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Retirement Security


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Sample. Forces impacting retirement security, economics, demographics, etc.

Published in: Economy & Finance, Business
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Retirement Security

  1. 1. Charting Retirement Security In an Era of Uncertainty
  2. 2. The Economic Climate • Low interest rate environment • Market returns up/down, stable? • Economy weak, some regions hit harder than others (eg. Detroit, NY, CA); some countries too. • Glimmers of hope as ‘clean up’ continues
  3. 3. Impact on Retirement Funds • Losses in both DC and DB plan $4 trillion between Oct 2007 to Oct 2008 with the pain shared about equally. • Those with DC plans experienced a loss of wealth, confidence, and security. • DB plan beneficiaries, more a loss of security, questions of confidence in future.
  4. 4. Implications • The fundamentals still apply. • Finding alternatives to minimize loss, depending when retirement date approaches. • Exposed financial vulnerabilities; markets not invincible and financial innovation no superhero. • Need to view options with new set of lenses, ie., framing of accumulation and decumulation stages. • Need awareness of market risk vs. longevity risk.
  5. 5. Demographic Changes • Populations are aging in developed world (China and Russia too) • Oldest region is Europe (Italy, Germany oldest) • Globally, 1 in 14 is 65 years +; by 2050, 1 in 6 (Japan is 1 in 5) • Oldest-old 80 years +, fastest-growing population, to increase four-fold (UN projections ’06)
  6. 6. Generational Changes US Generations Baby Boomers Gen X • Numbers by Gen Y generation US 0 20 40 60 80 (approximates) • Individual states’ worker-elderly ratios Millions will vary due to migration, minority influences
  7. 7. Pressure Points • Asset prices • Assets prices are expected to decline as savers cash in their portfolios. • The downward trend of real interest rates and equity yields of developed countries (OECD) could flatten and reverse; the opposite is true for younger societies (India, Latin America). • Professor Siegel of Wharton says it will take massive investment by people in India, China and other developing countries to prevent a US market meltdown. • But microtrends impact markets, economies.
  8. 8. Pressure Points • Economy • If workplace participation rates stay the same (with same retirement age incentives), GDP growth declines to 1.7% annually over three decades (OECD). • In business as usual mode, massive burden on workers with similar pressures on publicly funded healthcare and pensions. • Will need new workplace policies and incentives.
  9. 9. Economic Activity Rate % of 60-64 year-olds 100 75 50 25 0 Germany Japan US UK 1950 2000
  10. 10. Finding the Balance • Obama administration policy • Getting more realistic about promises in HC and SS • Need for transparency about funds available and • Tipping points around the globe, ability to pay e.g., Netherlands, Japan, Poland
  11. 11. Retirement Security in the Future • More fashioned by individual knowledge with greater access to information and education, but better due diligence will be required • A civil approach with transparency and personal responsibility the foundation • Understanding of how to control one’s personal retirement security infrastructure