Trends in Retirement Programs and Income

1
Trends in Retirement Programs and Income
Dallas Salisbury, President CEO Employee
Benefit Research Institute www.EBRI.org www.choose
tosave.org
June 10, 2008
2
Retirement Plan Trends Number of Plans
3
Retirement Total Participation Trends Including
Multiple-Plan Counting
4
Retirement Active Participation Trends
Including Multiple Plan Counting
5
Retirement Asset Trends
6
Retirement Plan Contribution Trends
7
Retirement Plan Net Contribution Trends
8
What Employers Spend on Benefits
9
Factors

• How much is being saved

10
Actual Contributions Versus Needed Contributions
Source Fidelity RI Retirement Index, March 2007
11
Median Replacement Rates for 401(k)
Accumulations for Participants Reaching Age 65
Between 2030 2039
Percent of final five-year average salary
Income quartile at age 65
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
12
Factors

• How much is being saved
• How much is needed

13
Matching the Value of SSA and Medicare to
Average Life Expectancy
r e t i r e m e n t t r e n d s

• 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

Source Urban Institute, 2006
14
Savings Needed for Retiree Health BenefitsAge
65 in 2008 and 2018 (couples)
15
Responsibility for Longevity Risk Requires
Greater Individual Savings
How much do you need to save if you work until 67?
45
20
40
40
35

• 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.

50
30
25
20
15
10
5
0
75
80
85
90
95
100
16
Target Final Earnings Multiples High Income
Single retiree less than 40,450
Source EBRI Issue Brief September 2006
17
Target Final Earnings Multiples Low Income
Single retiree less than 15,000
Source EBRI Issue Brief September 2006
18
Factors

• How much is being saved
• How much is needed
• Longevity

19
People Are Likely to Live Longer Than They Think!
85
92
Male Age 65
95
90
100
Age
50 chance
25 chance
88
94
Female Age 65
90
85
100
Age
50 chance
25 chance
97
92
95
90
85
100
Age
Couple (Both Age 65)
50 chance of one survivor
25 chance of one survivor
Source Annuity 2000 Mortality Table, American
Society of Actuaries. Figures assume you are in
good health.
20

I think you should be more explicit here in Step
Two.
21
Factors

• How much is being saved
• How much is needed
• Longevity
• Probability of not running out desired

22
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 200,000.00Initia
  l Payment Amount for Fixed Single Life Annuity
  with inflation adjustments 912.12
• Cancellation Option Selected No
• Qualified Assets Yes

Sourcehttps//personal.vanguard.com/us/accounttyp
es/retirement/ATSAnnuitiesOVContent.jsp
23
How Much Does Portfolio Matter at 90 Confidence
level?
200,000 at age 60 90 chance of income for 20
and 40 years Portfolio D is a 40/40/20 mix
(equity/bond/cash)
Sourcewww3.troweprice.com/ric/RIC/
24
How much does probability matter?
200,000 at age 60 90 chance of income for 20
and 40 years Portfolio D is a 40/40/20 mix
(equity/bond/cash)
Sourcewww3.troweprice.com/ric/RIC/
25
Worker Knowledge a Concern
26
Percentage of Income, by Age, for the Retired
Population, 1977 and 2007
1977
2007
27
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

28
Principles of Retirement Readiness

• Early participation, consistent high
  contributions, and preservation
• Early ballpark etimate 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

29
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?

30
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

31
Getting Contributions Up

• Automatic employer contribution best
• Default contribution next
• Auto escalation essential feature over long term
  or less will be saved

32
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

33
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 IRAs 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

34
(No Transcript)
35
www.ebri.org and www.choosetosave.org
Dallas L. Salisbury President and CEO Employee
Benefit Research Institute
36
(No Transcript)