Financial Futures

Martha M. Hamilton
Washington Post Columnist
Tuesday, March 6, 2007; 12:00 PM

Washington Post columnist Martha Hamilton was online Tuesday, March 6 at Noon ET to discuss how to make smart decisions while preparing for retirement.

She was joined by Anna Rappaport, who owns a consulting firm that focuses on strategies for a secure reitrement.

A transcript follows.

To read past Financial Futures columns, click here.


Martha M. Hamilton: Welcome everyone! I'm delighted to have as my guest today Anna Rappaport, who is an expert in strategic benefit planning and pension and retiree health care plan management. Let's hear what's on your minds when it comes to financial planning for retirement. I'd also be interested in any thoughts you have about how to increase financial literacy now that we're all expected to take care of our own retirement savings and investment. Let's go.


Bethesda, Md.: As a retiree who knew almost nothing about finance, I can identify with the topic of your Sunday column. But I solved my problem with a free study course I found at:

This is a home-study course that teaches a full range of basic financial topics and then tests the reader's knowledge. It is essentially a college course in investing basics and takes about 6 hours to complete. After graduating I feel I am prepared to make informed investing decisions.

With a resource like this available for free it seems to me that there is no excuse for financial illiteracy. I think your readers and discussion participants will benefit from knowing it exists.


Rachelle Raise Your Retirement Literacy

Anna Rappaport: You raise a very good point that there is a lot of good information out there for people planning to retire. There are a lot of important questions to focus on. Here are some of the major questions for people nearing retirement age:

When would I like to retire and/or start to phase down?

Do I want to work in retirement, and if so, what I should I be doing to create options and opportunities?

Where do I stand with respect to having enough to retire and at what age?

What risks will I need to be concerned about in retirement, and how do I get a risk management program in place?

Do I expect to relocate at retirement?

As you study, you want to make sure that you do not leave out important issues and have nasty suprises later. I want to recommend a publication "Taking the Mystery Out of Retirement Planning" provided by the Department of Labor prepared with help from the Actuarial Foundation (

Another area where people often need help and can easily make a mistake is in taking a lump sum distribution. I want to recommend another publication "Don't Run with Your Retirement Money", which helps people think through the issues in deciding whether a lump sum is right for them. This is a joint effort of the Women's Institute for a Secure Retirement(WISER) and the Actuarial Foundation.

Once you have all of your facts and figures together and think you know the right answer, you may still want to talk it over with someone who has knowledge and experience to make sure you did not leave anything out. Research from the Society of Actuaries, focus groups with recent retirees, indicates that many of them were short term focused as they decided whether or not to retire. (Spending and Investing in Retirement: Is there a strategy?)(

Martha M. Hamilton: Thanks for that useful tip, Rachelle. I'm sure readers and chatters will want to check it out.


Bowie, Md.: I know this is off-the wall, but it came up recently in our church discussion group. Many of our retiree members had moved into a senior residence facility that opened in the neighborhood in the last couple of years, while others were still living in their owned homes.

The one consistent fact among the group was: the independent-livers are taller than the senior apartment group. Further discussion illuminated the fact that the smaller ones found carrying groceries, moving small furniture, and getting things down from shelves were chores beyond their physical skills. The taller ones didn't have a problem.

Is their research to back up that smaller people need to move into senior-oriented living earlier in life?

Martha M. Hamilton: Ha! What a great question. And I take it personally. I'm 61 and 5 foot 4. So far, so good, but last week when my right shoulder was hurt and I had to climb up on the kitchen counter from a chair to change a light bulb, it was tough. I don't know of any research on this issue, but what an intriguing thought.


Takoma Park, Md.: With the stock market downturn this past week, what would you advise someone five years from retirement who was counting on stock gains of 6 to 7 percent annually, but may instead be looking at annual losses of the same amount? Change one's asset mix? Plan to work longer?

Anna Rappaport: Retirement planning is a long term proposition, and you should never make plans on the basis of a one week change in the stock market. If you invest in stocks, you need to be prepared for the possibility that they can down as well as up.

Five years from retirement you should be looking at how much money you will need in retirement, how much you expect to send, risk management, and asset mix in your overall portfolio. Some of the key risks that you will want to protect against include outliving assets, inflation, unexpected health care costs, not earning enough on your money.

You ask about planning to work longer. That is a great question. Many people think that they can retire very early, and focus on the period near retirement rather than living long. Society of Actuaries focus groups on how people made retirement decisions indicated that many focused on current spending and not some of the longer term unknowns.

Working longer is good for several reasons:

You have longer to save for retirement (and pay off any debts)

If you have a pension plan, you can earn higher benefits

Social Security benefits will be higher at a later age

You will not need the money as long.

Asset mix is extremely important. You think about your total portfolio in setting the mix. You want to organize your total finances so that you have regular income or investment return to cover basic needs. In addition to traditional investments, you may wish to consider risk protection products including health insurance, immediate annuities that pay a lifetime income and long term care insurance.

Martha M. Hamilton: Amen to not making a decision based on the last week in the market. I don't think any of us know what the gyrations meant or how meaningful they will seem a month from now.


Albuquerque, N.M.: My financial planner encouraged me to buy a variable annuity

years ago- and I have since realized that this is not the best of investments since the fees are so high. What is your opinion regarding annuities, and how can I get the most out of this investment? I have 2 variable annuities- one I just transferred over to Vanguard so I'll be paying a much lower fee- and the other has a quite high death benefit, so I'm inclined to leave it where it is, though the fees are high.

Your thoughts? Thank you.

Anna Rappaport: I do not have any comments on your specific annuities, but I wanted to emphasize that there are different types of annuities. Deferred annuities (and it sounds like your variable annuities are deferred) are used as investments to build funds for when you need them. Immediate annuities let you take a sum of money and convert it to life income, and you can convert deferred annuities to income. They guarantee a certain amount of income for the rest of your (or your spouse's life). For people without pensions, they provide a way to have a guaranteed income in addition to Social Security.

This is an important issue as many people tend to underestimate longevity and people who live longer are more likely to be poor. This is particularly a problem for women who are very often widowed in old age with much less than they had before. Three resources to help you think about this topic are Making Your Money Last a Lifetime, a joint project of the Women's Institute for a Secure Retirement (WISER) and the Actuarial Foundation, and two research reports from the Society of Actuaries. (Longevity; the Underlying Driver of Retirement Risk and The Impact of Retirement Risk on Women)

It is important to emphasize that immediate annuities are not right for everyone, but they are an important way to provide life income for many people. You need to focus on your situation in deciding what is right for you.

_______________________ Playing It Too Safe (By Martha M. Hamilton, Dec. 10, 2006)


Beaumont, Calif.: I hope you will stress the importantance of a checking account, one or two credit cards and a monthly/yearly budget. Saving is very important but most people don't even have a clue how they spend their money. Do you agree?

Anna Rappaport: Thanks for a very good question. I agree that a checking account, budgets and careful use of credits cards are part of managing spending. That is one of several major moving parts of the retirement equation.

Saving and building assets that will be adequate is the key to retirement planning, particularly in the earlier stages. (And of course saving requires that you do not spend too much money, which means budgeting and managing spending for most people.)

As you near retirement, you need to think about several different areas of finance --- managing your spending, managing your assets, and putting a good risk management program in place. Since much of the literature on retirement planning is focused on the saving and asset management, some people forget about the risk management part.

A couple of more comments are in order on managing spending. Society of Actuaries research show that people think that managing spending is the way to manage risk. While important, it is not the whole answer and more attention is needed to be sure you will not outlive assets and have a plan if you need long term care, for example.

Second, the biggest item of spending for most people is their housing, and there are various ways that you can reduce housing cost or use a housing asset to help you finance retirement. A seldom used method is the reverse mortgage, which will probably become more popular in the future.

Martha M. Hamilton: You make a great point. You really need to know what you're spending to make sure you're on track with your savings. And most people underestimate their expenditures.


Washington, D.C.: Can I trust my advisor to give me unbiased fund recommendations? Or are they just trying to sell me what they get commissions on? How can I be sure?

Martha M. Hamilton: I've written a couple of columns about finding the right financial adviser. It's not always easy. The first step is to find someone who charges a fee for services, rather than working on commission. But even among those, there is great variation in skills and approaches and even in how they charge. You can pay a percentage of assets, an annual retainer or by the hour.

There are a few web-sites where you can find the names of planners in your area. Try or And there is good advice about questions to ask financial planners at


Virginia Beach, Va.: Having watched "60 Minutes" Sunday night where the current head of the GAO painted a grim and scary picture of the future - he stated that when the Baby Boomers retire in the next ten years, we will experience a terrible financial crisis in the U.S. Couple that scenario with the reckless spending of the Bush adminstration, and we have a recipe for financial meltdown. How do you suggest we prepare for such a scenario? Could the Market Fall Down and Go Boom? (Feb. 4)

Anna Rappaport: Some people will live to age 100 or even longer, so if you retire at age 65, that means 35 or more years, or at age 55, 45 or more years. There are many areas of uncertainty surrounding retirement including how long you and your spouse may live, your health, and the economy. Society of Actuaries research has helped to identify a long list of retirement risks. Every two years there is a study of how the public views retirement risks. The 2005 study is available on the website.

The question is what should a real person do understanding that there are many uncertainties, and you can not see the playbook until it happens. Here are several ideas to think about:

Diversify your investments so that they will perform reasonably in good times and bad. If you are in retirement many years, there are likely to be some bad times.

Think about retiring later. That will mean that you do not need as much money after retirement (since there will be fewer years) and you will have longer to save it. Your monthly Social Security benefit will also be higher if you retire later.

Put a risk management program in place, and be sure to have guaranteed or at least steady income to cover your minimum living expenses. Don't forget about outliving assets and the possibility of poor health and disability. A married couple needs to provide for the surviving spouse after the first dies. This is usually the widow.

Don't spend too much money early.

_______________________ Here's one of Martha's column on the subject of Financial Advisers: Blind Dates With Financial Advisers (Nov. 5, 2006)


Arlington, Va.: Thanks for taking my question. As a percentage of income, how much should the typical couple save for retirement? My wife and I currently put away 12% of our gross income into our retirement plans. At least for the next few years, saving more than that would be difficult because we have small children and daycare is eating up a large portion of our budget. Also, when planning, we should include at least a percentage of what current Social Security benificiaries are receving. Do you think 2/3 is a good estimate for someone who won't retire for at least 30 years?

Anna Rappaport:12% is a good amount to save for retirement. The longer you save, the more you can build up and the earlier you start to save the more investment return you can earn.

With regard to Social Security, it is hard to predict exactly what Social Security benefits will be a long time in the future. If there are no changes in the system at all, the current tax structure would be adequate to pay about 75% of current law benefits after the current trust fund is used up in about 2040. (The trust fund is the accumulated excess of prior taxes over benefits invested in government bonds.)

Social Security is an extremely important program for the national. About 40% of older women who are alone (widows, divorced women, and those never married) get 90% or more of their income from Social Security. Many middle Americans have a far better retirement because of it. I feel that the country will find a good solution for Social Security and that something will be here for us. At the same time, some adjustment is likely, and it is very possible that benefits will start at a later age. That is a logical way to fix a significant part of the financial imbalance.


Atlanta, Ga.: Martha, I'd like to address something you said above:

and with having to do our own retirement planning (or some such)...

Oh, the horror! Being responsible for our own selves? No one else to take care of us? Well, that's as it should be!

I of course advocate that people need to educate themselves, but really, it is the responsibility of your boss to pay you every other week (or whenever) NOT to care for you forever.

And, another, thing, this whole retirement at 65 thing. When the age was determined, life expectancy was about 65 - People that age and older -could not- work anymore - it wasn't that they -chose- not to work anymore as we do today. So, if one wants to retire, great, but if you don't have enough money - get a job. That's what one is supposed to do - of course, many of that age would like to slow down (as I hope to) so a full time gig may not be needed - but really, what's so horrible about a work ethic and earning for yourself and taking care of yourself? We seem to have lost that in this country.

Thanks for letting me have my say.

Martha M. Hamilton: I think the work ethic is strong in our country, but I also know people with a strong work ethic who are no longer physically able to work or who are in their 50s and 60s and have lost a job and can't find someone willing to employ them. The point I was making about retirement planning is that most of us aren't trained to be investors, and many of us don't know much about finances at all. That makes it difficult to obtain the optimum outcome when you are responsible for your retirement savings and investment. It's not just a problem for those who end up with too little money at the end of their life, it has created problems for employers who find that they no longer have the predictable turnover in workers that they did with the old pension system. And an increase in the impoverished elderly probably wouldn't be good for society, especially if you believe that we should be our brothers' and sisters' helpers, if not keepers.


Takoma Park, Md.: Hi Martha and Anna,

Thanks so much for doing this chat!

Our retirement advisor suggests we put 25 percent of our retirement assets in Treasury Inflation Protected Securities (TIPS). Do you think this is a good percentage? We are two years from retirement and he feels we should shoot for about half of our assets in various types of bond funds.

Also, he suggests 17 percent of assets in international funds. I am concerned this is a bit low. I believe the dollar is eventually due for significant devaluation.

Thanks again.

Martha M. Hamilton: I'm not a financial planner, so I don't know what the right percentage is of bonds to equity, but I have a couple of reactions: one, I think planners may err on the side of conservatism in suggesting those ratios. You're trading potentially higher returns for safety. And, two, if you have guaranteed income from other sources, such as a pension, you may not need to be as conservative as someone whose retirement income depends on protecting the assets accumulated through savings. I'll let Anna give you the more expert answer.

Anna Rappaport: You asset mix should be set based on your risk tolerance, your access to conventional pensions, your total portfolio, your other income sources, and your time horizon. There are no set answers as to the right asset mix, and there are many differences of opinion among experts. Some of this is driven by differences in philosophy.

Experts vary in how much they favor TIPS with some people favoring them a lot (lot your investment advisor) since they are one of the few really inflation protected investments.

You might want to study some of the literature on personal asset mix, so you understand different perspectives, find out the rational for these recommendations, and then get a second opinion.


Martha M. Hamilton: I should note this question is from a reader who e-mailed yesterday because he was unable to join the chat today.

Martha M. Hamilton: Am a participant in a 401K and have just been told I am a Highly Compensated Employee. Now am being told I can only contribute 8% to my 401K. Does this mean I cannot contribute the full $15,500 to my plan? For example if my salary were $100K, does this mean I can only participate $8,000. Do I have any alternatives to contribute the $7,500 I am being denied if that is true. I cannot participate on the online discussion on Tuesday so feel free to consider the question but please provide me a personal reply if you decide to do so. Thanks, Frank

Anna Rappaport: All employees are subject to limits as to what they can save in 401(k) plans. In some companies, the percentage that can be saved is lower for Highly Compensated Employees. This is because there are limits on how much a Highly Compensated Employee save relative to the rest of the employees.

Some companies offer additional nonqualified benefits to help people make up the savings limited for HCEs.

Key questions to ask is --- what is the limit that applies to me? Are there any additional savings opportunities.


Washington, D.C.: Any comments on Paul Farrell's column in today's Marketwatch? Personally I think he's very close to right on. No management fee should ever be more than 0.55%/year. Bundle up warm and go out here in the cold, cold world of Wall Street and take your chances buying individual stocks and put them away. Would you pay someone to place bets on a roulette wheel for you? You're saving 'too much' for retirement! (By Paul Farrell, March 5,

Martha M. Hamilton: There's been a lot of debate over the research by Laurence Kotlikoff on whether we're saving too much. I think I'd rather err on the side of caution in my savings as long as I'm not trading an impoverished style of life now for future security. When it comes to management fees, I believe in what Vanguard's Jack Bogle has been saying for years: lower is better.


Elk Grove, Calif.: What is social security integration into a fixed benefit pension? Are SAA funds figured into the final pension calculation from a company offering fixed benefit pension? Is it correct your fixed pension may go down in amount when you qualify for SSA funds?

I believe I am correct in calling it social security integration into final fixed pension caculation.



Anna Rappaport: Social Security integration is a concept that applies in a defined benefit pension plan. A defined benefit pension plan is one that pays a regular monthly income based on a formula, often tied to earnings and years of service.

The general idea is that the employer pays for half of Social Security which provides a relatively (as a percentage of pay) benefit for lower earning people. The employer's plan formula can be adjusted to provide a relatively higher benefit on the part not covered by the higher Social Security benefit.

The law and regulations define different methods of integration. The integration is built into the pension formula. This does not mean your benefit will go down once you get Social Security, but rather that the calculation considered the employer contribution to Social Security in some way.

There is another provision is some pension plans that will let benefits be adjusted once Social Security starts. Some plans let you choose a benefit option that provides a higher benefit before you get Social Security in exchange for a reduction once it starts. This is a Social Security supplement. An example would be that you could trade a level income of $1,000/month starting at age 59 for a higher income to age 62 and a lower income afterwards. The amount would be calculated considering your exected Social Security benefit. This trade would be purely your choice.

If you want to learn more about Social Security, the National Academy of Social Insurance is a good resource (


Silver Spring, Md.: In response to the question about taller vs. shorter people - those with smaller frames are more at risk for osteoporosis, so it would make sense for shorter people to have the issues you described more than taller people. There are medications and calcium/vitamin D supplements help to prevent osteoporosis, but weight bearing exercise is also very important. If you start young with exercise and making sure you have enough calcium you can help to prevent osteoporosis and disability! The National Osteoporosis Foundation has more information: And health issues like this are important to retirement because it could really change how you spend your money in retirement.

Martha M. Hamilton: Thanks for the additional information. Good thing I went to the gym this morning.


Baltimore, Md.: I am four years from retirement. I have been shifting some retirement funds into high yielding closed end funds ie acas,ald. Is this too risky? Also, once in retirement is it advisable to cash out highly appreciated equities by selling shares each year, or by converting to higher yielding assets?

Anna Rappaport: Four years before retirement is a good time to revisit the total portfolio for retirement and to be thinking about a risk management startegy.

There are also a number of other important issues to think about including what you want to do in retirement, where you want to live, what you will want to spend the same amount of money. I want to recommend "Taking the Mystery Out of Retirement Planning" as a good place to start for you.


Washington, D.C.: I've saved for retirement, and I'm concerned about the vulnerability of my retirement funds to identity theft.

I know that if my bank account is emptied by an identity thief, the bank will replace the money (to $100,000 per account?). But my mutual fund company says it won't. How do I protect myself? How do I protect myself if I buy inflation adjusted Treasuries? Special Report: Identity Theft

Anna Rappaport: In addition to identity theft, it is important to remember that there are many potential frauds that seniors are vulnerable to. Be very careful about where you invest money and who advises you.

Also, some financial institutions have government guarantees that apply and others do not. For example, insurance companies are partially protected through state guarantee funds.


New Jersey: I am becoming less confident in the value of planning. I have come to believe that the economic, political, and environmental situations have become so uncertain that even the most general planning has become an act of faith.

I believe that taxes will rise, that social security will fall, that medicare will be curtailed, and inflation will rise due to the deficit and the increase in fuel costs.

I don't think there are enough certainties to "plan" anymore. Saving as much as I can, diversifying, and hoping.

Anna Rappaport: Planning is very important. And a key part of planning is risk management --- so that your plan provides for the unexpected as well as the expected.

There is no perfect plan, but you can create options and greatly increase your chances of success with good planning. As you plan, remember to focus on : Savings, Asset management, Spending and Risk management.

There is a lot of good information to help you from the Actuarial Foundation, WISER, the Department of Labor and many other sources.


Martha M. Hamilton: That's it for today, folks. Thanks so much for your good questions and for the helpful information that some of you shared. I'm always interested in hearing from you if you have an idea for a column. I'd also like to hear from anyone whose retirement savings have been severely eroded by health care costs if you're willing to have your name appear in a column. My e-mail is And many thanks to Anna Rappaport for sharing her wisdom with us today.


Editor's Note: moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions. is not responsible for any content posted by third parties.

© 2007 The Washington Post Company