with household income, financial assets, and education (Figure 20). However, those who say they or their spouse are working for pay appear to report spending levels similar to those who are not working.

Others reporting higher monthly expenses include men (vs. women), those whose guaranteed income is less than their monthly expenses (vs. those whose guaranteed income is equal to or exceeds their expenses), those keeping their principal intact or dipping into it (vs. those building principal), and those not concerned about using up savings (vs. those very or somewhat concerned). Moreover, retirees who are very loss averse (would not even take a $10 bet) are more likely than those who are less loss averse to keep their expenses under $2,000.

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What Now? How Retirees Manage Money to Make it Last Through Retirement 25

Figure 20: Monthly Expenses, by Selected Characteristics

“On average, about how much money do you (and your spouse) spend each month?”

Base Size

Less than $2,000

$2,000- $4,999

$5,000 Or more

Gender (a) Male 446 19% 54 20 b (b) Female 354 34% a 42 11 Household Income (c) Less than $35,000 147 62% d,e 34 1 (d) $35,000-$74,999 298 26% 58 c,e 6 c (e) $75,000 or more 188 12% 44 c 40 c,d Household Assets (f) $50,000-$149,999 155 43% g,h 42 10 (g) $150,000-$499,999 198 26% h 65 f,h 6 (h) $500,000 or more 210 12% 45 35 f,g Education (i) High school graduate or less 201 39% k 45 6 (j) Some college/technical school 240 36% k 46 8 (k) Bachelors’ degree or higher 350 15% 52 23 I,j Respondent or Spouse Working (l) Yes 168 26% 57 14 (m) No 632 26% 46 17 Monthly Guaranteed Income Compared with Expenses (n) Income higher 138 44% p 52 4 (o) Income about the same 156 42% p 42 16 n (p) Income lower 371 6% 65 o 30 n,o Treatment of Principal in Past Year (q) Built up 288 19% 54 19 (r) Kept intact 278 33% q 45 12 (s) Dipped into 217 27% q 48 16 Loss Aversion (t) Would not take $10 bet 381 33% u,v 44 12 (u) Would take $10 bet 270 21% 50 21 t (v) Would take $50 bet 130 16% 58 t 16 Concern About Using Up Savings (w) Very concerned 183 39% x,y 46 9 (x) Somewhat concerned 236 29% y 55 9 (y) Not concerned 378 19% 45 23 w,x Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 26

Guaranteed Monthly Income

More than half of retirees (54%) say they have guaranteed income from Social Security and/or a traditional pension that totals to less than $3,000 per month (Figure 21). Just over one in ten have guaranteed monthly income of $5,000 or more. Not surprisingly, retirees without pension income are more likely than those with pension income to have lower levels of guaranteed income. Almost nine in ten without pension income (86%), but just over one-third with pension income (36%), indicate they receive guaranteed income of less than $3,000 a month.

Figure 21: Guaranteed Monthly Income

"How much money do you (and your spouse) receive each month from Social Security and/or a traditional pension plan?"

3%7%

27%

18%13%

7%12% 14%

8% 10%

44%

23%

5%2%

7%

0%4%

17%14%

17%11%

17% 18%

<.5%

Nothing Less than$1,000

$1,000 -$1,999

$2,000 -$2,999

$3,000 -$3,999

$4,000 -$4,999

$5,000 ormore

Don'tknow/

Refused

Total Without pension income With pension income

Base: Total (n=800); without pension income (n=600); with pension income (n=200) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

The reported level of guaranteed income increases as satisfaction with standard of living increases and decreases as concern about using up savings increases (Figure 22). Not surprisingly, the propensity to report higher levels of guaranteed income increases sharply with household income and is higher among those who indicate their guaranteed income exceeds expenses than among those saying their guaranteed income is lower than expenses.

Although married and unmarried retirees report roughly similar levels of monthly expenditures, those who are married are more likely than those who are not to say they have guaranteed income of $2,000 or more. At the same time, while there are differences in spending levels by gender, treatment of principal,

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What Now? How Retirees Manage Money to Make it Last Through Retirement 27

and degree of loss aversion, there seem to be no statistical differences by these characteristics in the reported level of income from Social Security and/or pension.

Figure 22: Guaranteed Monthly Income, by Selected Characteristics

“How much money do you (and your spouse) receive each month from Social Security and/or a traditional pension plan?”

Base Size

Less than $2,000

$2,000- $4,999

$5,000 Or more

Gender (a) Male 446 36% 41 14 (b) Female 354 37% 35 9 Married (c) Yes 549 30% 44 d 13 (d) No 251 52% c 23 8 Household Income (e) Less than $35,000 147 72% f,g 26 0 (f) $35,000-$74,999 298 34% 48 e 9 e (g) $75,000 or more 188 29% 40 e 25 e,f Respondent or Spouse Working (h) Yes 168 41% 41 9 (i) No 632 35% 37 12 Monthly Guaranteed Income Compared with Expenses (j) Income higher 138 8% 67 k,l 25 k,l (k) Income about the same 156 43% j 42 l 16 l (l) Income lower 371 72% j,k 28 1 Treatment of Principal in Past Year (m) Built up 288 31% 45 11 (n) Kept intact 278 40% 34 12 (o) Dipped into 217 41% 32 11 Satisfaction with Standard of Living (p) Very satisfied 524 33% 38 14 q (q) Somewhat satisfied 226 41% 38 6 (r) Not satisfied 43 48% p 32 10 Concern About Using Up Savings (s) Very concerned 183 47% u 30 7 (t) Somewhat concerned 236 41% 36 8 (u) Not concerned 378 30% 43 s 15 s Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 28

Comparison of Monthly Guaranteed Income and Expenses

Many retirees are able to manage their monthly expenses using only what they receive in guaranteed income payments. One-third receive guaranteed monthly income payments that are higher than their monthly expenses and one-quarter have guaranteed income that is about the same as their monthly expenses (Figure 23). Four in ten indicate their guaranteed income is lower than their monthly expenses. Retirees with pension income are more than three times as likely as those without pension income to report guaranteed income that exceeds their monthly expenses. At the same time, those without pension income are more than twice likely as those with this income to have guaranteed income that does not stretch to cover their monthly expenses.

Figure 23: Comparison of Monthly Guaranteed Income and Expenses

Monthly income from Social Security and/or a traditional pension plan compared with monthly expenses

33%26%

41%

14%

22%

64%

44%

29% 27%

Income is higher Income is about the same Income is lower

Total Without pension income With pension income

Base: Respondents who provided estimates of monthly expenses and monthly guaranteed income (n=665); without pension income (n=515); with pension income (n=150) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 29

By and large, it appears that affluent retirees with income insufficient to cover their expenses have compensated by accumulating large nest eggs. Those with $500,000 or more in household assets are twice as likely as those with fewer assets to receive guaranteed income that is lower than their monthly expenses (Figure 24).

Figure 24: Comparison of Monthly Guaranteed Income and Expenses, By Household Assets

Monthly income from Social Security and/or a traditional pension plan compared with monthly expenses

38%33%

29%

43%

28% 29%23%

16%

61%

Income is higher Income is about the same Income is lower

$50,000 - $149,999 $150,000 - $499,999 $500,000 or more

Base: Respondents who provided estimates of monthly expenses and monthly guaranteed income and have assets of $50,000-$149,999 (n=138); assets of $150,000-$499,999 (n=181); assets of $500,000+ (n=192) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Retirees who are very satisfied (45%) or who are not satisfied (55%) with their standard of living are both more likely than those who are somewhat satisfied (32%) to indicate their expenses exceed the monthly income they receive from Social Security and/or a pension. On the other hand, those somewhat satisfied are more likely than those who are either very satisfied or not satisfied to have expenses and guaranteed income that are about equal (42% somewhat satisfied vs. 20% very satisfied and 26% not satisfied). This pattern becomes easier to understand when financial assets are considered. Retirees who have guaranteed income lower than expenses and are very satisfied with their standard of living tend to have high levels of assets, while those who also have less guaranteed income but are not satisfied tend to have comparatively low levels of assets.

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What Now? How Retirees Manage Money to Make it Last Through Retirement 30

A larger share of those who withdraw a constant amount from their savings and investments indicate their guaranteed income is lower than their monthly expenses, compared with those who make withdrawals in emergencies only, have no specific withdrawal approach, or do not withdraw money (Figure 25). Similarly, those who take gains only are more apt than those who withdraw in emergencies or do not make withdrawals to have guaranteed income below expenses. Finally, married retirees are more likely than unmarried to report guaranteed income that exceeds their expenses and less likely to indicate their guaranteed income is insufficient to cover their expenses.

Figure 25: Comparison of Monthly Guaranteed Income and Expenses, By Selected Characteristics

Monthly income from Social Security and/or a traditional pension compared with monthly expenses

Base Size

Income Higher

Income About the

Same Income Lower

Married (a) Yes 455 36% b 27 37 (b) No 210 24% 25 51 a Approach to Withdrawals (c) Take investment gains only 101 32% 18 50 e,h (d) Take constant amount 117 23% 16 61 e,h,h (e) Emergency only 145 38% 32 30 (f) Other approach 61 28% 24 47 h (g) No specific approach 163 32% 28 40 (h) Don’t make withdrawals 71 40% 35 d 24 Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Base: Respondents who provided estimates of monthly expenses and monthly guaranteed income Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 31

Current Employment

Although they consider themselves (and their spouses) to be retired, one-quarter of retirees say they and/or their spouse are currently working for pay (Figure 26). Retirees with pension income are more likely than those without this income to report current employment.

Figure 26: Households with Retiree and/or Spouse Currently Employed

"Are you (or your spouse) currently employed full or part time?"Percentage saying yes

24%

19%

27%

Total Without pension income With pension income

Base: Total (n=800); without pension income (n=600); with pension income (n=200) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

As shown in Figure 27, retirees who have built up their principal over the past year report working more often than those who have maintained or dipped into their principal. Moreover, those who withdraw funds from their savings or investments for emergencies only are more likely to be currently working than are those taking some other withdrawal approach, such as taking investment gains only, taking a constant amount, and not making withdrawals.

A larger share of men than women report that they or their spouse are currently working. Others more likely to be working include retirees ages 60 to 69 (compared with those ages 70 to 75), those with less than $150,000 in household assets (compared with those having higher assets), and those with a professional financial advisor (compared with those without).

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What Now? How Retirees Manage Money to Make it Last Through Retirement 32

Figure 27: Retiree or Spouse Currently Employed, By Selected Characteristics

“Are you (or your spouse) currently employed full or part time? Base

Size Yes No Age (a) 60-64 178 29% c 72 (b) 65-69 309 28% c 72 (c) 70-75 313 17% 83 a,b Gender (d) Male 446 29% e 71 (e) Female 354 18% 82 d Household Assets (f) $50,000-$149,999 155 33% g 67 (g) $150,000 or more 408 12% 77 f Treatment of Principal in Past Year (h) Built up 288 31% j 69 (i) Kept intact 278 21% 79 (j) Dipped into 217 19% 81 h Approach to Withdrawals (k) Take investment gains only 124 16% 84 m (l) Take constant amount 130 17% 82 m (m) Emergency only 173 41% k,l,o 60 (n) Other approach 73 20% 80 (o) No specific approach 200 17% 82 m (p) Don’t make withdrawals 88 28% 72 Have Professional Financial Advisor (q) Yes 554 27% r 73 (r) No 244 17% 83 q Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 33

Household Assets

Of the 71% of retirees who provided information on the amount they currently have in financial assets (excluding the value of their primary home and traditional pension plan, if available), two-thirds (67%) report having less than $500,000 in household assets, including two in ten with less than $100,000 (Figure 28). One in six indicate they have $1 million or more in assets. Retirees with pension income are more likely than those without pension income to report having less than $500,000 in household assets (70% vs. 60%) and less likely to report having $1 million or more.

Figure 28: Household Financial Assets

"In total, about how much money would you say you (and your spouse) currently have in financial assets?"

20%

9%

16%

21%

12%

6%

16%

22%

9%

17%

22%

12%

5%

13%

17%

9%

15%18%

11%8%

21%

Less than$100,000

$100,000 -$149,999

$150,000 -$249,999

$250,000 -$499,999

$500,000 -$749,999

$750,000 -$999,999

$1 million ormore

Total Without pension income With pension income

Base: Total reporting amount of financial assets (n=563); without pension income (n=421); with pension income (n=142) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Household asset levels increase with both income and education (Figure 29). Groups more likely to have less than $100,000 in total assets include retirees who make withdrawals in emergency situations only, those who would take a 50% chance of losing $100 for a 50% chance of doubling their money, those who are somewhat or not satisfied with their standard of living, those who are very concerned about using up their savings, and those who do not have a financial advisor. As previously stated, retirees with guaranteed income insufficient to cover their monthly expenses are more likely to have assets of $500,000 or more than are those with guaranteed income that is about the same or higher than their expenses.

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What Now? How Retirees Manage Money to Make it Last Through Retirement 34

Figure 29: Household Financial Assets, by Selected Characteristics

“In total, about how much money would you say you (and your spouse) currently have in financial assets?”

Base Size

Less than $100,000

$100,000- $499,999

$500,000 Or more

Household Income (a) Less than $35,000 126 43% b,c 51 c 5 (b) $35,000-$74,999 245 17% 55 c 28 a (c) $75,000 or more 152 14% 29 57 a,b Education (d) High school graduate or less 139 30% f 59 f 11 (e) Some college/technical school 175 28% f 52 f 20 (f) Bachelors’ degree or higher 249 11% 38 51 d,e Monthly Guaranteed Income Compared with Expenses (g) Income higher 111 20% 58 i 21 (h) Income about the same 119 25% 54 i 21 (i) Income lower 281 17% 32 51 g,h Approach to Withdrawals (j) Take investment gains only 102 17% 36 47 l (k) Take constant amount 84 11% 51 m 38 l (l) Emergency only 132 34% j,k,n,o 54 m 12 (m) Other approach 50 28% 30 42 l (n) No specific approach 124 13% 55 m 32 l (o) Don’t make withdrawals 63 13% 39 48 l Loss Aversion (p) Would not take $10 bet 248 18% 47 35 (q) Would take $10 bet 194 20% 49 31 (r) Would take $50 bet 109 28% p 37 35 Satisfaction with Standard of Living (s) Very satisfied 360 14% 46 40 t,u (t) Somewhat satisfied 167 31% s 46 22 (u) Not satisfied 33 36% s 48 16 Concern About Using Up Savings (v) Very concerned 134 38% w,x 45 16 (w) Somewhat concerned 166 17% 63 v,x 20 (x) Not concerned 261 14% 38 49 v,w Have Professional Financial Advisor (y) Yes 388 14% 48 38 z (z) No 175 34% y 43 23 Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Base: Retirees reporting amount of financial assets Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 35

Investment In Equities

A substantial portion of retirees are heavily invested in stocks or stock mutual funds. Six in ten retirees (60%) have 25% or more of their savings and investments currently invested in stocks, including four in ten (41%) with at least half of their savings and investments in equities (Figure 30). Nevertheless, more than one in ten report no investments in stocks or stock mutual funds. Retirees with and without pension income are equally invested in equities.

Figure 30: Percentage of Assets in Stocks

Base: Total (n=800); without pension income (n=600); with pension income (n=200) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

The percentage of assets invested in equities increases sharply as total household assets increase (Figure 31). It also increases as household income or education increase. Further, the propensity to invest in equities is higher among those currently working with a professional financial advisor (68% have 25% or more invested in stocks) than among those without an advisor (42%).

"Approximately what percentage of your total savings and investments, including money in retirement plans, is currently

invested in stocks or stock mutual funds?"

13%

5%

9%

19%21% 20%

12%14%

5%

9%

17%

22% 21%

11%12%

5%

9%

20% 21%18%

13%

Nothing 1 to 9% 10 to 24% 25 to 49% 50 to 74% 75% ormore

Don't know/Refused

Total Without pension income With pension income

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What Now? How Retirees Manage Money to Make it Last Through Retirement 36

Figure 31: Percentage of Assets in Stocks, by Financial Assets

Base: With assets of $50,000-$149,999 (n=155); assets of $150,000-$499,999 (n=198); assets of $500,000+ (n=210) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Retirees ages 70 to 75 are more apt than those ages 60 to 69 to report having nothing invested in equities (18% vs. 10%) At the same time, a larger share of those who withdraw money in emergencies only have less than 10% invested in stocks (31%) compared with those using approaches such as taking a constant amount (5%), taking no specific approach (13%), or taking gains only (17%).

Reaction to Stagnant or Declining Investment Values

Although retirees have a relatively high level of concern about a possible decline in the stock market, most are not likely to cut back substantially on their spending if a decline should occur (Figure 32). Nearly half with stock investments say that they would cut back a little on their spending next year if the value of their investments were to remain the same, but only about one in ten would cut back a lot. Only slightly more would cut back their spending a little or a lot if their investments values were to drop by 5%.

"Approximately what percentage of your total savings and investments, including money in retirement plans, is currently

invested in stocks or stock mutual funds?"

24%

12% 14%

20%16%

9%5%

13%

5% 7%

21% 22%19%

14%

4%1%

5%

19%

29%

36%

6%

Nothing 1 to 9% 10 to 24% 25 to 49% 50 to 74% 75% ormore

Don't know/Refused

$50,000-$149,999 $150,000-$499,999 $500,000 or more

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What Now? How Retirees Manage Money to Make it Last Through Retirement 37

Figure 32: Change in Spending if Investments Stayed the Same or Dropped in Value

"How, if at all, would you change your spending next year if the value of your investments…?"

9%

12%

46%

52%

44%

35%

1%

1%

Cut back a lot Cut back a little Not cut back at all Don't know/Refused

Base: Total with stocks (n=597) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Retirees with and without pension income would react similarly if faced with stagnant investment values. The same percentage of those with and without pension income would cut back a lot (9% each). About half of those with (45%) and without (48%) a pension would cut back a little. If investment values fell by 5%, similar percentages of retirees with (11%) and without (14%) pension income say they would cut back a lot. However, a slightly larger share of retirees with this income (55%) than without it (46%) would cut back a little.

The likelihood of cutting back if investment values stagnate or drop increases as household assets decrease (Figure 33). This likelihood is also is higher among women, those who have not graduated from college, those concerned about using up their savings, those who have dipped into their principal in the past year, and those who withdraw money in emergencies only. Moreover, retirees with less than 50% of their assets in equities are more likely than those with 50% or more to cut back given a decline in value.

Did not increase in value and stayed the

same as this year

Went down by 5%

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What Now? How Retirees Manage Money to Make it Last Through Retirement 38

Figure 33: Change in Spending if Investments Stayed the Same or Dropped in Value, by Selected Characteristics

“How, if at all, would you change your spending next year if the value of your investments did not increase in value and stayed the same as this year/

went down by 5%?”

Base Size

Would Cut Back If Value Stayed

The Same

Would Cut Back If Value Went Down by 5%

Gender (a) Male 371 48% 54% (b) Female 226 65% a 79% a Household Assets (c) $50,000-$149,999 102 65% e 79% e (d) $150,000-$499,999 149 56% 66% e (e) $500,000 or more 186 47% 49% Education (f) High school graduate or less 129 61% h 76% h (g) Some college/technical school 176 62% h 71% h (h) Bachelors’ degree or higher 288 49% 56% Treatment of Principal in Past Year (i) Built up 234 49% 58% (j) Kept intact 202 57% 68% (k) Dipped into 150 65% i 68% Percentage of Assets in Stocks (l) 1%-49% 255 55% 72% m (m) 50% or more 342 55% 57% Approach to Withdrawals (n) Take investment gains only 94 59% 61% (o) Take constant amount 105 59% 62% (p) Emergency only 116 68% q,r,s 82% n,o,q,r (q) Other approach 58 42% 56% (r) No specific approach 153 50% 52% (s) Don’t make withdrawals 64 48% 68% Concern About Using Up Savings (t) Very concerned 120 69% v 79% v (u) Somewhat concerned 171 73% v 80% v (v) Not concerned 305 41% 51% Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Base: Retirees with stock investments Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 39

Presence of Financial Advisor

Seven in ten retirees currently have a professional financial advisor, such as a financial planner, an accountant, a lawyer, or other professional to help them manage and plan their finances (Figure 34). Retirees with and without pension income are equally likely to report currently using a financial advisor.

Figure 34: Financial Advisor

"Do you (and your spouse) currently have a professional financial advisor?"

Percentage saying yes

70% 69% 70%

Total Without pension income With pension income

Base: Total (n=800); without pension income (n=600); with pension income (n=200) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Several groups are more likely to have a financial advisor. These include:

• Retirees with household income of at least $35,000 (72% vs. 55% with lower income),

• Those with $150,000 or more in household assets (77% vs. 52% with lower assets),

• College graduates (78% vs. 62% without a college degree),

• Those reporting they and/or their spouse work (79% vs. 67% of non-working retirees),

• Retirees who are very satisfied with their standard of living (72% vs. 48% not satisfied), and

• Those with at least some stock investment (73% vs. 35% with no equity investments).

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What Now? How Retirees Manage Money to Make it Last Through Retirement 40

Sources of Financial Information

Among the six sources mentioned in the survey, the most commonly used for advice or information about how to manage their money in retirement is a financial institution (Figure 35). Nearly half of retirees report they consult magazines, books, or other publications. Fewer currently seek this type of information from a retirement plan provider, seminars or classes, an independent financial planning site online, or an employer. Retirees with and without pension income appear equally likely to turn to each of these resources.

Figure 35: Sources of Financial Information

"What (other) sources do you (or your spouse) currently use to obtain advice or information about how to manage your money in

retirement?" (percentage saying yes)

55%

49%

34%

13%

53%

48%

32%

22%

13%

8%

56%

49%

35%

20%

12%

12%

21%

11%

Total Without pension income With pension income

Base: Total (n=800); without pension income (n=600); with pension income (n=200) *Base for “an employer”: Those working (n=155); without pension income (n=106); with pension income (n=49) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Figure 36 presents differences in use of financial institutions, publications, and seminars or classes by various groups of retirees. Notably, those with at least $150,000 in household assets or with some stock investments are more likely to use each of these sources.

A financial institution, such as a bank or investment company

Magazines, books, or other publications

A retirement plan provider

Seminars or classes

An independent financial planning site online

An employer*

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What Now? How Retirees Manage Money to Make it Last Through Retirement 41

Figure 36: Sources of Financial Information, by Selected Characteristics

“What (other) sources do you (or your spouse) currently use to obtain advice or information about how to manage your money in retirement?”

Base Size

Use Financial Institution

Use Publications

Use Seminars

Or Classes Age (a) 60-64 178 56% 43% 18% (b) 65-69 309 53% 57% a,c 23% (c) 70-75 313 56% 44% 22% Gender (d) Male 446 50% 52% 22% (e) Female 354 61% d 45% 20% Household Assets (f) $50,000-$149,999 155 40% 43% 12% (g) $150,000-$499,999 198 61% f 46% 22% (h) $500,000 or more 210 56% f 59% f 30% f Education (i) High school graduate or less 201 53% 31% 11% (j) Some college/technical school 240 53% 48% i 22% i (k) Bachelors’ degree or higher 350 58% 58% i 25% i Respondent or Spouse Working (l) Yes 168 64% m 50% 25% (m) No 632 52% 48% 20% Percentage of Assets in Stocks (n) Nothing 110 36% 29% 8% (o) 1%-49% 255 54% n 52% n 24% n (p) 50% or more 342 59% n 51% n 22% n Respondent or Spouse Expect to Live Until Age 90 (q) Yes 286 55% 54% 28% r,s (r) No 405 55% 46% 18% (s) Don’t know/Refused 109 58% 41% 10% Have Professional Financial Advisor (t) Yes 554 67% u 49% 23% (u) No 244 29% 49% 18% Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 42

The likelihood of turning to a retirement plan provider for information is higher among retirees with at least some stock investment (33% vs. 13% with no stocks) and those with a financial advisor (44% vs. 10% without an advisor). It is also higher among younger than older retirees. Likewise, the propensity to seek information from independent financial websites is higher among men (17% vs. 8% of women), retirees with at least $500,000 in assets (21% vs. 10% of lower-asset retirees), and those with some stock investments (15% vs. 6% with no stocks).

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What Now? How Retirees Manage Money to Make it Last Through Retirement 43

FINANCIAL APPROACH Preservation of Principal

Most retirees ages 60 to 75 with at least $50,000 in household assets treat their investment principal very conservatively. Three-quarters (75%) say they either kept their savings and investment principal intact or built it up over the last year (Figure 37). However, nearly one-quarter dipped into their principal. Retirees without pension income more often report they dipped into their savings and investment principal than do those with pension income.

Figure 37: Treatment of Savings and Investment Principal

"Over the last year, did you build up your savings and investment principal, keep it intact, or dip into your savings

and investment principal?"

37% 38%

23%

3%

35% 33%30%

2%

38% 40%

18%

3%

Build up Keep it intact Dip into Don't know/Refused

Total Without pension income With pension income

Base: Total (n=800); without pension income (n=600); with pension income (n=200) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

The likelihood of building principal increases with financial assets (Figure 38). Similarly, retirees with household income of $35,000 or more (compared with lower-income retirees), those who indicate they or their spouse are currently employed (compared with those not working), and men (compared with women) are more likely to have built up their principal over the past year. Others more often saying they have built their savings and investment principal include those who do not make withdrawals (vs. those who do), those very or somewhat satisfied with their current standard of living (vs. those who are not), and those not concerned about using up most of their savings (vs. those who are).

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What Now? How Retirees Manage Money to Make it Last Through Retirement 44

Figure 38: Treatment of Savings and Investment Principal, By Selected Characteristics

“Over the last year, did you build up your savings and investment principal, keep it intact, or dip into your savings and investment principal?”

Base Size

Build Up

Keep Intact

Dip Into

Gender (a) Male 446 44% b 32 21 (b) Female 354 28% 44 a 24 Married (c) Yes 549 38% 40 19 (d) No 251 34% 33 30 c Household Income (e) Less than $35,000 147 23% 39 36 f,g (f) $35,000-$74,999 298 43% e 33 22 (g) $75,000 or more 188 42% e 37 17 Household Assets (h) $50,000-$149,999 155 29% 37 33 j (i) $150,000-$499,999 198 38% 35 27 j (j) $500,000 or more 210 50% h 30 15 Respondent or Spouse Working (k) Yes 168 48% i 33 18 (l) No 632 34% 39 24 Retirement Age (m) Before 60 256 43% 33 22 (n) 60-64 328 34% 45 m,o 17 (o) 65 or later 197 33% 31 33 n Monthly Guaranteed Income Compared with Expenses (p) Income higher 138 38% 43 18 (q) Income about the same 156 32% 40 26 (r) Income lower 371 42% 32 23 Approach to Withdrawals (s) Take investment gains only 124 44% v 39 16 x (t) Take constant amount 130 31% 38 25 x (u) Emergency only 173 41% v 32 27 x (v) Other approach 73 23% 34 42 s.w,x (w) No specific approach 200 30% 45 20 x (x) Don’t make withdrawals 88 58% s,u,v,w 37 5

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What Now? How Retirees Manage Money to Make it Last Through Retirement 45

Figure 38: Treatment of Savings and Investment Principal, By Selected Characteristics (continued)

“Over the last year, did you build up your savings and investment principal, keep it intact, or dip into your savings and investment principal?”

Base Size

Build Up

Keep Intact

Dip Into

Respondent or Spouse Expect to Live Until Age 90 (y) Yes 286 40% 41 17 (z) No 405 35% 35 27 y (aa) Don’t know/Refused 109 36% 35 21 Satisfaction with Standard of Living (ab) Very satisfied 524 41% ad 38 18 (ac) Somewhat satisfied 226 32% ad 38 29 ab (ad) Not satisfied 43 11% 29 55 ab,ac Concern About Using Up Savings (ae) Very concerned 183 30% 36 32 ag (af) Somewhat concerned 236 32% 40 28 ag (ag) Not concerned 378 43% ae,af 37 16 Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

On the other hand, retirees more likely to have dipped into their principal in the last year include those with household income under $35,000 (compared with higher-income retirees), those with financial assets under $500,000 (compared with those having higher assets), unmarried retirees (compared with those who are married), those who retired at age 65 or later (compared with those retiring earlier), those who do not think they or their spouse will live into their 90s (compared with those who do), and retirees using an unspecified approach to withdrawing money from savings and investments (compared with those taking gains only, no specific approach, or not making withdrawals). Furthermore, the propensity to dip into principal increases as satisfaction with standard of living decreases or as concern about using up savings increases.

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What Now? How Retirees Manage Money to Make it Last Through Retirement 46

Approach to Withdrawing Money

Retirees’ conservative treatment of principal extends to the strategies they use when withdrawing money. More than one in ten report they take only gains, dividends, or interest from their savings and investments (Figure 39). Almost one-quarter take money only in emergencies, and more than one in ten report they do not withdraw money from their savings and investments. Just 13% regularly take a constant percentage. Approximately one-third (35%) use some other approach or have no specific approach to withdrawing from their savings and investments.

Figure 39: Approach to Withdrawing Money

"Which one of the following best describes the approach you used over the past year, if any, when withdrawing money from your

savings and investments?"

14% 13%

23%

11%

24%

13%17% 18%

21%

8%

25%

9%12% 11%

24%

12%

23%

15%

Take onlygains,

dividends orinterest

Regularly takeconstant

amount orpercentage

Take moneyonly in

emergencies

Some otherapproach

No specificapproach

Don't withdrawmoney

Total Without pension income With pension income

Base: Total (n=800); without pension income (n=600); with pension income (n=200) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Retirees without pension income are more likely than those with pension income to regularly take a constant amount or percentage. They are less inclined to say they do not withdraw money from their savings and investments.

Those with fewer household assets are more likely than those with higher assets to try to preserve their principal by taking money only in emergencies (Figure 40). Likewise, retirees saying they or their spouse are currently employed more often say they take money in emergencies only than do those not working. Those who are somewhat or not satisfied with their standard of

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What Now? How Retirees Manage Money to Make it Last Through Retirement 47

living are also more likely to make withdrawals on an emergency basis only, compared with those who are very satisfied.

Figure 40: Approach to Withdrawing Money, by Selected Characteristics

“Which one of the following best describes the approach you used over the past year, if any, when withdrawing money from your savings and investments?”

Base Size

Gains Only

ConstantAmount

Emerg. Only

Don’t Withdraw

Household Assets (a) $50,000-$149,999 155 9% 14 39 c 7 (b) $150,000-$499,999 198 14% 11 31 c 14 (c) $500,000 or more 210 14% 22 b 9 20 a Respondent or Spouse Working (d) Yes 168 9% 10 39 e 16 (e) No 632 15% 15 18 13 Monthly Guaranteed Income Compared with Expenses

(f) Income higher 138 13% 11 29 16 (g) Income about the same 156 9% 10 30 h 17 h (h) Income lower 371 16% 23 f,g 18 8 Treatment of Principal in Past Year

(i) Built up 288 16% 11 25 21 k (j) Kept intact 278 14% 13 20 13 k (k) Dipped into 217 10% 15 28 3 Loss Aversion (l) Would not take $10 bet 381 18% n 9 24 12 (m) Would take $10 bet 270 11% 16 26 13 (n) Would take $50 bet 130 5% 20 l 19 18 Respondent or Spouse Expect to Live Until Age 90

(o) Yes 286 13% 10 25 17 (p) No 405 14% 17 o 23 11 (q) Don’t know/Refused 109 12% 12 17 12 Satisfaction with Standard of Living

(r) Very satisfied 524 14% 13 18 15 (s) Somewhat satisfied 226 13% 12 33 r 9 (t) Not satisfied 43 8% 28 31 11

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What Now? How Retirees Manage Money to Make it Last Through Retirement 48

Figure 40: Approach to Withdrawing Money, by Selected Characteristics (continued)

“Which one of the following best describes the approach you used over the past year, if any, when withdrawing money from your savings and investments?”

Base Size

Gains Only

ConstantAmount

Emerg. Only

Don’t Withdraw

Concern About Using Up Savings (u) Very concerned 183 11% 15 36 w 6 (v) Somewhat concerned 236 14% 16 25 9 (w) Not concerned 378 15% 12 17 19 u,v Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Retirees whose income from Social Security and/or a pension is lower than their monthly expenses are more apt than those whose guaranteed income meets or exceeds their expenses to rely on a constant amount. At the same time, they are less likely to take money in emergencies only or to not make withdrawals. The likelihood of taking a constant amount also increases as loss aversion decreases, while the likelihood of withdrawing only gains, dividends or interest increases as loss aversion increases. Perhaps this helps to explain why retirees who think they or their spouse will live until at least age 90 are more likely than those who do not to have withdrawn a constant amount or percentage in the last year.

Men are more likely than women (28% vs. 20%) and retirees keeping their principal intact are more likely than those building principal (29% vs. 19%) to state they have not used any specific approach to withdrawing money in the last year. The tendency toward not using a systematic approach also increases with household income.

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What Now? How Retirees Manage Money to Make it Last Through Retirement 49

Importance of Factors When Withdrawing Money

Nearly all retirees feel that preserving their principal and keeping enough for their needs later in life are very or somewhat important considerations when withdrawing money from savings and investments (Figure 41). More than eight in ten each place importance on obtaining a dependable amount of monthly income and on keeping a balanced portfolio. Of the five factors mentioned, retirees are least likely to assign importance to preserving an estate for their heirs.

Figure 41: Importance of Factors When Withdrawing Money

"When you make decisions about withdrawing money, how important are each of the following considerations?"

61%

74%

66%

22%

32%

18%

20%

24%

40%

93%

91%

86%

83%

62%

59%

Very important Somewhat important

Note: Netted percentage may not equal sum of components due to rounding. Base: Total (n=800) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Preserving your principal

Keeping enough for your needs later in life

Obtaining a dependable amount of money each month to pay

your expenses Keeping your portfolio balanced

across different types of savings and investments

Preserving an estate for your heirs

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What Now? How Retirees Manage Money to Make it Last Through Retirement 50

Retirees with income from a traditional pension plan are more likely than those without pension income to feel keeping enough for their needs later in life and keeping a balanced portfolio are very important (Figure 42).

Figure 42: Importance of Factors When Withdrawing Money, By Presence of Pension Income

"When you make decisions about withdrawing money, how important are each of the following considerations?"

61%60%

76%

65%66%

52%63%

23%21%

30%33%

22%15%

20%20%

30%20%

37%42%

91%93%

91%91%

85%86%

82%83%

60%63%

69%

WithoutWith

WithoutWith

WithoutWith

WithoutWith

WithoutWith

Very important Somewhat important

Note: Netted percentage may not equal sum of components due to rounding. Base: Without pension income (n=600); with pension income (n=200) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Preserving your principal

Keeping enough for your needs later in life

Obtaining a dependable amount of money each month

Keeping your portfolio balanced

Preserving an estate for your heirs

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What Now? How Retirees Manage Money to Make it Last Through Retirement 51

The importance of each of these considerations except preserving an estate for heirs is related to concern about using up most of savings (Figures 43 through 46). However, there appear to be no other consistent differences across these factors among the groups examined. Furthermore, all retiree groups appear to be equally likely to think preserving an estate is important.

Figure 43: Importance of Preserving Principal, by Selected Characteristics

“When you make decisions about withdrawing money, how important is preserving your principal?”

Base Size

Very Important

Somewhat Important

Not Important

Gender (a) Male 446 57% 33 9 b (b) Female 354 65% 31 3 Approach to Withdrawals (c) Take investment gains only 124 72% g 23 4 (d) Take constant amount 130 61% 28 11 (e) Emergency only 173 59% 37 3 (f) Other approach 73 56% 34 9 (g) No specific approach 200 51% 40 8 (h) Don’t make withdrawals 88 71% g 22 7 Concern About Using Up Savings (i) Very concerned 183 77% j,k 16 5 (j) Somewhat concerned 236 63% k 35 i 2 (k) Not concerned 378 52% 38 i 10 j Have Professional Financial Advisor (l) Yes 554 61% 33 5 (m) No 244 58% 29 11 l Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 52

Figure 44: Importance of Keeping Enough for Later in Life, By Selected Characteristics

“When you make decisions about withdrawing money, how important is keeping enough for your needs later in life?”

Base Size

Very Important

Somewhat Important

Not Important

Gender (a) Male 446 68% 21 11 (b) Female 354 80% a 14 6 Percentage of Assets in Stocks (c) Nothing 110 69% 10 22 d,e (d) 1%-49% 255 75% 20 c 5 (e) 50% or more 342 73% 18 8 Concern About Using Up Savings (f) Very concerned 183 90% g,h 8 1 (g) Somewhat concerned 236 81% h 17 2 (h) Not concerned 378 63% 22 f 15 f,g Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 53

Figure 45: Importance of Obtaining a Dependable Amount of Money, By Selected Characteristics

“When you make decisions about withdrawing money, how important is obtaining a dependable amount of money each month to pay your expenses?”

Base Size

Very Important

Somewhat Important

Not Important

Age (a) 60-64 178 74% c 14 11 (b) 65-69 309 66% 19 15 (c) 70-75 313 61% 25 a 14 Household Assets (d) $50,000-$149,999 155 75% f 13 11 (e) $150,000-$499,999 198 66% 18 16 (f) $500,000 or more 210 58% 22 19 Education (g) High school graduate or less 201 72% i 16 11 (h) Some college/technical school 240 71% i 17 11 (i) Bachelors’ degree or higher 350 59% 24 17 Treatment of Principal in Past Year (j) Built up 288 63% 19 18 l (k) Kept intact 278 65% 22 13 (l) Dipped into 217 74% 18 8 Satisfaction with Standard of Living (m) Very satisfied 524 59% 22 o 19 n,o (n) Somewhat satisfied 226 78% m 17 4 (o) Not satisfied 43 91% m 6 2 Concern About Using Up Savings (p) Very concerned 183 83% r 13 4 (q) Somewhat concerned 236 79% r 15 7 (r) Not concerned 378 52% 26 p,q 22 p,q Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 54

Figure 46: Importance of Keeping a Balanced Portfolio, By Selected Characteristics

“When you make decisions about withdrawing money, how important is keeping your portfolio balanced across different types of savings and investments?”

Base Size

Very Important

Somewhat Important

Not Important

Household Assets (a) $50,000-$149,999 155 58% 13 27 b,c (b) $150,000-$499,999 198 58% 27 a 15 (c) $500,000 or more 210 67% 21 12 Respondent or Spouse Working (d) Yes 168 68% e 19 11 (e) No 632 57% 25 18 Monthly Guaranteed Income Compared with Expenses (f) Income higher 138 56% 27 17 (g) Income about the same 156 68% h 23 8 (h) Income lower 371 54% 22 22 g Percentage of Assets in Stocks (i) Nothing 110 30% 20 46 j,k (j) 1%-49% 255 56% i 29 15 (k) 50% or more 342 66% i 23 11 Concern About Using Up Savings (l) Very concerned 183 65% 21 11 (m) Somewhat concerned 236 64% 29 7 (n) Not concerned 378 55% 21 23 l,m Have Professional Financial Advisor (o) Yes 554 70% p 22 7 (p) No 244 34% 27 37 o Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 55

Difficulty of Factors When Withdrawing Money

Retirees saying each of the factors is very, somewhat, or not too important were then asked how difficult it is to manage them when making withdrawals. Only a minority admit to difficulty. More than one-third say it is very or somewhat difficult to keep enough money for their needs later in life (Figure 47). Fewer than three in ten each feel it is difficult to preserve their principal or preserve an estate. Less than one-quarter report difficulty maintaining a balanced portfolio, and fewer than two in ten find it difficult to obtain dependable monthly income.

Figure 47: Difficulty When Withdrawing Money

"How difficult is it for you to do each of the following when withdrawing money?"

6%

5%

4%

2%

29%

24%

24%

20%

14%

35%

29%

28%

23%

17%

3%

Very difficult Somewhat difficult

Note: Netted percentage may not equal sum of components due to rounding. Base: Retirees saying each factor is very, somewhat, or not too important Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

On the whole, retirees without pension income seem to have more difficulty managing these considerations when withdrawing money. They are more likely than those with pension income to find it very or somewhat difficult to keep enough for their needs later in life, preserve their principal, keep their portfolio balanced, and obtain dependable monthly income (Figure 48). Retirees with and without pension income appear equally likely to feel that preserving an estate is difficult.

Preserving your principal (n=769)

Keeping enough for your needs later in life (n=766)

Obtaining a dependable amount of money each month to pay

your expenses (n=744)

Keeping your portfolio balanced across different types of savings

and investments (n=737)

Preserving an estate for your heirs (n=673)

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What Now? How Retirees Manage Money to Make it Last Through Retirement 56

Figure 48: Difficulty When Withdrawing Money, By Presence of Pension Income

"How difficult is it for you to do each of the following when withdrawing money?"

9%5%

3%

8%

6%

6%

32%28%

30%21%

24%24%

24%18%

18%13%

41%32%

40%24%

31%26%

30%20%

24%13%1%

2%

2%

9%

Without (n=570)With (n=196)

Without (n=574)With (n=195)

Without (n=505)With (n=168)

Without (n=551)With (n=186)

Without (n=555)With (n=189)

Very difficult Somewhat difficult

Note: Netted percentage may not equal sum of components due to rounding. Base: Retirees saying each factor is very, somewhat, or not too important Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Certain groups of retirees are consistently more likely to find managing their withdrawals difficult (Figures 49 through 53). Difficulty with each of the factors increases strongly as satisfaction with current standard of living decreases or as concern about using up savings increases. Moreover, the likelihood of experiencing difficulty with each of these factors increases as household income or financial assets decrease. Retirees who dipped into their principal in the last year tend to report higher levels of difficulty than do those who built or maintained their principal. Finally, larger shares of those who withdraw money only in emergencies than those using other approaches indicate they experience difficulty.

Preserving your principal

Keeping enough for needs later in life

Obtaining a dependable amount of money each month

Keeping your portfolio balanced

Preserving an estate for your heirs

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What Now? How Retirees Manage Money to Make it Last Through Retirement 57

Figure 49: Difficulty of Keeping Enough for Later in Life, By Selected Characteristics

“How difficult is it for you to keep enough for your needs later in life when withdrawing money?”

Base Size

Very Difficult

Somewhat Difficult

Not Difficult

Household Income (a) Less than $35,000 140 14% c 39 c 42 (b) $35,000-$74,999 283 8% 28 62 a (c) $75,000 or more 179 4% 22 73 a Household Assets (d) $50,000-$149,999 148 11% 46 e,f 42 (e) $150,000-$499,999 190 5% 29 f 65 d (f) $500,000 or more 196 5% 16 79 d,e Treatment of Principal in Past Year (g) Built up 268 7% h 24 66 i (h) Kept intact 270 2% 29 68 i (i) Dipped into 213 13% h 38 g 47 Percentage of Assets in Stocks (j) Nothing 103 14% k 27 56 (k) 1%-49% 243 4% 36 l 57 (l) 50% or more 330 7% 23 70 k Approach to Withdrawals (m) Take investment gains only 117 2% 27 70 o (n) Take constant amount 127 9% r 30 r 58 (o) Emergency only 169 12% m,q,r 42 m,p,r 46 (p) Other approach 69 10% 21 65 o (q) No specific approach 191 3% 30 r 64 o (r) Don’t make withdrawals 82 1% 14 80 m,o,q Satisfaction with Standard of Living (s) Very satisfied 501 2% 21 76 t,u (t) Somewhat satisfied 219 11% s 45 s 38 (u) Not satisfied 40 31% s 38 22 Concern About Using Up Savings (v) Very concerned 180 17% w,x 41 x 37 (w) Somewhat concerned 234 5% 46 x 47 (x) Not concerned 350 2% 14 82 v,w Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Base: Retirees saying this factor is very, somewhat, or not too important Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 58

Figure 50: Difficulty of Preserving Principal, by Selected Characteristics

“How difficult is it for you to preserve your principal when withdrawing money?” Base

Size Very

Difficult Somewhat

Difficult Not

Difficult Household Income (a) Less than $35,000 142 12% 35 c 53 (b) $35,000-$74,999 290 5% 26 c 66 (c) $75,000 or more 177 4% 16 78 a,b Household Assets (d) $50,000-$149,999 149 10% f 32 f 54 (e) $150,000-$499,999 192 6% 26 68 (f) $500,000 or more 202 2% 18 80 d,e Treatment of Principal in Past Year (g) Built up 276 3% 19 76 i (h) Kept intact 267 2% 24 71 i (i) Dipped into 211 14% g,h 33 g 53 Approach to Withdrawals (j) Take investment gains only 122 3% 13 85 k,l,m,n (k) Take constant amount 126 8% 34 j,o 58 (l) Emergency only 168 8% o 34 j,o 58 (m) Other approach 70 5% 27 o 66 (n) No specific approach 189 4% 23 o 70 (o) Don’t make withdrawals 83 1% 9 84 k,l,n Satisfaction with Standard of Living (p) Very satisfied 502 2% 18 79 q,r (q) Somewhat satisfied 220 8% p 35 p 53 r (r) Not satisfied 41 36% p,q 50 p 13 Concern About Using Up Savings (s) Very concerned 178 14% t,u 38 u 45 (t) Somewhat concerned 233 4% 32 u 61 s (u) Not concerned 355 2% 14 84 s,t Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Base: Retirees saying this factor is very, somewhat, or not too important Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 59

Figure 51: Difficulty of Preserving an Estate, by Selected Characteristics

“How difficult is it for you to preserve an estate for your heirs when withdrawing money?”

Base Size

Very Difficult

Somewhat Difficult

Not Difficult

Household Income (a) Less than $35,000 122 15% b,c 23 59 (b) $35,000-$74,999 258 2% 27 68 (c) $75,000 or more 144 2% 20 76 a Household Assets (d) $50,000-$149,999 199 7% 39 e,f 51 (e) $150,000-$499,999 174 3% 23 73 d (f) $500,000 or more 168 3% 17 79 d Treatment of Principal in Past Year (g) Built up 243 3% 21 76 i (h) Kept intact 233 2% 23 72 i (i) Dipped into 184 9% h 33 g 54 Satisfaction with Standard of Living (j) Very satisfied 442 1% 17 80 i (k) Somewhat satisfied 193 8% j 39 j 50 (l) Not satisfied 32 18% 19 57 Concern About Using Up Savings (m) Very concerned 158 11% o 36 o 52 (n) Somewhat concerned 208 4% 35 o 58 (o) Not concerned 307 1% 12 85 m,n Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Base: Retirees saying this factor is very, somewhat, or not too important Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 60

Figure 52: Difficulty of Keeping a Balanced Portfolio, By Selected Characteristics

“How difficult is it for you to keep your portfolio balanced across different types of savings and investments when withdrawing money?”

Base Size

Very Difficult

Somewhat Difficult

Not Difficult

Household Income (a) Less than $35,000 133 7% 37 b,c 54 (b) $35,000-$74,999 278 3% 17 78 a (c) $75,000 or more 170 1% 19 77 a Household Assets (d) $50,000-$149,999 133 4% 33 f 59 (e) $150,000-$499,999 190 4% 20 f 75 d (f) $500,000 or more 196 4% 10 84 d Treatment of Principal in Past Year (g) Built up 265 3% 13 82 i (h) Kept intact 258 2% 20 75 i (i) Dipped into 201 6% 31 g 62 Approach to Withdrawals (j) Take investment gains only 113 3% 13 84 l (k) Take constant amount 127 2% 15 79 (l) Emergency only 161 5% 29 j,k,o 66 (m) Other approach 65 1% 28 o 70 (n) No specific approach 181 2% 23 o 71 (o) Don’t make withdrawals 79 6% 9 81 l Satisfaction with Standard of Living (p) Very satisfied 490 2% 14 83 q,r (q) Somewhat satisfied 207 5% 32 p 59 r (r) Not satisfied 34 13% 45 p 28 Concern About Using Up Savings (s) Very concerned 168 6% 38 u 51 (t) Somewhat concerned 231 3% 29 u 65 s (u) Not concerned 335 2% 8 89 s,t Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Base: Retirees saying this factor is very, somewhat, or not too important Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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Figure 53: Difficulty of Obtaining a Dependable Amount, By Selected Characteristics

“How difficult is it for you to obtain a dependable amount of money each month to pay your expenses when withdrawing money?”

Base Size

Very Difficult

Somewhat Difficult

Not Difficult

Household Income (a) Less than $35,000 142 8% c 25 b,c 67 (b) $35,000-$74,999 279 2% 13 84 a (c) $75,000 or more 165 1% 9 90 a Household Assets (d) $50,000-$149,999 144 4% 21 f 74 (e) $150,000-$499,999 186 2% 13 85 (f) $500,000 or more 190 1% 9 90 d Retirement Age (g) Before 60 233 2% 13 85 i (h) 60-64 306 2% 12 86 i (i) 65 or later 187 3% 22 h 74 Treatment of Principal in Past Year (j) Built up 260 1% 13 85 (k) Kept intact 260 1% 14 85 (l) Dipped into 208 7% j,k 18 75 Approach to Withdrawals (m) Take investment gains only 113 2% 11 87 o (n) Take constant amount 126 2% 11 87 o (o) Emergency only 167 4% r 22 n,q,r 73 (p) Other approach 69 2% 20 78 (q) No specific approach 182 2% 12 86 o (r) Don’t make withdrawals 78 0% 8 88 o Satisfaction with Standard of Living (s) Very satisfied 475 1% 9 90 t,u (t) Somewhat satisfied 221 3% 23 s 73 u (u) Not satisfied 42 17% 40 s 43 Concern About Using Up Savings (v) Very concerned 179 5% 29 w,x 65 (w) Somewhat concerned 227 3% 17 x 80 v (x) Not concerned 336 1% 6 92 v,w Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Base: Retirees saying this factor is very, somewhat, or not too important Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 62

ANNUITY PRODUCTS Tradeoffs for Liquidity

Retirees were presented with the option to purchase a financial product that could provide them with monthly income that is guaranteed to last for the rest of their life, but would not allow them to withdraw any money other than the monthly payments. Approximately four in ten retirees would be very or somewhat likely to sacrifice liquidity if they were given certainty that they would not lose any money, if they were protected against a large drop in the stock market, or if they were given certainty about the rate of return (Figure 54). About one-third would trade-off liquidity if they were given certainty about how much money they would get each month.

Figure 54: Trade-offs for Liquidity

"How likely would you be to give up the ability to withdraw your money whenever you wanted, if in exchange, you were given…?"

13%

9%

6%

29%

32%

32%

26%

42%

40%

38%

34%7%

Very likely Somewhat likely

Note: Netted percentage may not equal sum of components due to rounding. Base: Total (n=800) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Certainty that you would not lose any money

Certainty about the rate of return

Certainty about how much money you will

get each month

Protection against a large drop in the stock market

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What Now? How Retirees Manage Money to Make it Last Through Retirement 63

Retirees with and without pension income react similarly to each of the four trade-offs (Figure 55).

Figure 55: Trade-offs for Liquidity, by Presence of Pension Income

"How likely would you be to give up the ability to withdraw your money whenever you wanted, if in exchange, you were given…?"

11%

14%

8%

7%

5%

7%

7%

30%

28%

32%

31%

32%

31%

27%

25%

41%

42%

41%

40%

40%

37%

35%

33%

8%

Without

With

Without

With

Without

With

Without

With

Very likely Somewhat likely

Note: Netted percentage may not equal sum of components due to rounding. Base: Without pension income (n=600); with pension income (n=200) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Several groups of retirees appear more willing to exchange liquidity for one of the other product features presented (Figures 56 through 59). These include those ages 60 to 64 (compared with older retirees), those who are somewhat satisfied with their current standard of living (compared with those who are very satisfied), and those who are very concerned about using up savings (compared with those with lower levels of concern). Moreover, those who are less loss averse and are willing to bet at least $10 for an opportunity to win $100 are more likely than those who are more loss averse to be open to these trade-offs. The likelihood of making these trade-offs also appears to decrease as household assets increase.

Certainty that you would not lose any money

Certainty about the rate of return

Certainty about how much money you will get each month

Protection against a large drop in the stock market

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What Now? How Retirees Manage Money to Make it Last Through Retirement 64

Figure 56: Certainty of No Loss Trade-off, by Selected Characteristics

“How likely would you be to give up the ability to withdraw your money whenever you wanted, if in exchange, you were given certainty

that you would not lose any money?” Base

Size Very

Likely Somewhat

Likely Not

Likely Age (a) 60-64 178 20% b,c 30 49 (b) 65-69 309 11% 31 57 (c) 70-75 313 10% 26 63 a Gender (d) Male 446 16% e 29 54 (e) Female 354 9% 29 61 Married (f) Yes 549 15% g 27 58 (g) No 251 8% 35 56 Household Assets (h) $50,000-$149,999 155 20% 38 42 (i) $150,000-$499,999 198 12% 29 58 h (j) $500,000 or more 210 10% 29 61 h Respondent or Spouse Working (k) Yes 168 17% 34 48 (l) No 632 12% 27 60 k Loss Aversion (m) Would not take $10 bet 381 10% 21 68 n,o (n) Would take $10 bet 270 15% 36 m 49 (o) Would take $50 bet 130 18% 36 m 45 Satisfaction with Standard of Living (p) Very satisfied 524 9% 28 62 q (q) Somewhat satisfied 226 20% p 31 48 (r) Not satisfied 43 22% 18 58 Concern About Using Up Savings (s) Very concerned 183 28% t,u 30 42 (t) Somewhat concerned 236 12% 37 u 50 (u) Not concerned 378 8% 25 67 s,t Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 65

Figure 57: Protection Against Large Drop in Stock Market Trade-off, By Selected Characteristics

“How likely would you be to give up the ability to withdraw your money whenever you wanted, if in exchange, you were given protection

against a large drop in the stock market?” Base

Size Very

Likely Somewhat

Likely Not

Likely Age (a) 60-64 178 13% 37 49 (b) 65-69 309 7% 33 59 (c) 70-75 313 7% 27 65 a Percentage of Assets in Stocks (d) Nothing 110 4% 14 81 e,f (e) 1%-49% 255 7% 36 d 55 (f) 50% or more 342 9% 35 d 55 Loss Aversion (g) Would not take $10 bet 381 6% 22 71 h,i (h) Would take $10 bet 270 9% 44 g 44 (i) Would take $50 bet 130 14% 34 52 Concern About Using Up Savings (j) Very concerned 183 17% k,l 37 l 45 (k) Somewhat concerned 236 6% 43 l 51 (l) Not concerned 378 7% 24 68 j,k Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 66

Figure 58: Certainty About Rate of Return Trade-off, By Selected Characteristics

“How likely would you be to give up the ability to withdraw your money whenever you wanted, if in exchange, you were given certainty

about the rate of return?” Base

Size Very

Likely Somewhat

Likely Not

Likely Age (a) 60-64 178 11% c 35 53 (b) 65-69 309 7% 31 60 (c) 70-75 313 3% 31 64 Household Assets (d) $50,000-$149,999 155 15% e 35 48 (e) $150,000-$499,999 198 2% 39 f 59 (f) $500,000 or more 210 7% 25 65 d Loss Aversion (g) Would not take $10 bet 381 6% 23 69 h,i (h) Would take $10 bet 270 8% 37 g 53 (i) Would take $50 bet 130 6% 43 g 50 Satisfaction with Standard of Living (j) Very satisfied 524 5% 28 65 l (k) Somewhat satisfied 226 8% 41 j,l 49 (l) Not satisfied 43 19% 17 53 Concern About Using Up Savings (m) Very concerned 183 16% n,o 39 o 43 (n) Somewhat concerned 236 4% 41 o 53 (o) Not concerned 378 3% 24 70 m,n Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 67

Figure 59: Certainty of About Amount of Income Trade-off, By Selected Characteristics

“How likely would you be to give up the ability to withdraw your money whenever you wanted, if in exchange, you were given certainty

about how much money you will get each month?” Base

Size Very

Likely Somewhat

Likely Not

Likely Age (a) 60-64 178 12% c 27 60 (b) 65-69 309 7% 27 64 (c) 70-75 313 5% 25 68 Household Income (d) Less than $35,000 147 16% f 33 48 (e) $35,000-$74,999 298 10% 27 62 d (f) $75,000 or more 188 4% 26 67 d Household Assets (g) $50,000-$149,999 155 15% i 36 i 46 (h) $150,000-$499,999 198 7% 28 64 g (i) $500,000 or more 210 5% 20 74 g Education (j) High school graduate or less 201 13% l 28 58 (k) Some college/technical school 240 11% l 31 57 (l) Bachelors’ degree or higher 350 4% 23 71 j,k Loss Aversion (m) Would not take $10 bet 381 7% 19 72 n,o (n) Would take $10 bet 270 7% 31 m 60 (o) Would take $50 bet 130 9% 34 m 54 Satisfaction with Standard of Living (p) Very satisfied 524 6% 21 71 q (q) Somewhat satisfied 226 9% 38 p 52 (r) Not satisfied 43 16% 20 53 Concern About Using Up Savings (s) Very concerned 183 15% u 43 u 42 (t) Somewhat concerned 236 8% 34 u 56 s (u) Not concerned 378 4% 15 79 s,t Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 68

Interest in Annuity Product with Return of Principal Guarantee

Retirees were presented with the option of purchasing a financial product that could provide them with monthly income guaranteed to last for the rest of their life and that provides a return of principal guarantee. In other words, if they (and their spouse) were to die before the original value is paid out, monthly payments would continue to their heirs until it was paid back.

Nearly half of retirees (46%) would be very or somewhat likely to consider purchasing this product (Figure 60). However, three in ten say they are not at all likely to consider it. Retirees with and without pension income are equally likely to consider purchasing this return of principal guarantee product.

Figure 60: Interest in Return of Principal Guarantee Product

"How likely do you think you would be to consider purchasing this product?"

11%

35%

24%

30%

10%

34%

24%

31%

11%

35%

23%

29%

Very likely Somewhat likely Not too likely Not at all likely

Total Without pension income With pension income

Base: Total (n=800); without pension income (n=600); with pension income (n=200) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 69

There is a strong positive relationship between willingness to consider purchasing the guaranteed income product and willingness to trade liquidity (Figure 61).

Figure 61: Willingness to Trade Liquidity, by Willingness to Consider Purchasing Return of Principal Guarantee Product

"How likely would you be to give up the ability to withdraw your money whenever you wanted, if in exchange, you were given…?"

(Percentage very or somewhat likely)

75%

73%

66%

62%

60%

50%

54%

22%

22%

17%

23%

61%

Very likely to consider Somewhat likely to consider Not likely to consider

Base: Very likely to consider purchasing product (n=81); somewhat likely to consider purchasing product (n=274); not likely to consider purchasing product (n=436) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

The likelihood of considering a return of principal guarantee product increases as concern about using up savings increases (Figure 62). Further, the propensity to consider purchase increases as household income, financial assets, or loss aversion decrease. Retirees reporting they or their spouse work (vs. those not working) and those making emergency withdrawals only (vs. those taking only investment gains or having no specific approach) are also more likely to consider this purchase.

Certainty that you would not lose any money

Certainty about the rate of return

Certainty about how much money you will

get each month

Protection against a large drop in the stock market

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What Now? How Retirees Manage Money to Make it Last Through Retirement 70

Figure 62: Interest in Return of Principal Guarantee Product, By Selected Characteristics

“How likely do you think you would be to consider purchasing this product?” Base

Size Very

Likely Somewhat

Likely Not

Likely Household Income (a) Less than $35,000 147 20% c 33 46 (b) $35,000-$74,999 298 14% 37 47 (c) $75,000 or more 188 8% 37 54 Household Assets (d) $50,000-$149,999 155 21% e,f 34 45 (e) $150,000-$499,999 198 9% 40 51 (f) $500,000 or more 210 8% 35 57 Respondent or Spouse Working (g) Yes 168 22% h 40 37 (h) No 632 7% 33 59 g Approach to Withdrawals (i) Take investment gains only 124 6% 26 65 k (j) Take constant amount 130 10% 37 51 (k) Emergency only 173 18% i,m 40 42 (l) Other approach 73 9% 40 51 (m) No specific approach 200 6% 33 59 k (n) Don’t make withdrawals 88 14% 35 51 Loss Aversion (o) Would not take $10 bet 381 8% 28 62 p,q (p) Would take $10 bet 270 12% 41 o 46 (q) Would take $50 bet 130 17% 38 45 Satisfaction with Standard of Living (r) Very satisfied 524 7% 34 57 s (s) Somewhat satisfied 226 19% r 37 44 (t) Not satisfied 43 12% 26 62 Concern About Using Up Savings (u) Very concerned 183 22% v,w 35 41 (v) Somewhat concerned 236 8% 44 w 47 (w) Not concerned 378 8% 30 62 u,v Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 71

Impact of Product on Peace of Mind

Half of retirees (49%) feel that this type of product with a return of principal guarantee would add a great deal or a fair amount to their peace of mind, if their income from Social Security and pensions were insufficient to cover recurring monthly expenses (Figure 63). Nevertheless, almost one-quarter think this kind of product would not add to their peace of mind at all. Similar shares of retirees with and without pension income say a product like this would add to their peace of mind.

Figure 63: Product Impact on Peace of Mind

"If you had recurring monthly expenses that were not covered by your Social Security (and pension) income, how much, if at

all, would a product like this add to your peace of mind?"

26%

13%

31%27% 25%

3%

15%

36%

24% 22%

2%

23%

3%

15%

34%

A great deal A fair amount Not too much Not at all Don'tknow/Refused

Total Without pension income With pension income

Base: Total (n=800); without pension income (n=600); with pension income (n=200) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 72

The extent to which retirees think this type of return of principal guarantee product would add to their financial peace of mind is related to their current peace of mind (Figure 64). Those who already enjoy peace of mind are less likely to think this product could add to it.

Figure 64: Impact of Product on Peace of Mind, by Current Peace of Mind

Impact of product on peace of mind by current presence of financial peace of mind

26%30% 28%

24%

11%6%

34%

13%

2%

24%

A great deal A fair amount Not too much Not at all Don't know/Refused

Has peace of mind No peace of mind

Base: Respondents with peace of mind (n=707); without peace of mine (n=81) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Several groups are more likely to feel this type of product would add to their peace of mind (Figure 65). These include retirees ages 60 to 69 (compared with older retirees), those with household income under $35,000 (compared with higher-income retirees), and retirees who are currently working or whose spouse is working (compared with those who are not). The tendency to think this product would add to peace of mind also increases as household assets or loss aversion decrease or as concern about using up savings increases. Finally, impact on peace of mind increases sharply as likelihood of purchasing the tested product increases.

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What Now? How Retirees Manage Money to Make it Last Through Retirement 73

Figure 65: Product Impact on Peace of Mind, by Selected Characteristics

“If you had recurring monthly expenses that were not covered by your Social Security (and pension) income, how much, if at all,

would a product like this add to your peace of mind?” Base

Size A Great

Deal A Fair

Amount Not Age (a) 60-64 178 21% c 34 44 (b) 65-69 309 17% c 36 42 (c) 70-75 313 8% 32 57 a,b Household Income (d) Less than $35,000 147 14% 53 e,f 31 (e) $35,000-$74,999 298 21% f 35 43 (f) $75,000 or more 188 11% 33 55 d,e Household Assets (g) $50,000-$149,999 155 29% h,i 39 29 (h) $150,000-$499,999 198 14% 42 i 43 g (i) $500,000 or more 210 9% 29 59 g,h Respondent or Spouse Working (j) Yes 168 20% 42 35 (k) No 632 13% 32 53 j Loss Aversion (l) Would not take $10 bet 381 11% 30 56 m,n (m) Would take $10 bet 270 14% 40 l 44 (n) Would take $50 bet 130 23% l 37 37 Satisfaction with Standard of Living (o) Very satisfied 524 11% 32 55 p (p) Somewhat satisfied 226 21% o 41 35 (q) Not satisfied 43 18% 34 44 Concern About Using Up Savings (r) Very concerned 183 30% s,t 28 38 (s) Somewhat concerned 236 8% 56 r,t 34 (t) Not concerned 378 12% 25 61 r,s Likelihood of Annuity Purchase (u) Very likely 81 48% v,w 41 w 8 (v) Somewhat likely 274 19% w 57 w 22 u (w) Not likely 436 5% 19 73 u,v Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 74

Reasons for Purchasing Product

Six in ten retirees feel that maintaining independence is a convincing reason to purchase a guaranteed income product, including one-quarter who feel it is a very convincing reason (Figure 66). About six in ten also feel that each the three remaining reasons (peace of mind, budget management, and higher annual income) are convincing.

Figure 66: Reasons for Purchasing Guaranteed Income Products

"How convincing is...as a reason for purchasing a product that provides guaranteed income for the rest of your life?"

26%

19%

15%

34%

42%

44%

41%

61%

61%

58%

57%16%

Very convincing Somewhat convincing

Note: Netted percentage may not equal sum of components due to rounding. Base: All respondents (n=800) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

This product gives you peace of mind because the payments will continue for

as long as you (and your spouse) live

You can get a larger amount of money each year from this product than you can from

withdrawing just gains, dividends, or interest

This product helps you manage your budget because you get a predictable amount of money every month, just like a paycheck

This product can help you remain independent because the money will

never run out

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What Now? How Retirees Manage Money to Make it Last Through Retirement 75

Retirees with and without pension income are equally likely to find each of the four reasons for purchasing a guaranteed income product convincing (Figure 67).

Figure 67: Reasons for Purchasing Guaranteed Income Products, By Presence of Pension Income

"How convincing is...as a reason for purchasing a product that provides guaranteed income for the rest of your life?"

26%

26%

18%

14%

15%

16%

16%

34%

34%

38%

44%

41%

45%

39%

41%

61%

60%

58%

63%

55%

60%

56%

58%

20%

Without

With

Without

With

Without

With

Without

With

Very convincing Somewhat convincing

Note: Netted percentage may not equal sum of components due to rounding. Base: Without pension income (n=600); with pension income (n=200) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

In general, similar groups of retirees find each of these reasons to be convincing (Figures 68 through 71). The propensity to find them convincing increases as concern about using up savings or the likelihood of considering purchase of the tested product increase. It decreases as age, financial assets, or loss aversion increase. Other retirees more apt to state these reasons are convincing include those who dipped into principal over the last year (vs. those who have not) and those who say they or their spouse are currently employed (vs. those not working). Despite the fact that guaranteed income products offer the greatest benefit to those living longer than average, those who do not think they or their spouse will live into their 90s are more likely than those who do to indicate the messages are effective.

It gives you peace of mind because the payments will continue for as long as you live

You can get a larger amount of money from it than you can from withdrawing just gains, dividends, or interest

It helps you manage your budget because you get a predictable amount every month, like a paycheck

It can help you remain independent because the money will never run out

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What Now? How Retirees Manage Money to Make it Last Through Retirement 76

Figure 68: Independence as a Reason for Purchasing Guaranteed Income Products, by Selected Characteristics

“How convincing is “this product can help you remain independent because the money will never run out” as a reason for purchasing a product

that provides guaranteed income for the rest of your life?” Base

Size Very

Convincing Somewhat Convincing

Not Convincing

Age (a) 60-64 178 35% c 33 30 (b) 65-69 309 25% 36 37 (c) 70-75 313 22% 33 44 a Household Assets (d) $50,000-$149,999 155 42% e,f 27 30 (e) $150,000-$499,999 198 23% 48 d,f 28 (f) $500,000 or more 210 23% 31 44 d,e Treatment of Principal in Past Year (g) Built up 288 26% 33 38 (h) Kept intact 278 22% 34 42 i (i) Dipped into 217 33% h 36 30 Loss Aversion (j) Would not take $10 bet 381 18% 33 47 k,l (k) Would take $10 bet 270 35% j 36 28 (l) Would take $50 bet 130 35% j 37 26 Respondent or Spouse Expect to Live Until Age 90 (m) Yes 286 24% 31 44 n (n) No 405 30% o 38 30 (o) Don’t know/Refused 109 17% 32 47 n Concern About Using Up Savings (p) Very concerned 183 42% q,r 29 26 (q) Somewhat concerned 236 24% 39 36 (r) Not concerned 378 21% 34 44 p Likelihood of Annuity Purchase (s) Very likely 81 69% t,u 17 10 (t) Somewhat likely 274 39% u 47 s,u 13 (u) Not likely 436 9% 30 s 58 s,t Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 77

Figure 69: Peace of Mind as a Reason for Purchasing Guaranteed Income Products, by Selected Characteristics

“How convincing is “this product gives you peace of mind because the payments will continue for as long as you (and your spouse) live” as a reason for

purchasing a product that provides guaranteed income for the rest of your life?” Base

Size Very

Convincing Somewhat Convincing

Not Convincing

Age (a) 60-64 178 23% 50 27 (b) 65-69 309 22% c 40 36 (c) 70-75 313 13% 39 47 a,b Household Assets (d) $50,000-$149,999 155 33% e,f 39 28 (e) $150,000-$499,999 198 16% 53 d 29 (f) $500,000 or more 210 15% 42 42 d,e Respondent or Spouse Working (g) Yes 168 29% h 38 33 (h) No 632 16% 43 40 Treatment of Principal in Past Year (i) Built up 288 19% 36 44 k (j) Kept intact 278 16% 43 40 k (k) Dipped into 217 25% 48 27 Loss Aversion (l) Would not take $10 bet 381 13% 39 47 m,n (m) Would take $10 bet 270 25% l 44 30 (n) Would take $50 bet 130 26% l 47 26 Respondent or Spouse Expect to Live Until Age 90 (o) Yes 286 17% 40 43 p (p) No 405 24% q 45 31 (q) Don’t know/Refused 109 11% 37 51 p Concern About Using Up Savings (r) Very concerned 183 36% s,t 37 25 (s) Somewhat concerned 236 14% 52 r,t 34 (t) Not concerned 378 15% 39 46 r,s Likelihood of Annuity Purchase (u) Very likely 81 58% v,w 31 11 (v) Somewhat likely 274 26% w 60 u,w 14 (w) Not likely 436 7% 33 58 u,v Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 78

Figure 70: Increased Income as a Reason for Purchasing Guaranteed Income Products, by Selected Characteristics

“How convincing is “you can get a larger amount of money each year from this product than you can from withdrawing just gains, dividends,

or interest” as a reason for purchasing a product that provides guaranteed income for the rest of your life?”

Base Size

Very Convincing

Somewhat Convincing

Not Convincing

Age (a) 60-64 178 22% c 49 28 (b) 65-69 309 17% c 43 38 (c) 70-75 313 8% 40 50 a,b Household Assets (d) $50,000-$149,999 155 25% e,f 45 30 (e) $150,000-$499,999 198 12% 52 35 (f) $500,000 or more 210 13% 43 42 Respondent or Spouse Working (g) Yes 168 24% h 35 41 (h) No 632 12% 46 g 40 Treatment of Principal in Past Year (i) Built up 288 13% 44 41 k (j) Kept intact 278 13% 39 46 k (k) Dipped into 217 21% 49 28 Loss Aversion (l) Would not take $10 bet 381 7% 38 53 m,n (m) Would take $10 bet 270 24% l 48 27 (n) Would take $50 bet 130 19% l 51 27 Concern About Using Up Savings (o) Very concerned 183 29% p,q 42 28 (p) Somewhat concerned 236 14% 48 37 (q) Not concerned 378 9% 42 46 o Likelihood of Annuity Purchase (r) Very likely 81 46% s,t 34 17 (s) Somewhat likely 274 19% t 62 r,t 18 (t) Not likely 436 6% 34 59 r,s Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 79

Figure 71: Assistance with Budget Management a Reason for Purchasing Guaranteed Income Products, by Selected Characteristics

“How convincing is “this product helps manage your budget because you get a predictable amount of money every month, just like a paycheck” as a reason for purchasing a product that provides guaranteed income for the rest of your life?”

Base Size

Very Convincing

Somewhat Convincing

Not Convincing

Age (a) 60-64 178 27% b,c 42 31 (b) 65-69 309 14% 45 41 (c) 70-75 313 12% 36 51 a Household Assets (d) $50,000-$149,999 155 30% e,f 39 30 (e) $150,000-$499,999 198 14% 54 d,f 32 (f) $500,000 or more 210 16% 35 49 d,e Respondent or Spouse Working (g) Yes 168 24% h 38 38 (h) No 632 14% 41 44 Treatment of Principal in Past Year (i) Built up 288 17% 35 48 k (j) Kept intact 278 16% 37 46 k (k) Dipped into 217 17% 53 I,j 30 Loss Aversion (l) Would not take $10 bet 381 12% 36 52 m,n (m) Would take $10 bet 270 21% l 46 l 32 (n) Would take $50 bet 130 24% l 44 33 Respondent or Spouse Expect to Live Until Age 90 (o) Yes 286 16% 38 46 p (p) No 405 18% 46 q 35 (q) Don’t know/Refused 109 10% 28 60 p Concern About Using Up Savings (r) Very concerned 183 30% s,t 38 32 (s) Somewhat concerned 236 17% 47 36 (t) Not concerned 378 11% 39 50 r,s Likelihood of Annuity Purchase (u) Very likely 81 46% v,w 41 13 (v) Somewhat likely 274 22% w 58 u,w 20 (w) Not likely 436 7% 30 62 u,v Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 80

Interest in Learning More About Guaranteed Income Product

Three in ten affluent retirees (29%) are sufficiently intrigued by what they have learned about guaranteed income products that they are very or somewhat interested in investigating them more on their own (Figure 72). Retirees with and without pension income show similar levels of interest.

Figure 72: Interest in Learning More on Own About Guaranteed Income Products

"Now that you have heard about products that provide guaranteed income for life, how interested are you in investigating them more

on your own?"

4%

24% 23%

48%

5%

24% 24%

46%

4%

24% 22%

49%

Very interested Somewhat interested Not too interested Not at all interested

Total Without pension income With pension income

Base: Total (n=800); without pension income (n=600); with pension income (n=200) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Interest in guaranteed income products increases as concern about using up savings or likelihood of considering purchase of the tested product increase (Figure 73). It decreases as age, household assets, loss aversion, and satisfaction with current standard of living increase. Those saying they or their spouse are working (compared with those not working) are more likely to indicate they are at least somewhat interested, as are those who have dipped into principal in the last year (compared with those who have maintained or built their principal) and those withdrawing money for emergencies only (compared with those using other investment approaches).

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What Now? How Retirees Manage Money to Make it Last Through Retirement 81

Figure 73: Interest in Learning More on Own About Guaranteed Income Products, by Selected Characteristics

“Now that you have heard about products that provide guaranteed income for life, how interested are you in investigating them more on your own?”

Base Size

Very Interested

Somewhat Interested

Not Interested

Age (a) 60-64 178 8% 32 c 61 (b) 65-69 309 3% 25 73 a (c) 70-75 313 3% 19 77 a Household Assets (d) $50,000-$149,999 155 7% 36 f 57 (e) $150,000-$499,999 198 2% 28 70 (f) $500,000 or more 210 3% 21 75 d Respondent or Spouse Working (g) Yes 168 6% 39 h 55 (h) No 632 4% 20 76 g Treatment of Principal in Past Year (i) Built up 288 4% 20 76 k (j) Kept intact 278 4% 22 74 k (k) Dipped into 217 4% 37 i,,j 59 Approach to Withdrawals (l) Take investment gains only 124 4% 18 79 n (m) Take constant amount 130 5% 18 78 n (n) Emergency only 173 5% 41 lmopq 54 (o) Other approach 73 3% 24 73 n (p) No specific approach 200 4% 21 75 n (q) Don’t make withdrawals 88 5% 16 80 n Loss Aversion (r) Would not take $10 bet 381 3% 17 80 s,t (s) Would take $10 bet 270 5% 31 r 64 (t) Would take $50 bet 130 7% 30 r 64 Satisfaction with Standard of Living (u) Very satisfied 524 2% 21 77 v (v) Somewhat satisfied 226 7% u 32 u 61 (w) Not satisfied 43 22% u 21 57 Concern About Using Up Savings (x) Very concerned 183 9% 36 z 55 (y) Somewhat concerned 236 2% 28 z 71 x (z) Not concerned 378 3% 18 78 x

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Figure 73: Interest in Learning More on Own About Guaranteed Income Products, by Selected Characteristics (continued)

“Now that you have heard about products that provide guaranteed income for life, how interested are you in investigating them more on your own?”

Base Size

Very Interested

Somewhat Interested

Not Interested

Likelihood of Annuity Purchase (aa) Very likely 81 21% ab,ac 35 ac 44 (ab) Somewhat likely 274 4% 48 ac 48 (ac) Not likely 436 1% 7 91 aa,ab Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Familiarity with Annuities

More than eight in ten retirees (84%) with assets of $50,000 or more say they are familiar with an annuity, including more than four in ten who say they are very familiar (Figure 74). Less than one in ten indicate they are not at all familiar with these types of products. Retirees without pension income are as likely as those with income from this source to state they are familiar with annuities.

Figure 74: Familiarity with Annuities

"How familiar would you say you are with a financial product called an annuity that provides a guaranteed stream of income, usually for

life?"

43%40%

9% 7%

39%42%

9% 9%

45%39%

9%5%

Very familiar Somewhat familiar Not too familiar Not at all familiar

Total Without pension income With pension income

Base: Total (n=800); without pension income (n=600); with pension income (n=200) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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Familiarity with annuities increases with household income, financial assets, and education (Figure 75). It decreases as concern about using up savings increases. Other retirees more often stating they are familiar with annuities include men (compared with women), those with a professional financial advisor (compared with those without), and those not relying on emergency-only withdrawals as their primary strategy (compared with those withdrawing money in emergencies only).

Figure 75: Familiarity with Annuities, by Selected Characteristics

“How familiar would you say you are with a financial product called an annuity that provides a guaranteed stream of income, usually for life?”

Base Size

Very Familiar

Somewhat Familiar

Not Familiar

Gender (a) Male 446 47% 41 12 (b) Female 354 39% 40 21 a Household Income (c) Less than $35,000 147 29% 51 e 20 (d) $35,000-$74,999 298 41% c 42 16 (e) $75,000 or more 188 50% c 36 14 Household Assets (f) $50,000-$149,999 155 28% 44 28 h (g) $150,000-$499,999 198 31% 52 h 16 (h) $500,000 or more 210 61% f,g 30 9 Education (i) High school graduate or less 201 23% 50 k 27 k (j) Some college/technical school 240 39% i 42 19 k (k) Bachelors’ degree or higher 350 55% I,j 35 10 Approach to Withdrawals (l) Take investment gains only 124 44% 43 13 (m) Take constant amount 130 50% n 41 9 (n) Emergency only 173 30% 51 p 19 (o) Other approach 73 48% n 34 18 (p) No specific approach 200 47% n 35 18 (q) Don’t make withdrawals 88 48% n 36 17

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Figure 75: Familiarity with Annuities, by Selected Characteristics (continued)

“How familiar would you say you are with a financial product called an annuity that provides a guaranteed stream of income, usually for life?”

Base Size

Very Familiar

Somewhat Familiar

Not Familiar

Concern About Using Up Savings (r) Very concerned 183 36% 41 23 t (s) Somewhat concerned 236 31% 53 t 16 (t) Not concerned 378 53% r,s 34 13 Have Professional Financial Advisor (u) Yes 554 47% v 39 14 (v) No 244 36% 43 21 Note: Letters in superscript indicate the percentage is significantly higher than the referenced subgroup(s) (p ≤ .05). Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 85

CONCLUSION AND IMPLICATIONS

Retirement can be an exciting and challenging time. After years of accumulating funds, retirees face decisions about how to cover their expenses and live out their retirement dreams while ensuring their money does not run out. This joint survey by AARP and the American Council of Life Insurers (ACLI) reveals that many (49%) retirees are, indeed, very or somewhat concerned about using up most of their savings and investments. For many, this concern is based on a desire to remain independent throughout their retirement years. When making decisions about withdrawing money, keeping enough for later in life and obtaining a dependable income from investments are both important to the majority of retirees surveyed, with keeping enough for later in life mentioned by the largest share.

Retirees' concern about not outliving their assets leads some to curtail their spending or to avoid dipping into their principal at all costs. Nevertheless, while retirees are cutting back, they still remain at risk of outliving their savings and investments. Annuitizing a portion of their assets to supplement their income could provide stability and guarantee a flow of income they would not outlive.

Not surprising, those retirees who are most concerned about using up their savings and investments and who are most concerned about obtaining a dependable amount of income each month are more interested in annuity products than other retirees who were surveyed. However, these retirees are also more likely to have lower asset levels and will have to weigh the tradeoff carefully. There is a great incentive to be financially cautious in retirement, yet surprising, the more loss averse retirees that were surveyed are less open to annuitized income solutions than the less loss averse.

Nevertheless, more than nine in ten retirees (93%) are very or somewhat confident that they can manage their savings and investments so it lasts their (and their spouse's) lifetime. And like most of the survey findings, this did not differ between retirees with and without pensions. Unfortunately, this confidence may lead some retirees to avoid dealing with their concern.

While only three in ten (29%) retirees are very or somewhat interested in investigating guaranteed income solutions more on their own, this may be due to the fact that many are familiar with annuities already. In fact, over eight in ten (84%) say they are very or somewhat familiar with annuities, with more than four in ten (43%) saying they are very familiar.

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Not all retirees manage their money in the same way. The presence of five different types of money managers suggests that various aspects of guaranteed income solutions might be more appealing to some more than others. For example, protection against loss may be more important to "undisciplined" and "troubled" retirees, while a steady stream of payments may be more appealing to "troubled" retirees who have erratic withdrawal approaches.

When workers retire, they must decide what to do with the funds they have accumulated through their company's 401(k)-type plan. Retirees can choose to receive a lump-sum payment, to roll it over to an IRA, or to place a portion of the funds in a product that guarantees a specific amount of income for life. To help retirees make informed decisions, more outreach and education will be needed about the benefits of guaranteed income solutions as well as the various features of annuity products. While there is a clear need for lifetime income solutions, there also are inherent complexities which necessitate the need for better education and disclosure to avoid consumer confusion and poor purchase decisions. For retirees to benefit the most, they will need to understand the advantages and limitations of guaranteed income solutions.

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PROFILE OF SURVEY RESPONDENTS

Figure 76 describes selected demographic characteristics of the survey respondents. Slightly more than half of the respondents are male (55%).

The median age of the respondents is 68. One-quarter (25%) are between the ages of 60 and 64. Almost four in ten each are ages 65 to 69 and 70 to 75 (37% each). Respondents with pension income are somewhat more likely than those without pension income to be ages 60 to 64 (27% vs. 20%).

One in ten respondents (11%) report they retired or began to retire before age 55. One-quarter (26%) retired between the ages of 55 and 59, and four in ten (40%) retired between ages 60 and 64. One in ten each indicate they retired at age 65% (11%) or later (10%). Respondents with pension income are more likely to have retired before age 60 (41% vs. 29% without pension income).

Seven in ten respondents (71%) are currently married. Sixteen percent are widowed, 9% are divorced or separated, and 4% have never been married. Among those who are married, the median age of the respondents’ spouse is 67.

About two in ten respondents (22%) have a high school education or less. Roughly one-quarter each have some college or technical training beyond high school but have not completed a four-year degree (27%), have a bachelor’s degree (23%), and have a graduate or professional degree (26%). Those with pension income are twice as likely as those without this income to have a graduate or professional degree (32% vs. 15%).

The large majority of respondents are white or Caucasian (93%). Three percent are African American, and less than 1% are each Asian/Pacific Islander or American Indian/Alaskan Native. Two percent are of Hispanic, Spanish, or Latino heritage.

Three-quarters of the survey participants (75%) are the primary decision-maker in their household when it comes to investment decisions. The remaining quarter (25%) share these decisions equally with someone else.

About one in ten respondents (12%) report their household income in 2006 was under $35,000. Retirees without pension income are especially likely to have income under $35,000 (23% without pension income vs. 5% with pension income. Sixteen percent report $35,000 to $49,999 in household income, and one-quarter each report income of $50,000 to $74,999 (25%) and $75,000 or more (24%). A sizable proportion says they do not know or prefer not to divulge their household income (23%).

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About one-third of respondents (31%) are currently receiving regular payments from a defined benefit pension plan, and another third (34%) are assumed to have pension income as a result of retiring from a government job. The remaining third (35%) do not receive income from a pension.

Figure 76: Demographic Characteristics of Survey Respondents

Total

Without Pension Income

With Pension Income

Age 60 to 64 25% 20% 27% 65 to 69 37 39 36 70 to 75 37 40 36 Median Age 68 years 68 years 68 years Retirement Age Before 55 11% 9% 12% 55 to 59 26 20 29 60 to 64 40 41 40 65 11 14 10 66 or later 10 13 9 Never worked 1 3 0 Gender Male 55% 56% 53% Female 45 43 46 Marital Status Married 71% 67% 72% Widowed 16 17 15 Divorced/Separated 9 12 7 Single, never married 4 3 4 Spouse’s Age (Among those who are married) (n=549) (n=404) (n=145) Under 65 33% 28 36 65 to 69 33 36 32 70 or older 32 34 30 Median Age 67 years 67 years 67 years

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Figure 76: Demographic Characteristics of Survey Respondents (continued)

Total

Without Pension Income

With Pension Income

Education Some high school or less 3% 5% 1% High school graduate or equivalent 19 23 17 Some college or technical training beyond high school 27 32 24 Bachelors degree 23 25 22 Graduate or professional degree 26 15 32 Hispanic or Latino Origin or Descent Yes 2% 2% 2% No 97 97 96 Race American Indian or Alaskan Native <0.5% <0.5% -- Asian or Pacific Islander <0.5 <0.5 <0.5% Black or African American 3 <0.5 4 Hispanic or Latino 1 <0.5 1 White or Caucasian 93 97 91 Other 1 <0.5 1 Investment Decision Maker Take the lead 75% 71% 76% Make decisions equally with someone else 25 29 23 Household Income Less than $25,000 6% 10% 3% $25,000 to $34,999 6 13 2 $35,000 to $49,999 16 15 16 $50,000 to $59,999 14 11 16 $60,000 to $74,999 11 9 12 $75,000 to $99,999 12 9 14 $100,000 or more 12 14 11 Don’t know/Refused 23 20 24 Pension Status With pension income 31% -- 52% Retired from government, assumed to have pension income 34 -- 47 Without pension income 35 100% --

Base: Total (n=800); without pension income (n=600); with pension income (n=200) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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APPENDIX A: METHODOLOGY AND WEIGHTING PROCEDURES

METHODOLOGY Telephone interviews for the Survey of Guaranteed Stream of Income

Products were conducted between July 18 and August 19, 2007. The study participants were reached by sampling from a list of households with members ages 60 to 75 throughout the United States. This list was purchased from Survey Sampling International. Screening questions were used to qualify respondents with the following characteristics: they (and their spouse, if married) considered themselves to be retired or out of the workforce and not seeking employment, they had household financial assets of at least $50,000 (not including the value of their primary home or any defined benefit pension plans), and they took the lead in or shared equally in making investment decisions for the household. A screening question was also asked to confirm age.

A total of 800 retirees participated in the study. It was hypothesized that retirees without guaranteed income from an employer-provided pension would have greater interest in guaranteed stream of income products. Therefore, quotas were set to obtain 600 participants who were not receiving guaranteed income from an employer-provided pension and 200 participants who were receiving pension income. Government retirees were presumed to be receiving pension income.

In theory, the weighted sample of 800 yields a statistical precision of plus or minus 7 percentage points (with 95% confidence) of what the results would be if the entire population of retirees meeting the screening qualifications were surveyed with complete accuracy. However, there are other possible sources of error in all surveys that may be more serious than theoretical calculations of sampling error. These include refusals to be interviewed and other forms of nonresponse, the effects of question wording and question order, interviewer bias, and screening. While attempts are made to minimize these factors, it is impossible to quantify the errors that may result from them.

WEIGHTING The national survey results have been weighted by the presence of

guaranteed income from a defined benefit pension plan. Figure A-1 presents the distribution of survey responses by this income source as well as the weighting factors used to make the responses in each category reflect that group’s share of the national retired population age 60 to 75. The weighting factors were computed by dividing each group’s share of the population by its share of all

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survey responses:

(Target proportion ÷ Proportion of responses = Weighting factor)

The data used to develop this weighting strategy were based on Employee Benefit Research Institute (EBRI) estimates from the 2004 Survey of Consumer Finance for the retired population ages 60 to 74 with non-housing and non-pension assets of at least $50,000. These data closely conform to the incidence rates experienced in the telephone recruiting process.

Figure A-1: Number of Respondents and Weighting Scheme

% of Retired

Pop.

# of Resp.

Receiv.

% of Resp.

Receiv.

Weight Factor

Wghtd # of

Resp.

% of Wghtd Resp.

Without guaranteed income from defined benefit plan 35 600 75 0.4667 280 35 With guaranteed income from defined benefit plan 65 200 25 2.6000 520 65 Total 100 800 100 800 100

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APPENDIX B: CLUSTER ANALYSIS

METHODOLOGY

A cluster analysis was performed to obtain additional insight into affluent retirees’ receptivity to guaranteed stream of income products. This type of analysis examines the pattern of correlation between responses to a set of survey questions in order to derive distinct groups of consumers who respond similarly and in ways that most clearly distinguish them from other groups.

A number of alternate methods of performing cluster analysis were tested for this project before settling on latent class analysis as the method producing the most useful segmentations. In this method, the relationships between variables are examined to determine the cluster solutions that explain the largest amount of variability within the data. A particular advantage to this method is that it allows the use of nominal level data in the segmentation.

Several cluster solutions were examined using varying sets of questions. The number of clusters in these solutions varied from three to seven. In the end, two separate cluster solutions were identified as the most distinct and actionable. One is based on management style, the other on two key attitudes that relate strongly to interest in annuity products. These solutions are described in the following sections.

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MANAGEMENT STYLE CLUSTERS

When it comes to managing retirement finances and preparing for future financial needs, retirees can be characterized by three dimensions of financial management:

• Current spending patterns, as measured by a ratio of guaranteed income to expenses,

• Use of savings and investment principal, and

• Approach to withdrawing money from savings and investments.

Based on these three characteristics, affluent retirees can be divided into five distinct groups. These are:

• Investors (23% of sample)—guaranteed income lower than expenses, but with principal remaining the same or growing, and disciplined withdrawal approaches.

• Manager (13% of sample)—guaranteed income higher than expenses, principal that is growing, and careful withdrawal approaches.

• Thrifty (19% of sample)—guaranteed income that is the same or lower than expenses, but with principal remaining the same or growing, and cautious withdrawal approaches.

• Undisciplined (33% of sample)—guaranteed income that is the same or higher than expenses, but with many dipping into or maintaining their principal, and with an undefined withdrawal approach.

• Troubled (12% of sample)—guaranteed income below expenses, dipping into principal, and erratic withdrawal approaches.

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Characteristics of Investors

Investors have a well-organized approach to retirement finances. While they are considerably more likely than retirees in general to have guaranteed monthly income that is lower than their monthly expenses, they have a strong investing orientation that helps compensate for their lack of guaranteed monthly income. Over the past year, Investors have managed to build up or, at the very least, maintain their savings and investment principal. Investors also take a disciplined approach to withdrawing money from their savings and investments, typically taking a constant amount or only the gains.

Figure B-1: Selected Characteristics of Investors

38%

100%

51%

49%

27%

26%

13%

14%

37%

37%

Total Investors

Base: Total (n=800); Investors (n=194) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Investors’ demographics indicate that they are relying heavily on the substantial assets they have managed to accumulate prior to retirement. Specifically, they are among the most likely to have annual household income of $100,000 or more (18%). They are most likely to have household assets of at least $750,000 (32%) and to have at least half of their savings and investments invested in equities (50%). On the other hand, Investors are among the least likely to receive income from an employer-provided pension plan (43%).

Income lower than expenses

Built up principal

Maintained principal

Withdraw constant amount

Withdraw gains only

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Characteristics of Managers

Managers are able to manage their retirement finances very well using what they have available. Their guaranteed monthly income is higher than their monthly expenses and, as a result, they are able to build their principal. Managers try to refrain from withdrawing money from their savings and investments, unless there is an emergency.

Figure B-2: Selected Characteristics of Managers

23%

100%

100%

25%

23%

13%

23%

37%

Total Managers

Base: Total (n=800); Managers (n=48) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Managers’ demographics indicate that they are efficient at relying on the pension income they receive. Specifically, 71% of Managers report income of $35,000 to $74,999. Their wealth is concentrated in the low-to-mid range of household assets, with 55% reporting assets under $500,000. They are most likely to be moderately stock-invested, with 30% having 25% to 49% in equities. Managers are also the most likely to receive income from a pension (87%).

Income higher than expenses

Built up principal

Withdraw money in emergencies only

Do not withdraw money

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Characteristics of Thriftys

Thriftys are making the most of their resources. Their guaranteed monthly income is likely to be the same or lower than their monthly expenses. However, over the past year, Thriftys have built up or maintained their savings and investment principal. This is most likely due to their restrained approach to withdrawing from savings and investments. Thriftys are the most likely to not withdraw funds from their accounts and to withdraw money in emergencies only.

Figure B-3: Selected Characteristics of Thriftys

37%

13%

44%

56%

76%

24%

44%

38%

38%

23%

37%

38%

Total Thriftys

Base: Total (n=800); Thriftys (n=113) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Thriftys are made up of retirees across the resource spectrum. While they span the range of income, they are most likely to have income of $100,000 or more (20%). Half have household assets of $250,000 or more, though 16% have assets under $100,000. They, along with Investors, are the most likely to be stock-invested, with 50% reporting at least half of their assets are in equities. Nevertheless, 14% report no stock investment, second to only Troubleds. Two-thirds of Thriftys receive income from a pension (67%). They are among the most likely to be married and, among those who are married, are the most likely to have a spouse under the age of 65.

Income lower than expenses

Built up principal

Maintained principal

Withdraw money in emergencies only

Do not withdraw money

Income about the same as expenses

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Characteristics of Undisciplineds

Undisciplineds are not making the most of their resources. They are more likely than retirees in general to have guaranteed monthly income that is higher than their monthly expenses. Yet Undisciplineds have, at best, kept their principal intact and many have dipped into these funds. They say they only withdraw money in emergencies or have no particular approach to withdrawals.

Figure B-4: Selected Characteristics of Undisciplineds

38%

24%

61%

39%

69%

31%

34%

27%

23%

23%

23%

38%

Total Undisciplineds

Base: Total (n=800); Undisciplineds (n=174) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Undisciplineds’ demographics indicate they may be using their savings and investments because of lower resources. Undisciplineds (18%) are more likely than either Managers (7%) or Investors (9%) to have income under $35,000. They are most likely to report assets under $500,000 (72%) and to have limited stock investment, with 1% to 24% of savings and investments in equities (23%). However, three-quarters of Undisciplineds receive income from a pension (74%). They are also among the most likely to be married.

Income higher than expenses

Maintained principal

Dipped into principal

Withdraw money in emergencies only

No specific approach to withdrawals

Income about the same as expenses

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Characteristics of Troubleds

Troubleds are in the worst financial position of the five management groups. They are more likely than retirees in general to have guaranteed monthly income that is lower than their monthly expenses. Because of this, they have dipped into their savings and investment principal. Although some Troubleds try to withdraw a constant amount from savings and investments, many take some other, unspecified approach.

Figure B-5: Selected Characteristics of Troubleds

23%

78%

22%

100%

30%

29%

13%

11%

37%

38%

Total Troubleds

Base: Total (n=800); Troubleds (n=117) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Troubleds’ demographics demonstrate that this group is at-risk. Troubleds are most likely to be widowed or divorced, thereby lacking the potential financial support of a spouse. They are most apt to have household income under $35,000 (24%), have household assets less than $100,000 (27%), and to have no money invested in equities (21%). Troubleds are least likely to receive pension income (32%).

Income lower than expenses

Dipped into principal

Withdraw constant amount

Some other approach to withdrawals

Income about the same as expenses

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ATTITUDINAL CLUSTERS

When it comes to receptivity to investment products that provide guaranteed income, retirees can be characterized by two issues or concerns:

• Concern about using up most of their savings and investments, and

• Difficulty obtaining a dependable amount of money each month.

Based on these concerns, affluent retirees can be divided into three distinct groups. These are:

• Highly Concerned (13% of sample)—strongly concerned about at least one, but usually both issues.

• Concerned (68% of sample)—have some concerns about one or both of the two issues, but concerns are moderate or slight.

• Unconcerned (18% of sample)—concerned about neither of the issues.

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Characteristics of Highly Concerneds

Highly Concerneds are strongly concerned about their financial futures. They are most likely to be very or somewhat concerned about using up most of their savings and investments and to find it very or somewhat difficult to obtain a dependable amount of money each month to pay expenses.

Figure B-6: Selected Characteristics of Highly Concerneds

2%

57%

40%

17%

83%

14%

22%

27%

Total Highly Concerneds

Base: Total (n=800); Highly Concerneds (n=126) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Highly Concerneds’ demographics demonstrate that this group has limited resources. Highly Concerned retirees are most likely to have a high school diploma or less education (32%), to have household income under $35,000 (25%), and to have financial assets under $500,000 (60%). They are least likely to have high stock-investment (35% with 50% or more in equities). Highly Concerneds are also the least likely of the three attitudinal groups to receive income from a pension (53%).

Very concerned about using up savings

Very difficult to obtain dependable amount

each month

Somewhat difficult to obtain dependable

amount each month

Somewhat concerned about using up savings

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What Now? How Retirees Manage Money to Make it Last Through Retirement 101

Characteristics of Concerneds

Concerneds have some concerns about their finances, but these are moderate or slight. They are likely to be somewhat or not too concerned about using up most of their savings and investments and to find it not too difficult to obtain a dependable amount of money each month to pay expenses.

Figure B-7: Selected Characteristics of Concerneds

36%

32%

42%

51%

44%

46%

27%

29%

Total Concerneds

Base: Total (n=800); Concerneds (n=533) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Concerneds’ demographics indicate that this group is middle-of-the-road, matching up with retirees overall. Half of Concerned retirees have less than a college degree (51%). About half each have income of less than $75,000 (55%) or household assets less than $500,000 (49%). Four in ten have at least half of their savings and investments invested in equities (40%). Two-thirds of Concerneds report they receive pension income (66%).

Somewhat concerned about using up savings

Not too difficult to obtain dependable amount

each month

Not at all difficult to obtain dependable

amount each month

Not too concerned about using up savings

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What Now? How Retirees Manage Money to Make it Last Through Retirement 102

Characteristics of Unconcerneds

Unconcerneds do not have concerns about their finances. They are not at all concerned about using up most of their savings and investments and find it not at all difficult to obtain a dependable amount of money each month to cover their expenses.

Figure B-8: Selected Characteristics of Unconcerneds

100%

100%

22%

46%

Total Unconcerneds

Base: Total (n=800); Unconcerneds (n=126) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Unconcerneds’ demographics indicate this group has plenty of resources to rely upon. Two-thirds of have a college degree or further education (68%). They are more likely than either Highly Concerneds (15%) or Concerneds (23%) to have household income of $75,000 or more (36%). Nearly half have at least $500,000 in household assets (46%), with almost three in ten having assets of $1 million or more (28%). Unconcerneds are the most heavily invested in equities, with 50% having at least half of their savings and investments in stocks. Unconcerneds are also most likely to report that they have pension income (71%).

Not at all concerned about using up savings

Not at all difficult to obtain dependable

amount each month

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What Now? How Retirees Manage Money to Make it Last Through Retirement 103

Attitudinal Clusters by Management Style

Figure B-9 presents the distribution of the attitudinal clusters by management style.

Figure B-9: Attitude Cluster by Management Style

6%

21%

69%

61%

85%

63%

68%

75%

18%

30%

10%

21%

15%

4%

16%

17%

13%

9%

Total

Investors

Managers

Thriftys

Undisciplineds

Troubleds

Highly Concerneds Concerneds Unconcerneds

Base: Total (n=800); Investors (n=194); Managers (n=48); Thriftys (n=113); Undisciplineds (n=174); Troubleds (n=117) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 104

REACTION TO ANNUITIES

Management Style Clusters

Some differences exist in how the five management-style clusters react to annuities or products that provide guaranteed income for life (Figure B-10). Undisciplineds and Troubleds are more likely than Investors to be very or somewhat likely to tradeoff investment liquidity in return for certainty that they would not lose any money. Undisciplineds are more likely than Investors to tradeoff liquidity in return for protection against a large drop in the stock market. And finally, Troubleds are more likely than either Investors or Managers to tradeoff liquidity in return for certainty about how much money they will receive each month.

Figure B-10: Willingness to Tradeoff Liquidity in Return for Benefits of Annuity Products, by Management Style

Percentage very or somewhat likely to give up abilty to withdraw money whenever they want in exchange for...

34%

39%

41%

37%

25%

42%

42%

38%

31%

48%

47%

45%

43%

51%

46%

45%

47%

30%

34%

33%

Investors Managers Thriftys Undisciplineds Troubleds

Base: Investors (n=194); Managers (n=48); Thriftys (n=113); Undisciplineds (n=174); Troubleds (n=117) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

On the whole, Investors are the least likely to trade-off their ability to withdraw money whenever they want. Investors are the most disciplined in how they manage their assets and, despite having guaranteed income below expenses, do not feel an annuity would offer them enough benefits to outweigh the lack of liquidity. Managers, too, are not easily persuaded by the benefits of

Certainty that you would not lose any money

Certainty about the rate of return

Certainty about how much money you will

get each month

Protection against a large drop in the stock market

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What Now? How Retirees Manage Money to Make it Last Through Retirement 105

annuities. They are least likely to trade-off liquidity in return for certainty about how much money they will get each month from the annuity product, perhaps because their guaranteed income is already higher than their monthly expenses.

Troubleds are, overall, the most likely to trade-off liquidity in return for the benefits offered by annuities. Many Troubleds have limited assets that they can risk in investments, so certainty about not losing money on their investment is important. Secure monthly payments are appealing as well, because the majority of Troubleds have a gap between their monthly income and expenses. Still, about half of Troubleds are unwilling to trade-off liquidity in return for any of the four benefits that annuities offer.

There are differences between the five management-style clusters in their likelihood of purchasing a product that provides guaranteed monthly income for life with a return of principal guarantee (Figure B-11). Thriftys are most likely to say they would be very or somewhat likely to purchase this type of product, more so than Investors, Undisciplineds, or Troubleds.

Figure B-11: Likelihood of Purchasing a Return of Principal Guarantee Product, by Management Style

"How likely do you thik you would be to consider purchasing this product?"

Percentage saying very or somewhat likely

56%

52%

48%

39%

48%

Investors

Managers

Thriftys

Undisciplineds

Troubleds

Base: Investors (n=194); Managers (n=48); Thriftys (n=113); Undisciplineds (n=174); Troubleds (n=117) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Perhaps it is the Thriftys financial position which makes them more open to this type of product. Thriftys receive guaranteed income that is the same or

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What Now? How Retirees Manage Money to Make it Last Through Retirement 106

lower than their monthly expenses and therefore they may have a need for a guaranteed income product. They also have maintain or build their principal and they have higher income. As such, they are able to afford to purchase this type of product, making them more likely to do so than other management-style clusters.

There are slight differences between the five management-style clusters with respect to how much this product would add to their peace of mind (Figure B-12). Undisciplineds and Troubleds are most likely to say they would this product would add to their peace of mind a great deal or a fair amount, more so than Investors.

Figure B-12: Impact of Product on Peace of Mind, by Management Style

"If you had recurring monthly expenses that were not covered by your Social Security (and pension) income, how much, if at all,

would a product like this add to your peace of mind?"Percentage saying a great deal or a fair amount

51%

60%

59%

43%

46%

Investors

Managers

Thriftys

Undisciplineds

Troubleds

Base: Investors (n=194); Managers (n=48); Thriftys (n=113); Undisciplineds (n=174); Troubleds (n=117) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 107

Undisciplineds and Troubleds have inconsistent or undefined withdrawal approaches in common. Perhaps Undisciplineds and Troubles are reassured by the self-regulating feature of a product that provides guaranteed monthly payments, something that each group struggles to do on their own.

In fact, Undisciplineds and Troubleds are the least likely to express confidence about their abilities to manage their money so it lasts for their lifetime (Figure B-13). Undisciplineds are less likely to be confident than either Managers or Investors.

Figure B-13: Confidence in Managing Savings and Investments to Last for Life, by Management Style

"How confident are you that you will be able to manage your savings and investements so that they last for the rest of your

life/your and your spouse's lives?"Percentage saying very or somewhat confident

98%

100%

93%

90%

73%

Investors

Managers

Thriftys

Undisciplineds

Troubleds

Base: Investors (n=194); Managers (n=48); Thriftys (n=113); Undisciplineds (n=174); Troubleds (n=117) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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When asked how convincing reasons are for purchasing a product that provides guaranteed income for life, some differences emerge between the five management-style clusters (Figure B-14). Undisciplineds are more likely than either Investors or Managers to be very or somewhat convinced by the statement “This product gives you peace of mind because the payments will continue for as long as you (and your spouse) live”.

Figure B-14: Convincing Reasons for Purchasing an Annuity Product, by Management Style

Percentage saying reason is very or somewhat convincing

57%

53%

58%

57%

50%

65%

62%

60%

63%

72%

69%

64%

64%

67%

68%

62%

60%

51%

58%

58%

Investors Managers Thriftys Undisciplineds Troubleds

Base: Investors (n=194); Managers (n=48); Thriftys (n=113); Undisciplineds (n=174); Troubleds (n=117) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Undisciplineds already have guaranteed monthly income that is the same as or greater than their monthly expenses, so need of additional monthly income does not explain their higher attraction to annuity products. However, Undisciplineds do have an undefined withdrawal approach, while both Investors and Managers each have clear withdrawal approaches. This lack of withdrawal strategy may explain Undisciplineds’ attraction to annuities. In fact, Undisciplineds are most convinced by the built-in regulated withdrawal feature of lifetime monthly payments.

This product gives you peace of mind because the payments will continue for as long as you

(and your spouse) live

You can get a larger amount ofmoney each year from this product

than you can from withdrawing just gains, dividends, or interest

This product helps you manage your budget because you get a

predictable amount of money every month, just like a paycheck

This product can help you remain independent because the money will never run out

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What Now? How Retirees Manage Money to Make it Last Through Retirement 109

The five management-style clusters express different levels of interest in finding out more about these types of guaranteed income products (Figure B-15). Troubleds are most likely to be interested in learning more about these products, more so than either Investors or Managers. Undisciplineds are also more likely than Managers to be interested in learning more.

Figure B-15: Interest in Learning More About Guaranteed Income Products, by Management Style

"Now that you have heard about products that provide guaranteed income for life, how interested are you in

investigating them more on your own?"Percentage saying very or somewhat interested

31%

34%

43%

22%

15%

Investors

Managers

Thriftys

Undisciplineds

Troubleds

Base: Investors (n=194); Managers (n=48); Thriftys (n=113); Undisciplineds (n=174); Troubleds (n=117) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Undisciplineds and Troubleds, the retiree groups who most need financial security and help with withdrawal management, are most interested in learning more about guaranteed income products. However, fewer than one-quarter of Investors, who have income that is lower than expenses and the assets available to invest in annuity products, are interested in learning more.

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What Now? How Retirees Manage Money to Make it Last Through Retirement 110

Differences in interest in learning more about guaranteed income products may be, in part, due to variations in previous knowledge about annuity products between the five management-style clusters (Figure B-16). While each of the five management-style clusters are equally likely to be very or somewhat familiar with annuities, Investors (53%) are more likely than either Managers (32%) or Undisciplineds (39%) to be very familiar with annuities. Perhaps this high level of previous familiarity leads Investors to be among the least interested in learning more about guaranteed income products.

Figure B-16: Familiarity with Annuities, by Management Style

"How familiar would you say you are with a financial product called an annuity that provides a guaranteed stream of income,

usually for life?"Percentage saying very or somewhat familiar

85%

81%

78%

89%

78%

Investors

Managers

Thriftys

Undisciplineds

Troubleds

Base: Investors (n=194); Managers (n=48); Thriftys (n=113); Undisciplineds (n=174); Troubleds (n=117) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 111

Attitudinal Clusters

Clear differences exist in how the three attitude clusters react to annuities (Figure B-17). Overall, as concern goes down, so too does retirees’ willingness to trade-off liquidity in return for the benefits offered by annuities.

Highly Concerneds are more likely than either Concerneds or Unconcerneds to tradeoff liquidity in return for certainty of no loss, certainty about rate of return, certainty about monthly payments, or protection against a large stock market decline. In turn, Concerneds are more likely than Unconcerneds to trade-off liquidity in return for each of the four benefits.

Figure B-17: Willingness to Tradeoff Liquidity in Return for Benefits of Annuity Products, by Attitude Cluster

Percentage very or somewhat likely to give up abilty to withdraw money whenever they want in exchange for...

60%

42%

39%

34%

42%

28%

17%

14%

24%

58%

64%

63%

Highly Concerneds Concerneds Unconcerneds

Base: Highly Concerneds (n=126); Concerneds (n=533); Unconcerneds (n=126) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

Certainty that you would not lose any money

Certainty about the rate of return

Certainty about how much money you will

get each month

Protection against a large drop in the stock market

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What Now? How Retirees Manage Money to Make it Last Through Retirement 112

The three attitude clusters also differentiate by likelihood of considering purchase of a guaranteed income product (Figure B-18). Overall, as concern declines, retirees are less likely to purchase the product.

Highly Concerneds are more likely than either Concerneds or Unconcerneds to be very or somewhat likely to consider purchasing the tested product. In turn, Concerneds are more likely than Unconcerneds to be very or somewhat likely to purchase this product.

Figure B-18: Likelihood of Purchasing a Return of Principal Guarantee Product, by Attitude Cluster

"How likely do you thik you would be to consider purchasing this product?"

Percentage saying very or somewhat likely

31%

62%

47%

Highly Concerneds

Concerneds

Unconcerneds

Base: Highly Concerneds (n=126); Concerneds (n=533); Unconcerneds (n=126) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 113

Once again, the three attitude clusters paint a clear picture regarding the impact of the tested product on peace of mind (Figure B-19). Overall, as concern declines, retirees are less likely to say that this product with a return of principal guarantee would add to their peace of mind.

Highly Concerneds (69%) are more likely than either Concerneds (51%) or Unconcerneds (29%) to say this product would increase their peace of mind a great deal or a fair amount. Similarly, Concerneds are more likely than Unconcerneds to say this would add to their peace of mind a great deal or a fair amount.

Figure B-19: Impact of Product on Peace of Mind, by Attitude Cluster

"If you had recurring monthly expenses that were not covered by your Social Security (and pension) income, how much, if at all,

would a product like this add to your peace of mind?"Percentage saying a great deal or a fair amount

29%

69%

51%

Highly Concerneds

Concerneds

Unconcerneds

Base: Highly Concerneds (n=126); Concerneds (n=533); Unconcerneds (n=126) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

It is not surprising that Highly Concerneds would be most reassured by is type of product. Highly Concerneds are concerned about using up their savings and investments and find it difficult to obtain regular monthly income. A product that provides guaranteed income for life would help ease both the concern and the difficulty, and as such, improve Highly Concerneds’ financial peace of mind.

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What Now? How Retirees Manage Money to Make it Last Through Retirement 114

In fact, as “concern” increases, confidence about being able to manage their savings and investments for life decreases (Figure B-20). Highly Concerneds (75%) are less likely than either Concerneds (95%) or Unconcerneds (99%) to be very or somewhat confident about their money-management abilities. Likewise, Concerneds (95%) are less confident than Unconcerneds (99%).

Figure B-20: Confidence in Managing Savings and Investments to Last for Life, by Attitude Cluster

"How confident are you that you will be able to manage your savings and investements so that they last for the rest of your

life/your and your spouse's lives?"Percentage saying very or somewhat confident

99%

75%

95%

Highly Concerneds

Concerneds

Unconcerneds

Base: Highly Concerneds (n=126); Concerneds (n=533); Unconcerneds (n=126) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 115

Not surprisingly, the likelihood of finding each statement about reasons for purchasing a guaranteed income product convincing increase with concern (Figure B-21). Highly Concerneds and Concerneds are more likely than Unconcerneds to find the statements about peace of mind, independence, and managing a budget convincing. These three statements each directly relate to either the concern of running out of money or the difficulty with obtaining regular monthly income.

Highly Concerneds are more likely than either Concerneds or Unconcerneds find the statement about a larger annual amount convincing. It is possible that Highly Concerneds are more convinced by this statement because they have fewer resources to rely upon for substantial gains, dividends, or interest earnings.

Figure B-21: Convincing Reasons for Purchasing an Annuity Product, by Attitude Cluster

Percentage saying reason is very or somewhat convincing

73%

59%

65%

62%

62%

47%

42%

45%

39%

63%

76%

73%

Highly Concerneds Concerneds Unconcerneds

Base: Highly Concerneds (n=126); Concerneds (n=533); Unconcerneds (n=126) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

This product gives you peace of mind because the payments will continue for as long as you

(and your spouse) live

You can get a larger amount ofmoney each year from this product

than you can from withdrawing just gains, dividends, or interest

This product helps you manage your budget because you get a

predictable amount of money every month, just like a paycheck

This product can help you remain independent because the money will never run out

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What Now? How Retirees Manage Money to Make it Last Through Retirement 116

Retirees who are more concerned show greater interest in learning more about guaranteed income products (Figure B-22). Half of Highly Concerneds are very or somewhat interested in learning more, more so than either Concerneds or Unconcerneds. In turn, Concerneds are more likely than Unconcerneds to show interest in learning more about these products.

Figure B-22: Interest in Learning More About Guaranteed Income Products, by Attitude Cluster

"Now that you have heard about products that provide guaranteed income for life, how interested are you in

investigating them more on your own?"Percentage saying very or somewhat interested

12%

50%

29%

Highly Concerneds

Concerneds

Unconcerneds

Base: Highly Concerneds (n=126); Concerneds (n=533); Unconcerneds (n=126) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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What Now? How Retirees Manage Money to Make it Last Through Retirement 117

There are only slight differences in familiarity with annuity products by the three attitude clusters (Figure B-23). While each of the three attitude clusters are equally likely to be very or somewhat familiar with annuities, Unconcerneds (53%) are more likely than Highly Concerneds (30%) to be very familiar with annuities. Perhaps this high level of familiarity among Unconcerneds is, in part, responsible for Unconcerneds non-interest in learning more about guaranteed income products.

Figure B-23: Familiarity with Annuities, by Attitude Cluster

"How familiar would you say you are with a financial product called an annuity that provides a guaranteed stream of income,

usually for life?"Percentage saying very or somewhat familiar

90%

85%

82%

Highly Concerneds

Concerneds

Unconcerneds

Base: Highly Concerneds (n=126); Concerneds (n=533); Unconcerneds (n=126) Source: What Now? How Retirees Manage Money to Make It Last…, AARP/ACLI, Dec. 2007

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* Less than 0.5% What Now? How Retirees Manage Money to Make it Last Through Retirement 118

APPENDIX C: ANNOTATED QUESTIONNAIRE

Hello, my name is [FIRST AND LAST NAME] and I’m calling on the behalf of AARP. This is not a sales call; we are conducting a survey that will help us understand some of the attitudes people have about retirement. [IF NECESSARY:] This is a national survey. Your telephone number was selected at random. [IF NECESSARY:] The length of the survey varies depending on your responses to questions. We generally find that it takes about 15 minutes. I need to start with a few questions for classification purposes only. 1. Which one of the following best describes your role in making decisions about

financial investments for your household? Do you [READ LIST]? [IF SAY THEY MAKE DECISIONS EQUALLY WITH ANOTHER PERSON, PROBE: Who is more likely to make investments for your household?] W/out With Total Pension Pension (n=800) (n=600) (n=200) Take the lead in making investment decisions or 75% 71% 76% Does someone else take the lead -- -- -- [VOL] Make decisions equally with another person 25 29 23 [VOL] Don’t know [THANK AND TERMINATE] -- -- -- [VOL] Refused [THANK AND TERMINATE] -- -- --

[IF SOMEONE ELSE TAKES LEAD (Q1=2), ASK TO SPEAK WITH THAT PERSON. IF NOT AVAILABLE, SCHEDULE CALLBACK.] 2. In what year were you born?

W/out With Total Pension Pension (Age) (n=800) (n=600) (n=200) 60 to 64 25% 20% 27% 65 to 69 37 39 36 70 to 75 37 40 36 [VOL] Don’t know [THANK AND TERMINATE] -- -- -- [VOL] Refused [THANK AND TERMINATE] -- -- --

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* Less than 0.5% What Now? How Retirees Manage Money to Make it Last Through Retirement 119

3. Are you currently [READ LIST]? W/out With Total Pension Pension (n=800) (n=600) (n=200) Employed full time 4% 2% 5% Employed part time, 13 11 13 Unemployed and looking for work, or 2 1 2 Not employed 81 86 78 [VOL] Don’t know [THANK AND TERMINATE] -- -- -- [VOL] Refused [THANK AND TERMINATE] -- -- --

4. Do you consider yourself to be retired?

W/out With Total Pension Pension (n=800) (n=600) (n=200) Yes 99% 98% 100% No * 1 -- [VOL] Don’t know * * -- [VOL] Refused * * * [IF NO/DK/REF AND EMPLOYED/LOOKING FOR WORK, THANK AND TERMINATE.]

5. Are you currently [READ LIST]?

W/out With Total Pension Pension (n=800) (n=600) (n=200) Married 71% 67% 72% Widowed 16 17 15 Divorced 9 11 7 Separated, or * 1 -- Never married 4 3 4 [VOL] Don’t know [THANK AND TERMINATE] -- -- -- [VOL] Refused [THANK AND TERMINATE] -- -- --

[IF NOT MARRIED, SKIP TO INSTRUCTION BEFORE Q8.] 6. And is your spouse currently [READ LIST]?

W/out With Total Pension Pension (n=549) (n=404) (n=145) Employed full time 2% 2% 1% Employed part time 9 9 9 Unemployed and looking for work, or * 1 -- Not employed 89 88 90 [VOL] Don’t know [THANK AND TERMINATE] -- -- -- [VOL] Refused [THANK AND TERMINATE] -- -- --

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7. Does your spouse consider himself/herself to be retired? W/out With Total Pension Pension (n=549) (n=404) (n=145) Yes 98% 97% 99% No 1 3 1 [VOL] Don’t know 1 * 1 [VOL] Refused -- -- -- [IF NO/DK/REF AND EMPLOYED/LOOKING FOR WORK, THANK AND TERMINATE.]

8. Are your household’s total financial assets over or under $50,000? This includes

bank accounts, stocks, bonds, mutual funds, and retirement plan accounts, such as an IRA or 401(k) plan, but does not include the value of your primary home or any defined benefit pension plans. [IF ASK WHAT DEFINED BENEFIT PLAN IS, SAY: This type of plan is sometimes called a traditional pension plan. It is NOT a 401(k). The benefits from a defined benefit plan are based on a formula that takes into account your salary and how long you worked for the company.] W/out With Total Pension Pension (n=800) (n=600) (n=200) Over 100% 100% 100% Under [THANK AND TERMINATE] -- -- -- [VOL] Don’t know [THANK AND TERMINATE] -- -- -- [VOL] Refused [THANK AND TERMINATE] -- -- --

9. Did (IF NOT MARRIED: you/IF MARRIED: either you or your spouse) retire from the

federal, state, or local government? W/out With Total Pension Pension (n=800) (n=600) (n=200) Yes 34% -- 52% No 66 100% 47 [VOL] Don’t know -- -- -- [VOL] Refused -- -- --

[IF RETIRED FROM GOVERNMENT, SKIP TO Q12.]

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10. When you (or your spouse) retired, were (IF MARRIED: either of) you eligible to receive benefits from a traditional pension plan, sometimes called a defined benefit plan? This is NOT a 401(k). The benefits from a traditional pension plan are based on a formula that takes into account your salary and how long you worked for the company. W/out With Total Pension Pension (n=695) (n=600) (n=95) Yes 57% 18% 100% No 42 78 -- [VOL] Don’t know 2 3 -- [VOL] Refused -- -- --

11. [IF ELIGIBLE FOR PENSION, ASK:] Did or will you (or your spouse) take your

benefits from the traditional pension as a series of payments that are guaranteed to last throughout your (or your spouse’s) lifetime or as one lump-sum payment? [ACCEPT MULTIPLE RESPONSES. DO NOT READ TEXT IN BRACKETS.] W/out With Total Pension Pension (n=205) (n=110) (n=95) Guaranteed payments for life [EITHER R OR SPOUSE] 83% -- 100% One lump-sum payment 16% 80% 2% [VOL] Some other way 3% 16% -- [VOL] Don’t know 1% 4% -- [VOL] Refused -- -- --

12. At what age did you retire? [IF SAY RETIRED OVER SEVERAL YEARS, ASK: At what

age did you begin to retire?] [IF DON’T KNOW, PROBE: An estimate or range is acceptable.] W/out With Total Pension Pension (n=800) (n=600) (n=200) Before 55 11% 9% 12% 55 to 59 26 20 29 60 to 61 15 12 16 62 to 64 26 29 24 65 11 14 10 66 or later 10 13 9 [VOL] Never worked 1 3 -- [VOL] Don’t know [THANK AND TERMINATE] -- -- -- [VOL] Refused [THANK AND TERMINATE] -- -- --

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13. [AUTOCODE QUOTA GROUPS] W/out With Total Pension Pension (n=800) (n=600) (n=200) Has DB with guaranteed payments/worked for

government [QUOTA OF 200] 65% -- 100% Does not have DB with guaranteed payments

[QUOTA OF 600] 35 100% -- Standard of Living 14. How satisfied are you with your current standard of living? Would you say you

are [READ LIST]? W/out With Total Pension Pension (n=800) (n=600) (n=200) Very satisfied 66% 65% 66% Somewhat satisfied 29 27 30 Not too satisfied, or 3 4 2 Not at all satisfied 1 2 * [VOL] Don’t know * 1 -- [VOL] Refused * * *

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15. I’m going to read you some things that might put pressure on your ability to maintain your standard of living and I’d like you to tell me how concerned you are about each. How concerned are you about [RANDOMIZE AND READ LIST]? Would you say you are very concerned, somewhat concerned, not too concerned, or not at all concerned?

Total (n=800) W/out pension (n=600) W/pension (n=200)

Very Concern

Swhat Concern

Not too Concern

Not at All

Concern [VOL]

DK [VOL]REF

a. Not being able to work for pay, if needed

Total 9% 17 28 46 * * Without pension 13% 18 23 44 * * With pension 6% 16 30 47 -- --

b. A decline in the stock market Total 22% 42 20 16 * * Without pension 26% 37 21 15 * * With pension 19% 45 19 16 * --

c. Inflation Total 31% 45 16 8 -- * Without pension 29% 45 16 9 -- * With pension 32% 44 16 7 -- --

d. Using up most of your savings and investments

Total 22% 27 29 22 * * Without pension 24% 31 24 21 * * With pension 20% 25 32 22 * --

e. Having to pay for health care and prescription drugs

Total 38% 24 20 17 * * Without pension 38% 26 19 16 * * With pension 38% 23 21 17 -- --

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Managing Spending and Income 16. On average, about how much money do you (and your spouse) spend each

month? Remember to average in non-monthly expenses such as taxes, travel, and gifts. [READ LIST ONLY IF NECESSARY.] W/out With Total Pension Pension (n=800) (n=600) (n=200) Less than $1,000 6% 8% 5% $1,000 to less than $2,000 19 23 17 $2,000 to less than $3,000 25 21 26 $3,000 to less than $4,000 18 15 19 $4,000 to less than $5,000 6 9 5 $5,000 to less than $7,500 10 8 11 $7,500 to less than $10,000, or 3 4 3 $10,000 or more 3 2 3 [VOL] Don’t know 7 7 7 [VOL] Refused 3 3 2

17. [IF ≥ 62 OR MARRIED OR RECEIVE GUARANTEED PENSION PAYMENTS, ASK:] How

much money do you (and your spouse) receive each month from (IF ≥ 62 OR MARRIED AND DO NOT RECEIVE GUARANTEED PENSION PAYMENTS: Social Security/IF < 62 AND NOT MARRIED AND RECEIVE GUARANTEED PENSION PAYMENTS: a traditional pension plan/IF ≥ 62 OR MARRIED AND RECEIVE GUARANTEED PENSION PAYMENTS: Social Security and traditional pension plan)? [READ LIST ONLY IF NECESSARY.] W/out With Total Pension Pension (n=787) (n=587) (n=200) Nothing 2% 6% -- Less than $500 2 2 2% $500 to less than $1,000 4 8 2 $1,000 to less than $2,000 27 45 17 $2,000 to less than $3,000 18 24 14 $3,000 to less than $4,000 13 5 17 $4,000 to less than $5,000 7 * 11 $5,000 to less than $7,500 6 * 8 $7,500 to less than $10,000, or 3 -- 4 $10,000 or more 3 2 4 [VOL] Don’t know 3 2 4 [VOL] Refused 11 4 14

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18. Over the last year, did you [RANDOMLY REVERSE AND READ LIST]? [SAY “OR” BEFORE READING LAST RESPONSE. IF RESPONDENT IS CONFUSED ABOUT ITEM 3 (“Dip into…”), CLARIFY: Withdraw principal from your savings and investments] W/out With Total Pension Pension (n=800) (n=600) (n=200) Keep it intact 38% 33% 40% Build up your savings and investment principal 37 35 38 Dip into your savings and investment principal 23 30 18 [VOL] Don’t know 2 2 2 [VOL] Refused 1 * 1

19. DELETED 20. DELETED 21. Which one of the following best describes the approach you used over the past

year, if any, when withdrawing money from your savings and investments? Did you [RANDOMIZE AND READ 1-3, THEN 4-5 IN ORDER]? [IF MORE THAN ONE RESPONSE, PROBE: Which was your primary approach?] W/out With Total Pension Pension (n=800) (n=600) (n=200) Take money only in emergencies 23% 21% 24% Take only gains, dividends, or interest 14 17 12 Regularly take a constant amount or percentage 13 18 11 Use some other approach, or 11 8 12 Have no specific approach 24 25 23 [VOL] Do not withdraw money from savings

and investments 13 9 15 [VOL] Don’t know 1 1 1 [VOL] Refused * * *

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22. When you make decisions about withdrawing money, how important are each of the following considerations? How important is [RANDOMIZE AND READ LIST]? Would you say it is very important, somewhat important, not too important, or not at all important?

Total (n=800) W/out pension (n=600) W/pension (n=200)

Very Impt

Swhat Impt

Not tooImpt

Not at All

Impt [VOL]

DK [VOL]REF

a. Preserving your principal Total 61% 32 4 2 * * Without pension 61% 30 5 3 1 * With pension 60% 33 4 2 -- *

b. Keeping your portfolio balanced across different types of savings and investments

Total 59% 24 10 7 * * Without pension 52% 30 9 7 1 * With pension 63% 20 9 6 -- *

c. Obtaining a dependable amount of money each month to pay your expenses

Total 66% 20 8 6 * * Without pension 65% 20 7 6 1 * With pension 66% 20 8 5 -- --

d. Keeping enough for your needs later in life

Total 74% 18 6 3 * * Without pension 69% 22 4 4 * * With pension 76% 15 6 2 -- --

e. Preserving an estate for your heirs Total 22% 40 22 16 * * Without pension 23% 37 24 15 * * With pension 21% 42 20 16 -- --

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23. How difficult is it for you to do each of the following when withdrawing money? First/next, how difficult is it to [RANDOMIZE AND READ LIST]. Is it very difficult, somewhat difficult, not too difficult, or not at all difficult?] [SKIP EACH ITEM NOT AT ALL IMPORTANT IN PRIOR.]

Very

Difficult Swhat

Difficult Not tooDifficult

Not at all

Difficult [VOL]

DK [VOL] REF

a. Preserve your principal Total (n=769) 5% 24 35 34 2 * Without pension (n=574) 9% 30 32 28 1 * With pension (n=195) 3% 21 36 38 2 --

b. Keep your portfolio balanced across different types of savings and investments

Total (n=737) 3% 20 37 38 2 * Without pension (n=551) 6% 24 35 32 2 * With pension (n=186) 2% 18 37 41 2 1

c. Obtain a dependable amount of money each month to pay your expenses

Total (n=744) 2% 14 36 46 1 * Without pension (n=555) 6% 18 35 40 1 * With pension (n=189) 1% 13 37 50 1 --

d. Keep enough for your needs later in life

Total (n=766) 6% 29 37 25 2 * Without pension (n=570) 9% 32 33 23 2 * With pension (n=196) 5% 28 39 27 2 1

e. Preserve an estate for your heirs

Total (n=673) 4% 24 38 32 2 * Without pension (n=505) 8% 24 37 28 3 1 With pension (n=168) 2% 24 38 34 2 --

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24. Approximately what percentage of your total savings and investments, including money in retirement plans, is currently invested in stocks or stock mutual funds? [READ LIST ONLY IF NECESSARY.] W/out With Total Pension Pension (n=800) (n=600) (n=200) Nothing 13% 14% 12% 1 to 9% 5 5 5 10 to 24% 9 9 9 25 to 49% 19 17 20 50 to 74% 21 22 21 75% or more 20 21 18 [VOL] Don’t know 10 10 10 [VOL] Refused 2 1 2

25. [IF HAVE STOCKS, ASK:] How, if at all, would you change your spending next year

if the value of your investments [READ LIST]? Do you think you would cut back on your spending by a lot, a little, or not at all?

Total (n=597) W/out pension (n=447) W/pension (n=150) A Lot

A Little

Not at All

[VOL] DK

[VOL] REF

a. Did not increase in value and stayed the same as this year

Total 9% 46 44 1 1 Without pension 9% 48 43 * * With pension 9% 45 45 1 1

b. Went down by 5% Total 12% 52 35 1 * Without pension 14% 46 39 * * With pension 11% 55 33 1 --

26. How confident are you that you will be able to manage your savings and

investments so that they last for the rest of (IF NOT MARRIED: your life/IF MARRIED: your and your spouse’s lives)? Would you say you are [READ LIST]? W/out With Total Pension Pension (n=800) (n=600) (n=200) Very confident 45% 41% 47% Somewhat confident 48 46 48 Not too confident, or 5 8 3 Not at all confident 2 4 1 [VOL] Don’t know * 1 -- [VOL] Refused * * --

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Interest in Guaranteed Income Product 27. Would you say you (and your spouse) currently have peace of mind about your

financial situation? W/out With Total Pension Pension (n=800) (n=600) (n=200) Yes 91% 87% 93% No 8 11 6 [VOL] One does, other doesn’t 1 1 * [VOL] Don’t know 1 1 * [VOL] Refused -- -- --

My next questions are about some possible features of a financial product. Just to be clear, AARP is only interested in your opinions because we are designing educational materials for the public about financial products related to retirement. We will not try to sell you anything. 28. Suppose there was a financial product that could provide you with monthly

income that is guaranteed to last for the rest of (your life/your and your spouse’s lives). However, the product would not allow you to withdraw any money other than these monthly payments. How likely would you be to give up the ability to withdraw your money whenever you wanted, if in exchange you were given [RANDOMIZE AND READ LIST]? Would you be very likely, somewhat likely, not too likely, or not at all likely?

Total (n=800) W/out pension (n=600) W/pension (n=200)

Very Likely

SwhatLikely

Not Too

Likely

Not At All Likely

[VOL] DK

[VOL]REF

a. Protection against a large drop in the stock market

Total 9% 32 22 37 1 -- Without pension 8% 32 24 33 2 -- With pension 8% 31 21 38 * --

b. Certainty about the rate of return on the product

Total 6% 32 23 36 2 * Without pension 7% 32 25 33 2 * With pension 5% 31 22 38 2 *

c. Certainty about how much money you will get each month

Total 7% 26 23 41 2 -- Without pension 7% 27 26 36 3 -- With pension 7% 25 22 43 1 --

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28. CONTINUED Total (n=800)

W/out pension (n=600) W/pension (n=200)

Very Likely

SwhatLikely

Not Too

Likely

Not At All Likely

[VOL] DK

[VOL]REF

d. Certainty that you would not lose any money

Total 13% 29 22 36 1 -- Without pension 11% 30 22 34 2 -- With pension 14% 28 21 36 -- --

29. [IF MARRIED, ASK:] Suppose there was a financial product that could provide

monthly income that is guaranteed to last for the rest of your and your spouse’s lives. It also has a return of principal guarantee. That is, if both you and your spouse die before the original value is paid out, monthly payments will continue to your heirs until it is paid back. How likely do you think you would be to consider purchasing this product? Do you think you would be [READ LIST]?

[OTHERS , ASK:] Suppose there was a financial product that could provide monthly income that is guaranteed to last for the rest of your life. It also has a return of principal guarantee. That is, if you die before the original value is paid out, monthly payments will continue to your heirs until it is paid back. How likely do you think you would be to consider purchasing this product? Do you think you would be [READ LIST]? W/out With Total Pension Pension (n=800) (n=600) (n=200) Very likely 11% 10% 11% Somewhat likely 35 34 35 Not too likely, or 24 24 23 Not at all likely 30 31 29 [VOL] Don’t know 1 1 1 [VOL] Refused -- -- --

30. If you had recurring monthly expenses that were not covered by your Social

Security (IF HAVE REGULAR PENSION PAYMENTS (Q13=1): and pension) income, how much, if at all, would a product like this add to your peace of mind? Would it add [READ LIST]? W/out With Total Pension Pension (n=800) (n=600) (n=200) A great deal 15% 13% 15% A fair amount 34 31 36 Not too much, or 26 27 24 Not at all 23 25 22 [VOL] Don’t know 2 3 2

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[VOL] Refused * * -- 31. I’m going to read you some reasons for purchasing a product that provides

guaranteed income for the rest of (your life/your and your spouse’s lives), and I’d like you to tell me how convincing you find each of them. How convincing is this as a reason: [RANDOMIZE AND READ LIST]? Would you say that reason is very convincing, somewhat convincing, not too convincing, or not at all convincing?

Total (n=800) W/out pension (n=600) W/pension (n=200)

Very Conv

SwhatConv

Not too

Conv

Not at All

Conv [VOL]

DK [VOL]REF

a. You can get a larger amount of money each year from this product than you can from withdrawing just gains, dividends, or interest

Total 15% 44 18 22 1 * Without pension 14% 41 20 22 2 * With pension 15% 45 17 22 1 --

b. This product gives you peace of mind because the payments will continue for as long as you (and your spouse) live.

Total 19% 42 17 21 1 -- Without pension 20% 38 18 23 1 -- With pension 18% 44 16 20 * --

c. This product helps you manage your budget because you get a predictable amount of money every month, just like a paycheck.

Total 16% 41 16 26 * * Without pension 16% 39 18 25 1 * With pension 16% 41 15 27 -- --

d. This product can help you remain independent because the money will never run out.

Total 26% 34 14 24 1 * Without pension 26% 34 14 24 1 * With pension 26% 34 14 23 1 *

32. DELETED

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33. Now that you have heard about products that provide guaranteed income for life, how interested are you in investigating them more on your own? Are you [READ LIST]? W/out With Total Pension Pension (n=800) (n=600) (n=200) Very interested 4% 5% 4% Somewhat interested 24 24 24 Not too interested, or 23 24 22 Not at all interested 48 46 49 [VOL] Don’t know * * -- [VOL] Refused -- -- --

Sources of Information 34. Do you (and your spouse) currently have a professional financial advisor? A

professional financial advisor could be a financial planner, an accountant, a lawyer, or other professional that helps you to manage and plan your finances. W/out With Total Pension Pension (n=800) (n=600) (n=200) Yes 70% 69% 70% No 30 31 29 [VOL] Don’t know * * * [VOL] Refused -- -- --

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35. What (IF USE FINANCIAL ADVISOR: other) sources do you (or your spouse) currently use to obtain advice or information about how to manage your money in retirement? Do you get advice or information [RANDOMIZE AND READ LIST]?

Total (n=800) W/out pension (n=600) W/pension (n=200) Yes No

[VOL] DK

[VOL] REF

a. [IF WORKING:] Through an employer Total (n=155) 11% 89 -- -- Without pension (n=106) 8% 92 -- -- With pension (n=49) 12% 88 -- --

b. From a retirement plan provider Total 34% 65 1 * Without pension 32% 67 1 * With pension 35% 63 1 --

c. From a financial institution, such as a bank or investment company

Total 55% 45 * -- Without pension 53% 47 * -- With pension 56% 44 -- --

d. From an independent financial planning site online

Total 13% 87 * * Without pension 13% 86 * * With pension 12% 87 -- --

e. Through seminars or classes Total 21% 79 -- * Without pension 22% 77 -- * With pension 20% 79 -- --

f. From magazines, books or other publications

Total 49% 51 * * Without pension 48% 51 * * With pension 49% 51 -- --

36. How familiar would you say you are with a financial product called an annuity,

that provides a guaranteed stream of income, usually for life? Would you say you are [READ LIST]? W/out With Total Pension Pension (n=800) (n=600) (n=200) Very familiar 43% 39% 45% Somewhat familiar 40 42 39 Not too familiar 9 9 9 Not at all familiar 7 9 5 [VOL] Don’t know -- -- --

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[VOL] Refused * * -- 37. Now, switching topics a little bit, suppose you were offered an opportunity where

you had a 50% chance of winning $100 and a 50% of losing [READ LIST]. Would you take that opportunity?

Total (n=800) W/out pension (n=600) W/pension (n=200) Yes No

[VOL] DK

[VOL] REF

a. $10 Total 48% 49 3 1 Without pension 48% 47 4 1 With pension 48% 49 2 *

b. $50 Total 15% 83 1 1 Without pension 17% 81 2 * With pension 14% 84 * 1

c. $100 Total 6% 93 1 1 Without pension 7% 91 1 * With pension 5% 93 -- 1

Demographics Finally, I have some questions for statistical purposes only. 38. [IF MARRIED, ASK:] In what year was your spouse born?

W/out With Total Pension Pension (Age) (n=549) (n=404) (n=145) Less than 65 33% 28% 36% 65 to 69 33 36 32 70 or older 32 34 30 [VOL] Don’t know * * -- [VOL] Refused 2 1 2

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39. Based on what you know about your health, your family history, and other factors, until what age do you expect to live? [IF DON’T KNOW, ASK: This may or may not be something that you have thought about before, but is there an approximate age that you can reasonably expect to live to? Your best guess is fine.] W/out With Total Pension Pension (n=800) (n=600) (n=200) Less than 80 10% 11% 9% 80 to 84 19 21 18 85 to 89 23 25 22 90 to 94 21 16 24 95 to 99 6 5 6 100 or older 6 3 8 [VOL] No idea/don’t know 12 16 10 [VOL] Refused 2 2 1

40. [IF MARRIED, ASK:] Until what age do you expect your spouse to live?

[IF DON’T KNOW, ASK: This may or may not be something that you have thought about before, but is there an approximate age that you can reasonably expect your spouse to live to? Your best guess is fine.] W/out With Total Pension Pension (n=549) (n=404) (n=145) Less than 80 8% 10% 8% 80 to 84 19 17 20 85 to 89 25 26 24 90 to 94 22 22 22 95 to 99 4 6 3 100 or older 7 4 9 [VOL] No idea/don’t know 12 15 11 [VOL] Refused 2 1 3

41. What is the highest level of education you have completed? [READ LIST ONLY IF

NECESSARY.] W/out With Total Pension Pension (n=800) (n=600) (n=200) Some high school or less 3% 5% 1% High school graduate or equivalent 19 23 17 Some college or technical training beyond high school 27 32 24 Bachelors degree, or 23 25 22 Graduate or professional degree 26 15 32 [VOL] Don’t know -- -- -- [VOL] Refused 2 1 2

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42. Are you of Hispanic, Spanish, or Latino origin or descent?

W/out With Total Pension Pension (n=800) (n=600) (n=200) Yes 2% 2% 2% No 97 97 96 [VOL] Don’t know * * -- [VOL] Refused 1 1 1

43. What is your racial or ethnic group? [READ LIST ONLY IF NECESSARY.]

W/out With Total Pension Pension (n=800) (n=600) (n=200) American Indian or Alaskan Native, or * * -- Asian or Pacific Islander * * * Black or African-American 3% * 4% [VOL] Hispanic/Latino 1 * 1 White or Caucasian 93 97% 91 Something else 1 * 1 [VOL] Don’t know * * -- [VOL] Refused 2 1 2

44. What was your total household income in 2006, before taxes? Please include

income from ALL sources. Was it [READ LIST]? W/out With Total Pension Pension (n=800) (n=600) (n=200) Less than $15,000 1% 3% -- $15,000 to less than $25,000 5 7 3% $25,000 to less than $35,000 6 13 2 $35,000 to less than $50,000 16 15 16 $50,000 to less than $60,000 14 11 16 $60,000 to less than $75,000 11 9 12 $75,000 to less than $100,000 12 9 14 $100,000 or more 12 14 11 [VOL] Don’t know 4 6 3 [VOL] Refused 18 14 21

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45. In total, about how much money would you say you (and your spouse) currently have in financial assets? This includes bank accounts, stocks, bonds, mutual funds, and retirement accounts, but does not include the value of your primary home [IF HAVE PENSION: or traditional pension plans]. [READ LIST.] W/out With Total Pension Pension (n=800) (n=600) (n=200) $50,000 to less than $100,000 14% 12% 15% $100,000 to less than $150,000 7 6 6 $150,000 to less than $250,000 12 11 12 $250,000 to less than $500,000 15 13 15 $500,000 to less than $750,000 8 8 8 $750,000 to less than $1 million, or 4 5 3 $1 million or more 11 15 9 [VOL] Don’t know 5 7 4 [VOL] Refused 24 23 25

Thank you very much for participating in this study. Those are all my questions, and your responses have been very helpful. 46. [RECORD GENDER.]

W/out With Total Pension Pension (n=800) (n=600) (n=200) Male 55% 56% 53% Female 45 43 46