Affordable Retirement: Light at the End of the Tunnel
by Susan Alford, D. Bryan Farnen and Mike Schachet
Compared to previous studies, the 2004 Replacement Ratio Study from Aon Consulting/ Georgia State University shows an increase in the amount of income today's workers need at retirement to maintain their preretirement standard of living. After describing the study's replacement ratio findings, the authors estimate lump sums needed at retirement and required adjustments for both nonincreasing annuities and retiree medical expenses. They then describe steps innovative plan sponsors can take to encourage participants to understand and undertake their responsibility to acquire the substantial personal savings needed for a comfortable retirement.
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Shifting Responsibility to Workers: The Future of Retirement Adequacy in the United States
by Allen Steinberg and Lori Lucas
While many 401(k) participants at large companies can expect replacement of nearly 100% of preretirement income, not all workers participate in their 401(k) plan. Moreover, the authors show that even among participants, the extent of retirement preparedness depends on defined benefit (DB) plan coverage and retiree medical benefit generosity. Given recent trends in the elimination of DB plans and retiree medical subsidies and the voluntary nature of 401(k) participation, retirement income responsibility is increasingly shifting to workers. The authors discuss how employers might help workers meet their retirement income needs in this changing environment.
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Retirement Income Adequacy: Good News or Bad?
by Sylvester J. Schieber
Estimating replacement rate targets, and using them to assess the current state of retirement savings adequacy, has been the focus of much attention and analysis. Building on his earlier work published in Benefits Quarterly, the author conceptually defines retirement income adequacy, estimates replacement rate targets and reviews research on the current state of baby boomers' retirement savings. He concludes that, despite existing data limitations, researchers have made considerable strides in recent years in thinking about saving for retirement and the adequacy of workers' preparation for it. These advances suggest that singular rules of thumb for replacement rates are naive and that estimates should take into account the unforeseen risks that individuals face.
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Facing the New Facts of Retirement Income Adequacy
by Margie Mills and Michael L. Young
A range of new factors is responsible for the current problem with insufficient retirement resources. Changes inside and outside the organization share partial responsibility, as do employee behaviors. In addition, other factors simply have been overlooked as employers and employees think about retirement income adequacy. The authors describe the current situation, discuss the significant risks it creates for both employers and employees and advise employers on what they should do to help employees build a more secure future in retirement.
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Annuities and Lifetime Income: The Anglo-Saxon Experience
by Markus Malik
A number of western industrialized nations have found themselves in a similar position to the United States today: an aging population leading to increasing, and perhaps unsustainable, expenditures on a traditional social security system. This article examines the risks that individuals face in retirement, describes the role of annuities in addressing those risks and examines why annuitization rates are so low. It then reviews the pension structures in the United Kingdom, Australia and New Zealand-countries with similar governmental and economic structures to those of the United States-and describes how these have impacted those countries' annuitization rates.
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Helping Tomorrow's Retirees Manage "Distribution Phase" Risks
by Bill Daniels
Much of employers' attention has focused on helping employees manage the accumulation of 401(k) plan assets rather than on helping them manage the distribution phase-the period during which employees begin drawing down their 401(k) savings to meet their retirement needs. Assisting employees in managing the distribution phase can play an important role in helping employers meet a range of workforce planning goals and ensuring a maximum return on the retirement dollars that have been invested by both employees and the company. By implementing a properly structured approach to help employees manage the distribution phase, employers can help them maximize the value of their retirement savings at little or no employer cost, thanks to the leverage of the company's group purchasing power and the tax advantages of employer-sponsored plans.
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