retirement in the private sector (dallas salisbury)
TRANSCRIPT
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Trends in Retirement Programs and Income
Dallas Salisbury, President & CEO
Employee Benefit Research Institutewww.EBRI.org
www.choosetosave.org
June 10, 2008
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Retirement Plan Trends:Number of Plans
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
1975 1980 1985 1990 1995 2000 2005
Total DB DC K
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Retirement TotalParticipation Trends:Including Multiple-Plan Counting
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
1975 1980 1985 1990 1995 2000 2005
Workforce Total DB DC
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Retirement Active Participation Trends:Including Multiple Plan Counting
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
1975 1980 1985 1990 1995 2000 2005
Workforce Total DB DC K
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Retirement Asset Trends
$0
$1
$2
$3
$4
$5
$6
1975 1980 1985 1990 1995 2000 2005
($
Millions)
Total DB DC K
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Retirement Plan Contribution Trends
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
1975 1980 1985 1990 1995 2000 2005
Total DB DC K
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Retirement Plan Net Contribution Trends
($120,000)
($100,000)
($80,000)
($60,000)
($40,000)
($20,000)
$0
$20,000
$40,000
$60,000
1975
1980
1985
1990
1995
2000
2005
Total DB DC K
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What Employers Spend on Benefits
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Factors
How much is being saved
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Actual Contributions VersusNeeded Contributions
Factor All Workers Baby Boomers
% on track to replace 80%with SSA included
15% 15%
Saving rate 3.5% 4.1%
Needed rate 12% - 19% 18%-27%
Source: Fidelity RI Retirement Index, March 2007
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Income quartile at age 65
Percent of final five-year average salary
*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
Baseline Don't always have a 401(k)67.2
39.4
59.554.0
50.7
27.724.723.223.2
1 2 3 4
27.5 30.834.7
Median Replacement Rates for 401(k) Accumulations*for Participants Reaching Age 65 Between 2030 & 2039
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Factors
How much is being saved
How much is needed
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SSA replaces 27% of salary at the maximum wagebase and 39% at the average income
Medicare pays for about 50% of retiree health costs
2005 SSA Med
Male 243,174 130,586
Female 306,263 152,963
Couple 515,532 283,549
Avg LE M 81 F 85
Source: Urban Institute, 2006
retireme
nt
Matching the Value of SSA and Medicareto Average Life Expectancy
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Risk Acceptance 2008 2018
50% MD $194,000 $325,000
75% MD $253,000 $424,000
90% MD $305,000 $511,000
90% Drugs $654,000 $1,064,000
Savings Needed for Retiree Health Benefits:Age 65 in 2008 and 2018 (couples)
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Starting at age 20 and saving
consistently for 47 years willsupport a long life at ratesmany are now saving.
Waiting until 40 or 50 movesthe numbers to the stars
unless retirement is delayed.
How much do you need tosave if you work until 67?
0
5
10
15
20
25
30
35
40
45
75 80 85 90 95 100
20
40
50
Responsibility for Longevity RiskRequires Greater Individual Savings
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Target Final Earnings Multiples:High Income
Probability ofRetirement Adequacy
Male Retiringat 65
Female Retiringat 65
50% 4.13 5.29
75% 7.14 10.13
90% 11.9 13.86
Source: EBRI Issue Brief September 2006
Single retiree less than $40,450
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Target Final Earnings Multiples:Low Income
Single retiree less than $15,000
Probability ofRetirement Adequacy
Male Retiringat 65
Female Retiringat 65
50% 10.67 16.22
75% 22.85 34.23
90% 41.99 54.22
Source: EBRI Issue Brief September 2006
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Factors
How much is being saved
How much is needed
Longevity
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Source: Annuity 2000 Mortality Table, American Society of Actuaries. Figures assume you are in good health.
Couple(Both Age 65)
FemaleAge 65
Age 92
50% chanceof one survivor
MaleAge 65
Age 88 94 100
Age 85 92 100
50% chance 25% chance
50% chance 25% chance
25% chanceof one survivor
97 10095
9590
90
9085
85
People Are Likely to Live LongerThan They Think!
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I think you should be more explicit here in Step Two.
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Factors
How much is being saved
How much is needed
Longevity
Probability of not running out desired
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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: $200,000.00
Initial Payment Amount for FixedSingle LifeAnnuity with inflation adjustments: $912.12
Cancellation Option Selected: No
Qualified Assets: Yes
Source:https://personal.vanguard.com/us/accounttypes/retirement/ATSAnnuitiesOVContent.jsp
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How Much Does Portfolio Matterat 90% Confidence level?
$500
$880
$540
$920
$560
$920
$580
$920
$560
$900
$560
$880
$560
$840 $916
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
A C E G
40 years 20 years
$200,000 at age 60 90% chance of income for 20 and 40 yearsPortfolio D is a 40/40/20 mix (equity/bond/cash)
Source:www3.troweprice.com/ric/RIC/
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How much does probability matter?
$480
$780
$580
$920
$620
$1,000
$680
$1,040
$720
$1,100
$760
$1,140
$916
$0
$200
$400
$600
$800
$1,000
$1,200
99% 80% 60% AnnuityI
40 years 20 years
$200,000 at age 60 90% chance of income for 20 and 40 yearsPortfolio D is a 40/40/20 mix (equity/bond/cash)
Source:www3.troweprice.com/ric/RIC/
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Worker Knowledge a Concern
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0
1 0
2 0
3 0
4 05 0
6 0
7 0
8 0
6 0 -6 4 6 5 -6 9 7 0 -7 4 7 5 -7 9 8 0 -8 4 8 5 + 6 5 +
E a rnings S S A P r iv a te D B
P ub lic D B Annuit ie s As se t Inc o
0
1 0
2 0
3 0
4 0
5 0
6 0
7 0
8 0
6 0 - 6 4 6 5 - 6 9 7 0 - 7 4 7 5 - 7 9 8 0 - 8 4 8 5 + 6 5 +
E a rn in g s S S A P r iv a te D BP u b lic D B A n n u it ie s A s s e t In c o
1977 2007
Percentage of Income, by Age, for theRetired Population, 1977 and 2007
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Financial Literacy
Low
Not a priority in schools or later
Efforts offset by spend and borrowconsumption culture
Not high for participants
Essential if income is not annuitized andthere are assets to manage
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Principles of Retirement Readiness
Early participation, consistent high contributions,and preservation
Early ballpark e$timate 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 longterm productivity and profitability
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Getting Participation Up
Default enrollment with matching contributionhighest 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
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Getting Contributions Up
Automatic employer contribution best
Default contribution next
Auto escalation essential feature over long
term or less will be saved
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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 retirementwithdrawal method and options
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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 toeffectiveness test tax restrictions? Fee rules?
Later retirement ages for those able to work
Low disability and SSA incomes for those nothealthy enough to work
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Dallas L. SalisburyPresident and CEO
Employee Benefit Research Institute
www.ebri.org andwww.choosetosave.org
http://www.ebri.org/http://www.choosetosave.org/http://www.choosetosave.org/http://www.ebri.org/ -
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