Transcript Retirement Savings: Facts, Trends, and Issues Dallas L. Salisbury President and CEO Employee Benefit Research Institute April 8, 2013 [email protected] © Employee Benefit Research Institute 2013

Retirement Savings:
Facts, Trends, and Issues
Dallas L. Salisbury
President and CEO
Employee Benefit Research Institute
April 8, 2013
[email protected]
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© Employee Benefit Research Institute 2013
DC 1974 – Pre ERISA, DOL and PBGC – Age 24
39 Years of Retirement Research
and Policy Analysis
EBRI Founding 1978 … 9/28/2013 is 35th
Anniversary………..Age 64
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© Employee Benefit Research Institute 2013
Annuity DB
to LSD DB
to Hybrid LSD DB
to LSD DC
To Rollover IRA
To Roth IRA
Spend More on No Risk One Year Promise
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+ Move Cost and Risk to Employee (inflation, investment, longevity)
© Employee Benefit Research Institute 2013
Relative importance of employer costs for employee
compensation, March 2012
_____________________________________________________________________________
______________________
Compensation
Civilian
Private
State and local
component
workers
industry
government
_____________________________________________________________________________
______________________
Wages and salaries
69.3%
70.4%
65.2%
Benefits
30.7
29.6
34.8
Paid leave
7.0
6.9
7.3
Supplemental pay
2.4
2.9
0.8
Insurance
8.9
8.1
12.0
Health benefits
8.5
7.7
11.6
Retirement and savings
4.6
3.6
8.5
Defined benefit
2.8
1.5
7.7
Defined contribution
1.8
2.1
0.8
Legally required
7.8
8.2
6.1
_____________________________________________________________________________
______________________
_
____________
The Employer Costs for Employee Compensation for June 2012 is scheduled to be
released on
Tuesday, September 11, 2012, at 10:00 a.m. (EDT).
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Distribution of Health Plan Enrollment for Covered
Workers, by Plan Type, 1988-2011
1%
1%
1%
1%
* Distribution is statistically different from the previous year shown (p<.05). No statistical tests were conducted for years
prior to 1999. No statistical tests are conducted between 2005 and 2006 due to the addition of HDHP/SO as a new plan
type in 2006.
Note: Information was not obtained for POS plans in 1988. A portion of the change in plan type enrollment for 2005 is
likely attributable to incorporating more recent Census Bureau estimates of the number of state and local government
workers and removing federal workers from the weights. See the Survey Design and Methods section from the 2005
Kaiser/HRET Survey of Employer-Sponsored Health Benefits for additional information.
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2011; KPMG Survey of Employer-Sponsored
Health Benefits, 1993, 1996; The Health Insurance Association of America (HIAA), 1988.
Percentage of Private Sector Workers Participating in an
Employment-Based Retirement Plan by Plan Type, 1979-2009*
35%
30%
25%
20%
DB only
DC only
Both
15%
10%
5%
0%
Source: DoL Form 5500 Summaries through 1998.
*EBRI estimates 1999-2009
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© Employee Benefit Research Institute 2013
Turnover With Non-Preservation Affect Results Dramatically
Median Replacement Rates for 401(k) Accumulations* for Participants Reaching
Age 65 Between 2030 and 2039 (percent of final five-year average salary)
Baseline
Don't always have a 401(k)
67.2
59.5
54.0
50.7
27.5
23.2
1
27.7
24.7
23.2
2
39.4
34.7
30.8
3
4
Income Quartile at Age 65
© Employee Benefit Research Institute 2013
Male Prime-Age (25-64) Workers Median Tenure
Trends, By Age, 1951-2010 (High Mobility)
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Ages 25-34
15.3
16
14
Years of Tenure
14.5
14.7
14.6
13.4
13.0
Ages 55-64
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10
11.2
12.8
9.3
11.5
11.4
Ages 35-44
Ages 45-54
14.5
10.5
11.8
11.0
10.2
11.2
10.1
8.8
8
6
7.6
9.4
2
9.5
9.1
9.8
9.5
7.6
6.9
6.7
7.3
10.1
10.4
8.2
8.5
5.2
5.3
2.8
3.2
9.6
8.1
7.0
6.5
6.0
4
10.2
6.1
5.5
5.3
5.0
2.8
2.7
2.8
5.2
5.1
4.5
3.5
2.8
3.2
3.2
2.7
2.7
3.1
3.1
3.0
3.0
2.9
0
1951 1963 1966 1973 1978 1983 1987 1991 1996 1998 2000 2002 2004 2006 2008 2010
Source: Data (for 1951, 1963, 1966, 1973, and 1978) from the MonthlyYear
Labor Review (September 1952, October 1963, January 1967,
December 1974, and December 1979); from press releases (for 1983, 1987, 1991, 1996, 1998, 2000, 2002, 2004, 2006, 2008, 2010) from the
U.S. Department of Labor, Bureau of Labor Statistics.
© Employee Benefit Research Institute 2013
Female Prime-Age (25-64) Workers Median Tenure
Trends, by Age, 1951-2010 (High Mobility)
Ages 25-34
12
Ages 35-44
Ages 45-54
9.8
Ages 55-64
10
8.8
7.8
Years of Tenure
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6.1
9.6
9.9
9.6
5.9
5.9
7.0
6.7
7.2
7.3
6.3
6.7
6.5
4.0
4.1
3.1
3.5
1.8
2.0
1.9
1951
1963
1966
7.0
7.1
6.4
4.6
4.8
4
3.6
9.7
9.2
9.0
5.7
9.8
9.2
6.8
4.5
10.0
9.9
8.5
6
2
9.7
3.6
3.6
2.8
4.4
2.6
4.5
4.5
4.3
4.2
2.5
2.5
2.5
1998
2000
2002
2.7
2.7
2.2
4.7
4.9
4.5
2.8
2.8
2004
2006
2.6
3.0
1.6
0
1973
1978
1983
1987
1991
1996
2008
2010
Year
Source: Data (for 1951, 1963, 1966, 1973, and 1978) from the Monthly Labor Review (September 1952, October 1963, January 1967,
December 1974, and December 1979); from press releases (for 1983, 1987, 1991, 1996, 1998, 2000, 2002, 2004, 2006, 2008, and 2010) from
the U.S. Department of Labor, Bureau of Labor Statistics.
© Employee Benefit Research Institute 2013
Percentage of Those Age 65 or Older With Pension
Income, 1975-2010
40%
37.7%
38%
37.5%
36.4%
35.5%
35.0% 35.3%
36%
34.6%
35.9%
34%
34.0%
35.6%
35.0%
35.0%
35.0%
32%
30.3%
31.5%
30%
27.3%
28%
26%
24%
25.0%
27.4%
25.5%
22%
1975 1977 1979 1980 1983 1985 1987 1989 1991 1993 1996 1998 2000 2002 2004 2006 2008 2009 2010
Source: EBRI tabulations of the 1976-2011 Current Population Survey.
© Employee Benefit Research Institute 2013
Percentage of Income Attributable to Pension
Income for Those Age 65 or Older, 1975-2010
21%
20.0%
19.5% 19.8%
20%
19.0%
19.0%
18.7%
19%
18.4%
18.8%
18%
18.5%
18.2%
18.4%
16.9%
17%
17.4%
15.8%
16%
15%
14%
14.8%
14.4%
15.3%
15.6%
14.6%
13%
12%
1975 1977 1979 1980 1983 1985 1987 1989 1991 1993 1996 1998 2000 2002 2004 2006 2008 2009 2010
Source: EBRI tabulations of the 1976-2011 Current Population Survey.
© Employee Benefit Research Institute 2013
Provision of Retiree Health Benefits for Current
and All Future Retirees,
Employers with 500+ Employees, 1993-2001
100%
90%
80%
Early Retirees
Medicare-Eligible Retirees
70%
60%
50%
46%
43%
41%
40%
30%
40%
40%
35%
40%
33%
38%
36%
31%
30%
20%
35%
28%
31%
24%
29%
23%
10%
0%
1993
1994
1995
1996
1997
1998
Source: Mercer Human Resource Consulting.
1999
2000
2001
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© Employee Benefit Research Institute 2013
Percentage of Workers Expecting Retiree Health
Benefits, by Age and Retirement Experience, 1997-2010
50%
45%
45%
1997
2002
2005
2010
43%
40%
36%
35%
33% 33%
32%
30%
27%
25%
23%
27%
22%
28%
21%
20%
15%
15%
11%
11%
9%
10%
5%
0%
45-64, never retired
65+, never retired
45-64, ever retired
65+, ever retired
Source: Employee Benefit Research Institute estimates based on data from the
Survey of Income and Program Participation, 1996, 2001, 2004, and 2008 panels.
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© Employee Benefit Research Institute 2013
Retirement Income Sources of the Future
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© Employee Benefit Research Institute 2013
Approximations Of Relative Benefits From DB and DC
Plans Suggest That Both Can Be Valuable Additions
To Social Security – Automatic Enrollment Is Of Major
Value – For The Lowest Income Workers To Do Well
With DC Requires Automatic Enrollment
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© Employee Benefit Research Institute 2013
Employees Currently Ages 25–29:
Median Replacement Rates from Voluntary Enrollment 401(k) vs.
Stylized Final Average Defined Benefit Plan (1.5%, High Three) as a
Function of Salary Quartile and Number of Years Eligible
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
DC, Lowest
DB, Lowest
DC, Highest
DB, Highest
1–10
0%
2%
2%
3%
11–20
0%
11%
18%
14%
21–30
2%
28%
30%
28%
31–40
9%
41%
47%
41%
Source: Source: EBRI/ERF Retirement Security Projection Model,® versions 100205b4 and 120105b4.
Returns are based on a stochastic process with means of 8.9% Equity and 6.3% Fixed Income (nominal).
© Employee Benefit Research Institute 2013
Employees Currently Ages 25–29:
Median Replacement Rates from Automatic Enrollment 401(k) vs.
Stylized Final Average Defined Benefit Plan (1.5%, High Three) as a
Function of Salary Quartile and Number of Years Eligible
80%
70%
60%
50%
40%
30%
20%
10%
0%
DC, Lowest
DB, Lowest
DC, Highest
DB, Highest
1–10
0%
2%
4%
3%
11–20
17%
11%
22%
14%
21–30
34%
28%
41%
28%
31–40
60%
41%
67%
41%
Source: Source: EBRI/ERF Retirement Security Projection Model,® versions 100205a4 and 120105a4
Returns are based on a stochastic process with means of 8.9% Equity and 6.3% Fixed Income (nominal).
© Employee Benefit Research Institute 2013
Employees Currently Ages 25–29:
Median Replacement Rates from Automatic Enrollment 401(k) vs. Stylized Final
Average Defined Benefit Plan (1.5%, High Three) as a Function of Salary
Quartile and Number of Years Eligible: Alternative (Lower) Return Scenario
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
DC, Lowest
DB, Lowest
DC, Highest
DB, Highest
1–10
0%
2%
2%
3%
11–20
10%
11%
14%
14%
21–30
22%
28%
25%
28%
31–40
36%
41%
38%
41%
Source: Source: EBRI/ERF Retirement Security Projection Model,® versions 100205a4 and 120105a4alt.
Returns are based on a stochastic process with means of 4.45% Equity and 3.8% Fixed Income (nominal).
© Employee Benefit Research Institute 2013
Employees Currently Ages 25–29:
Median Replacement Rates from Voluntary Enrollment 401(k) vs
Stylized Cash Balance Defined Benefit Plan (4.5% Pay Credit) as a
Function of Salary Quartile and Number of Years Eligible
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
DC, Lowest
DB, Lowest
DC, Highest
DB, Highest
1–10
0%
3%
2%
3%
11–20
0%
9%
18%
9%
21–30
2%
14%
30%
15%
31–40
9%
23%
47%
24%
Source: Source: EBRI/ERF Retirement Security Projection Model,® versions 100205b4 and 120105b4cb.
Returns for 401(k) are based on a stochastic process with means of 8.9% Equity and 6.3% Fixed Income (nominal). Returns for cash balance are based on a
stochastic process with a mean of 6.3% (nominal).
© Employee Benefit Research Institute 2013
Employees Currently Ages 25–29:
Median Replacement Rates from Automatic Enrollment 401(k) vs
Stylized Cash Balance Defined Benefit Plan (4.5% Pay Credit) as a
Function of Salary Quartile and Number of Years Eligible
80%
70%
60%
50%
40%
30%
20%
10%
0%
DC, Lowest
DB, Lowest
DC, Highest
DB, Highest
1–10
0%
3%
4%
3%
11–20
17%
9%
22%
9%
21–30
34%
14%
41%
15%
31–40
60%
23%
67%
24%
Source: Source: EBRI/ERF Retirement Security Projection Model,® versions 100205b4 and 120105b4.
Returns for 401(k) are based on a stochastic process with means of 8.9% Equity and 6.3% Fixed Income (nominal). Returns for cash balance are
© Employee Benefit Research Institute 2013
Attitudes Are Getting More Realistic
Far More Savings Has Been – And Is - Needed
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© Employee Benefit Research Institute 2013
EBRI Retirement Readiness RatingTM (RRR): 2003 vs. 2012
(Status Quo for Social Security, Housing Equity Used "As Needed")
Percentage of population at risk* for inadequate retirement income, by age cohort (baseline assumptions)
100.0%
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
EBRI 2003 RRR
EBRI 2012 RRR
Early Boomers
51.7%
44.3%
Late Boomers
48.5%
43.3%
Gen Xers
51.7%
43.9%
Sources: EBRI Retirement Security Projection Model® versions 1501 and 1502.
* See text for definition of "at risk"
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© Employee Benefit Research Institute 2013
EBRI Retirement Readiness RatingTM (RRR): 2012
(Status Quo for Social Security, Housing Equity Used "As Needed")
Percentage of population at risk* for inadequate retirement income, by age cohort and income quartile
(baseline assumptions)
100.0%
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
Lowest income quartile
2
3
Highest income quartile
Early Boomers
86.8%
48.0%
29.3%
12.5%
Late Boomers
83.6%
46.9%
26.5%
11.2%
Gen Xers
77.7%
45.8%
29.3%
16.7%
Sources: EBRI Retirement Security Projection Model® versions 1501 and 1502.
* See text for definition of "at risk"
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© Employee Benefit Research Institute 2013
Impact of future years of 401(k) eligibility on 2012 at‐risk* ratings for Gen Xers
70.0%
60.7%
60.0%
50.0%
41.1%
40.0%
30.6%
30.0%
18.2%
20.0%
10.0%
0.0%
0
1-9
10-19
Future years of 401(k) eligibility
20+
*An individual is considered to be at‐risk in this version of the model if their aggregate resources in retirement are not sufficient to meet aggregate minimum retirement
expenditures defined as a combination of deterministic expenses from the Consumer Expenditure Survey (as a function of income) and some health insurance and
out‐of‐pocket health‐related expenses, plus stochastic expenses from nursing home and home health care expenses (at least until the point they are picked up by Medicaid).
The resources in retirement will consist of Social Security (either status quo or one of the specified reform alternatives), account balances from defined contribution plans, IRAs
and/or cash balance plans, annuities from defined benefit plans (unless the lump‐sum distribution scenario is chosen), and net housing equity ( in the form of a lump‐sum
distribution). This version of the model is constructed to simulate "basic" retirement income adequacy; however, alternative versions of the model allow similar analysis for
replacement rates, standard‐of‐living and other thresholds.
Source: EBRI Retirement Security Projection Model,® Version 120201.
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© Employee Benefit Research Institute 2013
It Is Important To Look At Both DC and IRA Balances
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© Employee Benefit Research Institute 2013
Composition of combined 401(k) and IRA balances by age.
Analysis limited to individuals with both 401(k) and IRA
balances at the end of 2008
100%
90%
80%
70%
60%
non-rollover IRA
50%
rollover
401(k)
40%
30%
20%
10%
111209c
0%
25-34
35-44
45-54
55-64
Source: EBRI DC/IRA Database
65-74
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© Employee Benefit Research Institute 2013
It Is Important To Look At Both DC and IRA Balances
When Considering Retirement Income Adequacy –
This has led to a rush of products to provide
comprehensive planning using all assets and liabilities,
the addition to managed accounts of lifetime income
payout approaches, and the use of financial planners.
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© Employee Benefit Research Institute 2013
Longevity “Risk” “Reward”
The most significant risk that retirees face is longevity risk – the risk of
outliving their assets. This risk is not hedged by traditional investment
strategies.
Probability of a Healthy 65-year-old Living to Various Ages
100%
Male
Female
At least one
spouse
Probability
75%
50% chance
85
50%
88
92
25% chance
92 94
25%
0
65
70
Source: Annuity 2000 Mortality Tables.
75
80
85
Age
90
97
95
100
105
© Employee Benefit Research Institute 2013
Income Distribution of those age 65 and older in 2010 - $ to
achieve 100% income replacement with annuity purchase
versus alternative income streams at noted deterministic
rate of return with 95% probability of success.
Percentile
10%
25%
50%
75%
90%
95%
Income
$6,159
$10,757
$18,000
$33,600
$61,357
$89,102
SS %
80%
92%
84%
57%
30%
19%
Not SS
$1,231
$860
$2,880
$14,448
$42,949
$72,172
IMA.com $
18K
12.5K
42K
210K
624K
1.05M
3%RR
27K
19K
63K
325K
965K
1.6M
7%WRR
17K
12K
40K
199K
590K
1M
14.4 % had income of $50,000 or more.
IMA.com quotes on 9/13/2011 for female age 65 in GA – not inflation
indexed – no guaranteed period – no survivor benefit
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© Employee Benefit Research Institute 2013
PAYABLE
Monthly Benefit Levels as Percent of Career-
Average Earnings by Year of Retirement at age
62
70
60
50
Low Earner ($19,388 in 2010; 25th percentile)
40
30
Medium Earner ($43,084 in 2010; 56th percentile)
20
High Earner ($68,934 in 2010; 81st percentile)
Max Earner ($106,800 in 2010; 100th percentile)
10
Source: 2010 OASDI Trustees Report
0
1960
1980
2000
2020
2040
2060
2080
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© Employee Benefit Research Institute 2013
Average Percentage Reductions in 401(k) Account Balances at
Social Security NRA by Imposing 20/20 Limits in 2012,
by Age and Age-specific Salary Quartiles
16%
14%
Salary
15.1%
9.8%
Lowest
2
12%
3
Highest
10%
8%
6%
4%
2%
0%
26-35
36-45
46-55
56-65
Age
Source: EBRI Retirement Security Projection Model Version 110627c1.
NB: this simulation only models the financial impact of the expected reduction in 401(k) contributions for employees who are not automatically enrolled by
imposing the new limits and does not attempt to assess behavioral modifications on the part of either the plan sponsor nor the employees assumed to be
eligible for participation in the plan. The simulated rates of return are the same as in VanDerhei and Copeland (July 2010). This version of the analysis assumes
no job turnover, withdrawals or loan defaults. The full stochastic nature of the model will be included in future analysis.
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© Employee Benefit Research Institute 2013
Issues of the Day:
Public Social Security: Is 78% Enough?
(Current Sustainable Benefit With No Reform)
Employer DC and Individual Retirement Savings: “Leakage”
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© Employee Benefit Research Institute 2013
Workers Having Saved Money for Retirement,
by Household Income
2009
2013
93%
80%
94%
76%
49%
24%
Workers with
Household Income
<$35,000
Workers with
Household Income
$35,000-$74,999
Workers with
Household Income
$75,000+
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Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2009-2013 Retirement Confidence Surv
© Employee Benefit Research Institute 2013
Ability to Come up With $2,000 if an Unexpected
Need Arose Within the Next Month
Workers
50%
52%
Definitely could
20%
17%
Probably could
Probably could not
12%
6%
16%
22%
Definitely could not
Don't know / Refused
Retirees
1%
4%
Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc.,
2013 Retirement Confidence Survey.
© Employee Benefit Research Institute 2013
Americans Reporting They Dipped into
Savings to Pay for Basic Expenses
34%
31%
33%
34%
25%
22%
Workers
2011
2012
Retirees
2013
Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 19942013 Retirement Confidence Surveys.
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© Employee Benefit Research Institute 2013
Issue of the Day: Coverage and Participation
Voluntary
vs.
Mandatory
vs.
Employee
Opt Out
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© Employee Benefit Research Institute 2013
Issue of the Day: Life Time Income or ?
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© Employee Benefit Research Institute 2013
Issue of the Day: How Much Do I Really Have to Save?
Constant Confusion of % Needed for 40 Years
Versus
My Age Specific Percentage
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© Employee Benefit Research Institute 2013
Total Savings and Investment Reported by Workers,
Among Those Providing a Response
(not including value of primary residence or defined benefit plans)
2003
2008
2009
2010
2011
2012
2013
20%
27%
29%
30%
28%
19
16
17
18
18
13
13
11
10
12
11
Less than $1,000
36%
$1,000 - $9,999
55%
$10,000 - $24,999
$25,000 - $49,999
15
12
11
12
11
10
9
$50,000 - $99,999
11
12
12
11
9
10
10
$100,000 $249,999
11
15
12
11
14
11
12
$250,000 or more
7
12
12
11
10
10
12
Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 20032013 Retirement Confidence Surveys.
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© Employee Benefit Research Institute 2013
Total Savings and Investment Reported by Retirees,
Among Those Providing a Response
(not including value of primary residence or defined benefit plans)
2003
2008
2009
2010
2011
2012
2013
23%
27%
28%
28%
31%
17
15
14
19
16
9
16
14
12
8
8
Less than $1,000
51%
$1,000 - $9,999
54%
$10,000 - $24,999
$25,000 - $49,999
9
9
13
11
6
9
9
$50,000 - $99,999
11
6
9
6
11
8
9
$100,000 $249,999
13
13
10
15
12
12
10
$250,000 or more
12
12
12
12
17
15
17
Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc.,
2003-2013 Retirement Confidence Surveys.
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© Employee Benefit Research Institute 2013
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www.ebri.org
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1100 13th Street NW
Washington, D.C. 20005
202-659-0670
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© Employee Benefit Research Institute 2013