now let’s restart your employees’ path to retirement readiness
You offer a retirement plan…
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• Insurance products are not insured by the FDIC or other government agencies; they are not deposits or obligations of, nor are they guaranteedby Banco Popular de Puerto Rico or its subsidiaries and/or affiliates. Some insurance products can lose their value.
• This presentation: (1) was prepared for educational purposes only and does not include or take into account all factors that may be relevant toyour financial needs; (2) its content should not be construed as advice of any kind or as a suggestion to take (or inhibit) any particular action;and (3) it is not intended, nor should it be construed as investment advice. The information and general descriptions included are designed tohelp you understand some of the factors that you should generally consider when evaluating the relevance of any financial strategy. Byproviding this information, we assume that you are able to evaluate this information and exercise your independent judgment.
• Banco Popular de Puerto Rico and/or its subsidiaries and affiliates are not engaged in providing legal, accounting or tax advisory services. If yourequire legal, accounting, or tax advice, you should seek the services of a competent professional.
• Investment products are not insured by the FDIC, they are not deposits or obligations of, nor are they guaranteed by Banco Popular de PuertoRico, its affiliates and/or subsidiaries; they involve risks and can lose value, including the loss of the principal invested.
Legal Disclaimers
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How retirement plans have behaved in general.
In this conversation we will discuss:
Why and how your plan participants make their
decisions.
Ideas on how you can help your participants restart their
path to retirement.
Summary
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What factors influence decision making,
withdrawals, and investment selection.
Where are we coming from?
Low savings rate
Average plan balance of $30k
Lack of emergency fund
50% of population cannot manage a $400 emergency
Aging population
3-4 years older than that of the US
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Recent events affecting retirement readiness
Uncertain economic environment in the island.
Recent atmospheric events from which the island has not completely recovered.
Earthquakes.
COVID-19 / Social unrest
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Taking market movements into perspective
Investor Apanics and sells assets in
March, realizing a 30%+ loss
Investor BStays put and keeps calm, allowing
market recovery and now having a 3% increase in the value of its portfolio for
the year
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What happened to investors?
Assuming an initial
portfolio of $100,000,
a 15-year time horizon, and a 6% return on
investment
Investor Portfolio Amount End Amount
A: Realizes 30% loss 70,000 168,000
B: Stays put 100,000 240,000
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• Many changed asset allocations staying in cash and are now realizing a loss and having an even greater opportunity cost, longevity risk and inflation risk
totals $72,000 more on the retirement portfolio just for staying calmed during this
emergency.
Investor A now needs to make an additional contribution of more than
$3,000 every year just to break even with investor B.
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What happened to investors?
Investor B Investor A
Common Mindset
• Want protection from poverty, to educate children, to reduce risk and to retire comfortably.
• Want to fulfill life goals. • As defined by traditional finance, being irrational does not
mean not being smart. It is common to commit cognitive mistakes.
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Why do people act this way?
Rational Mindset
• Want high returns and are methodological with strategy.
• Patient: Expected to put feelings and experiences aside so they won’t have an impact on their actions.
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Why do people act this way?
The Psychology of Money
Common Mindset • Money is an abstract thing If you spend now, you get an instantreward. When you save, the future goal becomes much moreabstract because of the variables in the way.
• People fail to recognize what they are giving up when they make adecision about money. They focus on what they are getting today.
• People tend to rely on social cues and/or storytelling instead ofweighting what they give up when making a decision.
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The Psychology of Money
What canwe do?
• Help participants think about tradeoffs, what is given up when they spend on something.
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Mental Bias What it is How we can help
Mental Accounting People categorize and treat money differently depending on where it came from and where it’s going.
Help them understand that all income is income, so they can allocate money to something purposeful.
Anchoring People get tied to the first impression and may be attached to facts and figures that may or may not be relevant.
Explain difference between the options that are being compared.
Money Illusion People confuse actual dollars with buying power dollars. They may attribute higher prices to an increase in value rather than to inflation.
Help people understand that inflation erodes purchasing power and that for some goals we may need to save or prepare more than we have anticipated.
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How have your participants behaved?
36,401 distributions processed due to COVID-19
$341.4 mm have gone
out of retirement plans managed by Popular
Average distribution of $9.4K with some
reaching up to $100K- Increased web activity and periods
reaching 159K calls to our representatives.
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What withdrawal means for retirement
Tax law allowed withdrawal
of $10,000What did that do to your
retirement capital?
Amount Age Years to 65 Yield FV
$ 10,000 35 30 6% $ 57,435
$ 10,000 45 20 6% $ 32,071
$ 10,000 55 10 6% $ 17,908
$ 10,000 35 30 8% $ 100,627
$ 10,000 45 20 8% $ 46,610
$ 10,000 55 10 8% $ 21,589
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People Need Help
2020 Retirement Income Literacy Quiz
Online interviews conducted by The American College for Financial Planning to over 1,500
Americans, ages 50-75, with at least $100,000 in household assets.
• 80% failed the quiz.
• Over 50% underestimate life expectancy.
• 70% think some sort of guaranteed income is important in
retirement, but only 30% were interested in owning a product that
could provide it.
• 60% of respondents knew that Social Security benefits increase for
every year you delay the benefit until 70.
Key Findings:
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People Need Help
• Only 40% felt prepared for a financial market downturn.
• Only 33% had a formal retirement strategy.
• 42% have been able to decrease spending or stay in course in terms
of financial behavior.
COVID- 19 related findings
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People need HELP!
How we can help you help your participants
• Educational content specifically developed for retirement plan
participants with relevant topics that help them better plan for retirement
through quarterly newsletters.
• Quarterly newsletters of Popular are specifically developed for retirement
plan participants with relevant topics that help them better plan for
retirement .
Tailored Education
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• Live seminars being held by Popular cover topics currently affecting
planning for this life stage, aimed at helping people address their
situation:
• Paving the Road to Retirement
• How Social Security Works
• How COVID-19 has Impacted our Retirement Portfolios.
• How Your Retirement Plan Works.
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How we can help you help your participants
Tailored Education
• Additional educational content through alliances with Popular @ Work,
Wealth Management, and Finanzas en tus Manos to help participants
address other topics, such as budgeting and how to make better use of
credit and deposit products.
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How we can help you help your participants
Tailored Education
Popular.com/turetiro
• Educational hub on retirement content with articles and videos that are segregated by life stage.
• Designed to help individuals plan for retirement by accessing educational content in a simple and easy to understand format.
• Relevant topics that will help you plan from early in your career to post retirement.
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How we can help you help your participants
E-Mail: [email protected]
• You are not alone when helping your participants.
• This year we created an email address for participants and individuals who are planning for their retirement or need orientation related to retirement planning
• Now they have a point of contact if they have questions or need assistance regarding their retirement planning.
• Here they will reach specialized personnel that can guide and help them.
A unique, dedicated email address just for retirement topics.
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How we can help you help your participants
Retirement Snap
Lower cost than traditional planning makes this solution attractive.
Shorter processing time with an interactive approach between the individual and the financial planner.
Additional financial planning offering focused on retirement readiness for individuals wanting a simpler way to start planning for this phase or for those who may be too young for traditional financial planning.
Serves as a steppingstone for traditional financial planning focusing on assets liabilities, risk tolerance, funding status, and social security options.
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How we can help you help your participants!
• Among other important designations, certifications and licenses, a group of our employees specializing in retirement management have the following designations:
• Retirement Income Certified Professional, RICP®.
• Retirement Management Advisor, RMA®.
• Chartered Retirement Planning Counselor, CRPC®.
• With a wide array of products, services and expertise, we are here to support you in helping your employees and participants better plan for the future.
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People have only one chance to
plan correctly for retirement and we all must all do our part in
supporting their goals.
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