S sg a_axsater_retirement_needs_ii_9_2012

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Participant Needs Understanding

A Framework for Retirement Readiness

Fredrik Axsater Head of DC Sales & Strategy State Street Global Advisors

II Defined Contribution Symposium September 10, 2012 Half Moon Bay

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Does the Solution Fit the Need?

Wants Solutions Outcomes +

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Framework for Retirement Readiness

Wants Solutions Outcomes +

Participant Wants

Plan Design

Retirement Readiness

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Participant Wants

Plan Design

Retirement Readiness +

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Source: SSgA 2011 DC Investor Survey

What Participants Want

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Know Your Audience

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73% 37% The recent vola-lity prompted me to save more

42% 23% I am a saver

18-‐24 All

82% 74% I strongly feel my 401(k) is a savings, not a spending account


Know Your Audience

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Understand the Frame: Saving in Percentages

How do you determine how much to save for retirement? (Check all that apply)

Source: SSgA April 2012 DC Investor Survey

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If you really had to tighten your belt, what percent could you actually cut out of your household budget?

Don’t Underestimate Savings Potential


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At about what percentage of your salary do you think you would discontinue an automatic increase of 1% a year that included the ability to opt out at any time?

Use Automation


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The Action Gap: Understanding vs. Knowing

Think it’s important

Feel

knowledgeable about it

How to select a diverse mix of investments

65% 33%

How to adjust my asset allocation depending on my investment timeline

67% 30%

How to determine how much I will need to save to have a secure retirement

78% 33%

How to make my retirement savings last a lifetime

82% 28%

DC_0444 Source: SSgA April 2012 DC Investor Survey

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Participant Wants

Plan Design

Retirement Readiness +


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Understanding the Default

Source: Callan 2012

Participants who were asked to evaluate target date fund descriptions

I am not sure how a target date fund works

10%

I am not familiar with target date funds

39%


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Which of the following descriptions best helps you understand how a target date fund works?

Avoid Investment Speak

Target date funds are a diverse mix of investments like stocks, bonds an cash equivalents that periodically and automatically adjust over time to grow more conservative as you near your target retirement date

33%

Target date funds are diversified investments that automatically adjust their asset allocation to reflect the risk and return objectives based on an investment horizon

6%

Target date funds are a single diverse investment fund that is managed by professional investment managers who adjust the funds’ asset allocation in line with the target retirement date

11%

None of these descriptions are helpful in describing target date funds

1%

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Would Customization Help Your Participants?

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Keep It Simple

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From Fidelity Perspectives: Evaluating Auto Solutions, Summer 2009

Helpful Hints: Raising the Default Contribution Rate

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Match: Spike at 4% match threshold

No match: Spikes at 5%, 10%, 15%

Saving: Divisible by Five

DC_0444 Source: Choi, Laibson, Madrian and Metrick (2006)

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Devise Easy Translation Tools

TRI-30 – An individual can multiply her target replacement income (TRI) rate by 30% to determine an appropriate savings rate. For example, if she wanted to replace 50% of her present income from savings, she’d multiply 50% by 30% for a savings rate of 15%.

Source: What’s the right savings rate? Russell Research; Daniel Gardner and Josh Cohen

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Source: Beshears, Choi, Laibson, and Madrian 2008

Use Automation

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No automatic enrollment Automatic enrollment: 3% default Automatic enrollment: 6% default

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After Automatic Enrollment

Source: Madrian and Shea (2001)

Early Enrollment and Participation Across Demographic Groups

Achieving Desired Outcomes with Auto-Enrollment

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Before Automatic Enrollment

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Participant Wants

Plan Design

Retirement Readiness

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1.  Understanding your Participants’ wants

2.  Defaults are important

§  Savings default

§  Investments default

3.  Automate for success

§  Don’t underestimate savings potential

4.  Framing your communication is important

§  No jargon or investment speak

§  Keep it simple

5.  Periodic re-evaluation of plan design

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State Street Global Advisors Disclosure

The views expressed in this material are the views of SSgA Defined Contribution through the period ended September 10, 2012, and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance, and actual results or developments may differ materially from those projected. The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor. All material has been obtained from sources believed to be reliable. There is no representation or warranty as to the accuracy of the information, and State Street shall have no liability for decisions based on such information. Investing involves risk, including the risk of loss of principal. Diversification does not ensure a profit or guarantee against loss.

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