Retirement Savings: Facts, Trends, and Issues

1. Retirement Savings: Facts, Trends, and Issues Dallas L. Salisbury President and CEO Employee Benefit Research Institute April 8, 2013 salisbury@ebri.org

2. 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

3. 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 + Move Cost and Risk to Employee (inflation, investment, longevity)

4. 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).

7. 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.

8. Percentage of Private Sector Workers Participating in an Employment-Based Retirement Plan by Plan Type, 1979-2009* Source: DoL Form 5500 Summaries through 1998. *EBRI estimates 1999-2009

9. Median Replacement Rates for 401(k) Accumulations* for Participants Reaching Age 65 Between 2030 and 2039 (percent of final five-year average salary) Turnover With Non-Preservation Affect Results Dramatically 39.4 Income Quartile at Age 65

10. Male Prime-Age (25-64) Workers Median Tenure Trends, By Age, 1951-2010 (High Mobility) 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, 2010) from the U.S. Department of Labor, Bureau of Labor Statistics.

11. Female Prime-Age (25-64) Workers Median Tenure Trends, by Age, 1951-2010 (High Mobility) 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.

12. Percentage of Those Age 65 or Older With Pension Income, 1975-2010 Source: EBRI tabulations of the 1976-2011 Current Population Survey.

13. Percentage of Income Attributable to Pension Income for Those Age 65 or Older, 1975-2010 Source: EBRI tabulations of the 1976-2011 Current Population Survey.

14. Provision of Retiree Health Benefits for Current and All Future Retirees,Employers with 500+ Employees, 1993-2001 Source: Mercer Human Resource Consulting.

15. Percentage of Workers Expecting Retiree Health Benefits, by Age and Retirement Experience, 1997-2010 Source: Employee Benefit Research Institute estimates based on data from the Survey of Income and Program Participation, 1996, 2001, 2004, and 2008 panels.

16. Retirement Income Sources of the Future

17. 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

23. Attitudes Are Getting More Realistic Far More Savings Has Been – And Is - Needed

27. It IsImportant To Look At Both DC and IRA Balances

28. Source: EBRI DC/IRA Database

29. It IsImportant 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.

30. 100% Male Female At least one spouse 85 88 94 92 75% 50% chance 50% Probability 92 97 25% chance 25% 0 65 70 75 80 85 90 95 100 105 Age 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 Source: Annuity 2000 Mortality Tables.

31. 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. • PercentileIncome        SS % Not SS IMA.com $ 3%RR 7%WRR • 10%        $6,159          80%  $1,231 18K 27K 17K • 25%        $10,757        92% $860 12.5K 19K 12K • 50%        $18,000        84% $2,880 42K 63K 40K • 75%        $33,600        57% $14,448 210K 325K 199K • 90%        $61,357        30% $42,949 624K 965K 590K • 95%        $89,102        19% $72,172 1.05M 1.6M 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

34. 15.1%

35. Issues of the Day: Public Social Security: Is 78% Enough?(Current Sustainable Benefit With No Reform)Employer DC and Individual Retirement Savings: “Leakage”

36. Workers Having Saved Money for Retirement, by Household Income Workers withHousehold Income<$35,000 Workers withHousehold Income$35,000-$74,999 Workers withHousehold Income$75,000+ Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2009-2013 Retirement Confidence Surveys.

37. Ability to Come up With $2,000 if an Unexpected Need Arose Within the Next Month Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2013 Retirement Confidence Survey.

38. Americans Reporting They Dipped into Savings to Pay for Basic Expenses Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 1994-2013 Retirement Confidence Surveys.

39. Issue of the Day: Coverage and Participation • Voluntary vs. • Mandatory vs. Employee Opt Out

40. Issue of the Day: Life Time Income or ?

41. Issue of the Day: How Much Do I Really Have to Save? Constant Confusion of % Needed for 40 Years Versus My Age Specific Percentage

42. Total Savings and Investment Reported by Workers,Among Those Providing a Response(not including value of primary residence or defined benefit plans) Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2003-2013 Retirement Confidence Surveys.

43. Total Savings and Investment Reported by Retirees,Among Those Providing a Response(not including value of primary residence or defined benefit plans) Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2003-2013 Retirement Confidence Surveys.

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