Retirement Readiness: Maximizing your retirement savings program
Today s agenda The Retirement Readiness issue The search for solutions, Your Automated Retirement Builder 2
Presenters Ted Goldman North American Retirement Practice Leader Buck Consultants, A Xerox Company Keith Kotfica Principal, Retirement Buck Consultants, A Xerox Company Sandy Pappa Principal, Retirement Buck Consultants, A Xerox Company 3
The Retirement Readiness issue
Retirement Readiness What does it mean? A measure of how financially prepared an individual is for retirement Considers all assets saved for retirement and compares it to pay/lifestyle while actively working Degree of difficulty to save is up fewer traditional pensions, volatile economy, uncertainty of government programs, changing retiree healthcare markets People are more and more worried they won t have enough to retire comfortably 5
Retirement Readiness is coming to the forefront DCIIA Plan Sponsor Survey 2012: Action Needed to Drive Better Participant Outcomes December 10, 2012 By Lori Lucas, Callan Associates and Catherine Peterson, J.P. Morgan Asset Management ABC News The Middle Class Squeeze: Retirement Nightmare Looms, AARP Says January 15, 2013 By Lisa Stark State Street 401(k) Investors Want Automatic Savings Increases and More Help in Making Better Retirement Decisions According to New Study from State Street Global Advisors January 17, 2013 EBRI Frontline The 2013 Retirement Confidence Survey: Perceived Savings Needs Outpace Reality for Many March, 2013 By Ruth Helman, Mathew Greenwald & Associates; and Nevin Adams, J.D., Craig Copeland, Ph.D., and Jack VanDerhei, Ph.D., EBRI America is Facing a Retirement Crisis April 23, 2013 By Martin Smith, The Retirement Gamble Facing us All CBS Moneywatch Experts warn of retirement crisis July 23, 2013 By Steve Vernon 6
Confidence is declining rapidly Confidence level 2007 2013 Very 27% 13% Somewhat 43% 38% Not too or not at all 29% 49% Source: 2013 EBRI Retirement Confidence Survey 69% decline! 7
With good reason In fact, only 46% have even tried to calculate how much they will need to save for retirement! (EBRI) 8
The search for solutions
The market response Rise of features that automatically: Enroll participant Set contribution levels Increase contribution levels Suggest target age and lifecycle investment choices Education campaigns Online calculators Annuitized balances (coming soon to a statement near you) Automatic enrollment increases participation but results in lower average contribution rates 2011 Principal Financial Group Study 78% of plan sponsors reported that the optimal savings rate for participants is 10% or more despite the fact that the typical default rate for auto enrollment is just 3% of pay 2013 DCIIA - Best Practices When Implementing Auto Features in DC Plan, June 2013 10
Current environment Many people are still not on a path to a secure retirement. Why? 1. Current social climate 2. Communication and education 3. Automatic features that have unintended consequences 4. Balances as opposed to readiness The pieces are there but no one has yet put it all together. For many people, being asked to solve their own retirement savings problems is like being asked to build their own cars. Richard H. Thaler, Shifting Our Retirement Savings Into Automatic, New York Times, April 6, 2013. 11
Critical gaps that remain No rational retirement target set No rational plan to achieve the target No routine progress reviews and adjustments Since saving for retirement is primarily in the hands of the individual, and savings rates and account balances are well below the adequate targets, we need a solution that breaks down the barriers and gets people to start saving responsibly for retirement. 12
Help is needed for the draw-down phase In addition to the known facts that employees aren t saving enough we: Acknowledge increasing life expectancies Understand the impact of market volatility however we need to expect and plan to survive more meltdowns Observe retirees lack sophistication to managing retirement risks due to: Lack of a formal plan to generate retirement income from their savings Under-spending for fear of running out of money Employees and retirees want and need help generating retirement income Source: September 2013 A Guide for DC Plan Sponsors To Implementing Retirement Income Programs Stanford Center on Longevity 13
Buck s response Combines a shift toward automation with a goal-oriented approach to saving to form a simplified and secure solution Stands conventional retirement decision making on its head - Instead of providing information, education, and tools, and then asking individuals to make decisions - It makes good rational decisions on behalf of the individual, then provides the opportunity to make alternative decisions in an easy-to-understand manner 15
Savings InSight Puts participants on track SETS TARGETS Can automatically enroll all eligible participants Sets target retirement date, income level and payout period Calculates automatic smart contribution deferral percentage Assumes assets invested in default Target, Lifecycle or Managed Accounts KEEPS ON TARGET Annually reviews actual outcomes versus target outcomes Adjusts targets and contribution levels, as needed If assets fall below a set corridor, action will be taken to move the participant back on course KEEPS WORKING AFTER RETIREMENT Determines monthly retiree payment amounts, designed to make savings last over the targeted payout period Monitors and adjusts outcomes, as needed Utilizes a side-fund concept to help mitigate (but not eliminate) investment and longevity risk The participant can set targets (with a modeling tool), or opt out 16
An engaging and intuitive web-based employee experience DEMO 17
Sponsor reporting Robust reporting, focused on: - Impact of the program - Retirement Readiness - Retirement payments 18
In closing
A simple but unique and innovative solution 20
Q&A