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ANNA RAPPAPORT CONSULTING
STRATEGIES FOR A SECURE RETIREMENTSM
After the Tsunami:The Departure of the Baby Boom
Presented by Anna Rappaport
University of Chicago Management Conference
May 18, 2007
Presentation at GSB - Graduate School of Business May 18, 2007
2
Boomers in the Third Age:The Big Picture Today
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Presentation at GSB - Graduate School of Business May 18, 2007
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Puzzles around longer work
More than 7 in 10 people say they want to work in retirement
About 4 in 10 people retire earlier than planned– Don’t plan for premature retirement risk
Higher age displaced workers take longer to get jobs Other research indicates that older applicants get fewer
call backs – Age discrimination? Will this change as population
ages? Future: unknown effect of longer work on retirement
patterns
Presentation at GSB - Graduate School of Business May 18, 2007
4
Our Goals Today
Think about future challenges with job content, job structure, and employees seeking phased retirement
Understand forces driving change and uncertainty Think about possible products/services
Presentation at GSB - Graduate School of Business May 18, 2007
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Agenda
Context Practical Issues around Meeting Talent Needs Market Opportunities
Presentation at GSB - Graduate School of Business May 18, 2007
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Context: Demographics
New ways to think about life cycle– Third age: period between full time work and total
retirement– During transition period
Some work and more leisure Supplement earnings with retirement resources Looks like traditional cyclical life plan
Key trends– Living longer– Healthy longer but not forever– Boomers: better education than groups before
Presentation at GSB - Graduate School of Business May 18, 2007
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Context: Probability of Living to 80, 90, 100 Projected to 2025
Projection to 2025 – 1983 Mortality projected 40 years
Survival Age Female
65Male 65
Both Survive
Either Survive
survive to 80 0.84 0.69 0.58 0.95
survive to 90 0.52 0.30 0.16 0.67
survive to 100 0.14 0.04 0.01 0.18
Presentation at GSB - Graduate School of Business May 18, 2007
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Context: The Boomers vs. the Prior Cohort
More Boomers—very large cohort Two distinct groups—early vs. late Boomers Boomers have higher expectations More Boomers are divorced
– 13% of men age 55-64 vs. 10% in 1994 and 6% in 1984– 18% of women vs. 13% and 9%
After many years of earlier retirement, later retirement Pension coverage has shifted to defined contribution More workers age 55-64 have health insurance (because
more women are covered) More people own long-term care insurance
Presentation at GSB - Graduate School of Business May 18, 2007
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Context: Boomers—Greater Income & Wealth Dispersion vs. Prior Cohorts
Big gains in median income for top quartile, virtually flat for others Increase in median wealth for college graduates, decline for others
Median Wealth
1994 2004
College Graduates $305,000 $317,000
High School Graduates $145,000 $115,000
Net Worth
1994 2004
College Graduates $146,000 $128,000
High School Graduates $54,000 $30,000
Decline in net worth, excluding home equity, across all groups
Presentation at GSB - Graduate School of Business May 18, 2007
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Context: New Ways to WorkWhat is Evolving: Phased Retirement
No accepted definition—may permit partial or full pension payments
Allows mature workers to work on reduced or modified basis before retirement (phasing pre-retirement)
Allows rehire of retirees (phasing post-retirement) Modified work may mean change of schedule, place or
duties Can be formal or informal arrangement Perspective of employer, policymaker and individual differ
Question: Is all “working in retirement” a form of phased retirement?
Presentation at GSB - Graduate School of Business May 18, 2007
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Context: The work and retirement experience
People say they want to work longer Many work after “retirement”
– Often part-time or part-year Of those who are not in labor force at 50-61
– 67% of men are disabled– 40% of women are disabled
New job options and innovative practices are needed– Relationship alternatives– Restructuring of duties– Scheduling alternatives– Place alternatives
Presentation at GSB - Graduate School of Business May 18, 2007
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Context:Pre-retirees expect to work longer
How old were you when you retired/began to retire from your primary occupation?/At what age do you expect to retire from your primary occupation? (Among retirees and employed pre-retirees)
Age CategoryRetirees (%) Pre-retirees (%)
2005 (n=302) 2005 (n=253)Under age 55 34 2
55 to 61 29 12
62 to 64 20 18
65 5 21
66 or older 8 20
Will not retire -- 13
Doesn’t apply 3 --
Don’t know 2 15
Source: Society of Actuaries, 2005 Risks and Process of Retirement Survey
Presentation at GSB - Graduate School of Business May 18, 2007
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Utilizing Talent: Practical issues
Best option for phased retirement Phasing a little vs. phasing a lot Example: bank teller Example: research scientist Defining your talent needs Contracting issues
Presentation at GSB - Graduate School of Business May 18, 2007
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Best option for phased retirement
Matched to your talent needs—jobs first, money second Things to think about
– Formal vs. informal program?– Available to all or on selective basis?– Phasing pre-retirement, post-retirement, or both?– Offer options to phase a little, phase a lot, or both?– Types of flexibility
Job design, work time and location– How long should someone be allowed to phase?– Pay and benefits
Presentation at GSB - Graduate School of Business May 18, 2007
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Phasing a little vs. phasing a lot
Phasing a little Usually regular schedule—
reduced somewhat
Regular employee with ongoing commitment, predictable income and health benefits
Unlikely to get pension payments
Modest total flexibility and same work options as offered to employees generally
Phasing a lot Many schedule options
including on-call, pool, seasonal work, job-sharing
Most likely temporary or consultant; may not have regular commitment or salary, unlikely to have health benefits
Likely to get pension payments
Lot of flexibility and probably different work options
Presentation at GSB - Graduate School of Business May 18, 2007
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Bank teller
Phasing pre-retirement Works 3 or 4 days per week
on regular basis as regular employee
Works at regular work location
In future can be paid partial pension after age 62
Phasing post-retirement Work as fill-in during
vacations or on-call during the year
Work as temporary or through a retiree pool
In a bank with multiple branches, may work at different locations
Paid pension and appropriate compensation for work performed
Presentation at GSB - Graduate School of Business May 18, 2007
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Research scientist
Phasing pre-retirement Move out of management
role, take on mentoring of selected people and reduce number of projects
Paid salary on pro-rata or agreed basis, rather than by project
Potential for flexibility with regard to schedule, location and duties
Could be paid partial pension after age 62 in addition to salary; at present, such payment is unlikely
Phasing post-retirement Serve as advisor, trainer,
or team member on specific projects
Paid pension and either partial salary, or paid by hour or project
Time commitment as agreed on
Potential for a lot of flexibility of place
Presentation at GSB - Graduate School of Business May 18, 2007
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Big questions about future of retirement
What is retirement? What is appropriate role of government, the employer and
the individual? How should risk be shared? Can each party realistically meet their commitments?
What are appropriate eligibility ages to start benefit payments (retirement ages)?
How important is lifetime income? What risks should be pooled and how? Are there special issues for the boomers, a cohort in the
middle of a transition?
Presentation at GSB - Graduate School of Business May 18, 2007
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Checklist for new approaches to using Boomer talent
Define new work options and think about phased retirement Build the program on solid needs analysis, identifying talent
issues and employee preferences Integrate with talent management strategy and align with
culture Integrate with knowledge transfer Communicate with business units Align health and pension benefits Give supervisors and division managers enough discretion Keep paperwork well defined and easy Start small, evaluate and refine
Presentation at GSB - Graduate School of Business May 18, 2007
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Products for the Future:Think about Market Segments
High net worth – Asset management and estate conservation key– Nothing really changes—but there are more people
Middle group– Need to marry risk and asset management– For many of them, huge challenge to manage on their
own in retirement– Through employer is good way to reach them– Not enough money for much personal advice– New opportunities
Lower income group (40% of old age women alone have only Social Security)– Key is the social safety net
Presentation at GSB - Graduate School of Business May 18, 2007
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Products for the Future:Opportunities that Address the Risks
Marry asset and risk management Distribution options and defaults—401(k) plans
– Risk protection linked to asset pool– Dream default option
Managing longevity risk in systematic way– Longevity insurance—deferred annuity to age 85 or a
similar age – Combination products = annuity+ long-term care
Think about dollar cost averaging without requiring multiple purchase decisions
Focus on how to get better risk pools Better planning tools and help for the middle market
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Phone: 312-642-4720Fax: 312-642-4330
ANNA RAPPAPORT CONSULTING
STRATEGIES FOR A SECURE RETIREMENTSM