1. When Retirement Reality Bites
Ross Mitchell, Niall Fitzgerald – Zurich Life Assurance plc
Dr. Virginia Stewart - UCD Michael Smurfit School of Business
2 June 2016

2. The views expressed in this presentation are those of the
presenters and not necessarily of the Society of Actuaries in
Ireland nor the respective employers
Disclaimer

3. Perception v reality?

4. Agenda
Psychology of
retirement
Global retirement
structures
Ireland focus A call to action

5. Psychology of
retirement

6. • Life Stage
• Broad Phases
– Planning
– Decision
– Transition and
Adjustment
Defining Retirement
6

7. • Individual
• Job and Organisational
Factors
• Family Factors
• Socioeconomic Context
Antecedents that Influence the Process
7
“Psychological Research on Retirement”
(Wang & Shi, 2014)

8. • Resources
– Financial
– Physical
– Cognitive
– Motivational
– Social
– Emotional
• Total capability
Ease of Adjustment
8

9. • Unemployment
• Demanding job
• Voluntariness
• Retiring earlier than planned
• Health reasons
• Marital happiness
Well Being During Retirement
9

10. • After transition and adjustment
– 70% minimum changes
– 25% initial negative changes
but improved
– 5% positive changes
Well Being During Retirement
10
“Profiling retirees in the retirement transition and adjustment process”
(Wang, 2007; U.S. Health and Retirement Study )

11. Psychological Well Being During Retirement
11
“What Factors are Associated with Change in Older People’s Quality of Life?”
The Irish Longitudinal Study of Aging
(2009-2011 and 2012-2013)

12. Outcomes
12
PhysicalFinancial
Psychological

13. Example: Imagine that the
interest on your savings account
was 1% per year and inflation
was 2% per year. After 1 year,
would you be able to buy:
• More than, exactly the same
as, or less than today with
the money in this account?
• Do not know or refuse to
answer
Why Financial Literacy Matters
13

14. Gender & Financial Decision Making
14
“Financial Literacy and Financial Decision-Making in Older Adults”
(Lusardi, 2012)

15. Age & Financial Decision Making
15
“How does age affect financial decision making?”
Center for Retirement Research
(Gamble, Boyle, Yu, & Bennett, 2015)

16. Financial Isolation
16
PhysicalFinancial
Psychological

17. Global retirement
structures

18. The global picture

19. • TTE Structure
• Complete Freedom
• Semi-Mature DC Market – 24 Years
• Household Debt Accumulation encouraged
• Net Effect = 0%
The global picture - Australia

20. • Tight -> Loose
• Pension Freedoms
• Immature DC Market
• Innovation
• Fraud Increase
The Global Picture - UK
20

21. • Product Drawdown
• Advanced – Similar to Ireland – Annuities and Drawdown
• More ability to mix and match
• Semi-Mature DC Market
• Innovative – QLAC
The Global Picture - US
21

22. Results

23. • (Schaie, K. W. Intellectual Development in Adulthood: The Seattle Longitudinal Study. Cambridge Univ. Press, Cambridge, 1996).
Lessons to be learned

24. • Open yet restrict
• Research and examine lifetime investment strategies - not just pre
and post retirement
• Simplification = One Product
Lessons to be learned

25. Ireland focus

26. Income trends – Ireland
Source: TILDA pension report 2012
13,244
20,571
0
5000
10000
15000
20000
25000
CSP NCSP OP PP SW Total
€P.A.
Income sources
Females income
Males income
CSP – Contributory State Pension
NCSP – Non-contributory State Pension
OP – Occupational Pension
PP – Private pension
SW – Social Welfare

27. Income trends – Ireland
A mainly
defined benefit
world for
current retirees
Level pensions
“the norm”
Expected
periods from
age 65 of 17.7
years for males
and 20.6 years
in 2012
29%
Not on track to
maintain
standard of living
post retirement
(McKinsey
Retirement
Readiness, 2015)

28. Expenditure trends – Ireland
19.90%
4.80%
4.90%
6%
11%
2%3.90%
14.80%
32.70%
% of expenditure
Food
Alcohol/Tobacco
Clothing and footwear
Fuel and light
Housing
Household non-durables
Household durables
Transport
Miscellaneous goods and services
Source: Household budget survey CSO 2009
Average of €26k p.a. for retired household with average age 72

29. An expenditure analysis
Variable Cost
Essential
Fixed Cost
Discretionary
Food
Alcohol/Tobacco
Clothing/Footwear
Fuel/Light
Housing
Housing
durables
Housing
non-durables
Transport
Vacations
Medical costs
Entertainment
Subscriptions
Insurance

30. Pensioner lifecycle
30
Active
(65-74?)
Passive
(75-85?)
Supported
(85+?)
DISCRETIONARY/VARIABLE FIXED/ESSENTIAL
Debt
repayment?
Vacation(s)? House
improvements? Family/
Hobbies
House
down size?
Healthcare
Nursing
homes
Inheritance

31. 2050 Potential differences?
31
Retirement
age?
Extended
working
Defined
contribution
“new”
world?
Private
healthcare
a luxury?
Greater
funds
available for
drawdown?
Expected
periods
from age
65 of 25
years for
males and
27 years
Second
home?

32. A call to action

33. Summary
Lack of accurate data on (semi)
retired population
Holistic view of physical,
psychological and financial needs
Advice needed throughout WHOLE
retirement journey
At and during retirement structures
need radically improved

34. Recommendations
 Adequacy and coverage of future DC world needs addressed
NOW
 Dedicated pensioner data collation service to drive appropriate
products and services
 Improved, clearer advice service AT and DURING pensioner
lifecycle
 Cashflow modelling
 Life expectancy modelling
 Power of Attorney

35. Recommendations
 Product innovation and flexibility
 Voluntary OPTION to set aside funds for private
healthcare?
 INDEXED annuity to “match” inflationary “fixed”
expenditure (transferable or convertible to lump sum in
the event of nursing home care)?
 SIMPLER drawdown vehicle for discretionary variable
spending
 Formation of retirement communities – “Retirement
Crowdfunding”!

36. Questions