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© Employee Benefit Research Institute 2013
Retirement Savings: Facts, Trends, and Issues
Dallas L. Salisbury
President and CEO
Employee Benefit Research Institute
April 8, 2013
1
© Employee Benefit Research Institute 2013
2
DC 1974 – Pre ERISA, DOL and PBGC – Age 24
EBRI Founding 1978 … 9/28/2013 is 35th Anniversary………..Age 64
39 Years of Retirement Research and Policy Analysis
© Employee Benefit Research Institute 2013
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Annuity DB to LSD DBto Hybrid LSD DB to LSD DCTo Rollover IRATo Roth IRA
Spend More on No Risk One Year Promise + Move Cost and Risk to Employee (inflation, investment, longevity)
© Employee Benefit Research Institute 2013
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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).
© Employee Benefit Research Institute 2013
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© Employee Benefit Research Institute 2013
6
Distribution of Health Plan Enrollment for Covered Workers, by Plan Type, 1988-2011
* 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.
1%
1%
1%
1%
© Employee Benefit Research Institute 2013
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Percentage of Private Sector Workers Participating in an Employment-Based Retirement Plan by Plan Type, 1979-2009*
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
0%
5%
10%
15%
20%
25%
30%
35%
DB onlyDC onlyBoth
Source: DoL Form 5500 Summaries through 1998. *EBRI estimates 1999-2009
© Employee Benefit Research Institute 2013
Median Replacement Rates for 401(k) Accumulations* for Participants Reaching Age 65 Between 2030 and 2039 (percent of final five-year average salary)
50.7 54.059.5
67.2
27.724.723.223.2
1 2 3 4
Baseline Don't always have a 401(k)
27.5 30.8 34.7 39.4
Income Quartile at Age 65
Turnover With Non-Preservation Affect Results Dramatically
© Employee Benefit Research Institute 2013
Male Prime-Age (25-64) Workers Median Tenure Trends, By Age, 1951-2010 (High Mobility)
3.52.7 2.7
4.5
7.6
6.06.7
7.36.5
6.15.5 5.3 5.2 5.2 5.3
7.6
11.4 11.5 11.8
10.19.4 9.5 9.6
8.1 8.2 8.5
9.3
13.0
14.5 14.615.3
14.5
13.4
10.511.2
10.2 10.29.8 9.5
10.1 10.4
3.22.82.93.02.82.72.82.8
3.2 3.2 3.1 3.1 3.0
5.1
7.0
5.0
6.9
8.8
11.0
12.8
9.1
11.2
14.7
0
2
4
6
8
10
12
14
16
18
1951 1963 1966 1973 1978 1983 1987 1991 1996 1998 2000 2002 2004 2006 2008 2010
Year
Yea
rs o
f Ten
ure
Ages 25-34
Ages 35-44
Ages 45-54
Ages 55-64
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.
© Employee Benefit Research Institute 2013
Female Prime-Age (25-64) Workers Median Tenure Trends, by Age, 1951-2010 (High Mobility)
1.8 2.0 1.92.2
1.6
3.03.13.6 3.5 3.6 3.6
4.14.4 4.3 4.2
4.9
6.15.7 5.9 5.9
6.3
7.0 7.2 7.37.0 7.1
4.5
7.8
8.88.5
9.8 9.7 9.9 10.09.6
9.99.6 9.8 9.7
2.62.5 2.5 2.5
2.82.82.8 2.6 2.72.7
4.74.5
4.64.84.5 4.5
6.7
4.0
6.8 6.76.5 6.4
9.2
9.29.0
0
2
4
6
8
10
12
1951 1963 1966 1973 1978 1983 1987 1991 1996 1998 2000 2002 2004 2006 2008 2010
Year
Years
of
Tenure
Ages 25-34
Ages 35-44
Ages 45-54
Ages 55-64
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
1975 1977 1979 1980 1983 1985 1987 1989 1991 1993 1996 1998 2000 2002 2004 2006 2008 2009 201022%
24%
26%
28%
30%
32%
34%
36%
38%
40%
25.0%
25.5%
27.3%
27.4%
30.3%31.5%
34.6%35.9%
37.7% 37.5%
35.6%
36.4%
35.0%
35.0% 35.3%
35.0%
35.5%
35.0%
34.0%
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
1975 1977 1979 1980 1983 1985 1987 1989 1991 1993 1996 1998 2000 2002 2004 2006 2008 2009 201012%
13%
14%
15%
16%
17%
18%
19%
20%
21%
14.4%
14.6%
14.8%
15.3%
15.8%
15.6%
16.9%
17.4%
19.0%
20.0%
18.8%
19.0%
18.5%
19.5% 19.8%
18.2%
18.7%
18.4%
18.4%
Source: EBRI tabulations of the 1976-2011 Current Population Survey.
© Employee Benefit Research Institute 2013
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Provision of Retiree Health Benefits for Current and All Future Retirees,Employers with 500+ Employees, 1993-2001
29%23%
31%
46% 43% 41% 40% 38% 36% 35%
24%28%30%31%33%35%40%40%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1993 1994 1995 1996 1997 1998 1999 2000 2001
Early Retirees Medicare-Eligible Retirees
Source: Mercer Human Resource Consulting.
© Employee Benefit Research Institute 2013
Percentage of Workers Expecting Retiree Health Benefits, by Age and Retirement Experience, 1997-2010
15
45-64, never retired 65+, never retired 45-64, ever retired 65+, ever retired0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
45%
23%
33%
11%
43%
27%
33%
15%
36%
22%
27%
11%
32%
21%
28%
9%
1997 2002 2005 2010
Source: Employee Benefit Research Institute estimates based on data from the Survey of Income and Program Participation, 1996, 2001, 2004, and 2008 panels.
© Employee Benefit Research Institute 2013
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Retirement Income Sources of the Future
© Employee Benefit Research Institute 2013
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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
© Employee Benefit Research Institute 2013
1–10 11–20 21–30 31–40
DC, Lowest 0 0 0.02228 0.09158
DB, Lowest 0.0237241124260355 0.111797337278107 0.27918823964497 0.414626479289941
DC, Highest 0.02142 0.1771 0.30486 0.47296
DB, Highest 0.0272004437869823 0.135271819526627 0.283700073964497 0.413674186390533
3%
8%
13%
18%
23%
28%
33%
38%
43%
48%
Employees Currently Ages 25–29:Median Replacement Rates from Voluntary Enrollment 401(k) vs. Styl-ized Final Average Defined Benefit Plan (1.5%, High Three) as a Func-
tion of Salary Quartile and Number of Years Eligible
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
1–10 11–20 21–30 31–40
DC, Lowest 0 0.169244322631167 0.340610023492561 0.601041503523884
DB, Lowest 0.0237241124260355 0.111797337278107 0.27918823964497 0.414626479289941
DC, Highest 0.0366836335160533 0.224238057948316 0.414513703993735 0.667716523101018
DB, Highest 0.0272004437869823 0.135271819526627 0.283700073964497 0.413674186390533
5%
15%
25%
35%
45%
55%
65%
75%
Employees Currently Ages 25–29:Median Replacement Rates from Automatic Enrollment 401(k) vs. Styl-ized Final Average Defined Benefit Plan (1.5%, High Three) as a Func-
tion of Salary Quartile and Number of Years Eligible
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
1–10 11–20 21–30 31–40
DC, Lowest 0 0.103323414252153 0.221965544244323 0.35505090054816
DB, Lowest 0.0237241124260355 0.111797337278107 0.27918823964497 0.414626479289941
DC, Highest 0.0226131558339859 0.136409553641347 0.253008613938919 0.383460454189507
DB, Highest 0.0272004437869823 0.135271819526627 0.283700073964497 0.413674186390533
3%
8%
13%
18%
23%
28%
33%
38%
43%
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
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
1–10 11–20 21–30 31–40
DC, Lowest 0 0 0.02228 0.09158
DB, Lowest 0.03233 0.0909 0.14348 0.23388
DC, Highest 0.02142 0.1771 0.30486 0.47296
DB, Highest 0.02678 0.08608 0.14607 0.23783
3%
8%
13%
18%
23%
28%
33%
38%
43%
48%
Employees Currently Ages 25–29:Median Replacement Rates from Voluntary Enrollment 401(k) vs Styl-ized Cash Balance Defined Benefit Plan (4.5% Pay Credit) as a Func-
tion of Salary Quartile and Number of Years Eligible
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
1–10 11–20 21–30 31–40
DC, Lowest 0 0.169244322631167 0.340610023492561 0.601041503523884
DB, Lowest 0.03233 0.0909 0.14348 0.23388
DC, Highest 0.0366836335160533 0.224238057948316 0.414513703993735 0.667716523101018
DB, Highest 0.02678 0.08608 0.14607 0.23783
5%
15%
25%
35%
45%
55%
65%
75%
Employees Currently Ages 25–29:Median Replacement Rates from Automatic Enrollment 401(k) vs Styl-ized Cash Balance Defined Benefit Plan (4.5% Pay Credit) as a Func-
tion of Salary Quartile and Number of Years Eligible
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 based on a stochastic process with a mean of 6.3% (nominal).
© Employee Benefit Research Institute 2013
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Attitudes Are Getting More Realistic
Far More Savings Has Been – And Is - Needed
© Employee Benefit Research Institute 2013
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Early Boomers Late Boomers Gen Xers
EBRI 2003 RRR 0.51721 0.48478 0.51723
EBRI 2012 RRR 0.443 0.433 0.439
5.0%
15.0%
25.0%
35.0%
45.0%
55.0%
65.0%
75.0%
85.0%
95.0%
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)
Sources: EBRI Retirement Security Projection Model® versions 1501 and 1502. * See text for definition of "at risk"
© Employee Benefit Research Institute 2013
25
Early Boomers Late Boomers Gen Xers
Lowest income quartile 0.86766 0.83602 0.77654
2 0.48001 0.4691 0.45802
3 0.2932 0.26457 0.29304
Highest income quartile 0.12451 0.11224 0.16694
5.0%
15.0%
25.0%
35.0%
45.0%
55.0%
65.0%
75.0%
85.0%
95.0%
Sources: EBRI Retirement Security Projection Model® versions 1501 and 1502. * See text for definition of "at risk"
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)
© Employee Benefit Research Institute 2013
26
0 1-9 10-19 20+0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
60.7%
41.1%
30.6%
18.2%
Future years of 401(k) eligibility
Impact of future years of 401(k) eligibility on 2012 at‐risk* ratings for Gen Xers
*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 retirementexpenditures defined as a combination of deterministic expenses from the Consumer Expenditure Survey (as a function of income) and some health insurance andout‐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, IRAsand/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‐sumdistribution). This version of the model is constructed to simulate "basic" retirement income adequacy; however, alternative versions of the model allow similar analysis forreplacement rates, standard‐of‐living and other thresholds.Source: EBRI Retirement Security Projection Model,® Version 120201.
© Employee Benefit Research Institute 2013
It Is Important To Look At Both DC and IRA Balances
27
© Employee Benefit Research Institute 2013
28
25-34 35-44 45-54 55-64 65-740%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
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
non-rollover IRA
rollover
401(k)
111209c
Source: EBRI DC/IRA Database
© 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.
29
© Employee Benefit Research Institute 2013
Longevity “Risk” “Reward”
Probability of a Healthy 65-year-old Living to Various Ages
0
25%
50%
75%
100%
65 70 75 80 85 90 95 100 105
MaleFemaleAt least one spouse
Age
Pro
babi
lity
85 88 9250% chance
25% chance92 94 97
Source: Annuity 2000 Mortality Tables.
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.
© Employee Benefit Research Institute 2013
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.
Percentile Income SS % Not SS IMA.com $ 3%RR7%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
© Employee Benefit Research Institute 2013
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© Employee Benefit Research Institute 2013
33
PAYABLE Monthly Benefit Levels as Percent of Career-
Average Earnings by Year of Retirement at age 62
0
10
20
30
40
50
60
70
1960 1980 2000 2020 2040 2060 2080
Low Earner ($19,388 in 2010; 25th percentile)
Medium Earner ($43,084 in 2010; 56th percentile)
High Earner ($68,934 in 2010; 81st percentile)Max Earner ($106,800 in 2010; 100th percentile)
Source: 2010 OASDI Trustees Report
© Employee Benefit Research Institute 2013
34
26-35 36-45 46-55 56-650%
2%
4%
6%
8%
10%
12%
14%
16%
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
Lowest
2
3
Highest
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 eli-gible 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 as-sumes no job turnover, withdrawals or loan defaults. The full stochastic nature of the model will be included in future analysis.* Normal retrmeent age.
Age
Salary Quartile9.8%
%15.1%
© Employee Benefit Research Institute 2013
35
Issues of the Day:
Public Social Security: Is 78% Enough?(Current Sustainable Benefit With No Reform)
Employer DC and Individual Retirement Savings: “Leakage”
© Employee Benefit Research Institute 2013
36
Workers Having Saved Money for Retirement, by Household Income
Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2009-2013 Retirement Confidence Surveys.
49%
80%
93%
24%
76%
94%2009 2013
Workers withHousehold Income
<$35,000
Workers withHousehold Income$35,000-$74,999
Workers withHousehold Income
$75,000+
© Employee Benefit Research Institute 2013
Definitely could
Probably could
Probably could not
Definitely could not
Don't know / Refused
50%
20%
12%
16%
1%
52%
17%
6%
22%
4%
Retirees Workers
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.
37
© Employee Benefit Research Institute 2013
38Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 1994-2013 Retirement Confidence Surveys.
2011 2012 2013
34%
34%31%
33%
22%25%
Workers
Americans Reporting They Dipped into Savings to Pay for Basic Expenses
© Employee Benefit Research Institute 2013
39
Issue of the Day: Coverage and Participation
Voluntary vs. Mandatory vs. Employee Opt Out
© Employee Benefit Research Institute 2013
40
Issue of the Day: Life Time Income or ?
© Employee Benefit Research Institute 2013
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
© Employee Benefit Research Institute 2013
42
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
Less than $1,000
55%36%
20% 27% 29% 30% 28%
$1,000 - $9,999 19 16 17 18 18
$10,000 - $24,999 13 13 11 10 12 11
$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., 2003-2013 Retirement Confidence Surveys.
© Employee Benefit Research Institute 2013
43
2003 2008 2009 2010 2011 2012 2013
Less than $1,000
54%51%
23% 27% 28% 28% 31%
$1,000 - $9,999 17 15 14 19 16
$10,000 - $24,999 9 16 14 12 8 8
$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.
Total Savings and Investment Reported by Retirees,Among Those Providing a Response
(not including value of primary residence or defined benefit plans)
© Employee Benefit Research Institute 2013
EBRI : Just the Facts™
www.ebri.org
www.choosetosave.org
© Employee Benefit Research Institute 2013
45
1100 13th Street NWWashington, D.C. 20005
202-659-0670www.ebri.org www.choosetosave.org