Slow and steady wins the race

Transcription

1 Slow and steady wins the race John Maurer, Board Member, Ohio Deferred Compensation Steve Muller, Managing Director Consultant Relations, Nationwide Retirement Plans Wei Hu, President of Financial Research, Financial Engines Marc Pester, Senior Vice President, Institutional Investments, Prudential Opening Remarks John Maurer Board Member Ohio Deferred Compensation 1 1

2 Spend Down Readiness Steve Muller Managing Director, Consultant Relations Nationwide Retirement Plans 2 Spend Down Readiness Education Preparation Activation 3 2

3 17% of a typical retiree s budget goes to lifestyle purchases Essential Housing: 36% Transportation: 17% Food: 15% Health care: 12% Apparel: 3% Non essential 4 Retirement income sources Where does it come from? Traditional pension Social Security Supplemental retirement 5 3

4 Consider which income may be guaranteed, and which is not Social Security Pension Fixed annuities 457, 401(a), 401(k) IRAs Variable annuities guaranteed 2 2 Social security is backed by the full faith and credit of the U.S. government; pension is insured by the Pension Benefit Guaranty Corporation; and fixed annuities are backed by the claims paying ability of the issuer. 6 Things to consider as you develop your income strategy Longevity Market Inflation Interest rates 7 4

5 Get on track and stay on track On Your Side Interactive Retirement Planner SM Helps you determine if you re on track for retirement Gives you realistic ideas for planning Lets you track progress 8 Get personalized Social Security account information At socialsecurity.gov you can: Set up your own account View what you ve paid into the system See your estimated benefits 9 5

6 Understand your health care costs in retirement Visit and run a personalized health care estimate 10 Financial planning switches gears in retirement It moves from accumulating assets to managing them 11 6

7 Income in retirement Certain age related milestones may affect your income ½ Eligible for Medicare benefits; most individual and group health insurance benefits are adjusted to account for Medicare benefits Social Security s full retirement age, at which you re eligible for full Social Security benefits; the exact age depends on your date of birth Latest age to start receiving Social Security benefit; waiting until this age results in the highest monthly payout IRS requires annual minimum distributions to begin from qualified, tax deferred retirement accounts such as (but not limited to) 401(k) plans and IRAs 12 What if what you have is not enough for what you need? Delay retirement Work in retirement Delay taking Social Security benefit Invest a little more aggressively Adjust withdrawal strategy Rethink lifestyle 13 7

8 Meeting the complex needs of retirees Helping employees retire with confidence Wei Hu Vice President of Financial Research, Financial Engines Confidential. Prepared exclusively for NAGDCA. No further distribution rights granted. Not for participant use. Financial Engines is a registered trademark of Financial Engines, Inc. Advisory services provided through Financial Engines Advisors L.L.C., a federally registered investment adviser and wholly owned subsidiary of Financial Engines, Inc. Prototypes and screenshots shown are for informational purposes and subject to change. Financial Engines Income+ is a feature of Professional Management intended to provide income payouts from a 401(k). The Income+ feature is protected by U.S. Patent No. 8,521,633 and 8,725,614. See Certain services in development and subject to change and deployment. Certain data provided reflects advised and subadvised services. Financial Engines does not guarantee future results. 14 Different people want help in different ways Help for all life stages More help for near retirees 2 Evaluation and Education Program to engage everyone 1 for everyone 3 for Professional Management members Online Advice for help managing own account Social Security guidance Income glidepath Professional Management we manage the account Income Plan Steady lifetime payouts generated 4 1 May exclude insiders under applicable regulations and non U.S. participants. 2 Only available in plans where Professional Management with Income+ has been enabled. 3 Financial Engines Social Security guidance can provide reasonable estimates for you and your spouse age Income planning experience available for participants age AND 7 years or less from retirement. Estimates are not guarantees of future benefit payments. All estimates are based upon information about you, your stated goals as well as current Social Security laws, rulings and formulas available from the Social Security Administration. Decisions regarding Social Security are highly personal and depend on a number of factors. Certain limitations apply. 4 Requires purchase of an out of plan annuity; issuer minimum purchase requirements may apply. 15 8

9 A framework for maximizing retirement Holistic Flexibility + Safety > Puts all pieces together to unlock value Not just individuals, but also household Enhanced trust through independence: no product conflicts Protect as well as maximize Tailored to household needs Adapt to life changes avoid locking in 16 Social Security: a critical and complex decision 60% of People Rely on Social Security for > 75% of Their Retirement Income 1 75% Claim Within Three Months of Turning 62 or Retiring 3 Thousands of Claiming Strategies for Married Couples 2 1 EBRI Databook on Employee Benefits, "Claiming Social Security: NPV, Liquidity and Survivor Benefits." Dr. Jason Scott Retirement Income Summit; October 10, Efficient Retirement Design: Combining Private Assets and Social Security to Maximize Retirement Resources. John B. Shoven, Sita N. Slavov Retirement Income Summit; October 10,

10 Ability to create more income Optimal claiming could mean as much as $270,000 in additional lifetime wealth for married couple 1 1 Efficient Retirement Design: Combining Private Assets and Social Security to Maximize Retirement Resources. John B. Shoven, Sita N. Slavov Retirement Income Summit; October 10, Social Security guidance & personalized Income Plan Ian and Josh Investment Advisors Self guided Working with an advisor Services flex to meet the lifestyles and preferences of customers, allowing them to interact with FE on their own terms 19 10

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12 Putting the Income Plan into action Income+ Retirement income solution for Professional Management members Income Check up with an Advisor Get portfolio managed for income Receive steady, sustainable payouts in retirement Option for lifetime guarantee 1 Can go up with the market For illustrative purposes only. 1 With the purchase of an out of plan annuity. Issuer minimum purchase requirements may apply. 22 Provide steady payouts for life 20% 20% 60% Lifetime income guarantee requires out of plan annuity purchase. Issuer minimum requirements may apply. For illustrative purposes only

13 Sell stocks, buy bonds to increase floor Portfolio Age 66 20% 19% 60% Bond Funds Bond Funds Stock Funds Lifetime income guarantee requires out of plan annuity purchase. Issuer minimum requirements may apply. For illustrative purposes only. 24 Results to date 163 Number of plan sponsors who offer near retiree services 77,000+ Number of plan participants who have used Social Security guidance $8.5b Total additional potential Social Security benefits found $110k Average increase in potential Social Security benefits per user Data according to the Financial Engines Data Warehouse, as of May 31, Increased benefit amounts refer to expected benefit improvements over the lifetimes of household members, assuming users implement the claiming strategies proposed by Financial Engines Social Security guidance

14 Considerations in Guaranteed Income Marc Pester Senior Vice President, Institutional Investments Prudential 26 Key Risks Facing Retirement Plans Participation risk Will eligible employees join the plan? Contribution risk Will participants save enough? Investment risk Do participants know how to invest? Market risk Are savings protected from volatile cycles that will repeat? Conversion risk Do participants know how to turn savings into income? Longevity risk Will participants outlive retirement income? 27 14

15 Institutional Retirement Income Options No Income Guarantee Managed payout program Systematic withdrawals Fixed Annuities Fixed payout annuity In Plan/Out of Plan Guaranteed Minimum Market Risk Market protection pre and postretirement Flexibility and Control Access to funds at any time Longevity Risk Lifetime income protection Withdrawal Benefits (GMWB) 28 Solving for Market and Longevity Risk 29 15

16 How Does GMWBs Work? Upon initial investment, two key values begin to be tracked: 1. Market Value Daily value that rises and falls based on fund performance Can be passed on to your beneficiaries as a death benefit Not guaranteed 2. Income Base Used to calculate guaranteed values Can Increase each birthday due to potential Market Value gains Can t decrease due to market downturns Not available for withdrawal at any time IncomeFlex Target is offered by Prudential Retirement Insurance and Annuity Company, Hartford, CT. Withdrawals or transfers out prior to election of benefits proportionately reduces guarantees. After election of benefits, excess withdrawals proportionately reduce and potentially eliminate future payment guarantees. 30 Illustration A (Accumulation) $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 * Current Age: 55 Retire Age / Status: 65 / Single Initial Transfer: $100,000 Biweekly Contribution: $100 Total Contributions: $126,000 Guarantee Fee: 100bps Management Fee: 59bps $0 AGE Highest Birthday Value IncomeFlex Market Value Zero Return Market Value Values at Lock Inage 65: $242,670 $206,750 $109,410 *See appendix for annual returns * 31 16