Post on 04-Jan-2016
Trends in Retirement Programs and Income
Dallas Salisbury, President & CEO
Employee Benefit Research Institute
www.EBRI.org
www.choosetosave.org
June 10, 2008
2V308
Retirement Plan Trends: Number of Plans
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
1975 1980 1985 1990 1995 2000 2005
Total DB DC K
3V308
Retirement Total Participation Trends: Including Multiple-Plan Counting
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
1975 1980 1985 1990 1995 2000 2005
Workforce Total DB DC
4V308
Retirement Active Participation Trends: Including Multiple Plan Counting
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
1975 1980 1985 1990 1995 2000 2005
Workforce Total DB DC K
5V308
Retirement Asset Trends
$0
$1
$2
$3
$4
$5
$6
1975 1980 1985 1990 1995 2000 2005
($ M
illio
ns)
Total DB DC K
6V308
Retirement Plan Contribution Trends
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
1975 1980 1985 1990 1995 2000 2005
Total DB DC K
7V308
Retirement Plan Net “Contribution” Trends
($120,000)
($100,000)
($80,000)
($60,000)
($40,000)
($20,000)
$0
$20,000
$40,000
$60,000
1975
1980
1985
1990
1995
2000
2005
Total DB DC K
8V308
What Employers Spend on Benefits
9V308
Factors
How much is being saved
10V308
Actual Contributions Versus Needed Contributions
Factor All Workers Baby Boomers
% on track to replace 80% with SSA included 15% 15%
Saving rate 3.5% 4.1%
Needed rate 12% - 19% 18%-27%
Source: Fidelity RI Retirement Index, March 2007
11V308
Income quartile at age 65
Percent of final five-year average salary
*The 401(k) accumulation includes 401(k) balances at employer(s) and rollover IRA balances.Source: Tabulations from the EBRI/ICI 401(k) accumulation projection model
Baseline Don't always have a 401(k)67.2
39.4
59.554.0
50.7
27.724.723.223.2
1 2 3 4
27.5 30.8 34.7
Median Replacement Rates for 401(k) Accumulations* for Participants Reaching Age 65 Between 2030 & 2039
12V308
Factors
How much is being saved
How much is needed
13V308
SSA replaces 27% of salary at the maximum wage base and 39% at the average income
Medicare pays for about 50% of retiree health costs
2005 SSA Med
Male 243,174 130,586
Female 306,263 152,963
Couple 515,532 283,549
Avg LE M 81 F 85
Source: Urban Institute, 2006
r e
t i r
e m
e n
t t
r e
n d
s
Matching the Value of SSA and Medicare to Average Life Expectancy
14V308
Risk Acceptance 2008 2018
50% MD $194,000 $325,000
75% MD $253,000 $424,000
90% MD $305,000 $511,000
90% Drugs $654,000 $1,064,000
Savings Needed for Retiree Health Benefits:Age 65 in 2008 and 2018 (couples)
15V308
Starting at age 20 and saving consistently for 47 years will support a long life at rates many are now saving.
Waiting until 40 or 50 moves the numbers to the stars unless retirement is delayed.
How much do you need to save if you work until 67?
0
5
10
15
20
25
30
35
40
45
75 80 85 90 95 100
20
40
50
Responsibility for Longevity Risk Requires Greater Individual Savings
16V308
Target Final Earnings Multiples: High Income
Probability of Retirement Adequacy
Male Retiring at 65
Female Retiring at 65
50% 4.13 5.29
75% 7.14 10.13
90% 11.9 13.86
Source: EBRI Issue Brief September 2006
Single retiree less than $40,450
17V308
Target Final Earnings Multiples: Low Income
Single retiree less than $15,000
Probability of Retirement Adequacy
Male Retiring at 65
Female Retiring at 65
50% 10.67 16.22
75% 22.85 34.23
90% 41.99 54.22
Source: EBRI Issue Brief September 2006
18V308
Factors
How much is being saved
How much is needed
Longevity
19V308
Source: Annuity 2000 Mortality Table, American Society of Actuaries. Figures assume you are in good health.
Couple(Both Age 65)
FemaleAge 65
Age 92
50% chance of one survivor
MaleAge 65
Age 88 94 100
Age 85 92 100
50% chance 25% chance
50% chance 25% chance
25% chance of one survivor
97 10095
9590
90
9085
85
People Are Likely to Live Longer Than They Think!
20V308
“I think you should be more explicit here in Step Two.”
21V308
Factors
How much is being saved
How much is needed
Longevity
Probability of not running out desired
22V308
Income Annuity – Fully Indexed
Confirmation Code: 19NXXX2B5SAZ08C001
Primary Annuitant -- Birth date: 04/01/1947 Sex: MQuote Expiration Date: 03/18/2008Benefit Commencement Date: 05/01/2008State of Residence: AZPayments per Year: 12Total Premium Amount: $200,000.00
Initial Payment Amount for Fixed Single Life Annuity with inflation adjustments: $912.12
Cancellation Option Selected: No
Qualified Assets: Yes
Source:https://personal.vanguard.com/us/accounttypes/retirement/ATSAnnuitiesOVContent.jsp
23V308
How Much Does Portfolio Matter at 90% Confidence level?
$500
$880
$540
$920
$560
$920
$580
$920
$560
$900
$560
$880
$560
$840$916
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
A C E G
40 years 20 years
$200,000 at age 60 – 90% chance of income for 20 and 40 yearsPortfolio D is a 40/40/20 mix (equity/bond/cash)
Source:www3.troweprice.com/ric/RIC/
24V308
How much does probability matter?
$480
$780
$580
$920
$620
$1,000
$680
$1,040
$720
$1,100
$760
$1,140
$916
$0
$200
$400
$600
$800
$1,000
$1,200
99% 80% 60% AnnuityI
40 years 20 years
$200,000 at age 60 – 90% chance of income for 20 and 40 yearsPortfolio D is a 40/40/20 mix (equity/bond/cash)
Source:www3.troweprice.com/ric/RIC/
25V308
Worker Knowledge a Concern
26V308
0
10
20
30
40
50
60
70
80
60-64 65-69 70-74 75-79 80-84 85+ 65+
Earnings SSA Private DB
Public DB Annuities Asset Income
0
10
20
30
40
50
60
70
80
60-64 65-69 70-74 75-79 80-84 85+ 65+
Earnings SSA Private DB
Public DB Annuities Asset Income
1977 2007
Percentage of Income, by Age, for the Retired Population, 1977 and 2007
27V308
Financial Literacy
Low
Not a priority in schools or later
Efforts offset by spend and borrow consumption culture
Not high for participants
Essential if income is not annuitized and there are assets to manage
28V308
Principles of Retirement Readiness
Early participation, consistent high contributions, and preservation
Early ballpark e$timate® of savings needed and annual update
Diversified asset allocation with reasonable costs and risk/age based re-balancing
Ongoing total life financial education, planning and implementation
Employer recognition of value to short term and long term productivity and profitability
29V308
Helping Participants Navigate
How much can you afford to save?
Might you borrow this money?
How long do you think you will be with this employer?
Might you cash out at job change?
Is this your only savings?
Would you sell if the market dropped?
How willing are you to lose money?
30V308
Getting Participation Up
Default enrollment with matching contribution highest rates
Default enrollment with no match near tie
Voluntary enrollment with match near tie
Voluntary enrollment with no match next
Voluntary IRA with payroll deduction next
Voluntary IRA on own lowest
31V308
Getting Contributions Up
Automatic employer contribution best
Default contribution next
Auto escalation essential feature over long term – or less will be saved
32V308
Preservation A Growing Focus
Job change and low balance losses
Loan and hardship losses
Employers increasingly seek to keep funds in the plan at job change
Employers increasingly focused on at retirement withdrawal method and options
33V308
Public Policy – 2008 and Beyond
Social Security and Medicare as Focus
Mandatory savings considered but unlikely
Due to low incomes, tax loads, and health costs
Employer plans and IRA’s likely to be put to effectiveness test – tax restrictions? Fee rules?
Later retirement ages for those able to work
Low disability and SSA incomes for those not healthy enough to work
34V308
35V308
Dallas L. SalisburyPresident and CEO
Employee Benefit Research Institute
www.ebri.org and www.choosetosave.org
36V308