Post on 11-Apr-2017
When Retirement Reality Bites
Ross Mitchell, Niall Fitzgerald – Zurich Life Assurance plcDr. Virginia Stewart - UCD Michael Smurfit School of Business
2 June 2016
The views expressed in this presentation are those of the
presenters and not necessarily of the Society of Actuaries in
Ireland nor the respective employers
Disclaimer
Perception v reality?
Agenda
Psychology of retirement
Global retirement structures
Ireland focus A call to action
Psychology of retirement
• Life Stage• Broad Phases
– Planning – Decision– Transition and
Adjustment
Defining Retirement
6
• Individual• Job and Organisational
Factors• Family Factors• Socioeconomic Context
Antecedents that Influence the Process
7“Psychological Research on Retirement”
(Wang & Shi, 2014)
• Resources– Financial– Physical– Cognitive– Motivational– Social – Emotional
• Total capability
Ease of Adjustment
8
• Unemployment• Demanding job• Voluntariness• Retiring earlier than planned• Health reasons• Marital happiness
Well Being During Retirement
9
• After transition and adjustment– 70% minimum changes– 25% initial negative changes
but improved– 5% positive changes
Well Being During Retirement
10
“Profiling retirees in the retirement transition and adjustment process” (Wang, 2007; U.S. Health and Retirement Study )
Psychological Well Being During Retirement
11
“What Factors are Associated with Change in Older People’s Quality of Life?”The Irish Longitudinal Study of Aging
(2009-2011 and 2012-2013)
Outcomes
12
PhysicalFinancial
Psychological
Example: Imagine that the interest on your savings account was 1% per year and inflation was 2% per year. After 1 year, would you be able to buy:• More than, exactly the same
as, or less than today with the money in this account?
• Do not know or refuse to answer
Why Financial Literacy Matters
13
Gender & Financial Decision Making
14“Financial Literacy and Financial Decision-Making in Older Adults”
(Lusardi, 2012)
Age & Financial Decision Making
15
“How does age affect financial decision making?”Center for Retirement Research
(Gamble, Boyle, Yu, & Bennett, 2015)
Financial Isolation
16
PhysicalFinancial
Psychological
Global retirement structures
The global picture
• TTE Structure
• Complete Freedom
• Semi-Mature DC Market – 24 Years
• Household Debt Accumulation encouraged
• Net Effect = 0%
The global picture - Australia
• Tight -> Loose
• Pension Freedoms
• Immature DC Market
• Innovation
• Fraud Increase
The Global Picture - UK
20
• Product Drawdown
• Advanced – Similar to Ireland – Annuities and Drawdown
• More ability to mix and match
• Semi-Mature DC Market
• Innovative – QLAC
The Global Picture - US
21
Results
• (Schaie, K. W. Intellectual Development in Adulthood: The Seattle Longitudinal Study. Cambridge Univ. Press, Cambridge, 1996).
Lessons to be learned
• Open yet restrict
• Research and examine lifetime investment strategies - not just pre and post retirement
• Simplification = One Product
Lessons to be learned
Ireland focus
Income trends – Ireland
Source: TILDA pension report 2012
CSP NCSP OP PP SW Total0
5000
10000
15000
20000
25000
13,244
20,571
Income sources
Females incomeMales income
€ P.
A.
CSP – Contributory State PensionNCSP – Non-contributory State PensionOP – Occupational PensionPP – Private pensionSW – Social Welfare
Income trends – Ireland
A mainly defined benefit
world for current retirees
Level pensions “the norm”
Expected periods from
age 65 of 17.7 years for males and 20.6 years
in 2012
29%
Not on track to maintain
standard of living post retirement (McKinsey Retirement Readiness,
2015)
Expenditure trends – Ireland
19.90%
4.80%
4.90%
6.00%
11.00%2.00%3.90%
14.80%
32.70%
% of expenditure
FoodAlcohol/TobaccoClothing and footwearFuel and lightHousingHousehold non-durablesHousehold durablesTransportMiscellaneous goods and services
Source: Household budget survey CSO 2009Average of €26k p.a. for retired household with average age 72
An expenditure analysis
Variable Cost
Essential
Fixed Cost
Discretionary
Food
Alcohol/Tobacco
Clothing/Footwear
Fuel/Light
Housing
Housing durables
Housing non-durables
Transport
VacationsMedical costs
Entertainment
Subscriptions
Insurance
Pensioner lifecycle
30
Active(65-74?)
Passive(75-85?)
Supported(85+?)
DISCRETIONARY/VARIABLEFIXED/ESSENTIAL
Debt repayment?
Vacation(s)? House improvements? Family/
HobbiesHouse down size?
Healthcare Nursing homes
Inheritance
2050 Potential differences?
31
Retirement age?
Extended working
Defined contributio
n “new” world?
Private healthcar
e a luxury?
Greater funds
available for
drawdown?
Expected periods
from age 65 of 25 years for
males and 27 years
Second home?
A call to action
Summary
Lack of accurate data on (semi) retired population
Holistic view of physical, psychological and financial needs
Advice needed throughout WHOLE retirement journey
At and during retirement structures need radically improved
Recommendations
Adequacy and coverage of future DC world needs addressed NOW
Dedicated pensioner data collation service to drive appropriate products and services
Improved, clearer advice service AT and DURING pensioner lifecycle Cashflow modelling Life expectancy modelling Power of Attorney
Recommendations
Product innovation and flexibility Voluntary OPTION to set aside funds for private
healthcare? INDEXED annuity to “match” inflationary “fixed”
expenditure (transferable or convertible to lump sum in the event of nursing home care)?
SIMPLER drawdown vehicle for discretionary variable spending
Formation of retirement communities – “Retirement Crowdfunding”!
Questions