The U.S. Retirement System

Transcription

1 The U.S. Retirement System Women s Institute for a Secure Retirement (WISER) Annual Women s Retirement Symposium Overcoming Retirement Hurdles: The Financial Realities for Women December 6 & 7, 2012 Washington, DC Sarah Holden Senior Director, Retirement & Investor Research Copyright 2012 by the Investment Company Institute. All rights reserved.

2 Overview U.S. Retirement Market Assets and Pension Coverage The Retirement Resource Pyramid Changes in 401(k) Plan Investing over the Past Decade Managing Assets and Income in Retirement References and Other Research December 6, 2012 The U.S. Retirement System 2

3 U.S. Retirement Market Assets and Pension Coverage December 6, 2012 The U.S. Retirement System 3

4 What s Happening with Total Retirement Assets? Total U.S. retirement assets were $18.5 trillion at the end of June 2012, down 2.0% from $18.9 trillion at the end of March. At the end of 2012:Q2: Retirement savings accounted for 36% of all household financial assets in the United States. IRAs held $5.1 trillion, down 2.0% over the second quarter. 46% of IRA assets was invested in mutual funds. DC plans held $4.7 trillion, of which $3.3 trillion was held in 401(k) plans. 57% of DC plan assets was invested in mutual funds. In 2012:Q2, assets in target date mutual funds were up 0.5% from March 2012; 91% of assets in target date mutual funds was held in IRAs (19%) and DC accounts (72%). December 6, 2012 The U.S. Retirement System 4

5 U.S. Retirement Assets Trillions of dollars, end-of-period, selected dates $10.5 Other Plans IRAs Other DC plans 401(k) plans $18.9 $18.5 $17.8 $17.7 $17.8 $16.6 $16.2 $13.7 $14.1 $8.9 $8.7 $8.7 $8.4 $8.4 $8.3 $7.8 $7.1 $7.0 $5.5 $4.2 $4.7 $4.8 $4.9 $5.2 $5.1 $4.4 $3.3 $3.7 $2.5 $1.3 $1.4 $1.3 $1.4 $1.4 $1.5 $1.4 $1.1 $1.2 $0.9 $1.6 $2.2 $2.8 $3.0 $2.2 $2.7 $3.1 $3.1 $3.4 $ :Q1 2012:Q2 Note: For definitions of plan categories and a complete list of data sources, see Tables 1 and 4 in The U.S. Retirement Market, Second Quarter Some data are estimated. Source: See Investment Company Institute (September 2012) December 6, 2012 The U.S. Retirement System 5

6 IRAs and DC Accounts Are About One- Fifth of Households Financial Assets Percentage of total financial assets, 2012:Q2 Other, 33% Deposits, 17% IRAs, 10% DC plans, 9% Other retirement assets, 17% Equity in noncorporate business, 15% Households Financial Assets: $51.9 trillion Note: Components do not add to 100% because of rounding. Sources: Investment Company Institute and Federal Reserve Board Flow of Funds Accounts December 6, 2012 The U.S. Retirement System 6

7 Link Between Savings Goals and Retirement Plan Coverage Percentage of private-sector wage and salary workers with access to employersponsored retirement plans, % 69% 60% 50% Own employer sponsors plan All workers age Own employer sponsors plan Full-time, full-year workers age Own employer sponsors plan Own employer or spouse's employer sponsors plan Full-time, full-year workers age likely to be focused on saving for retirement* *Full-time, full-year workers who earn $45,000 or more and are aged 30 to 64 or earn $25,750 to $44,999 and are aged 45 to 64. Among full-time, full-year workers aged 35 to 44, $25,750 represents the top earnings of the 20th percentile of annual earnings and $45,000 represents the top earnings for the 50th percentile of annual earnings. Source: Investment Company Institute tabulations of March 2012 Current Population Survey; see Brady and Bogdan (September 2012) December 6, 2012 The U.S. Retirement System 7

8 Near-Retiree Households with Retirement Assets and/or Benefits Percentage of households with working head age 55 to 64, by income quintile, excludes top and bottom 1 percent of the income distribution, 2010 DB benefits only Both DB benefits and retirement assets Retirement assets only Lower Lower-Middle Middle Upper-Middle Higher All Less than $30,000 $30,000 to $54,999 $55,000 to $79,999 $80,000 to $149,999 $150,000 or more Source: Investment Company Institute tabulations of Federal Reserve Board 2010 Survey of Consumer Finances; see Brady, Burham, and Holden (December 2012) December 6, 2012 The U.S. Retirement System 8

9 The Retirement Resource Pyramid December 6, 2012 The U.S. Retirement System 9

10 Retirement Resource Pyramid Other assets IRAs (including rollovers) Employer-sponsored retirement plans Homeownership Social Security December 6, 2012 The U.S. Retirement System 10

11 Components of Wealth for Households Approaching Retirement Percentage of augmented wealth by augmented wealth quintile for households with at least one member born between 1948 and 1953; Balance sheet in 2006 Other DC pension + IRA DB pension benefits Net housing wealth Social Security Bottom Second Third Fourth Top Quintile of augmented wealth Note: Households with top and bottom 1 percent of augmented wealth were excluded. Source: Investment Company Institute tabulation derived from Gustman, Steinmeier, and Tabatabai (2009) Using Health and Retirement Study (HRS) Data; see Brady, Burham, and Holden (December 2012) December 6, 2012 The U.S. Retirement System 11

12 Changes in 401(k) Plan Investing over the Past Decade December 6, 2012 The U.S. Retirement System 12

13 Developments in 401(k) Plans In June 2012, 401(k) plans had $3.3 trillion in assets. Analysis of data from the EBRI/ICI 401(k) database, which in 2010 has 23.4 million 401(k) plan participants, in 64,455 plans, holding $1.4 trillion in assets, finds that: The bulk of 401(k) plan assets is invested in equities (through equity funds, hybrid/balanced funds, target date funds, lifestyle funds, and company stock). Target date funds are available in 70% of 401(k) plans and held by 36% of participants. They represent 11% of 401(k) plan assets. 401(k) plan participants increasingly reach for diversification. December 6, 2012 The U.S. Retirement System 13

14 Target Date Funds Claim a Growing Share of 401(k) Market Percentage of total, 2006 and % 70% 62% 68% 36% 19% 5% 11% Plans offering Participants offered Participants holding Target date fund assets Note: Funds include mutual funds, bank collective trusts, life insurance separate accounts, and any pooled investment product primarily invested in the security indicated. Source: EBRI/ICI Participant-Directed Retirement Plan Data Collection Project; see Holden, VanDerhei, Alonso, and Bass 401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2010, ICI Research Perspective and EBRI Issue Brief (December 2011) December 6, 2012 The U.S. Retirement System 14

15 Growth of Automatic Enrollment Reflects 401(k) Innovation Percentage of plans 2011 automatic enrollment by plan size 51% 50% 5% 10% 15% 20% 24% 27% 29% 29% 21% All <1,000 1,000 to 4,999 5,000+ Number of participants in plan Source: The Vanguard Group; see How America Saves 2012 December 6, 2012 The U.S. Retirement System 15

16 401(k) Participants Have Tempered Their Account Allocation to Stocks Percentage of 401(k) plan participants by age, 2000 and 2010 Percentage of 401(k) account allocated to equities* >80% 100% >60% 80% >40% 60% >20% 40% 1% 20% Zero 21% 40% 40% 55% 60% 59% 54% 55% 17% 13% 30% 14% 14% 21% 15% 20% 15% 20% 18% 9% 11% 10% 11% 11% s 30s 40s 60s Participant age *Includes stocks held in funds. Source: EBRI/ICI Participant-Directed Retirement Plan Data Collection Project; see Holden, VanDerhei, Alonso, and Bass, 401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2010, ICI Research Perspective and EBRI Issue Brief (December 2011) December 6, 2012 The U.S. Retirement System 16

17 Recently Hired Participants in Their Thirties Hold More Target Date and Balanced Assets 401(k) plan average asset allocation among 401(k) participants with two or fewer years of tenure, percent of total Fixed-income* Company stock Equity funds Balanced funds Target date funds Non target date balanced funds 8% 17% 7% 8% 11% 9% 7% 20% 14% 25% 17% 28% 34% 17% 25% 28% 35% 68% 56% 56% 55% 43% 41% 40% 9% 12% 6% 5% 5% 20% 16% 14% 22% 17% 16% December 6, 2012 The U.S. Retirement System 17 5% 5% 4% Recently hired participants in their 30s *Fixed-income investments include bond funds, guaranteed investment contracts (GICs) and other stable value funds, and money funds. Note: Funds include mutual funds, bank collective trusts, life insurance separate accounts, and any pooled investment product primarily invested in the security indicated. Percentages are dollar-weighted averages. Source: Tabulations from EBRI/ICI Participant-Directed Retirement Plan Data Collection Project; see Holden, VanDerhei, Alonso, and Bass, 401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2010, ICI Research Perspective and EBRI Issue Brief (December 2011)

18 Managing Assets and Income in Retirement December 6, 2012 The U.S. Retirement System 18

19 Rollovers and Managing IRAs At retirement, households with DC accounts consult multiple sources of information to make the distribution decision. Often, employer-sponsored plan assets are rolled into IRAs. In 2008, traditional IRAs had $272 billion in rollovers, compared with $13.4 billion in contributions. About one-in-five traditional IRA-owning households take withdrawals in a given year. Withdrawals typically are retirement-related and often calculated to meet required minimum distributions (RMDs). December 6, 2012 The U.S. Retirement System 19

20 Resources Consulted for Defined Contribution Plan Distribution Decisions at Retirement Percentage of respondents with a choice of distribution option Spouse or partner Coworker, friend, or other family member 23% 46% Family/ Peers 56% Professional financial adviser 42% Professional financial adviser (provided by employer) 13% Seminar or workshop Printed materials 30% 29% Employer resources 46% Online retirement software (provided by employer) 3% Online retirement software Other resources 5% 21% Other sources 22% Note: Multiple responses are included; 67 percent of respondents mentioned consulting multiple sources of advice. A total of 426 respondents is included in this figure; survey of individuals retiring between 2002 and 2007 with DC accounts. Source: Investment Company Institute; see Sabelhaus, Bogdan, and Holden (2008) December 6, 2012 The U.S. Retirement System 20

21 Traditional IRAs Often Contain Rollovers Percentage of households owning traditional IRAs in or later 2000 to % 1995 to 1999 Traditional IRA owning households with no rollovers 45% Traditional IRA owning households that have made rollovers at some time 55% 22% 1990 to 1994 Before % 7% 3% Traditional IRA owning households with rollovers Source: Investment Company Institute IRA Owners Survey; see Holden and Schrass (November 2011) December 6, 2012 The U.S. Retirement System 21

22 Withdrawals from Traditional IRAs Are Infrequent Percentage of U.S. households with traditional IRAs in % Took withdrawals in % Retired, did not take a withdrawal 17% 5% 54% Retired, took a 2 withdrawal Not retired, took a 1, 2 withdrawal Not retired, did not 1 take a withdrawal 1 The household was considered retired if either the head of household or spouse responded affirmatively to are you retired from your lifetime occupation? 2 Households that made withdrawals excluded those which closed and no longer own traditional IRAs. Source: Investment Company Institute IRA Owners Survey; see Holden and Schrass (November 2011) December 6, 2012 The U.S. Retirement System 22

23 How Traditional IRA Withdrawals Are Determined Percentage of traditional IRA-owning households with withdrawals in tax years 2008, 2009, and % 48% 61% Withdraw an amount based on the Required Minimum Distribution (RMD) Withdraw a lump sum based on needs Withdraw a regular dollar amount 1% 19% 8% 2% 6% 29% 16% 2% 3% 1% 2% December 6, 2012 The U.S. Retirement System 23 28% 6% 3% Tax year 2008 Tax year 2009* Tax year 2010 * RMDs were suspended in Source: Investment Company Institute IRA Owners Survey; see Holden and Schrass (November 2011) 1% Withdraw a fixed percentage of the account balance Withdraw an amount based on life expectancy Some other way

24 References and Other Research Brady, Peter The Tax Benefits and Revenue Costs of Tax Deferral. Washington, DC: Investment Company Institute (September). and Brady, Peter, and Michael Bogdan Who Gets Pension Plans and Why, ICI Research Perspective (September). and Brady, Peter, Kimberly Burham, and Sarah Holden The Success of the U.S. Retirement System (December). Washington, DC: Investment Company Institute. Gustman, Alan L., Thomas L. Steinmeier, and Nahid Tabatabai What the Stock Market Decline Means for the Financial Security and Retirement Choices of the Near- Retirement Population. Michigan Retirement Research Center Working Paper WP (October). Holden, Sarah, Steven Bass, and Brian Reid Commitment to Retirement Security: Investor Attitudes and Actions. Washington, DC: Investment Company Institute (January). December 6, 2012 The U.S. Retirement System 24

25 References and Other Research, cont. Holden, Sarah, and Steven Bass The IRA Investor Profile: Traditional IRA Investors Withdrawal Activity, 2007 and Washington, DC: Investment Company Institute (July). and Holden, Sarah, and Daniel Schrass The Role of IRAs in U.S. Households Saving for Retirement, ICI Research Perspective (November). Holden, Sarah, and Daniel Schrass Defined Contribution Plan Participants Activities, First Half Washington, DC: Investment Company Institute (November). Holden, Sarah, Jack VanDerhei, Luis Alonso, and Steven Bass (k) Plan Asset Allocation, Account Balances, and Loan Activity in ICI Research Perspective and EBRI Issue Brief (December). Investment Company Institute The U.S. Retirement Market, Second Quarter 2012 (September). and December 6, 2012 The U.S. Retirement System 25

26 References and Other Research, cont. Investment Company Institute. 401(k) Resource Center. Sabelhaus, John, Michael Bogdan, and Sarah Holden Defined Contribution Plan Distribution Choices at Retirement: A Survey of Employees Retiring Between 2002 and Washington, DC: Investment Company Institute. Stevens, Paul Schott (k) Plans: Key in Helping Americans Achieve Secure Retirement. ICI Viewpoints (September 19). Stevens, Paul Schott The key to retirement is better 401(k) plans. Op Ed in San Francisco Chronicle (September 24). The Vanguard Group How America Saves 2012: A Report on Vanguard 2011 Defined Contribution Plan Data. Valley Forge, PA: The Vanguard Group, Inc. December 6, 2012 The U.S. Retirement System 26