Retirement Presentation
Transcript of Retirement Presentation
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Kenneth Kriz Associate Professor
School of Public Administration
The Retirement Situation
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A Brief History of Retirement & Retirement Systems
Prior to the 19 th century: No concept Post Civil War: Pensions for war veterans 1882: Alfred Dolge Company private pension 1889: German Prime Minister Otto von
Bismarck develops modern national pensionsystem
Early 20 th Century: Progressive Era, adoptionof pensions by state and local governments
1930s: Advent of Social Security System Post-World War II: Development of ThreeLegged Stool of retirement financing
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The Three Legged Stool: United States
Private
Savings
Employer ProvidedPension
Social Security
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The Three Legged Stool: Other Industrialized Nations
PrivateSavings
P blic Pensi n
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Public Pension Replacement Rates
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Private Savings
Th eory
Individualssh ouldrecognize needfor privatesavings to fundretirementconsumption
EmpiricalEvidence
Private savingsrates very lowPrivate savingstends to e inrelatively low
return/low riskinvestments
Pu lic Policies
Tax-preferredaccounts:IRA, SEP-IRA, KeoghPreferredtreatment of capital gains
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Private Savings Rates
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0
5
10
15
20
25
30
35
1992 2001 2004 2007
% of Families withIRA/Keogh Account
0
5 ,00010 ,00015 ,00020 ,00025 ,00030 ,000
35 ,00040 ,000
1992 2001 2004 2007
Median Balance inIRA/Keogh Account
Source: Employee Benefits Researc h Institute (EBRI); calculated from Survey of Consumer Finances (SCF) data.
Private Retirement Savings
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Employer-Provided Pensions
Th eory
Employers will offerpension plans as an
incentive to attractproductive workersDB plans versusDC plans
Empirical Evidence
Private sectoremployers moving
to mainly DC plansFunding pro lems inpu lic DB plansInvestment
options, fundingdecisionssu optimal
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Sector Comparison - Assets
37%
63%
Private Secto
r
Defined Benefit
Defined Contri ution
68%
32%
Public Secto
r
Defined Benefit
Defined Contri ution
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F unding Problems in Public Pension Plans
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Pension Plan F unding Ratios, 2001 2009
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Plan Normal Cost, 2001 2009
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Defined Contribution Participant Behavior
The overwhelming majority of DC planparticipants fail to contribute maximum Nave asset allocation
1/n rule
80/20 rule 100-age rule Most participants never change their
allocations Most participants never read plan literature Many plan sponsors do not know expense
ratios, investment options
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Social Security
Th eory
Social insurance: RiskPooling
History
Until 1970 s: No majorissues, Pay-As-You-GoEarly 1980 s: Recognitionof demograp h icch allenges, esta lish mentof Social Security TrustFundSince 1990 s: Growingconcern over solvency of
SSTF
Policies
Privatization
Additional SST
Finvestment optionsRaising retirementage/reducing enefitsIncreasing payrolltax/ roadening payroll tax
ase
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Social Security Trust F und Projections
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Historical Accuracy of Social Security Projections
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Conclusions
Each of the three legs of the stool is wobbly Private savings: Not enough, not well managed Employer pensions: DC shift makes this more like
private savings, DB funding problems Social Security: F unding concernsF ixes vary Private savings: Hard to incentivize; Save More
Later Employer pensions: Education for employees Social Security: Technically not large; politically
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