contractual savings conference larry zimpleman executive vice president principal financial group...
TRANSCRIPT
Contractual Savings Conference
Larry Zimpleman
Executive Vice President
Principal Financial Group
April 30, 2002
16% CAGR
11% CAGR
Estimated Distributions from DC Plans
$188$212
$240$270
$304$341
$382
$427
$477
$531
$591
$656
$0
$100
$200
$300
$400
$500
$600
$700
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: CA Research, EBRI, ICI
1999-2010 ($ billions)
Baby Boomers Approach Retirement
Source: Investment Company Institute (ICI), Cerulli Associates
30-3931%
40-4930%
50-5920%
65-693%
60-643%
20-2913%
20-2930-3940-4950-5960-6465-69
401(k) Participants by Age Group
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
1980
1984
1988
1992
1996
2000E
2004E
2008E
2020E
2040E
2050E
Pop
ulat
ion
in T
hous
ands
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
45 to 64 65 and over
Industry PerspectiveProtection Accumulation Payout Transfer
LifeInsurance,DisabilityInsurance
IRAs, 401(k)s,Mutual Funds,
Annuities,Life Insurance
Annuities,PeriodicWithdrawals
Life Insurance,
Long-Term Care Insurance
Sources: U.S. Census Bureau and Credit Suisse First Boston Corporation.
Changing Retirement Landscape• Increased lifespan and earlier retirements
resulting in 20 to 30 year retirements versus historical 10 to 15 years.
• Maximum monthly social security pension payment around $1,500.
• 56% of current retirees’ have no DB plan
• Guaranteed portion of retirement income is declining: 1974 2030E
Federal Inc. (SS): 42% 19%
Pension (DB Plan): 14% 5%
56% 24%
Changing Needs • Pre-retirement Needs:
– Manage income and expenses so individual can actually save for retirement.
– Manage investments to maximize growth. • In-retirement Needs:
– Need to manage funds, so individual doesn’t outlive assets.
– Need to manage the investment risk carefully. – Need to withdraw money periodically for living
expenses.– Need to maximize funds to take care of a spouse
after death.– Need to manage funds to afford to pay possible
health care or nursing home needs.
Mutual Funds• Strengths
– Grow nest egg– Choose funds– Access assets
• Weaknesses– No income
guarantee– No protection
against long-term illness
– Market fluctuations
AnnuitiesStrengths•Never outlive income•Avoid equity market fluctuations
Weaknesses•No penalty-free access to money•No protection against long-term illness•No growth potential•Typically, no inflation protection
Lifetime Income IRA
Capitalizes on Strengths and minimizes Weaknesses of the alternative products
•Time to grow nest egg
•Maximizes flexibility
•Attach other benefits
•Benefit cost averaging
Income Management Solutions
Accumulation
Mutual Funds
Security
Annuities
Transition
Market InvestmentsSecure Retirement
Benefits
Sec
ure
R
etir
emen
t D
ate
Inco
me
Sta
rt D
ate
Core Concept & Vision: Integrating Two Industries
Lifetime Income IRA Program
Market Investments
Stock Mutual Funds
Bond Mutual Funds
Money Market Funds
Money is transferred periodically to fund these benefits Pension Benefits
Survivor
Caregiver
Legacy
Guaranteed lifetime income
Increase in income benefit if criteria met
Guaranteed lifetime income to either survivor
Guaranteed benefit for heirs
Unneeded income can be
reinvested without tax
consequences
Income IRA Payment to Client
(Optional Benefits)
How Lifetime Income IRA Program’s Moving Parts Work Together
Pension Benefit
Survivor Benefit
Legacy Benefit
Caregiver Benefit
Changes with investment performance until Secure Retirement Date; may be increased automatically to offset inflation
May be set at 50-100% of Pension; may be reduced at any time
May be set at 0-100% of Pension; may be reduced at any time
If elected, will provide an increase in income; set at 25-100% of Pension and covers both spouses if Survivor Benefit is elected
Benefit How It Works
Value of Lifetime Income IRA:
• Can’t outlive Lifetime Income IRA Program.
• Won’t have to guess at how much he/she can afford to spend to support lifestyle.
• Retirement income can increase when either/both spouse is disabled or sick.
• Can support spouse or provide for the next generation.
• Can continue to participate in the market while building up secure lifetime income.
• Not locked in—individual can adjust plan.
Conclusions
• Payout phase natural extension of accumulation phase.
• Product/Service solutions not identical; payout phase may provide:– Income security– Life event recognition, such as
benefits for:• Legacy and/or Survivor• Health care
• Companies working on creative solutions
Thank you!