Mark Miller: Rebooting Retirement

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Today on the podcast we welcome back Mark Miller, who is an author, columnist, and a nationally recognized expert on trends in retirement and aging. His latest book is called Retirement Reboot: Commonsense Financial Strategies for Getting Back on Track. Miller’s work considers retirement holistically, including healthcare and Medicare, Social Security, retirement investing, midlife careers, and housing. He is a regular contributor to Morningstar.com, and he also writes about retirement matters for Reuters, The New York Times, and WealthManagement.com. In addition to Retirement Reboot, Miller has written several other books, including The Hard Times Guide to Retirement Security and Jolt: Stories of Trauma and Transformation. Additionally, Miller has his own podcast and newsletter, both of which are called Retirement Revised.

Transcript

Christine Benz: Hi, and welcome to The Long View. I’m Christine Benz, director of personal finance and retirement planning for Morningstar.

Jeff Ptak: And I’m Jeff Ptak, chief ratings officer for Morningstar Research Services.

Benz: Today on the podcast we welcome back Mark Miller. Mark is an author, columnist, and a nationally recognized expert on trends in retirement and aging. His latest book is called Retirement Reboot: Commonsense Financial Strategies for Getting Back on Track. Mark’s work considers retirement holistically, including healthcare and Medicare, Social Security, retirement investing, midlife careers, and housing. Mark is a regular contributor to Morningstar.com, and he also writes about retirement matters for Reuters, The New York Times, and Wealthmanagement.com. In addition to Retirement Reboot, Mark has written several other books, including The Hard Times Guide to Retirement Security and Jolt: Stories of Trauma and Transformation. Additionally, Mark has his own podcast and newsletter, both of which are called “Retirement Revised.”

Mark, welcome back to The Long View.

Mark Miller: Thank you so much. Great to be here.

Benz: It’s great to have you here. We want to talk about your book, and we want to talk about the current environment for retirees, pre-retirees. One of the central points you make in your latest book is that the pandemic dealt a setback to a lot of people’s retirement plans. How so?

Miller: When we saw the economy put into this kind of rapid lockdown or shutdown mode, employment plunged across all age groups of course. It hit workers over 55 especially hard, which is typical of any kind of economic downturn. Older workers typically experience bigger declines in employment, and it’d take them longer to get back. This one, because of the unique nature of the pandemic layoffs, has been unusual in that employment did bounce back pretty strongly for people aged 55 to 65 as the economy started to open up again. In fact, the data tell us that just like all of it did. We don’t know very much about the quality or the levels of pay or the types of new jobs that people got, but they did go back to work, but not so much for that 65-plus group of workers. Not terribly surprising. A lot of them decided to take retirement at that point and move on.

But I’m making a broader point, too, in the book about economic waves and economic cycles that people have served on the way to retirement in this generation. Because I think we often have short memories in our country. I went back and looked at the numbers. Somebody who was 55 years old in 2021 has been through four economic downturns during their working lives, including two that were especially devastating. And here I’m thinking about especially the Great Recession in 2009 and 2010 where you had the whammy of falling stock market, falling employment, and crashing housing values. A lot of people lost their homes.

So, any of these disruptions have a serious effect on retirement prospects. The numbers tell us that even a short-term interruption in wages can cascade out in ways that, I think, would surprise a lot of people. Every year out of the workforce translates into losses that are bigger than the immediate amount of missing salaries. They compound over the arc of a career in terms of lost wage growth, lost retirement saving opportunities, perhaps credits toward Social Security benefits and pension benefits. So, in the book, I’m trying to sketch out a “let’s not blame the victim” approach when we talk about people who are getting close to retirement who are not financially prepared and that is really the core target reader of this book.

Benz: Right. And I suppose a bigger secular headwind is—and you just referenced pensions—the fact that they’re going away for a lot of workers, so each successive wave of retirees is less likely to come into retirement with a pension.

Miller: The traditional defined-benefit pension, when we say they’re going away, I always like to add a footnote to that. I have a substantial chapter in the book all about the ins and outs of defined-benefit pensions, which you might wonder if they’re going away, well, why is that chapter there? Well, the answer is, is that millions of people still have them. It’s true that in the private sector, they’ve for the most part been frozen. So, people are not accruing new benefits, but there’s many people in the private sector who did accrue benefits at some point in their career and are expecting a benefit. Of course, that will continue to phase out over time. And then, in the public sector, with the exception of the federal government, defined-benefit pensions are still predominant. So, they are still a big factor. But, no doubt, the decline in defined-benefit pensions is certainly a factor in declining levels of retirement security.

Ptak: Wanted to ask you about inflation, which is maybe moderating a little bit, but it’s still really high relative to where it was for a few decades leading up to this year. Do you think inflation affects older adults more than it does the general population? I think we’ve heard people argue both sides of this in the podcast. What do you think?

Miller: Well, I think, there’s perception and then the reality can be a little more complicated. I think the perception for sure, the truism is that high inflation hits hardest on people on fixed incomes, especially retirees. And when you look at polling data, seniors tell pollsters that high inflation is among their top worries. So, there’s no doubt that that’s there. I think the actual impact is more complicated. Christine, I know you’ve done a lot of writing about what is your personal rate of inflation as opposed to headline inflation. And I do think how it affects people depends very much on their financial circumstances and their age, what the situation is with management of healthcare costs, Social Security-claiming decisions. You’ve got half of people on Medicare had incomes below $30,000 in 2019. One in four of them was living on less than $17,000. So, these are folks who struggle to meet basic living expenses, especially in higher-cost parts of the country, and this issue of regional variation and living costs is a big deal. And of course, healthcare costs can be a big deal.

So, for people in those lower-income groups, escalating healthcare inflation is really important. I wrote a column for Morningstar, actually earlier in the year, looking at this. And quoting some J.P. Morgan research: “What exactly is the breakout of expenses that people pay? What are the prices people are experiencing? And it’s housing, it’s healthcare, it’s food and beverage and transportation, and charitable contributions make up 85% of spending.” Housing is the biggest category. Most of those folks are homeowners. Most people over 65 own their own homes. So, their expenses may be fixed in housing. But there are some who are renting. And we’ve seen explosive growth in rental cost. So, people who have that exposure are exposed. And then, again, as I mentioned, there’s a lot of variation in what living costs look like around the country.

One of the best datasets I know of that looks at adequacy of ability to live in retirement is the Elder Index series, which shows that the average Social Security benefit covers 90% of living costs in West Virginia but just 40% in San Francisco. Not a surprising finding, right?

Benz: Right.

Miller: And last but not least on this point, when we talk about seniors living on fixed income, well, yes, except they do have this brilliant benefit called the Social Security. So, it’s really a complicated picture, I think.

Benz: I wanted to follow up on a point you made, Mark, about healthcare inflation because that had been the runaway inflation number for a number of years. Does that appear to be taming a little bit? Are we seeing better inflation numbers? And could that translate into less of an impact for inflation on older adults than perhaps was the case before?

Miller: It definitely has been the trend in terms of medical costs. The last few years, some of that may have been the plunge in demand for services during the pandemic. I think nobody’s quite sure about that. And the long-term projections from the Medicare trustees still show escalation of costs. So, I don’t think we’re out of the woods on that point. It may be anomalous, but there has definitely been moderation in medical costs. The data on long-term-care supports and services are not showing that. They’re still showing substantial increases in the cost of care and the cost of services for a variety of reasons.

Ptak: We had Kerry Hannon on the podcast a few years back, and she argued that the pandemic, and especially this shift to remote work for many employees had actually benefited some older workers by making it easier for them to stay employed if they wished. Do you agree with Kerry’s assessment?

Miller: Yeah, and I think there’s growing evidence of that—that the flexibility of telework, part-time work, the fact that the labor market is so tight employers really need to recruit people. I think there’s been some good coverage of this actually in The New York Times. They ran an excellent story recently about the growing number of job opportunities that are out there for disabled people who need to work from home, have mobility issues. There’s been a sharp decline in applications for Social Security disability insurance. There’s disagreement among the experts about what exactly drives that, but I think it’s a reasonable supposition that what you’re asking about, Jeff, is one factor. So, yes, I think that’s been an interesting and positive development.

Benz: Just to dial out a little bit—in the book, you have a number of solutions for people who are aiming to shore up a retirement shortfall, and one of the biggies is the potential of working longer, which Jeff just referenced. Can you discuss the pros and cons of working longer? You’ve written a lot about this, but you’ve always cautioned: Don’t make this your sole fallback plan if you’re coming into retirement and it looks like you may not have enough.

Miller: I have a chapter early on in the book about retirement timing, and it goes into a great deal of detail about just exactly how sensitive retirement plans are to timing, and maybe more to the point, how sensitive outcomes are. So, it runs through a number of hypothetical scenarios showing “what-ifs” for individuals and couples. What if they did this? What if they did that? It actually shows scores or probability of outcomes based on Monte Carlo software analysis. So, I’m trying to really drive home some of the detail of why this is such an important thing to think through.

Working longer is, as I say, it’s not a plan because you can’t always control the timing. A health problem might become an issue or a job loss, or you need to leave the workforce in order to provide care for a loved one. You might just not want to do this. The book offers about, I call them, five or six levers that can be pulled for people who really need to make some choices to improve retirement outcomes. So, working longer is one of those levers. But I also am at pains to point out that time is a precious commodity as we get older. So, it’s not a given that everybody should just work longer, and we should all work well into our 70s or any of that. But that’s the purpose of this discussion in the chapter is to illustrate it.

To your question, Christine—so one of the things that timing determines: It determines the number of years you’re going to live on savings in the first place versus wage income. It can be an important factor in the number of years you’re contributing to retirement savings accounts. Working longer can definitely finance a delayed Social Security claim, and I mean finance from the standpoint of providing wage income to live on while you delay a claim. So, I think those are some of the key factors, and I’m just trying to illustrate how dramatic the impact of working even a few more years can be.

Ptak: I suppose another factor is the macroeconomic environment. We’re potentially moving into a recessionary environment. How have you found older workers have fared during such periods, and what steps can older adults take to ensure that they remain employed during an economic downturn should we see one?

Miller: There’s the possibility of a recession looming and then, more broadly, I think it’s fair to say we’re in this period of high amounts of economic uncertainty, disruption, instability in the economy. Lots of change going on. We referenced a minute ago the point about increased telework opportunities. What, for example, is going to be the future of downtown business districts and all the businesses that rely on those ecosystems? I could go on. You talk about the risk posed to the economy from different facets of climate change. There are many different things going on that are question marks. And I think these sorts of things are always more difficult for older workers.

I think in recessions certainly, older workers tend to get hurt harder, hurt faster and quicker than younger workers. You have age discrimination as a factor. I have a whole chapter in the book about managing your career as a financial asset, which is exactly what it is. The wage income is the largest income generator for most households. So, just letting it fly is not a strategy. You need to plan ahead and think about it just like you would your portfolio. So, that involves being smart about how you network, making sure your network stays fresh, skills development. This idea of just, I know my skills are getting stale, and maybe my connections aren’t what they were, but I just got my eye on the finish line here, so I’m just going to try to coast through to the finish line. I think that’s a prescription for trouble, in my view.

Benz: Quiet quitting they call it, right?

Miller: Yes.

Benz: Mark, you’ve written a lot about encore careers more than anyone I know, and you’ve interviewed people on your podcast about that topic. Can you talk about what an encore career is and also address whether that’s the domain of more highly educated, higher-income folks, or whether it’s a broader concept that can be applied across our population?

Miller: A great question. The term encore career was originally promulgated by a group of thinkers and social movement folks, who I think really highly of, working in the aging field that the original name of the organization that really got this whole thing going was Civic Ventures, and they later changed their name to Encore.org. They recently changed their name to CoGenerate because they’ve got a focus now on intergenerational cooperation on bridging divides across generations.

The first iteration of all this maybe 20 years ago was very much social entrepreneurship. It was professional-level folks, executives, other, let’s call them leadership-class folks, often launching organizations for the greater good or launching interesting CEOs who move into interesting second careers for the greater good. And there’s still some of that, but I think it has evolved in some more egalitarian directions along the lines of individual efforts and volunteering. And in the book, I’m taking pains to try to illustrate that these concepts are really good and can be applied by just anybody, not just the more affluent. So, I explore the importance of: this is how you use your time in your retirement for legacy purposes, what are you doing to leave something behind for the next generations and do things that have personal meaning to you. You want to be able to build into your retirement a sense of purpose. And there’s a whole chapter about the meaning of purpose in retirement.

So, it’s having to commit to goals that are important to you and contribute to the common good, something that is essentially bigger than yourself, and it helps. I think people stay connected to the broader world and that just shrink into themselves. It’s not the easiest thing to pull off. But I profile some people in the book who have done it, who have come from really everyday walks of life because I really was sensitive to this—given the focus of the book is on very much on a middle-class reader, I didn’t want to offer examples that were like, well, look what this CEO did, this was great. And what the CEO did probably was interesting and great, but I’m trying to show that these are ideas that are available to all of us.

Ptak: One benefit that many people get from work is the social interaction. Do you think people often retire without a plan to replace that interaction that they got from work?

Miller: Very much so. I’m at that point in life now where a lot of people I know, a lot of friends, family are retiring. And of course, I get asked the questions as the in-house expert. I like to joke that all my friends are finally coming into my wheelhouse. And the people who struggle with it, I think, are the ones who haven’t put any forethought into it and haven’t tried to test-drive retirement. And what I mean by test-drive retirement is don’t, in the last part of your career, let work be everything. I think very often we let our identities be completely wrapped up in the way we earn a living. And it’s really important to develop outside interests and test-drive some things. So, I think the people who have the easiest time with these transitions are the ones who have tried some things out. Inevitably, you’ll have some ideas of what you want to do that will be right and some that maybe are not good fits and that’s just fine. There are no road maps for this stuff unfortunately. So, you got to follow your heart, follow your interests, and try some things and then when you finally do hang it up in terms of work, the transition is much smoother because you’re stopping one type of activity, but you still have others going on.

Benz: I’m not sure if you got into this in the book, Mark, but how does gender fit into this? Because from what I’ve seen, men tend to be more at risk in this situation. When they step away from work, they may not have those social networks outside of work.

Miller: It’s been a while since I’ve done any active reporting on this, but I have in the past, and I what I’ve always found is, it seems that the risk of generalizing, women tend to be more social and more socially engaged and they’re focused on, and men can have this tendency to shrink into the shell, which is a bad tendency. It’s not a prescription for a happy, healthy retirement. So, I do think there’s something to be said for that, Christine.

Ptak: Wanted to shift and ask you a few questions about Social Security. In the book you write that getting the most out of Social Security and Medicare is one of the best ways for people to improve their retirement security and you know a lot about those areas. Let’s start with Social Security. It seems like one of the most obvious steps to consider is to delay filing in an effort to enlarge eventual benefits. Can you discuss the benefits of doing that and who should consider it?

Miller: So, just as a backdrop, it’s an interesting milestone that we passed—in 2022 was the first year in which people who became newly eligible to claim Social Security at age 62, for them their full retirement age is 67. And the full retirement age, briefly put, that’s the age at which you are eligible to receive the full amount of benefits that you’ve earned in the program. Filing earlier than that age, you’ll have some early claiming penalties. And if you file later than the full retirement age, you get so-called delayed retirement credits that are substantial. The early penalties range from 5% to 6% for every 12 months of delay and the delayed retirement credits are roughly 8% for every 12 months that you delay. So, you do the math on that. Delaying for a few years is a big deal in terms of your current income—your monthly or annual income.

But this milestone of the full retirement age being 67, I think is really interesting. The retirement age has been moving up gradually as a result of the reforms we made to the program in 1983, and it’s just been inching—wisely. Policymakers put in place this very gradual transition from 65 to 67. And we’re now at the point now where over this coming decade just about everybody coming up to these decision points, will be looking at a much later full retirement age. Some people have written that the retirement age really is now 70, because basically, the full retirement age being higher means that the bar is higher of what it takes to get your full credit. Claiming at 65 now is not what it used to be, put simply. So that’s a backdrop to this question.

Generally speaking, delay is better. I never say, everybody needs to wait till 70. Seventy is the latest age at which you get credits. But some delay is better than no delay in most cases. It is especially true for married couples if you can engineer it so that the person with the higher earning and hence higher benefit can delay the longest. It typically is the man, and men don’t live as long as women. So, later down the road, that higher benefit can become a survivor benefit for a widow, and that may be at a point in her 80s or 90s when other resources have dwindled. So, maximizing that longevity benefit, if you will, is important.

I tend to think about Social Security mostly as longevity insurance. In my chapter on Social Security, I describe another approach, which is called breakeven analysis, which basically lets people say, “If I delay, how long will it take for me to catch up on the amounts that I didn’t receive when I was delaying?” It’s a return analysis. You can do that. But I think it’s not my favorite approach. I think the right approach is, given, as we discussed, the decline in defined-benefit pensions, Social Security is the public pension program. So, having a major component of guaranteed income throughout retirement is just so important, and maximizing it can be beneficial in lots of ways. One important way is that it’s inflation protected. And I think there are some other things that work there too. So, I think, to me, Social Security is the most important retirement benefit for most people, and so maximizing it makes a lot of sense.

Benz: We’ve been seeing some encouraging data suggesting that people are getting the message about the benefits of delaying; that the 62 filers seem to be declining. Do you fear that could reverse itself since the market is down and that people might think, well, I need to get those benefits started so that I can forestall taking withdrawals from my portfolio. Is that a risk?

Miller: It’s always a risk if the economy is down or the markets are down, but it does seem to be a long-term trend that’s been encouraging. As you say, that people claiming at the earliest ages has been falling. What’s hasn’t changed a lot are the percentage of people claiming at or near full retirement age. That’s stayed fairly steady. And the percentage of people who claim later, you know, 68, 69, 70, continues to be quite small.

Ptak: Let’s shift and talk about Medicare, healthcare, and long-term care. You write that navigating Medicare has gotten more complicated than it ought to be. What are the key contributing factors to that?

Miller: I think a big factor is the massive amount of privatization that we’ve introduced into Medicare over the last couple of decades. Privatization, in my view, is mostly needless. We’ve done that with the way we have people accessing prescription drugs in the Part D program and also, really importantly, with Medicare Advantage, also known as Part C, which is a commercial alternative managed-care version of regular traditional Medicare. So, these are programs that one accesses through these online marketplaces, and we force Medicare beneficiaries to shop these marketplaces and make choices between dozens of plan offerings that differ from one another. It’s a daunting task.

There’s also a lack of good advice. Some recent research I saw on this that we asked people where they get advice about Medicare enrollment. Many get it from insurance brokers, which can be OK. There’s lots of really knowledgeable insurance brokers out there. The problem with brokers is that they don’t represent the entire market. They’re going to represent one or two, let’s say, insurance lines. Beyond brokerage a lot of people rely on friends and family for it. Or they say they rely on nobody for it. They just do it themselves.

An underutilized resource, I feel, is the so-called State Health Insurance Assistance Program, which is a national program. Every state has one. And these are programs that are jointly funded by the federal and state governments, and they are staffed by really knowledgeable volunteers who can help people with enrollment, but they’re vastly underutilized resources. And the market has just been swinging toward more and more privatization for reasons that I think we probably should talk about a little more.

Benz: I wanted to ask specifically about Medicare Advantage. One issue that you’ve written about is how people get enticed in with a lot of bells and whistles like gym memberships or dental coverage or whatever it might be. And in reading your book, it seems like you’ve concluded that most people should in fact opt for traditional Medicare plus some sort of a supplemental policy. Can you just talk about how people should approach that fork in the road: traditional Medicare versus Medicare Advantage?

Miller: My message to people is, if you can afford the higher upfront premium cost, traditional Medicare is the way to go. It’s the gold standard of insurance from the standpoint of access to health providers. You can see almost any health provider in the United States when you’re on traditional Medicare. That’s something you can’t find really anywhere anymore. And it also is the way to get the most predictability in your out-of-pocket costs, because when you’re in traditional Medicare, you’re typically going to have a supplemental or Medigap plan that covers a lot of the out-of-pocket. So, you put everything into the premiums upfront, which has more predictability to it. I think, in particular, probably for the crowd listening to us today, which I think it’s a fair bet is a more affluent audience, I would just say traditional Medicare is a great deal, and it has a couple of moving parts to it that you need to pay attention to. But it’s, over the long haul, going to be a much better deal for most people.

I think one of the biggest problems here is that people don’t understand the importance of this decision at the point that they initially enroll in Medicare. And here’s why this is so important and potentially an irreversible decision. When you first sign up for Part B, you have what’s called a guaranteed issue window for a Medigap that basically starts three months before and lasts three months after your enrollment in Part B. During that time, Medigap insurance underwriters, which are commercial entities, they must issue you a policy and they must do it at the best available price. That guaranteed issue window disappears after that period with the exception of a handful of states that have passed laws creating ongoing guaranteed enrollment, which is a very progressive and wise approach. But if you at the point of initial enrollment decide to go with Medicare Advantage, you will not be enrolling in Medigap. You don’t use Medigap with Medicare Advantage. It’s only used in the traditional program. And therefore, you’ve missed that guaranteed issue window. So, let’s say, a year later or two years later, you’re dissatisfied with Advantage and want to re-enroll in traditional Medicare—well, you can do that during the annual fall enrollment, but you may or may not be able to get a Medigap at that point. So, this is to me a critical thing that needs to be thought through at the point of initial enrollment. It’s one of the two biggest pitfalls that I see problems that people encounter at the point of initial enrollment. There are some others too. The other big one is people who make errors on their enrollment timing and wind up with big late penalties as a result.

Ptak: You have a chapter on long-term care in the book. What are we talking about when we say long-term care, and why isn’t it covered by traditional healthcare programs such as Medicare?

Miller: Medicare is designed to cover medical care. And so, long-term-care services are not, technically speaking, medical care. They are services that help people who are frail or disabled with daily living needs, whether it’s bathing, or dressing, or making meals, shopping, walking, and taking medications. But having said that, that’s the reason historically, that it doesn’t. But I would add this that, I think, this area we’re starting to discuss now to me is maybe the most dysfunctional area of public policy in the retirement field. We are failing in how we pay for care and how we deliver it.

I think Medicare should actually cover some level. Medicare will pay for the first 100 days in a skilled nursing facility following a hospitalization. It’s not that it doesn’t pay for anything, but it doesn’t pay for those types of services that I was just describing. But given the dysfunction in the payment structures that we have to pay for long-term care, I’ve long felt that it would be a very smart thing to build in some kind of base level coverage for long-term-care supports and services in Medicare for retired people and to figure out how to do a better job perhaps in the Medicaid program than we do for younger people who need services because it’s not just the retirement question.

When you look at how we pay for this, affluent people, generally speaking, can afford to self-fund it. Low-income people get Medicaid. Middle-class people, who perhaps are in the most need of a commercial long-term-care insurance policy, struggle to afford it. This is something that can cost $4,000 to $6,000 a year in premiums and rising if you’re building in inflation protection, which you definitely need. So, it’s really dysfunctional. There aren’t good answers on the horizon unfortunately.

On the delivery side there are issues as well. We saw the nursing home crisis with COVID. Everybody says they want to age in place, but we’re really not prepared to handle that at the community level in the United States, both from the standpoint of our housing stock and the social infrastructure at the community level. Meaning, how are people going to get around? How are they going to socialize? How are we going to make sure that we’re monitoring how they’re doing in their homes? The Build Back Better legislation that didn’t make it was going to have a big injection of new money through the Medicaid program to infuse new funding into community-level care and that didn’t make it, unfortunately. It’s still an idea, I think, worth revisiting.

Benz: Apart from long-term-care considerations, your book has a whole section on housing in retirement. And one of the big questions, an Evergreen question there in the retirement space, is whether to accelerate mortgage payments in an effort to come into retirement debt-free. What’s your take on that question? And how do rising interest rates fit in, in that people can earn a safe return, a decent safe return on their money now?

Miller: I’m with Allan Roth, the planner, on this, who argues vociferously that if you have the resources that make sense to not enter retirement with a mortgage, one factor, of course, is that fewer people are itemizing their deductions, hence the mortgage interest subsidy is available in fewer cases. But I think what you’re making there is an argument for liquidity, which is, hang on to more of your money and invest it as opposed to pay off the debt. Well, you could just pay off the mortgage and then just start repaying yourself to rebuild the liquid reserves. And yeah, we’re seeing rates higher, but they’re still, I think generally speaking, below mortgage rates for safe bank returns, returns in banks. So, I think investing the dollars that could have been used to pay off a mortgage is a type of a leveraged portfolio. I’m not a fan of that either. So, anything you can do to create greater certainty, peace of mind in retirement, getting rid of debt, generally speaking, I’m for it for people who can do it.

Ptak: In a related vein, home equity is the largest financial asset for many retiree households. Do you think more retirees should tap their home equity in some fashion, either by downsizing or staying put and using a home equity line of credit, or a reverse mortgage for that matter?

Miller: I have a detailed chapter in the book about home equity for the reason that you cite just now, Jeff, which is namely it’s the largest financial asset for so many people. Do I think more retirees should do it? Again, I’m presenting a series of levers that can be pulled by people who need to improve their retirement outcomes. The main focus here is on people who are heading toward retirement likely to live mainly, if not exclusively, on Social Security, which is going to replace—I look at it from an income replacement standpoint. So, if Social Security is going to replace maybe 40% of preretirement income, and we all know the general rule of thumb out there that you probably need to replace at least 70% of preretirement income to maintain your standard of living. That’s a very general rule of thumb, and I think it can be played with, but not a bad starting point. So, that suggests that a lot of people are going to have this gap to fill.

So, one lever that can be pulled is certainly home equity. It’s more problematic lever to pull than more straightforward financial levers in the sense that this is wrapped up in your living, where you live. You need a roof over your head. You live in a community. So, I move through these examples in this chapter of ways that you can tap into home equity. One is, as we say, downsizing, I give examples of what it can be like to move to a less-expensive area, even a less-expensive area within the region you live in, or really a more dramatic distance move to a less expensive locale where you sell what you have and extract home equity and invest that and live on it. So, I think, I’m just illustrating this can be a good move for some people who maybe are open to those kinds of changes.

And then, of course, there’s the reverse mortgage. Not my favorite option. I think it’s a very complicated product, and that’s demonstrated by pretty small amount of interest in it among consumers who I think are just generally scared by the addition of the idea of debt of any kind, and reverses are, I guess, you’d say a sort of debt. But there may be situations where for people who really want to stay put and don’t have other resources, I think it can be done safely and responsibly and it can be a useful product. So, I have a lengthy section that goes into the ins and outs of how to use a reverse.

Benz: You wrote in the book: “Complexity is the enemy of everyday working Americans trying to build toward a financially secure retirement.” My question is, do you think the system is overcomplicated by design because it helps feed the need for various helpers in the system, like financial advisors and investment firms, who cater to helping people through retirement?

Miller: Absolutely. I think my favorite case in point is Medicare Advantage. And you could apply some of these arguments also to the Part D prescription drug program. The arguments in favor of them are—we see arguments that are cloaked in, I’ll call it, the rhetoric of innovation, that innovation in markets have kept Part D premiums flat over the years. Well, that’s true, but out-of-pocket costs have soared, and you’re unprotected from very high costs, and you have as a consumer this job on you of shopping and re-shopping your coverage because coverage can change from year to year.

With Medicare Advantage, I think the case is coming pretty clear that this is like corporate welfare for large insurance companies. I think lawmakers in Congress like the program because they’re I’m sure getting lots of political contributions from these companies. They also like it because it lets them look like they’re delivering all these extra benefits to people at no particular cost, but in fact there are costs. The New York Times ran an exhaustive investigation of Medicare Advantage late last year. They reported $12 billion a year “being exploited” from taxpayers annually in the form of a fake upcoding of conditions. Upcoding just means the insurer is entering into the system all the potential illnesses and conditions of a patient, and they are routinely exaggerating these coding things to the tune of $12 billion a year.

On the consumer side, you’re in a managed-care environment. So, that means you’re going to be dealing with prior authorization runarounds and denials of care. And there’s been numerous studies showing improper amounts of denial of care. All of it’s really difficult for consumers to sort out. The U.S. Senate Finance Committee issued a report late in 2022, and I just want to give you a brief quote from what they concluded. “Information submitted by states demonstrates that beneficiaries are inundated with fraudulent and misleading communications across all modes of communication (whether it’s in-person, television, telemarketer, and robo-calls).” The field is flooded with misinformation, and it leads to bad choices, I think. We’re not just talking about money here. We’re talking about health and well-being in retirement. So, to me, this is a great example of where we’ve designed systems that are far too complicated.

Ptak: What are your favorite ideas for simplifying the system?

Miller: My big one is Social Security. We talked about this issue of preretirement income replacement rates. I think it’s pretty evident at this point. You guys are experts on the investing side. But the 401(k) experiment now has been running since what, the early ‘80s, and it’s pretty clear that about half the population is not able to accumulate serious savings to supplement Social Security. So, I would say, one of my favorite ideas is why not have much higher replacement rates for Social Security. People think I’m nuts when I say that, because after all, Social Security has a looming solvency issue in 2035. But I just argue it’s not a matter of the dollars, it’s a matter of our values. We know where the levers are if we want to pull them to bring in greater levels of revenue into Social Security. And we could decide that Social Security was going to replace 60% of preretirement income, or 70%. We could basically make it a more robust pension program if we chose to do it. When we need to find money for things in the United States, we find it. So, when I hear people saying, well, there’s no money; Social Security is running out of money—those arguments don’t really wash with me. It’s really a matter of values and politics.

Another one, I would say is, if I were King, I would create a standard benefit in Medicare for prescription drugs rather than this marketplace approach. Just build it in. Your drugs are covered, and if you have to charge a premium for that, you do it. With Medicare Advantage, I think it’s probably not—I’d be dreaming to think we’re going to abolish Medicare Advantage. It’s getting close to half of Medicare enrollment, and it’s probably going to continue to get bigger from there. But I would say at least level the playing field. Why is it that we can have a dental, vision, hearing benefit available only in Medicare Advantage and not in traditional Medicare? We just accept that as a fact without even asking why. Why is there not an out-of-pocket cap in traditional Medicare like there is in Medicare Advantage? We could do that and make Medigap unnecessary, so again, from a simplification standpoint. Those are some of my favorite ideas that probably will never happen.

Benz: You mentioned that you got more interested in retirement planning at age 50 or so as you started to think about the next phase of your life. How have your views about what your own retirement will look like evolved as you’ve studied this area for so many years?

Miller: I’ve been fortunate that I fell into my own encore career in my 50s. It wasn’t really that well planned out, but it’s worked out nicely. Since that time, I’ve looked at retirement as a glide path not a strict on-and-off switch, and I’ve had, because I work independently, a lot of freedom to develop a lot of side interests. So, I’m not one of those people who worries at all about what I’ll do in retirement when and if I decide to do that. I consider myself fortunate. Sometimes these changes don’t look like gifts at the time that they happen, but this one definitely has been.

Ptak: What have been some of your biggest “aha” moments as you studied the topic of retirement and older adults?

Miller: We were talking earlier about this question of working longer and the benefits of that, but on the flip side of it, the value of time. And I think the value of time rises as we age. So, one big “aha” for me has been a better understanding of this idea that freedom from the need to work is actually a privilege. It can be really liberating to think that I can pursue things that I want to pursue without worrying about whether I’ll get paid for it. I think that’s a really hard idea for a lot of people to get their heads wrapped around, because I think for so many of us, our notion of self-worth and identity is really wrapped up in what we do for a living for really understandable reasons. So, that’s one “aha” for me is that if you can get your head into the right place, this is a very exciting, liberating transition.

Another one that I guess I’ll call an “aha,” but it’s just something that I’ve developed better understanding of over the years is that the problems and the inequalities in our economy that we experience in our working lives do spill over into retirement in really profound ways. So, examples would be—the gender wage gap would be one. Racial disparities in health and wealth are a huge, huge factor. And you look at rising wealth inequality, which has just worsened over the last couple of decades. So, nothing in retirement that we see in these areas—we shouldn’t be surprised to see those things because they are just natural translations of what’s going on in the economy anyway.

Another one for me as I’ve watched it over the years—and this goes back to our conversation a minute ago about simplification and market-based systems—is that I just think a lot of our system inappropriately puts the challenge of managing risk on the individual, and most people aren’t equipped to handle that, and they need help with it. And a lot of it is based on these, I just think, ideological notions about individualism and markets, the idea that this is tied up in our ideas of the rugged individual and freedom. I often say it’s ideology-chasing data. I don’t think there’s a lot of data to prove that a lot of people are able to handle this. I think people listening to this podcast are probably in that one third to 40% of Americans who are able to do these things. They are able to think through and sort through investing choices and retirement planning and health insurance and thinking through the niceties of mortgage or not in retirement and what do you want to do with home equity. There’s the vast middle America that’s not equipped to do it, not particularly interested in doing it, and so bad outcomes are the result.

Benz: Well, Mark, as always, this has been such an illuminating conversation. Thank you so much for being here today.

Miller: Christine and Jeff, thank you so much for having me. I appreciate it.

Ptak: Thank you.

Benz: Thank you for joining us on The Long View. If you could, please take a moment to subscribe to and rate the podcast on Apple, Spotify, or wherever you get your podcasts.

You can follow us on Twitter @Christine_Benz.

Ptak: And @Syouth1, which is, S-Y-O-U-T-H and the number 1.

Benz: George Castady is our engineer for the podcast and Kari Greczek produces the show notes each week.

Finally, we’d love to get your feedback. If you have a comment or a guest idea, please email us at [email protected]. Until next time, thanks for joining us.

(Disclaimer: This recording is for informational purposes only and should not be considered investment advice. Opinions expressed are as of the date of recording. Such opinions are subject to change. The views and opinions of guests on this program are not necessarily those of Morningstar, Inc. and its affiliates. Morningstar and its affiliates are not affiliated with this guest or his or her business affiliates unless otherwise stated. Morningstar does not guarantee the accuracy, or the completeness of the data presented herein. Jeff Ptak is an employee of Morningstar Research Services LLC. Morningstar Research Services is a subsidiary of Morningstar, Inc. and is registered with and governed by the U.S. Securities and Exchange Commission. Morningstar Research Services shall not be responsible for any trading decisions, damages or other losses resulting from or related to the information, data analysis, or opinions, or their use. Past performance is not a guarantee of future results. All investments are subject to investment risk, including possible loss of principal. Individuals should seriously consider if an investment is suitable for them by referencing their own financial position, investment objectives and risk profile before making any investment decision.)

https://www.morningstar.com/articles/1131802/mark-miller-rebooting-retirement

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