Why is this important?

Transcription

1 Why is this important? Every day, more than 10,000 baby boomer reach age 65 and this will continue to happen every single day for the next 18 years. Retirees are living much longer than previous generations By 2020, about 30% of the population will be in retirement 1 With the shift from DB to DC plans, U.S. workers are increasingly responsible for managing the assets that will finance their retirements These trends significantly boost the size and needs of the retiree market 1 US Census 1

2 Retirement market: $22.5 trillion in assets $30 $25 $20 $15 $10 $5 $0 Projected Retirement Market Assets by Segment, 2015E-2020E ($ trillions) $4.1 $1.9 $4.2 $2.1 $4.3 $2.2 $8.0 $8.7 $9.3 $10.0 $10.7 $11.5 $3.0 $2.9 $2.9 $2.9 $2.9 $2.8 $5.5 $5.8 $6.0 $6.3 $6.5 $ E 2016E 2017E 2018E 2019E 2020E $4.4 $2.4 $4.4 $2.5 $4.4 $2.7 Private DC Private DB IRA Public DC Public DB Source: Cerulli Associates, The Cerulli Report: Retirement Markets 2015, Growth Opportunities in Maturing Markets 2

3 Different phases, different questions Early saver accumulation Mid saver accumulation Pre-retiree accum/ decum In retirement decumulation How do I get started? Help me find savings. How do I budget? How much should I save? How should I invest? How do I manage to save and pay down other debt? How do I balance saving with other financial obligations, e.g., home, children s education? Help me find savings. Am I saving enough? How do I invest? How much money am I going to need to retire? What about assets outside my retirement plan? When can I retire? How can I make up for lost time? How can I accelerate higher levels of saving? How do I invest as I get closer to retirement? What should I be thinking about in preparation for retirement? How can I make my money last through retirement? How can I create a paycheck in retirement? How can I draw down to make my money last through retirement? What is a good strategy for taking my Social Security benefits? How do I manage volatility? Is there an easy way to manage all of my assets - beyond just retirement plan assets? What about healthcare? What is a good strategy for taking my Social Security benefits? What is the cost to create a steady stream of income in retirement? How do I handle unexpected expenses? 3

4 What type of help is needed? Topic Participants Age Social Security 45% Healthcare expenses 38% Developing monthly income from my investments 36% Understanding whether you will outlive your money 26% Ways to guarantee portions of my income 23% Evaluation of progress toward funding my retirement 21% My financial professional is handling my retirement income plan 13% Budgeting assistance 11% Leaving a legacy to future generation 8% Other 8% Source: Cerulli 4

5 Viewpoints: What do participants want? Convert savings into a stream of income they can t outlive and that keeps up with inflation Control and flexibility over their money Protect the income source as they near retirement and while they are in retirement Simplicity and transparency

6 Factors when making DC plan decisions, 2015 Very important factor Plan Sponsors Cost concerns 67% Fiduciary liability 65% Employee reaction 62% Impact for participants 58% Ease of implementation 58% DOL guidance 51% Comparison with peers 48% Source: Cerulli Associates, The Cerulli Report: Retirement Markets 2015, Growth Opportunities in Maturing Markets 6

7 Viewpoints: A plan sponsor s perspective Sponsor Interest Distribute funds Help with transition Seamless: acct balance to monthly paycheck Sponsor Considerations Asset retention vs. administration Cost Complexity Fiduciary considerations Due diligence search and monitoring In plan may limit portability in changing recordkeepers Removing carriers

8 Viewpoints: A plan sponsor s perspective Two main questions In-plan or out-of-plan Guaranteed (pooled risk) or non-guaranteed (individual bears risk) Solutions categorized into four broad types

9 Types of Retirement Income Solutions Out of Plan In plan Guaranteed Nonguaranteed Nonguaranteed Guaranteed Pros Portable Flexible Endowment Opportunity Longevity protection Certainty Insurance Co. Bears Market Risk Less Fiduciary Risk Control Flexible Asset Retention Helps participant manage risk Certainty Pricing Cons Variable Income Investor Bears Market Risk Cost Pre-retiree market risk Point in time risk Insurance Company risk Longevity risk Investment risk Fiduciary Risk Portability Complex Insurance Company Risk Wells Solutions Wells Fargo Advisors* Wells Fargo Advisors* MetLife Income Annuities (SPIA/ QLAC) Systematic Withdrawal Retirement Income planning tool Financial Engines Prudential IncomeFlex * To access retail products, Retirement Service and Distribution Consultant Representatives can refer participants to Wells Fargo Advisors

10 Types of Retirement Income Solutions Out of Plan In plan Guaranteed Nonguaranteed Nonguaranteed Guaranteed Pros Portable Flexible Endowment Opportunity Longevity protection Certainty Insurance Co. Bears Market Risk Less Fiduciary Risk Control Flexible Asset Retention Helps participant manage risk Certainty Pricing Cons Variable Income Investor Bears Market Risk Cost Pre-retiree market risk Point in time risk Insurance Company risk Longevity risk Investment risk Fiduciary Risk Portability Complex Insurance Company Risk Wells Solutions Wells Fargo Advisors* Wells Fargo Advisors* MetLife Income Annuities (SPIA/ QLAC) Systematic Withdrawal Retirement Income planning tool Financial Engines Prudential IncomeFlex * To access retail products, Retirement Service and Distribution Consultant Representatives can refer participants to Wells Fargo Advisors

11 Types of Retirement Income Solutions Out of Plan In plan Guaranteed Nonguaranteed Nonguaranteed Guaranteed Pros Portable Flexible Endowment Opportunity Longevity protection Certainty Insurance Co. Bears Market Risk Less Fiduciary Risk Control Flexible Asset Retention Helps participant manage risk Certainty Pricing Cons Variable Income Investor Bears Market Risk Cost Pre-retiree market risk Point in time risk Insurance Company risk Longevity risk Investment risk Fiduciary Risk Portability Complex Insurance Company Risk Wells Solutions Wells Fargo Advisors* Wells Fargo Advisors* MetLife Income Annuities (SPIA/ QLAC) Systematic Withdrawal Retirement Income planning tool Financial Engines Prudential IncomeFlex * To access retail products, Retirement Service and Distribution Consultant Representatives can refer participants to Wells Fargo Advisors

12 Types of Retirement Income Solutions Out of Plan In plan Guaranteed Nonguaranteed Nonguaranteed Guaranteed Pros Portable Flexible Endowment Opportunity Longevity protection Certainty Insurance Co. Bears Market Risk Less Fiduciary Risk Control Flexible Asset Retention Helps participant manage risk Certainty Pricing Cons Variable Income Investor Bears Market Risk Cost Pre-retiree market risk Point in time risk Insurance Company risk Longevity risk Investment risk Fiduciary Risk Portability Complex Insurance Company Risk Wells Solutions Wells Fargo Advisors* Wells Fargo Advisors* MetLife Income Annuities (SPIA/ QLAC) Systematic Withdrawal Retirement Income planning tool Financial Engines Prudential IncomeFlex * To access retail products, Retirement Service and Distribution Consultant Representatives can refer participants to Wells Fargo Advisors

13 Status of retirement income, 2015 DC Plan Sponsor opinion on retirement income Plan Sponsors Participants should leave assets in the plan and draw down over time, but no specific income option is offered as part of the plan Retirement income strategies are best implemented outside of the plan 43% 30% Have a retirement income product in our plan 21% Plan to add a retirement income product to our plan 6% Source: Cerulli Associates, The Cerulli Report: Retirement Markets 2015, Growth Opportunities in Maturing Markets 13

14 Additional Considerations Income Framing Goal of retirement plan is income replacement, not asset accumulation DC industry primarily framed around balances Shift to income framing Regulatory Actions Advice/Guidance Online vs. live person In-plan vs. out-of-plan Fiduciary concerns Cost Objectiveness 14

15 1 5 Par1cipant Experience Shi4ing to Income 2015 Recordkeeper Survey One of the biggest transforma1ons in recent years has been the shi4 from an exclusive focus on account balances to how those balances translate into re1rement income. Recordkeepers have almost universally embraced this change, with 95% now offering re=rement income es=mates. Par1cipant websites (73%) and statements (54%) are the most common loca1ons for such figures. The End Does Jus=fy The Means Web interfaces now being built around re1rement income as the measure of savings and growth An income view is sparking new conversa1ons and deeper dives into income op1ons

16 Regulators Are Now Advocators Annui1es as QDIAs DOL Annuity Safe Harbor Guidance on Annui1es in DC/DB Plans Income to Statements IRS Limits Lump Distribu1ons DOL- Remove Disincen1ves to Select IRS QLAC Annui1es Regula1ons IRS No1ce on Annui1es in TDFs PBGC- Access to Income in DC Regulators Doubled Income Support in Last 18 Months as part of a broader coordinated effort with the Department of Labor to encourage life1me income and enhance re1rement security. - No1ce

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18 Disclaimers Recordkeeping, trustee, and/or custody services are provided by Wells Fargo Institutional Retirement and Trust, a business unit of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company. Wells Fargo Bank, N.A. and its affiliates, including their employees, agents, and representatives, may not provide investment advice to any participant or beneficiary regarding the investment of assets in an employer-sponsored retirement plan. The plan sponsor, plan investment committee, or other plan fiduciary must make an independent decision about which funds to include in the plan. This information is for educational purposes only and does not constitute investment, financial, tax, or legal advice. Please contact an investment, financial, tax, or legal advisor regarding your specific situation. 18