The Future Of Retirement
Upcoming SlideShare
Loading in...5
×
 

The Future Of Retirement

on

  • 1,438 views

 

Statistics

Views

Total Views
1,438
Views on SlideShare
1,437
Embed Views
1

Actions

Likes
2
Downloads
38
Comments
1

1 Embed 1

http://www.slideshare.net 1

Accessibility

Upload Details

Uploaded via as Microsoft PowerPoint

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
  • An eye opener! Hope it's not too late for me!
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment
  • Been writing and speaking 15 yrs. Lots of ee meetings, good and bad. Unbiased, trusted source of info. Not selling - cures for baldness. Full time mission now. Book 2005 Subtitle says it all. 400 pages, lots of detail.
  • 2007 produced DVD. Boil down to simple strategies. Life turn out ok Visual very compelling and memorable. Booklet action steps. 12 experts. 13 people. Got it covered between books, DVDs, new series of email newsletters.
  • Topic of interest to audience in their role as leaders and examples Not narrowly defined fiduciary role to administer and operate benefit plans, which is also very important and is the subject of much of the conference. We face some serious challenges, and we want to speak clearly and plainly about these challenges. Focus on important key messages. Will talk about most of America - private sector, public sector, multiemployer. Realize that most in the audience represent multi or public plans, and will point out the differences. Also need to plans you represent into greater context of Soc Sec and what’s happening in other sectors, since your plan members may come from another sector or be married to someone there
  • Made this stmt before meltdown - even worse now First point IN SPITE OF fine efforts of audience, not BECAUSE they are doing inadequate job Praise for their efforts, particularly if sponsor DB and/or retiree medical plans This is predictable surprise. Show of hands - how many aren’t too surprised at mortgage meltdown, given practices from a few years ago?
  • Professional statement vs. This is stupid! And people were upset about $700 billion bailout, which was about $2,300 per citizen
  • Retirement plan of any type. Stats similar for 45-54 age group, lower for younger age groups And must stay in plan for a career to get meaningful benefits
  • Implications: liquid assets inadequate Need good choices for DB plans, if available. No lump sums! Tempted to use home equity to fund retirement - if still available! Stock prices and real estate values have eroded since 2004.
  • Balances have eroded significantly since 2006.
  • Of those participating in a plan Multi and public sector different, change not nearly as profound. Source from US Census Bureau Don’t confuse with % of employers sponsoring How many multis feeling pressure from employers to W/D from DB? How many governments feeling pressure from legislators?
  • Also add employees covered if time
  • %’s don’t add to 100 This was in survey If have pension, maybe they’re right. If no pension need at least $500,000 for traditional retirement. Half are wrong.
  • %’s don’t add to 100 This was in survey
  • Outliving assets polite way of saying : Broke not dead yet
  • We’re living longer
  • 65 year-olds are much better to work today than 60 years ago
  • Causation vs correlation. Engagement in life, powerful reasons getting up morning. Poverty level. Questions traditional retirement
  • Patti’s slides follow
  • 401k balance not there to spend in retirement! Generator of I
  • 401k balance not there to spend in retirement! Generator of I
  • One spouse earns maximum all career, spouse gets spousal benefit
  • One spouse earns maximum all career, spouse gets spousal benefit
  • Power of delaying Type of analysis should do - gets in ballpark. Spreadsheets, online, advisors better. Rethink expenses - how bad want to retire? DB plan or work close gap.
  • One spouse earns maximum all career, spouse gets spousal benefit
  • One spouse earns maximum all career, spouse gets spousal benefit
  • One spouse earns maximum all career, spouse gets spousal benefit
  • Given recent events in financial markets, does it really make sense to rely just on financial resources and promises by others for a period of 20, 30 or even 40 years? Maybe some form of work, particularly in ‘early’ retirement years, is a good strategy.
  • May be more feasible for most Americans May be necessary given prior slide But do they jeopardize new goals in prior slide?
  • Audience show of hands - how many doing something about these issues?
  • Audience show of hands - how many doing this?
  • Note success of other public education efforts - drunk driving, smoking If feasible, have discussion on what has worked for audience.
  • Emphasize fine line between providing information and advice
  • Productivity issue. Primarily issue of expectations. Grumpy old men and women if expectations not met. It’s the right thing to do for your employees. Given recent events in financial markets, does it really make sense to rely just on financial resources and promises by others for a period of 20, 30 or even 40 years? Maybe some form of work, particularly in ‘early’ retirement years, is a good strategy.
  • Fine line between advice and education - go to the line. Good time to be aging. Need to share info. BS detectors up. Want to hear vs need to hear. If can’t retire, fix work so that can continue working and live fulfilled life.
  • Learn more! Email Newsletter OK to take time learning projection systems Speaking of being student, quiz and newsletter in package. Books and DVDs for sale. Q&A if time - LTC
  • Session 352 - roundtable discussion. 2:45 to 4:00

The Future Of Retirement The Future Of Retirement Presentation Transcript

  • The Future of Retirement Houston Forum January 27, 2009 by Steve Vernon, FSA President, Rest-of-Life Communications
  •  
  •  
  • The Future of Retirement… is Work!
    • Review current state of retirement adequacy
    • What individuals should do
    • What employers and plan sponsors should do
    Today’s Agenda
    • Large numbers of baby boom workforce won’t have the traditional retirement, due to:
      • Inadequate financial resources
      • Poor financial management skills
      • Lack of affordable medical insurance
      • Possible broken promises
    • But that needn’t be a source of despair, particularly if we act now
    Overview
    • Present value of Social Security deficit (OASDI only):
    • $6,500,000,000,000
    • Over $20,000 per citizen
    • Benefit cutbacks and tax increases are inevitable
    Current State Social Security and Medicare Funding in Jeopardy
    • Retirement plan participation among workers age 55-64
    • 49% of all workers
    • 47% of private sector age and salary workers
    • 77% of public sector wage and salary workers
    • Source: EBRI Issue Brief #311, November 2007
    Current State Only Half of Working Americans Covered by Retirement Plan at Work
    • Wealth Holdings of Typical Household Prior to Retirement
    • $42,914 financial assets
    • $45,244 defined contribution
    • $88,158 total liquid assets
    • $125,208 primary house
    • $96,705 value of DB plan
    • $221,913 total nonliquid assets
    • $36,772 business and nonfinancial assets
    • $346,833 grand total
    • Source: 2004 Survey of Consumer Finances, U.S. Board of Governors of Federal Reserve System. Values are mean of middle 10 percent of households headed by people aged 55-64.
    Current State Existing Assets May Be Inadequate
  • Current State Existing 401(k) Balances May Be Inadequate Source: Average 401(k) balances for 20 million 401(k) participants, 12/312006. EBRI Issue Brief #308 Tenure in Years $190,593 $157,069 $93,636 $51,268 $31,914 60s $167,806 $174,272 $99,794 $54,491 $32,532 50s 30+ 20 - 30 10 - 20 5 - 10 2 - 5 Age Group
  • Current State Defined Benefit Plan Participation Has Fallen Dramatically in Private Sector % of workforce participation by plan type Source: Center for Retirement Research at Boston College
  • Retiree Medical Coverage Drops in Private Sector Source: The Kaiser Family Foundation, 2006 Employer Health Benefits % Employers offering coverage
  • Many Americans Lack Necessary Financial Management Skills Some Scary Statistics
    • 47% completed retirement needs calculation
    • 33% of workers who have not saved for retirement nonetheless feel confident their retirement will be secure
    • 63% confident about having enough money in retirement
    • Source: EBRI 2008 Retirement Confidence Survey
  • More Scary Statistics
    • Reported retirement savings age 55+
      • 28% less than $10,000
      • 23% $10,000 - $99,000
      • 18% $100,000 - $249,999
      • 23% $250,000 +
      • Source: EBRI 2008 Retirement Confidence Survey
    • Annual retirement income generated by 5% withdrawal percentage
      • $10,000 => $500
      • $100,000 => $5,000
      • $250,000 => $12,500
  • Amount Respondents Say Needed for Comfortable Retirement source: EBRI 2008 Retirement Confidence Survey 18% $1 million or more 23% $500,000 - $999,999 16% $250,000 - $499,999 25% Under $250,000 12% Don’t know
  • Methods for Determining Savings Needed for Retirement source: EBRI 2008 Retirement Confidence Survey 4% Other 2% Desired lifestyle 4% Worksheet or form 7% Online calculator 9% Read or hear amount 19% Do own estimate 19% Ask advisor 43% Guess
  • More Scary Statistics
    • People overestimate safe withdrawal percentage to make savings last a lifetime
    • 31% say 4% is safe
      • Odds of outliving assets about 1 out of 13 for age 65 retirement
    • 26% say 7% is safe
      • Odds of outliving assets about 1 out of 2 or worse
    • 29% say 10% is safe
      • Odds of outliving assets 4 out of 5 or higher
    • 14% say 15% is safe
      • Odds of outliving assets near certainty
    • source: 2008 MetLife Retirement Income IQ Test
  • Inevitable Conclusions
    • More older people working
    • longer than planned
    • Is this a bad thing?
  • Life Expectancy at Age 65 Source: Society of Actuaries
  • Workforce Participation Men Age 65+ Source: Bureau of Labor Statistics
    • Workers have lower death rates than retirees!
    Death rates for males
    • What Should Individuals Do?
  • Top 10 Retirement Mistakes
    • Not creating a realistic plan.
      • Half of older workers have not calculated what they need for retirement or budgeted for retirement expenses.
    • Retiring too early with insufficient financial resources.
      • A natural consequence of not preparing a needs analysis.
      • Increasing reliance on 401(k)/account-based plans presents a significant challenge.
    • Starting pension benefits too early.
      • Most workers retire before maximizing their retirement income (usually the Normal Retirement Date).
  • Top 10 Retirement Mistakes
    • Starting Social Security benefits too early.
      • Half of Americans start at age 62, the earliest possible age with the lowest amount of monthly income.
    • Drawing down 401(k)/retirement savings too rapidly.
      • 4% to 5% per year considered safe withdrawal percentage.
      • Many withdraw at much higher rates.
    • Uninformed/poor selection of financial advisors and/or products.
  • Top 10 Retirement Mistakes
    • Tapping home equity too early through home equity loans or reverse mortgages.
    • Continuing unhealthy lifestyle which increases chances of expensive, debilitating conditions.
    • Not having a strategies in place for medical and long-term care expenses.
    • Living expenditures that are unnecessary, unrealistic or unaffordable, given all the above mistakes.
  • Top 10 Retirement Mistakes Plus One!
    • Not having a good idea of
    • what you want to do
    • in your retirement years
  • Top 10 Retirement Risks
    • Living too long and running out of money
    • Recession/deflation reducing value of retirement savings
    • Inflation eroding value of fixed pensions and fixed investments
    • Dropping Interest rates resulting in reduced income
    • Poor health
    • Potentially ruinous bills for long-term care expenses
    • Drop in needed wage income during retirement years
    • Bad advice, fraud or theft
    • Death of a spouse
    • Loneliness, boredom, lack of purpose
    • Addressing these risks helps prevent the most common mistakes shown previously.
  • 10 Steps to Recession-Proof Your Retirement Years
    • Take care of your health
    • Protect against the risk of catastrophic conditions
    • Consider working as long as you can
    • Maximize Social Security income by delaying benefits as long as possible
    • Maximize pension income by delaying benefits as long as possible
    • Be prudent when withdrawing retirement savings
    • Use simple, effective investment strategies
    • Adjust living expenses to match your retirement income
    • Develop a robust social portfolio
    • Become a student of retirement and build a professional team
    • These steps address the retirement risks and help prevent the most common mistakes shown previously.
  • Simple solutions for closing the gap
    • How much savings you need to generate a target retirement income
    • last for life
    • increase with inflation
    • Safest - 33 times your desired income
    • assumes you live on investment income
    • leaves money for children and charities
    • Conservative - 25 times your desired income
    • modest spend-down of principal
    • use if retire in late 50’s or early 60’s
    • More aggressive - 20 times your desired income
    • more rapid spend-down of principal
    • use if retire in mid 60’s or later
  • Simple solutions for closing the gap
    • How much savings you need to generate a target retirement income
    • 33 times your desired income (safest)
    • 25 times your desired income (conservative)
    • 20 times your desired income (more aggressive)
    • Example: if you need $20,000 in annual retirement income, here are suggested assets to generate this income
    • safest: $20,000 x 33 = $660,000
    • conservative: $20,000 x 25 = $500,000
    • aggressive: $20,000 x 20 = $400,000
  • One example: can I retire at 62? married couple, same age, spouse doesn’t work current earnings $75,000/year no pension
    • expenses = $60,000 per year (80% replacement)
    • social security = $25,080/year
    • (at age 62)
    • gap = $34,920/year
    • safest: $1,152,360 (33 times gap)
    • conservative: $873,000 (25 times gap)
    • more aggressive: $698,400 (20 times gap)
    • note: may need more savings for inflation and emergencies
  • One example: can I retire at 65? married couple, same age, spouse doesn’t work current earnings $75,000/year no pension
    • expenses = $60,000 per year (80% replacement)
    • social security = $32,400/year
    • (at age 65)
    • gap = $27,600/year
    • safest: $910,800 (33 times gap)
    • conservative: $690,000 (25 times gap)
    • more aggressive: $552,000 (20 times gap)
    • note: may need more savings for inflation and emergencies
  • One example: can I retire at 70? married couple, same age, spouse doesn’t work current earnings $75,000/year no pension
    • expenses = $60,000 per year (80% replacement)
    • social security = $46,560/year
    • (at age 70)
    • gap = $13,440/year
    • safest: $443,520 (33 times gap)
    • conservative: $336,000 (25 times gap)
    • more aggressive: $268,800 (20 times gap)
    • note: may need more savings for inflation and emergencies
  • Another example: can I retire at 62? married couple, same age, spouse doesn’t work current earnings $75,000/year 15 years pension service
    • expenses = $60,000 per year (80% replacement)
    • social security = $25,080/year
    • (at age 62)
    • pension = $9,000/year
    • note: not reduced for joint & survivor annuity
    • gap = $25,920/year
    • safest: $855,360 (33 times gap)
    • conservative: $648,000 (25 times gap)
    • more aggressive: $518,400 (20 times gap)
    • note: may need more savings for inflation and emergencies
  • Another example: can I retire at 65? married couple, same age, spouse doesn’t work current earnings $75,000/year 18 years pension service
    • expenses = $60,000 per year (80% replacement)
    • social security = $32,400/year
    • (at age 65)
    • pension = $13,500/year
    • note: not reduced for joint & survivor annuity
    • gap = $14,100/year
    • safest: $465,300 (33 times gap)
    • conservative: $352,500 (25 times gap)
    • more aggressive: $282,000 (20 times gap)
    • note: may need more savings for inflation and emergencies
  • Another example: can I retire at 70? married couple, same age, spouse doesn’t work current earnings $75,000/year 23 years pension service
    • expenses = $60,000 per year (80% replacement)
    • social security = $46,560/year
    • (at age 70)
    • pension = $17,250/year
    • note: not reduced for joint & survivor annuity
    • surplus = $3,810/year
    • If financial resources are inadequate for traditional retirement, inevitable solution some combination of:
    • Working in retirement years
    • Postponing retirement
    • Reducing living expenses before retirement to enable higher saving
    • Reducing living expenses during retirement
    Tough Choices for Individuals
    • If traditional retirement isn’t feasible,
    • how about:
      • Long life, Health, and Prosperity…
      • … which may include some work and
      • fine tuning living expenses
    New Life Goals?
  • What Can Employers and Plan Sponsors Do?
    • Be prepared for more older workers working longer
    • Flexible work hours and policies
    • Part-time workers
    • Keep skills up-to-date
    • Maintain health of older workers
    • Provide respect and safety
    • Best use life experience of older workers
  • What Can Employers and Plan Sponsors Do?
    • Extend retirement and medical plans to part-time workers
    • Provide “bridge” medical coverage until Medicare eligibility at age 65
    • Optimize retirement benefits
    • Strategic tradeoff of pay vs. benefits?
  • What Can Employers and Plan Sponsors Do?
    • Strong education program
    • Enlist support of senior leadership
    • Use simple, effective messages
    • Use a marketing approach, appealing to emotions, but based on solid research and analysis
    • Use multiple media, coordinated approach
      • traditional print
      • email newsletters
      • posters
      • videos
      • online
  • Employees and Participants Need Help (But Not Advice) with These Questions
    • How much money do I need to retire?
    • How do I draw down retirement savings?
    • What are effective choices for DB benefits?
    • When should I draw Social Security?
    • How long might I live?
    • How do I protect against the threat of large bills for medical and long-term care expenses?
    • What are strategies for balancing income and expenses in my retirement years?
    • What is the role of part-time or full-time work in retirement?
    • How can I work with financial advisors?
    • What are considerations for selecting financial products and services?
  • Will these be your employees and plan participants in 10 years?
    • What is the desirable level of involvement in the health of our employees and participants?
    • How much should we help employees and participants with retirement planning decisions?
    • What role should we play in setting expectations for employees and participants?
      • Should we still enable or encourage expectations for a traditional retirement, relying exclusively on financial resources and promises, for periods of 20, 30 or 40 years?
    Tough Questions Facing Employers and Plan Sponsors
  • Learn more!
    • www.restoflife.com
    • [email_address]
  • The Future of Retirement Q&A