New & Improved Redefining the Preretiree Experience Marty Allenbaugh Product Manager Rachel Weker Product Development Manager
Who Is a Preretiree? Active Retirement Plan Participants Born before 1960 (age 50+) 2
Preretiree Pop Quiz
True or False Most U.S. workers plan to retire prior to age 65 4
False 74% Plan to Retire at Age 65 or Later Only 26% of U.S. workers plan to retire before age 65 Retirement Prior to Age 65 26% Planned Retirement 5 Source: EBRI 2009 Retirement Confidence Survey
True or False Due to their low savings rates, most U.S. workers are forced to retire at age 65 or later 6
False They Are Retiring Earlier Than Expected 72% of retirees actually retired before age 65 Retirement Prior to Age 65 72% 26% Planned Retirement Actual Retirement 7 Source: EBRI 2009 Retirement Confidence Survey
True or False Retirees confidence levels about having a financially secure retirement have dropped to levels not seen since the last bear market in 2001 and 2002 8
False The Percentage of Very Confident Retirees Has Dropped 50% During This Time Period 9
True or False The life expectancy for a couple in their 70s is greater than a couple in their 50s 10
True Life Expectancy Increases as You Reach Age Milestones 94 92 Individual Couple 90.4 90.9 91.2 91.8 90 Life Expectancy Age 88 86 84 84.2 85.2 86 87 82 80 Age 50 Age 60 Age 65 Age 70 11 Source: 2008 IRS Publication 590
True or False The number of preretirees will start to decline over the next few years as baby boomers start to retire 12
False Preretiree Base Should Increase Another 25% Over the Next Few Years 97,000 of our preretirees are age 60+, while another 190,000 participants will be celebrating their 50th birthday over the next five years 13 *These numbers are based only on the T. Rowe Price Retirement Plan Services universe.
True or False With the expansion of available online planning tools, a growing percentage of workers are calculating how much money they need to save for a comfortable retirement 14
False Planning Percentage Reached an All-Time High Nine Years Ago 15 An equal proportion (44%) simply guess at how much they will need for a comfortable retirement.
New Preretiree Program Retirement Income Consultations
Preretiree 1-on-1 Retirement Income Consultations Target audience is preretirees (age 50+ plan participants) We help the participant review their retirement income strategy with the help of our online tool 30-minute individual conferences Use our meeting registration service for participants to set appointments One-on-one meetings include: Personalized total retirement outlook statements Retirement Income Calculator Conducted these sessions on site and online 17
Monte Carlo Simulation Monte Carlo Simulation Monte Carlo simulations model future uncertainty. In contrast to tools generating average outcomes, Monte Carlo analyses produce outcome ranges based on probability, thus incorporating future uncertainty. Material Assumptions Include: Underlying long-term expected annual returns for the asset classes are not based on historical returns, but estimates, which include reinvested dividends and capital gains. Expected returns, plus assumptions about asset class volatility and correlations with other classes, are used to generate random monthly returns for each class over specific time periods. These monthly returns are then used to generate hundreds of scenarios, representing a spectrum of possible performance for the modeled asset classes. Success rates are based on these scenarios. Success rate is defined as the percent of market simulations that result in a positive balance at the end of the time horizon. Taxes on withdrawals are not taken into account, nor are early withdrawal penalties. However, fees (average expense ratios for typical actively managed funds within each asset class) are subtracted from the expected annual returns. Required minimum distributions (RMDs) are included. In the simulations, if the RMD is greater than the planned withdrawal, the excess amount is reinvested in a taxable account. Material Limitations Include: Extreme market movements may occur more often than in the model. Some asset classes have relatively short histories. Expected results for each asset class may differ from our assumptions, with those for classes with limited histories potentially diverging more. Market crises can cause asset classes to perform similarly, lowering the accuracy of projected portfolio volatility and returns. Correlation assumptions are less reliable for short periods. The model assumes correlations among asset class returns. It does not reflect the average periods of bull and bear markets, which can be longer than those modeled. 25
Monte Carlo Simulation, continued Inflation is assumed to be constant, so variations are not reflected in our calculations. The analysis assumes a diversified portfolio, which is rebalanced monthly. Not all asset classes are represented, and other asset classes may be similar or superior to those used. Portfolio and Initial Withdrawal Amount The underlying long-term expected annual return assumptions (without fees) are 10% for stocks, 6.5% for bonds, and 4.75% for short-term bonds. Net-of-fee expected returns use these expense ratios: 1.211% for stocks, 0.762% for bonds, and 0.648% for short-term bonds. The portfolio is either determined by the user or based on preconstructed allocations that shift in 5% increments throughout the retirement horizon (as displayed in the graphic "Why should I consider this?" in the Asset Allocation section). The initial withdrawal amount is the percentage of the initial value of the investments withdrawn on the first day of the first year. In subsequent years, the amount withdrawn grows by a 3% annual rate of inflation. Success rates are based on simulating 1,000 market scenarios and various asset-allocation strategies. IMPORTANT: The projections or other information generated by the T. Rowe Price Retirement Income Calculator regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. The simulations are based on assumptions. There can be no assurance that the projected or simulated results will be achieved or sustained. The results present only a range of possible outcomes. Actual results will vary with each use and over time, and such results may be better or worse than the simulated scenarios. Clients should be aware that the potential for loss (or gain) may be greater than demonstrated in the simulations. The results are not predictions, but they should be viewed as reasonable estimates. Source: T. Rowe Price Associates, Inc. 26
Online 1-on-1 Benefits 27 More robust experience Guaranteed Internet access allows us to demo our online planning tools (Web access not always available with on-site one-on-ones) We can display this information on the participant s desktop as compared to sharing a laptop with an on-site attendee More interactive experience Attendees enter their retirement data into our planning tools More convenient experience Can conduct evening sessions Preferred channel with our Investor Center pilot group 100% of participants scheduled an online consultation vs. conducting this same session face to face at one of our Investor Centers More cost-efficient strategy Four times less expensive for our clients
April 15 Ready, Set, Retire Cross-Plan Webinar Special preretiree Webinar conducted by Chris Fahlund a Certified Financial Planner with T. Rowe Price 1,876 preretirees from 200 different RPS clients attended this event 520 attendees completed the end of program survey 364 (70%) were interested in attending an online retirement income consultation 112 online consultations were completed 28
Participant E-mail Promoting the Program 29
One-on-One Registration Web site 30
One-on-One Attendee Survey Results Did the Information Provided in This Session Meet Your Needs? 98.3%, (116) 1.7%, (2) 2 No (please specify) Yes 31
96.7% Satisfaction Scores Across All Questions Please Show How Much You Agree With Each Statement I understood the information that w as presented 0.8% 24.2% 75.0% Strongly Agree Agree The T. Row e Price Representative w as know ledgeable and w ell prepared 1.7% 0.8% 15.1% 82.4% Uncertain Disagree Based on today's session, I feel more confident making retirement planning decisions 1.7% 0.8% 0.8% 30.0% 66.7% Strongly Disagree I w ould attend a similar event in the future 1.7% 0.8% 0.8% 19.0% 77.7% 0 20 40 60 80 100 32
Average Account Balance of $203,000 100 1-on-1 Attendee Profile vs. RPS Active Preretiree Plan Average RPS Plan Average 1-on-1 Attendee Data 80 60 61.0% 40 20 23.9% 22.6% 0 6.4% 100K+ 250K+ 500K+ 1.1% 6.6% Account Balance 33
2010 Preretiree Consultation Goals Two preretiree cross plan Webinar events in 2010 June and October events 4,000 attendees expected Survey our audience and recording viewers to gauge their interest in attending an online consultation We want to complete 1,200+ preretiree consultations in 2010 Roll out new online tool for our pre-term consultation attendees 34
Retirement Income Solutions
Industry Activity Around Retirement Income Exploration of different investment solutions Payout funds Target-date funds Annuities fixed and variable Living benefits Evaluation of regulatory changes Default annuitization? Press focus on inadequacy of 401(k) Need for retirement insurance? 36
Significant Considerations Around Different Solutions Financial stability Regulatory framework Fiduciary obligations Cost/benefit trade-offs Portability 37
Retirement Income Solutions Participant Concerns Flexibility Control Reliability Complexity Cost 38
Product Awareness Hasn t Translated Into Usage Levels of Product Interest and Usage Variable Immediate Life Annuities Variable Deferred Annuities w ith Living Benefits Fixed Deferred Annuities - Periodic Contributions Diversified Managed Payout Funds Guaranteed Fixed Immediate Life Annuities Systematic Withdraw al Programs Not at all interested Used or interested 0% 10% 20% 30% 40% 50% 60% 70% 39 Source: FRC 2009 Consumer Retirement Income and Planning Survey, May 2009
Participant Needs Certainly Exist Participants want to get their financial house in order during transitional phase to full retirement from partial Saving is highest priority for 55-64 yr old; college and paying down debt is highest for 45-54 yr old 401(k) is 2nd most important source of income in retirement 56% of households make investment decisions on own; 31% consult with advisor; 13% grant authority to advisor 46% of respondents don t have a formal plan Participant behavior may not optimize retirement decisions 40 Source: FRC 2009 Consumer Retirement Income and Planning Survey, May 2009
TRP Solution Name TBD Develop a program to help participants model, create, and manage a flexible source of income from their plan account throughout a potentially lengthy retirement Delivers educational value Offers planning functionality Provides transactional capabilities Participant research completed in September confirming value and approach 41
PROTOTYPE: CONCEPT IN DEVELOPMENT Step 1: Receive suggested approach for income program designed to generate payments throughout age 95 42
PROTOTYPE: CONCEPT IN DEVELOPMENT Step 2: Model impact of different changes to income program 43
PROTOTYPE: CONCEPT IN DEVELOPMENT Step 3: Implement income program 44
PROTOTYPE: CONCEPT IN DEVELOPMENT Step 4: Initiate Payments 45
Well Received After Extensive Research Met the needs of a diverse population From more sophisticated to not From those just starting to plan to those ready to implement payments Seen as providing ongoing value Engages participants, provides initial education and modeling Facilitates implementation of income stream Provides ongoing monitoring and management Allows complete flexibility and control Participants indicated likelihood to use 46
Specific Reactions Participants rated application as an average score: 87 (scale of 1 100) Described as good, flexible, complete/well thought out, educational Functionality/Aspect Liked Best Modeling (21 references as best ) Ease of use (16) Flexibility (6) Functionality/Aspect Liked Least On my own/need help making decisions (6 references as least ) Identity verification question (4) Can t add other investments (3) 47 Avg. Score: 87 (scale of 1-100)
In Their Words Like the modeling 48
In Their Words Still want high touch 49
In Their Words It s a great tool 50
Aha Moments How Will They Use It Retirement is not a single account strategy Participants want to consolidate additional assets in retirement, even if 401(k) is primary source. Interested in consolidating assets with this tool, but not an issue that would preclude use. Planning & implementation is not a one-stop deal Participants indicated likelihood to play with modeling component And then come back to set up payments 51
Aha Moments How They Want To Use It A good tool doesn t preclude the need for assistance Some would want to talk to someone to validate their strategy Some would need to talk to someone to walk them through the process (really get it) Some would prefer to talk to someone Existence of advisor didn t preclude desire/need for tool Felt it would help educate them in advance of their meetings Felt it would be good to use as part of advisor experience Felt it would provide validation of advisor approach 52
Plan Adoption Requirements Preretiree modeling calculator available for all plans Requirements for use of full application No QJSA Paperless withdrawals Allow installments and partial withdrawals Allow all products/all sources exchanges Offer TRP RDFs 53
What to do in 2010 Review your communications plan with your communication consultant Take advantage of the two free preretiree crossplan Webinars scheduled to take place in 2010 Your attendees will be automatically invited to sign-up for a retirement income consultation Talk to your T. Rowe Price Associate about retirement income solutions implementation 54 T. Rowe Price Investment Services, Inc.