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NEW CENTURY ENERGIES

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Title: NEW CENTURY ENERGIES


1
(No Transcript)
2
Sylvester J. Schieber Vice President and U.S.
Director of Benefits Consulting Watson Wyatt
Worldwide Arlington, Virginia
Review of Previous Summits and Current Status
of Retirement Savings Saving for Your Golden
Years Trends, Challenges and Opportunities
3
Overview
  • Broad conclusions from prior summits and recent
    savings experience
  • Saving for our golden years theory and reality
  • Populations particularly at risk
  • Focus of the sessions during this summit

4
Conclusions from Summits I and II
  • Americans must save more today if they are to
    realize the dream of a financially secure
    retirement (Summary report from the first
    summit)
  • Americans are saving too littleoften
    dangerously too little This problem is
    especially acute for women and minorities.
    President George W. Bush

5
Personal Saving Rate as a Percentage of
Disposable Income in the United States Since the
Passage of ERISA
Source US Department of Commerce, Bureau of
Economic Affairs, National Income and Product
Accounts.
6
What Is Golden?
  • Older Americans Act (P.L. 89-73, 1965) states
    that older people should enjoy an adequate
    income in retirement in accordance with the
    American standard of living.
  • Presidents Commission on Pension Policy (1981)
    held that pretirement living standards should be
    measured in terms of preretirement disposable
    income. This takes into account
  • Work-related expenses including taxes
  • Different expenditure needs while working versus
    the retirement periode.g., educating children,
    health consumption, and so forth

7
Modern Day Analysts and Retirement Planners Put
Target Retirement Income at Around 70 to 80
Percent of Preretirement Earnings for People to
Maintain Living Standards
8
Modern Day Analysts and Retirement Planners Put
Target Retirement Income at Around 70 to 80
Percent of Preretirement Earnings for People to
Maintain Living Standards
9
Annual Retirement Income Required to Live
Comfortably in Retirement Anticipated by Those 50
and Older and Participating in a Retirement Plan
Percentage of Annual Income Pay of lt35K Pay of 35K to 75K Pay of 75K
Less than 40 1.8 1.3 1.7
40 to 59 10.0 14.9 18.9
60 to 79 20.7 36.4 45.1
80 to 99 21.1 25.6 22.1
100 or more 29.8 13.0 7.0
Dont know 16.7 8.8 5.1

Median estimate by those responding 88.7 76.2 71.9
Source Watson Wyatt Worldwide, 2004 Retirement
Attitude Survey.
10
The Mechanics of Retirement Saving
  • Assume this worker knows what the future holds
  • Consider a 25-year-old worker
  • Earning 35,000 per year
  • Expects pay raises of 4 percent per year until
    reaching age 65 when she retires
  • Will live to age 81½
  • Needs to save to provide a benefit in retirement
    equal to 35 percent of earnings

11
The Mechanics of Retirement Saving
12
The Mechanics of Retirement Saving
  • We know that workers dont know the future with
    certainty
  • They dont all start working at 25 and saving
  • Some earn a lot, others a little
  • Pay raises are irregular
  • Retirement ages, life expectancies and
    consumption needs vary
  • But this worker may be about average in many
    regards

13
Given Our National Demographics and the Mechanics
of What We Should Be Saving, We Can Estimate What
Savings Rates Should Be
14
The Reality
In 2005, for the first time since the Great
Depression (1932-1933) the personal savings rate
in the United States was negative! At the
individual level the picture is more varied.
15
Workers Accumulating Retirement Assets
Source Federal Reserve Board, Flow of Funds
Accounts.
16
Pension Participation Rates by Workers Ages
Source March 2005 Current Population Survey
tabulations.
17
Savings Rates Required to Fill Income Target Gap
Given Current Social Security Law by Age at Which
Savings Commences Assuming DB Pension
Assumes age 65 retirement.
Source Dan M. McGill, Kyle N. Brown, John J.
Haley and Sylvester J. Schieber, Fundamentals of
Private Pensions, eighth ed. (Oxford Oxford
University Press, 2005), p. 432.
18
Pension Participation Rates by Workers Annual
Earnings Levels
Source March 2005 Current Population Survey
tabulations.
19
Social Security Financing Under Current Law
20
Distribution of Financial Wealth Among Near
Elderly in 1994
Wealth Retirement Purchasing Power
Holding Personal Social Pension Distribution
Assets Security Wealth Bottom 10th 3
94 3
Note Does not include housing.
Derived from James F. Moore and Olivia S.
Mitchell, Projected Retirement Wealth and
Savings Adequacy, in Mitchell, Hammond, and
Rappaport, eds., Forecasting Retirement Needs and
Retirement Wealth (University of Pennsylvania
Press, 2000).
21
Distribution of Financial Wealth Among Near
Elderly in 1994
Wealth Retirement Purchasing Power
Holding Personal Social Pension Distribution
Assets Security Wealth Bottom 10th 3
94 3 At 1/3 up 18 63
19
Note Does not include housing.
Derived from James F. Moore and Olivia S.
Mitchell, Projected Retirement Wealth and
Savings Adequacy, in Mitchell, Hammond, and
Rappaport, eds., Forecasting Retirement Needs and
Retirement Wealth (University of Pennsylvania
Press, 2000).
22
Distribution of Financial Wealth Among Near
Elderly in 1994
Wealth Retirement Purchasing Power
Holding Personal Social Pension Distribut
ion Assets Security Wealth Bottom 10th
3 94 3 At 1/3 up 18
63 19 At 2/3 up 30 36
34 Top 10th 65 10 25
Note Does not include housing.
Derived from James F. Moore and Olivia S.
Mitchell, Projected Retirement Wealth and
Savings Adequacy, in Mitchell, Hammond, and
Rappaport, eds., Forecasting Retirement Needs and
Retirement Wealth (University of Pennsylvania
Press, 2000).
23
Pension Participation Rates by Firm Size
Source March 2005 Current Population Survey
tabulations.
24
Distribution of Wealth Holding by People Ages 53
to 63 in 1994
Source Steven F. Venti and David A. Wise, The
Cause of Wealth Dispersion at Retirement Choice
or Chance, American Economic Review (May 1998),
vol. 88, no. 2, pp. 185-191.
25
Distribution of Wealth Holding by People Ages 53
to 63 in 1994 Based on Lifetime Earnings Level
Source Steven F. Venti and David A. Wise, The
Cause of Wealth Dispersion at Retirement Choice
or Chance, American Economic Review (May 1998),
vol. 88, no. 2, pp. 185-191.
26
Distribution of Non-Pension Financial Wealth Held
by People Ages 53 to 63 in 1994 Based on
Lifetime Earnings Level
Source Steven F. Venti and David A. Wise, The
Cause of Wealth Dispersion at Retirement Choice
or Chance, American Economic Review (May 1998),
vol. 88, no. 2, pp. 185-191.
27
Saving for Our Golden Years
  • How do we get younger people engaged in saving
    sooner and more?
  • How do we get more retirement savings
    opportunities for low-wage earners?
  • How do we offer greater retirement savings
    opportunities to workers with small employers?
  • How can we facilitate extended working
    opportunities to those nearing retirement ages
    who need to work or want to work?
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