Retirement and Investment Webinar Series

Transcription

1 Retirement and Investment Webinar Series September 30, 2015 Retirement and Investment

2 Great Expectations: Retirement Perceptions Don t Always Meet Reality Grace Lattyak Rob Reiskytl Heather Tredup Retirement and Investment

3 Agenda Tracker Section 1 The Real Deal: 2015 Retirement Income Adequacy at Large Companies Section 2 Financial Mindset Study Section 3 Perception & Reality Section 4 Improving Results Section 5 Questions & Answers Retirement and Investment 3

4 The Real Deal: 2015 Retirement Income Adequacy at Large Employers Retirement and Investment 4

5 About This Study The Real Deal study uses real data and time-tested methodology to answer key questions about retirement adequacy: How much do workers need to retire? Are today s workers prepared to meet their needs in retirement? When will employees be able to retire with adequate retirement resources? How can workers know if they are on track? The study also suggests which behaviors and plan features will help employees close the gap between what resources are available and needed in retirement Retirement and Investment 5

6 The Real Deal: 2015 Retirement Income Adequacy at Large Companies Definition of retirement income adequacy in this study: Accumulating the resources required to maintain preretirement standard of living for a postretirement lifetime (in addition to Social Security benefits) 2.1 million employees Resource shortfall results in lower standard of living if not compensated by other assets or postretirement employment 77 companies Employee contributions to employer-sponsored plans Employer-provided benefits Matching contributions Other DC (nonmatching) contributions DB Pension Preretirement pay adjusted to reflect: No longer saving for retirement Change in taxes Differences in spending Higher medical costs Offset by Social Security benefits Projected Private Resources Projected Private Needs Retirement and Investment 6

7 How Prepared Will Today s Workers Be For Their Retirement? Only about 2 out of 5 workers on track for reasonably adequate retirement Distribution of Worker s Projected Resources vs. Targeted Needs Projected Age 65 Resources vs. Targeted Private Needs Source: s The Real Deal 2015 Retirement Income Adequacy at Large Companies, full-career contributors retiring at age 65 Retirement and Investment 7

8 Financial Mindset Study Retirement and Investment 8

9 About This Study Explores employees financial and savings attitudes and behaviors: What is the current employee mindset around finances and saving? What are employees most important financial priorities? Are their priorities consistent with their behavior? In what ways do employees want help and education, and how can you best reach them? Provides insight into what you can do to educate employees and their families, drive engagement in financial benefits, and facilitate smarter planning and actions. Retirement and Investment 9

10 Who Responded? Surveyed 2,001 U.S. employees working at companies of 1,000 or more employees 31% 35% 33% < $35,000 11% 49% 51% Millennials Millennials Gen X Boomer + Boomers $35,000 $64,999 $65,000 $99,999 26% 29% 2,001 Employees $100,000 or more 33% Gender Generation Household Income Manufacturing and Energy / Public Sector / Retail and Wholesale Trade / Business Services and Construction / Financial Services and Insurance / Health Care / Utilities and Telecommunications / Media, Entertainment and Leisure Retirement and Investment 10

11 What We Discovered Perception May Not Reflect Reality Employees Want Help What do I really think about my total rewards? Differences Drive Opportunities Retirement and Investment 11

12 What We Discovered Financial Worries Cost of health care Saving for the future Keeping up with the cost of living Motivators to Save Being financially responsible Being able to do what I want when I retire Being prepared for any unforeseen problem 73% 57% Employers Should Help: 91% Save for retirement 56% Establish an emergency fund 52% Save for children s education 52% Save for short-term needs feel in control of their finances are just getting by or worse 42% Create or manage a budget for personal expenses Retirement and Investment 12

13 Perception & Reality Retirement and Investment 13

14 Amount Needed in Retirement Rules of thumb are available: Retire at age: x 1 in4 have no idea how much pre-retirement income they need to replace x 9.6x Targets vary by person Source: s Financial Mindset Study Source: s The Real Deal 2015 Retirement Income Adequacy at Large Companies Retirement and Investment 14

15 Planning for Retirement Actions I ve Taken to Forecast My Retirement Income Created a financial action plan that details what I need to do in order to retire by my goal 40% Projected how much money I will need to live on when I retire Compared how much I'll need in retirement to how much I'm likely to have Source: s Financial Mindset Study 53% 54% 0% 20% 40% 60% 80% 100% Participants can target milestones along the way 2.0 Targeted Needs if Start Saving at 25 (multiple of pay) Source: s The Real Deal 2015 Retirement Income Adequacy at Large Companies Retirement and Investment 15

16 Amount to Contribute How Employees Choose the Amount To Contribute 100% Annual Employer and Employee Deferral for Age 65 Retirement Retire at age: 80% 62 25% 60% 48% 40% 29% 65 17% 20% 0% Contributed the most I felt I could afford Went up to the company match level 67 13% Savings start at age 25 Source: s Financial Mindset Study Source: s The Real Deal 2015 Retirement Income Adequacy at Large Companies Retirement and Investment 16

17 Retirement Age When Employees Think They Will Retire Median Age Employees Will Be Able To Retire Millennials 63 Millennials 68 Xers 66 Xers 67 Boomers 68 Boomers 66 Source: s Financial Mindset Study Source: s The Real Deal 2015 Retirement Income Adequacy at Large Companies Retirement and Investment 17

18 Improving Results Retirement and Investment 18

19 Help: Design the Plan to be Easy and Automatic Plan sponsors increasingly use automatic enrollment because it helps Automatic Enrollment Usage 19% 58% Participation Rates 61% 86% Retirement Adequacy Impact 54% At or Near Adequate (versus 15% for employers without) Due to anchoring of automatic enrollment, automatic escalation is increasing Savings Rates % No Automatic Enrollment 7.0% Automatic Enrollment No Automatic Enrollment Automatic Escalation Usage Source: s 2015 Trends & Experience in Defined Contribution Plans, 2015 Universe Benchmark Reports and s The Real Deal 2015 Retirement Income Adequacy at Large Companies Retirement and Investment 19 9% Automatic Enrollment 45% Retirement Adequacy Impact 70% At or Near Adequate (versus 36% for employees not escalating)

20 Provide Investment Help Resources available to help employees allocate investments have increased substantially and it s making a difference Investment Help +3.32% higher median annual returns, net of fees1 90% (+38%) 60% (+44%) 52% 55% (+49%) 16% Target Date Investments Online Investment Guidance 2005 Sources: s 2013 Trends & Experience in Defined Contribution Plans, joint and Financial Engines report Help in Defined Contribution Plans: 2006 through 2012 and s The Real Deal 2015 Retirement Income Adequacy at Large Companies Retirement and Investment increase in DC balance at retirement Increased Returns Managed Accounts x pay +1.0% 6% 1 Returns shown are median annual returns where each annual return for each participant is considered an observation. Thus a participant who is in the analysis for all seven years will have seven separate observations in the data set. A participant who is in the analysis for only two years will have two observations, etc. We equal-weight the years, so that increases and any decreases in the number of participants across the years do not skew the results. 20

21 Financial Wellness Stages Drive Solutions and Communication FREEDOM GROWTH Building financial freedom SECURITY FOUNDATION Financial Counseling & Education Budgeting & Financial Basics Savings & Investing Help Financial Planning Retirement Income Retirement and Investment 21

22 Meet Your Employees Where They Are Recognizing your people s diverse needs and helping them take steps toward a more confident financial future Retirement and Investment 22

23 Questions and Answers with questions for our speakers. Retirement and Investment 23

24 Biographies Grace Lattyak, Retirement Practice Associate Partner Grace is an associate partner and retirement actuary with in San Francisco. Through s Real Deal research, she consults with employers regarding retirement adequacy of their employees and ways to improve results. She also assists clients with managing their pension and retiree medical plans. Rob Reiskytl, Retirement Practice Partner Rob is an actuary and partner at the firm, leading s national Retirement Strategy and Design / IDEA team. He consults on HR and retirement strategy, design, implementation, administration, communication, financing, and ongoing plan management. Heather Tredup, Retirement Communication Best Practice Leader Heather is a Partner and leads s retirement communication efforts, with a focus on helping organizations educate and engage their people regarding financial wellness and their retirement benefits. Retirement and Investment 24

25 Contact List Grace Lattyak Associate Partner Retirement & Investments Rob Reiskytl Partner Retirement & Investments Heather Tredup Partner Communication Retirement and Investment 25

26 About empowers organizations and individuals to secure a better future through innovative talent, retirement and health solutions. We advise, design and execute a wide range of solutions that enable clients to cultivate talent to drive organizational and personal performance and growth, navigate retirement risk while providing new levels of financial security, and redefine health solutions for greater choice, affordability and wellness. is the global leader in human resource solutions, with over 30,000 professionals in 90 countries serving more than 20,000 clients worldwide. For more information, please visit aonhewitt.com. Aon plc All rights reserved. Retirement and Investment 26