S sg a_axsater_retirement_needs_ii_9_2012


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S sg a_axsater_retirement_needs_ii_9_2012

  1. 1. Understanding Participant Needs A Framework for Retirement Readiness II Defined Contribution Symposium Fredrik Axsater September 10, 2012 Head of DC Sales & Strategy Half Moon Bay State Street Global AdvisorsDC-0444 1
  2. 2. Does the Solution Fit the Need? Wants + Solutions = OutcomesDC-0367DC_0444 2
  3. 3. Framework for Retirement Readiness Wants + Solutions = Outcomes Participant + Plan = Retirement Wants Design ReadinessDC-0367DC_0444 3
  4. 4. Framework for Retirement Readiness Participant Plan Retirement + = Wants Design ReadinessDC-0367DC_0444 4
  5. 5. What Participants WantSource: SSgA 2011 DC Investor SurveyDC-0367DC_0444 5
  6. 6. Know Your Audience Source: SSgA 2011 DC Investor SurveyDC-0367DC_0444 6
  7. 7. Know Your Audience 18-­‐24   All   82% I  strongly  feel  my  401(k)  is  a  savings,   74% not  a  spending  account   73% The  recent  vola-lity  prompted  me  to   37% save  more   42% I  am  a  saver   23%Source: SSgA 2011 DC Investor SurveyDC-0367DC_0444 7
  8. 8. Understand the Frame: Saving in Percentages How do you determine how much to save for retirement? (Check all that apply)DC-0444 Source: SSgA April 2012 DC Investor Survey 8
  9. 9. Don’t Underestimate Savings Potential If you really had to tighten your belt, what percent could you actually cut out of your household budget?DC-0444 Source: SSgA April 2012 DC Investor Survey 9
  10. 10. Use Automation 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?DC-0444 Source: SSgA April 2012 DC Investor Survey 10
  11. 11. The Action Gap: Understanding vs. Knowing Think it’s Feel important knowledgeable about it How to select a diverse mix of 65% 33% investments How to adjust my asset 67% 30% allocation depending on my investment timeline How to determine how much I will 78% 33% need to save to have a secure retirement How to make my retirement 82% 28% savings last a lifetimeDC-0367DC_0444 Source: SSgA April 2012 DC Investor Survey 11
  12. 12. Framework for Retirement Readiness Participant Plan Retirement + = Wants Design ReadinessDC-0367DC_0444 12
  13. 13. Understanding the Default Participants who were asked to evaluate target date fund descriptions I am not sure how a target 10% date fund works I am not familiar with target 39% date funds Source: SSgA April 2012 DC Investor SurveyDC-0367 Source: Callan 2012 13
  14. 14. Avoid Investment Speak Which of the following descriptions best helps you understand how a target date fund works? Target date funds are a diverse mix of investments like stocks, 33% bonds an cash equivalents that periodically and automatically adjust over time to grow more conservative as you near your target retirement date Target date funds are diversified investments that automatically 6% adjust their asset allocation to reflect the risk and return objectives based on an investment horizon Target date funds are a single diverse investment fund that is 11% managed by professional investment managers who adjust the funds’ asset allocation in line with the target retirement date None of these descriptions are helpful in describing target date 1% fundsDC-0444 14
  15. 15. Would Customization Help Your Participants?DC-0367 15
  16. 16. Keep It SimpleDC-0367DC_0444 16
  17. 17. Helpful Hints: Raising the Default Contribution Rate From Fidelity Perspectives: Evaluating Auto Solutions, Summer 2009DC-0367 17
  18. 18. Saving: Divisible by Five Match: Spike No match: Spikes at 5%, 10%, 15% at 4% match threshold Source:DC-0367DC_0444 Choi, Laibson, Madrian and Metrick (2006) 18
  19. 19. 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%.DC-0444 Source: What’s the right savings rate? Russell Research; Daniel Gardner and Josh Cohen 19
  20. 20. Use Automation No automatic enrollment Automatic enrollment: 3% default Automatic enrollment: 6% default Source: Beshears, Choi, Laibson, and Madrian 2008DC-0367DC_0444 20
  21. 21. Achieving Desired Outcomes with Auto-Enrollment Early Enrollment and Participation Across Demographic Groups Before Automatic Enrollment After Automatic Enrollment Source: Madrian and Shea (2001)DC-0367DC_0444 21
  22. 22. Framework for Retirement Readiness Participant + Plan Retirement = Wants Design ReadinessDC-0367DC_0444 22
  23. 23. Framework for Retirement Readiness 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 designDC-0444 23
  24. 24. 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.DC-0444 24