PLANADVISER - November/December 2017 - 20

trendspotting
State Street Calls for New Policies
The firm suggests deferring Social Security payments
IN a Pension Research Council working
paper, Catherine Reilly, senior investment
strategist, defined contribution
(DC), at State Street Global Advisors
(SSGA), and Alistair Byrne, head of
investment strategy, European defined
contribution, at SSGA, state that
expected low market returns paired
with increasing longevity will make
it tougher for future retirees to have
sufficient income replacement rates.
After performing an analysis based
TALKING POINTS
Boomers' Optimistic on Retirement
72% 64% 32% 50%
Feel financially
prepared
Characterize
themselves
as savers as
opposed to
spenders
Source: Allianz Life
Are unclear as
to when they
can retire due to
financial market
uncertainty
Think it is
impossible
to determine
retirement
expenses
on certain assumptions, so that only
the effect of lower expected market
returns is measured, the researchers
found that a hypothetical individual
who is currently 60 years old and
retires at 65, having been saving since
he was 22, could expect to achieve
a 211% replacement
rate from his
defined contribution plan savings
alone. In addition, he could expect to
receive Social Security and might well
have some defined benefit (DB) plan
benefits, too. The authors note that,
while few 60-year-olds may have been
in a DC plan since age 22, they could
have made contributions to a retirement
savings account by themselves.
By contrast, an individual currently
25 years old and who employed the
same saving strategy could expect to
achieve a 27% replacement rate from
his DC plan if he retired at 65. Further,
the younger individual is unlikely to
have any DB entitlements and will
face more uncertainty regarding how
much Social Security he will receive.
The researchers note that a 45-year-old
can expect better outcomes than the
25-year-old but is also disadvantaged
compared with the 60-year-old.
The researchers contend that the
most obvious tactics that younger
workers could adopt to improve their
situation are to contribute more and
to work longer. However, this assumes
consistent savings behavior during
their entire working life, no career
breaks and no borrowing from retirement
savings.
The researchers suggest several
Other Future Retirees' Grim Outlook
21%
Think life will
be better in
retirement
78% 52% 17%
Worried Social
Security will run
out of funding
Source: Nationwide Retirement Institute
Think the Trump
administration
will cut benefits
Have worked
with an adviser
on a Social
Security strategy
policy changes that could improve
retirement outcomes for younger and
late savers. One would be to allow individuals
to take a partial Social Security
benefit rather than obliging them to
take it in full. Another option would be
to give them a choice to defer the start
of Social Security benefits beyond age
70, to make the most efficient use of
the program's cost-efficient longevity
insurance.
Other than Social Security policy
changes, the researchers suggest that
mandating automatic enrollment in
DC plans and automatically escalating
contribution rates would help
to improve retirement outcomes. In
addition, they note that matching
contributions encourage voluntary
employee contributions up to the
match threshold. Reducing retirement
plan leakage would also be helpful,
they say. -Rebecca Moore
20 | planadviser.com november-december 2017
http://www.planadviser.com
PLANADVISER - November/December 2017

Table of Contents for the Digital Edition of PLANADVISER - November/December 2017
