Middle Atlantic Actuarial Club Strategies for the Future

1. Middle Atlantic Actuarial ClubStrategies for the Future R. Scott Gregory, FSA April 22, 2010

2. The future isn’t what it used to be

3. Lets talk retirement • Social Security • Employer retirement plans • DB • DC • Hybrid • Personal savings

4. Soc Sec is BIG • 50 million people receive Soc Sec each month • 1 in 6 Americans get a Soc Sec ben • Nearly 1 in 4 households get income from Social Security NASI SS Brief # 28

5. The long-range forecast(Best estimate) • 2016 -- tax revenues forecast to be less than benefits due • Assets and interest will help pay benefits until 2037 • Govt must pay Soc Sec bonds and find other lenders • 2037 – reserves projected to be depleted • Continuing tax income forecast to cover about ¾ of scheduled benefits

6. Why is this happening? • People are living longer? • We’re not earning enough on the trust fund? • Illegal immigrants are draining the fund? • The main reason – People are having fewer babies

8. The DB Plan • Defined Benefit Plan (DB) • Plan defines benefit at retirement • Usually paid as monthly pmts for life • DB best for: • Providing specific income • Retirement security • Long careers • Cost efficiency

9. DB plans being terminated • Plan depends on employer • Bears investment and longevity risks • Must stay in business • Changes have created burdens • Increased regulation / funding requirements • Changing definition of liability • Increased accounting disclosure • Violent market fluctuations • Pursuit of returns increases risk

10. The DC Plan • Defined Contribution Plan (DC) • Plan defines contribution to Ee account • Account is invested • At retirement get account balance • Typically paid as a lump sum • Best for • Encouraging personal savings • Building personal estate • Enjoying market gains • Portability

11. DC plans have problems • Depends on the employee to save • Ee needs to invest intelligently • Benefit subject to market fluctuations • Does not provide lifetime income • Inefficient • Costly

12. DC plans have problems • “Based on the notion that the average American worker has the time, interest, and ability to fund and invest their way to a secure retirement in their spare time. It’s akin to asking the average worker to become their own auto mechanic on the side, but with much larger potential social costs. “ moneywatch.bnet.com/investing/blog/fund-watch/time-for-some-intellectual-honesty-from-the-ici-in-the-retirement-debate

13. Most elderly don’t receive pensions Percent with Employer-Sponsored Pensions All age 65+ 41% Couples 51% Unmarried men 42% Unmarried women 34% Income of the Population 55 or Older, 2002, SSA

14. Many rely on SS for most of their income • 90% of people 65 and older get Soc Sec • Nearly 2 in 3 (66%) get half or more of their income from Soc Sec • About 1 in 5 (21%) get all their income from Soc Sec Income of the Population 55 or Older, 2004, SSA; Table 9.A.1

15. What have we done about it?

16. Retirement finances are shaky • Soc Sec projected to run out of money • DB Pensions being terminated • DC plans shown to be flawed • We aren’t saving for ourselves

17. In addition • We are living longer Life expectancy at 65 • In 1930 (Soc Sec began) 12.4 years • In 2000 18.0 years • Cost of medical care rising rapidly

19. So, what is the outlook for retirement?

20. The Silent GenerationBorn 1925 to 1945 – now 65 to 85 • Long careers with big organizations • Heads down • Worried about their “permanent records” • Well-behaved, conciliators • Want to improve institutions without fundamentally changing them

21. Baby BoomersBorn 1946 to 1964 -- now 46 to 64 • Traditional home • Idealists and moralists • Early – free spirited, experimental • Later -- less optimistic, distrust govt • Ambitious, loyal • Work to the clock

23. Baby Boomers “We have managed to take successful programs -- Social Security and Medicare -- and turn them into huge problems by our self-centered inattention. Baby boomers seem eager to "reinvent retirement'' in all ways except those that might threaten their pocketbooks.” Robert Samuelson

24. Generation XBorn 1965 to 1979 -- now 30 to 45 • Both parents work • Latchkey kids • More broken families • Individualistic, self-reliant • Economically conservative, pessimistic • Inwardly-focused

25. Generation X • Seek balance in their lives now – not when they retire. • Complain about the boss, but figure its part of the job.

26. Millennial GenerationBorn after 1980 -- under 30 • Parents tried to avoid errors of their parents. • Pampered, nurtured, programmed • Trophy kids • Safety for all, no-risk • Self confidence • Desire to fit in, to be part of a group • Believe change is good • Closer to parents

27. Millennial Generation • Different workplace values / expectations • Teamwork, achievement, good conduct • Work longer and harder -- at any time of day • High-performance / high-maintenance • More supportive of labor unions • Don't waste time complaining about the boss – send resume out and accept best offer

30. Career paths are changing • Many of us spent most of our career with one employer • Today, 1 in 5 workers has been with their current employer for less than a year • 1 in 2 has been there less than 5 years • DOL estimates today’s learner will have 10 to 14 jobs

31. Career paths are changing • Many of us spent most of our career with one employer • Today, 1 in 5 workers has been with their current employer for less than a year • 1 in 2 has been there less than 5 years • DOL estimates today’s learner will have 10 to 14 jobs – by the age of 38

32. Jobs are changing - rapidly • Many of US picked our careers in HS • The top 10 in-demand jobs in 2010 did not exist in 2004 • We are currently preparing students for jobs that do not yet exist

33. Retirement is Changing • In the history of mankind, retirement is a new concept

34. Life Expectancy

35. Life Expectancy – Last 10,000 Yrs

36. Retirement is Changing • In the history of mankind, retirement is a new concept • We are inventing “retirement” • Attitudes are changing • Retirement age is changing

37. Definition of Retirement is changing • Dictionary Definition • To disappear • To withdraw (from active life) • To go away

38. Definition of Retirement is Changing • The emerging definition • To engage • To re invent • Freedom (to do what we really want to do)

39. Retirement Process is Changing Traditional Retirement Emerging Retirement

40. Another Persepctive Traditional Stages of Life Learn Work Rest Die

41. Ken Dychtwald, Ph.D.

42. Stages of Life If I could give you 10 more years of life, where would you want them?

43. Stages of Life If I could give you 10 more years of life, where would you want them? At the end of life when you are old and tired?

44. Ken Dychtwald Ph.D.

45. What does retirement look like to you?

46. What does retirement look like to you?

47. As we age our focus changes • Concerns about retirement increase • Emphasis shifts from wealth to security • Increasing concern we will have to scale back our lifestyle The MetLife Survey of American Attitudes Toward Retirement

48. The current economy increases these changes Question: Will today’s problems have a lasting effect, or will they be forgotten when things get better?

49. Alternate Retirement Plan Designs

50. Current ideas being discussed • Make 401(k) plans automatic (Obama platform) • Make 401(k)s more user-friendly. • Forget 401(k)s, create a Supp to Soc Sec • More cash balance plans • Retirement USA