RETIREMENT CHALLENGES, SOLUTIONS & THE ROLE OF THE PLAN SPONSOR. (10/14) AXA Equitable Life Insurance Company (NY, NY)

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1 RETIREMENT CHALLENGES, SOLUTIONS & THE ROLE OF THE PLAN SPONSOR GE (10/14) AXA Equitable Life Insurance Company (NY, NY)

2 Evolution of US Retirement System 1875 American Express establishes 1 st private pension 1900 Life Expectancy was 49 for both genders 1935 Social Security was enacted into law % of the population paid income tax % of the population paid income tax 1958 Section 403(b) in the IRS code was formalized 1979 Johnston & Johnston adopts the 1 st 401k plan % of the private sector offered Pension Plans 2010 Life Expectancy for Men & Women is 76 & 81 respectively 2014 Over 525, k plans w/ nearly $4.4T in AUM exist today 2014 Less than 26% of the private sector currently offers pension plans 2

3 PENSION TSUNAMI

4 U.S. Facing a $1 Trillion Pension Shortfall According to Pew Charitable Trust: Three states -- Illinois, Kentucky and Connecticut -- have less than half of their pension programs funded. Illinois is in the hole by more than $100 billion There are two big reasons states have fallen behind. First, a lot of the funds are held in stocks, and returns on those investments fell during the Great Recession. Second, some states have failed to make the required contribution to their pension programs 4

5 Sobering Headlines.. L.A.: Facing $18.5 billion gap, day of reckoning looms for Louisiana's retirement systems Public Retirement Benefits Unsustainable California Moody s warns Texas to take care of pension funds Thousands of retired Texas teachers could face higher health care costs Perry, Dewhurst, Craddick want to raid teacher retirement funds for toll roads Trouble looms for the Teacher Retirement System 5

6 Teachers Retirement System Short falls Rank State Funding ratio Illinois 39.30% 2 Kentucky Connecticut Alaska Kansas New Hampshire Mississippi Louisiana Hawaii Massachusetts INDIANA States are under funded even with a benchmark as low as 70% for funding requirement 6

7 Overcoming Common Retirement Challenges

8 L.I.V.E What Steps Can you Take? L I V E Longevity You or your spouse may live to be 90 or 95 years old. Do you have enough money to live more than 25 years in retirement? Inflation The goods and services you buy today may cost more tomorrow. Are you prepared for a drop in your purchasing power? Volatility A volatile financial market can wipe out your retirement investments. Do you have the proper protection to weather a bad storm? Expectations If you want the same lifestyle in retirement you probably need to save more today. Are your expectations out of line with your bottom line? 8

9 LONGEVITY Average Life Expectancy Men Women 9

10 What Steps Can You Take? Longer Lives. Longer Retirement Retirement Can last 25 years A man turning 65 today can expect to live until age 84.3, 86.6 for Women of similar age 1 out 4 65 year old can expect to live past 90 1 out of year old can expect to live past 95 A couple spending $15 a day for meals over 19 years, will pay over $200k in food alone - 10

11 Make Sure Your Savings Last As Long As You Do There are a number of ways to prepare for Longevity Start setting aside now It s never too late Find a way to save more understand your contribution limits Consider deferring your retirement Gradually increase your income withdrawal in retirement to combat inflation Do I Know My Life Expectancy? How Much will I need to set aside for Retirement? I m retired, how long will my income last? 11

12 INFLATION How Inflation Impacts your Buying Power Your Shrinking Income Annual Inflation Rate Value At Retirement Required Amount after 10 years Required Amount After 20 Years Required Amount After 30 Years 3% $50,000 $67,196 90,306 $121,363 5% $50,000 $132, ,665 $216,097 7% $50,000 $193, ,484 $380,613 Richard A. Howard, Buyupside.com, Inflation calculator Save Enough to Account for Inflation, 12

13 What Steps Can You Take? The Invisible Enemy So How Worried should I Be? Consider you have $50k in the bank, at 3% inflation rate, your value is reduced by 25% in 10 years and 50% in 30 What steps can I Take To Minimize this risk? Evaluate your investment portfolio to ensure you are positioned to outpace inflation today and well into your retirement. Work with your advisor to implement inflation hedging strategies Diversify 13

14 VOLATALITY Will History Repeat itself? S&P 500 from

15 What Steps Can You Take? Market Fluctuation vs Next Egg Allocate & Diversify Have a balanced Portfolio Don t put your Eggs in one basket Make sure you re exposed across various asset classes and industries Take the emotions out of it Have a long-term investment strategy Stick to the plan Stay the Course Invest Regularly Spread your investing over time Invest on a regular schedule regardless of market swings Periodically Re-evaluate Your Investment Strategy Are you meeting with your Advisor for your regular check up? AXA can Help You Manage Market Volatility 15

16 EXPECTATIONS The Biggest Risk to Your Retirement? Unrealistic Expectations When will I retire? 52? 54? 55? How much money will I need? Where will my income come from? 50% expect their expenses to decrease in retirement 70% don t know how much income they ll need at retirement 70% haven t developed a written plan for retirement 73% are confident they will retire as planned 16

17 What Steps Can You Take? Missing Out on Professional Advice Schwab Study 1! 87% more likely to have someone change the oil in their car than assistance in choosing retirement plan investments! Participants spend the same amount of time reviewing & choosing investments for their retirement plan as they do investigating cell phones! Participants spend more than twice as much time researching cars before buying than evaluating retirement plan options - Lifetime vs. temporary decisions! 50% surveyed say retirement plan investment information is more confusing than health care benefits! One in three admit they feel stress when it comes to allocating retirement plan dollars 17 1 Source: Majority of Participants Missing Out on Professional Investment Advice by Schwab Investor Services News 2014

18 Participation & Contribution Deficiency Participation Rate:! Public Schools < approximately 30% 1! Private Sector 401(k) 70%+ 2 - Company match normally drives private sector participation - PS not subject to ERISA - Enrollment left to discretion of each employee to do something - No specific job function in a district Saving Enough:! The positive- start with as little as $200 - Good to start, not the way to finish - Participants don t increase without guidance! Both public and private sector don put away enough - In plans with auto enrollment, 68% have auto deferral rate of 3% or less 3 - Only 65% of participants put away enough to receive the full matching contribution Source: Industry Estimated average Source: Charles Schwab New Rules of Engagement study June Source: PLANSPONSOR Defined Contribution Survey 2011

19 Gender Differences of Money Management Schwab Study 1! 47% of men are more inclined to trust only themselves to make good financial decisions, vs. 32% of women! 29% of men are more likely to say they ve made more financial mistakes than smart financial decisions, vs. 20% of women! 35% of men think they still have a lot to learn about managing their finances successfully, vs. 28% of women! Women are nearly twice as likely as men to turn to friends or family members for financial advice (30% vs. 17% percent of men)! 44% of women say they are taking a passive approach, vs. 37% of men 19 1 Source: Schwab Retirement Study Uncovers Gender Differences in Money Management Styles by Schwab Investor Services News 2011

20 DOES THE EMPLOYER HAVE A ROLE

21 What Can You Do as a Plan Sponsor? Evaluate the success of your plan! How many employees are taking advantage of this special benefit? Equally important for both employee and employer Learn some best practices established by some of your peers to increase the success of your 403(b) plan "AXA" is the brand name of AXA Equitable Financial Services, LLC and its family of companies, including AXA Equitable Life Insurance Company (NY, NY), AXA Advisors, LLC, and AXA Distributors, LLC. AXA S.A. is a French holding company for a group of international insurance and financial services companies, including AXA Equitable Financial Services, LLC. The obligations of AXA Equitable Life Insurance Company are backed solely by their claims-paying ability. AXA Equitable Life Insurance Company (NY. NY) is an issuer of annuity and life insurance products. Variable products are co-distributed by affiliates, AXA Distributors, LLC and AXA Advisors, LLC. 21

22 Best Practices: Policy Guidelines 403(b) TSA Providers for Public Schools (K 12) Plan Sponsors should determine what they would like the 403(b) program to accomplish. Offer employees a strong benefit to help identify and address their retirement planning goals. Provide a variety of programs to meet the public school s employees diverse needs. Full service options and do it yourself choices. 22

23 The Solution: Education & Guidance PERF Study 1! 60% of Higher Education employees survey had consulted with an advisor! 60% discussed savings rate! 89% discussed allocation Schwab Study 1! Professional advice helped participants increase savings rate from 5% to 10% Profit Sharing/401(k) Council of America Study 1! Most common education approach for 403(b) plan was on-site, one-onone meetings (63%) 23 1 Source: PROTECTING PARTICIPATION The Impact of Reduced Choice on Participation by School District Employees in 403(b) Plans ASPPA Pension Education AND Research foundation 2013

24 The Solution: Education & Guidance Schaub Study 1! Those who spent some time with an advisor saved 2x as much as those who spent little/no time! Those who spent a lot of time save 3x as much RAND Corporation Study 1! Study found that people who received personalized advice (as opposed to none or general), did a better job of investing their money in the following categories: - Use of equities - Diversification - Appropriate level of Aggressiveness/ Conservatism 24 1 Source: PROTECTING PARTICIPATION The Impact of Reduced Choice on Participation by School District Employees in 403(b) Plans ASPPA Pension Education AND Research foundation 2013

25 Our Dedication to the 403(b) Market U.S. Retirement Plan Leader1! $25b plan assets! 29k plans throughout the country! 824,000 participants Q4 LIMRA data! #1 in K-12 participants with 599,349! #1 in K-12 in gross premium with $785m Approximately 850 Financial Professionals Nationwide dedicated to tax-exempt retirement plan business Relationships with key independent distributor advisors contribute additional client support 1 Totals include 401(k), 403(b), 401(a), and 457(b) figures (as of 6/30/14). "AXA" is the brand name of AXA Equitable Financial Services, LLC and its family of companies, including AXA Equitable Life Insurance Company (NY, NY), AXA Advisors, LLC, and AXA Distributors, LLC. AXA S.A. is a French holding company for a group of international insurance and financial services companies, including AXA Equitable Financial Services, LLC. The obligations of AXA Equitable Life Insurance Company are backed solely by their claims-paying ability. 25 AXA Equitable Life Insurance Company (NY. NY) is an issuer of annuity and life insurance products. Variable products are co-distributed by affiliates, AXA Distributors, LLC and AXA Advisors, LLC.

26 26 THANK YOU